UOB Kay Hian Research lowers consumer sector to market weight

KUALA LUMPUR (March 13): UOB kay Hian Malaysia Research is downgrading the consumer sector to Market Weight from Overweight as valuations of consumer stocks under its coverage appear fully valued.

It said on Tuesday these stocks had rallied 8%-20% since December 2011, with the sector trading at about one standard deviation above the historical average.

“We also do not anticipate any exciting corporate developments in the near term. (Recall in 2011, KFC Holdings (KFC) was proposed to be privatised, and Guinness Anchor (GAB) paid out a special dividend),” it said.

UOB Kay Hian Research said the present market climate remained supportive, pointing out that valuations were “not too hot” and earnings growth was moderating but not turning cold.

“The sector remains defensive as the anticipated strong consumption growth in 2012 plus good pricing power (which offsets some increases in raw material cost) ensure decent dividend yield of 2%-5%,” it said.

The research house said the consumer sector continues to be a beneficiary of fiscal stimulus, announced hefty 7%-13% pay hikes for civil servants for 2012, general election and special events (UEFA Euro Cup 2012 which will boost brewery consumption).

On its move to reduce the sector to Market Weight, it said this was to reflect fair valuations and moderate earnings growth prospects.

"Our stand also reflects our Sell call on KFCH as its price upside is limited by the takeover offer price (RM4) by Massive Equity Sdn Bhd while the completion of the privatisation exercise appears being delayed with the master franchisor, Yums! reportedly being reluctant to approve the deal.

“Among the segments, we still prefer brewery which should benefit from the imminent modest 3%-4% price hikes, low capex requirements and healthy volume growth (estimated 5% in 2012),” it said.

UOB Kay Hian Research said its preferred pick was Guinness Anchor (Hold, target: RM12.80), which continued to appeal for its steady market share gain, decent net effective yield of 4.7%, and likely distribution of a second tranche of special dividend (estimated 60 sen a share) which would most probably take place in FY13.

It raised its target price to RM12.80 from RM12.50 to account for the higher beer prices.



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Stocks to watch: IPPs, Mah Sing, Genting, UEM Land

KUALA LUMPUR (Feb 29): With the current corporate results drawing to an end on Wednesday, investors’ focus would be on the companies with the stronger set of financial results and their prospects for the year ahead as the external and domestic economies slow down.

The important decision would be to pick companies which would be able to ride through slower growth, especially PLANTATION []s and banks with overseas operations.

Among the stocks to watch on Wednesday after independent power producers (IPPs), MAH SING GROUP BHD [], GENTING BHD [] and UEM Land Bhd.

The Energy Commission has invited the first generation of independent power producers to submit their plans to extend the power purchase agreements (PPAs).

These IPPs, whose PPAs were scheduled to end in three to four years, were invited to extend the agreements on condition they would reduce the capacity payments.

Mah Sing Group Bhd posted net profit of RM41.03 million in the fourth quarter ended Dec 31, 2011, up 30.8% from RM31.35 million a year ago, boosted by the property segment.

Its revenue increased by 41% to RM422.12 million from RM299.28 million. Earnings per share were 4.93 sen compared with 3.77 sen. It announced dividend of 11 sen a share.

For FY11, its earnings rose 42.7% to RM168.55 million from RM118.07 million in FY10.

Genting Bhd reported net profit of RM772.91 million in the fourth quarter ended Dec 31, 2011, up 66% from RM465.43 million a year ago.

Its revenue increased by 23.9% to RM5.06 billion from RM4.08 billion. Its earnings per share were 20.94 sen compared with 12.57 sen while it proposed a dividend of 4.5 sen a share.

Group profit before tax was RM1.802 billion, compared with RM1.182 billion a year ago as it included a reversal of RM308.6 million in respect of previously recognised impairment loss relating to the UK casino licenses and a net fair value gain of RM64.4 million on derivative financial instruments.

UEM LAND HOLDINGS BHD [] posted a 3.84% increase in earnings to RM140.56 million for the fourth quarter ended Dec 31, 2011, from RM135.36 million, due to improved performance from the group's various development activities.

It said the board was confident of the group’s prospects in the coming financial year as the on-going projects had unbilled sales of RM1.85 billion as at Dec 31, 2011.

Shareholders of TSM GLOBAL BHD [], who own 28.07% of the paid-up share shares, have offered to acquire all the business, including assets and liabilities, for RM159.24 million or RM1.25 per share.

Property developer, Dijaya Corp Bhd's earnings rose 12.8% to RM39.02 million for the fourth quarter ended Dec 31, 2011, from RM34.59 million a year ago, due to better sales performance and recognition of progress billings from its project launches in 2011.

Revenue was up 53.2% to RM156.19 million from RM101.91 million. Earnings per share were 8.53 sen compared to 7.60 sen a year ago.

KFC Holdings Bhd (KFCH) saw its fourth quarter earnings decline 21.9% to RM38 million from RM48.67 million a year ago.

It said KFC India and KFCH International College continued to incur high initial start-up costs in the current quarter during the gestation period.

QSR BRANDS BHD [] reported net profit of RM38.69 million in the fourth quarter ended Dec 31, 2011, up 9.7% from the RM35.25 million a year ago due to better profits from Pizza Hut Malaysia.

Cafe chain operator Oldtown Bhd recorded RM11.66 million in profits for the fourth quarter ended Dec 31, 2011 as it benefited from an increase in exports of its beverage products and higher selling prices.

Steel contractor Eversendai Corporation Bhd recorded profits of RM36.42 million for the fourth quarter ended Dec 31, 2011, due to higher revenue from current on-going projects. Its revenue was RM313.29 million while earnings per share were 5.41 sen.

For the financial year ended Dec 31, 2011, revenue was RM1.03 billion, while profits were RM119.45 million.

Benalec Holdings Bhd, posted a 52.51% increase in earnings to RM28.84 million for the second quarter ended Dec 31, 2011, from RM18.91 million due to net gain on sale of land in the current quarter.

Its revenue was 40.54% lower to RM26.89 million from RM45.22 million mainly due to certain projects located in Melaka had already reached the completion stage.

RHB CAPITAL BHD [] posted an 8.09% fall in profits to RM348.39 million for the fourth quarter ended Dec 31, 2011, from RM380.15 million due to increased competition among banks.



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KFCH 4Q net profit dn 21.9% to RM38m, FY11 RM144m

KUALA LUMPUR (Feb 28): KFC Holdings Bhd (KFCH) saw its fourth quarter earnings decline 21.9% to RM38 million from RM48.67 million a year ago.

It said on Tuesday that KFC India and KFCH International College continued to incur high initial start-up costs in the current quarter during the gestation period.

As for revenue, it said there was a 12.1% increased to RM766.64 million from RM683.92 million. Earnings per share were 4.80 sen compared with 6.14 sen.

KFCH said profit before tax declined by 3.8% to RM61.0 million from RM 63.4 million a year ago when there was a revaluation surplus of RM 6.7 million.

“If measured on a comparable basis, the profit before tax in the current quarter improved by RM 4.3 million or 7.6%,” it said.

For FY11, KFCH’s earnings fell 8.2% to RM144 million from RM156.85 million in FY10 while revenue increased by 10.9% to RM2.798 billion from RM2.522 billion.

The higher revenue in the Malaysian operations were due to the network expansion of 24 new restaurants during the year bringing the total units to 539 restaurants as at end December 2011.

KFCH also attributed the increase in revenue due to the introduction of innovative new products supported by effective execution of marketing promotions to encourage new trials and repeat visits.



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Kulim rejects MCCM’s offer for QSR

KUALA LUMPUR: Kulim (M) Bhd has rejected the unsolicited offer from the Malay Chamber of Commerce Malaysia (MCCM) to buy its 58.68% stake in QSR Brands Bhd at RM6.90 a share.

Kulim announced yesterday that its board of directors had deliberated on MCCM’s offer, which would have required the approval of Kulim’s shareholders.

“Kulim took note of the stand by its holding corporation, Johor Corp (JCorp), that it would not support any proposal to dispose of the QSR shares,” read the announcement.

To recap, MCCM had offered to buy Kulim’s 58.68% stake in QSR at RM6.90 a share, rivalling an earlier RM6.80 offer by Massive Equity Sdn Bhd, a joint-venture vehicle between Kulim’s ultimate parent JCorp and private equity firm CVC Capital Partners.

Massive Equity had made a conditional offer to acquire the entire business and undertakings including all assets and liabilities of QSR and KFC Holdings (M) Bhd (KFCH) on Dec 14, which works out to RM5.3 billion excluding warrants.

MCCM’s offer was only for Kulim’s stake in QSR, although such an acquisition would have eventually triggered a general offer (GO) for QSR and KFCH.

KFCH operates more than 620 KFC outlets in Malaysia, Singapore, Brunei, Cambodia and India.

Massive Equity offered RM4 per KFCH share and RM1 per warrant. Both QSR and KFCH accepted the buyout offer made by JCorp and CVC seven days after the offer was made and stressed that their boards were not seeking alternative bids.

MCCM’s bid saw a muted response from investors even though it had offered 10 sen more per share.

“This is part of the overall JCorp’s rationalisation programme for its various divisions to focus on their core businesses. For example, via this restructuring, Kulim would exit the food retail business and focus on plantations,” said Datuk Abdul Ghani Othman, Johor Menteri Besar and chairman of JCorp, explaining the rationale behind the acquisition in a question and answer session with Bernama.

QSR was thinly traded and closed unchanged at RM6.51 yesterday. Likewise, KFCH closed unchanged at RM3.82 with 234,000 shares traded. Kulim lost two sen to RM4.39 from RM4.41 on the back of 868,600 shares done.


This article appeared in The Edge Financial Daily, January 17, 2012.



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Kulim rejects chamber’s offer to buy its 58.68% stake in QSR

KUALA LUMPUR (Jan16): KULIM (M) BHD [] has rejected the unsolicited offer from the Malay Chamber of Commerce Malaysia’s (MCCM) to buy its 58.68% stake in QSR BRANDS BHD [] at RM6.90 a share.

Kulim said on Monday its board of directors had deliberated on MCCM’s offer to acquire the shares which would have required Kulim’s shareholders’ approval.

“Kulim took note of the stand by its holding corporation, Johor Corporation, that it would not support any proposal to dispose of the QSR Shares.

“In view of the above, Kulim has by a letter dated Jan 16, 2012 informed DPMM that the offer is rejected,” it said.

To recap, MCCM had offered to buy the 58.68% stake in QSR for RM6.90 a share, rivalling an earlier RM6.80 offer by Massive Equity Sdn Bhd, a joint vehicle between Kulim’s ultimate parent Johor Corp and private equity firm CVC Capital Partners.

Massive Equity was offering to buy all of the assets and liabilities of both QSR and KFC Holdings Bhd (KFCH), which worked out to cost more than RM5.3 billion excluding warrants.

In comparison, MCCM’s offer is only for Kulim’s stake in QSR, although such acquisition will eventually trigger a general offer for QSR and hence KFCH.



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QSR, Kulim and KFCH shares edge up on Malay Chamber’s higher offer price

KUALA LUMPUR (Jan 11): Shares of QSR BRANDS BHD [], KULIM (M) BHD [] and KFC HOLDINGS (M) BHD [] edged up on Wednesday following a slightly higher offer price made by Kumpulan Syarikat Pelaburan DPMM (DPMM) to acquire a strategic stake in the fast food operator (QSR).

At 9.20am, QSR was up 5 sen to RM6.50, Kulim gained two sen to RM4.34 and KFCH one sen to RM3.81.

Kumpulan Syarikat Pelaburan DPMM raised the offer for the 58.68% or 163.15 million QSR shares owned by Kulim by 10 sen to RM6.90, or some RM1.12 billion.

The offer made by DPMM is 10 sen above the offer made by Massive Equity Sdn Bhd (MESB) to acquire QSR’s business and undertakings, including substantially all the assets and liabilities of QSR for RM6.80 per share.



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Kulim gets DPMM letter to buy QSR shares at RM6.90

KUALA LUMPUR (Jan 10): Kulim (Malaysia) Bhd has received an offer letter from Kumpulan Syarikat Pelaburan DPMM on behalf of the Malay Chamber of Commerce Malaysia (MCCM) seeking to acquire all the QSR BRANDS BHD [] shares it owns for RM6.90 per share.

Kulim said on Tuesday the offer letter from the deputy president cum chairman of Kumpulan Syarikat Pelaburan DPMM, dated Dec 30, 2011, was unsolicited.

At RM6.90, this was 10 sen above the offer made by Massive Equity Sdn Bhd (MESB) to acquire QSR’s business and undertakings, including substantially all the assets and liabilities of QSR for RM6.80 per share.

Kulim said following the latest development and offer from Kumpulan Syarikat Pelaburan DPMM, it would convene a board meeting to deliberate on the offer.

It also noted that on Dec 21, QSR’s independent directors had agreed to accept the offer from MESB to acquire QSR’s business and undertakings, including substantially all the assets and liabilities of QSR for RM6.80 per share and RM3.79 per warrant.

To recap, the boards of QSR and KFC HOLDINGS (M) BHD [] (KFCH), which accepted the joint takeover offer by Johor Corp (JCorp) and CVC Capital Partners Asia III Ltd, said on Dec 21, they were not seeking any alternative bids for the sale of their assets and liabilities.

Both companies had stated they would not invite alternative bids will put to rest speculations on possible counter bids for the fast food chain assets.

However, both companies noted that the takeover offers are subjected to “further negotiations and mutual agreement on terms and conditions to be incorporated into the definitive sale and purchase agreement”.

MESB is a special purpose vehicle created to undertake the take-over exercise to acquire all assets and liabilities in QSR and KFCH. The shareholders of MESB are Triple Platform Sdn Bhd, a wholly-owned subsidiary of JCorp, with a 51% stake and Melati Asia Holdings Ltd, a wholly-owned unit of CVC Capital Partners, with 49%.

Currently, JCorp owns a 57.05% stake in KULIM (M) BHD [], which in turn holds 58.68% of QSR. QSR is the major shareholder of KFCH with a 50.64% equity stake.

MESB is offering RM6.80 cash per share for QSR Brands, and RM3.79 for the company’s warrants. Meanwhile, the SPV offered to buy the assets in KFCH at RM4 per share and RM1 for all its outstanding warrants.

Upon completion of the takeover exercise, both QSR and KFCH will become empty shell companies, and the two companies intend to return the bulk of the sale proceeds to shareholders through capital repayment exercises.



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KFCH — Due diligence expected to be completed by February

KFC Holdings (M) Bhd (Jan 5, RM3.80)
Maintain trading buy at RM3.82 with fair value of RM4: We attended a discussion with JCorp’s management on Wednesday regarding the proposed acquisition of the assets and liabilities of KFCH and QSR.

The key points of the discussion are as follows. We understand that Massive Equity Sdn Bhd, the special purpose vehicle (SPV) involved in the exercise is now in the process of due diligence for both KFCH and QSR.


The process is expected to take a few more weeks and is slated to be completed by early February, barring any unforeseen circumstances. After the due diligence process, the sale and purchase agreement is expected to be signed followed by an offer letter to the shareholders of KFCH and QSR.

An EGM will be held 21 days after letters to shareholders have been sent out. Assuming minority shareholders accept the offer by JCorp, we expect the deal to be completed in April or May and the capital repayment to be paid before the end of 1H12.

Regarding the potential counter offer by the Malay Chamber of Commerce Malaysia (MCCM), JCorp stated that they had not received any official offer from the party. Furthermore, the decision will be up to JCorp to either accept the offer or reject it, and JCorp is not interested in any other offers.

RHB Research optimistic minority shareholders of KFCH will approve the deal as they believe the offer by JCorp is fair.

We had already highlighted this in our note dated Dec 30, 2011 when the MCCM announced its offer to the media last week. Note that Johor Mentri Besar Datuk Abdul Ghani Osman highlighted the same thing in his interview with Bernama yesterday.

No change to our forecasts Risks.
1) Bird/swine flu escalation;
2) escalation of corn and soyabean prices, which would eat into margins; and
3) deteriorating consumer spending power, resulting in lower same-store sales (SSS) growth.

Our fair value remains unchanged at RM4/share, based on JCorp’s offer for the assets and liabilities of KFCH, and we reiterate our “trading buy” call. We believe the next hurdle for the completion of the deal is the minority shareholders’ vote, which we are optimistic will go through as we believe the offer price by JCorp is fair. — RHB Research, Jan 5



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Johor MB talks of KFCH, QSR privatisation

KUALA LUMPUR, Jan 4 (Bernama) -- Following is BERNAMA's question-and-answer session with Johor Menteri Besar and Chairman of Johor Corporation (JCorp) Datuk Abdul Ghani Othman on KFC Holdings Bhd and QSR BRANDS BHD [] privatisation.

Q1: How does JCorp aims to acquire KFC Holdings Bhd (KFC) and QSR Brands Bhd (QSR)?

A: JCorp proposes to acquire 100 per cent of KFC's and QSR's business and undertakings through a special-purpose vehicle, Massive Equity (ME) Sdn Bhd. Massive Equity is majority-owned by JCorp (51 per cent) with CVC Capital Partners (CVC) owning 49 per cent. The offers were made at a price equivalent to RM4 per KFC share and RM6.80 per QSR share. When the transaction is completed, JCorp's stake in KFC will increase from 17 per cent to 51 per cent, while its interest in QSR will increase from 33 per cent to 51 per cent.

Q2: Have KFC and QSR accepted the ME (JCorp/CVC) offer?

A: Both the KFC and QSR boards have given the greenlight to the buyout offer made by JCorp and CVC, seven days after the offer was made; and their respective boards have also stressed that they are not seeking alternative bids from other parties. The next step is for the proposal to be presented to the shareholders of KFC and QSR for their approval.

Q3: What is the rationale behind the ME offer for KFC and QSR? Who is driving this transaction and what are the benefits?

A: This is part of the overall JCorp rationalisation programme for its various divisions to focus on their core businesses. For example, via this restructuring, Kulim would exit the food retail business and focus on PLANTATION []s. In fact, JCorp is reviewing all of its assets with a view to making them more efficient, while growing them in a focused manner and generating greater value.

JCorp is a state-owned entity and the Johor State Government is driving the overall rationalisation programme (including this transaction) to ensure the long-term sustainability of JCorp. We want JCorp to be a profitable SEDC, enabling it to play a significant socio-economic role in the state for the benefit of the rakyat. The transaction allows JCorp to directly access the cashflow of the two businesses compared to the current convoluted structure.

Q4: Why was CVC enlisted by JCorp to participate as its minority partner in this transaction?

A: CVC was brought in to help further improve the businesses of KFC and QSR. They were chosen carefully (among various alternatives) based on their strong track record and vast experience in managing similar businesses and investing in our region. They are friendly value-added partners who will work with us to ensure an even better KFC and QSR in the future.

Q5: Will JCorp incur any new debts from KFC and QSR acquisition?

A: This acquisition will be funded via a combination of cash (equity) and debt. However, the debt we are incurring is not at JCorp itself. Rather, it is at the acquisition company level, relying on the strength of the cash flow of the two businesses.

In addition, JCorp's current debt is being resolved. For example, JCorp's sale of palm oil plantations to Kulim (which was recently approved) is part of our plan to fulfil JCorp's 2012 debt obligations.

The RM700 million cash accruing from the estates sale is the first part of the expected RM1 billion cash to be generated for debt repayment prior to July 31, 2012 (being the due date for the bond repayment). The balance of RM300 million will come from internally-generated funds. As for the remaining JCorp debt obligations, we are finalising the repayment plan with advice from CIMB as our financial advisor. As part of the exercise, CIMB and Maybank will act as Joint Lead Managers for the issuance of new bonds in 2012.

Q6: Is this move a sell-out to outsiders and foreigners by JCorp as alleged by the Malay Chamber of Commerce?

A: This is not a sell-out to foreigners or outsiders. On the contrary, JCorp is actually privatising QSR and KFC to keep it within JCorp directly, whilst at the same time increasing JCorp's holdings in QSR and KFC from 33 per cent and 17 per cent, respectively, to a majority of 51 per cent.

This is merely an internal reshuffle to make the corporate structure of JCorp Group more efficient. The move will also present Kulim Berhad, which is currently the controlling shareholder of QSR, an opportunity to dispose its stake in the food retail business and focus on its core plantation business.

Q7: Does JCorp plans to retain KFC and QSR within the group or farm them out to other bidders?

A: JCorp Group has always maintained that it intends to keep the two businesses within the group believing in their long-term value. JCorp does not intend to sell this assets or flip them to a third party or strip their assets for cash. The entire transaction is premised on keeping the asset within the group. So it is baseless to claim otherwise. Had the intention been different, the businesses would have been sold much earlier.

Q8: Are QSR and KFC considering other offers?

A: In addition to JCorp's clear message that it won't sell, the intention not to entertain any other bids has also been made clear by both the KFC and QSR boards.

Q9: Will this move in any way harm Bumiputeras and/or the people's interests?

A: I wish to state clearly that KFC is a franchisee, so it is not a Bumiputera-only outlet, nor is it stated anywhere that it should only be owned by Bumiputeras. It is open to everyone. On the other hand, JCorp as a state government agency will continue to safeguard the interests of the rakyat, including in developing the Bumiputera community through various means. It has achieved many successes in this field and will continue to do so, not least by being more focused and profitable in its core businesses.

Q10: Is there any other "cheaper" way to execute the proposed acquisitions as claimed by some quarters?

A: There is no cheaper way for a third party to acquire QSR and KFC. Of course, acquiring Kulim's shares (as proposed by the Malay Chamber) may appear to be a way to gain control of QSR and thereby KFC. But for that to happen, Kulim and JCorp will first have to agree to sell to a third party. They are not interested to do so.

Nonetheless, even if that route was pursued by say the Malay Chamber, there is no cheaper way. It will still cost the Malay Chamber and its partners the whole amount, as acquiring Kulim's stake in QSR will trigger a mandatory general offer for the remaining shares held in QSR. It will also trigger a general offer on KFC shares as well. Essentially, the end effect is that you will have to acquire 100 per cent of both entities. So, certainly the RM1 billion or so proposed will not be sufficient. - Bernama



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JCorp intends to keep KFC and QSR

Following is Bernama's question-and-answer session with Johor Menteri Besar and Chairman of Johor Corporation (JCorp) Datuk Abdul Ghani Othman on KFC Holdings Bhd and QSR Brands Bhd privatisation.

Q1: How does JCorp aims to acquire KFC Holdings Bhd (KFC) and QSR Brands Bhd (QSR)?

A: JCorp proposes to acquire 100 per cent of KFC's and QSR's business and undertakings through a special-purpose vehicle, Massive Equity (ME) Sdn Bhd. Massive Equity is majority-owned by JCorp (51 per cent) with CVC Capital Partners (CVC) owning 49 per cent. The offers were made at a price equivalent to
RM4 per KFC share and RM6.80 per QSR share. When the transaction is completed, JCorp's stake in KFC will increase from 17 per cent to 51 per cent, while its interest in QSR will increase from 33 per cent to 51 per cent.

Q2: Have KFC and QSR accepted the ME (JCorp/CVC) offer?


A: Both the KFC and QSR boards have given the greenlight to the buyout offer made by JCorp and CVC, seven days after the offer was made; and their respective boards have also stressed that they are not seeking alternative bids from other parties. The next step is for the proposal to be presented to the shareholders of KFC and QSR for their approval.

Q3: What is the rationale behind the ME offer for KFC and QSR? Who is driving this transaction and what are the benefits?

A: This is part of the overall JCorp rationalisation programme for its various divisions to focus on their core businesses. For example, via this restructuring, Kulim would exit the food retail business and focus on plantations. In fact, JCorp is reviewing all of its assets with a view to making them more efficient, while growing them in a focused manner and generating greater value.

JCorp is a state-owned entity and the Johor State Government is driving the overall rationalisation programme (including this transaction) to ensure the long-term sustainability of JCorp. We want JCorp to be a profitable SEDC, enabling it to play a significant socio-economic role in the state for the benefit of the rakyat. The transaction allows JCorp to directly access the
cashflow of the two businesses compared to the current convoluted structure.

Q4: Why was CVC enlisted by JCorp to participate as its minority
partner in this transaction?

A: CVC was brought in to help further improve the businesses of KFC and QSR. They were chosen carefully (among various alternatives) based on their strong track record and vast experience in managing similar businesses and investing in our region. They are friendly value-added partners who will work
with us to ensure an even better KFC and QSR in the future.

Q5: Will JCorp incur any new debts from KFC and QSR acquisition?

A: This acquisition will be funded via a combination of cash (equity) and debt. However, the debt we are incurring is not at JCorp itself. Rather, it is at the acquisition company level, relying on the strength of the cash flow of the two businesses.

In addition, JCorp's current debt is being resolved. For example, JCorp's sale of palm oil plantations to Kulim (which was recently approved) is part of our plan to fulfil JCorp's 2012 debt obligations.

The RM700 million cash accruing from the estates sale is the first part of the expected RM1 billion cash to be generated for debt repayment prior to July 31, 2012 (being the due date for the bond repayment). The balance of RM300 million will come from internally-generated funds. As for the remaining JCorp
debt obligations, we are finalising the repayment plan with advice from CIMB as our financial advisor. As part of the exercise, CIMB and Maybank will act as Joint Lead Managers for the issuance of new bonds in 2012.

Q6: Is this move a sell-out to outsiders and foreigners by JCorp as alleged by the Malay Chamber of Commerce?

A: This is not a sell-out to foreigners or outsiders. On the contrary, JCorp is actually privatising QSR and KFC to keep it within JCorp directly, whilst at the same time increasing JCorp's holdings in QSR and KFC from 33 per cent and 17
per cent, respectively, to a majority of 51 per cent.

This is merely an internal reshuffle to make the corporate structure of JCorp Group more efficient. The move will also present Kulim Berhad, which is currently the controlling shareholder of QSR, an opportunity to dispose its
stake in the food retail business and focus on its core plantation business.

Q7: Does JCorp plans to retain KFC and QSR within the group or farm them out to other bidders?

A: JCorp Group has always maintained that it intends to keep the two businesses within the group believing in their long-term value. JCorp does not intend to sell this assets or flip them to a third party or strip their assets for cash. The entire transaction is premised on keeping the asset within the
group. So it is baseless to claim otherwise. Had the intention been different, the businesses would have been sold much earlier.

Q8: Are QSR and KFC considering other offers?

A: In addition to JCorp's clear message that it won't sell, the intention not to entertain any other bids has also been made clear by both the KFC and QSR boards.

Q9: Will this move in any way harm Bumiputeras and/or the people's interests?

A: I wish to state clearly that KFC is a franchisee, so it is not a Bumiputera-only outlet, nor is it stated anywhere that it should only be owned by Bumiputeras. It is open to everyone. On the other hand, JCorp as a state government agency will continue to safeguard the interests of the rakyat, including in developing the Bumiputera community through various means. It has achieved many successes in this field and will continue to do so, not least by being more focused and profitable in its core businesses.

Q10: Is there any other "cheaper" way to execute the proposed acquisitions as claimed by some quarters?

A: There is no cheaper way for a third party to acquire QSR and KFC. Of course, acquiring Kulim's shares (as proposed by the Malay Chamber) may appear to be a way to gain control of QSR and thereby KFC. But for that to happen, Kulim and JCorp will first have to agree to sell to a third party. They are not interested to do so.

Nonetheless, even if that route was pursued by say the Malay Chamber, there is no cheaper way. It will still cost the Malay Chamber and its partners the whole amount, as acquiring Kulim's stake in QSR will trigger a mandatory general offer for the remaining shares held in QSR. It will also trigger a general offer on KFC shares as well. Essentially, the end effect is that you will have to acquire 100 per cent of both entities. So, certainly the RM1 billion or so proposed will not be sufficient. -- Bernama



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KFCH — potential counter offer by MCCM

KFC Holdings (M) Bhd (Dec 30, RM3.84)
Maintain trading buy at RM3.77 with fair value of RM4: The Malay Chamber of Commerce Malaysia (MCCM) said last Thursday that it would make a counter offer for Kulim’s 54% stake in QSR Brands Bhd to ensure the profitable fast food business remains in the hands of bumiputra. It plans to offer to buy QSR shares at RM6.90 per share which is 10 sen higher than Massive Equity Sdn Bhd’s (MESB) offer of RM6.80 per share.

We understand that the chamber would seek funding from various bumiputra-linked funds such as Lembaga Tabung Haji, Felda Holdings Bhd, Amanah Saham Mara, and Permodalan Nasional Bhd. Note that the chamber has yet to officially approach these organisations and would do it sooner or later. In addition, we expect MCCM to approach the various funds which are shareholders of QSR. Unlike KFCH, which has a substantial minority shareholder i.e. Tabung Haji at 22%, QSR’s shareholding structure is very fragmented, with EPF owning about 5% of the company and a myriad of other funds each holding 1%-2%.

MCCM’s offer of RM6.90/share would not have any impact on KFCH shares as it is purchasing QSR’s shares from Kulim. Recall that MESB’s offer is to purchase the assets and liabilities of both KFCH and QSR at RM4/share and RM6.80/share respectively. After the disposal to MESB, both KFCH and QSR would be shell companies with cash, which would be distributed to the respective shareholders.

On the flipside, MCCM’s offer for QSR shares which are owned by Kulim would result in a change of major shareholder. We believe MCCM could do a general offer for the remainder of QSR shares that it does not own, post-acquisition, although we believe this is unlikely as MCCM stated in the media that its planned offer would only cost them RM1 billion, which is the value of Kulim’s 54% stake in QSR at RM6.90/share.
No change to our forecasts.

Risks. 1) Bird/swine flu escalation; 2) Escalation of corn and soyabean prices, which would eat into margins; and 3) Deteriorating consumer spending power, resulting in lower same-store sales (SSS) growth.

We believe the MCCM’s offer is not likely to go through as both KFCH and QSR boards had already stated that they will not consider any other offers.
Furthermore, MCCM’s offer to purchase the stake in QSR would require the approval of Kulim’s shareholders, of which JCorp is the majority. We reiterate our “trading buy” call on the stock with an unchanged fair value of RM4/share, which represents MESB’s offer for the assets and liabilities of KFCH. — RHB Research, Dec 30



This article appeared in The Edge Financial Daily, January 3, 2012.



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KFC stake buy: Chamber ready to outbid CVC

The Malay Chamber of Commerce Malaysia said it is prepared to outbid CVC Capital Partners Ltd in offering to buy Lembaga Tabung Haji’s 23 per cent stake in fast-food operator KFC Holdings (Malaysia) Bhd.

The chamber has already said it wants to buy a controlling stake in the KFC franchise’s parent QSR Brands Bhd, rivaling an earlier US$1.6 billion buyout bid for the company and its KFC unit by CVC and Johor Corp. It will write to Tabung Haji today offering two options: either be a partner in bidding for QSR, or sell the KFC stake to the business association at RM4.10 a share, Chamber President Syed Ali Alattas said.

“If they have to sell, we will buy,” Syed Ali said in a telephone interview from Johor today. “We would like them to join us. Hopefully, they won’t sell.”

The chamber says it has more than 1 million members, representing the Southeast Asian nation’s “Bumiputeras” or “sons of the soil”, who comprise ethnic Malays and indigenous people. The association wants to prevent control of these companies leaving the community by asking Tabung Haji and similar funds to be its partners.

At stake is control over QSR’s almost 900 fast-food outlets in Southeast Asia and India for brands including KFC and Pizza Hut, according to their websites.

London-based CVC last month teamed up with Johor Corp, an arm of Malaysia’s Johor state government, to bid for all the assets and liabilities of both QSR and KFC Malaysia. That would cost them more than RM5.24 billion (US$1.6 billion) excluding warrants, according to Bloomberg News calculations.

The Malay business chamber is seeking a cheaper option. Instead of buyouts, it’s seeking control by acquiring strategic stakes.

Syed Ali last week said the association will offer Kulim (Malaysia) Bhd. RM6.90 per share for its 54 per cent stake in QSR, topping CVC and Johor’s RM6.80 general offer.

It’s similarly prepared to pay Tabung Haji 10 sen per share more than CVC and Johor for the Muslim pilgrims fund’s 23 per cent stake in KFC Malaysia. That would give the chamber control of about three quarters of KFC’s shares should both deals go through, given that QSR holds a 51 per cent stake, according to data compiled by Bloomberg.

The chamber is writing to Bumiputera funds including Federal Land Development Authority and Amanah Saham Mara Bhd to also back its QSR bid, Syed Ali said.

Kuala Lumpur-based QSR operates about 260 Pizza Hut restaurants in Malaysia and Singapore, while KFC Malaysia operates more than 620 fried-chicken outlets in Malaysia, Singapore, Brunei, Cambodia and India, according to their respective websites.

They’re both franchise holders, while Yum! Brands Inc, based in Louisville, Kentucky, owns the KFC and Pizza Hut brands.

“We want to use QSR and KFC in the development of entrepreneurs,” Syed Ali said. “We can add another 1,000 outlets, double the number of franchises. We would distribute 70 per cent of these to Bumiputeras.” -- Bloomberg



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QSR, KFCH not seeking other bids

KUALA LUMPUR: The boards of QSR Brands Bhd and KFC Holdings (M) Bhd (KFCH), which have accepted the joint takeover offer by Johor Corp (JCorp) and CVC Capital Partners Asia III Ltd, are not seeking any alternative bids for the sale of their assets and liabilities.

The statements by both companies to not invite alternative bids will put to rest speculations on possible counter bids for the fast food chain assets.

The latest announcements also clear doubts that the joint offers to take control of the country’s largest fried chicken chain would be able to meet the tight deadline of just seven days after the offer was made.

In separate announcements to Bursa Malaysia yesterday, both QSR and KFCH said their independent directors had agreed to accept the takeover offer made by Massive Equity Sdn Bhd (MESB).

However, both companies noted that the takeover offers are subjected to “further negotiations and mutual agreement on terms and conditions to be incorporated into the definitive sale and purchase agreement”.

MESB is a special purpose vehicle created to undertake the take-over exercise to acquire all assets and liabilities in QSR and KFCH. The shareholders of MESB are Triple Platform Sdn Bhd, a wholly-owned subsidiary of JCorp, with a 51% stake and Melati Asia Holdings Ltd, a wholly-owned unit of CVC Capital Partners, with 49%.

Currently, JCorp owns a 57.05% stake in Kulim (M) Bhd, which in turn holds 58.68% of QSR. QSR is the major shareholder of KFCH with a 50.64% equity stake.

MESB is offering RM6.80 cash per share for QSR Brands, and RM3.79 for the company’s warrants. Meanwhile, the SPV offered to buy the assets in KFCH at RM4 per share and RM1 for all its outstanding warrants.

Upon completion of the takeover exercise, both QSR and KFCH will become empty shell companies, and the two companies intend to return the bulk of the sale proceeds to shareholders through capital repayment exercises.

“The board intends to return the cash to all the shareholders and warrant holders of KFCH via a capital repayment exercise,” said KFCH.

However, some quarters said it remained to be seen how much of the cash proceeds would be returned to shareholders.

Both companies have appointed OSK Investment Bank Bhd as the main adviser for the proposed disposal and proposed capital repayment.

They have also appointed Affin Investment Bank Bhd as the independent adviser to advise the non-interested directors and non-interested shareholders and warrant holders of QSR and KFCH on the fairness and reasonableness of the proposals.

Both QSR and KFCH’s share price jumped after the announcements on the joint takeover. QSR closed at RM6.40, while KFCH finished at RM3.74 yesterday.


This article appeared in The Edge Financial Daily, December 22, 2011.




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KFC climbs after accepting buyout offer

KFC Holdings (Malaysia) Bhd climbed 1.3 per cent to RM3.79, set for its highest close since Dec 15. The fast-food restaurant operator’s independent directors backed a buyout offer from CVC Capital Partners Ltd and Johor Corp, according to an exchange filing.

KFC’s fair value was raised to RM4 ringgit from RM3.97 at OSK Holdings Bhd, its brokerage said in a report. -- Bloomberg



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KFC, QSR accept MESB's takeover offer

The board of directors for KFC Holdings (Malaysia) Bhd and QSR Brands Bhd have agreed to accept the offer made by Massive Equity Sdn Bhd (MESB) to acquire the entire business and undertakings of KFC and QSR companies including all assets and liabilities.

In a filing to Bursa Malaysia today, the company said the aggregate cash consideration for the acquisition was equivalent to RM6.80 per ordinary share of RM1.00 each and RM3.79 per warrant held in QSR.

Meanwhile, MESB would acquire KFC at RM4.00 per ordinary share of RM0.50 each and RM1.00 per warrant.

"These would be multiplied by the total outstanding QSR and KFC shares and warrants in issue at a date to be determined later.
"The board also does not intend to seek any alternative bids," it added.

MESB is a special purpose vehicle jointly owned by Johor Corporation (JCorp) with CVC Capital Partners. Following this related party transaction, JCorp which already has a 17 per cent interest in KFC and 33 per cent in QSR had, will raise its economic interest in KFC to 51 per cent, while in QSR it will also increase it to 51 per cent.

Jcorp said the KFC and QSR businesses would be merged into an enlarged regional food retailing business. -- Bernama



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OSK: KFC, QSR disposal to Felda possible

OSK Research says there is a possibility that Johor Corporation (JCorp) might agree to disposing off KFC and QSR if a right price offer is made by Felda.

Quoting a news report yesterday, the research agency said that Felda is said to be among the parties considering making a bid for KFC and QSR should JCorp make its stakes available for sale.

Felda is yet to table its offer and is reported to be planning to discuss its proposal with JCorp.

Felda's interest does not come as a surprise given that many parties have in the past showed interest in acquiring KFC and QSR, OSK Research said in its investment research note today.

Nevertheless, it said that JCorp, which has proposed to acquire both KFC and QSR via Massive Equity Sdn Bhd (MESB), is likely to want to keep its cash cows, especially KFC with good near term earnings prospects given its forays into India.

MESB is a 51 per cent and 49 per cent joint-venture owned by JCorp and private equity fund CVC Capital Partners Asia Pacific.

OSK Research has maintained a neutral call on KFC with an unchanged fair value share price of RM3.97.-- Bernama



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Deadline poser for QSR, KFCH deal

KUALA LUMPUR: Analysts are doubtful the tight deadline for the joint takeover offer of QSR Brands Bhd and KFC Holdings (M) Bhd (KFCH) by Johor Corp (JCorp) and private equity firm CVC Capital Partners Asia III Ltd’s Massive Equity Sdn Bhd will be met.

“If they cannot get the board to accept the offer and fulfil all of its conditions in one week [deadline is Dec 21], they stand to lose the deal,” said an analyst with a bank-backed research house.

“Also, the interested parties from the previous two bids may decide to rejoin the bid with possibly higher bids,” he added.

Tan Sri Halim Saad and The Carlyle Group bid for QSR late last year, offering RM5.60 and and then upping the bid to RM6.70 per share. Both offers were rejected by both Kulim (M) Bhd and QSR’s management.

“It is hard to say [for certain] if they will rejoin the biding as the current offer is at 20 times FY12 price-earnings ratio (PER),” he said, adding, “It is no longer cheap.”

Still, it should be noted that just 10 sen separates Carlyle’s previous offer of RM6.70 and JCorp’s latest offer of RM6.80 per share for QSR.

The acquirers need to secure the approval of at least 75% of minority shareholders in order for the deal to materialise.

In a research note, Foong Wai Mun, food and beverage analyst at CIMB IB Research, believes the deal is likely to get the nod from KFC’s franchisor, Yum! Brands, Inc given that JCorp will still be driving the operations.

Foong along with other industry analysts agree the offer of RM6.80 and RM4 per share for QSR and KFCH respectively was a fair and attractive offer.

“Especially in the current volatile market conditions, investors may view the 13.3% premium as attractive. However, some investors may lament the lack of investment opportunities in strong consumer franchisers like QSR after this sale,” he added.

In terms of PER valuations, this offer is higher than Kulim’s first offer to privatise Sindora Bhd (about 15 times FY11 PER) but lower than what Asahi paid for Permanis (about 24 times FY12 PER), noted Kang Chun Ee of Maybank IB Research in his report.

“Valuations as such are about in line with consumer peers and this is a decent offer in our view,” he added.

“As this is an offer for KFCH’s business, an uncertainty this stage is how KFCH would deal with the funds once the exercise is completed, though the logical step would be to distribute the entire proceeds back to the shareholders,” Kang said.

Foong, however, said if JCorp and CVC Capital are serious about buying the assets and liabilities, there may be a sweetener in the form of a special dividends to entice the minority shareholders to vote for the deal in the upcoming EGM.
If the deal materialises, analysts said that both QSR and KFCH will have cash totalling RM3.2 billion and RM2.1 billion respectively as they will be left as shell companies.

Thereafter, analysts believe both companies may be classified as PN17 companies and will be required to acquire other businesses within one year to regularise their listing status.
The bulk of the sale proceeds are expected to be distributed back to shareholders in the form of capital repayment and special dividend.

JCorp has large debts, including RM3.6 billion due in July 2012, which an analyst says can be serviced more easily if KFCH’s dividends and cash flows accrue directly to JCorp rather than through different layers of holding companies.

JCorp’s effective interest in QSR, once the exercise is completed, will increase to 51% from 30% while its stake in KFCH will rise to 51% from 15%. At present, JCorp owns a 57.05% stake in Kulim, which in turn holds 58.78% of QSR. QSR is the major stakeholder of KFCH with a 50.64% stake.

On the contrary, in a report by Alvin Tai of OSK Research on Kulim, he noted that this seemed like an unusual move on the part of debt-saddled JCorp to take over QSR and KFCH.

However, this exercise will be carried out together with CVC, a sizeable private equity firm, he added. “We believe JCorp may have struck a back-to-back agreement with CVC or another party to flip QSR/KFCH at a higher price,” he said.

Viewed together with JCorp’s sale of 13,687ha of oil palm estates to Kulim, this is essentially an asset swap between Kulim and JCorp, which will transform Kulim into an even purer plantation play, he explained.

At the closing bell yesterday, the JCorp stable of companies — QSR, KFCH and Kulim— were among top five gainers on Bursa Malaysia bucking the downward trend on the local bourse.

QSR closed up 44 sen to RM 6.44, KFCH increased 39 sen to RM3.80 and Kulim rose 28 sen to RM 3.97.


This article appeared in The Edge Financial Daily, December 16, 2011.



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JCorp to privatise QSR and KFCH

KUALA LUMPUR: Johor Corp (JCorp) and private equity firm CVC Capital Partners Asia III Ltd have made a joint takeover offer for QSR Brands Bhd at RM6.80 per share and its subsidiary KFC Holdings (M) Bhd (KFCH) at RM4.

A special purpose vehicle called Massive Equity Sdn Bhd (MESB) will undertake the takeover to buy the assets and liabilities from the two subsidiaries of JCorp.

The assets and liabilities route will require the acquirers to secure the consent of at least 75% of the minority shareholders in order for the deals to materialise.

Currently, JCorp owns a 57.05% stake in Kulim (M) Bhd, which in turn holds 58.68% of QSR.

QSR is the major shareholder of KFCH with a 50.64% stake.

Upon completion of the takeover exercise, both QSR and KFCH will become empty shell companies, and the bulk of the sale proceeds will be distributed back to shareholders in the form of capital repayment and special dividend.

The offer price of RM4 for KFC Holdings(M) Bhd values the fast food chain at
RM3.17 billion

JCorp holds 51% equity interest in MESB, while CVC Capital owns the remaining 49%.

MESB is also offering RM3.79 for each outstanding warrant in QSR and RM1 for every KFCH warrant.

“The acquisitions will allow JCorp to flatten its vertical corporate structure and reduce its multiple listings, resulting in better governance and greater operational efficiency which will drive both growth and long-term value.” said the Johor state-owned investment arm.

“This will in turn facilitate fund raising and leveraging on operating assets as part of JCorp’s overall rationalisation programme, which will also address the debt issue at JCorp,” it said.

At RM6.80 per QSR share, the company is valued at some RM2.06 billion. The offer price is an 80 sen or 13% premium over the last transacted price of RM6 prior to the announcement.

The offer price of RM4 a share for KFCH values the fast food chain at RM3.17 billion. The price is 59 sen or 17% higher than the counter’s last closing price of RM3.41 on Tuesday.

According to JCorp, the offer prices for QSR and KFCH are deemed attractive. This is because the acquirers are paying a premium of 18% and 20% to QSR and KFCH’s three-month weighted average share prices of RM5.68 and RM3.38 respectively.

The success of the takeover offers hinges on MESB signing definitive agreements with QSR and KFCH. Both offers will expire at 5pm on Dec 21. CIMB Investment Bank is advising MESB on the deals.

JCorp, in a statement yesterday, said its takeover offers for both companies indicated its confidence in the long-term value of the businesses.

QSR via KFCH owns and operates some 620 KFC restaurants in Malaysia, Singapore, Brunei, Cambodia and India, according to QSR’s website.

KFCH also manages some 29 RasaMas restaurants in Malaysia and Brunei besides 55 Kedai Ayamas in Malaysia.

In terms of financials, QSR’s net profit fell marginally to RM74.41 million for 9MFY11 ended Sept 30, from RM74.92 million a year earlier, despite revenue rising 10% to RM2.43 billion from RM2.2 billion.

KFCH’s net profit dipped 2% to RM106 million from RM108.17 million while revenue gained 10% to RM2.03 billion from RM1.84 billion.

As at Dec 31, 2010, JCorp’s debts came to RM3.35 billion, its latest annual report shows.

This compares with RM3.8 billion a year earlier.

JCorp has taken the initiative to repay and re-finance the debt obligations which mature in 2012. Under its Corporate Restructuring Master Plan, which was unveiled in 2002, the state investment arm had restructured its debt and raised funds from the divestment of non-strategic assets for loan repayment by July 31, 2012.

A JCorp official who requested anonymity told the briefing yesterday that MESB would fund the acquisitions via equity financing from its owners JCorp and CVC apart from resorting to bank loans to finance the acquisitions of QSR and KFCH.

CVC Capital is not new to the local corporate scene. The private equity firm had partnered Multi-Purpose Holdings Bhd to privatise Magnum Corp Bhd three years ago. It has also bought over Genting Bhd’s paper and packaging business for RM745 million.

In fact, this is the second attempt CVC made to take over the fast food chain, which is perceived to be a good cash generating asset.

To recap, in November last year, Tan Sri Halim Saad, the former executive chairman of Renong Bhd, and Datuk Che Mokhtar Che Ali via their private investment vehicle Idaman Saga Sdn Bhd offered to acquire the entire business and undertakings of QSR at RM5.60 a share.

The offer price was later revised upwards to RM6.70 after Idaman Saga said it planned to undertake the exercise in collaboration with KUB Malaysia Bhd and CVC.

QSR subsequently rejected the proposed takeover offer. QSR also declined offers from other private equity entities including Carlyle Group.


This article appeared in The Edge Financial Daily, December 15, 2011.



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KLCI pares down loss at mid-day, but gloomy mood prevails

KUALA LUMPUR (Dec 15): The FBM KLCI pared down some of its losses at the mid-day break on Thursday, but the gloomy sentiment across the region remained on fears of a deepening eurozone debt crisis.

The FBM KLCI shed 4.15 points to 1,458.97 at 12.30pm, weighed by select blue chips. The index had earlier fallen to its intra-morning low of 1,448.54.

Losers led gainers by 368 to 211, while 283 counters traded unchanged. Volume was 733.86 million shares valued at RM510.67 million.

The ringgit weakened 0.39% to 3.1973 versus the US dollar; crude palm oil futures for the third month delivery fell RM50 per tonne to RM3,003, crude oil rose 76 cents per barrel to US$95.71 while gold added US$3 an ounce to US$1,577.05.

Asian shares fell into bear market territory for the year and commodities and the euro nursed stinging losses on Thursday, after fears that Europe's debt crisis is still worsening prompted investors to dump riskier assets and huddle in the safety of the dollar and Treasuries, according to Reuters.

The gloomy mood was not improved by a private sector survey indicating China's factory output shrinking again in December, adding to the headwinds facing a global economy struggling with sluggish US growth and the euro zone sliding back into recession, it said.

At the regional markets, Hong Kong’s Hang Seng Index lost 1.85% to 18,014.70, Japan’s Nikkei 225 fell 1.1% to 8,425.58, Taiwan’s Taiex Index was down 1.86% to 6,793.97, South Korea’s Kospi fell 1.99% to 1,820.74, South Korea’s Kospi lost 1.31% to 2,637.26 and the Shanghai Composite Index shed 1.11% to 2,203.84.

Among the losers this morning, Dutch Lady fell 98 sen to RM24.90, KLK was down 40 sen to RM22.20, HLFG and Nestle lost 28 sen each to RM11.38 and RM56.20, Hong Leong Bank 18 sen to RM10.50, Petronas Dagangan 16 sen to RM17.02, Orient 13 sen to RM5.11, BAT 12 sen to RM48.86 while Aeon and PPB fell 10 sen each to RM7.30 and RM16.30.

The gainers included QSR that added 43 sen to RM6.43, KFCH was up 41 sen to RM3.82, KrisAssets up 30 sen to RM5.60, Kulim 27 sen to RM3.96, Jaya Tiasa 25 sen to RM6.98, while Carlsberg and LPI Capital rose 14 sen each to RM8.97 and RM13.18.

The actives included Kulim and KFCH’s warrants, Flonic, Compugates, Boon Koon and Envair.



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KLCI extends losses for third day running

KUALA LUMPUR (Dec 15): The FBM KLCI extended its for the third day running on Thursday as a slew of less than encouraging news flow kept regional markets in the red at mid-morning.

The Federal Reserve's decision to do nothing new to support growth despite warning that Europe's debt crisis could hurt the US economy dragged stocks on Wall Street and Europe yesterday, according to Reuters.

Investor sentiment in Asia was also affected after a Bank of Japan survey showed on Thursday that big Japanese manufacturers turned pessimistic about business conditions in the fourth quarter, with confidence hurt by Europe's debt crisis, a strong yen and slowing global growth.

The FBM KLCI fell 8.79 points to 1,454.33 at mid-morning, weighed by losses at select blue chips.

Losers led gainers by 229 to 117, while 223 counters traded unchanged. Volume was 272.03 million shares valued at RM182.78 million.

At the regional markets, Hong Kong’s Hang Seng Index fell 1.28% to 18,120.02, Japan’s Nikkei 225 lost 1.18% to 8,418.36, Taiwan’s Taiex was down 1.85% to 6,794.56, South Korea’s Kospi lost 1.52% to 1,829.47, Singapore’s Straits Times Index lost 1.15% to 2,641.76 and the Shanghai Composite Index shed 0.61% to 2,215.01.

Maybank Investment Bank Bhd head of retail research and chief chartist Lee Cheng Hooi said the FBM KLCI’s resistance areas of 1,463 and 1,490 would cap market gains, whilst the weaker support areas may be located at 1,445 and 1,459.

“Due to the US markets’ poorer tone last night, we will have yet another day of further profit taking and liquidation on the local index today,” he said in a note to clients on Thursday.

On Bursa Malaysia, BAT was the top loser at mid-morning and fell 64 sen to RM48.34; KLK lost 30 sen to RM22.30, Dutch Lady down 26 sen to RM25.62, HLFG 24 sen to RM11.42, Hong Leong Bank 22 sen to RM10.46, Petronas Dagangan 16 sen to RM17.02, SOP and PPB 12 sen each to RM5.47 and RM16.28, while Orient and Aeon lost 11 sen each to RM5.13 and RM7.29.

QSR and KFCH actively traded and were among the top gainers on Johor Corporation’s plans to privatise the two companies. QSR rose 45 sen to RM6.45 while KFCH added 37 sen to RM3.78.

Other gainers included Kulim, Amway and Keck Seng, while the actives included Compugates, Sanichi and Envair.



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