Stocks to watch: Silver Bird, MAS, Proton, Ekovest

KUALA LUMPUR (March 1): Blue chips could extend their gains on Thursday, as regional market sentiment would receive the boost after the European Central Bank provided 530 billion euros (US$711 billion) of cheap funding for banks.

The ECB's Long Term Refinancing Operation (LTRO) has been a major factor behind the rally in European equities since the turn of the year.

A total of 800 banks borrowed money at the tender, the second round of three-year funds, with demand exceeding the 500 billion euros expected by traders polled by Reuters.

At Bursa Malaysia, the FBM KLCI was up 12.92 points or 0.83% to close at 1,569.65, its highest since July 2011.

However, the losses from MALAYSIAN AIRLINE SYSTEM BHD [] (MAS) and PROTON HOLDINGS BHD [], which were expected by the market, could have some impact.

SILVER BIRD GROUP BHD [], which resumes trading on Thursday, cautioned investors in the trading of its securities after the auditors have expressed a disclaimer opinion on the company’s latest audited accounts for the financial year ended Oct 31, 2011.

Silver Bird Group suspended its group managing director, Datuk Tan Han Kook and two other key executives effective Feb 24 as it undertakes an internal inquiry into allegations of irregularities in the company’s accounts.

Meanwhile, MAS posted net losses totaling RM1.277 billion in the fourth quarter ended Dec 31, 2011 versus net profit of RM225.92 million a year ago as it severely affected by high fuel costs and non-fuel expenses.

Proton posted heavier net losses of RM88.20 million in the third quarter ended Dec 31, 2011 compared with the net loss of RM60.10 million a year ago due to a decline in year-end sales.

Other stocks to watch are SIME DARBY BHD [], KENCANA PETROLEUM BHD [], MAH SING GROUP BHD [], and EKOVEST BHD [].

Sime Darby reported net profit of RM1.10 billion in the second quarter ended Dec 31, 2011. For the first half, it reported a 42% increase in net profit to RM2.175 billion from RM1.531 billion in the previous corresponding period.

Kencana Petroleum Bhd has secured a RM74 million contract from ExxonMobil Exploration and Production Malaysia (EMEPMI) to fabricate the substructure for a platform off Terengganu.

Mah Sing Group Bhd expanded its land bank with the latest acquisition of 157 acres (63.4 ha) in Bandar Kundang, Gombak for RM40.94 million about RM6 per sq ft. It proposed to build a self-contained, secured lifestyle township named M Residence 2@Rawang with a gross development value of about RM650 million.

Ekovest's earnings soared 615.82% to RM11.31 million for its second quarter ended Dec 31, 2011, from RM1.58 million a year ago, due to increased revenue from its CONSTRUCTION [] arm.

Malaysia Steel Works (KL) Bhd posted net losses of RM13.33 million in the fourth quarter ended Dec 31, 2011 compared with net profit of RM8.99 million a year ago. For the financial year ended Dec 31, 2011, it was still profitable, with net profit of RM24.53 million, or down 12.6% to RM24.53 million from RM28.09 million in FY10.

Poultry-based TEO SENG CAPITAL BHD [] posted a 12.95% increase in its profits to RM7.15 million for the third quarter ended Dec 31, 2011, from RM6.33 million a year ago, underpinned by larger sales of eggs and better prices.



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Masteel posts 4Q net loss of RM13.33m

KUALA LUMPUR (Feb 29): Malaysia Steel Works (KL) Bhd posted net losses of RM13.33 million in the fourth quarter ended Dec 31, 2011 compared with net profit of RM8.99 million a year ago.

It said on Wednesday its revenue increased 15.3% to RM336.65 million from RM291.97 million. Loss per share was 6.33 sen compared with earnings per share of 4.35 sen.

For the financial year ended Dec 31, 2011, it was still profitable, with net profit of RM24.53 million, or down 12.6% to RM24.53 million from RM28.09 million in FY10.

Revenue was higher by 24.7% at RM1.253 billion compared with RM1 billion in FY10.



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Masteel fares well in 3Q11

Malaysia Steel Works (KL) Bhd’s (Masteel: RM1.09) earnings in 3QFY11 ending December held up well despite challenging operating conditions for the steel sector, where larger peers such as Southern Steel Bhd, Ann Joo Resources Bhd and Kinsteel Bhd all reported weaker earnings quarter-on-quarter (q-o-q). We attribute this, in part, to Masteel’s relatively lean inventory holding policy that allows it to better match costs against selling prices.

Masteel’s turnover was 5.4% higher at RM300.3 million from the previous corresponding period due to higher average selling prices of steel products but was down 11.1% q-o-q as the result of lower volume sales. Operating margin improved from that of 3QFY10 and the immediate preceding quarter. Net profit rose to RM16.2 million in 3QFY11, up slightly from RM15.5 million in 2QFY11 and well above the RM4.8 million recorded in 3QFY10.

Fairly upbeat outlook going into 2012
We remain fairly upbeat on Masteel’s prospects, taking into account expectations for improving steel demand from the domestic construction and infrastructure sectors over the next few years.

Rollout of projects under the various government initiatives, including the Economic Transformation Programme, is expected to gather traction going into 2012. For instance, the mega MRT project is expected to break ground by 1H12, driving up demand for steel bars. Masteel believes that it is in a good position to supply this project based on the geographical advantage of its factories.

The company is in the process of expanding capacity to cater for the forecast volume demand growth.

The meltshop capacity will be gradually raised to 650,000 tonnes over the course of the next year, from the current 550,000 tonnes. Masteel is also planning to expand its rolling mill capacity by about 150,000 tonnes. The new plant is expected to be operational sometime in 2013. Once operational, the company intends to divert part of its expanded billet capacity as feedstock to this plant to extract better margins.



Capital expenditure is estimated to total roughly RM230 million for 2011 to 2013. The company’s balance sheet is fairly healthy with 49% gearing as at end-September this year, well below the industry average.

Selling prices retrace on uncertain global economic outlook
Selling prices of steel products, on the other hand, are likely to remain within a tight range, at least for the near to medium term.

Prices of steel bars have fallen over the last two to three months and are hovering around RM2,200 per tonne at the moment. This is due primarily to growing uncertainties stemming from the financial turmoil in Europe and the global economic slowdown.

Even though domestic demand is expected to be relatively robust going forward, we expect competition from imports to keep prices relatively in line with those in the global market.

At the moment, the outlook for the global steel market is one of caution. Demand growth is expected to slow in 2012 with sluggish economic growth in major developed countries and cooling emerging market economies.

The World Steel Association estimates global steel consumption growth at roughly 6.5% in 2011, after the strong 15.1% recovery in 2010. The pace of consumption increase is forecast to slow further to about 5.4% in 2012.

Indeed, some of the big steel millers, including those in China and Europe, have initiated production cutbacks in view of the uncertain economic conditions.

Raw material prices have also fallen well off their recent peaks. Major iron ore suppliers accepted lower selling prices for the raw material from the pre-determined 4QFY11 contract prices, in recognition of weakened demand.

Prior to this, the comparative resilience in prices of iron ore and coking coal have resulted in a margin squeeze for global steelmakers, even if they have kept a relative steady floor on prices of steel products. Having said that, few expect prices to go much lower for both key raw materials, taking into account the still rising demand, albeit at a slower pace of growth.

Most market observers believe that prices of iron ore will average around US$140 to US$150 per tonne in 2012, compared with the peak of about nearly US$200 per tonne early this year. Prices of coking coal too are expected to be lower. Shipments for 1Q12 are being priced around US$235 per tonne, down from about US$285 per tonne in 4Q11 and as high as US$330 per tonne in 2Q11.

Double-digit earnings growth in 2012
Assuming steel prices remain more or less at current levels and strengthening in volume sales, we forecast double-digit growth for Masteel for the next few years.

The earnings recovery, since hitting a trough in 2009, will continue to unfold. Net profit is estimated at RM46.1 million this year, up from RM28.2 million in 2010, conservatively assuming a weaker 4QFY11. Net profit for 9MFY11 totalled RM37.9 million.

Earnings are forecast to expand to RM54.8 million in 2012 and RM76.9 million in 2013. Masteel’s valuations remain attractive with price-earnings ratios of only 4.2 and three times for the two years, 6.1 and 4.4 times on a fully diluted basis.


Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.


This article appeared in The Edge Financial Daily, December 7, 2011.



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InsiderAsia’s model portfolio - 458

Global stocks rallied last week on a wave of optimism, driven primarily by the coordinated action taken by major central banks to tackle the emerging credit crunch and better-than-expected economic data from the US.

It remains to be seen, however, if the uptrend will last. By the end of the week, investors were pulling back a little pending November’s employment data from the US Labour Department, which was released after the close of Asian market trading hours.

The mid-week move by the US Federal Reserve, together with the central banks of Japan, England, Switzerland, Canada and the European Central Bank (ECB), to lower the interest cost on emergency US dollar loans tempered fears of a wider fallout from the emerging credit crunch, especially among European banks. With the sovereign debt crisis continuing to drag on, traditional sources of US dollar funding are beginning to dry up as investors shifted to safer assets.

The provision of liquidity, however, is not a solution to the crisis, which has, until today, remained elusive. European leaders remain at odds on the next step forward. Of late, Germany and France have been pushing for deeper fiscal integration among members of the single currency, including central oversight of national budgets, tougher enforcement and harsh automatic sanctions if rules are breached.

Obtaining approval for such a move from all member countries is unlikely to be an easy task. If successful though, the ECB has hinted that it could expand its bond-buying role, which is increasingly being advocated as the solution to bring stability back to the markets. So far, its limited buying programme has not stopped yields for troubled countries such as Italy and Spain from rising to record levels. Rising investor nervousness was evident when even a German bond auction received tepid response.


Until a comprehensive solution is found, financial markets will continue to be driven by headline news out of Europe.

Positively, the US economy appears to have picked up some momentum after a disappointing 1H11. 3Q11 GDP growth was stronger at 2%, compared with 0.4% and 1.3% in 1Q11 and 2Q11 respectively. Retail sales got off to a robust start for the year-end holiday shopping season while the job market is also showing some signs of improvement. Even the moribund housing market is showing signs of bottoming out, though there are still downside risks to prices as a result of foreclosures. With Europe expected to go into mild recession next year, growth in the US will be vital to keep the global economy afloat.

Underpinning global economic concerns, China lowered the reserve requirement for banks last week, for the first time since the financial crisis. Prior to this, the country has been raising both the reserve requirement and interest rate to tamp rising inflation. The most recent November manufacturing data showed activities contracting in the world’s second-largest economy.

Portfolio review
Note that this review is for a two-week period. Stocks in our model portfolio outperformed the benchmark index over the past two-week period. Total market value for our basket of 17 stocks was up by 2.79% to RM388,085, compared with the FBM KLCI’s 2.38% gain.

Ten stocks in our portfolio closed with gains while six ended lower and one other traded unchanged. Some of the notable gainers include DiGi (+6.7%), Masteel (+6.6%), MyEG Services (+6.4%), CIMB (+4.8%) and Maybank (+4.7%). At the other end, Pantech (-2.1%) and Al-Aqar KPJ REIT (-3.4%) were among the notable losers.

We added dividends from Pantech (one sen per share) and Maybank (32 sen per share) to our cash holdings. Also, note that DiGi has completed its one-to-10 share split exercise. As such, we now own 20,000 shares in the mobile operator. Our average cost is effectively zero after adjusting for previous dividend payments.

Including our cash holdings, for which no interest income is imputed, our total portfolio value was up by a lesser 1.6% to RM670,338. Last week’s gains boosted our model portfolio’s cumulative returns since inception to 319% on our initial capital of just RM160,000. We continue to outperform the FBM KLCI, which was up by about 130.2% over the same period, by some distance.

Our cash holdings remain substantial, accounting for 42% of our total portfolio value. The relatively high percentage is primarily for prudence’s sake. Despite the recent rebound, we remain cautious on the market outlook.

Our total profits are very substantial at RM510,338, of which RM399,793 has already been realised from previous shares’ sales.

We kept our portfolio unchanged.


Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.


This article appeared in The Edge Financial Daily, December 5, 2011.




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Masteel to seek approval for Iskandar rail project next year

KUALA LUMPUR: Malaysia Steel Works (KL) Bhd (Masteel) plans to seek approval for its proposed commuter rail project in Iskandar Malaysia at a presentation to the Economic Council scheduled to be held in the first quarter of 2012.

In an update to Bursa Malaysia yesterday, Masteel said it has over the past three months held a series of meetings with the Ministry of Transport (MoT) on the proposed commuter rail project .

Masteel said it had made presentations and had discussions with Keretapi Tanah Melayu Bhd and the Railway Asset Corp on the various operational requirements of the Metropolitan Commuter Network Sdn Bhd (MCN). MCN is the joint venture company set up by Masteel and KUB Malaysia Bhd to submit a joint proposal to the government for the rail transit network project in Iskandar Malaysia, Johor.

Masteel supplies steel to fabricators that primarily serve the oil, gas and petrochemical industry.

KUB is involved in property, engineering and construction, information technology and food-related industries. Masteel’s net profit for 3QFY11 ended Sept 30 increased four-fold to RM16.19 million from RM4.76 million a year ago due to higher margins for its products.

Pre-tax profit tripled to RM17.46 million from RM5.43 million a year ago on the back of a 5.36% growth in revenue to RM300.31 million.

For the nine-month period, Masteel’s net profit almost doubled to RM37.86 million from RM19.18 million, while revenue grew 28.6% to RM916.71 million from RM712.8 million a year ago.

Quarter-on-quarter, its net profit rose 4.62% to RM16.19 million from RM15.47 million while revenue fell 11.14% to RM337.98 million.

Masteel shares yesterday fell one sen to RM1.05, a 56.9% discount to its net assets per share of RM2.44 as at Sept 30.


This article appeared in The Edge Financial Daily, December 1, 2011.



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Malaysia Steel advances on tripling Q3 income

Malaysia Steel Works KL Bhd rose the most in more than two weeks in Kuala Lumpur trading after third- quarter net income more than tripled to RM16.2 million.

The stock climbed 1.9 percent to RM1.07 at 9:14 a.m. local time, set for its biggest gain since Nov. 14. -- Bloomberg



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InsiderAsia’s model portfolio - 455

Global financial markets were subjected to harrowing daily swings over the past two weeks, as developments on the Europe debt crisis kept investors on a nervous edge.

Investors had earlier breathed a sigh of relief and cheered a rescue plan by eurozone members for Greece and plans to leverage on the remaining funds available in the European financial stability facility.

Representatives of the private bondholders have agreed to a voluntary 50% haircut, much deeper than the earlier proposed 21% reduction. This is projected to cut Greece’s debt to GDP ratio to about 120% by 2020, instead of more than 160% under the July proposal.

However, the euphoria quickly evaporated after Greece threatened a U-turn, with its Prime Minister George Papandreou announcing his decision to put the European bailout deal to a popular referendum. This was later aborted and the prime minister stepped down, but not without damaging confidence and sending financial markets into a tailspin.

Concerns over the European debt crisis later shifted to Italy, the eurozone’s third largest economy, and which holds US$2.6 trillion (RM8.2 trillion) of debt compared with Greece’s US$500 billion. Soaring Italian bond yields prompted fears of a default.

Towards the end of last week, financial markets regained some stability.


With Greece having appointed Lucas Papademos as the prime minister and Italy expected to appoint a new government headed by economist Mario Monti, investors are hoping that both countries will have measures to strengthen their economies, although the debt crisis is probably not by far over.

Amid a volatile external environment, local investors turned their attention to penny and retail stocks in the last two weeks on speculative buying interest. Many counters, notably Harvest Court, chalked up spectacular gains.

While the interest in these penny stocks and lower liners has livened up an otherwise dull market, investors should also note that they carry high risks. Many of these stocks are loss-making and the gains are not supported by fundamentals.

Over the last two weeks, the FBM KLCI lost a total of 13.1 points or 0.9% to close at 1,468.8.

Portfolio review
Stocks in our model portfolio outperformed the benchmark index in the last two weeks. Total market value for our basket of 17 stocks was up by 0.42% to RM377,900, compared with the FBM KLCI’s 0.9% loss.

Seven stocks in our portfolio closed with gains, six with losses and four stocks were unchanged in the past two weeks. DiGi was the biggest gainer, up 7.2% as it announced a capital management and repayment plan. This was followed by Pantech warrants (+4.3%) and Media Chinese International (+3.7%). The losers were led by Masteel and its warrants, down 8.5% and 5.5% respectively.

Including our cash holdings, for which no interest income is imputed, our total portfolio value was up by a lower 0.24% to RM657,113. Last week’s gains boosted our model portfolio’s cumulative returns since inception to 310.7% on our initial capital of just RM160,000. We continue to outperform the FBM KLCI, which was up by about 127.1% over the same period, by some distance.

Our total profits are very substantial at RM497,113, of which RM399,053 has already been realised from previous shares’ sales.

We kept our portfolio unchanged last week.


Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.


This article appeared in The Edge Financial Daily, November 14, 2011.



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