Perwaja Steel to undertake retrenchment exercise

PETALING JAYA: Perwaja Holdings Bhd has came out to clarify that its its wholly-owned subsidiary, Perwaja Steel Sdn Bhd (PSSB) has in fact ceased all material operations since August 2013 when its dry gas and electricity supplies were curtailed.

"Given the cessation of operations, PSSB intends to undertake a company-wide retrenchment programme for its employees," it told Bursa Malaysia yesterday.

To date, it said that PSSB has about 1,000 employees under its employment.
"All the employees have been informed on the Proposed Retrenchment Programme, and PSSB is currently undertaking a consultation process with the employees via their appointed representatives."
Perwaja said the financial impact of the proposed retrenchment programme can only be determined once the plan is finalised.

Perwaja warrants surge on debut

KUALA LUMPUR (March 2): Warrants issued by Perwaja surged at the start of trade on Friday.

At 9.01am, the warrants were up 25 sen to 25.5 sen with 490,500 units done.

The FBM KLCI advanced 1.75 points to 1,575.20. Turnover was 21.63 million shares done valued at RM12.64 million. There were 80 gainers, 47 losers and 110 stocks unchanged.

The warrants were issued on the basis of one free warrant for every two shares held as at Feb 24. The tenure of the warrants is 10 years and the strike price is RM1.



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Stocks to watch: Silver Bird, Perwaja, CIMB, K. Jetson

KUALA LUMPUR (March 2): SILVER BIRD GROUP BHD [] could continue to be in focus with the latest move by RAM Rating Services Bhd to downgrade the outlook for its debt notes.

The ratings agency placed the group on Rating Watch, with a negative outlook. It also lowered the respective long- and short-term ratings of the group’s RM30 million Commercial Papers/Medium-Term Notes Programme (2005/2012) (CP/MTN), from A2 (negative outlook) and P2 to C3 and NP.

Perwaja’s 280 million warrants will be listed and quoted on Friday. The warrants were issued on the basis of one free warrant for every two shares held as at Feb 24. The tenure of the warrants is 10 years and the strike price is RM1.

CIMB Group moved a closer to the proposed acquisition of certain assets of The Royal Bank of Scotland in Asia Pacific. The assets are cash equities, equity capital markets and corporate finance businesses.

KUMPULAN JETSON BHD []’s unit has secured a RM14.98 million contract from the Shah Alam City Council to undertake renovation for the Wisma MBSA.

TENAGA NASIONAL BHD [] withdrew its suit against INTEGRAX BHD [] and seven other defendants with no order as to costs for Integrax. Integrax said following the withdrawal of the suit, all past disagreements between the company’s major shareholders have been fully settled.

Malaysian Building Society Bhd (MBSB) targets gross loan growth of 20% this year, according to its chief executive officer Datuk Ahmad Zaini Othman. MBSB's gross loans in the personal financing sector totalled RM7 billion and they were expected to increase to RM9 billion this year.



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Market cautious in early trade

KUALA LUMPUR (Feb 22): Blue chips edged lower in early trade on Wednesday as the rally seemed to have run out of steam with PLANTATION []s among the major decliners as investors took profit.

At 9.08am, the FBM KLCI fell 1.28 points to 1,562.50. Turnover was 124.26 million shares valued at RM40.44 million. There were 112 gainers, 90 losers and 154 stocks unchanged.

CIMB Research said in its market outlook that the rebound from Friday continues to be weak as the internal sports weakness. There are more losers compared to gainers in the past week suggesting that the rally is running out of steam.

The research house said the KLCI is still below the key resistance band of 1,560-1,565, where sellers have been strong.

“We continue to wait for a close below the 1,550 levels to confirm that the trend has reversed. For now, expect more sideways movement as the bullish momentum from the September lows grinds to a halt.

“A close below the 1,550 levels would likely send the index back towards 1,530 and 1,500 next,” said CIMB Research.

Among the decliners were plantations, with Harrisons down 26 sen to RM3.44, PPB 24 sen to RM17.40, Genting Plantations 23 sen to RM9.17 and IJM Plantations seven sen to RM3.28.

Eng Tek fell six sen to RM1.67 and Unisem five sen to RM1.42 on losses in the October-December quarter following the severe Thai floods last year.

Other decliners were Perwaja, down 14.5 sen to 76.5 sen, Petronas Dagangan 14 sen to RM17.96 and Lafarge Cement nine sen to RM7.15.



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Perwaja calm on MARC downgrade

Perwaja Holdings Bhd (Feb 8, 78.5 sen)
Maintain buy with fair value RM1.65: The Edge weekly reported over the weekend that Malaysian Rating Corp Bhd (MARC) had lowered its rating on Perwaja Steel Sdn Bhd’s RM400 million Murabahah medium-term notes (MMTN) programme from AID to A-ID. The rating action affected RM160 million in outstanding notes under the programme, while the outlook on the rating was negative.

MARC said the rating action was due to the steelmaker’s prolonged decline in its operating performance. Given Perwaja’s reported losses for two consecutive years plus the poor 9MFY11 results thus far, the downgrade came as no surprise.

We highlighted in our recent updates that the basic fundamentals underlying steel mills in Malaysia remain weak, but various mega projects under the Economic Transformation Programme (ETP) may spur long steel demand despite execution risks.

While the industry’s poor outlook will persist, Perwaja is building an iron pelletising plant that is expected to boost the profitability of its direct reduction plant.

This would allow it to meet its own iron ore pellet needs, which are currently procured at a hefty premium to iron ore fines.

We see the new iron processing plant producing 400,000 tonnes of iron ore pellets in FY12 and achieving a total savings of US$50 (RM150) a tonne from the procurement of local iron ore, logistical benefits, in-house value-adding activities and utilisation of tax credits on accumulated losses.

Undeniably, iron ore mining in Malaysia is lucrative as the production cost is likely to be below US$50 a tonne compared with the international selling price of above US$140.

The news on the Terengganu government meeting Perwaja’s request to mine iron ore in Bukit Besi is not entirely unexpected as this was first announced by its mentri besar during Perwaja’s ground-breaking ceremony in July 2011, which kicked off the construction of its pelletisation and concentration plant.

Furthermore, the MB reiterated last December that the state government “has given an area at Bukit Besi”, which represented a firmer commitment on its part to allocate a portion of the mining area to Perwaja, as the MB had previously only indicated that the state government was “ready to consent” to the company’s request to mine iron ore in Bukit Besi. The tone of the MB’s remarks suggests that the “official” award is imminent and an agreement could be sealed anytime soon.

Aside from the ongoing transformation, Perwaja is in the process of completing its proposed redeemable convertible unsecured loan stocks (RCULS) with free detachable warrants, both on the basis of one-for-two.

Following some delay, the next key date is the ex-date for the entitlement, which may be fixed in the next few weeks, as the warrants are scheduled to start trading by the end of this month. We like the deal as the RCULS not taken up by minority shareholders will be subscribed by its main shareholder, Kinsteel Bhd. In addition, the detachable nature of the warrants will allow all minority shareholders to enjoy the free warrants.

We remain upbeat on Perwaja despite the rating downgrade by MARC. We believe equity investors should keep a close eye on the ongoing transformation efforts implemented by the management as: (i) the commissioning of the pelletisation and concentration plant in 2012 is likely to translate into significant cost saving of up to US$50 a tonne for its upstream material; and (ii) the award of the mining concession in Terengganu may also translate into a blue-sky discounted cash flow valuation of RM2.65 per share.

That aside, we also like the company’s impending corporate proposal to raise cash via the issuance of RCULS as they come with free detachable warrants on the basis of one-for-two, which is set to reward minority shareholders.

We maintain our “buy” recommendation on Perwaja and its fair value at RM1.65. — OSK Research, Feb 8


This article appeared in The Edge Financial Daily, February 9, 2012.



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OSK Research maintains Buy on Perwaja, FV RM1.65

KUALA LUMPUR (Feb 8): OSK Research is maintaining a Buy on Perwaya Holdings Bhd with a fair value of RM1.65.

It said on Wednesday it remains upbeat on Perwaja despite the latest rating downgrade by Malaysian Rating Corporation Bhd.

“We believe equity investors should instead keep a close eye on the ongoing transformation efforts implemented by the management,” it said.

OSK Research said the efforts undertaken were: (i) the commissioning of the pelletization and concentration plant in 2012 is likely to translate into significant cost saving of up to USD50 a tonne for its upstream material, and (ii) the award of the mining concession in Bukit Besi, Terengganu may also translate into a blue-sky DCF valuation of RM2.65 per share.

“That aside, we also like the company’s impending corporate proposal to raise cash via the issuance of RCULS as they come with free detachable warrants on the basis of 1-for-2, which is set to reward minority shareholders. Having said that, we decide to keep our BUY recommendation on Perwaja with its Fair Value maintained at RM1.65,” it said.



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Stocks to watch: JCY, Dialog, AirAsia, MAS

KUALA LUMPUR (Jan 5): Despite the second day of pullback on the local stock market , especially blue chips on Wednesday, the overall market sentiment continues to be firm due to the "January effect" while fresh corporate news could stir buying interest in selected stocks at least in the short-term.

However, RHB Research Institute was cautious as due to the overhanging concerns of the second half of 2011, it was fearful that this could be another year of “more of the same”.

However, it did note the possibility of two market rallies in the near term, which were the “January effect” and “Chinese New Year rally”.

RHB Research said in a note on Wednesday that while the January effect has been evident every year for the last 10 years (and has led to a positive annual return in seven of the 10 years), the historical data for the pre-Lunar New Year rally is less conclusive (but the post-festival returns have actually been negative in seven of the last 10 years).

“Beyond January, we believe 2012 will be influenced by 2011 legacy issues. We thus continue to advocate a cautious stance, although we also recommend accumulating fundamentally-robust stocks on weakness for tactical plays with a longer-term view towards the recovery that will undoubtedly follow,” it said.

As for the stocks which could see trading interest on Thursday are hard-disk drive manufacturer JCY International Bhd, DIALOG GROUP BHD [], AIRASIA BHD [] and MALAYSIAN AIRLINE SYSTEM BHD [] (MAS).

JCY International Bhd, whose share price had surged in recent weeks, has stated that the group is likely to record a surge in earnings for the quarter ended Dec 31, 2011.

To cater for the increase in the component demands from the company’s major customers, JCY allocated RM300 million over the next 24 months period to expand its facilities in Malaysia, Thailand and China.

Dialog could also see trading interest as its rights shares go ex on Thursday.

In December, Dialog fixed the rights shares at RM1.20 each and the exercise price of the warrants at RM2.40 each.

The issue price would be a discount of about 46% to the theoretical ex-rights price of RM2.23 per share, based on the five-day volume-weighted average market price (VWAMP) up to Dec 14 of RM2.43.

Meanwhile, the Securities Commission has approved the proposed warrants exchange between AirAsia and MAS under a tie-up between both airlines. The airlines said the SC has approved the warrants exchange under the Capital Markets and Services Act 2007 of Malaysia.

Priceworth International Bhd’s unit has been appointed a contractor to carry out logging activities on Kolombangara Island, in the western province of Solomon Islands.

Priceworth said its unit, Ligreen (SI) Ltd had sealed a logging management and TECHNOLOGY [] agreement with Success Company Ltd to undertake the logging at a concession site measuring 1,053 ha.

KINSTEEL BHD [] had on Wednesday paid RM70 million to Perwaja Holdings Bhd which was the first payment for the subscription of the RCULS by Kinsteel. The balance of the RM210.0 million would be paid within 21 business days.

Following the first payment, Perwaja had provisionally allotted RM280.0 million nominal value of RCULS to Kinsteel.



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OSK upbeat on Asian steel market

The Asian steel market may hold up better in the future than in other parts of the world although demand could be further
dampened by a weak economic outlook, says OSK Research Sdn Bhd.

The research firm also expected long steel producers to fare better as governments worldwide cannot avoid carrying out some pump-priming activities, which could help spur demand for long steel.

"On the local front, steel mills are waiting with bated breath the rollout of "mega" government projects under the Economic Transformation Programme which is expected to boost steel demand.

"However, concerns still linger over its smooth and successful execution," it said in a statement today.

OSK recently revised lower some of its estimates due to the global economy sluggishness.

"We are trimming our fair values across the board as the steel stocks currently offer limited price upside.

"We are "neutral" on most counters except Perwaja and Kinsteel, on which we add on a 10 per cent discounted cash flow valuation on their potential in securing the iron ore mine as well as our "buy" and "trading buy" recommendations, respectively," it added. -- BERNAMA






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Hiap Teck's unit awarded iron ore mining right

Kemaman (Dec 5): HIAP TECK VENTURE BHD []'s 55% owned Eastern Steel Sdn Bhd has been granted a mining licence by the Terengganu state government to mine iron ore on an area of 600 acres near Bukit Besi.

Speaking after the symbolic ground breaking ceremony on Monday, the state's chief minister Datuk Seri Ahmad Said said that the mining concession would allow Eastern Steel to mine the area, which has estimate reserve of 40 to 50 million ton of iron ore, until the end of its mining life.

According to Ahmad Said, Eastern Steel was the second company that had been awarded the mining license, out of the four that were made available, so far.

“This is one of the incentives that the state government gives to encourage Eastern Steel to invest in steel milling business here, on top of building the infrastructure to improve accessibility and logistic,” he said.

Perwaja Holdings Bhd, which also has a steel operation in the state, was the first company to be awarded the mining right.



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Perwaja likely to get iron ore mining concession in Terengganu

PETALING JAYA: Perwaja Holdings Bhd is expected to secure a sizeable iron ore mining concession from the Terengganu government “anytime soon”, according to industry sources.

To enable economies of scale, sources said, Perwaja's unit Perwaja Steel Sdn Bhd should ideally be given about 500ha in Bukit Besi to mine iron ore with a mining lease running for at least 10 years, which later will be subject to renewal.

The 2,400ha Bukit Besi area is believed to hold 50 million tonnes of iron ore reserves, which has the highest quality in Malaysia at 70% Fe (iron), the sources added.

PETALING JAYA: Perwaja Holdings Bhd is expected to secure a sizeable iron ore mining concession from the Terengganu government “anytime soon”, according to industry sources.

To enable economies of scale, sources said, Perwaja's unit Perwaja Steel Sdn Bhd should ideally be given about 500ha in Bukit Besi to mine iron ore with a mining lease running for at least 10 years, which later will be subject to renewal.

The 2,400ha Bukit Besi area is believed to hold 50 million tonnes of iron ore reserves, which has the highest quality in Malaysia at 70% Fe (iron), the sources added.

OSK maintains 'neutral' call on steel stocks

OSK Research is cutting its fair value for steel firms across the board, citing their below average outlook amid the volatile market as a factor.

The steel stocks are currently offering limited price upside, the research house said, adding that it has placed a "neutral" call on most counters, except Perwaja Holdings Bhd and Kinsteel Bhd.

For Perwaja and Kinsteel, it has maintained its 10 per cent discounted cash flow valuation for the potential iron ore mine as well as "buy" and "trading buy" recommendations, respectively.

Although no official agreement has been signed to date, Menteri Besar of Terengganu was reported to be ready to consent to Perwaja’s application to mine ore in Bukit Besi.

OSK said the sluggishness in the economy also suggested that its earlier anticipated mergers and acquisitions in the sector might now take longer to materialise.

News that Lion Group is liquidating its steel assets has dragged on following a series of negative developments in the European Union and United States, it said.

"Although negotiations are ongoing and there are at least four interested buyers, we suspect the conclusion of such deal may be delayed as buyers may take up their time in bargaining for better pricing amid a weak economic backdrop," OSK said.

OSK also said that the possibility of the Lim family selling 10 - 15 per cent stake in Ann Joo is fading as the share price has fallen too far from the ideal price tag.

The research house is also generally bearish on steel demand, which may potentially be dampened by a weak economic outlook but believes that Asia’s steel market may hold up better than in other parts of the world.

On the local front, various government mega projects to be rolled out under the Economic Transformation Programme will boost the country’s steel requirements, particularly long steel products.

OSK also foresees the Mass Rail Transit (MRT) and the 100-storey Warisan Merdeka as the two projects that may substantially spur steel demand. -- Bernama