KLCI closes on weaker note as eurozone debt woes persist

KUALA LUMPUR (Dec 9): The FBM KLCI ended the week on a weaker note in line with global markets, as investors worried over the uphill battle European leaders faced in agreeing to a more permanent solution to solve the eurozone debt crisis started liquidating their stocks.

The FBM KLCI fell 12.79 points to 1,460.13, weighed by losses including at KLK, Genting, PPB, AMMB and Gamuda.

Losers beat gainers by 515 to 213, while 278 counters traded unchanged. Volume was 1.3 billion shares valued at RM1.06 billion.

EU leaders agreed stricter budget rules for the euro zone at a summit seen as crucial to the future of the single currency in Brussels, but failed to secure changes to the EU treaty among all 27 member states, meaning a deal will instead have to involve just euro zone states and any others that want to join, according to Reuters.

After 10 hours of talks there was little concrete progress among the leaders, apart from their commitment to work towards a new "fiscal compact", it said.

At the regional markets, Hong Kong’s Hang Seng Index lost 2.73% to 18,586.23, South Korea’s Kospi fell 1.97% to 1,874.75, Japan’s Nikkei 225 was down 1.48% to 8,536.46, Taiwan’s Taiex lost 1.28% to 6,893.30, the Shanghai Composite Index shed 0.62% to 2,315.27 and Singapore’s Straits Times Index lost 1.24% to 2,694.60.

On Bursa Malaysia, KLK fell 72 sen to RM22.28, Genting down 26 sen to RM10.62, Cepco 23 sen to RM1.66, Knusford lost 22 sen to RM1.64, PPB fell 20 sen to RM16.30, Parkson and AMMB lost 16 sen each to RM5.50 and RM5.74, Gamuda and MISC down 15 sen each to RM3.13 and RM5.80, while AirAsia lost 12 sen to RM3.67.

Among the gainers, Nestle added 28 sen to RM54.38, GAB 18 sen to RM12, Hartalega 17 sen to RM5.72, Harvest Court 15 sen to RM1.24, Dutch Lady 14 sen to RM24.92, Magni 13 sen to RM1.23, Bintulu Port and SOP 10 sen each to RM6.95 and RM5.40, while Perduren added 8.5 sen to 93.5 sen.

Compugates was the most actively traded counter with 66.9 million shares done. The stock was unchanged at 7 sen.

Other actives included SYF Resources, Versatile, DPS Resources, Utopia, Pavilion REIT and Emico.



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Liew: PNB-S P Setia management agreement win-win situation

KUALA LUMPUR: Amid a takeover offer from its largest shareholder Permodalan Nasional Bhd (PNB), S P Setia president and CEO Tan Sri Liew Kee Sin has assured shareholders that the proposed management agreement between PNB and the property developer will bode well for all stakeholders.

“It is an agreement that will be a win-win for everybody; for S P Setia, for myself, everybody will be happy with this management agreement,” Liew told a press conference yesterday after announcing the group’s latest financial results.

While remaining tightlipped on specifics, Liew pre-empted questions from reporters by stressing that the ball is now in the Securities Commission’s (SC) court after the parties had ironed out the agreement over the last six weeks since PNB launched the takeover bid of S P Setia in late September.

After deliberations, the SC could reject, accept or amend portions of the management agreement.

Last Friday, PNB submitted a proposal to the SC to formalise incentives and management rights relating to the business of S P Setia.

Liew confirmed The Edge weekly’s report on Nov 29 that the management agreement would include an incentive package provided that S P Setia achieve specific milestones.

“The agreement is quite comprehensive. All the answers are inside the agreement. But take it from me, if this agreement can be implemented it is good for everybody.

Liew: Everybody will be happy.

“This is the first time an institutional fund is having a controlling stake in a company and yet allow entrepreneurs like ourselves to continue running it and to create value. I think it’s a good thing.”

On the key question of how long he will remain at S P Setia’s helm, Liew quipped, “Wait until this agreement is out. But there are lots of good people in Malaysia. We are not the only ones who can do the job.”

Liew announced yesterday that S P Setia is targeting RM4 billion in sales in 2012 despite concerns of a weaker economic environment and the central bank’s recent prudent lending guidelines for housing mortgages.

“Look at our portfolio. We are a development supermarket [with products ranging] from low-cost units to RM10 million villas. We think whichever way the market swings, we are able to cater to that segment of the market,” Liew said.

S P Setia said it had achieved a fourth consecutive year of record sales after posting full-year sales of RM3.29 billion for FY11, a 42% increase from the previous high of RM2.31 billion for FY10.

The property developer said its net profit for 4QFY11 ended Oct 31, grew 9.73% to RM82.46 million from RM75.15 million a year ago.

Pre-tax profit rose 7.57% to RM109.04 million from RM101.37 million while revenue climbed 13.5% to RM633.36 million from RM557.99 million a year ago.

For the 12-month period, S P Setia’s net profit rose 30.24% to RM327.97 million from RM251.81 million, while revenue grew 27.87% to RM2.23 billion from RM1.74 billion a year ago.

Liew said S P Setia is still keen to acquire assets in London and could re-evaluate proposals to acquire the Battersea Power Station in south London when the project is open for tender.

S P Setia recently lost its bid to acquire the asset after lenders to the Battersea Power Station development rejected the former’s preliminary offer to take over the debts amounting to £300 million (RM1.48 billion).

“We are definitely interested but subject to the terms in the tender. London is a very interesting market,” Liew said.


This article appeared in The Edge Financial Daily, December 9, 2011.



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Benalec, S’pore firm to develop oil terminal

KUALA LUMPUR: Benalec Holdings Bhd has found a Singapore buyer for a plot of reclaimable land forming part of its ambitious reclamation project in southern Johor. The 100ha plot will be turned into an oil storage terminal in which Benalec will also own a small stake, partnering with foreign oil and gas firms.

Benalec, a marine construction specialist, yesterday announced that it has entered into a memorandum of understanding (MoU) with Rotary Engineering Ltd to collaborate in developing an independent oil storage terminal spanning 100ha in Tanjung Piai, located on the southwestern tip of Johor.

The land is part of Benalec’s entitlement to reclaim some 1,400ha in Tanjung Piai and 712ha in Pengerang. The Johor government has given “approvals in principle” to two units of Benalec for the reclamation projects.

Singapore-listed Rotary is a provider of engineering, procurement, construction (EPC) services specialising in the oil and gas industry. Rotary’s MoU with Benalec has lent more credence to the latter’s reclamation project in Johor, which surprised many in the industry.

“Benalec with its marine construction expertise will reclaim the land while Rotary will build the oil storage tanks,” said a source.

He explained that once the oil storage terminal is developed, a joint venture will be formed between Rotary, another oil and gas firm and Benalec to own and operate the terminal.

“Benalec will make profit from selling the reclaimed land to the JV, it will also take up a small stake in the JV which will provide it with recurring income,” he added.

Benalec stated that the terminal will be a tank facility for storing, blending and distributing crude oil and petroleum products with deepwater port facilities capable of handling very large crude carriers.

The terminal will have an initial storage capacity of one million cu m with subsequent phases to increase capacity to three million cu m, it said.

It is worth noting that the terminal, when it is developed, will be similar to Dialog Group Bhd’s facility in Pengerang, at the southeastern tip of Johor. So this could mark the start of a rivalry between the two companies, said an observer.

Dialog has begun the first phase of its 202ha independent deepwater terminal project in Pengerang. It has completed 5% of the first phase, which is scheduled for completion in early 2014.

Dialog’s terminal involves tankage facilities for handling, storing, blending and distribution of crude oil and petroleum products, together with marine facilities capable of handling large crude carriers with a water depth of up to 26m.


This article appeared in The Edge Financial Daily, December 9, 2011.



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MIG to build steel plant in Kazakhstan

KUALA LUMPUR: Melewar Industrial Group Bhd (MIG) yesterday signed a memorandum of understanding (MoU) with Kazmy Steel Company of Kazakhstan in which MIG is to be the turnkey design-and-build contractor for a mycrosmelt steel plant in Almaty.

Undertaking the job in Kazakhstan will be MIG’s 70% unit Melewar Integrated Engineering Sdn Bhd (MIE), which will act as the project manager to provide the necessary expertise, experience and resources to design and build the plant.

The proposed investment in the plant is estimated at RM178 million via a joint venture by MIE and Kazmy. Of the RM178 million, 30% will come directly from shareholders and 70% via bank borrowings from Kazakh financial institutions.

“Kazakhstan is big as it is the ninth largest country in the world. It is a major producer of steel especially in the northern region near Astana,” MIG chairman Tunku Ya’acob Tunku Abdullah said.

Almaty is the largest city in Kazakhstan, located almost 2,000km south of Astana, the capital of the former Soviet republic, where the country’s steel production facility is located.

The plant is likely to have an annual capacity of 100,000 tonnes per annum and provides cheaper long products, including integrated re-bars, said Tunku Ya’acob.

While the cost of transporting steel through Astana to Almaty is high, MIG’s mycrosteel technology has helped to maintain the costs.

Construction work on the plant is slated to start in the second quarter of 2012, with the targeted completion date in 2013.

For 1Q ended Sept 30, 2011, MIG incurred a net loss of RM15.65 million on RM218.46 million revenue. For the corresponding period a year ago, the company suffered a net loss of RM7.46 million from RM157.93 million in sales.

Tunku Ya’acob added that the group intends to exit the power generation business in Thailand by selling its plant there to concentrate on the steel production business.

MIG’s power generation arm contributed RM75.82 million in revenue for the quarter and it accounted for RM13.32 million of MIG’s RM16.48 million loss before tax.

MIG ended trading yesterday at 49.5 sen, slipping half a sen.


This article appeared in The Edge Financial Daily, December 9, 2011.



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Toyo has ink on paper, but not yet the power

KUALA LUMPUR: Toyo Ink Group Bhd’s share price has benefited from the letter of approval it received from the Vietnamese government for a US$2.5 billion (RM7.8 billion) power plant, but realising the earnings may be a long way off.

It has taken over three years of hard work to obtain the letter, but Steven KC Song, managing director of Toyo, revealed at a press conference yesterday that the plant will take three to four years to build and estimated that it would only begin operating in 2017 or 2018.

It should be at least six to seven years before the US$2.5 billion project even begins turning in cash, yet Toyo’s share price surged as high as RM1.88 on Tuesday, with a 50 sen or 36.23% gain for the month.

Furthermore, Song told the press that Toyo has yet to secure funding as it has not yet nominated a merchant bank to provide financial advice.

He declined to comment which merchant banks the group is in talks with but noted that the merchant banks the company is courting would have an international presence.

Toyo announced on Wednesday that it received a letter from the Vietnamese government with regard to the building of a two times 1000MW coal-fired power plant in Hau Giang province.

According to its announcement to Bursa Malaysia, the award is for “the Toyo group to have research and development of Song Hau 2 Thermo Power Plant Project, capacity of two times 1000MW at Song Hau Power Centre, Hau Giang Province”.


The announcement added that “the Ministry of Industry and Trade (of Vietnam) will preside, cooperate with the People’s Committee of Hau Giang Province in providing guidance to Toyo Ink in the setting up of the investment project and implementation of next steps of the project, organisation of assessment and submission for approval as required by laws”.

A market observer noted that the wording of the letter is rather vague, as it does not outwardly say that the project has been awarded to Toyo, but rather “the research and development”.

Furthermore, Toyo has yet to sign a power-purchase agreement (PPA) with the Vietnamese government although Song said, “Hopefully, it won’t take too long. Once we have negotiated the PPA and agreed upon a rate with the Vietnamese government, we will know our revenue.”

The terms of a PPA are crucial to determine the viability of a project, its returns and the ability to obtain financing.

Likewise, Song could not provide a gearing ratio for the project, citing a lack of financial advice but indicated gearing would depend on the amount of cash its partners would bring to the multi-billion dollar project.

In comparison, Toyo’s market cap yesterday for its 42.8 million shares was only RM75.76 million.

A quick look at Toyo’s balance sheet reveals that the group’s cash and bank balances stood at RM1.78 million as at Sept 30 with a total of RM106.78 million in current assets against RM89.45 million in current liabilities.

With so little cash on its balance sheet, Toyo will have to raise a substantial amount of equity to leverage against if it hopes to raise US$2.5 billion, even if it brings in several cash rich partners. Song also revealed that Toyo is still looking to bring in a partner with the technical expertise to help the group set up the power station as it has no prior experience with setting up power plants, a highly technical industry.

“Toyo Ink will continue with its core operations. We will set up a new company to undertake the power plant project,” said Song. “Any partners we wish to work with have to be approved by the Vietnamese government.

“The Vietnamese are struggling with power supply issues. They know we won’t undertake the project unless it is beneficial to us as well, so we expect a reasonable rate.”

“How long it takes for us to recoup our investment will depend on the price per megawatt the government gives us in the PPA,” said Song who estimated that return on investment will take seven to nine years.

“Once the plant is up and running we can issue an initial public offering to pay off some of the debt used to finance the plant,” said Song but declined to comment on when this would happen. The biggest risk to the project is inflation, but Song believes that the Vietnamese government is dealing with it.

Toyo’s share price fell 11 sen yesterday to RM1.77 after the suspension of its shares throughout Wednesday was lifted.


This article appeared in The Edge Financial Daily, December 9, 2011.



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Deadline for MRT underground bids may be extended

SHAH ALAM: Gamuda Bhd said the closing of the tender for the Klang Valley mass rapid transit (MRT) underground works may be extended from early January 2012.

Its managing director Datuk Lin Yun Ling said to his knowledge the only local entity bidding for the underground contract is MMC-Gamuda while the rest are foreigners.

It has been reported that five players including MMC-Gamuda are eyeing the huge component of the MRT project, which has been reported to cost some RM40 billion.

“It will take another three to four months for technical evaluation, and MRT Co will do it (announce the winning bid),” he said after the company’s AGM yesterday.

Asked how confident Gamuda is in getting the job, Lin said: “We can only do our best.”

He also has “no clue” what are the profit margins for the MRT project, which is expected to be completed over two phases.

Analysts said winning the underground work for the MRT project is crucial for Gamuda replenish its outstanding order book of RM3 billion, which may last for only another two or three years.

An artist's impression of a MRT station.

Under the first phase of the MRT project, the most critical, high-demand stretches in and around the city centre are scheduled to be completed by 2020. Meanwhile, under the second phase, the suburban elevated routes are to be completed by 2030.

Gamuda is playing two distinct roles in this project, with the first being the project delivery partner. To facilitate this role, Gamuda has a 50:50 joint venture (JV) with MMC Corp Bhd that was mandated to lead the implementation and delivery of MRT. The company’s second role is that of a main contractor for the underground works in the city centre.

Lin said Gamuda’s chances of securing the underground job is good, and it is not under pressure from the “Swiss challenge” for the contract.

Meanwhile, Lin said the completion date of the electrified double-tracking project, which is 80% completed, has been pushed forward to November 2014 following the granting of a second time extension by the government.

He said the main line from Padang Besar to Ipoh will be completed by 2013 while the line to Penang by 2014.

On its property projects in Vietnam, Lin said although demand has slowed down, it has seen “good take up” for its projects in Hanoi, which has a gross development value of RM10 billion.

“I believe it (the economic situation in Vietnam) can’t get any worse,” he added.

Vietnam’s economy has suffered from a huge budget deficit and rising inflationary pressures, prompting the tightening of credit there, which in turn impacted property sales.

On the local front, Lin said that demand for properties is still strong, which will augurs well for the company’s property projects, including its Horizon Hills in Johor.

However, he also believes property prices here have peaked, based on the ratio of property prices to income.


This article appeared in The Edge Financial Daily, December 9, 2011.



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DRB-Hicom and SAAB to collaborate on AEWC

LANGKAWI/PETALING JAYA: DRB-Hicom Bhd and SAAB AB, the Swedish aerospace and defence company, yesterday signed an agreement to collaborate in a bid to supply an Airborne Early Warning and Control (AEWC) System for the Royal Malaysian Air Force.

The AEWC system will enable the government to detect, track and monitor its territorial and international domain to combat piracy, smuggling, illegal fishing and terrorism within and around the Malaysian borders.

Through this programme, the integration of SAAB’s Eyerie Radar and the incorporation of the “Eye in the Sky” will provide a significant data link to the Royal Malaysian Navy and Malaysian Maritime Enforcement Agency, said DRB-Hicom in an announcement to Bursa Malaysia.

The partnership between these two companies is based on the extensive experience, strength and capabilities of both companies, in supporting the government’s defence programme with solutions that will enhance Malaysia’s operational capabilities. DRB-Hicom will provide a significant local involvement in the entire project cycle starting from production to testing and eventually to support AEWC operations.

“The collaboration entrenched in the agreement between these two companies is a major step taken towards upgrading Malaysia’s defence aviation technologies and capabilities specifically in the Aeronautics System Integration and Command & Control areas.

“The collaboration will also strengthen the current expertise in terms of competencies in project management, system engineering as well as supply chain management,” it stated.

The collaboration between DRB-Hicom and SAAB augurs well with DRB-Hicom’s strategic plan to strengthen its position in the area of defence and aerospace, not only in Malaysia but also in the region.


This article appeared in The Edge Financial Daily, December 9, 2011.



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Boustead inks defence and aerospace deals during LIMA

PETALING JAYA: The Boustead Holdings Bhd group yesterday clinched some RM162 million contracts as well as marketing agreements during the Langkawi International Maritime and Aerospace Exhibition (LIMA).

Its 51% subsidiary Atlas Hall Sdn Bhd secured an exclusive two-year agency agreement with W Giertsen Hallsystem AS (Giertsen) of Norway to market and sells its products in Malaysia. The products covered under the agreement are rub halls, aircraft hangars, and future products to be developed by Giertsen.

Another subsidiary, Boustead Naval Shipyard Sdn Bhd, had secured a RM62 million contract from the Malaysian government for the supply and delivery of spares, maintenance, integrated logistic support and training for the 17th patrol vessel squadron of the Royal Malaysian Navy.

Meanwhile, Boustead Heavy Industries Corp Bhd (BHIC), a listed subsidiary of the Boustead group, had entered into an agreement with Rhienmetall Defence Electronics GmbH for the manufacture and supply of cargo loading system assemblies for Airbus A400M, A380, A330 aircraft.

The agreement includes a comprehensive technology transfer programme and investment in facilities for aerospace electronics manufacturing, according to a statement by BHIC.

The value of the initial two phases of the project is likely to exceed RM100 million and, if all options are exercised, the value of the subsequent phases is likely to exceed RM500 million over 10 years.

In the first phase of the project, Contraves Advanced Devices Sdn Bhd, a unit of BHIC, will establish a dedicated facility in Malaysia for the manufacture of aerospace electronics to ISO 9100 standards, and will undertake a vendor development programme with local SMEs for the manufacture of housing and mechanical components. The second phase will deliver 180 production shipments for confirmed European customers with associated spares, it stated.

“Subsequent phases are planned for expected new A400M aircraft orders, to expand the scope to include the manufacturing of Airbus A330 and A380 aircraft electronics sub-assemblies, and to establish a regionally oriented MRO (maintenance, repair and overhaul) capability for aircraft cargo loading systems,” BHIC stated.


This article appeared in The Edge Financial Daily, December 9, 2011.



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