DiGi expects to end the year well but valuation stretched

DiGi.Com Bhd (Jan 13, RM3.90)
Maintain neutral at RM3.92 with revised target price of RM3.70 (from RM3.40): DiGi.Com Bhd is expected to release its 4QFY11 results on Thursday. We expect the company to register FY11 net profit of RM1.13 billion, a decline of 4.2% year-on-year (y-o-y). The decline in earnings growth will be due to DiGi’s accelerated depreciation policy for FY11 and FY12. However, we are not ruling out an upside surprise to this estimate due to the possible increase in usage during the year-end holiday period.

Nevertheless, we expect DiGi to register better normalised net profit growth of 7.2% y-o-y. We derive the normalised earnings by discounting the accelerated depreciation. Hence, its FY11 operating expenses will only rise by 5.8% y-o-y to RM4.03 billion instead of the 10.6% y-o-y growth to RM4.22 billion on a non-normalised basis.

We expect DiGi’s full-year revenue to grow by 4.5% y-o-y to hit RM5.65 billion as the data revenue momentum continues due to the expected increase in usage. We expect the continuation of the double digit growth trend in data revenue seen in previous quarters particularly in the mobile Internet and broadband segment. Therefore, we will not be surprised should data revenue contribution surpass the 30% mark in 4QFY11. The data revenue contribution was 29.4% in 3QFY11.

Operationally, we opine that DiGi will show some earnings before interest, tax, depreciation and amortisation (Ebitda) margin pressure as we expect Ebitda growth to be marginally flat 0.7% y-o-y to RM2.42 billion. However, Ebitda margin will still be stable at around 43% to 44%.


We are not expecting DiGi to announce any special dividend or capital distribution for FY11. We understand that the capital distribution will be from FY12. However, taking a cue from previous actions, there is a possibility that DiGi will announce a dividend in 4QFY11. We expect dividend yield to reach 3.7% in FY11, based on its current price.

Pending the 4QFY11 results, we are maintaining our FY11 forecast for now. We continue to like DiGi for its strong operations, its commitment to reward its shareholders and as a good defensive stock. However, we believe that the valuation for DiGi is currently stretched. It is trading at a forward price-earnings ratio of 25 times compared with its regional peers’ 16.7 times PER. Hence, we maintain our “neutral” recommendation despite our positive view on DiGi. We revise our target price to RM3.70 (from RM3.40) as we assign a lower weighted average cost of capital (WACC) of 9.04% (from 9.45%) to our discounted dividend model. We believe that the lowered WACC is justified due to DiGi’s low risk profile as it operates in a stable environment. — MIDF Research, Jan 13


This article appeared in The Edge Financial Daily, January 16, 2012.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

YNH targets RM1b property sales in FY12

KUALA LUMPUR: YNH Property Bhd foresees flat property sales growth in the current fiscal year in the absence of new launches during the period.

Head of corporate services Daniel Chan said the developer expects to sell about RM1 billion worth of properties from existing projects for its FY12 ending Dec 31, which is almost similar to what it achieved a year ago.

“Sales are there and we will see profit in the next four to five years. However, the biggest catalyst is the RM2.1 billion Menara YNH in Jalan Sultan Ismail, Kuala Lumpur.

“If we can sell the tower en bloc, our sales will jump,” Chan told The Edge Financial Daily in a recent interview.

YNH’s existing mixed developments include the RM600 million Fraser Residence off Jalan Sultan Ismail and Jalan Ampang, and the RM1 billion Kiara 163 in Mont’Kiara. The developer is also undertaking residential and commercial projects within some 1,000 acres (400ha) in Manjung, Perak.

YNH launched around RM5 billion worth of properties in FY11 and raked in RM1 billion in sales during the year. The company sold RM450 million worth of properties in Fraser Residence and raked in RM300 million from Kiara 163, said Chan. In Manjung, he said YNH had secured sales of about RM250 million.

While YNH has not lined up any launches for FY12, Chan said the company intends to unveil its mixed development on a 95-acre tract in Genting Highlands next year. Besides the commercial and retail portions, the estimated RM3 billion project will include condominiums and bungalows.

Menara YNH will be closely watched as this development is seen as a major catalyst for YNH’s bottom line growth. The project has been delayed several times since 2006, as deals by two prospective buyers were terminated.

Chan: If we can sell the tower en bloc, our sales will jump.

According to Chan, the developer which plans to sell Menara YNH en bloc, is talking to potential local and foreign buyers to acquire the commercial tower. He declined to specify the buyers, only indicating that they included foreign businessmen with deep pockets.

“These foreign tycoons are major real estate investors,” Chan said. He indicated that Menara YNH, by virtue of its strategic location, had attracted market interest and that YNH is not in a rush to sell the property as it hopes to secure the highest price.

“We will consider if the price is good,” Chan said, without specifying the timeframe when the deal would be finalised.
YNH had originally tied up with Singapore property giant CapitaLand Ltd on the project. The two companies signed an MoU in December 2006 to jointly develop Menara YNH on a 60:40 basis. Construction was originally slated to begin in mid-2007 with completion by end-2011. But in June 2007, the MoU was terminated.

In January 2008, YNH announced that it would sell half of the Menara YNH project to Kuwait Finance House (KFH) for RM920 million. The sale involved an area of 750,000 sq ft at RM1,230 psf, which at that time set a new high as it was about 10% higher than the record price commanded by the 36-storey Glomac Tower nearby.

KFH was supposed to take up half the building with the rest to be sold to other buyers. YNH was to rake in RM1.84 billion in total proceeds from selling the entire project. But the KFH sale fell through due to the global financial crisis. In December 2009, KFH informed YNH that it would not proceed with the formalisation of the sale and purchase agreement.

YNH’s net profit for the nine months ended Sept 30 fell 14% to RM40.22 million from RM46.55 million a year earlier while revenue dropped 26% to RM158.02 million from RM213.97 million before. Its net profit was curbed by higher tax expenses, according to notes accompanying its latest financials.

As at Sept 30, YNH had cash of RM17.47 million versus debts of RM265.07 million, translating into a net debt of RM247.6 million or net gearing of 0.3 times.

Its latest reported net assets per share stood at RM1.92. YNH shares closed at RM1.85 last Friday.

YNH, listed on Bursa Malaysia in 2003 under its former name Yu Neh Huat Bhd, began as a plantation entity in 1982 before venturing into property development.

The group’s real estate business took off in 1987 within Perak’s Sitiawan, Manjung and Lumut corridor where the group’s flagship Bandar Manjung Point township sits.


This article appeared in The Edge Financial Daily, January 16, 2012.




Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Ta Ann sees softer plywood prices

KUALA LUMPUR: Timber outfit Ta Ann Holdings Bhd is expecting plywood prices to soften this year, while a economic slowdown would affect demand for plywood in Japan and other markets.

“We are not very bullish on the timber sector this year due to the weak global economic sentiments. A possible second recession would affect housing starts in Japan and other economies and impact the demand for timber products,” said a Ta Ann spokesman

He told The Edge Financial Daily that 2011 had been a good year for the timber market due to rising log and plywood prices. An industry observer noted that the plywood prices increased last year due to the anticipated rise in demand for timber for reconstruction work in Japan.

Plywood prices increased some 12% last year after the Japan earthquake due to speculative buying on reconstruction efforts. However, plywood prices have since eased to around US$620 (RM1,941) per cubic metre due to inventory build-up in the country. Japan is the biggest plywood export market for local timber players.

“Demand from Japan has been flattish due to the build-up in inventory. We expect plywood prices to remain around US$630 per cu m as we do not see any increase in demand from Japan just yet,” said the spokesman. A timber analyst also noted that some Japanese plywood producers had resumed production, which prevents any boost in plywood imports to Japan.

Last week, Malaysian Timber Industry Board director-general Dr Jalaluddin Harun said timber players would also need to compete with soft plywood suppliers from Canada and Russia in the Japanese market.



The Ta Ann spokesman noted that Japan has been importing soft plywood since the 1990s.

“Japan’s market consists of 80% soft plywood and 20% hard plywood (tropical plywood). This has always been the case since the 1990s. As such, I do not foresee the soft wood players to eat into the hard plywood market share as both have different applications and usage,” he said.

He said log prices would also soften in the coming months due to price correction.

“Last year, log prices had increased from US$220 to US$260 per cu m. However, this could not be sustained as the prices are becoming too expensive for markets such as India,” he said.

As such, he noted that Ta Ann would see its oil palm plantations remain the main contributor to the group’s profits due to higher fresh fruit bunch (FFB) production and increasing mature hectarage.

“The oil palm business would contribute about 80% to our earnings. We expect crude palm oil prices to remain strong at the current RM3,000 per tonne levels while our production would increase by 25% to 30% to 600,000 tonnes this year,” he said.

A timber analyst said reconstruction efforts in Japan are expected to start in the first half of 2012 as any further delay would affect the national’s economic productivity. Since the earthquake, Japan has approved up to ¥15.3 trillion (RM623 billion) for reconstruction works.

“We foresee plywood exports to be flattish or increase marginally this year. Note that any global economic slowdown would impact the housing starts in key markets such as India, China and Japan,” he said. For the first 11 months of 2011, Japan imported 3.37 million cu m of plywood, which is a 17.6% increase from the corresponding period in 2010.

In a recent report, RHB Research said Ta Ann and Jaya Tiasa Holdings Bhd are becoming “quasi-plantation stocks” as their plantations contribute over 70% to their earnings.

“Jaya Tiasa and Ta Ann would still enjoy relative robust earnings growth due to significant increase in their FFB production volumes over the next two years as a result of maturing hectarage. This could provide earnings comfort for investors and cushion the more volatile earnings from timber,” it said.

It maintained a “neutral” call on the timber sector. It has a fair value of RM7.80 and RM6.97 for Jaya Tiasa and Ta Ann respectively.

Jaya Tiasa and Ta Ann closed at RM7.09 and RM5.50 respectively last Friday.


This article appeared in The Edge Financial Daily, January 16, 2012.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Kian Joo poised for record profit ahead of takeover

KUALA LUMPUR: Kian Joo Can Factory Bhd (KJCF) looks poised for a record year of profit against the backdrop of the See family courtroom tussle for the company.

While Can-One Bhd may soon seize control of the majority stake in KJCF which may in turn result in a boardroom struggle, it would appear that in terms of valuation, KJCF is still an attractive counter.

KJCF is a very different animal today from what it was three years ago when Can-One won a bid to acquire a 32.9% stake in KJCF for RM1.68 per share in February 2009. Operations in Vietnam are turning profitable yet valuations are relatively low with share price parity to net assets per share.

TA Research forecast KJCF’s FY11 net profit to rise to RM116.8 million, up 14.5% from RM101.98 million for FY10. Net profit for FY12 is expected to be RM143 million. In line with that expectation, TA Research maintains its “buy” call on KJCF shares with a target price of RM2.58.

Kenanga Research similarly forecasts KJCF’s net profit for FY11 increase 10.6% year-on-year (y-o-y) to RM112.8 million and hit the RM132 million mark for FY12. Kenanga maintained its target price of RM2.38 with a “market perform” call on the counter.

KJCF closed at RM2.16 last Friday, rebounding 15 sen from RM2.01 after falling for one week since it a high of RM2.20 on Jan 6.

In terms of valuation, KJCF is still an attractive counter.

At RM2.16, KJCF is being valued at a price-to-earnings ratio (PER) of 8.47 times and 1.07 times book.

“Since it is a relatively old company, there is a chance some of its assets like land have not been revalued in awhile. On that basis, it would appear that Kian Joo is undervalued,” said an analyst.

While KJCF may be undervalued, the impending acquisition by Can-One reduces the value of buying into KJCF.

TA Research’s report read: “We find the offer price of RM1.65 on the low side as it does not reflect Kian Joo’s true value, as the price was offered four years ago. Assuming the exercise goes through, we advise investors to buy into Can-One for cheaper exposure to Kian Joo.”

Another analyst noted that Can-One’s acquisition would translate into better margins. Combined, both players would be able to command better prices in the market as well as leverage their combined size for better prices from suppliers.

“In terms of PE, manufacturing companies typically value fairly at about 10 to 12 times PER,” the analyst added.

An analyst also said KJCF had more upside potential in Vietnam as most of its earnings had not yet fully matured there as the company only established itself in Vietnam two years ago.

KJCF’s corrugated carton division in Vietnam had reaped RM60.6 million in revenue for 3QFY11 ended Sept 30, up 23% from RM49.2 million in the same quarter the previous year. However, profit before tax was 17% lower due to commodity derivatives and foreign exchange losses.

The company had reported a 32% higher revenue for its carton division in 9MFY11 to RM175 million from RM132.1 million a year earlier mainly due to operations in Vietnam. This resulted in a 90% increase in profit to RM11.8 million in 9MFY11 from RM6.2 million in 9MFY10.

In terms of yield, TA Research and Kenanga Research respectively expect KJCF to pay a dividend yield of 5.2% and 5.8% in 2011 and 6.6% and 6.8% for 2012 respectively.

Can-One recently got the go-ahead from the Federal Court to purchase the 32.9% stake in KJCF. Industry observers have noted that KJCF will unlikely find other legal means to prevent the sale.

One final play from the See family, which controls KJCF, is a rights issue announced in February 2011 which could dilute Can-One’s holdings.

According to TA Research’s report, while the exercise had been granted by the court after Can-One attempted an injunction, Bursa Malaysia has decided put it on hold.

KJCF had reported net profit for the 9MFY11 of RM89.75 million, up 13.81% from RM78.86 million in the previous corresponding period. Revenue in the period was up 11.2% to RM793.54 million from RM713.46 million before.


This article appeared in The Edge Financial Daily, January 16, 2012.




Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

DRB-Hicom bags Proton

KUALA LUMPUR: Tan Sri Syed Mokhtar Al-Bukhary’s DRB-Hicom Bhd is understood to have secured Khazanah Nasional Bhd’s 42.7% equity interest in national carmaker Proton Holdings Bhd, with only a few minor issues left to seal the deal, industry sources tell The Edge Financial Daily.

It is understood the price range may be higher than market expectation of about RM5.50 per share.

Industry sources added that an announcement on the sale may be made anytime now. The conglomerate is said to have edged out a rival bid by Proton chairman Datuk Seri Mohd Nadzmi Mohd Salleh.
“[Nadzmi] gave it a good shot. It was a commendable effort by him and the management, but they did not have as much funding muscle as DRB-Hicom,” they said.

A couple of weeks ago, Nadzmi and the other top brass of Proton met Datuk Seri Najib Razak, during the premier’s visit the Proton plant in Shah Alam, as part of a last-ditch effort to sway the deal. It appears this has failed. Najib, by virtue of being prime minister, is chairman of the sovereign wealth fund, Khazanah.

The Edge Financial Daily had earlier reported that the bidders will meet Khazanah this week and show proof of funds or their financial prowess. Initial indications were that the Proton management was slated to meet Khazanah today, while DRB-Hicom was to meet the sovereign wealth fund on Wednesday.

The source indicated that Khazanah opted to contact the two bidders’ financiers in arriving at its decision.

However, other salient features of the deal, such as whether a general offer is in the offing, are not known. It is also not clear if DRB-Hicom has obtained an exemption from making a general offer, or will go ahead and privatise Proton.

At RM5.50, DRB-Hicom would end up paying RM3.02 billion for the entire 549.213 million shares in Proton. Khazanah’s 42.7% block or 234.51 million shares in Proton, meanwhile, would set the conglomerate back about RM1.28 billion.

DRB-Hicom is understood to have roped in Maybank Investment Bank Bhd for its merchant banking requirements and a few banks to provide funding for the acquisition.

For its six months ended Sept 30, DRB-Hicom posted a net profit of RM195.34 million on the back of RM3.06 billion in revenue.

On that date, the company had cash and bank balances amounting to RM1.41 billion, short-term borrowings of RM1.23 billion and long-term debt of RM890.23
million.

It is interesting to note that for the six months ended Sept 30, the company paid more than RM59 million in finance costs.

After weeks of speculation, DRB-Hicom early last week officially confirmed its interest in Proton, announcing to Bursa Malaysia that it “has always viewed Proton as an important automotive industry player and accordingly DRB-Hicom was on the look-out to explore any viable proposal(s) which would benefit and add value to the group’s business and expansion plans.”

“In this regard, the company has submitted a bid for the acquisition of Proton’s shares held by Khazanah,” it said.

Many say DRB-Hicom will rope in German auto giant Volkswagen AG, which has a collaboration and contract assembly arrangement with the former, to assist in its endeavours with Proton.

Other than Nadzmi, another bid or expression of interest for the automaker reportedly came from the Naza group, or parties linked to them.

Tan Chong Motor Holdings Bhd was said to have been invited to bid but the company threw cold water on the speculation. UMW Holdings Bhd was also said to be interested, but the company also denied the rumours.

Other interested parties include a tie-up between Tan Sri AP Arumugam and Gerald Lopez of Genii Capital, but this remains unsubstantiated.

Last Friday Proton tumbled 28 sen to close at RM5.18 with close to 11.8 million shares changing hands.

For its six months ended September, Proton posted a net profit of RM20.11 million and a revenue of RM4.5 billion. In contrast to the corresponding period a year ago, Proton’s net profit tumbled 86.7% despite marginally higher revenue.

Proton obtains grants from the government, which has helped it maintain profitability. However, much of its problems stem from its wholly-owned Lotus Group International Ltd, which has been incurring high expenses.

As at end-September, Proton had cash and bank balances amounting to RM1.31 billion, long-term debt commitments of RM881.2 million and short-term borrowings of RM77.89 million.

The cost to develop a new model can be as high as RM1 billion, which means that Proton does not have much leeway to develop many models at one go.

Proton recently confirmed media reports that it was looking to hive off up to 50% of its Tanjung Malim plant to Detroit-based General Motors Corp. However, it cautioned that the talks were still in the preliminary stages.

Reports suggested that the price tag is as high as RM800 million for a 50% stake in the plant, which will add to its coffers to fund the development of new models.

Other than the Tanjung Malim plant, Proton’s other main asset is its landbank, notably the site of its Shah Alam plant. This land could have a development value in excess of RM1 billion, property players say.

DRB-Hicom gained eight sen last Friday to close at at RM2.17.


This article appeared in The Edge Financial Daily, January 16, 2012.

Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Can-One, Kian Joo buck market on GO speculation

KUALA LUMPUR (Jan 16): Shares of CAN-ONE BHD [] and KIAN JOO CAN FACTORY BHD [] (KJCF)extended their rally on Monday as market talk of a general offer by Can-One for KJCF intensified.

At 3.08pm, Can-One was up 12 sen to RM2 with 12.07 million shares done while KJCF added eight sen to RM2.24 with 4.18 million units transacted.

However, the FBM KLCI fell 11.08 points to 1,511.99. Turnover was 873.85 million shares valued at RM678.80 million. There were 148 gainers, 554 losers and 244 stocks unchanged.

Expectations of a general offer by Can-One after it was given court approval to acquire the 32.9% block of KJCF had seen the stocks rallying.

However, analysts said Can-One would be in a better position to increase the market share once its take control of KJCF. However, they expected some profit taking after Can-One’s price surge.

They said Can-One was cheap currently based on the future business growth and investors should pick up the stock if there was a price correction.

As for KJCF, they said long-term investors should stay invested as the fundamentals remain robust.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Eita Resources gets SC nod to list on Main Mkt

KUALA LUMPUR (Jan 16): Eita Resources has received the Securities Commission’s approval to list on the Main Market of Bursa Malaysia Securities Bhd.

It said on Monday that its unit Eita-Schneider (MFG) Sdn Bhd provides end-to-end elevator systems services.

Eita’s group managing director Fu Wing Hoong said: “We are proud to be one of the few homegrown manufacturers and providers of elevator systems today, and we have successfully established a commendable track record alongside the country’s development.”

He said since 1998, the company had installed its in-house brand elevators including escalator and travellator systems in numerous commercial and residential PROPERTIES [], in Malaysia and the region.

Eita is expected to list in the first half of 2012. AmInvestment Bank Bhd is the adviser, sole underwriter and sole placement agent for Eita listing exercise.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Khazanah sells Proton stake to DRB-Hicom at RM5.50 per share

KUALA LUMPUR (Jan 16): Khazanah Nasional Bhd is divesting its 42.72% stake in PROTON HOLDINGS BHD [] to DRB-Hicom via a conditional sale with a price consideration of RM5.50 per share or RM1.291 billion cash.

In a statement Monday, Khazanah said the decision to divest its stake in Proton to DRB-Hicom was made after detailed evaluation of various proposals to ensure that due process was observed, proper financial value was received and that the new shareholder will be able to bring Proton to the next level of strategic growth, in line with the aspirations of the industrial development of the national automotive sector.

Upon completion of the sale and purchase agreement, DRB-HICOM will be obliged to undertake a mandatory general offer on the remaining Proton shares, it said.

The statement from Khazanah confirmed a report by The Edge Financial Daily, citing industry sources on Monday, that said that DRB-Hicom was understood to have secured Khazanah's 42.7% stake in Proton, with only a few minor issues left to seal the deal.

Khazanah managing director Tan Sri Azman Mokhtar said it was another significant milestone in the sovereign wealth fund’s strategic divestment programme as it represented the largest in size to date.

“The divestment is a further example of Public-Private Partnerships, whereby strategic divestments are made with the aim of putting Government-linked companies (GLCs) on a stronger and more competitive footing, and at the same time enhancing private sector participation and building the entrepreneurial capacity of Malaysian businesses in key economic sectors,” he said.

Khazanah said that over the last five years, it had received numerous proposals regarding its stake in Proton, adding that it received a number of proposals in recent weeks and that a comprehensive evaluation was conducted.

“It included an assessment based on several key criteria, namely , having the financial ability and resources to undertake the acquisition; resources to invest further in the business; promoting the transformation of the entire Malaysian automotive industry via Proton and its value chain; and the commitment to maintain the operational integrity of Proton and its industry ecosystem.

“This commitment is crucial as Proton, being a national car manufacturer, has significant influence and impact on the entire value chain of the national automotive sector,” it said.

Khazanah said DRB-Hicom’s proposal also demonstrated the company’s extensive involvement in the automotive sector and its network of strategic partnerships, both local and international.

“DRB-Hicom’s proposed strategy and business plan provides an effective platform to enhance Proton’s sustainability and meet its long-term growth needs. It also submitted an offer price that was acceptable to Khazanah,” it said.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.