Mainly Ananda Krishnan owned Bumi Armada to be taken private again?

PETALING JAYA: Bumi Armada Bhd’s tumbling share price and the sudden departure of its chief executive officer on Dec 5 is fuelling talk that the company could be taken private again. 

The oil and gas services company’s main shareholder T Ananda Krishnan has a track record of de-listing companies when times are bad and taking it back to the market when conditions and valuations improve.

Ananda’s chief corporate lieutenant Ralph Marshall declined to comment on the matter when contacted by StarBiz.
“Sorry, I cannot comment. I don’t know anything about Bumi Armada,” he said.

But the prospect of a fresh corporate exercise is keeping its share price afloat above the RM1 level.
Maybank IB Research, in a recent report, did not rule out a potential privatisation for the stock, as it was trading at around one time book value.

Operationally, it said it liked Bumi Armada’s floating production, storage and offloading (FPSO) business model in light of the current weak/volatile oil market environment while valuation-wise, it was inexpensive to growth.

Another analyst agreed that the company’s fundamentals were doing well and that he also would not be surprised by a move to privatise the company.
“There is value in it, just that the share price is down for now,” he said.
Ananda had previously delisted and relisted companies under his stable including Astro Malaysia Holdings Bhd, Maxis Bhd and Bumi Armada.
“It has happened before and I don’t think anyone will be surprised if it happens again,” said an analyst, who declined to be quoted.
She noted that the company’s fundamentals seemed to be intact, with the recent hit to its share price most likely to be due to poor market conditions.

She said that Bumi Armada had a strong order book with quite a lot of new contracts as well as work-in-progress contracts.
“Everyone knows the earnings will not be immediate but the fundamentals are quite sound. Beside this, FPSO contracts are quite resilient,” she said.

She said another factor that could have affected the stock was CEO Hassan Basma’s resignation.

“We have also seen supposedly substantial shareholders actively selling over the past few months. But again, they seem to be nibbling back their stake,” she observed.

One of Bumi Armada’s shareholders, Ombak Damai Sdn Bhd, had a 7.17% stake on Sept 9 after disposing of 15 million Bumi Armada shares. It continued to pare its stake down to 6.97% in October via three transactions on Oct 1, 3, and 7 that saw it dispose of a total of 297,500 shares.

However, it then bought back some shares on Oct 9, raising its stake to 7.07% currently.

Bumi Armada was taken private by Ananda in 2003. The company, however, was re-listed on Bursa Malaysia in 2011 at an initial public offer price of RM3.03. The stock was last traded at RM1.01 yesterday.

Maybank KE Research maintains Hold on TM

KUALA LUMPUR: Maybank KE Research has maintained its Hold on Telekom Malaysia (TM) with a raised target price of RM7.20 on higher long-term growth assumption to reflect an improvement in TM’s longer-term prospects.

In a note on Tuesday, the research house said its FY14/15/16 net profit forecasts are consequently reduced by 2%/8%/11% respectively.

While the acquisition of a 57% stake in loss-making P1 was completed in Sep 2014, TM intends to only reveal its wireless strategy in 1Q15, it said.

"For now, we expect P1 to roll out its LTE network in 2015-17, with monetisation beginning in 2016. 


"We expect P1 to command 7% mobile data revenue share in 2017. By our estimates, P1 would only achieve break even (at the pre-tax level) closer to 2020," it said.

Maybank believed that a large part of TM’s 2014 share price rally was down to its impending entry into the wireless space (via the acquisition of a 57% stake in P1).

While the concept of convergence (between wireless and fixed) represents an attractive long-term proposition, there are near-term pains, which include the absorption of P1’s losses and additional capex for the LTE network rollout.

"This drag to TM’s P&L and cashflows would begin to manifest in 2015," it said.

Maybank Research retains Buy on Axiata, upgrades Maxis

KUALA LUMPUR: Maybank Investment Bank Research has retained its Buy call on Axiata and upgraded Maxis to a Buy as they would benefit from the implementation of the Goods and Services Tax (GST) when implement in April 2015.

“GST would allow wireless operators a chance to pass on the 6% service tax they currently absorb in the prepaid segment.

 “In reality, the benefits are likely less pronounced given elasticity and competition; we assume operators enjoy the equivalent of a 3% pass-through in service taxes for now,” it said.

Maybank Research said its sector picks are Axiata (maintain Buy, TP: RM7.80) and Maxis (upgrade to Buy, TP: RM7.40). 

"Consequently we raise net profit of Axiata/Digi/Maxis by 2.5%/4.1%/3.2% in 2015, and 3.1%/5.6%/4.3% in 2016 respectively.  

“For sensitivity purposes, every 1% pass-through in prepaid service tax raises net profit of Axiata/Digi/Maxis by 0.8%/1.4%/1.1% in 2015, and 1.0%/1.9%/1.4% in 2016 respectively,” it said. 
Maybank Research said the wireless operators have been absorbing the 6% service tax in the prepaid segment since 1998.

With GST, they can pass on the 6% service tax they currently absorb in the prepaid segment.  The theoretical impact of GST to operators is a direct flow-through of this previously-foregone revenue down to EBITDA. 

The research house explains that in reality, the benefits are likely less pronounced, given 1) the potential elasticity impact (prepaid is a price sensitive segment after all), and 2) possibility of increased competition, which effectively means part of the new-found revenue gets returned back to customers in the form of lower tariffs. 

Operators presently remain non-committal on their intentions with regards to GST treatment.
 “On the back of our earnings upgrades, we raise target prices of wireless operators under our coverage by 3%-7%. Consequently, we upgrade Maxis to BUY (from Hold). Our sector picks are Axiata and Maxis, on the back of their underperformance in 2014,” it added.

Supermax rebounds after plunging 16.5% as chief faces insider trading charge

KUALA LUMPUR (Dec 16): Glove maker Supermax Corp Bhd rebounded six sen or 3.7% after plunging 16.5% yesterday as its chief faces insider trading charges.

The Securities Commission (SC) had charged Supermax executive chairman and group managing director Datuk Seri Stanley Thai for insider trading involving APL Industries Bhd (APLI) shares. APLI is a former unit of Supermax.

The SC also charged Thai's spouse Tan Bee Geok and Bee Geok’s sister Tan Bee Hong for insider trading involving APLI shares.

Today, Supermax was traded at RM1.68 at 10.21am after rising as much as 11 sen or 7% to RM1.73 earlier. The FBM KLCI fell 7.31 points or 0.4%.  

Yesterday, Supermax shares fell 32 sen or 16.5% to close at RM1.62. Weak broader market sentiment also weighed on its share price.

The KLCI declined 35.68 points or 2.06% to close at 1,697.31 points.

In a press statement yesterday, the SC said Thai, 54, was charged at the Kuala Lumpur Sessions Court for communicating non-public information between October 26 and 29, 2007 to Tiong Kiong Choon, a remisier with a stock broking company.

Tiong was earlier charged by the SC last Tuesday at the Kuala Lumpur Sessions Court for disposing of 6.2 million APLI shares on October 26 and 29, 2007 while in possession of the information.

In addition, the SC also charged Thai’s spouse Bee Geok for communicating non-public information to Bee Hong between October 23 and 31, 2007.

The regulator alleged that Bee Hong had on October 31, 2007 sold 350,000 APLI shares held in her account while in possession of the information.

AFG gets Joel Kornreich as new group chief executive officer

TA Securities
(Dec 15, RM4.72)
Maintain “sell” with unchanged target price of RM4.35. Last Friday, Alliance Financial Group Bhd (AFG) announced the appointment of Joel Kornreich as its group chief executive Officer (CEO). His appointment will take effect on Jan 1, 2015. According to the press release, Kornreich has over 23 years of experience in the financial services industry. Before joining Alliance Bank, he was with Citigroup for 20 years in various roles around the world.

We are excited about this new appointment for AFG. We believe the new CEO can revive AFG’s consumer banking operations and imbue the bank with the wealth of his global experience.  Kornreich is reportedly well-known for his successful management of consumer banking businesses, built around superior service and innovative solutions.

Operationally, we believe AFG continues to lag its peers in the consumer banking space — reporting decreases in the credit card and personal loan segments in 2013 before accelerating only in 2014.  Its mortgage portfolio remained buoyant with growth of 15% to 20% year-on-year (y-o-y). While still eyeing double-digit loan growth, momentum is expected to slow down in the coming quarters.  Housing loans are expected to come off to 11% due to the impact of new regulations to control household debt. The HP portfolio has also been recording average growths of close to 50% y-o-y since 2013.

Its consumer market share is still shy of 3%. AFG accounts for 2.7% of the entire loan market in Malaysia. — TA Securities, Dec 15

This article first appeared in The Edge Financial Daily, on December 16, 2014.

IJM appointed main contractor for WCE

IJM Corp Bhd
(Dec 15, RM6.42)
Upgrade to “buy” with an unchanged target price of RM7.20. The IJM Construction Sdn Bhd (IJMC)-Kumpulan Europlus Bhd (KEB) joint venture (JV) recently accepted the letter of award (LoA) from West Coast Expressway Sdn Bhd, appointing the JV the engineering, procurement and construction contractor to undertake and complete the construction works for the West Coast Expressway (WCE) from Taiping to Banting for a fixed sum not exceeding RM5 billion.

Pursuant to the LoA, the JV shall award to IJMC the WCE construction works for packages 3,4,5,8 and 9 at a cost not exceeding RM2.83 billion.

The construction period is five years. We are not surprised with the JV appointment as a main contractor as it was announced by KEB that the government had given the nod for the appointment in May this year.

We opine the above appointment could lead to an open tender stage for the remaining RM2.2 billion packages of the WCE project in the coming weeks and the contract award stage in the following months. We do not rule out the possibility of IJM Corp participating in the other work packages. Winning the other work packages could provide an earnings surprise for IJM Corp in terms of higher construction job replenishment and more demand for its industry products.

We make no changes to our earnings forecasts. Going forward, we expect to hear more positive news flow on the WCE development. On its recent share price weakness, we upgrade IJM Corp to “buy” with an unchanged target price of RM7.20. We advise investors to take opportunity to accumulate this stock. — MIDF Research, Dec 15

This article first appeared in The Edge Financial Daily, on December 16, 2014.

Kossan continues landbanking activities

Kossan Rubber Industries Bhd
(Dec 15, RM4.60)
Maintain “buy” with unchanged target price of RM5.05. Kossan announced last Friday the acquisition of a 13.3 acre (5.38ha) piece of freehold industrial land at Mukim Kapar in Klang, Selangor, for a cash consideration of RM39 million.

The purchase consideration implies a price tag of RM68 per sq ft. This is 40% higher than the price it previously paid for 9.3 acres of industrial land located close by in late 2013.

The acquisition will be funded via internally generated funds and/or bank borrowings, and is expected to be completed by the first quarter of financial year 2015 ending December 2015 (1QFY15).

Funding should not be an issue given the group’s low gearing level of 0.1 times as at end-3QFY14.

We understand the land is located near its existing plants. As such, we believe the site is well connected to necessary infrastructure for glove manufacturing, including natural gas supply. This should reduce the associated execution risks in the construction of new plants.

Management plans to develop this land after it completes the construction of two plants at the adjacent 15-acre site in 2016.

We are positive on this acquisition as it will help the group to achieve its long-term growth plan. Including this site, Kossan has 95 acres of vacant land available to drive its expansion plans.

Management guided that it could put up a warehouse and two plants with total annual capacity of 3.8 billion to  four billion gloves. This represents 18% to 19% of the group’s estimated production capacity at end-2015.
We maintain our “buy” rating on Kossan with an unchanged RM5.05 target price, based on 18 times FY15 earnings per share. We are keeping our earnings forecast unchanged, pending further details on the development plans for the land. — Alliance DBS Research, Dec 15

This article first appeared in The Edge Financial Daily, on December 16, 2014.

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.