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Sunday, December 20, 2009

RM1.85b tag for EONCap (RM6.58) stake

Singaporean Rin Kei Mei and Tan Sri Tiong Hiew King, who collectively hold a 32.57 per cent of EONCap, are willing to sell to Hong Leong Bank, says a BNP analystTwo major shareholders of EON Capital Bhd (EONCap) (5266) are willing to sell their shares to Hong Leong Bank Bhd (HLB) at RM8.20 a share, according to an analyst from BNP Paribas.

That price would be a premium of almost 25 per cent over EONCap's last closing price of RM6.58 on Thursday, giving the group a total value of RM5.68 billion. Singaporean Rin Kei Mei and Tan Sri Tiong Hiew King hold a collective 32.57 per cent of EONCap and the two are willing to sell, BNP analyst Ng Wee Siang said in a note reported by Reuters.

At RM8.20 apiece, HLB would pay about RM1.85 billion for that block. HLB could then push for EONCap to sell its assets, to kickstart a merger between the two banking groups. An asset sale would only require the approval of shareholders with a simple majority of 50 per cent plus one share, Ng said. Ng thinks that other big shareholders like the Employees Provident Fund and Khazanah Nasional Bhd, who hold another 20.7 per cent collectively, are likely to support the deal as their entry investment cost was below RM6 a share.

BNP has raised its target price for EONCap to RM8.30 as it thinks that the takeover of the group would be done at that price. On Thursday, HLB, currently the sixth biggest in terms of assets, received Bank Negara Malaysia's approval to start talks with "certain shareholders" of EONCap, which is ranked seventh.

"(The talks are) for a potential acquisition of the assets and liabilities, including equity interests in EONCap," HLB said in a statement to Bursa Malaysia yesterday. A combination of HLB and EONCap would create a group with total assets of RM121.41 billion. This means that HLB would be able to leapfrog RHB Capital Bhd, currently fourth biggest with assets of RM110.5 billion.

Source: www.btimes.com.my

Monday, December 7, 2009

Faber (RM1.49) mulls venturing into healthcare

KUALA LUMPUR: FABER GROUP BHD is toying with the idea of venturing into the healthcare business by owning hospitals in the future to broaden its income streams, said its managing director Adnan Mohammad.

Certainly, Faber is not content with just being the concessionaire for the sanitation and laundry services to the local public hospitals. The group intends to diversify into new businesses as well as to grow its overseas revenues in the Gulf region and India, according to Adnan.

“We are looking at it (building and owning hospitals). We would like to see a lot of non-organic growth and we are not discounting M&As (mergers and acquisitions) to expand the facility management business,” Adnan told The Edge Financial Daily in an interview.

Facilities management business, including laundry and maintenance services, accounts for 84% of its revenue. Faber, which is also a property developer, holds a 15-year concession ending October 2011 to offer services to 79 government hospitals in Perlis, Kedah, Penang and Perak, and East Malaysia.

According to analysts, Faber had in October submitted its application for a renewal of the concession, and its status would only be known in October next year. Besides the government concession, Faber also has operations in the United Arab Emirates (UAE) and India. Currently, only 5% of the group’s revenue is derived from overseas.

For the nine-month period ended Sept 30, Faber recorded a lower pre-tax profit of RM74.6 million against RM81.7 million in the previous corresponding period. Revenue was also lower at RM509.2 million compared with RM518.2 million previously.

Abroad, Adnan said Faber’s track record in the UAE would serve as a springboard for it to tap into the other Gulf Cooperation Council (GCC) countries. Last month, Faber announced that it had secured an infrastructure facilities management contract from the Department of Municipal Affairs of the Western Region Municipality (WRM) in Abu Dhabi. The job with an estimated annual contract price of AED154 million (RM141.8 million) may be extended at WRM’s discretion.

A few months earlier, WRM had awarded Faber two jobs of equal value with a combined worth of RM65.6 million where the Malaysian company would offer civil, mechanical and electrical maintenance services for low-cost houses in Abu Dhabi.More jobs are on the cards for Faber in the UAE. According to Adnan, the firm is bidding for a three-year hospital facilities management job in Abu Dhabi.“It’s quite sizable,” he said without elaborating. In India, Faber has a presence in New Delhi, Hyderabad and Chennai. It is also hoping to secure more airports contracts for electrical and sewerage maintenance services.

On its property development business, Faber’s real estate operations in Malaysia are also expanding. Adnan said Faber planned to launch some RM500 million worth of PROPERTIES [] in the Klang Valley next year. These include semi-detached and bungalow units under phase four and five of its Laman Rimbunan project in Kepong, besides landed residential entities under its phase 1A (Fleet) project within the Taman Desa enclave.

The property developer, with about 37 acres of undeveloped land across the Klang Valley and Sabah, is also eyeing opportunities in Johor Bahru, and Penang. “We are not discounting the major cities, such as Penang and Johor Baru,” Adnan said, adding that the company’s focus would still be in the Klang Valley. Faber hopes to secure more joint ventures with landowners, an expansion method deemed more economical compared to land acquisitions by the developer.

Shares of Faber had gained 109% so far this year, outperforming the 45% rise on the FBM KLCI. OSK Research Sdn Bhd analyst Norfauzi Nasron foresees, better financials for Faber from FY09’s fourth quarter onwards as the company continues expanding its facilities management business abroad.

The analyst said the expected renewal of Faber’s 15-year concession with government hospitals would allow the company to propose new prices for its facilities management services, as current rates have not been reviewed despite operating expenses having risen over the last 12 years.

“We reiterate our view that it is highly unlikely for the (15-year) concession (in Malaysia) not to be renewed given the substantial investments poured into it since the concession started, and the fact that Faber has the expertise and track record in the provision of such services,” Norfauzi wrote in a note to clients last Friday.

OSK is maintaining its earnings forecast for Faber, and fair value of RM2.15 for the company’s shares. The research house also retained its buy call on the stock. Based on Faber shares’ closing price of RM1.40 last Friday, the stock was trading at a price-to-earnings ratio (PER) of 8.71 times and price-to-book ratio of 1.6 times. The industry’s average PER stands at 14.31 times.

Source: The Edge

SAAG (RM0.175) secures US$120m Bangladesh power projects

KUALA LUMPUR: SAAG CONSOLIDATED (M) BHD has secured two projects to build power stations in Bangladesh with a total contract value of US$120 million. SAAG said on Friday, Dec 4 it had accepted a letter of award from Garisan Etika Bangladesh (Pvt.) Ltd to be the engineering, procurement and construction contractor for the power plants at the Adamjee Export Processing Zone, Bangladesh. The projects involved six 6MW power plants and two 34MW combined cycle plants to be built at the zone. SAAG said the agreed execution period was 15 months from commencement of the project works. The Project Sum shall be paid progressively over the project period. The project will be funded through bank borrowings, internally generated funds and/or corporate exercises.

Source: The Edge

Should have some run-up in share price as investors have been waiting for the announcement of this project award following SAAG's increase in inventories to RM332.7mil @ Sept 2009 from RM1.2mil @ Dec 2008 to procure turbo machinery/rig equipments funded by short term borrowings. Failure to secure this award could bring dire consequences to the company. Anyway, I think this one is somewhat similar to EPCC projects handled by Mudajaya. Should command higher margins I suppose. By simple calculation, US$120mil (RM408mil) over 15 months and net margin of 10%, net profit from this award could be RM32.6mil p.a. or EPS of 2.8 sen. If net margin of 5%, EPS will be 1.4 sen. Just by attaching a PER of 5x to earnings from this project should add at least 7 to 14 sen to its share price already. Worth a bet since its share price has been beaten down from 40 sen since May to a pathetic 17.5 sen currently.

Share Capital: 1,174.7mil
Mkt Cap: RM205.6mil

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

Sunday, December 6, 2009

Faber Group (RM1.40): A cheap bargain

Faber Group is principally involved in two main businesses, namely Integrated Facilities Management (IFM) and property development. Khazanah is currently the largest shareholder with an equity stake of 34.3% in Faber Group followed by Universal Trustee with an equity stake of 23.4%. Having the status of GLC (Government Linked Company), the company is poised to benefit from the potential consolidation of the healthcare sector, including possible M&A involving Faber Medi Serve and Pantai Medivest, both of which Khazanah is holding a substantial stake.

Integrated Facilities Management:
This division is currently the largest contributor to Faber's performance, accounting more than 80% of its revenue and net profit respectively while the remaining comes from its property development division. Its IFM consists of two divisions, namely healthcare and non-healthcare. Bulk of the revenue is from healthcare division, which provides services such as central management information, facility engineering maintenance, linen and laundry service, cleansing and janitorial service, clinical waste management and biomedical engineering maintenance. It is currently servicing 79 hospitals in Northern region of Peninsula Malaysia, East Malaysia, UAE and India. The company is holding a 15-year concession to service government hospitals which will expire in 2011. Faber most likely will be able to renew the contract in view of its track record and expertise in this area coupled with the fact that it's being held by Khazanah.

For 9 months ending Sept 2009, Faber has already recorded RM49mil net earnings just from this division alone. This division's net profit was RM43.5mil and RM38.3mil for FY2008 and FY2007 respectively. On top of that, it's recently awarded on 23rd Nov 2009 by Abu Dhabi government for improvement, development, upgrading and maintenance of infrastructure facilities and projects at Madinat Zayet, Abu Dhabi worth RM142.1mil p.a. with an option to extend its services by 1+1+1+1 years, which could further boost its earnings in 2010. Assuming net margins of 10% which is in line with Faber's historical margins for its IFM business, it will add RM14.2 mil to its earnings. Therefore, this division could hit more than RM70mil p.a. quite easily.

Property Development:
Its property division rebounded quite strongly with its revenue increasing from RM6.2mil in 1Q2009 only to RM42mil in 3Q2009. Consequently, it registered net profit of RM6.1mil and RM3mil for 3Q2009 and 2Q2009 respectively after two consecutive quarters of losses of RM1.2mil and RM9.3mil in 1Q2009 and 4Q2008 respectively, backed by its encouraging sales of its two ongoing projects, Laman Rimbunan, Kepong and Tmn Hilltop, Kota Kinabalu. Going forward, the company could be launching its exclusive residential project at Tmn Desa worth about RM170mil starting 3Q2010 which is timely as its current unbilled sales is estimated about RM90mil which could last until next year only. Currently, Faber owns about 40 acres of land worth RM700mil and is looking for new landbank via outright purchases or via JV with landowners.

Valuation:
Attractive. Assuming property earnings of RM15mil on the back of RM150mil revenue, in addition to RM70mil earnings from IFM, its net profit could reach RM85mil, translating into EPS of 23.4 sen. For conservative sake, by attaching 8x to PER 2010, its share price could reach RM1.87. At current price of RM1.40, it's still trading at 6x only, which is a huge discount considering its stable income from IFM business and recovering property earnings which should command higher PER. Price triggers include stronger quarterly earnings and more potential IFM awards coming from UAE or India. It has a strong balance sheet with net cash of about RM100mil @ Sept 2009, equivalent of 27.5 sen per share.

Share capital: 363mil
Market Cap: RM508.2mil
Net Profit for 2009 and 2010: RM60mil and RM85mil
EPS for 2009 and 2010: 16.5sen and 23.4sen
PER 2009 & 2010: 8.5x and 6.0x
Net Cash: RM100mil
Div Yield: 3.6%

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

Tuesday, December 1, 2009

Something on exit strategy

As we hear from recent news on countries such as G20 planning exit strategies for their respective stimulus packages costing trillions of US$ which helped their economies navigate out of the woods, this actually raise concerns among investors over the adverse implications that might befall the capital markets again. This shouldn't be a surprise as countries in the past have executed wrong policies which plunged their economies into recession again like what happened in Japan during 1990s and US in 1937-38. There are also some investors who are concerned that the impending exit strategies might include immediate interest rate hikes.

My opinion is that the tightening policies will be in a gradual and sequential manner and the governments cannot afford to repeat the mistakes made in the past. To recap, US actually doubled the reserve requirement in 1936-37, raised interest rates, cut fiscal spending and began collecting security taxes all at about the same time, resulting in much of the stimulus disappeared in a hurry. This plunged the economy into recession again in Sept 1937. In a similar situation, Bank of Japan hiked up interest rates in 1989 from 2.5% to 6% within a year, resulting in a recession that never quite pick up right until now.

Exit Strategy:
Just recently in an article by Ben Bernanke in Wall Street Journal, he mentioned 5 measures for US exit strategy as follow:
1. To raise the interests paid on banks reserves balances at the Fed
2. To arrange large scale reverse repurchase agreements
3. Treasury sells bills and deposits the proceeds with the Fed Reserves
4. To offer term deposits to banks to lock up banks reserves held at the Fed
5. To sell a portion of its long term securities to the open market if necessary

All these measures have an aim: To absorb the massive liquidity injected into the market and to control the excess reserves brought by quantitative easing programme. Despite the liquidity injection by the Fed to normalize the credit market, the banks are not so keen to lend out to the market but tend to put back into the Fed account, resulting in a sudden spike in excess reserves from an insignificant amount in Sept 2008 to US$1trillion in Nov!! If the market recovers again, the gigantic excess reserves could have a money multiplier effect which would cause disastrous consequence. On that note, it is imperative for US government to withdraw these stimulus measures and normalize the financial market again.

Interest Rate Hike:
What about interest rate hikes in US? I think this will still be a distance away for US as the economy remains fragile, unemployment rate remains high, CPI still negative while domestic demand remains weak. Only very few countries can afford interest rate hikes such as Australia and Israel. Australia raised interest rate by 3 times within the last two months to 3.75% from 3%. Until and unless these numbers start improving in US, interest rate hike will not happen. Some estimated that they'll only raise it in 3Q2010 or 4Q2010.



From the graph above, unemployment rate and interest rate movement are inversely proportional to each other while interest rate movement is lagging behind CPI and utilization rate. With unemployment rate expected to remain high even for the rest of 2010 coupled with deflationary environment and low domestic demand, interest rate hike might not happen in the near term or until after financial markets could function normally again without the excess liquidity in the market brought by the stimulus measures.

Impact to equity market?
Some argue that interest rate hikes will adversely impact the equity market. The reason being it will restrict money supply and liquidity in the market will be limited, thus putting downward pressure on the equity market. However, the last 2 interest rate hike cycles in US were showing quite the contrary.
The interest rate hike seems to be following the trend of the equity index. This might be because interest rate hikes usually occur during the late recovery and expansionary stage where corporate earnings start growing again (the main determinant of equity prices in the long run).

Hmmm, so, will there be another second dip? It will depend on how wise the governments are in altering the fiscal and monetary policies in tandem with the economic conditions. For me, there's a low likelihood of it occurring again and governments cannot afford to repeat mistakes made in the past again. Exit strategies for the stimulus packages are expected to be gradual as well and will not be immediate. Slow recovery ahead...

Wednesday, November 18, 2009

AZRB (RM0.945) clinches RM309m PWD project

KUALA LUMPUR: AHMAD ZAKI RESOURCES BHD (AZRB) has secured a project from the Public Works Department worth RM309.37 million to build a complex along Jalan Sultan Salahuddin, Kuala Lumpur. "The works are to be completed within the period of 130 weeks, that is commencing from Dec 1, 2009 to May 28, 2012," it told Bursa Malaysia on Wednesday, Nov 18. AZRB said the project was expected to contribute positively to the AZRB group’s earnings and the net tangible assets for the financial years ending 2009 to 2012.

Source: The Edge

Commentary:

Construction & Valuation: This job award will possibly add about RM5mil earnings or 1.8sen EPS annually assuming EBIT margins of 4.5%. By imputing this job award, outstanding orderbook stands at about RM1.2bil to last for more than 2 years. Assuming construction revenue of RM600mil annually for the next two years and EBIT margins of 5%, construction EBIT should be at RM30mil. Its bunkering service should provide another RM14mil in addition to EPIC's earnings contribution of about RM8-10mil. Total EBIT will be about RM52mil-54mil. Minus interest expense of RM14mil and taxes of about RM10mil, net profit should be around RM30mil for FY2010-11. EPS will be about 10.8 sen while PER 2010-11 will be at 8.8x, reasonably cheap in my opinion, considering the potential small-mid size job awards from government pump priming, revived construction margins (It was hard hit in 2008 from high construction material costs, resulting in 29% y-o-y decrease in earnings) and potential earnings contribution from its plantation venture starting 2010. Note that the earnings forecasts above have not imputed possible earnings contribution from its plantation business.

Plantation Business: The more exciting part will be its plantation business in Indonesia with plantation land area of 20.5K Ha. Earnings contribution from this division should come in 2010-2011 as they started planting since end of 2007. Based on 20.5K ha, assuming FFB (Fresh Fruit Bunch) yield of 20MT/Ha/year, OER (Oil Extraction Rate) of 20% and planted area of 75%, plantation could potentially yield 61.5K MT of CPO (Crude Palm Oil) a year or revenue of about RM150mil at RM2,400/MT CPO price. Assuming 10% net margin, net earnings could reach RM15mil or 5.4sen EPS, potentially boosting its total EPS to 16.2 sen by 2011. Having said that, the risk of investing in a business unrelated to their construction line of business should be of concern. Hopefully they'll be able to manage it well and not end up with the same fate as Tradewinds Plantation and Kulim whose venture into Indonesia plantation turned out unsuccessful. Wait and see.

Share Price: RM0.945
Shares Issued: 276.64mil
Market Cap: RM261.4mil
Net Profit for 2010 & 2011: Approx RM30mil
EPS: 10.8sen
PER 2010-2011: 8.8x
Share Price Triggers: Project awards, stronger quarterly earnings, earnings growth from its plantation business.

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

Naim’s (RM2.95) 3Q profit up 44% to RM21m

Naim Holdings Bhd posted a 44% rise in net profit to RM21.4 million in its third quarter (3Q) ended Sept 30, 2009 from RM14.88 million a year earlier on the back of a 10.8% rise in revenue to RM144.46 million from RM130.33 million. Basic earnings per share (EPS) rose to 9.02 sen from 6.11 sen. It had on Sept 15, 2009 paid a first interim single-tier dividend of three sen per share. For the nine months to Sept 30, 2009, net profit rose 11.6% to RM59.89 million from RM53.66 million a year earlier, while revenue fell 1.7% to RM374.11 million from RM380.59 million. EPS rose to 25.26 sen from 22.04 sen.

Source: The Edge


Commentary:
A good counter to get exposure into the Sarawak construction sector. Current outstanding construction orderbook is approximately RM820mil which could last them for more than 2 years (Construction revenue is about RM300mil p.a. while property development revenue is approximately RM200mil). A strong contender for Sarawak projects.

Construction Orderbook: Naim is currently holding RM1.3bil (Could be revised up to RM2bil) LOI (Letter of Intent) for Kuching flood mitigation project of which Naim holds 50%, to be implemented over 10MP. This will translate into RM130mil p.a. revenue for Naim over the next 5 years. To recap, Naim has been awarded Phase 1 of this project worth RM149mil and works are still ongoing. This will further increase the likelihood of the following phases being awarded to Naim. Naim is also aiming for supply and installation of college equipment project worth RM100mil which is still at LOI stage, possibly converting into award in 3Q2010. Naim managed to secure about RM257mil worth of jobs YTD and possibly could replenish around RM400mil p.a. in 2010-2011 given the government's effort to speed up infrastructure projects in Sarawak ahead of Sarawak's state election somewhere in 2011. In addition, Naim is also offered a project to rehabilitate Fiji's national highway worth US$100mil (RM345mil). Nonetheless, it has not yet accepted the offer pending several issues to be ironed out.

Valuation: Valuation remains attractive. Net profit expected to exceed RM80mil in 2009 and could reach even RM95-100mil in 2010 backed by improving property sales in tandem with economic recovery, strong construction margins and potential awards from Fiji and SCORE (Sarawak Corridor of Renewable Energy). Earnings are further supported by its stake in Dayang which contributes more than RM20mil of earnings annually. EPS for 2009 and 2010 should be at least 32 sen and 38 sen respectively (Excluding earnings contribution from Borcos), translating into PER 2009 and PER 2010 of 9.2x and 7.7x respectively. On top of that, Naim's 36% associate company, Dayang also recently acquired 40% stake in Borcos which could contribute earnings of about RM9mil or 3.6 sen per share annually.

Assuming EPS 2010 of 41.6 sen (38 sen + 3.6 sen), share price should be above RM4.00 just by attaching PER of 10x. Share price should surge on more awards of projects, brighter property market outlook and stronger quarterly results performance.

Shares issued: 250mil
Market Cap: RM737.5mil
Net Gearing: 16%
Div Yield: 2.5%
Share Price: RM2.95
Revenue 2009 & 2010: RM530mil, RM650mil
Net Profit 2009 & 2010: RM80mil, ~RM100mil
PER 2009 & 2010: 9.2x & 7.1x

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

Friday, November 13, 2009

NSTP (RM2.40) Privatization: Revised Offer

  • Better swap ratio of 1.2 Media share for every 1 NSTP share.
  • NSTP dividend of 40 sen to be paid on 7th Dec 2009.
  • 1 free Media Prima's warrant for every 5 offer shares accepted.
Therefore, NSTP shares should be valued at:
RM2.40 + 40 sen dividend + 10 sen implied dividend = RM2.90


Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

Thursday, November 12, 2009

Media Prima (RM1.70) to raise offer for NSTP (RM2.00); NSTP declares special dividend of 40c per share tax exempt, payment date Dec 12

Media Prima Bhd is expected to revise upwards its offer for The New Straits Times Press (Malaysia) Bhd (NSTP) shares it does not own by improving the swap ratio. Sources said Media Prima would offer at least 1.1 Media Prima shares for every one NSTP share, marginally above its previous one-for-one offer.

“They are upping the offer from its original one Media Prima share for every NSTP share. The improved offer of 1.1 Media Prima shares for every one NSTP share will value NSTP at RM2.20 per share compared with RM2 previously. The revised offer could even go up to 1.2 Media Prima shares for every one NSTP share. Regardless, the offer will be upped to at least RM2.20 per NSTP share,” said a source.

“This is to help the acceptance rate for the offer. Institutional shareholders are believed to be okay with the previous offer but the retail investors were not that pleased.” Apart from a direct swap of shares, Media Prima in its proposal to privatise NSTP is also offering one Media Prima warrant for every five NSTP shares held.

It is learnt that there is not likely to be any change to the offer on the warrants. In a further move to appease minority shareholders, sources said NSTP could also declare a special dividend. If that happens, a big chunk of the money will go back to Media Prima, which is the major shareholder of NSTP.

Yesterday, both Media Prima and NSTP requested for a two-day suspension in the trading of their respective stocks pending an announcement. “The request for suspension is in view that the company will be making an announcement on the revision of the terms and conditions of the proposed offer,” noted Media Prima.

Media Prima’s proposed privatisation of NSTP is not well received by the minorities of the latter as it is less than half its book value and at 18.7% discount to its last traded price of RM2.46. Even so, some have argued that NSTP’s shares had been trading below RM2 for a long time and had only started moving up lately because of the takeover rumours. NSTP’s average one-year trading price is RM1.35. This means, at RM2, the price is at a 48% premium to its one-year average price. NSTP closed at RM2 on Tuesday, before its suspension, while Media Prima closed at RM1.70.

Another update:
The New Straits Times Press (M) Bhd (NSTP) declared special dividend of 40 sen per share tax exempt. "The board has declared a special dividend on the basis that the company has a substantial amount of retained earnings which can be rewarded to shareholders," said NSTP on Thursday, Nov 12 the entitlement date. The payment date is Dec 12.Shares of NSTP is suspended and will resume trading on Friday, Nov 13.

Source: The Edge


Commentary:
Have been having quite an experience with this NSTP counter. Anyway, quite 'snake' (in Cantonese means sly) lor in this whole dealing. To recap, investors were banking on NSTP's NAV of RM4.53 to gauge at what price Media Prima (Media) will be privatizing and Media came up with a meager valuation of just RM2.10 (including 1 Media warrant for 5 NSTP shares) via 1 for 1 share swap at an issue price of RM2.00 (Media Prima's share price at that time was only at about RM1.70).

This was a huge 54% discount to its NAV and 15% discount to its closing price before announcement of RM2.46. After the announcement, the price plunged till about RM2.00 currently. The management's reasons for valuing NSTP at this price was because it's been trading below RM2 all this while before any talk of privatization and it cannot take into account its high NAV arising from its valuable properties in Bangsar as they are operating assets (Well, if I'm the owner, I could just move my operations to other cheaper places like Shah Alam and sell my properties in Bangsar or make it into a property company, which will give me higher returns as Bangsar's land is so valuable. How can I not take this into account? Maybe someone could explain this to me.)

Nonetheless, this is a good turnaround for the disgruntled minority shareholders of NSTP. There are talks of swap ratio of 1.1x or 1.2x, thus valuing NSTP shares at RM2.20 or RM2.40. In addition, another 40 sen dividend will be paid on 7th Dec 2009, making the deal even sweeter. I expect NSTP share price to shoot up again on this piece of news. Anyway, just food for thought, if I'm the shareholder and I'm calling the shots in all these deals, I'll sure have a hefty gain from all these turnaround events.

*Rough estimation for NSTP share price: 40 sen dividend + RM2.20 issue price at swap ratio of 1.1x + 10 sen implied warrant = RM2.70

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

Wednesday, November 11, 2009

Mudajaya (RM4.10) surged on excellent results!!

Mudajaya just posted its results this evening. Its performance was excellent, even beating my expectations for this year. This year's net profit most likely will exceed RM100mil which translates into 27 sen per share. Consequently, the share price shot up by 22 sen in anticipation of the favorable quarterly results.

Performance: On y-o-y basis, revenue and net profit rose 78% and 337% respectively whereas its net margin rose to 17.7% from 11.8% in 3Q2008 and 14.5% in 2Q2009. On q-o-q basis, revenue increased 9.5% while net profit was up 33.4% due to higher margins. Cumulative wise (9-month ending 3Q2009), revenue and net profit rose 173% y-o-y and 218% y-o-y respectively. The better performance was due to increased revenue contributions from its construction activities.

Prospects: For more info, please click here (my previous post)


Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

Semiconductor: Supply crunch coming in 2010? Recovery ahead but equipment investments still at all time low (Unisem - RM1.54)

Recovery: Global chip sales have rebounded strongly since Feb 2009 to US$19.1bil in Aug 2009 after plunging in Sept 2008 from US$23bil to just US$14.2bil in Feb 2009. The sales figure managed to recover in just 6 months from mid-2003 levels to mid-2005 levels. In addition, BTB ratio, an indicator of semiconductor outlook, has also picked up from 0.47 in Jan 2009 to 1.17 in Sept 2009 in anticipation of global demand recovery. Demand will firm up in line with the recovery in major economies which are turning positive from negative territory. According to IC Insights, semiconductor industry could improve by 10.2% in 2010 and a further 8.4% in 2011, led by PC & cell phones which account for 60% of semiconductor consumption.

Equipment billings at all time low and capacity is down: Despite improving sales, global semiconductor production capacity is still declining, down from its peak of 2.43mn wafer starts/week in 3Q2008 to 2.1mn wafer starts/week in 2Q2009, due to production cuts worldwide amid drop in demand. Also, global equipment billings on semiconductor equipment are at historical lows, at US$2.67bn in 2Q09 from US$11.17bn in 3Q07, the start of US housing crisis. Against this backdrop coupled with stronger demand in 2Q2009, utilization rate rose sharply from 56% in 1Q2009 to 77% in 2Q2009.

Buyer’s market turns to seller’s market in 2010? Although semiconductor prices will remain weak in 2009 due to weak demand, the baton will be passed to become a seller’s market. Reduction in global production capacity, coupled with historical low capital spending, capacity shortage might flare up should demand pick‐up strongly in 2010 as utilization rate would have peaked. Even if the North American equipment billings do increase by 47% to US$8.0bn in 2010 according to SEMI, it might still be inadequate to significantly increase production capacity and will probably lead to firmer selling prices in 2010.

Unisem (RM1.54):
Growth will be driven by their China operations with the management intending to grow its business in China by 100% p.a. Unisem plans to increase China's revenue contribution from 12% to 50% within 2-3 years. The low cost structure and tax incentives given to them in China also bode well for them. Share price movement has been trading between RM1.44 to RM1.70. Will have greater room for upside with stronger quarterly earnings, earnings expansion from its China's operation and possible listing of its China's operation.

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

Thursday, November 5, 2009

Promising prospects for Penang property sector: IJM Land (RM2.33), SP Setia (RM3.85), Mah Sing (RM1.80), Eastern and Oriental (RM1.08), Hunza (RM1.42)

CIMB Equities Research is upbeat about the prospects for Penang Properties and maintained its trading buy call on the sector and all the developers under its coverage. The recent pullback in share prices in the wake of the unexpected 5% real property gains tax (RPGT) levy provides a buying opportunity, it said in a research report today.

"Catalysts for the sector include better-than-expected sales from Penang projects; the strong stock market performance over the past six to seven months, and economic recovery from 4Q09," it said. It said Invest Penang, the state's investment agency, disclosed during a briefing that the state planned to invite proposals for the development of five parcels of land, four of which are on the island and one on the mainland.

"We understand that big developers including SP Setia and Mah Sing are showing keen interest in some of the strategically located landbank. Their participation in these projects will not only help accelerate development in Penang but could also be a significant share price catalyst if pricing is fair," it added.

The research house also said IJM Land and Mah Sing had big ambitions to build new commercial centres in their projects. IJM Land’s 152-acre The Light project has a plot ratio of two times, meaning that it can build 13 million sq ft of space on reclaimed land north of the Penang Bridge.

Mah Sing’s Southbay project S Pans 34 acres and the group is looking into the feasibility of reclaiming an additional 20 acres to 50 acres of land near the Second Penang Bridge. With a plot ratio of three times, the group could build up to 11 million sq ft of commercial space. However, CIMB said it was somewhat cautious about the outlook for commercial space in Penang because of its smallish population and the fact that its office and retail occupancy rates are among the lowest in Malaysia.

As for the residential sector, it said the outlook was still strong. It was more optimistic about the prospects for landed residential property on the island or even seafront condominiums. Residential property prices have gone up significantly in recent years due to supply constraints and the influx of Klang Valley developers. The high quality and exciting property products offered by these aggressive developers will not only attract upgraders from Penang, but also buyers of holiday homes from Kuala Lumpur, Singapore and Hong Kong, CIMB Research said.

"E&O and IJM Land have significant future supply of seafront condos on reclaimed land and would be the prime beneficiaries of robust demand. E&O’s Seri Tanjung Pinang project has a gross development value (GDV) of RM13 billion to RM15 billion while IJM Land’s The Light has a GDV of RM5.5 billion. SP Setia and Mah Sing are aggressively scouting for more landbank on the island to increase their exposure there," it said.

CIMB Research said for exposure to the Penang property market, Hunza Properties was the purest play while E&O has the largest landbank and sales potential. IJM Land has the second highest GDV exposure in Penang while news flow on landbank acquisitions could be strongest from S P Setia.

"For investors who are bullish about commercial developments on the island, IJM Land and Mah Sing are the most aggressive. However, if demand for commercial property is really so strong, there is nothing to stop E&O from directing more of its Seri Tanjung Pinang land towards that usage and maximising its plot ratio of two times as well," the research house said.

Source: The Edge

Scomi Engineering (RM1.43) Q3 net surges nearly threefold

Scomi Engineering Bhd's third quarter net profit for the period to September 30 2009 jumped nearly threefold to RM11.8 million, mainly due to strong contributions from its rail business. Revenue rose by a third because of higher contribution from overseas markets led by India.

The logistic engineering division recorded higher sales from its rail unit with the start of a monorail project in India, it said in a statement to Bursa Malaysia yesterday. Scomi Engineering said it continued to derive 71 per cent of its revenue from overseas markets with India contributing 39 per cent. For the nine months to September, Scomi Engineering posted a net profit of RM49 million on revenue of RM400 million.

President Hilmy Zaini said the recent global economic downturn, which led to shrinking drilling activities in the oil and gas sector, had affected the company's energy engineering business. But it will continue to contribute positively to its earnings for the remaining quarter with the expansion of existing facility in Indonesia and relocation of Australia and Thailand machine shops to better facilities.

As for the logistics engineering business, contribution from the rail unit will continue to lead the company throughout 2009. "With the worldwide increase in demand for efficient, reliable and cost-effective transportation solutions, we anticipate that the core business driver from 2009 onwards will be in the public transportation sector," Hilmy said.

Hilmy said Scomi Engineering will continue to pursue opportunities in monorail projects and establish a global presence. The company sees several potentially big monorail projects in Sao Paolo after Brazil recently secured the rights to host the 2014 World Cup and 2016 Olympics.

Source: www.btimes.com.my

Commentary:

Performance: On y-o-y basis, earnings jumped nearly threefold, mainly contributed by its monorail projects and partly due to improved margins from its Machine Shop Division. Nonetheless, net profit actually dropped by 38% on q-o-q basis due to lower revenue recognition from its rail projects and weaker connector sales from its Machine Shop Division.

Monorail: Going forward, earnings will continue to be led by its monorail project. To recap, Scomi Engineering secured a monorail project in Mumbai costing RM1.85bil of which Scomi Engineering's stake is valued at RM823.3mil. The monorail is 19.5km long and construction will last 30 months (around April 2011). As shown by its performance over the past 3 quarters, its monorail project contributed a large part of its revenue and earnings, sustaining its performance amid declining sales from its Machine Shop Division. Earnings will most likely be maintained or rise even higher for the next 1.5 years on the back of higher recognition from its monorail project.

Machine Shop: On top of that, the management also indicated that its Machine Shop Division is expanding its facility in Indonesia and relocating its machine shops in Australia and Thailand to bigger and enhanced facilities. Coupled with continued efforts to optimize its operations and control overheads & costs, this division will continue to perform satisfactorily.

More monorail projects to come? The company is currently bidding for monorail projects in Brazil (US$2.5bil - Gigantic!!), Bangalore-59km (US$2.4bil - To start in mid-2010 and complete in 2013) and Bahrain-23km (US$1bil - To start in 3Q2010 and complete in 1Q2016). Should the company secure any of the monorail projects, earnings will surge in the coming years with EBIT margins above 10%. Globally, it is one of only two integrated monorail system providers to offer end-to-end solutions including fabrication and integration of the monorail rolling stock (travelling component of a rail system) & electro-mechanical system, which further enhance its chance of bidding for these projects successfully.

Valuation: Net profit might touch RM60mil in 2009 and even higher in 2010 on the back of recovery in drilling activities in the oil & gas sector, without imputing any successful bids in monorail projects. This translates into EPS of at least 21.7 sen and PER 2009 of only 6.6x. Price should surge with awards of these monorail projects and stronger quarterly earnings going forward. Stock is quite cheap in my opinion.


* Logistics Engineering - Including monorail project
Energy Engineering - Including Machine Shop

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

Wednesday, November 4, 2009

Palm oil prices expected to start rising from Dec

Global palm oil prices are likely to rise from December because of reduced stocks and sunflower oil prices are also set to increase, Hamburg-based oilseeds analysts Oil World forecast yesterday. "Owing to declining stocks, palm oil prices are likely to appreciate from December onwards and may rally by US$80 to US$150 (a tonne) until March or April 2010," it said.

The benchmark January palm oil contract on Bursa Malaysia Derivatives Exchange traded around US$639 (US$1 = RM3.42) a tonne on Monday. Global October 2009/Sepember 2010 palm oil production is likely to rise 2.7 million tonnes on the season to a record 46.5 million tonnes, it said. But the likely higher output will be partly offset by lower season carry-in stocks.Global palm oil stocks in October are estimated by Oil World to be 300,000 tonnes down on the year.

Palm and soyaoil would benefit from a generally bullish price outlook for other edible oils caused by declining prices and supplies it said. "We are most bullish on the prices of sunflower seed and oil," it said. Following falls in sunflower seed crops in Argentina and other countries, it estimated sunflower oil prices could rise by US$120 to US$150 a tonne or more in the next three to eight months from their current level of around US$780 a tonne.

Source: Reuters

Scomi Marine, Faber, Bina Puri, Time Engineering

Higher earnings for Scomi Marine
KUALA LUMPUR: Scomi Marine Bhd reported a 25.1% increase in net profit to RM25.52mil on revenue of RM116.11mil for the third quarter ended Sept 30. The company attributed the improved profit margin to the lower operating expenses, including bunker costs.In a statement, it said revenue dropped 4.6% to RM116.108mil from RM121.66mil in the previous corresponding quarter. President Mukhnizam Mahmud said the long-term fundamentals of the oil and gas and coal industries were still intact.

Source: biz.thestar.com.my

Faber profit up 46% in Q3
Faber Group Bhd posted a 46% increase in net profit to RM19mil for its third quarter ended Sept 30 (FY09), compared with RM13mil in the previous corresponding period.Revenue stood at RM197.8mil against RM163.1mil previously.In a statement, Faber attributed the growth to improved revenue and pre-tax profit contributions from its integrated facilities management division.

Source: biz.thestar.com.my

Bina Puri unit wins RM20mil job
Bina Puri Construction Sdn Bhd has secured a RM19.7mil project in Mabpai, Kota Kinabalu, to build a seven-storey apartment block, a clubhouse and related infrastructure facilities.The wholly-owned subsidiary of Bina Puri Holdings Bhd received the letter of award from Arkitek Oma Sdn Bhd for the Taman Tiara Phase One project.Bina Puri said in a statement the construction of the 30 apartments was expected to be completed in 18 months.Currently, the group’s order book stands at RM2.39bil as it managed to secure new projects worth RM1.41bil this year.

Source: biz.thestar.com.my

Time Engineering seeks removal of PN17 status
KUALA LUMPUR: TIME ENGINEERING BHD has sought the approval of Bursa Malaysia Securities Bhd for the lifting of its Practice Note 17 (PN17) status of the Main Market Listing Requirements. The company said on Tuesday, Nov 3 that it had fully addressed its financial and operational viability following the completion of its debt and capital restructuring. It said that it had written to Bursa Securities for the lifting of its PN 17 status and also withdrawal of an application not to go ahead with its private placement. "As such, with the notification to the SC today on the discontinuance of the proposed private placement, Time had completed all proposals for its restructuring exercise," it said. The share price fell six sen to 44.5 sen with 85.7 million shares done.

Source: The Edge