Saturday, October 31, 2009

New LCCT site clearing works to start next month

The site clearing works for the new low cost carrier terminal (LCCT) in Sepang will begin next month, said Malaysia Airports Holdings Bhd (MAHB) chairman Tan Sri Dr Aris Othman.“We divided the project into more than 30 packages and will involve different consultants,” he told Malaysian reporters here for the official launch of the Istanbul Sabiha Gokcen International Airport today.

The new LCCT project, worth RM2bil, is scheduled for completion by the third quarter of 2011, following which the existing LCCT would be converted into a cargo-handling terminal.Deputy Transport Minister Datuk Abdul Rahim Bakri said the works for the new terminal included the development of the runway, taxiway, parking bays, terminal, control tower, fire station and related facilities like hotel, retail shops and food and beverage outlets.

The project also involves the extension of the 2km Express Rail Link, linking the main terminal of KLIA to the new LCCT, estimated to cost some RM100mil, which is part of the Government’s stimulus package.Rahim said the existing LCCT was congested as it had already breached its initial capability of handling 10 million passengers. In anticipation of the strong growth in tourist arrivals, the new terminal would have a capacity of 30 million passengers, he said. Tourist arrivals in the first eight months of this year amounted to 15.38 million.


Potential beneficiaries: WCT, Gamuda, Fajarbaru

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, October 30, 2009

US economy returns to growth in 3Q after deep slump

WASHINGTON: The U.S. economy grew in the third quarter for the first time in more than a year as government stimulus helped lift consumer spending and home building, fueling an unexpectedly strong advance, according to Reuters on Thursday, Oct 29.

Signaling the end of the worst recession in 70 years, the Commerce Department on Thursday said the economy expanded at an annual rate of 3.5 percent in the July-September period, snapping four down quarters with its fastest growth pace since the third quarter of 2007.

The report buoyed global stock markets, which were also cheered by improving third-quarter corporate earnings, including higher-than-expected profits from consumer product giants Procter & Gamble Co and Colgate-Palmolive Co.

It raised hopes for further improvement in corporate profits and sent stocks on Wall Street rallying after four days of losses. The Dow Jones industrial average and the Standard & Poor's 500 Index notched their biggest percentage gains since July 23.

Prices for U.S. government debt and the U.S. dollar fell as traders exited safe havens. "The economy has emerged with gusto from the deepest recession since World War Two," said Harm Bandholz, economist at UniCredit Markets and Investment Banking in New York. "The short-term prospects for the economy remain good."

Economists polled last week had expected a 3.3 percent GDP gain, but many had cut those estimates in the past couple days. As it turned out, growth was fairly broad-based with solid gains in consumer spending, exports and home CONSTRUCTION [].

But it was also driven by emergency government programs like the popular "cash for clunkers" incentive for new auto purchases and an US$8,000 tax credit for first-time home buyers. The auto discount program ended in August and the home tax credit is due to expire next month, although Congress is working on a plan to extend it.

Stripping out auto output, the economy would have expanded at only a 1.9 percent rate in the third quarter. In the absence of government support, there are fears the brisk growth pace will not extend into coming quarters, with rampant unemployment also inflicting damage.

"The economy is entirely dependent on federal deficit spending at the moment. But the stimulus will not fade right away ... that means we can rely on solid growth continuing through the first quarter of next year," said Chris Low, chief economist at FTN Financial in New York.

"Once the government steps aside, growth is likely to fall back to a 1 to 2 percent rate of growth." The United States is entering recovery following in the footsteps of major economies like China and the euro zone.

Source: Reuters

Scomi (RM0.565) may sell assets to raise RM350m

Scomi Group Bhd (7158)might sell some of its major assets to raise as much as RM350 million in cash, a research firm said."The company hinted about disposing of three of its twelve divisions but remained silent on possible candidates," analyst Kaladher Govindan wrote in a report for TA Securities after meeting company managers.

Scomi has debts of RM1.26 billion at the end of last year, and the sale could raise money for its capital-intensive rail business. "It is already negotiating with a few parties on some disposals that would help raise some cash to expand its monorail business," wrote Kaladher.

The assets that could be on the block are Scomi's 29 per cent stake in the Singapore listed CH Offshore Ltd, its machine shop business and its marine logistic business.The machine shop business helps provide support equipment for the oil and gas sector, while the marine logistics business help ferry coal from Indonesia for Tenaga Nasional Bhd, among others.

Meanwhile, Kaladher expects Scomi Engineering Bhd to be the main earnings driver for the group, driven by its public transportation business, as there are limited competitors for the monorail business. However, the research house is lowering its profit forecast for Scomi Engineering after capping full-year sales contribution from its Mumbai monorail project to RM235 million.

The figure is lower than the targetted RM315 million because the project is behind schedule. As such, TA expects Scomi to register a net profit of RM77.1 million for the year to December 31 2009, its lowest profit in five years. Scomi made a net profit of RM116.6 million in 2008, versus a net profit of RM257.1 million in 2007.

Sunrise (RM2.12) plans projects worth RM1.5b in KL

SUNRISE Bhd plans to launch two new property projects worth some RM1.5 billion in Kuala Lumpur over the next four months. Executive chairman Tong Kooi Ong said Sunrise will launch 28 Mont' Kiara, a 41-storey tower featuring 460 units of condominiums, each ranging from 3,000 sq ft to 4,000 sq ft, this December.

Early next year, it will launch Solaris KL, two 30-storey towers with 550,000 sq ft of office space on Jalan Sultan Ismail. Sunrise has done the foundation for 28 Mont' Kiara and hopes to start construction in December, completing it in three years. He said work on Solaris KL will start early 2010 and the project will be ready in four years.

"We believe the market will do well next year. We are confident of sales because of the location and features of the properties," he said after a shareholders' meeting in Kuala Lumpur yesterday. Sunrise has applied to obtain the Green Mark certification for Solaris KL, which is issued by the Singapore government and awarded to buildings that are environmentally friendly.

Its 11 Mont' Kiara is the first local residential project to receive the Green Mark. Solaris on the Park, a mixed development in Mont' Kiara, which is yet to be launched, has also won the Green Mark. Tong is optimistic Sunrise will do well with unbilled sales of RM860 million, which will underpin its earnings for the next two years to 2011. Most of the unbilled sales or sales that have yet to be booked into its accounts were from higher margin products in Mont' Kiara.

Last year, Sunrise made a net profit of RM156.2 million on revenue of RM803.9 million. Among the projects Sunrise will launch in 2010 are Solaris on the Park, and a RM1 billion residential project in Richmond, Canada. Sunrise will launch a mixed development project on 0.6ha of prime land opposite the Petronas Twin Towers where Wisma Angkasa Raya now sits in 2011.

"We have done a market study in terms of the various composition of properties, whether it would be a hotel, a condominium or an office block, with retail space. We have decided what we want. We are at the stage of appointing architects now," Tong said. The 24-storey Wisma Angkasa Raya, which is around 30 years old, is Kuala Lumpur's first high-rise office building. Sunrise paid RM179 million for land and property last year.


Thursday, October 29, 2009

Alam Maritim (RM1.89) subsidiary bags two jobs worth RM36.98m

Alam Maritim Resources Bhd, which provides support services for the oil and gas industry (O&G), announced that its 60% owned subsidiary Workboat International DMCCO was awarded two contracts from a main contractor of oil majors that is cumulatively worth RM36.98 million.

One of the contracts is for the supply of a unit of accommodation /crane barge for a total contract sum of approximately RM20.13 million while another is for a contract sum of RM16.85 million.

The first contract of RM21.13 million is for a period of 191 days with option for extension. The vessel will be operating in Indian water and the contract is expected to contribute positively to Alam Maritim's earnings and net assets for the financial year ending Dec 31, 2009, and beyond.

The second job of RM16.85 million, is for the supply of a unit of diving support and maintenance vessel, namely MV Setia Sakti. The contract is for a period of 187 days and the vessel will also be operating in Indian water.


SP Setia (RM3.81) to develop RM2bil mixed development in China

SP SETIA Bhd, the country's biggest property developer, will develop a RM2 billion mixed development project in XiaoShan, Hangzhou City in China, scheduled to begin in the first quarter of 2010. This will be SP Setia's maiden project in China, in a joint venture (JV) with Chinese landowner, Hangzhou Ju Shen Construction Engineering Ltd (HJSCEL).

SP Setia, through its subsidiary Setia (Hangzhou) Development Co Ltd, holds a 55 per cent stake in the JV, while HJSCEL has a 45 per cent stake. Work on the 10ha project will be completed in four phases over five years. It features 11 residential towers, five office blocks, serviced apartments, a four-star hotel, a 300,000 sq ft retail mall and signature shops, said SP Setia president and chief executive officer Tan Sri Liew Kee Sin.

"We are awaiting for approvals from the Chinese authorities. We hope to get them by early 2010 and start Phase 1 of the project immediately," he said after the signing of the JV agreement with HJSCEL in Shah Alam, Selangor, yesterday. The event was witnessed by Housing and Local Government Minister Datuk Kong Cho Ha. "Phase 1 includes commercial properties and service apartments worth RM500 million," Liew said. "We are not looking at borrowings as it is a self-funded project. We are developing the properties on a sell-and-build concept," he added.

However, it will retain the mall to control its tenant mix.The service apartments will be pegged at RM400-RM500 per sq ft, while the commercial properties will go for RM500 per sq ft onwards. "Our first income from this project will come in two years. The project will contribute positively to the future earnings and cash flow of SP Setia. It will also tell the world that we are ready to be an international property player," Liew said.

Liew said SP Setia is in talks with other landowners in China to form JVs, with priority to develop in Hangzhou. He added that the company has a five-year plan to get 30 per cent of its net profit and revenue from overseas projects by 2014, from 2-3 per cent currently. "We will focus on Vietnam and China for the next few years."


Wednesday, October 28, 2009

WCT (RM2.68), Iskandar to develop RM600m condos

WCT Bhd and Iskandar Investment Bhd will jointly develop and co-own the 4.4-hectare 1Medini residential project inMedini Iskandar, Johor with a gross development value (GDV) of RM600 million. The project will be developed by One Medini Sdn Bhd, a 70:30 per cent joint venture between WCT's subsidiary, WCT Land Sdn Bhd and Medini Land Sdn Bhd, a subsidiary of Iskandar Investment.

WCT chairman Datuk Captain Ahmad Sufian attributed the involvement of the company in the 1Medini project as a bonus because WCT had already awarded RM766 million worth of infrastructure works in Medini Iskandar in July this year, where works are expected to be completed by July 2011.

"We are proud indeed to be given this golden opportunity to make our first foray into the Iskandar Malaysia via the Medini Iskandar project and hope to expand our investment here," he told reporters after the signing of shareholder agreement for the development of 1Medini residence between WCT Land and MediniLand, in Putrajaya today. Ahmad said the WCT also wanted to further grow its business in Malaysia and would continue to bid for any projects locally as well as international.

Its order book currently stands at RM3.5 billion. In 2008, local operations contributed 40 per cent to the group's revenue while the balance of 60 per cent came from the overseas market. The construction and property development company currently has presence in United Arab Emirates, Qatar, Bahrain, Oman, India and Vietnam. Scheduled to be fully completed by 2015, the 1,332 units of condominiums in1Medini would include a 68,800 square feet commercial area for local retail businesses.

Priced at RM350 per square feet, the first phase of the condominium is expected to be launched in early 2012. Iskandar Investment president and chief executive officer, Arlida Ariff, meanwhile, said the strategic partnership with WCT in 1Medini project would help to meet the increasing demand for quality homes as well as to attract talented global citizens to live, work and play in Iskandar Malaysia.

There has been interest from both Indonesians and Singaporeans, she said. According to the Iskandar Regional Development Authority (IRDA), Iskandar Malaysia has over RM47 billion in committed funds from the government bodies and international investors to date.


Commentary: WCT's 70% stake in the RM600mil project would amount to RM420mil, not a significant amount to its overall property development compared to its Paradigm project in Kelana Jaya (RM1.4bil, currently under construction), Platinum in Vietnam (RM2bil - construction schedule unknown, not so soon) and existing residential projects (outstanding GDV of RM2.1bil). The project will be launched in mid-2010 while construction will start in mid-2010 and expected to complete by 2015.

By simple calculation, assuming 8-year horizon over its sales, 20% net margins, probably can add RM10mil net profit to its earnings per year starting mid-2010. Situated close to Legoland in Medini North, Newcastle University Medical Malaysia, Kota Iskandar and Iskandar Financial District, the properties most likely will enjoy good take up rates. There are many who take a cautious stance over the likelihood of success of Iskandar Corridor (including me) in view of Malaysia's poor records of launching corridors successfully (Proton City, Putrajaya/Cyberjaya, MSC etc).

Nonetheless, so far property developers like SP Setia, Berinda (A unit of Kuok Group) indicated that they're enjoying good take up rates from Iskandar projects with buyers coming from China, Singapore & Malaysia (Ok, give the benefit of doubt on Iskandar's success). This is WCT's first foray into Iskandar's property development and most probably won't be the last. Earlier, WCT was awarded RM766mil worth of infrastructure works.

WCT's current orderbook is at RM2.8bil (Excluding Paradigm Project works of RM733mil as it's inter-segment sales) which will last the company 2 years. WCT is currently eyeing for a few jobs in Middle East (Total project bids of about RM3.2bil), Vietnam and Malaysia (LCCT - RM2bil, Sabah water infrastructure works - >RM1bil, hospital jobs - RM200mil). Thus far, WCT orderbook replenishment has been impressive at RM1.4bil YTD, exceeding its forecast of RM1bil which further indicates WCT's strong ability to secure projects.

At a discount to its peers: Assuming orderbook replenishment of RM1.9bil and RM2bil for FY2009 and FY2010, its revenue and net profit for FY2010 should be in the range of RM2.4bil and RM170mil respectively. EPS for 2010 would be at 22.1 sen. PER 2010 is at 12x, which is a huge discount compared to Gamuda & IJM (about 20x). By attaching PER of 15x, share price should move to RM3.30. Price triggers including news of job wins and recognition of its additional works worth RM740mil for NDIA (New Doha International Airport) which will restore its margins (Earlier NDIA was a low margin job owing to unrecognized additional works).

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.

Suncity to take part in RM2.5 billion China project

Sunway City Bhd (SunCity) has signed a joint-venture agreement with Sino-Singapore Tianjin Eco-City Investment and Development Co Ltd (SSTEC) to undertake a RM2.5 billion mixed development in Tianjin, China. However, implementation of the project is subject to a feasibility study.

The massive 3,000ha Tianjin Eco-City, which is worth several billion ringgit, will be developed in three phases from 2011. SunCity will develop part of the second phase, covering 41ha, with SSTEC. Sunway Group founder and chairman Tan Sri Dr Jeffrey Cheah said that a joint-venture company, led by SunCity, will be set up after the study is completed.

The joint-venture company will build bungalows, villas, semi-detached and terraced houses, high-rise residences and commercial properties, including a shopping mall, on less than 20ha. The rest will be kept green. "We are very confident of this project as it is driven by the Chinese and Singaporean government. SSTEC has attracted the largest and best eco-developers in Asia.

This proves the project will happen," said Cheah. He was speaking at a press conference yesterday in Bandar Sunway, Selangor, after inking an agreement with SSTEC to carry out the study and market research, and to come up with a sustainable business model for the project within six months.

The developers include China's Shimao Group, Japan's Mitsui Fudosan and Taiwan's Farglory Group, which are involved in the first phase of Tianjin Eco-City. "The main thing is to get the right product so the development can run. The next six months is very crucial. We will plan the 41ha properly to come up with a sustainable, workable and viable development," Cheah said. He added that the project will be funded by equity and bridging finance. Part of the funding will also come from a real estate investment trust (REIT) that SunCity is planning to launch in the next one to two years.

SSTEC is the master developer of Tianjin Eco-City. It is a 50:50 joint venture between the Chinese consortium led by Tianjin TEDA Investment Holding Co Ltd and the Singapore consortium led by the Keppel group. Tianjin Eco-City is a landmark bilateral project between China and Singapore with private-sector investment and development. When completed, it will have 26,500 households.

SSTEC chief executive officer Goh Chye Boon said it was targeting reputable developers from the project to work with when it embarks on new projects in China. "We want to make sure Tianjin Eco-City is sustainable so we can replicate the development in other parts of China. We are looking for bigger land now," Goh said, adding that SunCity may be given more jobs in Tianjin Eco-City. He said SunCity may also be roped in to work on other projects that the Chinese and Singaporean consortiums are eyeing in China, Indonesia, Vietnam and India.


Tuesday, October 27, 2009

Steel (Lion Industries, Kinsteel, Southern Steel, Ann Joo Resources, Masteel): Neutral => Mid-long term buy

Prices of long steel manufacturers have remained rather stagnant over the past 3 months with the exception of Ann Joo & Southern Steel after a meaningful run up among the steel makers in July 2009. Where will the prices go from here? My opinion is that share prices will head upwards, albeit at a more moderate pace, backed by recovery in global economy and the various stimulus measures undertaken by governments worldwide. However, the snag could be the overcapacity in the market, potential cutting down of stimulus packages and slower than expected global economic recovery.

What's the situation in China? To monitor regional steel prices, China plays a major role in determining the direction of its price as China's steel production make up to about 50% of world's steel production. To recap, China steel prices surged by 42% from RMB3,100/MT in Mar 2009 to RMB4,400/MT in mid-Aug, owing to stimulus measures which encouraged property investments and easy lending to the construction and steel sector. Consequently, steel production also rose from 35.2 mil MT in Nov 2008 to 52.3 mil MT in Aug 2008. However, due to the rising inventories coupled with declining trend as net importer of steel, China steel prices plunged from RMB4,400/MT in mid-Aug to about RMB3,700/MT currently.

Better days ahead? Hopefully..Going forward, China's contribution to steel demand should see steel prices improve. With RMB4 trillion stimulus package in place, of which a large portion goes to infrastructure spending while complemented by prudent macroeconomic policies, China's economy should perform more robustly. China's real GDP might expand by 8% in 2009 and even higher in 2010. Compounded by China's plans to regulate and consolidate the steel sector by putting a cap of 460 million MT production capacity by 2011 from current capacity of more than 600 million MT capacity should bode well for the steel industry and shore up steel prices. Adding on, stimulus measures and monetary easing implemented worldwide could see global steel demand rebounds back to 2008 levels by 2010. We are already seeing US & China PMI at an increasing trend, signalling a rebound in the manufacturing sector which will lift demand for flat steel.

Local demand: Looking ahead into 2010, local pump priming activities with upcoming projects worth an estimated RM70 billion such as LRT projects, LCCT, double tracking and Pahang-Selangor Water Transfer projects should lend support to the local steel makers.

Still Neutral despite improving fundamentals as local players remain cautious in near term: Looking at the fundamentals of the steel industry, upside potential is more likely to materialize in the longer horizon into 2010. The reason being prices are expected to remain soft in the near term owing to high inventory buildup as supply outstrips demand coupled with China's capacity remaining high. Risks of slower economic recovery and cutting down of stimulus measures remain present which will further impede demand growth. As such, local steel millers are still cautious on the potential outlook as seen from their inventories which remain low to rebuild their capital.

Listed steel millers:

Ann Joo (RM2.64) & Kinsteel (RM0.97): Not much upside - Current price quite expensive with PER 2010 in the teens. Somehow I cannot justify attaching PER of >10x to steel millers as their earnings remain volatile with high operating and financial leverage. Nonetheless, Ann Joo exports are rather impressive this year, increasing its exports to 50% of its manufacturing revenue as compared to 30% previously. Adding on, their commencement of mini blast furnace next year will be able to produce cost savings and added capacity, which will increase next year's margins.

Southern Steel (RM1.95), Lion Industries (RM1.46) & Masteel (RM1.04): Cheap - PER 2010 at 4-6x. Southern steel's business remains conservative with diversified operations along the value chain. There has been some interests on Hong Leong companies, played up by the boss, Quek family. Since Southern Steel is part of Hong Leong Group, their shares might get rather buoyant. Masteel recently secured a deal with Stemcor Australia to supply RM120 million worth of steel bars to Australia over 2 years. This will be a milestone for Masteel to venture into the huge export market as exports contributed less than 10% to their sales in the past. This deal alone already represents about 12% of the projected sales for the next two financial years. In addition, industry sources indicated that exports to Australian market may provide better margins compared to domestic market, good for Masteel earnings. For Masteel earlier media release on this deal, click here.

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.

Masteel (RM1.04) clinches RM120 mil deal with Stemcor


MALAYSIA Steel Works (KL) Bhd (Masteel) has clinched a deal to export RM120 million worth of steel bars to Australia over the next two years under an agreement with Stemcor Australia Pty Ltd. Its managing director and chief executive officer, Datuk Seri Tai Hean Leng, said the deal signified the company's commitment to export substantial amount of steel bars to the Australian market.

"Australia and New Zealand will be our main markets in the next four to five years," he told reporters after signing the off-take agreement with Stemcor here today. Also present was Deputy Trade Minister of International Trade and Industry Datuk Jacob Dungau Sagan. Stemcor is an independent international steel trading organisation.

Tai said the agreement would allow Masteel to penetrate growth markets like Australia and New Zealand and at the same time, bring about export income for the country. "Cementing our presence in the Australian market would further augment our expertise as an exporter of steel billets to the Asia Pacific markets.

"This is part of our long-term strategy to focus on export markets for growth and we have worked hard to establish this for the last five years," he said. Adding another feather to its cap, Masteel was awarded the Certification of Product Compliance from the Australian Certification Authority for Reinforcing Steels (ACRS) for the steel manufacturer's continued effort to raise the bar and ensure the safe and consistent quality of its products.

ACRS is an independent third-party accreditation system with the goal to ensure that reinforcing steels are quality-approved materials which comply with Australian standards. Tai said the company could also import the products to New Zealand as it has accepted the ACRS standard. "Masteel has already made headway into New Zealand market and its first export deal is expected to be concluded within the next few weeks," he said.

He said currently, export market made up to 35 per cent of Masteel's production capacity, which annually produced 450,000 tonnes of billet and 350,000 tonnes steel bar. "We will continue to invest between RM15 million and RM18 million on new technology to boost efficiency and quality to reduce manufacturing cost next year," he said.

Tai said despite global economic meltdown, the company expected demand for steel to recover from the fourth quarter this year on the government's pump-priming initiatives to boost steel demand.

"Given this backdrop and with this new off-take agreement, Masteel is optimistic these developments will contribute to a healthier financial performance for the next two years," he said.

Scicom (RM0.43) moving to Main Market


SCICOM (MSC) Bhd, an outsourcing firm, has proposed to move up to the main market from the ACE Market, to boost interest in its stock. It has met all the profit track record requirements for the transfer, which it expects to be done in the first quarter of 2010. Companies typically ask to move to the main market because certain big investors are prevented from buying stocks that are considered too small.

"The proposed transfer will enhance Scicom's credibility, standing and appeal among investors, especially institutional investors," Scicom said in a statement to Bursa Malaysia yesterday. Earlier, chief executive officer Leo Ariyanayakam said Scicom could sustain its growth for financial year ending June 30 2010. "We expect to increase our staff as we are now in the growth mode and plan to even expand our operations abroad," he told the media after the company's annual general meeting in Kuala Lumpur yesterday.

Scicom counts multinationals like handphone maker Nokia, budget carrier AirAsia and telecoms group Singapore Telecommunications as clients. Ariyanayakam said the company has been short listed for jobs worth millions of ringgit by several multinational corporation abroad but he did not want to elaborate. Scicom also reported its first quarter results yesterday. Its net profit for the quarter to September 30 2009 fell 29 per cent to RM2 million from a year ago, on revenue of RM31 million, which dropped 7.3 per cent.

The lower figures were mainly due to staff reduction in the US and unrealised losses on foreign exchange due to a strong ringgit. Scicom is confident of growing its earnings in fiscal 2010. "The main thrust for our business continues to be in the outsourcing sector with high value prospects in the pipeline which we expect to close within the financial year," Scicom said.

Simple observation: Good for the company. Might attract some interest on the stock. Nevertheless, stock looks expensive for an ACE stock with highish PER of mid teens. Borrowings minimal at half a million while cash is at RM4.7mil, balance sheet looks ok.

Shares issued: 265.3mil

Market Cap: RM114.1mil

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.

Fajarbaru (RM1.26) 1QFY06/2010 Results: Ok ok, in line

Performance: Results as expected. Revenue & net profit rose 2.3% y-o-y and 68% y-o-y to RM40mil and RM4.4mil respectively. Net margins rose significantly to 11% from 6.7% in 1QFY06/2009. Nonetheless, on q-o-q basis, revenue dropped 27.5%, dragging net profit down by 28%. But this will be a non-issue as the lower revenue might be due to the shorter working period during the quarter owing to Hari Raya festive season.

More cash: Cash pile rose to a ballooning RM112.6 million from RM88.8 million (nice number 888) which translates into 69.3 sen, which is a huge 55.5% of the share price. Borrowings remain at zero. Taking off the cash part, its construction business will be valued at a mere PER of 3.8x!!! Where to find this kind of value??!! Some more construction net margins at double digits.

Share dividend!!: The company just declared share dividends in the ratio of 1 treasury share for 25 ordinary shares with EX date on 5th Nov 2009. This will further increase liquidity of its shares and boost the value of shareholders by approximately 5 sen per share (Assuming current price of RM1.26). A good move to shore up the share price. Worth accumulating now.

Shares issued : 162.6 million
Market Cap : RM204.9 million
Beta : ~1.0x
Dividend Yield : 2.5-3.0%

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, October 25, 2009

Budget 2010 & others: My simple take


Government spending about RM9bil on infrastructure projects, of which RM4.7bil on road and bridge projects, RM2.6bil on water supply and sewerage services, RM899mil for rail facilities, RM820mil for ports and sea services coupled with RM276mil for airport projects (Upgrading of Penang or Sibu airports?). In addition, another RM2.3bil will be allocated for construction and upgrading of infrastructure in rural areas, of which RM857mil will be used to construct 510km of rural roads and 316km of village roads such as Kapit, Lawas and Kimunjan in Sarawak and Kinabatangan, Kota Belud and Keningau in Sabah.

Road and bridge projects - WCT, Gamuda, Mudajaya, IJM, Muhibbah Engineering etc.
Water supply & sewerage - Hock Seng Lee, Loh & Loh, Salcon, WCT
Ports & sea services - Gamuda, Muhibbah Engineering, Putrajaya Perdana
Airport projects - WCT, Fajarbaru, Gamuda
Sarawak & Sabah: Hock Seng Lee, Naim Holdings, Cahya Mata Sarawak, UBG, WCT

A tax of 5% on gains from disposal of property while the existing tax exemption is maintained only for gifts between parents and child, husband and wife, grandparent & grandchild. This exemption will also be given on disposal of residential property once in a lifetime. This will take effect from 1 Jan 2010. Nonetheless, the Government is launching a scheme to allow EPF contributors to utilize current & future savings in Accounts 2 for purchase of one property at a time. However, the calculation of future savings remains vague.

A counterproductive move to the property sector which is a discouragement to property investors from local and abroad. Whether the 5% tax is applied to gains from all kinds of disposal remains vague. What happen if I bought a house like 20 years ago which cost me RM50K and now am selling it at RM200K? Then I have to pay as much as RM7.5K in taxes which is a lot. There are even some reports that said that this 5% tax on gains only applies to disposal of properties within 5 years and beyond while gains from disposal within 2, 3 & 4 years might actually be taxed as high as 30%, 20% & 15% respectively (Not sure about this though). Could be a dampener to property stocks prices next week. Nevertheless, the new EPF scheme to allow usage of Account 2 to purchase residential properties will provide some respite, hopefully.

Tax relief on broadband subscription fee up to RM500 a year from 2010 to 2012 is proposed. Government will also expedite implementation of High Speed Broadband at a total costs of RM11.3bil, of which RM2.4bil is from the Government while the rest of RM8.9bil will be from Telekom Malaysia. Broadband services with 10Mbps will be available in KL & Selangor by end-March 2010.

Tax relief is positive for telcos like Digi, Axiata, Maxis (to be listed soon) and Green Packet (Packet One is the subsidiary which offers Wimax). TM might attract interest on HSBB.

Finance industry:
Liberalize common sharing arrangements between stockbrokers and remisiers in 2 stages to encourage retail participation. The 1st stage is to allow sharing at min rate of 40% for remisiers and fully liberalized by Jan 2011. Allow 100% foreign equity participation in corporate finance and financial planning companies as compared to current requirement of 30% local stake.

The liberalization will allow greater competition among stockbrokers in rewarding remisiers who perform well and at the same time encourage remisiers to garner more interest in the stock market from the investors. The allowance of 100% foreign equity participation in corporate finance is a welcome relief which will encourage greater competitiveness among the local corporate finance providers and more corporate exercises will be seen in the market, good for the capital market.

The statement of 'From Low Income to High Income Economy'
A slogan that has been preached for 10 years but doesn't seem to go anywhere.

Here are some Government proposals and aims:

1. Double income per capita within 10 years:
Very ambitious. This means 7.2% growth p.a. Adding 2% p.a. population growth, 9.2% growth p.a. in income per capita for the next 10 years!! We are aiming to beat China izzit?? How are we going to do that?? No answers.

2. Increasing private investment by enhancing domestic investment and encourage local companies abroad to remit their profits and reinvest into the country:
How to encourage? Dunno. Companies are not charity organizations. There is no obligation or responsibility at all for local companies abroad to remit their profits & reinvest into Malaysia. If they could find greener pastures overseas, why come back here? Government must take action first. Don't expect companies or talents to automatically come back to contribute to Malaysia. Just by talking to companies' management here, they find it so difficult to employ good people to work with. Lazy, incompetent and the worst thing is that they can't even speak a proper sentence in English. Our very little attraction of bringing in foreign investment which is our proficiency in English has even been destroyed by our very own system here. "Demolish PPSMI", we often hear. Recent Government's flip flop decision to revert back to BM in teaching Maths and Science is not helping either.

3. Providing business friendly environment:
First thing that comes to my mind, broadband. Our broadband penetration is just 25%, broadband service ranking is No.48 out of 66 countries. Broadband fees are exorbitant, a lease line 6Mbps from TM costs RM250K per year, which is way beyond many SMEs' budget. If we don't have the IT infrastructure to enable businesses to run, how to attract investors? Well, at least HSBB by TM is rolling out in 1Q2010, a good move in the right direction. Hopefully the timeline will be done as announced. Coupled with other reasons like escalating crime rates, corruption, weakening workforce, we are actually seeing a decreasing trend in net FDI as shown below.

4. Strengthening higher education by allowing IPTA greater autonomy and relaxing rules on income generation:
Nothing to say. A look at our universities' ranking will show how pathetic our education system and human capital are. As long as universities are not fully liberalized, not free to think, not free to discuss politics or join political parties, have to kowtow to the Government in appointment of management & funds or anything, not based on merits, not given fair chance of education among all races, then kiss goodbye to whatever intentions to strengthen higher education. Poor universities => incompetent graduates => absorbed into civil service => ballooning civil service => high operating expenditure => lower GDP growth => stagnant salaries => strain on working population. We have a massive 1.2 mil civil servants against 10 mil working population. More money is poured out to sustain Government operation rather than being spent on development. Growth in operating expenditure is increasing at a greater magnitude than development expenditure for the past few years.

Nonetheless, the budget is starting a new direction for the management of its expenditure. The Government intends to cut operating expenditure from RM154.2bil to RM138.3bil to reduce inefficiencies in Government operations while development expenditure remains almost the same. Ok. Fair enough. Hopefully, the Government could continue the trend in cutting operating expenditure and increasing development expenditure at the same time.

A lot of measures laid out in the Budget do not have a clear direction on how it can transform Malaysia into a high-income economy. Human capital development is of utmost importance. I'm sure many had discussed at length on our problems of human resources. Before we develop all the 1st class infrastructure, we have to develop human capital first. But we are doing it the other way round. Thus all these projects on Putrajaya & Cyberjaya, Proton City, MSC, Iskandar Corridor etc have a greater chance of failing. We simply don't have the capability or mental capacity to handle all these projects. (By the way, what's happening to Iskandar? CEOs keep on resigning from their posts one. Too much politics involved kah? Too corrupted? Too much bureaucracy?)

The Government also intends to implement measures to attract talents to Malaysia. I guess the main motivator will be the salaries here. Since Malaysian salaries are so low, it will be an uphill task to attract Malaysian and foreign talents to come to Malaysia. The continuous influx of foreign labor (3.5 million out of 27.5 million population = 12.7%!!!) will continue to impede the economy from moving higher in the value chain and putting a cap on Malaysian salaries. Malaysian companies won't be willing to move up when cheap foreign labor is so readily available.

Anyway, Malaysia has always been famous for talk and less action. Word without action is dead. Hopefully, Najib could prove otherwise. Give him the benefit of doubt as he pleaded.

For the Budget 2010 speech, click here. (Very long la. 49 pages. Eyes swollen already)

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, October 23, 2009

Fajarbaru (RM1.21): Watch out for LCCT award in November

Fajarbaru is one construction stock that hasn't moved much for the past 3 months, hovering between RM1.15 to RM1.30. I believe investors are probably waiting for more concrete news to come for this stock such as project awards from the new LCCT terminal worth RM2bil, upgrading of Penang Airport worth RM250mil or subcontracting works from large scale projects.

Orderbook remains strong: Fajarbaru's current orderbook stands at an estimated RM450mil which could last for about 2 years. Ongoing projects and outstanding amount are as below (As at June'09):

1. KTM - Batu Gajah: RM5mil
2. Penang Airport (Airfield pavement, parking apron): RM3mil
3. LCCT expansion: RM71mil
4. Seremban-Gemas Double Tracking: RM280mil
5. Tampin Hospital: RM138mil

Its current orderbook is still alright at RM450mil considering its revenue back in 2007, 2008 and 2009 were RM123mil, RM88mil and RM185mil respectively. By simple calculation, revenue has to reach RM225mil per year to finish its current orderbook, which is still a decent 22% y-o-y increase for FY06/2010 (Financial year ending June), assuming no replenishment of orderbook.

Potential beneficiary of small & large scale Government projects: Fajarbaru is a strong contender for large scale projects such as the new LCCT terminal worth RM2bil and upgrading of Penang Airport worth RM250mil, owing to its vast experience in airport works such as the Phase 1 of LCCT extension, subcontract works for KLIA, Penang Airport taxiway & apron rehab., current ongoing Phase 2 of LCCT extension and MRO hangar at KLIA which added up to a total of RM356mil worth of airport works. In addition, the Company might secure some subcontracting works from large scale projects such as the Double Tracking for Gemas-JB line worth about RM7.5bil (though the timeline for this project remains uncertain) given its current experience in subcontracting works for Gemas-Seremban Double Tracking project awarded by Ircon. Government's stimulus packages which include smaller projects might benefit Fajarbaru as well given its portfolio which includes small-scale projects.

Favorable margins: Margins will remain strong owing to the Company's ability to design & build, which allows them to manage their costs and time more efficiently while at the same time, these design-and-build projects command higher margins. Historically, margins have been impressive at close to 10% for the past 2 years and recorded net margins of 11% and 15% for the past two quarters, a rather impressive feat for a construction company. Furthermore, with raw material prices becoming stable and more predictable as compared to 2007-08, managing of construction costs becomes easier.

Strong management: The company is helmed by MD & CEO of Fajarbaru, Dato Low Keng Kok who was the former joint MD of Road Builder Holdings Bhd (a reputable construction company). Backed by 3 decades of experience in management of building, infrastructure and privatisation projects in addition to being a substantial shareholder with 7.9% stake currently (from 6.4% earlier this year), Low could steer the company to greater heights. (Maybe he wants to create another Road Builder..hehe).

Valuation: The recent private placement of 10% of its shares issued added another RM16mil to its cash pile from RM89mil to RM105mil, translating into 64.6 sen per share which is half of its share price already. The huge cash pile used to gear up for upcoming Government projects probably shows the Company's optimism in obtaining the awards. By imputing RM200mil replenishment of orderbook per year, its net profit has the potential to reach RM30mil by FY06/2011, which is 18.5 sen. Assuming EPS of 15-18 sen for FY2010-11, PER is only at 6.6x-8.2x. By attaching PER of 10x, the share price should rise to RM1.50 from current price of RM1.21.

In the meantime, wait for project awards for Fajarbaru such as LCCT, double tracking projects, Penang Airport etc which will trigger a run-up in share price. Or else, share price might just continue to remain unexciting.

News on new LCCT Terminal probably starting works in November. Source: - 10th Oct 2009

Malaysia Airports Holdings Bhd (MAHB) (5014), the country's biggest airport operator, hopes to start earthworks next month on the new permanent low-cost carrier terminal (LCCT) in Sepang, its chairman Tan Sri Dr Aris Othman said.

Aris said it was crucial that works begin next month for MAHB to complete the LCCT by the third quarter of 2011. "We are sticking to our 2011 deadline," he told reporters after the graduation ceremony for 194 airport security staff at the Bunga Raya Complex in Sepang yesterday. In March, MAHB said it would complete the new terminal and a new runway within two and a half years, without exceeding the estimated cost of RM2 billion.

The permanent LCCT will be located to the west of the main KLIA terminal building, roughly 1.5km in distance. The new terminal building will be 150,000 sq m and hold up to 30 million passengers a year, with capacity for expansion of up to 45 million passengers. MAHB is also planning substantial investments to beef up its retail shopping and services division to boost revenue.

In the financial year ended December 31 2008, its retail and food and beverage division posted RM304.9 million sales, or about a fifth of the group's revenue of RM1.51 billion. Aris said MAHB will focus on renovations to the main terminal building of the airport to enhance the retail facilities located there. "We realise we cannot rely on airport charges alone as these tend to remain stagnant or low due to the competitiveness of many airports around the world."

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, October 21, 2009

Mudajaya (RM3.60): Another YTL in the making? A real gem among construction stocks

Mudajaya had a really good run-up for the past 3 months, rising from a mere RM1.50 in mid-July to current level of RM3.65, with its stocks transforming into a rather active trading counter from an illiquid and cold one. Mudajaya also starts to make into media's headlines which bodes well for its stocks as more investors realize the growth prospects of this company. I believe there will still be upside to the stock as the recent run-up hasn't fully justify the strong fundamentals and strong growth prospects that this company could offer. Further price triggers include stronger quarterly results (to be announced end Nov'09), projects awards and financial closures for its IPP projects. In addition, further roll-out of big ticket items such as LRT projects, LCCT terminal, double tracking (Gemas-JB), Pahang Selangor Water Transfer etc. could trigger further upward rerating for construction stocks.

From being a small-mid construction company, Mudajaya is slowly transforming itself into the likes of YTL with businesses in construction, properties, concrete manufacturing and trading of building materials while it is also venturing into IPP (Independent Power Producer) projects in India. Bulk of its earnings come from construction, marginally supported by other business segments.

Huge orderbook: Mudajaya's gigantic outstanding orderbook of RM5.4bn even exceeds the big boys' orderbook like IJM and WCT. Out of the RM5.4bn, 60% comes from its EP (Engineering & Procurement) works for its IPP projects in India while the remaining ones are local construction projects. On top of that, Mudajaya has submitted tenders worth a total of RM1.7bn, of which RM800mil is from Malaysia, RM500mil from Saudi Arabia and RM400mil from India. The Company might secure RM600mil from 2-3 project bids locally, potentially bringing its orderbook past RM6bil mark by end-2009. Margins from these new project bids will be favorable as they are negotiated ones with pretax margins potentially reaching mid-to-high teens.

Power play: Mudajaya has made a really good move going into India's power production. In view of India's negative reserve margin and huge power supply shortage coupled with India's tariff rates which could go up from 17 sen/KWh to 50 sen/KWh (Tenaga is 23-38 sen/KWh), Mudajaya stands to benefit from lucrative recurring income with the commencement of IPPs by 2011. In addition, Mudajaya is the only Malaysian contractor recognised by India's National Thermal Power Corporation (NTPC) which could mean less competition in project bids. Owing to India's economic expansion, the Indian government has set a target to increase its power generation by 78,000MW by 2012. Mudajaya's 1,440MW is only a small fraction of the power needs in India. Therefore, more construction of power plants are expected in the pipeline, which could land Mudajaya with more IPP projects.

Earnings: Earnings for the past few quarters were impressive, recording q-o-q increase since Sept 2008, owing to IPPs projects and high margin projects kicking into higher gear. Quarterly net profits rose to above RM25mil mark as compared to historical average of RM10-15mil a year earlier. With most of its orderbook slated to complete by 2012 (RM5.4bil), assuming no replenishment of orderbook which is highly unlikely, revenue has to reach RM1.8bil p.a. in FY2010-12, a massive increase from its revenue of RM422.4mil in 2008 and estimated RM1bil in 2009. Quarterly net margins have been in the range of low-mid teens, thus for conservative sake, we'll assume 10% net margin which could translate into net profit of RM180mil, equivalent of 48.2 sen per share. Note that this earnings forecast has not taken into account potential recurring income coming from its IPPs.

Valuation: Assuming 48.2 sen per share for FY2010-12, PER will be at 7.6x only, a huge discount to its peers' average PER of 15x. Mudajaya is also supported by strong balance sheet with cash pile of RM141mil and ZERO borrowings which is extremely rare for construction stocks, indicating Mudajaya's strong management. In conclusion, Mudajaya's stock remains a cheap entry to the construction sector. By simply attaching PER of 12x, Mudajaya's stock should go past RM5.00. (Hahaha..I have a feeling that I'm analyzing Supermax, similar EPS, PER, current price & target price)

Notable Ongoing Projects:

1. Batu Kawah Township, Kuching : RM93mil
2. KL-Kuala Selangor Expressway : RM693mil
3. Crest Service Apt/Office Block, KL : RM129mil
4. Pahang Housing - Felda : RM900mil
5. Kuantan Housing : RM141mil
6. Pahang Hospital : RM75mil
7. KLIA Spur Line : RM39mil
8. RA Damansara Housing : RM24mil

1. Rehab & upgrade of road works, Chhattisgarh : RM19mil
2. EP works for IPP Phase 1, Chhattisgarh : RM635mil
3. EP works for IPP Phase 2, Chhattisgarh : RM2,640mil

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.