Malaysia KLSE Stocks to Speculate
Stock(s) To Speculate "Incremental Development" Transmile Group Bhd (Risky) What's Up? … dated March 2008 Transmile Group Bhd, controlled by Hong Kong-based tycoon Tan Sri Robert Kuok, speculation swirled that a new substantial shareholder may emerge in the air cargo firm. Should it dispose of its plans, it would be able to fetch an extraordinary gain and keep its balance sheet asset light. Proceeds from the disposal of the aircraft would also help Transmile to meet potential early redemption from a US$150 million five year guaranteed redeemable convertible bond. The company needs about Rm232 million to meet the early redemptions that kick off from May 17 2008. Several names are being floated to take over Transmile. They include DHL, Pos Malaysia, Konsortium Logistik Bhd, Malaysia Airlines Cargo Sdn Bhd (MASkargo) and local tycoon Tan Sri Syed Mokhtar Al-Bukhary. When contacted, DHL Express (Malaysia) Sdn Bhd, Konsortium Logistik and MASkargo said they were unaware of the speculation. When asked, Pos Malaysia told Business Times that its board of directors and major shareholders were not aware of any reason for the share price rise. It also declined to say whether it would sell its stake in Transmile or plans to pick up more shares. Pos Malaysia to take over Transmile as that will require a huge capital outlay. Transmile has a market value of about RM650 million. Going Forward … In the absence of a visible turnaround plan, the company's performance will still be affected by the high cost of operations, especially with the continuous rise in crude oil price. CIMB/MBB The speculated merger between CIMB Bank Bhd and Malayan Banking Bhd (Maybank) is "not on the table", Bumiputra-Commerce Holdings Bhd group chief executive officer Datuk Nazir Razak said. However, Nazir did not rule out the possibility that a merger between the two banking groups might happen in the future. Lion Industries Corp Bhd What's Up? … dated March 2008 GKG Investment Holdings Pte Ltd, a private vehicle controlled by Singapore's veteran stockbroker Goh Geok Khim, is pouring big money into Malaysian steel companies. GKGI is now a substantial shareholder of lion Industries Corp Bhd, having purchased 5.3% in the steel outfit on March 19, 2008. It came in when Lion Industries was at Rm1.40. It also recently acquired shares in Kinsteel. However, its shareholding has not reached the substamtial level of 5%, hence there is no disclosure. It also met Ann Joo Resources Bhd's management for possible investment in the company. Its is believes that with China imposing higher export duties on certain steel products since Jan 2008, there will be a shortage of the material in the region as Chinese steel producers previously supplied as much as 75% of demand. With the void, Malaysia's five listed integrated steel millers have the available capacity to supply the market. Lion Industries is running at 78% of its steel making capacity of 2.7 million tonnes a year, which means 594000 tonnes of capacity is under tapped. The huge spare capacity gives Lion Industries room to increase production to capitalize on surging steel demand in the region and elsewhere. Lion Industries holds a 21.9% stake in Parkson and another 21% stake in Lion Diversified. The value of the associate stakes in Parkson and LDHB is more than sufficient to offsets the group's net debt of RM1.23 billion as at Dec 31, 2007. Corporate Development KLK What's NEXT! … dated March 2008 It is looking at Indonesia as it plans to double its plantation landbank from the existing 154,704ha to 300,000ha. The potential for increasing its existing plantation land is clearly there but the company has not set a time frame to achieve the number. As KLK was already present in that country, it was only logical for the company to steer its landbank expansion plans within Indonesia. To date, KLK has some 98,792ha of planted and non-planted land there. The bulk of that is located mainly in Sumatra and Kalimantan. Apart from the 98,792ha of planted land, KLK also has cleared some 50,000ha of land to be planted and hopes to complete the exercise within the next four years. Part of its landbank expansion plans would include taking control of Ladang Perbadanan Fima (LPF). KLK, via its subsidiary Ablington Holdings Sdn Bhd, has an existing 15.4% or 17.6 million shares in LPF. It has in principle accepted an offer to purchase an additional 31.6% or 36.5 million shares in LPF from Glamour Green Sdn Bhd (GGSB) at an offer price of RM4.20 a share, or RM153.3 million. Once the deal materialises, KLK's shareholding in LPF would increase to 47.3%, triggering a mandatory general offer for the rest of the shares in LPF. At RM4.20 a share, KLK would be paying a premium of 11% to LPF's closing price of RM3.74 last Friday. LPF's plantation estates totalling 8,171.3ha are located in Perak. According to LPF's annual report, it has three estates with a net book value of some RM46 million as at July 1993. This means that the estates have not been revalued since then. Ablington will offer to buy the remaining shares it does not own at RM4.20 each under a mandatory general offer (GO). Petra Perdana What's NEXT! … dated March 2008 Petra Perdana Bhd is seeking acquisitions to drive growth as rising crude oil prices make refurbishing aging oilfields profitable. MAS What's Up? … dated March 2008 Air Maldives Ltd has filed and served a defence and counterclaim amounting to US$43.62mil (RM140mil) against Malaysian Airline System Bhd (MAS) over a management agreement signed in 1996. The countersuit was related to legal action it had taken against Air Maldives on Aug 8 2007. It had then filed an affidavit in the Kuala Lumpur High Court against Air Maldives, claiming US$35.55mil. The Malaysian carrier had received a letter from the International Court of Arbitration, Paris over Air Maldives' allegations that it failed to perform its duties under the management agreement signed on Jan 16, 1996. The notice of arbitration referred to a memorandum of understanding dated July 29, 1994 between the Maldives Government and the then Malaysian Helicopter Services Bhd (MHS). Also in dispute was a shareholders agreement dated Oct 1, 1994 between the Maldives Government and MHS and a management agreement between Air Maldives and MAS on Jan 16, 1996. NAIM Cendera What's NEXT! … dated March 2008 It is targeting an annual compounded growth rate of 30 per cent in revenue for the next three years. The construction and property group expects to achieve this through a combination of increased sales in the property division and by replenishing its construction order book by between RM0.5 billion and RM1 billion yearly. The group plans to treble its property sales from RM230 million currently, in the next three to five years. Its net outstanding order book stands at RM2.6 billion, which will last the group between two and three years. It plans to secure up to RM1 billion worth of infrastructure and transmission line works within the Sarawak Corridor of Renewable Energy (Score). The company would be bidding for various jobs in the corridor as it sought to grow revenue by 30% over the next three years. The listing of Naim Cendera's 45% associate Dayang Enterprise Holdings Bhd would likely materialise late April 2008. Naim Cendera expects to raise RM124.5 million from the IPO. Financial Results … The group made a net profit of RM82.7 million against RM652 million in revenue for the financial year ended December 31 2007. MBB MBB's Response … dated March 2008 Maybank said it does need to raise money to finance the proposed RM8.6bil cash acquisition of Indonesia's PT Bank Internasional Indonesia Tbk (BII). However, in the longer term, the group would explore various fund-raising options, including the issuance of new shares, to implement an active capital management policy post-acquisition. It had cash and liquid assets of RM34bil. That's sufficient to pay for BII and Vietnam's Ann Binh Bank (RM430mil cash). There is a possibility that it may opt to raise equity funds to maintain its capital adequacy ratio but not for the acquisitions. The group was looking at several options to raise funds. They included equity, innovative and non-innovative tier-1 capital, and subordinated debt. The remarks led many to believe that Maybank may want to raise equity funds and, as a result, bring in a new strategic shareholder to help finance the mega deal, which would allow the group to gain a foothold in Indonesia. Nonetheless, regardless of Maybank's reasons for raising money, it is undeniable it would have to find fresh funds as a result of the BII deal. The company hinted that the BII deal would be partly financed by equity. This will not be in the form of a rights issue but new shares issued to foreign strategic shareholders. Maybank had ample capacity to raise additional capital, including RM2.5bil in innovative tier-1 capital, RM7bil in non-innovative tier-1 capital and RM4bil in subordinated debts. Maybank to have the capacity to raise RM9.5bil in hybrid tier-1 capital. To maintain a comfortable tier-1 capital of 8%, the "best option" would be to raise equity capital. It is estimated that Maybank would need to issue equity funds of RM3.6bil should the group opt to tap the equity market. This could require an estimated 8% increase in issued capital. Maybank's goodwill would soar to RM6.45bil after the acquisition. The purchase would reduce Maybank's core capital to 6.3% from 9.7% and the capital adequacy ratio (CAR) to 10.4% from 13.9% since goodwill would be deducted from the group's total capital in the calculation of CAR. Hence, the group needs to issue new capital in the form of tier-1 hybrid capital or subordinated debt to raise the CAR to 11% to 12%. ---------------------------------------------------------------------------------------------------- What's Up? … dated March 2008 A two-year courtship that culminated in a tender bid saw Malayan Banking Bhd (Maybank) securing a controlling stake in Indonesia's sixth largest bank by assets, PT Bank Internasional Indonesia Tbk (BII), in a deal that could be worth a whopping RM8.6bil. This is Maybank's second attempt at leapfrogging into the Indonesian market after failing to buy a stake in PT Bank Permata Tbk in 2004. This time around it beat competition from HSBC, Bank of China and South Korea's Kookmin Bank. Going Forward … Investors however, concern that MBB was paying a high price of RM8.6 bil for a 100% stake in PT Bank Internasional Indonesia Tbk. BII is essentially priced at 4.45 times and 61.5 times FY07 BPS and EPS, respectively, or 4.26 times and 33.0 times FY08 BPS and EPS. However, it always believed that Maybank should expand its overseas presence in order to mitigate the saturated domestic market share. Maybank paid RM8.6bil, or 4.6 times book value, indicated how desperately the group wanted BII, Indonesia's sixth biggest bank. The valuation is among the highest in the industry. The offer price is about 20% above Jakarta Stock Exchange-listed (JSE) BII's market price. The book value of 4.6 times is about double the average valuation among Indonesia's publicly traded banks. The top four banks listed on JSE are currently trading at about 3.9 times. BII's net profit has been declining since 2004. For the year ended Dec 31, 2007, the bank's net profit fell to 404.7 billion rupiah (RM142mil) from 633.7 billion rupiah (RM222.3mil) in 2006. Fitch Ratings had placed Maybank's long-term foreign currency and local currency issuer default ratings (IDRs) of 'A-' (A minus) on rating watch evolving (RWE). Although the financial impact of this transaction is slightly negative in the near term, the agency believes that BII will bring diversification benefits to Maybank over the longer term, and help its transformation into a regional bank in future, as has been its stated intention for some time. Although detailed funding plans are not yet clear, Maybank has indicated that a part of this transaction would be funded through internally generated funds and/or borrowings. Based on the estimated price to net book value of 4.7 times, the impact of goodwill arising from the acquisition is expected to be substantial on Maybank's capital position and could potentially reduce Tier 1 and Total capital adequacy ratio (CARs) of Maybank (on a consolidated basis) by about 400 basis points. Maybank's Tier 1 and Total CARs were 9.2% and 13.3%, respectively, at end-December 2007. Given the substantial goodwill, the RWE reflected Fitch's expectation that Maybank is likely to look into raising fresh capital (including hybrid securities) to bolster its CAR levels post-acquisition to support its organic growth in its domestic and regional operations. The rating agency also said the ratings would be closely monitored pending further developments on this front. Fitch said it would resolve the RWE after a detailed review of Maybank and in particular look at its capital restoration plans, as the bank's capitalisation would be slightly affected as a result of this acquisition. Established in 1960, Maybank is Malaysia's largest domestic bank, accounting for 22% of system assets. Government controlled entities and funds own close to 60% of the banking group. Ann Joo Resources Bhd Financial Results … For its financial year ended Dec 31, 2007, a quarter of Ann Joo's turnover of RM1.95 billion comprised export sales to countries such as Vietnam and Singapore as well as the Middle East. Ann Joo aimed to further enhance its efficiency in order to lower production cost and improve profit margin. This will be achieved by reducing downtime and having a new blast furnace that will cut energy and raw material costs and improve productivity through reducing melting time. From 2011 onward, the group planned to venture into the production of high-grade steel products. Along the way, there may be some merger and acquisition opportunities in which the group may take in order to expand
Theories abound regarding the sharp gain in prices from the emergence of a new strategic shareholder to the sale of its four widebody MD-11 freighters as it re-focuses on short-haul markets.
Transmile had on Wednesday told Bursa Malaysia that it cannot explain the share price increase. Shares of Pos Malaysia Bhd, which holds 15 per cent of Transmile, was also active in the morning session.
However, three plausible reasons for the interest …
In 2007, Transmile's net loss widened to RM279.6 million, four times the RM63.8 million reported in 2006. Revenue fell 16 per cent to RM616.2 million.
KLK will finally own a controlling stake in Ladang Perbadanan-Fima Bhd (LPF) after it and three other parties agreed to an out-of-court settlement of civil suits related to an LPF stake.
The end of the lengthy court dispute will also see a general offer made by KLK as the company, through subsidiary Ablington Holdings Sdn Bhd, will own 47.35 per cent stake or 54.12 million LPF shares.
KLK and Ablington had reached an out-of-court agreement with Glamour Green Sdn Bhd and AmBank (M) Bhd to resolve civil suits related to a controlling 30.62 per cent stake or 36.52 million shares, in LPF.
The firm's Petra Energy subsidiary, which does refurbishing and maintenance work on aging oil fields, wants to make acquisitions in areas that complement its operations. Petra Energy is a brownfield company, doing more mechanical and electrical works and so on.
Petra Energy's orderbook of about RM850 million (US$265.3 million) could last up to five years.
Petra Perdana owns 60 per cent of Petra Energy, which has a market value of RM430 million(US$134 million).
Petra Perdana, which focuses on marine services and charters, has ordered 19 vessels for delivery by 2010 as part of a fleet renewal and expansion programme that aims to roughly double its numbers and cut the average age to eight years from 20.
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