Malaysia KLSE Value Investing
Value Play < -- > Betting On The "Next Phase Of Growth" Companies "Incremental Development" Kencana An oil and gas fabricator. Financial Results … Its net profit for its second quarter ended Jan 31 2008 jumped 42% on increased number of fabrication jobs secured. Net profit for the three months ended Jan 31 2008 rose to RM21.68mil from RM15.22mil in the last corresponding period while revenue surged 72% to RM351.4mil versus RM205.2mil previously. The cumulative six months' net earnings almost doubled to RM39.7mil, or 4.45 sen per share, from RM20.3mil or 2.7 sen per share a year earlier. The revenue increase was mainly due to a higher number of projects secured as well as progress achieved for contracts in hand, in line with the project delivery schedule. The group has embarked on the construction of offshore mobile drilling units, which is expected to expand the earnings base. The company was recently reported to have started work on the US$136mil Kencana Mermaid-1 drilling rig project, which is expected to take 18 months to complete. Capital spending on the upstream oil and gas sector would remain robust as oil companies took advantage of the high crude oil price to step up exploration and production activities. MMC Corp Bhd It may invest some RM1 billion to expand its coal-fired power plant in Tanjung Bin, Johor, to supply electricity to Singapore. The investment will double its production capacity to 1,400 megawatts (MW) from 700MW currently. MMC Corp Bhd is looking at acquiring power plants in the Middle East and Indonesia, and beefing up its existing facility in Tanjung Bin, Johor, to cater to demand from Singapore. Financial Results … For the year ended December 2007, MMC posted a net profit of RM551.5 million on RM5.7 billion in sales. According to the notes to the accounts, energy and utilities accounted for the lion's share or more than 75% of the conglomerate's revenue. Most of MMC's power assets are parked under privately held Malakoff Bhd, which is the largest independent power producer (IPP) in the Malaysia. Malakoff has under its belt six power plants including its jewel in the crown, the coal-fired 2,100MW Tanjung Bin power plant located in Johor. IJM Corp Bhd Diversified IJM's portfolio includes property and plantation, besides building materials production. Financial Results … IJM's net profit for the third quarter ended Dec 31, 2007, more than tripled to RM133.48 million from RM43.24 million a year earlier, backed by higher income from its operating units. Revenue surged 89.7% to RM1.1 billion from RM584.7 million. The group, however, incurred a cumulative nine-month net loss of RM521.35 million from a RM144.72 million net profit a year earlier, due to a merger goodwill impairment of RM922.26 million. Revenue more than doubled to RM3.32 billion from RM1.62 billion. What's NEXT! … dated March 2008 IJM Corporation Bhd, which is involved in the construction of the West Coast Expressway (WCE), said that it would talk to the new state governments of Selangor and Perak on the implementation of the RM3.1 billion project. On IJM's global reach, it would, for now, remain focused on its existing forte like India where debt financing facilities were deemed more established than those in emerging economies like Vietnam and Cambodia. IJM's stake in KEuro is a further extension of its strategy in taking over Road Builder (M) Holdings Bhd in 2007. By taking over Road Builder, IJM gained exposure to toll road and port concessions. AMMB What's NEXT! … dated March 2008 It plans to set up investment banking operations in Brunei and Vietnam in the next 12 to 18 months. WCT Engineering WCT Engineering Bhd has won an extra RM800 million scope of work for its Formula 1 (F1) racetrack project in Abu Dhabi, raising the total contract value to RM2.1 billion. The project will be completed in June 2009, six months later than scheduled, because of the additional work. SPSetia Financial Results … Its net profit rose 3.8% to RM48.53 million in the first quarter ended Jan 31, 2008, from RM46.75 million a year earlier on the back of a 19% rise in revenue to RM303.66 million from RM255.21 million. Earnings per share rose to 4.81 sen from 4.65 sen a year earlier. No dividend was declared. Profit and revenue were mainly derived from its property development activities in the Klang Valley, Johor Bahru and Penang. Apart from property development, the group's construction and wood-based manufacturing activities also contributed to the earnings. Total sales as at Feb 29, 2008, totalled RM646 million, which is significantly higher than that of the previous year's corresponding period of RM290 million. Going Forward … dated March 2008 Its focus is to transform itself from being a developer of residential homes to a fully integrated regional real estate developer. The group also targeted to launch its first overseas project in Vietnam by the third quarter of the current financial year ending Oct 31, 2008. Ongoing projects which contributed to the group's profit and revenue include Setia Alam at Shah Alam, SetiaHills at Bukit Indah Ampang, Bukit Indah, Setia Indah, Setia Tropika in Johor and Setia Pearl Island in Penang. Investors Alert "Radical Development" Water Concessionaires In Selangor & Puncak Niaga Water Concessionaires In Selangor …. MARC is of the view that the recent developments involving the water industry in Selangor signalled increased regulatory risk that may be detrimental to the historically strong and predictable cash flow generation capacity of concession holders. However, there are several mitigating factors including the fact that because the future financing requirement is heavily dependent on the capital markets, any tariff adjustments will take into acount the need to make the sector attractive for investors. The scale of the present and future financing requirements for the water sector and its heavy reliance on debt capital market funding suggest that it would be imperative for the water sector to retain its ability to access funding from the debt and equity markets. While consumer affordability is important, it would have to be balanced against the need for the sector to remain attractive for long-term investment. It believed that new significant policy initiatives directed towards the Selangor water sector including tariff reform would likely be subject to impact assessments including an evaluation of the effects on the credit quality of affected players and their access to the capital market as well as the cost of financing for the sector to ensure continued viability of all water concessionaires. MARC's announcement comes hot on the heels of the uncertainty in the future prospects of the water concessionaires in Selangor following the change in government. Among the changes that the new government plans to do is to supply free the first 20 cubic metres of water to consumers, something that will affect the cashflow of operators. Selangor is the state where the water industry is fragmented with many players, some of them owned by the state government. The biggest player is Puncak Niaga Bhd followed by Kumpulan Persangsang Selangor Bhd. The players altogether have issued issued seven debt papers with a face value close to RM7 billion. Furthermore, MARC also said in January 2005, the parliament approved the laws to transfer all matters related to water supplies and services from the state to the Federal with the exception of Sabah and Sarawak. Under the amendments, the Federal government would be able to license and regulate water services operators as well as maintain oversight of water treatment and distribution in place of the state government. MARC said it would continue to monitor the developments closely and their impact on the credit quality of affected issuers on a case-by-case basis. Puncak Niaga …… What's Up? … dated March 2008 There has been talk that Tan Sri Rozali Ismail, the executive chairman of Puncak Niaga who controls about 41% of the company's equity , maybe looking to exit at Rm6 a share. More recent talk has it that a rm4 to rm5 price tag is being bandied about. These valuations, however, may see some drastic changes in the near term. Puncak's main asset is SYABAS, in which the former controls 70% equity. Although at the outset of the concession may seem like a lucrative proposition, there are certain issues – largely concerning the amortization of the concession assets – which may pose problems, and in turn impact any valuations of Puncak. Accounting officials say Puncak adopts the revenue method when amortising its assets and expenses in relation to SYABAS and other water treatment plants. Under the financial reporting standards, the direct method of amortising is preferred to the revenue method. And it is a matter of time before the FRS system is implemented in Malaysia. Revenue method is the one utilized by most concessionaires locally. This method does not paint an accurate picture of the company's financials. The revenue method basically amortises the cost of treating and supplying water over the concession, which results in lower charges for the year, and a lesser impact in a company's P&L accounts. Meanwhile, the direct method compels companies to mark off their entire cost of water production incurred in the prevailing year in the books. In the past, most concessionaires used the revenue method as it had the effect of making the company look strong financially when that was not necessarily the case. The basic difference between the two is that with the direct method, SYABAS's retained earnings will be considerably reduced, in turn resulting in Puncak's retained earnings being adversely affected. It could turn a company from showing profit to substantial losses and for Puncak , and for Puncak, this could impact its bargaining position, as people do look at a company's P&L, although the norm is to put value bsed on discounted cash flow. Puncak has a shareholders funds of RM1.2 billion for the year ended Dec 2007 and has retained earnings of rm728.6 million. In its unaudited consolidated balance sheet, it is stated that project development expenditure for FY2007 was rm2.4 billion, up some rm1 billion from a year ago. Its amortization was only rm354 million, which is far less than the amount of expenditure on the development of the project. Certain quarters stated that Puncak should amortise its entire development expenditure as it is a one off item. If that is the case, it could see the company's P&L turn into a loss and its shareholders' funds erode significantly. "Incremental Development" Transmile Group Bhd What's Up? … dated March 2008 It has redesignated non-executive director Liu Tai Shin as managing director to replace outgoing Wong Yoke Ming. It is believed Wong's resignation is a signal that the restructuring scheme at the troubled air cargo freight forwarder is almost completed. Liu and Wong joined Transmile in June 2007 as part of a new team brought in to tackle the huge financial problem that arose from the discovery of massive accounting frauds over a three-year period. Both men are accountants by training and, together with the new management, were tasked with reviving the ailing firm. Transmile posted a loss of RM279.6mil on revenue of RM616.2mil for the year ended Dec 31, 2007. The loss was about four times bigger than the RM63.8mil reported in the previous year. The huge write-off that contributed to 2007's loss had given the company a clean slate to start over. ---------------------------------------------------------------------------------------------------- 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. 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. Corporate Round Up TNB There is no decision on gas prices at this point of time, said Second Finance Minister Tan Sri Nor Mohamed Yakcop. Tenaga at the moment gets its supply of gas at a subsidised rate from Petronas, something that the latter wants revised, considering the high energy prices. Digi.com DIGI.COM Bhd is confident of meeting its self-imposed year-end deadline to roll out 3G services. IPOs Hartalega Holdings Bhd It plans to fork out at least RM200 million to almost triple its annual capacity to 9.3 billion pieces of rubber gloves in two years as it develops new products and expands its market reach globally. Mainly export-based Hartalega which conducts its foreign transactions in US dollars, intends to tap new foreign buyers in high-growth China and India, besides South American and Middle Eastern countries and Russia. The nitrile raw material used is traded in dollars which offers a natural hedge against the weak dollar sales proceeds. Hartalega's list of new offerings include industrial and surgical synthetic rubber gloves. For FY08, Hartalega has forecast a post acquisition consolidated profit of RM69.64 million on a revenue of RM283.2 million. FY09 profit after tax and minority interest is estimated at RM55.46 million on a RM396.39 million revenue. Notice Malaysian REITs as at March 2008 Company Price NAV/UNIT Amfirst 0.84 1.01 Atrium 0.94 0.98 Axis 1.68 1.63 Starhill 0.86 0.97 UOA 1.27 1.39 Hektar 1.40 1.17 Al-Aqar KPJ 0.98 1.03 Tower 1.26 1.45 Al-Hadharah Bstead 1.43 1.00 Amahah Raya 0.94 0.94 Quill Capita 1.16 1.20
The double-tracking rail project was on track despite the recent change of state government in Kedah and Perak. MMC and Gamuda Bhd are equal partners in the RM12.5 billion project. 70 per cent of the land under the project is owned by KTMB Bhd, the national rail company.
MMC intends to list its Saudi joint venture between the fourth quarter of this year and the first quarter of 2009 to help finance its US$30 billion (RM96 billion) project there. MMC and the Saudi Binladin Group won a 30-year contract in late 2006 to build a new city in Saudi Arabia, called the Jazan Economic City, on 117 sq km, about 725km south of Jeddah.
The entire city plan comprises an industrial zone, including a port, power and desalination plant, aluminum smelter, and commercial and residential districts.
The bank will also start an Islamic stockbroking unit in Malaysia by July 2008 to ride on the inflow of Middle Eastern funds.
AMMB has obtained an investment banking licence in Brunei and its office there should open in the next 12 months. The Brunei operation will focus on Islamic banking, investment banking and fund management.
AMMB is also seeking to expand to Vietnam through investment banking, which complements the presence of its strategic shareholder, ANZ Bank, in consumer and commercial banking in the region.
ANZ is already in Indochina. We will work closely with them and look at how we can complement their commercial banking business there.
AMMB already has investment banking operations in Singapore and Jakarta, Indonesia.
WCT, which had built F1 racing circuits in Malaysia and Bahrain, won the job to construct the Abu Dhabi racetrack in July 2007.
Singapore's lighting team had been in Sepang to consult with local officials about the viability of a night race.
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.
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.
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.
DiGi.Com has capital expenditure for this year pegged at up to RM1.1 billion to include 3G spending.
The group planned to build two new factories, its fourth and fifth units, which would cost about RM100 million each. Both plants, with a collective capacity of around six billion pieces of gloves, will sit near its three existing facilities within Batang Berjuntai, Selangor, where the group currently makes some 3.3 billion pieces of gloves a year. The fourth plant, due for completion September 2008, will provide additional capacity of 2.9 billion pieces while the fifth entity, anticipated to start operations by end-2009, is capable of 3.1 billion pieces.
A bulk of its capital commitments for the new plants will be funded via bank loans, and the group's internal funds.
It hopes to capitalise on the growing demand for synthetic rubber gloves due to claims that natural rubber gloves induce protein allergies on users.
Financial Results …
It had paid dividends of five sen a share in FY08 and plans to declare a 10 sen a share payout in FY09.
