Tuesday 31 January 2012

TMS ... Jan12

KJSB’s parent company Theta Edge Bhd had just started working with TMS’ wholly-owned subsidiary TMS Software Sdn Bhd (TMSS) on the proposal for the project involving a management system for the Education Ministry’s Perluasan Sistem Pengurusan Sekolah to all schools nationwide.

No date has been fixed for the proposal submission or any timeframe set for the ministry to revert on the outcome of the proposal. On the estimated value of the project and profit-sharing or profit margin arrangement between both parties, Theta said the details were still being discussed.

Since KJSB has only started working with TMS on the preparation of the proposal, the expected financing requirements and/or sources of funding for the project and subcontract agreement have yet to be finalised.

Theta, which is a member of Lembaga Tabung Haji, also clarified that no deposit, performance bond or tender fee had been paid.

KJSB will act as the lead party in submitting the proposal, handling correspondences with the Government and securing the prime contract. The company will also provide technical manpower including computer systems analysts.
Under the teaming agreement, KJSB will have to consult TMSS and include its services in the preparation of the proposal. TMSS, on the other hand, is the sub-contractor supporting KJSB’s roles in obtaining and promoting the government-linked project.
Theta also noted that the general risks involved in the project would be the ministry reducing or enlarging the scope or number of the schools considered and KJSB or TMSS failing to fulfill the criteria stipulated under the prime contract or sub-contract.

If KJSB secured the project, there should be a material impact on the earnings per share, gearing and net assets per share of Theta. There is no expected impact on the shareholdings and share capital of the company. However, this is preliminary as the matter is still at the proposal stage.

The targeted implementation for the project of between three and five years for 10,000 schools had yet to be finalised. Since the actual award and scope is not out, it is unable to assess the actual financing requirements at this stage and if required, may be considering a combination of funding from KJSB or Tabung Haji Group, banking facilities or raising capital from the market.

The teaming agreement is valid for a year from Jan 18 2012 and can be extended on six-month basis subsequently.

KJSB’s main business revolves around sales and maintenance of computers and telecommunications equipment, peripherals and related services. TMS, on the other hand, successfully implemented the pilot project for 88 schools and now has the technical knowledge, experience, software resources and necessary expertise for the same area.

Monday 30 January 2012

Tebrau ... Jan12

Sources say Danga Bay Sdn Bhd, the master developer of the Danga Bay water front project in Johor, is to be injected into Tebrau, a property development company linked to the Johor government.

The exercise will transform Tebrau, which is majority owned by Johor state investment arm KPRJ, into the bigger owner and developer of sea fronting projects.

Tebrau will have a seamless strip of sea fronting land facing Singapore once the exercise is completed. The majority owner of DBSB, Datuk Lim will drive the development.

Under the exercise, Tebrau will acquire DBSB from its current owners, Credence Resources Sdn Bhd and KPRJ. Lim owns 70% of DBSB via Credence Resources while KPRJ owns the rest. The transaction is said to be satisfied via the issuance of new shares in Tebrau.

KPRJ was established by current Johor Mentari Besar Tans Sri Ghani to spur development in the southern state. Over time, some of the best parcels of land in the KPRJ stable were injected into Tebrau.

The injection of DBSB into Tebrau is the final effort to transform the group into a leading property developer and give it a new lease of life.

Sources say the eastern portion of the waterfront area where Danga Bay is located is owned by Tebrau. The western portion of Danga Bay belongs to DBSB. Once Tebrau purchases DBSB, the group will own the entire Danga Bay stretch.

The development will turn Danga Bay into the largest sea facing waterfront development in Malaysia.

If the deal goes through, Tebrau will become a serious contender in the development of Iskandar Malaysia, competing with the government linked company UEM Land.

Wednesday 25 January 2012

Pantech ... Jan12

Insider Asia Research

- Sales in 3QFYFeb12 up 49% y-y and 12% q-q
- Trading sales registered good traction
- Expect strong double-digit growth in FY12-FY15
- 2012E annualised P/E of only 5.1x with 6.5% net yield

Pantech Group Holdings’ earnings results for 3QFYFeb2012 were broadly in line with our expectations.
Total sales were up 49.4% y-y and 12% q-q to RM112.7 million, underpinned by improving demand in both the domestic and export markets. Trading sales, which accounted for some 64% of the company’s total sales in the quarter, expanded to RM72.1 million, up from RM60 million in 2QFY12.

We estimate roughly 80-85% of trading sales are for domestic consumption. Local demand is expected to improve further in 2012 as more oil & gas projects under the various government initiatives, including the Economic Transformation Programme, are rolled out.

The national oil company, Petroliam Nasional intends to spend some RM250 billion over the next five years, to develop new projects, including marginal oil fields, as well as undertake enhanced oil recovery from existing oil fields. Thus we expect robust demand for downstream support services and equipment such as the pipes, fittings and flow control products sold by

Pantech going forward.
Meanwhile, export sales too did quite well, holding at some RM40.6 million in 3QFY12 on the back of fairly resilient export demand – despite the increased global economic uncertainties, triggered by the deteriorating debt crisis in Europe during the period.

The carbon steel manufacturing facility in Klang is running at full capacity while Pantech’s current six production lines at the new stainless steel plant is also nearing full utilisation. However, the latter remains in the red in the latest quarter. We had expected the new lines to be breaking even by end- 3QFY12.

This slight delay in turning a profit was due to falling raw material prices globally, including that for nickel. Nickle is a key component in influencing prices for stainless steel products. Heightened concerns over the euro zone crisis and health of the global economy sent commodity prices tumbling in 2H11 as investors shun risky assets. The average price for nickel in November 2011 was almost 25% lower than that in July 2011. As a result, Pantech’s margins were squeezed by higher stock cost in an environment of weakening selling prices. Positively, improvement in the trading arm and resilient earnings from carbon steel manufacturing more than offset losses at the stainless steel plant. Net profit in 3QFY12 rose to RM10.3 million, up 67% y-y and 43% from the immediate preceding quarter.

The company announced a second interim dividend of 1.2 sen per share. The stock will trade ex-entitlement on February 27.

Earnings Outlook
Pantech’s earnings have been improving in the last three consecutive quarters. Net profit improved from RM5.1 million in 4QFY11 to RM6.2 million and RM7.2 million in 1QFY12 and 2QFY12, respectively. Net profit expanded further to RM10.3 million in the latest 3QFY12.

We expect this trend to persist through 2012 on the back of upbeat forecast for the oil & gas sector going forward. To be sure, there are some concerns that global economic growth could stall especially if the debt crisis in the euro zone worsens further. Nevertheless, recent economic data out of the US shows that the world’s largest economy is in a better shape than previously expected.

With the US job market on the mend, rising consumer confidence will underpin consumption, which accounts for 70% of the country’s economic activities. Meanwhile, many expect China to gradually loosen monetary
policy to spur domestic consumption and counter slower external demand. At the moment, most expect the government to succeed in engineering a soft landing for the world’s second largest economy.

Thus, the global economy is still expected to register positive growth, albeit at a more modest pace.
Prices for crude oil have held up well through the recent volatility in financial markets. Crude oil futures on the New York Mercantile Exchange are currently hovering around US$100 per barrel, a level that is supportive of exploration and production activities in the oil & gas sector. Thus, we expect demand for Pantech’s pipes, fittings and flow control products to gain traction, both in the domestic and export markets.

The company’s order book for its carbon steel products runs up to June 2012 while that for stainless steel products is full till April 2012. Orders for the latter is shorter-term at the moment due to the more volatile price fluctuations. Positively, prices for nickel appear to have bottomed out in November 2011 and have since recovered by nearly 10%. A more stable price for the raw material this year would bode well for Pantech’s margins. The recent strengthening of the US dollar against the ringgit would also translate into
higher export sales for the company. Hence, we do expect the first six stainless steel production lines to start turning a profit soon.

Pantech is slated to complete its near-term capacity expansions over the next one-two months. The additional machineries to manufacture, primarily, high frequency induction long bends, at the Klang facility are in place and will commission by end-FY12.

Meanwhile, three of the four additional production lines in the new stainless steel plant are nearing completion. The final line is expected to be up and running by April 2012.

The four new lines will expand its current production range to include biggersized pipes and also fittings. Production at this plant is estimated to rise to 12,000 metric tonnes per annum in FY13, from the current 7,000 metric tonnes.

Elsewhere, Pantech is actively exploring various options to further expand its product range to encompass higher value and margin alloy products such as copper-nickel, duplex and super duplex pipes and fittings that are corrosion resistant. This may include acquisitions and/or expansion at its local manufacturing plant.

Valuation and Recommendation
Pantech’s well-laid out strategy should enable it to achieve strong doubledigit annual growth over the next few years – based on the expected strengthening in demand that is supported by the company’s expansion plans.

We are fine-tuning our FY12 earnings to take into account the slight delay in breakeven for the stainless steel plant. Net profit is estimated at RM36.2 million – up 25% from the RM29 million in FY11. On the other hand, we are revising slightly higher our earnings forecast for FY13, to RM49.9 million. Based on our forecast, the stock is trading at very modest P/E valuations of only 6.6 and 4.8 times, respectively, for the two financial years – or about 5.1 times our annualised earnings for 2012. Plus, the stock is trading below its net asset of 74 sen per share as at end- Nov 2011.

Pantech’s valuations compare very favourably against most oil & gas stocks listed on the local bourse, as well as the broader market’s average valuations.

Thus, we believe there is significant upside potential for Pantech, particularly for those with a slightly longer investment horizon. We maintain our BUY recommendation on the stock.

Investors can also expect attractive yields
On top of potential capital gains, shareholders can also look forward to attractive yields.
Dividends totaled 3.3 sen per share in FY11. For FY12, Pantech has paid interim dividend of 1 sen per share and has announced a second interim dividend of 1.2 sen per share.

For the full-year, we estimate dividends to total 3.5 sen per share, higher in line with the stronger earnings. This will earn shareholders an attractive net yield of 6.5% at the current share price. Going forward, we estimate dividends to increase further to 4 sen per share in FY13, giving a yield of 7.5%.

Sunday 22 January 2012

Gong Xi Fa Chai 2012

Wish all my reader Happy Chinese New Year 2012, wish you have a prosperity new year. Huat ah......

Friday 20 January 2012

Inari ... Jan12

Inari Bhd is optimistic the proposed 100% equity acquisition of Amertron Inc (Global) Ltd will boost its revenue by three fold.

Inari, an electronics manufacturing services (EMS) provider, and Amertron Global, a Cayman Islands-incorporated company, inked a memorandum of understanding today to start negotiations for the acquisition, expected to be completed in the second half of 2012.

Amertron has three EMS plants, two operating in the Philippines and one in China, with about 3,700 employees worldwide. He said with Amertron Global on board, Inari would be a step closer to becoming a multinational EMS player.

The acquisition would enable Inari to move into new markets, broaden customer base, expertise and manufacturing capacity as well as increase its current staff strength by four-fold. This move to strengthen its position will give it access to Amertron's global customer base in Asia, the US and Europe.

In its goal to be a leading global EMS industry player, Inari embarked to be listed on the ACE Market of Bursa Malaysia in July 2011. Inari provides end-to-end, vertically-integrated semiconductor packaging services for radio frequency chips in the wireless and mobile technology markets, while Amertron Global, also an EMS provider, focuses on the manufacture of mainly optoelectronic modules.

Thursday 19 January 2012

Redtone ... Jan12

It has entered into a 4G/LTE network collaboration and partnership agreement with members from two local telcos consortiums.

It has entered into an arrangement with the individual companies rather than the consortium. They are planning to make announcement once the MCMC finalises the positioning of each spectrum.

The two consortiums are the partnership of Maxis and U Mobile and the tie up between DIGI and Celcom Axiata.

A source explains that the rational for Redtone to enter into such an agreement was to raise capital to fund the eventual rollout of its own 4G/LTE network.

A substantial amount of capital expenditure is needed to build up a network. Redtone would be able to leverage on the 200MHz 4G/LTE bandwidth allotted to it in order to raise funding for eventual rollout.

Given its relatively small sized compared with other players, funding may have eventually proved to be an issue for Redtone.

The company is currently in the red, chalking up a net loss of rm870000 for its first quarter ended Aug 31, 2011. However in terms of cash flow, net cash generated from operating activities stood at rm2.2 million.

The company also has some well connected shareholders. In Oct 2011, Cheras UMNO division chairman Datuk Wira Syed Ali has emerged as the largest shareholder with an indirect stake of 28.6%. He is also Redtone’s deputy chairman.

The network sharing was one of the guidelines laid down by MCMC when the commission awarded the licenses early Dec 2011.

Wednesday 18 January 2012

Takaso ... Jan12

The company, whose core business is condom manufacturing, will acquire a Papua New Guinea company that has a timber licence and concession, in a bid to diversify its business. It was reported that Takaso would acquire Kayumas Plantation PNG Ltd, which holds the rights to a net loggable area of 40,000ha of timber, possibly worth up to RM500mil, in Inland Pomio, East New Britain Province, Papua New Guinea.

Sources say Takaso Resources Bhd is also set to diversify into the mining sector with Terengganu-state owned Golden Pharos Bhd as its partner.

Sources familiar with the matter said Golden Pharos, which is 61.2% owned by Terengganu Inc Sdn Bhd, was likely to form a collaboration with Takaso and together, both parties might obtain a state-related iron mining project.
Both companies have had serious discussions.

Terengganu Inc was set up by the state government to manage its investments.

It is unclear at this stage how a collaboration between Golden Pharos and Takaso will pan out whether it will be a pure joint venture or will require changes in shareholding.

No specific details on the mining project are available.

Takaso is a condom maker but is looking to diversify its businesses and review its corporate structure which may involve the appointment of new board members to boost profits. Golden Pharos is a resource-based company involved mostly in timber.

Takaso made a net profit of RM167,000 in its most recent quarter ended Oct 31, against quarters of consecutive losses as the eurozone crisis hit its largest export markets. Golden Pharos made a net profit of RM1.36mil in its latest quarter compared with a net loss of RM1.59mil for the same period a year earlier.

Its ED Chin Boon Kim has emerged as a substantial shareholder after he acquired a 4.62% stake. After the acquisition he holds 5.44%.

Tuesday 17 January 2012

IGB ... Jan12

IGB is undervalued despite its portfolio of prime properties. But, the lack of proactive initiatives to crystallize its deep embedded value has engendered a value trap stigma. This would soon change.

IGB may be moving to optimize the ownership structure of its prime properties by embracing REITs as tax efficient vehicles to house its assets.

The momentum move would unleash a significant revaluation surplus from assets re pricing and free up capital for redeployment. The retail REIT comprising MegaMall and Gardens Mall – currently parked under KrisAssets – is likely to be first off the block.

The total accretion to IGB from the listing of the retail REIT is estimated to be about rm1.8 billion (or 59 sen per share), IGB may also rake in between rm465 million and rm1.4 billion cash, depending of its equity stake in the REIT).

This is a further rm1.05 billion revaluation surplus in IGB’s under appreciated portfolio of well occupied office buildings, which are carried in its book at low historical costs. The retail REIT may be the trailblazer for IGB to launch an office REIT further out.

A hospitality REIT for its hotel assets would complete the re pricing of its assets, transforming IGB to an asset light free based entity with controlling stakes in three listed asset specific REIT.

NAV realization and expectations of a cash payout to minorities would be the primary valuation drivers in the near term. IGB would need a delicate balance between a special dividend and deploying fred capital to fund development projects overseas. It is exploring the depressed property market in London.

With the exception of EPF with a 6% stake, IGB is ver under owned by other local institutional funds. Foreign ownership appears high at 35% as at Dec 2011.

The primary risk is the abolition of its plan to launch a retail REIT or protracted delays in its timing.

MudaJaya ... Jan12

CIMB Research

Investment highlights
• Maintain BUY despite lower target price. Mudajaya’s 49% share price plunge last year due to concerns over the delay of its Indian IPP and surprise changes at the helm presents a good opportunity to ride on the rollout of major projects under the ETP and 10MP in 2012. But upside could be fairly limited because of macro fears. We make no changes to our forecasts or BUY call but raise our RNAV discount from 30% to 40% as we downgrade the construction sector from Overweight to Trading Buy. Our target price goes down from RM4.81 to RM3.43. The main potential re-rating catalyst is contract wins.

• Trend towards large-scale jobs. For the construction sector, we expect project flows to be more active. Key large-scale projects that are scheduled for award in 1H12 are the RM6bn West Coast Expressway (WCE), c.RM1bn extension of the New Pantai Expressway (NPE) and the RM700m-800m civil works for the extension of the Tanjung Bin coal-fired power plant. We also expect initial packages for the RM7bn railway double tracking project from Gemas to Johor Bahru. These jobs aside, the major excitement is likely to relate to the award of the MRT SBK line. Of the 28 contractors in the running for the elevated, stations and depot works, 14 are listed companies.

• Focus on local jobs. Mudajaya’s strategy for 2012 focuses on local jobs and the execution of its Indian IPP. Management indicated that the pending award of the RM700m-800m civil works for the Tanjung Bin extension should boost its local jobs wins to over RM1bn. Mudajaya is among the 14 contractors that have prequalified for the MRT SBK line. It is also looking at precast opportunities for the elevated portion. Management is vying for a share of the RM6bn WCE subcontract works as the group has ample capacity to take on another major highway job after the completion of the KLKS Highway.

Recommendation
Maintain BUY despite lower target price. Mudajaya’s 49% share price plunge last year due to concerns over the delay of its Indian IPP and surprise changes at the helm presents a good opportunity to ride on the rollout of major projects under the ETP and 10MP in 2012. But upside could be fairly limited because of macro fears. We make no changes to our forecasts but highlight that our BUY call is now more trading oriented. We raise our RNAV discount from 30% to 40% as we downgrade the construction sector from Overweight to Trading Buy. Our target price goes down from RM4.81 to RM3.43. The main potential re-rating catalyst is contract wins.

Monday 16 January 2012

AMedia ... Jan12

 TA Securities Research

Broadcasting live to Klang Valley in FY12
Asia Media Group’s (AMGB) will roll-out Digital Terrestrial Television Broadcasting (DTTB) in the Klang Valley as early as 1HFY12. By integrating DTTB into its existing TransNet Transit-TV network, AMGB will be able to broadcast realtime news and information on LCD screens installed on public transport.

Proposed 35% private placement withdrawn
AMGB announced that it will not proceed with its proposed private placement of up to 35% of its share capital as it is no longer required to meet the Bumiputera equity condition imposed by Malaysian Communications and Multimedia Commission (MCMC) once wholly-owned subsidiary Asia Media Sdn Bhd (AMSB) transfers its DTTB-related licenses to 70%-owned subsidiary Maha Semarak Sdn Bhd (MSSB).
There will be a marginal dilutive impact on earnings from the minority interest but no effect on business operations. Earnings to grow by 23% 3-year forward CAGR We have tweaked our FY11 and FY12 earnings estimates down by a marginal 1% in both years to account for 1) more moderate revenue growth assumptions 2) realistic airtime utilisation rates of 30% in FY11 and 35% in FY12, and 3) minority interest associated with the 70% subsidiary MSSB from FY12 onwards, and 4) removal of the 79.8mn proposed
private placement shares.

Valuation & recommendation
Raising our target price to RM0.42 (from RM0.32 previously) based on the same 4x FY12 PER, largely from the scrapping of private placement shares. The stock is currently trading at an undemanding 2.8x FY12 PER, which is at a 78% discount to the Media sector average of 13x. Reiterate Buy recommendation on AMGB for its market leadership position (with 85% market share) in niche high-growth Digital Out-
Of-Home (DOOH) transit media segment. Positive re-rating catalysts for the stock would be 1) securing of the LRT concession, 2) government’s more aggressive expansion of public transport system, and 3) Chinese radio channel coming on-stream earlier than expected.

1. Recent Developments
Live digital video broadcasting in 1HFY12 Asia Media Group ‘s (AMGB) roll-out of Digital Out –of- Home (DOOH) Digital Terrestrial Television Broadcasting (DTTB) in Klang Valley as early as 1HFY12. The company has invested RM25mn (RM16mn from IPO proceeds) in DTTB infrastructure and equipment so far, which includes 2 transmission towers erected in USJ and Berjaya Times Square. The company intends to put up another 3 in KL and Selangor in FY12 at an average cost of RM2.3mn each.

On-going DTTB trials conducted on 30 buses plying the Shah Alam and Kelana Jaya route have been successful and Management does not foresee any problems integrating DTTB into its TransNet network for all the 1,500 RapidKL buses servicing the Klang Valley. AMGB has also committed to investing RM500mn by CY15 to extend DTTB countrywide as an Entry Point Project partner under the Government Transformation Programme. We understand that the company intends to roll-out DTTB to Johor Bahru in FY13 and to Penang in FY14. We have assumed more modest capex of RM30mn in FY11 and RM35mn in FY12 as we expect the DTTB roll-out beyond the Klang Valley to occur gradually and only if commercially viable for AMGB.

Key benefits of DTTB:
1) Reduce advertisers fatigue with dynamic, up-to-date content.

2) Allows for dayparting, that is greater segmentation of broadcast programming. This allows AMGB to
charge higher rates for airtime during peak hours. The company’s airtime is now divided into only 2 time
bands with no price differentiation.

3) Enables higher degree of content customization that would enable advertisers to reach a specific
demographic more effectively. For example, youthcentric programming shown after school hours. Expect
greater response from advertisers to DTTB to raise utilization rate from 30% at present closer to target of
50%.

4) Competitive advantage when bidding for new concessions. No other DOOH transit media player Simfoni Maya Sdn Bhd and YTL Info Screen Sdn Bhd) has live broadcast capability.

5) Extends AMGB’s network beyond public transport to other electronic devices such as mobile phones and
personal computers.

6) Allows for the introduction of mobile interactive services. These include smart messaging to mobile
phones, where passengers are able to download contents via their mobile phones for a fee.

Proposed 35% private placement withdrawn with transfer of DTTB licenses AMGB announced on Bursa that it would not proceed with the proposed private placement of up to 35% of its share capital as the exercise was no longer necessary to comply with the Bumiputera equity condition imposed by the Malaysian Communications and Multimedia Commission (MCMC) when granting the licenses.

AMGB is one of only 3 companies in Malaysia with the CASP-I license for 3 media platforms- terrestrial radio, subscription and non-subscription based TV broadcasting. The other 2 are BERNAMA news agency
and the Measat group of companies. The Bumiputera requirement was fulfilled when its wholly-owned subsidiary Asia Media Sdn Bhd (AMSB) transferred the licenses to 70%-owned subsidiary Maha Semarak Sdn Bhd (MSSB) effective on 13 December 2011. The remaining 30% stake in MSSB is owned by Datuk Wira Syed Ali bin Tan Sri Abbas Alhabshee, Non-Executive chairman of AMGB. No consideration was paid for the transfer and shareholder approval was not required.

The transfer of licenses will have a marginal dilutive impact on AMGB’s earnings but there would be no
effect on the group’s business operations. FY12 EPS would be diluted by 6% from the 30% minority
interest in MSSB. However, we expect AMGB’s strong earnings momentum to make up for the dilution and
note that the effect of the transfer would be significantly less dilutive than the initial proposed private placement. The removal of the private placement alone would adjust our FY11 EPS upwards by 33% and FY12 by 31%. Taken in concert, the dilution from MI in MSSG and scrapping of AMGB private placement shares would result in FY11 EPS improving by 33% and FY12 EPS by 28%.

2. Overview of 9MFY11 results
AMGB’s revenue in 9MFY11 close to doubled YoY to RM27.9mn, due to strong sales growth in all divisions. Programme sponsorship in particular, achieved notable sales growth of 329% YoY as more corporate sponsors were attracted to AMGBs widening network from additional buses. Half of 9MFY11 revenue came from the creative and production segment due to higher content requirements from greater customer demand for airtime and sponsorship.

The bulk of 9MFY11 pretax profit however came from programme sponsorship (55%) and airtime sales
(27%). The airtime segment earns the highest pretax profit margin (79% in 9MFY11) as it makes 100%
gross profit margin. This is because the amount of advertising time available is fixed and the primary
cost- LCD screens- is already sunken cost. The creative and production segment’s pretax margin is the lowest (13%) due to a high proportion of outsourcing for content creation.

We highlight AMGB’s close-to-zero tax rate which stems from its MSC status, valid from CY07-CY12. We
have assumed minimal taxation in our forecast as we expect the company to get a 5-year extension of its MSC status in CY13 onwards. At end-September 2011, AMGB held net cash of RM13.6mn which translates to net cash per share of 6.0 sen, with minimal borrowings of RM0.7mn.

3. Earnings Outlook
DOOH transit media industry’s growth to overtake total Malaysian adex The DOOH transit media industry has expanded at a historical 3-year (CY07-09) CAGR of 55%, significantly ahead of total Malaysian adex CAGR of 7% over the same period. The DOOH transit media segment is expected to grow by a 4-year (CY10-14) forward CAGR of 30.5% driven by increased public acceptance of advertising in transit and declining prices of LCD screens. DOOH transit media made up 7.8% of total OOH market in FY09, which in turn comprised 1.6% of total adex. Based on revenue, AMGB captured an estimated 11% share of the OOH market (digital and print) in FY10.

AMGB’s earnings to grow by 23% 3-year forward CAGR Our net profit estimates project a 3-year forward
(FY11-13) earnings CAGR of 23% based on the following assumptions:

1) Adex growth of 52% in FY11 and 19% in FY12. Adex growth in FY12 may be stronger than expected should AMGB win new concessions or the public bus network expands at a more aggressive rate.

2) Airtime utilisation rate of 30% in FY11 and 35% in FY12. The company’s utilisation rate currently is 30%.
Proxy to public transportation upgrade AMGB would be a direct beneficiary from the government’s initiatives to increase usage of public transport. The government targets 30% of the population in CY15 to use public transit from 12% in CY09. To this end, Syarikat Prasarana Negara Bhd (Prasarana) has spearheaded strategic collaborations with other stage bus companies in the Klang Valley and commissioned 400 new buses in CY11. AMGB benefits immediately from Prasarana’s efforts as its Transit-TV system would be installed in all new RapidKL buses.

LRT to be next potential leg of growth
We understand that AMGB is in advanced negotiations with Prasarana to expand its TransNet network to LRT stations and trains. Should they be successful, LCD screens could be installed in stations as early as
1HFY12. We believe that AMGB’s DTTB proposition and established track record with RapidKL buses will give it an edge in competing for the LRT concession. Winning the LRT concession would potentially add 0.6mn viewers per day (based on LRT and Monorail ridership) to AMGB’s base.

The only other media company operating in the LRT space is Media Prima’s Big Tree that currently has a
monopoly on advertisements in train stations and trains that take the form of bulkheads, station sponsorship and in-train panels. However, Big Tree’s lightboxes display static content installed at 20 LRT stations, which we think is not comparable to AMGB’s digital and soon-to-be live offering.

Chinese radio network next
The introduction of a new Chinese radio channel in 2QFY12 will provide a new income stream for AMGB.
The rationale for the radio channel is to take maximize the potential of the CASP-I license and to offer a more
comprehensive portfolio of services across several media platforms. The value channel will have a similar
target market as Media Prima’s One FM and 988 FM radio stations.

4. Removal of dilutive share placement offsets 1% adjustment in FY11 and FY12 earnings
estimates Our FY11 and FY12 earnings estimates adjust downwards by 1% after taking into account 1) more moderate revenue growth of 137% in FY11 (from 198% previously) in view of 9MFY11 revenue of
RM27.9mn, 2) realistic airtime utilisation rates of 30% in FY11 and 35% in FY12 (from previous 42% and 54% respectively), 3) removal of 79.8mn private placement shares which would adjust AMGB’s share capital to 228.0mn (from 307.8mn) and, 4) minority interest associated with 70% subsidiary MSSB from FY12 onwards and 5) updated 15MFY10 audited financial results, replacing FY10 proforma.

5. Valuation and Recommendation
Raising our fair value to RM0.42 from RM0.32 previously, after excluding private placement shares
from total share capital and adjusting earnings forecast.Our target PER remains at 4x FY12 PER for AMGB
which is based on a 70% discount to Media Prima’s 14x PER to account for AMGB’s smaller market
capitalisation and lack of track record.

Our Neutral recommendation on the Media sector notwithstanding, we are bullish on the stock for 1)
first-mover advantage in rapid-growth DOOH transit media segment, and 2) as a prime beneficiary of the
government’s public transportation improvement initiatives.

Re-rating catalysts for the stock would come from 1) securing of the LRT concession and 2) government’s
more aggressive expansion of the public transport system, and 3) earlier launch of the radio network.
Downside risks to our Buy recommendation are 1) nonrenewal of concession agreements, 2) revocation of
licenses, and 3) delays in DTTB roll-out.

Thursday 12 January 2012

Kelington ... Jan12

Its prospects of securing more jobs to design and build piping for gas and chemicals for clean room laboratories in Asia are bright, having already secured some

Its RM170 million order book should keep us busy until mid-2012.

Kelington was listed on the ACE Market of Bursa Malaysia in November 2009. It designs and installs ultra-high purity gas and chemical delivery systems, which are used in clean room facilities of the electrical and electronics industry.

At clean rooms, high pressured gas and chemical are used to etch circuits on microchips in wafer fabrication, the manufacture of liquid crystal displays, light emitting diodes
and solar cells in devices like mobile phones, plasma televisions, laptops and computers.

Armed Forces Pension Fund or Lembaga Tabung Angkatan Tentera (LTAT) emerged as a substantial shareholder with 12.64 per cent stake.

Meanwhile, Kelington has no dividend policy as yet.

Wednesday 11 January 2012

WCT ... Jan12

Construction and property outfit WCT Bhd had formed a new venture in Vietnam's property sector, which is currently experiencing a downturn.

WCT's joint venture with Southern Land Corp to develop 11.5 acres in Ho Chi Minh City, a project in which the former has a 70% stake. The project is earmarked for a middle-to-high class residential and commercial development.

WCT's management had given a sort of guide that its gross development value (GDV) could fetch up to RM700mil over the next five years. However, industry observers say the new Vietnam property project had an estimated GDV of RM500mil. The latest development given the expected long gestation period.

This would be the second project for WCT, whose other project comprises an integrated development on 22.2 acres in the Vietnamese capital.

Current global economic conditions as well as high inflation and the devalued dong are the stumbling blocks in the short term. In October 2011, in order to subdue Asia's highest rate of inflation, Vietnam's central bank raised its refinancing rate to 15% from 14% previously, while maintaining its base interest rate at 9%. The country's inflation for December 2011 was 18.1% year-on-year after rising 19.8% in November 2011.

What this means is that the credit crunch in Vietnam has resulted in the real estate market becoming very compressed, and a lot of property developments are slowing down or not starting. Certain projects are still moving along but things have been put on hold to a certain degree.

The project had a duration of 50 years from the date of receipt of the investment certificate awarded by the People's Committee of Ho Chi Minh City on Dec 24 2011.

WCT is expected to fork out RM78mil for its equity portion in the new Vietnam property project, and to gear up to RM314mil (assuming operating margin at 20%). As at the third quarter of 2011, WCT's gearing reached 0.9 times with its cash balance at RM1bil. The project financing could further leverage WCT's balance sheet up to 1.07 times, throughout the project period of five years.

The contribution from WCT's new Vietnam property project would only kick in by the company's FY (financial year) 2014.

In 2008, the company was awarded a contract to build the Platinum Plaza shopping mall in Ho Chi Minh City. However, the shopping mall project had not contributed to the company's earnings to date.

WCT is well-known for its three successful Bandar Bukit Tinggi integrated township developments in Klang, which consists of Bandar Bukit Tinggi 1, Bandar Bukit Tinggi 2 and Bandar Parklands-Bukit Tinggi 3. The Bandar Bukit Tinggi developments spans 1,346 acres of freehold land, with over 18,400 units of residential and commercial properties completed.

The company also announced in late October 2011 the acquisition of 468 acres in Rawang for RM38.4mil.

For its third quarter ended Sept 30, 2011, WCT posted a 29% year-on-year increase in net profit to RM39.3mil, due largely to higher contribution from its civil engineering and construction division. Its revenue rose slightly by RM5mil to RM362mil, compared with RM357mil recorded a year earlier.

For the first nine months of 2011, WCT posted a 15% year-on-year jump in net profit to RM114.5mil although its revenue dipped 17% to RM1.05bil (from RM1.27bil in the same period in 2010).

WCT's successful construction contracts are expected to pick up pace in the near term from the Middle East and Malaysia's ETP (Economic Transformation Programme) projects.

WCT's order book presently stood at RM2.5bil (external) with the tender book at RM4bil, mainly derived from Middle East-based tenders.

Tuesday 10 January 2012

Armada ... Jan12

Bumi Armada Bhd's latest venture in India would complement and further cement its position in the South Asian country.

It had acquired a 49.998% stake or 24,999 shares in India firm SP Armada Oil Exploration Pte Ltd. The acquisition was to facilitate future expansion plans and operations of the company.

SP Armada, an oil & gas company will now be a “jointly-controlled” entity of Bumi Armada, with the remaining 50.002% stake of SP Armada held by India-based Shapoorji Pallonji & Co Ltd.

The move was to buy a shell company to grow the business in India where there were still a lot of oil fields to develop. It looks like a complement to Bumi Armada's prior JV with Forbes & Co. The company could be looking at support vessels, marine support and other services in line with its main floating production, storage, off-loading (FSPO) jobs business.

Bumi Armada may be also setting up such firms as vehicles to bid for contracts in India.

Bumi Armada has previously formed a joint-venture firm with Forbes & Co called Armada D1 Pte. The JV firm was reported to have sought RM879.2mil (US$280mil) under an eight-year loan at the end of 2011.

A source had said that Armada D1 was also looking to borrow RM314mil (US$100mil) in a so-called bridging loan with a maturity of less than one year.

Forbes & Co is controlled by billionaire Pallonji Shapoorij Mistry, who is also the single largest shareholder in India's largest private conglomerate Tata Group.

Meanwhile Bumi Armada is set to win big contracts from Petronas, especially floating production, storage, off-loading jobs (FPSO)and marginal field projects, which could re-rate the stock. It is expected to secure the lucrative risk service contracts (RSCs) for Petronas’ marginal fields in 2012.
Its order book stood at RM7.2 billion (excluding a joint-venture FPSO project in India worth RM1.9 billion) and strong three-year earnings compounded annual growth rate of 26 per cent.

Its excellent track record and synergistic oil and gas services, especially FPSO solutions, may appeal to foreign oil companies seeking to rope in a local partner for RSCs.

Bumi Armada is keen to bid for marginal fields and its new oil field services division sends a strong signal that it is leveraging on its expertise to aggressively bid for RSCs, which are believed to command 11-20 per  cent Internal Rate of Return.

FPSO tenders were picking up and Bumi Armada would bid for more FPSO contracts in Malaysia as more jobs take off.

The FPSO tender process for Petronas’ RM15 billion North Malay Basin development had started, with the contract slated to be awarded by year-end (2012) to meet production by 2013.

Petronas is also likely to apply FPSO solutions to its "Bunga Dahlia" and "Teratai" fields.

Meanwhile, the FPSO tender for the "ONGC Cluster 7" marginal fields in India has started and Bumi Armada is likely to bid for it.

Monday 9 January 2012

CanOne ... Jan12


Can-One has won the legal tussle to acquire the 146.13 million Kian Joo Can Factory shares held by Kian Joo holdings Sdn Bhd at rm1.65 per share for rm241116975 after a Federal Court ruled in its favor. The court had allowed its appeal to proceed with the completion of the acquisition of the 32.9% stake for rm241.11 million.

Sources say there is a possibility of Can-One raising funds for the deal via a placement exercise of its own (Can-One) shares.

Also speculation is rife that the Sees may utilize part of rm241.1 million sale proceeds to launch a counter attack against Can-One.

The Sees may buy back KJCF shares from the open market, or even buy up the shares of Can-One. The are not likely to give up so easily, especially when some members of the family are keen on running the businesses.

On whether he or his family members will buy back shares in KJCF, See says if the stock price drops to a certain level which is attractive, then it may buy back from the market.

It is worth nothing that apart from the 32.9% stake that will be sold to Can-One, the See family members, including Teow and his brother still own 6.5% or more of KJCF in their personal capacity.

Can-One’s MD Yeoh owns almost a 30% stake in the company, while Koperasi Permodalan Felda Bhd owns 13.5% stake.

KJCF had proposed a bonus shares cum warrants rights issue exercise that would dilute Can-One’s interest should it not get the KFCF shares on time and be entitled to the bonus and rights issue.

Can-One had tried to seek an injunction from High Court against KFCF’s bonus and rights issue exercise but to no avail.

It is not known how Can-One will fund its acquisition of the 32.9% stake in KJCF. Given its small cash reserves, market observers say it is likely through share financing.

Can-One had rm11.85 million cash as at Sept 30, 2011 versus total borrowings of rm226 million. Its net current assets stood at a rm60 million.

Operationally, Can-One posted a net profit of rm20.01 million for the nine months ended Sept 30, 2011 on revenue of rm464 million.

However, Teow Chuan consistent purchase of KJCF shares in the open market may seem to suggest otherwise, and sparks may start flying again when the family receisves the rm241 million proceeds.

Friday 6 January 2012

MMC ... Jan12

KTM has attracted interest from the private sector, including Renong Bhd and Gamuda, despite being saddled with debt and being in the red for few years.
 
Now, MMC Corp is the latest company attempt a takeover of KTM, having submitted a proposal to the MOF to conduct a due diligence for a possible takeover.
 
KTM continues to chart losses due to the large capex for its electric train services (ETS) and electric double track project. The bulk of its capex comes from the government .
 
The billions of ringgit in capex involving the expansion of railway services may be why MMC is interested in a takeover of KTM.
 
KTM’s Project Management Department, appointed as the technical adviser and manager for contractual matters and in house works, managed some rm2 billion to rm3 billion annually in 2008 and 2009 to upgrade the company’s railways. In addition, contracts worth nearly rm20 billion have been awarded for the electrified double track project, which comes under the purview of the PMD.
 
This is government spending on railway services, with KTM via PMD having a larger say on where the jobs go. This is the most important part of KTM and why somebody would want to have control over the entity.
 
Interest in KTM is similar to investor attention in loss making SYABAS, which was taken private. The attraction in SYABAS is that it has between rm1 billion to rm2 billion of capex works per annum where the concessionaire can expect returns.
 
MMC already play a role in the rm12.5 billion contract for the developing of the 329km Ipoh-Padang Besar double track railway line.
 
The whole project, along with the ETS, is being executed in conjunction with KTM’s two year corporate restructuring effort, which is expected to turn around the company by 2015.
 
The ETS and double tracking project will substantially boost KTM’s line capacity, for which the company needs to purchase additional rolling stocks such as new electric train sets, locomotives, coaches, wagons and power generation cars.
 
KTM has stated that it will invest another rm1 billion in the ETS to grow its electric fleet to 26 sets.
 
Indeed a strong incentive for the privatization of KTM is the reduced funding it would require from the government.
 
If the government does privatize KTM, it would not be the first time. In 1997, KTM was taken private and the government eventually took back KTM in 2001 after the consortium failed to meet its obligations to the railway entity. Sources say these obligations included forking out rm100 million to beef up KTM’s capex.
 
Would MMC be able to bear such a hefty burden? Certain quarters have also questioned if MMC will be able to afford the acquisition on KTM’s operations. As at FY2010, MMC was in a net debt positon of rm14.06 billion, with rm19.4 billion in borrowings and rm4.85 billion in cash.
 
It is worth nothing that this is not the company’s first attempt. It tried to do so with Gamuda in 2003, in a deal where the government would retain ownership of the railway tracks, which are valued at rm50 billion. But nothing materialized.
 
Industry observers say KTM should liquidate its assets to ease its cash flow. It has been a burden for the government to subsidize unprofitable routes and borrowings.
 
KTM has received about rm30 million annually in claims from the government for the running of unprofitable routes that have been retained for public benefit in East Malaysia . Additionally the government extended rm760 million to KTM from 1194 to 2008.
 
It was reported that annuity payments for five easy loans totaling rm881 million franted to KTM have yet to be paid, despite having matured in the middle of 2009.
 
An area of unlocked value in KTM may be its property segment, which has seen dwindling earnings and contributes marginally to the company’s top line. This is because KTM’s best tracts have been already assigned to or are being developed by private sector companies.
 
It should either liquidate these real estate or partner with able corporations that are in a position to capitalize on and bring out the best possible GDV.
 
One major setback in developing KTM’s land is that it is limited to railway use only. If it is to be converted for any other use, the approval must come from the federal commissioner of land or the state authorities.
 
Its shareholding in underperforming JVs, associates or subsidiaries could be liquidated to lighten the company’s balance sheet.
 
A point of interest would be its wholly owned subsidiary, Multimodal Freight Sdn Bhd which seen substantial growth. KTM has said that MMF is looking to list on Bursa ’s second in five years to tap financing opportunities to meet business expansion requirements.

Thursday 5 January 2012

Faber ... Jan12

Sources say that three parties - Faber Group Bhd's wholly-owned subsidiary Faber Mediserve Sdn Bhd, Pantai Medivest Sdn Bhd and Radicare (M) Sdn Bhd which are vying for the hospital support services (HSS) concessions by the Government are likely to get their contracts renewed within the next month (Jan 2012 & Beyond).
 
According to sources, the Government had renewed the contract for a period of six months initially and had called for a tendering process by these three companies about a month before their contracts ended in October 2011.
 
It is learnt that Faber, Pantai Medivest and Radicare were the only companies which were called to submit their tenders for renewal because of their experience and expertise in providing HSS for hospitals in Malaysia .
 
The three companies are presently providing HSS for all government hospitals and clinics in Malaysia and a selected number of private healthcare companies.
 
The contract value is not fixed when the concession is granted but it is estimated that these three companies had raked in a total of RM1.1bil in revenue from these government concessions alone in 2010.
 
It is learnt that the revenues raked in per annum by these three companies were not fixed per se as this very much depended on how much actual volume was handled by each respective company. Should the volume increase due to the increased number beds per hospital or any extension by the hospitals that required their services, revenues to these companies would rise accordingly.
 
Industry sources said that of the three, the only listed entity was Faber, which has a 50% market share in terms of revenues, while Radicare was the second largest with a 30% market share, and Pantai Medivest with a 20% share.
 
Faber's concession covers 81 government hospitals in the Perak, Kedah, Penang, Perlis, Sabah and Sarawak; while Pantai Medivest's concession covers about 25 government hospitals in the southern region of Peninsular Malaysia; and Radicare's portion includes government hospitals in the Federal Territory of Kuala Lumpur, Selangor, Kelantan, Terengganu and Pahang.
 
HSS' activities cover the upkeep and cleansing of linen and laundry, biomedical engineering management services, facilities engineering maintenance services, clinical waste management services, hospital planning development services and cleaning and upkeep of the hospital building infrastructure.
 
These comprise a crucial link to the government healthcare system which provides maintenance of government hospital and healthcare infrastructure.
 
Faber is 34.3% owned by the Government's investment arm, Khazanah Nasional Bhd, 12.5% owned by unit trust company Universal Trustee Malaysia Bhd, and about 10% by Lembaga Tabung Haji.
 
Other than being a HSS provider for Malaysian government hospitals and those in India and the United Arab Emirates , Faber also derives a portion of its revenues from property development projects. This figure fluctuates from quarter to quarter depending on the progress of its property projects.
 
In the third quarter of its financial year ending Dec 31, 2011 (FY11), Faber derived 16% of its revenue from the property industry while the rest came from the integrated facilities management (IFM) services portion of which the HSS segment is also parked under.
 
Government HSS contracts contributed to 45% of its third-quarter revenue in FY11 compared with a 74% contribution in the second quarter due to additional incoming revenue stream from overseas IFM services in the third quarter. Faber recorded profit before tax margins from government HSS concessions of an average of about 15% in both the third and second quarters.
 
Meanwhile Faber is the latest to join a handful of Malaysian companies such as Ranhill, Muhibbah, LCL, WCT and Sime Darby to face troubles in Middle East .
 
The group is facing difficulties getting paid for the jobs in the UAE and has to set aside rm44.5 million costs for the works completed.
 
The problem sent faber into the red when it reported a net loss of rm26.87 million in 3QFy2011 ended Sept.
 
In mid Dec 2011, it was slapped with a summons and statement of claim of rm13.1 million from a sub contractor for its project there.
 
Faber has yet to recognize any revenue for the rm44.5 million costs from work done as it is still finalizing the invoice to be issued to its clients.
 
In addition, Faber said there was rm12.9 million impartment losses at the expenses level due to the group’s expectation of the delay in collection of trade receivables from its principal, WRM in the UAE.
 
Faber said in 3QFy2011, it was in active talks with WRM to recover the revenue, costs and receivables from the UAE project, and include the option to be extended annually for the next four years.
 
Faber had already received notices of non renewal of contracts early 2011 and the works had ceased. Given the uncertainty of Faber getting its local concecssion contracts renewed, the problems in the UAE do not help Faber’s earnings.
 
In late Oct 2011, Faber received an interium extension of its long running 15 year concession on the day before expiration. However, the short term of only six months or until a new deal is signed whichever is the first, suggests, undercuts in the industry and lends credence to long running rumors that some parties are eyeing parts of Faber’s lucrative concession, particularly in Sabah and Sarawak.