Malaysia will increase shipping quotas for tax-free crude palm oil (CPO) by up to two million tonnes this year to help planters cope with an expected increase in output, sources said as the world's No. 2 supplier struggles to maintain export momentum

Malaysia will increase shipping quotas for tax-free crude palm oil (CPO) by up to two million tonnes this year to help planters cope with an expected increase in output, sources said as the world's No. 2 supplier struggles to maintain export momentum.

The move will lift Malaysia's total duty-free CPO export quota to five million tonnes this year and comes after top importer India this month raised base import prices of refined palm oil, encouraging more crude palm oil shipments.

Both Malaysia and India are trying to retain market share after top palm oil producer Indonesia slashed in September export taxes of refined palm oil, used as a cooking oil, to boost its own processing industry.

“We are doing this on a case-by-case basis for local firms since production is starting to rise in the second half of this year and exports are a bit slow,” said one government official who declined to be named due to the sensitivity of the issue.

“It is a stock management effort. This is in an interim response to Indonesia at the moment. We are still formulating a comprehensive response,” the source added.

Malaysia said Jakarta's export tax cut had eaten into its own refined palm oil shipments and hurt its processors. India shares these concerns, especially as it has spent billions to build up its edible oil manufacturing sector.

Benchmark Malaysian palm oil prices rose 1.6% yesterday, driven partly by concerns of the US drought crimping soyoil supplies and also news of the higher quotas from Malaysia, traders said.

The five million tonnes set aside for export account for 27% of Malaysia's 2012 output of 18.4 million tonnes, potentially lifting local delivered prices of CPO and narrowing their discount to the Indonesian export grade.

The tax-free export quota appears to have turned into a stock management tool for the government.

Production has risen consistently since March this year and is expected to go as high as 1.9 million tonnes in September, the Malaysian Palm Oil Board estimates, which is well within the peak yield season for oil palms.

On the other hand, exports have fallen 18.6% during July 125 to below 990,000 tonnes compared with the preceding month due to a lull in Asian demand, data from cargo surveyors show, which has stirred concerns about oversupply.

“The extra allocation of two million tonnes will benefit the planters more than the refiners,” said a trader with a local refinery. - Reuters

“I am sure that this will be subject to abuse.”

Many traders have criticised the quota system for its lack of transparency, saying licence holders offer tax-free CPO to domestic refiners, allegations planters deny.

Refiners also complain that the export quota create an artificial supply squeeze, raising feedstock prices and lowering margins further.

Some traders said the extra export quota would help support palm oil prices in what is likely to be an election year. Many voters are also small oil palm farmers. - Reuters

Source: www.thestar.com.my

Summary of Analyst Report: Sunway Bhd target price RM.2.93, Buy - Hong Leong Investment Bank Research

Sunway's share price has been relatively muted after it was revealed that the company (by May) had not launched any new property projects while guiding down its new launches from RM1.5bil to RM800mil (based on effective stake).

The lower revised target was mainly due to the postponement of about RM300mil gross development value (GDV) based on 60% stake for Sunway Geo located at South Quay and RM180m GDV based on 60% stake in Tianjin, China.

The former is due to the slower take-up rates for its existing projects i.e. LaCosta Condominium (GDV: RM242mil, 51% take-up), while the latter is due to tightening policies in China.

Although investors may perceive this negatively, Sunway tends to launch its products at a premium of some 10% to 30% compared with its neighbouring developments, hence the take-up rate for new launches has been slower compared with the rest of its peers.

Before the merger, its take-up rate had been approximately 60% to 70%, and only jumped up to 90% in the financial year ended June 30, 2011 (FY11) after the merger.

We applaud the management's decision to roll back its new launches. Firstly, it will avoid having unnecessary working capital tied in.

Secondly, with a higher take-up rate target, it will translate to faster monetisation of its development projects.

Hence, we believe that we are beginning to see the positive changes arising from the merger in the form of prudent risk-adjusted development ventures to ensure that shareholders' interests are protected.

So far, Sunway's new major launch has been from Pasir Ris, Singapore, with a GDV of some RM266mil (based on 30% stake).

The balance of launches will be sporadic around Penang, Ipoh, Equine Park, etc, places where the management is confident about take-up rates.

Despite the lower target of new launches, it does not indicate that Sunway's new property sales will be badly affected.

As of the second half of 2012, the company has already achieved new property sales of about RM600mil, a sharp increase of RM426mil in new sales achieved for the second quarter compared with only RM174mil new sales in the first quarter.

By simply annualising the new sales figure, which works out to new sales of some RM1.2bil, we believe Sunway will exceed their new sales target of RM800mil and touch close to the previous new sales target of RM1.4bil.

We estimate that Sunway has an unbilled property sales of about RM2.1bil, translating to 2.3 times FY11's property revenue.

By assuming just the book value of the property and property investment division, our base case valuation for Sunway works out to RM2.48.

Including dividend yield of 2.3%, there is still 10.6% upside from the current price level, hence we believe that the company remains undervalued.

Earnings for FY12 and FY13 have been cut by 3.5% and 12% respectively to reflect slower property earnings contribution while introducing our forecast for FY14.

Source: www.thestar.com.my

Summary of Analyst Report: Axis Real Estate Investment Trust's (REIT) target price RM 3.35, Buy - Hwang DBS Vickers Research

Axis Real Estate Investment Trust's (REIT) acquisition line-up remains strong with agreements for three properties signed (offering 8% to 9% net property income yields), while two more are likely to be firmed up by end-2012.

A majority of the properties under negotiation are tenanted to companies within Axis' current customer base, while Axis Technology Centre 2 (ATC2 an office/warehouse block) is a private equity project by the promoter that is likely to be injected.

Gearing will potentially hit 35% by end-2012, and we think a placement is foreseeable in early 2013.

The REIT will be seeking approvals for renewal of its Income Distribution Reinvestment Plan (up to 2.2 sen of the second quarter of 2012 distributions), additional equity placements (up to 91 million units), management fees payable in units (up to 2 million units) and acquisitions and disposal of properties.

Asset enhancement initiatives for Infinite Centre and Wisma Bintang are on track, and should see strong gains in valuations and rentals when completed (estimated by 2013), which is factored into our forecast.

The REIT is also applying for MSC Malaysia status for various properties, which could result in rental premiums if received due to strong demand from companies.

After modifying our assumptions to account for Kayangan Depot disposal, acquisition of Wisma Academy & Annex and potential acquisitions in the financial year ending Dec 31, 2013 (FY13) (we now assume ATC2 will be acquired in the second half of 2013 instead of in the second half of 2012 at 8% net property income yield), FY12 to FY14 forecast earnings are adjusted by -0.3% to 1.3%.

Long-term growth drivers are intact with strong contribution from ATC2, leading us to lift our target price to RM3.35 (but beta adjusted to 0.6 from 0.5).

FY12 forecast distribution per unit is raised to 19.4 sen after including management fees payable in units (estimated to be 15% of management fees) and disposal gain on Kayangan Depot.

Source: www.thestar.com.my

Summary of Analyst Report: Oldtown Bhd fair value RM 2, Buy - OSK Research

We expect Oldtown's second-quarter results to exceed our previous estimates, coming in at RM11mil to RM12mil. These numbers are likely to be driven by stronger sales for its fast moving consumer goods (FMCG) products in China, surging 58% in first half compared with first half 2011, as well as better-than-expected food and beverages (F&B) sales due to promotions such as its newly-introduced set lunch menu.

Moving towards the end of financial year ending Dec 31, 2012 (FY12), management is guiding for an internal FY12 net profit target of some RM40mil but we believe it could surpass this target by some 5%.

We are taking the opportunity to raise our FY12 and FY13 core earnings forecasts by 6.3% and 13.4% respectively, mainly based on our expectation of a higher utilisation rate at its upcoming FMCG plant in FY13, higher average selling prices for its FMCG products, and higher average spending per customer.

We believe that its appointed distributors will substantially stock up on Oldtown coffee products next year once its new factory in Ipoh starts to cater to increasing demand, which will in turn contribute to a sharp spike in sales in first half of FY13.

Despite our positive view, our earnings revision for FY12 is minimal as we think that the company's third quarter earnings may be subdued since the period coincides with the Ramadan month, during which its F&B business experiences a seasonal slowdown versus other quarters.

Also, we do not see a significant rise in contributions from its FMCG segment as the company's existing plant is running close to full capacity (95%-96%). That said, we gather that management will beef up advertising and promotions during the quarter to boost sales. It recently introduced the “Rendang Delight Menu,” which we gather was well received.

All in all, we continue to like Oldtown's exciting growth prospects, supported by potentially major developments next year. We are reiterating our “buy” recommendation on the stock, with a revised fair value of RM2.00, as we roll over our valuation to 13 times FY13 earnings per share. Our fair value implies a potential return of 19.4% (including prospective dividend yield).

Source: www.thestar.com.my

AirAsia Bhd carried 8.258 million passengers in its second quarter of 2012, up 13%, from 7.347 million passengers last year

AirAsia Bhd carried 8.258 million passengers in its second quarter of 2012, up 13 per cent, from 7.347 million passengers last year.

The budget carrier said in a statement that the capacity increased by 13 per cent to 10.462 million seats, while load factor was 79 per cent compared to 80 per cent last year.

AirAsia added seven aircraft, raising its fleet to 100.

The airline strengthened its Malaysian operations in the domestic and international market by increasing frequencies on Kuala Lumpur-Terengganu, KL-Langkawi, KL-Vientiane, Langkawi-Singapore, KL-Saigon and utilising one new aircraft that was delivered end-May 2012.

In Malaysia alone, there was an increase of 10 per cent in the number of passengers carried to 4.90 million, from 4.47 million last year. The load factor was 80 per cent compared to 81 per cent in 2011.

Its affiliate Thai AirAsia carried 1.93 million passengers, an increase of 20 per cent compared to last year's 1.61 million.

AirAsia said the increase was supported through an extended capacity of 19 per cent with new Chiang Mai-Macau route and additional frequency for its Bangkok-Trang route for the quarter.

It posted a strong load factor of 79 per cent in second quarter, an increase of one percentage point year-on-year.

Indonesia AirAsia posted a stronger load factor of 78 per cent, or increased two percentage point year-on-year, as the result of capacity expansion followed by strong passenger demand.

Passengers carried increased by 15 per cent to 1.44 million, from 1.25 million last year, whereas capacity increased by 12 per cent year-on-year.

It continued to strengthen its hub via the introduction of Bandung-Penang, Bandung-Pekanbaru and Denpasar-Yogyakarta. It also added frequency for Bandung-KL and Denpasar-Surabaya.

Source: www.btimes.com.my

First day trading of IHH Healthcare Bhd's stocks registered 10.4% and 10.1% premium in Malaysia and Singapore, respectively

IHH Healthcare Bhd, the world's third largest initial public offering (IPO) this year, defied overall weak market sentiments to stage a sound trading debut in Malaysia and Singapore yesterday.

Shares register 10.4pc and 10.1pc premium in Malaysia and Singapore, respectively

The hospital operator, the second largest in the world by market value after United States' HCA Holdings Inc, opened simultaneously in both markets at a 9.6 per cent premium over the offer prices of RM2.80 and S$1.113 (RM2.81), respectively.

In Malaysia, the shares rose to as high as RM3.19 before ending the day at RM3.09, fetching a 10.4 per cent, or 29 sen, premium.

Some 390.3 million shares changed hands, making IHH, which is controlled by state investment firm Khazanah Nasional Bhd, the day's most actively traded counter.

"It is a very decent debut, considering its rich valuation and the fact that the market has been weak in the last few days," said Choo Swee Kee, executive director at fund management firm TA Investment Management Bhd, which manages some RM700 million in investments.

The FTSE Bursa Malaysia KLCI benchmark index , which had been on a four-day losing spell, gained 0.15 per cent to close at 1,635.09. Most other markets in Asia, including Singapore, ended the day lower.

IHH will be included in the 30-stock FBM KLCI from August 1, taking the place of MMC Corp Bhd.

IHH shares in Singapore rose to as high as S$1.245 before closing at S$1.225, fetching investors a 10.1 per cent premium.

Managing managing director Lim Cheok Peng, in a press conference here minutes after the debut, said the group was "quite happy" with the opening price and urged investors to hold the shares for the long-term.

In three to five years, the group hoped to have doubled in size and profitability and to replace HCA as the world's number one hospital operator, he added.

"This stock is not for speculation. I would urge you to grow with IHH and I am sure you will be rewarded in the longer term," he remarked.

Most analysts who track the stock have a positive recommendation on it, with their fair values ranging from as low as RM3.15 (Affin Research) to as high as RM3.49 (Hong Leong Investment Bank).

ECM Libra has a "hold" call on it with a target of RM2.94. At RM2.80 a share, IHH is priced at 38.9 times Hong Leong's earnings estimates for the group for this year.

Analysts consider it to be the most expensive healthcare stock among its top peers globally.

The group, in its IPO prospectus, announced plans to add another 3,300 hospital beds over the next three to five years to its current 4,900 beds, to cash in on a growing affluent community in the region that wants better healthcare.

To date, it has spent about 75 per cent of the more than RM6 billion needed for those plans, Lim said.

It is looking for hospital opportunities in China, where it already has eight clinics based in Shanghai, Chengdu and Hong Kong. "At the moment, we are entering into a contract to run two hospitals in Shanghai. We are also bidding for private hospitals that the government is tendering out in Hong Kong," he added.

The IPO, which raised RM6.3 billion, is the third biggest so far this year after social media group Facebook and oil palm operator Felda Global Ventures Holdings Bhd (FGV).

Private equity manager Abraaj Capital exited its investment in IHH through the IPO.

FGV, which was listed here last month, surged 18 per cent on its opening before closing at a 16 per cent premium over its offer price.

Source: www.btimes.com.my

Summary of Analyst Report: Kuala Lumpur Kepong's (KLK) target price RM 21.62, Reduce - Affin Investment Bank Research

Kuala Lumpur Kepong's (KLK) realised crude palm oil (CPO) selling prices have been consistently lower than the Malaysian Palm Oil Board (MPOB) averages and those of its peers due to the dilutive impact of the Indonesian export duties.

KLK's three refineries coming on stream in Indonesia this and next year will allow the group to recoup the Indonesian CPO price “discount” of about RM500 per tonne.

However, the latest move by the Indian government to effectively raise import duty on refined palm olein imports by about RM134 per tonne is expected to cut refining margins, thereby lengthening the payback period for the three refineries.

Margins from existing Malaysian refining operations may also be affected but there will be offset from higher CPO prices as Indian refiners import more.

Meanwhile, the total immature areas of 34,495 ha imply that total mature areas adjusted for replanting of older palms could potentially increase by over 20% in the next three years.

The group also has a plantable reserve of 22,048 ha and will be converting 5,000 ha of aging and low-yielding rubber areas into oil palm plantations in the next four years.

More areas in Indonesia coming to maturity and reaching prime age as well as yield improvements are expected to contribute to fresh fruit bunches (FFB) production growth of 6%-10% in financial years 2012 to 2014.

Its capital expenditure in financial year 2012 is budgeted at RM1.1bil (more than doubled the RM477mil in financial year 2011 and RM366mil in financial year 2010) for new planting as well as new and expansion of palm oil mills and oleochemicals plants.

Funding is not an issue, given the profitability of its operations as well as the group's cash reserve of over RM1.4bil and low net gearing of less than 0.1 times as at end-March.

It should be noted that corn and soybean prices have recently hit record highs following reports of a worsening draught in the US Midwest.

CPO futures, however, have yet to show signs of a bullish rally as supply remains ample while production is still on an uptrend.

We continue to monitor the outlook as high prices of corn and soybeans could turn down quickly if weather patterns in the US Midwest and South-East Asia improve.

Overall, while we continue to like KLK's good management and long-term growth prospects, at the current price and implied 2013 price-earnings of 17.7 times, our “reduce” call is maintained.

Source: www.thestar.com.my

Summary of Analyst Report: Digi target price RM 4.05, Underperform - CIMB Research

Revenue and depreciation surprises were behind DiGi's first half (ended June 30) core net profit shortfall of 5% relative to our forecast and 9% relative to market.

The company's revenue was hit by a ban on bulk short-messaging service (SMS) and its decision against selling wireless broadband while competition in international direct dialling (IDD) service is eating into its margins.

The 5.9 sen dividend per share (142% payout) for the second quarter was within expectations and was higher than last year's 3 sen (99% payout).

We have cut financial years 2012 to 2014 earnings per share but raised our discounted cashflow target price for a lower weighted average cost of capital of 10.7% (previously 11.6%) to reflect its high dividend payout, which has improved capital structure efficiency.

But DiGi is still an “underperform” call for us due to stiff IDD competition.

Meanwhile, DiGi's service revenue inched up only 0.8% quarter-on-quarter due to a ban on bulk SMS and its decision not to offer the lower-yielding wireless broadband which dented revenue.

While earnings before interest, taxes, depreciation and amortisation (EBITDA) margin was reduced by 1 percentage point, IDD competition had little impact on DiGi's revenue.

DiGi is benefiting from good price elasticity in the IDD space where lower prices have stimulated usage but have resulted in higher international traffic costs.

Also, DiGi's voice usage is being cannibalised by over-the-top applications such as Viber and WhatsApp.

Despite higher IDD usage, minutes of use were unchanged quarter-on-quarter in the second quarter, after falling 1.5% in the first quarter.

Lastly, its revenue and EBITDA growth rates are rapidly slowing.

In our core net profit, we have deducted RM24mil accruals that were written back.

Not surprisingly, DiGi noted that IDD is seeing stiff competition from the mobile virtual network operators, U Mobile and Maxis.

Competition is also intense in bundled offerings with pressure on handset subsidies.

DiGi may have to raise its marketing costs to counter rising competition and defend its market share.

DiGi has maintained its guidance of mid-to-high single-digit revenue growth versus industry revenue growth of mid-single-digit growth, an unchanged EBITDA margin year-on-year, and capital expenditure of RM700mil to RM750mil.

Chief financial officer Terje Borge had hosted an investors briefing in conjunction with the results announcement.

There were no major surprises and most of the questions centred on the competition in both IDD and product bundling, its ability to maintain its growth and updates on its network swap-out and collaboration with Celcom.

We are lowering our financial years 2012 to 2014 core net profit estimates by 4% to 7% after shaving our revenue forecasts for the weaker-than-expected revenue and raising our estimates for depreciation and amortisation.

Our dividend per share estimates are also revised downwards by 4% to 8%.

We believe that DiGi's revenue will remain under pressure due to competition in the IDD segment.

Maxis is intent on capturing its fair share of the market, which places substantial risks on DiGi, which derives about 20% of its revenue from IDD.

Source: www.thestar.com.my

TH Plantations Bhd (THP) today accepted an offer to acquire plantation assets from its major shareholder, Lembaga Tabung Haji, for RM525.6 million, to be completed in the fourth quarter of this year, will double the size of the plantation land bank to 90,671 hectares from 44,933 hectares

TH Plantations Bhd (THP) today accepted an offer to acquire plantation assets from its major shareholder, Lembaga Tabung Haji, for RM525.6 million.

The transaction, expected to be completed in the fourth quarter of this year, will double the size of the plantation land bank to 90,671 hectares from 44,933 hectares.

The areas planted with oil palm will increase to 57,407 hectares from 38,154 hectares, RHB Investment Bhd announced on behalf of THP in a filing to Bursa Malaysia Securities.

It will also diversify THP's earnings as the 15,714 hectares of land in Sabah will be earmarked for planting and replanting rubber trees.

THP will pay for the acquisition by issuing new shares to Lembaga Tabung Haji.

The proposed acquisition comprise the entire equity interest in TH Ladang (Sabah and Sarawak) Sdn Bhd for RM518 million to be satisfied via the issuance of 202.344 million new THP Shares at an issue price of RM2.56 a share, and proposed acquisition of 70 per cent equity interest in TH Bakti Sdn Bhd for RM17.640 million to be satisfied via the issuance of 6.891 million THP shares.

THP will also undertake an increase in the authorised share capital of the company from the existing RM350 million comprising 700 million THP shares to RM500 million comprising one billion THP shares. -- Bernama

Source: www.btimes.com.my

Summary of Analyst Report: Axiata Group Bhd, target price RM 5.71, Neutral - CIMB Research

Axiata announced last Thursday it has established a multi-currency sukuk programme that enabled it to raise up to US$1.5bil or the equivalent in other currencies based on prevailing interest rates when funding needs arise.

The funds would be used for “general corporate purposes”.

It has obtained central bank and regulatory approvals.

The programme allows airtime vouchers, which represent an entitlement to a specified number of on-network calls on its subsidiaries, to be included as a trust asset.

We understand this helps to lower the financing cost.

We view Axiata's establishment of a sukuk programme positively as it allows the group to raise funds quickly when the need arises.

While there is no immediate need, the facility allows Axiata to raise up to US$1.5bil or the equivalent in other currencies.

With this programme in place, Axiata can raise funds within weeks, saving about two months of regulatory approvals and credit rating.

We also believe this is not a prelude to a special dividend payout.

Axiata remains a neutral with unchanged forecasts and sum of parts-based target price.

While there are no imminent merger and acquisition deals on the table, we believe Axiata remains interested in strengthening its position by being a consolidator in Bangladesh and India.

We also gather that Axiata is keen to take control of India's Idea Cellular in which it currently owns 19.3%, if the opportunity emerges.

However, we do not expect Axiata to make any significant moves in India until the regulatory issues clear up.

Other investment opportunities include Myanmar, in our view.

Switch from Axiata to Telekom Malaysia for growth or StarHub for dividend yields.

Axiata's share price has run up significantly in recent weeks, possibly due to a flight to quality and dividend-yielding stocks.

Source: www.thestar.com.my

Summary of Analyst Report: Mudajaya Group Bhd fair value RM 2.88, Neutral - OSK Research

Coal India's (CIL) board meeting to decide on the contentious fuel supply agreements (FSAs) with power companies, initially scheduled for July 10, has been postponed for the fifth time to July 31.

Previously, most power producers were reluctant to agree to the terms proposed by CIL due to the unacceptably low penalty of 0.01% of the shortfall should CIL fail to deliver 80% of the committed quantum.

Following this development, the Prime Minister's office (PMO) had intervened and proposed to raise the penalty to 10% of the shortfall while at the same time reducing the commitment level to 65% of the annual contracted quantity for the first three years and 80% thereafter.

We understand that PMO and CIL are currently negotiating on potential revision of the penalty clause but a decision has yet to be made.

CIL has thus far signed 27 out of the 48 FSAs due this year, as state power ministers have warned that 55 of the 89 thermal plants in India are currently running on low capacity due to fuel shortages.

Despite PMO leading the discussions, we foresee further delays in firming up the FSAs as the final decision would have to take into account CIL's ability to ramp up its production instantly.

This in turn would depend on other factors, such as its existing manpower, issuance of mining approvals from the relevant authorities, as well as potentially increasing coal imports, which would translate into higher electricity tariffs and may in turn spark off unrest among locals.

Experts said these approvals are hard to come by.

CIL now has 102 mining proposals pending clearance at different levels.

Should all these be approved, these projects would contribute over 600 million tonnes of coal vis-vis CIL's 2011 production of 435 million tonnes.

For the FSAs to be finalised, we believe the government of India would have to accelerate the procedures in obtaining approvals to entice CIL to revise the penalty clause.

While we make no changes to our financial year 2012 and financial year 2013 forecasts, we take the opportunity to introduce our financial year 2014 numbers, with our revenue and core earnings forecasts of RM1.29bil and RM342.7mil respectively.

At first glance, this implies negative growth of 34.9% at Mudajaya's topline level, primarily attributed to the expected completion of works on the Chhattisgarh site by financial year 2013.

Its core earnings, on the other hand, is expected to inch up by 3.1% from 2013, thanks to the full-year contribution from RKM Powergen's IPP operations in India, which we expect to bring in some RM95.3mil in financial year 2014.

Overall, the latest developments in India's coal and power industry remain somewhat inconclusive but we see some upside in the potential coal price pooling model as an alternative should domestic coal production fall short, which in our view is more likely than not.

Nonetheless, we continue to take a cautious stance on Mudajaya pending the signing of the FSA between RKM Powergen and CIL.

We believe that this or the official implementation of coal price pooling, could prove crucial in assuaging fears over state electricity boards' reluctance to increase their tariffs, lacking an official directive from PMO.

All in, we maintain our neutraL call for now, at an unchanged fair value of RM2.88, pegged at a 50% discount to our sum-of-parts (SOP) valuation.

The steep discount to the entire SOP value is due to the fact that a sizeable 80% of the group's earnings comes.

Source: www.thestar.com.my

Summary of Analyst Report: Capitamalls Malaysia Trust (CMMT) target price RM 1.85, Buy - HwangDBS Vickers Research

Capitamalls Malaysia Trust (CMMT) reported net profit of RM133mil in the second quarter of 2012 (+75% year-on-year, +286% quarter-on-quarter), underpinned by higher revenues and higher revaluation gains (RM98mil). Core net profit was RM34mil resulting in first half 2012 earnings being in line with our (50%) and consensus' expectations. Top line growth of 25% year-on-year was fuelled by full rental recognition from East Coast Mall, rentals from additional net lettable area from Gurney Plaza asset enhancements and organic rental reversions across all properties. First half dividends per unit of 4.2 sen was declared, which represents a 100% payout including non-cash items. Net property income (NPI) margin of 68% was three percentage points lower than second quarter 2011's 71%. This is attributed to higher utilities, marketing and staff expenses primarily from East Coast Mall (accounted for 65% of the increase in property expenses). We believe Gurney Plaza's NPI margin of 69% was also lower than the second quarter 2011's 72% arising from gestational period of its completed asset enhancement initiatives. However, occupancies remained resilient at almost 100%. FY12 will see growth through rental reversions, while revenues from Gurney Plaza's recent asset enhancement initiative will continue to take shape. East Coast Mall remains ripe for asset maximisation, with rentals still below that of Gurney Plaza and Sungei Wang, while NPI margins have high upside potential. In the longer term, CMMT's prospects are bright with a right of first refusal (ROFR) on Queensbay Mall (owned by parent CapitaMalls Asia), which could drive future revenues. The REIT has spare capacity to gear up for such an acquisition, given its 28% gearing ratio. We like CMMT for its strong pedigree in asset management, consistent maximisation of its properties and potential for inorganic growth through acquisitions. The REIT has potential for capital management as its RM3bil medium-term-notes programme could mean lower cost of debt if drawn down to refinance its RM300mil in debt due in 2015. Source: www.thestar.com.my

Interview with Malaysia International Shipping Corp (MISC)'s president and chief executive officer Datuk Nasarudin Md Idris on MISC's business outlook

It's not an easy task to helm a shipping company in the current environment where overcapacity and a sluggish market are pressuring rates. Nevertheless, MISC president and chief executive officer Datuk Nasarudin Md Idris remains calm and optimistic in steering the company into calmer waters. Below are the excerpts of the interview.

Q: Will there be any more provisions for exiting the liner business?

To date, we have made provisions of RM1.45bil in the last financial year and another RM222mil in the first quarter. We do not foresee any further provisions but we never know as dismantling a business is far more difficult than starting a new business.

In the liner business, we had a total of 29 vessels in our fleet, 16 owned and 13 in-chartered.

How much have you gained from the sale of the vessels?

For some vessels we made a profit and for some we didn't. On average, we are slightly better than book value. If we have over-provided, we will write it back. We hope what we have provided so far is sufficient.

Was there any sentimental value attached to the liner arm?

This is one of the businesses MISC started with. However, at the end of the day if you factor in our RM3bil losses over the last four years in the liner business, this was a decision that we had to take for the greater good of MISC. If we did not exit the liner business, it would have dragged MISC further down as a whole, and we were not prepared to allow that to happen. It was a tough decision that we had to make.

We have offices in Australia, Japan, India, China and several agency networks worldwide. Closing those agencies and offices was quite a difficult move for us. Revenue-wise the liner arm had been big. In the heydays, revenue was RM2bil. But if we look at the history of the liner business in the past 20 years, we had more losses than profits.

What is the outlook for fabrication now?

It is still very good in view of the many new projects Petronas wants to do domestically. There's a renewed focus on domestic development as well as on enhanced oil recovery, and this bodes well for the fabrication industry.

Back to shipping, how many more vessels do you have on order and do you have to cancel any of them?

You'd have to foot a very hefty cancellation fee when orders are cancelled.

For petroleum shipping, we have four Suezmaxes this year and two aframax-sized Dynamic Positioning shuttle tankers which are contracted on a long term (15 year) basis with Petrobras, as well as four VLCCs scheduled for delivery in 2013.

In Brazil there are many deepwater fields. The two aframax-sized Dynamic Positioning shuttle tankers are not for exploration but will be used for shuttle runs from the oilfield back to shore. We will take delivery of these two vessels this year.

On the chemical fleet, we do not have any more newbuilds.

For LNG, we are seriously looking at a fleet renewal programme.

You also have a stake in NCB Holdings Bhd. Can you clear the air on whether you are exiting, like you did the liner business?

It's doing very well and has paid handsome dividends. It has been a good investment for us.

Are you looking into more investments like NCB?

For the time being we have to sort out our own issues. MISC is a shipping conglomerate. We have seven businesses after exiting the liner operations and all of them are competing for funds for expansion.

Financial resources are limited for any company. Because of that, we have to be highly rigorous in evaluating the economics of new projects and investments.

When do you expect to see light at the end of the tunnel for the company?

I think from now, it will be positive in terms of our profitability. If you strip out the provisions and impairments, we made RM500mil in core profit before tax in the last financial year ended Dec 31, which was only a nine-month period (due to the change in financial year end). I wouldn't say we can match the years prior to that, but we hope to stop making losses, and as we move forward, I believe we would be able to do so after taking the hefty provisions.

So we should not expect anymore negative surprises this year?

I think it will be a question of how much profit we can make. We are confident of returning to the black unless the market turns bad.

You've been in the shipping business for long?

I've been on the board of MISC for quite a while, but became the CEO of MISC in the last two years.

It's a tough time to be in the business?

You can say it's the worst of times. But it's also a challenging period in the industry.

Will MISC participate in Petronas' floating LNG (FLNG) facility?

They have taken the final investment decision and the project is proceeding on schedule.

An FLNG cost billions. If we have the capacity to invest, we would like to, but it's a question of our ability to invest and to raise finances.

Tell us about your ability to pay dividends.

There were no dividends last year. Shareholders are not happy if we don't pay dividends, but it's about the capacity of the company to pay.

If you look at our track record, we have paid dividends amounting to RM6.5bil in the last 5 years with the exception of last year.

What is your outlook for the business?

In the case of shipping, we will likely see two more difficult years especially for the petroleum and chemical shipping.

As for LNG, we will hold steady because it is very much on long term charters. There are new opportunities that we must seek with Petronas and with other LNG developers in the world.

As for Malaysia Marine and Heavy Engineering Holdings Bhd, I'm quite confident it would do better after the acquisition of the former Sime Darby Engineering yard.

What has MISC learnt from this episode?

The downturn in the industry has adversely impacted many players. We call it a bloodbath. Some people may say it was expected, given the spurt of new orders three to four years ago when people were gung-ho about building new ships.

What we are experiencing today is not something unique to MISC. Most shipping companies are in dire straits and that's the nature of the market.

We want to rebuild our strength as a company, and we have to relook at our portfolio of businesses to minimise volatility. For example, we may have to rely more on term than on the spot market. That's exactly what we're doing today with the two shuttle tankers in Brazil.

Arising from the Macondo incident, there are also concerns about pollution risks in the Gulf of Mexico. So a consortium comprising oil majors are building this modular capture system that can help mop up oil spills.

We are proud to be chosen to be part of this initiative and managed to secure a 20 year contract for the 2 modular capture vessels (MCVs) which will be used to mitigate oil pollution risks in the US Gulf.

We are moving towards long-term contracts, but we cannot run away from the fact that we are operating in a highly volatile environment.

Another issue is to strengthen our balance sheet and cash flow so we can undertake greater investments in the future. We have part of our financial resources tied up in huge assets today in the likes of Gumusut-Kakap, Asia's first deepwater semi-submersible floating production system (FPS), which is slated for completion by early next year and will only start generating income and cashflow by the later part of 2013. Our capacity to borrow is very much dependent on our cash flow.

If we have good cash flow, we have a bigger debt headroom, thus we can borrow in order to invest in new projects. But if we are cash strapped, our debt headroom shrinks, and we can't raise new capital to invest even though there may be many good opportunities out there.

As we move forward, we need to be more judicious in the use of capital. We should be more rigorous in evaluating new projects and time our investments well.

We do not have a crystal ball. But companies who are able to invest at low asset prices would be more robust and resilient to weather the storm during difficult times.

Source: www.thestar.com.my

Summary of Analyst Report: Bursa Malaysia target price at RM 6, Fully Valued - HwangDBS Vickers

Net profit of RM37.9mil (a drop of 7% quarter-on-quarter) for the second quarter of financial year 2012 (FY12) took first-half earnings to RM78.7mil or 55% of our FY12 estimate.

The second-quarter profit was weaker quarter-on-quarter largely due to lower revenues; operating expenses were relatively stable despite lower marketing and development expenses.

Revenue from equities fell 16% quarter-on-quarter due to softer trading activity in the securities market.

Average daily turnover volume and value in the second quarter fell to 1.14 billion (a drop of 41%) and RM1.48bil (a drop of 21%), respectively, while velocity fell to 27% from 34% a quarter ago.

Derivatives revenue improved by 33%, led by trading volume which rose 30%. Stable revenue, which largely tracks listing activity, was flat in the quarter.

It has declared 13.5 sen interim dividend per share (single-tier).

We are keeping our FY12 assumptions: average daily turnover volume of 1.11 billion and daily turnover value of RM1.47bil.

The strong trading momentum in the first quarter has fizzled out quickly in the second quarter and current market sentiment remains volatile.

Our key concern remains the sustainability of trading volumes and values. Year-to-date Jun average daily turnover volume and value were 1.53 billion and RM1.67bil, respectively.

Our RM6 target price is based on the dividend discount model, which assumes 90% dividend payout, 7% long-term growth and 11% cost of equity.

Source: www.thestar.com.my

Summary of Analyst Report: Tenaga Nasional (TNB) target price at RM 7, Hold - HwangDBS Vickers

Tenaga Nasional Bhd's (TNB) revenue for the third quarter of financial year 2012 grew 6.5% quarter-on-quarter after a 4.4% increase in power demand. However, core profit fell 9% to RM607mil due to additional fuel costs as a result of gas shortage.

Gas supply in the quarter only reached 940 mmscfd, much lower than its 1,250 mmscfd requirement.

Earnings were partly lifted by gas compensation. The weak third-quarter results were partly compensated by a RM778mil compensation from Petronas and the Government received in the quarter for the gas shortfall.

We expect core profit for the fourth quarter to come in at RM450mil plus RM400mil gas compensation.

Additional gas supply from the Malacca regasification terminal that will come onstream on Sept 12 will be priced at market rate; the indicative price is RM41-RM45/mmbtu.

TNB is negotiating with the Government to pass on the additional RM1.6bil gas costs. We believe the issue is unlikely to be resolved soon and TNB may not be able to raise electricity tariff prior to the general election.

We maintain “hold” on TNB. This is premised on the uncertainty over its ability to pass on higher gas costs.

We would accumulate the stock again at about RM6 for longer term upside from a post-election tariff hike and savings in capacity payments when the first-generation power purchase agreements expire.

Source: www.thestar.com.my

Summary of Analyst Report: British American Tobacco (M) Bhd (BAT) fair value at RM 54.22, Neutral- OSK Research

British American Tobacco (M) Bhd (BAT) posted revenue of RM1.07bil (representing a growth of 2.4% both year-on-year and quarter-on-quarter) and earnings of RM220.8mil (growth of 19.9% year-on-year and 13.5% quarter-on-quarter) for the second quarter ended June 30.

The company eked out marginal revenue gains despite stagnant shipment volume as it sold more premium segment cigarettes.

First half 2012 earnings totalled RM415.4mil (growth of 14.5% year-on-year) on the back of slightly stronger sales volume and substantially lower operating expenses. The first six months profits represented 56.5% and 55.6% of our and consensus estimates respectively.

The vast improvement in the first-half earnings came from a RM58.5mil reduction in operating expenses, of which RM13mil arose from cost recognition timing differences while the bulk of the remaining RM45.5mil reduction was attributed to lower provisions for staff incentives (for example, bonuses) and savings arising from BAT's move to outsource its distribution network in the fourth quarter of 2011.

Cost savings from a change in the company's distribution model is likely to have led to a RM15mil to RM16mil cost reduction, indicating that RM20mil to RM30mil of the remaining cost reduction probably came from lower allocation for staff compensation.

The revenue drivers were, and remained, unexciting. BAT sold 2.17 billion sticks during the second quarter (a drop of 1.2% year-on-year), boosting the second-half shipments to 4.34 billion sticks (a growth of 1.6% year-on-year).

The company's first-quarter volume picked up 4.5% year-on-year after a weak first quarter in 2011, during which sub value-for-money (VFM) brands were sold below the minimum retail price of RM7 per 20-stick pack.

Hence, the first-quarter volumes were still some 3.6% off the more normalised first quarter of 2010. In the second quarter, total industry volume (cigarettes from BAT, JT International and Philip Morris) rose by a much tamer 0.4% year-on-year following a 7.7% year-on-year jump in the first quarter.

The first batch of data on illicit cigarette from March to May show that 34.7% of the cigarettes consumed in the country were smuggled, down slightly by 0.1 percentage points from that of October to December 2011, and a 2.6 percentage point drop year-on-year.

The Government's decision not to increase excise duties in the previous Budget but to step up enforcement efforts and distribute cash payouts as part of its election campaign seemed to have helped curb the sale of illicit cigarettes.

The volume of cigarettes consumed (legal and illegal combined) was pretty much flat year-to-date. As expected, the premium segment's market share rose 3.9 percentage points, perhaps suggesting that consumers uptraded after receiving the Government's payouts.

Dunhill, the firm's flagship premium brand, saw market share grow by 3.1 percentage points compared with the first half of 2011.

Much of the market share growth was contributed by the traditional full-flavour Dunhill brand (a favourite among rural and elderly folks) rather than Dunhill Light or Dunhill Menthol. This further indicated that the Government payouts are encouraging aid recipients (mainly rural folk and senior citizens) to switch from illicits to legal Premium sticks.

BAT's share of the premium segment remained at 72% but saw its VFM market share ease by 1.3 percentage points to 41.3%.

Source: www.thestar.com.my

Guan Chong Bhd shareholders have approved the company’s plan for a secondary listing in Singapore at an EGM, shareholders also gave the nod to a proposed 1-for-2 bonus issue of up to 205.2 million new Guan Chong shares

Guan Chong Bhd shareholders have approved the company’s plan for a secondary listing in Singapore at an EGM.

Guan Chong said in a statement the greenlight concluded all the necessary approvals needed from the relevant stakeholders in both Malaysia and Singapore.

“This paves the way for the group to continue to the next agenda on its Singapore listing timeline, the launching of its initial public offering (IPO) prospectus,” it said.

Managing director and chief executive officer Brandon Tay Hoe Lian said the details on the launch of the IPO prospectus were now being finalised. “We will make the necessary announcement at the appropriate time,” he said.

Guan Chong’s secondary listing on the SGX-ST involves a public offering of up to 62 million ordinary shares, comprising 31 million new shares and 31 million vendor shares to be offered by certain existing shareholders.

Shareholders also gave the nod to a proposed 1-for-2 bonus issue of up to 205.2 million new Guan Chong shares.

The company said upon completion of both the listing and bonus issue, it would see its share capital rising to RM131.5mil. — Bernama

Source: www.thestar.com.my

Malaysia Building Society Bhd (MBSB) is selling its 100% stake in its property development unit Gadini Sdn Bhd to Ken Holdings Bhd for RM56.17mil cash

Malaysia Building Society Bhd (MBSB) is selling its 100% stake in its property development unit Gadini Sdn Bhd to Ken Holdings Bhd for RM56.17mil cash.

MBSB said on Wednesday it was selling the 3.97 million shares for RM40.56mil cash.

“Total cash proceeds to be received by MBSB from the proposed disposal will be RM56.17mil,” it said, adding the amount included RM13.61mil which was earlier advanced to Gadini and tax liabilities of RM2mil.

To recap, on Jan 7, 2009, MBSB announced it Gadini had entered into a sale and purchase agreement to disposes of several properties in Johor to Sazean Holdings Sdn Bhd for RM70mil.

Subsequently, Sazean decided to novate all its rights and liabilities under the sale and purchase agreement to Ken Holdings' unit, Ken Property Sdn Bhd.

MBSB then entered into the share sale agreement with Ken Holdings to sell Gadini.

Source: www.thestar.com.my

Trinity Corp Bhd is planning further land sale worth at least RM100 mil to RM200 mil in the current financial year ending Jan 31, 2013 as part of efforts to strengthen its financial footing, Executive director Chua Kim Lan said the group has 1,229.2ha left in places such as Ampang, Sepang, Puchong, Bukit Jalil and Rawang

Trinity Corp Bhd is planning further land sale worth at least RM100 mil to RM200 mil in the current financial year ending Jan 31, 2013 as part of efforts to strengthen its financial footing.

Executive director Chua Kim Lan said the group has 1,229.2ha left, mainly in Selangor, comprising commercial, residential and industrial properties.

“The pieces of land are at various strategic locations in Ampang, Sepang, Puchong, Bukit Jalil and Rawang,” she told reporters after the company's AGM. Chua says Trinity still has 1,229ha in places such as Ampang, Sepang, Puchong, Bukit Jalil and Rawang.

In the last financial year, Trinity signed a settlement agreement with the Menteri Besar Selangor Inc (MBI) after shareholders approved on March 30, 2011 to reduce some of its long-standing debts owed to financial firms and creditors following long-delayed projects.

Under the agreement, the group, formerly known as Talam Corp Bhd, disposed its properties to MBI totalling RM363.58mil.

It also sold 10.352ha in Mukim Petaling for RM39.46mil and 18,582 sq m of commercial land in Kuala Langat for RM52.12mil.

For the financial year ended Jan 31, 2012, the group's pre-tax loss fell to RM124.418mil compared with the pre-tax loss of RM153.753mil in the same period last year.However, revenue rose to RM637.424mil from RM183.395mil, mainly contributed by land sale.

Its gearing position improved to RM461.72mil from RM726.62mil, down by 36.46%.

Chua said Trinity needed more than two years to revert to the black as it was currently undergoing a lot of debt impairment. She said the company would continue to go into joint-venture projects with reputable corporations.

“We also plan to develop residential properties on 199.388ha in Berjuntai Bestari in Selangor,” she said, adding that the property would be developed over 10 years from 2016.

Asked on questionable land deals between the company and MBI as alleged by certain quarters recently, Chua said: “The decision was above board. The deals were conducted transparently.” - Bernama

Source: www.thestar.com.my

Top Glove buys entire stake of GMP Medicare Sdn Bhd from Matang Manufacturing Sdn Bhd for RM24.1 million, Malacca-based GMP was set up in March 1984 and deals in the manufacturing and sale of rubber gloves

Top Glove Corp Bhd, the world's largest rubber glove maker, has bought the entire stake of GMP Medicare Sdn Bhd from Matang Manufacturing Sdn Bhd for RM24.1 million.

Top Glove yesterday said the acquisition is in line with its plan to raise global market share.

Malacca-based GMP was set up in March 1984 and deals in the manufacturing and sale of rubber gloves.

Source: www.btimes.com.my

Pavilion REIT: Analysis by Hwang DBS Vickers Research

Construction has begun to add 300,000 sq ft net lettable area (NLA) between the main entrance and The Connection (alfresco food and beverages area) by the third quarter of 2015.

Assuming RM20 per sq ft (15% premium to current average rental of RM17.40 per sq ft given lower proportion of anchor tenants) and 68% margin, the extension could boost Pavilion REIT's net property income (NPI) by RM50mil (23% of 2012 forecast NPI).

We value the extension at RM768mil (based on 6.5% acquisition yield hurdle) which can be easily absorbed by the REIT's low gearing (70% debt financing would only increase gearing by 9 percentage points to 28%).

We believe the injection of the extension is inevitable given its proximity and synergies to Pavilion KL (REIT has right of first refusal to acquire from sponsor).

We also do not discount the possibility of new retail space being created should an underground connection between Pavilion extension, fahrenheit88 (owned by sponsor which REIT also has right of first refusal) and the upcoming Bukit Bintang MRT station is built.

There will also be a short-term boost from Pavilion KL's asset enhancement initiative (AEI) and rental reversion.

AEI of turning 68,000 sq ft NLA into a Fashion Street consisting of specialty stores by September will also contribute 2.5 times more rental than previous anchor tenant Tangs which was about RM1.1mil per month.

We understand the area has been fully taken up by 35 tenants, with 40% being new entrants in Malaysia. In 2013, 75% of the mall's NLA is due for renewal with headroom to increase tenant occupancy cost to 15%-18%.

We have assumed a conservative 5% growth in rental in the forecast for 2012 to 2013 and 10% in 2014.

The REIT is riding on strong demand for bigger retail lots. Pavilion KL extension and Fashion Street will complement the mall's profile as a hub for fashion and food and beverages.

High-end brands such as Canali and Sincere Watches are seeking to expand their concept stores to 15,000 sq ft NLA from the usual 5,000 sq ft to 6,000 sq ft, in line with the general retail trend in Asia.

Retail sales at Pavilion KL have ballooned to RM1.6bil per annum, rising 4% quarter-on-quarter in the first quarter of 2012 alone.

Source: www.thestar.com.my

Naim Indah Corporation Bhd plans to raise RM21.41mil from a proposed placement of 70.20 million new shares or 10% of its paid-up to third party investors, RM12mil would be used for working capital expenditure, RM5.81mil for capital expenditure for business expansion and RM3mil to repay borrowings

Naim Indah Corporation Bhd plans to raise RM21.41mil from a proposed placement of 70.20 million new shares or 10% of its paid-up to third party investors.

It said on Tuesday that assuming the placement shares were issued at an indicative price of 30.5 sen, the corporate exercise would raise gross proceed of RM21.41mil.

Naim Indah said the proposed placement might be implement in several tranches within six months from the date of approval.

Of the RM21.41mil, it said RM12mil would be used for working capital expenditure, RM5.81mil for capital expenditure for business expansion and RM3mil to repay borrowings. 

Source: www.thestar.com.my

Media Chinese International Ltd has proposed to undertake a distribution via a proposed special dividend to shareholders of approximately US$219.78mil (RM700mil) or US$0.13 (41 sen) per share, to undertake a capital reduction of about US$219.78mil to facilitate the proposed dividend

Media Chinese International Ltd has proposed to undertake a distribution via a proposed special dividend to shareholders of approximately US$219.78mil (RM700mil) or US$0.13 (41 sen) per share.

The company said in a statement that it would undertake a capital reduction of about US$219.78mil to facilitate the proposed dividend.

“The credit arising from the proposed capital reduction and thereafter the credit standing in the contributed surplus account of Media Chinese will be applied towards the proposed dividend,” it said, adding that the proposed dividend would be part financed by internal funds amounting to approximately US$62.8mil and new bank borrowings of approximately US$157mil.

“By part financing the proposed dividend via new bank borrowings, the company would be able to enhance its capital structure and mix without unduly burdening the group in terms of its cash flow and earnings capability,” Media Chinese explained.

“Moreover, with the company's track record of having a strong Ebitda (earnings before interest, tax, depreciation and amortisation), the company should be able to support a net debt of US$124.85mil resulting from the new borrowings,” it added.

The increase in gearing was not expected to impede the company's ability to embark on new business opportunities. Moreover, the company said it would still maintain a reasonable cash balance to embark on any new business opportunities and to meet its capital commitments after the proposals, which were expected to complete by the fourth quarter of this year.

Trading in Media Chinese shares has been suspended since last Friday pending the above announcement. It will resume trading today

Source: www.thestar.com.my

Lion Group had proposed to the Government for an immediate action to regulate the flat steel products industry through a consistent duty regime across the board, restructuring plan for Lion Group's steel manufacturing operations was still ongoing with a merchant banker appointed to look into the matter - chairman and chief executive officer Tan Sri William Cheng

A majority of domestic flat steel producers support Lion Group's proposal for stricter enforcement of the National Steel Policy on imported hot-rolled coils (HRC), cold-rolled coils (CRC), plates, coated steel and pipes, according to Lion Group chairman and chief executive officer Tan Sri William Cheng.

“We have garnered more than 60% of our customers' support,” Cheng said

There are four CRC producers, two steel plates makers, five coated steel producers, 26 steel pipes manufacturers and 21 steel service centres in Malaysia.

Measures to curb excessive imports would enable equal treatment of all flat product sectors and users, prevent manipulation of import documents and leakages through exemption and create a level playing field for local manufacturers to compete against cheaper steel imports, Cheng told a press conference yesterday.

Lion Group had proposed to the Government for an immediate action to regulate the flat products industry through a consistent duty regime across the board.

The specific flat steel products are hot-rolled coils, cold-rolled coils, coated steel as well as pipes and tubes.

“Bear in mind that Lion Group is not seeking protection for only the upstream or HRC by Megasteel Sdn Bhd, the country's sole producer of HRCs, but for all domestic flat steel producers involved in HRCs, CRCs, coated steel and pipes.

“They (flat steel producers) are also suffering from under-utilisation due to rampant imports and leakages,” he explained.

Cheng has proposed that the Government invite all local flat steel product manufacturers to sit on the technical committee on duty exemption for the respective flat product sectors. Under the National Steel Policy, duty exemption is only granted to those grades which are not available locally and for imports of raw materials for processing for export.

“Hence, submissions for duty-free imports of flat products, i.e. HRC, CRC, coated sheets and pipes that are available locally, threaten not just the sectors concerned but the entire local flat steel industry and violate the National Steel Policy.”

The apparent total consumption for flat products is over four million tonnes annually compared with imports of about three million tonnes.

Of the total imports, local producers can supply about 80% or 2.4 million tonnes, Cheng pointed out.

Earlier this year, CRC producer Mycron Steel Bhd had sought for duty-free iron-ore based HRCs the import into Malaysia claiming that the local HRC producer was not able to manufacture quality product as required by its customers.

According to Cheng, it is quite disappointing some CRC producers do not want to acknowledge or purchase local HRCs which are of comparable in quality with imported ones.

“We have a HRC capacity of about 3.2 million tonnes but a current utilisation of 1.2 million tonnes or less than 40% capacity.”

He pointed out that Megsteel had a product development roadmap to constantly develop new grades and was producing American Petroleum Institute's grades for the oil and gas sector, and Corten grade for marine cargo containers.

“We are using direct reduced iron and iron ore based scrap to produce grades of quality required by customers in the automotive inner parts, oil and gas and the pipes sector.

“So far, we have no problem supplying to the overseas market, but it is ironic why a few locals would question our product quality,” he added.

On the corporate front, Cheng said the restructuring plan for Lion Group's steel manufacturing operations was still ongoing with a merchant banker appointed to look into the matter.

He said several foreign parties from China and South Korea had indicated interest to take up stakes in Lion Group's steel subsidiaries but “these prospective investors wanted to see a clearer iron and steel policy to be put in place by the Malaysian goverment before investing.”

Lion Group is also eyeing for iron ore concessions in Terengganu, Pahang and Johor to secure consistent and cheaper supply of iron ore for its Megasteel's blast furnace plant in Banting, Selangor.

He also explained that Megasteel would still need to service its term loans with high interests and depreciation.

Source: www.thestar.com.my

Interview with Glomac group MD and CEO Datuk FD Iskandar on current major projects and property sector outlook in Malaysia

Featuring Glomac group MD and CEO Datuk FD Iskandar.

Based on your recent acquisitions, is Glomac on a land buying spree?

I would not call it a buying spree as we have been a property developer for 24 years so obviously we have to replenish our landbank.

All this while, our future gross development value (GDV) hovered around RM3bil to RM3.5bil and while we are sitting on a pile of cash, we saw many opportunities in the last 12 months or so. We have bought four parcels of land in the last 18 months and we spent over RM240mil. This has doubled our future GDV to RM7bil.

For a property company, it is not important what's happening today but be in the right places to be developed into spectacular projects.

Going forward, if the price is right and reasonable and within the areas of our focus namely the Klang Valley and the Greater Kuala Lumpur, we will consider acquiring more.

What are the strategies behind your focus on the Greater Kuala Lumpur area?

There are several reasons behind our focus; the first is we are more familiar with the area and we foresee an increase in the trend of urban migration.

Last year, residential sales for the country went above RM107bil for the first time where majority of it, about RM70bil was in Klang Valley.

By 2020, if 70% of development within the Greater KL kicks off, the population here is expected to swell to about 10 million from the current 5.5 million.

As we have about eight years to go to 2020, we need about 120,000 houses per year assuming the household average consists of four people.

Can you give a brief rundown on your current major projects?

We are working on 14 to 15 projects currently but I will highlight a few of our current flagship projects.

As middle-size property developer in Malaysia with a market cap RM550mil to RM600mil, we can still manage to react to what the market wants.

I always tell my staff that property development is the only business we do and we had better be very good at it. I want to develop value for money properties.

About two years ago, the hottest selling property was commercial and last year was shop houses. Today, the demand is more for landed properties; everybody is looking for landed houses. Condominiums are still selling but only in very specific areas within the matured community.

Because of that, in the last 18 months we have bought a 200-acre land to expand our Bandar Saujana Utama. The expected GDV for this 200-acre is RM800mil. Bandar Saujana Utama is currently sitting on about 1,000 acres with a GDV of RM1.4bil out of which we have developed about RM1.1bil.

We are also working on Glomac Damansara, where our new office is located. This project is developed on a seven-acre freehold land with a GDV of RM900mil. Currently we are in the fourth stage, out of a total of six phases, of the development. The mix-development project includes eight-storey shop offices, a 17-storey tower, another 25-storey tower that we already sold en bloc, 272 units of apartments and a mall. The development is next to a MRT station.

In middle of last year, we bought a 200-acre piece in Puchong where the sale has been recently completed. The land that is strategically located just behind Tesco, Puchong is 150m away from LRT extension and has a lake of almost 40 acres. We are planning to do a proper landed property township with jogging tracks and a clubhouse. We plan to launch this by year-end.

Also, in April we launched our Reflection in Mutiara Damansara, which consists 299 apartment units of which 97% has been sold.

What are some of your other interesting future projects?

We have 192 arces in Sepang, which is about 3.5km from Cyberjaya and 4.5km from the airport. We are planning for a landed project here. We have a project in Rawang on 350 acres with a total GDV of RM800mil.

Can you comment on speculation that you are a candidate for the post of Menteri Besar of Selangor?

Put it this way; I am a realist and I think there is no perfect political party. I think there is a lot more to be done to take Malaysia from being a good place to live in to that of a great one and this is my personal view.

It has been shown that a corporate figure doesn't necessarily make a good administrator. At the end of the day, you have to do what its right for the country.

But today, under the current Prime Minister, we are working towards what the country needs. We have been caught in the middle income trap for a long time and we need to get out of this. As the most developed state in the country, Selangor has a lot more to do to make it an investment friendly state. One person cannot make the change. I think Barisan Nasional will find the right candidate for Selangor but they have to win first.

What are the three most important lessons you learnt from your father as a developer?

Well, I think the family values taught to us not only by my father but also by my elders are important. My father specifically instilled the culture of working hard in me.

Something that I would like to instill in our team is the habit of putting ourselves in our customers' shoes. This is because property is most probably the single largest investment that a person makes in his life, so we must deliver our products well.

Thirdly be sincere. Sometimes we can be a bit aggressive and blunt but if you realise you are wrong, you must apologise.

When you were in university, did you have the idea that one day you will be required to step in your father's shoes for the company?

Well, I am a lawyer by training and I used to be a barrister. But when I came back, even the company that I worked for was involved in property. Most of my portfolio involves property. I think it is something that was already inborn. Fortunately, I am very passionate about property and I love what I am doing.

What is Glomac's view on affordable housing?

First, we have to define what is affordable housing. When low-cost housing was introduced in Malaysia in 1983, it was selling at RM23,000 each. Then in 1993, due to inflation and I am talking about Selangor and the Klang Valley, the pricing was revised. In the municipality of city areas, it was RM42,000. But since then, after almost 20 years, there has never been a revision in the pricing of low-cost houses.

For every low cost unit, a developer loses anything between RM15,000 and RM50,000 per unit depending on the location, soil condition and capital contribution. This has been going on for too long and we are losing money. But I think most developers are not trying to run away from social responsibilities but we need a better system.

What are your suggestions on affordable housing?

Instead of asking developers to build, why don't we have this fund where for every low cost unit that a developer does not build, it can be contributed to this fund. It has been done in the UK and Australia where the fund is used by the Government to build affordable homes on government land in specific areas where affordable housing is most needed.

And for the pricing, I think people on average basically earn between RM1,500 and RM2,000 per month (at entry level). With this kind of salary, they can afford a RM150,000 house.

What is your outlook on the property market?

I expect the property market to remain stable for the rest of the year. There will be growth but the increase will not be as fast as in 2010 when Klang Valley property prices went up between 20% and 30%. Prices rose last year too, but not as much as in 2010. It is expected to continue to grow this year.

Source: www.thestar.com.my