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