Century Software.. Dated March 2011

The eventual implementation of a GST stands to benefit Century Software.

Market speculation has it that the financial management software solutions provider could be awarded a government contract worth Rm100 million in the near future. However, the company has already announced that it has submitted bids for several jobs worth about rm200 million.

It is likely that the government may spend more on information, communication and technology in 2011 as it has not done so for a while. So Century Software stands to benefit, especially with the proposed implementation of the GST.

Given that the Royal Malaysian Customs has already taken steps to introduce the idea of the GST to the people, it appears likely that it will be implemented sometime in the second half of 2012 or after the General Election.

One of the largest providers of accounting software to government agencies, it would benefit as every government agency would have to upgrade systems.

The implementation of the GST was indefinitely postponed in Oct 2010 to allow the Ministry of Finance to engage with all segments of society on the imposition of the broad based tax. However, industry observers say the rollout of software could take place very soon given that it may need 15 to 18 months to ensure full compliance.

However, while it is a dominant player in providing government accounting software platforms and maintenance, this also represented a single customer risk as it is highly dependent on the public sector.

The services provided by Century Software are not regarded as being in direct competition with other listed companies.

Following its listing on Jan 31, 2011, it saw the exit of substantial shareholder MAVCAP which disposed of seven million shares. The government established MAVCAP in 2001 to provide financial support of growing ICT companies.

Although the government has indicated that the imposition of the GST is imminent, the real concern lies in whether the rollout of the tax, and consequently the relevant accounting systems will be done across the board and in a timely manner. Only if this implemented, will it be all systems go foe Century Software.

Benalec.. Dated March 2011

Its specialised niche in marine construction has been reaping high profit margins in the generally low-margin construction industry. Now, the company is also shaping up to be a major landowner and developer, as it will receive some 177.3 acres (70.92ha) of land in Melaka in exchange for reclamation works.

It is open to joint ventures with property developers for the prime seafront land it is reclaiming in Melaka, broadening the company’s previous practice of selling plots of reclaimed land outright.

The company is an integrated marine construction firm with business activities spanning marine construction works, vessel chartering, marine transportation, ship maintenance and building, and marine support services.

Although the company’s first priority is to sell its reclaimed land, Benalec is in talks with several property companies on prospective partnerships. The current trend is for developers to share profits with landowners instead of paying cash upfront for land.


For outright disposals, the company could also sell plots of land along with concept plans for development and would take the step of zoning certain plots for mixed development as an added value for buyers.

Benalec’s unit Jayamas Cekap Sdn Bhd had entered into an agreement with Melaka government-owned Yayasan DMDI to undertake reclamation works for the latter on a portion of the coast in the Kota Laksamana area in Bandar Melaka.

The Melaka government had granted Yayasan DMDI a concession to reclaim the land, which will measure about 250 acres upon the completion of reclamation works.

Jayamas Cekap will be entitled to 177.33 acres of the land upon completion of the reclamation works, which will be retained on its balance sheet as “Land held for sale”. The remainder 72.67 acres will be surrendered to the Melaka government and Yayasan DMDI as consideration for the deed of assignment (DoA) from the latter.

Jayamas Cekap will also have to fork out some RM4.58 million for various payments in respect of the DoA.

The reclamation works will be funded by internally generated funds and bank borrowings, the breakdown of which is not currently available.

Sources say the deal is significant for Benalec as the land concession holds immediate development potential for Benalec once reclamation works are complete.

The Kota Laksamana project is expected to draw attention from property developers as it sits on prime seafront land within Melaka’s city centre and can be further developed for mixed residential or commercial purposes. Benalec may be entering into strategic partnerships with reputable developers to monetise the deep embedded value of this land.

Benalec is expected to fetch over RM30 per sq ft from the Kota Laksamana land having received about RM28psf for an adjourning piece of land in 2009.

Benalec stands to reap a net gain of about RM116 million from land disposals alone over a three-year reclamation period.

Funding is not an issue for Benalec since the group raised up to RM100 million from its IPO in January 2011.

Benalec had also secured another contract , from Glenmarie Cove Development Sdn Bhd, to undertake earth and river protection works for RM37 million at a project in Klang. The scope of works includes earthworks, reclamation works, ground treatment and protection works. It is scheduled for completion within 14 months.

The company is estimated to have clinched new contracts worth RM608 million for the financial year-to-date, compared to RM77 million in 2010. Estimates new order of RM650 million for Benalec for the financial year ending June 30, 2011.

The newly secured RM37 million reclamation contract in Selangor would undoubtedly put Benalec on a stronger footing to clinch more such contracts, both at home as well in the region.

The contract is the second, the group has secured within March 2011, following the Kota Laksamana project in Melaka.

Revenue and profits from reclamation contract works are recognised on a percentage-of-completion method. This is determined on the proportion of actual reclamation contract costs incurred for works performed against the estimated total reclamation costs where the outcome of the project can be estimated reliably.

For land reclamation contracts which are settled in kind, it is able to proportionately recognise the land portion at each stage of completion and the contract sum for such land portion is included as “amounts due from contract customers”.

Benalec’s niche in marine construction and land reclamation gives the company much higher margins than its construction peers.

For its financial year ended June 30 (FY10) , Benalec’s gross profit margin was 48.6% while profit before tax and profit after tax margins were 58.9% and 50.1% respectively. In its second quarter ended Dec 31, Benalec reported a net profit of RM18.91 million and revenue of RM45.22 million. For the six months, its net profit stood at RM48.87 million while revenue was RM97.43 million.



Going forward, its prospects for growth are based on future projects in the pipeline located in Penang, Melaka, Iskandar Malaysia , Port Klang and the Sarawak Corridor of Renewable Energy.

Spritzer… dated April 2011

What’s Up? … dated April 2011

Mineral and drinking water bottler is finalizing a deal to increase exports to Japan to alleviate the shortage there due to radioactivity is seeping into there drinking water.

It expects the seal using present and new dealership channels. The dealers have informed them that there is high demand for mineral water and are expecting to finalize additional supplies to Japan in coming week.

The company says additional orders from Japan may boost its shipment to Japan by 30% to 40%.

It has a fairly healthy balance sheet with strong operating cash flow. As at Nov 30, 2010 it had net dents of rm61.24 million. Its net cash generated from operating activities increased to rm14.24 million as at Nov 30.

It is an associate of its single largest shareholder … Yee Lee Corp Bhd, which has a 46.4% stake. Its next largest shareholder is Amanah Raya Trustess Bhd which holds 5.17% stake.

The additional orders from Japan will help the company expand its market shares. But it may only be temporary as the business is such that when margins improve, more companies jump on the bandwagon.

UEM Land/Jetson/Bolton… dated April 2011

What’s Up? … dated April 2011

Three foreign players among the 10 companies are short listed by the master developer

UDA for the JV deals for the redevelopment of the Pudu Jail site in KL.

It is learn that Dubai based Dama Group is proposing to team up with UEM Land , while the state owned China State Construction Engineering Corp has tied up with Kumpulan Jetson.

Singapore’s Keppel Land Ltd is also said to have submitted proposals for the integrated mixed development project, tentatively named the Bukit Bintang Commercial Centre. Sources say UDA has also short listed seven local companies – Bolton Bhd, Bina Puri, IJM Land, MRCB, Sunway Group, YTL Land and the Naza Group.

Front runners for the JV opportunities in BBCC are said to be Bolton and the UEM Land-Damac and Jetson-China Construction JVs.

The 20ha tract for BBC will be divided into six plots, and will be built in phases over 10 years.

UDA chairman Datuk Nut Jazlan said that the winners of the JV bids will be announced by end March 2011 after each company presents its proposals to UDA’s board on Feb 2011.

The development of BBCC could see the JC partners jointly develop portions of the project or construct buildings on various plots. This means that jobs could be given to several parties among those shorlisted.

BStead/ESSO.. dated April 2011

What’s Up? … dated April 2011

Sources say BStead and its parent LTAT are believed to be eyeing Exxomobil Intl Holdings Inc’s 65% stake in Esso Malaysia Bhd.

It is learnt that Exxonmobil’s stake is up for sake as the oil major is looking to exit its operations in Malaysia , given the relatively low margins here and its preference to focus on exploration and production of oil.

It is not known what price the stake will be transacted.

The value in ESSO is the franchise value of its chain of petrol stations. Esso has a net asset value of rm2.81 per share as at end Dec 31, 2010.

BStead could at a later stage, after its takeover of ESSO, inject BStead Petroleum Marketing Sdn Bhd, which markets and distributes petroleum products through the BH Petrol china of petrol stations.

BStead holds a 70% stake in BPM while the remaining 30% is held by LTAT, which holds a 59.28% stake in BStead.

Esso clarified that it was not aware of any plans to take it private. Nonetheless, its share price continued going north.

The transactions if go through could expand BStead’s network of petrol kiosks. Additionally, Esso has a range of its own lubricants, engine and other speciality products and a refinery in Port Dickson.

Esso has come rm95 million in cash and cash equivalents as at end 2010 while total borrowings were rm616.3 million.

This would be the first time BStead is strengthening its smaller divisions via acquisitions. It had done so through Pharmaniaga. BStead had said it will focus on inorganic growth to provide shareholder value.

BStead had cash and cash equivalents of rm399 million while borrowings of about rm3 billion as at 31, Dec 2010. Net operating cash flow of rm174 million in FY2010.

Coastal Contracts.. dated April 2011

What’s Up? … dated April 2011

It is considering selling its major stake to a strategic partner as it plans to diversify into the fabrication business.

Its executive chairman Ng Chin Heng says the company is in talks with parties on a possible M&A exercise as it hopes to secure fabrication jobs from Petronas Caragali. The sale of the a major stake to a strategic partner is possible in the future.

In Jan 2010, its wholly owned subsidiary signed a MOU with Ramunia to explore the possibility of jointly bidding for fabrication jobs and are finalizing the details of the arrangement and discuss a possible tie up.

LTH is a substantial shareholder in both Coastal and Ramunia.

Coastal Contracts’ derived 95% of its revenue from its shipbuilding activities, but expect the fabrication business to contribute to turnover in 2HFY2011 when its yard is ready.

With Sabah set to become Malaysia ’s oil and gas hub, they are looking to enter a new phase of growth. Thus, it is diversifying into the offshore structure fabrication business and a strategic shareholder will come in handy.

While it is most likely Coastal Contracts’ talks with Ramunia will be fruitful since they have a common shareholder, there are other possible suitors in the industry which Coastal Contracts can pair with such as Alam Maritim Resources and Singapore listed Swiber Offshore.

It is currently in a net cash position with rm150 million cash and borrowings of rm51.5 million.

Its shipping business is also growing strongly with an order book of rm760 million.

Kenanga/ECM.. dated April 2011

What’s Up? … dated April 2011

Sources say ECM and K& Kenanga Holdings Bhd are believed to be exploring a potential merger.

It is learnt that the parties related to the shareholders of both entities have explored the possibility of ECM’s shareholders selling out to Kenanga.

If the deal takes place, the combined entity will be able to free up rm500 million in cash. At present, both of them have to keep rm500 million cash deposits separately with BNM which comes to rm1 billion.

Tan Sri Azman Hashim is the single largest shareholder of ECM with 23.5% stake. He has been looking to exit the investment bank as he also controls AmBAnk Corp. Co founder Lim Kiann Onn and Datuk Seri Kalimullah own 9.48% and 3.97% are also said to be open to selling their stakes.

As for Kenanga, its largest shareholder is CMSB which is said to be keen on driving Kenanga. CMSB has a 25.07% stake in Kenanga and is sitting on a huge cash pile after its completion of the sale of its interest in UBG Group. Deutsche Asia Pacific Holdings Ptd Ltd held a 16.55% stake as at March 31, 2010.

Merge Energy Bhd

What’s Up? … dated Feb 2011
Several interesting changes have been observed lately at civil engineering outfit Merge Energy Bhd.

Its CEO Yusof Badawi, who has led the company since May 2003, stepped down, paving the way for Datuk Abdul Jalil Abdul Karim to take over the helm of the company.

Merge Energy also stated that Abdul Jalil had surfaced as a substantial shareholder after acquiring 50% of the paid-up capital of private company Desa Binapuri Sdn Bhd which has 19.4% equity interest in Merge Energy.

Datuk Muhammad Azaham Abdul Wahab controls the remaining 50% in Desa Binapuri. However, Muhammad Azaham, 70, retired as chairman in September 2010. His position was taken over by former executive director Datuk Raja Shah Zurin Raja Aman Shah who is now the executive chairman. Raja Shah was appointed to the board of Merge Energy in January 2010 as executive director.

Then in October 2010, Maseri Basirah hived off his 10 million shares or 14.93% in Merge Energy to Datuk Mohd Said Mat Saman. Maseri had been a substantial shareholder in Merge Energy since September 2002.

It remained unclear at this juncture what Abdul Jalil and Mohd Said’s plans are for Merge Energy.

Abdul Jalil also controls MPRI Pipes Sdn Bhd (formerly known as Musa & Rahman Plastic Industries Sdn Bhd). MPRI Pipes posted a net loss of RM1.03 million from RM16.67 million in revenue for its financial year ended December 2009.

MPRI has its mainstay in the manufacturing of plastic products and pipes. MPRI’s shares are held by another private company Jalur Cahaya Sdn Bhd, which posted a net profit of RM10.7 million from RM106.85 million revenue for FY December 2009.

Jalur Cahaya, with core businesses in non-revenue water reduction and water treatment, is controlled by private company Darul Jutaria Sdn Bhd, an investment holding company. Darul Jutaria’s shareholders are Abdul Jalil and Aidil Abdul Aziz, who equally control the company. The two are also directors of all three companies. It is also worth noting that former chairman of Merge Energy, Muhammad Azaham, was at one time a director and indirect substantial shareholder of Jalur Cahaya.

In 2008, Jalur Cahaya had awarded Merge Energy a RM90 million civil works contract for the design and construction of permanent meter installations, leak repairs and maintenance of district metering zones among others in Selangor.

Mohd Said meanwhile controls Sri Sekamat Enterprise Sdn Bhd, a company involved in general construction and which in FY08 suffered a loss of RM2.07 million from RM20.79 million revenue.

Several of Sri Sekamat Enterprise’s jobs have involved the water sector as well such as rehabilitating reservoirs.

For its nine months ended October 2010, Merge Energy posted a net profit of RM810,000 from RM21.76 million in revenue.

CCM/CCM Duopharma.. dated April 2011

What’s Up? … dated April 2011

Sources say US-based GlaxoSmithKline Pharmaceuticals plc (GSK) is eyeing a controlling equity stake in local generic drugs maker CCM Duopharma Biotech Bhd.

The source said the acquisition was in line with the trend in the global pharmaceutical industry, in which large players were scouting for takeover targets in emerging markets, as more expiring patents on drugs were generating a significant portion of their earnings.

CCM Duopharma is the largest generic drug maker in Malaysia . This could possibly bode well for GSK in the long run.

In Dec 2010, GSK proposed to take over Maxinutrition Group Holdings Ltd, a UK company that manufactures protein-enhanced functional nutrition products from Darwin Private Equity for £162 million (RM789 million) in cash, including the debt repayment. Its president John Clarke once said the acquisition was a “demonstration of GSK’s strategy to expand through appropriate bolt-on acquisitions that meet its strict
financial criteria”.

The world’s largest drug maker Pfizer Inc had in October last year announced its acquisition of Tennessee-based King Pharmaceuticals Inc for US$3.6 billion (RM11 billion) so that it could offer a fuller spectrum of treatments for patients across the globe who are in need of pain relief and management. Pfizer was paying a 40% premium for the acquisition. CCM Duopharma’s present undemanding valuation could possibly meet GSK’s criteria.

CCM Duopharma is hardly traded on Bursa Malaysia . One reason could be the company’s shares are tightly held. CCM Marketing Sdn Bhd, wholly owned subsidiary of Chemical Company of Malaysia Bhd (CCM), owns 73.37% shareholding in the company.

CMM’s net assets stood at per share of RM1.13 as at Dec 31, 2010.

CCM Duopharma and its parent company CCM said they had “no knowledge of any such move”.

Whether GSK is indeed buying CCM Duopharma remains unconfirmed observers pointed out that while the potential divestment of the controlling stake in CCM Duopharma could help CCM pare down its large debts, but the sales would also create a vacuum in the group’s earnings portfolio.

For FY10 ended Dec 31, CCM has total borrowings of RM836.5 million, consisting of long-term borrowings of RM311.7 million and short-term debts of RM524.8 million, against a cash balance of RM210 million. This translates into a net debt of RM626.5 million.
CCM’s net gearing stood at a high of nearly 85%, based on shareholders’ fund of RM740.76 million.

On the flip side, the disposal of the equity stake in CCM Duopharma would mean a loss of a steady income stream.

For FY10, pharmaceutical division is not the biggest contributor to CCM’s revenue, but it is the second most profitable one after chemicals division. Pharmaceutical business generated RM50 million to CCM’s revenue and RM21.6 million to the group’s pre-tax profit.

Furthermore, CCM Duopharma is rather generous in terms of dividend payment. For FY10, the company paid a total dividend of RM20.48 million, according to its cashflow statement.

Holding 73.37% in the generic drug manufacturer, CCM is expected to receive dividend income of RM15million. The amount will be handy for CCM to pay for about half of CCM’s net interest expense of RM32.2 million for the year.

Unlike its parent, CCM Duopharma has a clean balance sheet that allows the company to be generous in dividend payment.

It had a net cash of RM4.58 million as at Dec 31, 2010, comprising RM10.42 million in long-term borrowings, RM8.33 million in short-term borrowings and RM23.33 million cash.

For FY10, CCM Duopharma’s revenue totaled RM131.44 million, up 6.2% from RM123.8 million from the previous fiscal year while net profit amounted RM28.7 million, marginally lower against RM30.2 million the year before.

CCM Duopharma’s financial performance remains relatively resilient. For the past five years between 2005 and 2009, the company posted a compounded annual growth rate of 5.7% and 4.43% in revenue and earnings per share, respectively.

CCM could be possibly giving up one precious gem if it were to sell CCM Duopharma.

MyEG.. dated March 2011

Its Prospects … dated March 2011

MyEG Services is Malaysia ’s dominant e-services player, providing a wide range of government-to-citizen (G2C) services.

The company, which started with a concession to provide drivers’ licence theory tests for the Road Transport Department (JPJ), has expanded its portfolio to offer additional services from JPJ and other government agencies. It now offers 19 services from seven service suppliers. Apart from an online presence, MyEG also has a network of 65 e-service centres nationwide.

The company’s earnings are poised to grow rapidly in the next few years, driven by (1) continued growth in the road tax renewal service, (2) increasing network, coverage and market share, with its expanding number of e-service centres, and (3) new products and services, the most important being the immigration and customs service tax monitoring initiatives.

MyEG is now embarking on a new phase of growth as it expands its services to include those from the Immigration Department (for maid and foreign workers’ annual permit renewal), and most significantly, a customs tax-monitoring service with the Royal Malaysian Customs.

Under the customs tax monitoring scheme, MyEG has a 40% stake in a special purpose vehicle (SPV) that will link up point-of-sales (POS) terminals of businesses that are subject to customs’ service taxes, such as restaurants and entertainment outlets.

The SPV will spend RM100 million on capex, but will receive a 20% share of the taxes that were previously found to be under-declared, with the lion’s share of 80% going to the government.

This will give MyEG a potentially large wildcard from FY June 2013 onwards. However, it is too preliminary to assess at this juncture, as much depends on how much tax was under-declared in the first place. The service will also be compatible with a GST regime that is likely to be implemented at a later stage, giving the company a potentially wider earnings base.

Another key earnings driver will be the immigration services, where MyEG will offer online foreign worker permit renewals, potentially tapping a two million people market.

In the near term, the company’s earnings will continue to be driven by the road tax renewal services which are growing rapidly. The service currently attracts over 5,000 road tax renewals a day, with an estimated 30% market share. The drivers’ licence theory tests and e-insolvency searches, meanwhile, will provide steady income.

Its earnings ability to surprise on the upside from FY12 onwards will be due to the customs tax monitoring, immigration and other services in the pipeline.

The underlying market for MyEG’s services is very large, with relatively resilient and recurring demand. Demand is also being supported by the growing popularity of online services and transactions for convenience and cost reasons.

Road tax renewal and JPJ service: Launched in April 2008, the road tax renewal service has been the main driver of MyEG’s growth over the last two to three years, with the original drivers’ licence theory tests and insolvency search services providing stable income.

The service is likely to continue seeing strong growth in the near term, as it is still rapidly gaining market share and acceptance after a heavy advertising and brand-building exercise.

MyEG has two main business models for the road tax renewal service — an online and a kiosk-based one, both of which have been very well-received.

The market for road tax renewal services is supported by a large number of vehicles and drivers, with road taxes that need to be renewed annually, annual insurance premiums and drivers’ licences renewal due every five years. Other JPJ services in the pipeline include e-application of vehicle registration numbers and online vehicle ownership transfer.

Immigration services: MyEG soft-launched its new e-immigration service in April 2010. This involves the online renewal of foreign workers’ permits. At present, the service caters for domestic maids, but will be extended to cover other foreign workers at a later stage.

Once the service is fully in place, employers of foreign workers — such as factories, businesses and households (for domestic maids) can apply for the renewal of their foreign workers’ permits online, hassle-free and at minimal costs. Most renewals are currently undertaken by agencies, who charge high fees of around RM200 per renewal, especially for domestic maids.

MyEG is offering a cost-effective solution, charging RM50 per transaction, excluding the government levies. We understand the specially printed permits will be personally delivered to the customers’ homes or offices by MyEG’s personnel team, who will affix it to the workers’ passports for security reasons.

With an estimated two million foreign workers in Malaysia , of whom about 250,000 are domestic maids, the potential for this service is large — and recurring. For the domestic maid permit renewal service, we understand MyEG currently has about 70-80 cases a day. Once the service is expanded to cover other workers, we expect volume to increase significantly.

Customs tax monitoring: The Customs tax monitoring service, in conjunction with the Royal Malaysian Customs, will be the most significant of the new services proposed.

This involves linking up POS terminals of businesses that are subject to customs’ sales and service tax (such as restaurants and entertainment outlets) to minimise under-declaration of taxes and administrative paper work.

The service will be undertaken via a SPV, where MyEG will hold a 40% share and several other private parties the balance.

The SPV will undertake the programme and install a software at each POS terminal for the link-up — at the SPV’s cost. We understand the cost is as much as RM5,000 per full system terminal, for those without compatible POS terminals. In return, the SPV will receive a share of the additional service and sales taxes collected.

Earnings visibility for the new service is uncertain at this juncture, as it depends on how much sales and service taxes were “under-declared” in the past, which cannot be ascertained. According to management, the sharing ratios between the government and the SPV are 80% and 20%, respectively, of the under-declared taxes, with a base growth imputed.

The potential market is large.

Equally though, it is a high risk-high return investment on the part of the SPV, given the sizable capex needs. Total capex is estimated at RM100 million for the first phase, of which RM20 million has been spent. Substantially more may be needed for the later stages and when GST is eventually implemented.

The SPV plans to start with a pilot test phase in May 2011, which will continue until the end of the year, with a full rollout of the service in Jan 2012. The pilot phase will involve some 2,500 premises under licence categories C and D, while the actual rollout will capture about 15,000 outlets under these two categories.

Its infrastructure is compatible with a goods and services tax (GST) system as it is essentially a POS system to capture the value of sales. With the likely implementation of GST at a later stage, the scope of the SPV’s business should expand as most businesses will be captured under the GST system, unlike the current service tax regime, which focuses on selected businesses.

MEGB.. dated Feb 2011

Its Prospects … dated Feb 2011

Masterskill turned in a strong set of results for the financial year ended Dec 31, 2010 with full-year net profit rise RM4.9% to RM102.14 million while revenue climbed 15.5% to RM315.74 million.

With earnings per share of 33 sen, the stock is trading at a historical price-to-earnings ratio (PER) of just 5.6 times.

Masterskill also has a strong balance sheet, with RM99.41 million in net cash and offers shareholders a decent dividend yield. It paid an interim dividend of seven sen on Oct 13, 2010, and is expected to announce a final dividend for the year.

Since November 2011, the company’s share price, however, has come under selling pressure on concerns over PTPTN funding. With some 95% of Masterskill’s students reliant on PTPTN loans, those concerns were justified. However, some quarters argue that the concerns may be over-blown as all private colleges would have students who are reliant on PTPTN funding — although to lesser degree.

Moreover, PTPTN, as a national education funding scheme, is unlikely to be discontinued given its important social implications.

Of late (Feb 2011), Masterskill’s share price slumped further as foreign selling exacerbated, notably by two US-based funds, Fidelity Management and Research (FMR) LLC and SmallCap World Fund. After months of selling, both FMR and SmallCap World Fund ceased to be substantial shareholders of Masterskill on Feb 10 and Feb 16 2011 respectively.

Masterskill, on the other hand, is in the education industry which is relatively resilient, defensive and cash generating.

JIT News - Zeland.. 25/3/2011

Zeland may require a new shareholders mandate if it were to continue disposing its shares in IJM Corp Bhd, which is key to distress financial position. Even after the aggressive disposing exercise in the past year, Zeland is estimated to still have around 66.56 million in IJM shares with a current market value of just over rm400 million. However, its mandate by shareholders to dispose 30 million shares in the IJM Corp has fully utilized.

The sale of the remaining IJM shares will be key to repairing Zeland’s finances, although the company could be left without much operating assets if the shares are sold. The IJM shares could easily cover its borrowings. AS at Dec 31, 2011 Zelan had rm36.51 million in cash and rm203 million in borrowings or net debt of rm166 million. The company had rm471 million in payables and rm552 million in receivables.

It also faces the further prospect of losses from its JV in Indonesia .

MCIL.. March 2011

Its Prospects … dated March 2011

MCIL’s profit may overtake Star’s by FY11 ending March 31.

For 9MFY11, MCIL’s net profit rose 48.6% to RM139 million from RM93.5 million a year earlier.

MCIL is the publisher of local Chinese papers such as Sin Chew Daily, Nanyang Siang Pau, China Press and Guang Ming Daily, as well as Ming Pao in Hong Kong .

MCIL’s earnings are expected to soon overtake that of industry leader Star.

The English market is already saturated. At the same time, MCIL is already a market leader of the local Chinese print media with growing and loyal Chinese readership.

The English print media has been challenged by the proliferation of free alternative news providers on the Internet while local Chinese-based alternative news is scarce.

There are very few Chinese blogs or news portals online compared with English sites. As such, MCIL should see its readership grow or maintain. On the other hand, more people are going online to obtain English news, which leads to declining circulation in the English print medium.

For FY10, MCIL recorded a net profit of RM134.2 million or 7.96 sen a share. It also recently distributed 50% of its profits, or 3.98 sen per share, as dividends to its shareholders.

MCIL’s earning also grew 48.7% year-on-year for its 9MFY11 compared with Star’s slower growth of 27.8% for FY10.

MCIL has strong balance sheet with RM272 million cash and no borrowings.

In only two years since MCIL emerged as part of a merger in 2008, its net profit had soared 118% to RM134.2 million in FY2010.

MCIL: 1.35 (MBB), 1.65 (OSK)

JIT News - Benalec, RGB.. 23/3/2011

Benalec: Its specialized niche in marine construction has been reaping high margin construction industry. It is shaping to be a major landowner and developer as it will receive some 177.3 acres of land in Melaka in exchange for reclamation land. It is open to JV with property developers for the prime seafront land it is reclaiming in Melaka, broadening the company’s previous practice of selling plots of reclaimed land outright. Although the company first priority is to sell its reclaimed land, it is in talks with several property companies on prospective partnerships.

Earlier it announced that its unit had entered into an agreement with Melaka government owned Yayasan DMDI to undertake reclamation works for the latter on a portion of the coast in the Kota laksamana area in Bandar Melaka. The Melaka government had granted Yayasan DMDI a concession to reclaim the land, which will measure about 250 acres upon the completion of reclamation works. Benalec will entitled to 177.33 acres of land upon completion of the reclamation works, which will be retained on its balance sheet as ‘Land Held For Sale’. The remainder 72.67 acres will be surrendered to the Melaka government and Yayasan DMDI.

The reclamation works will be funded by internally generated funds and bank borrowings. Funding is not an issue since the group raised up to rm100 million from its IPO in Jan 2011.

Going forward, observers view the deal is significant for Benalec as the land concession holds immediate development potential for Benalec once reclamation works are complete. The Kota Lakasamana project is expected to draw attention from property developers as it sits on prime seafront land within Melaka’s city centre can can be further developed for mixed development. Based on estimates, Benalec stands to reap a net gain of about rm116 million from land disposals alone over a three year reclamation period.

1.90 (AMResearch), 1.42 (OSK), 1.95 (MBB)


RGB: It hopes to pare down its borrowings and set aside cash for working capital following the commencement of operations at the Cebu Park Mall Satellite Casino in the Philippines under an agreement in the Pagcor.

The group had borrowings of rm1289 million and US$6.17 million as at Dec 31, 2011.

According to the company, the operation of RGB’s latest outlet, which has 108 slot machines, in the Philippines began in March 11, 2011. This is the first project under a concession signed with Pagcor for the placement of 1700 machines and is RGB’s 16th operating outlet in Philippines . Tehre was no initial capital outlay for the venture as RGB is using existing machines.

RGB: 0.06 (CIMB)

AMMB/RHB Capital.. March 2011

What’s Up? … dated March 2011

Source say a proposal to merge AMMB and RHB Capital, which first surfaced in 2007 is back on the table. However, whether or not it will successfully cross the finishing line this time round remains to be seen.

The merger has been proposed to the top officials of both banks but is till too early to say and things are still fluid.

The proposed merger will involve a number of things. One is Abu Dhabi Commercial Bank (ADCB), which is in the process of trying to well its 25% stake in RHB Capital. Then, there is ANZ, which is said to be keen to raise its stake in AMMB. A merger between AMMB and RHB Capital could pave the way for both foreign banks to realize their plans. ANZ could acquire ADCB’s stake and eventually end up with a bigger stake in the enlarged banking group. This is subject to BNM approval. The EPF would also hold a substantial stake in a larger banking group.

ADCB will eventually have to sell its stake because the National Bank of Abu Dhabi has received a licence to operate in Malaysia from 2011.

An investor cannot hold substantial stakes in two banks in Malaysia . Both ADCB and NBAD share the same shareholder – Abu Dhabi Investment Bank, which is the Abu Dhabi government’s investment arm.

The rationale for the merger makes sense. There is obvious synergy between the two. AMMB will benefit from the deposit base that RHB Capital will gain from AMMB’s foreign partnership. Both banks will also be able to beef up their investment banking business together. They will benefit from having strong shareholders and a large balance sheet.

About Tenaga ... March

Tenaga which has large amounts of yen denominated loans, is turning out to be an indirect casualty of Japan ’s massive earthquake. With Japanese currency rallying to record highs in the aftermath of the disaster, It could be sitting on potential forex losses of rm182 million. According to its latest financial statements for the period ended Nov 30, 2010, Tenaga had rm5.26 billion in yen denominated debt, which accounted for a quarter of its total debt of rm21.28 billion.

These forex translations losses, however, will not likely be reflected in Tenaga’s upcoming results for the quarter ended Feb 28 (2Q2011) as most of its 3.5% rally in the yen occurred after the March 11 earthquake.

As of Nov 30, 2010, Tenaga also had debts totaling rm4.5 billion denominated in the US dollar, which has been weakening against the ringgit. Hence, some of the losses from its yen denominated loans will be offset against the forex gains from its greenback debt.

At the end of FY2010, it was estimated that Japanese investors held around US$2 trillion in foreign assets, net of reserves. Since the earthquake, the yen has been surging against currencies, including the US dollar, euro and the ringgit, due to speculation that Japanese insurers and investors will repatriate their overseas assets to pay for damage, claims and reconstruction activities in their homeland.

Going forward, these forex losses may be temporary if the yen reverses its course later. Repatriation may support the yen in the short term, but the longer picture depends on economic fundamentals. The long term of the yen is negative. After the earthquake, we will see higher imports of capital and construction goods and lower exports due to damaged plants and infra. That will narrow Japan ’s current account surplus.

Tenaga has managed to trim its borrowings substantially over the years. Tenaga also not expecting to secure a tariff hike until after the general elections.

JIT News - SEGI ... 17/3/2011

SEGI: Its MD Datuk Clement Hii has upped his stake further in the education group to 32.17%. He acquired another 10.8 million shares to bring the toal to 79.4 million shares. At the same time, Rextar Capital Sdn Bhd ceased to be a substantial of 10.8 million SEGI shares. It is not known if Rextar is the vendor of the block by Hii.

JIT News - Faber.. 16/3/2011

Faber is positive that its 15 year concession for government hospital support services, which expires in Oct 2011 will soon be renewed for another 15 years based on the group’s experience and track record. Its MD said the company was well positioned for the renewal based on of its financial ability. They are waiting for a detailed discussion with the authorities. It is just a matter of time. The ball is now in the government’s court. But he declined in disclose the contents of the renewal application but stressed that its proposition was status quo in terms of services for government hospitals in the six states, including Sabah and Sarawak.

Place Yr Bet - PetDAG,CyPark,MYEG ... 2/4/2011

Petronas Dagangan Bhd, controlled by Malaysia ’s state oil and gas company, is seeking to acquire assets to strengthen its retail network. The company is debt-free and has a cash-pile of RM1 billion.


CyPark: A country's largest publicly traded renewable energy company, has submitted proposals to the government to take over as many as 32 non-sanitary landfills and to design, build and manage integrated waste disposal sites. It had submitted the proposals sometime late 2010, and expects to know the outcome for the landfills in the current financial year (2011). On the integrated waste disposal sites, the government had said that it will cost as much as RM270 million to build, design and manage nine waste disposal sites. This cost, however, does not include the cost of acquiring the land. The company may know by 2011 if it is chosen to run the fresh waste disposable sites. Much of this will also depend on the passing of the Renewable Energy Act. If passed, the act will be a boon for Cypark as it had started converting landfills into RE parks.

2.98 (OSK), 1.45 (MIMB)


MYEG: The company’s earnings are poised to grow rapidly in the next few years, driven by (1) continued growth in the road tax renewal service, (2) increasing network, coverage and market share, with its expanding number of e-service centres, and (3) new products and services, the most important being the immigration and customs service tax monitoring initiatives.

MyEG is now embarking on a new phase of growth as it expands its services to include those from the Immigration Department (for maid and foreign workers’ annual permit renewal), and most significantly, a customs tax-monitoring service with the Royal Malaysian Customs.

In the near term, the company’s earnings will continue to be driven by the road tax renewal services which are growing rapidly. Its earnings ability to surprise on the upside from FY12 onwards will be due to the customs tax monitoring, immigration and other services in the pipeline.

Place Yr Bet - JCY,TRC,MEGB.. 1/4/2011

JCY: JCY International Bhd is in the midst of courting one of the world's leading electrical and electronic (E&E) companies from Japan as its new client. In its financial year 2010, the company had secured contracts to supply hard disk drive (HDD) mechanical components to two new major customers in the E&E industry from Japan and South Korea .

1.88 (CIMB), 0.94 ( Alliance ), 1.90 (UBS), 1.31 (RHB), 0.85 (OSK)



TRC Synergy: TRC is one of few West Malaysian-based contractors licensed to bid for state-funded projects in Sarawak . It is in the final stages of clinching four packages in the Sarawak Corridor of Renewable Energy (Score) worth about RM500 million out of RM1.5 billion outstanding bids. TRC has also bid for Phase 2 of the LRT extensions worth about RM2.2 billion, where it hopes to leverage on its lower mobilisation fees and machinery costs with the first phase already in hand. The tender has closed mid-March 2011 with possible award in June 2011. TRC’s 26% stake in PetroBru (B) Sdn Bhd may bear fruit soon. Project approval is pending a revised blueprint for Pulau Muara Besar, Brunei , where the refinery will be built. Investor interest in the refinery is also rising, which should lend weight to an official approval by the Brunei government. This will pave the way for about RM2 billion worth of infrastructure and reclamation works on the island and US$4.3 billion (RM13 billion) to construct the refinery.

2.25 (HDBS), 1.80 (RHB)


MEGB: Its key re-rating catalysts are more affirmative indications in relation to PTPTN’s loan allocation and the potential approval of courses at its new Kuching campus.

4.90 (HDBS), 2.47 ( Alliance ), 3.44 (OSK), 4.48 (CIMB)

JIT News - DBE, YTL Land/YTL Power .... 31/3/2011

DBE: OSK’s wholly owned subsidiary OSK Investment Bank Bhd has emerged as the single largest shareholder of DBE with 26.88% of DBE’s enlarged issued share capital. As at FY2010 ended Dec 31, DBE had racked up accumulated loses of RM40.91 million. Meanwhile, total borrowings amounted to RM72.6 million as at Dec 31 versus rm116000 cash. The completion of the rights issue may put DBE on a stronger financial footing. Of the rm40 million proceeds, the company plans to set aside rm25.9 million as working capital and rm12 million will be earmarked to repay its bank loans.


YTL Land/YTL Power: YTLand has the biggest exposure to the potential MRT interchange at 66% of realisable net asset value via Sentul (119 acres), KL Sentral (five acres) and Bukit Bintang (5 acres). YTLP, which has a 21-year PPA with TNB until 2015, has a positive potential extension for its first generation PPA as a power plant in operation is better than an idle one. However concerns are over its lower internal rate of return from the power purchase agreement (PPA) extension.

About PacicMas ...March 2011

Following the announcement of a special dividend the company will be left with a fund management arm and hire purchase leasing operation that collectively generated a net profit of less than rm15 million.

To recap, PacificMas announced that it was rewarding shareholders with a proposed total dividend of rm1.698 per share comprising an interim dividend of rm1.398 per share gross (of rm1.0485 net per share) and a single tier dividend of 30 sen per share tax exempt. In all, shareholders will receive a net dividend of rm1.349.

It should be noted that the dividends are one off and will not be repeated. The dividends are from the sale of PacificMas’s insurance arm. The Pacific Insurance Bhd which was completed and profits from the sale had already been fully reflected in its books for Dec FY2010. The sale of rm216.48 yielded a gain of rm72.34 million for PacificMas in FY2010.

Its net assets per share stood at rm3.83 as at Dec 31, 2010. This already included the sale of PacificMas Insurance. With a net of tax dividend payout of rm1.349 per share and 170.994 million shares issued, it implies a total payout of rm230.6 million, which will reduce the net assets per share to rm2.48.

Once PacificMas’ shares trade ex for dividends, its share price should be adjusted by the amount of gross dividends declared. With a residual net assets per share of rm2.482. the stock would be trading at relatively high price to book of 1.65 times for a company that will essentially left with a fund management arm, Pacific Mutual and PacLesase Sdn Bhd. The combined net profit of rm13.59 million versus a market cap of rm700 million implies a historical price to earnings multiple of 51.5 times.

OCBC owns 67.07% in PacificMas. Market observers do not preclude the possibility of future corporate developments involving PacificMas if OCBC group decides to list some of its Malaysian assets.

BJCorp/Cosway Corp Ltd

What’s Up? … dated March 2011

BJCorp owns 67% stake in Cosway Corp Ltd and is listed in HK.

Speculating that Cosway is unlikely to be privatized. Rather it could soon commence ground operations in China . The group may start with Guangzhou , which is geographically close to HK where Cosway already has a successful business.

Cosway’s management has been tightlipped in the company’s progress in China with HKSE or communication to shareholders on the status of its plan to set up shop in the mainland. However, the company had mentioned a plan to enter China is in the pipeline.

It is probably in relation to this that busloads of potential Chinese dealers have been visiting Wismas Cosway for introductory courses on the Cosway business model. Meanwhile, the group’s China website has been going all out to woo dealers, or better known as business partners. In the mainland with a list of frequently asked questions and information on Cosway.

In March 2010, Cosway ( China ) Daily Consumerables Ltd had been successfully registered in Guangzhou . A posting said this entity would allow Cosway to leap from its current web presence to commence ground marketing and selling activities in China within 12 months.

Cosway China is believed to be the vehicle of the Cosway group to commence ground operations in China . Cunrrently, purchases of Cosway products by China residents are made thorough the e-cosway online shopping website in HK/Macau and then shipped to China .

These transactions are booked as part of the revenue derived from HK, Macau and Taiwan , which are categorized as one geographical segment in Cosway’s financial statement. The two special administrative regions and Taiwan contributed 38.8% to Cosway’s revenue in the first six months of FY2011.

There are two other entities registered in Guangzhou – Guangzhou Cosway Comestic Products Mfg Ltd and Guangzhou Cosway Commerical Services Ltd. The former’s principal activity is the manufacture of personal care products while the latter provides support services.

These three entities are, however are not listed subsidiaries of Cosway in its FY2010 annual report.

Market observers may want to get everything ready before making a big bang in the China .

A big push into China may boost Cosway’s stock price, which lacks a China Story to justify its high valuation. Even at 80 sen, Cosway’s total market cap – taking into account the number of new shares to be issued via the conversion of the remaining ICULS – stands at HK$9.6 billion. This 41 times the group’s annualized net profit for FY2011.

To justify such a high valuation and to attract investors, market observers say Cosway needs to grow its earnings at a faster pace. This means coming up with a solid plan to penetrate and expand in China . At thus stage, the group has yet to commence operations China except to sell though the online channel, which is not creating as much growth as physical presence world.

As Cosway prepares to enter new market, especially China , its total expense have escalated 57% from 2010, outpacing the 47% growth in revenue in the first nine months of FY2011.

But it us possible that one the group commences ground operations in China, and with the pre launch expenses tapering off, earnings could grew in tandem with revenue expansion.

About PChem ...

What’s NEXT! … dated March 2011

It was born after 22 companies producing a wide range of petrochemical products were brought into its stable. The consolidation gave PCG control over the whole value chain and resulted in cost saving, estimated at rm130 million a year, due to economies of scale.

And now that PCG controls the value chain, it intends to move further downstream where the big money is. It would like to see PCG’s product portfolio having more speciality chemicals because they give better returns.

Expanding its product portfolio and moving into more downstream specialized roducts are part of PCG’s mid term strategy. Currently, the contribution of speciality chemicals to PCG’s revenue is insignificant and it is believed that the strategy will enable the group to benefit from enhanced margins.

Additionally, going further downstream is a less competitive market as products are more speciliased.

PCG will need to invest in new plants and partnerships hat have the expertise to widen its product range. But funding is no concern for cash rich PCG.

The group’s cash coffers ballooned to rm7.5 billion as at end Dec 2010, after its listing in Nov 2010 raised a whopping rm3.6 billion for expansion and acquisitions over the next five years. Meanwhile, its total borrowings were only rm3.8 billion. This gave the group a lot of headway to gear up.

Given its link to Petronas, it has always been assumed that PCG would be pretty much taken care of. This includes PCG’s supply of feedstock is sourced from Petronas on long term contracts, particularly its gas, which accounts for 80% of total feedstock.

Under its feedstock policy with Petronas, PCG obtains its main feedstock, ethane via two contracts. One is on fixed price basis while the other rises by 2% annually. The price of its other gas feedstock is based on market rates.

It is interesting to note that ethane, as a feedstock, is not an exportable product. Therefore, it makes sense for PCG to get its supply from its parent company. Petronas cannot sell it to anyone else and PCS cannot buy it from anyone else.

Because PCG is a gas based producer, it is in a better position to ride the cycles than naphtha based producers.

The other 20% of its feedstock is heavy naphtha, which PCG buys at market rates close to those of Middle East producers.

PCG is one of the two gas based petrochemical players in the region. Thailand based PTT Chemical PCL is the other. The advantage of being a gas based player us that PCG is not as exposed to volatility in crude oil price as naphtha based plants. Naphtha is derived from crude oil. This is one of PCG’s good selling point.

The petrochemical industry is very much a cyclical one as demand its tied to economic growth. But while industry wide earnings took a hit the last three years (2008-2010) due to softer demand, PCG’s diversified producer portfolio helped cushion the volatility.

The group made a net profit of rm874 million for 3QFY2010, more than double its net profit of rm337 million in 3QFY2009. Fir the cumulative nine months ended Dec 31, 2010, net profit grew 57% to rm2.1 billion from rm1.3 billion in the previous corresponding period.

In the longer term, PCG intends to expand its current capacity of about 11 million tones.

Petronas is also looking at an integrated refinery and petrochemical complex which will add steeply to capacity as well.

With rm7.6 billion cash in hand, rm3.8 billion net cash and a debt to equity ratio of only 0.2 times at end 3QFY2011, PCG is likely to pay a special dividend of 63 sen given its limited capex plan.