Crest Builder
What’s Up? … dated Sept 2012
It has its eyes set on the rm3.7 billion Langat 2 water treatment plant and is currently (Sept 2012) negotiating with potential partners to submit a bid for the project.
Crest has been known for its high rise construction operations but had made headlines after successfully securing the rm1.04 billion Dang Wangi LRT station redevelopment project and the rm1.33 billion development of the Malaysian Rubber Board’s land in Jln Ampang.
The two developments have got investors warming up to Crest Builder as the potential earnings are huge relative to the company’s current market cap of rm136 million. The experienced builder is also expected to gain from construction earnings as the two projects will double its current construction order book of rm1.1 billion.
The group has also put in several other bids for smaller water treatment and sewerage plants as part of its plans to venture into infra construction.
The Langat 2 project has been riddled with delays when initial works hit a snag in April 2012 after the Selangor government refused to issue the remaining development orders.
However PPAB hopes to secure the necessary approvals by June 2013. The tender process is slated to close Nov 20, 2012.
The Yong’s family owns a 31.9% stake in Crest Builder.
Potential newsflow like awarded of other’s rail plus related projects could provide the share price with catalysts as well.
The company is targeting to secure two more property development deals in the Klang Valley soon.
OldTown
What’s NEXT! … dated Sept 2012
The move by its cash flushed to raise over rm60 million through placement of new shares is raising concerns.
The private placement has attracted mixed views. Some are wondering why the company is turning to cap market to raise funds when it has a net cash of rm79 million and gross borrowing of rm14.2 million.
With its strong balance sheet, the company could easily raise much cheaper capital via bank borrowings.
Foreign shareholding in the company has risen to 19.7% stake from Feb 2012 till Sept 2012. In Aug 2012, OldTown’s largest shareholder – Old TownIntl Sdn Bhd sold 10 million shares or a 3% stake to a few intl funds including foreign funds for an average price of rm2.06.
Old Town Intl is controlled by group MD Lee Siew Heng, Chin and Tan. In 2012 alone, the company disposed of 29.76 million shares or 9% equity interest, reducing its stake to 50.1% stake post IPO.
The issue of new shares will dilute earnings for existing shareholders. But that the funds raised will be ploughed back into the company for its capex and will increase profitability.
The group stated specially what it plans to do with the funds raised from the private placement. RM42.4 million will be allocated for capex for business expansion and the remaining rm18.17 million will be used for working capital.
However, the funds are likely to be invested in the group’s F&B arm, which operates the 189 outlets of its coffeehouse chain OldTown White Coffee.
The group’s F&B operations contribute 61% of revenue and 56% of net profit, with the remainder coming from the fast moving consumer goods arm that produces and distributes the group’s instant coffee mix and instant milk tea.
The group plans to open 202 outlets by the end of 2012.
One segment that OldTown will aim to break into is the Malay segment, which currently (Sept 2012) makes up about 15% of OldTown’s customers. It expects to be fully halal certified by end of 2012. The full halal certification is likely to be followed by an aggressive marketing campaign to attract more Muslim customers.
OldTown is looking to expand into high rental areas that have high footfall volumes by introducing a kiosk model.
Market observers have reservations about the group’s F&B expansion overseas. The group has opened three outlets inChina, eight in Singapore and four in Indonesia.
The F&B business needs to hit a critical mass before it becomes profitable and this time, especially in a foreign market which remains a risk.
Wilmar/PPB
Its Prospects … dated Sept 2012
When Robert Kuok decided in 2007 to spin off PPB’s oil palm plantations and edible oils business to hold a sizeable stake in Wilmar Intl, he did not expect the Singapore listed Wilmar to dictate PPB’s earnings and share price as it does now (Sept 2012).
After all, Wilmar only began to make up more than two thirds of PPB’s earnings two years ago (2010) later following the surprise sale of PPB’s sugar business the Malaysian government in Jan 2010.
With over 70% of its earnings coming from Wilmar, investors are taking a view on Wilmar rather than PPB.
While some of PPB’s own portfolio of businesses such as the Massimo bread business, are showing some decent growth, earnings from PPB’s properties and wastewater management businesses can also be volatile while the flour milling and livestock farming business face thin margins and tepid utilization rates. Even PPB’s film exhibition and distribution business under GSC continues to face competition from smaller players and piracy.
The only positive is that the group has been in the commodities and consumer business for long time and if anyone can ride through the volatility, it would be them.
There is little PPB can immediately do to outrun Wilmar’s shadow (Sept 2012).
The reappointment of a new MD Lim remains to be seen if Lim signals increasing investments by PPB where Wilmar has easily 20% of the branded cooking oil business.
Wilamr has made its first share buyback on Sept 13, 2012 paying rm7.50 apiece or S$22.19 million to purchase 7.39 million shares from the market. As of PPB, EPF among the buyers of PPB shares as its stock plunged. The EPF had 9.92% stake in PPB as at Sept 6, 2012.
Lim said PPB does not expect significant changes in contribution mix from its six business segments in the near term but promised PPB is working hard to grow its core businesses.
Grains trading and flour milling remains PPB’s own businesses. Second is its film exhibition and distribution and then properties and consumer products. The smallest is its waste management while its livestock business was loss making.
He also gave little hints of whether PPB would consider spinning off GSC to get PPB back on the syariah compliant investment list.
Some rm467 million has been earmarked to expand its flour, cinema and property businesses over the next two years (2013-2014), some 73% of which is to expand it flour businesses in China, Vietnam and Indonesia.
The Kuok group had just over 50% of PPB and about 32.35% stake of Wilmar as at May 2012, including 18.32% stake held by PPB.
While Lim said PPB has not immediate intention of raising its interest in Wilmar , Singapore takeover rules allow Kuok Group to buy up to 2% of Wilmar shares every six months without triggering a buyout. Singapore ’s MGO threshold is 30% and not 33% as in Malaysia .
Some market observers expect more of Kuok’s agriculture and consumer related businesses to eventually find their way into Wilmar’s fold, pointing out that PPB and Wilmar are already working together to expand the flour businesses in the region.
If Wilmar succeeds in beating expectations, PPB would stand to gain.
MAXIS
Its Prospects … dated Sept 2012
Maxis is the largest mobile operator in Malaysiawith a total subscriber base of 12.6 million, accounting for 31% of the total. The Maxis brand, founded by Ananda Krishnan in 1995, has a leading position in Malaysia's prepaid and postpaid businesses, with a market share of 30.6% and 35.3% respectively.
The group's ambition of having multiple delivery platforms fibre, cellular and wireless to deliver content on a variety of channels, are coming into realisation after recently teaming up with Telekom Malaysia, U Mobile, REDtone and its sister company, Astroin respective assignments.
Management aims to see 50% of revenue coming from the non-voice segment, in 2012 or next. Year-to-date (Sept 2012), it accounts for 45.3% of mobile revenue compared to 42.4% in 2011.
Given the huge demand for mobile data services and low level of broadband penetration rate at only 19.6%, potential room for growth in the mobile internet and wireless broadband businesses is tremendous. Expect that its voice segment contribution will likely remain stagnant for 2012 and next.
Despite widespread speculation about a special dividend payout when it unveiled plans to issue Islamic medium term notes totalling RM2.45bil in February 2012, the company has since indicated that annual dividend will likely remain at 40 sen per share for the foreseeable future.
This also suggests that Maxis' gearing will continue to rise after taking into account estimated capital expenditure of roughly RM1bil per annum.
Maxis has been seeing a decline in subscriber numbers in both the postpaid and wireless broadband segments, down 0.5% and 11.9% since Q4'11. To defend its eroding market share, the group has already launched a loyalty programme called Maxis One Club that offers special discounts for mobile services and rewards as well as “peace of mind” roaming plans that offer more competitive rate for IDD calls. It intends to offer more competitive bundle-based and tariff plans in Q3'12. Margins, however, will remain under pressure, at least 2012 and next.
Key re-rating catalysts include new earnings contribution from its upcoming triple play services, better-than-expected growth in voice subscibers, and improved cost savings via collaboration with several industry players.
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