About BJFood, Tenaga, Puncak Niaga ...

BJFood: It is expected to register strong earnings growth on the back of local and regional expansion, including to IndoChina. It operates a chain of casual dining restaurants in Malaysia, is looking into accelerating the expansion of Kenny Rogers restaurants to the IndoChina region.

It is also in talks to acquire a potential food and beverage company Indonesia.

It has already has a presence in Indonesia via a JV with a local company to operate the KRR franchise. It plans to open 60 to 70 KRR outlets within 5 years.

The group has 135 Starbucks outlets to date (Oct 2012) and expects to open 15 outlets a year, brining the number to 200 outlets within the next five years (2012 – 2016).

BJFood has completed the acquisition of a 50% stake in BStarbucks for rm71.1 million cash in July 2012.

It has a strong balance sheet with zero borrowings while dividend yields stand at 3.8% to 5.1% premised on a decent dividend payout ratio of at least 40% of earnings.

Its initiation report in May 2012 that BJFood is in the position to acquire other F&B outlets – Papa John’s Pizza, Krispy Crème Doughnuts and Wendy’s – currently (Oct 2012) parked under its parent BJCorp. BJFood would consider the acquisitions once positive returns are visible and those outlets’ businesses become more mature.

Tenaga: petronas was absent from an economic council meeting on last Monday where the details of a stabilization fund for Tenaga were discussed. This is a setback as a second meeting may be required to get all stakeholders on board to implement and execute the fund.

It is learnt that TNB on the sidelines of the 4^th national energy forum that Petronas did not attend a meeting with the economic council on Sept 24 2012. The meeting was set up to discuss the implementation of a stabilization fund that would enable TNB to be compensated for its cost of generation while keeping end user electricity tariffs affordable. The stabilization fund was agreed to in principle and it was discussed that Petronas should bear the full cost (rm5 billion).

This is a negative surprise as it was intended to be a comprehensive meeting involving all parts of the electricity supply value chain. With Petronas absent, a key stakeholder was missing and a follow up meeting may be required. While a disappointment, this is only affects the timing of reforms but on their likelihood or outcome.

Rerating catalysts include TNB offers an opportunity to benefit from energy policy reform. Downside is limited due to valuations and TNB’s strategic role in the electricity supply chain.

Puncak Niaga: It has proposed to issue a five year redeemable convertible secured sukuk of up to rm165 million in nominal value and undertake a 1 for 10 free warrants issue of up to 40.9 million warrants with an exercise price of rm1.00.

The sukuk will be issued on a private placement basis at a price to be determined later. The exercise to be completed in the 1QFY2013.

Four key points:-

1. The sukuk conversion is dilutive to existing shareholders. New shares of 117 million are about 26% of the enlarged share base (including the exercise of 40.9 million free warrants). This is viewed negatively by the market at large.

2. The private placement may see the emergence of new shareholders in the group. Positively this may mean the sukuk holders are seeing the intrinsic value of the group’s assets.

3. The exercise of sukuk and warrants will raise rm206 million for Puncak Niaga. With its water related bonds (total borrowings of rm5.6 billion as at Aug 30, 2012) currently (Sept 2012) being held by PAAB, the exercise as a preemptive move to capitalize on future oil and gas related opportunities. The company said that the rm165 million sukuk will be earmarked for acquisitions of investments withtin 12 months from the receipt of proceeds. In the event that no acquisition investments are made within that time frame, the proceeds will be channeled to refinancing Global Offshore Malaysia’s US$36 million term loan.

4. The free warrants are a move to sweeten the deal and partly soften the impact of the sukuk. That said five year tenure should provide some respite from the negative sentiment.