Gamuda (BUY) - Tunnel sharing

By HLIB Research
17 Apr 2012

Gamuda (BUY)

Tunnel sharing

• Financial Daily reported that MMC-Gamuda JV is looking to subcontract4km of the total 9.5km MRT tunnelling works to foreign parties and would alsolease the boring machines to them. This will allow MMC-Gamuda JV to focus onthe more challenging karstic limestone formation.
• Although no value was given, the Financial Daily estimate that the KennyHill formation stretch is expected to cost around RM3bn. We are surprised bythis news as it would indicate lower earnings margins for MMC-Gamuda as opposedto the estimated 10-12%. However, this would also translate to betterrisk-adjusted compensation.
• We maintain our BUY call with a TP of RM4.41 based on SOP valuation.

Price Call: BUY

Target Price: RM4.41

Source: HLIB Research - 17 April 2012

Hartalega - MARKET PERFORM - Long term growth plan

By Kenanga Research
16 Apr 2012

We attended Hartalega's analysts briefing last Friday on its new Next Generation integrated Glove Manufacturing Complex- NGC project) and remain positive on the company's prospects. The wholeproject is planned for a total annual production capacity of 38b pieces p.a. by2021 (a long term CAGR in production of 16% from the current level of 9.7bpieces). We gather that management is currently applying for tax incentives onthe project cost, which would be an added bonus later as it would reduce the taxcharge on future earnings from the project, although this is not quantifiable at this moment until the incentives are finalised and approved by MIDA. 

We are on the overall positive onthe NGC project but note that it is more of a long term blueprint growth project to ensure that the company would still be able to grow its earnings by15%-20% over the longer term (the first phase is to be completed in 2017 only).Hence, for the immediate term, we are still maintaining our earnings forecastsfor FY12 and FY13, which should see the earnings growing by 12% and 19%respectively. With our unchanged forecasts, our current Target Price for the stock is retained at RM8.32, based on a PER valuation of 12x to its FY13 EPS.With total returns upside of 8%, we maintain a Market Perform rating on thestock. 

Further details on the NGC. Following its announcement on the NGCproject, Hartalega held an analysts briefing last Friday to give further details on its new manufacturing project known as the Next Generation integrated Glove Manufacturing Complex -NGC project).  To recap, the project will be divided intotwo 4-year phases over the next 8 years. Phase 1 (from 2013-2017) will see the building of 40 production lines with a total annual capacity of 14.0b whilePhase 2 (from 2017-2021) will see another 30 production lines set up with a total annual capacity of 10.5b pieces of gloves p.a. The project will hence see atotal of 70 production lines constructed with the ability to produce 40,000 pieces per hour (vs. the current average production rate of 22,000 pieces ofgloves per hour), bringing an hourly productivity boost of 60%. In total,Hartalega will see its annual production capacity rising to 38.0b pieces by2021  from the current 15.0b, translating into a 10-year CAGR of 15%. Management has identified the land for the NGCplant, which will be situated in Sepang on a land size of 112 acres. 

Tax incentives?  Furthermore,we gather that management is currently applying for tax incentives on theproject cost, which would be an added bonus later as it would reduce the taxcharge on future earnings from the project, although this is not quantifiable at this moment until the incentives are finalised and approved by the MIDA. TheNGC will also house a new biomass renewable energy plant (with a total capacityof 58MW vs. the current Hartalega's plant capacity of 26MW), which will reducenatural gas consumption by 17% from 8.8sm''/1000 pieces to 7.4sm''/1000pieces. 

Valuation. We are maintaining our earnings forecasts for FY12 and FY13for Hartalega as the NGC project is more a long term blueprint growth plan forthe company with Phase 1 only to be completed in 2017. With our unchangedforecasts, our current Target Price (TP) is retained at RM8.32, based on 12xFY13 EPS. Hence, we maintain our Market Perform recommendation.

Price- RM7.96

Target price- RM8.32

[Source]

BJToto - MARKETPERFORM - Eyeing a stake in Philippine NFO?

By Kenanga Research
16 Apr 2012

It was reported over the weekendthat BToto is eyeing a stake in a Philippine NFO. We see this potentialoffshore expansion to broaden its earnings base as a positive move, if theacquisition materialises, given its current less exciting domestic growth. We have estimated the top line to growonly 4% annually over the next two years as the local NFO market matured. Atthis juncture, we are unable to confirm the news and quantify the exactfinancial impact to BToto given the limited information obtained. In the mean time, we continue to maintain our MARKET PERFORM call on the stock with anunchanged DCF-derived TP of RM4.52/share. 

Eyeing stake in Philippine NFO. It was reported in The Edge Weekly that Berjaya Sports Toto Bhd (BToto)is looking to expand its operations in the Philippines by potentially acquiringa stake in the Philippines Charity Sweepstakes Office (PCSO).  However, we are unable to confirm the news atthis juncture. We are positive on the news (if it materialises) as an offshoreexpansion is the way to broaden the company's earnings base given the limitedgrowth prospects locally. However, previous failed cases of overseas venture byits local peers, namely Magnum Corp (in Bali) and Tanjong plc (in Moscow), indicate that local NFOs'  overseas venture may not be easy. 

PCSO is a state-owned charity organisation.  PCSO is the principal government agency inPhilippines set up with the aim of raising and providing funds for health programs,medical assistance and services, and charities of national character.  The main products of PCSO are sweepstakes andthe lottery games. It currently has 3,232 terminals across 2,600 outlets inLuzon island. PCSO is actually not new to BToto as its subsidiary, Berjaya PhilippinesInc (BPI) supplies and maintains a computerised online lottery system andprovides software support to PCSO.

30% fund channel for charity. In accordance with the company's Charter, PCSO specifically allocatesits  net receipts or revenues in thefollowing manner i.e. 55% to a Prize Fund, 30% to a Charity Fund and 15% to anOperating Fund. Each allocation has its own specific purpose and usage, andhence any diversion or inter-fund transfers are illegal and in violation of thePCSO Charter. Given so, in our opinion, PCSO needs to amend its Charter if it wereto privatise from a charity organisation to a profit-oriented company. We are however unable to ascertain the earningsand market size of PCSO from its currently publicly available information (suchas from its website -  www.pcso.gov.ph). Consequently,we are not able to estimate the potential financial impact on BToto yet at thisjuncture (if the deal materialises).  

MARKET PERFORM rating maintained. We reckon that BToto's localmarket is fairly matured with limited growth prospects. Thus, an overseasexpansion is the way to broaden its earnings base. Although we have a MARKETPERFORM call on BToto, we reckon that income seeking investors may still likethe stock for its sustainable and attractive 7%-8% gross dividend yield. Ourprice target of RM4.52/share is based on DCF valuation where we assumed a WACCof 7.4%. 

Price- RM4.38

Target price- RM4.52


[Source]

Will implementation of mega projects (construction) result in tight supply and higher prices?

PETALING JAYA: Contractors and developers may start to stockpile raw building materials to ensure sufficient supplies, while hedging against an expected rise in prices amid tight supply of materials needed once the country's planned mega projects start with its construction.

Players in the industry said that with the uncertainties surrounding the dynamics of the market now, nobody could rightly gauge how the construction of these mega projects would put pressure on the supply and demand of raw building materials.

“Projects like the My Rapid Transit (MRT) would be a key determinant as it is one of the single largest infrastructure projects the Government has embarked on. The Government seems to be pushing through for its construction, and that definitely will put pressure on the prices and supply of cement,” said an industry player.

Cement is the main component for concrete and generally makes up between 50% and 60% of the cost for concrete products.

He said if the various sections of the MRT were to start construction concurrently, cement supply would be squeezed and other contractors would be clamouring for what was left.

To date, 27 work packages of the MRT have been awarded to listed and unlisted contractors, while tenders and awards for the remaining 63 packages are expected to be mostly completed by the fourth quarter of the year.

“We are not seeing any impact yet, but there are already worries that demand may outstrip supply. However, cement supply are still supportive of the current market,” he said.

He said industry players would cause a ripple effect when they started to stockpile these raw building materials.

Meanwhile, the Cement & Concrete Association of Malaysia (C&CA) told StarBiz that cement demand was expected to further pick up from the third quarter onwards due to implementation of major projects under the 10th Malaysia Plan, Economic Transformation Programme (ETP)and ongoing property development.

“The cement industry will be able to meet additional demand for projects under the 10MP and ETP not only due to excess grinding capacity but also due to increase in supply from a new integrated plant coming on stream in 2013 and expansion programmes being undertaken by some C&CA members in Peninsular Malaysia, Sabah and Sarawak. There is a good potential outlook for cement industry,” said C&CA executive director Grace Okuda.

If the various sections of the MRT were to start construction concurrently, cement supply would be squeezed. – EPA

She added that the cement industry had expanded by 7.1% in 2011 compared with 2010 and was anticipated to increase by 5% to 6 % in 2012.

Another industry player echoed the view and said there was still a big surplus of cement, and it was not a concern for players involved in constructing infrastructure.

“The main concern is securing the highly specialised machinery needed to construct the projects like bored piling machine. Infrastructure works like the Light Railway Transit (LRT) extension, and the MRT will keep the construction sector afloat. The slowdown seen in the residential and commercial property sector complements the active infrastructure sector,” he said.

The Real Estate and Housing Developers Association (Rehda)president Datuk Seri Michael Yam said there were many factors affecting the dynamics of the supply and demand market, and it was a sophisticated market to secure the best fees from contractors to develop projects.

“Of course, we are concerned about the prices of raw building materials as we deal with contractors that are exposed directly to the fluctuations in market prices, and whoever manages these huge infrastructure projects needs to take note of the whole construction sector ecosystem,” he said.

ECM Libra equity research analyst Benjamin Lee sees Lafarge Malayan Cement Bhd as a prime beneficiary of the demand spillover from the expected increase in domestic construction output into the cement subsector.

“For the financial year ended December 2012 (FY2012), we expect Lafarge to register an earnings per share growth of 18.5% versus 7.6% registered in FY2011 on the back of Lafarge's ability to tip its current 70:30 domestic and export cement sales mix towards the domestic side, which carries higher net profit margins, to meet increasing cement demand,” he said.

He said contractors might start to stockpile raw materials, however there was still a slight downward pressure on cement prices as Hume Cement Sdn Bhd, a unit of Hong Leong Industries, would be adding one million tonnes of cement capacity soon.

“While prices of other raw materials like steel would be stable as it is subject to global prices with China the largest producer and consumer of steel dictating the commodity's market price. Sand and bitumen might see some rise in prices with several highway projects coming up, and some smaller construction players might be negatively impacted by the inflationary pressure on the aforementioned building material costs,” he said.

Sunway Bhd - Eyeing KGNS land for redevelopment? HOLD

By AmResearch
16 Apr 2012

- It has been reported in the press that Tan Sri Syed Mokhtar – via his private entity – and Sunway Bhd have submitted a proposal to redevelop Kelab Golf Negara Subang (KGNS) with a commercial value of RM5bil. 

- The golf club, which was opened in 1968, boasts a land size of 330 acres, which sit squarely in the middle of established and developed areas of Subang Jaya, Kelana Jaya, Ara Damansara and Bandar Sunway. 

- The prime land is owned by the government and is currently halfway through its 99-year lease.

- This is not something new as there have been rumours in the market that the government is looking at reclaiming control of this land, with a view to liquidate this prime land to developers. This of course has been opposed strongly by members, as many view the club – which was initiated by Tunku Abdul Rahman – as an iconic institution and its members are mostly made up of ex-top civil servants.

- Given the circumstances, we are of the view that it would be a massive challenge for the interested parties to get hold of this prime land.

- Similarly, it is believed Sime Darby’s proposal to redevelop Kelab Golf Perkhidmatan Awam (KGPA) – which also sits on a prime land within Damansara/Petaling Jaya –  for high-end residential units has been met with strong opposition.

- This just shows the lack of prime land for development in the market and this will continue to drive strong land prices going forward. 

- We maintain our HOLD rating on Sunway with our fair value unchanged at RM2.85/share

Price- RM2.59

Fair value- RM2.85


[Source]

IJM Corporation - WCE agreement in a fortnight’s time? BUY

By AmResearch
16 Apr 2012

- Maintain BUY on IJM Corp with an unchanged sum-ofparts-derived fair value of RM7.23/share. The Edge Weekly reported that Kumpulan Europlus is due to sign a concession agreement (CA) for the West Coast Expressway (WCE) within the next two weeks.

- This follows some changes to the CA although the salient details of the pact remain largely intact. K Euro has an 80% stake in West Coast Expressway Sdn Bhd, with IJM Corp holding the balance 20%.

- To recap, the WCE CA announced last January broadly encapsulates:- (i) A 60-year agreement that comes with a government support loan (GSL) of RM2.2bil commencing 2013 @ 4% p.a.; (ii) Interest subsidy on commercial loans for 22 years.

- In return, the government is to share toll revenue in access of an agreed traffic volume on a 70:30. The ratio is to revert to 30:70 when GSL is fully repaid.

- Critics of the WCE had earlier said that apart from a near doubling of its original cost estimate, the RM7bil highway has the longest tenure among expressways in Malaysia. Other concerns centred on the GSL and interest subsidy accorded to the project. This had led to led to reports that the Attorney General’s (AG) Chambers were re-looking at the terms of the CA.

- We gather that K Euro has since explained to the AG that the CA’s terms are required to mitigate:- (i) its low traffic numbers (notably in coastal areas); (ii) difficulty in securing long-term funding; and (iii) a non-tolled stretch. In addition, the profit sharing ratio has been tweaked along within a shorter tenure.

- We see IJM as the biggest beneficiary of an imminent crystallisation of WCE’s CA, widely seen as the last remaining hurdle before the project actually takes off. IJM had just last month bought a 20% direct stake in WCE Sdn Bhd for ~RM7mil (total effective stake: ~43%), providing a boost to the funding viability of the highway. 

- Likewise, we believe IJM will likely participate in any fund raising exercise that K Euro is tipped to embark on to raise ~RM2bil for the WCE’s equity portion. K Euro is also reportedly planning to divest some of its assets for additional funds, including a 50% stake in Canal City and part of its interest in Trinity Corp (formerly Talam Corp).

- We foresee IJM as a frontrunner for over RM4bil worth of capex works for WCE, in addition to spin-offs for its other units:- (i) increased demand for large-diameter piles for ICP; (ii) improved accessibility to IJM Land’s upcoming Canal City project.  

Price- RM5.68

Fair value- RM7.23

[Source]

Genting bets on new markets

GENTING group is eyeing casino opportunities in the highly regulated Japan or South Korea after building up a war chest of more than RM13bil to fund its expansion programme.

Genting Bhd has cash and cash equivalent of RM13.2bil as at Dec 31, 2011 (FY11) with RM11.9bil in bank balances and deposits while the balance of RM1.3bil in money market instruments. It is also able to generate more than RM500mil in free cash flow every year.

The group already has a sizeable stash of money to finance its expansion plans but clearly it is not resting on its laurels, for it has just announced plans for second issue of perpetual securities in Singapore to raise more funds.

Genting Singapore Plc, 52% owned by Genting Bhd, plans to sell S$500mil (US$397mil) in perpetual subordinated capital securities, a hybrid of bonds and equities, to mostly retail investors.

Ready and waiting: A visitor plays a slot machine at an amusement expo in Tokyo. Analysts say Japan is looking to liberalise its gaming industry and Genting group will be ready to bid for casino projects there should the opportunity arise. — Reuters

Just last month, Genting Singapore raised S$1.8bil from perpetual securities that was sold mainly to institutional and private-banking investors.

Genting Singapore chief financial officer Lee Shi Ruh says the proceeds from the perpetual subordinated capital securities issue would be used by Genting Singapore for the company's “expansion and ventures into new acquisitions or greenfield projects”.

“Should the opportunities arise, Japan and Korea are the options we can look at. The funds raised will put us in a strong position for potential overseas investments,” she says in an email reply to StarBizWeek.

When asked on the price of the S$1.8bil perpetuals solds to institutional investors that has been edging down, Lee says as with other types of securities, the price of the perpetual securities would fluctuate in short-term as interest rates move and market conditions change.

“However, investors of the perpetual securities tend to be long-term holders who value the stability of the interest income over the long-term”.

Underground walkway to the Resorts World casino in Singapore. Genting Singapore plans to sell perpetual securities worth S$500mil, its second in as many months. — Reuters

Analysts are not surprised that Genting was looking to put its money in Japan or South Korea as the gaming company had indicated its plans to grow its core business overseas despite a setback from its venture in Miami in January. Genting group has indicated its appetite for future casino development amounting to some S$5bil in the immediate to medium term.

“Japan is mulling over liberalising the casino industry for a while but regulatory risk with regards to casino licencing will continue to hinder Genting's plan to penetrate into the country,” an analyst, says, adding that Genting would be more cautious in its approach after the setback of its Miami venture when the state legislature pulled a vote to liberalise gambling activities in Florida.

He believes Genting group would be able to hold its own and bid for casino projects if it materialised in Japan or South Korea due to its track record in Singapore, Malaysia and the Philippines.

Some analysts, however, remain cautious on Genting's venture into east Asia due to the regulatory issues in Japan and South Korea.

“Yes, we are cautious but we are also optimistic with Genting's expansion plan into Japan and South Korea. Its a huge market to tap,” an analystsays.

A local bank-backed analyst says several markets including Japan had been looking to liberalise their gaming industry but timing remained uncertain. He says Genting was not the only gaming operator interested in the Japan market, Las Vegas Sands Corp had also expressed its interest to expand there.

He says proper legislation and the right-sized market were among the factors considered by casino operators. Casino operators will only be attracted to invest if the markets offered an open access to locals and foreigners, excellent location and easy accessibility, and attractive tax rates, he adds.

Genting Singapore's Lee reportedly says the potential liberalisation of Japan and South Korea's gaming industries could be similar to Singapore's decision, which legalised casinos in 2005. The two integrated casino resorts in Singapore have helped boost its tourism industry.

Currently, a group of lawmakers in Japan are pushing for a bill that could legalise casinos in the country. In South Korea, only one of its casinos is open to citizens and it is located in a rural area far from major cities. It has been reported earlier that South Korea was planning for a new casino-resort near Incheon International Airport to attract Chinese and other Asian tourists.

Genting, which was founded in 1965, has been on an expansion mode. It has more than 26 years of experience in operating casinos and integrated resorts in the United States, Asia, Australia and the United Kingdom. The group is the largest casino operator in the United Kingdom, with over 40 venues. Genting entered the UK casino market in 1976.

Indeed, Genting's financial results has shown a lot of improvement after growing its business overseas.

Genting Bhd's net profit for financial year 2011 rose 30.1% to RM2.86bil from RM2.2bil a year earlier on the back of a 28.7% increase in revenue to RM19.55bil.

“We believe that including land cost, an integrated resort-cum-casino project in Japan could cost more than US$8bil,” AmResearch Sdn Bhdanalyst Gan Huey Ling says in a recent report.

She adds that Marina Bay Sands cost an estimated US$5.5bil to develop, while Resorts World Sentosa would cost about US$5.8bil after the Western Zone is completed.

As at end-financial year 2011, Genting Singapore has a gross borrowings of S$3.2bil and cash of S$3.4bil. The group's operating cashflow was S$1.4bil in 2011 while free cash flows were S$118.3mil.

A local analyst believes that the additional debt burden of S$500mil was highly manageable as Resorts World at Sentosa (RWS) itself generates an operating cash flow of more than S$1bil annually.

The analyst is not surprised by the second issuance as the Genting group had previously indicated its appetite for future casino development amounting to some S$5bil in the immediate to medium term.

Citi Investment Research says the newly issued perpetual securities would be accounted for as equity, same as the S$1.8bil issuance that was done in mid-March.

“The annual distribution to the new perpetual security holders is estimated to further reduce profit attributable to common shareholders by about S$36mil (assuming the S$200mil green shoe option is exercised). More importantly, we believe that Genting Singapore cannot pay common shareholders any dividends before they satisfy the distributions payable to the perpetual holders,” it says.

CIMB Research reckons that this second round of issuance, coming hot on the heels of the recent S$1.8bil offering in February, was to satisfy retail demand (the S$1,000 denomination was considerably less than the first offering's S$250,000).

“The purpose of the fund-raising remains the same to gear up for Genting Singapore's business expansion, among others.

“Higher interest costs from the additional S$500mil issuance will lower our financial year ending Dec 31, 2012 (FY12) to financial year 2014 earnings by an estimated 1% to 2%.

“Including this S$500mil, Genting Singapore will have S$2.3bil of fresh funds for opportunistic ventures and acquisitions.”

It says the management of Genting Singapore had indicated, during its fourth quarter 2011 results conference call, that equity commitments to future ventures could be anything from S$500mil to S$400mil.

A third of debt-equity funding would put the size of investment opportunities at S$7bil, says CIMB Research.

Apart from investing in east Asia, analysts say the extra cash in Genting's war chest would be good for the group as it could take advantage of suppressed asset valuations amid current economic jittery in the United States and Europe.

Some analysts are also speculating that Genting may be looking to invest in its second integrated gaming and resort complex in Vietnam.

With a cash pile of more than RM13bil and a fund of S$1.8bil raised earlier, Genting group will continue to be under the watchful eyes of investors as to where the group is going to put its money.

Myanmar Beneficiaries

By OSK Research
12 Apr 2012

Fortune Favors The Bold

While Malaysian companies are only just jumping on the Myanmar bandwagon, we believe
that opportunities abound although the risks remain. There appears to be opportunities in
the areas of agriculture, O&G, power, tourism and telecoms. Malaysian companies such
as AirAsia, Axiata, Felda, Cypark and Tan Chong  which  are exploring opportunities in
Myanmar would  still have to tread cautiously in the coming months before their efforts
bear fruit. Nonetheless, given the  keen  interest in the country,  investors should keep a
close eye on these companies as sanctions are lifted and the pace of reforms picks up.

QL Resources

By OSK Research
12 Apr 2012


Mini Conglomerate in The Making
Following our recent meeting with  management, we are optimistic that QL Resources will continue to deliver solid earnings growth in line with its on-track expansion in the ASEAN region. We are expecting the group’s Indonesia and Vietnam operations to start contributing in FY13. Maintain BUY with a FV of RM3.64, given its solid performance and resilient business nature.


Still rocks. QL Resources transformed from a livestock feed trading company (that was
complemented by its smaller fisheries and palm oil businesses) into a leading marine
and poultry egg producer (complete with a fast-growing palm oil business) over the
years. With exposure to three sustainable basic food industries, its strong business
model has enabled QL to deliver sterling results on a consistent basis. Over the years,
the company has expanded its operations through upstream/downstream integration,
innovation and acquisition.

Regional expansion bearing fruits.  Going forward, we believe the earnings
excitement will largely come from its regional exposure in Indonesia and  Vietnam. On
the marine side, QL is adding another 5k tonnes p.a. capacity to its current surimi and
fishmeal production facilities in Surabaya, increasing the overall production capacity to
10k tonnes p.a. by end-FY13. Also, we are expecting contributions from Indonesia and
Vietnam’s poultry operations to kick in from FY13 onwards, given that the expansions
are all on track. As for the palm oil division, the 20k ha plantation and new CPO mill in
Indonesia will undoubtedly bring the company to the next level.

Defensive in nature.  As QL is involved in the basic food industry where demand is
resilient even during economic slowdowns, we are confident that the company’s outlook
remains promising. With  QL venturing into  Asean countries with growing populations
such as Indonesia and Vietnam,  such regional expansions could open up new and
profitable markets that bode well for the company’s future growth.

Maintain BUY. Our FV of RM3.64 is based on 19x CY12 EPS. Given the recent share
price retracement (which was largely due to the market correction), we see this as a good
opportunity to BUY QL shares. This stock is one of our Top 2012 Buys in view of its highly
defensive nature and aggressive overseas expansion strategy.


DEVELOPING INTO A MINI CONGLOMERATE?
Fish is wealth.  As a leading marine products player in Malaysia with four marine manufacturing plants
locally, QL has ventured into Indonesia by setting up a surimi  and fishmeal plant, each  with a 5k tonnes
capacity p.a. in Surabaya. Overall, fish landing in Indonesia is growing at a faster pace compared to Malaysia and the timely  expansion in Surabaya will provide some relief to  the supply-constrained  marine business. Given the fatter margins arising from lower wages and bountiful marine supply in Indonesia, it is also adding new production capacity of 5k tonnes p.a. each for its surimi and fishmeal operations by 4QFY13, boosting the production capacity to 10k tonnes p.a.

Egg-citing ahead.  Attempts at replicating the success of  its integrated livestock  farming in Vietnam and
Indonesia are bearing fruits as well. These two markets are relatively untapped as the egg consumption per
capita was low at 60 eggs compared to Malaysia’s 320 eggs per capita, indicating room for more upside. QL’s modern closed house poultry farms are  fully enclosed, with tight bio-security facilities and minimal human contact to prevent the spread of diseases. The Vietnam poultry farm has ramped up its production from 80k to 200k eggs per day (epd) currently, aiming to achieve 500k epd by March 2013.  Similarly, production in Indonesia increased to 300k epd from 110k previously, targeting to hit 1m epd by March 2013.

Palm  oil. QL has 20k  ha plantation under development in Indonesia and 1.2k  ha of  mature  plantation  in
Sabah. Besides the new CPO mill in Kalimantan which was commissioned in Feb 2012, it has another 2 CPO mills in Tawau, Sabah as well. In order to diversify its revenue, the palm oil mill effluent will be converted into renewable energy through its biogas plant (2MW) which will  operate commercially by this month. Furthermore, the  company is  looking at converting palm waste  into palm pellet for biomass energy. It is currently at the final stage of commissioning and commercial production testing, with the palm pellet plant slated to be fully completed by Dec 2012.


Price- RM3.15
Fair value- RM3.64


[Source]

MBM Resources- Perodua: Exports , capex and listing... BUY

By AmResearch

10 Apr 2012

- It was reported in a local daily that Perusahaan Otomobil Kedua Sdn Bhd (Perodua) is looking at commencing exports to South Africa by the end of the year or early next year. A final decision will be made by 3Q12. Besides South Africa, Perodua is also eyeing other emerging markets to achieve its targeted 20,000 export units by 2015. The group aims to export 10,000-11,000 cars this year in existing markets such as the UK, Mauritius, Singapore, Nepal, Fiji and Sri Lanka. These markets currently contribute just under 5% of total group sales. 

- On the domestic front, Perodua has set aside RM50mil as capex to help increase new vehicle sales. The group also aims to boost its spare parts and service business by setting up new sales and service centres, coupled with body and paint workshops. Perodua has set a sales target of 188,000 units this year (2011: 180,000), which should be driven by full- year contribution of the new MyVi. 

- While there are currently 172 Perodua outlets nationwide, Perodua only operates 30% of them. It aims to grow its own branch network as well as grow its dealership network. MBM should benefit from this move as it owns a direct 20% stake in Perodua and at the same time, operates 17 Perodua dealerships nationwide. MBM’s dealerships account for close to 10% of Perodua’s total sales. 

- Separately, Perodua indicated that it is not looking to list on Bursa Malaysia given that it has sufficient cash to meet capex needs. We estimate that Perodua attains up to RM1bil net cash currently. The group pays out 50%-60% of earnings as dividends to shareholders. However, we would note that Perodua had in the past indicated of plans to launch its own models in the next few years. Perodua will be involved in upper body and interior design while platforms and engines will still be sourced from Daihatsu. 

- The move towards own models could see capex increase significantly – by RM250-RM300mil for every new model. Listing asides, we would not rule out a consolidation of local shareholding in Perodua. We note that shareholding in Perodua is inefficient – there is no single controlling shareholder that can consolidate Perodua’s cash flows and huge net cash position. Furthermore, MBMs’ stake in Perodua continues to be deeply undervalued – implied valuation of MBM’s stake in Perodua is 7x (FY12F PE), while UMW is trading at close to 13x. Maintain BUY on MBM with an unchanged fair value of RM5.80/share.

Price: RM4.91

Fair value: RM5.80

[Source]