MORNING CALL 4 April 2012
FLOWS;
BUYS: AirAsia, Dialog, Genting
SELLS: Kencana, MPHB, UEMLand
Technical Stock Alert;
1) TEBRAU (RM0.785) – Share price has retraced from its peak of RM0.975 back in 16th Feb. Price shall be supported by the outstanding takeover offer of RM0.76. Also expect recovery in earnings following recent contract win of RM154mil contract for site clearing and earthwork in the Johor region which is bigger than FY11 revenue of RM113mil. Contract is expected to be completed in 10 months. Buy to ride on Tebrau’s involvement in the Iskandar region.
(TYK)
2) UZMA (RM2.04) – trading volume picking up in the past month after a recent 10% private placement. RSI tracking higher at 58 with MACD looking to cut upwards. Longer term indicators also show a bullish trend of the SMA 50 cutting above the SMA 200 pointing a possible upside price targets of RM2.20 and eventually to test its all time high of RM2.49. Fundamentals of the company to continue to improve with the delivery of an additional 2 units under Uzma Press. BUY
COMPANY VISIT UPDATE – KNM (RM0.88)
Rationalisation of manufacturing plants
1. Current have 22 plants in 16 countries. Planning to sell off some under-utilised plants.
a. Selling Bintulu plant due to slow orders from the area
b. Selling Indonesia’s Batam Island plant for the same reason
2. Reducing 25,000mt capacity from current 157,300mt.
3. Average utilisation 60%.
4. Rationalisation to cut operating cost and boost cash flow to streamline its operations.
Peterborough (UK) and Sri-Lanka renewable energy plants update
1. Both contracts worth RM2.8-2.9bn. RM2.2bn for Peterborough contract alone.
2. Both clients still don’t have financial close. EU banks are freezing credit while Sri Lankan government won’t grant financial assistance.
3. They are now looking at Asian banks to get financing. No names were given.
4. Looking to start construction by 4Q2012.
Orderbook & Tenderbook
1. Orderbook stands at RM5.6bn. Stripping out the RM2.8bn renewable energy contracts leave with RM2.8bn effective orderbook.
2. Lasts for 18 months.
3. Tenderbook is RM16bn, targeting success rate of 20%. Historical success rate has been between 12-25%.
4. Tenderbook mix: 45% Asia (ex-Msia), 15% EU, 15% Australia, 10% Malaysia, 15% elsewhere.
Financials
1. Looking to come into black in FY12. However, there are risks (not mentioned) mulls by the management.
2. Negative EBIT margins for FY11 (-2%) and low margins since 2009 (<10%). This is due to unforeseen lower contribution from various segments.
3. Net loss of RM30.4m in FY11 against RM122m profit in FY10.
4. Net gearing at 0.47x with RM416m cash on hand.
Growth story
1. Malaysia’s onshore developments: RAPID, SOGT, Pengerang Tanks, Tg. Agas terminal
2. Russia & ex-soviet countries: demand for process equipments for Oil & Gas
3. Middle east: Storage facilities and processing plants.
CONCLUSION – Lack of visibility in the financial closure for its Peterborough contract and continued low utilization rates will see stock continue to languish at current depressed levels.
(DN/Research)
