Morning Commentary 180112

Good morning,

1) DRB Hicom: announced that it has bought up to 39.9m shares in Proton Holdings in the market yesterday, ahead of it's acquisition of Khazanah's 42.74% block in the company. The shares amounted to a 7.27% stake in Proton and were acquired between RM5.40 & RM5.47 per share. With this, assuming that the proposed acquisition is successfully completed, DRB will hold more than 50% of the voting shares in Proton. As such, the proposed MGO will not be conditional upon acceptance. It is not clear if DRB's plan is to delist Proton, or whether it still need access to the capital market. Meanwhile, with such a huge amount required for the Proton purchase, it is speculated that TS Syed Mokhtar may be looking at a few alternatives, which may include borrowings from foreign banks or selling off DRB's 70% stake in Bank Muamalat; Neutral.

2) Axiata: is said to be in talks to buy a stake in India's Tikona Digital Networks Ltd, according to sources. Axiata was holding discussions with Mumbai based Tikona owners Goldman Sachs Group, Oak Investment Partners & Everstong Capital Advisors, who collectively control 71% of Tikona. A deal might value Tikona at about US$1b. Investing in Tikona would allow Axiata, which owns a stake in Indian mobile phone carrier Idea Cellular Ltd, to tap into the rising demand for data services in India, the world's 2nd largest wireless market. Tikona holds licences to offer wireless broadband internet services in regions including Gujarat, Himachal Pradesh & Rajashtan, according to the Department of Telecommunication; neutral, to await more details.

3) TM: TM is in negotiations with 20 property developers to deliver it's high-speed broadband (HSBB) infrastructure services to new property projects, riding on a slew of real estate projects in the pipeline. TM representative said it was focusing on urban centres, such as the Klang Valley, Penang & Johor to take up it's HSBB offering for residential, commercial & office buildings. Last year, TM signed 11 agreements with property developers nationwide for the provision of HSBB services in new projects; +ve & expected.

4) Mkt: maintain range trade, accumulate on weakness CIMB, MAS, Perdana, Alam.

Market Roundup 160112

FBM30 1509.06, -14.01 points (-0.92%), Volume 1,436mil, Value 1,364mil

1) KLCI finally gave way and dropped along with weaker regional markets as investors turned risk averse, fearful that downgrade by S&P of France's AAA rating and eight other European countries could derail the recovery of European countries and pose funding and recapitalisation difficulties. Index only fell marginally at open (-2.68pts) but continued to drift lower to close at day's low. Rotational play saw healthy gains and heavy trading in COMPUGT+14%, UOADEV+12% and AMEDIA+24% while overall market breadth was negative with decliners trashing gainers 542:207. Futures closed 1510 (1 point premium).

2) Heavyweights: GENTING-2.94% RM10.56, CIMB-1.1% RM7.19, TENAGA-1.77% RM6.12, IOICORP-1.66% RM5.34, MAYBANK-0.85% RM8.19, SIME-0.77% RM9.08, DIGI-1.03% RM3.86, UMW-2.58% RM6.81

3) DBT: CBSA 4mil @ RM0.395, SYCAL 1.3mil @ RM0.20

4) Situationals:

DIGISTA+3.23% RM0.48: DIGISTA reached a high of RM0.50 after news reported that company looks set to clinch an RM500mil contract for the digitalisation of RTM. This job will form part of the government's RM2bil digital terrestrial television broadcasting (DTTD) project.

Press Metal Bhd.+1.08% a maker of aluminum products, touched a high of RM1.93, clsng at its highest since Nov. Co has invested RM3 billion in its second smelting plant in eastern Sarawak to increase total production capacity from September,Bernama reported, citing Executive Vice-President Koon Poh Ming.

5) Proton /DRB-Hicom: DRB Hicom announced that co had entered into a conditional share SPA with Khazanah to acquire 234.7m or 42.7% Proton shares,for a total cash consideration of RM1.29b, or RM5.50 per share. Upon completion of the proposed acquisition, DRB's shareholding will increase to 42.7%, and will thus be obliged to extend a MGO for all the remaining share in Proton for a cash consideration of RM5.50 per share;

Partly expected, ending months of speculation of identity of buyer on the stake sale. The proposed MGO will provide DRB an opportunity to further increase it's shareholding in Proton, thereby resulting in Proton becoming a subsidiary in the event the proposed MGO is successful. DRB is in a position to appreciate the automotive industry in the local & global context & will also strengthen Proton's operations in terms of localization & vendor department, manufacturing system and distribution network and presence in the regional market as an Asean car. The proposed acquisition is expected to create business synergies & opportunities for both parties to augment the localization & local vendor programme.

DRB and Proton will resume trading tomorrow.

6) Mkt-rotation of interest to continue amongst lower liners albeit on quieter trading ahead of long CNY break next wk. KLCI should see immediate support at 200day SMA of 1500pts.

Morning Commentary 160112

Good morning,

1) Proton: DRB Hicom is understood to have secured Khazanah's 42.7% equity interest in Proton, according to sources close to the deal. It's said that the price range may be higher than market expectation of about RM5.50 per share. The announcement of the sale may be made anytime now. However it is not clear if DRB has obtained an exemption from making a general offer, or will go ahead and privatize Proton. At RM5.50, DRB would end up paying RM1.28b for the Khazanah block & RM3.02b for the entire 549.2m shares in Proton -  Disappointing, the price of RM5.50 lower than the initial speculated price of between RM6-7 per Proton share.

2) Takaso/GPharos: Takaso Resources is said to be diversifying into the mining sector with Trengganu state owned Golden Pharos Bhd as it's partner, sources said. Golden Pharos, which is 61% owned by Trengganu Inc SB, was likely to form a collaboration with Takaso and together, both parties obtain a state-related iron mining project. The parties have had serious discussions, but it is unclear at this stage how a collaboration will pan out. Takaso is a condom maker but is looking to diversify it's business. It recently said it would acquire Kayu Mas(PNG)     Ltd which holds the rights to a net loggable area of 40,000 ha of timber, possibly worth up to RM500m, in Papua New Guinea. It said this was to  diversify it's core business due to increasing competition in the condom industry.

3) Redtone: Redtone International Bhd has entered into a 4G/LTE network collaboration & partnership agreement with members of 2 local telecommunication consortiums, according to it's MD. He said Co has entered into an arrangement with the individual companies rather than the consortium & will make the announcement on the matter once the Multimedia Commission finalises the positioning of each spectrum block. The 2 consortiums are the partnership of Maxis Bhd/U-Mobil and Digi/Celcom. Although MD did not reveal who exactly it will be tying up with, he said that it will be with more than 1 telco; Partly expected, given Redtone's relatively small size & that funding may eventually prove to be an issue. Market talk has been rife over the past 2 weeks about Redtone entering into a tie-up in order to rent out portions of it's bandwidth. Sources have named Digi & Celcom as being Redtone's possible partners.

4) Mkt: consolidate in view of S&P's downgrade of EU nations' credit ratings and as players wind down this week ahead of the CNY.

Morning Commentary 130112

Good morning,

1) SapCrest: Sapura Crest Petroluem Holding's wholly owned units TL Offshore PLSV1 Ltd and TL Offshore PLSV2 have entered into contracts with IHC Ofshore and Marine BV for the construction and purchase of two 550-tonnes pipelay support vessels. The 1st & 2nd vessels would be completed & delivered within 30 months (May 2014) and 33 months (Aug 2014) respectively from Nov 2011. The company will finance the construction and purchase of the vessels via internal funds & borrowings. After delivery, the vessels will be slotted to carry out the services under the Petrobas contracts; +ve, but value of the contract was not disclosed.

2) AirAsia: The Thai unit of AirAsia said it would submit a filing for it's IPO to the Thai market regulator this month and planned a Bangkok listing in the 1st quarter. The company delayed it's submission due to flooding last year, it's CEO told Reuters; +ve and expected.

3) Proton: Khazanah has asked the interested bidders for it's 42.7% block in Proton to show proof of funds next week, sources familiar with the matter said. It is learnt that Khazanah has set aside the whole of next week to assess the funding mechanism of the various bidders. While the dates are not certain, it is understood that DRB Hicom will meet Khazanah in the middle of the week while Datuk Seri Mohd Nadzmi is likely to meet earlier in the week. It is not clear if Khazanah has set other appointments, apart from these 2. While the outcome is still not known, it is widely speculated that DRB Hicom is the front runner to bag the stake; Neutral on news.

4) BPuri: Bina Puri Holdings yesterday confirmed a financial daily report that it is in the process of finalizing a deal to upgrade & operate a highway in Pakistan. In a filing with Bursa, Co said it had received a LOI dated Nov 11, 2011 from the National Highway Authority in Islamabad, Pakistan. The LOI was for the conversion of the existing 4 lane Karachi-Hyderabad super highway into a 6 lane motorway, Motorway 9, on a build, operate & transfer basis; +ve & expected. Share price added 5%    on report yesterday.

5) Mkt: despite positive news from Spainish & Italian refunding exercise, range trading is expected to persist ahead of CNY break starting from next week.

Morning Commentary 120112

Good morning,

1) Proton: Both Tan Chong Motors & UMW have denied that it was joining the race to bid for Khazanah's 42.7% stake in Proton Holdings. Tan Chong's announcement to Bursa was made in response to press reports that quoted a broking house on the matter. Yesterday Tan Chong announced to Bursa that it has neither received any formal invitation nor has any plan to bid for the stake in Proton. Meanwhile, UMW has reiterated that it will not be making a bid and that they are committed to their partner Toyota in enhancing it's business here in Malaysia and making Perodua self reliant pre & post National Automotive Policy (NAP); Expected.

2) BPuri: Bina Puri Holdings is close to securing the privatization concession for the Motorway 9 (M-9) highway in Pakistan, sources said. The M-9 links Hyderabad to Karachi. It is understood that BPuri has already received the LOI from the National Highway Authority of Pakistan but is still negotiating the finer points of the contract. According to the source, BPuri will have a 28-year concession to operate the highway, 3 years of which will entail BPuri upgrading the M-9 from 4 lanes to 6 lanes, at a cost of some RM600m. Pakistan is not unfamiliar to BPuri. In Sept last year, Co completed the construction of 174 villas in Lahore     for RM194m. In 2010, it completed construction of the Nippon Paint Factory    in Lahore for RM340m. If BPuri bags the Pakistan contract, it will be the second highway concession after the KL-Kuala Selangor Expressway (Latar) in which it has 50%. Watch this space.

3) MMC: Keretapi Tanah Melayu Bhd (KTMB) has been asked to assist MMC Corp to conduct due diligence on the national railway company starting this month, said it's president. The due diligence is important for MMC to decide if it wants to privatize KTMB. It was reported in Dec that MMC plans to pump in RM1b into KTMB & take over it's operations. Speculation has been rife that the govt is planning to put the plan on ice following protests by the Railwayman Union of Malaya (RUM). RUM argued that it won't be right for KTMB to hand over it's operations to a private party & worried that it would see many of it's 5,500 workers retrenched. The due diligence is likely to take 6 months to complete & estimates that it may take up to 18 months or more before the operations of KTMB can be handed over to MMC, given the complexity involved - Neutral.

4) Mkt: mixed trading with focus on situationals & lower liners.

Morning Commentary 090112

Good morning,

1) CanOne/KianJoo: Can One Bhd has received the Federal Court's go-ahead to proceed with the purchase of 32% of Kian Joo Can Factory Bhd (KJFC) for RM241.12m. In a Bursa statement, Can One said that the Federal Court had on Jan 5 allowed the liquidator's appeal to proceed with the completion of the sale of 146.1m shares of 25s each held by Kian Joo Holdings in Kian Joo at RM1.65 per share for RM241.1m to Can One International Bhd. The acquisition of the 32.9% stake will likely happen over the next few days, after which it may consider taking over the rest of Kian Joo, said a source. Can One is paying RM1.65 per Kian Joo share while the latter is currently trading at RM2.20. There is a possibility of Can One raising funds via a placement exercise of it's own shares, added the source - The battle between Can One & KJFC has been on-going in the last few years. Share price of Can One has skyrocketed, gaining some 50% over the last 2 trading days, while Kian Joo added 6%. However, whether it will be the end of the long drawn battle between Can One and KJCF's founding See family remains to be seen. Already, speculation is rife that the Sees may utilize part of the RM241.1m sale proceeds to launch a counter attack against Can One.

2) Proton: The Proton Holdings saga continues with DRB-Hicom group MD coming out to confirm that the group has put in a bid for the national carmaker. Speaking at a media retreat, MD did not provide details of the bid but admitted Proton would not be an easy project due to the stiff market competition. MD said the group submitted the proposal to Khazanah a few months ago when it first got wind that the stake was up for sale. In filings to Bursa last Dec, DRB-Hicom denied any knowledge of a bid for Proton and of plans to sell a stake in Proton to Volkswagen AG. Meanwhile over the weekend, a business weekly reported that more suitors were vying for the Proton stake, with the largest being businessman TS Arumugam Apavoo & Gerald Lopez of Genii Capital. Arumugam is said to be an associate of former Prime Minister Tun Mahathir (currently an advisor to Proton) while Genii Capital is the owner of the Renault F1 team. It is not known whether the duo had formally put in a bid.

3) Harvest Court: Bursa has lifted it's nearly 2 months old designation status on Harvest last Friday. Bursa also warned that it would continue to monitor the trading in the stock. To recap, in mid-November, Bursa declared Harvest Court's shares & warrants as "designated securities" after the share price rose as much as 20 times in a matter of weeks. Since then, the stock price has halved from a peak of RM2.14 to RM1.08 last Friday, although it's still well above the below 10s level the stock traded at prior to it's run up - Clearly, the restrictions had worked and taken away some froth, but will be closely watched again today on the normalization of it's trading status.

4) Mkt: expect market to be well supported despite the cautious sentiment of retailers in view of the events surrounding the Opposition Leader's court verdict.

Market Roundup 060112

FBM30 1514.13 , -0.3 points (-0.02%), Volume 1,466.8mil, Value 1,388.6mil

1) The market traded in a cautious tight range today on low volumes ahead of the verdict on opposition leader Anwar Ibrahim next Monday. Buying activity during the auction period in select heavyweights however helped the index close largely unchanged: AXIATA+1.2%, GENTING+0.9%, CIMB+0.3%. Apart from a mild profit taking in Plantation (-0.6%) related stocks (KLK-2.5%, KULIM-1.8%, TSH-2.9%), investors participation was still lacking, resulting most of the stocks across the board were muted. Market breadth was mixed with losers edging gainers 391:377. Futures closed 1523.5 (9 points premium).

2) Heavyweights: MAYBANK-0.7% RM8.23, KLK-2.5% RM24.64, PCHEM-0.8% RM6.33, BAT-1.8% RM48.76, DIGI-0.5% RM3.86, YTL-0.7% RM1.50, AXIATA+1.2% RM4.95, GENTING+0.9% RM11.24, IOICORP+0.7% RM5.40.

3) DBT: SUNREIT 13mil @ RM1.21 (0.48% PUC), KEURO 6mil @ RM1.11 (1.1% PUC, 10.5% discount), XDL 4mil @ RM0.32.

4) Situationals:

PROTON-1% RM4.99: Share price saw volatile movement (high 5.09, low 4.97) as the company confirmed that it is in talks with General Motors Corp (GM) but only at a preliminary stage and did not reveal further details. The national car maker said should there be further developments that warrant an announcement, Proton would make the necessary disclosure accordingly. Meanwhile, Chairman Mohd Nadzmi Mohd Salleh is personally bidding for Khazanah's 42.7% of the company. There is no management buyout, and Mohd Nadzmi intends to retain most of the existing management if secures the shares, the company said in a filing with Bursa Malaysia. "The decision to submit the bid was made entirely in his own personal capacity," Proton's statement said, without citing an offer price.

5) MUHIBAH

The company today provided an updates on Asia Petroleum Hub Sdn Bhd ("APH") project. It informed BURSA, that CIMB Bank Berhad , the financier of APH has appointed PricewaterhouseCoopers as receivers and managers over APH in order to facilitate a restructuring exercise.

As APH is a viable project, Muhibbah Engineering (M) Bhd is working with various financiers, including CIMB, and other relevant parties towards an amicable solution.

APH's receivership status was uplifted last year and Muhibbah is still optimistic of recovering RM371m owed to them.

6) Market - Cautious mood likely to spill over into Monday ahead of events surrounding the Opposition Party Leader's verdict.

Morning Commentary 050112

Good morning,

1) JCY: JCY International Bhd has guided that net profit for the 1st quarter ended Dec 2011 (1QFY12) would likely jump 19 folds yoy from the RM7.5m booked in 1QFY11 or up 460% from the RM26.4m booked in the immediate preceding quarter, as sales benefited from a supply shortage caused by the floods in Thailand. This means JCY may report a net profit of about RM140m (accounting for about 83% of FY12 cons RM168m). Group’s finance director said Co wanted the public & minority shareholders to know and have access to factors surrounding JCY’s profitability. JCY & others in the industry saw an increase in ASP of about 10-20% after the Thai floods, and also benefited from an effective product mix, efficient cost management and the USD’s appreciation versus the ringgit. He added that to cater to the increased demand from it’s major customers, JCY’s board had approved a RM300m capex to expand it’s facilities in Malaysia, Thailand & China over the next 24 months. Since Oct, shares in JCY, from a level of around 40s, has been on the uptrend on optimism that it could benefit from the Thai floods.

2) Proton: Proton Holdings chairman Datuk Mohd Nadzmi has confirmed that he has put in a bid for Khazanah’s 42% stake in Proton, making him the only person to publicly indicate his interest. However he declined to reveal the offer that he had put in for Proton due to the sensitivity of the deal, but he deemed an offer for the NTA price of Proton to be too high as Proton will not be an easy project. He said the management approached him a few months ago after rumors of a few parties being interested in Proton surfaced, and asked him to make a bid because of his experience in setting up Proton & leading the group in the past. It is a management buy-out (MBO) in a sense; Neutral. Meantime, DRB-Hicom & Naza are believed to have offered RM6 per share for Proton while Detroit-based General Motors Corp (GM) is eyeing a stake in Proton’s state-of-the-art plant.

3) BHIC: Share price rose for the 2nd straight day, driven by renewed speculation that it’s largest shareholder LTAT will take the company private soon. Rumour is that BHIC will be taken private at above RM5 per share, said market players. According to reports, while BHIC’s parent Boustead Holdings denied talks that it was planning to privatize the former, it then emerged that LTAT could be the vehicle to be used. LTAT holds a direst 8.15% in the company and an indirect stake of 65% via Boustead. While one may be puzzled as to why LTAT may choose to privatize BHIC at a premium, analyst said that the temptation could be driven by the jobs it is expected to secure over the medium to long term, especially after it was awarded a RM9b Defence Ministry contract to design, build & deliver 6 second generation patrol vessels.

4) Mkt: KLCI index to consolidate with rotational play on situationals & laggard lower liners.

Morning Commentary 231211

Good Morning,

1) KULIM: Shareholders have given the go-ahead for the company to buy six parcels of oil palm plantation land in Johor for RM700mil cash from Johor Corp (JCORP). This sale is a major component of the JCORP's rationalization exercise. The 6 parcels of oil palm land have a total area of 13,687 hectares and 2 palm oil mills. This land buy in addition to the sale of QSR and KFC will see Kulim focus on its core plantation business.  

2) MAS: MAS has announced the suspension of four more routes, following up on the rationalization involving 8 routes that was announced last week. The routes that will be suspended include the twice-weekly Kota Kinabalu (KK)-Osaka, thrice-weekly KK-Perth, four-times weekly KK-Tokyo and four-times weekly KK-Seoul. These routes will be suspended starting from early next year and will be reviewed in 3 months from its suspension date. MAS will instead take advantage of its existing code-share operations with Korea Air to provide direct connectivity between Sabah and Korea. 

3) PROTON: Khazanah MD Tan Sri Azman Mokhtar said that any sale done will be on Khazanah's full 42.7% stake which means it will involve a general offer. They have been receiving offers for various forms of collaborations including acquiring its controlling stake in Proton but have not arrived at any decision to sell to any particular offeror. Among the serious bidders are DRBHCOM and Naza Group while Sime and US-based General Motors may also be interested. 

4) Mkt: improving US economic data & positive technicals continue to be supportive for higher markets ahead.