Sunday, December 19, 2010

GHL Sys,KNM,Top Glove,YTL Land,Eurospan


What’s Up? … dated Dec 2010

The company saw the emergence of a new substantial shareholder, Simon Loh Wee Hian, in late Oct 200 after his off market purchase of a 12.05% stake at 44 per share in a married deal.

Since his entry, Loh has been actively buying up GHL SYS shares at 41 sen to 45 sen apiece to increase his stake to 15.44% as at Nov 29, 2010 making him the single largest shareholder.

He has also been quick to exercise his clout, as seen in his requisitioning an EGM to remove interim chairman and group MD Tay from the board with immediate effect.

It is understood that Loh is also the MD of e-pay Asia Ltd, a provider of electronic top up services for prepaid mobile users in SEA that is listed on both the Australian Stock Exchange and the AIM segment of the London Stock Exchange.

According to 2009 annual reports, the largest shareholder of GHL SYS was non independent non executive director Goh with 12.77% stake as at March 30, 2010. The second largest shareholder was BSNC Corp with a 12.05% stake followed by Tay who at the time held a 4.48% equity.

Despite the call by Loh to remove him from his position, Tay does not appear to be bowing out quietly.

Tay has also been aggressively acquiring GHL shares on the open market. Tay has upped his stake to 5.21%. GHL has been actively buying back its own shares.

The company bough back 2.08 million own shares for 42.5 sen to 47 sen in Dec 2010 apiece, bringing the total share buyback operation to RM930300.

GHL is involved in end to end payment services, recognized by organizations such as Visa, Mastercard and MEPS.

The group has been loss making for the past two financial years, despite posting consistent revenue. In FY2009, it posted a net loss of RM7 million while in FY2008, it posted a net loss of RM6.2 million.

It has been aggressively expanding its business in China . However the home market was the main contributor to revenue in FY2009.

e-pay Asia operates the largest electronic payment network in the region. For FY2009 ended Dec 31, e-pay posted a net profit of A$84000 but making a loss of A$4.36 million in FY2008.

The question now is what Loh as a new substantial shareholders, hopes to achieve by his entry into GHL.


What’s Up? … dated Dec 2010

Process equipment maker KNM Group Bhd has formed a strategic collaboration with a Sabah state-owned unit to offer support services to oil and gas (O&G) majors operating there.

The company had signed a joint venture (JV) agreement with Petrosab Logistik Sdn Bhd on Dec 13 to establish a JV company — KNM Petrosab Sdn Bhd. KNM and Petrosab Logistik will own 51% and 49% respectively in the new entity.

The investments are generally aimed to tap into various existing and future capital expenditure for oil, gas and petrochemical projects in Sabah, which is in line with KNM’s overall objective of expanding and growing the businesses of KNM and its group of companies throughout Malaysia .

Petrosab Logistik is a jointly owned entity of Yayasan Sabah Group and Asian Supply Base Sdn Bhd to offer O&G services to O&G majors, and contractors.

Under its deal with Petrosab Logistik, KNM would spearhead fund raising to finance future projects via issuance of new shares, and bonds, apart from financial derivatives and convertible instruments.

KNM repositions itself to undertake more global business.

The firm is not only expanding its geographical markets, but also widening its scope of offerings to include technology and plant services which fetch better margins amid less competition.

KNM is now looking homeward, eyeing the many oil and gas projects expected to be rolled out in Sabah from 2011.

KNM and Petrosab’s 51:49 partnership will see a newly established joint venture company called KNM Petrosab Sdn Bhd competing for various O&G jobs up for grabs in Sabah .

The company said the investments are generally aimed to tap into various existing and future capital expenditure for oil, gas and petrochemical projects in Sabah which is in line with KNM’s overall objective of expanding and growing the businesses of KNM and its group of companies throughout Malaysia .

The KNM partnership has been hailed as good match given Yayasan Sabah Group’s links and KNM’s expertise. This partnership is mutually beneficial. Petrosab’s state owned status fulfils the local requirement aspect and its network should propel the joint venture’s prospects for securing Sabah related projects. KNM will provide technical support.

Petrosab is a part of a consortium that has been awarded contracts for work on Sabah-Sarawak Gas Pipeline project. The other members of the consortium are Dialog and India ’s Punji Llyod Ltd.

Another point to note is that Yayasan Sabah Group is also in partnership with Alam Maritim Resources Bhd for O&G projects in Sabah , with the collaboration reportedly also targeting the Sabah Oil and Gas Terminal Project and pipe-laying projects.

Many view the KNM’s joint venture positive with Petrosab because fabrication opportunities in East Malaysia are aplenty, riding on Petroliam Nasional Bhd’s rising domestic capex spend.

Of the prized projects Sabah could offer the prime target remains the SOGT in Kimanis, given its scale of an expected daily capacity of crude oil and gas.

Moving into 2011, all eyes will be on the type of projects KNMP manages to clinch and the potential earnings could generate.

KNM will lead fund raising for the projects and seek optimize capitalization for the project companies throughout the development and operation stage of the projects. This could be done by issuing new shares and bonds, financial derivatives by convertible instruments.

As at Sept 30, 2010, KNM’s borrowings stood at RM575 million while its cash pile was RM285 million.

Given that many of the projects are still at in the tender stage, KNM is only expected to make further announcements of jobs clinched early 2011.

It had secured a US$216 million (RM676 million) gas condensate project in Uzbekistan from Russian O&G major Lukoil Uzbekistan Operating Co.

KNM and South Africa-listed Aveng Ltd had also formed a JV company on a 49% and 51% basis, enabling the former to capitalise on its foreign partner’s business links in the energy and mining business.

KNM had also settled an old score with a Canadian client Fort Hills Energy LP where KNM received payment from the latter for the termination of a contract in the North American country.

Top Glove Corp Bhd

Its Prospects … dated Dec 2010

Top Glove was the most affected among the six listed glove manufacturers in Malaysia due to its portfolio of mainly natural rubber or latex gloves.

The others are less affected due to their different product mix comprising latex and nitrile gloves.

Other listed glove manufacturers in the country include Supermax Corp Bhd, Kossan Rubber Industries Bhd, Hartalega Holdings Bhd, Latexx Partners Bhd and Adventa Bhd.

Glove players will have less bargaining power [to dictate prices] as there is no shortage of supply.

Demand for gloves will, however, still be there but not the “extra demand” seen during recent outbreaks of disease.

Top Glove is most exposed to the rising price of latex as some 90% of its revenue is from gloves made from latex.

The other producers tend to have a larger proportion of nitrile gloves, which use synthetic rubber as their core raw material. Nitrile gloves make up about 7% of Top Glove’s revenue. In contrast, nitrile glove sales make up 83% and 38% of the revenue of Hartalega and Kossan, respectively.

Looking ahead, industry observers foresee normalisation of glove demand in the short term, but expects business to pick up in the long term. This will be helped by demand from emerging markets and the global healthcare industry.

Apart from demand normalisation the manufacturer, capable of producing some 34 billion gloves annually, the industry also had to contend with excess capacity.

Another crucial concern is that buyers are opting to delay purchases and keep inventory at a minimum as they wait for glove prices to decline.

Nevertheless, this adverse situation will possibly lead to further consolidation among the industry players
and Top Glove is in a good position to further enlarge its business when the opportunities arise.

Top Glove plans to dedicate more production lines to manufacture synthetic rubber or nitrile gloves, which fetch higher margins and are not subject to the volatility in natural rubber prices.

Synthetic rubber is made from butadiene, a by-product of crude oil. Meanwhile, critics said “a massive and sustained switch to nitrile may not be sustainable” for Top Glove because the cost of nitrile gloves is linked to crude oil prices, which are also rising.

Escalating latex prices will prompt consolidation in the rubber glove industry … a synergistic M&As.

Financial Results …

Its earnings fell 44% to RM36.05 million for the first quarter ended Nov 30 from RM65.21 million a year ago as it was impacted by the high latex prices and a weak US dollar.

Revenue rose 4% to RM491.51 million from RM472.30 million while earnings per share were 5.83 sen compared with 10.76 sen.

The three months to Nov 30, 2010 has been a challenging quarter for the group due to headwinds such as persistently high latex prices and the continued weakening of the US dollar coupled with the time lag in passing on the higher costs to its customers, which have affected the group’s profit margins.

Average latex prices rose by 57% from RM4.58 per kg in 1Q2010 to RM7.20 per kg in 1Q2011 while the average US dollar weakened against the ringgit by 9.3% (RM3.43 in 1Q2010 versus RM3.11 in 1Q2011).

The firm has a cash pile of RM346.95 milllion versus debt obligations of RM3.97 million, hence, a net cash position of RM342.98 million or 55 sen a share. The company has an issued base of 618.3 million shares.

Demand for rubber gloves, which has been normalising coupled with the excess capacity situation, have also impacted the industry. Customers kept their inventory level at a minimum level due to high selling prices of latex gloves, which reflected the increasing cost of latex prices.

YTL Land

Its Prospects … dated Dec 2010

YTL Corp – which owns 60.72% of YTL Land – proposed to inject development land, including prime land in KL’s Golden Triangle and in Singapore into its property arm. There are already development plans in place for some of the parcels, and this could immediately step up the level of activity at YTL Land .

Many would find it difficult to relate growth with YTL Land ’s performance over the past five years. After many years, the company’s jewel in the crown remains the former railway depot land in Sentul, which it took a long time to develop and still has an outstanding development area of 116.9 acres. Its slow pace could be because management wants to benefit from the appreciating land prices in the area.

But given the strength of its balance sheet, YTL Land could have done more. It could see a strong start in 2011 with the asset injection exercise underway.

To recap, YTL Corp proposed to inject assets into YTL Land for a consideration of RM476 million. The assets comprise 1000 acres in Bidor, Perak; a private company that has the development right for a parcel of KTMB land in Brickfields; and eight other companies that own land in KL and Singapore and two tranches in Sentosa Cove.

The consideration of RM476 million for the Bidor land and the nine companies would include the settlement of certain outstanding inter company balances owed by YTL Land to YTL Corp, amounting to RM262 million. The nine companies have a total net assets value of RM152 million.

To facilitate the RM476 million acquisition, YTL Land will pay RM223 million in cash and issue YTL Corp RM253 million 10 year 3% ICULS at 100% of nominal value of 50 sen.

YTL Land will fund the RM223 million cash payment by undertaking a rights issue of ICULS to raise RM253 million YTL Corp’s portion of the rights issue will be RM153 million.

In addition to RM476 million, YTL Land has to settle another RM1.04 billion with its parent, being inter company balances owed to YTL Corp by the company that owns the Orchard Boulevard land in Singapore. However, the sum will only be settled later via other funding arrangements which YTL Land did not elaborate.

So the total purchase consideration for all the assets is RM1.52 billion, which is at a discount to the total market value of the landbank that will be injected into YTL Land of RM1.82 billion.

Gains from theses developments, if they materialize will certainly have a significant impact on YTL Land given its current small market.

With its exposure in the Singapore property market, which is more buoyant than the domestic one, and several parcels of land in prime locations in KL, YTL Land ’s prospects look more promising than before.

But how fast its landbank translates into profits will depend on YTL Land ’s development.


What’s Up? … dated Dec 2010

There have been some shareholding movements in Eurospan over the past few months, promoting speculation as to what could be in store for the Penang based furniture maker.

Since early Nov 2010, its chairman and managing director Guan has been selling down his direct equity interest. He is not alone in disposing of shares, as his brother and sons who are also substantial shareholders and directors in Eurospan, have been trimming their personal holdings.

It is not known whether the disposals are a precursor to the emergence of new shareholders.

However, their percentage of indirect equity stake they currently hold in Eurospan remains at 42%.

The company had announced special dividend of 40 sen per share in respect of its results for 1QFY20111 ended Aug 31, despite being in the red. The generous dividend was announced on Oct 25, 2010.

Nevertheless, with the entitlements for the special dividends only going ex from Jan 6, 2011, the Guan’s trimming of their personal holdings ahead of the entitlement is bewildering.

Guan held a 9.28% direct stake in Eurospan as at Sept 2, 2010. But in three months, his stake has been reduced to 3.82% as at Dec 15, 2010. Meanwhile his brother and sons also reduced their stakes lately. The Guans sold their shares in the open market.

Nonetheless, the family still has a firm grip on Eurospan, with their private vehicle TBHL Holdings still holding a 42% stake.

Eurospan has one institutional shareholder, Pheim Unit Trusts, which has a 0.36% stake.

Eurospan, an exporter of wood dinning sets to Europe, the US , Australia and other Asian markets, has seen pressure on its bottom line of late due to the global economic slowdown which dampened demand for its products, as well as debt concerns in the Eurospan.

For 1QFY2011 ended Aug 31, the company posted a net loss of RM57000 on revenue of RM20 million. Bet loss per share was 0.14 sen while net assets per share for the quarter stood at rm1.58.

But despite this Eurospan still declared a sizeable special interium dividend of 40 sen per share from its internally generated funds. However, the special dividend, which would translate into a total payment of RM16.2 million would halve the company’s cash reserves of RM30.1 million as at Aug 31, 2010. This again surprising as Eurospan has recently seen its operations weakening and would probably need as much as cash it can muster as a buffer.

It is worth nothing that in the company’s 1QFY2011 ended Aug 31, operating profit before working capital changes, a measure of operating cash flow shrank to RM392000 for the period.

100% of the company’s revenue is from export sales and denominated in US dollars. YTD, the ringgit gas 8.4% appreciated against the US dollars. In 2009, Eurospan exports accounted for 33.18% of revenue, while Asia accounted for 12.83%.

For FY2010 Eurospan posted a net profit of RM359000 on revenue of RM62 million, It had attributed the 90% dip in net profit to the adoption of a different product mix, higher operating costs and the stronger ringgit.

Given the selling of shares by company insiders as well as dismal FY2010 earnings performance, the sharp rise in Eurospan’s share price does raise some eyebrows.