Sunday, December 19, 2010

Lion Industries, Tecnic/SKP, Frontken , Mudajaya

Lion Industries

What’s Up? … dated Dec 2010

Shareholders can now expect higher dividend payment under the company debts restructuring scheme, dating back to 2003, has finally been lifted.

As at Sept 2010, Lion Corp had a direct stake of 25.16% whole Cheng, who controls the Lion Group, had a direct stake of 14.21%.

The fact that debt laden Lion Corp – which needs money for debt repayment – and Cheng are direct shareholders may motivate Lion Industries to raise dividend payments.

In mid Dec 2010, Lion Industries announced that it had made full and final redemption of its ringgit denominated bonds and US dollar denominated consolidated and rescheduled debts.

The announcement also said the restriction on dividend payment under the company’s restructuring scheme has been lifted.

To recap, under the covenants governing the debt restructuring scheme proposed in 2003, the company was prohibited from paying any cash dividends exceeding 1% par value of its share, until it had discharged its obligations under the scheme.

In a nutshell, proceeds from Lion Industries’ assets disposals and the bulk of its operating cash flow – generated mainly from its steel division – had gone to bonds and debt redemption over the past seven years, rather than for dividends.

The gradual redemption of Lion Industries’ bonds and USD debts had strengthened its balance sheet. From a net debt of RM2.18 billion or 1.16 times gearing as at FY2003, Lion Industries balance sheet as at Sept 2010, showed consolidated cash reserves of RM644 million versus rm337 million long term borrowings. It short term borrowings amounted to RM359 million – mainly trade financing for the steel operations. Meanwhile, the outstanding bonds and USD debts had shrunk to RM50 million as at Sept 30, 2010.

Its balance sheet has improved with shareholders’ equity increased to RM3.4 billion now.

The company within the Lion Group that needs capital contribution is its parent Lion Corp Bhd, whose core business is hot rolled coil mfg. Lion Corp still carried a relatively high net gearing of RM2.79 billion as at Sept 30, 2010 versus shareholders’ funds of RM534 million.

Tecnic/SKP Resources Bhd

What’s Up? … dated Dec 2010

Datuk Gan Kim Huat, the executive chairman of Tecnic Group Bhd, increased his
indirect stake in the company to 38.71% after buying 4.035 million shares, or 9.98% equity interest, for RM8.99 million.

The four million shares were purchased from Unfold Riches Sdn Bhd, via his private vehicle Graceful Assessment Sdn Bhd. Following the purchase, Gan now holds a 19.88% indirect stake in Tecnic via Graceful Assessment Sdn Bhd, and another 18.82% indirect stake via Zenith Highlight Sdn Bhd. Combined with his 31.55% direct stake, Gan now has a total of 70.25% equity interest in Tecnic.

According to a source close to the matter, there is no intention to take the company private.

It is believed that Gan has chose to increase his stake because he felt the company was undervalued and saw upside in the stock price.

What’s interesting is that following the purchase, Gan’s direct and indirect stake in Tecnic crosses the 33% threshold, which triggers a mandatory general offer. So far there has been no announcement whether a mandatory general offer will be coming or if Gan will not be required to do one.

Gan is also the substantial shareholder in SKP Resources Bhd, where he holds a 70.99% stake, consisting of 8.99% direct equity interest and a 62% indirect stake held via four private vehicles including Graceful Assessment and Zenith Highlight. The other two private vehicles are Renown Million Sdn Bhd and Beyond Imagination Sdn Bhd.

In the past few months, there has been speculation that Gan would take Tecnic and SKP Resources private as he had slowly been building up his stake in both companies in the past few months.

Tecnic is involved in plastic moulding design and fabrication, plastic injection and blow moulding and provision of assembly services for the manufacturing of plastic products. SKP manufactures plastic parts and components for the electronic and electrical sector.

For the nine months ended Sept 30, Tecnic’s net profit rose 23.8% to RM12.18 million or 30.15 sen per share, on the back of RM125.83 million in revenue. Net assets per share as at Sept 30 was RM1.89 compared with RM1.75 as at Dec 31, 2009. It is also sitting on a net cash position of RM10.87 million with no bank borrowings.

In comparison, SKP has also seen its net profit rise 56.3% to RM10.62 million, or 1.77 sen per share, on the back of RM109.2 million in revenue for the six months ended Sept 31. SKP is also sitting on a RM45.64 million cash pile with no bank borrowings.


What’s Up? … dated Dec 2010

It had increased its shareholding in Taiwan based Ares Green Technology (AGT) to 50.58%. It paid rm4.96 million for an additional 8.5% stake in AGT, a company listed on the GreTai Securities Market – the OTC market in Taiwan .

The purchase of AGT shares may signify the start of corporate restructuring exercises in Frontken.

It would be logical to assume that AGT could be a vehicle for Frontken to float its business in Taiwan . This allows Frontekn to explore a more effective way to consolidate its global semiconductor, solar, TFI-LCD technological services support businesses.

The company is involved in the provision of surface metamorphosis technology engineering for equipment maintenance in Asia Pacific, serving three main industries – semiconductor, power generation and oil and gas.

ACT specializes in the servicing and maintenance of equipment in the semiconductor and thin film transistor liquid crystal display industries.

Its official said that it is of the view that it makes business sense to consider a possible merger of its semiconductor related businesses with AGT. Since already hold a 42% stake in AGT, this could be handy for a direct listing on the Taiwan Stock Exchange but no concrete plan yet for such an exercise. Eventually it wants to park its business in the right place in order to optimize stake in Frontken.

If Frontken was to inject its semiconductor division into AGT, it would make the latter the largest service provider of such technological solutions in Asia .

AGT’s listing on the main board of the Taiwan Stock Exchange would be possible subject to the success of the group’s restructuring and consolidation.

For 9MFY2010 ended Sept 30, Frontken’s revenue came in at RM104 million. Net profit rose to RM9.37 million. The semiconductor and O&G divisions account for about 35% of Frontken’s revenue while the power generation makes up 30%

AGT dipped into losses in FY2009,
incurring a net loss of NT$24.8 million. However it posted a net profit of NT$7.08 million for 1HFY2010 ended June 30.

With the acquisition, AGT is now a subsidiary of Frontken and the earnings could be consolidated into its books in the future.

Currently, Malaysia and Singapore generate about 90% of its Frontken’s revenue.


What’s NEXT! … dated Dec 2010

Recently the company has been actively buying back its shares. The most recent buyback was on Dec 15, 2010 when it acquired 20000 shares at RM3.09 for a total purchase consideration of RM78569. To date, cumulative outstanding treasury shares number just over three million.

Mudajaya has been buying back its shares since May 2010. The usual rationale when it comes to share buybacks – which can be seen as a show of confidence – is that companies do it to stabilise their share price, or because they feel their shares are undervalued.

It has cash and bank balances of RM186 million and no debt.

However its third quarterly earnings show a slowdown in growth, with net profit declining q-to-q to RM46.5 million form RM54.2 million. Top line numbers also fell q-to-.

Despite concerns in India , Mudajaya appers to be ploughing ahead with its plans to expand regionally.

So ultimately, while there is still growth on the horizon for Mudajaya, buying into the company at this point of time (Dec 2010) would mean belief in its long term prospects. Although a stronger 4Q2010 would definitely add some support for Mudajaya;s counter, it is unlikely to mimic the performance seen in the first half of 2010.

Certainly its progress in India will be closely watched. To recap, RK Powergen Pvt Ltd – in which Mudajaya holds 26% stake – signed an agreement with the government of Chhattisgarch for 1 1440 MV coal fired power plant.

Mudajaya was subsequently awarded the EP contract for Phase 1 and of the power plant, which is due to be completed in 2012. The company had intended to use its experience in Chhattisgarch as a springboard to bid for the various ultra mega power plants planned by the Indian government.

However, the ultra mega power plants have since bee delayed, which puts a question mark over Mudajaya’s near term outlook in India .