Monday, March 17, 2014

RHB: Overweight On Oil & Gas Sector

KUALA LUMPUR: RHB says oil & gas (O&G) sector’s fourth quarter financial year 2013 results were disappointing, as earnings saw more misses than hits due to lofty expectations.

"Most offshore  support  vessel (OSV) players booked  weak  performances  despite  the  multi-billion-ringgit  contracts awarded in current year 2013. We maintain our OVERWEIGHT call on the sector as we  expect  Petronas  to  ramp  up  spending.  Our  Top  Picks  are SapuraKencana Petroleum (SAKP), Dayang, Coastal Contracts and Wah Seong, said RHB in its note today.

According to RHB most  of  the  O&G  stocks under its coverage  booked disappointing results  in fourth quarter current year 2013,  with  more earnings missing rather than hitting estimates.  Excluding Yinson, only one out of the 15 stocks under our coverage outperformed estimates  in current year 2013,  while  six  were  in line.  

The  misses  were largely  due  to  our high expectations  that  most  of  the  companies  under  our  coverage  would benefit from Petronas’ planned MYR300 billion capex spending. Most of the OSV  players  disappointed  despite  the  multibillion contracts awarded by Petronas last year, as work orders from the company  had been slow.  That  said, most management teams  generally indicated that activities should pick up by second half of current year 2014.

The share price of some  small-cap companies  performed well last year on expectations that part of the 20 identified marginal fields would  be  awarded  to  them.  However,  a  delay  in  the  Refinery  and Petrochemicals  Integrated  Development  (RAPID)  project  by  Petronas prompted  a  selloff of RAPID-related stocks.  Most OSV  players reported disappointing results from lower fleet utilisation rates throughout current year 2013. 

Our  top  big-cap  pick  is  SAKP ,  in  view  of  the  potential  upside  to  its  current  share  price weakness,  due to  the uncertainty over its Shariah-compliant status.  The consolidation  of  Newfield’s  upstream  assets  may  prompt  us  to  raise SAKP’s fair value  by 41 sen. 

Meanwhile,  Dayang  Enterprise   and  Coastal  Contracts  are our mid-cap favourites,  thanks  to  their  long-term earnings visibility.  For  small-caps,  we prefer  Wah  Seong  Corp,  as the group  begins  to see  a strong recovery  in  its O&G segment and higher orderbook replenishment. 

Due  to  expectations  that  Petronas  would  award  more  risk-service contracts  (RSC)  in  FY13,  some  small-cap  stocks  saw  record  price  rallies  –  Scomi Energy Services and Uzma’s share prices soared by 224 per cent  and 334 per cent  respectively in financial year 2013.

SES was reported to be bidding  for  the  OphirRSC,  a  marginal  field  off  the  coast  of  Terengganu ,  with  its  Australian  partner  – Octanex   –  and  Petronas’  wholly-owned,  marginal  oilfield  expert, Vestigo Petroleum. Uzma was also tipped to win a RSC.

The  marginal  oilfield  expert.  Vestigo  was  set  up  in  mid-2013  and  is  part  of Petronas’  exploration  &  production  unit,  Petronas  Carigali  (Carigali).  It  is  largely involved  in  the  optimisation  of  small,  marginal  and  mature  fields,  unlocking  value through operational, technical and cost-effective methods. In short, Vestigo oversees the development  of  marginal fields,  while  Carigali focuses on developing larger and complex fields. 

Keith Collins  –  previously of Petrofac Malaysia  –  was appointed as Vestigo’s chief executive officer (CEO) in Oct 2013. He brought in more than 30 years of experience in management, drilling  and  well completion,  as well as  field development activities. Under his helm, we believe the Malaysian corporates – by teaming up with Vestigo –could  take  charge  of  marginal  field  developments  without  foreign  involvement.

Meanwhile, we would not be surprised that the first-generation RSC winners – SAKP, Dialog  Group  and  Petra  Energy  –  would  be taking the lead in such projects  with enough knowledge transfer from their respective foreign partners. 

Activities have  yet to  gain traction.  The OSV  and  floating production, storage & offloading (FPSO) segment recorded a mixed performance in fourth quarter. Of the eight stocks of  this  sub-segment,  only  COCO  outperformed  our  expectations  while  Dayang and Perdana  Petroleum  were in line with our fullyear forecasts.

The other OSV & FPSO players  disappointed, largely  due to  lower vessel utilisation rates. We understand that topside major maintenance and hook -up commissioning & construction (TMM & HuCC) as well as transport & installation (T&I) work orders from Petronas  have been slow. Some corporations  attributed this to the monsoon  season,  which  is  expected  to  be  over  by  May.  Hence,  we  expect  some OSV  players,  namely  Dayang,  Alam  Maritim  Resources  and PETR to see a pickup in second half 2014 earnings as offshore activities resume. 

We do not  expect  Petronas to dish out multi-billion-ringgit projects  again  this year. That  said,  we  do  not  discount  the  possibility  of  sub-contracts  indirectly  benefitting other  players  like  AMRB,  Perisai  Petroleum  Teknologi  and Bumi Armada, which failed to clinch any contract during the bidding process last year. 

The  investment  community  is  concerned  about  the economic  viability  of  Petronas’  RM60 billion  Refinery  &  Petrochemicals  Integrated Development  (RAPID)  project.  The  project’s  final  investment  decision  (FID)  was initially scheduled  to be announced in June 2013, but this has been delayed to March 2014.

The project also faces challenges in land acquisition and relocation. We believe the concerns are overdone and the project will receive the  go-ahead in the next one month, although the size of the project could be scaled down by 20-30 per cent. 

While  the  original  size  of  the  project  is  estimated  at RM60 billion,  we  think  a RM40 billion capex will be a more realistic target given  lukewarm demand from foreign investors. To  date, the project has signed up several names like Italy's Versalis SpA, Japan's Itochu, Bangkok-listed PTT Global Chemical and Germany's Evonik. Stocks  that  will  benefit  from  RAPID  are  Dialog,  KNM  Group   and Muhibbah Engineering. 

We expect M&A activities to heat up in the next 12 months as companies try to chase higher earnings. In our view, offshore vessel owners  should expand overseas or undertake M&As  to benefit from economies of scale and improve profitability. The local market is getting increasingly saturated with fewer reinvestment opportunities.


Friday, March 14, 2014

Malaysian Capital Market Grows 10.5% In 2013

PETALING JAYA: The Malaysian capital market grew by 10.5% to RM2.7 trillion in 2013, driven by steady growth in key market segments on the back of robust domestic fundamentals, said the Securities Commission Malaysia (SC). 

SC in its annual report 2013 released yesterday, said the market remained resilient despite volatility which affected emerging markets globally. 

It said the bond market ended the year at RM1 trillion and maintained its position as the third-largest in Asia relative to gross domestic product (GDP) while equity market capitalisation grew to RM1.7 trillion with the benchmark index rising 10.5%, making the market one of the top performers in Asia. 
 SC said significant gains were also recorded by the domestic small-cap index following increased participation from institutional funds and greater interest by retail investors. 

It said the capital market continued to be a major source of financing with RM94 billion raised through corporate bonds and initial public offerings (IPOs). It said bond issuances accounted for 91% of financing raised. 

The breadth and depth of the market underpinned the strongest period of capital-raising on record with a total of RM240 billion raised over the last two years, it said. 

The SC said the fund management industry continued to play an important role in mobilising domestic savings, with assets under management (AUM) growing by 16.5% to RM588 billion. 

It said unit trust funds continued to be the largest contributor to the growth in AUM, with net asset value increasing to RM336 billion, equivalent to one-fifth of stock market capitalisation. 

The SC said the Islamic capital market grew by 8.8% to RM1.5 trillion, with syariah-compliant assets representing 56% of the overall capital market. 

It said Malaysia maintained its leadership role as the world's largest sukuk market, accounting for 69% of global sukuk issuances in 2013. 

A revised syariah screening methodology for listed equities was implemented in November 2013 to further increase the attractiveness of Malaysia's Islamic equity and fund management segments to international investors, it said. 

In 2014, SC's regulatory agenda will focus on enhancing efficiencies and reducing time to market, further strengthening regulation and supervision of market institutions and facilitating market access. 

The SC and regional regulators will collaborate to implement the Asean Capital Markets Forum framework for the cross-border offering of collective investment schemes in the first half of 2014. 

The commission said it will also facilitate more cross-border and multi-currency bond and sukuk issuances as well as assess potential new fixed income products such as high-yield bonds with a view to broaden the credit spectrum of investible asset classes. 

Leveraging on Malaysia's significant Islamic fund management segment, the SC said it will continue to work with the industry to build their capabilities and enhance cross-border linkages. 

The SR-i Sukuk guidelines will be introduced this year to facilitate syariah-compliant financing for and investments into socially responsible businesses, it added.


Tuesday, March 11, 2014

Malaysia Sees Solid Growth Ratings Upgrade Imminent

KUALA LUMPUR: Do strong economic numbers really matter to people on the ground when the prices of essentials point towards the north?

Yes, they do matter, according to the dialogue partners at the National Economic Summit, here, yesterday.

Bank Muamalat chairman Tan Sri Dr Munir Majid said the Malaysian economy may not be "rip-roaring", but it is enjoying solid growth and the country is on the brink of an upgrade in its sovereign rating.

"If the (growth) numbers slipped into the negative, we could be out of jobs, not to mention a weak ringgit, asset balance falling, banks in trouble and also loans dropping," he told participants of the summit.

Malaysia's economic activities, as reflected by the gross domestic product (GDP), expanded by 5.1 per cent in the last quarter of 2013, bringing the full year to a 4.7 per cent growth. The country also attracted RM38.77 billion in foreign direct investment, a rise of 24 per cent compared to a year ago.

Munir said it is critical that the government shows fiscal discipline and not waver under pressure.

He praised Prime Minister Datuk Seri Najib Razak's administration for reducing the fiscal deficit to 3.9 per cent of the GDP last year, and embarking on the rollback of subsidies and proceeding with the goods and services tax (GST).

However, these plans need a credible communications plan, said Munir, who was one of the panelists on the session entitled, "What is the real truth of the Malaysian economy?"

He said the plan must reach the public at large and provide rational explanation on the price mechanism or they would be inclined to believe whatever is said in the social media.

Another panelist, former human resources minister Tan Sri Fong Chan Onn, spoke about the gap between the government policies and the implementation.

"Although there is a strong correlation between GDP and SME (small and medium enterprise) growth, there are policy gaps and this was demonstrated in a recent survey to assess their understanding of the overall electricity supply policy direction, overall energy policy planning and the tariff hikes," said Fong.

Understanding of the SMEs also needed to be enhanced, just like GST, minimum wage, subsidy rationalisation and the economic transformation plan, he added.

Fong called for a reorientation of the country's governance, from focusing on planning to outreach.

"We need a new mission of service delivery with key performance indicators based on grassroot understanding and acceptance," he said.

Meanwhile, Malaysian Institute of Economic Research (Mier) chairman Tan Sri Sulaiman Mahbob said subsidy is definitely not the way forward if a country wants to achieve a developed nation status.

He said the removal of subsidy, which could be done gradually, is crucial to support Malaysia's rapid development, which requires bigger investments than ever.

"The fund should be reallocated to productive sources of growth in order to make the economy more efficient and steer it on a sustainable path," he said.

Sulaiman said the subsidy review will allow the local industries to "stand on their own feet", forcing them to be more competent and preparing them to strive for success in the global arena.

"The much-needed investments must be made to modernise the industries," he added.


Saturday, March 08, 2014

GPACKET Is Coming Back?

Green Packet! As the name we are all familiar, a communications solutions provider and a wireless broadband operator. It has been in hot watch since last year around September of possible sell off its loss making Packet One (P1) business. The potential partner for M&A could be either from DIGI or TM as per speculated. But till today we yet to see any of its official statement been announce. Could the deal still ON? Below is the extract on the Jan/2014 coverage from TheStar paper.

PETALING JAYA: Packet One Networks (M) Sdn Bhd (P1) is inching closer to a merger and acquisition (M&A) deal with legal documents having been drafted by advisers, banking sources said. 

However, it isn’t clear who the exact party the M&A is with, but indications are that it is either DiGi.Com Bhd or Telekom Malaysia Bhd (TM), both of whom have been widely speculated in the past to be eyeing an M&A with P1. 

It had been earlier reported that DiGi.Com was the front-runner, but industry sources pointed out that TM was just an equally strong contender for a controlling stake in P1

P1 is a 57% unit of listed Green Packet Bhd and owns valuable wireless spectrum.

Sources also said that the TM-P1 deal was being speculated among business partners of TM, such as their distributors.

Industry observers noted that a “TM-P1” merged entity could become a significant player, considering the “spectrum power” and synergies this combined force would have.

TM has 10 megahertz (MHz) of telecommunications spectrum in the 850MHz band and another 8.5MHz of the 450MHz band, while P1 has 30MHz in the 2.3 gigahertz or GHz band and 20MHz of the 2.6GHz band.

“A combination of these low and high-frequency bands makes this a very powerful player, at least spectrum-wise, for building a strong 4G footprint in the country,” said one industry player.

TM has also communicated in the past its firm strategy of venturing into the data-centric 4G market, reportedly saying that it has plans to use its 850MHz spectrum as its long-term evolution (LTE) frequency band and aims to have 100,000 users on its wireless LTE network by 2014, and more than one million by 2017. LTE relates to the technology infrastructure to deliver 4G type of services in the future.

Hence, if TM does merge with P1, then it will gain a head start on its 4G strategy by being able to utilise P1’s spectrum.

It will also give TM the advantage of utilising P1’s base stations, which number around 2,000 units. P1 boasts a coverage of 50% of the Malaysian population.

Another notable aspect of P1 is its strategic partner in the form of South Korea’s SK Telecom (SKT), which has a 26% stake in P1.

SKT is an advanced player in the LTE space, with more than 10 million subscribers, possibly making it the LTE player with the highest subscriber base in Asia.

DiGi.Com remains the player in Malaysia with the least amount of telecommunications spectrum. This is why it has long been speculated by analysts that DiGi.Com is also motivated to acquire WiMAX players like P1, as such a deal would give it access to 50MHz of valuable spectrum.

It has been reported that DiGi.Com would need to acquire an additional 30MHz of the 900-band and 20MHz of the 2.6GHz band to be in the same “spectrum position” as Maxis Bhd and Celcom Axiata Bhd. The latter two had been quick to ink collaboration deals with other recipients of the valuable 2.6GHz wireless spectrum band.

P1 was valued at RM1.45bil in 2010 when SKT invested more than US$100mil into it for its 26% stake. At that time, P1’s subscriber base was less than half the number today, which stands at around 553,000.

Furthermore, that deal was inked before P1 received its 20MHz of the 2.6GHz LTE spectrum. P1 has a few other minority shareholders including Intel Capital.

Should I buy or hold the GPACKET shares? Does above news still valid? I have been told (insider info) that DIGI will be the winner! Reliable or not, I not sure. This is the interesting part as we are taking risk here to bet on news! Do you foresee the news just a false news that created to lure us to buy their lose making company shares? Only trader are interested to buy such shares - buy on rumour sell on news, does this still valid? Hmmm... From the technical stand point, the shares price still on consolidation and trading sideway on the downtrend trading band. There will be most likely a breakout above 0.51/0.52 going to happen. If this is a decisive move with great volumes than we can bank on more upside and this will be an explosive one! My target still unchanged at RM1 and RM1.50 respectively. Do be alert also any price penetrate below 0.42 will not be a good sign. If this happen, 0.30 will be the target and sure it will go on hibernate itself! Let see, time will reveal either is a true McLaren P1 racer! :-)

Good Luck and Happy Trading and Cheers!