AZRB net profit falls 24% y-o-y to RM3.42 mil (Edge)

Ahmad Zaki Resources Bhd (AZRB) saw its net profit fall 24% to RM3.42 million or 0.7 sen per share for the first quarter ended March 31, 2015 (1QFY15), from RM4.48 million or 1.62 sen per share in the corresponding quarter last year (1QFY14).

Revenue for the quarter was marginally lower at RM153.06 million, down 0.5% to RM153.79 million in the previous year.

In its filing with the bourse, AZRB (fundamental: 0.35; valuation: 1.1) attributed its 1QFY15 performance to a decrease in other operating income and an increase in finance cost compared to 1QFY14.

According to its financial statements, the group saw other operating income of RM1.92 million for the quarter, less than half of the income in the previous year of RM4.07 million, while finance costs rose to RM7.89 million from RM5.02 million.

Its construction and oil and gas (O&G) segments saw lower revenues for the quarter at RM136.96 million and RM8.06 million respectively, while its plantation division saw improved revenue of RM1.62 million.

Going forward, the group expects its construction division to perform better, based on its strong order book, adding that prospects to enhance its order book is encouraging.

The group said its construction order book stood at approximately RM3.39 billion as at 1QFY15, with its Phase 1 — East Klang Valley Expressway project making up the bulk of its outstanding contracts, worth RM1.54 billion.

Other projects include the construction of a 56-storey hotel tower for Permodalan Nasional Bhd (RM628 million), the viaduct guideway construction for the Klang Valley Mass Rapid Transit project (RM227 million) and the proposed development of International Islamic University Malaysia Teaching Hospital in Kuantan (RM138 million).

Meanwhile, its O&G division is expected to continue contributing a steady flow of income to the group, while its plantation division is also expected to improve.

At 12.30pm, AZRB rose 0.5 sen or 0.71% to 70.5 sen, with a market capitalisation of RM337.44 million.

Positive outlook for Hovid, but rich valuations (Edge)

Not rated, with a target price of RM0.46. Hovid’s revenue and pre-tax profit for the second quarter ended December 2014 (2QFY15) came in at RM48.1 million and RM6 million respectively, mainly driven by higher sales and foreign exchange gain arising from the favourable US dollar against the ringgit.

This brings year-to-date (YTD) first half (1H) FY15 revenue to RM97.1 million and pre-tax profit to RM13.7 million.

Hovid’s prospects are predicated on new product launches, rising demand for pharmaceutical products and the increased registrations of new products in its export markets. Amplifying the positive outlook and prospects for Hovid are the growing world pharmaceutical market, underlying demographic and age trends coupled with a rise in chronic diseases, which is supportive of long-term industry growth.

Secondly, in the next several years, which will be an exciting period for generic drugmakers as patented drugs worth US$133 billion (RM481.46 billion) in annual sales  currently will expire, commonly referred to as the “patent cliff”.

This enables Hovid to launch the generic versions of these drugs and expand sales. In addition, growing healthcare spending in key markets — Malaysia and other lower-middle income economies — will provide further growth prospects as healthcare bills in these countries are low by international standards and the rising affluence and improved access to healthcare services will fuel greater demand for drugs.

Due to higher-than-expected demand for its products, Hovid is building a new plant to ease capacity constraints for its tablets and capsules. The first phase of the new plant is expected to be ready and operational by mid-calendar year 2015 (CY15) to produce tablets and capsules and boost capacity by 30%. Note that capsules and tablets make up approximately 65% of Hovid’s revenue,syrups and softgels make up 15%  and the balance is contributed by other products. The second phase of the new plant is slated for commercial production in 1HCY16.

The total capital expenditure incurred of RM40 million to be spread over FY15 till FY17 and will be only a small dent in Hovid’s net cash of RM15.6 million as at Dec 31, 2014. For illustrative purposes, the first phase of expansion is expected to increase Hovid’s capacity and revenue by 30% or approximately RM30 million. — Kenanga Investment Bank Research, May 26

Tiger Synergy sees earnings boost in FY16 (Edge)

KUALA LUMPUR: Tiger Synergy Bhd, which returned to the black last financial year 2014 with a small profit of RM132,000, expects a big boost in earnings from the financial year ending June 30, 2016 (FY16), helped by cost-saving initiatives.

However, before this happens, the property development and construction group will still likely close this FY15 with a small profit or could dip into the red again as most of its development properties have been recognised in the previous financial periods and new projects have not been started yet, said its managing director and major shareholder Datuk William Tan Wei Lian. Tan owns 22.15% of Tiger Synergy as at March 31, 2015.

The group had recently embarked on setting up a RM2 million cement plant in Shah Alam, Selangor for the production of 400 cu m of ready mix concrete, as part of its cost reduction initiative. The new plant will commence operations in two months’ time.

“Cement is one of the major cost components of our property development segment. By setting up our own plant, we can save up to 20% on our raw materials, labour and logistic costs,” Tan told The Edge Financial Daily in an interview.

Additionally, construction work is undertaken by its construction arm, Pembinaan Terasia Sdn Bhd.

“We do everything on our own unlike some developers who have to tender their construction projects to third party companies,” said Tan.

Tiger Synergy has four property developments in Selangor in the pipeline, with a combined gross development value (GDV) of RM550 million. They comprised residential projects in Bukit Serdang, Seri Kembangan, Taman Rowther in Gombak and Alam Impian in Shah Alam.

Tan said the group will launch these projects in phases over the next three years.

He is confident that the projects will be well-received due to their strategic location within a 20km radius of Kuala Lumpur. ..

With these cost savings strategies in place, Tiger Synergy expects to net RM160 million in profit, which is 30% of the total GDV of the four projects, over the next three financial years.

“In other words, the group would be able to realise RM50 million in net profit for each financial year (from FY16),” he added.

For FY14, Tiger Synergy booked a net profit of RM132,000 compared with a net loss of RM1.71 million in FY13. This was achieved despite revenue falling by 63.1% to RM12.59 million from RM34.12 million.

For the six months period ended Dec 31, 2014 (1HFY15), Tiger Synergy however swung back to a net loss of RM877,000 compared with a net profit of RM1.13 million, blaming higher administrative costs and completion of existing projects.

Going forward, Tan said the group will remain focused on the domestic property market and will continue to be on the lookout for further strategic land banking acquisitions in Kuala Lumpur and Penang.

He noted that the group still has 15 acres (6.07ha) of land in Kuala Lumpur yet to be developed. ..

On its ongoing private placement exercise, Tan said the group has identified several “potential investors” for the placement and will place the shares out soon.

On Jan 29, 2015, Tiger Synergy had proposed to undertake a private placement of 138.29 million shares or up to 10% of its issued share capital to third party investors to raise up to RM27.66 million for working capital, property development expenditure and estimated expenses.

Shares in Tiger Synergy (fundamental: 1.2; valuation: 0.9) closed unchanged at 11 sen last Friday, for a market capitalisation of RM87.91 million. The stock has fallen by 21.4% year-to-date.

IFCA MSC - Buying its Indonesia distributor?

IFCA’s 1QFY15 net profit, at 101% annualised, was in line with our expectations. The higher revenue was due to domestic GST software upgrades before the 1 Apr GST deadline. Last evening, IFCA also announced the proposed business acquisition of is Indonesia distributor, which was a positive surprise. To reflect conservative potential earnings from Indonesia, we raise our FY16-17 EPS forecasts by 8%. Our target price, based on an unchanged 21x 2016 P/E (in line with domestic peers), is also higher. The stock remains an Add. Potential catalysts include completing the acquisition of its higher-than-expected take-up rates for SaaS.

WILLOWGLEN MSC BHD (Edge)

Insider Asia’s Stock Of The Day: Willowglen

By Asia Analytica / The Edge Financial Daily   | May 6, 2015 : 11:33 AM MYT   

WILLOWGLEN MSC BHD

WILLOWGLEN (Fundamental: 3/3, Valuation: 0.9/3) rose as high as 92.5 sen, or up over 25% after it was first highlighted by InsiderAsia at 73.5 sen on October 14, 2014. Since then, the stock retraced to a low of 63 sen, partly due to its 3Q2014 earnings results, before rising again to 89.5 sen.

We still like Willowglen for its highly scalable, asset-light business model and expect double-digit earnings growth going forward.

The change in management at Willowglen back in mid-2013 appears to begin bearing fruit. In the last five months alone, the company has won five contracts worth RM43.8 million from Singapore Power Group (SPG) and its subsidiaries SP PowerAssets and PowerGas, and Public Utilities Board of Singapore.

Wong Ah Chiew, former Managing Director of PJ Development Holdings, took over the helm at Willowglen on August 1, 2013 and set his sights on business expansion. In February 2014, the company acquired a 70% stake in Sentinel Systems Sdn Bhd (SSSB) for RM1.4 million. The main asset of SSSB is an Innowatch system that is able to control operations at remote places, with proven success in managing ports in Korea.

Having built a strong foothold in Singapore, Willowglen intends to not only grow its operations there, but to also focus more on Malaysia, where opportunities abound for the internationally competitive player. Last year, Wong expanded the R&D team in Malaysia by 40%. It is expected to benefit from government infrastructure spending such as the construction of the Klang Valley MRT, LRT extensions and water treatments.

The stock trades at a trailing 12-month P/E of 12.4 times — which is attractive relative to its prospective growth — and 2.17 times book. Dividend totalled 2 sen (ex-date May 13) in 2014, translating into a yield of 2.2%.

Bigger plans in store for REDtone (Star)

Tycoon Tan Sri Vincent Tan (pic), who is known for his acumen in spotting potential in small companies, has previously been a passive investor in integrated telecommunications service provider REDtone International Bhd...

Tan, with the acquisition of the stake through a subsidiary of Berjaya Corp Bhd (BCorp), increased his presence in REDtone to 39.92%. This consequently triggered a mandatory general offer (MGO) for the rest of the shares that BCorp did not own in REDtone at 80 sen each. 

Based on the share price which is below the offer price, it appears that Tan and BCorp is poised to control REDtone. The question is what does Tan see in REDtone that others don’t?

Tan is not a person to be under-estimated when it comes to putting his money on undervalued stocks. He is an early investor in the Malaysian chapter of McDonald’s, owns StarBucks and persisted with Mazda. These are some of his investments that have turned into multi-million companies from a small outfit.

He has an impressive track record in the telecommunication sector. He was an early investor of DiGi, the telecommunications service provider and made a pile from listing and selling it to Telenor Group. He controls U-Mobile, which is still being built up to prepare for a listing with Singapore Technologies Telemedia Pte Ltd.

So why the need for REDtone, which is also in the telecommunications sector?

“Perhaps it is the growth potential of the new tele-radiology services that got him all excited,” says an analyst 

REDtone ventured into the healthcare services sector by providing tele-radiology services last year. 

It is investing RM50mil over a five year period and had set up a tele-radiology exchange centre to cater for tele-radiology needs by domestic and regional hospitals, says REDtone managing director Datuk Wei Chuan Beng.

What REDtone essentially does is have a pool of radiologists in the region to interpret CT scans, MRI and even ultrasound images. The readings are then sent back to the respective hospitals or medical centres. The hub is in Kuala Lumpur and the scans can be sent from any hospital.

For now its clients include several hospitals in the country including the KPJ group of hospitals, some in Vietnam and Philippines. It recently inked a deal to enter into the Indonesian market.

There are hundreds of government hospitals in the country that may not be fully equipped with CT Scans or even MRI machines, so that is what REDtone is after, besides private hospitals in the country. The biggest incentive for hospitals and medical centres to use the services is that it would result in cost savings. Thus far REDtone had roped in 20 experts in radiology to be its pool of radiologist to read and analyse all the scans that come to them.

“We are targeting both government and public hospitals and the feedback has thus far been positive,’’ he says...

If REDtone gets a contract to provide tele-radiology services to all the government hospitals in Malaysia, it would be a big feat and that will see the contribution towards revenue for this new venture gaining.

Wei says the contribution from the health care services was a few million ringgit last year, it will be about 3% to 5% this year.

“For 2016, we expect the contribution towards revenue to be about 10%, and that is definitely positive,’’ he says.

For now, data services remains the biggest contributor towards revenue, making up 60% of revenue, followed by voice business of about 30%, and the rest is about 10%. 

Tan’s BCorp on March 12 had increased its stake in REDtone to 28.29% and two weeks later bought more stake and now it has 39.92% equity stake. 

The MGO is subject to BCorp getting at least 50% plus one share. BCorp needs only 12% more to reach the target to make the offer unconditional.

This week the independent circular was out and two out of the four independent directors of REDtone rejected the takeover by BCorp, and their rejection echoes the move by the Sultan of Johor, to decline the offer much earlier before the independent advice was out.

The Sultan of Johor is the single largest individual shareholder with 134 million REDtone shares or 20.13%.

The board comprises 10 directors, of whom four are independent. The two directors who rejected BCorp’s offer were senior independent director Mathew Thomas Vargis Mathews and independent director Jagdish Singh Dhaliwal as they found the price of 80 sen a share to be too low. The remaining two independent directors are Datuk Mohd Zaini Hassan and Avinderjit Singh.

Besides the low offer price for the takeover, Vargis Mathews and Jagdish felt that shareholders should reject the offer because it did not take into consideration the long-term growth potential and prospects of REDtone.

On Thursday REDtone announced its net profit decline by 36.8% to RM3.15mil in the third quarter ended Feb 28, 2015 compared with the same quarter a year ago on a delay in billings for data projects.

REDtone shares closed at 79 sen on Friday.

Small distractions in the company should deter long term investors. After all, they should take the cue from Tan who would not put his money in the company if he did not see the potential.