REDtone boosted by post-divestment synergies (Edge)

REDtone International Bhd
(Jan 28, 63.5 sen)
Maintained outperform at RM62.5 sen, with a target price of 81 sen. REDtone’s net profit for the second quarter of financial year 2014 ending May (2QFY14) of RM9.7 million (+62% year-on-year [y-o-y]) came in within expectation at 36% of our full year estimates (against 15.8%   in the first half [1H] of FY13). We understand the group will recognise more of its government projects worth RM82.5 million in the remaining quarters. Coupled with better economies of scale, this should bring its full-year net profit closer to our estimate of RM27.2 million. No dividend was declared as expected.

Y-o-y, 1HFY14 revenue advanced by 16% to RM66.6 million, mainly propelled by the strong contribution from its data segment (+85% to RM39.5 million), which was driven by various government projects as well as higher data and application revenue contribution. The group’s profit before tax (PBT) soared 92% to RM11.7 million due to the cost synergies created post-divestment of non-core and loss-making businesses as well as from the higher data revenue. The strong growth rate was partially offset by a tax deduction (instead of tax refund in the previous financial year) thus boosting its net profit by 62% to RM9.7 million.

Quarter-on-quarter, turnover decreased to RM30.5 million (16%) in 2QFY14 due to the lower data segment revenue, mainly caused by the absence of revenue contribution from the RM82.5 million government project. The group’s earnings before tax and interest improved by 45% to RM6.8 million, thanks to the RM5 million disposal gain arising from REDtone Mobile Sdn Bhd. Its PBT margin was also enhanced, to 23.2% (1QFY14: 12.9%; 2QFY13: 15.8%) due to larger economies of scale and higher data segment contribution.



We believe the failure to secure the recently announced digital terrestrial television broadcasting infrastructure contract may not necessarily be a negative given that some of the key parameters have come in at the lower end which may affect the project’s return on investment.

We raise our FY14 earnings forecast by 1.3% and FY15 by 1.8%. We have also realigned the number of shares to 507 million from 479 million previously. We roll over the valuation base year to FY15 but maintain our target price at 81 sen based on unchanged FY15 targeted price-earnings ratio of 14.5 times (+0.5 standard deviation). Risks to our call are dependency on sole major partner Maxis Bhd and a failure to secure more government programmes. — Kenanga Research, Jan 28

This article first appeared in The Edge Financial Daily, on January 29, 2014.

Sumatec begins producing oil in Kazakhstan (Star)

Sumatec Resources Bhd has started producing oil at the Rakushechnoye oil field in Kazakhstan.

It said the first well, under the re-entry and work-over programme, had been successfully completed rigless and brought on production.

In a statement, Sumatec said the well was “expected to produce initially between 100 and 150 barrels of oil per day” after a full production test had been completed.

It said it planned to re-open and perform work-over on nine more wells in the next three months.

Chief executive officer Chris Dalton said: “We’re very excited over the start of our oil production, and we’re really looking forward to see the results of the work-over programme in the next three months.”

Both Chris and chief operating officer Zulkifly Mohamad were at the field to witness the historic oil production from the well in the freezing -20 degrees Celsius weather.

The company said the start of oil production from the Rakuschechnoye Oil and Gas Field marked a key milestone in Sumatec’s oil production rejuvenation programme for 2014 and beyond.

It said that it was also a significant step towards turning Sumatec around in its recently completed regularisation plan.

Public Bank positive on NTPM with "outperform" rating (Edge)

In its initial coverage of the company, the research house said the company is supported by its strong market share position, expanding operation, and effective product diversification.

“NTPM has invested USD19.7 million (RM65.9 million) to commission an office and two warehouses housing two paper-making machines on 10 hectares of land in Ho Chi Minh City,” said the research team.

It has also recently secured contracts with US-based company Seaman Paper Co. to supply wrapping tissue paper and a Japanese company to supply diaper core wraps.

In addition, the group’s consistency in paying out dividends is maintained at 2.9 sen per share, or yield of 3.6% for FY15F.

“We expect earnings to be boosted further upon materialising of their strategies,” the research team said in their note

At 12:07pm, NTPM remained unchanged at 81 sen with 470,500 shares traded.

Scomi Energy plans crane biz foray via jv with Handal (Edge)

Scomi Energy Services Bhd may venture into the offshore pedestal crane business via a planned collaboration with Handal Resources Bhd.

In a statement today, Scomi Energy CEO Shah Hakim Zain said the oil and gas support services provider has signed a memorandum of agreement (MOA) with Handal which manufacturers cranes.

Shah Hakim said the MOA allows Scomi "to explore opportunities for collaboration with integrated offshore crane services provider and fabricator Handal Resources Berhad to supply modular workover rig, offshore pedestal cranes and related operations, repair and maintenance  services to oilfields in Africa and the Middle East."

"Under the memorandum of agreement signed, both parties will formalise working arrangements in relation to the proposed collaboration within the next six months," he said.

Former- largest shareholder exits bio-osmo (Edge)

Perbadanan Nasional Bhd (PNS) has sold its entire stake of 9% in Bio Osmo Bhd and ceased to become a major shareholder in the former.

In a statement to the exchange today, Bio Osmo which manufacturers drinking water, said PNS has sold 41.57 million shares in the firm which has an expanded issued base of 455.36 million shares.

Bio Osmo's expanded issued share base followed the conversion of irredeemable convertible preference shares into ordinary units in the company.

According to Bio Osmo's annual report, PNS was formerly the largest shareholder with a 20.78% stake prior to the expansion of Bio Osmo's share base.

PNS' exit from Bio Osmo comes coincides with the entry of a new major shareholder who may spearhead its diversification.

News reports have indicated that Bio Osmo may be diversifying into the oil and gas industry. The rumour comes amid news that Harzani Azmi who is a board member of Tanjung Offshore Bhd, has emerged as a major shareholder in Bio Osmo.

According to Bio Osmo's statement to the exchange, Harzani owns 100 million shares or 22% in the company

Shares of Bio Osmo have been actively traded. The stock fell 1.5 sen or 7% to 21 sen at 12.30pm. The exchange's fifth most-active stock saw some 39 million shares changed hands.

At the current price, the stock has more than doubled from a six-month low of 10 sen seen on September 3, 2013, Bloomberg data showed.

PNS, owned by the Ministry of Finance Inc, oversees the development of Malaysia's franchise industry.

Daya shares up after Norwegian fund buys 1.3% stake (Star)

Shares of Daya Materials Bhd’s shares rose in heavy trade at midafternoon on Wednesday after a Norwegian fund bought 1.3% stake in the group.

At 3.32pm, its shares rose two sen to 42.5 sen with some 102.33 million shares done between 40.5 sen and 43.5 sen.

The FBM KLCI fell 6.03 points to 1,828.94. Turnover was 1.72 billion valued at RM1.713bil. There were 275 gainers, 502 decliners and 303 counters unchanged.

StarBiz reported Norges, Norway’s sovereign wealth fund which ranks as one of the world’s largest funds with some US$810bil (RM2.5 trillion), has taken up some 18 million Daya’s shares at 34.5 sen under the latter’s recently concluded 10% private placement, according to sources.

“Norges initially wanted 30 million shares. However, there wasn’t enough to go around. They may buy from the open market instead,” said a source.

The source added that the placement, which comprises 125 million new shares, had been oversubscribed by three times by institutions, which included names like Public Bank Bhd, HwangDBS and Allianz, among many others.

Permodalan Nasional Bhd was also one of the takers of the placement shares.

Minetech in 'exploratory' talks to supply materials to casino-hotel in Cambodia (Star)

Minetech Resources Bhd is in “the exploratory stage of discussion with a party” to undertake construction and raw material supply in relation to a casino and hotel project in Cambodia, confirming a StarBizWeek story.

“Matters are still at a very preliminary stage and nothing is confirmed yet at this point of time and Minetech has yet to be awarded any job in relation thereto.

“Any project award will be announced accordingly in due course,” the quarry operator and construction outfit told Bursa Malaysia.

On Saturday, StarBizWeek reported that Minetech’s job pipeline could possibly get a lift soon as it may obtain a major contract involving the construction of a casino in Cambodia.

The report quoted one source as saying that Minetech could be teamin(g up with a China-based casino operator for this purpose.

The source had said the company was likely to be the main contractor for this project, owing to its “good business relationship” with the casino operator.

IRIS set to be 2014 star performer (Edge)

IRIS set to be 2014 star performer

Minetech back on the radar? (Jupiter)

Minetech Resources Bhd has been getting some attention of late. On Dec 30, Datuk Lye Ek Seang, also a former director of Ho Hup Construction Company Bhd, ceased to be a substantial shareholder of the firm together with one Lau Chee Meng and HSBC Holdings plc. Businessman Chin Boon Long emerged as a substantial shareholder in the firm, buying a 6.91% stake on Jan 6 from the open market. The largest shareholder in Minetech currently is Sen Choy, who has a 26.76% stake. It recently proposed to enter into a joint-venture (JV) agreement with Perak-based Pantai Quarry Sdn Bhd for the development of quarry land, undertaking of quarry operations, including downstream and the undertaking of sales and marketing of quarry products. Minetech, via its subsidiary, will hold 51% in this proposed JV. Star

Harzani may turn loss-making bottled water manufacturer Bio Osmo into oil and gas outfit (Star)

Tanjung Offshore Bhd managing director Harzani Azmi has emerged as a substantial shareholder in Bio Osmo Bhd, spurring speculation that the loss-making bottled water manufacturer might change its course into the more lucrative oil and gas (O&G) sector.

Shares in Bio Osmo have rocketed since the completion of its restructuring exercise on Nov 28.

“The completion of this exercise was a huge milestone for the group. Initially, it was about cleaning up the house. Now, they are looking for growth, and O&G could be the new direction they want to take,’’ said a source.

Harzani, via private company Al Maurid Resources Sdn Bhd, has acquired 28% in Bio Osmo after taking up 99 million shares in the company.

Bio Osmo sold 115 million shares via a private placement to raise funds and pay off its RM65mil debt. The company’s water bottling business has been making losses for the past five years.

It is unclear at this juncture what is in store for Bio Osmo, but the entry of Harzani has certainly whet punters’ appetite.

Shareholders in Bio Osmo are certainly hoping that Harzani can turn the company around.

Harzani has over 25 years of experience in the O&G industry both domestically and internationally.

He was instrumental in the setting up of Proserv Far East Pte Ltd for the Asia-Pacific region, a Norway-based company involved in production technology and services for the energy industry.

He has been at the helm of Tanjung Offshore since September 2012.

Meanwhile, Bio Osmo shares have been on an uptrend since the completion of its corporate restructuring exercise. It ended Thursday one sen down to 22 sen on a volume of 63 million shares.

Prior to November last year, the stock had been languishing at the 10-sen level, way below its par value of 20 sen.

The recently completed restructuring exercise entailed the full settlement of some RM65mil in debt owing to Bank Kerjasama Rakyat Malaysia Bhd, Idaman Capital Bhd and certain trade and non-trade creditors via the issuance of new ordinary shares and convertible preference shares.

With this exercise, the group is now literally debt-free.

For the third quarter to Sept 30, 2013, the company was back in the black with a net profit of RM542,000 from a previous loss of RM2.03mil. Revenue dropped 76.18% to RM1.03mil.

For the nine-month period, meanwhile, the company narrowed its losses to RM2.54mil from RM11.24mil previously. Revenue was up 26.42% to RM15.3mil.

Bio Osmo was listed on Dec 5, 2007 at an initial public offering (IPO) price of 33 sen. The stock has yet to go beyond its IPO price.

Daya Materials Bhd (Star)

DAYA Materials Bhd was one of Bursa Malaysia’s outperformers last year. The stock was up 116% for 2013.

With an existing orderbook of RM1.5bil, there are possibilities for more contracts and record profits.

Daya created waves last year when it won two major charter contracts from Norway. The earnings from these contracts are set to be realised this year.

Based on consensus estimates, Daya’s net profit is set to scale new highs of RM29mil (44% jump) for the year ended Dec 31, 2013 (FY13), RM43mil (47% increase) in FY14 and RM49mil (15% increase) in FY15, fuelled by its orderbook of RM1.5bil and an expanding fleet.

Over the last decade, Daya has been more focused on the downstream oil and gas (O&G) segment. It chugged along, growing organically until 2013, when it entered the offshore construction segment.

It formed Daya Offshore Construction Bhd (DOC) in September 2012. The arrival of vessels Siem Daya 1 and Siem Daya 2 proved to be Daya’s inflection point.

On Aug 16, Daya clinched a seven year charter contract from Technip for the provision of a subsea construction vessel. This project will run for 100 to 175 days per annum commencing in 2014 with an estimated value of RM250mil to RM440mil.

On Sept 3, Daya won again with Technip, when it secured another three-year contract for a period of 100 to 175 days with an estimated value of RM100mil to RM176mil.

For the nine months to Sept 30, 2013, Daya’s revenue jumped 110% to RM373mil and net profit increased 26.74% to RM18.9mil.

However, contributions from the North Sea are set to climb starting from the first quarter of 2014, as contributions from Siem Daya 1 and Siem Daya 2 kick in.

CIMB estimates that Daya’s revenue could further increase should Reach Energy Bhd, in which Daya has made an investment as an initial investor, acquire O&G assets overseas.

Reach Energy is set to become Malaysia’s fourth special purpose acquisition company once it gains the approval for a listing from the Securities Commission.

Catalysts:

- Record profits.

- Orderbook of RM1.5bil.

- Potential contract wins from Petronas and Norway.

- Listing of Reach Energy Bhd.

Risks

- Failure to deliver on its contracts and replenish orderbook.

- Tough competition for the Malaysian RSCs.

– By Tee Lin Say

Gadang Holdings Bhd (Star)

ONCE a pure construction player, this company is fast transforming itself into a diversified group.

Its property segment, utility and plantation divisions will eventually provide solid support to the group’s total income base where currently construction is still the main driver.

Under its construction division, it has an outstanding order book of about RM1.2bil which according to estimates provides earnings visibility of at least three years for the group.

It will tender for up to RM6bil worth of jobs and near-term replenishment could come from the second phase of Petronas’ Rapid project in Pengerang worth some RM300mil, according to a note by JF Apex Securities. The project which involves the construction of a cogeneration plan is expected to be awarded early this year.

Gadang was awarded the job for the first phase of the project.

Under its property segment, some RM425mil worth of launches are earmarked for the current financial year ending May 31.

Gadang has also joined the PR1MA fray by being a partner to government-owned Cyberview Sdn Bhd. The first phase of their affordable homes project in Cyberjaya is expected to be launched in the middle of this year with a gross development value of RM150mil.

Pre-tax profit from Gadang’s property segment increased four-fold to RM4.3mil for the latest quarter from RM1mil a year earlier.

On its utility division, the company is said to be in negotiations to beef up its Indonesia water treatment capacity business where it has controlling stakes in five Indonesian water supply companies.

Its water supply division currently contributes about 10% to the group’s pre-tax profit.

It is also moving into the mini-hydro power generation business where in October it said it would pay RM3.06mil for an 80% stake in PT Hidronusa Rawan Energi, which is currently pursuing a 4MW hydropower project in Indonesia.

This is the company’s second purchase following the acquisition of a 60% stake in a 9MW mini-hydropower project in May for RM3mil.

Contribution from the mini-hydro power generation business, however, is not expected to be immediate as it will take at least two years for the full infrastructure to be put into place.

Gadang also hopes to ride on a potential recovery of crude palm oil prices which headed south last year

JF Apex notes that early harvesting had commenced in early 2012 and the group projected RM20mil of yearly revenue from this business upon maturity, which is about four to five years from now.

For its latest quarter to Aug 31, Gadang’s net profit soared 184% to RM7.1mil on revenue of RM113.5mil compared with a net profit of RM2.5mil on revenue of RM47.3mil previously.

The stock last traded at RM1.02 which is about nine times price earnings ratio to the group’s FY2014 forecast earnings.

JF Apex and UOBKayHian Research have a target price of RM1.43 and RM1.50 respectively on Gadang, suggesting an upside of about 44% on average from the current price.

Catalysts

- Sizeable and growing construction order book which give clear earnings visibility.

- Analysts project earnings growth of 32% compound annual growth rate from FY14-FY16.

- Diversification into property, utility and plantation segments.

- In net cash position, possibly growing dividends for shareholders.

Risks

- Slowdown in domestic consumption could affect demand for property.

- Failure to secure the anticipated contracts.

– By Yvonne Tan

Scomi Energy-Aussie partner close to securing Petronas contract (Star)

Scomi Energy Services Bhd and its Australian partner Octanex are said to be close to securing a contract from Petroliam Nasional Bhd (Petronas) to develop a marginal oilfield off the coast of Terengganu.

The Ophir cluster, one of 10 small oilfields reported in May to be tendered out by Petronas under its third round of risk service contract (RSC) licensing programme, was estimated to contain 5.1 million barrels of recoverable oil.
At current crude oil price of about US$100 a barrel, this values the Ophir contract at US$510mil (RM1.68bil).

The cost of developing the field is estimated to be anywhere between US$130mil and US$200mil, after taking into account the required capital and operating expenditures for the project.

It is believed that Petronas will announce the winners for the third round of RSCs as early as this month.

“Petronas is close to making the award, subject to certain conditions being fullfilled,” said one source, who declined to be named due to the sensitivity of the contract.

Scomi Energy will take up a 30% stake in the venture, with Octanex having a 50% share. Vestigo Petroleum Sdn Bhd, a unit of Petronas Carigali Sdn Bhd, would own the remaining 20% equity interest in the Ophir job, the source said.

If the RSC award to Scomi Energy materialises, it will be the first RSC win for the group.

A glance through Scomi Energy’s latest financial statements shows that the group is in a much better shape than a year ago. The company, formerly known as Scomi Marine Bhd, reported a net profit of RM48.59mil, or 2 sen a share, on revenue of RM651.2mil for the six-month ended Sept 30.

The stock was last traded at 80 sen yesterday.

Willowglen gets RM17.8m contract from PUB Singapore (Jupiter)

Willowglen MSC Berhad has been awarded two contracts worth RM17.8m by the Public Utilities Board of Singapore.

The first contract is to upgrade PUB's existing SCADA system while the second is to maintain the system. The upgrade contract is valued at RM12.3m and will start on 6th January 2014 for completion by January 5th, 2016. The maintenance contract valued at RM5.5m will commence on 6th January 2016 and ends on January 5th, 2021.