Journey to Wealth

About MAHB, Redtone, DIGI, WCT, KNM, RCE Cap ...

Publish date: Wed, 26 Sep 2012, 10:12 AM

Its Prospects ' dated Sept 2012
The number of people passing through KLIA has been growing steadily over the years since 2010. Due to this expanding volume, MAHB's earnings have improved over the past five years.
It is a safe bet as the stock offers investors exposure to the aviation industry without the risk associated with volatile jet fuel prices. The company derives its income from aeronautical services 'landing and parking charges for aircraft and passenger service charges 'and non-aeronautical businesses such as retail and agriculture. The two segments contributed almost equally to revenue in Fy2011.

Moving forward, MAHB's soon to be completed low cost terminal, KLIA2 is seen as its trump card to boost traffic volume. With KLIA2, MAHB will be in good position to benefit from the intensifying competition among airlines.

The new airport which is expected to be operational in May 2013, is set to host 10 nofrills airlines including Malindo Ariways. Once the airport is operational, MAHB will have almost 10 LCCs flying from it.
The entry of Malindo Airways and other no frills carriers will help diversify MAHB's clientele.
MAHB also operates all the domestic airports, except for Senai Airport in Johor. The group also manages teo international airports in India, the Sabiha GokcenIntl Airportin turkey and the Male Intl Airportin Maldives.

Its Prospects ' dated Sept 2012
Its poor financial performances were partially contributed by its non-core and loss-making subsidiaries. Followed the completion of the divestment of a number of its non-core and loss-making subsidiaries, Redtone's total selling, general and administrative (SG&A) expenses are expected to be lower by 10% year-on-year to RM36mil in financial year ending May 31, 2013 (FY13).

Going forward, the group's FY13 bottom line however, is still expected to underperform due to persisting high operating costs and stiff competitions. Expect Redtone to narrow its net loss to RM3.2mil in FY13 from RM8.7mil core net loss (ex-deconsolidation gain of RM10.9mil) a year ago, based on the existing businesses.

The infra and spectrum sharing agreement (NSA agreement) signed by Redtone and Maxis Bhdis expected to benefit both parties. The combined spectrum will allow both companies to offer the fastest 4G broadband speed across the country of up to 150Mbps. While Maxis is expected to benefit from the enlarged spectrum capacity, Redtone on the other hand is expected to have significant cost-savings on capex of about RM390mil.

The NSA agreement will allow both parties to maximise the usage of the scarce combined 2.6GHz spectrum, albeit the respective apparatus assignment for the 4G spectrum have yet to be assigned by Malaysian Communications and Multi-media Comission. In return, Maxis will pay Redtone an upfront payment in FY13 followed by a series of payments over the next 10 years.

Redtone is expecting the recurring income (from Maxis) to boost its financial performance significantly.

In view of the company's bottom line still expected to post a loss in FY13, Redtone is likely to be fairly valued at its net asset per share of 18 sen. Nevertheless, should the 'Maxis factor' into the financial model; Redtone's FY13 is expected to record a net profit turnaround of RM21.1mil. This will provide a strong rerating catalyst for the stock.

Its Prospects ' dated Sept 2012
Though earnings prospects look appealing for financial year 2013 onwards, current (Sept 2012) valuations have fully factored in the positive earnings growth. Downside risks would however be offset by the attractive dividend yield of 5.6%. (1.3% capital distribution and 4.3% pure dividend yield).

Expect incremental dividend yields over the longer term due to improved earnings along (and corresponding cashflows) with stagnant capital expenditure given the saturated growth in Malaysian telco industry. Apart from that, its net cash postion would also allow the group to declare further special dividends.

Though DiGi's stated long-term dividend policy has been to 'pay out a minimum 80% of net income',its actual ordinary payout has been in excess of 100%. The company has also either carried out a capital repayment or offered a special dividend in the past.

The company is in the process of finalising a capital repayment totaling RM495mil or 6.4 per share and is expected to be completed by first half of FY13. This comes just after its first capital management exercise, totaling RM509mil, which was distributed in the first half 2012.

Given that the company is still in a net cash position after two rounds of capital repayment, do not rule out the likelihood of special dividend or further capital repayments in the near term.
The group is embarking on network collaboration with Celcom, which includes sharing of sites and backhauls transmission to ensure both parties are able to carry higher traffic volumes. The entire exercise is slated for completion by end-2013. As indicated previously, the collaboration is expected to result in incremental cost savings in the future, totaling RM2.2bil over 10 years, starting from 2015 with an average of RM150mil to RM250mil per year. In addition, both parties have also commenced joint fibre aggregation and trunk rollout.

Besides that, a network modernisation initiative that involves replacing its entire radio access network for a brand new long-term evolution (LTE)-ready platform is on target and is slated for completion by end-2012. The new network is expected to deliver highspeed broadband and next generation services with the introduction of a portfolio of bandwidths. The LTE-ready network will ensure faster roll-out of broadband services through wider coverage and enable to deliver substantially faster speed at affordable prices.
DiGi became the fourth operator to enter the Malaysia's 3G arena with the launch of 3G broadband in the fourth quarter of 2008. The delayed entry places it behind the competition as its population coverage is still low, standing at 60% compared with Celcom 81.7% and Maxis 81%. The company intends to pick up momentum in expanding its 3G population coverage this year to 70% and over 80% by 2015.
Downside risks arising mainly from price competition amongst its peers. This could revole primarily in the mobile-internet and wireless broadband segments due to the arrival of several new players namely, U-mobile and YTL Communications as well as Wimax players like Green Packet's P1.

Its Prospects ' dated Sept 2012

Taing, who is also the managing director of WCT, has over the years built the Shah Alam-based company into a construction powerhouse that is able to secure prestigious building contracts in West Asia.

Taing and those alligned to him control about 19 per cent of the company while the Employees Provident Fund and Pilgrims Fund Board own just slightly over 13 per cent and five per cent of the company, respectively.

WCT, which is one of the few public listed companies with an Arabic profile on its website, has in recent years won much sought-after projects in West Asia, such as the Formula One Circuit in Abu Dhabi and the Bahrain International Circuit.

In 2012, WCT surprised many when it won a RM331 million project in Sabah that involved, among others, the construction and completion of a nine-storey hospital with 200 beds.

So far Sept till 2012, WCT has secured about RM2.1 billion worth of jobs, including the secured RM1 billion contract for the construction and completion of Batinah Expressway Package 2 in Oman. Should it secure the teaching hospital job in 2012, its order books will expand in 2012 to almost RM3 billion. In total, the company has an order book of about RM4 billion.

Jobs in hand include PLUS highway widening works, earthworks for the KLIA2, as well as a government administrative office and NewDoha InternationalAirport projects in Qatar

What's NEXT! ' dated Sept 2012
It has secured rm100 million financing to go ahead with the acquisition of land in Peterborough, UK, where it plans to build a rm2.1 billion renewable energy plant. The land is expected to be on track to finalise the acquisition by end Oct 2012. Including the land cost, the Peterborough project in which KNM owns an 80% stake will cost a sizeable rm2.2 billion. KNM plans to begin construction in 2013 and complete the mega project by 2016. During the construction phase, some contract flow in terms of process equipment orders will benefit KNM's German unit Borsig GmbH, which manufactures compressors boilers and so on.
KNM is also planning to list Borsig on SGX in 2HFY2013 to raise rm450 million to rm475 million by divesting a 25% stake. Once completed the Peterborough renewable energy project will provide KNM with a steady income stream and stabilize its current (Sept 2012) cyclical business model.

Risk remained neutral on KNM citing execution risk of the Peterborough project at the start of the construction as a concern.

Its proposed renounceable rights issue of 488.92 million new shares to be completed by November 2012.
The proceeds from the rights issue would be used to "pare down our current borrowings and for other working capital requirements".

The rights issue of 488.92 million new shares is priced at an indicative issue price of RM1 each. The indicative price of RM1 will be payable in two calls. The first call of 40 sen will be payable in cash from subscribers, and the second call of 60 sen will be capitalised from KNM's share premium account.
The theoretical ex-rights price is about 60 sen and is 50% above the first call of 40 sen. The rights shares will be issued on the basis of one rights share for every two existing KNM shares with one detachable warrant for every one rights share subscribed for

Its current market cap (Sept 2012) stands at about rm706 million ' a steep discount to its net asset backing of rm1.64 billion, which nevertheless included goodwill ofabout rm790 million from the acquisition of Borsig in 2008.

Its upcoming one for two rights issue exercise, which will enlarge its share base to over 1.5 billion shares from one billion currently (Sept 2012). The group has also priced the rights shares at a sharp discount. The new issue is priced at 40 sen per share, payable in cash from its existing shareholders and KNM is proposing to capitalize on another 60 sen from its share premium account.

There are also parts of KNM that continue to bother investors. KNM reported a net profit of only rm68.89 million in the first of 2012 which had included contributions from Borsig, means that KNM ex-Borsig was actually loss making.

Accompanying KNM's first half of 2012 results, the group's operations in South America, chiefly Brazil, were in the red due to the slowdown in its order book. This had weighed down group performance despite improvements in the Asia and Oceanic segment, as well as strong contract stream in its Europe segment handled by Borsig.

RCE Capital
What's Up? ' dated Sept 2012
Its acquisition of a company called Urusan Ihsan Sdn Bhd has its own auto deduction mechanism linked to the salaries of government employees.

RCE's core business has been to lend money to government-linked cooperatives such as Koperasi Wawasan Pekerja-Pekerja Bhd (Kowaja), which in turn provide loans to their members. These cooperatives are members of Angkasa (Angkatan Koperasi Kebangsaan Malaysia), and are allowed to automatically deduct the salaries of its members, primarily civil servants, for repayment of loans.
Loan repayments are collected via government-initiated monthly salary deductions and the deductions are administered by Angkasa.

On Aug 14 2012, RCE said it would pay RM18mil for Urusan Ihsan, which is involved in the processing and administration of civil servants' payroll collection system.

Incorporated on July 29, 2012, Urusan Ihsan has a paid-up share capital of RM1.8mil comprising 1.8 million shares.

RCE had acquired the entire equity interest of the former for RM18mil cash from four vendors namely Mohd Jafni Mohd Alias (52.78%), Sim Chee Kiong (30.56%) Datuk Amran Mat Nor (8.33%) and Datuk Rozzanamoon Rahmat (8.33%).
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