AZRB

• After having secured a major contract for the MRT and a hospital job, AZRB’s order book has ballooned to rm1.9 billion against its annual burn rate of rm500million. The bulk of its order book is made up of the rm700 million MRT Package V6 and a contract worth rm400 million to build a teaching hospital in Kuatan. Nonetheless, with an enlarged order book, the group will have to be prudent with its cash pile of close to rm110 million as at March 31, 2012 to undertake these mega projects.
• Its cash pile will be reserved for projects as well as its plantation business. FY2012 dividends will hinge on the group’s requirements for working capital.
• In addition to the two mega projects, the group is still bidding for several other projects both from the government and private sector.
• Its oil palm plantation in Indonesia will need another three to four years to bear fruit and become self sustaining. It has a landbank of 21000ha but has only planted 5000 ha.

Genting HK/Genting SP/Genting Bhd

• Genting Group has increased its stake in Echo Entertainment to almost 10% putting the gaming operator on par with James Packer seeking to gain control of the Australian casino operator.
• Packer who already owns 10% of Echo wants to use Echo’s license to build a new casino complex in Sydney to attract more Asian high rollers and has already ousted the firm’s former chairman.
• There may have been an agreement between Genting’s KT Lim and Crown’s Packer that each group would hold a 10% stake for now (June 2012) and wait to see what develops. The pact could fend off potential hostile takeover bids.
• Genting bought 2% of Echo or 13.8 million shares worth around A$60million in a single trade. That follows a block trade by Genting HK for 19.26million Echo shares or about 2.8% of Echo worth A$82.6 million. Genting SP had also bought 4.9% stake in Echo.
• Under Echo’s constitution, no single party can hold more than 10% and will need regulatory nod to go further.
• Genting probably has not made any firm decision on what to do with Echo but expects to gain regardless of whether it takes control of Echo or sells its stake later. Packer’s hand are tied until regulatory approval was granted to increase its stake in Echo. The permission may take at least few months but Packer is keen to work with Genting.
• Genting would be keen to avoid a messy takeover battle for Echo which could cost as much as A$4.5 billion. As Echo is currently (June 2012) undergoing a debt restructuring programme, it is unlikely that Genting SP or Crown would be making any takeover moves. Currently (June 2012), Echo is offering new Echo’s shares to raise about A$454 million.
• Genting HK is a unit of Genting which owns Star Cruises and holds a stake in Philippine casino Resorts World Manila. Genting SP owns Resorts World Singapore.

POS/DRB Hicom

• POS had released a five year plan … Consecutive double digits revenue growth up to 2017, making its current pre tax margins of 12% a lot higher, exploring new investments and M&A opportunities.
• There are three distinct phases to the five year programme. The first phase, involving the entrenchment of its core business, has already transpired. POS is embarking on the second phase, which involves diversification on multiple fronts – the digital businesses, extending of its delivery channels and possibly providing supply chain management for the third party corporates.
• It is looking to reduce the core mail business’s revenue contribution from 62% currently (June 2012) to less than 40% by end 2017. The third phase involves regional and overseas expansion.
• Currently (June 2012) the 2% stake in POS contributes only 3% of DRB Hicom.
• Share price during this period is a good entry point (June 2012) for along term restructuring play.

Airasia

• Its chief Tony Fernandes said that Aireen Omar will be the new CEO of Malaysian operations following his redesignation as group CEO. The appointment is also seen as a crucial part of succession planning for the airline group.
• Airasia has reconfirmed Jakarta as its regional base with KLL remaining its headquarters in tandem with its regional expansion plan.
• Airasia owns 58 aircraft to serve 30 million Malaysians compared with18 aircraft to serve 240 million in Indonesia.
• Upon full implementation of Asean’s open sky policy in 2015, expect a quantum leap in the group of Airasia Indonesia should Airasia executethe right strategy.
• It is believed that the move by rival Tiger Airways to acquire Indonesia’s Airline Mandala and Lion Air and to purchase 201 new Boeing 737 aircraft has compelled Airasia to place its regional office the country.
• With fuel cost accounting for almost 50% of its operating cost, expect the softening of jet fuel (June 2012) price to improve its profitability in the coming quarters (June 2012 & Beyond).

Source: KENANGA Research - 20 June 2012