Saturday, 24 December 2016 
Focus on oil and gas producers, not vessel operators 
BY AFIQ ISA - THE STAR 

MALAYSIAN companies with oil producing assets are the clear beneficiaries of the recent global oil pact by major producers to cut down oil production. 
The initiative, which was spearheaded by the Organisation of the Petroleum Exporting Countries (Opec) and involved both Opec members and non-member countries, will see a reduction of around 1.76 million barrels per day (bpd) from the global output beginning next year. 
As part of the pact, on Dec 21 Petroliam Nasional Bhd (Petronas) announced that it is cutting down production by up to 20,000 bpd. 
While it is clear that Opec members have two ever-present objectives – to raise oil prices and maintain its market share – the effectiveness of its efforts will be seen as early as over the next few months. 
According to a recent report by the International Energy Agency, the global oil market could show a shortfall of 600,000 bpd early next year due to the expected increase in oil demand while total production becomes lower. 
Enra Group Bhd president and group CEO Datuk Mazlin Junid believes that oil prices will be capped at the US$60 level for the time being. 
“There are so many variables that impact the price of oil for different parts of the world. Conventional oil is made up of offshore and onshore production, and they have vastly different production costs. But then there is unconventional production such as shale oil which does not fall into the production cutback, and the US aims to kickstart production after Donald Trump gets into office. Interesting times ahead,” he explains. 
At the same time, the outlook remains bleak for companies in the offshore services industry. Companies in this segment continue to face threats that have plagued industry players over the past two years, namely the underutilisation of vessels as well as rock bottom charter rates. 
“Normally it will take about six months of price stability until new exploration and drilling contracts are tendered. Some players can rely on the maintenance contracts, but this will not improve overall utilisation as there is still an oversupply of vessels,” says a CEO of another oil and gas firm. 
This means that bullish investors should opt for companies which own or operates oil and gas assets as their revenue base will head higher in line with improved crude prices. 
The two companies that offer the cheapest entry prices are Hibiscus Petroleum Bhd and Reach Energy Bhd. 
In spite of its past troubles, Hibiscus, which operates the Anasuria Cluster in the North Sea in United Kingdom, produced over 3,400 bpd during its latest quarter ended Sept 30, 2016. 
The company reported a pre-tax profit of RM7.48mil on the back of RM54.75mil in revenue for the quarter mainly from the crude sales. In a previous exchange filing, Hibiscus disclosed that the barrels of crude from the cluster were sold at a realised price of US$45.21 per barrel. 
Meanwhile, Reach, which had recently received shareholder approval to buy a stake in an onshore field in Kazakhstan, could benefit from the same angle. 
The company will purchase a 60% stake in Palaeontol BV, which is the owner of the Emir-Oil LLP field for a sum of US$154.9mil. The field has four producing fields, two development fields and six drillable prospects. 
Reach had previously disclosed that the field will have the capability to double its oil production to 12,000 bpd by next year. 
At the other end of the scale, the blue-chip SapuraKencana Petroleum Bhd is a promising proxy for those with a positive view on the direction of oil and gas prices. 
Among the group’s key assets are several gas fields in offshore Sarawak which will begin production in 2018. 
In a note, CIMB Research says SapuraKencana will enjoy a major uplift in profits once the gas fields begin operations. 
This is because gas from these two blocks are sweet and relatively inexpensive to develop, while Petronas is a ready buyer for the commodity, it says. 
In a recent note, Maybank IB Research says there are good reasons to stay optimistic and stay invested over the next six month. 
The firm has upgraded its outlook on the sector to “positive” from “neutral” previously in light of Opec’s long-term output cut. 
“With most stocks having de-rated and much of their values lost, in our view now is a opportune time to bottom-fish with much trading opportunities for a sector which has been sidelined for a while,” it says. 
The research house has also upgraded its target prices for four stocks with a “buy” call, namely Dialog Group Bhd, SapuraKencana, Wah Seong Bhd and Barakah Offshore Petroleum Bhd.

Sumatec produce GAS & no Crude Oil yet, unlike Hibiscus & Reach.

" For the current quarter under review, the Group recorded turnover of RM7.59 million from the gas development contract billing. Against the third quarter of 2015, revenue was lower due to slowdown in the gas development contract activities, in tandem with the current downturn in the industry.
Nonetheless, the Group posted a higher profit before tax of RM14.96 million as compared to RM7.84 million in the corresponding period last year due to the reduction in direct cost, cutbacks in operating expenses and income from fair value adjustment on amount receivable from the concession holder of the Rakushechnoye Oil and Gas Field."

Source : Sumatec Quarter Report Ended 30/9/2016

Tecguan is dealing in the exports of Palm Kernal Oil. All the palm kernal are source from their related companies at market price. The price of palm kernal oil has increased by about 80 % this year.

Malaysia Oil & Gas - Upgrade to POSITIVE
Author: kltrader | Publish date: Mon, 19 Dec 2016, 09:55 AM

Positioning ahead of a cyclical recovery

We upgrade the sector to POSITIVE, ahead of its cyclical recovery, on an improving risk-reward outlook. In our view, the sector has bottomed. We see two major catalysts. Firstly, OPEC and non-OPEC’s move to cut output will accelerate the demand-supply rebalancing of the oil market and spur capex/activities growth. Secondly, we foresee multiple benefits to Malaysia’s O&G operations should Saudi Aram co’s plan to invest a 50% stake in PETRONAS’ RAPID project materialize. For that, we lift earnings multiple peg to 12x (from 10x), resulting in TP/call upgrades. Key BUYs are Yinson, SAKP, Icon and KNM.

OPEC and non-OPEC’s slick move

The joint agreement by members of the OPEC (1.2m bpd) and several non-OPEC producers (0.6m bpd), a first since 2001, to cut oil output by 1.8m bpd from Jan 2017 for 6 months (to Jun 2017), reflects a major statement to a stabilizing oil market that will lead to a start of a cyclical recovery. The cut, which equates to 1.5 years of global consumption growth, if executed well, will: (i) accelerate the rebalancing of the demand-supply equation of the crude oil market, (ii) kick-start capex growth and (iii) support firmer oil prices. Our house view for crude oil price is an average USD55/bbl in 2017.

Saudi Aramco’s wild card

Talks of Saudi Aramco taking a 50% stake in PETRONAS’ RAPID project for an estimated USD21b, if it materializes, would be a major positive. For PETRONAS, it means: (i) the ability to realise value from its RAPID investment, (ii) the new capital can be deployed to jump-start its capex programs (i.e. upstream E&P), that have been affected by the cyclical downturn and (iii) its commitment and ability to pay dividends to the Government would remain intact. A higher capex program by PETRONAS translates into higher activity, eventually benefiting the upstream players and service providers.

Raised optimism for the next 6 months

We take the view that the sector has bottomed and is en route to a cyclical recovery. Operationally, day rates, asset utilization and order backlogs are at a trough. Cost cuts and cash flow preservation have been intense over the past 24 months. Enquiries are on the rise while the tender pipeline has been growing. Much of the negatives have been priced in and sector will re-rate as oil price continues to strengthen. With most stocks having de-rated and much of their values lost, it is, in our view, an opportune time to bottom-fish with much trading opportunities for a sector that has been sidelined and under-owned for a while. We have lifted earnings multiple peg to 12x, from 10x, leading to: (i) raised TPs on five stocks, (ii) two recommendation upgrades (to HOLDs).

Source: Maybank Research - 19 Dec 2016

" For the current quarter under review, the Group recorded turnover of RM7.59 million from the gas development contract billing. Against the third quarter of 2015, revenue was lower due to slowdown in the gas development contract activities, in tandem with the current downturn in the industry.
Nonetheless, the Group posted a higher profit before tax of RM14.96 million as compared to RM7.84 million in the corresponding period last year due to the reduction in direct cost, cutbacks in operating expenses and income from fair value adjustment on amount receivable from the concession holder of the Rakushechnoye Oil and Gas Field."

Source : Sumatec Quarter Report Ended 30/9/2016

As per Quarter Report ended 30/9/2016, Sumatec only produce GAS at the moment. No crude oil yet.

Export duty to double to USD40 per tonne? 1 metric ton = 7 barrels or 20 ÷ 7 = USD2.86 per barrel. Reach cost will increased from about USD30 to USD33 per barrel.

15/12/2016.

Reach Energy MD Shahrul said the company had started to recognise earnings from its QA from October last year, as per the sale & purchase agreement inked with MIE Holdings.

"We are (already) in the business, and the operator ships and management of assets will be phased in within the next six months from the vendors to Reach. The hard work begins now," he said.

According to MIE Holdings' interim financial disclosure for the six-month period ended June 30, 2016 (1HFY16), Emir-Oil's sales climbed 11.4% year-on-year to 659.42 million yuan (RM417.95 million) from 592.18 million yuan a year earlier.

Based on the stake Reach is acquiring, the compny should be able to book in 395.65 million yuan during the period.

The Brent Crude Index slipped 0.38% to US$46.77 per barrel as at 4.41pm yesterday. At the current level, Shahrul said the company is 'very comfortable" even if the price stays at the current level.

"There is no pain yet,"he said, not unless oil price falls below US$30 per barrel.

- The Edge Financial Daily Nov 17, 2016

Reach Energy MD Shahrul said the company had started to recognise earnings from its QA from October last year, as per the sale & purchase agreement inked with MIE Holdings.

"We are (already) in the business, and the operator ships and management of assets will be phased in within the next six months from the vendors to Reach. The hard work begins now," he said.

According to MIE Holdings' interim financial disclosure for the six-month period ended June 30, 2016 (1HFY16), Emir-Oil's sales climbed 11.4% year-on-year to 659.42 million yuan (RM417.95 million) from 592.18 million yuan a year earlier.

Based on the stake Reach is acquiring, the compny should be able to book in 395.65 million yuan during the period.

The Brent Crude Index slipped 0.38% to US$46.77 per barrel as at 4.41pm yesterday. At the current level, Shahrul said the company is 'very comfortable" even if the price stays at the current level.

"There is no pain yet,"he said, not unless oil price falls below US$30 per barrel.

- The Edge Financial Daily Nov 17, 2016

As a result of right issue my average cost should be 2.051 instead of 2.576. Cost RM29,883.10 + RM5,800.00 (Rights Price) = RM35,683.10. No of shares 11,600.00 + 5,800 ( Rights Shares) = 17,400.00. Adjusted price 35,683.10/17,400.00 = 2.051

Mr Tan KW, how to adjust for Tienwah rights issue 1 : 2 @ RM1.00 per share ?

Yield-seeking Investor, Credit Suisse Securities (Europe) Ltd ceased to be a substantial shareholder after divesting a 7.61% stake or an equivalent of 97.24 million shares on Oct 26, 2016. Post-disposal, Credit Suisse Securities' stake is reduced to a mere 0.19% .

Last week MTD Capital Bhd bought out about 118m shares or 9.42% @ 0.76 a piece (5 cts above market) from PAG, another "yield-seeking" one.

Thus Reach could be a step closer to securing shareholders approval on Nov 4, 2016 for its maiden acquisition of an oil & gas (O&G) feild in Kazakhstan.

VIS Q3 EPS is at 1.78 cts.

Hibiscus purchasing Shell Msia assets at a production cost of USD55.10 per barrel.

Total Monthly FFB Production increased by 21 % to 48,631,72 MT in Q3 ( July-Sep 2016) as compared to 40,193.04 MT in Q2 (April-June 2016).

Masteel closed at RM1.00 as at 26/9/2016 up 25 cts or 33.3 %.

For the month of Sept 2016, as at 26/9, Magni, Vis & Tecguan have been added to the listing due to excellent quarter results and Cyl removed due to poor quarter results. You need to update the listing daily for it to remain relevant.

Congratulations for those who are following the above stocks as many have appreciated immensely. Since the listing was based on previous financial quarter results, you need to update the listing with the latest financial quarter results once they are announced. Those co that announced below par results need to be taken out from the listing and those with good results can be added.

This posting received 8,462 viewers in 24 hours ( as at 5.36 pm 3/8/2016 )

This listing was compiled from 1/6/2016 to 31/8/2016 from all the companies financial quarter reports. The prices quoted on the screen were prices at about 11.10 am this morning when i shared it with my telegram group. Now i am sharing it with you & it is up to you what you want to do with it. Wishing you all the best.

Scientex Q2FY16 net profit rises 79% to RM64.6mil

KUALA LUMPUR : Packaging firm Scientex Bhd reported a net profit of RM64.6mil in the second quarter for the financial period ended July 31, 2016 (FY16), or a 79% increase from RM36.05mil over the same period last year.

In a filing to the exchange today, the company announced a growth in revenue to RM545.43mil from RM462.87mil on the back of improved contributions from both its manufacturing and property development divisions.

In a statement, the company said that turnover from its consumer packaging business recorded a positive growth while demand also remained strong for its affordable properties in Johor.

“Our aggressive focus on affordable property sales and continuous expansion of consumer packaging operations has enabled us to sustain the Group’s earnings in 2Q16, amidst the ongoing challenges in the property and consumer sectors in the domestic and regional markets,” said Scientex managing director Lim Peng Jin.

Growth in its manufacturing segment was underpinned by higher consumer packaging sales which grew 47.4% to RM190.2mil on a year-on-year basis. Industrial packaging sales grew 7% to RM211.8mil.

Meanwhile, exports made up 46.4% of the company's consumer packaging revenue during the quarter compared to 33.5% the year before. In line with the growth in exports, Scientex also benefited from a better product mix and favourable exchange rates due to the weaker ringgit, it said.

In a separate filing today, Scientex proposed a one-for-one bonus issue which entails the issuance of up to 230 million new shares with a par value of 50 sen apiece.

The bonus issue, which is pending approval by shareholders at an upcoming extraordinary general meeting (EGM), would increase the liquidity of Scientex shares while enlarging its issued and paid-up capital to reflect the company's current scale of operations, it said.

http://www.thestar.com.my/business/business-news/2016/03/22/scientex-net-profit-up/

Insurers poised to see earnings improve going forward

PETALING JAYA: Despite the challenging business climate, public-listed insurers generally appear to be bucking the trend and are poised to see an improvement in earnings in the coming quarters after having charted sturdy growth in earnings in the final quarter of last year.

Some analysts and industry observers told StarBiz that they expected the net earned income/premiums and claims ratio to improve this year, although this scenario might come under pressure if the economy slowed down due to external headwinds and geopolitical woes.

Under the recalibrated Budget 2016, the country’s gross domestic product (GDP) growth had been revised to a narrower range of 4%-4.5% for this year. Last year, GDP stood at 5% as opposed to 6% in 2014.

The general insurance industry achieved 2.3% growth last year, with gross written premiums of RM17.49bil, which was a slower rate compared to the 5.9% growth achieved in 2014, the General Insurance Association of Malaysia said.

For the life insurance industry, new business total premium grew 1.8% in 2015 with total premium volume recording RM9.12bil, the Life Assurance Association of Malaysia said. The growth of new life business total premiums was lower than that of 9.3% achieved in 2014. The insurance sector’s performance is closely related to the country’s economic strength.

MIDF Research analyst Hafiz Hassan, who is maintaining a positive stance on the sector, said earnings were expected to continue improving in the coming quarters at a reasonable growth pace on growth prospects in net earned income and stable claims ratio.

He said two out of three stocks - LPI Capital Bhd and Tune Protect Group Bhd - under the research house coverage reported higher than expected earnings in the fourth quarter of last year (Q4’15), adding that this was a favourable improvement over none recorded in Q3’15. In Q3’15, all the three insurance/takaful companies’ earnings - LPI, Tune Protect and Syarikat Takaful Malaysia Bhd (STMB) - came within the brokerage’s expectations.

http://www.thestar.com.my/business/business-news/2016/03/21/insurers-buck-trend/

KTC in expansion mode

PETALING JAYA: Kim Teck Cheong Consolidated (KTC) has shown no signs of slowing down as a slew of expansion plans are being executed one after another.

The Sabah-based consumer packaged goods company recently entered into a few agreements for the acquisitions of distribution centres.

“Apart from ongoing acquisition plans, we are growing our own brands of bakery products and consumer packaged goods, expanding our manufacturing capabilities as well as setting up new warehousing facilities,” executive director Dexter Lau (pic) told StarBiz.

After raising RM21mil from its intial public offering (IPO) last November, there were expectations that the company will go for steep growth.

KTC’s stock closed last Friday at 36.5 sen from its IPO price of 15 sen.

Lau said the company had strong future earnings prospects.

According to one analyst, there may still be more upside to the stock.

“KTC’s revenue sales growth rate is anticipated to be 20% to 30% by financial year 2019.

“This is due to increased distribution points as a result of its impending acquisitions, which include distribution centres in Sibu and Brunei as well as a warehousing facility in Kuching,” he said.

On March 16, KTC announced that it was acquiring a distribution centre in Brunei, which would provide KTC with an additional 600 sales and distribution points as well as enable immediate market penetration.

Under the terms of the deal, KTC will hold 60% equity interest in Grandtop Marketing Sdn Bhd (GMSB).

The GMSB acquisition also marks KTC’s first business extension out of Sabah and Sarawak.

At present, KTC has 19 distribution centres and 7,702 sales and distribution points over 84 districts in Sabah and Sarawak.

The group is also in the process of acquiring two warehousing facilities in Sarawak as part of its growth plans, targeted to be completed by June 2016.

KTC aims to set up a manufacturing facility in Sarawak for its bakery products later in the year.

A total of 95% of KTC’s revenue is made up of third party consumer packaged brands while the remaining 5% are house brands.

The group’s house brands include frozen and pre-packaged food and bakery products under the Orie and Creamos brands.

“Sandwich loaf and cupcakes will soon be added to our Creamos line of bakery goods. We are also going to launch Butter Maid, which will be our dairy product brand,” Lau said.

Lau said it would double the manufacturing capacity in Sabah.

Bakery products currently make up 2.14% or RM1.8mil of the group’s total revenue for the second quarter of 2016 with potential for more growth.

KTC reported revenue and net profit for its second quarter FY2016 of RM84.27mil and RM102,000, compared to first quarter figures of RM78.65mil and RM2.49mil.

KTC’s lower net profit for the second quarter was due to listing expenses of RM3.1mil.

For the financial years 2012 to 2015, the group recorded a compound annual growth rate (CAGR) of 14.39% for its revenue and 21.28% for its net profit.

Being a newly listed company is akin to being in a new environment, said Lau.

“I have to get used to dealing with analysts, institutional fund houses and investors.

“This is something I have to work on,” he added. He said once the company is familiar with operating within a listed environment, it will be able to grow faster and stronger.

Moving forward, it will study its cost, operational and organisational structures.

http://www.thestar.com.my/business/business-news/2016/03/21/ktc-in-expansion-mode/

Magni-Tech sees 3Q net profit jump by 49% to RM26 mil

KUALA LUMPUR (March 18): Magni-Tech Industries Bhd's net profit for the third quarter ended Jan 31, 2016 (3QFY16) jumped 49% to RM26.07 million or 16.02 sen per share from RM17.49 million or 10.75 sen per share in 3QFY15, mainly due to higher garment revenue but was offset by lower operating income arising from lower currency exchange gain.

According to its quarterly report to Bursa Malaysia today, Magni-Tech's revenue grew by 34.2% to RM268.92 million compared to RM200.38 million in the corresponding quarter a year ago.

Magni-Tech said revenue for garment business in the quarter increased 40.6% mainly due to favorable effects of the US dollar against the ringgit and higher sales orders, but the revenue for packaging business dropped slightly by 0.6%.

A second single tier interim dividend of three sen per ordinary share and a single tier special dividend of two sen per share have been approved by the directors. The ex-date for both the dividends falls on April 5, and the payment date is April 26. For FY16, a total dividend of 13 sen has been declared, translating to a dividend yield of 2.9%.

For its cumulative nine-month period (9MFY16), the group recorded a 77.82% increase in net profit to RM63.27 million or 38.88 sen per share compared to RM35.58 million or 21.86 sen per share a year ago.

The group's cumulative revenue grew by 22.32% to RM660.08 million from RM539.65 million in 9MFY15.

Moving forward, the manufacturing and sales of garments will still be the group's major revenue contributor.

"The group maintains a cautiously positive outlook for the remaining quarter of the current financial year amid the global economic uncertainty.

"Both the garment and packaging businesses are expected to remain profitable for the remaining quarter of the financial year," the Bursa note said.

As of closing, shares of Magni-Tech were unchanged at RM4.48 with 123,000 shares traded, for a market capitalisation of RM729.04 million.

http://www.theedgemarkets.com/my/article/magni-tech-sees-3q-net-profit-jump-49-rm26-mil

Datasonic’s earnings to hit record high in 2017: RHB Research

Datasonic Group Bhd is set to post record high earnings in 2017, helped by contract extensions and new jobs, said RHB Research.

The group is looking to secure RM800 million to RM1.0 billion worth of contract extensions and new jobs in 2016. This, coupled with its recent success in clinching a passport chips contract, is likely to propel its earnings to a new high in 2017.

RHB Research said MyKad renewal is forthcoming as the existing MyKad contract is set to expire by mid-2016. “Management is working on a potential renewal by proposing the national identification card’s next generation,” it noted.

RHB Research expects an official award by June with the imputation of 12 million units each for new MyKad and MyKad consumables contracts, to be delivered over a three-year tenure.

Based on an average selling price (ASP) of RM17.50 per MyKad and RM4.00 per MyKad consumable, the renewals could be worth RM250 million to RM260 million.

For its existing provision of data-pages for Malaysian passports, Datasonic has an outstanding order book of 3.2 million copies as at December 2015.

“With the remaining balance set to be fully exhausted by Q1 2017, the group is negotiating a five-year extension of 13 million to 13.5 million copies. We estimate that this potential extension is worth RM370 million to RM390 million, based on an existing ASP of RM28.40. We expect an official award to take place in 3Q16,” RHB Research noted.

To complete its national passport offerings, Datasonic is finalising its discussions with the government for the provision of the passport book. The official award is expected to take place by end-March.

“We believe the official commencement date is likely to coincide with its passport chip contract, ie on Dec 1 2016. Our checks with sources indicate that the contract would cover 13 million to 13.5 million copies to be procured over a five-year tenure at a total value of RM210 million to RM230 million,” RHB Research said.

Datasonic is also eyeing to roll out its security camera solutions in the Klang Valley after having installed close to 600 cameras in Penang for local municipalities.

“The management is looking to install 3,000 cameras and to set up surveillance centres for the municipalities involved. The contract could be worth RM100 million to RM120 million,” said the research house.

In addition, Datasonic intends to penetrate into other national security-related projects, possibly in neighbouring countries over the medium term.

RHB Research is maintaining a “buy” call on Datasonic with an unchanged target price of RM1.87. “As such, we continue to advise investors to accumulate the stock,” it said.

The research house expects Datasonic’s Q4 core earnings, to be released by end-May, to come within the expectations at RM11 million to RM13 million.

In a separate development, Datasonic announced in a filing with the stock exchange yesterday that the 1 sen second interim dividend for the financial year ended March 31, 2016 is payable on April 12. The ex-date and the entitlement date are March 29 and March 31, respectively.

http://www.thesundaily.my/news/1730464

Fed leaves rates unchanged, sees 2 hikes this year

A dovish Federal Reserve held the line on interest rates Wednesday and substantially scaled back its expectations for further moves ahead.

Where the U.S. central bank at its December meeting had projected four rate hikes in 2016, new estimates released Wednesday reduced that number to two. Fed officials also cut their expectations for economic growth and inflation.

In addition to the two rate increases this year, the Federal Open Market Committee now projects just two hikes in 2017, according to the latest Summary of Economic Projections.

The current interest rate target is 0.25 to 0.5 percent, and Fed officials back in December had expected the upper level to rise to 1.4 percent by year's end. With the new projections, the FOMC now sees just a 0.9 percent funds rate in 2016 and a 1.9 percent level by the end of 2017, both reflecting cuts of half a percentage point.

http://www.cnbc.com/2016/03/16/fed-leaves-rates-unchanged.html

Public Invest still ‘overweight’ on plantations

PETALING JAYA: Public Invest Research is maintaining its “overweight” outlook on the plantation sector, with an average crude palm oil (CPO) price forecast of RM2,500 and RM2,600 a tonne for 2016 and 2017 respectively.

“We believe CPO price will be inching towards RM2,800 a tonne (metric ton) once inventories sink below two million tonnes by end of this month,” its analyst Chong Hoe Leong said in a report last Friday.

As at end of February, Malaysia’s palm oil inventories was lower by 6.1% month-on-month (m-o-m) to reach an eight-month low of 2.16 million tonnes, but were still higher by 25% year-on-year (y-o-y).

Chong said the stock-to-usage ratio climbed to 14.5%, from 12.9% previously, as CPO exports fell at a faster pace than inventories.

“This is 2.3% below the market consensus. The tighter stock situation has raised CPO prices by more than 37% since touching the six-year low of RM1,806 per tonne in late August.

“As CPO export duty is likely to be imposed next month, we expect steeper decline in inventories for March.”

Chong said the CPO spot price has shot up 12.6% to RM2,477 a tonne year-to-date in anticipation of supply risk concerns.

He said palm oil exports were down 15.2% m-o-m but 11.6% higher y-o-y. He added that weaker exports to China (-49.2%), India (-32.6%), Pakistan (-67.1%), the US (-13.8%) and other nations (-4.8%) were partly cushioned by stronger demand from the EU (+12.9%).

Chong said the CPO production fell 7.7% for four straight months, noting production in Peninsular Malaysia was up 2.9% m-o-m, while it was down 18% m-o-m in Sabah and Sarawak.

“As the oil palm trees are being hit by a ‘triple whammy’ (seasonal decline, El Nino (weather phenomenon) and biological tree stress), we expect production will continue to weaken in the coming months,” he said.

In the sector, PublicInvest prefers Genting Plantations Bhd, Ta Ann Holdings Bhd, TSH Resources Bhd and TDM Bhd.

On a separate note, Hong Leong Investment Bank (HLIB) Research maintains its “neutral” outlook on the plantation sector with an unchanged CPO price forecast of RM2,400 a tonne this year.

Going into March 16, HLIB Research expects CPO production to pick up m-o-m due to more harvesting days, but lower y-o-y due to the lagged impact from El Nino especially in Sabah.

“Based on our understanding, Sabah is still experiencing dry weather. This could further affect production in Sabah that has been suffering prolonged dry weather since 1H15,” it added.

HLIB Research’s top pick for the sector is CB Industrial Product Holding Bhd, with a target price of RM2.30.

http://www.thesundaily.my/news/1726380

TAS Offshore receives cancellation notice for two vessels

KUALA LUMPUR (March 11): TAS Offshore Bhd said it has received a notice from QMS1 Offshore Services Ltd to cancel contracts to build two units of anchor handling tug supply (AHTS) vessels.

In a filing with Bursa Malaysia today, TAS said its wholly-owned subsidiary, TA Ventures (L) Ltd, has received a notice of termination from QMS1, purporting to terminate the said shipbuilding contracts.

"TAS' position is that the purported notice of termination is not valid and the company intends to proceed with legal proceedings," it said.

Nevertheless, it warned that the purported termination of contracts is expected to have an impact on the company's results for the financial year ending May 31, 2016.

However, it said the extent of the impact cannot be ascertained at this point in time.

TAS shares closed one sen or 2.02% lower at 48.5 sen today, for a market capitalisation of RM85.16 million.

http://www.theedgemarkets.com/my/article/tas-offshore-receives-cancellation-notice-two-vessels

Eye on stock: Yi-Lai

YI-LAI Bhd (Yi-Lai, 5048) dropped to a low of 79 sen on Jan 18, the worst level since June 2012 amid extended correction process due to persistent liquidation pressure.

The shares traded mostly range-bound for several weeks, undergoing consolidation before bouncing off in the wake of a fresh bout of bargain hunting buying momentum. This stock recovered to a one-year high of RM1.08 during intra-day session before paring gains to finish up eight sen to RM1.05.

Based on the daily chart, it appears Yi-Lai is in the infancy stage of a new leg of uptrend, with prices reclaiming the posture above all the moving averages on our screen after undergoing a period of correction.

An increase in the trading activities over the past three weeks added to our optimism.

Initial resistance is expected at the RM1.10 barrier, of which a successful penetration of this relatively stiff barrier would further confirm that this stock is indeed on the rise.

If that happens, the next upper target to look for would be the RM1.20 mark and if buying sentiment is strong enough, it may re-test the previous rally peak of RM1.39, established on Sept 25, 2014 or move to a higher ground. Elsewhere, the oscillator per cent K and the oscillator per cent D of the daily slow-stochastic momentum index were on the rise. Though the two oscillators were fast reaching the overbought area, they retained the buy call, triggered on March 3.

The daily moving average convergence/divergence (MACD) histogram expanded sharply against the daily signal line to keep the bullish note. It had issued a buy call on Feb 19. In stark contrast, the 14-day relative strength index hit a high of 82 on Thursday before curving down marginally to settle at the 79 points level yesterday.

Technically, the daily MACD is bullish but other indicators are painting a slightly overbought condition, suggesting investors can consider accumulating more should there be a pullback, as prices are poised to resume the scaling once the overbought situation is fully neutralised.

Current support is pegged at the 200-day simple moving average, which is lying at the 91 sen mark. An additional floor is pegged at the 87 sen level. – K.M. Lee

The comments above do not represent a recommendation to buy or sell.

http://www.thestar.com.my/business/business-news/2016/03/12/eye-on-stock-yilai/

The fading beauty of SPACs

THE allure of making easy money from special purpose acquisition companies (SPACs) is now starting to wear out.

It is becoming more apparent that shareholders are buying into SPACs for its ‘technical rulings’ in protecting investors.

Investors are buying SPACs with the idea that they can almost make a risk-free return from arbitrage opportunities and the fact that any shareholders who votes a no, gets their money back.

Unless the share price of the SPACs convincingly stay above their respectively cash value (the amount which will be returned to shareholders if a QA is not made in the stipulated time), most shareholders will opt to get their money back rather than to vote for the QA to go through.

This is not helped by the fact that the majority of SPACs listed on Bursa Malaysia are in the oil and gas sector, a sector which investors are running away from.

Thus it wasn’t surprising that when Sona Petroleum Bhd and Reach Energy Bhd announced their qualifying assets in November 2015, and March this year, both their share prices hardly budged.

http://www.thestar.com.my/business/business-news/2016/03/12/the-fading-beauty-of-spacs/

Can-One mulls sale of condensed milk ops

Can-One Bhd is in the process of disposing a stake in its dairy manufacturing business in a deal that values the asset around RM800mil, sources say.

Among the interested buyers for the stake is the private equity division of Malaysian civil service pension fund Kumpulan Wang Persaraan (Diperbadankan) (KWAP), which is in the process of a due diligence over the deal, the sources say.

KWAP declined to comment while Can-One has yet to reply to queries fromStarBizWeek. The planned stake sale is in Can-One’s wholly owned subsidiary F&B Nutrition Sdn Bhd, which manufacturers sweetened condensed, evaporated and flavoured milk for clients on an original equipment manufacturer or OEM basis.

Sources say that Can-One is seeking a valuation of up to 20 times earnings for F&B Nutrition, based on targeted profit after tax of RM42mil for the financial year 2015. This would value the business as high as RM840mil.

This is even bigger than Can-One current market capitalisation of RM695.6mil.

http://www.thestar.com.my/business/business-news/2016/03/12/canone-mulls-sale-of-condensed-milk-ops/

Palm oil breaks trend, heads towards RM3,000 per tonne

KUALA LUMPUR: After more than two years of falling prices, the outlook for the crude palm oil (CPO) market has improved, with a breakout in prices from the RM2,500-per-tonne level on the back of harsh weather conditions that have resulted in lower output from major plantations in Malaysia and Indonesia.

Experts predict with a greater degree of certainty that CPO is likely to hit RM3,000 per tonne, a level last traded in September 2012.

A firmer indication on the uptrend will be known when the palm oil inventory is announced today. The Malaysian Palm Oil Board is expected to release Malaysian palm oil data for the month of February 2016.

According to industry sources, inventory levels are heading towards 1.6 million tonnes as at the end of this month on the back of a 20% reduction in production across the board.

In January, palm oil inventories fell 12% to 2.31 million tonnes. The production of 1.13 million tonnes during the month came in as one of the lowest productions for January since 2011.

Meanwhile, the CPO futures have staged a technical breakout, opening the window for prices to move up.

http://www.thestar.com.my/business/business-news/2016/03/10/palm-oil-breaks-trend-heads-towards-rm3000-per-tonne/

Zecon-Kimlun JV gets RM1.46b Pan Borneo Highway

KUALA LUMPUR: The Zecon Bhd-Kimlun Sdn Bhd JV has secured a RM1.46bil contract to build and upgrade the Pan Borneo Highway in Sarawak.

Construction company Zecon said on Thursday the JV received the letter of award for the project under phase one, from the Serian roundabout to Pantu junction.

The contract is for 48 months, it said. Zecon holds a 70% stake in the JV and Kimlun the remaining 30%.

“A joint venture company will be incorporated in due course to undertake the contract as part of the condition imposed in the tender for the contract,” it said.

Meanwhile, Kimlun said the project was awarded by Lebuhraya Borneo Utara Sdn Bhd.

The estimated completion date is March 2020.

http://www.thestar.com.my/business/business-news/2016/03/10/zecon-kimlun-jv-gets-pan-borneo-highway/

Moody's: No Indication of global recession

KUALA LUMPUR: The protracted decline in oil prices and weaker growth in China have prompted a reappraisal of global economic growth prospects, causing risk aversion to rise and financial market conditions to tighten, says Moody’s Investors Service.

In a statement yesterday, the rating agency said while the current environment would curb growth in specific regions, it did not presage a global recession.

Moody’s said it had taken negative rating actions for a large number of corporates, banks and sovereigns whose revenues, loan portfolio performance and tax receipts were heavily dependent on the production of oil and other commodities.

“Our rating actions have been focused on those issuers directly exposed to the prices of oil and commodities because at present we believe that the positive impact of lower commodity prices on global growth helps mitigate the negative effects from the financial markets turbulence,” it said.

However, market volatility has recently spread beyond the energy and commodity sectors, leading to a broad decline in global equity prices and a surge in high-yield corporate bond spreads, it said.

“As a result, financial market conditions have worsened significantly – a development the rating agency is closely monitoring,” Moody's said. The rating agency still expected growth in Group of 20 advanced countries to be broadly stable at 1.8% for 2016 and 2% for 2017.

Moody’s said the positive effects of lower commodity prices, to a large extent, would mitigate negative factors, such as weaker consumer and business confidence levels caused by increased financial market volatility and deteriorating trade linkages with emerging markets.

– Bernama

German industrial output rises at fastest pace in 6 years in Jan

BERLIN (March 8): German industrial output rose in January at its fastest pace in more than six years, showing that the engine room of Europe's largest economy began 2016 well despite the financial market turmoil that has hurt business sentiment.

Output rose by 3.3% on the month, data from the Economy Ministry showed on Tuesday, surpassing the mid-range forecast in a Reuters poll for a 0.5% gain. The rise was the biggest since September 2009.

Relatively mild winter weather allowed construction output to rise by 7% on the month. Capital goods were another bright spot, rising 5.3%. However, analysts said the economy faced challenges.

"Order books are still not filled and the production boom coincides with inventory reductions," said ING economist Carsten Brzeski.

"Moreover, the drop in confidence indicators and production expectation over the last months suggest that things could still first get worse before they really get better for German industry," he added.

Industrial orders fell in January, but a spike in orders from euro zone countries cushioned a drop in demand from domestic customers, data showed on Monday.

Companies have also been unnerved by turmoil on global financial markets earlier this year and a slowdown in key export markets, including China.

Sentiment among German manufacturers plunged in February by the largest margin since the bankruptcy of Lehman Brothers in 2008, deepening concerns about the health of the economy.

- The Edge Markets dated 8/3/2016

Penang to lure tourist with direct flights to Seoul

GEORGE TOWN: The Penang government is in talks with three airlines to provide direct flights from the island to Seoul, Korea. State Tourism Development Committee chairman Danny Law said discussions were going on with local budget airline AirAsia and South Korean airlines Korean Air and Asiana Airlines.

He said an incentive was offered by the state where US$10 (RM41) will be given to the airline for each tourist flown into the state. Law said this was part of efforts to tap into other tourist sectors and to grow the tourism industry here.

He revealed that the state administration has began efforts to promote Penang in Korea as well as Myanmar. “We are doing our part by promoting as a tourist destination,” he said in a press conference yesterday adding that direct flights from Yangon, Myanmar, to Penang will begin near the end of this month.

Law earlier attended the soft opening of the Asia Comic Cultural Musuem which showcases the history and development of comics in the Asian region. He also welcomed some 2,000 visitors of the museum from China who are here as an incentive organised by multi level marketing company Perfect (China) Co Ltd.

http://m.thesundaily.my/news/1721794

SAM Engineering’s RM100mil expansion, including new plant

GEORGE TOWN: SAM Engineering & Equipment (M) Bhd, an aircraft component maker, is spending RM100mil over the next two years for expansion, with the bulk of the investment going into a new plant in Penang.

Group chief executive officer Jeffery Goh Wee Keng said the company’s existing facilities were already running at full capacity and the expansion would cater for new orders.

He said RM70mil had been allocated for a new plant on a four-acre site in Bukit Minyak to produce nacelle beams for the new Airbus A320neo aircraft.

“The other RM30mil would be to equip an existing facility on the island to produce smaller aerospace components,” Goh said.

The company has seven plants on the island, of which three are aerospace facilities. Goh said the company has RM3.5bil of orders in hand to fulfil beyond 2020, compared to RM2bil in 2014.

“This is why we need to expand,” Goh added.

According to Goh, the group would be recruiting 100 engineers and technicians for the two plants, which are scheduled to start operations by the end of 2017.

For the 2016 fiscal year closing March 31, Goh expects the aerospace business to generate 70% of group revenue, while the equipment manufacturing segment for the data storage and semiconductor industries would generate the remaining 30%.

“Moving ahead, we expect the aerospace sector to contribute to 80% of group revenue, as the business prospects for the data storage and semiconductor industries look gloomy,” he said.

Goh said the 2016 fiscal year should close with good results, compared with the 2015 fiscal year.

“The nine months of the 2016 fiscal year ended Dec 31 have already produced results which are better than the full-year results of 2015,” he said.

For the nine months ended Dec 31, SAM Engineering posted RM45mil in net profit on the back of an RM458mil turnover, compared with the RM19mil and RM319mil achieved in the previous period.

http://www.thestar.com.my/business/business-news/2016/03/08/sam-engineerings-rm100mil-expansion/

Bison: Bulk of IPO proceeds for expansion

PETALING JAYA: Convenience store operator Bison Consolidated Bhd, which is en route to the Main Market of Bursa Malaysia on March 29, aims to raise RM88.68 million from its initial public offering (IPO).

“We have plans to invest about RM50 million of our IPO proceeds to expand our network of outlets and enhance our existing outlets in order to meet the growing demands from our customers,” managing director Dang Tai Luk said at the launch of its IPO prospectus last Friday.

Of the RM50 million, RM35.55 million will be used for outlet expansion while RM14.45 million will be invested in business functions and back-end operations, to improve and establish nationwide logistics and IT capabilities in order to support its network and product base.

The rest of the IPO proceeds will be used for working capital and listing expenses.

“Our target is to open another 115 outlets from now until Oct 31, 2017. In addition to that, we will be improving our back-end operations and business functions such as an additional regional distribution centre within Malaysia and we will also set up our own food preparation and packaging facility,” he said.

Bison is involved in the business of press and convenience retailing in Malaysia under their main trade name myNEWS.com. It has a total of 255 outlets comprising 223 myNEWS.com outlets and 24 outlets under the trade names of Newsplus, MagBit and The Front Page. It also operates eight outlets under the trade name “WHSmith” located at Malaysian international airports, under a joint venture with WH Smith Travel Ltd.

Based on the Independent Market Research Report by Smith Zander International Sdn Bhd dated Feb 22, 2016, Bison is the second largest retail convenience store player in Malaysia with a market share of 8.6% in terms of outlet numbers and 6.6% in terms of revenue last year.

Bison’s IPO of 80.62 million ordinary shares of 20 sen each comprises institutional offering of 62.31 million shares and retail offering of 18.30 million shares. The retail price of the IPO shares is RM1.10 each.

The retail and institutional offerings close on March 14 and 15 respectively.

http://www.thesundaily.my/news/1719952

Eye on stock: AirAsia X

LONG-HAUL budget carrier AirAsia X Bhd (AAX, 5238) had a bad outing about three years ago.

Shortly after debuting on the Main Market under trading/services sector on July 10, 2013, making a sen premium against an initial public offer price of RM1.25, its shares were on the slide amid lack of support from investors.

One year into the downtrend, prices showed signs of stabilising, but the wake of a fresh bout of liquidation pressure emerged unexpectedly later to knock them lower, resulting AAX to tumble to an all-time low of 15 sen on Aug 25, last year.

Thereafter, prices staged a moderate rebound to trade mostly range-bound on consolidation and the pattern continued until earlier this week, which saw them powering ahead on aggressive bargain hunting momentum. The counter hit a high of 30 sen during intra-day trading yesterday, the best level since May, last year. Investors should take note that AAX had completed a round of rights issue with warrants not long ago.

Based on the daily chart, it looks like the worst of AAX has ended, with prices carving out a tentative new leg of upward thrust following the recent spike in the shares. The sighting of multiple “golden crossings” on several simple moving averages lines added to our optimism.

Initial resistance is envisaged at the 35-sen mark and a decisive breach of the next upper hurdle of 42 sen will probably set the stage for the bulls to challenge the greater resistance barrier, resting at the 49 sen-50 sen band.

Technically, the daily slow-stochastic momentum index and the 14-day relative strength index are painting a growing overbought condition but the daily moving average convergence/divergence histogram continues to expand upward against the daily trigger line to keep the bullish note.

Analysis suggests there is still room for AAX to advance before extreme overbought condition kicks in. But should the bulls decided to pause for air, investors can consider accumulating more on weakness. The immediate support is envisaged at the 25 sen-25.5-sen range and crucial support is pegged at the 20-sen mark. — K.M. Lee

The comments above do not represent a recommendation to buy or sell.

http://www.thestar.com.my/business/business-news/2016/03/05/eye-on-stock-airasia-x/

US payrolls surge, bolster Fed rate hike prospects

WASHINGTON: U.S. employment gains surged in February, the clearest sign yet of labor market strength that could further ease fears the economy was heading into recession and allow the Federal Reserve to gradually raise interest rates this year.

Nonfarm payrolls increased by 242,000 jobs last month and 30,000 more jobs were added in December and January than previously reported, the Labor Department said on Friday. The unemployment rate held at an eight-year low of 4.9 percent even as more people piled into the labor market.

"Despite panic on Wall Street about impending recession, Main Street goes about its business as usual. This report will get the Fed's attention, and raises the odds of another rate hike before too long," said Scott Anderson, chief economist at Bank of the West in San Francisco.

http://www.thestar.com.my/business/business-news/2016/03/05/us-payrolls-surge-bolster-fed-rate-hike-prospects/

Foreign funds step up buying on Bursa for second day

KUALA LUMPUR: Foreign funds continued their buying on Bursa Malaysia for the second day on Thursday with net buying rising to RM391.6mil.

According to BIMB Equities Research data, this saw the net buying rising to RM741.6mil over the past two days. They were net buyers at RM350mil on Wednesday.

However, local institutions and retail investors continued to take profit. Local institutions were net sellers at -RM341.9mil and retail -RM49.7mil.

http://www.thestar.com.my/business/business-news/2016/03/04/foreign-funds-step-up-buying-on-bursa-for-second-day/

Malaysia’s January exports down 2.8% to nearly RM62b

KUALA LUMPUR: Malaysia’s January 2016 exports fell 2.8% to RM61.9bil from a year ago, which was a disappointment when compared with a survey of a 2.5% increase.

The Statistics Department said on Friday on a month-on-month basis, exports also fell RM6.4bil (-9.4%) from RM68.3bil.

“In seasonally adjusted terms, exports decreased 7.4%,” it said.

The department said the decrease in exports was due to the decline in exports to Japan (-RM1.9bil), South Korea (-RM752.0mil), Taiwan (-RM512.6mil), Australia (-RM454.3mil) and Hong Kong (-RM346.8mil).

The decline in exports were due to liquefied natural gas (LNG) and crude petroleum though there was an increase in electrical and electronic (E&E) products and palm oil and palm-based products.

It said total January imports rose 3.3% to RM56.5bil from a year ago, below the survey of a 4.9% increase. The increase in imports was attributed to intermediate goods and consumption goods.

However on a month-on-month basis, imports fell RM3.6bil (-6.0%) from RM60.1bill. In seasonally adjusted terms, imports decreased 3.2%.

Malaysia recorded a trade surplus of RM5.4bil in January, down 39.8% from RM9bil a year ago.

“When compared with the previous month, it (surplus) also posted a decrease of RM2.9bil or 34.6%,” said the department.

http://www.thestar.com.my/business/business-news/2016/03/04/malaysia-january-exports-down-to-nearly-rm62b/

CIMB Research revises KLCI year-end target to 1,800 points

KUALA LUMPUR : CIMB Research revised downwards its KLCI year-end target to 1,800 points from 1,900 points previously following a mixed bag of results during the latest corporate earnings season for the fourth quarter of last year (Q4FY15). 

In a note today, the research house said that 40% of the companies under its coverage reported results which were below expectations. 

“Plantation and aviation sectors positively surprised while the rest disappointed. However, 4QFY15 earnings per share (EPS) rose 9.7% on a quarter-on-quarter basis due to the strong earnings recovery in the two sectors,” it said. 

On the other hand, CIMB is lowering its 2016 EPS growth forecast to 5.7% from 7.5% previously.
 
“However, our 8.4% EPS growth forecast for 2017 is higher than consensus. While the revision for 2016 reflects our more conservative market recovery expectations, we believe the earnings growth momentum should continue into 2017. 

While its previous KLCI year-end target of 1,900 points was based on a 5% premium to the three-year moving average earnings multiple of 15.5 times, the research house added that it is removing this due to the uninspiring growth outlook this year. 

CIMB Research recommends the banking, construction and select small cap stocks as its preferred picks going forward.

http://www.thestar.com.my/business/business-news/2016/03/02/cimb-revises-klci-target-to-1800/m

Moody's lowers outlook on China's credit rating to negative from stable

Moody's Investors Service Wednesday lowered the outlook on China's credit rating from stable to negative, citing a weakening of fiscal metrics and a continuing fall in foreign exchange reserves.

The rating agency also noted uncertainty over the capacity of authorities to implement the reforms needed to address imbalances in the world's second-largest economy.

Moody's current Aa3 rating on China is seven notches above junk so even if the agency were to follow up on its warning and lower the rating, investors won't have to suddenly start selling the country's bonds.

Still, the warning underscores how the build-up in credit in the country's stuttering economy is making market observers nervous.

Rival Standard & Poor's assesses China's creditworthiness at similar levels to Moody's, while Fitch rates China a notch lower. S&P and Fitch both have stable outlooks on the country.

http://www.cnbc.com/2016/03/01/moodys-lowers-outlook-on-chinas-credit-rating-to-negative-from-stable.html

Has the tide turned for emerging market flows?

One of the most bruised asset classes in financial markets may be about to turn a corner.

Emerging markets have had a horrid few years as investors pulled funds amid the prospect of weaker growth in once-booming economies, volatility in China's markets and likely higher interest rates in the U.S. In 2015, capital outflows from emerging markets were the heftiest since the late 1980s.

Now, there are tentative signs of recovery.

Fund flows into emerging markets turned flat in February after seven straight months of outflows, according to data from the Institute of International Finance released on Monday.

http://www.cnbc.com/2016/03/01/has-the-tide-turned-for-emerging-market-flows.html

China Feb factory activity shrinks more than expected

SHANGHAI: Activity in China's manufacturing sector shrank for the seventh month in a row in February and more sharply than expected, an official survey showed, suggesting the government will have to ramp up stimulus to avoid a deeper economic slowdown.

Some investors had been bracing for a negative after the central bank unexpectedly eased policy late on Monday, injecting an estimated $100 billion worth of cash into the banking system to cushion the pain of upcoming reforms such as restructuring bloated state enterprises.

The official Purchasing Managers' Index (PMI) fell to 49.0 in February from January's reading of 49.4 and below the 50-point mark that separates growth from contraction on a monthly basis.

http://www.thestar.com.my/business/business-news/2016/03/01/china-feb-factory-activity-shrinks-more-than-expected/

AirAsia Q4 earnings at RM554m, drives FY15 higher

KUALA LUMPUR: AirAsia Bhd posted net profit of RM554.20mil in the fourth quarter ended Dec 31, 2015 compared with a net loss of RM428.51mil a year ago, boosting the full year FY15 earnings to RM540.96mil.

The low-cost carrier reported on Friday that quarterly revenue rose 47% to RM2.17bil fromRM1.48bil a year ago. 

“The strong revenue recorded was on the back of a 10% year-on-year growth in the number of passengers carried at 6.47 million which was ahead of the 1% capacity growth, allowing the company to record a high load factor of 85%, on-year growth of 7 percentage points (ppts).  

In 4Q15, AirAsia recorded strong operating profit of RM800.69 million (up 276% YoY) and net operating profit of RM694.33 million (up 620% YoY). 

AirAsia said revenue per available seat kilometre (RASK) was up 40% on-year to 22.29 sen. It pointed out RASK held up positively despite the company’s decision to remove fuel surcharge on Jan 26, 2015.

“Average fare similarly witnessed an increase to RM177 (up 4% on-year) on the back of strong and healthy demand. If excluding fuel surcharge, RASK for 4Q15 would have been up further at 59% on-year while average fare would have been up by around 26% on-year. 

Profit before tax was RM434.51mil compared with loss before tax of RM391.98mil a year ago. 

Elaborating on the Q4 FY15 profit after tax , it said there was a 229% increase to RM554.20mil, also boosted by deferred taxation of RM124.65mil. This was in contrast with the net loss of RM428.51mil a year ago.

“The growth in 4Q15 net profits is mainly attributable to the revenue growth during the quarter of 47% and a 21% reduction in the average fuel price from US$95 per barrel in 4Q14 to US$75 per barrel in 4Q15,” it said.

For FY15, its earnings of RM540.96mil was a sharp 553% increase from the RM82.84mil in FY14. Revenue increased 15% to RM6.30bil from RM5.41bil, supported by a 10% growth in passenger volume despite the lower average fare of RM157 in 2015
Ancillary income per passenger increased by 2% to RM47 on-year. The seat load factor was at 81% which was 2 percentage points higher than a year ago.

“Despite the improvements in revenue and operating profits for the year, profits before tax of the Group was negatively impacted from the recognition of current and prior year losses of Indonesia AirAsia of RM797.7mil in 2015,” it said.

AirAsia Berhad CEO, Aireen Omar said, “It was a very good quarter indeed for the Malaysian operations. The increase in RASK (including and excluding fuel surcharge) proved that lower fares stimulate the market as seen by the significant increase in the number of passengers that travelled with AirAsia who also received a windfall due to the removal of fuel surcharge”. 

Ancillary revenue rose 14% on-year with the highest contributor coming from baggage (43% of total ancillary revenue) followed by cargo (10% of total ancillary revenue) and insurance (7% of total ancillary revenue). 

The highest growth seen among the ancillary products were AirAsia Insure (up 43% on-year) and connecting fees for our “Flythru” service (up 56% on-year). These led to the Company recording an ancillary income per pax of RM49 this quarter (up 4%), “close to our near term target of RM50”.  

AirAsia’s cost, measured in terms of cost per available seat kilometre (CASK) rose 4% on-year to 14.06 sen. 

The slight increase in CASK was due to an additional 16 sale and leaseback aircraft undertaken throughout 2015 which led to an increase in aircraft operating lease expenses of 148% on-year. 

Maintenance and overhaul expenses increased by 53% on-year.  The decline in overall fuel expense by 15% on-year was on the back of 21% lower average fuel price at US$75 per barrel as compared to US$95 during the same period last year. This is despite the 7% increase in fuel consumption due to the increased number of flights and longer average stage length.  

AirAsia Group CEO Tan Sri Tony Fernandes said: “In Malaysia, we are benefiting from the weaker currency environment that has led to local consumers trading down when going on their travel and other nationalities looking at Malaysia as a value for money holiday destination. Regional destinations are also more appealing as compared to higher currency destinations such as Europe and North America”. 

On the outlook of cost environment, he said, “As seen in 4Q15, we are beneficiary of the low fuel price. As of now, the group has hedged 52% of its fuel requirement for 2016 at an average cost of USD59 per barrel on jet kerosene. Passing on this benefit to our passengers through the removal of fuel surcharge earlier last year proved to be rewarding with demand increasing double digit in 4Q15.”  

http://www.thestar.com.my/business/business-news/2016/02/26/airasia-q4-earnings-at-rm554m-drives-fy15-higher/

Cautionary tale of research reports

THE US$100,000 fine slapped on a former Deutsche Bank analyst for issuing a positive research report on a company when he actually had negative views on it is a stark reminder of why financial opinions should be taken with a pinch of salt.

It is also a firm reminder to retail investors, in particular, that financial opinions conveyed in research reports sometimes do not reflect the true belief of the analysts.

The more seasoned investors would know how to differentiate between the good ones and the rest. However, retailers are often caught in the game where everything is driven by commissions.

Last week, the Securities and Exchange Commission found that Charles Grom had published a glowing report on a discount retailer in March 2012.

However, in private communications with Deutsche’s research and sales staff, Grom indicated that he had maintained a positive recommendation on the company to maintain good relations with the management of the firm.

This runs in stark contrast to what is required of research analysts when they prepare their reports for investors. Research analysts are required to actually state what they truly believe about the stock.

In a nutshell, they cannot express an opinion or recommendation in public that runs contrary to what they state in private.

In Malaysia, of late, there have been some research reports that are conspicuously “lacking” in terms of material for proper analysis that it makes one wonder if the analysts who had crafted the reports really believe in the financial opinion stated.

The projections and assumptions used in arriving at earnings are long term in nature which makes it hard to justify a research report on the company in the first place. It could have been done when the assumptions had a higher degree of materialising.

The reports are particularly on small-cap stocks that do not have a track record.

For instance, a leading bank-backed research unit recently devoted 20 pages to a small-cap construction company.

The assumptions used in arriving at the profit projections were simply outrageous, to put it mildly.

And the basis of arriving at the profit numbers of the construction company was largely due to its connection with external parties that may pave the way for it to land some large construction jobs.

There was little devoted to the fundamentals of the company itself, its track record in carrying out large jobs and what happens if the “connections” do not pay off.

The research report on the construction firm is not the only one that glaringly lacked substance.

There are a few others and all involved small-cap stocks. There was a lengthy report on a pharmaceutical company whose valuations had already gone ballistic and another on an oil and gas (O&G) company where a “buy” call was maintained simply because it was able to recover some cost from its drilling operations.

The report did not delve into the risk of the earnings of the O&G firm coming down significantly, considering that jobs in the sector were scarce and margins were narrow.

A retired analyst, who is a successful fund manager, said that the structure of the equity research in the capital markets requires analysts to continuously come out with stock ideas and make definite calls.

The sales people and fund managers generally don’t like to hear a “hold” call. They expect a “buy” or “sell” recommendation because then they can proceed to advise their clients to trade with the stocks.

It brings them and the brokerage commissions. Most of the time, an analyst may have spotted a company that had potential, but the analyst needs time to come up with a credible research report that he himself is convinced of, which he or she may not have.

Due to time constraints and pressure from the bosses, the analyst has to come out with a report. And most of the time, because the company that the research is based on is a client of the brokerage, the analyst has to come up with a bullish report.

Essentially, the research analyst has two parties to answer to – one is the brokerage firm and the other is the company that the research is based on. The brokerage pays the analyst, while the company pays the brokerage.

There is nothing wrong in promoting stocks that have potential. However, not many investors are able to read between the lines and analyse a research report well.

Which is why all research reports are supposed to have limited circulation. But in today’s world, there is nothing limited in circulation.

Good analysts go on to become better fund managers because they employ the same set of skills.

Out of the many fund managers, very few can actually claim to be good equity analysts who consistently dish out credible research reports.

The reason is because their financial opinion conveyed in research reports does not always reflect their true beliefs. They are most of the time forced to comply with the nature of the business.

- The Star Biz 27/2/2016

Eye on stock: SHH Resources Holdings

AFTER peaking out temporarily at a high of RM2.48 on Nov 12, last year, the best level since Feb, 1998, SHH Resources Holdings Bhd (SHH, 7412) made two efforts to push to an upper ground, but each round was met with an apparent profit-taking activity.

Subsequently, this stock slipped into mild correction mode, which witnessed the shares retracing to a near four-month low of RM1.76 on Feb 12.

Thereafter, in the wake of fresh bargain hunting interest, prices staged a rebound, sending this counter to a high of RM2.12 during intra-day session yesterday.

Very evidently, SHH is making another move to resume the rally after a three-month consolidation period and it has a bright prospect of making it this time, with trading volumes growing and in favour of the bulls.

A breach of the immediate hurdle of RM2.15, followed by a decisive penetration of the RM2.30 will further raise investors’ optimism. The next upper strong barrier is expected at the RM2.48-RM2.50 range, of which a successful major breakout will signal the continuation of an uptrend.

If that happens, the near-term target to look for would be the RM2.80-RM2.82 band or the RM3 psychological level, which is also a heavy barrier.

Elsewhere, the oscillator per cent K and the oscillator per cent D of the daily slow-stochastic momentum index were curving up after triggering a short-term buy near the mid-range yesterday.

Also on the rise, the 14-day relative strength firmed from a reading of 45 in mid-week to settle at the 65-point level.

In addition, the daily moving average convergence/divergence histogram and the daily signal line advanced steadily towards the zero threshold. A buy call was issued the previous week.

Indicators are pretty promising, implying SHH shares are set to scale in the immediate term, with a potential of extending the previous leg of upward thrust.

As for the downside, current support is envisaged at the RM1.95 level. The lower floor is lying at RM1.76 and the 200-day simple moving average of RM1.67 will act as an important floor. —

The comments above do not represent a recommendation to buy or sell.

http://www.thestar.com.my/business/business-news/2016/02/27/eye-on-stock-shh-resources-holdings/

Karex proposes 1-for-2 bonus share issuance

KUALA LUMPUR (Feb 24): Karex Bhd, which today reported a 55.7% jump in its net profit for its second quarter ended Dec 31, 2015, plans to issue one bonus share for every two existing Karex shares held at an entitlement date to be fixed and announced later, to reward shareholders.

In total, the world’s largest condom maker could be issuing 334.13 million new bonus shares. Currently, Karex’ share base comprises 668.25 million shares.

At a par value of 25 sen per share, Karex could spend up to RM83.53 million from its share premium to fund the bonus issuance, which will trim its share premium to RM31.39 million, following the exercise.

In a statement, Karex chief executive officer Goh Miah Kiat said the bonus share issuance will allow existing shareholders to maintain their equity stake in the group. The bigger share base may also eventually allow Karex’s shares to be priced more affordably and in turn raise its marketability and tradeability on the open market.

“We are very thankful to have very supportive shareholders and we would like to take this opportunity to thank them for their unwavering support through our bonus issue exercise.”

Goh said the group intends to complete the bonus share issuance by the second quarter of this year.

- The Edge Market dd 24/2/2016

Aspen Group plans RM500m RTO with Yi-Lai

KUALA LUMPUR (Feb 24): Penang-based property development and real estate investment group Aspen Group is planning a reverse takeover of ceramic and homogeneous tiles maker Yi-Lai Bhd, which will see the latter branching out into property development.

According to a bourse filing today, Yi-Lai said it has entered into a heads of agreement (HoA) with Aspen Vision Group Sdn Bhd and Setia Batu Kawan Sdn Bhd (Setia Batu Kawan), to acquire Aspen Vision All Sdn Bhd for RM550 million.

Under the HoA, to be effective for 90 days from today, the parties involved have agreed to enter into definitive agreement for the sale and purchase of Aspen Vision All, with the purchase consideration still subject to the revalued net asset value (NAV) of Aspen Vision All, and other factors.

According to Yi-Lai, the purchase consideration shall be settled via the issuance of 450 million new Yi-Lai shares at an issue price of RM1, while the remaining RM100 million will be paid in cash, which shall be funded through internally-generated funds and/or bank borrowings.

“The issue price of RM1 represents a premium of 22.3% over the 5-day volume-weighted average market price of Yi Lai shares, including Feb 23," it added.

Aspen Vision All is principally involved in the provision of management services and investment holding, while its subsidiaries are principally involved in property development. It was formed two years ago to undertake the Aspen Vision City and Vervéa development at Batu Kawan, Penang.

Yi-Lai said the proposed acquisition is expected to enable the existing shareholders of Yi-Lai to participate in a new, viable and profitable core business in property development via Aspen Vision.

"The diversification of the core business of Yi-Lai into property development will be a synergistic down-stream fit for Yi-Lai’s existing tile manufacturing business," it said.

The proposed acquisition will result in a significant change in business direction or policy of Yi-Lai and will also result in a reverse take-over of Yi-Lai, it added.

Shares in Yi-Lai closed up 1.5 sen or 1.78% today, at its one-month high of 86 sen, for a market capitalisation of RM129.6 million.

- The Edge Market dd 24/2/2016