BHIC
What’s Up? … dated Aug 2010
It is no secret that BHIC is waiting for a letter of intent from the government to build six frigates for the Royal Malaysian Navy, with each of the vessels estimated to cost about RM1 billion.
Talk of BHIC getting the letter of intent for the project has been bandied about for two years now. This comes on the back of the company’s delivery of the last of the six offshore patrol vessels (OPVs) from an earlier project that was initiated in 1998. In Sept 2010, it will deliver the last OPV in a project that cost RM4 billion.
The new contract may generate fresh excitement in the company, which is mainly due controlled by the Bstead Group. Some 30% of the RM6 billion frigate construction job is likely to be undertaken by its wholly owned Bstead Penang Shipyard Sdn Bhd. The remaining jobs, in which BHIC does not have the expertise, will likely be outsourced to foreign parties.
BHIC is also recently inked a RM1.3 billion submarine maintenance contract and a RM704 million life extension programme for two Kasturi class corvettes, which are also owned by the Royal Malaysian Navy.
This large job would give BHIC, which has just secured a few government related projects a handsome profit. This new frigate construction job could significantly nudge BHIC’s order book to RM4 billion mark from RM1.7 billion. Although it is not certain yet, the length of the new contract could be for about 10 years.
However, even if the letter if award is issued soon, it is ikely that the actual work will only commence much later, perhaps in late 2011 … there is planning involved.
Other concerns, such as the low margins at BHIC could also be a cause for apprehension. The problems with BHIC are operational and the execution of projects needs to be beefed up.
As at end June 2010, BHIC had long term borrowings of RM20.8 million, while its short term debt commitments amounted to RM104.9 million. As at end June 2010, BHIC had cash and bank balances amounting to RM29.3 million, while its shareholders’ funds stood at RM403 million. As at end June 2010, the company had net asset per share of RM1.58.
BStead’s net profit surged 212% to RM146.5 million for the second quarter ended June 30, 2010 from RM46.90 million a year ago, mainly due to stronger palm product price and higher sales volume.
Revenue for the quarter increased to RM1.42 billion from RM1.28 billion in 2009, while earnings per share was 15.68 sen.
Boustead declared a second interim single tier dividend of ten sen per share.
Its earnings will very much be dependent on palm oil prices.
The Heavy Industries Division is expected to benefit from recovery in the oil and gas sector, and it is anticipated that the strategic alliances formed with our foreign partners will start generating earnings in the coming months.
The Property Division can look forward to stable recurring income from its portfolio of commercial and retail properties and the expansion of the hotel operations. The other divisions are expected to perform satisfactorily for the remainder of the year.
BRDB
What’s Up? … dated Aug 2010
Market talk that it may be taken private. The plan may still be in its early stages but it is said to be under serious consideration.
BRDB’s largest shareholder now is Ambang Sakti Sdn Bhd, which holds a 19.33% stake. US based Liberty Square Asset Management LP, which emerged with a 5.25% stake.
A privatization exercise, if one does materializes, would involve a hefty amount. It has a number of well known assets in the Klang Valley, including BSC, One Menetung and The Troika in KL.
Its total debt at end March 2010 stood at RM802 million while cash and cash equivalent stood at RM139 million. BRDB’s net assets per share as at end March 2010 stood at RM3.42.
BSC is BRDB’s jewel in the crown. According to its 2009 annual report, it had a carrying value of RM270 million at end Dec 2009. BSC was last revalued in March 2006 when its land area was 214256 sq ft. Properties in the Bangsar area have generally enjoyed an appreciation in value over the years. Given its freehold status and prime location in Bangsar, BSC could be worth much more. In a refurbishment that was carried out during 2008-2009, BSC extended net lettable area by 30%/
BRDB’s investment in BSC is already staring to pay off. For 1Q2010 ended March 31, higher rental income form BSC mitigated lower revenue from the property division.
The group made a net profit of RM112 million in FY2009.
Apart from BSC, BRDB has other investment properties said to be worth some RM266 million as at end 2009. Comprising residential and commercial properties in the Klang Valley, Johor, Sarawak and Singapore, these were mostly revalued in the last two years.
Its net profit for the second quarter (2Q) ended June 30, 2010 doubled to RM84.15 million from RM40.61 million a year earlier despite posting a lower revenue of RM151.36 million.
Earnings per share was 17.7 sen, while net assets per share was RM3.59.
For the six months ended June 30, net profit surged to RM106.31 million from RM57.59 million a year ago.
Its 2Q revenue declined 35% due to lower revenue from both its property and manufacturing divisions.
Revenue during this quarter under review was mainly derived from progress recognition of construction of CapSquare Office Tower 2 and Troika with fewer property sales in Kuala Lumpur and reduced construction contract revenue from Lahore, Pakistan.
The lower revenue in the property division was partially mitigated by higher property investment income from Bangsar Shopping Centre (BSC).
Revenue from the manufacturing division under Mieco Chipboard Berhad (MIECO) in this second quarter fell 3% to RM44.6 million from RM46 million a year ago due to lower sales volume of particleboard, although sales of value-added products have improved.
Despite the lower revenue, the group’s pre-tax profit rose to RM94.1 million for the quarter under review, up 86% when compared to RM50.5 million a year ago due mainly to a RM82.7 million gain arising from adjustment to fair value of the BSC based on an independent professional valuation.
MIECO reported higher pretax profit of RM1 million as compared to RM200,000 a year ago despite lower revenue, as its margins improved and its operational costs decreased.
MMC Corp
What’s Up? … dated Aug 2010
The Energy Commission (ST) has awarded the concession to develop the first block of the 1,000 MW coal-fired power plant to Tenaga Nasional Bhd (TNB), the focus will be on a possible tender for the second block of an almost equal-capacity power plant in Malaysia.
Already, the industry is abuzz with the possibility of a fresh tender for another coal-fired power plant of up to 1,000MW capacity being called by the end of 2010.
It is believed that Malakoff Corp Bhd – a subsidiary of MMC Corp Bhd and owner of the 2,100MW Tanjung Bin power plant in Johor – stands a good chance to win. ST chairman Tan Sri Dr Ahmad Tajuddin Ali had also hinted that the second concession would likely go to one of the two short-listed bidders who had failed in the first round.
Earlier, TNB was competing against Malakoff and Jimah Power Sdn Bhd for the concession to develop the first block 1,000MW coal-fired power plant. The national utility company won this round of the tender. The project will see TNB building a new coal-fired unit next to its existing Janamanjung power plant in Manjung, Perak.
It is understood that TNB had earlier wanted to expand the capacity of its Janamanjung plant by 2,000MW. But strong competition from Malakoff for the right to expand its Tanjung Bin power plant is believed to have led to the Government splitting its planned 2,000MW power plant expansion in Peninsular Malaysia into two separate blocks.
The urgency to ramp up electricity-generation capacity in Peninsular Malaysia is to make up the “lost” supply of 1,600MW from Bakun Dam in Sarawak and to avert a possible power crunch in the peninsula.
MMC Corp Bhd posted profit of RM187.17 million for the second quarter ended June 30, 2010, which was 25.3% higher compared with RM149.35 million a year ago.
Profit attributable to owners of the company was RM88.12 million when compared with only RM5.85 million a year ago. However, profit attributable to minority interest declined to RM99.05 million from RM143.50 million.
Revenue rose 6.55% to RM2.31 billion from RM2.16 billion, earnings per share were 2.9 sen compared with 0.2 sen.
There was a writeback for tax expenses of RM11.93 million in the second quarter compared with tax expense of RM33.91 million a year ago.
The accounts also showed available-for-sale financial assets fair value losses at RM25.51 million compared with gains of RM47.39 million a year ago. Available-for-sale financial assets is measured at fair value initially and subsequently with unrealised gains and losses recognised directly in equity until the investment is derecognised or impaired.
For the six months ended June 30, the group’s profit before tax of RM385.7 million was higher by RM43.8 million compared to RM341.85 million in the corresponding financial period ended 30 June 2009.
Lower losses recorded from Engineering & Construction division by RM30.4 million or 31.1% mainly attributed to additional contract revenue recognised from SMART.
This was mitigated by higher share of losses from an associate, Zelan Berhad attributed to the recognition of losses on contracts for projects in Middle East and Indonesia coupled with impairment loss on goodwill for its engineering and construction division.
Lower losses recorded from Corporate & Others division by RM16.2 million or 16.3% mainly driven by the gain on disposal of investment in IRCB Bhd. This was offset by higher finance costs at MMC Company level.
The group recorded a profit before tax of RM175.2 million in the current quarter as compared to RM210.4 million in the preceding quarter. This was mainly due to lower contribution from the transport and logistics division and the absence of gain on disposal of investment in Integrated Rubber Corporation Berhad as in preceding quarter.
Sime Darby
Financial Results …
Sime Darby Bhd has made RM777.3 million in additional provisions for foreseeable
losses and impairments for its fourth quarter ended June 30 (4QFY10), bringing its total provisions to RM2.08 billion for the full financial year.
The latest quarter’s RM777.3 million provisions relate to three oil and gas (O&G) projects, namely Qatar Petroleum, Maersk Oil Qatar and Marine, and includes provisions and impairment of other assets. No provisions for the Bakun project were made for the quarter. Going forward, the group does not foresee much further provisions for the Bakun project.
As for the energy and utilities (E&U) division, the company has calculated further provisioning as per financial reporting requirements, but the actual amount, if any, would be dependent on future assessments.
Sime’s troubled E&U division, which is mainly involved in the oil and gas industry, posted an operating loss of RM1.75 million for the full financial year. Including the RM777.3 million provision in 4QFY10, the E&U division has charged a total of RM1.38 billion in impairment and loss provisions for FY10.
Sime is “in the process of disentangling from various contracts in the E&U division” and that the amount of further provisions would depend on the details of such negotiations.
For the group as a whole, Sime has reported a quarterly net loss after minority interest of RM77.4 million for 4QFY10 versus a net profit of RM984 million in the same quarter a year earlier.
Revenue for the quarter grew 22% to RM9.2 billion versus RM7.5 billion a year earlier.
For the full year, the group reported a 68% drop in net profit to RM726.8 million in FY10, from RM2.28 billion in FY09.
Revenue for the year grew 6% to RM32.95 billion from RM31 billion previously.
Earnings per share for the year was 12.09 sen versus 37.94 sen previously, while total dividends paid and proposed for FY10 total 10 sen, compared with 20.3 sen the year before.
Going Forward …
The group’s new corporate structure where core businesses will operate separately and individually, reverting back to the old Sime Darby profile of having anchor or flagship companies for each business.
The new structure would be implemented on Jan 1, 2011. There will be five companies for the plantation, property, industrial, motor, and energy and utilities (E&U) divisions. The five companies will be 100% owned by Sime Darby, with their own respective CEOs and separate board of directors. Each company will have its own audit and tender committees. The boards of the flagship companies would be filled by independent directors and industry experts.
Four key thrusts in Sime Darby’s future direction to bring it back to a leadership position. 1) turning E&U around, 2) maximising potential across all core businesses, 3) instituting a high performance culture, and 4) reviewing the portfolio mix within the group.
On turning around the E&U division, which recorded additional provisions of RM777.3 million in its 4QFY10, it is now segregated into China and non-China operations with two different executive vice-presidents to oversee each respective business.
Meanwhile doubts remain whether the group had completed its kitchen-sinking exercise. Kitchen sinking refers to the practice of reporting as much of a company’s actual or potential bad news or losses as quickly as possible, so that future financial periods will reflect gains.
However Bakke did not expect Sime Darby to make further provisions for losses in its energy and utility division based on the information that it has right now (Aug 2010). Industry observers say further work delay provisions for its projects in Qatar could not be ruled out at the moment although provisions made should be sufficient based on management's guidance.
Earlier in the year (2010), Sime Darby had no plans to sell any of its core businesses. But it may change. They are assessing some of these investments. Once they are in a position to conclude that it should not hang on to some of these businesses, the appropriate decisions will be made.
By looking back upon the Synergy Drive merger that was, and did (until 2009), reap synergistic benefits of RM600 million to the group, the write down that the company made in FY2010 has more than erased any gains from the merger. As such, given the new move for the group's divisions to operate in a more silo or separate basis, a de-merger should be on the cards for Sime Darby.
Consistency in performance under leadership of the new CEO is key for a sustainable re-rating.
Prospects for shorter term opportunity in Sime shares with the overhang from further provisions now behind us, stable to strong core profits from most divisions, and positive outlook on crude palm oil prices.
Sime is currently under-owned by institutional funds due to the losses across the group’s energy and utilities operations. It is believed that the stock is at an inflection point for an upward re-rating.
The conglomerate, which had six core businesses under its wings, would not have problems to form the subsidiaries as this was only a matter of housekeeping. It is to make sure the group can maximise the full potential of all divisions.
The re-introduction of the organisational structure would give room for potential restructuring of Sime Darby’s key businesses and this might include a separate listing for its plantation and property units. A separate listing for plantation and property would be ideal for investors to have the choice to invest in the two most profitable companies.
Meanwhile it is believed that it would be tough to turn around the E&U division soon. Nevertheless, the plantation, property and motor divisions would continue to deliver on the back of high CPO production and prices, steady property sales and market leadership in BMW’s distributorship, especially in the burgeoning Chinese automotive market.