Stocks To Watch Steel stocks, KSTB, Destini, AirAsia X, Gadang and technology stocks

Business & Markets 2013

Written by Ho Wah Foon of theedgemalaysia.com

Wednesday, 07 August 2013 15:54

KUALA LUMPUR (Aug 7): Based on news flow and corporate filings today, the companies that may attract some interest after the long Hari Raya break on Monday (Aug 12) could include steel firms, KSTB, Destini, AirAsia X, Gadang and TECHNOLOGY [] stocks.

Steel companies may come under pressure after Moody's Investors Service changed its outlook for Asia's steel industry to negative from stable.

In a statement today, Jiming Zou, Moody’s assistant vice president and analyst said the negative outlook reflects expectations that Asian steel manufacturers will report historically low profits over the next 12 months.

This is because demand for steel is expected to weaken in the second half of this year, owing to destocking and slower economic growth, particularly in China.

"Manufacturers, distributors and customers will reduce their stocks because of weak demand and excess steel supply in the Asian market: a move that will put further pressure on the profits of steelmakers," said Zou.

Moody's estimates that demand in Asia would increase only by 2%-3% in the 12 months to June 2014, significantly lower than the 16% compound annual growth rate between 2000 and 2010, because of the Chinese government's shift in emphasis from infrastructure spending to consumption and the country's slower GDP growth.

China accounts for over 70% of Asia's consumption and production of steel. Its monthly steel production decreased to 64.7 million tonnes in June from its record high of 67 million tonnes, the previuos month.

KEJURUTERAAN SAMUDRA TIMUR BHD [] (KSTB) has entered into a heads of agreement (HOA) with Destini Bhd in relation to the disposal of Samudra Oil for a total of RM80 million.

Samudra Oil is a wholly-owned subsidiary of KSTB which is principally involved in tubular handling and running services for the oil and gas industry.

In a filing with Bursa Malaysia today, KSTB said the sale would be satisfied via the issuance of 228.6 million new shares to Destini for an issue price of 35 sen a piece.

"The proposed disposal provides an opportunity for KSTB to realise and unlock the value of its investment in Samudra Oil whilst enabling KSTB to participate in the future prospects and financial performance of Destini and its subsidiaries," said KSTB.

"The disposal is expected to enable KSTB to recognise a one-off net gain, the quantum of which will be determined after the disposal consideration is finalised between the parties," it added.

Under the terms of the agreement, the completion of the sale is to take place within three months from today. Both parties will also have 45 days from today to carry out due diligence.

Destini Bhd, in a separate filing with Bursa, said it believes that the proposed acquisition of Samudra Oil will allow the company and its subsidiaries to enhance its services and products offering and expand its involvement in the MRO business, particularly in the oil and gas industry.

The enlarged Destini group is expected to have improved operational, procurement and administrative efficiency via cross selling, pooling of industry knowledge and experience and combined purchasing for common products and service centralisation.

Destini added that the proposed acquisition is expected to contribute positively to Destini Group in the future.

AirAsia X Bhd’s (AAX’s) shares may be interesting to watch after Maybank Investment Bank Bhd, as the stabilising manager for the shares announced that it had ceased stabilising the share price.

In a statement today (Aug 7), it said that during the period between July 10 July and Aug 7, it had undertaken stabilising actions where a total of 65,535,100 shares were purchased at RM1.25 per share – the IPO price.

The last purchase was made on 25 July 2013 at RM1.25 per share.

The total purchases represented 8.3% of the total number of shares offered under the IPO.

“We have also exercised the over-allotment option for a total of 52,983,425 shares on 7 August” the investment bank said.

The total purchases made under price stabilising and the exercise of the over-allotment option fully covered the 118,518,525 shares that were over-alloted in the IPO for AAX, it noted.

At market close today, AAX share price ended flat at RM1.19 per unit on trades of 3.5 million shares.

GADANG HOLDINGS BHD [] and Cyberview Sdn Bhd have formed a joint venture to develop 2,500 residential units on 44ha (109.31 acres) of land in Cyberjaya, Selangor.

In a statement to Bursa Malaysia, Gadang said it has accepted the letter of acceptance (LOA) for the proposed project from Cyberview which owns the land.

Both firms will sign a definitive agreement which will specify the terms and conditions of the project.

"A further announcement on the salient terms and conditions of the agreement shall be released by the company (Gadang) upon signing of the agreement," it said.

The LOA follows a memorandum of understanding signed last April between Gadang and Cyberview for the real estate project.

Technology stocks may lure interest following an industry report that global sales of semiconductors in the second quarter (2Q) of 2013 rose 6% quarter-on-quarter (q-o-q) to US$74.65 billion (RM242 billion) from US$70.45 billion in 1Q, outperforming industry forecasts.

The US-based Semiconductor Industry Association (SIA) in a statement on Aug 5 said this marked the largest quarterly increase in three years.

SIA said that global sales for June 2013 hit US$24.88 billion, an increase of 2.1% compared with June 2012 and 0.8% higher than the May 2013 total.

It said regionally, sales in the Americas jumped 8.6% in 2Q compared to 1Q and 10.6% in June compared with June last year, marking the region’s largest year-on-year increase of 2013.

SIA president and CEO Brian Toohey said there was no question that the global semiconductor industry had picked up steam through the first half of 2013, led largely by the Americas.

“We have now seen consistent growth on a monthly, quarterly, and year-to-year basis, and the total sales have exceeded the latest industry projection, with sales of memory products showing particular strength,” said Toohey.

Regionally, sales in June increased compared to May in the Americas (3.5%), Asia-Pacific (0.4%) and Europe (0.1%), but declined slightly in Japan (-0.9%).