August 20, 2010

Metronic Global- The Albatross RPT

Metronic is in poor health these days. The Anhui BOT project in China is gone and as such, expected losses will rise and NTA will go down. However, the silver lining is compensation which will help in operating expenses.

On 25th June 2010, Metronic Global Bhd has also informed Bursa that  a huge amount  is due to it from a related party via a transaction that took place more than three years ago. They have been trying to recover the debt.

The related party transactions (RPT) consist of  receivables amounted to RM46.85mil stemming from sub-contract work completed for a “related party that is a main contractor on certain public sector projects for the government.”

Of the total amount, the related party was supposed to pay RM36.3mil to the company more than three years ago.

To recover the dues, Metronic has obtained consent from the contractor to proceed with the certification and collection directly from the Health Ministry, Finance Ministry (MoF) and Public Works Department (JKR). “The claim is pending certification by JKR before submitting to the MoF for approval,” it said.

While the company will pursue the receivables directly from the Government, it also said it may commence legal action to ensure full payment.

The firm reported a turnover of RM60mil but made a loss of RM2mil for the year ended Dec 31, 2009. It made a loss of RM5.3mil on RM9.56mil revenue in the latest quarter ended March 31. That was the group’s biggest quarterly loss since it went public in 2004.

Once the receivables are realised either through statutory directives or through the courts, then Metronic will again have a war-chest to play with. That will reflect in the revision of the price of Metronic shares which has been in the doldrums of 5-6 sen currently.

So, for those who still think Metronic can change its fortune, just stand on the sideline and watch the counter.

Caveat Emptor: Please do not buy or sell shares of Metronic based on this article.

Maybank: The Return of Tiger Power


Malayan Banking Bhd (Maybank) reported a net profit of RM912.5mil for the fourth quarter ended June 30, 2010, rebounding from a loss of RM1.1bil on impairment charges in the same quarter last year.

In the last financial year, the group’s results were impacted by the RM1.7bil impairment charge especially on its “expensive” investment in Bank Internasional Indonesia (BII) and, to a certain extent, MCB Bank of Pakistan. That is now water under the bridge.

For the full financial year (FY10), Maybank achieved a record net profit after tax and minority interest of RM3.82bil from RM691.1mil in FY09 on the back of higher revenue across all key business segments.

“Under the Dividend Reinvestment Plan, the board has proposed a final dividend of 44 sen per share less 25% income tax. Of that amount, four sen per share will be paid in cash while the balance of 40 sen per share will be in the electable portion where a shareholder may choose to receive it entirely in cash or reinvest in Maybank shares,” chairman Tan Sri Megat Zaharuddin Megat Mohd Nor.

The net dividend payment for the financial year (including the earlier interim dividend of 8.25 sen per share after tax) costs RM2.9bil, representing a payout ratio of 76.5%.

The pricing of the shares for the reinvestment is expected to be announced next month.

The group benefitted from funds raised through the rights issue completed at the end of April last year while BII contributed higher profit before tax of RM217.3mil against RM49.3mil previously as a result of business growth and full-year contribution.

BII experienced robust increases in the consumer (+37%), small and medium enterprises (+36%), and corporate (+33%) segments.

Maybank Singapore’s pre-tax profit jumped to S$338mil from S$247.7mil previously.

Overseas operations such as in London and New York also staged a turnaround with less provisions and writebacks.

Net interest income for the year rose 14.4% to RM6.77bil supported by robust loans growth of 10.3%.

Net non-performing loans ratio declined to 1.22% in FY10 from 1.64% in FY09. Non-interest income rose 38% to RM4.67bil led by a surge of 281% in investment and trading income to RM219.7mil, service charges and fees, foreign exchange, net premium written and unrealised gain on cross currency swaps.

Loans growth exceeded expectations with domestic loans growing at 11%, driven by a 15% increase in consumer loans and 7.4% rise in business loans.

Deposit growth outpaced loans growth during the year at 11.5% to reach RM236.9bil. The loans-to-deposits ratio is at 86%.

In value terms, consumer banking was highest, rising by 9.5% to RM4.46bil. However, in percentage terms, global markets business topped with a 99.2% rise to RM1.43bil.

“Barring unforeseen circumstances, the group expects its financial performance for financial year ending June 30, 2011, to be better than the last financial year,” Maybank president and CEO Datuk Seri Abdul Wahid Omar said.

It has set two key performance indicators for the next financial year of 12% growth in loans and debt securities and 14% in return on equity.

Besides its record profit, Maybank also crossed the regional milestone of US$100bil in assets and US$1bil in after-tax profit.

“We aim to be a truly regional organisation with 40% of our revenue from international operations compared with 25% currently,” said Wahid, referring to the LEAP 30 transformation programme where Maybank targets to be the top financial services leader by 2015. “We will look out for further opportunities as we are still not present in some parts of the region.”

It will further strengthen its position to be the leading bank in Asean, with presence in the Middle East, China and India, backed by a strong corporate banking business in Malaysia and Singapore.

Towards this end, it has realigned its businesses into three pillars – community financial services, global/wholesale banking as well as insurance and takaful.

Megat Zaharuddin also noted that while Maybank had a strong consumer banking base, it should grow its non-interest income to balance its sources of income.

The branch expansion of BII is on track, growing to 450 branches in two-and-a-half years’ time from 295 currently. “BII is expanding at the rate of one branch per week,” said Wahid. “It needs adequate reach to service the main economic sectors and major towns. We will continue to support BII as we recently injected 1.5 trillion rupiah to boost its capital base and grow its business.”

On the plan for a dual listing in Indonesia, Wahid said that might materialise next year as there were a few issues to be sorted out with the Indonesian authorities.

He also expected to receive the licence for Maybank subsidiary PT Maybank Indocorp to become a syariah bank.

On the recent liberalisation of foreign exchange rules and the yuan being allowed to trade ringgit wthin a reference band, Wahid said the ability to price would be dictated by trade in the currencies of the respective countries.

That might reduce the interdependence of the US dollar and other currencies and the trend is expected to continue in Malaysia and other countries.

“Maybank has limited exposure in Shanghai but it intends to capitalise on trade flows between Malaysia and its other trading partners,” he said, adding that Maybank might expand beyond Shanghai. It currently has a representative office in Beijing which its plans to expand to a branch.

A third party conjectural opinion suggest that assuming that half of the dividend is converted into share in specie after the 33 sen payout,shareholder's equity may shrink to RM796 million (assuming 50% of such dividend is converted into shares). There is a possibility of a 10% discount on market price to lure shareholders to convert dividends into shares.This will bring about an increase of possibly 1.6% new shares.

With the current bullish stance of the bank's performance, fair value for Maybank shares is RM9.66 ((15x CY11 EPS). The call is OUTPERFORM.

Must You have YTL-Power in Your Portfolio?


Kenanga Research has raised its target price for YTL Power International Bhd stocks to RM2.48 from RM2.45 after updating Wessex regulatory capital value figures and earnings adjustments. That is only a mere 10-20 sen different at the current price.

So, is that a good reason to have the stock in your portfolio?

YTL Power is  a pretty good  defensive stock given current market condition with financial year 2011 expectation gross yield of 7.6 per cent,so said Kenanga  in a note.

"We continue to like the group for its steady cash-flow utilities business and strong cash pile of RM7.4 billion," Kenanga Research said.

"YTL Power's key catalyst lies with the appreciation in the British pound and Singapore dollar as well as new acquisitions," it said.


The research house expects the Singapore dollar rate to appreciate by one per cent year-on-year to S$1.00=RM2.35.

"The resulting rate will more than compensate impact of lower Wessex revenue from further depreciation in the British pound, which is expected to slide one per cent year-on-year to one pound=RM4.80," it said.

"Note that we are not expecting any significant rate hikes for Wessex," it added.

Kenanga Research also said that positive news flow from YTL Power's WiMAX venture could provide further excitement.

"Market talk indicates the group is working on a number of WiMAX devices, which will be used on Android (mobile phones); if so, this potentially means WiMAX-enabled handsets will be easily accessible," it said.