BJ Retail-Can it Go Up?

Well,  BJRetail (BJR) has been listed at long last.

In spite of the oversubscription, it failed to get good premium values on listing.

Right now, it is trading at 48 sen, 2 sen below par. So for those who wanted to buy excess rights issue, this is your chance. Do not expect this share to go up anytime in price soon because the market is full of sellers. Until such time when the dgestion has complete and the supply and demand forces are equally matched, then there is hope of a uptick in prices. If not, just wait it out.

BJR was listed on 16 August and the peak price was 53 sen. Then it gravitated to about 49 sen before ending at 50.5 sen. Subsequently, a tsunami of sellers came out on 17 August to drive to price down to 47 sen. Today it even went to a  low 46.5 sen. I think Vincent is cashing out some of his dividend in specie.

Let us look at some information on this counter.

Currently there are about 1150 7-Eleven stores nationwide, of which 615 stores are in the Klang Valley and 116 in Johor. Its target is to have 2000 stores within five years. So, an increase in the number of stores should mean an increase in sales revenue.

For FY2009,ending December 31st, 7-Eleven achieved a sales revenue of RM1.185 billion and profit after tax of  RM25.4 million.

Besides opening new stores, 7-Eleven is looking forward to providing charged services as well as another revenue stream.

The retail business is generally perceived to be highly competitive. However, 7-Eleven has the  lion’ share of the convenience store market in Malaysia as to the government’ has banned the entry of foreign convenience stores.

Apparently, about 60% of the sales in 7-Eleven stores is generated from 7pm-7am. This means that these stores do not  compete head-on with hypermarkets and traditional sundry shops.

In short, BJR’s convenience stores business is in the high growth market where competition is minimal, at least for now.

Nonetheless, 7-Eleven is no the only growth story in BJR, in which Tan Sri Vincent owns a 51.8% stake after its listing exercise. BJR also sells sewing machines, home appliances and furniture under Singer brand and distributes motorcycles.

Singer has been providing micro consumer credit to customers who purchase its home appliances for a long time. Barely 15% if its sales are in cash. The bulk of sales is on credit and paid off in installments.So, you can see a steady income flow from here.

The provision of credit facilities is yet another income stream for BJRetail.  In future consumer could become a major income avenue for BJRetail should the company manage to raise more working capital to expand such business.

The company’s non performing loans represent only 4% of Singer’s total sales revenue.

Let us look at the valuation.

BJR's IPO price is at 50 sen per share. This implies a PER of nearly 22 times based on proforma EPS of 2.3 sen for FY2009 ended Dec 31.Convenience stores contributed nearly 75% to BJR’s revenue and 64% gross profit of RM490 million.

Many think that this valuation is steep in terms of PER, which is close to that of Parkson Holdings. Also they feel, the profit margin that BJRetail is slim.

Based on such unimpressive figure, RHB has rated the share to be worth  51 sen; Kenanga: at  0.49 and TA at 53 sen.

Furthermore, there is the potential shareholding and earnings dilution as a result of the conversion of a chunk of ICPS. There are 962 million ICPS for BJRetail. Through Vincent Tan's investment vehicle Premier Merchandise Sdm Bhd, there is approximately 92% of the ICPS while Cosway owns 7.7% of it. The ICPS were issued when BJRetail acquired 7-Eleven and Singer from Tan and Cosway Corp respectively.

PS:

In a posting to Bursa KL, it was reported that Vincent Tan through Berjaya Sampo Insurance was in the market mopping up the BJR shares. The shares closed a sen up at the final bell.

This is a good sign as  the excess supply will eventually be kept as long term  investments by this insurance company.

With that, let us see now whether BJR share can do magic on the Bursa or will it be another dumdum.

KLK's has 33% more profit

Kuala Lumpur Kepong Bhd (KLK)'s third quarter results ending 30 June, 2010 is out.

It has registered a net profit of RM243.5mil, 28% higher than RM190.2mil posted in the same period last year. It attributed this profit to improvement in its plantation, manufacturing and retailing sectors.

Revenue grew 18.8% to RM1.83bil  from RM1.54bil previously it said in a filing with Bursa Malaysia. As such, KLK said the group’s third-quarter pre-tax profit climbed 34% to RM320.6mil.

“The plantation sector profit improved 42.6% to RM262.7mil, benefiting from higher commodity prices with ex-mill price of crude palm oil at RM2,562 per tonne compared with RM2,330 in the previous third quarter,” it said.

It said the sector also benefited from higher price of all grades of rubber (net of cess) at RM10.97 per kg, compared with RM6.57 in the previous corresponding period.

“The manufacturing sector posted a profit of RM56.8mil, from a loss of RM18mil in the previous third quarter, boosted by the improved performance from the oleo-chemical division,” it said.

Its retailing sector achieved a profit of RM4.5mil, compared with a loss of RM28.6mil before.

For the first nine months, the company posted a net profit of RM701.3mil, 90.2% higher than RM368.8mil in the previous corresponding period. Its revenue rose 12.7% to RM5.48bil, compared with RM4.86bil previously.

For the current financial year, KLK expects its profit to be substantially higher in view of the continuing satisfactory performance from the plantation sector, the expected better returns from the oleo-chemical division and positive results from the retailing sector.

So,it looks like this Ipoh-based company is another juggernaut worth observing.

Metronic Abandons BOT Water Project in China

Metronic Global Berhad (Metronic) has got itself out of the  Anhui Water Project and will be duly compensated.

However, the termination of this project has some adverse effect on its  earnings per share and net assets per share for the current financial year ending 31 December 2010.

Accordingly, earnings per share will fall by 0.26 sen from loss per share of 0.33 sen per share to loss per share of 0.59 sen while net assets per share will decrease accordingly by 0.26 sen from 11.67 sen to 11.41 sen for the current fiscal year.

On balance, Metronic will be compensated by the termination of the agreement, receiving RMB3,904,303 or in equivalent, RM 1,819,405. This will be useful in replenishing the company's coffers as much needed working capital.

So, how is the market going to respond or react to this development.?

Let us wait and see.

Another Flaming 9% Growth

Reuters has just reported today (Aug 18) that the Malaysian economy  expanded by a flaming 8.9 per cent in the second quarter from a year ago, more than forecast as it registered the third consecutive quarter of growth.

This is higher than the 8.1 per cent growth as revealed in a  Reuters poll, though as expected, the economy has marginally slowed from the first quarter’s annual growth of 10.1 per cent.

The Malaysian economy emerged from recession in the fourth quarter of 2009 when it grew by 4.5 per cent from the fourth quarter of 2008. It contracted by 1.7 per cent in 2009 overall from the previous year.

PM Najib said an improved economic growth could also be seen based on the position of the ringgit which had shown stability compared to other currencies in Southeast Asia.

So will BNM increase the BLR by another 25 basis points come this Thursday, 19th August?

GenM-NY Racino in the Bag?

Genting Malaysia Bhd’s unit Genting New York LLC, which has won the bid to operate a video lottery terminal facility in New York, plans to invest US$1.3bil (RM4.19bil) in the project. So is this good for minority shareholders?

Currently, Genting Malaysia has also been on a roadshow ahead of its EGM to drum up support for its plans to acquire Genting Singapore plc’s whole UK casino operations for £340mil (RM1.7bil).

The EGM is on Aug 24, and Genting Malaysia wants to ensure it has enough support to ensure the deal goes through. That will be no problem with the big boys at Gentings. Their network will do the 'deed'. So the EGM for the takeover of GentingUK is a fait accompli.

This means that whatever is left in the reserve coffers will be pilfered and frittered down to do up the racino project. So GenM minority shareholders-you are the real suckers and whipping boys. Another feather for the Genting big boss!

Now back to our story. Apparently, Genting New York had signed the agreement last week but only made the announcement in New York yesterday. That is why they were feeding like crazy over here at the Bursar for GenM shares,like hogs so it seems.

I think just like it the Sentosa Resort world case, expect overruns. Already some USD380million has gone kaput to save the city. According to a copy of the proposal submitted by Genting to the New York lottery authority, Genting New York will pay a licensing fee of US$380mil (RM1.22bil), above the minimum US$300mil (RM966mil) required by the city of Aqueduct, NY.

As the planning goes,Genting New York intends to spend a further US$350mil to develop the facility, which upon full completion will span 413,000 sq ft and contain more than 4,500 video lottery terminals or electronic slot machines.

Dubbed Resorts World New York, the proposed three-storey facility will also contain several restaurants, water features, an outdoor terrace connected to the Aqueduct racetrack which will be able to accommodate up to 10,000 people and a 2,200-bay car park.

Genting New York aims to complete the entire development within 12 months from the date it obtains formal approval from the state to proceed.

As part of a wider development plan, Genting New York is also proposing to build three hotels of differing standards, shopping, recreation, spa and other resort facilities at a total cost of US$650mil (RM2.09bil). That will take the proposed outlay for the entire project to over US$1.3bil.

Presently, Genting Bhd owns 47.33% of Genting Malaysia. On Tuesday, Genting Malaysia rose to its year-high of RM3.11 and closed the day at RM2.99, 17 sen up. Genting Singapore closed S$1.52 (RM3.58).

Genting Bhd, parent to both Genting Malaysia and Genting Singapore Plc, rose 21 sen to RM8.93, a three-year high.

The shares of all three stocks have rallied since Genting Singapore reported a second quarter profit on Aug 12 after opening a casino resort in the city-state.

Meanwhile, some shareholders have not been happy with Genting Malaysia’s plan to acquire the UK casino operations as it is viewed as a related party transaction. Furthermore, they feel the acquisition price is high compared to its current value.

“Genting Malaysia is saying that they are buying the UK operations cheaper. After all, in 2006, Genting Singapore acquired Genting UK for £699.4mil. Furthermore, they see growth in Genting UK,” said one analyst who met up with Genting Malaysia’s management.

For £340mil, Genting Malaysia will get 44 casino licences for the UK operations, as well as properties with a net book value of £289mil (RM1.45bil), not inclusive revaluation gains.

The analyst, however, cautioned that the operating environment in the UK was still tough. In recent years, the casino market has been affected by legislation, including a smoking ban in enclosed public areas. Gaming operators are also now imposed with higher taxes. Hence, the underlying value of the casinos could be lower than the £340mil paid, according to the analyst.

As you can see, even the analysts are cautious of this UK deal. Aren't you?

Double Jeopardy

Well, what do you know?

Just when you think it is time to leave dullards on the Bursa like GenM when it springs back to life and climbed to high heaven.

I have been holding onto this stock for about 7 years now and this could possibly be the second time that it has scaled the RM3 mark.

Strangely, with a reserve bleeding proposal in the works comes this EGM to buy GentingUK, yet some people have seen it fit to push GenM up.

I could see the relevance of Genting Berhad moving up but never in my mind could I fathom that GenM could also be pushed up.

I regret selling at RM2.86 it to buy some other stocks which has slided down since. It has climbed as high as RM3.11 and they are still in frenzy feeding mode right now.

True Murphy's Law in operation.

For me, it was double jeopardy and a big loss.

PS:

Well, the news is out. It was a Treasury buy-in by GenM itself that pushed up the share price. They started buying big from RM2.99 onwards. I guess they wanted more shareholders out of the market before they meet on 24 August to screamed the house down on GenM management's 'senseless' purchase of Genting UK.

RHB Securities report parred down the potential of the racino project as well saying that the fair price of GenM is only RM3.03.

The Sun Set on Japan as China Overtakes....

It's confirmed.

Japan has lost its place to China as the world's No. 2 economy in the second quarter of 2010 as receding global growth sapped momentum and stunted a shaky recovery.

Gross domestic product grew at an annualized rate of a miserly 0.4 percent, the government said Monday, far below expectations of 2.3 percent growth as projected in a  Kyodo news agency survey.

The figures underscore China's emergence as an economic power that is changing everything from the global balance of military and financial power to how cars are designed. It is already the biggest exporter, auto buyer and steel producer, and its worldwide influence is growing. The juggernaut is steamrolling.

Apparently, China has surpassed Japan in quarterly GDP figures before but its passing of Japan in the second quarter is likely to mark the period in which the lead became insurmountable.

China's economy will almost certainly be bigger than Japan's at the end of 2010 because of the big difference in each country's growth rates. China is growing at about 10 percent a year while Japan's economy is forecast to grow 3 percent this year.

Japan's nominal GDP, which isn't adjusted for price and seasonal variations, was worth $1.286 trillion in the April-to-June quarter compared with $1.335 trillion for China. The figures are converted into dollars based on an average exchange rate for the quarter.

Japan has held the No. 2 spot after the U.S. since 1968, when it overtook West Germany. From the ashes of World War II, the country rose to become a global manufacturing and financial powerhouse. But its so-called "economic miracle" turned into a massive real estate bubble in the 1980s before imploding in 1991.

What followed next was a decade of stagnant growth and economic malaise from which the country never really recovered. Prime Minister Naoto Kan now faces a long list of daunting problems: a rapidly aging and shrinking population, persistently weak domestic demand, deflation, a strong yen and slowing growth in key export markets.

In contrast, China's growth has been spectacular, its voracious appetite fueling demand for resources, machinery and products from the developing world as well as rich economies like Japan and Australia. China is Japan's top trading partner and has been key in Japan's recovery from the global recession.

But China's rise has produced glaring contradictions. The wealth gap between an elite who profited most from three decades of reform and its poor majority is so extreme that China has dozens of billionaires while average income for the rest of its 1.3 billion people is among the world's lowest.

Japan's people still are among the world's richest, with a per capita income of $37,800 last year, compared with China's $3,600. So are Americans at $42,240, their economy still by far the biggest.

"We should be concerned about per capita GDP," said Kyohei Morita, chief economist at Barclays Capital in Tokyo. China overtaking Japan "is just symbolic," he said. "It's nothing more than that."

On a quarterly basis, Japan's GDP — or the total value of the nation's goods and services — grew 0.1 percent from the January-March period, the Cabinet Office said.

Consumer spending, which accounts for about 60 percent of GDP, was flat from the previous quarter, the figures showed. Capital spending by companies rose 0.5 percent, while public investment fell 3.4 percent.
"We are now seeing a pause of growth, especially on the domestic side," said Masamichi Adachi, senior economist at JPMorgan Securities Japan.

The outlook for this third is uncertain. Private consumption appears to be solid so far, helped in part by unusually hot weather, Adachi said. But a cooling global economy is dampening exports and production.
A stronger yen, which hit a 15-year high against the dollar last week, also poses a major risk for the country's export-driven economy. Yen appreciation reduces the value of repatriated profits for companies like Toyota Motor Corp. and Sony Corp. and makes their products more expensive abroad.

The currency worries led Finance Minister Yoshihiko Noda to say last week that he is closely monitoring foreign exchange rates. Bank of Japan Gov. Masaaki Shirakawa released a similar statement to try to calm markets.