Will THHE Lift Off!

Will it Bounce?

Bursar KL will only allow uplifting of P17 status for a counter , if after restructuring, a company shows two consecutive quarters of successive profit performance.

That Tabung Haji Heavy Engineering (THHE) has done so. No problem there.

So, why is there this sudden spurt up to 55.5 sen today and then a fall-back?

Let us rewind. 

A couple of months ago, Lembaga Tabung Haji (LTH)  increased its shareholding in THHE by almost 25% by buying shares in open trading to have a "comfortable level of control" of the company. The purchase price averaged 40 sen per share. It had only 14% as at end 2010. It is still the biggest shareholder. 

In an exchange filing yesterday, TH Heavy Engineering said LTH acquired 130.11 million shares at RM0.40 sen a piece. As at Dec 30, 2010, LTH was the biggest shareholder of TH Heavy Engineering, holding 13.98% or 166.83 million shares. With the acquisition, it now holds a 32% stake in the company. So, why the need for this comfort level and no more? 

“The increase of shareholding by LTH is because they want to have a comfortable level of control in THHE. On why the shareholding stops at 32%, an insider source replied that they did not want to trigger a mandatory general offer,

TH Heavy Engineering's core activities include fabrications of major steel structures, engineering and offshore marine services.

Through its subsidiaries, the company fabricates offshore oil and gas-related structures.

Nor Badli has also recently subscribed for  400,000 ordinary shares of RM0.25 each in the company.

So, will this RM1 counter  which undertook a rights issue at 50 sen with an attached warrant component go up soon?

Market rumours are aplenty on THHE. While some say conservatively it should hit 80 sen,others are more bullish and so it will hit beyond RM1.

Let us look for some possible basis for this speculative mindset on THHE.

Rights issue was offered to all shareholders on 12 July 2012 on the following basis:

2 rights for every 5; equivalent to 400 shares per thousand at issue price of 40 sen.

On 10 August, the new rights were traded.

Let us read some write-up on this counter.

INVESTMENT MERIT

Likely upliftment of PN17.  After two years of being classified as a PN17-status company, TH Heavy Engineering (THHE), or formerly known as Ramunia Holdings, has gone through several corporate exercises to improve its financials. Today, it has turned profitable and has on 31 July submitted an application to SC for an early upliftment from being classified as a PN17 company. 

RM210m contracts for 12 months.  In Mar12, it secured a RM23.6m fabrication job from Aquaterra Energy Ltd for the West Desaru Project, which was completed in July12. Three months later, it won two sizeable fabrication jobs from Sarawak Shell, totalling RM177.5m, scheduled for deliveries in 2Q13. With this, THHE has an orderbook backlog of c.RM210m, which will support its earnings for the next 12 months.

Tabung Haji  is the majority shareholder.  After its recent corporate restructuring, Tabjung Haji now owns a 32% equity stake in THHE, an increase from 29% previously. This, in our view, could boost the public confidence in the company for its future growth prospect.

Fairly valued.  The potential upliftment from PN17 status has caused the share price to rise 13% in the past week. While we reckon that THHE is financially stronger now and more profitable, we however, see little upside from here. THHE is fairly valued at RM0.55 based on 8.5x FY13 PER (ex-cash from the rights issue), which is our average targeted PER for small cap Oil & Gas stocks. On the downside, the rights price of RM0.40 should serve as a floor valuation.

SWOT ANALYSIS

Strength:  Strategic location of its newly acquired 57-acre integrated fabrication yard in Port Klang, with an annual capacity of 10,000 mt.

Weaknesses:  Its current PN17 status could challenge its ability to secure more contracts.

Opportunities:  Business expansion into lucrative FPSO market by acquiring a FPSO vessel. 

Threats: Margin contraction from FPSO segment due to pricing competition with the big boys.

TECHNICALS

Resistance: RM0.585 (R1), RM0.65 (R2), RM0.715 (R3)
Support: RM0.475 (S1), RM0.44 (S2), RM0.39 (S3)
Views: Bullish in the S-T & M-T
Comments: TH Heavy has just broken above the short term ascending triangle. Immediate TP of RM0.575 with the first level of support at RM0.475. Buy on weakness.

BUSINESS OVERVIEW

TH Heavy Engineering is involved principally in the fabrication of offshore steel structures and the provision of other related offshore O&G engineering services in Malaysia. In order to secure more opportunities from the O&G sector and being part of its business growth plan, the group has decided to foray into marine vessels services as its first step to explore within the expansive O&G activities chain. 

BUSINESS SEGMENTS

Offshore Structures Fabrications.  Core business which focuses on the fabrication of offshore oil and gas facilities, including substructures, platforms and topsides.

HUC & Topside Major Maintenance.  It offers offshore topsides modifications, upgrades, shutdowns, repairs and de-commissioning of existing or abandoned platforms. (Both these segments contributed 90% of the group's 1H12 revenue.)

Offshore Crane Manufacturing. This division is housed under its wholly owned subsidiary, O&G Works Sdn Bhd, and has been granted the license to manufacture offshore and marine crane.

Marine Services.  This is a newly ventured business that enables the group to  minimise the risk of its dependency on fabrication jobs. The acquisition of RM248.4m of FPSO vessel is part of its strategy to tap into demand for services in marginal oilfield development.

We will discuss more in another post.

Urge Incontinence-Beat it Nature's Way

Toilet Addiction?

I met my old boss today at UH.

He was at the teaching hospital as he had cataract problems.

Looks like Terminator 5 with his shades on.

Spoke about good times and bad times.

Said the only good chap he met at MOSTE was Dr. Sahabuddin the urologist.

Anyway, when I told him of my urge incontinence problem, this was his experiential advice.

Resist the urge to go to the comfort room every time.

 Exercise your muscles not to let go.

 Strengthen your willpower.

Also, do not drink water after 10 p.m. so as to get a good trouble-free sleep all night long.

He said to call up sometime for tea.

Yeah, but will he remember?

Karma and Time-We never get it, do we?

Tell Tells 

The equation is not absolute.

The victor that vanquishes today become the vanquished  tomorrow.

That's karma for you as time takes its toll.

YTL Power Warrants-Is there still worth?

Possible Sell-out to 1MDB

I am looking from the perspective of a YTL Corp shareholder who will soon be offered a 1 unit of YTL Power Warrants  for every 15  shares of YTL Corp held before its share-split  for the subscription price of RM0.20 sen.

Looking at today's price of  YTL Power Warrants at 49.5 sen, would it still be attractive for YTL Corp holders to buy the warrants on offer?

Let us look at the numbers.

Assuming that you have been offered 1000 units of YTL Power warrants at 20 sen, it would mean you would have to foot out the following:

RM200.00 for subscription
RM10.00 Revenue stamp
RM5.00 bank draft charges.

This will add up to RM215.00

Assuming the price will hold steady say at RM0.50 sen for you to dispose of them  on receiving the warrants.

This will be the academic scenario

Returns: RM500 (Gross)
Brokerage charges : RM30.00
Subscription RM200.00
Returns : RM500-RM245.00 = RM255

This means that you will earn RM255 divided by RM215 =126% returns

Let us assume a 20% price fall of RM0.10 sen.

As almost 95% of the warrants are held by YTL Corp as Treasury buy-ins, there will be more warrants in the market. Expect many to throw out the warrants to take profit on the day they receive the warrants in their CDS accounts.

Returns will then be RM170.00

Return to capital will then work out to RM400-RM 245=RM155

This means the returns will by equivalent to 72%.

Will there be support from YTL Corp to be on the buying end to blunt out the massive liquidation of opportunistic sellers on Day 1?

Knowing YTL Corp, they will set off their buy-back mechanism as soon as they can especially with such a big RM14 billion cash reserve on stand-by.

So, my reading would be YTL Warrants may possibly lose about 5% of value and the warrants will find traction at about 45 sen.

What are the prospects for YTL Power in the near to middle term?

The rumour of October 2011 of YTL Corp taking over YTL Power to merge with YTL Land  to merge them did not take place.

So, what next?

Better Profits 

There are 2 scenarios which I can see.

First, will be the total buyout of YTL Power by YTL Corp to take it private via another share swap using  YTL Corp new share issue.

I believe that YTL Corp will move up in a series of price upticks to RM2.50 and YTL Power may move up to RM2.00 for the swap to take place.

This will occasion the prices of both counters to move up.

YTL Power warrants will also be bought up. At a conversion price of RM1.25, this will yield a gain of 75 sen  per 10 sen warrant. I want to believe that YTL Power warrants will be bought back by YTL Corp at 75 sen. (If this is so, holding the 20 sen specially priced warrant offer should net you 275% returns in the best market scenario)

The second scenario will be a buy-out of YTL Power's Malaysian assets  This will benefit the shareholders of YTL Corp enormously.

The potential buyer would likely by 1MBD.

They have bought Tanjong Energy and Genting Sanyen. They will likely buy out YTL Power's Paka and Pasir Gudang's operations which is up for renegotiation in 2015.  For an attractive sum, Francis will certainly sell out rather than take a lower tariff after 2015.

That will  leave only  Malakoff which will also be taken out to leave only two giants in the energy sector on the  playing field namely Tenaga and 1MDB.

With new cash reserves, expect Francis to buy into more overseas utility companies in the near term.

So, I do see a good stead for YTL Power even if it is taken private without the Malaysian operations.

So,  buying YTL Corp will still be good proxy strategy to tap on the growth potential of YTL Power.

Overseas Acquisitions?

Beautiful Hands

An Advertiser's find

These are beautiful hands.
Advertisers pay plenty for this kind of hands.

Lewinsky Strikes Back

That Winning Smile....

Monica has a knack of returning like an eternal spring just when Obama wants to get a second shot at the Presidency.

No way says Monica Lewinsky.

BJFoods Brought in the Goodies

Good Reason to Celebrate

My prediction was spot on.

However, lack of cash made me dispose of all my holdings as well as my rights offers.

Let us compute what a shareholder with 10 lots of BJ Food stand to gain from the entire exercise of hardly a month.

Assuming you bought the 10 lots at RM1.20. This means you have coughed out about RM12,040.

The rights you would be offered will be on a 4 for 5 basis. That means they will offer you 8 lots of the new rights with an equivalent number of warrants.

You need to pony up RM6,515 for the rights. that includes RM10 revenue stamp as well as about RM5 for your bank draft.

Assumed you sold all your 10 lots of mother shares at 95 sen after it ex-rights offer. That will bring you returns of RM9,450. You therefore take outright  loss of RM 2,590.

Now to the new trading scenario.

BJFoods has now gone ex- and has touched a high of RM1.24. The warrants was well traded until 60sen.

Assuming you have sold all your BJFoods new rights at RM1.20; then you would have taken in RM9,600 gross. Let's assume you have also relinquish the warrants at 60 sen each. This will add to RM4,800. Total takings will be RM14,400. After deducting for RM 6,515 for the rights issue and a loss of RM 2,590, you would have a clean profit of RM5,295.

Imagine a return of 81% all within a month!

Great stock, don't you think so?

Pity I can only calculate my loss.

Next to watch will be YTL Power Warrants.

I do hope my investment and  trading strategy will be okay this time around.

As they all say, you have Vision 20 20 mostly on hindsight!