Care to Invest in Careplus?

Careplus Group Bhd, a rubber glove maker,is enroute for a listing on the ACE market of Bursar.

At its prospectus launch yesterday, it stated its aim to double revenue by 2013 from the RM41.86 million registered for the year ended January 31 this year. This is indeed an aggressive expansion plan.


Over the next three years, it aims to almost quadruple its production capacity to more than 1.65 billion pieces of gloves, from 420 million pieces currently.

The expansion will be done in three phases namely , commissioning in first quarter 2011, third quarter 2010 as well as third quarter 2013.Along with its exponential jump in capacity,Careplus is confident that its output will  easily be absorbed by an expanding global market.

Its CEO,Lim Kwee Shyan explains it this way.

"First of all, we are a very small player, with less than 1 per cent market share. So, even if we double up (our capacity), it wouldn't even touch 2 per cent. So, I believe there will be a market that we could undertake to support our increasing capacity,"

Lim added that in terms of doubling or tripling the company's supply to the global market, it is still a very small portion in the total gloves requirement.

"The global gloves market is expected to grow at a 8 per cent to 10 per cent rate annually, so that 8 per cent to 10 per cent growth is a very huge quantity."So that itself will give a big room for a player like us," he said.

The company aims to raise about RM15 million from the initial public offering exercise, involving the public issue of 65.05 million new shares of 10 sen each at 23 sen a share.

Of the 65.05 million shares, 10.5 million will be available for public application and 15.65 million for application by directors, employees and business associates. The remaining 38.9 million will be reserved for placement to selected investors.The proceeds will be used to expand Careplus' production capacity, which includes buying machinery and equipment for production lines.

"In terms of having the economies of scale, we need to go into that expansion phase. We cannot get the cost efficiency if we work on one or two production lines," Lim added.

Currently, the firm produces only natural rubber gloves. The commissioning of the new production line next year will allow it to also produce nitrile gloves.

"We are focused more on latex gloves and will eventually start production of nitrile gloves, in line with our expansion. This new investment has given us an opportunity to grow, which we have not been able to do so over the past five to six years.

"With our strong customer base, I believe that it is possible for us to achieve growth and attract newer customers in future," non-executive chairman Peter Yew explained.

The firm is expected to be listed on the ACE Market on December 6.

So, what do you think its opening price will be like?. You know, the market is always right...

Time Dotcom Dumped on Restructuring

It was a prima donna of a share for sometime, being preferred to Time Engineering. While Time Engineering hovered around the middle 40 sen range, Time Dotcom (TdC) catapulted upwards by 54% into the 70 sen price range.

Then, whammo! Both counters were given short shrift and dumped summarily by investors who see the reorganisation and purchases as intrinsically bad!

While investors acted negatively, some analysts however felt TdC’s proposals were fair to the company.

TdC’ shares slumped a massive 14 sen to close at 63 sen yesterday. Trading in its shares resumed yesterday after being suspended since last Friday. TdC was the most heavily traded stock with 107.9 million shares done.

Time Engineering's price melted down 8.5 sen to 43.5 sen.

An analyst said the market may be viewing the company’s announcement unfavourably due to the dilution impact from the issuance of new shares to pay for the acqusitions.

“There is also lack of clarity on whether the acqusitions are earnings accretive,” he said.

Another concern was the related party nature of the transactions, as the companies being injected into TdC belong, in part, to TdC’s CEO Afzal Abdul Rahim.

However, it should be noted that Afzal as well as Khazanah Nasional Bhd (the latter also partly owns some of the assets being injected into TdC) will not be voting on the deal, leaving minorities the full power to decide on the matter.

While the deal will make Afzal the single largest shareholder of TdC, this has been a stated intention of Khazanah in its earlier announced divestment plan of TdC.

“Afzal is getting paid mostly in shares rather than cash. This suggests that is in this for the long haul,” said a dealer.

TdC announced on Monday that it proposed to buy three companies for RM339mil. The three companies were AIMS Group, which would be acquired for RM128mil, of which RM38.4mil would be in cash; Global Transit Communications Sdn Bhd (GTC) for RM106mil in stock and Global Transit Ltd (GTL) for RM105mil, of which RM52.5mil would be in cash and the balance in shares.

The acquisitions would be financed by RM90.9mil in cash and RM248.1mil in shares, and is expected to be completed in six months. The analyst viewed the acquisition price of the deals as fair, citing that these companies were in fast growing industries.

TdC is paying between 15 times and 23 times historical price earnings for GTC and AIMS, while it is taking over GTL (the owners of a 10% stake in the Trans-Pacific Unity Cable connecting Japan and the United States) for RM105mil.

“Its not exactly cheap, but these companies are growing fast. In the case of GTC, it recorded a loss of RM79,613 for the year ended Dec 31, 2008. For the nine months to Sept 30, 2010, it made RM5.11mil. AIMS is also growing. [ This is good if sustainable]. If these companies continues to grow at a 20% rate over the next few years, there may be no dilution impact at all,” the analyst said. [What a long haul!]

Under the capital restructuring, TdC announced a capital repayment of 2 sen per share, or a total of RM50.6mil.

On the proposed share consolidation, five shares of 10 sen each would be consolidated to one share of 50 sen each.

It means that if you currently have 5 lots of 1000 shares at RM1 par,then the conversion will firstly result in you having 5 lots of 1000 shares at 10 sen par. Next, you will have to undergo a conversion exercise where every 5 new shares you have will be consolidated into one 50 sen share,effectively rendering you to own 1 new lot of 1000 shares with 50 sen par. Is it worth it?

“The share consolidation is actually positive as it shows that management wants to institutionalize the shares,” said a fund manager.

With the consolidation, the issued and paid up capital of the company remains the same at RM253.08mil, while the total number of shares would be reduced five times lower to 506.16 million shares of 50 sen each.

The dealer said that with TdC consolidating its assets to create Malaysia’s and in future Asean’s prime wholesale data and backhaul network, TdC would be able to bundle together attractive packages at competitive prices for both domestic and regional telco companies and services providers.

The dealer added that with the onset of increased data traffic driven by new mobile devices and technology upgrades, demand for data would only grow stronger. He said the deals would position TdC on solid footing to benefit from the trend.

Looks like the people in the know are in this leverage buy-out and indicative that Khazanah is actually divesting to favourable parties.

Will the new owners be able to bring in potential business as it projected?

That I want to see.

CIMB-A Re-Rating Again

AmResearch Sdn Bhd has upgraded CIMB Group Holdings Bhd. on the expectations of improved non-interest income, particularly from overseas capital markets in Asia.

Case in point is its appointment as one of 11 book runners for AIA Group Ltd’s Hong Kong initial public offering which is sufficient testimony to its growing regional investment banking franchise.

As such, CIMB’s fair value was raised to a whopping RM9.60 from RM7.80, according to the report.

CIMB shares are treading water at RM8.30 currently.

Mulpha International-Hidden Assets

For those interested in this penny stock, this is a write-up from Risen Jayaseelan of the online STAR.

"Property developer and investment firm Mulpha International Bhd (MIB) has come to be better known in Australia than in Malaysia, says its executive chairman Lee Seng Huang.

"Due to the quality of our assets Down Under, we are better known in the financial and property circles there," he says in a recent interview with StarBiz.

"In Malaysia, MIB suffers from legacy issues and is still perceived by some as being a trading company. But we have moved on to be a regional player. MIB is the largest Malaysian property player in Australia today," he says.

MIB's Aussie property portfolio (owned by its wholly owned subsidiary Mulpha Australia Ltd) is today worth around A$1bil (RM3.1bil), says Lee. The prized assets include a few five-star hotels such as the InterContinental Sydney, a resort-styled property development called Sanctuary Cove in northern Gold Coast that has a gross development value of around A$2bil (RM6.2bil) and Hayman, a five-star private island destination in Australia's Great Barrier Reef.

An aerial view of Sanctuary Cove, a resort-styled property development by Mulpha.

 

Topping all that is MIB's 25% stake – making it the single largest shareholder – in FKP Property Group, Australia's leading property investment company. The Australian-listed FKP is also the largest private sector owner-operator of retirement villages in Australia and New Zealand.

All these assets were acquired by Mulpha Australia between 2002 and 2004. FKP and MIB were recently in the news in Australia over rumours that FKP's second-largest shareholder, Stockland, itself a leading Australian property developer, could be seeking to take over FKP.

Lee says MIB is not keen on selling its shares in FKP as there is still a lot of upside potential in the latter. Talk of the takeover is said to have led to the slight increase in FKP's share price in recent weeks, pushing it up to around 90 Australian cent a piece.

Interestingly, MIB's 25% stake in FKP alone has a market value of A$275mil (RM855mil). MIB's other significant strategic stake in a listed company is its 22% holding in Mudajaya Group Bhd. MIB's Mudajaya stake has a market value of some RM350mil.

Combined, these stakes are worth around RM1.2bil, which is close to the market capitalisation of MIB of RM1.27bil at today's prices.

"There is a lot of embedded value in MIB," says Lee.

UBS Malaysia, in a recent note to clients, commenting on the potential bid for FKP by Stockland, highlighted the fact the MIB seems to be undervalued. "MIB looks undervalued currently. Its market capitalisation is around RM1.27bil, which is almost equivalent to its stake within FKP and Mudajaya, hence everything else comes free," UBS said.

However, it should be noted that MIB has slightly over RM1bil in debt. Still, that debt level has not been a concern for MIB because of its huge asset base. In any case, those assets that are seemingly "free" to MIB investors, are looking rosier by the day. In Australia, MIB is poised to pocket over A$100mil (RM309mil) if the sale of its Hilton Airport Melbourne hotel goes through.

Lee has confirmed that the hotel had been put up for sale and that the compay is in advanced talks with potential buyers but he declined to comment on pricing. News reports in Australia had put the figure at about A$100mil.

MIB's Hayman resort is also enjoying a new income stream from the sale of a few plots of land on the island as exclusive holiday homes.

Lloyd Donaldson, head of hotel investment for Mulpha Australia, said the company had secured the necessary approvals to build 42 homes on Hayman Island. So far three have been sold at prices from A$15mil (RM46.4mil) to A$20mil (RM61.4mil), depending on the size of the house. These prices are believed to be a record high for holiday homes in Australia.

Then there's the Sanctuary Cove, which was acquired by Mulpha Australia in 2002 for A$208mil (RM644mil). According to Sanctuary Cove executive general manager, Alison Quinn, more than A$60mil (RM186mil) of property sales were achieved in the first half of 2010.

MIB also has Leisure Farm Resort, it's prized Malaysian asset, a vast award-winning resort-styled residential development in Johor. Leisure Farm is strategically located within Iskandar Malaysia and is only a 15-minute drive from Tuas in Singapore via the second link.

Leisure Farm reported a rise in profits in the first half of 2010 to reach RM8.6mil from RM2.2mil in the previous corresponding period.

According to MIB, sales of its Bayou Water Village (one of its seven themed residential precincts) increased after its completion in the last quarter of 2009, with 18 of such units having been sold in the first half of this year.

Analysts also say that Leisure Farm is likely to benefit from the fact that since early this year, Malaysia and Singapore have agreed to cooperate on the development of Johor.

MIB has another 600 acres of land in Leisure Farm to develop.

Back to Australia. To be noted is the fact that MIB has had to equity account for losses stemming from writedowns of its Australian assets, mainly FKP. This is because under all assets are required to be marked to market under Australian accounting rules. Hence when the global financial crisis hit, the values of MIB's and FKP's assets had to be written down.

"FKP has a huge retirement asset portfolio. During the better years, these assets were written up but when the crash came, they had to write it down. These are accounting losses stemming from FKP and does not mean that FKP is not doing well," Lee explains.

When asked if there was going to be any more writedowns of FKP's assets that would impact Mulpha's profits, Lee says that is unlikely. "We have indicated such to the market. The cycle has turned and all the asset values are slowly increasing. What we went through was a period of extreme conservatism by the valuers in Australia as a whole."

When asked about dividends, Lee says MIB's board is reviewing its policy regarding dividends. MIB has not been paying dividends but Lee says that by the year-end, the company should have a clear strategy on dividends.

"Previously, when we had no dividends, we were conducting massive share buybacks. As we are not doing share buybacks at the current price of MIB shares, we should be looking at using that money for dividends."
Dividends would tie in nicely if MIB is able to unlock the values of its assets and use the proceeds for rewarding shareholders.

However, MIB is also inclined to reinvest its profits. "MIB's investment philosophy is to maximise the value of its assets and recycle that money into other assets that can generate more value," says Lee.

Bursa: Moving Bullishly Upward

I have taken this article from the On-line STAR. It is written by Fintan Ng and Yvonne Tan.If you are closely monitoring the market or getting more involved in it, this is a good piece to read to get a broad feel of the possibilities of the Bursar sustaining its rise or otherwise.

" The local bourse’s benchmark FTSE Bursa Malaysia KL Composite Index (FBM KLCI) continued to chart highs that were last seen on the eve of the global financial crisis in early 2008 when it closed 0.44% higher at 1,526.53 yesterday, surpassing the 1,524.69 achieved on Jan 14, 2008.

Among the companies that helped boost the index were Malayan Banking Bhd, CIMB Group Bhd and telecommunications stocks such as Maxis Communications Bhd and DiGi.Com Bhd.

But can the market’s strong surge be sustained?

Analysts said that since the pace of economic growth had slowed in G3 economies – the United States, the European Union and Japan – with the outlook for the forseeable future continuing to look unexciting, investors were now looking to other markets and asset classes to place their money.

Tuesday's close

 

Year-to-date, several Asian markets including Indonesia and the Philippines have broken passed their record levels while the FBM KLCI has risen more than 20% since the beginning of the year.

Besides emerging-market equities, commodities have also seen their prices go up.

Spot gold surged to an all-time intra-day high of US$1,414.85 an ounce in London trade while crude oil has risen to near US$87 per barrel.

HwangDBS Investment Management Bhd chief investment officer David Ng said at a briefing yesterday that the local market could very well experience the bullrun of the early nineties when stocks were traded up to 30 times price-to-earnings ratio largely as a result of all the cheap money.

Monday's close

 

He said that Asian emerging markets’ fundamentals such as positive demographics, young population, urbanisation and rising middle class would continue to drive domestic demand.

Ng said the “sweetest place” to park money was in this region as the liquidity created by accommodative monetary policies in developed economies chased higher returns in this part of the world.

However, Morgan Stanley Research analyst Gerard Minack said in a Nov 5 report that there seemed to be a disconnect between the markets and the macroeconomic outlook.

He said what was not clear was whether the US Federal Reserve’s US$600bil plan to purchase government bonds over the next eight months to boost economic growth would work fast enough to significantly reduce recession risk.

Minack asked how long could markets run on the Fed’s latest stimulus without confirmation from macro data that things were improving.

“I’d characterise the macro data as mixed over the past month or so. More telling was the upside-down reaction to incoming news.

“For example, equity markets rallied after the weak September US non-farm payroll report because bad data meant more stimulus,” he said.

Minack pointed out that the S&P 500 finished lower after the stronger-than-expected Institute for Supply Management’s manufacturing index was revealed.

“It’ll be important when markets return to a good-news-is-good or bad-is-bad behaviour,” he said.

ECM Libra Investment Bank Bhd research head Bernard Ching told StarBiz that the Fed’s quantitative easing would merely stabilise developed economies and prevent them from spiralling into a double dip or deflation.

“The stimulus will not be able to change the outlook on US growth seeing as the jobs lost to-date will take six or seven years to replace,” he said.

As a consequence, Ching did not see demand picking up in the G3 economies as debt levels were high and consumption was “tepid”.

Meanwhile, UOB KayHian (M) Holdings Sdn Bhd research head Vincent Khoo said emerging markets,
including Malaysia, would continue to have a positive near-term market outlook until inflationary pressure brought on by the rise of commodity prices reversed the low-interest rate regime.

“The near-term market outlook will be positive, at least through the next few months, but if the threat of inflation is higher, central banks may be less accommodating,” he said.

Khoo cautioned that crude oil price reaching US$100 a barrel would cause some worries.
“Commodity prices just need to be carefully monitored to gauge for inflation,” he added.

KFC Off-Shore

For those following my earlier post on KFC, here are more tidbits of information.

For India, there are now 3 outlets in operation.

On the planning board, KFC expects to have 17 outlets in the subcontinent by the end of next year.

They opened the first at Pune and now they have two in Mumbai.

According to a KFC spokesperson, of the 17 outlets, five would be in Mumbai and these will all be acquired from master franchise holder Yum! Brands Inc. KFC will acquire two outlets in Pune from another Indian franchise holder, Kernel Food Pte Ltd.

Ali said KFC Holdings would open four more outlets of its own by year-end. Of the four, two would be in Mumbai, one in Pune and one in Aurangabad – all these cities are located in the state of Maharashtra, which is on the western part of India.

“We want to build a critical mass as soon as possible. By the end of this year, we will have a total of nine outlets which will involve an investment of about US$9mil,” he said.

He added that KFC Holdings would open eight outlets next year costing a total of US$10mil.

KFC expects a 15% yearly return to investment from the Indian operations. 

Maharashtra has a population of about 100 million, of which 21 million lives in its industrial and financial hub Mumbai and 5.7 million in its education-cum cultural centre Pune.

The Indian consumer market is also considered to be under-developed, having an estimated 1,200 brand restaurants in a country with over 1.13 billion, of which 50% is under 25 years old.

The spokesperson is impressed with the sales recorded in India, saying it should be faster here than in Cambodia.

On whether the company would venture into poultry and chicken-breeding business to support its operations in India, he said: “We’ll do things one step at a time. Maybe we’ll do it in the long run.”

He said KFC Holdings would focus on Maharashtra before looking at other states in India. At the moment, the company is only allowed by YUM! to operate in Maharashtra.

KFC Holdings also announce that it would open six outlets in Cambodia in 2011, with each outlet expected to cost RM1mil. It now has seven in that country.

He also said the company would open a Pizza Hut outlet in Phnom Penh soon.

YTL-Biggest Non-GLC?

Hear ye! Hear ye!

YTL Corp has a hefty cash reserves of  RM10.8bil!

With this chunky treasure trove, it is little wonder that YTL Corp Bhd has emerged to be the largest non-government-linked company in this year’s Malaysian Business Magazine Top 100 Companies survey of Malaysia’s largest listed companies.

YTL Corp said the group moved up to No. 5 from No. 20 previously in the list of Malaysia’s largest listed companies while its subsidiary, YTL Power International Bhd, soared 23 rungs to secure the eighth spot.

With its cash reserves amounting to about RM10.8bil, analysts said YTL Corp could easily acquire assets up to US$25bil-US$30bil without the need to raise more money.

It had been reported that the group was looking at acquisition opportunities in the water utilities, power generation and cement businesses, especially in China where it wanted to grow its presence in cement and power generation.

YTL Corp said that riding on its long history and impeccable track record, the group’s portfolio of businesses had grown tremendously over the last decade and now spanned across Asia-Pacific and Europe.

This strategy had generated excellent returns for shareholders, successfully contributing to an annual average compounded growth rate of 55% over the last 15 years.

YTL is here to stay,my friends...........