KLK: Tighter Grip on Nitrile Latex Market

If you want to know of the latest corporate incursion of KL Kepong, you have to read Ooi Tee Ching's online article.in the Business times today.(16 December 2010)

Here is his article.

Kuala Lumpur Kepong's 19 per cent owned Yule Catto has bought PolymerLatex for RM1.85 billion

Kuala Lumpur Kepong Bhd (KLK) , which owns 19 per cent of Yule Catto & Co plc, is set to tighten its grip on the world’s supply of nitrile latex following the British firm’s 443 million pounds (RM1.85 billion) purchase of Germany’s PolymerLatex Group.

Chemical maker Yule Catto, listed on the London Stock Exchange, is already the owner of the Synthomer Group’s polymers business.

The PolymerLatex acquisition will bring together the world’s two biggest suppliers of butadiene or nitrile latex with a combined turnover of more than 1.2 billion pound and more than 2,000 employees.

Synthomer’s unit in Malaysia runs a 130,000-tonne per year nitrile plant in Kluang, Johor.

On the other hand, PolymerLatex operates a 100,000-tonne a year nitrile latex plant in Pasir Gudang, Johor.

Nitrile latex is used mainly to make synthetic rubber gloves.

KLK executive director Datuk Lee Hau Hian said the purchase will strengthen Yule Catto’s core business.

“It will allow Yule Catto to achieve cost synergy in research and product development,” Lee told Business Times yesterday.

Asked if a bigger sized Yule Catto could lead to price-fixing of nitrile latex, Lee said: “No, it will not because it takes two to make a deal. Both Yule Catto and nitrile glove makers must be happy in order for the industry to grow”.

Hartalega Holdings Bhd managing director Kuan Kam Hon said Yule Catto’s acquisition is a good thing for the former.

“I don’t think there’ll be any issue of price-fixing because there is no monopoly. The market is becoming bigger and we see new players from South Korea and Taiwan,” he said when contacted yesterday.

“When we source for nitrile latex, it’s not a decision based solely on price. Technical support is very important,” Kuan added.

Hartalega is the world’s largest nitrile glovemaker and is the biggest consumer of nitrile latex in Malaysia.

Yule Catto is issuing rights shares to fund the PolymerLatex purchase. Its investors are offered four new shares for each three they currently own at 116 pence.

KLK, in a filing to Bursa Malaysia on Tuesday, said it will take up all its rights.

This means the company will pay RM209.8 million for its portion.

Yule Catto chief executive Andrew Whitfield reportedly said the enlarged group could compete more effectively in a consolidating emulsion polymer market.

He expected the deal to allow it to achieve STG20 million (RM98.8 million) in cost savings.

So, if you are watching how KLK is performing in the medium term, this nitrile investment could be a net contributor of strategic significance.

KFC: Gobbling up Profits Like a Turkey

Imagine this!

For the first nine months of 2010,KFC Holdings (M) Bhd has amassed an income of more than RM1.83 billion.

Since January 2010, 34 KFC restaurants have been built.By the end of 2010, another 38 more new KFC restaurants will open its doors to Malaysians. The investment outlay for the new restaurants is RM45 million. Then in 2011, another 25 restaurants will open at a development cost of RM60 million. Of these 15 will be drive-ins.

It cost  about RM3 million to build a KFC drive-in restaurant compared to RM1 million for a normal one.

Currently, KFC has 511 restaurants in Malaysia and more than 69 in Singapure, Brunei and India .Some  18,000 workers are employed by KFC.

According to an KFC spokesperson, "Apart from operating the KFC restaurants, the company is involved in retail activities through the supply network of chicken-based products under the Ayamas brand, the Ayamas Shop and Restaurant RasaMas.

"We are also involved in the breeding, processing and hatching of chicken eggs, apart from additional business such as a bakery and sauce production," he explained.

With more KFC outlets to be opened in India and Cambodia, the fortunes of KFC looks better with each passing year.

Currently, KFC trades at RM3.80 per share. It should go back to its peak at RM4.50 very soon.

The Contrarian Winner

A year ago,in November 2009,two of the richest men indicated that the global economic panic was over and it was time to start going into quality stocks.

Despite lingering shocks from the  longest, deepest recession since the Great Depression, they vouched that capitalism is still alive and well.

Warren Buffet assured us that "The financial panic is behind us," and recently called for an "all-in wager" on the U.S. economy by acquiring railroad Burlington Northern Santa Fe.

He added that "The bottom has come in stocks. Don't pass on something that's attractive today."

Sitting facing each other in an auditorium filled with nearly 1,000 cheering people at Columbia University in New York, the CEO of Berkshire Hathaway Inc. and Microsoft founder Bill Gates fielded questions from Columbia Business School students on the recession, investing and what's the next Microsoft.

They were the two to provide the first reassurances that the U.S. economy had not collapsed since the last time the two sat in front of a student audience, in Nebraska in 2005.

"We proved that we can make mistakes," said Gates.

"But the fundamentals of the system, a marketplace-driven system where we invest in education and a great infrastructure for the long-term, that's continued."

Even in the country's "darkest hour," he said, American businesses were still innovating.

"Last fall was really blindsiding," Buffett said later.

Still, "I did not worry about the overall survival of our economy."

The worst recession since the 1930s may be over, but the recovery isn't expected to be strong enough to stem job losses and get businesses hiring again.

Employers shed a net total of 190,000 jobs in October, a government survey showed Thursday.

It was the 22nd straight month of losses.

And the unemployment rate jumped last month to 10.2 percent, a 26-year high.

Buffett also commended the Bush administration's actions last September, saying "only the government could have saved things" after the collapse of Lehman Brothers triggered the freeze-up in credit markets and panic on Wall Street.

In the future, however, Buffett said "there should be more downside to the head of any institution that has to go to the federal government to be saved for reasons of the greater society. And so far, we have been better at carrots and sticks in rewarding CEOs at the top. But I think some more sticks are called for."

The two endeared themselves to the audience with tips.

Buffett exhorted students to "marry the right person" and said, "The worst investment you can have is cash."

Gates, meanwhile, said he sees big opportunities in environmentally friendly energy and medicine.

"Capitalism is great," he said.

So,those who heard their advice have definitely made a pile despite the sovereign debt issue in Europe and the silly fracas between the two Koreas.


Did you?

KFC-Two Bidders Come Awooing

Fast on the heels of the Idaman bid for QSR, came Carlyle, a private equity fund is offering a whopping RM1.9b for QSR.

Kulim said this private equity firm had offered to acquire QSR Brands for about RM1.94 billion, topping a previous offer from a company linked to tycoon Tan Sri Halim Saad.

Carlyle Asia’s offer of RM6.70 a share for the majority owner of KFC and Pizza Hut in Malaysia is 20 per cent more than Idaman Saga’s offer of RM5.60 a share earlier this week and QSR’s current stock price.

Kulim, which gets about 60 per cent of its profits from its plantations business, holds a 55 per cent stake in QSR Brands.

The sale of QSR Brands will provide a quick injection of about RM1.07 billion for Kulim, which is owned by the debt-laden state investment arm, Johor Corp.

QSR’s sale will automatically trigger a general offer for KFC Holdings, the jewel in QSR’s stable of companies. KFC, the 51 per cent-owned subsidiary of QSR, is the present holder of the Kentucky Fried Chicken franchises in Malaysia and Singapore.

In a statement to the local bourse, Kulim said QSR and its subsidiaries will not raise capital or declare dividend, while  Carlyle conducts due diligence on the company.

Carlyle, a US buyout fund with US$90.9 billion (RM281 billion) in assets under management, has been eyeing deals in emerging markets of Asia and Africa.

Earlier this year, it had raised an additional US$2.55 billion for deals in Asia, taking the total of Carlyle capital committed to Asia outside of Japan to more than US$5 billion.

So, is the Colonel crowing for a better price offer apart from these two suitors?

YTL Corp, the Juggernaut

In an interesting corporate development,YTL Corp has divested all its assets and property projects in Malaysia and Singapore to its its 60.72%-owned unit, YTL Land. The disposal will bring in a substantial RM476.05mil to YTL Corp.

The disposal consideration and settlement of the outstanding intercompany balances of RM476.05mil is to be satisfied by the issuance by YTL Land of RM253.03mil nominal value of 10-year 3% stepping up to 6% irredeemable convertible unsecured loan stocks (Iculs) at 100% of nominal value of RM0.50 per Iculs and the remaining RM223.02 in cash.

In tandem, YTL Land would also undertake a renounceable rights issue of Iculs to raise funds to partly satisfy the cash portion. YTL Corp would subscribe in full for its entitlement under the proposed rights issue of Iculs.

The conversion price of the Iculs has not been fixed. The Iculs and the new YTL Land shares to be issued arising from the conversion of the Iculs would be listed and quoted on the Main Market of Bursa Securities.

Under the share sale agreements, YTL Corp would dispose of its 100% stakes in Arah Asas Sdn Bhd, Satria Sewira Sdn Bhd, Pinnacle Trend Sdn Bhd, Trend Acres Sdn Bhd and its entire 70% stake in Emerald Hectares Sdn Bhd to YTL Land.

Meanwhile, YTL Corp's wholly-owned units YTL Singapore Pte Ltd, Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd also entered into share sale agreements with YTL Land.

YTL Land had also entered into a land deal with YTL Land Sdn Bhd.This is in line possibly with YTL Corp's ongoing strategy for its principal business arms to own and operate the relevant assets within their business spheres in order to leverage on operational and developmental efficiencies and synergies.

Accordingly, the disposals are aimed at unlocking the value of YTL Corp's investments in its property units and projects.

YTL Corp would continue to participate in and benefit from the development, potential earnings and capital appreciation of the land owned by the disposed firms through its existing shareholding in YTL Land and its interest in the Iculs and/or the YTL Land shares arising from the conversion of the Iculs.

YTL Corp said the net cash proceeds from the proposed disposal and the settlement of outstanding intercompany balance would be utilised for general working capital purposes.

Until such time as the net cash proceeds are utilised, they will be held in interest-bearing bank deposits, money market instruments, deposits and/or other realisable short-term investments pending further evaluation of the strategic options and opportunities of YTL Corp and its subsidiaries, it said.

So, it looks like the biggest non-GLC on Bursar just got bigger.......and this elephant may just fly soon.

MRCB's Anti-climax Merger

Just when you thought that MRCB has finally came out on its own to be a branded corporate entity,  a merger is now on the card  to create a mega property company by fusing it with IJMLand.

The market did not like it and shunned the so-called corporate development. Instead prices of both IJMLand and MRCB fell when they resume trading.

Investbank Bank OSK has reduced MRCB to a 'neutral' recommendation on the basis that the details of the proposed merger with IJM Land Bhd have yet to be finalised. If so, I think OSK is merely jumping the gun with this silly pre-judgment.

The new MRCB and IJM Land proposed merger will make it the second largest property player with revalued asset of  RM6.5 billion.

According to OSK, there has yet to be a decision on whether the proposed merger will be satisfied via a purely share swap for shares in the newly incorporated company (newco) or a combination of both shares in newco and cash,

According to the OSK report,"The RM2.30 offer price for MRCB offers only seven per cent and 12.2 per cent upside from the last closing price and our previous fair value respectively.As such, it is viewed that the  offer price as somewhat fair and yet not that attractive, owing to the rather limited premium or upside."

Nevertheless, it did not rule out the possibility of MRCB's share price overshooting the offer price over the short term, driven by the excitement over the proposed merger.

Both parties are expected to enter into a definitive merger agreement within three weeks from the date of the MoU.

On the longer perspective, I think the EPF strategists  are gunning for a large hoard of cash before they embark on the Sungai Buluh mixed development property land development scheme and this could be one of its proposed pipeline..

Fund Inflows to Bursar to come from the US?

I append an online news item by Lee Wei Lian of Malaysia Insider. I think this is important for those who still wants to dabble in the stock market.

"Bank Negara said it is not currently considering implementing capital controls to deal with inflows of funds due to massive liquidity in western economies that are seeking higher returns in faster growing emerging markets.

Bank Negara Governor Tan Sri Zeti Akhtar Aziz noted today that large and volatile capital flows into regional economies could pose risks to macroeconomic policies and financial stability but said that Malaysia was in the position to intermediate the flows and had also gained experience from the 1997 Asian financial crisis.

“We are not considering any kinds of restrictive measures,” she said. “If the need arises, we will act collaboratively with other central banks in the region.”

The US government has announced plans to pump US$600 billion (RM1.86 trillion) in liquidity into its economy by June next year in a bid to boost its economy.

Critics of the plan contend that much of that money will find its way to emerging markets due to higher interest rates and better performing stock markets, potentially creating asset bubbles in those countries.

Gross inflows of foreign direct investment grew to RM8.9 billion in the third quarter from RM5.3 billion in the second quarter, reflecting larger inflows of equity capital and drawdown of intercompany loans, Bank Negara said today.

It added that portfolio investment in the third quarter registered a larger net inflow of RM9.3 billion compared with RM6.2 billion in the previous quarter due to foreign interest in the local capital market, particularly the equity market.