No,They are Certainly not Hassasins!

It looks like the poster of a movie. The leads do not ring a bell though their attire may.

No, those are not weapons but domestic equipment.

Well, that is another of my nephew getting married very soon.

Kinda creative, don't you think?

Patrick's Convocation

My nephew Patrick graduated recently from the Multi-Media University recently. I recollect my own graduation some 35 years ago.

He must have felt the same euphoria,I am sure.

Is there still Upside in PPB?

Is there still upside in PPB?

This is an independent appraisal of a blogger on PPB.

Let us hear his arguments.

At the current price of RM17.70, he is still calling for a buy. Caveat emptor.

Apparently, many quarters have sort of ‘written-off" PBB counter with HOLD or SELL recommendations since its disposal of its sugar business with most favouring direct investment into Wilmar International.

PPB after hiving off a chunk of its profits as dividends to shareholders (RM600million)still have in its coffers the balance of RM600 million. This they intend to use to expand the flour business which is very lucrative. The Indonesian plant commenced operation during the last quarter of 2009. Coming on-stream in this financial year is the bakery business.

So, according to this blogger, earnings per share will be in the region of RM1.30 or better for fiscal 2010. His calculation was based on the following premises.

Roughly an earnings per share (eps) is going to be in the same region of RM1.30 or better for FYE 2010. The calculation of the eps of 2009 of RM1.36 is based on the breakdown of contribution from Wilmar at RM1.04; from the flour revenue at RM0.14 and from sugar at RM0.18 respectively.

According to our blogger friend, at RM17.70, the PER of PPB  works out to be a conservative 13X which he deems relatively low when compared to its peers in KLK,IOI and Sime all at the 16X level.

At RM17.70, the market capitalisation of PPB is RM21 billion.

He then drew our attention to PPB’s intrinsic asset value.

Contribution from Wilmar (its 18.4% associate) -  at current SGX quote of S$6.85; PPB's share is worth RM19.2billion. The TP of Wilmar is expected to move up possibly  to S7.50 next

Contributions form other segments - such as flour, cinema, engineering, chemical, livestock, property & others @ book value. This will be approximately RM2.9billion.

Using simple arithmetics, our blogger friend is of the opinion that PPB’s market capital is worth RM22.1billion or translated to a potential price of RM18.62 (13.7X current year eps).

He added that PPB’s balance sheet is also healthy where NTA is RM11.88 on a net cash position of RM468 million.

So, anyone willing to take a bet on this blogger?

PPB-Furtive Moves

Two historic milestones of PPB happened in 2009.

The First Milestone:

Last year on September 2009, shares in PPB saw its biggest single-day decline as investors reacted to speculation that its affiliate Wilmar International Ltd may delay the sale of shares of its China operations in Hong Kong due to soft market sentiment. PPB’s share price fell as much as 4.6% before closing down 54 sen, or 3.4%, at RM15.40 after hitting a record RM16.04 on Sept 24 and had risen 65% year-to-date.

The local planter, controlled by tycoon Tan Sri Robert Kuok, owns an 18.4% stake in Singapore-listed Wilmar – the world’s biggest palm oil trader. “PPB is a proxy play to Wilmar,’’ a dealer at a local stockbroker said. Shares in Wilmar closed 2.9% lower yesterday at S$6.32 in Singapore – its lowest in almost a month. It had earlier fallen by as much as 6% after a financial website said the company may postpone the listing date for its China operations.

“The listing of Wilmar China Ltd on The Stock Exchange of Hong Kong Ltd is still in progress and has reached an advanced stage but no decision has been taken as to the specific timing of the listing,” Wilmar said in a statement to the Singapore Stock Exchange yesterday in response to media reports. “The company and Wilmar China are monitoring market conditions’’ to decide on the initial public offer (IPO) structure and timetable, Wilmar said. The statement said Wilmar would proceed with the EGM to be held on Oct 2 in Singapore to consider the disposal of its stake in Wilmar China in connection with the listing.

Analysts at UBS and BoA-Merrill Lynch said in research reports on Wednesday that Wilmar would delay the IPO from an end-October schedule, because of a volatile or weak Hong Kong IPO market, Reuters reported. In May, Wilmar was reported to have said it planned to sell between 20% and 30% of its China unit to the public.

Wilmar China supplies about half of China’s cooking oil needs. The unit accounted for about half of Wilmar’s revenue of US$14.3bil achieved last year and about 40% of its net profit.

Meanwhile, PPB’s 18.4% stake in Wilmar contributed more than 70% of the group’s net profit in the first six months of this year. AmResearch analyst Gan Huey Ling believed that the listing of Wilmar’s China operations would proceed, albeit at a later date. “In any case, we reckon that the listing will be completed by year-end,’’ she said.

The Second Milestone:

A massive disposal was announced by PPB  on October 30 that it was is selling its sugar refining operations, under Malayan Sugar Manufacturing Co. Bhd (MSM) to Felda Global Ventures Holdings Sdn Bhd for RM1.22 billion. It added it was always throwing in its 50% stake in Kilang Gula Felda Perlis Sdn Bhd also to Felda Global ventures for RM26.31 million.

It also added that  it was disposing of parcels of land measuring 5,797 hectares in Chuping, Perlis for a cash consideration of RM45 million.

Apart from that, its 49% associate Grenfell Holdings Sdn Bhd was also selling a 20% stake in Tradewinds (M) Bhd, representing 59.29 million shares also to Felda Global Ventures for RM207.53 million or RM3.50 per share. The cash consideration of RM3.50 per TWM share is 25.90% and 21.95% over RM2.78 and RM2.87, being the five-day volume weighted average market price (VWAP) of TWM shares and three-month VWAP of TWM Shares up to Oct 29, 2009 respectively. Felda Global Ventures is a unit of the Federal Land Development Authority and it is the group's integrated commercial arm.

On the disposal of MSM, PPB said it would be the sole beneficiary of all profits after tax of MSM from Jan 1, 2009 up to Dec 31, 2009. It added the price tag for the sale of MSM represented price-to-earnings ratio of 9.78 times and price-to-book ratio of 2.46 times. PPB said its cost of investment in MSM was RM50.79 million, made from 1976 to 1999. It would stand to gain RM1.17 billion and RM723.81 million at company and group level respectively.

"The proposed disposals present an opportunity for PPB to realise its investments in MSM, Kilang Gula and the Chuping land at a substantial gain.”The net disposal proceeds will be used to finance other strategic investment options and opportunities that may be available to the group both domestically and overseas with the ultimate objective of providing optimum benefits and returns to the company and its shareholders," it said.

To date, PPB has paid interim dividends two times in 2010. The first one for the first quarter of 2010 of the current fiscal year was 18% and the current pay-out after the second quarter results are a one-tier dividend of 65 sen and another special one-tier dividend of 5% as reward to loyal shareholders.

Tan Chong on the Move

AMRESEARCH has maintained its "Buy" call on Tan Chong Motor Holdings Bhd (TCM) with a target
price of RM6.20 after the company announced a tie up with Xi'an Silver Bus Corp (Xi'an) this week.

"TCM will initially utilise its Segambut plant to assemble chassis and engine components during the first year of production. In addition, TCM will utilise existing UD 3-S centres as after-sales centres for Silver Bus. This explains the small RM100,000 investment required for this foray, which is mainly for purchase of jigs and fixtures for the assembly lines.

"By 2012, however, TCM expects to set up a body manufacturing and assembly plant for commercial vehicles at APM's (a sister company of TCM) plant in Seri Kembangan (which will be vacated by next year-end) via a RM20 million investment. This plant will cater for both Silver Bus and UD commercial vehicles assembled and distributed by TCM.

"TCM expects to sell 80 Silver Bus vehicles next year (expected commencement in the second quarter) - which adds circa 4 per cent to its commercial vehicle total industry volume of 1,800 (based on financial year 2009 figures). Chassis and engine sales of luxury coaches typically fetched a price of RM270K/unit, but a coach complete with body and interiors can fetch a price of RM500,000 per unit.

As such we would expect margins and topline from sales of commercial vehicles to expand quite significantly once TCM's body manufacturing plant comes on stream in 2012," it said in a research report this week.

Tan Chong Motor (TCM) announced it had entered into an agreement with Xi'an Silver Bus Corp for a 10-year sole and exclusive right to assemble and distribute completely knocked down buses under the brand of Silver Bus in Malaysia."Notably, Malaysia will be Xi'an's first foray into the Asean market and we do not rule out further expansion in the region, especially in Vietnam where TCM expects to complete construction of an assembly plant by the third quarter of next year.

We understand that production of Silver Bus chassis and engine will eventually be shifted to TCM's Vietnam plant (from Segambut), where Vietnam will eventually become the key market of the group (versus Malaysia which is more passenger vehicle-centric)," it said.

Is the property market bubbling over?

Prices of residential property have surged by as much as 35 per cent in the past year despite a growing overhang in supply, far outpacing income growth and giving rise to concerns that the market is becoming unsustainable.

Figures provided by the National Property Information Centre (Napic) show that average prices for homes in Malaysia rose a whopping 19 per cent to RM273,000 in the first half of this year, from RM220,000 in the same period last year. For Kuala Lumpur, the increase has been even more dramatic, rising an eye-watering 35 per cent to more than RM700,000 in the first half of the year, up from RM523,000 last year.

The market, however, may be starting to lose its appetite for properties due to the high prices.

 Napic’s Property Overhang reports show that unsold properties in Malaysia rose to 22.6 per cent of new launches in the second quarter of this year, from 19.5 per cent

in the fourth quarter of last year. For Kuala Lumpur, unsold properties rose to 16.1 per cent from 15.8 per cent, while for Selangor it rose to 14.6 per cent from 12.4 per cent.

Checks on developments completed this year also show that vacancy rates remain at 50 per cent or higher.

The Edge business weekly reported recently that the government is mulling capping mortgages to 80 per cent of value in a bid to keep the market from overheating although MCA has come out strongly against the move.

This comes as Singapore introduced a series of measures to reign in investors and speculators, such as a 70 per cent mortgage cap for buyers with more than one property and launching 36,000 public housing units this year and next.

While Napic does not have a housing affordability index, a rough calculation shows that the average price of RM273,00 is about 5.6 times that of an average annual household income of RM48,000. The average price of a KL home is now a steep 13 times that of the average urban household income of RM54,000 and a possible sign that the market is headed for a bubble.

The sharp increase in prices is said to be at least partly due to speculative demand as investors snap up multiple properties in the hope that prices will keep on spiralling upward — despite low occupancy rates that could affect rental yields.

Some real estate agents and developers have privately expressed worries that the market is already too speculative and the price escalation is not sustainable.

“I am all for sustainable price growth but the current market is too speculative,” one developer told The Malaysian Insider. “Most of the units are taken up by employees of the developer hoping to sell for a profit when the development is completed.”

Many developments completed in the past year such as Ameera in SS2 Petaling Jaya, Cova Suites in Kota Damansara and Challis Damansara in Sunway Damansara are experiencing only about 30-50 per cent occupancy rates, according to real estate agents. A check on new high-end condo Zehn in Pantai where sellers are asking for RM2.2 million per unit revealed the building to be almost completely dark at night.

Rental yields are starting to slide given that supply far outstrips demand.

A typical unit at Ameera is on the market for RM750,000. Given a 90 per cent margin of financing (MOF) over a 20 year tenure, the monthly loan repayment for a unit there works out to be about RM4,855. Rental rates at Ameera, however, are only about RM3,000 for a partly furnished unit.

A stand-off could be developing where buyers are now balking even as sellers are trying to hold out for higher prices.

Red FM DJ Terry Ong who has been on the lookout for a condominium said that housing has become “unaffordable” and has taken himself out of the market.

“I am not in a hurry,” said the DJ who is currently paying RM1,100 in rent at a less than full condominium complex, where sellers are asking for between RM350,000 and RM400,000.

Engineer Edward Seah said that while he would like to upgrade from his current condominium, he will not buy another house given current valuations.

“Are such high prices warranted?” he questioned. “I refuse to feed into the current property frenzy.”

Housing and local government minister Datuk Chor Chee Heung said that the high savings rate in Malaysia meant that there appears to be no shortage of takers despite the prices.

He added that there will be a limit although he was unclear as to how far prices will continue to rise.

“We have to continuously tell developers not to push the boundaries,” he said when contacted by The Malaysian Insider. “There is bound to be a maximum.”

Chor said that the government is building some 76,000 low cost units that cost about RM42,000 each in the next three years, but it is unable to tell private developers how much to build to boost supply of middle class housing in the market.

Real Estate and Housing Developers Association (Rehda) president Datuk Michael Yam said that the issue of rising property prices was partly due to an imbalance of supply and demand as more migrants move to land scarce Kuala Lumpur as well as higher cost of raw materials.

“Even if 50,000 new housing units are needed in KL, that is still a huge number to build,” he said at a recent Rehda media briefing.

Readers shun newspapers for Internet and scandal sheets

Sadly, the readership of broadsheets and tabloids have gone down with each passing month.

Let us read what Yow Hong Chieh, Shazwan Mustafa Kamal, Melissa Zavier and Lee Wei Lian from the
Malaysian Insider has to say about this.

Malaysian newspapers are experiencing a fall in circulation as readers turn to the Internet for hard news and tabloid-style scandal sheets for their diet of entertainment and sensationalism.

Circulation at the traditional mainstays of the local media landscape — The Star, New Straits Times, Utusan Malaysia and Berita Harian — has fallen over the past five years, in some cases dramatically so. The only exception is Chinese daily Sin Chew which saw circulation jump.

Figures from the Audit Bureau of Circulations (ABC) show that during the period 2005 to 2009, The Star’s circulation dropped from 310,000 to 287,000 (-7.4 per cent), the New Straits Times from 139,000 to 111,000 (-20 per cent), Utusan Malaysia from 213,000 to 169,000 (-21 per cent) and Berita Harian from 204,000 to 155,000 (-24 per cent).

Sin Chew, however, saw circulation rise from 324,000 to 382,000 (+18 per cent).

The downward trend has continued for this year with NST’s circulation going below 100,000 copies on several days recently.

Apart from the drop in circulation, mainstream newspapers are also not selling much outside the Klang Valley, which leads to questions about whether they can shape public opinion as hoped for by the Barisan Nasional (BN) government.

The Malaysian Insider understands that senior editors at many newspapers would like to give the opposition and alternative views more airing but control from Putrajaya and UMNO remains severe.

A combination of changing tastes and competition from the Internet have contributed to the decline.

Many corporate readers have switched to going online and reduced the number of subscriptions for their offices.

The general public also appear bored with political drama and suspect that mainstream media is controlled by the government and tends to filter the news.

A recent poll by the independent Merdeka Center found that 54 per cent of Malays polled and 55 per cent of Chinese surveyed did not trust reports in the mainstream media.

College students, meanwhile, either feel distrustful of mainstream media or are ignoring it entirely, preferring to get their information and entertainment from multiple sources.

One Malaysian, who heads the local office of an MNC, said he has stopped subscriptions for The Star and New Straits Times at his office and buys one personal copy of The Star for the business coverage and the advertisements.

He also reads The Sun which distributes about 300,000 free copies around the nation daily.

“There seems to be more propaganda than anything else,” said the frustrated country manager who spoke on condition of anonymity. “A lot of people buy newspapers just to look at supermarket and job advertisements.”

One country manager of an international transportation company said he has stopped reading news in print but has switched instead to accessing the Internet via his mobile phone.

“Getting updates via the mobile phone is so fast,” he said. “People prefer to get business and political news from the Internet but buy tabloids to read gossip to pass the time.”

One media analyst with a local research house said the Internet is now the “longest running medium” in most people’s lives, given that practically all offices have computers that are hooked up to the Internet all day.

“Mainstream publications are also moving towards more lifestyle and sensationalist news because they put their hard news online the day before,” said the analyst.

Fortunately for traditional print media, despite the falling circulation, advertising expenditure continues to grow although more slowly than other channels such as free-to-air television (FTV), point of sales (POS) and the Internet.

Figures from market research firm Nielsen show that print media revenue grew 18 per cent during the first six months of this year compared with 55 per cent for the Internet, 29 per cent for FTV and 27 per cent for POS.

The Star alone — which dominates the valuable urban readership market with 178,000 copies sold in the KL/Selangor region, far ahead of No. 2 Harian Metro at 120,000 — sold RM497 million in advertisements in the first half of this year, up 28 per cent.

“The circulation trends don’t affect advertising,” said Margaret Lim, executive chairman of Carat Media Services.

Bucking the trend, however, are the so-called “light reading” newspapers such as Harian Metro, China Press and Kosmo.

A large chunk of the reading public have been drawn to the “hot” gossip stories, catchy headlines and large sensational photographs in the light reading titles as evidenced by the surge in circulation.

ABC’s figures show that from 2005 to 2009, Harian Metro’s circulation shot up from 250,000 to 350,000 and Kosmo went from 101,000 in 2006 to 172,000 in 2009.

Jamal, an insurance executive attached to a motor workshop, said he likes Harian Metro due to the “hot news”. He is also an occasional reader of Sinar Harian and Kosmo and buys The Star to scan job advertisements.

“There is too much political news and I feel the coverage isn’t very neutral,” he replied when asked why he doesn’t buy Utusan Malaysia or Berita Harian. “Malas nak beli (I don’t feel like buying).”

One Utusan reader, who works in the 3D animation industry, said one reason the paper’s circulation has dropped is that he has switched to the online version instead of buying a copy.

“I just pick and choose which stories I want and it’s easier to go online,” he said.

Sin Chew, which saw circulation rise, could be the beneficiary of the move of the majority of Chinese parents to shun national schools in favour of Chinese schools.

Rita Sim, executive director of Sin Chew media, said 85-90 per cent of Malaysian Chinese can now read Chinese.

“The Chinese language has gone mainstream,” she said. “And we’ve got the pulse of the Chinese community.”

She also said English titles had suffered as English is the language of the Internet.

“It is easier for English readers to switch to the Internet,” she said.