KNM --- HOLD

FROM ECM LIBRA
RM143m job from Thailand OIL & GAS
· News
KNM Group (KNMG) yesterday announced that its wholly-owned subsidiary, KNM Process Systems Sdn Bhd and its affiliated company, KNM Projects (Thailand) Co. Ltd, had on 7 January 2010, collectively secured a substantial new order amounting to THB1.3bn (RM143m) from
Impress Ethanol Co. Ltd for its bio ethanol project in Thailand. The project involves the engineering, procurement, construction and commissioning (EPCC) of a 200,000 litres per day cassava based bio ethanol plant in Chachaengsao, Thailand and is expected to be completed within 18 months. Besides this, KNM also proposed an internal restructuring exercise
yesterday to streamline their businesses in the Caspian region. It generally involves the forming of KNM Europa BV that will house subsidiaries in Kazakhstan, Turkmenistan and Uzbekistan. No gain or loss will be incurred from the internal restructuring. (Bursa Malaysia)
· Comments
The contract follows swiftly after the group’s announcement late November 2009 that they were investing (maiden venture into Thailand) in 2 dormant companies in Thailand. We most certainly view the job award positively given the group’s contract drought over 2009. To note, the group does have some exposure to the biofuel industry prior to this. Recall back in mid2007, they were building a biodiesel plant for Mission Biofuels in Pahang for RM122m. We see no earnings adjustments necessary for the contract as it forms part of our replenishment expectations for FY10 and FY11. In terms of margins, we believe that at least 15% at EBIT level should be achievable. To note, total group orderbook currently stands at an estimated RM1.5bn
inclusive of this job and this should be just sufficient to take them through 2010. Naturally, we expect more contract flow to be seen from KNM over 2010.
We maintain our TP of RM0.74 and HOLD call on KNM for now. This is based on a 12x historical average PE pegging FY10 prospective EPS. Our hesitance at this point of pushing the stock to a BUY is due to the margin erosion seen in 3QFY09. We are concern that this will continue
into 2010 as the group grapples to be more competitive than other process equipment players and may compete for lower end jobs that generally yield lower margins in order to beef up plant utilisation. Group utilisation is still low for now at <70% compared to hitting past 80-85%
pre-crisis.

CIMB, PUBLIC BANK,HONG LEONG & other local news

CIMB Thai has no plans to delist even when its Malaysian parent CIMB Group Holdings Berhad (CIMB MK, Buy, TP:RM15.25) gets a listing in Bangkok, which is expected this year. 93.15% of CIMB Thai is owned by CIMB and its share price soared late last year on a speculation that the parent would buy out the 6.85% it did not own. “At the moment, we are not thinking about delisting at all. We are not doing or preparing things to do with that” said the new president, Subhak Siwaraksa. In November, the Malaysian bank said it planned to raise about US$136m from a public offering in the Thai market by the middle of 2010. This has sparked speculation that it would offer a premium to buy out the remaining shareholders in its Thai unit. CIMB Thai hopes its loan book would grow 12% this year due to the improvement in economy. (StarBiz)
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Public Bank Bhd (PBB) (PBK MK, Buy, TP: RM12.80) chief operating officer (COO) Wong Jee Seng has resigned from his position, after serving in the banking group for more than 15 years, sources familiar with the matter said. They said Wong’s resignation was possibly due to a career path change, whereby he could be heading operations in a foreign banking group believed to be Singapore’s DBS Bank. “Wong’s resignation is not expected to bring a negative impact on Public Bank, as his decision to leave the bank is not because of unhappiness over how the bank is run,” a source familiar with the banking group said. (Financial Daily)
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Hong Leong Bank Bhd (HL Bank) (HLBK MK, Hold, TP: RM8.71) has obtained Bank Negara Malaysia’s (BNM) go-ahead to start negotiations with the boards of EON Capital Bhd (EONCap) and EON Bank Bhd for the potential acquisitions of their assets and liabilities. HL Bank said the central bank had, vide a letter dated the same day, “no objection” for it to start negotiations with the respective boards for the acquisition of the assets and liabilities, including EONCap’s interest in EON Bank. (Financial Daily)
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Tanjung Offshore Bhd unit has taken delivery of three new anchor handling tug supply (AHTS) vessels, which have been chartered to Petronas Carigali Sdn Bhd for about RM150m in total. With the new additions, its offshore support vessel (OSV) fleet would be operating 14 OSVs as of March 2010. Tanjung Offshore added that it had been awarded long term contracts by Petronas Carigali for tenures of between three and six years. The contracts were expected to commence from March this year. (Malaysian Reserve)
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Mudajaya Group is planning a share placement exercise which may raise RM185.8m to be used as working capital and to fund new investments, possibly in India. Mudajaya is presently involved in a power generation project in India through its wholly owned unit Mudajaya Corp Bhd which controls a 26% stake in RKM Powergen Private Limited, a SPV undertaking the
project. While Mudajaya is engaged in the construction of 1,440MW coal fired plant in Chattisgarh, the company was also reported to be bidding for various projects worth RM400m in India. (Malaysian Reserve)
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OSK Holdings Bhd is looking at expanding its overseas investment banking operations in an overall strategy to make the division a 50% contributor to the group’s net profit within three years. The company said it will achieve this goal in three to five years, by building customer’s confidence in the banking sector and the economy. OSK will also look to bank on its
cross-border presence to grow its investment banking business according to chairman Datuk Nik Mohamad Din Nik Yusof. OSK has presence in Indonesia and Cambodia, with stock-broking services in Singapore. It hopes to expand its investment bank’s regional presence through one or two more countries by year-end. (BT)
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Kumpulan Perubatan (Johor) Sdn Bhd, a unit of KPJ Healthcare Bhd, plans to acquire a 51% stake in SMC Healthcare Sdn Bhd (SMCH) from Sabah Medical Centre Sdn Bhd (SMC) for RM51m. In its statement to Bursa Malaysia yesterday, the group said the acquisition will not only enable it to expand its network of hospitals to locations where private healthcare were in
demand, but also widen its customer base. The acquisition will be funded via internal funds. (BT)
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YTL, TANJONG OFF,RHB CAP & other news

YTL Corp Bhd’s (YTL MK, Buy, TP: RM8.00) 80% owned subsidiary Island Air Sdn Bhd has bought outright Nusantara Sakti Sdn Bhd from Cekul Teguh Sdn Bhd for RM4.5m. Nusantara Sakti is an aircraft charter firm that also provides aerospace equipment, aircraft maintenance, rental and leasing, and supplies and other services. As a result of the acquisition,
Nusantara Sakti would become a wholly owned subsidiary of Island Air and an indirect subsidiary of the company. (Malaysian Reserve)
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Tanjung Offshore Bhd (TGOFF) subsidiary Tanjung Maintenance Services Sdn Bhd has landed a RM70m contract from Petroliam Nasional Bhd (Petronas) unit Petronas Carigali Sdn Bhd to provide offshore wellhead maintenance services in local waters. TGOFF said the wellhead maintenance services contract had a three-year tenure with the option to extend for
another two years. The contract, effective Sept 9, 2009, entailed the provision of such services to Petronas Carigali’s operations offshore West and East Malaysia. (Malaysian Reserve)
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RHB Capital Bhd (RHB Cap) gets approval from Bank Negara for its proposed acquisition of up to 89% of the issued and paid-up capital of PT Bank Mestika Dharma. RHB Cap has proposed to acquire 80% of Bank Mestika for RM1.16bn with a put and call option for another 9%. The proposed acquisition was granted subject to certain conditions such as obtaining “written confirmation from its auditors on the compliance with financial reporting standards in arriving at the impairment methodology adopted and in respect of any change in equity interest in Bank Mestika”. As part of the acquisition exercise, RHB Cap has also proposed a rights issue of new RM1.00 shares to raise gross proceeds of RM1.3bn. the acquisition is priced at 3.5x its price-to-book ratio and 23x to its 2008 earnings. RHB Cap’s stated plan for BankMestika includes growing its presence across Indonesia, enhancing distribution and product capabilities, and growing its fee-based income. Bank Mestika has over 50 branches in Indonesia and is a well known bank operating in the republic especially in Sumatra. (StarBiz)
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Alliance Bank Malaysia said its CEO Datuk Bridget Lai had not resigned as speculated but admitted to carrying out an internal probe. The announcement did not say what the probe was about, except that it was “part of its due diligence on corporate governance and board oversight.” The bank also said that there was no change in its operations and that it was
business as usual. It was responding to reports quoting sources saying that the bank had put several top executives on forced leave pending completion of an internal probe. At the time of the report, the bank declined to comment on whether Lai resigned or not. (BT)
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Senai Airport Terminal Services Sdn Bhd (SATS) and China partner will invest RM200m in a trade center in Johor. The 8ha Senai-Wenzhou Trade Centre will provide manufacturers from Wenzhou, China, with a gateway to expand their business in Asean and the Asian Pacific. SATS CEO Datuk Mohd Sidik Shaik Osman said once completed the centre is expected to generate economic benefits worth RM10bn over 25 years. Wenzhou, located south of Shanghai is known for its chemical plants, shipbuilding industry and leather products. Heading the investors at the launch of the centre was Senai-Wenzhou Trade Development Pte Ltd chairman Vincent Tan Kuan Hin. The trade centre will have a built up area of 80,000 sq m, and will be located adjacent to the airport. (BT)
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Community airline Firefly may take delivery of three new planes this year. The three planes were scheduled to arrive last year, but were deferred as a recession took its toll on the business. MD Eddy Leong said the airline will make a decision by the end of February. He said, “subject to the delivery of the additional aircraft, we will review the reinstatement of some suspended
flights such as Kota Baru-Penang.” Last year, Firefly announced the suspension of several flights operating out of Penang International Airport. Firefly now has seven ATR 72-500 planes, and also looking to introduce a Subang-Hatyai route – though it is at a market research stage at the moment (BT)

OIL & GAS : OVERWEIGHT FROM ECM LIBRA

FROM ECM LIBRA

OIL & GAS OVERWEIGHT
Dec 2009:

• Good end to the year· Closing the year on a strong note2009 was no doubt another tumultuous year for the oil & gas industry. Onthe global front, crude oil and the USD continue to tango while onfundamentals, demand struggled to recover and are only now seeingsome light of day. For December, crude oil closed up 2.7% fromNovember, largely on the decline in the USD. Going into 2010, we seethat only a recovery in demand will keep oil prices sustainable. Looking atthe situation at home, 2009 was difficult for the o&g service sector. Jobflow was a mere trickle but we are seeing things picking up. Rest assured,contract flow has been stronger in recent months and companies havebeen powering ahead with acquisitions for future growth. We believe that2010 will be a promising year.
• News and viewsNotable news for the month includes Petronas’s venture into Iraq. Thegroup is planning to spend up to US$7bn to develop oil fields with JapanPetroleum Exploration. Besides this, there were 2 major contract wins thismonth, one for SapuraCrest (RM1.5bn PSC job) and Wah Seong(RM550m). Also, asset acquisitions were rife with Alam Maritim addingvessels, Perisai going into the MOPSU business, UMW increasing theirstakes in the Naga rigs and Kencana looking to increase its toehold in theMermaid rigs.
• Dayang Enterprises – Initiated with a BUYWe added Dayang to our coverage this month. Dayang provides offshoretopside maintenance services, minor fabrication and offshore hook-up andcommissioning. The small cap company currently has a healthy orderbookof RM500m to last them into 2011 and are bidding for some RM2bn ofjobs of which they hope to secure RM350m over 2010. Besides that 2010will see maiden contributions from new acquisition Borcos Shipping. Thecompany also boasts a healthy balance sheet and pays good dividends.We have a RM2.20 target for the stock.
• Maintain Overweight

MAXIS, MAYBANK,MEDIA PRIMA,GADANG, ALLIANCE

Sri Lanka is inviting Maxis Communications Bhd and Telekom Malaysia Bhd (T MK, Buy, TP: RM3.54) to invest in itsUS$150m (RM525m) satellite project. Plans are in the pipeline to launch the nation’s first geostationary satellite after it signeda deal with UK-based Surrey Satellite Technologies Ltd last December. The director general of Sri Lanka’s Telecom RegulatoryCommission, Priyantha Kariyapperuma said that they have invited Maxis and Telekom Malaysia – who have already invested inSri Lanka. She added, “They have expressed interest and said they will invest if the project is commercially viable. Dialog, asubsidiary of Axiata Group Bhd (AXIATA MK, Hold, TP: RM3.13) is the top telecommunications service provider in Sri Lankawith the largest mobile network. Maxis became a major player on the island after parent company Usaha Tegas purchased alarge stake in Sri Lanka Telecom. (BT)
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Malayan Banking Bhd (Maybank) (MAY MK, Buy, TP: RM8.10) hopes to expand its network in Cambodia given theimproving economic conditions in the country and optimism on its growth prospects. The bank recently opened itsseventh branch in the Toul Kork district in Phnom Penh. The new branch would provide financial services to the Toul Korkdistrict consisting of affluent residences, government ministries, universities and commercial businesses. “The branch will meetthe banking needs of the community in the vicinity, focusing on the commercial and retail sectors” Maybank’s head ofinternational, Abdul Faid Alias, said in a statement yesterday. The latest branch expands Maybank’s international network toover 1750 offices located in Indonesia, Philippines, Singapore, Cambodia, Brunei, Vietnam, Hong Kong, Bahrain, Pakistan,Papua New Guinea and Uzbekistan as well as financial centres in New York and London. (Financial Daily)
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Media Prima Bhd (MPB) (MPR MK, Hold, TP: RM1.69) has 89.64% (194.72m shares) of New Straits Times Press(Malaysia) Bhd (NSTP) at the close of the acceptance period for its voluntary offer, a shade below the 90% level thatcould have given it a less cumbersome route to privatise NSTP. This is given that to privatise NSTP, it would need to attainshareholders’ approval to withdraw the latter’s listing status and there cannot be objection from shareholders holding more than10% of NSTP, listing rule say. Nonetheless, it is likely that this would only be a small bump for Media Prima given that it is onlysome 785,200 shares short of having 90% of NSTP, going by NSTP’s 217.23m share base as at Dec 22, 2009. There is theoption to acquire more shares from the open market, given that trading has not been suspended. (Financial Daily)
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Gadang Holdings Bhd submitted a RM300m bid to construct a 4km long runway for the RM2bn LCCT project. ManagingDirector Tan Sri Kok Onn said the firm expects to know if its tender is successful within the next two weeks. Kok also said thatGadang has also submitted a bid to Malaysia Airports Holdings Bhd (MAHB) to construct the terminal building at the new LCCTfor about RM1bn. WCT Bhd clinched the first package worth RM363m last year for works that include site preparation,earthworks and main drainage. Other companies which have submitted bids for the project are IJM Corp Bhd (IJM MK, Hold,TP: RM4.60), Ireka Corp Bhd, Fajarbaru Builder Group Bhd, Bina Puri Holdings Bhd, Sunway Holdings Bhd (SGW MK, Buy,TP: RM1.94) and Mudajaya Group Bhd. PJI Holdings Bhd, meanwhile is keen to provide mechanical and engineering servicesfor RM500m. The new LCCT located 1.5km from KLIA, is scheduled to be completed by third quarter 2011. It is expected tocater to 30m passengers yearly, with a capacity for up to 45m passengers yearly. (BT)
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Alliance Bank Malaysia Bhd, the flagship Malaysian bank of Temasek Holdings and the investment arm of theSingapore government, is believed to have placed several of its top managers on forced leave pending completion ofan informal internal investigation, people familiar with the matter said yesterday. Business Times (BT) understands that theofficials, who also include several branch level managers, were forced to go on leave just before Christmas, pendingcompletion of the investigation. Alliance Bank's assistant vice-president of group corporate affairs Agnes Ong Poh Choodeclined to comment on the matter. She also declined comment on queries that the bank's group CEO Datuk Bridget Lai hadtendered her resignation. Lai, headhunted by Temasek to lead the bank as group chief executive officer since September2005, had under her stewardship turned the bank around from a loss-making entity after it suffered a pre-tax loss ofRM243.37m in the year ended March 31 2006 into a profitable organisation. It is understood that there were no leakages at thebank itself and the crackdown is centred on purchase of shares in a public-listed company that was at the centre of a bitter coownershipstruggle as well as on the sale and leaseback of several multi-storey commercial buildings. (BT)

KLK,TNB,HLB,MAYBANK, SPSETIA,YNH,

BURSA still in the positive zone ,surviving well. even with ---120 points of dows last week........a good sign for the NEW YEAR 2010?
Kuala Lumpur Kepong Bhd (KLK MK, Hold, TP: RM15.22) is looking to expand its plantation and oleochemicalbusinesses this year via acquisitions. With RM1.3bn of cash, this is in line with KLK’s expansion strategy to build strongteams to manage its upstream and downstream activities. KLK is working on increasing synergies between its upstream anddownstream operations by integrating the plantation and oleochemical businesses to reduce earnings volatility, according toplantations director Roy Lim. He added that going forward, KLK expects to improve both plantation and oleochemicalbusinesses due to higher commodity prices, as well as loss-making sectors through reorganisation and restructuring. The lossmaking units are primarily the retailing and neutraceutical businesses. (Financial Daily)
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Two international credit rating agencies, namely Standard & Poor's Rating Services (S&P) and Fitch Ratings, haverevised Tenaga Nasional Bhd's (TNB) (TNB MK, Buy, TP: RM9.90) ratings to better reflect the national utility's currentprofile. S&P has upgraded its corporate credit ratings on TNB to "BBB+" from "BBB". It kept the outlook at stable. The ratingagency has also upgraded TNB's Asean scale ratings to "axA+" from "axA". At the same time, the issue ratings on the seniorunsecured notes issued by TNB and the US$350m (RM1.2bn) senior unsecured note issued by TNB Capital and guaranteedby TNB were also raised to "BBB+" from "BBB". The upgrade reflects TNB's improved standalone credit profile following therecent and more frequent tariff adjustments, which point to an enhanced tariff setting mechanism. (BT)
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The board of EON Capital Bhd (EON Cap), which met last week was advised to seek Bank Negara approval to startnegotiations on an institutional level with Hong Leong Bank Bhd (HLB) (HLBK MK, Hold, TP: RM8.71) on the latter’sproposed buyout offer. Sources indicated that the advice was based on the fact that the board had a fiduciary duty to obtainthe consent of the authorities to commence formal discussions on an institutional level between 2 anchor banking groups.Currently, 2 major shareholders – Rin Kei Mei and Tan Sri Tiong Hiew King – have sought and obtained the nod to negotiateon an individual basis for the sale of their indirect stakes totalling 31.7%. HLB is also believed to have approached BankNegara to talk to EON Cap as an institution, and not to individual or targeted shareholders, on its proposed takeover offer.However, it is believed that the approval is still pending. (Starbiz)
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Malayan Banking Bhd (Maybank) (MAY MK, Buy, TP: RM8.10) kicked off the new year by launching two mortgagepackages – new MaxiHome and MaxiShop Fixed Rate – which offer a variety of three, five or 10-year fixed rates. “Thesetwo exclusive packages are offered from Jan 1 to June 30, 2010,” head of consumer banking, senior executive vice-president,Lim Hong Tat said. The MaxiHome package is aimed at customers seeking interest rates stability and sustainable cashflowduring the initial first few years of property purchase, with less worry on base lending rates (BLR) fluctuation in the near future.The package offered the best in town for fixed-rates home loans starting as low as BLR minus 1.8% for property underconstruction and completed properties, Lim said. As for the MaxiShop, rates are as low as BLR minus 1.40% for those underconstruction and for completed properties. (Starbiz)
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Property developer SP Setia Bhd (SPSB MK, Buy, TP: RM4.05), may build towers and buildings at the multi-billionringgit Setia City commercial hub, its flagship township in Shah Alam, Selangor, by as early as 2012. The 63.2ha Setia Citywill be developed in two phases. Phase 1 comprises the 1.23m square ft Setia City Mall, worth RM750m, and a central park,estimated to cost more than RM10m. Phase 2 will feature more than 20 low- and high-rise buildings, including office towers,corporate towers, serviced apartments, institutions and hospitals. (BT)
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YNH Property Bhd (YNH) (YNHB MK, Hold, TP:RM1.72) expects to start work on Menara YNH within six months. Theproject is to be built on three acres on Jalan Sultan Ismail, Kuala Lumpur. YNH head of corporate strategy Daniel Chan saidthe company was currently making amendments to the project design to improve efficiency of tenant space by 10% to 15%.The green project will have total net lettable space of 1.5m sq ft. Chan said the project was within the company’s target andwould be completed in five years. The project will have two 45-storey office blocks with 600,000sq ft of lettable space each,with a retail podium below. The GDV will be around RM2bn, averaging about RM1,500 per sq ft. Work on the retail podiumwould start first and would be completed within three years. A group of local and foreign investors had early last year signed asale and purchase agreement for 300,000sq ft of retail space for RM300m. (Starbiz)

HAPPY NEW YEAR 2010

Wishing everyone a Happy and Prosperous New Year 2010