The Edge Jan 5 2015

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(1)FBM KLCI 1752.77. 8.48. KLCI FUTURES 1745.50. 5.50. STI 3370.59. 5.44. RM/USD 3.5150. CPO RM2284.00. 17.00. OIL US$56.42. 0.91. GOLD US$1186.20. 2.10. PP 9974/08/2013 (032820) PENINSULAR MALAYSIA RM1.50. MONDAY JANUARY 5, 2015 ISSUE 1872/2015. FINANCIAL DAILY MAKE BETTER DECISIONS. www.theedgemarkets.com. Best car that brand Honda makes 20 F O C U S. 4 HOME BUSINESS. Iskandar Waterfront IPO postponed indefinitely 4 HOME BUSINESS. Oversea Enterprise targets 30% cafe chain contribution 5 HOME BUSINESS. Price war to squeeze nitrile glove margins this year 18 C O M M E N T. Could 2015 herald a ‘new oil order’?. 19 F E AT U R E. JJapan’s ’ cash helicopter may be first to take off. by u o y o t t h g u o r b s i y p o c l a t This digi.

(2) FBM KLCI 1752.77. 8.48. KLCI FUTURES 1745.50. 5.50. STI 3370.59. 5.44. RM/USD 3.5150. CPO RM2284.00. 17.00. OIL US$56.42. 0.91. GOLD US$1186.20. 2.10. PP 9974/08/2013 (032820) PENINSULAR MALAYSIA RM1.50. MONDAY JANUARY 5, 2015 ISSUE 1872/2015. FINANCIAL DAILY MAKE BETTER DECISIONS. www.theedgemarkets.com 4 HOME BUSINESS. Iskandar Waterfront IPO postponed indefinitely 4 HOME BUSINESS. Oversea Enterprise targets 30% cafe chain contribution 5 HOME BUSINESS. Price war to squeeze nitrile glove margins this year 18 C O M M E N T. Could 2015 herald a ‘new oil order’?. 19 F E AT U R E. Japan’s cash helicopter may be first to take off. Best car that brand Honda makes 20 F O C U S.

(3) 2. M ON DAY JAN UARY 5 , 2 0 1 5 • TH EEDGE F I N AN C I AL DAI LY. For breaking news updates go to www.theedgemarkets.com. ON EDGE T V www.theedgemarkets.com. More AirAsia wreckage found But weather thwarts divers’ attempt to reach 5th underwater object. Research houses maintain ‘neutral’ call on banking sector for 2015. The Edge Communications Sdn Bhd (266980-X). Level 3, Menara KLK, No 1 Jalan PJU 7/6, Mutiara Damansara, 47810 Petaling Jaya, Selangor, Malaysia Publisher and Group CEO Ho Kay Tat Editorial For News Tips/Press Releases Tel: 03-7721 8219 Fax: 03-7721 8038 Email: [email protected] Senior Managing Editor Azam Aris Executive Editors Kathy Fong, Jenny Ng, Siow Chen Ming, Surinder Jessy, Ooi Inn Leong Associate Editors R B Bhattacharjee, Joyce Goh, Jose Barrock, Vasantha Ganesan Editor, Features Llew-Ann Phang Deputy Editors Cindy Yeap, Kang Siew Li Assistant Editors Adeline Paul Raj, Tan Choe Choe Chief Copy Editor Halim Yaacob Senior Copy Editors Marica Van Wynen, Lam Seng Fatt, Melanie Proctor Copy Editors Evelyn Chan, Veronica Poopathy Art Director Sharon Khoh Design Team Cheryl Loh, Valerie Chin, Aaron Boudville, Aminullah Abdul Karim, Yong Yik Sheng Asst Manager-Editorial Services Madeline Tan Corporate Managing Director Au Foong Yee Deputy Managing Director Lim Shiew Yuin Advertising & Marketing To advertise contact GL: (03) 7721 8000 Fax: (03) 7721 8288 Chief Marketing Officer Sharon Teh (012) 313 9056 Senior Sales Managers Geetha Perumal (016) 250 8640 Fong Lai Kuan (012) 386 2831 Shereen Wong (016) 233 7388 Acting Senior Sales Manager Gregory Thu (012) 376 0614 Ad-Traffic Manager Vigneswary Krishnan (03) 7721 8005 Ad Traffic Asst Manager Roger Lee (03) 7721 8004 Executive Ad-Traffic Norma Jasma (03) 7721 8006 Email: [email protected] Operations To order copy Tel: 03-7721 8034 / 8033 Fax: 03-7721 8282 Email: [email protected]. SURABAYA: Divers tried to reach sunken wreckage from a crashed AirAsia passenger jet yesterday but were forced to return to their ship by bad weather, as Indonesian officials said they had detected a fifth large underwater object believed to be part of the plane. “The weather is bad. There’s a storm. It’s windy,” said a Reuters photographer on board a search and rescue ship in the search area off Borneo island. “Earlier, four divers were transferred to (Indonesian navy ship) KRI Banda Aceh but they cancelled the diving because the sea currents were too strong.” The head of Indonesia’s search and rescue agency, Fransiskus Bambang Soelistyo, told a news conference in Jakarta yesterday that a fifth object almost 10m long had been found. Air Force Lt-Col Johnson Supriadi, speaking at a briefing for pilots in Pangkalan Bun, the southern Borneo town where the search operation was based, said efforts yesterday would be divided between recovering bodies and locating wreckage and the all-important cockpit voice and flight data recorders. Until investigators can examine the recorders the cause of the crash remains unknown, but the area is known for intense seasonal storms. BMKG, Indonesia’s meteorological agency, said bad weather was a likely factor. “The flight document provided by the BMKG office shows fairly worrying weather conditions for the aircraft at cruising level on the chosen route,” the agency said in a report. A source close to the investi-. Indonesian Search and Rescue crew unloading the body of an AirAsia QZ8501 passenger from a Singapore Navy helicopter at the airbase in Pangkalan Bun, Central Kalimantan yesterday. Photo by Reuters. gation said radar data appeared to show the aircraft made an “unbelievably” steep climb before it crashed, possibly pushing it beyond the A320’s limits. The objects that are the main focus of the search were located by ships about 90 nautical miles off the coast. The largest object is around 18m long. The suspected wreckage is lying in water around 30m deep, which experts say should make it relatively straightforward to recover if the rough weather abates. Efforts to capture images with remote operated vehicles were frustrated on Saturday by poor visibility. Meanwhile, an AirAsia plane, flying out of Surabaya, suffered engine failure shortly after moving on the runway for takeoff at 9pm on Saturday, reported Indonesia’s Metro TV.. Flight QZ7633 (registration PKAZC), bound for Bandung had taxied about three metres before the Airbus A320’s engine died. There was an explosion, which spooked the 120 passengers on board. See related story on Page 12 A passenger, Yusuf Fitriadi, told Metro TV that a pilot told passengers waiting at the departure lounge the starter monitor had malfunctioned. “The plane was ready and had moved when we suddenly heard a bang. The engine died and the plane moved backwards. We started panicking,” Yusuf told the TV station. The flight departed about two hours later, although a number of passengers reportedly refused to board the flight. — Reuters. Pelaburan Mara’s equity investment totals RM260m KUALA LUMPUR: Pelaburan Mara Bhd, the investment arm of Majlis Amanah Rakyat (Mara), said its equity investment stood at RM260 million as at Dec 31, 2014. “[Thus,] it defies logic for Pelaburan Mara to suffer paper losses of RM1 billion. Even if all investments are written off, the losses will only be to the amount of the initial investment,” said its group chief executive officer Nazim Rahman in a statement yesterday. He was responding to a news report that Pelaburan Mara was seeing huge paper losses of as much as RM1 billion, suggesting that they could stem from its direct major shareholdings in public-listed companies as well as through its unit trust fund, managed by PMB Investment Bhd. “The conclusion is not only fac-. tually wrong, but also illogical,” said Nazim. He said Pelaburan Mara has its own governance and risk management standards that include strategic asset allocation to achieve a diverse and balanced portfolio. “Consequently, our investment in equity market is not more than 40% of total investments in a portfolio that also includes money market, fixed income and alternative investments,” he added. Nazim also said Pelaburan Mara has consistently registered a high return on equity of more than 13% and profit for its business since its incorporation in 1967. It estimates to achieve income of RM50 million and net profit of RM30 million for the financial year ended Dec 31, 2014, representing a. 50% year-on-year growth, the highest in its 47-year history. “[On the part of ] PMB Investment, being a licensed entity under the Capital Markets Services Act, (it) operates separately as an Islamic fund manager and a unit trust management company, and is not a ‘conduit’ for Pelaburan Mara as implied by the report,” said Nazim. To date, PMB Investment manages 14 unit trust funds, a wholesale fund and several discretionary portfolio accounts with investment mandates in equity, sukuk and money market. “PMB Investment posted a total return of 62.7% for the three years ended December 2013, while its one-year return for 2013 was 47.9%, a testimony of its strong governance and investment process,” he added.. IN BRIEF Pope names new cardinals ROME: Pope Francis yesterday named 20 new cardinals from around the world to the elite group at the top of the Roman Catholic hierarchy, including 15 who can enter a conclave to choose his successor after his death or resignation. It is the second time the 78-year-old Francis has put his stamp on the direction he wants the 1.2-billion-member church to move in, having named 19 cardinals a year ago. The new cardinals will be installed at a ceremony at the Vatican on Feb 14. The 15 new “cardinal electors” — those aged under 80 — come from Italy, France, Portugal, Ethiopia, New Zealand, Vietnam, Mexico, Myanmar, Thailand, Uruguay, Spain, Panama, Cape Verde and Tonga. It was the first time cardinals from Myanmar, Tonga and Cape Verde were appointed, a Vatican spokesman said, reflecting Francis’ desire for the College of Cardinals to represent the universal nature of the Church. — Reuters. ‘Huawei sales revenue to rise 15%’ BEIJING: Chinese telecoms equipment maker Huawei Technologies expects advances in cloud computing and higher demand for smart devices to have lifted 2014 sales revenue by 15% to US$46 billion (RM162.38 billion), chief executive officer Ken Hu said in a new year’s message on the company’s website. The Shenzhen-based company said last year that it would achieve sustainable growth in 2014. It had also targeted revenue of US$70 billion by 2018, or annual growth of about 10% . Huawei’s smartphone shipments rose by more than 40% last year, failing to match its own target and the performance of faster-growing rivals such as Xiaomi. — Reuters. EU to fight new people smuggler tactic BRUSSELS: The European Union has vowed to fight people smugglers’ new tactic of abandoning “ghost ships” full of migrants off European coasts. The European Commission, the EU’s executive arm, said it was following closely the events surrounding the crewless Ezadeen merchant ship, which was drifting toward Italy’s southern shores carrying 450 migrants when Italian sailors took control of it last Friday. — AFP. Nairobi airport shut after plane lands on belly NAIROBI: The Kenyan capital’s main international airport was shut yesterday following the crash landing of a domestic flight, airport officials said. The Kenyan Airports Authority said a Fokker 50 flying from Wajir in the northeast and operated by Skyward suffered landing gear failure and landed on its belly at Jomo Kenyatta International Airport, blocking the sole runway. No casualties were reported. — AFP.

(4) HOME BUSINESS 3. M ON DAY JA N UA RY 5 , 2015 • T HEED G E FINA NCIA L DA ILY. Century Logistics’ major shareholders seek exit They are consolidating the group’s overseas operations and shifting its focus to the domestic market to drive value BY KA NG SI EW L I. KUALA LUMPUR: Century Logistics Holdings Bhd’s major shareholders who collectively hold about 44% are looking to sell their equity interest in the supply chain management and logistics provider, said sources. It is understood that Century Logistics’ major shareholders were willing to part their stakes at RM3 to RM3.20 apiece — the price before the company’s bonus issue and share split. This translates into RM1 to RM1.06 per share after taking into account a bonus issue and share split on Oct 9. The asking price is at a 60% to 70% premium to last Friday’s closing price of 62.5 sen. Century Logistics’ largest shareholder is its executive chairman Datuk Richard Phua Sin Mo, with a 26.67% stake in the company. As at Oct 21, 2014, Phua held a 19.18% direct stake and a 7.49% indirect stake through his wife Datin Lee Lay Hun and daughter Pamela Phua Jo Lyn.. Century Logistics Holdings Bhd RM 1.0. Vol (mil) 20. 15 0.8 10. RM0.625. 5. 0.6. 0.4. 0. Jan 2, 2014. Jan 2, 2015. Other substantial shareholders include Century Logistics managing director Steven Teow Choo Hing, who has an 11.53% stake, while his brother Teow Choo Chuan — who is the group’s executive director — holds a 6.03% stake. Both Choo Hing and Choo Chuan are nephews of Phua. “In the past, they (major shareholders) have been approached by. foreign logistics providers to buy a stake in Century Logistics, but the deal didn’t materialise due to valuation issues,” a source told The Edge Financial Daily. In March last year, The Edge weekly reported Felda Global Ventures Holdings Bhd (FGV) as being in talks with Phua to acquire a significant stake in Century Logistics. In reply to the stock exchange’s query, the group then confirmed that it was exploring a potential corporate exercise with the Felda group, although nothing conclusive was agreed upon at that point. One source said while FGV had initially shown interest with an offer of RM2.95 a share for the stake, an 11% premium to the price of RM2.65 it was trading in March, the talks were called off by FGV’s board of directors. The group’s net asset per share was at RM2.13 as at Sept 30, 2014. “The major shareholders are still keen to divest their stakes in Century Logistics, but in the meantime they are consolidating the group’s. Last year, Century Logistics exited its loss-making oil transportation operation with the disposal of its 7,119-tonne clean product tanker.. overseas operations and shifting its focus to domestic market to drive its value,” said the source. Last year, Century Logistics exited its loss-making oil transportation operation with the disposal of its 7,119-tonne clean product tanker. It is also disposing of its distribution centre in Rojana Industrial Park, Thailand for 320 million baht (RM32 million), with an expected net gain on disposal of RM2 million. “We have taken a strategic decision to concentrate on growing our core domestic operations, while exiting investments abroad. The disposal presents the right opportunity for us to realise our property investment in Thailand,” Phua said in the group’s 2013 annual report. Century Logistics’ share price has been on a downtrend since June 30, following the failed talks. The price dropped to 66.7 sen on July 2, and plunged further to 54.5 sen on Dec 16. Based on last Friday’s closing price of 62.5 sen, Phua’s 97.63 million shares in Century Logistics were worth some RM61.02 million. Its market capitalisation stood at RM228.87 million. As at Sept 30, 2014, its cash and cash equivalents stood at RM62.84 million, while its borrowings totalled. RM72.58 million. According to theedgemarkets. com, Century Logistics has a valuation score of 3, which suggests the company gives higher-than-market average returns and is trading at a lower-than-average valuation. Its fundamental score, which measures a company’s balance sheet strength and profitability, stood at 1.8, while the stock’s volatility was 2, with 1 being the least volatile. For the nine months ended Sept 30, 2014, Century Logistics’ net profit grew 28% to RM16.25 million from RM12.68 million a year ago, while revenue rose 15% to RM209.55 million from RM181.81 million. In the latest quarterly announcement, Century Logistics said the group remains confident of its business model and expects to perform well in the current financial year ending Dec 31, 2014. The company started off as a forwarding agent back in 1970, under the name of Syarikat Wakil Penghantaran & Perkapalan Century, and its transformation started in 1996 when it changed to the current name. It has diversified into third-party logistics, oil and gas logistics as well as procurement logistics services.. Infrastructure boom for contractors in 2015 BY Y EN N E FOO. KUALA LUMPUR: Thanks to the government’s ambitious infrastructure goals, 2015 will likely be a busy year for contractors. “Judging by Budget 2015, it is going to be a good year for the construction sector because the government is ramping up infrastructure development. So, the usual challenges like job prospects and filling up an empty order book will not likely be what contractors worry about next (this) year,” Kenanga Research analyst Iqbal Zainal told The Edge Financial Daily. Last October, Prime Minister Datuk Seri Najib Razak announced the construction of the RM5.3 billion Sungai Besi-Ulu Klang Expressway, the RM5 billion West Coast Expressway, the RM4.2 billion Damansara-Shah Alam Highway and the RM1.6 billion Eastern Klang Valley Expressway. In addition to the highways, the RM23 billion Mass Rapid Transit 2 line from Selayang to Putrajaya, the RM69 billion Pengerang Integrated Petroleum Complex and the LRT 3 projects are all in the pipeline for the new year. As a result, Kenanga Research has an “overweight” rating on the. sector. Specifically, Gamuda Bhd and Muhibbah Engineering (M) Bhd are the research house’s top picks as they are likely to be beneficiaries of government infrastructure projects. The only challenge contractors may face, according to Iqbal, is in keeping cost structure efficient. “Cost will be challenging for construction players because there will be intense competition for resources to complete jobs. So, they will have to balance their order books against their own budget and resources,” he explained. UOB KayHian Research head of research Vincent Khoo is similarly optimistic about the sector and has an “overweight” rating on it, citing building material cost as a main reason and manpower shortage as the sector’s main challenge. “We are currently overweight on the sector as medium-term earnings visibility is good, underpinned by potential lower costs, amid lower oil prices of several building materials such as bitumen,” Khoo said. “Manpower will be a key challenge given there will be many construction projects undertaken concurrently. But there is also the potential of lower development expenditure by the government. 2015. OUTLOOK. amid lower revenue derived from lower oil prices” he added. IJM Corp Bhd is UOB KayHian Research’s top pick as the research house sees the execution of the West Coast Expressway project is on the way and will anchor the company’s middle-term earnings of RM2.8 billion, with a potential upside of an additional RM22 billion, via open tender. It noted that IJM also stands to gain from the Kuantan Port extension project worth approximately RM1.5 billion. On the ground, industry players echoed analysts’ positive outlook for the sector but voiced concerns about completing the projects due to limited resources such as manpower and machinery. “I think 2015 is a year where contractors will enjoy themselves because there will be a lot of work going around, especially with government projects. But we hope that. this kind of boom in the sector will be sustainable. “We hope the government will implement its projects progressively, rather than all at one go, because there is a real shortage of manpower and machinery. Everyone is going for the same limited pool of resources,” Master Builders Association Malaysia president Matthew Tee told The Edge Financial Daily. “We are [already] seeing a real shortage of manpower at construction sites. The industry is dependent on foreign labour and with the recent government policies and crackdowns on migrant workers, we may face greater difficulty in completing our jobs,” he said. Tee is also worried that competition among industry players for resources could drive up costs and cause “bare, single-digit” profit margins to depreciate further. “Contractors are service providers and should be fairly paid for their services. But, at this point, competition is so stiff that contractors are more concerned about securing jobs than profit margin,” he said. While the outlook for infrastructure-related construction is upbeat, property development-cum-con-. struction firm Ken Holdings Bhd chief executive Sam Tan said the outlook for private sector construction may be “dampened” by persisting cooling measures introduced by the government on the property sector. “There is always a close link between the property development market and the private sector construction. When there is a slowdown in property development, construction firms will also feel the impact,” he said. “There is no question that the property market has seen softer growth in transactions and developers have held back or postponed their property launches. When that happens, it is inevitable that the private construction sector will have fewer jobs,” he said. Despite that, Tan is hopeful that private sector contractors will benefit from the knock-on effect of the government’s infrastructure development. “I don’t think property developers will be very aggressive this year with their launches. However, we hope that the ongoing infrastructure development will open up new areas and create [more] opportunities for property development eventually,” he said..

(5) 4 HOME BUSINESS. M ON DAY JAN UARY 5 , 2 0 1 5 • TH EEDGE F I N AN C I AL DAI LY. Iskandar Waterfront IPO postponed indefinitely Company had initially targeted to be listed on Bursa Malaysia by end of 2013 or early 2014 BY Y I MI E YONG. KUALA LUMPUR: Iskandar Waterfront Holdings Sdn Bhd (IWH), which had postponed what would have been one of the country’s largest initial public offering (IPO) once, has decided to put the plan on the back burner indefinitely, said sources. IWH had initially targeted to be listed on Bursa Malaysia by end of 2013 or early 2014. “The [stock] market is still soft. The IPO will be delayed again, but IWH will be listed eventually,” a source close to the company told The Edge Financial Daily. IWH, a partnership between between Johor state government entity Kumpulan Prasarana Rakyat Johor (KPRJ) and IWH managing director Tan Sri Lim Kang Hoo through Credence Resources Sdn Bhd, is the master developer of the 4,000-acre (1,618.7ha) Danga Bay waterfront city in Johor Baru. Credence Resources holds a 60% stake in IWH, while KPRJ owns the remaining 40%. Reuters, quoting sources, had reported in November 2013 that IWH had postponed a US$300. million IPO to the fourth quarter of 2014, a year later than initially planned, on concerns that government measures to rein in property prices would slow demand from well-heeled foreigners. “It has always been their plan to list the company. It’s about branding. Floating the company can benefit their joint venture partners and also attract investors as well as property buyers worldwide,” the source said. “The progress of the listing is around 80%. Most of the procedures and preparations are in place,” said the source, adding that the timing of the IPO will very much depend on stock market conditions. “The current market condition is unfavourable. The sharp fall in oil prices has caused the share price of oil and gas counters to dip, causing the overall market sentiment to be weak,” the source added. Last year, the benchmark FBM KLCI shed 105.71 points or 5.9% to close at 1,761.25 points on the last day of trading on Dec 31. When asked whether the IPO plan would materialise within this year, the source said: “There is no timeline fixed yet as much will depend on the market conditions.”. “It would not look good if the share price dips right after it is listed. They will wait for the market to stabilise first,” the source added. Areca Capital Sdn Bhd chief executive officer Danny Wong Teck Meng said the IPO market for 2015 is expected to “remain soft” just like last year. “The IPO market was quite soft last year. Nine out of the 14 IPOs dropped below their IPO issue price last year,” he added. Looking at the statistics, coupled with concerns about falling oil prices having an impact on the Malaysian economy and the implementation of the goods and services tax in April, Wong said now is not a good time to be planning for an IPO. He expects the equity market to remain soft until oil prices stabilise. IWH would have been one of the mega IPOs anticipated for 2015, alongside Edra Global Energy Bhd (formerly known as 1MDB Energy Group Bhd), Malakoff Corp Bhd, Medini Iskandar Malaysia Sdn Bhd, Weststar Aviation Services Sdn Bhd and Permodalan Nasional Bhd’s planned property trust listing despite overall macro concerns.. C O M PA N I E S I N T H E N E W S. BLand’s plan to sell stake in Great Mall of China project aborted KUALA LUMPUR: Based on corporate announcements and news flow last Friday, the companies that may be in focus today could include Berjaya Land Bhd (BLand), Paramount Corp Bhd, IJM Corp Bhd, LBS Bina Group Bhd and ML Global Bhd. BLand, controlled by tycoon Tan Sri Vincent Tan Chee Yioun (pic) with a 73.17% stake, has aborted a plan to sell its 70% stake in Berjaya (China) Great Mall Co Ltd (GMOC), which is developing the RM7.5 billion Great Mall of China project in Hebei, China, to Hong-Kong listed Carnival Group International Holdings Ltd. BLand said the memorandum of understanding (MoU) outlining the disposal of its 70% stake in GMOC to Carnival Group had lapsed on Dec 31 last year, hence the parties are no longer obligated to proceed with the deal. Property developer Paramount is buying 12 contiguous parcels of freehold land in Salak Tinggi, Sepang, Selangor, from NCT United Development Sdn Bhd for RM227.38 million or RM22 per sq ft. Paramount said it has signed a conditional sales and purchase agreement with NCT last Friday for the proposed acquisition of land totalling 237.3 acres (96.03ha). The land, with a gross development value of RM1.1 billion, forms undeveloped portions of an ongo-. ing mixed development scheme known as Salak Perdana, that is currently being undertaken by NCT. Paramount said the land will up its total GDV to RM9.1 billion. IJM’s wholly-owned subsidiary IJM Construction Sdn Bhd has bagged a construction and completion of superstructure works for the proposed mixed development known as Puteri Cove Residences in Johor Baru for RM538.5 million. IJM Construction has accepted a letter of award from Pearl Discovery Development Sdn Bhd for the job on Plot TR2-2, Mukim Pulai, Johor Baru, Johor. The contract is for 33 months and involves the building of three blocks of 32-storey serviced apartments with 998 units, one block of five-storey small office/home office with 56 units, serviced apartment facilities, two multi-storey car parks, two lobbies and a two-storey retail centre. Property developer LBS Bina has declared a special dividend of 6 sen per share, which is payable on Feb 6, with an entitlement date on Jan 27. It has also upped its stake in ML Global Bhd, previously known as VTI Vintage Bhd, a roof-tile steel trusses manufacturer. It bought 260,000 shares at 43.3 sen on Dec 30 last year, and another 450,000 shares at 43.6 sen on Dec 31. To date, LBS Bina owns 19.777 million shares or 22.06% stake in ML Global. . Oversea Enterprise targets 30% cafe chain contribution BY Y EN N E FOO. KUALA LUMPUR: Oversea Enterprise Bhd, which owns and operates the Restoran Oversea chain, plans to step out of its comfort zone of operating Chinese restaurants and venture into a casual dining cafe chain as it looks to grow its current share of the food and beverage (F&B) market and earnings. Oversea executive director Yu Tack Tein said it is targeting revenue contribution from the café chain business to grow from 5% to 30% eventually, thereby reducing its reliance on the Chinese restaurant business. The group has taken the first steps toward the goal by establishing three types of multi-chain cafes — halal restaurants, burger restaurants and bakery cafes — on a small scale through joint ventures (JV) with relevant partners in Malaysia and abroad. Yu said the rationale for entering into JVs is to allow the ACE Market-listed company the flex-. ibility of expanding its business with its limited pool of resources and to prevent it from incurring high capital expenditure. Only 60% to 70% of Oversea’s retained profits are set aside each year to expand the multi-chain cafe business. “Every year, I only have RM2 million to RM3 million to invest. 90% of this budget for the next financial year will go toward these three concepts,” he told The Edge Financial Daily in an interview. “That is why we needed somebody that has the capacity to help us grow … without needing the company to spend money to build a centralised kitchen,” Yu explained. This is understandable as Oversea’s earnings growth in the past four financial years has been somewhat like a yo-yo due to its expansion plan and strategy. The group recorded a loss of RM4.5 million in the financial year ended March 31, 2013 (FY13), after its initial expansion plan was not successful. It had to discontin-. Yu said the company is venturing into casual dining cafe chains. Photo by Chu Juck Seng. ue the operation of one Chinese restaurant in Malaysia and sold another in Singapore. In FY14, the group returned to profitability, with a net profit of RM3.35 million after a consoli-. dation exercise and cost control measures. For the six months ended Sept 30, 2014, the group posted a net profit of RM1.37 million. Yu is confident Oversea will remain profitable in FY15 despite its current expansion exercise, and is keeping a modest low single-digit revenue growth target for the year. He said Oversea’s priority now is to create a strong presence in the halal restaurant market. “We are originally a Chinese restaurant [operator], but we found that the Malay or halal market is one that we cannot ignore. So we are venturing into this segment again and will focus on it over the next two to three years,” said Yu. Oversea had first tried to penetrate the halal F&B market through the sale of the group’s mooncakes. The attempt, Yu said, saw limited success as mooncakes are still viewed as traditional Chinese confectionery and does not appeal to the Malay audience. Despite having “next to zero penetration” in the halal F&B. segment after the initial attempt, Oversea is trying again to penetrate the market with its halal restaurants. The group counts CNI Holdings Bhd as one of its JV partners for this purpose. Together, through a JV company known as Tunas Citarasa Sdn Bhd, they have already set up two halal food outlets in the Klang Valley known as Otak Otak Café and Janji Temu @ Mark’s. Plans for more outlets under the Janji Temu @ Mark’s brand are in the pipeline. “We will expand [into the halal F&B market] more aggressively. We have plans for that once the business is proven to be profitable. “What we are trying to do now is to develop the business concept, build the team and prove that it is workable before we expand [aggressively],” Yu said. The same, Yu added, applies for Oversea’s burger restaurant business in Adelaide, Australia, and its bakery cafe business in Taipei, Taiwan, which is due to commence operations early this year..

(6) HOME BUSINESS 5. M ON DAY JA N UA RY 5 , 2015 • T HEED G E FINA NCIA L DA ILY. Price war to squeeze nitrile glove margins this year But strengthening US dollar could lift earnings BY C H EN SHAUA FU I. KUALA LUMPUR: Malaysian glove makers expect competition in the nitrile glove segment to intensify this year and are bracing themselves for a price war that will result in thinner margins. “In an increasingly competitive environment, fully passing on cost increases is more difficult. But as it stands, we believe Hartalega is more efficient than our peers and will be better able to weather any cost increases,” Hartalega Holdings Bhd managing director Kuan Mun Leong told The Edge Financial Daily in an email. Nevertheless, the group, which saw its operating profit for the second quarter of financial year 2015 ended Sept 30, 2014, (2QFY15) decline to 23.17% from 31% a year ago, has already been warning its stakeholders that margins will likely continue to be impacted this year. The declining margins, together with lower selling prices, caused its 2QFY15 net profit to contract 24% to RM48.16 million against RM63.27 millon in the previous year. The world’s largest glove maker, Top Glove Corp Bhd, also expects a challenging business environment in 2015 for the same reason, though its chairman Tan Sri Lim Wee Chai believes the company’s new capacity for nitrile gloves will enable it to do more business with larger multinationals in developed markets compared with its peers. Top Glove’s net profit in 4QFY14 ended Aug 31, 2014 eased 5.2% to RM48.42 million from RM45.9 million a year earlier, owing to stiff competition, which resulted in margin pressure. Nitrile gloves accounted for 24% of the total volume of Top Glove’s production in 4QFY14 and its major markets are Europe (31%) and North America (27%). Further aggravating the situation is the knock-on inflationary effects from last year’s increases in electricity and natural gas tariffs, of which Lim said Top Glove is still feeling the effects. Also looming on the horizon is the. 2015. OUTLOOK. goods and services tax (GST) in April. Nonetheless, Lim believes the industry’s prospects remain promising. Top Glove expects to deliver an improved performance in FY15 due to lower raw material prices and favourable currency exchange rates against the US dollar. “The global demand for rubber gloves from developed and emerging markets is still on the uptrend and is expected to continue growing steadily at a rate of 6% to 8% per annum.” According to RHB Research head Alexander Chia, competition resulting in average selling price (ASP) pressure is not the main concern, yet. But he noted that if supply grows too fast, price war may emerge and glove makers may slash their ASPs more aggressively to increase sales volumes. “Intense competition within the industry will exert pressure on margins as glove companies may face challenges in passing through the incremental costs [such as labour costs]. Competition is unavoidable. Those with superior margins or high production efficiency will do better,” Chia told The Edge Financial Daily. In a note dated Dec 31, RHB Research noted that any heightened compeitition would not bode well for Top Glove and Supermax Corp Bhd, “as both are margin laggards in the industry”. Nevertheless, it said the strengthening of the greenback against the ringgit will benefit the industry. “A 3% increase in the exchange rate could lift the industry’s earnings by approximately 2% to 4%,” it said. It maintained its “overweight” call on the sector as it expects global consumption to remain strong and to expand 8% to 10% per annum, led by demand. Kuan: We encourage investors to look beyond FY15. For FY16, we expect capacity to increase by 43%.. Lim: Global demand for rubber gloves from developed and emerging markets is still on the uptrend.. from the healthcare segment. Its top picks for the sector are Hartalega (target price (TP): RM7.70), Kossan Rubber Industries Bhd (TP: RM5.12) and Karex Bhd (TP: RM3.89). Meanwhile, Hartalega’s Kuan said Malaysian glove manufacturers will have to rise to the challenge of cost increases by moving up the value chain in glove manufacturing. “The only pathway is to innovate in the way that gloves are made and to come out with innovative products and production technologies,” he said, citing its nitrile glove innovation as an example. “Our nitrile gloves changed the global landscape of the glove market. Before our lightweight nitrile glove, the world’s glove market was dominated by natural rubber gloves (about 95%). Today, the global market share between the two materials is approximately 50:50,” Kuan said. Despite a weaker profit for. 2QFY15, Kuan is confident Hartalega will continue to deliver growth in the coming years. But it does not expect significant growth in its current FY15 ending March as its Next Generation Integrated Glove Manufacturing Complex (NGC) will only be operational towards the end of 2014. “We encourage investors to look beyond FY15. For FY16, we expect capacity to increase by 43%. With an average capacity growth of 21% per annum for the next six years, we expect continued growth in our earnings per share,” said Kuan. For FY16, Kuan expects Hartalega’s output to increase to 18.4 billion pieces, 43% higher than FY15. “Despite margin compression, our profit margin is above the industry average as a result of our high-productivity manufacturing processes, derived from our advanced manufacturing technologies which were developed in-house. In addition, we expect NGC to provide a significant increase in our productivity. NGC will be 33% higher in productivity compared to our existing facilities. In the long run, this will put us in a very good position to defend our margins and maintain our dominance in the nitrile glove market,” Kuan said. As the developed markets have matured, both Hartalega and Top Glove are looking at emerging markets, such as India and China, for expansion. Kuan said there are vast untapped markets, especially in Asia, where hygiene and healthcare awareness in some countries is still low relative to the West. “Specifically, due to the low per capita consumption of gloves in China and India, Hartalega realised the enormous potential in these emerging markets,” Kuan said. For the same reason, Top Glove’s Lim thinks its operations in China will contribute positively to the group’s revenue in FY15, during which it expects to a volume growth of 10%, driven mainly by a consistently resilient demand for rubber gloves, and ongoing quality and automation improvement initiatives.. New Prasarana group MD says committed to achieving worldclass level KUALA LUMPUR: Azmi Abdul Aziz, who was appointed Prasarana Malaysia Bhd’s group managing director (MD) effective Jan 1, has pledged to bring the country’s public transport service to a world-class level. He brings with him more than 25 years’ experience in the public and private sectors in the public transport industry including serving as chief development officer at the Land Public Transport Commission (SPAD). He took over the duties from Datuk Seri Shahril Mokhtar, who was appointed the new chief executive officer of Mass Rapid Transit Corp Sdn Bhd (MRT Corp). “The appointment is a massive trust and a huge challenge in the efforts to continually upgrade and champion the works and good name of the Prasarana group. “Plenty still needs to be done to bring the country’s public transport service to world-class level,” Azmi said in a statement last Friday. He listed the LRT Line Extension Project (LEP) and preparations for managing the new assets that are due for delivery as the immediate assignments. He was referring to the remaining nine four-car monorail trains currently in the process of delivery, and the supply of 50 new six-car trains for the LRT Ampang Line scheduled to commence this month. Among the key events for this are the scheduled midyear opening of the Bus Rapid Transit-Sunway Line; the opening of Phase One of the LEP Ampang Line in October; and the initial works as the shadow operator of the Makkah Metro, Azmi said. “We also need to ensure continued efforts in generating income from the nonfare revenue sectors so that they continue to improve the financial performance of the Prasarana group,” Azmi said. — Bernama.

(7) 6 HOME BUSINESS. M ON DAY JAN UARY 5 , 2 0 1 5 • TH EEDGE F I N AN C I AL DAI LY. AFB targets double-digit growth Plans to beef up its investment banking ops this year BY SU L H I A ZMA N. KUALA LUMPUR: The smallest Middle-Eastern bank in Malaysia, Asian Finance Bank Bhd (AFB), is banking on its relationship with corporate clients to grow its revenue and funded assets by between 10% and 15% from next year onwards, said its chief executive officer (CEO) Datuk Mohamed Azahari Mohamed Kamil. “Our strategy is very simple: relationship, relationship and relationship. Our ambition is high but our growth target is modest, at double digits, in line with our current capability and capacity. “The business focus will be providing financing to corporate clients, which will mainly comprise government-linked companies, as well as beefing up our investment banking operations,” Mohamed Azahari told The Edge Financial Daily in an interview. He said AFB’s corporate financing business in the areas of oil and gas, shipping, aviation, infrastructure and real estate generates a higher profit margin, with an average of 2%. In 2015, Mohamed Azahari expects AFB to expand its investment banking business as it seeks fee-based income to contribute at least 20% beginning this year.. The remaining 80% will continue to be derived from its corporate financing, which includes treasury business and funded assets. “We currently have the investment banking team but it has not been formalised. We will start doing so beginning January, focusing on capital market, where we may look at arranging sukuk (Islamic bond) and various other securities instruments, as well as corporate advisory. This is especially in the area of mergers and acquisitions in which we may bring investors from the Middle East to participate,” he said. Mohamed Azahari said the bank’s focus on two areas — corporate financing and investment banking — is expected to increase its efficiency and profitability, as well as reduce its cost-to-income ratio to 50% this year from 55% currently. “With our focus on these high-margin areas, we expect AFB to post an improved return on equity (ROE) that should be on par with the midsized banks’ market average of between 10% and 15% in the next three to five years,” he said. AFB’s ROE currently stands at 2.51%. On the outlook, Mohamed Azahari said AFB will maintain its growth momentum with a double-digit tar-. (From left) Saminathan, Toyota Capital (M) Sdn Bhd president Kuah Kock Heng and Citibank region head for treasury and trade solutions business in Asia-Pacific Amol Gupte at the award ceremony.. Citibank bags top direct debit service award KUALA LUMPUR: Citibank Bhd bagged the “Top Transaction Volume for Direct Debit Service” award at Malaysian Electronic Clearing Corp Sdn Bhd’s (MyClear) inaugural Bank Recognition Awards recently. MyClear also recognised four of Citibank’s corporate clients as 2013 Direct Debit Top Merchants. The four were AIA Bhd, BMW Credit (M) Sdn Bhd, Toyota Capital (M) Sdn Bhd and AXA Affin Life Insurance Bhd. “At Citibank, we actively seek to enable electronic payments for clients through services integrated with their business processes, and we are honoured that our endeavours have been recognised,” said Citibank managing director of treasury and trade solutions Noel Saminathan in a statement. MyClear, a subsidiary of Bank Negara Malaysia, offers services consisting of large value payment. and retail e-payment solutions that allow corporations and individuals to make payments and transfer funds effortlessly and safely. MyClear’s recognition of Citibank was for its direct debit service. Direct debit is an interbank collection service for regular and recurring payments enabling automated collection directly from a customer’s bank account at multiple banks with a single authorisation. The service facilitates timely settlement of bills and invoices through pre-agreed arrangements with banks. Saminathan said while Citibank is already a leader in this space, it wants to do more in e-payments and digital services, especially since the bank has a unique, global platform featuring best practice services from around the world for managing electronic transactions.. get as it has just recently returned to the black in the financial year ended Dec 31, 2013 (FY13), with a net profit of RM7.57 million. AFB was in the red for three years from FY10, with cumulative losses amounting to RM48.18 million. “We have gradually reduced our exposure to small and medium enterprises, currently at a marginal level of 5% and below. We will also maintain our retail banking as it is. We have no immediate plan to go aggressive,” he said. Mohamed Azahari said AFB does not expect much growth in the retail banking sector as it sees heightened competition and market cannibalisation. The bank currently has a branch in Kuala Lumpur and Johor, and a representative office in Indonesia. “AFB began its initial operation with a retail banking service and slowly branched out to other areas. We currently have three automated teller machines (ATM) that are not linked to any inter-bank services and we do not provide card services (credit card or debit card). But that does not mean we are not growing. It just means we are shifting our business to other areas,” he said. AFB may consider listing its bank in the next five years or more. For. now, it is trying to meet the Basel III requirements to strengthen its resilience and improve liquidity. Basel III is a global, voluntary regulatory standard on bank capital adequacy, stress testing and market liquidity risk. Bank Negara Malaysia, in a document issued in December 2011, targets to implement Basel III from 2013 until 2019. The central bank expects that by Jan 1, 2019, commercial banks should have a capital conservation buffer of 2.5%, a minimum Tier-1 capital ratio of 6%, a leverage ratio of 3%, and a liquidity coverage ratio of 100%. “It is no secret that our shareholders plan to bring the bank to the next level via new capital attraction, which will make the bank more liquid. But as of now, there is no listing proposal. Maybe we will look into this in the next five years,” he said. As at Sept 30, AFB has a Tier-1 capital ratio of 20.25%. On banking consolidation, Mohamed Azahari agreed it is good to create a more effective and competitive banking system, but said there is still room for a midsized boutique bank like AFB in Malaysia. “I think AFB and other midsized lenders play a big role in a country’s banking landscape. We can create. our own niche and edge by offering strategic value propositions to our customers,” he said. Mohamed Azahari has been the CEO of AFB since August 2008. Two other Middle-East lenders in the country, on the other hand, have been changing CEOs in between one and three years. CEO Datuk Azrulnizam Abdul Aziz of Saudi Arabia-backed Al Rajhi Banking & Investment Corp Malaysia Bhd resigned in October last year, barely after 2½ years at its helm. Kuwait Finance House Malaysia Bhd (KFH) in late November made a surprise announcement on the departure of its CEO Datuk Seri Abdul Hamidy Hafiz, who has been in office for a mere 1½ years since March 21, 2013. “Serving a Middle-East bank is definitely a challenge as I have to keep both my shareholders and customers happy. But Alhamdulillah (praise to God), I have managed to wade through the challenges,” Mohamed Azahari said with a chuckle. Incorporated in 2005, AFB is backed by Qatar Islamic Bank (66.67%), Saudi Arabia’s RUSD Investment Bank (16.67%), Yemen’s Tadhamon International Islamic Bank (10%) and Financial Assets Bahrain WLL (6.67%).. Splash refutes ex-Selangor MB’s allegations over water deal BY Y E N NE FO O. KUALA LUMPUR: Syarikat Pengeluar Air Sdn Bhd (Splash), a 40% subsidiary of Gamuda Bhd, has dismissed a call by former Selangor menteri besar Tan Sri Abdul Khalid Ibrahim for the current Selangor state administration to resist “any ludicrous and outlandish demands from any water concession companies” in the state’s water restructuring exercise. Splash refuted Abdul Khalid’s assertion that the previous state administration made four unchanged offers to water concession companies, calling the RM2.8 billion demanded by Splash “appalling” and “tantamount to gross injustice”. In a statement last Friday, Splash said it had previously accepted in principle two earlier offers from the state based on 1 time book value in principle. However, later offers were much reduced by 90% and were deemed unacceptable. The water concessionaire said the state’s valuation formula based on 12% return on equity minus historical dividend payout is flawed. The formula, Splash said, pays no heed to the company’s current financial position, does not consider actual operational efficiency, does not value remaining concession terms, favours companies that. Splash is the only one of four concessionaires in Selangor that has yet to agree to the state’s takeover offer totalling RM9.65 billion for the concessionaires. operate longer and takes only cash dividends into account. It said the RM2.8 billion quoted by Splash to the Selangor state government was based on discounted cash flow, a universally accepted method for the valuation of concession assets. “The state’s offer to Splash as stated is RM1.83 billion. However, netting off Splash loans of RM1.56 billion, the offer is worth only RM350.6 million, whereas the book value of Splash after netting off loans is RM2.8 billion,” it said in a statement. Further, Splash cited that six other states, namely Melaka, Negeri Sembilan, Johor, Perlis, Penang and Perak, have all completed their water industry consolidation exercises based on 1 time book value. “In four of the six states, the assets acquired by Pengurusan Aset Air Bhd were the same in value as their liabilities. The obvious result. of the 1 time book value principle of asset acquisition is that in all the six states’ consolidation exercises, there were no gains or losses reported by the exiting shareholders,” Splash said. On the issue of delay in the water restructuring exercise as pointed out by Abdul Khalid, Splash said the inconsistency in the offers made by the state had caused the delay. Splash also denied that it is “less willing” to bring the issue to arbitration to avoid disclosing terms and conditions of the privatisation agreement which favours water concessionaires. It said that is “agreeable to arbitration if the scope of the arbitration is not merely restricted to the flawed equity value method of valuation but includes universally accepted methods of valuation”. It was responding to a letter written by Abdul Khalid that was published in a local daily on Dec 16, 2014, calling for the current state administration to resist demands by water concession companies to prevent any impasse in “returning the water assets to the people, their rightful owners”. Splash is the only one of four concessionaires in Selangor that has yet to agree to the state’s takeover offer totalling to RM9.65 billion for the concessionaires..

(8) ST O C KS W I T H M O M E N T U M 7. M ON DAY JA N UA RY 5 , 2015 • T HEED G E FINA NCIA L DA ILY. www.theedgemarkets.com. This column is an analysis done by Asia Analytica Sdn Bhd on the fundamentals of stocks with momentum that were picked up using proprietary algorithm by Anticipatory Analytics Sdn Bhd and that first appeared at www.theedgemarkets.com. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.. HOMERITZ CORP BHD (ALL FIGURES IN RM MIL). Homeritz Corp Bhd HOMERITZ was picked up by our momentum algorithm for the second consecutive trading day (refer our Stocks with Momentum at www.theedgemarkets.com), after volume rose 62% to 3.04 million shares. The stock price has risen 5 sen or 5.8% to 91 sen on Friday. A net exporter with products exported to over 40 countries including Asia, Australia, Europe and the US, Homeritz offers investors exposure to the strengthening US dollar (USD) with some 97% of its trade receivables denominated in USD. Revenue for the company has grown from RM89.8 million in FY Aug 2011 to RM112.9 million in FY2013. In the same period, net profit increased an outsized 40% from RM10.8 million to RM15.1 million while EBITDA margins expanded from 15.9% to 20% due to economies of scale, increased productivity and efficiency. For FY2014, the company posted revenue. of RM127.2 million, boosted by recovery in demand from its key export markets and the strengthening USD. Net profit was RM20.2 million, a significant 33.9% increase from the previous year. Homeritz’s valuations are fairly attractive. The stock trades at a price-to-book ratio of 1.86 times with a trailing 12-month P/E ratio of only 8.5 times. Return on equity (ROE) is high at 24.5%. It has a strong balance sheet with net cash of RM49.3 million, equivalent to 24.6 sen per share or 27.0% of its share price. Last but not least, Homeritz offers good yields. The company has a minimum 40% dividend payout policy. For FY2014, Homeritz has declared a final dividend of 3.1 sen. This brings total dividends for the financial year to 5.1 sen per share — up from 3.75 sen in FY2013 — or about 50% of net profit. This earns shareholders a substantially higher than market average net dividend yield of 5.9%. Valuation factor * 2.40 Fundamental factor ** 1.95 Trailing 12m P/E (x) 8.50 Trailing 12m PEG (x) 0.25 P/NAV (x) 1.86 Trailing 12M Dividend yield (%) 5.52 Market capitalisation (RM mil) 172.00 Shares outstanding (ex-treasury) mil 200.00 Beta 0.98 12-month price range 0.61 - 0.95 *Valuation factor — Composite measure of historical return & valuation **Fundamental factor — Composite measure of balance sheet strength & profitability Note: A score of 3.0 is the best to have and 0.0 is the worst to have. Income statement Turnover EBITDA Depreciation and amortisation EBIT Associates Interest income Interest expense Extraordinary gain/(loss) Pre-tax profit/(loss) Net profit/(loss) - owners of company Balance sheet Fixed assets - PPE Biological assets Intangibles & goodwill Cash and equivalents Total current assets ST borrowings Total current liabilities Total assets Shareholders’ fund Long term borrowings. HOMERITZ CORP BHD RATIOS. DPS (RM) Net asset per share (RM) ROE (%) ROA (%) Turnover growth (%) Net profit growth (%) Net margin (%) Current ratio (x) Gearing (%) Interest cover (x). FY12 31/8/2012. FY13 31/8/2013. FY14 31/8/2014. LATEST 4QFY14 31/8/2014. 103.2 20.1 2.5 17.6 0.2 0.2 17.7 14.7. 112.9 22.6 2.4 20.3 0.4 0.1 20.6 15.1. 127.2 27.9 2.5 25.5 0.0 1.1 0.1 0.0 26.5 20.2. 33.2 6.6 0.6 6.0 0.3 0.0 6.2 5.2. 35.3 0.5 24.5 55.6 0.3 9.3 82.0 72.8 2.7. 33.5 0.5 34.7 69.8 0.4 11.9 91.9 81.4 2.3. 33.1 0.5 51.6 82.5 0.5 10.9 105.2 92.2 1.9. 33.1 0.5 51.6 82.5 0.5 10.9 105.2 92.2 1.9. FY12 31/8/2012. FY13 31/8/2013. FY14 31/8/2014. ROLLING 12-MTH. 0.03 0.36 21.66 19.29 14.94 35.96 14.23 5.95 121.34. 0.04 0.41 19.61 17.39 9.36 2.85 13.39 5.85 164.78. 0.05 0.46 23.33 20.55 12.64 33.92 15.92 7.57 230.87. 0.05 0.46 24.48 21.61 12.64 33.93 15.92 7.57 230.96.

(9) 8 I N V E ST I N G I D E A S. M ON DAY JAN UARY 5 , 2 0 1 5 • TH EEDGE F I N AN C I AL DAI LY. I N S I D E R A S I A’S S TO C K O F T H E D AY. SCGM BHD (ALL FIGURES IN RM MIL). SCGM Bhd SCGM is involved in, primarily, the manufacture of thermo-vacuum formed plastic packing — basically, disposal plastic trays for the food and beverage, electronics & electrical and medical sectors. Aside from growing demand, the company will benefit from lower raw material cost for plastic resin. As an exporter — sales to Asia, Europe, Oceania and North America accounted for 44% of sales in FY April 2014 — SCGM will also gain from the weak ringgit. The stock is not well known amongst the investing community, perhaps due to its relatively small market capitalisation, currently about RM154 million. But the company has been doing quite well. SCGM’s underlying business looks fundamentally sound. As of 1Q2015, it has a net cash of RM6.6 million or 8 sen per share. From FY2010 to FY2014, revenue and net profit grew at CAGR of 10.3% and 14.6%, respectively.. For 1QFY2015, net profit grew an outsized 13.3% y-o-y to RM3.5 million on the back of 6% rise in revenue to RM27.3 million. Net margin widened to 13% from an average of 11.5% in FY2014, boosted by lower raw material cost, increased production and economies of scale. To further drive growth, SCGM will invest over RM11 million to boost production capacity by 20% for FY2015. The company is adding a new plastic cup line that will lift capacity and sales by some 10% this year and planning further automation to improve efficiency. The Edge Research rates SCGM a high Fundamental score of 3 out of 3 and Valuation score of 2.1 out of 3. The stock is trading at a trailing 12-month P/E of 12.4 times, low relative to prospective growth. It has a minimum 40% dividend payout policy. Dividends totalled 10 sen per share in FY2014, translating into a higher-than-market average net yield of 5.2%. Valuation factor * 2.10 Fundamental factor ** 3.00 Trailing 12m P/E (x) 12.41 Trailing 12m PEG (x) 0.33 P/NAV (x) 2.18 Trailing 12M Dividend yield (%) 6.25 Market capitalisation (RM mil) 153.60 Shares outstanding (ex-treasury) mil 80.00 Beta 0.89 12-month price range 0.84 - 2.44 *Valuation factor — Composite measure of historical return & valuation **Fundamental factor — Composite measure of balance sheet strength & profitability Note: A score of 3.0 is the best to have and 0.0 is the worst to have. T O N G ’S MOMENTUM P O RT F O L I O THE local bourse fell on the first trading day of 2015, led by banking and plantation stocks. Trading was light with some 1.08 billion shares valued at RM0.92 billion changed hands. The FBM KLCI index closed 0.48% lower to settle at 1,752.77. However, market breadth was positive with gainers outweighing losers by a ratio of 1.3 to one. Already down 7% last year, the ringgit weakened further against the US dollar. It is trading at 3.51 per US dollar at the time of writing. Falling crude oil prices and capital outflows will continue to weigh on the ringgit’s performance this year. Meanwhile, Asian stocks mostly ended higher on low trading volume while the stock markets in China and Japan are closed. US markets extended losses on the last trading day of 2014 amid weaker consumer confidence data. The Dow and the S&P closed down 0.89% and 1.03% respectively. Brent crude and WTI crude are hovering around $57 and $54 per barrel respectively. The Euro slumped to a 4 ½ year low on speculation of further stimulus measures by the European Central Bank (ECB). My portfolio started on 8 July 2014 with a capital of RM100,000. Since then, it has outperformed the FBM KLCI by 8.2%, registering an annualized return of 1.6%. I kept the portfolio unchanged.. Income statement Turnover EBITDA Depreciation and amortisation EBIT Associates Interest income Interest expense Extraordinary gain/(loss) Pre-tax profit/(loss) Net profit/(loss) - owners of company Balance sheet Fixed assets - PPE Biological assets Intangibles & goodwill Cash and equivalents Total current assets ST borrowings Total current liabilities Total assets Shareholders’ fund Long term borrowings. SCGM BHD RATIOS. DPS (RM) Net asset per share (RM) ROE (%) ROA (%) Turnover growth (%) Net profit growth (%) Net margin (%) Current ratio (x) Gearing (%) Interest cover (x). QUANTITY. BOUGHT PRICE RM. 9,000. 0.789. FY12 30/4/2012. FY13 30/4/2013. FY14 30/4/2014. LATEST 2QFY15 31/10/2014. 82.1 12.1 3.8 8.3 0.0 0.3 8.0 5.6. 96.9 14.8 4.1 10.7 0.0 0.3 0.1 10.4 7.8. 100.3 19.8 4.6 15.2 0.1 0.3 15.0 11.5. 26.1 5.2 1.1 4.1 0.0 0.0 4.1 3.0. 35.2 2.9 41.0 2.7 10.5 63.9 60.5 0.5. 32.1 6.3 43.7 0.4 8.6 70.3 65.9 0.2. 33.0 15.8 52.6 0.2 8.3 76.5 73.4 -. 33.0 10.2 48.1 0.1 8.3 72.8 70.4 -. FY12 30/4/2012. FY13 30/4/2013. FY14 30/4/2014. ROLLING 12-MTH. 0.02 0.76 9.54 8.86 9.38 (11.72) 6.83 3.89 0.62 35.75. 0.05 0.82 12.41 11.69 18.00 39.65 8.09 5.06 58.30. 0.10 0.92 16.49 15.66 3.52 46.54 11.45 6.31 64.30. 0.12 0.88 17.92 17.02 1.70 36.74 12.14 5.80 112.97. BOUGHT VALUE CURRENT PRICE RM RM. CURRENT VALUE RM. GAIN / LOSS RM. % GAIN / LOSS. 6,435.0. (669.3). (9.4). Shares held: Willowglen MSC Bhd. Total. 7,104.3. 0.715. --------------7,104.3. --------------- --------------6,435.0 (669.3). --------------7,104.3. --------------- --------------6,435.0 (669.3). Shares bought: No shares were bought today. Total shares held. (9.4). Shares sold: No shares were sold today. Cash balance. 94,369.9. Realised profits / (losses). 1,474.3. Total Portfolio Returns Annualised returns for portfolio. 100,000.00. 100,804.9. 804.9. Portfolio Beta Risk adjusted returns for portfolio. 0.8 1.6 1.166 1.4. Performance Comparison FBM KLCI FBM KLCI Emas. At portfolio start 1,892.7 13,163.7. Current 1,752.8 12,035.9. Change (7.4%) (8.6%). Relative portfolio outperformance 8.2% 9.4%. This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell any stocks. Portfolio started on 8 July 2014 with RM100,000..

(10) B R O K E R S’ C A L L 9. M ON DAY JA N UA RY 5 , 2015 • T HEED G E FINA NCIA L DA ILY. Automotive business said to contract in first half Automotive sector Maintain neutral: We expect first half 2015 (1H15) total industry volume (TIV) growth to contract 3% to 5% year-on-year (y-o-y) to approximately 320,000 against a high base in 1H14 (+6% y-o-y to 333,000 units) before catching up in 2H15 to meet our 2015 target of 660,000 units. This is in view that consumers will tighten their belts and adopt a wait-and-see approach as they brace for higher cost of living and uncertainties to car prices from the goods and services tax implementation in April. Nonetheless, shortfalls in the public transportation system coupled with the normal. replacement for old cars should sustain the TIV level. We like auto players with presence in the economical car segments (in view of higher cost of living) and which are not overcrowded by intense competition (i.e. in the B-segment). We favour Perodua for we believe its newly-launched A-segment Axia is a game changer, timely for potential trading down by consumers. Globally, we see a shift in consumer preference to sports utility vehicles and as such, we laud Honda and Mazda for their planned model launches in the smaller and more economical crossover utility ve-. hicle (CUV) segment (i.e. Honda HR-V & Mazda CX-3) in 2015. Auto players import cars/components in either US dollars or Japanese yen, and foreign exchange has proven to have a material impact on auto players’ cost of goods sold and margins. In view of a softer yen and stronger dollar against the ringgit, we prefer Japanese importers and avoid US importers. In the past five months, the dollar has surged 9% against the ringgit to US$1 per RM3.50 and our forex research expects an average US$1 per RM3.50 in 2015. We expect the yen-ringgit exchange rate to stay soft, averaging ¥100 per RM3 in. 2015 with recently re-elected Japanese Prime Minister Shinzo Abe expected to continue the stimulus and quantitative and qualitative easing programme. We favour MBM Resources Bhd and Berjaya Auto Bhd primarily for their (i) presence in the economical car segment (i.e. A and CUV segments respectively), (ii) positive yen exposure and (iii) undemanding valuations. Meanwhile, we avoid raising exposure in UMW Holdings Bhd and Tan Chong Motor Holdings Bhd for their (i) dependence in the competitive B-segment and (ii) negative US dollar exposure. — Maybank IB Research, Jan 2. Automotive sector STOCK. UMW Hldgs Tan Chong BAuto MBMR MCap WT avg. REC. SHR PX (RM). MKT CAP (RM MIL). TP. PER (X). PER (X). PER (X). P/BV (X). P/BV (X). ROE (%). ROE (%). (RM). CY13A. CY14F. CY15F. CY13A. CY14F. CY14F. CY15F. NET YIELD (%) CY15F. Hold Hold Buy Buy. 10.96 3.28 3.30 2.90. 12,805 2,141 2,781 1,133. 11.20 3.50 4.20 3.50. 14.8 7.3 25.3 8.2 15.1. 15.2 25.6 14.0 10.3 15.9. 15.1 15.9 10.7 7.5 14.1. 2.0 0.8 9.3 0.8 2.9. 1.9 0.8 5.9 0.7 2.3. 12.6 3.0 45.7 7.2 16.1. 11.9 4.7 43.9 9.3 15.7. 3.3 1.8 3.9 3.3 3.2. Telcos to outperform this year as investors seek earnings stability Telecommunications sector Maintain overweight: Mobile service revenue is unlikely to have registered growth in 2014, owing to monetisation challenges faced by both Maxis Bhd (organisational restructuring and fixing its prepaid business) and Celcom Axiata Bhd (unstable IT systems). As we head into 2015, mobile revenue growth should resume as operators overcome monetisation challenges and potentially benefit from the goods and services tax (GST). Meanwhile, the competitive intensity in the mobile space would likely increase going forward, as 1) U Mobile Sdn Bhd maintains its pursuit of revenue share, and 2) Telekom Malaysia Bhd (TM)-P1 prepares to roll out long-term evolution services. For now, the big three remain cognisant of the need to not compete on pricing.. Source: Maybank KE. CPO production affected by floods THE EDGE FILE PHOTO. Plantations sector Maintain neutral: The government expects crude palm oil (CPO) production to come down by 15% to 20% due to the severe flood situation in the East Coast. A total of 7,500 smallholder estates covering 24,000ha and 230 oil palm estates spanning 160,000ha were affected. As a result, CPO inventories were also expected to be reduced to two million tonnes from 2.2 million tonnes. It unexpectedly disrupted the CPO supplies in the short term. The worst flood in the East Coast due to the monsoon season affected fresh fruit bunch (FFB) harvesting and milling activities as well as transportation. The flood situation in Kelantan, Terengganu, Pahang, Perak and Johor, which collectively account for 40.8% of Malaysian oil palm plantation, improved last week. These five states also contribute about 44% of total CPO production in Malaysia. We think that it could at least take one to two months for the production to normalise.. Maxis went through operational hiccups in 2014, and underperformed its peers. Photo by Sam Fong. In contrast with other plantation counters, Felda Global Ventures Holdings Bhd’s (FGV) share price had unexpectedly tanked 34% over the last month despite the recovery of CPO prices. Besides selling pressure from two major shareholders, the Employees Provident Fund and Kumpulan Wang Persaraan, the group’s earnings were also clouded by the exposure. of plantation land to flood-hit areas. This is likely to affect its upcoming quarterly results. As of Dec 29 last year, the group estimated a total loss of RM21 million due to flood damage and loss of FFB production totalling 11,000 tonnes, which is about 0.2% of estimated annual production. Based on the current share price, the company is trading at only 16. times to our financial year 2015 (FY15) forecasts compared with industry average of 18 to 19 times. CPO prices are likely to recover further driven by lower CPO inventories for December 2014. They have recovered more than 7.5% since early December. We think that they could easily go above RM2,400 per tonne in the short term. — PublicInvest Research, Jan 2. Plantation sector COMPANY. PRICE @ DEC 31 (RM). MKT CAP (RM MIL). 2.18 10.00 4.80 22.80 9.19 3.88 2.31. 7,953.1 7,696.0 30,660.5 24,327.6 55,729.1 1,437.5 3,130.1. Felda Global Ventures Genting Plantations IOI Corp KL Kepong Sime Darby Ta Ann TSH Resources Source: : PublicInvest Research estimates. EPS (SEN) 2014F 2015F. EPS GROWTH (%) 2014F 2015F. PER (X) 2014F 2015F. 11.5 42.4 22.0 95.2 45.5 27.0 9.3. (35.7) 8.4 9.4 13.3 (10.6) 75.3 17.8. 19.0 23.6 21.8 23.9 20.2 14.4 24.8. 13.6 50.0 21.0 108.1 46.4 33.9 10.8. 18.2 17.9 (4.5) 13.5 1.9 25.5 16.5. 16.0 20.0 22.9 21.1 19.8 11.4 21.4. P/BV (X) 2014F 2015F. 1.2 2.1 5.3 3.1 1.9 1.4 2.6. 1.1 1.9 4.8 2.9 1.8 1.3 2.6. ROE (%) 2014F 2015F. 8.1 8.8 22.4 13.1 9.3 9.6 10.8. 9.4 9.7 21.4 14.0 9.2 11.5 11.5. DIV. YLD (%) 2014F 2015F. 3.6 1.3 0.8 2.2 3.3 4.3 0.7. 4.3 1.5 0.5 2.2 3.4 5.4 0.9. Sector valuations remain uncompelling (both DiGi. Com Bhd and TM set new enterprise value over earnings before interest, taxes, depreciation and amortisation [EV/ Ebitda] highs in 2014), but as we repeatedly noted in the past, telecoms are increasingly becoming liquidity proxies. As general risk aversion sets in, we expect the telecoms sector to outperform in 2015 as investors gravitate towards sectors with strong earnings stability. Our preferred sector picks are Axiata Group Bhd and Maxis, essentially the laggards of 2014. Both went through operational hiccups in 2014, and thus underperformed their peers. However, operations for both look set to normalise heading into 2015, and we expect their share prices to be rerated. Conversely, DiGi, TM and Time dotCom Bhd are all trading near peak valuations given their strong share price run-up in 2014. Thus we see limited near-term upside for these stocks. — Maybank IB Research, Jan 2.

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