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Wednesday, June 4, 2008

Mah Sing’s strong earnings growth

MAH SING Group Berhad remains one of CIMB Research’s top picks in the property sector for its strong earnings growth and astute management.

The research house, which maintained a buy on Mah Sing at RM1.50, however, lowered its FY08 to FY10 earnings forecast by 2% to 9% to reflect the termination of the Puchong land acquisition at end-March.

It has also revised its target price downwards to RM 2.02 from RM 2.27 previously as the property company’s revised net asset value (RNAV) fell by the same amount due to the removal of the Puchong land from estimates.

Commenting on Mah Sing’s financial results, CIMB Research said the group’s first quarter (1Q) net profit of RM22.3 million amounted to 21% of its full-year estimate as well as consensus, which the research house regarded as in line as future quarters are expected to be stronger.

“Furthermore, the group will be able to recognise contribution from the sale of Icon Tun Razak in 2Q, which will be a big boost to their profits,” noted the research house.

Mah Sing’s 1Q sales amounted to RM113 million, which was 6% above the 1QFY07’s sales of RM109 million.

“It is a commendable performance considering that it has included three weeks of the post general election impact. On a geographical basis, Penang made up 42%, the Klang Valley 40% and Johor 18% of total sales,” it added.

In March, Mah Sing launched the RM380 million Southgate commercial project along Jalan Sungai Besi in Kuala Lumpur (which was revised upwards from RM256 million), while in April it launched the RM1.28 billion Southbay Penang project in Batu Maung.

CIMB Research said Mah Sing was also eyeing more landbank and investors can expect it to speed up its land acquisitions in the second half.

“So far this year, it has acquired only a small parcel of land in Johor to replenish landbank in the Sri Pulai area. The group is eyeing more landbank in Malaysia, including the Klang Valley, Johor and Penang. It has also set its sights on the Sabah market.

“More importantly, it is making significant progress on securing landbank in Vietnam,” it said, adding that Mah Sing was pursuing opportunities in Ho Chi Minh City and Hanoi.

CIMB Research said share price catalysts include more value-enhancing landbank acquisitions domestically and overseas as well as conclusion of en bloc commercial sales and potential further en bloc sales.

Mah Sing rose one sen to RM1.51 at the close of yesterday’s trading.

By The EDGE Malaysia

German fund to invest more in Asia

HONG KONG: German fund manager Union Investment Real Estate plans to invest up to four billion euros (US$6.21bil) in Asia over five years, hoping its drive for diversification will also give returns an extra kick.

German open-ended property funds, including those run by Union Investment, have been busy snapping up property abroad since a redemptions crisis forced them to sell many assets in their home market in 2005 and early 2006.

Union Investment opened an office in Singapore in 2006, and is keen to ramp up its investment in Asia from the current 600 million euros, according to its Asia head, Steffen Wolf.

Globally, the company has around 15 billion euros of assets under management.

“Asia is very much top of our priority list,” Wolf said in a telephone interview from Singapore. “We should be looking at between two and four billion euros over, say, five years.”

A pall was cast over Germany’s entire open-ended property funds industry in 2005 when attempts to correct inflated valuations of assets spurred thousands of investors to try to cash in investments before fund units were re-priced.

Deutsche Bank took the unprecedented step of freezing redemptions in its flagship GrundbesitzInvest fund, and funds managed by Germany’s biggest open-ended fund manager DekaBank were also hit.

But Wolf said Union Investment had seen more money flow into its funds in the last year, despite a global credit crunch that has weakened commercial property prices in several markets, including the United States and Britain.

“Investors are quite aware of our risk and return profile, and are shifting from stocks to safer alternatives – savings accounts, government bonds or property,” he said.

Union Investment’s funds, such as Unilmmo Global and Unilmmo Europa, usually give annual total returns of 46%, while its investments in Asia are giving 56%, according to Wolf.

Despite signs that the Tokyo office market is weakening, Japan tops the company’s list of favourite Asian markets, which also includes South Korea, Singapore and Malaysia.

By Reuters

WCT: No impact from Vietnam in two years

SHAH ALAM: WCT Engineering Bhd does not see its Vietnam operations having any impact on the group at least for the next two years, said chairman Datuk Ahmad Sufian.

It had not budgeted any revenue or cost contribution from the project in the next two years, he said after the company AGM yesterday.

“We have not signed to buy land from any third party, which would have been a risk (with the current turmoil),” executive director Loh Siew Choh said.

Instead, the company would be acquiring land through the government for its Platinum Plaza project there, he said.

While it was negatively affected by high fuel prices, “Vietnam is still a predominantly agricultural economy and with rising food prices the farmers are actually benefiting,” he said.

Building works on Platinum Plaza would begin with the shopping centre in 2010.

WCT has a 67% stake in a maiden joint venture to develop 9ha in Binh Chanh District at the new southern area of Ho Chi Minh City.

Analysts estimate the project, which include retail and entertainment outlets, having a gross development value of US$700mil.

Components of the project include a basement car park with three-storey elevated area, a retail and entertainment centre, and two high-end 22-storey office towers. Total gross floor area is estimated to be 671,960 sq m.

However, Loh said WCT would adjust the construction and investment outlay depending on where the demand was seen headed, possibly reducing the number of floors for the shopping centre.

The project was expected to take three years to build and the shopping mall would be completed by 2013 or 2014, he said adding: “At that time hopefully the downcycle would be over.”

WCT's order book stands at RM5.2bil, of which 70% were overseas projects mainly in the Middle East, said Sufian.

The Dubai racecourse and the Formula 1 track in Abu Dhabi were on track while the shopping centre in Bahrain was near completion, he said.

Deputy managing director Goh Chin Liong said WCT was seeking more projects in the Middle East and exploring North Africa.

“We see that North Africa could be a new growth centre and are now exploring the region.” he said.

By The Star

Gamuda shares rebound to close 5 sen higher

PETALING JAYA: Gamuda Bhd shares staged a rebound from last Friday's 18% decline to close 5 sen higher at RM2.50 yesterday after several analysts said the company's exposure to the Vietnam property market was overblown.

The company, through Gamuda Land Sdn Bhd, is developing the RM8bil Yen So Park, comprising a mix of residential and commercial properties on 808 acres in return for constructing a sewage treatment plant and other infrastructure works.

The stock saw 17 “buy” recommendations compared with four “holds” and three “sells”, according to Bloomberg data.

CIMB Research, which has maintained an “outperform” on the stock, said in a report that based on its current worst-case scenario where the RM3.9bil value of the Yen So Park land was stripped out and assuming zero contributions from the double-tracking project to construction profits as well as a lower construction price-to-earnings of eight times instead of 13.5 times, the revised net asset value (RNAV) would drop to RM2.78 based on a higher 30% discount to RNAV instead of 20%.

Analyst Sharizan Rosely said net earnings forecast for the next two financial years would drop by 26% to 30% if Vietnam contributions were removed.

“In view of the cautious economic environment in Vietnam, we're now cutting our revenue forecasts for Yen So,” he said, adding that revenue would be cut for the next two financial years to RM250mil from RM800mil and RM400mil from RM800mil. Gamuda's financial year ends July 31.

Sharizan said this would see earnings forecasts cut by 17% to 20% for the next two financial years.

“Although the conditions of Vietnam's economy are a concern of late, we think it is more worrying for property developers that have planned new launches in the next nine to 12 months,” he said.

Sharizan added that cost inflation and higher borrowing costs had dented affordability and demand over the past six months based on the guided 10% drop in property prices.

“However, we take comfort in knowing that it will take at least 12 months before Gamuda starts selling the commercial and residential units in the market,” he said.

Meanwhile, the share prices of two other developers exposed to the Vietnam property market, SP Setia Bhd and Berjaya Land Bhd, were down 20 sen and 24 sen, to RM3.94 and RM4.86, respectively.

By The Star (by Fintan Ng)

OSK confident Crest Builder will meet FY08 earnings forecast

CREST Builder Holdings Bhd that reported poor 1QFY08 results due to the nature of a weak first quarter compared to the rest of the year would be able to make up and meet the expected FY08 earnings, said OSK Research.

The research house maintained its buy recommendation on the stock at RM1.01 with a target price of RM1.80 on the back of good inflow of new projects.

Crest Builder on Monday announced it had secured a RM165.9 million contract from Panareno Sdn Bhd to construct a serviced apartment in Bukit Damansara, Kuala Lumpur.

The project, expected to begin in the third quarter this year, would be added to the company’s current order book of RM1.2 billion.

“We estimate around 20% or RM33 million of the revenue from this project to be added to the company’s current FY08 total revenue of RM480 million.

“So far, there are two other projects secured in 2008, namely the condominium development at Jalan Ceylon, Kuala Lumpur, and the phase 4A construction of a 40-storey condominium,” it said, adding that all three latest projects were expected to be completed in 2010.

The research house said since the new order book replenishment from possible new projects in FY08 had already been included in previous estimates after the 1Q results, it was maintaining its FY08 earnings forecasts.

“Most of the impact in the contracts secured this year will be seen in FY09 and FY10 as the company will be able to gain most of the income from then on,” it said.

OSK Research said over 75% of Crest Builder’s revenue comes from its construction contracts and ongoing projects that historically start to pick up in the second half of the year.

“Construction gross profit margin has been around 8% to 12% since FY05 compared to 15% to 18% margin registered prior to FY05 due to margin squeeze from higher cost of raw materials that could not be passed on.

“However, new projects secured this year have already taken into account the higher price of oil, steel, cement and other construction materials,” it added.

Crest Builder edged up one sen to close at RM1.02 yesterday.

By The EDGE Malaysia

Construction sector feeling more than a pinch

KUALA LUMPUR: The government’s decision to liberalise the building materials industry amid soaring raw material costs came under scrutiny by local construction players in the first Malaysian Construction Summit organised by Master Builders’ Association of Malaysia (MBAM) and Asian Strategic and Leadership Institute (ASLI) here yesterday.

“All our steel bars for local consumption are produced locally, using heavily subsidised energy cost but we are paying the second highest price for steel bars in the region. Many of our members are facing difficulties with the rising costs,” MBAM president Patrick Wong said in his speech.

He told The Edge Financial Daily that the construction sector was facing cost pressure, more so with the recent move to liberalise the building material sectors, namely steel and cement, key components for the industry.

“We cannot lock in the prices of our raw materials when we are bidding for projects as there are insufficient supplies of raw materials for us to do so. The only way is for us to reduce the number of bidding for projects so as not to be caught by the spiralling prices,” he added.

IJM Corporation Bhd managing director and chief executive officer Datuk Krishnan Tan said in his speech that the industry was facing a tough time, with the shortage of skilled manpower due to a construction boom in the region stunting the growth of the local industry.

Some major players still managed to rake in higher profits despite the difficult situation, based on the quarterly financial results announced recently.

Malaysian Resources Corporation Bhd, for example, posted a net profit of RM14.7 million in the first quarter ended March 31, 2008 (1QFY08), versus RM12.8 million a year earlier, though revenue dropped to RM177.1 million from RM276.8 million.

UEM Builders Bhd’s net profit was up at RM29.2 million versus RM17.1 million, although revenue fell from RM714 million to RM596 million.

Putrajaya Perdana Bhd, which secured a RM180.5 million construction and maintenance contract for wharf structures in Port of Tanjung Pelepas (PTP) recently, posted a net profit of RM5.28 million on revenue of RM150.6 million in the first quarter.

Some recent major infrastructure projects announced by the government could help to revive some of the companies in the sector, according to ECM Libra Investment Research.

Loh & Loh Corp Bhd and IJM Corp are expected to benefit from the RM3.4 billion Seremban-Gemas railway double-tracking project with subcontracts worth RM490.1 million and RM273 million, respectively.

Loh & Loh closed unchanged yesterday at RM4.58, IJM was down 25 sen at RM5.40 while MRCB fell two sen to RM1.30. UEM Builder was down one sen to RM1.29.

By The EDGE Malaysia - The Edge Financial Daily - (by Tony C.H.Goh)

MBSB upbeat on 25% growth

KUALA LUMPUR: Malaysia Building Society Bhd (MBSB) is optimistic of achieving its internal target of at least 25% growth in its loans base this year, according to chief executive officer Ahmad Farid Omar.

Ahmad Farid Omar

This, together with a 15% revenue growth and maintaining a minimum return on equity of 7% formed the financier’s headline key performance indicators for the fiscal year ending Dec 31, 2008, which were filed with Bursa Malaysia.

Farid noted that MBSB’s share of the loans market was about 2%, which provided much room for improvement.

The financier’s niche lay in offering competitive loans for low medium to mid-cost residential properties, he said after the company AGM yesterday.

These properties are “sellable” as they cost less than RM500,000.

Furthermore, MBSB plans to enlarge the personal loan portfolio given its attractive margins. On average, it is approving about RM20mil worth of personal loans every month.

The financier had tied up with the National Heart Institute and Universiti Kebangsaan Malaysia Hospital to offer MBSB Assist, a special medical product, Farid noted.

It has also introduced a contract financing product to help small and medium businesses and revisited its bancassurance products.

MBSB would add by year-end seven new branches nationwide to the existing 27 outlets to reach out to more customers, Farid said.

On the entry of a foreign shareholder in MBSB, Farid said shareholders were informed during the AGM that a due diligence was currently under way.

However, no further details were provided, he said.

There were earlier reports that the Employees Provident Fund, which holds 54% of MBSB, was in talks with a party from the Middle East.

By The Star

Master builders ask for removal of 10% cement import levy

KUALA LUMPUR: While the government’s lifting of the ceiling prices of cement was welcomed by analysts and cement producers, the construction industry has called for the removal of the 10% levy imposed on imported cement.

Master Builders’ Association of Malaysia (MBAM) president Patrick Wong said the levy could only mean higher costs for the construction industry.

“This 10% tax does not make sense, as it contradicts the Asean Free Trade Area (Afta) rule, where cement will only be taxed at 5% and 0% come 2010,” he said, adding that it was only viable to import cement from Asean countries for logistical reason.

“Portland cement, which is no longer under price control, makes up the bulk of cement used in the local construction industry, hence the removal of the levy would help reduce our costs. This is unlike the liberalisation of the steel industry which does cover many categories of steel,” Wong said.

Research houses ECM Libra and Hong Leong Research were positive about the government’s move, saying it would alleviate the manufacturers’ cost pressure.

ECM Libra has upgraded the building materials sector to “overweight”, with two biggest listed cement producers Lafarge Malayan Cement Bhd and YTL Cement Bhd its top picks.

The prices of coal and paper bags, key cost components in cement production, had increased by more than 50% and 25%, respectively, since December 2006, ECM Libra said in a research note.

Share prices of cement manufacturers on Bursa Malaysia were buoyed by the ceiling price removal.

At the close of trade yesterday, Lafarge Malayan Cement Bhd was up 20 sen to RM4.54, YTL Cement Bhd added 10 sen to RM4.80, while Cement Industries of Malaysia Bhd (CIMB) ended unchanged at RM5.80.

By The EDGE Malaysia

Builders want cement export tax

AN INDUSTRY body wants the government to slap an export tax of up to 20 per cent for cement to ensure adequate supply in the local market.

The construction industry faces higher cement prices as well as an acute cement shortage, Masters Builders Association Malaysia (MBAM) said in a statement.

Removing the ceiling price will not sustain cement supply as cement manufacturers can still export their products overseas, MBAM president Patrick Wong said.

"MBAM strongly urges the government to also curb the exportation of clinker as this is also an important ingredient to produce cement," Wong added.

MBAM and The Real Estate and Housing Developers Association (Rehda) also suggested that the government consider abolishing the 10 per cent import duty on cement.

"The rationale is that, if contractors were to import, they have to consider other expenses such as handling or transportation and shipping charges which still add to the cost of materials," Wong said.

Rehda said the move is counter-productive.

"The move will result in increasing cement prices by local manufacturers," president Ng Seing Liong said in a separate statement.

By New Straits Times

Steel millers may face windfall tax

STEEL millers may face a windfall tax if steel bars sold in Malaysia continues to be more expensive than in neighbouring countries.

"Our neighbour Singapore does not produce its own steel bars and yet it can source this commodity at cheaper prices. We will take Singapore as a benchmark for international pricing for steel bars," Domestic Trade and Consumers Affairs Minister Datuk Shahrir Abdul Samad said.

Two weeks ago, he had proposed for a windfall tax on industries that make supernormal returns and are insulated from inflation.

The government can carry this out using The Windfall Profit Levy Act 1998, which is usually carried out annually by the Inland Revenue Board.

Despite the liberalisation of the steel bar and billet market on May 12, prices are still higher at around RM4,000 a tonne. In contrast, steel bars go for around RM3,679 per tonne in Singapore.

To a request by Master Builders Association of Malaysia (MBAM) to waive the need to apply for storage permit for steel bar imports, Shahrir replied: "Since the lifting of price controls on steel bars and cement, I acknowledged there were imperfections and we may have overlooked on certain procedures. I will get my officers to remedy this situation starting today."

Following the government's move to liberalise the steel bar and billet market from May 12, MBAM president Patrick Wong said steel millers continue to benefit at the expense of the construction industry.

"Only two types of steel bars classified under HS Code 7214 were liberalised.

"How about all seven steel bar variants under HS Code 7214 and all four wire rods under HS Code 7213?" Wong asked.

By New Straits Times (by Ooi Tee Ching)