Saturday, December 25, 2010

How much is a Reit worth?

Business Times - 25 Dec 2010

How much is a Reit worth?
We look at the determining factors and valuation measures for a Reit, but bear in mind that valuing a Reit is far more art than science. By Bobby Jayaraman DONALD Trump started off in real estate developing residences in Manhattan in the 1970s when New York was on the brink of bankruptcy. Li Ka Shing scooped up property dirt cheap during the 1967 riots in Hong Kong. The late Ng Teng Fong of Far East Organization was the king of Orchard Road in the 1980s.

All these tycoons made fortunes when the value of their investments grew multiple times. However, it is unlikely they invested on the basis of a valuation from a property consultancy! So what is it that drives growth in asset values? And is it possible to value assets accurately?

The noted economist John Maynard Keynes was thought to have observed that it is better to be vaguely right than precisely wrong. Investors would do well to keep this in mind when reading reports by analysts and valuers. Their neat Excel spreadsheets make it appear that valuing a Reit (or real estate investment trust) is a perfect science. In reality, it is far more art than science.

Following are the common measures of valuing a Reit:
 Discounted cash flow: A discounted cash flow (DCF) analysis assumes a certain rate of growth in cash flows over a certain period. This is then discounted back to their present value at an appropriate interest rate that reflects the weighted average cost of capital (WACC) of the Reit.

 Book value: This method attributes a certain discount or premium to a Reit's book value (book value or revised net asset value is the latest valuation of all the properties owned by the Reit minus its liabilities).

 Cap rate or yield: The annual net property income (NPI) is capitalised at a certain yield thought to be appropriate for the Reit.

While all the above methods are intellectually correct, they are not of much use to an investor if the fundamentals behind the assumptions are not clearly understood. I believe it is far more important to understand the factors that drive valuations rather than obsessing about precise values churned out by financial models. The long-term value of a Reit is driven by the following fundamental factors:
 Potential for capital value growth
 Sustainability and growth of rental income from the properties
 Capital structure of the Reit and the calibre of its managers

Let's delve into each of these factors in greater detail.

Capital values
Let's say you bought some units in CapitaMall Trust (CMT) and are wondering whether the asset values will keep appreciating the way they have mostly done since the Reit was listed in 2002.

If the Reit's assets appreciate in value, that would increase CMT's book value and thus its unit price. The question then is what factors would make CMT's portfolio of suburban malls worth more in the next 10 years.

There are several factors that need to be in place for the malls to appreciate in value. A key factor is whether the trend of suburban shopping will continue since this is what has driven strong demand from retailers for mall space. It was the high occupancies and rentals at suburban malls that drove up capital values in the past decade.

Is it likely that this trend would diminish in the years to come? No one can answer this with certainty, so the investor needs to form his own opinion.

On the supply side, the investor would need to form a view on the potential for new supply and the government policy regarding releasing land for malls in the suburbs.

This question can be answered with a good degree of conviction if an investor does his homework, ie, studying the potential land marked for commercial development in the suburbs, and history and pattern of commercial land released in the past. Were there cases of over-supply in the suburbs in the past? If so, what led to it? Was the catchment area not large enough? Can this happen in the future?

Another factor is replacement cost. Can a new mall be built in the future at a cheaper rate? Unlike the high-tech industry where new technology has historically led to lower costs for components and gadgets, real estate is a fairly staid industry where construction costs usually trend upwards, driven by the increasing cost of labour and materials. So the cost element is unlikely to lead to big surprises in the future.

This is not an exhaustive list and there might be several other factors depending on the specific Reit. However, the general principle is the same: Understand the factors that lead to capital appreciation and you will gain good insight into the valuation of a Reit.

It also makes sense for an investor to keep tabs on transacted values of properties not only in Singapore but globally at different stages of the economic cycle. When comparing valuations keep in mind that the specific nature of the transaction - whether a competitive bid or a forced sale, etc - will have a major impact on the transacted values.

Rental income
Many investors own property for its ability to generate steady income whatever the economic cycle. The ability of the property to attract tenants is directly linked to its valuation.
The capitalisation rate (or cap rate) is the annual net operating income divided by the capital cost. The cap rate denotes the income-generating ability of the property. It depends on: a) the risk-free rate which, for Singapore, is the 10-year SGD bond; b) the risk premium investors assign to real estate, which is heavily influenced by macro conditions and the prevailing market sentiment; and c) the income growth that investors hope to achieve through real estate.

The cap rate can thus be depicted as (a+b)-c. The trouble with this formula, as you might have already guessed, is that both risk premium for real estate and income growth potential are highly subjective and can change by the day.

In the early 1980s, when the US was suffering from high inflation, the cap rate of 8-8.5 per cent was even lower than the 10-year US government bond rate of 10-12 per cent as investors anticipated strong capital gains due to continued inflation.

In contrast, cap rates in 2009 had moved up to about 10 per cent even in a sub-one per cent interest rate environment reflecting the high risk premium that investors were placing on real estate. This illustrates the highly cyclical nature of cap rates.

The average cap rate in the US historically has been around 7.5 per cent and the average spread over the 10-year bond has been around 250 basis points. In Singapore, the 10-year bond yield over the past decade has been about 3 per cent and cap rates have been in the 5-6 per cent range.

These benchmarks are important to keep in mind. If you are buying a high- quality asset at cap rates of 5-6 per cent it is a fair bet that you are not paying too much. What if you are buying at a 3 per cent yield? In this case, you are banking on income growth which is much riskier.

Calculating cap rates using next year's NPI only works if the rentals are sustainable, so an investor needs to understand the factors that drive the sustainability of rentals. This assessment requires a good sense of supply and demand for the type of property that a Reit owns as well as an understanding of global benchmarks and trends in the particular sector.

For example, office rentals of around $6 per sq ft per month (psf pm) in 2009 made Singapore the 24th most expensive office location globally (as per Colliers second-half 2009 survey of 154 cities globally) while Hong Kong was the most expensive.

Given that Singapore is a major Asian financial centre, this certainly made the city very competitive and one could have made a reasonable assumption that office rentals of $6 psf are sustainable (if not close to bottoming out).

In the case of retail Reits, occupancy costs (rental costs divided by sales turnover) are also a good indicator of sustainability. A good level is around 12-15 per cent, and the lower it is the better.

Similarly in the hotel sector, Singapore's current deluxe hotel rates of US$150-US$170 a night compare well with those in other global cities and a healthy increase from current levels looks to be quite sustainable.

One mistake investors should avoid is to blindly extrapolate current rentals into the future. For example, rentals for Orchard Road malls peaked in 1990 at $60 psf pm. Twenty years on, despite strong GDP growth, rentals today are around the $30-$35 psf level!

The main reasons for this were the emergence of suburban malls and slow growth in tourist spending. This underscores my point: Focus on the fundamentals and trends and not on predicting precise numbers.

Reit capital structure and management
Asset values and rental growth can be quantified and directly impact a Reit's valuation. However, that does not mean one should ignore qualitative factors just because they cannot be put in a financial model.

Keep in mind that a Reit is not just a collection of physical assets but is operated by managers. It is precisely the ability of management to add value to the assets that makes the Reit model attractive.

Three qualitative factors in particular are important in valuing a Reit:
 Leverage and interest coverage: We discussed this in an earlier article, so all I will say here is that one should tread carefully if a Reit has low interest coverage as it can easily run into trouble if rentals drop. An investor should be convinced that rents are sustainable before committing to such a Reit.

 Ability to raise financing: Reits that can raise financing from a variety of sources deserve a premium, as you can sleep peacefully knowing that banks and investors believe in the Reit.

 Management calibre: If the management is able to consistently increase values through asset enhancement, prudently acquire assets, and consistently deliver growth in distribution per unit (DPU) without taking undue risks, then it also deserves a premium.
What about acquisition-led growth? Doesn't that also deserve a premium? Yes, a truly yield-accretive acquisition is a big positive, but my advice to investors is not to pay for this beforehand.

Don't buy a Reit which has already priced in acquisition-driven growth. This is one of the most frequent causes of disappointment as growth through acquisitions is the most risky route and only works during depressed times.

A particularly risky time for acquisitions is the current period where interest rates are abnormally low. This tempts many Reit managers to borrow cheaply to acquire. However, the 'yield accretion' in such cases comes from low interest rates rather than attractively priced assets. As such, the accretion will likely disappear with the next refinancing.
To conclude, there is no single formula or model where you can plug in all the variables and get a precise valuation. One needs to understand a variety of factors to get a sense of a Reit's valuation.

 This article first appeared in the December 2010 issue of Pulses,4582,419032,00.html?

Aviation boom in Asia

Saturday December 25, 2010
Aviation boom in Asia

THE bout of wintry weather has thousands of travellers stranded in Europe. Hundreds of flights have been cancelled and this is the second time this year travellers to Europe had to spend countless hours in terminal buildings instead of holidaying.

The blizzards are not likely to stop and it may well continue into January. In April, the enormous ash cloud from an Icelandic volcano caused the biggest flight disruption since 9/11 as it drifted over northern Europe. Travellers were stranded on six continents.

While Europe struggles, emerging markets such as Asia, the Middle East and Latin America prosper. Last year Asia charted a major milestone in air travel when it became the most profitable region in the airline world. That was because of the strong economic growth. Asia will again lead the way next year as its economies are booming and rising wealth is pushing air travel up.

AirAsia X CEO Azran Osman-Rani does not doubt the long-term fundamentals of the airline sector and predicts that it will be strong.

It is no wonder that the once struggling US carriers want to be back on the scene. Last week, Delta Airlines ranked the worlds No. 1 by passenger miles flown said it wanted to tap into the Asian market by mounting flights to Haneda and Shanghai initially. Hawaiian Airlines is already on the radar screen. The US carriers want to boost available seat per week to Asia by 14% between the 3Q10 and 3Q11.

Even within Asia, the carriers are intensifying efforts to grow intra-Asian routes. In India, Jet Airways wants to resume flights to Shanghai and later scale new heights by flying to Tokyo, Seoul, and Taipei. It is all about positioning and strengthening at this juncture.

The attraction
Clearly, China will lead growth in Asia and its domestic market is booming, says Malaysia Airlines managing director Tengku Datuk Seri Azmil Zahruddin.

Asia is where the action is and we are fortunate to be in Asia. The recovery from the downturn has been strongest in Asia but it is not immune to challenges, he adds.

Asia is essentially home to the worlds three most populous nations India, China and Indonesia where four billion people live and this represents 62% of the worlds population. The Asia-Pacific region generates about 27% of the worlds GDP and rising wealth continues to drive air travel.

There are 600 million passengers in Asia Pacific, of which about 400 million travel within the region and about 200 million take to the international skies, annually. Just for November, the Association of Asia Pacific Airlines says Asia-Pacific carriers flew 15.5 million international passengers, reflecting a 10.7% rise from a year ago.

The number of passengers travelling in premium seats first and business class was 10.9% higher in October than a year earlier, the International Air Transport Association (IATA) said.

The percentage of people flying in Asia is higher compared to the United States and Europe. Asia is made for aviation as road infrastructure is poor and land area is huge. The growth of aviation will be vibrant in Asia in 2011, says AirAsia group CEO Datuk Seri Tony Fernandes.

Air travel moves in a 5-6 year cycle and it is currently in its fourth cycle. The first cycle began in 1979 and the fourth in 2008. During each cycle there is the boom and bust period.

History suggests that the strongest growth period occurs in the 4th to 5th year after a crisis and 2011 will be the 4th year of the current wave, Maybank Investment says in a report. It says load factor in the region is in the 70% range.

The cycle began during the downturn and the recovery has been strong with most airlines in Asia having reinstated the capacity they took off in 2008 and 2009.

However, IATA says that after the 2010 bounce-back, flattening yields, slowing revenue growth and rising oil prices could cap profit growth for all airlines. IATA expects the global air industry to post net profits of US$9.1bil for 2011, which is lower than its US$15.1bil projections for 2010. Of the US$15.1bil, IATA says Asia-Pacific carriers will be the star performers, contributing US$7.7bil to global profit.

The industry has recovered after a tough year in 2009. I am optimistic about 2011 but it will not be without challenges. Both MAS and Firefly are well-positioned to take advantage of the growth domestically and regionally, says Azmil.

The low-cost factor
A major change in travel was brought about by the low cost carriers (LCCs). Had they not mushroomed, travellers in Asia would still be paying premium prices and even with higher disposal incomes, only a portion of the market would have taken to the skies. Booming economies helped but the arrival of LCCs accentuated the growth in air travel in Asia.

Now the LCCs are winning market share. They also did that during the downturn when the full service carriers (FSCs) had to shrink their networks.

Expect more LCCs to emerge as Asian economies grow as FSCs see the need to also have a finger in the LCC segment. Qantas has a unit in JetStar, Singapore Airlines has Tiger Airways, there are more than half a dozen in India and China each. Thai International Airways will launch Thai Tiger next year and Garuda is toying with the idea even though the number of LCCs in Indonesia is huge.

Indonesia now is the worlds 12th biggest domestic market and the market is set to grow 60% by 2015, says Centre for Asia Pacific Aviation (CAPA).

Tiger also recently teamed up with SEAir in the Philippines and AirAsia is setting up a hub there.

Singapore is next. The people want us to have a hub there and we will do it, Fernandes says.

MAS is unleashing Firefly into the LCC market. Firefly will use jets for the LCC operations from KL International Airport (KLIA). It should enter the Asean region no later than 2012.

Firefly managing director Datuk Eddy Leong says legacy carriers are forced to respond to the growth using different vehicles and the creation of Firefly low cost is a clear example of that.

We are entering the low cost market at the right time and our entry will change the landscape. Competition will certainly increase. To us the market is healthy and travellers know the product they want, Leong says. He adds that the turboprop operations will remain intact.

Fernandes thinks MAS is making a big mistake by fielding Firefly in the LCC market.

It will be a disaster. I will be very concerned and believe MAS is losing focus yet again. Since I have been in the aviation sector they have had three equity injections and the shareholders should take a hard look at the business model again, Fernandes says.

But Azmil is unperturbed and so sure Firefly will succeed.

To Azmil, it is about having a portfolio of products (full service, value and low cost) for the traveller, depending on their needs. If people want a full service product they fly MAS, and for those where price is a factor, they now have a choice with Firefly.

Networks galore
Branching to the LCC segment for full services carriers is an extension of their business. They need a presence in that robust market. But all airlines, be it LCCs or FSCs, will expand their networks next year by adding new routes and frequencies in Asia to tap growth that is expected to be exceptionally good.

Maybank Investment expects a total of 1,370 airplanes to be delivered and Asia will lead in the deliveries. That adds 6%-8% new capacity to the global system. Malaysia will take delivery of 19 new aircraft, which adds nearly 3,000 new seats representing 8%-10% new capacity in the local market.

We see different types of growth (patterns). We are well-positioned to take advantage of the growth in Asia. Our key focus is in Asia but that does not mean we will not go out of Asia, Azmil says.

He has lined up many routes to places like China, India, Australia and South-East Asia. MAS recently added Kota Kinabalu as its domestic hub and the airline will fly to Seoul, Osaka and Perth from there.

Fernandes has many routes mapped for next year. India and China are AirAsias big growth areas. Other players are also into China, which is experiencing a domestic air travel boom.

We are all over and we see tremendous growth in our Indonesian and Thai operations. The Philippines will come onstream soon and we will expand to a lot of markets. AirAsia X is also growing from strength to strength, Fernandes says.

AirAsia X focuses on the six core markets of India, South Korea, China, Australia, Japan and the Middle East. It hopes to fly to Sydney and Jeddah next year. It has firm plans to fly to Paris and Christchurch in February and April 2011 respectively.

We want to know where travellers want to go and (that is where we want to fly to), Azran says.

The next gateway
If Asian air travel were to boom, it is also the perfect window for airports to flourish. Ready to ride that wave is KLIA.

For years, Tan Sri Bashir Ahmad and his team at Malaysia Airports Holdings Bhd have been cajoling airlines to fly into KLIA. Today over 55 airlines have made KLIA their home.

A few more will come next year and the possible entrants are Air New Zealand, Indias Kingfisher, Turkish Airlines and Qantas/Jetstar.

If either Qantas or British Airways makes it back to KLIA, it would be a big boost for the airport. It would be a major handicap for international airlines not to fly from KLIA as that is going to be a major gateway in Asia if not Asean, says Maybank Investment,

Today KLIA has the volume of traffic to attract airlines. With the robust growth in the region, both Changi and Bangkoks Suvarnabhumi may not be able to cater for the growth and the outlook of both KLIA and Jakartas Soekarno-Hatta looks very promising.

Today KLIA is the 32nd largest airport in the world. It is third fastest growing with a growth rate of 17.3% for the first nine months of 2010 and is in the 30 million passengers per year category. Shanghai Pudong leads with a growth rate of 29.4%, to be followed by Jakarta with 20.7%.

Globally, Atlanta airport in the United States leads as it handles 87 million passengers a year, followed by Londons Heathrow with 66 million and Beijing 65 million. Singapores Changi handles 37 million passengers a year, Suvarnabhumi 40 million and Jakarta 36 million.

The gainers
Both LCCs and FSCs gain from Asias growth, says Fernandes.

An airline has got to be either one (full service) or the other (LCC), you cannot be both. Many airlines are trying to be both. Those who remain focused will benefit more, such as AirAsia, Cathay Pacific and Singapore Airlines, he adds.

Maybank reckons AirAsia will be a big winner and so does CAPA.

AirAsia has the worlds lowest cost (11.42 sen) producer in available airlines seat kilometre and it is perennially a mouth-watering airline to watch for airports, suppliers and competitor airlines in 2011, CAPA says.

Maybank Investment adds that by virtue of being the biggest in fleet size, widest in network coverage and lowest in unit cost, AirAsia is the primary beneficiary of the air travel up-cycle along with its long-haul unit AirAsia X.

But players like Tiger Airways and Jetstar are also rushing to strengthen their foothold in Asia and so are the FSCs. In Asia, the carriers in China will thrive with the boom in domestic tourism.

Maybank Investment believes MAS has repaired its business as evident by the decreases in its unit cost and its 3Q10 profits was the inflection point.

MAS should generate strong profits going forward, the Maybank Investment reports says.

All airlines will make money so long as they do not over expand, are nimble, oil prices do not go out of whack and most importantly there is no major catastrophe in the air sector.

For financial year 2011, the research house has forecast MAS to earn RM660mil in net profit, but a year later the house reckons MAS will be a different airline with net profits soaring to RM1.6bil.

AirAsia will bring in RM540mil this year, RM665mil next year and RM828mil in 2012, says the report. AirAsia shares have gained much ground of late and yesterday closed 4 sen higher to RM2.57 while MAS shed 7 sen to RM2.07.

The breakthrough
Azran is right to say that competition exits but it will not get intense so long there is no breakthrough unless three airlines or more operate one route. He believes that Asia is a big consumer market and for a leap there needs to be a breakthorugh.

If there is a monopoly, one airline can charge whatever it wants. When a second player enters, the incumbent tries to emulate so as not to rock the boat. They can share the pie together. It takes a third player to set new rules for the game and only then can there be intense competition. It is then when innovation becomes key to the differentiation of services.

For now, real competition is seen on the KL-Melbourne route where three players AirAsia X, Emirates and MAS operate. The KL-Singapore route has become very competitive with four players.

With more disposable incomes, the travellers will move from short haul to medium and long haul, and from low cost to full services, thereby adding more stress to airlines to take passengers more seriously. That is the challenge for all airlines going forward as they try to tap this big growth they all want to be part of.

The pie in Asia is big enough for several more LCCs and FSCs to enter. But one big factor that stops that is the regulatory framework which leans towards protectionism.

The barriers are there and if Asia wants to be the next Europe, then it has to change the rules of the game and it begins with real liberalisation of markets. Or else growth will be there but competition is not going to be intense to drive up quality and innovation.


Friday, December 24, 2010


Created 12/24/2010 - 13:58

























Source URL:

DXN reply to Bursa Query Letter dated 22.12.10

Source:Extract from Bursa Announcement


Contents: We refer to your letter dated 22 December 2010 and as requested, we furnish herewith the following additional information in relation to the announcement made on 21 December 2010 on the above subject matter:

1. DAXEN AGRITECH was incorporated on 24 November 2009 and based on its latest audited accounts as at 31 March 2010, the Net Assets is amounted to Rs9,817,404 (equivalent to RM691,366) and Net Loss is Rs182,596 (equivalent to RM12,859) respectively.

2. DXN has been presence in India market since 2001 and its Ganoderma products has been granted the certification as Ayurvedic Medicine that was licensed by Food And Drug Authority, India. The acquisition has not resulted into venturing of new business segment but with the intention to utilize the ready available manufacturing facilities and licenses to produce our existing Ganoderma products in India for immediate expansion plan.

3. The purchase consideration has been taken into account of the current year financial performance of DAXEN AGRITECH, as based on its latest unaudited management account as at 30 November 2010, DAXEN AGRITECH has recorded the Net Profit of Rs26,906,870 (equivalent to RM1,894,850) and the Net Assets value of Rs30,196,312 (equivalent to RM2,126,501) respectively.

4. In reply to your question 4 & 5, the rationale of the acquisition is mainly to manufacture DXN existing Ganoderma products and DXN has no intention to venture into other ayurvedic medicine.

This announcement is dated 23 December 2010.

Query Letter content:
We refer to your Company's announcements dated 17 December 2010, in respect of the aforesaid matter.

In this connection, kindly furnish Bursa Malaysia Securities Berhad ("Bursa Securities") with the following additional information for public release:-

Net Assets and Net Profit of Daxen Agritech based on the latest audited accounts;

To provide further elaboration on the description of the medicine and its usage;

Basis and justification in arriving at the purchase consideration of RM2.5million other than willing-buyer willing-seller basis;

Rationale and benefits for your Company to venture into the ayurvedic medicine and whether there is any synergy with the existing business of your Company; and

Prospects of ayurvedic medicine in which Daxen Agritech is involved in.

Please furnish Bursa Securities with your reply within one (1) market day from the date hereof.

Services sector to boost growth next year

Services sector to boost growth next year
IRs to drive retail and F&B, while financial firms will ride on wealth management, investment banking: Analysts

by Julie Quek
05:55 AM Dec 24, 2010
SINGAPORE - The growth baton is expected to pass from manufacturing to services next year, as the two integrated resorts add new features to attract more tourists and as financial services companies hire aggressively to tap new opportunities in wealth management and investment banking.

This year's "double-digit growth in manufacturing" has set the stage for "some moderation" next year, says Ms Selena Ling, head of treasury research and strategy at OCBC. "So the focus will turn to services," she says.

Services that had slumped badly last year - such as financial services and insurance; real estate, rental and leasing; and transportation and storage - posted healthy growth rates this year, according to an official business receipts index.

Estimates by several economists peg services sector expansion at around 5 per cent for the whole of next year, with the IRs contributing a large chunk of the growth. According to DBS Group economist Irvin Seah, the gaming industry is expected to contribute around $5.2 billion to the economy next year, and about 1.7 percentage points to the overall gross domestic product growth rate, which he estimates at 7 per cent for next year.

The IRs, which opened this year, will expand services next year and will add attractions such as the popular Disney musical, The Lion King, one of the top shows in London's West End. And while tourist inflow next year may fail to match this year's estimated 12 million visitor arrivals, an influx of more high-spending tourists may give a boost to other services here, such as retail and food-and-beverage businesses, analysts said.

"With the integrated resorts doing very well and expected to continue to do very well, tourism-related and retail-related services will, I think, remain quite robust," said Mr Robert Prior-Wandesforde, head of India and South-east Asia economics at Credit Suisse.

Even if some incoming tourists will be deterred by a strong Singapore dollar, a risk highlighted by Mr Prior-Wandesforde, retail businesses here will still get a leg up from Singapore's low unemployment and rising wages.

According to Ms Ling of OCBC, the jobless rate is likely to hover around the 2-per-cent-mark next year, effectively implying full employment for Singapore. Market watchers say this could bode well for consumer spending in Singapore - and in turn, for the retail sector.

"We do expect that these dynamics are going to improve, meaning that we will probably see higher bonuses, and wage adjustments going forward," she said.

A total of 24,100 new jobs here were created in service industries in the third quarter, compared with a loss of about 400 manufacturing jobs, employment statistics show.

Financial services will also register growth next year, analysts say. Investment banking revenue will grow as more Singapore companies, especially property and commodity firms, seek acquisition targets overseas.

And while the prevailing low interest rates are leaving banks in Singapore with fewer opportunities to lend their money profitably, some analysts believe that the ongoing euro zone debt crisis could see global investors move more of their wealth into Asia. This could help to expand the wealth management business in Singapore.

Real estate developers, however, anticipate a decline in business next year, according to the latest surveys, as strong transaction volumes and rising prices this year raise expectations of further Government measures to cool the property market.

The key risk to services industries next year is inflation, analysts said.

"Domestic inflationary pressure is certainly building up from the still booming property market and wage pressure from an increasingly tighter labour market, as well as from hikes in foreign worker levies," Mr Seah of DBS said.

Economists believe that, despite the inflationary risk, Singapore's economy is likely on track to expand about 5 per cent next year. The Government is forecasting GDP to grow between 4 and 6 per cent next year.

Apart from picking up the slack from the manufacturing sector, economists also expect services to "resume its traditional role as a stable and reliable engine of growth for the economy," Mr Seah said.

"The services sector is important for the economy as it accounts for the bulk of the employment in Singapore


Thursday, December 23, 2010

MIDF sets FBMKLCI target at 1,650 in 2011


The FTSE Bursa Malaysia KLCI is expected to trade between 1,475 and 1,650 points next year, representing up to 18 times
its 2011 earnings.

MIDF Research Senior Vice President and Head of Research Department Zulkifli Hamzah said this projection was based on the 10-year average of its monthly high price earnings ratio of 18 times with a corresponding earnings growth of 15.8 per cent.

"We are setting a 12-month base case KLCI target of 1,650 points for 2011 and the index can easily overshoot the target in a liquidity market.

"In such an extreme bullish scenario, the implicit KLCI target is 1,935 points. However, this is not supported by the bottom-up valuation," he said at media briefing on the country's economic outlook for 2011 today.

Based on KLCI's close of 1,506.1 on Nov 21, the target of 1,650 represents a 9.6 per cent upside.

The market barometer is expected to continue its uptrend as long as the United States keeps its interest rate at current levels and oil prices stay below US$110 per barrel.

Zulkifli said there were several short-term factors that would keep sentiments positive for the key index next year.

One factor was MIDF's estimate that Malaysia's gross domestic product would grow 5.3 per cent in 2011. Its previous projection was 5.8 per cent growth.

"This conservative view is driven by the less favourable base effects, unwinding of policy stimulus and more subdued growth in several major export markets.

"However, we believe the economy will not fall into technical recession," Zulkifli said.

He said corporate earnings growth which is expected to accelerate to 15.8 per cent compared to 14 per cent this year with strong growth in banks, plantation and construction sectors, would also be an important factor that would bode well for the index outlook.

Besides, he said, more corporate actions through mergers and acquisitions and more large capital initial public offerings, rally in crude oil and commodity prices, expected foreign buying, more capital-intensive projects of the Economic Transformation Programme, and election factor would also contribute to the sentiments next year.

Zulkifli said the inflow of foreign funds to Malaysian equity was expected increase next year.

FTSE's reclassification of Malaysia as an Advanced Emerging Market effective June 2011 is expected to attract foreign funds tracking FTSE indices which are estimated to be more than US$3 trillion.

"As long as Malaysia continues to make the right moves such as climbing up the FTSE classification ladder, foreign funds will be flowing in.

"And factors that may draw foreign funds next year are commodity rally, continued strength of the ringgit and state and general elections," he said.

As at December 2010, foreign shareholding in Malaysian equity is still low at 21.7 per cent.

"This year, foreign funds came into Malaysia but most went to Malaysian government securities than to equities.

"We expect the shift to take place when the reclassifying comes into effect that will result into foreign investors coming in," Zulkifli said. -- Bernama

OSK: Hai-O Counting on Other Divisions

Target RM1.61 / Previous RM1.61
Price RM2.82
52 week H│L Price (RM) 4.93 2.80
Major Shareholders (%)
Tan Kai Hee 9.62
Akintan SB 7.23
Excellent Communications 5.13

Counting on Other Divisions

At yesterday’s briefing, Hai-O explained that its weak results were mainly due to stagnant net membership growth and the slower-than-expected recovery in member sentiment. The company has embarked on several strategies, including grooming Chinese distributors to sell lower value products, organizing more incentive trips and limiting the quantity new members can purchase, to bolster its MLM business. Management expects sales from other divisions to improve and to be able to reap sales from its technology division in FY11. Maintain SELL.

A weak 1HFY11. To recap, Hai-O’s 1HFY11 revenue and net profit sank 61.8% y-o-y to RM107.4m and 63.9% to RM13.9m respectively, mainly due to: (i) stagnant net membership growth, (ii) the tightening of personal loans approvals by banks, and (iii) the abnormally low sales in September, during which the slower sales during the Ramadhan month were further impacted by weak member sentiment. While gross margin for MLM was flat, EBIT margin dipped 2%-pts y-o-y, mainly due to the RM500k the company donated to charity and the lower new members’ joining fee/members’ renewal fee, as well as lower A&P subsidy income from suppliers. Note that the overhead expenses in the MLM division are somewhat fixed and do not go down proportionately even as sales decline. Management thinks that the company’s results will bottom this year.

More strategies to improve MLM business. To bolster its MLM sales, other than requiring its members to declare the value of products they would be able to sell and introducing new products to reduce its reliance on key products, Hai-O will: (i) groom Chinese distributors to sell lower value products such as health food while its Bumiputera members will sell high value products like water filters and slimming sets, (ii) organize more incentive trips to neighboring countries such as Hong Kong and Australia based on lower sales targets to enable more members to participate in incentive trips, and (iii) limiting the purchase quantity of new members to prevent members from over-buying.

Positive on other divisions. The drop in MLM was partially buffered by wholesaling, retail and manufacturing sales, which recorded better y-o-y sales. Going forward, Hai-O intends to enhance profitability by introducing more in-house brands in its retail division and doubling its manufacturing capacity, which is currently fully utilized. As for its technology division, the trial run at some customers’ manufacturing plants has been smooth and management is guiding for sales contribution to be felt possibly in FY11.

Maintain SELL. We maintain our FY11/12 earnings forecast at RM27.2m and RM32.2m respectively. TP is unchanged at RM1.61. While we believe that its retail, wholesaling and manufacturing sales will continue to grow going forward, we believe recovery on its MLM division would be slow given that this depends very much on the sentiment of its members.

Weak results impacted by limp MLM division. Last Friday, Hai-O released 1HFY11 results that were in line with our expectation. Its 1HFY11 revenue and net profit sagged 61.8% y-o-y to RM107.4m and 63.9% to RM13.9m respectively. Management attributed this mainly to the weak MLM division, which was hurt by: (i) stagnating net members growth/month, (ii) the tightening of personal loans approvals by banks, (iii) paltry sales of water filters, and (iv) the abnormally low sales in September, during which the slower sales during the Ramadhan month was further impacted by weak member sentiment although sales in August and October were up to expectation. While MLM gross margin was flat, EBIT margin dipped 2% pts y-o-y, mainly impacted by the RM500k the company donated to charity, as well as lower new members’ joining fees or member renewal fees, and the lower A&P subsidy income from suppliers. Note that the MLM division’s overhead expenses are somewhat fixed in nature and do not go down proportionately even as sales drop. Management thinks that the results will bottom this year.

Number of registered members to fall. YTD, the MLM division has a total of 150,000 members, but this is expected to fall further by year-end as the number of memberships expiring from the new addition of 5,000/month previously offsets the new monthly additions in the next few months.

Hai-O granted 5-year licence. Regardless of the poor performance since 4QFY10, Hai-O has been granted a 5-year licence and was named “most ethical company’’ by the Domestic Trade, Cooperatives and Consumerism Ministry this year. This shows that the Government recognizes Hai-O’s efforts in “cleaning” up its MLM division and that the company would continue to contribute towards promoting the local MLM industry. To recap, In April 2010, Hai-O decided to implement more stringent membership recruitment rules (such as requiring its members to declare the value of the products they would be able to sell, as well as terminated members found to have engaged in unethical practices) to prevent unhealthy practices such as the stocking up of products among some members, which was in line with the more stringent rules imposed by the relevant authorities.

What are the strategies to revamp MLM?
Grooming Chinese members to sell lower value products. While >90% of Hai-O’s members are bumiputera, the group shifted some of its focus to Chinese distributors and is targeting to achieve at least 10% contribution to its revenue this financial year-end compared to less than 2% a year ago. These Chinese distributors are groomed to sell products such as health food. Hence, while Bumiputera members have easier access to loans to distribute higher value products, the Chinese members will handle products that Bumiputera members are less focused on.

Launching more new products. The group intends to launch more new products to reduce its reliance on key products. Recently, Hai-O launched a Biozone Food Purifer / Detoxifier and has sold more than 300 units since its launch in Oct 2010 as the product was pegged to an incentive scheme. Hai-O is targeting to sell 300-500 sets/month.

Lower sales target for incentives trips; more training. While members would have to achieve higher sales target to qualify for incentive trips as such trips were to countries farther away and hence were more expensive previously, Hai-O is now organizing more budget-oriented incentive trips to closer destinations such as Hong Kong and Australia that come with lower sales targets. This is to attract and motivate new members and make it easier for them to enjoy incentive trips. Other than this, instead of having a grand recognition ceremony for qualified members, the group will allocate the expenses for more training for its qualified members, which was a switch has been well-received by its members.

Limiting new members’ purchase quantity. Since April 2010, Hai-O has capped the buying quantity of new members to avoid overbuying by members just to achieve a higher ranking and earn higher commissions. This measure could address the stocking up of products by members.

How is Indonesia MLM performing? As expected, its MLM operation in Indonesia is making slow progress due to the stiff competition and lower consumer purchasing power in that country. While the group’s focus was in Jakarta previously, Hai-O has set up stockists in Pekan Baru and plans to set up a stockist in Surabaya as there is less competition in these towns. The group has obtained approvals for 6 to 7 products and has recruited 300 members YTD. Hai-O is targeting to break even by end-FY11.

Update on other divisions
Weak 1HFY11 results buffered by the sales from other divisions. The drop in its MLM 1HFY11 sales of 74.1% y-o-y was partially buffered by wholesaling, retail and manufacturing sales, which recorded y-oy sales improvements of 17.1%, 3.9% and 5.4% respectively. Management is positive on all three divisions.

Introducing more in-house products at retail outlets. In 1HFY11, the retail division - which accounts for 18.1% of the sales pie - recorded 3.9% y-o-y sales growth. In fact, this division has been consistently recording positive sales growth since 4QFY10 and management intends to slowly increase the contribution of in-house products to 80% to improve its profitability. Retail EBIT margins grew from 5.1% in FY08, 7.3% in FY09, 9.8% in FY10 and 10.8% in FY11 as the group ramped up the contribution from in-house brands, which currently comprise 50%-60% of retail sales. Hai-O has 66 outlets YTD and 1 more is slated to open in FY11.

Doubling manufacturing capacity. The manufacturing division has also helped provide a buffer to the negative sales impact from MLM, albeit minimal. While this division accounts for <1% of total sales currently due to capacity constraint, we see it contributing more in 2012 onwards as Hai-O plans to spend capex of RM5m on the newly acquired factory. Upon the completion of the new plant in 1QCY12, the company’s manufacturing capacity will double (50% of the capacity will cater to in-house use) and the group will produce over-the-counter (OTC) and food & beverage products apart from just healthcare products. We understand that manufacturing sales are quite resilient given that Hai-O will usually sign at least 1-year contracts with customers and the fact that the products have to be registered together with the name of manufacturer. If the customer changes its manufacturer, products will need to apply for approval again.

Sales from technology division could be felt this year. Hai-O has produced 6 broilers YTD and 5 broilers are on testing stage in potential customers’ manufacturing plants while 1 will be used for demonstration purposes. So far, the testing has been running smooth and sales contribution could be felt as soon as this financial year. The estimated selling price ranges from RM300k to RM500k/unit depending on the size of the broiler. While there is no guidance on the margins, we note that the broiler could fetch high margins as the technology is owned by Hai-O and patents have been filed. The company can also realize some recurring income from the maintenance of the broilers. Hai-O plans to do a demonstration on the broilers in the middle of Jan next year. Note that the heat transfer technology that Hai-O invented could apply to many more applications involving heat transfer and need not be limited to broilers. We have yet to impute the contribution from this division.

Maintain SELL. We maintain our FY11 and FY12 earnings forecasts at RM27.2m and RM32.2m respectively and our TP is unchanged at RM1.61. While we believe that its retail, wholesaling and manufacturing sales will continue to grow going forward, we believe the recovery of Hai-O’s MLM division would be slow given that this business hinges on member sentiment.

RHB: Has Hai-O’s MLM division bottomed out?

Hai-O Enterprise
Share Price : RM2.82
Fair Value : RM1.35
Recom : Underperform (Maintained)

♦ 2QFY11 results review. Aside from being affected by the amendment in the Direct Selling Act (DSA), Hai-O’s MLM division was also affected by the weaker sales during the month of September, which is part Ramadhan and part Hari Raya, resulting in lower Hai-O’s member productivitiy as approximately more than 90% of its members are Malays. However, we understand that sales were abnormally low, even for a Ramadhan month, a lot worse than previous Ramadhan months, which we believe is partially due to the continuation of the downtrend momentum as seen in previous months. MLM sales during the months of August and October were better than September and within management expectatations. In terms of margins, we highlighted in our results note yesterday about the weaker MLM division margins in the 2Q of 13.2% (-6.8%-pt yoy), which we believe was due to the lower sales volume thus causing weaker economies of scale given the recurring fixed costs. Besides this factor, management also attributed the weaker margins to a sales discount given for its corset products of 15% during the period, as well as an incremental cost of roughly RM1m for donations that wasn’t tax allowable.

♦ MLM division bottomed out? We understand that moving forward, the MLM division will be on a better footing after Hai-O’s internal restructuring undertaken in April 2010 as a result of the amendment in DSA. The key restructuring move for its MLM division was a cap on the value of stock that members can purchase without getting a special approval, of RM20k, which will deter members from purchasing large amounts of stock in order to get promoted to Sales Manager (SM) quickly. Once a member gets Sales Manager status (after achieving a minimum RM20k worth of sales), he/she is able to enjoy a higher commission of 21% (vs. a normal 3% starting commission). As a result of this cap, Hai-O’s MLM sales have been on a downtrend due to weaker membership growth and weaker revenue per member. Management believes that 2Q11 represented the bottom for its MLM division and it expects sales to grow from hereon through various new strategies like new incentives for the members, new products, and emphasis on training. Previously, Hai-O’s incentives include yearly trips to various countries around Europe once a member reaches a certain sales target. It is now introducing holiday trips to regional places such as Hong Kong and Australia, with a lower sales target requirement so that more members can achieve the target. Hai-O is also introducing more products such as health food, to reduce dependence on its two core products i.e. the corset and water filter. The corset and water filter are high-ticket items priced at more than RM1k and is not easily sold by members, whereas the health food provides an easier selling platform that new members can start off with. Furthermore, for its new members, it will give more emphasis on sales training, so that the members are able to sell its products more effectively. We understand Hai-O’s CDF is currently numbering at approximately 150k, with an average new member growth rate of 2000/mth, although average dropout among members is roughly the same number, thus resulting in no growth. Management expects that it will have roughly 120-130k members by end- FY11, which is higher than our projected 110k for FY11. Based on our estimates, annualised membership productivity was approximately RM7k/member for 1HFY11, which we believe will be roughly the same for the rest of FY11. We are leaving our CDF assumptions unchanged, although we downgrading our FY11-13 revenue/member assumption by 30% p.a. to be in line with 1HFY11 numbers.

♦ Indonesia MLM not doing so well. Hai-O’s Indonesian venture is currently still loss-making, although management does expect it to breakeven by April 2011 (end-FY11). We understand that it is now focusing on smaller towns such as Pekan Baru and Surabaya where it currently has one stockist each. Hai-O’s initial target market was Jakarta, but Jakarta did not receive Hai-O’s products well as the market was already saturated with similar products, i.e. water filters. We understand that the total CDF in Indonesia is currently ~300 members but only a small number of this are active. The other issue faced by Hai-O in Indonesia was the too high price point of its products which are generally priced at a 10% premium vs. Malaysia to account for transportation costs etc. Given the lower average per capita wage in Indonesia vs. Malaysia, the higher price point did not sit well with potential customers, resulting in the anaemic membership and sales numbers. To combat this, Hai-O has since introduced new products with lower price points to attract members.

♦ Energy division is as planned. Hai-O is currently in the testing and assessment stages of its heat-transfer technology boilers. Currently it has manufactured and installed six boilers, all of which are currently being tested by a few rubber glove factories. We understand that after roughly seven months, the first installed boiler is still doing well at the factory that it has installed in. However, the energy division as a whole is still not expected to contribute to earnings in FY11 due to the long gestation period associated with industrial machinery. Nonetheless, assuming the product does gain commercial acceptance, we understand that it will be priced at approximately RM300k depending on the size, while management was not keen to reveal the kind of margins the boilers will be able to generate. As we are not certain when the boilers will meaningfully contribute

to Hai-O’s earnings, we are not imputing any assumptions with regards to its energy division. However, until the boilers are commercialised, this division is likely to continue recording losses of approximately RM2m per year (1HFY11: ~RM1m), which we are now imputing in our FY11-13 forecast.


♦ The risks include: 1) termination of supply agreements from its suppliers in China; 2) stronger-than-expected strengthening in US$; and 3) weaker-than-expected increase in consumer spending.

Forecast and assumptions

♦ Forecasts. After the changes in our revenue/member assumption, and also after imputing its energy division losses of RM2m, our FY11-13 earnings were reduced by 19.8-22.5% p.a..


♦ Investment case. Although management has indicated that Hai-O’s MLM division has bottomed out, we believe it will take a while for its membership drive to regain momentum and improve in terms of revenues and profitability. After our earnings changes, our fair value is reduced to RM1.35 (from RM1.71 previously) based on unchanged 10x CY11 EPS. Maintain Underperform.


_ MAS has signed a MoU with KLM, which will pave way for potential collaboration such as greater connectivity, better schedules and more choices for customers.

_ We do not expect the MoU to make significant impact to MAS’s bottom-line in FY11 and FY12 as the areas of collaboration are still under preliminary discussion.

_ Revenue contribution from direct flights between Amsterdam and Kuala Lumpur is estimated to contribute less than 1% to MAS’s FY09 revenue. However, Amsterdam
serves as important hub for MAS to connect to other Europe destinations.

_ Positives on the signing of MoU as it will provide economic benefits for both airlines including MAS.

_ Maintain our target price of RM2.27 based on 9x FY12 P/E, to better reflect MAS business recovery by FY12, and account for execution risk of BTP.

HwangDBS: MAS Tying up with KLM

Malaysian Airline System
(RM2.03; Hold; Price Target: RM1.85; MAS MK)
Tying up with KLM
MAS signed a memorandum of understanding (MoU) with Dutch airline KLM. Apart from cost reduction, both airlines are expected to explore possibility of expanding their network, providing more choices and better schedules for customers. The deal could also benefit both parties as Malaysia is known to be an ideal transit point for visitors from Australasia and Europe.

We are positive on this development, if it materializes, as it could help MAS to ride on KLM’s global network and possibly drive cost efficiency. This could strengthen MAS’position in the market in the face of competitive environment. Both airlines are expected to sign a definite agreement soon.

Maintain Hold with RM1.85 TP pegged to 15x CY11F EPS. Though we expect MAS to turnaround next year, we note that its expansion into the domestic and regional
low-cost segment might create downside risk to yields. Furthermore, MAS’ net gearing level is expected to rise over the next two years as some of the new aircraft
would be owned by the Group. This makes it crucial for MAS to deliver consistent earnings to meet its future capital and debt commitments.

Singapore sees 2011 growth slowing to 4-6 percent

Singapore sees 2011 growth slowing to 4-6 percent
Singapore expects economic growth to slow to 4-6 percent next year as US demand weakens
Alex Kennedy, Associated Press, On Thursday 18 November 2010, 15:14 SGT

SINGAPORE (AP) -- Singapore's economic growth will slow sharply next year as U.S. and European demand for the island's exports weakens, the government said Thursday, after reporting an expansion of nearly 11 percent for the third quarter.

Gross domestic product will likely expand between 4 percent and 6 percent in 2011, down from around 15 percent expected for this year, the Trade and Industry Ministry said in a statement.

The ministry warned that the U.S. economy could slip back into recession next year, while debt problems may continue to dog some European countries.

Singapore, with its small population and lack of natural resources, relies on manufacturing, financial services and tourism to drive economic growth. The city-state of 5 million people has benefited this year from a recovery in global demand for its exports and a surge in visitor arrivals.

The ministry said GDP rose 10.6 percent in the July-to-September quarter from a year earlier after surging 19.5 percent in the second quarter, which was the biggest jump since the government began publishing quarterly figures in 1975. The ministry's preliminary report last month said the economy grew 10.3 percent in the third quarter.

Quarter to quarter the economy actually contracted, partly reflecting sharp swings in pharmaceutical production that have whipped around Singapore's manufacturing numbers this year.

Industrial production fell an annualized 54 percent in the third quarter after surging 66 percent in the second and 200 percent in the first.

"Much of the extraordinary volatility reflects huge swings" in the pharmaceutical sector, said Robert Prior-Wandesforde, an economist with Credit Suisse. This instability "is fast becoming Singapore's key weak spot," he said.

At 15 percent, Singapore's economic growth this year would be the highest in Asia and likely the world, Prior-Wandesforde said.

Singapore expects non-oil exports to grow between 6 percent and 8 percent next year, down from a jump of about 24 percent this year, the ministry said.

The central bank, known as the Monetary Authority of Singapore, has twice moved to strengthen the Singapore dollar this year in a bid to contain inflation, which it expects to reach 4 percent by the end of the year.

Strong economic growth next year could convince the MAS to allow a further strengthening of the currency, said Wei Zheng Kit, an economist with Citigroup.

Loose monetary policy will likely offset high jobless rates to keep developed countries growing slowly next year, the ministry said.

"The advanced economies will grow at a steady but relatively slow pace," the ministry said. "The strength of recovery could be restrained by high unemployment and weak household balance sheets."


年关将近,各大公司纷纷开始分发花红,与 辛苦了一年的雇员分享“击退”金融海啸的胜利果 实。













楼市在8月下了一场“及时雨” ,却没能彻底为楼市“消暑”。私宅价格自年初以来就节节攀升,政府在8月底推出自1997年以来最严苛的降温措施,以抑制市场投机活动。

降温措施推出后,市场一度出现观望情绪,尤其年初以来不断攀升的转售组屋溢价中位数ímedian COV.有了回落迹象。今年10月的溢价中位数从第2季的$30,000减少到$25,000,转售组屋交易量也减少了30%。不过上星期出炉的最新数据却显示,11月私宅销量回升,带动今年首11个月私宅销量冲破15,000个单位的大关,并刷新2007年全年14,811个单位的纪录。


卓登新达国际íCh e s t e r t o nSuntec International.研究部主管陈瑞谨说Y“虽然降温措施会影响一些边缘ímargin.买家,明年私宅价格可能不会像今年增长得这么快,不过总体买气还会持续。”



Wednesday, December 22, 2010

延坪岛军演没点燃战火 亚洲股市全面止跌回升




  立花证券(Tachibana Securities Co.)总经理兼策略师平野健一(Kenichi Hirano)表示,全球经济逐步复苏的共识正在形成。全球经济成长推高商品价格,剩余资金正流向商品和股票。




















Ecm: KNM Secures RM2.2bn renewable energy project

KNM Group
(RM2.69 KNMG MK)
BuyTarget Price: RM3.43
Secures RM2.2bn renewable energy project

· News
Yesterday, KNM Group announced that they had entered into a contract for EPCC (engineering, procurement, construction and commissioning) works towards the development of 80MWe gross capacity energy from a biomass and waste recycling centre project. The project is known as “EnergyPark Peterborough” in Peterborough, UK. The project is worth GBP450 (RM2.196bn) and will take 4 years to complete starting next year. The contract was awarded by Peterborough Renewable Energy Limited (PREL). (Bursa)

· Comments
The announcement represents the first major contract the group has received in the renewable energy and clean energy sector and certainly does clock in as the largest lump sum contract KNM has ever received. Looking into PREL’s website, we discover that the company is a young one, formed in 2002 with the sole intention of developing the EnergyPark. Approval for the project by the UK Government was obtained in November 2009 and we presume that the company has been working on obtaining financing for the project since then. While project financiers are not known, we view that the project, having government approvals as well as a designated site, does appear credible.

The contract, split over 4 years means a contribution of roughly RM500m per annum which we believe has already been taken into account in our estimates for now. With this job, KNM’s total orderbook balloons to RM4.6bn. We believe that the group will make sure they are still eligible for tax incentives for this job, similar to the Uzbekistan job, i.e. by undertaking some of the works in Malaysia. Details that remain unknown to us for now include the earnings recognition of the project as well as prospective margins. As such, we make no changes to earnings estimates until we have more clarification from KNM.

We continue to have a BUY on KNM with a TP of RM3.43 which represents FY11 EPS pegging a PE of 15x. We use a 15x PE (which is the market PE) as we believe KNM should at least re-rate to market valuation given the recent revival of job replenishment prospect. We anticipate earnings growth of +37.3% for FY11 and +57.6% for FY12 which will be driven by orderbook recovery.

Peterborough Renewable Energy Limited (PREL)

Peterborough Renewable Energy Limited was established in 2002 in the UK by a group of local business men to realise their passion for managing material in an environmentally friendly manner and to eliminate the need for landfill sites. The vision of the company is to build and operate a sustainable world class renewable energypark that eliminates the need for landfill and turns waste into an asset providing considerable benefits for the community and the environment. The purpose of the Energypark is to take the materials that would normally go to landfill and turn it into either re-useable products or energy for homes. The energypark for Peterborough is behind a power station. Part of the site has been allocated by Peterborough City Council for major waste treatment including waste to energy and renewable energy production. (Source:

HwangDBS: DRB-Hicom VW – A landmark deal

BUY RM1.94
Price Target : 12-Month RM 3.55

VW – A landmark deal

• VW agreement – the next leg of growth

• Growth could be exponential with ASEAN

• High conviction BUY, TP RM3.55 (84% upside)

VW, the next leg of growth DRB-Hicom and VW have entered into a collaboration and license agreement to assemble VW vehicles via CKD packs in Malaysia and Asean.

This will entail an investment of 133.7m Euros by VW and DRB-Hicom. Production will commence with the Passat in 4Q11 at its plant in Pekan, which has ample capacity. Two other models, Jetta and Polo may follow suit. This also entails exclusive sale of these products to VW Malaysia for onwards distribution and the import of VW CBU units implying another layer of profits. This will also be synergistic to its manufacturing and engineering business to meet the required local content (target 40%). We see minimal execution risk as DRB-Hicom’s capabilities is tested being the first assembler of the Mercedes S-Class outside of Germany.

Growth could be exponential. We have not imputed any earnings contribution from VW or factored it into our SOP value. In our view, growth in the medium term could be

exponential when production ramps up to include ASEAN markets. DRB-Hicom will also have the first right of refusal for new VW passenger cars in Malaysia. YTD Oct10 VW unit sales of passenger cars hit 1,501 vs 2009 of 501, a 2.6x increase. Of the YTD Oct10 unit sales, the Passat, Polo and Jetta contribute 348 units or 23% of VW’s unit sales. The best selling Golf accounted for 48% of unit sales. But we understand this is a sacred cow of VW. Earnings delivery for its automotive division has been on the mend as reflected in its 1HFY11 which showed a 3.5 fold increase in profit.

High conviction BUY. Our TP of RM3.55 is based on 20% discount to our SOP value and values the stock at just 1-year forward PE of 11.6x and P/NTA of 1.2x. Valuations remain at bargain levels, trading at 1- year forward PE and P/NTA of 6x and 0.7x respectively

HwangDBS: Gamuda Clinches PDP role

BUY RM3.83
Price Target : 12-month RM 4.90 (Prev RM 4.90)

Clinches PDP role

• 1QFY11 showed no signs of slowing

• MRT gets cabinet nod, JV bags PDP role

• Laggard vis a vis IJM – BUY, TP RM4.90

Expect stronger earnings momentum. 1QFY11 net profit of RM89m (+16% q-o-q, +41% y-o-y) was in line. This reiterates our view that earnings momentum will continue to improve from a gradual lift in construction margins by an average of 1-ppt every quarter and strong local property sales YTD of RM350m (35% of Gamuda’s revised FY11F of RM1bn). Nonetheless, 1QFY11 construction EBIT eased 12% q-o-q with margin a tad lower at 6.6% vs 6.9% in 4QFY10. This was largely from lower progress billing for its double tracking project due to the festive season. However, this was compensated by more robust property earnings (36% q-o-q and higher margins of 20% vs 13% in 4QFY10) backed by unbilled sales of RM760m.

MRT gets cabinet approval, JV clinches PDP role. This is sooner than the earlier timeline of Jan-11. This cements our conviction that the project is scheduled to start works by July-11 and the JV will bag the lucrative RM14bn tunneling project. The first MRT line will run between Sungai Buloh and Kajang through the centre of Kuala

Lumpur. If our PM’s ETP programme which hinges a great deal on the MRT project for growth were to bear fruit, we see little reason that the project will be delayed or tenders opened to foreign competition. While the timeline of itsVietnam launches have disappointed due to a recent change in decree, it is sticking to its FY11 sales guidance of RM700m. Gamuda is now slated to launch its RM6bn Celadon City, HCMC in Feb-11 while Gamuda City, Hanoi will be in April-11.

High conviction BUY, TP of RM4.90. The stock has lagged IJM over the past month as the latter’s gains have been fuelled by the impending merger of its property arm with

MRCB. We expect this to reverse in the run up to the JV clinching the tunneling portion of the MRT. At 1-year forward PE and P/NTA of 18x and 2.0x respectively which are tracking 10-year mean levels, valuations appear inexpensive, in view of the strong newsflow ahead.


2010/12/22 6:03:07 PM
●白文春 资深经济学者


说的是美国第二轮量化宽松政策(QE II)。美国联邦储备局今年11月3日采取新一轮的量化宽松政策,以刺激经济增长及避免美国经济陷入通货紧缩的困境。但此举却也产生了一个很大的疑虑,即这是否为在世界其他地方带来巨大的经济泡沫?

















DXN acquire 100% Daxen Agritech India

Extract from Bursa Announcement
DXN and its wholly owned subsidiary, DXN International Holding Limited (hereinafter called “DIH”) has on 21 December 2010 entered into a Share Sale Agreements ("SSA") with Mr. Mathew Purackal Kuncheria of Purackal Kavalam PO, Alleppey DT, Alleppey, Kerala, India 688506 and Mr. Sunil Kumar Pandarathil Lakshmanan of 182, MP Flats, North Avenue, New Delhi, India 110001 (hereinafter collectively called “the Vendors”) to acquire entire 1,000,000 ordinary shares of Rs10 each respectively (hereinafter collectively called “Sale Shares”), representing of 100% equity interest in Daxen Agritech India Private Limited for a total cash consideration of India Rupee, Rs35,500,000 (equivalent to approximately Ringgit Malaysia, RM2,500,000)

DAXEN AGRITECH (Company No: U01111HP2009PTC031246) is a limited company incorporated in India on the 24th day of November 2009 and has its factory at 120, D.I.C. Industrial Area, Baddi, Solan – 173205, Himachai Pradesh, India. The Company has an authorised and paid up capital of Rs10,000,000 divided into 1,000,000 shares of Rs10 each. DAXEN AGRITECH is principally engaged in manufacturing of ayurvedic medicines which are being sold in India

The purchase consideration of Rs35,500,000 is derived from willing buyer and willing seller basis and shall be satisfied by cash of 30% as deposit upon the execution of this SSA and the remaining of 70% upon the execution of a valid and registrable share transfer documents. There is no liability to be assumed arising from the acquisition. The purchase consideration will be financed from internal generated fund.

Daxen Agritech is located in Himachal Pradesh, the Northern of India, the company has been
granted all the licenses necessary for the manufacturing and selling activities in India. The acquisition will enable DXN to plan for its business expansion activities and expected to contribute positively to the Group’s earning

The intended purpose of the acquisition is to expand the business activities in India and the operation of the business is subject to the risks inherent of the general business risks, these includes, inter-alia the changes in political, economic and industrial conditions

Barring any unforeseen circumstances, the proposed acquisition is expected to be completed by early of March 2011.

The acquisition is subjected to the approvals of Foreign Investment Promotional Board of India.

Tuesday, December 21, 2010

IPC buys third business hotel

Business Times - 22 Dec 2010

IPC buys third business hotel


IPC Corporation has bought a 208-room business hotel in Okayama, Japan for 711 million yen (S$11.2 million).

The company - which is 18.2 per cent owned by Oei Hong Leong - said the purchase was funded by internal resources.

The hotel is leased with a fixed term till end- September 2020 to KK Greens - a hotel operator running more than 50 hotels in Japan under its 'Comfort' brand name.

IPC added that it expects the transaction to have a 'positive contribution to the company for the financial year 2011'. This is IPC's third business hotel purchase in six months.

On June 30, IPC announced the acquisition of two business hotels in Tokyo for 1.866 billion yen.

Formerly a computer products manufacturer, IPC has reinvented itself as a property investment company in recent years.

'We starting divesting our IT and education business in 2001,' said IPC chief executive and chairman Patrick Ngiam. 'The last of these - Thinsoft and the Nanyang Institute of Management - have been sold off.'

In 2008, IPC disposed of its Hong Kong technology subsidiary Thinsoft to Inno Smart Group for HK$86.25 million (S$14.6 million).

Early this year, it sold its 39.9 per cent stake in Nanyang Institute of Management to Chiway International Group for $997,500.

Besides acquiring income-producing properties like business hotels, Mr Ngiam told The Business Times that another revenue stream is from 'buying and selling properties within a short cycle of 8-10 months'. These include distressed and foreclosed residential properties in Japan and the US, as well as property development projects in Tier 2 cities in China.

The company posted $1.3 million in net profit for the third quarter ended Sept 30, against a loss of $1.52 million in 2009.

Revenue also increased to $6.83 million, from $2.28 million a year ago.

'The results show that IPC is on the right track in its realignment and execution,' said Mr Ngiam.

IPC shares closed 4 per cent lower at 12 cents yesterday.,4582,418517,00.html?

DBSV: Maintain view for STI to hit 3438 by 1Q11

The current year-end holiday lull should last for roughly another 2 weeks with the STI range bound between 3125- 3210 before climbing to 3438 by 1Q11.

STI dipped marginally below our stated immediate support of 3155 last week but stayed above the November low of 3125. The dip is likely due to spill over weakness from the Hang Seng Index in recent sessions, which fell below its November low on China policy risk concerns and as US bond yields rebounded. Recall that we had lifted the STI’s immediate support to 3155 from 3125 only last week. Even though the index dipped marginally below 3155 last week, we will not raise the alarm because the earlier support still holds intact. Thus, the STI has outperformed the Hang Seng Index as the former remains above the November lows.

We maintain our view that the local bourse is preparing for a post Christmas rise. We peg a range of 3125 to 3210 over the next 2 weeks before the index heads for 3438 by 1Q11 whereby the risk of a correction will also increase. But, if the STI falls below 3125 from here, than there is downside risk to 3025 in the short-term.

CIMB: What to expect in 2011? Divergent growth, divergent risks

Divergent growth, divergent risks
• Global economic update: Losing momentum in 2H10. After a spectacular rebound in 1H10, the global economy lost momentum in 2H due to the fading fiscal stimulus boost and waning external demand. Most economies in emerging Asia, which is at the forefront of the global rebound, also slowed remarkably in 3Q although growth in China and India is still going strong.

• What to expect in 2011? The second year of global recovery will be marked by four key trends with the Fed’s second wave of quantitative monetary easing (QE) setting the stage. Can the “QE2” deliver faster growth in the US economy? Will the QE, already straining policymakers’ policy tolerance in striking a balance between sustaining domestic demand and managing the inflows of volatile capital, create other distortions in emerging economies?

• Trend #1: A two-speed recovery of mature and emerging economies is becoming more entrenched. Sustained deleveraging, a weak credit multiplier, high unemployment as well as fiscal austerity will limit final demand in mature economies. Asia’s growth, though slower, should be buffered by internal engines as exports take a back seat.

• Trend #2: Resurgence in capital flows to emerging markets. With the US Fed embarking on a new round of easing, much of the fresh liquidity created will be
heading to the emerging markets on the hunt for “carry trade” or higher returns. The policymakers should keep their eyes on volatile capital flows, which may pose a systemic risk if there is a sudden reversal.

• Trend #3: Volatile currencies. The persistent strength of capital inflows is bound to add upward pressure on exchange rates in Asia, forcing the central banks to limit currency appreciation through countervailing measures, including forex intervention, quasi-controls as well as the relaxation of forex administrative measures to moderate the inflows or encourage capital outflows.

• Trend #4: Interest rate normalisation continues. We believe Asia will remain ahead of global monetary tightening cycle as interest rate normalisation will resume in 2Q-3Q 2011 when the recovery becoming more entrenched. For fast-growing emerging economies, more rate tightening moves are imperative to safeguard price and financial stability.

A record Dow in 2011?

Long way from dog days: 2011 might see record Dow
A record Dow in 2011?

An unimaginable thought at market's nadir is now just 1 strong year away
Stan Choe, AP Business Writer, On Saturday 18 December 2010, 5:32 SGT

NEW YORK (AP) -- Could the Dow set a record high next year?

That question would have seemed crazy early last year when fear and panic enveloped the stock market and the Dow Jones industrial average plunged to 6,547 on March 9. Many investors thought it would take a decade or longer to get back to the record of 14,165, set on Oct. 9, 2007.

Now we could be on the verge. The Dow has soared 76 percent the past 21 months, and it would have to climb just 23 percent from Friday's close of 11,492 to set a record.

That's a big jump, but the Dow has risen 23 percent or more six times since 1985, or roughly 1 in 4 years. Two other years, the Dow just missed with a gain of 22.6 percent. Add them and the number becomes eight years out of 25, or roughly 1 in 3.

Many analysts don't expect a 23 percent gain in 2011, but they agree conditions are in place for the rally to continue.

"There are some really compelling reasons out there that say the Dow could approach its highs," says Randy Bateman, chief investment officer for Huntington Asset Advisors. "You've got a fairly rosy scenario, where there isn't a whole lot of competition for stocks."

Corporate bonds provide decent income but lack the potential of stocks to appreciate.

Interest rates on cash investments, such as bank CDs and money market mutual funds, remain in the basement. Meanwhile, corporate earnings keep rising, which makes stocks more appealing. Companies also are sitting on a record amount of cash, giving them leeway to pay bigger dividends, buy their own stock or buy competitors.

The economy could help, too. The Great Recession ended in June of last year, so this economic expansion is only one and a half years old. Expansions since World War II have lasted an average of nearly five years. The Dow doesn't always rise the year a recovery marks its second anniversary. But the last time it did so, in 2003, the Dow jumped 25 percent. This expansion has been fitful so far. If it finally gains traction next year, stocks could do well.

The Dow has already had a good run this year. It's up 10 percent despite serious problems lingering in the economy, including a 9.8 percent unemployment rate and a weak housing market. Part of the reason is that stock investors focus more on what's ahead than what's happening now. They believe the economy will continue to heal next year and companies will keep earning more money. On Friday, investors got the latest sign that the economy is on the mend. The Conference Board's index of leading economic indicators rose last month at the fastest pace since March.

Here's a look at how the Dow made a leap of more than 23 percent six times the past 25 years:
-- 1985. A third straight year of strong economic growth -- GDP grew 4.1 percent -- after a deep recession had ended in November 1982 fueled a 28 percent gain in the Dow. The inflation rate remained stable a fourth straight year, convincing many investors that the inflation monster of the late 1970s had been slain.

-- 1989. Mergers and acquisitions, including takeovers by corporate raiders, helped push the Dow up 27 percent. Kohlberg Kravis Roberts & Co.'s purchase of RJR Nabisco was the largest corporate deal the country had seen. In August, the Dow regained the level it had reached in August 1987, two months before that year's "Black Monday" crash.

-- 1995. The Dow jumped 33 percent as what would become the longest economic expansion in U.S. history powered through its fifth year. And more Americans were putting money into stocks through 401(k) accounts. The number of households owning stocks jumped to 41 percent, up from 37 percent in 1992 and 32 percent in 1989, according to the Federal Reserve.

-- 1996. The Dow rose another 26 percent as the economy continued strong. Stocks gained so much that Federal Reserve Chairman Alan Greenspan asked in a speech in December whether "irrational exuberance has unduly escalated asset values."

-- 1999. Strong corporate profits and excitement about the Internet pushed the Dow up 25 percent. Earnings per share for the companies in the S&P 500 index jumped 28 percent, the strongest growth since 1994.

-- 2003. The Dow rose 25 percent as the economy enjoyed its second year of recovery after the 2001 recession. The Federal Reserve cut short-term interest rates as low as 1 percent to encourage growth.

The two years the Dow rose 22.6 percent were 1986 and 1997. Each followed one of the strong years above as strong economic conditions continued.

Many analysts expect corporate profits will keep rising -- and stock prices with them -- but not at a rate that would send the Dow past 14,000 next year. Bank of America Merrill Lynch, for example, expects earnings per share for the big companies in the Standard & Poor's 500 index to rise 9 percent in 2011 and 6 percent in 2012. It sees the S&P rising 13 percent in 2011 from Friday's close.

"Nothing's impossible, but it's not real probable," says Bob Millen, a portfolio manager of the Jensen Portfolio mutual fund.

Even Huntington's Bateman, who says the Dow could reach a record in 2011, warns stocks may not stay that high for long. Larger government deficits, he says, could drive stock prices lower in 2012 or 2013


Monday, December 20, 2010


Created 12/20/2010 - 18:30

















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ECM: Gamuda Full steam ahead

20 December 2010
Buy / Target Price: RM4.66
1QFY11 : Full steam ahead

• Within expectation
1QFY11 net profit of RM88.5m makes up 22.9% of consensus estimates. Removing a positive contribution of about RM8m from the adoption of IC Interpretation 12, net profit makes up 22.2% of house estimates. We deem the results to be in line as we expect the coming quarters to be stronger.

• Revenue flat, net profit +19.6% y-o-y
1QFY11 revenue was flattish y-o-y, but net profits have increased by 19.6% largely due to improving margins in the construction and property segments as well as higher other income. For the construction segment, margins have doubled to 5.5% from 2.7% in 1QFY10, contributed by Yenso Park infrastructure works and the Electrified Double Tracking (EDTP) project. Outstanding construction order book stands at RM5.5bn, including the Nam Theun 1 project which is pending finalisation. The property segment continued to register strong sales of RM350m in 1QFY11, with Bandar Botanic, Horizon Hills and Jade Hills performing particularly well. Pre-tax profit margins have improved from 14.2% in 1QFY10 to 17.2% in 1QFY11, while unbilled sales have increased to RM760m from RM560m last quarter.

• Gamuda-MMC JV appointed as PDP for MRT project
Apart from being appointed as the PDP, the government has allowed the JV to participate in tendering for the tunnelling portion of the project. However, the group will be up against competition and the award of contract will be based on merit. We expect news flow for the MRT project to intensify in the coming months as it gears towards the targeted commencement of construction in July 2011. Works on the radial line stretching from Sg. Buloh to Kajang will likely commence first.

• Maintain BUY, TP:RM4.66
We revise our estimates upwards by 5.7% to 9.6% over FY11 – FY13, adjusting for the effects of IC Interpretation 12 as well as some minor adjustments following the release of FY10 audited accounts. Our target price is thereby raised to RM4.66 from RM4.41, pegging FY11 EPS to 25x PE (1x std deviation above the 12yr average). With 1) margin expansion, 2) strong likelihood of securing the tunnelling portion of the MRT project, and 3) maiden contributions from its Vietnam property ventures, the group’s FY11 earnings is set to trump its all time high of RM325m in FY08. Our BUY call is maintained.

一周评股 “元月效应”能实现吗?


一周评股 “元月效应”能实现吗?





  路透社报道,McMillan Analysis期权研究部总裁拉里•麦米兰在报告中说:“我肯定,看涨派每天都很开心,市场缓慢地稳步上升。但实际上,紧张情绪正在积聚,股市可能突然大幅下跌,但也可能仅是短暂的调整。”



  若不预期“元月效应”,也可以用QE2(美国的第二轮量化宽松措施)的作用、经济进一步复苏、企业盈利优异甚至是金融星座预测(Capricorn rally,摩羯座涨势),来解释这个海指目标预测。




  Pengana Capital公司墨尔本基金经理斯罗德斯对彭博社说:“市场广泛预期的中国加息行动并未实现,市场如释重负。但随着中国越来越关注通胀削弱长期经济增长问题,这情况可能不会持续太久。”



Warren E. Buffett(沃伦•巴菲特)
Be fearful when others are greedy, and be greedy when others are fearful
别人贪婪时我恐惧, 别人恐惧时我贪婪
投资只需学好两门课: 一,是如何给企业估值,二,是如何看待股市波动
吉姆·罗杰斯(Jim Rogers)

乔治·索罗斯(George Soros)



高估期间, 卖对, 不卖也对, 买是错的。
低估期间, 买对, 不买也是对, 卖是错的。

Tan Teng Boo

There’s no such thing as defensive stocks.Every stock can be defensive depending on what price you pay for it and what value you get,
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