Stockwatch- Synear Food Hldgs: Deutsche Bank up target price from $1.08 to $1.34
2Q results review; target price
raised and reiterate Buy
A stellar set of 2Q06 results - 16% above expectation; Buy
2Q06 net profit surged 83% yoy to Rmb107m and 1H06 net profit of Rmb215m (+46% yoy), easily beat our forecast by 16%. Tax savings, better-than-expected sales and margins were the key contributors for this quarter. Securing more distributors and the launch of higher-margins new products certainly enhance its growth prospects. Target price is raised from S$1.08 to S$1.34. Reiterate Buy.
20% yoy growth in 2Q06 sales
2Q06 and 1H06 sales grew by a reputable 20% yoy and 15% yoy, respectively. The Dragon Boat Festival in 2Q helped to lift the sales of glutinous rice dumpling products, thus raised the overall group’s gross margin from 32.8% in 1Q06 to 33.1% in 2Q06. Synear also appointed 22 new distributors in 1H06, bringing the number of distributors to 486. It currently offers more than 213 product varieties.
Prospect is better than ever
We are now more positive on Synear, following its success in the SGX-listing and the appointment as the exclusive supplier of quick freeze food products to the Beijing 2008 Olympics Games. Growing number of distributors, more new product launches and improving spending power of Chinese bode well for the group.
Valuation/risk
We have raised our NP estimates by 11-14% on the back of higher margins and better sales growth. Our target price is upgraded from $1.08 to S$1.34 following our earnings revision and alignment with recent sector upgrade (15x to 17x).
Maintain Buy rating as upside potential has increased to 33%. Risks: margin compression from rising ingredient costs and outbreak of epidemic diseases.
Stockwatch- Synear Food Hldgs: Interim Net Profit rises 46%
NEWLY-LISTED SYNEAR FOOD’S INTERIM NET PROFIT RISES 46.0% TO
RMB214.8 MILLION
-Interim Net profit rises 46.0% to RMB214.8 million on the back of a 15.0% improvement in Group revenue to RMB1.0 billion
Strong sales for the Group’s glutinous sweet dumpling products and other quick freeze food products
Distributors increase from 454 in 1HFY2005 to 486 in 1HFY2006
-Profit margins improved due to launch of new products and higher sales for other quick freeze food products
1HFY2006 Performance
Group Results (RMB’ million) 1HFY2006 1HFY2005 % Change
Revenue 1,002.0 871.1 +15.0
Gross Profit 329.7 276.0 +19.5
Gross Profit Margin (%) 32.9 31.7 +1.2 % point
Profit Before Tax 269.4 223.0 +20.8
Net Profit 214.8 147.2 +46.0
2QFY2006 Performance
Group Results (RMB’ million) 2QFY2006 2QFY2005 % Change
Revenue 412.6 343.8 +20.0
Gross Profit 136.5 112.5 +21.3
Gross Profit Margin (%) 33.1 32.7 +0.4 % point
Profit Before Tax 107.0 88.9 +20.3
Net Profit 106.9 58.5 +82.7
Singapore, September 22, 2006 – Synear Food Holdings Limited, one of the PRC’s leading quick freeze foods producers, today announced a double-digit growth in its top and bottom lines for the six months ended June 30, 2006 (“1HFY2006”).
The Group registered a 46.0% increase in its net profit to RMB214.8 million for 1HFY2006 on the back of a 15.0% improvement in Group revenue to RMB1.0 billion.
For the three months ended June 30, 2006 (“2QFY2006”), Group revenue rose 20.0% from RMB343.8 million in 2QFY2005 to RMB412.6 million in 2QFY2006. Net profit surged 82.7% from RMB58.5 million in 2QFY2005 to RMB106.9 million in 2QFY2006.
Commenting on the Group’s interim results, Mr Li Wei, Executive Chairman of Synear, said: “We are delighted to deliver a sterling set of financials for our maiden results announcement after the Group’s listing. Our continuous efforts to launch new products and increase the number of distributors have paid off. We are currently on track to expand our production capacity to meet the increased demand for our products. Going forward, we will continue to strengthen our capabilities and focus on growing our business to yield better results that will ultimately enhance shareholders’ value.”
Newly-listed Synear made its debut on the Main Board of the SGX-ST on August 18, 2006. It launched its Initial Public Offer (“IPO”) of 375.0 million shares at an issue price of S$0.54 per share.
Performance ReviewThe Group’s strong 1HFY2006 topline performance was driven by higher sales for all its three main product segments. These increases are attributable mainly to the increase in the number of distributors as well as an increase in demand for the Group’s new products.
Sales of savoury dumpling products increased by 4.5% to RMB393.3 million in 1HFY2006, while sales of glutinous sweet dumpling products rose 12.6% to RMB388.8 million. The Group’s quick freeze food products posted a strong growth in sales, surging 47.2% to RMB219.9 million during the period under review. This was mainly due to the Dragon Boat Festival which took place in 2QFY2006, which boosted the Group’s sales of its glutinous rice dumpling products.
The Group has recently launched new products, which include pan-fried dumpling series) and Shoudatianxia series of savoury dumpling products; Shoudatianxia series of sweet dumplings products; vacuumed-packed glutinous rice dumpling series steamed milk buns, pickled vegetable pork bun and onion flavoured crispy pancake of other quick freeze food products.
Mr Li elaborated: “Our new products are targeted at the mid-to-higher end markets. Demand for these new products in the half-year under review has been encouraging and we plan to focus our marketing efforts on promoting these new products for the rest of the year.”
The Group also expanded its presence in the PRC with the appointment of 32 new distributors, bringing the total number of distributors to 486 as at June 30, 2006. New distributors were appointed to deepen the Group’s market penetration in second tier cities and rural areas in the Hunan Province, Shaanxi Province and Guangxi Province within the PRC.
“We continued to appoint new distributors to expand our distribution channels and strengthen our presence in the second tier and smaller cities in the PRC. This strategy will enable us to broaden our customer base as our products are now available in more geographical areas,” added Mr Li.
Synear’s higher gross profit margin of 32.9% in 1HFY2006 was due to the launch of new products and its change in sales mix leading to higher sales of the Group’s other quick freeze food products, which generally command higher margins. In line with the higher revenue, both selling and distribution expenses as well as administrative expenses have increased 21.5% to RMB49.4 million and 32.4% to RMB10.2 million respectively for the same period.
The Group reported a 46.0% surge in its net profit to RMB214.8 million in 1HFY2006, which was mainly due to lower tax expenses.
OutlookThe Group recently completed the first phase of its production capacity expansion programme. New freezing machinery was installed to increase capacity by 28,800 tons per annum, raising the Group’s total annual production capacity to 316,000 tons as at August 31, 2006. The Group is currently on track for the second phase of its capacity expansion, which is due for completion in October 2006. When completed, its total annual production capacity for its existing plant is expected to increase to 360,000 tons.
In addition, the Group announced in early September 2006 that Synear has been selected by the Beijing Organising Committee for the Games of the XXIX Olympiad (BOCOG) to be the exclusive supplier of quick freeze food products to the Beijing 2008 Olympic Games. The total cost of the sponsorship program is RMB41 million.
Stated Mr Li: “This unique marketing platform will enable us to strengthen our brand visibility and strengthen Synear’s position as a leading brand name in the quick freeze food industry. We are planning to unveil a new marketing and advertising campaign which will incorporate the Olympics logos in our new TV commercials and frozen food packaging materials.”
To penetrate into new markets and reach out to more customers, the Group is also exploring the possibility of setting up production facilities outside Henan Province, which will increase the Group’s annual production capacity by an additional 300,000 metric tonnes. The Group will also continue to expand its distribution network and focus on its product development efforts to broaden its product range.
Stockwatch- Synear Food Hldgs: Zhengzhou Synear Food Co., Ltd becomes the Frozen Dumplings Exclusive Supplier of the Beijing 2008 Olympic Games
(BEIJING, Sept. 4) -- The Beijing Organizing Committee for the Games of the XXIX Olympiad(BOCOG) today announced Zhengzhou Synear Food Joint-Stock Co., Ltd as the Frozen Dumplings Exclusive Supplier of the Beijing 2008 Olympic Games at a joint press conference held in Beijing.
As an exclusive supplier, Zhengzhou Synear Food Co., Ltd will provide funds and frozen dumplings to the Beijing 2008 Olympic Games, BOCOG, the Chinese Olympic committee and the Chinese sports delegation to compete at the Beijing 2008 Olympic Games. The Marketing Director of BOCOG Mrs. Yuan Bin, expressed her congratulations to Synear, saying: The Olympic Games is both a grand sport event and a friend gathering for people around the globe. It is well known that China has a long and rich culture on cuisine. Synear is one of the best selling frozen dumplings producers in China. AS an exclusive supplier, Synear will showcase the charm and taste of Chinese food and bring some of the best Chinese Cuisine to friends from across the world.
Yuan hoped that Synear would take advantage of its status as BOCOG exclusive supplier and reinforce its corporate image and enhance business opportunities. "Synear's effort to get involved in Beijing Olympic Games began just after the success of Beijing's bidding for the 2008 Olympic Games. In order to become a member of the Olympic Family, tremendous preparation has been done within Synear. Some Olympic ideas have been integrated into the company's business operation and are being carried out in R&D, production, management, marketing and all fields. Becoming an exclusive supplier of BOCOG will mark the start of a new era for SYNEAR." said Mr. Wang Peng, the Vice Chairman of Board-Executive of SYNEAR.
Zhengzhou Synear Food Joint-Stock Co.Ltd. is a large company specialized in frozen dumplings production, whose major products is Chinese frozen dumplings including dumpling, sweet dumpling, pyramid-shaped dumplings and bakery.
Since the Beijing 2008 Olympic Marketing Plan was launched on September 1, 2003, 11 enterprises namely Bank of China, China Network, Sinopec, CNPC, China Mobile, Volkswagen(China), adidas, Johnson & Johnson, Air China, PICC P&C and State Grid, have been selected as Beijing 2008 Partners.
The nine Beijing 2008 Sponsors designated to date are UPS, Haier, Budweiser, SOHU, Yili, Tsingtao Beer, Yanjing Beer, BHP Billiton, and Heng Yuan Xiang. The eight Beijing 2008 Exclusive Suppliers announced to date are COFCO Wines & Spirits (Greatwall Wine), Mengna, Beifa, Vantage, YADU, Effem Foods (Beijing), Qianxihe and Synear. And the one Beijing 2008 Supplier selected so far is Crystal CG.
The 11 IOC Worldwide Olympic Partners Coco-Cola, Atos Origin, General Electric, Kodak, Lenovo, Manulife, McDonald's, Omega, Panasonic, Samsung and Visa, will also provide financial, product, technical and service support for the staging and operation of the Beijing 2008 Olympic Games.
Stockwatch- Synear Food Hldgs $0.935
Deutsche Bank report 21 August 2006Preserving the Chinese heritage; Buy dumplingsInitiating with Buy and TP of S$1.08We are initiating coverage of Synear with a Buy rating. Our target price of S$1.08 implies >25% total return potential from its current price of S$0.86. As a manufacturer of quick-freeze food products, Synear aims to preserve the Chinese heritage by promoting products related to traditional themes. Thanks to its brand equity and strategic location in China, Synear believes that it currently holds at least 15% of the PRC’s market share in similar quick-freeze food products.Valuation still looks cheap to us now.
Steady growth underpinned by robust economic developmentSeveral factors have facilitated the availability of quick-freeze food in second-tier cities. We note strong economic growth and rising affluence among Chinese consumers, together with deeper penetration of supermarkets/hypermarkets and increasing ownership of refrigerators. The food processing industry has become an important force in China's national economy, Euromonitor projects the nation’s frozen food consumption to grow >7% pa.
Net profit expected to grow at CAGR of 23%Earnings momentum for Synear should be enhanced by its continual marketing efforts, expanding distribution network and production capability. We expect revenue and earnings for FY05-08 to grow by 15% and 23% CAGR, respectively, led by growth in all product segments. The commencement of tax holidays in April 2006 and Synear’s resilient business model will also empower its balance sheet.
Appetizing upside of >25%Based on the current price of S$0.86, we think Synear looks cheap (implied CY07 PER of 12x) compared with its peers. Our TP of S$1.08 is based on 15x P/E, an average of its peers, which offers 26% upside before dividend yield. Risks to our forecast are mainly rising competition; possibility of epidemic diseases, which affects demand for meat products; and any fluctuations in its raw ingredients cost.
Stockwatch- Rotary Engineering (S'pore) 2 article on Business Times Singapore on 14 September 2006
Article 1- Rotary shines among smaller marine stocksMore brokers are taking notice of this EPC service providers, which has won major contracts at home and hopes to bag some in Mid-East, writes Teh HooiLing.
Article 2- Lessons from the brinkRotary spreads risks by putting bets in many markets, writes Chuang Peck Ming.
If you do not have the 14 September Business Times, leave me your email.
Stockwatch- Rotary Engineering (S'pore), OCBC 4 Aug 2006 report
The best is yet to come
Net profit jumped 5-fold in 1H06. Rotary Engineering (Rotary) booked in 150% YoY jump in revenue to S$202.1m in 1H06, while gross profit rose 81% YoY to S$31.7m. EBIT margin increased 4.5ppt YoY to 10.3% in 1H06, pushing operating profit by 345% YoY higher to S$20.8m. After delivering a consistent 60% net profit CAGR in the FY03-05 period, Rotary's net profit still managed to catapult 395% YoY to S$16.0m in 1H06, beating our estimate of S$14.9m.
Expect a stronger 2H06. Rotary is expected to deliver a stronger 2H06 due to the higher percentage completion recognition for major oil storage terminal projects in Jurong Island. We have raised our FY06 net profit forecast for Rotary by 12.9% to S$37.8m, due to a higher net profit margin estimate of 6.9% (vs. 6.1% previously). Our FY06 revenue projection is relatively unchanged at S$544.1m, supported by the great 267% HoH leap in Rotary's net order book to S$525m as of end June.
More contracts win in 2H06? Oil giant Shell has announced the setting up of its Shell Eastern Petrochemicals Complex on Pulau Bukom last Friday. This project will be kicked off in late 2006 with the construction of the ethylene cracker. In our opinion, given Rotary's illustrious track record on Jurong Island, it is likely to be one of the main contenders for a bite at part of this US$3b project. We note that Rotary is one of the leading providers of engineering, procurement and construction (EPC) and maintenance services on Jurong Island, and is also currently providing maintenance works for Shell's petroleum refinery on Pulau Bukom. Also,
Rotary will almost reach the halfway mark for the S$535m Universal Terminal project by end 2006, which should serve as a good resume on its capability to do mega sized EPC projects.
Significant price upside potential. We have raised our fair value estimate to S$0.88 (vs. S$0.745 previously), which gives a price upside potential of 45%. Our fair value is derived from the similar 2.2x P/B ratio and the switch to FY07 book value (vs. FY06 previously). We believe that this is reasonable due to closer proximity to the Universal Terminal project completion date in FY07, and Rotary's flawless execution of this mega contract year-todate in 2006. The implied forward PERs are 9.4x in FY06 and 11.3x in FY07. On the back of Rotary's proven project execution capability and the strong outlook for Singapore's Chemicals Industry Cluster, we reiterate our BUY rating on Rotary.
Stockwatch- CK Tang, Strong tourist arrivals shd be beneficial to the retail industry......
Strong tourist arrivals shd be beneficial to the retail industry......
http://app.stb.com.sg/asp/new/new03a.asp?id=5703Record highs and strong growth in the tourism sector expected in 2006 Singapore, 31 August 2006 – Singapore’s tourism industry hit record highs this July for monthly visitor arrivals and Average Occupancy Rates. Reviewing its half-year progress, the Singapore Tourism Board projects the industry will see historical highs for annual visitor arrivals compared to last year.
“The first half of 2006 has been very positive for the tourism industry. Each month this year has shown a record number of visitor arrivals over the same months in previous years. The People’s Republic of China, South Korea and the Philippines have consistently shown high visitor arrival growth over the same period last year thanks to successful marketing efforts and attractive carrier deals,” said Mr Lim Neo Chian, Chief Executive and Deputy Chairman of the STB. In July, the tourism industry not only broke the 900,000 barrier, setting a record of 913,000 visitor arrivals, but also saw Average Occupancy Rates reaching a record high of 91% and Average Room Rates increasing by 18.7% over July 2005 to S$160. “Due in part to school holidays and the Great Singapore Sale, July’s figures exceeded all historical monthly records for visitor arrivals in Singapore and Average Occupancy Rates. The higher room and occupancy rates we have enjoyed this year will certainly give confidence to hotel investors who want to develop hotels in Singapore,” said Mr Lim.
The STB set annual targets for 2006 visitor arrivals at 9.4 million and tourism receipts at S$12 billion. The Board is confident the visitor arrival targets will be met, due to potentially higher visitor arrivals in the school holiday months of July, August and December and the Singapore 2006 meetings in September, which include the International Monetary Fund and World Bank Group Boards of Governors Annual Meetings. “From January to June this year we welcomed 4.7 million visitors – this is 11.8% growth over the same period last year. We expect to meet our 2006 visitor arrivals target, and if we do, it will be another historical high for annual visitor arrivals,” said Mr Lim. There were 8.9 million visitor arrivals recorded in 2005 and 8.3 million in 2004. Higher visitor arrivals in the first half of 2006 resulted in higher visitor days – visitor days for January to June 2006 were estimated at 15.7 million, showing an 8.5% increase over the same period last year. Tourism receipts are also higher than last year. They hit S$5.5 billion in the first half of 2006, representing a 5.2% increase over January to June 2005.
Commenting on whether tourism receipts would be on target by the end of 2006, Mr Lim said: “The average length of stay for January to June 2006 was slightly lower than the same period in 2005 and this might pose some challenges to achieving our target for tourism receipts. Much will depend on the second half of the year, which we expect to perform better than the first half. We will likely end the year with higher tourism receipts than last year.” - End -
Stockwatch- Rotary Engineering (S'pore), role in $1 billion underground oil storage cavern at Jurong Island?
I wonder if this is a potential project for Rotary Engineering, any views or insights from all of you out there?
Business Times - 22 Jul 2006
Work To Start Soon On $1b Oil Storage Cavern
Phase 1 will have the capacity to store about 9.2m barrels of crude oil
By Ronnie Lim
ACTUAL deep tunnelling work for an underground oil storage cavern at Jurong Island - estimated to cost $1 billion - is set to start soon. JTC Corporation has just this week called a pre-qualifying tender for design and construction of access shafts and 'start-up galleries' for the first phase of the Jurong Rock Cavern (JRC) project. These will help facilitate actual construction of the JRC proper.
For full article, read the following:
http://app.mfa.gov.sg/pr/read_content.asp?View,4887,
Sector Watch- Lingkaran Trans Kota (KLSE) RM2.77
To read latest The Edge Malaysia articles on Lingkaran Trans Kota, click here:
http://www.theedgedaily.com/cms/search.jsp?query=%22lingkaran+trans+kota%22&sort=date28-08-2006: Litrak expects single-digit traffic growth from nowBy Isabelle Francis
Lingkaran Trans Kota Holdings Bhd (Litrak) expects a single-digit growth in traffic volume and foresees toll revenue growth to be underpinned by higher toll rates moving forward, said its chief executive officer Sazally Saidi.
Sazally said the Damansara-Puchong highway saw about 460,000 vehicles passing through its four toll plazas every day. He said traffic growth this year would likely be less than the 7%achieved last year.
“We will be looking at single-digit growth from now onwards as the highway matures. That is the trend for highways," he told reporters after Litrak's AGM and EGM in Shah Alam on Aug 29.
He added that discussions with the government on revising toll rates were still ongoing and are expected to be finalised before Jan 1, 2007.
“If there’s an increase, you’d see a reduction in volume but our total toll revenue should increase. From our experience, traffic would eventually come back again in six to 12 months."
Moving forward, Sazally said that Litrak would only see minimal capital expenditure in the immediate term.
He added that it plans to carry out its major upgrade works in the next 10 months. This will be financed by the RM30 million capital expenditure announced earlier this year.
Its chief operating offier Richard Lim said its toll plazas alignment was strategic, enabling it to benefit from township developments especially in Puchong and Damansara. “We expect traffic to grow once these townships are established. We have not reached our capacity yet, especially the toll plazas in the Southern side near Putrajaya.”
03-08-2006: Gamuda continues to raise Litrak stake Gamuda Bhd continued to raise its stake in Lingkaran Trans Kota Holdings Bhd (Litrak), acquiring another 4.49 million shares on July 27.
A filing to Bursa Malaysia showed that after the acquisition, Gamuda owned 41.88% or 203.96 million shares. Litrak share price closed at RM2.72.
In January this year, Gamuda managing director Datuk Lin Yun Ling said the construction company wanted to increase its equity interest in Litrak to up to 50% but it will be done at an average market price of RM2.80.
He was quoted saying that based on Litrak share price at around RM2.80 “we will have a rate of return of between 17% and 18%, which we think is a good investment”.
11-July-2006 Toll concessionaires in the limelightBy Risen Jayaseelan
A number of highway concessionaires are slated for a scheduled toll hike beginning next year, as stipulated in their agreements with the government. These include Lebuhraya Damansara-Puchong (LDP), which is slated for a 60-sen hike, and the two toll gates at the Kuala Lumpur-Karak Highway, which will see an increase from a total of RM6.50 to RM8. The Cheras-Kajang Highway is due for a hike of more than 40% while Lebuhraya Shah Alam’s (Kesas highway) scheduled increase is from RM1.50 to RM2.20. The operator of the LDP is Lingkaran Trans Kota Holdings Bhd (Litrak), which is 38.4% owned by Gamuda. The LDP, which runs on a 33-year concession, is one of the most heavily used and lucrative highways in the Klang Valley.
However, the government has been subsidising 50 sen for every passenger car unit (PCU) since tolling on the highway started in January 1999. Stripping out the government subsidy and considering the new schedule hike, the new rate could be RM2.10. If the 50- sen subsidy continues, motorists will have to fork out RM1.60 or an additional 60 sen. GK Goh Research expects Litrak’s profits to jump more than 50% year-on-year in FY2007 and FY2008 as the toll increase, if approved, will flow directly into its bottom line. The report adds that Litrak’s dividends should double from current levels by FY2008. Litrak also operates the SPRINT Highway, which is scheduled for a rate hike although only in 2008. The 60km KL-Karak
Highway is operated by MTD Infraperdana Bhd. The Gombak stretch of the highway charges a RM4 toll while the toll rate on the Bentong stretch is RM2.50. The toll rates are scheduled to rise to RM5 and RM3 respectively. Unlisted Grand Saga Sdn Bhd is the concessionaire for the Cheras-Kajang Highway. There are two tolls on the 11.5km road. Current toll rates (for private passenger cars) are 70 sen at the ninth-mile toll plaza and 60 sen at the 11th-mile toll plaza. The scheduled increases for these tolls come January are RM1 and 90 sen respectively. The Kesas highway is operated by Kesas Sdn Bhd, in which Gamuda has a 30% stake. It is also scheduled for a rate hike to RM2.20 from RM1.50 currently. Although these increases have been scheduled, it is left to be seen whether they will take place as planned. In the past, the government has sought to renegotiate terms with concession holders for what have been deemed as social and political reasons. Explains an analyst, “As a result of the widespread opposition encountered each time toll rates are raised, the government has renegotiated with nearly every toll concessionaire for toll increases to be staggered over a longer period of time in return for a lower rate hike.” Toll rates are typically raised every three to five years at a compound rate that commensurates with inflation and operations and maintenance costs.
However, road users and other parties tend to resist toll increases. In the event a toll rise falls in an election year, there is the strong likelihood that the government will not want to approve it. If the government does not approve the toll hike, it has to compensate toll concessionaires for the difference. This is the case with the LDP, where the government is subsidising 50 sen per PCU. Analysts say in such cases, concessionaires actually benefit as low toll rates keep traffic volume higher than if rates are raised. “Revised concession terms are typically worked out in such a way that there is no impact on the net present value and any shortfall is compensated either through a lump sum cash payment or an extension to the life of the concession,” explains an analyst. The government could also ask the concessionaire to defer a toll hike and in return, the concession period is extended. In the case of PLUS Expressways Bhd, the biggest player in the toll road business, the government has lengthened its concession by eight years and seven months to end-2038 in lieu of certain toll hikes. Also recall that in 2003, the government revised the concession terms of the KL-Karak Highway. To compensate for a reduced toll rate, the government wrote off RM183 million in soft loans given to the concessionaire. The government also compensated the concessionaire RM97 million in cash and extended the concession by six years. Still, analysts point out that delays in toll rate increases tend to have a negative impact on earnings. “Earnings in the near term will be [negatively] affected and this in turn could push up the price-earnings multiple of the company,” notes an analyst. He adds that investors are also wary of revisions to concession agreements because of uncertainties. There is also a point of view that toll road concessions could be called into more serious negotiations by the government because of the discussions that are going on with the independent power producers (IPPs). The government is taking a second look at the terms of IPP agreements because many quarters feel that the IPPs are making excessive profits. However, although no decision has been reached, it is unlikely that the terms of the IPPs and those of toll concessionaires can be changed drastically. This is because any negative impact on the sanctity of the agreements relating to IPPs and toll concessionaires can have repercussions. A key issue would be financing as lenders are likely to shy away from such concession holders if it is discovered that their agreements can be revoked by the government.
29-May-2006 Investing Ideas: Litrak a strong cash generatorBy Cindy Yeap
Its profits are growing. It will generate about RM160 million of free cash flow over the next three years. It is scheduled to get a 40% toll rate hike come January 2007 and be compensated if that does not materialise. That’s three reasons why analysts are calling a “buy” on Lingkaran Trans Kota Holdings Bhd, better known as Litrak. At last look, shares of Litrak, the concessionaire of Lebuhraya Damansara-Puchong (LDP), are already up 14% from the beginning of this year and 41% more than their price a year ago. But at least three analysts say there is still upside to the stock. The highest 12-month price target is from BNP Paribas at RM3.96, according to Bloomberg data. This represents a 55% potential upside going by last Friday’s RM2.56 close. “We like Litrak for its strong cash flow generation capability. We estimate FCF/EV [free cash flow over enterprise value] of 10.5%, which is 1.8 times that of PLUS Expressways Bhd. At current levels, we believe the market is undervaluing its cash flow,” a local analyst told clients earlier this month. Last Tuesday, the stock gained 12.15% ahead of the entitlement date of its 25 sen cash distribution and the release of its earnings for its fiscal year ended March 2006. Last Thursday, the company reported fourth quarter numbers that beat street estimates by 17%, helped by the taking in of lower than expected losses from its associate company, Sistem Penyuraian Trafik KL Barat Holdings Sdn Bhd (Sprint). “Losses from Sprint narrowed considerably this quarter… that was a [positive] surprise for the market… If you look at the traffic [volume] loss to LDP due to the partial closure of the MRR2 [Middle Ring Road 2], the same amount went to Sprint and that helped cut [associate] losses significantly,” says one analyst.
Net profit for the year ended March 31, 2006, rose 42.7% to RM79.74 million from RM55.88 million year-on-year on the back of a 7% topline growth to RM242.97 million. It is uncertain if analysts will be revising their earnings forecast for the company upwards due to the stronger than expected showing. Current consensus net profit forecast of RM84.08 million for fiscal year ending March 2007 (according to Bloomberg data) indicates a 5.4% growth this year. One analyst explained that his price target for the stock is derived from the company’s strong cash generation capability, which essentially translates to good dividend and cash distributions for its shareholders. Worth noting is the fact that Litrak’s controlling shareholder, Gamuda Bhd, has been raising its stake in Litrak. Analysts see the move as a strategy to help absorb the contraction in Gamuda’s earnings from its construction business. Gamuda in January increased its shareholding in the company, although the latter’s top management has said there are no plans to make Litrak a subsidiary for the time being. Gamuda now owns 40.25% of Litrak, after acquiring just under 2% of the latter’s shares on the open market at around RM2.80. (The RM2.80 is equivalent to RM2.24 now after a 25 sen cash distribution via a one-for-four bonus issue. The bonus shares were later cancelled.) Gamuda managing director Datuk Lin Yun Ling on Jan 12 had told reporters that buying Litrak shares was “a good investment” which gave them some 17% to 18% rate of return. At last Friday’s close of RM2.56, Gamuda has made a 14% paper gain on the money it spent to buy Litrak shares in January. One analyst reckons Gamuda would eventually want to consolidate Litrak into its books. This is not contrary to Lin’s statement to stay shy of 50% shareholding in Litrak. “I believe Gamuda would continue to absorb Litrak shares from the open market at prices they believe is right, and without triggering a mandatory offer… Litrak is generating strong cash and once debt levels fall in about five years, consolidating Litrak would be good for Gamuda’s books,” says the analyst. According to rules governing listed companies, Gamuda can buy up to 2% of Litrak shares every six months without triggering a mandatory general offer obligation. Meanwhile, Litrak (in its notes to accounts) says the partial closure of the MRR2 since February 2006 has had a negative impact on traffic volume at its Penchala Toll Plaza. However, the company says it “will not significantly affect” the overall results of the group in the current financial year. The closed section of MRR2 is expected to re open this August. Although its net dividend yields (excluding the recent 25 sen cash distribution) is only around 3% due to its lack of Section 108 tax credits, analysts are bullish on the company’s ability to change that due to its strong cash generation capability. “Litrak should have sufficient Section 108 tax credits in five years… around 2011. In the mean time, the company can also choose other means to boost yields such as capital repayments,” says one analyst. In fact, gross yields are expected to pick up to around 8.6% in fiscal 2008. Previously, losses from its 50%-owned Sprint highway were the dampener to Litrak’s earnings performance. “Sprint is expected to still be loss-making over the next few years due to interest expense and amortisation charges, but the market is beginning to see positive signs. If they continue to successfully cut Sprint’s losses, the market is bound to give them more recognition,” says one analyst. Litrak holds a 33-year concession with the Malaysian government for constructing the LDP, based on an agreement signed on April 26, 1996. Sprint manages the Damansara Link, Kerinchi Link and Penchala Link.
25-01-2006: Litrak to spend RM30m-35m on road upgradeBy Kevin Tan
Lingkaran Trans Kota Holdings Bhd (Litrak) is allocating between RM30 million to RM35 million this year to upgrade roads and other related-facilities, its chief executive officer Sazally Saidi said.
Of that, more than RM20 million would be used to resurface the Damansara-Puchong Highway (LDP), he told reporters after Litrak’s EGM in Shah Alam on Jan 25.
He said the company was spending a considerable amount for the LDP upgrade works this year considering it only spent about RM10 million for such works in the past.
Sazally said Litrak planned to start the upgrade works by the first quarter of the year. Litrak is still identifying the areas for upgrading and staggering them for work in stages. Besides LDP,
Litrak also holds a 33-year concession for the 26.5 kilometre-long Sprint Highway, which consists of Kerinchi, Penchala and Damansara links.
Litrak chief operating officer Richard Lim Kim Ong said while the Sprint highway contributed a positive cashflow, the returns had yet to match the investment.
He was however confident of Sprint’s contribution to the company over the long run. “Overall, the project will give us a positive return in the concession period,” he said.
12-01-2006: Gamuda wants to up Litrak stake to 50% By Doreen Leong
Gamuda Bhd wants to increase its equity interest in Lingkaran Trans Kota Holdings Bhd (Litrak) to up to 50% but it will be done at an average market price of RM2.80, its managing director Datuk Lin Yun Ling said.
He said: “Based on the current share price of Litrak at around RM2.80 now, we will have a rate of return of between 17% and 18%, which we think is a good investment.
“At the current price, it is something we would like to do - increasing our stake. But if it goes up to RM5, we will stop and think about it."
Speaking to reporters after the company's AGM in Shah Alam on Jan 12, Lin said Gamuda, which was the single largest shareholder with a 38.44% stake in Litrak, had recently acquired an additional 1.5% stake.
On the outlook for the current financial year ending July 31, 2006, Lin warned that its net profit was expected to drop by 30% from RM265.78 million last year, as reflected by the similar drop in the first quarter.
However, he expected Gamuda to see more overseas contracts flowing in to replenish its existing order book to overcome setbacks faced in FY06.
He said: "What happened this year was a reflection of events that took place more than two years ago where jobs don’t get implemented as planned. However, we have doubled our efforts to get ready for the overseas markets.
“You can see from the results and the share price, we are not exactly growing as we would like. But the management is quite excited about prospects for this calendar year.”
Last year, Gamuda's share price hit the year’s low at RM3.12 on Dec 28 after analysts downgraded the counter on less-than-optimistic earnings outlook following a 33.44% fall in 1Q profit to RM46.6 million from RM70.02 million in the previous corresponding period.
Lin said Gamuda was confident of "jobs flowing in from overseas at more rapid pace". The group has been invited or tendered for overseas infrastructure jobs worth over RM20 billion.
He said Gamuda had been pre-qualified and invited for mega construction projects in the Middle East, Indo-China and Thailand.
“Given the slimmer margins overseas, we expect to at least double our turnover to be able to make the construction profits that we are used to make in our good years,” Lin said.
Together with recently secured two new projects in the Middle East, its current order book stood at RM3.8 billion.
Lin said it also hoped to secure overseas jobs for build-operate-transfer jobs and property development this year.
On its proposed acquisition of another 10% stake in Syarikat Pengeluar Air Selangor Holdings Bhd, he said the price tag of RM135 million was “not unfairly high”. He said the water concessionaire was expected to give a return on investment of above 16%.
