Stockwatch- Innovalues Precision (Singapore) CIMB report 28 Nov 2006
Innovalues Precision LtdOutperform Target Price= S$ 1.52On course for record earnings• Company is on track to achieve our full-year figures. Our recent conversations with the company suggest that it is on track to attain our forecasts and hit record earnings this year, driven by continuous strength in the automotive and OA segments. The only weakness is the HDD component business.
• Both Malaysia and China facilities are still operating at full capacity. The Malaysia plants are busy with printer-related and automotive programmes, while the China plant is boosted by the automotive business. Utilisation rate for the Thailand plant, on the other hand, continued to hover at about 80% due to a slowdown in the HDD components business.
• Maintain Outperform with unchanged target price of S$1.52. We have kept our FY06 numbers. Our FY07-08 numbers are also intact, though we believe there could be upside surprises if the entire automotive components business takes off as planned. Our target P/E of 13x CY07 earnings, translating into a S$1.52 target price offering 79% upside, is pegged at a slight premium to its historical average P/E in view of its healthy 34% earnings CAGR projected for FY05-08. Maintain Outperform, and we see catalysts from a solid set of full-year results (to be announced by end-Feb 07).
Record earnings within reachMalaysia operating at full capacity.The Malaysia plants are still operating at full capacity in 4Q06, underpinned by robust demand for printer-related and automotive products. In the OA segment, we believe Innovalues, being one of the largest printer shaft and rubber roller suppliers for Hewlett Packard’s (HP) inkjet printers, has benefited from the latter’s marketshare gains. HP recently reported a second consecutive quarter of double-digit hardware volume growth (up 17% yoy during August-October; 15% yoy growth in the previous quarter). It will also start to support HP’s wide-format printers, which are programmes HP is gradually transferring from Europe to Asia in a bid to lower its production costs. Mass production is expected to begin 2Q07, a slight delay from end-2006. Additionally, demand from the new customer (a major player in the printer business) for laser toner cartridge shafts remains very strong, and Innovalues has not been able to fully fulfil the customer’s request at this moment due to constraints in capacity. As such, the group is accelerating its expansion in Malaysia. The new printer customer could potentially become a major customer of the Malaysia plants from 2007. Innovalues is still in active discussions with the customer to expand into shafts and rubber rollers for printer products.
In the automotive segment, Innovalues continues to see good volume growth for Sensata’s braking sensors, driven partly by greater allocations from the customer. It has also completed trial production for Siemens VDO’s diesel engine fuel injector components, and is awaiting the customer’s go-ahead for mass production.
China facilities are also running at full steam.During our visit to the China facility, which focuses on its OA and automotive segments, we noted that business activities remained robust, and understand that this site has been operating at full capacity since the beginning of 2H06. It has started mass production for Sensata’s auto pressure transducer (APT) components, programmes transferred from Japan. Monthly volume has increased from less than 100,000 units to more than 200,000 units currently, and we believe volume will continue to grow as Sensata also plans to transfer programmes from Holland to Shanghai next year. These two sites account for about 40% of Sensata’s annual requirements of about 80m sets. The Shanghai unit has also started plating services for LUK, and is in advanced discussions with Robert Bosch for fuel pump components. The OA business, mainly shafts and rubber rollers to HP and Samsung, is also enjoying good loading, though volume has started to taper off in mid-November. This is in line with historical trends. The company is also on track to expand its China facilities from 88,000 sf to 161,000 sf in 2007 to support rising demand.
Thailand affected by slowdown in HDD component business. The Thailand plant, on the other hand, is still operating at only 80% utilisation, affected by cutbacks in HDD component orders from Minebea as the latter decided to bring more production in-house.
According to Innovalues, sales of HDD components have declined by more than 40% from 1H06. Fortunately, the slowdown in HDD components business has been partially offset by continuous strength in occupant weight sensors. Also, it has started to supply HDD components to a new Korean customer, though volume is still insignificant. However, we understand that volume may pick up strongly in 2007 when the Korean customer starts to expand its HDD components business.
RisksSlower-than-expected ramp for new automotive programmes, which is quite common in the automotive components industry. Our forecasts are already conservative, assuming 86% and 54% yoy growth for automotive components for FY07 and FY08 respectively, vs. its customers’ indication of more than 200% and 80% yoy jumps in requirements.
Margin pressure from rising material costs, which affected its bottom line in FY04. The company, however, has taken initiatives to provide alternative materials (switching from C1214 to C1215) for its OA customers in 2H05. We understand it is now working closely with its suppliers to lower costs further in 2007, which should cushion future material price increases, if any.
Valuation and recommendationMaintain Outperform; unchanged target price of S$1.52. We have kept our FY06 numbers. Our FY07-08 numbers are also intact, though we believe there could be upside surprises if the entire automotive components business takes off as planned. Our target P/E of 13x, which translates into a target price of S$1.52 for 79% upside, is pegged at a slight premium to its historical average P/E in view of the healthy 34% earnings CAGR projected for FY05-08. Maintain Outperform, and we see catalysts from a solid set of fullyear results (to be announced by end-Feb 07).
Stockwatch- KLCC Property (Malaysia) JP Morgan initiate coverage 21 Nov 2006 Target Price RM3.30
KLCC Property HoldingsInitiation OverweightBest of class assets with boost from tourism• Initiate with OW, PT of M$3.30: We initiate with overweight and a Dec-07 PT of M$3.30, a potential upside of 22%. With premier quality assets in Klang Valley, we believe KLCCP will be a stock hard to ignore given improving trends in commercial properties; its high quality, secured earnings stream from rentals and hotel income; and with an added boost from rising tourist arrivals.
• Share price drivers: We see good upside prospects in the group’s asset values with the positive outlook for commercial properties, a strengthening ringgit, Malaysia’s cheap capital values regionally and increased traffic from new surrounding developments (i.e. KLCC Convention Centre, and high-end condos). KLCCP’s hotel and retail mall operations account for 40% of operating profit and will benefit from rising tourist arrivals spurred further by Visit Malaysia Year 2007. Our forecast is ahead of consensus by 4% for FY07E, and 11-12% for FY08-09E.
• Valuations and risks: Our Dec-07 PT of M$3.30 is a 20% discount to RNAV in line with regional average for property investors. But, KLCCP's asset values are 50% below average capital values for the region and with attractive regional net yields. A 5% rise in asset values raises its RNAV by 7%. Risks to PT are: oversupply of commercial properties (although unlikely for prime assets).
Positive price driversHigh quality, secured earnings, with boost from rising tourist arrivals: This is due to KLCCP’s long-term tenancy agreements expiring no earlier than 2012 for its key office properties (i.e. Petronas Towers, Menara Exxon-Mobil, Menara Maxis) and high occupancy rates of 84-100% for its properties. Rental hikes are locked in at 9% once in three years for Petronas Towers (50% of operating profit) as well as Menara Maxis; and at a base rental plus a profit share with tenants for the Suria KLCC retail mall. Mandarin Oriental Hotel and Suria KLCC mall, together account for 40% of operating profit and should benefit from rising tourist arrivals and Visit Malaysia Year 2007. We forecast a 2-year EPS CAGR of 13% over FY08-09E. Our forecast is ahead of consensus by 4% for FY07E, and 11-12% for FY08-09E.
Discount to RNAV; upside from rising, attractive capital values/yields: KLCCP trades at a discount of 33% to its RNAV/share of M$4.03 versus the regional average of 20%. Malaysia's capital values are 76% cheaper than the regional average (50% cheaper for KLCCP given its prime assets), with attractive net yields of 6-8% for office and 7-10% for retail space. This, rising demand among local and foreign investors from REITs, and recent new and upcoming projects around the KLCC area (i.e. KLCC Convention Centre, high-end condos) will help enhance KLCCP’s asset values. A 5% rise in asset values raises KLCCP's RNAV by 7%.
Long-term growth from future developments or potential acquisitions: The development of Lot C involving the extension of Suria KLCC mall and new office space will raise net lettable area by 16%. Lot C will come on-stream from end-2008 with the full impact on earnings by FY10 estimated at M$24 million pa (13% of FY07E profits). Development of Lot D1 offers growth potential beyond FY10, and existing prime assets of parent, Petronas in the KLCC area and Putrajaya also offers acquisition opportunities for KLCCP, but valuations here would be the key.
Negative price drivers and risks to thesisLow ROEs and high gearing: KLCCP should generate single digit ROEs of 8-9% for FY07-09E, but this is still slightly ahead of the 2007E regional average of 7% for property investors. KLCCP’s net gearing of 78% may limit ability to grow via asset acquisitions. But, gearing is forecast to decline to 56% by FY09E. Cash flows are also strong with positive FCFs of M$126-164 m pa after M$500m capex for LotC.
Lower yields than REITs: KLCCP’s net yield of 3-4% is lower than the average of 6% for Malaysian REITs. If KLCCP were to raise its pay-out ratio from the current 38% to 90-95% in line with REITs, its yield would work out to 8.5-9.0%, but this is unlikely given its geared balance sheet and development plans. But, KLCCP offers investors a larger and more liquid exposure to the commercial segment. Total market cap of all Malaysian REITs of US$550m is less than KLCCP’s US$689m.
The main risk to our thesis is an oversupply of commercial properties putting pressure on asset values and rentals. However, currently there is a shortage of good quality offices in the Klang Valley, and established retail space and hotels in prime areas like KLCCP’s has and we believe will continue to experience strong demand.
Valuation and rating analysisOur RNAV of M$4.03/share factors in a rise of 9% in value for KLCCP’s office assets, and 27-40% in value for its retail mall Suria KLCC, and Mandarin Oriental Hotel, relative to the 2004 open market values by independent valuers for the respective assets. These are in line with the overall rise in rentals for KLCCP’s office and retail assets since 2004, and also reflect the value of recent transactions for hotels. Our market values for these assets translate to a net rental yield of 6-8%, in line with the implied yields for recent asset transactions in Klang Valley. We believe key share price catalysts are: 1) Improving commercial property trends which will provide strong support/upside to KLCCP'a asset values. 2) Rising tourist arrivals spurred further by Visit Malaysia Year 2007 as 40% of KLCCP's operating earnings are exposed to tourism. 3) Long-term growth from development of Lot C and Lot D1 to come on-stream from end-2008. We set our PT at M$3.30, a 20% discount to its RNAV in line with the regional average discount for property investors.
Commercial property trends improving, hence strong upside in asset values
Malaysia’s commercial capital values and rental yields remain one of the most attractive regionally (see Table 3). Malaysia's capital values are about 76% cheaper than the regional average (50% cheaper for KLCCP given its higher value prime assets), with attractive net yields of 6-8% for office space and 7-10% for retail malls.
The completion of the KLCC Convention Centre in mid-2005 and Traders Hotel in 2006 under the ownership of parent, Petronas, and new high-end residential developments in the area in the next two to three years will help enhance KLCCP's asset values. In view of this, and the increasing interest/demand among local and foreign property investors as well as from REITS, there is a potential upward pressure in capital values, which augurs well for KLCCP given its prime assets. (As it is, values of recent office and hotel transactions have been on the rise as shown in Table 4). Every 5% rise in asset values would raise KLCCP’s RNAV by 7%.
Boost from tourism
KLCCP should also benefit from rising tourist arrivals, forecast to rise 7% Y/Y to a new record of 17.5 million in 2006. Tourism is expected to be spurred further by Visit Malaysia Year 2007. KLCCP’s operating earnings (40%) are exposed to tourism via its retail mall, Suria KLCC and the Mandarin Oriental Hotel. Suria KLCC has a patronage of 40.8 million per annum, and KLCCP has a profit sharing deal with tenants at 5-15% of revenue above a threshold level on top of the base rent.
The profit sharing portion has risen to 7% of rental revenue versus 2-3% in 2004, and a further 5ppt rise will raise FY08E net profit by 4%. In line with the overall rise for KL hotels (see Figure 2), occupancy rates for Mandarin Oriental have risen from 75-80% in 2004 to 83-85% currently. This is despite rising average room rates (ARR), which will be raised to US$164 by 1Q07, a 25% rise from 1Q06, and a 38% rise from 2005. These rates are cheap when compared regionally i.e. versus ARR of US$200 for 5-star hotels in Philippines and US$240 for 5-star hotels in Singapore. A 5% rise in Mandarin Oriental's ARRs will raise FY08E EPS by 2%.
Long-term growth from Lot C and Lot D1
KLCCP’s development plans for Lot C with a net lettable area of 0.16 million sq ft of retail space and 0.74 million sq ft of office space, will raise its total net lettable area by 16%. The new retail space will first come on-stream by end-2008, followed by the offices by end-2009. Full impact on earnings from Lot C hence is expected by FYE Mar-10E estimated at M$24 million per annum (13% of FY07E profits).
Management indicates that there is a firm interest for 80% of the new office space from a single customer at premium rental rates of 50% to the market. KLCCP may look to sell the remaining 20% of the office space, and if this materializes it will raise an estimated M$144 million (M$0.11/share), which will help reduce FY09E net gearing from 56% to 51%. Total development cost for Lot C is M$500 million. Beyond FY10, growth will come from Lot D1, where there are still no details on development plans. However, in our RNAV, we have assumed the development potential and cost for Lot D1 is similar to Lot C, although the former sits on a larger piece of land at 1.41 acres versus the latter’s 1.01 acres.
Earnings are driven by: 1) High occupancy rates of 85-100% for office properties and 83-85% for hotels. 2) Longterm lease expiring no earlier than 2012 for three key office properties (Petronas Towers, Menara Maxis, Menara Exxon-Mobil). 3) Locked in rental hikes at 9% per annum once in every three years for Petronas Towers and Menara Maxis. Given its prime location, the rental rates of M$6.60-8.50/sqft for KLCCP’s office space is 50-90% higher than the market. Lease tenures for the retail mall are no less than 10 years for anchor tenants (Isetan, Parkson, Cold Storage, Tanjung Golden Village), but are on differing expiry periods of 1.5-3 years for remaining tenants. Overall rental revenue (base rent plus profit share) from Suria KLCC has been rising by 10-12% per annum.
Stockwatch- Sunway City (Malaysia) corporate profile
Corporate Profile of Sunway City Berhad, extracted from its 2006 Annual Report:
Sunway City Berhad (SunCity) is a member of The Sunway Group, a well-diversified conglomerate in Malaysia. SunCity commenced operations in 1986 and was listed on the main board of Bursa Malaysia Securities Berhad in 1996, principally to develop the Bandar Sunway township in Petaling Jaya. Following the success of the development of Bandar Sunway, SunCity has grown and diversified into property investment, hospitality, leisure and entertainment, as well as healthcare. However, property development remains as SunCity’s core business and contributes significantly to SunCity’s profitability. Its property development portfolio comprises commercial, residential and industrial developments.
SunCity’s strength and stability in the Malaysian property industry has attracted its current partner, Government of Singapore Investment Corporation Pte Ltd (GIC), the Government of Singapore’s wholly-owned real estate investment arm. GIC now owns 24% of SunCity, as well
as a 48% stake in Sunway Pyramid Shopping Mall and Sunway Resort Hotel & Spa respectively. This strategic partnership will propel SunCity’s growth into the regional and global property arenas.
Property DevelopmentSunCity’s most outstanding flagship development is Bandar Sunway, a multi-billion ringgit township in Petaling Jaya. Situated just 20 minutes from the bustling Kuala Lumpur city centre, it is developed based on the signature SunCity lifestyle concept, “Resort Living Within
The City.” This 800-acre fully-diversified and selfcontained township stands as a testament to SunCity’s reliability and expert capability as a property innovator. The well-planned township structure and the superlative architectural designs of the magnificent edifices in the
township herald SunCity’s forte as a developer.
SunCity’s developments are met with great successes as they are built upon the foundation of strategic location and quality materials. SunCity endeavours to be the “Property Developer of Choice”. The SunCity brand has been awarded the Superbrands status and ranked fourth
in The Edge’s “Top Property Developers Awards 2005”. SunCity was also top 3 in the Euromoney Real Estate Awards 2006 among 82 property developers in Malaysia.
Among SunCity’s prominent developments is the Kiara Hills residential development. This RM800 million project is the pride of SunCity as it demonstrates the superiority and marks SunCity’s foray into the high-end market. Kiara Hills has garnered the prestigious label of
the “Beverly Hills of Kuala Lumpur”. Other noteworthy projects include Sunway Damansara, Sunway SPK Damansara, Sunway Rahman Putra, Sunway Kinrara and Sunway Semenyih in the Klang Valley, Sunway Bayan in Penang and Sunway City Ipoh in Tambun, Perak.
SunCity’s most prestigious project in the pipeline is the Sunway South Quay development that will feature more than 4,000 residential and commercial units including luxury lakeside villas, high-end condominiums, serviced apartments, lakeside boutiques, retail spaces and offices.
Property Investment
SunCity’s property investment arm comprises the various components of Sunway Lagoon Resort. The resort is the winner of the prestigious World FIABCI Prix d’ Excellence Award 2002 in the Leisure category. It consists of Sunway Resort Hotel & Spa, Sunway Pyramid Shopping Mall, Sunway Lagoon Theme Park, Sunway University College, Monash University Sunway Malaysia and Sunway Medical Centre. This 7-million square feet world-class facility integrates the finest in leisure and entertainment, hospitality, conventions, shopping malls, healthcare services and tertiary education facilities.
HospitalitySunway Resort Hotel & Spa is SunCity’s flagship hotel development at Bandar Sunway. It is situated within the 800-acre "Resort Living Within The City", built based on an overall thematic concept - combining modern design with an ambience and personalised warmth that is uniquely Malaysian.
Sunway Resort Hotel & Spa comprises the Main Tower, Pyramid Tower Hotel, Resort Suites, The Villas and The Duplex. With a total of 1,234 guestrooms and complete with 10,000 square metres of meeting space, Sunway Resort Hotel & Spa is now the single largest hotel development in Kuala Lumpur.
HealthcareSunway Medical Centre (SMC) is a private hospital offering specialised tertiary healthcare services. The Medical complex is an 8-level building with 240 beds and 45 specialist consultation suites. SMC offers professional clinical expertise provided by a team of qualified and experienced consultants, welltrained and dedicated nursing staff and supported by the
latest in medical technologies and equipment. Patients have access to a wide range of inpatient and outpatient specialised healthcare facilities, health promotion programmes and 24-hour emergency services.
LeisureThe Sunway Lagoon Theme Park is the main attraction that draws visitors, both local and foreign, to Sunway Lagoon Resort. It is strategically located in the heart of the Bandar Sunway township in Petaling Jaya. Spanning 80 acres, the theme park draws fun seekers from all over
with its reputation as a fascinating place of fun and excitement.
In Ipoh, The Lost World of Tambun water park has proven to be a hit with the locals in the North. Set against a backdrop of the magnificent limestone hills, and boasting a natural hot spring pool, the park is a tourist destination like no other in the country.
Stockwatch- Sunway City (Malaysia) featured in article on The Edge Singapore 20 Nov 2006
4th Stockwatch on Malaysian property companies- Sunway City, featured in The Edge Singapore 20 Nov 2006.
Key highlights of the article:
1. Euromoney, the leading international journal of the world's capital and money markets, ranked Sunway third among 82 developers in Malaysia that competed for the Euromoney Real Estate Awards 2006.
2. Sunway City is an established, listed property developer noted for the transformation of 800 acres of derelict mining land into its flagship project, the multi-billion dollar Bandar Sunway township in the Klang Valley.
3. Its other admired development is Kiara Hills in Mont'Kiara, often described as "the Beverly Hills of Kuala Lumpur," which offers 88 luxurious bungalows and 34 courtyard villas.
4. An upcoming launch by Sunway City Bhd and Amisia Sdn Bhd is Casa Kiara II in the prime Mont'Kiara area. It offers 206 units housed in a 37-storey tower.
5. Also to be launched in the Mont'Kiara area are Sunway's Kiara Hills phase 3 and Sri Hartamas, which are both high-end condo projects. Sunway also has other condo projects in the Klang Valley, including Sunway Damansara and Sunway SPK.
6. Although it is primarily a residential developer, it has the expertise to develop integrated developments such as Bandar Sunway township in Petaling Jaya, which includes the Sunway Lagoon Resort incorporating the Sunway Pyramid mall, Sunway Lagoon Hotel and theme park; the Sunway Medical Centre; and Sunway College & Monash University, among others.
7. Sunway has a proposed mixed-use development called Sunway South Quay, which is to be developed on 123 acres in Bandar Sunway. Its JV partners in Sunway South Quay are Kuwait Finance House and more recently, the Employees Providend Fund, which announced it is pumping RM69.6mil into the project.
8. Sunway has also spread its wings to develop a RM1 billion, 1,400-acre integrated township in the city of Ipoh, Perak that is slated for completion by 2010.
9. In November last year, it also launched a high-end residential project in Penang called Sunway Bukit Gambier, which is to be built on a 9.4ha site and will have 238 terraced houses, 34 semi-detached homes, and three bungalows. The RM230 mil mixed-development project, which includes the Sunway Carnival Shopping Centre, is next to Universiti Sains Malaysia's Minden campus.
10. The developer also recently announced plans to construct two-storey linkhouses on its existing landbanks in Banyan Lepas and Sungai Batu that will be targeted at the middle-income group.
11. Sunway started actively looking abroad for development opportunities in hot markets like India, Vietnam and China last year. Its maiden residential development joint-venture project there is Toul Kork City in Phnom Penh, which it is undertaking with a local landowner.
The US$30mil project is on 28.9 acres, and the plan is to build 398 detached medium- to high-end units there. It will be launched in phases over three years. It already owns the 140-room Sunway Phnom Penh Hotel in Cambodia.
12. In July, the property player also signed a memorandum of understanding to manage a new high-end mall in Shenzhen that's expected to be completed next year.
13. Sunway is also planning a RM1.5 billion to RM2 billion real estate investment trust (REIT) to be launched by 2008. The diversified REIT portfolio could include the entire Sunway Pyramid Mall and its annex, totally 1.6 million sq ft of net lettable space, as well as the sprawliing 12-acre Monash University campus it is building 25km outside Kuala Lumpur.
Sector Watch- Property companies in Malaysia
I have been bullish about the malaysian property companies recently and I am happy to know that my views and stockpicks turn out well afterall.
Stockwatch- E&O Property on 9 Nov 2006, stock price was RM1.40, currently (17 Nov 2006) at RM1.55, positive return of 10%.
Stockwatch- IGB on 28 Oct 2006, stock price was RM1.41, currently at RM1.75, positive return of 24%.
Stockwatch- KLCC Property on 25 Oct 2006, stock price was RM2.27, currently at RM2.57, positive return of 13%.
The 3 stocks happen to move up strongly in a period in which the KLCI move strongly above 1000pts, during a period in which all regional stock markets performed strongly. It also shows the importance of institutional support for stock price as all 3 companies move up strongly on initiation report by Foreign brokerages: E&O Prop by Citigroup, IGB by JP Morgan, KLCC property by Deutsche Bank.
If you are interested to receive such initiation reports through email, contact me.
Stockwatch- Rotary Engineering (S'pore) on 7 Nov 2006 proposes bonus dividend of $0.10 per share and 2-for-5 rights issue
Rotary Engineering proposes bonus dividend of S$0.10 per ordinary share and two-for-five rights issue at S$0.20 per Rights ShareShareholders can choose to use the Bonus Dividend to subscribe for Rights IssueInitiatives are intended to reward shareholders and to strengthen capital base
SINGAPORE, 7 November 2006 – Mainboard-listed Rotary Engineering Limited ("Rotary") today declared a bonus dividend of S$0.10 less tax of 20% per ordinary share, and proposed a renounceable, non-underwritten rights issue on the basis of two Rights Shares for every five shares held. Rotary is a leading provider of engineering, procurement, construction and maintenance services supporting the oil-and-gas and petrochemical industry.
Shareholders may elect to use all or part of their Bonus Dividend to pay for the Rights Shares, and if they use their entire Bonus Dividend for this purpose, no further cash outlay is required for the rights subscription.
Based on Rotary’s current issued ordinary share capital, the aggregate amount of the Bonus Dividend is approximately S$32.4m. Rotary expects the Rights Issue to be well subscribed, such that shareholders’ equity will remain largely unaffected by these initiatives.
The Company’s issued share capital is 405,585,000 shares as at 7 Nov 2006. Assuming all vested employees’ share options of 35,000 share options are exercised at Book Closure date, the issued share capital of the company would comprise 405,620,000 shares and up to 162,248,000 Rights Shares would be issued. With the additional shares issued, the company hopes to further increase the liquidity of its shares traded.
Each of the five substantial shareholders -- REL Investments Pte Ltd, Chia Kim Piow, Wong Oi Moi, Wong Liang Feng and Chaung Swee Khim – who hold direct interests representing a total of 55.78% of the company, has irrevocably undertaken to subscribe for the whole of its direct entitlement of Rights Shares under the Rights Issue.
Rationale for the two exercisesThe Bonus Dividend is intended to reward shareholders with a cash dividend and allow the company to pass on its Section 44 tax credits to shareholders. At the same time, the Bonus Dividend will provide shareholders with an option to re-invest their Bonus Dividend by subscribing for Rights Shares.
The Rights Issue seeks to strengthen the capital base of the company following the payment of the Net Bonus Dividend. Together with the Bonus Dividend, the Rights Issue will in effect transform a portion of the Company’s retained earnings into permanent share capital.
Commenting on the exercise, Mr Chia Kim Piow, Rotary’s Chairman and Managing Director, said: "As a listed company, we are mindful of our obligation to our shareholders and we continually look for ways to create shareholder value. By paying a bonus dividend, we are able to pass on Section 44 tax credits to our shareholders."
Mr Chia is optimistic about market outlook, and is excited about the opportunities that Rotary can enjoy. He added: "Indeed, our enhanced capital position will hold us in good stead as we continue to grow our business in Singapore, the region and as we move into new markets such as the Middle East."
Rotary’s recent corporate developmentsJust two weeks ago (25 October), Rotary announced S$ 15.5m worth of contracts that its wholly-owned subsidiary, Rotary IMC Pte. Ltd, had secured from Shell Eastern Petroleum (Pte) Ltd for part of the early works at its Bukom Shell Houdini Project.
In August 2006, Rotary won a S$24m contract to undertake the Engineering, Procurement and Construction (EPC) of a biodiesel process plant and its related facilities on Jurong Island to produce biofuel and other downstream derivatives for Nexsol (Singapore) Pte. Ltd., a subsidiary company of Peter Cremer (Singapore) GmBH.
Its biggest contract to date is the S$ 535million EPC contract to build an oil terminal in Jurong Island for Universal Terminal (S) Pte Ltd. Upon its completion by end 2007, Universal Terminal will be one of the world’s largest independent oil terminals, with 2.3 million cubic metres of storage capacity in 73 custom-built tanks. The Universal Terminal will be the first oil terminal in this region to have its own 12 berths, including two VLCC berths. The terminal will have dedicated inner basin with six berths for coastal and bunker vessels of up to 15,000 DWT, while the outer berths are designed with the flexibility to handle vessels up to 320,000 DWT.
The company turned in a net profit after tax and minority interest of S$16.0m for its first half ended 30 June 2006, an increase of 395% over the S$ 3.2m it made in the same period the previous year. Group turnover for the first six months of 2006 stands at S$202m, an increase of 150% over the S$80.7m it achieved in the previous corresponding period.
Stockwatch- IGB Corp (Malaysia), Deutsche Bank report 3 Nov 2006 Window to unlock values
Window to unlock valuesDemand for commercial properties heating up. The pick up in commercial property transactions recently confirmed that demand for commercial properties is strong. The latest two transactions - Westin Hotel and Crown Princess Hotel - were done at DB estimated cap rates of between 2.5-3.9%. We believe this is positive for IGB (IGB MK RM1.54, BUY, TP RM2.08) given its large portfolio of hotel assets in Malaysia. IGB owns 7 hotels in Malaysia
including 100% owned Cititel Hotel, Boulevard Hotel, Micasa Hotel Apartments, Pangkor Island Hotel, Stanfard Hotel and associate holdings in Renaissance Hotel (50%) and SuCasa Service Apartment (40%).
Low yielding hotels may be up for sale. IGB has earlier announced plan to divest its 40% stake in SuCasa Service Apartment for RM21.2m cash. Given flush liquidity in the market and strong interests for commercial assets in Kuala Lumpur, we believe the window is now open for IGB to unlock value, especially property investments that are low yielding and not fully
controlled by IGB. This may include 50% owned Renaissance Hotel which has a book value of RM286.4m or RM629,450 per room. Based on recently transacted cap rates of 2.5-3.9%, we estimate this asset could be worth between RM529 and RM826m (100%).
RNAV discount should narrow. The compressing asset yield should eventually translate into a narrower RNAV discount, we believe. We reiterate our BUY recommendation on IGB and TP of RM2.08, valuing the company at 30% discount to RNAV or implied asset yield of 6%, tracking some recent transactions. Key risks include rising interest rates, sharp economic
downturn that affects occupancy and future rental rate revision.
Stockwatch- E&O Property (Malaysia) Citigroup initiate at Buy target RM1.80, currently RM1.40
E & O Property Development Bhd (EOPD.KL)8 November 2006Initiate at Buy with 39% ETR. Undervalued Quality Niche DeveloperP/E-based target of RM1.80 — Our ENOP target price (based on 10x end-Mar 08E EPS) translates to an expected total return of 39%, the highest in our Malaysia property universe. Potential share price catalysts include earnings delivery and rising RNAV. ENOP's major shareholder is E&O Berhad, in which ENOP’s MD Dato’ Terry Tham and GK Goh Holdings have a stake.
Solid prospects and firm financials — Within our property coverage, ENOP has the strongest EPS growth outlook, at a 3-year CAGR of 24%, backed by RM299m unbilled sales. Financials are solid: FY07E net gearing of 61% and 8x interest cover. We see net gearing falling to 50% in FY08E and 36% in FY09E.
Leading position in growth markets — ENOP’s strategy is to focus on welllocated landbank and leverage off its track record and a strong brand image, which is partly built on innovative designs and lifestyle products. Projects are in excellent locations in Klang Valley and Penang.
Prime developments — The group has 1,701 acres of land in Klang Valley and Penang, which should easily sustain its development efforts over the next 10-15 years. Most of its landbank is in prime and established areas, which allows ENOP to benefit from spillover demand from these developments.
Attractive quantitative view — ENOP is in the Attractive quadrant of our quants screen, scoring well on both valuation and momentum.
Stockwatch- Innovalues Precision (Singapore) featured in Smart Investor magazine
I just received the November edition of Smart Investor magazine. Pleasantly surprised to find that Innovalues is featured in an article following an interview with Mr Goh Leng Tse, founder and CEO of Innovalues. The key highlights are summarised as follows:
1. Innovalues Precision looks set to capitalise on the growing opportunities in the automotive industry.
2. In 2003, Automotive segment generates revenue of $300,000, which represented less than one percent of group revenue. A year later, this segment contributed about four percent or about $3mil of group's revenue and last year, the proportion rose to 10%, contributing about $10mil.
3. "This year, we expect the automotive segment to more than double the revenue contribution to about $25mil," said Mr Goh.
4. Innovalues is now supply brake sensors to the diesel-engine cars in European markets. According to Mr Goh, there is a brake sensor in each of the four wheels as well as the central processing unit. He said:" These sensors can sense the road conditions when you are driving and the wheels will adjust by themselves. This is especially useful during the cornering process or wet weather as the wheels will not skid away from the road." The system is known as electronic stability control system (ESC) , and its acceptance level amongst drivers is gaining popularity, said Mr Goh.
5. Diesel-engine cars use fuel injectors that can save petrol by up to 50%, and are environmentally friendly. The demand for fuel injectors is set to rise, and with more than 80% of the drivers using diesel engine cars in Europe, this presents a good opportunity for Innovalues, Mr Goh added.
6. Because of the success with brake sensors, Innovalues later introduced the occupant weight sensors that could sense the weight of the person seated at the front passenger seat. According to Mr Goh, the United States has announced that by 2007, all the new cars in the US must be installed with the occupant sensor.
7. Asia is becoming an increasing important place for European and US car parts manufacturers to source for automotive components. Mr Goh said, "Going forward, our automotive segment will continue to be one of the key growth drivers for the group and we see great opportunities in this segment." Over the past few months, the group has received an increasing number of enquiries from interested parties for possible strategic business alliances, he added.
Stockwatch- Innovalues Precision (Singapore) Investors Seminar Presentation
Today I attended an investor seminar that featured Innovalues Precision. Innovalues Precision's CFO, Soh Wai Kong, did the presentation. The highlights of the presentation are as follows:
Business Outlook
Automotive
- sales from 2003 till date mainly from Sensata, 2 projects Occupant Weight Sensor (OWS) and Brake Sensor only
- OWS and Brake Sensor expects volume in 2007 to grow
- Hilite product in qualification stage, mass run in 2007
- Siemens, Bosch, Luk and APT products already qualified, mass run in 2007
Office Automation
- have a new high volume customer, started manufacturing for them in September 2006 only
- Wide Format Plotter already qualified, mass run in Q2 2007
- X-ray printer for new customer
- Increase in volume for certain customers
Overall
* Presence in China provides business opportunities
- many customers and their contract manufacturers have presence in China to take advantage of lower manufacturing costs and to be near the potential market
- have plating license which the issue of license in Shanghai is currently being restricted
- China government is encouraging sourcing of car components from local market and may impose custom duties for components imported into China starting mid 2007
* Diversification
- 3 major business segments
- Automotive business is stable and not seasonal
- within each segment there a few major existing or potential customers
- some of our machinery can be switched for different business segments
Challenges
* There are indeed competition and price pressure, but:
- its size and volume give advantage to bring in major players and projects
- well positioned for Automotive segment which have high quality requirement, long qualification period and high cost of qualification
- Automotive market is big and many function critical and safety related components in a car
- good business relationship with customers
* Material prices are volatile and manufacturing costs are rising but strive to improve our margins:
- its size and volume allow us to get materials at cheaper price
- will continue to source for cheaper material
- work on internalising certain processes & supplies
- constant process improvement to increase productivity and yield
- lock in material price over long period of time
- Automotive segment is of higher margin & pricing is cost plus
- have cost reduction initiatives and drives
Summary
- high growth company in automotive and technology sector
- experience management
- ultra high precision technology & know-how
- provide one stop solution
- proven profitability and sales growth track record
- strong financial backing and shareholders
- its size provides advantage
Stockwatch- Rotary Engineering (S'pore), volume breakout close at 52 week high
Today Rotary broke above its 52 week high of 62.5cts and close at day of 64.5ct. Its time has arrived.
Stockwatch- Rotary Engineering (S'pore), Contracts Secured From Shell Eastern Petroleum announced 25 Oct 2006
The Directors of Rotary Engineering Limited are pleased to announce that the Company has secured contracts worth S$15.5m from Shell Eastern Petroleum (Pte) Ltd for part of the early works at its Bukom Shell Houdini Project (the "Project).
The contracts are expected to last 12 months.Positive contribution is expected from this Project but the Company does not expect any material impact on the net tangible assets and earnings per share of the Company for the financial year ending 31 December 2006.
