Stockwatch- MMC (Malaysia)
Future catalysts:
1. If Gas Malaysia receive an increase allocation of gas from Petronas
2. Approval from the government to Gamuda-MMC's new proposal to double-tracking project,
which would only involve the northern portion of Peninsular Malaysia (expected in mid 2007)
3. Award of any potential long-term concession-type earnings from the doubletracking
project
4. Injection of the port and power plant concessions within the Jizan project into MMC
Stockwatch- MMC (Malaysia) RM5.25 Macquarie initiate coverage
Spicy infrastructure play
Event
We initiate coverage on MMC Corp with an Outperform rating and a RM6.75 target price, providing a 47% upside from current levels.
Impact
1. Malaysia’s largest infrastructure play. MMC will likely become Malaysia’s largest infrastructure play with 75-80% of its earnings coming from power, gas distribution and ports. The inclusion of Malakoff’s (MAL MK, RM10.00, Neutral, TP: RM10.35) assets from mid-1Q07, implies that 50% of pretax earnings will likely be derived from power generation. Further upside to infrastructure earnings could come from the award of port and power plant projects within the Jizan Economic City project in Saudi Arabia.
2. Earnings boost from local and foreign construction projects. MMC should be a beneficiary of increased construction-based spending under the 9th Malaysia plan (9MP). At the very least we see MMC together with joint – venture partner Gamuda (GAM MK, RM5.75, Outperform, TP: RM6.30) winning the RM10bn northern section double-tracking rail project, which would
contribute about RM444m to earnings between FY07-10. The US$30bn Jizan project meanwhile should provide more construction-based earnings although at this time they are not incorporated into our estimates.
3. IPP restructuring – room for valuation upside. We believe the conclusion of the IPP restructuring process by mid-2007 should allow for further upside to our valuation of MMC. While every 10% reduction in capacity payments to Gen-1 plants would lead to a 3% reduction in MMC’s FY08 earnings, we believe the extension of PPA concessions would provide NPV upside.
Earnings revision
1. We are currently establishing base forecasts.
Price catalyst
1. 12-month price target: RM6.75 based on a PER methodology.
2. Catalyst: Resolution of the IPP restructuring process and award of the doubletracking project to MMC would be major catalysts over the next 12 months.
Action and recommendation
1. We initiate on MMC with an Outperform recommendation.
2. At 9x FY08E PER and 6x EV/EBITDA, MMC trades at a discount to its various peer groups (13-17x PER and 8-12x EV/EBITDA) as well as the Malaysian market at 14x FY0-8 PER. The company meanwhile offers a 44% FY06-09 EPS CAGR.
3. MMC fits in well with our key Hunting Stock themes of increased government spending and increased domestic demand. As spending under the 9MP takes off, expect MMC’s earnings and valuations to follow suit.
Stockwatch- SBS Transit (Singapore) $2.47
1. beneficiary of lower energy price
2. final/special dividend coming soon, year end result mid February 2007
3. loads of s44 credit to be released
4. improving NorthEast Line ridership with vivocity
5. impact of fare hike in oct shd surface in the coming result
6. last goldman sachs target price is around $3
Stockwatch- Technics Oil & Gas $0.79
CORPORATE PROFILE
Singapore-headquartered Technics Oil & Gas Limited is a one-stop, fully integrated specialist
services provider catering to MNC companies in the upstream oil and gas sector.
The Group designs, concept engineers and fabricates process modules and equipment, including gas compression packages, which are integrated to form the operating system for production operations and storage applications in offshore and onshore oil and gas exploration and production activities. (“O&G”)
From a modest start-up in 1990 with only 12 staff, Technics became a listed entity on the Singapore Exchange SESDAQ in April 2003 and embarked on a multi-pronged expansion programme to maximise leverage on the robust demand in the O&G sector.
With a current strength of 240 full-time employees and still expanding, Technics has now emerged as one of the leading premier supply vendors for topside process modules and equipment required for FPSO (Floating Production, Storage and Offloading) ships and MOPUs (Mobile Offshore Production Units), as well as oil rigs and semi-submersibles.
The Group has been synonymous with safety, quality and reliability and is an authorised integrator of gas compression systems for two world-leading USA gas compressor manufacturers, Ariel Corporation and Cameron.
Main business segments are:
• Engineering, Procurement, Construction and Commissioning (“EPCC”):Design, procure, construct, install and commission process modules and equipment for O&G exploration and production on a turnkey project basis;
• Contract Engineering (“CE”):
For customers who do not require the full turnkey services, Technics customizes the oil or gas flow and fabricates according to their specifications;
• Procurement and other services (“PS”):
After-sales maintenance service and supply of spare parts and equipment; as well as the Group’s new leasing business for gas compression systems.
The Group’s expanded facilities comprise two waterfront yards extending over approximately
17,000 sqm and 22,500 sqm respectively, in Singapore and Indonesia’s Batam Island.
Business coverage now encompasses Singapore, Malaysia, Thailand, Vietnam, Indonesia, USA, Dubai, Bangladesh and the People’s Republic of China; operating through offices in Singapore, Batam and Vietnam.
Fuelled by a strong commitment to excel and backed by a network of leading MNC customers, major equipment principals and strategic partners, Technics is now poised to embark on a new dimension of growth.
2 Alliances (announced 5 Sep 2006)
to springboard into new market segments (Mgmt is optimistic that this generation of new earnings streams will kick in strongly from FY2007):
(i) Strategic partnership with Global Process System (GPS); leased to GPS certain equipment that are typically utilised in the construction and supply of production and process modules to FPSOs and MOPUs. GPS owns and operates jack-ups and MOPUs in this region while partnering others to exploit the booming turnkey business for FPSOs. GPS has accorded Technics the first right of refusal to undertake contract engineering project work for the MOPU/FPSO process topsides, e.g. the supply of gas compression systems; electrical, controls and instrumentation systems; and process equipment vessels. This alliance has quickly ramped up the activities and output of our new Batam Island yard.
Global Process Systems Inc (GPS) provides turnkey services in all areas of process equipment and Process Engineering Solutions for customers in the Oil & Gas industry. GPS is strategically located in Dubai , UAE, Kuala Lumpur, Malaysia, Moscow and Houston, with branch and affiliate corporate offices throughout Europe, Asia and Middle East. GPS is 70% owned by Al Jaber Group, a multi-billion USD conglomerate headquartered in Abu Dhabi with diversified businesses ranging in infrastructure to integrated logistics. For more information about GPS, please visit the company’s website at : www.globalprocesssystems.com
(ii) 51% Joint Operation with an Indonesian partner, namely PT. Promatcon Tepatguna; able to secure EPCC gas c0mpression systems contracts in Indonesia for on both outright purchase by customers or term leasing basis.
Outlook:a. Management is optimistic: There has never been a better time in the history of Technics when our prospects will be brighter than the present.
b. KeppelFELS, a subsidiary of Keppel Offshore & Marine, a global leader for the design and production of jack-up rigs and a leading player for the conversion of old tankers into FPSO/FSO/MOPU vessels, has been one of Technics' key long term customers.
c. Batam is fast-assuming the mantle as a hub for FPSO process modules benefiting from the spillover effect as customers face long queues for Singapore yards. Large MNC players such as Halliburton and J Ray McDermott have commissioned major projects to yards on Batam Island.
d. Technics' new yards in both Singapore and Batam Island have been qualified by our MNC O&G customers.
e. Technics is focussing on extending the growth of EPCC business for gas compression systems to ride on the strongly emerging demand for natural gas as an alternative energy source to oil.
f. 2 main growth drivers in FY2007:
(i) FPSO market- based on discussion with customers, there are 10 FPSO conversion projects that are scheduled to be awarded by the oil majors in 2007 to leading FPSO players.
With several of Technics' partner-customers in the front-running for these large scale projects, it is optimistic of maintaining our historical participation or strike rate, given its current available capacity as well as proven safety and on-time delivery track records. In particular Technics stand a good chance for EPCC gas compression systems, in view of our authorised integrator status for Ariel and Cameron, which serve as barriers to entry by non-qualified competitors.
(ii) Leasing of Gas Compression Systems- Technics is excited at the upside potential of an emerging leasing trend that has caught on strongly in Indonesia. Its Joint Operation in Indonesia has received indicative demand amounting to about 15 gas compression systems in the short-term from its customer base, either for leasing arrangement or outright purchase.
Technics anticipates that leasing will soon catch on in Malaysia and Thailand, paving the way for Technics' 2nd stage development for this new business to expand beyond Indonesia.
There are 3 drivers for the strong emerging leasing trend. Firstly,
Stockwatch- Sunway City announces JV agreememt to develop condo project in Hyderabad
| Subject | : | SUNWAY CITY BERHAD ("SUNCITY") - JOINT DEVELOPMENT AGREEMENT BETWEEN SUNWAY CITY INDIA PRIVATE LIMITED AND PRAJAY ENGINEERS SYINDICATE LIMITED |
Contents :1.
INTRODUCTIONWe wish to announce that Sunway City India Private Limited ("SCIPL"), a wholly-owned subsidiary of SunCity, had on 28 December 2006, entered into a Joint Development Agreement ("JDA") with Prajay Engineers Syndicate Limited ("PESL") to jointly undertake a residential condominium development on all that piece of land situated in Survey No. 78/B, Hafeezpet Village, Serilingampally Mandal, Ranga Reddy District, Hyderabad measuring approximately 5 acres ("the Land") [hereinafter referred to as "the Proposed Joint Development"]. 2.
INFORMATION ON SCIPL AND PESL2.1
SCIPLSCIPL is a company incorporated in India and having its registered office at No. 20, Uniworth Plaza, Sankey Road, Bangalore 560 020. The authorised and paid-up share capital of SCIPL are Rs100,000,000/- and Rs100,000/- respectively. The principal activities of SCIPL are property development and investment.
2.2
PESL
PESL is a company incorporated in India and having its registered office at 4-1-2/4, Ramkote, Hyderabad. The authorised and paid-up share capital of PESL are Rs350,000,000/- and Rs210,298,290/- respectively. The principal activities of PESL are property development and investment.
3.
SALIENT TERMS OF THE JDA Subject to SCIPL being satisfied with, inter alia, due diligence investigation on the Land, SCIPL shall complete the Proposed Joint Development in accordance with the terms of the JDA.
Pursuant to the JDA, the parties agreed to share the constructed areas of the Proposed Joint Development in the following manner at the option of SCIPL:
Option 1
| No. | Sale Price | PESL's share | SCIPL's share |
| a. | If the average sale price realised is equal to or less than Rs3,500/- per sq. ft. | 45% | 55% |
| b. | If the average sale price is equal to Rs4,000/- per sq. ft. | 50% | 50% |
| c. | If the average sale price is more than Rs3,500/- but less than Rs4,000/- per sq. ft. | Proportionate
adjustment | Proportionate
adjustment |
In the event that the average sale price exceeds Rs4,000/- per sq. ft., the exceeded amount shall be shared equally by both parties, after adjusting any cost overrun as provided in the JDA.
Option 2
The parties shall each be entitled to 50% of the constructed areas of the Proposed Joint Development respectively and SCIPL shall be entitled to put some or all of SCIPL's share of the constructed areas to PESL at Rs4,000/- per sq. ft.
4.
RATIONALEThe Proposed Joint Development represents the first entry of SunCity in the booming real estate market in India and is expected to be the pioneering project for SunCity to secure future possible property projects in India. The Proposed Joint Development affords SunCity the opportunity to develop prime land in India without investment in land acquisition and gain direct access to local property development experience via strategic partnership with PESL.
5.
FEASIBILITY STUDYThe management team of SunCity, the holding company of SCIPL has conducted a feasibility study based on the preliminary high rise residential development concept with a gross development value of Rs3.8 billion (approximately RM300 million). A study tour, consisting of representatives from valuers, marketing experts and cost consultants, was carried out in Hyderabad, India to assess the relevant market conditions of the property development, including but not limited to the supply and demand situation, property pricing and taking into account several local market comparisons and competitive benchmarks. It also reviewed the local development cost structures including the cost of materials, statutory contribution, professional fee, marketing and related expenses as well as related cash flow requirements.
The study revealed that SCIPL's return is assured by a put option to sell its share of the constructed areas to the Joint Development partner, PESL at Rs4,000/- per sq. ft. and at the same time, PESL has also provided certain cost assurance on the construction cost. In addition, there is no requirement to acquire the Land for the Proposed Joint Development. These provide additional contingency and attractiveness for SunCity to venture into a relatively new market overseas. Based on the results of the study, SunCity's management is of the view that the project financials are sufficiently attractive for SunCity to proceed with the Proposed Joint Development.
6.
PROSPECTSIndia's vibrant economic growth, rising income levels, growing middle class and increasing urbanisation are creating new demand for the real estate market. The Indian Government's decision to permit 100% foreign direct investment on the automatic approval route in construction and to allow venture funds in real estate have enhanced the competitiveness of the Indian real estate market and fueled foreign interest in the burgeoning market. As a result, the real estate market in India has been growing 30% annually and is expected to be worth USD90 billion by 2015.
In Hyderabad, the sixth largest city of India, real estate prices have increased by 60% to 70% over the past 2 years. This double-digit growth is attributed to increasing demand by both residential and commercial sectors, specifically the office sector, led by the spurt in the technology sector. With Hyderabad's emergence as India's Information Technology ("IT") and biotechnology hub, the number of professionals employed by the IT & Information Technology Enabled Services Sectors is set to continue growing by 25% per annum, over the next 5 years. All these factors have promoted the bright outlook for the real estate sector.
The real estate market in India has also been identified as a fledgling space for developers with proven track records and overseas developers that can inject offshore talents and creative ideas, provide technological transfers, management and marketing expertise into the industry.
The Proposed Joint Development of high rise residential development, carrying international brand name of SunCity, is expected to fit well in the local property market where there is a pent-up demand for high quality condominium living equipped with security and facilities.
7.
RISK FACTORS The Proposed Joint Development is subject to certain risks in the real estate industry in India. These include changes in general economic conditions such as, but not limited to inflation, taxation, foreign exchange, interest rates, constraints in labour and material supply, changes in business and operating conditions such as, but not limited to government and statutory regulations, deterioration in prevailing market conditions and industrial disputes. New entrant to the real estate market will likely take time to understand the local industry nuances such as changes in regulations on zoning, land acquisition procedures and permissible floor space index (which determines the total construction area as proportion to the total land area). These industry risks are mitigated by having PESL being the local experienced partner in the Proposed Joint Development. The Proposed Joint Development may face competition from other property projects especially local developers with proven track records and foreign developers that carry international brand name. Nevertheless, the local property market remains largely untapped, fragmented, unorganised and lack of refreshing ideas and international quality design. The Proposed Joint Development seeks to be differentiated by introducing the foreign design and new quality standard and taking all necessary steps to maintain competitive edge and gain market acceptance.
Similar to any other business, there will be inherent risks such as the breakout of local political and social unrest or other emergencies could adversely affect the performance and business of the Proposed Joint Development. The Management recognise that these shall be monitored through in depth understanding on the local political and social environment and apply forward planning and proactive steps to early detect the risks and mitigate them accordingly.
8.
SOURCE OF FUNDSSunCity will fund its participation in the Proposed Joint Development through internally generated funds and borrowing. SCIPL plans to undertake the development via its capital investment, funds generated from the Proposed Joint Development and borrowing from the local financial institutions in India.
9.
EFFECTS OF THE JDA9.1
On Share Capital and Substantial Shareholders' ShareholdingThere will be no effect on the share capital and substantial shareholders' shareholding of SunCity as the JDA does not involve any allotment or issuance of new shares by SunCity.
9.2
On Earnings Per Share and Net Tangible Assets Per Share The JDA is not expected to have any immediate material effect on the earnings per share and net tangible assets per share of SunCity for the current financial year ending 30 June 2007 but is expected to contribute positively to the future earnings of SunCity.
10.
APPROVALS REQUIREDThe JDA does not require approval from the shareholders of SunCity or any government authorities in Malaysia.
11.
DIRECTORS' AND MAJOR SHAREHOLDERS' INTERESTSInsofar as the directors are aware, none of the directors or major shareholders of SunCity or persons connected with them has any interest, direct or indirect, in the JDA.
12.
STATEMENT BY THE BOARD OF DIRECTORSThe Board of Directors of SunCity is of the opinion that the JDA is in the best interests of SunCity.
13.
DOCUMENT AVAILABLE FOR INSPECTIONThe JDA is available for inspection at the registered office of SunCity at Level 16, Menara Sunway, Jalan Lagoon Timur, Bandar Sunway, 46150 Petaling Jaya, Selangor Darul Ehsan during normal business hours (9.00 a.m. to 6.00 p.m.) from Monday to Friday (except public holidays) for a period of 3 months from the date of this announcement.
This announcement is dated 4 January 2007.
Stockwatch- Rotary Engineering, OCBC 5 Jan 2007 report up target price to 95ct
OCBC report today on Rotary, target 95ct:
Exciting times ahead
Record new contracts secured in 2006. Rotary won a new S$126m engineering, procurement and construction (EPC) project in late December 2006. We believe that this win is significant in a number of aspects: 1) the contract value is slightly bigger than Rotary's typical project size of
Revisiting our contract win assumptions. We have raised our new contract win assumptions in the FY07/08 forecast periods to S$303m per annum (vs. S$194m previously). This represents a 40% increase in new orders secured vis-à-vis in 2006, which we believe is achievable. First, Rotary has proven its ability to secure about S$200m worth of small-mid sized projects over the past two years. Second, Rotary is having a growing exposure to the overseas markets, like China and Thailand. Indeed, its two new joint ventures in Saudi Arabia have only begun to bid for contracts in 2H 2006. Third, Rotary has a strong track record in the fast expanding local market in Jurong Island. Specifically, the award of piecemeal contracts from the mega US$3b Bukom Shell Houdini project are expected to gain momentum in 1H 2007, and Rotary is one of the leading contenders.
Upward re-rating of Rotary. We believe that Rotary's share price is now poised to retest its upper historical Price to Book ratio (P/B) of 3.2x. The catalysts for a re-rating of Rotary's valuation are likely to come from the market's growing recognition of its inroads made for downstream EPC projects, and the anticipated stronger new orders flow in 2007. Rotary's share price is thus expected to move to a higher P/B trading band of 2.5x to 3.5x, as compared to the 1.5x to 2.5x historical P/B trading band in the past two and a half years.
Higher fair value. We have raised our fair value for Rotary to S$0.95 (vs. a previous post-bonus estimate of S$0.63), using a higher 3.2x P/B (vs. 2.2x previously) and on a higher revised FY07 book value forecast of S$0.30.
The implied 13.7x FY07 PER ratio is also in line with its local oil and gas peers. Maintain BUY.
Stockwatch- Rotary Engineering, Kim Eng 5 Jan 2007 report up target price to a conservative 86ct
Kim Eng report today on Rotary, says 86cts conservative:
Rising Contract Flows
♦ Winning sizeable contracts in Thailand
Rotary Engineering (Rotary) recently secured Engineering, Procurement & Construction (EPC) contracts worth $126m from Map Ta Phut Olefins (MOC), a joint venture between Siam Cement Group and DOW Chemicals. The contracts involve the construction of its off-site process plant facility in Map Ta Phut, Rayong Province. The project involves the construction of the process plant unit consisting of 15 spherical and atmospheric tanks for the storage and handling of various petrochemical products, as part of the New Naphtha Cracker Complex to be built in Map Ta Phut. The contract is expected to be executed over a 24-month period from mid-2007 onwards.
♦ Upgraded earnings forecasts
This is clearly a positive development for Rotary and underscores the group’s growing influence in the Thai market. (In FY05, Thailand contributed 21% to total turnover) Orderbook now stands at $651m. We have upgraded our earnings for FY07 and FY08 by 10% and 9% respectively to reflect growing order flows in the course of the year.
♦ Expected increase in downstream spending bodes well
Shell is building a US$3b petrochemical cracker in Singapore, while ExxonMobil is also looking to increase capacity and plans to add a second comparable cracker unit. The investment is expected to be confirmed in FY07. A total of US$6-8b in capex could be pumped into the Singapore oil refinery sector over the next few years. International Energy Agency (IEA) estimates that new-build cracking refinery cost has risen from around US$3.0b to approximately US$4.0b for a 200 kb/d refinery. The IEA also reckons that refinery construction firms have full orderbooks for the next three years. Although a total of some 15.1 mb/d (equivalent of US$302b) of new capacity has been announced for completion before 2011, there is the risk of delays. Refinery capacity growth is centred on Asia (4.6 mb/d), the Middle East (2.6 mb/d), and North America (1.4 mb/d). Rotary is poised to benefit from these flows.
♦ An affordably priced O&G play; maintain BUY
Rotary remains a relatively under-researched stock and one of the better proxies to the region as well as Singapore’s increasing refinery/oil terminal capex cycle. We believe Rotary deserves a minimum ex-cash multiple of 10.9x 2007 PE (low end of peers’), which translates to a target price of $0.86.
Stockwatch- Rotary Engineering, 26 December, secures S$126m global EPC contracts
Rotary Engineering secures S$126m global EPC contracts in Thailand
Contracts for process plant off-site tank farm unit project speak of Rotary’s regional capability
SINGAPORE, 26 December 2006 – Mainboard-listed Rotary Engineering Limited (“Rotary”), in collaboration with its Thai unit, Thai Rotary Engineering Ltd. (TREL), has secured global Engineering, Procurement & Construction (EPC) contracts worth S$126million from Map Ta Phut Olefins Co. Ltd. (“MOC”), a joint venture between Siam Cement Group and DOW Chemicals, for the construction of its process plant off-site facility in Map Ta Phut, Rayong Province, Thailand.
Rotary is a leading provider of engineering, procurement, construction and maintenance services supporting the oil-and-gas and petrochemical industry.
This project involves the construction of the process plant off-site tank farm unit consisting of fifteen spherical and atmospheric tanks. These are for the storage and handling of various petrochemical products, as part of the related facility for the New Naphtha Cracker Complex to be built in RIL Industrial Estate in Map Ta Phut area. MOC plant is scheduled to be in operation in 2010.
Said Mr Chia Kim Piow, Rotary’s Chairman and Managing Director at the contract award ceremony: “We are indeed honoured to be entrusted with this prestigious project. This is a recognition of Rotary’s track record in the petroleum and petrochemical storage capabilities to deliver projects of this scale. Rotary has broadened its scope, from building storage terminal for independent terminal operators to building the Offsite and Utilities packages for process plants in the oil and gas industry.”
Rotary Engineering’s 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.
Rotary Engineering turned in a net profit after tax and minority interest of S$16million for its first half ended 30 June 2006, an increase of 395% over the S$3.2million it made in the same period the previous year. Group turnover for the first six months of 2006 stands at S$202million, an increase of 150% over the S$80.7million it achieved in the previous corresponding period
