Ekovest outstanding order book Sept 26 2016 UOB

Rise of the DUKE

KUALA LUMPUR — Ekovest is a deeply undervalued contractor and concessionaire, as per the recent announcement of its 40% sale of Duta-Ulu Kelang Expressway (DUKE) 1 and 2 to the Employee Provident Fund (EPF).

UOB Kay Hian in research note last Friday, the EPF deal implicitly values just one of its many assets at RM2.8 billion, significantly below its RM1.7 billion market cap.

Ekovest recently announced that it has entered into a binding term sheet that would see it disposing of a 40% equity stake in Konsortium Lebuhraya Utara-Timur (KL), the holding company of the DUKE 1 and 2 highway, to EPF for RM1.13 billion.

“This sum implicitly values the expressways at RM2.82 billion versus Ekovest’s market cap of RM1.69 billion. While the group has made no official commitments, we do not discount the possibility that part of the cash proceeds would be declared as special dividends in the near term,” said UOB Kay Hian analyst Ridhwan Effendy.

Ekovest’s longer-term outlook was given a boost with the recent announcement that it has been granted a 53.5-year concession to build, operate and transfer the new 50km Setiawangsa-Pantai Expressway (SPE) (formerly known as DUKE Phase 3) that links MRR2 at Taman Melati to Kerinchi Link at Federal Highway.

Effendy opined that alongside the benefit of obtaining a concession, the new expressway would enhance Ekovest’s medium-term order book visibility, as the group would snap up much of the construction jobs worth over RM3.7 billion.

“We expect the construction jobs to contribute RM139 million to RM212 million per annum to Ekovest’s financials for the next three years,” he said.

The analyst sees Ekovest’s RM4.5 billion external outstanding order book represents a superior order book cover of 5.6x, significantly above that of other construction companies under UOB Kay Hian’s coverage, which usually ranges from 1.7x-3.8x.

“About 84% of the outstanding order book is from the SPE. We gather that the group is aiming to secure another RM1b worth of infrastructure-related construction jobs in FY17,” he said.

UOB Kay Hian said it initiates coverage on Ekovest with a “buy” call with a target price of RM3.00, based on a 40% discount to its fully-diluted sum-of-the-parts valuation of RM5.00 per share.

“We ascribe a huge discount to the valuation to reflect risk factors that cannot be accurately modelled, particularly for the DUKE 1 and 2 highway concessions due to their long concession periods.

“We like Ekovest for its undervalued concession asset whose value has yet to be appreciated, its huge construction order book backlog that is significantly above that of other construction companies under our coverage, and the good locations of its land banks.

“Our target price implies a 2018 financial year forecast (FY18F) price-to-equity ratio of 18.2x, which is also supported by a strong three-year (FY16-19F) earnings combined annual growth rate of 68.6%,” said the research house.

UOB Kay Hian said its equity discounted cash flow (DCF) valuation for DUKE 1 and 2 is at RM3.16 billion. As both DUKE 1 and 2 are concessions that deliver a stable cash flow, we believe the DCF method would be appropriate for valuing the two expressways.

In the valuation methodology, the research house has assumed a discount rate of 7.1%.

“Our valuations for DUKE 1 and 2 are at a slight premium to EPF’s implied purchase price of RM2.825 billion for the expressways.”

Hangover in the rig market, no recovery anticipated

AMPANG — Malaysian rig count is at an all time low, said HLIB Research yesterday in an analyst report, in which it suggested the rig count dropped to as low as four this year compared to six to 10 rigs range seen last year.

“It is a dismal environment to operate in for local rig players. The rig count seems to lag the oil price trend based on our observations possibly due to rig demobilisation lag and decision-making lag by the oil producers.”

The research house said its study has shown that oil price volatility is in fact a better gauge for predicting rig count levels.

The trend is evident from the 2009 to 2011 periods whereby oil prices were rising but with volatility while rig counts were still stalling.

Rig count only improved in the 2011 to 2014 time period where oil prices stabilised above US$100 per barrel levels.

“Despite improvement in oil prices in the second half of this year from a low of US$30 per barrel earlier this year, we do not anticipate strong recovery in rig counts despite expectation of improvement in oil prices in 2017. We opine that a few overhangs need to be cleared:

(i) Organization of Petroleum Exporting Countries’ decision in production freeze

(ii) Rising oil production in Russia, and

(iii) Shorter than average investment cycle of US shale oil drilling.

Daily charter rates for high-spec jack up rigs had plunged to US$70,000-US$90,000 (RM289,000-372,000) per day from US$130,000-US$150,000 per day amid severe industry downturn.

HLIB Research does not anticipate the rates to recover to their previous highs at least for next year underpinned by two major arguments:

(i) Oil prices are not expected to recover to US$70 per barrel level and beyond soon, pushing oil producers to keep their costs low despite recovery in industry activity, and

(ii) Supply overhang of 177 rigs still under various construction stages in the yards which needs to be absorbed.

Other than fundamental industry issues, the local rig market also faces critical financing issues. Two major rig players, namely Perisai and Umwog, have a total short-term financing gap of close to circa RM1 billion based on our calculations. Debt refinancing is always the first choice but we opine that it is difficult to obtain in this environment due to low bank appetite to provide credit to oil and gas companies.

The companies may resort to equity fund raising as the last resort to bridge their financing gap. This would be dilutive for their shareholders with Perisai facing a larger dilutive impact as 3.9 billion new shares need to be issued based on last traded price compared to 461.2 million shares for Umwog.

This could send a negative signal to the market but the possibility of this solution to be employed is still there in our opinion.

The research house said weaker than expected oil production growth is expected as well as a further slump in oil prices, despite a significant supply overhang in jack up rig market

To that effect, HLIB Research remains “neutral” on the industry, with the positive being the lower capital expenditure from oil producers reining in oil production, while the negative is persistent oversupply in the market.

The research house maintained a “sell” on Umwog with a target price of RM0.69 (based on 0.5x price by volume), and ceased coverage of Perisai due to high liquidity risk amid difficult operating environments.

Grab nutonomy taxi in Singapore Reuters

Grab expands public trial of self-driving cars in Singapore

SINGAPORE — Grab, in a partnership with technology company nuTonomy, announced the expansion of its ongoing public trial of self-driving cars in Singapore.

The trial will give select Grab users a chance to experience the full end-to-end experience of e-hailing and riding in a nuTonomy self-driving vehicle (SDV).

Grab chief executive officer and co-founder Anthony Tan said: “Grab and nuTonomy share a similar vision of advancing Singapore’s world-class public transport network by offering the widest range of mobility services to commuters.

“This landmark tech partnership is a step towards supplementing Singapore’s transport network with an innovative driverless commuting option for underserved areas of Singapore — all accessible through the Grab app. We look forward to collaborating with nuTonomy to research this future mobility solution as part of our growing platform of mobility offerings.”

Combining nuTonomy’s SDV software and technology system with Grab’s fleet routing technology and mapping in its app will enable both companies to study the end-to-end user experience of on-demand hailing of SDVs. In particular, the trial will be a valuable opportunity to conduct user experience research around how passengers book and interact with SDVs.

The results will be used to enhance Grab’s routing technology and mapping for SDVs, as well as improve the comfort, performance, and safety of nuTonomy’s SDVs.

According to Grab’s traffic data, drivers in Singapore are less likely to accept a passenger booking request originating from or destined for remote locations.

For example, in the more remote areas of Singapore like Jurong Island, Lim Chu Kang and Tuas, passengers are four times less likely to get a successful ride booking on their first try.

These findings illustrate the transportation need in the nation’s underserved remote locations that robo-cars can help meet.

The partnership expands nuTonomy’s first-ever public trial of its self-driving car service, which it launched on Aug 25 in one-north, where nuTonomy has been conducting daily testing of its self-driving cars since April.

Encompassing light and heavy traffic routes, one-north has been designated by Singapore’s Land Transport Authority as the testbed for self-driving cars.

Singapore is uniquely positioned to become a car-lite society with its world-class public transit network and infrastructure, making the nation an ideal market to trial SDV technology.

nuTonomy develops state-of-the-art software for self-driving cars.

Largest MaGIC fair connects young talents

CYBERJAYA — The Malaysian Global Innovation & Creativity Centre (MaGIC) Academy Symposium 2016 (MA2016) career fair provided students and aspiring entrepreneurs with intimate insights into the daily operations of startups and existing career opportunities, said MaGIC chief executive officer Ashran Ghazi.

“The Tech in Asia X MaGIC Career Fair was definitely a highlight for MA2016. It was great to connect Malaysia’s best talents with the nation’s up-and-coming startups.

“The symposium provided a full circle experience for aspiring entrepreneurs — offering insights from leading industry experts, and also opportunities for sharpening skills through the 120 different workshop sessions as well as practical knowledge through interaction with those startups participating in our career fair,” he said.

The four-day event gathered more than 2,000 aspiring entrepreneurs, startups, social entrepreneurs, and job seekers for the region’s most comprehensive startup symposium.

Startups at every growth stage participated in workshops and received insightful content in entrepreneurship and social enterprise from keynote speakers such as Girls in Tech founder and chief executive officer (CEO) Adriana Gascoigne, Digg founder and CEO Gary Liu, Digi-X chief digital officer Praveen Rajan, Kad Africa founder Eric Kaduru, Gawad Kalinga founder Tony Meloto and FashionValet CEO Fadzarudin Anuar.

Ashran said the event was part of MaGIC’s commitment to develop Malaysia’s entrepreneurial talents and equip them with relevant skills.

“We hope that our partners, keynote speakers, and participants join us again next year. Together, we can build a better entrepreneur ecosystem in Malaysia,” he said.

Participants, mostly made up of university students looking for internships, also had positive feedback about the career fair, which allowed them to learn more about startups’ working culture, career progressions, and much more.

MA2016 followed the huge success of the MA2015 Symposium which saw approximately over 2000 participants attending the event, including fresh graduates and job seekers who met with over 100 startups in MA2015’s career fair, said MaGIC in a media statement.

MaGIC Academy started in 2014 as the MaGIC Startup Academy, which aims to provide entrepreneurs with an opportunity to take part in workshops and courses led by some of the most experienced domain experts from Malaysia and around the world.

DBhd in RM124m JV with TMR to service Petronas

KUALA LUMPUR —Damansara Realty Berhad (DBhd) said its wholly owned subsidiary TMR Urusharta (M) Sdn Bhd (TMR) has formed a joint venture with L.C. Catering Sdn Bhd (L.C. Catering) to provide facilities management and catering services to Petronas Refinery and Petrochemical Corporation Sdn Bhd in a contract worth RM124 million.

TMR LC Services Sdn Bhd, the joint venture will be 70% owned by TMR and 30% by L.C. Catering, will operate and maintain the temporary executive village and the management office for Petronas’ Refinery and Petrochemical Integrated Development (Rapid) project in Pengerang, Johor.

Slated to be the largest integrated refinery and petrochemical hub in the region, Rapid is the second mega-project in Johor’s Pengerang Integrated Petroleum Complex, which houses oil refineries and petrochemical plants.

The joint venture will provide general cleaning, pest control, landscaping and other services to Petronas’ temporary executive village and management office from Nov 1.

The contract is to be completed approximately over 38 months.

Kuala Lumpur-based TMR is an integrated facilities management and engineering solutions provider. Back in March, it won a three-year contract worth RM35 million from Malaysia Airports (Sepang) Sdn Bhd to provide cleaning and related services at the Kuala Lumpur International Airport.

L.C. Catering, based in Johor Bahru, has more than 25 years’ experience in food catering and event management.

Singapore fund to raise S$1.2b for Asian properties

SINGAPORE — SC Capital Partners, a private-equity real estate firm with investments throughout Asia, plans to raise about US$1 billion (RM4.13 billion) to expand its portfolio in the region as investors clamour for riskier assets.

New funds will come from institutional investors early next year for real estate opportunities in countries such as Japan and Australia, said Suchad Chiaranussati, chairman and founder of the Singapore-based company with about US$5 billion in assets. The company currently manages money for investors including endowments and pension funds from the US, Europe and Asia, he said.

SC Capital is responding to demand among global investors for higher-yielding assets as it becomes increasingly evident that central banks will keep their benchmark interest rates low for longer. Even with the recent selloff in global debt markets, bond yields from the US to Japan and Europe are close to record lows, enhancing the appeal of riskier assets such as real estate.

“There are a number of office buildings, hotels and other properties in the region which have potential for good investment returns,” Suchad, 52, said in an interview in Bangkok Thursday. “With a low-yield environment, most of our existing investors have expressed a strong desire to participate in the next fundraising.”

Suchad, who is a Thai national living in Singapore, worked at the Bank of Thailand and JPMorgan Chase & Co before founding SC Capital in 2004. The company has raised about US$1.8 billion of funds worldwide to invest in properties in the Asia-Pacific region, according to its website. Its fund holdings include hotels, beach villas and office buildings in countries such as Australia, South Korea, the Maldives, Japan and Thailand.

Rising tourist arrivals have boosted demand for commercial properties in Japan and Thailand.

Commercial land prices in Japan’s three biggest cities rose for a fourth year, as a record influx of tourists boosts demand for shops and hotels, the Ministry of Land, Infrastructure, Transport and Tourism said in a report Sept 20. Visitor numbers to Japan are set for a record year, with tourist arrivals rising 27% to 14 million in the first seven months, according to the Japan National Tourism Organization.

“Booming tourists will continue to drive the growth of hotel properties in Japan,” said Suchad. “It’s much harder to acquire hotels in Japan at attractive prices compared with when we first invested there right after the tsunami-earthquake incident in 2011.”

The company’s biggest investment is in Japan Hotel REIT Investment Corp, which owns 41 hotels in the country. The real estate investment trust (REIT) fund, with a market value of about US$3.1 billion, is listed on the Tokyo Stock Exchange. SC Capital plans to inject more money into the Japan hotel REIT, Suchad said.

In Thailand, SC Capital plans to sell the leasing right to Mercury Tower, an office building in Bangkok, through a real estate investment trust, said Suchad. Thailand Prime Property Freehold and Leasehold Real Estate Investment Trust will raise about 5.5 billion baht (RM656.3 million) from local institutional investors in the fourth quarter, he said. The new real REIT will buy the leasing right to Mercury Tower and the ownership of ExchangeTower, another Bangkok office building, from another investors, Suchad said. — Bloomberg

(US$1 = RM4.13)

Viet Dong held by bank teller Bloomberg

Vietnam foreign currency reserves at record high

HANOI — So far this year the State Bank of Vietnam has bought over US$10 billion (RM41.3 billion) in foreign exchange, increasing the country’s reserves to a record high of more than US$40 billion.

The figure is up sharply from US$28.6 billion (equivalent to 1.9 months of imports) late last year.

One of the reasons for the huge foreign exchange buying is banks’ massive liquidity.

For instance, as of late July, broad money supply was 7,489 trillion dong (RM1.39 trillion), a 12.5% increase from the end of last year. Of the figure, 74.9% was in the banking sector.

In the period, bank deposits rose 11% while lending grew at only 9.2%.

To mop up some of the money, the central bank has consistently bought the greenback and also stepped up issuance of short-term treasury bonds in dong.

It has also mobilised more than 128 trillion dong through open market operations, buying US$97 million equivalent on Sept 9 and US$101 million three days later.

Through all these measures, the dong has remained steady against the dollar at 22,300 to 22,350 dong.

In addition, credit default swap rates tended to slightly decrease and forward rates have remained unchanged for several months. From these, the conclusion is the current exchange rate is rather stable.

Another reason for the foreign exchange rate stability is the plentiful availability of the greenback.

By Aug 20, disbursements for the year by foreign investors topped US$9.8 billion — an 8.9% rise from the same period last year.

Meanwhile, demand for foreign exchange has shown no signs of increasing because imports have tended to go down in recent months. As of Aug 15, imports for the year were US$102.36 billion, down 0.4% year-on-year.

All this means there will not be too much pressure on the foreign exchange market during the rest of the year.

Analysts expect no volatility in exchange rates during the period.

But they said the Vietnamese government and the central bank should identify the targets that need to be given priority and regulate exchange rates based on them.

The analysts suggested that the central bank should consider greater use of derivatives such as options to create tools to support risk prevention and management.

By doing this, it would also diversify the financial tools available in the market, bringing it in line with the rest of the world, they said. — VNS

(RM1 = 5,395 dong, US1 = RM4.13)

Hyundai Motor workers strike 2013 Reuters

Hyundai Motor union stages full strike

SEOUL — Hyundai Motor’s South Korean labour union staged its first full nationwide strike in 12 years yesterday over wages, putting the automaker’s earnings and sales targets at risk.

The full-day walkout came after a series of partial stoppages since July at the automaker’s factories across South Korea, its biggest manufacturing base which produces nearly 40% of its vehicles sold globally last year.

Sporadic strikes since July had led to lost production of 101,400 vehicles worth 2.23 trillion won (RM8.31 billion) as of Friday, the biggest output loss for the automaker in terms of value of vehicles.

“This year’s strike is lasting longer than expected. The third-quarter earnings should disappoint,” Eim Eun-young, an auto analyst at Samsung Securities, said, also citing weak domestic demand.

Hyundai, the world’s fifth-biggest automaker along with Kia Motors, said in a statement yesterday it was “obviously disappointed” with any stoppage in production and was continuing to work with the union to resolve this dispute.

The 48,000-member union plans to stage a partial strike for the remainder of this week while continuing annual wage talks, a union official said.

Hyundai Motor has been hit by strikes in all but four of the union’s 29-year history, although it usually makes up for lost output by the end of each year.

The company posted its tenth consecutive quarterly profit fall in the April-to-June period, hit by an emerging market downturn and its failure to tap into strong global demand for sport utility vehicles.

Cho Soo-hong, an analyst at NH Investment & Securities, said Hyundai and Kia Motors were expected to see global sales slip 0.6% to about 7.96 million vehicles this year, below their targets of 8.13 million vehicles.

Shares of Hyundai Motor were down 2% at 139,000 won as of 0240 GMT, about half of the record-high level posted in May 2012.

Late last month, Hyundai Motor’s unionised workers in South Korea overwhelmingly voted down a tentative wage deal which was less generous than last year’s package. — Reuters

(RM1 = 268.36 won)

Goldman Sachs cuts Asian jobs as equity offerings plummet

HONG KONG — Goldman Sachs Group Inc plans to cut about a quarter of its investment-banking jobs in Asia, excluding Japan, because of a slump in deal-making in the region, according to a person with knowledge of the matter.

The New York-based bank plans to make the cutback of about 75 jobs in the region later this year, the person said, asking not to be identified because the matter is confidential. The job reduction comes as the bank faces its worst Asia ranking in equity issuance since 2008, according to data compiled by Bloomberg data. A Goldman Sachs spokesman said he was unable to comment.

Asia ex-Japan equity offerings have declined 29% this year, and Goldman’s ranking plummeted to 11th from second last year, its worst showing in about eight years, the data show.

Chinese securities firms are mounting a challenge to western banks like Goldman Sachs and Morgan Stanley in Asia, with mainland companies occupying seven of the top 10 positions in advising on Hong Kong initial public offerings this year, data compiled by Bloomberg show. Postal Savings Bank of China Co raised US$7.4 billion (RM30.6 billion) in a Hong Kong initial public offering this week, the world’s biggest first-time share sale this year.

Global investment banks have reduced headcount to trim costs after reporting declines in profit this year. UBS AG trimmed senior management ranks in the region, removing an Asia investment banking co-head position in July. The bank’s pretax profit at its investment bank slumped 48% in the second quarter, which the bank partly blamed on a slowdown in its Asia-Pacific equities business. Nomura Holdings Inc and Macquarie Group Ltd also cut jobs this year.

Goldman Sachs last month told US regulators it plans to eliminate 15 positions in New York before the end of this year to reflect slower trading and investment-banking activity. Goldman Sachs has cut jobs at least four times this year, with prior announcements informing New York officials of 408 dismissals. The bank has also extended cutbacks in its fixed-income division to roughly 10% of staff, double what it normally culls every year.

Reuters earlier reported Goldman is cutting almost 30% of the investment-banking jobs in ex-Japan Asia.
— Bloomberg

Thai exports rise for the first time in 
5 months

BANGKOK — Thailand exports rose for the first time in five months in August following a surge in vehicle shipments, according to data from the Ministry of Commerce.

Exports gained 6.5% in August from a year earlier, compared to a median estimate of a 1% contraction in a Bloomberg survey of 14 economists.

Automobiles, which make up 12% of total exports, climbed 40.4% in August from a year earlier.

Industrial exports rose 9%, led by auto, steel and semiconductor sectors.

Thailand posted a trade surplus of US$2.13 billion (RM8.81 billion) in August, compared with US$1.2 billion in the previous month.

The surge in vehicle shipment is helping to support an economy that’s been hit by sliding global demand and weak consumer sentiment. Part of the surge in vehicle exports last month was due to US$370 million of shipments that the customs department failed to book in July because of technical issues, Deputy Commerce Minister Suvit Maesincee.

The Ministry of Commerce sees exports likely posting zero expansion to a contraction of 1%.

Exports were up 14.9% to the US, 11.8% to the European Union, 5.7% to Japan and 4.4% to Japan

Deputy director general for the Ministry of Commerce’s trade policy and strategy office told reporters the “export situation is expected to improve for the rest of this year as exports of oil-related products and commodity products are likely to get better in line with recovering oil prices”.
— Bloomberg

(US$1 = RM4.13)

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