Company Notes 2018.01.26

iCapital.biz Q2 FY2018 Results

The KLCI only includes the 30 largest companies in the Malaysian stock market. The only criterion for a stock to be included in the KLCI is the company’s market capitalisation, with no consideration given to the company’s fundamentals. This selection methodology is totally different from icapital.biz Berhad’s value investing strategy. Besides, the KLCI is a 100% equity only index, but icapital.biz Berhad’s is permitted to be 100% invested in equities or to be 0% invested in equities. GIPS or the Global Investment Performance Standards recommends that an appropriate benchmark must reflect the investment mandate, objective, or strategy of the portfolio.

Based on this, there is no suitable benchmark for icapital.biz Berhad considering its long-term absolute return objective and eclectic value investing strategy. Considering the nature of icapital.biz Berhad and how KLCI is constructed, I am of the opinion that the most appropriate benchmark would be the yield of the 5-year Malaysian government bond.

For the quarter ended 30th November 2017, the cash holdings of icapital.biz Berhad have fallen further as we have bought some shares. Finding attractive stocks to invest with sufficient margin of safety remains our focus.


UCrest Q2 FY2018 Results

Palette has moved into the medtech space with the significant investment made over the past few years on the development of imedic, the mobile health system. imedic enable patients to have wireless medical devices at home or anywhere, to regularly make measurement and upload the vital sign data to the Cloud. This would allow doctors from anywhere in the world to have access to the patient’s data 24×7 to review and provide online consultation to the patients. More than 15 devices have been developed to connect to imedic including CPAP machines for sleep apnea patients. The Company will continue to invest in the innovation and development of its next generation of imedic with extensive artificial intelligence (AI) technologies performing analytic on the “Big Data” of the patients and make useful recommendation of diagnosis and treatment plan to the doctors and patients.

The Company has effectively combined the latest innovative technologies: medtech, AI and Big Data in imedic. The power to be unleashed from these 3 technologies could be enormous.


CapitaLand Malaysia Mall Trust Q4 FY2017 Results

The decrease was mainly due to negative rental reversions from Sungei Wang (SW), as SW continues to be affected by the closure of BB Plaza. Lower gross revenue was recorded for The Mines (TM) mainly due to lower rental rates and occupancy whilst lower gross revenue in Tropicana City Property (TCP) was mainly due to lower occupany at the office tower and softer demand for promotional space at the mall. The decrease was mitigated by better performance from Gurney Plaza (GP) and East Coast Mall (ECM) on the back of higher rental rates and gross turnover rent.


Pensonic Q2 FY2018 Results

The Group is developing our Digital Customer Relationship Management. The objective of the platform is to provide customers with direct after-sales service solutions with easier online service calls, marketing automation, e-commerce, royalty programme and smart appliance management.

The Group has also started our e-commerce and partnership with various reputable marketplaces, as well as TV shopping channels. We have seen significant improvement in revenue. However, it is still minimal comparing to the total group revenue. With the e-commerce platform, we will be developing our Online-To-Offline commerce with our existing dealers to create a win-win business solution in this trending e-commerce market. We are expecting a full force digital marketing by end of the 2018.

On top of that, the Group is in the process of securing 2 new distributorships of electrical appliances brands from United Kingdom. These distributorships cover Malaysia and Singapore and is anticipated to contribute to Group revenue in mid to long term.


Suiwah Q2 FY2018 Results

The Group will continue to seek further opportunities to embrace Retail 4.0 (Industrial Automation) by leveraging technology and reinventing value add offerings, which we expect the momentum to be sustained going into 2018.

Manufacturing revenue was slow this quarter due to delay in some customers’ product launch. The new expansion project at Batu Kawan is progressing well and is as per schedule to be completed by next quarter.

GHL to offer Alipay services in Philippines

“The company started with Alipay in 2016 in Thailand and Malaysia in April 2017 and now with the Philippine market, GHL looked to expanding further to the region as Alipay’s key Asean partner.”

To date, GHL Thailand has enabled over 900 merchant acceptance points and GHL Malaysia has enable 5,400 acceptance points in the hotels, retail chain stores, convenience stores and F&B space which has high Chinese tourist foot traffic.

GHL said 810,807 tourists from China visited the Philippines during the first 10 months of 2017, compared to the whole of 2016, which totalled 675,663.

“With the implementation of the visa upon arrival programme in the Philippines, it is expected to grow further. This bodes well for Philippine businesses and merchants as Chinese tourists generally carry the Alipay mobile wallet.”


Texchem to open 80 more Sushi King outlets by 2021

“This year, the capital expenditure of the group is planned to be around RM35mil, of which RM30mil is for the restaurant division while the remaining RM5mil will go to the industrial and polymer engineering divisions. There are presently 19 Yoshinoya and Hanamaru restaurants nationwide. Subsequently, there will be 20 new Sushi King restaurants opened each year until 2021.” Konishi said the group would also this year set up five new Yoshinoya and Hanamaru restaurants, costing about RM750,000 each.

“The polymer engineering division makes semiconductor trays and packaging for hard-disk drive. There are plans to diverse into manufacturing products to support the medical device and life science industries.”


Mexter’s healthcare business takes off

“The healthcare industry is a comparatively stable market and is anticipated to compensate for business cycle fluctuations. Mexter has chosen mother-and-child-related healthcare services as its maiden focus in the healthcare segment as Malaysia has a relatively young demographic, which makes this sub-segment an attractive business proposition with good long-term viability”

“This would make Mexter the first listed company in Malaysia (and globally to the best of our knowledge) to have postpartum care as its primary business,” CIMB Research stated.


IoT solution is Mikro MSC’s new growth driver

The new IoT solution would be a preventive solution for its consumers, as the real-time data and information collected could indicate if there are any possible defects. “For example, if the heat being released is more than usual, it could be an indicator that some parts have aged or need replacements. This helps avoid any disruption to our customers,” Fong added.

“It has taken longer than we expected to move to the new factory due to some approvals [that needed to be obtained]. Nonetheless, we are looking to complete the move by the first half of this year. Once all the new machines and automation are set in the new factory, they will also help enhance the efficiency of our operation. All these will eventually add to the bottom line moving forward.”


Saudee’s food service revamped

“We cannot keep operating a business-as-usual mode and expect to see changes in our earnings,” said Chong. Early last year, the group pulled up its underrated food service segment — involving the supply of ready-to-eat food products to restaurant chains — a non-core unit under the FPP sector, which was given a new lease of life. Chong said the measures were put in place in the second half of FY17.

“People tell us to sell cheap, but we don’t want to be branded in that category. We had no choice but to refocus on food service. The original equipment manufacturing (OEM) and exports under the FPP segment would remain. We want to do premium products only,” he added.

Saudee is also in discussions with a distributor in Japan to expand its food service business there. The group only supplies one OEM brand to Japan. Chong said more than 90% of its revenue is derived from Malaysia, with the FPP and trading segments contributing equally. Within the FPP, Saudee’s “own brand” product section makes up almost 80% of the business unit’s revenue.

“We are chopping the volume of trading tremendously because we don’t believe in that so much. It has incurred losses in the past. It gives revenue but not profit. We cannot control forex … it is unpredictable. We have to buy food products with cash. We have no time to react to forex [fluctuations]. It is like a hedging gambling business, which we don’t want to engage much in,” he said.


Perodua, Proton to be hit most by lending guidelines

“The continued high rejection rate for loan approvals will still be among the most difficult challenges not just for consumers but car companies,” MAA president Datuk Aishah Ahmad told a media briefing. “Excluding luxury vehicle sellers, as their markets have the money to easily buy their products, it’s the local players which will be affected the most.” Aishah pointed out two prevailing issues which could reinforce more stringent lending practices, namely the implementation of the Malaysian Financial Reporting Standards 9 (MFRS 9) since Jan 1, 2018, as well as the high household debt levels.


Ireka joins China firms to explore driverless rail transit

CRRC UT president Gu Yifeng said the ART system, developed by China-based CRRC Group, is already operating in Zhuzhou, China and the company intends to make Malaysia a springboard to the rest of Southeast Asia. “Why we chose Ireka? From what we have seen, Ireka has been in the construction industry for the past 50 years and it has a strong technical capability, focusing on professionalism,” he told a news conference after the MoU signing ceremony yesterday. Our investment in Ireka was a good start for both companies to create a synergistic collaboration and investment. If the Malaysian market requires us to invest more, we will definitely do so.”

“Construction still accounts for almost 90% of our turnover and our outstanding order book currently stands at about RM400 million, which should keep us busy for two years.”


Stronger ringgit good for F&N as net importer

“A stronger ringgit is definitely good for the group and its overall business. For example, we import a lot of dairy products, especially raw materials, from several foreign countries and transactions are predominantly done in the US dollar.”

“The first quarter [ended Dec 31, 2016 or 1QFY17] was a bit tough for us as it was the peak [of raw material costs]. But now, we can breathe a little.”

“Our products are for the masses and for that reason, we believe increasing prices are the last thing will consider. As it is, sugar prices are moderating, so increasing prices is not on the cards.”


iPay88 online transactions hit RM6.6bil

“In the month of January 2017, we recorded a little less than two million mobile-type online payments. Moving onward to December 2017, in that month alone this number shot up to 3.5 million mobile online transactions.”

“More shoppers are now accessing the shopping sites using a mobile (device) than a desktop. iPay88 statistics show that the trend of m-Commerce has been changing since 2015. In the first quarter of 2015, desktop transactions doubled mobile transactions. Subsequently in the first quarter of 2016, mobile transactions were on par with desktop transactions.”

US tariffs to hit Malaysia PV exporters most

Malaysia has emerged as the largest exporter of PV cells and modules to the US with a market share of 25% by value and 30% by capacity in 2016, benefiting from the fall in China’s share from a peak of 59% in 2011 to 21% in 2016 after the US imposed anti-dumping and countervailing duties in 2012. The US government alleges that China’s PV manufacturers evaded these tariffs by subsequently shifting PV production to countries like Malaysia, Singapore, Germany and South Korea.

“UN Comtrade data shows outbound shipments of PV products to the US comprised 1.1% of Malaysia’s total exports in 2016. According to a Malaysia Investment Development Authority (MIDA) survey in 2016, 89% of Malaysia’s total PV production was exported.”

Company Notes 2017.11.17

United Plantations Q3 FY2017 Results

In the U.S., the soy bean harvest is in full swing and weather has been favorable, hence, the U.S. soy bean production is expected to be historically high due to the increased planted acreage in combination with good yields. In South America, the soy bean plantings are delayed in Argentina due to excessive moisture and in the northern part of Brazil due to dry conditions, however, at time of writing it’s still too early to ignore an expected South American bumper crop. The increase in soy bean production is therefore expected to have a negative impact on prices during 2018 as global vegetable oil stocks are expected to recover from current levels


Hovid Q1 FY2018 Results

Preceding quarter’s revenue was affected by lower sales and products being out-of-stock as they were depleted during the period when the manufacturing licences were revoked, and production not being able to run optimally due to insufficient workers during the initial months subsequent to the reissuance of the manufacturing licences. In comparison, production for all plants are operating at 24 hours a day during the current quarter to deliver the back-orders received during the period the licences were revoked.


Ranhill Holdings Q3 FY2017 Results

As for the International Environment sector, our strong partnership with SIIC has resulted in reducing the project loans’ interest with an average interest saving of approximately 1%. The joint venture is now poised to commence exploring new opportunities for industrial waste water concession contracts and other potential water related works in China and other South East Asia countries under the One Belt One Road initiative. 


Scicom MSC Q1 FY2018 Results

The BPO division has taken the following actions to mitigate the impact from clients’ change in strategy: a. Cost mitigation – The BPO division is mitigating its cost structure on two major fronts, namely controlling operations cost and enhancing utilization of the Group’s fixed asset base. For the current financial quarter under review as an indicator, direct contribution increased slightly to 30.5% as compared to 29.3% for the preceding financial year ended 30 June 2017; b. Extensive build up in sales pipeline Leveraging on Scicom’s track record and experience in multilingual contact centre management, Scicom’s business development team has been actively participating in new tenders with estimated contract value of approximately RM105 million. The management further expects to substantially successfully convert outstanding tenders from the above pipeline to commence operations and contribute to the Group’s bottom line by the fourth quarter of the current FY.


Apex Healthcare Q3 FY2017 Results

Steady revenue growth was achieved across all business units, with increased contributions from pharmaceutical sales to the Government sector and contract manufacturing services

During the quarter, the Group’s pharmaceutical manufacturing operations secured certification for compliance with European Union Good Manufacturing Practice, opening future growth opportunities.


Paramount Corporation Q3 FY2017 Results

…following the completion of the Sale and Leaseback agreement with Alpha REIT to dispose of the Sri KDU campus under its asset-light strategy which generated a gain on disposal of RM77.8 million. With the completion of the Sale and Leaseback agreement with Alpha REIT, as part of its asset-light strategy,
the Group would continue to explore opportunities to enter into similar ventures in future.

With the enlarged K-12 segment, comprising Sri KDU and REAL Education which offer premium and more affordably priced alternative private and international schools respectively, Paramount Education is now able to reach a wider segment of the K-12 market. Sri KDU’s mark of excellence in quality education continues to prevail in the market. Following the success of PISA in 2012, Sri KDU International School achieved the International School Quality Mark (ISQM) Gold Award this year, the first in Malaysia and third in Asia to procure this award.


Eastern & Oriental Q2 FY2018 Results

In the past months we are beginning to see more enquiries and bookings for our existing projects in STP1 namely Andaman and Tamarind. Besides selling down our inventory to improve our cash position and net gearing levels, we are heartened by the numerous unsolicited interest in our non-core assets which we have identified for disposal.


Lay Hong Q2 FY2018 Results

The entry of NH Foods Ltd into the Company as a substantial shareholder recently has marked a major step forward for the Company’s chicken product manufacturing business in the form of new product development and market penetration.

The Company is on track with its planned expansion to increase our production capacity. Our egg production now stands at approximately 2.3 million eggs per day to date and is expected to grow to our target. At the same time, our broiler capacity will increase to cater to new requirements in our food processing taking into consideration our JV with NH Foods Ltd.

The Company is constantly reviewing its strategies and will capitalize on the strength of NH Foods to take the Company to greater heights. A new joint venture company under the name of NHF Manufacturing (Malaysia) Sdn Bhd has been set-up and is now actively working on its plant set-up and product development. As at to-date, a total of 11 products have been launched and the response has been encouraging. The Company is continuously researching on viability of new products to be developed and introduced to our production line. It is expected that new products will be launched in future.

A piece of industrial land in Selangor Halal Hub, Pulau Indah has been identified for the plant to be set up and is currently working on the factory and machinery layout. This is expected to be the site for the JV with NH Foods. Works to acquire and build the said factory is progressing in a timely manner in accordance to our planned timeline.


Evergreen Fibreboard Q3 FY2017 Results

The increase in revenue was mainly contributed by commercial run of new Particle Board Plant in Segamat and higher average selling price as the Group emphasis more on high premium products as well as impact from weakening of Malaysian Ringgit against US Dollar.

The slight decrease in profit was mainly caused by higher log and glue cost, couple with higher repairing and upgrading cost incurred on the stoppage line in Thailand plant.


Ge-Shen Corporation Q3 FY2017 Results

The Group is still looking towards factory expansion across the subsidiaries to increase factory space and manufacturing assets in order to, amongst others achieve higher sales, improving cost structure and gain economies of scale. The construction and renovation of the new facilities in Vietnam is in progress despite some delays and expected to complete by beginning of 2018. Total capital expenditure is expected to increase due to higher building specifications and factory facilities investment and is expected to improve the cost structure and increase production capacities in the Vietnam subsidiary in the long
run.


Vitrox Corporation Q3 FY2017 Results

…contributed from the increase in revenue recorded for Automated Board Inspection (ABI) and Machine Vision System (MVS). The increase was mainly due to higher demand from widen customer base and positive acceptance of our products.


Aemulus Holdings Q4 FY2017 Results

Aemulus continues to create growth through innovation and leadership in the ATE markets for semiconductor devices. The launching of our new RF tester, Amoeba 7600-S combines our latest technology with scalability. We believe that the technology is going to be able to serve the smartphone and tablet market well especially in the Far East region. Based on the current business trend, demand for ATE from the smartphone and tablet segments as well as the enterprise storage segment is expected to continue into 2018. The group is expecting revenue growth to further accelerate in the fiscal year 2018, led by ATE sales growth in the Far East region with US region complementing it.


Pentamaster Corporation Q3 FY2017 Results

The higher revenue recorded was mainly due to increase in sales from automated equipment and smart control solution system segment which was partially offset by the decrease in sales from automated manufacturing solution segment.


IFCA MSC Q3 FY2017 Results

To further accelerate innovation and growth within the property sector, IFCA has initiated an accelerator program with a primary focus to create greater value and solutions for the property sector together with the start-up community. In this program which is specifically focused on prop-tech, IFCA will review potential prop-tech start-ups for opportunities for investment and partnership to bring new solutions and business models into the market.


Century Logistics Holdings Q3 FY2017 Results

Following the ongoing synergy process, the Group also intends to tap on the extensive network and infrastructure of its major shareholder, CJ Logistics Group. The Group is currently setting up the necessary infrastructure to roll-out its parcel delivery operation and expects to commence the operation by the first quarter of year 2018.


Kejuruteraan Asastera Q3 FY2017 Results

To (i) grow its market share in Malaysia by increasing tendering activities, focusing on affordable housing sector and geographical expansion; (ii) strengthen its capabilities by growing its mechanical engineering services segment; and (iii) diversifying its revenue stream by providing maintenance services including upgrading, expansion, refurbishment, retrofitting and renovation projects.

Hartalega to launch ‘game-changer’ gloves next year

“Bacteria coming into contact with the glove surface will be exposed to the anti-microbial activity which, in independent testing, has achieved up to a five-log (99.99%) kill within five minutes of contact. We have successfully conducted production trials and further clinical studies are planned to quantitate the benefits of using antimicrobial medical examination gloves in clinical settings.”


Spritzer eyes export markets, to place out stake to Singapore fund

“We think that growth domestically has become a bit saturated now. So, it is a good move to explore overseas markets. The partnership with Dymon Asia Private Equity will take us to new markets and expand the business even further. They can help us with the export markets and bring the brand to overseas markets especially in the countries that they are already in. To start from scratch will be an uphill challenge and this partnership is a good way to do it. Dape would like to give its industry experience and broad networks to support Spritzer.”

Spritzer will build a single-storey automated warehouse adjacent to its current bottling plant with a built up area of about 105,820 sq ft. “The new warehouse will have an automated storage and retrieval system. The existing warehouse is operated manually and almost fully utilised now. The current warehouse will not be able to cater to our needs should inventory levels rise,” said Chuah.


MAHB dismisses competition fears in Istanbul

Some analysts believe that MAHB’s wholly-owned Istanbul Sabiha Gokcen International Airport (ISG) has benefited from the current Ataturk Airport’s space constraints as the latter is surrounded by urban areas, constraining cost-effective expansion. As such, the upcoming new airport may draw passenger traffic from ISG once it begins operations.

“We believe that both the new airport and ISG have two different markets to serve, especially considering that ISG is ideally located on the Asian side of Istanbul,” MAHB told The Edge Financial Daily. “It is strategically positioned not only as the airport serving the Asian side of Istanbul, but also as a de facto city airport, serving the whole of Istanbul. “Aside from that, ISG’s resilience compared to Istanbul Ataturk Airport during the geopolitical tensions in 2016 proved that travellers had a strong preference for our airport,” the airport group added.

It may also help MAHB reduce its exposure to lingering risks in Turkey while returning to its original intention of being a partner of ISG instead of fully owning it.


Scicom to expand digital space presence

“If you talk to anybody who has a proposition, it’s going to be an online proposition. We have all the infrastructure [for that], from building the application to doing the mobile apps to the payment gateways. So there is a huge market there [as] the future will be all e-commerce and because we have this unique set of skills where we understand customer relationship management, customer fulfilment, technical support, payment gateways, mobile apps, [and] application development — this makes all the difference. We can’t just be a call centre anymore, it doesn’t pay.”

“The strategy is to make e-government solutions a major contributor down the line, primarily as the margins are better, contract terms are longer and typically every year business increases as the population increases, so you would always have natural growth.”

“The trick is to get one new big business every year; that’s how you maintain your growth momentum. I wouldn’t necessarily agree there would be an impact; I think we have lots and lots of business in the pipeline; it’s just a matter of time to conversion.”


Mikro MSC to tap IoT to keep earnings growth momentum

“When we talk about new products, it is related to existing offerings. It’s more like an upgrade with new features, maybe with some elements of IoT. Rather than a stand-alone system, it will be an integrated system … everybody wants to have all these features but the pricing must be at a level that is right for businesses and our customers.”

Presently, the group commands about 50% of the local market share and has seen its business in Vietnam gain traction. Yim said Asean’s and Malaysia’s infrastructure growth stories are positive for Mikro MSC since its digital meters, relays and power factor regulators are used in high rises, as well as in mass rail transport systems being developed in the region.

In FY18, the group expects to complete its move to its new factory in Shah Alam — which it bought for RM11.7 million. The move is expected to cost it another RM5 million, including for the purchase of new equipment and machinery. “It gives us the opportunity to introduce new automation and other capacity that we could not do in the past as we have a larger space now,” Yim added.

Property market will be badly hit in 2018, says expert

Cheong pointed out that the RM12.26 billion is only from the primary market, which includes launches by developers. It does not include the secondary market, which is house owners seeking to sell their homes.

Cheong said this “generous payment mode” exists because developers are finding it hard to sell off their new properties. He said they are in danger of losing their bridging finance from banks if they fail to sell at least 40% of the total units. The bridging finance is used by developers to support their construction.

“This is where the danger starts. I predict if this continues, markets will crash within 24 to 30 months because consumers do not have the financial capacity to buy properties any more. Furthermore, developers who started building two years ago are expected to flood the market further with their units…So about RM16 billion of properties are waiting for buyers. But there is no demand. The reason is that people don’t have the money.”


Industrial property set to gain

The rapid growth of e-commerce, especially in Asia-Pacific, is creating new high-value assets that are now coming on stream. The industrial segment is a highly under-invested sector, as stock availability remained tight while rental rates had been on the rise over the past two years (over 30%).

The e-commerce boom will be a looming threat to retail malls, while the rapidly-growing office supply will continue to put rents under pressure. To tackle the challenges faced by the retail REITs, malls are shifting towards providing more lifestyle and food and beverage offerings, as opposed to just brick and mortar.


Will AIA, Great Eastern, Prudential list on Bursa?

There are 23 general insurers and 14 life insurers in Malaysia. Market share is more evenly distributed in the general insurance segment in terms of 2016 annualised gross earned premium, with local players comprising 52.1% and foreign players accounting for 47.9%. However, foreign names dominate the life insurance sector, with total market share of 81.7% in 2016 vs. the 18.3% of local insurers. AIA, Great Eastern and Prudential have a combined market share of 66.7% (in terms of gross earned premium).