UMW Oil & Gas : Accumulate Now

Target RM3.43 (Stock Rating: ADD)

Naga 7 will be delivered by month-end as scheduled, we learned from our recent communication with management. In typical UMW-OG style, the jack-up was snapped up for work six months before the construction is completed. Naga 8, which will be delivered in Sep, is still not contracted, but we think that it will not be for long as management actively bids for 29 contracts worth RM5.6bn. We continue to value the stock at 15x CY16 P/E, on par with our target market P/E. We keep our Add call, with a Middle Eastern foray and a Naga 8 contract as potential re-rating catalysts.

What Happened 

We recently touched base with UMW-OG's management on its two newbuilds, namely jack-ups Naga 7 and Naga 8. Naga 7 is now 99.02% completed and is set for delivery by month-end. The jack-up has been signed up to service a 120-day, US$20m contract with Frontier Oil in the Philippines effective next month, with an option for a 180-day extension. Meanwhile, Naga 8, which is expected to join the fleet in Sep this year, is 66.85% underway. Management has yet to clinch a contract for the jack-up, but it remains very active in the bidding circuit, gunning for 29 contracts worth RM5.6bn. As at Dec 2014, the company had an order book of RM1.9bn. 

What We Think 

We are encouraged that UMW-OG's fleet expansion is on track. Secured in Jul 2014, the early contract for Naga 7 should allay any concerns about the company's ability to deliver Naga 7 and Naga 8. We are also heartened that management has demonstrated an astute pricing power. The Frontier Oil contract for Naga 7 translates into an attractive daily charter rate (DCR) of US$166,667/day, which is higher than the regional average of US$140,000-150,000/day. Furthermore, the company last month landed a 100-day, US$18.7m contract with PetroVietnam for end-client Korea National Oil Corporation in Vietnam starting Jun this year. Excluding mobilisation cost, the DCR works out to US$160,000/day, impressive in the current industry environment and matching the DCR that the jack-up is currently fetching from its PTTEP's Myanmar contract, which was secured in Jul 2014. 

What You Should Do 

We advise investors to accumulate UMW-OG shares. The company has evolved from a local player to a force to be reckoned in Southeast Asia, and is now on the verge of being a global player if it secures a contract in the Middle East by year-end.

Chart	Stock Name	Last	Change	Volume
	UMWOG	2.75	+0.15 (5.77%)	2,727,100

Source : CIMB Research

CIMB Research advises investors to accumulate Perisai shares (Star)

CIMB Equities Research advises investors to accumulate Perisai Petroleum shares as it retains the target price at 63 sen, which is an upside of 46.8% over the last traded price of 43 sen.
“We conservatively removed two idle assets, namely mobile offshore production unit Rubicone and pipelay barge E3, from our forecasts. Should management secure contracts for these assets, the swing in earnings would be substantial,” it said on Friday.

CIMB Research said Perisai’s management has stated it is set to remain on the Securities Commission’s shariah compliance list in the May 2015 review after a successful conversion of US$170mil of conventional loans into an Islamic facility in the final week of FY14.

“We continue to value the stock at 10.5 times CY16 P/E, still at a 30% discount to the oil & gas big caps,”  it said.

In the week of Dec 29, 2014, its management finalised the conversion of US$170mil of conventional loans for jack-up PP101 into an Islamic facility with no change in terms and rates and at a minimum paperwork charge.

With this development, Perisai is set to remain on the SC’s Shariah compliance list in the May 2015 review.   

“We are encouraged that management took the initiative to meet the SC’s requirement for shariah compliance. As at Sept 30, 2014, Perisai’s total borrowings amounted to RM1.1bil, of which most were conventional, while total assets were worth RM2.4bil,” it said.

CIMB Research said the company’s total conventional borrowings over total assets, therefore, stood at 47%, higher than the 33% threshold set by the SC.

After the conversion, Perisai’s total conventional borrowings over total assets should be reduced to an estimated 21% by  Dec 31, 2014, allowing the company to keep its Shariah-compliant status come May.  

Another industry player, SapuraKencana, is in the midst of converting an estimated RM8bil out of RM15.3bil in borrowings (as at July 31, 2014), of which all are conventional, into Islamic instruments...

As for Perisai, CIMB Research is maintaining its  Add call, with the deployment of Rubicone and E3 as potential re-rating catalysts.

Homeriz

Latitude reaching new high

Homeriz (5160)

Background

Founded in 1997, Homeritz is an integrated designer, manufacturer and exporter of a complete range of upholstered home furniture, comprising leather and fabric-based sofas, dining chairs and bed frames. 

The Group primarily undertakes Original Design Manufacturing ("ODM") and Original Equipment Manufacturing ("OEM") activities; where ODM contributed 86% of the group revenue for the financial year ended 31 August 2009.Homeritz has also created its own brand of lifestyle furniture series under "Eritz". 

To date, Homeritz has built a diverse customer base spanning across more than 40 countries, including Europe, Australia, New Zealand, North and South America, South Africa and the Middle East. 

The Group has various accolades in recent years, including the Golden Bull Award in 2008 (ranking 1st out of 100 outstanding SMEs), the Enterprise 50 Award for 2 consecutive years in 2008 and 2009; and the Product Excellence Award and Asian Furniture Leadership Award at the Malaysian Furniture Leadership Awards in 2009.

(sourced by:http://www.homeritzcorp.com/about-us.asp)

HOMERITZ : Furniture Maker

FURNITURE maker Homeritz Corp Bhd has its future expansion plans nicely mapped out, contingent on the global economy condition and buoyancy of the industry.

Homeritz has seen a pick-up in its earnings, thanks to the economic recovery in the West, as well as favourable currency exchange rates.

Speaking to StarBizWeek at the company’s headquarters in Muar, Johor, managing director Chua Fen Fatt says: “We will definitely expand if market conditions are good and continue improving.”

He says the company plans to invest in more new and advanced machinery, which will help increase productivity. “We are on the lookout for advanced machinery so we can increase productivity and still maintain the existing manpower,” he says.

Homeritz has allocated RM10mil to be spent over the next three years up till its financial year ending Aug 30, 2017 on plant and machinery with the aim of increasing its capacity.

It aims to automate some of its processes, and then move towards adding another factory. It currently has five factories with a total buildup area of 455,000 sq ft adjacent to its office at the Bukit Bakri Industrial Park in Muar.

It is not by chance that the company has a vacant piece of land which could be used to build another factory, that is, like the land its existing five factories sit on, just a stone’s throw away. Homeritz acquired the 7,851 sq ft soon after it listed on the Main Market of Bursa Malaysia in 2010.

The furniture player will progressively increase its productivity and capacity to meet its goal of posting RM180mil in annual turnover, hopefully from 2017 onwards.

Homeritz will reassess the market by its financial year end this August before deciding when to make its next move.

“We are very conservative, so we will do this expansion progressively,” says executive director Tee Hwee Ing.

Husband and wife team Chua and Tee has grown the company since inception to where it is now.

Founded in 1997, it specialises in upholstered home furniture comprising leather and fabric-based sofas, dining chairs and bed frames. It undertakes original design manufacturing (ODM) and original equipment manufacturing (OEM).

Tee says the company will continue to focus on the ODM part of the business, which contributes at least 85% to its revenue.

Source: The Star Online

LATITUDE TREE HOLDINGS BERHAD ("LTHB" OR THE "COMPANY") - Riots in Vietnam arising from Vietnam and China dispute over Paracel Islands in South China Sea

Reference is made to the news appearing on local and international newspapers on 13 May 2013 which reported on the riots in Vietnam arising from the Vietnam and China dispute over the arrival of the deep-sea oil rig close to the Paracel Islands in South China Sea. The Board of Directors of LTHB wish to announce that the riot has spilled over into the Vietnam Singapore Industrial Park (“VSIP”) where the Company’s subsidiary, Latitude Tree Vietnam Joint Stock Company (“LTV”) is annexed to it. Rioters have entered LTV’s premise/factory at afternoon on Tuesday, 13 May 2014. The Company’s other subsidiary, RK Resources Co Ltd, is not affected as at to-date.

The main office building of LTV has been vandalised, ransacked and looted by the rioters. Some important data, permits, licenses and documents were destroyed or burnt. The rioters attempted to burn LTV’s factory but the fire was put out by LTV’s workers. At present, the production facilities were not affected although all factory workers were forced to go on strike by the rioters. LTV has temporarily stopped its factory operations since yesterday afternoon until further notice. Due to the on-going riot situation, LTHB is unable to ascertain when the production can be resumed. However, LTHB is monitoring the situation closely with the assistance of the Malaysian Consulate officials at Ho Chi Minh City. For safety reasons, LTHB does not allow the Factory Manager of LTV and his team to enter the factory at present. As such, LTHB is unable to ascertain the damages and its financial impact thereon.

All factory buildings, machinery, inventories, office equipment, furniture fittings and ancillary installations are insured against the risk of rioting. LTV has reported the incident to the insurance company. At present, the insurance company and the adjusters are unable to assess the extent and quantum of damages as the rioting is still on going.

Further announcements will be made as and when there are material changes to the situation.

This announcement is dated 14 May 2014.

Malton and Warrant B

Latitude Hits RM3.00

Malton

Malton Berhad is an investment holding company. The Company operates in four segments: Property development, Construction and project management, Property trading and Others. Property development segment is engaged in the business of constructing and developing residential and commercial properties. Construction and project management segment is engaged in the business of construction works for development of residential and commercial properties. Property trading segment is engaged in the business of sales of developed residential and commercial properties.

 Malton is launching property development projects: The Mutiara Residence and Amaya Maluri. Current projects include Mutiara Indah Terrace House, The Grove and V Square. Its completed projects include the Bayu Villas, the lakeside Terrace, Garden Terraces, Orchard Bungalows and Quartet Link Semi-Dee Homes.

Current Price (23/04/14) RM1.07

Current P/E Ratio (ttm) 7.6923

Estimated P/E(06/2014) -

Relative P/E vs. FBMKLCI 0.4408

Earnings Per Share (MYR) (ttm) 0.1391

Est. EPS (MYR) (06/2014) -

Est. PEG Ratio -

Market Cap (M MYR) 447.37

Shares Outstanding (M) 418.10

30 Day Average Volume 7,860,807

Price/Book (mrq) 0.6837

Price/Sale (ttm) 0.8959

Dividend Indicated Gross Yield 2.34%

Cash Dividend (MYR) 0.0250

Dividend Ex-Date 12/27/2013

5 Year Dividend Growth

Bursa Malaysia Listing 22 April 2002

Key Executives for Malton Bhd (MALT)

Lim Siew Choon "Desmond"

Chairman

Tan Kewi Yong

Executive Director

Chua Thian Teck

Executive Director

Hong Lay Chuan

Executive Director

Hor Shiow Jei

Secretary

CONTACT INFORMATION

Malton Bhd

Level 19 Pavilion Tower

75 Jalan Raja Chulan

Kuala Lumpur, 50200

Malaysia

Phone: 60-3-2088-2888

Fax: 60-3-2088-2828

www.malton.com.my

Latitude

Latitude Tree Holdings Berhad is engaged in investment holding and provision of management services. Through its subsidiaries, the Company specializes in the manufacturing and sale of wooden furniture and components, particularly rubber-wood furniture. Its products are divided into three groups: bedroom collection sets, which include beds, nightstands, chests, armoires and wardrobes; dining collection sets, which include tables, chairs, buffets, hutches, curious, sideboards and servers, and living room collection sets, which include sofas, sofa tables, occasional tables, coffee tables and cabinets and others. 

Its manufacturing activities are operated from its three factories in Malaysia, two factories in Vietnam and one factory in Thailand. The total floor area of the six manufacturing plants is approximately 7.8 million square feet. The Company distributes its products within the domestic market and to overseas, including Vietnam, Thailand, Singapore and other countries.

Current Price (23/04/14)  RM2.64

Current P/E Ratio (ttm) 5.8615

Estimated P/E(-) -

Relative P/E vs. FBMKLCI 0.3320

Earnings Per Share (ttm) 0.4504

Est. EPS -

Est. PEG Ratio -

Market Cap (M MYR) 256.63

Shares Outstanding (M) 97.21

30 Day Average Volume 318,023

Price/Book (mrq) 0.9393

Price/Sale (ttm) -

Dividend Indicated Gross Yield 2.39%

Cash Dividend (MYR) 0.0630

Dividend Ex-Date 12/27/2013

5 Year Dividend Growth 18.76%

Key Executives for Latitude Tree Holdings BHD (LATI)

Lin Chen Jui-Fen

Deputy Chairman

Lin Chin-Hung

Managing Director

Lin Tzu-Lang

Executive Director

Tai Yit Chan

Joint Secretary

Yeoh Joe Son

Joint Secretary

Tan Ai Ning

Joint Secretary

CONTACT INFORMATION

Latitude Tree Holdings BHD

Lot 6.05 Level 6 KPMG Tower

8 First Avenue Bandar Utama PJ

Selangor Darul Ehsan, 47800

Malaysia

Phone: 60-3-7720-1188

Fax: 60-3-7720-1111

www.lattree.com

Perisai

Overview

Perisai Petroleum Teknologi Berhad is an upstream oil and gas service provider. The Company's assets provide support in the offshore production facilities, offshore drilling, offshore support vessels and offshore construction and installation segments.

Review

Perisai Petroleum Teknologi  (PPT)’s FY13 net profit of MYR71.8m  made up  only  93%/91%  of  our/consensus  estimates.  The  poor  performance was  attributed  to  the  non-extension  of  contracts  for  Rubicone  and Enterprise  3  (E3).  We  upgrade  the  stock  to  BUY,  with  a  new  FV  of MYR2.28 (from MYR1.62), based on a target FY14 P/E  of 20x (from 18x), which is still a discount to UMW Oil & Gas’ 30x.

• FY13  results  below  expectation.  PPT’s  full-year  FY13  net  profit  of MYR71.8m  made  up  only  93%  and  91%  of  our  and  consensus’ estimates. The poor performance was attributed to the non-extension of contracts  for  its  mobile  offshore  production  unit  (MOPU),  Rubicone  in 2QFY13  and  its  derrick  lay  barge,  Enterprise  3  (E3)  in  3QFY13.  As  a result,  FY13  revenue  and  net  profit  declined  13%  and  22%  y-o-y respectively.
• 4QFY13 took the brunt. We had  expected 4QFY13 to be a bad quarter mainly because  Rubicone  and  E3  effectively stopped contributing  after 3QFY13 and 4QFY13 respectively. These vessels previously accounted for around 40% of its earnings. However, we do not expect these vessels to  remain  idle  throughout  FY14  and  conservatively  assume  a  50% utilisation rate for each vessel in FY14.     
• Time  to  move  on  after  a  bad  FY13.  We  believe  PPT’s  FY13 performance  is  just  a  temporary  blip  to  its  otherwise  decent  financial performance.  The  group’s  estimated  FY14/15  earnings  growth  of 31%/79%  will be driven by its new  business  unit  –  the drilling segment. We reaffirm our stance that PPT will be able to secure charter contracts in both domestic and international water s,  considering demand for new rigs to replace older ones is still strong.    
• Upgrade  to  BUY  from  Neutral;  new  MYR2.28  FV.  We  upgrade  the stock to BUY (from Neutral) with a higher MYR2.28  FV  (from MYR1.62),based  on  a  higher  target  FY14  P/E  of  20x  (from18x),  but  still  at  a discount to UMW Oil & Gas  (UMWOG MK,  NR)’s  current FY14 P/E of 30x. The group’s estimated  FY14/15 earnings  are expected to  grow  by 31%/79% respectively,  driven by its new income stream from  the drilling segment.  We keep our FY14/15 forecasts unchanged,  as our numbers have already  reflected contributions  from PPT’s first two rigs, slated to be delivered by 2QFY14 and 3QFY15.   

Digi.Com

DiGi reported FY13 revenue of RM6.73bn (+5.9% YoY) and net profit of RM1.71bn (+41.5% YoY). While the revenue was within our expectations, its net profit was slightly above our expectations (making 103% of our FY13 forecast) mainly due to lower-than-expected effective tax rate of 20.3% (FY12: 24.2%) but was within market consensus. The jump in net profit was mainly due to lower depreciation expenses of RM878m (FY12: RM1.33bn) with lower accelerated depreciation upon completion of its network modernisation exercise. DiGi declared a fourth interim dividend of 7.0sen which sums up to a total of 21.3sen for FY13.

Revenue growth driven by data and higher profit due to lower depreciation expense. DiGi’s FY13 service revenue of RM6.13bn (+4.1% YoY) was driven by strong growth in mobile Internet revenue of RM1.23bn (+47.5% YoY) but partly offset by decline in SMS revenue to RM675m (-13.7% YoY), while voice revenue remain resilient at RM4.03bn (-0.5% YoY). The jump in FY13 net profit was mainly driven by: (i) lower depreciation expenses (FY13 depreciation expense was RM452m lower than FY12’s - accounted for 82% of the spike in pre-tax profit); and (ii) lower effective tax rate of 20.3% (FY12: 24.2%). Operationally, DiGi also performed credibly with net add of 501k subscribers for 2013 while blended ARPU remained steady at RM48.

Commendable 4Q13 results and operating numbers. For 4Q13, DiGi reported revenue of RM1.73bn (+6.4% YoY, +2.0% QoQ) and net profit of RM548.5m (+22.2% QoQ, +123.4% YoY). Similar to the whole year results, revenue was driven by internet data growth of 14.1% YoY with increased usage and higher smartphone penetration, while net profit was lifted by lower depreciation expense of RM121.8m (4Q12: RM360.8m) and lower effective rate. Operationally, DiGi net added 168k subscriber with blended ARPU remained flat at RM48. As at end-2013, DiGi’s 3G/HSPA+ coverage has reached over 80% population with improved quality subsequent to completion of network modernisation in 3Q13. Management plans to hit 85% population coverage by end-2014 to narrow the gap between DiGi and its competitors, Celcom and Maxis.

Management guidance. For FY14, management is guiding for revenue growth to be 4%-6% (estimated industry revenue growth of 4%), while EBITDA margin will be sustained at 2013 level of 45%. Management believes that revenue growth will be fairly modest against increasing market competition and capex to revenue ratio will be slightly higher. DiGi is still evaluating the feasibility of setting up a business trust.

Source: PublicInvest Research

Barakah Offshore Petroleum Bhd

Barakah is a direct proxy to PETRONAS’ Pan Malaysia Transportation & Installation (T&I) Package A play, according to Maybank. Maybank said it has a relatively new and modern Malaysia-flagged and-owned pipelay vessel to capitalise on T&I opportunities and the cabotage ruling advantage. Barakah is a growth stock, with a 3-year net profit CAGR of 28%. Maybank has assigned Barakah target price at RM1.00,their base-case target price is pegged to 12x FY15 PER, on a slight premium to small-mid cap O&G peers’valuations of 11x (with market capitalisations of sub-MYR3b). They initiating coverage with a BUY and MYR1.00 TP.

On a blue sky scenario, assuming that it wins Package A in a full contractor role, maybank FY15 net profit forecast would be higher at MYR100m (+45%) and Barakah target price would be MYR1.45 on an unchanged 12x PER target.

Barakah IPO listing price is RM0.65 (but the reference price is RM0.535 maybe got loan stock), according to Hong Leong, by applying a 14x multiple (which is their target multiple for small cap O&G companies) on FY14 EPS, their target price works out to RM0.80, implying a total upside potential of 23%.

Not many people have heard of Barakah IPO as I didn’t see them offer to the public via the normal IPO due to the reverse take-over. Not to worry on Vastalux, according to Barakah group president and CEO, Barakah are only assuming the stock number of Vastalux and will not be taking over any of its assets and liabilities.

Karex IPO Target Price

TA Securities said due to the lack of pure listed condom manufacturers, they base their valuation on their targeted glove industry PE ratio of 14x. They give Karex fair value at RM2.40 per share based on a 25% premium to their targeted PE multiple. Incorporating proceeds from capital gains and dividend yield, this translates into a total return of 31.9%. They believe their PE multiple is justified given the following arguments: 1) Largest condom manufacturer in the world; 2) Aggressive expansion plans to double capacity within three years; and 3) Access to key licenses and accreditations to export products across 110 countries. Nevertheless, key threats include: 1) Inability to fully utilize incoming capacity; 2) Delays in construction of new facilities and 3) Fluctuations in currency exchange rates and material prices.

2014 Karex dividend yield is about RM2.2%, assuming a 30% payout ratio. Currently management does not have any Karex payout ratio policy.

TA Securities initiate coverage on Karex with a target price of RM2.40 per share. They like the group for its aggressive expansion plan to double capacity to 6.0bn pieces of condoms/annum by 2015. Assuming a utilization rate of 70% and average selling prices (ASPs) of 3 cents (9.6 sen) per condom, the additional capacity will boost revenue by RM201.6mn once completed (FY13: RM231.4mn).

=====================================================================

 JFApex Research is recommending that investors subscribe to condom-maker Karex’s IPO, which is priced at RM1.85, saying it has determined fair valuation for the stock at RM2.07.

The retail offering of the IPO opened on Oct 11 and will close on Oct 23, with allotment of the IPO shares to be done on Nov 4.

The research house says the world’s largest condom manufacturer, which is seeking to raise RM75m from its IPO, provides a good alternative to investors searching for a proxy to the rubber-related healthcare products in Malaysia.

Like other local-listed rubber glove manufacturers, Karex is 1) exposed to the fluctuation of rubber prices, 2) exports most of its products, and 3) is in an industry in which demand growth remains resilient.

According to JF Apex, Karex has enjoyed overwhelming earnings growth, with FY2013 net profit jumping 141.7% year-on-year to RM29mil from RM12mil, on the back of higher sales volume as well as higher margins from easing latex prices and higher production utilisation.

“Moving forward, we project a three-year CAGR (compound annual growth rate) of 21% in its bottom line from FY2014F-FY2016F as the group is embarking on an explosive capacity expansion, resulting in economies of scale which shall improve cost efficiency and thus its competitiveness and profitability,” the research house says.

It also notes Karex’s share of business from the tender market (NGOs, international agencies and governments), which contributes 36% of total revenue.

JF Apex says its fair valuation of RM2.07 is derived by pegging 15 times price-earnings ratio to Karex’s FY2014 forecast earning-per-share of 13.8 sen.

“The valuation applied is a 10% discount to the valuation we ascribed to Top Glove (16.5 times). Our fair value renders a potential upside of 12% from the IPO price.

“Karex shares similarity with Top Glove as both are the largest players in the rubber-related healthcare products in Malaysia by having the class-leading production capacity. However, we reckon that the lower valuation is justified in view of the relatively lower market capitalisation of Karex, and the Group has not fixed any dividend policy to reward its shareholders as compared to the 50% dividend payout ratio Top Glove is currently implementing,” it concludes.