KSL Holdings (buy call by HLIB Research)

Strong earnings growth, grossly undervalued

§         Large landbank in Iskandar Malaysia (IDR) makes KSL poised to benefit from improving Singapore-Malaysia ties and the integrated resorts in Singapore.

§         Has one of the highest margins in the industry due to its unique business model of keeping construction works in-house, efficiently use of landbank and low land acquisition cost.

§         Under-researched company.

§         Step-up in earnings driven by new flagship Bandar Bestari project in Klang.

§         Stable and recurring earnings from KSL City mall and hotel, on top of bread and butter Johor townships. 

§         We forecast 44% earnings growth for FY11 based on assumption of 40% project margin. 

§         Price target of RM2.43 per share is based on 30% discount to RNAV.  This implies potential capital appreciation of 50%.

ECM keeps 'sell' call on Puncak Niaga

ECM Libra Investment Research has maintained the "sell" call on Puncak Niaga Holdings Bhd, amid cash flow problems due to a non-water tariff revision of 37 per cent, and a hazy outlook to a resolution of the protracted Selangor water restructuring exercise.

ECM Libra Investment said it made no changes to its estimates pending the outcome of the tender by Puncak Niaga for a water supply and treatment project in India.

Puncak Niaga yesterday entered into two separate joint venture agreements with P&C Constructions (P) Ltd in India to jointly bid for the water supply and flourosis mitigation project, called the Tamilnadu Water Supply and Drainage Board in India.

Puncak Niaga together with P&C would form a joint venture (JV) called PNHB-P&C Joint Venture (PPJV) to bid for Packages III and V of the Hogenakkal project for the Dharmapuri and Krishnagiri districts.

Puncak Niaga will lead the joint venture with a 60 per cent stake, with the remaining 40 per cent held by P&C.

The Hogenakkal Water Supply project is valued at RM1.4 billion, comprising five packages to be undertaken in two phases, with completion expected by December 2012.

The project also comes with a five-year operation and maintenance period.

"Based on our preliminary estimates, Package III and Package V, which are for the laying of pipelines for a total of 6,117km, could be worth approximately RM756 million.

"The five year operation and maintenance is estimated to be worth about RM124.9 million," ECM Libra Investment said.

It said the project is in line with Puncak Niaga's efforts to expand its presence in India.

Puncak Niaga had entered into joint venture agreement with P&C in August 2010 to jointly participate in an international competitive tender for a pipeline project in Mangalore, India. -- Bernama

Read more: ECM keeps 'sell' call on Puncak Niaga http://www.btimes.com.my/Current_News/BTIMES/articles/20101021133644/Article/index_html#ixzz130gJpV1t

Batu Kawan 'compelling privatization target'

Batu Kawan Bhd, the biggest shareholder in Malaysian palm oil producer Kuala Lumpur Kepong Bhd, is a “compelling privatization target” and its shares could be worth RM18.02 each, according to CIMB Investment Bank Bhd.

Shares of Batu Kawan are trading at a “hefty” 40 per cent discount to the share price estimate at CIMB, analyst Ivy Ng Lee Fang said in a report today.

Batu Kawan’s stake in Kuala Lumpur Kepong is worth 56 per cent more than the company’s market value, Ng said.

The stock climbed 3.4 per cent to RM14 at 9:26 a.m. in Kuala Lumpur trading, set for a record close. -- Bloomberg

Glomac "Eye on Stock" by K. M. Lee

AFTER breaching the most recent peak of RM1.57 on Thursday, Glomac shares extended the upward thrust to achieve a 38-month high of RM1.66 during intra-day session amid follow-through buying momentum yesterday.
Based on the daily bar chart, the bulls are now running on a new recovery track after undergoing a period of correction earlier of the year. Perhaps, investors can consider taking up a position, if one is optimistic of additional gains in the immediate term.
The daily slow-stochastic momentum index was positive, with the oscillator per cent K and the oscillator per cent D marching steadily towards the bullish territory.
Likewise, the 14-day relative strength index climbed from the mid-range earlier of the week to end at around the 83 points level yesterday.
Elsewhere, the daily moving average convergence/divergence histogram resumed the upward expansion against the daily trigger line to stay bullish. It flashed a buy in mid-September.
Technically, indicators suggest more scaling in the pipeline. If prices can penetrate the RM1.73-RM1.75 heavy resistance band, the next upside objective to look for would be the RM2-RM2.10 level.
Concrete support floor is pegged at the 14-day simple moving average of RM1.53.

Several parties eyeing Tanjong’s gaming business

KUALA LUMPUR: Several international private equity firms and a consortium led by the Cheng family have expressed keen interest to acquire Tanjong Plc’s gaming business although the company controlled by T. Ananda Krishnan is still weighing its options on whether or not to divest the prized asset valued at some RM2.3bil to RM2.5bil.
Sources said many parties had approached the company directly and via banks to express their interest to acquire the gaming assets, although Tanjong had not decided on the divestment route just yet.
“The company was just taken private. It obviously wants to expand the power business. Monetising any of its other assets, including gaming, is contingent on Tanjong’s plan to expand its power business,” said an industry source.
The other assets up for sale in the post-privatisation of Tanjong includes the cinema operation and its German Tropical Islands.
The combined value of those businesses is believed to be about RM2.8bil, which would give a sizeable boost to the cash reserves for Tanjong to expand into power operations.
Although talk on any sale of Tanjong’s numbers forecast operations (NFO) and racing totalisator (RTO) is said to be preliminary, reports indicate that interested parties valued those assets at RM2bil.
If a sale of the business, where gaming is the prized asset bidders are looking at, cannot be struck, then the company should be more than willing to continue leaning onto the unencumbered cashflow from the gaming business.
While divestment is an option for Tanjong, another would be to tie up with some other gaming-related party by partially selling its interest in the gaming business.
“No decision has yet to be made and, as such, talk of Tanjong selling gaming at this point is totally speculative,” a source said.
While no deal has been struck, it is learnt that negotiations for the gaming business of Tanjong have been taking place for months.
“There is a small gap in the valuation between what is offered and asked,” another source said.
One of the main reasons for the sale of the gaming assets of Tanjong is that the presence of those activities within the group prohibits the entry of investors wanting a syariah-compliant business.
In its circular to shareholders, Tanjong indicated that it wanted to tap the Middle East and North African markets together with those in South and South-East Asia to expand the power-generation business.
Owing to this, Tanjong needs to change its corporate structure, which would entail the sale of assets, to facilitate the expansion.
Tanjong’s gaming business would include the NFO, Big Sweep and RTO. The National Stud Farm, which makes a small profit, would also be bundled into the lot.
Tanjong’s gaming arm, Pan Malaysian Pools Sdn Bhd, reportedly has about 24% share of the local market. Berjaya Sports Toto Bhd’s market share is about 40% while Magnum Corp Bhd’s is 36%.
While the NFO business is the cash cow in the gaming business stable, Tanjong has been losing money from its racing operations.
According to reports, the losses from the RTO business could reach up to RM80mil in the current financial year.
The losses arise from a number of causes. It is said that the Selangor Turf Club is profitable but not those in Penang and Perak. Furthermore, the RTO business is hamstrung by annual cash payments to each of the three turf clubs.
Industry watchers said the business, which has been modernised somewhat with the introduction of telephone betting, was lagging behind the illegal business which could source bets from punters through the Internet.
This has proved to be a lucrative avenue for illegal bookies who are said to make around four times what the turf clubs can pull in on any racing day.
Any potential bidder also had to find favour with the gaming industry regulators and a gameplan to deal with the illegal bookies, said an industry watcher.
Foreign bidders will probably not be penalised in the bidding process if they pair up with a local partner with knowledge of the industry. Multi-Purpose Holdings Bhd in a partnership with CVC Asia Pacific Ltd completed the privatisation of Magnum in 2008.