EDGE summaries 28 Jan - 3 Feb

Kencana to bag Petronas deal

• EDGE once again has the inside scoop about a contract award not made known to Bursa yet
• This time it is Kencana getting a drilling contract from Petronas
• It is understood that the contract is made to Kencana Mermaid Drilling Sdn Bhd (a 60% Kencana owned unit) for works off the coast of Sabah or Terengganu
• Kencana Mermaid is a joint venture between Kencana Petroleum and Mermaid Drilling (Singapore) Pte Ltd
• The work is expected to be passed down to Kencana Rig I
• Charter rates for rig range from USD100k-120k per day, and the earnings from the drilling will be a significant boost to Kencana bottom line (up to 2-5% gain to FY2009-2010 bottom line)
• Kencana is also expected to benefit from some RM10bil of fabrication work likely to be tendered out this year by Petronas

Split views at Lityan

• Lembaga Tabung Haji is proving to be Lityan's white knight
• Lityan recently announced to Bursa that it acquired THTIS , an IT arm of Lembaga Tabung Haji
• This is part of Lityan restructuring plan to pull itself out of years of loss-making
• This deal would see Lityan bagging lucractive IT deals from Tabung Haji should the restructuring exercise becomes successful
• The deal is also good for Tabung Haji as it already controls a majority stake in Lityan and this would allow it to recoup its original investment in Lityan
• Despite Lityan's shaky financials, it kept receiving a number of government contracts; the latest being Tenaga's project to implement a remote meter reading system

Naza in talks with Tata (while Proton watch and learn)

• It is understood that Nasimuddin of Naza, will secure franchise rights for the Tata margue for Malaysia besides forging an alliance to enter the regional market together
• The interest obviously lies in India's (first) people's car: the Nano
• It is possible that Naza might build a plant with Tata in Malaysia to bring in another marque into the country
• Currently Nasimuddin is building a plant in Tamil Nadu to manufacture Kia cars, then pegged as an affordable entry level car into the South Asian market
• With the unveiling of the Nano, it is said that it is only a matter time before every other player in the world has its own version of "the people's car".
• If Naza can form such alliances, why can't Proton?

Rin & EON minorities holding own to stake

• Market observers remarked that DRB-Hicom general offer of RM2.10 a share for the remaining EON stakes is not attractive and does not reflect its real value
• The bulk of EON's NAV is in the form of cash and liquid assets so the offer should be valued near its NAV
• The general offer values EON at RM522.9mil, which is 36.4% lower than the company's NAV of RM821.9mil (the offer ended last week)
• The steep discount explains why Rin Kei Mei and other minority shareholders have opted not to accept the offer
• Rin is the only major shareholder still hanging on to the shares while others like EPF and Khazanah have sold their stakes
  
• It is understood that DRB-Hicom will also apply for EON delisting
• Only time will tell if the minorities can get what they really wanted; Bursa will probably leave the decision to the shareholders

Tenaga CEO says, "Tenaga not keen to own Bakun"

• Tenaga clarifies that the national power provider has no issue that the Bakun project is awarded to another party, namely Sime Darby Bhd
• But industry observers argue that if Tenaga were to own Bakun, it would be able to settle on a more favourable price, so why didn't it push for the deal?
• Tenaga CEO maintained that Tenaga is only concerned about its final delivery price
• Tenaga presently has only clinched the operation and maintenance portion of the Bakun project
• But it appears that it is the Government that has the final say, because on paper, the pairing of Tenaga and Bakun seems a near perfect fit,
  
• So it is curious that Sime should get the ownership (internal interest? synergy with Sime's other operations?)

Ramunia-MMHE a good fit

• The takeover of Ramunia by MISC took the market by surprise
• To recap, MISC took over Ramunia via the injection of MMHE at a deal valued at RM3.2bil
• The deal effectively values Ramunia shares at RM1 (in contrast to the current market share of RM1.61 on Friday, the share price jumped following the announcement of the acquisition as investors expect Petronas' contracts to trickle down to Ramunia)
• MISC through its wholly owned unit, MSE Holdings, has also made a renouncable offer for the sale of 82 million its shares in Ramunia to minorities at RM1 per share and this will give them a chance to add more Ramunia shares at a significant discount to current market price
• Aseambankers says that Ramunia and MMHE is a symbiotic fit, the deal will result in Ramunia being the largest offshore fabricator in Malaysia
• One should also note that Ramunia is the only fabricator left in Malaysia with unutilised yard space

Deleum, a cheap entry to O&G

• The company's market value has shed nearly 45% since end-June based on its Thursay closing price of RM2.80
• Deleum provides specialised products and services for the O&G industry
• Deleum's MD claimed that the current share price is not reflective of the company's strength and future potential
• An OSK analyst says she cannot see why the share is trading so cheaply especially as it is one of the largest turbine suppliers - she puts a BUY call
  
• The current PE is 7.8times; compare this to its listing month, when it was traded at PE 18 times
• The company has negligible debts and its gearing level is close to zero, and its expansion plans (it acquired Penaga Dresser late last year, Penaga Dresser does control valves and focuses on petrochemicals) are not expected to greatly impact its balance sheet
• For the nine months in review, the company posted a net profit of RM19.2mil on tha back of RM557.9mil sales, a strong improvement from a year ago
• The MD believes they also have opportunities to participate in the Kimanis oil refinery project in Sabah

Silence is not necessary golden. Transmile has not announced any turnaround plan, can investors still trust them?

• Transmile management was supposed to brief analysts on its turnaround plan at the end of the last year - it never did
• The lack of newsflow has led many analysts to maintain their negative stance on the company
• The management however remarked that that they are not in the position to divulge their plans until the board approves it
• Seeing its share value slowly dwindles, any inaction from the board will surely attract more negative sentiment
• To recap, its overstatement of revenue by more than half a billion ringgit for the past 2 financial years was by the far the biggest corporate scandals to ever hit our market
• Affin research says "Maintain negative, given its low utilisation rate (below 50%) which will continue to affect the profitability moving forward."