THE EDGE summaries 25 Feb - 2 March

A Proton turnaround alas?

• It has been said that a turnaround for Proton is a pipe dream unless Proton finds itself a strong foreign partner
• Recent announcement that Proton have achieved back-to-back quarterly profits after series of quarterly losses prompted the EDGE to highlight a probable Proton turn around with Syed Zainuddin as its managing director
• Proton needs at least RM33mil in the next quarter to return the company to the black FY2008, and the next quarter, Proton will be looking at contributions from Saga, Persona and its China sales; so it is about time to re-rate Proton?
• EDGE pointed out that Syed Zainuddin still has a lot to prove since he was considered the man who he was against the VW-Proton deal

What is next for Wah Seong?

• The news of Wah Seong withdrawing its bid for the RM3.1bil for Europe’s Nord Stream pipeline project could not have come at a worse time when market sentiment was already badly hit
• The share price plunged 20% following the announcement
• Some analysts however were surprised with the sell-down on Wah Seong share prices following Nord Stream project withdrawal as most analysts and brokerages have not factored in Nord Stream in the projections of Wah Seong performance
• The group MD said it would rather not take up the Nord Stream job at low margins or at a loss
• He was also bullish about the global outlook for pipe coating industry
• The company is said to be close to securing a portion of the RM400mil pipe manufacturing and coating services contract for the 480km Sabah-Sarawak Onshore Gas Transmission Pipeline
• Wah Seong other project in gas compression is said to be running strong and providing recurrent earnings
• Since the fundamentals are still intact and it made a decision not to invest in a project that will hurt its earnings, why are investors still selling Wah Seong shares?

Minorities gripe over offer price for UBG

• Some investors are unhappy of a corporate exercise which will see the company acquiring two construction companies and the entry of Abu Dhabi Kuwait Malaysia (ADKM)
• The minorities’ gripe is that ADKM is coming into UBG cheap and that its mandatory general offer of RM2.50 per share does not reflect UBG’s net cash holding of RM2.92 per share
• Also worth noting that ADKM is selling its PPS and Loh&Loh stakes at a higher premium within less than a year of acquiring them
• On the face of it, ADKM is getting a better deal
• EDGE argued that ADKM in UBG is bringing in added value for the group; first it is not delisting UBG, so investors can ride the waves with the company; secondly, UBG plans to make more acquisition funded by its cash reserves; thirdly, ADKM will not cash out from the deal and the proceeds from PPB and Loh&Loh sales will find their way into UBG as fresh equity; fourthly ADKM will use its influence to secure more projects from the Middle East for the group
• EDGE also reminded minority shareholders that UBG had never traded near its net cash level until ADKM makes its offer
• Time will tell if the investment will pay off with the new look UBG, compared to just folding up UBG and returning the remaining cash (at RM2.92) to all shareholders

Shareholders shuffle at Inti

• Inti’s major shareholder is exiting the group at a price that appears to be based only on the value of its assets and not the earnings from the assets
• One must note that over the years its share capitals and profits invested in campuses were generating lowly returns
• This could be why Inti Supreme Holdings Sdn Bhd has opted to sell its stake in Inti at a price marginally higher than its net asset per share of RM1.13
• Inti Supreme Holdings sold its stake at RM1.20 per share to Future Perspective Sdn Bhd (Laureate Education Inc is one of Future Perspective’s major shareholders, it has campuses and online universities in US, Europe and Asia)
• Following the 1997/98 Asian crisis, education sector in Malaysia received a large boost as the weakening ringgit prompted parents to turn to local education providers for their children’s education and Inti’s NIlai campus was built to meet such demand
• But from 2003 onwards, Inti profits started to drop, in fact it made a loss in 2005
• Currently Inti not only has to compete with the many private education providers, but also government-linked companies such as the one that runs Universiti Tunku Abdul Rahman (UTAR)which receives government grants and public donations
• Investors that stick with Inti are backing on Future Prospect to change its fortunes

Astro not decoupling operations

• Owners of Astro All Asia Networks pls have no plans to take the company private or decouple its domestic and foreign operations, according to a source close to the company
• Astro shares have been active on rumours ranging from a potential privatization and a reverse takeover by Measat Global Bhd
• Speculation of decoupling its foreign and domestic operations become louder when Astro joins a bid for UK’s Virgin Radio
• At present, a steady cash-flow from the Malaysia operations is being used to fund its expansion abroad
• Also presently, Astro needs to cut its stake in Astro Indonesia to 20% (foreign shareholding cap) from 51% or incur a a one-off settlement cost of RM200mil; so far no deadline has been set
• For investors who are willing to weather the storm with Astro and keep their faith in owner Ananda Krishnan, it has also promised to pay 50% of profits from its Malaysian operations as dividends (approx. 2% yield)