THE EDGE summaries 10 March - 16 March (1/2)

AZRB plans to take up stake in EPIC

• Ahmad Zaki Resources Bhd (AZRB) is likely to increase its stake in Eastern Pacific Industrial Corp Bhd (EPIC), according to EDGE
• Currently the Terengganu state holds a majority stake in EPIC
• Last year, AZRB took up a 20.5% stake in EPIC from Lembaga Tabung Haji for RM2.40 per share (thus making EPIC an associate company of AZRB)
• EPIC is a key logistics service provider to the O&G industry and also operates Kemaman Port in Terengganu
• EPIC owns the Kemaman Supply Base which hosts 288 companies supporting the O&G companies
  
• At current price of RM1.83, EPIC is trading at a undemanding PE of 8.39
• Its FY2007 profits quadrupled from the year before
• AZRB's plan of diversifying into O&G industry appears to be a timely and rational one

Is MD Lee leaving Country Heights?

• Country Heights Holdings Bhd founder and managing director Lee Kim Yew may relinquish his executive role soon, a sources say
• EDGE understands that Lee is behind the idea of an internal restructuring and that he wants to concentrate on his other privately held companies
• It remains to be seen whether this is a prelude to Lee selling down his stake in Country Heights
• Under the said restructuring process, Country Heights businesses will be re-categorised into three divisions (hospitality, property and development) and each will have a CEO that will be report to the group MD
• According to Bursa filings, Lee has 46.6% stake in the company and he has been actively acquiring company shares since August last year
• Will he stay on a shareholder and just step down as part of a succession process?
• Observers pointed out that if FY2007 earnings are good, this could be the right time to change management, but if earnings are poor, it will give an impression that Lee was forced to leave
• Lee is popularly credited with the transformation of a tin mine in Seri Kembangan into the Mines Resort City

Bina Puri close to securing RM300 contract

• Bina Puri is close to inking a RM300 million contract to build a Hard Rock Hotel from Genting International Ltd, sources say
• Bina Puri's MD Tee Hock Seng is understood to have spearheaded the negotiations
  
• This will be among the larger jobs secured, as the majority of its previous contracts are below the 100mil mark
• FY ended Dec 2007, it posted a net profit of RM7mil from RM612.5 revenue
• Possibly from its weak financials, the company's stock has consistently failed to perform
• At last Friday's closing price, it is trading at a PE of 9.3
• Many of its jobs are also abroad; it has RM450mil of property development jobs in Abu Dhabi

Khazanah's exchangeable bond sales with Parkson Retail as collateral

• Khazanah, which has a 9.8% stake in Parkson Retail, issued US$647mil via a combination of share placement and exchangeable bonds, with Parkson Retail as the underlying collateral
• The latest papers were oversubscribed by more than 10times
• With the volatility in the global markets, it is no surprise Khazanah can attract so many investors with the new issues
• EDGE says there is no way Khazanah will default on its papers. Furthermore it is also offering upside to a company like Parkson Retail
• The deal has two parts: first, a placement of 1.5% of Parkson Retail shares at HK$71 per share (a discount) and secondly, was the exchangeable bond where the exchange premium was set at 37% over the placement
  
• The money raised has to be returned to bond holders if the price of Parkson does not exceed HK$97.27 in three years; alternatively if the price goes above the exchange trigger, bond holders have the right to call on the Parkson Retail shares

UMW Oil & Gas listing untimely?

• Why is UMW listing the O&G division now and diluting the group's interests in the fast growing business when expansion can be funded internally or through cheap borrowings?
• UMW did not get a good listing of WSP Holding Ltd, an associated company in China that manufactures oil pipes, on NYSE; it is currently trading at PE 8. On the other hand UMW is trading in the high teens.
• In the latest proposal, UMW's interest in WSP and other O&G ventures will be put under a new vehicle on Bursa (UMWOG)
  
• Worth noting, eligible directors and key management personnel will get to subscribe, under a rights issue, for the 60mil new shares in the newco at a substantial discount to IPO price
• The public issue price has not been determined, but based on initial estimates, it may be priced at RM1.30 a share
• Post listing UMW will end up with a 52.7% stake in UMWOG, a significant dilution of 87.5%
• Another argument supporting this exercise is that from this listing, UMWOG can seek funding from the capital markets, hence reducing its reliance on parent UMW for capital needs