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Investors’ Corner (PBA Hldgs, Hektar REIT, Yung Kong Galvanising Industries)
Malaysia Investors' Corner | 19 November 2011
By: Gerald Teo
Articles (40) Profile

PBA Holdings
Price – RM1.01
Target – RM1.16

In tandem with growth in the domestic economy (in GDP terms), we expect that the group’s water revenues would grow. Water is a relatively inexpensive expenditure, and we foresee that the demand would grow steadily, especially for trade (commercial / industry) users. The influx of FDI (foreign direct investment) into various high-tech and manufacturing sectors within the state of Penang would lead to higher water usage by trade consumers. We are pleased that PBA practises an open-tender system for its maintenance, machinery, pipe-laying and even for its annual report. In the long run, this practice usually leads to improved cost savings. We find that PBA’s PE and PB valuations are quite undemanding within its sector, while it has reasonable dividend yields. Meanwhile, the group’s gearing levels are very minimal, and we expect that it would turn into a net cash position during FY11. We also note that PBA holds investments in the equity markets that are managed by external fund management companies. Maintain BUY. – Mercury Securities (11 Nov)

Hektar REIT
Price – RM1.31
Target – RM1.50

The main positive surprise from Hektar’s analyst briefing was the significant increase in shoppers’ footfall in Subang Parade, after the opening of an 8-screen MBO cinema targeted at the young crowd. Hektar is planning to add tenants to its new entertainment zone in Mahkota Parade. In the pipeline are some bistro pubs and clubs that are targeted to start business in early 2012. This will boost the mall’s occupancy rate which stood at 96.2% as at Sep-11. We gathered that Hektar has received an offer to refinance its RM184 million bank loan due Dec-11 at the same floating rate (cost of funds + 0.75%). However, Hektar is still contemplating whether to borrow half the amount using floating rate while fixing the rate for the balance of the loan. The absence of a clear acquisition pipeline points to an unexciting 3-year EPU CAGR of about 3%, but this is compensated by Hektar’s above-industry-average dividend yields of about 8-9%, which are a strong attraction in volatile market conditions. Another catalyst could be upward rental reversions in 2012 for one-quarter of its net lettable area. Maintain BUY. – CIMB (10 Nov)

Yung Kong Galvanising Industries
Price – RM0.435
Target – RM0.42

The volatility and unpredictability in the movement of steel prices is a concern to the steel product industry. The thin spread between YKGI’s raw material, Hot Rolled Coil (HRC) and its finished products is troubling. The weak demand situation also poses challenges to the group. YKGI was unable to import HRC for fear that an additional 35% duty may be imposed, thus creating a shortage of HRC supply which is disrupting its normal production operations. Meanwhile, YKGI had aborted its Proposed Listing of Starshine Holdings due to market conditions and also pending possible further reorganisation of the YKGI group of companies. In recent years, YKGI’s dividend payout ratios have been quite varied. Given its current uncertain earnings outlook, we expect that YKGI would lower its dividend per share for FY11. We find that YKGI’s FY11F price-to-book and price-to-sales valuations are not pricey, while it has reasonable dividend yields. The group’s net gearing levels appear to be quite steady in recent years. Recommend HOLD. – Mercury Securities (08 Nov)

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