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Stocks In Focus MY (Bintulu Port Hldgs, Hartalega, Perwaja) – 06/04/15
Malaysia Daily Bulletin | 06 April 2015

Bintulu Port Gets Concession Extension

  • Bintulu Port Holdings (BPH) has obtained approval in-principle from the Federal Government to extend the concession period for the operation of the Bintulu Port to 2052.
  • Bintulu Port has grown over the years, with its total cargo throughput soaring to 45.4 million tonnes last year from less than five million tonnes in 1983 when it started operations.
  • While liquefied natural gas (LNG) remains as its most important cargo and Petroliam Nasional being the port’s anchor customer, BPH has made efforts to reduce its dependency on LNG cargo to 60 percent in the next few years by developing the non-LNG cargo sector.

Significance: BPH has shared that specific focus will be given to the development of the container sector, dry bulk and palm oil, as well as the oil and gas sector. The company has also identified several new projects for implementation in the next five years, which includes the conversion of a 300 metre general cargo wharf for container operations and the proposed LNG berth number 4.

Tougher Operating Environment For Hartalega

  • CIMB Equities Research expects a tougher operating environment over the next two years for Hartalega Holdings due to increasing competition and noted that the group aims to complete its new next generation glove manufacturing complex two years earlier, which will raise capital expenditure per year.
  • To fund the accelerated expansion, Hartalega will draw down some of its credit facilities. The higher interest expense and depreciation cost are expected to weigh on its bottom line in the near term, according to the research house.
  • CIMB Research has cut its FY15 to FY16 earnings per share to factor in mainly the stronger US dollar against the Malaysian Ringgit, higher interest expense and depreciation cost, with the firm expected to miss its previous earnings forecast. Management also expressed that average selling price is likely to drop more while margins are likely to be compressed.

Significance: The research house has downgraded the stock to ‘Hold’ and prefers Kossan Rubber Industries for exposure to the industry. Aside from competition, its expansion into natural rubber gloves segment and emerging countries will also weigh on its margins. Fortunately, given its superior margin as compared to its peers there is still room for buffer, CIMB Research added.

Perwaja Eyes China’s Zhiyuan For Rejuvenation

  • Loss-making Perwaja Holdings may rope in China-based alloy manufacturer Zhiyuan Investment Group Co as a major shareholder, a move deemed crucial to rejuvenate the Malaysian steel product manufacturer’s financials.
  • Kinsteel, the Perwaja’s single-largest shareholder with a 31.3 percent stake, is in talks with Zhiyuan for a proposed share placement of Perwaja shares. Kinsteel’s managing director Tan Sri Pheng Yin Huah noted that a professional partner who can bring operational changes to the firm is needed.
  • Pheng shared that Zhiyuan was expected to upgrade Perwaja’s Kemaman plant. Discussions are said to be progressing well and the parties are hopeful that Perwaja will become a brand new company, with the Chinese firm steering it onto the right path.

Significance: If the proposed placement goes through, Zhiyuan might emerge as Perwaja’s largest shareholder. Pheng noted that this might actually be good for Kinsteel as the importance lies in bringing in a new investor who can revive the Kemaman plant rather than who will eventually end up controlling the firm.

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