daily score region visit report sarawak...
TRANSCRIPT
PP10551/09/2012 (030567) 12 September 2012
See important disclosures at the e
OSK Research | See important disclosures at the end of this report 1
nd of this publication
OSK Research
MALAYSIA EQUITY Investment Research
Daily
SCORE Region Visit Report Ng Sem Guan, CFA +60 (3) 9207 7633 [email protected]
SARAWAK VISIT Ahmad Maghfur Usman +60 (3) 9207 7654 [email protected]
SCORE Thrives on Renewable Power
Kong Heng Siong +60 (3) 9207 7666 hengsiong.kong@ my.oskgroup.com
The inception of the “Sarawak Corridor of Renewable Energy” (SCORE) in 2008
has transformed the state. As a major initiative to develop the state’s central
region, SCORE aims to propel the state’s ambition to become a developed state
by 2020. Its goal is to accelerate the state's economic growth as well as improve
its people’s quality of life by capitalising on renewable energy. Last week (5-7
Sept 2012), we brought 18 clients on a trip to “Ground Zero” – Bintulu in
Sarawak – as well as Samalaju Industrial Park. The visit was an eye-opener as
we witnessed the region’s rapid development, confirming our view that
opportunities abound in the energy-rich state, particularly in renewable energy.
Gan Jian Bo +60 (3) 9207 7621 jianbo.gan@ my.oskgroup.com
Jerry Lee +60 (3) 9207 7622 jerry.lee@ my.oskgroup.com
What is SCORE? The “Sarawak Corridor of Renewable Energy”, or simply known as
SCORE, was launched on 11 Feb 2008 as one of the five regional development
corridors initiated throughout Malaysia. It is targeted at accelerating the state's
economic growth and development, as well as improving the quality of life of its
people. The core of the corridor is the abundance its energy resources in the central
region of Sarawak, particularly hydropower (20,000 MW), coal (1.46bn tonnes), and
natural gas (40.9 trn sq cubic feet). This initiative will enable Sarawak to price its
energy competitively and stimulate investments in the power generation and energy-
intensive industries, consequently turning them into vibrant industries in the Corridor.
By capitalising on renewable energy, SCORE targets to transform Sarawak into a
developed state by 2020.
Figure 1: SCORE region
Source: SCORE’s official website
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A focus on private investment. Private investments in priority industries and their associated
downstream value-added economic activities will be the driving force behind SCORE‟s growth and
development. Chief among these are the energy-intensive industries, which will spur investments from an
early stage to become an advanced industrial base in the Corridor. Ten priority industries have been
indentified, namely aluminium, glass, steel, oil-based, palm oil, fishing & aquaculture, livestock, timber-
based, marine, and tourism.
Five growth nodes. Tanjung Manis, Mukah, Samalaju, Baram and Tunoh have been selected as the five
New Growth Nodes with different focus areas:
i. The Mukah Node will be developed into a Smart City and serve as the nerve centre for the
Corridor.
ii. The Tanjung Manis Node will be developed into an Industrial Port City and Halal Hub.
iii. The Samalaju Node will become the new Heavy Industry Centre.
iv. Baram and Tunoh will focus on the tourism and resource-based industries.
The spatial development of the entire region, as well as the development of these New Growth Nodes, will
also benefit the Corridor‟s Secondary Growth Centres, such as Semop, Balingian, Selangau, Samarakan,
Bakun and Ng. Merit.
Bintulu central to our event. The once sleepy fishing village of Bintulu has swiftly transformed into a
booming industrial centre and a soon-to-be capital for energy-intensive industries in Malaysia. The
Samalaju Industrial Park, being only an hour and a half‟s drive away from Bintulu Airport, led us to decide
to host our SCORE corporate event there.
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Day 1: The journey begins
A three-day excursion to Bintulu. Inspired by SCORE‟s prospects and eager that the investment
community witnesses Sarawak‟s abundant energy resources, particularly in renewable energy, we took 18
of OSK‟s clients on a three-day excursion to “Ground Zero”, i.e. Bintulu, in Sarawak. The following
chronicles our journey through the 5-7 Sept outing, as well as the new discoveries we made during the trip.
Samalaju, here we come. On 5 Sept 2012, we left for Bintulu, which took 2 hours of flight time from the
Kuala Lumpur International Airport. We were greeted by an OSK East Malaysia representative and boarded
a coach towards Samalaju Industrial Park. Our ride which passed through oil palm estates was on
reasonably well-paved two-lane tar roads. Although telecommunications reception was intermittent, we
were amazed with the strength of our 3G connection as we approached the industrial park.
Figure 2: Samalaju Industrial Park
Source: SCORE Official Website
Two nearly ready, two still in progress. As we entered Samalaju Industrial Park, we were surprised to
find that the first phase of Tokuyama Corp‟s polycrystalline plant producing silicon for solar panels was
almost complete though it is only scheduled for commissioning in 2Q13. Moreover, structural works on the
second phase of the plant seemed to have begun. Tokuyama is the Park‟s first foreign investor. We also
caught sight of Press Metal‟s aluminium smelting plant, which also looked ready judging from the outer
facade though a source on the ground told us that it is only scheduled for commissioning next year. Aside
from these, the Australian Securities Exchange-listed OM Holdings Ltd (OMH) and Asia Mineral Ltd have
each separately planned to set up a manganese smelter under the SCORE initiative. As we passed by two
adjacent sites, we noticed that land clearing was well in progress on both and structural works could
commence soon. Meanwhile, we also understand that the water supply and power grids connecting Bakun
Dam to Samalaju are now ready.
Company Investment
(RMbn) Product
Construction
Schedule
Production
Schedule Jobs Land (ha)
Electricity
(MW)
Press Metal 2.00 Aluminium ingots & billets Q1 2011 Q4 2012 2000 194 480
Tokuyama Corporation 6.60 Polycrystalline Silicon Q1 2011 Q3 2013 660 200 360
Asia Minerals Ltd 0.49 Silicone Manganese Q32011 Q4 2012 300 200 350
OM Holdings Ltd 1.50 Silicone Manganese Q2 2011 Q22013 1000 60 500
TOTAL 10.6 3960 654 1690
Source: RECODA
OSK Research
OSK Research | See important disclosures at the end of this report 4
Figure 3: Construction sites at Samalaju Industrial Park
Tokuyama Plant- Phase 1
Tokuyama Plant – Phase 2
Press Metal Plant
OM Holdings
Source: OSK Research
Quick tour of Cahya Mata Sarawak (CMS) Workers’ camp. Our first stop was at Samalaju Property
Development‟s (SPD) Samalaju Workers Camp. Its General Manager Mr. Goh Chii Yew showed us around
the RM40m site, touted as the best of its kind in Malaysia. It accommodates about 5,000 people, with a
majority working for Tokuyama. Accommodation costs vary from RM1,000 per month to as high as
RM5,000 per month. According to management, expansion plans are already in place to cope with rising
demand from Tokuyama, which will require 8,000 site workers at the peak of its construction cycle.
Meanwhile, we understand that the OM Materials and AML manganese ferro alloy plants were currently in
its land-clearing stage. We were impressed by the facilities and services provided at this camp,
notwithstanding the temporary unpaved road linking the site to the main road as proper road connections
are supposed to provided by the Government.
Figure 4: CMS workers’ camp
Executive lounge
Construction workers‟ camp
Source: OSK Research
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OSK Research | See important disclosures at the end of this report 5
Samalaju Port. The opportunities in broadening the Corridor‟s industrial and economic base are in the
resource-based industries and the provision of modern services. Samalaju Port SB was established to
facilitate the cargo handling needs of Samalaju‟s industrial development, which may give rise to demand
for 13m-14m in tonnage by 2015. The visit kicked off with a briefing from Samalaju Port, followed by a
tour of the actual prospective site, on which some dredging works are currently being carried out.
Figure 5: Samalaju Port construction site
Construction site
Dredging works
Construction site
Construction site
Source: OSK Research
End of Day 1. Our road trip back to Bintulu town was rather smooth, taking slightly more than an hour.
There were numerous vehicles, including some buses, travelling in the same direction. We believe the
buses may be ferrying workers returning to Bintulu. We think it is just a matter of time before the
Government is forced to upgrade the road. The expansion of the Kidurong-Samalaju road is already in the
pipeline, with four new “no overtaking” lanes (each stretching 1km and located at every 5km interval), at a
total estimated cost of RM20m. Finally, after a long and tiring day, the entire party checked into the New
World Suites Hotel for a quick change of clothes before proceeding to a seafood dinner near the hotel.
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Day 2: The SCORE conference
A successful conference. On the second day, we held a conference at New World Suites Hotel. We were
deeply appreciative of the participation from RECODA CEO Datuk Amar Wilson Baya Dandot, who gave
our clients first-hand insights into SCORE, including its latest developments and challenges. Six public
corporations directly or indirectly involved in SCORE also made presentations at our conference. These
included Cahya Mata Sarawak, Sarawak Oil Palms (SOP), Sarawak Cable and Shin Yang Shipping. Our
party asked questions relating to business opportunities, SCORE‟s viability and its implications on the
corporates showcased at the conference. The key takeaways from the companies‟ presentations are
included in the last section of this report.
Figure 6: Snapshots of the conference
RECODA
Cahya Mata Sarawak
Sarawak Oil Palms
Shin Yang Shipping Corporation
Sarawak Cable
The attendees
Source: OSK Research
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Day 3: The adventure continues
Visit to Bintulu Port. Day 3 (7 Sep 2012) began with us checking out from our hotel. Our visit to Bintulu
Port kicked off with a quick presentation and Q&A session hosted by the company secretary of Bintulu Port
Holdings En. Nik Abd Rahman Nik Ismail, who briefed us on the group‟s operations, its future expansion
plans and latest corporate developments.
Figure 7: Bintulu Port visit
A meeting session
Aerial view of Bintulu Port
Source: OSK Research
Getting up close by boat. In order to experience and view the port operation up-close, Bintulu Port
graciously arranged a ride on the company‟s tug boat. From the vessel, we watched the loading of LNG
onto a MISC-owned vessel while being served light refreshments. Before the tour ended, our boat took us
close to the general cargo terminal, where we saw a few cargo container vessels berthed at the wharf.
Figure 8: Boat ride tour
The visiting party
On board
View from the boat
A view of Bintulu Port
Source: OSK Research
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Last stop - a palm oil refinery. Our group also visited SOP‟s palm oil refinery plant located almost
adjacent to Bintulu Port. SOP‟s general plant manager and his crew brought us around the company‟s
1,500 tonne-per-day refinery and 500 tonne-per-day kernel crushing plant. Although the refinery was under
maintenance, the plant manager gave us a good description of the refining process – from CPO to refined
palm oil, refined palm olein and palm stearin. At the crushing plant, we saw palm kernels being transported
on a conveyor belt for processing into crude palm kernel oil and palm kernel meal, which are used as
substitutes for coconut oil and feedstock respectively.
Figure 9: SOP palm oil refinery plant visit
Kernel crushing plant
Palm oil refinery
Palm kernels
Inside the refinery
Inside the kernel crushing plant
Storage silos
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RECODA
Bringing it together. RECODA‟s role is defined by the Regional Corridors Development Authorities
Ordinance 2006, which was passed by the Sarawak State Legislative Assembly on 11 Dec 2006. It is tasked
to manage, facilitate and promote SCORE‟s development and service investors. We felt honoured indeed that
RECODA‟s management graciously delivered the conference‟s keynote address.
Figure 10: Institutional framework and role of RECODA
Source: SCORE Official Website
A clear role. RECODA is organised and managed with a clear commercial mindset focused on providing
world-class customer service by minimising public service bureaucracy. It operates as a one-stop agency for
investors. Its role includes:-
Managing and promoting the development of SCORE.
Ensuring more expeditious and efficient mobilisation of the State's natural resources, which include
water and hydro power, and optimising the use of these resources to facilitate the development of
SCORE.
Planning SCORE‟s development and implementing the corridor‟s plans and projects.
Servicing investor clients.
Strong commitment and vision. Datuk Amar Wilson is proud of the approximate RM24.6bn worth of private
investments that SCORE has attracted despite having only RM1.8bn of total public funding spent to date. This
represents a private:public investment ratio of 94:6, on top of the 14,000 jobs it has created. According to
Datuk Amar Wilson, by 2030 the central region of SCORE Corridor is envisioned become the state's primary
economic powerhouse and Sarawak will have achieved the level of development and quality of life of a
developed country. However, his presentation focused on the medium term, with 2008- 2015 as the
foundation-laying phase for the corridor. RECODA will focus on building critical mass and momentum to
stimulate development, implementing high-priority infrastructure projects and attracting high-priority trigger
projects. Meanwhile, the Government is committed to upgrading existing infrastructure, utilities and amenities
as well as constructing new ones to meet the needs and requirements of investors within the Corridor.
The Tanjung Manis Halal Hub – another area of development. RECODA also highlighted that some
77,000 ha of landbank in Tanjung Manis have been earmarked for upstream and downstream aquaculture
and agriculture investments, a development that we find interesting. This delta region is suitable for a wide
range of aquacultural and agricultural activities throughout the year, due to its moderate, warm climate with
minimal seasonal changes. There is also sufficient area to expand into or build a new port to ship produce.
Some 13 bridges have been built, cutting the Sibu-Tanjung Manis road travelling time from many hours
previously to only 45 minutes. Thus, we expect to see a hive of economic activity emerge in the upcoming
years.
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No fancy investment incentives, only cheaper power! We were stunned, and believed that many of our
clients felt the same way, when Datuk Amar Wilson said there are no specific incentives lined up for SCORE.
Nevertheless, applications for general incentives such as the Investment Tax Allowance (ITA) and Pioneer
Status (PS) can be sought from the Malaysia Industrial Development Authority (MIDA). Besides that, we
believe the cheap renewable energy made available to investors is competitive and compelling enough to
attract investments from heavy industry players to Sarawak.
OSK Research
OSK Research | See important disclosures at the end of this report 11
MALAYSIA EQUITY Investment Research
Daily Post-Visit Update
Kong Heng Siong +60 (3) 9207 7666 hengsiong.kong@ my.oskgroup.com Cahya Mata Sarawak
The Prodigal Son Returns
NOT RATED
Price RM3.28
BUILDING MATERIALS
Cahya Mata Sarawak manufactures building materials and offers construction services and software.
Stock Statistics
Bloomberg Ticker CMS MK Share Capital (m) 330.3 Market Cap (RMm) 1,083.4 52 week H│L Price (RM) 3.50 1.70 3mth Avg Vol („000) 279.9 YTD Returns 56.9 Beta (x) 0.92
Major Shareholders (%)
Alwee Alsree Syed Ahmad 13.8 Majaharta SB 13.6 Lejla Taib 11.2
Share Performance (%)
Month Absolute Relative 1m 11.9 14.1 3m 41.1 29.1 6m 41.7 28.7 12m 71.7 44.1
6-month Share Price Performance
2.30
2.50
2.70
2.90
3.10
3.30
3.50
Mar-12 Apr-12 May-12 Jun-12 Jul-12 Jul-12 Aug-12
Cahya Mata Sarawak (CMS), one of Sarawak’s largest public-listed
conglomerates, began as a cement manufacturer in 1974. It has diversified into
sectors such as building materials, construction, road maintenance, property
development, financial services and education. The company’s major
shareholders linked to Sarawak Chief Minister Pehin Sri Haji Abdul Taib
Mahmud’s family (42.7%) and Sarawak Economic Development Corp (8.2%).
Given its dominance in Malaysia’s largest state, we expect CMS to play a crucial
role in driving SCORE’s developments, where its involvement is via 51%-owned
Samalaju Property Development (SPD) and a 20%-owned OM Materials Ltd plant.
Workers camp an eye-opener. We visited SPD‟s Samalaju Workers Camp and were
shown around by its General Manager Mr. Goh Chii Yew. Touted as the best of its kind
in Malaysia, the RM40m site now accommodates 5,000 people. The majority of these
work with Tokuyama Corp, which has invested USD2.5bn in a polycrystalline silicon
plant, to be built in two phases in Samalaju Industrial Park (SIP). Accommodation
charges range from RM1,000 per month for a site worker to RM5,000 per month for an
executive. Expansion plans are already in place to cope with rising demand from
Tokuyama, which will need 8,000 workers at the peak of its construction cycle.
Meanwhile, the construction progress at OM Materials‟ and AML‟s manganese
ferroalloy plants is also gaining pace.
Best proxy to Samalaju’s property play. Tipped to be the master developer of the
planned Samalaju township, SPD is currently looking at developing over 3,300 acres of
land about 12km away from SIP. Although the project‟s GDV is not known for now, we
understand that the construction of its first phase, done over 1,300 acres, will likely kick
off next year. This township is targeted to have a population of at least 45,000 by 2018.
20% share in OM Minerals. CMS holds a 20% stake in OM Materials‟ proposed
USD600m manganese ferroalloy plant in SIP, with the remaining 80% held by
Australia‟s OM Holdings, one of the world‟s largest manganese ore producers. Upon
completion, the plant is expected to produce 575,000mt of manganese and ferroalloy
p.a. Site preparation works for the manganese and ferroalloy smelter is nearing
completion and construction works will commence in 3Q12 with operations expected to
come on-stream by 1Q14.
FYE Dec (RMm) FY07 FY08 FY09 FY10 FY11
Turnover 2,552.5 893.0 874.6 943.5 1,012.6 Net Profit 388.2 95.8 41.0 65.8 120.0 % chg YoY 5554.3 -75.3 -57.2 60.5 82.5 Consensus - - - - - EPS (sen) 117.8 29.1 12.4 20.0 36.4 DPS (sen) 15.0 5.0 5.0 10.0 15.0 Div Yield 4.6% 1.5% 1.5% 3.1% 4.6% ROE 31.3% 7.7% 3.2% 5.0% 8.5% ROA 13.9% 4.1% 1.8% 3.1% 5.7% PER (x) 2.8 11.2 26.1 16.3 8.9 BV/ share 3.76 3.79 3.88 3.98 4.29 P/BV (x) 0.9 0.9 0.8 0.8 0.8
OSK Research
OSK Research | See important disclosures at the end of this report 12
Spill-over from SCORE projects. Although CMS is not actively involved in SIP‟s construction projects,
we see potential growth for its cement, clinker and concrete products as well as its construction
materials manufacturing divisions. It is the sole player in Sarawak for the former two industries and has
a 60% market share in the latter. In view of the increasing demand, CMS has proposed building a new
cement plant in Mambong by end-2014 and potentially, a second steel wires and mesh plant in Bintulu.
EARNINGS FORECAST
FYE Dec (RMm) FY07 FY08 FY09 FY10 FY11
Turnover 2,552.5 488.3 581.5 668.2 685.8 EBITDA 130.3 231.0 145.3 159.1 247.5 PBT 887.4 150.6 98.5 118.8 178.7 Net Profit 388.2 73.4 87.3 100.1 107.8 EPS (sen) 117.8 12.6 15.0 17.2 18.5 DPS (sen) 15.0 2.1 2.5 3.4 3.7 Margin EBITDA 5.1% 47.3% 25.0% 23.8% 36.1% PBT 34.8% 30.8% 16.9% 17.8% 26.1% Net Profit 15.2% 15.0% 15.0% 15.0% 15.7% ROE 31.3% 7.7% 3.2% 5.0% 8.5% ROA 13.9% 4.1% 1.8% 3.1% 5.7% Balance Sheet Fixed Assets 769.4 1,436.5 774.0 776.6 917.2 Current Assets 2,021.4 890.6 1,513.3 1,338.2 1,182.1 Total Assets 2,790.8 2,327.1 2,289.3 2,114.8 2,099.3 Current Liabilities 664.7 505.4 528.5 449.9 390.0 Net Current Assets 1,356.7 385.2 984.8 888.3 792.1 LT Liabilities 402.9 406.6 300.3 196.6 108.5 Shareholders Funds 1,238.2 1,248.8 1,278.0 1,312.7 1,414.8 Net Gearing 24.0% 24.2% 7.5% Net Cash 2.0%
OSK Research
OSK Research | See important disclosures at the end of this report 13
MALAYSIA EQUITY Investment Research
Daily Post-Visit Update
Gan Jian Bo +60 (3) 9207 7621 jianbo.gan@ my.oskgroup.com Sarawak Oil Palms
Set to Reap Future Rewards
BUY
Fair Value RM9.37 Previous RM9.37 Price RM6.41
PLANTATION
Sarawak Oi l Palms is primarily involved in oil palm plantations, with all its production area based in the state of Sarawak.
Stock Statistics
Bloomberg Ticker SOP MK Share Capital (m) 436.5 Market Cap (RMm) 2,797.9 52 week H│L Price (RM) 7.04 3.73 3mth Avg Vol („000) 115.9 YTD Returns 14.7 Beta (x) 0.85
Major Shareholders (%)
Shin Yang Group 36.2 PELITA Holdings 28.9
Share Performance (%)
Month Absolute Relative 1m -4.2 -2.3 3m 7.3 3.9 6m 10.2 7.1 12m 53.2 38.5
6-month Share Price Performance
5.50
5.70
5.90
6.10
6.30
6.50
6.70
6.90
7.10
7.30
7.50
Mar-12 Apr-12 May-12 Jun-12 Jul-12 Jul-12 Aug-12
SOP recently built its fourth palm oil refinery in Bintulu as it seeks to move across
the value chain. The facility will help ease the company’s CPO backlog as refining
capacity remains inadequate in Sarawak. While Malaysia’s refining landscape
remains challenging, we believe that an integrated business model like SOP’s will
better position the company in weathering any difficulties, as opposed to being
downstream-heavy. SOP remains our top Malaysian plantation pick, with its young
tree age profile and strong management expertise as the key drivers of growth for
the next few years. Maintain BUY, with a FV of RM9.37.
Solely Sarawak-focused. Sarawak Oil Palms (SOP) is a Sarawak-based oil palm
producer with the majority of its plantations located near Miri and Bintulu. Previously, the
company only focused on cultivating and harvesting oil palms and processing fresh fruit
bunches into crude palm oil and palm kernel. It has now ventured downstream,
beginning with the construction of a 1,500-tonne per day refinery and a 500-tonne per
day kernel crushing plant in Bintulu, Sarawak. The company has a sizeable planted area
of 62,948 ha, with 68.2% of its trees at or below 10 years old.
Going downstream in the state’s deepest port. SOP‟s Bintulu refinery commenced
operations in June, processing its own CPO as well as those from neighbouring millers
into refined, edible palm olein and stearin. Following a briefing on the refinery‟s structure,
the plant managers gave us a quick tour of the company‟s automated refinery and
mechanical kernel crushing plant. The processing of crude to its ultimate refined form at
temperatures of as high as 260ºC takes approximately 1.5 hours. It takes a full day to
warm up the refinery and another day to shut down the plant. The refinery, thus, runs
around the clock, with scheduled periodic shutdowns for maintenance.
Buying over minorities. SOP‟s strategy is to venture upstream in collaboration with its
major stakeholders Shin Yang and PELITA, a Sarawak state agency. The company
currently owns 60%-85% stakes in the estates under its care. Plans are now under way
for it to buy over the minority stakes, which will help reduce the minority interest leakage
on its profits. SOP prefers to transact in cash, although some parties prefer to be paid in
shares in order to remain invested in the company.
Maintain BUY. We value SOP at a FV of RM9.37, based on 13.0x FY13 PE. SOP
remains our top Malaysian plantation pick given its young tree age profile,
attractive valuations and strong management expertise. The stock is trading at
undemanding 12.8x and 9.1x FY12f and FY13f PEs.
FYE Dec (RMm) FY09 FY10 FY11 FY12f FY13f
Revenue 533.3 725.4 1166.3 2120.1 3171.8 Net Profit 100.0 147.2 243.0 222.6 314.1 % chg y-o-y -30.1 47.1 65.1 -8.4 41.1 Consensus 223.5 290.5 EPS (sen) 23.4 34.3 56.1 51.1 72.0 DPS (sen) 3.0 4.0 5.0 4.5 6.4 Dividend yield (%) 0.5 0.6 0.8 0.7 1.0 ROE (%) 12.1 15.1 20.1 15.7 18.5 ROA (%) 7.1 8.8 11.8 9.2 10.7 PER (x) 27.4 18.7 11.4 12.6 8.9 BV/share (RM) 1.9 2.2 2.8 3.2 3.9 P/BV (x) 3.4 2.9 2.3 2.0 1.6
OSK Research
OSK Research | See important disclosures at the end of this report 14
EARNINGS FORECAST
FYE Dec (RMm) FY09 FY10 FY11 FY12f FY13f
Turnover 533.3 725.4 1166.3 2120.1 3171.8 EBITDA 178.9 269.7 417.6 395.5 541.6 PBT 134.8 219.6 362.4 326.2 460.2 Net Profit 100.0 147.2 243.0 222.6 314.1 EPS (sen) 23.4 34.3 56.1 51.1 72.0 DPS (sen) 3.0 4.0 5.0 4.5 6.4 Margin EBITDA (%) 33.5 37.2 35.8 18.7 17.1 PBT (%) 25.3 30.3 31.1 15.4 14.5 Net Profit (%) 18.8 20.3 20.8 10.5 9.9 ROE (%) 12.1 15.1 20.1 15.7 18.5 ROA (%) 7.1 8.8 11.8 9.2 10.7 Balance Sheet Fixed Assets 1017.7 1184.2 1386.8 1583.8 1835.6 Current Assets 395.6 480.5 665.2 843.3 1091.5 Total Assets 1413.3 1664.7 2052.0 2427.1 2927.1 Current Liabilities 163.1 197.7 230.4 360.4 535.1 Net Current Assets 232.5 282.8 434.8 483.0 556.4 LT Liabilities 326.7 370.5 480.7 501.0 509.0 Shareholders Funds 828.8 974.2 1211.2 1414.1 1700.2 Net Gearing (%) net cash net cash net cash net cash net cash
OSK Research
OSK Research | See important disclosures at the end of this report 15
MALAYSIA EQUITY Investment Research
Daily Post-Visit Update
Ng Sem Guan, CFA +60 (3) 9207 7633 [email protected]
Sarawak Cable
Cabling New Territory
NOT RATED
Price RM1.57
BUILDING MATERIALS
Sarawak Cable manufactures power cables and wires and also hybrid power inverters.
Stock Statistics
Bloomberg Ticker SRCB MK Share Capital (m) 135.0 Market Cap (RMm) 212.0 52 week H│L Price (RM) 2.24 1.48 3mth Avg Vol („000) 27.2 YTD Returns -20.3 Beta (x) 0.84
Major Shareholders (%)
Sarawak Energy Bhd 21.6 Bekir Taib Mahmub Abu 19.4 Leader Universal Holdings 15.5
Share Performance (%)
Month Absolute Relative 1m -9.8 -8.0 3m -5.8 -9.7 6m -19.2 -22.0 12m -16.1 -25.6
6-month Share Price Performance
1.50
1.60
1.70
1.80
1.90
2.00
2.10
Mar-12 Apr-12 May-12 Jun-12 Jul-12 Jul-12 Aug-12
Sarawak Cable (SCB) is transforming from a pure cable and wire manufacturer
into a one-stop centre, which enables it to access the power transmission
industry’s value chain and to tap into SCORE’s abundant but under-utilised
energy resources. The company has acquired STSB, which offers exposure to
fabricating and galvanising transmission towers and other steel products, as well
as TISB, a contractor for transmission lines. SCB also expects a new income
stream from mini hydro power generation starting 2014 via 65%-owned PT Inpola
Mitra Elektrindo.
Laying cables across East Malaysia. SCB, listed on Bursa Malaysia‟s Main Board on
25 May 2010, is a manufacturer of aluminium and copper cables and wires based in
Kuching, Sarawak. Given its high exposure in the East Malaysian market, the company
controls roughly a third of the region‟s market share and offers products that include low
voltage power cables and high voltage bare conductors.
A one-stop power transmission centre. Post-listing, SCB acquired 75% of Sarwaja
Timur SB (STSB) and is now in the midst of acquiring the remaining 25% for RM11.3m.
Separately, SCB has also proposed to acquire full interest in Trenergy Infrastructure SB
(TISB) for RM65m. STSB is involved in the fabrication of transmission towers and other
steel products and also provides galvanising services, while TISB is an EPC contractor
for transmission lines. The acquisition will benefit SCB in terms of synergy and also
facilitate the creation of a one-stop centre for power transmission projects. The company
is also expanding overseas by acquiring a 65% stake in PT Inpola Mitra Elektrindo
(IME), which has been awarded a 20-year Power Purchase Agreement (PPA) for a 11
MW mini hydro power plant. Construction is expected to begin this year and complete in
2014.
More from SCORE. Other than the 2,400MW Bakun dam that has its power
transmission line and substation at Samalaju Industry park, there are many untapped
energy resources amounting to 28,000 MW in the corridor. With SCORE‟s development
picking up speed, the region is expected to be a hive of activity going forward. SCB, a
homegrown player, is likely to be a frontrunner for any power transmission projects, as
its new one-stop centre gives the group access to the power transmission industry‟s
entire value chain. The company‟s orderbook, including that of TISB‟s (whose acquisition
is expected to be completed by end-2012), totals RM292m.
FYE Dec (RMm) FY07 FY08 FY09 FY10 FY11
Revenue 104.07 135.7 89.8 129.5 368.3 Net Profit 11.3 8.78 8.1 5.5 15.6 % chg y-o-y - -22.3 -7.7 -32.1 183.6 Consensus - - - - - EPS (sen) 0.11 0.08 0.08 0.05 0.12 DPS (sen) 0.00 0.00 0.00 0.00 0.028 Dividend yield (%) 0.00 0.00 0.00 0.00 1.8% ROE (%) n.m. n.m. n.m. 5.90 13.80 ROA (%) n.m. n.m. n.m. 3.30 6.00 PER (x) 14.3 19.6 19.6 31.4 13.1 BV/share (RM) n.m. n.m. 0.74 0.79 0.89 P/BV (x) n.m. n.m. 2.12 1.99 1.76
OSK Research
OSK Research | See important disclosures at the end of this report 16
EARNINGS FORECAST
FYE Dec (RMm) FY07 FY08 FY09 FY10 FY11
Turnover 104.1 135.7 89.8 129.5 368.3
EBITDA 11.6 9.5 13.9 8.1 8.1
PBT 11.0 10.9 10.5 7.9 24.3
Net Profit 11.3 8.8 8.1 5.5 15.6
EPS (sen) 0.11 0.08 0.08 0.05 0.12
DPS (sen) n.m. n.m. 0.03 0.03 n.m.
Margin EBITDA (%) 11.1% 7.0% 15.5% 6.3% 2.2%
PBT (%) 10.6% 8.0% 11.7% 6.1% 6.6%
Net Profit (%) 10.9% 6.5% 9.0% 4.2% 4.2%
ROE (%) n.m. n.m. n.m. 5.9 13.8
ROA (%) n.m. n.m. n.m. 3.3 6.0
Balance Sheet Fixed Assets n.m. n.m. 34.7 55.2 56.5
Current Assets n.m. n.m. 53.39 177.5 210.2
Total Assets n.m. n.m. 90.88 241.7 274.6
Current Liabilities n.m. n.m. 9.0 117.9 135.8
Net Current Assets n.m. n.m. 44.43 59.6 74.4
LT Liabilities n.m. n.m. 2.2 5.9 6.0
Shareholders Funds n.m. n.m. 53.5 78.1 78.1
Net Gearing (%) n.m. n.m. n.m. Net Cash 21.2
OSK Research
OSK Research | See important disclosures at the end of this report 17
MALAYSIA EQUITY Investment Research
Daily Post-Visit Update
Jerry Lee +60 (3) 9207 7622 jerry.lee@ my.oskgroup.com Shin Yang Shipping Corp
On Expansion Mode
NOT RATED
Price RM0.405
TRANSPORT
Shin Yang Shipping Corp (SYS) is a leading integrated shipping and shipbuilding company based in Sarawak.
Stock Statistics
Bloomberg Ticker SHIN MK Share Capital (m) 1,200.0 Market Cap (RMm) 486.0 52 week H│L Price (RM) 0.68 0.40 3mth Avg Vol („000) 297.1 YTD Returns -8.0 Beta (x) 0.56
Major Shareholders (%)
Shin Yang Holdings SB 55.0
Share Performance (%)
Month Absolute Relative 1m -4.7 -4.0 3m -8.9 -13.0 6m -18.0 -20.8 12m -13.9 -25.5
6-month Share Price Performance
0.40
0.42
0.44
0.46
0.48
0.50
0.52
0.54
Mar-12 Apr-12 May-12 Jun-12 Jul-12 Jul-12 Aug-12
Shin Yang Shipping Corporation (SYSCorp) is well-positioned to benefit from the
busy transportation route between East and West Malaysia. It has expanded to the
Middle East by entering into joint ventures with local partners. Having secured an
order book of 36 vessels worth RM800.6m, the company’s growth outlook is
positive. SYSCorp has also acquired eight container vessels from Swee Joo to
expand its shipping routes.
Venturing beyond borders. A part of Shin Yang Group, SYSCorp is involved in
shipping and shipbuilding. It was listed on Bursa Malaysia‟s main market on 23 June
2010, with an IPO market cap of RM1.32bn. Its shipping divisions have a total of 297
vessels and a total gross registered tonnage of 460,100 tonnes. The company has
expanded to the Middle East by entering into joint ventures with several companies in
Qatar, Sharjah, Abu Dhabi and Dubai. Its shipbuilding division has an orderbook to build
36 vessels worth RM800.6m, which should keep it busy for the next two years.
Consistent business growth. Apart from the vessels contract, SYSCorp has also
secured 7.7m tonnes of aggregate in UAE with Steven Rock LLC and inked a 20-year
contract with CMS Cement SB to transport cement. The company has new shipping
routes for its container vessels, transporting construction materials and household goods
to China, Bangkok and Penang. To date, it has 18 existing container vessels. Of this, six
will service routes between Peninsular Malaysia and Borneo; meanwhile, two vessels
are dedicated to intra-Asia (including China) routes but are not yet in operation as some
renovation needs to be done to cater for longer journeys.
Opportunities from SCORE. The extensive need to transport in- and out-bound raw
materials to and from the SCORE region will definitely present positive opportunities for
SYSCorp. Aside from that, Samalaju Port‟s construction works offer SYSCorp
opportunities to tap into the business of transporting raw materials from Bintulu Port to
Samalaju Industrial Park. As such, we think SYSCorp may be able to achieve new „high
scores, thanks to its strong presence in the corridor.
FYE Jun (RMm) FY07 FY08 FY09 FY10 FY11
Revenue 486.7 595.1 673.5 320.9 593.9 Net Profit 98.0 159.0 101.8 152.5 74.7 % chg y-o-y - 62.3 -36.0 49.9 -51.0 Consensus - - - - - EPS (sen) 0.1 0.16 0.1 0.23 0.06 DPS (sen) n.m. n.m. n.m. 0.03 0.02 Dividend yield (%) n.m. n.m. n.m. 13.5 20.25 ROE (%) n.m. n.m. n.m. 11.4 5.45 ROA (%) n.m. n.m. n.m. 8.8 3.45 PER (x) n.m. n.m. n.m. 1.8 6.8 BV/share (RM) n.m. n.m. 1.1 1.13 1.16 P/BV (x) n.m. n.m. 0.37 0.36 0.35
OSK Research
OSK Research | See important disclosures at the end of this report 18
EARNINGS FORECAST
FYE Jun (RMm) FY07 FY08 FY09 FY10 FY11
Turnover 486.7 595.1 673.5 320.9 593.9 EBITDA n.m. n.m. n.m. 211.1 169.0 PBT 103.5 156.6 112.7 156.4 71.6 Net Profit 98.0 159.0 101.8 152.5 74.7 EPS (sen) 0.1 0.16 0.1 0.23 0.06 DPS (sen) n.m. n.m. n.m. 0.03 0.02 Margin EBITDA (%) n.m. n.m. n.m. 65.8 28.5 PBT (%) n.m. n.m. n.m. 48.7 12.1 Net Profit (%) n.m. n.m. n.m. 47.5 12.6 ROE (%) n.m. n.m. n.m. 11.4 5.45 ROA (%) n.m. n.m. n.m. 8.8 3.45 Balance Sheet Fixed Assets n.m. n.m. n.m. 1406.2 1682.7 Current Assets n.m. n.m. n.m. 589.5 482.1 Total Assets n.m. n.m. 1323.1 2142.9 2190.5 Current Liabilities n.m. n.m. n.m. 481.41 423.5 Net Current Assets n.m. n.m. n.m. 108.1 58.6 LT Liabilities n.m. n.m. n.m. 294.1 366.7 Shareholders Funds n.m. n.m. 1323.1 1350.9 1390.2 Net Gearing (%) n.m. n.m. n.m. 19.8 29.9
OSK Research
OSK Research | See important disclosures at the end of this report 19
MALAYSIA EQUITY Investment Research
Daily Post-Visit Update
Ahmad Maghfur Usman +60 (3) 9207 7654 [email protected] Bintulu Port Holdings
Rising With Samalaju
NEUTRAL
Fair Value RM7.10 Previous RM7.10 Price RM7.01
LOGISTICS
Bintulu Port is a world class LNG port which also operates as a multipurpose port.
Stock Statistics
Bloomberg Ticker BPH MK Share Capital (m) 400.0 Market Cap (RMm) 2,808.0 52 week H│L Price (RM) 7.32 6.43 3mth Avg Vol („000) 69.9 YTD Returns 4.4 Beta (x) 0.37
Major Shareholders (%)
Petroliam Nasional Bhd 32.8 State Fin Secretary Sarawak 30.7 KWAP 9.8
Share Performance (%)
Month Absolute Relative 1m -0.4 1.5 3m 1.4 -2.1 6m 3.5 -1.7 12m 12.3 -3.9
6-month Share Price Performance
6.80
6.90
7.00
7.10
7.20
7.30
Mar-12 Apr-12 May-12 Jun-12 Jul-12 Jul-12 Aug-12
The hive of industrial development in Samalaju creates opportunities for players
to cater to increasing demand for cargo handling in the immediate to long term for
both the Samalaju and Bintulu ports. The two ports are expected to see increases
in cargo demand of 13m-14m tonnes and 100,000-TEUs by 2015. However, the
issue of cutting tariffs for its LNG berthing and lease payments is unresolved
while the terms of Samalaju’s concession are yet to be finalised. We maintain a
NEUTRAL call on Bintulu Port, with an unchanged FV of RM7.10, based on DDM.
On track. Samalaju Port‟s development is on track, with the construction of its two-barge
berths and a Ro Ro ramp targeted to be completed by June 2013, before the completion
of the port‟s first phase in 2016. Bintulu Port is allocating an initial capex of RM193m for
the two barge berths. While the combined development could exceed RM1bn, the bulk
of its capex will be used for land reclamation and dredging the water depth deeper from
7m-12m, in order to cater to Panamax vessels‟ requirements. The barge berths will be
able to handle a capacity size of 4m tonnes p.a. Phase 1 of Samalaju‟s development,
which is expected to complete by 1Q16, will see an additional three Panamax berths and
one barge berth and an additional capacity of 14m tonnes. Upon completion of Phase 1,
Samalaju will be able to accommodate a combined capacity of 18 million tonnes.
Capital structure and concession terms. Management will announce the concession
terms from Samalaju Port in due course. The capex funding is understood to be from
bond issuances, in addition to Bintulu Port receiving a RM500m grant from the federal
government.
Ongoing negotiations. The long-drawn negotiations on tariff reduction for LNG berthing
and annual leases are still inconclusive. At the same time, management is also lobbying
for tariff increases for both Bintulu and Samalaju ports to cushion the decline in revenue
from LNG berthing. Management expects a solution to be reached by the end of the
year. There are indications of a revenue downside of RM50m from the c. 17% reduction
in LNG berthing tariffs, but this may be offset by a c. 20% jump in revenue of RM20m
arising from the cuts in rental and port tariffs. Despite the reductions, management
intends to maintain the current dividend payout.
FYE Dec (RMm) FY10 FY11 FY12f FY13f FY14f
Revenue 455.0 483.9 506.4 531.8 594.9 Core Net Income 120.9 122.8 128.2 132.3 159.2 % y-o-y 1.58 4.42 3.17 20.39 Consensus 171.7 176.3 186.5 EPS (sen) 30.2 30.7 32.1 33.1 39.8 DPS (sen) 37.5 37.5 37.5 37.5 37.5 Dividend yield (%) 5.3 5.3 5.3 5.3 5.3 Core ROE (%) 18.9 18.6 19.1 19.2 21.8 Core ROA (%) 6.0 6.3 6.5 6.9 8.4 Core PER (x) 23.2 22.8 21.9 21.2 17.6 BV/share (RM) 1.6 1.7 1.7 1.7 1.8 P/BV (x) 4.4 4.2 4.2 4.1 3.8 EV/ EBITDA (x) 8.4 8.2 7.9 7.8 7.1
OSK Research
OSK Research | See important disclosures at the end of this report 20
Cargo flow. As only two barge berths will be completed by mid-2013, cargo flows into Samalaju Port will
mostly be via barges, and Bintulu Port will act as an import and export hub of raw materials and finished
goods respectively with truck haulage also playing a major role in moving cargo on land. Samalaju‟s
need for industrial cargo throughput in the near term (by 2014) is expected to be in the range of 8m
tonnes and roughly 30,000 TEUS of imports. Exports are expected to see an annual throughput of 3.5m
tonnes and 45,000 TEUS, which is smaller in tonnage size as most of these finished products are high-
value goods. The combined import and export tonnage from Samalaju‟s development alone is expected
to handle up to 14m-15m tonnes and 100,000 additional TEUS per annum by 2015. We understand that
that Bintulu Port will continue with container handling in the immediate and longer term as management
wishes to avoid any duplication. Come 2016 and upon the completion of Phase 1, the cargo flow from
Samalaju will mostly shift to Samalaju Port as its berths can accommodate Panamax vessels.
Maintain NEUTRAL. While we like Bintulu Port‟s prospects, there are still uncertainties in relation to its
tariff negotiations and the concession agreement for Samalaju Port. We maintain our NEUTRAL stance
on Bintulu Port, with an unchanged FV of RM7.10, based on DDM at 7.5% required return.
EARNINGS FORECAST
FYE Dec (RM’m) FY10 FY11 FY12f FY13f FY14f
Revenue 455.0 483.9 506.4 531.8 594.9
EBITDA 301.1 311.2 321.2 332.3 375.4 Depreciation and amortization -103.9 -110.9 -117.5 -123.4 -129.6 EBIT 197.2 200.4 203.7 209.0 245.9 Interest income 13.4 12.9 11.6 12.9 10.1 Finance costs -47.2 -44.6 -42.2 -42.4 -39.7 EI 1.3 -1.5 0.0 0.0 0.0 PBT 164.7 167.1 173.1 179.5 216.3 Tax -43.8 -10.9 -11.5 -13.7 -23.5 PAT 120.9 156.3 161.7 165.8 192.7 Core PAT excl tax credit 120.9 122.8 128.2 132.3 159.2
Core EPS 30.2 30.7 32.1 33.1 39.8 DPS 37.5 37.5 37.5 37.5 37.5 Margin (%) EBITDA 66.2 64.3 63.4 62.5 63.1 Core PBT 35.9 34.8 34.2 33.7 36.4 Core PAT 26.6 25.4 25.3 24.9 26.8 Core ROE (%) 18.9 18.6 19.1 19.2 21.8 Core ROA (%) 6.0 6.3 6.5 6.9 8.4 Assets Non Current Assets 1651.8 1569.2 1562.1 1567.7 1614.6 Current assets 378.5 366.0 396.6 340.3 270.7 Total assets 2030.3 1935.3 1958.7 1908.0 1885.3 Equity and liabilities Total equity 639.5 660.2 671.9 687.7 730.4 Non-current liabilities 1213.3 1133.9 1136.1 1059.0 980.7 Current liabilities 177.5 141.2 150.6 161.4 174.2 Total liabilities 1390.7 1275.0 1286.8 1220.4 1154.9 Total equity and liabilities 2030.3 1935.3 1958.7 1908.0 1885.3 Net Gearing Net Cash Net Cash Net Cash Net Cash Net Cash CFO 158.1 132.2 273.8 205.2 239.4 CFI -48.1 -8.1 -96.5 -115.2 -168.0 CFF -150.0 -150.0 -150.0 -150.0 -150.0 End Cash 273.7 247.8 275.2 215.2 136.5
OSK Research
OSK Research | See important disclosures at the end of this report 21
OSK Research Guide to Investment Ratings
Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated (NR): Stock is not within regular research coverage
All research is based on material compiled from data considered to be reliable at the time of writing. However, information and opinions expressed will be subject to change at short notice, and no part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. We do not accept any liability directly or indirectly that may arise from investment decision-making based on this report. The company, its directors, officers, employees and/or connected persons may periodically hold an interest and/or underwriting commitments in the securities mentioned.
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