KNM eyes South Africa as stepping stone for West Africa foray

Written by Kamarul Azhar    Thursday, 30 June 2011 10:50

SERI KEMBANGAN: KNM Group Bhd (KNM) has formed a joint venture with a subsidiary of Aveng Group, a leading infrastructure developer in South Africa, to enable KNM to tap the potential of the fast-growing oil and gas industry in the western Africa region.

In the past, KNM exported its process equipments to various companies from the African continent for the exploration and processing of O&G there. Now, managing director Lee Swee Eng said the group intends to set up an operation base in South Africa to better serve the region’s O&G sector. Total investment committed by KNM in the joint-venture company is about RM17 million.

“Our intention is to use that as a stepping stone to enter the West African region. The West African region has quite a lot of potential for O&G. Currently we have no projects in the country, but we have been following some projects in the region such as Angola, Algeria, Nigeria and also Mauritania,” Lee said.

According to the group’s senior corporate development manager Michael Lee, the joint-venture company is setting up a process equipment manufacturing plant in South Africa so that it doesn’t have to export from its plants in Malaysia or elsewhere for projects implemented in the region. The manufacturing plant, he said, would be set up in either a leased building or to build from scratch, as the plan has not yet been finalised.

KNM expects the overseas projects to contribute the most to its tender book, Lee said. He added that almost 90% of the group’s RM5.5 billion order backlog has been from overseas markets, with the group having secured several big ticket projects such as in Peterborough, UK and Uzbekistan.

However, with the renewed interest and investment activity in the domestic O&G industry especially in the downstream sector, Lee said the group stands a good chance in securing some of these projects because of its standing as the leading process equipment manufacturer for the O&G industry in Malaysia.

Lee: We intend to set up an operation base in South Africa to better serve the region's O&G sector.

“Obviously Malaysia has been quite quiet for us in the last few years because there has been not much activity in Malaysia where we are strong in, besides the regular boys in the offshore side.

“Now with the investment from Petronas for Rapid in Johor, with some other projects coming up in Sabah, fertiliser and urea plant, we think KNM stands a good chance in winning some of those projects because among the local companies we are the leading player in this business,” he said.

For the year ahead, Lee said the group expects to chart a better year compared with 2010, as the group is expected to be busy throughout the year with its order backlog at RM5.5 billion as at end of May 2011, as well as a tender book of RM17 billion which is higher than last year’s RM11 billion.

“I think generally the outlook for KNM is looking better than 2010, we have a really strong order backlog and the market has also rebounded back with the price of oil in the range of US$90 (RM272.70) per barrel, there is of course more activity in the industry sector,” Lee said after the group’s AGM yesterday.

Lee is confident that the group also will see a busy 2012, with some of the projects stretching until 2014 such as the project in Peterborough, UK and also in Uzbekistan, which stretches for two years and four years respectively.

According to Lee, the project in Peterborough is delayed because the project owner hasn’t completed the funding required for the project to take off.

“Definitely we are hoping this year to be better… even if you say that the UK project is delayed, there is more than enough order backlog for us to sustain. Total order backlog of RM5.5 billion, if you take out UK project (RM2.2 billion) then you are still looking at RM3.3 billion of order backlog, which is strong compared with our previous years,” he explained.


This article appeared in The Edge Financial Daily, June 30, 2011.

KNM aims for RM3.4bil in new orders

Thursday June 30, 2011

By Leong Hung Yee 

SERI KEMBANGAN: KNM Group Bhd, which has an order backlog of RM5.5bil, expects to secure at least 20% of the RM17bil worth of projects it is tendering, according to executive chairman/CEO Lee Swee Eng.

“Based on our track record, we have a success rate of 25% to 30% in 2008. However, in the past two years the market has become increasingly competitive and our success rate now is about 20%. With 20%, we have a prospect of adding RM3.4bil in new orders,” he told reporters after its AGM yesterday.

He said last year its tenderbook stood at RM11bil and the company was “bidding projects everyday”.
Lee said more than 90% of its order backlog of RM5.5bil were from overseas and would only be reflected on account gradually. He explained that 2009 projects were only reflected in its account last financial year ended Dec 31, 2010 (FY10).

On its prospect for the current FY11, Lee said the company was expecting a “better year” than last year as its large order book would support long term earnings visibility. “The market has rebounded and oil prices are in the range of US$90 a barrel. There are more activities (in the oil and gas industry),” he said.

Lee said that its previous projects were mainly between 12- and 18-month jobs but it was not looking at providing total solutions for clients as those jobs would be two to four years.

“The visibility is better. We are looking at improving out margin. Selling process equipment alone is very tough as the market is becoming more competitive now,” he added. KNM reported a net profit of RM19mil in the first quarter to March 31, 2011 against RM40.3mil a year ago. Revenue, however was higher at RM413mil in the first quarter to March 31, 2010 versus RM373.3mil previously.

The poor numbers were affected by a case of low-margin older backlog orders.

To a question, Lee said the company did not have a business model with recurring income. However, he said the company was venturing into business in services area. “It (services) is not a recurring income but it is more stable because it is repetitive,” he explained, adding that there would be a “ramp up” time for its projects to be reflected on its account.

With more than enough backlog order to process, KNM expects its second half of the year to be better. “We will be quite busy for the next one year. Our backlog will stretch until 2014 and the add on of RM3bil from tenderbook will make us busy,” Lee said.

As at Dec 31, 2010, KNM has a cash and cash equivalents of RM286.5mil would “deliberate” a dividend policy, said Lee, adding that there were some requests by its shareholders. He pointed out that the company had been paying dividend consistently.

 

Genting UK gets licence

Thursday June 30, 2011

£120mil Resorts World at the NEC granted large casino premises permit

PETALING JAYA: Genting Bhd's British subsidiary, Genting UK, has been awarded a licence to operate a casino at the NEC in Birmingham, the BBC reported on Tuesday.

The company is also undertaking the development of a hotel, spa, multi-screen cinema, conference and banqueting centre and designer shopping outlets at the site.

Dubbed Resorts World at the NEC, it will be a 120mil (RM583.73mil) leisure and entertainment complex that will be a major attraction and provide both economic and employment benefits.

Resorts World At The NEC is a partnership between Genting Group and one of the UK's premier conference, exhibition and entertainment venue operators, The NEC Group.

Aston Villa star striker Gabby Agbonlahor sporting the new club jersey sponsored by Genting UK.

 

Solihull Council said it had granted a large casino premises licence to Genting UK, which has said the whole complex could provide 1,700 jobs, according to the BBC report.

The casino and leisure complex still requires planning permission, according to the authority, while the overall plan also needs to gain a premises licence - for example, to cover the sale of alcohol. Genting UK, which trades as Genting Casinos, has anticipated that the complex development would provide more than 1,000 direct and indirect jobs and more than 1,700 construction posts, according to the council.

Genting UK, which is the largest casino operator in Britain with over 40 casinos, was acquired by Genting Malaysia Bhd from its sister company, Genting Singapore plc, for 340mil (RM1.6bil) last October.
The acquisition is to complement its long term international expansion strategy and give it access to established casino brands and the extensive network of casinos already operating across Britain.

Genting UK also recently signed on as the main football club sponsor of English Premier League side Aston Villa.

OSK Research said in a report yesterday that despite the positive incremental contribution, the group's UK operation will still be relatively small as its back of the envelope calculation indicated that this single new “large casino” licence in the UK could potentially raise the group's earnings by roughly 2.3%.

It said that a single large casino in the UK has capacity for roughly 40 to 50 gaming tables and 150 slot machines only, compared with the 600-to 800-gaming table capacity and 1,600 slot machines that the new large scale integrated casino resorts in Asia possess. It is only expected to raise the group's UK casino operations table and slot machines capacity by roughly 13% and the group's total gaming table capacity, including Malaysia, by roughly 5.3%.

“Anyhow, contributions are only expected to come through in 2013 when the casino is completed and up and running,” OSK Research said.

The research maintains its “buy” call and RM4.10 fair value on Genting Malaysia. Despite the small incremental contribution by the group's various overseas ventures, the longer term cumulative contribution could be relatively significant when all its various overseas ventures come on stream over the next one to two years, it added.

Genting Malaysia is also making a presence in the US, having announced its plan for a “Resorts World Miami” in Florida last month after buying 13.9 acres for some US$236mil from US newspaper publisher, The McClatchy Co, via its subsidiary Bayfront 2011 Property LLC.

It was reported that the group was lobbying for a casino licence for this project.
This is its second venture in the US after the company won the bid to build a video lottery facility at the Aqueduct Racetrack in New York City in August last year.

Genting Malaysia saw its share price gain one sen to RM3.54 with 5.67 million shares changing hands yesterday.

 

Masterskill leverages on new campuses

Written by Kamarul Azhar    Thursday, 02 June 2011 12:27

KUALA LUMPUR: Masterskill Education Group Bhd will not be affected by any change in funding requirements of the National Higher Education Fund Corp (PTPTN) as it will only apply to new programmes offered by private universities, according to Datuk Seri Edmund Santhara, CEO of Masterskill.

Speaking after Masterskill’s AGM, Santhara said 95% of its existing students who rely on PTPTN loans to fund their studies would not be affected by the new requirements, and Masterskill’s 18,399 students represent a small percentage of the total number of students receiving PTPTN loans.

“We have actually addressed the mechanism of funding and cost, whereas a lot of others in the industry have not started to touch on it,” he said, adding that based on the enrolment in its Kuching campus, which recorded 800 new students in its first year, the group’s brand among higher education providers is strong and Masterskill would continue to attract new students.

Masterskill posted a slightly lower revenue in 1QFY11 ended March 31 of RM73.7 million, compared with RM77 million a year earlier. Net profit decreased by 15.3% year-on-year to RM22.6 million in the quarter.

The group attributed the decrease to the fact that it did only one enrolment during 1Q compared with two in 1QFY10, as the second intake of the year was deferred to 2Q due to the late announcement of the Sijil Pelajaran Malaysia (SPM) results.

“Notwithstanding the delay of our second intake, Masterskill still managed to record RM73.7 million in revenue. With our strong financial foundation and growth strategies in place, we are very much on track to achieve our targeted results in 2011,” Santhara said.

Santhara (left) and Masterskill chairman Tunku Datuk Seri Kamel Tunku Rijaludin at the post-AGM press conference.

He anticipates a lot of macro challenges affecting the education industry in 2011, such as the delay in public university intakes from July to September, which he described as “unique”in Malaysia as it does not happen anywhere else in the world.

“The public universities need longer term and longer time to recruit students. As a result, prospective students would have to wait until September to decide whether to enrol in a public or private university. That’s a 3½-month shift from the previous practice whereby students can make their decisions in July,” he said.

Nevertheless, he said the group would continue with its three-pronged strategy for growth in student population, course and curriculum offerings and campus expansion which is expected to contribute positively towards its bottom line in 2011.

Masterskill will turn its Cheras campus into a full-fledged university of allied health sciences in the near future. The group is currently expanding its number of branch campuses in other parts of Malaysia, such as in Kuching and Johor Bahru, and will build a new city campus in Petaling Jaya in its bid to increase its student intake.

It will also build a flagship campus in Bandar Baru Bangi, which is expected to commence construction in the coming months, with a total investment of RM33 million and scheduled for completion by 2013. Once completed, the campus will be able to house 15,000 students.

On the venture into Indonesia’s higher education sector, Santhara said although the hospitality and healthcare industry there has top- notch facilities, it is lacking in support services staff compared with Malaysia. He said this would provide ample opportunities for Masterskill to offer nursing and allied health sciences courses in the republic.

“Even though [there are] five-star hospitals, their support services are 30 years behind Malaysia.” he added.

Other than Indonesia, the group plans to expand into the Indian sub-continent in Pakistan and Bangladesh.

However, it would only do so via a franchising model, where the group would provide its local partner with the software and content, as it is not worth setting up facilities there given the high political risks, he said.

Masterskill ended two sen higher at RM1.89 yesterday on a volume of 1.22 million shares.


This article appeared in The Edge Financial Daily, June 2, 2011.

Industries grapple with rising power bills

  Written by Sharon Tan & Chua Sue-Ann    Wednesday, 01 June 2011 14:03

KUALA LUMPUR: With the upward adjustments of natural gas prices and electricity tariffs, heavy duty power users now have to grapple with additional cost pressures as analysts estimate the increase of an average power bill  to be between 6% and 10% for industrial and commercial users.

The worst hit industries include those in the steel, oil and gas, food processing, cement and electronics and electrical sectors.

In a note yesterday, Maybank IB Research opined that the tariff increase was fair and manageable for commercial and industrial customers given that Tenaga Nasional  Bhd’s (TNB) tariffs remain competitive compared with regional rates.

Maybank IB Research noted that the tariff hike was more subdued this round compared to that in July 2008, where natural gas price jumped 111% to 135% and electricity tariffs rose 24%. It added that the gradual RM3 per mmbtu rise in natural gas every six months would allow commercial and industrial users to plan ahead.

In announcing the tariff hike, the government explained  that 75% of consumers would be shielded from the direct brunt of the rise in rates.

However, increasing margin pressures are expected to  force manufacturers to pass rising costs to end-users, which would further drive up the cost of goods.

Apart from the direct impact on companies’ earnings, HwangDBS Vickers Research noted that the decision to increase electricity tariffs and gas prices may also translate into higher inflationary pressures as the multiplier effect works its way through the economic chain.

The research house expected a reassessment of the timing of a potential snap general election, initially rumoured to be held this year, to allow time for the public to adjust to the higher cost of living.

The Edge Financial Daily spoke to industry players in the affected sectors to find out the impact of the electricity and gas price increases and their strategies to grapple with the rising cost pressures.

Rubber gloves
According to CIMB Research,  higher energy costs are negative for the rubber glove sector given that electricity accounts for 2% to 4% of total costs while natural gas makes up between 3% and 9% of total operating costs.

“Glovemakers that are already battling with higher input costs, a weaker US dollar and weak demand now have to squeeze out further operating efficiencies to offset the higher energy costs,” the research house said.

As for Maybank IB Research, the average 7% hike in electricity tariffs and 20% rise in industrial gas price could result in a 1% to 2% increase in glovemakers’ total production costs.

“In our view, an immediate average selling price adjustment in response to the higher energy costs is not likely as glovemakers also face mild over-capacity, a weaker US dollar and higher raw material (NBR) cost,” the research house said.

Lim Wee Chai: We hope the government will provide sufficient advance notice should there be any future revision.

Tai: Adjustments to the steelmaking process and grades of raw material used can also cushion the effects of higher tariffs.

Yam: In the long term, property prices could trend higher as contractors and suppliers pass on additional costs.

Maybank IB Research also said average selling prices would need to be revised upwards by 2% to 3% to fully neutralise the impact of higher power costs.

It opined that glovemakers should still have the pricing power to fully pass on the higher costs  but producers’ competitiveness could be impacted in the longer term by rising energy and raw material costs.

Company remarks
Top Glove Bhd chairman Tan Sri Lim Wee Chai
The overall impact of natural gas and electricity price increases is less than 1% of our total manufacturing costs. Top Glove started using biomass in 2005 to avoid depending entirely on natural gas.

Currently, around 60% of the heat energy comes from natural gas as we have turned to biomass.

Our new factories will no longer use natural gas. More research and development will be conducted on our production process to find ways to minimise energy costs.

We will feel the short-term impact as we are unable to make any adjustment to the selling price some of the orders we have sold forward. This is because of the short short notice [less than two days] of the tariff increase.

We hope the government will provide sufficient advance notice should there be any future price revision.

We will have to pass on the additional costs to consumers just as we have done in the past. We will review the costing to factor in the current latex price and exchange rates in deciding how much to revise our prices. The price revision will be reflected in all new orders received from June 1 onwards.

Steel
The steel industry is expected to feel the impact of rising power prices given its intensive use of energy with electricity and gas contributing almost 10% of total production costs.

Maybank IB Research anticipated that near-term margins for steel could be hit and local steelmakers would not be able to easily pass on additional costs as average selling prices are subject to international pricing.

Company remarks
Malaysia Steel Works (KL) Bhd CEO and managing director Datuk Seri Tai Hean Leng
The degree of impact of the electricity tariff hike on steel players is largely dependent on three factors — size of the steel plant, process equipment and raw material used.

The larger the steel plant, the higher the quantum of electricity cost. Steel plants with specialised equipment or with direct access to large quantities of alternative fuel such as oxygen can help reduce the impact of higher electricity tariffs.

Adjustments to the steelmaking process and grades of raw material used can also cushion the effects of higher tariffs.

In the case of Masteel, the new tariff will increase its electricity cost by approximately 10.5%.

Masteel believes it will be able to partially reduce its electricity cost by making adjustments to the three factors mentioned and partially pass the remaining cost to its customers.

Masteel’s strategy is to deploy the appropriate equipment to use alternative fuels to supplement the usage of electricity in steelmaking.

Company remarks
Ann Joo Resources Bhd group managing director Datuk Lim Hong Thye
The natural gas price increase has an insignificant direct impact on Ann Joo as it is not a substantial cost component. As for our electric-arc-furnace operator, electricity is the second largest cost component, accounting for 8% to 10% of total costs for billet production.

In anticipating future hikes in energy price, Ann Joo embarked on a blast furnace project in 2008. The blast furnace, used for iron and steel production via hot metal charging, ultimately reduces electricity and natural gas consumption.

We are currently at the hot commissioning stage of the blast furnace project, the first blast furnace in Malaysia. We expect to reduce up to 40% of our electricity consumption per tonne of steel with the hot metal charging technology. In addition, the blast furnace off gas will be used to replace the natural gas that is currently used in the rolling mill operation.

Real estate and housing
The burgeoning real estate and property market is likely to feel the heat of higher costs, particularly if the cement and steel sectors begin to pass on rising costs to end-users.

For the cement sector, Maybank IB Research said it may have to bear the brunt of the adjustments to gas and electricity prices at least for the next six months with cement prices rising about 7%  last month.

Company remarks
Real Estate and Housing Developers’ Association Malaysia (Rehda) president Datuk Seri Michael Yam
In the short term, developers are obliged to maintain their pricing for ongoing projects which have had their prices locked in already. Unsold units of ongoing projects would still be sold according to the launch price.

However in the long term, property prices could trend higher as contractors and suppliers pass on additional costs. The dilemma is often about whether to launch property projects prior to starting the tendering process or vice versa.

Steel and cement prices are volatile and very often, tender prices are higher than the pre-contract estimates.

Consumers can expect property prices to rise not more than 5%, although it is difficult to gauge as there are many factors to consider such as price increases in steel, cement and other raw and finished materials such as tiles.

The property market will still be alright for this year. Next year when the price increases start to feed through, it will be interesting to see if there are salary adjustments. If salaries are adjusted accordingly, then maybe we will not feel the impact so much.

Analysts still bullish on rubber glove stocks

By Ooi Tee Ching  Published: 2011/06/01

KUALA LUMPUR: Analysts are still bullish on rubber glove stocks and consider them low risk despite the increase in electricity and natural gas tariffs.
Effective today, the government raised electricity rates by 7 per cent. There is also a 20 per cent price hike for natural gas across industries.

Heavy gas users like some steel millers, petrochemical, and oleochemical fertiliser producers, who consume more than two mmscfd (million standard cubic feet per day), will pay RM18.35 per mmBtu (million metric British thermal unit) instead of RM15.35/mmBtu previously.

The last time the government raised gas prices was in August 2008 by a hefty 72 per cent to RM22 per mmBtu from RM12.80 per mmBtu.

After much complaints, the government, in March 2009, lowered the gas tariffs by 30 per cent to RM15.35 per mmBtu.

From today, however, rubber glove manufacturers using less than 2mmscfd will need to pay the new rate of RM16.07 per mmBtu. This is 7 per cent more than the old RM15.00 per mmBtu rate.

Fiona Leong of Citi Investment Reseach is keeping her earnings forecasts for glovemakers unchanged because the 20 per cent gas price hike would only raise operating costs by 0.7 per cent, if there is no cost pass through.

In her note to investors, she said the hike would have a small knock on earnings of glovemakers for June and July because selling prices for deliveries had already been firmed up.

But glovemakers are hopeful of passing on the higher fuel costs as the gradual easing in natural latex price gives room for price adjustments. Bulk latex price has retreated by 11 per cent from an average of RM10.45 per kg in April to RM9.43 per kg in May.

Leong noted that rubber glovemakers face sharp volatility in latex price and the stronger ringgit. This would hamper accurate adjustments of selling prices.

Jason Yap of OSK Investment Research said given that the quantum and timeline of the hike of every six months until 2015, rubber glove manufacturers would be able to make adjustments to their gloves prices in advance and pass on the energy cost increase to their customers.

His top picks include Top Glove Corp Bhd, Supermax Corp Bhd and Kossan Rubber Industries Bhd.

He has valued Top Glove at RM6.50 and expects Supermax to rise up to RM6.91. His target price for Kossan is RM5.

Yap said the companies are the main beneficiaries from easing of latex price as they have higher natural rubber glove mix.

Masterskill confident of satisfactory year

KUALA LUMPUR: Masterskill Education Group Bhd is optimistic of satisfactory results this year, having in place a strategic growth plan.

Group chief executive officer Datuk Edmund Santhara said despite the constantly changing operating environment, the group has drawn up a three-pronged strategy of increa-sing student population, broadening courses and curriculum offerings as well as embarking on a campus expansion. He was speaking to reporters after the company's annual general mee-ting here yesterday.

Masterskill has the largest market share of all private higher education institutions offering nursing courses in Malaysia.

Edmund said that Masterskill is among others, looking to expand its curriculum beyond allied health.

"Working with the University of Newcastle, Masterskill will be offering the Bachelor of Business and Bachelor of Commerce programmes to broaden the company's appeal to a wider student base," he added.

He said Masterskill plans to strengthen its presence via its flagship campus in Bandar Baru Bangi. The campus, to be built on a 21.91 hectare site, can accommodate up to 15,000 students when comp-leted by 2013 at a total investment of RM33 million.

Currently, Masterskill has six campuses - in Selangor, Johor, Perak, Kelantan, Sabah and Sarawak.

"In addition, we have also in the pipeline, plans to expand our business to India and Indonesia as both countries ensure a lot opportunities in terms of the population.

He said other than physical expansion, Masterskill will expand its business via franchising model and is looking to countries like Pakistan and Bangladesh.

Asked about a strategic partner for the business, he said there have been talks with several parties, both locally and from overseas. - Bernama