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KENANGA Investment Bank Research has revised its 12-month target price for SapuraCrest Petroleum Bhd to RM1.94, an increase of 169.4% from the previous target of 72 sen, on the back of a positive outlook on the oil and gas (O&G) industry.
Maintaining a “hold” on the stock at RM1.89, the research house said the new target price was based on the industry’s average 2008 price-earnings ratio (PER) of 14 times and the stock’s FY09 earnings per share (EPS) of 13.8 sen.
It said SapuraCrest was trading at a PER for financial year 2008 of 33 times, representing 59.2% and 135.2% premiums to the industry’s 2007 and 2008 PER of 20.7 times and 14 times respectively.
Kenanga Research said the current downside was limited due to a positive outlook of the industry, positive new flows following the buying-in stake from Seadrill Ltd, a Norwegian offshore drilling contractor, SapuraCrest’s capabilities in future deepwater and regional O&G development activities, and the group’s good track record with regional oil majors by securing large contracts and delivery.
It said the company’s net gearing as at July 31, 2007 stood at 69%, which comfortably gave it opportunity to gear up further for new contracts.
“Until SapuraCrest can deliver consistent profit margins with cost under control, its quarterly earnings will remain volatile with downside risk to disappoint,” said the research house.
SapuraCrest’s 1H08 profit before taxes (PBT) and net profit came in below its expectations due mainly to poor operating margin in the installation of pipelines and facilities (IPF) division despite a healthy turnover growth reported in 1H08, it added.
SapuraCrest’s turnover for the second quarter of financial year 2008 rose 54.5% year-on-year to RM570.5 million from RM369.2 million as activities in the IPF, offshore drilling and marine services divisions increased.
The group has secured a RM3 billion IPF extension contract on installation of subsea pipelines and facilities off Terengganu, Sabah and Sarawak for three years on July 27. Its order book stands at RM5.2 billion.
“Factoring in all known contracts and given the timing contribution of the IPF contracts will boost FY09 earnings forecast rather than FY08, we are raising our FY08 turnover by only 7.5% to RM2.1 billion from RM2 billion previously,” said Kenanga Research.
The research house would be incorporating a higher growth of 31.1% and 42.7% for financial year 2008 PBT and net profit to RM149.7 million and RM65.1 million respectively, assuming the operating margin for the IPF division is 4%.
It said favourable conditions that included weather downtime and fuel costs escalation being passed through to customer, and absorption of cost variations outside on agreed contract value by customers were incorporated in the new contract to ease margin squeeze.
“Nonetheless, our assumed operating margin of 4% for the IPF division is below the range of 10% to 15% indicated by the management,” said Kenanga Research.
“We believe the execution risk is a major swing factor for earnings, and remains our key concern. We are introducing our FY09 turnover, PBT and net profit of RM2.7 billion, RM274.6 million and RM156.7 million respectively,” it said.

source : EdgeDaily

PLANTATION SECTOR

Malaysia’s palm oil inventory level continued to climb to 1.45 million tonnes (+11% month-on-month; -13.9% year-on-year) in August 2007, from 1.31 million tonnes as at the end July 2007.
The rising inventory level was mainly due to a strong recovery in August production (+14.8% month-on-month; +1.4% year-on-year), while exports grew by 11.7% month-on-month albeit on a lower base.
On a year-on-year basis, exports shrank 5.5%. With the exception of China, which registered strong import figures (+36.7% month-on-month; +1.5% year-on-year), the other major importing countries from Malaysia like US, India and European Union suffered contractions.
Year-to-date (YTD) exports contracted by 8.2% y-o-y to 8.4 million tonnes as demand were affected by high palm oil prices.
Inventory expected to rise much faster as production is registering a spectacular recovery. Although YTD production is still down by 5.7% y-o-y, it has registered a significant pick up in the second half of this year (2H07), having narrowed from -8% as at June. After six months (since February 2007) of continuous decline in y-o-y palm oil monthly production, the trend finally reversed last month, having registered a 1.4% y-o-y growth.
Should this trend persist, we could potentially see Malaysia recording a record monthly production this month (Sept), breaking its previous record of 1.61 million tonnes set in September 2006.
But, it remains to be seen if production will peak in September this year as some planters had earlier highlighted the potential for production peaking next month.
From Sept 1 to 10, export data was mixed. Interlek Testing Services (ITS) and cargo surveyor Societe Generale de Surveillance (SGS) drew different export outlooks for the period.
The discrepancies are huge – ITS estimated a 9.3% growth m-o-m in exports to 413,299 tonnes while SGS reported a contraction of 10.7% m-o-m to 334,800 tonnes over the same period. The export trend is, therefore, inconclusive at this juncture.
While the fundamentals of palm oil appear subdued in the near term, we believe developments in the soy oil market in the US and rapeseed oil in the EU should be monitored more closely this month .
Recommendation: These are the key drivers impacting local palm oil prices, and could prompt us to upgrade our Neutral call on the sector post the peak production period. In the meantime, we maintain our Neutral call on the sector and continue to prefer exposure to small-and-mid cap stocks like Asiatic Development Bhd, TH Plantation Bhd, Hap Seng Consolidated Bhd, CB Industrial Product Holding Bhd and Tradewinds Plantation Bhd for their relatively cheaper valuations

source:Star Research

INTI UNIVERSAL HOLDINGS BERHAD ("Company")

Notification received from INTI Supreme Holdings Sdn Bhd ("ISHSB"), a major shareholder of the Company

The Board of Directors of the Company wishes to inform that the Company has on 18 September 2007 received a notification from ISHSB, a major shareholder of the Company that ISHSB had on 12 September 2007 received a letter and term sheet dated 12 September 2007 from Laureate Education, Inc. (“Laureate”) setting out a proposal to acquired controlling interest in the Company. This proposal entail, among others, the acquisition of ISHSB’s entire shareholding interests of 105,500,000 ordinary shares of RM0.50 each in the Company, representing 51.19% equity interest in the Company, for an aggregate purchase consideration of RM126,600,000 (translating into the price of RM1.20 per share) (“First Acquisition”). Should the First Acquisition be successfully completed, a mandatory general offer for the remaining shares of the Company not owned by ISHSB will be undertaken. Laureate is a leading international university network of accredited campus-based and online universities, which includes 24 accredited institutions in Asia, Europe, and the Americas. Together, these independently branded universities offer a broad range of undergraduate, graduate, and vocational-technical programs, including business, law, education, communications, social sciences, health sciences, engineering, information technology, hospitality management, humanities and architecture. The Board of Directors of ISHSB had on 18 September 2007 replied to Laureate informing Laureate that the Board of ISHSB has agreed in principle to the aforesaid proposal and would like to explore the aforesaid proposal further especially on the terms and structure of the First Acquisition. The Board of ISHSB had also agreed to negotiate with Laureate on an exclusive basis for three (3) months, with an option for either parties to extend the period for a further one (1) month from the expiry of the said three (3) months. Among others, the proposal will be subject to the approvals of relevant authorities, ISHSB shareholders and satisfactory due diligence.

This announcement is dated 19 September 2007

YTL Power Warrant - Got Power?

Based on technical analysis, YTL Power International Bhd's (YTLP) warrants look marginally expensive at their current levels. The warrants were trading at 99 sen each as at the time of writing, while the mother share was at RM2.42. YTLP's warrants have a strike price of RM1.39 and are due to expire on Jan 8, 2020. "Based on the Black-Scholes model and factoring in volatility of 20%, YTLP's mother share price, a risk free rate of 3.44%, the warrants' strike price and time to maturity, it gives me a fair value of 81 sen for the warrant with a gearing of 2.42 times," says OSK Research technical analyst Chan Ken Yew. He says his valuation takes into account YTLP's good dividend yield of 6.4%. It should be noted that the value of a warrant falls when the company offers good dividends. The reason for this is that while the mother share is adjusted for the dividend payout, the strike price remains the same. Chan also says the low volatility is typical of utility stocks. "Companies that posses regulated assets are normally steady in terms of earnings," he explains. Despite the slightly demanding valuations, Chan says there is room for upside if the mother share continues its upward trend. The good news is, analysts are bullish on YTLP, with the majority of research houses calling a "buy" or "outperform" on the stock. According to Bloomberg data, as at Sept 12, CIMB had set a target price of RM3.30 while ECM Libra Avenue Securities' target price is RM2.84. Given that YTLP's share price was RM2.42 as at the time of writing, this implies a potential upside of between 17.4% and 36.4% for the stock. Based on the highest target price, Chan calculates a fair value of RM1.56 for the warrant. "This is inclusive of YTLP's good dividend, and implies an upside of 57.6% from the current warrant price," he says. He adds that even if the stock were to reach ECM Libra's less bullish target price, the warrant would still see some upside. YTLP's mother share closed at a 52-week high of RM2.50 on Sept 6. Its warrants followed suit, closing at a 12-month high of RM1.06 on the same date. YTLP is the global utilities arm of YTL Corp Bhd, and has a strong presence overseas, including in Indonesia and the UK. The company started out as Malaysia's first independent power producer in 1993, and has the distinction of being the country's only "take-or-pay" IPP. Its earnings have shown steady growth (stripping out a series of one-off items), at a mid-single digit rate. "We are projecting modest annual earnings growth over the next three years, fuelled mainly by higher efficiency at its power plants in Indonesia and above-average price hikes for its water concessionaire Wessex Water," says an analyst. Analysts agree that any boost in growth for the company would have to come from merger-and-acquisition activities. This was what happened in 2002, when the group acquired Wessex Water and subsequently saw a substantial increase in earnings. According to Asia Analytica, the company's last acquisition was in 2004, when YTLP purchased a 35% stake in Indonesia-based Jawa Power. "Although the company has high gearing, most of the borrowings are matched to the concessionaire's long-term revenue stream. "The company has gross cash of over RM6 billion that could be used to make new acquisitions when the opportunity rises," states Asia Analytica, an independent research house. Even the recent market turmoil could work out to the company's advantage, according to an analyst with a bank-backed research house. "If there is a liquidity crunch, it could place YTLP in a better position to scoop up deals, given its strong cash position," says the analyst. There have been reports that YTLP is currently eyeing Singapore's Temasek Holdings Pte Ltd's power plants, which the latter is selling in a bid to increase competitiveness in the island state's power industry. "YTLP's experience in the foreign field and efficiently run operations should bode well for its chances in the Singapore market," says the analyst.

source:EdgeDaily