Khazanah-led SPV, UEM in talks on Johor land deal

In today's Business Times, it carried the following article: Khazanah-led SPV, UEM in talks on Johor land deal

• Khazanah-led SPV, UEM in talks on Johor land deal
  By Francis Fernandez
  bt@nstp.com.my
  
  February 13 2007
  
  A FOUR-member special purpose vehicle (SPV) concern led by Khazanah Nasional Bhd is in an advanced stage of negotiations with UEM World Bhd to acquire some 2,000ha in Johor.
  
  It is understood that the SPV will sign an agreement soon, and that the acquisition will land UEM World an exceptional item gain of about RM500 million.
  
  UEM Land Bhd, a unit of UEM World, is developing a 9,669ha city at its Bandar Nusajaya project in Johor where it plans to build homes, waterfront property, offices, hotels, factories, hospitals and campuses for overseas universities, making it Malaysia's biggest real estate development.
  
  The township includes a new state administrative centre and theme parks, which were previously linked to Japan's Oriental Land - the Japanese partner for Tokyo Disneyland.
  
  Khazanah officials said they will not comment on market speculation.
  
  Khazanah has previously acquired land from UEM World specifically to build a destination resort, which includes a theme park.
  
  "The evaluation process for the destination resort is now being undertaken by Khazanah Nasional," UEM World said in a statement to the stock exchange.
  
  The state-controlled property developer further said that it is in talks with several bankers to raise financing for its projects in Nusajaya.
  
  Senior government officials confirmed UEM World is planning a major relaunch of the Nusajaya project on February 23, but said they were unaware of further acquisitions by the state-owned fund.
  
  UEM World will reveal plans for the Nusajaya project at the relaunch, several people who have been invited to attend the function said on condition of anonymity.
  
  Meanwhile, bankers familiar with the deal said that apart from Khazanah, the other members of the SPV include companies linked to billionaire Robert Kuok Hock Nien, Ekovest Bhd and a United Arab Emirates-owned investment fund.
  
  The 84-year-old Kuok, often billed at the Sugar King of Malaysia, controls a slew of public-listed companies across Malaysia, Singapore and Hong Kong.
  
  Kuok, estimated to have a wealth of RM21.5 billion in 2006, has plantation-related interests in Indonesia and China.
  
  He also controls PBB Group Bhd, Hong Kong's Kerry Properties Ltd and the Shangri-la hotel chain in Asia.
  
  It was reported late last week that Khazanah via a SPV is looking to buy a third of Danga Bay Sdn Bhd, which is controlled by Datuk Lim Kang Hoo, Ekovest's dominant stakeholder.
  
  Ekovest itself has an option to buy as much as 30 per cent of the enlarged paid-up of Danga Bay, the company said in a statement to Bursa Malaysia last year.
  
  The call and put option allows Ekovest to buy into Danga Bay at the net tangible asset (NTA) level. Danga Bay's total NTA is around the RM3.80 per share level.
  
  Under the call and put agreement, Ekovest has untill March to decide if it wants to enforce its option.
  
  The RM4 billion Danga Bay project involves a 15-year development of 559ha of waterfront land in Johor, located between central Johor Baru and new developments such as Bandar Nusajaya and the second crossing to Singapore in the western part of the city.
  
  
  
  

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Jobstreet

Interested in this stock? The following stock was discussed on Sahamas.

Here is some of the main issues about the stock.

Plus.

1. potential for the company to grow is there
2. profitable business
3. healthy balance sheet

Minus.

1. cash management should and could be better. In that sense, for such a profitable business, the company could perhaps attempt to give a more rewarding return of equity to its shareholders. If you look into its cash flow, cash flow as actually around 16 mil. But cash flow although increased by a healthy some 2.615 million, in my opinion, they could have done better because in their investing activities, the company invested some 10 million into unit trusts. This is a personal issue. For me, it's a no-no. Remember these are young chaps running the company, perhaps they should have done the right thing by increasing the excess capital back to their shareholders. 30% of their profits back to the shareholders is simply not enuf when you consider they have excess money to invest into unit trusts. Again, i stress, this is a rather personal choice or view of mine. For some, it's OK but for some like me, it's a no-no.
2. Not comfortable with the e-business because the biggest asset is them brain cells. Which means competition could easily emerge.

How?

Read more here

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Crude Revelations

Here's an editorial from Rob Kirby on crude oil. Give it a good read: Crude Revelations

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Warren Buffett Articles: X

Learn To Think Like Warren Buffett ( source )

Learn To Think Like Warren Buffett
The structure of the P&G-Gillette deal could well become a Wall Street model

One way Warren E. Buffett became the world's most successful investor was by understanding how putting off tax payments can build wealth. Every year in the "owner's manual" he includes with Berkshire Hathaway Inc. (BRKB ) annual reports, he spells out the advantages of deferred tax liabilities over ordinary debt. His essays show how Berkshire boosts returns by keeping cash invested as long as practical until sending it to the U.S. Treasury.

Now, with his Jan. 28 backing of Procter & Gamble Co's (PG ) novel two-step, tax-free deal for Gillette Co. (G ), Buffett is again seizing an opportunity to exit a position without triggering a giant tax bill. Berkshire's gain on the 96 million Gillette shares it has held since 1989: $4.3 billion. Yet because it is plowing all of that gain into shares of the new company, Uncle Sam will have to wait for his piece of the profits.

Exactly who suggested the deal structure is not clear. Neither Buffett, Gillette's largest shareholder, nor the investment bankers involved would comment. Given Buffett's well-known aversion to taxes, though, bankers most likely devised the structure to satisfy him while also preventing an all-stock deal from drastically watering down P&G's earnings. Just as important, the ingenious structure could become a Wall Street model for future mergers and acquisitions. At the same time it comes with a lesson about what investors can and can't learn from watching Buffett.

Think of the deal as a two-step jig: The first movement makes Buffett happy, while the unusual second step pleases P&G. First, P&G will pay for Gillette with nothing but stock, issuing 0.975 shares of its common stock for each Gillette share. Gillette investors will owe no tax since they're exchanging one stock for another. If, instead, P&G had paid for Gillette with cash, Berkshire alone would have faced a whopping $1.5 billion tax bill thanks to the 35% corporate rate it pays.

Problem is, all that new stock will dilute the value of the shares P&G's current investors hold and slash its earnings per share. So as part of the deal P&G announced that it will spend $18 billion to $22 billion over the next 12 to 18 months buying back some of the stock it just issued for Gillette. The result, says P&G, is the same as if it had paid for Gillette with a package of 60% stock and 40% cash.

Why not just structure a 60-40 deal in the first place? Because that could leave many Gillette shareholders with an unwanted tax bill, as happened to Buffett in 1996. Then, Capital Cities/ABC Inc., in which Buffett held a $2.2 billion unrealized profit, sold out to Walt Disney Co. (DIS ). Disney agreed to pay partially in stock, but when the Disney shares were divided among all Cap Cities shareholders who wanted them, Buffett ended up with half his money in cash -- and a tax bill of some $400 million.

P&G's two-step gets around that. Gillette shareholders can keep as much stock as they want, controlling when their taxes come due. Tax-exempt pension funds or others who want to cash out can sell in the open market whenever they choose. And because P&G will be spending billions on the buyback, there's less risk that a wave of investors selling out will send the shares tumbling. "It is very democratic," says Lawrence A. Cunningham, professor of law and business at Boston College and the editor of a book of Buffett's essays.

Of course, tax concerns are not all that drives Buffett's decisions. He has proven that by selling winning positions for cash, such as stakes in Disney and Freddie Mac (FRE ). Still, given the huge capital gains -- and deferred taxes -- Berkshire has racked up on key holdings such as American Express (AXP ) and Coca-Cola, they are clearly important. And taxes should be a bigger concern to Buffett than to many others: Berkshire's 35% corporate rate is more than twice the 15% individuals pay on capital gains.

Therein lies a lesson for investors trying to piggyback on Buffett's picks. Many assume that if he owns a stock, it's worth buying. But because Berkshire's tax rate is so high, Buffett bears less risk holding overpriced stocks. After tax, he would give up only 65% of profits foregone by not selling at a high, while an individual would forfeit 85%. By the same token, on those occasions when he does sell and offer Uncle Sam his 35% cut, he's sending a loud signal that the outlook is bleak. But since Buffett never reveals what he's selling until he's done, it's hard to play copycat. Investors are better off trying to learn how Buffett thinks.

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REXIT

If you have any interest in this stock, I have posted a posting on it on Sahamas.

Link to posting thread: here

Cheers!

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Update on EonCapital

On Tuesday, I blogged the following : EonCap Merger?

And I made the following remarks:

And guess what today, Business Times continued with the story yet again. (Why?)

• EON Capital enters the fray for RHB CapThe Utama Banking Group board is due to meet by as early as today to consider the EON Capital bid said to be in concert with the Employees Provident Fund, sources say

The mighty sources strikes again! Crikey!

• EON Capital enters the fray for RHB Cap
  By Francis Fernandezbt@nstp.com.my
  February 6 2007
  EVEN as suitor Kuwait Finance House (KFH) unravelled its bid yesterday for RHB Capital Bhd, the country's fourth largest financial group, a new party, EON Capital Bhd, was said by some sources to be preparing to join in the fray.

Last night, EonCapital comfirmed this story and that they have made a bid for RHB Capital.

Ah, finally for once, the source of the story became story.

But...

How and who leaked the story to the press?

Is this what they call Insider Info?

Hmmm....

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Update on LKT

Here's an update to a previous blog posting: LKT Industrial

Here are some key points mentioned by Kenanga in its research article posted today. My comments in green:

Key Points

l M1 (92,500 sf) is fully operational. The visit confirms that M1 ( the first of the two new plants) is fully operational with the buzz of activities both in the sheet metal machine shop as well as assembly plant for the OEM machines. The sheet metal machine shop being the largest in the northern region has freed up bottlenecks in its production process for its own brand name and OEM machines.

l M2 (134,000 sf) is on schedule for completion in March 07. All of the OEM equipment will be built in M1 and M2. We had earlier underestimated the strictness of its OEM customers as we did not anticipate that they will be undertaking a plant qualification process before the load LKT with large orders. This has in turn delay ed the sharp pick up in earnings which we had anticipated in FY07 to FY08.

l The thoroughness of OEM customers reinforces high barrier of entry. On the flip side of the extenuating qualifications of the new plants, we are positive that the barriers to entry for being an OEM supplier to tier one semiconductor equipment manufacturers remain an exclusive club which is highly coveted and difficult to attain.

l We expect RM6m net loss in 4Q06 due to one-off forex losses and write down in inventory. The sharp appreciation in the Ringgit has resulted in some of its earlier contracts priced at lower exchange rate to result in a loss compared with the sharp appreciation at end of 2006. Some write down in value of inventory which could have been obsolete was also undertaken, we estimate the total one of net loss to be RM6m for 4Q06. This would result in FY06 net profit to be within RM33m to RM35m ie at around FY05 levels. (rm6m in losses... ahh... finally some light on what's happening. Kinda disgusting cos the market action recently which saw the saw tumble from rm4.00 indicated that them insiders knew something the minority investors did not know. And rm6m in losses is huge!!)

l Not too concern about one-off losses, business as usual. As we have indicated earlier in our strategy report 2007 that small–mid cap stock are likely to have volatile QOQ net earnings while the whole business model and direction remains intact and in fact poised for strong growth in FY08.

l Industry remains bullish. Largely front -end capital expenditure investment in 2007 in wafer fabrication would result in higher demand in back end equipment with a time large of 12 to 18 months. SEMI has forecasted global semiconductor equipment sale of USD42.1b for 2007 up 3.7% yoy. The growth for 2008 and 2009 is even more bullish with 13.3% and 5.4% yoy growth. ( err... industry remains bullish? Some had voiced concerns, no?)

l OEM business diversifies and grow LKT’s offering from back end to front end of the semiconductor equipment segment. With the OEM business, LKT’s equipment revenue mix is now 60% back-end and 40% front-end which is encouraging seeing that about 70% of the total global semiconductor equipment sales is in the front end.

l The departure of the previous president, Mr Lim Wei Yee will not affect the business. Dato’ Vincent Loh, the executive chairman has stepped up his involvement in the daily operations of the company and remains very hand-on, essentially taking over the duties of Mr Lim. (WOW!!! Departue of previous president... hmmm... did the investing public know about this? (i for one did not know cos i had not followed the stock closely)

l The customers remain confident of the continuation of business as usual. The institutionalisation of the management team with professionals rather than family members of controlling shareholders ensure that there is leadership succession and that no one person is indispensable. LKT has in place a board of management committee which oversees the strategic as well as day to day decision making of the company.

l OEM business has already obtained pioneer status. Meerkat Technologies and Meerkat Integrator have obtained poineer status with 100% tax exemption for 10 years and 5 years respectively. LKT has applied to MITI to activate the status retrospectively to 1 Jan 06 which could result in higher contribution from the OEM division. This could result in lower overall taxes for FY06 and boost its net profit when the approval to activated the status on 1 January 2006 is obtained.

l EPS revised downwards. Given the delay in OEM customer loading LKT with we are lowering FY06, FY07 and FY08 EPS to 39 sen, 51 sen and 65 sen from my earlier forecast of 70 sen, 87 sen and 89 sen respectively assuming lower growth in revenue and also higher overall operating costs. (huge downwards revision in eps!!!! )

l Reiterate BUY recommendation with revised price target of RM4.20 from RM5.60 previously. The target price is derived using a 6.5x PER multiple on FY08 EPS of 65 sen. The selldown in the stock represents good opportunity to purchase LKT at extremely attractive PER multiples 5x and 4x respectively (remember this cheap PE multiples is based on fy 2008 earnings. as it is. fy 2006 estimates is at 26.991 million. fy 2008 estimates is at 44.736 mil. And because the estimates is so much higher than fy 2006 earnings... LKT is surely looking mighty attractive and cheap)

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