Published June 13, 2009

Low Keng Huat posts Q1 net of $11.2m

First-quarter earnings more than double as revenue more than trebles to $84m

By JAMIE LEE

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LOW Keng Huat's financial first quarter net earnings more than doubled, thanks to its construction segment and higher development profit contributions from related companies.

Net profit for the three months to April 30 jumped 129 per cent to $11.2 million from $4.88 million a year ago.

This translates to earnings per share of 1.51 cents, against 0.66 cents for the year-ago Q1.

Revenue for the construction, property development and hotel group more than trebled to $84 million from $26.8 million a year ago.

This was mainly due to its construction business, which registered a more than six-fold jump in revenue to $71.6 million from $11.3 million a year ago.

'The increase was due to the higher percentage of completion for ongoing projects one-north Residences and South Bank and the commencement of new projects Hard Rock Hotel at Sentosa, Meritus Mandarin Hotel and Serangoon Central Mall,' the group said in its financial statement. But revenue from its hotel and F&B businesses dropped 20.1 per cent to $12.3 million from $15.4 million a year ago.

'The decrease in hotel revenue of $3.1 million was attributable to lower revenue from Duxton Hotel Perth, Duxton Hotel Saigon and Starworth group of companies,' the company said.

'The group's two hotels in Perth and Ho Chi Minh City are expected to perform satisfactorily despite uncertainties in the global economic environment,' it added.

As for its development segment, contributions from associated and joint-venture companies jumped 91 per cent to $8.2 million from $4.3 million.

The company also registered a $21,000 loss in concessionary income - which is derived from the gaming centre operations in Duxton Hotel Saigon that opened for business in November 2006 - compared with a $487,000 gain a year ago.

'Our licence for operating the gaming centre was suspended by the Vietnamese government in November 2008,' the company said.

'We have submitted our appeal to the authorities to reinstate the licence but its outcome remains unknown as of April 30, 2009. The hotel remains open and is running as per normal business operations.'

The group's total order book stands at about $900 million. As at end-April, it has $26.2 million in its cash hoard, 50.6 per cent higher than the $17.4 million it had a year ago.

No dividend was declared. Shares of Low Keng Huat ended down half a cent yesterday to 26.5 cents.

Published June 13, 2009

P-Reit downgraded by Fitch Ratings

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(Singapore)

FITCH Ratings yesterday downgraded Parkway Life Real Estate Investment Trust (P-Reit).

In the downgrade, P-Reit's long-term issuer default rating (IDR) and its $500 million multicurrency medium term note (MTN) programme were downgraded to 'BBB' from 'BBB+'.

While P-Reit has good interest coverage, low cost of debt, low refinancing risk, stable rental mechanism, a diversified source of patients and strong position in the healthcare industry, it has a weak sponsor in Parkway Holdings (PHL), the owner of Parkway Hospital Singapore Pte Ltd (PHSPL), the operator of P-Reit's three Singapore hospitals, Fitch said.

This has a negative impact on the credit profile of P-Reit, given that it still relies heavily on lease payments from PHSPL.

Although the financial ratios of P-Reit are sound and it is bolstered by a defensive rental mechanism, the majority of its gross revenue (80 per cent) is still based on the three Singapore hospitals, which are operated by PHSPL, in turn wholly owned by PHL.

'On a standalone basis, Fitch thinks PHSPL is profitable through its three Singapore hospitals and has good credit metrics. Nevertheless, PHSPL is a wholly owned subsidiary of PHL and is not ring-fenced from its parent,' the rating report said.

'Any deterioration of PHL's credit quality could lead to an increased consolidation risk between PHL and PHSPL, and hence negatively affect PHSPL's ability to service lease payment to P-Reit.'

Fitch said it has noted that the leverage of PHL has significantly increased following the extra debt incurred for the Novena Hospital project, and the key financial ratios of PHL have 'deteriorated'. -- Reuters

Published June 13, 2009

Chartered more upbeat on Q2 revenue

Chipmaker raises sales forecast and also expects quarter's losses to be lower than earlier projected

By WINSTON CHAI

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CHARTERED Semiconductor Manufacturing has turned more upbeat on its current second quarter performance outlook.

In an update of its guidance yesterday, the chipmaker now expects Q2 sales of between US$338 million and US$348 million - up from its April 24 guidance of US$321 million to US$333 million and up to almost 43 per cent higher than its Q1 revenue of US$244 million.

In line with the brighter sales outlook, the company expects its Q2 loss to narrow to about US$45 million to US$53 million - an improvement of almost US$10 million from its initial US$54 million to US$64 million forecast and substantially lower than its Q1 US$98.8 million loss.

'Compared with our expectation in April, we are seeing incremental improvement in our business, mainly coming from our mature technologies. Therefore, we are revising our revenue guidance upward,' said Chartered CFO George Thomas.

Chartered shares climbed 1.3 per cent to close at $2.36 yesterday on news of the envisioned upswing. The company's share price has risen almost 84 per cent this year.

'Compared with our expectation in April, we are seeing incremental improvement in our business, mainly coming from our mature technologies.' Chartered CFO George Thomas

In particular, there was a sharp spike earlier this month on speculation that Temasek Holdings was in talks to divest its 62.33 per cent stake in Chartered to Abu Dhabi-based Advanced Technology Investment Company in a deal reportedly worth US$2.45 billion.

Signs of recovery in the beleaguered semiconductor sector have again put the industry under the analyst spotlight, with major players such as TSMC, UMC and Chartered all reporting signs of an upswing.

With the recent resurgence among chip companies, market research firm Gartner now expects global semiconductor sales to fall 22.4 per cent this year to US$198 billion. This is an improvement from its previous forecast of a 24.1 per cent decline.

The Semiconductor Industry Association expects chip sales to drop 21 per cent in 2009 to US$195.6 billion. However, it expects a rebound next year, with revenue growing 6.5 per cent.

DMG Research technical analyst James Lim said: 'We continue to subscribe to the view that the technology industry most likely bottomed out in Q1 2009 and that any recovery in the electronics sector should therefore be first felt in the semiconductor space, given that semiconductors are regarded as the front-runner of the whole technology cycle.'

Published June 13, 2009

World's biggest asset manager is born

BlackRock buys Barclays Global Investors for US$13.5b to vault ahead of rivals

By NEIL BEHRMANN
IN LONDON

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BLACKROCK'S agreement to buy Barclays Global Investors (BGI) for US$13.5 billion, equally in cash and BlackRock shares, will create by far the world's largest asset manager.

MR DIAMOND The Barclays president stands to gain around US$26 million from the deal

The deal alters the multi-trillion asset manager rankings and is likely to presage further consolidations in firms that were damaged in the global bear market that lasted from October 2007 to March 2009. BlackRock Barclays Investors, as the new firm will be called, will manage an awesome US$2.7 trillion, about 3-5 per cent of the global asset management industry, Barclays said in a press conference. It is a giant step forward for BlackRock, a 21-year-old company which relied heavily on acquisitions to grow from a one-room bond investment firm into the largest publicly traded US money manager.

The new entity will be well ahead of rivals State Street Global, Allianz Group, AXA Group and Fidelity Investments, which, following the bear market, manage assets well below US$2 trillion. More importantly, it will give BlackRock global reach as BGI has operations in 15 countries.

According to a presentation to investors, North and South America account for two-thirds of BlackRock Barclays assets under management; Europe, Middle East and Africa a quarter; and Asia-Pacific 8 per cent. Asia-Pacific accounts for 13 per cent of 9,000 employees worldwide. Barclays executives said that Asia was a growth area and the merger was unlikely to result in layoffs there.

For Barclays, which had earlier refused government assistance despite rocky times that saw investors such as Temasek Holdings sell their stake, the deal is a god-send. It will strengthen its balance-sheet and expects a net gain on sale of US$8.8 billion. Barclays president Robert Diamond will not do too badly from the deal himself, and stands to gain around US$26 million.

The combined group manages a vast array of products from fixed income, equities, hedge funds, private equity and real estate and commodity funds. It will be especially strong in the fast growing Exchange Traded Fund (ETF) product and index range which account for US$526 billion or about a fifth of total assets, according to a BlackRock presentation. These low-cost funds are very popular with retail investors who have become disenchanted with higher cost mutual funds that lost money in the bear market.

Institutional clients such as pension funds, insurance companies and sovereign wealth funds account for around US$2.2 trillion.

BlackRock, predominantly in institutional business and fixed income products, benefits because of Barclays wider retail base. Its rival, Pimco, is now at a disadvantage because of the BlackRock entry into ETFs. BlackRock and BGI have a strong offering of hedge funds which is a lucrative money spinner for asset managers because of their high fees.

BlackRock has expanded rapidly via acquisitions - three years ago, it purchased Merrill Lynch's fund unit for US$8.6 billion.

The deal exceeds an earlier agreement of Barclays Bank to sell just the iShares exchange-traded-fund business of BGI to private equity group CVC Capital. Unless CVC, a private equity business, can come up with a better offer, it will receive a break fee of around US$180 million from Barclays, a director said.

Instead of fully owning BGI, Barclays Bank will now have a 19.9 per cent stake in the enlarged business.

The money received from the deal substantially improves Barclays Bank's capital base to take pressure off an institution which lost considerable amounts from non-performing assets. It will boost the bank's tier 1 capital ratio, a key measure of a bank's ability to pay debts of all types, to 8 per cent.

Such was its plight last year that its shares collapsed on concerns that the UK government would take a major stake in the bank.

Barclays' Mr Diamond added that the sale would allow the group's Barclays Capital investment banking arm to do more business with the fund manager. Previously, Barclays Capital had been restricted in the deals it could do for BGI because they were part of the same group, he noted.

Barclays fell 1.6 per cent in morning trading yesterday, having soared by around 17 per cent in recent days. BlackRock's stock is up by 15 per cent since the start of the month and 36 per cent since the beginning of 2009.

BlackRock chief executive Laurence Fink said that the combined companies' market capitalisation would be about US$34 billion.

Published June 12, 2009

IJM may enter new M'sian index: Credit Suisse

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(KUALA LUMPUR) IJM Corp and Gamuda Bhd, two of Malaysia's biggest builders, and SP Setia Bhd, a developer, may be included in a new country benchmark stock index next month after their market values rose, Credit Suisse Group said.

Bursa Malaysia Bhd will cut the number of companies in its share index to 30 from 100 on July6.

Stocks that may be excluded are Malaysian Airline System Bhd, RHB Capital Bhd and Petronas Dagangan Bhd because of their low free-float percentage, according to the report. Gamuda climbed to a 10-month high while SP Setia gained to the highest in 15 months.

'With US$83 billion worth of domestic funds benchmarked to the stock index, changes in the weightings and components could impact stock prices,' Stephen Hagger, an analyst at Credit Suisse, said in a report yesterday.

Bursa Malaysia Bhd, the country's stock exchange manager, will cut the number of companies in its share index to 30 from 100 on July 6, removing the smallest and most tightly held companies in a bid to lure investors.

The Kuala Lumpur Composite Index will become the FTSE Bursa Malaysia KLCI.

Gamuda jumped 4.1 per cent to close at RM2.78, the highest level since Aug 18. Shares have climbed 47 per cent this year.

SP Setia, Malaysia's largest property developer, surged 5.1 per cent to RM4.52. The stock has advanced 46 per cent this year, while IJM more than doubled.

The Kuala Lumpur Composite has gained 24 per cent. Malaysian Airline and Petronas Dagangan each dropped 0.6 per cent.

The companies may enter the new index because of their higher free floats, Mr Hagger said.

The new index will comprise the 30 biggest companies listed on the stock exchange's main board and use the free-float method, which is based on the number of shares publicly available for trading, to decide on their weightings, in line with the FTSE global index standard, Bursa said on Jan 21.

The new gauge will mirror the FTSE Bursa Malaysia 30 Index, which comprises the 30 largest stocks and free-float adjusted, Mr Hagger said.

IJM, Gamuda and SP Setia are among the top 35 stocks by market value in Malaysia and among the top 25 in the MSCI weightings, he said. As such, they could possibly be included in the new index, Mr Hagger said.

Any change in the weighting and components of the stock index will have a 'significant impact on affected stocks' because 35 per cent of the bourse's market value is benchmarked against the Composite Index, Mr Hagger said.

This represents about US$83 billion, of which US$43 billion are institutional money and US$40 billion held in government equity-linked funds, he said.

Bumiputra-Commerce Holdings Bhd, Public Bank Bhd, Resorts World Bhd, YTL Power International Bhd and Parkson Holdings Bhd are also expected to be 'clear beneficiaries' of the new gauge, Mr Hagger said.

Companies must have a minimum 15 per cent free float to be included, Bursa has said. Shares held by the government or major shareholders that are not traded in the market will lower the weighting of the company on the index. -- Bloomberg

Published June 12, 2009

MAS's Q1 loss expected to top RM2 billion

Wrong bets on fuel prices staying above US$100 a barrel could prove costly

By PAULINE NG
IN KUALA LUMPUR

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MALAYSIA Airlines (MAS) is expected to post a loss, which could exceed RM2 billion (S$828 million), on fuel hedges gone awry for its first quarter to end March.

Turning point: MAS posted RM244m profit in its last fiscal year and is set to announce its Q1 results today

RHB Research estimated the national carrier's loss in the region of RM1.7 billion, a projection based on an MAS decision to adopt Financial Reporting Standard 139, requiring the company to recognise mark-to-market losses on its hedges. Industry executives, however, expect the loss to exceed RM2 billion.

When jet fuel was trading at well over US$100 per barrel last year, MAS had bet on prices remaining high at around US$100 - but was caught out when the global financial crisis hit last year. The sharp pull-back in business activities quickly dragged down the price of crude oil to less than half at its lowest.

Although crude oil prices have since risen to over US$70 per barrel - the airline's previous hedge of 64 per cent of its fuel needs for FY2009 at US$100 per barrel and 40 per cent of FY2010 at US$95 - the hedges have proven costly.

Any billion-ringgit loss would be a big blow to the airline and its managing director, Idris Jala. His stewardship, since 2006, had helped turn MAS around in less than a year after it shocked markets with a RM1.7 billion loss in 2005.

Earlier this year, Mr Jala said that the airline had started restructuring some of its hedge options, but noted: 'It does not make sense for you to put in a lot of money to unwind and cause yourself to fall into a deeper hole.'

MAS's misfortune illustrates the dilemma confronting airlines generally, which, in the face of extreme economic volatility, need to get their hedges right since jet fuel accounts for a huge chunk of their operating cost. In the case of MAS, it makes up nearly a third of the costs, and for Malaysia's other carrier, AirAsia, close to half.

The thin line between hit and miss is further underscored by the fluctuating fortunes of both carriers.

AirAsia reported a RM472 million loss in its last fiscal year to end-December after getting hit on its hedge and decided to take a one-off charge of RM426 million in the last quarter to get out of hedging completely. Then, it had betted on oil prices coming down but instead they soared higher.

AirAsia has since decided it would rather pay spot market rates for its fuel needs until there is greater stability in crude prices. Bucking the general trend in the industry, the airline posted a RM203 million profit in the first quarter.

MAS posted a profit of slightly over RM244 million in its last fiscal year and is set to announce its Q1 results today.

But the impact of its fuel hedges aside, analysts are projecting a tough year ahead for the airline in the face of shrinking demand, exacerbated by health scares such as the influenza caused by H1N1 virus.

Published June 12, 2009

Thakrals bulking up to fight on even footing?

By EMILYN YAP

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THE stalemate between two of Thakral Corporation's biggest shareholders - Hong Leong Asia (HLA) and the Thakral family - looks set to continue now that the latter has doubled its stake in the company it founded.

In fact, HLA may find it even harder to exercise influence over the consumer electronics distribution company's direction from here on. Its previous attempts to remove the group's chairman and founder, Kartar Singh Thakral, had fallen through even before the Thakrals raised their holdings.

Thakral Corp's announcements this week show that Prime Trade Enterprises bought a 12.77 per cent stake in the company from three parties - Babcock & Brown Securities Singapore, Top Notch Dragon and Queentex. The stake of 333.5 million shares at four cents each cost some $13.3 million.

Prime Trade Enterprises is owned by Bikramjit Singh Thakral, who is Mr Kartar's grandson. The share purchase raised Mr Kartar's deemed interest in Thakral Corp from 12.71 per cent to 25.48 per cent.

The Thakrals' stake is still smaller than HLA's, which stands at 34.42 per cent. Nevertheless, the family is now in a stronger position to defend against any future proposals that it considers threatening.

For minority shareholders, their hope is for the two biggest stakeholders to break their impasse and see eye to eye to take the company to a higher plain. Thakral Corp, which sits on a cash horde of some $122.9 million in cash and cash equivalents, going by its Q1 FY09 financials - has been having its ups and downs in terms of profitability.

HLA has not had much luck in changing Thakral Corp's leadership, getting another representative onto its board, or in maintaining its consumer electronics distribution focus. Unable to influence the company much, HLA has said that it is considering all options with regards to its stake.

With holdings of more than 25 per cent, however, the Thakrals will find it even easier now to block proposals that they object to.

Are the Thakrals also likely to go on the offensive and buy more shares for a takeover later? Some observers guess that the family may have raised its stake simply because they secured a good price. For the latest stake acquired, they are already sitting on a paper gain - Thakral Corp rose half a cent yesterday to close at 7.5 cents.

It would also be interesting to watch out for future developments since the Thakrals' stake is just 4.52 per cent shy of the 30 per cent takeover trigger point.

Another interesting issue is whether HLA too will raise its stake.

So far, HLA seems to be taking the Thakrals' actions in stride. 'We see the share purchase as a personal investment decision,' said a Hong Leong Group spokesman. 'The increase in shareholding does appear to reflect the shareholder's belief that the company is on the right track.' He also said that Hong Leong is still reviewing plans for the stake in Thakral Corp.

No matter what Hong Leong or the Thakrals have on their agenda, anything that ends the deadlock would please retail shareholders. They would also want to see the Thakral Corp counter break out of the low price trap it has been caught in for years.

Published June 12, 2009

SIA to fly A380 to HK from July 9

By VEN SREENIVASAN

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SINGAPORE Airlines (SIA) will fly the Airbus A380 super jumbo on the Singapore-Hong Kong route from July 9.

The operation of the 471-seat A380 on the route represents a 10% increase in SIA's seating capacity to Hong Kong.

Hong Kong will be the fifth international destination and second Asian city to which SIA operates the huge plane. SIA started operating the A380 in October 2007 to Sydney, then added services to London, Tokyo and Paris.

The daily A380 flights to Hong Kong will replace an existing B777-300ER service. The operation of the 471-seat A380 on the route represents a 10 per cent increase in SIA's seating capacity to Hong Kong.

'This shows our confidence in demand for business and leisure travel,' said Huang Cheng Eng, SIA's executive vice-president for marketing and the regions.

SIA now operates five daily non-stop flights between Singapore and Hong Kong, plus daily non-stop services between Hong Kong and San Francisco. The airline has eight A380s in service, a further 11 on firm order and options on six more.

The increase in capacity on the Singapore-Hong Kong route is despite an overall 11 per cent system-wide capacity cut by SIA this year amid weak demand and poor revenue.

However, demand between Singapore and Hong Kong has remained robust, largely because both cities are major hubs for onward connections.

Published June 12, 2009

Raffles Education shares pull back on placement news

It will issue 160m new shares at 64cents each to institutional and other investors

By JAMIE LEE

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AFTER soaring in price by more than two-fifths in just one month, the stock of Raffles Education Corporation (REC) retreated by as much as 12.5 per cent yesterday on news of a share placement to raise a net of some $101 million.

Mr Chew: The controlling shareholder and chief executive did not raise his stake by taking more shares

REC - which runs private schools mostly in China - is raising the fund through the issue of 160 million new shares at 64 cents to institutional and other investors.

The issue price represents a discount of about 6.6 per cent to Wednesday's closing price of 68.5 cents. But after an intraday low of 60 cents yesterday, the stock closed trading at 62 cents, down 6.5 cents or 9.5 per cent.

It was the most actively traded stock, with 274 million shares changing hands. This includes a late married deal for 194 million shares at 62.5 cents apiece at around 4.50 pm, Reuters data showed.

BT understands that the shares were placed out to European and American funds following roadshows conducted last month. Controlling shareholder and chief executive Chew Hua Seng did not raise his stake by taking up more shares.

This is the second share placement done by REC in about two months and was anticipated by analysts as the group had said that it planned to rid its debts by 2010.

In March, REC raised net proceeds of $30.1 million from the placement of 80 million new shares at $0.381.

CIMB-GK analyst Ho Choon Seng said in a client note yesterday: 'The fund-raising does not come as a surprise to us as we had pointed out earlier that the management's target of achieving debt-free status by end-FY10 was aggressive.'

Stocks tend to fall after the company makes share placement announcements because of the dilutive effect on earnings per share (EPS).

Mr Ho sees a dilution of as much as 6 per cent on REC's FY2009-2011 EPS estimates, though the dilution will be slightly offset by savings in interest expenses.

But some dealers said yesterday that the share price was also correcting after surging in the past few weeks on fund play.

'The stock shot up over the last four weeks so there's some pullback,' said one remisier.

Shares of REC have risen 44.2 per cent over the last one month, outperforming the Straits Times Index by 35 percentage points. This brings REC's market value to $1.51 billion.

In response to a Singapore Exchange query early this month about the substantial increase in the price of the counter, REC said then that it had no explanation for the trading.

On the share price plunge yesterday, a dealer said that shareholders could be concerned that REC was raising too much money and too often via share placements.

REC will use about $60 million or about 60 per cent of the funds to repay part of the outstanding payment for Oriental University City Development (OUC). The remainder will be used to repay bank loans and for working capital.

REC was also queried last month on whether it would be able to finance its short-term obligations, given its negative working capital of $201.85 million as at March 31.

In response, REC said that the 500 million yuan (S$105.9 million) payment due at the end of this year for part of its acquisition for OUC would be deferred. REC said after a week later that this 500 million yuan would be paid before 30 April 2010.

The remaining one billion yuan would be paid in three tranches, with 105 million yuan to be paid before 31 December 2010, another 500 million yuan by 31 December 2012 and the final 395 million yuan by 31 December 2013.

Prior to the deferment, the full payment for OUC was meant to be settled by 2011.

Published June 12, 2009

M'sian builders embroiled in suits in Dubai, Qatar

Big bets on property boom in Middle East run into roadblock

By S JAYASANKARAN
IN KUALA LUMPUR

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AT least two Malaysian companies have run into trouble over construction projects in the Middle East, highlighting the pitfalls of doing business in unfamiliar business conditions.

In January, shares of listed engineering firm WCT plunged to their lowest level in 14 years after a US$1.3 billion racetrack in Dubai was cancelled despite the Malaysian company having completed 60 per cent of the work.

In February, WCT together with its joint-venture partner instituted a civil suit against Meydan, the promoter of the racetrack, that will be heard by an arbitration panel in Dubai later this year.

Meanwhile, state-owned UEM Group has been slapped with a RM850 million (S$353 million) suit by the Qatar government over alleged contractual breaches in the building of a highway through the sheikhdom's capital, Doha. The road contract was awarded in 2001 on condition that it be completed before the Asian Games in 2006.

In actual fact, Qatar sued Parsons International Ltd, the engineering firm which designed the road, for alleged design flaws but named UEM, the main contractor, as the second defendant to the suit.

According to other unconfirmed reports, the Qatar government may have also frozen UEM's assets in the emirate. UEM is the former Renong group, that was bailed out in 1999 after the government took it private.

On Wednesday, UEM chairman Ahmad Tajuddin Ali confirmed the suit. 'We are just the contractor,' he told reporters. 'It is the consultant that has been sued but we are named as second defendants.'

According to executives familiar with the suit, UEM has put in a counter-claim because it hasn't been paid for work done over four years ago, but the amount it claims couldn't be immediately confirmed.

Mr Tajuddin did not allude to this beyond saying: 'We will manage the case. We have a strong case to defend ourselves.'

After the Asian financial crisis of 1998, many Malaysian construction companies flocked overseas for jobs because of a construction slump in Malaysia. After Abdullah Ahmad Badawi became prime minister in 2003, the slump was exacerbated because the new premier immediately cancelled big-ticket infrastructure projects to reduce a yawning budget deficit.

This coincided with a boom in the Middle East especially in the Gulf states which, flush with oil money, embarked on a building boom. Malaysian companies also headed there figuring, probably correctly, that they would stand a better chance given that they hailed from a Muslim-majority country.

WCT's lawsuit, in particular, epitomises the pitfalls of betting on what many economists are now describing as the property bubbles of the Middle East. In addition, UEM's and WCT's problems could be symptomatic of the woes of other Malaysian companies that bet heavily on the Middle East boom. But they may not have emerged because many of them are private, unlisted firms and so do not have to declare their woes publicly.