Forget about TMT stocks, here come the Replacements

For a very long time, foreign investors were fed with the limited choice of TMT whenever stocks investing are concerned in Malaysia. The abbreviation of TMT means Telekom, Maybank and Tenaga. The best of practice for foreign fund managers then was you must invest in these three heavyweight stocks since they constituted the biggest percentage in terms of Kuala Lumpur Composite Index (KLCI). And when these three musketeers move; the KLCI move. TMT was like the Great Wall of China and you can’t and shouldn’t claim to have been to China if you haven’t visited the Great Wall.

In layman term, it’s quite easy to justify TMT as the leader in the stock exchange. Telekom Malaysia Berhad (KLSE: TM, stock-code 4863) was the biggest and the only player who monopolized the telecommunication sector. Before the emerging of mobile or cell phones, the land-lines were the cash-cow of Telekom. Telekom ruled the land of the nation's telecommunication.

Malayan Banking Berhad (KLSE: MAYBANK, stock-code 1155) being the largest bank with the most number of branches throughout the country is synonym with national bank status of a nation. With limited and near to impossible for other banks to expand their branches, Maybank monopolizes the domestic market. Tenaga Nasional Berhad (KLSE: TENAGA, stock-code 5347) is the only electricity provider and the monopoly is obvious in the energy sector.

The latest report from theStar which picked the source from Bloomberg shows that foreign investors are slowly shifting the decades old choice from TMT to new candidates. The catalyst was indeed the surging prices in palm-oil. IOI Corporation Berhad (KLSE: IOICORP, stock-code 1961) appears to have beaten all the TMT candidates when its market capitalization has ballooned to RM47 billion compared with Maybank’s RM43.2 billion and TNB’s RM40 billion. Public Bank Berhad (KLSE: PBBANK, stock-code 1295) further put the TMT to shame when the company took the fourth place with market capitalization of RM39 billion.

IOI Corp which is headed by its founder Tan Sri Lee Shin Cheng has a weighting of 6.24 percent on the benchmark KLCI should thank global palm-oil prices for the wealth created. On the other hand the Malaysian version of Warren Buffett, Public Bank founder Tan Sri Teh Hong Piow, has shown that good management and the practice of meritocracy in running the banking operation will ultimately win the hearts of investors. Of course his latest expansion to China contributes to the soaring stock price of his baby Public Bank.

So, you’ve seen two examples of great companies run by great leaders. Why the TMT suffered and its performance deterioted over the time in spite of sitting on the throne of monopoly? Remember Malaysian Airline System Berhad (KLSE: MAS, stock-code 3786)? The company that despite the monopoly accorded had made multiple quarters of losses before the bleeding stopped recently. So what are the similiarity with TMT and MAS? All of them are GLC (government-link-companies). All of them have so-called social responsibility to put on gigantic number of employees on its payroll, regardless of the staffs’ productivity and performance. All of them are protected, one way or another by the government. And the moment the profits stop growing or in the red, all of them will scream and cry demanding price hike. . If only doing business and generating profits are so damn simple and easy.

If the other banks are given the liberty of setting up more branches, Maybank would surely disappear from the banking map. Take for example a real case of a customer who reported that his Maybank credit card was used for unauthorized transactions worth hundreds of dollars. Long story short, the customer was asked to pay the “unauthorized transaction” nevertheless because Maybank couldn’t trace the culprit despite numerous appeals. Out of frustration, the customer paid and cancelled all business relationship with the bank.

Now the same situation happened to another customer whereby his credit card was being cloned for various transactions from multiple petrol stations. This time the bank’s (Citibank) system somehow detected abnormal transactions within one of its customers and alerted the respective officers. The customer service called the customer to verify the transaction and advised the customer to destroy and wait for the new credit card to be issued thereafter. The difference is this "lucky" customer was never asked to pay the unauthorized transactions, which is the only right thing to do, not that the customer purposely ask for his card to be cloned in the first place. So you’ve a frustrated and a happy (loyal) customer based on same scenario but from different banking institution.

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IOI Corp is largest KLCI component stock

31 October 2007

Its share price has surged and market cap is at RM47bil

By KATHY FONG

PETALING JAYA: The surge in IOI Corp Bhd's share price has made the plantation group the largest component stock on the KL Composite Index (KLCI) in terms of weighting, topping the usual names Malayan Banking Group Bhd (Maybank), Tenaga Nasional Bhd (TNB) and Telekom Malaysia Bhd (TM).

According to Bloomberg, IOI Corp’s weighting on the benchmark KLCI was 6.24% based on yesterday’s closing of RM7.90, followed by Maybank 5.74% and TNB 5.35%.

IOI Corp’s market capitalisation (cap) has ballooned to RM47bil compared with Maybank’s RM43.2bil and TNB’s RM40bil.

Public Bank Bhd’s weighting on the KLCI was also gaining amid the rise of its share price to a record high of RM11.10 yesterday. The bank was the fourth biggest KLCI component stock with market cap of RM39bil.

Investment analysts said the change on the weighting of the component stocks (in terms of their market cap) indicated the investing interest in Bursa Malaysia.

“The market seems to be getting more efficient now. Companies with good management and earnings prospects are given premium,” said the head of equity research of a foreign investment bank.

“So, TMT may not always be the choice of stocks for investors who want have index exposure now,” he quipped.

TMT, which stands for TM, Maybank and TNB, once regarded the “must have” component stocks for fund managers who needed to benchmark their portfolio performance to the KLCI’s movement.

IOI Corp’s share price has been surging in tandem with rising crude palm oil prices that rose above RM2,900 per tonne.

The stock was seen as one of the most efficient plantation groups in Malaysia due to the hands-on management led by founder Tan Sri Lee Shin Cheng, analysts said.

KL Kepong was also catching up with a weighting of 2.18% as its share price continued to climb.

Sime Darby Bhd, which will be relisted under the name Synergy Drive Bhd next month after the merger with five other companies, was the second biggest plantation counter based on the last traded price of RM11.20 on Oct 17. The conglomerate’s weighting was at 3.75%.

Investment analysts observed that many government-linked companies (GLCs), except for Bumiputra-Commerce Holdings Bhd, were mostly lagging behind the current market rally.

Ironically, the share price of Maybank and TNB had fallen below last year’s closings although the KLCI had been breaking new records this year. TNB slid nearly 15% and Maybank fell 6% year-to-date versus the 29% rise on the KLCI.

The better performer among GLCs was Bumiputra-Commerce with a hefty gain of 44.5% since the beginning of the year.

“The share price performance may be a reflection on how investors think of the GLC revamp,” said an analyst.

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IOI Corp may acquire Unico-Desa stake

30 Oct 2007

KUALA LUMPUR: IOI Corporation Bhd will consider acquiring a stake in Unico-Desa Plantations Bhd, which is embroiled in a dispute over Unico Holdings Bhd¡¦s 29.3% equity interest in the plantation company, as part of its plan to grow its plantation business.

IOI Corp¡¦s group executive chairman Tan Sri Lee Shin Cheng said it would make such consideration should the opportunity arise and any such acquisition would have to be a controlling stake.

Unico board members and its ousted director Tan Kai Hee had engaged in a media war with the latter opposing the company¡¦s plan to undertake a capital reduction exercise, followed by the distribution of Unico-Desa shares to Unico¡¦s 22,000-odd shareholders.

According to a report by Reuters yesterday, IOI Corp is seeking its board¡¦s approval to buy a substantial stake in Unico-Desa.

While not ruling out a move to buy into Unico-Desa, Lee said yesterday that IOI Corp was looking at an acquisition of a plantation company which is bigger than Unico-Desa.

¡§Unico-Desa is a comparably small plantation company. We are looking into something even bigger than this,¡¨ he said, adding that IOI Corp is in talks with several parties on its plan to expand its plantation business and expects to complete at least one acquisition of a private plantation company by end FY08. The acquisition is likely to be a local plantation firm.

Speaking to reporters after his company¡¦s AGM and EGM yesterday, Lee said the acquisitions were part of its two-pronged growth strategy, and IOI Corp would continue to plant from undeveloped land.

To date, he said the group had a total of 155,000ha of planted land bank excluding another 70,000ha that would come in upon the completion of a sales and purchase agreement in Indonesia, which expected in a few days.

He said it expected some immediate contributions from its matured plantations in Indonesia, and this would gradually increase over the next three years.

High crude palm oil (CPO) prices had boosted the group¡¦s net profit in its financial year ended June 30, 2007, and Lee expected sustained growth and profitability in FY08.

Lee said the group had committed to selling CPO at an average price of RM2,500 per tonne in its first half of the financial year ending Dec 31, 2008, from an average selling price of RM1,700 per MT in FY07.

¡§This year was a record, next year will be another record driven by high crude palm oil (CPO) prices, the uptrend in the property market and also our manufacturing ¡X refineries, oleochemicals, specialty fats and oil ¡X are doing extremely well,¡¨ Lee said.

On its property business, he said IOI Corp had at least 10 residential and commercial projects under construction in FY08 with a gross development value (GDV) of RM1 billion including a residential project in Jalan Ampang, Kuala Lumpur.

The group would also begin construction on a residential project on Sentosa Island in Singapore by the beginning of 2008 with a GDV of S$1 billion (RM2.3 billion) he said.

Lee said IOI Corp¡¦s total land bank had a GDV of at least RM5 billion, with between 2,428ha and 2,832ha of undeveloped land bank, excluding those in Singapore. He said the group would continue to explore opportunities in the property sector overseas from time to time.

On the group¡¦s downstream resource-based manufacturing business, he said the group was looking to expand the 800,000 tonne capacity of its refinery in Rotterdam, Netherlands. Currently IOI Corp¡¦s four refineries have a refining capacity of three million tonnes, he said.

The group had also postponed its venture into the bio diesel industry until further study, preferring to focus on its palm oil business which enjoyed robust demand, he added.

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IOI takes top spot on M'sian bourse

Surging crude palm oil prices have propelled its rise

By PAULINE NG
IN KUALA LUMPUR PROPELLED by surging crude palm oil prices and expectations it would surpass last year's record profits, IOI Corporation yesterday leapt to the top spot on the local bourse, pushing Malayan Banking (Maybank), to second position.

Pushing ahead: High prices for crude palm oil, currently around RM2,900 per tonne, have helped IOI make gains of over 50 per cent in the space of three months At yesterday's close of RM7.90 after it gained 40 sen, the plantations giant's market capitalisation of RM47.4 billion (S$20.6 billion) established it as the country's most valuable listed entity. In comparison, Maybank is currently worth about RM43 billion.

IOI Corp's market rise is remarkable, given the top-most positions are nearly always occupied by government-linked entities.

Still, Malaysia's most efficient plantation player is likely to hang on to the top honour for a month - or at least until Synergy Drive comes into being. The government-linked plantations corporation combining three former plantations groups - Sime Darby, Kumpulan Guthrie and Golden Hope - is scheduled to list on Bursa Malaysia's main board at the end of November. Analysts have estimated that Synergy's value upon listing could exceed RM70 billion, which would make it the indisputable exchange leader.

For now the limelight is on IOI Corp, which despite its gains of over 50 per cent in the space of thee months - some half of it in the past month - is still a compelling pull for some.

High prices for crude palm oil - currently around RM2,900 per tonne - have helped, and IOI Corp executive chairman Lee Shin Cheng has indicated that analysts' consensus estimates of a RM1.8 billion net profit for the fiscal year ending in June 2008 will be surpassed.

Last year, IOI's then record profit of nearly RM1.5 billion was achieved at a time of lower prices for crude palm oil, know as CPO. Speaking after the company's annual general meeting on Monday, Mr Lee said CPO prices could well reach RM3,000 per tonne soon.

But stockbroking firms such as Hwang-DBSVickers are more excited about its plans to acquire other plantation companies as potential acquisitions could be 'value accretive' to the stock. Others believe its shares are already fairly valued.

'While sector fundamentals remain positive and we expect CPO prices to stay firm, upside from here looks increasingly less significant, and the impact will also be muted by the expected stronger ringgit,' JP Morgan's Simone Yeoh said in a client note.

Meanwhile, companies such as Unico Desa Plantations are riding on IOI Corp's professed interest in them. Unico is currently embroiled in a shareholder tussle, but its shares jumped 22 sen to RM1.22 after Mr Lee said IOI Corp was contemplating taking over the company if the terms were right.

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Offer to sell 57% in Unico-Desa

30 Oct 2007

PETALING JAYA: Unico-Desa Plantations Bhd's major shareholders have offered to sell a 57% stake in the oil palm plantation group.

Under listing requirements, the disposal would trigger a mandatory general offer for all shares in Unico-Desa should a single party take up the entire chunk of shares.

Consequently, merchant bankers said there was a likelihood of Unico-Desa being taken private in such an event.

The 57% stake are from three parties – Unico Holdings Bhd, Teoh Hock Chai and Dr Yeong Yue Chai. Teoh and Yeong are directors of Unico Holdings as well as Unico-Desa.

News of Unico-Desa shares being offered for sale en bloc appeared to have given the company's share price a lift yesterday. The counter jumped to a record high of 96.5 sen before finishing up 2.5 sen at 94 sen. The stock has gained 40.1 sen, or 74%, year-to-date. The company's market capitalisation stood at about RM830mil yesterday.

IOI Corp Bhd executive chairman Tan Sri Lee Shin Cheng said the group would consider the Unico-Desa offer and also look for bigger plantation companies to acquire.

CIMB Research said that with Unico-Desa's oil palm plantations located close to the estates of other bigger players such as IOI Corp and Asiatic Development Bhd, the big planters would be keen to acquire the majority stake in Unico-Desa “if the price is right''.

Unico-Desa has been hogging the limelight in the last two months over a dispute involving its parent company Unico Holdings' 29.3% shareholding in the oil palm plantation group.

The bone of contention is opposition by former director Tan Kai Hee, who was not re-elected at the AGM last month, to the company's plan to undertake a capital reduction exercise, which would be followed by the distribution of Unico-Desa shares to some 22,200 Unico shareholders.

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IOI sees record profit

30 Oct 2007

By KATHY FONG

PUTRAJAYA: IOI Corp Bhd, which is in the midst of finalising an asset acquisition, expects to post another record net profit for the current financial year ending June 30, 2008 (FY08) of more than RM1.8bil, said executive chairman Tan Sri Lee Shin Cheng.

Lee said it had sold forward half of the crop production volume at the average price of RM2,500 per tonne, compared with RM1,700 per tonne in FY07.

“The RM800 jump in CPO (crude palm oil) price per tonne should be an indicator that the group would not only sustain its earnings growth, but also improve further,” he said.

“FY07 was a record (profit) year. This financial year (FY08) will be another record,'' Lee added.

IOI Corp posted a net profit of RM1.48bil in FY07, up 79% from RM829mil in FY06. Revenue grew to RM8.95bil from RM6.1bil previously. The group's crop production for FY07 was 3.69 million tonnes.

IOI Propeties Chairman Tan Sri Lee reply to media after chaired AGM and EGM in Putrajaya on Monday

Lee said it would not be a problem for CPO price to reach RM3,000 a tonne.

“Whatever goes up must come down,” Lee said when asked if the uptrend in CPO price was sustainable at current levels.

He expected the correction of CPO prices would not be too drastic in the event of one due to the growing demand for palm-based products worldwide.

“CPO is no longer a commodity. It is an industrial product. Exports to the US have doubled because of the trans fatty acid issue,” he said.

Bullish CPO futures which surged to a record high of RM2,910 per tonne yesterday gave IOI Corp share price a timely lift to boost the stock to a historical high of RM7.50, a rise of 35 sen.

On the its expansion plans, Lee said the oil palm plantation group was currently in talks to acquire a plantation company. “It looks like it (the acquisition) will be completed in FY08,” he told a press conference after the AGMs of IOI Corp Bhd and IOI Properties Bhd yesterday.

He also said the group would consider the 57% stake in Unico-Desa Plantations Bhd offered for sale by Unico Holdings Bhd and two major shareholders.

“I would get my board members to look into Unico-Desa,” Lee said, but stressed that IOI Corp would not launch any “unfriendly takeover.”

Given an annual cash flow of RM2bil, Lee said financing was not an issue for the IOI group.

“We've got the appetite (for asset acquisition). We are looking for bigger companies than Unico-Desa,” he added.

On the group's property division, Lee said IOI Property wanted to build more commercial properties to pave the way for it to set up a real estate investment trust (REIT).

“We only have about one million sq ft of rentable area in IOI Mall, which is too little. We intend to raise it by 30% to 40% before we could set up a REIT,” he added.

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Lessons from IOI for Synergy Drive

Published October 29, 2007

MALAYSIA INSIGHT

The corporation's solid management is worthy of emulation by the new behemoth

By S JAYASANKARAN
KL CORRESPONDENT

LAST Friday, IOI Corporation - a plantations, oleochemicals and property conglomerate - became the second largest company on Bursa Malaysia (BM), the Kuala Lumpur stock exchange, with a market capitalisation of RM41.4 billion (S$18 billion).

Malayan Banking (Maybank) remains tops at RM44 billion, while IOI Corp pushed state-owned utility Tenaga National to third spot at RM40.3 billion. The rest of Malaysia's corporate grandees are familiar names: Public Bank (RM38 billion), Malaysian International Shipping Corporation (RM37.1 billion), Bumiputra-Commerce Holdings (RM36.4 billion) and Telekom Malaysia (RM35 billion).

For IOI Corp to come this far is a tremendous feat; it was nowhere near such exalted heights, say, twelve years ago.

How it did so is what a soon-to-be-created entity called Synergy Drive might want to research.

To be sure, high palm oil prices was the immediate trigger that pushed IOI Corp shares up last Friday: the benchmark crude palm oil futures contract hit RM2,776 a tonne and seems poised to test the record RM2,800 mark soon.

But more importantly, IOI is superbly managed. On almost all counts, it boasts better efficiencies and superior returns on its assets - whether in plantations, property, oleochemicals manufacturing, even hotel management. Stripped of the rhetoric, it has what securities house CLSA calls 'a solid management track record'.

The company is now the world's largest producer of oleochemicals from palm oil - courtesy of acquisitions of Dutch and Indian refineries this year and last - and made a net profit of RM1.48 billion on RM8 billion of sales for its 2007 financial year against consensus earnings forecasts of RM1.3 billion odd. And it remains a top pick for institutional investors.

Some time in November, Synergy Drive will be listed. It represents a work in progress that had its seeds in a plan presented to Prime Minister Abdullah Ahmad Badawi by businessman Chua Ma Yu in 2003. His plan was simple: take six plantation firms owned by the state agency and merge them to create the world's largest listed oil palm company with 5 per cent of global palm oil supply, over 600,000 hectares of land and, conceivably, Malaysia's biggest firm in terms of value. Investment bank CIMB took Mr Chua's idea and ran with the ball, promoting the merger last year and the result next month will be Synergy Drive, which is likely to be renamed Sime Darby.

Synergy is likely to become the biggest firm in the country upon listing: its sheer size and euphoria over high palm oil prices will ensure that outcome. Indeed, preliminary estimates of Synergy's market capitalisation are anything between RM60 billion and RM70 billion. But can it stay that way?

Given the cyclical nature of the oil palm business, that is unlikely. Even so, Synergy Drive can do a whole lot more. The whole idea behind the merger plan was to increase productivity in Malaysia's palm oil industry, to increase the country's competitiveness to face challenges thrown up by new Asian investment magnets, particularly China and India.

For the longest time, the companies that make up Synergy - from Sime Darby to Golden Hope - have consistently underperformed companies like IOI Corporation. On every conceivable performance index - from yield per hectare to return on assets - the state-owned plantation companies have lost out to IOI.

If they could get even close, the results would be astonishing. Here's one statistic to chew on: Last year, IOI produced 806,627 tonnes of crude palm oil while Synergy's combined output was 2.1 million tonnes. If it does get its act together a la IOI, its production will be a whole lot higher. And Malaysia would truly have a world-class brand.

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