Reports » Malaysia

Malaysia stock market and companies daily report (January 31, 2013)

Contributed by Shares Investment

HLA Receives Final Rating Of AA3 From RAM
Malaysia’s RAM Ratings had assigned a final long-term rating of AA3 for Hong Leong Assurance’s (HLA) proposed Subordinated Notes Programme of up to RM500 million. The company’s respective long and short-term claims-paying ability (CPA) ratings of AA2 and P1 respectively have also been reaffirmed. These ratings reflect HLA’s established franchise in the life-insurance segment, the high persistency rate of its products, the company’s strong liquidity profile and its ability to leverage on the distribution network of Hong Leong Bank. HLA is the insurance arm of the Hong Leong Financial Group which provides strong financial flexibility to the former. While HLA’s share of the life segment is only 5 percent, it has been gaining traction in attaining new business for regular premium products, thus achieving the third ranking among life insurers in the first half of 2012. Nonetheless, the company’s drive for accelerated growth may demand a greater need to replenish its capital given that it aims to keep its risk-based capital-adequacy ratio (CAR) above 200 percent.
Significance: With the issuance of its proposed Subordinated Notes Programme, HLA’s financial leverage ratio may increase to 47 percent while its risk-based CAR may be boosted to about 212 percent. However, its tier-1 risk-based CAR will remain at 165 percent given that the increased capital is to be funded by debt.

APM In JV With Tachi-S To Expand Car Seat Business
APM Automotive Holdings’ wholly-owned subsidiary, Auto Parts Holdings (APH) Sdn Bhd entered into a joint venture (JV) with Tachi-S (Thailand) Co Ltd to develop, manufacture, assemble and sell automotive seats for original equipment manufacturers in Malaysia. APM announced yesterday that the new JV company, APM Tachi-S Seating Systems will have an authorised share capital of RM5 million which equals to 5 million ordinary shares at RM1 each. The JV company’s initial issued and paid-up capital is set at RM3.5 million. APH will hold 60 percent equity interest (2.1 million shares), while Tachi-S will retain the remaining 40 percent (1.4 million shares). “The total capital and investment outlay of APH amounting to RM2.1 million will be financed through internally generated funds,” it was added. “The JV between the two car-seat makers will enable both parties to leverage each other’s knowledge and experience to bring about greater synergy in their expertise and know-how in the design, development, manufacture and assembly of car seats.” said in the announcement.
Significance: According to RHB Research, initial contributions stemming from the JV would be insignificant for the next one to two years as it requires some time to gain traction. The JV however would be a major advantage for APM in the long-term if Tachi-S can provide added technological support to increase the product value-add.

Eversendai Eyes Azerbaijan Deal
Eversendai Corporation is targeting a structural steel contract estimated at over RM300 million for the construction of the world’s tallest skyscraper, Azerbaijan Tower. The US$2 billion, 189-storey tower is a project launched by Avesta Group of Companies. The project is expected to be completed by 2019. Upon completion, the Azerbaijan Tower will tower over Dubai’s Burj Khalifa by 220 metres, and Saudi Arabia’s Kingdom Tower by 50 metres. If Eversendai wins the contract, it will be the second contract the structural steel specialist secures this year, which would boost its current order book to RM2 billion. Earlier this month, Eversendai won a RM325 million contract to undertake a structural steel project at the Abu Dhabi International Airport. Eversendai is also expected to secure a few contracts within Malaysia, for projects such as the Refinery and Petrochemical Integrated Development (Rapid) project by PETRONAS, Warisan Merdeka tower and several coal-fired plants. The projects could easily be worth over RM1 billion for the company.
Significance: Analyst noted that the contract will mark a new mile-stone for Eversendai, which is a leading integrated structural steel turnkey and power plant contractor. Further upside for the stock is expected given its earnings visibility, ventures into oil and gas support services as well as potential to secure more contracts in the Middle East and India.