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ASEAN STOCK WATCH Asean Affairs   11 July 2012

Asean Outlook

By Shayne Heffernan Ph.D.

U.S. stocks declined for a fourth day, giving the Standard & Poor’s 500 Index its longest losing streak since May, amid concern about corporate earnings.

Oil prices extended losses in the afternoon with Brent crude falling back below $100 a barrel after data showed China imported less crude oil last month, while Norway's government ordered an end to an oil workers' strike that had threatened production.

Germany's top court began a hearing into whether the euro zone's fund, known as the European Stability Mechanism, and planned changes to the region's budget rules are compatible with German law.

German Finance Minister Wolfgang Schaeuble told the court that any significant delay in approving the measures could fuel financial market turbulence. Spanish and Italian government bond yields eased, while European stocks ended up nearly 1 percent.

Approval would pave the way for funds to be used more flexibly to ease the European debt crisis, but a delay of more than a few weeks would slow an already protracted process of implementation of the key bailout fund, and possibly pressure the euro and equities.

Concern about the outlook for corporate profits helped the market reverse earlier gains. Profits for S&P 500 companies fell 1.8 percent in the second quarter.

Bangkok Dusit Medical Services Plc

The Civil Court will on September 3 attempt to broker a compromise in a case in which a Japanese woman has sought Bt82 million in damages from Bangkok Hospital for burns she received from faulty equipment while giving birth.

Mikayo Ito is demanding that Thai Stock Exchange Listed Bangkok Dusit Medical Services Plc, the attending physician, Dr Theera Watcharapreechanont; and Covidien (Thailand) Ltd, the importer of the faulty tourniquet machine used during the delivery, jointly pay her damages.

Third-degree burns on Mikayo Ito were large, measuring 15cm by 30cm and running from under her right breast down to her right thigh prevented her from living a normal life.

None of the three defendants appeared at a session yesterday, claiming they had yet to finish written defense statements, and requesting a compromise settlement.

Today in the USA, The FDA warns that the Onyx liquid embolic system made by Covidien subsidiary ev3 may be linked to 9 patient deaths due to delivery catheters that became stuck in patients’ brains.

Olam International

Olam International, a company which specializes in agro-processing and crop buying, was identified duringthe Tanzanian Prime Ministers Mizengo Pinda tour to the company recently.

The premier was told that the company would use drip irrigation where some 2,000 acres have been allocated for farming of Arabica coffee with prospects of producing 5,000 tonnes of coffee per annum, mainly for export.

Olam International is well known for producing and buying farm crops from about 65 countries worldwide. It has through its subsidiary, AVIV Tanzania Limited, benefited from a ten-year tax waiver to produce coffee for exports from the Export Processing Zones Authority (EPZA).

"We kindly ask the government to continue supporting us in this project which would go long way in boosting the economy through agriculture," AVIV Tanzania Project Manager, M. G. Meddapa, told the premier.

The manager said the major challenge facing the project was lack of electricity at the area, with power distribution lines as far as 46 kilometres from the village. In response, Mr Pinda said the government would continue supporting local and foreign investors since "they were the engine of the economy."

The premier also advised villagers around the plantation to use it as a demonstration farm that would help them improve their farming practices. The land policy in Tanzania puts the government as the owner of all land but it can be leased under a set period for development.

Mr Pinda pledged a contribution of 10m/- to villagers of Lipokela if they formed a saving and credit cooperative society that would help them improve production. For her part, Peramiho Member of Parliament, Ms Jenista Mhagama, pledged a power tiller to the farmers while Ruvuma Regional Commissioner, Mr Said Mwambungu, promised 200 litres of oil for the power tiller.


IOI Corporation Bhd (IOI Corp) is to see a rise in its net gearing to 42 per cent from 26 per cent (shown in its balance sheet as at March 31 this year), effectively making the new gearing the highest among big cap planters.

The group, with a market capitalisation of RM33.7 billion, has priced its US$600 million Guaranteed Senior Notes (GSNs) due 2022 at a price of 99.288 per cent to yield 4.464 per cent.

The GSNs are denominated in US dollars and will bear a fixed interest of 4.375 per cent per annum, with semi-annual interest payment.

In a research note yesterday, Kenanga Investment Bank Bhd (Kenanga Investment) analyst Alan Lim indicated that the transaction was nine times oversubscribed with an order book of US$5.2 billion.

“Effectively, IOI Corp’s net gearing will be the highest among the big cap planters, exceeding Sime Darby Bhd’s 22 per cent and Kuala Lumpur Kepong Bhd’s eight per cent.

“Out of the total RM1.88 billion raised, we believe that about RM800 million will be used to finance the company’s purchase of the 6.03-acre land in Clementi, Singapore.

“Another RM500 million could be used to repay its S$200 million term loan due in May 2013. We expect the balance of RM580 million could be used to expand its business in either plantation or property.

“We prefer if the balance is used for buying more plantation land, rather than for property landbanking in Singapore because we observe that IOI Corp has been de-rated since its foray into Singapore’s property market.”

In a telephone conversation with The Borneo Post, Lim explained that the plantation sector commanded a higher price earning (PE) as compared with the property sector, making the former more attractive in terms of potential returns.

On the future outlook for the group, he pointed out that a limited fresh fruit bunch (FFB) growth prospect; compressed margin in the downstream division and the unexciting outlook of Singapore’s property market could limit the share price upside.

He noted that 89 per cent of the group’s oil palm trees were mature, thus accounting for the limited growth path for FFB production as yield had declined from 28.54 metric tonnes (mt) per hectare (ha) in financial year 2008 (FY08) to 23.7 mt per ha in FY11.

The analyst opined that FY13 estimated (FY13E) interest cost should increase by about RM83 million or less than five per cent of its FY13E total earnings.

Nonetheless, he maintained Kenanga Investment’s in-house FY12E to FY13E core net profits of RM2.05 billion to RM2.12 billion, ‘pending further details from management on fund utilisation’.

Remaining optimistic on the group, Lim noted that the valuation of 15.9 times FY13E price earnings ratio (PER) was fair at the current juncture given its unexciting FY12 to FY13E core earnings growth of six to three per cent.

He also noted the key risks to the forecast: a sustained drop in crude palm oil (CPO) prices as well as lower than expected margin from the downstream or property divisions.

In conclusion, Lim maintained Kenanga Investment’s target price for the group at RM5.35 per share, based on forward PER of 16.2 times on an unchanged FY13E earnings per share of 33.1 sen.

Keppel Corp

Through a private placement of new equity, Keppel Corporation has acquired a 20% shareholding in KrisEnergy Ltd ('KEL') for US$115 million. KEL previously was held 100% by parent company KEHL, whose major shareholder is an investment fund sponsored by First Reserve Corporation, a leading global investment firm dedicated to the energy industry.

Keppel Corporation's Chief Executive Officer Choo Chiau Beng and Chief Financial Officer Loh Chin Hua have been appointed to the Board of KrisEnergy as non-executive directors.

Keith Cameron, KrisEnergy's Chief Executive Officer, commented: 'Keppel Corporation's strategic positioning is a validation for KrisEnergy and will support our growth, as Keppel is the world leader in offshore rig design, construction, as well as repair, and it has enormous technical resources as well as global reach.'

Continuing as the majority shareholder in KrisEnergy, First Reserve believes that the addition of Keppel Corporation will bring strong synergies and greater opportunities for the growth of KrisEnergy, which already has solid prospects and high success rates in an attractive and dynamic region of the world.

Will Honeyborne, KrisEnergy's Non-executive Chairman and a Managing Director for First Reserve, said:

'We welcome Mr. Choo Chiau Beng and Mr. Loh Chin Hua and look forward to their contributions as valued members of our Board of Directors. Their insight and knowledge will be highly complementary to that of the experienced and well-respected KrisEnergy management team and Board. Furthermore, on behalf of First Reserve, we believe that the growth of KrisEnergy will be enhanced by Keppel as our investment mantra is not just about adding capital; our role is creating value by backing world class management teams such as KrisEnergy that have a history of building strong companies. Keppel's global reach, advanced technologies, and experience as one of the world's largest offshore and marine groups are expected to contribute to the ongoing success of KrisEnergy.'

Mr Choo Chiau Beng, CEO of Keppel Corporation said: 'As an investor, we believe that KrisEnergy's portfolio has long-term growth potential and could offer sustainable returns over the long run.'

Read more:

Yesterday in Asia

Tokyo ended 0.44 percent, or 39.15 points, lower at 8,857.73, while Sydney finished 0.49 percent, or 20.3 points, down at 4,098.0, and Seoul was off 0.36 percent, or 6.68 points, at 1,829.45.

Shanghai closed down 0.29 percent, or 6.37 points, to 2,164.44, while Hong Kong was off 0.16 percent, or 31.73 points, to end at 19,396.36.

– Taipei fell 0.80 percent, or 58.61 points, to 7,251.35.

Hon Hai Precision lost 1.96 percent to Tw$90.1 while Taiwan Semiconductor Manufacturing Co. ended 1.13 percent lower at Tw$79.1.

– Wellington fell 0.44 percent, or 15.47 points, to 3,464.72.

Fletcher Building was down 1.6 percent at NZ$6.10, Telecom Corp. was up 0.4 percent at NZ$2.25 and Air New Zealand held steady at NZ$0.91.

– Manila closed 0.45 percent, or 23.46 points, lower at 5,240.28.

Ayala Land Inc. fell 2.55 percent to 21.05 pesos while Banco de Oro remained unchanged at 62.25 pesos.

– Singapore closed up 1.21 percent, or 35.54 points, to 2,964.62.

Olam International gained 3.00 percent to Sg$1.89 and Singapore Telecommunications added 1.81 percent to Sg$3.37.

– Kuala Lumpur stocks ended 0.29 percent, or 4.73 points, higher at 1,624.29.

Kuala Lumpur Kepong rose 0.9 percent to 24.12, IOI Corp added 0.4 percent to 5.26 and Sime Darby gained 0.1 percent to 9.94.

– Jakarta closed 24.63 points, or 0.62 percent, higher at 4,009.68.

Aneka Tambang rose 2.24 percent to 1,370 rupiah, Indofood was up 6.8 percent at 6,300 rupiah and Telkom jumped 3.1 percent to 8,250 rupiah.

– Bangkok rose 1.47 percent, or 17.47 points, to 1,204.42.

Banpu gained 1.77 percent to 460 baht, while PTT added 1.53 percent to 332 baht.

– Mumbai rose 1.30 percent, or 226.37 points, to 17,618.35.

Aluminium producer Hindalco rose 2.74 percent to 127.6 rupees while mobile phone firm Reliance Communications was up 6.59 percent at 71.15 rupees.

Shayne Heffernan Ph.D.  

Linda Johnson, Business Development Director - Private Client Group, Heffernan Capital Management
3 Raffles Place #07-01
Bharat Building Singapore 048617
Tel: +65 6329 6408 Fax: +65 6329 9699
Email :
Suite 53 Athenee Tower
63 Wireless Road, Lumpini, Pathumwan, Bangkok 10330
New York 347 5th Avenue, Suite 1402-508 NY, NY 10016


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This year in Thailand-what next?

AseanAffairs   04 January 2011
By David Swartzentruber      

It is commonplace in journalism to write two types of articles at the transition point between the year that has passed and the New Year. As this writer qualifies as an “old hand” in observing Thailand with a track record dating back 14 years, it is time take a shot at what may unfold in Thailand in 2011.

The first issue that can’t be answered is the health of Thailand’s beloved King Bhumibol, who is now 83 years old. He is the world's longest reigning monarch, but elaborate birthday celebrations in December failed to mask concern over his health. More


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