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Malaysia Daily Bulletin – 16/01/13

Filter Expects To Go Slow With New Green Palm Oil Mill JVs
Fitter Diversified is expected to “go slow” with the signing of new third party green palm oil milling joint ventures, given the depressed prices of its end-product, which is dried long fibre; said RHB Research. The company’s bottom line could be affected. This is mainly attributed to one out of the three earnings drivers of its business model, namely the offtake spread due to the weakening in prices of the predominantly China-bound dried long fibre. As a result, Fitters has explored new markets for its dried long fibre in order to reduce its reliance on China. “Over the longer term, there are also plans to put in more investment so that the dried long fibre produced can be processed further into biofuel pellets that are highly in demand in Europe and enjoys better and more stable pricing,” the company added.

Significance: The softening of the dried long fibre prices is believed to be temporarily. The situation should normalise once the prices recover at the back of a stronger manufacturing and export sector in China, RHB Research said.

MAHB Team Up With YTL In UK Airport Bid
Malaysia Airports Holdings (MAHB) and YTL Corporation are putting together a firm in 80:20 equity structure to bid for UK’s Stansted Airport which is believed to be valued at around one billion pounds. Heathrow Airport Holdings, or formerly known as BAA; is tendering the bid for the low-cost carrier terminal to satisfy competition concerns after a four-year battle with regulators. If their bid is successful, it will add to the list of Malaysian corporate acquisitions of iconic UK assets, following last year’s acquisition coup by the SP Setia-Sime Darby-Employees Provident Fund consortium of the Battersea Power Station project. According to a source, Stansted is attractive because it is the only airport among the three in London which is not facing capacity constraints. It can also build additional runway to cater for future growth of passengers. Besides that, there is also no immediate need for additional funds for expansion since the current capacity utilisation is only 65 percent.

Significance: The bid would be a major coup for both companies as Stansted is already a profitable operation and holds growth potential. It would also give MAHB access to the European markets.

HLFG Offers To Take HLC Private
Hong Leong Financial Group (HLFG) is taking its 79.09 percent owned unit Hong Leong Capital (HLC) private as it offers to acquire the remaining stake at RM1.71 per share or approximately RM67 million in total. Upon completion of the exercise, HLFG plans to delist HLC from Bursa Malaysia. The offer price represents a premium of 20.4 percent based on the last trading price of RM1.42 before the counter was suspended at 11 January, Friday. Through the injection of assets from HLC, Hong Leong Bank (HLB) would be able to transform into a full-fledged universal bank. Analyst believe there might be synergies in term of cost savings via the sharing of resources and lower financing cost for HLC by virtue of HLB’s strong credit rating. The strategic restructuring could also be done to comply with the Financial Services Act, which is due to be gazetted.

Significance: Although the deal is positive to HLB’s future earnings, the stock still facing several risks, such as weak loans growth, expected upturn in credit costs, and highest PE multiples among its peers.