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Stocks In Focus MY (DiGi.Com, Eco World, Fitters Diversified) – 05/03/15
DiGi.Com Announces 3 Year Strategy Plan
DiGi.Com incoming chief executive officer Albern Murty said that the company has a 3-year strategy plan to become the best mobile Internet provider for the mass market, which is proceeding nicely. A key component of the strategy was to concentrate on improving customer experience, expanding and upgrading network coverage and quality via partnerships to provide the seamless experience to users. It was noted that a significant portion of its budgeted RM900 million capital expenditure will be allocated for this.
Smartphone penetration reached nearly 50 percent for the group last year and data revenues contributed 40 percent of its overall service revenue in 4Q14. The firm anticipates a low to mid-single digit service revenue growth this year and hopes to maintain the earnings before interest, tax, depreciation and amortisation of 45 percent it reported in 2014. Competition was fierce despite the surging demand for Internet in the country and Murty said that the company will meet this challenge by coming up with the right price and packaging.
Outgoing CEO Lars Ake Norling said the firm was still ironing out the details when asked on the progress of the business trust it planned to implement. He reported that it has made some progress but it will need more time as a result of the many tedious processes involved. The business trust is planned to improve the telco’s capital efficiency and return excess cash to shareholders.
Significance: Despite challeges in the industry, Murty is fairly optimistic that the company will be able to take advantage of strong demand in mobile data to increase earnings despite analyst warnings of a competitive market price with irrational pricing.
Eco World’s Rights Issue And Free Warrants Viewed Positively
Eco World Development Group shares went ex for a 1-for-2 rights issue (at RM1.20 per share) with 4 warrants-for-5 rights shares (seven years to expiration and exercise price of RM2.08) yesterday, thus raising the company’s paid-up capital to 2 billion shares. This exercise comes right after a 1-into-2 share split in January and a RM3.8 billion acquisition of landbank from Eco World (EWSB) in February. The next milestone will be a proposed 20 percent share placement scheduled for completion in 2Q15.
CIMB Research has a positive outlook on the firm’s rights issue with free warrants as it will raise RM788 million, thus lowering its gearing to around RM1.2 billion. The firm’s gearing will be reduced even more when its 20 percent private placement is concluded, which will increase its paid-up capital 2.4 billion shares and boost its stock’s liquidity.
The group has yet to finalise the acquisition of 470 acres of land in Batu Kawan Penang, which will make it one of the larger land owners in that growth corridor. Meanwhile the successful acquisition of EWSB’s landbank on 6 February has consolidated all the Malaysian landbanks of the firm, thus reinforcing it’s position as the flagship development arm of Tan Sri Liew Kee Sin and family. At the same time, landbanking efforts with the 4 February completion of the Pudu Jail joint venture will continue to drive the group’s share price.
Significance:CIMB Research maintains an ‘Add’ on the group, with a higher target price of RM2.60 despite its decent year-to-date share price performance since it was one of the few developers that withstood the softening sales trend in 2014. The company continues to be one of the research house’s top picks in the sector and is believed to have a good chance of repeating that outperformance this year. Potential re-rating catalysts include strong new sales and continuous landbanking.
Fitters Buys Plaza Pekeliling for RM28m
Fitters Diversified entered into a sale and purchase agreement with GCP Tower to acquire the 33-year old Plaza Pekeliling on Jalan Tun Razak in Kuala Lumpur for RM28.3 million, with plans to redevelop it into a small office/home office (SOHO) building, subjected to the consent of the Economic Planning Unit of the Prime Minister’s Department.
The company said that it is pleased to have the chance to develop another project in a strategic location as a niche developer. It feels its experience in developing Zetapark City at Setapak will make it better able to create SOHO products for value discerning consumers.
According to the firm, the purchase price was offered after taking into consideration, inter alia, the strategic location of the property and the market value of the office building in the surrounding vicinity. No valuation was carried out on the property and funding for the acquisition will be through internally generated funds and/or bank borrowings.
Significance: The group feels that the acquisition gives it an opportunity to grow its property development and construction business and is anticipated to contribute positively to its future earnings.
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