Ahad, 28 April 2013

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The Star Online: Business

Maverick operator Digicel takes on the big boys in Myanmar

Posted: 28 Apr 2013 06:54 PM PDT

SINGAPORE: Cellular operator Digicel Group Ltd jumped into Myanmar early and big, hiring staff, funding local sports, negotiating land deals for thousands of cell tower sites and signing up hundreds of partners for retail outlets.

The strategy helped propel it onto the shortlist for a mobile license in one of the world's last mobile frontiers, putting an operator that ranks 65th globally in terms of customers up against giants such as Vodafone Group Plc.

Whether its strategy pays off or not, industry insiders say, Digicel, largely unknown outside the Caribbean and some Pacific islands, has shaken up a usually conservative industry.

"They have been a disruptive force," said Roger Barlow, a Hong Kong-based telecommunications consultant who has worked in Asia for more than 25 years. "Some of the big guys tend to look down their noses at them but they shouldn't because they're becoming a credible player."

Myanmar this month short-listed 12 consortia for two licenses it plans to grant foreign operators in late June. The government wants to expand mobile penetration from less than 4 percent to up to 80 percent by 2015-16.

While Digicel is up against behemoths such as Vodafone, China Mobile Ltd and Telenor ASA, several other big players failed to make the list - among them South Korea's SK Telecom Co Ltd and Egypt's Orascom Telecom Holding SAE.

It's a vindication of sorts for Digicel's long-term approach. Business development director Frank O'Carroll led the charge into Myanmar in 2009. In early 2012 he persuaded the company to commit funds to build a local brand and prepare the ground so that if it did get the go-ahead it could roll out a service in a matter of months.

That entailed deploying hundreds of workers across the country to negotiate thousands of leases for base station sites, months before the government had even begun the tender process.

"There's not one square inch of the country we haven't been in," O'Carroll said in an interview in Singapore.

Its sponsorship of the national football federation has built brand awareness - of sorts. Lots of locals have heard of Digicel, O'Carroll said, though at least initially they were as likely to think it's a brand of battery as a cellphone operator.

It's a strategy, he said, that Digicel has been pursuing in much smaller markets for more than a decade.

"What we are doing in Myanmar is not unique to Myanmar," said O'Carroll. "The first country that Digicel as a company looked to get a license was Trinidad and Tobago. We did very the same thing. We were there, we leased the land, we rented local offices, we started a local team, sponsored big sports."


Digicel has since set up shop in 31 markets, gaining 13 million customers. While none boasts a population above 10 million people, the company has taken on some major rivals, including America Movil SAB, Vodafone, Telefonica and Cable & Wireless.

"I don't think there's any fantastic science to it, but I do think it's our ability to move fast because we're small, we don't have this complex machinery that takes months and months to make decisions," said Vanessa Slowey, Singapore-based CEO of Digicel Asia Pacific, in an interview.

Making those decisions is Digicel owner Denis O'Brien, an Irish billionaire who first focused on small markets in the Caribbean after noticing that spectrum was being auctioned off in Jamaica. Eventually the Pacific beckoned.

Telecoms executive David Borrill recalls meeting O'Brien in his office after three years working for the incumbent operator in Samoa. "He went straight over to his library and opened the biggest atlas he had, turned to the Pacific and said, 'Tell me about this, where would you put an office here?'"

A few weeks later Borrill was back in Samoa, this time working for Digicel. The company bought out Telecom New Zealand's stake in the incumbent operator in 2006, and within six months had more than doubled its customer base.

Last financial year the company reported revenue of $2.5 billion, year-on-year growth of 14 percent and EBITDA of $1.08 billion, up 13 percent. It has 87 percent market share in Haiti, at least 75 percent in Jamaica and 92 percent of Papua New Guinea, according to Bank of America Merrill Lynch.

"Digicel is very astute in selecting the markets it enters," said John Hibbard, an Australia-based telecoms consultant. "It has to be convinced it will win a reasonable market share."

When it isn't, it's prepared to abort. In East Timor, for example, Digicel went so far as building cell towers, and assured the government that if granted a license it could cover more than 90 percent of the population within four months.

But, Digicel said, the government dragged its feet and ignored advice to issue only one license. So when it did eventually win one of the two on offer last year, Digicel turned it down. "Why would we invest $50 million to compete with two other operators, for the 40 percent that is left? It's crazy. So we handed our license back," said O'Carroll.

Digicel sold its assets to the other licensee Telin, a unit of Indonesia's PT Telkom. The company broke even on its Timor investment, said Digicel's Slowey, without giving details.

Such an approach is at odds with the industry's more conservative approach, where investment decisions must be highly rational and based on certain outcomes.

"Digicel doesn't have the institutional memory of other telcos," said Rob Bratby, a Singapore-based telecoms lawyer with Olswang LLP. "It's an example of a company with a different mental framework."


Digicel, however, has not had a free ride in Myanmar. The government turned down its proposal in 2012 to set up a joint venture with the incumbent operator, Myanmar Posts and Telecommunications, in favor of an open tender.

That has meant facing the diplomatic and financial muscle of some of the world's biggest and best-connected operators, prompting Digicel to take on its own partners: Yoma Strategic Holdings, owned by Serge Pun, a powerful businessman who, unlike many tycoons in Myanmar, isn't entangled in Western sanctions. The other member of the consortium: Quantum Strategic Partners, owned by financier George Soros.

The Soros-funded Open Society Foundations have long worked with exiles, refugees and dissidents, according to its website. Last year Soros said he would set up an office in Yangon.

Digicel shrugs off criticism that it lacks the experience of working in big markets like Myanmar, arguing that it's harder to work in lots of countries, whatever their size. Among the shortlistees, only France Telecom SA matches Digicel in the number of markets covered.

"Whether it's the smallest country in the world you deploy in or the largest, it's still the same building blocks, still the same issues that you must go through," said O'Carroll. "A lot of those same things, whether it's Nauru's 9,000 people or Myanmar's 60 million, we think are going to be identical." - Reuters

All Nippon Airways resumes flying Boeing’s Dreamliner

Posted: 28 Apr 2013 06:50 PM PDT

TOKYO: All Nippon Airways, the Japanese launch customer for Boeing Co's 787, has flown its first Dreamliner in more than three months to test reinforced batteries installed by the US aircraft maker.

The ANA flight yesterday was the second by an airline since aviation regulators on Friday gave permission for 787 operations to restart after batteries on two of them overheated in mid-January. One was on an ANA plane in Japan and another on a Japan Airlines jet parked at Boston's Logan airport.

Ethiopian Airlines on Saturday became the world's first carrier to resume flying Dreamliner passenger jets since the global fleet was grounded three months ago, carrying passengers to neighboring Kenya from Ethiopia.

The ANA flight, with company president Shinichiro Ito and Boeing's chief of commercial aircraft, Ray Conner, among those on board, left Tokyo's Haneda airport at 8.59am local time. It returned without incident at 10.54am, a spokesman for the airline said.

ANA plans at least 230 test flights through May before resuming commercial operations. In addition to the battery fix approved by the Federal Aviation Administration in the United States, Japan's Civil Aviation Bureau has requested its airlines monitor the battery current while the jet is in the air and inspect used batteries.

ANA owns 17 of the 50 Dreamliners, which have been grounded since mid-January, while local rival JAL has seven of the carbon composite aircraft in its fleet.

JAL will start test flying its Dreamliners early next month with the aim of returning to normal operation in June.

Neither Japanese carrier, which on Tuesday will release their earnings results for the three months that ended March 31, have said how much the 787 grounding has cost them in lost revenue. - Reuters

Daibochi still rated an ‘outperform’

Posted: 28 Apr 2013 06:46 PM PDT


By CIMB Research

Outperform (maintained)

Target Price: RM3.68

NET profit-wise, first quarter 2013 was a record quarter for Daibochi.

Annualised first quarter 2013 net profit, forming 101% of our financial year 2013 forecast, was in line with market and our expectations.

We continue to like its defensive industry, with long-term growth anticipated for its food and beverage export market.

We maintain our earnings per share forecasts and "outperform" rating.

Our price to earnings valuation is re-rated upwards to the target market price to earnings of 13.5 times (previously at a 20% discount) in view of better earnings growth prospects over the next few months after the sharp decline in oil prices over the past three weeks.

Three-year earnings per share compounded annual growth rate is 14.2% compared to the market's 9%.

Dividend yield remains attractive at 5%.

Higher-than expected export orders and further declines in raw material costs could catalyse the stock.

First quarter 2013 revenue was up 6.7% due to higher sales volume. However, first quarter 2013 net profit was up a whopping 36.5%, mainly due to lower raw material costs, a better product mix and stronger waste management controls during the quarter.

First quarter 2013 dividend per share of 4 sen was in line with our expectation.

Daibochi's long-term earnings growth is expected to come mainly from the food and beverage export markets in Asean and also in Australia. Even though its non-food and beverage business is still small now, we expect the company to make further inroads into the medical glove, tobacco and electric and electronic segments in 2013.

Raw materials comprise 75% of Daibochi's operating costs. These materials include polyester and polyethylene films. As these materials are mainly derivatives of crude oil, their prices track crude oil prices quite closely. Crude oil prices fell as much as 13% over the past three weeks. Further declines in oil prices will be positive for the company.

Daibochi's profit margin usually benefits from sharp declines in raw material prices. PETRONAS CHEMICALS GROUP BHD

By HwangDBS Vickers Rsearch

Hold (maintain)

Target price: RM5.90

PETRONAS Chemicals Group Bhd (PChem) announced that its joint venture (JV), BASF Petronas Chemicals (PChem: 40%, BASF:60%) intends to invest US$500mil (about RM1.5bil) in an integrated aroma ingredients project at its existing plant in Gebeng, Kuantan.

The integrated aroma chemicals complex will tap into the flavours, fragrance and pharmaceuticals markets, offering aroma ingredients such as citral, citronellol, L-menthol, which are widely used in these industries. Production will be developed over several phases and the first plants are expected to be operational by 2016.

We are positive on the expansion as the new plant will enable PChem to leverage on BASF's globally-renowned expertise in aroma ingredients. PChem will invest RM600mil based on its 40% stake in the JV, which could be easily funded via its RM9.3bil net cash position.

The investment underlines BASF commitment to its existing relationship with PChem despite pulling out from Petronas' Refinery and Petrochemical Integrated Development (Rapid) project in Pengerang early this year.

There is no change to our earnings forecast given the long gestation period for the project which is still subject to the JV's board final investment decision approval by end-2013. We maintain our "hold" rating with RM5.90 target price pegged to 13 times financial year 2013 earnings per share.

There is unlikely to be any near term catalyst for PChem given the weak external demand. Muted capacity growth over the next two years will make its earnings susceptible to volatile oil prices, despite healthy margins from favourable feedstock costs.


By Affin Investment Bank

Add (maintain)

Target Price: RM6.55

TWO new hospitals, KPJ Pasir Gudang and KPJ Sabah, are on track to commence operations in second quarter (2Q) 2013.

The two hospitals are built with a total bed capacity of 120 beds and 250 beds, respectively.

However, KPJ Pasir Gudang will only start operating with 60 beds initially while KPJ Sabah will start with 80 beds. Both hospitals are part of the group's program in riding on the country's medical tourism potential as underpinned by the Economic Transformation Programme (ETP) strategic thrust.

KPJ Klang is the first greenfield hospital under the ETP medical tourism initiatives to commence operation in May 2012 with an initial capacity of 90 beds.

While revenue contribution from the medical tourism segment is still small (less than 5% in financial year ended Dec 31, 2012), KPJ has taken various steps to enhance its knowledge and penetration in the segment, including collaborations with hospitals within Asean region for the services of doctors, promoting its services and employing agents to bring in patients.

Under the ETP, the government targets to attract up to one million health travellers by 2020.

Given KPJ's existing expansion coupled with its recent proposed acquisition of Rawang Specialist Hospital, the group will soon be operating 23 hospitals in Malaysia. This will take the group's total number of hospitals to 25, including its two hospitals in Jakarta.

The Rawang Specialist Hospital will cost the group RM50.6mil, which will be internally funded. This hospital, which has the license to operate 159 beds will be the only multi-discipline specialist hospital within Rawang and its surrounding proximity, and is expected to commence operation in second-half 2013.

While KPJ is open to merger and acquisition activities (M&As), its main strategy is still to grow the group organically.

With the proposed acquisition, we have rasied our capital expenditure (capex) assumption to RM250mil in financial year ending Dec 31, 2013 (from RM200mil previously). With a strong assets expansion in the pipeline, we gather that the group will require a capex of up to RM1bil over the next four years.

We expect KPJ to likely raise funds for the expansions either via bank borrowings or issuance of bonds riding on the competitive rates.

Group's gearing level remains low at 0.3 times currently, indicating that it has room to gear up for expansions. Despite a relatively massive annual capex of RM200mil to

RM250mil, we expect KPJ to generate positive free cash flow of about RM100mil a year. As such, we believe KPJ is able to maintain its dividend payout ratio of about 50% which translates into a net yield of circa 2%.


By Maybank IB Research

Buy (Upgraded)

Target Price: RM6.10 (from RM5.60)

WE are upgrading IJM Corp to "buy".

The crystalisation of major construction job wins by the end of this year, record-high property sales, strategic property landbanks with high capital appreciation potential and an expansion at its Kuantan Port are not fully reflected in IJM Corp's share price, in our view.

We fine-tune our earnings forecasts post housekeeping, and raise our realisable net asset value-based target price by 9% to RM6.10.

Current valuations, at 13.2 times calendar year 2014 (CY14) earnings, are below its long-term mean of 14 times. Our new target price implies a CY14 price-earnings ratio (PER) of 14.7 times.

Having inked the West Coast Expressway (WCE) concession in Jan 2013, the next milestone is to achieve financial close in nine months' time, after which construction can begin.

The announced project value is RM6bil; we estimate the construction value is over RM5bil.

Elsewhere, Kuantan Port's new deepwater terminal offers sizeable works worth a few billion ringgit.

These two contracts, if secured in full by IJM Corp's construction division, will substantially replenish its current outstanding order book of about RM2.8bil.

IJM Land's new property sales of RM1.8bil in financial year ended March 31, 2013 (FY3/13) were the highest ever, up 33% year-on-year (y-o-y).

Its internal sales target for FY3/14 is at least RM2bil, to be supported by maiden launches at new developments Bandar Rimbayu, Pantai Sentral Park and PARC3 @ Jln Raja Laut, all in the Central region.

The commercial precinct (Phase 2) of The Light in Penang will be launched post reclamation works (ending soon), and offers potential gross development value (GDV) of RM5bil.

IJM Land has a sizeable undeveloped landbank of 6,200 acres with a GDV potential of RM38bil.

Kuantan Port's expansion will come with a new deepwater terminal, an extension to its concession period, about 700 acres of new industrial land and a new Chinese shareholder (Guangxi, 40%).

The port's handling capacity will double, supported by new throughput volumes with Guangxi to introduce investors for a steel mill, aluminium processing and edible oil processing plants.

We view this positively despite IJM Corp's selldown of its stake to 60%.

The port's 19% FY3/09-12 throughput compounded annual growth rate (CAGR) is testimony to its growing prominence.

Its outstanding construction order book is RM2.8bil. We estimate that this will take the group through to FY3/16.

Of the RM2.8bil, we believe that the single largest contract outstanding is the Klang Valley Mass Rapid Transit- Sungai Buloh Kajang package V5 (Maluri to Plaza Phoenix) worth RM75mil secured in Jan 2013 and targeted for completion in Jun 2016. Elsewhere, works on the Besraya Expressway extension (RM600mil), Seremban-Gemas (km461-500) double-track rail (RM343mil) and Pahang-Selangor raw water transfer (RM161mil) are moving towards completion.

We expect West Coast Expressway construction to start by end-2013 at the latest, after the project achieves financial close in Sep 2013.

IJM Corp has a direct 20% stake in the concession and another 18.2% via its 22.7% holding in Kumpulan Europlus Bhd.

The announced project cost is RM6bil and the construction period is five years.

We estimate the value of construction works at over RM5bil, with interest cost during construction to make up the balance of the RM6bil project cost.

Kredit: www.thestar.com.my

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