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Posted: 24 May 2013 05:57 PM PDT

WITH the Barisan Nasional winning handsomely in the resource rich state of Sarawak in the 13th general election (GE), and a record number of seven ministers and four deputy ministers elected into the federal Cabinet, Sarawak's appeal has notched up significantly in a matter of weeks.

Sarawak BN delivered 25 of the 31 parliamentary seats in the GE. This means that Sarawak Chief Minister Tan Sri Abdul Taib Mahmud has delivered and now market watchers are expecting Sarawak to be robustly rewarded. Collectively, Sabah and Sarawak delivered 47 seats out of the 133 seats that gave BN its simple majority.

For the stock market, the large number of Sarawakian ministers being appointed is a strong sign of the political will to push through Sarawak's infrastructure development, and thus ensure that mega projects in Sarawak are implemented. The growth possibility is massive, particularly with Sarawak growing at less than 5% over the last 20 years.

It is now an opportunities galore for companies involved in dams, transmission systems, rural electrification schemes, sub-station works and ports, among others.

Thus not surprisingly, the level of enthusiasm has been palpable. This has been seen in the almost non-stop rally of Sarawak linked stocks, which have appreciated as much as 30% to 50% over the last three weeks.

The leaders of the Sarawak rally are none other than Cahya Mata Sarawak Bhd (CMSB), Sarawak Cable Bhd, Naim Holdings Bhd and Dayang Enterprise Holdings Bhd which have skyrocketed by 55.14%, 21.4%, 40.5% and 27% over the last three weeks.

Other Sarawakian stocks which have followed suit include Hock Seng Lee Bhd, Press Metal Bhd and Bintulu Port.

While Johor has the Iskandar Malaysia, Sarawak has its equivalent in the Sarawak Corridor of Renewable Energy (Score), which is a major initiative to develop the state's central region and transform the state into a developed one by 2020.

"Personally I am more bullish about the prospects of Sarawak compared to Johor. In Sarawak, they are relying on natural reserves which are already in existence. Furthermore, there is the appeal of cheap power prices which will continue to attract investors," says OSK analyst Ng Sem Guan.

The main goal of Score is to accelerate the state's economic growth by capitalising on renewable energy. Its key attractions are cheap power, cheap water, rich natural resources, its proximity to integrated ports and cheap land.

"Score is progressing very well with total committed foreign investment of RM29.1bil since the establishment of the project in 2008. The development of Samalaju (one of the five Score areas) is at an advanced stage now with the overall construction of Samalaju's projects 30% completed," says an MIDF analyst

Sarawak is expected to achieve developed-nation status in terms of per capita income earlier than 2020. By 2030, Taib has said that he expects the per capita income to be nearly RM100,000.

Could this be more than just a pipe dream?

With a fresh mandate over the next 5 years, it is now full steam ahead for the mega investment expenditures planned.

In fact, according to Malaysian Investment Development Authority, Sarawak is now the third biggest contributor to Malaysia's foreign direct investment, contributed mainly by Score's Samalaju project.

The progress so far

While development projects have been ongoing since the inception of Score, more new projects are now scheduled to be dished out.

For example, the tendering for the first phase of the Mukah International Airport, valued at some RM200mil closed on April 30, and is expected to be awarded soon.

According to analysts, state-owned Sarawak Energy Bhd (SEB) is lining up five more hydro dams and two coal-fired plants to meet its targeted 7,000MW generation capacity by 2020.

So far, SEB has secured sales for most of the electricity output from the Bakun hydro dam from companies in Score. SEB officials say about 1,800MW has been sold to customers, representing 75% of firm supply capacity from the Bakun and Murum dams.

Bakun is expected to generate a firm supply of 1,771MW when fully operational next year. Four of the dam's eight turbines, each with 300MW capacity, have been commissioned.

Analysts say there could be over 100 new sub-stations to be developed to cater to Sarawak's increasing power loads, where the larger ones could cost up to RM300mil.

Meanwhile, the tender for the Samalaju Port project's breakwater package estimated at more than RM400mil is now being tendered out.

"I was in Sarawak recently, and Score is booming. The area of Samalaju is not the virgin jungle that everyone thinks off. There are now already two plants being commissioned. The energy intensive industries being developed in Score will also result in downstream activities, which in turn will create more economic activities," says Ng of OSK.

This RM1.8bil Samalaju port, which is scheduled to be fully operational in 2016, will serve mainly energy-intensive industries like aluminium and ferro-alloy smelting plants in Samalaju Industrial Park and the port hinterland, particularly for the import of raw materials and export of finished annum.

By then, the port's cargo handling capacity will be raised to 18 million tonnes per annum. If necessary, the port could be expanded to increase the annual cargo handling capacity to 30 million tonnes.

With Sarawak also hoping to achieve a targeted 95% electricity coverage by end-2012 but missed that target from more than 60% currently, a higher eventual coverage could trigger the demand for more steel-related products and expansion.

High on the list of priorities would be the upgrading of the 2,000km Pan Borneo highway, which has also been one of the promises made by BN in its manifesto.

Then there is the focus on areas relevant to Sarawak, such as economic and rural transformation, technical education and bridging the digital divide.

It is also planning to upgrade food processing and eventually pharmaceuticals from the yield of its vast palm oil industry which is now about one billion ha.

The state is planning to have better educational and technical skill development centres as part of its migration towards a high-income economy.

Sarawak's potential

In the last two decades, resource-rich Sarawak has been growing at an average growth rate of less than 5% annually. Traditionally, its main source of income was agriculture, mining and oil and gas. Currently, Sarawak contributes about 8% to Malaysia's overall real GDP growth.

Nonetheless, with the abundance of sustainable energy, namely hydroelectric, as well as mineral sources like oil, natural gas and coal, the idea of harnessing these resources for the well-being of the state was soon born.

Score was launched in early 2008 by former Prime Minister Tun Abdullah Badawi and spearheaded by Taib.

To make Sarawak's long-term growth plan a reality, Score's aim is to harness some 20,000MV of potential hydroelectric power in Sarawak (mainly from Bakun Hydroelectric), along with some 1.46 billion tonnes of coal, 1.3 billion barrels of oil and 40.9 trillion cubic feet of natural gas located in the central region.

At the same time, the project would cover some 70,709 sq km of territory (about half the size of Peninsular Malaysia) or home to nearly a million people. The Government projects 1.6 million jobs opportunities to be created under Score by its target completion date of 2030.

With Score driving Sarawak's economy, the state aims to achieve GDP growth of up to 10% by 2015 compared to below 5% without it.

Kenanga Research says that at the rate the Sarawak economy is growing, the state could be among the top three largest contributors to Malaysia's economic growth in the next few years. Its contribution towards Malaysia's total GDP could increase to slightly more than 10% from its current 7.5%-8%.

"Being Malaysia's largest and possibly the richest state, Sarawak is moving in the right direction as it will soon hit the halfway mark of five-year 10th Malaysian Plan (10MP) which began in 2010. Much of the budget allocation in the 10MP is being channelled towards improving infrastructure, particularly transportation, managing urbanisation and developing Sarawak as an energy development hub," says Kenanga Research.

With Score leading the growth trajectory, Kenanga Research believes that Sarawak could exceed growth of 5% to 6% by 2015, possibly outpacing the projected average national growth of 6.0%. This is premised on the progressive development of Score's first phase projects, specifically the smooth implementation of the RM1.8bil deep-sea port project in Samalaju.

Score

Score is one of five regional development corridors being established throughout the country and is a major initiative to transform Sarawak into a fully developed state by the year 2020.

Around RM500bil has already been committed since the launch of Score in February 2008. The Sarawak Government has indicated that it will invest RM334bil to fully develop the regional economic corridor by 2030.

Score is a key initiative that is expected to bring Sarawak on par with its wealthier states in Peninsular Malaysia by 2020. In terms of land area, Score is the second largest of the corridors and covers an area of more than 70,000 square kilometres.

The corridor has 1.2 billion of known oil reserves, over 80 million tonnes of Silica sand and over 22 million tonnes of Kaolin of China clay, a key component of cosmetics, ceramics and, most recent, for combat area medical equipment.

Score has an abundance of natural resources, including renewable resources such as hydropower that offers commercial users clean energy at competitive rates.

In view of this, the 2008 to 2030 development plan for Score focuses on developing the energy sector and targets 10 high impact priority industries that will complement the development plan and also provide downstream opportunities for SMEs.

This is in line with the State's Ninth Malaysia plan to capitalise on the state's energy resources. The availability of inexpensive energy gives Score a significant advantage when competing to attract energy intensive industries and this has already resulted in a number of early successes.

The give growth nodes in SCORE will focus on different growth areas.

i. The Mukah Node will be developed into a Smart City and serve as the nerve centre for the Corridor.

ii. The Tanjung Manis Node will be developed into an Industrial Port City and Halal Hub.

iii. The Samalaju Node will become the new Heavy Industry Centre.

iv. Baram and Tunoh will focus on the tourism and resource-based industries.

The development of these growth notes will benefit the secondary growth centres, such as Semop, Balingian, Selangau, Samarakan, Bakun and Ng. Merit.

A thematic play seen

Posted: 24 May 2013 06:02 PM PDT

INVESTORS are back and participating actively in the stock market since the 13th general election. Counters across various sectors are up, notably led by blue chips followed by second liners.

While investors are pouring money into the more volatile stocks in favoured sectors like construction and oil and gas, a trend that has seen Sarawak-based counters race ahead has also prominent. Some attribute the rise in the share price of these counters to the sterling performance of the state government while company captains point out the business prospects ahead.

Inter-Pacific Research Sdn Bhd research head Pong Teng Siew tells StarBizWeek: "There is a clear thematic play on Sarawakbased counters especially after the general election."

A big spike can be seen in politically-sensitive companies and the rally moved on to the Sarawak-themed stocks due to the removal of political risks that surround these counters, he says.

He adds that the run-up of the counters are more pronounced when they overlap with sectors that are already favoured by investors, for instance oil and gas (O&G), construction and property.

He opines that the best time to engage in politically-theme plays is one or one-and-a-half years before the actual election.

Sarawak's previous state election was held in April 2011 and the next one will be held on or before 2016.

"It is a good time to look into such a thematic play now," he says.

He notes that when people invest according to themes, they tend to neglect the fundamentals.

"The retailers have been back in the market. Some of them will chase shares, which reflects the vibrancy of the current stock market," he says.

However, he cautions that investors should time their exit properly so they are not trapped in stocks that are illiquid as share prices fall.

He says factors that would drive share prices up during such periods are liquidity and stock price momentum; hence, stocks with fundamentals would act as a safety net when the rally is over.

Areca Capital chief executive officer Danny Wong concedes and advises investors to look at the valuation of counters that have run up.

He says market perception is that some of the counters that used to receive contracts from the state government will continue to win more in the years to come following the win by the ruling coalition.

"Certain projects will continue, which in turn will benefit the companies in terms of earnings growth," he says, adding that the election win is also a boost for projects that have been rolled out in anticipation of faster progress.

He also says the positive sentiment in the market leads to possible re-rating of some of the counters. However, he notes that some of them have been laggards and the climb in percentage terms may not portray the actual upside of some stocks.

Companies with solid fundamentals

While a handful of companies mentioned are painted as politically-linked largely through their ownership, it's a label that sometimes overshadows the capability of professional management teams that run such companies. Corporate bosses have reminded investors to focus on the fundamentals, strong balance sheet and growth prospects of companies in their respective sectors.

Dayang Enterprise Holdings Bhd managing director Tengku Datuk Yusof Tengku Ahmad Shahruddin tells StarBizWeek the company has grown over the years through fundamentals and on its own merits rather than on politics.

"We have to vie for a tender job. Production sharing contractors and the multinational companies are run professionally, so we really have to be up to their standards to get the jobs.

"Besides that, there are also stringent standards that we have to comply with," he adds.

Responding to how it is perceived as a politically-linked stock, he says: "As far as Dayang is concerned, we have not received jobs through political connections. We work hard for them and let our work speak for the company."

Others think the counter is politically-linked due to its major shareholder Naim Holdings Bhd, which owns about 34% of the company.

He explains: "Naim's holding in Dayang is as an investor. They are in a totally different sector while we are run by technically-qualified professionals.

"People think it is an easy job. We are what we today due to 23 years of hard work, technical knowhow and competitive pricing."

He says the jobs require very specialised players and there are only a handful around.

For instance, it has almost 2,000 skilled workers to support its operations.

He is positive on the company's prospects because the "cake" in the oil and gas sector is getting bigger and the company will benefit from the vibrancy of the sector.

He adds that more platforms are being built to support an increasing number of oil and gas activities while there are old ones that needed to be maintained and renewed. That is on top of the projects rolled out that would benefit its hook-up, construction and commissioning business.

Recently, analysts covering the counter have upgraded the stock because of its huge contract win from Sarawak Shell Berhad / Sabah Shell Petroleum Company Ltd worth more than RM2bil, bringing its orderbook to close to RM4bil.

Meanwhile, Cahya Mata Sarawak Bhd group managing director Datuk Richard Curtis says the company is run by a team of professionals and it is the best proxy to Sarawak's growth.

He says that despite the fact that Chief Minister Tan Sri Abdul Taib Mahmud's family owns some 40% stake in the company, it is prudent in running its main businesses and handling its strategic investments.

RHB Research says in a note released on May 13: "We took another look at CMS' fundamentals and found no evidence of changes in its already-solid business operations. The Sarawak Corridor of Renewable Energy (Score), which appears well on track to propel the state's economy to new heights, is giving a boost to CMS' cement, construction materials, road maintenance and property divisions."

Sarawak counters hogging the limelight

Posted: 24 May 2013 06:03 PM PDT

Below are some Sarawak companies listed on the Main Market of Bursa Malaysia that have caught investors' attention.

CAHYA MATA SARAWAK BHD

Cahya Mata Sarawak Bhd (CMSB), which is some 42.2% owned by the family of the Chief Minister of Sarawak, has always been seen as the main beneficiary and the best proxy to the many projects that will be taking off from the Sarawak Corridor of Renewable Energy (Score).

It has been one of the top performers of Bursa Malaysia, with its share price gaining some 60.36% to RM5.35 on a year to date basis. Its market capitalisation has also more than doubled to RM1.78bil.

CMSB has evolved from a manufacturer of cement in 1974, and today comprises over 40 companies involved in cement, construction materials, trading, construction, road maintenance, property development, financial services, education and other services.

It owns a large tracts of land around Kuching with good development prospects. It will also participate directly in Score via its 51%-owned Samalaju Property Development, whose first undertaking is the development of temporary worker camps, followed by a fast-track township in Samalaju Industrial Park.

The first of its energy intensive industrial projects in Score is its 20% stake in the joint-venture ferro silicon alloys smelter project with Australian listed OM Holdings Ltd.

CMSB recorded an 8.35% decrease in net profit to RM28.73mil on the back of a 34.74% increase in revenue to RM310.36mil for its first quarter to March 31, 2013.

This was partially attributed to its cement segment, which incurred higher clinker costs due to the upgraded clinker plant being not yet fully operation.

Apart from its property development division which recorded a small loss, the construction materials and trading, construction and road maintenance and Samalaju Development divisions all reported improved earnings.

HOCK SENG LEE

Infrastructure specialist and property player Hock Seng Lee Bhd (HSL) posted flat net earnings of RM19.5mil from RM19.6mil previously for the first quarter to March 31, 2013. Group revenue decreased marginally to RM135.1mil from RM139.2mil. Some 90% of the company's earnings came from the construction segment, while the remainder came from property development.

For its financial year ended Dec 31, 2012, HSL posted net profit of about RM90.7mil on revenue of RM603.3mil, which was an improvement from RM87.3mil and RM581.5mil respectively a year ago.

So far this year, HSL has secured some RM153mil worth of projects. To date, the company has some 30 projects in hand worth RM2bil, with RM1.05bil of that outstanding.

These jobs comprise roadworks in Sibu, Bintulu and Sri Aman and sand-filling in Tanjong Manis as well as infrastructure and drainage diversion projects for the Samalaju Industrial Park and rural roads in Samarahan.

The company is hopeful about securing more contracts as it has bid for reclamation, building construction projects and roadworks.

On a year-to-date basis, the stock is up 28.67% at RM1.93. The stock now has a market capitalisation of RM1.07bil. The company is majority owned by Hock Seng Lee Enterprise with 57.98% while the Employees Provident Fund is the second largest shareholder with a 10.13%.

SARAWAK CABLE

Sarawak Cable Bhd is hopeful on the state government's plans to implement more rural electricity projects and development for its growth moving forward

The intensified focus on such developments will expand the requirement for electricity generation and power distribution capacity and this would thus raise the demand for electricity supply.

Hence this would translate into a strong and continuous demand for power cables as well as conductors, steel products and transmission towers that the group is involved in.

On a year to date basis, the stock is up 5.49% to RM1.73, with a market capitalisation of RM268.8mil.

So far though, its earnings have not been up to mark. For its year ended Dec 31, 2012, net profit was down 58.86% to RM6.4mil while revenue was down 27.08% to RM268.58mil.

Based on its notes, operating expenses increased by 457% principally due to the impairment of intangible assets and allowance for impairment loss of trade receivables.

The sale of power cables and conductors segment contributed 28% of operating profit while the sale of galvanised steel products and transmission tower segment contributed 30% of operating profit.

AmResearch is maintaining its Buy call on Sarawak Cable Bhd with a fair value of RM2

The company has proposed a 1-for-2 renounceable rights issue of 77.63mil shares for RM1 per share and a subsequent 1-for-5 bonus issue of 46.58mil shares.

The entire exercise is expected to be completed in the third quarter of the year.

The major shareholder of Sarawak Cable are chairman Datuk Seri Mahmud Abu Bekir Taib with an 18.8% stake and Sarawak Energy Bhd with a 20.7% stake.

NAIM HOLDINGS BHD

Naim Holdings Bhd is an integrated property developer in residential, commercial and industrial properties developments.

The builder is also involved in infrastructure and public amenities, construction and civil engineering businesses. Besides that, it owns a 33.7% stake in Dayang Enterprise Holdings Bhd, a Sarawak-based oil and gas player.

It is considered politically-connected as its chairman and substantial shareholder, Datuk Abdul Hamed Sepawi, is Chief Minister Tan Sri Abdul Taib Mahmud's cousin.

Analysts believe that Naim will be one of the key beneficiaries of Score via its partnership with CMSB and Bintulu Development Authority to develop a township in the Samalaju industrial area which caters for the Japanese and South Korean expatriates from private investments.

Its other flagship developments include Bandar Baru Permyjaya in Miri, Desa Ilmu in Kota Samarahan, and the up-market Riveria satellite township in Kuching's southern corridor.

The Class A contractor has also bagged jobs from the Klang Valley Mass Rapid Transit project to execute and complete package S2 at Taman Industri Sungai Buloh and package S4 at Section 16, Pusat Bandar Damansara and Semantan. It has an orderbook of about RM1bil.

For its financial year ended Dec 31, 2012, the company's revenue jumped close to 20% to RM493mil while pretax profit soared 97.6% to RM113mil compared to 2011 due to higher sales of properties, better margins from its construction arm and improved performance of its associates and joint ventures.

DAYANG ENTERPRISE HOLDINGS BHD

Dayang Enterprise Holdings Bhd's roots can be traced back in 1980 when Ling Suk Kiong and Henry Bujang started up a oil and gas (O&G) hardware materials trading and man power supply company known as Dayang Enterprise Sdn Bhd.

It has built its track record over the years for providing good service to its clients, evidently through the various awards it received.

Currently, it provides topside structure maintenance, pipes and valves maintenance; fabrication operations' hook-up, construction and commissioning; and charter of marine vessels.

The Miri-based firm has a fleet of seven with different specifications to suit different jobs.

Dayang owns two fabrication yards which also serve as its warehouses at Kampung Rancha-Rancha in the Federal Territory of Labuan and Kemaman, Terengganu.

It has been growing steadily over the years as its market capitalisation more than doubled to RM2.6bil compared to slight more than RM1bil a year ago. Riding on the bullish sentiment in the oil and gas sector, the O&G player has emerged as a darling among investors, pushing its share prices to record high recently.

From its latest quarterly results, net profit ballooned more than eight times to RM58.4mil from RM6.9mil compared to the previous corresponding quarter whereas revenue rose 17.5% to RM87.9mil.

The burgeoning earnings are attributed to the RM32.8mil contribution from its 26.1%-owned Perdana Petroleum Bhd, higher fleet utilisation and higher income from topside maintenance services.

> Compiled by Tee Lin Say &

Ng Bei Shan

Kredit: www.thestar.com.my

Jumaat, 24 Mei 2013

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