More on Bursa Trade Securities

As mentioned last week, Bursa Trade Securities, a new trading system for Bursa will be implemented next week, Monday December 1 if this Saturday's final test run goes smoothly. Since this new system, the fourth for Bursa, is new to everyone, it would be advisable for Bursa to quickly and aggressively inform the public and the users (brokers, remisiers, dealers and investors who may be trading from the internet or simply for viewing purposes only) the salient features of the system. Like any new systems, familiarisation is needed for brokers and investors. Borrowing the words from Bursa's general advertorial out only today, "Investors should note that understanding and utilising an extremely fast system requires added vigilance and care on their part to reduce transactional errors"

The practical features of Bursa was mentioned here before and it would be good to relook at them again. Below are further practical features/information on Bursa Trade that I am aware of recently and wish to share with you. Like anyone else, I am totally new with this system and you may have to verify yourself the correctness of the information provided below or may want to add further comments on the features of the system here.

1) For Remisiers/Dealers-your trading screen needs to be reset again (one off only) to incorporate some additional fields eg Theoretical Opening Price and Theoretical Closing Price, Odd Lots/Buyin and Stock Status-which provides details of Reserves and Suspension details.

2) For Internet Users-your e-broking houses will guide you via their website to a new trading platform.

3) Odd lots orders will need to be carried forward to the next trading session unlike the previous system.

4) Off market trades (or DBT-Direct Business Trade)

-No more upper/lower limit 10% of price to be traded for shares RM1 and above. The limit has been lifted to 15% in the new system. For share price below RM1, the upper and lower limit has been changed to 15 sen.

-Any trades more than 15% up to 99% in price requires Bursa's approval which will come within 3 market days(previously 10 market days).

-If DBT is to be done between 830am to 10am, PriceWap(information available from Trading Department) will be used while after 10am, VolWap will be used (available on the trading screen, calculated hourly).

-DBT can be done during lunch time.ie 1230-230pm.

-once DBT is done, the buyer/seller cannot be amended anymore.

5) Trade cancellations

-According to circulars from Bursa RR10 and RR11, there are 3 ways Bursa can cancel trades in the market. (i) If it is Bursa's own mistake, 2) If both parties (buyer/seller) agree to cancel the trade -but a penalty of RM1,000 per cancellation must be borne by the party who did the mistake and 3) If Bursa suspects the trade is tantamount to manipulation, market rigging and no change in beneficial ownership. Bursa can cancel the trade at anytime before T+3.

Kindly also refer to http://www.bursatrade.com/ for further information.

* Snows bury Northern Europe!! (picture China Daily)

* Bloomberg: London, Midtown Manhattan, Tokyo office rents post first drop since 2002.

* Bloomberg: Qantas says profit may fall 64% in this financial year.

* TheEdge: Temasek agrees to subscribe at least USD542m of Standard Chartered's Rights Issues. It currently owns 19% of the bank.

* This is worrisome. World Bank says China's 2009 GDP growth expected to slow to 7.5% (from 9.2%) as economic crisis spread. (CNBC)

* Finally BNM did what other central banks have been doing. OPR has been reduced by 25 basis points to 3.25%. Also the SRR has been reduced to 3.5% from 4%. The last SRR cut was in September 1998. According to analysts, the reduction will affect mainly banking and consumer related sectors.

* MISC's proposed RTO of Ramunia is off due to unsatisfactory due diligence findings!!! This is going to be bad for Ramunia and shareholders. Seems that everyone is caught unaware!!

Technical Analysis - November 10 2008

S&P500 (931, last week 969 or -3.92% w.o.w )

The daily indicators like MACD, MACD Histogram and Parabolic SAR have continued to be positive during the week. However the daily ADX and the DMIs are not positive yet. For the weekly readings, the indicators have not turned bullish. As mentioned last week, the index will have an uphill task to recover and it will be good if it could form a short term bottom around 850 to 950 levels, before going up further. Support is around 900 and resistance at 1,050.

KLSE CI (894, last week 864 or +3.5% w.ow)

The daily MACD and Parabolic SAR have turned slightly positive during the week. However, the daily ADX and DMIs do not show any bullish signal yet. The weekly charts are still in a negative territory.The immediate task for the index is to determine a short term bottom and ideally it should be at 800-850 levels. The index is expected to trade between 830 and 950.

HangSeng (14,243, last week 13,969 or +1.96% w.o.w )

Similar to other markets, the daily indicators like MACD, MACD Histogram and Parabolic SAR continues to register a bullish signal. The daily ADX and the DMIs have not turned positive yet. The weekly charts are still in a negative territory. Like the other indices, the HangSeng index has plenty of work to do and it is best if it will be able to form short term bottoms around 11,000 to 13,000. Support is seen at 13,000 and resistance at 15,500.

Nikkei 225 (8,583, last week 8,577 or +0.07% w.ow)

The daily indicators like MACD, MACD Histogram and Parabolic SAR continues to register a bullish signal. However, the weekly indicators continue to show weakness. Like other indices, the Nikkei needs to find its short term bottom and preferably it should be at levels 7,500 and 8,300.The daily index has plenty of work cut out and it is best to regain some strong support at levels mentioned above. The index is expected to trade between 8,200 and 9,500.

* Bloomberg: China has on Sunday announced a USD586B stimulus plan to boost its economy and as the world heads toward recession. This amount is approximately 1/5 of China's GDP last year and is very substantial. The earlier forecast in August was USD400b.

* Due to the plan above, crude oil futures jumped over USD3 to USD64 per barrel today.

*G20's current plan for the world: Cut interest rate and start spending!

* Bloomberg: Fitch Downgrades its debt ratings on Russia, South Korea and Mexico. On soverign ratings, countries that have their rating cut are Bulgaria, Hungary, Kazakhstan and Romania. Countries that have their outlook lowered are Malaysia, Chile and South Africa.

* Reuters: Japan's foreign exchange reserve account going down further: Oct end USD977.7b (September end USD995.9b)

* TheStar: Oil and Gas companies still have enough contract in hand. Egs KNM -contract value RM4.6b -duration 2 years, Coastal -RM1.7b-3 years and Tanjong Offshore-RM1.5b-4 years.

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* Berkshire posted its 4th quarterly decline due to 1)hurricanes on insurance operations and 2) battered stock markets on investments.

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* Kenanga's economist pointed out that recessions period in the US from 1950-2004 as defined by the National Bureau of Economic Research on average lasted for 10.3 months, the last one in March 2001 ends in November 2001 or 8 months. The longest was 16 months ie July 1981 to November 1982 and November 1973 to March 1975. The shortest was only for 6 months ie January 1980 to July 1980. You do your own assesment on this one in 2008...Any interesting guestimates you like to share?

KNM: Some comments from brokers

So as expected, KNM says that it was unaware of the cause of the unusual market activity in the company's shares yesterday. Today, it shares hit the limit down price of 39 sen and managed to climb back at 68.5 sen at the closing bell. According to Bloomberg, today's intraday plunge defies brokers expectation. I believe we will not be able to know the real reasons why there is such a plunge in the first place despite many reasons were offered. I even heard that the selling was initiated by margin calls of a major shareholder in the company. Looks like it will only be hear-say, and will remained so. Do I dare to venture back into this badly beaten stock? Yes, but I believe it is better to let the dust settled first before going in, although the price may not always work in our favour but that is the cost for "assurance". Just my view only. Most analysts maintained their "Buy" call on this stock. Of 19 analyst ratings on KNM in the past 12 months, all are a ``buy,'' Here is one particular research report on KNM by AmResearch today, if you do not have not seen it yet.

KNM Group announced that the acceptance of an offer for a 3-year EUR150mil (RM705mil) term loan facility from Malayan Banking (Maybank) on 15 October 2008 to refinance its outstanding bridging loan from Maybank which was used for the EUR350mil (RM1.67bil) acquisition of Borsig Beteiligungsverwaltunsgeselschaft mbH (Borsig). The new term loan is expected to replace the bridging loan, maturing in June 2009, early next year upon completion of loan documentation. Recall that the bridging loan was issued by Maybank for the acquisition which was completed on 6 June 2008. KNM later paid off EUR200mil of the original bridging loan from proceeds raised from a 1-for-3 rights issue at RM4.00/share in June this year.

We understand that the new term facility was offered at cost of funds plus a spread of 2.25%.
With one-year LIBOR at 6.4%, we understand that the interest rate charged could amount to 7.5%-8%. This is within management’s guidance of 8.5%, which is higher than the original bridging loan interest of 5.5%. This translates to an additional interest of RM25mil of FY09F earnings.

KNM’s share price plunged 24% yesterday to 69 sen on concerns of an inability to raise a refinancing package on the bridging loan, rumoured margin calls, customers’ deteriorating balance sheet health due to the global financial crisis and mass dumping of foreign investors. In a reply to the Securities Commission, KNM stated that “the Company is not aware of any other possible explanation to account for the unusual market activity” other than the new term loan.

KNM’s management affirmed that its current order book of RM4.7bil (1.3x FY09F revenues) is still healthy with no indication of any cancellation of contractual agreements. Given that prospects for the global oil & gas industry remain bouyant on crude oil prices of US$75/barrel currently, KNM’s fundamentals appear intact with this refinancing facility, supported by a comfortable net gearing of 0.4x as at 30 June 2008 and reasonable FY09F interest cover of 13.6x.

We maintain our FY09-10F earnings forecasts, which are 14%-19% below management’s guidance. We reiterate our BUY call given the attractive FY09F PE of 4.7x for a rapidly expanding global process equipment manufacturer underpinned by a good track record. However, as equity risk ratings have risen on the back of a possible global recession, we have cut our target FY09F PE from 18x to 10x, translating to a lower target price of RM1.48/share from RM2.66/share previously.

* Aseambankers on KNM: (the current price) offers opportunities to accumulate a "blue-chip oil and gas counter" which trades at a compelling 4X 2009 PER. It believes the sell down was mainly foreign selling and related to funding and other "old issues" which have already been addressed. TP=RM1.50.

* Bloomberg: South Korea's won slumped to USD1: 1,373 won today after S&P's said banks may struggle to refinance their debts. The index and others around Asia tumbles again after a near 8% fall in the Dow overnight. Looks like the "Day and Night Scare" phenomenon is here again.

* These are BNM's latest economic estimates: 2008 GDP 5.5%, 2009: 4%

* Public Accounts Committee will call Maybank's official to explain the BII's debacle. Likewise, authorities dealing with Eurocopter and the high speed broad band proposals were also to be questioned.

* Najib: Holding Augusta shares would put Proton in RM1B debts. Show us the details please!(refer here for previous coverage)

KNM aka "Kalau Nak Mati/Menang"

Wow what happened to our beloved oil and gas stock? Known as an aggressive and fundamentally strong company lead by an experienced and hands on Managing Director, investors were often baffled by its buying ventures of overseas competitors and its thirst to be among the leaders in the industry. The company's vision as per the 2007's Annual Report is to become the top 5 global manufacturer of process equipment for oil and gas, petrochemicals processing and energy industries by 2010.

Of late, the fortune of the company has taken a very bad fall. With a market capitalisation of RM9b as at 30 May 2008, the size has dwindled by 70% and currently stands at RM2.8b as I write.

Not much has been revealed out to the public about the sell down today from 90.5 sen to 68.5 sen, down 22sen or 25%. My guess for the panic selling could be explained as follows:-

1) Continued selling by FMR-9.7% shareholder due to redemptions of funds or due to "inside news".(it has about9% of KNM based on the latest disclosure)

2) EPF-5.2% shareholder (via CMS Dresdner) started to sell after it gets "news" from FMR. Not to mention other smaller funds.

3) Global outlook for Oil and Gas is at best flat,

4) KNM unable to convert its short term loans amounting to approximately RM921m to long term loan due to global credit crunch. Total loans for the group is about RM1.1b. It should be noted that KNM has earlier delayed its USD350b bond issuance although shareholders and the Securities Commission have approved it.

5) Maybank or AM Investment recalling their underwriting commitment RM150m of Islamic Commercial Papers Medium Term Notes.

6) Funding problems with some of the newly acquired local/overseas firms . Or problems with fundings/contracts. Are the foreign contracts not hedged fully?

7) simply "no confidence"

Lets wait what the KNM's management has to say about the sell down. Would it be the same old adage "we are not aware of any reasons whatsoever".... The large shareholders are telling you something....get out...as fast as you can...everyone lose big time....hmmm......30sen is a good entry price!

* China's foreign exchange reserve is at USD1.9T as at end of September 2008.

* BNM's website via The Star: The insured amount per institution in countries are: Malaysia USD17,261, Singapore USD13,808, HK USD12,872, Indonesia USD10,616, Philippines USD5,298 and Vietnam USD3,020. A plus point for Malaysia!

* With effect today the revised downward fuel prices are as follows:- Ron97 RM2.30(old RM2.45), Ron92 RM2.20(old RM2.30) and diesel RM2.20(old RM2.40). Why am I not thrilled?

Please give me more time

TheEdge: National carrier MISC Bhd is seeking more time to complete its due diligence on fabricator Ramunia Holdings Bhd. Officials of MISC had told analysts at a briefing on their latest set of results that they were seeking more time and was looking at end-2008 to complete the due diligence. Analysts said that no reason was given. When announcing the proposed takeover of Ramunia in January this year, MISC had stated that it hoped to conclude the reverse takeover of the company by the fourth quarter of 2008. The national carrier was supposed to complete the due diligence by end-May. Under the proposed exercise, MISC via its wholly owned unit MSE Holdings Sdn Bhd would inject Malaysia Marine and Heavy Engineering Sdn Bhd (MMHE) in return for shares and irredeemable convertible preference shares (ICPS) in a deal valued at RM3.2 billion. MMHE in turn is a wholly owned unit of MSE Holdings. The second part of the deal involves a renounceable offer for sale of 82 million shares in Ramunia upon completion of the proposed reverse takeover to entitled shareholders at RM1 a share. Upon conclusion of the deal, MISC would emerge as a 72% shareholder in Ramunia. , which would give MISC’s parent Petroliam Nasional Bhd (Petronas) indirect control of Ramunia. Petronas has 62.4% in MISC, which would give it an indirect 47.8% of Ramunia. Ramunia’s jewel in the crown is its 170-acre fabrication yard in Teluk Ramunia, Johor, which can be expanded by an additional 90 acres. MISC’s MMHE, meanwhile, has an existing fabrication yard space of about 80 acres. With damp charter rates, MISC’s mainstay in shipping is likely to remain unexciting in the near term, and much of its outlook is hinged on the fabrication and heavy engineering business. For the 12 months ended March 2008, MISC posted a net profit of RM2.5 billion from a revenue of RM13 billion. Net profits dipped by about 13.8% despite revenue gaining by 15.7% from the corresponding period a year ago. Moving forward, heavy engineering and fabrication is likely to play a more important role for MISC as Petronas has aggressive oil exploration works planned. The state-controlled oil major is likely to award some RM10 billion worth of fabrication jobs this year. Ramunia being the only fabricator with available yard space stands to benefit from this Petronas spending.

MyTake: The delay by MISC to finalise the due diligent does not augur well to its group of companies and Ramunia itself. According to Kenanga "the management wants a more thorough review on Ramunia's current projects". Does this means that MISC may revised the RTO proposal or scrap it completely after reviewing Ramunia's current project? Both parties were very confident earlier to get the due diligent out by May 30.Why such a sudden change of heart after going through with all the public announcements regarding the deal? Could it be due to Ramunia's previous records of not able to deliver projects on a timely basis, cost over run issues and poor pricing strategy? If so, one of the main reason for the delay could be due to MISC wanting to find out a clearer picture regarding the Indian job B-193 obtained from Oil and Natural Gas Corporation (ONOG) worth about USD685m in January 08 and the loan financing problems Ramunia is facing for this project. This project was speculated to be tendered at a very low price which was lower than its nearest competitors by at least 30%. Will there be any losses from this job although Ramunia's MD says it expects a gross profit margin of 10%? Furthermore, it seems that Ramunia is waiting for another job to be offered B-22 which was supposed to re-rewarded again by May 30 after Ramunia fought in the Indian Court to get the winner annuled due to technical issues. Are there more issues MISC has with regards to Ramunia which we do not know, egs major shareholders issues, existing project related problems etc? Even if the due diligent is completed and accepted in Dec 08, the actual RTO would probably be effected by June 09. Meanwhile, the unfinished deal may caused Ramunia not to get the funding required for its Indian job and Ramunia's deadline to complete the 3 years job is fast running out.. Estimated valuation on both sides will need to be reworked again. I believe ultimately, MISC will take Ramunia with wide open arms as it is in line with Petronas's interest to develop world class oil and gas companies within its Group but MISC is right to get the due diligent done with care, complete and accurate. In the meantime, the delay will create a short term weakness and overhang for Ramunia.

* Ramunia is one of the 7 approved Petronas local fabricators. The others are Kencana, Oilfab, Brooke Dockyard, Malaysian Marine Engineering, Sime Engineering and PSC Shipyard.

* On Petronas royalty (for future references) - Petronas paid RM26.83b in oil royalties to the Federal Government and three states(Terengganu, Sabah and Sarawak) from financial year 2004 to 2007. Breakdown: Federal Government RM13.4b, Terengganu RM7.3b, Sabah RM1.2b and Sarawak RM4.8b. Calculation of royalties based on a set contract formula of 5% or half of the royalties paid to the Federal Government. Malaysia is expected to be a net energy importer of oil and gas by 2014. Crude oil and oil condensates were expected to last for 22 years, while gas reserves would last 39 years.

* On WiMax(Go Here for previous posting), looks like GPacket via Packet 1 will launch Malaysia's first WiMax by end June. The business development division says that the launch of WiMax will go on schedule with the certification from WiMax Forum to be obtained latter, similar to what is happening in South Korea. Will GPacket's WiMax benefit from being the first mover advantage? The share price seems to be saying yes. The price hit RM2.10 in March and is now RM2.74.