Singapore Corporate News - 25 Mar 2008

Creative selling S'pore building for $250m

CREATIVE Technology could get a bumper cash infusion this June. The company said yesterday it has entered into an agreement with a buyer to sell and lease back its 11-year-old Singapore office building at International Business Park.

The sale price for the proposed transaction is $250 million. Creative will lease back the whole building for five years with an option for additional periods of three and two years, the company said in a statement, without disclosing the identity of the buyer.

Creative said it expects to make a gain of about $200 million from the transaction. It said that in accordance with US accounting standards, this amount will be treated as a deferred gain and will be amortised and recognised in the company's income statements over the lease term of five years.

The deal, which is subject to regulatory and shareholder approval, is expected to be completed by end-June.

Creative has owned its flagship Singapore building - called Creative Resource - since it was completed in 1997. The MP3 player and PC sound card specialist moved into the building from its Ayer Rajah Industrial Estate premises that year.

Creative Resource houses the company's headquarters operations and subsidiaries in Singapore.

In another announcement yesterday, Creative said its third-quarter revenue will be 'below target'.

For its fiscal Q3 that ends on March 31, it expects a revenue of about US$150 million. Revenue in the same quarter last year was US$183.8 million.

As well, operating expenses in Q3 will be higher than the company had forecast. This is mainly due to currency exchange rates, it said.

Creative expects to report an operating loss for the quarter.

However, the company - which this year started selling subscription-based video-conferencing services - is still expecting overall profitability in the period. An investment gain of about US$20 million is expected to boost its bottom line in Q3.

Creative has posted successive profitable quarters for the year so far. In 2007 it posted revenue of US$914.9 million and net income of US$28.2 million, aided by a US$100 million paid-up licence from MP3 market leader Apple Inc.

MBK extends AsiaPharm offer to end of March

PRIVATE equity firm MBK Partners yesterday extended a deadline for its bid to take Chinese drugs company AsiaPharm private by a week until March 31.

Shareholders of the Singapore-listed company will now have an additional seven days to decide whether to accept MBK's offer of $0.725 a share, which values AsiaPharm at $357 million.

MBK did not say what percentage of AsiaPharm it held in a statement distributed by adviser ABN-Amro.

MBK's bid to take Asia- Pharm private has faced opposition from Templeton Asset Management, which alleged the proposed deal undervalued AsiaPharm and was unfair to minority shareholders.

The US asset management firm, which owns around 4 per cent of Asia- Pharm, told Reuters on March 4 it had filed a complaint to Singapore's Securities Industry Council over what it claimed were insufficient disclosures in the takeover bid.

However, an independent review by Kim Eng Securities' investment advisory arm said that the offer was 'reasonable from the financial point of view'.

MBK unit LuYe Pharmaceutical's offer of $0.725 a share was 14.2 per cent higher than AsiaPharm's closing price of $0.635 on Jan 31 and 5.1 per cent above AsiaPharm's last traded price of $0.69.

The shares were suspended from trading late yesterday.

Value of Jade hinges on project outcome

DEPENDING on the outcome of its proposed coal-mining project and other business initiatives, Jade Technologies' value can be as low as $15.8 million (1.6 cents a share) or as high as $1.07 billion ($1.106).

CIMB-GK, acting as independent financial adviser to Jade Technologies' independent directors, arrived at these valuations based on sum-of-parts analysis.

Therefore, shareholders with a long-term view and who are optimistic about Jade's prospects, in particular its coal-mining project, may wish to reject controlling shareholder Anthony Soh's offer of 22.5 cents a share, said CIMB-GK.

The upper-limit valuation of $1.07 billion for the company included a $1 billion valuation for the coal-mining project.

Dr Soh, who is Jade's group president and has a 46.54 per cent stake, has made his voluntary conditional cash offer for all outstanding shares he does not already own through his investment vehicle Asia Pacific Links.

Jade announced this month that it secured an agreement with Indonesian company PT Dasacita to mine coal deposits in West Sumatra.

Jones Lang LaSalle Sallmanns valued the mining concession at US$1.033 billion, based on an expected yield of 25 million tonnes of coal over eight years. Jade said that it expects to receive 70 per cent of the total earnings from the concession, or about S$1 billion in all.

But CIMB-GK warned that 'there is however no assurance that the company would be able to execute the mining services agreement effectively', citing Jade's lack of track record in coal mining and the need for sufficient funding.

'In the event that the company is unable to execute any part of the transactions in relation to coal mining project, our sum-of-parts valuation of the group would decrease significantly,' it said.

Therefore, for short-term shareholders who are not prepared to accept the uncertainties facing the prospects of the company, CIMB-GK said they may wish to accept the offer but should be aware also that there is no certainty that the offer will become unconditional.

They can also consider selling their shares on the open market if they can obtain a price equal to or higher than the offer price. Jade's shares closed trading yesterday at 22.5 cents each, giving the company a market cap of $213 million. Jade's independent directors have agreed with CIMB-GK's advice for long-term and short-term investors.

CIMB-GK noted that while Dr Soh's offer was at a 4,200 per cent premium to net tangible assets as at Sept 30, 2007, the company has changed significantly since then.

In February, it entered into an agreement to sell its loss-making principal business of manufacturing semiconductor lead frames for about $6 million.

But since Jade's share price has been trading around the 22.5-cent offer price since the offer was announced, 'there is no assurance that the market price and trading volume will be maintained', said CIMB-GK.

Dr Soh has said that he intends to keep Jade listed and may place out shares to ensure a float of at least 10 per cent.

He also waived the right to compulsory acquisition if he receives valid acceptances representing 90 per cent of outstanding shares, according to the offer document.

The offer closes on April 7.

China Energy expects Jiutai takeover to pay off in 3 yrs

CHINA Energy expects the acquisition of Jiutai Energy (Guangzhou) Co to pay off in three years and for the subsidiary to enjoy a turnaround in profitability this fiscal year.

Although no breakdown has been given on operational revenue at plants, the group's new Jiutai Guangzhou plant faces an estimated operational loss of about seven million yuan (S$1.38 million), according to Lehman Brothers.

'We started the consolidation of accounts since last September. It made a loss because it was in start-up phase but we expect Jiutai to be profitable this year,' China Energy's chief financial officer and executive director William Wong told BT yesterday.

For the year ended Dec 31, the Chinese producer of dimethyl ether (DME) recorded a 38 per cent jump in net profit to 264.97 million yuan on higher DME sales, which lifted revenue 42 per cent to 964.82 million yuan.

The acquisition of Jiutai Guangzhou has given China Energy a foothold in Guangzhou, beyond its manufacturing presence in Shangdong and Zhangjiagang, allowing the group better access to the Pearl Delta region, where demand still outstrips supply.

But the acquisition of Jiutai Guangzhou is currently the subject of a review by PricewaterhouseCoopers (PwC) over an additional payment of 190 million yuan, on top of the 197.8 million yuan of purchase consideration announced earlier.

Under an agreement signed in November 2006, China Energy agreed to acquire all the shares in Jiutai Guangzhou from Shandong Jiutai Chemical Technology Co and Jiutai Energy (Hong Kong) Co for 197.8 million yuan based on a valuation conducted by an independent valuer in China on a net asset value basis.

This acquisition amount was in line with the estimated 200 million yuan stated in its listing prospectus registered on Dec 13, 2006.

However, it was recently brought to the attention of the group's audit committee that an additional sum of about 190 million yuan had been paid by China Energy as at Dec 31, 2007, to settle liabilities of Jiutai Guangzhou.

Mr Wong told BT yesterday that the additional payment in question was made post-acquisition for the Phase I construction of the Jiutai Guangzhou plant and other items.

He said these liabilities were not factored into the IPO to eliminate construction risks. This exclusion was carried forward in the group's financial statement for the year ended Dec 31.

China Energy disclosed in its IPO prospectus that according to confirmation from the management of Jiutai Guangzhou, 225 million yuan had been spent by Jiutai Guangzhou in relation to the construction of Phase I as of Oct 31, 2006.

CIMB-GK said in a report yesterday that it is dropping its 'outperform' rating in favour of a not-rated view.

'There should not be any impact on China Energy's operations and expansion,' the brokerage said. 'However, the share price is down 42 per cent in the past two weeks, and we expect volatility to continue until the completion of PwC's review.'

The knee-jerk reaction to the PwC review led to a continued slide of 2.6 per cent in China Energy shares to an all-time closing low of 37 cents yesterday, after the stock fell as much as 27.6 per cent intra-day.

Aluminium unit of Midas wins 62m yuan deal

MIDAS Holdings has secured a 61.9 million yuan (S$12.2 million) contract to supply aluminium alloy extrusion profiles for metro train cars.

The contract for its aluminium alloy division, Jilin Midas Aluminium Industries, came from Midas' joint-venture company Nanjing SR Puzhen Rail Transport (NPRT).

This deal involves supplying aluminium alloy extrusion profiles for 41 train sets (or 246 train cars) for the Shanghai Metro Line 10 project.

Midas has a 32.5 per cent equity stake in NPRT, a Sino-foreign joint venture.

The contract, expected to be fulfilled between May this year and December 2009, will have a positive impact on the group's financials in those years, said Midas.

Jilin Midas entered into a master supply deal with NPRT in September last year, under which NPRT will purchase aluminium alloy profiles from Jilin Midas for metro train projects that it secures up till Dec 31, 2010.

Among the contracts won this year by NPRT, as part of a consortium, was a 550.4 million yuan deal to supply 60 train cars to Nanjing Metro.

'As NPRT continues to secure more projects in China, our aluminium alloy division will be the key beneficiary of its strengthening track record,' said Patrick Chew, Midas' chief executive officer.

'The close collaboration between NPRT and Jilin Midas will continue to generate positive synergies for the group.'

Midas is also working on other projects in China, such as the Beijing-Tianjin High Speed Train Project, the Shenzhen MRT Line 1 Extension Project and the Guangzhou MRT Line 3.

Besides China, Midas is involved in the Circle Line project in Singapore, Metro Oslo MRT in Norway, Valero Rus Project in Russia and Desiro Mainline Project in Germany.

In spite of good news coming from NPRT, Midas' share performance has been weak amid poor market sentiment surrounding China stocks in Singapore, or S-shares.

Shares of Midas closed trading at 91.5 cents yesterday, almost 40 per cent down from $1.52 at the start of the year.

Earlier this month, DBS Vickers recommended a 'buy' on the stock.

BT Group completes Frontline acquisition

GOODBYE, Frontline Technologies. Hello, BT Frontline.

Nearly four months after receiving a buyout offer of $202 million, Frontline, one of Singapore's notable information technology (IT) success stories, is now officially a subsidiary of the British telecom giant BT Group. It also sports a new brand name.

BT Frontline, which grew from a local IT services start-up in 1993 to a regional IT services major with 5,000 employees across Asia, becomes BT's second co-branded entity in Asia.

'We decided to co-brand the company because Frontline is such a strong brand in Asia and we don't want to lose it,' said BT Asia-Pacific president Allen Ma yesterday.

He said both companies will be aligning their channels and sales efforts in the coming months. With the addition of BT Frontline, BT now has three points of contact for its regional customers - BT, BT Frontline and BT's regional access partners, which include StarHub, SingTel, Telekom Malaysia, China NetCom, and Bharti Airtel, as well as a number of regional telcos.

'We need to align so that we do not have a channel-conflict issue,' Mr Ma said. 'We want customers to see us as one.'

Steve Ting, executive chairman of BT Frontline, said that sales personnel from both companies will be trained to cross-sell and up-sell each other's products and services in the coming months.

'We used to sell only IT services, but now we want to sell both IT and network services,' he said.

An immediate priority will be to grow the company's regional business, Mr Ting said. In particular, he expects China and India to become key growth markets for BT Frontline, with both regions expected to post 'double-digit' revenue growth in the next four years.

Both China and India are countries in which BT Frontline has a huge presence. The company has 1,200 employees in China and 2,800 employees in India. It also has offices in Hong Kong, Indonesia, Malaysia, Singapore, the Philippines, Taiwan, Thailand and Vietnam.

BT formed its first co-branded company in Asia in 2006, when it partnered Japanese telecom company KDDI to create the joint-venture KDDI & BT Global Solutions Corporation. BT also operates a number of co-branded subsidiaries in other parts of the world, including BT Counterpane, BT Infonet and BT Radianz - all results of the company's earlier acquisitions.

With the acquisition now completed, Frontline, which had been listed on the Singapore Exchange since 2002, has been delisted.

Falling US dollar could slash Venture earnings: JPMorgan

CONTRACT manufacturer Venture Corp could see earnings this year slashed 11 per cent by the falling US dollar, a JPMorgan report said yesterday, citing the company's 'relatively higher exposure of US$ on the revenue side'.

Unisteel Tech, which provides fasteners to the hard-disk-drive sector, may take a smaller 3.5 per cent hit, while earnings at Datacraft, South-east Asia's largest computer data network builder, could be boosted 6 per cent due to its 'higher cost but lower revenue exposure' to the US currency, analyst Sung Namgoong said in a note on the forex sensitivity of the three locally listed tech stocks.

The projections are based on the Singapore dollar appreciating 5 per cent from a base case of S$1.44.

The local currency gained over 10 per cent last year on the US dollar and is almost 4 per cent up in the year to date.

Unisteel and Datacraft may fare better, since they have 70 per cent and 40 per cent revenue exposure to the US dollar, compared with 100 per cent for Venture, Mr Sung said. A higher proportion of their costs is also denominated in US dollars, which provides a natural hedge.

He added that if the US dollar falls 5 per cent to S$1.37, Venture's FY 2008 revenue could drop S$216 million from the base case, reducing net profit S$34.5 million based on the house's 2008 earnings forecast. Earnings per share would fall 11 per cent.

'We expect any weakness in US$ will directly affect its topline growth,' said Mr Sung.

Venture said last month its 2007 net profit hit a record S$302.7 million, up 25 per cent from the year before, as revenue jumped 24 per cent to a new high of S$3.87 billion.

However, the appreciation of the Singapore dollar should 'positively impact companies having higher exposure to foreign debt and capex plan', Mr Sung said, and this should have a positive impact on Venture and Unisteel.

About 30 per cent of Venture's debt is foreign-denominated, according to JPMorgan estimates.

Mr Sung said Unisteel's net profit could fall S$2 million if the Singapore dollar rises 5 per cent from the base case, according to JPMorgan estimates. EPS may fall 3.5 per cent to 13.4 cents. The company recently reported a 6.1 per cent fall in 2007 net profit due to S$3.1 million of forex losses, which eroded an 18.7 per cent revenue gain.

Datacraft could see a 7 per cent gain in operating profit based on the house's estimates.

'With a significant business of Datacraft confined to Asia where local currency is strengthening against US$ (except Korea), we expect Datacraft to benefit from the recent weakening of US$,' said Mr Sung.

STATS ChipPAC to end OTC trading of ADRs

STATS ChipPAC, South-east Asia's largest provider of semiconductor-testing and packaging services, said it will end over-the-counter (OTC) trading of its American depositary receipts (ADRs) 'as soon as practicable'. STATS ChipPAC ADRs were delisted from the Nasdaq Stock Market on Dec 31 and continued trading over-the-counter while the company met obligations to deliver shares under an employee benefit plan. The company had planned to stop the trading at the same time as a capital payout of as much as US$813 million at an unspecified date, Singapore-based STATS ChipPAC said in a statement distributed by MarketWire.

Nera clinches $4m contract

NERA Telecommunications has received purchase orders from a global telecom operator for the supply, installation and maintenance of IP network equipment. The total value of the orders is about $4 million. The orders are not expected to have a significant impact on the performance of the group for the current financial year.

Boustead unit wins deals worth $32m

BOUSTEAD Singapore said that its wholly owned subsidiary, Salcon Pte Ltd, has been awarded two contracts worth $32 million to design, engineer and construct water and wastewater treatment plants for mega power plants in Indonesia and Singapore. The first contract is for seawater desalination, demineralisation and wastewater treatment plants for Toshiba Corporation at PT Central Java Power's Tanjung Jati B Power Plant in Indonesia. The second contract is for a demineralisation plant utilising reverse osmosis and electro-deionisation technology for Samsung Corporation at PowerSeraya's power plant on Jurong Island in Singapore.