RAAAWWWRRRRR!!!

An old report from KE:

The lion's appetite for lime and steel

Since our last update, LAP has almost completed the disposal of itsmotorcycle businesses in China which were beginning to face declining profits. The company found a new focus in the production of quicklime -a purifying agent commonly used in steel manufacturing. LAP's limestone processing plant in Banting commenced trial production in Apr 07 with acapacity of 215k tpa, making it the single largest plant in Malaysia.

Possible plans for expansion include backward integration involving thepurchase of a quarry, which will give it better margins. Subsequently,LAP may also diversify into the production of high quality quicklime used in water treatment, as it offers more lucrative returns.

Volatile earnings for remaining businesses

Although subsidiary Advent Electronics expects FY07 revenue to outperform last year's $70m, bottomline profits will be lower thanFY06's due to higher provisions for inventory obsolescence. Given itscompetitive operating environment, margins for the business remains at~3-4%. In our view, the earnings trend will continue to fluctuate as itis largely dependent on the number of projects secured.

On the new automotive component trading unit, we see a possible slowdown in 2H earnings while LAP irons out technical issues involving the conversion of parts from left to right-hand drive to cater to the Malaysian market.

Anhui Auto stake is worth $0.325 per share LAP owns a 6.16% stake (66m shares) in Anhui Jianghuai Automobile Co.(AHJA), which is listed on the Shanghai bourse. At RMB10.02, this investment has a market value of S$132m ($0.325 per LAP share) or 145%of LAP's entire market cap; meaning that investors will be getting LAP'sother businesses for free.

We also view LAP as a cheap proxy to the booming Chinese automobile market. AHJA's 21x FY07 IBES consensus P/E compares favourably to its more expensive peers' 19x-75x.

Deep discount to SOTP value, Upgrade to BUY with $0.36 TP

Using SOTP valuation, we have included inter alia 1) marked-to-marketvalue of S$132m for its 6.16% stake in AHJA, 2) share of proceeds fromsale of Zhejiang Victor Motorcycle and 3) the group's strong net cash position of $39m. We also abscribed a conservative 5x P/E to our earnings forecasts for LAP's limestone, electronics and tradingbusinesses. After taking into account the dilutive effects of LAP'soutstanding warrants, we derive a fair value of $0.36. This gives acompelling 60% upside potential for a grossly undervalued stock which offers significant hidden value and indirect exposure to China's fast growing automotive sector.

Upgrade to BUY.

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MYOB:

At 26.5 cents, LAP's market cap = $107.5million
Huge amount of cash: S$62 million
Investment in AHJA: 79.38 million shares @ RMB8.5 = S$131 million
Limestone business

Make it your business? Yeah, in anticipation of a handout after divesting AHJA. The limestone business, the cash, and the electronic business are all free.

Business Update

Stocks closed up sharply following the latest interest-rate cuts by the Federal Reserve, ending the month of October on a strong note. For the month of October, the Dow Jones Industrial Average rose 0.25%. The Nasdaq rose 5.83% for the month, and the S&P 500 rose 1.48%. Note that the Volatility Index VIX remained high amid continued uncertainty over the effects of the credit crunch.

STI is near the all time high. HSI broke through the roof with the liquidity from China. MYOB remains slightly cautious at this point, possibly selling into strength.

U

U

Yes, U for Uranium.

Today, MYOB will explore Uranium as an investment. Gone are the days of cheap oil. Let's see if investing in uranium makes good business.

Background
Uranium was discovered in 1789 by Martin Klaproth, a German chemist, in the mineral called pitchblende. It was named after the planet Uranus, which had been discovered eight years earlier in 1781. Uranium occurs in most rocks in concentrations of 2 to 4 parts per million and is as common in the Earth's crust as tin, tungsten and molybdenum. Like other elements, uranium occurs in slightly differing forms known as 'isotopes'. These isotopes (16 in the case of uranium) differ from each other in the number of particles (neutrons) in the nucleus. Natural uranium as found in the Earth's crust is a mixture largely of two isotopes: uranium-238 (U-238), accounting for 99.3% and U-235 about 0.7%.

Nuclear reaction
The nucleus of the U-235 atom comprises 92 protons and 143 neutrons (92 + 143 = 235). When the nucleus of a U-235 atom captures a moving neutron it splits in two (fissions) and releases some energy in the form of heat, also two or three additional neutrons are thrown off. If enough of these expelled neutrons cause the nuclei of other U-235 atoms to split, releasing further neutrons, a fission chain reaction can be achieved. When this happens over and over again, many millions of times, a very large amount of heat is produced from a relatively small amount of uranium.A typical 1000 megawatt (MWe) reactor can provide enough electricity for a modern city of up to one million people.

Nuclear power
Over 16% of the world's electricity is generated from uranium in nuclear reactors. This amounts to about 2400 billion kWh each year, as much as from all sources of electricity worldwide in 1960. In a current perspective, it is twelve times Australia's or South Africa's total electricity production, five times India's, twice China's and 500 times Kenya's total. It comes from about 440 nuclear reactors with a total output capacity of more than 350 000 megawatts (MWe) operating in 31 countries. About thirty more reactors are under construction, and another 70 are on the drawing board.

MYOB Pop Quiz: Which country has the highest nuclear generation?

Sources of uranium ore:
Australia accounts for 30% of the world's total at 1,142,000 tonnes, Canada at 12% (444,000 tonnes). Others Kazakhstan (16% of world total), USA, South Africa, Namibia, Brazil, Niger and Russia. Uranium is sold only to countries which are signatories of the Nuclear Non-Proliferation Treaty, and which allow international inspection to verify that it is used only for peaceful purposes. Customer countries for Australia's uranium must also have a bilateral safeguards agreement with Australia. Canada has similar arrangements.

Make it your business?

Positive: Uranium supplies are estimated at 100 tonnes a year. Demand for U is at 180 tonnes. The rest is taken from stockpiles. Uranium has fallen to as low as US$10 a tonne, up to a few years ago. Supplies have since not been able to keep up with the demand. There are 439 nuclear power plants in operation with a total net installed capacity of 371.671 GW. More importantly, 31 nuclear power plants are under construction (hello China). The weird thing about nuclear power plants is that they run safer at full capacity. Hence, there will be continued demand for U regardless.

Negative: Uranium is sold only to countries which are signatories of the Nuclear Non-Proliferation Treaty, and which allow international inspection to verify that it is used only for peaceful purposes. Customer countries for Australia's uranium must also have a bilateral safeguards agreement with Australia. Canada has similar arrangements.

Positive: The U.S. Department of Energy (DOE) Secretary Samuel W. Bodman today released a Conditional Agreement for companies building new nuclear power plants in the United States to qualify for a portion of $2 billion in federal risk insurance.

Negative: The U.S. nuclear industry has been virtually frozen since the accident at Three Mile Island in 1979, the worst nuclear accident in U.S. history. No company has followed through with plans to build a new nuclear plant since the accident.

Negative: Uranium is not publicly traded on any exchange. Trades are carried out on a private basis. Hence, valuation is based on recent deals.

Answer to MYOB Pop Quiz: Lithuania

Quality Demand Is It?

QDII - Quality demand?

China's largest fund house - China Asset Management - raised US$4 billion within a day under the Qualified Domestic Institutional Investor scheme. Funds approved under the QDII can invest in stock markets outside China. The aim is to allow the vast amount of liquidity in China to flow overseas and ease the pressure on the yuan as well as the high asset prices on the mainland. Singapore is expected to be a beneficiary of the outflow of the Red Yuan.

Readers who frequent Shareinvestor.com might have heard Oldman aka Michael Leong say that, ultimately, the price of each stock simply follows the law of demand and supply. Over the past two days, the Redchips have collectively powered the STI to a new high. SESDAQ has been left behind in the recovery while STI is back to making new highs. If you had gone to bed in Aug and woke up in Oct, you probably would not be able to tell the carnage and panic from the US subprime 'scare'.

According to ML's conservative estimates, up to US$3.3 billion per month on average over the next 15 months may potentially flow into the HK stock market. To give you an idea, that mount has the same effect as SPH being swallowed up in 6 weeks. That is how much buying power there is.

Is it our business?

Be afraid, be very afraid. There's more to come. Beijing has just launched the US$200 billion China Investment Corp over the weekend that would unleash the largest fund in history onto
the world's financial markets. Just look at the Shanghai Index. That is the buying power of 1.3 billion Chinese. CIC is a soveriegn fund, just like our GIC.

The QDII effect on STI is immense. MYOB expects the STI to be more decoupled from the US
markets, and track the Chinese market more closely. Just look at Hang Seng over the past few months.

Stay tuned.

MYOB