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Saturday, May 28, 2016

Thong Guan Industries Bhd (RM3.24): Quarterly Profit a Confidence Booster

I was reluctant to write about this company earlier as I wasn't sure how sustainable its highest recorded RM15mil++ profit in 4Q'15 was going to be. In addition, many exporters were affected by USD weakness in 1Q'16, as evidenced by a few popular names such as Evergreen, FLBhd, LCTH, SHH, Latitude etc. which reported quite disappointing results. (However, Lii Hen is an exception, which surprised me.)

However, Thong Guan's 1Q'16 results proved to be a real confidence booster as it held up well with net profit of RM13mil on stronger-than-expected plastic and F&B segment’s margin. If excluding additional forex loss of RM2.62mil, latest quarterly net profit could have exceeded its previous quarter's. Consequently, analysts upgraded their target prices, with Kenanga upping its target price from RM3.33 to RM4.19 while CIMB raised its target price from RM3.20 to RM3.67. 

Having said that, analysts' estimates are still way way too conservative with 2016 net profit forecasts still remain at around RM40mil. Kenanga analyst said that her estimates are still conservative and may look to upgrade her earnings forecast. I believe that Thong Guan can easily get above RM50mil for this year and RM60mil is not difficult at all. Besides, quoting from a famous analyst, Harry Teo, management indicated that 2Q'16 results will likely be better than 1Q'16. Annualizing its quarterly net profit of RM13mil could easily yield RM52mil for the whole year. 

For Kenanga report, click here
For Harry Teo's write-up, click here

Prospects (Taken from its quarterly report): 
In the first quarter of 2016, the Group has successfully commissioned its 33-layer nano-technology stretch film line, its 5-layer-blown film line, its automatic continuous organic noodle production line as well as its R&D centre. The Group has now positioned itself on a growth trajectory. It is pleasing to report that all operating divisions within the group has been profitable in the current quarter and is charting further growth. The Group is also currently looking at acquiring stretch film and PVC food wrap lines. Further growth on both volume and value is expected from plastic products and F&B in year 2016.

For 1Q'16 quarterly report, click here

Assuming net profit of RM52mil for 2016; Not accounting for dilution effect of warrants & ICULS (way out of money)
  • PE'16: 7.5x 
  • Earnings growth 2016: 35% 
  • ROE'16: 13% 
  • P/B: 0.85x 
  • Div Yield: >3% 
  • Net cash: RM0.66 per share 
Attaching PE'16 of 10x for its share price can easily yield a target price close to RM5. 

Prominent investors in the game: 
  • Koon Yew Yin: 2.06mil shares 
  • Dr. Neoh of Dynaquest: 1.9mil shares 
  • Fong Si Ling: 600k shares 
For shareholders' list, click here.

Disclaimer: I'm a shareholder of Thong Guan Industries Bhd. 

Tuesday, May 10, 2016

Highly recommended book: The Winning Investment Habits of Warren Buffett & George Soros

The book has been around for some years (pre-GFC 2008) and this is the revised version released in 2014. I highly recommend this book to all serious investors out there. Investors who are not serious can skip this book.

This is not a book providing formulas for you to earn money, but rather the thought process and investment philosophies of the two great masters, Warren Buffett and George Soros, to help you become better investors. 

Some of the notable points highlighted which I myself find very useful in my investment career:

  • Never lose money: Limited downside, maximum upside.
  • The market is always wrong: If not wrong, little chance to earn money.  
  • High risk, high reward? Disagree: The more you know, the less risky it is. Knowledge is inversely proportional to risk and positively correlated to reward. Reward has little to do with the risk you take. 
  • Diversification is for birds / Buy as much as you can: I've put 70% of my net worth into a single stock before due to high conviction it will rise significantly. Do your diversified investments have any significant change to your net worth? If not, do something which can increase your net worth significantly, something which you might be already doing. 
  • Start with the 'As': There are thousands of stocks in the market, how to know all of them? "Start with the As."
  • If you don't know, don't invest: Only invest what you know deeply. If you invest what you don't know, it's no different from going to the casino.  
  • etc. etc.
You can buy from Amazon here

Enjoy reading! 

Tuesday, April 26, 2016

Malaysian Government 'will ultimately bear' 1MDB's debts - Tony Pua

KUALA LUMPUR (April 26): The Malaysian Government will ultimately bear 1Malaysia Development Bhd's (1MDB) debt obligations guaranteed by International Petroleum Investment Co (IPIC), according to Petaling Jaya Utara MP Tony Pua.

The Malaysian Government via Minister of Finance Inc owns 100% of 1MDB. Prime Minister Datuk Seri Najib Tun Razak, who is also finance minister, is chairman of 1MDB's advisory board.

In a statement today, Pua said the Government's debt-asset swap arrangement with IPIC indicated that the Finance Ministry would indemnify IPIC of all its obligations including advances and interest payments on behalf of 1MDB.

Pua said, "Ultimately, IPIC will make the claim on the Malaysian Ministry of Finance based on the inter-guarantor agreement."

Pua's statement was in response to 1MDB's statement today that it had defaulted on the US$50.3 million (about RM198 million) interest payment for the US$1.75 billion bonds issued by its unit 1MDB Energy (Langat) Ltd.

1MDB, however, insisted that the risk of cross default on other bonds issued by company was limited. 1MDB's statement today was in response to IPIC's statement to the London Stock Exchange yesterday.

IPIC said it would pay the US$50.31 million interest to 1MDB Energy (Langat) bond holders "but only after 1MDB defaults on its payment obligations in respect of such notes".

Today, Pua said Najib needed to explain how the Government would remedy the situation.

"The Minister of Finance cannot continue to remain silent on this matter as this is the single largest default by any Government subsidiary ever in the history of Malaysia.

"Datuk Seri Najib Razak must provide a full and satisfactory explanation on the financial disaster taking place before our eyes and outline the steps which will be taken to remedy the situation," Pua said.