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Wednesday, October 27, 2010

India PM invites Malaysian bids for infrastructure projects

News from The Malaysian Insider.
News from TheEdge.

Beneficiaries: WCT, Gamuda, IJM, Mudajaya, Sunway, Binapuri, MTD, Scomi Engineering and Zelan.

Tuesday, October 26, 2010

Kumpulan Fima (RM1.25): Solid earnings at PE of less than 5x??!!! Dividend yield of 4% with strong net cash of 39 sen per share

Kumpulan Fima, another stock with extremely low PE, high net cash, solid earnings from diversified businesses and riding on the wave of strong CPO prices. Earnings over the next few quarters will be boosted by strong CPO prices.

The company's earnings are mainly generated from three main business segments, namely production and trading of security and confidential documents (Manufacturing), oil palm and pineapple plantation and bulking services. About 54% of earnings come from manufacturing division, followed by plantation (35%) while the remaining come from bulking services coupled with food (canned fish products) and trading (military aviation agencies and food products packaging).

Earnings from manufacturing division has been on an increasing trend albeit at a slow pace of single digit percentage increase p.a. The bulk of the earnings growth will be coming from the plantation division in view of the favorable CPO prices coupled with its expanding planted areas. The company currently owns about 21,000ha of plantation land of which 7,600ha are planted with oil palm and pineapple (proportion unknown). For now, I've no idea how it could rake in PBT of more than RM30 million with just 7,600ha of planted area in FY2010. Other plantation companies would probably need about 14K-15K ha of planted area to have that kind of profit. Unfortunately, its palm oil production figures are not available in KLSE website.

Having said all these, profit is still good. Its plantation PBT was at RM13 mil already for quarter ending June 2010 when CPO prices were still low at less than RM2,500/MT. With current CPO prices at more than RM3,000/MT coupled with higher production (2H probably 50% higher compared to 1H), earnings from this division are going to spike up.

Valuation: 1HCY2010 net profit (Note that I'm using calendar year, not financial year) is already at RM30 mil. With high CPO prices and palm oil production, net profit for CY2010 could reach about RM70mil or 26.6 sen per share. Thus, PE for 2010 earnings might be less than 5x!!! Dividend yield is reasonable at 4%, supported by strong cash position of RM102 million or 39 sen per share. Its cash position kept on increasing unabated. This could easily pave way for further acquisitions and expansion of oil palm plantation or more generous dividend payout. Attaching a PE of 8x would put its share price to RM2.10.

PS: They just entered into a conditional S&P agreement to acquire 80% of Victoria Square Plantation SB which in turn holds 65% stake in Amgreen Gain SB which has 5,000ha of land for oil palm cultivation. An estimated RM70mil will be used to develop oil palm plantation over the next 5 years on this 5K ha land.

Share issued: 263.16 mil
Market Cap: 329 mil
Net profit for CY2010: RM70 mil or 26.6 sen per share
PE CY2010: <5x
Div Yield: 4%
Net cash: RM102 mil or 39 sen per share

PS2: I've yet to see any brokers reporting on this company. There are just so many good counters which should be covered by sell-side analysts. Readers might just get bored reading on the same counters again and again :(

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

Wednesday, October 20, 2010

Random thoughts

Was talking to a university professor about KLSE's market efficiency. He mentioned that the Malaysian market is a rather inefficient one, meaning investors are slow to bring mispriced stocks to their appropriate value, which I think it's quite true. This actually bodes well for investors who has the ability to lead the rest of the investors in identifying under-priced stocks and have the guts to go in when nobody else is doing it yet. Besides, there are plenty of opportunities to accumulate stocks (owing to the longer time taken for the stocks to reach their fair value). Therefore, I find it is easier to make money (or lose less money) in Malaysia's stock market as compared to other markets (which my peers probably don't agree). This also makes Malaysia a low-beta market which provide a rather stable market for investors to invest in amid the current volatility in markets worldwide.

A Pakistani friend just asked me how much it costs to buy an Altis in Malaysia. I gave the number RM130K. He was totally shocked and said that he could buy two back in Pakistan. I can't help but to think about the abolishment of car APs in Malaysia which could benefit Malaysians so much more as compared to the current situation. Nonetheless, the auto industry is so intertwined that it will be hard for Proton to wind up or to let all the foreign car prices to drop by half. Has anyone studied the effects of Proton teaming up with a major carmaker (It would not be politically correct here to say the word 'demise of Proton') which allow for lower car prices (by probably 40%) for foreign makes owing to the abolishment of APs, on the economy in general? Maybe someone could write a thesis on this :p Do let me know if you've come across any. Thanks :)

Tuesday, October 19, 2010

Stocks Unleashed for ASX

Anyone interested in Australian stocks (Especially mining stocks) can take a look at Irene Koay's blog here.

Happy investing!

Monday, October 18, 2010

Ho Wah Genting Bhd: Potential to fly like Australian mining counters??

By William Koay

In Australia, there are some mining stocks which were trading at very cheap prices around 10-20 cents before they found the minerals underneath the mining land. However, their shares rocketed to the sky once they found the minerals such as gold, copper, tin, gas or rare earth.

There is a stock named Sanfire which traded at 9cts in May last year and had since sky-rocketed to more than A$7.00 now as they found big deposits of copper in its mine worth about A$5-6 billion at current market value. Another stock named Karoon Gas drilling for oil and gas off N-W part of Australia, has its share price zoomed from a few cents to more than $8 now!! In year 2005, a share called Redback Minerals Resource which has a very small market cap found gold in West Africa and saw its market cap. zoomed to $6 billion currently traded in Canada stock Exchange. In view of this, many Malaysians might not be aware of the craziness of share prices of mineral companies overseas. Will this happen to Ho Wah Genting Bhd (HWGB)?

The current 3rd or 4th richest man in Australia who is worth a few biillons was once a farmer before he found one of the biggest deposit of iron ore in its farm land. He concluded the deal with a Chinese company to develop it into one of the biggest iron-ore mine in the world and thus his company share sky-rocketed and made him a billionaire.

Ok, back to HWGB, it has 35% stake in a magnesium company called CVM Mining which is listed in HKEX and is worth at about $110m. The current market cap of HWGB is worth about this sum as well. Thus, its 100%-owned factory in Indonesia producing copper cable/wire and 100%-owned HWGB Tin Mining company as well as some properties coupled with tour bus business are not priced into its share price yet. In other words, if you buy its shares at 28 cents, these businesses are basically free!!

Nonetheless, aside from this, the main impetus is actually tin mining. The boss said that it has reserve of 50,000 ton of tin which is worth about 50,000 x RM 80,000/ton = RM4 billion at current price of tin. But how true the statement is remains unknown. Assuming that it's half true, the tin beneath could worth RM2 billion which is shocking.

So, let us watch to see whether HWGB could become another Sanfire or Karoon Gas company of Australia!

Wish you all the best in investing!

Click here for some info on Malaysian mining.


The Star Article on Tin Mining:

The lucrative revival of tin mines

Commodities Talk - By Hanim Adnan

A full revival of tin mining operations can potentially be lucrative ventures for governments in states with high tin deposits. Malaysia’s tin reserves – ranked the third largest in the world – are estimated at RM350bil or about one million tonnes currently.Perak, for example, used to be the centre of tin mining activities, supplying to over 40% of the world’s tin market.

The collapse in tin prices back in the early 1980s had resulted in the closure of many tin mines in the state.

However, a recent upsurge in tin prices amid a global supply shortage had prompted many state governments to open their doors for more exploration and prospecting of high-income generating minerals.Perak stands to benefit significantly from these current encouraging developments; hence its recent announcement of an indepth study being taken on its tin deposits and other high quality minerals, like kaolin, limestone and ball clay, was timely.

This move can lead to the reopening of the many defunct tin mines scattered all over the Kinta Valley which still have ample tin deposits. The re-activated mining operation can also provide a multiplier effect for other activities such as property, manufacturing, logistics, landscaped townships, ports and railways. This can lead to a boom in Perak, which needs to actively spruce up its economic activities.

Only a handful of companies with big financial muscles are involved in tin mining in Perak. Malaysia Smelting Corp Bhd via its unit Rahman Hydraulic Tin Sdn Bhd has the country’s biggest hardrock tin mining operations in Klian Intan, Hulu Perak, since 1907.

Last year, a 30-year mining concession was awarded to Rahman Hydraulic for prospecting tin ore and other minerals in a newly identified 14,000ha at Pengkalen Hulu near Ipoh. Perak also stands to receive a 5% royalty from the tin ore and minerals to be mined. A 10-year mining lease was also awarded to HWG Tin Mining Sdn Bhd, a unit of Ho Wah Genting Bhd in 2008 to mine tin and other minerals on 500 acres in Pengkalan Hulu with a potential for a further 500 acres as work on the initial area progresses.

Unknown to many, mining operations contribute about RM2bil annually to Malaysia’s GDP, according to the Malaysian Chamber of Mines.To ensure efficient and effective implementation of tin or other mineral mining operations, state governments keen to open up mining areas must strictly adhere to the newly revised Second National Mineral Policy (NMP) which was launched last year, as well as the State Mineral Enactment.

Previously, mining was perceived as damaging to the environment, hence the reluctance of many state governments to issue new mining licence to potential operators.Environmental-friendly mining including environmental protection, sustainable development and the management of social impacts are vital to modern day mining activities.In fact, the thrust of the NMP is on optimum exploration, extraction and utilisation of resources using modern technology as well as research and development with strong emphasis on the environment.

Apart from tin, it is worth noting that Malaysia is also endowed with gold, coal, feldspar and industrial minerals like river sand, granite dimension stone, clay and silica sand for prospecting and mining.


Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

Friday, October 8, 2010

Some thoughts on Mudajaya after SC's letter

Reply to Moolah's post on Mudajaya:

"Investment of associates should be the IPP project in India :) The money earned from the construction of the project is plowed back into the IPP project as part of its 26% equity stake commitment. So, can't really say there's no wealth creation as Mudajaya is bound to reap its harvest from India once the IPP starts operation. The question is whether the earnings from IPP could justify the RM871 million being plowed into the IPP project. Mudajaya will be putting another RM671 million over the next two years into investment of associates. That will equal about RM80 mil per quarter.

As for valuation of Mudajaya, I will not put its construction earnings from IPP together with its 26% stake in IPP like what is done by CIMB. Instead, valuation should only include its 26% stake in IPP and exclude its earnings from IPP construction as construction profits are channeled back to the IPP anyway. By excluding IPP construction earnings, its earnings should be halved, probably about RM140-160m p.a. in 2011-12.

Simple valuation: RM1800m (Construction earnings PER 12x) + RM800m 26% stake in IPP + RM30m properties. Work out to be RM6.40 per share. Hope this helps :)"

Looking closer at Mudajaya's financial statements, its earnings are not really that meaningful (except for other projects other than IPP projects). However, the way they present their earnings were misleading to investors. This episode has also caused a dent in investors' confidence towards this company and will be hard for the company to shake off its "fraudulent company' image among investors.

Price weakness to continue??

Any constructive comments on Mudajaya? Appreciate it!

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

Thursday, October 7, 2010

Stock Holdings

Current stock holdings for now (I find 5 stocks for a portfolio will be good enough for individual investors. Holding more than that could undermine potential gains. I guess an investor's aim is to train oneself to identify winning stocks while at the same time train oneself to be intuitive/alert enough to sense any negative sentiment and change fast, and I mean REAL FAST accordingly - I've learnt some difficult lessons of not acting fast enough, especially in cutting losses and switch counters fast):

Delloyd (RM3.14): I feel it's a matter of time before it flies. I like their share buybacks, increasing contribution from bus manufacturing, plantation and riding on increasing car sales. An extensive report on Delloyd can be found here in The Edge. Click here for previous posts.

Mudajaya (RM4.61): Ample opportunities to pick up Mudajaya at lower prices, though it can be risky pending announcements from SC regarding its disclosures on Indian IPP projects. However, looking at how Mudajaya came out to clarify and assure the investors/analysts coupled with working closely with SC as compared to other more dubious companies where CEOs go missing and so on, Mudajaya should be alright in this regard. In addition, "double joy" on announcements of potential IPP project in Laos and SC's email on letting Mudajaya off within a single day. Click here for previous posts.

Paramount (RM4.63): Same old story on Jerneh. Potential fat dividend on the cards? Business direction good as well with greater expansion/diversification into education sector while corporate earnings in the past quarter came out very favorable. Click here for previous post.

QSR-WB (RM2.07): More speculative. Looking at how the shares have been played up, a very big player is coming in. Recent news have been favorable such as expansion into India, potential acquisition of Yum!'s outlets and the resilient uptrend of its earnings. A good proxy to KFC which has shot up to the sky!! QSR currently trades at around 14.5x PER which is undemanding as it should trade close to other F&B counters which are at 17-18x PE levels in view of its leadership in the F&B sector. Should QSR goes up to RM5.50, QSR-WB could easily go up to RM2.50, more than 20% upside.

Latexx (RM2.72): As mentioned in the previous post.

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

A simple look at glove makers - Which is the most attractive??

Top Glove's quarterly results just came out and the performance was not favorable owing to normalizing demand, weak USD and high latex prices. Is this a precursor to what we are going to see in the glove makers' performance for 3Q10? Will other glove makers' performances be as poor as Top Glove? I will try to present my simple guess and see which one is the most attractive for now.


Based on the table above, Top Glove should be the most affected amid high natural rubber (NR) prices, followed by Adventa, Supermax, Kossan, Latexx and Hartalega (The least affected). Therefore, we might not see earnings of other glove companies decline as much as Top Glove.

Owing to the high NR prices, some customers are switching to nitrile gloves which currently enjoy firm demand. Therefore, Latexx and Hartalega might continue to remain firm (or less affected) in their earnings/margins in the following quarters owing to their higher exposure to premium segment i.e. nitrile and powder-free gloves.

Looking at the glove makers performances above, I would prefer Latexx as its growth in earnings and margins appeared to be more resilient while its 2Q2010 earnings growth remain in the positive QoQ when others were experiencing contraction (except for Adventa but earnings are rather inconsistent and too small for my taste). From pure PER valuation point of view, Latexx remains the cheapest. Latexx is moving into premium segment i.e. Powder-free and nitrile gloves where demand is firmer. Besides, Latexx could also benefit from its washing system to remove protein content in the gloves which will come onstream in 4Q2010 and could contribute strongly to its earnings.

In my simple conclusion, Latexx will be my top pick for the glove sector for now.

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

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