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Wednesday, July 9, 2014

Less postings for now


(Yosemite National Park, U.S.)

Sorry to inform that I will be posting less for now due to nature of my current work. Nonetheless, I will still be on Twitter, Chatbox and i3investor forum. Thus, do stay tuned to my postings in these three places. Thanks! Happy investing and all the best! 


Wednesday, January 29, 2014

The Kajang Move: Game Changer in Putrajaya Quest - By Rafizi Ramli

Guess who are the ones who firebombed the Penang church and who are the ones who are creating rumors of a mosque going to be attacked  right now?? They are of the same gang who are planning for leadership change right now?? I don't know. Make your conclusions. 

Read the ones highlighted in red. 


By Rafizi Ramli


I am aware that there is a lot of explanation that has to be made on the decision to vacate the Kajang seat to force a by-election. I am also acutely aware of Dato’ Ambiga’s advice communicated personally to me that we have to be as honest as possible with the people.



So let me begin by offering the sincerest apology to the Malaysian public especially the voters of Kajang. The by-election will certainly consume public money and public space at the time when the people have to go through economic hardship.

There is no excuse for wasting public money except to offer my sincerest apology and for the party to be prepared if the voters of Kajang decide to punish us.

In all honesty, as the strongest proponent of the scheme I bear most responsibility for the decision.

Yet precisely because we are honest to ourselves and the people, we have to acknowledge that there are problems and challenges that we are facing in Selangor that require intervention.

While Khalid Ibrahim’s administration has shown sterling performance over the last 6 years that endears him to the public, there are rooms for improvement in many areas especially given the latest dynamics in Umno.

It is an open secret that the move to remove Najib Razak has begun. As a party strategist, I cannot rule out the possibility that Najib is removed and Umno falls to the ultras led by Mahathir Mohamad’s faction.

The unscrupulous attack and schemes to take Selangor by hook or by crook will begin the moment the weak Najib is removed. Even as we speak, Umno’s cards are all too obvious in the latest round of racial and religious controversies stirred up in Selangor in the last few months.

Should Najib fall, expect a full blown manipulation of racial and religious issues to create mistrust and frustration with the Selangor government.

Model state as a launchpad for Putrajaya

While Khalid Ibrahim’s administration has set a gold standard in integrity and prudence in managing public funds, we also have to admit there are also other areas that we can improve. We need radical approach to solving the traffic woes, the pace of affordable public housing has to pick up. There is a need for more rigorous forward planning of water resources in Selangor and some hard decisions have to be made soon. We have to vigorously protect the rights of the minorities who are the targets of Umno’s political game.

As an MP, I certainly believe we can do better especially with regards to cleanliness and livelihood of the people. We have the potential to be a model state with least potholes in densely populated areas.

In other words, Selangor has to be doubly better than what it is today if it were to become a showcase for Pakatan in its quest for Putrajaya. Just as Istanbul was a launchpad for Erdogan and Jakarta is a launchpad for Jokowi, Selangor can be a great launchpad for Pakatan to take over Putrajaya.

The job is not done and we are about to face another round of onslaught from Umno.

Therefore, while it is certainly inexcusable to spend public fund unnecessarily in a by-election, it is an even bigger dereliction of public duty if we do not do anything, knowing that this round is going to be tougher.

What PKR and Pakatan Selangor need is a fortification so that we can expedite reforms and simultaneously fend off political attacks and manouvres from Umno. We need as many of our top leaders around Selangor to defend Selangor because it remains the crown jewel of any political coalition in the country.

Hence the decision to field Anwar Ibrahim for a state seat as this provides an option that we can readily exercise should the need arise.

Does this mean there will be a change of stewardship of Selangor government? Maybe yes, maybe no. But we do have the option to optimize our leadership potential if Umno stirs up more trouble.

Option is key. Having the option means having the flexibility of manouvres that can easily frustrate Umno’s game in Selangor especially with regards to racial and religious controversies.

At the end of the day, I know no amount of explanation can sooth the public anger. I only appeal for time to let the rationale sink in and space for us to do the necessary.

I also have to apologise on behalf of my party for the differences we have among ourselves that are seen as factional and often frustrates the public. Yet we trying our best to resolve it now for the sake of Malaysians, because not doing it now will certainly condemn us to the same experience of Pakatan in Kedah. We learn the lesson bitterly that differences must be managed early because the party always has to be whole to face Umno.

Good political leaders will never be popular. It pains me that we have to drag Anwar Ibrahim through this and subject him to public anger, yet his willingness to be a part of the bigger picture is the mark of the man.

Throughout the last few days, I reassured myself that it was Churchill who chose to be unpopular and remained a minority voice of alarm against the advancing Nazis till the end despite a public popularity to appease the Nazis. An the height of Nazi’s power, Churchill stood alone when every one else in Europe bowed to Hitler.

The conviction of doing the right thing, in the face of extreme criticism and public anger, remains a yardstick of what an honest leadership is.

I thank the top leadership of Pakatan who understand the necessity of doing this. I thank my comrades in the second leadership line up of Pakatan who have given the moral and political support for us to proceed.

I hope that one day when we are in Putrajaya, we can look back to the difficult days of what will be called the “Kajang Move” as the game changer in our quest for Putrajaya. I honestly hope that it will our defining moments that allow us one step closer to Putrajaya.

I maybe naïve and ridiculed for my naivette, but that’s as honest as I can be.

Let’s look ahead for a stronger Pakatan in Selangor posed to take over Putrajaya in the next election and don’t look back.

Monday, January 27, 2014

Thong Guan: Scientex in the making (without the property division)


Thong Guan Industries Bhd is spending about US$12mil (RM40mil) this year on its Sungai Petani plant to expand its range of industrial packaging products.

Group managing director Datuk Ang Poon Chuan told StarBiz that about US$4.5mil has been used to instal new production lines for its polyvinyl chloride (PVC) food cling wrap materials and masterbatch compound business.

“The remaining would be used for expanding into technology-breaking machineries for the production of value-added packaging materials and blown-film industrial bags.

“With the investment, we are targeting to raise the group’s annual output by 10% to 132,000 tonnes this year compared with about 120,000 tonnes in 2013,” he said.

The group’s stretch-film packaging materials is expected to generate about 65% of revenue this year.

“About half of the stretch-film products produced are in the high-value category, such as thin-gauge packaging materials of less than 12 microns and less than 17 microns used respectively for manually and machine-wrapped packaging products, which will contribute more to the group’s bottom line.

“The investment will also raise the contribution of the PVC packaging material and masterbatch compound business to 7% and 5%, respectively, this year from about 5% previously,” he added.

The demand for stretch-film and food and beverage packaging products come from Japan, New Zealand, Australia, the Middle East and Europe, while the orders for the masterbatch compound come from Asean countries and China.

Ang said the group expected to close the 2013 fiscal year with its best results in the last five years.

“We are confident because our 2013 third-quarter results were a record-breaking one in the group’s history,” he said.

For third-quarter 2013 ended Sept 30, the group posted RM13.4mil in pre-tax profit on the back of RM188mil in revenue, compared with RM6.4mil and RM155.4mil achieved respectively in the previous year’s corresponding period.

For the nine months of 2013, meanwhile, the group achieved RM27.4mil in pre-tax profit on the back of RM535.6mil in revenue, compared with RM20.7mil and RM452.9mil recorded respectively for the same period of 2012.

Moving ahead, the group would emphasise on the production of environment friendly products such as thin-gauge and biodegradable and compostable packaging materials, disclosed Ang.

“For example, we are working with a UK-based company to develop biodegradable and compostable compounds for the manufacture of plastic products.

“Part of the investment for the masterbatch compounding business is to mass produce solutions that can be used as a key ingredient to manufacture biodegradable packaging products.

“So far, the production of such masterbatch compound has been successful. Our products have been approved with the EN 13432 certification from the relevant European authorities, which endorses that our solutions have met with stringent standards,” he said.

According to a recent Smithers Pira research report, the global packaging market stood at US$799bil in 2012, increasing by 1% over 2011.

“Sales are projected to increase by 3% in real terms in 2013 to US$824bil,” the report said.

Monday, January 20, 2014

Thong Guan Industries (Price = RM2.09; TP = >RM3.00) - An upcoming packaging company catching up with its peers

There's nothing much to cover nowadays as I can hardly find any undervalued stocks (Those which have at least 40% upside) in KLSE which is worth the risk of going in at today's prices. A stock that caught my attention is Thong Guan, which I deem safe to go in at today's price and is a beneficiary of strengthening USD and expanding production capacity with its products being exported globally. It is quite similar to Scientex's packaging division without the property division (Property division could be a drag in the current environment).


Background: 
Thong Guan Industries Berhad is one of Asia Pacific’s largest plastic packaging companies with over 30 years of experience and distinguished track records. The Company is one of the largest producers of cast pallet stretch film and garbage bags in this region with an annual combined production output in excess of 100,000 metric tons. The Company’s core manufacturing operations are situated in northern Malaysia, Kedah that covers an area of over 30 acres, with established manufacturing operations in China and Thailand. Dato Ang and family controls 39.8% stake in the Company.



Products & Production Capacity p.a.: 

  • Cast LLDPE stretch film (>75,000 mt)
  • Garbage bag (>40,000 mt)
  • Flexible packaging (F&B, industrial etc) (6,000 mt)
  • Calcium Carbonate / White Masterbatch
  • PVC Food Wrap



The Company also produces coffee and tea which are mainly sold locally and in SEA countries. 







Earnings prospect: 
The Company made its highest quarterly earnings in 3Q2013, mainly buoyed by increase in export volume and selling prices. Earnings were also buoyed by higher margin of stretch film and other plastic products as well as the appreciation of the USD vis a vis the Ringgit. It is worth noting that any increase in raw material prices were easily transferred to the customers via higher selling prices, which could mean this industry is a seller’s market. 

9MFY2013 net profit already reached RM21.85mil. Assuming 4QFY2013 earnings will reach about RM12mil (traditionally 4Q is the strongest), FY2013 earnings could reach RM34mil, translating into PER of 6.5x. To recap, revenue rose with 4-year CAGR of 10.4% while net profit rose with 4-year CAGR of 22.4% due to expanding margins. Assuming the trend will continue which is further backed by expected appreciation of USD and higher-margin stretch film and plastic products coupled with continuing expansion in capacity, revenue and net profit could reach RM800mil and RM40mil respectively in FY2014, translating into PER of 5.5x for FY2014. 


Excerpts from 3Q2013 quarterly report on company prospects: 
The Group's stretch film division which was boosted by the full production of two new European cast stretch film lines last year has seen the increase in production volume, margin has also improved especially in the third quarter due to the group's efforts to focus on more value added products.

The PVC food wrap division had seen continuous improvements in profitability since the full operations of the second line last year. The group is expanding its operations further with the installation of 2 new lines which is expected to be commission in the first quarter of 2014.

The Group's new subsidiary company, TGSH Plastic Industries Sdn Bhd has continued to improve on its bottom line with its more aggressive pricing strategy and contributions from newly installed machineries. Its operations will be further expanded as well. 

Its garbage bag divisions in both Malaysia and China has continued to be profitable while the industrial bags division in Malaysia has withnessed marked improvements in the third quarter. There are plans to further expand the operation of this division.

The Group's compounding division which was expanded last year has continued to be consistent, contributor to profitability. New machineries will be installed before the year end and early next year to further increase its production output.

The Group's operations in Sabah has also been profitable as well. The food, beverage and other consumable business unit has continued to grow and is expected to continue its steady progress despite suffering a drop in profitability this year.

The Group is confident of the continuous progressive contributions from its business units and has chartered further growth prospects.



Valuation: 

With expected double digit growth in net profit, PER’13-14 remains at a paltry 6.5x-5.5x. The Company is further backed by strong balance sheet with net cash of about RM30mil. Dividend could reach 9-10 sen per share in FY2013-14, implying a commendable dividend yield of at least 4.3%. This stock should trade at double digit PER in view of its resilient market and growth prospects but could be offset by its illiquidity and lack of coverage among analysts (which is good as greater coverage and liquidity won't give you today's prices to buy in :P). By applying a PER of 8x, the stock should trade at RM3.00. Any corporate action to improve its share liquidity should send the stock even higher than RM3.00. By comparing Scientex (PER of 9x - lower due to property division which commands lower PER; ROE 20%), Daibochi (PER of 16x; ROE 18%) and Tomypak (PER 10-11x; ROE 13%), what is Thong Guan doing at PER of 5.5x-6.5x (ROE 11%)?? It seems that Thong Guan’s stock price has a lot of catching up to do. I see very little downside to its share price and it’s good as a long term investment.