Monday, December 27, 2010

Syed Mokhtar stocks 'kena goreng': Missed out DRB-Hicom? Missed out TWS? No worries, don't miss out BERNAS (RM2.83; Target: >RM4.20)

From the way Tradewinds (TWS) is moving up for the past two weeks, we can clearly see that this is the right stock that will continue to rally in the coming days and weeks. This is going to be the darling stock of KLSE next year. In every bull run, there are always a few Superstar counters. TWS might be one of them.

Here comes Bernas, a subsidiary of TWS which owns 70% stake in its paid up capital of RM470m. Share price of Bernas rose fantastically last Friday and caught the attention of all Malaysians who invest in KLSE. It went up by more than 50 sen in one day and was the top gainer.

Let's look at the business of Bernas .It has a near monopoly business of rice in Malaysia. Its profit was quite unpredictable for many years due to its inability to raise the price of rice which was a controlled item in Malaysia for many years. When the price of rice went up in international market and the government did not allow it to raise the selling price of rice locally, it lost money in that particular quarter or that year. Thus, it used to be a laggard stock for a long time and very few people wanted to buy and keep it. Nonetheless, since TWS bought the majority stake of 70% at the end of last year, things started to change. The present government is more flexible in allowing the company to raise the price of rice locally when the price of rice in international market goes up. Thus, from now onwards, its business and profit will be more stable as shown by its three quarter results this year making near to RM50m profit in each quarter!

It will make close to RM200m net profit this year. Based on the closing price of RM2.83, the EPS and PER are just 42 sen and 7x only. In other words, even with current share price of RM2.83, the share is still considered cheap as compared to many other food companies which have PER of at least 15x. Look at F&N, QSR, KFC, all are industry leaders. Bernas is another industry leader. It has no business trading at current levels. At PER of 10x, the share is worth at least $4.20 and at PE of 15x, it will be $6.30.

In addition, Bernas is very generous in its dividend payment. It paid a 24% dividend last year, giving a net yield of 6.5%. It has a near monopoly in the rice industry in Malaysia and thus has the ability to set the selling price of rice in Malaysia. It also has 30% stake in Gardenia Bakeries which is one of the most popular bread manufacturers in Malaysia and 45% stake in United Malayan Flour. Thus, it is a gigantic food company generating a turnover of more than RM3b per year and making profit of RM200m yearly. How can its share price stay low for a long time? Incomprehensible!! It has just started to roar and will continue to do so just like other food companies like QSR and KFC.

Thus, I think it will become another Superstar just like its mother TWS. Syed Mokhtar counters are getting very 'garang' and hot lately. DRB-Hicom and TWS have moved up substantially, though I believe there's more upside, Bernas is just starting to move up. Therefore, don't miss out on this possible winning stock!!

By William Koay

Sunday, December 19, 2010

Who is this NENO or TAS or whatever? Someone who has lost money and spam people's blogs with his rants? - In reply to his post

neno said...

Dali called to buy JCY @ 1.60 , JCY is now 0.77 , proof here >

JCY looks likely to slash its IPO price to RM1.60 from an earlier indicative RM2.00. At RM1.60, its a good price level to get in. I still think its fair value is at RM1.80. Enough said.

My reply:

"We're living in a fast changing financial market. Sentiments can change just overnight without warning. If I want to invest long term in stock market, better choose blue chips and avoid all these small cap cyclical stocks. Recommendations from just a month ago might have changed several times already. If invest in these stocks, watch closely, act wisely. It's all about entry and exit points. It's a skill which we have to develop. I can't really judge Dali's recommendation based on his prediction like 10 months ago!!! (MY GOSH!! IT'S BLOODY 10 MONTHS AGO. I might not even consider recommendations like a month ago. They're just good for information sake.) Many things have changed since then. His style is based on momentum play backed by fundamentals, meaning it's fast changing. If you want investment horizon of like 1 year, go to unit trusts. Thus, if we lose money, we have ourselves to be blamed. That's my standpoint. We are responsible for our own money, decision, judgment. If we're not careful enough, blame ourselves. That's all. Thanks."

So, dear readers, exercise your own judgment. Read my entries with your critical eyes and analyze the stocks by yourselves. Don't follow my recommendations or others' blindly. I'm no Sotong and I'm not God. If you agree with my entries, it's a compliment for me. If not, I'll be more than glad that you could provide constructive comments. Thanks.

PS: Stop spamming people's blogs if you lose money or for whatever reason. Moolah's blog and a few others also kena.

Thursday, December 16, 2010

Free Piano Jazz Radio

Stumbled upon some cool radio channels. For those who favor piano jazz music, check out this site. They have really good stuff here.

Wednesday, December 8, 2010

"Why I Like Kumpulan Fima" by Dali: Malaysian research houses, please expand your horizon :p

Looks like the ballrolling has to start from the bloggers eh? There're still no research reports on Kumpulan Fima though probably everyone in the bloggersphere is recommending it (including Dali, Moolah and myself) and already investing in it!!!??? Maybe bloggers who are doing the hardwork of picking out these undervalued stocks should demand some payment eh..hehe..Ok, I'm just joking :p Some of the stocks which are not in the Bloomberg's analyst coverage list at all which have strong potential such as DRB Hicom, TDM, Kumpulan Fima, Cepatwawasan (though there's a write-up from CIMB with no recommendation).

Dali's article on Kumpulan Fima, click here.

PS: Another Forbes' Asia 200 Under A Billion award winner is Coastal Contracts which is trading at RIDICULOUSLY low PE of less than 5x!! Wakarimasen!!!

Tuesday, December 7, 2010

Siaran Tergendala: Will be away for a while

Dear readers,

I'll be posting quite rarely from now till maybe next Feb (Not that I post as often as other finance bloggers in the past...Sorry guys :p) as I will be busy with other matters. Nonetheless, I will be checking my chatbox to see if I can give any constructive responses to you all.

Thanks. Happy trading!

Tuesday, November 30, 2010

A short commentary on EPIC results

I just glanced through EPIC results. Looks good.

EPIC results were good. Earnings remain resilient with net profit of RM13.4 mil or EPS of 7.9 sen for 3QFY2010. 9MFY2010 net profit reached RM38 mil or EPS of 22.8 sen. Give it another EPS of about 8.0 sen for 4QFY2010 will push EPS to about 31 sen for the whole year of 2010. PER 2010 will be around 7.5x. It's rather difficult to understand a company like this trading at PER of 7.5x. I would rate it at least PER of 10x, looking at its resilient business and earnings coupled with strong balance sheet with net cash of RM74 mil (Though strong net cash might not be the optimum capital structure for the company). This stock should worth at least RM3.00. Thus, Terengganu Inc was quite right to buy EPIC's shares from AZRB at RM3.10 per share.

Monday, November 29, 2010

Kulim says Carlyle offer not attractive: Just keep QSR, no need to sell lah...

KUALA LUMPUR, Nov 29 — Kulim has rejected a non-binding offer from Carlyle Group to buy over its subsidiary QSR Brands, the company said today.

“As QSR and (its) subsidiaries are currently experiencing a robust growth, the board believes that more value can be realised in the long term,” Kulim said. — Reuters

No need to sell (lah). There are news saying Johor Corp wants to pay off debts. Why can't they just restructure or refinance the debt and use some of its subsidiaries' shares as collateral? Better to keep this cash cow gem and realize its value years later which could be a lot higher than current valuations. OR could it be that QSR shares are played up to give a boost to Kulim's share price and Johor Corp will be able to sell Kulim's shares at a more handsome price which could give Johor Corp even more cash? Just a thought :p

Saturday, November 27, 2010

TDM (RM2.43): Spectacular Results

TDM just released their results yesterday. It was just fantastic, above my expectations. Net profit for the quarter was RM28.8 mil or EPS of 12.7 sen. Cumulative 9MFY2010 was RM61.6 mil or EPS of 27.3 sen. Given the current CPO price, net profit for the whole year could easily exceed RM90 mil or EPS of 41 sen. PER 2010 is going to be around 6x only, supported by net cash of RM122 mil or 55 sen per share. To me, TDM is still cheap to go in with attractive dividends of about 5%.

For previous posts on TDM, click here.

Thursday, November 25, 2010

Carlyle offers RM1.9b for QSR, tops Idaman bid: Now it's RM6.70 per share. Any more bidders? Above RM7.00 per share perhaps?


Kulim today said private equity firm Carlyle had offered to acquire its majority-owned QSR Brands for about RM1.94 billion, topping a previous offer from a company linked to tycoon Tan Sri Halim Saad. Carlyle Asia’s offer of RM6.70 a share for the majority owner of KFC and Pizza Hut in Malaysia is 20 per cent more than Idaman Saga’s offer of RM5.60 a share earlier this week and QSR’s current stock price.

“It’s a very lucrative offer and it’s hard to imagine somebody up that number,” said an analyst with an international brokerage who could not be named as he is not authorised to speak to media. The offer values QSR at 20 times forward earnings compared with its current valuation of about 15 times earnings.

QSR’s sale will automatically trigger a general offer for KFC Holdings, the jewel in QSR’s stable of companies. KFC, the 51 per cent-owned subsidiary of QSR, owns US based Yum! Brands’ Kentucky Fried Chicken franchises in Malaysia and Singapore. “It’s already a good price at RM5.60 because QSR by itself is of little value. The value of QSR lies in KFC,” said the analyst.

“At RM5.60, it was valuing KFC at 20 times earnings. At RM6.70, it could value KFC at about 25-26 times.” KFC currently trades at 21 times earnings, well above the sector average of 17.8 times. Four analysts rate it “buy” or “strong buy” compared with two with a “sell” recommendation.

Kulim, which gets about 60 per cent of its profits from its plantations business, holds a 55 per cent stake in QSR Brands. The sale of QSR Brands will provide a quick injection of about RM1.07 billion for Kulim, which is owned by the debt-laden state investment arm Johor Corp.

In a statement to the local bourse, Kulim said its board will deliberate on the offer and that Carlyle had not indicated a time-frame for the offer. It also said QSR and its subsidiaries will not raise capital or declare dividend, while Carlyle conducts due diligence on the company.

Carlyle, a US buyout fund with US$90.9 billion (RM281 billion) in assets under management, has been eyeing deals in emerging markets of Asia and Africa. Earlier this year, it had raised an additional US$2.55 billion for deals in Asia, taking the total of Carlyle capital committed to Asia outside of Japan to more than US$5 billion.

Shares of QSR were up 2.75 per cent, KFC was up 0.77 per cent and Kulim shares were up more than a per cent, before being suspended for trading on the local bourse. — Reuters

For previous post on QSR, click here.

Saturday, November 20, 2010

Some comments on Halim Saad's offer to buy QSR

News: Halim Saad, partner offer to buy QSR

Just read the news. Valuation for the take-over could be just two times the book value??!!! This means that the takeover price could be at RM5.20?? Why would price-to-book value be used for this takeover? The valuation is way too low. QSR is a cash cow, bringing in more than RM100mil profits every year. QSR is a market leader in the restaurant industry, super resilient and consistent earnings growth, somewhat similar to F&B companies like F&N which is trading at PER of 17-18x. Therefore, PER should be used to value QSR. PER of 17-18x would value QSR at more than RM6.50. We should not discount the fact that QSR owns 51.2% of KFC and its stake in KFC is worth RM1.7bil already, similar to the whole QSR's market cap. This implies that QSR's Pizza Hut and Ayamas businesses are totally free!!!

In addition, I think Johor Corp will not accept the offer if the takeover price is lower than current market price. It is extremely hard to own such a company like QSR. No matter what, Johor Corp will be at a loss to let go of QSR unless the takeover price is very high, let's say RM7.00.

Therefore, using P/BV of 2x or takeover price of RM5.20 as reported in the news is purely ridiculous.

Wednesday, November 10, 2010

My take on AZRB and EPIC (Amended)

My guess is EPIC will be a privatization target. Terengganu govt won't stop at owning over 60% and not make a GO. It makes very good sense for them to privatise as EPIC is a cash cow. Around RM250mil++ of borrowings (Accounting for their net cash position) could help Terengganu govt to privatize the whole company (To buy another 60% of EPIC shares since they're owning 40%). Less than 5 years of EPIC earnings could easily pay off its entire debts.

As for AZRB, unless AZRB is paying a bumper dividend or invest in a business at least same or more profitable than EPIC, I see little upside to its stock price. Without EPIC, AZRB will lose about RM10-12 million of profit p.a. from its stake in EPIC, thus potentially making its PER very high. Though AZRB has 40 sen per share of cash if EPIC sale goes through, I'm afraid it'll end up the same as Fajarbaru with a lot of cash but have no idea what to do with it.

For me, EPIC will be a better bet. Will the share price shoot up to more than RM3? Hopefully :))

See previous related post.

PS: The RM10-12 million is not a loss. Rephrase: AZRB will earn RM10-12 million lesser p.a. if its 21% stake in EPIC is sold since EPIC is earning RM50-60 million p.a. The RM10-12 million p.a. is not the borrowing costs :)

Utusan's "May 13 is sacred"

Speechless! Utusan says "May 13 was a blessing in disguise. It's a sacred day". I hate to post political posts but this news is really too much to bear. There are just too many warped minds surrounding us. Read the news and judge for yourselves.

Wednesday, November 3, 2010

Kumpulan Fima (RM1.30): Quick note on quarterly performance

Kumpulan Fima just released their results today. Net profit was decent at RM14.8 million, which was a 50% increase year-on-year. Earnings growth were observed across all business segments. Nonetheless, earnings were down by 15% quarter-on-quarter, triggered by lower profit from manufacturing, plantations and associates.

EPS for the quarter was at 5.63 sen, with cumulative 9-Month CY2010 (Calender year) EPS standing at 16.9 sen. EPS for 4Q CY2010 could hit 6 sen easily, making EPS for the total year at 22.9 sen. Thus, PE for CY2010 could be at 5.7x. Net cash position continued to rise to RM120.7 million or 45.9 sen. I'm seeing another Faber in the making, quite similar in terms of the numbers. Recall that Faber was still at RM1.40 when net cash was at RM100m, PE of 6x, dividend yield at about 4% and stable and diversified earnings. Its stock price eventually doubled.

Click here for related posts.

Monday, November 1, 2010

News on Ho Wah Genting in The Star


Interesting note:
  • Ho Wah Genting is 35% owned by Perak royal family.
  • Going to mine 1,800MT of tin in 2011 and double capacity to 3,600MT in 2012. Revenue could reach 1,800MT x RM80K/MT = 144 mil. Earnings could be in tens of millions by 2011, which will make this company stock price extremely cheap.

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.

Tuesday, September 28, 2010

Common mistakes made by investors

Stumbled upon this article by Ang Kok Heng, CIO of Philip Capital on The Edge. A good read on common mistakes made by investors.

Reluctant to cut loss
The single biggest mistake of local investors is their reluctance to take losses. This is not unique among local investors but also happens in other countries, including developed markets like the US where investors are believed to be more savvy than those in the emerging markets. A person tends to feel more painful when taking a loss. Research shows that the quantum of pain from suffering a 30% loss is about 2.5 times more than the joy from making a 30% gain. To avoid the pain, investors tend to keep loss-making stocks year after year. So long as the loss-making stocks are not sold, the pain is not felt.

It is not uncommon to see an investor having a long list of loss-making poorer quality stocks in his or her portfolio statement. The excuse given for not selling these stocks is waiting for the stock to recover to their costs. Psychologically, it is believed that so long as a loss-making stock is not sold, there is still a hope that one day the price may recover, but if the stock is sold, the loss is realised.

It is normal to hear: “I am stuck with the stock due to losses”, “how can I sell now, the price is lower than my cost”, “I can’t do anything now as the price has gone down”. As the market does not set any trap to catch punters, it is the punters who voluntarily tie themselves up by refusing to get out of the sticky situation. The stock will not recognise who got “stuck” with losses, neither will it feel sympathy for the loyal punters who have been gruelling in financial pain.

For whatever reason, when a loss-making stock is purchased, the only rationale to continue holding on to the stock is hope. Most of the time there is no specific fundamental reason or news to justify holding on to the stock. Hope is a bad reason for holding on to a stock as the fate is purely determined by chance which may or may not happen.

Unfortunately, if fundamentals continue to deteriorate for some of these poor quality stocks, they may fall under PN17 or be eventually delisted. By then, it will be almost impossible to recover whatever was invested in the stocks. An 80% deterioration in price can end up as a 100% loss when the final nail is hammered into the coffin.

Quick to take profit
Another reason why a typical investor has a long list of loss-making third-liners and little in quality stocks or blue chips in his or her portfolio is that most of those stocks which made money have been sold. As the probability of making money from quality stocks and blue chips is higher, investors are quick to lock in the profit and proclaim a victory.

Over time, good stocks are sold and poorer-grade stocks are kept in the portfolio. Unknowingly, investors sold the valuables and became collectors of “rubbish”.

It is also common to hear “advice” from fellow investors that one should not be too greedy. If a stock appreciates by 20%, common advice is to lock in the profit before the price comes down. It is not entirely wrong to take profit. But what if the stock price falls by 20%? Should there not be a similar strategy to protect a portfolio when the stock price turns south? Investors made several mistakes by taking early profit:

• Taking profit early should apply to trading stocks and not on investment-grade stocks.
• Investors should also set a cut-loss strategy instead of only profit-taking strategy.
• Instead of selling quality stocks and keeping speculative stocks, investors should sell speculative stocks acquired based on rumours and keep quality stocks.

Preferring cheap stocks
When it comes to the level of stock price, the common perception is that a RM1 stock is cheaper than a RM10 stock. It may sound logical but it is entirely wrong based on fundamental of investment. From an investment approach, a stock is purchased because of its future earnings outlook. As such, a RM1 stock having negligible earnings is more “expensive” than a RM10 stock yielding RM1 profit per share.

Perhaps a RM1 stock is perceived to be easier to be “pushed” by syndicates or easier to move up than a heavyweight. Low-priced stocks are generally considered as retail stocks as they normally lack fundamentals and are not popular among institutional investors. Without the help of so-called syndicates, low-priced stocks are traded among retail investors themselves from the same pool of money. There is no fresh money to lift the stock price higher. This is unlike institutional stocks where improved fundamentals attract more money, including foreign funds, resulting in more demand than supply. Hence, investment-grade stocks benefit from the strong price support, leading to a continuous price appreciation over time.

By the same token, when a company announces a bonus issue or split issue, which leads to a lower price level, it is much welcomed by retail investors. On the other hand, when a stock calls for a share consolidation, the price will plunge. Stock consolidation can be due to changing of par value from 20 sen par to RM1 par or due to capital reduction.

When our market was less mature, there were many retail investors who invested based on rumours and speculation. Now, there are fewer retail investors participating in the local market and syndicates are also less visible. The strategy relying on trading penny stocks has not seen much result in recent years. Although there may be some penny stocks which turned into a five-bagger or even a 10-bagger, such incidence is far in between.

Changing the goal post
Another common mistake by local investors is the unclear investment goal and strategy, whereby investment stocks and trading stocks are mixed together. As these stocks have different characteristics, they should be treated separately in terms of investment strategy.

A trading stock is normally purchased on a piece of news or rumour which may or may not happen. An investment-grade stock, on the other hand, is normally purchased based on fundamental reasons such as earnings outlook, business potential, growth prospects, etc.

As a trading stock is more speculative in nature, it should be monitored based on the reliability of the source of information. Technical charts are more useful in helping one time decisions to sell, hold or to buy further.

Sometimes, investors know they are speculating on a stock but when the stock is out-of-the-money (that is in a loss position), they tend to keep the stock as if it is investment grade. A punt on a trading stock for short-term gain with a timeframe of several months may end up as long-term hold for several years. The initial objective to make some quick gain by speculating on a piece of news or rumour may end up in the form of hope that the stock price will recover to the cost.

On the other hand, some investors buy an investment-grade stock for long-term investment due to its strong fundamentals or the dividends. But when the price moves up, some investors are quick to take profit for fear that the price may come down. The irony is that a long-term investment now becomes a short-term trade when early profit is seen.

So long as investors keep changing their goal post and are confused over trading and investment stocks, between short-term speculation and long-term investment, their equity investments will be in a mess.

Excited by tips
Over the years, retail investors have been fond of relying on tips to make money from the stock market. Many who depended on tips have lost so much that they simply left the market and some vowed they would never touch shares again. Trading based on tips may be exciting and experienced investors will confess that it is difficult to make money purely on tips.

What are tips? Tips could be insider news from those who know what is going to happen. Insiders could be companies’ directors and senior management, professionals like corporate lawyers, auditors and bankers who may have some inside information or even reporters, analysts, fund managers and individuals who have access to the senior management of the companies.

Some tips could be true, some may be pure speculation but there are also some which are fabricated by syndicates as part of their game. Most of the time when a punter obtains a tip, it is not first-hand information. The tip could have passed down several hands. In such a case, even if there are changes to the information, punters will be the last to find out. After the share price has plunged, only then will they realise that things have gone sour. By then it could be too late to sell and the stock may be added into their long list of “collector’s items”.

Little homework
Most retail investors do little homework before investing. Even if they have, it is normally very superficial.

There is also little follow-up on the subsequent changes to the fundamentals. Many retail investors give the excuse that the accounts are too complicated to understand. If someone like an analyst has analysed a stock and recommended a buy, the investors will probably rely on the call to make their bet.

Recommendations appearing in newspapers are also one of the main sources of investment ideas.

No patience
Another common weakness of retail investors is their impatience. Most of them want quick gains. After they buy a stock after a recommendation or a tip, they will monitor the stock movement closely. If the stock price moves up, they will praise the person who recommends the stock. But if the stock does not move after several weeks, they will become impatient and keep asking when the stock will move.

Most retail investors are not too keen to invest in a stock that makes 10% per year. They are excited with highly volatile stocks or high beta stocks that can potentially double in value or gain 20% within a week or two.

They always buy higher, sell higher
Because retail investors have little patience, they are not keen to buy on market weakness and wait for the market to recover. The tendency to chase a stock is common among retail investors. As they want to make quick money, they will prefer to buy high and try to sell higher, a strategy more aptly applied in a bull market.

This phenomenon clearly explains why more retail investors appear during a bull market but there is no trace of them at the bottom of the market when prices are much cheaper.

The strategy of buy-high-sell-higher is definitely riskier than buy-low-sell-high. The former strategy is not inappropriate but investors must get out of the market if they are wrong. Unfortunately, cutting loss is too painful for most people and many retail investors eventually get “caught” again.

The lessons
There are many lessons we can learn from the mistakes of retail investors who can be someone close to you, one of your family members, your colleagues, your friends or even yourself. To be a successful investor with an aim to increase wealth, we need to overcome some of the common human weaknesses in investing.

Top of the list, one has to learn to be impartial and view a stock objectively. If a mistake is made and the best thing to do is to take losses and to cut the stock, then it should be done without hesitation. If necessary, a small timeframe is given to try to sell at a slightly higher price. After the timeframe, the loss-making stock must still be axed. If you do not have the discipline to take losses, then trading is not for you.

Investors should be clear about their investment plan. Buy-and-hold investment stocks should be segregated from buy-and-sell trading stocks. As the two stocks have different characteristics, they should be treated separately with different strategy. The worst mistake is to buy a short-term trading stock and eventually keep it as long-term investment stock. In general, investors should learn to cut losses and let the profits on investment-grade stocks run instead of selling all the good stocks and accumulate speculative trading stocks.

Investors who like to dabble on tips should always remember that speculative stocks are trading stocks and a certain timeframe should be given for the “tips” to work, otherwise the stocks should be discarded even at a loss. This is the nature of the game. The bet is either you make or you lose.

Source: The Edge

Wednesday, September 15, 2010

Delloyd: Super easy way to trade??

It's just funny seeing how this stock has been traded over the past few weeks which easily allowed people to take advantage of the arbitrage opportunity, almost daily. But of course, when I put this post up, maybe the opportunity might be gone :p Haih..Just let the stock shoot up (lah...)!

Simple way to trade:
Put your buy order at RM2.93-2.95 and sell order at RM3.00 in the morning and you don't have to bother about it for the whole day. Of course you have to take note of the amount of shares you're buying to be able to cover the transaction fees substantially. I believe the company/boss is buying the shares to support it at RM3.00, almost daily during the last 20-30 min of the trading period. So, there you go, try this out yourselves :p

Tuesday, August 31, 2010

Investor's Mind = Wakarimasen

Some humorous comments from my chatbox, made my day..Thanks, hahaha :)

- TDM dropped like there is a big fire in their estate.
- Glove counters dropped like waterfall as if suddenly people don't need gloves anymore.

Anyway, sometimes I admit I don't really know what's in the investors' mind. Simply sell shares like nobody's business. APM just announced their stunning results of 18.7 sen EPS in 2Q 2010, supported by net cash of around RM290 mil or RM1.44 per share on 18th Aug 2010. And...Tada!! The share dropped from RM4.91 to RM4.40 currently. Wakarimasen!! Perhaps someone can enlighten me on this :p

Friday, August 13, 2010

Delloyd finally has volume, time to fly?

Delloyd remains very cheap. EPS at 44-53 sen for 2010-11, translating into PE of 5.7x-6.9x, very undemanding for a company which has auto parts manufacturing facilities, bus manufacturing, vehicle distribution and palm oil plantation across different ASEAN countries.

Its auto parts manufacturing facilities span across different ASEAN countries such as Malaysia, Thai and Indonesia catering for domestic and overseas customers including Proton, Perodua, Honda, Toyota, Hyundai, GM, Daihatsu, Ford etc etc (almost all major auto manufacturers). In addition, it manufactures auto replacement parts (similar to NHFatt) but this segment only contributes about 12% out of the total auto revenue. It also has bus manufacturing business in Indonesia, an extremely huge market to expand while the company is planning to bring in this business to Malaysia as well.

Surprisingly, it has a sizable total plantation area of close to 16K ha with 1449 ha in Malaysia while the remaining is in Indonesia. FFB yield in its Indo plantation is very high at 24-25 MT/ha/year. This segment contributes about 15% of earnings to the group while the remaining contribution comes from the auto segment. Slightly more than half of its plantation is either unplanted or immature. This signifies greater expansion potential in earnings from this segment in the future.

Net gearing is very low at 5.3%. The stock price will continue to be supported by share buybacks (Most of its Bursa announcements were about share buybacks, which means the company still think that the stock price is cheap, VERY GOOD!!!)

This post is a bit untidy. I'll post a more elaborate and organized one soon :)

For related posts, click here.

Tuesday, August 10, 2010

TDM 2Q 2010 Results: Just a temporary blip. 2H 2010 will be payback time

TDM just released its 2Q2010 results. Net profit was RM12.7 million or 5.77 sen per share for 2Q 2010, making 1H2010 net profit totaling RM32.1 million or 14.7 sen per share. Though net profit rose 38.6% y-o-y, on a q-o-q basis, net profit dropped 34.9%. PBT was RM16.86 mil in 2Q 2010 as compared to RM26.8 mil in 1Q2010, which was about RM10 mil drop.

Reasons for drop in earnings q-o-q:
  1. (RM6 million drop in PBT from plantation) Drop in palm oil prices: Average CPO price for 2Q2010 was RM2,475/MT as compared to RM2,568/MT in 1Q2010 which was RM93/MT decrease (MPOB data). CPO production for TDM dropped from 23.2K MT in 1Q2010 to 20.9K MT in 2Q2010 which is a 10% decrease. These two contributed to lower revenue and lower margins.
  2. (RM4 million drop in PBT from 'Other Income') Earnings from "Other income" were rather inconsistent in the past. This segment consists of investment holding and provision of management services (Medical centers, properties, tour agency?) Recorded losses of 0.5 million in 2Q2010 as compared to earnings of RM3.9 million in 1Q2010.
Nonetheless, earnings from its healthcare segment continued its uptrend with earnings of RM2.7 million.

Though this quarterly performance might be disappointing to some of us, this will only be temporary. The main drag for this quarter were the lower production and palm oil prices. However, these two will no longer hold true for 2H 2010. Firstly, palm oil production has always been higher in 2H as compared to 1H. To recap, TDM recorded increase in CPO production of 41.6% in 2H 2009 over 1H 2009 (58.45K MT vs 41.3K MT) while at the same time 1H 2010 CPO production was higher than 1H 2009 by 7%.

Thus, production of CPO in 2H 2010 might reach 60K MT as compared to just 44K MT in 1H2010. In addition, CPO prices will likely remain high in 2H 2010 as previously mentioned in my previous post. These two factors of CPO prices and production which drove the earnings down this quarter will reverse in 2H 2010 to provide boost to TDM's earnings.

Assuming 60K MT CPO production in 2H2010, CPO price of RM2,600/MT in 2H 2010, earnings before tax from healthcare and 'Other Income' of RM5.5 mil and RM1.7 million respectively during 2H2010 coupled with tax rate of 24%, net profit will still touch RM79.7 million or 36.3 sen. I've done a simple TDM's earnings sensitivity to CPO prices (ranging from RM2,000/MT to RM3,000/MT) as shown below:As shown from the graph above, net profit could range from RM52 million to RM98 million or EPS of 23.8 sen to 44.6 sen for the whole of 2010 based on CPO prices ranging from RM2,000/MT to RM3,000/MT during 2H2010 (Will the CPO prices be even higher?). PER 2010 still looks attractive at 6.6x with 2010 EPS of 36.3 sen assuming CPO price of RM2,600/MT and CPO production of 60K MT during 2H2010, supported by net cash of RM98.3 million.

Market Data:
Shares Issued: 219.57 million
Market Cap: RM527 million
EPS 2010: 36.3 sen
PER 2010: 6.6x
Net Cash: RM98.3 million
Div Yield: ~5-6%

Terengganu Inc: 53.1%
Pemika Terengganu: 15%

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.