Wednesday, July 28, 2010

Paramount (RM3.85): Sale of Jerneh Insurance to make Paramount extremely cash-rich

Volume and share prices of Paramount and Jerneh are picking up strongly today. Something's brewing inside? Disposal of Jerneh Insurance is nearing completion?

Anyway, back to Paramount. Paramount Corp Bhd is on track to dispose its 20% equity stake in Jerneh Insurance Bhd (JIB) as announced in Bursa website. Another 80% of JIB is controlled by Jerneh Asia Bhd. (What will happen to Jerneh Asia remains unknown if the sale goes through. Probably delist it and every shareholder might receive close to RM4 per share?? Just rumour only :p) Sales price is unknown. Some rumors mentioned it could be approx. RM700-800 million. The sale will see Paramount receiving at least RM140 million or RM1.19 per share.

From the fundamental perspective, Paramount is very attractive. Net cash is about RM140 million. With this sale, it's going to boost its net cash to RM280 million or RM2.40 per share. Paramount will then concentrate on property development and education. About three quarters of the revenue will come from property development while the remaining will come from education business (Owner of KDU College and KDU International School).

Earnings have been stable at around RM50-60 million p.a. over the past five years. Trailing 12M PER is at 7.0x only. Latest 1Q 2010 net profit was at RM15.7 million, mainly from its property development and education divisions. Sale of Jerneh is not going to affect its earnings as Jerneh's profit contribution is minimal. Having said that, the shares of Paramount could be very illiquid when there're no corporate actions. Thus, though the stocks is attractive, investors should be cautious about stocks' illiquid nature. There's also risk of whether the sale of Jerneh is going through or not.

Prospects as announced in 1Q 2010 quarterly results: "The property division is optimistic of achieving a better performance in 2010 given the buoyant property market and the lock-in unbilled sales brought forward. The expansion plans for the educational services division that began in the second half of 2009 will continue well into 2010/2011. As a result, the performance of the division for the year would be affected due to the budgeted costs for the ongoing upgrading and expansion plans."

Market Data:
Shares issued: 117.7 million
Market Cap: RM453 million
Trailing 12M PER: 7.0x
Book Value per share: RM4.90
Net Cash per share: RM1.20 (Might touch RM2.40 if Jerneh sale is completed)
Net profit over the past 5 years: ~ RM50-60 million p.a.
Div Yield: 7-8%

PS: Hopefully there could be some special dividend for the shareholders after the sale.

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, July 27, 2010

Notion (RM2.76): Private placement not likely to go through

Just read a report on Notion Vtec by ECM Libra. Private placement likely will not go through possibly due to pricing issues. Thus, the company will opt for bank borrowings to fund its expansion for its new third plant in Klang. Nonetheless, the 1-for-5 free warrants will go through as planned. ECM Libra upgraded their EPS by 3-5% to take into account the aborted private placement, higher interest costs and dilution from in-the-money warrants.

This will be good for the share price as EPS will not be diluted. Shareholders will be able have a greater participation into the potential upside of the share price with the free warrants. Ex-date for the warrants will be 30 July 2010 while entitlement date is on 3 Aug 2010. Exercise price for warrants = RM2.55.

For more info, click here.

Friday, July 16, 2010

Correction: Honam to buy 73pc of Titan Chem - Purchase price at RM2.35

Correction: Purchase price is RM2.35 per share. 73% stake will cost RM2.94 billion as reported in press release by RHB. The whole takeover will cost RM4 billion as reported by Bloomberg.

For RHB press release, click here.

Source: Business Times

Honam Petrochemical Corp, South Korea’s second-largest ethylene maker, agreed to pay 1.5 trillion won (US$1.25 billion) to buy Malaysia’s Titan Chemicals Corp. in a push to increase revenue from overseas markets. The Seoul-based maker of the chemical used in plastics and synthetic fibers has signed an agreement to acquire a 37.3 per cent stake in Titan from Chao Group and a 35.3 per cent holding from Permodalan National Bhd, Honam said in an e-mailed statement today.

It will make an unconditional takeover offer to Titan’s remaining shareholders. Titan is Malaysia’s biggest producer of olefins and polyolefins, used in making plastic parts in appliances and automobiles, and reported sales of US$1.64 billion last year.

Honam expects the acquisition to strengthen its presence in Southeast Asia, China, the Middle East and Central Asia, and increase its revenue to 12 trillion won this year, according to the statement. “This is a very exciting opportunity in extending the reach in global markets through strengthening overseas cross- supply of products,” Honam said.

Shares of Honam rose 5.7 per cent to 157,000 won in Seoul trading as of 1.19 pm local time, while the benchmark Kospi index dropped 0.5 per cent. Titan shares were suspended in Kuala Lumpur today. - Bloomberg

Bolton bets on Chinese domestic consumption

By Robert Cookson in Hong Kong
Published: July 15 2010

Anthony Bolton, the fabled British stockpicker, is staking his reputation on a £460m ($702m) bet that the Chinese economy is shifting away from exports and towards domestic consumption.In an interview with the Financial Times,

Mr Bolton, whose China Special Situations fund of that value was launched in April amid a blaze of publicity, revealed that his portfolio was heavily weighted towards stocks in the consumer sector. “The golden era for exports is coming to a conclusion and now it’s going to be very much more about the domestic economy, the domestic consumer – that’s going to drive the market,” said Mr Bolton, president of investments at Fidelity International.Mr Bolton, who has a formidable track record at picking winning stocks, said he had taken on relatively little exposure to commodity producers or exporters.

Until late last year, Mr Bolton planned to retire to the Caribbean, but decided to set up the Hong Kong fund because of his belief in the prospects of China’s economy. Mr Bolton’s bullish stance pits him against big-name investors such as Hugh Hendry, head of Eclectica Asset Management, and Marc Faber, author of The Gloom Boom & Doom Report, who are betting that the Chinese economy will crash.

Mr Bolton’s portfolio selection will be closely analysed by other investors seeking to emulate his previous success. During his 28 years running Fidelity International’s Special Situations fund in London, he delivered an annualised return of 19.5 per cent.

The China Special Situations fund is heavily weighted towards sectors that are plays on the domestic economy, including financials, retailers, service businesses, and pharmaceuticals.About one fifth of Mr Bolton’s fund is allocated to stocks in the consumer discretionary sector. By contrast, the consumer discretionary sector makes up just a twentieth of the MSCI China index against which his fund is benchmarked.

His biggest sector holding is in financial stocks, which account for a third of the fund – a lower proportion than in the benchmark. Mr Bolton said he was confident that last year’s lending binge by Chinese banks would not lead to a dangerous rise in bad debts.In a bid to take advantage of under-researched stocks, Mr Bolton has invested more than half of the fund in medium-sized companies and small caps.

Buying stocks overlooked by most investors was a strategy that served Mr Bolton well in the west. But sceptics question whether Mr Bolton will be able to pull off the same trick in China, given that he does not speak Mandarin and only moved to Hong Kong three months ago.In another indication of investor hesitance, his fund failed to reach its target of £650m ($1bn).Only 12 per cent of Mr Bolton’s holdings are listed on stock exchanges on the Chinese mainland.

Most are China stocks listed in Hong Kong, the US and elsewhere, as well as other stocks listed in Hong Kong such as HSBC.The China Special Situations fund raised £460m before starting trading on the London Stock Exchange in April, becoming the largest UK investment trust to be launched in 16 years.The four biggest individual holdings in the fund are China Mobile, Industrial and Commercial Bank Of China, China Merchants Bank, and Tencent, the Chinese internet business.

For related posts, click the following links:

Subsidy rationalisation has started: Overall good for Malaysia's economy

If Malaysia continues with subsidies, Malaysia is actually subsidizing the whole region such as Thailand, Indonesia and Singapore as our subsidized goods are smuggled out of the country. This literally makes Malaysia a Santa Claus giving gifts to its neighbours. As subsidies are removed gradually and the economy becomes more market driven, we could more efficiently allocate our resources towards more productive areas, help industries to become more efficient and move up the value chain, consolidate our fiscal position and make our economy less dependent on oil. Overall, it's a good direction for the Malaysian economy.

Thursday, July 15, 2010

Sold some Sunway shares. Switching to TDM and Delloyd

I sold part of my shares in Sunway. Too slow. Construction stocks are quite stagnant. There are probably too many warrants which are capping the share price.

TDM still looks good. Huge cash pile, earnings are good, might reach RM80mil this year. Earnings are more diversified, not purely on plantation alone. Looks like there is more interest in this counter now. For more info, click here.

Delloyd is quite quiet now. OSK just initiated coverage on it in July. Hopefully there is more coverage on this stock from now on. Earnings are diversified, with major contribution from automotive components manufacturing and supported by its plantation in Malaysia and Indonesia, vehicle distribution and bus manufacturing in Indonesia. Earnings growth will be good over the next few years and expected to rise 20% p.a. PER for 2010 and 2011 is at ridiculous level of 5-6x. Its website is good in my opinion and very comprehensive for investors. Click here for its website.

PS: Sorry for a mistake about Delloyd's cash position earlier if you've read my chats. Thanks Zas.

Tuesday, July 13, 2010

More interests in auto stocks?

There are quite a lot of news on consolidation of the auto industry which could generate some interests in auto stocks like Tan Chong, MBM Resources, APM, Delloyd, Proton, UMW, New Hoong Fatt, Ingress, TSM Global.

At a glance, MBM Resources, Delloyd, APM and TSM Global seem to be more attractive.
Will write more on these counters...

The news:
The Ministry of International Trade and Industry (MITI) will leave it to the local automative players to determine the model for the consolidation of their industry.

"The model is up to them. What is important is to ensure that steps are taken to increase productivity and efficiency as well as reduce production cost and increase competitivenes of the local automotive industry.

"That's the bottomline," said its minister, Datuk Seri Mustapa Mohamed after launching the Industry Led Automotive Graduate Apprenticeship Programme in Kuala Lumpur today. A Memorandum of Understanding between Malaysia Automotive Institute (MAI) and UiTM was also signed today.

Mustapa said the consolidation was urgent as there was excess capacity, keen competition and a need to increase export earnings.

"This is a timely suggestion. We have excess capacity and due to keen competition in the international market, we have to increase exports and not just depend on the small domestic market."

At the Proton's 25th Anniversary Gala Dinner last Friday, Prime Minister Datuk Seri Najib Tun Razak called on local automotive companies to consider merging if there was overcapacity in the industry.

Mustapa disclosed that the parties concerned have begun discussions.

He also said he had been briefed on the situation and what was important now was the implementation.

"It makes good sense. If the companies cooperate, there are many things that can be shared and this can be cost saving," he added.

On the pace of consolidation, he said companies should talk to each other and that the government strongly encouraged it.

Meanwhile, in his speech at the launching of the apprenticeship programme, he said many industrialists believed that the issue of unemployment arose due to a mismatch between market requirements and the graduates produced by the local institutes of higher learning.

Many graduates are not ready for employment as they do not possess the necessary skills to immediately perform their work.

"The apprenticeship programme initiated by MAI and UiTM for 60 mechanical engineering students is a timely intiative," he added.

Under the course, students will spend only three days in a week in the classroom acquiring theoritical knowledge, while the balance two days will be spent in acquiring industry related knowledge.

Mustapa also suggested that the programme model be used in other sectors.

Source: Business Times

Random thoughts on current issues

There is just a huge disconnection between China equities and its economy. Whilst the Chinese economy continued to do well by posting double digit yoy growth, its equity market performance was just pathetic. CSI 300 index has fallen by 25% YTD, as compared to KLCI's gain of 4% YTD. Currently, the Chinese equity market is trading at one of its lowest levels at PER of 13x for 2011 as compared to its historical levels of 30x, even lower than Malaysian market's PE of 13.5x.

There are just many lingering issues surrounding China's economy i.e. asset bubble, labour strikes, fallout in exports owing to EU and US problems, higher yuan etc etc. Are these concerns overblown? Hyped up too much by the media? (Some fund manager just told me not to listen to the media too much as most news would be exaggerated with a minor issue could potentially become a full-blown crisis in the hands of media. Hmmm...Well, I'll take the middle ground :) It's good to have info from the media but try to analyze the issues and judge for ourselves how serious they are)

China's economy is having a transition of becoming a domestic-driven economy from an export-oriented economy. In 2009, China's economy continued to register robust growth despite the drop in net exports. The economic growth was mainly driven by domestic consumption and private investments. Thus, a higher yuan and demand for higher wages by labourers will help domestic consumption and lead to a firmer economic growth. With imports becoming cheaper coupled with higher income, consumer spending is bound to rise. A higher yuan also allows EU and US exports to be more competitive which could help cement a firmer recovery in these western countries while inflation in China could be contained though this is not an immediate concern yet.

Real estate prices appeared to moderate as evidenced by two months of slowing property price increase, indicating that government's efforts to cool down the real estate market seem to bear fruit, allaying fears of property bubble burst. What I see is that the Chinese government is trying to control the supply of properties and therefore could help put a lid on property prices. However, prices won't go down much owing to majority of high-end properties are bought with cash. Incoming supply of properties in 2H 2010 could help contain the price increase.

On Chinese trade, exports continue to do well with exports to US and EU registering growth of more than 40% yoy, despite the weak recovery and lingering debt concerns in these countries.

On the other hand, US high unemployment is not a surprise. In fact, economists last year have already predicted that high unemployment could continue until end of 2010. Employment growth had not been a smooth one during the last 2 recessions, this recession couldn't have been much different either. So, what's the big hoo-haa on US high unemployment in the media?

There's a lot of liquidity in the system. What are investors going to do with all these money? Put it in the banks with almost zero interest? Perhaps moving back into equities should be a good idea after all.

Monday, July 12, 2010

China property prices fall on month as curbs bite

Looks like the measures implemented by Chinese authorities are bearing fruit. Property market could develop in a more sustainable rate and avert a severe bubble burst.

BEIJING, July 12 — Chinese property prices in June recorded their first monthly fall since February 2009, providing further evidence that a government drive to let the air out of an inflated market is working.

Average prices in 70 cities edged down 0.1 per cent from May, lowering the annual property inflation rate to 11.4 per cent in June from 12.4 per cent in the year to May and April’s reading of 12.8 per cent, the National Bureau of Statistics said today.

Coming on the heels of much slower import growth and a controlled moderation in bank lending, the figures reinforced the conviction of many economists that no further policy tightening is on the cards.

However, with surprisingly resilient exports offsetting softer domestic investment, the consensus is that Beijing will not be rushed into relaxing policy either until clearer signals emerge from the all-important property and construction sectors.

“Currently the Chinese property market’s at a crossroads. It’s a game of who blinks first,” said Dong Tao, chief China economist at Credit Suisse in Hong Kong.

The government, determined to squeeze out speculators, refuses to back down by reversing curbs imposed in April; developers don’t want to waver because they paid high prices for land last year and have a bullish long-term outlook; and home buyers are sitting on the sidelines, Tao said.

“One of these three key players needs to blink first and change their stance,” he said. “I see policy in a pause mode. Whether that lasts till the end of the year is not entirely clear to me. It all depends on who blinks first.”

Engineering a soft landing in the housing market is critical.

To prick a bubble that, by common consent, had developed in big cities such as Beijing and Shanghai, the government in April raised down payments, ended mortgage discounts, tightened rules on loans to developers and made it harder to buy multiple homes.

Although annual property inflation has subsequently fallen for two months in a row, underlying demand remains strong and few home buyers expect a sharp decline in prices, said Zhang Huadong, a property analyst with Xiangcai Securities in Shanghai.

“It’s very unlikely that the government will relax its policy of curbing demand,” Zhang said. “If — and I mean if — policy were relaxed, there would be another surge in property prices. It would be a disaster for the market.”

The Securities Times reported today that banks in major cities, including Shanghai and Shenzhen, had resumed making mortgages on third homes, in what the newspaper took as a sign that the government was easing its grip.

But Tao with Credit Suisse and Liu Kun, a property analyst with Great Wall Securities in Shenzhen, said banks were just probing Beijing’s determination to implement its curbs firmly.

“The government is unlikely to announce measures to adjust its previous policies until the first half of next year,” Liu said.

Economists at Bank of America Merrill Lynch agreed.

“Banks always like to test the resolve of policymakers. We are glad to see more people are coming around to our view that there will be no policy reversal and policy easing very soon on the property front,” they said in a note to clients.

Bringing prices down is a political imperative for the ruling Communist Party.

Buying an apartment in a big city is now beyond the reach of ordinary people, reminding them of the inequalities that blight China and thus posing a potential threat to the social harmony that is President Hu Jintao’s ideological leitmotif.

Yet the government does not want to squeeze the life out of a sector that makes up 10 per cent of national output and 25 per cent of fixed asset investment and drives sales of everything from furnishing to electrical appliances and even cars. Construction also accounts for half of China’s steel consumption.

To square the circle, the government is ramping up the construction of low-income housing, though many analysts doubt it can meet its ambitious targets.

Zhang with Xiangcai Securities said he expected additional measures to boost the supply of property. “For instance, the government will force property developers to build on land they have purchased as quickly as possible,” he said.

Source: Reuters

For related posts, click here.