Tuesday, June 28, 2011

TWS (RM10.40; TP >RM15): Nice debut for MSM (RM4.58), let's compare it with TWS

MSM's IPO performance was just fantastic and way beyond many investors' expectations. Within the first few minutes of trading, it has already shot up by more than RM1, currently trading at RM4.58 at the time of writing this post. Looking at how good MSM has performed thus far, inevitably I would start looking at TWS, perhaps the only comparable company which is involved in sugar business in Malaysia. I've written a few posts before (Click here to view) and TWS still remains my favorite pick. Take a look at the tables below. 

As seen from the table above, the ratio of TWS:MSM in terms of revenue and profits from sugar division is approximately 40:60 to 45:55. Therefore, should TWS' sugar division priced similarly to MSM, TWS' sugar business alone should be worth RM2.6 bil. And at this figure we have not even accounted for TWS' rice and oil palm plantation divisions. Based on TWS' 69.8% equity stake in Bernas and 72.6% equity stake in TWSP, both of them are worth RM0.99 bil and RM1.4 bil respectively at market price though I still think Bernas is undervalued and has further upside. 

In total, by adding TWS' 3 divisions i.e. rice, sugar and oil palm plantation, TWS should be worth RM4.96 bil or RM16.74 per share. At MSM price of RM4.50, PER and PBV are at 13.6x and 2.8x respectively, a lot pricier as compared to TWS.  TWS' PER and PBV are at a paltry 6.4x and 1.5x respectively. Assuming a fair value of RM16.74 for TWS, TWS' PER remains at 10.3x only while PBV is at 2.4x at its fair value, which are still lower than MSM's!! Dividend yields for both companies are approximately the same at 4%. 

Besides the cheap valuation of TWS, TWS has extra advantage over MSM by having 3 strong divisions as compared to MSM's single business while TWS growth prospects are better as it is already owning huge tracts of oil palm plantation land which still have relatively young tree age and provide availability for new plantations. MSM's business is rather stagnant as the bulk of its business is limited to the Malaysian market and it would still need to make acquisitions and investments for expansions.

In summary, TWS remains very undervalued as compared to MSM. and the strong debut of MSM should generate more interests in TWS. 

Market Cap: RM3.11 bil
Shares issued: 296.47 mil
Share price: RM10.48
Div Yield: 4%
PER'10 and PBV: 6.4x and 1.5x
Net Gearing: 80.4%

Thursday, June 23, 2011

Some simple trades on call options

I just attended a simple talk by Terence Tan on stock options in US which can help us earn regular income. Summary of the strategy:
  • Own a good and stable stock
  • Sell a call option of the stock (One call option only for 100 shares of the stock) and pocket the money from sales of call option.
  • Historically, 90% of the options do not get exercised. Meaning 90% of the buyers of call options would let them expire and lose the money. Thus, why not we sell call options and pocket the money 90% of the time? 
What are the risks? 
  • If the stock price rises much higher than exercise price, highly likely the call option will be exercised and you are forced to sell at the exercise price. In other words, you don't get to profit from the upside of the stock price beyond your exercise price. But hey, you've already pocketed the money from selling the call option, so you're still profiting. 
  • If the stock price remains the same as exercise price, the buyer of call options would likely not exercise, taking into account the transaction costs involved. You still pocket the money from call options sale and you're holding the stock.
  • If the stock price falls, the call option is worthless and will not be exercised. You still pocket the money from call options sale and you're holding the stock. 
If you trade this repeatedly, the cash you receive from selling call option could help you buy more stocks and in turn enable you to sell more call options. It's just like buying properties and renting them out, the rental income you've got help you to own more properties and increase your rental income. 

But of course, the catch is that your stock must be good and won't go bust anytime :P Eg. Exxonmobil, GlaxosmithKline, Microsoft etc.

I've yet to explore this kind of trades so I can't judge how effective it is. You could try this through Optionsxpress or stockoptions in Singapore.

Thursday, June 9, 2011

MAA - Cried wolf again?

The deal just gave me the impression of owners trying to make a last attempt at gaining profit from share trades. Who's the one releasing news of 70% MAAB shares sold for RM1.2 bil? (Figure out yourself) And the shares went ballistic. But just yesterday it made another application to sell NOT 70%, but 100% of MAAB, at ONLY RM344mil. What a huge difference!! From RM1.7bil to only RM344mil for 100% MAAB. Something seriously wrong there innit?

Another question: How will they use the proceeds from the sales? Do we have confidence in  the management being able to deploy their cash to good use? A wolf will always remain a wolf. A tiger does not change its stripes. Minority shareholders will always be at a loss to these big wolves. 

Moral of the story: These kind of shares (Bad earnings, management who is not bothered about shareholders, rumor-filled) are only good for hit and run. They just cannot be held for long term and cannot be hoped to be able to reward shareholders in the long term. As for MAA, we can't hold for long term, thinking that they will be able to utilize their proceeds efficiently or reward shareholders with some capital repayment or something like that. MAA still has the same boss and its history speaks for itself.

Wednesday, June 1, 2011

Tay Cher Siang (Pianist) - Simply Breathtaking

I just have to post this after watching Tay Cher Siang on the piano at No Black Tie last Saturday performing Brazilian music with a band (The music of Milton Nascimento and Egberto Gismonti). His piano skills were just breathtaking. It's not only just about his dazzling virtuosity with octaves and heavy chords playing like single running notes at lightning speed, but also his touch and well-thought piano arrangement which were so filled with emotions, melting the hearts of the audience. He is one of the best and most exciting pianists that I've ever heard live and his playing reminds me of the world-famous Michel Camilo, a Latin composer and pianist. I really hope he would make it big in the international stage and am so proud that there is such a talented pianist hailing from Malaysia. Check out his blog here (mostly in Chinese). He was featured in Dali's post as well (I just realized he was the pianist Dali mentioned :P).

Tradewinds Malaysia (RM9.33; Target: RM15): A blip in 1Q2011 results

Tradewinds Malaysia 1Q2011 performance was poorer as compared to the previous quarter. Revenue and earnings dropped by 8.2% q-o-q and 53.5% q-o-q respectively to RM1.46 bil and RM89.9 million respectively. The drop in earnings was mainly attributed to lower production from plantation division (Seasonal factors) and lower earnings from sugar refining division. Nonetheless, as compared to 1Q2010, revenue and net profit actually rose by 12.4% y-o-y and 16.4% y-o-y respectively. 

Despite the higher revenue from sugar division, its operating profit was down. This could be due to the international sugar price which rose to the highest at 65.3 cents/kg in Jan 2011 before dropping to 53.7 cents/kg in April 2011. The following quarter could be better as Malaysian sugar price was hiked recently while at the same time international sugar prices continue to drop. 

EPS for this quarter was at 31 sen while trailing 12-Month EPS was at RM1.67, thus PER remains low at only 5.6x. Net gearing continued to drop from 1.07x in 1Q10 to 0.8x in 1Q11. Owing to the favorable prospects arising from hike in Malaysian sugar prices and declining international sugar prices coupled with CPO prices which remain firm, Tradewinds remains attractive and profits should exceed RM400 mil this year. Plantation division's performance in the following quarters of this year is expected to improve over the current quarter's while its rice division is expected to maintain its performance. Just read an article from TheEdge Weekly which mentioned a target price of RM15 for Tradewinds, in line with what I have in mind as well. 

Nonetheless, due to the current blip in 1Q11 results and the strong run-up in its stock price, we might see some profit taking at this moment. For longer term investors, do take advantage of the current price weakness as this stock remains very undervalued.

All in RM'000