Tuesday, February 28, 2012

Results of SOP, TWSP and TDM

Sorry for my absence. I was traveling around lately. Generally the quarterly results of plantation counters were more or less within my expectations. 4Q might not be as good as 3Q owing to lesser production caused by the rainy season and floods coupled with slightly lower CPO average price. Nonetheless, one of the more disappointing ones is SOP. 

SOP only managed to obtain net profit of only RM43mil in 4Q compared to RM75mil in 3Q. The reason for the huge drop was owing to a delay in delivery of CPO committed to a buyer, according to Maybank. However, the delivery will be recognized in 1Q2012 instead. SOP share price had risen substantially over the past few months, PER at around 11.2x currently. Further upside? Maybe, but seems quite fairly valued IMO, less upside. It's better to switch to other cheaper plantation counters instead. 

TWSP net profit was boosted by its one-off bargain purchase gain of RM18.4mil from acquisition of Mardec. Excluding that, net profit should be around RM80mil, lower than its 3Q net profit of RM99mil owing to lower palm oil prices and higher fertilizer costs. Assuming profit of RM317mil (excluding one-off gain) for FY2011, PER should be around 8.8x based on diluted EPS of 50 sen. Still attractive fundamentally, but shares are weak and illiquid for now, lacking in buyers. Can consider accumulating on weakness.

TDM quarterly results were better than TWSP and SOP. Net profit achieved was RM44mil for 4Q2011. Total net profit at RM157mil for FY2011 or EPS of 66.3 sen. PER 2011 is only at 7.2x coupled with net cash of more than RM220mil. Thus, there's still plenty of upside to come. By valuing TDM at PER of 10x, its stock price should exceed RM6.00 per share. 

Other stocks worth looking at: Mudajaya, Coastal, Kim Loong, BLD Plantation and Kfima owing to their attractive valuations. 

Friday, February 10, 2012

Top 10 Plantation Stocks Summary Table (Based on Mkt Cap)

Just read CIMB's report on regional plantation sector being upgraded to trading buy from neutral. Hap Seng Plantations is the cheapest in KLSE according to CIMB. I think a more appropriate phrase should be "the cheapest plantation counter IN OUR COVERAGE" as many of you might have known there are way cheaper plantation counters out there with lower valuations and higher growth prospects (available land, existing immature plantations etc). In the list above, HSPlnt has the lowest immature plantation hectarage and little available land for plantation, thus where is the growth coming from? Continue searching for available land (expensive land and another few years of waiting to bear fruit) or acquiring existing plantations (even more expensive)? Anyway, just something for you to chew on.

Maybank initiating report on TWS. Report mentioned sugar division almost free? Hmm...Not exactly, it comes at a price as well in the form of borrowings. Anyhow, TWS' equity stake in Bernas and TWSP should account for about RM2.87bil out of its total mkt cap of RM3.1bil. By attaching PER of 14x to its sugar division's profit of RM190mil, TWS should be valued at RM5.53bil. Minus off its debt of around RM800mil (excluding TWSP and Bernas debts which have been accounted for in their market values), TWS' fair value should be around RM4.7bil, or RM16.00 per share.

TDM seems to be going through correction now, but will be temporary as it's still trading at very cheap valuations. This would be an opportunity for you to pick up for long term investment.

Happy investing! 

Wednesday, February 8, 2012

"Why China's housing market will slow, not collapse" By Nin-Hai Tseng

A less negative article about China's housing market, contrary to many views that China's heading for a hard landing:  


There's plenty of reason to believe China's housing prices will slide during what's expected to be a rocky economic year, but the market won't crash. Here's why.

FORTUNE – China's hot property market and its implications on the global economy has been on the minds of many investors, and for good reason.

In January, Barclays published its latest Skyscraper Index report, which tracks links between the rise in construction of tall buildings and economic busts over the past 140 years. This could be purely coincidental, but the index suggests that the East Asian giant is the world's "biggest bubble builder," and is on its way to an economic bust. China already has half of the world's existing skyscrapers (or buildings higher than 240 meters). And it plans to add more over the next several years.

However, let's not read into this too much. It's true, as Barclays notes, that the Great Depression coincided with the construction of three landmark skyscrapers across Manhattan: 40 Wall Street completed in 1929, followed by the Chrysler Building in 1930, and the Empire State Building in 1931.

No doubt, China's property prices have risen rapidly beyond the reach of much of the country's middle class. And there's reason to believe prices will certainly slide during what's expected to be a rocky economic year, but prices won't crash. Here's why:

China's nation of savers
It was the no-money-down mentality that partly brought down America's housing market. While it would be a stretch to compare the U.S. market to China's, it's worth noting that our neighbors to the East are nowhere near as leveraged.

China is known as a nation of savers, and consumers are relatively debt-wary, in part because the country doesn't have the kind of educational and health care safety nets that its Western neighbors enjoy.

What's more, Chinese officials trying to clamp down on rapidly rising prices have directly placed limits on how much homebuyers (and speculators) can borrow. For primary-home buyers, the government has set a minimum down payment of 30% of the home's total sale price while buyers of second homes must put down at least 60%.

In 2010, a total of 4.4 trillion renminbi (or about $697 billion) of residential buildings were sold in China. However, mortgage loans outstanding were far less, at 1.4 trillion renminbi (or $222 billion), according to a JP Morgan November 2011 report on China's housing market.

"As a result, the probability of mortgage default is quite low," analysts say, adding that the quality of mortgage loans will "remain solid" even under the hypothetical scenario that home prices drop by 30%.

There's plenty of pent-up demand
While the Western world has plenty of available options for investors to park their money, housing is considered one of the few relatively safe investments to most Chinese. As incomes rise and as more of the country's population is expected to move into urban areas  (in January, China's urban population surpassed that of its rural areas for the first time in the country's history), demand for housing is expected to remain robust, says Shaun Rein, managing director of China Market Research Group, a Shanghai-based market research firm.

The demand, however, isn't just coming from the growing middle class but also the very rich. With tighter lending rules placed on Chinese buyers at home, many investors have gone abroad. Rein points to the formation of property bubbles in other parts of the world, as Chinese investors buy up homes in places such as Canada and California.

Even if home prices fall by 20% in China, it's unlikely that would spell disaster given that prices had surged so rapidly, says Bhaskar Chakravorti, executive director of Tufts University's Institute for Business in the Global Context. Lower prices would offer an opening to those who couldn't afford to buy a year or a few months ago (think about the 300 million middle class Chinese).

"Fundamentally, it's a deep market," says Chakravorti, after speaking recently on a panel about China's property market at the Bloomberg Link China conference in New York City.

Over the next year and a half, JP Morgan expects prices to fall 5% to 10% at the national level. At the regional level where prices rose much more rapidly (it notes prices surged an average of 82% between 2007 to 2010 in 35 major Chinese cities), prices are expected to fall much further by 20%.

The government won't let prices crash
China's central government has been known to tweak its economy as it goes. When officials saw property prices rising too rapidly for its tastes, it tightened lending rules. So the declines we have seen are welcome and are part of the government's plans to cool down its hot real estate market, making it more affordable for more Chinese to buy property.

The tricky part is in knowing how long officials adjust housing policies as the real estate market slows, according to JP Morgan. The bank adds that over the next year and a half, prices could fall 5% to 10% at the national level. At the regional level, where prices have risen much more rapidly, prices are expected to fall by 20%.

"This will likely slow the pace of economic growth but not lead to a hard landing," say JP Morgan's analysts.

To put China's property bubble in context, it's important to note that prices in major cities have risen much faster than the rest of the country, according to JP Morgan's November report. And major cities make up a relatively small portion of the national housing market. For instance, Beijing, Shanghai, and Guangdong's markets combined account for 16% of total real estate investment, 20% of the buildings sold (in value), and 10% of the floor space sold for the majority of 2011.

So before home prices at the regional level trigger a national market crash, the Chinese government should have enough time to change its game.

Sourced from here.