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

A good read on Malaysia mid-income trap by Dali

Malaysia's Middle Income Trap (or is it "Trapped")

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.

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.

Prospects:
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.


Valuation:
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%

Shareholders:
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.

A wave of privatisations coming to Malaysian shores: Who's next?? Featuring EPIC, AZRB, TDM, Paramount and CSC Steel

There have been quite a number of privatisation of listed companies in Malaysia. Among the companies being privatised or in the progress of doing so since late last year are:

1. Tanjong Plc
2. Measat
3. Astro
4. M3nergy
5. Malaysian Mosaics Bhd
6. Kretam
7. New Straits Times
8. Southern Steel
9. Titan Chemicals
10. Hume Industries

The latest candidate is EPIC (RM2.11) as reported in TheEdge Weekly, citing possible reasons of undervaluation and not being appreciated by the market. The takeover price remains unknown. However, the privatisation must have a much higher takeover price than current stock price to go through especially with AZRB holding 20.97% equity stake in EPIC. To recap, AZRB purchased the shares at RM2.40 per share in Oct 2007. It will be hard for AZRB to let go of the shares if the takeover price is not more than RM2.40. Incorporating AZRB's holding costs (AZRB incurred borrowing costs to purchase EPIC) of about 15% (Assuming 3 years at 5% p.a. interest rate), takeover price has to be RM2.76 to enable AZRB to breakeven for its venture into EPIC.

In addition, at RM2.40, PER is undemanding at around 8x-9x for FY2010-11 earnings. Having said that, book value is at RM2.04 with P/BV at 1.03x at current price of RM2.11. As at end June 2010, EPIC has a net cash of RM66mil or 39 sen per share. Terengganu Inc might need to fork out another RM244-305 mil (assuming takeover price of between RM2.40-3.00) to purchase 101.8 million shares of EPIC which are not owned by it. Anyway, I think the takeover price shouldn't be based on book value but more on PER due to its consistent earnings. By attaching PER of 10x, takeover price could be in the range of RM2.80-RM3.00. Will the takeover price be this high? I'm only guessing.

What are the companies which could be privatisation targets? I still feel there are quite a number of undervalued stocks which have been lying low for a long time and not being appreciated by the market. There are still some companies with stable businesses and strong balance sheets which are still trading at PE of less than 7x. So, maybe we could do ourselves a favor by identifying these potential companies? Stable business, good earnings, cash-rich, low peer valuation etc etc.....

Some companies that came to my mind after reading the EPIC news include TDM, CSC Steel and Paramount. If you have any ideas, don't mind sharing with us :)

TDM (RM2.34): 53.1% owned by Terengganu Inc, same shareholder as EPIC. TDM is also cash-rich with net cash of RM133 mil and trading at ridiculous PE of 6.5x only assuming 2010-11 earnings at RM80 million p.a. Book value is at RM2.97.

CSC Steel (RM1.78): 46% owned by China Steel Asia Pacific Holdings Pte Ltd (Taiwan's largest steelmaker with revenue of up to RM16.5bil). Net cash of RM288 mil and PER of around 7x. Net profit was at RM70-90m over the past 5 years except for 2008, the year which they were still able to make RM59 mil net profit despite the severe downturn in the steel industry. Book value at RM2.17. Will the Taiwanese follow Titan's footsteps?

Paramount (RM4.00): Will be very cash-rich if Jerneh Insurance shares are sold. Net cash of RM140 mil with potential to go up to RM280mil or RM2.40 per share when Jerneh is sold. PER around 7x and earnings have been around RM50-60 mil over the past 5 years. Book value at RM4.87. It is 29% owned by Dato Teo Chiang Quan, a member of the Teo family which controls See Hoy Chan. (Actually I don't see any reason for them to list this company in KLSE as Teo family could probably be one of the richest billionaires in Malaysia and it might be easy for them to take the company private. No one knows how much they are worth as most of their assets remain hidden from the public's view.)

PS: Other companies that I glanced through (Look attractive but not necessarily privatisation targets) include Pintaras Jaya, TRC Synergy, Fajarbaru, Insas, Wellcall, TSM Global, Protasco, Kurnia Setia, Harrisons, Faber, Mudajaya (A lot of uncertainty over SC's probe. Could it be that someone want to drive down Mudajaya's share price to buy more of its shares? Could it be related to the privatisation rumours? Who's the one releasing the 'poison letter' to SC? Insider job? Questions questions and questions???) etc.

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.

Palm oil prices going on an uptrend again

A combination of a few factors is going to send CPO on an uptrend again. Watch out for plantation stocks.

Catalysts:

1. Hot and dry weather in US is going to hurt soyabean crops
2. La Nina floods to disrupt Malaysian and Indonesian palm oil output
3. Russia's ban on grain exports
4. Weather disruptions in Canada, Ukraine, Russia and EU to disrupt canola crops

The news:

Source: Bloomberg

Palm Oil Must Surge `Rapidly' to Cool Export Demand, Godrej's Mistry Says

Palm oil must jump by as much as 24 percent to cool export demand as output declines in Malaysia, the second-biggest grower, and weather damages canola crops in Europe and Canada, according to Godrej International Ltd.

“The market needs to move ahead rapidly so that there is time for rationing to set in,” Dorab Mistry, a director at Godrej, said in an e-mail from London. “At 2,600 ringgit, you can’t match demand with supply. And on top of that, the supply is shrinking.”

Palm oil has rallied 13 percent from a seven-month low on July 7 on optimism consumption will increase in Asian nations, which mark festivals in the September quarter, and on concern that weather may disrupt output in Indonesia and Malaysia, the top producers. Malaysian stockpiles touched a 10-month low in June as exports rose, according to the nation’s palm oil board.

“The consumer has got it wrong and is still in denial,” said Mistry. “He is watching as one piece of bad news after another come in each week. At some stage, the consumer needs to get ahead of the game rather than keep fighting the market.”

Mistry, who has traded vegetable oils for more than three decades, correctly predicted in March that palm oil prices would gain in the second half. He said futures may trade between 3,000 and 3,200 ringgit after June. Godrej is one of India’s biggest cooking oil importers.

Tree Stress

“In Malaysia, the effect of El Nino of last year coupled with shortages of labor has meant that the trees are facing a lot of stress during this critical low-cycle period,” Mistry said. “The situation in Indonesia is no better and with the Ramadan season at our doorstep, we can expect a recovery in production only after Hari Raya is completed in mid September.”

October-delivery futures dropped as much as 0.7 percent to 2,571 ringgit ($811) a ton on the Malaysia Derivatives Exchange and closed the morning session at 2,580 ringgit. The price rose 1.1 percent yesterday to close at the highest since April 9.

“Prices right now are just reacting to crude oil,” said Arhnue Tan, an analyst at ECM Libra Capital Sdn. “Another crude oil rally is going to lift all commodities, whether or not fundamentals are positive.”

Crude oil has jumped 14 percent in the past year and reached $82.97 a barrel yesterday, the highest intraday price since May 4. The price fell 0.2 percent to $82.33 at 2:03 p.m. Singapore time.

Canola Damage

Damage to canola crops from weather disruptions in Canada, Europe, Russia, Ukraine and western Argentina may help increase prices of soybean and palm oils, Mistry said. The two vegetable oils account for 60 percent of global supplies and demand.

“The list keeps expanding each week with new problems on the horizon,” he said.

Soybeans have risen for six straight days on concern that unusually hot weather will reduce yields in the U.S., the top grower and supplier of the oilseed. Soybean oil added 1 percent to 42.10 cents a pound yesterday, a 22-month high, boosting its premium over palm oil to $110.9 a ton, compared with an average of $90.97 a ton so far this year, according to Bloomberg data. December delivery futures dropped 0.8 percent to 41.76 cents at 12:11 p.m. in Singapore today.

New Hoong Fatt (RM2.45): Thrive on increasing car ownership/sales, improving margins, stable organic growth and commendable dividends

NHF's shares are getting hot lately. Fundamentally sound. Net profit could possibly reach RM30 million this year, translating into EPS of 40 sen. Its 2Q 2010 quarterly net profit was RM8.40 million while 1Q 2010 net profit was at RM6.4 million. PER for 2010 and 2011 earnings is undemanding at 6.5x and 5.6x which is at the low end of 6x-12x for automotive stocks. Net gearing is at about 5% currently and is expected to be net-cash by next year. Dividend payout is rather generous at more than 5%. P/BV is at 0.7x. Net profit has been around the range of RM18-27 million over the past 6 years. Shares issued is just at 75.16 million which makes it easy to nudge up the share price. Market cap at RM185 million.

Company Overview:

NHF has been in operation for more than 30 years (Another Lou Jiu Pai company in Cantonese which received much interest lately) is a market leader in Malaysia in providing a wide range of automotive replacement body parts to a huge customer base of about 1,400, consisting of wholesalers, retailers and workshops. It has two main business segments, namely trading and manufacturing. About 1,000 body parts are manufactured in-house while it also markets and trades third-party auto parts sourced from local and overseas manufacturers. In addition, the company exports its products to more than 40 countries, including ASEAN, MidEast, EU, America, Pakistan, Taiwan and Africa. ASEAN market will be the company's focus at the moment. About 76% of its revenue is from the domestic market, 21% from exports while the remaining is from other income.

Growth Prospects:

The company could thrive on the increasing car ownership especially in ASEAN region such as Malaysia, Thailand and Indonesia. The recent reports on Malaysian auto sales have been very favorable lately. The AFTA trade liberalisation which includes elimination of all import duties by 2010 for ASEAN 6 and 2015 for ASEAN 10 is expected to benefit the company's profitability which is further supported by lower taxes owing to utilization of reinvestment's allowances. The company's business has been on a stable organic growth by having double digit growth since FY2002. The company is setting up a new factory to boost its capacity by more than 15%. The factory is expected to be operational by 3Q 2010.

Market Data:

EPS for 2010-11: 40-44 sen

PER 2010 and 2011: 6.5x and 5.6x

Shares issued: 75.2 million

Market Cap: RM185 million

Net gearing: 5%

Dividend payout: 5%

P/BV: 0.7x

Shareholders:

Kam Foong Keng 34.09%

Moy Wong Ah 13.35%

Kam Foong Sim 2.4%

For more info, click here.

* Inclusive of a one-off goodwill impairment charge of RM5.3 mil in 4Q09. Discounting that, net profit is approx RM6.5 mil

Source: Company, JPJ

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.

Funds I like: AmDynamic Bond and Kenanga Growth Fund

For those who are interested in unit trusts investing, there are some attractive funds to look at based on their performances, resiliency and expense ratios. For Malaysia equity and bond funds, Kenanga Growth and AmDynamic are good picks. For balanced funds, OSK-UOB Kidsave Trust and OSK-UOB Growth and Income Focus Trust are the more attractive ones.

Kenanga Growth: Winner of Edge-Lipper Award for Malaysia Equity category for cumulative 1-year, 3-year and 5-year performance. 5-year annualized return was 14.3% p.a (KLCI: 8.1%) while 3-year annualized return was 6.6% p.a. (KLCI: -1.0%) as at end June 2010. YTD performance of the fund was 16.1% vs KLCI's 5.6%. It's suitable for investors who aim for long-term capital growth. Click here for more info.

AmDynamic Bond: The bond fund manager of AmInvest is reputed to be the best in Malaysia. The fund is mainly invested into high-yield, lower credit rating corporate bonds which explains its superior performance as compared to other bond funds. Despite its higher returns accompanied by higher risks, the bond fund manager seemed to be able to manage the risks well with volatility close to the benchmark over the past 3 years. 5-year and 3-year annualized returns were 9.9% and 7.8% respectively. Cumulative 5-year performance was 60.5%. Investors who are more risk averse and aim for both capital growth and regular income as well will find this fund attractive. Click here for more info.

PS: I always believe that fund sales charges should be as low as possible while charges should be applied based on the performance of funds. Thus, for now, Fundsupermart seems to offer very low entry fees for funds. Currently, Fundsupermart is having a promotion on Kenanga Growth Fund and AmDynamic Bond with sales charges of only 1.0% and 0.0% respectively (Where to get this kind of deal?!!)

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.