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.

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

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.

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?

News:

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.

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.

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.

News: Utusan calls May 13 a sacred day

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.

News on Ho Wah Genting in The Star

News:

• Tin mining prospects bullish since price hit all-time high on Oct 14
• Perak state: High price makes tin mining conducive

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.