Insas (RM0.87): Still stuck while Inari flies to the sky?

Just a short note. 

Inari uptrend continues, leaving Insas behind 

Just look at the chart above. Inari was bashed down from RM3.10 level (adjusted) to below RM2.10++ in last Oct and December. At the same time, Insas was down to 80 sen from RM1.25 level. Nonetheless, since then, Inari climbed to all-time high of above RM3.30 while Insas was hardly up by comparison. At the same time, Insas' NAV continued to go up to RM1.82 now. Why the dichotomy? 

Reasons for Insas' sluggishness? 

Holding company discount? Insas not doing anything for shareholders (No dividend policy, meager dividends)? Value trap (It acts like Thong's own sole-proprietorship)? Unstable earnings (A lot of liquid investments such as bonds and equities which have changing market values all the time)? 

Insas' share of Inari is more than its own market cap: 

Insas' 27.7% share in Inari mother share is worth RM650mil already and we have not included Inari warrants which could be at least RM20-30mil. Both of these holdings are already 10% more than Insas' own current market cap. This means the rest of Insas' assets are totally free, including Insas' financial investments (Bonds, equities etc) and net cash total about RM500mil, associate companies worth RM160mil  and RM160mil worth of investment properties. 

Unlocking value? 

The immediate catalyst I see is probably disposal of Inari to realize gains from its Inari holdings. Recently Insas disposed 3.2mil++ shares in Inari. Hopefully more to come. Koon Yew Yin also blogged about it last year. 

http://koonyewyin.com/2014/09/21/insas-bhd-should-follow-naims-footsteps/. 

Will Insas do more going forward? We'll just have to ask Dato' Thong.

Final comments: 

Enter if you have patience to wait for Insas' price to catch up. For now, I see tremendous value that can be unlocked from Insas. However, its price will remain depressed as long as the major shareholder has no intention to unlock value at all. Will Dato' Thong do it? Why should he? When? 

I've no answer. Invest at your own risk :p 

All the best!

Market Data: 

Market Cap: RM600mil

NAV: RM1.82

Insas (RM0.645; Target Price: Too undervalued): Super duper cheap, riding on Inari...and potential corporate moves (Just guessing)?

A stock that is too cheap to ignore and huge earnings prospects from its new venture into IT-related business.

Background: 

Insas is involved in the following segments: 

• Financial services and credit & leasing: Stock broking and dealing in securities, provision of corporate finance and advisory services, credit and leasing and granting of loans and other related financing activities, provision of share registration services, management services and nominee agents.

• Property development, property holding and investments and project and property management.

• Investment holding and trading of quoted securities and other related financial instruments. 

• Retail trading and car rental: Cars and limousines for hire/rental, wine merchant, retail and trading of high fashion wear, leather goods and other lifestyle-related products and operating food and beverages outlets.

• Tech: Produce wireless microwave telecommunication products, wireless broadcast card and electronic manufacturing services, design, manufacturing, distribution and sales of smartcards, semi-conductor products and equipment, manufacture and distribution of computer peripherals, design and development of software and web applications and provision of communication and networking services, provision of sales and services for mobile wireless and fixed line broadband solutions and devices and related peripherals, sale of data and multimedia products and services, computer hardware dealers and maintenance, sale of multimedia and electronic products and IT consultancy services. 

Massively undervalued: 

Some of the assets held by Insas: 

• Net Cash: RM229.73mil
• Investments (Shares, corporate bonds and other financial instruments): RM277.8mil 
• Properties: Can easily reach RM200mil. Book value at RM179.335mil (It will be worth much more since around RM50mil worth of properties have not been revalued for more than 15 years and another RM10mil worth of properties not revalued since 8 years ago). 
• 36.44% stake in Inari: RM226mil 

The total assets listed above is around RM930mil. There are other associate companies which I’ve not included yet such as 20% stake in Gleneagles Medical Center SB and 43.4% Melium Group (Dome cafe and fashion retailer for over 30 world famous brands including Etienne Aigner, Hugo Boss, Christian Lacroix, Cole Haan, Emilio Pucci, Ermenegildo Zegna, Furla, Mauboussin, Stuart Weitzman, Tod’s and +IT). 

Inconsistent earnings but shareholders’ equity keeps rising: 

Earnings were largely determined by Insas’ investment holdings and trading of financial instruments which have volatile earnings. Thus, overall earnings were volatile and inconsistent historically. However, IT-related manufacturing and trading segment (mainly from 36.44% of Inari’s earnings) seems to be increasing q-o-q and will likely provide consistent recurring earnings to the company in the future. 

Thus far, similar to what Intellecpoint mentioned in his blog post on Insas (click here), the boss managed to increase shareholders’ equity over the past years, but maybe not enough to optimize shareholders’ value to the fullest. 

So, now the question is, how will Dato’ Thong Kok Khee help Insas’ share price to rise? Perhaps he could give more consistent & higher dividend payout (It gave out dividends for the first time early this year at 1.3sen per share, ~2% dividend yield), share dividend (One was done early 2010: 1 share for every 25 shares held, equivalent of 4% dividend yield.), making Inari into subsidiary (It has been buying up Inari aggressively over the past few months), consolidating its businesses by selling non-core assets since his assets are so diversified. Perhaps he should just consolidate Insas’ businesses and put its humungous financial resources into expanding into retail, properties and IT which have huge earnings potential.

Inari helped lifting up Insas’ share price: 

Insas has been riding up together with Inari. I’ve done a sensitivity analysis based on Insas’ 36.44% stake in Inari. For each % rise in Inari share price, Insas share price should rise approximately 0.53%.

Looking at Inari’s business of supplying assembled RF chips to Avago Technologies which is a market leader in the RF space and also Inari’s major customer, Inari’s earnings prospects are enormous as RF chips are incorporated into all major smartphones and tablets which are experiencing huge growth. Just look at Avago’s earnings which have doubled since 2010. 

In addition, Avago holds 9.7% direct stake in Inari and is heavily dependent on Inari for its wafer processing as well as assembly and test in the wireless segment (Click here for Inari’s initiating coverage by Affin). I believe Inari’s share price could surge even further (Just look at MyEG, gosh!!! And its market is just Malaysia!!!) as it is exposed to the global tech market and should trade at PER 16x to more than 20x. I will leave Inari for another post. 

Recommendation: 

• Severely undervalued: Market cap of Insas is just RM425mil while its NAV is a huge RM1.03bil. There is very limited downside to the share price due to severe undervaluation, but plenty of upside riding on Inari as well as potential corporate moves (Assets sales, consolidation of businesses, declaring cash/share dividend, JV/collaboration between Ho Hup and Insas’ property division?). Dato’ Thong recently bought into Ho Hup, Formis and Inari aggressively via Insas and himself while at the same time Insas was buying back its own shares. What is he up to? Maybe just for trading? Or something more? If he could just start some corporate moves to realize some of its assets, the stock will rerate upwards quite substantially. It has been stuck below 60 sen for the past 10 years, is this the time to break out? 

• What to buy? Investors could buy both of these shares with Insas being undervalued with a higher margin of safety (acting as a safe base) while Inari could provide higher growth. Currently, both of these stocks are super duper hot. I just feel like there’s something going on, perhaps some big contract wins by Inari OR Insas having some corporate moves or declaring dividends OR big players plus everyone else are entering this counter in view that the fundamentals of this company keeps getting better with its venture into the huge global tablets and smartphones market? Time will tell. 

Happy investing! All the best!

Market Data: 

Share Price: RM0.645

Market Cap: RM425mil

NAV: RM1.03bil

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.