Some thoughts on Mudajaya after SC's letter

Reply to Moolah's post on Mudajaya:

"Investment of associates should be the IPP project in India :) The money earned from the construction of the project is plowed back into the IPP project as part of its 26% equity stake commitment. So, can't really say there's no wealth creation as Mudajaya is bound to reap its harvest from India once the IPP starts operation. The question is whether the earnings from IPP could justify the RM871 million being plowed into the IPP project. Mudajaya will be putting another RM671 million over the next two years into investment of associates. That will equal about RM80 mil per quarter.

As for valuation of Mudajaya, I will not put its construction earnings from IPP together with its 26% stake in IPP like what is done by CIMB. Instead, valuation should only include its 26% stake in IPP and exclude its earnings from IPP construction as construction profits are channeled back to the IPP anyway. By excluding IPP construction earnings, its earnings should be halved, probably about RM140-160m p.a. in 2011-12.

Simple valuation: RM1800m (Construction earnings PER 12x) + RM800m 26% stake in IPP + RM30m properties. Work out to be RM6.40 per share. Hope this helps :)"

Looking closer at Mudajaya's financial statements, its earnings are not really that meaningful (except for other projects other than IPP projects). However, the way they present their earnings were misleading to investors. This episode has also caused a dent in investors' confidence towards this company and will be hard for the company to shake off its "fraudulent company' image among investors.

Price weakness to continue??

Any constructive comments on Mudajaya? Appreciate it!

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.

Stock Holdings

Current stock holdings for now (I find 5 stocks for a portfolio will be good enough for individual investors. Holding more than that could undermine potential gains. I guess an investor's aim is to train oneself to identify winning stocks while at the same time train oneself to be intuitive/alert enough to sense any negative sentiment and change fast, and I mean REAL FAST accordingly - I've learnt some difficult lessons of not acting fast enough, especially in cutting losses and switch counters fast):

Delloyd (RM3.14): I feel it's a matter of time before it flies. I like their share buybacks, increasing contribution from bus manufacturing, plantation and riding on increasing car sales. An extensive report on Delloyd can be found here in The Edge. Click here for previous posts.

Mudajaya (RM4.61): Ample opportunities to pick up Mudajaya at lower prices, though it can be risky pending announcements from SC regarding its disclosures on Indian IPP projects. However, looking at how Mudajaya came out to clarify and assure the investors/analysts coupled with working closely with SC as compared to other more dubious companies where CEOs go missing and so on, Mudajaya should be alright in this regard. In addition, "double joy" on announcements of potential IPP project in Laos and SC's email on letting Mudajaya off within a single day. Click here for previous posts.

Paramount (RM4.63): Same old story on Jerneh. Potential fat dividend on the cards? Business direction good as well with greater expansion/diversification into education sector while corporate earnings in the past quarter came out very favorable. Click here for previous post.

QSR-WB (RM2.07): More speculative. Looking at how the shares have been played up, a very big player is coming in. Recent news have been favorable such as expansion into India, potential acquisition of Yum!'s outlets and the resilient uptrend of its earnings. A good proxy to KFC which has shot up to the sky!! QSR currently trades at around 14.5x PER which is undemanding as it should trade close to other F&B counters which are at 17-18x PE levels in view of its leadership in the F&B sector. Should QSR goes up to RM5.50, QSR-WB could easily go up to RM2.50, more than 20% upside.

Latexx (RM2.72): As mentioned in the previous post.

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 simple look at glove makers - Which is the most attractive??

Top Glove's quarterly results just came out and the performance was not favorable owing to normalizing demand, weak USD and high latex prices. Is this a precursor to what we are going to see in the glove makers' performance for 3Q10? Will other glove makers' performances be as poor as Top Glove? I will try to present my simple guess and see which one is the most attractive for now.

Based on the table above, Top Glove should be the most affected amid high natural rubber (NR) prices, followed by Adventa, Supermax, Kossan, Latexx and Hartalega (The least affected). Therefore, we might not see earnings of other glove companies decline as much as Top Glove.

Owing to the high NR prices, some customers are switching to nitrile gloves which currently enjoy firm demand. Therefore, Latexx and Hartalega might continue to remain firm (or less affected) in their earnings/margins in the following quarters owing to their higher exposure to premium segment i.e. nitrile and powder-free gloves.

Looking at the glove makers performances above, I would prefer Latexx as its growth in earnings and margins appeared to be more resilient while its 2Q2010 earnings growth remain in the positive QoQ when others were experiencing contraction (except for Adventa but earnings are rather inconsistent and too small for my taste). From pure PER valuation point of view, Latexx remains the cheapest. Latexx is moving into premium segment i.e. Powder-free and nitrile gloves where demand is firmer. Besides, Latexx could also benefit from its washing system to remove protein content in the gloves which will come onstream in 4Q2010 and could contribute strongly to its earnings.

In my simple conclusion, Latexx will be my top pick for the glove sector for now.

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.