Outlook for 2011

It's the end of 2010 and most investors are discussing about 2011 outlook. Here's some of the report or news that I find interesting to share with you all:

i) Barrons bullish outlook on US market
   "Collectively, the 10 strategists and investment managers surveyed by Barron's see the S&P 500 finishing
    next year near 1373, roughly 10% higher than Friday's close at 1244"
    Full report here: Barrons 2011 Report
ii) 2011 Market Outlook: Rebound to Expansion
    "We believe the theme of transition from rebound to expansion is appropriate for the 2011 outlook 
     because we expect a transition year for both the economy and the financial markets.
     PNC projects that the U.S. economy as measured by real GDP will eclipse the previous peak set in
     2007 by the end of the first quarter of 2011 and move into expansion mode."

My view on Malaysia stock market:
i) Bullish on CPO counters due to expected higher oil price. Counters to watch: Companies which have prepared well for this commodity cycle include CBIP. The company originally build palm oil mills but have planted palm oil several years ago. Expect to see the earnings from plantation to be bigger in the coming quarterly result. Will write on CBIP fully later.
ii) Bullish on Sarawak counters due to expected election in 2011. Counters to watch are construction players in Sarawaj e.g. HSL and NAIM. Catalysts will be the possible new construction contract announcement. Will write on NAIM later.
iii) Neutral on F&B counters due to higher CPO, sugar price and pressure from higher labour cost. Counters that I like within F&B sector: CIHLDG and MAMEE. However, the key catalysts will be their ability to transfer the inflation cost to consumer. Will write on MAMEE later.

Outlook for 30-Dec-2010

Overnight, US market was closed relatively flat with DJIA up 9.84p to 11585.38p as oil price declined slightly while dollar continue to trade lower against major currency such as Yen and Euro.


My view today is that market will trade higher but with limited upside as investors will continue to prefer equity exposure over other asset class due to: i) low interest rate from US, ii) strength in commodity and iii) risk-return from dividend paying stock continued to be attractive.

KLCI up 13.70 points! 253 up, 89 down!

FBMKLCI opened weaker (down 2.17 points) but slowly climbed to positive territory.

At around 930am, the market picked up strongly and gained 13.70 points as of 9.48am.

It is quite unusual to see sudden surge within 5 minutes time (Picture Source: Nextview):

                                                                                                                                                                                                                                                               
The leading mover include:
i) CIMB (+11 sen to RM8.68), Index contribution: + 1.585 points
ii) MAYBANK (+10 sen to RM8.59), Index contribution: + 1.4195 points
iii) GENTING (+16 sen to RM10.96), Index contribution: + 1.1518 points

At a glance, it seems that Finance Sector led the index surge at it gained 143.61 points or 1.04% to 13949.62 point, which is the best sector performance for today as of time of writing.

There's also news from Reuters that Japan output rises for the 1st time in 6 months. Read the full Reuters article here

My view on the sudden surge
Foreign funds may be coming into South East Asia again after China increase its interest rate by another 25bp over the weekend. Despite Nikkei down 40 points and Hang Seng drop 70 points, South East Asia market are all up. E.g. Straits Times Index +10p, Jakarta +14p and Philippine flat.

Hopefully the increase is sustainable and flow over to other stocks as well. Let's wait and see how KLCI ends for 2010...

Outlook for 27-Dec-2010

Last Friday, US market was closed for Christmast Eve. However, European market ended mixed with FTSE up 12.85p to 6008.92p while DAX lost 10.23p to 7057.69p.

Here are some of major news over the weekend:
i) China's PBOC's Christmas rate rise to weigh on commods at open Click for full report at Reuters
ii) World economy can withstand US$100 oil price: Kuwait Click for full report at Reuters

My view:
The surprise interest rate increase by 25bp is negative to the market, especially to commodity linked sectors such as Oil & Gas and Plantation. This is due to possible pressure to oil price and thus indirectly CPO price. However, the knee-jerk reaction should be temporary. With the low interest rate regime in US, the money flow should be gravitated towards commodity and equity for growth and inflation hedge. Overall, today should be slightly negative for KLCI as investors are likely to use the news from China as an excuse to take some profit off the table. This may represent opportunity for bargain hunting at the afternoon session.

Stocks that I STILL find attractive:

1. DRBHCOM (HwangDBS Target Price at RM3.55, still trading at huge discount compared to other conglomerates in Malaysia, got potential to go up to RM3.00)
2. AXIATA (Recently sold its stake in Samart, growth to come from Indonesia market, stable Malaysian Celcom recurring income, maiden dividend payout in 2011 should be a major rerating catalyst, average consensus Target Price RM5.28)
3. FPI (Trade at attractive historical PER of less than 6.0x, strong balance sheet with net cash of RM81.42m or 33.14 sen per share, got potential to go up to RM1.39)

RON97 to increase 15 sen further on 1-Jan-2011?

Merry Christmas and Happy New Year!!! Let's party before facing the new reality on 1-Jan-2011...

I really hope my prediction don't come true but it seems like all the indicators are pointing towards increase of 5 sen for RON97. I listed down here 3 reasons why I think RON97 will increase 15 sen to RM2.45 per litre on 1-Jan-2011 or about 7 days from now...

1. Crude Oil Price has increased from US$84.65 (as of 30-Nov) to US$91.51, representing 8.1% gain within a month. 8.1% of RM2.30 is 18.4 sen, round it down, become 15 sen, just nice as the same increase on 1-Dec-2010.

2. The historical increase suggested so. Let's look at  the historical price increase of RON97:

• 1st Sep 09: RON97 up 25 sen to RM2.05 per litre, RON95 was introduced at RM1.80 per litre
• 15th July 10: RON97 up 5 sen to RM2.10, RON95 up 5 sen to RM1.85 (RON 97 no longer subsidized, price will be subject to managed float)
• 1st Nov 10: RON97 up 5 sen to RM2.15, RON95 maintained at RM1.85 per litre
• 1st Dec 10: RON 97 up 15 sen to RM2.30 per litre, RON95 maintained at RM1.85 per litre

In the past 2 months, RON97 has increased 2 times. Making it a hat-trick increase 3 times in the past 3 months sounds good, isn't it?

3. There is no reason for people to complain about price increase of RON97 because RON95 is maintained at RM1.85. If you complain about expensive RON97, you always have alternative to use RON95.

Conclusion:
For those of you who is still using RON97, sorry to inform you about the "Inconvenient Truth"...

Adventa deny takeover plan

This is the word-by-word copy and paste from Bursa website


With reference to the article “Adventa Bhd hit limit up yesterday on speculation that it could be a potential acquisition target by a healthcare firm based in the US.” which appeared in the Edge Daily on 24th December 2010, the Board of Directors of Adventa Berhad ( “Company “) wishes to state that they are presently not involved in any discussions of any intended acquisitions of Adventa with a US firm. The Company periodically receives expressions of interest on an exploratory basis from other parties but there has been no material change in circumstances.

This announcement is dated 24 December 2010.


My view:
At 12.33pm I mentioned that Adventa is not that attractive for takeover, didn't expect Adventa to reply to Bursa query so fast. Well, normally Company take up to 1 day, meaning Adventa can choose to release the query after market close.

Why do they instead choose to release the info during lunch time? This is very interesting, let's wait and see what will happen.

But if I am the US firm, the maximum that I want to pay will be the 6.8x forward PER (same PER as LATEXX), meaning maximum I want to pay is RM2.09 per share for Adventa. What does not mean? Temporary avoid ADVENTA until it drop below RM2.09...

Adventa: Synergy, Valuation & Prospect

It was reported in The Edge Financial Daily today that"


US firm looking at Adventa acquisition?
Rubber glove manufacturer Adventa Bhd hit limit up yesterday on speculation that it could be a potential acquisition target by a healthcare firm based in the US...


My view:

If I were the US buyer, I will look at 2 things to decide whether to buy Adventa: i) synergy and ii) valuation

i) Synergy
The synergy is there as US healthcare firm could use the gloves for their own operation, e.g. their their workers may need to wear gloves when handling the drug manufacturing line. Besides, they can also look at new revenue generation source by selling the gloves in US. So, from synergy point of view, the intention is there...

ii) Valuation
The consensus is expecting Adventa to earn EPS of 30.8sen in FY2011 ending Oct 31. At yesterday close price of RM2.64, ADVENTA is trading at 8.6x forward PER of 2011.

Let's compare ADVENTA forward PER with LATEXX and KOSSAN. After adjusting their forward PER to end at 31 Oct and using yesterday close price as reference, LATEXX forward PER is 6.8x while KOSSAN is 7.9x. Rearrange it in simple way to compare using forward PER:


ADVENTA: 8.6x
LATEXX: 6.8x
KOSSAN: 7.9x

The only attractiveness is Adventa smaller market capitalization at about RM400m, but 8.6x forward PER is already 10% higher than KOSSAN forward PER.

So, from valuation point of view, it is not that attractive anymore.

Axiata sold 18.9% stake in Samart

This is the news gathered from Bernama website:




Axiata Group Bhd has completed the sale of its entire stake of 18.9 per cent in Samart Corporation Public Company Limited to existing shareholders Charoenrath Vilailuck and Watchai Vilailuck for US$34.8 million.


Axiata still holds its 24.4 per cent stake in Samart i-Mobile, focusing on mobile, multimedia and international business, the company said in a statement today.

"This divestment reinforces our commitment to focus on our primary business of mobile communications," Axiata President and Group Chief Executive Officer Datuk Seri Jamaludin Ibrahim said.....



My view:

1. The sale is in line with Axiata Group strategy to focus on mobile communications. To recall, Axiata has also sold its 89% stake in Multinet Pakistan (Pte) Ltd for US$15 million on 19 July 2010. I view this positively as more focused management should be able to operate more efficiently by leveraging the technical know how and telco expertise across different countries.

2. The cash proceeds of the US$34.8m is likely to be used as working capital or to support the dividend payment which will start in FY2011. To recall, Axiata has announced its dividend policy of minimum 30% of its net income on 25-Aug-2010. Once the Company starts its payment in FY2011, Axiata is poised to gain more recognition from investors. Assuming the Company choose to pay dividend quarterly (same as MAXIS and DIGI practice), then the 1st dividend will be paid around May-2011 when the 1Q2011 result is announced.

3. Lastly, to recap, the average Target Price for Axiata is RM5.28, representing 12.3% upside.

Today's outlook 22-Dec-2010

Overnight, US market ended flat with DJIA gained 55.03p to 11533.20p while S&P gained 7.52p to 1254.60p.

Here are some of the news that may have affected US market:
i) Support from financial sectors.
ii) Better than expected earnings Jabil Circuit Inc
iii) Easing tension on South Korea and North Korea conflict

My view:
The strength seen in US financial sectors coupled with easing tension on Korea issue are positive for Malaysia market. Oil and gas counters are expected to continue to be in the limelight. Yesterday I mentioned that from historical PER viewpoint, KNM seems to be the most attractive O&G stock. Yesterday, KNM announced it gets RM2b project. Overall, today should be slightly bullish for KLCI as investors are likely to return to search for better yields and growth in the equity market.
 
Stocks that I STILL find attractive:

1. CRESNDO (Pure proxy to Iskandar investment theme, paid 7 sen dividend in the past 5 Financial Years, undemanding Price/NTA of 0.48x only, got potential to go up to RM2.55)
2. AXIATA (Growth to come from Indonesia market, with stability in Malaysia Celcom, maiden dividend payout in 2011 should be a major rerating catalyst for this stock, average consensus Target Price RM5.28)
3. HSL (Proxy to Sarawak election theme play, strong balance sheet with net cash position, upside potential will be the announcement of any future projects won, average consensus Target Price RM2.17)

Today's outlook 21-Dec-2010

Overnight, US market ended flat with DJIA down 13.78p to 11478.13p while S&P gained 3.17p to 1247.08p.

Here are some of the news that may have affected US market:
i) American Express fell 3.4% as new rules by Fed Reserve could limit merchant fees of the Company.
ii) Increase in Amazon.com after analysts upgraded their estimates and ratings.
iii) Rebound in oil price provide support for energy stocks
My view:
Only the rebound of oil price news is something that I think could affect Malaysia market. Oil and gas counters are expected to continue to be in the limelight. From historical PER viewpoint, KNM seems to be the most attractive O&G stock. Also, I believe that North Korea is unlikely to attack South Korea. Overall, today should be slightly bullish for KLCI as investors are likely to return to search for better yields and growth in the equity market.
 
Stocks that I STILL find attractive:

1. CRESNDO (Pure proxy to Iskandar investment theme, paid 7 sen dividend in the past 5 Financial Years, undemanding Price/NTA of 0.47x only, got potential to go up to RM2.55)
2. AXIATA (Growth to come from Indonesia market, with stability in Malaysia Celcom, maiden dividend payout in 2011 should be a major rerating catalyst for this stock, average consensus Target Price RM5.28)
3. HSL (Proxy to Sarawak election theme play, strong balance sheet with net cash position, upside potential will be the announcement of any future projects won, average consensus Target Price RM2.17)

Today's outlook 20-Dec-2010

Last Friday, US market ended flat with DJIA down 7.34p to 11491.90p while S&P gained 1.04p to 1243.91p.

Here are some of the news that may have affected last Friday's US market:
ii) Oracle reported quarterly profit which rose 28% yoy
ii) RIM revenue jumped 40% yoy
iii) Volatility Index has gone down to its 8 months low
iv) Bank of Montreal will buy Marshall & IlsleyCorp for US$4.1b
The major news during the weekend is the news that South Korea plans levy on foreign currency bank debt.


My view:
Overall, US market was flat with the news flow are mostly related to US local economy. However, the robust financial result from Oracle and RIM are positive for technology counters. The South Korea plan is generally negative to equity market but the impact should not be as high as China, due to their smaller GDP. Overall, today should be slightly bearish for KLCI as investors are likely to stay cautious while waiting for further indicators.

Stocks that I STILL find attractive:

1. SCIENTX (Hit RM2.00 on Friday close, capex of RM14.4m in FY2011 should grow the Manufacturing earnings by 10%, still cum 6 sen dividend ex date 7-Jan-2011, new potential: may go up to RM2.16)
2. DRBHCOM (HwangDBS Target Price at RM3.55, historical PER of 7.49x now means it is still trading at huge discount compared to other conglomerates in Malaysia, got potential to go up to RM3.00)
3. FPI (Trade at attractive historical PER of only 5.92x, strong balance sheet with net cash of RM81.42m or 33.14 sen per share, got potential to go up to RM1.39)

SCIENTEX revisited

First, let's identify the Manufacturing segment.

This is from Business Times:

Speaking to reporters after Scientex's shareholders meeting in Subang Jaya yesterday, Lim said with the installation, the plant now boasts eight lines with annual production capacity of 100,000 tonnes of stretch films, an increase of 15,000 tonnes from before.

Previously, I am estimating SCIENTX Manufacturing value to be RM217.61m by using 8x PER and historical earnings. Based on the Company's plan to invest RM14.4m for line expansion, the Manufacturing segment earnings should be able to grow 10%.

By keeping 8.0x PER, Manufacturing segment should worth RM239.37m.

Second, let's identify the Property segment.

These are the lands owned by SCIENTX for Property segment (Source: Annual Report 2010) :

If you look at it carefully, the land at Taman Scientex was last revalued in 1993. Logically, after 17 years that piece of land should worth a lot more than its Book Value.

Based on my simple assumption that each year all the land value increase by 3% annually, the RNAV for SCIENTEX land should worth RM258.07m.

Again, by using SOP, SCIENTX has potential to go up to RM2.16.

SCIENTX hit RM2.00

I have written on Scientex 2 days ago, the link is here SCIENTX 1st Time Report.

The stock has really moved to RM2.00 (Meaning to say it hit my estimated potential of RM1.99 already).
If you look at the increasing volume, it shows that more investors are looking into this stock. However, RM2.00 may act as short term psychological barrier.

I will keep on watching this stock and temporary keep my estimate at RM1.99. However, my recent check on the news about this Company revealed 2 more catalysts which may be positive to the stock:

i) SCIENTX is planning to spend RM18m to increase capacity where investments will cover facilities for both the stretch film and strapping band. This is gathered from Business Times report, you can read the full report in this link.
My view: My earlier estimate on the earnings for the Manufacturing segment may have been too conservative as I have not factored in the new facilities which should then increase production. Will need to recalculate the value of the Manufacturing segment.

ii) It is also mentioned in the report that "As for property development, Lim said Scientex has several townships and mixed development projects in hand, namely in Pasir Gudang, Kulai, Skudai and Ayer Keroh, with a gross development value of RM1.8 billion". To my best knowledge, the land price in Johor should have increased. Will need to estimate the worth of their land using Revised Net Asset Value (RNAV) to capture the latest worth of SCIENTX land.

Valuation:
Keep the best part first... to be revealed on Sunday.

Hwang DBS reiterate BUY call on DRB HICOM

This is the excerpt from Hwang DBS report on DRB HICOM today...

----BEGIN----
DRB-Hicom announced it has signed a Memorandum Of Understanding (MOU) with KAMAZ Group from the Republic of Tatarstan to look into the possibility of manufacturing and assembling selected KAMAZ heavy duty trucks for the Malaysian and ASEAN market.

KAMAZ Group is the largest automobile corporation of the Russian Federation. OJSC KAMAZ ranks 13th among the world's top heavy truck manufacturers and is number 8 among the world's diesel engine producers. DRBHicom said that if the feasibility study proves to be positive, production could begin in the next 8 to 12 months.

.........

DRB-Hicom is certainly making efforts to further grow its automotive segment with this being the third JV/MOU this year after VW and Potenza Sports Car.

.........

We reaffirm our Buy rating and TP of RM3.55 based on a 20% discount to our SOP value.

----END----

Today's outlook 16-Dec-2010

Overnight, US market ended slightly lower with DJIA down 19.07p to 11457.47p while S&P lost 6.36p to 1235.23p.

According to Reuters, "U.S. stocks suffered a third straight late-day sell-off on Wednesday, suggesting it may be difficult to chalk further gains as the year comes to a close... Sentiment on the volatile day started lower after Moody's warned Spain its debt rating could be downgraded...However, those concerns were later offset by positive U.S. data on industrial production and regional manufacturing. The data boosted stocks going into the afternoon, but markets were unable to hold those gains."

My view:
So, we are now on the decision point between these factors:
+ve = US Industrial Production rose more than expected at 0.4% (expectation = 0.3%)
+ve = US Manufacturing Output rose 0.3%

-ve = Possibility that Moody may downgrade Spain debt rating

Overall, I think today should be slightly bearish for KLCI as investors are likely to use the Europe debt concern as a reason to take profit.

Stocks that I STILL find attractive:

1. SCIENTX (Please check my previous post, earnings for 1Q2011 rose 33.6%, 6 sen dividend just approved at AGM, got potential to go up to RM1.99)
2. CRESNDO (Pure proxy to Iskandar investment theme, paid 7 sen dividend in the past 5 Financial Years, undemanding Price/NTA of 0.44x only, got potential to go up to RM2.55)
3. DRBHCOM (HwangDBS Target Price at RM3.55, historical PER of 7.49x now means it is still trading at huge discount compared to other conglomerates in Malaysia, got potential to go up to RM3.00)

Scientex Berhad

Key Points:

• Price at RM1.89 as of 15-Dec-2010 close. Undemanding PER of 7.21x only
• Paid 9 sen dividend in FY2010, representing historical dividend yield of 4.76%
• One of the world’s largest producers of stretch film
• Property division is an exposure to Iskandar theme investment with projects in Kulai and Pasir Gudang Johor
• Potential to increase to RM1.99 (by using Sum Of Parts to value Manufacturing & Property division of the business)

 1. Company Background

Established in 1965, Scientex Bhd (SCIENTX) is mainly involved in manufacturing and property development. 

A. Manufacturing 

The Company's manufacturing division comprises of two business units namely packaging and polymer. For packaging, SCIENTX produces various packaging products designed for outer, middle and inner packaging applications:-

• Outer packaging – stretch film, stretch hood, PP strapping band and HDPE tying tape.
• Middle packaging – woven bags, bulk bags (FIBC) and corrugated carton boxss.
• Inner packaging – adhesives, lamination film and PVC rigid film.

It is worth to note that SCIENTX is one of the world’s largest producers of stretch film, with an annual production capacity in excess of 10 billion metres.

For polymer, SCIENTX manufactures PVC leather cloth, PVC/PP & PVC/PE foam and TPO/PP foam sheets for automotive instrument panels, door trims, and headlining for car manufacturers. Lastly, SCIENTX also supplies tufted carpet mats to automotive manufacturer. SCIENTX clients for this division originated mainly from Asia Pacific region.

B. Property

SCIENTX flagship development is located in Pasir Gudang, Johor with land area of 1,100 acres. Over the last 15 years, more than 5,000 units of residential and commercial properties has been built. Besides, the Company also has development project in Kulai. The project in Kulai comprises of 250 acres of residential and commercial development and was launched in early 2008. This is in line with SCIENTX strategy to acquire and develop strategically located prime land within the Iskandar Malaysia growth corridor in Johor.


2. Corporate Structure

3. Management

The company's Managing Director is Mr. Lim Peng Jin who has been with the Company for 19 years. Appointed to the Board on 20 January 1995 as the Group Executive Director, he was later re-designated as Managing Director on 6 November 2001. He graduated with a Bachelor of Science (Honours) in Chemical Engineering from the University of Tokyo, Japan in 1990. He had also completed a course in Programme for Management Development at Harvard University, USA in 1998.

Other management team members are experienced in their respective fields. For Manufacturing Division (Packaging), there are 3 Executive Directors namely Mr Gan Kok Khye, Mr Choo Seng Hong and Mr Thomas Leong Choo Chye. As for Manufacturing Division (Polymer), the General Manager is Mr Goh Tian Chin. For Property Division, the Executive Director is Mr Koay Teik Chuan.

4. Financials


In FY2006 (ending 31-July), SCIENTX registered revenue of RM586.32m. This has grown to RM694.82m in FY2010. However, net income grow at Compounded Annual Growth Rate of 20.6% from RM28.47m (FY2006) to RM60.32m (FY2010).


For FY2010, revenue has increased 36.3% to RM694.82m while Profit Before Tax or PBT up 68.3% to RM70.75m. The higher PBT was attributed to higher revenue and profit margin achieved by both manufacturing and property divisions.


5. Quarter 1 for FY2011 released after market close today at 15-Dec-2010

For 1Q2011, SCIENTX net income up 33.60% y-o-y to RM17.01m. The decline q-o-q is not a major concern as 1st Quarter is normally weaker as seen in 1QFY2010 and 1QFY2009. If we annualized the 1Q net income, total net income for FY2011 should be around RM68.04m or 31.59 sen. 

6 sen dividend has just been approved in the AGM. Ex-date is 7-Jan-2011.

6. Valuation


Since SCIENTX has both manufacturing and property division, there are 3 ways to value SCIENTX.


Method 1 (treat it as packaging company): 
If we use DAIBOCHI historical PER of 8.0x to annualized FY2011 EPS of 31.59sen, SCIENTX value is RM2.53 (33.9% upside)


Method 2(treat it as property company): 
If we use KSL Price to Book Value ratio of 0.86x, SCIENTX value is RM1.73 (8.5% downside). However, the more proper way is to value this is via RNAV method.


Method 3 (Sum of Parts - break into 2 components)
This method gives value of RM1.99 per share (5.3% upside). The details is shown below:

My view:


I believe that the Sum Of Parts valuation is most appropriate. Coincidentally, RM1.99 is also the psychological barrier for the stock. Conclusion: got potential to go to RM1.99 as the short term target. Let's see how this counter goes tomorrow...

Today's outlook 15-Dec-2010

Overnight, US market ended slightly higher with DJIA up 47.98p to 11476.62p while S&P gained 1.13p to 1241.59p.

According to Reuters, "Stocks cut gains to end mostly flat after a late-day sell-off on Tuesday as yet another cautious statement from the Federal Reserve on the economy offset strong retail sales data for November... The Fed, in a policy statement after its last scheduled meeting of 2010, said the economic recovery was still too slow to bring down unemployment and reaffirmed its commitment to buy $600 million in government bonds... U.S. retail sales rose for a fifth straight month in November, pointing to a firm rebound in consumer spending, which accounts for roughly two-thirds of the U.S. economy."

My view:
Overall, I think today should be slightly bullish for KLCI on the positive news from US retail sales.

Stocks that I STILL find attractive:

1. AXIATA (Growth to come from Indonesia market, with stability in Malaysia Celcom, maiden dividend payout in 2011 will be a major rerating catalyst for this stock, average consensus Target Price RM5.28)
2. FPI (Trade at attractive historical PER of only 5.85x, strong balance sheet with net cash of RM81.42m or 33.14 sen per share, got potential to go up to RM1.39)
3. HSL (Proxy to Sarawak election theme play, strong balance sheet with net cash position, upside potential will be the announcement of any future projects won, average consensus Target Price RM2.17)

How do I see the market today? 14-Dec-2010

Overnight, US market ended flat with DJIA up 18.24p to 11428.56p while S&P gained 0.06p to 1240.46p.

According to Reuters, "The Nasdaq closed lower to end eight straight days of gains on Monday as some large-cap tech stocks slid in a late-day sell-off. The Dow cut its gains and the S&P 500 ended a thinly traded session flat as optimism faded over China's move to tame its growth, and as some technical indicators suggested a near-term pullback could be in the cards". Put it simply, at first investors are excited on China decision to maintain interest rate, but later feels it is better to take profit or sell first.


My view:
China proved to the world once again that its decision is hard to predict as it maintained interest rate despite inflation surge to 5.1%. This is a good news but the effect should already been priced in. Keep watching for the oil price though, as the market may get worry again when it surpassed US$90 and US$95 level. (Currently at US$88.44). Overall, I think today should be slightly bearish for KLCI on the lack of catalysts seen.

Stocks that I STILL find attractive:

1. CRESNDO (Pure proxy to Iskandar investment theme, paid 7 sen dividend in the past 5 Financial Years, undemanding Price/NTA of 0.43x only, got potential to go up to RM2.55)
2. FPI (Trade at attractive historical PER of only 5.85x, strong balance sheet with net cash of RM81.42m or 33.14 sen per share, got potential to go up to RM1.39)

Stocks that I temporary no longer find attractive:

1. SAPIND (14 Sen dividend already gone ex today, short term potential has been realized with the share closed at RM1.33 - exactly same as my earlier estimate)

How do I see the market today? 13-Dec-2010

Last Friday, US market ended slightly higher with DJIA up 40.26p to 11410.32p while S&P gained 7.40p to 1240.40p.

What happened during the weekend?

1. China inflation at 5.1%, exceeds expectation
China’s risks a more abrupt tightening in monetary policy next year after refraining from raising interest rates since October even as inflation accelerated to the fastest pace in more than two years. Consumer prices jumped 5.1 percent in November, a statistics bureau report showed Dec. 11. A measure of wholesale costs climbed 6.1 percent, exceeding all 28 estimates in a Bloomberg News survey of economists. (Source: Bloomberg) Click here to read full report


2. EU leaders to agree on law change for euro stability
European Union leaders will agree next week to insert two sentences into the EU treaty to pave the way for the creation of the European Stability Mechanism from 2013, draft conclusions of the summit showed. (Source: Reuters) Click here for full report

My view:

Greater than expected inflation in China will likely caused the Chinese Government to be more aggressive in implementing interest rate increase or lending restrictions. This is bad for the stock market. The EU development should decrease the worry among investors on Europe but the positive impact should be minimal to the market. Overall, I think today should be slightly bearish for KLCI.

Stocks that I STILL find attractive:

1. CRESNDO (Pure proxy to Iskandar investment theme, paid 7 sen dividend in the past 5 Financial Years, undemanding Price/NTA of 0.45x only, got potential to go up to RM2.55)
2. DRBHCOM (HwangDBS initiates coverage on this stock with Target Price of RM3.55, historical PER of 7.37x now means it is still trading at huge discount compared to other conglomerates in Malaysia, got potential to go up to RM3.00)
3. FPI (Trade at attractive historical PER of only 5.85x, strong balance sheet with net cash of RM81.42m or 33.14 sen per share, got potential to go up to RM1.39)

What is my greatest concern for 2011?

I was checking The Edge Malaysia website and found this survey...

What is your greatest external concern for 2011?
- Collapse of the US dollar
- Euro debt spirals out of control
- Korean conflict escalates
- Oil spikes beyond US$100 per barrel
(Source: The Edge Malaysia)

My view:

Collapse of USD = unlikely (I rank this 4th out of the 4 choices)
Major economy still trade using US$ and used US$ as reserve. Besides, most commodity is priced in US$ as well. Although the amount of US$ in the market have increased substantially (due to US printing money and Quantitative Easing), the market have just not yet gave up on US$. China Yuan may need another 10 years before being accepted as a replacement to US$.

Euro debts spiral out of control = possible (I rank this 2nd out of the 4 choices)
First, it's Greece, then the market worry that the sovereign debt crisis may spread to PIIGS or "Portugal, Ireland, Italy,Greece & Spain". The market concern proved to be correct when it was Ireland turn to be bailed out in end-Nov (close to be 85 billion euros). Which country will be the next one? Not sure... but the "% of Deficit to GDP" are not showing positive signs. Quoting from Bloomberg report: "At 14.3 percent of gross domestic product, Ireland had the euro region’s largest deficit last year (i.e. 2009). Greece’s was 13.6 percent, Spain’s was 11.2 percent and Portugal’s 9.4 percent." Full report .

Korean conflict escalates = unlikely (I rank this 3rd out of the 4 choices)
According to a Korean Professor, Jung-hoon Lee, professor of international relations at Yonsei University: “North Korea's interest is not war; North Korea's interest is regime survival.” Full Report.
North Korea intentions may be just anything, but not war. Why I say so? Because if they are serious to start a war, there should be already another follow up attack in the past 10 days. Will South Korea fight back? Unlikely, Seoul is only 31 miles from North Korea. And South Korea economy is the 15th in the world, worth US$832.5 million! It is simply too expensive to fight back (for South Korea)...

Oil spikes beyond US$100 per barrel = most likely (I rank this 1st out of the 4 choices)
On 7-Dec-2010, oil price hit US$90 before retreated to around US$88 recently. The latest development on oil price was "OPEC Dismisses $90 Oil Price as `Blip,' Maintains Production Targets Again" from Bloomberg. Full Report
I beg to differ from OPEC though as the cash in the global market has to go somewhere, and commodity (including oil) seems to be the more attractive asset to invest in to hedge against inflation.

What does the reader think? (Source: The Edge Malaysia)

Crescendo Corporation Berhad

Key Points:
1. Price at RM1.33 as of 9-Dec-2010 close. Undemanding Price To NTA of 0.45x only.
2. Paid 7 sen dividend consistently in the past 5 Financial Years. Historical Div Yield of 5.26%.
3. Pure proxy to Iskandar investment theme with 3,055 acres of land in Johor.
4. Laggards among Iskandar related stocks (UEMLAND moved long time ago, KSL moved since Monday, CRESNDO still has not moved).
5. Potential to increase to RM2.55 (if market value it at same P/NTA same as KSL)

Company Background

Established in 1989, Crescendo Corporation Bhd (CRESNDO) is mainly involved in property development and construction related activities in Johor. CRESNDO gained its listing status on Main Board of KLSE on 8-Apr-2010. Apart from property and construction division, CRESNDO also generates revenue from education and property investment and management services.

Over the past 11 years, CRESNDO has established a niche in industrial property development. Its flagship industrial park is known as Taman Perindustrian Cemerlang (TPC) and currently has more than 700 established factories operating in it. TPC is located near Johor Bahru and is one of the largest private industrial estates in Johor.
 
Click here for the Group Structure Link to CRESNDO Group Structure

CRESNDO is a pure proxy to Iskandar investment theme as the Company owns a total of 3,055 acres of land in Johor, out of which 1,735 acres of it is within the boundary of Iskandar Malaysia (as of 31-July-2010). The Group specializes in the development of industrial properties (which has higher margins vs commercial and residential property), with 724 units of them (valued at RM597.1m) completed and sold so far. For residential and commercial development properties, 4,316 units of them (valued at RM455.2m) completed and sold so far.

Currently, CRESNDO’s main ongoing project is Nusa Cemerlang Industrial Park (NCIP), which consists of 353 units of factories on 527 acres of gross industrial development land. To date, 157 units of detached and semi-detached factories with Gross Development Value (GDV) of RM465m have been launched. Out of this, 101 units of factories with GDV of RM273m have been sold.

In addition, the Company’s other ongoing projects include Bandar Cemerlang, Taman Perindustrian Cemerlang, Desa Cemerlang and Taman Dato’ Chellam.

Management

Since listed on 8-Apr-1997, the Gooi family remained as the main owners of the Company with 66.29% ownership as of 15 June 2010 and continued to be the main driver of the Company.

The Board is still dominated by members of the Gooi family supported by independent directors who are professional. The management team is experienced with its Chairman and Managing Director Mr Gooi Seong Lim has been with the Company for 35 years.

Financials

CRESNDO registered 1H2011 revenue of RM99.4m, representing 25.6% growth as compared to 1H2010. The significantly higher revenue is attributed to higher sales in construction services and concrete products. EBIT is higher due to higher margin from industrial properties as well as construction operations.

CRESNDO’s balance sheet is relatively healthy with: i) current ratio increased to 3.0x in 1H2011 from 2.4x as of end FY2010 and ii) quick ratio increased to 2.2x in 1H2011 from 1.5x as of end FY2010.

CRESNDO has paid 7 sen dividend consecutively in the past 5 financial years, comprising 3 sen interim dividend and 4 sen final dividend. On 28-Sep-2010, CRESNDO has announced higher interim dividend of 4 sen per share, which is higher than its historical interim dividend of 3 sen. It is also worth to note that the ex-date of the 4 sen dividend has not been announced.

Assuming that last year final dividend of 4 sen is maintained, then total dividend for FY2011 will be 8 sen. This translates into attractive dividend yield of 6.0%, which is significantly higher than many other property stocks.

Valuation by Price To Net Tangible Asset comparison

One of the best way to value Property stocks is by using Price to Book Value ratio or PBR (provided there is none or small Intangible Asset in the Company). Besides CRESNDO, there are 2 companies with huge lands in Johor i.e. UEMLAND and KSL.

As of 9-Dec closing price:
UEMLAND: Share price RM2.58, NTA per share: 68.92 sen, P/NTA: 3.74x
KSL: Share price RM1.78, NTA per share: RM2.08, P/NTA: 0.86x

One would argue that CRESNDO should be valued at the same P/NTA with KSL. Both are property developers in Johor. From dividend perspective, for last financial year, CRESNDO paid 7 sen dividend while KSL paid 5 sen.

KSL share price has increased quite substantially from RM1.56 on 6-Dec to RM1.78 as of 9-Dec. The reasons may be due to increasing awareness from investors on laggards among Iskandar related stocks. If you have missed out on KSL share increase, CRESNDO is the one you should be looking at.

Assuming same P/NTA of 0.86x (same as KSL), CRESNDO has the potential to go up to RM2.55.

DRB-HICOM Target Price RM3.55

Hwang DBS initiates coverage on DRB-HICOM with Target Price of RM3.55.
The following analysis is gathered from Hwang DBS:

DRB-Hicom: Cheapest conglomerate

• Initiate coverage with a BUY rating and RM3.55 TP based on 20% discount to our SOP value.

• 3 core themes – i) Bargain valuations; ii) strong proxy to consumption story and iii) beefing up recurring income dsssss

• Wildcard is a potential privatization

(1) Under-researched multi-bagger in the making. DRB is a conglomerate with interests in automotive, property, banking, and services (waste management, national vehicle inspection, and O&M of power plants). It is the cheapest conglomerate in DBSV Malaysia universe. But with efforts to be more investor friendly now, we expect a significant rerating from its bargain basement valuation of 5.5x FY12 EPS and 0.6x FY12 BV on the back of 3-year EPS CAGR of 79%. Its balance sheet is also improving with 0.3x net gearing (excl. deposits/cash at Bank Muamalat). Recently, there are rumours of a privatization at RM2.20-RM2.70/share, which remains unsubstantiated.

(2) Proxy to consumption story. DRB’s automotive business has 20% share of TIV that is estimated to peak at 570,000 units in 2010. 1HFY11 profit from its automotive unit expanded 3.5-fold y-o-y driven by 12%-75% increases in sale volumes of all its marques. Besides being a key distributor for Proton, Honda, Mitsubishi, and Audi, it recently signed a MOU with VW to produce CKD units for possible distribution to ASEAN countries. This will be synergistic for its autoparts companies. Growth could be exponential going by YTD-Oct10 VW unit sales of 4,943, which is ahead of 2009’s 2,562 units. A key catalyst is the conversion of LOI from the Ministry of Defence for 257 AV 8x8 armoured wheeled vehicles worth c.RM8bn.

(3) Beefing up recurring services income. Pretax contribution from this unit grew 49% y-o-y in 1HFY11 led by Bank Muamalat, KLAS, and cash-cow concessions - Rangkai Positif, Puspakom and Alam Flora. Alam Flora will benefit from further privatization of the domestic waste industry, while Rangkai Positif should gain from more O&M works with the eventual expansion of Tanjung Bin by another 1,000MW. The eventual divestment of 30% of Bank Muamalat to Al Baraka Group will also enable the group to expand its footprint regionally. Based on 1.4x P/NTA, similar to Hong Leong Bank offer for EON Bank's assets, this could raise RM600m.

My view:

DRB-HICOM share price did fall a bit in the opening session (my earlier conclusion was "Conclusion: If I am one of the Company's small investor, I will TAKE PROFIT first and wait for better price to get in again.".

That is before I read the research report on DRB-HICOM...

Now, I believe that the market will really look at RM3.55 as the standard valuation as Hwang DBS is the first Research House to write on DRB-HICOM.


Compared to the afternoon closing price of RM1.83, there is still 94.0% upside. CRAZY valuation? Decide it yourself whether you are buying in their story but I think that DRB-HICOM can now march towards RM2.00 as their first resistance with potential to go up to RM3.00...

How do I see the market today? 10-Dec-2010

US market ended flat with DJIA down 2.42p to 11370.06p while S&P gained 4.72p to 1233.00p.

What happened in US market?

According to Reuters website, it says "U.S. stocks edged up on Thursday, with the benchmark S&P 500 closing at a two-year high, a trend investors expect to continue through the rest of the year... Investors loaded up on bank stocks, which have risen 12.4 percent for the month. Late in the year, winning positions often attract buyers seeking to improve fund performance in a practice known as window dressing."(Click on this link for the full news: Reuters US Market News)

My view:

Out of many news from US, the most relevant one is claims for "jobless benefits fell more than expected" which should be positive for Malaysia market. However, today is also Friday in which some investors may choose to take profit first instead of carrying position throughout the weekend. Overall, I think today should be a slightly bearish market for KLCI.

Stocks that I NO LONGER find attractive:

1. DRBHCOM (Sell on bad news, please read my previous post)

DRB-HICOM denies privatisation plan

DRB-HICOM has announced to Bursa and denies the privatisation plan. Here's the announcement gathered from Bursa website:


We refer to the letter dated 9 December 2010 from Bursa Malaysia Berhad with regard to the above article appeared in the New Straits Times, Business Times, Cover Page on Thursday, 9 December 2010, in particular to the following sentences :


(i) “Tan Sri Syed Mokhtar Al Bukhary is believed to be considering taking auto and banking group DRB-HICOM private….”
(ii) “There has been speculation that Syed Mokhtar could offer anywhere between RM2.20 and RM2.70 for the DRB-HICOM shares he does not own”


DRB-HICOM wishes to state that the Company is not aware of such proposal nor have we received any notice whatsoever to that effect from our holding company, Etika Strategi Sdn Bhd. 

My view:

1. When I first blog on DRBHCOM, I mentioned this Company got potential to go up to RM1.80. With the strong share price surge of DRBHCOM to as high as RM1.77 yesterday then drop back to RM1.65, the potential upside seems limited now. 

2. I am expecting some share price weakness due to this announcement of denial of privatisation plan. As the saying goes, BUY ON RUMORS SELL ON NEWS. This one even worse, because the news is actually denying the rumors.

3. Conclusion: If I am one of the Company's small investor, I will TAKE PROFIT first and wait for better price to get in again.

SP SETIA FY2010 Result

SP Setia has just released its full year result for FY2010 during the afternoon break.
This is the news gathered from The Edge:


SP Setia Bhd’s earnings rose 47% to RM251.81 million in the financial year ended Oct 31, 2010 from RM171.23 million in FY09, underpinned by from its property development activities carried out in the Klang Valley, Johor Bahru and Penang.
It said on Thursday, Dec 9 revenue rose 24% to RM1.745 billion from RM1.408 billion a year ago while earnings per share were 24.77 sen versus 16.84 sen.
For the fourth quarter, earnings rose 32% to RM75.15 million from RM56.86 million, boosted by gain from the disposal of Tesco Hypermarket in Bukit Indah Johor, an investment property of the group.
Revenue rose 42% to RM557.99 million from RM393.61 million while EPS were 7.37 sen compared with 5.59 sen.

Some additional info:
1. Dividend of 14 sen is declared for 4Q2010 (vs. 9 sen in 4Q2009). This makes total dividend for FY2010 at 20 sen. Based on market price of RM5.57 as of 3.45pm, this translates into dividend yield of 3.59%.
2. With the latest book value of RM2.15, SP SETIA is trading at Price / Book Value of 2.59x.

My view: Good company but the recent price surge makes its less attractive at current market price.

How do I see the market today? 9-Dec-2010

US market ended flat with DJIA up 13.32p to 11372.48p while S&P gained 4.53p to 1228.28p.

What happened in US market?

According to Reuters website, it says "U.S. stocks edged higher on Wednesday as gains in financial and technology stocks offset declines caused by a recent surge in bond yields.... Yields reached a six-month high this week after the initial deal reached in Washington to extend tax cuts fueled concern about inflation and the government's debt burden."(Click on this link for the full news: Reuters US Market News)

My view:

Today should be a bullish market for KLCI. The higher bond market yield in US should have minimal impact as most Malaysian companies are not borrowing money directly from US. Bank Negara also does not seem likely to increase interest rate soon, as I believe growth is placed more importantly than inflation concern at this moment for Malaysia.

Stocks that I still find attractive:

1. DRBHCOM (Gaining more attention from investors, historical PER of 6.96x now means it is getting closer to industry level, got potential to go up to RM1.80)
2. TM (Share price supported by expected dividend of 20 sen yearly, special dividend maybe coming, High Speed Broadband may surprise on the upside, but fixed line telephone likely to face pressure, got potential to go up to RM3.64)
3. FPI (Trade at attractive historical PER of only 5.92x, strong balance sheet with net cash of RM81.42m or 33.14 sen per share, got potential to go up to RM1.39)

How do I see the market today? 8-Dec-2010

US market ended flat with DJIA down 3.03p while S&P gained 0.62p.

What happened in US market?

According to Bloomberg website, it says "U.S. stocks erased gains in the final hour of trading, pulling the Standard & Poor’s 500 Index down from a two-year high, after a probe of insider trading reportedly widened and President Barack Obama said he’ll push to overhaul the tax code in two years."(Click on this link for the full news: Bloomberg US Market News)

My view:

Today should be a bullish market for KLCI. The insider trading probe in US has little relationship with Malaysian market. Thus, I guess market should start stronger.

Stocks that I still find attractive:

1. DRBHCOM (Gaining more attention from investors, cheap historical PER of only 6.55x, got potential to go up to RM1.80)
2. AXIATA (Proxy to growing Indonesia market, with stability in Malaysia Celcom, the recent price dip due to TM selling AXIATA shares may be opportunity to accumulate, the consensus target price is RM5.30)
3. SAPIND (Price shoot up after the Company declared a surprise dividend of 14sen, trade at cheap 5.72x annualized PER 2010, got potential to go up to RM1.33 (conservative view of 6x PER) or RM1.55 range (optimistic view of 7x PER))

POHKONG 1Q2011 Result

Here's the summary of POHKONG's 1Q2011 result:

This is copied directly from the Company announcement to Bursa:

The Group's revenue for the first quarter under review was higher at RM169.451 million as compared to the revenue in the corresponding quarter last year of RM152.392 million; an increase of RM17.059 million. The increase in revenue was due to the existing stores registering higher sales. The Group's profit before tax in the current quarter at RM15.191 million was higher as compared to the profit before tax of RM13.737 million in the corresponding quarter last year; an increase of RM1.454 million. The increase in profit before tax was mainly due to the higher sales registered for the current quarter under review.

As I am not familiar with POH KONG business, I will only add some extra facts that I gather:
i) Book Value at 78 sen, market price now trades at 47 sen, implying Price to Book Value of 0.6 times.
ii) Current ratio declined from 3.49x in 4Q2010 to 3.21x in 1Q2011
iii) With total cash of RM21.085m and total debt of RM131.839m, the Company is in net debt position of RM110.754m

Summary 2: HSL, DRBHCOM, TM

4. HSL

Price when mentioned: RM1.84 (close price on 24-Nov-2010)
Latest market price: RM1.85 (close price on 3-Dec-2010)
How much I think it should worth? RM2.27 to RM2.30 (I quite agree with the target price from some of the research house)

Still attractive? Yes (Proxy to Sarawak election theme play, strong balance sheet with net cash position, upside potential will be the announcement of any future projects won)

5. DRBHCOM


Price when mentioned: RM1.30 (close price on 25-Nov-2010)
Latest market price: RM1.43 (close price on 3-Dec-2010)
How much I think it should worth? RM1.80 (if market agree to 7.39PER)

Still attractive? Yes

6. TM

Price when mentioned: RM3.35 (close price on 26-Nov-2010)
Latest market price: RM3.44 (close price on 3-Dec-2010)
How much I think it should worth? RM3.64 (if market require return of 5.5%, TM forever pay 20 sen dividend yearly)

Still attractive? Yes (Special dividend maybe coming, High Speed Broadband may surprise on the upside, but fixed line telephone likely to face pressure)

Summary 1: FPI, HUPSENG, AXIATA

I have mentioned close to 10 stocks so far... so I guess it is time to do an update on my view of all these stocks...

1. FPI

Price when mentioned: RM0.93 (close price on 16-Nov-2010)
Latest market price: RM0.87 (close price on 3-Dec-2010)   How much I think it should worth? RM1.39 (if market agree to 9x PER)

Still attractive? Yes (in fact it has become more attractive based on market price of RM0.87)

2. HUPSENG

Price when mentioned: RM1.88 (close price on 19-Nov-2010)
Latest market price: RM1.88 (close price on 3-Dec-2010)

How much I think it should worth? RM2.02 (based on 9x PER), originally RM2.24 (based on 10x historical PER)

Why now PER use 9x only?    I have 2 reasons that come into my mind:
i) Price of material price has increased further. Sugar price has gone up further by 20 sen per kg to
RM2.10 while CPO price has increased to more than RM3500 (from around RM2800 on 1-Oct-
2010). Unless HUPSENG can transfer the cost increase to consumers, this will put pressure on its margin
in the future.
ii) Stronger RM may affect its overseas sales.

Still attractive? No more as of this moment judging by the limited upside to RM2.02 (the price I think it
should worth). Will temporary stop writing on HUPSENG, will revisit this Company if there is any new
development in the future.

3. AXIATA


Price when mentioned: RM4.49 (close price on 24-Nov-2010)
Latest market price: RM4.73 (close price on 3-Dec-2010)
How much I think it should worth? RM5.26 (I quite agree with consensus target price)

Still attractive? Yes (Proxy to growing Indonesia market, with stability in Malaysia Celcom, there has been
talks that the Company will give out maiden dividend in 2011)

To be continued...

TM: Special dividend coming?

This is the news gathered from The Edge website:

Telekom Malaysia Bhd plans to dispose of 191.458 million Axiata Group Bhd shares for RM879.4 million.
TM said on Thursday, Dec 2 the shares would represent 2.27% equity interest in Axiata held by its unit TM ESOS Management Sdn Bhd (TEMSB).
“Assuming that all 191.458 million sale shares are disposed at a sale price of RM4.593 per share (being the five-day volume-weighted average market price for Axiata shares up to and including Dec 1), the proceeds raised from the proposed disposal will be approximately RM879.4 million,” it said.

My view:
Earlier, TM has sold its stake in MEASAT for RM252m. Based on 3577.4m shares outstanding, the RM879.4m proceeds from Axiata stake sale is translated into 24.58sen per share. (enough to cover the dividend commitment of TM for 1 year of estimated around 20 sen per share). If you add up the cash received from these 2 sales, it amounts to RM1.13 billion (not a small amount by any measurement).

Looking at the current trend, it seems like TM has the capacity to pay Special Dividend. The million $ question will be the willingness and the amount of special dividend paid.

How do I see the market today? 2-Dec-2010

US market jumped with DJIA up 249.76p or 2.8527% while S&P gained 25.52p or 2.16%.

Why US market go up so much?

According to Bloomberg website, it says "U.S. equities started what is historically their best month with a rally after ADP Employer Services data showed companies added 93,000 jobs last month, the Federal Reserve said the economy strengthened across most of the nation and manufacturing in China expanded at the fastest pace in seven months." (Click on this link for the full news: Bloomberg US Market News)

My view:

Today should be a bullish market for KLCI. The ADP data is showing recovery in US labour market while China manufacturing data is showing that China can still be the major growth driver in the world economy. Thus, I guess market should start stronger but the optimism may fade after noon break. (up less than 10 points). However, any bad / good development from Korea should be watched closely.

Stocks that I still find attractive:

1. FPI (Attractive PER at less than 6x, dividend yield still looks good if the Company gives final dividend of 7 sen like last year, got potential to go up to RM1.39)
2. AXIATA (Proxy to growing Indonesia market, with stability in Malaysia Celcom, there has been talks that the Company will give out maiden dividend in 2011, the consensus target price is RM5.26)
3. SAPIND (Checkout my previous post, the Company just declared a surprise dividend of 14sen, trade at cheap 4.82x annualized PER 2010, got potential to go up to RM1.33 to RM1.55 range)

SAPIND 3Q2010 Result

Sapura Industrial Berhad has just released its 3Q2010 result, the summary is as below:

3Q2010:
Revenue RM67.60m (up 28.8% y-o-y, drop 14.1% q-o-q)
Net Income RM2.53m (up 43.9% y-o-y, drop 60.8% q-o-q)

YTD9M:
Revenue RM219.99m (up 40.7% y-o-y)
Net Income RM13.64m (up 376.5% y-o-y)

Dividend of 14 sen is announced.

My view:
The 14 sen dividend is a surprise, but the share has gone up 8 sen to RM1.07 today. Currently trading at 9.9x historical PER. Assume 4Q2010 same as 3Q2010, then FY2010 EPS = 22.22sen. Currently trading at future PER 2010 of 4.82x, the stock looks attractive...
Depending on how many times PER you think SAPIND is worth, I have put in the scenario of 6x and 7x:

If 6x: Market may price it at RM1.33
If 7x: Market may price it at RM1.55

Quarterly Result released during afternoon break (MASTEEL, KURASIA and KPJ)

Some of the best trading opportunity are from the quarterly result released during the lunch time break (1230pm to 230pm). These can be found directly from Bursa Announcement. Reason? Because we can get the information ahead of the crowd and before any journalists or Research House reported it. I will briefly write what I feel on the result. Of course, those of you who are interested to know more can always go to learn more details from the announcement.

Here's the summary and my view
1. MASTEEL Q32010 result: Revenue RM285.03m, Net Income RM4.76m
(My view: Revenue grow 45.6% y-o-y but net income drop 64.3%, hmm.. seems like the net income margin is affected significantly. Does not look good from the 1st look... 

2. KURASIA Q32010 result: Revenue RM300.62m, Net Loss RM3.75m

(My view: Revenue grow 17.9% y-o-y but Company suffered loss this quarter vs. net income of RM32.22m in 3Q2009. Again, does not look good from the 1st look...)

3. KPJ Q32010 result: Revenue RM436.48m, Net Income RM30.23m, Gross Dividend of 3.5sen announced.
(My view: Revenue grow 20.7% y-o-y with net income rose 12.8% in 3Q2009. The numbers appears to be good. Being in the healthcare sector means KPJ business should be defensive. From demographic view, the aging population in the future should bode well for KPJ too...At the price of RM3.72, Historical PER = 20.28x. Since now ady 3Q, annualizing the 3Q result for FY2010 will give 21.6 sen EPS, meaning PER of 17.2x. My feel = Good Company but the price has already reflected the strong fundamentals of the Company. Good for Long Term investment but not for Short Term)

How do I see the market today? 29-Nov

US market closed lower last Friday. DJIA down 95.28p or 0.85% while S&P down 8.95p or 0.75%.

What's the latest development on Ireland?

According to Bloomberg website, it says "Ireland wins US$113 billion bailout as EU ministers seek to halt debt crisis" (Click on this link for the full news: Bloomberg Ireland News)

What's the latest development on North Korea and South Korea?

China has proposed a six-party talks but South Korea seems to resist it. According to Bloomberg website, "South Korea resisted China’s call to resume six-party talks with North Korea, as its navy began maneuvers with U.S. warships amid threats of a “merciless” response by Kim Jong Il’s regime."(Click on this link for the full news: Bloomberg Korea News)

My view:

Today it is harder to predict. The Ireland news is positive but I think the negative impact from conflicts between North Korea and South Korea should have greater impact. Thus, I guess market should start weaker but the impact should be minimal. (drop less than 10 points). However, any bad / good development from Korea should be watched closely.

Stocks that I still find attractive:

1. FPI (Attractive PER at less than 6x, dividend yield still looks good if the Company gives final dividend of 7 sen like last year)
2. Axiata (Proxy to growing Indonesia market, with stability in Malaysia Celcom, there has been talks that the Company will give out maiden dividend in 2011)
3. SP SETIA (Heard the rumours that the Company may be the next property stock to go through Corporate Exercise, biggest shareholder = PNB)

TM 3Q2010 Result

This is quoted from Business Times:

TM's net profit came in at RM438.5 million compared with RM179 million in the same period last year. Group revenue improved slightly to RM2.2 billion from RM2.1 billion before.

The fixed phoneline operator said it expects the business environment to remain challenging for the rest of the year given the "intense" competitive telecommunication (telco) landscape, and the lead time necessary to build its high-speed broadband (HSBB)-related businesses.

It, however, expects the broadband market to grow further as the country does more internet-based activities and transactions.

As at November 15 this year, the number of users for its HSBB service, known as UniFi, had exceeded 21,000, while premises passed had surpassed the 700,000 level.
By year end, UniFi coverage is expected to expand to 48 exchanges from 26 now, with 750,000 premises passed.

TM's data revenue in the third quarter increased by 25 per cent to RM440.9 million, while revenue from other telco-related services rose by 34 per cent to RM320.7 million.

It made a one-time gain of RM141.7 million from selling its 15.4 per cent interest in Measat Global, as well as RM160.9 million in foreign exchange gains.

Its net profit for the nine months so far stood at RM805.8 million, a 70 per cent increase from the same period a year ago. Revenue improved to RM6.5 billion from RM6.3 billion. - Business Times

My view:

1. Is the result good?
As mentioned above, TM net profit of RM438.5m included: i)RM141.7m from Measat sales and ii)RM160.9m forex gain. Roughly, core net profit is RM135.9m in this quarter for comparison purpose. In 3Q2009, core net profit = RM179.1m - RM45.5m (forex gain) = RM133.6m. Compare RM135.9 vs RM133.6m, it's only 1.7% increase in core net profit.

2. The growth opportunity is in High Speed Broadband. But the fixed line phone should continue to face pressure. It was reported that TM has 21,000 HSBB users as of 15-Nov-2010. How much does that mean in revenue contribution? TM has different kinds of package, with minimum RM149 to RM899. So, it 1 year, the revenue ranged from RM37.5m (149*12*21k) to RM226.5m. (meaning max it is still less than 3% of FY2009 total revenue). It remains to be seen how fast TM can grow its HSBB...

Package of HSBB can be found here:
https://occ.unifi.my/HSBBCustomerPortal/HSBBCustomerPortal.portal

3. Conclusion, TM remains good as dividend play. The Company paid 26 sen gross dividend in FY2009. For FY2010, 13 sen has been paid so far. But this stock is more of dividend play than growth story, thus it may not appear sexy to the retailers...

Petronas Chemical IPO

OK, lots of things has been said about Petronas Chemical IPO, so I only talk about 3 key points here:

i) Stock Code is 5183, Stock Short Name is PCHEM


ii) Target Price:
OSK Research says RM5.51
Affin Securities says RM5.70
JF Apex Securities says RM5.70

iii) My View:
From the prospectus, Net Income actually declined in the last 3 financial years.
Net Income: FY2008: RM4629m, FY2009: RM3449m and FY2010:2594m
Relatively high dividend payout ratio of around 50% shows that there might be minimal growth in the future.
Nevertheless, the flush of liquidity from foreigners should keep the momentum of the stock.

How do I see the market today?

US market was closed yesterday, so probably the best hint that I can think of is the European market. Overall, European market closed slightly higher with: i) FTSE (+41.83p or 0.74%), ii) CAC40 (+12.81p or 0.34%) and iii) DAX (+55.86p or 0.82%).

Why European market rose?

According to Bloomberg website, it says "European stocks rise as Deutsche Bundesbank President Axel Weber said the euro area rescue fund has sufficient capital to calm financial markets and as real-estate shares increased across the continent"

How about Japan and Australia market this morning?

Up slightly as of 8.12am... Nikkei (+30.44p), ASX (+13.20p).

My view:

Looks like Malaysia market shall open stronger today and retest the 1500 level. The Petronas Chemical listing today may provide some boost to the market as well.

DRB-Hicom 2Q earnings up 114% to RM132m - The Edge

Here's the report from The Edge:

KUALA LUMPUR: DRB-HICOM BHD []’s earnings rose 114% in the second quarter ended Sept 30, 2010 from RM61.74 million a year ago.


It said on Thursday, Nov 25 profit before tax increased nearly 143% to RM186.2 million compared with RM76.66 million.

Revenue rose 7.5% to RM1.647 billion from RM1.531 billion. Earnings per share were 6.84 sen compared with 3.19 sen.

My Comment:

1. DRB-Hicom is no longer an automotive stocks as the Company now has Property business, Puspakom, Modenas and other businesses. However, the Company's historical PER or "HPER" is comparatively low at 5.32x. For example, APM HPER = 14.07x, MBMR 10.8x while AUTOV (relatively small auto sector stocks) trade at 10.3x HPER.

2. Taking a 30% discount on MBMR and AUTOV HPER to reflect the Conglomerate discount to DRB-HICOM, we get 7.39x HPER. If the market agree to the 30% discount, then DRB-HICOM got potential to go to RM1.80.

3. The stock is linked to Syed Mokhtar Al Bukhary

4. The historical dividend is relatively low with 4 sen gross dividend given in Financial Year ending March 2010.

Hock Seng Lee 3Q2010 result

Quick summary of Hock Seng Lee 3Q2010 result:

3Q2010: Revenue at RM134.3m (+20.7% qoq, 32.1% yoy), net income at RM20.3m (+12.8% qoq, +31.2% yoy).
9MYTD2010: Revenue at RM338.0m (+29.2% yoy), net income at RM51.8m (+33.9% yoy).
Share dividend announced: 1 Treasury Share for every 50 shares owned, ex-date 13-Dec-2010.

The figure is showing that HSL is growing at double digit rate both qoq and yoy, thus making the stock still attractive. With Sarawak theme for investment become popular among investors, HSL may qualify as a good trading idea. Lastly, this stock is very dependent on news, thus it should benefit from future award of construction projects in Sarawak.

Target Price?
These three Investment Banks are giving BUY rating as of time of writing


Maybank : RM2.30
RHB: RM2.27
AmResearch: RM2.28


Please note that the target price and recommendation from them are subject to change. Information show are correct as of the time this blog is published.

Axiata 3Q2010 result

Axiata released its 3Q2010 result yesterday, the summary is as below:

3Q2010: Revenue at RM3.94b (+2.3% qoq), net income RM639m (+9.8% qoq)
9MYTD2010: Revenue at RM11.60b (+21.4% yoy), net income 2137.4m (+95.3% qoq)

Looking at the strong growth on the revenue and net income, Axiata seems to be still a good stock with strong fundamentals. Their subsidiary in Indonesia is making good money and even contributes more to Axiata Group than Celcom Malaysia from EBITDA view.

AmResearch (from AmInvestment Bank) is giving a BUY rating for Axiata with Target Price of RM6.40.

FBM KLCI recouped losses

FBM KLCI opened on a weak note and drop more than 10 points. However, the market seems to be resilient as it recovered to positive territory before 10AM. As of 9.55am, KLCI is now +1.34 points to 1488.87 points.

Top gainers: KULIM, JETSON-LA and YTL
Top losers: SOP, GENS-C4 and APM

Top 3 losers of the day (KULIM, UTDPLT, DIGI)

KLCI slumped 15.67 points today to 1487.53 points, aligned with major lost in Hong Kong and China. There are possibly 2 factors that lead to today massive drop: i) Concern about Ireland bailout may not contain the debt problem & ii) China more aggressive steps to control inflation. Listed below are the top 3 losers and some reasons why I think they drop:

1. KULIM - Drop 76 sen to RM11.90

Still the same "Buy on rumours, sell on news". But this time it is made worse with regional market suffering huge drop. To recap, KULIM announced takeover of QSR for RM5.60 and resumed trading at 230pm today. Yesterday, the stock already drop 88 sen.

2. UTDPLT (-40sen to RM17.30)

Aligned with lower Crude Oil price, CPO also face pressure on the downside with CPO drop RM26 to RM3158 as of 545pm). This is generally negative for Plantation stocks like United Plantation.

3. DIGI - Drop 38 sen to RM24.42

The stock was the top gainer (+RM1.10) last Friday, in the absence of any major announcement. Yesterday, it drop 80 sen and today drop another 38 sen. The entry of YES into Malaysia telco may have caused the pressure to DiGi share price.

Top 3 losers of the day (KULIM, BAT, DIGI)

KLCI drop 2.85 points today to 1503.20 points. Listed below are the top 3 losers and some reasons why I think they drop:

1. KULIM - Drop 88 sen to RM12.66
This is a typical "Buy on rumours, sell on news". After the announcement of KULIM takeover of QSR for RM5.60, KULIM resumed trading at 230pm today.

2. DIGI - Drop 80 sen to RM24.80
The stock was the top gainer (+RM1.10) last Friday, in the absence of any major announcement. Thus, even if the stock drop 80 sen today, net net it is still up 30 sen if you compare it with last Thursday close.

3. BAT - Drop 38 sen to RM45.16
This is an illiquid stock with only 39400 shares traded today. Thus, the share price can increase or decrease a lot (in absolute value). It is normal to see this stock either in top gainer or top loser of the day. Anyway, even with the 38 sen drop, it is just a 0.83% drop, very insignificant. However, the outlook for tobacco sector is also not that good as a pack of Dunhill 20s is now selling at RM10 (due to tax increase).

HUP SENG INDUSTRIES BHD

Key Points:


Price: RM1.88 (as of 19-Nov-2010) close

Historical dividend yield of 12.75sen or 6.8%. Dividend for this year likely to surpass last year level

At historical PER of 8.39x, it is comparatively low vs. other F&B player such as Apollo (11.15x) & Hwa Tai (11.81x)

Got potential to go up to RM2.24

Company Background

Based in Johor, HUPSENG manufactures, markets and distributes FMCG products locally and to over 40 countries. Established in 1958, HUPSENG has been a household name synonymous with quality biscuit manufacturing. Some of the Company’s main products include Ping Pong cream crackers, Marie biscuits, In-Comix instant coffee and Wang Wang series of biscuits.

Since listed on November 2000, the Kerk family remained as the main owners of the Company with 55.4% ownership as of 22 March 2010. This shows the commitment from the Management to continue to manage the Company.


Mr Keh (Kerk) Chu Koh is the Chairman of the Company. With his approximately 51 years of experience in the biscuits industry, he plans the Group’s strategic business development and production development which includes the installation of various production facilities in the Group’s factory and heads the research and development team which researches new varieties of biscuits.



Financials

FY2009 revenue is 3.1% lower vs. FY2008. However, profit before tax surged 67.8% to RM35.8m from RM21.3m. In the Company’s Annual Report Chairman’s Statement, it was mentioned that “The much improved performance was attributed to favourable key input costs and continued cost control measures.”

Current ratio improved from 2.31x in FY2008 to 3.14x as of 9MYTD2010 with net cash position of RM53.1m or 44.25 sen per share. The Company’s free cash flows jumped significantly from RM10.1m in FY2008 to RM30.7m in FY2009.

Lastly, HUPSENG has established dividend policy of paying at least 60% of its PAT on 11 Oct 2009.

3Q2010 Result Highlights :

• 9M2010 revenue increased 1.2% to RM161.1m with better gross profit margin and pretax profit margin

• 9M2010 pretax profit recorded healthy organic growth of 4.4%
• But q-o-q net income drop slightly due to lower sales and increase in certain material prices

• Dividend of 7 sen declared (vs. none in 3Q09). If you buy now, still entitled to the dividend.

• Balance sheet remained no gearing and cash per share surged to 44.25 sen per share (vs. 39.88 sen in 2Q10)
• In the Quarterly announcement, it was stated that “The Board is optimistic of the Group performance in the current financial year based on the underlying sustainability of economic recovery. Nevertheless, the Group is mindful of the recent increasing prices of certain raw materials and to a lesser extent, the foreign exchange volatility.”
My view:
• Usually F&B company which consistently deliver dividend year in and year out should worth at least 10x PER.

• If the market eventually price HUP SENG at 10x Historical PER, then market will price HUP SENG at RM2.24

Formosa Prosonics Industries (FPI) 2Q2011 Result

The summary of the result is shown above:





Positives:

• Revenue growing at double digit rate both qoq and yoy


• Gross profit also showing good growth (7.3% qoq and 4.1% yoy)


• The Company remained profitable despite lower earnings. The qoq and yoy drop is a fact but if you look throughout longer horizon, this quarter result is actually not bad. For example, this is the 4th highest net income recorded in the past 5 years.
  
• Balance sheet remained strong with net cash of RM81.42m or 33.14 sen per share.

Negatives:

• Pretax profit drop. In the announcement to Bursa, FPI has attributed this to rising material costs and weakening of US$ which resulted in forex loss


• In tandem, net profit to equity drop


• No dividend is announced this quarter (last year 3 sen dividend was announced)

My take:

Yeah, the 2Q2011 result seems bad, but if you look at the stock price it is only trading at around 6x PER, which means that the market maybe have given too much discount to this stock.

Fine, no dividend this time vs 3 sen dividend last year. Let say this Company only pay half of the amount of dividend paid last year, meaning only 5 sen for full year. Hey, this is still good as it translates into 5.3% dividend yield. Remember this is the worst case scenario that I am thinking of...

Conclusion, I think the recent drop maybe some knee jerk reaction...

Lastly, this stock is not covered by any Stockbrokers out there, thus it maybe have been overlooked by those investors out there...

Formosa Prosonic Industries

KEY POINTS:

• > 10% Dividend Yield (Historical)
• Significantly low PER of around 6x only
• Market price of RM0.93 (as of 16-Nov-2010) close

Company Background
Based in Port Klang, Formosa Prosonic Industries Bhd or “FPI” was established in 1989. The Company gained its listing status on Bursa Malaysia on 17 June 1994. From business point of view, FPI produces a variety of products which include Home Theatre Audio Systems, Satellite Speaker, High-End Audio Systems, AV Racks, WI-FI Internet Radio, WI-FI Internet Adaptor, Outdoor Speaker, Bluetooth Speaker, Receptor Radio, CD Radio & Car Speaker Series.

The Group’s manufacturing facilities are located in Port Klang (Selangor), Sungai Petani (Kedah) and Dongguan (Guangzhou, China). Overall, the Group owns 2,908,170 square feet in total of land area.

High-End Audio Speaker

AV Racks

Car Speaker Series


Bluetooth Speaker


Others



The Company deals mainly with Multi National customers with strong brand such as SONY, JVC, SHARP, BOSTON, AE, PANASONIC & KENWOOD. In short, FPI specializes in the speaker system technology and is often been consulted by its customers on every stage of development, from design, materials up to finished goods.

FPI's Clients

FPI also owns 26.12% or 46.44m shares of another public listed company called Acoustech Berhad which manufactures audio speaker systems, woofer, chemicals paints and electrical equipment. Using Acoustech’s closing price of RM0.78 as of 16-Nov-2010, the 26.12% stake translates into value of RM36.22m (or 14.76 sen per share).

Financials

• Net profit in FY2010 (ended March) jumped 175.13% y-o-y to RM36.11m despite lower revenue. The extraordinary result is achieved due to better product mix and plant use, cost control measures and greater efficiency.
• AV Racks business sales has grown 38% to achieve sales of RM108m in FY2010. In the 2010 Annual Report, FPI’s Chairman Mr Jhang Tzu Hsiong has expressed his optimism that AV Racks "would continue to receive good market response and its business volume to remain encouraging".
• Dividend almost doubled from 5.5 sen in FY2009 to 10 sen in FY2010. This translates into a very attractive historical dividend yield of 10.75%.
• Strong balance sheet with almost no gearing.
• Net cash swelled to RM89.9m in 1Q2011, vs. RM80.7m in 4Q2010.
• Healthy cash flow with positive free cash flow (Net CFO – Capex) of RM35.08m in FY2010.

Comments

• FPI seems very attractive based on its historical dividend yield of 10.75%. Honestly, there are not many (infact, almost none) stocks which can give such high dividend yield.
• FPI 1Q2011 result is also very encouraging with revenue growing at 51.8% q-o-q.
• 1Q2011 pretax profit surged 150.1% to RM14.9m.
• If 1Q2011 is sustainable in the remaining 3 quarters, annualized FY2011 net profit (equity) will grow 18.0%, with annualized FY2011 EPS at 17.34sen.
• How much PER are you willing to assign for Company which manufactures and sells speaker systems? Its associates Acoustech is trading at around 13x PER (market price 78 sen, 2010 EPS of 6.05 sen).
• Assume holding Company discount of 30%, FPI probably should worth 9x PER. Times that 9x PER to 2010 EPS of 15.42 sen…. I leave this part for those of you who know basic Maths. And please calculate the potential upside also, just in case you agree with the assumptions here…