Under the announcement made by LIONFIB today, only RM58.00 million (i.e. at RM0.25 per ordinary share) will be distributed to its shareholders from proceeds received from the sale of its Malaysian tyre business, the entitlement date for which shall be determined after the completion date of sale.
This is a huge disappointment, indeed. Under the circumstances, we would recommend a HOLD or CUT LOSS & BUY LATER AT LOWER PRICE.
We believe that there is still upside upon announcement of the entitlement date after completion of sale in early 2011. However, the quantum is significantly lower than we anticipated.
We note that RM200 million is earmarked for investments to be identified and RM141.57 million will be for LIONFIB's working capital in its principal activities in the trading of building materials and steel products. In the event there is any change in part of the proceed's usage to capital distribution to the shareholders, there may then be further upside on this counter.
Monday, November 22, 2010
Sunday, November 21, 2010
HOVID - TRADING AT A BARGAIN DUE TO PN17 STATUS
HOVID BHD
Primary Symbol & Exchange: HOVID
7213 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 19/11/2010 RM:0.15
Mkt Cap RM’m : 114.31
Shares (m): 762.08
Par RM: 1.10
SECTOR CLASSIFICATION
MSEB: Consumer Products
Fox Capital: Chemicals
Executive Chairman: Ho Sue San @ David Ho Sue San
Managing Director: Ho Sue San @ David Ho Sue San
KNOWN MAJOR SHAREHOLDER(S) (as at 7/10/2009)
Ho Sue San @ David Ho Sue San 49.57%
Tel: 05-5060690
Fax: 05-5061215
7803 1126 Fax. No.: (603) 7806 1387
BACKGROUND
Founded some 70 years ago and famous for the natural herbal beverage Ho Yan Hor Herbal Tea which is a concoction of 24 herbs, Hovid has established itself as the leading manufacturer of pharmaceutical and herbal products in Malaysia. Besides manufacturing its own products under the Hovid brand name, the group also manufactures products on contract manufacture basis for private labels.
Besides being involved in pharmaceutical activities, Hovid is also involved in the commercial extraction of nutrients from palm oil fruits through a patented procedure as well as biodiesel through its previously 58.2% owned subsidiary – Carotech Bhd (listed on the ACE Market – previously known as the Mesdaq exchange). Carotech’s focus is currently on the phytonutrients side of its business as the high CPO prices do not promote palm biodiesel as the renewable energy fuel. Carotech’s 3 main phytonutrients products are tocitrienol products marketed under the brand name Tocomin, carotene products marketed under the name Carimin, and phytosterol products, its 2 co-products are palm fatty acid methyl ester and crude glycerine.
LATEST DEVELOPMENT
Hovid was placed under PN17 after its subsidiary, Carotech Bhd, triggered GM3 status on 23/10/2010 when the latter’s auditor expressed a disclaimer opinion on its financial statements for the FYE 30/6/2010. (On 1/7/2010, Carotech triggered GN5 status after it defaulted on the loan repayment due FY2010).
Hovid’s share price has been bashed down as follows:-
Closing price as at 29/10/2010 = RM0.185/share
Closing price as at 1/11/2010 = RM0.135/ share (high = RM0.14 low = RM0.12)
Latest closing price as at 19/11/2010 = RM0.15/share
POTENTIAL PRICE CATALYST
The main obvious price catalyst is exit from the PN17 classification which may help it to retrace its price before being placed under PN17:
Last closing price as at 19/11/2010 = RM0.15/share
Targeted price (i.e. last closing price before announcement of being classified PN17 status) = RM0.185/share
Potential capital gain = RM0.035/share or 23.3%
Hovid and Carotech were among investors’ favourites in 2007 and 2008. At that time, Hovid hit a high of RM0.53/share.
Hovid had taken steps to exit the PN17 classification & to prevent the company from being impacted by the financial problem faced by Carotech as follows:-
1) Sell down its stake in Carotech (some 180 million shares in batches) from almost 60%, previously to 38%-45%. During this period, Lembaga Tabung Haji nearly doubled its interest in Carotech to 9.12% comprising 83.24 million shares from 46.24 million shares in August 2010.
2) Waiting for Q2 financial results to help it achieve its plan to exit PN17 status. Hovid went into PN17 classification due to the impact from financially-troubled Carotech because the latter was then a subsidiary, even though the group’s pharmaceutical business was doing well and growing. The pharmaceutical business makes about RM15 million to RM20 million profit on its own.
By selling down its stake in Carotech to 38%-45%, Carotech become an associate of Hovid instead of subsidiary, and this development will expedite the lifting of the PN17 classification.
Unlike being a subsidiary where all its financial results including the debt will have to be incorporated into the group’s balance sheet, Hovid will now have to take care only of its share of profit or loss in Carotech, and will not be worried by the huge debts of Carotech, estimated to be about RM260 million.
Carotech is no longer a substantial part of Hovid group (with the selldown since August 2010). As a result, Hovid’s gearing has been reduced to 0.5x or about RM50 million from 2.5x when Carotech was a subsidiary.
Hovid’s current investment in Carotech is only RM27 million in the book. Assuming even the worst case scenario where Hovid write off the whole investment of RM27 million in Carotech, this will only involve the book cost and has no impact on the cash flow. Moreover, Hovid has not given any guarantee on Carotech’s operations.
Assuming Hovid make RM18 million in profit and based on an industry price/earnings multiple of 12x, the share price should be higher than the current level i.e. at 28 sen.
BRIEF INFORMATION ON CAROTECH
Carotech’s financial problem was due to external factors beyond its control like the high crude palm oil (CPO) price and soaring oil prices in 2008 and the recession in the United States and Europe at that time. Carotech had also over-expanded when raising its output capacity by some 300% whereas the rise in demand during the recession period was only 15%.
There may be demand in Carotech’s business, which will be driven by phytonutrients if it can successfully restructure its debts. Carotech has sought assistance of the Corporate Debt Restructuring Committee to restructure its debt.
Potential for Carotech’s nutrient products like tocotrienols is tremendous, given the rising demand for natural and beneficial ingredients in therapeutic and beauty products nationwide.
Primary Symbol & Exchange: HOVID
7213 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 19/11/2010 RM:0.15
Mkt Cap RM’m : 114.31
Shares (m): 762.08
Par RM: 1.10
SECTOR CLASSIFICATION
MSEB: Consumer Products
Fox Capital: Chemicals
Executive Chairman: Ho Sue San @ David Ho Sue San
Managing Director: Ho Sue San @ David Ho Sue San
KNOWN MAJOR SHAREHOLDER(S) (as at 7/10/2009)
Ho Sue San @ David Ho Sue San 49.57%
Tel: 05-5060690
Fax: 05-5061215
7803 1126 Fax. No.: (603) 7806 1387
BACKGROUND
Founded some 70 years ago and famous for the natural herbal beverage Ho Yan Hor Herbal Tea which is a concoction of 24 herbs, Hovid has established itself as the leading manufacturer of pharmaceutical and herbal products in Malaysia. Besides manufacturing its own products under the Hovid brand name, the group also manufactures products on contract manufacture basis for private labels.
Besides being involved in pharmaceutical activities, Hovid is also involved in the commercial extraction of nutrients from palm oil fruits through a patented procedure as well as biodiesel through its previously 58.2% owned subsidiary – Carotech Bhd (listed on the ACE Market – previously known as the Mesdaq exchange). Carotech’s focus is currently on the phytonutrients side of its business as the high CPO prices do not promote palm biodiesel as the renewable energy fuel. Carotech’s 3 main phytonutrients products are tocitrienol products marketed under the brand name Tocomin, carotene products marketed under the name Carimin, and phytosterol products, its 2 co-products are palm fatty acid methyl ester and crude glycerine.
LATEST DEVELOPMENT
Hovid was placed under PN17 after its subsidiary, Carotech Bhd, triggered GM3 status on 23/10/2010 when the latter’s auditor expressed a disclaimer opinion on its financial statements for the FYE 30/6/2010. (On 1/7/2010, Carotech triggered GN5 status after it defaulted on the loan repayment due FY2010).
Hovid’s share price has been bashed down as follows:-
Closing price as at 29/10/2010 = RM0.185/share
Closing price as at 1/11/2010 = RM0.135/ share (high = RM0.14 low = RM0.12)
Latest closing price as at 19/11/2010 = RM0.15/share
POTENTIAL PRICE CATALYST
The main obvious price catalyst is exit from the PN17 classification which may help it to retrace its price before being placed under PN17:
Last closing price as at 19/11/2010 = RM0.15/share
Targeted price (i.e. last closing price before announcement of being classified PN17 status) = RM0.185/share
Potential capital gain = RM0.035/share or 23.3%
Hovid and Carotech were among investors’ favourites in 2007 and 2008. At that time, Hovid hit a high of RM0.53/share.
Hovid had taken steps to exit the PN17 classification & to prevent the company from being impacted by the financial problem faced by Carotech as follows:-
1) Sell down its stake in Carotech (some 180 million shares in batches) from almost 60%, previously to 38%-45%. During this period, Lembaga Tabung Haji nearly doubled its interest in Carotech to 9.12% comprising 83.24 million shares from 46.24 million shares in August 2010.
2) Waiting for Q2 financial results to help it achieve its plan to exit PN17 status. Hovid went into PN17 classification due to the impact from financially-troubled Carotech because the latter was then a subsidiary, even though the group’s pharmaceutical business was doing well and growing. The pharmaceutical business makes about RM15 million to RM20 million profit on its own.
By selling down its stake in Carotech to 38%-45%, Carotech become an associate of Hovid instead of subsidiary, and this development will expedite the lifting of the PN17 classification.
Unlike being a subsidiary where all its financial results including the debt will have to be incorporated into the group’s balance sheet, Hovid will now have to take care only of its share of profit or loss in Carotech, and will not be worried by the huge debts of Carotech, estimated to be about RM260 million.
Carotech is no longer a substantial part of Hovid group (with the selldown since August 2010). As a result, Hovid’s gearing has been reduced to 0.5x or about RM50 million from 2.5x when Carotech was a subsidiary.
Hovid’s current investment in Carotech is only RM27 million in the book. Assuming even the worst case scenario where Hovid write off the whole investment of RM27 million in Carotech, this will only involve the book cost and has no impact on the cash flow. Moreover, Hovid has not given any guarantee on Carotech’s operations.
Assuming Hovid make RM18 million in profit and based on an industry price/earnings multiple of 12x, the share price should be higher than the current level i.e. at 28 sen.
BRIEF INFORMATION ON CAROTECH
Carotech’s financial problem was due to external factors beyond its control like the high crude palm oil (CPO) price and soaring oil prices in 2008 and the recession in the United States and Europe at that time. Carotech had also over-expanded when raising its output capacity by some 300% whereas the rise in demand during the recession period was only 15%.
There may be demand in Carotech’s business, which will be driven by phytonutrients if it can successfully restructure its debts. Carotech has sought assistance of the Corporate Debt Restructuring Committee to restructure its debt.
Potential for Carotech’s nutrient products like tocotrienols is tremendous, given the rising demand for natural and beneficial ingredients in therapeutic and beauty products nationwide.
Saturday, November 20, 2010
POTENTIAL BUMPER SPECIAL DIVIDEND FOR LIONFIB SHAREHOLDERS
LION FOREST INDUSTRIES BHD
Primary Symbol & Exchange: LIONFIB
8486 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 19/11/2010 RM:2.44
Mkt Cap RM’m : 562.10
Shares (m): 230.37
Par RM: 1.00
SECTOR CLASSIFICATION
MSEB: Consumer Products
Fox Capital: Trading/Services
Executive Chairman: Tan Sri William Cheng Heng Jern
Managing Director: -
KNOWN MAJOR SHAREHOLDER(S) (as at 30/9/2009)
Amsteel Mills Sdn Bhd + 53.67%
Lion Industries Corporation Bhd 19.56%
+ 99% owned subsidiary of Lion Industries Corporation Bhd (effective combined interest at ~ 73%)
BACKGROUND
LIONFIB’s prime asset used to be it 97.8% stake in Sabah Forest Industries (SFI) until its disposal in FYE 2007. The disposal for SFI for USD261 million (or RM945 million) cash in FY 2007 altered the profit structure considerably in FYE 2008. Some 45% (or RM421 million) of the hefty cash proceeds was utilized for subsequent capital repayment to the shareholders at RM2.00 each. Part of the proceeds was also utilized to expand its presence in tyre manufacturing. On 28/11/2008 (or 2QFY2009), LIONFIB acquired Silverstone via issuance of 19.93 million new shares which lifted the capital base by 9.4% in FY 2009.
LATEST DEVELOPMENT
Lion Forest Industries Bhd (LIONFIB) is selling local tyre business, Silverstone Bhd, to Toyo Tire & Rubber Co Ltd, Japan’s fourth largest tyre manufacturer, for RM462 million. The Japanese tyre maker will buy over a 100% equity stake in Silverstone Bhd. Lion Forest Industries Bhd (LFIB) owns an 84.16% stake in Silverstone. The deal values Silverstone at 1.62 times its consolidated net assets of RM285.67 million as at June 30 2010, and 13.76 times its net profit of RM33.57 million. It is learned that Silverstone has minimal borrowings of about RM20 million.
The proposed divestment is expected to boost LIONFIB’s cash pile to RM869.4 million, or RM3.77 gross cash per share. LIONFIB’s share price closed at RM2.44 on 19/11/2010 which gave the company a market value of RM562.1 million. Its net asset per share was RM4.68 as at June 30 2010. LFIB was holding RM407.38 million in cash as at June 30 2010, against total borrowings of RM36.58 million.
Nonetheless, a portion of its current cash pile is being held in an escrow account as a contingency fund for the claims sought in several legal suits filed over the timber concession it held previously in Sabah.
For LIONFIB, the proposed deal is expected to result in an estimated gain of about RM140million for FY2011 ending June 30, which translates to an increase in earnings per share of about 60 sen.
“The Silverstone deal is Toyo Tire’s first ever cross-border acquisition. The timing was right for the company to expand its reach with the strengthening of the yen,” said a source close to the deal.
On the use of the “Silverstone” brand by LFIB’s tyre manufacturing operations in China, the source says Toyo Tire would work out a separate arrangement with LFIB on the matter. LFIB’s tyre operation in China is held under a different subsidiary,
Shandong Silverstone LuHe Rubber & Tyre Co Ltd. The China business is not a part of Silverstone that is being sold to Toyo Tire.
Both LFIB and Toyo Tire expect the Silverstone deal to be completed by the end of January next year.
Following the disposal of Silverstone, LFIB will be left with its tyre manufacturing operations in China, trading and distribution of building materials such as steel bars, cement, roofing and wall tiles, and distribution of petroleum-based products and automotive components.
LFIB posted a net profit of RM163.75 million or 65.38 sen a share for FY2010, on revenue of RM873.62 million.
POTENTIAL DISTRIBUTION OF SPECIAL DIVIDEND OR CAPITAL REPAYMENT
Recent examples for share price boost after announcement of distribution of Special Dividend:
1) Eurospan Holdings Bhd (Eurosn) - 7094
- Surprise of a special single-tier dividend of 40 sen/share given its strong cash hoard of RM30.5 million or 75 sen/share @ August 2010.
Announcement date: 25/10/2010
Ex date: 6/1/2010
Pay out date: 24/1/2010
Closing price as at 25/10/2010 : RM1.16
Closing price as at 26/10/2010: RM1.41 (open: RM1.50, high: RM1.50, low: RM1.39)
Gain: 25 sen/share or 21.6% from previous closing price
2) Fraser & Neave Holdings Bhd (F&N) - 3689
- Announcement of special dividend of RM1.10/share + final single tier dividend of 38 sen. The proposed special dividend payment arose from sale of its glass container business – Malaya Glass Products Sdn Bhd that boosted its cash coffer to > RM1 billion.
Announcement date: 8/11/2010
Ex date: 8/12/2010
Pay out date: 6/1/2010
Closing price as at 8/11/2010 : RM14.62
Closing price as at 9/11/2010: RM15.70 (open: RM15.30, high: RM16.00, low: RM15.30)
Gain: RM1.08/share or 7.39% from previous closing price
Per OSK Research’s analysis, potential special dividend is at RM1.38 per LFI share. In order to gauge the potential dividend payout by LIONFIB, we must first compute the potential net cash proceeds that LFI may receive upon completion of the disposal. SCB has issued bonds, for which the Net Present Value (NPV) stood at approximately RM320m and are currently fully owned by LIONFIB. Thus the bond will obviously be redeemed prior to any cash distribution by SCB.
The remaining cash will also be used to pay for advisory fees and other expenses before being distributed back to its shareholders. Adding the proceeds from the bond redemption by SCB to LIONFIB and a 84% share of the balance, the possible amount available for distribution would be about RM400m.
Tracking the disposal of Sabah Forest Industries SB (SFI) by LFI in 2007, the subsidiary made a total dividend payout of RM2 per share, or 78.8% of the total proceeds, after excluding the RM363.4m set aside in an Escrow account for the litigation claims against SFI.
Assuming a payout of 80% from the cash proceeds received from LIONFIB, the special cash dividend may come to RM1.38 per share, with a dividend payable to Lion Industries of as much as RM233.6m. The remaining 20% will likely be retained for SCB and LIONFIB to search of a new core business as the group will left with its tyre manufacturing operation in China and trading of building material plus petroleum based products, which only generate nominal earnings.
Taking the similar positive effect on Eurosn & F&O after announcement of special dividend payout, LIONFIB share price is expected to achieve gain of at least RM1/share if special cash dividend of RM1.38/share is declared
Primary Symbol & Exchange: LIONFIB
8486 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 19/11/2010 RM:2.44
Mkt Cap RM’m : 562.10
Shares (m): 230.37
Par RM: 1.00
SECTOR CLASSIFICATION
MSEB: Consumer Products
Fox Capital: Trading/Services
Executive Chairman: Tan Sri William Cheng Heng Jern
Managing Director: -
KNOWN MAJOR SHAREHOLDER(S) (as at 30/9/2009)
Amsteel Mills Sdn Bhd + 53.67%
Lion Industries Corporation Bhd 19.56%
+ 99% owned subsidiary of Lion Industries Corporation Bhd (effective combined interest at ~ 73%)
BACKGROUND
LIONFIB’s prime asset used to be it 97.8% stake in Sabah Forest Industries (SFI) until its disposal in FYE 2007. The disposal for SFI for USD261 million (or RM945 million) cash in FY 2007 altered the profit structure considerably in FYE 2008. Some 45% (or RM421 million) of the hefty cash proceeds was utilized for subsequent capital repayment to the shareholders at RM2.00 each. Part of the proceeds was also utilized to expand its presence in tyre manufacturing. On 28/11/2008 (or 2QFY2009), LIONFIB acquired Silverstone via issuance of 19.93 million new shares which lifted the capital base by 9.4% in FY 2009.
LATEST DEVELOPMENT
Lion Forest Industries Bhd (LIONFIB) is selling local tyre business, Silverstone Bhd, to Toyo Tire & Rubber Co Ltd, Japan’s fourth largest tyre manufacturer, for RM462 million. The Japanese tyre maker will buy over a 100% equity stake in Silverstone Bhd. Lion Forest Industries Bhd (LFIB) owns an 84.16% stake in Silverstone. The deal values Silverstone at 1.62 times its consolidated net assets of RM285.67 million as at June 30 2010, and 13.76 times its net profit of RM33.57 million. It is learned that Silverstone has minimal borrowings of about RM20 million.
The proposed divestment is expected to boost LIONFIB’s cash pile to RM869.4 million, or RM3.77 gross cash per share. LIONFIB’s share price closed at RM2.44 on 19/11/2010 which gave the company a market value of RM562.1 million. Its net asset per share was RM4.68 as at June 30 2010. LFIB was holding RM407.38 million in cash as at June 30 2010, against total borrowings of RM36.58 million.
Nonetheless, a portion of its current cash pile is being held in an escrow account as a contingency fund for the claims sought in several legal suits filed over the timber concession it held previously in Sabah.
For LIONFIB, the proposed deal is expected to result in an estimated gain of about RM140million for FY2011 ending June 30, which translates to an increase in earnings per share of about 60 sen.
“The Silverstone deal is Toyo Tire’s first ever cross-border acquisition. The timing was right for the company to expand its reach with the strengthening of the yen,” said a source close to the deal.
On the use of the “Silverstone” brand by LFIB’s tyre manufacturing operations in China, the source says Toyo Tire would work out a separate arrangement with LFIB on the matter. LFIB’s tyre operation in China is held under a different subsidiary,
Shandong Silverstone LuHe Rubber & Tyre Co Ltd. The China business is not a part of Silverstone that is being sold to Toyo Tire.
Both LFIB and Toyo Tire expect the Silverstone deal to be completed by the end of January next year.
Following the disposal of Silverstone, LFIB will be left with its tyre manufacturing operations in China, trading and distribution of building materials such as steel bars, cement, roofing and wall tiles, and distribution of petroleum-based products and automotive components.
LFIB posted a net profit of RM163.75 million or 65.38 sen a share for FY2010, on revenue of RM873.62 million.
POTENTIAL DISTRIBUTION OF SPECIAL DIVIDEND OR CAPITAL REPAYMENT
Recent examples for share price boost after announcement of distribution of Special Dividend:
1) Eurospan Holdings Bhd (Eurosn) - 7094
- Surprise of a special single-tier dividend of 40 sen/share given its strong cash hoard of RM30.5 million or 75 sen/share @ August 2010.
Announcement date: 25/10/2010
Ex date: 6/1/2010
Pay out date: 24/1/2010
Closing price as at 25/10/2010 : RM1.16
Closing price as at 26/10/2010: RM1.41 (open: RM1.50, high: RM1.50, low: RM1.39)
Gain: 25 sen/share or 21.6% from previous closing price
2) Fraser & Neave Holdings Bhd (F&N) - 3689
- Announcement of special dividend of RM1.10/share + final single tier dividend of 38 sen. The proposed special dividend payment arose from sale of its glass container business – Malaya Glass Products Sdn Bhd that boosted its cash coffer to > RM1 billion.
Announcement date: 8/11/2010
Ex date: 8/12/2010
Pay out date: 6/1/2010
Closing price as at 8/11/2010 : RM14.62
Closing price as at 9/11/2010: RM15.70 (open: RM15.30, high: RM16.00, low: RM15.30)
Gain: RM1.08/share or 7.39% from previous closing price
Per OSK Research’s analysis, potential special dividend is at RM1.38 per LFI share. In order to gauge the potential dividend payout by LIONFIB, we must first compute the potential net cash proceeds that LFI may receive upon completion of the disposal. SCB has issued bonds, for which the Net Present Value (NPV) stood at approximately RM320m and are currently fully owned by LIONFIB. Thus the bond will obviously be redeemed prior to any cash distribution by SCB.
The remaining cash will also be used to pay for advisory fees and other expenses before being distributed back to its shareholders. Adding the proceeds from the bond redemption by SCB to LIONFIB and a 84% share of the balance, the possible amount available for distribution would be about RM400m.
Tracking the disposal of Sabah Forest Industries SB (SFI) by LFI in 2007, the subsidiary made a total dividend payout of RM2 per share, or 78.8% of the total proceeds, after excluding the RM363.4m set aside in an Escrow account for the litigation claims against SFI.
Assuming a payout of 80% from the cash proceeds received from LIONFIB, the special cash dividend may come to RM1.38 per share, with a dividend payable to Lion Industries of as much as RM233.6m. The remaining 20% will likely be retained for SCB and LIONFIB to search of a new core business as the group will left with its tyre manufacturing operation in China and trading of building material plus petroleum based products, which only generate nominal earnings.
Taking the similar positive effect on Eurosn & F&O after announcement of special dividend payout, LIONFIB share price is expected to achieve gain of at least RM1/share if special cash dividend of RM1.38/share is declared
Monday, November 1, 2010
HWGB - Speculative buy due to bullish tin prices
Ho Wah Genting Bhd (HWGB) [9601] (RM0.36 sen/share @ 1/11/2010) which is involved in mining activities saw its share price surging by 80% to 36 sen on November 1 2010 from 20 sen at the start of the year.
Recently, its unit HWG Tin Mining Sdn Bhd was awarded a 10-year mining lease in 2008 to mine tin and other minerals on a 202ha in Pengkalan Hulu with a potential for a further 202ha as work on the initial area progresses.
According to the Companies Commission of Malaysia, HWG Tin Mining is 51% owned by Ho Wah Genting, 35% by Jiwa Seribu Sdn Bhd, 10% by Majuperak Holdings Bhd and 4% by Multi Prolific Sdn Bhd. A check by StarBiz revealed that the Perak royalty directly owns a 35% stake in HWG Tin Ming through Jiwa Seribu Sdn Bhd,which is a 100% wholly owned subsidiary of Ras Sdn Bhd.
HWGB also has 35% stake in a magnesium company called CVM Mining which is listed in HKEX and is worth at about RM110m. The current market cap of HWGB is worth less than this sum (~ RM99m). Thus, its 100%-owned factory in Indonesia producing copper cable/wire and 100%-owned HWGB Tin Mining company as well as some properties coupled with tour bus business are not priced into its share price yet. In other words, if you buy its shares at 36 cents, these businesses are basically free!!
Nonetheless, aside from this, the main impetus is actually tin mining. The boss said that it has reserve of 50,000 ton of tin which is worth about 50,000 x RM 80,000/ton = RM4 billion at current price of tin. But how true the statement is remains unknown. Assuming that it's half true, the tin beneath could worth RM2 billion which is shocking.
Recently, its unit HWG Tin Mining Sdn Bhd was awarded a 10-year mining lease in 2008 to mine tin and other minerals on a 202ha in Pengkalan Hulu with a potential for a further 202ha as work on the initial area progresses.
According to the Companies Commission of Malaysia, HWG Tin Mining is 51% owned by Ho Wah Genting, 35% by Jiwa Seribu Sdn Bhd, 10% by Majuperak Holdings Bhd and 4% by Multi Prolific Sdn Bhd. A check by StarBiz revealed that the Perak royalty directly owns a 35% stake in HWG Tin Ming through Jiwa Seribu Sdn Bhd,which is a 100% wholly owned subsidiary of Ras Sdn Bhd.
HWGB also has 35% stake in a magnesium company called CVM Mining which is listed in HKEX and is worth at about RM110m. The current market cap of HWGB is worth less than this sum (~ RM99m). Thus, its 100%-owned factory in Indonesia producing copper cable/wire and 100%-owned HWGB Tin Mining company as well as some properties coupled with tour bus business are not priced into its share price yet. In other words, if you buy its shares at 36 cents, these businesses are basically free!!
Nonetheless, aside from this, the main impetus is actually tin mining. The boss said that it has reserve of 50,000 ton of tin which is worth about 50,000 x RM 80,000/ton = RM4 billion at current price of tin. But how true the statement is remains unknown. Assuming that it's half true, the tin beneath could worth RM2 billion which is shocking.
TASCO - A STILL LOWLY VALUE COMPANY
TASCO BHD (formerly TRANS-ASIA SHIPPING CORP BHD)
Primary Symbol & Exchange: TASCO
5140 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 1/11/2010 RM:1.35
Mkt Cap RM’m : 135.00
Shares (m): 100.00
Par RM: 1.00
SECTOR CLASSIFICATION
MSEB: Trading/Services
Fox Capital: Transport-Logistic
Executive Chairman: Tan Sri Datuk Asmat bin Kamaludin
Managing Director: Lee Check Poh
KNOWN MAJOR SHAREHOLDER(S) (as at 14/04/2010)
Nippon Yusen Kabushiki Kaisha (direct & indirect interest) 61.32%
Tan Sri Datuk Asmat bin Kamaludin 37.23%
Lee Check Poh 9.83%
BACKGROUND
Tasco Berhad (TASCo), formerly Trans-Asia Shipping Corporation Berhad, is a Malaysia-based total logistics solutions provider. The Company offers logistics solutions covering air, sea and land transportation. It has categorized its services into international logistics solutions and domestic logistics solutions. International logistics solutions provide air freight services, sea freight services and buyer consolidation services. Domestic logistics solutions provides custom clearance, haulage transportation, warehousing services and warehouse inplant services, through forwarding division; car carrier and pre-delivery inspection, through auto logistics division, and domestic trucking and cross border trucking, through trucking division.
TASCo has nine subsidiaries, including Baik Sepakat Sdn Bhd, Tunas Cergas Logistik Sdn Bhd, Emulsi Teknik Sdn Bhd, TASCO Express Sdn Bhd and Maya Kekal Sdn Bhd, among others.
TASCo's domestic operation and global alliance with NYK (a Global Fortune 500 company which is listed on the Tokyo Stock Exchange, Osaka Securities Exchange and Nagoya Stock Exchange) has made it one of the largest total logistics solutions providers in Malaysia.
WHY WE FEEL TASCO IS UNDERVALUED?
1) For 1H10, the earnings of TASCo have jumped by threefold to RM10.96 million on the back of an almost 78% increase in sales revenue to RM203.37 million. The 1H10 sterling sales revenue & earnings performance was primarily due to the recovery from the adverse global financial crisis in 1H09.
The 1H10 EPS soared to 10.96 sen (1Q: 4.14 sen & 2Q: 6.82 sen) from 2.74 sen (1Q: 0.39 sen & 2Q: 2.35 sen) in 1H09.
2) Summary of EPS since 1Q09 is as follows:-
1Q09 0.39 sen
2Q09 2.35 sen
3Q09 9.56 sen
4Q09 4.22 sen 16.55 sen
1Q10 4.14 sen
2Q10 6.82 sen
3Q10 ?
4Q10 ?
Per estimation/forecast by Dynaquest in view of the higher-than-expected 1H10, the following are forecasted:-
a) Full year EPS: 18.5 sen
b) DPS: 6.00 sen nett (CY09: 4.00 sen nett)
3) At the current price of RM1.35/share, TASCo is considered lowly valued based on the following commonly used yardsticks:-
a) Prospective PER: < 8x
b) Above average Dividend Yield: 4.44% nett
c) Only 0.67x its NTA of RM2.02/share as at 30/6/2010
Key developments for TASCO
TASCO Berhad expected to report Q3 2010 results on November 16, 2010. We envisage the results to be superlative.
Primary Symbol & Exchange: TASCO
5140 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 1/11/2010 RM:1.35
Mkt Cap RM’m : 135.00
Shares (m): 100.00
Par RM: 1.00
SECTOR CLASSIFICATION
MSEB: Trading/Services
Fox Capital: Transport-Logistic
Executive Chairman: Tan Sri Datuk Asmat bin Kamaludin
Managing Director: Lee Check Poh
KNOWN MAJOR SHAREHOLDER(S) (as at 14/04/2010)
Nippon Yusen Kabushiki Kaisha (direct & indirect interest) 61.32%
Tan Sri Datuk Asmat bin Kamaludin 37.23%
Lee Check Poh 9.83%
BACKGROUND
Tasco Berhad (TASCo), formerly Trans-Asia Shipping Corporation Berhad, is a Malaysia-based total logistics solutions provider. The Company offers logistics solutions covering air, sea and land transportation. It has categorized its services into international logistics solutions and domestic logistics solutions. International logistics solutions provide air freight services, sea freight services and buyer consolidation services. Domestic logistics solutions provides custom clearance, haulage transportation, warehousing services and warehouse inplant services, through forwarding division; car carrier and pre-delivery inspection, through auto logistics division, and domestic trucking and cross border trucking, through trucking division.
TASCo has nine subsidiaries, including Baik Sepakat Sdn Bhd, Tunas Cergas Logistik Sdn Bhd, Emulsi Teknik Sdn Bhd, TASCO Express Sdn Bhd and Maya Kekal Sdn Bhd, among others.
TASCo's domestic operation and global alliance with NYK (a Global Fortune 500 company which is listed on the Tokyo Stock Exchange, Osaka Securities Exchange and Nagoya Stock Exchange) has made it one of the largest total logistics solutions providers in Malaysia.
WHY WE FEEL TASCO IS UNDERVALUED?
1) For 1H10, the earnings of TASCo have jumped by threefold to RM10.96 million on the back of an almost 78% increase in sales revenue to RM203.37 million. The 1H10 sterling sales revenue & earnings performance was primarily due to the recovery from the adverse global financial crisis in 1H09.
The 1H10 EPS soared to 10.96 sen (1Q: 4.14 sen & 2Q: 6.82 sen) from 2.74 sen (1Q: 0.39 sen & 2Q: 2.35 sen) in 1H09.
2) Summary of EPS since 1Q09 is as follows:-
1Q09 0.39 sen
2Q09 2.35 sen
3Q09 9.56 sen
4Q09 4.22 sen 16.55 sen
1Q10 4.14 sen
2Q10 6.82 sen
3Q10 ?
4Q10 ?
Per estimation/forecast by Dynaquest in view of the higher-than-expected 1H10, the following are forecasted:-
a) Full year EPS: 18.5 sen
b) DPS: 6.00 sen nett (CY09: 4.00 sen nett)
3) At the current price of RM1.35/share, TASCo is considered lowly valued based on the following commonly used yardsticks:-
a) Prospective PER: < 8x
b) Above average Dividend Yield: 4.44% nett
c) Only 0.67x its NTA of RM2.02/share as at 30/6/2010
Key developments for TASCO
TASCO Berhad expected to report Q3 2010 results on November 16, 2010. We envisage the results to be superlative.
TSM proposing a one-for-one bonus issue
TSM GLOBAL BHD ("TSM") surged to a high of RM4.20/share in the morning session today after it proposed a one-for-one bonus issue.
At close of market, it was unchanged at RM3.93/share.
Although bonus issue is merely an accounting entry involving moving cash from "reserves" to "equity capital" in balance sheet of the company, it helps to improve liquidity and more importantly, it gives the "feel good effect" to its shareholders as a form of "reward to its shareholders".
Hence, its price has rose 22.8% from our initial recommended price of RM3.20/share.
We reiterate that investors may consider to take profit due to the steep rise in such a short period even though the fundamentals of this company is still intact.
At close of market, it was unchanged at RM3.93/share.
Although bonus issue is merely an accounting entry involving moving cash from "reserves" to "equity capital" in balance sheet of the company, it helps to improve liquidity and more importantly, it gives the "feel good effect" to its shareholders as a form of "reward to its shareholders".
Hence, its price has rose 22.8% from our initial recommended price of RM3.20/share.
We reiterate that investors may consider to take profit due to the steep rise in such a short period even though the fundamentals of this company is still intact.
Sunday, October 24, 2010
TSM - Opportunity to consider taking profit!
TSM's price has surged to around RM3.50/share, an over 9% capital gain from RM3.20. This is quite commendable for a short period.
Investors could therefore, consider taking profit even though the strong fundamentals of the company remain in tact.
Investors could therefore, consider taking profit even though the strong fundamentals of the company remain in tact.
Wednesday, September 29, 2010
TSM GLOBAL BHD - DEEPLY UNDERVALUED
TSM GLOBAL BHD (formerly JUAN KUANG)
Primary Symbol & Exchange: TSM
8842 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 28/9/2010 RM:3.20
Mkt Cap RM’m : 177.22
Shares (m): 55.21
Par RM: 1.00
SECTOR CLASSIFICATION
MSEB: Trading/Services
Fox Capital: Auto-parts maker
Executive Chairman: Dato’ Wan Malek Bin Ibrahim
Managing Director: Dato’ Lim Kheng Yew
KNOWN MAJOR SHAREHOLDER(S) (as at 29/05/2009)
Dato’ Lim Kheng Yew (indirect interest) 16.09%
Lim Tze Thean (direct & indirect interest) 11.75%
Koperasi Polis Diraja Malaysia Bhd 6.73%
BACKGROUND
TSM Global Bhd (TSM) [formerly known as Juan Kuang (M) Industrial Bhd] is an investment holding company with its subsidiaries principally involved in the manufacture and supply of wiring harnesses for vehicles, automotive accessories, high tension ignition cable sets and polyvinyl chloride (commonly referred to as “PVC”) wires and cables.
Using the technology from Sumitomo Wiring Systems Ltd of Japan, TSM is one of the leading domestic suppliers of wiring harnesses used in motor vehicles and motorcycles trading under the names of Perodua, Nissan, Toyota, Honda, Daihatsu, Inokom, Hyundai, Ford, Suzuki and Kawasaki as well as automotive component companies such as listed APM Automotive Holdings Bhd, Nippondenso, Sanden and Autoliv.
TSM’s main manufacturing facilities are located in Tebrau, Johor and Tapah, Perak. TSM also has a 15% stake in China-based Fujian JK Wiring Systems Co Ltd which is also involved in the manufacture and supply of wiring harnesses for motor vehicles and automotive accessories.
On 3/3/2010, TSM proposed to diversify its manufacturing business into the hard disk drive industry via the proposed acquisition of an 85.47% interest in Kenseisha (M) Sdn Bhd for a purchase consideration of RM15.08m to be satisfied by the issuance of 6.50m new TSM shares.
WHY WE FEEL TSM IS UNDERVALUED?
1) Prior to this week, price has been hovering between RM3.00 to RM3.10/share since reaching peak of RM3.36/share on 29/7/2010.
2) The most under-valued auto related counter in Bursa.
3) Net cash in hands (including TSM's quoted investments) of RM117.15m or RM2.10 per TSM share as at 30/4/2010 (1Q for FYE 2011). Hence, the market is currently valuing this company at net cash of only RM1.10 i.e. only 10 sen premium over its par value for the viable and profitable business.
4) 1Q 2011 ended 30/4/10 at EPS of 15.58 sen / share. 2Q 2011 results to be announced on 30th September 2010 should be very good. Autoparts manufacturers generally have been having a good run in the past year as the Ringgit appreciates and demand for vehicles improves.
The latest results of APM, the leading automotive autoparts player, is an indication of things to come. In August 2010, APM announced that its net profit doubled to RM36.5m or 18.68 sen /share in 2Q ended 30/6/2010 against RM17.86m or 8.91 sen/share. APM said in its results announcement that it had performed “extremely well” in 2QFY2010 ending 31/12/2010, achieving the “highest ever quarterly revenue and pre-tax profit”.
.
6) TSM commands nearly 60% of the Malaysian wire harness market. It supplies wire harness to almost all car assemblers except Korean marque Kia. Perodua is TSM's biggest customer.
7) TSM has recently, secured the supply contract to Proton Holdings Bhd which will be an immediate boost to TSM’s earnings. They will start supplying to Proton in October or November 2010.
8) Potential contribution to its earnings growth from its newly acquired hard disk drive (HDD) maker, Kenseisha (M) Sdn Bhd (KMSB). Judging by the pace of restructuring in the financially troubled KMSB and the strong orders it gets, the Managing Director feels that KMSB can perform even better than the wire harness business in the future. KMSB posted a net profit of RM2.34m and RM1.67m respectively in FY2006 and FY2007 ended 31 December. Brands using KMSB’s products and services include Nidec, Toshiba, Hitachi, NEC and Sony and the current export markets include China, Germany, Hong Kong, Japan, Singapore and the US. The Managing Director who is a former merchant banker, believes that the demand of HDD will always be there unless the world invests something that can replace it.
CONCLUSION
We strongly feel that the depressed valuation for this small-cap auto-part maker stock is not justified, and the catalysts may come from:-
a) Announcement of 2Q 2011 financial results by end of September 2010 which should be even better than 3Q given the significant increase in vehicle sales recorded over the past few months coupled with strengthening of Ringgit Malaysia..
b) Hopefully, coverage by more research houses / stock analysts.
Primary Symbol & Exchange: TSM
8842 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 28/9/2010 RM:3.20
Mkt Cap RM’m : 177.22
Shares (m): 55.21
Par RM: 1.00
SECTOR CLASSIFICATION
MSEB: Trading/Services
Fox Capital: Auto-parts maker
Executive Chairman: Dato’ Wan Malek Bin Ibrahim
Managing Director: Dato’ Lim Kheng Yew
KNOWN MAJOR SHAREHOLDER(S) (as at 29/05/2009)
Dato’ Lim Kheng Yew (indirect interest) 16.09%
Lim Tze Thean (direct & indirect interest) 11.75%
Koperasi Polis Diraja Malaysia Bhd 6.73%
BACKGROUND
TSM Global Bhd (TSM) [formerly known as Juan Kuang (M) Industrial Bhd] is an investment holding company with its subsidiaries principally involved in the manufacture and supply of wiring harnesses for vehicles, automotive accessories, high tension ignition cable sets and polyvinyl chloride (commonly referred to as “PVC”) wires and cables.
Using the technology from Sumitomo Wiring Systems Ltd of Japan, TSM is one of the leading domestic suppliers of wiring harnesses used in motor vehicles and motorcycles trading under the names of Perodua, Nissan, Toyota, Honda, Daihatsu, Inokom, Hyundai, Ford, Suzuki and Kawasaki as well as automotive component companies such as listed APM Automotive Holdings Bhd, Nippondenso, Sanden and Autoliv.
TSM’s main manufacturing facilities are located in Tebrau, Johor and Tapah, Perak. TSM also has a 15% stake in China-based Fujian JK Wiring Systems Co Ltd which is also involved in the manufacture and supply of wiring harnesses for motor vehicles and automotive accessories.
On 3/3/2010, TSM proposed to diversify its manufacturing business into the hard disk drive industry via the proposed acquisition of an 85.47% interest in Kenseisha (M) Sdn Bhd for a purchase consideration of RM15.08m to be satisfied by the issuance of 6.50m new TSM shares.
WHY WE FEEL TSM IS UNDERVALUED?
1) Prior to this week, price has been hovering between RM3.00 to RM3.10/share since reaching peak of RM3.36/share on 29/7/2010.
2) The most under-valued auto related counter in Bursa.
3) Net cash in hands (including TSM's quoted investments) of RM117.15m or RM2.10 per TSM share as at 30/4/2010 (1Q for FYE 2011). Hence, the market is currently valuing this company at net cash of only RM1.10 i.e. only 10 sen premium over its par value for the viable and profitable business.
4) 1Q 2011 ended 30/4/10 at EPS of 15.58 sen / share. 2Q 2011 results to be announced on 30th September 2010 should be very good. Autoparts manufacturers generally have been having a good run in the past year as the Ringgit appreciates and demand for vehicles improves.
The latest results of APM, the leading automotive autoparts player, is an indication of things to come. In August 2010, APM announced that its net profit doubled to RM36.5m or 18.68 sen /share in 2Q ended 30/6/2010 against RM17.86m or 8.91 sen/share. APM said in its results announcement that it had performed “extremely well” in 2QFY2010 ending 31/12/2010, achieving the “highest ever quarterly revenue and pre-tax profit”.
.
6) TSM commands nearly 60% of the Malaysian wire harness market. It supplies wire harness to almost all car assemblers except Korean marque Kia. Perodua is TSM's biggest customer.
7) TSM has recently, secured the supply contract to Proton Holdings Bhd which will be an immediate boost to TSM’s earnings. They will start supplying to Proton in October or November 2010.
8) Potential contribution to its earnings growth from its newly acquired hard disk drive (HDD) maker, Kenseisha (M) Sdn Bhd (KMSB). Judging by the pace of restructuring in the financially troubled KMSB and the strong orders it gets, the Managing Director feels that KMSB can perform even better than the wire harness business in the future. KMSB posted a net profit of RM2.34m and RM1.67m respectively in FY2006 and FY2007 ended 31 December. Brands using KMSB’s products and services include Nidec, Toshiba, Hitachi, NEC and Sony and the current export markets include China, Germany, Hong Kong, Japan, Singapore and the US. The Managing Director who is a former merchant banker, believes that the demand of HDD will always be there unless the world invests something that can replace it.
CONCLUSION
We strongly feel that the depressed valuation for this small-cap auto-part maker stock is not justified, and the catalysts may come from:-
a) Announcement of 2Q 2011 financial results by end of September 2010 which should be even better than 3Q given the significant increase in vehicle sales recorded over the past few months coupled with strengthening of Ringgit Malaysia..
b) Hopefully, coverage by more research houses / stock analysts.
Sunday, August 22, 2010
LII HEN – LAST CHANCE BEFORE ANNOUCEMENT OF 2Q2010 FINANCIAL RESULTS
Price of Lii Hen suddenly surged to close at RM1.43/share (with intra-day high of RM1.45/share) last Friday on 20/8/2010. Prior to that, its price was hovering at around RM1.38/share level.
Its volume have also increased significantly to 873,200 for this normally thinly traded counter.
This may be a prelude to a good set of financial results to be announced – expected on this Monday or Tuesday!
Its volume have also increased significantly to 873,200 for this normally thinly traded counter.
This may be a prelude to a good set of financial results to be announced – expected on this Monday or Tuesday!
For more details, please refer back to the earlier posting dated July 26, 2010.
OGAWA - WITH BUSINESS COSTING ALMOST FREE
OGAWA WORLD BHD
Primary Symbol & Exchange:
5128 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 20/8/2010 RM: 0.44
Mkt Cap RM’m : 52.80
Shares (m): 120.00
Par RM: 0.50
SECTOR CLASSIFICATION
MSEB: Trading
Fox Capital: Healthcare equipment
Executive Chairman: Wong Lee Keong
Managing Director: Wong Lee Keong
KNOWN MAJOR SHAREHOLDER(S) (as at 30/06/2009)
Great Genesis Sdn Bhd* 51.0%
* Deemed interested by the Chairman,Wong Lee Keong (32.0%), Lim Poh Khian (27.8%), Lim Mee Ling (12.1%), Cheah Yew Kong (12.1%), Chong Swee Main (8.9%) and Lim Wai Heng (7.2%). In addition,Wong Lee Keong also hold direct interest of 0.88%
Contact Info
No. 22 Jalan Anggerik Mokara 31/47, Kota Kemuning, 40460 Shah Alam, Selangor
Phone: 603-51214286
Fax: 603-51214386
Corporate website: http://www.ogawaworld.net/
BACKGROUND
Ogawa World (Ogawa) is a retailer of health and wellness equipment products, with a distribution network in eight countries in Asia Pacific. Products are marketed under in-house brands of “Ogawa” and “Deki”. Listed on the Main Board of Bursa Malaysia in April 2007, Ogawa is 51% owned by Great Genesis, which in turn is owned by Wong Lee Keong (32.0%), Lim Poh Khian (27.8%), Lim Mee Ling (12.1%), Cheah Yew Kong (12.1%), Chong Swee Main (8.9%) and Lim Wai Heng (7.2%). Cofounders Wong Lee Keong and Lim Poh Khian currently act as the Executive Chairman and Deputy Executive Chairman of Ogawa while the remaining four shareholders of Great Genesis also sit on the Board of Ogawa as Executive Directors.
Ogawa operates retail outlets in four proprietary markets (Malaysia, Singapore, Hong Kong and China) through 100%-owned subsidiaries. Ogawa does not own any equity interest in the operations of its four distributor markets (Australia, Indonesia, Thailand and Vietnam) – these markets are instead served by sole distributors appointed by Ogawa.
Ogawa’s history can be traced back to 1986 when co-founders Wong Lee Keong and Lim Poh Khian began trading household and electrical products such as water purifiers and kitchenware in Malaysia. Diversification into the health and wellness equipment market came in 1996 where the initial focus was on retailing a range of small massaging equipment and water filters.
Efforts were then put in place to increase product range and create market awareness for health and wellness equipment products – which was a relatively new concept in Malaysia. The “Ogawa” brand was developed in 1996 after which extensive marketing went into creating awareness of the brand name. In 2006, the “Deki” brand was developed for the lower-priced products to penetrate into new and under-served consumer markets including lower income customers and young executives.
Ogawa’s products are conceptualized in-house, helped by latest market trends and customer and supplier feedback. Designs and specifications are then submitted to external contract manufacturers – initially for a prototype production, and later for replication manufacturing. Some 5-10 new products, features and designs are introduced each year and to-date, Ogawa has obtained approvals for over 19 trademarks and has submitted applications for the registration over 20 additional trademarks.
Products sold can be divided into five categories, namely:
i) relaxation (products such as massage chairs);
ii) therapeutic (products such as foot massagers);
iii) fitness (products such slimming equipment);
iv) diagnostic (products such as blood pressure monitors and
v) hygiene (products such as air purifiers).
Massage chair products are Ogawa’s top selling item and make up 60%-70% of revenue. Foot massage products are the second top selling product and make up 15%-20% of revenue while portable massages are the third largest product sold (4%-5% of revenue).
In 2002, Ogawa expanded into regional markets, starting with Singapore and Indonesia. Ogawa has since built up a presence in five other regional countries, including most recently in Thailand, where operations started in January 2008. The distribution and retailing operations in these eight markets are conducted through two business models – either through proprietary markets, where the retail or POS (point of sales) outlet is owned and operated by Ogawa (Malaysia, China, Hong Kong and Singapore) or through distributor markets where sole distributors are appointed (Australia, Indonesia, Thailand and Vietnam).
Market Penetration Markets Year Penetrated
Peninsular Malaysia…… 1996
East Malaysia…………… 2001
Singapore and Indonesia. 2002
Australia…………………. 2003
China…………………….. 2005
Hong Kong and Vietnam. 2006
Thailand…………………..2008
Saudi Arabia……………..2009
Source: Company data
Contract manufacturing of Ogawa’s products is done in China, and here, Ogawa works with five to seven key suppliers. Ogawa pays for the contract manufacturing in US$ and the cost of the merchandise makes up an estimated 40%-45% of revenue. For the proprietary markets, rental makes up the second largest cost component, at 12%-15% of revenue while staff cost is the third largest component, at 10%-12% of revenue for an average sized outlet of 800 sq. ft. Aside from the initial training and technical services provided, there are generally no costs associated with the distributor markets, where Ogawa instead receives an average 15% margin of the sales to the distributors.
The health and wellness equipment market in Malaysia is dominated by two larger players – Ogawa, with the higher 36% market penetration share and Osim International, with a 21% market penetration share. Other smaller players include OTO Bodycare, Panasonic Malaysia and Gintell. The smaller players generally have a more limited range of products, with a smaller number of model types and in some cases, are not involved in product design and development.
In Ogawa’s overseas markets, competition comes primarily from Osim International and other smaller players – both local and international. Ogawa is being positioned as an international brand in these markets and strategic A&P efforts are in place to help this development. A&P activities center around both thematic advertising for longer term brand awareness and tactical promotions which encourage consumers to buy (such as launching contests with attractive prices).
Geographically, the Malaysian market remains the largest revenue contributor with RM 85.7 million, accounting for 66.7% of Group revenue as at 30/6/2009 but overseas business had increased to 33.3% at RM 42.8 million compared to 28.0% in the last financial year ended 30/6/2008.
During the financial year of 30/6/2009, Ogawa have successfully penetrated into Saudi Arabia with the appointment of a distributor. Today, Ogawa’s products can be found in 10 outlets in Jeddah and Riyadh. The distributor in Thailand had however ceased operations in January 2009. Therefore, Ogawa are now in 9 countries namely Malaysia, Singapore, China, Hong Kong, Australia, Indonesia, Vietnam, Myanmar and Saudi Arabia with a total of 150 outlets.
WHY WE FEEL OGAWA IS UNDERVALUED?
1) Ogawa is very financially strong with improving net cash holdings as follows:-
FYE…………….Net cash (Net cash/share)
30/6/2008…….. RM32.4m (27.0 sen/share)
30/6/2009…….. RM42.4m (35.4 sen/share)
30/6/2010…….. RM48.4m (40.3 sen/share)
Based on last traded price of 44.0 sen/share as at 20/8/2010, the market is only assigning value of only 4 sen/share for Ogawa’s business!
2) Ogawa has managed to make a convincing turnaround as follows:-
FYE…...…….……Net EPS
30/6/2005……..7.75 sen
30/6/2006……..9.56 sen
30/6/2007……..18.46 sen
30/6/2008……..-6.98 sen
30/6/2009……..-10.36 sen
30/6/2010……..6.91 sen
3) Ogawa’s has registered its best quarterly earnings for FYE 30/6/2010 since listing as follows:-
1Q2010…0.07 sen
2Q2010…0.31 sen
3Q2010…1.43 sen
4Q2010…5.10 sen
--------------------
Total.…….6.91 sen
--------------------
4) If Ogawa is able to maintain its earning performance, Ogawa is currently, extremely, undervalued!
5) We remain positive on the group’s earnings outlook, based on its revenue growth, which indicate recovery from recession. We see Ogawa well positioned to benefit from improving retail market conditions as the world continues its recovery from recession. Ogawa’s established presence in its home market of Malaysia indicates steady domestic revenues, while its export efforts mean that overseas markets, such as China and Singapore, would be longer term growth drivers.
6) Trading volume for Ogawa have surged significantly last week for this normally thinly traded counter with no even no trading for certain days:-
16/8/2010 1,295,000
17/8/2010 3,130,400
18/8/2010 15,151,800
19/8/2010 1,530,500
20/8/2010 3,883,300
Primary Symbol & Exchange:
5128 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 20/8/2010 RM: 0.44
Mkt Cap RM’m : 52.80
Shares (m): 120.00
Par RM: 0.50
SECTOR CLASSIFICATION
MSEB: Trading
Fox Capital: Healthcare equipment
Executive Chairman: Wong Lee Keong
Managing Director: Wong Lee Keong
KNOWN MAJOR SHAREHOLDER(S) (as at 30/06/2009)
Great Genesis Sdn Bhd* 51.0%
* Deemed interested by the Chairman,Wong Lee Keong (32.0%), Lim Poh Khian (27.8%), Lim Mee Ling (12.1%), Cheah Yew Kong (12.1%), Chong Swee Main (8.9%) and Lim Wai Heng (7.2%). In addition,Wong Lee Keong also hold direct interest of 0.88%
Contact Info
No. 22 Jalan Anggerik Mokara 31/47, Kota Kemuning, 40460 Shah Alam, Selangor
Phone: 603-51214286
Fax: 603-51214386
Corporate website: http://www.ogawaworld.net/
BACKGROUND
Ogawa World (Ogawa) is a retailer of health and wellness equipment products, with a distribution network in eight countries in Asia Pacific. Products are marketed under in-house brands of “Ogawa” and “Deki”. Listed on the Main Board of Bursa Malaysia in April 2007, Ogawa is 51% owned by Great Genesis, which in turn is owned by Wong Lee Keong (32.0%), Lim Poh Khian (27.8%), Lim Mee Ling (12.1%), Cheah Yew Kong (12.1%), Chong Swee Main (8.9%) and Lim Wai Heng (7.2%). Cofounders Wong Lee Keong and Lim Poh Khian currently act as the Executive Chairman and Deputy Executive Chairman of Ogawa while the remaining four shareholders of Great Genesis also sit on the Board of Ogawa as Executive Directors.
Ogawa operates retail outlets in four proprietary markets (Malaysia, Singapore, Hong Kong and China) through 100%-owned subsidiaries. Ogawa does not own any equity interest in the operations of its four distributor markets (Australia, Indonesia, Thailand and Vietnam) – these markets are instead served by sole distributors appointed by Ogawa.
Ogawa’s history can be traced back to 1986 when co-founders Wong Lee Keong and Lim Poh Khian began trading household and electrical products such as water purifiers and kitchenware in Malaysia. Diversification into the health and wellness equipment market came in 1996 where the initial focus was on retailing a range of small massaging equipment and water filters.
Efforts were then put in place to increase product range and create market awareness for health and wellness equipment products – which was a relatively new concept in Malaysia. The “Ogawa” brand was developed in 1996 after which extensive marketing went into creating awareness of the brand name. In 2006, the “Deki” brand was developed for the lower-priced products to penetrate into new and under-served consumer markets including lower income customers and young executives.
Ogawa’s products are conceptualized in-house, helped by latest market trends and customer and supplier feedback. Designs and specifications are then submitted to external contract manufacturers – initially for a prototype production, and later for replication manufacturing. Some 5-10 new products, features and designs are introduced each year and to-date, Ogawa has obtained approvals for over 19 trademarks and has submitted applications for the registration over 20 additional trademarks.
Products sold can be divided into five categories, namely:
i) relaxation (products such as massage chairs);
ii) therapeutic (products such as foot massagers);
iii) fitness (products such slimming equipment);
iv) diagnostic (products such as blood pressure monitors and
v) hygiene (products such as air purifiers).
Massage chair products are Ogawa’s top selling item and make up 60%-70% of revenue. Foot massage products are the second top selling product and make up 15%-20% of revenue while portable massages are the third largest product sold (4%-5% of revenue).
In 2002, Ogawa expanded into regional markets, starting with Singapore and Indonesia. Ogawa has since built up a presence in five other regional countries, including most recently in Thailand, where operations started in January 2008. The distribution and retailing operations in these eight markets are conducted through two business models – either through proprietary markets, where the retail or POS (point of sales) outlet is owned and operated by Ogawa (Malaysia, China, Hong Kong and Singapore) or through distributor markets where sole distributors are appointed (Australia, Indonesia, Thailand and Vietnam).
Market Penetration Markets Year Penetrated
Peninsular Malaysia…… 1996
East Malaysia…………… 2001
Singapore and Indonesia. 2002
Australia…………………. 2003
China…………………….. 2005
Hong Kong and Vietnam. 2006
Thailand…………………..2008
Saudi Arabia……………..2009
Source: Company data
Contract manufacturing of Ogawa’s products is done in China, and here, Ogawa works with five to seven key suppliers. Ogawa pays for the contract manufacturing in US$ and the cost of the merchandise makes up an estimated 40%-45% of revenue. For the proprietary markets, rental makes up the second largest cost component, at 12%-15% of revenue while staff cost is the third largest component, at 10%-12% of revenue for an average sized outlet of 800 sq. ft. Aside from the initial training and technical services provided, there are generally no costs associated with the distributor markets, where Ogawa instead receives an average 15% margin of the sales to the distributors.
The health and wellness equipment market in Malaysia is dominated by two larger players – Ogawa, with the higher 36% market penetration share and Osim International, with a 21% market penetration share. Other smaller players include OTO Bodycare, Panasonic Malaysia and Gintell. The smaller players generally have a more limited range of products, with a smaller number of model types and in some cases, are not involved in product design and development.
In Ogawa’s overseas markets, competition comes primarily from Osim International and other smaller players – both local and international. Ogawa is being positioned as an international brand in these markets and strategic A&P efforts are in place to help this development. A&P activities center around both thematic advertising for longer term brand awareness and tactical promotions which encourage consumers to buy (such as launching contests with attractive prices).
Geographically, the Malaysian market remains the largest revenue contributor with RM 85.7 million, accounting for 66.7% of Group revenue as at 30/6/2009 but overseas business had increased to 33.3% at RM 42.8 million compared to 28.0% in the last financial year ended 30/6/2008.
During the financial year of 30/6/2009, Ogawa have successfully penetrated into Saudi Arabia with the appointment of a distributor. Today, Ogawa’s products can be found in 10 outlets in Jeddah and Riyadh. The distributor in Thailand had however ceased operations in January 2009. Therefore, Ogawa are now in 9 countries namely Malaysia, Singapore, China, Hong Kong, Australia, Indonesia, Vietnam, Myanmar and Saudi Arabia with a total of 150 outlets.
WHY WE FEEL OGAWA IS UNDERVALUED?
1) Ogawa is very financially strong with improving net cash holdings as follows:-
FYE…………….Net cash (Net cash/share)
30/6/2008…….. RM32.4m (27.0 sen/share)
30/6/2009…….. RM42.4m (35.4 sen/share)
30/6/2010…….. RM48.4m (40.3 sen/share)
Based on last traded price of 44.0 sen/share as at 20/8/2010, the market is only assigning value of only 4 sen/share for Ogawa’s business!
2) Ogawa has managed to make a convincing turnaround as follows:-
FYE…...…….……Net EPS
30/6/2005……..7.75 sen
30/6/2006……..9.56 sen
30/6/2007……..18.46 sen
30/6/2008……..-6.98 sen
30/6/2009……..-10.36 sen
30/6/2010……..6.91 sen
3) Ogawa’s has registered its best quarterly earnings for FYE 30/6/2010 since listing as follows:-
1Q2010…0.07 sen
2Q2010…0.31 sen
3Q2010…1.43 sen
4Q2010…5.10 sen
--------------------
Total.…….6.91 sen
--------------------
4) If Ogawa is able to maintain its earning performance, Ogawa is currently, extremely, undervalued!
5) We remain positive on the group’s earnings outlook, based on its revenue growth, which indicate recovery from recession. We see Ogawa well positioned to benefit from improving retail market conditions as the world continues its recovery from recession. Ogawa’s established presence in its home market of Malaysia indicates steady domestic revenues, while its export efforts mean that overseas markets, such as China and Singapore, would be longer term growth drivers.
6) Trading volume for Ogawa have surged significantly last week for this normally thinly traded counter with no even no trading for certain days:-
16/8/2010 1,295,000
17/8/2010 3,130,400
18/8/2010 15,151,800
19/8/2010 1,530,500
20/8/2010 3,883,300
Saturday, August 14, 2010
Genting Singapore's target price upgraded by analysts
The Edge Malaysia for the week of 16/8/2010 - 22/8/2010 reports "Genting Singapore outshines Genting Malaysia".
It says Genting Singapore plc has played its cards well as proven by its recent sterling performance. For a casino that has been in operation for one full quarter, Genting Singapore seems to outshined its sister company, Genting Malaysia Bhd, which has been operating casino for four decades.
For 2Q2010 ended 30/6/2010, Genting Singapore reported a net profit of S$396.5m (RM925.9m) compared to a net loss of S$50.7m in 2009. Revenue soared to S$979.3m from S$120.1m previously. This translates to a net profit margin of ~40%, which is impressive by any standard.
This impressive set of results is attributed to the strong business generated by its integrated resort, Resorts World Sentosa (RWS) which contributed ~ 83% of group revenue. RWS, which took some 3 years to build, opened its doors to visitors on 14/2/2010. Contribution from UK casino is relatively pale by comparison.
The integrated resort recorded revenue of S$860.8m and Etitda of S$503.5m for 2Q2010 with its Ebitda margin standing at 58% on the back of a higher-than-industry-average win percentage in the premium-players market.
As anticipated, following the announcement of its 2Q2010 results, its share price jumped 18 cents or 14.06% in a day to an all-time high of S$1.46/share at last Friday's close.
Its group Ebitda of S$513.9m for 2Q2010 was way above consensus forecast of S$220m. Given the surprising earnings, analysts have upgraded their forecast and target price for Genting Singapore. It has 17 "buy" recommendations on it.
1. Aaron Fisher, a casinos analyst at CLSA Ltd in Hong Kong states that with such a strong set of results, their fair value for the counter will likely be revised to at least S$1.50.
2. Macquarie research says, while revenues were within expactations, 2Q2010's Ebitda margin of 58% was significantly above expectation. It maintains its "out-perform" call on the counter and raised its target price to S$1.60.
3. Credit Suisse estimates Genting Singapore's net profit for FY2010 to be S$380.4m and earnings to hit S$1.1 billion by FY2012.
4. JPMorgan maintains its "overweight" call on Genting Singapore with upgraded target price of S$1.55. It notes that its management remain upbeat on prospects and will continue to gradually ramp up its operation.
5. OSK Research have raised their target price for Genting Singapore from S$1.26 to S$2.02 while maintaining their BUY recommendation. Their valuation is based on SOP, to which we assign a 16x multiple on RWS’ FY11 EBITDA. This reflects a 20% premium on the valuation multiples of Macau casinos, which they think is justified given: i) the more transparent regulatory framework in Singapore, ii) strong EBITDA run rates from the stable and higher margin mass market segment, and iii) favorable supply dynamics ensuring robust initial organic growth as its catchment market expands. The stock is trading at an undemanding 8.2x FY11 EV/EBITDA and at a discount to Macau casinos’ 13x-14x.
Saturday, August 7, 2010
Trading opportunity in GENTING SINGAPORE
GENTING SINGAPORE PLC
Primary Symbol & Exchange: GENS
G13 - Ordinary Shares - Singapore Exchange
Price/share @ 6/8/2010 SGD:1.26
Mkt Cap SGD (m) : 15,323.97
Shares (m): 12,161.88
Par -
SECTOR CLASSIFICATION
SGX: Services
Fox Capital: Gaming
Executive Chairman: Tan Sri Lim Kok Thay
Director/President & COO: Mr Tan Hee Teck
KNOWN MAJOR SHAREHOLDER(S) (as at 9/3/2010)
Genting Berhad + 51.77%
Contact Info
HEAD OFFICE
Primary Symbol & Exchange: GENS
G13 - Ordinary Shares - Singapore Exchange
Price/share @ 6/8/2010 SGD:1.26
Mkt Cap SGD (m) : 15,323.97
Shares (m): 12,161.88
Par -
SECTOR CLASSIFICATION
SGX: Services
Fox Capital: Gaming
Executive Chairman: Tan Sri Lim Kok Thay
Director/President & COO: Mr Tan Hee Teck
KNOWN MAJOR SHAREHOLDER(S) (as at 9/3/2010)
Genting Berhad + 51.77%
Contact Info
HEAD OFFICE
9 Penang Road,
#13-10 Park Mall
Singapore 238459
Tel : +65 6823 9888Fax : +65 6823 9878
BACKGROUND
Genting Singapore PLC* ("Genting Singapore") is a leading integrated resorts development specialist with over 20 years of international gaming expertise and global experience in developing, operating and/or marketing internationally acclaimed casinos and integrated resorts in different parts of the world, including Australia, the Americas, Malaysia, the Philippines and the United Kingdom (“UK”). It is a subsidiary of Genting Berhad and was incorporated in 1984 to invest in leisure and gaming-related businesses outside Malaysia. Genting Group is a collective name for Genting Berhad and its subsidiaries and associates. Genting Group is one of Asia’s leading and best managed multinationals. The Group is renowned for its strong management leadership, financial prudence and sound investment discipline. Genting Singapore is listed on the Main Board of the Singapore Exchange Securities Trading Limited ("Singapore Exchange").
Its principal activities are:
Development and operation of integrated resort
Casino operations
International sales and marketing services
IT application related services
Genting Singapore has an experienced management team that is focused on and committed to growing its business globally. The Group is the largest casino operator in the UK and is operator of a newly opened - world-class integrated family resort in Singapore.Genting Singapore is constantly reviewing new opportunities in the gaming, leisure and hospitality businesses.
Development and operation of integrated resort
Casino operations
International sales and marketing services
IT application related services
Genting Singapore has an experienced management team that is focused on and committed to growing its business globally. The Group is the largest casino operator in the UK and is operator of a newly opened - world-class integrated family resort in Singapore.Genting Singapore is constantly reviewing new opportunities in the gaming, leisure and hospitality businesses.
WHY WE FEEL THAT THIS IS AN OPPORTUNITY FOR TRADING BUY BEFORE 2Q 2010 RESULTS ARE ANNOUNCED?
1) Genting Singapore (GENS) is scheduled to release its June period results on 12/8/2010 (next Thursday). Upbeat 2Q results are anticipated and this may be a strong catalyst for its share price.
1) Genting Singapore (GENS) is scheduled to release its June period results on 12/8/2010 (next Thursday). Upbeat 2Q results are anticipated and this may be a strong catalyst for its share price.
2) Only 1/7/2010, GENS announced the disposal of its UK casinos for Sterling Pound350 million (RM1.67 billion) to Genting Malaysia Bhd. The deal is viewed favourably for GENS on the grounds that the proceeds will lighten the debt burden by removing the UK unit’s Sterling Pound 96 million in net debt from its balance sheet. Moreover, the disposal will allow GENS to concentrate on its SGD6 billion Resort World Sentosa (RWS) integrated resort in Singapore.
Genting UK casinos are not likely to bring significant value to GENS ‘s earnings given its weak and volatile earnings performance, attributed by the hike in UK gaming duties, the ban on smoking and the lack of scale to buffer volatile effects of hold rates [luck factor] in its VIP market.
3) On 2/8/2010, UBS raised target price to SGD1.52 from SGD1.23 after increasing 2011 EBITDA estimate by 18 per cent to SGD1.2 billion to assume higher margins. Kept Buy call. Said even if Marina Bay Sands manages to increase market share, what matters is absolute growth in revenue and profit.
4) JP Morgan has a “buy” recommendation on GENS with a fair value of SGD1.45. It believes that GENS will continue to be the market leader in Singapore despite the opening of Marina Bay Sands, predicting a daily net gaming revenue of SGD6.1 million and 45% margin this year.
Saturday, July 31, 2010
E and O - Potential privatisation in the offing
EASTERN AND ORIENTAL BHD
Primary Symbol & Exchange: E+O
3417 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 30/7/2010 RM:1.18
Mkt Cap RM’m : 898.8
Shares (m): 761.7m
Par RM: 1.00
SECTOR CLASSIFICATION
MSEB: Properties
Fox Capital: Properties
Executive Chairman: Datuk Azizan bin Abdul Rahman
Managing Director: Dato’ Terry Tham Ka Hon
KNOWN MAJOR SHAREHOLDER(S)
Dato’ Terry Tham Ka Hon + 16.55%
G.K. Goh Holdings Ltd 12.75%
+ Direct interest of 7.46% and indirect interest of 9.09% held through Grand Mission International Ltd
Contact Info
Corporate address :Level 3A (Annexe), Menara Milenium, No. 8, Jalan Damanlela, Damansara Heights 50490 Kuala Lumpur, Malaysia
Telephone: +603 2095 6868 Facsimile: +603 2095 9898
Email: corp.comm@easternandoriental.comWebsite: www.easternandoriental.com
BACKGROUND
Eastern and Oriental Berhad (E+O) is a Malaysia-based investment holding Company engaged in the provision of management services to its subsidiaries. The Company has interests in three business activities: hospitality and lifestyle, property development, and property investment. The Company operates in three major business segments: properties, which is engaged in the development and investment in residential and commercial properties; hospitality, which is engaged in the management and operations of hotels and restaurants, and investments and others. The Company's subsidiaries include E+O Property Development Berhad, Dynamic Degree Sdn. Bhd., E+O Developers Sdn. Bhd., E&O Ventures Sdn. Bhd., Eastern + Oriental Hotel Sdn. Bhd. and E+O Leisure Sdn. Bhd. On March 25, 2009, the Company completed the disposal of its entire interest in Puncak Madu Sdn Bhd to Damansara Developments Sdn Bhd, owned through the Company's subsidiaries, Galaxy Prestige Sdn Bhd and Major Liberty Sdn Bhd.
Primary Symbol & Exchange: E+O
3417 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 30/7/2010 RM:1.18
Mkt Cap RM’m : 898.8
Shares (m): 761.7m
Par RM: 1.00
SECTOR CLASSIFICATION
MSEB: Properties
Fox Capital: Properties
Executive Chairman: Datuk Azizan bin Abdul Rahman
Managing Director: Dato’ Terry Tham Ka Hon
KNOWN MAJOR SHAREHOLDER(S)
Dato’ Terry Tham Ka Hon + 16.55%
G.K. Goh Holdings Ltd 12.75%
+ Direct interest of 7.46% and indirect interest of 9.09% held through Grand Mission International Ltd
Contact Info
Corporate address :Level 3A (Annexe), Menara Milenium, No. 8, Jalan Damanlela, Damansara Heights 50490 Kuala Lumpur, Malaysia
Telephone: +603 2095 6868 Facsimile: +603 2095 9898
Email: corp.comm@easternandoriental.comWebsite: www.easternandoriental.com
BACKGROUND
Eastern and Oriental Berhad (E+O) is a Malaysia-based investment holding Company engaged in the provision of management services to its subsidiaries. The Company has interests in three business activities: hospitality and lifestyle, property development, and property investment. The Company operates in three major business segments: properties, which is engaged in the development and investment in residential and commercial properties; hospitality, which is engaged in the management and operations of hotels and restaurants, and investments and others. The Company's subsidiaries include E+O Property Development Berhad, Dynamic Degree Sdn. Bhd., E+O Developers Sdn. Bhd., E&O Ventures Sdn. Bhd., Eastern + Oriental Hotel Sdn. Bhd. and E+O Leisure Sdn. Bhd. On March 25, 2009, the Company completed the disposal of its entire interest in Puncak Madu Sdn Bhd to Damansara Developments Sdn Bhd, owned through the Company's subsidiaries, Galaxy Prestige Sdn Bhd and Major Liberty Sdn Bhd.
E+O Property Development Berhad (E+OProp) is the property development arm of E+O. Prior to the formation of E+OProp, EOB undertook several prestigious property projects within Kuala Lumpur. Along Jalan Ampang’s Embassy Row, EOB completed residential developments such as Sri Se-Ekar and 202 Desa Cahaya (202 DC), whilst at nearby Kampung Warisan, Malaysia’s celebrated cartoonist Datuk Lat successfully conceptualised a traditional Malay village ambience within the heart of the capital.
Presently, E+OProp focuses on building premium homes within prime locations of Klang Valley and on Penang Island. E+OProp has recently completed the high-end condominium Dua Residency, located within the vicinity of the Kuala Lumpur City Centre (KLCC) as well as Idamansara, located in Kuala Lumpur’s highly prized residential address of Damansara Heights. Seventy Damansara is another one of E&OProp’s signature development with 12 exclusive detached homes within a gated and guarded community. On Penang Island, the masterplan seafront development Seri Tanjung Pinang is situated minutes from Millionaires’ Row of Gurney Drive, underpinning E+OProp’s consistent business strategy of focusing on development in prime areas where demand is prevalent.
RNAV of E+O as estimated by CIMB Research is as follows:-
RNAV
Type………………..…..Location……………………. Size/units……. Price…….. Stake…….. Value (RM m)
Completed buildings
Shops………………… …….Gombak, Selangor……….. 58………………100,000….. 100%..........5.8
Bungalow…………………… Ukay Heights, Ampang, KL 4……………… 2,000,000…100%...........8.0
House + land………………. Damansara Heights, KL…..4………………. 5,000,000... 100%........ 20.0
Desa Cahaya condos……...Ampang, KL……………….. 3………………..800,000… 100%.......... 2.4
Dua Annexe…………. …….Jln Tun Razak, KL………… 29,569 sqft….. 1,000.00……100%....... 29.6
Dua Residence ………….…Jln Tun Razak, KL………… 5……………… 4,050,000 …100% ……20.3
Tesco………………………. Sri Tanjung Pinang ………...252,000 sqft….430.00…….. 100%....... 108.4
E&O Hotel…………………. Penang Island……………… 101………….. 2,000,000….. 100%...... 202.0
Lone Pine Hotel……………Penang Island……………… 50…………….. 600,000 …..100%........ 30.0
Ongoing developments
Seri Tanjung Pinang……...Tanjong Tokong, Pg Ph 1…. 43.0 ac………. .220.00……. 94%......... 387.4
………………………. …….Tanjong Tokong, Pg Ph 2….. 740.0 ac………44.22……… 78%......... 1 ,111.7
Kemensah Heights………. Ulu Klang, Selangor……….. 309.5 ac……….30.00……… 88%......... 355.9
Gertak Sanggul………….. Penang………………………. 365.0 ac……….20.00……… 100%...... 318.0
Jln Teruntung (The Peak). Damansara Heights, KL…….3.8 ac………….750.00…….. 100%...... 125.4
St. Mary's land ……………Jalan Tengah, KL………….. 4.1 ac…………..1,600.00…… 50% ……143.9
Jln Conlay…………………. Kuala Lumpur…………….. .1.4 ac…………. 2,000.00…… 100% …..122.0
Jln Gallagher……………… Bukit Tunku, KL…………… .3.0 ac………….350.00……… 100% …..45.7
Jln Tun Razak…………….. Off Jln Yap Kwan Seng, KL. 0.9 ac………… 1,000.00…… 100% …..39.2
Ukay Heights, Ulu Kelang…Kuala Lumpur……………… 9.4 ac………….50.00………. 100% …..20.5
E&O Hotel land…………… Penang Island……………… 2.0 ac………… 650.00 ……..100% ……56.6
Total value of properties 3 ,152.7
Other investments 4.7
Net current assets less dev. prop. 219.6
Long term borrowings (563.8)
Total RNAV 2 ,813.2
No. of shares (m) 761.7
RNAV per share (RM) 3.69
ICSLS 326.1
8% ICULS 2006/2011 2.5
Warrants @ RM1.00 (m) 37.2
FD RNAV per share (RM) 2.72
Source: CIMB Research, E&O
Other investments 4.7
Net current assets less dev. prop. 219.6
Long term borrowings (563.8)
Total RNAV 2 ,813.2
No. of shares (m) 761.7
RNAV per share (RM) 3.69
ICSLS 326.1
8% ICULS 2006/2011 2.5
Warrants @ RM1.00 (m) 37.2
FD RNAV per share (RM) 2.72
Source: CIMB Research, E&O
WHY WE FEEL E+O IS UNDERVALUED?
(1) “Buy” recommendation by a number of research houses as follows:-
Research house.............. Recommendation.............. Target price...... Basis
Kenanga Research......... Trading Buy.......................RM1.26..............P/B target of 0.6x
S&P.............................. Strong Buy...................... RM1.40..............P/B target of 0.9x
CIMB Research.............. Outperform...................... RM1.63.............. P/B target of 0.6x
(2) E+O has been actively buying back its own shares. Filings with Bursa Malaysia show that E+O bought back around 50 million shares between February and July 2010, representing around 6% of E&O’s issued and paid up capital.
(3) Apart from the share buy-back by E+O, major shareholders such as Singapore based - GK Goh Holdings Ltd have also been accumulating the shares of E+O. In early May 2010, GK Goh has about 11.87% equity interest or 90.43 million shares in E+O. Recent Bursa Malaysia announcements indicate that GK Goh upped its shareholdings in E+O to 94.94 million shares or 12.75% on 19/7/2010.
(4) E+O is trading at a discount if compared to recently listed Penang based property developer, Ivory Properties Group Bhd as follows:-
RNAV.........IPO price.......P/B......................Last trading price.........P/B
RM1.21...... RM1.00.........0.83x...................RM1.37......................1.13x
(5) Some of the positive notes obtained by CIMB Research from their meeting with E+O earlier this year:-
- E+O is still committed to strengthening balance sheet and long-term sustainability. It is focused on garnering high take-ups for its ongoing projects (e.g. St Mary and Quayside Resort) to build strong warchest of cash. Also, the company will sell its KL niche landbanks to focus on developing STP2 if offered price is right.
- Landbank sales could raise another RM344m in the near term, on top of its current cash pile of RM519m at 31/12/09. We think niche land banks on Jln Yap Kwan Seng, Jln Teruntung @ Damansara Heights, Jln Conlay and Jln Gallagher @ Bukit Tunku are most saleable in the short term given scarcity of land in the mentioned prime locations. If so, it potentially lowers current net gearing of 0.50x at 31/12/09 to 0.13x .
- Comforted by quick sales for St Mary Residences and Quayside Resort (Block 1 of Phase 1) It allows E+O to confidently embark on new projects, like reclamation of Phase 2, Seri Tanjung Pinang (STP2) which could add up to 740ac new l and. Recall E+O owns concession to reclaim up to 980ac in Seri Tanjung Pinang, of which 240ac has already been reclaimed and is an on –going development i.e. Seri Tanjung Pinang 1 (STP1). STP1’s final phases include the RM1.8b GDV Quayside Resort (Phase 1 and 2).
- Scarcity of developable land in Penang is a push factor to develop Seri Tanjung Pinang 2 (STP2). We view STP developments as E+O’s crown jewel given prime location while providing the group with long-term sustainable income. Advantages of integrated (e.g. STP) vs niche (e.g. Dua Residence) projects are; 1) flexibility in launching various products to match demand whilst preserving development margins 2) maintain high market visibility 3) maximum value extraction via pricing-up as developers add value whilst population size grows. enjoy premium pricing by leveraging on growing population size and added value
- Masterplan approvals for STP2 to be obtained by end 2010 , according to management. If so, reclamation works can commence as early as 1QCY11.
- Net gearing could be as low at 0.03x in CYE12. CIMB Research’s assumption : 1) RM344m cash is raised from landbank sales 2) St Mary Residence is completed and fully sold 3) Quayside Resort Phase 1 (GDV RM900m) is 80% sold and 80% completed 4) ICSLS/ICULS fully converted . Even so, additional gearing could add RM791m-RM1.1b to cash-pile , assuming E+O’s internal net gearing of 0.60x-0.80x, which comes short of estimated reclamation cost of entire STP2.
(6) The latest possible catalyst as highlighted on The Edge Malaysia publication dated 2/8/2010 under “Are E+O shareholders looking at privatization?” is the possibility of E&O being privatized by its major shareholders.
According to the article, the source says that they are talking to banks to finance the exercise.
It was mentioned in the article that an analyst says it is not surprising that E+O’s shares were heavily traded last week, if these is speculation that E+O may be taken private by its major shareholders. The strength of E+O is its brand name.
(2) E+O has been actively buying back its own shares. Filings with Bursa Malaysia show that E+O bought back around 50 million shares between February and July 2010, representing around 6% of E&O’s issued and paid up capital.
(3) Apart from the share buy-back by E+O, major shareholders such as Singapore based - GK Goh Holdings Ltd have also been accumulating the shares of E+O. In early May 2010, GK Goh has about 11.87% equity interest or 90.43 million shares in E+O. Recent Bursa Malaysia announcements indicate that GK Goh upped its shareholdings in E+O to 94.94 million shares or 12.75% on 19/7/2010.
(4) E+O is trading at a discount if compared to recently listed Penang based property developer, Ivory Properties Group Bhd as follows:-
RNAV.........IPO price.......P/B......................Last trading price.........P/B
RM1.21...... RM1.00.........0.83x...................RM1.37......................1.13x
(5) Some of the positive notes obtained by CIMB Research from their meeting with E+O earlier this year:-
- E+O is still committed to strengthening balance sheet and long-term sustainability. It is focused on garnering high take-ups for its ongoing projects (e.g. St Mary and Quayside Resort) to build strong warchest of cash. Also, the company will sell its KL niche landbanks to focus on developing STP2 if offered price is right.
- Landbank sales could raise another RM344m in the near term, on top of its current cash pile of RM519m at 31/12/09. We think niche land banks on Jln Yap Kwan Seng, Jln Teruntung @ Damansara Heights, Jln Conlay and Jln Gallagher @ Bukit Tunku are most saleable in the short term given scarcity of land in the mentioned prime locations. If so, it potentially lowers current net gearing of 0.50x at 31/12/09 to 0.13x .
- Comforted by quick sales for St Mary Residences and Quayside Resort (Block 1 of Phase 1) It allows E+O to confidently embark on new projects, like reclamation of Phase 2, Seri Tanjung Pinang (STP2) which could add up to 740ac new l and. Recall E+O owns concession to reclaim up to 980ac in Seri Tanjung Pinang, of which 240ac has already been reclaimed and is an on –going development i.e. Seri Tanjung Pinang 1 (STP1). STP1’s final phases include the RM1.8b GDV Quayside Resort (Phase 1 and 2).
- Scarcity of developable land in Penang is a push factor to develop Seri Tanjung Pinang 2 (STP2). We view STP developments as E+O’s crown jewel given prime location while providing the group with long-term sustainable income. Advantages of integrated (e.g. STP) vs niche (e.g. Dua Residence) projects are; 1) flexibility in launching various products to match demand whilst preserving development margins 2) maintain high market visibility 3) maximum value extraction via pricing-up as developers add value whilst population size grows. enjoy premium pricing by leveraging on growing population size and added value
- Masterplan approvals for STP2 to be obtained by end 2010 , according to management. If so, reclamation works can commence as early as 1QCY11.
- Net gearing could be as low at 0.03x in CYE12. CIMB Research’s assumption : 1) RM344m cash is raised from landbank sales 2) St Mary Residence is completed and fully sold 3) Quayside Resort Phase 1 (GDV RM900m) is 80% sold and 80% completed 4) ICSLS/ICULS fully converted . Even so, additional gearing could add RM791m-RM1.1b to cash-pile , assuming E+O’s internal net gearing of 0.60x-0.80x, which comes short of estimated reclamation cost of entire STP2.
(6) The latest possible catalyst as highlighted on The Edge Malaysia publication dated 2/8/2010 under “Are E+O shareholders looking at privatization?” is the possibility of E&O being privatized by its major shareholders.
According to the article, the source says that they are talking to banks to finance the exercise.
It was mentioned in the article that an analyst says it is not surprising that E+O’s shares were heavily traded last week, if these is speculation that E+O may be taken private by its major shareholders. The strength of E+O is its brand name.
Friday, July 30, 2010
Potential catalyst for XINGQUAN (RM1.63 @ 31/7/2010)
There is an article titled "Xingquan bullish about future demand" published in Starbizweek dated 31/7/2010 which may act as catalyst to improve price performance of Xingquan.
The article says that China listings on Bursa Malaysia namely Xingquan International Sports Holdings Ltd (Xingquan), Multi Sports Holdings Ltd and XiDeLang Holdings Ltd have disappointed a lot of investors with their weak performance - all these 3 companies are currently, trading at prices below their issue prices. According to the article, analysts have pointed out that this is due to the low awareness among investors about their fundamentals.
It says that a field trip was arranged by Xingquan recently to its office and factories in China to improve awareness among Malaysian investors. They are based in Jinjiang in the province of Fujian.
The article states that Xingquan is in the midst of constructing a new factory in Hui'an, near Ji njiang. Incidentially, Jinjiang is China's largest manufacturing base for walking and sport shoes. Their new plant in Hui'an which will have total production floor area of ~ 55,000 sq m, is expected to be completed in the 4th quarter of this year. The construction cost of the new plant is over 200 million renminbi, of which 100 million renminbi will be financed from the proceeds of the initial public offering (IPO) while the balance will be financed through internally generated funds.
Production is expected to start in the first quarter of 2011. The new factory may (1) increase their production lines to 10 next year from 6, currently ; (2) increase their production capacity to (a) 10 million pairs of shoes annually from 6 million pairs currently and (b) 28 million pairs of shoe soles from 18 million pairs, currently. They plan to increase their production capacity by about 35% annually to reach maximum level of 10 million pairs and 28 million pairs for shoes and shoe soles, respectively.
According to Xingquan's executive chairman and CEO Wu Qingquan, Xingquan expects to achieve double-digit growth for its net profit and revenue in FYE 30/6/2011 (FY11) driven by improving production capacity and China's large consumer base.
Wu says that they currently have over 2,000 point of sales in China covering 25 provinces but they aim to increase it to 3,000 in 3 years. They recently started their expansion into 5 new provinces namely Shaanxi, Gansu, Qinghai, Guizhou and Ningxia.
The article also mentions CIMB Research's trip to China which gave them an impression that shoe companies are expanding their capacity to cater to strong demand but are grappling with rising wages arising from tight labour supply. Nevertheless, it says Xingquan is an OUTPERFORMER with a target price of RM3.12 based on a 60% discount to the listed peers under its regional coverage. Based on the last trading price of RM1.63, there is a potential capital gain of 91% if the target price is achieved.
Xingquan has a dividend payout policy of 10% to 20% of its profit after tax. It paid an interim dividend of 2.5% in April 2010, which represented 16.2% of its 6 months profit after tax.
Thursday, July 29, 2010
Arbitrage opportunity for conservative investors - MEASAT
MEASAT GLOBAL BHD (previously known as Malaysian Tobacco Company)
Primary Symbol & Exchange: Measat
3875 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 29/7/2010 RM:4.07
Mkt Cap RM’m : 1,587.01
Shares (m): 389.93
Par RM: 0.78
SECTOR CLASSIFICATION
MSEB: Technology
Fox Capital: Telecommunication & Internet
Executive Chairman: Dato’ Umar bin Haji Abu
Managing Director: -
KNOWN MAJOR SHAREHOLDER(S) (as at 28/04/2009)
MEASAT Global Network Systems Sdn Bhd + 59.56%
Telekom Malaysia Bhd 15.39%
Kumpulan Wang Persaraan 5.39%
+ Direct & indirect interest – controlled by T Ananda Krishnan
Contact Info
MEASAT Satellite Systems Sdn. Bhd. (247846 - X)MEASAT Teleport and Broadcast CentreJalan Teknokrat 1/ 2 63000 Cyberjaya, Malaysia
Tel. No.
: +60(3) 8213 2188
Fax. No.
: +60(3) 8213 2233
Email.
: cosec@measat.com
BACKGROUND
Measat Global Bhd (Measat) was listed on the Main Market of Bursa Malaysia on 1/7/1978 under the name of Malaysian Tobacco Company Bhd. As its former name implies, Measat was formerly a manufacturer of cigarettes and tobacco-related products. However, it disposed off its cigarette manufacturing business to British American Tobacco on 2/11/1999 for RM770m cash. In order to comply with Practice Note No. 10/2001 and to maintain its listing status, it completed the acquisition of 100% of Measat on 8/5/2002 for RM1.45b via the issuance of 187.43m new Measat shares and cash payment of RM750m. To better reflect its new business, Measat adopted the present name on 23/7/2003.
Since 1996, MEASAT has been providing reliable satellite solutions to customers across the Asia-Pacific region. The MEASAT fleet comprising MEASAT-3, MEASAT-3a, AFRICASAT-1 and AFRICASAT-2 satellites extends MEASAT’s reach to over 145 countries representing 80% of the world’s population across Asia, Africa, Europe and Australia.MEASAT supports the Astro DTH service in Malaysia and Brunei, providing DTH multi-channel television services to over 2.78 million subscribers, as well as DTH service in India. MEASAT is also used by many of the international leading channel operators, to distribute television programming to pay television platforms, and by telecommunications operators to support remote connectivity, GSM back hauling and corporate VSAT networks.
Leveraging infrastructure at the MEASAT Teleport and Broadcast Centre, a world class teleport facility located just outside of Kuala Lumpur, and working with a selected group of world-class media partners including Antrix, Astro, Ascent Media and GlobeCast, MEASAT provides a complete range of broadcast services including Standard Definition and High Definition video playout, up-linking, fibre connectivity, occasional video contribution and co-location services
History
In 1992, in response to the Vision 2020 plan laid out by YA. Bhg Tun Dr Mahathir Mohamed for the development of communications infrastructure for Malaysia for the new millennium, Binariang Sdn. Bhd. brought together a team of experienced and highly motivated experts to develop and launch Malaysia’s first communications satellite system. The project was named the Malaysia East Asia Satellite or MEASAT for short.This effort culminated in the launch in 1996 of the MEASAT-1 and MEASAT-2 communications satellites from Europe’s Spaceport in Kourou, French Guiana. The two high-powered Boeing 376HP communications satellites provided regional C-Band coverage and pioneered the use of Ku-Band in the high rain fall South East Asia region. Operated from a purposed built satellite control facility located 915m above sea level in Gunung Raya, Langkawi, the MEASAT-1 and MEASAT-2 satellites started providing satellite service across South East Asia from 1996.The launch of MEASAT-1 and MEASAT-2 led to a rapid increase in Malaysian infrastructure development, both in telecommunication and broadcasting industries, including the launch of the first world’s digital Direct-To-Home (DTH) Multi-Channel TV Service, Astro.
Originally part of the Maxis Group, the satellite division became independent in 1998. Undertaking a reverse takeover of Malaysian Tobacco Company (“MTC”) in 2001, renaming the holding company MEASAT Global Berhad, and the operating Company MEASAT Satellite Systems Sdn Bhd, the company came of age.
Since the launch of the first two satellites, MEASAT has been supporting the development of Malaysia’s ICT infrastructure, while expanding its regional presence. Today MEASAT operates satellites providing reach to over 145 countries, representing 80% of the world’s population. It supports customer over 145 countries and host one of the region’s strongest DTH neighbourhoods.
.
WHY WE FEEL THAT THIS IS AN ARBITRAGE OPPORTUNITY FOR CONSERVATIVE INVESTORS?
1) MEASAT Global Network Systems Sdn Bhd (MEASAT Global) announced on evening of 28/7/2009 a privatization offer for MEASAT at RM4.20 cash per share. The offer is conditional upon acceptance of 90% of the nominal value of shares (excluding those already held by MEASAT Global and relevant approvals and will close not later than 60 days from the date of posting of the offer document. Following the close, the company has 21 days to obtain the relevant approvals, if required.
2) Let’s calculate the return based on latest closing price of RM4.07/share upon acceptance of the above offer & upon the offer being unconditional:-
Assumption: No. of shares acquired from open market @ RM4.07/share = 10,000
Breakdown of cost:
RM40,700 = RM4.07/share x 10,000 shares
RM244.20 = Brokerage @ 0.6%
RM41.00 = Stamp duty
RM12.21 = Clearing fee @ 0.03%
RM40,997.41 (Aggregate investment cost)
Proceeds to be received from the offer acceptance:
RM42,000.00 = RM4.20/share x 10,000 shares
Return on the cost = 2.45%
3) Next question: how much is the estimated time to receive the proceeds of the offer?
To estimate the timeline, we can refer to the take private offer for the related company – Astro as summarized below:-
Announcement of Conditional Take-over offer @ RM4.30/share 17/3/2010
Posting of offer document to shareholders 30/4/2010
Closing date of offer 21/5/2010 (97.10% level acceptance)
Settlement date (within 21 days from the closing date)
Delisting date 10/6/2010
From the above, it is noted that Astro was delisted within less than 3 months from the announcement of the Conditional Take-over offer.
Hence, we envisage that the proceeds may be received in within 2 to 3 months, barring any unforeseen circumstances.
4) How much is the estimated annualized return?
If proceeds are received by 2 months : 14.7% p.a.
If proceeds are received by 3 months : 9.8% p.a.
Hence, the annualized return may be between 9.8% p.a. to 14.7% p.a.
5) This is a very good investment opportunity for conservative investors! Especially for those who put their deposits in FD. The return here should definitely far exceed the return from putting in FD!
6) Of course, there may be risk that the take private offer fall through or the offer could not become unconditional. Nevertheless, given the previous proven record of Maxis & Astro being successfully taken private in a swift manner, the risk is minimal.
Primary Symbol & Exchange: Measat
3875 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 29/7/2010 RM:4.07
Mkt Cap RM’m : 1,587.01
Shares (m): 389.93
Par RM: 0.78
SECTOR CLASSIFICATION
MSEB: Technology
Fox Capital: Telecommunication & Internet
Executive Chairman: Dato’ Umar bin Haji Abu
Managing Director: -
KNOWN MAJOR SHAREHOLDER(S) (as at 28/04/2009)
MEASAT Global Network Systems Sdn Bhd + 59.56%
Telekom Malaysia Bhd 15.39%
Kumpulan Wang Persaraan 5.39%
+ Direct & indirect interest – controlled by T Ananda Krishnan
Contact Info
MEASAT Satellite Systems Sdn. Bhd. (247846 - X)MEASAT Teleport and Broadcast CentreJalan Teknokrat 1/ 2 63000 Cyberjaya, Malaysia
Tel. No.
: +60(3) 8213 2188
Fax. No.
: +60(3) 8213 2233
Email.
: cosec@measat.com
BACKGROUND
Measat Global Bhd (Measat) was listed on the Main Market of Bursa Malaysia on 1/7/1978 under the name of Malaysian Tobacco Company Bhd. As its former name implies, Measat was formerly a manufacturer of cigarettes and tobacco-related products. However, it disposed off its cigarette manufacturing business to British American Tobacco on 2/11/1999 for RM770m cash. In order to comply with Practice Note No. 10/2001 and to maintain its listing status, it completed the acquisition of 100% of Measat on 8/5/2002 for RM1.45b via the issuance of 187.43m new Measat shares and cash payment of RM750m. To better reflect its new business, Measat adopted the present name on 23/7/2003.
Since 1996, MEASAT has been providing reliable satellite solutions to customers across the Asia-Pacific region. The MEASAT fleet comprising MEASAT-3, MEASAT-3a, AFRICASAT-1 and AFRICASAT-2 satellites extends MEASAT’s reach to over 145 countries representing 80% of the world’s population across Asia, Africa, Europe and Australia.MEASAT supports the Astro DTH service in Malaysia and Brunei, providing DTH multi-channel television services to over 2.78 million subscribers, as well as DTH service in India. MEASAT is also used by many of the international leading channel operators, to distribute television programming to pay television platforms, and by telecommunications operators to support remote connectivity, GSM back hauling and corporate VSAT networks.
Leveraging infrastructure at the MEASAT Teleport and Broadcast Centre, a world class teleport facility located just outside of Kuala Lumpur, and working with a selected group of world-class media partners including Antrix, Astro, Ascent Media and GlobeCast, MEASAT provides a complete range of broadcast services including Standard Definition and High Definition video playout, up-linking, fibre connectivity, occasional video contribution and co-location services
History
In 1992, in response to the Vision 2020 plan laid out by YA. Bhg Tun Dr Mahathir Mohamed for the development of communications infrastructure for Malaysia for the new millennium, Binariang Sdn. Bhd. brought together a team of experienced and highly motivated experts to develop and launch Malaysia’s first communications satellite system. The project was named the Malaysia East Asia Satellite or MEASAT for short.This effort culminated in the launch in 1996 of the MEASAT-1 and MEASAT-2 communications satellites from Europe’s Spaceport in Kourou, French Guiana. The two high-powered Boeing 376HP communications satellites provided regional C-Band coverage and pioneered the use of Ku-Band in the high rain fall South East Asia region. Operated from a purposed built satellite control facility located 915m above sea level in Gunung Raya, Langkawi, the MEASAT-1 and MEASAT-2 satellites started providing satellite service across South East Asia from 1996.The launch of MEASAT-1 and MEASAT-2 led to a rapid increase in Malaysian infrastructure development, both in telecommunication and broadcasting industries, including the launch of the first world’s digital Direct-To-Home (DTH) Multi-Channel TV Service, Astro.
Originally part of the Maxis Group, the satellite division became independent in 1998. Undertaking a reverse takeover of Malaysian Tobacco Company (“MTC”) in 2001, renaming the holding company MEASAT Global Berhad, and the operating Company MEASAT Satellite Systems Sdn Bhd, the company came of age.
Since the launch of the first two satellites, MEASAT has been supporting the development of Malaysia’s ICT infrastructure, while expanding its regional presence. Today MEASAT operates satellites providing reach to over 145 countries, representing 80% of the world’s population. It supports customer over 145 countries and host one of the region’s strongest DTH neighbourhoods.
.
WHY WE FEEL THAT THIS IS AN ARBITRAGE OPPORTUNITY FOR CONSERVATIVE INVESTORS?
1) MEASAT Global Network Systems Sdn Bhd (MEASAT Global) announced on evening of 28/7/2009 a privatization offer for MEASAT at RM4.20 cash per share. The offer is conditional upon acceptance of 90% of the nominal value of shares (excluding those already held by MEASAT Global and relevant approvals and will close not later than 60 days from the date of posting of the offer document. Following the close, the company has 21 days to obtain the relevant approvals, if required.
2) Let’s calculate the return based on latest closing price of RM4.07/share upon acceptance of the above offer & upon the offer being unconditional:-
Assumption: No. of shares acquired from open market @ RM4.07/share = 10,000
Breakdown of cost:
RM40,700 = RM4.07/share x 10,000 shares
RM244.20 = Brokerage @ 0.6%
RM41.00 = Stamp duty
RM12.21 = Clearing fee @ 0.03%
RM40,997.41 (Aggregate investment cost)
Proceeds to be received from the offer acceptance:
RM42,000.00 = RM4.20/share x 10,000 shares
Return on the cost = 2.45%
3) Next question: how much is the estimated time to receive the proceeds of the offer?
To estimate the timeline, we can refer to the take private offer for the related company – Astro as summarized below:-
Announcement of Conditional Take-over offer @ RM4.30/share 17/3/2010
Posting of offer document to shareholders 30/4/2010
Closing date of offer 21/5/2010 (97.10% level acceptance)
Settlement date (within 21 days from the closing date)
Delisting date 10/6/2010
From the above, it is noted that Astro was delisted within less than 3 months from the announcement of the Conditional Take-over offer.
Hence, we envisage that the proceeds may be received in within 2 to 3 months, barring any unforeseen circumstances.
4) How much is the estimated annualized return?
If proceeds are received by 2 months : 14.7% p.a.
If proceeds are received by 3 months : 9.8% p.a.
Hence, the annualized return may be between 9.8% p.a. to 14.7% p.a.
5) This is a very good investment opportunity for conservative investors! Especially for those who put their deposits in FD. The return here should definitely far exceed the return from putting in FD!
6) Of course, there may be risk that the take private offer fall through or the offer could not become unconditional. Nevertheless, given the previous proven record of Maxis & Astro being successfully taken private in a swift manner, the risk is minimal.
Wednesday, July 28, 2010
XINGQUAN - Small Cap China Shoe Stock at huge discount
XINGQUAN INTERNATIONAL SPORTS HLDGS LTD
Primary Symbol & Exchange: Xingquan
5155 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 28/7/2010 RM:1.59
Mkt Cap RM’m : 488.65
Shares (m): 307.33
Par USD: 0.10
Primary Symbol & Exchange: Xingquan
5155 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 28/7/2010 RM:1.59
Mkt Cap RM’m : 488.65
Shares (m): 307.33
Par USD: 0.10
SECTOR CLASSIFICATION
MSEB: Consumer
Fox Capital: Footwear
MSEB: Consumer
Fox Capital: Footwear
Executive Chairman: Wu Qingquan
Managing Director: Wu Qingquan
Managing Director: Wu Qingquan
KNOWN MAJOR SHAREHOLDER(S) (as at 30/10/2009)
Tan Zhen Xiang Holdings Limited 58.43%
Tan Zhen Xiang Holdings Limited 58.43%
Contact Info
Company Address: Houyang Industrial Zone, Yanshang Village, Chendai Town, Jinjiang City, Quanzhou City, Fujian Province, PRC 362211
Company Address: Houyang Industrial Zone, Yanshang Village, Chendai Town, Jinjiang City, Quanzhou City, Fujian Province, PRC 362211
BACKGROUND
Xingquan International Sports Holdings Limited was incorporated in Bermuda under the Bermuda Companies Act on 15 December 2008 as an exempted company limited by shares under the name of Xingquan International Sports Holdings Limited. On 11 February 2009, the Company was registered in Malaysia as a foreign company. It commenced business on 1 June 2009.
The Company's principal activities are investment holding and provision of management services and its Group is principally engaged in the manufacturing of shoe soles and shoes and sales of shoe soles, shoes, apparels and accessories.
Xingquan International Sports Holdings Limited was incorporated in Bermuda under the Bermuda Companies Act on 15 December 2008 as an exempted company limited by shares under the name of Xingquan International Sports Holdings Limited. On 11 February 2009, the Company was registered in Malaysia as a foreign company. It commenced business on 1 June 2009.
The Company's principal activities are investment holding and provision of management services and its Group is principally engaged in the manufacturing of shoe soles and shoes and sales of shoe soles, shoes, apparels and accessories.
The Group is a sports and leisurewear enterprise based in Quanzhou City, Fujian Province, PRC engaged in the manufacture and distribution of outdoor and indoor sports and leisure shoes, apparel and accessories with a strong focus on brand management and product development.
Th Group currently has over 2,000 point of sales in China that cover 25 provinces. Xingquan also recently started its expansion into 5 new provinces, namely Shaanxi, Gansu, Qinghai, Guizhou and Ningxia.
Th Group currently has over 2,000 point of sales in China that cover 25 provinces. Xingquan also recently started its expansion into 5 new provinces, namely Shaanxi, Gansu, Qinghai, Guizhou and Ningxia.
Products
Shoe Soles
Comprise athletic shoe sole products designed for specific sporting activities such as running, tennis, basketball and mountain climbing, as well as leisure shoes. It also supplies shoe soles to manufacturers of well-known PRC brands including Xtep, China Peak, 361 degree and Qiaodan.
Outdoor and Indoor Sports and Leisure Shoes
Comprise mainly of outdoor sports shoes designed for specific outdoor and indoor sporting activities such as running, tennis, basketball and mountain climbing, as well as leisure shoes, marketed under its "Addnice" brand. It is also OEM for owners of international sports & leisure brands such as FILA, J’Hayber, Bullsozer, Spalding, Eksis, Prince & Lotto.
Outdoor and Indoor Sports and Leisure Apparels and Accessories
Comprise apparels for specific outdoor and indoor sporting activities such as running, tennis, basketball and mountain climbing and leisure and functional apparels such as t-shirts, polo shirts and windbreakers and accessories such as sport bags, caps, socks and head and wrist bands, designed for various outdoor and indoor sporting activities and marketed under its ¡°Addnice¡± brand.
History
Year 1995
Jinjiang Xingquan was established for OEM manufacturing.
Jinjiang Xingquan was established for OEM manufacturing.
Year 1999
Xingquan Footwear established to manufacture shoe soles.
Xingquan Footwear established to manufacture shoe soles.
Year 2000
Xingquan Plastics established and begins manufacturing for FILA, Spalding and Prince.
Xingquan Plastics established and begins manufacturing for FILA, Spalding and Prince.
Year 2002
Xingquan Plastics starts manufacturing shoe soles for well-known PRC sports brands Xtep, China Peak, 361¡ã and Qiaodan.
Xingquan Plastics starts manufacturing shoe soles for well-known PRC sports brands Xtep, China Peak, 361¡ã and Qiaodan.
Year 2003
Addnice Sports was established.
Addnice Sports was established.
Year 2004
Addnice starts manufacturing footwear products under the "Addnice" brand.
Addnice starts manufacturing footwear products under the "Addnice" brand.
Year 2005
Expands into sports apparel and accessories.
Expands into sports apparel and accessories.
Year 2006
Signs WNBA player Miao Lijie.
Signs WNBA player Miao Lijie.
Year 2007
Signs NBA players Jason Kapono and JR Smith.
Signs NBA players Jason Kapono and JR Smith.
Year 2009
IPO on Bursa Malaysia.
WHY WE FEEL XINGQUAN IS UNDERVALUED?
1) Xingquan is in global institutional funds radar
Per Xingquan’s press release dated 17/5/2010 - according to Executive Chairman and CEO, Mr Wu Qingquan, Xingquan’s recent shareholding list saw the entry of four large institutional investors from US and Europe emerging as its top 20 shareholders. This proves that Xingquan’s fundamentals are gaining recognition not only in Malaysia but also amongst significant global fund managers.
Per Starbiz article titled “Xingquan to enhance value” dated 19/7/2010, Xingquan was in talks with a few funds from Taiwan and Beijing in its efforts to enhance company’s value by bringing in more institutional investors. Notwithstanding this, Chairman and CEO, Mr Wu Qingquan said that he and his family, which hold about 58.5% stake in Xingquan were not keen to dispose off their shareholdings at the moment. If these fund managers are interested, they need to purchase in the open market.
Other local institutional funds investors include Lembaga Tabung Haji, Kumpulan Wang Perseraan, Employees Provident Fund (EPF) and Prudential.
2) For the Q3 ended 31/3/2010, Xingquan registered a net profit of RM32.7m or EPS of 10.00 sen/share, 46% higher than the previous corresponding quarter. Revenue grew 60% to RM170.2m.
It had in May 2010 announced that it recorded a strong order of about 673 million renminbi (about RM323m) for its Autumn/Winter 2010 Sales Fair, which was 35% higher than in the same event last year. Hence, Xingquan is expected to record an even higher earnings for Q4 ended 30/6/2010.
3) Trading below 3x P/E
Prospective P/E for FYE 2011 based on consensus forecasts at less than 3x reflects that the market appears to have priced in the worst for the small-cap shoe stocks. Possible reasons for the low valuations attached to these stocks include investors’ lack of familiarity with shoe stocks, the downtrend of China’s equity market since Aug 09, the S-chips financial scandal in 2008 and prospects of consolidation of the shoe industry.
IPO on Bursa Malaysia.
WHY WE FEEL XINGQUAN IS UNDERVALUED?
1) Xingquan is in global institutional funds radar
Per Xingquan’s press release dated 17/5/2010 - according to Executive Chairman and CEO, Mr Wu Qingquan, Xingquan’s recent shareholding list saw the entry of four large institutional investors from US and Europe emerging as its top 20 shareholders. This proves that Xingquan’s fundamentals are gaining recognition not only in Malaysia but also amongst significant global fund managers.
Per Starbiz article titled “Xingquan to enhance value” dated 19/7/2010, Xingquan was in talks with a few funds from Taiwan and Beijing in its efforts to enhance company’s value by bringing in more institutional investors. Notwithstanding this, Chairman and CEO, Mr Wu Qingquan said that he and his family, which hold about 58.5% stake in Xingquan were not keen to dispose off their shareholdings at the moment. If these fund managers are interested, they need to purchase in the open market.
Other local institutional funds investors include Lembaga Tabung Haji, Kumpulan Wang Perseraan, Employees Provident Fund (EPF) and Prudential.
2) For the Q3 ended 31/3/2010, Xingquan registered a net profit of RM32.7m or EPS of 10.00 sen/share, 46% higher than the previous corresponding quarter. Revenue grew 60% to RM170.2m.
It had in May 2010 announced that it recorded a strong order of about 673 million renminbi (about RM323m) for its Autumn/Winter 2010 Sales Fair, which was 35% higher than in the same event last year. Hence, Xingquan is expected to record an even higher earnings for Q4 ended 30/6/2010.
3) Trading below 3x P/E
Prospective P/E for FYE 2011 based on consensus forecasts at less than 3x reflects that the market appears to have priced in the worst for the small-cap shoe stocks. Possible reasons for the low valuations attached to these stocks include investors’ lack of familiarity with shoe stocks, the downtrend of China’s equity market since Aug 09, the S-chips financial scandal in 2008 and prospects of consolidation of the shoe industry.
4) Despite the recent rally in Xingquan’s price (since June 2010), the current price of RM1.59/share is still below its IPO price of RM1.71 for retailers and RM1.80 for institutional investors.
3) Depressed valuations not justified. We believe the depressed valuation for the small-cap shoe stocks are not justified and should, over time, converge with those of the major HKSE-listed shoe stocks. CIMB Research in its recent report dated 26/7/2010 stated that they are hopeful that the shoemakers they visited (including Xingquan) will not see a repeat of the scandals that beset S chips. Perhaps, the more important question is whether the companies have the right strategies to survive and capitalise on the upcoming industry consolidation. They stated that they are reasonably confident that Xingquan is moving in the right direction as it switches its focus from the competitive sportswear market to the less-competitive outdoor market segment.
4) Qingquan is currently, the only China company being actively covered by CIMB Research, which they continue to rate an Outperform with target price of RM3.12, based on 60% discount to the listed peers under their regional coverage to reflect Xingquan’s smaller size. Xingquan is currently trading at a 50% discount to their 6x P/E target. Potential re-rating catalysts may include better than expected trade fair order value and a further rebound of China’s stockmarket.
5) Among the China shoe stocks, Xingquan is believed to be the only one to have a dedicated investor relations (IR) person in Malaysia to whom analysts and fund managers have easy access.
6) Xingquan at more than 80% discount to Li Ning. Looking at the 1-year forward P/Es of Xingquan and Li Ning, we see that Xingquan has been trading at 82-90% discount to Li Ning since its listing in Jul 09.
7) Strong balance sheet with net cash position of RM0.83/share (earmarked for expansion) and NAB/share of RM1.08.
8) Decent dividend yield at 4.0% based on projection for FYE 2010 mainly due to its depressed share price.
Per The Edge Malaysia dated 19/7/2010, Xingquan’s recent share price rise was probably due to its first dividend payout that was declared in February 2010. The 2.5 sen tax exempt dividend has to some extend boosted investor’s confidence in the stock. The rise in its share price is probably because some investors have faith that the company can continue to set aside part of its profits as dividends to reward shareholders when it grows.
CONCLUSION
We strongly feel that the depressed valuation for this small-cap China shoe maker stock is not justified, and the catalysts for further re-rating may come from:-
a) Declaration of higher dividend which will gain more confidence from the investors
b) Delivery of continued good earnings track record and payment of dividends to show that they are genuinely generating cash.
c) Better than expected trade fair order value
d) A further rebound of China’s stockmarket.
e) Greater coverage & "buy" or "outperform" recommendation by more research houses / stock analysts apart from CIMB Research.
Tuesday, July 27, 2010
Autopart maker with unjustified depressed valuation - MULTICO
MULTI-CODE ELECTRONICS INDUSTRIES (M) BHD
Primary Symbol & Exchange: Multico
7004 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 26/7/2010 RM:0.515
Mkt Cap RM’m : 22.869
Shares (m): 44.405
Par RM: 1.00
SECTOR CLASSIFICATION
MSEB: Industrial Products
Fox Capital: Auto-parts maker
Executive Chairman: Tai Lam Shin
Managing Director: Lim Ming Kee
KNOWN MAJOR SHAREHOLDER(S) (as at 31/07/2009)
Dr Goh Kar Chuan 14.843%
Contact Info
Company Address: No. 2 & 4, Jalan Waja 7, Kawasan Perindustrian Pandan,
81100 Johor Bahru Tel: 07-3553787 Fax: 07-3552689
BACKGROUND
Multi-Code which was founded in 1990, is one of the leading manufacturers of electronics parts and accessories for the automotive industries. The factory is located at the Pandan Industrial Area, Johor Bahru, with approximately 500 employees. The company supplies and markets a broad range of Original Equipment Manufacturers’ (OEM) products to the local and overseas automobile manufacturers for on-line and off-line installations, as well as for distribution to the local and export after-sales market.
The main products manufactured by the Company are car alarms, central locks, power windows, doors regulators, stop lamps, immobilizer, ignition switches, auto door locks, reverse sensors, alarm sensors, siren horns, switches and other OEM products.
History
1990
• MCE Founded
• Established the Company to manufacture alarms, siren horns, central locking and power window systems
1994
• Became Tier 1 supplier to Perodua (Daihatsu joint venture in Malaysia)
1997
• Became Tier 1 supplier to Proton (Mitsubishi joint-venture in Malaysia)
• Listed in Kuala Lumpur Stock Exchange (Now known as Bursa Malaysia Securities Berhad)
• Certified under ISO 9001:2000
1998
• Started production of interior switches
• Started production of parking sensor systems
• Established Warehouse & Llogistics facility in Klang
2003
• Became Tier 1 supplier to Honda and Kia in Malaysia
2004
Started production of ignition key sets
2007
• Became modular system supplier for anti-theft systems
2008
• Certified under ISO/TS 16949 from IATF, Hong Kong
• Shifted Warehouse and Llogistics facility to Shah Alam, Selangor
2009
• Established technical collaboration with Hella Australia Pty Ltd for automotive exterior and interior lightings
• Entered Technical Assistance Agreement to provide technical assistance to Mayur Industries Ltd, India
• Obtained OEM business for fog lamps
• Became supplier to Ford Australia
2010
• Established technical collaboration with Hella Shanghai Electronics Co Ltd for body control modules, remote control systems,
rain & light sensors and other electronic parts
• Certified under ISO 14001
• Obtained OEM business for rear combination lamps
WHY WE FEEL MULTICO IS UNDERVALUED?
1) Multico's performance have been improving tremendously since last financial year end of 31/07/2009 as follows:-
……………..EPS @ total no. of shares = RM40.405m ‘
1Q2009……2.99 sen
2Q2009……1.20 sen
3Q2009……-1.24 sen
4Q2009……-2.43 sen
………….. -----------------
………………0.52 sen
………….. ==========
1Q2010……3.34 sen
2Q2010……4.32 sen
3Q2010……5.65 sen….13.31 sen
4Q2010……****
………….. -----------------
……………
………….. ==========
**** 4Q results for FYE 31/7/2010 to be announced latest by end of September 2010
EPS for the first 3 quarters of FYE 31/7/2010 is already at 13.31 sen. We envisage that based on the encouraging sales demand, Multico should be able to achieve EPS of at least 5 sen for the 4th quarter, thereby resulting in a full year estimated EPS of 18 sen/share.
2) Trading below 3x P/E
Based on above estimated EPS of 18 sen/share, PER for Multico for closing price as at 26/7/2010 of RM0.515 is only 2.86x which is extremely undemanding as compared to other autopart makers as follows:-
Stock………Price*………Mkt Cap………EPS+……….PER(x)
EPMB……..RM0.52…….RM86.3m…….5.00 sen……10.40
NHFATT…..RM2.24……RM168.4m…..38.00 sen……5.89
DELLOYD…RM2.79…..RM247.9m……28.61 sen……9.75
HIRO………RM1.07……RM190.8m…..16.00 sen…….6.69
Average PER : 8.18x
Average PER (inclusive of Multico): 7.12x
+ Prospective EPF for FYE 2010
* as at close of 26/7/2010
Though Multico has disadvantage of being an illiquid counter, we believe that the current depressed valuation at below 3x P/E and at below par value (RM1.00) is not justified!
Even if we ascribe an 6x PER, Multico should be priced at least RM1.08/share
3) Its balance sheet can be considered quite strong in net cash position of RM0.1774/share and NAB/share of RM1.0635.
At 51.5 sen/share, 34.4% of price is actually backed by net cash!
Hence, at net cash basis, the P/E would have been even lower at only ~2x.
4) Recent catalyst – increase in vehicle sales which should increase demand of Multico’s products
June’s Total Industry Value (TIV) or vehicle sales of 54,005 vehicles sold were the 2nd highest YTD after March which was probably boasted by pre-festive season buying. This represents a m-o-m and y-o-y growth of 6.2% and 19.36% respectively (YTD: 19.8%) despite the hike in hire purchase (HP) rates across the board from 1/6/2010 by 25 basis point which did not deter buyers from buying big ticket items with borrowed funds.
OSK Research had raised 2010 TIV forecast by 2.2% to 585,719 units (9% y-o-y growth). They expect 2H to continue to be strong on the back of new model launches by Proton (Waja), Nissan (Teana), Hyundai (Sonata), spurred by on-going promotions such as discounted interest rate, giving away freebies and extended warranty services.
Hence, auto-part maker - Multico is expected to benefit from the higher output of vehicles.
5) Additional acquisition of shares in Multico by its substantial shareholder
Its largest shareholder – Dr Goh Kar Chuan has on 7/7/2010 acquired additional 220,000 shares in Multico.
As a result, he has increased his shareholdings in Multico to 8,093,540 shares (18.226%) from 6,355,540 (14.843%) as at 31/07/2009.
This is definitely, an indirect reflection of its major shareholder on his strong confidence in the company.
CONCLUSION
We strongly feel that the depressed valuation for this small-cap auto-part maker stock is not justified, and the catalysts may come from:-
a) Announcement of 4Q 2010 financial results latest by end of September 2010 which should be even better than 3Q given the significant increase in vehicle sales recorded over the past few months.
b) More acquisition of shares by its largest shareholder – Dr Goh Kar Chuan who has been gradually accumulating its shares.
c) Hopefully, coverage by more research houses / stock analysts.
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