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.

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

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.

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.

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.

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

SECTOR CLASSIFICATION
MSEB: Consumer
Fox Capital: Footwear

Executive Chairman: Wu Qingquan
Managing Director: Wu Qingquan

KNOWN MAJOR SHAREHOLDER(S) (as at 30/10/2009)
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

Tel: (86) 595 8508 8999 Fax: (86) 595 8516 6111

Corporate Website: http://www.addnice.com.cn

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.

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.

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.

Year 1999
Xingquan Footwear established to manufacture shoe soles.

Year 2000
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.

Year 2003
Addnice Sports was established.

Year 2004
Addnice starts manufacturing footwear products under the "Addnice" brand.

Year 2005
Expands into sports apparel and accessories.

Year 2006
Signs WNBA player Miao Lijie.

Year 2007
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.

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.

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

Corporate Website: http://www.multicode.com.my/

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.

One of the most undervalued counters on Bursa - LII HEN

LII HEN INDUSTRIES BHD
Primary Symbol & Exchange:
7089 - Ordinary Shares - Malaysian Stock Exchange

Price/share @ 23/7/09 RM: 1.29
Mkt Cap RM’m :................. 77.40
Shares (m):....................... 60.00
Par RM: ..................... ........1.00
SECTOR CLASSIFICATION
MSEB: Consumer
Fox Capital: Furniture

Executive Chairman: Chua Lee Seng
Managing Director: Chua Yong Haup

KNOWN MAJOR SHAREHOLDER(S) (as at 31/12/2009)
Assets Muar Sdn Bhd* 42.31%

* Deemed interested by the Chairman, Chua Lee Seng. In addition, Chua Lee Seng also hold direct interest of 1.23%

Contact Info
Plot 43 Kawasan Perindustrian Bukit Pasir
Muar, Johor Bahru, 84000 Malaysia
Phone: 60 6 985 7202
Fax: 60 6 985 7818
Corporate website: http://liihenfurniture.com/


BACKGROUND

Lii Hen Industries Berhad, an investment holding company, engages in the manufacture of wooden furniture. It primarily offers office and residential furniture products. The company’s products include bedroom and sofa set, occasional, utility, buffet and hutch, dining, entertainment unit, living room, dining, empty space sideboard, shelves rack, sliding door, and wardrobe furniture products. It also involves in the manufacture of furniture components, and processing and kiln drying of rubber wood and timber. In addition, the company engages in planting, cultivating, milling, and dealing agriculture and forest products primarily from rubber trees and other kinds of woods, as well as in letting factory building.

Established for over 15 years, LII HEN Group has become one of the leading furniture manufacturers in Malaysia from household to office furniture under its brand name,
- "MEGA FURNITURE". " MEGA " ~ A declaration of assurance on Quality, Choice, Value & Design.

With their compromise in providing premium quality products that worth the value for money to our worldwide customers, their group has integrated in upstream and downstream activities to enhance quality control.

It operates in Malaysia, the rest of Asia, the United States, Africa, Australia, and Europe. Lii Hen Industries is based in Johor Darul, Malaysia.

The Group’s revenue by Geographical segment for FYE 31/12/2009 is as follows:-

Country/region......Revenue...............%
America...................RM172,134k....... 78.7%
Malaysia....................RM30,978k........14.2%
Asia............................RM9,470k..........4.3%
Europe.........................RM4,906k..........2.2%
Africa.............................RM823k..........0.4%
Australia........................RM539k..........0.2%

..............................-------------------..... -----------
TOTAL:...................RM218,850k........100.0%

.............................==========......======



WHY WE FEEL LII HEN IS UNDERVALUED?


1) Lii Hen's performance have been improving tremendously since last year as follows:-

.................................................EPS @ total no. of shares = RM60m
1Q2008 .....(RM0.961m).......(RM0.0160)
2Q2008 ......RM0.339m.........RM0.0057
3Q2008 ......RM2.445m.........RM0.0407
4Q2008 ......RM3.639m.........RM0.0606
..................----------------........---------------
..................RM5.462m.........RM0.0910
..................========.........=======

1Q2009.......RM2.582m........RM0.0430
2Q2009.......RM6.507m........RM0.1084
3Q2009.......RM5.917m........RM0.0986
4Q2009.......RM2.200m........RM0.0367 (due to fire incident on 28/10/2009)
..................----------------.......--------------
..................RM17.206m.....RM0.2867
..................=========.....========

1Q2010.......RM7.427m.......RM0.1238
2Q2010......... ? ? (to be announced by 24/8/2010)
3Q2010
4Q2010


2) The financial year 2009 was tremendously exciting and one of the busiest years for the Group. The year started on a cautious note amidst continuous unfavorable reports on the global financial crisis since September 2008. Plummeting demands from developed countries especially in United States of America definitely bore a big impact on the Group’s operation and performance. However, the Group proved its resilience as its customer base continued increasing globally. Despite uncertain and challenging economic environment, the Group’s sales reached a new benchmark high by rising 27% to RM218 million in FY2009 compared to last year of RM173 million. Bedroom set was the main contributor making up of 69% of the Group’s turnover. The fire incident occurred in October 2009 had destroyed one of the main manufacturing plants of the Group. This temporary setback was rectified promptly; the Group managed to rent three readily available factories and warehouse and reassumed operation in November 2009. Thus, disruption was minimized and lost of sales mitigated, and subsequently the majority of the shipments were delivered on schedule.

In line with the increase in sales, the Group achieved a staggering increase in profit after tax of 196% from RM5.46 million in 2008 to RM16.19 million in 2009. The loss due to the fire incident of RM2.81 million had been fully accrued and accounted for in the year under review. Besides increased efficiencies in production and effective control of raw materials cost, the appreciation of the USD against local currency was also major contributing factors.

3) Its balance sheet has also strengthened from net borrowings of ~ RM900,000 a year ago to net cash with RM18.630 million as at end-March 2010.

At closing price on 23/7/2010 of RM1.29 per share, the market capitalisation of Lii Hen is RM77.40m (60m shares x RM1.29 per share).

This means that if Lii Hen were to be taken private at the current price of RM1.29 per share, the actual effective cost is only:-

...RM77.4m

- RM18.6m net cash held by the company

-----------------
...RM58.8m
=========
If the latest quarterly net earnings of RM7.4m can be sustained for all subsequent quarters, the total cost would have been fully recovered within 2 years (RM7.4m x 4 quarters x 2 years = RM59.2m).

4) It is worth noting that based on latest quarterly result, Lii Hen stands out as the most profitable furniture company on Bursa Malaysia even though all its plants are in Muar:-

.................................Pre-tax profit/(loss) - latest quarter
Lii Hen.......................RM9,684k
Latitude Tree..............RM4,434k
Jaycorp.....................RM2,173k
SHH Resources.........RM1,943k
Poh Huat...................RM1,434k
Sern Kou...................RM1,162k
Tafi Industries................RM495k
Len Cheong...................RM42k
Eurospan....................(RM644k)
SYF Resources.........(RM1,787k)
Euro.........................(RM2,217k)
UDS Capital..............(RM2,291k)
Baswell...................(RM3,129k)

The better performance is attributed to the following:-

i) They changed their focus to market to bigger furniture wholesalers & retailers in the US (from serving smaller customers, previously)
ii) Their objective is to continuously raise their revenue.
iii) The significantly higher revenue generated economies of scale in the company's manufacturing operations.
iv) They have been outsourcing its own manufacturing operations as their plant is working at full capacity. This is cheaper than building new factories & new production lines.

According to Executive Chairman, Chua Lee Seng, the worst is over and Lii Hen's revenue is unlikely to drop back to the RM40m level in the quarterly periods of the last few years prior to 2009.

5) The disruption of the production capacity due to the fire occured in 4Q2009 had been fully restored at the rented premises in 1Q2010. Hence, Lii Hen should now be able to resume its business smoothly to achieve a record breaking year in terms of performance.

6) Strong 1Q2010 (quarter ended March 2010) performance reported (its best ever quarterly earnings at 12.38 sen/share) in its business vs. seasonally subdued demand as normally shown in past years (due to slower demand at beginning of year). If we base on normal seasonally subdued demand as shown in previous years, the Group should be able to report better earnings in subsequent quarters (barring any unforeseen circumstances).

7) Strong confidence by its Board of Directors on Lii Hen's current year prospects: They expect the demand for the Group's products to sustain or improve in the subsequent quarters.

8) Its Executive Chairman Mr Chua Lee Seng has recently (on 15/7/2010) acquired 30,000 shares (0.05% interest) at RM1.21/share.

His shares ownership after the purchase:

Direct interest : 1.65%

Indirect interest : 43.09%

9) Strong asset backing :

NTA/share : RM1.7872 as at 31/3/2010

Cash/share : RM0.61/share

Net cash/share : RM0.31/share

10) Assuming that Lii Hen is able to record average EPS of RM0.10/share for the next 3 quarters, the full year EPS for FYE 31/12/2010 would be at least RM0.42/share which appears achievable barring any unforeseen circumstances.

Based on this, the forward PER for FYE 31/12/2010 is only ~ 3x. Based on a more realistic PER of 5x (which is still very conservative), the stock should be priced at least RM2.10/share.

11) The insurance claim for consequential loss arising from the fire incident on 28/10/2009 is still pending finalization. This should provide the company with a one-time additional gain (to compensate on the loss of income in Q4 2009)!

12) Above average dividend yield

Based on closing price on 23/7/2010 of RM1.29 per share, dividend yield is at :

.........................................................................................Dividend yield
5 years average dividend/share.........................2.80 sen......... 2.17%

Dividend for FYE 31/12/2009.............................8.50 sen....... 6.59%

Prospective dividend for FYE 31/12/2010.............9.00 sen....... 6.98%

Which group of people are you in?

There are 4 groups of people in this world:-


-> Rich & happy

-> Rich but not happy

-> Poor but happy

-> Poor and also not happy



Obviously, the ultimate aim of majority of people in this world is to be "rich & happy"! The principal way to become "rich & happy" may be by following our passion.

One of the keys to financial success is being absolutely great at what we do. The secret to this is that we'll never be great at something we do not love!

One of the greatest real life example can be depicted in Howard Schultz who was the first person to turn an ordinary coffee business into successful billion dollar retail business under the Starbucks Coffee Co. He loves coffee and successfully turned that passion into a money-making machine.

Schultz took 1 year to convince the original Starbucks owners to hire him. When they finally made him director of marketing and operations in 1982, he took note of the coffee bars that existed on practically every block in Italy. He had to eventually quit due to his employer resisting to his idea to serve coffee like a restaurant. Later, he founded his own company and bought the original Starbucks. Now, Starbucks has become a well known coffee retailer and is everywhere all over the world.


Have you ever heard of such a saying?

If you want to be happy for a day, go on a picnic.

If you want to be happy for a week, go on a vacation.

If you want to be happy for a month, get married.

If you want to be happy for a year, inherit wealth.

If you want to be happy for a lifetime, do the work that you love.

In conclusion, everyone of us needs to find the ways to turn our passion into money-making-machine. If we are passionate enough, we will surely find our unique ways!

MAKE OUR PASSION OUR PROFESSION!