Monday, 27 July 2015

Blogger's Dilemma

Blogging is not easy.

To many people, it's not easy to start a blog, and it's even more difficult to maintain it.

Investment bloggers come and go. Even though some are still "alive", they are significantly less active.

You don't need to be an investment expert to start an investment blog. You just need passion and writing skills.

Surely there are many great investors out there who are not good in writing. Sometimes they wish to have a blog to share their investment ideas but they just cannot start or maintain.

Personally I'm better in writing compared to speaking. So, writing is not a big problem for me and I can start an investment blog and write a post at will.

Nevertheless, those who own an investment blog are not necessarily good in investment.

As long as the passion is still there, I will continue to write.

Sometimes I feel that I have many topics to write in a single day, sometimes I don't have any idea or mood to write in a whole week.

I don't know when this blog will be abandoned. May be next year, may be 10 years later.

Some bloggers blog just for fun & sharing, some for business purpose and some may have some hidden agendas.

Nothing is 100% safe in internet world and we shouldn't trust all the information in the internet including this blog.

My intention of blogging are mainly to record my investment journey and save my "investment homework" online so that I can have access to them anytime anywhere.

I guess that it will be fun when I look back at early posts 10 years from now and realize how "childish" and stupid I was, and how I grow as an investor.

Apart from that, by making this blog public, I can share those investment information and personal experience with readers while getting a chance to earn some extra income through advertisement in the blog. Why not?

I don't think my posts in this blog can influence stock price movement, but I try not to reveal my buy/sell transaction immediately after I buy/sell shares.

Some bloggers may feel obliged to declare their sell transaction immediately just in case someone follows his/her stock recommendations.

I don't think there is a need to do so as this is actually encouraging others to follow blindly.

Sometimes I give positive view on a stock, sometimes negative and sometimes mixed.

Bloggers tend to get blamed because their "recommendation" has influenced readers to make an investment decision that turns out to be a wrong one.

Anything that involves money is like that, agree?

If someone writes negatively about a stock you own, it's natural that you will be upset at first.

If the stock price falls after this, you may get angry and started to blame and attack the writer.

Readers should think rationally. If the writer points out the valid negatives that you overlooked, then you should reevaluate your investment and act accordingly.

If you agree that it is not a good investment, you may want to thank the writer for the reminder.

If you don't agree with the writer and you are confident with your own judgement, then you should not worry that you will lose money in your investment. 

Instead you may need to thank the writer if the stock price falls as it gives you opportunity to collect more shares cheaply.

Time will tell whether the writer is right or wrong, but does this really matter?

There is also a problem when bloggers talk too positively about a stock. Readers might be tempted to buy that stock and later find out that they make a wrong decision.

Bloggers are just like normal people who cannot escape from making mistakes. If everything they write is 100% accurate, then they will already a billionaire and there is no need to entertain others.

Some people may think that bloggers should be responsible fully for articles they publish and they shouldn't publish anything if they don't study the stocks in detail or don't understand the stock inside out.

Again, most bloggers blog for sharing purpose and they are not professional analysts. Sometimes it's not uncommon to see even professionals making wrong calls.

If it needs to be that strict before you can post an article in a blog, then basically no one will be dare to share information in blogs.

Is it an offence for bloggers without qualification or license to write something in a blog that can influence others to buy or sell stocks?

I heard someone mentioned about this regulation by security commission but I'm not sure how is it applied in real life.

Anyway, I hope all blog readers can take full responsibility on their own investment decision.

All bloggers have their followers and haters. If you don't like a blogger because of his/her writing style, face, stupidity, ego, failure, success, or you think he/she is a hypocrite, a nobody or has hidden agendas, try not to read his/her blog that's all.

I will run a poll to see what most readers prefer to get when they visit an investment blog:
  • Simple analysis & updates on listed companies
  • Stock market investment skills & tutorials
  • Blogger's stock portfolio & performance for comparison
  • Blogger's immediate buy/sell transaction & target price for stocks
  • Blogger's casual sharing on his/her investment journey

This poll will be on the right side bar of this blog and will run for a week.

Most readers would probably want to choose all of the above but unfortunately you can only choose one which best represent yourself.

Thanks :)

Tuesday, 21 July 2015

Coastal: Navigates On Rough Sea

Coastal Contracts is one of the company that I like.

Its business is relatively simple and is easier to understand. 

Although it has 2 divisions namely shipbuilding and vessels chartering, contribution from the latter is negligible.

So, Coastal builds and sells boats/ships, it's that simple.

The performance of Coastal (and its stock price) will depend on how many orders it can get and how well it can grow/protect the profit margin.

The vessels that Coastal build can be used in various fields including Oil & Gas, logistics etc. 

However, since a big chunk of its orders and profit come from customers in O&G sector, Coastal is usually "classified" as an O&G stock.

Thus, it can't escape recent sell-down in O&G stocks amid low crude oil price.

Table below shows Coastal's past financial performance.

Coastal has a great track record, and I think its management team is brilliant.

Since listed in 2003, Coastal produces uninterrupted revenue growth for 11 consecutive years til 2014 apart from a slight RM1.8mil revenue drop in 2013.

However, net profit reached a peak at RM200mil in year 2010 and this record remains to be broken until now.

Why is it so?

In mid-2008, crude oil price fell sharply from its peak of USD140 to below USD50 in just a few months time. Isn't it almost similar to current situation?

Though I rarely read any financial news that time, it's not hard to guess that O&G sector was in deep shxt then.

How did it affect Coastal?

In 2008, Coastal's outstanding orders (unbilled orders) in shipbuilding stood at RM1.7bil, which was even higher than recent high of RM1.5bil.

This showed how robust O&G industry was before it crashed in 2008.

Coastal still manage to secure RM698mil new orders in 2008 but they were mainly in the first 3 quarters.

After that, new orders plunged substantially in which it could only get RM119mil new order in 2009 and then ZERO order in 2010.

The bar chart below shows Coastal's new orders and approximate unbilled orders since FY08 to first half of FY15.

Just like a property developer, if the sales is poor in this year, then we can expect poor financial results in about 2 years time.

Furthermore, competition to fight for orders among shipbuilders was intense at that time thus profit margin was eroded.

This may explain why the revenue still grew but in slower pace and net profit fell from 2010 to 2012.

Crude oil price recovered quite swiftly since 2010 and new orders started to flow in again from year 2011 and peaked in year 2013 with RM1.495bil of new orders in year 2013 alone.

Profit margin also increases due to more orders for higher margin & high-specification offshore support vessels (OSV) used in O&G industry.

Since new order of RM197mil secured from a new Mexico customer in Q1 of FY15, there is still no news of further orders until mid-July 2015.

Though it is good that Coastal can get a new customer, further new orders seem hard to come by as crude oil hit new recent low after news of Iran sanction lift.

Unbilled order has dropped to RM1.01bil and surely it will drop further to around RM700-800mil when Q2 result is announced next month.

Nevertheless, Coastal will have a new stream of income starting from second half of FY15.

I view it positively when Coastal started to venture upstream in O&G sector a couple of years ago.

In Feb 2014, Coastal has secured a charter contract for a Jack-Up Gas Compression Service Unit (JUGCSU) worth RM1.24bil for 8+4 years from a Mexican customer.

Construction of the JUGCSU is on track and set to be delivered in Q3 of 2015.

It is reported that this contract is estimated to deliver profit (pre/post-tax?) of RM30-40mil a year to Coastal.

It will still be a good recurring profit even though it is not that much if compared to FY14's net profit of RM190mil from shipbuilding.

Meanwhile, Coastal is also building 2 Jack-Up Rigs in which it targets to charter to other O&G companies.

However, it can't find a suitor thus the first JU Rig which is to be completed in Q3 of 2015, was sold in April 2015 for RM807mil. Net profit from this sale is not expected to be too significant from RM10mil (Alliance) to RM30mil (Kenanga).

Coastal still intends to secure a charter contract for its second JU Rig pending completion in end of 2015 but it may still sell it like the first rig.

If the rig is kept without generating income, there will be a sum of maintenance and depreciation charge involved which will harm its financial results.

Despite poor sentiment in O&G industry, Coastal's plan is clear.

First, it has a mission to reach RM5bil in market capitalization in medium term. For this to happen, its share price need to be at least RM8.50!

Its current share price and market cap stand at RM2.51 and RM1.35bil respectively.

Secondly, it will continue to look for more opportunities in O&G upstream activities, such as to own and operate jack up drilling rig, mobile offshore production unit or floating production unit/rig.

Coastal has already owned one upstream O&G asset. Can it get another contract for its JU rig by year end?

It is recently reported that it is in talks with several parties for potential merger & acquisition to grow the company inorganically.

Is it the right time to invest in Coastal? I think no one can answer this question confidently.

I learned that crude oil price is deliberately depressed by OPEC to gain more market share by forcing out less efficient US shale oil producers. Can it be done in such a short period of time?

Iran sanction on oil export is going to be lifted. How low the oil price can go after this and how long will it stay low?

Coastal does not pay attractive dividends. It paid 7.2sen dividend for FY14 which is 20% of its net profit.

Even though its share price has dropped to RM2.50 level again, dividend yield is still not that great at 2.8%.

It posted a superb result in FY15Q1, in which both quarterly revenue and net profit hit record high by a huge margin.

This is mainly due to more high margin OSVs (5) delivered in the quarter. Subsequent quarters are not expected to match FY15Q1 performance.

Balance sheet is healthy with plenty of net cash after getting RM207.8mil from private placement in Mac14.

Coastal's share price has fallen more than 50% from its high of RM5.40 in Aug last year to RM2.51 at the moment.

With FY14 EPS of 36.7sen, Coastal is currently traded at PE of merely 6.8x base on share price of RM2.51.

Fair PE for O&G sector should be at least 15x, isn't it?

Anyway, history has told us that Coastal will bounce back along with crude oil price.

It may come back stronger with its ambitious expansion plan.

The question is: When?

Thursday, 16 July 2015

Huayang: Poor Sales A Concern

Huayang FY16Q1 Financial Result

Huayang FY16Q1 FY15Q4 FY15Q3 FY15Q2 FY15Q1
Revenue 142.6 152.1 155.5 139.5 136.5
Gross Profit 51.5 53.2 59.3 45.2 43.2
Gross% 36.1 35.0 38.1 32.4 31.6
PBT 40.2 42.5 43.2 35.2 32.6
PBT% 28.2 27.9 27.8 25.2 23.9
PAT 29.9 29.7 30.9 26.0 23.9

Total Equity 495.8 465.9 449.4 436.9 410.9
Total Assets 944.2 923.2 877.3 828.0 811.0
Trade Receivables 72.9 88.9 73.3 68.1 62.6
Prop dev cost 161.5 167.7 175.5 159.5 145.1
Inventories 10.5 9.9 9.8 9.8 10.0
Other Current Assets 200.7 189.6 180.3 157.0 165.6
Cash 62.6 40.9 44.1 43.9 27.0
Bank Overdraft 4.6 7.4 14.4 10.9 15.0

Total Liabilities 448.5 457.4 427.9 391.1 400.0
Trade Payables 135.1 141.5 118.2 120.4 134.5
ST Borrowings 78.1 78.6 82.2 75.9 74.2
LT Borrowings 195.4 192.1 187.4 161.0 165.2

Net Cash Flow 24.4 3.4 -0.5 2.7 -18.2
Operation 25.6 115.9 71.1 58.1 26.1
Investment -6.7 -86.6 -50.7 -23.9 -11.2
Financing 5.6 -26.0 -20.8 -31.5 -33.2

Dividend paid 0 44.9 31.7 13.2 13.2

EPS 11.32 11.25 11.72 9.84 9.07
NAS 1.88 1.76 1.70 1.65 1.56
D/E Ratio 0.43 0.51 0.53 0.47 0.55

Unbilled sales 660.8 701.9 733.3 717.9 756.4

I expect Huayang to post average quarterly net profit of RM25-30mil in its FY16, so its FY16Q1 net profit of RM29.9mil is not a surprise.

The main concern is the fact that Huayang just achieved RM81.7mil new sales in its FY16Q1 (Apr-Jun15), which is only 16% of its target annual sales of RM500mil, or 18% of FY15 overall sales of RM460mil.

As a result, unbilled sales drop to RM661mil from RM702mil a quarter ago.

Nevertheless, latest sales were achieved without any launch of new project in the last 2 consecutive quarters. So the RM81.7mil figure are not too bad I think.

Huayang is unlikely to launch new project in current quarter of FY16Q2 (Jul-Sep15). Upcoming project Mines South will probably be launched in the end of CY15.

Targeted new launch for FY16 remains at RM633mil. Huayang still keeps its FY16 sales target intact at RM500mil, with RM426mil of already-launched projects available for sale.

Take-up rate of its final phases at One South has been poor so far. Sales of Cube and Zeta Residence improve slightly to 36-39% from 20-29% in previous quarter.

Citywoods's take up rate is even worse at 31% so far, up from 25% a quarter ago despite attractive selling price at RM500-600 psf compared to other high-rise projects at RM700-1000 psf in Johor Bahru, according to TA Securities.

While Huayang's financial results in FY16 should remain good, it certainly needs to improve its sales to at least RM500mil a year to sustain this performance.

In near term, its Klang Valley projects such as Mine South and Puchong West will be key.

The remaining unsold units at One South should get a boost from the proposed MRT2 route which has a station right opposite One South across the KL-Seremban Highway. A dedicated link bridge between the MRT station and One South has been proposed.

Meanwhile, the management will continue to acquire strategic land to expand its GDV.

Huayang's TTM EPS stands at 44.1sen. At share price of RM1.90, it is currently trading at PE ratio of merely 4.3x.

Huayang paid 12sen dividend for its FY14, which means a 38% payout ratio. If it decide to pay 35% in FY15, then it will be total 14.5sen. 

It has given 5sen for FY15, and final dividend should be declared  at the end of this month.

I think it is more likely to pay out 30% which means 12.5sen in FY15. If this is the case, dividend yield will still be an attractive 6.6% at current share price.