|Profit (RM mil)||Q1||Q2||Q3||Q4||Total|
Thursday, 28 July 2011
Hiap Teck, a company mainly involved in trading and manufacturing of downstream steel products such as pipes & tubes, is preparing to expand its business upstream by starting an integrated steel mill in Kemaman, Terengganu.
Hiap Teck's 55% owned Eastern Steel on 22nd July entered into a construction contract with China Shougang International Trade and Engineering Corp for the construction of the steel mill.
In Dec 2009, Hiap Teck bought 55% of Eastern Steel, which is then a dormant company with 242.8ha of land in Kemaman for RM110mil. The recently resigned MD and founder of Hiap Teck, Kua Hock Lai slowly disposed his shares to Datuk Law Tieng Seng, who owns 90% of Eastern Steel before it was sold to Hiap Teck. Now Kua only holds 7.8% and Law has 27.6% of Hiap Teck's share.
Downstream steel product
Venturing into upstream business should be a good move, but it has risk as well. This project will cost RM754mil and is expected to start construction work in Dec11/Jan 12. The completion date is 18 months later and the production is expected to start 3 months after completion, which should be end of 2013.
For such a huge project, Hiap Teck will fund it by proposed rights issue of 321,900,000 new ordinary shares + 80,490,000 free warrants (1:4), private placement of 32,196,000 new shares (10%), RM180mil bond issue and ESOS. After all these exercises, Hiap teck's share capital will balloon from 327,400,000 to 777,224,000!
A steel mill
The dilution of earning is not helped by recent poor financial performance, in which Hiap Teck registered a drastic drop in both revenue and profit.
The disappointing set of results is said to be due to lower sales and higher material cost.
Affin and OSK have downgraded Hiap Teck recently to SELL, with target price of only 70sen and 95sen respectively. Hiap Teck is currently trading around 98sen.
Two weeks ago Hiap Teck's share price surged from RM0.915 to RM1.16 (27%) in just 5 days impending the announcement of this new venture. However, it has since fallen rapidly to below RM1. As current world market sentiment is bad, it may drop further.
The steel mill will not contribute any earning to Hiap Teck til 2014. It will only contribute debt and dilution at the moment. If the 4Q2011 results is still poor, then its share price might be in trouble. However, if the steel mill project is successful, Hiap Teck should have a bright future.
If the share price drops to or near 90sen level, it may be interesting to "play" it, KIV another surge.
Wednesday, 27 July 2011
Warrant gives its holder the right to buy a given quantity of the underlying shares at a predetermined price (exercise price) on or before a particular date (expiry date).
If you have a company's warrant, you can either:
- exercise your right to buy the company's share at the exercise price, OR
- sell the warrant in the open market
Thus, a warrant is a right, not an obligation to buy a company's share.
There are 2 types of warrant: call warrant and put warrant. A call warrant represents a specific number of shares that can be purchased from the issuer at a specific price, on or before a certain date. A put warrant represents a certain amount of equity that can be sold back to the issuer at a specified price, on or before a stated date.
In Bursa Malaysia, only call warrant is allowed.
Warrant can be issued by the listed company or by other banks/security films. In Bursa, I notice that those warrants issued by the parent company are called company warrants and their name end with -WA, -WB, -WC etc. For the warrants issued by other banks/security films, they are generally referred to as call warrants and the name end with -CA, -CB, -CC etc. By definition, both -WA and -CA are actually call warrants.
A company issues warrant to raise more money. When these company warrants are exercised, new company shares will be given to the investors. In other words, the total company shares will increase and earning will be diluted. For call warrants issued by other banks/security films, when they are exercised, investors will not get the company's shares. It's more like a speculating or gambling tool.
Why do investors want to invest in warrants? It is mainly because warrant can give higher returns compared to the company share (aka mother share). While the potential gain is higher, the potential loss is also higher. Thus it is considered a higher risk investment.
Let's take SP Setia's share and warrant as real example.
As of 21 July, SPSETIA share price closed at RM3.75. Its warrant SPSETIA-WB price is at RM0.89.
The next day, SPSETIA surged 32sen to RM4.07, a gain of 8.5%. At the same time, SPSETIA-WB surged 15sen to RM1.04, a gain of 17%.
Though SPSETIA-WB gain 17sen less, but it actually outperformed its mother share SPSETIA by 100% (gain 17% vs 8.5%). Both mother share and warrant usually will move in the same direction. As warrant price is much lower than the mother share, it provides greater leverage for the investment.
There are a few terms that we will usually encounter when investing in warrant:
- Exercise price: the price warrant holder pay to buy the company share
- Conversion ratio: the number of warrant(s) needed to buy one company share
- Expiry date: the date the warrant will expire
- Gearing: indicate the level of leverage
- Premium: indicate the difference between mother share price & warrant price if warrant is exercised.
Let's take SPSETIA as example again:
On 22 July, mother share SPSETIA RM4.07, SPSETIA-WB RM1.04.
- Exercise price: RM2.99 (fixed)
- Conversion ratio: 1 warrant for 1 share
- Expiry date: 21 Jan 2013
- Gearing: 3.91 (4.07/1.04) The higher the gearing, the higher the leverage (higher potential gain/lost)
- Premium: -0.98% [(2.99+1.04-4.07)/4.07] x 100. The lower the premium, the "cheaper" is the warrant
If I have 1000 SPSETIA-WB bought earlier at RM0.90, and I exercise my right to convert all of them into SPSETIA shares on 22 July, I need to pay the exercise price of RM2.99 for each converted shares. Thus the total cost of conversion is RM2.99 x 1000 = RM2990 (excluding other trading cost).
For this case, the total cost for this 1000 SPSETIA shares is (RM0.90 + RM2.99) x 1000 = RM3890. If I immediately sell all of them on 22 July at RM4.07, I'll gain RM107 (RM4070-RM3890). By right I can't sell the converted mother shares on the same day as the conversion date because conversion usually takes few weeks time to complete. This is just example.
However, if I do not wish to exercise the warrant right, I can sell the warrant directly in the stock market like most warrant holders will do. If I manage to sell all 1000 SPSETIA-WB on 22 July at price RM1.04, I'll gain (RM1.04-RM0.90) x 1000 = RM140.
Tuesday, 26 July 2011
KUALA LUMPUR: Maybank Investment Bank Research is reiterating its Buy on SP SETIA BHD  and raise the target price to RM5 after it proposed to acquire the remaining 40% stake in KL Eco City (KLEC).
“We are excited on SP Setia's purchase of the remaining 40% stake in KLEC. This non-cash acquisition will immediately boost SPSB’s earnings by 0.6% to 1% and RNAV per share by 8.0 sen,” it said on Tuesday, July 26.
Maybank Research said all it would cost SP Setia would be 19.4 million new shares, which is a mere 1.1% increase of its existing share base.
“We upgrade our forecasts by 0.3-1.9%. Reiterate Buy with a higher RM5.00 target price (+24 sen; 10% premium to RM4.53 RNAV).
SP Setia proposed to acquire the remaining 40% stake in KLEC from Yayasan Gerakbakti Kebangsaan (YGK) for RM75 million.
Derived from a discounted cashflow valuation range of RM53 million to RM73 million, it said the RM75 million implied RM187.5 million equity value for the project.
The purchase price will be funded via a 19.4 million new share issuance (1.1% of existing share cap; RM3.87 issue price, 1% below Monday’s close).
YGK, a foundation owned by UMNO Youth, is established to administer funds for the eradication of poverty and enhance the welfare of the poor. The acquisition is expected to be completed by end-2011.
Maybank Research said apart from having a full control of KLEC, this non-cash acquisition will also save working capital for KLEC’s infrastructure works, CONSTRUCTION  of MOH buildings in Setia Alam and Fulton Lane in Melbourne.
“Elsewhere, SP Setia has thus far achieved a stunning RM1.9 billion sales in 8MFY11. This excludes RM1.6 billion to RM1.8 billion bookings/sales of KLEC’s strata and boutique offices as well as Residential Tower One, which could potentially boost SP Setia’s sales beyond its initial RM3 billion target for the year.
“We understand that SPSB intends to launch KLEC in August after the final approval from Unit Kerjasama Awam Swasta (UKAS) is obtained,” it said.
Saturday, 16 July 2011
Since the interim dividend of 5 sen was ex-ed in 6th June, SP Setia's share price enter into a free fall mode.
There is no particular bad news on SP Setia, I guess. However, world market is generally bearish and the overall property segment outlook is reported by "someone" to be "cautious" recently, especially for high-end property. Today, a report emerges: "SP Setia falls to March low, CLSA downgrades", and SP Setia's share price fell the most in recent days (closed 12sen down and recovered from once 23 sen down), along with Mahsing (down 8 sen).
A massive intraday fall with a significantly higher volume in a significant downtrend. Could this mark (at least temporaril) the end of the downtrend or a "selling climax"? Technically speaking, its share price could stage a rebound next week. However, how long the rebound will sustain depends very much on the overall market sentiment. Don't forget the overall world market is still gloomy at this stage.
Selling climax marks a trend reversal?
How is the future of SP Setia? Can it give us a steady revenue and profit growth at least for the next 2-3 years?
I've checked their website and found an interesting and useful presentation put up in June. Here are some of the slides.
After 6 months, net profit rises 70% from RM89.4mil to RM154.2mil, with a 30% revenue growth. The EPS is very much diluted after the 1:2 bonus issue in April. Perhaps this makes SP Setia less attractive now?
SP Setia is currently in a slightly net cash position, that's good. However, the ROE is not very good. It pays out 60% of its profit as dividend!
A glance of SP Setia's active projects. The unbilled sales are at RM3.2bil.
There are a lot of land that are still yet to be developed, especially central region with a remaining GDV of RM29.46bil?!
The 268 acres Eco Glades: The next Setia Eco Park? Will this high-end thing attracts the heart of those expatriates there in Cyberjaya?
KL Eco City should be SP Setia's next gold mine. The office block if not mistaken was sold en-bloc. One of the residential block just pre-launched in June. Anyone know how is the response?
Development in Vietnam encounters a set back and might be slow at the moment, but I believe Vietnam will experience the growth like what Malaysia has in the 1990s. Multinational company's focus will shift there soon.
SP Setia's first in Australia, the Fulton Lane apartment in Melbourne was 70% sold during its preview in Malaysia last month. It's a preview only, and grabbed by Malaysian investors.
GDV RM318mil Singapore project is pending approval.
Target total group sales for FY2011 is RM3bil. So ambitious. It achieves RM1.6bil for the first 7 months. Can it get another RM1.4bil in the next 5 months?
At RM3.89, is SP Setia worth to invest in?
I actually do not intend to buy any shares at this moment, but I can't help this time and bought some SPSETIA-WB on friday late afternoon. May be for short term play only, as it has a high possibility to drop further. US/Europe end the week with a little bit of optimism, though still surrounded by negative news.
Thursday, 14 July 2011
Read this news yesterday: Nikon Malaysia aims to increase its revenue by over 40% this year.
Nikon's market share for DSLR cameras and compact digital cameras stands at 49% and 16% respectively. It sells more DSLR cameras than any other brands in Malaysia, and DSLR camera is getting more and more popular.
From this news, straight away my focus is shifted to Notion Vtec. Nikon has 9% share in Notion Vtec since January 2010.
Notion Vtec supplies parts for 2.5-inch hard disc drive (HDD), digital camera and automobile/industrial segment. Those who follow its share movement will know that Notion has a very hard time indeed for the past 1-2 years. Its share price tumbled from a high of RM3.50 in January 2010 to a low of RM1.50, with a drop of almost 60%. Currently it is trading at slightly above RM2.00. Is it a good company? Is it a bargain?
Lets look at Notion's net profit for the past few quarters.
|PAT RM mil||Q1||Q2||Q3||Q4|
Notion's net profit fell from RM12mil in 2010Q2 to RM3mil in 2010Q3. However, we can see a speedy recovery afterwards.
Now lets see Notion's yearly financial performance.
|RM mil||Revenue||Net Profit|
The revenue and net profit increase steadily since 2006, even with low-earning quarters in 2010.
What were the problems Notion actually face in year 2010? There are a few that seriously challenge the management team.
The main challenges are: weak USD, sluggish HDD market due to the popularity of ipad/tablet and higher than expected start up cost for its new production lines. The massive drop in 2010Q3's profit is because of some quality problem in its products which were rejected. However, this technical issue was promptly solved. Currently Notion still face unfavorable situation in USD and HDD market. However, good news started to flow in in 2011.
Seeing the unpredictable future of HDD, Notion successfully shifted its main business from HDD to camera segment. In year end 2010, HDD and camera contribution is tied at 44%. After Q2 2011, HDD and camera segment contribute 38% and 45% respectively to its revenue.
In early 2011, Notion secured a new camera sub-assembly job from Nikon. According to a research report from ECM Libra , Notion Vtec would initially start to produce 5,000 pieces per month in April, which would gradually be ramped up to 30,000 pieces per month from October onwards. The research house stated that on a full-year basis, this job was estimated to enhance financial year 2012 revenue and net profits by RM111 million and RM10 million respectively.
There were opportunities for Notion to garner more sub-assembly jobs from Nikon in the future, as 30,000 pieces per month represented only 10 per cent of the total sub-assembly jobs done by Nikon’s Thailand plant currently, which could be outsourced to Notion Vtec eventually.
Then after Japan's Sendai's earthquake in March 2011, Nikon terminated its production facilities there. A week later, Nikon announced that it will move its body mount production to Notion in Klang with immediate effect. This could generate a revenue of RM36-60mil a year for Notion.
Besides, Notion set up an aluminium scrap plant in Ijok, Kuala Selangor for the purpose of smelting aluminium scrap into aluminium ingots for own use as well as for sales to other customers. It could generate revenue and profit of RM25mil and RM3.7mil per year respectively. The operation should have started in May this year. Notion is also expanding its Thai plant and expecting more revenue from it later.
For HDD segment, orders from Samsung of late had surprised on the upside with 900,000 pieces per month (p.m) of 2.5-inch base plates to commence by April this year from the initial production of 250,000 pieces p.m.
Notion is currently applying for MSC status company. If successful, it can save RM8-10mil of tax for up to 5 years.
Notion does not only supply camera parts to Nikon, but also to Canon and Sony as well.
Notion's Target Price 2011
It is a risk to invest in a HDD-related company at the moment. However, Notion's management is confident that it can achieve yet another record year in 2011, with the target revenue set at RM280mil. The half year revenue so far stands at RM114mil. Though not even half of the target, I think this target is still achievable, base on all the positive news above.
Monday, 11 July 2011
Ivory's share surged last week as Penang Development Corporation is going to announce Bayan Mutiara 24.8ha land award in Penang south-east coast this week. There are only 2 bidders, which are Ivory and SP Setia.
Last week, Ivory's share price rose almost 20% but SP Setia's share price fell almost 3%. Seems like the result is already known???
Pros for Ivory:
- Penang base developer
- "Reported" to have submitted a higher bid of RM200psf (rumour?)
- SP Setia just rewarded the sPICE project in January. Is it possible to get another in a short period of time?
- Ivory's share price up last week, why not SP Setia's?
Cons for Ivory:
- SP Setia is best developer in the country
- SP Setia still has no development in the hot south east coast
- Ivory's recent Penang Time Square is a failure (I think)
Both are good companies, way better than those RM1 "empty" companies which used to get this kind of project in the past. Both have the ability to come out with an impressive development. So I think the higher bidder will get it (Penang needs money!).
P/S: stock alert on SPSETIA-WB
P/S: stock alert on SPSETIA-WB
Friday, 8 July 2011
George Kent Bhd is mainly involved in the manufacturing of water/plumbing related products and construction of "water" related projects such as water treatment plant. It is a leading manufacturer of water meters in the region.
It seems like in year 2009 GKent moved into a major non-water related construction project, which is the constrcution of Hospital Kuala Lipis. Now, GKent wants to move a further step forward, and it should be a big step forward if successful.
GKent confirmed that it joins the bid for KL Ampang line LRT extension project worth more than RM1bil and has been among the final 4 bidders shortlisted.
GKent's share price rises today with the news. However, its share shows very low trading interest with very low volume for the past 1 year.
GKent's financial performace (FY ended in Jan):
The EPS grows at least 25% yearly since 2008, along with its revenue. Its "core" business already perform very well. If it gets the LRT job, then it may have a bright future.
However, GKent's 2012Q1 results is a bit disappointing. Its net profit for the period is just RM3mil out of revenue of RM31mil. Hmm....
However, GKent's 2012Q1 results is a bit disappointing. Its net profit for the period is just RM3mil out of revenue of RM31mil. Hmm....
From Business Times:
Tuesday, 5 July 2011
Asia Media is a company established in 2007 that mainly provides advertisement on the LCDs in public buses in Klang valley, and it can post a net profit of RM10 million in year 2010! It's better than a lot of big "main board" companies.
Initially I didn't put my attention into this company as I'm not very interested in media stocks and also ACE market. How can someone just put advertisement on the buses and make big money?
At Penang I can see lots of LCDs being put up in restaurant for advertisement purpose. For Asia Media, the LCDs are placed on buses of RapidKL, Handal Indah (JB-SG), Plusliner, Konsortium and Nice.
LCD on bus
The one that I just aware of which makes a big difference is, Asia Media last year was awarded licenses for digital multimedia broadcasting (CAST-i, NFP-i, NSP-i and ASP). This means that Asia Media can actually operate TV/radio channel like RTM, TV3 and Astro! Currently the content displayed in the LCDs on the public transport are pre-recorded. After implementing the digital broadcasting, Asia Media will have its own bandwidth and can transmit content to the LCDs live!
Asia media has its IPO at 23sen in Jan 2011. It then announced a private placement in June which the amount comprises 35% of its original share offered during IPO. This represents a massive dilution in EPS! It is known that the reason for this private placement is to comply with the requirement of at least 30% bumiputra shares in order to get the licenses.
The CEO Ricky Wong earlier mentioned that Asia Media not only need the money from new bumiputra investors, but also wish to share the expertise in the media industry. Recently Star Publication has been rumoured to get the shares or even takeover Asia Media. However, any formal talk seems does not happen. This may be a catalyst for its uptrend share price for the last 2 months. Base on the win-win situation, I guess Star will sooner or later invest in Asia Media. Other than Star, there are other companies interested in the shares of Asia Media, according to the CEO.
Asia Media financial results
For 2010 net profit, there is a exceptional one time gain of RM4.87mil. So the actual net profit for 2010 could be just RM5.4 mil. With this earning, the EPS is only 2.4sen before the private placement, which doesn't look impressive. After the private placement, the share will increase from 228mil to almost 308mil shares, and the EPS is very much diluted.
However, there is one good sign, which is the latest 2011Q1 earning
I'm not sure whether there is any one-time gain in this result. Nevertheless, it is really encouraging. If you think the company will continue to grow, the revenue and profit for 2011 may grow at least 100% and 50% respectively.
Asia Media has yet to expand its business into Rapid Penang buses and LRTs in Klang valley. Since both of them are owned by the Rapid company, I guess investors can just sit back and wait for the good news. There are other big cities in Malaysia and other countries like Singapore and Indonesia, which Asia Media has plan to expand into. Besides, with the licenses on hands, who knows Asia Media later decide to have its own subscribed/non-subscribed TV channel to compete with Astro, RTM and Media prima? It could have big potential ahead.
AMedia: May revisit resistance of RM0.325. Can it break?
CIMB gives a fair value of 53sen. If not for the crazy private placement, it can be better. There may be more positive news ahead. Is Asia Media a pearl in the ACE?
Monday, 4 July 2011
Everyone is going "green" now. "Environment-friendly" products will definitely rule the market in the future.
How about green energy? I think solar energy could be a next big thing in Malaysia. Malaysia is situated along the sun belt and the sun light is free! It can come to a time that every new houses built in the future will come with a solar power system on the roof! At present it is still difficult as the solar power is very expensive. However, when it becomes more popular and the production is greatly increased, it can become much more affordable.
Solar power system
There are signs to show this. The global solar power market is expected to grow from USD350bil in 2009 to USD2,900bil in 2020. It is estimated that in 2020, Malaysia will be the second largest manufacturers of solar power related products with a market share of 17%, just behind China.
Currently there are 4 large multinational solar companies that have decided to set up their plants in Malaysia. Q cells & First Solar already started operation in Klang valley & Kulim Hi-Tech park respectively. Sun Power/AU Optronics's plant is under construction in Melaka and is expected to be completed in 2013. Bosch just announced that it will set up its 80-acres plant in Batu Kawan, Penang before the end of this year.
There is one local listed company that plans to start the solar phtovoltaic cells manufacturing business next year. Tek Seng Holdings Bhd is a company that produce PVC or plastic related products such as toys, raincoats, curtains, table cloth etc and has little to do with solar power. However, Tek Seng decided to venture into this new business of solar cells manufacturing, with the technical help from a German company Schmid. A good diversification I guess.
Here are some important points from the news in The Star.
GEORGE TOWN: Tek Seng Holdings Bhd will invest RM596mil over the next five years in solar photovoltaic (PV) cell manufacturing business, which is expected to start operations next year.
Group executive chairman Loh Kok Beng told StarBiz that the company was now building a RM94mil plant in Bukit Minyak Science Park.
“We will start production with one line for 60MW solar PV cells in the first quarter of 2012. Our plan is to gradually increase the production lines to eight by 2016.
“In 2013, we will add one more line. We will add two production lines each year in 2014, 2015, and 2016,” he said.
A new subsidiary, TS SolarTech Sdn Bhd, has been set up to undertake the new business. Tek Seng has a 60% stake in the new unit.
Tek Seng is getting its solar PV cell technological know-how from Schmid, a leading German solar power company.
Loh said the group had started negotiating for sales orders with multinational companies in China.
“TS SolarTech expects to generate RM130mil to RM170mil revenue in 2012. This means that the new business is expected to generate over 70% of the group's revenue for that year.
“About 50% of TS SolarTech's business will come from overseas while the remainder from domestic martket,” he said.
The future is as bright as the sun?
Take a look at Tek Seng's financial results, we can see that it generated a revenue of RM168mil in year 2010, which is a record-breaking year. When the solar PV cells business kick start with only one production line in 2012, the expected revenue from this new business should be RM130-170mil if we believe what its management says. What if more lines are added later?
Another company that I know which may benefit from the solar power industry is Frontken, which is a company involved in equipment maintenance & precision cleaning business. Earlier Frontken claims that it is optimistic to get the job from Sun Power plant in Melaka which is still under construction. If successful, it can generate an annual recurring income of over RM20mil to Frontken. Just check Frontken's earning to see what this figure means to Frontken. Personally I think Frontken is a good "penny stock" at just RM0.15/share with a good potential to grow.
Any other company that can reap benefit directly or indirectly from the solar power industry boom? Please share if got any.