Monday, 30 December 2013

Learn To Save From Young Before It's Too Late

Financial planning should start from very young, there is no doubt about that. 

We can't teach a young child how to earn or invest the money. What they should be taught is very simple - saving.

For me, saving is the most important part in financial planning, and is the easiest to learn. You don't need to have a high IQ to learn about saving. 

Saving skill is learned when we are a small kids, without we realizing it. If we miss the timing, then it may be difficult to save meaningfully in the future.

Nowadays most of our children are very "fortunate". They can get what they want because their parents "love" them very much. Whenever they want anything from a toy to McDonald, their parent will buy for them. Some kids even have a maid to serve them.

Some parents always want to give the best for their children. They don't allow their children to wear old clothes. They throw away old school bag even though it is still usable. They spend money without restriction in front of their children.

If the child grow up in such an environment, I think they can hardly learn about saving. When the child grow up into adulthood, it is likely that he will spend easily on unnecessary or luxury items, such as changing the smartphones every time the new models are released.

Even if you are not poor, you still need to let your young children know that money does not come easily.

It is common for every kids to ask you to buy them any toys they see. If you don't buy for them, sometimes they will cry. If you pity them and buy for them when they start to cry, then you are "finished". 

Children are smart, they learn that when they cry they can get your attention and anything they want. So they will keep on doing the same thing until one day you refuse to fulfill their wishes, they will throw a tantrum on you, screaming, scolding or even beating you, hate you and get angry with you.

So, parent should not let their children "controlling" them.

I believe that if we talk properly or discuss with children above 2-3 years old, they are able understand and accept most situation.

For example, if your child insists to buy a RM50 toy and you are reluctant to buy for him, what will you do? 

Some parent just ignore the child, pull their child away without talking much, some just say "No, lets go", some scold their child and say "you already got so many toys at home".

These action or words will not satisfy your child and thus they will feel sad and they don't like you. They don't understand why they can't have what they want. If this happens repeatedly, your bond with your children may be affected negatively.

I think the better way is to explain properly to the child. For example: this toy costs RM50, and we need to work hard for the money. RM50 can buy you food to eat for 10 days. If we donate the RM50 to other children in Africa who live in hunger, it will buy them enough food to eat for 10 days and this may save their lives. So do you want to spend the money on your toy or save it?

Of course when there is a chance, let your children throw some money into donation box. From this example, not only your child will learn to save, but also helping other people.

The best way to teach our children about saving is to lead by example. You just can't expect your child to save if you yourself is spending money like no tomorrow.

I am fortunate enough to have parent that basically don't spend a lot, especially my dad. He drove old second hand car, wore old clothes, old shoes, old watch and ate very simple food, sometimes to an extent that I think has gone overboard.

Though he is no more with me, I'm glad to say that I have certainly inherited this "saving gene" from him. 

So, teach your children to save and spend wisely before it is too late.

Friday, 27 December 2013

Tropicana: de-Gear Or de Gea?

Tropicana acquires land again!

Through Renown Dynamic Sdn Bhd, a 70:30 joint venture company with Tebrau Teguh, Tropicana has signed an agreement to purchase a piece of 60-acre "undersea" land in Mukim Plentong Johor Bahru from Tebrau Teguh for RM444.3mil or approximately RM70 per sq ft.

The leasehold land, which will be reclaimed by Tebrau later, is planned to be developed into a mixed commercial and residential development with an expected GDV of RM3.7 billion.

Including this proposed acquisition, Tropicana will have a total of approximately 671 acres of land with GDV of RM38bil in the state of Johor.

The acquisition will be funded through company's internal fund and bank borrowings. It is only expected to be completed in the second quarter of year 2015.

As the land is located in a strategic area, I think it is a good acquisition for Tropicana in long term. However, its gearing is expected to rise further. 

Thus, I won't purchase more Tropicana shares at the moment, until there is any positive news on its de-gearing exercise.

RM444mil is not a small amount of money.

Thursday, 26 December 2013

Tambun: Second Try

Tambun Indah has just announced that its Pearl City Business Park is "set to open an international school campus in mid-2015".

Tambun Indah will spend about RM38mil to design and construct an 8-acre campus in its Pearl City Business Park and will lease it to GEMS Maju Sdn Bhd, who is the operator of GEMS International School in Malaysia, for 30 years.

       Pearl Avenue @ Pearl City

With the termination of MoU with SIS International School earlier still fresh in mind, will this one get through this time?

There is no mention in the announcement whether any type of agreement has been signed between both parties. Is it an MoU or confirmed deal?

The construction of the campus is targeted to start in early 2014 and completed by mid-2015. Student intake is expected to commence from September 2015. This campus can accommodate up to 3,000 students.

The rental of the campus will be 8% of the construction cost plus 4% land value for the first 8 years. This translates into RM3.5mil rental a year or an attractive 7% yield. From the ninth year onward, there will be a step-up of 2% annually.

GEMS Maju is a joint venture between GEMS Education and Maju Holding, the latter is one of the largest private conglomerate in Malaysia. Though not listed, Maju is the major shareholders of some listed companies such as Ipmuda, Kinsteel & Perwaja.

GEMS Education which was founded since 1959, is said to be the largest private sector kindergarten to grade 12 education provider in the world. It offers British Curriculum programme and has a huge presence around the world. 

If this deal goes through, it will be GEMS's first in Malaysia. In the meantime, Penang mainland will also get its first International School.

This new development should be positive to Tambun Indah as it may attract more buyers and investors to its Pearl City development.

Sunday, 22 December 2013

Earn, Save, Protect, Invest

To become rich or to achieve early financial freedom, it does not depend only on how much you earn, but how much you save and how well you protect and invest your savings.

A Person X earns RM8,000 a month and spends RM7,000 a month.
A Person Y earns RM4,000 a month and spends RM2,500 a month.

Who will be richer? Person Y? Not necessarily it is Y. 

Though Y saves more money compared to X, but if X invest his/her money wiser, X may attain financial freedom faster. However, Y will definitely have an upper hand in the race towards financial freedom.

So, we have to: earn more money, save more money, protect the money adequately & invest the money wisely.

Earn more
  • study further in your field & work harder to improve your rank and salary
  • study in other fields to improve your qualification and salary
  • do part time jobs 
  • do full time/part time business - retail, online, network marketing etc
  • change to a better job that earns more
Save more
  • Save on unnecessary or luxury expenses (food, personal belongings, car, house etc)
  • Delayed gratification
  • Plan, record and monitor spending
  • Adequate life insurance coverage for household income earners
  • Adequate medical insurance coverage for every household members
  • Adequate insurance cover for important assets
  • A will to protect our assets
  • Invest in investment vehicles which can protect our money against inflation
  • The higher the return the better, according to our risk appetite

In theory, it is always easy to talk or write. In practical, it takes a lot of time, sacrifice, experience, knowledge, courage, discipline, patience, luck & money as well.

Nevertheless, it is unwise to jeopardize our health, dignity and family time just to become rich. Do not sleep 5 hours a day, eat Maggi mee every day or drive an unsafe old car to make or save more money.

Moderation is the key.

Friday, 20 December 2013

Penang New Housing Rules

Back in early December, Penang state government has announced a set of new housing rules to curb speculating activities in the state. The new rules will take effect from 1st of Febreuary 2014.

1. Public Housing

Low cost (up to RM42,000) and low-medium cost (up to RM72,500) homes cannot be sold within 10 years from S&P agreement date.

Comment: Good. Low cost homes will be hard to appreciate in value. No one will buy for investment.

2. Affordable Housing

Houses below RM400,000 in Penang island and below RM250,000 in mainland are categorized as affordable. They cannot be sold within 5 years from S&P agreement date.

Comment: Good. But newly launched affordable houses are not easy to find now. Old rundown properties in not so good location may be yes.

3. Purchase by non-citizens

Non-citizens can only purchase properties in Penang which are more than RM1mil and landed properties in island which are more than RM2mil. All purchases (excluding some exemptions) are subject to a 3% levy on the transacted price.

Comment: Sorry to poor or even middle-class non-citizens.

4. The 2% Levy

ALL properties (excluding public & affordable houses) purchased from 1st Feb 2014 onward and sold within 3 years from the S&P agreement date are subject to 2% levy.

Comment: Once properties with strata title are completed, it is almost 3 years since S&P signed. Just hold for a little longer. No one is going to pay the 2%.

       Quayside, foreigners' heaven?

Seriously, can we find new property launched at a price of below RM400k in island or below RM250k in mainland? I don't think that we can get one easily in the island, unless it is a studio 600 sf sold at RM600 psf. In the mainland, perhaps further north, south or east we can really find some landed affordable homes.

Asas Dunia has built a lot of affordable houses in Seberang Perai Selatan in the past, especially near Mahsing's recently acquired land. Since many major developers have come in, I don't think Asas Dunia will want to build anything below RM250,000 now.

       RM100k but at "ulu" place

Tambun Indah, who was previously claimed to build affordable houses, will not probably sell anything below RM350mil in its Pearl City from year 2014.

So, the new rules can protect low income earners and prevent some people from speculating in affordable properties. For the rich, it is business as usual.

Thursday, 19 December 2013

No Surprise In Scientex's FY14Q1

Scientex FY14Q1 Financial Result

Revenue 364.8 371.2 345.1 271.1 241.6 226.0
PBT 37.8 40.2 38.2 33.2 25.3 29.5
PBT% 10.4 10.9 11.1 12.2 10.5 13.1
PAT 29.3 30.3 29.5 25.6 24.9 23.4

Manu Rev 289.2 277.4 275.3 193.5 172.6 166.8
Manu OP 17.7 20.6 16.7 11.1 10.4 9.9
Prop Rev 75.6 93.8 69.8 77.6 69.0 59.2
Prop OP 22.2 31.4 23.3 23.0 21.0 19.4

Total Equity 635.9 628.7 584.8 557.2 550.1 525.7
Total Assets 1263.1 1286.4 1180.9 1172.2 827.6 809.0
T/ Receivables 209.7 195.5 211.1 194.3 145.7 127.4
Inventories 86 80.7 73.5 92.5 49.6 61.0
Cash 91.2 152.2 58.6 50.8 50.0 36.3
Pdev Cost 57.5 68.5 56.4 52.8 63.5 71.1

Total Liab 606.8 637.7 577.6 577.3 243.2 249.3
T/ Payables 229.4 258.4 221.3 212.3 153.7 155.6
ST Borrow 167.9 167.6 143.8 126.0 46.8 50.7
LT Borrow 164.3 167.8 168.4 196.3 3.8 5.0

Net CF -61 115.8 22.3 14.5 13.7 -4.4
Operation 13.5 209.7 131.4 79.4 37.7 108.7
Investment -54.1 -345.0 -325.2 -293.4 -18.6 -91.1
Financing -20.4 251.2 216.1 228.5 -5.5 -22.0

EPS 13.27 13.80 13.73 11.90 11.60 10.88
NAS 2.88 2.84 2.72 2.59 2.56 2.44
D/E Ratio 0.38 0.29 0.43 0.49 0.00 0.04

As expected, it is not easy for Scientex to beat its previous record-breaking quarter's financial result, as it is still in the midst of expanding its manufacturing capacity.

For FY14Q1, Scientex's revenue falls only 1.7% short QoQ from RM371.2mil to RM346.8mil, while its net profit also drops 1.7% QoQ from RM30.3mil to RM29.8mil.

If compared to corresponding quarter of preceding year, the significant increase in revenue and profit is mainly due to the contribution from the newly acquired Great Wall Plastic.

Scientex's total operating profit (OP) in FY13Q4 seems to be much higher at RM52mil compared to FY14Q1 and FY13Q3. Actually there is a foreign exchange difference in its OP in FY13Q4. Without this, its total OP for FY13Q4 is RM40.5mil.

Scientex's cash level drops RM61mil from RM152mil in the preceding quarter to RM91mil in current quarter, largely due to RM55mil spent in the purchase of land for development, property, plant & equipment and acquisition of subsidiary.

Scientex is on target with its expansion plan. It has recently completed the installation of 3 cast stretch film lines, and the new blown film lines should be ready by mid 2014. Its property segment has done decently well with projects in Senai, Kulai, Skudai, Pasir Gudang & Ayer Keroh.

The proposed acquisition of Seacera Polyfilms for RM40mil is only expected to be completed before current FY ending July 2014.

My own target price for Scientex after its FY2014 is RM6.26, which is base on net profit forecast of RM120mil and PE 12x for its growth potential and over a billion market cap.

Thus, I shall continue to hold this stock, and hope that its manufacturing arm will achieve satisfactory growth in this FY2014.

Wednesday, 18 December 2013

My Target Price

For every stocks that I study, I will set my own target price to facilitate my buy and sell decision. I think everyone does that.

I will share it in my stock portfolio in this blog so that it will be easier for me to refer to when needed.

My target price is no rocket science. It is based on a very very simple calculation, which is my expected EPS x PE ratio which I think is fair.

Of course, my earning prediction for a company or PE value for an industry may not be accurate. Thus, DO NOT follow my target price blindly.

No one teaches me how to set a target price. I learn it from those free analyst reports available online. I aim to be modest with the target price and try not to be too conservative or aggressive. 

For now, I'll just set the target price for companies at their financial year end, and set a time frame for it to be achieved.

For example, Inari's financial year ends in June 30. So, my target price for Inari now will be for its whole FY2014 ends in June 2014. The time frame for the target price will be 3 months after June, which is September 2014.

Why 3 months after? It is because the financial results of each quarter will only be announced about 1-2 months after the period ends. The share price should respond to the financial result. 

The target price will change from time to time if there are some issues which may affect it significantly such as unexpected change in earnings or massive earning dilution.

Monday, 16 December 2013

L&G: Lucrative & Gorgeous?

"Cold Eye" has mentioned about L&G earlier this year. He said that the company successfully turned hilly forest into gold. At that time, I was not interested to have a deeper look into it. Now I regret.

Land & General (L&G), famous for its Bandar Sri Damansara township development, was previously a well-known developer but quickly vanished from the scene after being badly hit by the Asia financial crisis in 1997/98.

However, after a change in major shareholder and management, which saw Hong Kong based property tycoon David Chiu emerged as its largest shareholder through Mayland Parkview in Aug 2007, L&G is destined for a change to a better future.

Since 2007, Mayland's stake in L&G has increased from 8.35% to 17.3% now.

L&G's main business is still property development. It also has other businesses such as education (private kindergarten, primary & secondary schools in Bandar Sri Damansara), management of Sri Damansara club house and oil palm & rubber plantation.

For its FY13 ended Mac13, property development contributes 89% and 91% to L&G's revenue and PBT respectively.

L&G latest quarter FY14Q2 result
L&G FY14Q2 FY14Q1 FY13Q2
Revenue 140.0 89.9 50.1
PBT 55.9 29.7 4.4
PBT% 39.9 33.0 8.8
PAT 23.1 10.4 2.2

Prop Rev 134.6 84.4 41.7
Prop OP 56.7 33.9 12.1
Edu Rev 3.2 3.2 2.9
Edu OP 1.3 1.5 1.3
Other Rev 2.3 2.3 5.5
Other OP -1.0 -3.5 2.7

* PAT = net profit attributed to owners of company

For the first 6 months of FY2014 (Apr 2013 - Sep 2013), total revenue stands at RM230mil (133% increase YoY from RM98.6mil) while its PBT of RM85.6mil (375% increase YoY from RM18.0mil) already surpassed FY2013 full year PBT.

In this 6 months period, property development makes up 96% (RM219.0mil) of its revenue while its operating profit (OP) from property is RM90.6, which is actually higher than its overall operating profit affected by loss in other business segment.

Out of the RM219.0mil revenue and RM90.6mil OP in property development, approximately 90% is contributed by The Elements @ Ampang while the rest is from Damansara Foresta.

Currently L&G has only 2 on-going projects in Malaysia, which are the 2 stated above.

After the entry of Mayland into the company in Aug 2007, the "revived" L&G's first project was 8trium @ Bandar Sri Damansara in 2009, which is a commercial project with 276 office suites in two towers. It has a GDV of about RM160mil and was completed in 2012. It currently houses L&G corporate office.

The Elements @ Ampang is L&G's second project. It is a freehold service apartment consisting of 1,040 units in two 42-storey towers. The project which is a 50.01:49.99 JV between L&G and Mayland Group, has an estimated GDV of RM760mil. It was launched in April 2011 (FY12Q1) and will be completed by the second half of year 2014.

       The Elements @ Ampang

Damansara Foresta is L&G's third project. This development sits on a 42-acre hill side next to the Bukit Lanjan forest reserve in Bandar Sri Damansara where only half of it will be cleared for development. It has an estimated total GDV of RM2.5bil that spreads over 4 phases in 8-10 years.

Phase 1 of Damansara Foresta has been launched in Jan 2012. Until Sep 2013, more than 90% of total 928 units in 4 residential blocks have been sold. The estimated GDV of phase 1 is RM800mil. L&G plans to launch phase 2 which comprises 452 residential units with GDV of RM500mil in Q3 2014.

       Damansara Foresta

The Elements with GDV RM760mil which was launched in FY12Q1, only contributes significantly to its top & bottom lines in around FY14Q1, which is about 2 years after its launch. So I expect its phase 1 Foresta with GDV RM800mil which was launched in FY12Q4 to do the same very soon, as both achieved nearly 90% sales.

Furthermore, Foresta is 100% owned by L&G but Elements is only 50.01%, and the land cost of Foresta is far lower than Ampang. Thus, it is not a surprise if its profit attributed to owners improves significant in the next few quarters.

L&G's recent terrific financial results are surely going to sustain for the next 1-2 years, and may continue its impressive growth with 2 new launches next year.

L&G Past Financial Results
RM mil FY13 FY12 FY11 FY10 FY09
Revenue 216.3 130.8 44.2 30.2 37.6
PBT 72.8 43.5 13.9 30.9 17.7
PAT 44.0 30.4 10.2 29.7 15.3

EPS 0.07 0.05 0.02 0.05 0.03
NTA 0.55 0.47 0.43 0.39 0.33
ROE 16.4 11.4 4.0 12.8 7.7
The Elements contributes since FY12, Foresta since FY13

* PAT = net profit attributed to owners of company

In the pipeline to be launched in the first half of 2014 includes high-end landed residential property at Tuanku Jaafar Golf & Country Resort in Seremban. This 200-acre development carries a GDV of RM550-600mil. This project is actually being delayed for more than a year due to some issue with local authority.

In Nov 2013, L&G tries to replicate its success of The Elements @ Ampang by entering into another 50:50 JV with Mayland again to develop a piece of leasehold land adjacent to The Elements into 4 blocks of 45-47 storeys serviced apartment with a total of 1,216 units. The estimated GDV for this project is RM788.7mil.

Besides the development mentioned above, L&G still has 36 acres of land in Sg Petani, Kedah and 13 acres of industrial land in Johor Bahru. It also has 2,500 acres of plantation land at Lembah Beringin.

L&G has a housing project in Australia "inherited" from the previous management, which is a 2,500 acres bungalow development in Hidden Valley north of Melbourne. This project seems to make loss in recent years.

       Hidden Valley, Australia

While its plantation business suffers due to low production & commodity price, its education segment consistently contributes about RM5mil of operating profit annually.

L&G is currently looking for a recurring income by acquiring a 13-storey office building with a net lettable area of 132,687 sf in Putrajaya for RM72.49mil. The building which is still under construction includes office suites, commercial space and a 7-storey 215-room hotel.

To fund the acquisition, L&G has offered its shareholders rights issue of ICULS at 13sen, which can be converted into common shares at 26sen. The ICULS were oversubscribed by 50% and were listed on 30 Sep 2013. .

Even before the ICULS, L&G has a strong net cash of RM109mil. At the end of FY14Q2 (Sep13), its NET cash has increased substantially to RM267.2mil or 42sen per share.

L&G's share price closed at 47.5sen last week, which is slightly above its net cash per share. Its latest NTA stands at 73sen. It is trading at a PE of 6.5x at the moment. 

If we annualize its 1HFY14 net profit, its projected EPS for FY14 will be 10sen (total shares 633.6mil on 13 Dec 2013), which will give it a projected PE of only 4.7x. If we give it a target PE of 10x for mid-cap developer, then L&G's target price will be RM1.00.

This annualized profit is very conservative as L&G's subsequent quarterly results are expected to be as strong as its FY14Q2.

With all these figures, L&G seems to be undervalued even though its share price has appreciated 35% in less than a month time.

       Mr Low, L&G MD from Mayland

However, investors should bear in mind that all those ICULS will be converted into common shares within 5 years (2018). This means that its total outstanding shares will double from 598.3mil before ICULS to 1,196.6mil shares after all ICULS are converted. This represents a massive earning dilution.

So far about 6% (35mil) ICULS have been converted into shares 2.5 months after listing.

L&G does not give dividend for a long long time, but with its strong cash position, it is likely that it will start to reward its shareholders with dividend soon.

L&G's profit for the next 1-2 years is almost guaranteed with its strong unbilled sales of Elements & Foresta phase 1. Its future growth will depend on the success or failure of new projects in Ampang, Foresta phase 2 and Seremban.

One can't be too optimistic as this type of project will be affected most by the property cooling measures which started next year.

Besides, the ICULS dilution factor also makes it slightly less attractive.

Since I already have 3.5 property-related stocks in my portfolio, and also inadequate fund, I can only watch L&G's share price going up day after day... But surely, it will be in my stock watch list.

Friday, 13 December 2013

Pearl City Gets Bigger Again

Tambun Indah has acquired another piece of land within its Pearl City development through wholly-owned subsidiary Novinia. The 20.9-acre land is transacted at RM14 psf or RM12.7mil in total, which is at similar cost to its recent acquisition in the same area in Nov 2013.

Current acquisition is expected to be completed by FY14Q1. Both acquisition are expected to contribute RM240mil to its GDV.

In its press release, Tambun Indah says that both the lands are slated for development of residential properties with commercial facilities & amenities.

As a very small shareholder of the company, I think this is a good move by the management. Though I do hope that Tambun Indah will purchase land in Penang island or Klang Valley and build condos which carry high GDV, it is actually better for it to concentrate on its strength and advantage, which is the Pearl City township.

Other big players have seen the opportunity in Penang mainland, thus Tambun Indah should strengthen its position here. Compared to other property hot spots, Seberang Perai Selatan can give better margin (lower land cost & admin cost) and better sales (more affordable landed properties & less affected by the cooling measures) to Tambun Indah.

The recent lands purchase should not stress Tambun Indah's balance sheet too much, as I expect its cash flow to further improve after acquiring the remaining shares in Palmington & TI Development.

Wednesday, 11 December 2013

More Excitement In Seberang Perai Selatan

Mahsing officially joins Seberang Perai property feast by acquiring 76.38acres of freehold land in Jawi for RM42.6mil, or RM12.80 psf.

The land which is said to be opposite the Bukit Jawi Golf Resort, will be developed into a mixed township with an estimated GDV of RM400mil known as Southbay East.

Southbay East... It is quite confusing with its Penang island development, isn't it?

The location of the land should be very close to IJM Land's recent acquisition in Jawi (70 acres at RM18.50 psf).

Ecoworld (60 acres at RM30 psf) and Tambun Indah (24 acres at RM14 psf) recent land purchase is at a totally different area, which is close to Tambun toll, while IJM & Mahsing's land are close to Jawi toll.

With two powerful developers in Jawi, it is expected that the roads connectivity of this area to Batu Kawan & Penang Second Bridge will be improved. Currently if you wish to go to Batu Kawan or second bridge from Jawi or Nibong Tebal area, you need to enter North-South Highway via Jawi toll and exit the upcoming Batu Kawan toll.

If you do not want to pay for the toll, you need to travel a long way north to Tambun area, which is not worth the time and petrol money spent. In the future, there might be a route joining Changkat area (between Jawi & Nibong Tebal) to the south of Batu Kawan.

For me, the location of Mahsing's land is the least strategic among all 4 developers mentioned. It is like in the middle of nowhere. If other ABC developer wish to launch high-end project there, I guess it will have a hard time selling it.

I estimate that a standard size double storey terrace in a gated community in this area should be about RM300k. If Mahsing is going to launch the project now, RM400k a unit is not a surprise. However, Southbay East is expected to be launched only in year 2015.

Since it is Mahsing who has a lot of fans and builds premium quality homes, surely it will not face a big problem selling its products there.

       Bukit Jawi Golf Resort

What I am more concern is, how will the recent influx of branded property developers into mainland Penang affect Tambun Indah's Pearl City?

From experience, township planning & ability to attract business investment point of view, I think Tambun Indah may lose to Mahsing, IJM and Ecoworld.

The advantages that Pearl City has include big land size, location and overall lower land cost, which translates into more competitive selling price.

Fortunately for Tambun Indah, the lands owned by the other 3 developers are not very big and can't be developed into a true mixed township that include shopping complex, medical center or large commercial area. So this is an advantage of Pearl City.

However, Tambun Indah may not have the same ability as Mahsing & IJM in attracting good business investment into its Pearl City business park.

       Proposed Pearl City Mall

Secondly, the location of Pearl City is closer to Bukit Mertajam and those many industrial parks in Seberang Perai Tengah such as Penang Science Park, Bukit Minyak and Perai. Ecoworld shares the same benefit but Mahsing and IJM don't.

In term of distance to Batu Kawan & Penang Second Bridge, all are quite similar but Ecoworld and Tambun Indah have the slight benefit of no need to pay for extra toll.

Ecoworld, IJM and Mahsing surely will build gated & guarded communities which are likely to be priced higher. Thus, Tambun Indah who build gated and non-gated community, can have more flexibility in its pricing.

For me, Tambun Indah will get better if property outlook in Seberang Perai Selatan gets better.

Asas Dunia is another major mainland developer that should not be overlooked, although it has been privatized. It has lots of land in Seberang Perai Selatan bought at very low cost and also starts to build better quality houses to target middle income group. Thus, Asas Dunia is probably the ultimate winner in Seberang Perai Selatan property boom.

       Asas Dunia: 1,118 acres land in SPS

Tuesday, 10 December 2013

BJAuto: Zoom-Zoom To The Sky

If I had known BJAuto's FY14Q1 results (May13-Jul13) earlier, surely I would have applied for its IPO.

I only knew it after BJAuto released its FY14Q2 financial result last week.

For FY14Q2 (Aug13-Oct13), BJAuto's quarterly revenue and net profit rise 30% and 250% YoY to RM282.4mil and 27.6mil respectively.

BJAuto FY14Q2 FY14Q1 FY13Q4 FY13Q2
Revenue 282.4 428.4
PBT 37.5 36.2
PBT% 13.3 8.5
PAT 27.6 26.1

MAS Rev 635.2

MAS PBT 62.4

PHI Rev 75.7


Total Equity 211.8
Total Assets 425.8
T/Receivables 68.1
Inventories 120.8
Cash 166.5
182.0 52.9

Total Liab 205.1
T/Payables 109.7
ST Borrow 6.4
LT Borrow 0.0

Net CF -15.5

Operation 107.3

Investment -0.1

Financing -122.7


EPS 3.83

NAS 29.42
D/E Ratio Net C
Net C

For 1HFY14, its revenue and net profit rise 65% and 162% to RM710.9mil and RM53.7mil compared to previous FY corresponding period. In the first half of FY2014, its net profit has already surpassed previous full FY figure of RM52mil.

From here, we can work out BJAuto's FY14Q1 result, which is RM428.4mil revenue and RM26.1mil PAT.

Compared to FY14Q1, BJAuto's FY14Q2's revenue drops 34% due to supply issue in Malaysia. However, improved margin & sales mix push its PAT up to beat Q1 marginally.

The overall increase in revenue is due to better sales of CX-5 and Mazda 6, contribution from Philippines which started since Jan13 and much better profit margin. The phenomenal increase in profit is also partly contributed by its associated company MMSB which runs the CKD project starting from Feb13 (PBT RM4.7mil in 1H).

Though car sales in the end of any calendar year is generally slower, but it should be strong in the beginning of the year. So if we annualized 1HFY14 PAT, it will give an estimated FY14 PAT of about RM110mil for BJAuto. With this result, estimated EPS will be 13.7sen (802.8mil shares). 

Since BJAuto is expected to register further growth in 2H14 especially when the 2014 Mazda 3 is launched, I think a target PE ratio of 15x is quite fair. This will give BJAuto a fair value of RM2.05.

At the same time, BJAuto declares its first interim single tier dividend of 1.75sen. 

Another thing noteworthy is that BJAuto has repaid its borrowings by as much as RM140.7mil in 1H14, thus paring down its borrowing substantially from RM126.6mil six months ago (30 Apr 2013) to only RM6.4mil on 31 Oct 2013. Its cash plus bank deposits just fall slightly from RM182mil to RM166.4mil in the same period of time. All these are achieved by using cash from operation even before its IPO in November.

In another words, BJAuto has a very healthy balance sheet indeed, and will be further boosted by RM58mil cash from IPO from FY14Q3 onward.

BJAuto's  IPO price is just 70sen. Just 3 weeks after its listing, its fair value suddenly jumps to RM2. Who the hell is setting the IPO price?

Now the big jump in its share price on its debut day seems to be well justified...

Saturday, 7 December 2013

Enterprise Value

Market Capitalization can be used to determine how much a company worth at a point of time, or "how big" a company is. However, there is a more accurate measure of a company's value, which is the Enterprise value.

The calculation of Market Cap is quite straight forward,

Market Cap = Share Price x Total Outstanding Shares

Enterprise Value (EV) is also not hard to calculate,

EV = Market Cap + Debt + Minority Interest + Preferred Shares - Cash & cash equivalent

All the figures except market cap can be obtained from the balance sheet.

EV is a theoretical takeover price. It is widely considered as a more accurate representation of a company's value.

When company A wishes to takeover or acquire company B, it needs to:

  • pay company B's ordinary shares holders (market capitalization)
  • pay company B's total debt
  • pay company B's minority interest shareholders
  • pay company B's preferred shares holders

However, company A does not need to pay for company B's cash. It will pocket the cash.

After obtaining the EV, we can calculate a company's Enterprise Value Multiple (EVM), which is one of the investment valuation ratio like the more commonly used PE ratio.


EBITDA = Earning Before Interest, Tax, Depreciation & Amortization

EVM roughly tells how long it would take for an acquisition to earn enough to pay off its cost, assuming that there is no change in its annual EBITDA.

If EVM is 10, then it will take 10 years. Thus, the lower the number the better it is.

EVM might be a better valuation ratio compared to PE ratio as it includes a company's earning, debt and cash into the valuation, while PE ratio is only about a company's earning.

Like any other financial ratios, it is best to compare with peers and historical data.

Friday, 6 December 2013

Car Electronics Maker Builds Hospital

Multico is one of the stocks in my stock alert list. It caught my attention because of its low PE ratio and good dividend yield. It is in Cold Eye's 42 stocks list as well.

Multi-Code Electronics is a Johor-based manufacturer of vehicle electronics parts founded in 1990. It has now grown to become a leading Original Equipment Manufacturer (OEM) specializing in full spectrum of design, manufacture and supply of automotive electronics and mechatronics parts for the Malaysian and regional markets.

In Malaysia, it has Proton & Perodua as its clients with long-term contracts to supply various car electronics parts such as reverse sensors, functional switches, key sets, actuators, power window regulators, anti-theft system etc.

Though the national cars contribute to a vast majority of its business, Multico also supplies parts to Honda in Melaka and Ford in Thailand & Australia.

Multico's revenue has been flat for the past four years (FY10-FY13 end July) between RM100-110mil. From its recently announced financial result, full-year FY2013 revenue falls slight from RM111.1mil to RM109.2mil, but net profit rises from RM11.1mil to RM28.9mil.

Multico Financial Result FY09-FY13

RM mil Revenue PAT
FY09 84.7 0.2
FY10 103.7 9.4
FY11 101.6 8.7
FY12 111.1 11.1
FY13 109.2 28.9

In FY13, there is a one-off gain of RM19mil from the recovery of doubtful debt arising from the legal actions and proceedings against its certain former directors and subsidiaries.

Without this special gain, I think Multico's net profit for FY13 should be around RM11.5mil, which will still break its previous year's record of RM11.1mil by a thin margin.

At this estimated FY13 earning of RM11.5mil, Multico's EPS will be 25.9sen base on 44.4mil shares. This will give it a PE ratio of only 6.4x at current share price of RM1.67. A fair PE of 10x will give it a fair value of RM2.59.

Multico gave away 12sen of net dividend for its FY2013, representing a net yield of 7.2% at share price of RM1.67. However, 6sen of it is a special dividend due to the special gain. Thus its future expected dividend yield is about 3.6% (6sen).

       Functional Switches

In mid November, Multico made an announcement to purchase a 3.3acres commercial property within Setia Alam for RM28.6mil to build a healthcare facility. 

What? A car electronics manufacturer diversifies into provision of healthcare services?

The first question that comes to my mind is, is any of the directors or major shareholders a medical doctor?

Yes, true enough. After checking through the directors profile, Multico's executive director and single largest shareholder Goh Kar Chun holds a medical degree from Ireland. He worked as a medical doctor for 2 years  in Ireland before joining the company. 

Apparently he made a wise decision in joining Multico. He is only 37 years old now.

However, in my opinion, I don't think the decision to build hospital will benefit the shareholders in the near future. Establishing a hospital is neither cheap nor easy. It needs a lot of money and experience. It may require a joint venture with an experienced partner.

The construction of the hospital building will only commence in year 2015 and is expected to be completed in 2018. So during these years, I would expect Multico's earning to be under pressure due to the cost involved. 

Furthermore, when the new hospital starts to operate in 2019, usually it will register loss in its early years due to lack of customers and high staff cost.

       Goh KC & Lim MK

Without this healthcare diversification, Multico's core business seems to be quite stagnant for the past few years. The management has a plan to expand regionally especially into Indonesia & Thailand. I'm not sure how's the progress now.

Back in July, Multico has signed a joint venture agreement with an Indian party to manufacture and supply automotive parts in India. However, there is no further announcement made until now.

I believe the overall automotive industry will grow in the near future. However, national cars may face stiff competition from other car makers.

Even though it is traded at relatively low PE, it is very unlikely that I will invest my money into it in the near future. So, I'll remove it from my Stock Alert List.

Fundamentally, Multico is still a good company with some growth potential in its core business.