Wednesday, 29 January 2014

Hope To Retire At 60?

This is extracted from a Q&A session in Sin Chew Finance.

It attracts my interest because Mr M is about the same age with me, also with 2 kids.


Mr & Mrs M, both 36 years old, with 2 kids age 8 & 5. Both are employees. They hope to retire at 60 years old with RM8,000 passive income a month.

I am wondering why they hope to retire at 60... may be they like their work very much?

Lets look at Mr M's current financial strength.


Net salary: RM17,000 per month
EPF: RM3,750 per month

Investment: RM4,395 per month

Property: RM200,000
Car 1: RM50,000

Bank savings: RM20,000
EPF: RM438,802
Private retirement scheme: RM12,600
Education plan: RM45,800
Unit trust (ASN): RM75,600
Unit trust: RM137,448
Shares: RM38,553
Insurance: RM59,302

Car loan: 15,000

Net current assets: RM813,105

After seeing Mr.M's wealth, there is one thing that comes into my mind: If Mr.M can't retire by the age of 60, then I don't need to think of retirement for the rest of my life!

To get RM8,000 a month during retirement, Mr.M needs to have RM2.4 million placed in an investment that generates 4% return annually when he retires.

If he continues to invest RM4,395 a month regularly, and if all his investment (RM813,105) yield an annual return of 5%, he will have RM2.67 million after 14 years (with interest compounded). This should be enough for his retirement and children's education needs.

This does not include any special one-off spending which may occur from time to time. However, there may be salary increment and more bonus as time goes by.

So, Mr.M should be able to retire at the age of 50.

If his investment gives 8% annually, then he will have RM2.55 million after 10 years.

For me, my household net salary & liquid assets are way below Mr.M's level. Can I achieve my early retirement dream in 10 years time?

Looks like mission impossible.

Monday, 27 January 2014

Best Investment In Children

If you have kids, do you consider them as an asset or liability?

Before children can earn their own money, parent actually spend a lot of money on them for about 20 years. This is not a small financial burden especially when children pursue tertiary education. I guess most parent will agree.

So, are children a liability to parent?

Nevertheless, some parent treat this as a long term investment. They invest their money for 20 years and hope to get "dividend" monthly from their children when they retire. The more successful the children are, the more "dividend" they can get. So children are an asset to them.

But what if their children do not give them the "dividend" and do not even want to stay with them in the future? Isn't it a risky investment with non-guaranteed return?

I think most people do not think of all these things when they want to have children. Having children is a norm in life like birth - old - ill - death, or work - marry - baby - retire.

In these modern days, it is no more how many children do you want to have, it is how many children can you afford to have.

For most wage-earners, having an extra child can significantly delay their early retirement plan, unless one of the children earns big money at very young age and gives his/her parent handsome pocket money every month.

This is a true story. A professional couple can buy a new proton saga with cash every month with their salary. So I think their parent will surely have their 3 meals & special needs covered every day. Isn't it an example of successful investment in children?

The couple move into a new million dollar house. When being asked whether parent are staying with them, the answer is: I'll go crazy if staying with old fellow...

One old couple are in their late 70s now. They have 2 sons, both were sent to USA for tertiary education in their early 20s. Both are highly educated but do not want to come back, not even every year during new year reunion day.

The old couple invested for 20 years in their children, and get the reward in the form of money, but apparently lose their sons for 50 years. Is it a successful investment?

I'm sure that there are a lot of similar cases around us and I think it will get more common in the future. Perhaps you are one of the many that are involved in such situation.

Should we blame the children? Sometimes their talents are only appreciated by or applicable in other more developed countries. They have much better income & better living there. The children have no choice...

Should we blame the parent? As both parent are busy earning money for a living, the important early bond with their children are largely neglected. So the children tend to "forget" about their parent when they turn adult. But parent are forced to work hard to give their children a better living...

In term of financial planning, it is true that we should maximize our earning potential by earning as much as possible when we are young.

However, we should strike a balance between work and life, especially when we have a spouse or child.

I think children need their parent's accompany the most when they are below 12 years old. The younger they are, the more important the bond is to them.

Some people may say: I work very hard day & night for 10-15 years, then I'll be able to enter semi-retirement or retirement stage and will have plenty of time to be with my children.

However, when the time finally comes, their children will be in secondary school, or even have their own family where friends and work are more important to them.

At this stage, it is difficult to improve the bond between parent and children significantly. For those who have bad relationship with their children up to this stage, it is almost beyond repair.

Thus, parent should spend more quality time with their young children. If you think that you have no enough time, then cut down on your time on TV, online, hobby and even work if you can.

What is the best form of investment in children? Is it tuition class, piano class, swimming class, best school, insurance or educational fund?

I believe that parent will be able to reap more "reward" from time, rather than money invested in their children. If this fundamental bond with children is not established properly, it would probably be a regret for the rest of our lives.

Sunday, 26 January 2014

Pearl City Update

This is the latest master plan of Pearl City @ Simpang Ampat by Tambun Indah.

For its residential component, upcoming project should be Rain Tree Park, which is a luxury gated & guarded community. Pearl Tropika which is adjacent to the Rain Tree Park, should be lower cost non-gated development.

Currently Rain Tree Park has been opened for registration. It comprises duplex villas, double storey terrace and link semi-D. There is still no detail on its site plan, pricing and GDV.

For its commercial component, other than Gems International School, there are also proposed medical center and retirement village next to each other.

Though Pearl City mall is still in planning & negotiation stage, its surrounding Pearl Avenue shop offices are all sold out and its construction has been running fast.

There are 5 units of proposed drive-through/commercial buildings besides the mall. It will be nice if McD comes in.

Tambun Indah's most recent launch, Bukit Residence, a gated & guarded development at Bukit Mertajam hot area Song Ban Kheng road, is receiving encouraging response. Its double storey terrace price starts from approximately RM500k.

Thus, I think Tambun Indah will be able to produce good financial results in 2014, even though a lot of projects have been completed in 2013. To continue its growth, it needs to purchase more strategic landbank for future development.

Saturday, 25 January 2014

XDL: To The Moon And Back

I'm not interested in XiDeLang, as China stocks listed in Malaysia seems too risky.

I know that recently there are some rights issue with many free warrants and bonus shares.

I'm aware that its share price has gone up 100% in one month time since its ex-date on 19 Dec 2013, even though its business seems to struggle for the past one year.

A China-based stock has finally "deservedly" traded at high PE?

Wait a minute, it is now back down to earth in 2 days, just before the listing date of new shares.

It's a costly lesson to learn for some.

This is yet another example of how fast things can turn against you in the stock market.

Friday, 24 January 2014

Goodbye To Pantech & Hope To See You Again

Pantech FY14Q3 Financial Result

Revenue 131.1 153.8 162.2 156.3 171.5
PBT 16.3 21.9 18.5 18.8 20.9
PBT% 12.4 14.2 11.4 12.0 12.2
PAT 12.1 15.3 13.8 12.6 15.6

Manu Rev 56.0 76.8 82.5 65.5 70.7
Manu PBT 10.1 13.0 12.6 7.6 7.5
Trade Rev 75.1 77.0 79.8 90.8 100.8
Trade PBT 7.0 9.9 8.9 12.4 14.8

Total Equity 417.7 411.4 393.2 376.7 396.7
Total Assets 698.8 722.2 687.6 695.8 732.8
T/Receivables 120.8 128.5 125.1 111.2 122.3
Inventories 235.7 245.1 246.9 258.5 277.6
Cash 99.7 97.6 78.3 79.3 94.2

Total Liab 281.1 310.7 294.4 319.0 363.1
T/ Payables 36.9 56.3 46.2 36.5 49.8
ST Borrow 144.2 148.9 151.0 181.1 208.6
LT Borrow 78.8 75.1 79.1 75.4 71.7

Net CF 15.5 13.9 0.5 -22.9 -9.6
Operation 41.2 29.5 4.6 38.6 47.1
Investment -24.3 -16.7 -5.8 -82.2 -75.5
Financing -1.3 1.2 1.7 20.8 18.8

EPS 2.24 2.91 2.70 2.64 3.33
NAS 0.74 0.73 0.77 0.74 0.74
Net D/E Ratio 0.30 0.31 0.39 0.47 0.47

To me, Pantech latest FY14Q3 result is quite disappointing. Its revenue and net profit drops 14.8% and 20.9% respectively compared to preceding quarter FY14Q2.

Its manufacturing arm shows sign of significant slow down and could not compensate the continuous slide in trading arm this time.

The lower top & bottom lines are mainly due to weaker sales demand from the oil & gas sector with slower project execution.

I expect Pantech to benefit from anticipated Oil & Gas boom but it seems like it is still too early at the moment.

Balance sheet remain stable with slight increase in cash and reduction in total debt. Thus net debt/equity ratio drops slightly to 0.30.

Cash flow from operation remains good thus Pantech continues to pay dividend every quarter. This time 3rd interim single tier dividend of 1.0sen will be ex-ed in 17 Mac 2014. This is lower than 1.2sen I predict.

Though it is not a too bad result, I decided to offload all my Pantech shares after holding it for 6 months. 

I bought at 98sen and sold at 94sen, which is a 5% loss including transaction fees. However, with three 1.2sen dividends during the period, the net loss is actually 1.7%.

Undoubtedly Pantech is a bad & failed investment for me as many counters gain a lot during the second half of 2013. However, I have learnt an important lesson from Pantech.

Actually I'm ready to sell some shares in January as I'm over spending since December and need to keep some cash. If not, I'm afraid I have no cash to wrap ang pow! 

I've been targeting to sell either Pantech, Scientex or YOCB. If Pantech result is within my expectation, then I'd probably keep it. However, it is not.

After selling Pantech, I have no exposure to Oil & Gas sector in my portfolio.

I'll keep Pantech in my watch list and continue to monitor it. Wish to have this stock that pays dividend quarterly back in the future.

Thursday, 23 January 2014

Has Zhulian Reached Its Full Potential?

Zhulian just released its FY13Q4 financial results yesterday and it caught many investors by surprise.

For its Q4, revenue drops 37% QoQ from RM124.1mil to RM78.0mil, while net profit plunged even more at 65% from RM39.6mil to RM13.7mil.


For its full FY2013 ended Nov13, net profit increases only 3% from RM117.1mil to RM121.0mil, even though revenue retreats 7% from RM450.4mil to RM417.1mil.

Though the remarkable drop in FY13Q4 is somewhat magnified by its preceding record-breaking FY13Q3, I think investors should be careful about this situation.

From the management's report, the poor Q4 result is due to decrease in overseas market demand, in which I think Thailand probably play a major role in it.

There is no significant special one-off loss in the quarter, it is solely due to poor sales.

Historically, Zhulian always enjoys their best sales and results in the fourth quarter. Why does it drop so much in FY13Q4?

From Sep-Nov 2013, Hari Raya Puasa was just over, it is understandable that sales may slow down. However, overseas sales is the main culprit and it is unlikely to slow down to such extent. During this period as well, there were not many street protests in Thailand I guess.

From Dec13 onwards, the political turmoil in Thailand gains momentum. Thailand government has just imposed state of emergency in Bangkok for 60 days. Will it affect Zhulian's performance in Thailand even more?

Or is it because there are other new direct sales companies emerging in Thailand and snatch distributors and sales away from Zhulian? Successful business always attract opportunists to duplicate the business model to share the cake.

Or is there a new direct selling rule in Thailand which affect Zhulian negatively?

No one except the directors know what is the main reason behind the poor FY13Q4 performance.

Will FY14Q1 bounce back to previous level of RM30mil net profit a quarter? If you are very confident that it will, then you can take this opportunity to buy its shares.

If you are not sure, then better don't.

What if Zhulian post results similar to FY13Q4 or even worst for the whole FY2014? This may mean RM60mil net profit a year with EPS 13sen and fair value of just RM1.30 if PE 10x is given. I think target PE should not be high for companies with negative growth.

Investors must be careful in company with a sudden massive decline in revenue and profit. This may be the start of a downfall that may take a long time to recover or never recover.

For example:

In the first one year after listing, MEGB (Masterskill) posted a spectacular RM100mil net profit for FY2010. However, there was a significant drop in both revenue and profit in FY11Q2. After that, it gets worse and never recover until today.

For Guan Chong, which has been high flying for few years, posted a surprise drop in results in FY13Q1 result. This has proven to be a warning of subsequent worse results until today.

Perhaps HaiO is more relevant to Zhulian. HaiO was a hot stock few years back with its high growth and great dividends, something like what Zhulian is enjoying now?

HaiO was also hit by a sudden drastic drop in revenue and profit in FY10Q4. After this, its results were much worse and it never recover to its previous level even after 3-4 years now. 

Of course there are some reasons behind the downfall of these examples. What is the reason in Zhulian's case? No special reason? Or the management are reluctant to tell?

I think there should be a special reason behind such a drastic drop. I think only.

I'm not trying to ask anyone to buy or sell Zhulian at this moment. 

What I'm trying to say is that, be careful when both revenue and profit drop significantly without a clear reason given, unless you know the reason and it is fully justified.

People tend to go in when a "proven good & strong" company is trading at a "cheaper" price due to "temporary bad result". However, any good company can turn into a bad company very fast out of anyone's expectation.

If you are lucky, you gain. If luck is not on your side, you lose.

These are great examples of the uncertainty in stock market investment.

Tuesday, 21 January 2014

Feng Shui Forecast For 2014

About 2 weeks ago I read an article in The Edge online regarding stock market forecast made by a famous Feng Shui master Lilian Too.

For her, in year 2014 which is the year of Wood Horse, the best sectors are real estate and construction. Second best are Oil & Gas, water-related, shipping and banking sectors.

The worst performing sectors in 2014 will be wood-based sector, which includes timber and plantation.

For year 2013 which is last year, Lilian Too did give a similar forecast as usual. She mentioned that in 2013, wood-based sector such as plantation, agriculture, pharmaceutical & print publishing will do well, followed by water-based banking/brokers sectors.

From her forecast as well, worst-performing sectors in 2013 are fire-related such as F&B, and metal-related such as gold & shipping.

Now year 2013 in Chinese calendar is almost over. What do you think of the accuracy in her 2013 forecast? Would you take her 2014 forecast seriously?

       Lilian Too

The other famous Feng Shui master in Malaysia is perhaps Joey Yap. I attended his recent 2014 Feng Shui & Astrology Seminar in Penang and he did give a brief forecast for economy in 2014.

For him, in the year of Wood Horse which started from 4th Feb 2014, fire element will be the strongest. Sectors related to fire include Oil & Gas, F&B, Airlines, Electronics/Technology & Service.

This is followed by wood-based sector which will also do well in 2014. This includes Plantation, Furniture, Clothing/Fashion & wood-related products.

The third best would be metal-related, which includes Jewellery, Finance & Automobile.

For property & construction which are the best in Lilian Too's forecast, both do not exist in Joey Yap's list (I think they are related to earth element). For wood-based sector which is the worst in Lilian Too's forecast, it appears to be second best in Joey Yap's forecast.

However, Joey Yap did not mention that the property sector is bad, but he said that 2014 will be bad for speculators but good for true investors.

       Joey Yap

If you ask a third Feng Shui master to make a forecast, he or she might give another different view.

So Feng Shui seems to be very subjective and "unscientific" and many people do not believe in it because of these reasons.

For me, everyone has their own body and brain which decide where they want to go and what they want to do. Anyone can choose whether to believe in Feng Shui, or who to believe in with their own decision.

A lot of things in the world have no definite answer. For example, in religion, you can choose to believe in your own God but how do we know that your God is better than his God? Can we even prove the existence of God?

Despite so many uncertainties that cannot be proven by science, almost every single person in this world follow their own God.

What we need to do is to make our own decision, do our part, and do not interfere or do harm to the others.

In Malaysia's Feng Shui scene, I think both Joey Yap and Lilian Too stand out among the others because they penetrate both Chinese and English speaking market successfully. Both of them are renowned internationally but they also have significant contradiction in their Feng Shui teaching.

For Joey Yap, a self-made young millionaire who holds an accountant degree, he practices "Classical Feng Shui" which follows exactly the ancient scripts.

For Lilian Too who was ex-CEO of Hong Leong Capital, practices what Joey Yap refers to as "Modern Feng Shui", which involves lots of decorative stuffs & modern ideas. 

In other words, "Modern Feng Shui" sells a lot of things like statues, pictures, bracelets etc but "Classical Feng Shui" thinks that all these do not have any impact on Feng Shui.

For example, things like Ba Gua mirror, Wealth God statue and certain numbers are important forms of solution in some Feng Shui teaching, but to classical Feng Shui's teaching, they are nothing more than a mirror, ceramic statue and numbers. Joey Yap's prescription focuses on house Feng Shui and personal development.

       Year 2014 BaZi chart, different interpretation from different masters

Personally I think Feng Shui is an interesting subject but I'm not an enthusiast. I tend to follow Joey Yap's Classical Feng Shui though.

I like Joey Yap because his teaching focuses on good things and what we have, rather than the bad things or what we don't have.

Of course Joey Yap sells something as well, as it is anyway a business. He sells education such as books, courses & consultation for those who just want to know more about astrology or become an astrology consultant.

Some other Feng Shui practitioners tend to sell decorative stuffs but all these are non-existence in Joey Yap's business.

Once I was invited by a friend to attend another Feng Shui seminar. After the talk, there is a free fortune-telling or consultation base on our birth date (BaZi). The consultant stressed on the negative aspect of BaZi. My wife felt very scared and uneasy after the consultation. 

So they gave a solution, which was to buy something to wear on our body (I won't reveal what is it here). This thing costs a few thousands and of course the more expensive it is, the more power it will have to turn the negative to positive.

Though it is not appealing to me, I'm not saying that all these things are no good. I'm sure that they have their own followers and a lot of people think that they have benefited from the consultation and products.

       Will putting this at home bring good luck in year of Wood Horse?

So back to what I've written earlier, make your own decision and be fully responsible for it. If you know that you have made a mistake, just change and move on.

Though I respect Joey Yap, this does not mean that I will follow his stock market prediction blindly. However, it will be part of my consideration in investment.

If you wish to have Joey Yap to read your Ba Zi, then be prepared to pay RM3000 for a 30 minutes session.

Thursday, 16 January 2014

Protasco: Seeking A Breakthrough

Protasco Berhad recently proposed a private placement of 50mil new shares which comes with 2 free warrants each, plus a bonus warrant of 1 free warrant for every 10 ordinary shares.

The placement shares represent 15.93% of current total shares while total warrants issues will be 100mil + 33.5mil = 133.5mil.

The exercise price of warrants is proposed at RM2 with an exercise period of 5 years. If all the warrants are converted into shares, Protasco's total shares will reach about 539mil (including ESOS, & treasury shares), compared to 332mil shares at the moment.

This represents a dilution of about 62%. Will Protasco's net profit attributed to shareholders increase by at least 62% in 5 years time?

Protasco is a diversified group with businesses in:
  • Maintenance
    • Road maintenance service
  • Construction
    • Construction of new roads & building
  • Engineering service
    • Road, traffic & construction related
  • Education
    • Infrastructure University Kuala Lumpur (IUKL)
  • Trading
    • Construction related materials
  • Property

The maintenance segment is Protasco's bread & butter in which for its first 9 months of FY2013, 60% of revenue and 98% of PBT come from this segment.

For 9MFY13, Protasco's revenue and profit after tax & minority interest increases by 20% (RM484.0mil to RM581.7mil) and 7% (RM30.7mil to RM32.8mil) respectively compared to previous year's corrsponding period.

It is not easy to predict Protasco's FY13Q4 results as its quarterly performance fluctuated a lot historically. 

Nevertheless, I believe Protasco's PATAMI can reach at least RM42mil for FY2013. This represents an improvement of 12% from RM37.5mil in FY2012. 

       Protasco's financial performance 2008-2012

At this earning level and current total shares of 332mil, EPS will be 12.7sen. If we give a fair PE ratio of 10x, then the target price will be RM1.27. Currently Protasco is trading at RM1.42, with a forward FY13 PE of 11.2x.

In other words, Protasco's share seems not very undervalued at RM1.42.

If Protasco's share base is to be increased by 62% in 5 years time, can its PATAMI increase 62% as well to RM68mil in the same period of time?

       Maintenance work

While the maintenance and construction arms continue to contribute recurring and consistent profit, Protasco's "62%" increase in earning may depend on:
  • Property development
  • Oil & Gas


Protasco has completed its maiden property project Unipark Condominium in Kajang in 2012. Currently it is working on its second property project on the same site - De Centrum City, which sits on a 100-acre land which includes IUKL in Kajang.

The whole project is worth about RM5bil and will take 10-15 years to complete.

Phase 1 of De Centrum City, known as De Centrum with a GDV of RM239mil will take up only 4.6 acres of the land and was launched in 2012. It comprises 192 units SOHO, 320 units serviced apartments, 60 units 3-storey shoplots and a 3-storey mall with an NLA of 76,000 sq ft.

       De Centrum, Kajang

From internet search, currently the construction progress is only on ground level for the 12-storey SOHO (on 3-storey mall) & 20-storey apartments (on 8-storey car park & 1-storey facility floor).

From the circular to shareholders in relation to the private placement, the management mentions a proposed development of 2 blocks (Block C & D of De Centrum) of 20-storey apartments comprises 240 units apaerments & 80 units duplex with a GDV of RM130mil (cost RM117mil). It is expected to commence in Q2 FY14 and might be part of the phase 2.

De Centrum City may be more resistant to property slow down as it has great location. It is surrounded by IUKL, UPM & UniTen, and is at the junction of KL-Seremban Highway, SKVE, SILK and Besraya Highway. 

       De Centrum City: at the junction of major highways

       De Centrum City Masterplan

According to its MD Dato Sri Chong KP, Protasco is looking to increase property contribution to 10-15% of group profit in 3-5 years time (currently 5%), and targeting a minimum of 40% contribution in the long run.

The management has acted on its words by acquiring a 14.4 acres leasehold land in Pasir Gudang from JCorp through its 64% owned subsidiary Sun Rock Development for RM22.5mil. Protasco plans to develop the land into a mixed development which carries a GDV of RM505mil. The development should start after 2015.

Oil & Gas

Protasco has announced its proposed venture into oil & gas sector since December 2012. It was initially expected to be completed by 2013 but has been delayed.

From the proposed acquisition, Protasco will acquire 95 million shares or 76% of PT Anglo Slavic Indonesia (ASI) from PT Anglo Slavic Utama (ASU) for USD55mil (RM170.5mil).

PT ASI was incorporated in Indonesia on 6 Sep 2012 and is involved in oil & gas assets investment. PT ASI holds 95% of PT Firman Andalan Sakti (FAS), which holds 70% of PT Hase Bumou Aceh (Haseba).

The jewel here is PT Haseba, who has been granted rights by PT Pertamina (state-owned) to develop and produce O&G in Kuala Simpang Timur field at Nanggroe Aceh Darussalam Province, Indonesia. However, the 10-year agreement from 14 Dec 2004 will expire in the end of 2014. PT Haseba is understood to be in negotiation with Pertamina for an extension.

So, Protasco will have 0.76 x 0.95 x 0.70 = 50.54% stake in PT Haseba.

For its FY2009 ended Dec09, PT Haseba registered a PAT of RM95mil out of a revenue of RM274.0mil. However, I'm not sure what kind of corporate exercise was done as it suffers total RM237mil loss in 2010 & 2011 with almost zero revenue.

If PT Haseba is to maintain its FY2009 performance after Protasco acquisition, then it will be 95 x 0.5054 = RM48mil net profit a year to Protasco, which is higher than its overall estimated PATAMI of FY2013!

However, PT Haseba's profit is hard to predict at this stage.

In the agreement of acquisition, a profit before tax guarantee of USD50mil (RM155mil) in 4 consecutive financial years is given for PT ASI by PT ASU. By average, this would be RM39mil PBT a year.

As Protasco will own 76% of PT ASI, it will be RM29mil average annual PBT for Protasco. This figure is close to Protasco's FY13Q3 single quarter PBT of RM30.4mil.

With the contribution from future O&G and property segment, Protasco should be able to increase its PATAMI by at least 62% discussed above. With the management's ambition to become a prominent property player, the future earning prospect of Protasco is quite impressive.

Thus, even though all warrants are converted into shares in 5 years, Protasco should be able to provide a higher EPS compared to now.

For its bread & butter business, Protasco has secured a few contracts in the past one year.

  • Dec 2012 - maintain roads in Perak for 7 years, RM29.6mil for first 2 years
  • May 2013 - upgrade roads in Kedah in 9 months til Feb14, RM37mil
  • Jun 2013 - construct roads in Johor in 12 months, RM50.4mil
  • July 2013 - maintain roads in Sarawak, RM23mil
  • Oct 2013 - construct 1680 apartment units in Putrajaya in 24 months for 1M Civil Servants Housing Programme, RM578.5mil

For the construction contract in Putrajaya, it is mentioned that the development cost is RM520mil. So perhaps it is roughly a PBT of RM58mil in 2 years or RM29mil a year, which should contribute massively to the group.

Besides, IUKL has been upgraded to full-fledged university status since Sep 12. With better academic status and the development of De Centrum City, IUKL might attract more students in the future.

       Historty of IUKL

Protasco is currently in net cash position after a private placement in early 2013. At 9MFY13,

  • Cash & bank balances: RM56.3mil
  • Deposits with license banks: RM67.6mil
  • Short term borrowings: RM43.3mil
  • Long term borrowings: RM4.0mil
  • Bank overdraft: RM13.9mil
Net cash = RM62.7mil

However, after the acquisition of Oil & Gas company and Johor land, its cash is expected to diminish quickly. That's why it is calling for another private placement and warrants.

For FY2012, Protasco gave away 8 sen dividend + special dividend 6 sen, altogether 14sen single tier. This represents a mouth-watering 10% yield at RM1.40.

I think investors can expect at least 8-10sen net dividend for FY2013, which is 5.6%-7% yield if you buy the share at RM1.42. So far 4sen has been paid.

Thus, Protasco is another company with both good dividend and growth potential.

       MD & founder Dato Sri Chong Ket Pen

Back to the proposed private placement & free warrants, the placement share price is at least RM1.65 and the warrant exercise price is at RM2. Both are significantly higher than current share price of RM1.42.

Does this mean that Protasco is at least worth RM1.65 in 2014?

I've been waiting for Protasco's share price to drop to my desired level for the last 3 months but apparently it doesn't happen, and will never happen I guess, especially when the O&G acquisition is finalized probably in the first quarter of 2014.

Tuesday, 14 January 2014

My First Investment: Unit Trust Funds

Up until I graduated from university at the age of 26, I have no idea about financial planning.

While waiting for my first employment, I incidentally found a book sitting on the book shelf at home.

It is about financial freedom.

Out of curiosity, I decided to flip through the book. Fortunately, it is an easy-to-read book, as the financial planning lessons are presented in relevant stories. 

I managed to finish the book and felt somewhat "enlightened". As financial planning was new to me that time, I decided to follow the advice of the book.

This book is written by fund managers of KL Mutual (now Public Mutual). It was probably given to my father as a gift by a unit trust agent. So, it is not a big surprise that I ended up buying unit trust first.

I put almost all my lifetime savings at that time, which was RM7000, to buy Public Ittikal Fund as recommended by an agent.

I did not bother about the 6-month" buffer" fund mentioned in the book.

After I have accumulated enough money from my salary, I bought more unit trusts. Within 2 years from 2004 to 2005, I bought a total of 5 unit trust funds, they are PIttikal, PDSF, PFSF, PIOF & PFES. Other than Ittikal, all are newly launched funds at that time. I started with RM2000-4000 in each funds.

I like Public Mutual as it always ranks high in Lipper and MorningStar rating at that time. However, now it seems like many other unit trust companies have caught up with Public Mutual.

I was quite lucky as the timing of my purchase was right in 2004-2005. The stock market gained a lot until early 2008 when the bear took over. So the earlier gain has shielded me from paper loss.

I planned to hold the 5 funds for mid-long term. They were for:
  1. Retirement
  2. First house
  3. First car
  4. Wedding/Honeymoon
  5. Others

I do dollar-cost-averaging for all the funds as advised by the book, in which I put in RM100 monthly via standing instruction for all of them. So, it is a forced saving of RM500 a month.

Ten years have passed. I have got married and have bought my first house and car.

Currently I only have 2 of the 5 funds left in my portfolio, which are PDSF (not sold any units) & PIOF (sold 90%). I added another fund Public Smallcap Fund in 2009 for children education.

Now, all the 3 unit trust funds will be my children education fund. Retirement fund & others will be in the stock market directly.

The smallcap & PIOF are aggressive funds while PDSF is more on the conservative side.

For those who have no time or interest to invest directly in stock market, unit trust might be a good option as a safer investment tool that beat the fixed deposit. History has shown that unit trust can fetch 8-10% annually.

As shown in the graph of Public Dividend Select Fund above, it has gained more than 170% since its inception in May 2005 which is 9 years ago. But if you buy this fund in the end of 2007 or early 2008, you will suffer loss for 1-2 years. If you keep longer, you will reverse the loss and gain even more.

We have to pay a management fee of around 5% to the fund managers but only when we do initial or additional investment. In the long run, as unit trusts also pay dividends and appreciate in value, the little management fee will be well worth it.

From now on, I don't think I will buy more unit trust fund as I will concentrate directly in the stock market.

Anyway, unit trust will remain one of my diversification in investment and I will continue the practice of dollar-cost-averaging in my 3 existing funds.

As for the "Financial Freedom" book above, I highly recommend it to every person who wish to know the basic of financial planning.

Friday, 10 January 2014

Batu Kawan Lifted To New High By IKEA

Finally... Penangites' dream comes true. 

After years of "rumour", IKEA is edging closer to open its first store outside Klang Valley in Batu Kawan.

Just in this morning, Penang CM Mr LGE has announced in a press conference that the state government and Penang Development Corporation (PDC) will sell a piece of 245-acre land in Batu Kawan to a joint venture company Aspen Vision Land Sdn Bhd-Ikano Pte Ltd for RM483.9mil.

Ikano owns & operates IKEA franchises in Malaysia, Singapore & Thailand, while Aspen Vision Land is a 51% subsidiary of Aspen Group & 49% associate company of Ivory Properties Group. Thus, Ivory has gained an indirect access to Batu Kawan development.

Aspen Group seems to be a new property developer with a few upcoming condo projects in Penang.

       Upcoming condo in Penang by Aspen Group

The 245-acre development planned in Batu Kawan will include:
  • 30 acres for IKEA store and phase 1 shopping mall
  • 45 acres for phase 2 shopping mall
  • 170 acres for mixed development
If not mistaken, IKEA & Ikano Power Center in Mutiara Damansara measure about 13 acres.

The whole development is expected to be completed in 10 years but IKEA store is to be completed in 5 years or sooner.

       IKEA Batu Kawan - at southern part?

Of course this is the best news for Batu Kawan so far, compared to other earlier investment like Honda, Premium Outlet, KDU & University of Hull.

While property may start to cool down in the country, I don't think this is the case for Seberang Perai, especially SPT & SPS. The mixed development by Aspen-Ikano will surely sell like hot cakes.

Direct beneficiaries of increased property demand in Batu Kawan are GOB, Ivory, Malton & Paramount, who already have lands in this area. Other surrounding listed property developers include Tambun Indah, Ecoworld, Mahsing & IJM Land.

It will not be a surprise when the news of other developers acquiring land within or nearby Batu Kawan start to flow in later.

Now people may start to imagine Batu Kawan to be like Damansara.

Wednesday, 8 January 2014

TSH: Wakuba To Make The Difference?

In year 2014, plantation is one of the sector to watch. Many analysts seem to be optimistic about plantation stocks as the CPO (crude palm oil) price is believed to trend upwards due to current low inventory level.

There are many heavyweight and small caps plantation stocks in Bursa Malaysia. How to choose the best to invest in?

From my observation, TSH is one of the company which stands out in 2013, mainly due to the reasons below:

  • Impressive FFB production growth
    • 9M13 FFB production grows 34% YoY
    • FFB CAGR of 30% from 2008-2012
    • Estimated FFB CAGR of 20% from 2012-2015
  • Young age profile of trees
    • About 70%  trees are <7 years old
    • About 30% are young mature between 4-7 years old
  • Huge unplanted land
    • Total plantation land at 135,800 ha, about 90,800 ha (67%) unplanted
    • Plan new planting of ~4000 ha/year 
  • Wakuba ramets
    • Oil palm ramets from TSH's own research, which is said to increase oil yield per hectare up to 10 MT/ha (average 4.5 MT/ha in Malaysia)
    • Started planting Wakuba ramets since 2012 in Indonesia, results expected from 2016
  • Aggressive expansion
    • Continue to acquire new plantation land
    • Acquired 5,180ha in East Kalimantan in Mac 2013
    • Latest in Dec 2013, acquired 60% stake of 26,294ha in Sg Kalabakan in Sabah, in which only 2,979ha (11%) are planted with 2-3 years trees

TSH Resources Berhad is a plantation company in which 4 brothers from Tan family sit in the board. 

About one year ago in the end of Dec 2012, TSH's gearing stood at an uncomfortable 1.07x. This is mainly due to its extensive new planting and acquisition strategy since 2006.

To reduce its gearing, TSH has recently sold its 16% stake in Pontian United Plantations, which it failed to acquire wholly in 2011, to Felda Global Venture for RM196mil which generates a net gain of RM85.3mil. Besides, TSH also carried out a few rounds of private placement in 2013.

The rise in cash reduces TSH's gearing to about 0.55x, until its recent announcement in Dec13 to acquire 60% stake in Sg Kalabakan estate for RM180mil. This deal will likely to increase the gearing to 0.7x when completed.

After the new acquisition, TSH total plantation land area will increase to 135,803ha. It has 31,242ha in Malaysia (Sabah) and the rest are in Kalimantan & Sumatera. The unplanted area stands at a huge 90,835ha (67%).

       TSH plantations areas

As mentioned earlier, more than 70% of TSH's planted trees are considered young and below 7 years old. As at end of June 2013, about 30% of its planted area consists of trees between 4-7 years old. That means roughly 40% 0-3 y/o, 30% 4-7 y/o and 30% above 7 y/o.

From 2008 to 2012, its FFB production increases from 198k MT to 400k MT (30% growth per annum). It is expected to achieve 537k MT in 2013.

What do all this mean? 

TSH has achieved this impressive growth in FFB production mainly from just its 30% prime trees which are above 7 years old. Thus, the figure is expected to climb significantly every year as more and more trees will reach their prime age which give the best yield.

For its plantation in Indonesia, it is estimated that 4,000ha will come into maturity in 2013, and another 3,000ha will follow in 2014.

TSH will also plant new trees at 3,000-4,000ha a year, probably increase to 10,000ha a year in the future.

Furthermore, its Wakuba trees which are expected to deliver much better oil yield (10 tonnes CPO/hectare), will start to deliver significantly from year 2016. This figure reported by MIDF is exceptionally high, given that Malaysia's average CPO/hectare is just 4.5 tonnes/ha and United Plantations, which is known for its high oil yield, registered just 5.21 tonnes/ha in 2012.

If this is true, then 100ha in TSH will be equal to 200ha in United Plantations. This translates into 100% higher revenue or 100% lower cost for TSH!

The research on Wakuba ramet has started since 2005 with RM40mil invested. TSH targets to produce 1.5mil ramet by 2015.

       Wakuba ramets

TSH's FFB production grew 6% from 399,600 MT in 2011 to 424,700 MT in 2012. 

However, I could not find the data of FFB per hectare for TSH. Its OER (oil extraction rate) is 24% (Kalimantan) and 21-22% (Sabah), which should be very good figures.

TSH has 6 mills (3 in Indonesia, 3 in Sabah) with a total capacity of 2mil tonne FFB per year. It aims to achieve a capacity of 3mil tonne capacity by year 2018.

TSH has also ventured further downstream into refinery via a 50/50 JV with Wilmar International since 2007. The TSH-Wilmar palm oil refinery in Sabah has a capacity of 2,700 tonnes/day & kernel crushing 600 tonnes/day.

Besides oil palm plantation, TSH also has rubber plantation in which it plans to build up to 10,000ha.

Other than plantation, TSH has a 67%-owned listed subsidiary Ekowood which manufactures hardwood flooring. Besides, it also has factories that manufactures cocoa products, pulp & paper. Nevertheless, all these will not contribute significantly to the group compared to oil palm.

In 1997, TSH was awarded a 100-year concession to carry out forest rehabilitation, environment conservation & industrial tree planting on 123,000ha of forest land in Ulu Tungud, Sabah.

TSH financial highlights 2008-2012


Due to the gain of RM85.3mil from disposal of Pontian United stake, TSH's FY13Q3 net profit surged 380% QoQ from RM17.3mil to RM83.3mil despite a 16% drop in revenue to RM219.4mil. 

Without this special gain plus RM51.1mil unrealized loss in foreign exchange in the first 9 months of 2013 (RM43.7mil exchange loss in FY13Q3 alone), TSH's 9M13 net profit should be at RM86.2mil (from MIDF report), which is 87% higher YoY compared to 9M12 of RM46mil. This is achieved despite a still much depressed CPO price since early 2012 (RM2,239 in Q3FY13 vs RM2,692 in Q3FY12).

For 9M13, FFB production increases 34% to 379,673MT, while CPO production increased by 19% to 224,101MT.

One concern of TSH is its gearing. After FY13Q3 (Sep13), it has a total borrowing of RM996.2mil in which almost half is current. Its cash stands at only RM53.3mil. Debt/Equity ratio is about 0.9x at that point.

Though the acquisition of Sg Kalabakan estate will increase the debt, TSH is expected to generate impressive operating cash flow in the future to reduce its gearing.

TSH gave 2.5sen dividend (RM20.8mil) for its FY2012, which is consistent with its dividend payout policy of 20-30% (27%). At current share price near RM3, the dividend yield is pathetic.

       TSH-Wilmar Refinery Plant

If TSH can achieve a net profit of about RM20mil in its FY2013Q4, then its overall net profit for FY2013 should be around RM106mil (excluding special gain/loss). With 903.8mil shares now, its estimated EPS will be 11.7sen.

At this EPS, current share price of close to RM3 seems to be quite high. However, future earning ability of TSH is strong.

Overall, I think TSH is a good plantation company with quite a lot of excitement ahead, especially with its exclusive & exceptionally high yield Wakuba ramets. 

Is it the best? I'm not sure as I haven't do enough comparison with others and I'm not too familiar with plantation sector.

There seems to be other diversified companies which have great potential in oil palm plantation such as MKH, Jaya Tiasa, Ta Ann etc.

Thus, I will put TSH into my stock alert list and will keep monitoring its progress.