Wednesday, 5 August 2020

My Portfolio Jul20

Summary For July 2020

Numbers of stocks 12
Share Sold Geshen @ 0.53 (all)

DKSH @ 3.65 (all)
Share Bought None

Overall 2020
Portfolio Return Jul20 16.61%
KLCI Return Jul20 6.85%
Portfolio Return YTD20 15.39%
KLCI Return YTD20 0.94%

Portfolio @ End of July 2020

Stocks Avg Jun20 Jul20 Div20 Jul20% Overall%
BAUTO 1.92 1.48 1.41 4.2 -4.7 -26.6
DAYA 0.035 0.010 0.015
50.0 -57.1
HIBISCUS 1.05 0.62 0.60
-3.3 -42.8
JAKS 0.88 0.86 0.77
-10.5 -12.5
JHM 1.33 1.34 1.52
13.4 14.3
KPOWER 2.03 2.30 2.60
13.0 28.4
KRONO 0.76 0.535 0.570
6.5 -25.0
LEONFB 0.505 0.310 0.305
-1.6 -39.6
MATRIX 1.42 1.81 1.69 8.50 -8.0 19.0
PRLEXUS 1.15 0.54 0.64
18.5 -44.4
SCIB 2.06 2.13 2.83
32.9 37.4
SCIENTEX 2.735 8.90 9.10 10.0 3.4 232.7

My Portfolio gains 16.6% in July. While this type of gain in one month can be considered as impressive in those "ordinary" days, certainly it seems like a below par performance in current stock market madness where people earn 30% in one day.

Overall year-to-date return turns green for the first time since January.

I successfully trimmed my portfolio in July by disposing 2 stocks at small gain which were Geshen and DKSH, even though both have not reached my initial target price.

I sold Geshen because I don't expect its Q2 to be great and I think it might take longer time than expected to show a turnaround.

Anyway, its FY20Q2 quarter results released last week already turned profitable, even though the profit was minimal and the revenue shrank.

To my surprise, its share price rose more than 50% today. It seems like I don't have a chance to enjoy "limit up" type of experience at the moment...

The disposal of those 2 stocks is to increase my cash position as Warren Buffet said: Be fearful when others are greedy. Definitely greed is rampant at the moment.


It's very obvious that current stock market is dominated by retail investors, mostly punters or speculators who buy & sell just base on news and emotion.

It's herd mentality with fear of losing out. Financial results and valuation method such as PE ratio are not important anymore.

Such short term trading is very effective in current situation and I'd say the majority of speculators have earned big money.

However, sooner or later the party will end. It just needs one event to pull the trigger.

It might happen as soon as this year, or may be in 1 to 2 years time in which it's still a long way to go. So there might still be plenty of time for partying.

Tech stocks with PE ratio of 50 might still go up to 100. Who knows?

Some stocks are flying high for a good reason, such as gloves manufacturing stocks. However, the magnitude of rise in some other stocks are really out of mind.

Anyway, I still follow what I used to do, which is slow and boring... If I'm jobless now, I might trade short term.

SCIB and KPwower have lifted my portfolio in July, while Jaks cut the overall gain. Jaks keep dropping recently but I'm not too worry. I'll just wait for the quarterly report later this month and the outcome of AGM in September.

I plan to dispose a few more stocks and may be add 1 to 2 new members, just waiting for a good timing. Hopefully I can keep the stocks in my portfolio to below 10.

Sunday, 2 August 2020

Gunung Berapi Erupts

It's been a flaming hot period now for Gunung since the turn of the year of 2020.

Its CEO and largest shareholder Datuk Syed Abdul Hussin started to pare down his entire 28% stake and exited the company. 

Its second & third largest shareholders Erayear Equity Sdn Bhd and Ooi Hock Lai with 11.8% and 10% stake respectively also ceased to be a substantial shareholder.

It is reported that former owners of Kumpulan Powernet (KPower) led by Datuk Chew Kam Wah will become major shareholders of Gunung, who will change its name to G Capital Berhad.

Kumpulan Powernet was taken over by Serba Dinamik's Datuk Abdul Karim & OHP Ventures's Mustakim Mat Nun last year and the group's name has been changed to K Power (Karim's Power?)

Relatively young Datuk Yap Yee Ping at 45 years old became the new executive director of Gunung, along with Tan Sri Dr Ali.

Gunung's past financial records were pathetic with 5 consecutive years of loss. Most recent FY2019 whole year revenue was just RM16.8mil, with a net loss of RM11.6mil.

In short, Gunung's main business is to provide land-based transportation to the school children of armed forces personnel who stay in 77 camps nationwide.

Previously it also provided transportation for PLKN (National Service Training Program) but this has been terminated since 2018.

It has just been awarded a new contract worth RM44.2mil for such purpose by the Ministry of Defense in Dec 2019 after the old contract expired. This 3-year contract will run until Dec 2022 so it will contribute an average of RM3.7mil revenue per quarter. Revenue might fluctuate due to school holidays.

From its latest FY20Q1 ended in Mac20, this transportation segment generates RM4.2mil of revenue but suffers operational loss if we exclude the RM3.1mil gain on disposal of assets.

Gunung Capital Berhad

The jewel of Gunung is its small-hydropower renewable energy segment. In 2013, Gunung acquired a 51% stake in Perak Hydro Renewable Energy Corp Sdn Bhd (PHREC) who is involved in developing, maintaining and operating small hydropower plants in Perak. 

Forty percent of PHREC is held by Perak state government through MB Incorporated (Perak). 

PHREC is granted the right to build, operate and own (BOO) small hydro plants for 21 years at 31 pre-identified sites in Perak. 

Though the acquisition of PHREC was 7 years ago, this small hydro segment still does not contribute a single cent of revenue to Gunung up to FY20Q1. It registered operating loss of RM0.9mil in FY2019.

From FY2019 annual report, there are total 10 active small hydro sites with total estimated installed capacity of 84.1MW.
  • 2 sites (Sg Slim & Sg Kerian) with total 20MW have been commissioned and delivering energy to the National Grid
  • 4 sites (Sg Geruntum, Sg Korbu, Sg Kampar & Sg Selama) with total 23.3MW are under construction
  • 4 sites (Sg Pelus, Sg Geroh, Sg Gedong & Sg Perak) with total 40.8MW are under design and planning stage
Since there are 2 sites which have already been commissioned (Sg Kerian has started to deliver energy since 2018), it's weird that there is still no revenue to small hydro segment and also no earning from associates recorded in FY2019 and the latest FY20Q1 report.

The management mentions that earning from 30% or lower joint ventures will be classified into associate level.

I'm not sure how many percentage Gunung has in those Sg Slim & Sg Kerian hydro plants. Gunung's shareholding in all those small hydro plants are a bit complicated, as below:

From annual report, it is stated that there are a few projects which are being "developed" by Gunung.
  • Sg Geruntum (2MW) by Conso Hydro RE Sdn Bhd (indirect 50% owned), expected completion FY21Q1
  • Sg Geroh by Kundur Hydro Sdn Bhd (indirect 49% owned)
  • Sg Perak by Gunung Hydropwer Sdn Bhd (direct 90% owned)
Gunung Hydropower Sdn Bhd is a direct 90% subsidiary of Gunung but Gunung still hold 10% of it through PHREC which is a 51% subsidiary. So the effective stake in Gunung Hydropower Sdn Bhd is 95%.

Does it mean that Gunung does the EPCC job for those small hydro plants it "develop"? It will be great if it is but so far I can't see any contribution of revenue from its under constructed Sg Geruntum project.

For comparison, KPower bagged EPCC contracts for 5 mini hydro plants in Perak with total capacity 32.47MW in Mac20 and they are worth RM354mil.

I'm not sure how much Gunung will earn in the form of concession income from its 2 small hydropower plants with total capacity of 20MW which are said to be commissioned.

The bid tariff for mini hydro is around 23-29sen per kWh. I don't know how to calculate the potential revenue to Gunung and I also don't know how many percentage of shares Gunung holds in those small hydro plants.

It does not hold 100% of those hydro plants. Some are held more than 50% and some are as low as 10%. So the profit might be cut into half.

I guess the revenue and profit might not be that huge if we look at how much large scale solar farm operators with higher tariff earn. 

If any readers know how to calculate the profit accurately from such concession, kindly enlighten me.

Kickoff Meeting for ICDSME 2019

Transportation and small hydropower segment are old existing businesses of Gunung. With the introduction of new management and new shareholders, surely something new are going to happen.

Gunung has been accumulating ACE market-listed company LYC Healthcare's shares and emerged as substantial shareholder with 6.16% stake as in July 2020. 

LYC has been loss-making in the past 8 years. It is involved in healthcare business which includes confinement service and nursing homes. It recently acquired 51% stake in Singapore-based T&T Medical Group for RM22.3mil. T&T recorded a net profit of RM3.3mil for its FY19.

Besides LYC Healthcare, Gunung also accumulated another listed company Yi Lai's shares and became a substantial shareholder with 13.75% stake as in July 2020. 

Yi Lai is involved in manufacturing, sale, trading and distribution of Alpha brand tiles. It also suffers loss in its past 3 financial years.

Why did Gunung invest in loss-making companies such as LYC & Yi Lai? Surely they think that those companies are undervalued. Does the management see something good which ordinary people don't see?

Gunung is currently in "advanced talk" to acquire a substantial over 20% stake in a new full-fledged commercial bank in Cambodia for more than USD25mil. 

If this deal materializes, then Gunung will set its footing into five different industries namely transportation, renewable energy, healthcare, manufacturing and banking.

So, 2020 is an eventful year for Gunung. The new management acts like a fund manager investing the cash in various businesses without really running it. Will it be another iCapital?

Anyway, it might be better than depending solely on the transportation business.

Of course it will be a brand new page to Gunung, or G Capital. Its mini hydro plants might start to contribute to its revenue soon, though I guess the amount might not be big in initial stage.

Its investment in those loss-making companies might not see a quick turnaround.

Gunung's share price has started to move north from its base of 30sen since the change in shareholders occurred in Dec19. It reached over 60sen before MCO in Mac20.

MCO pulled it back to 30sen level before recovering and jumping to 80sen recently.

Many investors will ask: Can I buy now? Well, I don't know.

At share price of 80sen now, its EPS must be 8sen if I were to give it a PE ratio of 10. Thus, it must have a net profit of at least RM20mil per year base on outstanding shares of 246mil.

It still has 57.8mil warrant B which are going to expire in 2 months time. It's a potential 23% dilution to earning if all warrants are converted to ordinary shares.

If the overall ordinary shares reach 300mil later after warrant conversion, its PATAMI must be RM24mil to give it an EPS of 8sen.

I opine that G Capital's will turn profitable and grow its profit slowly when more and more small hydropower plants start to operate. 

However, I think that it needs a few more years to achieve RM20mil PATAMI, unless the Cambodia bank deal closed and contributes big to its bottom line, or its hydro plants contribute more than I expect, or it does the hydro plants EPCC job itself, or it sells the shares of its investment at a gain.

Friday, 24 July 2020

Bioalpha: A Fat Yet Thin Contract Secured

On 22nd of July 2020, Bioalpha Holdings Bhd who is involved in agricultural development, R&D, manufacturing, distribution and marketing of functional foods and health supplement products announced that it has won a whopping RM2.1 billion contract.

It is a "Partnership Agreement & Supply Contract Agreement" with 2 China based companies to supply ingredients for health food and nutritional meals to private and public sector in China.

I thought Malaysia normally source from China but now it's the other way round...

The value of the contract is approximately RMB700mil a year (RM426.7mil) for 5 years, but it's subjected to annual renewal. It will start as soon as Sep20.

For its FY19, Bioalpha's revenue was RM62mil with PATAMI RM9mil (EPS 1.05sen). With its usual share price of 12-14sen, market gives it a PE ratio of around 12.

Its share price started to move from 12.5sen to 18sen in 3 days time before the announcement. After the announcement, it shot up to almost 40sen and closed at 31sen, enjoying a gain of 72% in a day. Its warrant A gained a whopping 264% in a day.

Bioalpha to boost exports of health supplements, eyes personal ...

An annual revenue of RM426mil is impressive for a company who has a usual revenue of around RM60mil per year. That's why its share price reacted ferociously.

However, Bioalpha's MD mentioned that the internal KPI is to achieve gross margin of 3-5%. It's gross margin not net profit margin.

Gross margin = Revenue - cost of goods sold (includes materials and labour directly used). However, it usually does not include admin, distribution and sales cost, as well as depreciation, finance cost and tax.

To me, a gross margin of 3-5% is quite low and "dangerous". It can "accidentally" turn into loss if the management is not careful enough.

If I assume the NET PROFIT margin to be 3% which seems rather generous in this case, Bioalpha will get about RM13mil net profit a year from the contract. If other business stay the same as FY19 which generated net profit of RM9mil, total net profit might reach RM22mil for a full year.

This represents a significant leap and milestone for Bioalpha.

Base on current outstanding shares of 1,041mil, projected EPS will be 2.1sen. With current share price at 30sen, forward PE will be 14.3. This does not include 133mil warrants which are going to expire in Jan 2022.

Whether this forward PE ratio is fair, high or low, you have to make your own judgement.

If its net profit margin drops to 2%, projected EPS & PE will be 1.7sen & 17.6 respectively at share price of 30sen.

What if the net profit margin turns out to be lower than 2%, or the contract is not renewed after one year?

Anyway, this contract might serve as a stepping stone for Bioalpha to expand its business in China and open up bigger earning potential. It might take the company and its share price to a new level.

Buy, sell or hold, the decision is always yours.