Wednesday 28 September 2011

SP Setia Is The Next Target

Seems like the Malaysia government is trying to take control on major property developers. After the successful merger of UEM Land and Sunrise, failed merger between MRCB & IJM, proposed deal between Sime and E&O, now SP Setia, one of the country's best developer, is the next target by government linked fund or company.

Today Permodalan Nasional Berhad (PNB) proposed to take over SP Setia at a price of RM3.90 and its warrant at RM0.91. This represents a premium of 40sen (11%) on its mother share and 45sen (98%) on its warrant. There is a "wow factor" on its warrant!

This explains why both shares surged massively on high volume yesterday, after weeks of free falling, where SP Setia rose 13% and and SP Setia-WB rose 21%. Today both shares are suspended and we can expect another surge tomorrow when they resume trading.

Government-linked funds PNB, EPF and KWAP collectively owns 47% of SP Setia's share. This is just a proposal. Will the take over be successful? Or will it end up like MRCB-IJM? Will SP Setia be privatized?

When the government takes some control in property developers, may be the launch of new projects and the rise in property price may slow down a bit.

Saturday 17 September 2011

Masteel: Must Steal the Limelight?

The world economy seems to head towards a double dip. In Malaysia, though property sector is tipped to reach its peak soon, construction sector may benefit from many contracts which will be awarded under the ETP. The MRT project in the Greater KL, either new line or extension line, is especially what most investors are looking forward to. Will the government delay the MRT project due to negative economy outlook? Don't forget that the general election is around the corner...

Infrastructure construction and property development need steel. So besides the construction companies, steel companies may as well benefit from the ETP contracts award. Most upstream steel companies here already suffered a hard time during 2009 as the steel price and demand dropped significantly. Most of them registered loss during that period. Currently it looks like they are on the up side of the cycle. However, will the double dip worry pull it back again?

I always like to look into a small cap company which has great potential of growth, rather than those "blue chips". For upstream steel companies, Malaysia Steel Works (Masteel) seems like a good one.

Masteel financial result 2006- 1H2011:

RM mil Revenue Net profit
2006 362 30
2007 548 44
2008 881 79
2009 687 -8
2010 1005 30
1H2011 616 22

Besides expected increasing demand and steel price in the near future, there are a few positive notes for Masteel.
  • Based in Klang valley, where the construction and property development are most robust. It has its meltshop in Klang and rolling mill in Petaling Jaya.
  • Said to have good relation with "blue chips" property developer in Klang Valley.
  • Planned capacity expansion to increase its rolling capacity from 350,000MT/yr to 500,000MT/yr by 2012.
  • "Diversify" into commuter project in Iskandar Malaysia through a 60/40 JV with KUB. It has received approval from the state government and now pending approval from federal government. After completion, it has 33 years concession to operate the rail system, which represent a recurring income for Masteel. Minister of Finance has 22% share in KUB.
  • Use mainly scrap metal as raw material instead of iron ore. Price hike of scrap usually lag behind iron ore.
  • Good management and a net gearing at around 0.4.

Companies with upstream steel production: first 6 months of 2011

Revenue Net Profit NTA Share price
Lion Ind 2897 108 4.54 1.38
Southern 1313 89 2.11 2.18
Ann Joo 1119 75 2.21 2.08
Kinsteel 1041 -10 0.79 0.54
Perwaja 809 -39 1.52 0.77
Masteel 616 22 2.36 1.05

From the list above, Lion is mighty, Southern and Ann Joo are looking good, and Masteel is catching up. The share price of Lion Ind and Masteel are far less than their NTA. Nevertheless, increasing raw material price and cautious economy outlook remain the risk.

    Wednesday 14 September 2011

    Wellesley Residence: Comes at A Price

         The grand entrance...

    Would you buy a condo unit in Butterworth area at RM300psf? You may think that it is a bit ridiculous. Well, from 2 blocks of total 401 units available on sales for Wellesley Residence, almost 50% have been snapped up before official launch. So, what's your say? Now everyone's mind is like: if you don't take it now, you will have to pay a higher price later.

         Luxury design...

    Almost similar to the "Endah series" of condos at Seri Petaling, Selangor, PJ Development now has another go at Harbour Place, Butterworth.

        The roads in Harbour Place are rather narrow

    Wellesley Residence is the latest addition to this "Butterworth's first metro city" Harbour Place. Currently other condos Park View and Sea View are already completed, and the construction on Ocean View is at full throttle and is near completion. 

         Green space

    As I mention in earlier post, the average new condo price in Butterworth is around RM200psf. Nevertheless, Harbour Place does has its winning edge. It is a well-planned mega project mixed with residential and commercial units. The Swiss garden Hotel is expected to start construction end of this year.

         Swimming pool surrounded with greens...

    Harbour Place provides easy access to ferry terminal, future Penang Sentral and BORR (Butterworth Outer Ring Road) and thus to Penang bridge and Prai Industrial area. Currently it is surrounded by lots of kampung houses but I believe they will give way for development in the future.

        Location map of Harbour Place

    Wellesley Residence offers a wide range of sizes. There are 650sq ft studio, 900sq ft & 1100sq ft with 2 bedrooms, 1300sq ft with 3 bedrooms and penthouse. The studio unit comes with laminated timber flooring in the living room, dining area and bedroom. It starts from RM195,000 at the moment. Maintenance fees is at 20sen psf.

        Relaxing by the pool...

    After the completion of Wellesley Residence, there will be not less than 1400 condo units in this area, and there is still a residential condo project pending. Is it too congested? Will there be an issue of oversupply?

        The artist impression is really nice

    Sunday 11 September 2011

    Can Condominiums Flourish in Butteworth?

    Recently there are quite a lot of so-called "luxury condominiums" being built in Butterworth area. Is there really a demand for them? 

    Previously there are already lots of  residential apartment in Butterworth area which are only slightly better than low cost apartment. Among the first few "higher quality" ones include Cassia Resort Condo and Affina Bay near Raja Uda. Then a few years back came PJD's Harbour Place, which kick starts the "luxury condo" boom in this area. Currently, Tambun Indah Group take over and has already launched 5 condo projects in this area within 2 years time.

        Harbour Place

    Mainland Penang people prefer to stay in landed property because it is relatively cheap compared to penang island. Ten years back if you buy an apartment here, people may question you and tell you that apartment has no land and thus no value. 

    However, new double storey terrace here cost well above RM400,000 now. Young working people find it harder and harder to buy a landed property, and they don't want to stay in lower-cost apartment without facilities and proper security. Is this the reason why there are so many condos being launched here recently?

         Pinang & Palma Laguna

    Similar condos in Penang island will easily cost more than RM350psf at the moment. For example, D'piazza, The Spring, Summer Place are between RM350-450psf, and The Brezza, Bayswater, Platino, Putra Place are about RM450-550psf. New condos at Southbay, Setia Pearl Island and Seri Tanjung Pinang cost even more than that. Even the old high density E-park & N-park are put on sales at average RM350psf.

    What should be the proper condo price in Butterworth area? Some say it should be roughly 50% of island's price. A few years back, "better" apartments in Butterworth are sold at RM130-150psf. Now the average price has come to RM200psf, which is about 50% of island's equivalent.

    Penang island and mainland is better connected now. Bayan Lepas FIZ is kind of saturated. Most new factories will be built at Penang Science Park and the new Batu Kawan Industrial area at mainland in the future. 

         Tanjung Heights

    More people who work in island start to look for landed property in the mainland. Some of them may prefer condos at Butterworth area as the price and rental is a lot cheaper than the island. Will the condo demand in the island spill over to Butterworth in the future?

    There are also some people who work in Kulim High Tech park prefer to stay in Butterworth rather than Kulim. Both places are connected by the Butterworth-Kulim Expressway (20 min drive) and the toll rate is RM3.20 per trip. Besides, travelling between Butterworth and Batu Kawan is also easy (15-20 min drive) via the North-South Highway which cost RM1.10 per trip.

    Here is a list of "more luxury" or "better" condos in Butterworth, some of them are still under construction.

    Condo/Apartment Location Total unit Total Floor From (sf)
    Kelisa Heights Seberang Jaya 140 11 1200
    Kelisa Residence Seberang Jaya 142 10 1097
    Carissa Park Bagan Lallang 144 10 1210
    Centro View Bagan Lallang
    10 1070
    Tanjung Heights Raja Uda 148 13 1313
    Cassia Resort Raja Uda 273 13/17 1130
    Capri Park Kg Jawa 148 15 1334
    Pinang Laguna Perai 350 27 935
    Palma Laguna Perai 382 38 1100
    Dahlia Park Kg Benggali 134 18 1395
    Telaga Emas Kg Benggali 144 11 1330
    Vista Bay Kg Benggali
    15 1256
    Affina Bay Kg Paya
    Park View Harbour Place
    Sea View Harbour Place 354 19/23 670
    Ocean View Harbour Place 386 27 938
    Wellesley Residences Harbour Place 401 27/30 650

    Thursday 8 September 2011

    Transmission Power Lines: Should You Worry?

    When you want to buy or rent a property, and you can see some special "Eiffel Towers" with transmission power lines in close vicinity, you may be worry. You then ask your friends, some say that they have stay below such power lines for years and nothing happen, some say that better don't stay near it as it can cause cancer. Who should you believe in?

        High voltage power lines transmission towers

    Transmission power lines carry power from power plants to substations or between substations. It emits electromagnetic wave, which consists of both electric and magnetic field (EMF). Electric fields are produced by electric charges and magnetic fields are produced by the flow of current through the lines.

    Electromagnetic (EM) waves are divided into 2 big groups: ionizing and non-ionizing. Ionizing EM waves such as X-ray, ultraviolet, gamma ray etc have sufficient energy to knock off electrons in our body cells and can cause cancer. Whereas non-ionizing EM waves such as natural light, infra red, microwave, radiowave etc are not known to cause cancer by knocking off electrons in the cells.  

        Electromagnetic waves spectrum

    EM waves radiated from power lines has long wavelength and thus very low energy. It is a non-ionizing radiation. So it is accepted that it won't cause cancer by knocking off you cells' electrons. So if you are worry that the transmission power lines can have the "radiation effect" similar to X-ray or nuclear plant explosion, then you are totally wrong. However, are there any other way it can be harmful to human body?

    The electric fields from a high-voltage transmission lines are generally safe unless if you have a pacemaker or defibrillator for your heart and you go extremely close to the lines. Otherwise the electric field can be easily shielded off by walls. However, there are some research which claim that the electric field may ionize particles in the air and turn them into cancer-causing agents. This is unproven and nothing is confirmed.

    The main concern on the transmission lines is actually its magnetic waves. There are some reports mentioning that exposure to higher level of magnetic wave (>2 milliGauss or 0.2 microTesla) increases the risk of certain health problems especially childhood leukemia.

    The strength of magnetic wave that affect you depends on the current that flow through the power lines and the distance between the line and you. The further the distance the weaker the magnetic field and the safer it is as the wave strength will fall exponentially. Some authority recommends to stay at least 400 meter away from high voltage power lines. It is known that even the strongest high voltage high current transmission lines will produce less than 0.3mG at 400m. Some say 150m away is adequate. If the power lines are not "strong" enough, then staying nearer can still be safe.

    However, the higher the voltage of the lines, the lesser is the current that flow through and the less magnetic field it will produce. This does not always means that the higher the voltage in the lines, the safer it is, because the power transmitted is huge so the current is also relatively high. (Power = Voltage x Current).

    Magnetic wave can penetrate through building and human body at the speed of light. The further from the source, the lesser is its effect. The best way to know how much magnetic field you are exposed to is to measure it using a Gauss meter. Any reading below 0.5mG should be alright.

         A digital Gauss meter

    Not only transmission power lines, everything that has electrical current flowing through it will also radiate magnetic wave. This includes power lines on the streets/in the house and electrical home appliances such as hair dryer, microwave oven, television, computer etc. Though the magnetic field from them is not as strong, but they are very close to us. Our exposure from computer screen could be up to 2.5mG!

    So far the outcome of study that look into transmission power lines and its health effects has been mixed. Some give positive findings and some give negative findings. Study on health matter is always not easy as one disease may have many causes and people are moving around, doing different things and exposed to different things everyday.

    If you read a website by someone or some groups who are "not favoring" the transmission power lines, then you will see lots of evidence on its negative health effects. If you read a website which is "favoring" it, then you will see lots of researches saying that the transmission lines do not have any negative health effects.

    It is confirmed that smoking cigarettes can cause cancer and eating junk food is bad for our health, and yet how many people are doing these daily? It is not confirmed that living near the transmission power lines can cause cancer or other  health problems, should you be worry? Well, it's all up to you.

    A few negative notes
    • There is extremely strong evidence finding a relationship between ELF magnetic fields greater than 2 mG and childhood leukemia.  This relationship has been a matter of scientific inquiry since 1979. Sixteen out of nineteen studies conducted since 1995 are now viewed as identifying a statistically significant relationship between magnetic fields greater than 2 to 4 mG and a two to four-fold increase in a child’s risk of contracting that disease.
    • There is very strong evidence finding a relationship between maximum ELF magnetic field exposure greater than 16 mG and a 6-fold increase in miscarriages.
    • There is strong evidence linking ELF magnetic fields and Alzheimer’s and Lou Gehrig’s disease (ALS).
    • There is substantial evidence linking ELF magnetic fields greater than 12 mG and breast cancer and strong evidence linking magnetic fields and the suppression of the therapeutic effects of the anti-cancer drug, tamoxifin.

    After reading the above examples, you may want to know how many mG of magnetic field you are or are going to exposed to. However, it seems like no one will answer you unless you get someone or yourself to measure it with a Gauss meter.

    Positive notes from US's National Cancer Institute
    • Overall, there is limited evidence that magnetic fields cause childhood leukemia, and there is inadequate evidence that these magnetic fields cause other cancers in children.
    • Studies of magnetic field exposure from power lines and electric blankets in adults show little evidence of an association with leukemia, brain tumors, or breast cancer.
    • Past studies of occupational magnetic field exposure in adults showed very small increases in leukemia and brain tumors. However, more recent, well-conducted studies have shown inconsistent associations with leukemia, brain tumors, and breast cancer.

    Is statement from "National Cancer Institute" suppose to be more "scientific" and should be used as the ultimate guidelines? It still depends on you whom to trust. There may be thousands of studies carried out on this subject and may be less than 10% has harmful health effects and 90% has no harmful health effects. If someone only show you this 10% of harmful findings then no one will ever want to stay near the transmission power lines. But if you look at all this 100% of studies, perhaps this is what they called "inconsistent findings" or "inadequate evidence".

    To be able to say that the high voltage transmission lines cause certain health effect, at least the majority of studies done on it must be consistent. It cannot be a few positive and mostly negative.

    If you look at the google map in Malaysia, you can see that there are many housing areas or apartment built just next to the transmission power lines. There are people staying there, may be more than 30 years. You can interview them if you can.

    So, whether to invest in a property near transmission power lines or not, it's up to each individual to decide.

    In Malaysia, the power transmission network is known as the National Grid and is managed by TNB. The voltage of the power lines are 132 kV, 275 kV and 500 kV. Distribution lines of 33 kV, 22 kV, 11 kV, 6.6 kV and 415/240 volt in the Malaysia distribution network connect to the National Grid via transmission substations where voltages are stepped down by transformers.


    An article taken from "Health Physic Society":

    Health Risks Associated with Living Near High-Voltage Power Lines

    Gary Zeman, ScD, CHP

    Potential health concerns about power lines were first raised in a 1979 study which associated increased risk of childhood leukemia with residential proximity to power lines. More recent studies such as that by Draper et al., confirm a reported association between elevated risk of childhood leukemia and proximity to resdiential power lines, but failed to clarify whether the observed association is causal or coincidental. Some scientists have argued the physical impossibility of any health effect due to weak ambient levels of EMFs, while others maintain that the potential health risks should not be dismissed even though the evidence remains equivocal and contradictory.

    To address public concerns about power-line EMFs, a national program in electric and magnetic field research was authorized by Congress in the Energy Policy Act of 1992. This program was called EMF-RAPID (Electric and Magnetic Fields Research and Public Information Dissemination).

    In 1995, the American Physical Society (APS) spoke out on the question of power-line EMFs and health effects. The APS policy statement reads, in part: "The scientific literature and the reports of reviews by other panels show no consistent, significant link between cancer and power line fields. While it is impossible to prove that no deleterious health effects occur from exposure to any environmental factor, it is necessary to demonstrate a consistent, significant, and causal relationship before one can conclude that such effects do occur. From this standpoint, the conjectures relating cancer to power line fields have not been scientifically substantiated." (See APS Policy Statement 95.2 reaffirmed in 2005.)

    In 1999 the National Academy of Sciences, National Research Council (NRC) published a review of the evidence from the EMF-RAPID program and concluded: "An earlier Research Council assessment of the available body of information on biological effects of power frequency magnetic fields (NRC 1997) led to the conclusion ‘that the current body of evidence does not show that exposure to these fields presents a human health hazard. . . .' The new, largely unpublished contributions of the EMF RAPID program are consistent with that conclusion. . . . In view of the negative outcomes of EMF RAPID replication studies, it now appears even less likely that MFs [magnetic fields] in the normal domestic or occupational environment produce important health effects, including cancer." (The NRC reports are accessible by searching for EMF at the NAS website.)

    While the NRC review is fairly decisive in giving power-line EMFs a clean bill of health, a 1999 report by the National Institute of Environmental Health Sciences (NIEHS) concluded, "The scientific evidence suggesting that ELF-EMF exposures pose any health risk is weak" but goes on to state, "The NIEHS concludes that ELF-EMF exposures cannot be recognized as entirely safe because of weak scientific evidence that exposure may pose a leukemia hazard." (The NIEHS report is available on its website.)

    In conclusion, there are no known health risks that have been conclusively demonstrated to be caused by living near high-voltage power lines. But science is unable to prove a negative, including whether low-level EMFs are completely risk free. Most scientists believe that exposure to the low-level EMFs near power lines is safe, but some scientists continue research to look for possible health risks associated with these fields. If there are any risks such as cancer associated with living near power lines, then it is clear that those risks are small.

    Typical magnetic field values (from wikipedia)
    • 10−9–10−8 gauss: the human brain magnetic field
    • 0.31–0.58 gauss: the Earth's magnetic field on its surface
    • 25 gauss: the Earth's magnetic field in its core
    • 50 gauss: a typical refrigerator magnet
    • 100 gauss: a small iron magnet
    • 2000 gauss: a small neodymium-iron-boron (NIB) magnet
    • 15,000-30,000 gauss: a medical magnetic resonance imaging electromagnet
    • 1012–1013 gauss: the surface of a neutron star
    I mention above that exposure of 2 milli gauss (or 0.002 gauss) and above from transmission power lines is dangerous. However, look at the earth magnetic field on its surface where we stand on, it's 0.3 gauss, much much more than the 0.002 gauss level. Look at the magnetic wave from our refrigerator which we switch on 24 hours a day, 365 days a year, and stay very near to, it's 50 gauss!! Isn't it interesting? Can anyone explain?

    Wednesday 7 September 2011

    Sunway In Bukit Mertajam

    Sunway has acquired land at Kampung Cross Street, Bukit Mertajam for future development!

    Apart from the Sunway commercial center at Seberang Jaya, which features Sunway Carnival Mall and Sunway Hotel, this should be Sunway's group second project in mainland Penang, and first project in Bukit Mertajam.

    Sunway City Bhd few weeks ago has agreed to compensate about RM10mil to 320 families who have stayed  here for 3 generations. This village is also known as "fish pond" among the Chinese here. This amount of money should then be "paid" by the future buyers of this project.

    Kampung Cross Street's location can be said to be in the town center area, and is close to Jusco at Bandar Perda. There is a Malay village between Bandar perda and Kg Cross Street.

         Location of Kg Cross Street

    I think nowadays most young people prefer not to stay near town center. Most are moving to peripheral areas like Bukit Minyak, Juru, Alma etc. Anyway, Sunway is a conglomerate with high reputation. Most likely it will carry out a mixed development here and I don't expect the price to be cheap. Will it draw people back to the town?

    Land in Bukit Mertajam is getting less and more expensive. Together with the high material cost, most developers prefer to build more luxury semi-Ds or bungalows in order to earn more money per square feet. Currently a standard size 2-storey terrace house can cost up to RM400,000 here. Higher end apartment or condominium also starts to emerge here. Is it the trend?

    Tuesday 6 September 2011

    MEGB: A Bad Surprise

    When you invest in a company which has the largest market share or leader of something, you may feel that you are making a right decision. But look at Masterskill.

    Masterskill is the largest operator of nursing courses in Malaysia. It is listed in Bursa in May 2010 with an IPO price of RM3.50. However, its share price has since drops to RM1.18 now (66% down), after the announcement of the disappointing 2011Q2 financial results. Don't forget that Masterskill as a small cap, has an EPS of 25sen, ROE of 25%, Net profit of over RM100mil and dividend of 14.9sen or yield of around 8% in 2010.

    RM mil 2010

    Rev Profit Rev Profit
    Q1 77 27 74 23
    Q2 77 22 66 12
    Q3 81 26

    Q4 81 27

    For 2011Q2, the revenue falls 11% QoQ and 14% YoY, while the net profit falls 48% QoQ and YoY. This set of results caught many by surprise and as a result, the target price has been cut, cut, and cut. 

    Is Masterskill still worth investing in? Is it the start of the decline that takes years to recover or no chance to recover? Is it a temporary dip that provide a chance to buy at low?

    Before this, negative news such as reduction in stake by foreign funds, rumours about PTPTN loan and CEO's health concern have significantly dragged the share price down to below RM2.

    Lets see what are the reasons for this current poor results. From the management briefing, the reasons are:
    • Low student intake (3200 in 1H10 to 1800 in 1H11)
      • Delay in announcement of SPM (pre-U) exam results
      • PTPTN loan cut from RM60k to RM45k
        • 95% of Masterskill students depend on PTPTN loan
        • Average course fee is RM52k
      • Raised requirement for nursing diploma (from 3 credits to 5 credits)
      • New schedule of student intake of public universities delayed from previously June to September
        •  Students delay their decision to join private college/university
      • Delay in approval of nursing diploma at Kuching campus
    • Higher operating cost
      • To improve lecturer/student ratio
      • Perhaps the new MBBS (medical) degree
    • Higher depreciation
      • Greater expansion plan

    Will all the factors above cause permanent damage to Masterskill? Or are they only temporary due to some "cultural shock" caused by the change in various policies that result in lower student intake?

         Future Bangi flagship campus

    Lets look at other listed educational stocks in Bursa: Segi and Help.

    FY2010 results
    RM mil Rev Profit
    MEGB 316 102
    HELP 105 19
    SEGI 218 43

    From this FY2010 results of Masterskill, Segi and Help, we can see that Masterskill has the larger revenue and profit by a considerable margin, even though it only operates in health-related programmes such as Nursing and other allied health courses. The management has since included medical degree in mid-2011 and has the plan to diversify its courses especially into business-related programmes. If it is successful, surely it will have positive impact on masterskill.

    FYI, both Segi and Help have a variety of programmes esp for Segi which offers Education, Business, Law, Accounting, Economics, Engineering, Computing, IT, Arts, Communication, Tourism, Language, Medical, Dentistry, Pharmacy, Nursing, Optometry etc.

    A bit of positive/negative notes on Masterskill
    • Work with Australia's University of Newcastle to introduce business programme
    • Plan to get a college building in Petaling Jaya for its business, law, media & hospitality programmes in Apr12
    • Plan to expand to Indonesia/Indian subcontinent (but still no clear plan)
    • CEO collapsed and undergone life-threatening brain aneurysm surgery in Nov 2010 and has been out of management in the subsequent 4 months.
    • Delay in completion of Bangi flagship campus (from end 2012 to end 2013)
    • Started medical degree MBBS in June 2011 at Seri Alam campus
    • Increased quota for its medical degree from 50 to 100 students
    • Internal loan to help students after loan cut in PTPTN
    • Masterskill now only operates in health-related education programmes and it has a large room for expansion
           CEO with a big scar on his head

      The subsequent 2011Q3 result is expected to be like or even worse than Q2, before improvement expected in Q4 after the new student intake.

      If the management of Masterskill is really good, then I can see its large potential of growth by expanding its business into non-health related programmes and overseas (which are already inside their plan). Even though education business is said to be recession proof, there are definitely lots of competition in the country at the moment.

      Masterskill's major direct competitor should be Mahsa (not publicly-listed), which also offers health-related programmes which include not only nursing & medical, but also pharmacy & dentistry. Anyone knows how is Mahsa doing?

      OSK 1.91
      CIMB 1.71
      RHB 2.10
        MEGB latest target price