Friday 27 September 2013

UK Uni & KDU Land At Batu Kawan

If everything goes as planned, 10th Oct 2013 will mark the beginning of the first oversea university branch in Seberang Perai of Penang.

Local company PKT Logistic Group is expected to sign a franchise agreement with University of Hull UK to establish a university campus in Batu Kawan. The construction should start in 2014 and student intake should be in 2017.

University of Hull in Batu Kawan will offer pre-U programmes, degrees and post-graduate studies in electrical & electronics engineering, mechanical engineering, business study, logistic study, accountancy and law. Students can enroll in  the "3+0" programme and complete the whole study in Penang.

University of Hull was established in 1927 and is currently ranked no.53 among UK top universities. Anyway, I believe that most Malaysians know Hull because of its football team - The Tiger.

The 5-acre campus is located at the southern part of Batu Kawan and it is part of PKT's "One Auto Hub" project. This area was initially allocated for light industry. The premium outlet should be right opposite at the other side of the bridge.

       One Auto Hub should be the light blue colour area

One Auto Hub is a development that comprises a few components, which are The Ship campus (which is University of Hull campus), Lighthouse hotel, pavilion, automotive logistic facilities, warehouses, jetty, mangrove walk or animal sanctuary.

You may be wondering what the hell is this "The Ship" and is it related to one famous restaurant? No.

PKT Logistic has one such development in Selangor next to Kesas Highway which is called "One Logistic Hub". It has a few components such as The Ship, The Wave, The Lighthouse & The Sea of Pineapples. Here, "The Ship" is a warehouse and really looks like a ship externally and internally. Don't ask me why pineapples please, but pineapples are really planted there.

       One Logistic Hub - similar thing in Batu Kawan soon

Thus, "The Ship" in Batu Kawan's One Auto Hub is a university building & campus.

Besides University of Hull, local education group KDU will also set up a KDU university college on a 10-acre site in Batu Kawan. It will offer degrees in engineering, business, accounting, information technology, hospitality, culinary & tourism, mass communications, design and English. In the future, it is expected to become a full-fledged KDU university. Student enrollment is expected to start in year 2018.

Penang Development Corporation will sell a 30-acre land in the heart of Batu Kawan to Paramount Corporation Berhad, which is the parent company of KDU. Apart from the 10 acres land allocated for education, the other 20 acres will be used for mixed development. This means that after GOB & Malton, Paramount also has a share of Batu Kawan property feast.

       The site of KDU & Paramount land

       Approximate site of KDU & branch of University of Hull

Earlier in August 2013 PDC has held a request for proposal for the purchase, lease and development of a 87ha (215 acres) of international theme park and a 180ha (470 acres)18-hole golf course in the northern part of Batu Kawan. The closing date to submit the proposal is Oct 31. These development must be completed within 4 years after signing the agreement. Lets wait until November and see what kind of theme park is proposed.

       Theme park location as being pointed out

Since the 2nd bridge is still yet to complete, property development activity in Batu Kawan is currently restricted to GOB's project in Bandar Cassia, which is at the north of Batu Kawan. Its 22x40ft leasehold Callisia 2 double storey terrace houses which will obtain OC soon is asking for more than RM540k by someone in the subsale market. More expensive than the "luxury & big" DST in Jesselton Hill BM...

Anyway, Batu Kawan will be the third satellite modern township in Penang, after Bayan Baru and Seberang Jaya. All 3 areas have similarities such as supported by major industrial park and well-connected to the bridge. 

Nevertheless, though some big factories like Honda have started operation, the potential of Batu Kawan is still very much overlooked. 

We should be able to get a clearer picture after the completion of Penang second bridge which is scheduled to be on Nov 8 of 2013.

Private or government hospital next?

Thursday 26 September 2013

Eco World & Liew Take Center Stage

Recently we can see Eco World's advertisement all over the place, billboards, radio, newspapers etc. Eco World might be a new comer in the property development scene, but they come with vast experience in this field and they will be aggressive in the market.

Eco World's CEO Dato Chang Khim Wah, directors Dato Leong Kok Wah & Tan Sri Abdul Rashid all jumped ship from SP Setia. Another young director Liew Tian Xiong is the son of current SP Setia's CEO Dato Seri Liew Kee Sin.

Recently on 17th September 2013, Eco World and one of its director Liew Tian Xiong has entered into a conditional share sale agreement with multiple shareholders of main board listed property developer Focal Aims, to acquire 164,775,701 shares (65.05%) of Focal Aims for a total cash of RM230.7mil (RM1.40 per share).

If this acquisition go through, Eco World as a new major shareholder has to make a mandatory offer of RM1.40 to other shareholders in Focal Aims.

Focal Aims net asset per share stands at RM1.26 from its latest financial period ended 30th June 2013. Its share was traded between 60-70sen before the news broke out. Now it has reached over RM2.

Liew Kee Sin's time in SP Setia is going to end soon, and it is not hard to predict where he will land next.

Eco World just launched its maiden project EcoBotanic in Nusajaya, Iskandar Malaysia. Its initial launch include 624 units of cluster & semi-D houses which are priced at RM900k - RM1.3mil & RM1.8 - RM2mil respectively. They are all luxury things and do not come cheap. Nonetheless, it was reported that those 500 units allocated to non-bumi were snapped up in 6 hours. 

EcoBotanic covers a 118.8ha site and has a GDV of RM3 bil which will be developed over 8 years.

       EcoBotanic: Next to industrial park & highway? Who cares?

       EcoBotanic: Power lines in the vicinity? Who cares?

You think it is a not so "eco" EcoBotanic? Who cares? It has SP Setia's DNA. Yes, this is what people care nowadays.

       Location of EcoBotanic within Iskandar Malaysia

Other projects that queue up at Eco World include the RM1.2bil EcoSky in Taman Wahyu KL and a new 246ha township in Tebrau Johor. EcoSky is expected to be launched in the final quarter of 2013 while development at Tebrau should start in 2nd quarter of 2014.

Eco World says that it has a total of 3,000 acres landbank located at Johor (1913 acres), Klang valley (1080 acres) & Penang (60 acres) with a total GDV of RM30 billion. Recently it works with Salcon to develop a RM1.2 billion mixed commercial project JB Festival Mall & Serviced Apartments in Johor Bahru. Salcon's executive director Leong Kok Wah is also Eco World's director.

Tropicana has about 2,300 acres of landbank including the recently purchased Pulai land. This means that Eco World has more landbank than Tropicana.

However, it is reported that Tropicana's total GDV stands at RM70 billion (excluding Pulai land). Wow! Can you believe it?

Wednesday 25 September 2013

Instacom vs OCK vs RA

Currently there are 3 companies listed in ACE market that are involved in telecommunication infrastructures design, build, upgrade and maintenance work. With the ever increasing demand of higher mobile data & internet speed, these companies are expected to reap some benefits in the future.

Instacom Group (listed Oct 2012) & OCK Group (listed July 2012) are the main players which generates consistent revenue & profit, while R&A Telecommunication Group is not doing well.

Between Instacom & OCK, who is better? If you ask Instacom this question, surely it will tell you that it itself is better, so is OCK.

Lets check the balance sheet of the latest financial period ended 30th June 2013 for all 3 companies.

For market capitalization, both Instacom & OCK are quite close with about RM200 million, while RA is way behind at RM39.6 million.

Instacom OCK RA

Share price (24/9/13) 0.285 0.705 0.045

Total shares (mil) 702.2 284.9 879.0

Market cap (mil) 200.1 200.9 39.6

Net asset/share 0.22 0.24 0.10

Total Assets (mil) 266.3 149.9 113.4

Total Equity (mil) 152.4 63.4 84.7

Total Liabilities (mil) 113.8 86.4 28.7

Total Borrowing (mil) 80.8 59.5 11.1

Current 70.7 41.7 10.2

Non current 10.1 17.8 0.94

Cash 7.6 7 -9.6

Debt/Equity ratio 0.52 0.94 0.13

Dividend yield (%) 0 1.4 0

The NTA for both Instacom (22sen) & OCK (24sen) are also quite similar. However, debt to equity ratio for Instacom (0.52) is much better than OCK (0.94), which means OCK raises most of its business fund through interest-bearing debts rather than from shareholders.

Only OCK paid dividend for FY2012, which is 1sen per share, or 1.4% yield at share price of 70.5sen.

For financial performance, since we only have 3 quarters of results for Instacom now, I will only compare the latest 3 quarterly financial results for these 3 companies.

RM mil Instacom OCK RA


FY12Q4 20.0 6.5 36.2 3.8 6.9 -0.3

FY13Q1 30.2 6.8 30.6 2.2 4.2 -3.1

FY13Q2 36.3 7.7 33.3 2.6 7.7 0.9

From the table above, it is clear that RA is having a hard time. For Instacom, its revenue and net profit are in an increasing trend, while OCK is up and down. Instacom has caught and even surpassed OCK for its most recent revenue.

The net profit margin for Instacom is quite remarkable, which is 20-30% for the last 3 quarters. OCK PAT margin is just 7-10%.

Anyway, OCK is not purely a "telecommunication infrastructure" company. It also involves in green energy & power solution and mechanical engineering service business. For FY13Q2, its telecommunication segment which generates higher margin contributes 61% of total revenue and 81% of total net profit.

To compare the EPS and PE ratio of these stocks, I will estimate the FY13Q3 results using the average of past 3 quarters. With this calculation, the FY13Q3 net profit for Instacom, OCK & RA will be RM7mil, RM 2.9mil & RM-0.8mil respectively. Thus the estimated last 4 quarters net profit will be RM28mil, RM11.5mil & RM-1.7mil.

Instacom OCK RA

Est net profit 4Qs 28.0 11.5 -1.7

EPS (Sen) 3.99 4.04 -0.19

Share price (24/9/13) 0.285 0.705 0.045

PE 7.1 17.5 N/A

It seems like Instacom is undervalued and OCK is over-valued at the moment. If given a fair PE of 10x, Instacom's target price should be 40sen.

Of course this kind of earning estimation may not be accurate. Instacom seems to be in a growing mode and probably will earn more next quarter. OCK may produce some surprise as it has successfully put a leg into Myanmar market.

For jobs in East Malaysia, apart from Weida, Sarawak-based Instacom may have the winning edge for logistic reason. For jobs in West Malaysia, it is for all to grab.

At the moment, it looks like Instacom has a better prospect compared to OCK. Anyway, if you think that such business is worth investing in, you should invest at your own risk.

Monday 23 September 2013

Instacom: Your Tower of Strength?

After completed the reverse takeover of ACE market listed IPower in 8th Oct 2012, Instacom is aiming for a big future.

Instacom is a Kuching-based one-stop service provider to telecommunication players. It started its business since 2001 and is currently listed in ACE market wearing IPower's shell. Its business involves providing total solution for infrastructure development for mobile phone operators in Malaysia.

Among Instacom ambitious plans include:

  • To build a 3176.4km fibre optic cable network that link the entire peninsular Malaysia in 3-5 years time.
    • Phase 1: Johor (705km), Kedah (188km)
    • Phase 2: Perak (315km), Selangor (158km), N Sembilan (148km), Melaka (43km)
    • Phase 3: Pahang (215km), Terengganu (260km)
    • Phase 4: Kelantan (340km), Kuantan-Selangor (275km)
  • To lease the fibre network to multiple telcos to generate long term income stream without futher increasing the working capital.
  • To participate in the submarine fiber optic cable project between Johor-Singapore (24km submarine fibre & 48km land-based fibre)
  • To set up tower REIT (to build and lease telecommunication towers to telcos to generate consistent income).
  • To make at least one acquisition by year end of 2013 to expand its business.
  • To achieve RM300 million revenue by year 2015.
  • To expand to overseas. In Oct 2012's news, it claims to be invited by ZTE & Huawei to install telecommunication equipment in Philippines, Cambodia & Vietnam, as well as to jointly undertake telecommunication projects in Australia & New Zealand.
  • To transfer to Main Board soon with the inclusion of institutional investor. (Instacom has fulfilled criteria for main board transfer)

A plan is just a plan, how far can Instacom materialize its plan?

Here are some positives on Instacom's future:

  • Recent report by Ericsson foresees mobile data volume to rise by a CAGR of 50% from 2012 to 2018.
  • Instacom's regular clients include Maxis, Digi, Celcom, Huawei, Nokia Siemens & Ericsson. (claims to be the only one in Malaysia to have all major telcos as its clients, but what about OCK???).
  • Surely you can feel that there is more demand for high speed mobile data and internet in the country.
  • 4G/LTE roll-out is at infancy state in Malaysia and latest 5G coming soon at developed countries.
  • Build and lease of fibre network and telecommunication towers may be the trend as it can help to reduce telco's capex greatly.
  • Secured a RM205 million contract for telecmmunication infrastructure works in Sarawak in May 2013, which will be realized from FY2013 to FY2015.

Instacom's revenue & net profit are in a good uptrend since 2010. However, I'm not sure about FY2012's net profit.

RM mil Revenue Profit

2010 47.4 3.5

2011 87.7 10.0

2012 93.1 ?

1H2013 66.5 14.5

Instacom's revenue & net profit for the last 3 quarters since reverse takeover of IPower are also in an increasing trend. Thus, it is on track to achieve a good record year for its FY13. However, it may have quite a steep ladder to climb to achieve RM300 million revenue in 2 years time, unless it really goes for business acquisition.

       The soul behind Instacom: Kung & Ngu

While it has injected a huge asset into IPower since 8th Oct 2012, Instacom also brings along RM90 million debts and RM14.9 million cash. After 3 quarters, both debt and cash drop to RM79.8 million and RM7.6 million respectively, where 87% of the debt is short term debt. Currently its debt to equity ratio stands at 0.52. With limited cash in hands & heavy capex, Instacom may not be expected to pay dividend in the near future.

Instacom has just given away one free warrant for every 2 shares in the end of Aug 2013. The warrant conversion price is set at 33sen. If the current earning trend continues, Instacom may register a net profit of at least RM30mil for its FY2013. This will give an EPS of 4.27sen base on 702 million of ordinary shares. With this, PE ratio will be 6.5x using the share price of 28sen. If the warrants are fully converted, then the total shares will be 1054 million and EPS and PER will be 2.8sen and 10x respectively.

For a company with decent growth prospect but no dividend guarantee, would you put your money into it?

Anyway, recent share disposal by one of its main director Mr Ngu does raise some eyebrows.

Tuesday 10 September 2013

Buy, Hold or Sell?

Down from 1800 to 1700 and now KLCI is above 1750, has the storm gone? Or it is to prepare for an even greater thunderstorm?

We all know the reasons behind the mid August stock market slump especially in emerging markets - the impending tapering of QE in US and the fear of Syria war. Though the possibility of Syria war is getting lesser, but the gradual withdrawal of QE seems inevitable.

Locally, while 20sen increase in RON95 petrol price may reduce some financial burden faced by the government, it surely will increase the cost of living and affect investors' sentiment. We should expect lots of cut cost measures in the upcoming 2014 budget.

When the worry on QE withdrawal re-emerge later, there should be another round of panic selling in the stock market.

So, what should we do with our shares on hand? Should we sell, hold or buy low? 

You may think that the stocks you hold are fundamentally strong or undervalued, but they are usually not exempted from the drastic fall in share price in a bear market! Should you sell now and buy it low later? What if the bull beat the bear after you sold your shares?

I don't know...

For the past 3 weeks when KLCI started to dive, I actually did nothing, because the companies I hold are doing very well financially... As a result, I see my overall paper profit falls almost 60% at one point. Now even though most share price slowly crawl upwards, I think it is unlikely to reach previous peak within this year. Should I accumulate more shares at lower price or sell now in anticipation of another stock market slump?

If I sell my shares earlier and buy back at lowest point, then it is a perfect scenario. However, no one can predict market movement accurately.

I'm sure most "long term" investors especially the less experienced ones will have this dilemma now: buy, hold or sell? For speculators, perhaps it does not matter much. No matter what you decide, it is important to plan ahead & expect the worst.