Really Good Pocket Money

I don't have much knowledge in accounting matters, but I find an article from a blog called Serious Investing very enlightening, at least to me.

It is about free warrants.

I have received free warrants before. Tambun Indah gave free warrants for those who subscribe to its rights issue. I have to fork out money to subscribe to its rights issue. I can choose to subscribe or not to subscribe. If I don't, I don't need to spend more money but I am not entitled to the free warrants.

Now only I realize that there are really "free" warrants. This means that I will get the warrants without paying any extra money.

Even though the mother share price will be adjusted accordingly after the ex-date of free warrants, those who get the free warrants are almost guaranteed to gain due to the speculative nature of warrants trading.

The example given in the said article is Instacom.

Instacom gave free warrants without rights issue attached to it in August with 1:1 conversion at 33sen. On the ex-date (27th Aug), its mother share was traded last at 38sen.

From my calculation, after the ex-date, its mother share should be adjusted to 36sen, and its warrant value should be 36-33= 3sen. I'm not too sure whether this is correct as after ex-date, mother share closed at only 29sen and later warrants closed at 11sen on the first day. 

IF my calculation is correct, though mother share dropped from 36sen to 29sen (-19%), the warrants increased from 3sen to 11sen (+270%). 

This may explain why just 3 days later, Instacom director Mr Ngu started to dispose all his warrants at around 11sen.

Another director Ms Anne is perhaps smarter, she only came into action after the warrant price started to spike above 15sen level in end of October. She started to dispose all the warrants from 7th Nov, average selling price at 15-18sen.

In responding to queries from The Borneo Post, Anne Kung said that she did not sell her shares and is still managing the company. Her sale of warrants only came after the Budget 2014 announcement because there was a certain spike in interest in the company, and she thought it was an opportune time to pocket some money.

All those warrants are obtained absolutely free without paying a single sen. So it's a handsome pocket money indeed.

As far as I know, warrants are a way to raise money for the company. If the company needs money in the near future, it will not issue warrants only as I think not many people will want to take out their money to convert them to mother shares until the expiry date is near.

If the company really need money, they will issue rights. To encourage shareholders to subscribe to the rights, they will give free warrants.

Apparently Instacom is not in urgent need of fund, as it only gave free warrants and the warrants will only expire in year 2018.

What do you think is the purpose of this free warrants?

The executive directors did not want to hold a single warrant of their own company. They are not keen to put more money in. They sold for immediate profit.

       Instacom price chart

Anyway, there is no right or wrong. They are not against the laws. It is for investors to judge.

It does not mean that the management is bad or dishonest by giving free warrants like this. A lot of small shareholders are happy with their gain as well.

For me, I think I have to take another look at Instacom.

Boilermech: Good But Expensive

Boilermech FY14Q2 Financial Result

BOILERM	FY14Q2	FY14Q1	FY13Q4	FY13Q3	FY13Q2	FY13Q1
Revenue	55.3	51.5	34.6	44.0	45.2	42.0
PBT	9.6	8.5	7.6	8.1	7.2	7.4
PBT%	17.4	16.5	22.0	18.4	15.9	17.6
PAT	7.2	6.3	6.8	4.0	5.2	5.4
Total Equity	85.5	84.3	78.7	71.6	70.4	64.0
Total Assets	207.2	205.8	177.0	157.7	157.3	152.8
T/Receivables	51.2	59.3	61.7	49.1	45.5	43.7
Inventories	30.4	21.6	19.3	20.1	16.9	18.1
Cash	7.3	26.2	13.1	8.4	8.4	5.8
Liq Inv	59.6	40.7	27.0	15.9	25.8	43.4
Total Liab	121.6	121.5	98.3	85.9	86.9	88.8
T/Payables	34.6	34.7	28.6	26.5	30.0	28.7
ST Borrow	0.4	0.4	0.4	0.4	0.4	0.4
LT Borrow	0.5	0.6	0.7	0.8	0.9	1.0
Net CF	26.8	26.8	1.9	-14.0	-4.0	11.1
Operation	33.6	28.2	28.5	12.4	17.6	11.3
Investment	-1.4	-1.3	-22.4	-22.3	-21.4	-0.1
Financing	-5.4	-0.1	-4.2	-4.2	-0.2	-0.1
EPS	2.77	2.46	2.62	2.44	2.03	2.11
NAS	0.33	0.33	0.31	0.28	0.27	0.25
D/E Ratio	Net C	Net C	Net C	Net C	Net C	Net C

Boilermech latest result is good. Its revenue increases 7.4% from RM51.5mil to RM 55.3mil QoQ. Net profit rises 14.3% QoQ to RM7.2mil due to better margin in current quarter.

For 1HFY14, its revenue and net profit increase by 22% and 26% compared to corresponding period of last FY.

The better results are all due to better business activity in the company.

I think Boilermech will have no problem to produce RM30mil net profit for the whole FY2014. Base on the current total shares of 258mil before the proposed bonus issue, my own target price for Boilermech is only RM1.74 (PE ratio of 15x).

Apparently at current share price of RM2.44, even though it has proposed bonus issue and transfer to main board, I will not touch it unless it goes down below RM1.50, which is highly unlikely...

YOCB Remains On Track

YOCB FY14Q1 Financial Result

YOCB	FY14Q1	FY13Q4	FY13Q3	FY13Q2	FY13Q1
Revenue	46.5	40.6	45.1	50.1	42.0
PBT	7.1	5.2	7.6	7.6	7.0
PBT%	15.3	12.8	16.8	15.1	16.7
PAT	5.2	3.9	5.6	5.6	5.1
Total Equity	144.6	139.3	138.4	132.8	129.6
Total Assets	178.9	177.9	165.4	163.4	164.0
T/Receivables	41.1	40.0	46.8	45.7	39.3
Inventories	62.3	57.2	50.1	51.9	57.2
Cash	36.4	41.4	28.8	25.7	27.2
Total Liab	34.3	38.6	27.0	30.6	34.4
T/Payables	8.0	11.6	8.7	11.6	7.7
ST Borrow	23.2	24.1	15.1	16.0	24.0
LT Borrow	0.0	0.0	0.0	0.0	0.0
Net CF	-5.0	11.5	-1.1	-4.2	-2.7
Operation	-0.7	12.6	8.9	2.1	-5.1
Investment	-0.2	-2.0	-1.8	-1.5	-0.8
Financing	-4.1	0.9	-8.1	-4.8	3.3
EPS	3.27	2.44	3.51	3.53	3.18
NAS	0.90	0.87	0.87	0.83	0.81
Net D/E	NC	NC	NC	NC	NC

YOCB recorded a decent financial quarter, with its revenue and net profit increase 10.7% & 2.9% YoY compared to previous FY2013 first quarter.

YOCB's performance depends on seasonality. Its better performance in current quarter compared to previous quarter of FY13Q4 is due to higher sales during Hari Raya Puasa, especially the consignment and boutique sales.

The next 2 quarters (Oct 13 to Mac 14) will be YOCB's traditional strong quarters, as the year-end sales and Chinese New Year fall into this 2 quarters. I expect YOCB can achieve RM6mil net profit in each of these 2 quarters.

YOCB is in the midst of expansion. It has just bought a piece of land adjacent to its Nilai factory in September with RM5.7mil for future expansion. For the last FY, YOCB has launched new furniture related products which should be chairs and coffee stools.

       Home's Harmony chair

Thus, my conservative net profit forecast for YOCB in FY2014 will be RM21mil. This will give a forecast EPS of 13.1sen and target price of RM1.31 at PE ratio of 10x.

Though its growth may not be very impressive, YOCB gives fairly good dividend and are currently traded at a low forward PE of 6.6x and slightly under its book value of 90sen.

YOCB has earlier declared a final single tier 2sen dividend for its FY2013, making it a total of 4sen dividend with a yield of 4.6% at share price of 87sen. Its total dividend for FY2012 is 3.5sen.

Thus I will continue to hold YOCB and may buy more when I have extra money and nothing better to buy.

Instacom: Flat But Great

Instacom FY13Q3 Financial Result

INSTACOM	FY13Q3	FY13Q2	FY13Q1	FY12Q4
Revenue	36.4	36.3	30.2	20.0
PBT	7.7	7.6	7.0	7.0
PBT%	21.2	20.9	23.2	35.0
PAT	7.8	7.7	6.8	6.5
Total Equity	160.1	152.4	144.7	137.7
Total Assets	266.8	266.3	256.8	253.7
Work progress	27.7	27.5	29.2	34.4
T/Receivables	69.6	55.0	52.5	32.3
Inventories	4.8	4.1	3.6	3.0
FD pledged	11.3	11.0	10.4	13.5
Cash	13.5	7.6	7.3	1.4
Total Liab	106.7	113.8	112.1	115.9
T/Payables	19.6	24.3	15.8	17.4
HP Payables	2.3	2.5	1.9	2.2
LT Borrow	9.6	10.1	20.5	19.9
ST Borrow	69.0	69.7	65.2	70.1
Net CF	4.1	-1.9	-2.1	13.9
Operation	6.8	18.2	2.1	-15.9
Investment	10.9	8.3	0.8	-12.6
Financing	-9.5	-28.4	-5.1	42.4
EPS	1.11	1.09	0.97	0.99
NAS	0.23	0.22	0.21	0.34
Net D/E Ratio	0.41	0.47	0.54

Instacom posts a flat but good FY13Q3 result, with revenue, PBT & PAT almost the same compared to its preceding quarter. Its profit margin stays at above 20%.

As long as the profit does not fall, it is good enough for me.

Besides, its cash has increased while total borrowings reduce slightly, giving it a lower net debt/equity ratio of 0.41.

After nearly one month of turmoil in Instacom counter, which saw its share price fell from 35sen to 25sen, finally the cloud does settle to a certain extent. However, I still wish to know more about the RM205mil project award in mid 2013.

For the whole FY2013, Instacom's net profit may reach RM30mil, giving it an EPS of 4.27sen, or PE of only 5.9x at current share price of 25sen. Its fair value may be 43sen base on PE of 10x.

Instacom's strength is its specialty in telecommunication infrastructures field, but its weakness is lack of diversification in its business. It may have trouble if less projects are awarded to it in the future.

I think Instacom FY2014 prospect will still be good, if the government does not delay its roll-out of high-speed broadband, building more transmission towers and underwater cables.

I may start to accumulate Instacom shares, if its share price does not shoot up too much.

Weida: Disappointing FY14Q2

Weida FY14Q2 Financial Result

WEIDA	FY14Q2	FY14Q1	FY13Q4	FY13Q3	FY13Q2	FY13Q1
Revenue	71.3	88.0	96.9	98.6	111.0	72.3
PBT	1.9	14.0	3.3	13.7	9.2	3.1
PBT%	2.7	15.9	3.4	13.9	8.3	4.3
PAT	0.3	9.9	55.0	8.9	6.2	1.7
Manu Rev	38.2	54.2	42.5	53.9	56.2	42.3
Manu Profit	5.7	7.1	2.8	10.2	4.8	5.3
Work Rev	27.6	28.8	58.3	39.3	44.8	29.3
Work Profit	0.2	6.7	3.8	4.8	2.8	2.4
Service Rev	5.5	5.0	4.7	5.5	9.4	8.3
Service Profit	-0.2	0.5	-0.2	0.2	0.5	0.7
Prop Rev	0.0
Prop Profit	-3.5
Total Equity	348.5	353.3	347.6	216.7	207.7	205.2
Total Assets	632.0	652.4	603.3	576.4	546.4	580.4
T/Receivables	100.2	120.5	149.3	183.8	144.4	153.0
Inventories	53.1	46.5	46.2	42.8	42.3	46.2
Cash	229.4	259.0	263.5	63.1	65.9	87.9
P/ Dev Cost	4.0
Total Liab	272.7	285.3	242.1	329.7	310.9	347.6
T/Payables	97.8	101.7	95.6	102.7	98.8	102.7
ST Borrow	79.4	67.6	59.1	73.5	70.4	96.5
LT Borrow	79.4	105.0	76.0	85.0	119.7	131.6
Net CF	-63.4	-34.1	209.2	11.1	13.2	35.3
Operation	-22.8	-5.3	97.3	15.5	33.3	11.1
Investment	1.7	-0.6	133.5	-7.1	-9.9	-4.9
Financing	-42.3	-28.2	-21.6	2.8	-10.1	29.2
EPS	0.27	7.81	43.53	7.03	4.92	1.79
NAS	2.75	2.78	2.74	1.71	1.64	1.62

After posting an impressive FY14Q1 result 3 months ago, Weida's current FY14Q2 result is terrible. Its revenue drops 19% QoQ from RM88.0mil to RM71.3mil, while net profit drops 97% from RM9.9mil to just RM0.3mil.

Weida's manufacturing segment suffers significant drop in revenue and profit due to lower demand in this quarter. While the revenue from work segment remain flat, its PBT drops substantially due to one-off construction cost in this quarter and lower contribution from telecommunication towers. Its service segment suffers minor loss due to disposal loss of RM0.8mil in the quarter. 

Weida's property segment has just taken off with its maiden project Urbana Residences (GDV RM231mil) launched in early Oct. It may start to contribute to the group's profit next quarter. I estimate this project may give an average of RM10-12mil net profit every year to Weida for the next 3 years.

       Urbana Residences

Overall this quarter's results is disappointing, especially its core manufacturing segment. If the growth in manufacturing does not increase or sustain, then investing in Weida will be less exciting although it has just ventured into property and has good prospect in telecommunication tower business in Sabah.

Many people overlook Weida as a potential beneficiary in the RM1.5bil telecommunication towers projects in East Malaysia announced in Budget 2014, as Weida has a strong presence in Sabah.

I will keep Weida in my stock watch list, but most probably will not put money in it until subsequent quarter's results, as history suggests that its revenue & profits tend to fluctuate a lot.

Inari: Growing Stronger

Inari FY14Q1 Financial Result

INARI	FY14Q1	FY13Q4	FY13Q3	FY13Q2	FY13Q1	FY12Q4
Revenue	191.3	67.6	56.8	62.1	54.6	41.8
PBT	22.1	13.5	8.3	11.3	10.2	3.8
PBT%	11.6	20.0	14.6	18.2	18.7	9.1
PAT	21.0	13.1	12.4	8.7	7.4	5.1
Total Equity	176.8	153.4	110.0	97.6	94.3	82.9
Total Assets	406.2	366.4	181.3	176.2	164.3	148.6
T/Receivables	121.1	93.0	38.6	36.8	39.5	24.4
Inventories	107.4	105.5	24.7	24.5	24.0	22.2
Cash	48.9	44.6	31.0	39.2	34.0	40.8
Total Liab	230.0	213.8	71.3	78.6	70.0	65.7
T/Payables	138.7	120.2	48.0	54.2	52.9	48.3
ST Borrow	19.6	20.4	5.5	4.6	4.6	4.5
LT Borrow	17.8	10.3	13.3	8.8	7.2	8.4
Net CF	4.3	3.8	-9.9	-1.6	-6.6	25.2
Operation	7.2	86.3	20.1	17.6	0.4	22.7
Investment	-9.6	-112.2	-31.1	-17.2	-4.9	6.1
Financing	6.8	29.7	1.1	-2.0	-2.1	-3.6
EPS	4.69	3.69	3.68	2.67	2.24	1.67
NAS	0.38	0.35	0.32	0.29	0.28	0.25
Net D/E	Net C	Net C	Net C	Net C	Net C	Net C

Inari posts a good FY14Q1 results, boosted by contribution from newly-acquired Amertron and its own organic growth.

It is true that Inari's revenue will increase by 3x (from RM67.6mil to RM191.3mil QoQ) after Amertron acquisition, while net profit increases 60% QoQ from RM13.1mil to RM21mil. However, PBT margin reduces from 20% to 11.6% due to low margin from Amertron.

Out of the RM191.3mil revenue, Amertron contributes RM120.1mil. The rest of RM71.2mil that comes from Inari itself represents a slight improvement from RM67.6mil in the preceeding quarter.

Anyway, there is a RM4mil foreign exchange gain in the PBT because of stronger USD in this quarter. Without this special gain, Inari's PAT this quarter should be around RM17mil.

If based on Amertron's profit in FY12 before the acquisition, it will contribute around RM3mil net profit a quarter.

In previous post I gave a very conservative net profit forecast for Inari, which is RM44mil for FY14. It seems like I need to recalculate my own target price for Inari.

I think RM17mil x 4 = RM68mil, round up to RM70mil,  should be a conservative and safe forecast for Inari's FY14 PAT. 

Thus, base on 456mil shares (excluding 190mil warrants expire in 2018), my EPS forecast is 15.4sen, and target price is RM2.30 base on PE of 15x.  The dilution effect of the warrants will be 30% once all converted by 2018 which is still 4-5 years to go.

I think Inari will not have big problem to achieve a net profit of more than RM70mil in FY2014.

Inari announces its first interim dividend of 1.10 sen plus a special dividend again at 0.4sen, giving a total of 1.5sen all single tier. The first interim dividend of 1.1sen represents a 37.5% increase from previous year's corresponding quarter (0.8sen).

Excluding the foreign exchange gain in this quarter, Inari's financial performance is still good but is largely expected without big surprise. However, its near future should remain bright and exciting.