Monday 28 December 2015

Senjayu To Match Eco Meadows

Today, The Star published an article about some upcoming property launch in Penang next year.

Projects worth RM41bil in Penang next year

What caught my attention is this:

IJM Land’s pipeline of projects for next year in Penang included the RM232mil Waterside Residence in The Light Waterfront project next to Penang Bridge, the RM64.7mil Trehaus Condo Villa scheme in Bukit Jambul, and the RM118.4mil Senjayu Terrace project in Jawi, South Seberang Prai.

The Trehaus and the Waterside Residences scheme would be launched in the second quarter of 2016, while the Senjayu Terrace would be introduced in late 2016.

“The price of the three property schemes ranged between RM730,000 and RM1.3mil,” he said.

IJMLand has purchased a 70-acre land in Jawi in 2013. Now we know that it will only launch its first project there in late 2016.

The first phase is known as Senjayu Terrace, which I think should be double storey terrace houses.

Its price will start from RM730,000 according to The Star report above, though it is still about one year away from the launch.

Few months ago, Eco World priced its Eco Meadows double-storey terrace from RM708k.

Wow, will RM700k become a common price for DST in mainland Penang soon?

After "unaffordablelised" the properties in Penang island, those giant property developers have certainly shifted their sight to Penang mainland, especially in southern area aided by the IKEA hype.

How much should Tambun Indah price its DST in Pearl City?

Tuesday 22 December 2015

Oil Palm Rising Star: CBIP

CBIP started to venture into oil palm plantation business in 2005 with a reported small plantation size of just 2,650 hectare.

Lets look at the financial performance of its plantation segment in order to know its history.

FY Revenue PBT
2005 8.9 -1.4
2006 14.7 2.6
2007 25.7 12.8
2008 53.2 21.8
2009 60.3 14.8
2010 80.5 27.4
2011 132.7 36.2
2012 0 148.3
2013 0.2 -5
2014 1.0 -11
9M15 1.4 -3.9

As we can see from the table above, CBIP's plantation revenue increased progressively from RM8.9mil in 2005 to RM132.7mil in 2011.

Its plantation segment also recorded increasing profit in this period of time.

Suddenly there was zero revenue in 2012 but PBT was RM148.3mil.

This was because CBIP sold all its wholly-owned plantation asset in Malaysia in 2012 with a disposal gain of RM154.4mil. Without this, its plantation segment actually registered a small operating loss of RM3.8mil.

Apart from about 7,000 ha plantation in associate & JV companies in Sarawak, from 2012 onward, everything started from zero in which CBIP started to plant oil palm trees in those huge landbanks in Kalimantan Tengah it acquired at the same time.

So, we can say that CBIP just started a whole new page on its plantation business in 2012.

It's like a newcomer in plantation.

Below are some brief history of CBIP plantation business.

  • Started plantation business with size of 2,650 ha
  • acquired 100% of Sanchiew plantation
  • acquired 100% of Empressa S/B
  • acquired 30% of Bahtera Bahagia S/B (associate company until today)
  • acquired 30% of Kumpulan Kris Jati S/B (associate company until today)
  • Total planted area reached 14,500 ha
  • acquired 85% of PT Sawit Lamandau Raya
  • disposed 100% of Sanchiew & Empressa (which are main revenue contributors)
  • acquired 94% of PT Berkala Maju Bersama (17,382 ha plantation land)
  • acquired 94% of PT Jaya Jadi Utama (15,430 ha plantation land)
  • acquired 94% PT Gumas Alam Subur
  • acquired 94% PT Karun Sumber Rezeki
  • acquired 94% PT Mayangan Jaya (21,674 ha plantation land)

It's clear that before 2012, CBIP's main plantation revenue came from Sanchiew & Empressa which were entirely sold in 2012.

Bahtera Bahagia & Kumpulan Kris Jati are its associate companies until today.

The management grabbed the opportunity to acquire huge plantation landbank in Indonesia by selling its profit-making smaller prime estates. I think it was a good move.

Now CBIP has 86,715 ha of plantation landbank and this can make it a significant player in the industry.

The management target to own 100,000 ha plantation in Indonesia, and set a target to plant 6,000 ha of oil palm per year.

Year New Planting (ha) Total Planting (ha)
2013 2700 4400
2014 1670 6070
9M2015 504 6574

Up to FY14 which ended on Dec14, CBIP has only planted a total of 6,070 ha of oil palm on its Indonesia land.

After 9 months into 2015, it has only planted an additional 504 ha, which was way below its target.

If we assume new planting to start in 2012, the oldest trees are just 3-4 years old which are essentially immature.

So, I think its plantation segment will continue to register loss in the next 1-2 years especially when CPO price stays lowish.

Its plantation in Indonesia is expected to generate revenue in the first half of 2017 when its first mill is expected to be completed.

I came to know CBIP since many years ago. It gives me an impression of a good company though I have never invested in it before.

CBIP has 3 business segment which are:
  • Palm oil mill equipment & work (POME)
  • Retrofitting special purpose vehicles (RSPV)
  • Oil palm plantation

POME is the main revenue & profit contributor for CBIP, with 75% revenue and 90% profit came from this segment in FY14.

Its Modipalm brand of palm oil mill seems to have a significant competitive edge, with higher OER, lower manpower requirement and offers more cost-saving compared to conventional mills.

CBIP's POME's order book is quite stable. It can always maintain the outstanding orders value at above RM400mil with consistent new orders.

Up to today (end Dec15), it has secured about RM450mil of new orders in 2015 and its latest outstanding orderbook stands at above RM550mil

However, this figure only represents about one year plus of earning visibility as its revenue from POME segment a year is about RM400mil.

Its Modipalm POM pioneer status has expired since Feb15 so its effective tax rate has normalised to 25%.

Previously the company's tax rate was just around 7%.

So, its latest 2 quarters' net profits have reduced significantly due to higher tax rate.

Nevertheless, it is expected to regain the pioneer tax status with its zero discharge waste management system for its POME division.

CBIP's RSPV division is about designing, manufacturing and maintaining special purpose vehicles such as ambulance, fire fighting, utility, military vehicles etc.

It contributes less than 20% of CBIP's revenue and even less in profit attributable to common shareholders as 49% net profit in this division will go to minority interest.

Personally I don't really like this division and will just ignore it. It will become more negligible when contribution from plantation starts to grow.

I opine that CBIP's management team is great. The company's cash flow and balance sheet is also strong.

Despite "poor" financial results in the last 2 quarters, CBIP's share price does not drop. This shows that most investors know this company well, and know what to expect.

At RM2.03 now, it is trading at actual PE of 11.5x, and potential forward PE of more than 15x.

The company bought back it shares regularly since mid-2015, which might show that the management thinks the company is undervalued at below RM2.

Without a doubt, CBIP is a solid company and worth for long term investment. 

Its 86,000 ha of plantation landbank is not a small size.

However, investors might not see desirable growth perhaps until year 2018, which is an "inauspicious" year which marks the 10 years anniversary of global financial crisis.

The positive catalyst for CBIP in the near term should be the pending new pioneer tax status for its POM.

I'm not sure when can it be approved since the government seems to look for more money frantically from anywhere possible to counter its reducing income.

The negative aspect of CBIP's plantation might be its slow new planting. 

Though it plans for 6,000 ha new planting a year, so far it only planted 500 ha in 2015. That's way out of target.

If it continues like that, then I think its attractiveness will be reduced.

Though I still do not own any CBIP shares, I foresee that I will be part of the company in the future.

Friday 18 December 2015

Scientex: Expects FY16 Performance To "Normalise"?

Scientex FY16Q1 Financial Result

SCIENTEX (RM mil) FY16Q1 FY15Q4 FY15Q3 FY15Q2 FY15Q1
Revenue 550.6 452.5 455.3 462.9 431.1
Operating Profit 82.1 77.1 58.4 48.0 41.5
OP% 14.9 17.0 12.8 10.4 9.6
PBT 80.8 77.0 56.5 47.3 40.2
PBT% 14.7 17.0 12.4 10.2 9.3
PATAMI 60.9 48.9 42.9 36.1 30.3

Manu Rev 392.0 319.9 318.8 327.0 320.3
Manu OP 38.0 24.7 20.0 17.4 14.7
Prop Rev 158.6 132.6 136.5 135.9 110.8
Prop OP 47.5 61.6 41.5 40.3 32.0

Total Equity 1007.6 1004.8 851.6 808.6 769.8
Total Assets 1818.5 1637.8 1488.9 1533.3 1475.8
Trade Receivables 404.8 321.7 325.2 340.2 303.2
Inventories 110.1 112.0 85.9 81.3 83.7
Cash 79.7 90.6 63.5 121.7 102.9
Prop Dev Cost 139.8 136.5 110.5 117.0 104.0

Total Liabilities 744.8 633.0 593.7 681.4 664.7
Trade Payables 336.1 308.3 255.6 232.1 246.6
ST Borrowings 253.0 149.9 202.5 311.4 297.9
LT Borrowings 70.0 75.5 80.2 50.2 66.6

Net Cash Flow -10.9 6.9 -20.3 38.0 19.1
Operation 63.3 189.9 93.2 16.4 1.5
Depreciation 13.5 11.4 11.0 10.7 10.7
Investment -117.7 -37.2 -29.6 -4.0 13.2
PPE purchase 117.3 100.0 54.3 18.8 5.1
Financing 43.6 -145.8 -83.9 25.5 4.5
FCF -54.0 89.9 38.9 -2.4 -3.6

EPS 26.97 21.66 19.02 15.98 13.69
NAS 4.46 4.17 3.77 3.58 3.47
D/E Ratio 0.24 0.13 0.26 0.30 0.34

Scientex has released its latest FY16Q1 result which saw its PATAMI jumped by 100% YoY. It is yet another record high quarter in revenue and net profit by a wide margin.

The next day, The Edge website came out with this article:

After achieving its best ever financial result in FY16Q1, Scientex expects FY16 performance to "normalise".

I guess most people will straight away think that this FY16Q1 is extraordinary and non-sustainable, and it will fall back to its "normal" level in the rest of FY16.

Actually it is not, it is the other way round.

Scientex record-breaking FY15 was hit by forex loss and higher tax rate. In FY16, all these will "normalise", which means that it will have less forex loss & usual tax rate, which also means that if its sales in FY16 remain the same as in FY15, it will enjoy higher profit.

Will Scientex's FY16 sales stay the same as FY15?

Its new CPP plant (12,000MT p.a) is set to start commercial production by end-2015.

Its BOPP plant (60,000MT p.a) is 90% completed and is on track to commence operation by mid-2016.

Its 20% expansion in PE film to 74,400MT p.a is also set to be completed in mid-2016.

How much revenue can Scientex generate in its FY16? I thnik it will be more than FY15 even though those expansion may only make meaningful contribution from FY17 onward (from Aug16).

Nevertheless, net profit generated is hard to predict as there might be higher start up cost and also depreciation charge.

SGW Ipoh (Mondi) which was acquired in Aug15 contributed about RM40mil in revenue in this quarter.

Without contribution of SGW Ipoh, its manufacturing revenue and profit will still hit a record high.

It will benefit from strong USD as 70% of its products are exported.

Property division continue to do well, despite lower profit QoQ as there was a revaluation gain of RM12.6mil in previous quarter.

Unbilled sales increased to RM632.2mil at the end of FY16Q1, compared to RM585mil 3 months ago.

Scientex's CEO said that the company will allocate as much as RM460mil for capex in FY16, which include RM200mil for property division.

For comparison, the company just spent RM100mil on PPE purchase in FY15.

In the first quarter of FY16, RM117mil has already been spent for PPE purchase, which include about RM54mil in the acquisition of SGW (Mondi) Ipoh.

It has plan to expand the capacity of SGW Ipoh later in 2016, and will continue to grow its packaging division by acquisition.

Of course its cash flow is "poor" temporarily due to the aggressive expansion, and its net gearing ratio has increased to 0.24.

The CEO mentioned in The Edge that FY16 will see BETTER RESULTS and BETTER OPERATING CASH FLOW.

Its operating cash flow in FY15 was approximately RM200mil.

After the announcement of latest result, Scientex's share price surged from RM8.60 to RM9.50 in 2 days time.

Is Scientex "expensive" now?

Personally I think it is not unfair to annualise its FY16Q1 EPS of 27sen, don't you think so?

Monday 14 December 2015

BJAuto: Strong Yen A Major Concern

Berjaya Auto FY16Q2 Financial Result

BJAuto (RM mil)FY16Q2FY16Q1FY15Q4FY15Q3FY15Q2
Operating Profit70.968.
Assoc profit1.24.23.6-0.72.4

MAS Rev425.7424.5360.2319.8436.3
MAS OP61.458.667.257.870.1
PHI Rev116.788.

Total Equity491.4462.0476.6447.2418.6
Total Assets865.0805.4732.0751.6688.1
Trade Receivables125.6149.1104.781.387.1

Total Liabilities345.9321.8236.4286.6255.6
Trade Payables195.6184.3121.4122.384.3
ST Borrowings0.
LT Borrowings0.

Net Cash Flow-42.0-61.790.3126.2126.8

Dividend paid94.168.498.170.844.4

EPS (sen)4.664.586.805.747.12
NAS (sen)43.1640.4458.5955.0351.80

There is really nothing much to discuss regarding BJAuto's latest FY16Q2 result. 

Revenue hits record high but profit margin drops.

This is largely due to unfavourable sales mix, unfavourable forex, and higher operating cost due to expansion of 3S and repair centers.

It remains debt-free, asset-light and continue to pay good quarterly dividend.

It has declared a second interim dividend of 2.5sen. Total dividend in FY16 is 4.75sen so far.

I invested in BJAuto simply because I like Mazda and I have confidence in Mazda's prospect in Malaysia.

I don't expect its FY16 financial result next year to be better than FY15. 

I just think that in the long run, it will continue to sell more cars.

I expect Mazda to challenge other Japanese auto makers in the country.

In year 2014, Mazda sold 11,382 vehicles representing 1.7% market share, while Nissan sold 39,932 vehicles with 6% market share.

So when Mazda manage to sell 40,000 vehicles a year like Nissan did last year, how much revenue and profit can it generate?

In 2014, Toyota & Honda sold 102,035 and 77,495 units respectively.

I think previously Mazda did not do well in Malaysia because of poor distributorship and lack of price competitiveness as they are not locally assembled.

It is not because Mazda's vehicles are inferior to fellow popular Japanese makers.

So when the volume and demand are low, resale value will also be low. This makes Mazda even more unpopular in the auto market.

With more established distribution network in Bermaz, introduction of CKD vehicles, superb SkyActiv technology and futuristic Kodo design, I think Mazda should be on par with Toyota, Honda & Nissan in the future in Malaysia.

These are just my opinion and I might be wrong.

Hyundai, Kia, Ford, Peugeot etc seems to offer great & exciting cars at very competitive price but the challenge they posed to those top Japanese brands here seems to be short-lived.

In other countries which I think their Mazda distributorship should not be too bad like the US, Mazda's sales still trail Toyota by a great distance.

Anyway, globally Mazda's sales have pick up in recent years after the introduction of Kodo design and Skyactiv technology which offer greater fuel-saving.

Mazda Japan does not do much research on hybrid and electric vehicles. So, it is understandable that it does not sell such cars in Malaysia.

This is a concern for me as I think hybrid/electric cars should dominate the future.

However, Mazda does collaborate with Toyota to share the latter's hybrid technology and in return, Mazda will share its Skyactiv engine technology with Toyota.

I think it is a win-win deal for both parties, and Mazda can concentrate to further improve its petrol engine's efficiency. 

Mazda does have a line-up for hybrid car in Mazda 3 in Japan. I'm not sure whether we can see it in Malaysia.

Mazda Skyactiv cars are given EEV (Energy Efficient Vehicle) status in Malaysia which can enjoy some tax incentive.

This tax incentive enables Mazda cars to be priced more competitively compared to others.

The EEV status is determined based on fuel consumption and carbon emission level.

All auto manufacturers are aiming for EEV status for sure. Honda City is already categorized as an EEV.

How fuel-efficient is Mazda's Skyactiv's vehicles?

For comparison, Mazda Biante's (Skyactic 2.0L) fuel economy is rated at 7.4L/100km, compared to Nissan Serena S-hybrid (2.0L) at 6.6L/100km, both with almost similar weight.

Mazda 5 2.0L Skyactiv, which is about 125kg lighter, is rated at 6.6L/100km.

So we can see that Mazda's Skyactiv petrol engine vehicles are very fuel-efficient and almost comparable to some hybrid cars.

Since BJAuto took over the distributorship of Mazda vehicles in Malaysia, it has launched almost all new or facelifted models available in Mazda's lineup.

More recent launches include:
  • Dec15 - CX-3 (CBU)
  • Aug15 - MX-5 (CBU)
  • May15 - CX-5 2.5L facelift (CBU)
  • Apr15 - Mazda 3 2.0L (CKD)
  • Apr15 - Mazda 6 facelift (CBU)
  • Jan15 - Mazda 2 (CBU Thai)
  • May14 - Mazda 5 Skyactiv (CBU)
  • Mac14 - CX-5 2.5L (CBU)
  • Mac14 - Mazda 3 2.0L (CBU)
  • Nov13 - Biante (CBU)
  • Jun13 - CX-5 CKD
  • Mac13 - Mazda 6 (CBU)
  • Aug12 - BT50 (CBU Thai)
  • May12 - CX-5 (CBU)

It will be good if Mazda can come up with small MPV to rival Avanza which is quite popular here.

However, there is no such Mazda vehicle available in the whole world.

Bermaz has just launched its B-segment crossover CX-3 last week to rival the hot-selling Honda HR-V, even though the price of RM135k (OTR with insurance) definitely does not help in the competition.

I have to admit that HR-V is a great car with great look, which should have lured some potential CX-5 buyers away.

High-spec HR-V is priced at RM118k, and now it is basically everywhere on the road.

Anyway, HR-V is CKD with 1.8L engine & 16-inch rim, while CX-3 is CBU Japan with 2.0L engine & 18-inch rim.

The only way for CX-3 to rival HRV here is to CKD the car and makes the high-spec RM120k, and offer a lower spec at RM100k.

According to analyst, upcoming new launches should be facelifted CKD CX-5, diesel-run Mazda 2/CX-5, CKD Mazda 6 and may be CKD CX-3.

Those diesel engine models will not generate big volume as Euro 5 diesel availability is still very limited in Malaysia.

Bermaz just brought in 2000 units of CX-3 from Japan and will not consider to import from Thailand as it is said that import from Thailand will incur more tax.

So, it will consider to CKD CX-3 in Malaysia and I hope so.

          Mazda CX-3

Mazda Corporation currently 3 plants in ASEAN region
  • Thailand Auto Alliance (50:50 JV with Ford)
  • Vietnam Vina Mazda (100% local control) 10,000 units/annum (left hand drive)
  • Malaysia MMSB (70:30 JV with Bermaz)

The other reason I like BJAuto is because of its assets-light operation. It does not own a manufacturing plant directly so there is no high capex, high depreciation charge and high operating cost.

It just concentrates on retailing and distributing the vehicles.

Mazda's manufacturing operation in Malaysia is controlled by MMSB which is 30% owned by BJAuto.

Its manufacturing activity is carried out by Inokom in Kulim which has a capacity of 50,000 per annum, in which BJAuto also has 24% stake in it.

As Inokom also assembles BMW, Ford, Hyundai, Land Rover and Mini besides Mazda cars, BJAuto is actually not totally about Mazda.

MMSB has its own dedicated body shop, trim & final assembly shop within Inokom. It has recently upgraded its paint shop and this has increased its annual production capacity to 25,000. 

MMSB will import CKD kits from Japan and gives them to Inokom for assembling, and Bermaz will purchase the finished products from MMSB for retail and distribution in Malaysia.

So, BJAuto has shares in all stages: MMSB (30%), Inokom (24%) and Bermaz (100%)

Besides, BJAuto also has 60% stake in distribution of Mazda vehicles in Philippines.

       Mazda Koeru Concept

Year 2016 will be a challenging year for automotive industry in Malaysia, mainly due to weakening of MYR and higher living cost.

BJAuto has hedged MYR/JPY at 3.10 earlier and it will expire at the end of calendar year 2015.

Now the exchange rate stands at above 3.50 level, which is 13% higher than 3.10.

So, it is not hard to predict that its profit margin will come under tremendous pressure next year.

BJAuto has decided not to increase its vehicle's price in the near future. Hopefully this can generate more volume to compensate lower margin.

For me, I will hold BJAuto's shares for long term and there is no real urgency to top up its shares at this moment.

BJAuto paid a total 14.6sen dividend in FY15 (ended Apr15 before bonus issue) including a special dividend of 3.25sen , representing about 55% dividend payout.

With plenty of cash, shareholders can expect dividend higher than its policy of at least 40%.

Malaysia's automotive duty structure for reference:

(sales tax has been replaced by GST since Apr15)