Saturday 31 January 2015

A Good Start To Year 2015

The first month of year 2015 has passed. I would say that the performance of KLCI surprises me.

In last year's January, KLCI lost 3.4%. This year it goes up 1.2% amid negative local market sentiment.

Brent oil price remain low at around USD50 and MYR continues to depreciate against USD. However, KLCI turns the table around by inching up for the first time since the "crisis" emerged in Oct14.

Has anything changed? Or just the emotion of investors have changed?

Perhaps market is boosted by enormous European QE and possible delay in US interest hike.

At home, government gave reassurance that everything will be fine, and mega projects will not be cancelled or postponed.

Even though KLCI gains just 1.2% in Jan15, quite a lot of popular stocks manage to register handsome gain of 20-30% in this period.

These popular stocks are mainly those which are expected to benefit from weakening of MYR against USD. Most of them not only recover from the heavy slump in the final quarter of last year, but also break their record highs!

Besides, oil & gas stocks staged a good recovery while most property & construction stocks also move out from their recent low.

For me, I'm still in the mode of collecting cash. 

I have a few targets which are in my watch list. With limited cash, I plan to buy carefully only when there is a significant drop in their share price like in Oct last year.

However, those stocks were climbing up everyday and some went into historical high. It seems like I have no chance to grab them, or at least I need to wait for a long time...

The consolation is, some of the stocks in my portfolio also perform well in Jan15, with only Scientex gives negative return in this period of time.

Overall it is certainly a good month for my portfolio, though I am yet to calculate the exact figure of gain.

Do you think current optimism can carry forward to the month of February?

Thursday 29 January 2015

Huayang Finally Comes To Bukit Mertajam

Huayang keeps its "promise" by acquiring lands in Bukit Mertajam (BM), Penang. If this acquisition is successful, it will mark Huayang's maiden foray into Penang property market.

When Huayang declared its intention to acquire land in Bukit Mertajam last year, I thought it would probably be somewhere near Juru area.

However, it turns out to be right in the old BM town center, which to me, is a bit of disappointment.

      BM - Big Hill Foot

According to analysts, Huayang proposed to acquire 2 parcels of land measuring 4.9 acres & 3.14 acres for total cash of RM31 million, even though Huayang just made official announcement on one of the parcel (4.9 acres) through Bursa Malaysia.

Land 1 & 2 are located at the same area according to analyst's description, which is at BM town accessible through Jalan Aston & Lorong Usahaniaga 1.

Huayang plans to build 720 units of serviced apartment and 36 units of commercial shoplots on Land 1 with an estimated GDV of RM242.8mil.

So it's likely to be a 3-block serviced apartment on Land 1, in which the acquisition is expected to be completed by mid 2015.

Land 2 has residential title and will only made available in early 2016.

After this acquisition, Huayang's outstanding GDV will increase by 11% to approximately RM3.1bil.

       St Anne's Church in BM

BM old town has passed its glorious time in which it was busy at day time and happening at night time.

Now, it is still busy and congested at day time, but relatively quiet at night. One thing for sure is, it is a heaven for foreign workers especially during weekends and public holidays.

Thus, as a BM folk, personally I don't like to stay in this area.

New residential properties are mostly developed at the outskirt of BM such as Alma & Juru. 

Nevertheless, there is a sign of revival of BM old town as developers started to clear squatters and build high-end properties here.

Ivory group who later paired with Dijaya (Tropicana), is one of the first to develop BM town center about 5 years ago with its luxury landed mixed development known as Aston Villa.

Sunway then followed with its Sunway Wellesley mixed development project which is currently still under construction. As we know, Sunway will not sell cheap.

As land and property price jumps in recent years, developers start to build condominiums.

       Aston Park (Aston Vista) - a stone throw away from Huayang's land

Ivory has earlier launched the second phase of its BM project which was a luxury condominium called Aston Park. However, this project was quietly disposed to another lesser-known developer with its project name changed to Aston Vista.

Condos projects (roughly <2km radius from BM town center) which are already launched or awaiting to be launched in this area include:
  • Seri Jaya condo (completed)
  • BM Residence (Tambun Indah - completed)
  • BM City (U/C)
  • Aston Vista
  • SkyVilla (Sunway Wellesley)
  • BM Park Lane
  • Dutamas Residence 
  • Sentosa Residence
  • Berjaya Condominium (U/C)
  • Casa Residence
  • Spectrum Residence
  • 79 Residence (U/C)
  • Prominence (U/C)  

       Possible location of Huayang's land in Bukit Mertajam

The map above just shows possible location of Huayang's land in BM. Though it might not be accurate, it should be very close to that area.

As we can see from the map, Huayang's land is near BM hospital and some famous schools here such as Jit Sin independent high school, BM Convent and BM High School.

The land is also located next to Aston Heights which is a luxury gated & guarded landed residential project.

Perhaps to many people, this area might be a very convenient place to stay.

Anyway, BM is a highly populated area. Huayang has to come out with a good plan and good price in order to be successful.

Friday 23 January 2015

Huayang: Affordable Homes To Lead The Way

Huayang FY15Q3 Financial Result

Huayang FY15Q3 FY15Q2 FY15Q1 FY14Q4 FY14Q3
Revenue 155.5 139.5 136.5 198.3 129.9
Gross Profit 59.3 45.2 43.2 65.9 47.2
Gross% 38.1 32.4 31.6 33.2 36.3
PBT 43.2 35.2 32.6 51.6 27.5
PBT% 27.8 25.2 23.9 26.0 21.2
PAT 30.9 26.0 23.9 37.8 19.7

Total Equity 449.4 436.9 410.9 387.0 362.4
Total Assets 877.3 828.0 811.0 824.2 764.0
Trade Receivables 73.3 68.1 62.6 75.6 51.6
Prop dev cost 175.5 159.5 145.1 142.2 142.0
Inventories 9.8 9.8 10.0 6.1 5.2
Other Current Assets 180.3 157.0 165.6 162.7 150.7
Cash 44.1 43.9 27.0 34.1 16.5
Bank Overdraft 14.4 10.9 15.0 4.9 8.6

Total Liabilities 427.9 391.1 400.0 437.3 401.6
Trade Payables 118.2 120.4 134.5 167.3 99.8
ST Borrowings 82.2 75.9 74.2 60.7 63.2
LT Borrowings 187.4 161.0 165.2 188.7 203.9

Net Cash Flow -0.5 2.7 -18.2 -0.4 -21.7
Operation 71.1 58.1 26.1 11.1 -51.8
Investment -50.7 -23.9 -11.2 -110.8 -96.8
Financing -20.8 -31.5 -33.2 99.3 126.8

EPS 11.72 9.84 9.07 14.32 7.46
NAS 1.70 1.65 1.56 1.47 1.37
D/E Ratio 0.53 0.47 0.55 0.57 0.72

As expected, Huayang posted a great quarterly result for its FY15Q3, in which revenue and net profit improve 11.5%  & 18.8% respectively QoQ.

Its 9MFY15 net profit of RM80.9mil is 82.2% more than previous year's corresponding period.

Apart from this, gross profit margin at 38% & PBT margin at 28% also reach record high.

Unbilled sales pick up slightly from RM717.9mil last quarter to RM733.3mil, as sales in Q3 surged 35.8% QoQ to RM149.8mil.

Sales achieved in Q2 & Q1 are RM110.3mil & RM81.9mil respectively.

Total sales after 9MFY15 is RM342mil, which is RM168mil short of its latest sales target of RM510mil for FY15.

Recent history suggests that Huayang kept its words by accomplishing mission impossible in achieving FY14 total revenue of above RM500mil.

Can Huayang do it again this time?


It certainly looks tough as RHB analyst reported that Huayang's sales performance of its newly-launched high-rise projects in FY15Q3 (Oct14-Dec14) is very discouraging.

Property market sentiment is poor and loan rejection rate is high at the moment.

Final phase of One-South with GDV RM195mil has just achieved 20-25% sales for units launched in Q3FY15, while Citywoods (GDV RM216mil) has only 11% take-up rate since launched in Sep14.

As its Q3 sales and unbilled sales pick up, initially I thought that most of it should be contributed by Citywoods...

So, its more affordable landed properties in Taman Pulai Hijauan & Bandar Universiti Seri Iskandar must be selling well I guess.

Its Puchong West development is expected to be launched soon in 1HFY16.

Sales target for FY16 is set at RM529mil, while it expects its total revenue to reach RM800mil in FY18.

       The Gardens @ Polo Park

Despite commendable operating cash flow, net debt to equity ratio increases to 0.53x compared to 0.47x in previous quarter as most cash are spent in land acquisition and dividend payment.

It still has not utilize its RM250mil Sukuk Murabahah Programme for further land acquisition.

Huayang proposes a first interim dividend of 5sen for FY15 which is similar to previous 2 years' corresponding periods.

I made a mistake earlier as I thought that Huayang has a minimal dividend payout policy of 40%. It seems like it does not have a fixed policy but plans to pay at least 25% back to shareholders.

I think Huayang should be able to register RM105mil net profit for its FY15, with a guesstimated EPS of 39.8sen. 

Base on fair PE of 8x, target price will be revised to RM3.18.

If it pays only 25% as dividend because of current high gearing, it will pay about 10sen dividend or 4.5% yield at share price of RM2.20.

       Upcoming integrated commercial & residential project opposite The Mines

Huayang's target price by analysts are low at RM2.20 (Kenanga) & RM2.28 (RHB) using the RNAV valuation method.

In order to increase its RNAV, Huayang needs to increase its total GDV by replenishing its landbank.

I will continue to hold Huayang's shares at the moment, and hope that it can close a good land deal soon.

Tuesday 20 January 2015

Inari Rights Go Ex-ed

Inari's rights issue (8:1) + free warrants (1 rights share : 1 warrant) are ex-ed today. Yesterday's closing price was at RM2.87.

So Inari's share price is adjusted to RM2.64 today, which is 1sen lower than RM2.65 calculated by RHB.

How to calculate the ex-ed & adjusted share price?

As we know, we actually get nothing free from corporate exercises like free warrants, bonus issues etc, as the share price will be adjusted accordingly on the ex-date.

That means what we own before and after the corporate exercise will be the same.

For example:

Lets say if I have 8 Inari shares, I will be entitled to 1 rights share and 1 "free" warrant.

I have to pay RM1.50 for 1 rights share.

Inari's share price closed at RM2.87 before ex-date.

My cost is: (RM2.87 x 8) + (RM1.50 x 1)

After ex-date, I will have 9 Inari shares and 1 "free" warrant.

Lets say P = adjusted Inari share price after the corporate exercise. So the warrant price should be (P - RM2.00), as its exercise price is RM2.00.

As before = after, thus (RM2.87 x 8) + (RM1.50 x 1) = (9 x P) + (P - RM2.00)

P = RM2.646

Theoretically its new warrant price should be 64.6sen.

I'm actually not too sure whether my layman style calculation is correct or not, but the outcome seems to match.

According to RHB, Inari's fully enlarged share base upon completion of rights and new warrants will be 804.5mil, which is 28% more than 629.6mil currently. 

So there will be a significant earning dilution once the new warrants which expires in 2020 are fully converted into Inari shares.

However, just look at RHB earning forecast for Inari until FY17 (Jun-17). Its net profit is expected to grow more than double in 3 years from FY14 to FY17!

       Inari's financial results forecast by RHB

With its rather aggressive expansion plan which include a new production space in Bayan Lepas which will start to contribute soon, I am confident that Inari can continue to produce better results for the next few years.

Friday 16 January 2015

The Fall & Rise Of Hevea

Hevea was listed in main board of KLSE exactly 10 years ago on 12th Jan 2005. Its IPO price was RM2.00 with total shares of 80 million plus 40 million warrants.

On its debut day, its share price rose as high as RM2.90.

Hevea is involved in particleboard and ready-to-assemble furniture manufacturing and trading. 

Traders or investors who are in the stock market long enough (not me) might have known that Hevea faced serious problems during the global financial crisis in 2008.

Its share price has plunged to a mere RM0.06 in Mac 2009 according to the historical price chart below.

Why did it worth close to nothing at that time?

Hevea's revenue was actually in a good & steady rise since listed until year 2008!

However, its net profit went the other way as it declined every year without fail since listed.

In year 2008, it posted a small PBT loss of RM182,000. Its net assets per share still stood at RM1.56.

Why was its shares traded at less than 10 cents in early 2009?

From its FY08 (ended 31 Dec 2008) audited account:

RM mil
Long term borrowings 151.7
Short term borrowings 54.3
Cash 3.1
Bank overdraft -13.0
Net cash -9.9
Total Equity 141.1
Net D/E 1.5x
Current ratio 0.66
Quick ratio 0.26

Its gearing was very high and its liquidity was extremely low.

In year 2008, the demand and price of particleboard fell drastically while the cost went up. 

Hevea was forced to suspend the operation of its particleboard production plants.

As a result, it suffered loss and could not generate enough cash flow to pay its huge short-term debts.

       From FY2009 Annual Report

So, it is obvious that this was the reason its share price tumbled to below 10 cents.

Anyway, why did Hevea accumulated so much debt even it was just listed not long ago at that time?

Actually after just one year of listing in FY2005, its net debt/equity ratio already reached 1.0x.

At that time, Hevea was building its second particleboard plant with an eye-popping investment of RM270mil. 

Its market cap at IPO was RM2 x 80mil = RM160mil only.

The new facility started operation in the 3rd quarter of 2006. It was expected to increase its production capacity of particleboard by 4-fold from 120,000m3 to 525,000m3 per annum!

If I knew about this at that time, I would have considered to invest in Hevea seriously, but I think I would be put off by its scary debts.

The market and profit margin of particleboard at the time was bad. With the strike of global financial crisis in 2008, Hevea almost went bankrupt.

       From Annual Report FY2008

From AR FY08, it was mentioned that abnormal strengthening of USD against the currencies of some of its export countries had reduced orders received.

Anyway, except Russian currency, I don't think that is the case now.

However, it reminds us that strengthening of USD is not always good for exporters. They may have lots of debts denominated in USD, they might import raw materials in USD, and strong USD in export countries may reduce the orders temporarily.

Hevea now is totally different from the past. Its products have good demand and it has paid off its debts substantially. It is currently a healthy company which is waiting to benefit from stronger USD.

Now many investors are chasing Hevea and its share price has reached RM2.00 again.

Looking back retrospectively, I think investors should be brave enough to grab Hevea shares at below 10sen in 2009, as its NTA was at RM1.56 and we can't expect the margin and demand for particleboard to stay low forever.

Despite the debts issue and lower profits, its revenue was actually quite good throughout the years.

The lessons learned from Hevea:
  • Massive business expansion is not always good
  • High gearing is a real risk in economy downturn
  • Always keep alert on the trend of demand and cost

I find that the debts of a few companies in poultry farming industry are even worse!

Tuesday 13 January 2015

Brokers Picks & Prediction In 2015

I received an email earlier from Hong Leong Investment Bank regarding 9 investment banks' forecast for KLCI and their top picks in 2015.

ALL of them predict that KLCI will gain in 2015, with highest target level of 1,970 given by MIDF, while lowest predicted level at 1,750 is given by AllianceDBS.

Should we have the reason to feel optimistic?

Which stock has the most "votes" among the brokers?

8 Tenaga
6 Gamuda
5 Airasia

3 BJAuto





2 Inari













Do you own any stocks listed above? Do you want a better & brighter stock?

Saturday 10 January 2015

Poultry Farming & Listed Companies In Malaysia

After struggling in year 2012, many poultry farming companies finally caught investors' eyes by producing much better earnings since the start of year 2014.

As a result, most of their share prices have gone up about 50% and some more than 100% in just one year time, outperforming the unfortunate KLCI by several streets.

Is it too late to join the poultry party now? Are those poultry farming companies still undervalued after the jump in share price?

I have found 9 listed companies involved in poultry farming and related business. I'll just do a simple comparison among them.

Not every company runs exactly the same business. Some rear chicken only for its meat (broiler), some only for its eggs (layer), some slaughter the chicken, some process the meat to nuggets etc (food).

Some companies also venture into related businesses such as marine food, chicken feeds, making fertilizer from chicken manure, manufacturing egg trays and trading animal health products.

Below are main business for the 9 listed companies

Company Business
QL Broiler, Layer, Feeds, Marine, Palm Oil
Huat Lai Broiler, Layer, Feeds, Fertilizer, Trays
CAB Broiler, Food, Marine, Retail
Lay Hong Broiler, Layer, Food, Supermarket
Farmbes Broiler, Layer, Food, Property
PW Broiler, Layer, Feeds, Cattle, Food
Teo Seng Layer, Feeds, Trays, Animal food & health products
LTKM Layer, Sand mining, Property
TPC Layer

Looking into their historical financial results, almost all except QL and may be Teoseng, have rather "choppy" performance in which net profit swing up & down despite consistently higher revenue every year.

Due to company expansion and inflation, we would expect revenue to go up consistently. So the fluctuating net profit must be due to fluctuating cost.

For pure broiler and/or layer farming, chicken feeds make up 70-75% of its cost of sales. So market price of corn and soybean which are used as chicken feeds will have a big impact on the company's performance.

Other than increase in poultry & eggs selling price, significant reduction in corn and soybean price since 2013 has largely improved the earnings of poultry farming operators.

Charts below show 10-year historical corn & soybean price.

As we can see from the charts above, corn & soybean price have dropped about 50% from their peak in 2012, mainly due to overproduction in the US.

From 2010, corn price rose steeply for almost 100% in less than a year, while soybean price also rose about 50% in the same period. Both stayed at high level throughout 2011-2012.

This may explain why most poultry farming companies suffered loss (except QL, Teo Seng & PW) or lower profit (Teoseng & PW) in calendar year 2012.

Now the corn & soybean price have suddenly dropped to about 8-year low. Do you think it will continue to drop to its 10-year low, or rebound, or move sideways in 2015?

From history, it can rise as fast as it falls.

Nevertheless, I think no one can be sure but surely it will have a great impact on poultry farmers' earning.

Among those 9 poultry-related companies, which one is the best to invest in?

I will use annualized figures to calculate the EPS to better reflect each company's latest performance, as I predict most of them will release even better results in the final quarter of CY2014 due to even lower feed price in the 2nd half of 2014.

So, this analysis which uses annualized earnings (except CAB), will not be very accurate.

QL Mac 2620 176.4 6.7 13.6 1.76 0.44
Huat Lai Dec 1222 44.6 3.6 20.5 0.58 2.44
CAB Sep 672 11.2 1.7 6.5 0.73 0.61
Lay Hong Mac 646 15.7 2.4 12.3 0.83 1.38
Farmbes Dec 432 2.7 0.6 2.8 1.15 2.74
Teo Seng Dec 363 40.9 11.3 27.2 1.12 0.26
PW Dec 287 14.1 4.9 6.5 0.88 0.40
LTKM Mac 187 29.7 15.9 16.9 2.40 NC
TPC Dec 79 3.8 4.8 20.1 0.41 2.25
NC = net cash
CR = current ratio

QL is the largest among all in term of market cap, revenue and net profit, with its diversification in businesses and also geographical location. 

QL has been holding a significant stake in Lay Hong since 2010. It currently owns 38.3% of Lay Hong and recently failed in a rather hostile takeover bid to acquire Lay Hong.

Teo Seng is a subsidiary of Leong Hup which was recently taken private and delisted in 2012. Leong Hup is the country's largest integrated poultry operator.

TPC which is currently a PN17 company, is a 52.91% subsidiary of Huat Lai since 2012.

Meanwhile, Farmbes recently appears as a subject of a RM380mil reverse takeover by Chinese-owned SHH (M) Holding Sdn Bhd.

US-owned Cargill Malaysia is reported to be keen on a controlling stake in CAB as well.

It seems like merger & acquisition activities are robust within the poultry industry.

Other than CAB, PW & Farmbes, all other companies' ROE are good at above 10%, especially Teo Seng, Huat Lai & TPC which are above 20%, thanks to recent lower feeds price.

It's noteworthy that Teo Seng and LTKM's net profit margin stand out from the rest at more than 10%.

In term of balance sheet, it looks like poultry farming is a capital intensive business as many companies are heavily debt-ridden.

Huat Lai, Farmbes & TPC all have net debt to equity ratio of above 2x while Lay Hong is at 1.38. Only LTKM manage to keep a net cash position with impressive current ratio.

From the table above, generally the more "investable" ones to me are QL, Teo Seng & LTKM. CAB & PW are not that attractive due to thin margin and low ROE, besides higher borrowings.

Stock Price #EPS PE NAS PB DIV DY%
QL 3.26 14.1 23.1 1.04 3.1 3.5 1.1
Huat Lai 2.85 51.6 5.5 2.52 1.1 4 1.4
CAB 1.01 8.5 11.9 1.16 0.9 0 0
Lay Hong 3.42 31.0 11.0 2.55 1.3 5 1.5
Farmbes 0.60 4.4 13.6 1.55 0.4 0 0
Teo Seng 1.85 20.4 9.1 0.75 2.5 *10 5.4
PW 1.52 23.1 6.6 3.71 0.4 5 3.3
LTKM 4.09 68.4 6.0 4.05 1.0 18 4.4
TPC 0.385 4.8 8.0 0.24 1.6 0 0
* may have more dividends
# base on annualized earnings

QL is no doubt a great company but its PE ratio and PB ratio are too high now.

Though Huat Lai has lowest PE, relatively low PB ratio and high ROE of 20.5, it also has scary amount of debts and very low current ratio.

Apart from Huat Lai, LTKM & PW have the lowest PE at 6.0x & 6.6x respectively, while both Farmbes & PW have the lowest PB at 0.4x. 

Teo Seng's dividend is the most attractive, followed by LTKM and PW. It is a little surprise to me that Huat Lai still pay dividend.

So it is not difficult to come to a conclusion that Teo Seng & LTKM are the two companies that suit my investment style.

Coincidentally, both are only in layer farming without broiler farming. Both export their eggs to Singapore as well.

Though Teo Seng is valued higher compared to LTKM now, LTKM seems too conservative in expanding its poultry business compared to Teo Seng.

LTKM who already built 26 units of terrace houses in Banting since 2011 even plans to go bigger into property development with its 20-acre land in Jenjarom!

Anyway, I think both are still not bad to invest in, depending on your taste & timing. 

For me, I don't know much about their future expansion plan but it seems like organic growth will be slow.

Besides Teo Seng & LTKM, PW is also worth a second look.

It just made its first venture into table eggs production since 2013 with its new layer farm at Pendang, Kedah.

From its FY13 annual report, PW mentioned that it was developing the 2nd phase of its layer farm which was expected to be completed by early 2015. This will double its daily capacity from 420,000 to 850,000 eggs.

Thus, even with lowish ROE at 6.5%, PW can be a dark horse with very low projected PE & PB ratio, along with satisfactory dividend yield.

Anyway, its tight balance sheet & cash flow remain a risk.

We can assume confidently that chicken & eggs price will only rise in the future. However, cost of energy, raw material and man power will rise as well.

I think corn and soybean price are particularly important to poultry industry, as it can fluctuate so much as shown earlier.

If corn & soybean price are to rebound furiously just like it happened in 2010, those companies' financial results will not be that pretty I guess.

Furthermore, if the raw materials for chicken feeds are imported in USD, recent weakening of RM against USD might add more pressure if corn & soybean price also go up later.

Anyway, I think investors can still anticipate good financial results from poultry operators for year 2015 at least.

As usual, investors need to study those companies in more detail. Invest at own risk.