Monday 14 September 2015

Automotive Sector & Weak Ringgit

For the past one year, MYR has depreciated almost 35% against USD (RM3.20 to RM4.30).

As a result, export-orientated stocks celebrate.

What about those import-orientated stocks?


Weakening of MYR is definitely not good for importers as cost of goods will be higher and profit margin will be lower.

Automotive industry selling foreign brands are one of those importers that suffer.

Even though most of the non-national cars on the road are CKD (completely knocked down) which means they are assembled locally, some of the parts are still imported.

Below are some info I get from SinChew daily last week which shows localisation rate of 3 most famous non-national car brands and their forex exposure.

  • Toyota (UMW) local parts 40-50%, import 50-60% in USD
  • Honda (DRBHicom) local parts 50%, import 50% in JPY
  • Nissan (TChong) local parts 40-50%, import 40% in USD, 10% in JPY

As I also follow BJAuto closely, I know that about 40% of its CKD parts are sought locally and the rest should be imported from Japan in JPY.

  • Mazda (BJAuto) local parts 40%, import 60% in JPY

We know that USD has strengthened a lot against MYR, so UMW & TChong who import CKD packs in USD should have a hard time.

Until two months ago, JPY still remain weak due to Japan's QE.

So those companies who import from Japan have enjoyed a good time.

This is especially true for BJAuto who still sell quite a lot of CBU cars imported from Japan last year, though more CKDs are on the way.

However, in August 2015, MYR suddenly fell a lot against USD while JPY strengthen a little against USD.

This makes MYR weaken by almost 16% against JPY (RM310 to RM360) in just about one month's time!

       MYR/JPY surge in Aug15

       MYR/JPY going toward recent high

With this kind of situation, I think BJAuto should be most affected.

Nevertheless, the good news is, BJAuto's management has hedged the currency at RM3.15/100JPY until the end of CY2015. This is just slightly higher than RM3.10/100JPY in the first quarter of 2015.

What if the JPY still stays at RM3.60 level or even higher at the end of 2015?

I think this forex issue should not be overlooked.

To what extent will the weak MYR affect automotive sector in Malaysia?

A google search found this article in, which quoted research from Maybank IB.

USD exposure

UMW ~35% COGS (cost of goods sold)
TChong ~19% COGS

Every 1% variation from RM3.60 on a full year basis will affect net profit by

  • TChong 8%
  • UMW 4%
  • MBMR 1%

At RM4.30/USD now, MYR has weakened 20% from RM3.60 level. Does it mean that TChong's net profit can be potentially lower by 20 x 8% = 160% (loss???).

I mention "potentially" here because things are definitely not that straight forward. The RM4.30 level is not an average level on full year basis, those companies should have hedged the forex risk and are also involved in other business other than assembling & distributing vehicles etc

JPY exposure

BJAuto ~37% component cost
TChong ~5%
Perodua (MBMR/UMW) ~10%
Hino (MBMR) ~50%

Every 1% variation from RM3.03 on a full year basis will affect net profit by

  • BJAuto 3%
  • TChong 2%
  • MBMR 2%
  • UMW 1%

At RM3.60/100JPY recently, MYR has weakened about 19% against JPY from RM3.03.

So, will BJAuto's net profit be potentially lower by 19 x 3 = 57%???

BJAuto's net profit in FY15 (ends 30th Apr15) is RM219.5mil.

Another research house Kenanga reported that every 1% fluctuation from base rate RM3.05/100JPY will affect BJAuto's bottom line by 4%.

So a 18% change will affect its bottom line by 72%?? That's a lot!

Does it mean that BJAuto's annual net profit will be lower than RM100mil?

According to RHB Research, every 10sen change in MYR/100JPY will affect BJAuto's pre-tax profit by RM3-4mil.

However, I don't know the base rate RHB use for this.

If I assume the base rate to be around RM3.00/100JPY, a 60sen change (in similar scenario above) will reduce its pre-tax profit by RM18-24mil. 

This doesn't look too bad right?

In the end, I still don't know clearly to what extent weak MYR can affect automotive sector even with all these researchers' analysis.

Anyway, BJAuto's financial results should not be affected drastically until year end as the management has hedged MYR/100JPY at RM3.15 level.

CBU cars imported from Japan will be directly hit by strong JPY.

Fortunately for BJAuto, most of its popular models are already CKD which include CX-5, Mazda 3 and soon-to-follow Mazda 6.

However, recently-launched Mazda 2 Skyactiv is a CBU imported from Thailand. I think it should be traded in JPY and so its already lower profit margin will be further affected.

BT-50 pick-up truck is also imported from Thailand but it should not affect BJAuto much due to its low volume.

Other CBU from Japan include Biante, MX-5, CX-9, facelifted Mazda 6 and already phased-out Mazda 5 Skyactiv version.

All these models are not expected to generate high volume, except for Mazda 6 I guess.

As mentioned earlier, Mazda 6 will be available in CKD soon probably around end of the year.

The main problem for BJAuto is its imminent launch of CX-3 which is a mini SUV fully imported from Japan.

CX-3 should be a model that goes for volume with lower margin. So it might be affected heavily if JPY stays strong next year.

       CX-3 to rival HR-V

For BJAuto's CKD vehicles, about 60% parts are imported.

However, the import of these CKD packs is solely done by MMSB (Mazda Malaysia Sdn Bhd) in which BJAuto only owns 30% share.

BJAuto will then buy the fully assembled CKDs from MMSB for local distribution and export.

So, strong JPY should not have a direct effect on BJAuto's CKDs.

MMSB which is 70% owned by Mazda Japan will be more directly hit by strong JPY.

The question is, will MMSB still sell the CKDs cheap to BJAuto?

Automotive sector is very competitive in Malaysia. Lots of brands are doing "fire sales" to clear their inventories.

Almost for sure, BJAuto's profit margin will go under pressure from now on.

Can it still continue with its impressive growth in revenue & profit? This will very much depend on how many cars it can sell I think.

Do you think Mazda's car has the competitive edge? I think so.

Wednesday 9 September 2015

Huayang's Land In Bukit Minyak?

However, according to TA research at that time, Huayang will acquire 2 pieces of land in BM. The other land measures 3.14 acres and costs RM9mil.

I think Huayang did not announce the acquisition of "Land 2" above until today, or did I miss it somewhere?

In its latest FY15 annual report, Huayang mentions that it has acquired 8.04 acres land in BM for RM31mil, which is exactly the same as reported by TA.

The lands are planned for a condominium block and serviced apartments respectively, with estimated total GDV of RM314mil.

It is obvious that Land 1 has commercial title while Land 2 has residential title.

The location of Land 1 is confirmed at BM town center near Jit Sin Independent School but there is no mention on the location of Land 2.

Recently penangpropertytalk website reveals an upcoming property development by Huayang in Bukit Minyak which is pending approval by the authority.

This development comprises: 
  • 28 units 3-storey terrace  (gated & guarded)
  • 62 units 2-storey terrace  (gated & guarded)
  • 41-storey condo with 268 units

The location of the land is at Bukit Minyak/Juru area, next to a driving school which I used to get my motorcycle license.

       Huayang's Land 2 in BM?

Bukit Minyak/Juru area is notorious for congested traffic & foreign workers as it is sandwiched between lots of industrial areas.

However, I opine that it is still a good buy for Huayang if the location is really as shown.

The question is: Can a 3.14-acre land accommodate 90 units terrace houses and a block of 41-storey condominium (and also a block of low cost apartment)? It is about the size of 2-3 football fields.

I think it should be OK if the land shape is good.

For comparison, the land area of Huayang's Mines South condominium project is 3.7 acres.

This proposed 41-storey condominium is even higher than the 39-storey Exo Horizon at Juru Sentral not far away. It could be the highest building in the region.

If Huayang can get the approval to build gated & guarded landed community and condominium on this piece of land, then I think the potential GDV should be much higher than RM70.7mil. It could be above RM150mil.

Huayang should not face too much difficulty selling landed G&G houses here, but it needs to come out with something special in order to make the condominium a success.

That cross junction in front of AEON Big in Bukit Minyak should get a flyover ASAP...

Monday 7 September 2015

Gadang: A No-Brainer Bet?

Gadang was formerly known as Lai Sing Holdings Bhd which was incorporated in 1993 and listed in the second board of KLSE in 1994.

Current CEO Tan Sri Dato Kok Onn emerged as a major shareholder and took over the company's operation in 1997. The company's name was then changed to Gadang.

Gadang was transferred to main board in Dec 2007.

Gadang has 4 business segments which are
  • construction
  • property 
  • utility
  • plantation

Its revenue and PATAMI grow for 4 consecutive years to a record high of RM588mil & RM58.8mil respectively in FY15 which ends on 31 May 2015.

The main growth driver is no doubt its construction and property divisions.


Construction is the bread and butter of Gadang. It contributes 76% of revenue and 58% PBT for the group in FY15.

The table below shows recent contracts secured by Gadang.

Date Projects Value Completion
Jun14 RAPID phase 2 RM 350mil Sep15
May14 Cyberjaya Housing Project RM 1.055bil 2023
Oct12 RAPID phase 1 RM 312.8mil Dec13
Jul12 MRT2 Kota Damansara-Dataran Sunway RM 863.4mil
Oct11 Hospital Shah Alam RM 410.9mil 24 months
Jun11 MRT2 phase 1 Sg Buloh depot RM 23.9mil 8 months
Jan10 LCCT/KLIA runway (JV 70:30) RM 291.2mil Dec10
Feb08 Hospital Rehabilitasi Cheras (JV 55:45) RM 341.8mil May10
Aug07 LKSA package 1 (JV 50:50) RM 278.9mil Aug09

Its outstanding construction orders breached and stayed above RM1bil in FY12-FY14 thanks to the huge MRT2 jobs.

However, most jobs have been completed at the moment except the construction of MRT2 Kota Damansara - Dataran Sunway.

The Cyberjaya Housing Project is not included in the construction order book I guess, as it is regarded as a property development.

       MRT2 progress at Dataran Sunway, May15

Gadang does not get any new construction job since Jun14. Though the management expected only RM100mil construction contract in FY15, there is actually none.

Jobs that it is bidding for are mainly related to RAPID. So the slow down in Oil & Gas sector certainly does not do it a favour.

So, perhaps its outstanding construction jobs should be much lower than RM700mil after the completion of its RAPID phase 2 at the end of this month.


Gadang's property division did not do so well in my opinion compared to many other property developers.

It develops small projects here and there over the years.

Current active projects should be The Vyne in Sg Besi, Bandar Puncak Sena (GDV RM300mil) in Kedah and PR1MA project mentioned earlier in Cyberjaya.

I don't think Bandar Puncak Sena can contribute significantly to Gadang but The Vyne seems to be a good project with a GDV of RM500mil.

       The Vyne

The Vyne which sits on a leasehold land Gadang acquired in 2010 for RM33mil, comprises 800 units high-end condominium in 5 blocks, which will be developed in 3 phases.

Phase 1 (Block A & B) has been launched around year 2013/14 and the construction of Black A has reached level 20 in May15.

Phase 2 (Block C & D) has also been launched probably last year but I'm not sure what is the latest sales status of these 2 phases.

According to an interview by MalayMailOnline published in Feb15, phase 1 & 2 of The Vyne were approximately 67% & 45% sold respectively, while phase 1A of Bandar Puncak Sena was 40% taken up.

The Vyne might be linked to an upcoming MRT station so it should get more interest from the market I guess.

Besides, Gadang has signed an agreement in May 2014 with government company Cyberview to jointly developed a PR1MA project known as Knowledge Workers Housing Project in Cyberjaya.

This is a huge project with GDV of RM1.055bil on a 109.3 acres land which should start in Q1 of 2015 and completed by Q2 of 2023.

It is expected to generate more than RM100mil revenue yearly to Gadang over a period of 8-9 years.

Phase 1 of this project has a GDV of RM150mil. However, I'm not sure how many shares Gadang has in this partnership.

       Capital City

The talking point of Gadang recently is about the development of Capital City in Tampoi, Johor.

It is not a secret that Gadang's profit in the next 2-3 years will very likely be very very good because of this.

Gadang contributed the land for this project while Hatten Group & Sunbuild Development will build and sell the properties.

The whole Capital City development has a GDV of RM1.8bil. It consists of a retail mall known as Capital 21 (RM1.3bil), office suites or SOHO (RM200mil) and hotel suites (RM300mil).

So far the retail mall units have been launched in Dec13 and construction has started since Apr14. It is targeted to be completed in year 2017.

Gadang will get paid according to the construction progress of the mall.

In short, Gadang is entitled to a maximum of RM324mil for the whole project, with maximum profit of around RM220mil.

For the mall alone, Gadang can potentially get RM301mil, or profit of around RM200mil, paid in 4 stages in 3 years time until 2017.

Gadang will get payment for office & hotel suites only when they are launched later. The entire development is to be completed in 66 months according to the contract.

Gadang should have enjoyed some profit from Capital City in its FY15. Besides the land cost and tax, I think there is no other significant cost that Gadang needs to bear for this project.

In the next 2-3 years, I estimate that Gadang should get around RM50-60mil net profit per year in average from this project alone.

The group's overall PATAMI in FY15 is RM58.8mil.

With the desire to grow its property division, Gadang has replenished its development landbank recently by acquiring:

  • 62.84 acres freehold land in Semenyih for RM95.8mil in 2015 (potential GDV >RM450mil)
  • 9.5 acres leasehold land in Taman Melawati KL for RM33.1mil in Jul14 (potential GDV RM505mil)
About its latest property unbilled sales, the only figure I can get is RM210mil in Nov14.


Gadang diversified into utility segment since 2005 by acquiring 100% of Singapore-based Asian Utilities Pte Ltd (AUPL) which has several water concessions in Indonesia.

In 2014, AUPL acquired 85% stake in PT Dewa Bangun Tirta (DBT) who has 25 years water treatment & supply concession starting from 2013 in Jawa Timur.

Yearly turnover of DBT is about Rp20bil (RM6mil).

Besides water supply, Gadang is also involved in hydropower generation in Indonesia by acquiring 60% of PT Ikhwan Mega Power (IMP) for RM3mil in 2014. 

IMP has a 15-year 9 megawatt hydropower generation concession. However, the facility is still under construction and is expected to be completed by 2016.

Upon full commissioning, IMP is expected to generate yearly revenue of about Rp56bil (RM17mil).

In Jan15, Gadang added another 4 megawatt hydropower generation concession by acquiring 80% of PT Hidronusa Rawan Energi.

Management expects the whole utility segment to contribute RM20mil revenue in FY2016.


I think Gadang's CEO likes recurring income. That's why he diversified into oil palm plantation as well. 

Gadang acquired 5,181 acres of land in Ranau Sabah and planted it with oil palm trees in stages since 2009.

In 2015, trees planted in 2009 should have reached full maturity but too bad the CPO price is sluggish now.

Anyway, the plantation size is still small to make any meaningful contribution.

The management does not rule out further expansion of its plantation landbank in the future.

Overall, Gadang is a diversified group which depends on construction and property development.

Its construction division does not look too good at the moment with lack of contract award for the past one year.

Property division should do much better in FY16 with contribution from Capital City and The Vyne.

Earnings from utility segment should remain almost the same while plantation should see red again.

Gadang's PATAMI for FY15 is RM58.8mil. 

If we add in all the outstanding warrants which will expire in the end of this month, total shares will be 236mil.

So, Gadang's fully diluted EPS for FY15 will be about 25sen.

At current share price of RM1.18, it is trading at actual PE ratio of just 4.7x.

I think its PATAMI for FY16 will probably exceed RM70mil.

Its balance sheet and cash flow do not look bad either.

Any special reason why Gadang's share price is at RM1.18 now?

Is it because it is involved in property sector?

Anyway, what will Gadang do with the huge cash from Capital City land sale?

Thursday 3 September 2015

Geshen: Polyplas Rolled In

Geshen FY15Q2 Financial Result

GESHEN (RM mil) FY15Q2 FY15Q1
Revenue 36.23 17.73
Raw material used 18.07 5.70
Raw material % 49.9 32.1
PBT 4.22 1.75
PBT% 11.6 9.9
PAT 2.82 1.17
MI 0.52 0.00
PATAMI 2.31 1.17

Total Equity 64.4 48.2
Total Assets 118.3 65.9
Trade Receivables 26.7 10.1
Inventories 15.5 6.3
Cash 5.2 14.6

Total Liabilities 49.8 17.7
Trade Payables 21.6 5.9
ST Borrowings 7.4 6.0
LT Borrowings 3.5 1.0

Net Cash Flow -12.7 -3.1
CFOperation 5.4 -1.7
Depreciation 2.9 1.3
CFInvestment -33.2 -0.6
PPE Purchase 0.3 0.6
CFFinancing 15.1 -0.8
FreeCF 5.1 -2.3

EPS 2.99 1.52
NAS 0.89 0.63
D/E Ratio 0.09 Net cash

Geshen has announced its latest quarterly result which includes contribution from Polyplas for the first time.

It posts a 104% increase in revenue and 97% increase in PATAMI compared to preceding quarter of FY15Q1.

Is it a good result?

Geshen announced the completion of 75% Polyplas acquisition on 17th April 2015.

If Polyplas's result was added into Geshen from 17th April onward, then it will contribute 75 days out of 91 days (82.4%) available in Q2.

From my earlier post, I calculated that if Geshen and Polyplas were to maintain their financial performance in previous financial year, then the new Geshen should get RM11.8mil PATAMI for a full financial year.

This is about RM2.95mil in average per quarter.

So, its actual FY15Q2 PATAMI of RM2.305mil falls below the average.

Profit attributable to non-controlling interest is RM0.516mil in Q2. This should represent 25% of Polyplas if I'm not wrong.

So, 75% of Polyplas net profit which Geshen's shareholders get should be RM1.548mil.

Thus, Geshen's original business should contribute RM0.757mil to make it overall RM2.305mil in this Q2.

This looks like a lower than expected result but actually it is affected by higher tax in current quarter.

Tax rate in FY15Q2 is 33.2%, which is exactly the same as Geshen's FY15Q1 tax rate without Polyplas, in which both include a small sum of deferred tax.

However, Polyplas's effective tax rate for its FY14 was just 22.6%.

I'm not sure whether Geshen's tax rate will remain this high or drop back to normal level of around 25% in subsequent quarters, but I think it should drop.

As mentioned earlier, approximately 82% of Polyplas's profit was included in Geshen's FY15Q2. If it contributes fully, then it could be about RM0.33mil more than actual PATAMI of RM1.548mil from Polyplas.

Overall, I think it is a fair result for Geshen.

From the profit breakdown, it looks like Polyplas continues to grow but the old Geshen is shrinking.

Hopefully the management can get the positive synergistic effect out of the merger of these 2 similar companies soon.

If we annualize only FY15Q2's result, Geshen can get an annual PATAMI of RM9.22mil. 

With current ordinary shares of 80mil, projected EPS will be 11.5sen.

However, we must not forget that there are 30mil of RCPS which are convertible to ordinary shares up to year 2020.

Anyway, the imminent acquisition of the remaining 25% Polyplas shares should help to ease this earning dilution effect.

Lastly, this is what Geshen wrote about its prospects in its latest quarterly financial report:

Improved performance QoQ or YoY? I guess most readers will take it as QoQ improvement right?

Normally we don't see many companies commit themselves to hint at a "better" or "improved" future performance in the group prospects section in the quarterly report.

From a quick check on previous quarterly reports, Geshen did not do that before the acquisition of Polyplas.

I think most companies will just mention something like "satisfactory result" or "remain profitable" etc.

Perhaps this is just the style of the new major shareholder of Geshen?

Lets wait for the Q3.

Tuesday 1 September 2015

My Portfolio Aug15

Summary for August 2015

Numbers of stocks 12
Cash:Share ratio 1:10
Share Bought Jadi @ 6.0, 5.5, 5.0
Share Sold Latitud @ 7.38 (part)

Overall 2015
Portfolio Return Jul15 -8.0%
KLCI Return Jul15 -6.41%
Portfolio Return YTD15 41.0%
KLCI Return YTD15 -8.40%

Stock Portfolio @ End of Aug15

Core Portfolio

Satellite Portfolio

Stocks Avg Jul15 Aug15 Div 15 Aug15(%) Overall(%)
GESHEN 0.575 1.01 0.815
-19.3 41.8
GTRONIC 2.43 6.13 5.75 0.13 -6.2 136.6
HEVEA *0.775 1.08 0.94 0.00625 -13.0 21.3
HHGROUP *0.327 0.490 0.385 0.0033 -21.4 17.7
HUAYANG 2.32 1.90 1.81 0.05 -4.7 -22.0
INARI 0.82 3.44 3.10 0.044 -9.9 278.0
INARI-WB n/a 1.44 1.16
-19.4 n/a
JADI 0.056 n/a 0.055
n/a -1.8
JOHOTIN 1.54 1.51 1.47 0.035 -2.6 -4.5
LATITUD 2.09 7.17 7.38
2.9 253.1
MATRIX *1.77 2.54 2.31 0.1075 -9.1 10.5
MATRIX-WA n/a 0.585 0.395
-32.5 n/a
SCIENTEX 5.47 7.10 6.90 0.22 -2.8 26.1
TAMBUN 0.77 1.65 1.38 0.03 -16.4 76.2


  • All stocks suffer loss in Aug15 except Latitude Tree
  • HHGroup & Geshen are most heavily affected
  • No dividend ex-ed in Aug15
  • Add Jadi - an "opportunistic" investment
  • Missed the chance to add more Hevea shares
  • Sold some Latitude shares to get cash in last trading day of Aug15

  • Probably may add in more new stocks into portfolio if price continue to fall
  • To have maximum 15 stocks in portfolio, no more upward revision
  • Need to find more cash