Friday 24 July 2020

Bioalpha: A Fat Yet Thin Contract Secured

Bioalpha to boost exports of health supplements, eyes personal ...

On 22nd of July 2020, Bioalpha Holdings Bhd who is involved in agricultural development, R&D, manufacturing, distribution and marketing of functional foods and health supplement products announced that it has won a whopping RM2.1 billion contract.

It is a "Partnership Agreement & Supply Contract Agreement" with 2 China based companies to supply ingredients for health food and nutritional meals to private and public sector in China.

I thought Malaysia normally source from China but now it's the other way round...

Wednesday 22 July 2020

Limit Up Party For The Pharmas

Recently the stock market has really gone crazy. 

We know that gloves and tech stocks continue their climb to historical high since recovering from their lows in March. To them, a PE ratio of 50 seems a norm nowadays.

Today, it's the turn of pharmaceutical stocks who take center stage.

Since one of our minister publicly said that Pharmaniaga and Duopharma will be given the "bottling job" of potential Covid-19 vaccines in Malaysia, both stocks have limited up 3 times in 6 trading days.

Pharmaniaga's share price jumped 102% from RM2.25 to RM4.55 in just 6 trading days, while Duopharma's share price gained 82% from RM1.63 to RM2.96 in the same period of time.

The vaccines will be imported and the bottling process will be done by these 2 companies. Is such business lucrative?

Well, I guess the government might make this vaccination compulsory to all citizens and there are approximately 32 million of them in Malaysia. If each individual needs 2 to 3 injections, then it will be 64 million to 96 million vaccines needed. 

The government might give it for free though, and the profit margin might not be great.

It's explainable if investors and speculators fried up Pharmaniaga and Duopharma at this moment. However, it's weird that other pharmaceutical and nutraceutical stocks unrelated to Covid-19 vaccines also limited up today.

These stocks include AHealth, Kotra, DKSH, YSPSAH & Nova. The top 6 of top gainers today are all pharmaceutical stocks, and 5 of them hit limit up at 30% gain.

Boustead Holdings Berhad also gained 30% as it holds around 56% of Pharmaniaga shares.

It's strange that CCM & Apex also registered good gain respectively at 22% and 18%. Is this a coincidence?

Are people still thinking that CCM still holds Duopharma, and Apex is Apex Health? This is another example of irrationality to the extreme in stock market if it's true. 

Initially I think that DKSH might benefit from Covid-19 vaccines as it serves as the distributor of many well-known international pharmaceutical companies in Malaysia, such as Pfizer, Abbott, Novartis, Roche, Sanofi-Aventis, Boehringer Ingelheim etc.

If all Covid-19 vaccines are to be bottled in Malaysia, then DKSH might not get the "windfall". However, I think that some bottled vaccines might still be imported and distributed.

Anyway, current Covid-19 vaccine front-runner AstraZeneca is not distributed by DKSH in Malaysia.

Is the rally of pharmaceutical stocks sustainable? In this stock market euphoria, nothing is impossible at the moment. We'll see what happen next.

Wednesday 15 July 2020

JAKS Wants More Cash

When I saw Jaks's Bursa announcement on rights issue on 13/7/20, I thought that it has finally fixed the price and date for its rights issue.

To my surprise, Jaks revised its original proposed rights issue in order to raise more money, from min/max RM130mil/RM160.9mil to RM200mil/RM289.6mil.

Most shareholders expect Jaks to be cash rich in a couple of years time, so they might be "shocked" by this increase in cash call.

For me, I actually don't feel particularly disappointed. I just think that Jaks needs the extra money to do something, be it to expand its business, pay the debts or compensation whatever.

Compared to private placement and huge bank borrowings, rights issue with "free" warrants might be a better way. However, I'm not too comfortable with the large amount of warrants.

I believe that the money raised will be put into good use. It will be superb if it is to subscribe to the remaining 10% of the power plant sooner to make it 40%.

I don't know the directors and I'm not sure whether they are credible, cunning or selfish. Perhaps I'm too naive. 

The original plan is 4 existing shares entitled to 2 rights shares (est 40sen) with 1 warrant.
The revised plan is 5 existing shares entitled to 8 rights shares (est 22.5sen) with 4 warrants (ex 50sen).

If you have 1,000 Jaks shares now, you are entitled to 1000 x 8/5 = 1600 rights shares and 800 warrants. You need to pay 1600 x 0.225 = RM360 to subscribe in full.

The new TERP is RM0.50 based on 5-day VWAMP of RM0.9443. So the illustrative rights share price of 22.5sen represents 55% discount to TERP which is almost similar to the original plan (53%).

A total of 888.8mil issued rights shares stated in the table above is based on minimum RM200mil. If all rights shares are fully subscribed from existing 651mil ordinary shares, the number of rights shares will be 1,041mil in which RM234mil can be raised. So the total shares will reach 1,692mil before conversion of warrants. 

The table below shows Jaks original rights issue proposal for comparison purpose.

As mentioned in previous post "Jaks Worth Only 40sen?", even though the number of shares increase substantially and EPS will be adjusted lower, there will be no dilution to existing shareholders who subscribe to the rights issue fully.

If Jaks is able to generate the anticipated RM200mil annual net profit (from 30% shares), its projected EPS will be 11.8sen base on total shares of 1,692mil. Refer "Jaks: Cash Cow In The Making?" for estimated profit and cash flow from its Hai Duong power plant.

Following the rights issue, Jaks share price will be adjusted lower accordingly. If its share price stands at 88sen on the ex-date, it should be adjusted to around 48sen if I'm not wrong.

This calculation is based on "before = after", p = adjusted share price.

(0.88 x 5) + (8 x 0.225) = (5+8)p + 4(p - 0.50)

p = 0.48

Base on projected EPS of 11.8sen, if fair PE ratio is 10x, target price will be RM1.18. This represents a potential 150% upside from 48sen.

When Jaks achieve 40% shares in the power plant, then potential annual net profit could be RM260mil with a projected EPS of 15.4sen. This is a potential 220% upside from 48sen if PE of 10x is given.

At 30% shares, a potential cash inflow of approximately RM300mil per year into Jaks is expected from the power plant operation. If the management is to give out one third or RM100mil to Jaks shareholders as dividend, it will be 5.9sen per share. This is a 50% payout from its net profit of RM200mil and a 12% dividend yield from share price of 48sen!

If Jaks choose to distribute only 20% cash from its power plant as dividend which is RM60mil, it will be a dividend payout of 30% from its net profit. Dividend per share will be 3.5sen per and dividend yield is 7.4% from 48sen.

If the dividend yield is consistently high, then the market might give Jaks a PE higher than 10x.

How much will Jaks distribute if its shares in the power plant rise to 40%? At this level, potential free cash flow attributable to Jaks might reach RM400mil annually.

Nevertheless, these calculations do not factor in the conversion of warrants in the future.

At this time the power plant in Vietnam has already fired up according to plan and the bleeding Pacific Star project should be able to be completed in 2020. Investors have to wait for year 2021 when both units of power plant run at full steam.

However, there are risks as well, such as:
- further delay or failure of the power plants operation
- net profit & cash flow contribution from power plant turn out to be way lower than expected
- management of Jaks refuse to pay reasonable dividends 
- management of Jaks burn the cash with bad investment

Once the power plants are up and running in full throttle, not even a 10th wave of Covid or further global recession or stock market rout can prevent Jaks from making consistent profit and receiving fantastic cash flow for 25 years.

Please note that this is not a buy/sell call on Jaks. I can't guarantee all the calculations and information here are correct and accurate. Invest at own risk!

Saturday 11 July 2020

Penang Transport Master Plan

Previously we heard about Consortium Zenith, now it is Gamuda. Who is actually "in charge" of the multi-billion Penang Transport Master Plan (PTMP)?

PTMP first started in 2009 after a change in state government to replace the rejected Penang Outer Ring Road (PORR) project by previous government.

PTMP has 3 components:

Public transport
  • Bayan Lepas LRT
  • Air Itam Monorail
  • Tanjung Tokong Monorail
  • Georgetown Tram
  • Raja Uda - Bukit Mertajam Monorail
  • BRT (Bus Rapid Transit)
Highways & Roads
  • Pan Island Link (PIL) 1
  • PIL 2/2A
  • BKE - PLUS Interchange
  • Juru - PLUS Interchange
Penang Major Roads & Third Link (PMRT)
  • North Coastal Paired Road (Tanjung Bungah - Teluk Bahang)
  • Air Itam - LCE bypass
  • Gurney - LCE bypass
  • Penang Third Link (Undersea Tunnel)

PTMP is not a dead project. It has already started with PMRT, which consists of 3 major roads & an undersea tunnel third link. This RM6.3 billion project was awarded in 2013 to Consortium Zenith Construction Sdn Bhd (CZC) which is not a listed company. 

However, Vertice Bhd which is a listed company, has 13.21% stake in CZC.

CZC has awarded its first contract in Sep 2018 to a joint-venture company Buildmarque Construction which is 50:50 owned by Vertice and Vizione, another listed company.

This Package 2 PMRT contract involves a 6.0km Air Itam - Lebuhraya Lim Chong Eu bypass. It is worth RM815mil and will be completed within 36 months in year 2023. There is a 4.2km elevated portion but no tunnel.

Groundbreaking has been carried out in Nov 2019 and early works are reported to have started in the first quarter of 2020. However, due to Covid-19, the work will be postponed towards end of 2020.

Recently we read that Gamuda has been confirmed to be the Project Delivery Partner (PDP) of PTMP. This PDP is actually SRS Consortium Sdn Bhd led by Gamuda (60%), Loh Phoy Yen Holdings Sdn Bhd (20%) and Ideal Property Development Sdn Bhd (20%).

Ideal Property Development Sdn Bhd should be related to listed company Ideal United Bintang. However, I can't find its name in IUB's subsidiary list, so it might not be a listed company.

SRS Consortium has already been appointed PDP of PTMP since 2015, so this is not a fresh news. It's reported that Gamuda (or SRS?) will be paid a fee of 5-5.75% base on the project cost which is estimated to be RM46 billion.

So there are 2 PDPs in PTMP, CZC gets the small portion in PMRT while SRS gets a big chunk of it.

For SRS, the first 2 priority projects should be the Bayan Lepas LRT and PIL 1 Highway.

The LRT line from Georgetown to Bayan Lepas is about 30km in length with 27 stations. Its estimated cost is RM8.4bil.

The 19.5km PIL 1 links Gurney Drive to Bayan Lepas and may cost as much as RM7.5bil. The relatively high cost is due to the presence of 10km tunnel.

PMRT by CZC will be funded by land swap deal at Bandar Tanjung Pinang, while sales of land in the 3 man-made islands in Penang South Reclamation project will be used to partly fund the SRS projects.

I read that the LRT, PIL & south reclamation projects are not officially approved yet, perhaps due to a sudden change in the federal government. These projects are subjected to objection by some locals as well, especially Penang South Reclamation. 

Even though not exactly part of the PTMP, this reclamation project should also be implemented early as the sale of industrial lands in Island A is essential to fund the LRT & PIL.

Once green light is obtained, RM15 billion worth of construction contracts will be handed out. I think this is the largest construction project I've ever seen in Penang. Previous second bridge construction cost was RM4.5 billion.

PTMP will certainly help to stir up construction sector and its related industries such as steel, concrete and construction materials. 

As a Penangite, I hope that PTMP can be carried out successfully without further delay.

Wednesday 8 July 2020

Tech Stocks: Still Can Buy Now?

Apart from glove stocks, I think technology stocks are the best performers so far in our stock market. Most of them are close to or even break their previous high set before Covid-19.

This is certainly helped by Nasdaq Composite Index which achieves record high and currently stays in that territory of above 10,000.

Before MCO, I already thought that tech stocks were not cheap. At this moment, of course they are not cheap to me.

They were cheap only in the second half of Mac20 but I failed to grab them.

However, I wish to find out which tech stocks are "relatively cheaper". So I compare their current price with their previous 52-week high before Covid-19.

I just use the simplest PE ratio to compare. If the latest quarterly result is negatively affected by Covid-19, I will not include it in the EPS. I will use the best 4 of the last 5 quarters instead.

Best 4Q Pre-Covid Post-Covid Current PE

EPS High High Price
GTRONIC 7.85 2.44 2.50 2.37 30.2
INARI 5.07 2.09 1.91 1.85 36.5
FRONTKEN 6.76 3.06 3.06 2.82 41.7
MPI 58.9 12.96 12.16 11.98 20.3
UNISEM -1.31 2.93 2.54 2.44
JHM 5.46 1.78 1.68 1.68 30.8
D&O 2.8 0.925 0.86 0.83 29.6
KESM 22.2 12.00 8.86 8.45 38.1
FPGROUP 2.94 1.01 0.875 0.855 29.1
AEMULUS -1.14 0.325 0.355 0.315
MI 7.58 3.11 3.33 3.33 43.9
PENTA 17.48 5.58 5.87 5.80 33.2
DUFU 21.4 5.3 5.87 5.78 27.0
NOTION 7.29 0.92 0.915 0.715 9.8
JCY -0.94 0.365 0.39 0.36
GREATEC 10.05 4.05 4.99 4.79 47.7
UWC 8.94 3.39 4.33 4.21 47.1
VITROX 18.45 9.57 10.46 10.24 55.5
SAM 64.6 8.64 8.23 8.00 12.4
REVENUE 2.76 1.53 1.31 1.22 44.2
DSONIC 4.42 1.69 1.67 1.46 33.0
MYEG 7.1 1.7 1.61 1.51 21.3
KRONO 4.16 0.96 0.68 0.555 13.3
K1 0.86 0.245 0.595 0.425 49.4
GPACKET -4.8 0.935 1.65 0.66

This is not an exhaustive list of all technology-related stocks listed in Bursa Malaysia. Some may not be real tech stocks.

Stocks in red represent those which have already exceeded their previous high before Covid-19. About half of them have achieved this feat and this just shows how hot the tech stocks are now.

For others, it looks like they are not far away and are on the way to break their previous pre-Covid high except Krono, Notion, Revenue, KESM & Unisem which have more than 20% to go.

We can see that most tech stocks have a PE ratio of around 30 and above now. There are quite a few of them with PE around 50.

Those "relatively cheaper" ones by PE ratio include MPI, Notion, SAM, MYEG & Krono.

MYEG is not really a tech stock and recently market seems to give it a PE of around 20.

There are quite a lot of one-off gains in Notion's EPS so it's not really cheap until we have a glimpse of the profit contribution of its new projects soon.

SAM looks really cheap, may be because of its aerospace business which is expected to go downhill in the near future even though its equipment segment is growing quite well.

Krono has been largely affected by its huge impairment loss in its latest quarter. Its ability to recover its core business in a short period of time is in doubt. If it's able to turn profitable next quarter, then I think its share price will rise.

K1 and GPacket have cloud related business like Krono. However, recently both seem to be under "goreng mode".

MPI is well established with lots of cash. Market doesn't seem to give it a higher PE like others and I'm not sure why as I don't know much about this company. Perhaps it is already stable and lack growth potential?

Of course we can't buy or sell base on PE ratio alone. A stock with PE of 40 may have a PE of only 20 one year later if it grows and doubles its profit.

As almost all the good tech stocks have high PE now, I think investors should either wait for a major price correction or invest in those which have great growth potential.

Monday 6 July 2020

My Portfolio Jun20

Summary For June 2020

Numbers of stocks 14
Share Sold Notion @ 0.705 (all)
Share Bought JAKS @ 0.88

JHM @ 1.33

SCIB @ 2.06 (add)
Overall 2020
Portfolio Return Jun20 2.83%
KLCI Return Jun20 1.88%
Portfolio Return YTD20 -0.50%
KLCI Return YTD20 -5.53%

Portfolio @ End of June 2020

Stocks Avg May20 Jun20 Div20 Jun20% Overall%
BJAUTO 1.92 1.25 1.48 4.2 18.4 -22.9
DAYA 0.035 0.005 0.010
100.0 -71.4
DKSH 2.50 2.83 2.49
-12.0 -0.4
GESHEN 0.43 0.44 0.43
-2.3 0.0
HIBISCUS 1.05 0.56 0.62
10.7 -41.4
JAKS 0.88

JHM 1.33

KPOWER 2.03 1.98 2.30
16.2 13.6
KRONO 0.76 0.52 0.535
2.9 -29.6
LEONFB 0.505 0.315 0.310
-1.6 -38.6
MATRIX 1.42 1.70 1.81 6.00 6.5 27.5
PRLEXUS 1.15 0.65 0.54
-16.9 -53.0
SCIB 2.06 2.03 2.13
4.9 3.4
SCIENTEX 2.735 8.28 8.90
7.5 225.4

For June 2020 my portfolio achieved a modest gain of 2.8%. Year-to-date it's close to break even.

On 29th May, I bought  my first stock since February this year. I'd say it's quite late and there are a lot of opportunities missed.

My first purchase was KPower followed by SCIB on the same day. In early June, I increased my position in SCIB and added Jaks into my portfolio. Only in late June I decided to add JHM.

My confidence in current stock market was actually not that high, so I was thinking of whether I should invest short term "hit & run" style or mid to long term like I used to do.

I decided to choose the latter.

As mentioned in my previous articles about Jaks, I believe that Jaks's FY21 will be great. However, as this stock has bad "Qi" from its history, it might not go up to where everybody wants it to be in a short period of time.

Jaks, together with Datuk Abdul Karim's KPower & SCIB are all companies in construction sector, a sector which is not in positive trend like health-related and technology stocks. 

Nevertheless, they are not in negative trend either. It's just neutral. Upcoming 12th Malaysia Plan (2021-2025), along with Sarawak state election and possible snap GE15 might act as catalyst for construction sector.

There are many tech stocks that I wish to invest in, including MI, SAM, Frontken, JHM & Gtronic. Finally I selected JHM mainly because I feel that its business model and products have the potential to generate good growth going forward, even though its share price has already went up more than 10 times before.

5G and electric vehicles are the next big things. I read that JHM plays some parts in 5G modules and EV charging stations which attracts my attention. 

However, its automotive-related LED back light business might suffer in Q2. Hopefully it can get back on track after that. 

125-150 EV charging stations to be built in Malaysia by 2017

I have sold all Notion shares to lock in the profit after holding it for more than 4 years. While its FY20Q1 loss-making result was not a surprise to me, I was a bit disappointed that the management did not mention much about its "Stingray" & "Nixon" projects.

I still have plan to buy back Notion, mainly due to its original business expansion while the new face masks business will be a bonus if it's sustainable. The management has warned that April & May will be the worst but expected a recovery in June. With the face mask business supposedly starting in June, may be it can help to save FY20Q2 result.

Matrix still haven't announce its FY20Q4 (Jan-Mac20) quarterly result yet, after being granted a delay until 15th July. Its results will be negatively affected but I'd expect worse result for FY21Q1 (Apr-Jun20).

Even though property market has slowed down for years, Matrix still registers increasing revenue and profit throughout the years. Its unbilled sales still stay at RM1.2billion at the end of Dec 2019. At least shareholders can expect consistent dividends for the next 1-2 years.

If not for the sales of industrial lands and total 5 quarters due to a change in financial year end in FY16, Matrix is a rare company which shows annual increasing revenue and profit without fail since listed in 2013.

Now we are already in the second half of 2020. So far this year I disposed 6 stocks and added 5 stocks. There are too many stocks in my portfolio now.

I nearly add another stock in June, but I hold back the strong buying desire due to depleted cash level. I need cash to subscribe to Jaks rights issue!

Saturday 4 July 2020

Daya: Something Is Brewing?

Daya Material is a PN17 company which has defaulted its debts repayment. It is yet to submit its regularisation plan to Bursa Malaysia after countless delays.

As an Oil &Gas company, massive drop in crude oil price definitely doesn't help. Now its share price is at rock bottom 0.5sen for quite some time already. It looks like a stock in the queue of being delisted. 

However, there was a strange Bursa announcement by Daya yesterday.

Daya's independent non-executive director, who was once the head of group finance (finance department) of AmBank Group from 1992-2013, acquired 1 million Daya's shares via open market.

This acquisition was done exactly one month ago on 3/6/20 but only announced today. Why?

One million shares seem to be a lot but it's just RM5,000, perhaps a peanut for a listed company director's.

Why did he still acquire shares in an ailing company which has risk of being delisted?

As an "insider" of the company, if he is confident in its turnaround, why did he buy only RM5,000 worth of shares?

Anyway, Daya still has a mission to become one of the top 5 O&G players in the domestic market by 2025, according to its nicely designed official website.

Hopefully I can hear good news from Daya, hopefully the salted fish can come alive.

Thursday 2 July 2020

KPOWER: Power-Up To The Next Level

Around Q4 of last year, I came across news that a prominent figure became a new major shareholder of a company and its share price rose fiercely as a result.

The company was Kumpulan Powernet (KPower) and that person was the founder of Serba Dinamik Datuk Mohd Abdul Karim.

As I did not study Serba Dinamik much, apparently I did not know this person.

I decided to briefly look into KPower. Wow! The first thing I saw was that its share price has already gone up from 30sen to RM1.50 in 6 months, and the company was making loss without fail for the past few years.

Straight away, I lost any interest to study it further.

Once in a while we hear that some famous business persons or politicians bought shares in certain companies. So what?