Sozo: Please Keep to Promise

There is one stock that give impressive revenue & profit growth since its birth in 2005, and is currently trading at PE of 3.14!

Sozo, a china-based food company (Rizhao Hengbao), a Bursa IPO in 2010, was founded in China just in 2005, and incorporated in Singapore and Malaysia in 2006 & 2009 respectively.

Sozo's product can be divided into 4 categories: Ready-to-serve food, frozen vegetables, canned food and others. The main products are the meat and poultry (duck). It has exported some products to Japan, Korea and US.

    Sozo can food

With the cash raised from the IPO, Sozo plans to set up new poultry farming, breeding and processing facility, its third production plant in China and Halal food processing facility in Malaysia. It has inked the MoU for the Malaysia facility back in April this year.

Sozo's financial performance:

 

RM mil	Revenue	Net Profit	Profit Margin %	Profit Growth %
2006	58.1	7.1	12.3	N/A
2007	98.8	18.9	19.2	166
2008	200.1	45.7	22.9	142
2009	313.9	83.5	25.4	83
2010	381.6	94.0	24.6	13

Business growth since 2006 is impressive but becomes slower and slower where the net profit growth is just 13% in 2010. The profit margin is quite incredible! The IPO may come at the right time for Sozo to expand its business and geographical presence. However, the completion of new facility may take 2 more years.

2011Q1 result:

Q1 (RM mil)	2011	2010	Growth %
Revenue	86.1	77.3	11
Net Profit	34.1	23.1	47

Sozo looks ready to achieve another record year in 2011. However, the share price performance is bad, like most other China-based stocks. Investors still don't like China stocks I guess. Recently the share price has dropped 10% in one week last week to close at RM0.63, which is 21% lower than the IPO price of RM0.80! Anyone knows the real reason?

     Because of lower than expected dividend? Do you see a danger or an opportunity here?

Sozo declares first & final dividend of 1.8sen for FY2010, which is about 2.8% yield for the current share price of RM0.63, which from my calculation, is just 9% payout from 2010's profit. The ex-date is 25/8/2011. Looking back at the prospectus, Sozo said it intends to payout approximately 3 sen as FY2010 dividend. So Sozo does not keep up to its promise, which I think could be the main reason why its share price plunged 16% since the annoucement of dividend on 2nd June 2011. China's style?

Sozo also plans for secondary listing in Singapore instead of Hong Kong as mentioned during the IPO. Is this good or bad or neutral?

Food industry should be a resilient and viable one, but subject to fierce competition too. Sozo is growing well, is cash-rich and China is a huge market. Is it the time to get Sozo?

Tambun Indah to ride on Penang property boom

KUALA LUMPUR: Tambun Indah Land Bhd expects to record strong revenue growth in the current financial year ending Dec 31, underpinned by the sustained property boom in Penang.

Its managing director Teh Kiak Seng said on Friday, June 24 there was strong interest in its ongoing projects due to the rapid industrial expansion in Seberang Perai. This was also due to the spillover effect from the high demand for residential PROPERTIES [ ] on Penang island.

“At present, Tambun Indah has several ongoing projects on mainland Penang with total gross development value (GDV) of RM1.6 billion until 2016, which has positioned the group as a leading property developer in mainland Penang,” he said after the shareholders meeting.

Teh said since the beginning of the year, the group has recorded an increase in sales, both in terms of units and value, from its various projects.

“To date, we have sold more units than what we had sold in the first half of 2010. At this rate, Tambun Indah is likely to sell more units this year than what we did in 2010. Therefore, we are optimistic of a higher revenue base for FY2011,” he said.

Tambun Indah’s ongoing projects include Pearl Garden, Pearl Villas, Juru Heights, Carissa Park, Impian Residence, Dahlia Park and Tanjung Heights.

Launched in 2009 and 2011 respectively, Pearl Garden together with Pearl Villas have a GDV of RM277 million.

“The RM277-million GDV projects are expected to contribute 45% to the group’s revenues in FY2011, compared to 35.1% in FY2010,” he said.

Rights Issue: Good or Bad?

When a listed company declare rights issue, it means that the company wants to raise more money (cash!) by "selling" more new shares to its existing shareholders, not to the non-shareholders. Will it benefit  the existing shareholders?

Whether the rights issue benefit the shareholders depends on the purpose of the rights issue and how the company is going to spend the money raised. If the company is not making profit, has lots of bad debts, is difficult to get loan from banks and wants to get more money from the existing shareholders to pay debt or finance their operation, then this is not good.

If a financially sound company wants to get the money to expand its business or acquire other company's stake, then it should be good to shareholders.

Anyway, when the rights issue is exercised, total outstanding shares of the company will increase and the earning will be diluted.

The new shares issued usually will come at a "discount" price. Existing shareholders are given the option whether to buy it or not. Even if the shareholders buy the new shares at that "discount" price, it doesn't mean that they will gain anything, because the new share price after the rights issue will be adjusted.

For example:

Mr A has 1000 shares of company X at RM1.00. (total capital RM1000)

Company X declares rights issue of 1 new share for every 2 existing shares at RM0.50 each (50% discount!).

Since Mr A has 1000 shares, he is entitled to purchase 500 new shares at RM0.50 each.

If he decides to exercise his rights, then he needs to pay company X RM250 to buy this 500 shares at RM0.50.

So now Mr A has 1500 shares in company A that cost him RM1250 in total.

After the ex-date for the rights issue, the share price of the company will start at RM0.833, down from RM1.00 before ex-date.

As 1500 shares x RM0.833 = RM1250., Mr A does not gain or lose money from the rights issue. What has changed is that Mr A now has more shares in company X.

If Mr A decides not to buy the new shares, he can sell his rights of 500 new shares at RM0.334 per share and gain a net cash of RM167. After the ex-date when the share price falls to RM0.833, his existing 1000 shares will give him RM833, which is lower than his initial investment capital of RM1000. However, since he already gains RM167 from the sale of rights, in the end he also does not gain or lose money from the rights issue (RM833 + RM167 = RM1000).

Sometimes a company will give "free" warrants together with the rights issue. In the end, the final share price will also be adjusted and we can't earn any money from it. So the "free" and "discount" here are actually not really free and discount. There is no free lunch.

After the rights issue, the earning per share is diluted but it does not really affect the shareholders who buy the new shares under rights issue as their total shares also increase. For those who do not exercise their rights, their shareholding in the company will be diluted.

Charges in Share Trading

For any buy/sell transaction, there will be some charges & fees involved. Here are the 3 charges we need to pay for trading shares.

1. Brokerage fee: max 0.7%, min 0.6%, internet trading usually got discount, the rate depends on each brokerage firm. The rate may also be lower for higher contract value and intraday trade, eg PBB internet rate 0.42% (min RM12) for contract value =<RM100k, 0.21% for contract value >RM100k and 0.15% for intraday trade.

2. Stamp duty: RM1 for every RM1,000 gross value of shares (max RM200), rounded up to the next ringgit. Eg 1000 shares at RM1.00 - gross value RM1,000, stamp duty RM1.00. If the gross value is RM1,001, the stamp duty will be RM2.00 (next ringgit).

3. Clearing fee: 0.03% of gross share value (max RM1,000), no round up.

These charges are not important for mid-long term investors, but are very important for short term/contra speculators.

Eg. someone contra 10,000 shares of Airasia, buy at RM3.15 and sold at RM3.18, looks like he gains RM300 from the gross value, but the total fees here are: brokerage fee RM265.86, clearing fee RM18.99, stamp duty RM64, Total fees: RM348.85. So he still lose RM48.85. Similarly, if contra buy at RM3.15 and sold at loss at RM3.12, it is not a RM300 loss, but a whooping RM646.15 loss! Be careful.

Please correct me if the information above is outdated. Anyone knows which stock broker has the most attractive brokerage fee?