Protasco: Conspiracy & Secret Money?

As a new shareholder in Protasco for less than a month, it is shocking for me to learn that Protasco has filed a legal suit against two of its directors, as well as PT ASU.

Protasco sues PT ASU in order to claim back its deposits paid earlier and damages arising from the collapsed Oil & Gas deal. This means that Protasco has real difficulty in getting back the deposits paid, which is RM50mil (RM71.9mil according to CIMB).

The two directors Tey Por Yee & Ooi Kock Aun are non-executive directors. They are major shareholders in Protasco as well, at 17.7% and 3.74% respectively (from Annual report 2013).

Both are them are alleged to have committed conspiracy to defraud Protasco & making secret money out of it!

So, there is an apparent disharmony within Protasco's board. The failure to settle this issue internally might indicate its severity.

Other than the attractive dividend yield, I bought Protasco because I am optimistic of its property & construction arms. I predict that it can potentially post a surprise jump in profit in the next 1-2 years.

It is hard for outsiders to guess what has actually happened in this aborted O&G deal. The credibility and capability of its directors are put to serious test for sure.

How will this legal suit affect Protasco?

Will Protasco's fundamentals seriously affected? I don't think so.

Will the construction progress of DeCentrum & PPA1M affected? I don't think so.

Will it affect its property take-up rate? I don't think so.

Will it affect the award of new contracts from government? I don't think so.

Will it affect student enrollment at IUKL? I don't think so.

Will it affect its overall revenue in FY14? I don't think so.

Will it affect its net profit? Yes, there will be an impairment loss if it can't claim back the deposit. However, I'm not sure in which quarter this will be registered. The amount of RM50mil (or RM71.6mil) is huge!

Will it affect its current cash flow & balance sheet? I think it won't, as cash has already been paid earlier, and impairment loss registered later should be a non-cash item. Anyway, it's still a loss of cash amounting to 15sen (or 21sen) per share.

Will it affect the dividends payout? I think more or less it will. Investors might still get good dividend but it can be better if 15sen (or 21sen) per share is not lost.

Will it claim back the deposit eventually? I don't know, but I think it should be able to do so, though it may take a long time.

Are the management of Protasco credible? I don't know, but this should be the most important aspect for long term investors. There are comments that this O&G deal was not transparent from the beginning. Either the carelessness or dishonesty of directors is to be blamed. Anyway this company is generous enough to give high dividend payout.

All these are just my personal opinion which might not be true.

So, should investors sell at all cost or accumulate at this rare opportunity? Well, as usual, you make your decision at your own risk.

Lesson From Speculating In Good Stock

I keep record of my previous share trading transaction since I started trading in stock market in year 2006.

Readers who followed this blog should know that in my "early days", I tried to invest only in "fundamentally strong" companies with my very limited fundamental knowledge.

After a few years, when I have the luxury of working in front of a computer, I witnessed the up & down of share market live on the screen, almost everyday. 

So why not buy low and sell high to earn some money for a good dinner?

Inevitably, I started to speculate in stock market.

Nevertheless, to minimize the risk, I only speculated in those stocks that I think were fundamentally sound.

Recently, I plan to write a bit about my stock market investment journey. So I go through my previous transaction records. Guess what I found?

HUAYANG. Yes, it's that property developer.

From my record, I bought Huayang on 14th Oct 2010 at RM0.985 per share, and amazingly sold all at RM0.990 on 12th Nov 2010. It was a small loss after transaction fees are included.

I almost forgot about this transaction.

I bought it just shortly after Huayang's first bonus issues went ex-ed on 24th Sep 2010.

       Huayang: 2010

Huayang's share price fell soon after its first bonus issue, which should be the reason that caught my attention. Previously I like to speculate on those stocks which dropped a lot (catch a falling knife), as I thought I will have better chance to gain from them.

As you can see from the chart above, 3 months earlier in July 2010, Huayang is still an unknown stock with minimal volume. If I were a long term investor that time, the timing and share price of my entry would be great!

Unfortunately for me, I think I have lost patience in Huayang only after 1 month, as there was no U-turn in share price! I decided to dispose entirely at minimal loss.

What will happen if I hold its shares until today?

       Huayang: 2010-2014

After the first bonus, Huayang has another 3 bonus issues which are:

Oct 2011 - Bonus 1:3

Oct 2012 - Bonus 1:4

Oct 2013 - Bonus 1:3

If I bought 1,000 shares of Huayang at 98.5sen on 14th Oct 2010 and hold until today, I'll have 2,222 shares today. At current share price of RM2.40, it is worth RM5333. 

So from RM985 to RM5333 in 4 years, it is a 440% or 5.4 times gain not including the dividends!

For me, it is a 440% loss...

The lesson is, aim to hold good & growing company forever, until its fundamental has changed or profitability has declined.

Tek Seng: Power Up Toward The Sun

Current hot stock Tek Seng's share price has surged 157% in less than 2 months from 33sen to 85sen.

On 11 Sep 2014, Tek Seng announced that it has entered into an MoU with Taiwan-listed Solartech Energy Corp (SEC), who will invest RM100mil in Tek Seng's 86.1%-owned subsidiary TS Solartech.

       TS Solartech @ Penang Science Park

Tek Seng is primarily a manufacturer of PVC & plastic related products. It officially diversified into the manufacturing of solar photovoltaic cells in 2012 through its initially 60%-owned TS Solartech. Apparently Tekseng has increased its stake later to 86.1%.

I have written about Tek Seng earlier in July 2011 when it announced its decision to diversify into solar PV cells. I had a strong intention to bet on this stock, as I thought solar power will become something common like LED and smartphone. I even went to its new factory construction site at Penang Science Park a few times to see its progress.

Tek Seng's initial plan is to start with one production line in the first quarter of 2012, and gradually increase to 6 lines by 2016. 

According to The Star report in 2011, TS Solartech is expected to generate RM130mil to RM170mil revenue in year 2012.

If it can achieve RM130mil revenue, and if we assume a conservative net margin of 5%, it will be RM4mil net profit for Tek Seng with 60% stake. This will be more than half of its RM7.1mil net profit from its existing business in 2011.

I did not invest in Tek Seng straight away, as I wish to see the actual contribution from its solar division first.

       Tekseng's PVC flooring products

Tek Seng's solar PV cells production started only in June 2012. So for FY2012, it achieved revenue of merely RM0.21mil, which was a far cry from its "expected" revenue of RM130-170mil. It suffered RM7.65mil pre-tax loss as a result.

When TS Solartech contributed fully in FY2013, its revenue increased to RM12.4mil, but pre-tax loss has widened to RM13.9mil.

For the latest first half of FY2014, revenue from solar division jumps significantly to RM20.7mil (cumulative 6 months period), while PBT turns green at RM1.15mil.

However, if it is not because of "other income" of RM6.9mil, its solar division actually still suffers pre-tax loss of RM5.7mil in 1HFY14. I'm not sure what makes up "other income" here.

The good sign is that revenue in solar division has picked up greatly, and the loss has narrowed a bit, though it is still far behind its expected revenue of RM130-170mil.

If TS Solartech achieves greater economies of scale later as it ramps up its production capacity, it can anytime turn the tables in style.

In early March 2013, Tek Seng announced its plan to expand its 60MW plant to 640MW (production capacity) by 2015, with a target of eight production lines by 2016. It is more than 10 times increase in capacity!

It has already spent RM120mil on its plant and will need another RM480mil for expansion. This should be the purpose of SEC's RM100mil investment in the MoU.

Tek Seng is a small company with shareholders equity (net assets) of just RM134.6mil. The investment in its solar division seems to be massive. Even after its share price has more than doubled, its market cap is only at RM200mil.

Anyway, Tek Seng's stake in TS Solartech will drop after the investment by SEC.

       Solartech Energy Corp, Taiwan

Nevertheless, it is hard to predict Tek Seng's financial performance and fair value at the moment. 

It might have increased its production capacity but I'm not sure regarding the demand of solar PV cells and its factory utilization rate. It was earlier reported that there was an oversupply of solar cells mainly from China, which has caused a drop in its selling price.

For those who have taken position in Tek Seng in the past 1-2 years, they are surely handsomely rewarded from their patience right now.

At current share price of 84.5sen, is Tek Seng still undervalued or overvalued? I don't know. Can its bottom line explode next year? I don't know.

As usual, higher risk higher return. I do not have enough patience and I am not willing to wait and take the risk earlier, so I can only punch my chest now.

Head-To-Head: OSKProp vs Huayang

In contrary to some analysts who do not expect a good year for property sector this year, property sector actually does quite well in term of sales and stock price performance.

Since the beginning of this year I have removed those property stocks from my watchlist. Now I know that it is a mistake. The consolation is, property stocks still take up quite a big percentage in my portfolio.

One of the stock I missed dearly is Huayang. 

I think not many investors will deny that Huayang is a great stock to own for long term. I am "craving" for it for quite some time but I don't know why I didn't buy it. 

Perhaps when the stock price keeps on breaking new high, it kind of stops you from buying.

I was very tempted to buy its shares when it dropped to below RM2 early this year. However at that time, I think I have to be disciplined enough not to add more property stocks. Furthermore, its high gearing also further strengthen my decision not to buy.

Now I can only regret my stupid decision.

At the same time, OSKProp started to catch my attention after it released its full FY2013 result. Nevertheless, I'm not sure why I did not have any urge to study it further, perhaps because it is also a property stock.

Now OSKProp has already released its financial result for the first half of 2014, and it is just too hard to ignore it.

Both Huayang and OSKProp are small-mid size property developers that are growing at the moment. This can be seen from their latest financial results.

As OSKProp financial year ends on 31 Dec and Huayang on 31 Mac, for easier comparison I will consider Huayang's FY14 to be 2013 and similarly for earlier financial years.

Throughout the last 5 years, in general both Huayang & OSKProp achieve consistent growth in revenue and PATAMI.

However, Huayang's revenue and PATAMI are higher compared to OSKProp, especially its PATAMI.

The PBT margin of both companies are almost similar. So the relatively lower PATAMI for OSKProp might be due to more profit to minority interest (Sutera Damansara is 51% owned), while all recent Huayang's projects are 100%-owned.

Because of bonus issues in 3 consecutive years in 2011, 2012 & 2013, Huayang's EPS is declining slightly for the last 2 years despite increasing PATAMI. Meanwhile OSKProp's EPS is in a steady climb.

How about the future earnings of both companies? We can look into their recent sales figures as this will give some earning visibility for the near future.

OSKProp locked in more new sales compared to Huayang every year for the past 3 years. So, unbilled sales of OSKProp are higher as well.

In the last 3 years combined, OSKProp has generated total new sales of RM2.03bil compared to Huayang's RM1.65bil.

This means that OSKProp's revenue for year 2014 & 2015 will probably overtake Huayang. I predict that OSKProp's PATAMI may also surpass Huayang in 2014. These can be seen from the latest financial results by both companies.

Nonetheless, Huayang can still prevent this with more aggressive new launches in the second half of 2014.

For ROE, Huayang is excellent at above 20% mark, most probably in 2014 as well. However, do expect OSKProp to break above 20% in 2014.

High gearing is Huayang's main "problem" at the moment, due to aggressive landbanking activity since year 2011, especially the purchase of Puchong's land that cost RM158mil.

OSKProp looks like it can become a net cash company if it does not buy land this year.

Table below shows recent land acquisition of OSKProp & Huayang (might not be accurate)

Date	Location	Size (acres)	Cost (RM mil)	Project
OSKProp
Sep 2011	Cyberjaya	16	86.5	Pangaea
Feb 2012	Shah Alam	13.73	45.4	Gravitas
Sep 2012	Bandar Sri Damansara	1.06	12	Opus
May 2013	Shah Alam	2.91	15.2	Emira
Huayang
May 2011	Kuala Lumpur	1.55	32	Sentrio Suites
Jun 2011	Shah Alam	3.73	13	Metia Residence
Aug 2011	Johor Bahru	2.1	10.7	Citywoods
Apr 2012	Hulu Kinta	21	15.2
Oct 2012	Puchong	29.2	158
Jun 2013	Seri Kembangan	3.73	56.9
Aug 2014	Hulu Kinta	7.2	25.1

For the past 3 years, Huayang spends almost 2 times more than OSKProp for land acquisition. OSKProp needs more cash to construct its Atria shopping mall I guess.

In term of dividend, generally Huayang pays more dividend per share due to its superior earning.

However, OSKProp also pays good dividend historically if we look at its dividend payout ratio from net profit. Both OSKProp and Huayang are quite even in dividend payout for the past 3 years at around 40%.

At current share price, Huayang has a decent dividend yield of 5.0% (RM2.42), while OSKProp's dividend yield is at 3.1% (RM2.78).

       Metia Residence (Huayang)

As mentioned earlier, base on last 3 years' sales figures, OSKProp might overtake Huayang in term of revenue and profit. However, this will also depend on their respective sales this year and in the future.

Who has a brighter future?

As Huayang has acquired more new lands, it is not a surprise that it plans to launch lots of projects (up to RM1.09bil) for its FY15 which ends in Mac 2015. So far this year it still hasn't officially launch any projects.

The table below shows recent and future new projects launch of OSKProp & Huayang. (might not be accurate)

Year	OSKP		Huayang
	Project	GDV	Project	GDV
2011	Mirage By The Lake	466	Parc (OneSouth)	154
	Mirage Residence	175	Gardenz (OneSouth)	160
	Atria SOFO	200
2012	Vale (Sutera)		Flexis (OneSouth)	183
	Paragon (Pangaea)		Pulai Hijauan
	Solstice (Pangaea)	340
2013	Eclipse (Pangaea)	398	Greenz (OneSouth)	194
	Almira28 (Sutera)		Metia Residence	156
	Vale II (Sutera)		Sentrio Suites	213
2014	Roseville (BPJ)
	Gravitas	150
TBA	Emira	250	Citywoods	248
	Opus	75	The Gardens	64
	Kepler (Pangaea)	338	Cube (OneSouth)	185
			New phase P/Hijauan	127
			First phase Puchong	300
			Ridgewood	90
			Greenview Residence	12

TBA = To Be Annouced
BPJ = Bandar Puteri Jaya

It is clear that Huayang depends a lot on its successful One South project in Seri Kembangan, while the near future earning of OSKProp will be hugely supported by its high-GDV Pangaea in Cyberjaya. Both projects will probably enter their last phase this year.

After this, Huayang has Puchong West (GDV RM1.35bil) as One South's successor. However, it seems like OSKProp doesn't have a successor yet for its Pangaea.

       Pangaea (OSKP)

OSKProp has small pieces of prime land in Bandar Sri Damansara (Opus) & Shah Alam (Emira), while Huayang matches it with land at Seri Kembangan (Mines South) & Johor Bahru (Citywoods).

Both companies have huge township development. OSKProp has Bandar Puteri Jaya in Sg Petani, with remaining landbank at approximately 1,200 acres. Huayang has ongoing township at Bandar University Seri Iskandar in Perak (about 400 acres remaining) and Taman Pulai Hijauan in Johor (about 92 acres remaining).

Coincidentally, both companies also have lands in Seremban, where OSKProp has 15 acres while Huayang has 35 acres, both freehold.

Besides, Huayang has an ongoing commercial project Senawang Link in Seremban which has 20 acres remaining, as well as more small land parcels in Ipoh for both commercial & residential development. (from latest annual report).

       Cube @ One South (Huayang)

Nevertheless, OSKProp recently sold 108 acres of land in its BPJ for RM56mil to PR1MA, and will be given the responsibility to construct 1,395 units affordable houses on it.

Protasco gets similar project worth RM88.1mil earlier this year to construct 1,144 units of PR1MA houses. So I think OSKProp's PR1MA project might worth about RM110mil.

OSKProp expects its Atria Mall (470,000 NLA) at Damansara Jaya to be ready by the end of this year. So it should contribute as a recurring rental income to OSKProp from year 2015, which can more or less "protect" the company from property market slowdown.

Furthermore, OSKProp plans to build the largest shopping mall in Sg Petani in its BPJ which might mean more recurring income in the future.

Belleview Group (not listed) also said that it will build the largest shopping mall in Sg Petani. Who will be larger then?

       Atria SOFO & Shopping Complex (OSKP)

Meanwhile for Huayang, its landbanking activity might be limited due to high gearing, even though it has recently taken up a RM250mil Sukuk program. It has to pray that its property projects sell well to generate enough cash to pay the debts.

Anyway, Huayang does not seem to stop here as the management eyes further land acquisition in mainland Penang and Kota Kinabalu.

Development lands are crucial to a property company so I think Huayang's move is good for its shareholders. 

       Sentrio Suites (Huayang)

Both companies seem to be undervalued at the moment base on fair PE ratio of 10x.

	OSKProp	Huayang
Current Share Price (RM)	2.78	2.42
Projected PATAMI (mil)	100	100
Projected EPS (sen)	41	38
Actual PE	12.2	7.8
Projected PE	6.8	6.4
Diluted Projected PE	9.6	6.4

OSKProp's current actual PE (base on latest full FY result) may be higher but it will drop for sure if its 1HFY14 PATAMI is to be annualized. 

The projected PE is base on projected PATAMI of RM100mil for both companies in their next full FY (similar with Tambun!). 

At the moment OSKProp and Huayang have paid-up shares of 244mil & 264mil units respectively. OSKProp has 105mil outstanding warrants expires in Aug/2017. 

       Mirage By The Lake (OSKP)

In term of management team, Huayang has a good one for sure, who has grown the company tremendously besides giving good dividends and bonus issues without diluting shareholder's shares value.

As for OSKProp, I'm not too sure but it can't be too bad as it has successfully raised the company's earning and value to a higher level.

Anyway there is a possibility that OSKProp might be injected into OSK Holdings by its major shareholders. I think this might be a double-edge sword to OSKProp's minor shareholders. If OSKProp is valued cheaply, then it's not good.

In May 2011, OSKProp was attempted to be taken over by major shareholder Ong Leong Huat at 87sen per share. Its share price was traded around 75sen at that time and surged to 79.5sen a day before the announcement.

OSKProp's FY2010's EPS stood at 6.3sen, so 87sen offer price represented a PE ratio of 13.8x. However, its net asset per share at that time was RM1.74. 

As a result, the takeover offer didn't go through.

In 2013, Ong also attempted to take over both OSK & OSKVI with offer price significantly lower than their net asset per share. So both have failed as well.

OSKProp's latest net asset per share stands at RM1.87, which is below its share price of RM2.78 at the moment. However, it still has Atria mall & is yet to revalue its land. What should be OSKProp's fair price? 

Anyway, OSKProp might not be injected into OSK in the first place.

Is it still safe to invest in property sector now? If it is, OSKProp & Huayang, which one is more attractive? Why not both?