~ Enquiry on Scientex Berhad (SCIENTX) 森德综合 ~

As part of my earlier analysis on Scientex Berhad, I dropped an email to their investor relation team regarding the high borrowings they takes to acquire GW Plastics Holding at the beginning of year 2013. Below is my email and her reply. 


Dear Ms Jesselyn Chang, 

It's noted that Scientex Berhad had successfully acquired GW Plastics Holding at the beginning of this year through internal fundings and borrowings. This will definite boast the revenue of Scientex Berhad. 

At the mean time based on the lateast quarter report, Scientex Group's borrowings had jump to RM322millions at which RM126millions is short term loan  as a result of the acquisition. This had translated into gearing ratio of 0.50. Apart from that, Scientex Groups has only RM50m cash in hands. This will cause some a poor liquidity. 

As a minor shareholder of Scientex Berhad, I'm writing this email to enquire about what is the step and method Scientex group going to do to pare down the borrowings. Will the borrowings affected the 30% dividend policy? Will Scientex group perform right issue to pare down the borrowings in future?

Appreaciate your responses. Thanks. 

Regards, 

xxx

Dear XXX,

As you know, the gearing ratio of Scientex Group after the acquisition of GW Plastic is at 0.5 which is still at a healthy level. If you refer to our last annual report, the group generated approximately RM130m of net operating cash flow from the business. Without further investment, the group will have the capability to repay all the borrowings within 2 years.  

The minimum 30% dividend policy has been announced earlier and the company will adhere to the policy. 

Hope the above explanation is clear.

Regards,

Jesselyn

~ Enquiry on Prestariang Berhad (PRESBHD) ~

I sent an email to Prestariang Berhad's (PRESBHD) investor relation team regarding some of my dummy questions and glad that they replied me in few days time though I just yet another little minor investor. 

Below are my questions to them and those sentences in red font are their replies. 

It's noted that Prestariang is in the progress to setup a permanent university which provides a steady recurring income to the group in future apart from its 2 core businesses. Some news reported that the setup of the permanent university need around RM200millions capital. I'm here to send an email to enquire what is the step and funding method Prestariang Berhad takes to allocate this RM200millions capital. WIll it through borrowings or right issue to raise capital? Will the fundings affected the dividend policy? 

The new campus is in  the planning stage whereby RM200 million is an early estimation of the development cost (as per our release dated 31 Jan 2013). It may be lower depening on the concept and design of the campus. of which the sources of fund is yet to be decided. At present, there are a few financial alternatives for the new campus such as lease to own, direct lease or own development through fund raising etc. The management team is looking for the best and cheapeast alternative as Prestariang’s business model is focusing on Asset Light + Low Gearing concept. As such, the management will ensure decision make for the funding and alternative will NOT IMPACT Prestariang’s dividend policy in the future. We will announce the business model of the campus when the time comes.

Apart from that, another question I would like to ask is that will it be any effect of the election or government change to Prestariang business nature? As majority of Prestariang Berhad's contracts are from the government bodies. (Sounds like a dummy question as they definitely wont say yes anyway :) .. )

Since Prestariang started 10 years ago, we managed to win and continued to secure projects from the public sectors despite the change of various ministries in particular MOE and MOHE.  We are confident that our products and businesses are resistance to political change as re-skilling and up-skilling of manpower to meet the demand of the market is a NEED regardless of which ruling party. As such, we will survive under any government and whoever minister being appointed.

On the other hand, it's noted that Minister of Finance and Kumpulan Modal Perdana had disposed quite a number of shares through open market for the last 2 months. It's worrying for the minor shareholders like me that the substantial shareholders are disposing their shares in Prestariang Berhad. 

Kumpulan Modal Perdana is the fund management arm for the Ministry of Finance Malaysia. Similar to any fund manager, their main objective is to invest in a portfolio of business in return for either capital or dividend gains. As a publicly traded company, we will not be able to stop investors from their buying and selling activities. We would however continue to educate more investors about our company through IR and PR activities. Hopefully, we will have more investors like your goodself that believes in the work we do and will stay with us on long term.

In case you all have any questions to ask Prestariang Berhad, just drop an email to inquiry@prestariang.com.my. Their efficiency are quite good. 

~ mAybAnk gOld InvEstmEnt Acc ~

As the gold price drops recently, I made up my mind to add gold investment in my investment portfolio today. 

As I do not wish to own the physical gold bar itself for security and troublesome concern, I opened up a gold investment account at one of the Maybank branches nearby to start my gold investment journey. 

Gold investment does not gives any interest or dividends throughout the holding period but I still add it to my portfolio due to its scarce resource and defective nature. 

~ Scientex Berhad 森德综合 (SCIENTX) AnAlysis ~

Scientex's core businesses are manufacturing and property development.

 Its manufacturing division comprises of two business units namely packaging and polymer. Scientex is one of the world’s largest producers of stretch film, with an annual production capacity in excess of 10 billion metres. The group has currently 9 production lines for its stretch film product and has started works on adding 2 new lines which commence operation in 2013.  At the beginning of this year, Scientex group had acquired GW Plastics Holding Berhad which made Scientex one step close to become world's top producers of industrial plastic packaging player. 

Its property development division is made up of its flagship development in Pasir Gudang and Kulai in Johor which strategically located at the prime land within the Iskandar Malaysia growth corridor in Johor. Apart from that, its Skudai projects, through its strategic location in the Nusajaya vicinity and close proximity to the Second Link has attracted Singaporeans to invest there too. Elsewhere, Scientex group has another property development in Ayer Keroh, Melacca. Scientex group has both affordable housing segment as well as high end development to suit different type of income groups.

Let's see how the group performed for the past 5 years based on the annual report 2012 ..  

Except at year 2009, the group had performed remarkably well and rebounded from the economic slow down. Revenue, operating profit and net profit improved every years from year 2010 onwards. Profit margin in the region of 9% for the past few years. 

Shareholders' equity had improved years by years while its ROE was in the region of 15 for the past 5 years except at year 2009 due to lower earnings at that respective year. The group had kept a low borrowings throughout the years. Net gearing ratio is low, but this excluded the recent acquisition of GW Plastics Holdings via internal fund and borrowings that took place recently at Jan 2013. 

The trend is same for EPS with its revenue and net profit. EPS grew throughout the years except at year 2009 as well as its dividend per share. Scientex Berhad's par value is RM0.50. Thus, the 28% dividend per share in year 2012 is translated into RM0.14 dividend per share which in turn translated into 3.7% dividend yield based on today price of Rm3.77. 

Scientex Berhad just announced its Q2FY13 quarter report last week. 

For 1HFY13, revenue grew 19.7% compared to the first half of last year while its net profit grew 21.6% as the same period of time. The increase in revenue was due to the improved performance from its two core businesses. In addition, the recent acquisition of GW Plastics in Jan 2013 had contributed one-month revenue to Scientex Berhad. EPS improved to 23.48sens from 18.98sen last year. 

Foresee second half will see even better result due to the contribution from its latest acquisition. GW Plastic Holdings's revenue and net profit in year 2012 was RM370millions and RM25m respectively. If all the revenues are contributed to Scientex Berhad, the group's revenue can reach above RM1 billion. RM25m net profit of GW Plastics is translated into additional around 11.7sens EPS for Scientex Berhad. Thus, Scientex berhad's EPS for year 2013 should able to reach above 50sens barring any unforeseen circumstances. Dividend per share may be around 15sens based on EPS of 50sens and 30% dividend policy for year 2013. 

Photo above retrieved from the group's latest quarter report which shows the segments' revenue of its 2 core businesses. It's noted that the manufacturing segment contributed around 70% of the group's revenue but only contributed to a mere 33% of its operating profit. The margin of its manufacturing segment is around 6% which is on par with GW Plastic, Luxchem and Texchem. The margin is little bit tight in the chemical packaging industry. Fortunately, the group's property segment help to generate a good operating profit with a margin of 30%. Overall, operating margin is around 12% excluded tax. 

In terms of balance sheet, reserves are almost 4 times the share capital. However, the fact that Scientex Berhad acquired GW Plastic Holdings through internal funds and borrowings at Jan caused Scientex group took up a large amount of borrowings for this acquisition. The Group's borrowings is RM322 millions at which RM126millions is short term borrowings. This caused the gearing ratio increased to 0.5 from 0.04 before. The group's cash is only RM50 millions. Current ratio dropped to 1.17 from 1.39 due to the increased short term loan. 

Now left the question on how the management team going to repay the borrowings especially the RM126 short term loans to keep the gearing ratio at a comfortable level. Perhaps a right issue combined with bonus issue and warrant may be the fastest way to repay the borrowings. Or only repay slowly throughout the followings years given the Group's reserves is still strong. 

I sent an email to Scientex Berhad to enquire about this today and hope they will reply me before I make my decision to invest in Scientex Berhad as Warren Buffet once said that it's not comfortable to invest in a company that takes up a large amount of loans as the liquidity may cause an issue during economic downturn. 

~ tAmbUn IndAh lAnd bErhAd Q4FY12 Update ~

Tambun Indah Land Berhad had released its 4^th quarter report and achieved a reasonably good and improved result for year 2012.

• The current quarter recorded a 34.5% increase in revenue and 29.9% increase in profit after tax over the same quarter of preceding year while in terms of full year, year 2012 had seen a 54.8% increase in revenue and 40.9% increase in profit after tax compared with year 2011.
• The increase in revenues was mainly due to the property development segment which contributed around 97% to Tambun’s revenues in year 2012.
• Profit margin had increased to 19.21% from 17.56% in year 2011.
• Diluted EPS increased to 14.81 cents. PE is around 6.1 based on today price of RM0.90.
• ROE increased to 20.5 from 15.21 in year 2011 due to great increase in profit.
• In terms of balance sheet, share capital of course increased as a result of the right issue while retained profit increased too due to the increases in profit.
• Tambun purchased an undeveloped land bank which lead to an increase of around RM50m under non-current assets, investment properties column.
• Current ratio increase to 34.7% from 27% in year 2011, but still below 50% which considered at manageable level.
• Total borrowings increase to RM83m at which RM77m is long term borrowings while having RM95m of cash and bank balances in hands. This should not post a great liquidity problem but will need to further monitor in the future
• From the right issue, there is still around RM15m left for utilization for year 2013.
• The board has recommended a final dividend of 3.3 sen and thus bring the total dividend for year 2012 to 5.3sen compared with 3.8sen for year 2011.

There is still room for growth to meet PE of 8, but one must take consideration of the warrants quantity into PE calculation. And, somehow the price had seen going up from 70 cents to RM0.90 nowadays. I had been procrastinate enough and waited for any price correction to drop below 70cents for far too long and missed the boat. It’s too bad. I must learn when to invest after identified any good company.