PJDev: Email Enquiry to IR (29/6)

Just received the reply from PJDev's IR team regarding my enquiries to them earlier. 


First of all, thanks for the great effort for making PJDev group a great company.

I am one of the retail investors who are investing in PJDev group and I have some enquiries related to the group and would like to seek clarification from your side as below,

1) How much is the property development unbill sales at the last quarter as the group didn't mention in the latest quarter report?

Answer: In the ranges of 600Million as at March 2015

2) The hotel segment recorded operating losses in the last quarter. What is the reason behind? Is it one time off or the group facing challenge moving forward?

Answer: Mainly due to slow down of  tourism  industry. We foresee that the Hotel Industry will continue be quite soft for the 2nd half of this year.

3) Based on the annual report, D'Majestic and Swiss-Inn are expected to open in 2Q2015. May I know what is the progress?Answer: Both will be opened in July of August 2015.

4) The group's tax rate in the latest quarter was slightly higher due to losses in certain subsidiaries that are not available to set off against taxable profit as mentioned in the report. Is the higher tax rate one time off or will it continue moving forward?Answer: Yes, you are right. It will still has some impact for remaining of the year.

5) There was big jump in Property development costs and Land held for Development in the latest quarter. Was it due to land acquisition by Yarra Park City?

Answer: Yes this is due to Yarra Land , and Reclassification a piece of land that under Land held for development to Property Development.

6) What is the project plan for Yarra Park City since the group had subscribed additional shares in the said group for almost RM215 million this year?

Answer: This will be a mixed development project that consists of residential, and Mall, and hotel.

ABRIC: So, what now?

I sold off ABRIC a couple of weeks ago at the price around RM0.52. Since then, the share price once shot up to 63 cents for a while and retraced back. 

Based on the latest quarter report, below are some of the key details. 

Cash balances: RM80 mil
Net cash: RM80 mil - RM6 mil = RM74 mil
No. of ordinary shares: 137.3 mil (Include warrants)

Thus, Net Cash per share will be around RM0.54

Total Equity: RM89.2 mil
Thus, Net Assets per share will be around RM0.65

The margin of safety to invest in the group is quite low now consider the share price is quite close to its net cash and net assets per share currently. 

The group still has some investment properties worth around RM15.8 mil on paper that able to generate some revenue and profit. 

Management mentioned they are currently evaluating various options to address its PN16 status. 

The group still has 6 months more to submit its regularisation plan. 

In case it fails, I am really interested to know how much it can give back to the shareholders. By right, it should be around 65 cents, but there should be some costs involved. 

It will be a good learning experience to me. 

OpenSys: Is its growth sustainable?

Recently get to know OpenSys after it reported a tremendously growth in its net profit in its latest quarter. So,  just want to take a look and conduct a simple study.  

Basically, we always find OpenSys's products around us especially in banks as well as some insurance, telecommunication and utilities company.

All this while, the group pioneered in design and development in non-cash dispensing self -service kiosks called Efficient Service Machines (ESM). The machines able to help the customers to enhance their customer service, reduce operation cost and also provide marketing information.

Besides, the group also provides business process outsourcing (BPO) for bill payment kiosks. OpenSys manages their whole infrastructure by providing hardware and software and maintenance support and services. In return, the group charges a fee for each payment transaction, resulting in steady recurring income.

The main reason of the jump in profit in Q1FY15 was due to higher amount of sales of Cash Recycling Machine (CRM).  

As stated in AR2014, several banks started to commission customer trials of CRMs with OpenSys/OKI in 2015 after the successful CRM implementation from 2 major banks in Malaysia in 2014. 

It also mentioned that the penetration rate of CRM currently stands at 4% of the installed base. 

So hopefully, there is still much more growth ahead of the group and also the CRM industry. 

But the problem is .. the gross profit margin of CRM sales is quite low compared to its Software Solution and Services (SSS) which provide licencing software and rental of ESM machines (SSS) segment. 

It's understandable as the group only purchase, manufacture and distribute the CRM machines. Profit margin will not be that high and the group is not the only one providing this kind of machines in Malaysia. 

Competition is there

I guess the margin for CRM is even lower than the standard ESM machines as the banks will trade-in their old ATM for new CRM.

So, the SSS segment is still the key.  

According to the AR2014, OpenSys is a market leader for cheque deposit  machines, commanding around 85% of the market. However, it's noted that banks started to charging a cheque processing fee of 50 cents since Jan 2015.

Management think the effect is not so significant as the cheque is mostly used by companies instead of individuals and it's hardly replaceable due to multiple signatures, post-dated cheques, large transaction limit and has intrinsic audit trail.

Even if the usage will declines, the management think that the banks will outsource the processing of cheques to third parties as it would be more cost efficient to them rather than hire a team to manage the low usage machine.

OpenSys is in strong position to benefit form the outsourcing and probably will get more and more recurring income.

This is the area which I am more interested as it has higher profit margin and recurring term.

Trade receivables increased tremendously last quarter, need to keep monitor. May due to CRM commissioning.

Net debt to equity ratio is around 0.2. I think should be okay given their historical record of operating cash flow and their low interest payment to operating margin ratio. 

Concern is how well OpenSys able to increase its CRM market share. CLSystem is another big player. And the ability to get more outsourcing. 

Let's see ..

SCGM: Q4FY15 Job well done

Was away for a short break in Tioman Island last weekend and need some time to catch up a bit of my work this week. 

SCGM berhad just released its latest quarter report today. All I can say is the result is as good as expected. 

With the lower raw material cost and favorable currency exchange rate, all elements are doing good for SCGM. It's no surprise that the group able to chalk up 24% and 19.9% operating profit margin and net profit margin respectively which were highest for the past 2 years. 

For full year FY2015, the group's revenue increased 6% but net profit increased tremendously by 36.23%. This demonstrates the margin playing an important role to its earning power. Investors really need to take note when the petrol price increases as well as RM is strengthen in future.

In terms of balance sheet, nothing special to mention other than the drop in cash balance. 

Coupled with the cash flow statement, I think the drop in cash on hands is not a big concern as the group spent a big amount of capex on the new product, plastic cups production. The group's free cash flow all this while was pretty good. So, I am confident the group able to generate cash easily. The fact that the group announced to pay dividends quarterly last quarter shows how well and confidence the group in managing his cash flow internally. 

ROE and ROIC increased to around 21%. and 21.8% respectively. It's brilliant to me.

The group currently valued at a PE of 17. High? Low? Gonna use PEG? 

I guess the price will move in tandem with its result moving forward. But don't expect a big jump in its share price, I guess it will move up slowly until its growth story ended one day.

The group also announced its first interim dividend for FY2016. So fast! 

Given that the group's export sales contributed around 46% to the group's overall revenue and the group purchased raw material locally, the current scenario is good to the group.

Based on the currency sensitivity analysis showed in annual report 2014, the continuing weakening of RM against USD and SGD will favour the group's bottom line moving forward. 

Furthermore, the new plastic cup production had commenced operation in May. 

But my concern is after the GST implementation, seems like the consumer sector is being hit quite hard. 

Will it affect the plastic containers the group is producing?

Wai Kee Holding: Asset valuation

Wai Kee Holdings is listed in HKEX with a stock code of 610. The group has some subsidiaries and associates who are also listed in the respective stock exchange. 

The group owns 39.82% of Road King Infrastructure. Road King Infrastructure invested in a toll road portfolio of approximately HKD4.2 bil, comprising 12 major toll road projects in seven provinces in PRC. For the few years, Road King kept dispose Class I/II highway projects and focuses on expressway projects which able to give higher returns.

Road King also involved in property development with land reserve of about 4.5 million sqm across 9 provinces in PRC at 2014. 

The group also owns 51.17% equity interest in Build King Holdings which offer civil engineering, buildings and environmental to both private and public sectors in Hong Kong. 

And lastly, the group also owns 94.05% equity interest in its construction materials segment which manufacture and sell concrete and quarrying products. 

The group's businesses are quite related to each other. From Construction Materials to Construction and to Property Development. Toll road provides steady cash flow to the group. 

As at today, 

Market capitalization for Road King Infrastructure: HKD5.549 billion. 
Wai Kee Holding's ownership worth: 39.82% x HKD5.549 billion = HKD2.209 billion

Market capitalization for Build King Holdings: HKD0.577 billion
Wai Kee Holding's ownership worth: 51.17% x HKD0.577 billion = HKD0.295 billion

Market capitalization for Wai Kee Holdings: HKD2.3 billion

Wai Kee Holdings's ownership in both Road King Infrastructure and Build King Holdings combined is more than its current own market capitalization. 

Sounds interesting .. 

So it almost means that you will get the Construction Materials segment for free if you buy Wai Kee Holdings now. 

But bear in mind that the bulk of it was contributed by Road King Infrastructure.In FY2014, share of profit from associates (Road King) contributed around 75% of Wai Kee's net profit. So, the group's performance is highly depends on Road King Infrastructure

Below is some of the details regarding Wai Kee Holdings currently, 

PE Ratio: 4.2
P/B Ratio: 0.4
DY: 5.69%
Net cash position

So, perhaps it worth a look further? 

HMI: Q3FY15 Update

All this while, HMI group announced its result in semi-annual basic. Little did I know that when its market capitalization exceed SGD75 million, the group need to report its result in quarter basic in accordance to SGX rules. 

So, I was little bit late to read its latest 3rd quarter report. 

HMI group posted a better quarter result at the top line as well as at PBT level. Gross margin and PBT margin also improved.

Profit attributed to the shareholders jumped much more, probably due to higher contribution from its Regency Specialist Hospital which the group's ownership is higher compared to Mahkota Medical Centre.

Tax expense was lower due to due to the reversal of deferred tax liabilities upon the completion of the exercise to restore the Group’s ownership of certain hospital assets previously transferred to associated companies.

The group's net profit attributed to the shareholders was only RM16 million for FY14 but the group already able to chalk up an impressive RM19 million with one more quarter to spare. FY15 will be another good growth year for the group. 

The group managed to pare down its borrowings by around RM15.7 million. 

To make it better, the group done it with increased cash on hands. The group net borrowing of RM29.4 million as at June 2014 was improved to net borrowing of RM4.2 million. Foresee the group's finance cost will be lower moving forward. 

The reduce in loan was due to its strong operating cash flow as well as its asset restructuring which resulted in higher trade payables. The group used the spare cash to pare down its loan and purchase new PPE as seen at the cash flow statement. 

From the statement, the directors are cautiously optimistic that the group will continue to perform well for the rest of the year even though the group pointed out that new hospitals are coming in to compete at the two states the group's hospitals are operating at. 

Elsewhere in the statement, the group also mentioned they has received non-binding expressions of interest for MMCSB and has not made any definitive decision with respect to the potential sale of MMCSB. 

However, there was an article in the news media stated that the group intend to invest about RM200 million to build a new 500-bed hospital block on a parcel of land adjacent to existing Mahkota Medical Centre Melaka. 

So, no concrete decision.

And its IR officer stated clearly that they would not answer any questions through emails or phone call. Just attend their AGM. 

So, just continue to hold and see what will happen later. 

May 2015 Portfolio

Have a nice break back to hometown and celebrate Mother's and Father's day together last weekend. 

Not so willing to come back to work .. like always :(

May was another selling month for me. 

I sold off IFCA at around RM1.4x as the selling pressure really scared me off. But I think it will go up and reach its all time high again. Just I have not much time to monitor the counters during working hours nowadays, so I decided to sell it and use the proceed to buy some stable counters. 

Nothing much changed for PJDev, Chin Well and Ho Bee Land. 

Sunway and CES had a sell-down in May but I think they will pick up themselves back in future. 

For HMI, I'm still waiting for the right time to dispose it if the news of Mahkota Hospital disposal really come true. 

China Silver and China Saite had a great run in May. But at the time of writing, they dropped back a bit. I took the opportunity to dispose half of my holdings in China Silver at around HKD4.80 and took back my capital plus some profit. 

Bought in Welling Holding few days ago. Basically, I followed others for this stock. Still in the progress to read the past annual reports of the group. :)

Cash level is around 25%. Looking to buy 2 counters each in KLSE and HKEX.

So have to be more hardworking and read more reports.