Sun Con: Q1 2015 Result

Sunway Construction group is going to list in few days time and the group just announced its first quarter result few days ago. 

It was a stable quarter for the group. Nothing special to mention on its income statement. No comparison data was given and I was little bit lazy to check back the bottom line contributed by the Construction group to Sunway group preceding quarter last year. 

Balance sheet was normal, just the trade payable dropped quite much.  

Operating cash flow was weak. It would be zero or negative if not for the dividend contribution from its associates and JV. 

What's interesting is still the segment reporting. 

It's clear and I think I mentioned in my previous post before that although the construction segment contributed a big amount to the group's revenue, but due to its lower profit margin, Precast segment contributed more to the group's bottom line. 

Operating profit margin for Construction and Precast were 3.21% and 23.4% respectively. 

Its precast concrete products are mainly supply to projects in Singapore. So, any slowdown in Singapore construction and property development will have great impact on the group's precast unit. 

I guess the media kept focusing on how many and how big the contracts can be awarded to the group. But since the profit margin is so low, any cost overrun or mis-estimation would get the group into trouble. 

Investors have to keep note of that :) 

Review on 1H2015 sell transaction

Everyone also wishes to buy low and sell high. I mean everyone. But that's not the case in reality. That may be someone able to do it, but I think the consistency is not there. 

I'm am not a very long term investor. I will sell it if I think the price meet my target or I think I have better return elsewhere.

So, half year gone and I think it's better for me to review my sell transactions for the past few months. 

SCGM

I sold it at RM2.7x with around 50% gain in April. Although I knew the drop in oil price and currency exchange are all working in favour for the group as well as its own organic growth and new product launching, but I think its price already reflected that as well as it was trading at a PE of around 18 that time. So, I made a sell call. The company continue to perform well and so its share price till trading at RM3.4x currently. Perhaps I should use forward PE to evaluate this kind of growth stock next time. 

ABRIC

ABRIC was a asset play for me due to its high net cash per share. I sold it around RM0.52 with around 25% gain in April too. Patience always the key when investing based on asset as you have no idea when the market will value its assets. The price once shot up to around 60 cents before retraced back to current price. I'm quite satisfied with this transaction as asset play always provides certain margin of safety and its concept is easy to understand. Just sometimes, you may need to park your capital there for a while.  

PJDEV-WC

I sold it at a loss of around 10% in April too. I bought it at a rush and at a high price in the beginning as well as its mother share. I thought the corporate transfer will take place within 6 months, little bit I know it can be taken for so long. And at that point, I was running out of capital so I decided to sell it as I did not want to place too much capital on the same stocks (mother & son) although the warrant will provide better gain in percentage and loss also in opposite. I only left the mother share and used the proceed generated and converted into HKD to invest in HK stocks. 

IFCAMSC

I sold the counter around May at RM1.4x with a gain of around 70%. The counter once shot up to RM1.8x plus as well as being dumped until RM0.8 thereafter. The counter still has some growth prospect, but the valuation is quite high and there is some sort of frying element on it. So, I decided to say good bye to him. 

TAKASO

I made a loss close to 25% in this short trade. I bought its warrant & converted them into mother share as the share price of the mother share up a lot while the warrant did not move very much. The substantial shareholders, Ong Kah Hoe kept increasing his ownership in the group and the group diversified into construction business look like something good going to happen. So, I bought in. It turned out to be a bad trade as the share price dropped a lot after 2 weeks of conversion. This really taught me a lesson, never touch warrant that trade at a big discount to his mother share again. Fishy fishy. 

CHINA SILVER

I cut half of my holdings on the stock at around 150% gain, so the remaining will be considered as free shares. This trade contributed significantly to my overall realized gains this year. It's share price is quite volatile but I think its coming half year result will be quite good. So, I will just keep it for the time being. 

So, that's for this half year. 

Some losses, some gains. 

When looking back now, there are some stocks trading higher after I sold. Some trading lower currently. 

I believe buying low solves the problem of selling as you still earn in the end, it's just the matter of how much you earn. So, margin of safety is important. Very important indeed.

I still learning day by day. Hopefully, can minimize my mistakes moving forward. 

Recap on last week

Market was bit volatile last week.

Greece issue and Chinese stock market sells-down as well as Najib and his 1MDB issue in local filled up the newspaper's headlines. 

And on last wednesday, Hang Seng index closed almost 6% down, its biggest one-day drop for nearly seven years. 

Nearly half of the listed companies in Shanghai and Shenzhen filed for trading halt in an attempt to prevent further losses explained the seriousness. 

Even the regulatory commission made a new rule that controlling shareholders and managers who are holding more than 5% of the company's share could not reduce their holdings for 6 months could not stop the sold off. 

Local bourse index dropped below 1700 again, after few months of crawling back to above 1850.

So, is it a good chance for investors to buy some fundamentally good companies during this volatile market?

Just like what Warren Buffet said "Be fearful when others are greedy and greedy when others are fearful" ?

But it's always easier to say than done. 

Watching your paper gain getting lesser and lesser is no joke. 

And to buy it when the counter drops more than 50% made you wonder is it something bad happened to the company which you may not aware of.

The angel of your side told you that the company fundamental remains unchanged. You had studied it few times and it's a bargain now. 

But the devil of your side told you to wait and it may drop even lower. Your hard earn money will just gone like that. It's very scary. Stay aside first. 

Discipline, mentality and decision making. 3 important elements that you cannot learn from books and others. 

Experience it 

Investing really is a life long journey. 

George Kent: Q1FY16 update

George Kent just released its first quarter result last week. 

The group recorded lower revenue compared to same quarter preceding year and almost half if compared to previous quarter. 

But thanks to its much better gross profit margin, the group able to record better bottom line. 

Operating income and expenses almost similar. 

No dividends was declared. 

In terms of balance sheet, both trade receivables and payables also dropped. 

Good thing is the group able to reduce its loan amount to almost same as one year before. 

From the cash flow statement, it can be seen that the group generated a very healthy operating cash flow. Since its manufacturing segment only required very low amount of capex, the group chalked up a very good free cash flow. 

Here comes with the interesting part, segment reporting. 

For its manufacturing segment, I would love to see the segment able to maintain above 20% operating profit margin. That would be a very good improvement from 15% (FY2014) and 19% (FY2015). Management pointed out that it was due to lower operating expenses incurred. But I guess for manufacturing industry, normally the management able to reduce the operating expenses to certain extend only and maintain from there. 

For its engineering segment, management pointed out that the gross profit margin is higher due to higher weightage on revenue from certain projects with relatively higher profit margin and the Group’s Kuala Lipis Hospital Project has just started. However, the contribution of the hospital project is quite low. 

I believe the higher profit margin of the engineering segment is not sustainable due to the nature of the revenue recognition of contract based projects just like what happened in Q4FY14. It's still highly depends on the Ampang line LRT extension project. 

Dato Tan pointed out that there was delay in Ampang Line LRT extension project. However, Prasarana CEO stated days later that there was no delay and the phase 1 is on track and will begin operation in Oct 31 2015. So, who should we trust?

Besides, Dato Tan also mentioned the group target to add another RM2 or RM3 billion worth of contracts this year on top of RM1 billion orderbook on hands. I think we should ignore this kind of blow water issue. I still remember he said the same thing during last year AGM on top of gonna diversify into oil & gas segment. 

Well, I think he did not expect the sudden drop in crude oil price at the end of last year which indirectly affected the numbers of construction jobs awarded. 

The biggest surprise to me about George Kent is ColdEye bought the counter recently as shown in the latest annual report. 

He must have a very good reason to buy. Should I follow? :)

OpenSys: Its potential competitors

I believe there are numbers of players out there to compete with OpenSys for its cash recycler machines. But I failed to search any concrete info online regarding who is his direct competitors and their respective market share. 

Below is some of the details I managed to gather so far. 

Wincor-nixdorf is one of the world's leading providers of IT solution and services to banking industry and produce his own cash recycler machine, namely CINEO C4040 series. 

The group has its Asia Pacific regional headquarters located in Singapore as well as one office in Mount Kiara, KL. 

Its website does not provide much info regarding sales in Malaysia and Singapore. So, no idea on its market share in the CRM industry here.

The second player I managed to search is from CLSystems SR7500 CRM model. 

CL Systems is under CL International Holding Group who has been providing IT services to banking industry for decades. The group has major operations in Malaysia, Singapore, China and HK. 

Based on the info in its website, the group formed a partnership with Hitachi-Omron Terminal Solutions Corporation who is the largest manufacturer of ATMs in Japan and had installed more than 3,000 terminals in Malaysia and Singapore.

Besides the group is the first company to install a self-service cash recycler machine in Malaysia in 2011. (OpenSys just started to conduct testing trial with local bank in 2013/2014)

Based on the OpenSys AR2014, it mentioned that Malaysia has around 15k units of ATMs. 

So, if CL Systems has around 3k units in Malaysia, it has around 20% market share and as far as I see, the ATM machines in Malaysia are quite dominated by Wincor and NCR. 

OpenSys does not state its numbers of units, but I guess they have lesser than that. Else, they will state it like how they brag about their 80% market share in the cheque deposit machines. 

But the penetration rate of CRMs is still quite low at around 4%. There is still much more growth for the industry. It just depends how well OpenSys able to increase its market share in the CRM market. 

(Copy from Internet) Tetsuhei Kawamura,GM of OKI (OpenSys's partner), once said that the biggest challenge for banks to adopt the CRMs is they have to update their software, which is time consuming and brings about a learning curve to learn the new features of the software. 

Secondly, banks demand a 99.8% success rate when it comes to counterfeit recognition as the checking is done by the machine itself when the money is deposited to the machine before being withdrew by the another user. 

Finally, banks worry about the devices’ life and don’t want to spend on new machines after few years of service and it also has to be able to withstand the wear and tear caused by constant use.

And I do hope OpenSys continue to market its outsourcing model as the segment has higher margin and also in recurring term

June 2015 Portfolio

Hmm half year of 2015 was gone. I almost forget what targets I set at the beginning of the year. Have to review back then only I realized that some objectives are still far off from the targets. 

So, how about yours? 

No selling shares for me in June, purchased 2 stocks in KLSE, namely Puncak and Opensys. Unfortunately, I bought the shares right before the sell down. Thus, my buying price was quite high. Shit :(

For Puncak, I was buying for short term. Hopefully the agreement can be settled by July and the share price up a bit. 

For Opensys, I purchased it due to its improved performance. Have to keep on monitor its quarter reports moving forward to keep track on its CRM sales as well as its recurring income. Have to sell it off if the growth was not up to the standard. 

For PJDev, ChinWell and Sunway, there were still quite stable. SunCon already credited into my account but I probably will sell it off since the quantity is not that much 

For SGX, nothing much changes for the 3 stocks. All have to wait for quarter report release in coming August. Not much news regarding the sale of Mahkota Hospital anymore for HMI. 

For HKEX, I already cut half of my holding in China Silver, so probably will just sit back and let's see how far can it go to. Will probably do the same on China Saite, but feel like it's not the right time yet. 

I still looking for companies to invest especially in HKEX. But still can't find any company ngam sam sui. Have to keep on screening the companies. 

Any stocks recommend to me? :)