Bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria.

Monday, December 30, 2013

Mr. Action vs Mr. Procrastinate

I think many of us understand the power of compounding effect. The compounding refers to generate earnings on top of previous earnings. The two paramount elements in this concept are time and annual return. 

I always put the numbers into an excel file and see how far or how close I am toward my goal. Let's take a comparison between two people,

Mr. Action who started to invest at the age of 25 and invest an annual amount of 3,600 for 10 years and consistently achieved a return of 10% each year. 

Mr. Procrastinate who only started to invest 10 years after Mr. Action started, at the age of 35 and invested a double amount of 7,200 annually for an even longer period of 15 years. He was able to achieve a return of 10% each year consistently too. 

At the age of 55, Mr. Action is still richer than Mr. Procrastinate even though Mr. Procrastinate invested triple amount of what Mr. Action did, but just 10 years later. 

Of course the annual return can play a role here. Mr. Procrastinate can easily surpass Mr. Action if he able to achieve a higher annual return. 

But I think it's easier to start invest early rather than to achieve high return, right? 

Let's compare with another two people with Mr. Action who invested the same amount and begun at the same time but with higher annual return rate than Mr. Action.

Mr. Smart who able to generate a 15% annual return has around 1.3 millions at the age of 55 while Mr. investor who able to generate a great 20% annual return has around 4.3 millions at the age of 55.

See the difference between Mr. Action and Mr. Investor. A 10% difference in annual return is what it takes for Mr. Investor to have ten times more money than Mr. Action at the age of 55. Of course, it's not easy to achieve 20% return consistently for 30 years. 

So, the annual return does has a greater impact than time. But I think we can easily manage our time better than the annual return. 

3,600 annually, 300 per month, RM10 per day. 

RM10 per day, a 15% annual return and you can be a millionaire in 30 years time. I think you can fork out RM10 per day, right?

So, do you want to be Mr. Procrastinate or Mr. Action or Mr Smart or the great great great Mr. Investor? 

Perhaps we can start with Mr. Action today :)

Put this at your note, Procrastination is the thief of dreams!! 

Tuesday, December 24, 2013

~ Protasco Berhad 富达 (PRTASCO) AnAlysIs ~

Protasco Berhad is a 20-plus-year company which involves in few business segments. Apart from the core business which is construction & maintenance segment, the group also has engineering service, construction material trading and education & training. Apart from that, the group also ventured into property segment since year 2008. 
The group's core business, construction and maintenance segment involves in construction of new road, buildings and bridges as well as maintenance works. The group has two 15-year federal road maintenance concessions and three 7-year contracts for the maintenance of state roads in Selangor, Perak and Terengganu. Besides, the group also has road maintenance jobs in Libya.

So perhaps next time when you see some foreign workers filling up some porthole or doing road construction, take a look on their uniforms or badges whether they’re from Protasco or not. So if you own a share in Protasco, then you will know that your workers are doing their job properly under the hot sun :)

Based on the past 7 years result, the group able to record a CAGR of 5.7% in terms of revenue. Due to the nature of its business & contracts, not much growth would be seen from its core business. That’s why the managing director once said before that the group need to venture into other segments like property and oil & gas business in order for the company to grow faster as the growth to construct new road and maintenance is quite slow.

Throughout the years, the group able to record a gross profit margin of around 25% but it turn out to have a poor net profit margin of around 5%. Special thanks to its high administrative cost and other expenses as well as high non-controlling interests in its construction & maintenance subsidiary as you can see from the table, the non-controlling interest percentage range from 26-47%. This causes the group a little bit of inconsistency in its net profit.

Else way, the group is good at giving out dividend which has a dividend payout ratio of 60-70% at which there was a special dividend last year as well. Not expect there will be another special dividend this year as the group need some cash for its property development and acquisition.

From the balance sheet, Protasco maintains a net cash position and a gearing ratio of below 0.2 all this while which is quite good. Trade receivable turnover at around 4 months. Isn’t so hard to collect money from the government? :)  

Poor thing of Protasco is the group does not reach the benchmark ROE of above 15% all this while. 

In terms of cash flow, the group consistently spent around RM21m annually for capex, which gave positive free cash flow every years. This explains why the group had much spare cash left and paid out dividends to its shareholders. Owner’s earnings/sales averagely stood at 5%, which is slightly stood at the benchmark.

Above table shows the operating profit breakdown of the group’s segment for the past few years. Construction and maintenance acts as the back bone and generate recurring income for the group. Big drop in revenue and net profit in year 2012 for the engineering services department was due to higher provision for doubtful debts and expiry of government concession in 2011. Drop in revenue and net profit in year 2011 was due to losses incurred in Libya and higher construction material costs. Both education and trading segments were showing some downward trend in contributing to its group revenue even the education segment had been upgraded to university status in FY2011.

It’s all still depends on the property segment for future growth. The De Centrum City in Kajang has a master plan of GDV of RM4.5billion with development period of 10-15 years which the management targets the property alone to contribute at least quarter of the group's operating profit by 2015. For the 9 months period of FY2013, the property segment already recorded around RM4.7m operating profit. In addition, the group just received a contract of RM578m to construct apartments in Oct 2013 for a 24 months development period.

The group managing director, Dato Ir Chong Ket Pen and ex-deputy chairman, Dato Ir Hasnur Rabiain bin Ismail (resigned in 2012) co-founded the company in 1991. Both graduated as civil engineer and began their career as road design engineer at PWD and JKR respectively. Both involved in R&D extensively throughout their career and having extensive experience in design, maintenance of road pavement. 

Some additional notes are, 
  1. The group perform share by back every years but the quantity become lesser in FY2011 & FY2012. But the company did purchase back twice with huge amount each which total up to 17.3 millions shares being purchased in March 2013. 
  2. Changed much of the board members in FY2012,
  3. LTH was once the substantial shareholders but just ceased of the status last month and Fong SiLing becomes one of the shareholders with 1.5million shares in annual report FY2012.
  4. 2 private placement with a total of 27.4m ordinary shares were listed in 2013 that raised around RM30m. No. of shares increase by around 9.2% as a result of these private placement. EPS probably will be diluted a bit.
Overall, it’s a mediocre company for me. Perhaps the ROE will improve once there is bigger recognition from the property segment and push up the earnings as well. Regarding the planned acquisition of PT Anglo Slavic in Indonesia for about USD55m which open yet another segment for the group, I’m not good enough to comment about this as the acquisition cost consider quite big as it covers almost half its shareholders equity and there is not much info declared.

Well, just continue monitor and see the outcome. 

Thursday, December 19, 2013

XiDeLang Holding (XDL) 喜得狼 Right Issue

Whenever a company wants to raise fund for development, the owners list their companies if possible while still retain control of the company because the fund raised would be interest free

Whenever a listed company want to raise money, they take loans from banks, issue bonds or issue right issue to take money from the shareholders. The latter option is favourable because the money raised would be interest free too to the company. However, not many investors are fancy of right issue unless there is good prospect and transparent growth of the respective company. 

XiDeLang Holdings just announced days ago a right issue of 4 right shares together with 3 free warrants AND 3 bonus shares for every 12 existing XDL shares held before 23 Dec 2013. It may looks good because it gives you freebies of 3 warrants and 3 bonus shares if you subscribe it. 

But before that, take a look at the company. XDL is a China company who manufactures a variety of shoes. I guess you already feel suspicious when you come across a China company. Why they want to list their companies here instead of their motherland in the beginning prompt possibilities that they failed the requirement to be listed in China exchange. let's take a look on the group's latest balance sheet.

As at the date of 30 Sept 2013, the group has RMB323 million cash in hands with only RMB10 million borrowings. With a high amount of cash in hands, why they still need to take money from the shareholders?

Let's take a look on the utilisation of the proceeds from the right issue. 

Assuming a maximum scenario, the group able to raise around RM110 millions and intend to use it all for the construction of the second stage of the group's new building. Reason given to build this building is after taking practical and strategic consideration in planning for its future business needs. Sound so professional :) Bear in mind that the building consists of 21 levels .... with some levels would be leased out to generate rental income .. what the heck is the management thinking? 

If you look back on the group's earnings for the past few years, their performances keep on deteriorating since listing until today. So, why on earth they still want to expand?

Don't play play .. Stay away from this company, I suggest. 

Tuesday, December 17, 2013

Scientex Berhad (SCIENTX) 森德综合 Q1FY14 Result Update

Scientex Berhad just released its latest Q1 report for calendar year 2014 this afternoon after the AGM. 

Year on year, revenue and net profit improved due to the contribution from the GW Plastic and increase sales of its stretch film. The group able to record EPS of 13.27 cents. Gross profit margin and net profit margin showed a downward trend after the the GW Plastic acquisition as its net profit margin is around 5%.  

However by compare quarter to quarter, there was a marginal drop in revenue and net profit due to lower contribution from the property segment. 

From the report, it mentioned upon the completion of the 3 cast stretch film lines, the group will continue to focus to achieve better operational efficiency. Hopefully they will able to increase the manufacturing operation profit margin to above 7.0. In addition, the installation of the blown film files are target to be operational by mid 2014. Thus, the result of these new machines will only be reflected by Q4FY14 and so on. 

Biggest setback for me for this latest quarter is the property segment which recorded a weak profit margin. The report did not provide any explanation for this, perhaps some mix houses and condo or industrial that yield lower margin. The report did point out due to recent Budget announcement on imposition of real property gains tax, increase in levy to foreign purchasers and implementing of goods and services tax, all these cooling measures might slightly affect and dampen sentiments in the overall property sector. Must take attention on this as the property segment is the bigger profit contributor to Scientex group compared to manufacturing segment.

In terms of balance sheet and cash flow, operation cash flow dropped a lot for this quarter compared with preceding year due to increase in inventories and payable. Net gearing ratio increased to 0.38 from 0.29 due to lower cash in hands. Management did point out before their comfortable region is below 0.5. Thus, it's not in alarming zone yet. 

Assume the average EPS 13.5 cents excluded any growth, total EPS for FY14 will be 54 cents. PE will be around 10.4 based on today price of RM5.61. I will continue to hold until next quarter report release barring any unforeseen circumstances. 

Oh ya, the CEO did mentioned yet again to double the market capital in 5 years time. Remember he mentioned in year 2011 to reach RM1b revenue and RM1m net profit by year 2013 and they really did it in last calendar year. Hopefully they can make it this time too, double in 5 years time will need a CAGR of around 14.4% :)

Monday, December 9, 2013

Enquiry to Scientex Berhad (SCIENTX) 森德综合 on tariff hike

Our beloved Ah Jib Gor announced that electricity tariff will be up by average 15% in Peninsular Malaysia starting from Jan next year. 15% increase is no joke. I also wish that my salary will increase by 15% next year but I don't think it will happen :(

For households, I do think it will affect quite a lot. For a normal monthly usage of around RM200++, they need to fork out probably RM40 more every months. When the GST implementation comes on April 2015, probably will be RM50++ extra compared to now. Both tariff hike and GST charges will not affect those usage below 300kwh.

For manufacturing, the tariff hike will increase the operating cost as well, which in turn reduce the gross margin and net profit. I dropped an email to Scientex Berhad's investor relation to ask about the effect of the tariff hike one week ago and she replied me one day after. 

She mentioned that the electricity cost represents approximately 4% of the packaging operating cost and there will be some impact of the profit margin for the packaging section. 

So just make a rough estimation. 
Let's say the operating cost is RM100 and the electricity cost which is 4% of the operation cost will be RM4. 
A 15% increase on tariff will cause the electricity cost increases to RM4.6 while other costs remained. 
Thus, total operation cost will increase to RM100.6
So, (100.6-100)/100 = 0.6%
Thus, there will be a rough 0.6% increase in operation cost as a result of 15% tariff hike assumed the electricity usage remained same.

0.6% is small but not negligible since the gross profit margin of Scientex's packaging segment is only in the region of 6.2% based on 2013 annual report. The effect of tariff hike will probably reflected in Scientex FY2014Q3 and so on. Let's see what happen next. 

Saturday, December 7, 2013

Money management

During the millionaire mindset intensive seminar, they taught about how to manage your money as well. Wealthy people aren't any smarter, they just have better money management habits. Poor people always complaint that they have no money, so no need to manage money. It's wrong because you become rich by manage your money, not manage your money when you're rich.

The most important part of money managing is separating your income into different accounts for specific purposes. Their method divides it into 6 sections which are as below, 

55% = necessities 
10% = Financial freedom account
10% = Long term savings for spending
10% = Education
10% = Play 
5% = Give

The first account is necessities, you use this account to pay your rental, daily expanses, food, insurance and transport etc. This account contributed maximum 55% of your income. If you cannot meet 55%, try to simplify your lifestyle. Wealthy people think long term while poor people think short term. Sacrifice a bit now to grow your trees and enjoy the fruit in later stage. 

The second account is Financial Freedom Account. This idea of this is to create your golden goose in order for it to generate golden egg for you to spend in later stage. Remember the ultimate goal is to become financial free when your passive income able to overcome your expanses. When you stop working, you get to spend the eggs but never the goose. This contributed 10% of your total income. 

Third account is account for long term savings for spending. This account helps you to save for one time off spending like marriage, house down payment, car, etc. This account contributed 10% of your income. 

Fourth account is for your education purpose which contributed 10% of your total income too. They kept emphasize the important of education no matter how old are you. You stop growing when you stop learning. And the moment your stop growing, you're dying. Education is important no matter whether in financial field, money management, health nor in science. Ben Franklin once said that If you think education is expensive, try ignorance. 

The fifth account is Play!! Time for relax. Play without guilt. Take time to enjoy while striking toward your goal. This account contributed 10% of your total income. 

And the last account is Give which contributed 5% of your total income. Give back to the society. Remember there is always someone having a situation worse than you no matter how bad the situation you are having with. Be blessed. You will understand and remember what your goal is when you have the willingness to give. 

I did my part and separated my expenses from my total income into few sections and summarized it as above photo. I spare an exact amount for my travel every months and it takes around 4% of my total income which still lower than the 10% "Play" account. Besides that, I have an insurance plan and a saving plan which total contributed 9% of my income. Insurance is for my protection and saving plan is just an alternative retirement plan as I do not contribute any income into CPF or EPF account while working in Singapore here. I able to keep my expenses at around 35% and if add on with the insurance premium, it will be a total 45% of my income, still slightly lower than the 55% benchmark taught in the seminar. 

The rest will goes to investment and saving account. I do not own any property right now as I still haven't make up my mind where to settle down. In addition, being working in Singapore, it's kinda hard for me to look for property for investment in Malaysia since it will involve a lot of travel. So, I believe my current situation is to maximize my return through equity investment rather than through property. Once my saving reach a certain amount, I will distributed more into investment section. 

I do not donate currently. I always think to do that but it's always still down to thinking with no action being taken. I need to further look into this. Besides, I do not spare any amount monthly for my self education purpose. All this while, the seminar, online course and books I bought were all from my savings section. I probably will keep continue doing in this way rather than spare 10% for it monthly.

Lastly, I strongly believe a good money management is essential. There is countless reading material stating that by keep track of your spending, having a comfortable debt/income level,  future planning and ways to improve your situation will help you to manage your money very well. You will know where your money goes to and what is the progress in moving towards your goal/target. 

So, did you do yours? 

Monday, December 2, 2013

Cook the books 做假帐

Recently, there are some comments and posts talking about some fraudulent activities. It may not be true yet there is some parties who support it while there are some who were against the statement. All this while, I didn't put much efforts on this kind of knowledge. It's a learning lesson for me as I'm more focus on the fundamental of the company for my investment all this while. So, if the management of the company is so freaking bad that make a 假帐 at the financial report so that his group performance looks good, hit the earnings benchmarks and the price forever at the up trend. I may be fooled by it and lost my hard earn money in the worst case.

I googled some info about this and found out that 假帐 actually is called Cook the Books in English. Cook the book? Sound funny, haha. Based on investopedia, it refers to fraudulent activities performed by corporations in order to falsify their financial statements. Typically, cooking the books involves augmenting financial data to yield previously non-existent earnings. Examples of techniques used to cook the books involve accelerating revenues, delaying expenses, recording debt payments as sales, moved debt into Special Purpose Entities (SPEs) while retained earnings in the mother company and implementing synthetic leases.

There is 2 case studies provided in this website, in fact it was really happened before for these 2 companies. Both companies also in the Fortune 500 Companies list that time. The first one is Enron. Enron's case is quite complicated. They're allowed to count projected earnings from long term contracts as current income. So, the revenue was inflated by manipulated projections for future revenue and appeared as the management was doing the good job in increasing the company performance years after years. Once the fraud being discovered, the group filed bankruptcy in Dec 2001 and its share price fell from $86 to 30 cents .... 开完笑. $86 to 30 cents wo... How many times is that?

The second case is WorldCom. WorldCom used the method of classified the operating expenses as long term capital investment and Capex so that the bottom line of its profit & loss statement looked good due to higher gross margin. 

There were some other fraud cases like Healthsouth & Qwest communications who manipulated their respective companies' earnings. 

Back to the quote, investment is simple but definitely not easy. I'm better equip myself for a better tomorrow.