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

Wednesday, February 26, 2014

Well done, WellCall Holding?

Rubber hose manufacturer, Wellcall Holding Berhad just released its quarter report today. 

Revenue and net profit increased 11.2% and 38.44% respectively compared with corresponding period last year. Gross margin and net profit margin improved to 31.5% and 20.4% respectively. Lower material cost, favourable foreign exchange gain and higher utilisation of production capacity are the main causes for the improved performance. Quarter EPS is 5.43 cents. 

However, if compared with previous quarter, the group actually recorded a dip in net profit which was not in line with the increase in revenue. The report stated that the decrease in bottom line are mainly because the group is more aggressive in their pricing strategy to secure new customers and new market segment. It will help them to have a better preparation in terms of purchase order and order forecast in view of the additional production capacity once the new factory is in operation but probably will affect their margin a bit.

In terms of balance sheet, everything stays normal with a net cash position and no borrowings at all. Operating cash flow remained strong, or even better by having a better control in working capital changes. The group also spent around RM5 mils in capex on PPE this quarter which is consider higher compared to previous few quarters. 

Export market still the main contributor with 89.5% contribution to the group's revenue, while the rest came from local. With the stronger USD nowadays compared to previous quarters as well as the continue dropping trend of rubber price will benefit the group directly. The tariff hike starting in Jan should posed no problem to the group as electricity cost contributed quite small to total production costs. The report did not update the progress of the new factory, but based on previous report, the first phrase of the new factory will be ready by second quarter next year. Hopefully no delay. 

Hopefully, the group able to record at least 5.0 cents EPS for the remaining quarters given the favourable circumstances. 

5.0 cents quarter dividend being declared, on track to have at least 20 cents full year dividends this year to support its high PE and share split will be done at the end of March later. 

Can I say well done, wellcall? But I know your PE is quite high ... can you give me some discounts, pls? 

Monday, February 24, 2014

Prooootasco Q4FY13 update

Here comes with the peak period of time where listed companies release their financial reports, so does Protasco Berhad. The group just released its final quarter for financial year 2013 this evening.

The group able to record a 26% and 135.5% increases in revenue and net profit respectively compared to corresponding period last year. Huge increases in net profit was due to lower distribution to non-controlling interests. Both revenue and net profit were highest for the past 5 quarters. Net profit margin still low at around 4% only. EPS for the quarter is 5.15 cents which was highest in the year. 

For full year 2013, revenue and net profit increased 22.45% and 29.8% respectively compared to last year. This was due to increase in profits from all over the segments as shown in the table later. Full year ROE is 12.30, still lower than my benchmark of 15 while full year EPS is 15.79 cents which translated into PE of around 10 based on today price of RM1.55. 

In terms of balance sheet, few things to note here. Trade receivables and payables increased 28.6% and 60.3% compared to last year. Protasco's trade receivable turnover and payable turnover always not that good all this while, both ratios are around 140 days for year 2013. Current ratio dropped to 1.56. Good thing is the cash balance increased to RM237 mils from RM155 mils earlier with around RM48 mils borrowings. 

From the cash flow statements, it can be seen that majority of the cash increases came from the operating cash flow as a result of big jump in increase in payables, perhaps the group is trying to delay the payment to the suppliers. Additional cash will be generated from the private placement that still in progress. Foresee the final dividend for year 2013 that yet to be announced will reduce the cash balance a bit. 

The profit before tax for its core business, maintenance & construction segment actually recorded a drop. The management commented that this was due to revised rates for periodic road maintenance were received at the end of 2012 which gave a better margin. Engineering service, trading and education segments were showing improvement from loss last year especially the trading department who supports the maintenance, construction and property development will improved further along with those segments. Lastly, the property segment started to contribute higher profits to the group compared to last year but hopefully more to come next year. 
For full year 2013, no doubt road maintenance is still the core business for Protasco group. Hopefully, the engineering segment will keep on improving its result as the segment recovered from loss last year. Next growth will be the property development segment at which the group mentioned the progress of the De Centrum project was just at 20% as at Dec 2013. For 2014, the group will depends on the usual maintenance segment and counts on the construction and property segments as there were few major projects were secured for construction and higher contribution from the De Centrum project. Another thing to note is the profit margin from the construction segment is just far too low, managed to earn a mere RM2.6 mils profit before tax from RM171 mils revenue. That's just 1.51% margin. 

For long term, the venture into oil & gas industry will give additional incomes to the group. But, it's still too early to judge this as there are few doubts about the acquisitions.

 Right now, just hold on and enjoy the free warrants and ride on the profits. 

Thursday, February 20, 2014

Prestariang 柏斯達亮 (PRESBHD) FY2013 Q4 Update

Prestariang just released its 4th quarter result for financial year 2013 la ~~

A slightly better result in terms of net profit compared to Q4FY12. 

Revenue increased 25.5% y-o-y but net profit only able to increased around 3.4% thanks to lower gross and profit margin. Furthermore, a higher administrative expenses was spent on education arm for the newly open university is also another cause that contributed to lower net profit margin. 

Its training and software distribution especially for those program like 3P and IC Citizen have some cyclical effects which depends on the institutions schedules and experience high classes conducted during semester breaks. For the past 1 year, the training arms conducted more classes during first and third quarter.

In terms of balance sheet, it still looks good. Cash balance on the rise with RM26 mil is put into short term investments. Borrowings is reducing and consider negligible while retain earnings keep improving. Full year ROE is 43.4 given its light asset structure. 

For the full year of 2013, ICT services and software distribution actually improved a lot with 33.2% growth. The new university which opened at the mid of last year failed to lift up the expectation as the result of poor showing of student intake and also additional marketing costs. However, the management team did point out last time that they target to breakeven for the education arm for financial year 2014. This will at least help to increase the overall net profit assumed the ICT services and distribution remain strong. 

Apart from that, the management also did point out in the notes that they remain positive on future business contribution from the oil & gas sector after realized the profits from 2 training courses conducted earlier to oil & gas sector. 

Lastly and as usual 3 cents dividend was declared which bring up a total 12 cents dividends for full year 2013, 2 cents increases from 10 cents last year. 

And what's more. A bonus issue of 1 to 1 is being announced too. This will probably help to increase the share liquidity and improve the institutions involvement in future. 

Overall, Prestariang still looks good, just a little bit pricey now. Haha. A PE of 17 based on today price of Rm3.29. 

Monday, February 17, 2014

Share Margin Financing (SMF)

All this while whenever people mentioned about share margin financing, the first thing that always came into my mind was share margin is risky, very risky indeed. This was probably due to many stories of investors who took up margin financing ended up losing out their hard earned money or even worst became bankrupted came into my ears since I was small. Some even ran away to other countries to avoid paying the huge sum of borrowings leaving behind their families.

A sudden interest that came from nowhere at share margin financing struck my mind lately. Frankly speaking, I’m quite new to share margin financing. After glancing through the forum and a quick search in internet.  I made up my mind and dropped a couple of emails to few local banks and investment banks to enquire about share margin financing. Basically, banks able to provide a better package compared to investment banks in terms of benefit and restrictions. It’s understood as it’s believed that the banks have better and stronger financial support compared to investment banks.

Since the risk of using the share margin is extremely high, I intended to utilise the cash safely and conservatively. Only borrow 20-30% of my capital, this will at least provide me a certain distance away from hitting margin call. No rollover fees, as I may only use the loan to trade once in a while and do not wish to be charged because of no trading activity in a certain period. Interest rate must be as low as possible, this is for sure. Invest in company that going to pay dividends that enough to cover the interest charged from the loan.

At the end, I applied the service from Hong Leong Bank which having a promotion currently. One of the promotions is the trader can get 20% rebate on the interest charged for the first 3 months. That means for the first 3 months, the interest charged will be around 3.8% as the interest rate offered is BLR-2%. The other promotion is the rebate on the stamp duty paid if the total income generated for the first 12 months is more than 2 times the stamp duty paid. Total income is the sum of the interest charged and brokerage fees during this 12 months period.

Other details for the SMF from Hong Leong Bank are
  • Interest rate is BLR – 2%, no matter how much is the borrowings amount.
  • Interest rate is calculated daily and credited monthly.
  •  Hong Leong Bank valuation on stocks is update every 3 – 6 months.
  • No roll over fees.
  • Margin of financing : 60%, margin call: 65%.
  • Trading limit is up to 1.5x against shares and 2.5x against cash/FD.
  • Facility limit: User defined. Stamp duty is charged at 0.5% of facility limit amount.
  • Brokerage fees is 0.38% (<100k 0.18="" and="" contract="" value="">100k contract value). This rate is applicable when you trade using the loan and purchase or sell using the money or counters that you pledged for the share margin account.
  • Lock in period is 12 months. Penalty is 2% of facility limit if breach. Thus, you are not allow to transfer the counters that you pledged to HLB to other banks’ share margin account for the first 12 months.
  • Upfront fees: RM85
  • Margin call is 65% which is lower than other banks’ offers but the interest rate and no roll over fees met my criteria.
Margin of financing stimulation:
Shares cost: 100k, loan amount: 30k (purchase stock), Bank value on stocks I purchased: 80%.

Margin of financing: 30k / [(100k*0.8) + (30k*0.8)] = 30k / 104k = 28.84%

In the event of the counters I bought dropped 50%, it will become

Margin of financing: 30k / [(50k*0.8) + (15k*0.8)] = 30k / 52k = 57.69%
 (Not yet hit margin call, but it’s approaching, and I did not included the interest charged in the calculation)

To hit margin call, the counters I bought need to drop around 56%,

Margin of financing: 30k / [(44k*0.8) + (13.2k*0.8)] = 30k / 45.8k = 65.5%

Thus, if I take 30% loan and leave out the interest charged in the calculation, the counters probably need to drop slightly more than half before margin call is raised.

Apart from that, you can pledge cash or FD instead of shares as the cash or FD will have no effect from the bank valuation in stocks. 

              Margin of financing: 30k / [(100k*0.8) + (30k*0.8)] = 30k / 124k = 24.19%

Interest charged stimulation:
Interest rate: BLR – 2% = 4.6%, loan amount: 50k
Note: Interest is calculated in daily basic and credited into outstanding loan monthly

Total interest charged is RM2396 which is equivalent to around 4.79% from my original loan amount. Additional close to 0.2% interest being charged. That is the difference between interest charged daily and annually.Dividend received from the counters bought using the loan will directly used to reduce the outstanding loan. 

Take an example if I use the loan to purchase 10 lot of Dutch Lady which is expected to pay RM1300 dividends twice annually. 

So, invest in a company that has dividend yield higher than the interest rate charged will help to reduce the outstanding amount. Dividend payment in quarter will have better reducing effect than semi annual and annual distribution. But make sure the company is a good company and has the ability to pay dividend as you expected. Of course, enter at a right price is another important element to take note. 

So, I probably will take up the share margin with a loan amount of 10% of my capital. Hahaha. My first objective is to get myself familiar with the financing and see how it goes by. 

Sunday, February 9, 2014

~ Fima Corporation (FIMACOR) 菲馬機構 AnAlysIs ~

There is few posts regarding Fima Corporation 菲馬機構 analysed by 糊涂老大. I looked through it and decided to compile data for future reference. Fima Corp. The group has 2 core businesses, namely manufacturing of security and confidential documents division and palm oil plantation. The other segment is property management division which provides property services to various companies under FimaCorp and Kumpulan Fima Berhad.

The group's revenue showed an upward trend throughout the years but suffered a drop in terms of net profit in FY2012 and FY2013. The profit drop in FY2012 was due to lower contribution of its security and confidential documents while the profit drop in FY2013 was due to lower contribution of its palm oil segment as a result of lower CPO selling price and weaker contribution from its associates. Gross profit margin average above 35% while net profit margin average >20%. The group also paying consistent dividend annually, dividend payout is increasing in spite of the poorer result recorded for the past 2 years. Share of associates comes from its 20% equity interests in G & D Malaysia Sdn Bhd which provides banknote printing service and it was highly inconsistent throughout the years. 

In terms of balance sheet, Fima corp is a cash cow currently, having RM2.74 cash per share with no borrowings. At current market capital around RM511 mil, the RM221 mil cash in hands which translated into roughly 43% of its market capital is too big to be ignored. Either the management thinks that there is no better investment opportunity compared to fixed deposit, or the mother company, KFima intends to keep the cash for themselves in case there is a chance to merge in future. Whatever it's, it's still not too good to let the large amount of cash sitting idle inside the bank. This shows that the management is not aggressive enough to look for investment opportunity to generate better return to the shareholders. 

Current ratio and acid test is high due to the high amount of cash in hands. Cash conversion cycle is consistently maintained below 2 months. Net asset is RM5.80, just slight below today trading price of RM6.35. ROE and ROTC dropped for the past 2 years due to poorer result recorded. 

Overall, Fima corp.'s operating cash flow has been good throughout the years, just there was a drop last year due to some working capital changes. Owners' earnings per sales has been good all this while with the owner easily get 20% cash return from sales. Not much capital expenditure is needed to maintain or improve its operation.

 The group ventured into oil palm plantation in FY2008 by acquiring 80% equity interest in PT NJL in Indonesia and immediately started the planting process on the remaining un-planted area. The land almost planted with mature palm oil trees since FY2011. The group purchased third party FFB for additional processing to increase the CPO output instead of its own estates. Oil extraction rate remained good, probably due to majority of the trees are in mature stage. The plantation segment remained highly affected by the CPO price and the government policies.

The group just completed the purchasing of 2 parcels of agricultural lands in Terengganu for RM29 mils. However, the land size is not that large, measuring 1940 acres at which 840 acres of it are still vacant. The acquisition took around 1 year for completion. The acquisition cost should posed no problem to the group. It should provides a little bit growth in its plantation segment for the next few years.

Looking on its segments result, manufacturing contributed higher to the group's revenue and operating profit. However, the plantation segment showed a good growth after the acquisition and recorded a higher profit margin which in the range of 30-35% while manufacturing segment only recorded a profit margin of 20-25%.  Not much growth for the document manufacturing segment for the past few years, probably a little bit stagnant already. The plantation segment recorded highest profit in FY2012 as the CPO selling price was at peak that time. Property management recorded a stagnant result in terms of revenue for the past few years due to the same numbers of property under its management and its operating profits were highly affected by the operating cost and occupancy rate. 

Not much foreign and local institutions are taking stakes in Fima corp. Kumpulan Fima and the group own treasury shares already taking around 60% of Fima corp. Shares liquidity is its weakness and sometimes there is no shares was traded a particular trading day. No bonus shares or shares split was done for the past 10 years.

Some additional notes are;
  • Document manufacturing are traditionally weaker during second half. 
  • Inventory, cash in hands, trade receivables and payable are all denominated in Ringgit. 
  • Higher tax rate since FY2010. 
  • Built their own composting plant to produce fertiliser, commissioned in FY2013 which in turn reduce the fertilizer cost. 
  • Invest RM4 mils in equipment for its confidential document production to improve production efficiency and product quality in FY2013.
  • Other income mainly comes from interest income.

For the first half of FY2014, the group's net profit dropped a bit compared to preceding year and recorded an EPS of 41.1 cents with 15 cents dividend being declared. The shortfall was due to poor performance from its plantation segment as a result of lower CPO price and zero production of palm kernel. The management stated that the document production is expected to be lower in the second half due to cyclic effects while its palm oil division still depends on the CPO price. 

It's hardly seen any aggressive growth on the group but in terms dividend yield, one easily able to get around at least 5-6% dividend yield for this counter and it's quite stable though, PE below 10.