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

Friday, February 27, 2015

Brilliant Circle Holdings 贵联控股: Company Analysis Part II

Laminated papers segment is considered part of the cigarette packaging's side business. This segment produces environmental safe composite transfer paper and aluminium foil used for package of cigarette, food and wine boxes. Operating profit margin has been consistently above 20%, but revenue contribution to the group is not significant. 

Book printing services segment is the previous core business of the group, but the place was taken by the cigarette packaging division after the consolidation. This segment was not good all this while. Revenue and Operating profit margin getting lower and lower due to stiff competition from the foreign companies. I guess that is the reason why the group disposed its book printing business in Dec 2014 for HKD109 million and focus on its core business. 

The revenue and operating profit margin for the cigarette packaging has been improving after consolidated into the group. The growth rate of its revenue is good and almost hit double in 3-year time as a result of acquisition and organic growth 

The key men of the group are them, especially Mr Tsoi Tak who is the founder and chairman of the group while Mr David Cai is his son and probably the man who will continue to drive growth for the group in future. Mr Qin and Mr Kiong is the COO and Executive director of the group, taking care of the operation and marketing of the group respectively. 

Mr Tsoi Tak owning 51% shareholder stake of the group while his son, Mr David Cai taking 5.9% direct ownership. Mr Kiong taking very negligible stake in the group while no ownership for Mr Qin. 

Mr Tsoi Tak took a hopping total HKD24 million of emoluments at which half of it was incentive performance bonus in FY2013. 

For the first half FY2014, the performance of the group dropped as a result of slowed orders from the high tier market as they stockpiled around the end of 2013. To make it worst, administrative expenses increased tremendously due to increase in director remuneration, staff welfare and entertainment expenses. So, the management team and employees were taking higher pay when the company's performance was dropping :( 

As noted in the announcement, the group has strategically expanded its post press services which in selected brands can offer higher profitability and lower working capital commitment. 

Balance sheet improved a bit with borrowings reduced. So, expected lower finance costs moving forward. 

When looking at the segment reporting, it's obvious that the other cause for the performance drop was due to the loss making of the book printing business segment although it's not that significant in terms of profit contribution. The group made a decision to dispose this division last December. 

Apart from that, it's noted that the operating profit margin of the cigarette packaging also dropped to 35%. It's similar case for the laminated papers division. 

The group made a couple of corporate announcement in this few months. 

First, the group acquired the 40% it does not owned in Giant Sino in Nov 2014 for HKD82.4 millions. Thus moving forward, the profit will be fully consolidated into the group's bottom line. 

In Jan 2015, Masterwork Machinery (Manufacturers of printing equipment) has entered into framework agreements to acquire 251 millions shares of the group which represent around 16.9%. I think there will be certain synergy effect between the equipment manufacturer and the group as it may provide equipment with better and higher technology to the group in future. 

In a separate case in Jan 2015, a third party group also tend to acquire 103 millions shares of the group which represent 6.95%. Not sure about this as the info is quite limited. 

The cigarette packaging market is generally a capital intensive industry which require large amount of investment in both plant and equipment. Furthermore, anti counterfeit technology and environmental protection technology set up a high entry barrier for new entrants in cigarette packaging industry.

Both AMVIG and Brilliant Circle also having a hard time this year and both also will release their full year result soon. 

Wednesday, February 18, 2015

Gong Xi Fa Cai 2015

Wish everyone Happy Chinese New Year

Gong Xi Fa Cai





Huat ahh

Friday, February 13, 2015

Brilliant Circle Holdings 贵联控股: Company Analysis Part I

After had a study on AMVIG Holding, next of course is its competitor, Brilliant Circle Holding (Stock code:1008). The group previously name CT Holding which principally involved in book printing services. 

In 2010, the group acquired Brilliant Circle from Tsoi Tak who is also the chairman of the board as well as the controlling shareholder of the company for HKD2.4 billion with issuance of 480million new shares at HKD5 each. 

The group later changed its name to Brilliant Circle from CT Holding earlier. The acquisition is considered as a business combination under common control as Mr Tsoi Tak is the ultimate controlling party of both companies.

The Group now consists of seven manufacturing entities, five of which have been awarded “National High-tech Enterprise” recognitions, and one corporate research and development centre.

The Group and its associated company’s annual production capacities of cigarette package printing and transfer paper are approximately 5.6 million cases and 4,000 MT

The Group was also among the first to obtain China’s “Green Printing Enterprise” qualification.  

In 2011, China Packaging Federation granted the Group the title of “China Tobacco Packaging Research and Development Center”, responsible for undertaking major research topics for the industry.

So far, the Group and its associated company have 124 national patents, 2 provincial class corporate research and development centers, 2 corporate engineering centers and 2 national class testing laboratories.

Ever since the group acquired the cigarette packaging business, the respective segment become the core and breadwinner of the group. Revenue and net profit also increased tremendously. However, the growth is not that splendid for the cigarette packaging segment.

Operating profit margin and net profit margin also around the same with above 20%. The group's associate is its 35% stake in Changde Goldroc Rotogravure Printing which is also involved in cigarette printing packaging service. The associate helps to contribute certain amount of profits every year.

Besides, in June 2012, the group acquired 60% stake in Giant Sino Investments to hold majority ownership in YangFeng Printing & Packaging which also involved in cigarette packaging.

60% of the cost comes from the pulp which Chile is one of the world largest pulp producers. Gross profit margin for the past few years was quite stable at around 30%.

The group was in net borrowing position in its latest financial year with net gearing ratio of 0.23 as the group took up a big amount of borrowings in FY2013 for refinancing existing indebtedness and payment to non-controlling interests of one of its subsidiaries.

Interest payment to operating profit ratio is around 20% which is not a very healthy position. I wish the group able to reduce it below 15% or even 10% to increase it profit margin.

Current ratio is more than 1.

Shareholders' equity and total borrowings contributed around 57% and 24% of total assets respectively.
In terms of cash flow, it's similar to AMVIG holding as the group does not need much capex for growth every year. The group averagely spent less than 5% of its sales on capex yearly. Thus the free cash flow has been positive, stable and increasing throughout the years.

Operating cash flow margin averagely more than 25% for the past few years. FCF/Sales and FCF/Invested Capital are both impressive at >10%.

The quality of its earning is quite good as the net cash flow from operation / net profit ratio has been more than one throughout the years.

Overall, the group's management on its cash flow is quite good.

The cash conversion cycle improved since the acquisition of the cigarette packaging business. It may not be as good as AMVIG but still quite good at around two to three months period. 

In terms of return, its ROE is averagely around 20% while its ROIC had a drop in FY2013 due to increased invested capital from borrowings and smaller growth from its operating profit. 

As usual, the part I analysis consist of the brief introduction followed by the financial statement, will evaluate more on next post. 

Wednesday, February 11, 2015

AMVIG Holdings 澳科控股: Company Analysis Part II

Laminated paper & laser film segment produces the raw materials needed for the cigarette packaging printing. Its contribution in terms of revenue and operating profit to the group is quite small. 

Thus, the breadwinner is still the cigarette package printing segment. One thing to note is that the declining trend of its profit margin as a result of the tendering system implemented by the tobacco group since few years ago while revenue kept going up albeit a dropped in year 2010 after disposal of Brilliant Circle group. 

Throughout the years, the group able to restructure its product range and keep its focus on high-mid end products which carries higher gross profit margin at around 34% which is almost double of the other 2 lower end products. 

In 2013,72% of the cigarette packaging customers are from High-Mid End class and the top five largest customers accounted for approximately 89% of the total sales. 

The major shareholder is Amcor Limited who is involved in a lot of packaging business for different applications. Back in June 2008, Amcor subscribed 78 mils shares at HKD8.94 each to raise HKD699 millions. Amcor Limited is listed in Australian Stock Exchange Limited,

There are few institutional funds currently owning substantial ownership in the group too. 
On the management side, Mr Chan Sai Wai and Mr Ng Sai Kit who are siblings and also the executive directors of the group taking a significant but not substantial amount of ownership in the group. 

Mr Ge Su who is the CEO of the group taking a mere 0.13% ownership. He has more than 20 years experience in the Chinese tobacco industry. He also participated in many tobacco related projects and also developed a good working relationship with the tobacco monopoly authorities both at central and provincial levels. But why so tiny ownership?

Thus, the total ownership by Amcor Limited, investment funds and management is close to 83%. Not much liquidity in my opinion.

For the half year ended FY2014, the group's performance was not so good. Revenue and net profit also dropped compared to last year. Higher gross profit margin but lower operating profit margin caused its net profit margin dropped too. 

Higher operating expenses was due to weakening of Renminbi against HK dollars that caused an exchange loss of HKD35.2 millions compared to exchange gain of HKD14.7 million last year. By minus out the exchange losses, the core operating cost did reduce little bit from last year. 

Nothing much special on the balance sheet while its cash flow statement only showed the summary. 

Due to the strong balance sheet and cash flow, the group declared 2 special dividends total of HKD37.1 cents on top of usual HKD8.2 cents interim dividends for current year. 

China National Tobacco Corporation (CNTC) is playing an important role for the packaging industry. It's a state-owned manufacturer of tobacco products and also the world's largest manufacturer of tobacco products by revenues. 

Together with State Tobacco Monopoly Administration, they are responsible for the monopoly management of tobacco products and the operation of production, sales, materials, import and export business in relation to tobacco products in PRC.

According to some articles, Marlboro remains the most popular cigarette in the world, but China brands taking 7 of the top 10 brads, including Red Pagoda Mountain and Double Happiness. 

One thing to note is that the cigarette in China is largely opaque monopoly. It blocked competition from Western tobacco markets by limiting imports or domestic production by foreign companies. So, their products are mainly consumed locally and the tobacco industry accounts for about 7 percent of the state's revenue yearly.

The tobacco industry in China seems like a stable industry and it's quite defensive. 

Perhaps, the packaging player for tobacco worth to take a look especially during economic downturn? 

Monday, February 9, 2015

AMVIG Holdings 澳科控股: Company Analysis Part I

AMVIG Holdings Limited which is listed in HKEX, principally involved in the printing of cigarette packages while also manufacture transfer paper and laser film, which are the major raw materials for the cigarette packages. 

The group is one of the leading cigarette packaging printing specialists in PRC and having a market share of approximately 13% according to its website. 

Currently, the group has 6 cigarette packaging printing plants and 2 transfer paper & laser film manufacturing plants spreading across different provinces in PRC. 

In 2005, the world largest packaging group, AMCOR subscribed 80m new shares and became a strategic shareholder with 16.67% equity interest. 

Soon after in 2006, AMCOR injected its cigarette packaging printing business in the PRC & became the single largest shareholder until now and changed its name from "Vision Grande Group Holdings Limited" to "AMVIG Holdings Limited"

The group's strategy all this while focus on dual growth engine, organically and inorganically. The group made numbers of acquisition throughout the early years. Through restructuring and integration, the group at one point was the leader in the industry. 

However since 2010, the tobacco groups had since implement tendering system which affected the profit margin of the packaging industry. This move eliminated many small companies as they could not compete with lower selling price. 

It's obvious that the group able to chalk up higher sales but bad thing is they did it by compromised their profit margin. I believe it will stabilize at one point when all the big boys forming a base line later. Nevertheless, its gross profit margin and net profit margin still above 25% and 10% respectively.

The tax rate of the group is quite high at 36% due to the incurrence of certain non-tax deductible expenses

The group maintains a good balance between its cash on hands and total borrowings to finance its growth. Net gearing ratio less than 15% throughout the years.

The group is in net cash position currently. Current ratio >2 for the past 5 years.

The high amount of borrowings may not be a concern as the interest expense to operating profit ratio is less than 10% and the interest gains from cash balance and dividend from associates are enough to cover.

Good thing about AMVIG is its very strong cash flow. The group needs very low capex each year for organic growth and its operating cash flow is more than enough to cover.

Thus, the group generated high amount of positive free cash flow every year. FCF/Sales and FCF/Invested Capital were good with >5%.

Cash generability is good with net cash flow from operation / net profit ratio is more than one every year.

This explains why the group able to pay big sum of special dividend in year 2012 and 2014 due to its strong free cash flow to return the excess cash to the shareholders.

One of the reasons why its operating cash flow has been so strong is because of its low and occasionally negative cash conversion cycle. The group able to drag its payment to the suppliers while keeping its inventory level low as well as receivables turnover to keep a good working capital management. 

In terms of returns, its average ROE of 10% made it a mediocre company. However, standing at the point of company, its ROIC had been impressive these 2 years with above >30% return. 

Some of the corporate movements for the past few years as below,

Acquired 65% of World Grant in 2006 and establish new Dongguan plant to capture the market share in the southern part in 2007. And in 2008, the group relocated its laser film operation to Dongguan to become a one stop station with both cigarette packaging and film and transfer paper production at one site to improve production efficiency. 

In Oct 2007, the group acquired Brilliant Circle Holdings which is the one of the top 3 cigarette packaging printing groups for HKD1.55 billion. However in Feb 2010, the group disposed Brilliant Circle group back to Mr. Tsoi for HKD2.05 billion due to lower profit margin.

In Oct 2008, the group acquired Hangzhou Weicheng which is one of the top ten tobacco groups for RMB350 millions

In Feb 2010, the group acquire 45% equity stake the group did not own in Famous Plus Group who focus on high end packaging products for RMB670 millions. 

That's for the 3 financial statements and its brief introduction. Will continue on next post. 

Friday, February 6, 2015

Winning System: 21 Costly Common Mistakes Most Investors Make

In the "How to Make Money in Stocks" book, William J.O'Neil also spare one chapter and point out the importance of learning from our mistakes. 

"Build up your weaknesses until they become your strong points"

The reason people either lose money or achieve mediocre results in the stock market is they simply make too many mistakes. Below are the key mistakes investors need to avoid to get better investment results. 

1) Stubbornly holding onto your losses when they are very small and reasonable. 

2) Buying on the way down in price, thus ensuring miserable result. 

3) Averaging down in price rather than averaging up when buying. 

4) Not learning to use charts and being afraid to buy stocks that are going into new high ground off sound bases. 

5) Never getting out of the starting gate properly because of poor selection criteria and not knowing exactly what to look for in a successful company. Overly concentrate in highly speculative or lower quality securities

6) Not having specific general market rules to tell when a correction in the market is beginning or when a market decline is most likely over and a new uptrend is confirmed. 

7) Not following your buy and sell rules, causing you to make a increased number of mistakes. 

8) Concentrating your effort on what to buy and once the buy decision is made, not understanding when or under what conditions the stock must be sold. 

9) Failing to understand the importance of buying high quality companies with good institutional sponsorship and the importance of learning how to use charts to significantly improve selection and timing. 

10) Buying more shares of low priced stocks rather than fewer shares of higher priced stocks. 

11) Buying on tips, rumors, split announcements and other news events.

12) Selecting second rate stocks because of dividends or low price/earnings ratio. 

13) Wanting to make a quick and easy buck. 

14) Buying old names you're familiar with

15) Not being able to recognize and follow good information and advice. 

16) Cashing in small, easy-to-take profits while holding the losers. 

17) Worrying way too much about taxes and commissions. 

18) Speculating too heavily in options or futures because you see them as a way to get rich quick. 

19) Rarely transacting "at the market", preferring instead to put price limits on buy and sell orders. 

20) Not being able to make up your mind when a decision needs to be made. 

21) Not looking at stocks objectively. 

It takes time and a little effort to get it right, but in the end, it's worth every minute you spend on it. 

You can learn to invest with knowledge and confidence to protect your money and at the same time find and properly handle highly successful companies. 

*Abstracted from the book, "How to make money in stocks" by William J.O'Neil.  

Wednesday, February 4, 2015

Takaso Resources: What's next?

Takaso Resources took my attention when I realized that its warrant has been trading at a negative premium to its mother shares last week. 

Seem like a good deal ... Yea .. but have a check first

A quick glance at its financial statement will stop you from study it further. Making net losses, high borrowings and poor cash flow. A typical poor company waiting to be rescued. 

Interestingly, little did I know that the group is also one of the condom manufacturers. It surprised me.

Yes, that is PlaySafe, manufactured by the group. 

So, even your products are used no matter we are in economic crisis or in a bull market and even the rubber price keep dropping down, it doesn't mean you are still making money. 

But what interested me is that it seems like there is some corporate movement in the group. 

Ong Kah Hoe emerged as new substantial shareholder with 15.6 mils direct shares and 10.2 mils indirect shares. 

At the same day, Tan Ooi Jin (Independent Non-Executive Director) and Yong Mong Huay (Executive Director) disposed all their shares in open market. 

Tee Tze Chern (Chairman, Ex-Managing Director) acquired 4.5mils shares in open market to increase his holdings to 1.17% direct and 16.93% direct. 

7/11 & 11/11/2014
Ong Kah Hoe further increased his holdings to 18.62mils (10.41%) and indirect 17.02mils (9.52%)

Ong Kah Hoe was appointed as Non-independent & Non-executive director of the group.

The group announced a private placement issue with new 17.9 mils shares placed at RM0.514.

Yap Hoong Chai emerged as new substantial shareholder with 5.06% stake at which 10mils shares was subscribed from the private placement. 

Ong Kah Hoe further increased his holdings to 18.62mils (9.41%) and indirect 22.70mils (11.49%)

OCR Land Holding Sdn Bhd emerged as new substantial shareholder with 12.5mils (6.31%) direct shares holdings at which Mr Ong is deemed interested. 

Extension of proposed acquisition of Dynavance Construction Sdn Bhd to 31 March 2015. Ong Kah Hoe is one of the directors and shareholders (15%) of Dynavance. Acquisition cost is RM9.5mils. However, Dynavance made a profit guarantee of RM12 net profit after taxed for a period of 24 months. 

Received a Letter of Award from OCR Land Holding Sdn Bhd to complete and construct a block of 21-storey commercial building for a contract sum of Rm37.4mils. 

OCR Land Holding increase its shares holding to 27.5mils (13.88%) direct shares. It increased Ong Kah Hoe direct holdings to 18.6mils (9.4%) and 37.7mils (19.05%) indirect holdings. 

So, what Mr Ong wants to do with this company with latest close to 30% ownership? 

Anyway, it's just for reference. The company's fundamental is bad enough at this moment.
It's just a fry stock. 

I will just sit tight and watch movie.

Let's see what is his next move to move forward. 

Monday, February 2, 2015

Jan 15 Portfolio

Jan just ended. Time flies. It's time to review my portfolio again. 

Nothing much happen on PJ Dev and Sunway in terms of price and corporate movement. Still pending on their next move. 

Chin Well - Acquisition almost completed, 2H will have the full contribution from its Vietnam plant. Price did not change much in Jan. 

SCGM - New addition after ex-dividend. Bought it because of lower raw material price, good growth prospect, high profit margin, great cash flow and balance sheet and good ROE and ROIC. May evaluate again on next quarter report as my target price is around RM2.5. The current price is quite close to that. 

IFCAMSC-WA - New addition based on theme play. GST software revenue contribution may not be that high, will depend on its China business. Will evaluate again on next quarter release in Feb for its growth prospect. Will keep on monitoring this stock as the volume traded always quite high. And I already submit the form to convert it into mother share. 

ABRIC - Bought after ex-dividend but my buying price was little bit high. Bought because of its higher NA per share as well as cash per share. Let's see whether it can climb until RM0.53-RM0.55 or able to acquire a new business. 

For Sg market, thanks to the renew interest in property stocks. HB Land and CES also move up a bit. Both counters also will release its quarter result in Feb. 

For HK market, made my first purchase in HK market by taking very negligible ownership in China Silver Group. Bought it because of the group new business in online business on top of traditional silver smelting segment. Foresee net profit for the year 2014 will be double of the previous year. 

Looking back my trades on previous month, realized that I sold PohHuat too early. All furniture stocks rallied in Jan. 

In Jan, done studied OKA Corp, Century Logsitics (KLSE), AP Oil (SGX), China Silver, YuGang - Cross Harbour (HKEX) and also finish a book by William O'Neil. 

I also made adjustment to my fund allocation to diversify into HK market. 

Formation will be 3-5-2. 
3 = HKEX, 5 = KLSE and 2 = SGX

352 352 352 .. Sounds familiar? Yeah, that is the current formation Van Gaal likes to play. 

Hopefully, my portfolio performance will not be as poor as manu. 

That's. Happy Chinese New Year in advance. Gong Hei Fatt Choi ahhh

Looking forward to balik kampung - from sg 游子