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

Monday, April 27, 2015

Century Sunshine Group (世纪阳光): So Good Yet So Fake

Century Sunshine Group Holdings Limited with stock code 509 was listed on the GEM Board in 2004 and subsequently transferred to the Main Board on  August 2008. It was the first listed company who specializing in organic fertilizer business in China. 

The Group ventured into magnesium alloy production in 2008. Since then, the group focuses on both core segments to drive its group forward. 

The group initially only produce organic fertilizer. After 1-2 years R&D, the group able to develop new compound fertilizer, namely microbial silicon magnesium fertilizer, tailored for China's soil that is generally lack of silicon and commenced production in 2012. These fertilizers are environmental friendly, energy saving and emission reduction. 

Based on the latest annual report. it's reported that in PRC, where more than about 50% of 450 million mu of paddy rice soils contain low silicon content, and 19% of the soils contain low magnesium content, the group very owned Si-Mg fertilizer is effective in improving soil structure and increasing crop resistance to pests and disease.

Magnesium alloy segment produces 2 types of products, namely basic magnesium products and rare earth magnesium alloy. The group has a resourceful dolomite mine which is rich in magnesium and offers an integrated platform from mining, smelting, ingot manufacturing, alloy and master processing to distribution. 

According to the “13th Five-year” development plan for the PRC’s magnesium industry, raw magnesium output in the PRC will increase from approximately 800,000 tonnes in 2014 to approximately 1.3 million tonnes at the end of 2020, with an average annual growth rate maintained at 8.4% due to promotion of being one of the lightest structural metals in engineering applications.

The Group has signed a long-term agreement with Changchun Institute of Applied Chemistry to apply and utilize exclusively the 21 patents on magnesium alloy productions especially rare earth magnesium alloy. 

What interested me in the beginning to look at this company is the image above. Revenue and net profit were increasing for the past 5 years at a very good growth rate. To make it better is its profit margin also increased gradually. 

Nothing is better than that. This was contributed by new compound fertilizer and rare earth magnesium alloy as well as increase production capacity for both segments. 

The group still in net cash position at the end of FY2014, but there is a trend that the group's borrowings is increasing at a pace that far outnumber its internal cash generability. So, foresee the group will be in net borrowing position at the end of FY2015. 

Both ROE and ROIC at around 13-14%. Current ratio and acid test are more than 1.5. 

Both trade receivables and trade payables turnover were good at around 50-60 days. Thus, cash conversion cycle was quite good at around 30 days for the past 3 years. 

As a result of this, it's not hard for the group to maintain a quite strong operation cash flow yearly. However, the amount of capex spent every year is really frightening. The amount of capex spent was larger than its operating cash flow and net profit for the past 5 years. That is alarming and free cash flow of course was negative throughout the years. 

It's no surprise that the group took up more loans to fund its expenditures and also raised funds from the public. Number of outstanding shares had increased from 2.29 billion in FY2010 shares to 2.89 billion shares in FY2014

Fertilizer segment is the group’s core business, contributed the most to the group’s revenue and its bottom line all this while. Its profit margin increased tremendously since 2012 after the introduction of new Si-Mg compound fertilizer that fetches superior higher margin than organic fertilizer are well received by the industry.

The group only started magnesium alloy production in 2011 and able to record around 32% operating profit margin at the end of 2014. Rare earth magnesium alloy fetches higher margin compare to standard magnesium products due to higher technological requirements. In addition, the selling price of rare earth magnesium alloy is quite stable due to technical difficulty involved to produce them.

Metallurgical flux is the by-products that are being produced in Si-Mg fertilizer production.

What made me not comfortable about this company is its large capex and negative free cash flow as well as some acquisitions made in these few years. The recent acquisition of Group Senses is even more alarming where the company being acquired who involved in manufacturing of electronics products had been in net loss position for the past few years. 

If not for this concern, I probably will buy some

Tuesday, April 21, 2015

Mandatory / Voluntarily Offer

Found this post quite interesting written by a person, namely ksay1ttl in a mandarin forum, Investalks about mandatory / voluntarily & conditional / unconditional offer that we frequently witnessed in some corporate announcement. 

I find it quite interesting and would like to post it for future reference. 

Below is the post I copied directly from the forum.  


1 献购 (Offer)


(i) 条件自愿性献购 (Voluntarily conditional offer)


例子: Layhong 2014年的献购

(ii) 无条件自愿性献购(Voluntarily unconditional offer)

例子:Bernas 2014年2月的献购

(iii) 条件强制性献购( Mandatory conditional offer)


(a) 献购方的股份从少于33%增加到超过33%;
(b) 献购方的股份是在33%到50%之间,献购方的股份在6个月内增加超过2%。

这种情况下的献购,献购价(Offer Price)不可低于6个月前献购方购买该股份所付出的最高价钱。


(iv) 无条件强制性献购(Mandatory unconditional offer)



例子: 即将提出的osk property献购


(i) 如果一个大股东的原有股份已超过50%,不管它之后再购买多少股份,都不会触动强制性献购。
(ii) 在所有的献购里,如果超过90%的被献购方接受献购(90%是指这些被献购方拥有的股份总和,不是指被献购方的人数),那么献购方可以提出强制性收购(compulsorily acquisition),收购那些不愿意卖的被献购方的股份。

2 选择性资本回退(Selective capital reduction) 



(i) 公司必须举行特别大会,在特别大会中,必须得到出席的股东至少75% in value(股份的总和)和50% in number 股东人数)的支持,和不可以有超过10% in value的反对。

(ii) 在特别大会得到股东的批准后,要向法庭申请,法庭批准后才可完成整个私有化过程。

这种情况,个别股东做的将是集体决定。如果通过,所有股东都必须将其股份卖给提出selective capital reduction的股东,如果不通过,所有股东都不能卖。

例子: Mas 和Delloyed,和最近提出的hunza property

3 自愿性下市(voluntarily delisting)

大股东/外来者提出要让公司自愿性下市,要达成的条件为:公司必须举行特别大会,在特别大会中,必须得到出席的股东至少75% in value(股份的总和)的支持,和不可以有超过10% in value的反对。

在特别大会得到股东的支持后,该大股东/外来者将会提出Exit Offer,个别股东如果选择接受该Exit Offer,该大股东/外来者与个别股东的交易就完成。

这种情况,个别股东在公司特别大会做的将是集体决定,过后选择接不接受Exit Offer将是个别决定。

例子: Latex Partner 2013年的下市



在所有的献购(Offer),选择性资本回退(Selective capital reduction)和自愿性下市(voluntarily delisting),证卷委员会(SC)都会要求上市公司委任独立咨询顾问(independent adviser)来评估该献购/选择性资本回退/自愿性下市究竟是否公平(fair)和合理(reasonable),和劝告股东应不应该接受该项献购或在股东大会投选择性资本回退/自愿性下市支持票。

根据证卷委员会的指南(Practice Note),在评估献购/选择性资本回退/自愿性下市究竟是否公平和合理的过程里,公平和合理是必须要分开评估的,不可以把两个合在一起评估。合在一起评估的意思是指得出来的结论只有两个, 公平和合理(fair and reasonable)或不公平和不合理(not fair and not reasonable)。但如果它们两个是必须要分开评估的,除了之前的两个结论,还会看到一个大家常常看到的结论,就是不公平但合理(Not fair but reasonable)。那为什么我们从来没看到公平但不合理(fair but not reasonable)呢?因为在该指南里,提到如果一项献购公平,那么一般上该献购也将合理,所以那些独立咨询顾问也只是跟着指南而已。

注: 接下来只用献购做讨论,但下面写的东西也适合用于选择性资本回退和自愿性下市。


决定公平的因素只有两项:估值(valuation)和股价(share price)。证卷委员会的指南要求献购价要高于或等于该股的估值和股价,该献购才算公平,只要献购价低于其中一项,该献购都算不公平。

1) 估值

独立咨询顾问会根据公司的性质来决定用哪种方法来评估估值,常用的方法包括Discounted cash flow (DCF), Price to earnings (PE), Revised net assets value (RNAV), Enterprise value to EBITDA (EV/EBITDA)等。比如contract based的公司一般会用DCF, asset based 的company一般会用RNAV等。基本上就像那些投行的研究报告,评估股票的合理价。

由于献购价低于估值就会造成该献购不公平,所以我们常常都看到很多献购都是不公平的,尤其是像产业股这样的asset based company,因为根据RNAV的算法(就是用市价重新评估该公司所拥有的全部资产),算出来的估值一般都会高过献购价很多。

2) 股价

这个就比较直接,拿献购价和股价作比较而已。比较的股价有两种,第一种是闭市价(Closing price),第二种是成交量加权平均股价(volume weighted average price)。第一种的比较不同的独立咨询顾问会用不同的timeframe,但一般上都是用1年,2年或5年。第二种一般上用的是5天,1个月,3个月,6个月和1年。

这里简单地解释一下成交量加权平均股价,比如说今天A股有两个交易,第1个交易是1,000unit,成交价RM0.50,第2个交易是2,000 unit, 成交价RM0.55,那么今天A股的成交量加权平均股价就是(1,000 x RM0.50 + 2,000 x RM0.55)/(1,000+2,000)=RM0.5333。

决定合理的因素就是任何除了 股价和股值的因素,最常看到的有:

1. 流通量(liquidity)
2. 股息 (dividend)
3. 公司和行业前景(prospects of industry and company)
4. 公司的业绩(financial performance)
5. 公司的上市地位 (listing status)
6. 有没有人提出更好的献购 (competing offer)。


在市场上我们看到的献购,一般上献购价都高于市场价(否则根本没人会去接受),但往往都低于该股的估值,所以一般都不公平。因此,独立咨询顾问就会去看合理的因素,如果这些合理的因素大多都存在,那么独立咨询顾问的结论就会是不公平但合理(Not fair but reasonable),然后劝股东接受该献购 。

Reference: Investalks. 


Thursday, April 16, 2015

China Saite Group (中国赛特): Introduction

China Saite Group is considered as a new stock. It's listed only in Oct 2013, merely one and a half year ago. 

The group primarily involved in 2 segments, namely steel structure and prefabricated construction in Jiangsu province. 

Steel structure (钢结构建筑) uses steel and concrete as raw materials. It offers lots of advantages compare to construction structure. Steel structure mainly used in the construction of large-scale structures, bridges, factory and industrial park zones. 

The group is the third largest steel structure provider in Jiangsu Province. Gross profit margin for steel structure is around 20-30%. Government target to consume steel structure at 10% of the total steel production in 2015 from 4.5% in 2011. 

Prefabricated construction (预制构件) mainly involves the pre-production of major structural components in factory and direct assemble them at work sites. It provides shorter construction lead time, higher quality and lower wastage. It mainly used in construction of social housing and public structure projects. Gross profit margin is around 35-40%. 

The group is the second largest prefabricated construction service providers in Jiangsu Province. In addition, the group also obtained a number of patented technologies in prefabricated construction. 

The group's business platform based on contracts. The group make a bid, get the offer and deliver the products. Thus, every contract has its own cost structures. 

In terms of cost structure for the group's overall cost of goods sold, raw material contributed 64% of the average cost in FY2014, followed by installation fees. These 2 elements almost contributed 88% of the cost involved. 

The raw materials for steel structure are steel plate and steel coil while for prefabricated structure, the raw materials are reinforced steel, insulation material and concrete. The recent drop in steel price may work in favour for the group, depends on its purchasing policy. 

Revenue for FY2014 increased but the quality of the increase was not that good as its growth in net profit was not that high. Both gross profit margin and net profit margin also dropped. Dividend for FY2014 was around HKD2.4 cents. 

In terms of balance sheet, the group was in net cash position with no borrowings. One thing to take note is its trade receivables were quite high. Trade receivables turnover was around 130 days. 

Current ratio was around 5. ROE and ROIC were 26% and 47% respectively for FY2014. They did it with internal generated funds. 

Operating cash flow was good, although it could be better if not for the high trade receivables. FCF was positive with FCF/Sales >5%. 

Profit margin for prefabricated division was higher than steel structure division, although both divisions also showed decreasing profit margin. 

According to the latest AR, the lower profit margin for steel structure division was due to high proportion of exports orders which fetched lower profit margin in year 2014 compared to local projects. This trend will continue as the management mentioned they will continue to market exports. 

As for its prefabricated division, lower profit margin was due to higher proportion of contracts at which the group acted as sub-contractors which fetched lower profit margin instead of general contractor. 

Growth plan for FY2015;

- Increase the market presence in second and third tier cities as well as overseas markets for its steel structure division. 

- It's expected that 4.8 million units of social security housing would be completed in 2015 and the government required the technology of prefabricated construction must be applied to 30% of social security housings by 2016 on a nationwide scale. This will benefit the group. 

- In 2014, the group entered into corporate agreements with each of Beijing Urban Construction group and Shanghai Urban Construction group in relation to civic construction projects. This will help to expand its prefabricated business to other regions outside Jiangsu. The group also get its first contract in Shanghai from these agreements. 

- The group plans to expand its prefabricated construction business and increase the proportion of this division to 45% in terms of overall revenue. 

- New income from the proposed acquisition of Jiangsu Chenli who involved in manufactures eco-friendly related equipment. 

Cons ..

- High trade receivables at which the management mentioned that was due to increase amount of high value individual contracts. 

- Reducing profit margin

- Unable to get any new contracts. 

- New listed companies with lack of track records

Well, I like it because of its prefabricated business with good growth prospects. Have to keep an attention on the housing development. 


-Presentation slide

-AR 2014

Monday, April 13, 2015

Century Logistics: One-off gain

I did not follow Century Logistics group all this while. But since it just released its latest annual report and I thought it may benefit from the lower cost of petrol, so I decided to take a look.

At first glance, it looked good. Everything was improving. Nothing is better than that. 

However, when looking at its income statement and cash flow statement, one may not find it hard to notice that there were actually gain of asset disposal as well as fair value gain on its investment property being recorded in FY2014. 

Management mentioned it too at the chairman statement. To me, the transparency is good as they separate it out individually and clearly for these one off gain as to some companies, they would put under "Other Income" section. For that case, one need to zoom down to the operating cash flow section for confirmation. 

Yes, they disposed its plant in Thailand and Port Klang last year. Total one off gain for FY2014 was around RM17 million. 

If deduct the one off gain, the PBT would be RM42.4 - RM17.1 = RM25.3 million. It's still higher than FY2013 as there was a fair value gain of RM10.5 million recorded in FY2013 too. 

Thus, the net profit for FY2014 would be around RM25.3 x 0.75 (25% tax rate) = RM19 million

EPS for FY2014 would be RM19 million / 365,019 = RM5.2 cents. 

Based on closing price of RM0.825, PE would be around 16. 

There was some growth prospect in the group like net cash for the first time, new multi-storey warehouse in Klang that expected to commence at the end of 2015 and higher contracts from MNC in PTP warehouses. 

I think the price is little bit fully-valued already. Limited upside. 

But wait, a technically breakout from long term down trend with high volume? 

But I'm not a good chartist technician. 

Wednesday, April 8, 2015

LTKM Berhad: Bonus issue and share split

LTKM Berhad just announced a very surprise corporate exercise yesterday.

A bonus issue of 1 Bonus Share for every 2 existing LTKM shares held

It was followed by share split from par value of RM1.00 to RM0.50. 

So the number of ordinary shares will be almost 3 times than existing. 

From 43 million shares to 130 million shares. 

Since this is just a bonus issue and share split, there is no proceed being raised. Furthermore, it has no effect on its fundamental. 

The only good thing is it increases the shares LIQUIDITY and AFFORDABILITY!

The share price will probably be adjusted from RM6.5x to RM2.1x. 

Given that existing 43 millions of outstanding shares are pretty small, to make it worst, the top 30 shareholders already taking around 82% of the ownership. 

So, I think it's a very splendid move by the management to increase its shares liquidity

Given the corn price still at low level compared to last year, it should be able to counter the strong USD currency. 

Based on the currency sensitivity analysis published in the latest AR, stronger SGD to RM is favourable to them too, probably due to the exports to Singapore. 

With the latest corporate exercise, can LTKM reduce the gap between TeoSeng and him in terms of market capitalisation? 

Let's see

Monday, April 6, 2015

Sunway: The listing of SunCon

So, few months after Sunway Berhad decided to list its construction arm, the group finally announced the shareholders' circulation on last Friday.

I roughly read through it and some of the key points are below

Barring any unforeseen circumstances, the listing of SunCon will be around mid July. So 3-4 months later. 

There are 2 scenarios mentioned in the announcement, namely minimum and maximum which depends on the possibility of share buy back exercise, ESOS options and conversion of warrants which affected the no. of ordinary shares of Sunway group. 

The final retail price and institutional price are expected to be announced within 2 market days from the price determination date. 

Since majority of the proceeds raised will distribute back to Sunway's shareholders as special dividends, I guess the amount will be the focus of the shareholders. 

Based on the latest 4th quarter report of Sunway group, the no. of ordinary shares is 1.727 million. 

Thus, dividing the amount by the outstanding shares gives 24.7 cents and 21.87 cents as special dividends respectively for minimum and maximum scenario. There will be slight deviation as a result of conversion of warrants and ESOS as well as share buy back by the group if any. 

Bear in mind after the exercise, the equity interest of the group in SCG will be diluted to 51% from existing 100%.

Based on the latest 4th quarter result of Sunway group, the construction division contributed RM1.75 billion revenue and RM113 million net profit to the group. So after the exercise, it will roughly cut into half for the profit attributed to the Sunway's shareholders contributed from the construction division. 

Apart from the distribution, the group also attached the financial report of SunCon group. 

For the audited eight months period ended August 2014, the group made around RM60 million net profit, giving it 22% and 5.2% gross profit margin and net profit margin respectively. 

Administrative expenses made a lot out of the operating profit 

At the balance sheet, the group was at net cash position. One thing to note is the trade receivables was quite high. It's normal the construction industry usually have higher trade receivables. But given much of its contracts come from its mother, Sunway group, hopefully it will not post any problem to its cash flow 

As at Dec 2014, SCG group has an outstanding order book of approximately RM3 billion

Operating cash flow was at negative territory at 8-month period ended Aug 2014. 

Take a look at the segment reporting will give you some slight idea on what to look for. 

The construction division only reported a mere 1.17% net profit margin compared to 23% for its precast concrete division. The earning quality for its construction division is just not too good for me. 

I would expect the construction division would fare better since they perform piling works themselves rather than giving out to other players like Pintaras or Ecopile. 

The net profit contribution from precast concrete to SCG group is hopping 75%. So, the performance of SCG group is highly depends on its precast concrete division. That why I also like OKA Corp who is also involved in precast concrete business. 

But one thing need to take note is the precast concrete division is highly depends on its plant in Singapore and it supplies primarily for the HDB public housing projects and some private sector development projects. With the slow down of development of HDB projects in Singapore, I think the division will have a hard time moving forward. 

Bear in mind that the utilisation rate never reach 80% before as stated for the past few years. 

So, probably I will consider to sell SunCon off after its listing, no intention to hold long. 

Wednesday, April 1, 2015

Mar 15 Portfolio

Time flies. First quarter of the year just ended. 

I had a very nice trip in Taiwan :) 

Are you still working hard to achieve the goals you set at the beginning of the year? 

First quarter saw the surge in demand on the KLSE counters that related with exports and resulted in very good return for many investors. 

Unfortunately, I don't have any :(

For the month of March, I purchased more on CES and PJDev as well as a bad buy on China Saite. Thought there would be a breakout on the W-shape pattern but it didn't turn out to be like that. Sigh .. so it stuck there currently. 

Based on the OSK latest annual report, the corporate movement development involving the acquisition of OSKP and PJDev from Mr Ong's hands (Part 1) and offers to minority holders (Part 2) will take place in Q2 and Q3 respectively. Therefore, it's still a long way to go 

Sunway and SCGM move up a abit in March, probably because of the upcoming corporate exercise and good result respectively. 

ABRIC also moved up a bit. I hope I can sell it at higher price and use the capital to add in Chin Well as I'm more confident on latter.

HMI lost its momentum and I think it's undergoing consolidation. HB Land move up a bit too and the price is moving closer to my breakeven point :)

China Silver announced a splendid result and I still looking forward on its online business. But one thing I learnt after I started to invest in HKEX is the price fluctuation is quite high. I may sell it off to realize the profit first. 

From this month onwards, I will add in YTD realized performance, current portfolio unrealized performance and also dividend received as my performance tracking. Hopefully, I can make better decisions moving forward. 

The calculation of realized performance and dividend received is based on the balance at the beginning of the year as denominator while unrealized performance is based on cost of purchase. 

So after one quarter, 1.34% realized return is still far away from my year end target. Those counters that achieving good returns currently contributing lesser to my overall portfolio. I think I need to trim down the number of counters to maximize my return. 

Let's work hard and achieve our goals :)