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

Friday, August 28, 2015

Chin Well: Q4FY2015 Moderate Result

After glancing through the quarter report, I think the result was quite moderate and a bit below my expectation.

Revenue increased marginally if compared to corresponding quarter last year. Unfortunately, its gross profit margin dropped significantly from 24.8% to 16.5%.

Even coupled with lower administrative expenses and marketing expenses, the group posted much lower net profit in the end.

Since the acquisition was completed at previous quarter, the group does not need to share the result to the minority parties anymore.

Assumed the group taking full control since the beginning of the financial year, full year EPS would be RM49.4 million net profit divided by around 300 million shares, which equivalent to 16.46 cents. PE is around 8.5.

In terms of balance sheet, one thing to highlight is the group able to reduce its net debt position from RM25 million to net cash of RM2.1 million even taking into account of RM8.3 million to pay for the acquisition. That's a very healthy sign.

This was contributed by its strong cash flow and positive high free cash flow. Minor set back was the group made an inventories write-off of about RM4.5 million.

Fasteners segment posted poorer result this quarter. Management explained that it was due to demand slow down in European countries as well as product mix that generated lower profit margin products.

Surprisingly, the Wire segment posted a loss in this quarter. I expected it to post a good result due to new product of panel fence being launched. But things went to the other way as revenue dropped. 

Management also did not mention anything regarding the DIY products that the group emphasize all this while as DIY products fetch higher margin. 

In summary, it still depends on its growth prospect in the Fasteners segment and its stability in the Wire segment.

Situation in European countries also affected its performance as much of the group's sales was export to this region

At a PE region of 8-10 may not provides much growth in the share price as current sell down in the market caused many companies selling at cheaper price and higher dividend yield. 

Monday, August 24, 2015

LCTH: Export definition a bit confusing

I get little bit confused when I read LCTH's 2014 annual report regarding its Local and Export segment reporting. 

At first glance, more than 90% of the group's products were export to other countries. The strengthening of USD would be a happy situation to the group. 

But when I read the definition of Local and Export market given in the annual report, it's noted that local market refers to customers within Malaysia who are non Licensed Manufacturing Warehouse. 

For those customers in Malaysia who are LMW are considered as Export market as well as overseas customers. 

I checked through online and found out that Licensed Manufacturing Warehouse (LMW) is a premise licensed under section 65A of the Customs Act 1967 and is directly control by Royal Malaysian Customs. It is control by way of documentation and subject to all customs rules and regulations. Licensed manufacturing warehouse is a facility provided for export oriented companies too.

Though I not very understand, I guess it's a register platform for the company to export the products oversea. 

Based on geographical information, RM91.45 million revenue was from Malaysia. 

Minus out RM4.69 million from the Local Market, thus RM86.76 million was related to sales to LMW in Malaysia which equivalent to 68.8% of overall sales. 

While the direct sales to overseas market (SG, US & others) accounted to RM34.59 million, which equivalent to 27% of overall sales. 

So, question remained is sales to LMW in Malaysia is denominated in RM or USD?

I flipped into Foreign Exchange Risk section, management highlighted that 58% of the sales were denominated in foreign currencies while around 51% of costs were denominated in RM in FY2014. 

So, estimated half of the sales to LMW in Malaysia was denominated in foreign currencies. (Just rough estimation after minus out 27% direct sales to overseas market). 

One thing is confirm is 58% of group's sales are denominated in foreign currencies while half of its costs are denominated in RM. That is a good thing in this RM weakening trend although the variation was quite high compared to previous year. 

Another sure thing is the group's USD denominated receivables was higher than its payable. That's good for the group moving forward too. 

So, the strengthening of USD works well for the group though not to the great extend at first glance that more than 95% of overall sales were for Export Market. 

Now left with how the management going to increase its sales as the sales were quite stagnant for a while... 

Monday, August 17, 2015

PJDev: Another plan in the making?

For the past one two weeks, I guess everyone who pay attention to PJDev's announcement in Bursa website probably has no difficulty to note that OSK Holdings Berhad had keep on acquiring PJDev shares through open market. 

From the first transfer of shares on 23-July, Tan Sri Ong Keong Huat had acquired PJDev shares through open market almost non-stop until today. 

The transacted price was around RM1.55, slightly lower than the offer price. 

Up to date, the number of shares acquired by OSK Holdings Berhad through open market is 31.46 million shares. 

His ownership in PJDev now is around 38.52% from 31.59%.

With average transacted price of RM1.55, total purchasing cost is RM48.76 million. 

So, what is his plan? 

To make it as OSK Holdings's subsidiary instead of investment in associate? 

In order to have at least 50.01%, OSK Holdings need 11.49% ownership more. 

That's equivalent to around RM80.77 million more. 

But do not forget PJDev at the latest quarter had RM150million cash on hands, RM253million property development costs and RM557million of land held for property development as well as RM600 million unbilled sales in hands. 

Though they have around RM520 million in borrowings. 

So, another good asset being steal away? 

Can offer better price or not? 

Or investors should directly buy OSK Holdings?

Interesting .. 

Let's see what is the outcome when the mandatory takeover offer end in few weeks time. 

Tuesday, August 11, 2015

AWC Berhad: Qudotech and DDT Acquisitions

Just a fortnight ago, AWC berhad made an announcement to propose to acquire QudoTech and DD Techniche for RM26.5 mil by combination of cash and issuance of 30.66 mils new shares at a issue price of RM0.38 worth RM11.65 million.

The acquisition is expected to be completed in 4Q15

The vendors made a profit guarantee of combined RM3.9 mils profit after taxed for each of the next 2 financial years.

In case there is any shortfall between the PAT of the target companies and the profit guarantee, the payment to the vendors will be reduced by the same amount of shortfall.

The group will issue 30.65 millions new shares which is equivalent to 13.6% of existing share capital at a issue price of RM0.38 to raise RM11.6 million while the rest of acquisition cost comes from internal cash and the payment is made in 3 phrases.

The first RM7 million is the down payment while the second and third payment only need to be paid upon confirmation that the profit guarantee is met at the end of the respective financial years.

Based on the profit guarantee, PE will be around RM26.5/RM3.9 = 6.79.

Unfortunately, the acquisition announcement did not show much details on the 3 financial statements of the 2 target companies, so EBIT/EV could not be measured.

Qudotech involved in M&E engineering works, specifically in all manners of plumbing works and currently has RM66 million order book on hands.

Revenue was increasing for the past 3 years. What's more with increasing profit margin with the latest half year result record at 12% net profit margin, up from 7% in FY2012. 

ROE was more than 30% too with minimal borrowings and gearing. 

DDT is involved in contracting for mechanical works, piping and systems design for rainwater harvesting products and trading of specialized water tanks. 

DDT is considered as a new start up company. The company just incorporated in 2012. 

Net profit was increasing too with expected closed to RM1 million net profit would be recorded in the latest financial year ended June 2015. 

DDT stands to benefit from the regulatory to make rainwater harvesting systems a mandatory part of building plans for commercial and industrial buildings with a roof area equal to or exceeding 100 square meter in Perak, Selangor, Johor, Melaka, Kelantan and Perlis. 

So, I think it's not that hard for the 2 target companies to meet the profit guarantee of RM3.9 million. 

There is a proforma shown based on the profit guarantee added on top of the net profit attributed to the shareholders at FY2014 and divided by the enlarged no. of outstanding shares, EPS is 4.24 cents.

Based on the share price now, the valuation may not cheap. Worst case, the EPS will be diluted due to the ESOS implementation.

And historical record showed that the group's existing business is not so stable especially the engineering division.

Margin of safety is not there.

Will only look at it again when the price is right or the group's fundamental improves.

Friday, August 7, 2015

AWC Berhad: Getting more than ABC

AWC Berhad is not a well known company with market capital less than RM100 million. 

I came to know him when the group made an announcement regarding its acquisition that will probably increase its top & bottom line. After watching how latitude, chin well, Ge-Shen and KESM performed after acquisition, I think I need to spend some time to understand it. 

The group has 3 divisions,

Facility division involved in asset management services providers such as cleaning, civil & Structural works, M&E maintenance, parking, landscaping and transport system.  Facility division holds the 10-year concession to provide maintenance for some buildings of Federal Government Common User buildings and contributed a bulk to the group's revenue.

Engineering division provides Ventilating & Air-conditioning system, Building Automation System and Security & Crisis management system to clients. It also distributes valves and hydronics systems.

Environmental division provides automated waste collection system called STREAM to transport municipal solid waste via pipes to a central waste handling facility. So that the waste collector does not need to go door-to-door to collect the waste. It's noted that the group owns only 51% of this division

The group made a loss at FY2008 due to poor performance as well as one off provision and impairment. 

That year, the group developed a Business Transformation Plan (BTP) to refocus on its core business, improve human capital management, develop the group's facility division into market leader and expand its STREAM business to Middle East. 

Well, the management able to improve the group's performance from loss making, but not to the extend that called splendid or awesome. 

The group's performance thereafter was quite volatile, maintained around RM100-200mil and RM4-10mil top line and bottom line respectively. Net profit margin was 3-6%.

The group once had a technology division (IQL group) before but it made RM3mil and RM7.3mil losses in FY2011, FY2012 respectively. Soon, the group decide to divest this division in June 2012.

In terms of balance sheet, the group was in net cash all this while with minimal borrowings.  

This can be explained by the group need very less amount of capex every years.

Its operating cash flow was well-supported by the concession with the government. Just sometime the increases in trade receivable dragged the operating cash flow into negative region, probably due to Middle East contracts. 

The group's cash conversion cycle was below 90 days all this while which is considered okay to me. 

In terms of ROE, the group managed to record only single digit number for the past few years. 

For its ROIC, it's around 15%, except the spike recorded in FY2010 and FY2011 due to better operating profit. It's noted that in 2011, the group cancelled out RM0.20 out of par value of RM0.50  to RM0.30 to off-set the accumulated losses.

Its engineering division did not fare quite well all this while, its profit margin was quite low and contributed very minimal to the group's bottom line

The group was focusing more on its 2 other divisions, namely facilities and environment.

Facilities division provides stability to the group. 75% of the Facilities's revenue derived from the concession with the government to provide asset management service while the rest came from the private sector. But the management need to manage its operating costs very well and it's noted that the electricity costs account for more than 40% of the Concession's cost of sales. 

Environment division depends on its STREAM, the automated waste collection system. 

Throughout the past few years, the group managed to clinch some contracts in UAE through the job venture with Model Building UAE and Dallah Establish to design and supply automated waste system. However there was a second project in Al Reem Island worth RM150 million was delayed until today as the development there was stop. 

Apart from that, STREAM is well-accepted at our neighbor country, Singapore too.  The group was also awarded operations and maintenance contracts for the STREAM systems such as in Terminal 3 Changi and Resort World Sentosa after completion which provide recurring income to the group.

With lesser amount of development in near future, it's expected the award of STREAM system to the group will slow down. But nevertheless, the system is quite good in terms of convenience, cleanliness and cost saving. It's just matter of time the developers will start utilize such system in their development especially at place where space is limited. 

Based on some online articles, the division had around RM60 millions order book at the end of Dec 2014. 

So, that's the basic study on the group

Will discuss the acquisition in the next post. 

Monday, August 3, 2015

July Portfolio

July was a poor month for me. Un-realized gains had dropped to almost zero. Have to get myself ready to face any negative performance soon.

This month's poor performance was dragged down by HK and SG stocks especially the 3 HK stocks that saw more than 10% drops m-o-m.

China Silver was the most hit and it just issued a profit warning after last Friday closed. I probably will sell off the remaining shares as the management expected that the group will announced no less than 90% drop in net profit for the first half 2015. That was a shocking news to me. Never expect that.

China Saite too having a roller coaster ride last month, dropping more than 50% from its recent high and now forming a base around HK1.2+. Let's see what is the result they are going to release in few weeks' time. 

CES's price continued to drop last month. It's same for HB land. Probably need to hold both property/construction counters for a while. 

HMI's price also in declining mode. No more news regarding its Mahkota Hospital sale.

Add in Gkent in my portfolio few days ago. I have been following George Kent all this while and made a few bids before this but all did not fall into my bidding price. So, I just watched the price went up and up. In the end, I was too emotional and bought it right away. Just a bet that they are able to get the contract on the LRT 3 project. And if the current Ampang LRT extension project is on schedule, its engineering division will post better result moving forward.  

Recently was little bit busy and also (lazy) to study new companies :(

August is another month that most companies will release their quarter reports. 

Have to get up and keep moving forward. I also signed up OTB's course and hopefully able to learn some technical skills to brush up my buying and selling technique.