Tuesday, 17 January 2017

West Coast Silk Road

Well, if you guys had been following me on my previous blog post on Silk Highway, today I am going to share with you regarding my analysis on the biggest hot question in regards to the disposal of Silk Highway.

As every disposal cannot be completed without a buyer, so who is the highest potential buyer for Silk Highway in 2017 ?

**Jeng Jeng Jeng**

Since the completion of Silk Highway, it had never been profitable. One of the reason is due to the slower than expected vehicle volume growth.
As you can see, the highway caters around places that are considered as "suburbs", and the toll are erected further away from the city center. So basically, quite a number of motorist are using portion of this highway without needing to pay toll. For example, many are using portion of the highway to commute from Sungai Long / Mahkota Cheras to KL for free, and they pay toll at Besraya Toll Plaza (which is owned by IJM).

Basically, this highway can be turnaround by building new links with existing major highway, or newly constructed highway and erecting tolls at better location. But, Silk Holding is definitely not in the position to do this anymore, as their heavily indebted balance sheet couple with negative cash flow does not allow them to do so. If you would ask any experience business man, the best option available for Silk is to dispose off the highway in order to cut the negative cash flow, and reap a one off profit from the investment.

To sum it, Silk Holding Berhad need to find a buyer that owned some highways, and is financially capable of upgrading the highway as well, which left them with not much option. If you ask me, I think the only viable option is only IJM.

But why IJM and Silk mutually aborted the deal in November 2014 ? I think one of the major reason could be due to
1. dilution in earning from fund raising activities in asset acquisition
2. create a drag in net profit as asset is still in a negative cash flow position

Hence putting this unproven egg into the basket could potentially ruin the whole basket of goods, and it's share price will definitely get punished severely for that, which I believe is not what most shareholder want this to happen.

So another better option will be for Silk Highway to be acquired using some new vehicle that IJM had substantial stake in. If you are familiar with the market, it would not take a long time for you to figure out that new vehicle which IJM have substantial stake is - WCE Holdings Berhad (WCEHB - 3565). According to the latest filing, IJM had a total of 26.45% stake in WCEHB.

So, what are the signs in WCEHB ?

Let's look at the price chart of WCEHB.

According to the chart, WCEHB had been pushing towards the RM 1.00 region. Meanwhile, there are also heavy accumulation at the region near to RM 1.00, and the share price had been consolidating at the range of RM 0.90.

If WCEHB wants to acquire Silk Highway, one of the best way to start is probably through a 10% private placement, which can easily raise RM 100 million based on their existing share base of 1 billion shares at a minimum price of RM 1.00 (Par value RM 1.00). If the private placement is RM 1.00, this will make sense to you why the share price of WCEHB is going up? Make sense right?

Meanwhile, I believe there will be potential investor who wants to have exposure in the West Coast Expressway, let's say some China investor ? So private placement is the best option for them to invest in a fixed pricing, and this could be a one arrow piercing two birds scenario for WCEHB.

As for Wzsatu, I believe his role is just a teaser to test the market reaction, because Wzsatu also got some substantial portion of projects in the West Coast Expressway. So, it wouldn't hurt much to do some drama lor I guess ? Haha

Anyhow, I am just sharing my analysis. The rest of it, I will let you to figure out, but 1 thing for sure, Silk Highway will definitely need to be sold off.

Monday, 16 January 2017

The Silk Road of A Highway

The Malaysian equity market had been in a bang at the opening of 2017. The FBMKLCI saw strong rebound from a lowly 1630 to a high of 1682 before retreating into 1672 in the 2nd week of Friday's closing.

If you had been following me recently, I believe that could be looking at a handsome paper gain, or even realized profits in both Gunung and Dataprep. I had been promoting heavily on both of these counters when they are sitting below certain price level which I deemed them very attractive for a strategic position. Of course, both of them had saw share prices surging upwards because proactive reader will take action immediately after knowing the potential of both companies.

In this world, people who act immediately after accessing an opportunity will reap the result. Of course, nothing is guarantee here, as the outcome can be good, can be bad - That's why they have to access it properly in a limited set of time, liken to a competition.

Now, for those who are my avid reader, you know that I like to analyze stuff that no people would go to do, and of course, I always like to share with you on my prediction and analysis like no other people do as well. That is the reason I would like to dwell in company with changes in direction, corporate exercise, take over as well as privatization, because they are always secretive, interesting and very rewarding once you are able to crack the code. Don't you too have a feel of completion after you solved a hard puzzle ?

So what is the next big puzzle that is set in for 2017 in the KLSE ?

Before I would like to show you the subject target of the puzzle, allow me to bring you back a little on some history, and what is the reason for such thing to happen in this manner.

Do you guys remember the story of Green Packet (Gpacket - 0082) on the sale of P1 which emerge as a major topic in 2012 ? News reported that TM had deny any interest in P1, leaving the public guessing around among Digi, Celcom and YTL Communication. In between the period, Gpacket share price rode up and down in a wild manner amidst speculation of different interested parties, which one of them is Digi. However, in the end, TM had emerge as the entity that had bought controlling stake in P1 in 2014, which had finally put a 3 year long puzzle to a closure.

So as you can see, when such a major asset is in the plan of disposal, it will be played around in the market for 3 years.

For this case, allow me to introduce one of the major asset that is up for disposal, and is in it's 3rd year - Silk Highway.

The news of Silk Highway emerge in the market in 28th May 2014 when IJM Corp propose to buy Silk Highway for RM 398 million. (Source - The Star IJM propose to buy Silk). This piece of news had send share price of Silk Holding Berhad flying from a lowly RM 0.35 to a high of RM 1.20 within 9 months.

However, the deal was mutually aborted in 25th November 2014 due to certain condition precedent. Among them is the bondholder wanting a piece of the accrued profit from the asset disposal. (Source - The Star IJM And Silk abort deal)

Subsequently, we saw some other parties that expressed interest. Those are parties like Wzsatu and Taliworks, however, nothing materialize between them.

Now, is 2017 going to see this go through ? So let's look into the chart.

According to technical reading, Silk had recently broke above the long term down trend line which notable volume in build up. After consolidating at an average price of RM 0.40 for more than 1 year, this could be a strong case for 2017 to see it through.

To reaffirm this, familiar sources that are very closely related to this case are looking to see an offer of more than RM 400 million this time around. The estimated price is approximately around RM 450 million. Now, this is a very lucrative offer to start with for the new year.

Now, the main question arises - Who is the potential buyer for Silk Highway this time around ?

Since this is a big chunk of analysis, I will put it to my next post to share with you which is my highest potential company that is looking for a solid offer to Silk, accompanied with references, share price movement and corporate exercise prediction.

But for now, what can you do? Of course, I don't know what is your appetite for such an event. But one thing for sure, whether you like it or not, Silk Highway will definitely be disposed off, and this will definitely create a ruckus in the market, and the people who will stand to benefit are those who took immediate action to lock in strategic position. As for now, a good question for you to consider - Do you want to be left out in this ? You know what is best for you.

Honestly, if you are to look at the share price movement of Silk, this is just the beginning of the show. In my next post, I will try to put down the figure, but for now, anything that is below RM 0.45 is a very good price to take position.

Thursday, 12 January 2017

Rooster Year to start with a Roast, But a Toast to CCK

In the coming weeks of January 2017 will be seeing the Chinese people around the world welcoming the Year of The Rooster. But, please do not consult me on astrology pertaining to the Rooster Year, because I only know how to eat a nice chicken meal at Kenny Rogers or Nandos.

This time around, although it suppose to be the year of the rooster, it seems to me that rooster in some parts of the world are being roasted for the wrong reason this year. By now, I assume that you must be thinking in your mind - What wrong can a chicken do to have them being roasted for the wrong reason ?

Well, if you had been following the international news during the year end holidays, you would notice that Japan and South Korea are roasting up more and more poultry in order to contain the worst ever bird flu epidemic which started at the end quarter of 2016.

We heard about the deadly bird flu of H1N1 that had took lives of human due to respiratory complication back then. Now, the outbreak is of the highly pathogenic H5N6, which is more severe than the H5N8 in 2014 and 2015.

Entering January 2017, South Korea had took precautionary steps to control and eliminate the outbreak, culling more than 30 million of poultry.

Some report mention that the figure accounted for more than 15% of the poultry livestock in South Korea. To make it worst, Japan had too reported of bird flu and had started to cull poultry in order to contain the outbreak.

So, by now, can you imagine the magnitude of 30 million poultry ? To put it in some simple figure, 30 million of chicken is able to feed 800,000 adult, each of them consuming 1 chicken a day, for 365 days. Wow, now that is a lot right?

For more reference on bird flu in South Korea and Japan, here is some link I can provide to you.
1. Al-Jazeera
2. Huffington Post
3. Reuters
4. Bangkok Post

According to Bangkok Post, it was mentioned that the Ministry of Agriculture, Food and Rural Affairs regarded this event as the worst outbreak in South Korea, doubling what had happened in 2014 where only 14 million of poultry are destroyed.

The massive culling of poultry had send prices of eggs soaring as much as 30%. Coupling to winter holiday, Christmas season as well as the upcoming Chinese New Year, the supply might not be able to match the soaring demand. So, this is very natural to see more imports of frozen meats as well as eggs.

For this reason, I had ran a check on all the company dealing with poultry in KLSE, and found out that CCK Consolidated Holdings Berhad (CCK - 7035) did involve in exporting their goods to country such as Japan and Korea.

So in order to check if CCK does have positive correlation towards the bird flu event in 2014, I had go through a simple check, and to my amaze, you have to see it yourself.

That is 25% up in a short time frame.

So, while 2014 is a "past tense", we need to look into the present now and determine our action to anticipate the future, only then it will be meaningful, right?

So now, looking at the price now, we can see that CCK is indeed in a uptrend momentum. Since this time around is double the damage (in terms of culling of poultry), let's say we can look for a 35% increase from the starting price of RM 0.60, which means potential of going into RM 0.80.

But, if we are to buy based on this kind of news, sounds more towards speculating right? So, is there any fundamental to back up?

Let's run a simple fundamental outlook of the company then.

Since food is an essential thing for human being, and with the increasing population, food will continue to grow in demand. Take the latest quarterly result, the adjusted earning per share is approximately 2.05 cents (Adjusted for Bonus Issue). Since this is defensive in nature, we can annualize it to 8.2 cents for 4 rolling quarter, valuing RM 0.82 at PER x10.

Well, now this is not so bad.

Since this company also had a history of paying dividend as well (2 cents in 2015, 3 cents in 2016), we would expect a coming dividend to be approved in May later this year, probably 3 to 3.5 cents. This alone also represent more than 4% in dividend at the current price.

Now, it is decision time for you and CCK and the chicken as well. You can continue to grill your chicken meat, or grill it with CCK. But as for the chicken, fate is the same for them. With or without bird flu, they are still going to get grilled.

Bone's TP : RM 0.80