Thursday, 25 May 2017

Talk about business combo, probably you need to look at this company

Despite the 4 to 5 months long bull run in the KLSE, if you would agree with me, 1 of the segment which is still lacking is the plantation industry.

There had been a lot of headwinds in this particular industry. Firstly, the industry is hit by a higher minimum wages for it's worker. Subsequently, the usage of palm oil in edible consumer good is being boycotted by some Europe country in order to promote the usage of soy beans. Then, we have a cyclical weather of El Nino that will hamper the production of the fruits and the OER (Oil Extraction Rate) of the fruits.

While all this uncontrollable factors are inevitable, it will then boils down to the plantation company's prudent management as well as new strategy in order to keep it's competitiveness in the industry. Those company that had taken initiative to evolve for the better will continue to survive and keeping on the top of the packs.

But, if I would to ask you - How many plantation companies that you know, had taken such measure to make a bold step and evolve for the better ? For some bigger plantation company, probably that would be having a palm oil mill for oil extraction. But for most, they just want to plant palm oil, and sell palm oil.

Of course for now, I am going to share with you this 1 company that had taken a bold step in evolving it's business and adding value to it's existing plantation operation. As you know that global warming had push further on the usage of green energy, and what this company does in investing for a Biomass and Biogas renewable energy plant is just perfect to the notch.

Need not much of introduction, this company Sabah based plantation company is called - CepatWawasan Group Berhad (Cepat - 8982).


It was in 2014 that Cepat had invested in a 12MW Biomass Renewable Energy Plant and a a 3MW Biogas Renewable Energy Plant. However, the Biogas Renewable Energy Plant is currently upgraded into 3.8 MW, hence putting a combined output of 15.8 MW.

Now it is the time where Cepat will be able to reap the profits from the investment from the operation of the renewable energy plant. For the 1st Quarter of 2017, the renewable energy segment had contributed to 6.35 million in revenue. The figure will be expected to be raise with an additional 0.8 MW added into the Biogas plant, as well as more production of fresh fruit bunches this year.


The latest quarter had saw Cepat revenue increase significantly. For the past 4 rolling quarters, it had achieved a total EPS of 9 cents.

For a consistent growing company that pay dividend with diversified income from renewable energy, it will be fair to value Cepat based on PER x 12, which bring to a valuation of RM 1.08.


As you can see, the price of palm oil had been looking at a long term bullish with higher volatility in price swing. I will not give you a 5000 words research to tell you why palm oil is going up, but summarize in 3 of my own point
- Population is going up, and demand for food is going up.
- The higher usage of palm oil blend in bio diesel.
- The global weather is getting hotter and hotter, and a tough crop like palm oil tree can withstand harsh weather, making it a reliable investment.

By looking at the CPO price chart, we can possible see CPO being traded at the range of 3000 for the next 3 months due to a hotter weather generated from El-Nino. And a hotter weather with lesser rain will encourage more harvest at the plantation site, hence boosting the input to the renewable energy plant.


Now as you look at the price chart of Cepat, honestly I do not think Cepat will fall back below the support at 80 cents. This is due to additional revenue stream from the renewable energy division that can cushion the price fluctuation in the CPO. However, the share price could possible poise for an up leg, which can potentially looking to hit RM 1.05.

Last but no least, there had been a strong correlation movement between MHC and Cepat. It is understandable that MHC is also the biggest single shareholder in Cepat. With corporate exercise spanning across the equity market, it will not be impossible for Datuk Mah King Seng to do a reorganization with M&A activities to streamline the group operation and unlock the value in Cepat.


So, if you are a investor that like recurring income, I believe a plantation and renewable energy combo can be considered as one of the good combo that you can get in the market. Of course, through the journey, I believe the dividend from the business operation will subsequently increase.

In the end, you have to be "Cepat", because if you are "Lambat", then you will get nothing.

Monday, 22 May 2017

Will John Cena buy this stock ?

The latest announcement from Bank Negara Malaysia on the economic performance of Malaysia in 1st Quarter of 2017 had definitely took many with shock as GDP is recorded at 5.6%, which is way above the expectation of many, including analyst. The growth is very attributable with manufacturing and exports of E&E related goods.

There is no doubt that a lot of Malaysian company that are focused in export market are seeing turnaround in their company, while many of them are reaping huge profits during this period of time as well.

Since the export market is so good, then we will definitely need to look at the segment which are inter related with the export market, and preferably the supply chain of the export market.

When we talk about export, we will talk about logistic, and it will then go down to packaging and warehousing. For logistic, I believe this theme had been looked into for the past 2 months, as we had see how share price of Gdex, Century and Complet had risen.

As for me, I think there would still be hidden gems laying around in the packaging industry.

In fact, the packaging industry had been hotly targeted for the past 1 year. We had seen the take over and privatization of Century Bond, the take over offer of Denko (food packaging). This is just to name a few, and there are a few more out there which I will let you to do your own homework in researching those out.

But for now, I would find delight in this particular company that is involved in plastic packaging of consumer products, industrial goods finishes as well as export market.  According to market research Report Buyer, the plastic packaging industry is growing at a pace of  CAGR 4.12% and expected to hit USD 1.145 trillion in 2022. One of the rising growth will be attributed to the Asia Pacific region, where emerging country are coming up and rising population are pushing the demand.

As for investing into equities, choosing the right industry is important, but what is more important will always boil down to choosing on the right company as well. And for now, I am going to unveil to you yet again a company that is in the right industry, right management, solid fundamental, good track record of dividend payment of at least 40% of net profit, sitting in a net cash position and is looking good for a corporate exercise on Bonus Issue.

Now, I will let John Cena to show you this company. If you don't like it, then go and find John Cena, he will make it right for you. Hahaha...


I know you could be asking - is there still such good stock lying around in the KLSE ? Honestly, I can't tell you it is a Yes or No, but I will show you my finding, and you will be your own judge thereafeter.

So this stock, straight forward now - Is BP Plastics Holdings Berhad (Bpplas -5100).

Bp plastic products

I will not talk so much on it's fundamental, but summarized to you that this company is now Net Cash Position and paying 8 cents dividend for the past 2 years.

In fact, I will like to tell you the 3 reasons why this company will be likely to go for a Bonus Issue.

The first reason is to use up the share premium account.

As you know, the latest amendment in the Company Acts had abolished Par value and Share Premium, but company are given 48 months to settle out the Share Premium account. The current law will only see Bonus Issue given out through Retained Earnings. The money in the Share Premium account can be used for Bonus Issue and Related Fees and Charges from Corporate Exercise.

As highlighted in the statement that Bpplas is having almost RM 5million in Share Premium account, they can use the account to pay off the for at least 2 corporate exercise. Since there are retained earning of RM 67 million, who knows if Bpplas is going for a 2 bonus share for every 3 shares held ?


The second reason is the enhance market liquidity.

As you can see here, the latest release of Annual Report 2016 had indicated that the top 5 shareholder in Bpplas is holding  approximately close to 70% of the total shares in the company. That will see probably less than 30% being floating in the market. And since this is a good company, shareholder will be even more reluctant to see their share, since the dividend is still consider very good at the current level.

For this, a bonus issue will enhance the public trading liquidity, and will also attract more fund into investing into the company.

The third reason is to cater for future growth and expansion.

Bpplas had saw the demand of the market, and had proactively invest RM 13.5 million to acquire a new 3m cast stretch film machine in 2015. The new machine will be looking to put in double digit sales growth, which is expected to see contribution in 2017.

Since the machinery will be capital intensive, and for Bpplas to keep it's dividend policy of at least 40% of net profit for distribution, it will be good for Bpplas to do a Bonus Issue now, and subsequently do another right issue with free warrant for future expansion.


Technically looking, Bpplas had broken away from a long term downtrend line. It will be looking set to challenge the horizontal resistant line in the coming days. With a good anticipation on the coming quarterly report as well as high chances of having Bonus Issue, I believe that Bpplas can rise up till it's past glorious form of at least RM 1.80 in the near future.


As for you, either you are tagging in with John Cena, or, you can tell John Cena to give you a FU finishing. Opps, now it is called "Altitude Adjustment". Haha...

Monday, 15 May 2017

This Austin might leave you Stone Cold

In the equity market, there are many kind of analysis styles. Different analysis will give different stock picking criteria.

As for me, one of my important stock picking criteria is that the stock must still be within an acceptable level from it's lower price level of consolidation stage. Secondly, the stock must also have a good future outlook, be it from corporate exercise, new business venture or having better financial performance in the coming days. If you adhere to this simple rule, I believe that you stock selection will probably see some improvement.

So, you would be asking that what if you did not come across any stock with such criteria?

The answer is simple - Then don't do anything. Fair and simple answer, right? Of course if you choose to chase other stock, that is altogether a different kind of risk, and you will definitely expose to greater risk. There is not right or wrong in your decision in stock market - but only consequences.

The market had been quite bullish for the past 4 months, and it is utmost important that you will need to make higher standard in your stock selection criteria. Since the month of May is talking about Financial reporting month, then maybe it is time that we look at some company with acceptable level of financial performance, yet is still consider undervalued at it's current price.

I will be going to straight forward today, and introduce you this small niche property developer company called - Gromutual Berhad (Gmutual - 9962)

Gmutual is a Johor based property developer that derived revenue from 3 segment - Property development, property management and plantation. The property development segment is the main contributor of revenue.

What I like about Gmutual is that this property developer company does not rush itself into a lot of development at one time, but rather make proper launches that ensure it is able to sell.


Based on the most recent FYE 2016 result for Gmutual, the company did achieve commendable result with 6.18 in EPS, and distributed a total of 2 cents in dividend during 2016.

I am in the opinion that Gmutual will continue to see better EPS for the next few quarters due to it's project heading for completion. The Austin 18 commercial project in Iskandar, Johor is heading for completion in 2017.

As you can see, the billing of property development always come in stages. And the huge chunk of revenue that can see the most profit will always be at the ending stage where the draw down do not involved huge structural building cost.

For example, on VP, the developer will claim 12.5% from the total price, which can be translate in profits, as all of the building structural and construction expenses had been draw down earlier. Attached below is a residential progressive billing for your reference.


Since Austin 18 is heading for completion stage this year, I am expecting Gmutual to deliver a stronger EPS for the coming quarters.

Although I might not be expecting major corporate event from Gmutual, but this company is still considerable attractive due to it's current pricing.

The recent chart does support a potential uptrend from Gmutual, and at the price of RM 0.47, there are still space for capital appreciation if you are looking to value Gmutual based on FYE 2016 EPS 6.18, PER x 10 = RM 0.62. The NTA of the company is RM 0.89. To add on some bonus, Gmutual had been paying dividend for the past 4 years, which is a commendable track record for a smallish property developer.

Moving forward, the company will be eyeing more towards affordable housing in Johor and Malacca.

So, again, please do you due diligence before investing. If you are thinking that the completion of Austin 18 in Iskandar will be an earning catalyst for Gmutual in FYE 2017, then you should do what you need to do.

Thursday, 4 May 2017

名将之战



战场,

一山还有一山高 ,

普将胜负运气告 ;

兵法策略数多招 ,

传奇名将
一招 。



Tuesday, 25 April 2017

Eating Chocolate is easy, but understanding the making of a Chocolate is an Art

According to my previous article in GCB, I believe now you will be anticipating eagerly to know my thoughts and perspective into Guan Chong Berhad (GCB - 5102).

Here, I will share with you 2 of my views into GCB from different angles.

On the first angle, I will definitely need to highlight the massive 40% drop of cocoa prices in the international market, and it's subsequent effect for the next 2 to 3 years.


Let's go to some basic of economics - The Law of Supply and Demand.

If you do not really know what is supply and demand, I will try to explain to you in the simplest manner I can using my own layman words. Basically, consumer creates demand, and manufacturer creates supply.

For a consumer point of view, when a subject item is cheaper, it will create more demand. For example, a chocolate bar selling at RM 25 might probably get 100 buyers, but if the same chocolate bar is now selling at RM 10, then there will be 700 buyers willing to buy it. So, when an item get more expensive, the demand become lesser ; vice versa, an item get cheaper, more demand. So, I assume you already understand the terminology of "demand" now.

Now, we will look into the "supply" of the chocolate, since we are talking about chocolate now. For a chocolate manufacturer point of view, if the chocolate is going to be sold at RM 25, then they will be willing to manufacture 900 pieces, but if the chocolate is to be sold at RM 10 (baseline price), then the manufacturer will be willing to manufacture 100 pieces only.


Let's say at the baseline price of RM 10, the cost is RM 9 and the profit is RM 1. Now since the raw material price - Cocoa, had dropped to almost 50%, the input production cost become lower now.

Let's assume the cost is RM 4, and the manufacturer continue to take RM 1 profit, so the new baseline price is RM 5 now.

As you can see in the chart, there will be a new Supply Curve S2 formed due to the lower production cost. And without sacrificing the manufacturer own profit (Maintain at RM 1), now the manufacturer is able to sell at a cheaper price (due to cheaper raw material cost), hence pulling more demand from consumer as the price of chocolate bars drop. This will see a new equilibrium at point E2, where buyer increase from 400 to 500.

Based on this simple analysis, I can tell you that Chocolate demand will pick up again, and it will definitely going to last for more than 1 year if there is no supply disruption. When that happen, GCB will be having a busier year grinding more cocoa which will translate to more revenue, and more profits.


Now, after looking at the macro economic scale, I will bring you to see the immediate relationship between the prices of cocoa and the share price movement of GCB.


As you can see from above, I had done a same period comparison from year 2011 to the current 2017. The price movement of the cocoa and share price movement of GCB definitely have an inverse relationship, whereby when cocoa price increase, GCB share price will drop, and when cocoa price decreases, GCB share price will increase.

This inverse relationship is of course by no means of luck. If you would understand the law of demand and supply, you would understand that when chocolate bars are cheap, then there will be more consumer demands. When raw material become cheaper, chocolate bar manufacturer will increase their production and sell cheaper chocolate bars. The increase in production from the chocolate manufacturer will then increase the buying of cocoa powder, which means, GCB will need to buy more raw cocoa and grind them into cocoa powder, and sell them to the chocolate manufacturer.

That is a simple 2 different angle of view I had presented to you on my analysis towards GCB.

If that is enough, then go and do your own due diligence and study.


Still have doubts? Alright

Now, I will give you one more information before you decide to invest into GCB.

I know that you might be wondering why the 4th Quarter FYE 2016 result is so poor. As you can see from the statement obtain from Bursa filling, the 4th Quarter took in a lot of impairment from forex and commodity futures contracts. These 2 item alone had taken RM 50 million off from the profits, which can contribute to 10 cents of EPS (Share outstanding only 480 million)

Since the MYR had already rock bottom, and could be poising for recovery due to foreign fund flowing back into emerging market, this is a good time again for GCB, ready to ride high on 2017 with a clean sheet after full impairment done.

So, I had gave you a 3 point shot. But, the ball will be on your hand, to take the shot, or to call it off. But again, make your own study until you are convince, don't rush into it.

Thursday, 20 April 2017

When Crude Oil crashed, Polymer company blossom on lower cost. Now Cocoa crashed, this company will benefit sharply

When the equity market takes a correction, that means things will start to cool off, and prices will start to come down and consolidate again. This is part and parcel of the life in the equity market. Share price goes up, share price goes down. In fact, you will need to get out of the market if the share price does not goes up or down.

I had to agree that the market had been over bullish since the start of the Year 2017. Anyone who took a bearish stance for the past 3 months had definitely miss out a good opportunity. Of course, all the opportunity comes with 2 sides of the risks - risk of gaining too much and don't know what to do with the money, and risk of losing too much and have no money then.

As you can see, one of the method in trading the stock market is to track the pricing of the commodities. For instance, when FCPO (Crude palm oil futures) goes up, then the local plantation player will generally be able to reap better profits because of the better margin they receive for selling their plantation fruits. Of course, when FCPO dived below certain level, plantation company will start to suffer from thin margin, while some will fall into the red due to lacking of economies of scale or inefficient operation process.

This can be applied to the recent major event in the global market - The crash of Crude Oil. When Crude Oil crash into the region below USD 40 per barrel, a lot of oil company went into financial and cash flow problem. This 2015 oil crash had resulted in Singapore based Ezra going into bankruptcy, which had also directly affect Perisai Petroleum listed in KLSE.

However, on the other hand of the world, businesses that used crude oil as input material are enjoying better margin due to a cheaper raw material supply. For example, Nylex manufactures polymer which uses oil as raw material. The cheaper price of oil resulted in better margin, hence better profit for Nylex.

Another example can be taken at SLP Resources Berhad. This plastic packaging company also manufacture its own plastic and plastic polymer. Ever since the crash of crude oil, SLP had been reporting humongous growth and profits, and is rewarding shareholder with hefty dividend as well.



You must know that every crash will be a crash on the surface, but behind the crash is a new opportunity.

Now, I am going to highlight to you a commodity which had crashed to it's 5 year low - Cocoa.


Above I am showing you the price chart of US Cocoa Futures. It is notable that Cocoa had crashed more than 40% from the peak of USD 3200 to the current USD 1900. I don't know if you would want to label a 40% drop as a crash or not, but I had to tell you crude oil also crash around 40 to 50%, and global analyst called it a crude oil crash.

Maybe you might not know what is Cocoa, but I believe everyone in the world would had tasted a piece of Chocolate before. And that ingredient to make chocolate came from cocoa.

For this reason, I am going to highlight to you that this company is that is standing to benefit from the crash of the cocoa prices. This company is - Guan Chong Berhad (GCB - 5102)

The business of GCB is very easy.
1.) GCB purchase raw cocoa
2.) GCB open up the grinding machine and grind the cocoa into cocoa powder
3.) GCB will sell the cocoa powder, or process them into cocoa butter and sell it to the global market.

As you can see, the major raw material input cost will be Cocoa. And now that the prices of Cocoa had fallen for 40%, that will effectively put the input cost lower by 40%


As you can see, GCB had not really participate in the bull run, however, they had been spending time in the consolidation stage.

According to the technical chart, the consolidation could be ripe, and GCB will be ready to take the ride up, back with low cocoa price that will help them save 40% of input cost in the coming days.

Today I am not going to tell you more, but just highlighting to you that
1.) International Cocoa prices had crashed to the lowest in 5 years.
2.) GCB will stand to benefit from a lower raw material price.

If you still do not understand, please do your own research and take sometime to understand this industry. Again, investment comes with risk, so please do your own due diligence before investing into any equities.

In the next article, I will put down some of my detail analysis and forward projection into GCB, and draw out the relationship between the prices of Cocoa with GCB dividend policy. If you believe the cocoa prices will stay at the range of 1800 to 2400 in the next 12 months, then GCB is definitely something you would like to hold on for at least 1 or 2 years.