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.

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