Icap.Biz Dual Listing update

On 28 August 2014, We wrote an article introducing Icapital.Biz, the only closed end fund listed on Bursa. We believe it is undervalued about 20%. We also wrote why it is time to buy, reasons among other was the undervaluation, good management and a dual listing plan to close the Discount Gap.

Are these still valid?

as of 13 nov 2014, its NAV is RM3.03 while its Market price as of 19/11/2014 was RM 2.4. A 20.7% discount still exists.
Secondly, is the Dual listing still on?

The Fund Manager has been running all over Malaysia, updating the status of the dual listing. (Well actually, it was also a roadshow to encourage share owners to attend the upcoming EGM to re-elect a particular director..that is story for another article.) below are new information provided:

What new information do we have?
1. The Dual listed fund is actually a separate fund from Icapital.Biz

2. It will be quoted in USD

3. The 2nd listed country (beside Bursa) is a country without capital gains tax. The fund manager (Capital Dynamics Asset Management SB) has offices in KL, Singapore, Hong Kong, Australia and Shanghai. This rules out Australia as country of listing as it has capital gains tax in placed.

4. The IPO will try to raise USD100 million as fund size.

5. It is in the Due diligence stage and should be ready by 1H 2015. 

6. It comes with a free warrant with every 5 shares subscribed and the strike price is tied to its NAV.

7. Any shares bought or subscribed in Malaysia (which will be in USD) can be transferred to the 2nd listing country. (the fund manager claims this makes it a legal avenue for one to send ones fund oversea)

8. It will be a global fund with a mandate to invest in 42 countries.


The Fund manager, stresses that the fundamental reason for this is to benefit the share owners, presumably to handle the NAV gap in Icapital.Biz. however he is tight lip on how does a 2nd fund solves the issue. He claim any information of this sort might seen as market manipulation with insider information.

If this is the case, then it is more important for us to study how it might benefit Icapital.Biz share owners. If the NAV to price gap is closed or narrowed we are sitting on a possible of  26% gain (Assuming we buy at RM2.4 and it rises to its NAV at RM3.03)



We speculate, Icapital.Biz with its cash of about RM250 million or USD74.5 million will subscribed to the new fund and will distribute all the shares it subscribed together with its new warrants to Icapital.Biz share owners as dividend in specie.

Is this what is planned? Only time will tell. We will wait and see.

Note: I am a share Owner of Icapital.Biz

Happy Investing !

(For more company articles please click: Company Analysis)

Maybulk Q2 result update

We predicted Maybulks Q2 result and market price would not be favorable sighting the BDI and Price divergence as the reason. (Click: Price-BDI divergence) Has this come true?

We believe so. Lets look at it's core Business earnings. As anticipated, the core dry bulk earning has reduced 18.5% in tandem with the 30% QoQ drop in BDI (exclude capsize). This is also inline of our observation that earnings are almost always lags behind BDI figure 1-2 quarters.

Lets look at the market price. Maybulk's price has dropped from RM1.88 when we last wrote to the current price of  RM1.69, a 10% drop. This reduction is still not as significant. we recall when the BDI was at the lowest of 650, Maybulk was at RM1.30.

 It only experience a 10% drop in price when not only BDI has came down, but also contribution from POSH dropped significantly sighting challenges in Mexico as the reason.

Again we ask the same question, is this price sustainable?

As always, We are interested in Maybulk's Dry bulk business, so it is obvious we should keep an eye at BDI index.

From Chart 1, the BDI (ex-capsize) in Q2 is lower then Q1. Since, Dry Bulk revenue lags behind, we can expect the coming Q3 result will be poor as well.

we are now 2 months into Q3, and the index has rebounded from its low. Worth to continue monitoring the BDI.

Inline with the take away from the AGM, (AGM take away) we will be monitoring the scraping and deliveries of fleet around the world.

 According to RS Platou, a leading marine information provider, the fleet expansion for this year is expected to be around 5-6% which is lower then expected demand of 7-8%. If  this is true then, BDI is expected to rise as supply is lower then demand.

Past year records:

In 2013, fleet has expended by 8%, YTD, is 4.6%. If this stays it course, while demand remain steady, BDI is expected to rise further. We have not seen significant rise in scrapping rate yet.

Note: I am NO Longer share owner of Maybulk.

Happy Investing !

(For more company articles please visit: Company Analysis)

Portfolio of shares and cash on 20% discount Sale!

If  a successful investor (Who has grown his portfolio 15% every year for the past 8 years), were to offer you to buy his entire Portfolio of shares and cash. with a 20% discount Would you consider?

If this person tells you, his portfolio has 50% cash, would you consider?

Lets say this portfolio is RM400K in size. With a 20% discount, you are paying RM320K for the cash and shares

What are you really buying with RM320K?
You will get RM200K cash and RM200k worth of stocks

In other words, only RM120K is coming out of your pockets since you are getting back RM200K in cash (RM320k -RM200k).

Which also means, you are only paying RM120K for a collection of shares worth RM200K. That is a RM40% discount.

Well, you would say: "it depends....what are those shares?"
He shows you, he owns the followings:

Meaning you are buying Padini holdings, Bousted, Suria Capital, PIE industrial, F&N for 40% discount from market price...

Unbelievable as it seems, but it is true that such a deal exist!

Icapital.biz Berhad is such a company now.

What do Icapital.biz do?

In a nut shell, it is a closed end fund and the fund manager is Mr.Tan Teng Boo. Its investing philosophy is by Value Investing. The company invests in shares of public listed company and makes profits either by selling it back or by receiving dividend from them.

The general difference between a open ended fund (aka-unit trust) is, its unit size is fixed. Unlike unit trust, you don't subscribe to this fund from a agent. the only way you may own it, is by buying from  someone else from the stock market just like buying Public Bank shares or Genting Berhad.

The other benefit of a closed end fund is, the fund manager can really do what he do best, buying a sound company at a good price and selling them only when he thinks it is over valued. He is not tied up with changing fund size.

unlike a unit trust fund manager, who has to sell at market price when many people redeems, in order to  repay them. He has to buy at market price when people invest in his fund as he is mandated to only keep about 20-30% cash.

Historical, most people would invest in unit trust when the share market is on a Bull run, when prices are high, when do they sell? Yup, during a market crash...forcing the fund manager to sell at a low price...

Buy High sell Low is not going to make you money! It is not a secrete 80% of unit trust do not very well.

There are many other benefits of a close end fund vs open ended fund which are discussed in many other websites. We wont be discussing it here. Please Google for more information. one place to start is here : CEF vs UTF


Current state of things at Icapital.biz

NAV- net asset value per share of Icap is arround RM3.09 yet its market price is RM2.45 (as of 28/8/2014) which is about 20.7% discount. The company announces its NAV every Thursday after 5pm.

Below is taken from its latest quarterly report:

The entire portfolio is worth RM428million and has about RM185 million in investments (shares), and RM240million in short term deposits and bank. Which means it has 56% in cash and 44% in Shares. The various company it has invested in, is as shown in diagram 1, Which really means your buying Padini for more then 40% discount if you buy the entire portfolio.

However, we are not buying the entire portfolio, so we wont have access to the cash. What is the benefit then?

Why invest now?

1. One of the key element in Value investing is to look for sound companies and buy them cheap. At current prices, it is undervalued. At one point in 2008, you have to pay a premium to own it! Now you are buying with a discount.

2.It is run by experience manager. Mr.Tan Teng Boo is known fondly by his followers as "Warren Buffet of Malaysia". If you are not familiar with stock market but want to expose to it, yet you hate the charges by unit trust, this is the counter you want to have.

3.It is a known fact that, the company is trying to close the NAV-price discount gap. One way to achieve  this, They announced in 2012, is by going for a dual listing. Meaning, this counter will be listed in another country as well. 

Where will it be dual listed? They have not announced, but last year, during AGM, a share owner asked "how much are we spending for this exercise?", Mr.Tan said "a couple million of HongKong Dollar". and recently they also opened a Hong Kong office. I believe the targeted listing will be on Hang Seng. Interestingly in the latest Annual report he wrote this:

out of a blue he mention about EGM...the last EGM was in 2009 and that EGM was to vote if it could invest in overseas. Share holders was advise against it then, sighting the reason as it's fund size was too small then.

It's fund size has double since 2009. Will this be revisited? My take is, likely they will dual list in Hong Kong and use the cash it has now to invest in Hong Kong.

If this does materialize, I am sure it will attract a lot of attention. As a share owner this is a good thing especially if you believe in the China growth story. By then, hopefully, the discount will turn to premium.

The ugly part of Icapital.biz

1. For starters Mr.Tan Teng Boo is a "firery" figure. He would say what he thinks on your face irrespective if you will like it or not. He has been heavy criticizing the government for the country's policy. With this, you can forget about the government funds investing here...and Icapital.biz is about him making the shots. So you are expose to his good and ugly.

2.Will the discount gap be close? no one knows. If the market crashes, its holding will reduce in price so does its NAV. However, since it is holding more cash, Its NAV will reduce slower then the overall market. The discount gap might actually increase.

3.Holding too much cash is a double edge sword. If market crashes, your are safe. However,  If the market goes for another round of Bull run..you wont be in to ride the wave.

4.This is a fund... so you can be pretty sure none of the brokerage houses are covering it. So no one to make a "call" rating...exposure is low, short term no excitement.

Note: I am a share Owner of Icapital.Biz

Happy Investing !

(For more company articles please click: Company Analysis)

Maybulk: Price and Dry Bulk index Divergence

A quick look at Maybulk's Stock Price, It is making a rebound from the low of RM1.73 at the beginning of June. Is this rebound sustainable?

Looking at the Dry Bulk Index below, the answer seems to point to NO. The index is very near to its all time low of 651 at the beginning of 2012. It will be a reminder that Maybulk's price was also near to its all time low then. Perhaps, the coming quarterly results might show some improvement YoY, but I doubt QoQ will see drastic improvement on its core Dry Bulk business.

Note: I am a share owner of Maybulk.

Happy Investing !

(For more company articles please visit: Company Analysis)

Maybulk 2014 AGM Take away

Maybulk's AGM was held on the 23th of May at the KLGCC, below are summary of what I could take away.

1. As stated in the annual report, due to unexpected vessel buying by Private Equity funds in a big way, turn around for charter rates is expected to be delayed. Additional information not found in the annual report regarding the recovery is: The board is expecting recovery in 18-24 months. This perhaps provide a time frame for investor. (To recap, middle of 2013,  the board anticipated a supply shortage in the coming years due to closing down of many shipping companies. This is brought about by very low charter rates. Banks are unwilling to fund new vessel purchases. New vessel price has dropped to a all time low. The board, took the opportunity and ordered new vessel. However, Private equity funds, with it's cheap money due to QE, started to jump into buying new vessel as well. Supply of vessel are expected to increase while pushing down charter rates again.)

2. POSH, as reported in almost all media and annalists, POSH is Maybulk's savior. we all know that. In this AGM, during a private chat, Mr.Kuok, the CEO, expects POSH to 'fly' come 2015 with the confirmation of the Accommodation vessel charters. Maybulk's Chairman and another director Mr.Teo is on the board of POSH. the most recent quarter report, POSH contributed RM25million in 2014 Q1, while 2013 Q4 was 8 million.

3. Mr.Teo Joo Kim, a current Executive Director and the previous Executive Chairmen, gave many more insights and business information compared to any other directors. Things that he highlighted:

     a.The golden era of shipping industry of 2003-2008 is over and might never return ( a comment Mr.Kuok agrees.) Investors, please check your expectations.

    b.The key sign and worth monitoring as an indicator for recovery is the up tick of ship scraping. he recons, since private equity funds are not ship industry guys, they are in for the quick bucks. If the charter rates remains low, they might give up and head the exit. If they can't find buyers for the vessels, or other smaller shippers cant survive, scrapping is the only solution.  

     c.He strongly believe, BDI of 500-600 as was seen in 2013 will be lowest.

     d.All vessels (2014 maybulk has 24 vessels) are fully booked for the year. (The problem is the rates are low, hence poor profits. The vessels directly own are making profit, the jointly owns are the one dragging down the overall numbers.) Maybulk, has strong affiliation with its customers, no problem in chartering its vessels.

4. Mr.Kuok Khoon Kuan, CEO after the AGM was also available to share some of his take when I spoke with him:

     a. India might provide a bright spot. So it pays to watch out for India's import/export of commodity.

     b. Although iron ore import into China has slowed, but coal export has picked up as it exports cheaper coal to around the world.

     c. No major capex moving forward.

All in all, one can sense the unhappiness of some share holders while some are hard core fans. The tone of the Board is also some what cautious. 2014 will be a quiet year for Maybulk. 

However, undoubtedly, this guys really know their turf. They kept ample amount of cash when they made huge pile of it. Invested in a subsidiary when things started to look bad, then went on to buy vessels almost at the lowest price when USD was still low. They also sent vessels for early dry docking when the rate were very low in anticipation of maximizing charter days with rebound in rates. 

Note: I am a share owner of Maybulk.

Happy Investing !

(For more company articles please visit: Company Analysis)

Notion - Special Dividend in the works?

During the recent AGM, the Board Chairman revealed that the sell and least back for the properties own by Notion is on going. He added, In a very cheeky way, it will be "rewarding" to share holders....I am speculating for a special dividend. 

 How much can Notion gain from this recent activity? More importantly, if they do pay out, how much can they pay out?

 The above table is collected form the 2013 annual report (The Thailand property is excluded)

 A quick check with real estate agent web sites, the current asking price for property around the area is RM160-350 

(some of the reffernce: iproperty.com 1, iproperty 2)

Assumptions:

1.These are asking price not transacted price. I will assume RM200 and RM160 as generally property around Klang valley has appreciated about 3-4 times since 2008. looking at the Jalan Sungai Binjai factory bought in 2008, this seems to be reasonable. 

2.Assuming reported sq ft is for land size. It is not mention the sq ft quoted is the build up or land size. But a OSK report in 2009 seems to point this as land sizes.

3. The chairmen also say Notion will keep 2 years worth of rental as precaution. How much will this be? As a rule of thumb, rental yield is about 3-6% currently depending type, area etc. I will assume, who ever buys this properties will make 5% rental yield. 

4.Talking to the financial controller during AGM, it is also known that they will keep further portion of the proceed for other investments if it comes up. How much will they keep? I am assuming 50%.

The stock price is hovering arround RM0.65 to RM0.6, if we take the mean of RM0.63, a dividend of RM0.19 and RM0.13 will give a dividend yield of 30% and 20% respectively. If we take a further 20% discount as margin of error on the speculated RM0.13 dividend, resulting a RM0.10 dividen which still gives 16.5% dividend yield.

My guest, it will be at the range of RM0.10 to RM0.15.

Will this excite the market? I have no idea.

But this exercise will surely make the financial book very impressive, reduce liabilities, increased cash. 

Yet, the fact that DSL camera market is still weak base on Nikon's latest quarter report announced few days ago. Western Digital is about to announce results on 30 April 2014. This year look set to remain a flattish earnings. 

Note: I am a share owner of Notion.

Happy Investing !

(For more company articles please visit: Company Analysis)

Pintaras Jaya - More room for rally?

On 13th March, We have featured Pintaras Jaya as a undervalued and overlooked company. It was trading at 20% discount to our Fair value of RM3.90. Since then it has rallied from RM3.05 to RM4.00 translating  a 31% increase in price. The rally was very much triggered by the news of receiving a new contract worth RM71Million on the 7/4/2014.

The million dollar question now is, can this rally continue?

Looking at the order received announcement records, YTD 2014, it has received RM169Million worth of orders. This is 78% of last years RM256million order book which itself a record high. However, interestingly 2013 revenue is slightly lower then in 2012 mainly due to delays in project delivery. Which means a better Earnings can be anticipated for 2014 with the over flowing of earnings from 2013. If 2014 records higher order book, certainly market will anticipate stronger earnings.

As this discussion goes on, one thing is obvious: From a actual undervalue position based on the current earnings, we are moving on to forecasting a undervalue position based on anticipated earnings. Hence, risk in investing in Pintaras Jaya has risen accordingly. Safety of margin has reduced drastically if not no longer available. Also looking from the price movement, a short term correction is bound to occur.

In conclusion, at this price levels, it is no longer cheap yet not overly expensive either. the underlying fundamental of business has not change at all. Buying now, risk level has gone up and one must take a short term correction into account. For the longer term, as long as the projects theme is still in play, This counter will be in a good position.

Note: I am a share Owner of Pintaras Jaya

Happy Investing !

(For more company articles please click: Company Analysis)

Notion - 10th AGM Take away message.

On the 20th March, Notion vtec held its 10th AGM at the Premiere Hotel Bukit Tinggi Klang. together with few other share holders, I attended and posted some question to the board

Not many attended, but the executive Chairman did took some time to answer question posted. Personally, I think Mr.Thoo the Executive Chairman has replied openly, professionally and to his capability. Certainly there were things not completely revealed, yet questions were replied at length. The overall sentiment is understandably subdued due to the poor result for FY2103. The only press came to cover is The Edge malaysia.

Some important point I took away were:

1. Alcyone

• The Chairman admitted it was a investment mistake. He would resign from the board if  Notion losses (e.g: has to write down) the entire investment of RM15million in Alcyone.
• However, in a informal conversation, he is confident that Notion will be able at least take back the investment.
• Notion would not be investing more then the RM15 million already invested. Which means effectively, Notion will not subscribe the right issue. (Formally, Notion will subscribe the right issue but Alycyone will subscribe it back....how this works is not clear at the moment, Bottom line, no more capital injection from Notion.)
• There is severe drought at the mines, so mining works has been affected.

2. Sell and lease back of Factory.

• The tender process is expected to end at the end of March. (According to the financial controller during informal conversation, tenders were from consortium and high net worth individual. None from public listed companies REITS etc.)
• Mr.Thoo, mention the exercise will be "very rewarding" in a very cheeky way. Does this mean special dividend on the way? He did mention, some of the building were bought at RM25 psf, currently it is RM75 psf.
• Mr.Thoo also revealed, proceeds from the exercise, 2 years of rental will be kept as reserves, remaining to be used for capex. If they don't find anything to invest/use of the money they "might" return it to share holders.

3.Manufacturing activity

• SLR segment orders are till weak. HDD enterprise has picked up. Aumotive is growing.
• About 100 CNC machine from the SLR segment is converted to the HDD segment which is running at full capacity. SLR is running at 50%.
• Informally, management reveal Q2 will be better then Q1. SLR is expected to recover in 2015

Summary

2014 will still be a poor year with slight improvement. The Alcyone story will be complicated and affect sentiment.  Impact to bottom line will be minimal. Strengthening of the USD will still impact negatively  on the bottom line due to Forex hedging Notion undertook. (This is unfortunate, as USD is expected to strengthen further, as a exporter it should benefit.). The only bright spot will be the lease and sell back, special dividend might be on the way. That is a big "might".

There was a scene whereby there is a motion in the meeting agenda to reappoint Mr.Thoo back as Chairman. I would expect they already have a proxy ready to propose and second the motion as all other AGM does. There wasn't one! After every one waiting and looking around, I actually had to raised my hand and acted as proposer and another share holder acted as seconder...Mr.Thoo actually said he thought he is retiring early..Board tussle brewing? or over confident? 

Having said that, I have a sense of respect to the Executive Chairman, who is willing to openly admit his mistake and take responsibility for it. 

Happy Investing !

(For more company articles please visit: Company Analysis)

Notion- Alcyone suspended in Australia

Very Worrying progress with the investment made by Notion.

on 5th March 2014, Alcyone is asking more money from Alcyone share holders by issuing Right Issues. Which means Notion has to inject more money to the company. At the same time, exploration has to be suspended, but silver is still produced from the heap.

Then 18th March, ASX, the Australian Stock Market operator suspended Alcyone's listing in failing to provide Financial report! The Alcyone management has come out to explain that it was done deliberately in view of the proposed right issue. I find this baffling, Why can't financial report be provided with a planned right issue? I could only speculate the report might be very poor.

Not a good development.

Happy Investing !

(For more company articles please click: Company Analysis)

Pintaras Jaya Berhad- Pilling in profits

 

One of the beneficiary to the Mega trend of Urbanization and population growth  is construction. More infrastructures will be needed to accommodate the ever growing need for transportation, places to work and stay. One of the important feature of any infrastructure is the foundation.


Pintaras Jaya Berhad, found a niche in this area.  As the only listed pilling company, it is somewhat below the radar of investors. The following charts will show why we should take notice as I believe it is undervalued.

Note: I am a share Owner of Pintaras Jaya

Happy Investing !

(For more company articles please click: Company Analysis)

Classic Scenic - A beautiful scene?

The above is the front cover page of Classic Scenic's 2012 annual report. Not the most beautiful one but a interesting one.  Why? If I am not mistaken it is the only one which quoted from the Bible. In fact in last years AGM, I manage to catch hold of one of  the director and ask him about it. True enough not only the Chairman is a christian but the whole board are from 2 churches in KL.

Don't get me wrong, I am not saying christian run companies must be a good company (if this was the case, then almost all companies in US and UK are great companies, Enron included..... I will be the 1st person to rubbish it). However, to put it up on the front page shows that this guys do take religious belief seriously. My humble experience tells me, someone who is religiously incline, really takes it seriously and practices it to the true meaning of the teachings are some what reliable. Certainly this is not always the case, not 100% full proof but something to keep in mind.

Having said that, what is more important here, is the company profitable, does the management take cares of us, the minority share holders, can the company grow and is the price right to buy. 

What does the company do? It manufactures high standard photo frames. Run by few brothers and was founded by their father. From making carbonated drink wooden crate, finally ventured into photo frames when the crate business disappeared. It was the current Chairman, the elders son, who went to Taiwan to learn the trade. (The story from he unwillingly took over from the father due to cancer and finding a willing Taiwanese to teach him is a encouraging one and was featured in one of the Taiwan talk show program). From the factories in Rawang, strips of photo frame is produced and sold to mostly US and Europe.

The following charts shows the financial standing of the company with a conclusion in the final chart :

Risk in buying this company:
a. If the economy in US do not recover or makes a down turn. It will certainly hit its topline.
b. The ability to continue to grow the business in double digit growth rate is also not clear and doubtful.

Happy investing!

(For more company articles please click: Company Analysis)

Maybulk-2013 Q4 result update

Before the Q4 announcement, we have anticipated a 30% rise in Earnings . Has this materialized? (click to recap: maybulk-2013q4 forcast)

Table 1 - 2013 Q-Q results

Table 1, shows a net profit increase from RM8.542 million to RM19.659 million, a improvement of 130%. It looks like our forecast were right. However, looking deeper into the quarter reports shows otherwise.

Table 2- 2013 Q-Q segment profit

By segment, table 2 shows profits from the bulk carrier segment recorded more losses from a loss of RM4.1 milion to a loss of RM6.3 million. The overall improvement actually came from the investment holding in POSH and the Tanker segment by 67.8% and  146% respectively.

Why did the bulk carrier made further losses while the Baltik Dry index showed a 40% rise in Q4? Is the index a poor indicator to Maybulk?

Chart 1 - BDI vs Revenue from Bulk segment

Charts 1 shows Bulk segment revenue vs BDI (Baltic Dry index) from 2010 Q1 to 2013 Q4. The revenue from bulk carriers is in tandem with the index but somewhat lagging behind by 1-2 quarter. The most recent quarter (2013 Q4) is also seem to display this pattern. (Bulk revenue dipped although the index inched higher)

Chart 2 compares the reported TCE (time charter equivalent) to BDI index for the same period. it is also positively correlates. (TCE is a standard average to gauge a profitability of  vessels. Multiplying TCE to the number of Hire days is the Bulk revenue.)

The BDI index is actually a composite of 4 independent indexes namely the Capsize, Panamax, handysize and Suprasize index. These are index for rates of different size ships. The Capesize are the largest and Maybulk do not have one. Chart 3 compares the TCE with the new BDI index with capsize numbers excluded. The correlation is even more obvious.








The above charts shows, the BDI and BDI without Capsize remain a good indicator to the profitability of Maybulk. For the recent Q4 quarter, the variation might be due to Dry Docking as well as lagging effect seen in chart 1.

What is in store for the coming future?

Chart 4 - maybulk share price vs BDI exclude Capsize

from Chart 4, month on month, Maybulk's share price is also in tandem with BDI exclude Capsize index. However, recent 2 months (2014 Jan & Feb) it is diverging from the index. For a short period, this does occurs. Over timer, it is expected, the price to normalize or the index recovers. With news flow for the listing of POSH emerging, prices are expected to be driven up. But it is to remember, the listing of POSH is a one of event. Ultimately, the BDI rates is going to dictate Maybulk's future.