Monday, July 10, 2017

100 - Mega IPOs - out of vogue?

100 - Mega IPOs
- out of vogue?

Lotte Chemical Titan Holding Bhd's (LCT) ambitious mega plan to list its shares back on Bursa Malaysia after a seven year absence was given a wake-up call by the very poor response from the investing public, particularly the foreign funds.

Touted as one of Malaysia's biggest initial public offerings (IPOs) in recent years, it nearly didn't take off. The high pricing of RM8 per share and its too huge shares issuances sizes were too much for the investing groups to absorb.

It was after some 72 hours of tough re-negotiation again that finally a re-pricing and a reduced number of shares issuances agreement finally to see LCT on track for its listing debut.

Is the days of mad-scrambling for big reputation companies' Initial Public Offerings shares over? I do not have the answer. I can only point out to a few recent giant IPO that those who subscribed to their shares and stayed invested  until today will rue their actions sadly.

In 2012, palm oil firm Felda Global Ventures Holdings Bhd (FGV) listed at RM4.55 and surged to as high as RM5.46 bringing cheers to hundreds of thousands of plantation farmers and family members whom were offered guaranteed IPO shares. (Many must have taken bank loans to finance their IPO purchases. If they are still keeping the shares which most likely to do so, they are now face with a loan to service with interest yet their shares prices are down more than one dared to dream).

Since then, nothing has gone right for FGV and its shares price dropped to as low as RM1.18 on Aug 26, 2015. The share price is now at RM1.65.

In 2015, Malakoff Corp Bhd, a giant independent power producer to the country's main power company Tenaga Nasional Bhd (TNB), listed at RM1.80 Despite having a stable cash flow and a 70% dividend policy, its share price has not done well. It touched a low of RM1.02, incidentally at the time of writing on July 10, 2017.

For those employees at Malakoff with bank-financed loan for its IPO shares must be feeling gutted to be now, in debts and most probably cursing their position now. How to have motivation going to work everyday with such a situation?

More recently, this year In April, another very large IPO, Eco World International Bhd (Eco World) listed at RM1.20. But its share price even touched a low of RM1.00 and a high of RM1.36 since listing debut. Currently it is trading below its IPO price and closed at RM1.12. (The fortunate thing is the successful bidders for the IPO shares were given two free warrants for every five shares held after the IPO).

So why did all these mega companies flopped after making its listing debut? Save for Eco World's mild decline, the other two, FGV and Malakoff's declines are  sharply painful for the faithful subscribers or those who invested in the market directly and still holding on to their investments.

I think one reason must be the over valuations. It is common sense that if a company is going for listings, valuations play a very important role in determining the IPO price eventually. And this is where valuations come in.

The higher valuations accorded, the higher price will be offered to those who subscribed successfully. And the company would have collected its IPO proceeds regardless of what happens to its share price later.

Back to LCT, there are many puzzling questions that needed some answers. We can't blame the promoter of LCT for trying to price its valuation IPO price as high as possible. But what about the five cornerstone investors? The five : Permodolan Nasional Bhd (PNB), Maybank Asset Management Sdn Bhd, Maybank Islamic Management Sdn Bhd, Eastsprings Investments Bhd and Great Eastern Life Assurance (Malaysia), who agreed to acquire around 136 millions IPO shares (representing 18.4% of the base offering of the IPO).

Did these five companies with their huge resources and research investing team conduct any own analysis of LCT and arrived at their own valuations? If they have done so, then they must have arrived at a "surprisingly" collectively same valuations of LCT at this IPO price of RM8 per share.

I am sure if one of their research team had valued its IPO price at example below RM8, they would have advised their company about the difference and hence would have perhaps renegotiated with the  IPO promoter of LCT.

Remarkably, it needed the absence of interest to subscribe for the portion from all those foreign funds that set up the alarm bell. Thus the promoters had to reprice the share from RM8 to RM6.50 which is a big discount of around 18% and also cut the numbers of shares issuance by one-fifth.

At this adjusted price of RM6.50, I think the valuation of LCT would have be at a price earnings ratio of 20 (based on its net profit of RM1.3bil). This is also considered on the high side unless the market perceived LCT as another premium chemical player which deserved a higher PE ratings. The other is Petronas Chemicals Group Bhd (PetChem) which is trading at a PE of around 19.

But of course by the time you are reading this, LCT would have made its debut on Bursa Malaysia on July 11th and market would have its own natural mechanism of trading between buyers and sellers to determine the price again.

Mr Market will deliver its verdict today!

Monday, July 3, 2017

99 - Luxchem continues to grow

99 - Luxchem continues
to grow

Demand for glove will always be there as long as world population continue to grow. Because glove is one area the medical industry will continue to need to use.

The products are often either necessary or mandatory and therefore the industry is inherently resilient. That means demand will stay firm no matter how severely people slash their spending. It is widely believed that the demand for glove is growing at 10% per annum.

I realised the extend of such demand for usage for glove when during my last few visits to several different private hospitals and on the movable side table was a box of gloves - ever ready to be used especially by the attending nurses or doctors. And each time after a usage, the glove is disposed and a new one is required for the next usage.

No wonder the big four King glove manufacturers of Malaysia, Kossan Rubber Industries Bhd, Supermax Corp Bhd, Top Glove Corp Bhd and Hartalega Holdings Bhd continue to expand their capacities over the years.

Business is so good for them that if one is a very early bird investors of these four companies, one would have reaped massive returns on their investments to date.

As latex is required in the process of manufacturing the glove, one small low profile company that has been quietly supplying the big glove industry is chemical supplier, Luxchem Corporation Berhad.

Luxchem being an industrial chemical supplier focuses on several industries' needs - rubber, latex (glove), fiberglass reinforced plastic, coating, ceramic and polyvinyl chloride.

Luxchem's businesses are divided into two segments i.e. Trading (79.6%) and Manufacturing (20.45). Revenue from the Malaysian market is 70% with the balance from export market.

Realising that the Malaysia market is perhaps at a saturating point, it ventured into Indonesia in 2011 and further into Vietnam in 2015. I think the management of Luxchem must have seen that Indonesia and Vietnam, both with a population of 263 million and 95 million respectively (compared to 30 million for Malaysia) presented a very big growing market to tap.

Its overseas ventured seemed to have paid off so far. Its Indonesian market contributed 15% of trading segment revenue for Financial Year ending 2016 while its manufacturing segment did even better. Export sales contributed 84% from countries such as Vietnam, Thailand, Bangladesh, Australia and Singapore.

The, the acquisition of Transform Master Sdn Bhd in 2016 helped to kick start an impressive 1st Quarter 2017 results with revenue increasing by 36% to RM 218 million and net profits jumped to RM13.6 million which is an remarkable 94% increase!

Luxchem will continue to focus on high-growth export markets such as Indonesia and Vietnam which collectively account for 23.9% of its revenue base (FY2016). And its revenue continues to grow impressively.

Consistently rewarding shareholders
with good dividends

Luxchem is also another stock that consistently rewards its shareholders with dividends that can match the fixed deposits by the banks. Since its listing debut on the Main Board of Bursa Malaysia in June 2008, it has paid out dividends every year without fail, thanks to its consistent earnings too.

Early bird investors who had subscribed to its IPO at RM1.10 and dared to hold on until today would have seen their investments ballooned to nearly 300% based on the current price of RM2 plus level, and this does not take into consideration the total dividends of RM785 (from Year 2008 to 2016).

There wasn't much coverage on Luxchem initially after its listing in 2008.
There were the occasional reports or blogs written about Luxchem. But what caught my attention to invest in Luxchem shares is its steady results and its slow but gradual rise in dividends payout ratio.

And I am the type of investors who likes to invest in this type of simple to understand yet very focussed minded business company yet boring but a very steady paying dividends stock.

After some deeply reviews of pros and cons, yours truly decided to invest in Luxchem shares at RM1.18 on May 11, 2012 and again at RM1.19 on May 29, 2012. Since then, it has turned out to be one of my best performing stocks I have ever invested. I am glad I have been daring enough to hold on until today because there were many instances I was very tempted to sell off for profits, but the main reasons were it has been steadying paying good dividends twice a year consistently.

Why sell off a growing golden goose when it gives you golden eggs twice a year, year after year?

Saturday, June 17, 2017

98 - The effect of price war

98 - The effect
of price war

The recent 1st Qtr reporting session for the majority of listed stocks on Bursa Malaysia has rather been a poor one, from my very personal frank observation point of view.

Although I couldn't get the official figures of how many reported growth in profits or more reported negative growth or even worse more suffered losses, I noticed most were not able to report improved results.

When we have such a broad base of companies reporting less profits and many more actually suffering negatively, we can only understand how tough the whole business environment has been for business.

As consumers started to become picky for value buys if possible and cut down on major ticket items, manufacturers and retailers need to replan their business and pricing especially to attract market share.

And one of the common strategies is to maintain or reduce prices through promotion to stay competitive enough. But it is common knowledge that most businesses are too, competing closely the same especially in terms of pricing.

As long as they can garner market share at the expenses of competitors (but at the same time at the expense of profits), it is considered to be ok than having declining market share which will result in losses and unsold products eventually find its way back to the seller and manufacturers.

Such price compression war situation actually hurt the bottom line of those companies involved, but what choices do they have if their pricing is more expensive than the rival's?

An ongoing classic case it the keenly fought battle for pizza market share is the current RM5 a piece  promotion that has been going back since two or three years ago.

I think Domino Pizza started the RM5 a piece promotion first and it became an instant hit among pizza lovers. Who could imagine just for a RM5, one could get a bite or two on different types of pizza with different toppings. It became so popular that its main bigger rival Pizza Hut also joined in the RM5 promotion war and it is still on today.

My friend's spouse who is an expert in baking pastry remarked that it is almost impossible to make any profit for this type of pizza for just RM5 only. With the prices of ingredients on the rise always, it is cheaper to buy one at RM5 than to make your own self.

So what is the point if both sides are incurring losses in this RM5 promotion? I think the answer beneath is as long as one buys my pizza, one will get used to my types and tastes of Pizza and would eventually preferred other kind of non-promotion type of pizza as well.

Even hypermarket are joining in the war if one goes and have a look at Giant and Tesco hypermarkets. Besides the pizza war, there are other types of wars going on as well. Another example is also the healthy yogurt drink war. Nestle, Dutch Lady, Marigold and others brands are competing too fiercely for market share.

While all these price reduction war is good for consumers, it is not so good for manufacturers and retailers and for those listed companies too. Hence this is one key reason many companies were not able to report better results.

Apollo's 4th Qtr results
and its anticipated dividends
to be announced this month

Snack confectionary maker Apollo Food Holdings Berhad is due to announce its 4th Qtr results sometime this June for its Financial Year ended April 2017.

This 4th Qtr results will be keenly followed by its majority of long term stable dividends shareholders because a good result will have a strong bearing on its once in a year final dividends payout.

How much the dividends will be this time? To roughly have a conservative estimation, based on its up to date 3rd Qtr (Jan 2017) of its earnings per share of 18.92 sen and assuming another 6 sen for its 4th Qtr bringing total dividends to 25 sen, the likely dividend will be 20 sen per share.

But as Apollo is a cash rich stock with more than RM 127 million in its kitty (translating into RM1.59 per share) and zero debts and has a steady track record of dividends, it is in a strong position to even payout all its earning of 25 sen as dividends.

This is just all my guess only and one should even be prepared for the unexpected such as a poor 4th Qtr results which could affect its dividends payout ratio and its share price as well which is currently hovering around the RM5 range.

One should note that Apollo just not have a specific dividend payout ratio policy and has never raised a single sen for any right issue exercise from its shareholders all these years. Also it has never declare any bonus issue as well.

Buying 3,000 shares of
CB Industrial Products Holdings
on May 29, 2017 at RM2.10

CB Industrial Products Holdings is also another well diversified company that is a leading manufacturing and engineering based company specialising in the construction of palm oil mills, manufacturing of palm oil mill equipment, machinery and related parts.

It's other main business segments in the Group include retrofitting of special purpose vehicles and development of palm oil plantation and milling. CBIP aims to be the preferred provider of innovative engineering products and solutions to the global oil palm industry and related sectors.

CBIP has a healthy balance sheet of cash hoard of around RM120 million which should provide opportunity for it to  explore into any future business opportunities.

Besides CBIP is one stocks that pays regular dividends twice a year. Such kind of stock fits nicely into my criteria of Basket of Defensive Stocks for a mid to longer term time period. If you happen to think that CBIP is one stock that will give you quick short term return, I will not agree with you on this, seriously.

I like to take this opportunity to wish all Muslims friend a very Happy Selamat Hari Raya Aidil Fitri.

Saturday, May 27, 2017

97 - Rising cash hoard of Fima Corp

97 - Rising cash
hoard of Fima Corp

Fima Corporation Berhad (Fima Corp) is one company yours truly is quiet well versed with its steady and easy to understand business since becoming a shareholder since October 2004.

That is more than twelve years already of becoming a silent  minority shareholder and doing nothing at all other than receiving consistent dividends every year without fail and of course more free shares. My original 4,000 shares has also become 12,000 shares after its bonus and split corporate exercise in Oct 2014.

The business of Fima Corp is easy to understand as it mainly derives its steady income from its security printing business. In its efforts to diversify for more income, it ventured into plantations in 2007 and done remarkably well too.

But last year, Fima Corp's 80% owned PT Nunukan Jaya Lestari (PTNJL) suffered a speed bump when the Indonesian government decided to revoked its cultivation rights, the reasons were it had been improperly issued resulting in the overlapping of some of its planted areas with forestry areas.

Although Fima Corp started legal proceedings to challenge the ministerial order, there has been no latest or updates on this. It has been more than   eight months already.

However in the interest of good order, the local government has given its undertaking and allowed PTNJL to continue to lawfully operate its plantation operations until the final determination of the matter by the Indonesian courts.

In the event of the worst scenario where its loses out its legal proceedings  and loses out all its plantation business, it will have to fall back to its main core security printing business for income.

However there might be twist of turns of events in the outcome. Will there be some form of compensations for Fima Corp? After all, Fima Corp paid a total of RM96 million for PTNJL "legally". If there is, what will be the quantum amount?

Or perhaps there will be some form of alienation of its cultivation lands resulting in smaller areas for Fima Corp as a form of mutual settlement? All these are only my guesses and I might even be totally wrong.

On the other hand, should Fima Corp gets a positive outcome from its legal proceeding, it will be business back as usual albeit a big sigh of relief for all its shareholders including yours truly.

Fima Corp remains a very well managed company throughout the years despite taking a loan for the purchase of PTNJL. The plantation business produced another set of consistent profits, sometimes higher, some times lower depending on the price of palm oil.

Since its purchase of PTNJL in 2007, it has not only managed to pare down its debts to zero levels (taken to finance PTNJL), Fima Corp has also grown its cash reserves significantly especially the last few quarters.

Since its announcement of its 4th Quarterly results on May 24, 2017 for Financial Year ended March 2017, its cash hoard has risen to a record high of RM336 Mil compared to just RM177 Million a year ago. Besides it has also done well with its collections of Trade Receivables against Trade Payables.

The table below will illustrate how its cash has risen to an all time record high from the Jan-Mar 2016 to Jan-Mar 2017 period. Besides its Trade Receivables has also been in healthy proportion to its Trade Payables.

With RM336 Mil in hand now, its cash per share has also risen to RM1.39 Based on its share base of 241,404,497 shares and at its current price of around RM2.30 after minus off its cash per share of RM1.39 means an investor is just paying around 91 sen for its solid security printing business.

Based on its latest security printing business profits of RM 59 Mil  (Financial Year 2017 ended March), it is almost double when compared to oil palm production and processing division which recorded RM 28 Mil.

Fima Corp's current cash hoard of RM336 Mil in hand  is the highest ever recorded as far as I know.  Such remarkable of healthy balance sheet has enable Fima Corp to continue to pay above average bank dividends rate.

After its bonus and share split exercise in 2014, its last two years of dividends has stayed at 12.5 sen. But this year, Fima Corp has decided to even increase its dividend with a 5 sen special dividend apart from its final 7.5 sen dividend which was announced together with its 4th Qtr results on May 24, 2017.

Yours truly is confident such generous amount of dividends including the occasional special dividends will continue in years to come. Fima Corp has remained one of my most top dividend yield stock in my portfolios besides another steady and generous dividend stock, Harrisons Holdings (M) Bhd.

Both stocks remain my money-good sons of Bursa Malaysia. Both are free and continuing to bank in generous dividends like "duit minum kopi" allowance for me year in year out.

Sunday, May 7, 2017

96 - An update on my Basket of Defensive Stocks

96 - An update on
my Basket of
Defensive Stocks

It has been more than two months since I lasted updated my portfolios of stocks in my Basket of Defensive Stocks. Some of my readers might be curious why I did not update it after several of my recent blogs.

The reason is simple. I have like to believe that the stock market is just another piece of jigsaw in our daily lives and nothing more than that. Its movement in share prices should not effect our everyday daily lives or even set the tone for our mood of the day.

I know of many people who are constantly bothered or affected by the movement of stocks prices everyday. It is like the stock market is a  monster that is controlling the lives of those investors who are too emotionally attached.

If you are one of them, perhaps it is about time to pause for a reflection and see the bigger picture of life has to offer. There is so much in life if one is able to shut off from the frenzy pace movement of stocks prices.

I have done that many times. There are instances that for several days in a row, I didn't check the closing share prices at all. And the feeling is fantastic. I could discover that I could focus more sharply in many things I wanted to do. And with less pressure too.

It is not that I am worried about the movements of share prices. My portion of share investment allocation has been well diversified out. So any movement of ups and down will be just be like that unless of course there is a major prices movement of a particular stock which I also happened to hold significant amount of shares.

But it is easier said than done. There are bounds to be articles written by bloggers or in the newspapers about a particular stock that has attracted their attention from time to time.

It could be due to that stock has just reported a sharply rise in quarterly earnings and looked set to repeat it again in subsequent quarters, or involved in a major cooperate exercise that benefits the company or a sudden pleasant surprise announcement of significant higher dividends payment.

So when these happens, even if you do not check on share prices, someone will interact with you and ask you that your that share is up so much and do you have any ideas? Or you could be reading a write up by bloggers heaping praises for this stock.

The impact of unexpected
higher dividend

A recent case of a stock attracting investors' and famous bloggers' attention is low profile trading house Harrisons Holdings (M) Bhd. Normally a quiet stock with not much trading volume, it quietly announced a surprise higher dividends of 25 sen (which investors expected 15 sen conservatively) on April 12, 2017.

And the next day onwards, life has never been the same anymore for Harrisons. Investors chased after Harrisons while famous bloggers came out with admirable articles for the company. It is like suddenly many came to the same realisation that Harrisons is such a wonderful and valuable company after all.

At the time of writing, Harrisons is traded at RM4.18 at the close on May 5, near its 52 week high of RM4.24. Note that at this stage, my purpose of this blog is not to ask you to buy Harrisons shares. The decision is always yours as I trust most of us are rather intelligent and able to analyse better than many others.

Back to my Basket of Defensive Stocks, Harrisons is the first stock from the portfolios to achieve the either 100% up or crossed the RM1 margin which ever comes first.

Truth is I didn't expect much from my portfolios of shares to surge to this level as most of them were chosen based on their consistent regular earnings which in turn can pay regular average dividends.

I believe such stocks are not so vulnerable to the occasionally market shocks which can jolt shares prices swinging wildly. But one important factor is that such defensive stocks are best purchased near their 52 week lows or after a retreat following a rally in share prices.

Except for Cycle and Carriage Bintang (CCB) which reported dismal results during the last two quarters, the others more or less maintain their earnings and dividends without much surprise. The only exception is Harrisons which raised its dividends to 25 sen instead of 15 sen which has a big impact on its share prices.

So this is how my latest Basket of Defensive Stocks performed to date.