SAB: Still at a discount after discounting its discounted valuation.

At RM3.60 per share, Southern Acids (M) Berhad (KLSE:5134) is valued at RM493m.

The company has been profitable for the past 20 years, except for FY09. Although a constant annual dividend of 5sen/share since FY14 isn’t particularly exciting, it has consistently paid dividends for at least 20 years. Additionally, it boasts a very solid balance sheet with net cash in excess of RM300m.  

SAB operates in 3 core businesses:

1)        oleochemical manufacturing

2)        healthcare services

3)        milling & cultivation.

However, the crown jewel of the group lies in its 260.82ha of freehold land. This land is strategically located between the matured township of Kota Kemuning and ongoing township developments of Bandar Rimbayu (IJM), Eco Sanctuary (Ecoworld), TwentyFive.7 (Gamuda) and Tropicana Aman (Tropicana).

Let’s estimate the net realisable value of SAB’s key assets using sum-of-the-parts method. This calculation excludes other smaller assets such as:

1) a 2.4% stake in listed Paramount Corporation Berhad (RM5.09m based on closing price of RM1.22)

2) An office at Centro Tower with a book value of RM4.37m

3) 3.25 acres of industrial land in Klang with a book value of RM3.32m

4) A corporate office with a book value of RM2.67m.

	Assumptions/ valuation*	Estimated amount* (RM’m)
260.82ha of freehold land at Thangamallay Estate	RM56.44 psf(1)	1,584.65
232-bed Sri Kota Hospital	PE multiple of 20x	(2)477.58
Cash	Excluding minority interests(3)	305.47
Milling and cultivation	PE multiple of 8x, 63% stake	(4)215.64
Oleochemical manufacturing	20% of net asset value  (31 December 2023)	25.61
	TOTAL	2,608.95 (RM19.05/share)

*See appendix

To be realistic, discounts are applied to these assets/ businesses:

 

	Discount	Estimated amount (RM’m)
260.82ha of freehold land at Thangamallay Estate	75% discount (common for property stocks). Also, excluded potential value appreciation from connectivity to West Coast Expressway	396.16
232-bed Sri Kota Hospital	10% discount	429.83
Cash	20% discount	244.38
Milling and cultivation	Discount of 2x PE multiple	161.73
Oleochemical manufacturing	Zero value(5)	0.00
	TOTAL	1,232.10 (RM9.00/share)

Applying a further 20% discount to the overall discounted valuation, we arrive at a total valuation of RM985.68m (RM7.20/share).

Despite this valuation, the share price still reflects a steep discount of approximately 50% after considering the discounted value.

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Appendix

 

(1) Ten year ago, in 2014, Gamuda purchased 104.1ha of leasehold agricultural land nearby for RM392.2m, or RM35 psf, with the intention of developing it into TwentyFive.7 township. (https://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download/?name=EA_GA_Attachments&id=62463)

Assuming the land appreciates at a compounded average growth rate of 3% and applying a 20% premium for freehold land, it arrives at a land price of RM56.44 psf.              

(Leasehold properties typically cost 20% less than a similar freehold property. https://www.iproperty.com.my/guides/freehold-vs-leasehold-title-malaysia-what-property-buyers-should-know-64117) Conversely, freehold properties usually cost 25% more than a comparable leasehold property. When we exclude the building and compare freehold land to leasehold land, logically, the premium should be more than 25%. To be conservative, a premium of 20% is adopted.

(2) To be conservative, we use the lower of FY23 PBT (RM31.42m) and annualised FY24 PBT (9MFY24: RM28.356m). A corporate tax of 24% is applied to estimate the estimated annual net profit.

With a target PE multiple of 20x, this amounts to approximately RM2.06m per bed.

Reference:

Based on IHH’s offer for Ramsay Sime Darby Health Care, which had 1,375 operational beds as at last Tuesday, the joint venture between Ramsay Healthcare Ltd — one of the world’s largest hospital operators — and Sime Darby Bhd was valued at about RM4.12 million, or about US$1 million, per operational bed. (https://theedgemalaysia.com/article/ihhs-offer-ramsay-sime-darby-puts-spotlight-kpjs-undervaluation)

 

(3) 

As of end of FY23 (31 March 2023), the group was in a net cash position of RM383.48m. Since SAB owns a 63% stake in Indonesian subsidiaries, proportionately, 37% of the cash in Indonesian Rupiah is excluded as non-controlling interests.

(4) To be conservative, we use the lower of FY23 PBT (RM74.56m) and annualised FY24 PBT (9MFY24: RM42.79m). A corporate tax of 25% is applied to estimate the estimated annual net profit.

(5) The oleochemical manufacturing division was profitable in FY22. However, it incurred losses in FY23 and 9MFY24. To be conservative, zero value is assigned to the loss-making business.

DLADY - Turning the Corner?

Page 16 of The Edge Malaysia (13 May – 19 May 2024) carries an article titled “Completion of Dutch Lady’s New Facility Sparks Anticipation of Higher Dividend”.

The share price of DLADY rallied in 2012 as the dividend for 2012 jumped from 80sen/share a year ago to 260sen/share. Between 2013 and 2018, the share price was traded between the band of RM40 to RM80 before the substantial cut in dividend payments (from at least RM2/share a year) to fund the construction of new plant in Bandar Enstek. Coupled with the surge in prices of raw materials, this has led to a significant decline in DLADY’s share price from 2019 to 2023.

With the prices of skimmed milk powder and whole milk powder normalising, the operating profit and margin of DLADY in 2H23 have somewhat recovered. 

If we annualise the adjusted operating profit for 2H23 (excluding accelerated depreciation and one-off items), it actually surpasses the yearly operating profit for 2011 to 2018. However, the share price of DLADY is still trading below the RM40 to RM80 range, probably because of lower dividends and the earnings being masked by accelerated depreciation and one-off items.

# In line with the earlier announced investment in its future manufacturing activities, DLADY continued the accelerated depreciation of its assets in the Petaling Jaya factory that cannot be transitioned to the new site. As the construction of the state-of-the-art IR4.0 manufacturing facility in Bandar Enstek progresses, other one-off operating costs related to activities for the construction and transition towards the new site are incurred.

More importantly, DLADY has been gaining market share in Malaysia and experiencing volume growth in recent years.

The state-of-the-art IR4.0 plant in Bandar Enstek will double the capacity of the existing plant in PJ, with a room to further double the capacity (4x of PJ capacity). 

The new plant in Bandar Enstek is expected to be operational by end-2024. Usually a new plant will need to go through the gestation period before profit and dividends normalise. 

When the new plant, with a 100% increase in capacity, runs at optimal utilisation, what will be the profit, annual dividend and share price?  

DXN - Record Earnings, Quarterly Dividend Increases Further

DXN just released its 4QFY24 results.

Earnings:

Record quarterly earnings at RM79m (EPS 1.59sen)

-        Record full-year earnings at RM310.994m (EPS 6.28sen)

-        PE 10x based on closing price of 62sen

Dividend:

Quarterly dividend increases further to 1sen/quarter (FY24: 3.6sen or 5.8% yield)

-        Dividend policy: At least 50% of PATAMI

Net cash:

-        RM476.7m or 9.6sen/share (15.5% of market cap)

Cashflow:

-        Positive cashflow after capex, decent dividend payout, and paring down of debts (FY23, FY24)

ROE:

-        27.8% (FY24)

 

Growth:

-        Revenue has been growing at a double-digit rate since its privatisation in 2011.

-    The group is expanding its presence into Brazil. This market presents a significant opportunity with its large population of 217 million and its proximity to its existing Latin American presence.

 

More than 50% of DXN's sales are generated from Latin America. How did DXN, a Malaysian company, penetrate the Latin America market despite the vastly differences in language and culture?

Its “ONE WORLD ONE MARKET” concept differentiates itself from other MLM companies.

Unlike traditional geographical expansion, DXN doesn't directly set up branches in new markets and begin operations. Instead, they leverage their "ONE WORLD ONE MARKET" concept. Members introduce DXN products to new countries, sponsoring members from those regions. Members can operate in any country, allowing DXN to establish a network without significant upfront investment.

DXN only establishes a physical branch at an area after achieving a member base of 500 active members and hitting a minimum sales amount. This minimises risk and ensures efficient resource allocation. Notably, DXN boasts a perfect record of no branch closures since its inception.

The success story began with members from Malaysia, Indonesia, and the Philippines venturing into the US market. Spanish-speaking members in the US then brought DXN to Mexico in 2005. From there, it spread to Peru in 2010 and Bolivia in 2012. Currently, they're expanding into the vast Brazilian market. DXN's member-driven approach has resulted in a presence in 48 countries around the world.

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Chinese schools in Malaysia attracting more children of other races, amid allegations of sowing disunity

Education is the most powerful weapon we can use to change the world ~ Nelson Mandela

The future of a country doesn't depend on its wealth but on its education ~ Debasish Mridha

This is an article on Chinese schools in Malaysia published by Channel News Asia yesterday.

Some of the key points:

“(So many people in the) world speak Chinese and many companies nowadays require Mandarin-speaking candidates,” she said, adding that Chinese schools also place an emphasis on students’ discipline.

It is part of a wider trend across Malaysia. Earlier in March, it was widely reported that all 20 primary one students enrolled at the Si Chin Chinese School located in Bahau, Negeri Sembilan were Malays. 

about 20 per cent of students in all Chinese primary schools across the country in 2024 are non-Chinese, up from about 12 per cent in 2010.

The Chairman of the Parent Action Group for Education Malaysia (PAGE) Noor Azimah Abdul Rahim told CNA there was a perception among parents that teachers in Chinese schools were very dedicated to their duties.

The 38-year-old said that the school has facilities such as digital blackboards and large televisions as well as a hall where they can hold their own events, adding that students can choose from a wide range of activities, including a robotics class among others. 

Read the full article: Chinese schools in Malaysia attracting more children of other races, amid allegations of sowing disunity

Crescendo - Potential Beneficiary of Data Center, JB-Singapore RTS (Update)

Wrote about Crescendo - Potential Beneficiary of Data Center, JB-Singapore RTS on 12 December 2023 when the share price was RM1.98. Share price closed at a recent high of RM3.03 last Friday.

https://bursastocktalk.blogspot.com/2023/12/cresndo-potential-beneficiary-of-data.html

Highlighted the potential special dividend on 14 February 2024. The company declared a special dividend of 13sen on 27 March 2024. Share price gapped up and closed at a recent high of RM3.03 the next day.
https://www.facebook.com/photo?fbid=893958872733568&set=a.391566119639515

Another positive development was shared in the 4QFY24 results announcement.

3QFY24 results note:
"The Group also plans to launch 1,200 units of serviced apartments which are located within the vicinity of the RTS terminal at Bukit Chagar with a total GDV of approximately RM900 million in FY2025."

4QFY24 results note:
The Group also plans to launch 1,200 units of serviced apartments which are located within the vicinity of the RTS terminal at Bukit Chagar with a total GDV of approximately RM1 billion in second half of FY2025.
The estimated GDV for the serviced apartments near RTS terminal has been revised upwards from about RM900m 3 months ago to RM1b.

According to analyst, the selling price psf in JB has surged to at least RM1600. (“新山新推出的项目，可以看到售价走高到至少每平方尺1600令吉，超越大部分吉隆坡和槟城地区。”Translation: "New projects launched in Johor Bahru are seeing selling prices climb to at least RM1600 per square foot, surpassing most areas in Kuala Lumpur and Penang")
https://www.klsescreener.com/v2/news/view/1298399

Will we see higher projected GDV for the project when Crescendo launches it later this year?

Note: The land acquisition has yet to be completed and the conditional period for the land acquisition has been extended to 11 May, 2024.

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KENANGA (6483) – A Growth Stock With Decent Dividend Yield?

Reason for the significant earnings improvement

Based on the performance of FBMKLCI and Average Daily Value of KLSE, 2022 and 2023 were lackluster years for the local stock market.

However, despite the weak market sentiment in FY22 and 9M23, KENANGA has reported significantly improved earnings in FY22 and 9MFY23 compared to years before the onset of the Covid-19 pandemic. The key driver behind this growth is the investment and wealth management segment.

The segment struggled in 2016 and 2017 but managed to turn things around in 2018 with minimal profit before tax.

It has since grown significantly and now contributes the most to the company's profits.

This success can be attributed to the rapid growth in the group's assets under management (AUM). In just 10 years, the AUM has surged from RM3.13 billion to over RM20 billion as of the end of 2022.

 

	Assets under Management (RM'm)
2022	> 20,000
2021	18,800
2020	13,830
2019	13,490
2018	7,860
2017	8,700
2016	7,400
2015	6,430
2014	5,450
2013	6,250
2012	3,130

In the third quarter of 2019, Kenanga Investors Berhad (KIB), the asset management subsidiary of Kenanga Group, completed its acquisition of 100% equity share in Libra Invest Berhad, a fund management arm of ECM Libra Financial Group Berhad. The acquisition, has increased KIB’s total AUM to RM13.5 billion, solidifying its position as one of Malaysia’s leading unit trust and asset management companies. (Annual Report 2019)

Are the improved earnings in FY22 and 9M23 sustainable?

The key earnings contributor, the investment and wealth management segment generates income from management fees. Unless there are significant fund withdrawals or a market crash, the earnings from this segment is likely to be recurring and sustainable.

Decent dividend yield

With improving financing performance, KENANGA has consistently paid dividends since FY15 and maintained a generous payout ratio ranging from 60.4% to 89.6%.

 

	EPS	DPS	Payout (%)
2022	7.50	6.00	80.00
2021	16.29	10.50	64.46
2020	14.56	8.80	60.44
2019	3.78	3.25	85.98
2018	1.67	1.10	65.87
2017	3.35	3.00	89.55
2016	2.59	2.25	86.87
2015	1.47	1.00	68.03
2014	3.83	0.00	0.00
2013	0.80	0.00	0.00

With a PATAMI of RM50.6m in 9M23 (full-year FY22: RM54.5m), KENANGA is likely to achieve better full-year results than in FY22. The Company paid a dividend of 6sen/share for FY22.

To be conservative, assuming KENANGA maintain a dividend of 6sen/share for FY23, based on current share price of RM1.01, this translates into a decent dividend yield of about 6%.

INVESTMENT THESIS:

• A decent dividend yield of 6% could limit the downside of the share price. Given the expected better profit in FY23 and potentially FY24, it is not unreasonable to expect a dividend yield of 6% or more.

• Stockbroking and asset management businesses are highly scalable and have low marginal costs, resulting in faster bottom-line growth when revenue improves. A fund manager who manages a portfolio of RM100m can easily handle a larger portfolio, such as RM200m or even RM500m, as fund management is scalable. For this reason, the bottom line grows at a faster pace when revenue improves. The revenue for FY20 and FY21 were roughly about 50% higher than FY19 but the bottom line quadrupled.

• It is a bonus to shareholders of KENANGA if there is a bull market. A bull market would benefit KENANGA through higher brokerage for stockbroking, increased AUM from portfolio appreciation and net inflow of funds, and significant margin expansion due to economies of scale and low marginal costs.

• The market may not be fully aware that the significant improvement in KENANGA's earnings in FY22 and 9M23 (>100%) compared to previous years (FY16, FY17, FY18 and FY19) was primarily due to the recurring contribution from the investment and wealth management segment.

 

CONCLUSION: With a decent dividend yield, KENANGA is worth monitoring as it offers limited downside potential and good upside potential based on historical growth of AUM growth and the scalability of its core businesses.