Thursday 31 December 2015

Xingquan - Too good to be true?

Mr Koon Yew Yin blogged about Xingquan. Cash about RM3/share, EPS was 42sen/share for FY15, with PE multiple less than 2x.

If the share price does not reflect its true value, at current share price of 60sen/share, why not the major shareholder privatise the company?

If the major shareholder offers to privatise the company at RM2/share, not only he does not have to fork out money to take the company private, yet he actually earns RM1/share plus the remaining ownership of the company for free.

Is there such a big toad jumping on the street?

Added on 1 Jan 2016

Would you invest in a company that carries net cash of RM934m as of end September 2015 still needs rights issue to raise RM50.7m to fund RM99.2m capex?

Wednesday 30 December 2015

Open Letter to Ahmad Maslan

Dear Ahmad Maslan,

It is not easy to take two jobs, especially in Malaysia.

1. Traffic is too heavy on the road, especially during peak hours. This is aggravated by poor road conditions such as potholes, worn-off pavement surface. The situation is worse whenever there is heavy downpour. Some areas are flooded due to indiscriminate felling of tree for development. These make it difficult for people to rush for part-time jobs in the evening after their main jobs.

2. The Rakyat have limited choice but to own cars due to poor public transport system. Owning a car is quite burdensome for the lower income group. But even owning a car, one may still unable to reach his workplace in time for part-time job, as explained above.

3. Lack of car park space, especially at busy commercial areas could be a deterrent as well.

4. The Rakyat do not feel safe, more so at night. One may be a target when returning home late at night after part-time job. Not only his belongings but his life may be taken away together by robbers, snatch-thieves.

5. Lack of proper covered walkway in the cities makes it difficult for Rakyat to go to workplace. There are interchanges of railway lines still without all-weather protection walkway and seamless links between interchanges.

6. After the recent sharp toll hikes, the toll fare could eat into one’s hard-earned part-time wage. Bad news is that there will be more toll hikes in 2016, unless the government is willing to absorb the rate hikes.

Would you quickly get the government to address the above first so that taking second job is more possible?


One who is desperately looking for second job

Saturday 26 December 2015

Teoseng - Forming of Head and Shoulders?

Unless it can break and stay above RM1.70, head and shoulders that is being formed in weekly and monthly charts may suggest more downside in the share price.

Weekly chart.

Monthly chart. Long upper shadow formed in the last 3 candles, pointing to bearish sign

Thursday 24 December 2015

Differing Views on Tomypak

I wrote about Tomypak in early October when the share price was RM2.39. It touched a high of RM3 on 18 Nov 15. The share price underwent correction and closed at RM2.64 on 23 Dec 15.

CIMB is the only broker covering Tomypak currently. While I am positive on the outlook of the company, CIMB was quite skeptical on the margin improvement and its expansion plan. It is alright to have differing opinions as long as the reasoning is sensible.

The 2 latest reports by CIMB (for registered users only) can be found here:
Running to far ahead dated 26 Nov 15
Over-ambitious 10-year capex strategy dated 13 Dec 15

1. Earnings beat expectation, higher dividend payout, raised earnings forecasts but cut target price
The first report dated 26 Nov 15 was 3Q15 results note. Tomypak reported:
i. net profit above CIMB's expectation
ii. profit margin recovery continues
iii. dividend payout for 9M improved from 4sen/share to 7sen/share

Subsequently, CIMB raise its FY15-17 EPS forecasts by 4-6% to reflect further profit margin recovery.

Despite the good set of results and earnings upgrade by the CIMB, the same broker surprisingly cut the target price from RM1.96 to RM1.84! It didn't seem to jibe. Perplexing...

2. Profit margin recovery mystery?
CIMB was perplexed by Tomypak's sharp profit margin recovery as the broker opined that operational improvements are usually in baby steps, not triple jumps. According to CIMB, both Daibochi and Tomypak have similar customers and, as such, profit margins from sales should be relatively similar.

From the same report, similar margin improvement could be observed in 2008 and EBITDA margin of slightly above 20% was also seen in early 2009. So this was not a margin that had not been seen before. Furthermore, the margin improvement came from a low base.

The broker was unsure how the company's profit margin recovered so quickly since the entry of a new major shareholder in 4Q14.

Mr. Lim Hun Swee was re-designated as an executive director in August 2014 and subsequently as a Managing Director on 1 January 2015. Mr. Lim Hun Swee is a veteran in the food industry. According to Bloomberg, he also served as an Executive at MNC Wireless Berhad, Hup Seng Industries Bhd., eBworx Bhd, OSK Holdings Bhd., HLG Capital Bhd, Global Soft Bhd, ISS Consulting Solutions Bhd. Mr. Lim served as Managing Director of In-Comix Food Industries Sdn. Bhd. until July 2009. He has 20 years experience. He has been a Non Independent Executive Director of Tomypak Holdings Bhd since August 13, 2014 and served as its Non Independent & Non Executive Director from May 23, 2014 to August 13, 2014. Mr. Lim has been an Executive Director of Johore Tin Bhd since July 1, 2012 and its Non Executive Director from August 26, 2010 to July 1, 2012.

Mr. Lim has been increasing his stake in Tomypak since he took over the executive role in Tomypak and this could be a sign of his confidence in the prospects of the company.

If the earnings were not real, how the group paid for RM12m land purchase, part of the capex for factory expansion and increased dividend payout?

3. Were the "facts" in the reports right?
Its report dated 26 Nov 15 stated the company geared up to finance the set-up of a new factory, which would double existing plant capacity.

In The Edge Weekly dated 20 July 2015, Tomypak is planning to build a new plant with an annual production capacity of 35,000 tonnes on 10.5 acres of industrial land in Senai, Johor. Its existng plant in Tampoi, Johor Bahru, which has a production capacity of 17,500 tonnes, is running at a utilisation rate of 80%. It should be tripling of capacity instead of doubling the capacity.

Separately in CIMB report dated 13 December 2015, it wrote in Phase 1, Tomypak hopes to double its production capacity by end-2016. The Edge Weekly dated 14 December 2015 (available 12 December 2015) highlighted Tomypak has a planned capex of RM120m to RM140m for its three-phase new factory project. Each phase will provide 12,000 tonnes of additional capacity per annum. It will be two-thirds increase in existing capacity instead of doubling capacity.

4. Expansion long overdue or overly ambitious?
On expansion, CIMB in the report dated 26 Nov 15 commented the building of a new factory is a long overdue exercise as the existing factory has insufficient space, and added that Tomypak should have done this expansion a few years ago.

But when Tomypak revealed its plan to triple its capacity in 10 years (at CAGR of 11.6%), the broker raised its doubt whether the expansion plan was overly ambitious.

While it is true that overseas MNC customers are very sticky and it could take a minimum of 2-3 years for them to switch suppliers, Tomypak could possibly secure additional orders from its existing MNC customers. Central procurement is common in MNCs. Tomypak which has significant revenue generated from overseas markets, may gain market share through its existing MNC clients. The additional orders from overseas markets could be very sizeable.

5. Imposed steep discount to a superior player?
Compared with Daibochi, Tomypak is superior in term of margin, ROE, ROA, lower gearing, better trading liquidity and growth potential. Not only a steep discount imposed on Tomypak's target PE multiple puzzling, CIMB widened the discount from 30% to 40% in its report dated 26 Nov 2015 when earnings beat expectation, margin continued to improve, and dividend payout increased was even more baffling!