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Posted by L. C. Chong on October 15, 2013

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PBBANK–Fundamental Analysis (22 Apr 2014)

Posted by L. C. Chong on April 22, 2014

PBBANK Analysis:-

Excel – http://1drv.ms/QtshhS

My View:-

- Fair values/Market Timing:
  – 5Y DCF: 18.28 – 21.35 (MOS: -10% – 5%)
  – EY%: Buy below 17.76, sell above 22.36 (MOS: 9.64%)
  – MOS to be used is 23.47%
  – By looking at the fair values, I think PBBANK is now fully valued (or a bit overvalued). Even if the models proposed fair value above 20.00, but the MOS is not higher than 23%.
- PBBANK has been climbing up since Jul 2012 with couple of small corrections. In my opinion, PBBANK may starts to range somewhere around 20.00.
- In FY14-FY15, intense competition amongst financial institutions for market share as well as the need for higher capital conservation due to the requirements of Basel III capital framework, will continue to put pressure on pricing of products and return on equity. PBBANK growth will be slowing down, and this is proven from the declining ROE in the past 5 years.
- I will continue to hold and monitor PBBANK, but will not accumulate PBBANK at this moment. After holding PBBANK for almost 15 years, the dividend gains covered almost 95% of my cost. I will just let it float with so called "cost free".

Latest Financial – Q1 2014 Financial Report (21 Apr 2014) http://www.bursamalaysia.com/market/listed-companies/company-announcements/1598265

At the time of writing, I owned shares of PBBANK.

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BURSA–Fundamental Analysis (20 Apr 2014)

Posted by L. C. Chong on April 20, 2014

BURSA Analysis:-

Excel – http://1drv.ms/1gZu888

My View:-

- Market Timing:
  – EY%: Buy below 8.27, sell above 11.06
- In my opinion, in FY14, the following risks will outweigh the growth drivers
  – Withdrawal of foreign investors in very large scale.
  – US QE taper will cause higher volatility in the market. This may cause investors stay out of (or monitor) the equity market.
- Despite risks of higher volatility due to QE taper, The 1Q14 earnings results were, in all, a good start to the year for Bursa. The increased interest by retail investors, in particular, is a positive sign. Local institutions remain a steady presence in the market, buffering stocks from the worst of the effects of selling by foreign investors.
- I remain sanguine on the company’s outlook over the longer term, as a proxy for the country’s growth. Its business model is also fairly resilient. As mentioned above, recurring and other incomes, including interest income, is sufficient to cover some 91% of total operating expenses.
- I may/may not accumulate BURSA in the near term. Let see how it goes.

Latest Financial – Q1 2014 Financial Report (17 Apr 2014) http://www.bursamalaysia.com/market/listed-companies/company-announcements/1595933

At the time of writing, I owned shares of BURSA.

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Return on Capital Employed–Cautious

Posted by L. C. Chong on April 15, 2014

In the last weekend, a reader discussed with me about Return on Capital Employed (ROCE). ROCE indicates how efficiently the company employs capital.

ROCE is used to prove the value the business gains from its assets and liabilities. A business which owns lots of land will have a smaller ROCE compared to a business which owns little land but makes the same profit.

It basically can be used to show how much a business is gaining for its assets, or how much it is losing for its liabilities.

Formula:

ROCE = Net Operating Profit after Taxes/ Capital Employed

Net operating profit after Taxes= EBIT x (1- tax)

Capital Employed = Total Assets – Current Liabilities

Mathematically, it sounds right. One thing we need to keep in mind if we use ROCE. That is it measures return against the book value of assets in the business. As these are depreciated the ROCE will increase even though cash flow has remained the same. Thus, older businesses with depreciated assets will tend to have higher ROCE than newer, possibly better businesses. In addition, while cash flow is affected by inflation, the book value of assets is not. Consequently revenues increase with inflation while capital employed generally does not (as the book value of assets is not affected by inflation)).

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GKENT–Fundamental Analysis (13 Apr 2014)

Posted by L. C. Chong on April 13, 2014

GKENT Analysis:-

Excel – http://1drv.ms/1gmQsbi

My View:-

- Fair value:
  – 5Y DCF: 2.85 – 3.19 (MOS: 40% – 47%)
  – FY16 EY%: 1.48 – 2.47 (MOS: 31%)
- I still need to further study GKENT’s risks and challenges.
- GKENT has very strong competitive advantages where it is in a very good position in building wide economic moats.
- GKENT has been moving in the range from 0.4 to 1.7 since 2004. It couldn’t break 1.7 twice (2004 and 2010). However, since 28 Mar 2014, GKENT has been so bullish (without obvious correction) and closed at 1.7 on 11 Apr 2014. For those investors who spotted and invested GKENT at lower price, thumb up to them.
- I am keen to buy GKENT, but I rather wait GKENT to form a strong support above 1.7. I will consider buying GKENT if that happens.

Latest Financial – Q4 2014 Financial Report (27 Mar 2014) http://www.bursamalaysia.com/market/listed-companies/company-announcements/1577701

At the time of writing, I did not own shares of GKENT.

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PADINI–Analysis (11 Apr 2014)

Posted by L. C. Chong on April 11, 2014

PADINI Analysis:-

Excel – http://1drv.ms/1eX6RCD

My View:-

- Fair value/Marketing Timing
  – 5Y DCF: 2.50 – 2.83
    – Buy under: 2.02 – 2.29 (MOS: 30% – 38%)
  – EY%: Buy under 2.02, sell above 2.82
- Looks like PADINI is currently undervalued and quite attractive.
- New 3 Brands Outlet stores and a Padini Concept store were opened in the current financial year. In the coming months, there are plans to add another 3 Brands Outlet stores and another 2 Padini Concept stores which would add upwards of 90k sq ft of retail floor space to >800k sq ft. In addition to the new store openings, we are positive on the changes made to merchandise development and pricing strategies, which would allow PADINI to capitalise on the Visit Malaysia Year 2014.
  – Five out of the nine new stores in FY14 are located in Miri, Seremban and Langkawi. They will provide the group with new revenue stream from the less competitive markets in the second tier cities.
- Based on the growth analysis, PADINI has great potential to have higher net profit and owner earnings in FY14.
- For recent sector analysis, please read http://lcchong.files.wordpress.com/2014/03/apparels-the-busy-weekly-15032014.pdf
- Few readers asked whether I have purchased PADINI. My response is NOT YET. Reasons:
  – After discussed with my wife, PADINI’s growth drivers do not give her the confidence to invest the money.
  – I also considered to invest my own money. I don’t mind to pay some premiums for buying PADINI, but after analysed its chart, it has tendency to decline. I might be able to grab some PADINI at cheaper price. Who knows….

Latest Financial – Q2 2014 Financial Report (26 Feb 2014) http://www.bursamalaysia.com/market/listed-companies/company-announcements/1549673

At the time of writing, I did not own shares of PADINI.

PADINI-04112014

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PETGAS–Fundamental Analysis (10 Apr 2014)

Posted by L. C. Chong on April 10, 2014

PETGAS Analysis:-

Excel – http://1drv.ms/1kMTCF7

My View:-

- Fair value
  – 5Y DCF: 23.89 – 27.82 (MOS: 0% – 14%)
  – FY15 EY%: 17.13 – 20.17 (MOS: -18.38%)
- PETGAS is current fully valued. MOS for PETGAS should be 20%.
- Overall, the new GPTA will ensure that PETGAS will deliver sustainable, steady earnings and cashflow, while providing an incentive for the company to improve efficiency. Although there are major changes in various components of the GPTA, the impact on PETGAS’s earnings is largely neutral. PETGAS would receive a higher reservation charge (RC), based on the higher per unit charge of RM2,330/mmscf (from RM1,642/mmscf previously) but this is based on lower volume of 1,750 mmscfd (from 2,100 mmscfd previously). Furthermore, the flowrate charge for volumes above the 1,750 mmscfd threshold is now a lower RM0.20/GJ (from RM0.22/GJ previously). Its performance-based structure (PBS) for the additional sales of ethane, propane and butane has also been revised, which we estimate will result in lower revenue. PETGAS’s transportation charges have also been revised to a single levelised postage tariff for the entire Peninsular Malaysia, which would also result in lower revenue in FY14.
- On the other hand, PETGAS will be involved in the LNG RGT for the just approved RAPID project in Pengerang. Capacity of the RGT in RAPID will be similar to that of Melaka RGT, with c.80% capacity mainly catering to RAPID. Management expects the FID of this LNG RGT to be out in two months’ time. Assuming the refinery start-up is by early 2019, the RGT would possibly be ready by mid-2018. Thus, earnings contribution would only be seen from 2Q18 onwards.
- I believe that there will not be any significant movement in Petronas Gas’s share price in the near term.
- I will continue to hold PETGAS.

Latest Financial – Annual Report 2013 (9 Apr 2014) http://www.bursamalaysia.com/market/listed-companies/company-announcements/1589513

At the time of writing, I owned shares of PETGAS.

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ALLIANZ–Fundamental Analysis (9 Apr 2014)

Posted by L. C. Chong on April 9, 2014

ALLIANZ Analysis:-

Excel – http://1drv.ms/1g6512V

My View:-

- Fair Value/Market Timing
  – 5Y DCF: 22.99 – 26.20 (MOS: 54% – 60%)
  – EY% (FY15): Buy under 8.45, sell above 14.00 (MOS: 24.26%)
- I think MH370 incident will give negative impact to ALLIANZ in short term. So far, ALLIANZ only identified 5 of the passengers are their client.
  – For some people, this is a risk, but I view this as an good opportunity.
- ALLIANZ’s dividend payout is extremely low, so never expect good dividend from them. Reasons:
  – High capital or surplus retained due to nature of industry
  – Stringent regulatory requirement to protect policyholders’ interest
  – Managing stringent capital buffer to withstand adverse or unfavorable experience
- Unlike LPI (general insurance and financing on leases), ALLIANZ is heavily dependence on single segment: motor insurance; and also dependence on agent for life insurance. ALLIANZ requires high capital to grow distribution capabilities, and fund new business growth.
- Balance float of outstanding shares is very low: 4.20%.
- My wife and I are considering to buy ALLIANZ with our joint account, while my wife already owned shares of LPI.
- References:
  – https://www.allianz.com.my/web/lna/10074/10064/2014#
  – http://klse.i3investor.com/blogs/rhb/47700.jsp

Latest Financial – Q4 2013 Financial Report (28 Feb 2013) http://www.bursamalaysia.com/market/listed-companies/company-announcements/1553281

At the time of writing, I did not own shares of ALLIANZ.

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Tweezers Provide Precision For Trend Traders

Posted by L. C. Chong on April 8, 2014

Tweezers Provide Precision For Trend Traders http://feeds.investopedia.com/c/35001/f/646762/s/39150ee5/sc/2/l/0L0Sinvestopedia0N0Carticles0Cactive0Etrading0C0A40A7140Ctweezers0Eprovide0Eprecision0Etrend0Etraders0Basp0Dpartner0Frss0Iarticle0Itutorial/story01.htm

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JTINTER–Fundamental Analysis (2 Apr 2014)

Posted by L. C. Chong on April 2, 2014

JTINTER Analysis:-

Excel – http://1drv.ms/1ieWpFw

My View:-

- Market Timing
  – EY%: Buy below 6.12, sell above 7.18
  – 5Y DCF: 6.43 – 7.38; 5Y RDCF: 1% growth rate
  – Recently, JTINTER dropped from 6.6 to 6.25 which is quite close to 6.18 (EY%)
  – Based on analysts’ consensus, JTINTER’s net cash may hit MYR1/share in FY15. JTINTER has, in the past, paid dividends of 15 to 75sen/share when its net cash reached MYR1/share. Its latest net cash stood at 43.8sen/share at end- Dec 2013.
- Analysts expect industry sales volume to contract by 6% in 2014 and 2015 respectively following the recent 14% hike in selling prices. Besides, JTINTER management expects operating environment to remain extremely challenging, primarily due to the hike in excise duty and cigarette prices. In addition, consumption is expected to be impacted by continued inflationary pressures and weak consumer sentiment.
- JTINTER is one of the most defensive stocks in my equity holdings.
- JTINTER had received a conditional takeover offer from JT International Holding BV (JTIH), a wholly-owned subsidiary of Japan Tobacco Inc, to acquire the remaining 39.6% stake or 103.6m shares it does not already own in JTI at RM7.80/share, a 20% premium to its pre-suspension price of RM6.50. JTIH currently holds 60.4% of the share capital of JTI. In making the offer, it does not intend to maintain the listing status of JTI. Other major shareholders of JTI include the Employees Provident Fund (8.13%) and Kumpulan Wang Persaraan (6.84%). (Apr 2014)
  – JTI’s business is still very cash generative and investors could undoubtedly hold out for higher dividends – the company tends to pay out special dividends whenever its cash/share hits MYR1. Nevertheless, this is expected to happen only in FY16. Current yields, meanwhile, are about fair at 3.4%.
  – Based on my valuation, this is a great deal. I think the takeover offer is a fantastic opportunity to exit this sunset industry.

Latest Financial – Annual Report 2013 (2 Apr 2014) http://www.bursamalaysia.com/market/listed-companies/company-announcements/1583333

At the time of writing, I owned shares of JTINTER.

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UNIMECH–Fundamental Analysis (2 Apr 2014)

Posted by L. C. Chong on April 2, 2014

UNIMECH Analysis:-

Excel – http://1drv.ms/1mylCgU

My View:-

- Market Timing
  – EY%: Buy under 1.46, sell above 1.89
- Analyst foresees better outlook for Unimech in FY14-FY15. We expect net profit to register a 3-year CAGR growth of 12.0% in FY15 on the back of 10.4% growth in revenue. We forecast net profit reaching RM26.20mn and RM28.6mn in FY14-FY15 while revenue will be RM263.9mn and RM295.0mn, respectively. Revenue growth is expected to be driven by generally higher demand for VFI and Pumps products in the domestic and overseas market. The VFI and Pumps division is expected to grow by 14% and 7%, respectively in FY14. On top of that the expansion of distribution network and warehouse to overseas market, especially Indonesia and Thailand, will also help the group better serve its existing customers and gains new customers.
- For the time being, I think UNIMECH is currently overvalued.
- I will compare UNIMECH with PANTECH very soon.

Latest Financial – Q4 2013 Financial Report (27 Feb 2013) http://www.bursamalaysia.com/market/listed-companies/company-announcements/1552485

At the time of writing, I did not own shares of UNIMECH.

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