Friday, December 19, 2014

Moving from Airport to Keuro

I am buying more Keuro as I think the lower oil price will cause the construction material costs to lower. Other material costs such as steel is also significantly lower recently. I think it will have positive impact to the construction of West Coast Expressway.

On the other hand, I was not too happy with the purchase of an airport in Turkey by Malaysia Airport. As a result, I have decided to switch by having a bigger exposure to Keuro.

The latest update is as attached.

Fully sold Jobst

This has been a very good stock, business and very humble management that takes care of its shareholders. However, as it is not very clear on its future business after selling a very good business, I have decided to clear all of Jobstreet's stocks.

Couldn't have found a better management.

Friday, December 5, 2014

A tale of two different plays

Ever wonder why the regional markets (especially China) are mostly doing well, while Malaysia's Bursa has been dropping? This is because a lot of the plays in the last 7 - 8 years or even more have been on oil and gas (O&G). The O&G play have been exacerbated by the proposed investments into marginal oil fields, huge plan for Pengerang pushing Malaysia into a country that is more and more dependent on O&G. The Malaysian stock market have been largely dependent on that sector. The first 3 SPACs are all O&G although many investors still do not know what that means. SPACs basically means taking your money and only decide (or search) where to invest in. Before they have your money, usually they have very little clue except borrowing their namesake. Also, it you do your search, there are more and more RTOs that are mainly by O&G related companies. Any companies that are into O&G are deemed to be good standing. Now comes the time for the famous saying, "When the tide's go down, only you discover who is swimming naked." as every Ali, Muthusamy and Ah Kau wants to be in the O&G business suddenly.

The O&G play, I believe are because of 2 main factors - price of oil since 2006 (except for dips in 2008) and PEMANDU. PEMANDU has been formed to look at large projects (especially) and O&G can be large projects, very. Imagine a name whom many would not have heard of before Dialog (joking, I know they are big among Malaysian O&G players) can declare that they are going to invest RM15 billion into Pengerang! The entire Pengerang is like RM100 billion investment altogether - more than the total investments for MRT1, MRT2 and MRT3!

With these investments, we are going to be one of the largest in the world in O&G trading!

Now! Brent crude at USD70/barrel. Now how? Ohh, btw, we are not selling Brent, we are selling Tapis. Even when Brent can be low, Tapis' price was priced at USD100. Betulkah? That was before. We are now talking about what happens in the future.

Will the USD100/barrel be back soon and all the projects will be at full steam again? What if it drops again? I know many projects will not be shelved by this factor but I am just wondering why is Malaysia pushing so hard into O&G.

O&G is a volatile play. It is a commodity and while many countries are pushing harder into alternative and renewable energy, we are pushing hard onto depleting energy source. We are trying to build expertise into an area where other countries are many years ahead while we are doing catching up. Diversification is key as O&G is too risky even as a trading hub. In addition, O&G is too small a job sector focus for Malaysia. There can be very few rich people (in this sector) but a lots more poorer people if we put our energy into this area. Yes, part of it is into logistics sector as a bunkering hub is good for Malaysia, but still O&G centric.

In any case, Malaysia is not like Russia or Saudi Arabia or Qatar where those countries are very dependent on oil. We should embrace that diversification. But yet we seemed to be pushing hard onto one sector currently.

For example, we used to have a strong technology sector - E&E and software - now that is dissipating although Malaysia is still a large exporter of semiconductor. These are good sectors to even out wealth and with that the local consumption economy will do better.

However, I believe economically Malaysia is fine with the price of oil drops. The drop in Bursa is largely to do with the O&G companies and along it pulls together the others as well. There are still more to drop for the O&G companies if the price of oil stays at current level for some time as these counters are still expensive.

Government's budget seems fine as it has eliminated subsidies in petrol and diesel altogether. Good move and right timing! I in fact feel that the government has more money for development next year although contributions from Petronas will drop.

But we got to do more.

With that, I still believe over time, by 2015 the other sectors may pick up back. Those that are not related to commodities. The construction sector should do well. Banks was on the rise and rise over the last 15 years or so. There is time to slow down. It seems to be now. I do not know of the banks exposure to the O&G sector, but looks like it is little as banks nowadays are happier lending to properties and automotive purchases. Retail should do better once the GST and other factors have put people on firmer footing. So are other industrial sectors that are export oriented now that our RM is getting smaller.

Hence, while the Malaysian market looks bad, it is more to do with one sector. The rest will be fine as commodity prices are now down and I am just hoping my Char Kway Teow seller will not increase price come 1 Jan 2015 in the name of high oil price! As it is not true.

Tuesday, December 2, 2014

Shifting portfolio

The past 2 trading days have seen huge drop especially to O&G companies. Not surprising, other stocks are getting some hit as well. With that, I am making some change to my portfolio. It is still a boring change though with the switch from Jobstreet to Keuro. (Yes, I am buying same same company.)

Jobstreet has already sold its main business to Seek and I do not see much upside anymore. The most it can go is probably to RM3.00.

Keuro, on the other hand I see huge potential. I have figured out that perhaps the holding of 40% in Bandar Rimbayu alone for Keuro could potentially be worth around RM0.9 billion at least. Yesterday, Gamuda had bought a piece of land adjacent at RM35 per sq ft and that is an agricultural land which will need some additional spending and work on (calculation below). Hence, if anyone is claiming that the purchase of Canal City land by Ecoworld at RM35/sq ft is expensive - it probably is not. Tropicana got it cheap.

Calculation of purchase price by Gamuda on an agri land near Kota Kemuning
Purchase price of - RM392,172,858.00
Total hectares - 104.1 hectares = 11,205,220 sq ft
Price per sq ft - RM35 per sq ft

Calculation on Rimbayu
Total acre - 1878 acre
Total sq ft - 1878 x 43,560 = 81,805,680 sq ft
Discount - 20% for an associate stake
Price per sq ft - RM35 per sq ft
Total Value - 81,805,680 x 80% x RM35 x 40% = RM916,223,616

At current price, Keuro is trading at around RM1.05 billion where the 40% ownership of Rimbayu is probably already worth that much. Additionally, I still think that the West Coast Expressway will be worth more than the Rimbayu stake. The drop in oil and other commodities may even help Keuro in having the construction costs lower as there is somewhere that I have encountered that in building of roads, around 70% are in the raw materials - cement, steel, bitumen (petroleum by products). Do check out where the prices of these items have been heading over the last year. I am not sure for Keuro's case, would raw materials comprise 70% of the costs. Any civil engineers here that can help to clarify? Do note that Malaysian government is taking up the costs on land acquisition in this project.

Hence, I have made some adjustments to the portfolio.