Thursday, November 9, 2017

Ekovest: seen many times funds vs owners & retailers

First of all, I am not a trader. Hence, this post does not mean I mainly look at trades, however as an investor I have to be smart on short term movements, psychology in among traders especially funds.

Ekovest, if one notice its latest Annual Report has added on institutional investors. While many have opinions that institutional are good, to me IT DEPENDS. Ekovest's shares have been bought by institutionals especially when Datuk Haris sold his block. During then, Ekovest's shares have huge volatility and of course when there are huge swings, many retailers like to take part. Some are caught at around RM1.45 to RM1.50 (one has to note that Ekovest's shares have split from 1 to 2.5 early this year and has given 25 sen dividend after its sale of 40% of DUKE).

This time around, it seems (while I am positive or rather see very little impact), I think funds are negative on Ekovest's proposal to acquire as they deem it as a rescue of IWCITY. I obviously differ in my opinion.

To me, it is quite obvious - the owners and sponsors see this deal as positive for Ekovest. They have hence in the short period of time decided to buy more shares of the company they control. I see this as quite common actually. While funds are funds and they can impact the short term trade of the stocks they own, they however move in herds.

I have actually seen this in many strong fundamental stocks - Airasia, NTPM, Padini are among some of them. All of them have funds relinquishing and frankly Airasia was the classic. One guy from Hong Kong gave a negative comment and some of the large funds (in US) started to sell (strongly advice to read this link and reflect again) - at a period when the fundamentals actually turned to the positive. It is most of the time started with the same concern - gearing and gearing.

As long as the fundamental of the company is sound - the idealogy is when funds sell, we slowly pick. Again, as long as the fundamental is strong - this is important.

In Ekovest, I see that same. Ekovest is not used to funds investing in their stocks. One can run through their annual reports of yesteryears. This year is the difference where funds are started to pick up the stock.

As a small retail investor, I see these as opportunities - which is why I say, one can be small but we can actually perform better. Some people simply call this as "contrarian" strategy.

Friday, November 3, 2017

Sold off Tropicana-WA and bought 6500 Ekovest

Through the sudden reaction on Ekovest's shares, I have decided to buy more Ekovest and sold off Tropicana-WA.

The reason I sold off Tropicana-WA is because it is a warrant and I wanted to reduce my short to medium term exposure risks. Also, as I am going to put my money into a construction, property related stock, it is better to keep the exposure at a certain percentage. Tropicana, on my other investments in fact I still keep to my investment as the emergence of Tan Sri Lim Wee Chai is good for the company business-wise and investment wise. It is just that my fund over here which I started with RM50,000 is limited and I have to make the best use of it.

Ekovest is a stock which I have liked. I have in fact invested into this company - for this fund - prior to it being split from its bonus issue early this year.

I also find it ironic that UOB KayHian is downgrading Ekovest from RM1.45 to RM1.04 i.e. a drop of 41 sen with the announcement of the proposed acquisition of IWCITY. That is a downgrade of RM877 million and this amount is more than what Ekovest is going to pay for the 62% of the minority stake of IWCITY which is RM800 million cash or RM1.50 / share towards the IWCITY minority shareholders if it is using cash.

I usually like to target these funds as funds are supposed to be principled when they write their calls as they are so-called professionals. Investors are supposed to trust them. I however find some of them to be not-principled as they put a price without good justifications.

I have written quite a bit on this company and here are some of them.

Is Ekovest Investible?
A look into Ekovest
Do not sell Airasia, WCE and Ekovest
What is IRR 10% - where I first invested into Ekovest for this fund at RM1.30 for its warrant

One can also find the funds here.

Wednesday, November 1, 2017

Lim Kang Hoo's reverse psychology

Lim Kang Hoo is either a brilliant strategist or a desperate man. However, come to think of it - how is the deal between Ekovest and IWCITY  a desperate deal? Ekovest, which is a family controlled (>60%) company of Lim Kang Hoo, family and friends is offering to buy MINORITIES IWCITY's stake at RM1.50 per share.

He is not buying his shares of 37% in IWCITY which is held through IWH. He is buying the shares held by the other parties 62% - 63%. There is no injection of cash into IWCITY. He is not desperate to rescue IWCITY. In fact, he is taking OPPORTUNITY. This deal is done at its best so that it does not touch KPRJ which is related to the Sultan of Johor - it seems.

I am of course perplexed when the shares of Ekovest dropped massively - so stupidly I buy some more.

As can be seen IWH which is owned by Lim Kang Hoo and KPRJ will still directly own IWCITY which will be delisted. Ekovest is not buying Lim Kang Hoo's stake in IWCITY

Having said the above, I can understand the investment communities concerns. IWCITY holds land in Bandar Iskandar which to them cannot be transacted as there is a doldrum in properties especially down south. Moreover, Ekovest will need to fork out RM800 million which it does not have to buy over the minority stake - hence delisting IWCITY.

However, that is flawed thinking. IWCITY just did a deal worth around RM2.1 to RM2.3 billion with Greenland group from China and they are paying for 127 acres of land in Bandar Iskandar.

Because even reading yesterday's one pager announcement cannot even be done properly by those who invested into Ekovest, I hence will put down the payment schedule for IWCITY - Greenland deal below. There are obviously a lot of milestones and the sweet side is that IWCITY has collected the first payment of RM46.2 million. I know that's small but it also means the collection will be going to Ekovest in future rather than the listed IWCITY.

As for raising the RM800 million to buy up the IWCITY minorities stake, I have this prophesy. The payment schedule above will help a bit, then the amount paid by EPF of RM147 million just last week AND more importantly, in its announcement yesterday, one can also opt for an Ekovest share equivalent which is valued at RM1.50. Obviously, Ekovest shares is not worth RM1.50 now and the latest as at my writing now - it is priced at RM0.97. No chance to trade in shares?

If the transaction is done now, all IWCITY minorities will be opting for the cash - me too. But obviously again, the deal is not done now. It is many months down the road, if it is ever pulled through.

Now, my question to Tan Sri Lim Kang Hoo (who is many times more brilliant than me) is which option he prefers - cash or shares. If cash, then obviously again Ekovest is worth more than IWCITY at per share price of RM1.50 or more as he does not want to waste the value of Ekovest to be given to minorities. If shares, then IWCITY is more valuable.

Having seen how he does his deals, it is not going to be that smooth and straight forward. There will be challenges and hurdles.

On the strategy with this deal, as mentioned above there will be challenges but strategically it is there. IWCITY is a land owner. Ekovest is a developer, contractor. There are still some 900 acres of land in IWCITY after the sale to Greenland. Moreover, part of the deal will need IWCITY to reclaim (worth RM400 million) the land which Ekovest can obviously do.

To me what was obvious yesterday has now become murky. An analyst said that the deal is bad. He is perhaps not being straight or thinking clearly.

Or could it be I am too slow to have a clear head as I have become too complicated.

To me if the deal can be pulled through, it definitely looks like it is positive for Ekovest. If however, the deal is not able to be pulled through then back to original as it is today - but why the drop of 20 sen?

Thursday, October 26, 2017

The connection between Tropicana and Top Glove

I like Top Glove, just like I like Hartalega, Airasia. I like companies in business segments which have room to grow as long as they are not expensive. I like companies that are dominant in their fields. In that respect, I had held Top Glove and Hartalega as well - not recently though.

I wish I had bought into Top Glove more than 10 years ago, as one would probably see a performance as below with the stock price achieving a more than 3x.

Price chart of Top Glove over 10 years
The company has not only provided its investors with capital appreciation but also improvement in dividends almost on yearly basis. This company has a good track record in terms of stock performance and that has to do with the management and with that, investors like them so much so that market is now giving it a more than 26x PE. To me, the Chairman of Top Glove, Lim Wee Chai is in the same mould as Liew Kee Sin, Tony Fernandes - Malaysians who are not only able to make their name from opportunities within Malaysia but also internationally. As an investor, I have always look upon and wanted to support them - as they are value creators. Wouldn't you and I as Malaysians be proud to have them?

Now what about the connection between Top Glove and Tropicana? One is in glove manufacturing, the other a property company. One would wonder, is there any synergy?

None at all - business wise.

However, if I am a shareholder of Tropicana, I would love to have a personality like Lim Wee Chai to be buying a significant stake in the company I invest into. And that just happened, where Lim Wee Chai personally - not through Top Glove - increased his stake into having a 10.24% portion in Tropicana. To me, that works well. If Tan Sri Lim is to have a controlling stake, that would have freaked me out - as he has never been a developer. That 10.24% act as an endorsement and beyond. Why?

Tropicana, under Danny Tan (the brother to Vincent Tan) - has been a developer for many years of his life - and a pretty good one as well. He has built Tropicana in Damansara into a premium brand and location for the wealthy and if one is to Google, Tan Sri Lim Wee Chai happens to stay there as well.

Today, Tropicana is not just having development in Damansara - as it is now an old address but also several major development in Kota Kemuning, Kajang, Bandar Iskandar and Penang - riding on the Tropicana brand. Agree, Tropicana is not able to create the aura of an EcoWorld development - but I would say it is one of the Top 5 - although in terms of size it in more like in the Top 10 in Malaysia.

As a business, there is not so much qualms about Tropicana, but in terms of it being an investment concern - I am sure there are those that would have advised people like me to stay away. I understand the concern. That single stock is more than 70% controlled by Danny Tan. It is an illiquid stock. It is not invested by any of the major funds. Understandably it is hugely undervalued - hence under my portfolio I bought a small portion of Tropicana.

Nobody, including me would have guessed Danny Tan would relinquish a portion of his shares - although he still comfortably controls the group with >60% stake.

However, in inviting Lim Wee Chai - it probably would have changed the perception towards Tropicana. Lim Wee Chai - as mentioned above is totally a different person when handling Top Glove as a traded stock. Top Glove is having a dual listing in Malaysia and Singapore - hence, he is the sort that is promoting to funds and markets beyond Malaysia.

Top Glove is invested by many of the funds in Malaysia - EPF, KWAP and various unit trust funds. I would say it is a darling stock although it is not a Composite Index stock. That basically tells that Top Glove knows how to attract outside investors and not having the fear of these investors making corporate moves against the company.

Hence, in terms of personality and experience - Lim Wee Chai's 10% stake could have made a difference to the perception of Tropicana towards the future. I am sure, based on observation it is not a short term holding - i.e. getting people to buy and then dump onto them as that is not the personality of this Top Glove Chairperson. He does not need to do that and for sure, do not want to be perceived as that.

By reducing the stake to a strong personality, it also POSSIBLY shows that Tropicana can be more open to investors.

When I bought Tropicana, besides the attractive valuation - I was attracted to the change in strategy within the group. As mentioned, it has a good brand name and its strategy of selling non-core assets (basically the investment assets like hotel, malls) and concentrate on large mixed development.

Obviously, this investment does not materialise to be successful yet. At that time, I was putting on the "contrarian" cap - where investors and analysts were fearful of its high gearing ratio. I was in fact correct in figuring out that the gearing would have improved as  when I studied the company it was buying several landbank while the sales of its assets have yet to translate to positive cashflow yet.

Today, as one can see Tropicana is carrying a very manageable 50% debt to equity ratio while allowing several of its development to mature despite the tough property market.

What's your guess on the price point that Tan Sri Lim Wee Chai bought from Tan Sri Danny Tan? While, the announcement was made when Tropicana was trading around RM0.93, I doubt it was transacted between the two at that range of pricing.  Why?  Tropicana has been buying back shares and subsequently redistribute the shares to shareholders since 2015. Most of these buybacks were made at between price range of RM0.90 to RM1.

It would not be easy to obtain shares at 93 sen from the market considering the low free float. Anyway, that's the transaction between the two. Lim Wee Chai as substantial shareholder can come in as being strategic towards the profiling of the company.

What I hope now, is that I see what Lim Wee Chai sees as well.

Thursday, October 12, 2017

As it is Dataprep is worth 16 sen or less

Early this year, Dataprep which has very little business direction and continuous deterioration in revenue was being pushed - most probably by, various parties - bloggers, speculators and perhaps syndicates to 60 sen.

We can see that it is a company which does not have much left. This IT solution provider was dependent on government related projects back in 1990s to early 2000. After that, the company just went spiralling down with poor fundamentals. It was in fact controlled by Mirzan Mahathir and later when it was in trouble, the Genting's youngest son took over.

A lot of these businesses are very thematic at the particular part of time with very little core strength and competencies to be built into a competitive company. Moving passed 2005 and beyond, IT business is no longer the theme of the decade for Malaysia as we have moved on to oil and gas for the last decade and of course even that many O&G is now facing challenges.

Just yesterday, the controlling shareholder i.e. under Datuk Lim Chee Wah - the youngest son of Lim Goh Tong - sold off its controlling stake to one Tan Sri Muhamad Ikmal for 16 sen a share. We know that usually a company for its controlling stake would be sold at a premium and this possibly was sold at a premium.

Several times in my blogs, I have been critical and warned of businesses which have become of little value (or dwindling in value) as it is not able to turnaround and at the same time managed or led by non-visionary leaders in a tough competitive space. Dataprep is in that space. For people whom are deep into speculating such companies for sure they had hoped that Dataprep would have gone towards RM1.00 but these companies have no fundamentals that would enable them to stay at 60 sen and be deemed still undervalued.

From the surface, I am not able to see what the new owner will do with the listed company as it is still unknown. Through buying a 64% stake though, I can see that it is a significant controlling ownership - and from this, many types of structures it can do.

I am also sure there will be continuous speculation, but to me as it is 16 sen is the closest I think it is. Even then, until the company is clear on its direction - who would want to own the share of a company where we are not sure of its business direction.