Friday, March 22, 2013

ECM: A Post Mortem

In stocks, sometimes I would like to have a large 5 feet diameter target just 10 feet in front of me. I can use either a spear, bow and arrow or even throwing a knife - it will 90% hit the target. The reward for the target may not be a brand new car or even make me rich but it will nevertheless be higher than 3% to 5% annual return which we are getting from putting our monies with financial institutions.

Last September, I wrote a piece on ECM. Not that I like the business or company, but I felt that there were opportunities with this stocks. Neither was I interested in putting the call into my Felicity Fund as I am concentrating longer term on that one - it was not meant for ECM kind of trade. I however was not going to let that opportunity go (having found it) and for sure put in some of my money into the stocks.

Trading in ECM, one would know that he is to expect getting 4 things - cash, Kenanga's shares, Kenanga's RCULS and some part of ECM's shares back. If one is to invest say during the time I made my piece, the return would have been at least 10% annually. This is what I achieved...

I in fact need not put in all of those money during September but some of it was made in December when I wrote another piece. There was an average down. The return is around 4% over a period of 3 to 6 months. Annualising it, one would have made more than 12% - but not every day is a do not get this kind of offer every time. It is not great but it was a good opportunity.

Why such things happens? Because market is inefficient. Investors or people who get involve in the stock market are not fully knowledgeable. So am I, but probably I am better informed - that's it. Reading, learning and practice makes perfect! Many investors are more into highly tradeable stocks - those with lots of news especially hearing them from remisiers, punters etc. They are exciting but chances are one would get his pants on fire. Why take that chance? From ECM, I will not be rich from these kind of trades - but hey, Rome was not built in one day.

With the cash already in my bank account, today, I have yet to sell Kenanga, ECM and RULS will be cashed in less than a year's time. This is because as much as Kenanga and ECM are not exciting, it is still undervalued. ECM at RM0.67 is trading at below 60% of its NAV. So is Kenanga - and most probably due to the involvement of the Taib Mahmud's family in Kenanga, it is trading as such with election getting so near.

Back to trades like this, do write to me whenever there are more opportunities as such and maybe we can study this together when I have the time.



Unknown said...

just sold all at 0.735...uptrend, so hesitate... privatisation is blowing for SHANG 5517, NTA only around RM2, just wonder how much they will offer...

felicity said...

Great stuff..trying to find out what is the actual value for Shangri-La's assets, I think will be a tough one.

Value Investor said...

Dear Felicity,

I was a Shang shareholder in the 1990s but I sold out as I felt that returns are not as attractive as other property stocks due to low room rates in Malaysia as the high costs of running a 5-star hotel.

Shang (5517) prize asset are its Shangri-la KL (662 rooms), UBN office tower (330K lettable space) and UBN service apartment (126 units). Based on the latest info for the construction of Harrods KL, a 5-star premium hotel room is valued between RM1-1.5 Mil per room, Shangri-la KL's market value is at least RM662 million (RM1 mil per room). Its UBN office and service apt towers are worth at least RM330 Million (RM1000 per sq ft) and RM126 Million (RM1 million per apt).

So, just for the above property in Jalan P Ramlee, its total value comes up to about RM1.118 Billion.

Its other main property in Penang (Rasa Sayang and Golden Sands) and the 2 hotels in Kota Kinabalu (Tanjung Aru and Pantai Dalit) should worth at least another RM1 Billion in total, conservatively.

Those are only market value as it will be almost impossible to find buyers at the market value as the returns from 5-star hotels in Msia are just not attractive compared to cities like Spore or even Hong Kong.

Value Investor said...

Dear Felicity,

A bit of correction.

UBN Service Apt only comprise of 58units unsold apts. As such, estimated value is only about RM58 Million but I left out a 214,000 sq ft of commercial land at No. 11, Jalan Sultan Ismail from the calculation which market value should be at least RM321 Mil. (RM1,500 per sq ft).

As such, the total estimated market value of the Jalan P Ramlee/Sultan Ismail group of properties should be around RM1.37 Billion.

Also, Shang Msia doesn't own the Tanjung Aru Resort which I think is owned by parent, Shang Asia. As such, the total estimated market value of the Penang and KK hotels are around RM700-800 Million.

felicity said...

Yup guess so. Shang is trading at RM2 billion now. One has to take a chance that the privatisation is on and if it is on, there may be a slight discount that Robert Kuok is willing to pay for.

It may be priced in now - but I am not so sure.