Friday, August 16, 2013

Breaking bad?

I know I will not be able to get away with this. All these while, consistencies, track record, good management have always been the mantra. But this?

Like I have said in my earlier article, I have looked at this deal for a long time. Keuro is not the mark of the type of company which I have pitched all these while. It has not really gotten any real profits for the last 5 years. Balance sheet is cleaner now, but nowhere near where I want to see it having. People behind the company have not been what I can call good management. Nothing is there. Or is it?

As in the earlier article, it has great assets or soon to be. A company with great asset but bad management is like a country like Cambodia with its Angkor Wat but the assets (or relics) in Angkor Wat have been stripped by thieves piece by piece. I am not saying Cambodia has bad leaders but it has gone through tough times not too long ago, but turning around now. Will Keuro be that one day? I am counting on the new managers (whom are yet to known, or will there be?) to protect that assets, or rather kick start the projects.

It is announcing its raising of new funds in the form of rights and warrants to fund for the West Coast Expressway ("WCE") project. The Rimbayu project has gone off really well, and the latest I have heard is that the 2nd phase which consists of 484 units (priced at the minimum RM660,000) have received overwhelming response with non-bumi units fully taken up within days. Try multiplying RM660,000 with 484, assuming it is sold at minimum price without considering the corner lots and the larger units. And this is just one of the early phases - heard that it has 20 phases with pricier units later stage. What would the profits be assuming the land is almost free? The sad part is the sale of the 10% to IJM - a golden handshake? Question is, will there be more of these kind of golden handshake?

More importantly will the WCE project commence? I am buying without much details in hand with regards to the terms of the project. Hence valuation of Keuro is not certain and that is assuming that it will be able to complete WCE. The thing I can see is that IJM will be taking lead on this project - hence it is on safe hands.

Now, with these risks, what makes me buy. Remember, more money will need to be coughed up for the rights. At 3 for 4, I would think at least another RM7,000 will be needed for the subscription for this portfolio. At today's price, despite no show in the 5 years track record, the company is trading at RM700 million valuation. New funds have been injected in through private placements with more than RM100 million injected over the last 2 years to survive the company. No one will put new cash into a dying company - that's what I have experienced. No one would put something for nothing especially if it is more than RM100 million. But yet, Keuro manages to raise that kind of funds. And it is asking for more funds. Will all the large shareholders be willing to put in more money if they are not too confident of what lies ahead for the company? Remember, the ones that just put in close to RM60 million recently will need to cough up more in the near future.

Like I have said, I am not sure of what would the valuation of its 80% WCE be like - Keuro's crown jewel. But I guess, it may not be at RM700 million. If all questions are answered, it won't be at today's price, won't it? Another thing with this investment is that I am into it for the long haul - as WCE will not be seeing money until 2018 or 2019. At least that part is where I preach - long term. But for a concession highway, despite how much we may dread it as a motorist, it provides consistent return to the shareholders with the assumption that it is the right link with the right traffic. The question now is, whether WCE is the one where motorists will use in the future, competing against PLUS. Sometimes, we may look at it as competing but in certain cases it may be complimenting.

For the funding of this investment, I have sold YSPSAH. Question, is it the wrong move - from a decently good company into a potentially bad one?

And the portfolio looks like this now.

For those who do not know, Breaking Bad is a very popular series currently running in US. It is about a very brilliant chemistry teacher who decided to turn into the world of methamphetamine (a kind of drug) or in short "meth" or "ice" (or in Malaysia if not mistaken, it is called "feng tau" drug) after finding out that he had lung cancer. I must say it is a very well written series, and sadly it cannot be shown here as it is about meth. Err...I have yet to watch it. Sort of heard from friends from US.


Big Sea said...


I made some calculation based on the following assumptions :
1). Total GDV for Rimbayu is RM 11 Billion.
2). The whole project will be completed in 10 years time.
3). Profit margin for Rimbayu is 20%.
4). 27% of Rimbayu's earning will be attributed to KEURO.

As such, 594 million of profit will be attributed to KEURO in the next 10 years.
If we are a bit optimistic and increase the profit margin to 30% because land cost is zero, then it would be 891 million. Dividing by the current share amount of KEURO, EPS would be around 11 - 16 cents.

Rimbayu alone would turn KEURO around but at current valuation, it is comparable to most property stock.

By the way, would you mind taking a look at SBCCORP and SYMLIFE ? Both are having attractive GDV in next few years?

felicity said...

I think these 2 - SBCCorp and Symlife (formerly Bolton) are good in terms of comparative valuation against other property counters. They have definitely profited from the property rise in Malaysia. Between the 2, SBC would be preferred as Symlife sells high end - that is not something I see positive of in the future.

The purchase of Keuro is not mainly due to the Rimbayu although it works as a hedge. The price would definitely have taken the concession into account especially the rights and private placement.

Big Sea said...


Thanks. WCE will be a long long shot. I am not sure if it would go through KLIA2 saga before finally contributing profits.

Then again, if every details are ironed out, KEURO would most likely be trading be at a much higher price.

felicity said...

Malaysia Airport already contributed 30% capital appreciation since I bought it late last year.

Big Sea said...

I bought some Airport. I was hoping for more ugly scences to unfold so that I can buy more. However, the share price continue to climb even with a year delay. I believe those who have bought Airport could be as prepared for these bad news.

Given Malaysian's execution records, it is normal to have KLIA2 delayed. Some goes to WCE.

felicity said...

For MAB, I think the drop to RM5.++ was when PNB or Khazanah (cannot remember) sold one large block. People got worried hence the selling. One should never follow these large funds most of the time and these are opportunitiies.

Patience said...


5M x 1.31 crossed after market today! Exciting times beginning??