Wednesday, July 30, 2014

Keuro's rights

For those who have Keuro, be prepared to allow yourself some cash to pick up the rights. Basically it is a 3 for 4 rights at issued price of RM1.08 per share. This basically means that if you have 10,000 units of Keuro, you will be entitled to 7,500 (3/4 x 10,000) of the rights shares. That also means that at RM1.08, the amount of cash needed is 7,500 x RM1.08 = RM8,100. Call your remisier on how to pick up your rights. Also, the rights comes with warrants in which case the exercise price is fixed at RM1.18. Assuming the same rights amount of 7,500 is picked up, the number of warrants that will be provided is 3,750 units.

If you decided not to pick up the rights between 6 August to 12 August 2014, you have the option to sell your Keuro-OR. On those dates, the Keuro-OR will be traded and you will be allowed to buy or sell your rights options.

The Keuro's share will be traded ex-rights from 1 August 2014 onwards. This means its price will be adjusted accordingly based on the last traded price as at 31 July 2014 closing.

For me, I will definitely be picking up the rights and due to this, I have decided to sell some of the DKSH to pick up the shares.

Very recently, the update for Keuro it seems is that it will not be holding Talam Transform's shares and it is disposing part of its almost 30% shareholdings. I have blogged about the need to not hold Talam's shares as it is not the key business for Keuro. It seems that Tan Sri Chan Ah Chye is back into Talam with his son and daughter joining the board of Talam and to which Keuro sold some 230 million shares to the company related to Chan Ah Chye. The price sold is not a good price though i.e. below 10 cents.

While Talam's net book value (revised) is very good, I am not so sure with the old management back at the helm though as it has never been looked positively by property buyers before due to many broken promises in the pasts by the Talam group to its house buyers. In many cases, my mantra is to look upon the management that is supposed to carry the company forward.

IJM it seems is moving away from Talam as well with one of the JV which was planned on a piece of land in Gombak being terminated. However, IJM has gotten what it wanted i.e. the WCE and Rimbayu land.

Saturday, July 26, 2014

EAH: Just another fishy deal

Just when will Bursa put a stop to this - minority shareholders are going to have no say in this. Any acquisitions that are cash in nature does not need shareholders approval and management as well as the controlling shareholders continue to take advantage of this.

Another deal which took opportunity of this another smallish company. Fresh from its rights issue, raising RM42.5 million it took the opportunity to have a spending spree, buying a less than 1 year old company. See for yourself - a company that was incorporated on 11 Sep 2013. The rights issue was created it seems partly to acquire this company. Otherwise, how can the deal be done in such a short timeframe? - a month after the rights.

Why is it fishy?

1. The announcement claims that it makes RM2.01 million profit - it has a track record for less than 1 year. How are we suppose to evaluate a less than a year old company? The fact that it achieves such a high net margin especially in short period of time causes some concerns already;
2. Another part of the announcement mentioned that it still has unbilleable contract worth RM4.94 million. One of the contract started before the company was even formed. How is it so? Contracts are transferred i.e. assigned?
3. Beyond the mention of its PAT, comparison against currently traded PEs of similar companies not much was revealed. How about showing the audited report of the acquired company?

For those whom have come out with money to subscribe for the rights earlier, good luck!

Friday, July 25, 2014

No wonder MAS was and is in trouble

Picking a story from a former MD of MAS, now I know why it is in trouble.

The news statement goes like this:

MAS should buy AirAsia to resolve woes: former MD

KUALA LUMPUR: Former Malaysian Airline System (MAS) managing director, Tan Sri Abdul Aziz Abdul Rahman, has suggested that the ailing carrier acquire profit-making AirAsia as a strategy to resolve its financial woes and return to profitability.
"(There is) no need for a merger with AirAsia X. MAS is the one that should buy over AirAsia and make it a subsidiary. MAS as the national carrier should lead, rather than the other way round.
"MAS just needs to be managed properly based on market demand," he said.
Abdul Aziz also suggested that the national carrier, 69% owned by Khazanah Nasional Bhd, be delisted from the stock market.
"As far as the airline is concerned, this is not going to make any difference. Delisting will make the management's job easier, as there is no need to follow procedures as set by the exchange. But those who bought MAS shares at RM3 or RM5 would be unhappy," he said.
The former MD said the acquisition would enable the combined group to focus on the low-cost fare market that comprises 80% of the South-East Asia market, as well as the competitive premium market, which is a far better proposition than competing against each other.
Proposals and suggestions to save MAS have gained greater traction following net losses in the first quarter ended March 31, 2014 which widened to RM443.39mil from RM278.83 million a year ago.
The airline put in place a turnaround plan recently but it has been scuppered by the missing MH370 plane incident in March, and things have worsen with the shooting-down of Flight MH17 in eastern Ukraine last week.
Shares in MAS which have fallen almost 35% on Bursa Malaysia this year, and was last traded Friday at 22 sen. – Bernama
Just a recap of these two airlines - one is profitable, the other is very much in trouble now. By the way look at the market capitalisation of both...
As at 25 Jul 2014

As at 25 Jul 2014

Tuesday, July 15, 2014

MOL Online's IPO in Nasdaq: Must be easier sell in US

Frankly, I do not have a good feel of the company. I remember many years ago, MOL Access Portal was delisted because the company was not going anywhere despite it being an online payment system company and it was mainly selling credits at cybercafes for mainly those playing online games.

I could not really see and vision how it can grow much. Then few years ago, we hear of it buying Friendster and that was the smart financial dealing when Friendster's patents was used as a negotiation tool for a small portion of Facebook's shares. It must have been worth a lot now i.e. to the tune of at least a billion ringgit now that Facebook is worth USD172 billion (15 Jul 2014).

However news keep on prompting us that MOL Online is doing a hundreds of millions fund raising first locally and over the last few years it seems they have moved to Nasdaq. Frankly, I would have thought this company would have made at least RM50 to more than RM100 million in profits as anything less, it would not be Vincent Tan worth, or at least may not be able to raise that few hundreds of millions. It is not. At last the financial numbers are out with news claiming that it is raising USD300 million. For it to raise USD300 million, the company must be worth at least USD1.5 to USD2.0 billion as they would probably only release 20% of their shares? Maybe more, I do not know. But let me know from the below numbers, is MOL worth that much?

MOL's last 3 years P&L. Click to enlarge
In Malaysia, I would not have that buy in, as I do not really have a strong vision of how much growth the company can have. Already, it has been around for many years and online payment company has many competition. The modest operandi to operate this is not to sell through 7-ELeven or any shops but I have always thought the best way is to convert points is through your e-banking systems, ATM machines etc. Hence, I thought the winners would be the banks. If the winners are through the purchases at 7-Elevens and petrol stations, MOL would have made that RM50 million or more profits at least by now. This is because the reach that MOL and through Vincent Tan's retail reach are easy and plenty, especially in Malaysia. Banks would still be the winners as they have the best reach and marketing money. MOL would still be far behind.

Currently, MOL is already operating in many countries - Malaysia, Thailand, Vietnam, Philippines and very recently it bought some operations in Turkey (we Malaysians like Turkey now) and Brazil.

Quarterly income statement for last 8 quarters. Click to enlarge
If you notice the last 8 quarters results, the main growth was over the last 4 quarters. You see, if I have loads of cash, I can make more cash as through acquisition, I can show that the company and business grows by leaps and bounds but these are not organic growth. See above's image. If the revenue is big for especially businesses with thin margins such as MOL's business, more magic can be squeezed for profits. Why am I seeing that it is starting to make much more profits over the last few quarters when the business has been around for more than 10 years? The cashflow as below may be better reflective of its actual ability, I hope.

Cashflow for last 3 years - Click to enlarge

If your read below, most of the growth are through acquisition recently i.e. Thailand, Brazil, Turkey etc. Usually, revenue will also increase especially prior to any IPOs.

Click to enlarge

If these numbers are not that fantastic, how can it be worth more than RM4 billion as it would have been. Well, I am also reading Janet Yellen's remark during her statement to Capitol Hill today, "In equity markets, the Fed saw signs of increased risk-taking limited to small-cap stocks and biotech and social media shares.

MOL is not under any of that category though, i.e. social media or biotech - maybe it is not risky then?

However, I personally think that the space it is in is hugely competitive. The barrier to entry is huge and it will not be able to compete against many free platforms such as banks platforms, ATMs etc. when they are providing it as a service. In other areas it is competing against the likes of Whatsapp, Wechat etc. No way it can be dominant as this space is hugely convulated.

Monday, July 14, 2014

Is Jobstreet underpriced by Seek?

How can a footballer which is banned for four months, aged 27 years old be sold still at the 3rd highest price paid for a footballer ever? This is because he is one of the best despite the risk that Barcelona is taking with him potentially biting again - yes I am talking about Luis Suarez. It is very hard to find a player similar, barring the risk of further suspension on him if he bites again. Barcelona knows that they have to pay to get the best.

To get the best, you have to pay a high price, higher than fair. For a below average company, one should pay below average PE. For an average company, it should be priced at average PE. And for a top company, an above average price earning should be paid for. This is despite the price is at 29x PE. And this is what the Jobstreet's management did not negotiate well, despite they have some of the dream team of Malaysian best brains in its board. (And I am not saying Jobstreet bites)

For Seek to pay 29x PE and eliminate competition in many South East Asian countries, this is a dream come true. For a while, Jobstreet and Jobsdb are competing mainly as the top two in many countries - Malaysia, Singapore, Indonesia, Philippines.  As a football team, imagine you have all the best players after you have bought your competitors best. 

In fact - the football analogy may be different from business. In football, you can still buy many good players, to replace one top player, but in business you cannot just throw say RM1 billion to recreate another Jobstreet. It just does not work like this! And if you just do this, it will take many years - not immediately.

One cannot recreate a dominant company just like that and Jobstreet dominates together with Jobsdb in most of the countries they are operating in.

Note: I am bringing this up because Jobstreet is renegotiating the selling price with as it seems that there is delay in Competitive Companies Singapore in approving the deal due to anti-competition law. And it seems that if the deal extends beyond July 1, 2014 - there is a right for Jobstreet to renegotiate or walk away from the deal. To me, the thing that Jobstreet is doing is right but it may be too eager to sell. It has to negotiate thinking that Seek is eliminating a key competitor - not based on fair value as in what most investment bankers will use i.e. comparative acquisition multiple.

Wednesday, July 9, 2014

CSL: Can you trust its cash holdings?

Most investors are wary of Chinese red chips stocks. It has happened in US, Singapore and more recently Malaysia. We just do not trust the accounts and we do not know how to address that. The most recent case is China Stationery where the company had one worrying sign after another:

- change of auditor - last year where Grant Thornton Foo Kon Tan resigned - one big warning sign;
- fire to one of its factories - when times are bad, a fire would partly solve it as it would have erase a lot of records, if needed to;
- resignation of directors - 1 just resigned a fortnight ago; and
- auditor's disclaimer.

When an auditor disclaim its findings, we have to read what it disclaims - as below.

Ironically, it does not disclaim the cash position of the company, in which case it is very substantial. This also points to me that after having audited through the account, except for the items above that it disclaim or basically telling people it is unsure of, the cash position is verified. Below is part of its position of its balance sheet where it has RMB2.366 billion cash or RM1.2 billion. CSL's current traded value is RM124 million i.e. 10x below its cash holdings!

 Did the fire burn any of those cash? Not possible as it would most definitely be in the bank.

Can we trust the bank statement? I don't know! As too many things have happened to the company until I do not know what to trust and that means, we have to take the accounts that the auditor signed-off as still questionable?

Monday, July 7, 2014

Khazanah buying back land from the Middle Easterns?

Rumours that Khazanah is buying back land from the Middle Easterns makes me wonder why our funds are being used to support development in Johor...If one remembers, the Middle Easterns were the early ones to back the Iskandar project but to later back off from their overly ambitious ideas. As a result of this, the land measuring about 2,500 acres as reported is now sort of abandoned or postponed to say the least.

It would be good for the development of the area for the land to be repurchased but I am wondering why Khazanah, a national fund rather than other property developers? Why not UEM Sunrise which is owned by Khazanah anyway. I am sure if the land has good value, many developers would not hesitate to bid for it. One can see this through many purchases of land recently by Ecoworld, Tropicana and even E&O but isn't it a coincidence that these purchases centered around Klang Valley or Greater KL?

Is Iskandar worth that much or is it just a lot of sovereign money thrown into but the return is just minimal. It is high time, the government start looking at ROI i.e. the true level of investments rather than just a handful of Legoland, Hello Kitty projects. One thing for sure, Singapore would not be complaining about this though...

Sunday, July 6, 2014

What happens to Keuro's rights?

Some whom have invested into Keuro would definitely be asking what happened to Keuro's rights as the group has announced of the proposal since August 2013 and almost 1 year since, the rights does not seem to be able to get off the ground.

The rights raised from Keuro was supposed to partially fund the West Coast Expressway (WCE) project, a RM5 billion project and with it having little cash in its coffers, how would the WCE kick off?

From some background, we know of the following:

- Keuro does not have the financial background to fund the project as it involves a large amount of loans to be able to kickstart the project;
- IJM is a substantial shareholder and it seems that it is taking the lead. The announcement made on 20 May 2014 seems to tell us that. If we read between the lines of the 3rd paragraph of the announcement, it seems that the portion where it will costs RM2.828 billion, IJM may be required to fund the project (at least for the initial stage until Keuro is able to raise the required funding). Remember that the government is supposed to provide a soft loan of RM2.2 billion with interest rate of 4% capitalised annually. With that, the funding of the projects are taken care of and as a result of this, the raising of funds through the rights may not be needed until later;

Announcement made by Keuro on 20 May 2014
- Furthermore, if we look through the latest balance sheet of Keuro, it has around RM94 million cash, mainly raised through the sale of 10% of Radiant Pillar Sdn Bhd (Bandar Rimbayu township owner) and private placements made late last year, the group may not need the fund for the project as at now. Remember, I was being critical of the sale price of Radiant Pillar, and this is the reason why it probably was sold so cheap - IJM funding the project almost entirely!

Over time, profits and dividends generated from the Bandar Rimbayu project and a better and more sustainable balance sheet may allow it to better negotiate the funding it needs for the WCE project. That being the case, we may not see the rights raised until then as its partners i.e. government loan and IJM would be able to support those projects.