Wednesday, December 31, 2014

Buy Insas and Sell Parkson

It is a huge mistake by me as I am behind the curve in terms of retailing. The next wave of retailing seems to be is for companies like Alibaba and Amazon. I am currently reading the book on Amazon (The Everything Store) and I came out quite impressed on the level of technology investments as well as how much changes have been made by Jeff Bezos. Similarly, I have seen interviews made to Jack Ma and I must say that these two guys will be changing the face (or already are) of retailing or how people will be buying things in the future.

This of course does not mean companies like Parkson or Aeon or even Tesco will be dead but they definitely are affected. I must say I am behind like 5 years in this as sitting in Malaysia, we are definitely not seeing the full force of the changing face of retailing. This year alone, Walmart, Tesco are affected and they are not seeing growth. Their competition are not just Sainzbury, Target but the new wave of online commerce. Obviously, Parkson which have significant businesses in China is affected and they seem to change the way they do business as rental rates seems to be tougher for these companies.

Parkson has gone towards the AEON Malaysia model, where they have started to look at owning real estates, however it seems to me they are 10 years late. I hope for Parkson, it is a case of better late than never.

Anyway, I think this is time for me to reposition my holdings and I have decided to sell Parkson taking a huge loss (percentage wise) - do not want to calculate as it is a case of me taking too much time to realise my mistake. I am just glad I did not put too much money into this.

Buy Insas

I have written a piece on this company before - in fact two as the second one is more about its holdings on Inari. The thing I wrote is still very relevant but just that fundamentally Insas has improved over the 1+ years. Inari seems to me is getting more solid by the years and I have done a careful look at Insas past and it seems to me their concentration is more on the technology sector (largely Inari's contribution) nowadays. I had the opportunity to meet one of the directors before and I must say that these are very careful and thinking people - so much so that they are really strategizing every steps they make. While they do seem to plan a lot, you hardly can go wrong with this kind of management.

In the past Insas seems to me were more dependent on its other businesses such as M&A Securities which to me is not too interesting although they do manage the business well I must say. It also had made good money in several investments such as a London property, Gleneagles KL etc. These goes to show that they are very solid investors who know what they are doing. The most recent success as mentioned was definitely Inari.

Insas is trading well below its registered book value (RM1.80/share) and for me this kind of companies they should be trading close to their book value. An investment company especially with large holdings in a securities firm will see huge swings in their profits but to me it is allright as long as they are good assets. Its current price of around RM0.80 is significantly below its book or revised book value which I can easily see at beyond RM2.00 per share. This is because it does not recognize the full market value of Inari which in terms of the holding value for Insas should be more than RM500 million. Note that Insas is now trading at around RM560 million market value - i.e. almost similar to its holding in Inari alone. Only thing is why they do not do share repurchases really beats me...

I am buying this also due to I can see there is a level of confident on Inari's future with the company calling for Redeemable Preference Shares to subscribe for the rights call by Inari. I personally feel that it must be due to there is a good mid term prospect for Inari for it to continue to expand.

As such I am buying a good 10,000 units of Insas.

Note that Insas is issuing a Redeemable Preference Shares at 1 for 5 shares held and they are also providing free warrants at 2 for 5 shares.


paperplaneinc said...

Hi felicity, wouldn't you think insas with so much money still asking for right issue a problem? They did not say clearly what they intend to do, strategy etc.

GL said...

Felicuty...Happy new year 2015 to you and your loved ones. How about Padini? Competition really heating up with H&M and Uniqlo going wherever Padini was going at least for now vs previous in prime areas e.g ioi City mall all facing each other in fact besides Taobao, Zalora..??.....

felicity said...

Hi Paperplane

They did explain the reason for the RPS. It is not an ordinary shares rights.

The cash is largely the M&A Securities cash I believe.


Thanks and Happy New Year. Yes, competition is heating up among retailers as many are targeting South East Asia as a market. That gives rise to competition not just in terms of sales but also rental as more are willing to pick good locations. That's why you are seeing Padini going even lower end i.e. through their Brands Outlet.

felicity said...

Hi All
If anyone wants to read the RPS issuance and warrants, please read here

Happy New Year

Betronist said...

Hi Felice, I think Paperplaneinc has his/her point. Regardless of the fund-raising form, Insas should already have sufficient (or more than sufficient) cash reserves in its balance sheet, i.e. RM508m net cash (including other liquid investments, after subtracting debts), to support its working capital requirements. The additional RM138m fund raising seems to be unjustifiable even though it is not dilutive for the existing shareholders. That said, I may be wrong as corporate finance is not so straightforward as it appears to be.

On your portfolio, I think your latest move of disposing Parkson -- at huge loss -- was a brilliant one. Very few people could break the psychological barrier to perform this kind of cut-mistake trades. Many would just hold on to the mistaken-bets and miss out other opportunities. Kudos to you!

felicity said...

Hi Fung

Insas has lots of subsidiaries and the cash are at subsidiaries level. These are mostly monies for the working capital and operations.

I used to work for a company if you look at the group accounts has RM3 billion in cash, but these are all cash at subsidiaries and the holding company in many instances can't access unless the subsidiaries declare dividends.

In the case of Insas, the freed cash (at group level) is about RM111 million (if you look at the latest annual report on Page 47, a huge chunk at pledged RM199 million). The financial assets held for trading, I think is at its securities arm subsidiary.

I think the management of Insas must be thinking that this is the time where they need more cash and in the RPS issuance document, a large chunk of the cash are already identified for, in any case it is good to know what M&A securities will need from the additional injection of cash.

Unknown said...

Will you subscribe Rm1 for rps?

felicity said...