Tuesday, April 28, 2015

Misleading investors?

There are companies that provide actual true information, and be frank about things - not very many of them in Malaysia.

There are companies that do not provide much information, so much so that their Annual Reports are pretty much copy and paste from previous years. We can forgive them for not knowing about corporate responsibility and not doing the right job of informing - these probably covers the most companies in Malaysia, the number of companies under this category decreasing (improving) though.

Then there are companies that continues to mislead - time again and again - quite a few of them. One cannot just feign ignorance as some of them are pretty clever. If one knows how to mislead, they cannot claim ignorance.

Just read below and try to identify which category this company comes under.

It says here, clear market leadership position. I am wondering how does it justify that? There is www.mudah.my, does it have more adverts than mudah.my?

Read my previous article then one can probably figure out the actual intention. The announcement in September 2014 was not meant to be executed, is it true? The announcement was to tell people of their stocks value through subsidiary / associate holdings. But they can't sell as there probably has not much market to sell to. That announcement caused their shares to rise.

Just an example iProperty.com, see below 5 years performance. Even the one year, it made profit in 2013 was due to an accounting entry. (Ironically the profit was mainly due to its sale of iCar, which it claimed accounting profits)

Will iCar experience the same trend as iProperty? That is a very high chance, given the competition and poor ability to charge in this business. Maybe even worse as developers have money to spend, by advertising with iProperty. Second hand car dealers are poorer. For the second hand car market, most - if not almost all adverts are free. That's the problem.

5 years of performance of iProperty
Again if you look above, do you see any thing that's amiss. Revenue increase was followed by costs increase, hence EBITDA does not improve much. (you see good companies do not use EBITDA, but in this case, I just provide that chance, since they use EBITDA to tell their story).

If you looked at Jobstreet many years ago (unfortunately Bursa now just limit to 5 years), revenue increase would have commensurate with profit increase, almost in the same quantum. Why? Because dotcom business like Jobstreet, pretty much has their costs remain - things like building, staffs costs, electricity etc. Their fixed costs remain pretty stable. There are not much variable costs.

I do not see that in iProperty.

Monday, April 27, 2015

Bursa limits information to 5 years ONLY?

While checking out some information, I realised that I am able to search for information on a particular company only for the last 5 years (see below diagram). In the past I was able to obtain information for any particular company since 1999 if not mistaken as long as they were around since then.

Information for more than 5 years is definitely needed as one will need to look at trends or any changes that occurred, or even identify the progress of each of the company.

I am not so sure if this is due to Bursa limiting it temporarily due to some housekeeping reasons or is this permanent. If it is permanent, I will definitely need all readers to lobby to request for it to be reinstated to what was offered before. This is the period where information is more than important and critical for the sake of investor's knowledge. It is also when stock exchanges competes for clients - limiting information is many steps backward.

I thought Bursa was doing something great before.

Sunday, April 26, 2015

A look at different developers GDV in Malaysia (as at April 2015)

One of the various measurement for property developers especially for those established ones in Malaysia can be the total remaining Gross Development Value (GDV) that each of them have. Of course in establishing that, one should also not discount the factor of location, balance sheet strength, business margin and their individual business strength.

While I am not really into buying property, I have made substantial visits to launches and new development over the last 2 years. In Malaysia, I would say several developers are in the upper league and these are large scale developers usually one which have township development. I would say those are:

- SP Setia;
- UEM Sunrise;
- Sime Darby;
- IJM Land;
- EcoWorld - whom have made a name in less than 2 years;
- Tropicana - through an exercise it has become a prominent brand with sizeable landbank;
- IOI Properties;
- Mah Sing;
- UOA Development - a company which focus on high rise and city development.

Few more are in the smaller development companies league and they probably have almost the same pricing power. These are Gamuda (due to lack of available GDV), TTDI, Paramount, I&P, OSK Properties, Malton, DRB-Hicom, Hong Leong Properties and several others.

In the past one year, one can notice that the prices of properties have sort of stagnated and total transacted properties have probably reduced. This is a positive sign and in the past few years from 2009 to 2012, I have wondered where does the rise in property prices stop at. If it is not in check, it may experience the past experiences of Japan (1990s) and US (sub-prime crisis).

In any case, I still think there are lots of opportunities for well-established (or regarded) developers as some of them have either the ability to sell at above average prices - such as EcoWorld and SP Setia - hence they have no problem in buying land at current high prices. Just look at the purchase by Eco on the Batu Kawan land. Understood that they were no other bidders. Some others have significant landbank which were owned at very low costs - UEM Sunrise, Sime Darby, IJM Land.

In terms of location, I would think that Klang Valley has the most potential and sustainability as they are just too many new young families that are to be brought up in KL and Selangor. The government has projected that Klang Valley will be homes to some 10 million people by 2020 - up from 7 million now. That represents 2.5 million households (4 people per household) at the very least and that also means the need for about the same number of homes by 2020. If one is to judge how many households are there in one township development - Kwasa Damansara which covers 2,330 acres of land is building homes for 28,000 households and IJM Land which is building Rimbayu on 1878 acres of land is building homes for 10,000 households. How many new homes and how many more townships of that size would there be by 2020 in Klang Valley?

Next in my preference is Penang, then only Johor in which case at the moment is facing oversupply situation, largely due the presence of developers from China. We just are not able to figure the scale the Chinese builders can do, I guess. (Read this where Country Garden Danga Bay just launched a RM18 billion GDV in one launch.)

So how do we value a property development company? I am not in favour of PE as for example in the case of Sunrise in the past, they were pretty much a very strong developer in just one area - Mont Kiara. But its brand and ability attracted UEM to purchase them. Whether it created value for UEM, I do not think so. Property developers need their most important raw material which is land.

Price to Net Asset is also not as preferred due to some land can be cheaper when purchased while its GDV approved may be higher in respect of GDV per square foot.

In any case, one of the stronger ways to look at the value of these guys is the GDV (shorter term i.e. 3 to 5 years) against their market valuation as well as their balance sheet strength. I have hence picked up several companies - those which are purely a listed property counter.

The above are basically those that have market capitalisation of RM1 billion and above (I did not include Sime Darby as it is just too complex and UOA Development.) As for comparison, not all of them are apple to apple comparison (example IOI has significant Investment Properties portfolio). IJM on other hand is a much bigger group which includes construction and plantation.

If one is to look at the market cap to GDV, I am attracted to Tropicana as not only it has a significant development over the next few years with strong GDV but its market value to those is substantially lower to as compared to Mah Sing, SP Setia or even IJM Land prior to it being absorbed into IJM two months ago. (Prior to the delisting IJMLand was valued at around RM5.4 billion.) Additionally, while it had problems with regards to its sizable debt, its sale of several businesses i.e. the Tropicana Mall(and office), Austin Powder, land in Kota Kemuning to EcoWorld and a piece to a Chinese Developer would have reduced its net debt to below RM1 billion.

Below are the presentation made by several developers in terms of acreage and GDV.

IOI Properties GDV. It has a significant landbank in Johor just like several others.

EcoWorld's GDV without including the Batu Kawan purchase

MahSing's GDV. Notice its significant landbank in Greater KL as compared to the rest

SP Setia.  Notice the very significant GDV in Battersea.

Tropicana. Still significant landbank and GDV in Johor, but as per above it is focusing in Central region which will keep it busy for many years

If one is to notice above, Johor seems to have more total GDV than Klang Valley and Penang combined. Is Johor so much more attractive? We have yet to include UEM and Country Garden which seems to have few hundred mbillion GDV in partnership with the Johor Sultan.

Monday, April 20, 2015

Purchased Tropicana and Trop-WA

I have just bought Tropicana and Trop-WA.

At the price of purchase it is valued at RM1.65 billion. Although I have been critical of the company before, I have to admit that its restructuring few years back is for the better of the company and the brand. For a long while, Tropicana is largely a popular brand for being a high end developer in the Damansara area - next to Bandar Utama. Many of the properties there comprised of bungalow, semi-dees, or higher end landed.

In 2012 / 2013, Tropicana or Dijaya then did a restructuring which turned the group into a larger group. It is now understood to be an exercise where the group is now making use of a much stronger branding from Tropicana rather than Dijaya, and consolidating the entire landbank under one roof. It now has project with mainly concentration in Klang Valley, Penang, Johor.

From this perspective, it is now a significant property player and although high end properties is facing challenges due to the tightening of credit by Bank Negara and naturally the rally in property prices over the last 5 years could not sustain. I however felt that, investors have over discounted the value in Tropicana especially when it has managed to pare its debt down to a very manageable level.

The last 1 year, we have seen that Tropicana has sold some of the following assets:

- Austin Powder for RM194.7 million;
- Tropicana City Mall for RM540 million;
- land sale to EcoWorld for RM470 million.

It also has an announcement of selling a piece of land to a Chinese group for RM450 million in Bukit Bintang still pending.
Those exercise (except for the one in Bukit Bintang) comes to about RM1.2 billion in value. I specifically like the exercise as they have strategically strengthened their position. Maintaining Austin Powder does not make strategic sense for a property developer. It does not manage a mall as well as say IGB or even See Hoy Chan around the vicinity, hence the sale in Tropicana City Mall at a very respectable price. And the sale to EcoWorld while maintaining a significant 800 acres is right especially where its land adjacent to EcoWorld's and IJM's development.

All in all, I like that it is at attractive valuation with some very smart divestment.

The Tropicana-WA has some time to expire (8 December 2019) at exercise price of RM1.00 and I think the risk is manageable.
You can check out the latest fund position here.

Thursday, April 16, 2015

Sold NTPM and bought YFG

I have just sold NTPM and bought YFG (what a stock to buy???).

I have no particular strong (fundamental) reason to buy YFG except for the recent announcement which causes some quarters grow weary of the company. The par value reduction should not cause drop in share price as there is no negative impact towards the counter.

Don't think there will be a RTO (of course I can be wrong) but I felt that the reason there was a par value reduction is to strengthen the position of the company. I felt that because of the accumulated losses that the company had experienced as well as the discount on shares, it is susceptible to PN17. (Read in what situation it can be in PN17 here)

The one area under PN17 which the company is very susceptible is the less than 25% of the issued and paid up capital of the company. Hence, by them reducing the paid-up capital, the chances of it getting to PN17 should be lower.

The other reason is that it now can raise private placement at below 10 cents as previously with par value of RM0.10 it may need to raise their funds at the minimum par value. Issuing at a discount would be much troublesome. Now the new proposal is for par value reduced to RM0.02.

In any case, there should be no reason for me to buy as there are no fundamentals except that the company has a very low market cap and being a penny stock (hence high volatility).

The other thing is that it does seem to progress with a new Chairman and some Directorship change. Am just wondering what takes them so long??? In any case, the new guy in charge of corporate seems to be better. Now for the real business!!!

I still think it will need to raise funds to strengthen its financials and then move forward.

Saturday, April 11, 2015

EPF's contribution: How many Malaysians contribute until 55?

I have been hearing a lot on many Malaysians do not save enough for old age. According to the latest report by EPF, only 22% of people will actually have more than RM196,800, the minimum amount required to retire. This is assuming that many do not have savings elsewhere. It went on to say that 68% of Malaysians at 54 of age has less than RM50,000 in their EPF account. The below will justify that these are true (as it come from EPF) but they are just some ridiculous reasons to tell us that the savings situation by Malaysian is in dire strait. Why? A Malaysian who earns minimal income but worked for their entire life as a salaried worker would have at least RM196,800 in their account, AND in no circumstance would they have less than RM50k in their EPF account. The below tells why.

While I do see that many in Malaysia do have challenges post-retirement, but some of the numbers that are provided does not really reflect what may be the actual situation.

I am just wondering how many of the EPF's contributors in the list that are still active contributors towards the EPF fund? I think most people will fully withdraw when they reach 55 years of age, but by the time they withdraw their money, were they still actively working. They may be working but not contributors anymore as they are probably working for themselves and are not required to contribute towards the fund.

To answer some of those I have put up a hypothetical calculation. Assuming a person works for 32 years from age 24 to 55. If that person retires in 2014 (last year), this means that he started work from 1983. Below are the EPF's rates from 1983 to 2014.

Average return for last 32 years was 6.737%

The table above shows the historical contribution by EPF over the last 32 years. On average, the percentage contribution over the period is 6.737%. If I were to take one of the lowest earning individual and take below assumption:

  • he started with salary of RM415 (no overtime salary). Final salary is RM1247;
  • his EPF contribution is according to statutory rate i.e. 11% employee, 12% employer;
  • increment per year 3.5% - which is minimal. This means not much promotion at all;
  • he does not get any bonuses;
  • he does not stop work at any point of time;
  • started work at age 23 and retires at 55;
  • average EPF dividend earned 6.737%.
What would be the savings in his EPF by the time he retires at age 55? See below. He has RM197,349. This number is higher to the one that was the amount needed for one's retirement as proposed by EPF i.e. RM196,800.

Now, remember my assumption is quite conservative - i.e. no bonuses, no promotion with increment of 3.5% per year. The person started with salary of RM415. Note that by the time he retires at 55, his final salary would be RM1247.

While EPF provides some data which tells that many Malaysians do not have enough in their EPF savings to retire, I am just wondering whether these can really be applied overall in general...From these, one will know that the 68% group which has less than RM50k in their EPF savings are the outliers as they only worked partially as salaried employees in their life. We can't just throw in numbers for numbers sake.

Another exercise, if I were to take the group that have less than RM50,000 in their account how much on average would they have earned and for how many years have they contributed actively to EPF?

Diagram 2: The group that have less than RM50,000 in EPF
Based on above Diagram 2, those group would have earned average RM850 per month, earned 6.737% dividend and worked for only 13 years! In fact, I have yet to add in the yearly dividend they earned after their retirement (age 36) until 55 years of age. If I were to add that in, they would have RM160,319 by age 55! (Do that multiplier by multiplying 6.737% to RM49,581 - Year 0 - cumulative every year from 36 to 55.)

While I do not have all the facts, I would think that many Malaysians have either stopped contributing to EPF after certain age and do not do this until 55 i.e. stopped working entirely or along their working life, they may be working in areas which they do not contribute anymore. They may also have withdrawn a substantial amount for housing, health, education etc. along the way. But those that can be withdrawn are now in Account 2 and they only comprise of maximum 30%.

In any case, I am still questioning the data that was presented as the database I think is based on all the people that have EPF account - and that could be many as long as in their working life they are required to open an account. Hence, I am made to think that every Malaysian that have worked before would own a EPF account although they may not be working or work for themselves later on in life. I had mine opened at age of 18 when I was working part-time for a restaurant and I later went on to further studies for several years.

We also know that about 10% of working Malaysians actually pays individual income tax - it does not seem right. Those numbers could also mean that there are a group whom may not declare their actual income. I would like to be proven wrong.

Even today, there is an article on The Star headlined "Save or Suffer". To me they are using a set of data that are overused, wrongly interpreted and may not be scrubbed through well.


  1. The tools that I have used are all available from the net.
  2. I still feel that RM196,800 of savings is a challenge for many to survive through old age but I am also not sure what EPF intends to implement i.e. allowing full withdrawal at 60 only is going to change much as compared to 55. What should be done is to provide financial education, not withholding people's own money. The days of government knows best should be re-thought.
  3. Let's be more transparent on the data and while it is critical for people to save, I do not think the current situation is as bad as being shared.
  4. If one no longer actively contributes actively towards EPF, chances are they do not pay personal income tax as well. You also see the advantage of having GST although many would be against it now.
This article does not mean I do not understand the predicament of current inflation, hard conditions for retirees if one does not save enough - but the above were based on usage of a set of data which one do not scrub through to identify the outliers.

Thursday, April 9, 2015

No real correlation between Insas and Insas-PA (Updated)

All the 3 Insas shares made some move today (see below). While that is good for my holdings, as I do have all the 3 stocks, just wanted to highlight that there are no correlation between Insas and Insas-PA.

Share price of Insas'es as at midday 9Apr2015
I have provided some background on Insas-PA here and I want to be clear again of the following characteristics of the Preference share.

IT IS NOT CONVERTIBLE INTO INSAS SHARES. Insas-PA is redeemable at RM1.00 after 5 years. This means that the company - Insas - will give you back RM1.00 for every share that you hold. If you hold 10,000 shares of Insas-PA, they will pay you RM10,000.
In addition to that, it is paying 4% of dividend every year to you as a shareholder.

The only small correlation is that investors are more confident of the redemption by Insas with the upward movement of the share price.
In addition to that, as highlighted through one of the comment, the Preference share can be used to surrender for the conversion of the warrant. This can be a useful tool in the event the Preference share is traded at below RM1.00.

The behavior of investors as they have gotten interested in the preference shares shows that the market is not efficient even in today's times when information is available almost anywhere.

On the other hand, Insas-WB has correlation to Insas as the exercise price is at RM1.00. Currently, it is out of the money - which is quite usual.

Wednesday, April 1, 2015

Sold Airport and Bought TA Enterprise

Just sold all the Airport stocks and bought more of TA Enterprise.

I have bought some of TA Enterprise shares before and it was proven to be largely unsuccessful over the short run. The shares which I have bought now dropped to RM0.695. As mentioned before, TA is a defensive stock with strong overseas assets. With the decrease in Malaysian currencies, I would think that these overseas assets would worth more. However, as it also has substantial foreign currencies loans, I would believe those differences would not be that substantial anymore. It sort of even out.

The announcement made yesterday over its latest quarterly performance, I guess cause its shares to drop 7.33% today. This is because it registered a loss before tax of RM23.8 million for the quarter. However, while we are shocked by this, do read what it has to announce. Let's just focus on the two divisions - investment holding and credit and lending.

The Group reported loss before tax of RM23.8million and revenue of RM232.0million for the current fourth quarter, compared to profit before tax of RM40.5million and revenue of RM281.7million respectively achieved in the previous year’s corresponding quarter. Credit and lending and investment holding are the main divisions that caused the drop in Group’s results in the current fourth quarter. The performance of the Group, analysed by its key operating segments is as follows:- 

Investment holding  for 4Q2015
Investment holding division reported loss before tax of RM66.7million in the current year’s fourth quarter, as compared to profit before tax of RM34.3million in the previous year’s corresponding quarter. Despite higher investment interest income, the current year’s fourth quarter results was dragged down by foreign exchange losses realized upon the dissolution of foreign subsidiaries and fair value loss on investment securities. For the current year-to-date, this division reported loss before tax of RM58.0million, as compared to loss before tax of RM2.6million in the preceding year. Despite higher investment interest income and fair value gain on derivatives, current year’s loss before tax was higher primarily attributable to higher fair value loss on investment securities, and acquisition related cost incurred.

Credit and lending for 4Q2015 i.e. latest quarter
For the current year’s fourth quarter, credit and lending division contributed RM29.9million profit before tax to the Group, as compared to profit before tax of RM72.2million in the previous year’s corresponding quarter. Despite higher investment interest income, current year’s fourth quarter results was dragged down by higher fair value loss on derivative and investment securities, and lower loan recovery income. This division achieved a current year-to-date profit before tax of RM154.9million, as compared to RM107.3million in the preceding year. Despite higher fair value loss on derivatives and investment securities, the division’s performance was boosted by loan recovery, foreign exchange gain on translation of AUD and CAD denominated balances, and higher investment interest income. 

What was reported for 4Q2014
Credit and lending For the current year’s fourth quarter, credit and lending division contributed RM68.1 million profit before tax to the Group, as compared to profit before tax of RM1.7million in the previous year’s corresponding quarter. For the current year-to-date, this division achieved profit before tax of RM104.0million, as compared to RM19.4million in the preceding year. This division enjoyed higher revenue and profit before tax resulted from loan recovery, gain on sale of investment securities, investment interest income, and foreign exchange translation gain on CAD and AUD denominated inter-co balances

What do we noticed from what was picked up? These are cyclical in nature mainly due to fluctuations in currencies exchange and investment securities as TA held a large portion of its assets through investments securities.

Just to note, do look below - the fair value loss on investments was RM93 million

As against for the previous year:

See the difference! These are mainly accounting in nature as long as these investments are to be held over a longer period.