Monday, June 20, 2016

Mistake in YFG

I have made many mistakes in investing and this time around is again due to my carelessness. Buy good companies, not bad ones.

I am hence selling YFG.

Should you invest in Ecoworld?

There are not many new companies, i.e. new brands in the market which can get people excited. When Ecoworld was conceived some 3 - 4 years ago, I was surprised by how much it got people excited. Perhaps the Ecoworld brand is more than the company. It is its leader and Chairman Liew Kiew Sin, whom formerly helmed SP Setia and in the making created iconic projects, i.e. among them Setia Eco Park.

When PNB bought a controlling stake in SP Setia, he decided to leave and sold all his shares (at a hugely attractive price) in the company and started Ecoworld with several other partners.

That company is redefining again how a property developer should be - so much so that I feel that the SP Setia brand which he helped to create is now drowned by a new competitor in town. Now after having left (in fact, prior to him officially leaving), he had his proxies (including son) to manage the newly created developer. That has caused dilemmas among his competitors, and created excitement to property buyers as well as stock investors like me.

The excitement can be seen from the below chart where its share price went up more than 4 times as it did a reverse takeover of a little developer in Johor, called Focal Aims. At that time, as in my true nature as an investor, I was never going to chase after a stock that was spiking up especially when we do not know what their actual plan was.

Now their plan is much more clearer. They are very aggressive with their business (despite the slow down in properties market). Since then, Ecoworld has acquired vast strategic land banks. Among them, landbanks in Semenyih, Kota Kemuning, Batu Kawan (Penang) - later rescinded, 2000+ acres of land in Ijok and the latest a JV near the iconic Setia Alam. It has also managed to secure the old Pudu prison project which is now named BBCC in a JV which is owns 40%.

In the reverse takeover, it also injected several other landbanks which it acquired before the exercise. These has made Ecoworld the new kid on the block, which no one will NOT notice especially if you are a property buyer whether it is to stay or invest.

In a short period of 4 years, it is becoming the leader in the property market. Yes, there are Sime Darby, IOI, IJM, UEM, Mah Sing etc., but they cannot keep up with the style that Ecoworld launches its projects. Obviously, it costs a lot (of marketing expenses) as well in the process but it created such a buzz so much so it is I think it created a dilemma to its competitors.

Ecoworld has raised more than a billion ringgit over this period and it is not stopping with the latest, i.e. its plan to raise another RM770 million through another round of private placements. Notice that its main shareholders have committed to subscribe up to 76% of the placement portion at RM1.30 a share.

Part of the newly raised funds is to  subscribe 30% into its newly created Ecoworld International where it is having projects in London and Australia. This group really has huge appetite and are not afraid to execute. That's their strength.

With the softening property market and that has caused its share price to taper to now RM1.26, I have decided to purchase 8,000 units.

At this price, it is at a market valuation of RM3 billion and I think it is attractive due to the amount of investments that the group has put in to create the brand and company. Also, I can envision how big this group wants to be. It may not have the landbank that Sime Darby has but, there are prospectively some land owners that would want to work with them, such as the case in Cascara and BBCC. Even Tropicana (I think), would want to sell part of its land near Kota Kemuning, as Eco World would be able to enhance the value of properties around the same area where they have projects near each other.

Should one look at its PE to judge its value, I think it is the wrong benchmark at the moment as it is still building its value.
To those who are sceptics or do not really get what I am talking about, take a drive to any of its projects, be it in Penang, Selangor, KL or Johor than you will be amazed with how it has redefined building and selling properties.

Take note that when investing in companies such as Wal-Mart, Airasia - look for cost leaders. When it comes to property developers, look for the value they can create from per square foot of land it owns as against other competitors. Without specific data, in my mind, Eco World is probably one of the best.

Here is the latest portfolio.

Thursday, June 2, 2016

June 2016: Where do we invest now?

I would say this is one of the most exciting yet challenging period for stocks picking in Malaysia. Why are they challenging? I am not expecting Malaysian economy to do well this year and in fact it is expected to underperform to a growth of around 4% or even below. Malaysia registered a 4.2% growth for its first quarter of 2016 but we must not forget that for 2016, we had an extra day in February 2016. Without that, we probably would have a growth of less than 4% for the first quarter.

The results from many companies - large and medium sized does not really show positive trends. As expected, the export counters are starting to slow down (in profits) as their buyers are now getting used to a weaker ringgit and these commodity counters comprising of palm oil, rubber gloves, wood based are back to competing against each other in pricing - because they are commodity based companies.

I was slow in detecting that a weaker ringgit is going to provide opportunities and huge jump for the export counters. That's because I did not expect ringgit to go so weak i.e. above RM4 to a dollar. But yet again, I do not try to predict where the ringgit is heading. Many however, whom were late as well would have been stuck when they bought Top Glove at RM6 and above or WTK at RM1.50 thinking that the weak ringgit would have caused these export companies to be super counters. They are not as in the last article back in December which I have written.

Now RM is back to 4.15 to a dollar. Should we go back to the export counters? I do not know. The thing I know that it is not lasting as these companies whom are competing against each other would compete again on price. What I can say is that if you can find a company that does exports and it is in the sweet spot of not having much competition, that is the winner. Until now, I am yet to be able to find that company as many of those Malaysian companies have competition. Even Wellcall (almost fully exports and does not have that many competition) which I thought would do well is affected by drop in volume sales faced by their industrial clients.

Why is it exciting then? Some of the companies which I think fundamentally remains the same has seen their stock price dropped substantially. They are on the other side of the coin. A strong US dollar affects their performance or that could come from the weaker commodity prices. What are those companies? Many of them, and just that we need to pick the right one. The beauty is that, we have lots of time to pick those companies.

2016 and even back to 2015, is also the period which we see challenges posed to many retail and distribution companies. Among them, AEON, Parkson, some apparel companies including Bonia, DKSH, Harrison Holdings etc. I have two reasons for that - one is due to a slower economy and the other which is much more fundamental i.e. the changing behavior of people's purchasing methods from physical retail shop purchasing to online or e-commerce. The second reason is the one which got me more careful. They could change the landscape of many of these companies in the future.

As for banking, I am careful of the performance registered by some banks. It seems that non-performing loans or provisions for losses may crop up due to the high gearing as experienced by retail loan sector.

Properties would definitely slow down as well, but there are some opportunities as investors have probably priced in that effect.

You would have noticed, in the last 1.5 years, I have been focusing on 2 - 4 stocks (2 main ones and 2 smaller holdings) and I am still sticking to that way. I am on the lookout for 1 more company due to the opportunity provided. Even if that does not happen, I am still happy with the holdings that I have, except perhaps for one.