Thursday, October 26, 2017

The connection between Tropicana and Top Glove

I like Top Glove, just like I like Hartalega, Airasia. I like companies in business segments which have room to grow as long as they are not expensive. I like companies that are dominant in their fields. In that respect, I had held Top Glove and Hartalega as well - not recently though.

I wish I had bought into Top Glove more than 10 years ago, as one would probably see a performance as below with the stock price achieving a more than 3x.

Price chart of Top Glove over 10 years
The company has not only provided its investors with capital appreciation but also improvement in dividends almost on yearly basis. This company has a good track record in terms of stock performance and that has to do with the management and with that, investors like them so much so that market is now giving it a more than 26x PE. To me, the Chairman of Top Glove, Lim Wee Chai is in the same mould as Liew Kee Sin, Tony Fernandes - Malaysians who are not only able to make their name from opportunities within Malaysia but also internationally. As an investor, I have always look upon and wanted to support them - as they are value creators. Wouldn't you and I as Malaysians be proud to have them?

Now what about the connection between Top Glove and Tropicana? One is in glove manufacturing, the other a property company. One would wonder, is there any synergy?

None at all - business wise.

However, if I am a shareholder of Tropicana, I would love to have a personality like Lim Wee Chai to be buying a significant stake in the company I invest into. And that just happened, where Lim Wee Chai personally - not through Top Glove - increased his stake into having a 10.24% portion in Tropicana. To me, that works well. If Tan Sri Lim is to have a controlling stake, that would have freaked me out - as he has never been a developer. That 10.24% act as an endorsement and beyond. Why?

Tropicana, under Danny Tan (the brother to Vincent Tan) - has been a developer for many years of his life - and a pretty good one as well. He has built Tropicana in Damansara into a premium brand and location for the wealthy and if one is to Google, Tan Sri Lim Wee Chai happens to stay there as well.

Today, Tropicana is not just having development in Damansara - as it is now an old address but also several major development in Kota Kemuning, Kajang, Bandar Iskandar and Penang - riding on the Tropicana brand. Agree, Tropicana is not able to create the aura of an EcoWorld development - but I would say it is one of the Top 5 - although in terms of size it in more like in the Top 10 in Malaysia.

As a business, there is not so much qualms about Tropicana, but in terms of it being an investment concern - I am sure there are those that would have advised people like me to stay away. I understand the concern. That single stock is more than 70% controlled by Danny Tan. It is an illiquid stock. It is not invested by any of the major funds. Understandably it is hugely undervalued - hence under my portfolio I bought a small portion of Tropicana.

Nobody, including me would have guessed Danny Tan would relinquish a portion of his shares - although he still comfortably controls the group with >60% stake.

However, in inviting Lim Wee Chai - it probably would have changed the perception towards Tropicana. Lim Wee Chai - as mentioned above is totally a different person when handling Top Glove as a traded stock. Top Glove is having a dual listing in Malaysia and Singapore - hence, he is the sort that is promoting to funds and markets beyond Malaysia.

Top Glove is invested by many of the funds in Malaysia - EPF, KWAP and various unit trust funds. I would say it is a darling stock although it is not a Composite Index stock. That basically tells that Top Glove knows how to attract outside investors and not having the fear of these investors making corporate moves against the company.

Hence, in terms of personality and experience - Lim Wee Chai's 10% stake could have made a difference to the perception of Tropicana towards the future. I am sure, based on observation it is not a short term holding - i.e. getting people to buy and then dump onto them as that is not the personality of this Top Glove Chairperson. He does not need to do that and for sure, do not want to be perceived as that.

By reducing the stake to a strong personality, it also POSSIBLY shows that Tropicana can be more open to investors.

When I bought Tropicana, besides the attractive valuation - I was attracted to the change in strategy within the group. As mentioned, it has a good brand name and its strategy of selling non-core assets (basically the investment assets like hotel, malls) and concentrate on large mixed development.

Obviously, this investment does not materialise to be successful yet. At that time, I was putting on the "contrarian" cap - where investors and analysts were fearful of its high gearing ratio. I was in fact correct in figuring out that the gearing would have improved as  when I studied the company it was buying several landbank while the sales of its assets have yet to translate to positive cashflow yet.

Today, as one can see Tropicana is carrying a very manageable 50% debt to equity ratio while allowing several of its development to mature despite the tough property market.

What's your guess on the price point that Tan Sri Lim Wee Chai bought from Tan Sri Danny Tan? While, the announcement was made when Tropicana was trading around RM0.93, I doubt it was transacted between the two at that range of pricing.  Why?  Tropicana has been buying back shares and subsequently redistribute the shares to shareholders since 2015. Most of these buybacks were made at between price range of RM0.90 to RM1.

It would not be easy to obtain shares at 93 sen from the market considering the low free float. Anyway, that's the transaction between the two. Lim Wee Chai as substantial shareholder can come in as being strategic towards the profiling of the company.

What I hope now, is that I see what Lim Wee Chai sees as well.

Thursday, October 12, 2017

As it is Dataprep is worth 16 sen or less

Early this year, Dataprep which has very little business direction and continuous deterioration in revenue was being pushed - most probably by, various parties - bloggers, speculators and perhaps syndicates to 60 sen.

We can see that it is a company which does not have much left. This IT solution provider was dependent on government related projects back in 1990s to early 2000. After that, the company just went spiralling down with poor fundamentals. It was in fact controlled by Mirzan Mahathir and later when it was in trouble, the Genting's youngest son took over.

A lot of these businesses are very thematic at the particular part of time with very little core strength and competencies to be built into a competitive company. Moving passed 2005 and beyond, IT business is no longer the theme of the decade for Malaysia as we have moved on to oil and gas for the last decade and of course even that many O&G is now facing challenges.

Just yesterday, the controlling shareholder i.e. under Datuk Lim Chee Wah - the youngest son of Lim Goh Tong - sold off its controlling stake to one Tan Sri Muhamad Ikmal for 16 sen a share. We know that usually a company for its controlling stake would be sold at a premium and this possibly was sold at a premium.

Several times in my blogs, I have been critical and warned of businesses which have become of little value (or dwindling in value) as it is not able to turnaround and at the same time managed or led by non-visionary leaders in a tough competitive space. Dataprep is in that space. For people whom are deep into speculating such companies for sure they had hoped that Dataprep would have gone towards RM1.00 but these companies have no fundamentals that would enable them to stay at 60 sen and be deemed still undervalued.

From the surface, I am not able to see what the new owner will do with the listed company as it is still unknown. Through buying a 64% stake though, I can see that it is a significant controlling ownership - and from this, many types of structures it can do.

I am also sure there will be continuous speculation, but to me as it is 16 sen is the closest I think it is. Even then, until the company is clear on its direction - who would want to own the share of a company where we are not sure of its business direction.

Monday, October 9, 2017

Are you buying Media Prima? Seriously?

I remember a friend of mine whose parents owned TheStar's stock which they bought for RM2000 for ownership of 2,000 units way before it was listed - and years later (if I can remember in 1993), that 2,000 shares of TheStar became 22,000 stocks before listing. Basically, that one investment allowed his parents to send him and his sister to New Zealand and Australia to do their degrees as the shares later was easily worth more than RM150,000. That was 1990s.

Now, if I want to ask. Do you bother to reach out to newspaper the first thing you wake up? Berita Harian, NST, Star or would any person who is below 50 be reaching out to their mobile phone. Remember, 20 years ago it was a very different world.

Today, I can get my news from my facebook account, google - basically everywhere.

Now, there is this blog that have been asking people to buy Media Prima stock which I do not understand. Where is Media Prima heading? I don't know. Most probably downward. Basically, for a company which owns NST, BH, TV3, NTV7 and some of the radio channels - things are NOT looking brightly for the company.

Yes, one can possibly make short term upside as it could probably be oversold - but what if it does not pick up. This kind of stock will NEVER pick up anymore if it does know how to. What one gets is that one last puff from his cigarette butt.

And the last time I saw, it is not like Media Prima is on firesale. How much can one make from that company. Will it move to RM1.20? The way I see it is that the downside is clearer than the upside. If one got caught at the high, it will not come back.

This is the kind of stock which I would not even bother to read their financials and try to understand the purchase of Rev Asia's digital business as Rev Asia never really make money anyway. If RevAsia is good business, the owner would not sell. Whether, Media Prima writes off its Malaysian Newsprint Industries ownership or not does not matter.

There are space which we can easily figure out. Even if Media Prima will make extra from its advertisement - taking opportunity of the pending election spending. That is one last hurray.

Are we living in a country where one day - in the near future - Facebook, Google, Whatsapp, Baidu will be banned? Can one see who will win the content war? Why is it that TheStar introduced in an ever crowded content platform. TheStar will not go anywhere with that introduction as it is facing a tough task to compete against many - Astro, iFlix, Netflix and all the OTTs (Over The Top) out there. Even with that, variety of platforms are trying to get our attention as compared to the traditional TV and Radio in the old days.

Today, TV is not even our second screen that we are using. First, it is mobile, then PC. TV is not needed anymore. Radio is something nice to have when we are in the car.

Has anyone heard of FANG stocks - basically the company that are dominating the content sphere - Facebook, Amazon, Netflix, Google.

Nothing that the government introduce will dramatically change Media Prima. The company's distribution could go fully digital - but that's about it. It can go save some money but how much will that save the traditional media business which Media Prima is largely immersed into?

One just have to be really careful and not be excited even if Morgan Stanley is buying.

The gist of thing is that if one wants to get people to push up Media Prima shares - why don't promote something else - as this stock could be a really painful stock to own.