Thursday, February 25, 2021

Purchased Top Glove

While in the past, I was critical but unsure of the company, this time around I think it is grossly oversold. The company had not paid much dividend as yet and has been repurchasing a substantial amount of its stocks over the pandemic period. The company remains to be the largest gloves manufacturer and is probably the company that benefitted the most in terms of revenue and profits due to the pandemic.

This is probably due to the aggressive nature of the management where they had increased capacities through organic and acquisition growth. The super abnormal profits have given opportunities I believe for many of the gloves manufacturers to improve on their efficiencies in the long run as they took this period to push more automation as well as improve on the living conditions of their workers especially the foreign workers.

I think given that Top Glove is trading at RM43billion valuation, it could be cheap. Post pandemic which for many countries could be seen by end of this year or mid of next year, we will potentially see restocking as these countries do not want to be shocked again by another similar situation. I think these gloves companies despite the coming on stream of other new entrants as well as much increased capacities of the existing company (including China and Thailand) may still see the plants running at full capacities.

I have hence bought 1500 units of Top Glove at RM5.19.


Thursday, February 18, 2021

Bought Three-A Resources, Sold Freight and latest

I have decided to make some changes on my holdings by first selling all 17,500 units of Freight Management which happens to be a very well managed company. Even then, I felt that the recent rise of logistic companies provided a good enough price for me to sell.

From that sale, I decided to buy 10,000 units of Three-A resources (3A - 0012) as I felt that it has not been much followed by many investors. Typically like the business as it is trading at below 13x PE. So who says that we cannot find value during the time when some sector's valuation have gone very high - technology sector mostly.

I think it is attractive given the sustainability of its business - i.e. caramel food applications.

At the same time, I have converted all the 136,000 units of WCEHB-PA into WCEHB.

Below is the latest holding.

Tuesday, February 16, 2021

Two factors which could push DNEX higher

Well, tis the season for speculation. I do not really advise on speculation.

However, when I read some of the exercise regarding DNEX, there are some obvious reasons which somehow things may happen given the volatility.

Purchase price and manner the payment is made to the 60% of owners of Ping Petroleum. DNEX is buying Ping and one portion is paid by cash, another via shares.

The payment in shares as above is based on the share price 5-day VWAP of DNEX shares 2 business days before completion date. The exercise is yet to be completed, and the higher the share price, the lower the payment of shares is to be made to the sellers. In fact, if it exceeds certain share price, DNEX need not pay in RPS. Seems like at the moment given the share price, it need not issue RPS to the sellers.

Reason no 2.

DNEX still needs cash although they have raised some substantial private placement funds (don't know to who) at very cheap price of 30 sen and below.

DNEX WD's exercise price is at 50 sen and for warrant holders to exercise, it needs to be substantially above 50 sen. I would not exercise if the price is trading at 52 sen, if you know what I mean. Why take the risk.

BTW, the maturity date for the DNEX WD is 30 Jul 2021. Few months to go.

Well, I still use the word "could" as anything can happen. Shares can crash. DNEX may find other ways to raise more cash. Ping Petroleum's exercise may not go through. Silterra's deal may not happen. For example.

Tuesday, February 9, 2021

Whatever it is DNEX wins

 I woke up this morning listening to the news that the world is in short supply of chips as there are just not enough supply to meet demand. At the same time, the largest chip maker, TSMC has cornered 70% of the MCU market - not by design but due to their technological dominance where the rest of the competitors could not catch up - except for probably Samsung.

We have heard of there could be a delay in shipments of motor vehicles as when cars are fitted with more semiconductors when the demand has way outstripped supplies. Anyway, as in my previous article, I was critical of Malaysian companies like DNEX and Green Packet given the leading position to purchase the only fab owned by Malaysia - Silterra. They do not have the capabilities of running a fab.

I also woke up in a headline that says, Silterra is sold to DNEX - retaining the ownership in Malaysians hand. Well, it is  a pride thing. In that deal, DNEX and CGP of Beijing on a 60%:40% basis has bid for Silterra which is now owned by Khazanah.

DNEX does not know how to run Silterra, but the management of Silterra knows how to run the old 130nm fab as they have been doing it for years. Now China is really in need of chips and fabs especially given the Trade War situation as it is on the rush for owning and acquiring technologies such as a fab technology.

It is old but still needed especially that China will just take anything as long as it is still running and producing well. It may well be investing into a more current process technology and I believe given the technology maturity, the Silterra's team will know how to run it and make it working.

In the long run, on paper it is still owned by Malaysian company and it is just like the Proton Geely relationship where we for patriotism sake, we have 60% of ownership without ability to control the demand and supply while the other will control in terms of management and technology. Perhaps in this way, the Chinese would prefer the arrangement as they have a strong say.

Anyway, it is positive for DNEX - don't look at the financial fundamentals as DNEX will not have the capability to buy Ping Petroleum, invest in Silterra, expand it further as I believe behind the scene there were already planning, I believe. Otherwise Khazanah would not have sold it and let the fab grappling with liquidity issues. It would have been a political suicide. 

Friday, February 5, 2021

What nonsense is happening around Silterra?

We know that Silterra is a problem child for Khazanah and ultimately our country. It has been bleeding money since inception probably around 2000. Although the idea came noble, the execution was not. It probably has lost us money to the tune of more than RM10 billion (I do not think anyone keep track as it is already a sunk costs). While on the financial side it was never a win, on the technology acquisition side it did some justifications. Malaysia now has some knowledge of how to handle a foundry albeit a very old one. We also have now people working in several foreign owned foundries most of them in Kulim and Penang.

While we have thrown substantial sum of money, for a long period we have tried to keep the fab afloat running on positive EBITDA - more or less cashflow positive. But we know that running foundries on positive EBITDA is not the right measurement as foundries capital costs are high - latest technology can go up to $20 billion (a 5nm or 3nm fab). There is no point for us to catch up.

While it has been a sore thumb, today, foundries have become an important asset in return thanks to two things, firstly IoT, IR4.0 autonomous vehicle etc. - as some businesses are not chasing for Moore's Law where the theory is that semiconductor is reducing half in size every 18 months. So old fabs have value. Another thing is China. They are hungry (all the while) and especially today where US is blocking them off from foundry technologies. So an old fab in Silterra is becoming an asset back albeit lower value than the newer fabs.

However, what is there to do with DNEX and Green Packet? Those two companies do not know how to run a fab! They probably have not stepped into a fab before 5 years ago, until now. Why is there a need to sell to a Malaysian company. If one notice both deals are with a China partner. The Chinese would rather work with one which do not need to know how to run a fab - hence DNEX and Green Packet. It is a flipping exercise if I may call it.

We have people and companies in Malaysia which may be closer to knowing the intricacies of running a foundry - even that is tough. I can probably see that the deal would have Silterra providing support for China's demand for chips but why not sell direct? DNEX and those other Malaysian companies do not know much. One is in some software support and Oil and Gas - another gotten some China's AI technology and try to deploy them in Malaysia.

Get on with real stuff and be direct. We have made mistakes on this for 20 years and it still has not ended.