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Wednesday, August 30, 2006

KLCCP & Kassets- Which is more attractive?

Background

KLCC Property Holdings Bhd ("KLCCP") & Krisassets Holidings Bhd ("Kassets") are amongst the biggest property investment companies listed on the Bursa Malaysia.

KLCCP is the owner of KLCC Suria Shopping Center, the KLCC Twin Towers & a few other buildings located within the vicinity of the KLCC as well as other properties such as the Dayabumi building. In total, the properties owned by KLCCP are valued at RM6.26 billion (valuation was carried out in QE 30/6/2006).

Kassets is the owner of the Mid-Valley Megamall as well as a few other buildings located next to it. In total, the properties owned by Kassets are valued at RM1.68 billion (valuation was carried out in QE 31/3/2006). While the value of Kassets’ properties owned maybe smaller, this will be given a boost when the new phase of Mid-Valley Megamall is completed in 2008.

Financial Performance

Based on the latest 4 quarterly result, KLCCP's net profit amounted to RM178.3 mil while turnover totaled RM752.5 mil. KLCCP's EPS for the 4 quarters amounted to 19.1 sen. Based on a NTA per share of RM2.67 as at 30/6/2006, the Return on Shareholders' Funds is about 7.15%.

For the same period, Kassets managed to report a net profit of RM60.5 mil on the back of a turnover of RM180.0 mil. Kassets' basic EPS for the 4 quarters amounted to 18.3 sen. Based on a NTA per share of RM3.03 as at 30/6/2006, the Return on Shareholders' Funds is about 6.04%.











Table 1: KLCCP's 4 quarterly results










Table 2: Kassets' 4 quarterly results

Valuation

Based on the Table 3, we can see that KLCCP is cheaper than Kassets in term of PE multiple. KLCCP's Dividend Yield is slightly higher than that of Kassets. In term of Price to Book, Kassets is marginally more attractive than KLCCP.






Table 3: KLCCP & Kassets' PE, P/Book & Div Yield comparison

Technical Picture

From Chart 1 below, we can see that KLCCP is trapped in a range between RM2.05 & RM2.30. A move above or below these levels would signal the direction of KLCCP's next price movement. Until then, the share will be range-bound, which is ideal for swing trading.

Kassets is trapped in an ascending triangle with upside breakout/resistance at RM2.53 and downside breakout/support at RM2.44 (& rising). Until then, there is not much room for trading for Kassets.

















Chart 1: KLCCP's weekly chart as at August 29


















Chart 2: Kassets' daily chart as at August 29

Conclusion

Based on the above, we can see that KLCCP is fundamentally more attractive than Kassets. Technically speaking, KLCCP offers some rooms for swing trading until it breaks out of its trading range (RM2.05-2.30) while one has to be patient to wait for Kassets to do a positive breakout at RM2.53, before a technical "buy" signal is activated.

Update made on September 11, 2006

From The Edge w/e Sep 11, I have learned that Kassets owns only the Mid-Valley Megamall. The other components of the Mid-Valley project such as the 4-star Boulevard Hotel, 3-star Cititel Hotel, Menara IGB, Centrepoint North & South office towers plus the Phase 2 of the Mid-Valley project such as the upscale shopping mall (known as The Garden), another 2 office blocks, a 5-star hotel & a block of upmarket service apartment are all held directly under Kassets' parent company i.e. IGB.

Please note that the earlier background information on Kassets made in this post were incorrect.

Plantation may consolidate soon

Plantation sector has been having a fine run-up. In the past 3 months alone, the Plantation index has jumped from 2996 on Jun 20 to a high of 3742 on Aug 14. As noted in my previous posts, the Plantation index may test its all-time high of 4043 done in Jan 1994. To do that within the next few months would require Plantation index to do a parabolic rise.

What do you need to achieve that? Firm price for CPO. More output coming on-stream. What about demand for all those additional CPO output? Well, there is the growing demand from China & India. What else? There is the new source of demand from the Biofuel sector, courtesy of the strong price of Crude Oil. All these were present in the past few months and they have helped to push the share prices of plantation stocks so strongly that 3 favorite plantation stocks have surpassed the targets set by analysts, according to a report that I've read. The 3 stocks are PPBOil, IOI Corp & KLKepong. Smaller plantation stocks have moved up and even Kumpulan Guthrie has moved from a low of RM2.56 in Jun to a high of RM3.84 on Aug 22.

At times like this, you need to ask the all-important question: Is there anything that I have missed out? Is this the Best of the Best? If the answer to the first question is probably “No” and to the second one is likely to be “Yes”, then you have to be wary. You need to know what would happen to the price of CPO if the off-take (or demand) cannot match with the huge jump in output. In the last few years, we have all been blanketed from time to time by haze, which originated from Indonesia. The haze tells a story of the wholesale clearing of forest for the planting of oil palm. Indonesia will emerge as the largest producer of palm oil, with an output for 2006 estimated to be about 16.4 mil tonnes as compared to 15.7 mil tonnes to be produced by Malaysia. Indonesia has 3.7 mil hectares of planted oil palm estate currently (which matches that of Malaysia) and another 6 mil hectares available for planting in the next few years. Even if you ignore the new area to be planted, the additional area that will come into maturity will increase & so will the output of palm oil. The demand for palm oil for biofuel is dependent on regulation and the price of diesel (or, crude oil). During the current boom in the price of crude oil, biofuel demand & its corollary demand for palm oil may be strong. What would happen if the price of crude oil retreats from its current height to a more pedestrian level? Would the demand for palm oil for biofuel evaporate? Can the consumption demand alone absorb all the increased output of palm oil?

As always, the chart may show us where the market is now. From the daily chart (Chart 1), you can see that the Plantation index is in a ST uptrend with support at 3620. The Bollinger Bands have tightened & the market is awaiting the completion of the current correction. There is currently no hint as to the future direction of the index. Since the index is in a ST uptrend, the probability favors the index going higher.

From the weekly chart (Chart 2), you can see that Plantation index is at a crossroad. The Bollinger upper band has started to flatten out. This is normally the precursor to a decline in the Bollinger upper band and a correction on a longer timeframe for the index. You may compare the current standoff to the consolidation in April 2004.

















Chart 1: Plantation index's daily chart as at August 29


















Chart 2: Plantation index's weekly chart as at August 29

Crude Oil just broke below USD70

On August 17 & 18, I've made some comments about the outlook of the Crude Oil (here) & (here).

Back then, we saw the Light Crude Oil future contract (as traded on NYMEX) tested the uptrend line at USD70 & re-bounded to a high of about USD73.80. Thereafter, it has been drifting downward & yesterday, it broke through the uptrend line & psychological support of USD70.

Looking at the chart below, you can see that the correction this time (denoted as B) is somewhat similar to the correction during the period of Nov & Dec 2005 (denoted as A). Crude Oil is now at the lower band & it may stage a rebound just like in Dec 2005. The important difference is that the Bollinger Bands in the earlier period seems to be tightening (or, merely moving parallel each other) but this time, the Bollimger Bands appear to be expanding. Since the direction of the current move is downward & it has just broken below the uptrend line, there is a higher probability that Crude Oil may not re-bound from the lower band. Instead, it may break through the lower band & drop sharply. Well, let's wait & see.

Tuesday, August 29, 2006

Megan testing its Jan low of RM0.565.

On August 21, I've recommended Megan as a good long-term investment. This is a technical update.

Today, Megan has broken below the Jan low of RM0.565. It went as low as RM0.555 before recovering to close at RM0.57. The last two days & today's volume traded are fairly big. Over the next few days, the selling may continue. We will have to wait & see whether this important horizontal support will hold or break.

















Chart: Megan's daily chart as at August 28

RUBhd has broken above its LT downtrend at RM1.28/30.

Background

Ranhill Utilities Bhd ("RUBhd") is involved in the collection and treatment of raw water and the distribution of treated water to consumers in the State of Johor, commencing from 1 March 2000 for a period of 30 years. The water supply concession is held by RUBhd's wholly-owned subsidiary, SAJ Holdings Sdn Bhd ("SAJH"). RUBhd is, in turn, a 70%-owned subsidiary of Ranhill Bhd.

Until recently, the water distributed by SAJH comes from 3 sources- its own treatment plants, 2 plants belonging to Equiventures Sdn Bhd and 14 plants belonging to Southern Water Corporation Sdn Bhd. The water supplied by Equiventures & Southern Water Corp accounts for 65% of all the water distributed by SAJH.

Under the terms of the original Concession Agreement, SAJH is entitled to a tariff review every three years. The last review was supposed to be on Jan 1, 2005. The management believed that SAJH was entitled to request for a 48%-hike in the tariff rate but the State Government had requested SAJH to forego the tariff hike in return for some concessions, which would lower the cost of water purchased by SAJH. These concessions were to be implemented via a restructuring scheme (for more details of the scheme, go to the end of this post).

Recent Financial Performance

RUBhd has recently announced its result for QE30/6/2006. Net profit has increased by 5.7% y-o-y to RM33.0 mil but declined by 17.8% when compared to net profit for QE31/3/2006 of RM40.2 mil. The latter was attributable to the increase in depreciation charge and finance costs as a result of the increase in completed projects. Turnover has increased by 4.8% q-o-q or 8.4% y-o-y to RM146.6 mil.

When a comparison is made between the latest 4 quarterly results with the preceding 4 quarterly results, you can see that turnover has increased by 10.6% to RM560.2 mil while net profit has increased by 50.3% to RM127.5 mil. EPS has also improved by 50.3% from 28.8 sen to 43.3 sen. For more, see the table below.







Valuation

Based on a EPS of 48.3 sen & yesterday (August 28)'s closing price of RM1.35, RUBhd is now trading at a PE of 2.8 times. That is very, very cheap. It is so cheap that it makes you wonder why. Could it be because of the uncertainties surrounding all water stocks now, or is it something else?

Technical Picture

From Chart 1, you can see that RUBhd has broken out of its long-term downtrend yesterday when it surpassed the RM1.28/30 resistance to close at RM1.35. From the daily chart (Chart 2), you will see that the current share run-up is quite bullish, with runaway gaps present but unfortunately with only small volume. If exhaustion set in, the pullback can be quite substantial. The critical level that it should not breach is the RM1.28/30 level, otherwise the breakout would be deemed to be a failed breakout.

















Chart 1: RUBhd's weekly chart as at August 28


















Chart 2: RUBhd's daily chart as at August 28

Recommendation

Based on cheap valuation & the potentially bullish breakout on the technical front, I believe that the long-term outlook of RUBhd to be very bright.



Restructuring Scheme in more details

The main changes are:

1. SAJH is released from its obligations to purchase treated water and to pay for the bulk sales rate payment and the fixed monthly payment to the State Government and Syarikat Air Johor Sdn Bhd (“SAJSB”), arising from the purchase of treated water from the independent water treatment operators, namely Equiventures and Southern Water Corporation (“Water Operators”). Instead, SAJH will purchase treated water from Johor Special Water Sdn Bhd, a single purpose company set up by the State Government ("SPV") in accordance with the terms of the Water Supply Agreement.

2. During the supply period [3 months from Jan 1, 2006 to Mar 31, 2006], SPV shall purchase from the State Government and SAJSB such quantity of treated water that they are obligated to purchase from the Water Operators and shall supply the same to SAJH. The amount of water to be supplied is 97,700,000 m3 at a cost of RM90.0 million. This amount shall be paid by installments on deferred payment basis from the year 2007 up to 2013.

3. Upon expiry of the supply period (i.e. Apr 1, 2006), the SPV will lease water treatment assets (handled over by the Water Operators) to SAJH for the period up to 2014. The total lease payment will be up to RM1.015 billion to be payable from 2014 to 2025.

4. After 2014, SAJH shall continue to use the leased water treatment assets until full settlement of the sum of RM1.015 billion and thereafter the assets shall be transferred to SAJH, on payment of a minimal sum.

Implementation of the Restructuring Scheme

By now, SAJH should have taken possession of the leased water treatment plants but that has not happened yet. This is because the Restructuring Scheme has yet to be fully implemented. The SPV is now nearing the completion of their bond issuance and thereafter, the Water Operators will be paid for transferring over their water treatment plants to the SPV. Despite the delay, the water supply has not been interrupted & RUBhd has been holding up to their end of the bargain (which is not too hard since it doesn't have to do anything).

Ann Joo has a bullish breakout at RM1.23

Ann Joo Resources Bhd ("Ann Joo") is involved in the trading in hardware, steel & iron products and building & construction materials of all kinds as well as involved in the manufacture & trading of steel bars & billets, cast iron products, sluice valves & other steel related products.

Its financial performance has improved considerably since the incorporation of Malayawata’s results as a subsidiary of Ann Joo (in January 2006). Ann Joo's turnover for 2Q2006 ending 30/6/06 has increased 83% q-o-q or 206% y-o-y to RM479 mil. Net profit increased 144% y-o-y to RM18.4 mil but dropped 49.5% when compared to the net profit for the immediately preceding quarter (i.e. 1Q2006). This is because Ann Joo's 1Q2006 ending 31/3/06 has been inflated by the following:

(i) recognition of the net excess of net assets over cost of business combination amounted to RM22.29m following the completion of the conditional voluntary offer by Ann Joo whereby Malayawata becomes a 67.67%-owned subsidiary of Ann Joo; &
(ii) recognition of gain amounted to RM10.41m arising from the completion of the disposal of a piece of leasehold land together with buildings erected thereon.

For details of the last 8 quarterly result, see the table below.







Based the EPS of 9.13 sen for QE30/6/06, we can calculate the full year's EPS to be 36.52 sen. At this EPS & using yesterday (Aug 28)'s closing price of RM1.28, Ann Joo's PE is about 3.5 times. That is very attractive.

Yesterday, Ann Joo has broken above a very strong horizontal resistance of RM1.23, to close at RM1.28. At the time of writing this post (10.00 a.m.), it is at RM1.32. The first target is about RM1.40 but longer-term, I think this stock can still go higher (see the weekly & daily charts below).

















Chart 1: Ann Joo's weekly chart as at August 28


















Chart 2: Ann Joo's daily chart as at August 28


Based on the above, I believe Ann Joo to be a good LT investment.

Saturday, August 26, 2006

Linkfest

Linkfest time again.

For this week, we shall have:

1. A recent article in The Stock Advisors on Neil Macneale, who writes a newsletter that is based solely on stocks that have split their shares. Since July 1992, a portfolio based on this strategy grew 585%, nearly three times the 205% return of the S&P 500. Hmmm, I wonder how well a similar portfolio in Bursa will perform since we have many share splits of late. For more, go here.

2. Which works for you- investing via themes or based on a combination of value & growth? The Confused Capitalist thinks he may have the answer. (Here)

3. Some of you may have heard of Jim Cramer, the director and co-founder of TheStreet.com and former principal at hedge fund Cramer Berkowitz. His insight on the stock market is considered by many to be among the best on Wall Street. In Madd Money recently, we were given Jim's 10 Commandments of Trading. (here)

4. There are unconfirmed reports (reads: rumours) that there exists a group of powerful men in Washington, known as the Plunge Protection Team, which works secretly to protect the US stock market from plunging in critical moments, like right after September 11, 2001. From New York Post, we have this article that goes somewhere to confirm that this rumour may not be so wild after all.

5. Further warning signs that US economy may be in trouble. (here)

6. For those who wants to make trading a full-time profession, go here.

7. Other trading tools include Bollinger Bands, Multiple Moving Averages & Fibonacci Retracement.

Have a nice weekend.

Friday, August 25, 2006

A tale of two car companies

Recently, the 2 companies that are involved in the sale & distribution of our 2 national cars i.e. Proton & Perodua have reported their results for the QE 30/6/2006. As you may know, EON is the super dealer of Proton passenger cars while MBM is largest dealer of Perodua passenger cars. The difference in the financial results speaks volume about how far the fortune of the Proton marquee has fallen. See for yourself.










Table 1: EON's QE 30/6/2006 results











Table 2: MBM's QE 30/6/2006 results


In this week's issue of the Edge, it was noted that for the month of July, the number of Proton car registered with the RTD was "just over 10,000 units" while the number of Perodua cars registered was "just 13,800". If that looks bad for Proton, you may be even more surprise to learn that July was suppose to be a good month for Proton because the July number represents a 20%-improvement over the June number while for Perodua, the July month was its second worst month for this year.

YTL Power may come under selling pressure

Background

YTL Power's holding company, YTL Corp has announced that it will be making a renounceable offer for sale (ROS) of shares in YTL Power at RM1 per share to its shareholders on the basis of 1 YTL Power share for every 10 YTL Corp held. The short-term impact of this exercise is likely to be a positive for YTL Corp but a negative for YTL Power.

Purpose

To show that YTL Power could be a good investment if the share price were to drop under the above-mentioned exercise.

Current Financial Performance

YTL Power reported its 4Q2006 results ended 30/6/2006 yesterday. Its net profit has increased 21.2% q-o-q or 38.4% y-o-y to RM263 mil. Turnover has increased 15.2% q-o-q or 10.4% y-o-y to RM1.026 billion. The improved performance is attributable to higher contribution from Wassex Water Group. For the full year ended 30/6/2006, net profit increased 17.8% to RM874 million on the back of a 2.4%-increase in turnover to RM3.758 billion. EPS has also increased from 15.84 sen for FYE 2005 to 17.87 sen in FYE 2006.








Technical Picture

From Chart 1 (monthly chart), we can see that YTL Power is a long-term uptrend since 1998. That uptrend line will provide good support at RM1.70 & rising. Since Feb 2002, the share's uptrend has ascelerated. The ascelerated uptrend provides support at RM1.90. For a clearer view of this ascelerated uptrend, go to Chart 2 (weekly chart). From Chart 3 (daily chart), you can see that the share is in an ascending triangle with breakout at RM1.97 & support at RM1.92. At 4.30 p.m., the share is at RM1.90.

















Chart 1: YTL Power's monthly chart as at August 24


















Chart 2: YTL Power's weekly chart as at August 24



















Chart 3: YTL Power's daily chart as at August 24

Valuation

Based on its 2006 EPS of 17.87 sen & the price of RM1.90 now, YTL Power is trading at 10.6 times. If the share price can drop to the long-term uptrend line support of RM1.70, the PE at that price would work out to be 9.5 times. At around 10 times, YTL Power is an attractive stock. This is especially so given the fact that YTL Power is a defensive stock as it is involved in the water & power generation sectors.

Recommendation

Watch out for YTL Power as it tests & hopefully breaks the RM1.90 level. It would be a good addition to your long term portfolio if it ever drops to the RM1.70 level. If you feel generous, you can ever get in earlier than RM1.70.

Maybank announced a very good 4Q2006

Maybank reported its 4Q2006 results ended 30/6/2006 yesterday. Its net profit has increased 33.4% q-o-q or 50.8% y-o-y to RM855 mil. Turnover, which comprises interest income, has dropped 12.5% q-o-q or 20.4% y-o-y to RM2.914 billion. The sharp drop in turnover (or, interest income) is quite puzzling. It maybe due to the migration of customers from simple loan products to other products where the bank earns a fee rather than interest income.

For the full year ended 30/6/2006, net profit increased 12.0% to RM2.804 billion on the back of a 13.3%-increase in turnover to RM12.702 billion. The bank has attributed its good performance to its 3-pronged strategy, namely to diversify the income streams to include other non-banking income; to improve revenue from overseas operations; and, to grow non-interest income. The non-banking income came substantially from MNI, which became a subsidiary of Maybank after the bank acquired 73.62% of MNI on Dec 13, 2005. The stake was increased to 100% on May 17, 2006.








Valuation

Based on the latest quarterly EPS of 22.54 sen for 4Q2006, we can compute the full year EPS as 90.16 sen. This may appear high when compared to its 2006 EPS of 74.43 sen but I believe otherwise. This is because Maybank can expect to benefit from full year contribution from MNI as well as greater contribution from its fast growing overseas operation. Based on the EPS of 90 sen and yesterday's closing price of RM10.80, Maybank is now trading at a PE of 12 times. I believe that is very attractive for the prime banking group in this country.

Technical Picture

Maybank has been consolidating since January 2005, when it achieved an all-time high of RM12.70. The share is trapped in a downward sloping wedge (also known as a bullish wedge because it tends to break on the upside). The breakout, if it happened soon, would be at RM11.00. At the end of the morning session, the share closed at RM10.90, gaining only 10 sen. See chart 1 below.


















Chart 1: Maybank's weekly chart as at August 24


Alternative instruments

Besides the share, one can gain exposure to Maybank by buying into 2 covered warrants i.e. Maybank-CA & Maybank-CB.






Prices as at August 24, 2006

From the above, you can see that Maybank-CA is more attractive as it is trading at a discount of 0.6% while Maybank-CB is trading at an undemanding premium of 5.1% only. Techncially speaking, Maybank-CB is a safer buy as it has broken out of its medium-term downtrend and it is now moving sideway, with good horizontal support at RM0.46. MAybank-CB is still in a downtrend but it seems to have a good aupport at the psychological RM1.00 support level.



















Chart 2: Maybank-CA's weekly chart as at August 24



















Chart 3: Maybank-CB's weekly chart as at August 24


Recommendation

Based on the above, Maybank looks like a good investment especially if it breaks above the RM11.00 resistance. If so, you may also like to consider the 2 covered warrants, Maybank-CA & Maybank-CB.

Thursday, August 24, 2006

Know your stock (7000)

I like to start a series of posting called "Know Your Stock" today. The individual post shall be distinguished merely by the stock code of the company covered, like (7000) for today's posting. The name of the stock shall be revealed at the end of this post, for a bit of suspense if you like.

This company is involved in the provision of air transportation & related services. The meteoric rise of its share price is an envy of all those who did not have the foresight of buying the share earlier. It also proves that it is never too late to buy into any stock even when it has gone up a lot (disclaimer: that may not always be the case). But, after a long run-up in price, the share is beginning to show signs of trouble.

It has broken below its long-term uptrend at RM12.60 about 2 weeks ago. While the share price (RM12.30 as at August 23) did not drop very far, it has failed to climb back up above the uptrend for the past 2 weeks. The warning will turn to Code Red if the share price were to drop below the RM12.00. Take a look. With enough hints, you would be able to guess what stock is this.

















Chart 1: Weekly chart as at August 23


















Chart 2: Daily chart as at August 23

The name of the stock is Transmile Group Bhd.

Which is better- Magnum or Magnum4D? Part 2

This is the second part of a 2-part report.

Magnum’s Current Financial Performance

Magnum’s net profit increased 10.0% q-o-q or 36.1% y-o-y to RM66.5 mil. Turnover has increased 11.2% y-o-y from RM644 mil to RM716 mil. Like Magnum4D, Magnum’s 2Q turnover is normally lower than its 1Q’s turnover and it is no different for FYE2006. Turnover for 2Q2006 of RM716 mil is down 8.2% when compared to 1Q2006 of RM780 mil. This is much smaller than the 14.0% drop experienced in FYE2005.








Valuation

Using the EPS for 2Q2006 of 4.6 sen, we can arrive at an annualized EPS of 18.4 sen. Based on this & the share price of RM2.11 at the close of the closing session today, Magnum’s PE is about 11.5 times, much lower than Berjaya Sports Toto("BToto")’s PE of 15 times. As such, Magnum may be preferred over BToto.

Technical Picture

I have been quite fascinated with Magnum's technical outlook for quite sometime. You may recall that I have highlighted the possible reversal of Magnum's downtrend in July (go here). Magnum has in fact did a breakout of its diamond-shape bottoming formation on August 11 but that breakout could not hold. At the close of this morning session, Magnum has again broken above the RM2.08 level. I believe this time around, the breakout should be able to sustain. Other reason for my mildly bullish stance comes from the crossover of the 20-day MA by the faster 10-day MA. For better picture, take a good look at the chart below.

















Chart: Magnum's weekly chart as at August 23

Recommendation

Based on improving financial & possible bullish reversal, I would recommend Magnum for a LT investment.

In the final comparison, I would prefer Magnum4D to Magnum because of cheaper valuation. There is some unconfirmed report (read: rumours) that Magnum may privatize Magnum4D in order to "capture" the entire earning of Magnum4D. This is not surprising and Magnum has the means to do so as it has a cash reserve of RM814 mil as at 30/6/06.

Which is better- Magnum or Magnum4D? Part 1

Background

Magnum is the operator of the 4-D numbers forecast betting games which is sold through its 64%-owned subsidiary, Magnum4D. In the past two years, Magnum’s 4D games had been plagued by high prize payout ratio, which has affected the profitability of Magnum & Magnum4D.

Magnum & Magnum4D have just announced their 2Q2006 results ended 30/6/06. The results show good improvement in the result of both companies. The run of “bad luck” may have ended. In addition, the 2 companies have also benefited the introduction of Mbox game on April 1, 2006.

In the first part of this 2-part report, I shall look at the result of Magnum4D & its potential.

Current Financial Performance

Magnum4D reported an improved performance for 2Q2006. It managed to chalk up a net profit of RM37.1 mil as compared to a loss of RM8.8 mil recorded in the corresponding quarter last year. Turnover has also increased by 17.8% y-o-y to RM577 mil from RM490 mil previously.

Comparison of second quarter and first quarter can often be misleading because Magnum, like other gaming companies, normally enjoys better sale during the lunar New Year period. Nevertheless, it’s encouraging to note that the turnover for 2Q2006 has dropped by only 3.0% q-o-q as compared to a 14.3% q-o-q drop in the turnover for 2Q2005. The main reason for this is the introduction of Mbox game on April 1, 2006. This coupled with a lower prize payout ratio has helped Magnum4D to report a net profit of RM37.1 mil vs. a loss of RM24.0 mil incurred in 1Q2006.







Valuation

Assuming prize payout ratio & turnover remain similar to that of 2Q2006, Magnum4D can be expected to report a pre-tax profit of RM176 mil for a full year i.e. 2Q2006 pre-tax profit of RM44 mil multiplied by 4. Net profit will work out to be about RM126.72 mil i.e. RM176 mil multiplied by a factor of 0.72. EPS will be about 76 sen!!!

As always, when confronted with such high number, I will discount it by 30% to arrive at the “final” EPS of 53.2 sen. Based on this morning session’s closing price of RM2.52 & an EPS of 53.2 sen, Magnum4D’s PE is now only 4.7 times. That’s very cheap for a gaming stock.

PS. I've decided to ignore the net profit figure for 2Q2006 because the effective tax rate of 16% is too low. There may be good reason for this but we cannot expect the same to prevail in other quarters.

Technical Picture

Magnum4D has broken out of its downtrend line at RM2.40 in w/e Feb 17, 2006. Since the breakout, it has been moving sideway (see Chart 1 below). From the daily chart (Chart 2), we can see that Magnum4D is in a ST uptrend, with support at RM2.38.

















Chart 1: Magnum4D's weekly chart as at August 23

















Chart 2: Magnum4D's daily chart as at August 23

Recommendation

Based on cheap valuation & good technical set-up, I believe Magnum4D to be an excellent investment choice.

Wednesday, August 23, 2006

Plenitude- a cheap property stock

Background

Plenitude Bhd (“Plenitude”) is involved in property development & investment. Its major projects include Taman Desa Tebrau in Johor Bahru, Taman Putra Prima in Puchong, Bandar Perdana in Sg. Petani and Changkat Kiara in Sri Hartamas. Its property development is likely to last for the next 10-15 years as it has a large landbank of about 2000 acres, located in Johor Bahru & the Klang Valley.

Current Financial Performance

It reported a poorer performance for 4Q2006. Its net profit dropped by 10.6% q-o-q or 25.9% y-o-y to RM 13.3mil. This was despite a higher turnover, which has increased by 15.8% q-o-q or 7.3% y-o-y to RM 63.9 mil. Nevertheless, we can take comfort in knowing that Plenitude's financial performance for 2006 is better than last year's performance. Its turnover for FYE 2006 is 14.0% higher than that of FYE 2005. Consequently, its net profit is 6.4% higher at RM 52.4 mil.







Valuation

S&P has forecast a 2007 EPS of 48.6 sen for Plenitude in its research report dated August 22, 2006. This is an increase of almost 10 sen from the 2006 EPS of 38.8 sen. If we average the unaudited 2006 EPS & S&P's 2007F EPS, it works out to be about 43.7 sen. Based on this figure & the share price of RM1.48 (today's closing price), Plenitude is now trading at a PE of 3.4 times.

Because of the cheap valuation, S&P has a STRONG BUY on Plenitude, with a 12-mth target of RM1.78.

Technical Picture

Plenitude is in an uptrend, with the support at RM1.40. Immediate horizontal support & resistance are at RM1.38 & RM1.50, repectively.

















Chart: Plenitude's weekly chart as at August 22


Recommendation

I believe Plenitude is a very good property stock that is trading now at very undemanding valuation.

Choo Bee- a good LT investment

Background

Choo Bee Metal Industries Bhd (“Choo Bee”) is involved in the processing of steel coils into steel pipes & other related products and trading of hardware products.

Current Financial Performance

It reported an improved performance for 2Q2006. Its net profit increased by 34.1% q-o-q or 43.7% y-o-y to RM 8.7mil. Turnover has increased by a lesser quantum of 0.9% q-o-q or 16.2% y-o-y to RM 88.3 mil.

The latest 4 quarters’ cumulative turnover is 4.7% higher than the preceding 4 quarters’ turnover. Despite the higher turnover, net profit for the same periods is lower by 52.6% from RM 38.2 mil to RM 18.1 mil. The drop in net profit was due substantially to the writing down of inventory totaling RM 13.4 mil, which were carried out in QE 31/12/2005 & QE 30/09/2005.

Going forward, Choo Bee may benefit from the greater demand for its pipes, both from the water sector as well as from the oil & gas sector.







Valuation

Based on the EPS for QE 30/06/2006 & QE 31/03/2006 totaling 14.52 sen, the annualized EPS of Choo Bee is estimated to be about 29.04 sen. This is slightly higher than S&P's forecast of 2006 EPS of 26.2 sen in its report dated August 22, 2006. S&P has rated Choo Bee as a STRONG BUY with a 12-mth target of RM1.98.

Based on EPS of 29 sen & share price of RM1.56 (today closing price), Choo Bee is now trading at a PE of 5.4 times.

Technical Picture

As noted below, Choo Bee is in a ST uptrend, with support at RM1.50/1.55. Overhead horizontal resistance is at RM1.73.

















Chart: Choo Bee's weekly chart as at August 22

Recommendation

Based on fairly cheap valuation, Choo Bee is considered a good LT investment.

WWE- a very good set of results for 3Q2006

Background

WWE is mainly involved in the undertaking of water, wastewater and other related environmental projects. Yesterday (August 22), it has announced a very good set of financial results for 3Q2006. The net profit increased by 52.7% q-o-q or more than 7-fold y-o-y to RM6.1 mil. Turnover has also jumped by 51.5% q-o-q or more than 2-fold y-o-y to RM109 mil. The cumulative latest 4 quarters' net profit increased by 55% to RM 7.4 mil from RM 4.8 mil in the preceding cumulative 4 quarters. This is on the back of an almost 3-fold jump in turnover from RM 55 mil to RM 264 mil.

The improved performance is due to the booking in of the jobs done for the Jelutong Sewage Treatment Plant and Central Sludge Facility Phases 1 and 2 in Penang Island (contract sum: RM468,260,693 & contract period: 36 months from December 1, 2004).

In addition, WWE has also been awarded an overseas contract via Letter of Award dated December 11, 2004 for the Construction Of Branch Sewer Networks in North Central Districts of Jeddah by Civil Works Company Ltd (CWC) of the Kingdom of Saudi Arabia (contract sum: Saudi Riyal 408,000,000 [RM417million] & contract period: 32 months from June 4, 2005).








Valuation

In the latest 4 quarters, WWE booked in EPS totaling 17.87 sen but the latest 2 quarters' EPS is actually higher at 24.04 sen. This is because of WWE registered a loss in QE30/9/2005 of RM 3.7 mil, partly due to impairment loss of RM 1.58 mil & higher operating expenses. If we compute the full year's EPS basing on the latest 2 quarters' EPS of 24.04 sen, it will come to an amazing figure of 48 sen. While this maybe more reflective of the current performance of WWE, I would discount it by 30% to take into account some risks that we have overlooked. So, the "final" EPS is 33 sen.

Based on this & WWE price of RM 0.83 now (at 9.30 a.m. Aug 23, 2006), the PE is a very low 2.5 times.

Technical Picture

The weekly chart (Chart 1) shows WWE to be in a downtrend line with a bullish breakout at RM0.80. At the opening bell this morning, WWE has already done a breakout. From the daily chart ( Chart 2), you can see that the support given by the current ST uptrend line at RM0.70 would be an ideal entry to this stock.

















Chart 1: WWE's weekly chart as at Aug 22

















Chart 2: WWE's daily chart as at Aug 22

Recommendation

Based on the above, WWE looks like a very good investment. Since the share has jumped this morning, you may choose to stagger your buying in case the share price were to retrace the current bullish spur.

Tuesday, August 22, 2006

PLUS could be a good buy if it can break above RM2.72.

Recent Development

PLUS Expressway Bhd ("PLUS") has been affected by a stagnant traffic growth for the past 3 months. Its flagship concession, the North South Expressway ("NSE") has registered a traffic growth rate of 0.4% in March, 0.6% in April and 0.4% in May. This is well below the forecast furnished in its prospectus issued in 2001 when PLUS applied for its listing on KLSE. In that forecast, traffic for NSE is projected to grow at 5.4% for 2006.

The drop in the traffic growth rate is attributed to the unexpected 30 sen hike in petrol price in March this year. This has caused some commuters to seek alternative means of transport or even cutting back on long-haul/outstation trip.

Current Financial Performance

The latest available quarterly result is for QE 31/3/2006. The results for QE 30/6/2006 is likely to be announced in the 3rd week of this month. Since the traffic on the expressway was still growing, albeit at a much slower rate, I expect the result for QE 30/6/2006 to be in line with the past few quarters' performance. As such, PLUS' EPS is likely to be about 17 sen.








Valuation

Based on this morning (August 22)'s closing price of RM2.70 & EPS of 17 sen, this will give you a PE of about 15.9 times.

An old CIMB's research report dated Nov 25, 2005 (the only one that I've managed to get my hands on) has computed a DCF-based target price is RM3.96 for PLUS. This target price may have to be revised downward since the overnight policy rate (OPR) have been revised upward from 2.7% in November 2005 to 3.5% today.

Technical Outlook

PLUS made a high of RM3.42 in August 2005 & since then, it has been drifting down. The recent low was RM2.57 in July. If PLUS' share price can surpass the downtrend line at RM2.72, the current downtrend could be over. See Chart 1 & 2 below.


















Chart 1: PLUS' weekly chart as at August 21


















Chart 2: PLUS' daily chart as at August 21

Recommendation

Based on the above, PLUS could be a good LT investment if the share price can break above RM2.72 convincingly.

Monday, August 21, 2006

Megan Media- too cheap to ignore

Business Activities

Megan Media Corp Bhd ("Megan”) is involved in the production of CDs, DVDs & Video Tapes. The group has undertaken a fair extensive expansion program in the past 2 years, which saw it taking over another company within the same business from its parent company.

Past & Future Financial Performance








From the above, we can see that Megan's turnover has grown from RM 98.8 mil in FYE 2001 to RM 1.034 billion in FYE 2006. During that period, its net profit had tripled from RM 18.3 mil to RM 60.2 mil. Based on S&P's research report dated July 4, Megan is expected to report a net profit of RM 83.0 mil for FYE 2007 on the back of turnover of RM 1.062 billion. 2007 EPS is forecast to be about 40.4 sen.

Current Financial Performance






If you compared the last 4 quarterly results with the preceding 4 quarterly results, you can see that net profit has declined by 9.0% from RM 66.2 mil to RM 60.2 mil. EPS has dropped by 36.1% from 46.2 sen to 29.5 sen. The poorer net profit came about despite a 14.4%-increase in turnover from RM 904.7 mil to RM 1.035 billion.

Valuation

Based on the closing price today (Aug 21) of RM 0.61 & trailing EPS of 29.5 sen, the stock is trading at a PE of 2.1 times. This is very cheap. It is equally cheap when you compare the share price to its book value; giving a price to book of only 0.25 times.

Technical Outlook

Megan made a high of RM2.36 in w/e Jan 9, 2004. Since then, it has been in a downtrend. There are 3 levels where the stock has some good supports i.e. RM1.25, RM1.00 & RM0.56/0.57. It broke through the first 2 supports & it has just tested the third support, which appears to be holding up (see Chart 1 below).


















Chart 1: Megan's weekly chart as at July 26

From the daily chart (Chart 2 below), we can see that the stock has tested the RM0.56/0.57 support last Friday (Aug 18). As expected, Megan put in a rebound today & has managed to close at RM0.61. This means that it has broken abouve its immediate downtrend as well as the 10-day MA; both at the RM0.60 level. There is a good chance that the stock may recover from this level.

















Chart 2: Megan's daily chart as at July 26

Future Prospect

In the aforementioned July report, S&P has called a SELL on Megan because the optical disc industry is experiencing severe overcapacity (due to over-expansion in China & Taiwan). The situation is so bad that Megan has opted to outsource some of its production rather than expanding its in-house capacity. Out-sourced products only enjoyed a margin of 2-3% as compared to 25-30% margin for in-house products.

In addition, SJ Securities in its July 4 report has upgraded its rating of Megan to a HOLD from a SELL (which is based on its report dated Apr 6). SJ Securities is still uncomfortable with the high gearing of Megan.

Weakness noted

The weaknesses are as noted in the 2 research reports i.e. over-capacity in the industry & high gearing. After looking through its balance sheet as at April 30. 2006, I've ascertained that the group's bank borrowings totaled RM838.7 mil as compared to its shareholders' funds of RM470.7 mil. This gives a gearing ratio of 1.78 times.

Recommendation

Based on cheap valuation, I would believe that Megan to be a good long-term investment. The negative news is probably all priced in at this level. While the technical picture has yet to turn positive, I feel that the downside risk is very low.

Landmark- Greenmail & White Knight.

I've read this piece of news with mixed feeling. As reported, Syed Yusof and parties close to him has sold off their 17% stake in Landmarks at RM2 apiece. The buyer is reportedly gaming and power group, Genting Bhd.

The report states that Syed Yusof has successfully completed a greenmail. A greenmail refers to a maneuver in which the buyer of a block of shares (commonly known as the raider) has agreed to sell his shares (normally at a big profit) to the existing owner of a listed company (commonly known as the management). The management offered to buy the block of shares in order to retain control of the listed company.

The Landmark saga could have ended there if the buyer of the block is the management of Landmark. As reported, it is not but instead it is a third party, Genting Bhd. The question that immediately springs to mind is whether Genting is merely acting as a conduit to complete the buyback by Landmark's management or has Genting acted independently. If it is the latter case, has Genting made a similar arrangement with Landmark's management? If so, Genting could end up with Syed Yusof’s 17% stake plus the management’s stake of 18.65% (or, 26.7% if you include in the stake held by Dynaura Trading Sdn Bhd, a party deemed friendly to the management). If so, Genting would have ended up with a stake of between 35.65% & 43.7% in Landmark & would have to make a general offer for Landmark at RM2.00 apiece. So, which is it?

Over the next few days, I expect uncertainty to rule the share price of Landmark. If the management has bought back the shares via Genting, the share price will drop back. You may want to take profit as soon as possible, in that scenario. If Genting were to announce latter that it has done a similar deal with Landmark’s management, Genting will have to offer to takeover Landmark at RM2.00 apiece. In this scenario, you have to weigh the opportunity cost of going for the GO as compared to sell into the market now (the price at 10.00 a.m. is RM1.86).

The one thing that you can safely rule out is that Genting has stepped into Syed Yusof's shoes & pursue a hostile takeover of Landmark. Genting, which makes its money from the sensitive casino business, will not go down that route.

Saturday, August 19, 2006

Linkfest

Linkfest time, again.

1. Trader Feed explains why it’s so easy to lose money in the market. He also looks at what can contribute to profitability. If nothing works, you can take some consolation in knowing that trading can teach you a thing or two about life.

2. Bill Miller is quite a legend in the world of funds management. He is the manager of the Legg Mason Value Trust, the only mutual fund to beat the Standard & Poor's 500 index for each of the last 15 years. The fund is probably related to Legg Mason Inc, which has acquired 12 million Green Packet shares at RM2.625 per share in July 4 this year.

Anyway, the fund managed by Miller was in the news recently for the wrong reason. It was off 5.67% in the second quarter; it has lost nearly 9% this year, making it pretty much the worst large-cap stock fund out there in 2006. Miller admitted that the fund’s under-performance might be due to it being over-weight on big-name Internet stocks and under-weight on the high-flying energy sector. But Barron has offered an alternative theory why Miller is flagging: This summer he bought a humongous yacht.

3. How to earn Warren Buffet-like returns? Invest like Warren Buffet.

4. One theory why the market is inefficient?

5. Big Picture’s Barry Ritholtz thinks 2007 may be the year of the big cap. How did he come to this conclusion? Well, Barry has been tracking the ratio of Big Caps (S&P100) to Small Caps (S&P600) for sometimes. "When that ratio is trending lower, the small caps are outperforming the big caps. When its trending higher, the big caps are doing well... It's apparent that, after 3 years, the downtrend ("Channel") of this relationship has been in has been broken, as has the 50 week moving average." See the chart below.
















6. Roubini talks about the similarities between 2006 & 1987.

7. Some really scary forecasts from some big-time Wall Street analysts.

8. Mark Leibovit, who was ranked the top intermediate—term market timer for the 10- year period through year-end 2002 by Timer Digest, thinks otherwise.

9. From Humblemoney, we have 11 Trading lessons:

(1) invest in your business
(2) question orthodox thinking
(3) be patient
(4) be flexible
(5) be consistent
(6) network
(7) trade small
(8) have the courage to win
(9) analyze your results
(10) maintain perspective
(11) walk your own path

Read all about them here.

10. 8 principles of strategic wealth management from GARP, the Global Association for Risk Professionals.

(1) Take charge and do it early.
(2) Align family and business interests around wealth-building goals and strategies.
(3) Create a culture of accountability.
(4) Capitalize on your family's combined resources.
(5) Delegate, empower, and respect independence.
(6) Diversify but focus.
(7) Err on the side of simplicity where possible.
(8) Develop future family leaders with strong wealth management skills.

Read all about them here

Friday, August 18, 2006

MPI reported good profit for QE 30/6/2006 but Unisem is cheaper

MPI's net profit increased by 36.3% q-o-q or 75.8% y-o-y to RM40.8 mil on the back of an increased turnover of RM388 mil. Turnover has increased by 9.0% q-o-q or 39.2% y-o-y (see Table 1 below).

As such, MPI's EPS for the 2H2006 amounts to 35.55 sen while its full year's EPS is 53.86 sen. Using only the 2H2006 EPS as a base, we can arrived at an EPS of 71.10 sen for FYE2007. Based on yesterday (Aug 17)'s closing price of RM10.10, MPI is now trading at a PE of 14.2 times its 2007 EPS.










Table 1: MPI's Financial Results for QE 30/6/2006

On the other hand, Unisem's net profit increased by almost 9 folds y-o-y to RM16.1 mil on the back of a 30.7%-increase in turnover of RM173 mil. Net profit has, however, dropped by 26.2% q-o-q while turnover has only increased by 1.6% from the immediately preceding quarter (see Table 2 below).

Unisem's EPS for the 1H2006 amounts to 8.58 sen. Based on this, we can arrived at an annualised EPS of 17.16 sen for FYE2006. Based on yesterday (Aug 17)'s closing price of RM1.50, Unisem is now trading at a PE of 8.74 times its 2006 EPS. Based on PE comparison, Unisem looks like a cheaper stock than MPI.










Table 2: Unisem's Financial Results for QE 30/6/2006

The technical picture of MPI & Unisem are quite similar. Both have yet to break above their respective downtrend lines (RM10.20 for MPI & RM1.65 for Unisem). A break above this level would make each stock a BUY. Their charts are appended below.

















Chart 1: Unisem's weekly chart as at August 17

















Chart 2: MPI's weekly chart as at August 17