Wednesday, October 02, 2013

Bpuri has a bullish breakout

In the past one month, BPuri announced it has secured three sizable contracts. They are:
1) a RM67 million contract for civil works in Sipatang, Sabah (here);
2) a RM441 million contract from Sime Darby Capitalmalls to build a superstructure for a 13-story retail complex in Melawati (here); and
3) a RM97 million contract from Likas Bay Prescint S.B. to construct a Koums Asrama in Kuala Menggatal, Sabah (here)

This followed shortly after the announcement that the former Transport Minister, Ong Tee Keat has joined Bpuri as an Adviser. For more on this, go to the Ant Daily (quoting a report from Focus Malaysia). Tee Keat, known to be a 'clean guy', may prove to be less helpful in term of getting new contracts.

From the chart below, we can see that Bpuri has broken above its intermediate downtrend line, RR at RM0.70 in April. In late September, Bpuri broke above its horizontal line at RM0.80. It also made a higher high after the recent high of RM0.82 in April. Thus, we can say that a medium-term uptrend has begun. A medium-term uptrend line, SS can be drawn, with support at RM0.70.Immediate support is the horizontal line at RM0.80 and thereafter the 40-week EMA line at RM0.73.


Chart 1: Bpuri's weekly chart as at Oct 2, 2013_9.30pm (Source: Quickcharts)

Bpuri's financial performance is nothing to shout about. While its revenue has grown substantially, its profitability lags behind. The main reason for this is the poor profit margin of only 1-2% enjoyed by the company. This shows that construction company must move up the value chain if they intend to make good profit.


Chart 2: Bpuri's last 14 years performance

The immediate concern for Bpuri is the potential huge damages that it may incurred in the late delivery of the KLIA2 project. I believe Ong Tee Keat may prove to be an asset when Bpuri comes up against Malaysian Airport (the employer) when the latter makes its claim for Liquidated Ascertained Damages (LAD) against Bpuri and its JV partner, UEM Construction in the late completion of the KLIA2 contract. As per the article in the Ant Daily:

In June, MAHB slapped Bina Puri, one of the subcontractors for the klia2 project, and its joint-venture partner UEM Construction with its first liquidated ascertained damages (LAD) claim, amounting to RM199,445.40 per day. It is estimated that the damages could reach some RM63 mil. The new low-cost carrier terminal was scheduled to open on June 28 but has since been delayed to May 2, 2014.
If the total LAD of RM63 million is shared out equally, Bpuri would have to take a loss of

RM61.5 million RM31.5 million. However, the final figure is normally negotiated and it would likely be less than the initial LAD. One angle that Bpuri and UEM Construction may argue their case is the numerous changes made to the initial plan.

Besides the huge LAD from the KLIA2 project, Bpuri has another serious concern: poor financial position, As at 30/6/2013, its current ratio stood at 0.95 time while its gearing ratio was very high at 3.35 times. The high leverage plus the poor liquidity are recipe for disaster.

Based on the above, I believe that Bpuri may not be a good stock for long-term investment. However, its technical breakout may qualified the stock as a trading BUY. Good luck.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Bpuri.

6 comments:

hng said...

Hi Alex

What is criteria for fund analyst when they give target price for certain stock? In the latest HwangDBS highlight, it peg
YTL Power, Hold; Price Target: RM1.70 by citing two reasons as below, which as retail investor wish to argue it.

Reason 1: Dividend cut to conserve cash for acquisition.

Reason 2: New acquisitions are crucial to cushion against earnings drop after expiry of Malaysian PPAs in 2015.



Q: Dividend cut to conserve cash for acquisition.

A: Dividend cut, but YTLP resume share buyback. So far, already buyback 2.6% (186m) and if take into account previous cancellation of 3.4% (250m) treasury share, total share buyback accumulate up to 6%, which is equivalent to 6% earning enhancement. Hwang analyst simply ignore current trend in YTLP, which aggressively buyback share via open market, as much as 80-90% of total volume trade is absorb by YTLP share buyback.

Based on YTLP share buyback record, including previous 250m treasury cancellation, totaling 250m + 186m = 436m buyback share. assuming YTLP average cost at RM 1.70, it already spent RM 740m. If these amount of cash RM 740m is opt for dividend payment, it give rise to 10sen /share already.

Thus, it YTLP is cum 10sen dividend, what is likelihood its share price trade, should be at least RM 2.00 peg 5% net yield.

However, all these analyst seem ignore it or simply favor cash dividend payment compared to share buyback despite share buyback and subsequent cancellation is much more better, as it enhance earning permanently by reduce total number of share.

Q: New acquisitions are crucial to cushion against earnings drop after expiry of Malaysian PPAs in 2015.

A: IPP is going to expire on 2015. But the total contribution from IPP is just PBT: RM 178m or just about 11% of YTLP earning. In addition, main culprit, Yes Wimax, record even higher loss than IPP, at RM 269m. If Yes Wimax can turnaround and start contributing earning in next 2 year, it is most than offset the loss of IPP earning after expire

Alex Lu said...

Hi Hng,

Based on the Discounted Dividend Model (“DDM”), we know that the value of a stock is simply the net present value of its future dividend receivable. So if the dividend receivable declined, the value of the stock would decline accordingly.

If the decline in dividend is due to reduction in earning, it is straight forward & easy to accept. What if the reduction is due to change in dividend payout policy? The question to consider is whether the profit retained would be used productively to increase the company’s earning. If the new investment (from the profit retained) can generate a return higher than the “expected rate of return” than the share price would increase.

In the case of YTLPower, the dividend reduction may be due to lower earning. That’s a negative. Assuming it is not due to earning reduction but instead due to higher profit retention, we must consider whether the new investment would generate return higher than “expected rate of return”? I think not. Why? If it is generating higher return than “expected rate of return”, the management should stop buyback its shares and instead conserve cash for additional investment.

From this, I believe the analyst’s argument is fairly logical.

For a definition of expected rate of return & DDM, go to http://www.investopedia.com/terms/e/expectedreturn.asp & http://www.investopedia.com/terms/d/ddm.asp

hng said...

Thanks Alex

steve said...

YTLPower and YTL buyback case is more likely a taking over/privatization preparation work, although nothing is confirm. It's hard to judge its valuation now. However, some think that YTL could have better value at current price if this exercise really happens in future.

hng said...

Hi Alex

Just for your reference about YTLP and chromebook

http://m.youtube.co/watch?v=OjZAjqxC-xY&desktop_uri=%2Fwatch%3Fv%3DOjZAjqxC-xY

Alex Lu said...

Hi Hng,

Thank you for the link to YTLPower's chromebook or 1BestariNet project.