KPJ: Earnings Growth Continued

Result Update 

For QE30/9/2019, KPJ's net profit rose 11% q-o-q or 12% y-o-y to RM46 million while revenue rose 7% q-o-q or 10% y-o-y to RM906 million. Group revenue rose 10% revenue due to the increase in number of patient visits, radiology cases and surgeries especially for KPJ Johor, KPJ Selangor and KPJ Rawang. The new addition to the Group’s group of hospitals, KPJ Batu Pahat, which commenced its operation on 18 September 2019, also contributed to the improved revenue of the period. Increased activities within the support companies also contributed to the revenue growth.

Profit before tax recorded 16% increase to RM69.3 million during this quarter from RM59.9 million in the same quarter in 2018 led by the increase in revenue by 10%. Despite the fact that the increase in profit before tax has been set-off by the MFRS 16 impact recognized during the quarter especially on depreciation and finance costs amounting to RM9.7 million and RM14.0 million respectively, the Group managed to set higher profit before tax margin with 7.9% as compared to last year’s 7.5%. This was due to cost optimization and initiatives from the hospitals as well as better performance by support companies.


Table: KPJ's last 8 quarterly results


Graph: KPJ's last 47 quarterly results

Financial Position

As at 30/9/2019, KPJ's financial position is deemed adequate with current ratio at 1.15 times while gearing ratio was elevated at 2.03 times.

Valuation

KPJ (closed at RM0.905 yesterday) is now trading at a PE of 21 times (based on last 4 quarters' EPS of 4.31 sen). At this PER, KPJ is fully valued.

Technical Outlook

KPJ has been moving sideways for the past 5-6 years. If it can break above the high achieved during the past 5-6 years at RM1.15-1.20, KPJ's uptrend can begin.


Chart: KPJ's monthly chart as at Nov 28, 2019 (Source: Malaysiastock.biz)

Conclusion

Based on improving financial performance and exposure to a growing consumer service sector, KPJ could be a good stock for long-term investment. However, its high valuation and neutral technical outlook mean that the stock is likely to trade sideways around RM0.90-1.10 for a while longer.

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

HEIM: Earnings Soared

Results Update

In QE30/9/2019, HEIM's net profit increased by 31% q-o-q or 57% y-o-y to RM103 million while turnover rose 18% q-o-q and y-o-y to RM602 million. Revenue grew by 18% y-o-y, mainly driven by improved sales performance across all core brands and new product launches. Excluding the Sales and Services Tax (“SST”) impact, the Group revenue grew by 11%. Group profit before tax (“PBT”) rose 39% on the back of revenue growth and improved cost efficiency as well as the timing of commercial spend for new product launches executed in Q3.


Table: HEIM's last 8 quarterly results

 
Graph: HEIM's last 56 quarterly results

Financial Position

As at 30/9/2019, Heim's financial position is deemed adequate with current ratio at 0.94 time while gearing ratio was at 2.06 times. Under a less-than capable management, I would rate these ratios should be a concern. However, Heim -like Nestle - is a well-managed MNC which capital management is carried out to maximize return to shareholders. Thus, its capital structure & working capital management is performed to an "extreme" to weed out unnecessary fat.

Valuation

HEIM (closed at RM25.90 yesterday) is now trading at a trailing PER of 24.3 times (based on last 4 quarters' EPS of 106.52 sen). Its dividend yield is decent at 3.7%. Based on PER and DY, HEIM is deemed fairly attractive.

Technical Outlook

HEIM is in an long-term uptrend line. Its immediate support comes from the horizontal line at RM25.00.


Chart: HEIM's weekly chart as at Nov 28, 2019 (Source: MalaysiaStock.Biz) 


Conclusion

Based on good financial performance, fairly attractive valuation & positive technical outlook, HEIM is a good stock for your investment portfolio.

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

Market Outlook as at November 26, 2019

Our market has entered a corrective phrase since Tanjung Piai by-election result on November 16. Our politic can only get more confusing in the next one year. Yesterday Malacca ruling government's failure to pass its own resolution to appoint a Senator is a sign that this problem will continue even after Dr M has made way for Anwar to be the next PM.

Looking at the chart, we can see FBMKLCI is now hanging onto its 50-day SMA line. The indicators are weak, with MACD crossing below its MACD signal line; -DMI above the +DMI; and Stochastic RSI entering into oversold territory.

In view of the negative outlook, it is advisable to avoid trading in the present market.

Chart: FBMKLCI's daily chart as at Nov 25, 2019 (Source: Malaysiastock.biz)

F&N: Hit by a Double Whammy

Result Update

For QE30/9/2019, F&N's net profit dropped 41% q-o-q or 16% y-o-y to RM68 million while revenue dropped 8.6% q-o-q or 2.2% y-o-y to RM975 million. Both F&B Malaysia and F&B Thailand  revenue declined by 12.8% to RM498.3 million and 3.7% (-6.6% in local currency) to RM475.5 million, respectively. F&B Malaysia revenue dropped mainly due to slower off-take in current quarter post Hari Raya Puasa festive season and pre-loading effect ahead of sugar tax implementation.

F&B Malaysia operating profit declined by 47.5% to RM27.7 million due to lower trade and marketing spending in the preceding quarter. At the same time, F&B Thailand operating profit declined by 38.9% (-42.1% in local currency) to RM60.6 million mainly due to higher investment in brand spending and new product launches and re-launches in the current quarter.


Table: F&N's last 8 quarterly results


Graph: F&N's last 52 quarterly results

Financial Position

As at 30/9/2019, F&N's financial position is deemed healthy with current ratio at 2.21 times and gearing ratio at 0.39 time.

Valuation

F&N (closed at RM35.06 yesterday) is now trading at a PER of 31 times (based on last 4 quarters' EPS of 111.9 sen). At this PER, F&N is deemed fully valued.

Technical Outlook

F&N is in an uptrend line, with support at RM32.50.


Chart 1: F&N's weekly chart as at Nov 5, 2019 (Source: Malaysiastock.biz)


Chart 2: F&N's monthly chart as at Nov 5, 2019 (Source: Malaysiastock.biz)

Conclusion

Despite weaker financial performance & high valuation, I rate F&N as a HOLD. The poorer result is a temporary and the technical outlook is still positive.

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

US Market Outlook as at November 4, 2019

DJIA made new high yesterday- joining Nasdaq which made new high last Friday (November 1). As noted in my previous post, S&P500 made new high last Monday (October 28). With all 3 main market barometers having achieved new high, it is now confirmed that US markets' uptrend will continue.

Chart 1: DJIA's daily chart as at Nov 4, 2019 (Source: Stockcharts.com)


 Chart 2: Nasdaq's daily chart as at Nov 4, 2019 (Source: Stockcharts.com)

Chart 3: S&P500's daily chart as at Nov 4, 2019 (Source: Stockcharts.com)

WCEHB-PR: Is It Worth Investing? [Updated]

WCE Holdings Bhd ("WCEHB") is carrying out its rights issue of Redeemable Convertible Preference Shares ('RCPS') on the basis of 2 RCPS @RM0.24 each for every 1 ordinary share held, plus 1 free warrant for every 4 RCPS subscribed for.

WCEHB-PR is the rights to subscribe for the RCPS. It has been traded since October 25 and will cease trading on November 4. This means today is the last day of trading of WCEHB-PR. 

Note: WCEHB-PR is not for speculation. After today, there will be no more trading of this rights, WCEHB-PR. You have no option but to apply for the RCPS at RM0.24 each. The deadline to submit your application is 11 November 2019. You can download the prospectus here and the application form here.

There are 2 options for the RCPS to be converted into ordinary shares. They are:
Option 1:
To convert 1 RCPS plus RM0.04 each to 1 ordinary share

Option 2:
To convert 4 RCPS to 3 ordinary shares

The exercise price for the warrant depends on the time of conversion:
First Exercise Period 
1-5 years: RM0.39

Second Exercise Period 
5-10 years: RM0.45

Why WCEHB rights issue is worth considering?

1. WCEHB owns 80% of the highway concession known as the West Coast Expressway (see the map below). This RM6 billion highway is still under construction but 3 sections (Section 8, 9 and 10) are now open (here). 

Map of West Coast Expressway

2. WCEHB is a marginally profitable company, not a loss-making concern.

3. WCEHB share price has dropped sharply since the announcement of this rights issue. From the chart below, we can trace the decline from around RM0.95 to RM0.40 since the announcement was made on 26 March 2018 (here) to the sending out of the circular to shareholders on 25 July 2019 and finally to the fixing of the ex-date on 10 Oct 2019. These 3 dates are denoted on the chart as A, B and C. 

Chart: WCEHB's daily chart as at Nov 1, 2019_12.15pm (Source: Malaysiastock.biz)

4. After the share has gone ex the entitlement, the theoretical ex-rights price was computed to be about RM0.36. And, the share price continued to drop until it reached RM0.305 yesterday. At the time of writing, WCEHB has recovered somewhat to about RM0.33 while WCEHB-PR was trading at RM0.025.

*****

It is fair to assume that the share price will slowly recover after the rights issue. Let's imagine WCEHB were to go back up to RM0.60 after 1 year. What would be the value of the RCPS & the warrant?

Once If the share price touched RM0.60, the preferred option to use for conversion would be Option 2. Why?

Under Option 2 (1 RCPS + 4 sen = 1 ordinary share), WCEHB RCPS will be worth RM (0.60-0.04) = RM0.56.

Under Option 1 (4 RCPS = 3 ordinary shares), the RCPS would be worth RM0.45.

The market will automatically value the RCPS using Option 2. To do otherwise would lead to value destruction. Markets everywhere abhors value destruction.

Next, what would be the value of the warrant with exercise price of RM0.39?

We are using the exercise price for the First Exercise period and we shall assume that the warrant will be trading with no premium nor at a discount.

The warrant would be worth RM (0.60-0.39) = RM0.21.

Potential profit for investing in 4 RCPS (in RM)

= [Total value of 4 RCPS and 1 warrant] 

                                less 

   [Total cost of buying the rights and subscription cost]

= [(0.56 x 4) + (0.21 x 1)] – [(0.025 x 4) + (0.24 x 4)]

= 2.45 – 1.06

= 1.39

This means you will get a return of 131% for a 1-year investment period.

Based on the above, I think you can consider applying for WCEHB's rights issue of RCPS or to buy the WCEHB shares in the market now. However the return for investing in WCEHB RCPS (of 131%) would exceed that of investing in WCEHB shares (of about 81%).