Why I sold R Sawit & SOP to buy Jaya Tiasa - Koon Yew Yin

Koon Yew Yin: 25^th Jan 2014

If you look at R Sawit 2011 annual report you will see that my family owned a total of 51.4 million shares which we bought at an average price of about 60 sen and sold when the price went above Rm 1.00.

If you look at SOP 2011 annual report you will see that my family owned 15,4 million shares which we bought at about Rm 3 in 2010 and we sold when the price went above Rm 6.

About 3 years ago when we bought SOP their palms were younger and I could foresee its profit growth prospect. For the same reason we are using our entire sale proceeds to buy Jaya Tiasa.  

At present, we do not have any more R Sawit or SOP shares. I have also sold all my TSH and Ta An to buy JT. Readers do not need to tell me R Sawit, SOP, TSH or Ta An is better than JT.

The price charts for R Sawit and SOP show that prices have appreciated while Jaya Tiasa share price has been depressed for a long time because it has not been showing much profit due to the young age of their palms. However, JT’s FFB production is projected to increase rapidly in the next few years as indicated by the FFB production chart. 

On 18^th Jan 2014, Alvin Tai, CFA from RHB research and I gave a talk on investment in the planation sector in Ipoh. About 120 people attended.

As all investors should know that the price of palm oil is the most important factor which affects the profit of all plantation companies. Alvin has calculation and charts to show that the current CPO price up trend will continue for the near future because Indonesia will have less palm oil for export. The reasons are:

A. Most of their palms are old and beyond their production peak.

B. Their economy is fast improving and people want to consume more palm oil.

C. There are more vehicles on the road and to reduce fossil fuel import, the Indonesian Government has mandated 10% use of biodiesel. As a result, 3 million tons of palm oil will be used to produce biodiesel. In 2012 Indonesia produced a total of 31 million tons of palm oil. 

D. For the same reasons as in Indonesia, Malaysia is also mandating 10% use of biodiesel.

E. Due to population and economy increase of the whole world, more palm oil will be consumed.

Alvin considers Southern Acid and Jaya Tiasa are the best buys because SA is the cheapest among plantation shares and JT has the fastest increase of FFB production in the next few years and its share price has been depressed for a long time. You must bear in mind that famous companies like KLK, UP, SOP, TSH etc have been showing better earnings than JT before and they have been fully valued.  They are no longer cheap. Moreover, their FFB production rate of increase will be slower relative to JT.

I am obliged to tell you that Jaya Tiasa is my major investment holding and I do not need you to buy to support its share price. If you decide to buy, you are buying it at your own risk. However, if you think that TSH, Ta AN, SOP, R Sawit are better, you do not need to tell me because I have already sold all of them to buy JT.

As I said before the most important share selection criterion is profit growth prospect and the faster the profit increases, the faster the share price will move up.  

Koon Yew Yin

MY REASONS FOR BUYING JAYA TIASA - Koon Yew Yin

As a business man when I started buying Jaya tiasa basing on my gut feeling and simple business logic. I believe JT is undervalued basing on its total planted area of 62,800 ha which has an open market value of more than twice of its market Cap. Moreover its plywood and timber business have the competitive advantage over other manufacturers in India, China and others because they have to buy logs from JT. JT has a lage forrest reserve. 

 

Why its share price is so depressed for so long? The reason is that it is currently not showing much profit and Funds are not buying. Again as a business man, I must consider this as a buying opportunity if the funds buy I cannot buy so cheaply. 

 

Many so called expert investors recommend me to buy TSH, KLK, UP, IOI and SOP because they are showing much better earning and why should I be so foolish to buy JT when its earning is so poor? 

 

Again as a business man, I naturally think that if every body want them, their prices must have been reflected and it will be very dangerous to buy when at such high prices. How can I make money? 

 

In fact, if you look at SOP's 2011 annual report you will see that my wife Tan kit Pheng, my nominees Tan Kit Yew, Yap Sung Pang and I owned about 20 million shares which we bought about 3 years ago at below Rm 3.00. We have been selling them at above RM 6 to buy JT. I am still selling today at Rm 6.80.    

 

After having accumulated so much, I begin to be worried in case I am wrong and all my friends could not reassure me. Even Alvin Tai told me not to buy about 6 months ago when I started to buy because of its poor earnings. 

 

Wah ! What a relief? At yesterday Seminar Alvin gave a complete analysis of the future of the palm oil industry and  he considers SouthernAcid and JT are the best buys. He said that palm oil price will continue to go up for many more years because most of the palms in Indonesia are older and as a result their production cannot continue to increase. Moreover their economy is fast improving and people want to consume more petroleum fuel and eating oil. 

 

To reduce their import of fossil fuel and save their foreign exchange, the Government has a mandate to replace fossil diesel with 10 biodiesel. That is why tenders are being called for 3 million tons of biodiesel.
 

For the same reason, Malaysian Government is also mandating the use of biodiesel to 10% of all diesel use.  

 

Now I can say that I have never been surer to double my money in 3 years before with my JT. 

 

I am obliged to tell you that JT is my major investment and I do not need you to buy JT to support the price. You buy at your own risk. 
 

The reasons for writing and posting this piece are: 1. To satisfy my ego as humility is not one of my strong points, 2. Like doing charity, I want to teach you how to fish instead for giving out fish and 3. I seriously believe I have something really good to share with you. 

 

Koon Yew Yin 

The power of Tony Fernandes's brand

On a holiday, I was watching CNBC Europe yesterday and what CNBC had was a 15 minutes interview with Tony Fernandes. They were not just talking about Airasia and Airasia X as well as the challenges that his airlines are facing but also QPR.

What strikes me about the interview with Tony was that, unlike some other interviews, CNBC Europe was pre-empting viewers (for some 2 hours) that Tony was to be part of the show for the day which made me stayed on to watch. Like I said, it ended up as only a 15 minutes interview - maybe less even.

Now - let's think it over - Airasia is not even a part of Europe nowadays. It does not fly to Europe anymore. He is part owner of QPR and QPR is not even a Premier League team now. But what makes CNBC pre-empting its viewers for some 2 hours not letting us know at what time the interview was supposed to happen? Tony Fernandes is a big brand himself even in Europe.

One may or may not support Airasia - due to several things that it made to its consumers - like charging for almost anything, but as a Malaysian ain't we proud that we have someone like him?

How do we leverage on his brand? How does Malaysia support him rather fight him? We embraced lesser stars aren't we? - Jimmy Choo (whom does not own the Jimmy Choo brand anymore) and Michelle Yeoh and her husband (not a Malaysian), even.

I have been on local flights every week nowadays - and the thing that strikes me is that airfares price competition has gone to quite ridiculous stage. I like it, as it allows me to buy cheap flight tickets, but I also know that it probably will not last - got to enjoy it while I can.

While I know Airasia is one of the brands controlled by Malaysians and made it big by Malaysians is facing lots of challenges from the likes of Malindo and MAS - we know that the current situation will not last. We should not give in to Tony Fernandez and his group with a silver platter. He is a furious fighter. What Airasia has is scale, speed and sourcing. If Malaysia does not turn out well for Airasia, it has the ability to move beyond Malaysia. Not MAS.

But we are using taxpayers money (for MAS especially) to fight on something which you know MAS will lose without the support of government's money. Malindo is facing the same thing. I do not know who owns the 51% of Malindo (except that it is NADI - and who is behind NADI?) and I like the price competition but not the way it is fought.

We are just fighting a war which all will lose. Consumers win for now - but somehow or rather it is very short term. What we need is a major revamp in terms of cost structure for MAS, not giving extra privilege to Malindo whom is allowed landing in Subang but not Airasia. Not the way the war is fought currently.

You can watch his interview with CNBC Europe here.

http://www.intellecpoint.com/2014/01/the-power-of-tony-fernandez-brand.html

Fight the Smear Campaign against the Oil Palm Industry - Koon Yew Yin

Fight the Smear Campaign against the Oil Palm Industry

Koon Yew Yin

I refer to the Business Times 17^th Jan 2014: Head Line 'Wilmar hurting palm oil exports'

MALAYSIA will lose billions of ringgit in palm oil exports should Wilmar International Ltd be allowed to discriminate against Sarawak's palm oil supply.

Sarawak Oil Palm Plantation Owners Association (Soppoa) said it strongly rejected attempts by Wilmar, Unilever Plc and World Wide Fund for Nature (WWF) to discriminate against the state's palm oil supply and, in the same process, jeopardise Malaysia's palm oil exports.

 "We are very disappointed with Wilmar's unilateral action to discriminate against palm oil harvested from oil palm trees grown on peat soil," said Soppoa manager Melvin Goh.

Read more: 'Wilmar hurting palm oil exports'http://www.btimes.com.my/Current_News/BTIMES/articles/20140117014922/Article/index_html#ixzz2qcXEvjUr

My article:

Some observers in the west used it as an occasion to bad-mouth the oil palm oil further. In this article, I will try to share some facts of life in the oil palm industry so that Malaysians will not join the western world in their smear campaign.

Firstly, we must remember that the west had cut down their forests and trees centuries ago to develop their countries.  Malaysia and Indonesia are both new comers in the development scene and have been felling our forests for only a few decades now.  Of our tropical agricultural crops, oil palm is the most recent cash crop commodity.

Although there has been a rapid rate of exploitation, it still occupies a small proportion of our total land area.  The oil palm industry in Malaysia accounts for 15.5 per cent of total land area and only 4.5 per cent of total land area of Indonesia.  A large proportion of the oil palm plantations are also not newly felled forest but are old rubber plantations that have been converted to this more lucrative crop.

Many in the public know of my views which are critical of many developments in the country.  However, praise needs to be given when it is deserved; and our home grown oil palm industry is one which deserves all our support. This support is important in view of the sustained criticism made against the oil palm industry by lobby groups that have their origin in the west.

Why We Should Support Our Oil Palm Industry

There are many good reasons to support our oil palm industry in Malaysia and Indonesia. These are some of the most important.

1.    Firstly it is not only Felda settlers that are dependent on the crop for a livelihood. Malaysia’s annual US$25 billion (RM79.75 billion) palm oil exports support some two million jobs and livelihoods along the sprawling value chain. This means that one in every five working Malaysian is dependent for his or her livelihood on the crop. 

2.    Plantations have borne the brunt of the bad publicity. However, the small farmers are also affected. More than 40 per cent of oil palm planters in Indonesia are smallholders whilst in Malaysia they contribute to 38 per cent of the country’s palm oil output.

3.    Environmental activist groups such as World Wildlife Fund, Friends of the Earth and Greenpeace have launched many campaigns alleging that the expansion of oil palm plantations have destroyed forests, threatened endangered wildlife and robbed indigenous peoples of their land. Many of their arguments are not based on fact but are sensationalized from a small and atypical number of cases.

4.    The anti-oil palm lobby in the west includes pro-soya bean and rape-seed groups who see oil palm as a major competitor and have recruited food lobbyists to play on fears of the health hazards of palm oil consumption. . Together with environmental activists, these well-funded groups have created trade barriers to the global oil palm trade under the pretext of environmental activism.

5.    In a fair contest amongst competing vegetable oils, palm oil will win hands down. The oil palm tree is the world’s most efficient oil crop because one can harvest five tonnes of oil per hectare. This is 10 times more productive than soya bean planted in the West, including United States and five times more productive than rapeseed, Europe’s main oil crop.

6.    It is an undeniable fact that palm oil is the cheapest and most popular form of cooking oil for consumers, including many poor families in the west. Should trade barriers to benefit rapeseed farmers who are already heavily subsidised by the European Union (EU) government be successfully implemented, this will hurt consumers all over the world.

7.    Also should alternatives to oil palm be grown, more land would be needed to produce an equivalent volume of oil to replace palm oil, resulting in more deforestation and problems for Mother Earth.

8.    Oil palm smallholdings and plantations meet the United Nation’s Framework Convention on Climate Change which defines a forest as an area of 0.5 to one hectare having more than 30 per cent canopy cover and having a potential height of two to five metres. To accuse the industry in Malaysia and Indonesia of contributing to global warming is sheer nonsense. In fact oil palm trees just as with other forest species, produce oxygen for us to breathe and act to counter coal and oil emissions which are the major cause of global warming.

9.    Finally, the western environmental activists’ campaign against oil palm plantation expansion, in the name of “saving rainforests”, is a violation of international norms and Malaysia’s and Indonesia’s sovereignty.

Conclusion: I trust all Malaysians will circulate this article to all their contacts to fight against the smear campaign against our palm oil industry and eventually I hope consumers, all over the world, will not buy soyabean or rapeseed oil which is more expensive and not really superior to palm oil.

Protasco: Seeking A Breakthrough - Bursa Dummy

Thursday, 16 January 2014

 

Protasco Berhad recently proposed a private placement of 50mil new shares which comes with 2 free warrants each, plus a bonus warrant of 1 free warrant for every 10 ordinary shares.

 

The placement shares represent 15.93% of current total shares while total warrants issues will be 100mil + 33.5mil = 133.5mil.

 

The exercise price of warrants is proposed at RM2 with an exercise period of 5 years. If all the warrants are converted into shares, Protasco's total shares will reach about 539mil (including ESOS, & treasury shares), compared to 332mil shares at the moment.

 

This represents a dilution of about 62%. Will Protasco's net profit attributed to shareholders increase by at least 62% in 5 years time?

 

 

 

Protasco is a diversified group with businesses in:

• Maintenance
  • Road maintenance service
• Construction
  • Construction of new roads & building
• Engineering service
  • Road, traffic & construction related
• Education
  • Infrastructure University Kuala Lumpur (IUKL)
• Trading
  • Construction related materials
• Property

 

The maintenance segment is Protasco's bread & butter in which for its first 9 months of FY2013, 60% of revenue and 98% of PBT come from this segment.

 

 

 

For 9MFY13, Protasco's revenue and profit after tax & minority interest increases by 20% (RM484.0mil to RM581.7mil) and 7% (RM30.7mil to RM32.8mil) respectively compared to previous year's corrsponding period.

 

It is not easy to predict Protasco's FY13Q4 results as its quarterly performance fluctuated a lot historically. 

 

Nevertheless, I believe Protasco's PATAMI can reach at least RM42mil for FY2013. This represents an improvement of 12% from RM37.5mil in FY2012. 

 

 

       Protasco's financial performance 2008-2012

 

At this earning level and current total shares of 332mil, EPS will be 12.7sen. If we give a fair PE ratio of 10x, then the target price will be RM1.27. Currently Protasco is trading at RM1.42, with a forward FY13 PE of 11.2x.

 

In other words, Protasco's share seems not very undervalued at RM1.42.

 

If Protasco's share base is to be increased by 62% in 5 years time, can its PATAMI increase 62% as well to RM68mil in the same period of time?

 

       Maintenance work

 

While the maintenance and construction arms continue to contribute recurring and consistent profit, Protasco's "62%" increase in earning may depend on:

• Property development
• Oil & Gas

 

Property

 

Protasco has completed its maiden property project Unipark Condominium in Kajang in 2012. Currently it is working on its second property project on the same site - De Centrum City, which sits on a 100-acre land which includes IUKL in Kajang.

 

The whole project is worth about RM5bil and will take 10-15 years to complete.

 

Phase 1 of De Centrum City, known as De Centrum with a GDV of RM239mil will take up only 4.6 acres of the land and was launched in 2012. It comprises 192 units SOHO, 320 units serviced apartments, 60 units 3-storey shoplots and a 3-storey mall with an NLA of 76,000 sq ft.

 

 

       De Centrum, Kajang

 

From internet search, currently the construction progress is only on ground level for the 12-storey SOHO (on 3-storey mall) & 20-storey apartments (on 8-storey car park & 1-storey facility floor).

 

From the circular to shareholders in relation to the private placement, the management mentions a proposed development of 2 blocks (Block C & D of De Centrum) of 20-storey apartments comprises 240 units apaerments & 80 units duplex with a GDV of RM130mil (cost RM117mil). It is expected to commence in Q2 FY14 and might be part of the phase 2.

 

De Centrum City may be more resistant to property slow down as it has great location. It is surrounded by IUKL, UPM & UniTen, and is at the junction of KL-Seremban Highway, SKVE, SILK and Besraya Highway. 

 

       De Centrum City: at the junction of major highways

 

       De Centrum City Masterplan

 

According to its MD Dato Sri Chong KP, Protasco is looking to increase property contribution to 10-15% of group profit in 3-5 years time (currently 5%), and targeting a minimum of 40% contribution in the long run.

 

The management has acted on its words by acquiring a 14.4 acres leasehold land in Pasir Gudang from JCorp through its 64% owned subsidiary Sun Rock Development for RM22.5mil. Protasco plans to develop the land into a mixed development which carries a GDV of RM505mil. The development should start after 2015.

 

 

Oil & Gas

 

Protasco has announced its proposed venture into oil & gas sector since December 2012. It was initially expected to be completed by 2013 but has been delayed.

 

From the proposed acquisition, Protasco will acquire 95 million shares or 76% of PT Anglo Slavic Indonesia (ASI) from PT Anglo Slavic Utama (ASU) for USD55mil (RM170.5mil).

 

PT ASI was incorporated in Indonesia on 6 Sep 2012 and is involved in oil & gas assets investment. PT ASI holds 95% of PT Firman Andalan Sakti (FAS), which holds 70% of PT Hase Bumou Aceh (Haseba).

 

The jewel here is PT Haseba, who has been granted rights by PT Pertamina (state-owned) to develop and produce O&G in Kuala Simpang Timur field at Nanggroe Aceh Darussalam Province, Indonesia. However, the 10-year agreement from 14 Dec 2004 will expire in the end of 2014. PT Haseba is understood to be in negotiation with Pertamina for an extension.

 

So, Protasco will have 0.76 x 0.95 x 0.70 = 50.54% stake in PT Haseba.

 

For its FY2009 ended Dec09, PT Haseba registered a PAT of RM95mil out of a revenue of RM274.0mil. However, I'm not sure what kind of corporate exercise was done as it suffers total RM237mil loss in 2010 & 2011 with almost zero revenue.

 

If PT Haseba is to maintain its FY2009 performance after Protasco acquisition, then it will be 95 x 0.5054 = RM48mil net profit a year to Protasco, which is higher than its overall estimated PATAMI of FY2013!

 

However, PT Haseba's profit is hard to predict at this stage.

 

 

 

In the agreement of acquisition, a profit before tax guarantee of USD50mil (RM155mil) in 4 consecutive financial years is given for PT ASI by PT ASU. By average, this would be RM39mil PBT a year.

 

As Protasco will own 76% of PT ASI, it will be RM29mil average annual PBT for Protasco. This figure is close to Protasco's FY13Q3 single quarter PBT of RM30.4mil.

 

With the contribution from future O&G and property segment, Protasco should be able to increase its PATAMI by at least 62% discussed above. With the management's ambition to become a prominent property player, the future earning prospect of Protasco is quite impressive.

 

Thus, even though all warrants are converted into shares in 5 years, Protasco should be able to provide a higher EPS compared to now.

 

For its bread & butter business, Protasco has secured a few contracts in the past one year.

 

• Dec 2012 - maintain roads in Perak for 7 years, RM29.6mil for first 2 years
• May 2013 - upgrade roads in Kedah in 9 months til Feb14, RM37mil
• Jun 2013 - construct roads in Johor in 12 months, RM50.4mil
• July 2013 - maintain roads in Sarawak, RM23mil
• Oct 2013 - construct 1680 apartment units in Putrajaya in 24 months for 1M Civil Servants Housing Programme, RM578.5mil

 

For the construction contract in Putrajaya, it is mentioned that the development cost is RM520mil. So perhaps it is roughly a PBT of RM58mil in 2 years or RM29mil a year, which should contribute massively to the group.

 

Besides, IUKL has been upgraded to full-fledged university status since Sep 12. With better academic status and the development of De Centrum City, IUKL might attract more students in the future.

 

 

       Historty of IUKL

 

 

Protasco is currently in net cash position after a private placement in early 2013. At 9MFY13,

• Cash & bank balances: RM56.3mil
• Deposits with license banks: RM67.6mil
• Short term borrowings: RM43.3mil
• Long term borrowings: RM4.0mil
• Bank overdraft: RM13.9mil

Net cash = RM62.7mil

 

However, after the acquisition of Oil & Gas company and Johor land, its cash is expected to diminish quickly. That's why it is calling for another private placement and warrants.

 

For FY2012, Protasco gave away 8 sen dividend + special dividend 6 sen, altogether 14sen single tier. This represents a mouth-watering 10% yield at RM1.40.

 

I think investors can expect at least 8-10sen net dividend for FY2013, which is 5.6%-7% yield if you buy the share at RM1.42. So far 4sen has been paid.

 

Thus, Protasco is another company with both good dividend and growth potential.

 

       MD & founder Dato Sri Chong Ket Pen

 

Back to the proposed private placement & free warrants, the placement share price is at least RM1.65 and the warrant exercise price is at RM2. Both are significantly higher than current share price of RM1.42.

 

Does this mean that Protasco is at least worth RM1.65 in 2014?

 

I've been waiting for Protasco's share price to drop to my desired level for the last 3 months but apparently it doesn't happen, and will never happen I guess, especially when the O&G acquisition is finalized probably in the first quarter of 2014.

 

Valuegrowth Investing - Koon Yew Yin

Valuegrowth Investing

Koon Yew Yin:  16^th Jan 2014

Selection criteria

There are many stock selection criteria such as P/E ratio, dividend yield, NTA, price to book value, good cash flow etc. which all investors follow to make normal profit. I consider the most important criterion is “profit growth prospect”. Can the company continue to make increasing profit this year, next year and year after next year. If you can find a company with good profit growth prospect, you will be able to make exceptional profit.

With no disrespect to professional fund managers, they consider current earning most important and as a result they miss out those companies with poor current earning but with tremendous profit growth prospect. You can buy them cheaply because the funds are not interested.  

Buy Businesses

Companies with good profit growth prospect and poor current earning are always available irrespective of the KLCI, market trend or market noise. You have to know the business you are buying, and that means being passionate about knowing everything about that company.

You must look for businesses that you can easily understand because you have to be able to make an educated guess about the future earnings of the business. The more complex a business is, the more uncertain your projections will be. Simple businesses also have an advantage, as it's harder for incompetent management to make big mistake to affect the bottom line.

Owner managers

Management can make a huge difference in a company. Good management adds value beyond a company's hard assets. Bad management can destroy even the most solid financials. It is always very difficult to judge whether the managers are honest, intelligent and hard working because you do not know them personally for a long time.

One sure way is to find companies with the controlling shareholders managing the business. They will surely protect their own interest in the company. 

Value investors want managers who act like owners. They focus on growing the business, thus creating long-term shareholder value. Managers who act like employees often focus on short-term earnings in order to secure a bonus or other performance perk, sometimes to the long-term detriment of the company. If you're thinking like an owner, you pay yourself a reasonable wage and depend on gains in your stock holdings for a bonus.

Do not be afraid to buy when you have found a good one

Commonly accepted investment principles encourage you to diversify by owning many stocks of various kind of businesses. I think it is not possible to keep track with so many shares of different type of businesses.  When you have discovered one really good share, you should not be afraid to buy more. You should not own more than 5 counters.  

Keep looking for a better share to buy using margin finance

They say the joy of finding a girl friend is in the pursuit. The joy of investing is in finding another better share to buy. After you have found a better share to buy, you should use margin finance to buy provided you are sure that the newly discovered share has a profit growth prospect of more than the borrowing interest. The current interest rate for margin finance is 4.6 % without rollover fee.

How to use margin finance to increase your profit

As you know, all shares moves up and down. To maximize your profit you should sell some of the shares which have gone up too rapidly as no share can go up indefinitely for whatever reason. In this way you will always have some money to buy the shares when they are under correction.  

Do not worry about the market index

As you know, the KLCI is around record level and many investors are afraid of the next market crash. As a result, you have the opportunity to buy really undervalued stocks with good profit growth prospect. I do not believe that the market will crash in the next few months.

If you approach buying stocks like buying a business, you will want to hold onto them as long as the fundamentals are strong.

When to sell

As a long term valuegrowth investor, you do not buy and sell frequently. However, you must sell any of your holdings when you see that the reasons to buy it are no longer valid; or you would not buy it at the current price. You must remember to sell and do not fall in love with your holdings. If you do not sell, you will have no profit and you will not have money to buy when there is another buying opportunity.

PRTASCO [5070]

PROTASCO has announced for Proposed Private Placement and Proposed Bonus Issue on 12/12/2013.

(A) PROPOSED PRIVATE PLACEMENT

Private placement is up to 50,000,000 new ordinary shares(representing approximately 15.93% of the issued and paid-up share capital of 313,956,490 Protasco Shares), together with up to 100,000,000 new detachable Warrants on the basis of 2 Warrants for every 1 Placement Share. Price: RM1.65.

(B) PROPOSED BONUS ISSUE

Bonus issue of up to 33,546,259 free Warrants on the basis of 1 Warrant for every 10 existing Protasco Shares held by shareholders of Protasco. Price: RM2.00.

Based on current share price of RM1.40 as of 12/01/2014, who is willing to pay RM1.65 to subscribe for the Private Placement and who wants to exercise his warrants at RM2.00? Why not the new investors buy from the open market?

Let me tell you something. If the new investors were to buy 15.93% shares from open market, this will push the share price to sky high. A price that will definitely higher than RM1.65.

Besides, based on the exercise price of warrants meaning that the management of PROTASCO is so confident that the share price of the company will worth at least RM2.00 in near term. Why??

Based on the analysis from Y2K, the company has so many projects on hand, the projected EPS is so so attractive!

Look at below for Y2K's analysis:

1. Awarded with RM578.5mil contract value to build 1Malaysia housing and to be complete within 24 months. The work is expected to be start by early of next year. Assume net profit margin is 15%, it will contribute about eps 12sen per year. If the existing business can sustain as per last year, this mean the contribution from this contract is possible to double up its eps. (100% growth in eps)

2. Acquisition on an Indonesia O&G company is still in progress. The pending work is mainly due to the confirmation of contract extension for another 10years for the O&G company that they are going to acquire. If succeed, there will be a profit guarantee before tax for about USD55mil. If the tax rate is 25%, it will roughly contribute about eps 7-8sen.

3. Its De Centrum property development which valued at RM6 billion (estimation) is able to sustain for another 10-15years. By taking 10 years as completion target timeframe, it will able to contribute RM600mil revenue per year for the company.

4. By considering other newly awarded contracts (since Dec-12 until Sep-13) and operation cost is under control, another eps 3-5sen will not be a problem.

5. Company is returning to Libya after halting operations there due to a revolution. Company has written off RM20m in provision in the past two years for the halted operations in Libya. According to MD, Libya is promise to pay back on the provision (not sure is in full or partial amount). Thus, there is no extra expense to be taken out to continue the works there.

6. In 2014 Malaysia Budget, RM4.1bil to be provided for basic rural infrastructure projects, including RM980mil to upgrade 437km of rural road networks nationwide and RM500mil for Pan-Borneo Highway project. If the company manage to get some of the contracts, it will definitely increasing its revenue.

(Taken from http://whytoocare-y2k.blogspot.com/2013/12/5070-prtasco.html)

I have accumulated some PROTASCO shares in the past 1 month, it's now one of my major investment. Anyway, I'm not asking you to buy, if you want to buy, buy at your own risk.

PROTASCO BERHAD

Type	Announcement
Subject	NEW ISSUE OF SECURITIES (CHAPTER 6 OF LISTING REQUIREMENTS) COMBINATION OF NEW ISSUE OF SECURITIES
Description	PROTASCO BERHAD (“PROTASCO” OR THE “COMPANY”) (A) PROPOSED PRIVATE PLACEMENT OF UP TO 50,000,000 NEW ORDINARY SHARES OF RM0.50 EACH IN PROTASCO (“PROTASCO SHARES”) (“PLACEMENT SHARES”) TOGETHER WITH UP TO 100,000,000 NEW DETACHABLE WARRANTS (“WARRANTS”) ON THE BASIS OF TWO (2) WARRANTS FOR EVERY ONE (1) PLACEMENT SHARE (“PROPOSED PRIVATE PLACEMENT”); AND (B) PROPOSED BONUS ISSUE OF UP TO 33,546,259 FREE WARRANTS ON THE BASIS OF ONE (1) FREE WARRANT FOR EVERY TEN (10) EXISTING PROTASCO SHARES (“PROPOSED BONUS ISSUE OF WARRANTS”) (COLLECTIVELY REFERRED TO AS THE “PROPOSALS”)
This announcement is dated 12 December 2013. On behalf of the Board of Directors of Protasco (“Board”), AmInvestment Bank Berhad (“AmInvestment Bank”) is pleased to announce that the Company proposes to undertake the following:-  (a) proposed private placement of up to 50,000,000 Placement Shares together with up to 100,000,000 new detachable Warrants on the basis of two (2) Warrants for every one (1) Placement Share; and  (b) proposed bonus issue of up to 33,546,259 free Warrants on the basis of one (1) Warrant for every ten (10) existing Protasco Shares held by shareholders of Protasco on an entitlement date to be determined and announced later by the Board (“Entitlement Date”).

Why & How to use Margin Finance to increase PROFIT ?

My purpose of writing this piece is to teach you how to make more money or how to improve your profit from the stock market by using margin finance. As I often said, I walk the talk. My wife and I have a total borrowing facility of more than Rm 100 million from 6 local financial institutions.

If a businessman or investor trades within his capital, he is considered inefficient. Almost all successful businessmen and investors borrow money to do more business or to buy more shares. You must remember, it is the business of the financial institutions or banks to lend out money and they are not there to cheat you. We must not be afraid to borrow to do more business or buy more shares to sell to make more profit.  

The current lending rate is base lending rate of 6.6% minus 2% equal to 4.6% per annum. There is no rollover fee for the first year. After the first year, the rollover fee is 0.5% for 3 months, if you have not traded within the 3 months. If you have not traded for 12 months, the total interest rate will be 6.6%. You can check this out from CIMB or other banks.

Let me tell you how I use my margin finance. For a start I must be able to select shares that have profit growth prospect of more than the interest I have to pay. If you do not know how to select good shares, then you must not borrow to buy more shares.

I normally have shares from a few companies. Often their prices fluctuate up and down and I take advantage of this phenomenon to sell some so that I have funds to buy those really undervalued shares which I already owned or one I newly discovered. As a result, I do not need to pay roll over fee. In any case, I do not use up to the limit of my borrowings to avoid margin call.   

As you know, a big seller was aggressively selling Jaya Tiasa in the last few days before year end and we borrowed almost to our limit to buy it. I asked a few professional fund managers and they all could not think of any good reason why  anyone would want to sell so aggressively just to push down the price purposely. Probably he thought he could buy cheaper later on. Even if anyone wants to sell, he should sell slowly to get a better price.

An old fund manager told me that the big seller could be a foreign fund manager who wanted to close his account urgently in Malaysia.

It is very easy to find companies that can increase their profit annually by more than your borrowing rate. Almost all the well established companies in the finance, real estate and plantation can make more than 6% per year. It is very safe to buy them especially when their share prices are down.  

After you have identified them, you have to wait patiently to buy. There are always some sellers. In the same way, there are always some buyers to buy your shares. So, you do not need to buy or sell in a hurry.     

I am obliged to tell you that Jaya Tiasa is our largest holding in our investment portfolio and I am not asking you to buy it.

Best wishes for 2014

Koon Yew Yin
4th Jan 2014

Koon Yew Yin's Comment on Jaya Tiasa (02/01/2014)

I walk the talk, meaning I do what I say. My wife and I bought more than half of the 8 million JT shares traded on 31st Dec 2013. I have not seen such huge volume of JT shares traded before. It looked like a big fund wanted to sell before year end. 

I wish someone can tell me the reason why would anyone sell so aggressively as if he could not sell in 2014. Even if he wants to sell, he should not sell so aggressively to get a better price. JT price dropped 16 sens in the last 3 trading days. 

I put my money where my mouth is. I will continue to borrow more money or sell my other holdings to buy JT if its price continues to drop. To be a super investor, one must not be afraid to buy when its price has dropped much lower than when one started to accumulate it, provided the reasons for buying have not changed. 

For the same reason my family members and I bought about 20 million Sarawak Oil Palm shares (as shown in SOP 2011 report) when its price was about Rm 3.00. The price was so cheap because their palms were young and as a result the profit was not attractive. SOP is now trading around Rm 6.50 and I sold almost all my SOP to buy JT. 

In 2 or 3 years time, I strongly believe JT will double its price, like SOP. As much as I regretted in publishing this article, I am obliged to respond to commentaries. Again I am not asking you to buy JT. 

Best wishes for 2014

Koon Yew Yin's Comment on Jaya Tiasa (31/12/2013)

Why and who would sell so aggressively in the last few days? When I posted this article, the price of Jaya Tiasa was Rm 2.13 on 1st Nov. and it shot up to above Rm 2.50 and it closed at Rm 2.05 on 30th Dec. 

I think a professional fund manager whose book value of his portfolio is showing too much profit and he wants to depress the price of JT so that he can have an easy start for 2014. In any case, you can see for yourself that JT is so ridiculously under valued. Just basing on the market price of Rm 70,000 per hectare for oil palm plantation X 62,500 ha = Rm 4.375 billion which is more than twice of JT's market capitalization. 

Let me elaborate on its plywood and timber business. JT has almost unlimited log supply from its own forest while manufacturers from India, China, Taiwan and Japan have to buy & import logs, most probably from JT. Remember JT is one of the largest plywood manufacturers in the world and with its competitive advantage, it will generate sustainable profit for a long time. Currently it is not showing much profit because JT has been using its money from its timber business to plant oil palms aggressively. 

I consider JT is my best bet which I will continue to accumulate. After blowing so much about JT, my reputation is at stake. Where can I hide my face if JT remain depressed below Rm 2? 

Koon Yew Yin

How to become a super investor?

Koon Yew Yin - 1^st Nov 2013

As you know, there are several share selection criteria such as P/E ratio, dividend yield, NTA, cash flow, price to book value etc. Almost all professional fund managers and ordinary investors consider P/E ratio most important. As a result, they miss out to buy companies with poor current earnings but have tremendous profit growth potential.

Statistics show that this kind of investors cannot outperform the market index. Records show that in the last 10 years, 76% of professional fund managers and most day traders cannot outperform the market index, because they concentrate too much on current earnings and do not look at the future profit growth of the companies. They are very shortsighted.

As you know, palm oil price, like most commodities, moves in a cycle. It has been depressed for about 2 years and it is beginning to turn around. CPO price has increased by Rm 50 per tons yesterday. As a result all plantation companies show poor current earnings and most fund managers and the average investors are not interested to buy them. That is why their share prices are so cheap.

In my opinion, I consider the most important share selection criterion is profit growth prospect.

After having said that, you must also understand the plantation industries. It takes about 1 or 2 years to clear the forest before planting. The palms will only start to bear fruits after 4 years of planting. Moreover, in the early stage of fruiting, the quantity is so little and it is still not profitable. It is will only begin to show profit when the palms are 5 or 6 years old, ie more than 7 years from the time of forest clearing. But palms will continue to bear fruits even when the palms are more than 25 years old.

If you look at the world map, you will notice that two small countries, Indonesia and Malaysia produce more than 90% of palm oil. Fortunately, our biggest buyers China and India cannot grow oil palms. Moreover, oil palms can produce eight times more oil than soya beans per hectare.

According to recent study, due to the increase of population and economic advancement, an additional 6 million ton of eatable oil is required annually. Where can they find so much additional land to plant soya beans?

The American smear campaign that soya oil is better than palm oil is proven to be untrue. That is why according to the US Food safety regulations, all potato chips cannot be fried with soya oil.     

Jaya Tiasa Profit Growth Prospect

Basing on the Jaya Tiasa’s planting programme and the FFB production at various age of the palms as shown on the charts below, I have calculated the FFB production for the current year 2013 which is 675,000 ton and in 3 years time 2016, its production will be 1,225,000 ton.

 Palms older than 10 years old, I assume conservatively that it can produce 30 ton per ha.

Year      Ha Planted    2013 age    FFB produced         2016 age          FFB produced  

2002     1000               11                30,000 ton                14                 30,000 ton         

2003     1,000              10                27,200 ton                13                 30,000 ton         

2004     2,500              9                  58,500 ton                12                 75,000 ton         

2005     3,500              8                  75,300 ton                11               105,000 ton       

2006     7,000              7                130,002 ton                10               190,000 ton       

2007     7,500              6                123,000 ton                  9               175,000 ton      

2008     12,000            5                144,000 ton                  8               258,000 ton        

2009     9,000              4                  69,300 ton                  7               167,000 ton        

2010     7,000              3                     ----                           6               115,000 ton

2011     4300               2                     ----                           5                 52,000 ton 

2012     3,700              1                     ----                           4                 28,000 ton

2013     3,700              0                     ----                           3                      ----            

Total     62,200 Ha                         657,000 ton                                 1,225,000 ton 

Good profit growth prospect

In 3 years time  the production will be increased by nearly 90 % and the profit will be increased a lot more because the cost for producing the additional FFB is only for additional fertilizer and labour for harvesting which are relatively small.

Undervalued

On 27^th Sept 2013 Boustead made this announcement:

BOUSTEAD HOLDINGS BERHAD (“BHB” OR “COMPANY”) PROPOSED ACQUISITION OF TWO (2) PIECES OF OIL PALM PLANTATION LAND IN DISTRICT OF LAHAD DATU, SABAH MEASURING APPROXIMATELY IN TOTAL 2,409.8 HECTARES BY BOUSTEAD RIMBA NILAI SDN. BHD, A WHOLLY OWNED SUBSIDIARY OF BOUSTEAD PLANTATIONS BERHAD, WHICH IN TURN IS A WHOLLY-OWNED SUBSIDIARY OF BHB FROM UNIGLOBAL SDN. BHD. (“UNIGLOBAL”) FOR A TOTAL CASH CONSIDERATION OF RM184,596,825 (“PROPOSED ACQUISITION”)

More recently IOI has announced that it is buying Harn Len Corporation’s plantation at about Rm 79,000 per ha.

Boustead is buying the plantation at Rm 76,598 per ha. Basing on this rate JT’s 62,200 ha is worth Rm 4.76 billion while its market cap is 974 million issued shares X Rm 2.14 = Rm 2.08 billion.

Timber Business:

How do you value its timber business, one of the largest if not the largest in Malaysia and its large forest concession which is about 2400 square kilometers?  

The price has been depressed for more than a year, since the bonus issue of 2 for every one share held. A few long term investors bought 15% of the total issued shares at Rm 7.90 per share before the bonus issue which is equivalent to Rm 2.63 per share. The closing price on 31st Oct was Rm 2,13.

I am obliged to tell you that Jaya Tiasa is my major investment and I am not asking you to buy it.

Koon Yew Yin