Mudajaya’s Wild Card - Koon Yew Yin

My wife and one of my closest friends told me that it is unethical to publish articles regarding the shares that I own because some readers who do not know me well would doubt my good intention. However, at my age and my financial standing I am not afraid to post this article as long as my intention is noble and altruistic. I want to teach you how to fish!

Since I wrote about Jaya Tiasa, many readers wanted to know about my other holdings. Mudajaya is my second largest holding. I also have some Xingquan, Success Transformer, Kulim, MFCB and smaller holdings of a few other counters.

As you know, many financial institutions are covering this stock and despite their frequent  recommendations Mudajaya’s share price has been trading around this current level of Rm 2.70 in the last 3 or 4 years.  Why should it be selling cheaper than its peers in terms of P/E ratio?

Mudajaya Price Chart

As you can see from the price chart, average price for the last few years is about Rm 2.70 and the downside risk is very small. For the share price to break out of this price range it needs a powerful catalyst which should be the announcement of its profit from its 26% share of the Independent Power Producer (IPP) concession in India. Let me give you a brief description of this project.

I was one of the original founders of Mudajaya and during my tenure, I constructed the 1^st phase of the Tungku Jaffa power Station in Port Dickson about 40 years ago. Since then the company has completed 19 power plants as a construction contractor. The company specializes in power plant construction.

But in India, Mudajaya has taken a different role. Mudajaya holds 26% of a consortium to construct, own and operate 4 units of 360 Mega Watts coal fired power plant to generate electricity for sale to the Indian Government.

The total power is 4 units X 360 = 1440 mega watt. One mega watt can light up about 1,000 homes.
The estimated construction cost is about USD 4X360 MWX 1.3 million = USD 1.87 billion 

The annual coal consumption is about 4,500 ton X 4X360 = 6,480,000 ton per year.

Assuming the coal price is USD 50 per ton, the annual cost of coal used = USD 324 million.
All these figures are mind boggling, hard to imagine any company has the financial ability to undertake this large concession for 25 years.

In India, a consortium of financial institutions finance the construction cost basing on the Power Purchase Agreement signed by the Indian Government. The banks must make sure that the power purchase agreement (the selling price of electricity) is profitable to Mudajaya and its partners otherwise the bank will not get back their money.  The power purchase agreement is for 25 years and the power tariff will be adjusted to cover cost of coal, inflation, foreign exchange etc.

The first unit of 360 mw will be operational by end of March and the second unit will be operational by end of the 2^ndquarter. By the end of the year all the 4 units will be in full operation.

The completion date has been postponed a few times until investors are fed up. As a result the share price remains depressed for so long. I believe the announcement of the additional profit spread over 25 years will be the catalyst to propel the price upward.

Today while I was writing this article, a big fund was buying aggressively to push the price up by 12 sens to close at Rm 2.80. The total volume traded was 2.972 million shares. It looks like the long delayed  announcement of the additional profit from the Indian IPP concession will be out soon.

I am obliged to tell you that Mudajaya is my 2^nd largest holding and I am not asking you to buy it. But if you do, I am not responsible for your losses.  

Jaya Tiasa historical record cannot lie - by Koon Yew Yin

Koon Yew Yin

As you all know, I have been trying to teach you how to select shares with good profit growth prospect and as an example I used Jaya Tiasa. I even told you that my family members and I have bought more than 40 million shares and now my largest holding is JT. I also told you that on 31 Dec I bought 4.5 million JT at Rm 2.04 per share.

Many readers complianed that I was promoting Jaya Tiasa because I want people to buy to support the share. I have been telling you that I do not need you to make me richer because time will prove me right. My intention is noble and altruistic, I just want to teach you how to be a super investor.

As I said, the truth will set me free. Now a lot of serious investors are beginning to see that Jaya Tiasa has tremdous profit growth prosepect and they are buying as if tomorrow is too late.

If you look at the research I have done you will understand that the historical FFB production record cannot lie and if you use a litlle bit of imagination you can safely foresee that its profit will continue to grow for the next few years because the average age of their palms is only about 6 years and the FFB production peak is 11 years.

Many profesional analysts have already reported that the current up trend of CPO price is sustainable because Indonesia has mandated the use 3 million tons of palm oil to produce bio diesel for this year.

As I said again and again I do not need to buy to support the price of JT.

FFB production for 1^st half of financial year 2014 from July – Dec 2013.

The above chart shows the annual Jaya Tiasa FFB production from 2007-2013 ending June.  The FFB production increased by an average of more than 30% per year.  

JT’s monthly FFB production from July – Dec 2013 are : 60,600 ton, 69,600, 83,066, 79,157, 74,161, 80,851 ton , totaling 447,439 ton. Assuming the 2^nd half year FFB production is the same, the total FFB production for the coming financial year ending June 2014 will be 894,878 ton which an increase of about 32%.

Since the average age of the palms is only about 6 years and palm will produce the maximum fruits at the age of 11 years, I can foresee the FFB production will increase by about 30% per year compound for the next 5 years. 

Protasco Q4FY13 update -by chyithong

Monday, February 24, 2014 

 

Here comes with the peak period of time where listed companies release their financial reports, so does Protasco Berhad. The group just released its final quarter for financial year 2013 this evening.

 

 

The able to record a 26% and 135.5% increases in revenue and net profit respectively compared to corresponding period last year. Huge increases in net profit was due to lower distribution to non-controlling interests. Both revenue and net profit were highest for the past 5 quarters. Net profit margin still low at around 4% only. EPS for the quarter is 5.15 cents which was highest in the year. 

 

For full year 2013, revenue and net profit increased 22.45% and 29.8% respectively compared to last year. This was due to increase in profits from all over the segments as shown in the table later. Full year ROE is 12.30, still lower than my benchmark of 15 while full year EPS is 15.79 cents which translated into PE of around 10 based on today price of RM1.55. 

 

 

In terms of balance sheet, few things to note here. Trade receivables and payables increased 28.6% and 60.3% compared to last year. Protasco's trade receivable turnover and payable turnover always not that good all this while, both ratios are around 140 days for year 2013. Current ratio dropped to 1.56. Good thing is the cash balance increased to RM237 mils from RM155 mils earlier with around RM48 mils. 

 

From the cash flow statements, it can be seen that majority of the cash increases came from the operating cash flow as a result of big jump in increase in payables, perhaps the group is trying to delay the payment to the suppliers. Additional cash will be generated from the private placement that still in progress. Foresee the final dividend for year 2013 that yet to be announced will reduce the cash balance a bit. 

 

 

 

 

The profit before tax for its core business, maintenance & construction segment actually recorded a drop. The management commented that this was due to revised rates for periodic road maintenance were receive at the end of 2012 which gave a better margin. Engineering service, trading and education segments were showing improvement from loss last year especially the trading department who supports the maintenance, construction and property development will improved further along with those segments. Lastly, the property segment start to contribute higher profits to the group. 

For full year 2013, no doubt road maintenance is still the core business for Protasco group. Hopefully, the engineering segment will keep on improving its result as the segment recovered from loss last year. Next growth will be the property development segment at which the group mentioned the progress of the De Centrum project was just at 20% as at Dec 2013. For 2014, the group will depends on the usual maintenance segment and counts on the construction and property segments as there were few major projects were secured for construction and higher contribution from the De Centrum project. 

 

For long term, the venture into oil & gas industry will give additional incomes to the group. But, it's still too early to judge this as there are few doubts about the acquisitions. Right now, just hold on and enjoy the free warants and ride on the profits. 

http://chyithong.blogspot.com/2014/02/prooootasco-q4fy13-update.html

Fima Corporation (FIMACOR) 菲馬機構 by chyithong

Sunday, February 9, 2014

 

There is few posts regarding Fima Corporation 菲馬機構 analysed by 糊涂老大. I looked through it and decided to compile data for future reference. Fima Corp. The group has 2 core businesses, namely manufacturing of security and confidential documents division and palm oil plantation. The other segment is property management division which provides property services to various companies under FimaCorp and Kumpulan Fima Berhad.

 

The group's revenue showed an upward trend throughout the years but suffered a drop in terms of net profit in FY2012 and FY2013. The profit drop in FY2012 was due to lower contribution of its security and confidential documents while the profit drop in FY2013 was due to lower contribution of its palm oil segment as a result of lower CPO selling price and weaker contribution from its associates. Gross profit margin average above 35% while net profit margin average >20%. The group also paying consistent dividend annually, dividend payout is increasing in spite of the poorer result recorded for the past 2 years. Share of associates comes from its 20% equity interests in G & D Malaysia Sdn Bhd which provides banknote printing service and it was highly inconsistent throughout the years. 

In terms of balance sheet, Fima corp is a cash cow currently, having RM2.74 cash per share with no borrowings. At current market capital around RM511 mil, the RM221 mil cash in hands which translated into roughly 43% of its market capital is too big to be ignored. Either the management thinks that there is no better investment opportunity compared to fixed deposit, or the mother company, KFima intends to keep the cash for themselves in case there is a chance to merge in future. Whatever it's, it's still not too good to let the large amount of cash sitting idle inside the bank. This shows that the management is not aggressive enough to look for investment opportunity to generate better return to the shareholders. 

 

Current ratio and acid test is high due to the high amount of cash in hands. Cash conversion cycle is consistently maintained below 2 months. Net asset is RM5.80, just slight below today trading price of RM6.35. ROE and ROTC dropped for the past 2 years due to poorer result recorded. 

 

Overall, Fima corp.'s operating cash flow has been good throughout the years, just there was a drop last year due to some working capital changes. Owners' earnings per sales has been good all this while with the owner easily get 20% cash return from sales. Not much capital expenditure is needed to maintain or improve its operation.

 

 The group ventured into oil palm plantation in FY2008 by acquiring 80% equity interest in PT NJL in Indonesia and immediately started the planting process on the remaining un-planted area. The land almost planted with mature palm oil trees since FY2011. The group purchased third party FFB for additional processing to increase the CPO output instead of its own estates. Oil extraction rate remained good, probably due to majority of the trees are in mature stage. The plantation segment remained highly affected by the CPO price and the government policies.

 

The group just completed the purchasing of 2 parcels of agricultural lands in Terengganu for RM29 mils. However, the land size is not that large, measuring 1940 acres at which 840 acres of it are still vacant. The acquisition took around 1 year for completion. The acquisition cost should posed no problem to the group. It should provides a little bit growth in its plantation segment for the next few years.
 

Looking on its segments result, manufacturing contributed higher to the group's revenue and operating profit. However, the plantation segment showed a good growth after the acquisition and recorded a higher profit margin which in the range of 30-35% while manufacturing segment only recorded a profit margin of 20-25%.  Not much growth for the document manufacturing segment for the past few years, probably a little bit stagnant already. The plantation segment recorded highest profit in FY2012 as the CPO selling price was at peak that time. Property management recorded a stagnant result in terms of revenue for the past few years due to the same numbers of property under its management and its operating profits were highly affected by the operating cost and occupancy rate.
 

Not much foreign and local institutions are taking stakes in Fima corp. Kumpulan Fima and the group own treasury shares already taking around 60% of Fima corp. Shares liquidity is its weakness and sometimes there is no shares was traded a particular trading day. No bonus shares or shares split was done for the past 10 years.

 

Some additional notes are;

• Document manufacturing are traditionally weaker during second half. 
• Inventory, cash in hands, trade receivables and payable are all denominated in Ringgit. 
• Higher tax rate since FY2010. 
• Built their own composting plant to produce fertiliser, commissioned in FY2013 which in turn reduce the fertilizer cost. 
• Invest RM4 mils in equipment for its confidential document production to improve production efficiency and product quality in FY2013.
• Other income mainly comes from interest income.

For the first half of FY2014, the group's net profit dropped a bit compared to preceding year and recorded an EPS of 41.1 cents with 15 cents dividend being declared. The shortfall was due to poor performance from its plantation segment as a result of lower CPO price and zero production of palm kernel. The management stated that the document production is expected to be lower in the second half due to cyclic effects while its palm oil division still depends on the CPO price. 

 

It's hardly seen any aggressive growth on the group but in terms dividend yield, one easily able to get around at least 5-6% dividend yield for this counter and it's quite stable though, PE below 10.

http://chyithong.blogspot.com/2014/02/fima-corporation-fimacor-analysis.html

Why most of us cannot become super investors? - Koon Yew Yin

The last time I published ‘How to become a super investor?’ I received more than 200 commentaries. Of course, most of the commentaries are good, but a few are really bad and insulting. In fact, one doubted my sincerity and accused me of trying to promote Jaya Tiasa. Fortunately or unfortunately, Jaya Tiasa did go up by about 20%, soon after the publication of my article. It went up too fast and not sustainable. As expected, it is making a healthy correction.

In view of this situation, I am obliged to write this article and also I genuinely wish to share my knowledge with people who are interested in share investment.   

For a long time, I have been trying to teach my wife, close relatives and friends to follow what I did but all of them could not emulate my performance or achievement. I think the reason is that to be a super investor your brain has to be wired differently when you are young. It is a nature built into your brain which cannot be nurtured. By the time you are an adult, either you have it or you don’t have it.

For a start, let me define what is a super investor? To qualify as a super investor, you must have a long term track record of making more than 20% per year. Warren Buffet has been able to achieve about 22% per year over the last 20 or more years. Using the empirical formula of 72; when 72 is divided by the rate of return the answer is the number of years for you to double your capital. In Warren’s case, he can double his capital in 72 divided by 22 = 3.3 years. That means $1 will become $2 in 3.3 years and $2 will become $4 in 6.6 years and $4 will become $8 in 9.9 years. At 22% return pa, Warren can turn $1 to $8 in about 10 years.

How many of us can achieve more than 20% return per year in the last 10 or more years?      

To test the putting is in the eating. In retrospective, did you make a huge amount during the Y2K computer crisis when MPI and Unisem went above Rm 40 per share? Globtronics went up from about Rm 2.00 to above Rm 20.00 in about 18 months.

Did you make much money when CPO went above Rm 4,000 per ton a few years ago?

Did you make a killing when all the rubber glove shares shot through the roof due to the HINI fear about 3 or 4 years ago? Supermax went up from Rm 1.00 to Rm 6.50 in 18 months.

Did you buy SOP when it was selling about Rm 2.50 about 3 years ago? SOP went above Rm 6.50 per share recently.

If you did not make much money when the above mentioned opportunities came, you can only be a mediocre investor and you have no hope to be a super investor.

Looking forward, do you dare to buy Jaya Tiasa when it is not showing much profit currently and the share price has been depressed for quite a long time? Most fund managers are not interested to own Jaya Tiasa. Can you see that it is really undervalued and it has tremendous profit growth prospect?

About 3 years ago, Sarawak Oil Palm (SOP) was selling about Rm 2.50 per share because most of their oil palms were young. As a result, the company was not showing much profit. For the same reason, Jaya Tiasa is now showing poor profit. Most of the Fund Managers do not want to own it. But, do you have the patience to own it and wait for a few years to maximize your profit? I am obliged to tell you that Jaya Tiasa is my major investment holdings.    

I can tell you that very few of you can achieve above 20% return per year over a long period of time and if you spend enough time studying investors like Charlie Munger, Warren Buffett and other famous investors, you will understand what I mean.  

I know that everyone reading this article is exceedingly intelligent and you have all worked hard to get where you are. You are smart and experienced. And yet, there is little likelihood of anyone here becoming a great investor. You all have a lot of advantages over normal ordinary investors, and yet you have almost no chance of standing out from the crowd over a long period of time. 

The reason is that it does not much matter what your IQ is, or how many books or magazines or newspapers you have read, or how much experience you have, or will have later in your career. These are things that many people have and yet very few can end up compounding at 20% or more  over their careers. 

I know this is a controversial thing to say and I do not want to offend anyone. On the bright side, although most of you will not be able to compound money at 20% for your entire career, a lot of you will turn out to be good, above average investors because you can learn to be an above-average investor. You can learn to do well enough, if you are smart and hard working. You can make millions without being a great investor. You can learn to outperform the averages by a couple points a year through hard work and an above- average IQ and a lot of study. So there is no reason to be discouraged by what I am saying today. You can have a really successful, lucrative career even if you are not the next Warren Buffett.

Going to the best business schools and reading every book or article ever written on investing would not make you a super investor. Neither will years of experience. If book knowledge and long experience will make you a multi- millionaire, then all the Professors in finance, all the old fund managers and old people who have been investing for decades, would be multi-millionaires.

So what are the sources of competitive advantage for an investor?  They have to do with psychology, and psychology is hard wired into your brain. It is a part of you. You cannot do much to change it even if you read a lot of books on the subject.  

After having said all these discouraging words, I think some of you who can master the following traits or qualities will have a better chance to become a successful investor. 

Trait 1. The ability to buy stocks while others are panicking and sell stocks while others are euphoric. In 1983 when China wanted to take back Hong Kong, the stock market crashed. Did you dare to buy Hong Kong shares knowing the risk when the communists took over the control Hong Kong?  

Everyone thinks they can do this, but then when the market crashed on October 19, 1987, almost no one had the stomach to buy. When the year 1999 came around and the market was going up almost every day, you could not bring yourself to sell because if you did, you might fall behind your peers.

Trait 2. A great investor is one who is obsessive about playing the game and wanting to win. These people do not just enjoy investing; they live it. They wake up in the morning and the first thing they think about, while they are still half asleep, is a stock they have been researching, or one of the stocks they are thinking about selling, or what the greatest risk to their portfolio is and how they are going to neutralize that risk.

Trait 3. A good investor is the willingness to learn from past mistakes or to admit that he or she has bought the wrong share. It is so hard for people to recognize their own mistakes and sell the bad share which they bought at a higher price. Most people would much rather just move on and ignore the dumb things they have done in the past. But if you ignore mistakes without fully analyzing them, you will undoubtedly make a similar mistake later in your career. In fact, even if you do analyze them it is not easy to avoid repeating the same mistakes. 

Trait 4. A fourth trait is an inherent sense of risk based on common sense. You must have the common sense to realize the risk of buying any share which has gone up a lot and when all the analysts are recommending buy. No share can go up indefinitely for whatever reason. Quite often you might be tempted to fall in love with your purchase because it has been going up and up. You are so proud of your pick and refuse to sell it. Remember your ego can skew your judgment.  

Trait 5: Great investors have confidence in their own convictions and stick with them, even when facing criticism. Buffett never get into the dot-com mania and he was being criticized publicly for ignoring technology stocks. Eventually he was proven right. Unlike Buffet, we small investors can get in and out quickly and make some profit.

Besides confidence, you must have patience to wait to buy when it is has established a base and not buy when it has shot up due to some exciting hot news.  

Trait 6. It is the ability to think clearly. There are a lot of people who have genius IQs who cannot think clearly, though they can figure out bond or option pricing in their heads. I have met a lot of smart people in my life time but very few of them can come up with an inventive way of looking at a problem.

As you know, there are so many criteria to consider in share selection and invariably all the professionals will consider the current profit is most important. They do not look at the future profit growth prospect of the share. They do not look at the company and the industry like a business man or an entrepreneur.

Again I have to use Jaya Tiasa as an example to explain this important point of making super return. You only have to have the elementary knowledge of arithmetic to calculate that JT will almost double its fresh fruits bunches (FFB) production in 3 years. Even if the CPO price remains unchanged, its profit from its oil palm plantation will surely double.

Moreover, JT has about 2,500 sq km of forest to supply all the raw material for its plywood and timber business. Surely any one with eyes should be able to see the huge forest ( 50 km X 50 km approximately) which is the competitive advantage it has over all the manufacturers in China, Taiwan, Japan, India and in any other countries. Yet all the professional fund managers cannot see the forest as the competitive advantage JT has over other competitors.  

As Warren Buffet often say that in the competitive world of doing business, all your competitors are constantly trying to attack you and you must build a moat around you to protect yourself. Unfortunately, in the Malaysian stock market, we do not have stocks like Coco Cola, Gillett Razors or Mac Donald which have the market competitive advantage.

Trait 7. Finally the most important, and rarest, trait of all is the ability to live through volatility without changing your investment thought process. This is almost impossible for most people to do; when the chips are down they have a terrible time not getting themselves to average down or to put any money into stocks at all when the market is going down. People do not like short- term pain even if it would result in better long-term results. Very few investors can handle the volatility required for high portfolio returns. They equate short-term volatility with risk. This is irrational; risk means that if you are wrong about a bet you make, you lose money. A swing up or down over a relatively short time period is not a loss and therefore not risk, unless you are prone to panicking at the bottom and locking in the loss. But most people just cannot see it that way; their brains would not let them. Their panic instinct steps in and shuts down the normal brain function.

Conclusion: I must realize the risk I am taking in writing this article. People will judge me and they will laugh at me if I am wrong in betting Jaya Tiasa so heavily. I still have some SOP which I have bought when it was cheaper and I sold a large portion to buy JT.  I also have Mudajaya,  Kulim,  and smaller amount of Symphony Life, Success Transformer.

Only time will tell whether I am right or wrong. Nevertheless, my intention is honorable and altruistic. I also believe I have some special knowledge which will help you make more money from the stock market. 

How to improve your trading technique? - Koon Yew Yin

Koon Yew Yin

Although I said that I would not post any more articles because of the few senseless and abusive commentaries, but by popular request, I will share my knowledge and experience with those who are interested to improve their technique.

The stock market is a zero sum gain play which means that in a long term, some will win and some will lose. It is like 4 people playing mahjong throughout the night where the total wins will equal total losses. If you have been losing in the stock market or on a mahjong table, you must examine your own track record to see your mistakes and change your mind set. Be humble and willing to learn from investors who have been constantly showing successful track record.  

A few readers of my previous posting complained that I sold R Sawit and made profit while they have bought and were still holding it. You will recall I always said that if you buy you are buying it at your own risk. When I recommended R Sawit, it was selling 83 sen in Nov 2011 and within a few months, it went above RM 1.20, a 50% profit as shown on the price chart. Why didn’t they sell to make 50% profit within a few months? Fortunately a few readers said that they were grateful because they made so much profit within such a short time. 

You must bear in mind that no share will continue to go up in price for whatever reasons and no share will continue to come down for whatever reason. That is why I sold R Sawit, SOP, Ta Ann and others to buy Jaya Tiasa and also to reduce my margin loan. Please refer to my previous article on ‘How to use margin finance to increase profit’

I have openly said that my family has bought more than 40 million Jaya Tiasa and other shares and we have more than one hundred million ringgit margin loan. I have clearly explained why we bought so much JT. The most important reason is that JT has a very promising profit growth prospect. For the same reason, I bought R Sawit, SOP and Ta Ann before when they were cheap which I have sold when their prices went up.

As we all know, all share prices fluctuate. It will be foolish if I do not sell some JT when the price goes up. Now I tell you openly that I will sell some to reduce our margin loan when JT price goes up by say 20% or more per cent so that we have money to buy when JT comes down or to buy some other shares. When I sell some JT, it does not mean that JT will not go up again on a long term. I believe JT will continue to go up for the next few years but its price movement, like many other shares will not move up in a straight line and you must learn how to take advantage of this phenomenon.   

Please remember as was the case with R Sawit, if you buy JT when I sell and you lose money, you cannot say that I have misled or cheated you. Just like anyone who has bought a property at a cheap price and sold it to you, you cannot say that he has cheated you. He did not point a gun at you to force you to buy.  

I have a few more other shares beside JT. All of them do not move up or down in tendon or move together at the same time. I will sell those that have moved up too rapidly to reduce my margin loan so that I have financial capacity to buy those that have come down or buy a newly discovered good one.

I believe I have the knowledge and experience to share with people who are genuinely interested. I am preaching the same investment philosophy that I had used in the following cases which may seem that I am boasting:

1.     In 1983/4 when Hong Kong market crashed, I made so much money that I bought 46% of a stock broking company in H.K.

2.     In 2008/9 I was the largest holder of Kulim warrants which shot up from 50sen to Rm 10.50 within 2 years. That was the first time I met Alvin Tai CFA of RHB Research who can vouch my performance.

3.     In 2010/11 when I bought 20 million Supermax which shot like a rocket from Rm 1.00 to Rm 6.50 within 18 months. Supermax CEO Dato Sri Stanley Thai can verify what I said.

4.     As I described in my previous posting “Why I sold R Sawit and SOP to buy JT”, I bought 15 million SOP and 50 million R Sawit and I made phenomenal profit.

5.     As I described in my previous posting of Tradewinds Plantation, I also made a large sum in early 2013 when my large holding forced the controlling shareholder to offer a higher price to privatize the company and many people have made more money. 

Although what I said seems boastful, my intention is noble as shown in my track record in doing charity. I advice all investors especially those who have not been winning in this game, should study all my articles carefully to improve their technique in share trading. To win you need knowledge and willingness to take some calculated risk.