30 September 2013

Nam Cheong - Malaysia Shipbuilder Listed in SGX - September 2013

I learnt Nam Cheong from research houses, that it is now enjoying a forward PE of less than 10.0 X and EPS CAGR of more than 30% in recent years. 

The business model of Nam Cheong is to have both project based business & recurring income base business. While the recurring income business (Vessel Chartering) stake is still very small ( < 10% of total revenue), we do expect that the company could still grow in its main business (Ship building) by managing the Build-To-Stock business model well. BTS business model requires the company to have an accurate forecast on the needs of vessels ahead of the booking from various clients. This is different from Build-To-Order business model where BTO business model would take longer period to complete the vessels.  

If we look at the latest Cash Flow Statement (2013Q2 FS), CAPEX increased a lot while Operating Cash Flow suffering from Negative amount, implying the company may need to have more Financing Cash Flow to support its operating activities (which the company already did a placement earlier this year by issuing new shares). 

Since its debut in SGX 2 years ago, we have seen a very volatile shares price movement. With current shares price of 28.0C, I believe that it can be considered as 1 of the cheap O&G counters listed in SGX. 

However, please note that as Nam Cheong main competitive adventage is its strong relationship with PETRONAS related companies, it is currently depending on Petronas's CAPEX plan to get more deals on shipbuilding contracts. 

The latest news was that it clinched a US$120M contract to sell 4 PSVs to company in Lartin America. I believe that it can further enhance its position by establishing more relationship from various regions in the world. 

I believe it can break its record of 21 Vessels sold last year by this year. I understand that when the O&G sector is expanding, the company may get more contracts. To take opportunities from there, the company may have to borrow more from banks or issue new shares to facilitate the growth of the working capital requirements. To me, I personally prefer to have a optimal debt structure instead of relying on new shares placement. Nonetheless, I will need to monitor closely how the entire O&G sector progress to decide which counter I like best. Currently Ezion (and its related co. such as YHM / Ocean Sky) are in the spotlight, so I tried to put other counters in my watch list. 

18 September 2013

A Lunch Talk with A-Sonic CEO - September 2013

Not too long ago, our company conducted a lunch talk with A-Sonic CEO, to my surprise the CEO is female (I'm sorry that I didn't read the annual report on this company yet). She and her another colleague shared with us their business model as well as their plan to further grow A-Sonic.

If you are not aware of, A-Sonic is expanding their business in Aviation business, and you notice that the revenue from aviation business @ 1H2013 grew 4 times ++ to S$5.0M from S$1.0M last year. The CEO shared with us that the logistic business was a number game, that they have to keep on increasing the logistic volume in order to have a better economy of scales and hence better gross profit. In comparison, aviation business provides better gross profit margin, which is about 25% as compared to single digit percentage of logistic business.

The CEO shared with us the difficulty they faced when they started off the aircraft leasing business few years ago. Firstly, they tried to source the raw material at cheaper price. Secondly, they met the financial crisis few years back and the global economy took a hit from there and they hardly find a potential client to lease from them. Thirdly, it took some time for them to better configure the air craft and send it over to the clients.

In the meeting room, several questions were raised:

1. How do you ensure that you have sufficient cash / fund to support the aviation expansion?

    The business model is that the client must deposit first once the LOI is signed. So the company does not need to worry over the initial cash flow (I think the same goes to Yang Zi Jiang who also require deposit before the shipping project is started). They also have several banking facilities. With 25% gross profit margin, the single digit bank loan interest actually does not mean too much to them as long as they can complete the project in time.

    Nonetheless, the CEO also mentioned that they are in the midst of restructuring the logistic division and logistic business is actually still in growing stage, although it may not as fast as aviation division.

2. How long does it take to complete a project (air craft leasing)? 

    After sourcing the raw material, it takes about 3-4 months for the engineers team to configure and of course it would take about few weeks for authority to approve it.

3. Is there any conflict of interest because CEO actually own substantial percentage in one of the client's co stake? 

    The CEO mentioned that her motive in becoming a substantial stakeholder is to strengthen client relationship and in the hope to become one of the exclusive partners with the client. In fact, the client actually does not require additional fundraising, but they would like to have technology & skills by A-Sonic.

13 September 2013

Iskandar Malaysia Update - September 2013

There were 2 main news in September 2013 for Iskandar Malaysia, firstly Educity attracted RM700M in investments for its purpose of becoming educational hub of international colleges in Southern Johor, secondly some foreign companies expected to invest RM1.0B in halal industrial hubs in Tanjung Langsat & Sedenak, sub-urb of Iskandar Malaysia. 
NUSAJAYA: The EduCity project in Iskandar Malaysia has attracted some RM700mil in investments with the setting up of several international universities, says Deputy Prime Minister Tan Sri Muhyiddin Yassin.Muhyiddin who is also Education Minister, said that 70% of Educity has been developed with three university campuses and two shared facilities.“Besides EduCity, the Government is also developing Pagoh into a multi-varsity education hub and Bandar Sri Alam in Pasir Gudang as a ‘City of Knowledge’,” he said at the ground-breaking ceremony of Management Development Institute of Singapore (MDIS) here yesterday.
JOHOR BAHARU, Sept 3 — Several foreign companies producing halal products are close to investing over RM1 billion in the two international halal industrial hubs in Iskandar Malaysia here.Halal Industry Development Corp Sdn Bhd’s Vice President of Special Projects, Prof Malik Musharaf, said the companies will invest in the hubs in Tanjung Langsat and Sedenak, which were owned and managed by IRDA and the Johor state government."The companies, from Japan, Indonesia, Turkey and Singapore, are in the final stage of discussions with the local authorities on the investments involving over RM1 billion," he told Bernama here today.

10 September 2013

Buy When Volume is Low; Sell When Volume is High

Most of the time, I always think that low volume indicates there are not many serious sellers in the market, and most of the investors apply "wait and see" attitude. With low volume, normally it will not attract institutional investors who require huge liquidity for them to enter and exit quick enough. But as a small investor, I do believe that we could be able to find out hidden gems that suffered from low transaction volume for, maybe 6 months time.

Normally low volume indicates low price movement, and it is actually a good time for us to accumulate good counters, and wait for it to return to the normal value. We can then sell it when the transaction volume is higher or the share price exceeds the intrinsic value.

Nonetheless, we must ensure that the counters that we buy are in good quality and only suffered from temporary bad news.

09 September 2013

Sim Lian - Hidden Gem?

I read through Sim Lian Annual Reports and realized that it has a few property development projects in Malaysia and Singapore and it just ventured in to Commercial property market in Sydney, Australia. 

Unfortunately, I cannot find any faces of BOD in annual reports, which let me remain curious of the Kuik families. There are some of the sources of news I could search from any websites:  

Despite revenue decreased slightly, the group's net profit in FY2013 experienced a significant 27% drop, with COGS increased higher due to raw material & wages. 

Lists of the projects:

Singapore: Clover By The Park, UB.One, Lincoln Residences, Rochelle At Newton, Waterview, Centrale 8 At Tampines, A Treasure Trove, Parc Vera, Tampines Trilliant, Bukit Panjang

Malaysia: Desa Baiduri, KL Trillion 

Source: http://www.theedgemalaysia.com/property/244549-sim-lian-group-eyes-more-land-in-malaysia.html

Ramba Pre-Conditional Offer @ 65C

Ramba announced pre-conditional offer at 65 cents last week, added that the offer would bring synergies among offeror (Sugih) and Ramba on its mining business. The record date would be announced in due course. Let's see how it's the progress later.

03 September 2013

China Minzhong Case Study - Short Selling & Defense Mechanism

China Minzhong gave me an opportunity to study the short selling & defense mechanism on this counter. Firstly, the short seller announced its report on possible faked report. There are few things to note:

1. Concentrated clientele - with concentrated client base, it means that the company has limited source of clients and it may give negative impact to the credit rating given by the financial institutions. The short sellers suspects that the company ballooned the sales by increasing receivables (aggressive sales).  

2. Huge CAPEX along the years - with huge CAPEX, I noticed that this is not a good sign, as the company may capitalize the expenses into Non-Current Assets and amortize / depreciate in later years. Personally speaking, I prefer a company with stable or little CAPEX compared to its revenue growth. That's why I did not invest in Air Asia IPO. The moment I noticed that a company decided to build a wonderful head quarter for itself, I quickly liquidate the shares as I do not think that it is a good decision to create long term shareholder value to the investors. 

The major shareholder (Indofood) announced offer to purchase from other shareholders at $1.12. As this is mandatory but not compulsory offer, it gives room for minority shareholders to think whether to sell it to the major shareholder or do nothing but to hope this case to be closed soon.

If you look at Olam case, Olam net profit dropped after announced that it would cut down the CAPEX budget for next few years. Some investors lost confidence in it and the price is now at around $1.4X. 

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