Icon8888 Gossips About Stocks
(Icon) Melati Ehsan - Finally Recovering From Hangover ?
Melati is a construction company. It was listed shortly before 2008 election.
One thing that caught my attention back then was that they have high profit margin. The company explained that they have a unique business model of bundling design with execution, which sets them apart from other construction firms.
Post 2008 election (which saw a change in government in Selangor), Melati share price took a beating. Many other companies' share price also plunged as a result of the uncertainties, but they have since recovered and moved on. But Melati seemed to be stuck at low equilibrium for many years. Not only share price, its earnings are also very slow to recover.
However, recently, Melati share price had rebounced strongly, which prompted me to take a closer look.
1. Background Info on the Company
Based on 120 mil shares and share price of RM1.28, market cap is RM154 mil.
The group reported RM17.7 mil net profit in past 4 quarters. Meaning historical PE multiple is 8.7 times.
Based on net assets of RM171 mil, loans of RM19 mil and cash of RM36 mil, the group is in net cash position.
2. Segmental Breakdown
When I studied Melati, the first thing I did was to flip to the back of the annual report to check out their land bank.
As mentioned in previous articles, one of my favorite investment theme is contractors which grew by venturing into property development. Melati must be one of them since they hold quite a lot of land bank.
| Location | Description | Area | NBV | Year | price psf | ||
| (acres) | (RM mil) | (RM) | |||||
| Pandamaran, Klang | development land | 98.2 | 34 | 2007 | 7.9 | ||
| Pandamaran, Klang | development land | 21.3 | 8.5 | 2009 | 9.2 | ||
| Mukim Batu, KL | development land | 1.2 | 22 | 2008 | 420.9 | ||
| Mukim Petaling, Daerah KL | development land | 2.5 | 5.0 | 2010 | 45.6 | ||
| Total | 123.2 | 69.5 | |||||
As shown in the table above, the group has closed to 120 acres of land in Klang and 4 acres of land in Mukim of Batu and Petaling.
The land was booked in at low Net Book Value of RM70 mil (RM8 psf for Klang land only).
The land bank they own are quite sizeable. I was expecting the group to derive a significant portion of its earnings from property development. But to my surprise, property development only contributed very little to earnings over the years. The bulk of the profit was still from construction activities.
| FYE 31 August (RM mil) | 2009 | 2010 | 2011 | 2012 | 2013 | Nov 2013 | Feb 2014 | |
| (Revenue) | ||||||||
| Construction | 163 | 140 | 77 | 136 | 131 | 30 | 45 | |
| Trading | 20 | 4 | 1 | 12 | 28 | 9 | 11 | |
| Property development | - | - | 8 | 6 | 67 | 28 | 23 | |
| (Operating profit) | ||||||||
| Construction | 10 | 7 | 3 | 9 | 11 | 6 | 7 | |
| Trading | 0.4 | - | 1 | 0 | 1 | 0.3 | 0.3 | |
| Property development | - | - | 4 | 2 | 5 | 1 | (0.7) | |
| Net profit | 13 | 6 | 6 | 7 | 12 | 5 | 5 | |
3. Share Price Movement
The company's share price rose by closed to 30% recently pursuant to relatively good result released on 29 April 2014.
4. Developmet Projects
According to FY2013 annual report, the 254 units double storey terrace houses known as Taman Ehsan Jaya in Pandamaran, Klang and the 40 units of 3 storey terrace houses named Laman Bayu @ Bukit Jalil were fully sold within a short period of time.
The works for these housing schemes are targeted to be completed by Q4 2014.
(Taman Ehsan Jaya, Pandamaran)
(Laman Bayu, Bukit Jalil)
5. Concluding Remarks
(a) The group has strong balance sheets. Earnings starting to recover after being in the doldrum for many years. Existing PE mutiple at 8.7 times is reasonable.
(b) The group is sitting on huge undervalued landbank at Klang, which would contribute substantially to earnings if the group decide to ram up development.
(c) Overall, I would say that this company has huge potential. Unless there are factors that prohibit them from launching their development projects (which doesn't seem to be the case as they had been developing their Klang land recently), the group shoud be able to do well and reward shareholders accordingly in the future.
Have a nice evening.
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Discussions
1 person likes this. Showing 18 of 18 comments
Haha work like cow work like horse, but when market is down, a lot of people will jump in and condemn me.
Sad
2014-05-07 22:45
Icon8888, pity u. Sometime ppl very difficult only want good dont want bad. If like that the world no poor people lor
2014-05-07 22:48
icon8888
Thank you for the many articles that you have shared in I3...
Indeed the articles are well written.
Yes, I have benefited from your articles...
Do not let others with negative comments affect your rationality...
You are WHO you are...
You DO NOT live for these people...
Have a big open heart...You will be more happy, & can greatly contribute to I3 Users...
I am awaiting for your next great article...
Have a wonderful weekend..
2014-05-08 10:11
Henry that is because this sector is always where the 6, 7 times PE multiples are.
Other sectors like food, oil and gas, banks, plantation, etc had relatively high PE
So even though I try hard to stay away, I keep being pulled back by the gravity
2014-05-08 10:22
Icon8888...You work like cow & work like horse, but when market is down, a lot of people will jump in and condemn me.
Yes, it is a lot of hard work that you have put in...
but, Ask yourself this question...
Do you feel HAPPY doing this????
For me...I am HAPPY reading Take Over Offers & Selective Capital Repayment Proposal. Anything related to stocks...This is my PASSION...
When I see $$$$ coming back to yr account...it is worth all the hard work.
Is analyzing Stocks one of your PASSION????
If this is your PASSION, then You work like cow & work like horse, it is worth the hard work..
Do not let yr PASSION burnt out...because of negative comments...really, they are NOT RELATED to you anyway..
2014-05-08 11:11
Icon8888, thanks for your writing. I am amazed by your diligence and detailness in your research.
Just like you, I also try to avoid overweight in property counters. It is apparent Malaysia property market will crash. The multi billion question is when ? 5 months, 5 years or 50 years ?
SBCCORP, MKH and GADANG are more than 30% of my investment so I am very careful not to purchase more property counter.
If we read from just earnings and land banks, most property stock are a BUY.
Are you able to compare among the counters that you have covered and advise which one is THE BEST BUY ?
2014-05-09 13:43
To Icon8888...Analysing stock IS yr PASSION....see, you have Chonghai, asking you for advice on property counter. Your valuable advice is noted by the I3 retail investors...You answered without any monetary favors in return...You must be a good retail analyst...
Have 1 question to ask you...Is it good that Property companies to start selling their land banks to other companies???
They are supposed to buy cheap land & develop the land for better margins. This is what they are supposed to do best, but now, selling land to make profits..Tropicana Corp - Unlocking Value Of Its Prime Land bank???
2014-05-10 11:07
In Trop's case, they have more than 1,000 acres of prime land with GDV of more than RM70 billion. This is sufficient to last them 30 years. Their gearing is also very high. No harm selling some parcels if the pricing is good.
2014-05-10 17:21
I will be looking at Tropicana Corp again.
Thanks for the feedback. Have a nice day..
2014-05-11 11:20
Icon, what do u think about A&M? They hv lots of land located in Carey Island, Klang. A&M bought it 20 years ago n now they r gonna to develop golf club and high end bungalow.
Is this kind of asset play stock?
2014-05-15 14:20
A&M story has been known. No more "discovery" theme
But it is undervalued as what u said. Difficult to tell how the story will unfold in the future
But a good company
2014-05-15 14:26
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very productive woh icon? :)
2014-05-07 22:41