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SOS Gadang attracted so many issues? Part 5

sosfinance
Publish date: Sat, 05 Nov 2016, 03:24 PM
VALUATION DOES NOT DETERMINE THE PRICE, IT'S JUST A TOOL TO ESTIMATE A VALUE OF A BIZ

www.sosfinancialplanning.blogspot.my

"How do you save RM50,000? - I shared with a friend on how to do it. I got a term life for RM280 p.a covering RM100k until 70 years old. I cancelled my wholelife insurance of RM2,800 p.a. for the same coverage up to 100 years old. Save RM2500 p.a x 20 years = RM50,000. (PM0122037325)

.....IS THIS ARTICLE FAKE OR FACT?? ANYONE CAN CONFIRM?

LET US LOOK AT THE ISSUES ONE BY ONE

1.  MD sold 5.5m shares one month before weak quarterly results

2.  Construction contracts book order is low, is it a major concern

3.  Property, Capital CIty, some are concern on sale and ability to complete

4.  Utility segment too small - hence Gadang expectation of PE of 10x is consider high

 

 

WHY FONG SILING CHOOSES GADANG?

Can view it at www.sosfinancialplanning.blogspot.my

 

ISSUE #1

1.  If we look at the directors buy and sell of shares, you will notice the MD had bought and sell at various years.

2.  I notice, he sold some shares from 25 sen to 50 sen in 2010.

3.  I also notice he bought some shares at RM1.77 per share.

4.  He also sold some shares at about RM2.00 and RM2 plus.

5.  There is no right or wrong, as long as he did not break the law (i.e. inform Bursa in the closed period).

6.  Share price can go up or down after he sell or buy, so it is not within his control, unless the stock is cornered.

7. So, judgement is up to you if he is ethical or not.  However, his indirect holding did increase a bit lately.

8.  I look at it very simple, he played by the rule.  He did not steal or missappropriate any money from the company (unlike Protasco, RM80million disappear without a trace, and our authority didn't said a word, amazing).

9.  You choose to follow him or not (if you own the shares).  It is your own judgement.  If what he does crosses your ethical line, sell it. 

 

ISSUE #2

1.  I have written this before.  Is also a judgement call.  Management did say, they are confident of replenishing it.

2.  Another judgement call.  You think they can't, sell it.  Construction sector is good for next few years (on infrastructure)

3.  Of course, if this company does not give you sufficient margin of safety or not potential of going up, then, the decision is quite simple, sell it.

4.  Some hold on it because, they trust the management (based on track record) or think that they will be bright future for construction sector (if the company is competitive).  

 

ISSUE #3

1.  Capital City.  Company have invested about RM21m into the land about 20 years ago.

2.  Signed with a listed company from Singapore to JV and develop it.  What is the maximum risk?

3.  How much did analyst ascribe the value for Capital City (i read somewhere about 25 sen, using SOP).

4.  Again, is a judgement issue, after looking at facts.

5.  Management said no problem, if we don't trust them, don't buy the share.  Judgement is required.

 

ISSUE#4

1.  Utility will contribute about RM8m for FYE 17.  Very little, maybe only 10%.

2.  However, they have invested RM120m into it.  SF is about RM530m.  Total invested is about 23% of SF.  

3.  All biz take time to grow.  If you expect return within 2 years in utility, you will be disappointed.

4.  Management intent to invest more circa RM60m, hence, contribution over SF will grow.  

5.  So horizon of expectation must be a bit longer, say 2-5 years to see stablised contribution.

 

ISSUE#5  (included after 8pm on 5 Nov 2016 after watching the you tube)

Fong Siling youtube.  Have a look.  Got it from the youtube.

https://www.youtube.com/watch?v=B8O2oZc8BVU (apology, after listening again after a reader commented in my blog, the entire clip was actually referred to GKent.  If we listen carefully, he finished a sentence on Gadang at the initial stage, and mentioned GKent after that.  It make sense because he was referring to GKent after ex-bonus is around RM3.50, while lately traded at about RM2.70 to RM2.80, updated 7Nov2016)

My uderstanding, he said, Gadang, using as example only.  He had bought twice of this stock, because, at that time this counter is very quite, not many interested in this counter and have secured many contracts.  And he quickly said, this is not asking the audience to buy, emphasising it is just an example.  He said he not asking anyone to buy because based on the current price, the share is "fully valued".
 
So, this is a great example, for readers to make their own decision.  Independent decision or just follow Mr Fong. Please bear in mind we can interprete it a few ways, indirectly saying it is fully valued, it is not a good idea to buy, right? Of course, that does not mean he sold ALL THE SHARES, me may keep some if he anticipate the company can get more major contracts.
 
So, end of the day, it is your own interpretation, you own judgement, you won experience to make the call, buy, hold or sell and on what basis. (not because of some prominent shareholder said, don't forget, there are also other fund managers who hold more than what Mr Fong hold).  Would it imake a different if I said, this fund house reduced 5m shares, since they hold about 25 million shares?  And another fund house, increased 5 million shares at 2.80?
 
Similarly, I am not asking you to buy, sell or hold, you have to follow your own strategy.  How many shares you have, what is your investing horizon, do you think the company is capable of securing more big contracts, etc.
 
ISSUE#6  (My Wrong Assessment about Gadang by KYY on 6 Nov 2016)
 
Ha, ha, ha, he is shareholder No. 18 only.   What about other 16 shareholders (besides the 2 substantial shareholders), is their view not important.  This is really a good test of your own INDEPENDENT of investing and doing your own homework.  KYY also sound very convincing with other counters.  If we follow prominent shareholders to make our investment decision, we are asking for trouble.  Some of them may have bought it at RM1.00, so, selling some at RM3.00 is rationale and conservative for that person.  You have to know your own EVALUATION, your own judgements and your own experiences.  If prominent shareholders is so great, why didn't they hold since IJM's IPO at RM66m market cap, until today, at RM12 billion in 33 years.  Just ONE STOCK is enough with a CAGR about 17% for 33 years (RM10,000 become about RM1.81 million).
 
I will not discuss more until any major "change" or contract secured. Until one learn to be independent and rationale and able to do adequate research, I believe it is safer to keep the money in FD.  
 

LAST ISSUE (7 NOV 2016) - Mon (for personal info)

1.  Another panic sell on 7 Nov 2016, Gadang closed at 2.69 with 20m volume, like the first panic a day after qtrly result.  Based on my personal TP3.50 and above (2-3 years),  

2. The high volume is cumulation of few factors, most of them have nothing to do with fundamental.  Is syndicates/stockist, margin call, or investor clubs followers (due to gurus advice) + probably some fund managers is selling as well.  (FS on Friday or Sat, gave a talk and some comments were made he sold Gadang at RM3.00 and KYY said Gadang cannot meet FYE16 earnings, hence, said can buy at lower)  

3.  Good for the ESOS employees.  Not so great for "traders" who may need to cut loses due to "margin call".

4.  For LT investors, just watch the game.  Nothing to worry about.

5.  I remember when I first bought it as my Fund Manager recommendationed it at RM1.83 (2014) and dropped to RM1.13 (drop of 38%).  They recommended again around RM2.10 (2016) after one year, with better fundamental.  It went up to RM2.50 then dropped back to RM1.85, and then up all the way to RM3.38 (prior to 1Q17 results), before coming back to RM2.69 (7/11/16) - a drop of 20%.  

6.  Without being able to make independent advice, and have own strategy for a stock, in a long run, the participants likely to contribute to others.  Of course, some may think, is it worth a while to participate in a company with so many issues?  Only two issues worth mentioning, i.e. weak first quarter (whether the model is falling apart), and order book for construction of 1.3 times FYE2016, which I have explain, for FYE17, it is more than sufficient.  Next 7-9 months, is crucial that they secured major contract for replenishment of orderbook.  Else, construction profit will drop significantly.

 

SOME INFORMATION 8 NOV 2016

In Nayang newspaper (interview of Kok Onn after AGM on 3 Nov 2016), Kok Onn said he invested about RM160m to take over Gadang.  Based on share price of RM3.00 or RM776m, and his ownership (disclosed in Top 30) of 27% is only about RM209m.  At RM2.70, his portion is only RM189m.

During the panic on 4 Nov 2016, after AGM, and another panic on 7 Nov 2016 (FS & KYY indication of sale), the market over reacted.  It dropped from RM3.30 to as low as RM2.50 (+7sen dividend) on 8 Nov 2016 before rebounded back to RM2.64 (+7sen dividend).  

During this period, it may be fruitless to discuss the logical thing to do as most of the participants are panic selling or facing margin call, hence, any logical discussion will deem as illogical.  For me, this "hiccup" will come to past few months down the road, and we will have a laugh when the share price comes back after the split/bonus/free warrants and the results improve + contracts secured.  That is why, it is important for participants able to have rationale and independent judgement of what is facts, and what is careless comments (i.e. not well research or only on one angle).  

This panic period shown the ugly side of syndicates & speculators who focus too much on quarterly results, instead of a medium term capability of the management.  Some are cursing, some are blaming, some are laughing "I told you so", some talk like an expert, some make careless comments and only a few, are rationale.

This is a great lesson for those who can learn from this episode of issues faced by Gadang.  Different operators also have different style of taking advantage of the participants that follow blindly, who cannot work out an estimate of the fair value conservatively.

 

FOR RECORD AND INFORMATION PURPOSES - 11 November 2016

Transaction from 14 October to 11 November 2016.

Average volume is around 1.0m to 4m per day except for the following:

28/10/16       28.8m shares   -  a day after weak results (drop about 50% from qoq)

7/11/16         20m   - after FS talk & KYY's article (likely the students reaction + syndicates)

8/11/16         16m

9/11/16         12m

10/11/16        6.4m 

11/11/16        3.4m

As for 7/11/16 - FS and KYY talks may have some influence (students following crowd mentality) + syndicates + could be some fund managers as well.  KYY's estimates FYE17 earning drop from FYE16) plus USA election on 8/11/16

Another crucial observation is the irrationallity of investor clubs.  It appears most are very near term focus in investments, like, looking forward to the next quarterly result, and also immediate year results.  It is kind of "short sighted" way of investment.  However, this is the trend of the day, like "pokemon", I believe it won't last.

 

ANOTHER SUPRISE ON TUE 15 NOV 2016

1.  Highest in around 3pm + Gadang high is 2.77 + 7sen dividend is about RM2.84 with volume about 10m.

2. This is an observation, not a prediction of the share price going up and down.

3. Gadang had recovered from 2.52 (Friday) to today's high of 2.77 or about 25 sen or 10% in two days.

4. Why the worry suddenly subsided and rebounded quickly? Running up to the bonus issue? Perhaps, but it is neutral in theory.  But participants are not robots.  They are made of flesh and blood, and also greed.

5. Will it goes back to say 2.93 + 7 sen dividend before bonus issue (by 23/24 Nov)?

6. For traders this is important, decision need to be made before 23/24 November, whether to take advantage of the run up.

7. No one will know, some shares tumble after the split/bonus/foc warrants, some goes up further, some tumble after it and rise significantly after that and then fall again.  Depends which example we want to use.  Some expert (after it happen) will tell, see, you should sell prior to ex-bonus or sell after ex-bonus, this and that.  Just like the expert said, see, told you guys to sell at 3,00, not is 2.60 or 2.50.  But I do know some went up 3-4x after a year or two when the company grows or expanded.

8. So BUY, SELL or HOLD, well, what is your strategy? Trading (less than 6 months)? Medium Term (2-3 years)? Long term (>5 years)?  Who, actually holds a share for 33 years? Like IJM Corp? RM1m become RM181m in 33 years.  

9.  Can Gadang be IJM Corp? Today at RM2.77 is about RM700m vs IJM, 12,000m.  It is not even more than 6% of IJM Corp, but looking at their investment in Utility/Plantation (200m over 530m), Expanded its Property (with GDV of 5bil - with minimum land ownership) & 1.3 years of construction book order (very low vs other construction companies but good margin), they may be moving at the right direction.  

10.  For long term investors, this "period" is a blip if we look back 10-20 years later.  However, we have to monitor it annually.

 

 

 

CONCLUSION

BESIDES choosing a stock, one must have their own strategy on the stock (on buying and selling).  If you look at the MD, why did he sell at 25sen 6 years ago if he know from in 2016 it will reach 330 sen?  Thats show that, even you are the MO#1 in the company, you also cannot see too far.  

So, do not need to follow prominent investor or MD.  This is a good case study.

(Part 6 will come after all negative perception subsides and positive news coming in after 11.11.16)

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2 people like this. Showing 25 of 25 comments

shortinvestor77

Today Cold Eye said he sold Gadang already (just sold).

2016-11-05 19:27

calvintaneng

shortinvestor77

Today Cold Eye said he sold Gadang already (just sold).
05/11/2016 19:27


Yes ah?

ColdEye is one very smart investor buying Gadang when it was below Rm1.00.

Now with maximum euphoria ColdEye takes this most opportune moment to sell Gadang at peak prices.

Kudos to ColdEye!

Now all who are still chasing Gadang will soon be holding cold ice later when Gadang has cooled down like once hot Ifca

2016-11-05 19:35

sosfinance

I have watch YouTube (about 53 seconds). He said, using Gadang as an example, he bought it previously because the orderbook contract is high. He said, he is not asking anyone to buy because at recent price, it is fully valued. He didn't said he had sold all the shares. That is my understanding. Please take a look at the YouTube.
https://www.youtube.com/watch?v=B8O2oZc8BVU

2016-11-05 19:45

calvintaneng

haha.

from his tone he is telling people gadang is now fully valued and therefore not to chase gadang. now there is a stock just like gadang which coldeye bought when nobody is interested. that stock is multico or mceholding

2016-11-05 19:56

PlsGiveBonus

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2016-11-05 20:07

newb1995

Better sell gadang....coledye also disposing...

2016-11-05 20:27

aidwiz

i like how you write sos. using simple 1,2,3 points. even the writing layout is clean. great work.

2016-11-05 21:20

sosfinance

@aidwiz, tx.
investors and speculators looks at the Company from different perspective (due to different horizon and risk).
1. As I am looking a few years down the road, I look at what they have invested and roughly when are they bearing fruits. Beauty is in the eye of beholder.
2. I looked at the potential in RM120m invested in utility/plantation (more in the future), RM100m invested in Semenyih land, and also the JV with Kwasa Land, more recognition of Capital City (>80% more to go),
3. Multiple proposals in theory is a non event, it always depends on the sentiment of the day. But the free warrants is an attraction, normally positive.
4. I believe at RM2.90, Gadang has not reach its "full value" yet. On the basis of what they invested (RM120m in utility, RM100m in Semenyih land, JV for Cyberjaya and JV for Capital City (only about 20% or less taken up), and possibly more contracts to come. I based on roughly what these "projects" can earn in the future. So my horizon may be different from many others.

2016-11-05 21:58

Angel_Kuo

Calvintaneng, you still hold ALAM you bought 60 sen and NAIM you bought RM 2.58?
Or you still hold MULPHA you bought 45 sen?

2016-11-05 22:05

FCM100

I repeated the video a few times and I heard he said he bought at RM1.60 and still holding, anyone heard that too?

2016-11-06 22:31

sosfinance

FM, your heard it right. He said he bought at RM1.60 and he is still holding. "Wor hai sze na chor"
For me, it's a non event. Your decision should be independent of it. If your evaluation leads you to conclude that it is fully valued, then don't buy. Don't lose sleep on it. If you know another counter has better return than Gadang, quickly swap it. That is what independence is all about.

2016-11-06 22:43

A003

Why everyone so keen to listen to Koon man, Someone's eye? Why never listen to Calvin from Singapore? Where is Ooi? Any change in stands?

2016-11-06 22:43

stockistlearner

well writing SOS. listen to this and that fella will only end up in misery.

2016-11-07 00:16

stockistlearner

by the way, cold eye did say that he had sold out gadang around rm3.

the one he said fully valued is gkent, not gadang.

2016-11-07 00:35

RUOutOfUrMind

Fully valued means good to hold but not good to buy. Over valued means MUST sell because it is not worth the price.

Thank you, stockistlearner.

2016-11-07 00:47

sosfinance

RU, when listening again, u r right. At the beginning, he talk about Gkent after saying Gadang. The entire clip is about GKent, fully valued, worth about RM3.50ex-bonus. (Perhaps those who went for the talk heard him said he had sold Gadang at RM3.00. JUST to clarify. Tx RU

2016-11-07 07:26

sosfinance

Whoops, RU deleted his comment on the YouTube clips, not sure why. Anyway, based on the consensus, profit ranges for next 3 FYE is about RM85m-RM106m. Even average at RM95m, analyst gave a TP3.59 to 3.70. Use it as reference. The people who gets the ESOS is happy to see the price is down. I am happy for them. Happy employees, hopefully can make more money for the Group.

2016-11-07 10:29

sosfinance

Based on the readings on the comments made in i3, most are unable to make "independent decision", i.e. they have no choice but to follow this guru or that guru or unable to do "adequate homework. Of course, there is also stockist/syndicates at play. Average volume for past few months is about 1-2m, today (11m, half day) and the other day (28m).

Some are also making "careless" remarks. But, if we look at the situation rationally, the current situation (volume > 10m) is really great for "prospective buyers" and "ESOS participants" (employee is smiling). They are smiling because, they can buy at about 19% discount from the peak price, and make more money when they grow the company. Otherwise, the ESOS is useless for them if the Company do not manage to grow at a reasonable rate.

As for the amount given for the proposed ESOS, it is also quite high, in percentage (>10%), but I believe it is also guided by SC or Bursa guidelines (within the law). Imagine, if the company is RM610m (@ RM2.75), 10% is RM61m. How many employee have such amount other than the MD (even MD is not paid more than RM2m a year). So how are they going to pick up the ESOS, even though it is selling at a discount of 10% to them?

Last but not least, for information only, at RM2.75 less net cash of 32sen and dividend 7 sen, the company you are paying is RM2.36 or RM610m. Average profit next 3 years about RM100m. Looks ok. Will be rerated once they secured another project of >RM500m.

2016-11-07 13:39

Benjamin_8888

Sosfinance, thank you for the write up

2016-11-07 19:33

newbie92

Agreed with sosfinance, thanks for the write up.
Gadang selling is overdone due to bad publicity.
cheers to gadang shareholder.

2016-11-07 22:59

lkoky

Sosfinance, thank you

2016-11-08 08:37

sosfinance

Over reaction on 7-8 November. There is no new negative news. Great upside.

2016-11-08 12:19

Mar Yung Chern

sosfinance sifu, can you make an article regarding calculation after bonul split ,bonus issue and warrant, how much it will dilute the eps and pe and the effect

2016-11-12 14:42

sosfinance

Before: divided by 2.5
After: times by 2.5
Add free warrants: times 0.5

So, closing price is RM1.26
Before: RM1.26 x 2.5 = RM3.15
Plus half of free warrants = RM0.69 x 0.5 = RM0.345
So, total Before Bonus+Free warrant = RM3.15 + RM0.345 = RM3.50
You may want to add back dividend RM0.07
If you sell everything on Monday at these prices, you are selling at RM3.57 (higher than the MD)

Of course: Monday prices will goes up further due to the announcement of the RM952m.

2017-03-11 11:14

sosfinance

Monday share price will go up further due to the announcement of the RM952m construction contract on MRT2 viaduct due to rerating.

2017-03-11 11:16

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