Globetronics – can if rediscover its product development mojo?

If you are a tech company, being winners for many years may not be enough to have a sustainable future. Just think of Nokia, Yahoo and Blackberry and you can understand what I mean.

In the Bursa Malaysia context, we are seeing this playing out for Globetronics. The company was founded in the 1990s and for the first 2 decades, it was considered a fundamentally sound stock with good returns. Unfortunately the company experienced declining performance over the past 12 years. Globetronics’ revenue decline is in contrast to the growing revenue from the global semiconductor industry.

Globetronics needs a turnaround. But it is more than improving efficiency or productivity. It is about developing products that will generate good demand when the products come on stream in the next 4 to 5 years. The Group seemed to have been able to do this new product development process a decade ago. Somehow it lost this edge. If it fails to rediscover this product development mojo it will not be an investment opportunity but a value trap.

https://www.youtube.com/watch?v=RGcbaYeEqw4

Affin – will a change of shareholders improve performance

The performance of Bursa banking group Affin over the past 12 year was nothing to shout about. Its performance, measured against a panel of 10 Bursa Malaysia banks, is below the sector median across key metrics such as returns, efficiency, and loan performance. However, it has improved its capital adequacy ratio.

But I would not consider Affin is a value trap as it remains profitable with a margin of safety over 30% based on the asset value. However, it lacks a sufficient margin of safety under the earnings value.

The Sarawak State Government has recently acquired a substantial stake in the bank. There is hope that the state would divert its funds to Affin thereby improving its deposits and hopefully grow its loans. But if the challenge is efficiency and loan performance, I am not sure whether there would be a quantum leap in performance. For more insights refer to page 20 of INVEST

https://notice.shareinvestor.com/email/newsletter/invest/pdf/Vol229-Invest-18Oct.pdf
 

FACBI – will a new CEO herald a better future?

FACB Industries started off as a mattress company. In the early 90s it ventured into China as well the into the stainless steel pipes and fittings sector. Thereafter there was a change in the controlling shareholder. But there was no new business ventures and the group continue with the bedding and steel operations for many years.

About a decade ago, the group started to divest its steel business so that today it is left with the bedding operations, its investment in China and lots of cash.

In Dec last year, the controlling shareholder pass away and his son has taken over the management of the group. Nothing new has happened so far but I hope that with a new person at the helm, there may be a change in the business fortune. So keep FACBI in your radar. https://www.youtube.com/watch?v=kMBshJ1paRI

MNRB – bigger does not mean better

Bursa MNRB is a leading provider of reinsurance and retakaful as well as takaful. You would have thought that with a captive reinsurnance market and being a poineer in the takaful sector, the Group would be a roaring success.

While MNRB had been able to grow its revenue at 5.2% over the past decade, PAT only grew at about half the rate. When I compared MNRB's performance with those of the other Bursa insurance companies, I found that it is at best just below the panel average.

There was a run up in its share price a couple of months ago following a very good first quarter result. Unfortunately this was not sustained in the second quarter. So the company is still trading signficantly below its book value.

MNRB's problems are more about poor operating fundamentals – profitability, underwriting performance, and investment. If these could be improved we will have fantastic performance. So maybe the market waiting for this to happen before any re-rating.
https://notice.shareinvestor.com/email/newsletter/invest/pdf/Vol227-Invest-04Oct.pdf

Harrisons – is slow infrasturue development its moat?

You would have thought that with the growth of online business, the fortunes of distribution companies like Bursa Malaysia Harrisons would be distrupted. But over the past decade, Harrisons revenue grew at 5% CAGR with its profits grew at 8% CAGR.

Harrisons main distribution business is in Sabah and Sarawak. I suspect that because these states are less developed, the last mile service critical to online business is not so well developed. So there is greater reliance on the brick-and-mortar outlets. This is Harrisons forte and you could say that slow infrastrature develop is its moat.

If so, there is still a long way to go for its business to be disrupted by digital tech. Given Harrison fundamentals and a good margin of safety, why wouldn’t you give this a look?
https://www.youtube.com/watch?v=nz1r9Gg7Nls

https://www.youtube.com/watch?v=M7vP2iyrgNU

Is IGBB an investment opportunity
https://i.postimg.cc/JhMPFYVj/IGBB.png
https://www.youtube.com/watch?v=SvLahVbOmjc

Engtex – chasing dreams or using base rates?

Daniel Kahneman made famous the concept of the base rate fallacy. When presented with both historical or statistical information and those which is specific to an event, we tend to ignore the historical/statistical one.

I worry that we are going to see this play out for Engtex. This is a cyclical company whose performance is linked to steel prices. So in valuing Engtex we should be looking at its performance over the steel cycle. On such a basis its earnings value based on its historical performance is below its market price suggesting that it is overpriced

Of course, you would argue that this is backward looking and a more forward looking picture should consider the potential demand for water pipes. This in turn relates to the increase in water rates that would translate into better earnings for the water companies that in turn spur more water infra spending. On such a basis, you would consider Engtex as being underpriced.

In the short term the water infra story may play out. But if you are a long-term fundamental investor, shouldn’t you be looking at the water infra story in the context of the base rates?
https://www.youtube.com/watch?v=HRIYJUoQMj4

Coastal Contracts – a new hope from its pivot in business direction

A decade ago, Bursa Coastal Contracts earnings was from building ships for the oil & gas sector. But the downturn in the oil & gas sector affected this business. The company pivoted to providing gas production platforms.

Today the company is exiting the shipbuilding sector to focus on providing and operating oil & gas production platforms. The company has yet to rebuild its return to the heydays of shipbuilding. But this new business direction looks more positive than being in the shipbuilding business.
https://www.youtube.com/watch?v=JShL7TP1YT0

Plenitude – a new hope

The performance of Plenitude over the past decade was nothing to shout about with an average ROE of 4%. But this was because not all its cylinders were firing. Plenitude had 2 main businsses – property development and hospitality.

The hospitality business used up about half of its capital. For most of the time over the past decade the hospitality business delivered losses. The profits for the group were contributed by property development.

But over the past 8 years, the group had been refurbishing and improving the operating efficiency of the hospitality business. Then in 2023, this business began to deliver profits. I would expect growing contribution from the hospitalilty business.

Can you imagine the potential returns when both property development and hospitality pull their own weight? I think the market price has yet to reflect Plenitude’s turnaround.

For more insights refer to page 20 on INVEST https://notice.shareinvestor.com/email/newsletter/invest/pdf/Vol223-Invest-06Sep.pdf

https://i.postimg.cc/y63FRtm6/Crest-Builder.png

https://www.youtube.com/watch?v=Jcw2GnCPXqY

Is Lysaght a value trap?

Lysaght Galvaized Steel has been able to maintain its revenue and profits over the past 12 years. While not fantastic considering that global demand is projected to grow at around 4% CAGR, the company is profitable.

The company is also financially ok with about half of its total assets in cash form. There is also currently > 30 % margin of safety from its Asset Value and Earnings Value. It is not in a sunset sector and there is no sign of digital disruption. As such I do not think Lysaght is value trap.
https://www.youtube.com/watch?v=04XUJsz_nIM

OSK – will we see a profit boost?

Over the past 8 years, OSK has transformed itself from a financial services company to a property group although financial services still accounted for more than half of the net assets.

Because of this set-up, while OSK's main operation is property development, a big part of the profits still came from its investment in RHB. The Malaysian property market had been soft for many years, but there are signs of recovery. Hopefully we will then have both cylinders firing thereby boosting OSK performance.

For more insights go to page 20 of INVEST https://notice.shareinvestor.com/email/newsletter/invest/pdf/Vol221-Invest-23Aug.pdf

FoundPac – will its share price trend the Notion way?

FoundPac is a precision engineering company. It is in the same sector as Notion. While Notion share price has seen a quantum leap since May of this year, there is no such jump for FoundPac

While FoundPac had been able to deliver revenue growth over the past 9 years, profits were declining. This was because revenue came from the Group venturing into new product segments that did not have good margins.

But its precision engineering business has delivered good returns. But the newer segments such as cables and connectors and even automation are not pulling their weights.

Notion share price uptrended because of the ramp up its precision engineering business. Is FoundPac going to have the same business benefit in the coming few months?
https://www.youtube.com/watch?v=Vg7NGbydk2c

CJ Century – has it missed the digital tailwind?

You would think that with the popularity of online businesses, logistics companies would be having a roaring time.

When I looked at the performance of CJ Century, I found that its share price had been trending down since peaking in mid-2022. When I looked at its ROE, I also found that it had declined from its 2014 peak.

CJ Century is focussed on its legacy logistics businesses – total logistics and procurement logistics. The EBIT margins for these 2 businesses have been declining since 2015. The Group needs to improve its operations to arrest the decline. However, it does not have a clear track record of delivering operating improvements.

To deliver a sufficient same margin of safety from the Earnings Value, CJ Century needs to achieve 11% better performance than its past 2 years average. Can it deliver this with just the legacy businesses?

CJ Century ventured into the couriers services sector in 2016 but have since divested this loss making venture. You wonder why it did not tap big into serving the growing online fulfillments services.
https://www.youtube.com/watch?v=OIYcku46jwc

A decade ago, KFIMA manufacturing segment was the key driver for the group due to its supply of travel documents. Unfortunately it lost this lucrative supply contract and the group business suffered so that it did not achieved any revenue growth over the past 12 years.

But the Group had managed to offset this by growing the business in the 3 other segments – Plantation, Food, and Bulking. The returns with the current business profile have yet to reach the levels of that before the loss of the supply contract. But the Group is making progress.

The Group is fundamentally sound. It has managed to deliver returns greater than the cost of capital. At the same time, there is a sufficient margin of safety based on both the Asset Value and Earnings Power Value.
https://notice.shareinvestor.com/email/newsletter/invest/pdf/Vol219-Invest-09Aug.pdf

In the mid 2010s, Bumi Armada performance deteriorated due to the low crude oil prices. It had to re-organized itself and the company's performance over the past few years had improved.

There were improving gross profitability and contribution margins over the past few years. Its facilities are operating at high utilization levels. It had also improved its financial position. But this is a Group whose performance is tied to the expenditure of the oil and gas companies. This in turn is tied to crude oil prices.

Crude oil prices are cyclical and I do not expect the current high prices to continue forever. So when crude prices decline, I would expect Bumi Armada performance to follow suit. If you are a long-term investor, you should be looking at this performance over the cycle rather than just the current performance.

https://www.youtube.com/watch?v=dOwHR2uhBq8

Can One – can it remain No 1?

There was a change in the business profile of Can One in 2019. Post-2019, the average returns over the past few years were lower than the respective cost of funds, implying that there was no shareholders’ value creation.

While the Group is financially sound, there are no signs of improving operating performance.

The Group may be the biggest packaging company on Bursa Malaysia but size alone does not mean that it is a wonderful company in the Buffett sense.

Nevertheless, the market is pricing the company below its NTA. From a brick-and-mortar company perspective, this does not make sense unless you think that its assets are going to be impaired. https://www.youtube.com/watch?v=1f1GKKROsRQ

Deleum – market is pricing a collapse of crude oil price

As an oilfield services group, Deleum’s performance is closely tied to crude oil prices. It improved when oil prices were high, but deteriorated during low-price periods (2015-2019).

Recent years have seen a performance rebound due to better oil prices. Over the cycle, the Group delivered average returns that were greater than its cost of funds. The Group is also financially sound.

My valuation based on the performance over the cycle showed that there is more than a 30% margin of safety based on the market price of RM1.29.

Do you believe that crude oil prices will continue to be high or is due to collapse? I think the market is pricing Deluem anticipating a collapse in the crude oil price. Is this realistic?

For more insights refer to page 19 of INVEST https://notice.shareinvestor.com/email/newsletter/invest/pdf/Vol217-Invest-26Jul.pdf

For many years proir to Covid-19, Apollo Food was boring company with declining returns. All that changed post Covid-19 with profits shooting up.

Then came the change in controlling shareholders in Dec 2023. The new controlling party are the people behind the Baskin-Robbins franchise in Malaysia and Singapore.

https://i.postimg.cc/kMNXyyL3/Apollo-returns.png
The market price today at RM 6.70 per share is much higher than the RM 5.80 the new controlling shareholder paid for Apollo.

My valuation of Apollo based on the past 12 years performance came to about RM 5.11 per share. The confectionary business is not a high growth one and to drive 30% business improvements (implied by comparing market price with my business value) would be challenging.

Unless of course there is some plan to inject other profitable busienss into the company. Why would anyone pay a premuim for a company unless they have plans to do magic with it?

For more insights visit https://www.youtube.com/watch?v=CoM2mL_mZ_8

Ajinomoto bottom line over the past 12 years was boosted by 2 land gains that resulted in about the same contribution to the past 12 years' earnings as the operating profits. The land gains are one-off items and moving forward we have to rely just on the operations.

Ajinomoto is a mature company with revenue growing at 6.1 % CAGR over the past 12 years. So you may think that there is not much hope for better results.

But the company relocated to a new plant in 2022 and its operating results since then provide a good picture of its future. It is also financially sound. On such a basis I found that there is more than a 30% margin of safety making it an investment opportunity.
https://www.youtube.com/watch?v=-Kpt8_fuGj8

The history of the Group can be traced back to the 1990s when its founders started the road maintenance business. Since then, Protasco has diversified and restructured so that in 2023 it reported its performance under 11 business segments.

https://i.postimg.cc/zXpHVP5p/Chart-1.png

Protasco's performance had declined over the past 12 years. Although the Group had tried to diversify into other businesses, the road maintenance business is still the main revenue and profit contributor.

While there is a margin of safety, (the stock is cheap) the business fundamentals are not that good. I think there are construction companies with similar margins of safety but better business fundamentals. For more insights refer to page 19 of INVEST
https://notice.shareinvestor.com/email/newsletter/invest/pdf/Vol215-Invest-12Jul.pdf

Bursa Malaysia NAIM Holdings Bhd is an integrated player focused on the property development, construction, and oil & gas sectors. Despite its diversification, NAIM's performance over the past 12 years has been poor with declining revenue and volatile, declining PAT.

https://i.postimg.cc/KvhYfcML/Naim.png

I attributed its poor performance to the soft Malaysian property and construction sectors as well as the problems it faced with its investment in Dayang, an oilfield services company. I do not expect the property and construction sectors to be soft forever.

Despite this, NAIM maintains a strong financial position with significant cash reserves and low debt. The company's market valuation suggests a margin of safety.
So when the soft property and construction sector recovers, I would expect Naim’s performance to follow suit. Do you have the patience to wait for this?
https://notice.shareinvestor.com/email/newsletter/invest/pdf/Vol213-Invest-28Jun.pdf

Ta Ann is a Bursa Malaysia timber cum plantation company. Since Oct last year, its price had gone from about RM 3.30 per share to as high as RM 4.30 per share. Today it is down to RM 3.80 per share. Does this represent an investment opportunity?

I would consider Ta Ann a wonderful company in the Buffett sense. There were topline and bottom-line growths. It had diversified into the plantation sector delivered a big part of the growth.

The are signs of improving operating efficiencies as exemplified by the gross profitability, asset turnover, and leverage. It is financially sound and had been able to create shareholders’ value.
https://i.postimg.cc/L4zhzgkD/Chart-6.png
My valuation as shown in the Chart shows that there is more than 30% margin of safety. Surely Ta Ann cannot be a value trap.
https://www.youtube.com/watch?v=q5J2ZJkqKHw

At the turn of the century, Mesiniaga delivered double-digits ROE. It was in its heydays with more than 50% dividend payout ratio. Fast forward 20 years and the company is a pale shadow of itself. Its average ROE over the past 3 years was only 5%.

Mesiniaga is an ICT services provider and over the past 20 years the technology landscape had changed. To be fair that company had long ago recognized this and had sought ways to venture into new ICT areas.

Its Annual Reports over the past decade were full about how it is venturing into new tech areas, etc. Unfortunately, while the products and services may be new to the company, whatever it had done was not enough to return it to its glory days.

We all know that the tech industry evolves quickly, and tech companies continuously innovate to stay competitive. But it does not mean that innovation will always turn out to be the killer one. I think this is the fate of Mesiniaga. So while it is financially sound, it would not be a share market darling until and unless it finds the right “new tech product.”
https://www.youtube.com/watch?v=lXYlRSwoec8

When Bursa property development MKH ventured into the plantation sector in 2008, little did it know that it was to provide a lifeline to the company a decade latter.

Prior to 2016, MKH property development segment was the key revenue and earnings contributor. But since then, the Malaysian property market began to soften and the contribution from the property development segment began to decline.

At its 2016 peak, the property development and construction segment contributed nearly RM 250 million EBIT but this declined to RM 70 million in 2021.

On the other hand while the plantation segment performance was cyclical, its 2021 EBIT of RM 110 million was better than the 2016 RM 90 million EBIT. You can see from the chart that without the plantation business, MKH performance would have been worse.

https://i.postimg.cc/9ftH6NjP/MKH.png
Moral of the story? The property sector is cyclical and if property companies want a “stable” performance, diversification to a non-property sector is critical. For more insights to MKH refer to page 20 of INVEST https://notice.shareinvestor.com/email/newsletter/invest/pdf/Vol211-Invest-14Jun.pdf

When Bursa property development MKH ventured into the plantation sector in 2008, little did it know that it was to provide a lifeline to the company a decade latter.

Prior to 2016, MKH property development segment was the key revenue and earnings contributor. But since then, the Malaysian property market began to soften and the contribution from the property development segment began to decline.

At its 2016 peak, the property development and construction segment contributed nearly RM 250 million EBIT but this declined to RM 70 million in 2021.

On the other hand while the plantation segment performance was cyclical, its 2021 EBIT of RM 110 million was better than the 2016 RM 90 million EBIT. You can see from the chart that without the plantation business, MKH performance would have been worse.

https://i.postimg.cc/9ftH6NjP/MKH.png
Moral of the story? The property sector is cyclical and if property companies want a “stable” performance, diversification to a non-property sector is critical. For more insights to MKH refer to page 20 of INVEST https://notice.shareinvestor.com/email/newsletter/invest/pdf/Vol211-Invest-14Jun.pdf

One the thematic play today is that a some Bursa tech companies will benefit from the US “trade tiff” with China. Notion Vtec has been touted as one such company. Over the past few weeks its market price had jumped more than 4 or 5 times.

If you are investing based on this thematic play, you might have missed the boat already. Its current price of RM 1.68 per share has run ahead of its long term business fundamentals.

One of my concerns was that over the past 12 years, the Group generated RM 128 million PBT. A breakdown of this PBT showed that the operations did not generate any profit. Rather the bulk of the profits came from non-operating sources specifically insurance claims.

https://i.postimg.cc/SN4x0sS9/Notion-VTec.png
I have other concerns to suggest that the market is currently sentiments-driven. Refer to Notion Vtec if you want to see details of my argument. https://www.youtube.com/watch?v=nRdzP8c0N7Q

Bursa Malaysia Malaysia Smelting Corp (MSC), is one of the world’s leading integrated producers of tin metal and tin-based products.
If you consider its net assets, about 2/3 is deployed for its smelting operations with the bulk of the balance for its tin mining operation. But when you look at the PBT over the past 12 years, 4/5 was from the tin mining operation.
Is this then a smelting company with a tin mining arm or a tin mining company with a smelting arm? This has implications for its valuation.
If this was a tin mining company, you would value it based on its tin reserves. If it was a smelting company, you would valued it based on its tin refining business. So what is the appropriate way to value it?
For more details on MSC, refer to
https://www.youtube.com/watch?v=A3u4mdV4fo8

Ben Graham, the father of value investing, made famous the valuation metric known as the Net-Net. It is computed by deducting the total liabilities from the current assets. Many consider the Net-Net as a short hand for the liquidation value.
In Ben Graham days, he focussed on buying companies trading at a discount to their Net-Net. The logic was that if these are viable businesses, there is no reason for them to be trading below the liquidation value.
White Horse currently has a Net Net value of RM 1.39 per share compared to its market price of about less than RM 0.80 per share. Is this a viable business or is this a company going out of business?
White Horse is a leading ceramic tile manufacturer in the region and its performance over the past few years were impacted by the soft property market. It incurred losses.
If you believe that the property sector is cyclical and we are now leaving the bottom of the cycle, the performance of White Horse would improve. More important if it survived so far and is financially sound, ie not a company facing liquidation, the market must be wrong to price it below its liquidation value.
Is the market wrong or do you follow the crowd and avoid this Net Net? For more insights into White Horse refer to page 20 of INVEST https://notice.shareinvestor.com/email/newsletter/invest/pdf/Vol209-Invest-31May.pdf

Investors in Bursa Malaysia tend to look at earnings rather than assets. This does not make sense when you consider sectors such as utility and real estate where assets play a central role.
A case in point is Bursa IGB Berhad, a real estate group with investment properties, hospitality and property development activities.
It current trades at RM 2.49 vs its book value of RM 2.98 per share. The 2023 book value of its investment properties was stated as RM 3.9 billion. However, in the Notes to the Accounts, IGBB reported that the fair market value of its investment properties totalled RM 10.7 billion.
The realistic asset value is then not what is stated in its book, but has to include what is not captured. On such a basis the asset value should be more than RM 7 per share.
So why has the market not recognized this? This is because IBGG latest EPS is only RM 0.23. Of course, the market does not expect IGBB to sell off all the assets and return the money to shareholders. So the market ignores the value of the assets. But what if there are other ways to unlock the value of the assets? https://www.youtube.com/watch?v=SvLahVbOmjc

Bursa Petron Malaysia is a refinery cum petrol station business. Many believes that electric vehicles would eventually disrupt the petrol station business. But I suspect that it is probable a decade away.
Does this mean that we should no consider investing in Petron Malaysia? Over the past 12 years, the company delivered an average return that was greater than its cost of funds. This is a financially sound company whose performance is affected by crude oil prices.
Taking the performance over the oil price cycle into account, I found that there is a sufficient margin of safety from both the Asset Value and Earnings Power Value.
Unless you have decades of investing horizon, I would think the is a counter worth a look
For more insights go to page 20 of Invest https://notice.shareinvestor.com/email/newsletter/invest/pdf/Vol207-Invest-17May.pdf

As a value investor, I look for turnarounds. These are companies whose market prices had tanked because of some business issues that I considered temporary and could be overcome.
Bursa Malaysia Sapura Energy fitted this bill in 2018 after being the darling of the stock market a few years earlier. It faced declining order books due to the declining oil prices. This is a company where there is a strong correlation between crude oil prices and its performance.

https://i.postimg.cc/7hwb6Kv1/Sapura-crude-correlation.png
Crude oil prices are cyclical and I thought that the company was sound enough to outlast the downtrend leg of the crude oil price cycle.
Over the next few months, I built up my investment to end up with an average share price of RM 0.39 per share. Sapura had a book value then of RM 0.87 per share with a NTA of RM 0.37 per share. Ya, this is a company with a lot of goodwill and other intangibles.
You would have thought that there was enough margin of safety to ride out the storm. Analysts were projecting target prices above a Ringgit at that juncture.
Anyway, the downtrend leg of the oil cycle lasted longer than anticipated. Sapura continued to bled so that today, it had written off all the intangibles and is trading at RM 0.05 per share.
The company is still looking for a sustainable turn around. And I suspect it will have to undertake a debt and equity restructuring scheme to come back. This means haircuts for creditors and shareholders. This is a bet gone wrong and I will probably not be able to recover my investment.
Moral of the story?
Catching falling knives can be dangerous but if you succeed, you have a multi-bagger. But if you fail, it must be part of a good portfolio so that the gains from the others more than offset the losses you suffer. Sure I have such a portfolio. But this does not stop me from regretting my investment in Sapura Energy. https://www.youtube.com/watch?v=1N5mi-7kRM8

Crest Builders had a terrible decade with declining top line, bottom line and returns. From 2012 to 2018, the Group achieved an average ROE of 8%. From 2020 to 2023, the average ROE had declined to negative 11%.
https://i.postimg.cc/4NkPc3q8/Chart-1.png
This is obviously a company facing a turn around. The good signs are that its construction arm has a RM 2.2 billion order book as of 2022 and its property development arm has RM 2.2 billion gross development value of projects. And it is fianancial ok.
Its current losses are due to legacy projects and I think that it may take another 2 to 3 years to completely clean them. So while it is currently trading at less than half its book value, you will have to wait for the market to re-rate it.
For more insights refer to Is Crest Builder a value trap? https://www.youtube.com/watch?v=Jcw2GnCPXqY

Over the past 6 months gold prices have gone up by 18%. How have the Bursa gold related companies performed?

The top chart shows the share price gain for the 4 Bursa companies with gold-related businesses. The bottom chart shows that maybe there is still some potential for gold price to go higher.
https://i.postimg.cc/s2jg2mGx/Gold-vs-Bursa-gold-proxy.png
You can see that except for Niche Capital Emas, the other 3 have outperformed gold and the KLCI. What does this mean for the investor?

• You can of course interpret that Niche Capital Emas and Poh Kong share price has yet to catch up.

• You can also conclude that when gold price goes up, the share price of these companies go up much higher.

For more insights go to Are there Bursa proxies for gold? https://www.youtube.com/watch?v=CvdIyx3eAWA

Over the past 6 months gold prices have gone up by 18%. How have the Bursa gold related companies performed?

The top chart shows the share price gain for the 4 Bursa companies with gold-related businesses. The bottom chart shows that maybe there is still some potential for gold price to go higher.
https://i.postimg.cc/s2jg2mGx/Gold-vs-Bursa-gold-proxy.png
You can see that except for Niche Capital Emas, the other 3 have outperformed gold and the KLCI. What does this mean for the investor?

• You can of course interpret that Niche Capital Emas and Poh Kong share price has yet to catch up.

• You can also conclude that when gold price goes up, the share price of these companies go up much higher.

For more insights go to Are there Bursa proxies for gold? https://www.youtube.com/watch?v=CvdIyx3eAWA

Over the past 6 months gold prices have gone up by 18%. How have the Bursa gold related companies performed?

The top chart shows the share price gain for the 4 Bursa companies with gold-related businesses. The bottom chart shows that maybe there is still some potential for gold price to go higher.

https://i.postimg.cc/s2jg2mGx/Gold-vs-Bursa-gold-proxy.png

You can see that except for Niche Capital Emas, the other 3 have outperformed gold and the KLCI. What does this mean for the investor?

• You can of course interpret that Niche Capital Emas and Poh Kong share price has yet to catch up.

• You can also conclude that when gold price goes up, the share price of these companies go up much higher.

For more insights go to Are there Bursa proxies for gold? https://www.youtube.com/watch?v=CvdIyx3eAWA

From 2001 to 2023, there is a 0.74 correlation between the revenue of Poh Kong and the price of gold. This meant that about half of the changes in Poh Kong’s revenue can be explained by changes in the price of gold.

Gold prices have been on an uptrend over the past couple of months. I am not sure whether it will continue to go up further. But I am sure that Poh Kong will have bettter business results in the short term to mid-term.
https://i.postimg.cc/BZdhwfcV/Chart-6.png
The interesting thing is that from a short term (6 months) perspective, there were more than 80% correlation between Poh Kong share price and gold prices during periods of gold price uptrends.

For the investor, there are 2 questions when looking at Poh Kong
• Will gold prices will continue to go up?
• Have the share price fully captured all the gold price increase?

For more insight go to “Is Poh Kong a proxy for gold?” https://www.youtube.com/watch?v=Yv6PuDWTfYw

TDM – a wrong plantation bet
I originally viewed TDM as a plantation Group with a healthcare arm. About 17 years ago, the healthcare segment only accounted for about 16% of the Group revenue. The Group plantation operations then was mainly in Malaysia and this accounted for a large part of the Group’s revenue.
The Group decided to expand it plantations segment by venturing to Indonesia. It took several years to get this going such that the maiden revenue from the Indonesian plantation was only in 2013. By then the Group had “..earmarked that the growth of the plantation operations will be in Kalimantan.”
But things began to go wrong with the lndonesian operation soon after. The losses and impairments got so bad that the Group announced its plans to sell the Indonesian assets in 2019. By 2023 it was still trying to complete the sale of its Indonesian assets.
If not for the healthcare segment, which had grown to account for 56 % of the Group’s revenue in 2023, TDM would be in a worse shape.
Moral of the story? Beware of companies announcing expanding into foreign countries as the Malaysian experience may not always be transferable.
Given the poor plantation segment performance, the market took a dim view of the company despite a growing healthcare segment. I guess the market is still waiting for TDM to prove that it can recover from the Indonesian lesson.
https://www.youtube.com/watch?v=Ytqj_er30X4

We have read stories about how some of the Malaysian media groups “suddenly” have to close down their newspaper operations due digital disruption. Digital disruption does not happen overnight and you would have thought that companies would have years to prepare for this.
One good example of a company that took step to anticipate digital disruption is Asia File. This is a global filing company. We all know that digital technology is changing the way we store documents and the demand for files will continue to decline.
Asia File recognized this and for the past decade, it had stopped expanding its filing business. Instead it diversified into food and consumer wares about 7 years ago. This have given it a possible non-stationery growth path. But it is not clear whether this can be as big as the stationery business. So the company is still looking for other ventures.
This good story is that its stationery business is a cash cow and it is still not clear how long it will take for the demand for files to become negligible. In the meantime, the company is using the cash and time to build up replacement businesses.
I am sure you will not read any story about this company suddenly closing down the filing business due to digital disruption. If you want to know more about this, go to page 21 of INVEST https://notice.shareinvestor.com/email/newsletter/invest/pdf/Vol203-Invest-19Apr.pdf

Some times companies look for new ventures because the existing ones are not able to scale up. But new venture use up funds.

Take the case of Protasco. The company has reported 11 business segments even though the revenue for 2023 was only about 1 RM billion.

You may be forgiven for wondering whether management is just trying many things to see what works. When you look at the chart, you can see that only one segment is driving revenue and earnings. https://i.postimg.cc/3wXQxfYW/Protasco.png

It suggests that management is trying luck to see what else they can do. The worse part is that several of its historical ventures have lost money. And there are some which have ended up as legal cases as the company tried to recover what was paid.

I would think that it may be better for the company to return the excess funds to shareholders than try luck. Protasco is a cash cow. But the cash is not well deployed.

For more insights refer to https://www.youtube.com/watch?v=pBy8xOmH4Hs

Bursa Malaysia Eksons used to have 2 business segments – timber (mfg of veneer and plywood) and property development. But in early 2023, it closed down the timber business. At the same time, there is no new property development projects. The company is merely selling off its stocks of plywood and unsold properties.

But the company is cash rich due to the closing down of the timber business. It has RM274 million in cash or cash equivalent (investment securities) as of Dec 2023. But cash can also be a value trap as explained in page 21 of INVEST https://notice.shareinvestor.com/email/newsletter/invest/pdf/Vol201-Invest-29Mar.pdf

https://www.pinterest.com/pin/797840890260032362/

Before becoming an Islamic banking group in 2017, MBSB was mainly a property financier. This changed with the acquisition of Asian Finance Bank in 2017 as this propelled MBSB into Malaysia’s second-largest standalone Islamic Bank.

But as can be seen from the return charts, this also resulted in reducing its returns from both the ROE and ROA perspective.
https://i.postimg.cc/7PJKkHq1/Chart-2.png
Of course this was the combination of lower bottom line with more assets and equity. The point is that if you were a shareholder prior to the transformation, you got lower returns. This is not exactly exciting news. https://www.youtube.com/watch?v=oSrMmIKXv50

Before becoming an Islamic banking group in 2017, MBSB was mainly a property financier. This changed with the acquisition of Asian Finance Bank in 2017 as this propelled MBSB into Malaysia’s second-largest standalone Islamic Bank.

But as can be seen from the return charts, this also resulted in reducing its returns from both the ROE and ROA perspective.
https://i.postimg.cc/7PJKkHq1/Chart-2.png
Of course this was the combination of lower bottom line with more assets and equity. The point is that if you were a shareholder prior to the transformation, you got lower returns. This is not exactly exciting news. https://www.youtube.com/watch?v=oSrMmIKXv50

Crescendo’s performance over the past 12 years has been impacted by the soft property
market. Despite this environment, the Group managed to be profitable every year. But the property sector is cyclical and with the post-Covid-19 opening of the economy, the bottom of the cycle has been reached.

Crescendo's outlook is optimistic. Positioned near vital projects like Iskandar Malaysia and Pengerang Integrated Petroleum Complex, it is poised for growth in demand for
both residential and industrial units.

Crescendo is currently trading below its Asset Value with more than a 30% margin of safety. As a property company, the Asset Value is a good reflection of its intrinsic value. Have a look at my updated valuation at page 20 in INVEST https://notice.shareinvestor.com/email/newsletter/invest/pdf/Vol199-Invest-15Mar.pdf

You may think that being a privatized port operator for the whole of Sabah would make Suria Capital a company with good returns. Unfortunately over the past 12 years, the company only achieved an average ROE of 6%. https://i.postimg.cc/4NqfFSsN/Suria-Cap-returns.png

In fact quite a substantial part of its profits came from non-port operations such as property and investments.

I think this is because the economic activities in Sabah is not as developed as those in Peninsular Malaysia. While it is a growing economy and it may some time before we see Suria Capital benefiting from this.

Moral of the story? This is really a stock for the very long-term investor at the current market price. https://www.youtube.com/watch?v=Nt4SPcMEqN8

MyEG has now emerged as a new substantial shareholder of Heitech Padu. According to the news, MyEG acquired Heitech for about RM 2.21 per share.

Now that we know why there was a run up in the share price for the past few weeks. But from a fundamental perspective, is the current price at RM 3.05 per share justified?

This will depend on whether there are projects that MyEG can help to secure for Heitech that would boost Heitech earnings.

I last blog about Heitech in 2022 where I compared the performance of a number of ICT companies. The average ROE achieved by Heitech was negative 5 % compared to MyEG average of 31%.

Based on the 2021 book value and assuming that Heitech can match the 31% ROE, we will have an EPS of RM 0.33 per share. So for those excited about Heitech Padu, you can imagine a PE valuation based on this earnings?
https://i.postimg.cc/cJgzhp5C/HT-peer-results.png

Are we going into the realm of speculation? The best I can say at this stage is that MyEG price would probably be a floor price but the ceiling would depend on the new business of Heitech.

Its historical businesses is not going to give it the earnings multiplier to justify even the floor price. And to achieve the 31% ROE, Heitech has to take care of its historical businesses to ensure that there are not loss making.

OSK Holdings carried out a corporate exercise in 2014, to merge PJ Development Holdings Berhad and OSK Property Holdings Berhad into the group. Effectively OSK Holdings is now a property counter with property development & construction, investment properties and some manufacturing as it main operations.

But is this really the case? When you look at its profit profile as shown in the chart, you will find that the bigger contributor over the past 9 years was not from its operations. The non-operating segment - its investments in RHB bank - accounted for a bigger part of its profits. https://i.postimg.cc/RhS06qnH/OSK-profit-profile.png

So, is this a property company or something else? If you are thinking of investing in OSK, shouldn’t you be looking at the performance of the Malaysian banking sector rather than the property sector? https://www.youtube.com/watch?v=mQXpcrWj0Sw

According to Damodaran, projecting the performance of cyclical companies based on the current performance can lead to mis-valuations. He opined that for such companies we should look at the performance over the cycle – the normalized performance
When I carried out such an analysis of CSC Steel, I found that there is still a margin of safety based on its current price. Refer to page 20 of the article. https://notice.shareinvestor.com/email/newsletter/invest/pdf/Vol197_Invest-01Mar.pdf