Now, compare that with Ideal whereby the revenue + profits have been increasing steadily by at least 35% in the last 3 quarters and even more than doubled in the last quarter and you’ll start to see why Ideal has become a very attractive stock in the past few weeks. Additionally, there is clear earnings visibility for the next 2 years AT LEAST until Santorini, Foresta and Forestville are completed in 2021. And this is not even potential earnings as a large proportion of the sales have already been made and is currently sitting on the balance sheet as trade receivables (refer to explanatory notes in financial statements for clarification on classification of unbilled revenue under this heading). The only reason sales + profits have not been recognised is down to the accrual accounting system used in compliance with MFRS. This means revenue + profits can only be booked gradually in relation to the percentage of completion. So it’s not even a question of IF but WHEN. If there are no hiccups in project completion and judging by the experience Ideal has in property development (you can view their full portfolio of past & present properties here : http://www.idealhomes.cc/creations.html#ongoing), those revenues + profits are more or less guaranteed at present.

Secondly, despite acknowledging that Ken’s annual profits did increase substantially in FY17, this was not matched by an increase in revenues. An increase in profits on its own can be attributed to many factors but if it cannot be explained by an expansion of the company’s business operations and/or a reduction in production costs, then no amount of profits is going to convince long-term investors that the company is worth investing in. And sure enough, the average increase in Ken’s revenues q-on-q in Q3 and Q4 (most profitable quarters in 2017) of just 10% (approximately) does not match the above-average increase in profits in those quarters. A quick perusal of the QR notes of both quarters showed that revenue from construction of the group’s office tower was rapidly decreasing as it neared completion (Q1 2018), even as sales in its property segment increased! And what happened in Q1 2018 when the office tower was completed? Revenue + profit both fell sharply by approximately 85% and 88% respectively.

So… am I surprised that Ken Holdings share price didn’t shoot up although there was an increase in profits in Q3 + Q4? No, absolutely NOT. And if you had been more careful, you wouldn't have invested in Ken either (and I'm sincerely hoping you didn't!)

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And I think it’s not right for you to say that Bursa is “not fair” and “main tipu”. It is only unfair to those who make assumptions and don’t do their own thorough research before investing.

@apolloang, I don't think it's fair or even remotely accurate for you to be comparing Ken with Ideal to begin with. Or even Ideal with most other property counters listed on Bursa. It's like comparing apples and oranges. Yes, they're both fruit but the similarities end there as they're very, very different in so many ways so for you to be drawing parallels between the two is a little silly. 



For a start, Ken’s daily trade volume averages a mere 18K and on most days, no shares are traded at all. In fact, a quick look at the counter on any trading platform will show you that the latest bid-ask spread is a whopping 12.5c (B: 0.775; S: 0.90,) which is almost 15% of the last done price of 80c. That means any investor wanting to buy into Ken will also have to factor into his/her costs at least another 10% minimum just to dispose their shares due to the illiquid nature of the counter. This also happens to be the case with many of the property counters listed on Bursa (94 in total). Compare that with Ideal’s gradually increasing daily volume over the past few weeks and you’ll see why some counters, like Ideal, experience more turnover and fly upwards while others, like Ken, don’t, despite having seemingly okay fundamentals.

It doesn't even need to double or triple. Even assuming that the upcoming Q2 revenue + EPS is maintained at 205 mil and 13.3c for the next 3Q (most conservative scenario since sales is booked by percentage-of-completion accrual accounting method as outlined in the AR2017, pg. 87. Foresta & Forestville are at 77% and 45% as of last quarter with estimated completion date being July 2021), we're looking at a PE of 2.08 for FY18. And we all know what happened to Hengyuan last year when earnings accelerated in this manner.

My calculations also discount any future asset injections into the group, which is very likely since the chairman also owns a private portfolio of multiple property development projects (includes affordable, mid-range and high-end) across Penang, in addition to what khin87 has pointed out about the PTMP (which is something I was not even aware of).

But what I'm most impressed by is the way management has chosen to complete the asset injection late last year, esp since they owned the assets themselves in a separate private entity (or so I believe). Most (rational) people would opt for long-term debt (i.e. bank loan) or a potentially dilutive private placement (recall that at this point they only still owned 27% of the company) to raise the necessary funds in order to purchase the assets, realise the fair value of the projects and in the process, personally profit from the whole exercise. After all, it is the majority shareholders who will be paying the price of their acquisition anyways.

BUT what did management choose to do faced with such circumstances? Opt for RCULS (redeemable/convertible loan stock) that essentially LOANS the project to IDEAL for a discounted coupon (interest) rate of 5% per annum (which is far lower than the rate any bank will offer you for a loan). An interesting point to note here is that when companies in Malaysia issue loan stocks, they tend to be ICULS (irredeemable - which means the loan stock holder has the option to convert his ICULS into mother shares but not the other way around. With RCULS (redeemable), the company also has the option to redeem the loan stocks and avoid making future interest payments if it finds itself in a net cash position). So, it's almost as if the owners have lent the company their own private property so that the majority shareholders can profit from it. I have never seen the management of any company do something so selfless like this (on the surface at least haha)! And of course, what did they do a few months later in April this year? Buy out the 2nd and 3rd largest shareholder to increase their stake from 27% to 54%. Could this mean a special dividend or capital distribution announcement in the near future? Only time will tell I guess.

Either way, good luck everyone!

If my evaluations of this stock are correct and I have tried to double-check this with people who I think are more knowledgable than me in finance and accounting matters, I think we have really found ourselves a gem here! A gem which is made even rarer with the current market downturn.

Both chairman and exec director wife recently upped their company stake in April 2018 prior to the release of the QR from 27% to 54%. Barring one or two exceptions, the remaining Top 30 shareholders have either maintained or marginally increased their stake in the company over the past 3 years (according to the annual reports), which leaves the outstanding share free float for at a mere 15% (16.5 million shares).

Add in the fact that share buybacks of up to 10% of the company was recently approved at the AGM (likely for ESOS purposes, also approved) and if followed-through, outstanding share reduction + increase in profits at current rate are going to make the shareholders of this company very, very rich.

And is it true that the chairman (who is already known as the Penang condo king) is also good friends with ex-CM Lim Guan Eng?

And current trailing P/E ratio <4??? Way below industry average! And this does NOT even account for the revenue increase in the coming quarters from the injection of the 2 property parcels in Jan 2018 (revenue first realised last quarter and likely to be continually realised in the coming quarters as trade receivables are transferred off the balance sheet and booked as revenues/profits).

4x increase in revenue q-on-q and 2x increase from the last quarter
12 consecutive quarters of increasing q-on-q profit
25% ROE + near ZERO debt

HOW HAS THIS COUNTER ESCAPED EVERYONE???