YTLP's 4G push - a perspective from its CEO.

Great article in The Edge today shedding some light on the 4G's push by YTLP.

Basically the rollout delay is a calculated one due to limited ecosystem for devices operating in the 2.6Ghz spectrum (iPhone operate on 1.8gHz spectrum).

China and India have indicated that they will operate on the 2.6gHz spectrum but they have not started auctioning the spectrum.

Interestingly the CEO was quoted to have said that they are ready to deploy LTE on its WiMAX network. My hope as an investor is that their WiMax network is LTE ready without another round of heavy capital expenditure.

YTL Power - buyback mode worth RM116million since March 2013.

Over the past 3 months, I've not actively kept track of my holding in YTLP. With the election fever in the past months, the stock have not been terribly active.

However, having looked at the counter earlier today, I notice substantial share repurchase by the company since 4 March 2013.

On 4/3/2013 - the company have approximately 56,725,145 treasury share outstanding representing approximately 0.8% of total outstanding share.

On 9/5/2013 - the company have approximately 137,324,245 treasury share outstanding representing approximately 1.86% of the total outstanding share.

This represent a net purchase of approximately 80,599,100 shares. Assuming an average purchase price of 1.45 - this represent a buyback worth RM116,868,695. 

I view this development as a very positive move for minority shareholder as it will increase EPS assuming no change in operating environment.

The company generate > RM2b in operational cashflow annually. They can certainly afford to buy back more shares at this price. 

Land & General Berhad - subscribe or be diluted - the ICULS dilemma.

SUMMARY: L&G have a cash horde of RM159M yet proposed a ICULS issue to raise RM77.8M to fund the purchase of a 14 storey office space in Putrajaya @RM575psf. This rights issue may potentially dilute current shareholder's holding by up to 50%.


L&G recently proposed a RM 77,779,589 renounceable rights issue of five years, 1%, ICULS at RM0.13 each for every ordinary share of L&G.

Translation: 
- Each shareholder will be entitled to subscribe for a convertible loan stock paying 1% interest, convertible at anytime within 5 years of issuance.
- The proceed of the rights issue will be used primarily for the purchase of a 13 storey strata office building being constructed in Putrajaya. (edit: apparently the vendor of the office block is a related party according to Focus news article 2 weeks back.)
- The ICULS may be converted in 2 manner; 1) by surrendering 2 ICULS for 1 L&G share, or 2)by surrending 1 ICULS and RM 0.13  for 1 L&G shares. Basically the ICULS can be converted to shares at RM0.26, regardless whether ICULS or cash is used to top up the conversion at a later date.

Impact:
Due to the 2 different methods for conversion (cash and ICULS), the impact on potential dilution cannot be determined beforehand. A illustration was provided in the announcement to illustrate the potential dilutive impact of this exercise.

Based on this illustration, we can foresee a potential dilution of between 25% to 50% for existing shares.

From a share base of 598,304,530, the number of issued shares can potentially double to 1,196,609,060!!!




Does L&G need the ICULS?
Based on the latest available result, L&G holds approximately RM159M, and is generating a steady operational cashflow of RM35M in the 9 months to December 2012. This cashflow is expected to remain (if not strengthen) due to the strong sale at its Elements and Foresta project in Kuala Lumpur.

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Analysis
I personally like the profitability outlook on the company for its current stable of project. The strong sales achieved in its current projects namely Foresta and Elements provided me with this confidence to invest in the company. Its current market cap is approximately RM 245M and based on previous announcement, the company can expect a profit of approximately RM120M for its 50% state in the Elements project alone.

It is also rather odd to me for L&G with its strong development expertise to be purchasing a strata office. The purchase price is RM 575psf, why can't L&G's management purchase a plot of land and built the structure themselves? 

Not being particularly familiar with the value for Putrajaya, I consulted some listing for offices in Putrajaya and found space to be listed for around RM 300 psf only. Note I am not a valuer. But I am not terribly excited with the proposed use of fund.

Conclusion
- Earning dilution is a reality for this proposed rights issue.
- The company may not really need the cash given its healthy cash horde of RM 150M.
- Even if the cash is needed elsewhere, does it really make alot of sense to suffer a dilution of up to 50% in return for a 13 storey office space in Putrajaya? I reckon no.
- However, if the proposal is adopted - I would subscribe, simply because I don't want to be further diluted.

Weida - boost from net disposal gain.

Weida - it's got a market cap of approximately RM 188M.
It has been paying a boring annual dividend of approximately 4 cents
Currently trade at about 6xPE.

Just received the shareholder circular on the proposed disposal of its stake in its palm oil subsidiary for approximately RM 151M recording a net gain on disposal of about RM 121.15 million (over its RM188 market cap).

It's got 133.33 shares outstanding - the net gain per share will be approximately 91 cents.

Looking at its proforma balance sheet as at 31 March 2012, the NA per share will increase from RM1.6 to RM 2.56

Their EPS have been growing at an annual rate of approximately 12.5% from 8 cents in 2009 to approximately 19 cents in 2012.

Well worth a look at. 

They've also recently announced a JV for a property development venture.

Essays by Buffett

Quiet an interesting read... his view on value & investing.

Should take a look.

Value Traps

Came across an interesting article by Dali on value traps, it identifies companies with trading price significantly below its NTA value and the rationale behind them (lack of catalyst).

While many investors knows the term value trap, it is perhaps hard to tell a value share apart from a value trap.

In my short investment life, I've focused on the discovery of value share - those that tick all of Graham's criteria for value. But recent lessons has made me reevaluate my approach in investment.

Here's an excerpt from Buffett's annual letter to investor:

So if value is not the key to a successful portfolio then what is? Investment is not an easy game to play afterall!

Revisiting YTL Cement privatisation

Summary - this is my rant about how YTLC minority could have gotten a better deal if they've stayed listed & YTLP shareholder shouldn't get too excited about attempt to privatise through share swap

(Dedicated to HNG :P)
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YTL privatisation - is it a good deal for minority? A lot of commentators before me have pointed out it's a raw deal to minority who have invested in a business hoping for a payday when the company is more profitable.

Intrinsic value

I am of the opinion that shareholder gets better intrinsic value by holding a pure-play cement counter rather than holding a conglomerate counter like YTL. If I want to hold YTL, I would have went out to buy their shares - no thanks for forcing me to be a shareholder. In YTLP's case, I say no thanks to any privatisation attempt through share swap with no acquisition premium. YTLP's underlying holding is far superior than YTL's mix pot of assets.

Earning growth

As noted in my last post, YTLC's earning is up 41% is its latest announced quarter. No doubt by privatising it, YTL have managed to plug the cashflow leakage to minority shareholder, thereby maximising the cashflow for its own benefit. Assuming the same PE multiples, the increase bottomline will directly mean a better underlying share price. Those YTLC shareholder that bought in at over RM5 would know.

Currently Malaysia is going through a huge construction upswing, with cement sector doing particularly well. What would the effect be if YTLC stay listed? We can look at Lafarge for a comparison.

It's up approximately 48%! YTL's management are not stupid to privatise an overvalued assets, they are among the smartest team of management in Malaysia with their ability to buy distressed asset and turn them around profitably.

Dividend payout?

Althought YTLP and YTL is paying the same absolute dividend at the moment - YTLP's cashflow generation rate allows them to pay a far higher dividend then what YTL is capable of. This is by virtue of their current cash horde of RM10B - along with their cash generation ability. The lowering of dividend is a conscious management decision and not forced upon them by any external difficulty.

Much of YTL's cash horde of RM 12B (I believe) lies in YTLP. The estimated figure is $10B out of the RM12B sits at the subsidiary level. They could get to it by doing an intercompany loan (look at L&G), payout a dividend, or privatise YTLP then payout a dividend.

Looking at their history with YTLC - in hoarding cash then privatising it without EGM - I hope they will keep YTLP listed and increase the payout. But I can only speculate.

Likelihood of privatisation & EGM

Unlike the YTLC privatisation where a waiver of EGM requirement allows them to carry out the share swap it is extremely unlikely for a similar situation to happen in YTLP's case.

YTL despite its frequent rhetoric on its desire to privatise YTLP has recently made a massive grant of WB to YTL's shareholder - my initial suspicion was a privatisation attempt. But Felicity of Intellecpoint has pointed out it's extremely unlikely for them to give out WB at a discount then buy it back at a premium - just doesn't make sense.

In the event that they do attempt to privatise, waiver is unlikely to be given as shares required to be issued will exceed the 10% threshold. But this only applies at YTL level - as YTL shareholder, of course I will support the deal. YTLP's EGM situation is more murky. I am not too sure what's the effect of the mandatory takeover code on such privatisation attempt - if there's anyone that's an expert do chirp in.

I would speculate that an attempt to privatise will be conducted through another private vehicle not part of YTL's group of company. Simply because despite the value of YTLP - it doesn't make sense for YTL to give out discounted warrant and then purchase it back at a premium. 

Makes more sense to give out discounted warrant and allow a private party to purchase it back in the market at the depressed pricing.

Excerpt of news article on privatisation of YTLC