TA Global AGM

I had the opportunity to attend the TA Global AGM today at Menara TA One this morning, I have to admit this is my first AGM as an investor.

What I found interesting is the quality of the questions being asked by the minority shareholder watchdog group. I have had prior experience dealing with them in my past role, and I can say that they have came a long way in the past 10 years.

Questions asked by them were of a relative high quality, based on their question I was able to glean the following:
- oversea hotel occupancy rate have increased over the last year, but overall contribution decreased due to unfavourable exchange movement. Predominantly I presume is due to the depreciation of AUD vs MYR.
- Gearing of the company will increase to over 0.8 from about 0.51 currently, but the management expect it to be manageable from ongoing sale of their project.
- There's an impairment of over MYR40million related to Australia... there was no detail on this particular impairment but I believe it is due to certain advance made to associate.

The discussion between shareholders and the directors was rather jovial. The directors was extremely polite and patient, answering various sort of questions from the floor.. they were happy to answer the questions from the floor and I felt that they were very transparent in the running of the company.

The highlight from the management that I gleaned was the following:
- The Serdang land recently purchased was from a borrower, obtained at a really good price. The management believe its location near the Tesco distribution hub with trunk road frontage is ready for development and the management is extremely confident at developing and selling this project with a good return to the company.
- Numerous shareholders question the board on their plan for various parcel of land in KL: To this Datuk Tiah made a quotable quote "All our land are fantastic and irreplaceable, once you develop it it will be gone forever.... they are like gold... the longer we wait the more gold we will get".. this statement was given to applause from the floor.
- Plans at Damansara Avenue is progressing and should be completed within the 10 years as mentioned in the chairman's statement. There might be some alteration to the Ativo SOFO plan leading to delay in launch to Q1 2015; this is to adjust the product offering to be more in line with market demand.
- Plot B and C previously slated for residential project will be converted to a mixture of residential and retail. This is expected to be launched sometime in 2016.
- According to Datuk Tiah, the management have been focusing on TA Securities in the past but going forward, they are going to be giving the property division more attention. As such they will strive to achieve a profit of RM500 million per annum in the next 10 years.
- The creation of a construction arm is expected to support this profit goal, and they hope to build this arm to a scale that will enable them to bid for construction project at the level such as Sunway Bhd.
- The management is unlikely to look at listing of a REIT in the near future as they view the structure as a borrowing that will increase their cost of capital.
- Trump tower in Vancouver is selling well and is located in the "Orchard Road" equivalent of Vancouver. Based on the profit obtained from the sale of the residential unit, the group will be able to get the hotel "for free".

Conclusion
The management came across as transparent, and in particular Datin Tiah, although as a non-executive director appear to be hands on and know their product offering in detail. They appear to be building a strong stable of investment (with focus on hotel) that aim to provide the shareholders with a stable pool of recurring income.

I am concern about their level of borrowing and also the foreign currency exposure. From what I gather, I believe the management is likely to hasten their pace of launch in the future which will further improve the profitability of the company.

However even without contribution from the development arm, its hotel segment contributed about RM90M per annum to the group.

With a current market capitalisation of about RM1.8B, I believe this company is worthy of a place in my portfolio due to the quality of its landbank as well as the growth in the recurring income stream.

EPF still actively purchasing YTLP

EPF - acquiring YTLP at this price

EPF have been selling YTLP's share for the last few years given its lack of dividend.

However, I have noted net purchase by EPF in the last 2 day. Acquiring 500,000 and 1,500,000 shares on 2/6/2014 and 30/5/2014 respectively.

Could this be a change in "thinking" by our EPF fund? If it's so, it could be interesting.

YTLP - last done @ 1.53

1) Francis Yeoh apologised for comment on cronyism. 2) YTL - Growth At Reasonable Price!

1) FY apologised for comment on cronyism

Apparently he was quoted out of context.. but despite his lack of conviction, I believed he touched on some important point in his original talk but I guess he must be a realist since YTL is pivoting their focus from offshore to onshore in the coming 2-4 years given the global asset bubble and the local ETP.

I still have much respect for him and his management team and I believe the valuation ascribed to the YTL group of company is very undemanding.

YTL - Growth At Reasonable Price

Company in the utility industry (my focus on YTLP) is usually given a premium valuation relative to the overall market given its secured long term cashflow with an implied inflation hedge.

An example of the valuation would be the Utility Select Sector SPDR ETF, this ETF of the S&P utilities sector have a PE of 16.53 and PB of 1.65x.

I do feel strongly about the quality of asset held under the YTL group. They are world class company capable of competing internationally and they are also strong cashflow generator for its shareholder.

Somehow in the last few years they have reduced their dividend payout policy to conserve its cashflow. This caused investor with a dividend bias to flee the counter resulting in a severe drop in market value over the last three years.

However if you are like me, a longer term investor, I believe they are conserving the cashflow for growth. And YTL in the last few years have transformed into a company worthy of a place in one's long term portfolio because they offer "Growth At Reasonable Price".

3 things you should know about YTLP

Interesting article on YTLP

Francis Yeoh: Crony capitalism has to go

Francis Yeoh have been making news today.

1) Crony capitalism in Malaysia has to go
He pointed out 85% of YTL's business is oversea. They got the Initial IPP because of their innovation and they were priced below those being touted by the like of Enron back then.

2) Economic bubble bursting?
He warned that current low interest environment backed by QE is leading to asset bubble that will likely burst in the next 2-4 years. I would have to disagree, as I believe that a bigger risk would be the debasement of currency hence it will be better to be in real asset rather than paper money.

Track 4A awarded to YTLP consortium

CIMB have a target price of RM2.39 for YTLP

Track 4A was awarded to a consortium consisting of YTL Power, Tenaga and SIPP Energy (Johor Sultan's vehicle).

Little details is available for the moment but analyst are positive that YTLP is part of the consortium and will remain a Malaysian power player, albeit on a smaller scale.

CIMB have estimated an earning boost of approximately 10-11% in 2018, assuming a 33% stake in the consortium.

CIMB report - 2 June 2014

YTL Power - reversal of fortune? TA target RM2.15

TA came out with a roaring report for YTL Power with a target price of RM2.15.

They expect the share buyback to continue which in my opinion will benefit its warrant more than its mother share.

I wasn't too pleased with this quarter's result, because:

1) One million has been thrown around as a magical number for YES breakeven but at one million subscriber they are still losing money.
2) Weakness in power seraya due to excess capex
3) Losses at the investment holding level without much details

I am glad that a research house have came out with a higher price target than I personally have, but I still think the investment is worth holding on to due to:

1) Attractive valuation backed by strong operational cashflow from long term concession like business.
2) Potential catalyst from the launch of LTE giving them a fighting chance of being a full fledged telco. I always like to compare the market cap of Maxis of approx RM51.8B today against RM10.5B of YTLP. I believe YES with LTE will be a serious competitor in the marketplace.

I am not too fuss about the IPP front as I see 1MDB as being a player with significant market advantage in its bidding. I will be pleasantly surprised if 1MDB doesn't win the next IPP project too.

Singapore Bank vs Regional Bank: PB/ROE (2014 F)

Interesting Chart - slightly out of date (clipped around Jan 2014) but still interesting.

YTL Yes to be profitable soon?

According to an article by Malay Mail online, YTLP's YES have:-

- over a million in subscriber with healthy ARPU
- will be making announcement on its LTE roadmap in the near future
- upgrading to LTE is simple, all they need to do is to plug in a "channel card"
- they've designed the network with this upgrade in mind

They have long toyed with the one million number as the magic break-even point but at a million subscriber they are still losing money. I can't wait till this LTE roadmap announcement.

http://www.themalaymailonline.com/tech-gadgets/article/ytl-comms-to-be-profitable-soon

China Stationary - Fire and delayed audited account

The company is last trading at 0.13, 0.08 (38%) below my exit price on February 9th.

At this price the company still have a market cap of RM 160M, yet it supposedly hold over RM1B in cash at bank.

I wish investor in the company a big good luck.

A detailed commentary on the recent fire and delayed audited account has been written here

YTLP-WB exercise price adjustment

Didn't see this one coming but it's a pleasant surprise.

The exercise price of YTLP-WB dropped to RM1.14 from RM1.21. This is a 0.07 reduction in exercise price. YTLP-WB is trading @ 0.55, that's like getting a dividend worth 13%!

After all the news about 1MDB getting project 3B, this is not such a bad news for WB holder.

Today's price:
WB @ 0.545
Exercise @ 1.14
Total price = 1.685
YTLP price = 1.59
Premium = 0.095 or 6%.

Given the long expiry date @ 2018, the 6% premium is quiet fair to me.

Hong Leong on YTLP

Interesting piece by Hong Leong research. 

I think this is the first research house that recognise the possibility of YTLP operating as a full fledge telco. Kudos to them.

Check out my piece back from Dec 2013.

YTL Power - Project 3B, 1MDB, currency movement and share buyback

In the past 6 months, there have been a renewed interest in YTL Power - leading to a rebound in its share price from its recent trading range below 1.60 to above 1.90 in late November.

























PROJECT 3B & 1MDB
These renewed interest is probably due to rumours of its lead in its bid for the Project 3B power plant award.

However news have since surfaced that 1MDB is now in the lead, although its bid is higher than those of YTL Power. The EC justified its preference for 1MDB due to projected cost involved in the transmission from the proposed plant to the "load centre".

Its share price have since retreated following the report.

It's not over, intense lobbying is underway.

Interestingly...

EC is basically adding an extra criteria subsequent to the tender.

Bottom line

Although I believe that the award of the project will not be a big boost to YTLP's profitability anyway, it does enhance the perception of the counter among the investment public.

SHARE BUYBACK

Since 7 October 2013, the company have continued its rather aggressive buyback program.

As of 13 Feb 2014, there's a total of 690,424,745 treasury shares - representing 9.62% of the total outstanding share. 

This is an buyback of 472,321,700 from 7 October 2013, assuming an average price of 1.80 - this is a buyback worth RM850,179,060.

Since March 2013 - the company have repurchase approximately RM1.5B of its own shares. They have a market cap of about RM13B currently. 

As I previously mentioned, ceteris paribus these buyback are great for its warrant. 

CURRENCY MOVEMENT

YTLP generate the vast majority of its revenue from oversea. In the past 12 months MYR have depreciated by about 5% and 15% against SGD and GBP respectively.

 Wessex water contributed RM194M in Q1 of 2014 to YTLP or approximately 60% of its PBT. A 15% appreciation of GBP will boost YTLP's PBT by about 9%. Power Seraya contributed about RM 153M or 48% of YTLP's Q1 profit. A 5% appreciation should improve Singapore's contribution by about 2.5%.

CONCLUSION

The real catalyst that I am looking for on YTLP is the breakeven point for YES. Its CEO indicate that it would be around Q2 of 2015. According to him, the network is "LTE ready"- there's just not enough device in the ecosystem to warrant the activation of LTE. 

From a consumer perspective, once YES is truly 4G - they will be equal to other telco like Maxis or Celcom. Maxis have a market cap of 52B and earn approximately RM 1.7B last year. This compare to a market cap of RM 13 B for YTLP and an earning of RM1.3B for YTLP last year.

Crystalising losses on China Stationary Limited

A year back, I came across China Stationary Limited. A company that's cheaper than cheap - trading below cash, heck even below 1X operating cash flow.

I looked at the company and recognise its poor governance but despite the red flags raised I allocated a (very) small portion of my portfolio to this share.

I've initially purchased the counter at 0.355, then averaging down all the way to 0.255 back in August 2013.

Since then, we have had the disposal by its majority shareholder (from over 71% to below 23%), demised of the major shareholder, even the auditor resigned. They pay 15% to 35% for interest on borrowing yet only receive less than 0.5% for its cash at bank...

Operationally, the company seems to be doing well. But with the market distrust of all thing China - CSL's share have continuously trended down since my initial purchase.

While the company have gotten even more attractive from a valuation standpoint. I am deeply disturbed by the quality of disclosure by the company.

In a local investigative article by The Edge, the newspaper have raised many legitimate question regarding the company, including the authenticity of the cash in bank and its business model - in the aftermath of the article, the local regulator did not even ask any question of this company.

Perhaps the person in charge is still away on holiday...

What sort of business borrow at a hefty 35% while only receiving 0.4% for its cash balance? They don't even need to borrow as they have more than a billion in cash at bank?!

The major shareholder sold their share, the auditor resigned, the share have crashed. No query from Bursa...

This episode taught me an important lesson in not buying shares in companies with shady governance, no matter how cheap they may be. I wish everyone still holding onto the shares "good luck".