Malaysia small cap highlight - Weida

Summary: Weida is a bargain given its growth outlook. My projected earning for the company (based on management guidance in the news) is RM74 Million, based on today's market capitalisation of RM 225 million, the PE will be about 3X.

Weida is currently one of my favourite local counter for its conservative balance sheet and attractive valuation. I have previously posted about them.

Based on its 2nd quarter result announcement, the company have a net asset of $2.75. Currently it's trading at 1.74 giving them a price to book value of 0.632.

There was an interesting interview given by the managing director of the company, Datuk Lee Choon Chin in The Edge back in September 2013. In it, the MD highlighted its 5 years growth plan including some detail about the expected profit from its property development venture. I've broken down his projection to this simple spreadsheet below:-

I've taken a very simplistic view of the expected profit from these project.

The property project are expected to have a net margin of about 20-22%, based on 20% margin, the property development is likely to earn Weida RM112M.

Weida have "long-term contracts leasing the group's own telecoms towers" to prominent telco including Maxis, Digi and Celcom. "The estimated net rental income in the next 5 years will be about RM 70 million", the MD was quoted to have said.

Water sector - Weida have fixed income from long-term contracts for the management, operations and maintenance of 3 septic sludge treatment plants in Kuching, Sibu and Miri. The concession period for each of these is 25 years. "The estimated concession income in the next 5 years will be about RM 60 million"

Based on the above details, the company is expected to earn a total of RM242M from these 3 business segment in the next five years, or an average of RM48.4M.

The company currently operate in these 4 business segment:-

The manufacturing segment is currently its biggest segment where they specialise in "polyethylene-based building material". According to the article, the company have allocated over RM100M in capex to double its capacity from 20k tonnes/annum to 50k tonnes per annum. The existing plants are running between 70%-80%.

Based on its most recent result announcement, its manufacturing division contributed RM12.8M in the 6 month to June 2013. Assuming a flat earning (despite increasing capex) I expect the manufacturing segment to contribute an annualised earning of RM25.6M.

Based on the above rationale, I expect the company to be earning somewhere around an average of RM74M for the next five years. (3 division projected growth in the article plus flat earning from manufacturing). Its current average earning for the last 5 years is about RM30M.

Currently the company have a market capitalisation of RM225.33 M. This is a PE of 3 based on my estimated earning for the next five years.

The company's have shown increasing revenue and earning over the past five years and the share price have strengthened over the last five years as a result too. But I believe the share still have significant upside in the long run due to its growth orientation in the capacity investment as well as the property venture.

Look for opportunity to add this to your portfolio, I am hoping for a pullback for more opportunity to add to this. It is good value based on current earning and a bargain with the growth.

Land & General - Q2 result

L&G announced a rather impressive set of result on 20th November. The company is trading at price below net cash per share.

The earning per share of the quarter is 3.86 cents or 5.6 cents for the half year to date. 

Simply annualising the quarterly and half-yearly will yield us an annual EPS of 15.44 and 11.2 respectively.

However - earning from property development can be rather "lumpy" due to the nature of its progressive billing, the EPS calculation can't be reliably extrapolated from the historical EPS.

The company have RM293M in cash and approximately RM14M in borrowings - giving them a net cash of RM279M. The market capitalisation is currently RM 248M. The company is trading below its net cash per share.

L&G ICULS is trading at 0.28 cents - up more than 100% from the initial price of 0.13 cents. However I think it still offer value at this price hence I won't be selling. But the easy money would've been made, this is one I will be holding onto for awhile longer.

I am hoping that L&G mother share will hit 70 cents giving a market cap of approximately RM416M.

IBM - accumulating.

I've been accumulating IBM since its last earning report. At its last close it's trading at USD176.08.

The company's stock price have taken a beating due to limited revenue growth in past 2 quarters, but I believe the lack of sales growth is due to the company shedding some high value, low margin hardware business.

Wall street is not paying much attention to this share, and its forward earning is around 10x PE. Paying out a decent 2.16% dividend.

I believe the market is underestimating the innovation coming out of IBM because they can't understand it - just take a look at Watson and do your best to guesstimate the potential, my gut feeling is that this product will be HUGE and more than enough to offset any earning decline in its traditional hardware business.

It's a top investment in Berkshire Hathaway and Mr. Buffett himself praised IBM after its share slump.  I think if your portfolio include shares in the US, you should look at adding some to your position. 

I will accumulate gradually below USD 180, the next earning release may not do the share price much good but I think this is a solid blue chip company for my portfolio for  5-10 years.

YTL Power 2014 forecast

I revisited my initial post on YTLP back in Jan 2013, in it I forecasted 2013 profit to be 1.33B, it came in at 1.33B.

For 2014, I've forecasted a slightly lower adjusted profit of 1.28B and with the lower share count, the adjusted EPS is forecasted to be 0.19cent.

Based on historical Y/E PE range of 9.2 to 11.28, the expected price range would be 1.75 to 2.14. The industry segment PE according to reuters is 15.88, giving a share price of 3.01.  

Based on hsitorical trading range of 10x-16x PE, YTLP's share is worth RM1.9 to RM3.04

YTLP Q1 2014

Summary: YTLP announced a rather ordinary set of result with a 60M drop in profit due to a rather mystifying bunch of impairment. 43M impairment in receivable and 24M impairment in investment in associate. There is no detail on these impairment.


YTLP announced its Q1 result on 21 Nov 2013.

I still LOVE the strength of its operating cashflow and free cashflow! Instead of spending it on on dividend, they have been buying back their shares - ceteris paribus, this is awesome for its warrant holder.

Ok, back to the current result.

Overall the group result is down by about 60M compared quarter to quarter. This is mainly due to the decline in the merchant and investment holding segment offset by an improvement in the water & sewerage segment. The IPP and mobile broadband segment shows marginal improvement in its result.

Power Generation

Improvement is due to increase volume. IPP contract will expire soon, hence expect contribution to tail off in 2017.

Merchant

The merchant segment experienced a decrease in revenue and a corresponding drop in profit. With the intensifying of competition in the Singapore electricity market the margin is also suffering.

Water & Sewerage

Rate was allowed to increase by 6% from April 2012, but I believe the recent strength could also be due to the appreciation in GBP to 5.2 from about 4.8.

Mobile
More customer, less losses. LTE implementation is rather simple for its network, its rollout could be a major boost.

Investment holding
This is the most interesting part of the result, with a 100M loss for the quarter.

Impairment in associate is only 24M. However there's a 43M in receivable impairment and 14M in inventory obsolescence. There's no further detail on this impairment of receivable.

These are YTLP's associate per their annual report. The mobile division is considered a subsidiary.

I don't know what's the detail relating to the impairment and the lack of transparency on this rather material figure is not great.

The valuation for the company is still rather undemanding, sentiment for the company may improve if they successfully bid for the IPP contract but its contribution is likely to be minimal given the size of the current YTLP's offshore business.

YTLP-WB

On the 23rd September I posted a recommendation to add YTLP-WB to your portfolio.

It traded at 51.5 cent that day.

Today I've just disposed off some of my YTLP-WB at 80.5 cent.

In the 2 month period since my recommendation, YTLP-WB have risen 29 cents or 57%.

I will still retain the vast majority of my WB at this stage. I believe the valuation for YTLP is undemanding given its resilient cashflow and the strong buyback being executed by the management.

If you are holding onto some WB, I suggest you take some profit at this stage - the upcoming earning announcement might take some air out of its recent momentum.

China Stationery Limited - oddity

Mr. Tong have kindly enlightened us in his article of some rather odd peculiarity in the company, an excerpt can be found below with a relevant link.

Link

I've attempted to draw the attention of Bursa to this article and hope they will compel the company to answer queries raised in the article.

The relevant person in charge of this company is: Tang Eng Kean <tangengkean@bursamalaysia.com>

Do drop them an email if you are a minority shareholder and is as concerned as I am.