China Stationary - buying by company selling by owner.

Following my post of China Stationary Limited on 31 May 2013, the price of CSL have dropped from 0.35 to 0.20 currently (42% drop!).

While this experiment of mine in China share have not panned out too well (my average price is 0.305) I found their latest move to be quiet perplexing.

1) Majority shareholder selling out
The majority shareholder have recently been disposing of its share in a series of transaction. The majority shareholder's latest shareholding today is approximately 30.8%, down from 66.9% in January.

2) Buyback
The company have initiated a buyback recently with the purchase of 9M shares at 0.205 last week. I don't know how to analyse this latest move but a buyback at this price is definitely accretive to shareholder - I hope the company will undertake more buyback.

Based on the net cash position of the company, the disposal by majority shareholder defies logic. It suggest that the majority shareholder think the company is less worth than the amount of cash the company claim to have.

The buyback and the disposal is opposite move by what essentially is the same set of players in this game, this exercise contrast with the move by YTLP.

I will retain my small portfolio of CSL - but would not care to add to them. My gut feeling is telling me to cut loss, yet I remain curious about the contrasting move by the management.

YTLP buyback update

Since my last post on YTLP's buyback program back in May, something interesting have just occurred.

On the 28th August 2013, they cancelled a total of 250,000,000 treasury shares, while retaining 9,005,945 shares in treasury.

Based on my last post, they had a total of 137M treasury shares as of 9th May, giving a net buyback of around 122M shares in 4 months period. Using an average share price of around $1.60, this buyback is worth over RM200M.

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

Since then, the company have continued with their buyback program. As of today - they have a net cumulative treasury shares of 91,520,545 shares representing a net buyback of 82M in this month alone. This buyback is worth approximately RM135M using an average share price of $1.60.

Cumulatively since March 2013, the company have bought back approximately RM452M worth of its own shares. 

Tan Sri Francis Yeoh have repeatedly mentioned that YTLP is undervalued - this latest move is an affirmation of his view. For long term investor - buying a blue chip company with resilient cash-flow at price close to its 9 years can't really go wrong - in my opinion.

If you have available cash, I suggest you add this to your portfolio.

However, rather than going straight into its shares - consider YTLP-WB, its conversion price is RM1.21 and a long tenure (2018).

YTLP-WB is trading at 0.515, YTLP is trading at 1.77

Why money printing does not lead to a debasement of currency

I just read a very interesting blog post by Dali on the debasement of currency caused by all the money printing. 

My initial conclusion back in 2010 at the inception of these printing was the same.. it's going to be as inflationary as in Germany post WW1. However 5 years following the first QE, there's still no inflation..  then I came across some smart economist pointing out that all these extra money is basically absorbed by the bank in increase reserve.. it make sense, if the money printing were to be inflationary - the effect should have been apparent almost immediately.

I put forward an alternate view to why money printing is not inflationary.

An alternate view

Econ 101 taught us printing of money lead to increase supply which will lead to a debasement of the currency.

HOWEVER

- Quantitative easing is merely a form of monetary policy that increases LIQUIDITY in the banking system.

- Liquidity of the banking system is separate and distinct from credit growth and availability. The monetary policy can only influence the PRICE of the lending.

How monetary transmission mechanism work in reality

- Despite the printing of money in the last few years by the treasury, money supply have been relatively stable and inflation in check.

- The main determinant of credit growth is RISK APPETITE: whether banks want to lend and whether companies/consumer want to borrow. Companies are hoarding a record amount of cash.

- According to Bernanke, the objective of QE is to maintain low long term interest rate

 

Bernanke August 2010 speech

- A byproduct of this low rate is a gradual healing of household balance sheet in the US and of the government itself

- Reality is that quantitative easing merely swaps bank reserves for US treasury

Interesting read:

1) http://www.voxeu.org/article/central-bank-reserve-creation-era-negative-money-multipliers
2) http://www.federalreserve.gov/pubs/feds/2010/201041/201041pap.pdf

Boustead REIT privatisation

Interesting news about the privatisation of Boustead REIT, I've written about it previously here.

Based on the announcement,Boustead Plantation Berhad had offered RM 2.1 for each unit of the REIT. This represent a premium over the NAV and the recent trading price.

Considering the direction of the CPO price going forward, it's not a bad deal for the unitholder. However - it's not easy to find a replacement for such a conservative dividend paymaster to replace Boustead Reit it one's portfolio.

The way the REIT is structured, there is minimal downside risk to the dividend due to the presence of the fixed rent portion in the rent formula.

I am guessing with the soft CPO price, the power to be in Boustead group figure it's costing them too much to be paying rent to the individual unitholder. They are better off terminating the lease agreement and taking the plantation asset in house, financed through debt alone.

Like I mentioned earlier in my last post - I don't have very much of these REIT left, yet I can't justify selling them as I am not too sure what to replace them with. Despite this, the premium proposed represent about 2 year's worth of dividend yield for the REIT, as such I MAY consider supporting the proposal. But I really should look harder at some replacement candidate.

To all other unitholder - what's your view? And if you accept the offer - what would you replace the REIT with?

Herbalife - closed my position with 86% gain in 7 months.

I went long on HLF on Dec 28th publicly in my 2nd blog post.

My entry price was below USD 28.

Last night I exited the counter at USD 52.09.

In less than 7 month the position was up USD 24.09 or 86%.

I think the stock still have upside to it, but I think there's alot of volatility to this counter. I may be looking to enter a trading position from time to time as it does not appear that FTC will be shutting them down anytime soon.

China Stationary - how to value this company?

From a traditional valuation matrix, China Stationary is screaming value value value! But for the "China" factor.. it should be worth a hell of alot more.

Based on its 2012 audited account and its Q1 2013 result announcement, I see a few very attractive point about the company:

1) Strong net operational cashflow generation 
Approximately RM291 million in FY 2012 [and RM79 million in Q1 2013 (RM316M annualised)] against RM33million in investing cashflow giving it approximately RM258 million in free cash flow per annum..

2) Strong balance sheet... 
Its audited cash balance at 31 December 2012 is approximately RM 944 million against total liability of approximately RM110 million, giving a net cash position of RM 834 million. There's also various receivable, inventory, fixed asset.. but for the purpose of this exercise I've assumed no recoverable value from these assets.

3) Dividend 
Based on its short track record listed on Bursa, they've been paying regular dividend... 0.018 interim dividend was granted back in October 2012 and another 0.016 will be approved as final dividend.. giving a total dividend of 0.034, which is a yield of approximately 9.7% based on the current price of approximately 0.35.

These dividend are paid out of operational cashflow.

4) Earning yield
Based on 2012 audited account, the company generated approximately RM232million of profit. Based on current price of RM0.35, the PE is less than 1.9X.

5) Discount against IPO price.
It was listed back in Feb 2012 at RM0.95 which is approximately 4.75X historic PE. Current price is only 0.35.

6) Active purchase by major shareholder in open market.
There have also been a series of purchase by its major shareholder from the open market.. however this is also a downside, based on 2011 annual report, the free float of the share is way below 30%....


Conclusion - I don't generally like companies with poor corporate governance issue. But just like how you can overpay for a good company, there should be a price where a lousy company can be a good buy. Well that's the theory anyway, I have bought a little bit of this counter but with a very experimental mindset to this investment.

It's so cheap I can't understand it.

YTLP buyback -update

Following my last post on YTLP buyback, the company have continued to be active in the market to buyback its share.

Its cumulative net outstanding treasury share as of 30 May 2013 is 166,347,745 shares.

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 an additional buyback of 29,023,500 shares from the open market. Assuming at an average price of RM1.51, the buyback is worth RM43,825,485 this month.

Today's announcement.