Monday, October 31, 2016

Is Ekovest investible? - felicity

from felicity.
http://www.intellecpoint.com/2016/11/is-ekovest-investible.html
After the article on Ekovest a month ago, its share price has since rose from circa RM1.95 to now around RM2.18.

(Before I deliberate on this topic, I would like to insist, I have always been very careful when putting my positive comments on a company as it has to be a long term value stock. My definition of a long term value stock is always about one potentially can be putting away his/her money for years as investments and the fundamental of the company has to be of creating value to its investors. Value investment is always a subject of debate as is it just an undervalued stock or is it also a very good company which will consistently provide better value than other companies among its peers. In my perspective, it is always more of the latter where it will continuously provide investment value, than the former i.e just cheap stocks but can also be poor in terms of business performance.)  

Ekovest to me is putting itself to be a company with recurring revenue from its assets although at this moment, it is still more of a construction company. I will put the composition of its construction:property:toll businesses at the moment to be as follows 60:15:25. (I know, I am aware of how I described Gadang)

In 3-4 years down the road though, Ekovest is going to be a very different company. That is very important to me as its composition will be more like 35:15:50 in the order of construction:property:toll. Why?

Its toll business itself may potentially be even bigger than LITRAK. As it is, for DUKE 1, after its 6th to 7th year of operations it has started to register good profits (cashflow wise, would be even better). By the time DUKE 2 and SPE becomes operational, it could be a very substantial toll operator than a construction outfit. (I would be even more amazed if its construction arm is to be just as big, which means that it will be getting more jobs)

Yesterday, in a Q&A session, the CEO of EPF put down that for his private equity investments, he is looking at IRR of between 10% to 13%. He further mentioned,

“If you look at the types of assets that we have been investing in, they would typically have an IRR range of between 10% and 13%, depending on the risk profile of the assets, the tenure of the concessions and the security of cashflows
“For instance, a power plant asset which has secured power purchase agreements would be in the lower range, while something that has a bit more revenue volatility would be in the higher range,”
I will take it that for DUKE as it has some volatility, EPF is probably looking at around 11%. In today's low interest rate environment, where US is offering almost zero, 11% is very high. I would not mind putting my money in stable investment which returns 11% IRR.

From that perspective, I will take the positives and negatives - if I am an investor of Ekovest, it is willing to let go 40% for 11% IRR, this is a negative. I am sure that it can get better deals elsewhere.

From a positive standpoint, Ekovest still has 60% of that asset which it stands to gain 11% IRR at valuetion of (RM2.825 billion) still for more than 40 years (in fact more, as a concession investment such as DUKE has a definite concession period, hence when doing a DCF it will take into account that definite period - not indefinite period in which case they use terminal value). So for any investors, even putting money for DUKE already has his money worth with very strong IRR. For me, if the IRR of 11% is right, Ekovest's 60% ownership could translate into at least a good multiple of what the EPF is paying for as concession assets has good value - just look at LITRAK which still enjoys 16x PE despite its concession to remain around 15 years?

And as mentioned in previous article, what about Ekovest's other assets such as SPE, its construction business and property projects? They must have worth some good numbers as well.

Is it investible though?

Now, after the above, is Ekovest an investible stock? There are several benchmarks to a company. Firstly, even if it is to make money, bring in good cashflow (remember, some red chips (China's) companies showed profits, cashflow but without or little dividends) - would the management be ready to share part of it in the form of dividends? Here are the track record of the company's dividend payment since 2000.

Dividend and net profit of Ekovest from FY2000 to 2016
I am quite comfortable as although for certain years, its dividends to net profits dropped (2012 - 2013) - that, I believe was mainly due to the company needed funds for the acquisition of DUKE assets. Ekovest does pay dividends every single year during the period in review.

The management has mentioned of its willingness to pay some of its return of RM1.13 billion to shareholders. That has yet to be announced. If I am to read its cashflow requirement, the amount should not be too low - i.e. less than RM100 million.

Another thing which was of concern to me was that the free float for Ekovest was way too low for some time - somewhere in the range of 5% to 10% as it is still a very tightly held stock - through Lim Kang Hoo's family, Haris Hussein (brother of Hishamuddin Hussein) and an old partner of Lim Kang Hoo, Khoo Nang Seng. In the last few months, the two groups except for Lim Kang Hoo has disposed off some of their shares. One may think that they are selling early which is a bad sign, but that has also translated into more liquidity for the market. (Frankly, I do not know how to read this.)

Ekovest has not been a much followed stock because funds do not like low liquidity stocks especially the sell side brokers. They are not able to introduce much to their clients as there are not much stocks to buy. That to me is changing for Ekovest. If I am to read right, some if not all portion of Haris Hussein's sale 6 months ago went to several funds.

As it is still at good value, I see the funds coming in a bigger way - as they are becoming visible for the bigger guys. That's how I see it as it is surfacing some of its value.

Sunday, October 30, 2016

A follow up on MSC.

Many might have overlooked this news. Beside steels, tin production in China is actually going through process of de_overcapacity.
http://cn.reuters.com/article/home-tin-idCNKCS0V30TX





撰稿/Andy Home
路透伦敦1月22日 - 中国的主要锡生产商已加入到减产的潮流中来,宣布今年将把产量减少1.7万吨。
就像中国其他基本金属生产商的减产声明一样,表面上看这是自律行为,但实际上它或许没那么简单。
但减产若得到落实,将有助于进一步收紧锡市。早在最近这波大宗商品价格跌势之前,锡市就已经面临结构性的供应问题。
锡市的紧俏表现为,伦敦金属交易所(LME)仓库的锡库存长期处于低位,结果导致近月价差持续面临着压力。
**减产实为求救**
据国际锡研究协会(ITRI)称,中国是最大的锡生产国,承诺减产的九家锡生产商的产量合计相当于中国总产量的约80%和全球产量的40%。
1.7万吨的减产规模等于在2015年锡产量基础上减少12%,相当于全球产量的4-5%。
但是,跟中国其他金属商宣布的协作减产举动一样,锡生产商这么做实际上是在向中央政府求救。
根据这九家厂商的说法。锡价“已与基本面相背离”,潜台词就是“目前锡价低迷不是我们的错,这是投机者造成的。”
面对这种市场不理性,厂商呼吁政府对锡进行战略收储。
而这才是上述声明的真正用意。
从目前北京与中国金属冶炼厂之间的搏弈来看,似乎是若要让政府救助,那么行业整体上必须减产能。
但一个明确的推论就是,中国锡冶炼商坐拥大量的未售库存。
考虑到已经存在的产出下滑,这说明了作为全球最大锡消费国的需求状况有多差。
的确,锡使用正面临自身的结构性挑战,即焊料微型化。而据国际锡研究协会(ITRI),去年锡需求萎缩幅度估计略超3%。
这显然已经导致了中国国内市场的过剩,其中一部分已在过去几个月输往国际市场,不过是以一种未在中国贸易数据上体现的方式。
浏览印尼锡出口量图表,请点选(tmsnrt.rs/1WAgydZ)
**印尼出口仍在下滑**
讽刺的是,全球市场可能真的需要一些这种中国非正式的锡出口。
因为印尼的出口供应持续下滑。印尼是全球第二大产锡国,但却是最大的锡出口国。
根据印尼贸易部的出口公证检验资料,去年印尼的锡出口量降至70,154吨,低于2014年的75,927吨。这是连续第三年出口下滑,而且2016年只可能继续这个趋势。
锡出口的减少,是受到两个因素的联合作用,一是因为印尼政府逐步取缔邦加岛及勿里洞岛上的独立产锡商势力,一是锡的低价格。
值得注意的是,印尼商品及衍生品交易所(ICDX)几乎毫无成交,这个交易所实质上设有一个最低价格机制。
对于所有锡出口必须在ICDX交易后才能出口的规定貌似有所放松,因为尽管LME的锡价格徘徊在六年低点附近,该国照样有锡出口。
不过ICDX缺乏成交的事实显示,价格压力正在打击印尼锡生产商,其中许多都是小型私营公司。
在印尼之外的全球地区,在锡矿石品级下滑的情况下,其他大型锡产商多数都是采取以不变应万变。
近几年唯一重大的新增供应来源是缅甸,而缅甸的全部锡产量都运往中国,以弥补中国矿产量下滑。
综合作用的结果就是,虽然锡需求持续萎缩,供应萎缩速度可能更快。
**库存低,价差紧**
这股供应动能萎缩的影响明显见诸于伦敦市场。LME去年库存减少49%,或5,995吨,而目前的可交易库存(Open tonnage)为4,890吨,从任何过往水准来看都是偏低的。
上海期交所在2015年3月推出锡合约以来,也没有太多锡进入上期所仓库。目前总注册库存仅有696吨。
值得注意的是,尽管近月合约价差益发收紧,LME库存仍维持在低水平。近月价差有好几个月时间在正逆价差之间反覆来回,但却未能吸引够多的金属让LME库存显着回升。
本周,价差再次出现收紧,指标LME现货/三个月期货价差周四收报每吨逆价差45美元。
市场盛传这是因为出现一个大型多仓。LME回溯前两日的仓位报告尚未反映出这一点,但鉴于库存如此之低,显然LME报告上也未必需要出现一个超大仓位才能有如此效果。
此外,未来三个主要月度交割日期的仓位分布高度密集<0#LME-FBR>。2月合约有四笔空仓将与四笔多仓对决,其中一笔多仓规模相当大,占30-40%的未平仓合约,相当于2,800-3,700吨。
这意味着未来可能有更多价差收紧的情况;在LME库存回升之前,逆价差仍将是伦敦锡市的一大特色。
**既是好消息,也是坏消息**
在这种全球整体情势下,中国承诺的减产,对锡价而言好坏参半。
好消息是如果中国减产数量符合承诺,虽然可能性有点低,那么这将解决掉全球供应链之中那个明显有供应过剩的环节。
因为其他任何地区几乎都没有供应过剩的迹象。
而在当前环境下,供应控制被视为价格相对表现强弱的关键决定因素,因此锡的条件便优于其他工业金属。
坏消息则是,中国生产商手上仍有大量未售出库存的意涵。否则他们为什么会要求政府开始收储?
因此未来几个月,只要上海--伦敦套利交易有利可图时,就有可能出现更多中国那种定位模糊的锡出口,如同去年第四季的情况。
在中国政府的协助下囤积锡,或许会化解出现更多中国锡出口悄悄外流的迫切风险,但并未真正解决上海锡价偏低的根本原因。
而减产会有效果,但中国当局会向中国产锡商要求多大程度的减产配合,作为伸出援手的交换条件,仍有待观察。(完)
(编译/审校 白云/王洋/李婷仪/陈宗琦/龚芳/高琦/蔡美珍/刘秀红)



Why I like MSC and it will be my largest exposure of stocks in 2017

First, I normally don't recommend stocks. But this rare gem really worth our studies. I share with all here the studies I have done and it is for references purposes only and it doesn't serve as any recommendation to buy or sell.

Why MSC-Malaysia Smelting Corp get my attentions?  A few reasons:
1. This stock is owned by one of the most famous value investors-Dr.Neoh.
From annual report 2015, he owns around 1.40%, another famous fund managers-ICAP owns around 2.90%


10.NEOH CHOO EE & COMPANY SDN BERHAD- 800,000 units=0.80%
13.DYNA􀀳UEST SDN BERHAD-600,000 units=0.60%

The shares are easy to calculate as it has share outstanding structure of 100mil exact. From the 2015 Annual Report, Top 30 shareholders had owned around 72.54% of the shares, making most circulating outside in market estimated to be only 27%


2. Most of the investors would have stop digging more once they have seen their results past 2 years. Most of the time it was volatile, and also at the same time in loos making.  Well I would say digging deeper we might understand more of this company.
This company is the second largest Tin producer in world after one in China (MSC is producing consistenly 30,000 Tonnes every year). Tin prices have been volatile since and MSC wrote off huge losses during last 3 years after the political risks surface in Indonesia and their venture in Indonesia was forced to a halt and they have no choice but to write them off.
Some write off still happens in recent quarter, but I think the amount left to be write off are really not that much anymore.


Look at Q2 2016 result, a one-off RM30mil write-off on associates occur.  Without this, the company is actually in profit for 1H 2016.
A further reading under notes, it states as such:

6. Share of results of associates and joint ventures


The Group’s share of results of associates and joint ventures recorded a net share of losses of RM30.53 million in 1H 2016 compared with a net share of profit of RM0.35 million in 1H 2015. This was mainly due to higher share of losses from KM Resources, Inc. arising from the provision of additional prior years tax liabilities



Without such one-off items, we can estimate the EPS to be around RM0.88 per year. Which makes its P/E look attractive at around 4 now.

MSC
Cash 208,028.00 EY ROC
Receivables 40,930.00 35.6% 76.90%
Inventory 146,870.50
Div 
Total Liabilities  (367,539.00)  (2.3) Mkt price Graham Ratio 50.09  - 0.00%
28,289.50 0.28 3.410 pie 7.08
Cash from Operation 158,000.00 -91.7% NAV 2.53
Share Outstanding 100,000.00 1.58 341,000,000.00 1.70 Top30%
46.3% 72.54%
Butterworth, 40,000tonnes capacity
Borrowing 229,956.00 1.46 30209tonnes
EPS 0.880
P/E 3.88


Its strong cashflows generation of around 79mil YTD is even more fastinating. Making its EY, ROC at marvellous status.

Its liability is manageable with its strong cashflows generation, while the cash yielding is one of the craziest I have seen recent years beside the earlier identified KESM!
It is yielding even crazier than KESM when I notice it. KESM was yielding near 30% when I discover it in 2015 end. MSC is now yielding around 46% and can even be MORE due to recent TIN price rally, coupled with weakening currency of MYR.

3. TIN PRICE rally!
The most fundamental reason I am positive about MSC is due to recent rally in Tin Price.
Look at AR 2015, the company keep good track record on Tin prices for few years as below
Tin prices traded around range of  USD 20,000 actually recent years. But a crash on prices happen in 2015.


Tin price has since recover in 2016. As below for 2016
http://www.mtpma.org.my/index.php/statistic/2014-07-07-04-56-57
It has recently recover to near range of USD 20,000 which is why I am positive on their near future earnings.
OCTOBER 2016 TIN PRICES 
DATEUSDRMEXCHANGE RATETURNOVER
3  CLOSED  CLOSED  CLOSEDCLOSED
4 20,00082,5204.126028
519,85082,2764.144945
619,88082,2734.138544
720,02083,2434.158041
1020,02083,1194.151858
1120,05083,3244.155842
1219,88083,2714.188738
1319,88083,7944.215030
1419,60082,5494.211746
1719,58082,6864.223030
1819,50082,2614.218525
1919,80083,0514.194530
2020,00083,6024.180138
2119,90083,5604.199044
2420,05083,9494.187023
2520,10084,0284.180540
2620,30084,5394.164553
2720,50085,8854.189536
2820,50086,1824.204034
Source : The Kuala Lumpur Tin Market (KLTM)


SEPTEMBER 2016 TIN PRICES 
DATEUSDRMEXCHANGE RATETURNOVER
1  18,900  77,103  4.079530
2 19,18078,3794.086531
519,33078,7414.073535
619,30078,7154.078543
719,45078,9964.061551
819,60079,6004.061225
919,60079,6844.065541
12CLOSEDCLOSEDCLOSEDCLOSED
1319,20078,8264.105528
1419,15079,1284.132027
1519,20079,2864.129547
16CLOSEDCLOSEDCLOSEDCLOSED
1919,20079,3444.132538
2019,40080,3164.140042
2119,48080.6764.141555
2219,40079,8314.115066
2319,45080,1634.121549
2619,60081,1644.141068
2719,60081,0364.134555
2819,80082,0514.144036
2919,98082,2884.118530
3020,08083,2924.148052
 Source : The Kuala Lumpur Tin Market (KLTM)


AUGUST 2016 TIN PRICES 
DATEUSDRMEXCHANGE RATETURNOVER
1  17,900  72,146  4.030545
2 17,94072,729 4.054043
3 18,00073,125 4.062530
417,97072,752 4.048527
518,08073,070 4.041532
818,35074,2704.047442
918,20073,4444.035415
1018,42573,8114.006031
1118,55074,3604.008648
1218,40073,7444.007834
1518,25073,5534.030350
1618,25072,9273.996031
1718,30073,1823.999043
1818,35073,3543.997526
1918,43074,0894.020030
2218,43074,3194.032545
2318,48074,4844.030538
2418,60074,9864.031540
2518,60075,0324.034036
2618,70075,2864.026026
2918,70075,5014.037565
3018,85076,3904.052547
31CLOSEDCLOSEDCLOSEDCLOSED

JULY 2016 TIN PRICES 
DATEUSDRMEXCHANGE RATETURNOVER
1  17,080 68,115  3.988057
4 17,500
69,939    3.9965 45
5 17,93071,792   4.0040 26
6CLOSEDCLOSEDCLOSEDCLOSED
7CLOSEDCLOSEDCLOSEDCLOSED
817,55070,9864.044828
1117,90171,3623.986578
1217,80071,1913.999541
1317,99071,7173.986531
1417,90070,8253.956731
1517,99071,1863.957056
1817,94071,4443.982431
1917,85071,1953.988533
2017,70071,1014.017045
2117,90072,4324.046532
2217,87072,6954.068023
2517,80072,6774.083036
2617,80072,5764.077331
2717,90073,0824.082854
2817,90072,7374.063528
2917,90072,6564.059052
Source : The Kuala Lumpur Tin Market (KLTM)

4. Selling of lands in Penang factory to unlock value??
I read a recent news from the edge daily. There was rumors where MSC might reallocate their smelting factory from Penang state to Klang as the land in Penang could be redeveloped into properties to unlock their values. If this happen, I am not sure if it might impact their temporary functions? But CEO resigning from company is a big warning sign to me. Could it be tussle of wars among Malaysian and Singaporean? Or is there other things? I wouldn't want to do any estimation. But if reallocate did happen will be extra bonus to us.

5. Price recover back past 2-year record at RM4 range?



Look at its price during 2012 when it was trading at RM4.50 high. I believe with no much write off can be further done on associates, its near future result can be very fascinating.
Its investment in associates as noticed in latest quarter result report is RM49.78mil, compared with Dec15 RM84.47mil. MSC, come and write off the balance. So the price can go further down and next year it will boom like mad.

Assuming next yr no more write off, EPS of 0.80 at P/E 10 can easily give it RM8 TP.
Its cash yielding is around RM1.58 per share per year. By that, it should be easily traded at range of RM15-RM18.

In near term using recent latest results, I think it can challenge EPS of RM1, giving P/E 10=TP RM10
EPS RM1 derived from below
30,000 tonnes capacity per year x Avg price per tonnes USD19,000 x MYR 4 x profit margin around 4.5%=RM102.6mil net profit.
S/O=100mil, so easily EPS=RM1 per year. P/E can be even lower near 3 next yr.


EVEN, we are so pessimistic that It will by Maximum goes back only to 2-3 years high of RM4.50 range, it will still give us around 32% return.