Jay's market diary

Author: Jay   |   Latest post: Wed, 20 Sep 2017, 07:06 PM


A review of my past i3 posts – Jay

Author: Jay   |  Publish date: Wed, 20 Sep 2017, 07:06 PM

Readers of my blog would probably realise that I have been away from i3 for quite some time, mainly because I was quite fed up with the bickering in the forum where some people are just not interested to put in a logical argument. The same people never contributed anything in the forum yet has the guts to question everyone else’s intentions. For me, I wrote what I wrote because I wanted to share what I know but I don’t owe anyone anything, certainly not those low-lives. So I took my time-off, travelling and enjoy life while seeing my portfolio grew nicely over time.

After taking some time off, today I will be going through the stocks that I have previously blogged about. This is my way of reviewing my past ideas/actions before moving forward and hopefully readers and myself could learn something through this exercise. For those who are not interested, you may move on. Those who continue reading, please be mindful that like all my previous articles, they tend to be lengthy.


1) Sona-WA (sell/avoid)

Price then: 6c

Price now: 0

Blog posts:



Back when it was still trading at around 6c, I warned that the QA is most likely going to fail and warrant will be worthless. I was subsequently proven right. Although Reach did manage to squeeze their deal through, looking at how the price and warrant performed, I think SPACs are unlikely to have a future in Bursa in its current form.

Conclusion: SPACs remain only as an attractive arbitrage vehicle for me, it is still a no-no investment by any other measures.


2) Triplc (Buy)

Price then: RM1.50

Price now: RM1.95

Blog posts:





This remains the only stock that I have blogged four times. The first article was back in Apr 2016 when the HOA was signed, then a formal agreement was signed in Dec 2016 and finally SC clearance was obtained this month. The whole process has taken longer than I expected and many things have transpired during the period, details I will leave it to interested ones to browse through the previous posts.

Till today, I still think this is a no-brainer stock. It runs an extremely simple yet lucrative campus construction, maintenance and concession business and has undervalued landbank. Many people still don’t understand its business and its financials despite my best efforts in sharing my knowledge. Nonetheless, Puncak is offering around RM3 per share to acquire the biz. As a shareholder, I’m inclined to accept the offer as left on its own, market does not seem to appreciate the true value of the company. For Puncak shareholder, I have even wrote an article to show them how they are at the better end of the deal https://klse.i3investor.com/blogs/purelysharing/112371.jsp

If they still only see the Triplc price and not the value, then there’s really nothing I can do to help them.

Conclusion: At current price level, it is still a steal. If the deal goes through, you get RM3 net cash company (PN16 but your cash is secured). If the deal fails, the business value itself is more than RM3 (although it might need some time to submerge).


3) MBSB (sell/avoid)

Price then: RM0.90

Price now: RM1.30

Blog posts:


It was around 90c back then. Now of course it has surged to around RM1.40 level before retracing a bit. I was bearish back then, I am still bearish now. The company has poorer credit control compared to its peers like Aeon Credit or RCE and I still think it should trade at a discount P/B compared to the banks (not a premium) based on its low ROE. The new MFRS9 next year will be a new challenge and I’m interested to see how its profit would be affected.

Conclusion: I still think it is a risky company. But share price has proven me wrong so far, that’s why sometimes positive newsflow (Chua Ma Yu, banking license etc.) does move prices regardless of whether you think it improves the fundamentals. So I may have erred on the cautious side but please invest at your own risk.


4) Vivocom (sell/avoid)

Price then: RM0.18

Price now: RM0.14

Blog posts:


I highlighted in the post how the selling points for this company were grossly over-inflated and the analysts promoting the stock was clearly incompetent or corrupt. And so it proves, with the company reporting disappointing results in subsequent quarters and the analyst caught possessing and releasing insider info (unintentionally I assume) on the company.

Conclusion: This is a rare case where an overhyped company was brutally exposed. Previously I only thought that this company was merely overvalued, but recent quarters’ horrible results may suggest that there are more earnings risk than I thought. In any case, this is a dodgy company with poor corporate governance track record, definitely not suitable for long term investing.


5) Prestariang (no rating)

Blog posts:


The article was just to discuss on the SKIN contract and its potential impact. I did not really rate the company as based on my calculations, even with the new contract contribution, the stock is still expensive (although maybe not too expensive if compared against tech players). Subsequently, it was reported that Prestariang only owns 70% of the company that gets the contract, so my calculations are definitely off.

Conclusion: Sometimes even after a contract is signed, we still have to be careful and alert (like how Prestariang ends up only with 70% stake). That would change the estimates previously made. And Prestariang case also helped to illustrate the importance of understanding accounting. There was one forumer called PurplePain who understands nothing about the accounting treatment for SKIN (and the financial analysis in the article) yet keep leaving stupid comments. Ultimately, the company and the analysts proved me right by confirming that revenue and earnings will be recognised in the first 3 years of concession. Lesson learned: Only open your mouth when you really know something, if not, stay humble and learn. With ability it’s called confidence, without ability it’s called arrogance.


6) Gunung Capital (sell/avoid)

Price then: RM0.47

Price now: RM0.40

Blog posts:


Another goreng/speculative stock. But it caught my attention back then because there was a seemingly solid renewable energy story behind it. But close inspection reveals that the company only owns small stake in most hydro power plants and most are not operational yet.

Conclusion: Similar to Prestariang, effective stake is an important aspect that should not be overlooked. And sometimes behind a seemingly legitimate story, it only take a little more homework done to reveal its true colours. That’s why it is always important to conduct your own independent research before trusting any rumours.


7) Ekovest/ Ekovest-WB (Buy)

Price then: RM0.93/0.53 (adjusted for special dividend and share split)

Price now: RM1.10/0.69

Blog posts:


This is a company that has fallen out of favour in recent months. For me, fundamentals have yet to change. Construction orderbook still very healthy, property still ramping up, highway concessions progressing well and on track for listing. What has changed though is property segment has reported losses in the latest quarter and high effective tax rate also dragged down its net profit. But Malaysian property developers still typically enjoy very good margins so I suspect the property losses are likely to be one-off. Overall, PBT is still doing very well and once effective tax rate normalises, net profit will recover. And more importantly, I have always stressed that just using PE method will not fully capture the value of this company.

Conclusion: The company is still solid in my opinion. However, the whole Bandar Malaysia thing has really put a dent on the sentiment. We may argue that Bandar Malaysia really has nothing to do with Ekovest but in Malaysia, we have to be realistic and understand that most government projects are political in nature. Nonetheless, with the share price being beaten down, I think the company is still a good investment opportunity. However, investors need to be aware of the potential risks such as Duke 2A not being awarded or higher property losses etc. before investing in the company. Low risks of these happening doesn’t mean no risk.


8) Bursa Malaysia/Bursa C-11 (Buy)

Price then: RM9.38/0.21 (adjusted for total dividend 52c received)

Price now: RM10.00/0.25



This stock was recommended back then when market was starting to turn bullish and the trading activities are spiking. All my calculations are based on the assumption that the bullish sentiment will continue and investors will continue to invest/trade actively in the market. However, if you monitor the Bursa Malaysia statistics, the trading value stayed high until May (Mar is still the best month) and subsequently the market has cooled down to a level similar to last year (which wasn’t that great anyway).

Conclusion: As the trading value was not sustainable, my previous assumptions were overly bullish. Full-year it might still hit my target thanks to a strong first-half, but 3Q will definitely disappoint and I’m not so optimistic for subsequent quarters. The price traded as high as RM11 but now with the catalyst weakening and special dividend pocketed, I would recommend those who are still holding to sell before it turns bearish again. For C-11, it’s important to not be overly greedy because timing is everything for these short term structured warrants. I already advised to take profit when it was 40c back in end-May. It went up to as high as 43.5c but now is back to 25c, possibly because traders are also aware that coming results won’t be great. With expiry at Nov 30 2017, time is definitely not on your side if you are still holding. Better take profit or cut loss now.


9)  Petron (Buy)

Price then: RM8.00

Price now: RM10.30



Those who knew me would have realised that I have been vocal in the forum about Petron’s prospects even when it was at RM5 but I only formally write an article on it when it was trading at around RM8. The assumptions and prospects remain intact till today. But back when the article was published, the price was sliding hard until it hit around RM7 (which is also the lowest point since then). A lot of jokers and sour grapes (who enjoyed nothing from RM5 to RM8, and still don’t enjoy from RM8 to RM10) kept shouting like it’s the end of the world and criticising the company without bothering to do any research or analysis. I do hope that they have learnt their lesson by now.

Conclusion: Sometimes it’s better to block out the noises and focus on what’s important. Petron’s latest result was affected by inventory loss but the refining crack spread has been stronger in Q3 and Q3 will be inventory gain instead of loss. Overall, inventory gains/loss to me is still one-off in nature which does not really add/destroy value (unless commodity prices are expected to go by one direction). I still like the company for its strong retail and marketing biz while refinery biz is in upcycle plus strong cashflow. This is still a good stock to hold even at current price level (readers would notice my target price is way higher than current level). 

Many people has also been asking me about Petron’s “twin brother” Hengyuan. Personally, I think Hengyuan’s profit will be better than Petron in the short term (yes, you see it right). Being a pure refiner, Hengyuan is the best stock to capture the current bullish refining environment. But the only point to note is refining is a cyclical biz. Without stable retail marketing biz like Petron, Hengyuan’s profit is bound to be more volatile so investors PE expectations should be lower for Hengyuan compared to Petron. But in summary, with Petron now at RM10 and Hengyuan at RM8, I still think that both will re-rate upwards strongly in the coming months.


Overall conclusion

It was a lengthy and brutal exercise where I have to face my past assumptions and recommendations. Many people assume that by making mistakes, they will learn from the experience but the truth is, making mistakes and learnings from it are two separate actions. That’s why many people keep repeating the same mistakes.

By reviewing all my previous posts, I hope you have learnt something from them. I was fortunate enough to have made more right calls than wrong ones but I know it myself that these are the product of 10% luck and 90% hardwork. You can be a fundamental investor or technical trader but only through hard work, then you can slowly master your investing or trade.

If you are one of those that are still chasing one rumour to another, following one stock tip to the next and at the end of the day, losing all your hard-earned money, it’s time to stop. Keep making the same mistakes won’t make you wiser. Go back to basics, try to understand a company’s industry, prospects and financial statements. If you don’t understand, then try to learn by reading books, read other people’s sharing, or even attend some seminars or courses. If all these sounds like too much work for you, then maybe investing is not for you. Find a good unit trust company or maybe just put in bank deposits would be better, at least you won’t lose your pants.

People always say that there’s no free lunch in life. But I say, you might be able to find free lunch sometimes in life, just don’t hope to survive relying on it.












  9 people like this.
VenFx Hmmm.
Good sharing .
20/09/2017 19:19
hng33 Hi Jay

Thanks for your previous triplc length explanation. Since triplc is lucrative concession, the acquire Puncak should also benefited. Puncak share price have been bashed down significantly due to poor construction execution. Puncak acquire triplc is timely to gain triplc expertise in construction buisness to revive Puncak construction later. After acquire triplc concession business, Puncak will return back to have long term concession business, re rating is on card.

Although Puncak recently acquire plantation which still need gestation time before enter into prime mature, increase yield, but at least its solid long term business. In addition, Puncak oil and gas also pending revival in view of strong recovery in oil now. All in, I think Puncak worse time could be over now.

portfolio have both Puncak and triplc ( sold lucrative concession, but potential to declare special dividend )
20/09/2017 19:28
kcchongnz Wonderful sharing. Full of substance.

Keep it up Jay.
20/09/2017 19:49
moneySIFU Jay, You know what? I have just visited your blog page & try to follow your latest comments this afternoon. Only found out that you have "0" comment in the past 30 days. :)

Thanks for sharing your thoughts here. Big Like.
20/09/2017 20:41
probability I like Jay's write up and contributions, but fail to understand the sensitivity.
Please continue providing those priceless ideas / advise.
20/09/2017 20:48
PurplePain Everyone knows Prestariang will be recognising FAKE PROFIT for SKIN during the development stage in the first 2 years. FAKE ACCOUNTING PROFIT.

Should recognise SKIN profit like EcoWorld International
20/09/2017 20:54
Alex™ i see it right~
20/09/2017 21:13
musangfoxking a good read! tks Jay!
20/09/2017 21:20
invest_101 Appreciate your sharing, thank you.
20/09/2017 22:13
djibaok bagus
20/09/2017 23:22
Honey Comb thanks jay for the selfless sharing...
20/09/2017 23:38
feimah thanks jay.
21/09/2017 12:02
joetay good on u jay for the sharing.

looking forward to ur next stock analysis.
21/09/2017 12:15
Jay thanks for the comments

@hng33 puncak is a riskier choice. if the deal goes though, triplc earnings can sustain them for the next 3 years but I'm not sure how huge their existing operations and new plantation losses will be. young trees literally gives no fruits and revenue in the first few years. if for some reasons the deal doesn't go through, triplc profit will remain strong but puncak will continue to slip into oblivion (which many puncak shareholders don't seem to understand). but I understand your trading rationale, just be aware of the risk

@PurplePain if you think it's fake then again it shows how limited you know, a reading of how IAS11 or IFRIC12 came about last time may broaden your narrow mind. personally not a fan of recognition only at completion, just make it difficult for investors to understand what is going on
21/09/2017 16:04
hng33 Thanks jay, I have took profit on Puncak today at 76sen, have repeated trade many round already for handsome contra gain. Now, portfolio still retain some for continue exposure for upcoming EGM.

Portfolio have more triplc stake now at average cost around RM 1.89, awaiting for approval too in EGM with special dividend and await for next month Q1 result in which expect higher construction profit from new concession as progress advancing.
21/09/2017 19:29
kongming1 keep it up Jay, nice sharing from you indeed.
22/09/2017 01:44
paperplane Jay, your comments and sharing the BEST lah!

I always make money following your calls, to mention few like TopGlov Call warrant before etc.

KEEP UP GOOD sharing here bro. We miss your calls a lot.
29/09/2017 12:28
angmo Thanks Jay. We all know you you are a kind person. Keep it up.
29/09/2017 13:46

Feb 25, 2018 01:00 PM | Report Abuse


mind to share your view ,
I believe many here are hoping to read your comments and how you look at petronm now.
I also hope to learn more from you.
25/02/2018 13:04

What I learnt from Petron AGM - Jay

Author: Jay   |  Publish date: Fri, 16 Jun 2017, 05:41 AM

Yesterday was Petron’s AGM but unfortunately I’m out of town. However, my nephew was there to attend on my behalf and so below are the notes in Q&A form he took down for me. Hope this would help shareholders who are not present and also appreciate if shareholders who are present can add on or correct if there are any missing or inaccurate points.


1.     Retail market share

1Q15: 16.6%, 1Q16:17.4%, 1Q17:19%

2.     Breakdown of gross profit




Marketing margin



Refinery margin



Inventory gain/(loss)



Gross profit




3.     Reason for profit improvement in 2016?

Improvement in gross margin

4.     Reasons for decrease in other income, increase in other operating income and decrease in other operating expenses

Lower realized forex hedging gain, higher service station license fee and higher deposits, lower realized forex losses

5.     Factor of increase in sales volume

Expansion program, innovative products, customer service, promotions

6.     Expansion plans

16 new stations so far this year, 23 completed and to be opened soon, target at least 50 for full year

7.     RON100 and Turbo 5 sales

So far encouraging and they help in branding

8.     Hedging policy

Commodity 40%, Forex 80-90%, the remaining natural hedge from exports

9.     Capex plans

RM150m for 2017 to expand network and logistics and improve refinery efficiency

10.   $1.5b expansion of refinery and new petrochemical plant

Still reviewing options, including debt and equity funding, will update shareholders once they have decided

11.   Impact of weekly petrol pricing

No impact on profitability as retail petrol still under APM for gross profit of around 5c per litre (5c calculated based on refined product price), net profit depends from station to station

12.   1Q17 cost of sales increased by 15% while Brent only increased 8%, why?

Forex ringgit depreciation

13.   Are the good performances sustainable? Is management confident of repeating the good results?

Volume and operating efficiency yes, marketing business is also doing very well

Margins are up to market forces, best if there is a stable market

Overall management is confident

14.   High % held by Petron holding and plans to address public spread

Due to MGO last time. No plans for now

15.   RPT with Petron Fuel International (PFI)

Buy and sell products with PFI. Depending on the distance between service stations and terminal, if Petron station is near to PFI terminal will buy petrol from PFI, vice versa

16.   Fire incident

No effect on operations and supply, refinery operational again within a week. Have risk management, emergency response and business recovery plans when somehow preventive steps fail

17.   Litigation case

Already won the case in Court of Appeal and Federal Court, plaintiff still not satisfied and appeal to Federal Court to review the decision, hearing on 24 Aug 2017.

18.   Fair value instrument (pg 100 of AR)

Mark to market hedging instrument for commodity

Realised gains go into cost of sales, unrealized gains go to other income/expenses

19.   Strong cashflow, higher dividend?

Petron Corp has 25% dividend policy but Petron Malaysia not subject to it. Will review annually and decide whether to have a policy and how much to pay shareholders

20.   Is lower crude price beneficial to Petron Malaysia?

As downstream player, more concerned on margins

21.   % of revenue from retail and commercial

70% retail, 30% commercial

22.   LPG market share


23.   How are properties valued? Any revaluation?

Cost basis. No revaluation as it is costly and not Petron’s plan to profit from land appreciation

24.   Is the refinery Euro-4 compliant and where is RON100 produced?

Already compliant, RON100 produced locally in Port Dickson

25.   How much export sales

Very low less than 5%, only by-products

26.   Out of 580 stations, how many owned by listed Petron?

55-60%, new expansions will also be around that %

27.   Next mandatory shutdown date


28.   Refinery at full capacity, does Petron import from Philippines?

Refinery at 60% utilization, all sold for domestic, except by-product

29.   Amortization of PPE

Leases and turnaround costs back in 2015. Lease amortised based on terms of lease, turnaround based on 3 years to the next maintenance

30.   Why are there sister companies and how are RPT conducted?

All these date back to Exxonmobil times when Exxon and Mobil merged. Part of the anti trust provision is that both companies have to be segregated even though branding may be shared. So are Exxonmobil Malaysia before Petron Corp bought over. So nothing sinister and all RPT are conducted on arm’s length


My takeaway

1.     Marketing/retail biz is doing very well

They are gaining market share and has robust expansion plans

2.     No major capex in the near term

Only expansion of service stations and refinery efficiency improvement since refinery already Euro-4 compliant. RM150m capex plan shouldn’t eat much into its cashflow, so the company should achieve net cash by next quarter or at least end of the year

3.     New plant expansion still premature

No details provided. If eventually it happens, most likely majority of funding will come from debt since they have a plant as security and the company has strong cashflows.

4.     Main source of profit is not dependent on crude price

Dependent on the price differential/margin/crack spread

5.     Number of petrol stations still room to grow

Now we know the listed Petron owns around 320-350 stations, the rest are by its sister companies. This may be relatively low compared to Shell around 900 or Petdag more than 1,000. But good thing is Petron is growing faster both in terms of number of stations and market share

6.     No hanky panky with related companies

The explanation provided on why related companies exists and how they conduct RPT are perfectly understandable. And I don’t suspect that there are any transfer pricing issue between them


What I still do not understand

1.     Breakdown of gross profit

Refinery profit is much lower in 2016. When I look at crack spreads data, it is lower in 2016 compared to 2015 but not that much lower. I suppose maybe we need to include inventory gain/loss together since crack spread already take into account your crude oil price. So maybe when crude price dropped in 2015, there’s inventory loss but refining gross profit benefited as a result. The opposite happen in 2016. Just a guess.

Meanwhile, it is weird when marketing/retail profit increased by 30% in 2016 when I don't think their volume grew that much. As Petron refine crude oil and pass it down to its stations or dealers before selling to final customers, I’m not sure how they classify between refinery and marketing profit. Maybe some of the refining gain is passed down to marketing?

2.     Refinery apparently not at full capacity and they do not import

As pointed out by others, we understand that its refinery is not running at full capacity but initially we thought that it was by design and it is insufficient for them to cater to their local sales. However, it doesn’t seem like the case based on what they answered.



Overall, I’m quite happy with the info I got (I will give my nephew a big angpow next CNY).

The company gives me the impression that it is very well-run and is a growth company with ambitions to expand.

Unfortunately I don’t think I can claim to fully 100% understand the business. However with the new info, my investment case hasn’t changed. I still like Petron for its growing biz, stabilizing refining margins and strong free cashflow. Previously I expect RM1-1.20 EPS for 2017, this haven’t changed post results but probably I’m looking at the higher end rather than lower end. 

Why am I so conservative? Because ultimately they are still in commodity biz and like what management guided, their profitability is still to a certain extent dependent on market forces. So I still treat 40c EPS a quarter as bonus but would still be perfectly happy for around 30c EPS each quarter. If it achieves RM1.20 EPS, it is trading at slightly less than 7 times PE.

Alternatively, I prefer to look at free cash flow. Using market cap/FCF may not be comprehensive as companies may have different capital structure, so I prefer EV/FCF.  I compare the EV/FCF of Petron against Hengyuan, PetDag and another supposedly cashflow generating machine, Litrak. As some of you may know, cashflow sometimes may fluctuate over time so I took past 2 years plus latest quarter annualised and their average. With that I get this result which I think is pretty self-explanatory.


  Market cap Cash Debts EV FCF EV/FCF
  RM million RM million RM million RM million RM million times
2015         1,491.00          175.52    1,481.05         3,147.58          685.36         4.59
2016            609.00          355.61    1,416.91         2,381.53          (32.63)     (72.98)
1Q17         1,743.00          339.72    1,414.01         3,496.73          (46.14)     (75.78)
Average               3,008.61          202.19       14.88
2015       24,685.98     (1,291.27)       211.82       23,606.53          344.72       68.48
2016       23,633.40     (2,431.64)       118.77       21,320.53      1,856.72       11.48
1Q17       24,030.60     (2,323.68)       104.98       21,811.91          818.15       26.66
Average             22,246.32      1,006.53       22.10
2015         2,635.00         (334.64)    1,283.00         3,583.36          257.36       13.92
2016         3,098.76         (424.45)    1,291.39         3,965.69          242.20       16.37
1Q17         3,109.30         (552.65)    1,229.71         3,786.36          387.01         9.78
Average               3,778.47          295.52       12.79
2015         1,350.00         (159.27)       543.82         1,734.55          249.73         6.95
2016         1,120.50         (171.64)       307.96         1,256.82          302.64         4.15
1Q17         2,211.30         (204.84)       251.49         2,257.95          359.09         6.29
Average               1,749.77          303.82         5.76


If Petron trades at 10 times EV/FCF (similar to Litrak but still below its average), EV should be RM3.6b. Excluding net debt, market cap should be around RM3.5b or roughly RM13!

With stable margins, growing retail biz (more than 300 petrol stations and counting), strong free cashflow of >RM300m a year, strong balance sheet (turning net cash soon), does it deserve to trade at current valuation?

I will leave it to market to decide


Lastly, again a share of some crack spread data

2Q17 vs 1Q17 vs 4Q16

Tapis: 8.50/8.47/6.78


Gulf: 12.91/11.96/10.61

Northwest: 11.59/9.50/9.42


Happy investing




  14 people like this.
Flintstones Thanks jay. Petron financial results has always seemed to me to be quite volatile in the past. They can make 100m in one quarter and lose 70m in another. That has been my experience trading this company 2 or 3 years ago. Is there any reasons for the volatility?
16/06/2017 06:26
cheoky Thx for great work n info....
16/06/2017 07:29
Jeffbkt Thanks Jay for the sharing. May I know where you obtain the crack spread info?
16/06/2017 08:07
paperplane Thanks Jay. Great analysis
16/06/2017 08:37
invest_101 Thanks Jay, great stuff. Better than most sell side analysts in my opinion.
16/06/2017 08:37
Huat5828 Thanks for valuable analysis!
16/06/2017 08:59
3iii Thanks for sharing. This is better than those who shout like a mad man, to buy and to sell in this forum. :-)
16/06/2017 09:43
anbz2 This is better than those selling online investment courses. New Zealand, here I come!
16/06/2017 10:50
stockmanmy very detailed report...still cannot stop people buy in > $9 , on low PE now below $8....still die already don't know why.
16/06/2017 12:12
Joblessrich Thank you Jay
16/06/2017 12:16
cscwelly 2015 , volume sold 30.4 m barrels, 4833 m litre, Net profit 221m , net profit per litre : rm0.045 , 2016 volume sold 32m barrels, 5088m litre,net profit 237m, net profit per litre : rm0.0466 .
16/06/2017 12:32
VenFx [ What I learnt from Petron AGM - Jay ]

Wow, i really learnt how to sharper my edge from Jay's article.
Thanx to Jay & his nephew to share excellent infos from Petron - Agm.
16/06/2017 12:42
stockmanmy excellent info but cannot stop stock from $9 to $8........

when oil comes down HRC will suffer more than Petron.....

HRC have to take higher price crude charge to cost of sales.

Petron suffers from stock losses.....but effect on HRC worse....better still , of course......don't buy HRC or Petron.

16/06/2017 12:46
Jay For the 5c gross profit, I think it's fixed under the APM scheme. So even if your revenue falls (same volume, lower petrol price), the gross profit should stay the same, GP margin might look better in %.

They are not only selling petrol though. They still have refinery, LPG and jetfuel biz, plus inventory gain/loss effect. So it won't be that straightforward. but I suppose petrol volume x 5c would be a staple gross profit for them, a base for them to build on
16/06/2017 13:09
Jay for some people, only old man kyy is their golden rule (almost like an obsession). whatever kyy buys, they buy. whatever kyy don't buy, they don't buy. they forgot kyy has a lot of money to lose, they don't
16/06/2017 13:11
stockmanmy lets just charge it to social work for time spend here.

by Jay > Jun 16, 2017 01:11 PM | Report Abuse

for some people, only old man kyy is their golden rule (almost like an obsession). whatever kyy buys, they buy. whatever kyy don't buy, they don't buy. they forgot kyy has a lot of money to lose, they don't
16/06/2017 13:38
paperplane haha. good comment Jay
16/06/2017 18:21
necro no need such brainer analysis...this PETRON is CYCLICAL DOWNSTREAM+TURNAROUND O&G stock...buy when oil price collapse sell when oil price above USD 55/barrel...
16/06/2017 20:05
popo92 very informative, thank you!
17/06/2017 00:30
Halite Jay,
about the EV calculation, is it to add cash or to subtract cash from MC ?
17/06/2017 09:24
George Leong Thank you Jay, really appreciate it very much. Could u share where you obtain the crack spread info. Thanks ya~
19/06/2017 16:28
stockmanmy such brainy work cannot stop people from buying at $9, now $ 7...and that is the real point.

there are in reality lots of uncertainties in its accounts and wildly fluctuating quarterly earnings.

nothing is more foolish than buying on good results.
27/06/2017 11:35

A comprehensive guide to trading warrants and call warrants Part 2 – Jay

Author: Jay   |  Publish date: Thu, 8 Jun 2017, 05:39 PM

This is part 2 of the series, Part 1 you can see here https://klse.i3investor.com/blogs/purelysharing/124972.jsp

In part 1, we have discussed on the basics of warrants and I also illustrated how its high return high risk nature could really profit you, or really hurt you. In part 2, I will go through how I usually select warrants. These steps are my personal method of selection and is by no means exhaustive or exclusive. Each investor may have different method of trading in warrants so below are just my suggestions.

How to select warrants

1. Select the mother share, not warrants

If you believe the company is good, then only you should consider the warrant/call warrant. If you don’t even like the company, forget about the warrants. It’s simple, warrants price trade in tandem with mother, so if you don’t like the mother, i.e. you don’t think the price will appreciate, why would you buy its warrants? If you think the company is bad but want to bet the price will go up, then it’s just gambling. Betting with warrants is essentially double the gambling, you may get it lucky once or twice, but I have never met a person who made a consistent profit from such approach.

For call warrants, the challenge of getting the mother right is even more important as it expires fast. Which means you need to find the mother share that you like and you think there is a reasonable chance that it will appreciate before the call warrant expire. An undervalued mother may not cut it, if you are unsure when the mother will be picked up by the investing community and price starts to rise.

2. Longer time to expiry

Warrants have a shelf life and they expire. Recall in part 1, I mentioned one of the premium that investors pay is theta or time to expiry premium. The longer the expiry, the higher premium investors are willing to pay because that means they can keep the warrants longer for exposure if they want to.

For warrants buyer, time is against you. What happens when warrant is about to expire is the premium will start to shrink as people are only willing to pay less premium for it. So even if the mother price held steady, you will see the warrant price dropping. So choose a warrant with a comfortable time to expiry. Generally I won’t touch warrants that expires in less than 3 months time. Why 3 months? If you google an option time decay chart, the premium shrinking over time does not happen in straight line but like a waterfall. The closer it gets, the faster it falls. Most of the time, the premium will really collapse in the last 1 month to expiry. So if you enter a warrant that expire in 3 months, you are giving the company less than 2 months to appreciate in price, which is too short a time if you ask me.

3. Don’t pay over the odds premiums

If you have identified a good company and there’s a warrant that has a long time before expiry, don’t pay over the odds premium. If you pay a high premium, you are exposed to higher risks. Premiums are a flimsy thing. Professionals will tell you it’s a function of leverage (delta), volatility (vega), time to expiry (theta), interest rate (rho) etc. The truth is you can’t measure these accurately, regardless of how sophisticated your warrant valuation model is.

If you pay a high premium, there is a higher chance that it may shrink and this would affect your warrant value. On the other hand, if a warrant is trading at a low premium, even if it stays low, you are ok. But there is a chance that the premium might expand (especially when volatility increases) and you could benefit from both mother price appreciation and premium expansion.

As a rule of thumb, I typically don’t pay more than 10% premium for a warrant expiring in less than a year. 10-20% premium is acceptable for longer expiry but not more than that. Usually those trading at 50% premium or above are out of money warrants. I also don’t recommend going for these as well.

4. Higher effective leverage

If the company you selected has more than 1 warrant or call warrants, then you get to choose. So after considering the first 3 points, if all things equal, you should choose the one with higher % return when the mother price move by 1%. That gives you the highest leverage with similar time of expiry and premium paid.

5. Risk management

The last but most important step, deciding the risk exposure. By now I hope you can appreciate that warrants are inherently riskier than shares (because of higher returns), call warrants more so. Despite all the research done, there is still a chance that the mother price will not react as you expected. When mother price drop by 5% and your warrant drop by 50%, do you have the stomach to take it? Decide how much you can risk and stick to it. Never at any time risk more than what you can afford to. And never ever borrow money to trade on warrants.

Now we have gone through the steps, I will take you through a real life example.


Practical example of picking call warrants – Top Glove

1. Top Glove is a good company

Top Glove is literally the top glove company in the world (25% market share), not just Malaysia. The way it has grown over the years and managed is nothing but exceptional. However, the past year has been tough on glove companies though due to over-capacity and competition, which brought down the profit margins. So why do I like Top Glove now?

i) Strong revenue growth

Demand for gloves never stop and is expected to go higher as more hospitals are built around the world and awareness rises. That’s why over the years Top Glove revenue just kept growing and this is not expected to stop in the near to medium term.

ii) Competition has eased

Revenue growth is always there, but margins may not be. From what I read from some analyst reports, industry competition has eased now as players slow down on capacity growth. That is what I expect when a few big players dominated the industry. With that, profit margins should rebound again.

iii) Cost has came down

One of the biggest cost is latex and the price has shot up since late last year. For glove players, they do cost past though to the end-customers but there will be a time lag. So while technically cost increase shouldn’t hurt their margins, the time difference would. Despite the high latex price, Top Glove still came up with a commendable RM83m profit last quarter (Dec-Feb).

If you notice, latex price has since came down significantly since April. From the peak around RM8 per kg in Feb, it has since came down to around RM6.30 level at May. (today it went below RM6). Again, any cost savings they will pass it back to customer but this time round, the timing difference is in the glove players’ favour. So Top Glove’s upcoming results on 16 June which is for Mar-May quarter is likely to be better.

Meanwhile for labor costs, foreign labour shortage has affected a lot of industries. Top Glove has already over time try to increase automation and expand in Thailand where they find it more conducive to do business. Therefore, automation cost savings will also slowly kick in over time.


2/3/4 Choosing the one with best balance of time, premiums and leverage

I combine steps 2 to 4 because more often than not, you won’t find a warrant that has the best of everything. So you have to balance between the factors and choose one with the best overall combination.

Top Glove doesn’t have warrants, only call warrants. Using the 6 June data, we get the following table.


Excluding C10, C11 and C16 that expires in 3 months time, let’s rank them now.

By time to maturity: C17, C18, C12-C14

By premium: C17, C12, C14

By price movement: C14, C17, C18

For me, based on all the factors above, I would go for C17.

The day I last commented in Top Glove page was 6 June (you can trace it if you want). Unfortunately, Top Glove price has shot up today right around when I published part 1 and before I could share part 2, so has the call warrants. So you may say this article has came out a day too late. However, the main purpose of this 2 parts article is to educate, Top Glove part is more for illustration. Once you have learnt, you can do it yourself next time.

But for the interest of the readers, I have rushed to finish part 2 (skipping some not so important parts I originally plan to write) and upload it.


So can Top Glove still go higher?

Based on the above positive factors I highlighted, I do think it can. Some forumers are already expecting back to RM100m net profit for the coming quarterly results. I don’t have a crystal ball, so I don’t know whether it will hit RM100m. But what I believe is it should be on a positive trajectory now and if not this quarter, then next or coming quarters it will hit RM100m. A glove company that makes RM400m net profit a year, if trading at 20x PE would be worth RM8b or around RM6.35. 20x PE is not unreasonable for a growing company (in fact largest company in the world) in a resilient demand industry. In fact, Top Glove historically is trading around that level and is relatively cheaper compared to Hartalega and Kossan (both higher margins because of higher efficiency).

If I plot the risk return tables based on different Top Glove prices and based on different premiums, I would get these figures.


So you can see if Top Glove price continue to go up, your reward will be extremely high, but so if it goes the other way round. My entry price is much lower so my risk reward ratio is much more favourable than if anyone enters today. And I can also be wrong. So please make your own decision as an adult.

And again, never forget step 5.


Happy investing.



  16 people like this.
probability people write so lengthy with so much information...you just come and comment like this... a little politeness does not make you so down rMoi

furthermore the writer already mentioned he does not welcome abusive comments...
08/06/2017 18:59
Frank Soweto Very good sharing Jay. One of the very few better bloggers in i3.
09/06/2017 07:05
Dragon88 Hi, Jay, Thanks again for the write up and it was educations.

I have a question for you and if you dont mind answering, what are the costs involved if I were to hold a call warrant until expiry. If the Call Warrant is in the money, the IB would need to pay the difference between the exercize price and the weighted average 5/6 day closing price of the stock before expiry. The cost would be the cost I paid to buy the warrant and the conversion ratio.My question is, is there any other hidden cost like admin fees, brokerage fees etc?

Thanks and would appreciate if you are able to help. :)
09/06/2017 07:20
kcchongnz Very good educational article.

Buying company warrant can be considered as investing as one can convert it to mother share whenever he wishes. Hence for me, whether a company is a good company matters.

Call warrant is pure punting in my opinion. I like to do punting to have a little excitement too, but I will never advise anyone to punt, unless you have a little advantage as Jay does, knowing what make up he value of a call warrant.

For punting of call warrant, the quality of a company doesn't matter as much for me, but its price movement in the near future matters more; is its share price going to rise in the near future, after considering everything such as premium, gearing/delta, time to expiry etc.

Note price doesn't equate to value, especially short-term price movement. Call warrant is basically short-term instrument. In US and other matured option markets, call warrant is what they term as option, and options are basically very short-term, and three months expiry or less are very common.

In this respect, good TA may be more important than FA, much more.
09/06/2017 08:02
gohkimhock Very good article. This is the type that we need to see in i3. Not those rubbish posted by "someone"
09/06/2017 08:40
Jay @Dragon88 I don't think there is any costs involved if you hold it till expiry. You will only incur the brokerage costs when you bought it earlier. However, it's best to confirm with your brokers as things may have changed over all these years. I have never held a call warrant till expiry because like I mentioned, premium would collapse in the last month. most call warrants expire out of money. It's usually better if you sell it earlier, unless you are very sure something big will happen in the last month before expiry.
09/06/2017 08:42
Jay @kcchongnz thanks for the comments. yes call warrants are more speculative, that's why I mentioned the company you like must have price appreciation potential in the short term. even though FA sometimes teach you to go contrarian, never do that when you buy call warrant. do not go against the trend.

however if you buy a call warrant that expire in 6-9 months, you should go through at least 1 or 2 quarterly earnings and if they are good, then the price will move. for beginners especially should go for longer expiry as possible to buy time

my TA is not that strong, so I perfer to rely more on FA. with good FA support, even if the price doesn't go up, it shouldn't fall too much, so my risk reward ratio is effectively higher.
09/06/2017 08:52
Jay @Dragon88 just to elaborate on my point, imagine if a stock trading at RM1.50, exercise price RM1, exercise ratio 1 to 1. the warrant trading at RM0.60 or 6.7% with 1 month to expiry. if the stock held steady at RM1.50, the warrant value will slowly trend down toward RM0.50. If you hold until expiry, you are expecting stock to trend above RM1.60. say if it close at RM1.58 on last day, your warrant eventually only get RM0.58 even if it ends up in the money. anything below the breakeven price of RM1.60 at expiry it is better for you to sell the warrants earlier.

if you are interested on the topic on options time decay, you can google it. my general advice is don't hold until expiry unless you are reasonably quite sure.
09/06/2017 09:04
ks55 Good article to follow.
Why not consider Kimlun-WA?

Jun 5, 2017 03:28 PM | Report Abuse

Sell PN.
Take the proceed to look for better prospect.

KimLun will be earning more next year.
Go for KimLun-WA for it still has 8 years lifespan, with 4% premium over the mother share.

Plenitude is good.
Tsunami sheltered counter with good potential on Taman Desa Tebrau.

KSL and Crescendo also good. Good cash flow and having very cheap development land.

Jtiasa having more and more acreage of oil palm plantation reaching maturity.

Reits are good. They give you consistent and reliable dividends payout.

Don't buy Xinquan. It is going to suspend next Thursday (8th June 2017) for failing to release QR.

So there are thousands and one good alternatives.
Why still want to pray for something which you will not be answered?
09/06/2017 09:21
connie always wonder the criteria of selecting a warrant and JAY has provided crystal clear guideline !! once again, a mil thanks for the great effort :)
09/06/2017 09:49
Dragon88 Thanks Jay for your respond and for your insightful explanation.

The reason I am actually thinking of holding the call warrant i bought till expiry is because it is actually trading at discount (negative premium) compared to the mother share, i.e. if the cw expires today, I would make more money compared to its current warrant price.

Thanks again Jay for the info and explanation. :)
09/06/2017 10:04
yoloisreal Hi jay, may i know the formula to calculate "price movement for every 1% movement for mother" in table?
09/06/2017 10:07
kcchongnz Posted by Dragon88 > Jun 9, 2017 10:04 AM | Report Abuse
Thanks Jay for your respond and for your insightful explanation.
The reason I am actually thinking of holding the call warrant i bought till expiry is because it is actually trading at discount (negative premium) compared to the mother share, i.e. if the cw expires today, I would make more money compared to its current warrant price.
Thanks again Jay for the info and explanation. :)

I held call warrants to expiry a number of times, precisely because of the discounts and leverage they offered. There is a small settlement cost.

Ensure the mother share is very liquid such that it cannot be manipulated in price the last few days, for example it is hard to control the price of AirAsia, Genting or TopGlove.
09/06/2017 10:13
Dragon88 Thanks kcchongnz for the explanation. I am an avid reader of your articles posted in i3 as well. Thanks again :)
09/06/2017 10:17
paperplane GREAT! CONGRATS again to JAY, you the best
09/06/2017 10:26
Jay yes, like what kcchongnz has mentioned. don't forget your last trading day is 3 market days before expiry. so last 3 days your hands are tied and can only watch on the sidelines
09/06/2017 10:26
paperplane THIS IS A MUST READ ARTICLE in i3!
09/06/2017 10:28
Alex™ tq Jay for your sharing.
09/06/2017 10:29
Jay @yoloisreal say a warrant is 2 for 1, if the premium is maintained, every 2 sen movement in mother the warrant should move 1 sen. so if 1% of mother now is 5 sen, warrant technically should move 2.5sen, so you divide 2.5sen over current warrant price to get the % movement.

in real life, all price movement is subject to supply and demand so premiums will fluctuate constantly
09/06/2017 10:33
Jay 2 for 1 exchange ratio
09/06/2017 10:33
yoloisreal @jay appreciate your sharing :)
09/06/2017 10:55
Jay the most important rule in investing/trading, know what you are doing. if you are unclear, please seek help or just avoid it, no matter how attractive the potential returns are
09/06/2017 11:00
probability even if it turns out bad after doing this way...at least u will know the reason...enabling u to improve-refine your competence on what 'you thought' u know well.

Posted by Jay > Jun 9, 2017 11:00 AM | Report Abuse

the most important rule in investing/trading, know what you are doing. if you are unclear, please seek help or just avoid it, no matter how attractive the potential returns are
09/06/2017 11:19
andrew_how25 Hi Jay, your these 2 sharings really help alot understanding on warrant especially CW selection...by the way, do u knw how the IB make profit by issuance a CW. Just wish to understand more on how their position as Issuer since most of the time, they are the one control over the supply & demand over the CW on market...
09/10/2017 08:33
Alex™ tq Jay.
09/10/2017 08:36
joetay another good refreshing course article by jay, thx.

just like to point out that liquidity is sometimes very thin and thus a big issue for call warrants.
09/10/2017 08:46
apolloang call warrants is gambling,better bet in casino than trade on these kinda things.
09/10/2017 08:50
Junnn thanks Jay for the crystal clear educational contents. thanks for the insightful explanation! Keep it up
21/12/2017 09:54
Hermit Thank you for the share :)
26/01/2018 01:07

A comprehensive guide to trading warrants and call warrants Part 1 – Jay

Author: Jay   |  Publish date: Thu, 8 Jun 2017, 10:38 AM

Warrants and call warrants have been traded in Bursa for quite some years but are gaining more popularity in recent years. Some of the readers here probably noticed that I personally do invest/trade in some warrants and call warrants. Before some of you may be tempted to follow suit, I feel that I have a responsibility to share with you on the intricacies of these instruments and how I trade on them.

The article is fairly long so I have broken down into 2 parts. Part 1 will address the basics, including some of the terms and features we don’t see in shares and why warrants could be particularly attractive (using ekovest as an example). Part 2 I will share how I personally select warrants/call warrants (with one of my latest pick as a live example). Last time I tried to write some educational articles they are not very well received. So this round similarly if the reception for part 1 is poor, I will probably just stash part 2 away.


What is a warrant

Warrant is an instrument that is issued by the company that gives the holders the rights but not the obligation to exercise the rights by paying certain amount of money in exchange for certain amount of shares in the company. It is another term for option.

I know it sounds confusing for beginners, so just imagine the following situation.



A company ABC which has 100m shares trading at RM1.50 per share, issued 10m warrants, ABC-WA.  ABC-WA has an exercise price of RM1 and exercise ratio of 1 to 1 with expiry date up till Dec 2020.


Current situation

As ABC’s market price is higher than the ABC-WA exercise price, this is known as in the money option. What it means is if you hold one ABC-WA today, you can pay the company RM1 and get 1 ABC share worth RM1.50 anytime before the expiry.date. If unfortunately ABC shares drop below RM1, then ABC-WA is considered out of money.

So assuming now ABC is RM1.50, to pay RM1 and get RM1.50 worth of shares, sounds pretty good, isn’t it? Of course, market is not that foolish. The difference of RM0.50  (RM1.50-RM1.00) is most likely the minimum floor price for ABC-WA. Chances are ABC-WA is currently trading at above RM0.50.

Why would I pay more than RM0.50?

Previously the RM0.50 is the intrinsic value of warrant. If it falls below RM0.50, say RM0.40 technically there is an arbitrage opportunity where you can pay RM0.40 + RM1 to get RM1.50 worth of ABC shares. However, there is another part of warrant value which is the premium.

Let’s say ABC-WA is now trading at RM0.60, some people may wonder why would you pay RM0.60 for ABC-WA + RM1 exercise price to get RM1.50 worth of ABC shares? Essentially you are paying RM1.60 for RM1.50 worth of shares, or a 6.7% premium.

That premium you pay is for

i)              Leverage or delta (potentially higher returns than buying ABC)

ii)             Time value or theta (still easily 3.5 years before it expires)

iii)            Volatility or vega (if ABC is a more volatile stock, warrant premium is likely higher, vice versa)

I will illustrate these in detail in an example below.

So what can you do with warrants?

You have two choices if you own a warrant, keep it or exercise it. Keep it, and the price will move in tandem but not identical to the mother share. Exercise it, and you will get the mother share and thereafter you are owning a stock.


What is a call warrant?

Call warrants, unlike company warrants, are issued by investment banks. The call warrant trade just like a company warrant with an exercise price, exercise ratio and expiry date fixed by the investment bank.

However, these call warrants do not give you the entitlement to exercise the warrant in exchange for mother’s shares. If you hold until expiry and the option is in the money (market price of mother>exercise price), you can get the difference but if it is out of the money, you get nothing.

Imagine an investment bank issued a call warrant, ABC-CA also at an exercise price of RM1 and exercise ratio of 1 for 1 and expiry date of Dec-17. If you buy ABC-CA, unlike ABC-WA, you cannot pay RM1 and get an ABC share in return. You can only sell ABC-CA, hopefully at a profit, or wait until expiry for settlement. If ABC is still trading at above RM1, you will be paid RM0.50 by the investment bank. If ABC is at RM0.99, you get nothing. The entire process does not involve ABC company and ABC is not responsible for any call warrants traded in the market.


Common features of warrant/call warrant (which are different from shares)

1.     Expiry date

All warrant or call warrant has an expiry date, meaning it is worthless past that date, unlike shares which is traded forever unless the company is delisted or bankrupt. Warrants typically has expiry date of 3-5 years, some up till 10 years from issue date and is fixed by the company. Call warrants typically has expiry date of below 12 months and is fixed by the investment banks.

2.     Warrant premium

I already explained above why a premium exists. If you buy a warrant and hope to exercise it, your effective cost is likely to be higher. There is a possibility that warrants can trade at negative premium. A few possible reasons like there may be an upcoming dividend (warrant holders are not entitled to dividend) or market is expecting the mother share to fall.

3.     Different entitlements

Warrant holders are not shareholders, so warrant holders are not entitled to dividend until they exercise their warrant and hold company shares.

However, if there is a special dividend, capital repayment or corporate exercise like bonus issue, share split, then warrant exercise price and exercise ratio will be adjusted based on a set formula. Details of which I will not touch here.


A high return high risk instrument – Ekovest real life example

I noticed Ekovest last September when they proposed to sell Duke highways to EPF. So imagine if you invested in Ekovest on 30 September 2016 at closing price of RM1.91, it subsequently paid RM0.03 dividend and RM0.25 special dividend and did a 5 for 2 share split. At 31 March 2017, closing price was RM1.43. So an investment in 100 Ekovest shares at RM1.91 (RM191) will get you 250 shares worth RM1.43 (RM357.50) plus RM0.28 dividend (RM28), a total return of 102%.

But if you had instead invested in Ekovest-WB. Investment in 100 Ekovest-WB at 0.94 (RM94) back in 30 Sept will get you 250 Ekovest-WB at RM1.15 (RM287.50) with no dividend, a total return of 206%.

For Ekovest-WB holders back then, they would also probably experienced a period of time when Ekovest-WB premium shrinking until it traded at negative premium after the company proposed a special dividend. This is market pricing in the dividend and the fact that Ekovest-WB holders are not entitled to it. Because of the special dividend and share split, the exercise price and exercise ratio are also adjusted accordingly.

But now on the flip side. If you have invested in Ekovest and Ekovest-WB on 31 Mar 2017, what would be your return now? 100 Ekovest shares at RM1.43 (RM143) is worth RM1.22 (RM122) on 31 May 2017, a negative return of 14.7%. 100 Ekovest-WB at RM1.15 (RM115) is worth RM0.915 (RM91.50), a negative return of 20.4%.

That shows you the inherent risk and reward of investing or trading in warrants, which is why it is often called a double-edged sword. Mother price goes up, warrant goes up more, vice versa.


To be continued in part 2…

  20 people like this.
connie thanks so much jay ... appreciate greatly the effort !
08/06/2017 11:09
connie wow u have explained it so well ... so easy to understand !! well done
08/06/2017 11:19
Pusher_Punisher really great effort. in simple language for everyone to understand.. appreciate it.. keep it up
08/06/2017 11:53
Dragon88 Hi Jay, first time reading articles prepared by you and a newbee in investing. Good write up and easy to understand. Hope you will post the 2nd part to the article as well. :)
08/06/2017 13:04
probability just a few more sifu like jay...i3 will become truly intelligent
08/06/2017 14:13
VenFx Appreciate an resourceful and easy to understand article,from JAY.
Big Thanks !
08/06/2017 14:18
investor81 Nice article for beginner in warrants...
08/06/2017 14:37
investor81 I have a beginner question. If I hold call warrant until expiry and the option is in the money, what should I do to get return/money from investment bank? Or the return will be auto bank in to my account?
08/06/2017 14:46
Jay from what I understand, most IBs are still old school. they will send you a cheque by post
08/06/2017 15:05
yoloisreal Very nice article and looking forward for part 2.
Thank you very much jay
08/06/2017 16:27
AAAinvestor Well done and thank you for sharing!
08/06/2017 22:00
Junnn very good sharing. Im actually newbie but I could understand this content easily. Thanks Jay for the great contents! keep it up
21/12/2017 08:59

A safe trade to capture this bull market --Jay

Author: Jay   |  Publish date: Wed, 22 Mar 2017, 01:46 PM

Today market is down! Finally, if not a lot of people must have forgotten that market can actually go down some days.

Despite this one day setback (half-day as I'm writing), I believe investors and traders alike must have realised that the market is getting hot. Yes KLCI has retreated below 1,740 but many forgot just end last year, we were hovering at 1,640. But naturally, some investors are getting worried, what if they wait and the market shoot up again? Or worse, what if they jump on the bandwagon and the counter just go down the slippery slope. 

So is there a stock that can benefit regardless if the counters go up or down? Yes there is. And that’s Bursa Malaysia. If you are patient enough to read through this article, I will show you how it could potentially deliver 48% return or even >400% return (with higher risks of course).

What does Bursa do?

As most of us know, Bursa Malaysia is the only stock exchange in Malaysia. It charges clearing fees on the equity and derivatives trade. In addition, it also provides data subscription services, charges the listed companies listing fees, fees to review all those corporate proposals and of course IPOs.


1Q17 results will be fantastic

How would I know? Because market data tells me so. It's simple, in bullish markets, people trade more, Bursa earn more.

Bursa is one of the rare companies in which the key factor of its financial results is publicly available and updated real-time. Its key factor is the average daily trading value (ADV) of which clearing fees are charged. ADV multiplied by the number of trading days in that quarter and you can get a sense of its results. By now, 1Q17 is coming to an end and most data is already available.


As you can see, the ADV has been trending downwards last year as investors get jittery with equity markets and trade less. Our weak ringgit, government scandals, slowing economy coupled with geopolitical events like Brexit and Trump all spooked investors. But now in 2017, ADV is returning with a bang!

If you think that’s not impressive enough, look at the chart below.


The engine was not warmed up yet in Jan 2017 especially with all the year-end holidays and CNY. It was Feb and Mar that the ADV has truly exploded. In fact, last Friday alone RM5billion worth of stocks were traded.


How will this shape up for 1Q17 results?

I did a quick estimate and this is what came out.



Based on the estimate, Bursa 1Q17 EPS will be up by easily >25% yoy and qoq.

Just to be clear, Bursa has other revenue sources like derivatives and listing services. Derivatives trades have also inched up in 1Q but not as significantly as equities so to be conservative, I have taken the average derivatives revenue instead.

I also assume listing services fees to be same as historical average although logically it should also be higher as there are big IPOs this quarter like Serba Dinamik, Eco World International, small IPOs/RTOs like HLT, GFM, Rohas as well as large rights issue like IOI Properties.

Moreover, if you notice, the current clearing fees of 0.03% is actually subjected to a RM1,000 cap.That means whether someone trades RM3.33m or RM20m, he/she will still only be subject to RM1,000 clearing fees per trade. This obviously benefits the institutional investors and Bursa cannot fully capture the benefits of institutional trades. In other words, retail investors comparatively are considered higher margin customers. And retail investors have returned in droves in the last 2 months, which means for every RM1 traded, Bursa will get higher margin out of it.

So all in, 12c quarterly EPS can still be considered a conservative estimate.


So what about the remaining 3 quarters?

Can we annualised the 1Q17 results? If that’s the case, then Bursa 2017 EPS will be around 47-48c.

As you can see above, the ADV in 1Q17 was at around RM2.4b, mainly because market was still not hot in Jan 2017. By Mar, ADV has heated up to RM3b a day. If this has started since Jan, Bursa 1Q17 EPS will be 15% even higher at ~14c. If this is repeated across remaining 3 quarters, full year EPS will be more like 53-54c.

A sensitivity analysis of ADV and Bursa quarterly results can be seen below.

Like I highlighted above, these estimates have not yet even factored in the other potential positives factors.


But is the sentiment sustainable?

We can only make a smart guess. If you look at the links below, you can sense how the sentiment has turned.






I believe there are 2 main reasons behind the current bull run, return of foreign investors and election expectations.

As you saw from the links above, foreign investors have turned positive on Malaysia. In fact, they have actually turned more positive on emerging markets probably after they realised that despite Fed raising interest rates, emerging markets economies are still quite stable and there are still ample opportunities in their equities markets. Compared with US indexes which has soared since the Nov election, emerging markets look much more attractive now.

For our election, it is still widely expected to be somewhere after end-August (after conclusion of Ramadan, Hari Raya, SEA Games and Merdeka celebrations). Early this year, you already saw the run up of Genting Malaysia and Genting Berhad, then it was the rise of proxy stocks like GeorgeKent, Sime Darby, Ekovest, Iskandar Waterfront, MRCB, DRB, FGV etc. Rather than coincidence, I believe it is more like investors wanting to ride on the election wave. So if election sentiment continues, personally I think market could still remain hot, barring any negative surprises in regional or worldwide events.

Even if we assume the full year results is only at 1Q17 levels with ADV at RM2.4b per day, that’s already assuming market value will cool down more than 20% from its current level of >RM3b per day as well as ignoring the new IPOs coming on stream and renewed equity fund-raising and M&A activities. So I think a full year EPS range of 47-54c is not unreasonably optimistic.


What is a reasonable PE then?

Now that we have established that Bursa’s EPS could range from 47-54c, then what would be a reasonable PE for it? For starters, Bursa has been trading at forward PE of 22-23 times for past few years. Longer term, Bursa average PE is around 27 times.

High PE for stock exchange is understandable as it is a cash biz (strong cashflow generation), highly scalable in nature, minimal capex needed and is essentially a monopoly! You can trade through CIMB/Maybank/RHB etc but you will still end up paying Bursa.

When we look its peers PE such as Singapore Stock Exchange (24 times) and Hong Kong Stock Exchange (40 times) also helps to confirm that PE above 20 for such industry is not unreasonable.

Scaling the estimated EPS against the recent 23 times or historical average 27 times will get a fair value target of RM10.80-RM14.60, or an upside of 10%-48% from its current price.



As Bursa typical dividend payout is more than 90%, dividend yield is also likely to turn more attractive. With its strong cash generation ability and latest net cash per share of 57c stand by, it might even pay a special dividend again.



All in, Bursa is now an exciting stock again with the bullish market.

What will be the worst case scenario? That will be when the bullish run just snapped and Malaysia market go into hibernation mode again. That said, you still get a monopoly biz with net cash of 57c which pays decent dividend yield. Just as market won't stay hot forever, it also won't be cool forever. KLCI has struggled for the past 3 years and now with elections looming, market is expected to be active at least for the short to medium term, Bursa should be the go to stock if you want to ride this bullish wave without exposing yourself to those penny stocks.

Is the price tag of RM9+ going to be a problem? To be honest, i can never understand why people invest based on price. I always look at upside potential return, downside risk and decide how much investment can be placed with that company. Then the last thing is to divide by the share price to decide how many shares to buy. If KESM can go from RM6 to RM12, if Petron can limit up at RM4.50, then there's no reason you should only focus on penny stocks.




An even higher return, but higher risk proposition

Please ignore this section if you do not understand call warrants and its risks.

For those who have higher risk appetite, there are two call warrants, C10 and C11 available for Bursa. I do not recommend C10 as its expiry is too close (even though it’s at negative premium now). A better alternative would be C11 which expiry is at end-Nov, so plenty of time left. By then, at least 3Q results would be out.

A glance at the premium would show that it is currently trading at <1% premium. For those who have traded in company warrants or call warrants before, you would know that such low premium is not normal for warrants with still decent time to expiry. Looking at the price queues however, I think the premium is more of a reflection of the low liquidity, which causes the bid-ask spread to be wider than the normal 0.5 sen and the trades often does not quite capture its intrinsic value. While Bursa’s price has increased quite a fair bit over past week, I don’t think people have fully recognised its potential yet.


Upside vs downside

If we apply the above fair value target and warrants trading at different premium, we can get the following risk-return table. Again, if you do not understand warrants, please do not trade with it. Be responsible with your own investments and hope you can benefit from this bull market.




Labels: BURSA
  2 people like this.
paperplane wow! Jay, I like your article
22/03/2017 14:13
lizi smart move.
22/03/2017 14:54
cheoky Great article. What if interest rate rise? Will then justify a lower PE and bullishness no more...
22/03/2017 14:56
Jay the long term average PE of 27 times covers 2005-2016 (boom-bust cycle). before 2008 GFC, US interest rate was >5%, so I don't see much problem with interest rate rise impact on PE.

my gut feel is market will pay higher PE for Bursa when market is hot and vice versa
22/03/2017 15:13
Equityengineer Jay nice article .: should write one for Petron also ..
22/03/2017 15:58
valuelurker Where do you derive the ADV data as Bursa's website doesnt seem to go back that far (eg Jan 17) and numbers dont seem to reconcile...referring to this news article - http://www.nst.com.my/news/2017/03/221256/analysts-bullish-bursa
22/03/2017 23:33
Flintstones Jay jay okacha!
22/03/2017 23:44
culbertlim jay chou告白气球
22/03/2017 23:52
Jay actually Bursa disclose it everyday but they don't leave it on their website very long. my friend got this data for me from Bloomberg and at least for the last few days, it checks out alright.

if compared to those analyst figures, theirs is even higher (1.93 Jan, 2.53 Feb).For Mar, last week average was 3.4b/day so my figures are naturally higher since they only reported first 9 days of the month.
23/03/2017 01:18
Jay anyway, I'll stick to my source first unless proven otherwise (it's more conservative anyway). but thanks for pointing that out
23/03/2017 01:41
Jay volume cool down but value (RM2.7b) didn't drop as much. high volume low value usually means trading are focused on those penny stocks. yesterday was expected to be down anyway since US market were hit on Tuesday night. since US market up again overnight, Malaysia party to resume?
23/03/2017 08:51
Jay RM10 hurdle will be crossed anytime now, then who knows? sky's the limit
23/03/2017 09:47
shunfeng2032 good analysis but market not agree with you.
08/04/2017 19:56
Jay well not sure how market needs to agree with me when C11 is already up 17% from the time of writing and don't forget bursa mother already ex dividend.
10/04/2017 11:15
newboy http://www.thestar.com.my/business/business-news/2017/04/26/bursa-malaysia-q1-earnings-up-13pc-to-rm57mil/
01/05/2017 21:35

Ekovest: Answers to most of your questions

Author: Jay   |  Publish date: Thu, 26 Jan 2017, 07:00 PM

Consider this my CNY gift for you before I go on a break. As time goes by, more and more people has joined Ekovest and hopefully this article (in the form of a simulated Q&A) will help clear some of the confusion that newcomers may have about the company.


Is Ekovest a construction company?

Yes and no. In the past, Ekovest’s main profit contribution comes from construction (and likely to remain so in the near term) but it also owns highways and property development. Under highways, there are Duke 1 & 2 which is held under a subsidiary called Kesturi. Duke 2 is targeted to open by June this year and Ekovest is now constructing SPE (or previously known as Duke 3). Property development segment was not active in the past but now they are doing EkoCheras and EkoTitiwangsa. Longer term plan will be KL River City where Ekovest will clean up the KL River and develop properties all along it.


How significant is the 40% disposal of Kesturi to EPF?

It is very significant. Not only Ekovest gets to monetise the assets, it also gets a hugely creditable partner. Just to illustrate, the RM1.13b consideration for 40% is essentially valuing 100% of Kesturi at RM2.8b. The current market cap of Ekovest is RM2.2b.


Did EPF overpay for Kesturi?

Maybe yes, maybe not. Projections into the future always has a margin of error. As a minority shareholder, I don’t have access to the whole due diligence process but EPF must have like it a lot to pay a good price for it. Highways revenue is all about traffic x toll rates. Toll rates are foolproof under government concession and will be adjusted upwards every few years. Only uncertainty is traffic volume. For outsiders, we only can see the Duke 1 traffic. Duke 2 will start soon and it’s supposed to complement Duke 1 so that part we shall see. And also not forgetting Duke 1 & 2 concession will last until 2059 + 10 years extension option. Most other highways like Plus, SILK will end around 2030s. It’s also due to this extremely long concession period, that’s why EPF is buying at a premium.


What about the highway IPO?

When EPF bought Kesturi, to safeguard their interest, they want Kesturi to achieve an IRR of at least 10% by 5+2 years, either by listing the highways or selling it. Most likely it will be done through an IPO to get the best value. As long as Duke 2 does not underperform significantly and market doesn’t crash for the whole next 5 years, it is likely the IPO can be done and will receive good response. A lot of institutional investors like concession assets (except loss making one like SILK) and EPF’s presence will give a lot of confidence.


As shareholder, will I get a piece of the future highway IPO?

Depends on how the proposal is structured and how much financing Ekovest needs at that time. Post-IPO, Ekovest may want to remain as the major shareholders so investors are likely to subscribe through new shares. Ekovest and EPF as the vendors can also choose to sell some of their shares. For Ekovest, selling their shares will get cash which can be injected into its remaining biz or alternatively, if they don’t need that cash, they can freely distribute to its shareholders.


So what’s the status of the proposals?

EGM was cleared unanimously and government’s approval for sale was also obtained. So now the disposal has become unconditional. The disposal is essentially completed. The rest to be implemented will be the special dividend 25c and 2 to 5 share split.


How will special dividend and share split work?

Special dividend will be 25c (not 28c). After dividend, every 2 shares you own will be split into 5 shares. Ex-date is likely somewhere February.

Based on today’s price 2.58, this is what it will look like:

Share price will be reduced by the 25c special dividend. Share split is essentially just arithmetic, market cap doesn’t change, only number of shares, so your share price will be adjusted accordingly. So at RM2.58, after ex-date, it will be trading at RM0.93. With the much lower price and increased number of shares, it is expected that it will be more actively traded and may be more volatile as well.

For warrants:



All these formulas you can refer back to the by-laws (which most people don’t read) when the warrants were first listed. It’s all there.



So warrant is diluted by dividend?

Yes, all warrants are diluted by dividend. That’s why for companies that pay generous dividends, warrant premium is not very high to take into account future potential dilution. But for special dividend, exercise price is adjusted so warrants are impacted but not as much.


So should I choose mother or warrant?

If you like Ekovest, both are good choices depending on your preference. To invest in warrants, what you need to be aware of is premium. In lay man’s term, premium is the extra amount you effectively pay if you buy warrant today and exercise it to mother shares instead of buying mother share directly.

So why do people pay a premium and how much should the premium be? Imagine if you buy Ekovest today at RM2.58 and it shot up to RM3, you get 16.3% return. Warrant which is in-the-money now will also probably move by similar quantum, so say from RM1.30 to RM1.70 (up 40c, slightly lesser than mother), that’s 30.8% return. The leverage effect is huge.

And for those who study classical option pricing model will know that the longer the time to expiry, the higher the intrinsic value or the higher the volatility will all translate to a higher premium. Ekovest warrant has another 2.5 years to expiry and it is still an uptrend stock so it still has healthy volatility (compared to bad volatility which goes down). Intrinsic value is what you think Ekovest is worth. Combined, the premium one is willing to pay will be different from the other, depending on your views on the company.

To sum it up, Ekovest WB will give you higher return when mother goes up, higher losses when mother goes down and is not entitled to any dividend (value will be slightly diluted every time dividend is paid)


Is the current trailing PE around 11 times considered cheap?

In the quarter before this, there’s a large revaluation gain. If you take it out, PE is much higher. And as some sifu pointed out, the construction margin for last quarter was also exceptionally high, probably because of some larger recognition as Duke 2 is near completion and commencement of SPE. Normalised PE probably will be much higher around 20+ times. But if you look at just PE, then you are missing the big picture.

First on highways. Highways most of the time does not contribute much in net profit. The EBITDA is high, but most of the profit will be chewed away by amortisation and interest expenses as large borrowings are incurred to construct it. But once the borrowings are cleared, it will be a cash machine. So using a PE method is inappropriate. DCF is the method that should be used but we don’t have much information available. This is where EPF comes in. They have done their due diligence and they think that Duke 1 & 2 is combined worth RM2.8b. Did EPF overpay? I already addressed this above. So depending on your confidence with EPF, you can value the highway segment using their valuation as a basis and apply a, what I like to term, “confidence deficit discount” you feel like.

Next on construction. In FY2014, construction revenue was RM284m, 2015 was RM619m. Last quarter was around RM155m. But for construction looking at past revenue is useless. Orderbook is the indication of what future revenue would look like. Back in Oct 2016, the orderbook is around RM5.3b. For the past 3 months alone, they have won around RM1b new contracts and an approval in principle from the government for highway construction another RM6.3b. So at least for the next few years, you can sleep well and know that sales is secured, all they need is to seal it (by completing the construction work).

Do note that Duke 2A is included here but it is considered uncertain yet. Also Duke 2A is 75% owned by Ekovest, but I assume that construction jobs will be all passed to Ekovest as I don’t think the partner has the ability to do the job.

For property development, past 2 years revenue is only around RM50m and profit around RM10m. But last quarter alone revenue was RM18m and profit about RM5m. There are signs that Ekovest is ramping up the property segment. On the pipeline Ekovest is planning property development GDV worth RM7.8b but that’s in the future. For now, only around RM2.7b is in the works (EkoCheras and EkoTitiwangsa). The rest will come later and they already have the land.

In conclusion, using simplistic PE you will only get a glimpse of what the future holds for this company. It is good that the company already has all these plans and it does seem challenging but achievable. The CEO is also targeting to transform the company to a RM10b market cap company in a few year’s time. It’s a bit ambitious if you ask me, but hey it’s good that he has high targets isn’t it?


Last question, why is Dato Harris keep on selling Ekovest shares?

Beats me, I honestly don’t know. All I know is Dato Harris is not the biggest shareholder of Ekovest, he is not a director and he has been selling shares all the way from when Ekovest was trading below RM1.50. Again if you simply take his disposal as signs of Ekovest being overvalued, then you miss the big picture again. He kept on selling and Ekovest price keep soaring. And do notice when he sells, many of them are off-market in big blocks. The buyers are most likely institutional investors or high net worth individuals. So if Dato Harris needs cash (for whatever reason) and there are ample serious investors willing to buy, I don’t see an issue with it.


*I hope that after this simulated Q&A session, now you get to understand this company better.

Here I wish everyone a prosperous CNY and a good year ahead for you and your family. 

  23 people like this.
VenFx Big like to Ekovest simulated Q&A.
Gd job Jay.
26/01/2017 19:25
dawstz well written dude...thanks for this
26/01/2017 19:33
ValueInvesting 10b market cap by 2020 according to my highly respected Dato LKC, and you wondered why most of the i3 credible sifus are in this counter. Idw to name it out here, can check it at the Eko forum.
26/01/2017 19:43
gift Well done! Good analysis indeed!
26/01/2017 21:54
LA777 Thanks.
26/01/2017 22:03
Cakes Moon I think the warrant price after split & special dividend is wrong at 53 cents.
Should it be [RM1.32-(RM1.35-RM1.22)] x 2/5 = 47.5 cents?
26/01/2017 22:05
moneySIFU One of the best articles so far in i3, honest, fair & easy to understand. Thank you for sharing & writing, Jay
26/01/2017 22:07
张天师买股票 一流的问与答文章!谢谢分享,感恩,愿作者和大家新年快乐,万事胜意,身体健康!
26/01/2017 22:11
SuperMan 99 Very good article, thumbs up, Jay. Thank you.
26/01/2017 22:14
cheated If Ekovest damn good Dato Haris should buy not sell.
26/01/2017 22:18
ValueInvesting Guys can click in cheated and see his comments in i3 so far. Haha, what a stray dogs who pee anyhow everywhere. useless fella
26/01/2017 22:35
KLCI King I strongly believe that this "cheated" is kepala tak berotak, that's why he named himself "cheated", because he is acting stupid no matter how many thousand times the question were answered & explained.
26/01/2017 22:39
KLCI King "cheated" is the result of "stupid" & "blindness"
26/01/2017 22:40
LaoTzeAhSir my 2016-2020 god stock
26/01/2017 22:42
LaoTzeAhSir Thanks Jay
26/01/2017 22:42
gabriel1985 Thanks Jay.
26/01/2017 22:53
williamloh928 In crony we trust.
27/01/2017 00:55
Cakes Moon 祝大家恭喜发财, 万事如意, 身体健康!
27/01/2017 12:06
derrick8228 Thank You very much Jay.
27/01/2017 16:40
28/01/2017 19:43
saydon good job Jay
29/01/2017 02:22
Equityengineer Good stock to own. Plan to add further. Cares about Dato Haris selling, he already made his bucks, so he exit the business.
30/01/2017 16:16
Jay thanks everyone for the kind comments
31/01/2017 18:30
Jay hopefully more people can appreciate the potential of this company
31/01/2017 18:31
nchan datuk haris, sell more
31/01/2017 20:27
paperplane Jay, you seldom write. I think you can help us more here by writing more....Your inputs really good, if not great one
01/02/2017 01:57
younginvestor92 Very nice article, shoot all the points, i didnt waste any single second reading this
02/02/2017 12:59
stockmanmy don't even look at trailing PE ratio.....

this company is not about PE ratio because most of its profits is from one off construction profits of its toll roads.

This company is about its assets and potential.
02/02/2017 13:36
Jay thanks. I only write when there are enough materials and it's something that others haven't picked up or are not writing about it. I don't like to produce just another generic article
02/02/2017 18:18
Ramada 21 likes. Thumbs up.
03/02/2017 18:13
Taugeh best
02/03/2017 15:08
Jackson Marquez this post is great! i learn more about ekovest as im in my progress of analyzing this stock and the company.. thank you
03/03/2017 15:53
Jay glad to see after some time people are still reading. shows that they are researching rather than blindly go in
03/03/2017 15:58
IamGoogle Wonder where are these jokers, "sell" & "cheated"? They always jumping like monkeys everywhere they go.

cheated If Ekovest damn good Dato Haris should buy not sell.
26/01/2017 22:18
03/03/2017 17:07
Hysc Superb summary bro , thumb up for newbie investor
07/03/2017 19:53
Winner I should have read this article earlier.
22/04/2017 22:43
by88 hi jay, for ekovest duke 1&2 and SPE highway, who will bear the construction of all these highways cost, isit ekovest itself or the government. Hope you can clarify this. thanks.
10/06/2017 15:09

Puncak Niaga: Misconception on Triplc deal

Author: Jay   |  Publish date: Fri, 23 Dec 2016, 12:16 PM

This can be considered a supplemental article on my past and present articles on Triplc. As now the fate of Puncak and Triplc is intertwined due to the proposed disposal of business from Triplc to Puncak, this article is just to examine what Puncak stands to get from the deal as I don't think most people understand and appreciate the value of Triplc. Just to be clear, I won’t  be giving any target price or recommendation on Puncak so if you can either discern it yourself through this article or walk away if not interested.

For the past year, I have written extensively on Triplc so if you are interested to know more about the company, I believe these articles below would provide some useful info.


Triplc Part 1:Why Triplc is too cheap to ignore and Puncak Niaga's role in unlocking its value


Triplc Part 2: Time to position yourself; Preliminary target price RM2.85-RM3.20


Triplc Part 3: Is it still worth the wait?


Triplc Part 4: Not the most ideal outcome



Utilisation of cashpile

As you should know, Puncak will be acquiring Triplc entire biz for RM210m cash. I know a lot of investors previously invested in Puncak for its high net cash so this deal will potentially be another dent on its cashpile after the plantation acquisition. The 2 acquisitions will take out around RM650m cash, plus cash probably set aside for planting, the cashpile is dwindling fast.

But this should at least be expected to a certain extent. After all, Puncak has no real significant biz and is bleeding financially. Acquisitions are to at least get the company back on its feet.


So what Puncak stands to get

Puncak will get:

1) One running concessions Z1P2 (obligations fulfilled, now just receiving RM42m fixed payment every year)

2) One upcoming construction/concession Z1P3 (RM599m contract awarded, financing all in place)

3) One running maintenance contract for Z1P2 (currently around RM6m annual profit after paying interest)

4) One future maintenance contract for Z1P3 after the construction finishes

5) Significant size of land bank in Selangor areas (about 380 acres) and Negeri Sembilan (industrial 50 acres), total land plus some properties valued at RM258m

6) Triplc brand name and track record in university concessions bidding (Triplc has completed more than RM1b construction works over the years)

7) Concession borrowings ~RM230m, non-concession borrowings ~RM70m, new concession borrowings up to RM640m to finance the RM599m construction contract)


Is it a good deal for Puncak?

If I may quote my latest Triplc article:

 “But from face value alone, the valuation does seem to be a bit too low. RM258m land – RM73m borrowings (exclude MTN) would have been RM185m excluding concession biz. If you take the cash balance as non-concession related, then net borrowings for non-concession is almost zero. That would mean, based on valuer’s fair value of RM191m to RM230m, the concession biz are valued at a paltry sum of RM6m to RM45m. Z1P2 alone Puncak stands to receive RM42m x at least 18 more years = ~RM760m. Even with borrowings plus interest say RM300m, it’s still dirt cheap to pay less than RM50m to get RM460m in the next 18 years plus every year maintenance income.

Even when you compare to a recent transaction by Bintai Kinden, they bought a university concession which has RM120m contract value, annual payment RM12m for 22 years. The valuer valued it as RM24m-RM27m, actual transaction price at a discount RM15m. Even if you use RM15m for RM120m, RM599m contract should be at least worth RM75m while Z1P2 completed contract should also be worth easily RM15-RM20m. Combined plus the RM185m land with borrowings would be closer to RM280m. Which makes me really curious and I would like to see how the valuer actually values the whole company. I think it’s artificially pressed down.

Besides, after this deal, PEB won’t be able to use the Triplc track record to bid for future university concession projects (Rozali won’t let it cannibalise Puncak). So they lose their construction and concession biz as well as all its land bank and track record for RM210m, Puncak could have made a better offer.”

So yes, I do think that the deal was tilted towards the favour of Puncak.


Financial impact


Puncak will make huge profit in the first quarter after the deal is completed. Yes I’m not kidding. Because there will be a one-off negative goodwill to be recognised. Triplc net asset stood at RM174m, now with the land revaluation (RM258m market value vs RM68m net book value) net of deferred tax, the net asset will be revised significantly upwards by ~RM145m to ~RM320m, which means with the payment consideration of RM210m, there is a potential negative goodwill of RM110m. This is huge compared to Puncak’s market cap of ~RM450m.

For sustainable earnings, Z1P2 maintenance contract is currently providing ~RM6m annual net profit. Z1P3, which is poised to start now that financing is in place, is estimated conservatively to provide ~RM130m net profit over the next 3 years. Which means Puncak will probably reap ~RM45m net profit per annum for the next 3 years, all these with the interest cost taken care of (for those who are concerned with the large amount of borrowings). RM45m will translate to ~10c EPS for Puncak. This will nicely set off all the losses from the existing operations (excluding one-off items) and any initial losses from the plantation biz. If things happen on track, by the time Z1P3 contract is finished, there will still be 2 maintenance contracts and plantation biz should start to bear fruit. This will allow Puncak shareholders to say goodbye to the persistent losses.


Balance sheet

The big additions here will be the land, cash and borrowings. There will be a huge addition of RM258m worth of land plus some properties. Based on the latest results, cash balance ~RM70m, concession borrowings around ~RM230m, non-concession ~RM70m. Subsequent to the quarter, Triplc also secured a sukuk facility up to RM640m to finance the construction contract which they will issue in tranches.

Land value is good but is the high gearing a concern? Yes and no. We should always be concerned with high gearing because if something goes haywire, the company is still saddled with debt obligations. However taking a closer look, non-concession borrowings net of cash is almost zero. For concession borrowings, these are secured against the concession. Even better than highway concessions which is subject to traffic volume variance, these university concessions have guaranteed payment by government. And all the interest and principal repayments are structured based on the timing in which government pays Triplc. It wouldn’t be too exaggerating to say the only significant risk for Triplc and its concession sukuk holders will be if our government defaults.



Z1P2 will provide RM42m guaranteed annual payment on top of the maintenance income. However most of the cashflow will be used to repay debts so initial years free cashflow is likely to be modest. Besides, Z1P3 will not receive any cash inflow for first 3 years (fully debt-financed), so that would be a drag on cashflow. However, all sukuk payments are structured nicely based on cashflow timing. Essentially, Triplc will use debtholders cash to bankrolled the construction for first 3 years, and subsequently get the cash back from government to repay the debtholders and pocket the rest. Besides, cashflow is not a big issue for Puncak. In fact it has too much cash but too little earnings.



Overall, I think Puncak shareholders may have misunderstood Triplc and its values. Just because it’s related party transaction, doesn’t mean it cannot be of good value. In fact, I think there’s a higher chance for Triplc shareholders to reject the deal than Puncak shareholders since Triplc require 75% shareholders’ approval. Puncak shareholders also stand to lose more if the deal is rejected as it will revert back to the sleeping giant and continue to bleed losses while Triplc shareholders can at least look forward to the 3-years earnings upcycle from Z1P3.

Anyway, it will be interesting to see the developments in the coming EGMs for the 2 companies.

  little_snake likes this.
firehawk some are not appreciate ... bcos puncak price doesn't go up after the announcement, so, is not a good deal ...

they hope the 210m given to them as special dividend or use it for share buy back ....
28/12/2016 14:38
Jay puncak could have pay some dividend with so much cash. but shareholders also should have expected that cash will be used to buy assets to generate earnings. Triplc fits that profile.

many people look at Triplc's current P/L and jump to the conclusion that it is a low profit, high gearing company. that's why you see Triplc shareholders jumping saying that Rm210m is too low while Puncak shareholder jumping saying that Rm210m is too high
28/12/2016 15:53
firehawk for those suffer tremendous loss, they don care about all these ... what they hope is to recover the loss (at least part of it) ... any thing can't help to recover loss, is no good!
28/12/2016 16:11
valuelurker Post removed. Why?
03/01/2017 11:24
Up_down I think shareholders of both companies would say the deal deemed fair if Rozali is willing offered cash dividend RM 1.00 for both sides. Waiting Triplc to drop below 1.7 for accumulating again if possible.
03/01/2017 11:33
pineapple123 puncak 95 cts ...dirt cheap
05/02/2017 22:45

Triplc Part 4: Not the most ideal outcome

Author: Jay   |  Publish date: Fri, 23 Dec 2016, 10:45 AM

For new readers, this is already part 4 of the articles I have written on Triplc so you may want to explore the old articles for your own reference and for better understanding.


What’s the deal now?

Triplc will set up a shell company called Pimpinan Ehsan Berhad (PEB) and Triplc will become a subsidiary of PEB. If you own 1 Triplc shares, eventually it will be exchanged to 1 PEB shares and PEB take the listing status. There's an illustration of the corporate structure shown in the announcement which you can refer (I have problems inserting the image here)

After that Puncak will acquire Triplc from PEB for RM210m cash without the need to takeover the whole company and PEB (currently Triplc) get to stay listed. And more importantly, this means that all other current subsidiaries of Triplc will now be sold to Puncak, including those which hold land, other assets, borrowings and liabilities. This also means that PEB, upon selling Triplc to Puncak, will be one of the cleanest company you can ever find in Bursa with minimal (or no) assets other than cash and zero to minimal gearing. The only thing valuable left would be the cash, listing status and whoever employee that remains in PEB.


Recap of previous parts

Let’s go down memory lane and recap what I have discussed or predicted in earlier parts of this series.

Price movement against target price


Published Date

Closing Price


Target price



Part 1



19-Apr to 28 Jul




Part 2



28 Jul to 22 Aug

2.85 - 3.20



Part 3



23 Aug to 16 Dec

2.00 – 2.80



Part 4



16 Dec to ?




* Fair value estimated RM4.79-RM5.49, RM2.00 given due to perception and other issues


Other predictions

Part 1

1. Puncak will acquire Triplc Medical and Triplc Ventures – Partially correct (Turns out they acquire all biz, but at that time the 330 acre land deal was not cancelled yet)

2. No funding problem from Puncak – Correct (despite acquiring plantation biz, Puncak still has ample warchest to pay fully in cash)

3. Independent advisers will need to be appointed by Triplc as well as Puncak – Correct (KAF and Public IB are now their respective independent advisers)

4. Will be a major disposal and at least 75% shareholders’ approvals required – Correct


Part 2

1. Puncak will acquire the biz, not launching a takeover offer – Correct

2. There will be dividend to avoid PN16 – Wrong (no dividend has been announced and PEB will be a PN16 company after disposal)


Part 3

1. Ulu Selangor Land is worth at least RM105m – Correct (Khong & Jaafar value it at RM153m)

2. Puncak won’t buy the land – Wrong (the deal in fact will include all the land as well as other assets and liabilities)

So overall I think I got it pretty close, although some of the deal structure and details were not anticipated but hey, you can’t get everything right every time in life.


How is the offer different from my last estimation?

In Part 3, I illustrated what I think is the fair price for different scenarios. In the disposal of concession biz and land scenario, my estimated fair value is RM250m-RM295m. The offer is RM210m which is quite significantly below my range. Furthermore, I only included 1 large piece of land estimated at RM105m, now the deal includes all the land which is in total estimated at RM258m (that one piece was valued at RM154m) but additional RM73m non-concession borrowings. If I had included these, my estimated fair value could have been RM330m – RM375m.

So what’s the potential culprit? I’m afraid I don’t have a real answer since the details are not provided in the announcements (circular might give more details). But in reality, things extend beyond financial numbers. Puncak share price has been on a declining trend for some time and the shareholders are quite pissed off. Puncak will need to present a good case to the shareholders that it is buying good assets at a good price to get the deal voted through. Triplc shareholders, even if they are unhappy, but the offer of about RM3 per share would still be a reasonable premium to its recent highest price (although the RM3 cash is not offered directly to shareholders). In this case, it seems that the deal is tilted to Puncak’s favour to appease the shareholders.


An undervalued proposition

But from face value alone, the valuation does seem to be a bit too low. RM258m land – RM73m borrowings (exclude MTN) would have been RM185m excluding concession biz.  If you take the cash balance as non-concession related, then net borrowings for non-concession is almost zero. That would mean, based on valuer’s fair value of RM191m to RM230m, the concession biz are valued at a paltry sum of RM6m to RM45m. Z1P2 alone Puncak stands to receive RM42m x at least 18 more years = ~RM760m. Even with borrowings plus interest say RM300m, it’s still dirt cheap to pay less than RM50m to get RM460m in the next 18 years plus every year maintenance income.

Even when you compare to a recent transaction by Bintai Kinden, they bought a university concession which has RM120m contract value, annual payment RM12m for 22 years. The valuer valued it as RM24m-RM27m, actual transaction price at a discount RM15m. Even if you use RM15m for RM120m, RM599m contract should be at least worth RM75m while Z1P2 completed contract should also be worth easily RM15-RM20m. Combined plus the RM185m land with borrowings would be closer to RM280m. Which makes me really curious and I would like to see how the valuer actually values the whole company. I think it’s artificially pressed down.

Besides, after this deal, PEB won’t be able to use the Triplc track record to bid for future university concession projects (Rozali won’t let it cannibalise Puncak). So they lose their construction and concession biz as well as all its land bank and track record for RM210m, Puncak could have made a better offer.

While KAF is appointed as the independent adviser, I don’t think they will have the balls to disagree with the valuer. I'm not familiar with KAF so I did some googling. Turns out they were the independent adviser for Puncak for the last water disposal deal. Things do smell fishy so don't expect them to be too independent.

The only good things from the offer were that at least the offer is still at a decent premium to market price and it’s an all cash offer. Personally, I don’t want Puncak shares as that would have complicate things.


EGM potential outcome

My gut feel is that Puncak has a 80% chance of getting it approved while Triplc may be 60:40.

Puncak most likely will go through because they just need 50% shareholders’ approval and on paper, the Triplc acquisition offers good value at a decent price, although some shareholders currently don't see it (most likely due to lack of understanding of the concession biz).

Triplc may be trickier. They need 75% approval and of the 69m shares outstanding, about 25m are considered related so has no voting power for the disposal. Of course Rozali may have other proxies holding shares but with the remaining 44m, if a group of minorities holding more than 25% or 11m shares vote against, the deal will be snagged. Plus, the lack of special dividend really doesn’t help.

So fight or flight? If you really strongly feel that the deal has shortchanged you as a Triplc shareholder, you can vote against the deal and hope for a better offer. But just remember, while Triplc has great value hidden inside, without Puncak’s offer to unlock it, how much will the company be valued by the market will be a big uncertainty. Personally, I would hope for a higher offer and I also think that even if the deal is rejected, it's not end of the world (explained in sections below) but I wouldn’t go all in fighting Rozali & co. So if you are hell bent on fighting Rozali, better make sure this is not the biggest bet in your portfolio.


My target price and recommendation

Deal completed scenario

The key question is, will Triplc suffer the same fate as Puncak, high net cash but share price kept declining?

Possible, but I don’t think so. The one big difference between Puncak and Triplc is Triplc will become a PN16 and PN17 company after the disposal. PN16 means 90% of the monies will be locked up and operated by custodian and can only be used for acquisition of new biz or distribute back to shareholders if they fail to acquire (similar to SPACs). A PN16 and PN17 company is also required to regularise its condition within 12 months or risk getting suspended and delisted. There’s no benefit for everyone in PEB getting delisted as a listing vehicle is valuable.

Let's see how PN16 companies performed.

The last PN16 company was Tecnic Group Berhad after they sold their subsidiaries to SKP Resources. After the ex-date, the company was left with cash and receivables of about RM24m (they distribute most of the disposal proceeds). The market cap after ex settled around RM30m, before it shot up to above RM40m after they announced a reverse takeover plan. Another example is Abric Berhad. They were left with net cash of RM75m or taking into account working capital RM70m, after ex-price its market cap traded around RM65m to RM85m. Now after failing to acquire new biz, it’s distributing most of its cash back to shareholders and was suspended. Last market cap was around RM70m vs last net cash around RM70m.

This is in contrast to Puncak. After disposal of water assets, they have plenty of cash but the cash is left to the management to do whatever they want and under no pressure or timeframe to act while the remaining biz continue to bleed losses.

With PEB being a clean cut company (pure cash) of about RM3 per share post disposal, I think it’s more likely to trade like Tecnic and Abric rather than Puncak but I discount 10% for the Rozali negative perception. So I believe the fair value of Triplc should be around 90% of RM3 or at least RM2.70, which is why after the disposal announcement, I asked people to collect below RM2.20 and prepare to wait for at least 6 months. If you can get below RM2.20, that should give you a potential return of >20% and some margin of safety.

Deal rejection scenario

There will be more uncertainty, on whether Puncak will come back with a better offer (of course if Puncak shareholders reject, then forget it). If Puncak does not or market thinks it won't, Triplc price may suffer some overhang especially if it's already trading close to RM3.

But it's not end of the world. By my estimation, EGM will happen most likely around May/June. Z1P3 earnings should start in the May quarter which will be released in July. Thereafter next 3 years will be earnings upcycle for Triplc. Plus, thanks to the property valuer, we now know that the landbank in Triplc is significantly undervalued (RM66m net book value vs RM258m market value). So when your land market value less non-concession borrowings itself is already worth RM185m or RM2.65 per share and your earnings is just about to shoot up, there should be some limit to how much Triplc price will fall. 



This is the 4th part of my Triplc series and possibly my last part. It has been a bumpy but otherwise good journey since I first wrote on Triplc. I’m aware that regardless of all the disclaimers possible, someone out there might still invest based on my articles which is why I always make them as comprehensive as possible. While I do not encourage people to blindly follow what I say, I'm at least pleased that should anyone have bought Triplc based on these article, most should still be sitting on some handsome unrealised profit. Even for those unfortunate ones who bought at the highest level, I also believe that most likely you will get at least your capital (maybe with some return) back in the next 6-12 months.

After this article, I will no longer actively write about Triplc unless some unexpected event occurs (e.g. if deal rejected in EGM). Otherwise I wish everyone good luck and special thanks to those who had followed this series from the beginning for your support and feedback.

Labels: PEB
  4 people like this.
chonghai Jay, thanks for all the details about puncak and triplc.
23/12/2016 12:48
valuelurker Post removed. Why?
23/12/2016 13:40
rogers123 Jay: U dont understand the whole scenario. This is only ur research. U dont know anything in Triplc. Is good for Triplc to sell off the company. Triplc already got its new business... High dividend will be paid in triplc and bought the new business with borrowing. This is the usual tactic used by Rzl. If minority of shareholders dont wan to sell. They will got nothing. The share price will remain at between 1.50-2.00 for many years. No dividend will pay. Get the special dividend and get the new business. After the special dividend, the price will still remain at between 1.50-2.00. After that hold or not the PEB is depended on u. Worth to accept the offer?
23/12/2016 21:33
Jay the deal is a major disposal, so it's 75% approval.

for PN16, the regularisation plan has to get SC approval. Unlike Bursa, SC can give companies a hard time. Ask any investment banker you will know. Those SPACs also got a hard time getting their QA cleared by Bursa
23/12/2016 22:20
Jay @rogers123 I'm afraid you are the one who don't know anything.

from my first article I already mentioned Puncak is the key to unlock the value in Triplc. No dividend has been proposed so far so I won't go ahead and assume special dividend. The reason why Rozali offer RM210m is that he is also betting it is a sufficient premium over current price to entice Triplc shareholders to sell.

But you can't deny that it is not the best offer, land value alone is RM258m, borrowings is not a problem unless you assume the concession is a loss making biz (which by track record is not).

I'm not saying that Triplc shareholders should vote against, just be mindful of what could happen in both scenarios. Triplc got a decent offer but I still think Puncak got a better deal to appease their bitter shareholders
23/12/2016 22:30
rogers123 Jay: The land is 258m? This is the value the market quoted. Doesn't mean that u can sell at this value for leasehold land. U can have watever price for ur land, but no buyer. The previous buyer is just a wayang kulit show. U sell the land, but u still got bank loan to pay. I believe tat market is efficient. it will always reflect the real value of the company. If triplc is like wat u said that good, it should reflect the price earlier, but not until the pre acquisition only reflects the real value. The triplc up not because of the business, but the acqusition of rm3. Insider already knew there is an acquisition last year before the deal of puncak. Only middle of this year, they knew it will be 2.50++. If there is no acquisition, i believe tat it will still stay below rm1.60. Bear in mind, u cant guarantee concession or project will contribute positive income. Eg, Sino case in China. It is all depended on the management team.
24/12/2016 09:56
rogers123 Jay: The deal will get through no matter wat. They already hold alot of proxies for both companies to make sure it will get through. One question to u, if puncak wan to acquire triplc, Y don they buy triplc in the open market and accumulate slowily, puncak might save alot for acquisition since puncak already have the takeover plan before the syabas deal.
24/12/2016 10:02
rogers123 Jay: I was shocked when u published the first article for triplc. But i just realized that u didnt know about the acquisition plan when u published it.
24/12/2016 10:12
Jay @rogers123 Unlike u who seems to only know how to comment off-hand and criticise others, I have done my homework. the land value I already did a reasonableness check in my previous article compared with other transactions in that area, the value is not that far. yes I agree that there may not be a ready buyer now, but that doesn't mean that there is no value. If you pay attention, you would have noticed in the past few months big developers are accumulating land already

On concession, are you seriously comparing UiTM concessions with China project? Besides, when the same team has done >RM1b projects in the same vicinity, I don't think they will have much problem, unless Puncak screw it up
24/12/2016 11:28
Jay Puncak can accumulate slowly, but how slowly? I'm sure you don't know Triplc's average daily liquidity, how much can Puncak accumulate? Besides, Puncak hold no shares, it's owned by Rozali and his companies. which means Puncak has to accumulate from zero, and when Puncak and Rozali combined cross 33%, Puncak and Rozali has to jointly do a mandatory takeover, i.e. Rozali is also responsible for the offer

Unlike some naive commenters, Rozali is not that dumb
24/12/2016 11:32
Jay of course I don't know the acquisition plan, I'm not insider. I can only use reasonable logic to piece together info available. even with that limitation, I think I did a decent job.

maybe it's time for you to do some of your own research instead of always blaming others when you lose money
24/12/2016 11:36
steveooikp RZK hold big portion in puncak...

he won't just let it go like that lah....

buy now...
24/12/2016 11:44
rogers123 Jay: Sorry to say. I have let go all my triplc with 30% return. I didnt hold any share in triplc. Just reconsider to buy back later. Yes. I admited tat i hold alot of puncak at the average cost of 0.93.
24/12/2016 14:05
rogers123 Jay: Rzl is too clever n greedy. If i recalled back wat happened before 2008, RZL was asked for RM10-12 to sell off syabas and puncakniaga to kps.
24/12/2016 14:07
rogers123 Jay: U r not the only one who did the research. We all will do our homework as well when buy shares.But just sometimes theoretical and practical is not the same.
24/12/2016 14:13
rogers123 Like wat will happen to KPS, century bond. Century bond is profitable company. After the acquisition, will century bond will still make profit under kps hand? Business is easy to manage on paper, but in real, will it? YLI is a good example. After bought by Tan Sri Jojo, indirectly linked to Sultan Selangor, wat happened to the share price?
24/12/2016 14:21
rogers123 Jay: I didnt criticise ur article, Puncak has offered a good price to triplc. Triplc minority should accept it
24/12/2016 14:35
rogers123 This is wat i wan to say
24/12/2016 14:35
Jay nobody foresaw Pakatan winning 2008 state election and certainly no one foresaw Pakatan government refusing to honour the water concession contracts. so not selling water companies back then may not be the wrong decision at that time. of course you can impute a worst case scenario where opposition wins coming national election and refuse to honour all concessions, but the probability for both events to happen is low

The biz is one of the easier one and the management already knows how to run it. In the future when it is run by Puncak then I'm not sure.

I didn't say it's a bad price, just not the best. I'm sure this is the price which they think have the best chance of getting approvals from both sides' shareholders. let's just see what will happen
24/12/2016 16:45
valuelurker Post removed. Why?
24/12/2016 16:55
Jay It's very clear now that Rozali wants to keep the listing status. Most likely it will be one of the 2 scenarios.

First is a normal acquisition with cash and borrowings, if necessary. This would keep the shareholding structure intact. Second is acquisition with share issuance and/or cash, i.e. RTO. After the acquisition, the seller will become new major shareholder. If Rozali wants to benefit himself and sell the control of Triplc/PEB, then will be the second scenario.

In any case, PEB is under no obligation to distribute the cash back to shareholders. The cash will be locked up with the custody until proposed acquisition is approved. Only scenario of cash distribution is like Abric, after they fail to find target, they gave up and distribute.

Both scenarios can involved Rozali or others' assets. The regularisation plan will definitely need shareholders' approvals, regardless of who is the seller. On top of that, they will also need SC's approval. Just look at what Tecnic is going through now.
24/12/2016 17:58
sell Why Triplc directors sell their shares recently? They know something we don't?
24/12/2016 18:01
Jay just to clarify, once it falls into PN16, PEB can't distribute the cash as dividend unless they don't intend to maintain the listing status. They can only pay dividend before they fall into PN16, which is if they suddenly u-turn and announce dividend out of the RM210m in the coming circular (they mentioned further details of the utilisation of proceeds will be in the circular) but it's safer not to assume that
24/12/2016 18:18
chonghai Actually, to keep everything simple, Rozali can proposed a dividend of RM 2.55 per share along with the EGM. That will push the deal through.
24/12/2016 23:14
davidtslim The Triplc directors sell their shares are due to their cost is very low at RM1.39+ from ESOS. They may want quick cash out. I believe they will announce dividend as this is also a good option for Rozali and directors to cash out b4 election. This also can help in them getting shareholders approval to pass this acquisition in EGM. If they didnot cash out and go for another acquisition, that would take long time pending SC's and shareholders approval.
25/12/2016 10:50
davidtslim Triple fall in PN16 company actually good for minority shareholders as directors cannot do like what puncak do now. They hv to put the cash in trust account and find a new biz which cannot find good one hv to return to shareholders.
25/12/2016 10:55
r°Moi r°Moi .

Beware TRIplc minorities

Take note of r°Moi rationality

If Puncak minorities... want exposure on TRIplc... they can buy personally.... at way below RM 3.00

Why must Puncak minorities... get TRIplc forced down their throats by rosali... at RM 3.00 ????

The independent advisor to Puncak minorities... PBB... must too have this rationality

Else..... complain to SC....

Ask rosali.... to call off this RPT.... immediately.... dont waste money

26/12/2016 18:43
26/12/2016 18:44
Jay unfortunately minority logic is different from Puncak. minority can always buy 1000 Triplc shares from the market, but there's not enough volume to buy the entire company.

shareholders in fact should ask rozali to call off the plantation acquisition, it's much more expensive and gives very little for the next few years. After a few years, who knows what's the CPO price going to be? Puncak already considered getting a good deal from Triplc
26/12/2016 19:53
stockraider Raider comment,

Agree that triplc shareholder objective diff from puncak shareholder objective but put it this way.....the deal must be ur benefit loh;

The rm 3.00 deal looks reasonable, but Rozali wants to keep, it all for himself by creating listed PEB under his control, without paying a single cent of div to shareholders, u agree ?

Of course not, u want a substantial part of the rm 3.00 to be paid to shareholder mah....!!

U must fight loh comprises of;
1. Complaining to SC & Bursa
2. Complaining to Minority Watchdog group
3. Complain to Press
4 Complain to Triplc and Puncak independent Directors, put them on notice ,they must act for the benefit of company and not Rozali mah!!
5 attend the egm

Next be prepare for self help, vote against the deal if they is no proper dividend payout despite your demand above :

As a minority u hold alot of power, bcos Rozali cannot vote & he needs 75% of the balance independent shareholding and 75% of the shareholders number to support....not an easy feat to achieve loh..!!

Do not worry, u may kill the deal loh....bcos Rozali as a businessman, he will always comeback with another better proposal to please the shareholders to get shareholders support mah...!!

Show that, u are not being bullied & taking advantage loh...!!
Don be cheap, Lets fight for the shareholder benefits loh...!!
26/12/2016 20:14
NOBY Nice article Jay. I just want to point out that the timeline for regularisation of a PN16 company can take more than 1 year (not fixed like a SPAC). You can take a look at Premier Nalfin (a similar PN16 type arrangement), they have been in PN16 since 2012 if I m not mistaken.. keep requesting for extension and multiple failed RTOs during this period. Its hard to say the same wont happen here.
27/12/2016 15:53
Jay you are correct. 12 months is just what the listing requirement states, they can always ask for extension. and another major difference with SPAC is you can't vote against the proposal and get back the cash value. the only protection is they can't touch the cash (90%), that's all
27/12/2016 18:45
thequalityguy @Jay: A highly interesting & far sighted set of articles. Thank you for your insight. Based on the recent developments of the EGM, what is your recommendation? I'm holding some TRIPLC shares (unfortunately, slightly above your recommended RM2.20, but still some upside if target price RM3.00 is reached), so I would appreciate some advice from my perspective as a TRIPLC minority shareholder.
22/02/2018 15:36

Is Gunung Capital worth the hype?

Author: Jay   |  Publish date: Thu, 8 Dec 2016, 02:15 PM

Short answer, most likely no.

Summary of Gunung

Price has shot up recently and caught my attention, so i did some quick check on it. Here's some quick summary:

1. Involved mainly in transportation biz, e.g. ferrying participants for National Service and other government related stuffs, like our armies

2. Major shareholders are politically connected

3. Main biz is suffering especially since NS has been deferred (that's why the losses)

4. The main talking point about Gunung now is for their entry into mini hydro power plants. They ventured into it few years back, first 14MW plant about to commence operations based on the prospects commentary in quarterly report

So what's so special about Gunung

What has caught investors' imagination is the company mentioned that they have total 140MW capacity for hydro projects which is very sizeable for a RM100m market cap company. 140MW could potentially generate RM300m revenue, if 10% profit RM30m, PE 3 times, wow!

Hold your breath.

When things sound too good to be true, they often are. So I try to trace back what has happened in this company over the years and one big fact automatically invalidate my previous paragraph.

Effective MW is much lesser

140MW is misleading. Most of the plants were owned by Gunung through a 30% JV via its 60% indirectly owned subsidiary via a 85% owned subsidiary so effective stakes mostly around 15.3% only. A quick calculation, total capacity is 144.7MW, but Gunung's effective stake is around 38.7MW.



if we assume 24/7 operations with no wastage, 38.7MW x 24 hours x 365 days x blended 25c tariff = RM85m revenue when all fully completed and running.


I'm not very sure about margins for this kind of mini-hydro plants, but I suppose these utilities biz generally will generate good EBITDA but net profit will be eroded by depreciation and interest expenses (all these won't show in Gunung's P/L because the stakes do not qualify for consolidation). So margins are unlikely to be fantastic, but let's just simulate different scenarios.



If all plants fully completed and running efficiently with decent margins (>10%) then the current price won't be excessive (PE 11-17 times, a bit on the high side for a small cap but acceptable for utilities biz), however currently management only indicate that one 14MW plant will commence soon (effective stake 2.14MW) while others are still work in progress. If we only take that single plant, then current market price is giving PE of >200 times. Which means market seems to have priced in a few years ahead, which in my view is risky considering that we don't know exactly when these plants will be coming online and their profitability.


Upside/downside risk to my calculations


i) Higher than expected margins

ii) Few more plants yet to get PPA

iii) Possibility of acquiring bigger stakes in those plants (if price is right)

iv) New contracts for its transportation biz


i) Core operations still struggling, so losses will offset utilities contribution ( I didn't take into account the current core biz)

ii) Delays in the building of hydro plant

iii) Lack of control over these JVs may mean that operations or costs may be out of company's control

iv) Learning curve in terms of propert maintenance and upkeep of these plants (in my illustration, I also assume 24/7 full year round which is not possible for maintenance)



Gunung's story remains a story for now. Until they can show its prove the feasibility and profitability of these hydro plants, I think the renewable energy story is overhyped.
Labels: GUNUNG
  5 people like this.
Siew Jian Bin Very good comment! May I know where did you get the info that Selama is 13.80MW? I thought is 20MW. Also Maju RE for 60MW? I have no idea how to get the figure. I really appreciate your hardwork in preparing this article which I need it very much in order to make my decision to buy more or keep the share for future, tq!
09/12/2016 10:24
Jay the info are all extracted from the annual reports and the announcements back in 2013 when they purchased the subsidiary. you can refer there. the problem is Gunung doesn't disclose a lot about the details and progress. Since the total MW fits the 140MW described in annual report, I think it should be reasonably correct
11/12/2016 08:43
Siew Jian Bin Jay, thank you!
12/12/2016 11:43
Koon Bee Good article
12/12/2016 11:53
probability Thank you Jay. Good to have people like you here...
Articles like these are the most valuable in i3.
12/12/2016 21:10
VenFx Thx Jay for the break down. Hope u will do one in the future for Toyoink, which I found that might be more integrity sense after Mfcb.
12/12/2016 21:35
Jay toyoink is similar to Jaks. I heard there's some issues with the Vietnam government as well as funding that's why the power plant after so many years is still a no go
16/12/2016 01:05
Jay I'm not sure about the replacement value per MW but I can safely tell you that Gunung's EV definitely is nowhere near RM380m

1. Gunung MW is not 38MW
Like I mentioned, only when it's all fully completed, then there's around 140MW in which Gunung's stake is around 38MW. now I'm afraid most of them are far from completed

2. Investment needed first
Money don't come out of nowhere. You have to invest first in the hydro plant. The investment has to come out from cash/equity or borrowings.

3. Borrowings are not consolidated
The JVs most likely will fund the plant with borrowings but because JVs are not consolidated, the borrowings will not be shown in Gunung's financial statements. so actual indebtness is much higher at the hydro plant company level. those interest cost will eat into the plant profit once they are operational
16/12/2016 01:15
valuelurker On paper, it is a is a minority stake in the various JV's, but gunung will have to most likely fund the entire capex. That's just how these contracts work
16/12/2016 12:47
Jay not sure about their structure, but usually JVs the partners have to inject some equity and the rest based on borrowings. RM10m/MW is probably estimation, getting some excess funding just in case would be safer for the company.

another thing to note is usually those partners in those JVs are silent partners who may not have funding capability by themselves, i.e. cronies. so usually gearing up as high as possible is to minimise their equity injection. I'm not sure the RM550m are they referring to debts for certain JVs or all JVs or just borrowings for their part in the JVs

anyway, I wouldn't try to use EV method since so many inputs are not clear
16/12/2016 14:31

My thoughts on the CIMB analyst covering Vivocom

Author: Jay   |  Publish date: Sat, 3 Dec 2016, 05:36 PM

For reader who haven't followed i3 closely, earlier this week a CIMB analyst apparently published a report detailing Vivocom's 3Q results. The only problem with the report is,  the company has yet to released the results. The report was spotted by some before it was taken off the website and simply went viral, to the extent it appeared on the front page of StarBiz. From what we know so far, SC is investigating now and the analyst has been suspended.
From this debacle, there are a few things we may learn.
1. Some analysts' cosier than usual relationship with the company impairs their independence
It is clear from the incident that the analyst is so close to the company, even having access to insider information. Is it wrong to be close to the management of the company he covers? Actually no. Being close means management is more willing to meet you and share information with you which should help the analyst do their job better. But there's a strict line that you don't cross, which is insider information. It is the line between legal and illegal.
From my observation, this analyst and his collague, the analyst who covers IFCA have the same modus operandi. They are obviously well connected with the company and syndicates, all parties coordinating to put on a good show. 
The company will show improved fundamentals, syndicates who have accumulated earlier start to goreng and attract those TA experts, then the analyst starts to exaggerate the fundamentals and potential with sky high target price to attract retails. Only once the syndicates are done pumping and dumping, then only the real value of the stock will emerge (whether it's still good or bad).
So in this case, can the research reports be trusted when it could be just half truth? If you tracked my comments left on Vivocom page back in 2015, I already warned that the CIMB initiation report was pure garbage as important figures like orderbook are simply wrong and was full of some ridiculous financial projections and misleading catalysts. I published an article few weeks back when I was analysing Vivocom and found that subsequent CIMB reports remained as misleading as the first one.
When the analyst has an ulterior motive, then it is not a surprise when they present a biased view and exaggerate the fundamentals to attract buying interest.
2. CIMB research may not be what you think it is
I have no personal vendetta against CIMB research but a few high profile cases have caught my attention. There are incidents like IFCA, SMRT (not rated report) and now Vivocom. All these have been classic pump and dump case, with CIMB the only, or the first research house to publish a report on them.
Of course, everyone can claim that it was an honest mistake and that early investors also made some good money. But share price movement cannot justify the poor research reports published by a supposedly reputable research house. Yes all those stocks above has a good run but if the investment case in those reports was riddled with holes, then you are either grossly incompetent or you are a simply speculative research house rather than a fundamental research house.
Why am I pointing towards CIMB research instead of just its analysts? Because the analysts cannot publish a report without their superior's approval. I am no expert but if even I can spot those glaring mistakes in those reports, then what is the head of research doing? Did he/she condone such actions because they also knew that the syndicates will be driving the stock price, at least for a while?
Even looking at the recent case of Felda. It is simply a toxic company and the price was hovering around RM1.30. Everyone knows it is a company full of problems which they can't rectify overnight. Then out of he blue, CIMB called a buy on Felda and promoted it. The stock price shot up like there's no tomorrow to RM2.50. Then again out of nowhere, there were some negative rumours like government wants to form a steering committee and CIMB promtly downgraded Felda to Hold based on such rumours. After that the price continued to fall until the latest horrible quarterly results and the fraud case in its associate. Is it a conincidence? Can CIMB be so powerful to push up Felda's price, a big cap company, without some help? And again is it coincidence after the slew of good news and reports, the bad news or rumours followed and CIMB avoided just in time?
I leave that to your own judgment, but all these trails lead to the possibility that maybe one of the biggest research house in our country is actively coordinating with syndicates to play a fool out of innocenet stock maket participants, which is a pretty scary idea.
3. Vivocom management can't just blame the analyst
It is natural for the company to shift the blame. After all, they are not the one who made such stupid mistake. But it is clear that at least someone senior, someone who has access to highly sensitive information is actively colluding with the analyst, which means there is something really wrong with their internal controls and governance structure. And from those comments from forumers where they knew contracts will be awarded even before it became official may just show that it is not an isolated incident.
4.  The analyst's career in the financial industry is probably over
Make no mistake, the incident brought huge shame to the CIMB name. It is community news when it is exposed in the forum, but when it's on the Star, it's national news. While many people may be aware of such practice, as long as there's no hard evidence incriminating the analyst or the research house, it's all mere allegations and everyone can just close an eye on it. 
But now that the secret's out, CIMB's top management can't just do nothing. The industry is so small and now every research house in town would have known about this. SC surely is planning to take action against the analyst, maybe stripping his license and if CIMB takes a soft stance, it would be seen as condoning such illegal actions. Even if such practice is widespread within CIMB, they will put all the blame on the analyst (which is not unreasonable considering that he was the one who made the mistake).
And no one would dare to hire him in similar industries with the reputation risk he carries. Nowadays all financial institutions are so afraid of getting embroiled in scandals, they probably will avoid hiring one. Maybe the analyst can now officially join the merry band of syndicates but without the CIMB name with him, just how useful he is to the syndicates will be doubtful...
When receiving information, never just swallow without digesting it first because most of the time you wouln't know the intention or capability of the person who gives you such information. Same thing when it comes to investing, buying a company just based on what an analyst said without even doing some basic cross-checking (which is so much simpler nowadays) and subject it to a logical/reasonableness test is never a good idea.
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stockmanmy have put in a lot of time to pass CFA.
03/12/2016 17:54
Jay too bad. but that's the essence of white collar crime, those persons incriminated are usually highly qualified
04/12/2016 21:14
Flying Cloud See what SC is doing then
05/12/2016 00:41
invest_101 I am sure CFA includes a topic on Ethics so this person must be fully aware of the consequences.
05/12/2016 08:07

Prestariang and the game changing SKIN contract

Author: Jay   |  Publish date: Mon, 21 Nov 2016, 08:24 PM


First of all, little bit of disclaimer, as there are very little details provided in the announcement, what I’m about to share is what I understand. Eventual recognition may turn out to be different. Please interpret it with your own discretion.


What we do know

From the little details we do know from the announcement are:

1. the contract is a concession, not pay per transaction like what MYEG or SCICOM usually earn. Prestariang does the job and government pay them, period.

2. SKIN will be a build, operate, maintain and transfer model. In layman’s term, Prestariang build the system for operations in the first 3 years, maintain it for the next 12 years (total 15 years) and eventually ownership will be transferred back to government at the end of the concession period

3. payment will be deferred whereby Pres will build and implement the system for first 3 years without receiving payment but government will pay them in 12 subsequent annual payments of RM294.7m.


What does the deferred payment mean?

Just imagine say your friend hire you to build a house for him, but instead of paying you upfront or by progress, he negotiated a deal so that he can pay you by instalment over certain number of years. Of course by now even the most naïve of you would be wondering why should I do him such a favour? So for him to broker such deal, he has to compensate me by including interest in the annual payments over the repayment period. Only then it’s fair. So RM294.7m x 12 years or RM3.54b in total is government’s payment to Prestariang not just for the SKIN contract but also the interest for the concession period.


What’s the effect on company’s financials?

Now comes the tricky part. I will try to apply my own accounting understanding on IFRIC 12: Service Concession Arrangements which explains accounting treatment for concession biz. I will try to make it as simple as possible. But certain essential parts may be difficult to understand by those who are unfamiliar with accounting in which case, you can simply choose to believe it or not. If you don’t, you can stop reading because the numbers below would be essentially garbage for you.


Key accounting questions

Key question 1: Should revenue and costs be recognised in the first 3 years, next 12 years or evenly over 15 years?

Accounting 101: accruals concept means that revenue and costs are recognised as and when they are incurred, not when cash payment is received or paid. So my interpretation is revenue and costs should be recognised in the first 3 years when work is done, not when payment is received in the next 12 years while maintenance revenue will be recognised in the 12 years maintenance period. In other words, my take is that the development revenue for the build and deployment phase should be recognised by progress for the first 3 years while maintenance revenue will be recognised when maintenance works are carried out.


Key question 2: If revenue and costs are to be recognised, how much of the amount?

Costs are straightforward where the exact amount should be recognised. Revenue is a bit trickier. We have established earlier that the RM3.54b includes both the contract value and interest element. So what should be recognised in the revenue would be the contract value without interest element/the fair value of the contract. Calculations will be shown later.


Key question 3: What about the interest element?

Yes, the government is also paying for the interest over the 15 years concession period so interest element should also be recognised as other revenue over the concession period with “unwinding of discount” method. Details to be provided later.


Key question 4: Impact on balance sheet and cashflow?

One big item will show on balance sheet which is receivables. Receivables will blow up in the first 3 years as government continues to avoid paying. By the end of 3rd year, the receivables amount should be equal to the fair value of revenue recognised and subsequently adjusted.

First 3 years there will be cash outflow without cash inflow (specific to SKIN). Logically speaking, it’s not sustainable, which means Prestariang will need to raise equity or debt financing.

Simply said, just imagine a credit sale with extremely long credit period. So your revenue is recognised when you make the sales (in this case, you need 3 full years to complete the sales), customers doesn’t pay you yet so you don’t get cash but there will be receivables. And because this is long term, so you are going to charge your customers for paying you in deferred terms.


For those who are interested in further reading, all the above is based on my understanding of IFRIC 12: Service Concession Arrangements. Concession companies like Menang Corp, Triplc are examples of companies who were awarded government concession to build government universities and they do adopt IFRIC 12.


So how much exactly is the revenue?

So now we have established the above, first on revenue. We know that we should recognise fair value so how much is it? Fair value is essentially the present value of the future payments aka contract value without interest element. So we need to establish a discount rate. Government payment should be relatively low risk so I think 7.5% is fair. If we discount the 12 payments by 7.5%, we get a fair value of RM1.83b. But if we discount it based on 6% or 10%, the fair value would be RM2.07b or RM1.5b.

Basically the lower the discount rate, the higher the fair value. But why is there such difference? Recall earlier we establish that RM3.5b includes fair value revenue and interest revenue. So if discount rate/interest rate is lower, which means interest revenue is lower while fair value revenue is higher. For example, if fair value revenue is RM1.8b, interest revenue is RM1.7b. If fair value is RM1.5b, interest is RM2b. Eventually, a total revenue of RM3.5b will be recognised over the 15 years period and match with cashflow, it’s just a matter of apportionment.


How much are the costs?

This we do not know. We would need to assume a pre-tax IRR for the project. For university concession usually it’s implied 12%, of course software development may carry much higher IRR compared to traditional university construction but let’s be conservative and just apply a slightly higher IRR of 13%. This means implied costs is around RM1.5b to be incurred over 3 years.


Interest element

The interest revenue will be dependent on what discount rate you use. For illustration purposes, if you use 7.5% to derive fair value revenue, so after first year you recognise RM610m fair value revenue (RM1.83b/ 3years), interest revenue would be RM46m (RM610mx 7.5%). If 10%, you recognise RM500m (RM1.5b/ 3 years) and RM50m interest (RM500m x 10%). Interest will continued to be charged on cumulative amount net of payment received, i.e. second year will be (RM610+610-0 payment received) x 7.5% so on and so forth until the whole receivables is cleared and entire RM3.5b revenue is recognised.


Plucking in the numbers

If we assume 7.5% discount rate:


1. The above fair value and interest revenue is dependent on discount rate used (7.5% for illustration).

2. Costs to be incurred is dependent on IRR. If IRR is higher, then costs actually should be lower, vice versa.

3. Progress is assumed to be even, in reality it may not.

4. 100% borrowings are assumed to undertake the costs. 6% is used because Prestariang can easily issue a bond with the underlying backing of the 12 annual instalments by government. These type of bonds don’t carry high interest because payment is almost “guaranteed”.


Has market priced in the contract?

At closing price of RM2.45, the market cap is around RM1.19b. The current profit is around RM15-20m pa since its peak in 2013, which means a PE of above 60 times. But what we know from examples like MYEG or even Prestariang itself a few years back, market is willing to pay high PE for these government software stocks in anticipation for high growth.

Assuming current year ends up with RM20m net profit, once the SKIN project kickstarts, the net profit will multiply to around RM140m (RM120+20m) by the 3rd year or a CAGR of 91%.

For a combined (current biz + SKIN) forward EPS of 14.6c, target price will be dependent on how many times PE you think it’s fair. 20 times PE would be RM2.92 or 30 times would be RM4.38 and it could still be arguably not expensive if earnings indeed are growing at 91% 3-year CAGR.

Even after the 3 years “explosion” period, RM1.8b receivables at 7.5% would still give you RM135m EBIT pa in the 4th year (which will slowly go down as government pay the instalment over the years). In the most optimistic scenario, from what we have seen from MYEG’s case, after the end of concession, government may even extend the concession for the company to operate the system.

Alternatively, some may argue that concession is best evaluated based on discounted cashflow. If I apply same 7.5% discount rate, NPV of the project after full repayment of interest and borrowings is around RM340m or adding RM0.70 per share to the current value.

All the above are done without evaluating the existing projects of Prestariang as well as other potential future projects. If you are interested in the company’s prospects, please refer to the annual reports or analyst reports. All I tried to illustrate here is how huge this SKIN contract is to Prestariang. So I believe the market has priced in the award of SKIN to a certain extent (since it was announced last year) but haven't fully appreciate its magnitude (as award value is just announced and bottom line impact unclear).



SKIN is easily a game changer for Prestariang regardless of the eventual accounting recognition. Earnings and cashflow will definitely kick in, just depends on the point of time. Until the management provides guidance to the analyst, I believe sticking to IFRIC 12 would be the safest bet to gauge the impact of the contract. The assumptions I made on the discount rate, IRR, implied cost, financing etc. could be different when company eventually implement the contract but I believe they are not too optimistic or overly conservative.

If you have any alternative views on the above, please feel free to share.

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Flintstones Good article
21/11/2016 20:37
PurplePain my take is that the development revenue for the build and deployment phase should be recognised by progress for the first 3 years

Since nowadays % of completion method is being paced out how about not by progress but upon completion by the end of the 3rd year?
21/11/2016 21:14
Jay I don't know about % of completion method being phased out. personally I think the method is not perfect but is the closest we have for now to reflect the underlying economic reality. recognising everything at completion doesn't reflect the work done over the years for long term contract and create unnecessary earnings volatility
21/11/2016 23:52
BLee Very informative. I think can be enhanced if consider depreciation of hardware and licensing for software as life circle for both roughly also 3 years. Another consideration is the support cost for the next 12 years. My 2 sen worth as I am not an IT expert.
22/11/2016 01:12
Jay @BLee as the payment amount is guaranteed and not contingent upon usage, the SKIN software would be recognised as a financial asset instead of intangible asset, so there won't be any amortisation. the support cost would be recognised in the 12 year maintenance stage which is not explicitly covered here.

One assumption made here is also that the RM1.5b cost covers all the necessary costs for SKIN development during the first 3 years. A gross margin of 17% assumed here is not overly aggressive, in my opinion
22/11/2016 08:01
BLee Thanks for answering. I do not view SKIN as financial asset as B.O.T. concept carries risk of changing technology and software/hardware update unlike physical assets which can consider 'new' after completion in 3 years time. Just my view..Thanks again.
22/11/2016 09:37
Jay @BLee no problem. here in this article my view is that Prestariang should follow IFRIC 12 for accounting recognition. For BOT contracts with guaranteed payment it is specified that they should be recognised as financial assets under the standard. Essentially I think the rationale of the standard is under BOT, eventual ownership belongs to government, not the company so it's essentially a FA/receivables, not PPE. that's why there is no amortisation. hope this clarifies.
22/11/2016 10:17
PurplePain Worldwide % of completion method is the exception not the norm and in Malaysia it is being phased out even for normal housing construction due to the build and sell concept.

Moreover for concession agreement where do you see provisions for progress payment during the initial construction and deployment period like in a normal SPA for buying a house?
22/11/2016 10:21
Jay @PurplePain IAS 11 is still using % of completion method for construction. Personally I like % of completion rather than one-off recognition for reasons explained above, but it's up to the standards setter.

For SKIN contract, it is very clear cash payment will only start in the 4th year, no progress payment. What is in this article is on earnings recognition based on IFRIC 12. essentially you are doing work in the first 3 years to be entitled to receive the cash from 4th year onwards. that's why the standards is asking company to recognise revenue and profit in the development stage
22/11/2016 10:34
PurplePain Profit ought to be recognised at construction stage but only upon completion by the end of 3rd year not based on % of completion method.

Moreover untill completion do you really have the goods/services to sell?

If no how can recognise revenue moreover when there is no provision in the agreement for progress payments??
22/11/2016 10:56
chonghai @Jay
You are positive with Ekovest, Triplc and now Prestariang. It seems like you like to invest in companies where the future is secured but details are not so straightforward and very complicated to work out.
Am I correct ? Any comment on WCE ?
22/11/2016 11:49
Jay @PurplePain long term contract is not really equal to direct sales of goods and services. imagine a contract staff, do you pay him at the end of his contract? that would be the most conservative way but doesn't really reflect his services throughout the year

the concession agreement already specify the terms and payment so I don't see why they can't recognise the revenue. if government eventually default or the company fails to fulfill their obligation then that will be a separate event whereby they should recognise a writedown of the financial assets
22/11/2016 12:33
Jay @chonghai I like Ekovest and Triplc because I see them as deep value with short to mid term catalyst. Roughly I can estimate their value, it only depends on timing when the values are realised. Prestariang comparably I'm not so positive yet because all the above are still essentially my assumptions and the PE is still high (although it may be normal for software company).

The details are not so complicated actually, once you know the components inside. Haven't had time to look at WCE, anything interesting? may look at it if I have time
22/11/2016 12:38
PurplePain At least the first 2 years will not have income from this concession till the completion of the construction and deployment.
22/11/2016 14:52
Jay no cash inflow. whether there will be income I'm afraid it's not up to you and me, there are accounting standards that regulates earnings recognition
22/11/2016 15:28
PurplePain You are talking accounting standards I am talking financial reporting standards, let's see how it will turn out.
22/11/2016 21:45
Jay more like you are speculating on how the future standards will be while I'm talking on current standards which are effective for now. from conception to effective implementation of a new standards will easily take years, good luck waiting for that
23/11/2016 07:58
valuelurker Now the next question is, what is the value of prestariang's continuing current business
23/11/2016 17:26
PurplePain In fact, "progress payments" will start only after completion and commission.

Since there is no provisions for progress billings in the concession agreement for the construction and deployment stage, say, if the construction got stuck by the 2nd year due to unforeseen do you think the goverment your progress billed "receivable" will pay you?

If not how can you recognise revenue during the construction and deployment stage based on progress?
24/11/2016 08:34
Jay http://klse.i3investor.com/blogs/bfm_podcast/111859.jsp

now RHB is also saying that there will be profits recognised in the initial period
16/12/2016 19:42
Up_down Jay. I don't think revenue and costs can be recognized for the first 3 years. Service is not considered rendered while a project falls under development stage. All the costs incurred during the development stages would be capitalized and amortization starting to apply when service is provided for receiving payment from the government.

Accounting 101: accruals concept means that revenue and costs are recognised as and when they are incurred, not when cash payment is received or paid. So my interpretation is revenue and costs should be recognised in the first 3 years when work is done, not when payment is received in the next 12 years while maintenance revenue will be recognised in the 12 years maintenance period. In other words, my take is that the development revenue for the build and deployment phase should be recognised by progress for the first 3 years while maintenance revenue will be recognised when maintenance works are carried out.
16/12/2016 21:38
Jay I get where you are coming from. That's what I thought as well before I understood concession contracts accounting. the concept where no revenue and profits are recognised during development stage is the essence of intangible assets where development cost, like what you said, are capitalised and amortised when products/services started to be sold

but if you read IFRIC 12, then you can understand where the accountants are coming from as well. concession contract in essence, is different from usual products/services development.

normal product/services you don't recognise R&D costs because there's no sales transaction happening, so it would be wrong to recognise revenue and profit. there's no customer, you don't know how much revenue can you get from the R&D costss incurred

concession contract on the other hand is a bit like construction contract. just imagine MRT Corp (government) awards a contract to Gamuda (Prestariang) to undertake the construction. in this case, there's already a customer (MRT Corp/government). When Gamuda (Prestariang) starts work, they are not trying to invest and develop something and hopefully make a sale in the future, they are fulfilling a sales already made. They know the contract value (revenue) and minus the costs incurred, they will get their profit.

that' why Gamuda don't wait until full construction is completed only they recognise revenue and profit. the rationale behind IFRIC 12 is almost identical with IAS 11. other examples would be highway concessions or university concessions. revenue and profits are recognised even though the highway/university is still being built

but what if they fail? similarly, if Gamuda has built the MRT line but it collapsed in the 3rd year before full completion, MRT Corp can choose not to pay them or ask for damages, but that's a separate event. Gamuda still did their job in the first 2 years and they didn't reasonably think that it is probable for it to fail, that's why it won't be wrong to recognise revenue and profit in the first 2 years and recognise a rectification cost or an impairment in the 3rd year.
20/12/2016 01:11

Reach Energy: It’s time for shareholders to vote against management who doesn’t respect their votes

Author: Jay   |  Publish date: Fri, 4 Nov 2016, 09:09 PM

Another adjournment

This is the second time we saw an adjournment, first one was SONA when apparently the management couldn’t get the QA through with enough votes. This is a very bad sign for Reach. According to news sources, 208m have voted against the QA through proxy votes. Recall that Reach raised RM750m through issuance of 1 billion new shares. Only these 1b shares have voting power, so now if 208m have voted against, they need at least 624m out of 792m remaining votes on their side. And if the No camp manage to attract another 43m votes, then all is over.


Attempt to frustrate minority shareholders

It's another dark day for Malaysia's corporate governance. When QA fails, shareholders will eventually still get back their cash value. It’s only the management that will lose out where their shares become waste paper and they get nothing else other than the salaries they earned for the past 2 years. The notion that management can just arrange for EGM to be adjourned when shareholders voted against management's wishes sets a very bad example.

From the calculations above, it is clear that the odds are stacked against the management. So you may ask what’s the point of adjournment? It’s point blank to frustrate the minorities. Hopefully some of those who voted no will get lazy this time in filling up proxy forms and/or they go whip up some sleeping shareholders to vote yes. It simply adds to the time, cost at the expense and inconvenience of the shareholders. In my previous article on SONA, I likened this to 2 person playing video games and the losing one simply restarted the game. It’s because continue, he will lose, after restart he may also lose but at least he gets another shot. Is it fair for the other player? Clearly it’s not.


Respect the game rules

For the past few months, we saw Reach going all out to woo investors to vote yes. But all is fair and square. It’s not illegal or unethical to promote your views. Management clearly thinks that the QA is good deal and there’s nothing wrong to try to attract support. It’s all within the rules of the game.

The management is also aware of the 75% vote threshold, which is why they tried to get institutional shareholders on board and buyout some big yield investors. Again it’s within the rules.

But what is against the spirit of the rules is when you have done all the above and you still fail to get the QA through, you simply adjourn the meeting. If the management can do this, next time if it becomes a full-fledged company, will they pull the same stunt when in the future shareholders’ vote against their other business proposals? Management that doesn’t respect minority shareholders have no business managing a SPAC which its essential foundation is trust. Maybe SC next time should consider this quality when they vet management of new SPACs or simply outlaw this kind of delaying tactics.


But is it fair for 25% votes to derail the whole QA?

Yes because just like other special resolutions, these are special issues that should require almost unanimous votes to protect minority shareholders. And management was well aware of this rule before they were listed. They were happy when raising funds based on nothing but some personal profiles so when the rules work against them, they have no right to argue against.


Vote against the QA for the sake of corporate governance

Just to clarify, I did own Reach shares but I have sold them off quite some time ago. So I’m urging shareholders to vote against the QA not for any sinister purpose, but to show a clear signal to the management that shareholders cannot be just steamrolled into submission. There are enough cases in corporate Malaysia where major shareholders or management acted against minority interest. This is another rare chance for minority shareholders to show up and vote for your own benefit.

I actually commended Reach management few weeks back for doing all they have done to try to secure enough votes, unlike CLIQ who can’t even submit complete documents or SONA who was so arrogant by doing nothing and hope that shareholders would vote Yes. But after all is said and done, Reach management has failed. When you fail, you accept the results, not delay it, not hide it. You fought and you lost, so respect the other side’s decision.


Bottom line, come next EGM, minorities please vote and let your voices be heard!

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Tllmkch We all know Malaysian like to pay double or more when using other people money.
04/11/2016 22:26
CharlesT All these spac r monkey biz...just that msian investors outsmart these conmen...by voting no n get back their cash..
04/11/2016 22:38
stockraider Actually MTD & gang did not vote....bcos they want to vote on the spot ...instead of by proxy loh....!!

But the meeting adjourned, thus did not votes loh...!!

If MTD n Gang voted....they will be additional 250 million yes votes...but that could not...even make the QA success loh....!!
04/11/2016 22:42
Tllmkch Spac stupid people all conned. That's the meaning. What the hell you thought it meant?
04/11/2016 22:44
CharlesT In msia spac conman unable to con...mostly failed...except the first one
04/11/2016 22:46
CharlesT Rsena next?
04/11/2016 22:49
Tllmkch Special purpose all conned.
04/11/2016 22:54
ktsk88 Told you guys so earlier, the stock movement already denote that it will failed...................push up on the day and later in the evening down to the lowest for warrants and mother.

Monday, the warrant will take a hit severely and spiralled into oblivion.

For the mother holders............it is win situation and can accumulate more since the payout next year could be worth more......perhaps around 0.77sen.
05/11/2016 08:41
ktsk88 The SPAC is not monkey biz...................just that some stupid regulation.....75% votes required to the QA.................this ruling should be scrapped or lower down.
05/11/2016 08:43
ktsk88 Red Sena warrant holders beware......................your turn next.
05/11/2016 08:44
TheContrarian It would be more sensible if the SPAC rules require 2/3 instead of 3/4 approval level.
05/11/2016 09:13
CharlesT If u knew how the fate of SPAC in USA then u will agree with 75% votes
05/11/2016 10:18
CharlesT Mostly to buy rm1 with rm5 kind of biz
05/11/2016 10:20
CharlesT Do u really want them to invest your money in Kazakhstan or Turkmenistan etc etc
05/11/2016 10:27
stockraider Spac are defensive instrument to protect small investors from being conned mah!!!

Put it this way....if it is a good business that they acquire...even yield investors say No....they should be able to muster enough savvy buyers to takeout the cash level loh....!!

Also remember this loh...!!
The Trust Monies belong to the mother spac holders and not the company..unless and until a successful QA mah....!!

Thus it is correct, for the majority of independent Spac holders to vote against loh....!!
Unless Management come up with a right solution loh.....!!
05/11/2016 12:05
Jay 75% is to protect minority, just like 90% for compulsory takeover

SPAC is a peculiar structure. logic would tell us that it's not easy to get good assets at bargain price. it not just involve management skills but also dealing and bargaining skills but all would not matter if no opportunities are available

reach management thinks it is a great QA as oil price will rebound. but what if oil price remain around this level for the next few years, would it still be a great buy? no one knows the future so no one can answer. what we do know that they have huge number of diluting warrants which doesn't help

remember the old times when Cliq and Sona traded above their cash value. there's no issue of yield investors, simply because there's no arbitrage opportunities. the fact that market values these SPACs so lowly is a reflection of market's loss in confidence of the SPAC structure

ideally for a SPAC to be successful is to be involved in biz which needs little capital and can generate extremely high margins and returns. but if that's the case, they wouldn't have gone for listing in the first place. there's a reason why SPAC didn't kick off in many countries, just hope our SC can learn from this before introducing all those fancy schemes...
05/11/2016 15:13
CharlesT Well said Jay.
05/11/2016 15:17
stockraider What is there to learn ??
If a spac fail means it fail loh....just like listed company not all will succeed mah...!!

The key is protection, disclosure and risk management mah....!!
Investors know what they are doing loh...!!

The fact the independent reach holders vote agst the rich corp like MTD, despite various promotion for YES...indicate SPAC is working and independent investors know how to protect themselves and their rights loh......!!
05/11/2016 15:24
klsefunandlepak Hi, just wondering if i bought Reach's shares on Friday, am i entitled to vote in the next EGM?

Your response would be highly appreciated.

Thank you.
05/11/2016 16:42
TheContrarian Jay, SPAC has sufficient minorities protection as it allows dissenting shareholders to cash out via share repurchase. However, if the QA fails to receive 75% approval, then even dissenting shareholders couldn't get back the money that belongs to them until after liquidation. As a dissenting shareholder I would prefer the QA is approved.
05/11/2016 20:02
stockraider Posted by acadi > Nov 6, 2016 02:30 AM | Report Abuse

This is a personal scenario that I have put together after reading this forum till now and today's news report (the Star/Business).Very interestin facts/figures. Of course I stand to be corrected.

Total no of shares : 1.28B
Total elegible to vote : 1.28 X 0.8 = 1.022B

Known via proxy submited to company : 72 person @ 56M (YES) : 56m/1.022B = 5.4795% (a)
154 person @ 208M(N)) : 208M/1.022B = 20.3522% (b)

Stated in The Star : 1) MTD Cap : 28%/80% --------->> 35% (c)
2) Tabung H : 8%/80%----------->> 10% (d)
3) MKW Jaya : 3.54%/80%------------>> 4.425% (e)
4) SMB : 4.7%/80%------------->> 5.875% (f)
5) Siva : 5%/80%------------->> 6.25% (g)

Total 1-5 = 61.55%

Addiing a,b,c,d,e,f,g total is = 87.3817%


Balance of 100% = 100% - 87.3817% = 12.6183% consisting of other shareholders
whose stance is not know(whether yes or no) or even bothered with
the EGM.

IF we ASSUME that from MTD to Siva are all in the YES group and ( none are in the NO known group by proxy ; A position I believe to be as the numbers here seems to indicate so) , then the yes percentage is
5.4795% (known from proxy) + 61.55% = 67.0295% (therefore short by only 7.9705%)


However, as I have shown above there is still a 12.618% that has not shown its colour yet. I notice Tankhaylong mentioning about a crossing of 19.09M (1.867% small but not insignificant under the present scenario) on friday. If true (I assume it will be YES group), then the shortfall will be reduce to 6.103%.


I would also assume that the YES group has a few (3% - 5%) percentage of interest in the "Balance of 100% group) parked under nominees' trading accounts .Watchout for some buying interest in the cash market on mon/tues (total of say 3-5% for the two days) or a crossover of the same magnitude. If these event takes place, the chances of making everyone will become a reality.
Last word: for all we know the YES may already have the 8% parked in the Balance of 100% gropu
I stand to be corrected. Good luck to all.



06/11/2016 09:52
2016v dont count the chicks bfore hatches
some ulars said support during EGM but vote otherwise
haha, watch out for ulars

anyway, dont think can get 75% votes unless more & more cash for buyout
06/11/2016 10:16
Jay just look at how much warrants listed you will know how much eligible shares are there bcos it's 1 for 1 free warrant, so 1b warrants means 1b shares.

minorities shareholders who vote NO will be protected by cashing out. but those minorities that voted YES will be stuck with this management and the subsequent hanky pankies

I'm guessing the management will ask MTD next week to go sapu more shares from yield investors at 76c. to do that, MTD probably will ask for more goodies like the placement which the management has no bargaining power to reject. so the major shareholders will benefit more while minorities who stay will suffer
06/11/2016 17:12

Vivocom: to buy or to avoid

Author: Jay   |  Publish date: Thu, 27 Oct 2016, 07:40 PM

Welcome to another piece of the to buy or to avoid series. Forgive me if I’m a bit rusty as I haven’t blogged for some time. From my last experience with MBSB, please stop here if you can’t take some harsh facts and critical comments on your “precious company”.



Today the company is Vivocom, or formerly known as Instacom. It gained prominence last year due to sharp upwards price movement after it announced the acquisition of Neata, holding company of Vivocom. Thereafter, the acquisition is completed, CIMB initiated coverage with sky-high valuation, proposed placement, proposed change of name, good quarterly results, streams of orderbook announcements, proposed bonus issue etc. Those who are interested of the backstory can go read it up yourself.

My views back then

I warned investors in Vivocom (or back then, Instacom) page that it was way overpriced after it shot above 30c. I also highlighted why I though CIMB’s initiation report was pure garbage (I rarely use such strong word) and cannot be relied on. After that, it fell below 25c before going above 30c again. Then, the price started to trend down and after 1 for 4 bonus issue, now it’s at 18c.

So why am I revisiting

Partly because of the mention of small mid-cap in the recent budget and the price has retraced significantly (even after accounting for bonus issue, >35% from its peak). I always try not to be emotional on investments, although I felt it was overvalued back then based on my rough calculations, it could still be a good investment if price has fallen below its fair value.


So on its financials

Orderbook strength

What Vivocom’s supporters often highlight is its strong orderbook. I always hear figures like RM2bn-RM4bn. To be honest, I never really bothered listening. Why? I know Vivocom didn’t win any large infrastructure projects (I do track those) so it’s quite difficult for them to amass orderbook of such size without being awarded such contracts. But now since I’m analysing let’s check out the details.

From Sept 2015 which was the date of circular for the Neata acquisition until today, the contracts awarded are about RM837m. Based on news last year, the MD mentioned they have orderbook around RM400m, which remaining value is around RM300m back then. All these combined, orderbook will be around RM1.1bn before deducting those recognised in 4Q15-2Q16 results. The list is shown below.


Some commencement date are not stated so I just assumed those announced in 2015 will start Jan-16 while those 2016 starts in Jan-17. This is important for projection later.


Wait, I thought it’s much higher?

The fact is, it’s not. Other announcements you saw are Heads of Agreement, Letter of Intent, Joint Collaboration Agreement etc. None of them are legally binding and nothing materialise after initial announcement. For example, in Sept 2016, there’s a HOA for RM600m project in Kinta, Perak.

In it, there’s a term “the Parties are not obligated to proceed with the Proposed Development unless the terms and conditions of a final agreement is agreed upon and executed by 30 Sept 2016, unless further extended by mutual agreement between the Parties”.

Well, there’s no further announcement since then, so in layman’s term, there’s no mutual agreement between the parties and the project is a no go. Same for a few other HOA where there’s a deadline. Some did not, but no further announcement most likely means the project hit road-block or Vivocom was not selected as contractor. Again, the list is shown below.


What about those analysts’ reports?

I did say they were garbage, didn’t I? CIMB initiated coverage back in Nov 2015 and state that Vivocom’s outstanding orderbook was around RM1.8bn when the MD in press conference said was around RM400m. I read through his list in the report, most of them have commencement date in 2016 or 2017 and weren’t announced anywhere. So either he’s a clairvoyant that’s able to see into the future with certainty or he can’t even differentiate between orderbook and tenderbook. The most recent report states that Vivocom’s orderbook stood at RM2.2bn. Other houses also have sky-high orderbook stated in the report, some more than RM3bn.

So who should you trust?

Good question. Trust yourself and no one else. Not even me. I may not have hidden agenda like others but I could make mistake as well. That’s why my approach is always gather info from different sources and try to reconcile them and see if they fit and makes logical sense.

From the list I gathered above, I try to gather against what management said. Back then, circular has about RM350m, MD said RM400m, that’s close. Now I get about RM1.1bn, in the latest quarterly results under prospects, company mentioned similar figures instead of some sky-high figures. Check. What does it mean? Means I will trust my RM1.1bn figure.

And again apply your logic. Trust management and their published quarterly results more than you trust analyst. Because what management said or published, they could incur personal liability if it’s deemed misleading investors. Analysts? Their long winded disclaimer page usually will absolve them of any such liability and for so many years, I have never seen any analyst being taken action against before.

Could there be some omissions?

Yes it’s possible that company may have won some contracts without announcing. That’s why when the difference is between RM350m and RM400m, I gave it a pass. But when it’s RM1.1bn vs RM2.2bn, I just can’t convince myself without sufficient evidence. Besides, again if you look at my list above, company announced contracts with value as low as RM10-20m, do you think the company will not announce contracts that have ballooned their orderbook by RM1bn?

Oh, maybe you omitted those infrastructure projects that CRCC is going to win and subcontract to Vivocom?

If it’s in the future, then it’s not certain and is definitely not in your orderbook. Again look at my lists above (for the umpteenth time J), almost 100% of orderbook as well as those HOAs are related to property development. Which means Vivocom has no track record and most likely no expertise in undertaking infrastructure construction project.

But GeorgeKent was once also a water meter company right?

And of course in Malaysia the bolehland, you can always win contracts without expertise and subcontract it. But first thing first you need to be able to win the contract to subcontract. Vivocom can start winning infrastructure contracts like GeorgeKent if they have directors who are golf buddy with Najib, but last I check, they don’t. So if it’s CRCC winning the contract, will they subcontract to someone who can do the job or subcontract to Vivocom to sub-sub-contract to another party, you be the judge.

Bottom line, Vivocom is just another property development contractor so don’t put your hopes up on some cruel lies brandied around by those analysts.


So what’s the fair value?

Based on the lists I compiled, verified against other sources, now I can come up with a revenue and profit projection.


If you look under 2016, it does look like the first 2 quarters numbers fit. I used a simple net profit margin assumption of 15%. Usually large construction projects margins are around 6-9%, for Vivocom since it’s smaller scale property development, I give it a higher 15%. Property developers usually earn around 20-25% profit margin so contractors/subcontractors should earn less. For first 2 quarters, average net profit margin was around 19%, I don’t think it’s sustainable and 15% should be fair (as developer will need to earn something as well). Minority interest is applied as don’t forget, Neata that was acquired is a 78.6% owned subsidiary.


What do the numbers tell you?

To sum it up, despite the steep fall, the price is not astronomically expensive like last time but is not cheap either. The implied PE (blended 2016-2017 around 12.5 times) is high given that it’s a small-cap property contractor. The only good thing is that it has no sales risk like property developer, if not its fair PE should be even lower (given the current property environment).

It also tells you that based on secured contracts, 2017 is going to look like a bad year compared to 2016. To maintain the same revenue and profit level as 2016, they need at least another RM200m sales. Since construction usually lasts around 2 years or more, which means at least another RM400-500m new contracts. Every year to keep revenue above RM500m, they will also need to keep winning close to RM500-600m contracts, which is no mean feat. But that’s the price to pay when you are a RM600m market cap company.



Stay away. Unless the price fall to lower levels or if upcoming contract wins surprises on the upside.

  5 people like this.
CKN Anyway thanks Jay
28/10/2016 00:04
Jay I hope that everyone can keep their comments here civilised. don't simply accuse companies of fake contracts or con counter unless you can show evidence. if it's just your suspicion, please keep it to yourself. facts will prevail, so just stick to facts will do. thanks..
28/10/2016 00:08
Robert123 No entry signal detect ...avoid while waiting..
28/10/2016 00:11
Topgugu Jay, any review on PESTECH ?
28/10/2016 00:52
Yippy68 thank Jay, i agreed with you. 700k sold and cut lost to hevea and jtiasa. made it back and waiting for vivo to come to below 15 sen
28/10/2016 07:13
yktay1 sell house
28/10/2016 08:27
Sales Jay we need people like you. Thank you for the info. Hope in the future will get more news from you.
28/10/2016 09:36
smartly jay, you are assessing to the current instant of vivo of which it maybe true to the certain extent of the current situation but future prospect was not in the picture, thus there might not be 100 percent accurate in term of growth factor in vivo.
anyhow well done. keep it up.
28/10/2016 10:23
强 十 creative accounting?
28/10/2016 10:33
meathere smartly, every company also can have future prospects; so is not really a good indicator in general for any counter. For Jay, he emphasized more on CONFIRMED orderbook. LOA has time limit and/or Vivocom may not successfully get the projects. In a nutshell; if comparing company A, B, and C, than compare with reliable indicators such as CONFIRMED orderbook only for all A, B, and C company. Unless if you said you have crystal ball to see A, but no crystal ball for B and C company, than I rest my case.
28/10/2016 11:01
Jay of course everyone can have different approach. some prefer companies which they think have good prospects which market cannot accurately capture now. such approach usually carries high risk high return
28/10/2016 13:54
ktsk88 so we can assume that the projection based on Jay tabulation is until 3Q2015 and didn't take into any further announced projects?...............so the fair value of 0.16s or whatsoever is valid until 3Q2015?

So this is half baked story and projection?..............if in the world of investment and you relied on half baked stories and projections................you're dead meat.
28/10/2016 14:04
Jay don't waste my effort in putting up the lists. even after nicely put in table the date of announcement also can miss then you can blame no one but yourself...
28/10/2016 14:23
Wing Teoh Dont mis lead people la, this is the one active stock in Bursa and i3!!! and this counter is for speculator only!!! DOnt stupid until believe this counter can fly xD

YOu rather watch Opensys then this stupid VIVO xD

Whoever watch something related with VIVO will get greatest explore, and gain viewed!!!! Please do something contribute, dont simple want to gain viewed !!!!
Thank you xD
28/10/2016 14:27
mf avoide
28/10/2016 14:29
Wing Teoh Who buy who die and just wasting time, all people already in and out this counter. My suggestion is to in some potential market rather than this Penny stock.

Dont waste your time and effort to wait,,,, then lose money and time in the end of the day.
28/10/2016 14:41
Wing Teoh We put our eyes to see, this counter will dead soon or go to GN3 ??
28/10/2016 14:43
Jay most of the HOAs have expired, so I think it's better to look forward to other new contracts. the fair price will only last for 2016, which is coming to an end. 2017 onwards are not secured yet. they need to keep winning contracts, if not the profit will start to drop from next year. if market price is close to fair price that means there's no margin of safety. many things can go wrong for any company, not getting new revenue, delay in projects, margin compression etc. which is why it's best to avoid company with no margin of safety
28/10/2016 22:45
CKN Mr Jay, I think you make a big mistake. Please validate the HOA direct with Vivocom official with a simple call. I can very confident my list of order books is accurate and stood at approximately rm3bil up to today. Maybe u are not a shareholders and you don't even have a courage to do so. Vivocom as project delivery partner with crcc is still waiting award for crcc on Gemas Johor double railway and other new project.
29/10/2016 08:44
CKN Be responsible when you wish to write something and be honest if you wish to publish something that may affect innocent investor.
29/10/2016 08:47
CKN Your motive is very clear indication of judgement before court trial.
29/10/2016 08:48
nokenzo Jay, thanks for your detailed hard work. A job well done. Keep it up.
29/10/2016 09:18
Jay @CKNYAM the one who misleads trying to accuse others or misleading
I have noticed that you have been trolling a lot of pages in this forum hard-selling vivo based on your "orderbook" so if you are butt-hurt by the facts presented, it's your problem.

1. Please understand what is orderbook. Orderbook is CONFIRMED orders with contractual obligations if one party backs out. When your list has HOA, automatically your RM3bil figures has no credibility

2. Read the HOAs, it's not that long. Like what I highlighted in the article, most of them have deadlines, if deadline has passed, no announcement of contract and no announcement of extension, what do you expect? If it's still on, then Vivo is in violation of listing requirements for not making timely announcement

Let me dumb it down for the likes of you:
If a company wants to hire you and say let's discuss our terms and by end of the month, we shall finalise and sign an employment contract. If not, you are not obligated to work and I am not obligated to pay you. After end of the month, no contract was offered. Are you hired? Will you report to work?

3. Yes I'm not a shareholder and I don't bother to call them. Why? From my experience dealing with corporate figures, many people can say many things. But when you ask them to commit in writing, they will change tune or chicken out.

Why don't you request your company to commit themselves in the next QR to state what is their orderbook? Not orderbook+HOA, JUST orderbook.

4. CRCC links have been explained in the article. If you choose to believe that CRCC will subcontract to Vivo to sub-sub-contract, that's your own choice.

Bottom line,
- If you can't even tell contract from HOA, or orderbook from tenderbook, you are not even qualified to talk about this stock
- It's one thing to plead ignorance when you troll i3 with your "orderbook" but if by now you can already tell the difference, you still continue to troll the forum with the same lousy list, then your intentions are very clear
- Like I mentioned in my last article on MBSB, if you want to argue based on technical charts, rumours etc. go ahead. If you want to challenge my facts or arguments, please show your side of facts and arguments. Don't go whining "you are wrong, I'm right" like kindergarten kids

To other readers, if you notice @CKNYAM trolling other pages again to promote Vivo, feel free to post my comment here or even links to this article. Let the readers decide and prevent people from falling into traps set by irresponsible characters posting inaccurate facts
29/10/2016 10:19
barlog Its good sharing by everyone here, my leason is trust myself not even what the big bank analysis said. I think value sharing and discusion here is the purpose, blindly follow will just risking my own hard earn money.
01/11/2016 07:57
Jay made an error previously. fully diluted shares should be more than 4b, so diluted EPS revised down. for 2016 I also adjusted margins to be higher than 15% as first half margins were relatively high. all in, the analysis shows that vivo's FV shd b even lower than previously estimated
29/11/2016 16:41
Sephy Vivocom clearly a scam stock now as evident by CIMB's hoax report. Everyone will stay away now.
30/11/2016 23:22
Vivo Vivo comrades you don't know have to follow Vivo haters here. What they said here not true. At least recent slide not due to Vivo directors selling unlike some hot counter like Ekovest, etc.
01/12/2016 03:42
Jay it's sad that even after facts are laid bare in front of you, still in denial. wake up, none of Vivo directors own any shares except Anne, who has also ceased to be substantial shareholder since Sept, so she can now sell quietly without disclosing. Vivo is a company which its own directors also don't want to hold shares
01/12/2016 13:13
stockmanmy Market is full of risk

Don't seek even more risk from sharks
01/12/2016 14:29
kglim non of the directors hold share ? how to see ? isn't Annual Report disclose their holdings ? if really NO, then bye bye lo
01/12/2016 22:44
Jay now it's 15.5c compared to 18c when I wrote this. my fair value is 15c, so only recommended to enter at below 12c so there would be sufficient upside
07/12/2016 10:28
investor001 You didn't include the project in Bandar Tasik Amanjaya worth RM758mil (four phases with each phase has a contract value of RM189.5mil, duation 36 months, and the phases may run concurrently). It's a confirmed contract.


It should add RM252.67mil revenue for 2017, 2018 and 2019 respectively.
07/12/2016 19:55
investor001 Speaking of diluted eps, obviously people who are holding the warrants won't exercise all their warrants immediately because by doing so they will suffer a loss. The maturity date of Vivocom's warrant:

WB: 08 Sep 2018
WC: 22 Jan 2020
WD: 08 Jul 2020
07/12/2016 20:14
CKN Investor bro, I fully agree with you.
08/12/2016 01:01
Jay if you bother reading earlier comments, i already mentioned the RM190m spread over 3 years will add about 0.2c eps annually. in that case, 2017 eps will be around 1.1-1.2c

just look around all the property projects, every developer are being cautious now. do you really think they will launch more than 1 phase concurrently in this kind of market? why would the developer risk holding inventories by launching multiple phases together? perak housing market is not outperforming the other states, just because it mentioned it may be launched concurrently doesn't mean it will. it's more likely they won't unless there's unusually high demand in perak

on diluted eps, there's only 2 scenarios, one is they expire worthless or warrant holders may covert before expiry to enjoy the upside or salvage whatever value left. either way it will cap the upside of the stock. just imagine you are owner of a biz, you think it's worth x amount but someone else has the option to take a % from you, do you think when you calculate your net worth you can conveniently ignore the option? especially when the option will take almost 25% of your biz. only if the option has indeed expired, then you can breath easily
08/12/2016 08:35
Jay another troubling thing I didn't highlight in this article previously is that none of the directors hold any shares in this company (Anne has ceased to be substantial shareholder, actual % unknown now)

when the company keep on doing placement, bonus issues etc. and has such a huge share base (>3 billion), you wonder why none of the directors bother taking the opportunity to get a piece of the pie? especially when price has corrected over quite some time

it shouldn't be a major factor in valuing the company but is a point worth considering
08/12/2016 08:43
CKN When director hold shares in company and sell off their share for profits, investor will comment director has no confidents and also unload his share. When director not holding any share for to avoid conflict on interest, you said they are manipulator. A coin with two side of side. Bunch of bull shits.
08/12/2016 09:00
CKN When Vivocom downtrend reversal, be prepare to write another grand mother father story.
08/12/2016 09:01
Jay it's called alignment of interest, it's the same reasoning why companies give ESOS to retain employees. imagine your active biz partner doesn't want to hold shares, don't you feel a bit concerned?

unless Vivo surprises in terms of new contract wins, if not it looks like the party's over. price overshot fundamentals, so correction is just normal
08/12/2016 09:08
investor001 You still need to list the Bandar Tasik Amanjaya project as a confirmed contract for not misleading the readers.

In fact the affordable houses are still in high demand despite recent property slowdown.

I wouldn't say we shouldn't worry about the diluted eps forever but just it's not a matter for at least 1 year from now, and you know many things can happen in one year. That is just for WB that will be mature on 08 Sep 2018. The maturity date of WC and WD are in 2020.

I think you just illustrated an extreme worst circumstances. I don't think the price has overshot its fundamentals, unless you want a lot of margin of safely like ICAP fund manager Tan Teng Boo. I would say your article is just for reference. Everyone should do their own works.
08/12/2016 16:21
Jay Previously I didn't include it because it lacks details so you don't know if the developer are going ahead with it.

It's not just demand but financing, just look at loan application and loan approval rates for residential houses you will see the grim picture. And affordable segment are those that are most hard pressed in financing

You can't dismiss something just because it is not happening yet. It is there hanging over your head, someone will come for your company if it does well

I haven't even got to the extreme worst. Look at Q3, revenue slowed down considerably. Worst case would be most of their orderbooks are stalled (as property developers struggle to sell), revenue delays and margins contract to normal industry rate like 12%. that's the worst

But of course you should do your own work. If you still want to invest that's your own money
08/12/2016 17:55
CKN Period of job award to complete range 24 to 36 months. Vivocom as subcontractors are not bothering how much developer has sales all their units or not. Vivocom has to make sure the project is not delay and Bill according to projects complete percentage . So don't add that slow sales risk into Vivocom. They complete how much the project and they claims the revenue.
08/12/2016 18:35
CKN And they even not invest money to buy land.
08/12/2016 18:37
CKN Revenue q3 drop has been explained in the report that different cycle billing. Maybe q4 will pick up back the suppose revenue in q3. But they still make better revenue and profits on last 4 quarter comparing previous result. Don't write until Vivocom is a pn17 or engage with a lot wind up petition company
08/12/2016 18:40
Jay CKNYAM, this will be the last time I respond to careless comments from you. you can't even read my comments correctly, it's this kind of attitude that lead you to take HOAs etc. as part of orderbook and unshamefully spam the whole forum

i already mentioned before they don't have direct sales risk in the article. what I'm saying is they are still indirectly exposed to developer's sales risk and the overall property industry. if your customer having difficulties to sell the houses and ask you yo delay the construction, would you still go ahead and construct?

q3 may or may not be a blip, especially if you exclude sales from other segment, construction plummeted a lot. but I didn't change my forecast, did I? I said that would be the extreme worst case, which I haven't assumed

just because I said it's not worth this price doesn't make it a PN17. I guess in your small mind, all stocks with very low price are troubled company.

grow up and start paying attention to details
11/12/2016 08:50
CKN Time will tell it all. When Vivocom share price start appreciate, see who to grow up. U had failed in Pesona. And next U will failed again.
11/12/2016 12:38
Freshman73 You are right after all Jay. Profit down to 74%
31/05/2017 21:59
Freshman73 Should have listen...now i suffer the cause of losses
31/05/2017 22:00
hornbill forget this vivocom.
05/06/2017 17:17
Ismylife73 Sell this vivo all.
09/06/2017 11:22

Triplc Part 3: Is it still worth the wait?

Author: Jay   |  Publish date: Tue, 23 Aug 2016, 06:46 PM

My simple answer is yes but mainly because 1) the price has dropped to a point where value emerges again; and 2) My average cost is low, which means I’m still sitting on a decent profit after the drop.

So my recommendation may or may not suit you. Please decide for yourself.


Disappointing developments

For those who do not track Triplc, recently they announced a not so good news and a bad news. First, they announced there’s an extension of 3 months for the HOA with Puncak, which is not good but not too bad. Second, they announced the termination of the land sales.


How does it affect the valuation?

If you had followed my previous articles, you would have known that I always see the disposal of its construction & concession biz and land sale as the 2 main catalysts for its deep value to be realized. So now 1 of it seemingly fail, this should prompt a revaluation of its value.


The value of the biz and the land

The value of its biz remains intact. By my estimate, it should still be worth RM145-RM180m in present value terms. But for the land, how much is it actually worth now that the sale was aborted?

Recall that the land was originally planned to be sold for RM140m. Its current book value of around RM37m. It’s a 338.67 acres leasehold land located in Seksyen 20 Bandar Serendah, Dsitrict of Ulu Selangor, originally earmarked for mixed development of residential and commercial. Forgive me but I’m not so good with the geography so I will not go into the analysis of its locations, amenities etc.

Back in 20 October 2014, WCT announced a purchase of 4 pieces of vacant freehold land with a land size of 220.74 acres located in Seksyen 20 Bandar Serendah, Dsitrict of Ulu Selangor for RM115.38m. On 20 March 2015, TA Global also announced the acquisition of 2 pieces of freehold vacant commercial land in the same area with a land size of 189.83 acres for RM106.86m.

Based on the average price per acre paid by these 2 companies and multiplied by the acreage, Triplc’s land would be worth around RM183m. However, we must notice that Triplc’s land is a leasehold land which means it would be less valuable. Besides, it is a larger piece of land so usually for transactions involving large acreage, the per acre value would be lower. If we go through the latest annual report, one of Triplc’s term loan is also secured by a legal charge over that particular parcel of land with a minimum market value of RM105m.

All in all, we could see that the previously announced RM140m seems reasonable compared to recent transactions. But to be conservative, I will assume the land value to be worth RM105m. If the bank is happy with that value, then it shouldn’t be too far off.


Now the possible outcomes

This will be the tricky part and the outcome would also determine the value. The possible outcomes are endless but I will summarise a few which I think is more likely.

1. Puncak acquires the biz but not the land

2. Puncak acquires both the biz and the land

3. Puncak launches a takeover of Triplc itself

4. Puncak does nothing and life goes on for Triplc

For scenario 1-3, Puncak could offer cash, shares or a combination of both. Personally I don’t like Puncak shares. Based on its balance sheet, even after netting off its liabilities it has close to RM1bil cash and short term investments which works out to be more than RM 2 per share. But I would rather receive cash and decide myself if I want to buy Puncak. For simplicity purposes, I will assume cash.

It is also worth noting that scenario 2 and 3 is not the same. The critical difference being in scenario 2, Puncak pays to Triplc. Triplc will remain as a listed shell company and decides what it wants to do with the cash. If there are more than 75% of shareholders agree to the transaction, it’s done. For scenario 3, Puncak offers and pays directly to Triplc shareholders. Decision will be up to the individual to accept the offer or not, unless Puncak hits 90% threshold for compulsory acquisition. If Puncak gets more than 50%, Triplc could remain listed and become Puncak's subsidiary. If more than 90%, Triplc will be delisted.


Will Puncak buy the land

After the termination of land sale, the possibility has indeed increased. On paper, property development has nothing to do with Puncak. The 338 acre land is massive in size. Just to give you a bit of context, Mah Sing’s Southville City, an integrated township project with multiple commercial buildings and residential towers planned is about 428 acres. If you have seen Mah Sing’s brochure, you would be able to imagine how huge it is. Property development on such a large scale definitely is not within Puncak’s expertise.

There is another possibility that the termination of the land sale is to ensure that Triplc have a business after it disposes off the construction arm. This would avoid the company falling into PN17.

But to be honest, I don’t care if Puncak has the expertise to develop the land, all I care is if it acquires the land how much is it willing to offer.


Bursa shareholder protection

Fortunately, there is a provision in Bursa Listing Requirement. If you refer to 10.04 of the listing requirement, a valuation will need to be conducted on any acquisition or disposal of real estate when the percentage ratio is 5% or more for a related party transaction.

What it means is if Puncak is adamant of getting the land, the land has to be revalued and Puncak has to pay close to the fair value (of course can manipulate a bit here and there, but not too much). So if Puncak acquires the land, it’s actually good news for Triplc shareholders as there is not much room for it to significantly underpay.


Takeover scenario

Another alternative is Puncak make a direct offer. The key is how much would they pay. Again they have to address the elephant in the room which is the land revaluation. In takeovers, there will be an independent adviser, similar to related party transactions. It is not possible for the adviser to ignore the land revaluation as well as the cashflows from the construction biz. So if Puncak were to offer a low price, it is unlikely to be fair. And since Triplc just recently traded as high as RM2.40 and liquidity has also improved in recent months, the adviser could also find it difficult to argue that a low offer to be reasonable. These advisers will also be scrutinized by securities commission. And from what I heard from my friends in the investment banks, securities commission is way tougher to handle than Bursa so they won’t be able to get away easily without justifying their recommendation.

What is possible is that Puncak can still offer a price which is not too high (possibly between RM2.00-RM2.50). Even if the adviser said it is not fair and not reasonable, my bet is there will still be a lot of shareholders who will accept the offer.


Value based on outcome

Just to explain my method, a discount is applied for timing delays, not for value. If you could recall, my initial valuation of the biz is about RM180-230m, but I already applied a discount for the acquirer. So I believe both biz and land value are considered conservative.

Discount for the disposals should be removed gradually as it gets closer to completion. Discount applied to the land was larger in Scenario 1 as it would take longer to be developed or sold separately by Triplc. For takeover scenario, I am just going by my gut feeling as I think they will track more on the share price rather than underlying value. For scenario 4, on paper the value looks the best but the time horizon is more than 20 years compared to others which can be completed within 6-12 months. I also assumed that the land value will increase by another 50% by 20 years which is not unreasonable.


ESOS coming on stream

If you have noticed, recently there are quite a number of ESOS listed. Based on my compilation, there were about 1.37m new shares listed in the past 4 months since the HOA with an average issue price of RM1.31. This is approximately 2% of the previous shares outstanding. Average daily trading volume for the past 4 months was only around 80,000 shares per day. Previously, it took Triplc 1.5 year to issue the same number of ESOS. Basically what I am trying to illustrate is the company is definitely speeding up the issuance of ESOS to allow its employees to benefit from the deal. So if the company and the employees are on board, that would give me a bit of a comfort (not much, but better than none).



Triplc remains a company with deep value but after the recent disappointments, my priliminary target price is now reduced from RM2.85-RM3.20 to RM2.00-RM2.80. Yes the range is much wider but this is also to reflect the increased number of scenarios being considered. So for those on board Triplc, now is the time to test your stamina.




Labels: PEB
  Be the first to like this.
prescott2006 Excellent insight
23/08/2016 21:22
theavenger well done
26/08/2016 10:53
Vivo EPS 2.34 sen. Annualised EPS 9.36 sen. PE 10 TP 94 sen?
27/10/2016 22:37
Jay phase 2 is now cashflow based, major profit recognition phase over. phase 3 haven't started. please read through part 1-3 to get a better idea
28/10/2016 02:26

The tale of Joseph Schooling and what Malaysia needs to do to win Olympic gold medals

Author: Jay   |  Publish date: Sat, 13 Aug 2016, 06:42 PM

First of all, I’m sure we Malaysian (and our Singaporean counterpart) have been bombarded with the news of how Joseph Schooling won gold medal and how he beat Michael Phelps his idol (who can miss that photo) on social media. And by now, surely there will be people also talking about how Malaysia, as a country few times the Singapore population was beaten by its neighbour to get their first Olympic gold medal and how that’s evidence that BN is ruining the country blah blah blah.

A bit of a disclaimer, I will refrain from talking politics in this article (and would appreciate if you could don’t in comments below). The info that I cite below, many of them would be sourced from the internet so if there are any factual errors, feel free to point out (e.g. I never know Joseph Schooling in person so if his profile in Wikipedia is wrong, you can’t really expect me to know about it).


A Singaporean success (or not)

Let’s start with the golden boy of Singapore. Joseph Issac Schooling (JS), a son of an Eurasian father born in Singapore and a Malaysian Chinese mother (thank God no one has dared to link him with Malaysia yet). He was born in Singapore, studied there and continued his education in US and now he’s the first gold medallist for Singapore.

Singaporeans will no doubt feel proud about him but once you let the feeling sink in, is his success really a product of Singapore? Yes he’s a native Singaporean so Olympic rules dictate that the gold to be credited to Singapore as a country but a quick look at his life and you just can’t help but feel that the secret of his success really lies beyond just his home country.


2 success stories, same story arc

Trained to swim from 3, JS was said to exhibit extraordinary talent from young. So after completing his primary and 2 years of secondary education in Singapore, he moved to US at age of 14, attended the famed Bolles School, then University of Texas where he trained with the Texas Longhorns swimming team, one of the top collegiate swim programmes under two-time United States Olympic men’s head coach Eddie Reese.

Such story is not limited to JS in Singapore. Our own squash queen, Nicol David have similar success story. Training since age of 5, she was enrolled in a proper coaching setup by the age of 8.  She started winning all her age group title (including World Junior Championships). At age 19, she failed to defend her title in the 2002 Asian Games in Busan, a title she won at the age of 15. She decided to move to Amsterdam to train under coach Liz Irving from Australia. From then on, she never look back as she transformed from a child prodigy to the all conquering queen of squash.


So what’s their secret of success

By now, probably you could guess where I’m going. Yes JS was born in Sinagpore, got great support from his Singaporean parents and finish part of his education in Singapore (where he also got some support from Monash University and Singapore Sports Council). But one of his career changing decision was when he decided to move to US. Unlike Southeast Asia, US housed many of the greatest swimmers in the world across all age groups. And it wouldn’t be surprising if they have the best facilities, training programs and coaches over there. It was this competitive environment of training that shapes who he is today. 7 most important years so far of his development there, you could say that JS swimming success is as American as it is Singaporean.

Similarly for Nicol, a Malaysain training in an unpopular sports (sorry squash fans), you can only imagine how limited the support she was given over the years. Even looking at the age when she started training and winning titles, those of you who went through the government schooling system can surely understand that these are efforts and investments by her own parents rather than our Malaysian schools or state. And training under an Australian coach in Netherlands was also arguably the defining moment to turn her promising career to a legendary one.


They can inspire a generation, but their influence stops there

Success story always inspires. Just reading Singapore news website and you can smell the optimism. The school kids saying they want to be the next Olympians, politicians saying that there’s more to come etc. But the cold hard reality is that the hype will die, they always do. And after the hype, what the country does to support the sports will determine whether it is a one-off individual success or a sustainable one.


A new era of sports

We live in an era when competitive sports mean literally what it is, competitive. With the advent of sports science, nutritional diets, perfecting of techniques, widespread corporate or state sponsored funding, it is an era where you can’t just get by with pure natural talent. You need money, technology, human resources etc. to cut your teeth with the best.

In most of the countries that enjoy sporting success, it was a result of multi-decades of meticulous planning and execution by various quarters. Parents, grassroot coaches, schools, states and corporate all play their part in promising young athletes even before they are even selected for the national team. And the journey doesn’t stop there. Being the best in your country doesn’t mean the best in the world. These young athletes will train with the best foreign coaches and the best of the foreign peers before eventually dominating the world arena.


So how can Malaysia win their own gold medal (if they don’t in Rio 2016)

There are multiple steps to go and the results will not be evident for years. But if Malaysia wants to be a global sporting powerhouse, these are the basic steps (which are interlinked) we need to accomplish.


1) Engagement of parents

Young athletes rely on their parents’ support. Over the years, I have seen so many promising young athletes in Malaysia never receive proper training or after achieving initial success, drop off from the sports when they go for high school/college/university.

Can you blame the parents? Not when they don’t see a career pathway for their child. Not when they see limited support from our local schools and states. JS and Nicol have supportive parents who are willing to invest in their career since young but can all parents do that? Tuition fees in Bolles School cost $47,000 a year, how many parents can be expected to fork out that sum to further their child’s career?

So parents need to be convinced that there will be funding to help their kid to train to be better and at the same time, they also need to be convinced that there is a sporting career, one where their kids won’t end up having difficulties in life after they retire.


2) Grassroot talent identification

We need to identify talents and we need to identify them young. For example, young kids as young as 5 in European countries are often spotted and train with the football academy of their local football clubs. For Malaysia, we simply don’t have that kind of culture so the easiest and readily available scouting network would be our schools.

School teachers or coaches need to identify youngsters who are talented and allow them to compete with the best. There’s no point letting them breaking school record after another where these talents would probably feel bored after some time. School coaches also may not have the expertise to properly train them so grouping the talented athletes for centralised training would be the logical step to help them improve further.


3) Sponsor and funding

Federal and state funding is highly essential. Like I said, this era of sports is so competitive that institutional support is not optional but a must. Can you imagine my bewilderment when our national diving coach has to bring our athletes to train in China for short stints because we simply don’t have proper diving facilities in Bukit Jalil??? The facilities were simply not up to international standards and actually posed a safety hazard for our divers. This issue only received publicity after Pandelela won the bronze medal in 2012 London Olympics. Even as one of the target sports for 2012 Olympics, our diving facilities are so poor. Can you imagine the state of other non-targeted sports?

Best facilities, best coaches, these are the basic essentials to produce the best athletes. No offense but if we keep on relying on local coaches who achieved limited success as athlete last time, what can you expect? Most Chinese badminton coaches are multiple world champions, same applies to other sports. Our diving team started to improve considerably after hiring a Chinese coach, same for cycling. So race, nationalities etc have no place in sports if you want to improve. Yes hiring best coaches and investing in facilities all costs money, but if we expect success without investment, that’s not called success, that’s called a miracle.

When government funds are limited, corporate sponsor should fill the gap. The ministry should engage corporate to fund certain sports or athletes. In return, the athletes’ success would be good publicity for the corporates. But what we often see if that after certain athletes achieve success, the corporate sponsors flock to him/her alone. With so many GLCs around, surely there are funds available to help sponsor some sports or athlete. And when the athletes become successful and the corporate enjoy the benefits of sponsorship, then they will look for other promising talents to sponsor and then there will be more successful athletes, the virtuos cycle will continue.


4) Mix with the best

You can provide the best coaches and best facilities but if certain athletes are simply ahead of the crop, special attention should be given. To quote JS himself on how training in US helps his career, “I think the environment in the US is more suitable for competitive sports because everyone is so competitive and wants to win. I’m not saying that people don’t want to win in Singapore but it is just more electrifying with a higher tempo in the US.”

Similar to the business world, sports cannot afford to be closed-door anymore. We need to engage the best, train with the best. It’s only when we compare with the best we learn of our deficiencies. Just like how JS trained with the best young swimmers in US, our athletes need to be exposed as well.

For example, our Harimau Muda project (which was disbanded subsequently) was supposed to spearhead our Olympics and World Cup dream. But instead of sending promising talent to train with Western countries or better Asian countries such as Japan, Korea, these youngsters train in Malaysia and play in the Malaysian and Singapore leagues. Youth leagues here last 3 months a year playing around 20 matches compared to around 50 much higher-quality matches played a year in countries such as Japan. Repeat it year over year and the quality gap will be even more evident.

Even for our badminton, the sports with highest hope, we have so many world junior champions that we even lost count of them. But none of them went on to become world champion after turning professional. It was said that once they got promoted into the national team, they mix with those shuttlers who underachieved and have bad attitudes and habits (not everyone is Lee Chong Wei) and these rub off on them. This potentially explains the dearth of talent that we see in badminton. Even if our Datuk Lee wins a gold medal in Rio, I wouldn’t be surprised if we don’t qualify for men’s singles for Tokyo Olympics after he retires. If a pot of soup turned sour, you don’t pour fresh ingredients into it and hope it will turn out ok. Instead you brew a fresh pot. Same thing with our badminton team, if the current group underachieves, there’s no point of the younger talents training together with them.


5) Career pathway

Athlete’s career lifespan is extremely short. Most would have retired in their 30s and some unfortunate ones could even carry injuries with them. Malaysian athletes need to understand the importance of education for their life after sports whereby they should be given opportunity to study at certain stage. Good athletes can also go for training badges and courses and return as coaches.

If athletes know that they will be given adequate opportunities to support themselves not only during their prime but also after their retirement, this will give confidence to young promising athletes to immerse themselves in the world of sports. Back to the first point, parents would also be more supportive if they know their child have a life beyond sports after they retire.



Compared to other countries, our sports development is terribly lagging behind. The sporting culture and mentality is simply not there. Until there’s strong political will from top to bottom and implement some or all of the steps above, I’m afraid Malaysia will be eternal spectators as other smaller countries continue to move above us in the pecking order of sporting success.



  5 people like this.
bruce5113 no comment, just no hope... :-)
13/08/2016 19:58
Jay I don't like to be pessimistic but looking at both sets of our politicians (BN and opposition), I don't have high hopes. maybe one Malaysian sporting enthusiast billionaire could change our sports landscape (much like how Abramovich change football)
13/08/2016 20:09
Jay it's ok. everyone's entitled to their own opinion. the only reason sports exist is very much similar to why entertainment biz exists. people want to be entertained and is willing to pay for it and sports is part of life and culture today. besides sports is a multi-billion industry. so if sports is here to stay, I'd rather Malaysia thrives rather than sucks
13/08/2016 21:14
bruce5113 our people attitude not right, even abramovich came to rescue also same, even with world class facility, top coach i don't think can help much, accept this as reality... :-)
13/08/2016 23:55
kingcobra Malaysia Bolih aka Jaguh Kampong!
14/08/2016 21:09
Blue Laser You do the maths.
Look at the available resources, human, financial or otherwise in Malaysia devoted to sports compared to sporting giants USA, China, Great Britain, Germany, Japan etc. Once in a blue moon, an outstanding individual from a small country can beat the odds and become an individual world champion in some relatively minor sport such as badminton or squash but with the talent pool being so small, with a indigenous nurturing structure so undeveloped, chances are indeed slim Malaysia can produce world beaters regularly. Even less likely in large team events such as football, hockey, basketball or the like where multiple talents are a must. Chances are further reduced when women are not encouraged to take up certain sports.
15/08/2016 12:44
limyikwang A thoughtful article Jay, and one that resonates strongly with my personal opinions on this matter. Even Schooling's father had to forked out more than 1 million SGD to sponsor his son's time in the US. How many can afford that? Similarly I've heard of figures whether team GB spent on average GBP 4.5mil on EACH of the gold medal they won in London '12. Estimate may be off but it does provide a good ballpark feel on the extent of resources required to create winners in the world's elite sports today.
15/08/2016 12:46
thteh The answer is practice meritocracy in everything from study, sports, job applications and promotion then we can achieve greatness.
15/08/2016 12:52
Kesley Tan A third-world country.
Either invest heavily or just forget about it.

See how korea prop up their entertainment.
If you pay the sportsman well, I am pretty sure more ppl will join this field.
Nowadays, they're paid peanuts and who else is willing to risk their career on it.
Most sporsman career are short - athletes, swimmers, footballers - you had to pay them well so they are willing to participate.
15/08/2016 12:59
Jay smaller countries than us have won gold medals, so talent pool is not the major factor (if not india and china wouldn't have such huge difference in medal tally) but the talent participation rate and funding. government shd take the lead and corporates chip in, once we have the funding environment, talented athletes or their agents can go look for their own sponsors
15/08/2016 13:31
choop818 Maybe Malaysia should up the reward for a gold medal in the Olympics to RM10 million. Parents who are usually the driving force in their children's success will be tempted to invest big in sport.
15/08/2016 14:10
speakup dont look down on malaysia. we have a RM2.6BIL champion corruptor :-)
JUARA DUNIA! puts Nigeria's Mugabe to shame.

15/08/2016 15:11

MBSB: to buy or to avoid

Author: Jay   |  Publish date: Tue, 9 Aug 2016, 04:35 PM

Recently a lot of stocks seem to have spiked up with little fundamentals backing. One of it is MBSB whose share price has rallied from the low of RM0.69 to recent high of about RM0.93, so naturally I am a bit kepoh (busybody) and decided to check it out. But since I’m not really interested in this stock, I decided to do it the lazy way, by pulling out some analyst reports before I decide whether to investigate further. Few quick glance and I know that this is not my stock, at least not for now.

Here’s my findings.


Differing reports

Of the reports I have access to, so far only Affin Hwang has a Sell call at RM0.78. In fact, they downgraded it from Hold. Others mostly have a Hold or Buy with target price around RM1.10 which implies about 20% upside (which is strange as some still choose to put Hold).

A quick glance across the reports and I found some very interesting trend. All analysts unanimously agree that for the next 2 years, the provisions will remain high at above RM700m per annum and the net profit for MBSB is going to be very bad, at around RM200-RM300m per annum. So why are their target prices so different then? Basically it’s all about the P/B multiple they use. The one calling SELL is using 0.65 times while others are using 1 to even 1.6 times P/B. After finding out the root of their differences, I already know who I am leaning to trust.


So how much is a reasonable P/B for banks/quasi-banks?

Honestly I don’t know. Apart from some study on CIMB, I did not really look into banking stocks. But what I do know is that when people value banks, they always look at P/B based on ROE and asset quality. In one of the analyst report, a sector comparison table was shown (save me the work of checking myself). Highest is Public Bank (P/B 2.4, ROE 16%) all the way to the lowest being Affin (P/B 0.5, ROE 4.8%). So what is the expected ROE for MBSB? 3.0%!!! Are you even kidding me? No point checking MBSB asset quality because the fact that they are doing impairment to get up to bank’s standards means that they are far behind in terms of asset quality. And the same analyst gave MBSB a 1.6 times P/B!!! I almost gorged my eyes out. Careful folks, that’s how the so-called analysts screw you with their confusing reports.

To give these analysts the benefit of doubt, I decided to re-read their reports again to see if there are any positives. Sadly no. All I get are more bad news whereby some analysts showed that, even without provisions, the pre-provision profit has been trending down for the past few years. So this means MBSB’s problems lies deeper than just provisions.


But Chua Ma Yu is in?

That’s the puzzling thing. I couldn’t guess what Mr Chua’s game plan is. Historically he doesn’t stay invested in a counter for very long so people wonder if he knows some news that others don’t. Here’s a recent Star Biz interview with Mr Chua. http://www.thestar.com.my/business/business-news/2016/08/06/the-enigmatic-investor/

His main reasonings are MBSB has just done rights issue of RM1.7bil and, assuming 6% return could earn extra RM100m per annum. Besides, there is a possibility that MBSB could become a full-fledged bank and enjoy lower cost of funds. Then it seems like he is in at least for the medium term but is he right?

First of all, of the RM1.7bil, only RM1.1bil is for biz expansion, others are to buffer up liquidity which means return will be very little. 6% rate of return would be about additional RM66m a year. RM66m return over RM1.7bil is less than 4%, doesn’t seem very attractive to me. To become a full-fledged bank, I’m afraid that will have to wait at least 2 more years, which is after they finish impairing and their asset quality is finally up to scratch with the big boys. Do I want to wait for 2 years? Definitely no. And in one of the analyst report they highlighted that the management thinks that the regulatory cost of applying and becoming a bank is too high, so they are not actively pursuing for the license at the moment. Besides, EPF CEO himself said that it’s premature to discuss if MBSB will apply for a banking license. If both the management and major shareholder does not have a timeframe in mind, I don’t think I want to punt and wait it out.


Indonesia M&A?

Personally, I think this is an even bigger joke. If Indonesian banks want to enter Malaysian market, they can expand organically or acquire a target (ideally one with banking license). A company which clearly has asset quality issues and still got more than RM1bil impairment charge coming up doesn’t strike me as an attractive M&A target. Besides, if MBSB needs to carry out the impairment up till 2017 to get up to bank’s level, then isn’t it counterproductive to acquire MBSB and then only get a chance to apply for a banking license after 2017? Might as well the Indonesian banks go alone and get a banking license themselves instead of carrying MBSB as a burden.



With profits likely to remain shitty for the coming quarters, I’m afraid the share price movement is purely based on rumours and speculations. If some good news really comes out (you never know), then yes it may go higher. But once rumours ease, I’m afraid whoever holding the stock will be stuck for some time (possibly until end 2017). RM0.70 to RM0.80 is highly likely.

For me, since I'm late to the game and the rumours and speculations seem to have little basis, and I do not like the long timeframe of waiting for its profits to recover, I am just gonna avoid MBSB and move on to other stocks.


Labels: MBSB
  5 people like this.
PlsGiveBonus Talk like this you win liao lo
09/08/2016 17:15
TheContrarian I have already bought MBSB, what should I do now?
09/08/2016 18:19
PlsGiveBonus Follow the research house?
Tp 78 cents?
09/08/2016 19:34
Jay personally I don't like it at this price bcos if u see Affin it can trade as low as 0.5 times P/B when your profit is low. 1.15 x 0.5 = 0.58. at this price level, I'm afraid you can only hope if some good news happen, if not price will most likely be flat or go down. it's your own call, keep if you think good news are happening soon, sell if you don't
09/08/2016 19:46
TheContrarian Only shitty Affin called for a sell @ 78 sen, same shitty Affin who overpaid for Hwang DBS.
09/08/2016 19:46
Jay fundamentally I agree with their sell call, technical or newsflow could be otherwise
09/08/2016 19:49
beso sell b4 too late
11/08/2016 11:11
speakup sell mbsb, buy rcecap
11/08/2016 12:00
AlphaBetaGamma Jay: Thank you for the good writeup. Personally I think they are better financial stocks to invest in as some of the good ones are even trading at <1x P/B.
11/08/2016 15:35
sharktank ya loh, I bodoh bodoh buy and hold.lets see in end Aug I laugh die or not.
11/08/2016 17:07
PlsGiveBonus Jay secretly accumulating while writing bad news
11/08/2016 17:09
sharktank and I bodoh bodoh only look at earning, 4Q14- 393.1M, 1Q15 - 124.3M, 2Q15-85.6M, 3Q15-60M, 4Q15--15.8M, 1Q16-34.M, 2Q16-63.0M. so, it going up mah, so I bodoh bodoh buy loh. smart people like u don't buy punya. hihihi..
11/08/2016 17:10
PlsGiveBonus But that is only one method
I told there is 100 methods to choose from
What happens to the other methods
Can do a more details report and not biased on one method only?
11/08/2016 18:19
Jay haha i3 commenters are so predictable. from the number of comments I already can know whether MBSB go up or down that day
11/08/2016 19:15
Jay anyway no hard feelings, I will try to reply your queries/request. whether you take it or not is your choice
11/08/2016 19:16
Jay firstly I don't need to write bad about a stock to accumulate, and unlike other bloggers I don't think I'm that influential anyway. for MBSB I will probably only revisit it when it end its impairment program (i.e. end 2017) or if it drops below 0.60
11/08/2016 19:18
pang72 Jay...you are too good. Analyse i3 comments could come to conclusion of the fundamental of s company and predict the stock price....
11/08/2016 19:21
Jay to whom it may concern, i don't believe you are bodoh, in fact I think u thought u r smart by looking at the figures presented in bloomberg tv and judging from the last 3q, u conveniently conclude that yay MBSB is recovering. how about looking at these set of figures?

pre-provision profit 4Q14- 187.4M, 1Q15 - 259.0M, 2Q15-263.5M, 3Q15-262.4M, 4Q15--267.4M, 1Q16-257.6.M, 2Q16-254.6M

provisions/impairment 4Q14- 100.1M, 1Q15 - 101.3M, 2Q15-134.3M, 3Q15-195.6M, 4Q15-266.1M, 1Q16-218.5M, 2Q16- 179.9M
11/08/2016 19:31
Jay if you can't discern the trend, allow me to decipher for you. if you look further back to 2013, pre-provision profit averages around 300m/q. over the years, it falls to around 250m/q which tells u MBSB's problem lies deeper than provisions alone
11/08/2016 19:32
Jay why last 3 quarter profit improve when ppop is almost the same (declining actually), it's all about provisions amount, recognise less provisions higher profit that simple. so provisions are coming down? hooray! oops, management just told the whole world that they will recognise another 370m for 2016 (185m/q) and 740m for 2017 (180m/q)
11/08/2016 19:35
Jay so ppop no improving, provisions will still be at a level comparable to 2Q16, where is your profit turnaround? after 2017 maybe. if profit remains at 2Q16 level (about 70m/q), that gives u an ROE of about 4%. this is even lower than all the local banks and their lowest P/B is 0.5 times. so is MBSB special?
11/08/2016 19:40
Jay maybe I'm not sophisticated enough to know 100 valuation methods (i only knew a few) but anyone who has analyse banks/FIs will know that P/B is the prevalent method, whether you are from Goldman Sachs or Ah Kow Consultancy. Just to entertain you, DCF, EV/EBITDA, APV, cap rate, RNAV, EVA, residual value all not suitable for banks or MBSB. only possible one left is PE. estimated eps is around 4.8c, at current price 0.90 is 18.8 times PE. public bank PE is 14.6 times, wahahaha, MBSB is so special it warrants a higher PE than public bank (the well known most expensive bank in Malaysia)
11/08/2016 19:49
Jay so maybe you can enlighten me with the other 90+ valuation methods I didn't cover and how they point out that MBSB is a good buy at this level?
11/08/2016 19:50
Jay seriously guys if you want to argue that MBSB got insider news or technical breakout etc. I'll leave it to you. if you want to discuss fundamentals can you even try to do some homework? I'm not perfect but at least I'm diligent and I don't write or comment without reasonable basis or logic. I welcome constructive comments or criticisms but the least you can do is to point out where and why my arguments are wrong. but so far I don't see any....
11/08/2016 20:03
Jay I believe I have made my point on MBSB, so I'll move on until someone can give a constructive comment or criticism
11/08/2016 20:08
pang72 So how? Mbsb continue goes up tomorrow for sure
11/08/2016 20:17
PlsGiveBonus If public bank was so good why you don't write good article about it and let the forumer rate it? And public bank is cheaper now?
12/08/2016 13:37
PlsGiveBonus There is so many item in the annual report and you cannot come up with more than one valuation method, something show you didn't study the report hard enough. No time to entertain lazy people
12/08/2016 13:44
pekor Good article ! But you need to factor in that MBSB is doing impairment to be in compliance with current accounting standard. Their actual impairment on loan losses is only 25% of total impairment.
12/08/2016 14:00
Jay haih, the fact that operationally public bank is the best bank in malaysia is so undisputed even their rivals acknowledge it. it just shows again u don't even know some simple obvious facts. the only criticism people can find about public bank is that they are always so expensive, at their peak 3.5 times P/B, even now when whole industry a bit lacky also 2.3 times P/B
12/08/2016 14:29
Jay just to share with others who are interested in banks (by now I know some people are just not interested in researching), Public Bank's ROE is 16% vs industry average about 10%, cost-to-income ~30% vs industry ~50%, gross impairment ~0.5% vs ~1.6%, loan loss cover >200% vs ~100%
12/08/2016 14:34
PlsGiveBonus If dunno how to read report don't give tp 78 cents
Also 69 cents, sound ridiculous after result out
Did you mentioned you has no idea how to valuate a bank?
So how are you gonna advice sell call if you had little knowledge
12/08/2016 14:35
Jay so public is not just better, they are miles better. only negative their valuation also miles higher, 2.3 times vs others ~1 time. so does MBSB rank better than public or other local banks? ROE and asset quality ratios would have shown a clear picture (unless u turn a blind eye on them)
12/08/2016 14:36
Jay I'm issuing a public challenge to PlsGiveBonus (pls don't chicken out), since I'm the lazy bum (who spent time researching and writing articles while u comment), pls enlighten me and the wider public of at least 10 of your so called 100 valuation methods based on info from the annual report and how MBSB ranks better against other banks/FIs in Malaysia in these valuation methods. tp 78 cents is Affin's, my tp is below 60 (based on 0.5 times P/B based on the cheapest bank P/B). the fact is MBSB's ROE is so low actually they don't even deserve 0.5 times. that's my basis, how do u get your tp of >1.00 or >2.00? plucked from the sky?
12/08/2016 14:44
Jay @pekor thanks, but that only means MBSB has got away easy last time. now if they want to close the gap with banks, they have to up their standards. it's the same for banks, provisions doesn't mean the loans are hopeless but it means there are signs of stress. banks do routinely reclassify impaired loans that are performing back to performing loans. if I value MBSB, I would need to put a discount on them compared to other bank's P/B bcos asset quality, accounting standards etc. MBSB is below par compared to banks. which is also the reason why I don't value MBSB in my article cos it would be even lower than Affin's tp and it will piss even more people. calling a spade a spade seems so out of trend nowadays
12/08/2016 14:53
PlsGiveBonus Jay openly ask for lesson
I am too busy to adding my position in the counter
Anyone care to entertain him
12/08/2016 15:09
Jay just to share with interested audience, MBSB ROE 4%, cost-to-income 33% (bcos much lesser branch costs), gross impairment >7%, loan loss cover 97%. for those who hold MBSB and wishfully hope it will go up, pls don't challenge me into releasing more damaging facts on your company. financially and operationally MBSB is just not there until they finish their 'close the gap' exercise, i.e. end 2017
12/08/2016 15:12
Jay pak pak pak..... I see a big fat chicken. of course humble people will always seek for lesson bcos we accept that we have much more to learn. like what's the reason why chicken cross the road? ladies and gentlemen if u want to know the answer, look no further than asking PlsGiveBonus why he/she cross the road?
12/08/2016 15:20
Jay people who have read my articles before would know I am always open to constructive inputs, I even amend my articles to incorporate those views. so whoever has better ideas I am more than happy to learn from them. unless they are chicken, u know, language a bit difficult...
12/08/2016 15:23
PlsGiveBonus Jay so smart me is chicken little cannot give him lesson
Later he will call me chicken again
12/08/2016 17:55
PlsGiveBonus Chicken language smart person like jay cannot understand
Need to learn human language first
12/08/2016 18:01
PlsGiveBonus My chicken methods consisted of 100 valuations
It show the bank is severely undervalued, chicken meat price must go up as soon as possible, 78 out of 100 respondents agreed the valuation work.
Chicken methods only accessible by chicken and it is classified information only chicken can understand the language
12/08/2016 18:30
Jay today's the edge weekly there's a nice chart that shows the ROE/PB correlation among Malaysian banks/FIs. There is a clear linear correlation except one outlier. No prize in guessing it right... (answer is MBSB for those who hate riddles)
13/08/2016 18:16
pang72 So how? Mbsb reach 1.00
13/08/2016 22:51
Jay it's not impossible. remember the heydays of sumatec or ifca? for any counter which its price run ahead of its fundamentals, if you can time it right and exit before it falls then you will earn. if not then you will be stuck...
13/08/2016 23:00

Triplc Part 2: Time to position yourself; Preliminary target price RM2.85-RM3.20

Author: Jay   |  Publish date: Fri, 29 Jul 2016, 08:38 PM

Since this is a follow up article for Why Triplc is too cheap to ignore and Puncak Niaga's role in unlocking its value , a lot of details won’t be repeated again here. You are encouraged to revisit the previous article if you get lost somewhere while reading this piece.



Time flies. It was now almost four months since I first wrote my article on Triplc. Since then, the price has also steadily gone up from RM1.50 to about RM2.20. I would like to think that I have contributed to that rally a bit by shedding some light on the counter, but the fact remains that without some big volume players pushing it up, the price wouldn’t have moved (and in the right direction).

So before the coming major announcement, I will just do a bit of recap and also answer some lingering questions.


What has happened since the announcement?

Well, the share price happened! And the average volume has also picked up, which is good especially for companies still on an uptrend. On the company side, nothing material has come up but if you noticed, there were quite a number of additional listing announcements – basically employees exercising their ESOS. Again, it is positive as it means the company and the employees share the same interest as you and I. However, since the ESOS price is very low (around RM1.10), so there’s not much we can decipher from to get our target price.

And then there’s their financial results.


Quarterly results a one-off surprise

The financial results just came out today. It was extremely good financially but personally I have mixed feelings about it.

The profit and EPS exploded because of a contract adjustment of RM16.07m from finalization of Z1P1 contract. As I understand, these concession contracts tend to have variations when they finalise their contract but Z1P1 is like ages ago. Why do they need so long to finalise? Don’t ask me because honestly I don’t care.

What I care is that this is positive for the company as it shows the profitability of the company and its contracts as well as increase the net assets (doesn’t affect my target price but more room to pay dividend).

If you compare this quarter results with previous quarter, one big adjustment is revenue went up a lot but other operating income came down significantly. I believe the company made an accounting error previously. In previous quarters, there is one interest income on receivables. Basically, this is the interest on the Z1P2 future cash entitlement which was discounted to present value. If you recall, Z1P2 cashflow for future is extremely lucrative but Triplc only recognize a much smaller amount in revenue due to fair value accounting. This fair/present value sum, there’s an implied interest in it, i.e. UiTM is allowed to pay over such long period because it is actually paying interest for the deferred payment. Such interest should have been recognize as revenue and I think the company now has realized it.

Why I have mixed feelings then? Because for me at this stage, I don’t find it meaningful to analyse its performance anymore (since we hope that they are selling their biz). Only thing noteworthy is on the status of corporate proposals which no further information has been provided. The land disposal, previously targeted to be completed by 2Q or Nov 2016, has no targeted completion date anymore since the last quarter while the Puncak HOA is still the same standard wording.


Have my assumptions change?

No, since nothing has led me to believe that there is a need to change them. I still believe that the two subsidiaries combined are worth RM180-RM230m, or about RM2.69-RM3.43 per share. Combined with the land disposal, the company is still easily worth more than RM4.00!

I also highlighted previously why the price could be capped below RM2.00 but I guess since the good news are imminent and insiders have discovered the value, it did shoot through the RM2.00 barrier. Since the price has exceeded my previous target of RM2.00, I have tried to find another preliminary target price in which the calculations are more conservative (see calculations below).



Since this is a relatively low-key and opaque company, many readers have many questions (which I was unable to attend to, and also because it’s not my freaking job to!  Remember I'm not paid to do this). But I will take this chance to try to paint a clearer picture of what is to be expected (at least in my opinion, feel free to disagree if you have your own basis).


1. What is the most likely outcome and target price?

The million dollar question. I do think that both parties are serious in this transaction, so most likely it will happen. Target price is dependent on two factors, disposal of business and disposal of land. The land disposal we already know the value so the only uncertainty is timing and execution. Value for disposal of business is the key question. Ideally and assuming my calculations were correct, I would wish that Puncak will buy it for RM180-RM230m, but in reality I am more conservative.

If you look at cases of how companies with sketchy transparency and corporate governance track record do acquisitions, they usually get some professionals, usually accountants to play the devil’s advocate. The professionals will do up some value (depending on what the company has in mind) then the company will apply a discount and proudly announce that they are buying below the market valuation.

In Triplc’s case, since it is a RPT, Puncak shareholders will be scrutinizing the deal as well. So a discount could be possible. But even if there’s a 20% discount, we could probably still expect about RM145m-RM180m.

So if you add this together with the land disposal, divided by latest number of share that would be your target price (remaining assets should be negligible, most liabilities should go with the disposal as well).


Personally my new preliminary target price is as below:


RM140m x 30% discount

RM 98m


(RM145m-RM180m) x 30% discount

RM 102-126m



RM 200-224m

Number of shares



Preliminary target price







20% discount for execution risk and 10% for timing. Number of shares I am discounting based on 70m as I think there will be more ESOS coming in (previously assume 10% ESOS way too conservative).  This is of course preliminary as it will depend on the final disposal price. The discount will also be reduced when something more concrete is happening.

Does the latest financial result or net asset per change my calculations? No, because ultimately I believe Puncak is going to value the biz based on DCF and they probably couldn’t care less about your NTA.


2. Will Puncak takeover the whole company? Isn’t it easier to takeover the whole company?

Based on the news and announcements so far, unlikely.

Firstly, taking over the company will also probably involve taking over the land in the midst of disposal. It is of course still possible to do it but it could complicate things legally and delay the process.

Secondly, Rozali will need to decide an optimum price. Pay too high, Puncak shareholders will be after him. Pay too low, then he runs the risk of some Triplc shareholders refusing to sell. It will be especially embarrasing if he owns more than 75% (doesn’t meet public spread) but less than 90% of those that he don’t own (can’t compulsory acquire).

Buying biz only involves getting 50% of Puncak votes and probably 75% from Triplc (not 90% like takeovers).

And most importantly, unlike Chinese tycoons who like to privatize their company at cheap valuations and keep the value to themselves, I believe Rozali has different ideas.

By doing this transaction, not only can Rozali access some of the cash in Puncak (through Triplc), he is also able to unlock the value in Triplc. Without this, Triplc would have remained another back-water company with deep value hidden. The price wouldn’t have moved without the catalyst.

Besides, even after Triplc sell their biz, the listing status itself is clearly worth something. A company with Main Market listing status, squeaky clean balance sheet, no pending lawsuits etc. would be a darling for companies looking to do reverse takeovers. And in RTOs, the major shareholders usually profit by selling it to the highest bidder (off the record of course). Last I heard, listing status of good companies could easily go for 8 figures. And that money of course, will be pocketed without sharing with shareholders of Puncak or Triplc.


3. Will there be dividend?

Most likely yes. As I said, Rozali’s intent is paramount. Transferring cash from Puncak to Triplc without distributing it simply doesn’t make much sense.

And by disposing their land and/or biz, Triplc will hold so much cash that they would fall into the category of PN16 or cash companies. In layman terms, if you hold too much cash relative to your net asset, Bursa will ask you to place the cash in an account which you would need to submit a plan on how you plan to use it. It’s a hassle, having to get approval to spend your own money. Paying enough dividend would mitigate this issue.

Having said that, the dividend amount could be capped by the reserves amount. But when there’s a will, there’s a way (capital reduction is possible).


4. After selling, Triplc won’t have any biz left. Shouldn’t we be concern?

Yes and no. Yes there won’t be any future prospect if all these transaction go through. Most likely it will also fall into “affected listed issuer” category as they don’t have any real biz anymore. But that’s exactly what we bought it for.

We bought (at least I bought) into the company because it’s selling its previously undervalued land and biz. Without which it would have remained undervalued.

Besides as I mentioned above, most likely other private companies would be targeting its listing status so there will be biz. But if there’s a RTO, accept the fact that most likely your stake will be so diluted, any future prospects is really none of your biz.


5. If offer price is low, should we vote against the deal?

Just remember, the target price is made up of 2 parts, land and business. What Puncak offers is most likely for the biz only. And low is really dependent on how you see it. If Puncak offers RM150m or RM2.20 per share, is it low? By my calculations yes but then I can still draw comfort that now I know exactly how much is the biz worth. Add it to the RM140m land disposal I know my intrinsic value now is still like RM4.00 per share.

Many people who bought this share without understanding this part could be in for a rude shock when the announcement comes. Even by my calculations, the offer from Puncak is unlikely to have much upside compared to its current market cap. The biz part only make up about 51-56% of my preliminary target price.

So it is possible in a few week’s time, the news headline will read something like “Puncak buying over Triplc biz for RM2.20 per share” and some investors will panic and run for the exit.

But of course it’s your right as a shareholder to reject the deal if you think it’s undervaluing the biz of the company. Just be clear that it’s the biz that they are buying and not the company. Triplc is still selling the RM140m land separately. For me, as long as it’s not ridiculously low, I don’t think there will be enough shareholders to vote against (I personally won’t). There’s no point going against the major shareholder as well. If you don’t like the deal, sell off the shares. Period.


The unlikely outcome

What if, touch wood, Puncak aborts the deal?

Then all bets are off.

Yes the company still has tremendous value. Yes the land disposal may still be on. But without Puncak, the company at above RM2.00 I would consider fully valued. The real intrinsic value will probably only be unlocked in 10 years instead of 10 months. It will be a whole different ball game.

You could still keep it for long term investment if you want but most of the existing shareholders won’t. So expect selling pressure if this happens.

Another possibility is land disposal being called off. Again my target price probably will be cut significantly due to uncertainty of timing (despite we knowing the value now).



Assuming both land and biz disposal are completed in the next 6-12 months, the current share price still offers tremendous upside. So ahead of the announcement expected by mid-Aug, hope this article clears up your doubts and let's hope that this stock makes us a good fortune ahead.

Good luck.

The author owns Triplc shares at a much lower cost. What he wrote is what he believes  (backed by some research and a bit of speculation). Caveat Emptor for those who are entering now.

  2 people like this.
r°Moi .

Target... that 2 concessions

Rozali... will be acting irrationally... if he is buying that 2 subsidiaries... instead of the listed TRIplc

Anyway.. PUNCAK no need to buy 100% the whole... just need to acquire control.... your thought on this jayloh
30/07/2016 13:34
Jay 1. triplc is not very big, if own less than 100% (not privatised) doesn't make much sense. it is also tedious to run another listed subsidiary.

2. I also highlighted in the article that a listing shell is useful, not to mention lucrative (to him at least)

3. you assume it's irrational bcos it seems like you own puncak and not triplc shares. rozali's net worth has increased by easily more than RM20m through Triplc in the past 6 months. plus paying a fair price for the 2 subsidiaries doesn't mean he's overpaying (even though the listed Triplc is undervalued now). In any case, he doesn't lose, it's the minorities that are at his mercies.

that's why I say follow him instead of going against him
30/07/2016 16:53
Jay we can only speculate what Rozali has in mind. the fact that he chose to announce the HOA to acquire the biz instead of outright takeover would mean that he is probably leaning towards the first option
30/07/2016 20:07
r°Moi .

After the HOA announcement..... Rozali has lost more than 20m over in Puncak side... net net is a big loss

Buying the more expensive... not the listed all in and cheaper... you assume it's not irrational bcos it seems like you own triplc and not puncak shares

01/08/2016 07:52
paperplane don't play with shark. got profit take profit and say byebye
01/08/2016 08:17
Jay actually I owned puncak before this but after the HOA, I have switched over to Triplc side. Puncak's issue is more than the HOA, e.g. quarterly losses, lack of earnings visibility, corporate governance discount etc. like I said, if the chinese tycoon usually would be privatise cheap (see YTL-E) and keep it all to themselves but rozali could be different. The prop up in Triplc price by big volume (relative to its own) could be a confirmation sign. Puncak is much high profile than Triplc, so once all the good news for Triplc and bad news for Puncak is over, it would be easier for Puncak price to recover. If not, rozali can always privatise Puncak (with huge discount to cash level). Again, it's an educated guess bcos at the end of the day only insiders know exactly how this is going to play out
01/08/2016 08:34

Rules to trading small-cap non-fundamental stocks

Author: Jay   |  Publish date: Wed, 29 Jun 2016, 03:32 PM

Rules to trading small-cap non-fundamental stocks and are you too late to the Triplc party(Part 1)

Since I wrote an article on Triplc, its share price had performed well, going up by more than 30% in the past 2 months. So naturally I am getting some new questions, the most common one being “Can I still buy?” “Is it too expensive now to enter?”

For those who read my previous article, you should know by now that I tend to be long-winded (or detailed, depending on your view) and not for those impatient readers. Second, I don’t like to just say this will happen, you should take this action but rather explain why this might happen, why you should consider this action instead of the alternative.

So in this article we shall explore some interesting ideas in trading small-cap non-fundamental stocks and in between, Triplc and other stocks may be used as an example.


What are small-cap non-fundamental stocks (SCNF)?

If you google the term, most likely you can’t find it. This is because I just coined it, like now.

Small cap

Small-cap is relative, for me, it’s anything below RM300m in market cap, RM300-500m may also be considered as one.


Again for me, I limit this to stocks to those without strong fundamentals. What are considered strong fundamentals? I would include strong capable management who are known for creating value and rewarding shareholders and business that has strong moats or competitive advantages over competitors. So general characteristics would be increasing revenue/profit/margins/dividend over the years, famous brands, well known by the investing community and count reputable institutional investors as their shareholders.

Are undervalued stocks considered stocks with strong fundamentals? For the purpose of this article, no. For example, BJCorp. Just a quick glance of their net assets, market value of their holdings in other listed companies, you would know that the company is grossly undervalued. However, the name of Vincent Tan alone would scare away most seasoned investors, not to mention its convoluted corporate structure and erratic profits.

For me, I would still prefer companies that has stable business, infrequent loss making records and hopefully some measly dividends. This would at least help to filter out a lot of stocks that are essentially garbage.

So Triplc fits the bill. It is small cap (RM100+m) and its management has just been relying on government contracts and their actual capability is unknown should the contract flow stop. However, it is in a construction business and constantly making profit. Of course, if you have read my previous article, it is also mainly due to what I think, lack of appreciation by the market on its contracts value and lack of understanding on its accounting.


Why these stocks?

Of course these are not the safest stocks to invest in and it shouldn’t be a large chuck of your portfolio, especially as you age. However, these stocks are the most illiquid and could easily run-up and deliver high % to multiple times returns. Compare these to your KLCI stocks. You would be lucky if it gets you 10% return every year. Public Bank was one of the rare exceptions but it’s also in the past now.

There can also be small caps with good fundamentals. But most likely, it will not fly completely under the radar, or it won't fly under for long. Besides, while these stocks could also deliver multiple times return over the years, it happens more gradually like 15-20% a year as the management is not interested in just pushing up the price.


So what are the rules with these stocks?

I know my title call it rules, but it’s more like guidance or a summary of my prior years’ experience. For simplicity, I will summarise as below.

Rule 1: Hope for the best, expect the worst

Rule 2: Analyse like an investor, execute like a trader

Rule 3: You can distrust the market, but you must respect it

Rule 4: Do not go against the big players

Rule 5: Control your greed

Do these rules apply to other type of stocks? In general, yes but not so relevant. For example Rule 1-3, you can afford to give a little bit of leeway for good fundamental stocks. And for big caps, Rule 4 often not so relevant. But if you understand the concepts, you can always pick the relevant ones to apply for the relevant stock.


Rule 1: Hope for the best, expect the worst

This type of stocks lack moats or capable management, meaning track records are often hard to come by. Their past results often could be poor indicators of the future. I am aware of the big debate around the forum on past vs future but I won’t be touching on it.

For these stocks, you may think that it is going to get better, profits are getting stronger and outlook is good. But after a few consecutive good trending up quarters, don’t be surprised if suddenly it decline or make losses again, not due to one-off reasons. This happens more often than not. You may think that it is all set to explode, but then comes the dampener. This is the difference between stocks like Inari and Ifcamsc (Inari was once small-cap and its owner is not the most popular guy). Everyone thought Ifcamsc profit will go ballistic and it did, at least for a few quarters. Then people were busy annualizing EPS, extrapolating growth rates. All is good until profit turns out weaker, and weaker again then boom losses. In that case, what should you do? Please read on Rule 2.


Rule 2: Analyse like an investor, execute like a trader

Before you invest in these stocks, you should have analysed them (in fact, you should do that for every stock you plan to purchase). So now you have an idea about the company and you think that there’s a mismatch between the market price and its underlying value.

Good, don’t buy.

Yes it’s not a typo, don’t buy. Keep it in your watchlist first. One big difference between investors and traders is investors will buy stocks when they think it’s being undervalued, exit when they think it’s overvalued. Trader will only buy when there’s a signal for them to buy, exit when there’s a signal to run. I prefer the hybrid.

Now you know it may be good, wait until there’s a sign. Maybe it’s a surge in profit, realization of undervalued assets (land, investments etc.) or a surge in price and volume (technical signal). Exit when the previous signals reversed or your criterias set are no longer met.

Why do we do this? Because we don’t want to wait indefinitely. So what if it has a huge piece of undervalued land? It has stayed idle there for 20 years, what makes you think that the company is going to do something on it soon? Consider this, if you only enter when it is selling its land, maybe you earn 10% in 6 months. If you entered earlier, maybe you earn 50% in 5 years. If you have unlimited capital, by all means go for the latter but I think most aren’t. Without catalyst, the stock could just lie there like a pool of dead water for years. And this kind of stocks generally pay little to no dividend, so holding long term is really not to your advantage.

Not to mention profit targets and stop loss. Most investors and traders set profit targets but investors often overlook the importance of stop loss. It is ok to give more leeway for drop in price if you are buying strong bigger-cap fundamentally good stocks as it is often just a blip in the long run (you can hold these stocks for long term) and they have strong fund support (not to mention decent dividend).

But if you are buying SCNF stocks, you are more like investor cum trader. So you need to put on your trader hat as well. Set a stop loss point, if exceed, cut. Be ruthless, move on. Why? Because it’s linked to Rule 3.


Rule 3: You can distrust the market, but you must respect it

Investing is fundamentally about buying low selling high. In order to do that, you are essentially betting that the market is not 100% efficient so the price does not equal to value. In other words, you don’t trust the market and you believe you can beat it.

But for SCNF stocks, disclosures are usually scant and track record is limited. So essentially, you think you understand the company very well when in actual fact, you don’t.

There is a saying “Market is always right”. Ask any successful trader, most will trade based on flow/momentum. Investors on the other hand, fundamentally think “Market is often wrong” because that’s where they fit in. For me, when dealing with SCNF stocks you should think that “Market is often right”. That’s why if it exceeds your stop loss point, just cut. Why? Because it’s linked to Rule 4.


Rule 4: Do not go against the big players

Big players control the price of these stocks. When number of shares and liquidity are low, big player’s movement is equal to the price movement. So big players are the market. Let’s accept it, unless you are investing/trading multi-millions, our transaction is unlikely to move the market price. Imagine this, a tug of war between a big strong guy and another soft skinny guy. Which side do you take? When the big strong guy pull, you just happily pull and follow. Just follow until when the big guy had enough, let go off the rope and left, then you better run. If not, then it’s you against the soft skinny guy.

So how do you follow? There are always signs. One common one is a price surge coupled with volume surge. Here, the volume has to be compared against the stock’s usual volume. When this happens, this means the big player are in. Don’t go in immediately. Big players can be fickle and the price could just run for a few weeks/days before they rush out again. So wait for consolidation and the next price volume surge (typically smaller than the first one), then yes, you are good to go. Same thing when price drop drastically with surge in volume, meaning big players are exiting. Here don’t wait, just get out. Remember the rule, so don’t go catch the falling knife when it drops.

But how many of us can follow up till Rule 4? That depends on how good you are with Rule 5.


Rule 5: Control your greed

This is the one rule to rule them all (ignore this pun if you are not a LOTR fans).

Even till today, I still struggle to really master this rule. Greed is good, to a certain extent. Controlled greed is more like hunger, you want more. But uncontrolled greed is like playing with fire. It burns big and bright until one day it burns on you.

When you practice Rule 1-4, especially Rule 4, you need to be aware of your situation. You are not a big shark trying to swallow the others, but you are more like scalpers trying to nick something here and there. So if big sharks want to earn 200%, be realistic, aim for maybe 50%. If they want to earn 50%, you better take 10-20%.

Unless you are one of them, you will never know exactly how and when big sharks move. So to buy at the lowest point and sell at the highest point is simply unrealistic or plain impossible. So be content of buying somewhere at the start of the rally or midpoint and sell at somewhere off the peak.

I will illustrate how a person who fails Rule 5 would argue against and most likely will fail Rule 1-4.

Rule 1: What if the situation is temporary and it could reverse?

Know the stocks you buy. If it’s small cap with good strong fundamentals, you may be right, for SCNF, more likely you are not.

Rule 2: What if I don’t buy and I miss out?

Yes you won’t be there when the price starts to rally. But to think another way round, you are also not there when price just lie stagnant there for a few years or worse, decline. If you master Rule 5, you will be happy to join the ride later, forgoing some of the early gains while avoiding potential pitfalls.

Rule 3: What if the market is wrong? I could have profited.

Here, give the market the benefit of doubt. Take it as right until proven wrong. Again, you could miss some parts of the gain but it is better to control your greed and be content with what you could earn.

Rule 4: This is where big money is earned isn’t it? Especially when betting on a rebound

Yes if you are skillful enough. But then do you know when will there be a second round or more? Or even if there is going to be one? If you don’t know then it’s pure betting isn’t it? Remember the tug of war example? If you are not sure the big guy is coming back to be on your side, why stress yourself by fighting it yourself?

Many liken stock market to casino. I would like to think that to certain extent it is true. Both you need a bit of luck but at least in stock market, with a bit of homework, you can increase your odds slightly. But if in stock market, you go against the big player/banker, you reduced your odds to no different than those in the casino. 

(to be continued)

# As this article is going longer than I first thought, I split it into Part 1&2. However, due to poor response, I am suspending Part 2 for now. Sorry if you are expecting Part 2.

  2 people like this.
camelock very well said
29/06/2016 15:51
Apollo Ang small cap are easy for them to manipulate, as soon as anyone buy it will be another comcorp
29/06/2016 18:49

So Brexit happened. What now?

Author: Jay   |  Publish date: Mon, 27 Jun 2016, 03:19 AM

So Brexit happened. What now?

As Brexit can be considered a once in a decade major events, this article tries to answer everything from some background to the potential implications to the world and Malaysia as well as the strategy moving forward.  You are welcomed to read the full article but if you think it’s too long, you can skip to the relevant parts by referring to the index below.

1. Unexpected twist

2. What is the big huh-hah and why does UK want to leave Euro?

3. Lessons learned

4. Is Brexit really so bad?

5. Political noises incoming

6. What about economic effects?

7. How will it affect Malaysian economy?

8. So what will happen to the financial markets?

9. Implications on other countries’ policy

10. Strategy moving forward for Malaysian investors

11. Names to consider

12. Other names to consider

13. Alternative investments



1. Unexpected twist

Just when everyone though Brexit camp was leading, a politician’s death reverse the trend. And just as everyone thought UK is set to remain in Eurozone up until Thursday night, it turns the other way round and cause havoc in all financial markets.


2. What is the big huh-hah and why does UK want to leave Euro?

Mainly due to two issues, namely subsidies to other weaker Euro countries and immigrants.

To explain the origin and nature of Brexit in layman’s terms, think about it like your own family (UK), living within a Taman (Europe). Then other families propose why don’t we form a big family (Eurozone) and everyone can live in everyone’s house, enjoy each other’s food and stuffs. At the same time, everyone agrees to a set of house rules and will observe it when setting their respective family rules.

Everyone is happy at first since everyone thought it’s such a great concept where everyone benefits and sharing is caring. Over time, then you see some families (Greece, or PIIGS) who spend their money recklessly and are now suffering. You no longer want to go over to their houses but as part of the bigger Taman, you and other families have a responsibility to put together some money to help them (subsidy). And since it is a big Taman, some families are clearly poorer than others. Their children now come over your house and do household chores (jobs) usually done by your siblings and you (UK citizens) and get pocket money (wages) from your parents.

Over time, pissed off, some of your siblings decide to pressure your parents (leaders) to leave this Taman concept and lock your family doors again, or they will disown your parents (not electing them as leaders in next election). Feeling pressured, your parents held an open vote and more than half of your siblings vote to leave this Taman (Brexit).


3. Lessons learned

Angry crowd knows no bounds and are often more emotional than rational. So discount his chances all you like, but never dismiss chances of clowns like Donald Trump could get elected as US president.

Another lesson we can learn is individual benefits outweigh the collective benefits. Yes this is against what you learned in school but the school of life just show you the evidence. The Bremain campaign mainly focused on the negative impact on economy while Brexit campaign focused on immigrants and job issues, which clearly reasonates more with voters.

These lessons learned unfortunately lead to only one thing. That there will be more populist than sensible policies and more loud-mouthed, combative officials ride these waves into office.

One person one vote, the greatest attribute of democracy is also its greatest flaw as it also means a sensible person gets one vote just like any other irrational people. Appeal yourself enough to the irrational voters and the officials could legitimize any actions through majority support.

Not a direct comparison, but this is the exact method how Adolf Hitler got into power and how Japan went into war.


4. Is Brexit really so bad

There are many arguments on the potential long term benefits and implications of whether UK remain or leave UK so I will leave it there. Those interested can google the arguments of the Bremain and Brexit camps.

Personally I am against the Brexit. Like most people, I don’t know what exactly will be the long term implications but what I do know that short term it’s going to cause some damage to both UK and world economy. Yes Euro may be a failed concept and yes it may be potentially good in the long term for UK to leave the Euro but as world economy is struggling so badly, Brexit is like pouring oil onto fire. So regardless if Brexit is good or bad, at least in terms of timing it couldn’t come at a worse time.


5. Political noises incoming

Right after Brexit is confirmed, one of the first implications is the resignation of UK prime minister. Then there are talks of another Scottish referendum for independence and a possible disintegration of UK into England, Scotland, Wales and Northern Ireland. Brexit also gives imagination to all right wing politicians in Europe countries who have long talked about a potential exit.

So what is the significance if all these countries go and hold their own referendum to decide the places in Eurozone? First things first, the time and effort which could be used for more productive use would now be devoted to all these political talks. Politicians would be more interested in pulling votes instead of setting public policies to revive their economy. UK for example, will now see their politicians squabbling who will be the next prime minister and whoever takes office next, we can expect more populist policies designated to please the crowd and defend his/her position instead of focusing on doing the right things.


6. What about economic effects?

The main economic effects would be on free trade, capital flows as well as jobs. Free trade is not entirely off between UK and Eurozone, but at least it won’t be as close like old times. There may be some concessions made so trade relations don’t drop drastically but until a new FTA is in effect, it is not politically right for Eurozone leaders to minimize the effects on free trade as this will make other Eurozone countries doubt what’s the benefit then by staying in the Eurozone.

So economy of UK and Euro countries will definitely take a temporary blip. There are even talks of a potential technical recession for UK. I may not be a economist but I do see benefits of free trade. Some may argue that free trades are taking away jobs of locals and to certain extent, I do agree with them. But what we cannot dispute is that what may be bad for an individual has so far been good for the countries involved. In that kind of environment, it is up to the individuals to stay competitive. However, like I said earlier, an angry crowd is often not the most rational one and when they achieve critical mass, they are dangerous.

And London did not achieve its financial center status by shutting its door to other countries. UK, like most developed countries, run a trade deficit, and does rely on capital inflows from other countries to finance its growth. With this Brexit issue hanging, potential investors would be worried to invest in UK as nobody knows how bad it could be since UK is the first country to set the precedent. If you are a conglomerate who has footprints in multiple countries and looking to invest in an advanced economy, yeah maybe you can afford to take the risk. But for other enterprises which are considering which economy they should set foot in, UK may be too risky for your appetite, at least for now.

Companies who want to tap into the larger Eurozone will not consider UK anymore since it does not enjoy privilege status when dealing with other Eurozone countries. And those who are already in UK will want to move as well because of the same reason. You may think it’s premature to assume that since Brexit won’t actually happen overnight but relocation of business operations also doesn’t just happen overnight. It is a reasonable guess that many companies are now planning to either relocate or at least scale down their UK operations to focus elsewhere, especially those who have close business ties with the Eurozone.

With free trades drying up, capital flows pausing, jobs opportunities reduced, these are exactly why a Brexit is bad for UK and Eurozone in the short term.


7. How will it affect Malaysian economy?

I expect by now, there are already flurry of reports out there trying to calm investors’ nerve that Brexit has little impact on Malaysian economy. In fact, I am sure you already seen quite a bit these two days (which is precisely why I don’t want to write these until end of the weekend). The main argument would be that UK is not a major trading partner with us, accounting for only +/-1% of our exports.  But please don’t forget if we include Europe as a whole, it’s more like 10% of our exports. And even if UK is not our major trading partner, what about UK or the EU countries’ trading partners? If UK and EU suffers, won’t their economy and their trading partners' economy suffer and in turn won’t our economy suffer as well?

Rising tide lifts all boats. Same applies when it is the other way round. So the economist, politicians or brokerage houses can downplay the effect all they like, but I am more bearish on the potential effect, again at least in the short term.


8. So what will happen to the financial markets?

I get these question a lot over these two days. I would summarise my answer in one phrase, “Fear will subside but volatility is set to stay”.

If unfortunately the negative effect of Brexit does hit the world and Malaysian economy, then financial markets won’t react well. But will it be a bear market? At least now it doesn’t look like it. Of course this is only taking into account Brexit, which will happen in the course of at least next two years. But it is the unknown that could blindside us. Should there be more bad news coming in, then it may or may not be the trigger for the next financial crisis. But to predict that is simply speculative at this juncture.

My view is that markets may experience temporary blip for the next few days but after that, as people get to digest the Brexit aftermath, they will calm down and recognize Brexit as what it is, a bad news for free trade, bad news particularly for UK and Euro, but it’s not like the collapse of Lehmann Brothers or collapse of a major economy. The market may still trend down but it won’t free fall and if the market was oversold for the next few days, there could be a slight rebound.

However with directions unclear, markets may be choppy as investors simply have a hard time gauging all the news/noises incoming and wonder how they will affect the market. Funds with cash may also choose to stay on the sidelines, leading to reduced volume. All these would most likely results in increased volatility as market could simply fluctuate up and/or down.


9. Implications on other countries’ policy

One of the most important implications would be that it is almost certain now that US Fed won’t hike the interest rate by July, as some predicted earlier. For me, September is off the cards as well and they might only consider a December rate hike just to salvage some credibility on their previous guidance and show that they are still on the right path of nomalising interest rate. While I always think that ultra low interest rate is simply like feeding steroid to a wounded man, nobody wants to take the risk if the man aches a little bit more here and there. With rate hike delay, this should boost the stocks markets worldwide and hold it high up at least a little bit longer.

For Malaysia, since June is almost up, Brexit won’t have any effect on our 2nd quarter GDP numbers. But if Brexit negative sentiment continues and does hit our economy in the 3rd quarter, Bank Negara may be forced to reduce the overnight policy rate in tandem with government fiscal investments to hold our economy steady.

As for ASEAN, I believe the ASEAN vision is now over in substance. Economic integration between countries in a region would be a taboo now and ASEAN would end up be nothing but a glorified multi-country FTA concept.


10. Strategy moving forward for Malaysian investors

Unfortunately, I am now more bearish on Malaysian markets than ever. With upside limited and negatives looming, the risk reward is simply not proportionate. One saving grace is that our national funds, like EPF, Amanahraya etc. are extremely strong in terms of their fund size and liquidity relative to our equity markets so barring a financial crisis, our market will still be relatively well supported. So traders who want to trade KLCI put warrants really need to time their entry and exit well.

For the latest quarterly results released, majority companies delivered disappointed earnings. If I remember correctly, it’s 7 or 8 consecutive quarters of earnings decline for market as a whole. For 2016 second half,I will just summarise my views for the major sectors for your reference.


Asset quality may deteriorate if economies remain weak, credit cost could hit earnings. However, if net interest margin compression reduces, operating expenses come down (mainly due to VSS/MSS), this could provide support for earnings.


Price war is really killing them and doesn’t seem like it is stopping any soon. Spectrum reallocation could also affect certain telcos more than others


Defensive, more of a dividend yield play, price upside doesn’t look exciting but may see more interest now with more funds seeking safe haven


CPO price seems to hit a snag since Dorab Mistry predicted it will hit RM3,000 mt (sorry for the dig but I think this is not the first time he always make big predictions when trend’s about to reverse, hidden agenda maybe?). Production volume greatly affected due to El Nino and even if volume recovers in second half, earnings may not increase too much and most major plantation companies are still expensive in terms of PE


A very crowded sector now but at least will still be supported by continued newsflow of contracts awarded. Earnings however won’t kick in soon as companies just start their works. Better to choose bigger caps (ability to ride through tought times and any liquidity squeeze) with good exposure and chances to win MRT phase 2, LRT3 or Pan Borneo highway contracts.

Oil and gas

As a sector it’s doomed for the next one to two years. Downstream companies may benefit a little in terms of margin but it is more of a timing issue and won’t last indefinitely. Upstream will still be dependent on oil prices. With the lowest so far for Brent around $27 per barrel, I expect $54 would be a significant resistance (100% profit resistance) so price should fluctuate between $40-$55 in my opinion for the next 6-12 months. Service companies would suffer even worse as their rates won’t be revised upwards until oil price rise and sustain for a reasonable period. So even if oil price recover, their earnings will only recover much later than that.


Continue to limp along. Buyers are not rushing in and banks are generally cautious in lending with loan approvals rate dropping. Earnings should still suffer for a few quarters but valuations have dropped so low that any narrowing of valuation gap could give them a boost in price.


Office REITs will continue to struggle if economy struggles. Retail will see pressure if consumer starts to cut spending (not yet for now).  Both office and retail also expect more floor space coming up. However, Grade A offices and premier retail malls at strategic locations should still do well. For the past few months, REITs have done relatively well so upside may be limited for the short term. Fed rate increase is negative on yield vehicles like REITs, however slow the rate increase may be, but may be offset by the rates cut seen in other countries. If BNM indeed cut OPR, then it’s positive for REITs.


Consumer discretionary would see pressure while consumer staples should do hold steady. Many consumer staples also pay decent dividends but generally already trade at high valuations. If earnings don’t grow too much, price upside may be capped as well.


Prices of big tech companies like Globetronics and Inari were hit. Judging by the brokers recommendation and market reaction, earnings seem to be expected to remain weak for a while.


People still need to spend on healthcare like it or not. But healthcare stocks valuations are not cheap so buy at your own risk.


Nothing exciting. Valuations are not particularly attractive and also a victim of weaker consumer sentiment.


Shot up a lot, riding on low oil price. As I think oil price will remain range bound for some time and most of their fuel cost has been hedged till next year, coming few quarters will be positive for them. Airasia might still go up a bit if confidence return and market give it a higher PE. Airasia X is more exposed to overseas and with Brexit contagion may not be affected fundamentally.


Even Tan Chong make losses now, that should give you an idea on how transport sector is doing. Buyers thinking twice of buying or upgrading, price competition and banks shying away from auto loans, things do not look good for this sector. No potential turning point seen yet.

Export counters

On hindsight, the export theme was overplayed. Now that Fed rate hike is expected to slow down, US dollar may not strengthen much more against Ringgit. Only go for companies that still make good profit regardless of forex fluctuations.


11. Names to consider

If you read my previous articles, I spoke about SPACs and a company called Triplc. SPACs had done well for the past 18 months but the past was the past. In fact, I have liquidated most of my positions since there is not much upside left. Reach Energy maybe, but I still expect the QA to fail, meaning the return still has to be adjusted for about 15 months time horizon. Triplc has done well (went up about 25%) since I last wrote about it. I still have a strong feeling that its business can be sold for around RM150-RM180m or RM2.20-2.70 per share. Together with land disposal, this could boost the company net cash value to above RM3.00 per share. Then again it’s just my calculated guess. Details you could refer to my previous article on it.


12. Other names to consider

CIMB (if earnings recover, valuation gap may close), Suncon (strong orderbooks, potential of contract wins, potential catalyst if they get back their Syariah status), Gadang (possibility of MRT contract, lucrative JV profit), SAM (strong orderbook, riding on aviation industry growth, strong shareholder and ambitious management).

There are sectors above that may still be positive in this current environment. I may not highlight any names from those sectors as I may not have studied those companies or no obvious names comes into mind. Small caps, as always, will have gems waiting to be uncovered. If the small cap can survive through this tough time, then it is really a fundamentally strong company.

Bottom line, try to angle your investment within a shorter timeframe, say 6 months, hit and run. If any of your investment makes decent profit, it may be better to sell and lock in your profit. With uncertainty looming, no one knows what will happen next and what you thought is cheap could become cheaper over time.


13. Alternative investments

Fixed deposit will always be your safe haven especially when Malaysia’s deposit rate is still relatively decent. For forex, futures and options, this is the best time to make money but also the best time to lose your whole fortune. Unless you have been trading them for some time and make consistent profit through a reasonable and still valid strategy, please do not jump on the bandwagon.

For options, traders can consider selling instead of buying options now since implied volatility is so high. For forex, I think it’s still technically illegal to trade forex in Malaysia so I’ll stop here and advise you to do it at your own risk. Gold may enter a bullish phase now, especially as I expect Fed to hold back rate hike. I am referring to gold futures but if you want to invest through some gold deposit or physical gold, the bid-ask spread is much wider and will eat into any potential profit.

As for MLM schemes, please scrutinize them as usual. MLM as a concept is ok but sadly often abused by crooks. Just make sure the main profits earned are through real business and not through adding new downlines and is something you can sell without going against your conscience. Remember the old, boring saying, “what is too good to be true, often is”


Invest safely. Cheers.











  12 people like this.
Winson Leong A detailed analysis of the post Brexit.Painstaking efforts and much time being used to write this article. Thanks.
27/06/2016 07:51
3iii Thanks for very insightful article.
27/06/2016 08:23
Aero1 Thanks
27/06/2016 08:48
choop818 Thanks for the effort.
27/06/2016 09:50
Kesley Tan save more cash from now onwards is my advice - market don't have much catalyst. Market may / may not crash but I see chaos everywhere. With election coming soon in US this Nov . Germany next year, unresolved brexit talks.

Mr. market hate uncertainty, I would rather invest in a clear market.
The greatest pain is when you long in a down-trending market, because downtrend is always fierce and fast.
27/06/2016 09:58
zaqwerty Good analysis.
27/06/2016 12:27
MrPatKua excellent analysis. good job cheers
27/06/2016 12:36
Jay there are lots of Brexit articles out there but it's my hope that you don't see it as just another generic Brexit article and are able to take home something from it and apply to your own investment. Then the hours spent would be well worth
27/06/2016 12:47
tklim good write up...kudos
27/06/2016 18:04
饿灵易发 @2018 Like this article.

Fresh inputs. Appreciate it
27/06/2016 18:07
Abismail Waiting china to devalue yuan
27/06/2016 20:32
speakup najib say "CASH IS KING"!
hold cash!
28/06/2016 11:03
Jonathan Keung the drop in the value of the British pound has hurt those countries holding the pounds as their country reserve. China's yuan has officially included in the IMF SDR ( Special drawing rights ) . Possibilities other countries may diversify part of the currencies reserve into China's yuan. the Yuan may strenghten in the coming monhs. China monetary reserve has always remains a mystery ??? they are the biggest holder of USD etc
28/06/2016 12:10

Triplc Part 1:Why Triplc is too cheap to ignore and Puncak Niaga's role in unlocking its value

Author: Jay   |  Publish date: Tue, 19 Apr 2016, 04:55 PM

Why Triplc is too cheap to ignore and how Puncak Niaga’s acquisition is about to unlock this deep undervalued company

Disclaimer first: As only HOA is signed at this juncture with no further details available, this article is just to shed some light on the possible acquisition from Puncak Niaga, highlighting the possible outcomes and ascertain the value of Triplc.  If you prefer only concrete facts when the companies sign the sales & purchase agreements, you may stop reading here and wait until the companies announce the outcome of the due diligence.


Note: This is a longer than usual article but if you are patient enough, I shall illustrate step by step why Triplc is potentially worth more than RM4.00 per share (last traded RM1.45)

Who is Triplc?

This is how the company describes itself:

“TRIplc Berhad was incorporated in Malaysia on 23 June 1992 as a private limited company under the name U-Wood Holdings Sdn Bhd. It was converted to a public limited company on 12 September 1992 and was listed on the Main Board, now known as Main Market of Bursa Malaysia Securities Berhad on 18 August 1993. The name of the Company was changed to TRIplc Berhad on 12 December 2005.

A Bumiputera company registered with Construction Industry Development Board (”CIDB”) Grade 7 Sijil Perolehan Kerja Kerajaan (“SPKK”), today, the core activities of the Group (“TRIplc and subsidiaries”) are construction, property development, project management services and facility management services. The Company and its wholly-owned subsidiaries, TRIplc Resources Sdn Bhd and TRIplc Ventures Sdn Bhd were accredited ISO 9001:2008 by an internationally recognised certification body, Det Norske Veritas (“DNV”), for their quality management system in project management and construction.”

(Source: Annual Report 2015)


More importantly, what does it do?

If you look at its segment reporting, excluding property investment and investment holding, the main segments are property development, property construction and service concession.

A closer look at their past results, you would notice that property development generates pathetic revenue and low/negative profit. So strip down to basics, it is mainly a construction and concession company so let’s see what kind of contracts they have gained over the years.






Construction of academic block and students’ accommodations for Universiti Teknologi MARA (“UiTM”) at their campus in Taman Puncak Perdana, Section U10, Shah Alam, Selangor

RM110.41 million


Construction of Zone 1 Phase 1 works of UiTM Puncak Alam Campus consisting of main infrastructure work, hostels for students complete with recreational and sports facilities, academic buildings and facilities for Faculty of Health Science, Faculty of Pharmacy and Students Plaza

RM1.0 billion

May 2010

A 23-year concession to undertake the construction and maintenance of Zone 1 Phase 2 of UiTM Puncak Alam Campus consisting of three (3) faculties to accommodate not less than 5,000 students, hostel accommodation for 2,500 students, 10 units of fellow accommodation, multipurpose hall, maintenance centre, prayer hall, library, student centre, cafeteria and health centre.

Not available


Basically they have one and only customer, UiTM. Then look at its shareholders list, the biggest shareholder is Tan Sri Rozali Bin Ismail with about 28% direct and indirect stake.

Put it all together, no prize in getting it right, it’s your typical Malaysia crony company.

And did I forget to mention how their subsidiary’s senior MTN program manage to carry a AAA rating from MARC? Well, it’s guaranteed by Danajamin, that’s how it’s done. So your company gets the contracts from MOE, borrow money based on the contract and guarantees by MOF, sit tight and laugh all your way to the bank.  Welcome to Malaysia.



Current state of business without new contract

Zone 1 Phase 1 and Zone 1 Phase 2 construction packages are done by now.  Zone 1 Phase 2 is slightly different whereby there is also a concession part. So basically, Triplc did the construction work for UiTM for the first 3 years, then receive a fee for maintaining the building after construction is completed.

That explains why the revenue plummet from FY 2015 onwards as maintenance work carries much lesser revenue than construction.

Moving forward, based on the maintenance works itself, its earnings will remain subdued, most likely RM5-6 million a year, which means it is trading at about 17-20 times PE. It does however have a large net asset base, at about RM152m compared to its market cap of less than RM100m, or RM2.30 per share compared to its last trading price of around RM1.50 per share.


Timely contract boost

Just as their revenue and profit dries up, they are awarded another contract last February. Guess what? Now it’s Zone 1 Phase 3 of the UiTM campus. This time round it’s RM599m for construction in the first 3 years plus another 22 years of maintenance concession.

To recap, they also announced last September they are selling 338.67 acres of land located in Bandar Sungai Buaya, Mukim of Serendah, District of Ulu Selangor, State of Selangor Darul Ehsan for a total disposal consideration of RM140,148,420.00 to be satisfied entirely by cash. This piece of land is carried in their books at about RM37.2m. Once it is completed, you are looking at a whopping gain on disposal of RM100m which is above their market cap.


Possible outcomes

So what is Puncak buying actually? As there are scant details now, we can only speculate.  A general offer is unlikely although not to be ruled out. Most likely outcomes are the acquisition of Triplc Medical (Zone 1 Phase 3) or acquisition of both Triplc Medical and Triplc Venture (Zone 1 Phase 2).


What will the price be like?

Honestly, I don’t know. What I do know that it is unlikely to be reasonable for the transaction price to be determined based on PE or PB. It’s a concession, so most likely discounted cashflow will be used.

But lacking the details, DCF is difficult to be applied, so I’ll be using some shortcuts here and there.

For the Uitm projects, I will try to find out the fair value of Triplc Venture first (Zone 1 Phase 2), then I will use it as a proxy to derive Triplc Medical. Phase 1 is not used as proxy as there is only construction element and not concession.


Fair value accounting

Not much details are provided for Z1P2 contract. So if you look at the construction revenue for FYE 31 May 2012 to 2014, revenue recorded was about RM350m.  Here’s where it gets interesting. During 2012-2014, the revenue and profit shot up and they dried up in 2015. This is understandable as from 2015 onwards, the only revenue and profit they recognise will be those of maintenance which is much lesser compared to construction.  However during 2012-2014 their cashflows were extremely bad but they improved in 2015 onwards.

A closer look reveals that most of the construction costs will be paid by UiTM in the form of availability charges which comes to RM42m per annum.  So over the 20 years period, Triplc should be paid RM42m x 20 or RM840m.  This is confirmed if you look at c(i) of the deferred tax section in the annual report.


This means that the Z1P2 contract value is around RM850m instead of the RM350m revenue recognised. This is due to the fair value accounting whereby the revenue is recognised based on the fair value of the consideration received. In this case, the deferred cash payment of RM42m over 20 long years. So that means they can only recognise RM350m revenue but the actual cashflow will be much bigger.  This is why this company has been flying under the radar as its revenue and profit are nothing special, but it will be extremely cash rich in the future.


Z1P2 valuation

So now we have a rough grasp of their accounting, let’s value Triplc Ventures.


As the construction started from 2011 to April 2014, I took the amount due from customer’s amount and make a comparison. From there I estimated a contract revenue of RM353m which approximates what has been recognised in the 3 years income statement.  I also discounted RM42m over the 20 years and include the RM11m above, getting about RM355m. So this confirms what we previously established whereby nominal value of the contract may be RM850m but actual recognised revenue is only about RM350m.

(Correction: As pointed out by kind reader, the Z1P2 contract value is RM266.5m, so included in the above calculation are probably some other construction contracts. So when I estimate the margin below for the Z1P3 contract, it is more of a blended contrcution margin instead of exclusively Z1P2.)

Using similar methods, I get the contract cost, profit and profit margin. These are important for the valuation of our next company.

So the project cashflow should look like this.


However, not to forget that they have interest cost and still need to pay off their debt. So my rough estimation of the cashflow should look like the table below. (cashflow discounted using 7.5% as disclosed in their  annual report)



And since we are now in 2016, if we shift the timeline to estimate the DCF.


(As mentioned above, contract value for Z1P2 has been pointed out to be RM266.5m.  However, assuming Z1P2 margin is similar to Triplc overall construction segment margin, the above calculation stil stands.)

We can also see from the annual report where it states that the amount due from customer is actually also fair valued. 

If you recall from the contract revenue table, the amount due from customer is about RM340m, which means this RM340m is equal to the management’s estimate of the fair value of the future receipts from UiTM for Z1P2. But this is before accounting for interest (and maybe tax) and debt repayment.  If those are taken into account, the equity value would be much lower.

In other words, I am estimating Puncak should pay a fair value of about RM80m to access the RM800m in the future and take on any future interest, tax and debt repayment (about RM275m).


Z1P3 valuation

Based on the above margin estimated, we estimate the Z1P3 contract details as follows.

Let’s make another assumption that everything is similar to Z1P2 including the borrowings structure (amount raised relative to cost, repayment schedules, interest etc.).



Which means the fair value of Triplc Medical is about RM100m.


Bullish case


The above valuation was premised on Triplc Medical getting RM599m in future payments, so present value of revenue, costs and profits are much lesser.  But as rightly pointed out by one of our forumers, it is likely the RM599m is present value! Links please see here: http://www.thesundaily.my/news/1594972


It fits. Uitm, hospital, RM599m etc. But knowing politicians, they always exaggerate things so I’m not going to consider the RM8.2b but apply similar assumptions as Z1P2. So project details and DCF value should be as follows.




So even if they only receive RM1.5b and not RM8.2b, we can expect the value to go up by almost 60%.


Summary valuation


In summary, I am valuing the subsidiaries of Triplc as below:



Approximate fair equity value

Triplc Ventures


Triplc Medical



I do note that my valuation does not take into account general operating costs .  My rationale is once construction is completed, renting out the campus should not incur much cost. Do also note that the calculations above only take into account the construction element of the contracts and not the maintenance part. So all in, I do think the maintenance income is sufficient to offset the general costs.

Recall that Puncak has received about RM1.5b from disposal of its water business. After paying special dividend about RM0.5b, they still have RM1b warchest. So they won’t have any funding problem if they really want to swallow these 2 main subsidiaries of Triplc. 

My speculation is that they will acquire 1) Triplc Medical or 2) both.  It does not make sense for them to acquire Triplc Ventures only. Yes cashflows are great but not much revenue or profit can be recognised, which may not appeal to Puncak shareholders.


Protection of shareholders

The crony companies are usually infamous for their poor corporate governance standards. However in this case, as Rozali is the major shareholder of both Puncak and Triplc, it is a related party transaction. Therefore, independent advisers will need to be appointed to advise the minority shareholders of both companies (assuming the transaction is substantial enough for Puncak). Well, I always doubt the independence of these so called “independent advisers”, but with these provisions in place, at least the advisers will try to make the price “look fair and reasonable”.  In the case of Triplc, if indeed Puncak is buying both subsidiaries, this may be a major disposal and would require at least 75% of shareholders’ approval (excluding related party).


Fair value per share


If you have read so far, congratulation on your patience and let’s get to the most important part. Since the catalyst of the company are disposals, I prefer estimating the fair value based on net cash per share.

Disposal of subsidiary


Disposal of land


Net cash excluding Triplc Ventures debts

RM  25m

Total equity value




Shares outstanding


Add:ESOS (assume 10%)


Total shares


Blue sky scenario valuation


So current share price is extremely cheap!?

Yes but it’s cheap for a reason.

Firstly disposal of subsidiaries value is based on my estimate, whether the acquisition happens and the details remain unknown.

Secondly, disposal of land is targeted to be completed by end 2016.  Who needs 1 whole year to complete disposal of land? I did mention about these companies’ corporate governance standards right?

So until these 2 catalyst actually happen, the price is unlikely to shoot up anywhere near RM2.00, let alone RM4.00. 


But I think it’s still too cheap to ignore this company!

Even without Puncak, the company

1)     Is profitable every year;

2)     Cashflow expected to get better;

3)     Holds the Z1P3 contract;

4)     UiTM continuous contracts;

5)     Danajamin assistance for financing;

6)     Disposal of land will unlock value which is higher than current market cap; and

7)     Potential of special dividend or capital repayment (once disposal completes, they probably have to distribute most of it to avoid falling into PN16)

Of course I will have to update my assumptions once the S&P is signed. Until then, whether you choose to enter now, enter later pending announcement or shy away from this company, thanks for reading this far for an extremely long article.


#The author do hold Triplc shares and all above estimations are based on his understanding on the company’s accounts.  If there are any errors, please feel free to point out. Thanks.

Labels: PEB
  3 people like this.
Jay please do note that inclusion of debt and interest increases the DCF value. this is because their finance costs is lower than the discount rate
20/04/2016 06:53
Ricky Yeo You have to be careful with the DCF calculation. For the venture, only 20% of the DCF value is accounted for in the first 10 years, and 51% for medical. If you only go as far as 10 years, those 2 will only come up to EV of 235mil or $3.26.
20/04/2016 08:23
Jay @Ricky Yeo thanks for the comment. yes I agree with you as they need to pay off the debts in the earlier years. the company will only reap the benefits in later years
20/04/2016 08:51
Ckk2266 Z1P2 contract value was RM 266.5m....(AR2012 pg14)
20/04/2016 13:27
Jay @ckk2266 thanks for highlighting that. missed that one out but the valuation shd still b correct as we have entered the availability charges phase. that estimation was only to try to estimate d profit margin
20/04/2016 13:52
Jay there are no details on Z1P3 contract yet. If Z1P2 was RM266m but actual payment was RM850m over 20+ years, I wonder if the RM599m Z1P3 the actual payment would be over RM1.5b? what I'm estimating now is the opposite, meaning RM599m as actual payment and revenue/costs/profits are much lower. If indeed is the other way round, the value of Triplc Medical could b mind blowing
20/04/2016 13:55
Ckk2266 Very lucrative concession projects
20/04/2016 15:06
Ckk2266 jayloh : for reference
20/04/2016 15:12
Jay @ckk2266 thanks a lot. indeed mind blowing!!! maybe I'll try doing a separate scenario if that is true
20/04/2016 17:07
Jay thanks guys for the inputs, especially ckk2266. there's really only that much I can do in half a day after they announce the HOA, that's why all your feedbacks are much appreciated
20/04/2016 17:08
Ckk2266 :)
20/04/2016 17:35
Jay hi guys I have added a section based on the sun article. now let's see how this all pans out :) market cap now is only RM100m
20/04/2016 19:25
Ckk2266 The Goose That Lays the Golden Eggs
21/04/2016 12:52
Ckk2266 http://youtu.be/VUNkhYMcBbU
23/04/2016 11:35
Ckk2266 http://www.marc.com.my/index.php/marc-rating-announcements/511-marc-affirms-its-rating-of-aaa-fg-on-triplc-ventures-sdn-bhd-s-rm240-million-senior-mtn-programme-30102015
11/06/2016 09:05
Richard Wong www.facebook.com/HollandStock

11/06/2016 14:16
Richard Wong 被严重低估的"建筑"股
Triplc 5622
5)今年4月18日与Puncak Niaga签了售卖生意意向书,如果成功,每股现金将增加到RM3.5-RM4.5之间!
2)Puncak Niaga放弃收购(可能性不大,因为Puncak和Triplc有相同的大股东)
买股最重要不仅是要买低估的公司,也要配合时势。估计8月18日Puncak Niaga将会出价买Triplc,这是一个股价被大幅炒高释放价值的最佳时机!
11/06/2016 14:19
Jay hi @richard wong, is that your FB page?
12/06/2016 09:01
TheContrarian Why today drop so much?
18/08/2016 11:40
Jay HOA was delayed for another 3 months
21/08/2016 22:32


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