3Q18 result was higher compared to last years (eventhough revenue was lower) due to the completion of the 161 double storey shop office of Taman Sri Penawar project which bring in more margins.

4Q18 result should be lower compared to 4Q17 but mainly because the last year's result was the highest driven by the completion of the Pinnacle Tower. That being said MBworld should still be able to record a PAT of around RM10mil.

Investors need to be ready to see a negative growth PAT in 4Q18.

Hi KLCI Going Heaven,

Wouldn't recommend you to put all your eggs in one basket. Better to diversified a bit of your portfolio. You can never be 100% sure what will happen.

If you are looking for stocks outside of construction of property industries to diversified into, i would recommend MBMR. The company is a direct proxy to Perodua via its 22.6% interest. Valuation is cheap at only 5.3x PE (based on target FY18 PATAMI of RM145mil. 9m PATAMI is already at RM106mil). PB is low at only 0.5xBV. 4Q18 results is expected to be higher than 3Q18 and last year 4Q17.

Please go through analyst reports (https://klse.i3investor.com/servlets/stk/pt/5983.jsp) and do your own analysis before making any decisions.

Good luck. Hope Econbhd would rebound back soon.

Was very surprised by the sudden drop of revenue from above RM100mil per quarter to only RM11mil. I am not sure if this will be permanent or just a one off very bad quarter.

From my understanding, they still have firm contracts in their books. Some of the contracts are listed below:

RM366mil for the helicopter contract to Malaysia Army.
RM 120mil for the remaining 2 patrol vessel to be deliver to Malaysia Maritime Enforcement
RM20mil decommissioning work from Petronas.
RM138mil MRO contract form Malaysia Defense.

That being said, most of these contracts are won before the general election. So i am not sure if the current government is reviewing them back or not. 80% of Destini order book are from the government.

Valuation wise, we need to wait to see the future PAT of the group first. I don't think past 12 months pat is reflective of the company current situation.

Company net asset is 44sens per share but if you exclude the RM206mil intangible the book value actually drops to only RM0.26/ share. Most of the remaining tangible assets is in trade receivables (RM515mil) which is most probably due from the govt. I think the govt would honor that, just it might take some time for them to pay. At 19 sens per share, the company is currently trading at only 0.7xBV.

Might be safer for those that are interested in the company to wait for next quarter result in order to see if the low revenue level is permanent or not.

For those that are already invested, you might need to be ready to face some volatility if you decide to still hold onto the stock.

Destini is not the only one facing uncertainties from govt contract (Prestaring, Dnex, Myeg, MRT and LRT players to name a few). But in the end, the govt has always been able to find a middle ground in its tough stance when renegotiating with businesses.

If you are looking for companies that are not exposed to govt contracts, i would recommend MBMR. The company is a direct proxy to Perodua via its 22.6% interest in the company. Valuation is cheap at only 5.3x PE (based on target FY18 PATAMI of RM145mil. 9m PATAMI is already RM106mil). PB is low at only 0.5xBV. 4Q18 results is expected to be higher than 3Q18 and last year 4Q17. Please go through analyst reports (https://klse.i3investor.com/servlets/stk/pt/5983.jsp) and do your own analyse before making any decisions.

Good luck.

4Q18 result was lower than expectation. PAT was lower mainly due to the high tax rate of 66% of PBT. That being said PBT of RM26.1mil is still lower compared to 4Q17 RM26.6mil.

Lower PBT mainly from disappointing result of plantation division which recorded a loss of -RM5.4mil due to forex loss of -RM9.8mil and lower average selling price of CPO and palm Kernel.

There was one exceptional item that caught my eye. A land donation amounting to RM9.5mil. If you were to exclude this, PBT would have been RM35.6mil.

At current price and based on a trailing 12 month PATAMI of RM69mil, the company is currently being valued at 9.9x PE. However given the below par result of 4Q18, i am not sure if PATAMI will sustain at that level for FY19.

Would suggest to wait for next quarter result before making decision to buy into the company.

For those that are interested in Property stocks, you could look at both Ewein and Eupe. Valuations are low in terms of PE and just like MKH, they are also trading at a discount to their book value. Both are expected to post better profit results for coming quarters.

For plantation stock, i have yet to seen any stocks that are currently trading at low PE (after excluding none recurring items) but i think this is normal given the current market condition where CPO is currently at the bottom. Feel free to suggest if you manage to find any.

Other stock that you might want to consider is MBMR which provide direct exposure to Perodua via its 22.6% interest in the company. Valuation is low at 5.5x PE (target 2018 PATAMI of RM145mil. 9m PATAMI is already at RM106 mil). PB is less than 0.5x.

Regards.

Quarter result out..

Rm12.3mil PATAMI..


Good result. Should cotinue towards 4Q18.

Hi magus,

Agree with you that the USD might effect the purchasing cost of Padini. However given that most of Padini suppliers are based in China, i would expect management to renegotiate some of the purchases since the Yuan also has strongly depreciated vs USD, cotton price has come down vs 2Q18 and the effect of US tariff to China (i believed most chinese suppliers would not want to risk losing customers outside of the US given the uncertainties of the trade war).

If you look at previous quarter results, gross margins actually has always ranges between 38-43% of revenue. Given that rental and staff cost are mostly fixed (still increase year on year to reflect the higher number of outlets, higher rental etc) pat margin of the group will highly dependent on the level of revenue that the company can achieved.

Investors need to wait and see next quarter results to know if the revenue level could go back up to above RM400mil like the previous 3 quarters.

That being said, even if the company managed to record full year PAT of RM200mil (or RM50mil per quarter), valuation wise, the company is still currently trading at 15.7x fwd PE. Which is still expensive for my taste.

If revenue going forward maintain at a level as the most recent quarter and let say margin improve a bit for the company to record a PAT of RM100mil (or average of RM25mil per quarter), current share price values the company at 31.3x fwd PE. Very expensive unless management has plans to increase the profit substantially (online maybe?).

Out of curiosity, where are you investing now magus? is it in FD?

Thanks.

The company does not dissapoint investors in delivering profit growth since fy2015. And i would not doubt of their abilities to grow them again in FY19.

Its just that at the current price, even if the company managed to deliver a Patami of RM35mil for FY18 (9m patami is rm23.6mil) that would still translate to Fwd PE valuation of 25x.

Maybe those that are invested can provide a target profit for 2019. Or maybe the company has any future potential products that might help increase the earnings substantially in the future ? notice they spend a lot in capex. Maybe is it for r&d?

Proton revenue went up substantially (70%) compared to last year but mainly due to the positive effect of tax holiday. Expect Proton revenue to taper down in this quarter. All this is expected.

Positive catalyst will come from the potential demand from X70. Currently there is already more than 10,000 bookings for the SUV but we need to wait and see whether these bookings can be converted to firm orders by customers (still don't know the pricing of X70 yet).

As mentioned previously, the full turnaround effect of Proton (which would mean the turnaround of DRB Hicom) can only be seen in 2019 once the X70 is launched. So financial wise you can only see the effect in 4th quarter FY19 (period Jan - Mar 2019).

So those that are investing in the company for the potential turnaround need to wait for 4Q19 result to be out to see the full effect of the turnaround plan by Geely (result to be out end May). Proton still has licence to sell 2 other Geely car models but this is only expected to be launch in 2020 the earliest.

Those that would want an indirect exposure to Proton can buy either Pecca or MBMR. Which are both profitable companies.

Pecca is the main manufacturer for car leather seats in Malaysia. They might managed to clinch manufacturing contracts for the X70 once Proton decides to start manufacturing the vehicle in Malaysia next year (most probably mid of the year). Currently the company's domestic exposure is mainly driven by Perodua and Toyota sales. They also export their products overseas.

MBMR has always been the auto component manufacturer for Proton (via their subsidiary Hirotako Holdings where they manufacture the airbags, seatbelt etc). Currently both companies are still negotiating on the potential of MBMR supplying the alloy wheels for the X70 (still not finalise due to pricing issues ). MBMR is also a direct proxy to Perodua given it has a 22.6% interest in Perodua. Currently valuation is cheap at below 5.5x PE (2018 expected PAT of RM145mil. 9m PATAMI is already RM106mil). The company is also expected to launch their own SUV priced at between RM70k to RM80k (so not really a direct competitor to x70).

Good luck

Hi Bravozulu,

Quarter result should be above RM10mi if not higher since Ewein now control 89% (from 60% previously) of Ewein Zenith Sdn Bhd (City of Dream first phase is park here). They had increased their stake in the company back in May just after the election.

Work progress for the City of Dream from July to September should be normal as what was indicated by the CEO back in August.

https://www.thestar.com.my/business/business-news/2018/08/28/ewein-sees-record-revenue-on-city-of-dreams-project/

If you have doubts, maybe you should just wait for the result which should come out today.

Regards.

If u strip out the impairments, Armada is still actually posting operational profit which most probably will continue as most of the Fpso/Fpo contracts are mid to long term. Not sure if there will be further impairment in the future (my guess is it won't be at the magnitude of the past 2 quarters if any)

What is worrying is actually on their balance sheet in particular the short term debt which currently is around RM6bil vs current asset of only rm3.5bil (of which rm1.5bil is cash).

Unless the company managed to renegotiate with its debtors, i think Armada will need to do some sort of capital raising.

That being said, cash flow from ops has improved significantly vs last year.

Hope management will be able to renegotiate with the creditors to seek deferment of payment which i think will be a positive catalyst to investors.

Good luck.

Hi Daily8,

I don't think econpile is the only piling contractor in the Malaysia. But u are right to point out they are the preferable contractors due to their ability to deliver the projects on time and on budget.

Aminvest is just being cautious in coming up with the TP as most property and construction companies are currently trading below 10x fwd earnings. That being said, if the company managed to improved their profit margins in the coming quarters, it might be a signal for a rating or valuation improvement.

Like i said, if u decide to invest in the company u will need to look beyond 2019.

Impairment amounted to Rm171mil. Without the impairment core profit should have been RM73mil. Highest for a single quarter i think. But not sure if its sustainable. Need to go through the numbers in more detail.

Investors need to slice the numbers first before buying or selling. Good luck.

Hi Daily8,

I think the reasons for the fall of the stock price are both the market sentiment and the negative growth of earnings .

I think investors are just worried that the margin compression that we see in 1Q19 is here to stay. The negative outlook of the construction and property industries might make it challenging for the company to asked for higher margins from their clients now that there will be a lot of contractors eyeing for a smaller pie of future projects.

That being Econpile has always proven its capabilities to create value to investors. I guess investors need to have a longer term investment horizon when buying into this company.

Hi Hahagang,

Yes their debt actually increase compared to last year. But in term of net gearing it is still only 15% of equity. Still manageable i think.

Market is a bit gittery at the moment. Econpile being in the construction industry faces double the impact compared to others (just like o&g industry)

In terms of valuation, the company should be able to get at least RM60mil in profit. At the current price, thats around 9.5x fwd PE which is actually not that expensive. Just that investors need to be prepare to faced the volatility as highly likely that the PAT recorded for the 2Q, 3Q & 4Q of FY19 would be lower vs those recorded in FY18 (it would show -ve growth).

But in the end a bottom will be realised (it can't just keep going downwards) given that it is still a profitable company.

Good luck.

Perodua car sales in October was 19,528 cars which is a 106% increment compared to September sales (which had production issue for Myvi). The sales number is also higher by 18.4% when compared to Oct 2017 sales of 16,491 cars.

If trend continues for Nov and Dec, expect Pecca 2Q19 result to improved further.

Other stocks with exposure to Perodua are MBMR (holds 22.6% interest in Perodua) and UMW (holds 38% interest in Perodua).

Perodua car sales in October this year was 19,528 cars which is a 106% increment compared to September sales (which had production issue for Myvi).

The sales number is also higher by 18.4% compared to Oct 2017 sales of 16,491 cars. If the same trend continues for Nov and Dec, we should expect that MBMR to post a PATAMI of above RM40mil for 4Q18. This will bring the profit to around RM145mil for 2018. At current valuation that is only 5.2x PE.

The company is also expected to finalised on the export deal with Citic Dicastal soon which will increased the production rate of the alloy wheel division.

Hi alan,

I admire your enthusiasm. However, unless you can prove that Mr Yap had really done something wrong, i think the outcome of your actions might not deliver the expected result that you wanted.

I doubt you can force mr Yap to sell his shares in the company. I don't think QL is still interested after their attempt back in 2014. I think Mr yap selling off his warrants is due to forced circumstances. The warrants' accounts are all pledge accounts which means its highly likely that they are all margin accounts. I think he is selling just so that he can managed his margins level.

What worries me is that your actions might actually has adverse or negative impacts to the share price as some shareholders might get worried (they might have doubts on the company's corporate governance for example) and start dumping the shares. And if my thesis is right, if share price goes down again below the next support level, some of those that are holding this stocks based on margins might be forced to sell again (mr yap included) and bringing down the price even further.

I think it is better for u to reanalyse back the conpany's fundemental and then decides whether to hold on to it or find better stocks that fit your investment objectives and horizon.

Good luck.

I can't highlight enough that this counter is the most attractive counter in Bursa in terms of its low valuation and also the profit growth that it offers. The company holds a 22.6% interest in Perodua. Another listed company with exposure to Perodua is UMW.

At a target PATAMI of RM145mil in FY 18, PE valuation is still only 5.3x PE.

The profit is also expected to grow in FY19 backed by the still high demand of the new Myvi (22k firm orders yet to be delivered as of Sept 18) and also the new SUV which will provide a new range of customer based. This is because the SUV price of RM70k to RM80k does not coincide with any other Perodua products (currently the higher price vehicle for Perodua is Alza at RM63k). So those that are interested in the new SUV will most probably be new segment of customers. Production for the SUV has started in October.

Other positive catalyst for the MBMR would be:

The breakeven (or even profit) of alloy wheel manufacturing division (expected to sign an export agreement with Citic Dicastal by this quarter). New Myvi and New SUV are both using MBMR's alloy wheel.

Higher demand orders from Proton for the auto component division especially for the new X70 which is expected to be manufacture locally next year. Management is still in negotiation with Proton's representative.

For FY 19, I am targeting a PATAMI of RM160mil. Which at the current price only values MBMR at 4.8x forward PE.

PB is only 0.5x BV with cash balance of RM 222.5mil.

Free cash flow is positive and expected to increase further.

Good result mainly from the lower tax rate and also the contribution from the new Nibong Tebal shop lots (parked under investment in segmental report).

Hi i3lykan,

Agree with you that the attractiveness of the companies could be enhance if they start paying dividend. That being said, management did do a bonus issue last year which you can consider it as dividend.

I believe the reason for the management to do this is to conserve cash and put them into investments (such as new production lines, new investment properties like the Nibong Tebal shop lots and Georgetown hotel) which would help increase the bottom line in the future.

At the current price the company is currently only trading at a valuation of 6x PE. I am expecting a PAT of RM18m for FY18.
PB is only 0.5x
Cash from operation is positive but money will still need to be put into completing the hotel which is expected to open its doors next year. Once that is completed, free cash flow is expected to increased which might provide the possibilities for management to pay dividend or ventures into other investment that will help increase the bottom line. Both are fine with me.

Regards.

Hi enid,

Thanks for the explaination. Hope MKH can post good result for 4Q18.

Hi Icng,

Ur right. i was using the financial result announcement as reference to the payment date. Should have used the entitlement announcement instead.

Thanks for correcting me.

Hi Carry,

Just want to inform you that Sime Darby Berhad no longer has any exposure to the plantation industry. They spun off that segment end of last year which is now under Sime Darby Plantation Berhad. Another division that was also carved out was the property segment parked under Sime Darby Property Berhad.

Hi icecool,

Analysts (Aminvest, Kenanga and Public) are predicting that the company could fetch a PATAMI of RM825mil in FY19. At the current share price, that translate to a PE of around 20x which for me is consider a bit on the high side. Maybe you have a higher profit target? Can you share the potential catalysts for this stock? The same analysts also has an average dividend target or 7.5 sens or a dividend yield of 3% for FY19.

That being said i would not worry much on this stock falling down too low (if ever) since it has a lot of institution investors in it in particular PNB (under Amanah Saham Bumiputera).

Hi enigmatic,

The reason for the share price fall is due to Apple recent action of cutting its production orders of all 3 types of iphone due to lower than expected demand. This has effected its direct supliers outlook which includes those of its Swiss proximity sensor supplier, AMS AG. Shares of the company has dropped from 120 swiss franc in march to current price of only 27 swiss franc.

Globelectronic's main client for its sensor division (which contribute 40% of its revenue) is AMS AG.

So the fall in price is actually a market reaction to the potential negative financial effect from AMS. Orders might be lower in the future or AMS might want to renegotiate on the price which will effect Gtronics margin. However, I think you will only see these effects in 2019.

Hope that answer ur question.

Hi HYG,

MARC is making its assessment based on FY18 results and financial position of DRB. What they are saying is actually known already by most investors in the market.

I think they are still skeptical on Proton turnaround plan. To be fair to DRB, results of the turnaround plan can only be seen in 2019 when the new SUV is launch to the public.

I think the 2Q19 result (should be out next week) will still be negative for Proton even with the tax holiday period . We will still need to assess on management decision to absorb the SST from September (would mean that gross margin will drop by 3-4%). Based on the September car sales numbers, the strategy actually backfired as sales still drops vs august period (4,524 cars sold in Sept 18 vs 9,501 cars sold in Aug 18). For those that are invested in the company due to the potential turnaround of Proton, you need to be fair to DRB and give them at least another 6 months (or until 4Q19 is out) to see the result.

All in all, 2Q19 should be a bumper profit period due to the RM700mil gain in disposal of Alam Flora back in August. That being said, core business results would still be negative.

In terms of valuation, you can only value this company based on the book value method as core earnings is still negative. At a P/B of 0.6x it does look undervalue but take not this "value" can only be unlock if the company decides to sell/disposed of the assets as what they did with Alam Flora. If there is no disposal during Oct-Dec period, DRB would most probably record a negative result in 3Q19.

Feel free to comment if i might have miss out anything. Thanks

Icng,

Average CPO price for 4Q18 (jul - sep) was around RM2100 - 2200 per MT. Hence why i think that the plantation division profit contribution should still be above RM10mil.

However for 1Q19, i might be a bit worried. The CPO price tumble last week to RM1,716/MT on thursday which was the lowest since 2008. Hopefully it will rebound back soon.

Regards.

Hi icng,

I think they still can record a commendable profit for 4Q18 based on their performance on 3Q18. The biggest risk to profit for me is the weak rupiah rather than the lower selling price of CPO. Hopefully there are no longer any delay in the progress of Hill Park Shah Alam.

Dividends are normally announce in 1Q result (in Feb) and paid in 2Q.

Another undervalue company.

PE below 4x.
PB around 0.3x
Steady cash flow from the progress of Novum Bangsar project.
Will need to see the take up rate for Parq3 Cheras whether it has improved or not.

Future growth will come from Vivus Seputeh.

Only issue is their resort in Kedah. If they can turn it around it will be great.

Hi Lim,

Yeah u are right.

Muda profit was high in 3Q18 at RM25mil. However wondering why the PAT is a bit volatile. For the past 2 years PAT ranges from a low of RM500k to a high of RM35mil. Do you know why? Will study it later.

Not sure why Orna is up. Maybe investors are anticipating similar profit improvement like Muda.

There is an article about the company in today's Focus Malaysia if you guys are interested.

MBMR result just came out yesterday. Associate profit for 3Q was RM39.2mil (for 22.6% interest in Perodua). This means that Perodua recorded a PAT of around RM173mil in 3Q18. UMW 38% in Perodua should record a PAT of RM66mil. Toyota profit contribution should also be in the same range which would provide a bumper profit contribution from the automotive division. Total profit for the division should range somewhere around RM150mil

However, investors need to be prepare for a still big losses coming from the aerospace and also the unlisted O&G divisions. I am anticipating a combined losses of RM100mil for these two division combined. It may take a while for the aerospace division to breakeven (hopefully by next FY).

Equipment profit (excluding gain on disposal to Komatsu) should be around the range or RM35-40mil.

Positive catalysts would be:

1) The growth of Perodua profit in FY19 from the still high demand of New Myvi and the introduction of new entry level SUV.

2) The breakeven of the aerospace division.

3) The disposal of all major unlisted O&G companies

4) Growth from heavy equipment division from potential new products introduce by Komatsu.

Issues facing UMW for the near term will be its cash balance (they still need around RM1bil to complete the Bukit Raja Toyota plant and also further investment for the aerospace division).

Investors that are buying into this company for their exposure to Perodua should consider switching to MBMR as it offer a cheaper alternative to UMW.

Results are above expectation.

4Q results should be better supported by the 22,000 new myvi orders that has yet to be delivered as of september. I am also anticipating that most of the 47,273 cars sold in october will actually Perodua and Proton (since they are the only company that is still absorbing the SST). The breakdown of sales by brand should be available by next week.

Those interested in investing into this company should focus mainly on Perodua performance as that is actually the determinant of the profit to MBMR (the other businesses such as auto parts manufacturing and car dealership actually does not contribute much to the bottom line).

Current valuation is the cheapest for the automotive industry (around 5x PE). Anyway, it is a lot cheaper than what UMW is currently trading (UMW holds 38% or Perodua, which provides investors another alternative to get exposure to Perodua).

Hi Vince,

Your right on the private placement but that's not enough. They need to come up with RM110mil. The private placement will only raise RM0.385 x 45mil shares = RM17.3mil.

Hi Suasuake,

You can find the debt numbers from the initial announcement of the proposed acquisition. page 22. Refer to link below:

http://www.bursamalaysia.com/market/listed-companies/company-announcements/5678185


That being said, it does look like the shares are rebounding. Hopefully this will continue. Good luck to those who are invested in this company.

Another undervalue stock.

PE is low at only around 6.0x and PB is only at 0.4x.

PAT has shown steady growth from RM10mil in FY13 to RM15.5mil in FY17. My target PAT for FY18 would be around RM16mil. Next year PAT growth from potential completion of the new 160 rooms hotel in George Town Penang as well as the rental from the new completed shop lots at Nibong Tebal.

Strong balance sheet with net cash position. Free cash flow positive but expect to be higher once the hotel is completed. Future capex will be mainly on expansion of manufacturing line.

Enid,

Do you have any profit projection for FY19?

4Q18 (end sept) should show growth because of better performance from the plantation division. But this all depends on the Forex. IDR has actually weaken a lot if compared to RM and USD for period between July to Sept 2018. That being said i still think the group will show good PATAMI vs last year's result.

4Q18 PATAMI between RM15mil to RM20mil. Do you agree?

Hi enid,

You seem to have a lot of knowledge about the company.

I am currently rereading the 2017 annual report of MKH. In the management discussion they mentioned that one of the reason for the lower rev and pbt of property development & construction is due to the tail end phase of some of the project (which include handover of vacant possession).

I had always assume that at the tail end of a property project, companies profit margin would be higher (especially during handover of vacant possession) as there will be lower cost incurred.

Is this correct?

Thanks in advance.

Interested to see the financial performance of Proton for 3Q18. If the company managed to breakeven, then maybe it will be a turnaround signal for Proton financials going forward.

If not, then i will be a bit worried with their strategy of reimbursing the customers the SST starting September 2018. It will just means that the margins will be lower. Does anyone knows how long they plan to do this?

Have they finalise on X70 pricing? Rumours is that it will be between 100k-130k. New management strategy is now to focus on higher margins products. I don't think they want to compete with Perodua any longer in the entry level market. Their objective is now to compete with Toyota, Honda and Mazda. Even though the X70 price is higher than proton usual products, the X70 is still more value for money compared to other SUV's in the 100k-200k price range. Hopefully they can convert the bookings orders to firm orders later.

Hope the new management can turnaround the Proton long financials decline.

Very undervalue stock especially for a stock with direct exposure to Perodua.

PE multiple below 6.0x.
PB at only 0.5x
Net gearing of only 2.1%.
Positive free cash flow and expected to grow further in 2019.
Expected solid growth into 2019 from high demand of New Myvi, new SUV and turnaround of alloy wheel business.

Will wait for the 3Q18 result.

How will the company pay for the acquisition of KP Mukah Development? Did management indicate how ? Going through the announcement for the acquisition, management only provide generic statement (could be from internal generated fund or via equity or debt).

They currently only have RM13.5mil unpledged cash. And upon completion of the deal they need to fork up RM110 mil. They could use debt to pay but I think KP Mukah itself is already been loaded with debt (RM258mil as of Dec 2016). Hence, why i think they will need to do some sort of capital raising exercise.

Looks like the demand for the healthcare service is still a bit slow for the company to make profit. Not sure if they can make it breakeven by this FY.

Hi Muarmali,

I am actually confident that they can sell their properties. Business and management wise, Ecoworld delivers.

My concern is only on the valuation. At PE above 20x, investor would expect a fast growing profit generating company.

Maybe those that are invested currently can provide their profit outlook.

Thx.

I like the company and their management. Their property projects has always been put at a premium compared to other developers even in Setia Alam.

However, a valuation of 23x PE is a bit too rich for me. How much growth do investors command when buying this company. Analyst are expecting a flat PATAMI for FY2019.

Those invested, what are your profit projection?

Without the EPCIC profit (parked under COGS hence why it was positive), 2Q18 result would have been negative RM4mil. However if you take out the forex loss of RM11.7 mil it would still be a profit of RM7.3mil.

Core profit should be around the RM7mil level for 3Q18 but it all depends on what will the forex gain or loss be.

Excluding the gain on disposal of quoted investment, 2Q18 PATAMI would have been negative. 3Q18 result is expected to be worst due to lower tonnage of FFB, crude palm oil and palm kernel.

Hi Graham,

Thanks for your explanation. I think most investors and analysts are also finding difficulties to gauge the future Gkent performance after the renegotiation of the contract.

In order to be sure, i guess the best way is to wait for the 1Q20 result (quarter ending Jan 2019) since that quarter will be based on the new renegotiated terms for LRT3.

Like your anecdote on the Washington Post. :)

But you have to give it to Mr Sam Ooi Chin Koon. He has been acquiring the shares when others seems to be selling. I think he started acquiring them since the price drop to RM0.80. The last time he sold his shares was back in June 2015.

So you can be sure that at the current price he himself thinks it is undervalue.

Hi Graham,

Whats your PAT target for FY18 and FY19 given that the PDP fees for LRT 3 is replaced with fixed revenue contract? And with the completion of LRT3 being delayed to 2024 instead of 2020.

I think most investors are worried that the margins from the new arrangement would be a lot lower than what was expected before. The PDP offers Gkent-MRCB a 6% management fee with minimal working capital needed. Where else the current arrangement would means that the maximum Revenue that Gkent-MRCB can get will be RM16.6bil but now they have to invest in the working capital needed for the construction which might effect their cash balance going forward.

And given that the completion is now delayed to 2024 instead of 2020, whatever remaining balance outstanding will need to be spread over 5 years (from 2019 to 2024) instead of the initial 2 years. This would means lower revenue and profit if compared to what was achieved in 1Q and 2Q 18.

I am still not clear how much is exactly the remaining contract value because from my understanding RM16.6bil is the max that the govt will pay (inclusive of works that have been done). Maybe you can clarify on this as well?

hi rkgfantasy,

Sorry not sure how i can share it since the article is in Edge Malaysia (weekly edition). I bought the physical newspaper. not sure if we can find it online. Its on page 24 titled "OCK mulls spin-off listing of towerco business".

My target PATAMI for FY18 is RM20mil max. At the current price, the valuation is already 17.9x PE. Not sure if FY2019 would be any different as the company has a lot of debts in its book and with the trend of even higher interest rates, this might effect the company's financials going forwards.

There is an article on the company in this week EDGE Weekly. The MD, Sam Ooi Chin Khoon believes the downtrending of the stock price is mainly due to selling pressures from institutional syariah funds given that OCK is no longer a syariah compliant stock. He expect the selling pressure to continue as there is still 1.5% shares or 13.1mil shares outstanding being held by these funds. However once the syariah funds are out, the stock will rebound back.

In my opinion it still depends on the company's financial performance. Hopefully they will post better 3Q and 4Q results which would help bring down the valuation of the stock. At the current price it is still expensive (given that PATAMI growth is also a doubt).

Can anyone else share their PATAMI target for FY18 and FY19? Analyst has an average of PATAMI target or RM26mil and RM32mil for FY18 and FY19 respectively. This values the company at 11.1x fwd PE.

DK66, thanks for the link to the article.

Des07, understood that my assumption is the worst case scenario (which has a very low probability of happening).

Based on ur explaination the total probable exposure for the company in relation to Star Pacific is rm66mil based on the assumption that they can finished the work by June 2018. Since this is no longer the case, they need to add another RM16mil to the LAD based on an assumption that they can complete the handover by Dec 2018. So total exposure would be RM82mil. But this is based on a 100% basis. Based on 51% ownership it would actually be RM41mil only. But like u mentionned since the other 49% is owned by related parties, u suspect that their exposure will be guaranteed by Jaks anyway. So to be safe, better take it as 100%.

Given that rm50mil (the BG) is already provided, Jaks cash exposure would be a further RM30mil (but need to complete the handover by end of this year).

But this has yet to include potential LAD from the residential units. Based on the article that DK66 provided, the take up rate for the residentials are 95%. Will need to see if any of the owners planned to ask for the LAD from Jaks. From my understanding, most people would just forfeit the LAD as long as they can get their unit. Too much hassle going to court etc.

Hope i get this rights. Thanks again to Des07 and DK66 for the explaination.

Like the company for their power plant potentials but worried about their legal issues with Star, their performance in property division and KYY actions (for the time being seems muted).

Hi Des07,

Thanks for the clarification. Just wanted to know what will be Jaks exposure if let say they managed to deliver the project by end of this year.?

From my understanding the project was supposed to be deliver by end 2015. LAD penalty is 10% of purchase price per year. If managed to deliver by end 2018, Jaks would need to pay 30% penalty. The total gdv value of the project is RM1.08bil. Total penalty would be around RM300mil. Given jaks owns 51% of the project, total exposure of jaks would be rm150mil. This should be the max LAD.

Is this correct.? If delay beyond end of this year then the LAD will increase.