Market cap = RM2,745m
Net cash = RM3,150m
Net cash after setting aside Meru expansion = RM1,390m
Net debt after setting aside capex Meru + Phase 1 US expansion = RM80m, or net debt to equity ratio of mere 1.6%
Of course, the highest return comes from SBB

@cktay, dragon328 has explained that the unavoidable imperfection in hedging means PowerSeraya is exposed to fuel cost fluctuation. You may read his comments again.

To get a better idea on Tenaga's ICPT mechanism, and how the KWIE fund buffers fuel cost fluctuation, refer to article below.
https://www.energywatch.com.my/blog/2020/07/20/whats-next-for-malaysias-electricity-bill/

The question not addressed in that article but has been raised before is what happen when KWIE fund runs out.

I have no idea. But one got to be skeptical when the prediction comes from a company with vested interest. As I've commented many months ago, I have yet to see F&S or any other research houses talking down industry prospect in their clients' IPO prospectus.

But this is also common sense. As I've commented before, the economic law of supply and demand applies, especially to commoditized products like gloves where commissioning new capacities take just 12 months. It happened to oil & gas a decade ago. It happened to solar panels. It will happen to semiconductor in the not too distant future, although the greater complexity there means it will take a bit longer than gloves. But supply glut will eventually arrive.

On Barbazon project, which is a mixed-use residential and commercial property project in Bristol, UK, I wonder why get into property development. If YTL wants to pursue property development in UK, shouldn't the ultimate parent company YTL Corporation Berhad take it up instead?

It's the same with the 2018 non-core acquisition of a hotel Bel Air Den Haag Baheer B.V. in Netherland. It was probably acquired by YTL Power because YTL REIT did not have sufficient financial capability to close the deal then. This transaction was viewed negatively by analysts.

In my opinion such opportunistic moves into non-core businesses does not sit well with investors who want to focus on infrastructure business.

(D) Investment Holding Activities
As explained in Page 27 of Annual Report, this segment captures the interest in ElectraNet, Jawa Power, and the Brabazon Development in UK.

In page 174, Note 15b, it is stated that the group has 20% interest in PT Jawa Power. But footnote explains the subgroup's direct interest is 35%. I don't understand what it means. I just assume it owns 35% interest.

I'm positively surprised that dividends received from Jawa Power were RM377m and RM350m in FY21 and FY20 respectively. Looking further back, dividends were RM386m, RM346m, RM354m, RM370m for FY19-16.

It seems that Jawa Power is a very profitable venture. FY2021 ROE = net profit 884m/ year end equity 4,411m = 20%. This seems too high for a utility company.

As explained in Jawa Power website, it started commercial operation in 2000 with a 30 year PPA. So anyway the good time will end by 2030. It's important to develop new businesses to replace this cash cow.

Besides nowadays coal power plants also come with ESG discount. I read that YTL tries to overcome by exploring the possibility of a solar farm in newly acquired Kulai land.

@dragon328, since you mentioned, let's touch on businesses outside UK and Singapore.

(C) Power generation (Contracted)
First, according to the page 19 of 2021 Annual Report, the already expired Paka PPA and yet to be commissioned Jordan's Attarat are parked under segment Power Generation (Contracted).

Given currently there is no operation, the segment recorded zero revenue and pretax loss of RM11m in 1HFY22.

What I don't understand is the segmental assets. As shown in page 232-233 of Annual Report (Note 38), segment assets were RM323m in FY2020, but reduced to RM188m in FY2021. Annual depreciation was only RM20m and there was no impairment. I'm puzzled by the over RM100m reduction in asset value.

Obviously the RM188m segment asset does not account for the Attarat power plant which YTL Power has 45% equity stake. According to Wikipedia, the project costs USD2.1billion and shareholders will invest USD528 million. The construction is supposed to be near completion
https://en.wikipedia.org/wiki/Attarat_Power_Plant

Attarat balance sheet information can be found in page 172, note 15a(i). I wonder why it's not reflected in the segmental information.

The already shelved Top Glove's IPO document dated 29-Oct-2021 can still be found in Hong Kong Stock Exchange website. Page 105 of the document shows the infamous ASP forecast by Frost & Sullivan. F&S is a leading market research company used by Top Glove for its IPO.

https://www1.hkexnews.hk/app/sehk/2021/103952/a110765/sehk21102900066.pdf

According to the F&S projection, which was widely quoted and believed, ASP for nitrile gloves would be USD75.1 and USD42.9 in 2021 and 2022; latex USD39.8 and USD26.3 respectively.

But as we just entered 2021, Top Glove ASP already dropped to USD19, lower than pre-pandemic level!

Always treat the forecast of market research firms, especially those hired by the IPO companies to promote their wares, with a bucket of salt!

Top Glove production utilisation recovered to 73%. Finally demand is picking up.

But assuming shipment quantity is the same as production quantity, ASP = (1449/4.186) / (0.73*100/4) = USD19, which is below pre-pandemic price.

Effects of low ASP show up in the latest quarter operating margin of 7.8%, as compared to 9.4%, 12.3%, 9.8% in pre-pandemic years FY17 to 19.

Assuming current PATAMI RM87.549m is near term sustainable profit, annual PATAMI = RM350m. At the noon closing price of RM1.80, market cap is RM14,415m. So PE is 41 times!

Unfortunately I can't find such financial disclosure for PowerSeraya. Maybe its not asked by Singapore regulator.

I try applying the same method to work out the FCF. This is what I found from the Annual Reports for the multi utilities business (merchant)

(1) Depreciation and amortization for FY18-21 are RM319m, RM233m, RM251m, RM254m.
(2) Capex for FY18-21 are RM103m, RM104m, RM93m, RM176m.
(3) As previously noted and as you pointed out, PBT was volatile but seemed to be on a recovery track. For FY18-21, they were RM72m, - RM242m, - 172m, RM275m. But there were the impairment charges of RM72m in FY19, RM2m in FY20, and reversal RM71m in FY21. Excluding the impairment effects, core PBT of FY18-21 should be +RM72m, -RM170m, -RM170m, RM204m. (Quarterly report shows 1HFY22 PBT was RM90m)

For FY22, I assume depreciation is RM260m. Annual maintenance capex RM100m. Tax rate 15%. Assume other items are constant or insignificant, and no major capex.

In the scenario where FY22 core PBT is RM180m (double of 1HFY22), the potential FCF = RM180m + RM260m - RM100m - RM180m*0.15 = RM313m.

In the more pessimistic scenario where FY22 core PBT is zero, the potential FCF = 0 + RM260m - RM100m = RM160m.

It seems that PowerSeraya use borrowings and new equity shares to fund TuasSpring acqusition (which as I understand has not been completed). As reported in Maybank Mar 2020 report, the acquisition would be "funded by SGD230m (RM696.9m) in cash (to be financed through borrowings) and SGD101.45m (RM307.4m) book value of 7.54% Equity Interest in YTL Utilities (the immediate holding co of PowerSeraya) "

Without other major capex, and given that depreciation is higher than capex, PowerSeraya should also be able to contribute cash to the parent even if it barely breakeven.

Is this a fair assessment?

@dragon328,

I overlooked the fact that as net asset grows, debt could also grow while still keeping debt to equity ratio constant.

Anyway I found that Wessex Water Services Limited's (WWSL), the operating company, publishes its financial statements in its annual reports as required by the regulator. This will be a good source of info to work out valuations at subsidiaries level.

Based on the financial statements, the actual dividends paid from 2017 to 2021 were Pound Sterling 90.5m, 92.0m, 90.0m, 88.0m, 59.5m. The subsequent 6 months interim report shows dividends of Pound Sterling 34m. It seems that the current dividend level is set at around 60m per annum, in line with lower profit under the new regulatory period.

Assuming this is the level for the next few years, we can expect 60 million * 5.5 = RM330 million annual dividend contribution per year.

@dragon328, thank you for the great sharing! I'll like to focus on Wessex first.

I agree that a matured and stable business like Wessex Water will likely be funded through internal funds and borrowings. It shouldn't tap the cash from its parent anymore. But I wonder how much cash can Wessex contribute back to parent in the next few years.

This is important since YTL Power is a dividend play. Assume market expectation for FY22 DPS is 4.5sen (Maybank 5 sen, Affin 5 sen, CIMB 3.4sen, HL 3sen, RHB 5.2sen), it will need to distribute 8,102m shares * 4.5sen DPS = RM365m of cash. Such cash generation capability should come from normal operation and not one off asset sales like Electranet.

Given Wessex Water is the largest profit contributor and a matured business, I would expect it to shoulder most of the responsibility.

I did some back of the envelope calculation. However t I fail to come up with the necessary FCF from Wessex. Not sure if I've missed out something. Anyway this is what I did.

The Annual Report does not provide cash flow info at Wessex level. So I deduce from whatever info available on the segmental information (page 232, note 38 of 2021 AR).

(1) First I note the Water and Sewerage's equity = segment assets - segment liabilities = RM23,449m - RM21,460m = RM1,989m. Gross debt to equity = RM15,820m/ RM1,989 = 8X, which probably implies limited scope for further borrowings.

(2) As mentioned earlier, the PBT has declined in recent years: RM739m (FY2019), RM610m (FY2020), RM494m (FY2021), RM550m (annualized from 1HFY22 PFT RM275m). I therefore assume a sustainable annual PBT at RM600m in the next few years.

(3) FY2021 depreciation reached RM703m. Assuming FY2022 depreciation is even higher at RM750m due to high capex.

(4) FY2021 capex was RM1,490m, in line with 5 year spending of RM7.5b within current regulatory period. So assume annual capex RM1,500m.

(5) Assuming others items are insignificant or stable, operating cash flow = PBT + depreciation - tax (Wessex 2021 annual performance report shows effective tax rate is 13%) = RM600m + RM750m - RM600m*0.13 = RM1,272m

(6) The resulting operating cash flow is insufficient to cover annual capex of RM1,500m

Have I missed anything in my calculation or assumptions? If no, then will have to expect little cash from Wessex in the next few years to help pay dividends to shareholders.

(B) PowerSeraya in Singapore
1. 100% equity stake. Acquired in 2009

2. In 2020 acquired Tuaspring Power which has a 396MW CCGT power plant for about RM1b.

3. With the consolidation consolidation, PowerSeraya now controls about 25% of market.

4. However the effects of over-supply and stiff competitions in the past have not been fully reversed. The Multi Utilities Business (Merchant) segmental PBT were over RM700m in FY2012-13, ~RM500m in FY2014, ~RM300m in FY2015, ~RM100m in FY2016-18, about ~RM200m losses in FY19-20 before registering RM275m PBT in FY2021.

5. Segment PBT in 1HFY21 shrank again to only RM90m (compare to 1HFY20 RM182m). Hong Leong report on 25 Feb said it was due to "surge in fuel cost" at Seraya. It seems that despite hedging, the business could not 100% shield itself from rising natural gas price, and cannot fully pass on the cost increase to consumers.

6. Apparently PowerSeraya is also involved in oil trading and tank leasing. Not sure about the scale. Could these non-electricity business contribute to the fluctuation in profits?



I stop for now. To continue with other businesses in another day. Meanwhile I look forward to thoughts on above businesses.

After looking up some reports, I gained a better understanding on the YTL Power businesses. I share them as below. This is partly to reinforce my understanding, and partly to invite feedbacks from @dragon328 and other shareholders who have studied this company.

(A) Wessex Water in UK
1. 100% equity stake. Acquired in 2002

2. Key profit contributor

3. From 2021 Annual Report, "Over the current 5-year regulatory period, Wessex Water will undertake capital investments of RM7.5 billion (GBP1.3 billion), resulting in a total RAB value in excess of RM22.4 billion (GBP3.9 billion) when the regulatory period ends in March 2025."

4. With RM7.5b capex over a 5 year period, an average capex of RM1.5b should be factored in when computing FCF.

5. However, in Feb 2021 Fitch rated Wessex Water holding company at BBB-, and the subsidiary service company at BBB. In other words, just one notch above speculative grade.

6. It seems that the key reason is regulator Ofwat has set tougher cost and performance targets.

7. In the Hong Leong report dated 28-Aug-2014, the allowed weighted average cost of capital in FY10-15 was 5.5%. Based on Fitch report, it was 3.7% in FY15-20. Current period FY20-25 allowed WACC is only 1.96%. (in real term)

8. The discount rate seems very low to me. For comparison, recently Malaysia Energy Commission maintained the WACC at 7.3% (nominal term) for Tenaga in RP3 that runs until 2024. The real WACC for Tenaga will still stay at 4.3% even if inflation hits 3%.

9. The trend of decline could be seen in the Water & Sewerage segmental PBT. During FY2015-18, segment PBT was above RM900m a year. In FYT2018 it almost hit RM1b. This was followed by continuous decline which was RM739m (FY2019), RM610m (FY2020), and RM494m (FY2021). 1HFY21 is RM275m. In other words, PBT from this key contributor has declined to RM500-600m a year.

10. In my view, with the trend of reducing profit driven by the regulator, the valuation of Wessex Water may actually declines despite increased RAB.

https://www.fitchratings.com/research/corporate-finance/fitch-affirms-wessex-water-at-bbb-outlook-stable-25-02-2021

@dragon328, thank you for the valuable inputs, which will be very useful to me when I study as I know what I should pay attention to. Will look into the details.

I wonder if the recent weak sentiment has to do with underperformance at PowerSeraya. I recall reading a report mentioning that it suffers from high natural gas price input. However the annual report mentions it has done hedging (but not sure to what extent).

Besides I read that Singapore electricity market runs a 3-monthly auction. Supposedly any higher fuel cost can be passed through albeit with delay? This should become easier after the market consolidation where YTL Power bought Tuas Spring and became market number 2.

With their strong balance sheet, I have no doubt that Malaysian big four, Intco Medical, Sri Trang, and above mentioned clean room glove specialist Riverstone, and probably a number of others will not just survive, but business will expand in coming years.

However, while company may grow, investors' return will depend on valuation, which is determined by future growth rate, margin, and the prices they pay. Past valuation level may not be a good guide if the landscape has changed too much.

I agree with @bang_miskin's view. Buy in stages and have a diversified portfolio. And hold for long term.

From Liu Fangyi's background, I believe he has a western and liberal outlook. He went to US in 1989, if you recall the year of Tiananmen.

He got into Caltech, so must be a very brainy student. He dropped out from study to start a glove business to capitalize on the demand brought by AIDS, indicating entrepreneurship and typical American adventurism spirit. Such entrepreneurship was demonstrated again when in 2020 he used personal borrowings to massively expand Intco capacity to capitalized on the Covid driven demand. It's no wonder that he has a strong following among Intco's shareholders.
https://inf.news/en/economy/386758c4781edfbb3c01a497289c20b8.html

He will be a formidable rival to Malaysian glove industry.

Check out Allianz

Intco Medical boss Liu Fangyi's supportive words for Ukraine people. Whether this is a calculated stance given Intco's main market is in the West (I don't think so), it takes guts for public figures to voice pro-Ukraine sentiment in China. Some celebrities have their accounts suspended for doing just that.

https://weibo.com/intcofrank?refer_flag=1005050010_

Wonder if any of Malaysian glove industry captains have used social media to get followers and express opinions on current affairs. Stanley Thai was probably the more vocal one but that got him into trouble.

Right after I commented that Takaful principal officers have stopped disposing their shares, the selling starts again! Why grant shares to key employees only for them to keep selling?

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3239522

@dragon328, good reasoning. I also suppose given the three parties have not achieved dominant control of the shareholding, and with the rekindled interest in the company, SM could not pull off a privatization at a bargain price like he did in MMC last year?

@dragon328, thank you again for sharing your detailed analysis. It's a very good learning for me. It's obvious that you've done a lot of homework!

I've also commented on several other stocks discussed earlier, and left a message on your i3 Messenger. Feel free to respond at your convenience.

Chairman Datuk Ng has disclosed on Friday that his spouse Mdm. Tan Geok Lan holds several million shares.

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3237074

In the past annual reports, the director shareholding section shows that Chairman Ng holds zero share in the company (refer page 131 of 2021 Annual Report). Rightfully the disclosure should have extended to his immediate family.

Madam Tan Geok Lan was actually the no. 16 shareholder as of 31 Dec 2021 (refer page 132). In fact her name has been on the top 30 shareholding list since as far back as 2011.

An oversight?

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3227852

@DestinyL, can you elaborate on your comment "Management seems not interested to maintain good CG"?

@Jeffyap, how did you arrive at the conclusion that "pocket 70% money into the director pocket"?

Based on the latest Annual Report of 2020, Note 36 (page 134) on Related Parties Disclosures, the Group level directors' total benefits are RM4.796m in FY2020. The breakdown at company level is provided in Note 14 (page 44).

Set against 2020 annual profit after tax of RM28.452m, the FY2020 total directors' benefits to PAT is 16.7%.

Of course the ratio was high during earlier years when the company barely broke even. But can't ask them to forego salaries. RM4m+ a year doesn't seem excessive as compared to other listed companies.

Or have I missed out something?

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3160685

According to RHB, "The weak share price performance, in our view, reflects concerns on the Day 1 impact from Malaysian Financial Reporting Standard 17 implementation and lack of near-term catalysts."

But has the effect of new accounting standard been adequately priced in?

I don't know. But I keep an eye on insider selling.

STMB is notorious where principal officers keep selling their shares all year round. However the selling has come to almost a complete halt since late Oct last year. That was the point when share price dropped below RM4.

https://www.bursamalaysia.com/market_information/announcements/company_announcement?keyword=DEALINGS&cat=&sub_type=&company=6139&mkt=&alph=&sec=&subsec=&dt_ht=&dt_lt=&per_page=50&page=1

Another question. How do you calculate the free cash flow?

If I were to look at the CF statement at group level, Operating CF in FY20 and FY21 are RM1.1b and RM1.3. But PPE purchase were even larger at RM1.3b and RM1.7b in those two years. The resulting FCF will be negative.

Should the CF be measured from the parent company level instead? This is the level where dividends are received from the separate subsidiaries or associates. However operating CF at company level are only RM154m and RM126m in FY20 and FY21.

@dragon328, thank you again for the explanation. To better understand the case, I've extracted the paragraph below from 2021 AR

"Wessex Water’s regulatory capital value, for example, has grown from GBP1.3 billion (approximately RM7.0 billion) when it was acquired by YTL Power in 2002 to GBP3.36 billion (approximately RM19.31 billion) as at 30 June 2021, whilst ElectraNet’s regulatory asset base (RAB) has grown from AUD0.75 billion (approximately RM2.2 billion) since acquisition in 2000 to AUD2.96 billion (approximately RM9.25 billion) as at 30 June 2021."

Next I try to relate the RAB to potential market value (in a very rough way).

In ElectraNet's case, RAB is RM9.25billion. With 33.5% stake, YTL Power's share should be 9.25 * 0.335 = RM3.1b. It was sold at RM3.06b. However the sales proceed also include undisclosed amount of loan notes. So the equity amount should be less than RM3.06b. So in this case probably 1 dollar of RAB is sold for less than 1 dollar?

But if I were to take Tenaga example, RAB is about RM55b, and market cap is RM52b. It's about RM1 RAB for RM1 market value.

Applying 1 to 1 ratio, the 100% owned Wessex Water with about RM20b RAB may be worth RM20b?

Adding up all the RABs calculated this way, and subtract the parent co's net debt of RM7.4b, we get the theoretical "maximum" value?

How to value the individual parts of YTL Power?

All analysts use SOTP method. But while their TPs are not too far apart, the valuation they attach to each business varies enormously.

For example, in Maybank 26-Nov-2021 report, Wessex contributes 75% and Jawa Power 18% to the total equity valuation (before debts and discount applied)

In Kenanga 9-Feb-2022 report, Wessex is 77%, and Seraya 12%

In Hong Leong 9-Feb-2022 report, Wessex only 17%, Power Seraya 32%, Tanjung Jati each 17%.

In RHB 9-Feb-2022 report, Wessex is 54%, Power Seraya 25%

It seems there are a lot of guesswork.

@Exnstp, thanks. Yeah of course such rumors could not be verified. Else would have been published in the mainstream media. I just wonder how the various political connections may affect shareholders. This company used to be owned by UMNO, just like Star still being owned by MCA.

BTW after Syed Mokhtar and Johari, any idea who controls the third largest stake under Morgan Stanley?

https://www.theedgemarkets.com/article/frankly-speaking-trimming-media-prima-stake-loss

What are the potential risks you will watch out for given the shareholding structure?

@dragon328, thank you for the explanation.

The dividend is made up of 22 sen + 10 sen special dividend. The company should continue to pay special dividends in excess of earnings.

Right now it's in a net cash position, which is financially inefficient. PetGas could have taken on a lot more debt with very low interest rate, and return excess capital to shareholders. Just look at Tenaga's gearing level.

Debt servicing interests could be easily met by its stable cash flow.

PetGas business has limited growth prospect. As commented before, it will not benefit from the transition to cleaner fuel, at least not until 2030. The roadmap has already been laid down by the Energy Commission.

The only way to justify current share price is to become more efficient with capital by increasing the debt level.

@dragon328, yes, very strong set of results.

May I know your maintenance capex assumption?

I noted that Aeon has huge depreciation & amortization (RM464m) due to heavy investment in the past, which resulted in cash from operation of almost RM700m. Meanwhile the capex in recent years have been low, only RM67m and RM46m respectively in 2021 and 2020.

I’m not sure whether current capex level is too low and therefore unsustainable.

Shown below were the PPE acquisition over the last decade.

2021 RM67m
2020 RM46m
2019 RM271m
2018 RM519m
2017 RM369m
2016 RM704m
2015 RM700m
2014 RM671m
2013 RM522m
2012 RM199m
2011 RM315m

Surely the maintenance capex level would not reach the RM600-700m range as recorded in 2014-16. Those were probably the time when they were building new malls.

But could a long run maintenance capex be very substantial still, like the level seen in 2019 just before Covid?

I'm thinking that it has to be a substantial fraction of annual depreciation of RM464m.

Based on Annual Report note on PPE, the largest category of depreciation came from machinery and equipment, which are estimated to have useful life of 3 to 10 years. Let’s assume the actual life is double of the accounting life, and therefore fully depreciate assets can be used for 6 to 20 years.

Then the maintenance capex should be set at 50% depreciation, which is RM464m * 0.5 = RM232m.

The resulting free cash flow = RM699m – RM159m (payment of lease liabilities) – RM129m (interest paid) – RM232m = RM179m. This number will be substantially lower than your calculation.

Any thought on this point?

@wsb_investor,

This is from Affin

"SOTP valuation of 1x P/BV on the General operations’ 2023E BV and assuming a 20% reduction in the EV of RM3bn of its Life business (with transition to MFRS 17)."

May I confirm that while MFRS 17 may shuffle annual profits to earlier/ later years, it should not have any impact on EV, which is the present value of all future profits?

Unless the underlying assumptions to calculate the EV has changed...

Management has updated the status of AMG gloves during 2020 AGM
“The AMG glove contribution as a percentage of total sales expected to remain small until relevant FDA and EN approvals are obtained.”

… and during 2021 AGM
“We have yet to receive the FDA approval for the product. Due to the pandemic, the company has shifted its attention to delivering mainstream examination gloves due to the surge in demand and market is indifferent towards differentiated products like AMG.”

Update on COATS during 2021 AGM
“What would you think of the contribution from COATS and MDG in 3-5 years?”
“We expect these products to take up less than 10% of our future sales volume in the next 3-5 years.”

They may grow into substantial business one day. But not yet.

_______________________________________________________________________________

JN88 Kossan Boss Lim Kuam Sia is a Engineer... He can produce high quality of gloves but not able to produce gloves v high techology..... Harta cooperate v UK scientist produce high techology gloves such as antimicrobial gloves which selling in very high asp.... Other than this gloves anotger type of gloves is Oatmeal gloves special for Eczema.... This oatmeal gloves contribute 20% from total revenue

@dragon328, notice it starts paying dividend again. But it's only 1.5sen or less than RM17m as compared with the full year operating cash flow of RM200+ million? Not sure its capex need.

@sslee, fair point. Agree there is a risk of getting stuck in a value trap. That's why net-net method relies on a portfolio approach and deep discount to compensate for duds.

@Johnzhang also has a good point of using dividend history to examine management.

In Supermax case, the core business is in a secular growth industry. Pre-Covid it returned above 10% ROE for most of the years, and also paid yearly dividend albeit at a lower payout.

If share price were to go below 2/3 of net-net, or 85 sen for current quarter, to me the downside will be quite limited.

This is not to say it's better than the other three, which enjoy higher valuation for a reason. But worth keeping an eye on.

Supermax net cash is RM3,150m, or 120 sen per share. RM1,390m has been earmarked to build 5 new factories in Malaysia.

If the two-phase US expansion costing USD300m and USD250m are added, the cash will be gone. But this may or may not take place, and is a long time away.

Market cap of RM2,853m is 85% of Current Asset - Total Liabilities (=RM3,346m).

Ben Graham's net net method calls for investment in a basket of stocks sold at 2/3 of this value. The threshold will be reached should Supermax drops below 85 sen.

I got this from Internet:

In life insurance, new business value is the present value of the future profits associated with new business written during the year.

It's calculated by the insurer. I have no idea how it's worked out. I just take their numbers.

Extracted from Supermax quarterly report published today:

"Many of the large buyers seen at the height of the pandemic, such as the governments and large hospital chains are full or near full in terms of their PPE stocks after a period of aggressive sourcing and buying."

@dragon328, thanks for the sharing again. You've mentioned DKSH and Media before. The other two are new.

I don't know them in depth. But as you said, each has issue of its own. My first thought about Media is its major shareholder, where my impression isn't positive (but same can be said about Berjaya).

As for Aeon, based on the little I know, its share price was on downtrend for several years as then key shareholder Aberdeen continued to sell, though this was already past. I believe post Covid malls could reinvent themselves and co-exist in the era of e-commerce. My impression is mall business is asset heavy. Since you've mention I want to make sure to check their cash flows.

YTLP is interesting. The excitement of ElectraNet disposal seems to be waning. Simple comparison of the SOP value calculated by analysts, updated with the disposal gain, seems to indicate current market cap is rather low. However, a lot of its value come from Wessex Water and Power Seraya. It also has a lot of debt. I'm not sure how to estimate values of Wessex and Seraya with reasonable accuracy, such that after deducting the huge debt, the remaining value still indicate good bargain.

The flood related claims seem to have limited impact on the General Insurance business. GI profit before tax in 4Q21 is RM114.5m (4Q20 RM130.5m, 3Q21 RM115.1m)

Earlier an analyst put the flood gross and net exposure at RM300m and RM50m respectively. Perhaps the impact was much smaller than expected.

For life, ANP resumes its growth (slide 23). There is a heavy concentration of investment linked policies with protection riders (slide 24, 25), which is said to be more profitable. But I have no idea how profitable it is.

Slide 21 mentions "ANP increased by 32.9% ... out pacing industry growth of 13.1%. Market share 12M2021 increased to 9.0% (12M2020: 7.7%)"

12M 21 NBV is RM275.2m (12M 20 RM239m). It has been increasing at a rate of about RM60m to RM80m every quarter for the past 6 quarters.

Don't be taken aback by the 4Q basic EPS of only 15.3 sen.

The basic EPS is derived after deducting the once a year preference dividend (refer Note 12a). Basic EPS always appears low during 4Q.

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3234942

4QFY21 results can be found here

https://www.allianz.com.my/content/dam/onemarketing/azmb/wwwallianzcommy/pdf/investor-updates/2022/2021_Q4AMBAnalystBriefing.pdf

@dragon328, your explanation is clear. I gain much better understanding now. Your focus on cash flow is a very powerful technique!

@pjseow, yes, part of the inventory is FG not shipped due to shipping disruption. However the inventory is valued at cost. The changing ASP does not affect the inventory value.

Company uses common shareholders' fund to buy back shares. Not when share price was RM2, but only when it was above RM3....

Meanwhile director/ major shareholder, who appointed the management, are taking opportunity to dispose at higher prices, partly thanks to the shareholders' funded buyback.

Company's image is tarnished from the eyes of institutions. Otherwise it could have deserved a higher valuation at this era of ESG.

Any shareholder should rightfully be concerned. And judge they should.

Of course punters who only look at the price chart don't care, and likely fail to see the connection too...

______________________________________________________________________________
donnybelowski Who cares? Kakakaka. TSVT is also selling. Honest transaction. Who are u to judge?

I fully support shares buy back if company has excess cash and the share price has been undervalued.

What I don't understand is the timing of current buy back.

The management would have already known the impressive results of 2QFY22 by Dec last year. Why didn't they do a buy back then at around RM2 instead of buying now at RM3?

Besides the current share buyback that coincides director selling gives a bad impression.

https://www.bursamalaysia.com/market_information/announcements/company_announcement?keyword=Shares%20Buy%20Back&cat=&sub_type=&company=5196&mkt=&alph=&sec=&subsec=&dt_ht=&dt_lt=&per_page=50&page=1

Your comment on optimal debt level also prompted me to do some calculation.

If lease liabilities are ignored, total borrowings will be only RM106.419m + RM85.713 = RM192m. The gross debt to GDP is 192/426 = 45%, which seems reasonable given this is a business with strong cash generation.

However, if lease liabilities are added, the total borrowings will increase to RM561m. Gross debt to GDP becomes 561/426 = 132%, which seems a bit high to me.

I also extrapolate 1HFY22 results to calculate the interest coverage ratio.

Interest coverage ratio = EBIT / interest = (PBT + Interest)/ Interest = (RM79.289m + RM13.665m)/ RM13.665m = 6.8 times. This is above my rule of thumb of borderline at 5 times, although not much higher.

Any comment on that?

@dragon328,

It's nice to hear from you too. First I have to thank you for previously mentioning the FCF of BJFood. It prompted me to study and invest before current price run-up.

Thanks also for the further sharing.

May I clarify on your free cash flow calculation above? The way I understand is FCF is defined as the leftover of operating cash flow after capex. For BJFood, we need to consider the effect of MFRS16.

The operating cash flow for the 1HFY22 was RM165.355m. The figure was derived after adding back the depreciation of right-of-use assets of RM17.550m.

Therefore, when calculating FCF, the operating cash flow should be net off not just against capex, but also payment of the lease liabilities. The principal portion of lease liabilities was RM34.57m. But how to work out the interest portion of the lease liabilities? The financial statement only discloses the total interest paid which is RM13.543m. The amount is made up of both interests for operating lease and bank borrowings.

How did you arrive at 1HFY22 free cash flows (before capex) of RM116m? Did you make the conservative assumption that the entire RM13.543m of interest paid was for operating lease, and therefore the full amount was to be deducted from operating CF?

BTW refer to AGM minutes Q2, the annual capex will be about RM90m.

Based on your estimate of full year cash flow (before capex) of RM230m, netting of RM90m capex, it still leaves RM140m or 36 sen FCF, about 10% to 11% yield at prevailing price.

@Sslee, as you're probably well aware, historically Harta has been priced at a premium over other glove producers.

Pre-Covid Harta's operating margin was about 20%, versus Kossan at 12% to 13%.

Given their management, company culture, financial health and so on remain the same, it's reasonable to expect Harta to continue trade at a premium over Kossan.

Whether Harta's premium should be as high as RM17.2b for 43b piece nitrile capacity, versus Kossan's RM4.4b for 32b mixed capacity, is subjective. But a premium is deserved.