LET US LOOK AT THE ISSUES ONE BY ONE

1.  MD sold 5.5m shares one month before weak quarterly results

2.  Construction contracts book order is low, is it a major concern

3.  Property, Capital CIty, some are concern on sale and ability to complete

4.  Utility segment too small - hence Gadang expectation of PE of 10x is consider high

WHY FONG SILING CHOOSES GADANG?

Can view it at www.sosfinancialplanning.blogspot.my

ISSUE #1

1.  If we look at the directors buy and sell of shares, you will notice the MD had bought and sell at various years.

2.  I notice, he sold some shares from 25 sen to 50 sen in 2010.

3.  I also notice he bought some shares at RM1.77 per share.

4.  He also sold some shares at about RM2.00 and RM2 plus.

5.  There is no right or wrong, as long as he did not break the law (i.e. inform Bursa in the closed period).

6.  Share price can go up or down after he sell or buy, so it is not within his control, unless the stock is cornered.

7. So, judgement is up to you if he is ethical or not.  However, his indirect holding did increase a bit lately.

8.  I look at it very simple, he played by the rule.  He did not steal or missappropriate any money from the company (unlike Protasco, RM80million disappear without a trace, and our authority didn't said a word, amazing).

9.  You choose to follow him or not (if you own the shares).  It is your own judgement.  If what he does crosses your ethical line, sell it. 

ISSUE #2

1.  I have written this before.  Is also a judgement call.  Management did say, they are confident of replenishing it.

2.  Another judgement call.  You think they can't, sell it.  Construction sector is good for next few years (on infrastructure)

3.  Of course, if this company does not give you sufficient margin of safety or not potential of going up, then, the decision is quite simple, sell it.

4.  Some hold on it because, they trust the management (based on track record) or think that they will be bright future for construction sector (if the company is competitive).  

ISSUE #3

1.  Capital City.  Company have invested about RM21m into the land about 20 years ago.

2.  Signed with a listed company from Singapore to JV and develop it.  What is the maximum risk?

3.  How much did analyst ascribe the value for Capital City (i read somewhere about 25 sen, using SOP).

4.  Again, is a judgement issue, after looking at facts.

5.  Management said no problem, if we don't trust them, don't buy the share.  Judgement is required.

ISSUE#4

1.  Utility will contribute about RM8m for FYE 17.  Very little, maybe only 10%.

2.  However, they have invested RM120m into it.  SF is about RM530m.  Total invested is about 23% of SF.  

3.  All biz take time to grow.  If you expect return within 2 years in utility, you will be disappointed.

4.  Management intent to invest more circa RM60m, hence, contribution over SF will grow.  

5.  So horizon of expectation must be a bit longer, say 2-5 years to see stablised contribution.

ISSUE#5  (included after 8pm on 5 Nov 2016 after watching the you tube)

Fong Siling youtube.  Have a look.  Got it from the youtube.

https://www.youtube.com/watch?v=B8O2oZc8BVU (apology, after listening again after a reader commented in my blog, the entire clip was actually referred to GKent.  If we listen carefully, he finished a sentence on Gadang at the initial stage, and mentioned GKent after that.  It make sense because he was referring to GKent after ex-bonus is around RM3.50, while lately traded at about RM2.70 to RM2.80, updated 7Nov2016)

LAST ISSUE (7 NOV 2016) - Mon (for personal info)

1.  Another panic sell on 7 Nov 2016, Gadang closed at 2.69 with 20m volume, like the first panic a day after qtrly result.  Based on my personal TP3.50 and above (2-3 years),  

2. The high volume is cumulation of few factors, most of them have nothing to do with fundamental.  Is syndicates/stockist, margin call, or investor clubs followers (due to gurus advice) + probably some fund managers is selling as well.  (FS on Friday or Sat, gave a talk and some comments were made he sold Gadang at RM3.00 and KYY said Gadang cannot meet FYE16 earnings, hence, said can buy at lower)  

3.  Good for the ESOS employees.  Not so great for "traders" who may need to cut loses due to "margin call".

4.  For LT investors, just watch the game.  Nothing to worry about.

5.  I remember when I first bought it as my Fund Manager recommendationed it at RM1.83 (2014) and dropped to RM1.13 (drop of 38%).  They recommended again around RM2.10 (2016) after one year, with better fundamental.  It went up to RM2.50 then dropped back to RM1.85, and then up all the way to RM3.38 (prior to 1Q17 results), before coming back to RM2.69 (7/11/16) - a drop of 20%.  

6.  Without being able to make independent advice, and have own strategy for a stock, in a long run, the participants likely to contribute to others.  Of course, some may think, is it worth a while to participate in a company with so many issues?  Only two issues worth mentioning, i.e. weak first quarter (whether the model is falling apart), and order book for construction of 1.3 times FYE2016, which I have explain, for FYE17, it is more than sufficient.  Next 7-9 months, is crucial that they secured major contract for replenishment of orderbook.  Else, construction profit will drop significantly.

SOME INFORMATION 8 NOV 2016

In Nayang newspaper (interview of Kok Onn after AGM on 3 Nov 2016), Kok Onn said he invested about RM160m to take over Gadang.  Based on share price of RM3.00 or RM776m, and his ownership (disclosed in Top 30) of 27% is only about RM209m.  At RM2.70, his portion is only RM189m.

During the panic on 4 Nov 2016, after AGM, and another panic on 7 Nov 2016 (FS & KYY indication of sale), the market over reacted.  It dropped from RM3.30 to as low as RM2.50 (+7sen dividend) on 8 Nov 2016 before rebounded back to RM2.64 (+7sen dividend).  

During this period, it may be fruitless to discuss the logical thing to do as most of the participants are panic selling or facing margin call, hence, any logical discussion will deem as illogical.  For me, this "hiccup" will come to past few months down the road, and we will have a laugh when the share price comes back after the split/bonus/free warrants and the results improve + contracts secured.  That is why, it is important for participants able to have rationale and independent judgement of what is facts, and what is careless comments (i.e. not well research or only on one angle).  

This panic period shown the ugly side of syndicates & speculators who focus too much on quarterly results, instead of a medium term capability of the management.  Some are cursing, some are blaming, some are laughing "I told you so", some talk like an expert, some make careless comments and only a few, are rationale.

This is a great lesson for those who can learn from this episode of issues faced by Gadang.  Different operators also have different style of taking advantage of the participants that follow blindly, who cannot work out an estimate of the fair value conservatively.

FOR RECORD AND INFORMATION PURPOSES - 11 November 2016

Transaction from 14 October to 11 November 2016.

Average volume is around 1.0m to 4m per day except for the following:

28/10/16       28.8m shares   -  a day after weak results (drop about 50% from qoq)

7/11/16         20m   - after FS talk & KYY's article (likely the students reaction + syndicates)

8/11/16         16m

9/11/16         12m

10/11/16        6.4m 

11/11/16        3.4m

As for 7/11/16 - FS and KYY talks may have some influence (students following crowd mentality) + syndicates + could be some fund managers as well.  KYY's estimates FYE17 earning drop from FYE16) plus USA election on 8/11/16

Another crucial observation is the irrationallity of investor clubs.  It appears most are very near term focus in investments, like, looking forward to the next quarterly result, and also immediate year results.  It is kind of "short sighted" way of investment.  However, this is the trend of the day, like "pokemon", I believe it won't last.

ANOTHER SUPRISE ON TUE 15 NOV 2016

1.  Highest in around 3pm + Gadang high is 2.77 + 7sen dividend is about RM2.84 with volume about 10m.

2. This is an observation, not a prediction of the share price going up and down.

3. Gadang had recovered from 2.52 (Friday) to today's high of 2.77 or about 25 sen or 10% in two days.

4. Why the worry suddenly subsided and rebounded quickly? Running up to the bonus issue? Perhaps, but it is neutral in theory.  But participants are not robots.  They are made of flesh and blood, and also greed.

5. Will it goes back to say 2.93 + 7 sen dividend before bonus issue (by 23/24 Nov)?

6. For traders this is important, decision need to be made before 23/24 November, whether to take advantage of the run up.

7. No one will know, some shares tumble after the split/bonus/foc warrants, some goes up further, some tumble after it and rise significantly after that and then fall again.  Depends which example we want to use.  Some expert (after it happen) will tell, see, you should sell prior to ex-bonus or sell after ex-bonus, this and that.  Just like the expert said, see, told you guys to sell at 3,00, not is 2.60 or 2.50.  But I do know some went up 3-4x after a year or two when the company grows or expanded.

8. So BUY, SELL or HOLD, well, what is your strategy? Trading (less than 6 months)? Medium Term (2-3 years)? Long term (>5 years)?  Who, actually holds a share for 33 years? Like IJM Corp? RM1m become RM181m in 33 years.  

9.  Can Gadang be IJM Corp? Today at RM2.77 is about RM700m vs IJM, 12,000m.  It is not even more than 6% of IJM Corp, but looking at their investment in Utility/Plantation (200m over 530m), Expanded its Property (with GDV of 5bil - with minimum land ownership) & 1.3 years of construction book order (very low vs other construction companies but good margin), they may be moving at the right direction.  

10.  For long term investors, this "period" is a blip if we look back 10-20 years later.  However, we have to monitor it annually.

CONCLUSION

BESIDES choosing a stock, one must have their own strategy on the stock (on buying and selling).  If you look at the MD, why did he sell at 25sen 6 years ago if he know from in 2016 it will reach 330 sen?  Thats show that, even you are the MO#1 in the company, you also cannot see too far.  

So, do not need to follow prominent investor or MD.  This is a good case study.

(Part 6 will come after all negative perception subsides and positive news coming in after 11.11.16)