thanks for the article. I think there are some items which you might want to consider as well.

1. A huge chunk of construction orderbook is from Duke 3, so you might want to include the interest on the sukuk to be issued to finance the construction. It's RM3.64b but of course Ekovest won't max it out and won't issue all at once. But even if another RM2b in debt x 5% interest will shave off your PBT by RM100m a year

2. There are 122m warrants outstanding which is already in the money. as long as share price doesn't fall below RM1.35, we can expect warrant holders to convert. Based on your upside calculations, that would dilute it down to ~RM3.50

If you consider the above factors, the upside may not be as huge but of course this is ignoring future property developments, new construction jobs, Duke 3 etc.

look out for IFRS 9 implementation by 1 Jan 2018. provisions for all financial companies (banks or non-banks) are expected to spike and hit their profits, especially risky portfolios like personal loans. for MBSB, impairment program will last until end 2017 which will then immediately be followed by IFRS 9 provisions so investors could be looking at potential 2 years of bad results ahead, unless IFRS 9 implementation is delayed again

new substantial shareholders after existing shareholders sold to them. selling shareholders are not the major shareholders and are not involved in the operations as well so should be ok

even if the banks take some hit in oil and gas provisions, I doubt their full year ROE will drop from around 10% to 4% like MBSB. so if you want to promote MBSB, please stick to rumours/insider news like getting banking licenses, CMY will push it up etc. which no one can actually refute instead of trying to twist fake infos as facts

the comments here are really laughable. MBSB portfolio for mortgages is less than 15%, personal financing is the biggest chunk around 65%. basically this is the riskiest of loans to fund personal purchases and are unsecured, that's why undisciplined lenders like MBSB is suffering now while other players like AEON Credit and RCE is still doing fine

it's good to highlight these issues but to suggest that bonus issue is to rush ahead of any probe is simply ridiculous and shows lack of fundamental understanding of the nature of bonus issue. besides, submitting the application almost 1 month after the announcement is considered very slow, some announced bonus issue and submit as soon as the next day. nevertheless, kudos for highlighting any potential link between Protasco and the graft case, could be useful for protasco shareholders

which is why wealthwizard brings up a good point, it's normal for concession companies to rack up a lot of debts because capex is high and the cost of financing is cheap. same for IPPs or TNB

it is normal for concession companies to issue bond at the subsidiary level. basically to match the cashflow. so the timing for interest and principal payment will be structured to match expected toll proceeds and toll rate revision schedule. give it enough time, then the debt will be slowly extinguished. this is also why bond investors love concession bonds even though the return is generally lower

so basically IMO the positive stuffs about Ekovest:

1) Holding good assets or rights (Duke 1-3, Danga Bay landbank etc.)
2) Good construction orderbook (>RM4b)
3) Well-connected shareholders
4) Potential strong partner in EPF
5) Prospects of special dividend
6) Potential proxy for election, property sector relaxation, or Johor property turnaround

Risks

1) EPF withdraw due to public pressure (low probability high risk)
2) earnings won't be great in the short term as Duke 2 slowly kicks in and if residential sector remains weak (high probability low risk)
3) change in concession terms, in term of duration, toll rates revision etc. (low probability medium risk)
4) change in government and new government decides not to honour Duke concession (low probability high risk)
5) Change in traffic pattern whether due to public transport or other highways (medium probability medium risk)

yup my point here is that the gain on disposal won't be spotted in P/L and D/E won't drastically improve overnight, but these won't dampen the prospects of the company because gain on disposal still reflected in increase of NA and most debts are secured against highway and will be self financing by itself

I agree that too technical can confuse readers. that's why it's actually better just to show the expected NTA per share after disposal instead of the full balance sheet. And I think it would be good to caution readers that IMTN will remain in the balance sheet after disposal so D/E will only improve to the extent Ekovest utilise part of the RM1.1b in repaying borrowings and increase in equity

yes but for table 5, it gives an impression this is the proforma balance sheet after disposal (which isn't). not saying it's not useful but just to make sure everyone is clear. because I think a lot of readers are concerned of the D/E and was expecting the whole IMTN will disappear after disposal which won't happen, so your table 5 could give them false hope

on point 3, if you refer to IFRS 10, you will see there's different accounting treatment when it comes to disposal of subsidiary. when no loss of control, it is treated as transaction between equity owners. it will flow directly between equity and not through P/L. in fact, even if later Ekovest dispose kesturi again, the gain this round also won't be recycled back into P/L

ok but you should specify it's just to calculate ratios for Ekovest other business. because the actual balance sheet after disposal will be very different from what you show here, it's kind of misleading

@wealthwizard not to pick on you but I think some of your calculations may be wrong

Since you touch on consolidation:
1. I don't quite get your proforma balance sheet after disposal. Kesturi disposal is only for 40%, which means Ekovest still control 60% and Kesturi will remain a subsidiary. This is important because that means all assets and liabilities should still be consolidated based on 100%, not 60%, not 40%

2. which means the debt stays with kesturi, and Kesturi remains an Ekovest 60% owned subsidiary. which also means P/L should remain the same, because it's still based on 100% consolidation under IFRS 10

3. as Ekovest interest drops only from 100% to 60% (not below 50%), no gain on disposal will be recognised. but the difference in proceeds and NCI will be recognised in shareholders' equity. so you are correct that net assets will increase but it will be through equity instead of gain on disposal shown in P/L

4. assuming your calculations are correct on cost of investment, I think you made a mistake on net asset per share. the calculation should be equity excluding NCI divided by number of shares, which should be RM2.43 per share

paperplane2016 chill, seems like your comments quite fiery these few days. it's ok sometimes for others to have different opinions, whether right or wrong. no need to get angry because of them

Duke concession is no longer 34 years, it has been extended for another 20+10 years up to 2069 when Duke 2 was awarded

it's unlikely opposition is strong enough to abort the deal. expect some special dividend out of it. this counter is linked to Hisham's brother and Lim Kang Hoo. EPF pays Ekovest, Ekovest pay special dividend, Hisham's brother and Lim "contribute" to BN upcoming election fund. merry-go-round and EPF money "landed" in BN election fund. in Chinese it's called 移花接木 or 乾坤大挪移. our government is specialist in these. oppositions can cry about it but can't really do anything. this also explains why there's a special phenomenon in Malaysia called "election stocks". for minorities like us, if you can't beat them, buy their shares

@confuse, not sure by what you mean as cheap. silk expires at 2037, Duke expires at freaking 2069 so absolute value of Duke definitely will be more expensive than Silk

ekovest is definitely for long term if full value is to be realised because earnings will take time to come in. the only major risk in the long term I think is political, if one day BN falls (maybe not next election but future ones), just look at how Puncak fare after Selangor fell to Pakatan and Pakatan government decides not to honour unfair contracts awarded previously

when government awarded Ekovest Duke Phase 2, they extend the whole concession for Duke 1&2 by 30 years. it's good for Ekovest but why do we have such idiotic government? why extend the Duke 1 concession, unless you tell me Duke 2 is toll-free so to compensate them but Duke 2 is going to have its own toll plaza so just why? government simply go all out to reward cronies and highways are the most obvious and blatant one

confuse, most of their debts are linked to their highways so it's self-financing by itself. have you seen any highways that make losses in Malaysia?

some questions on your valuation, hope you can help to clarify

1. the 20 times referred to in the article was 20 times EV/EBITDA. but your calculation was 20 times EBIT, which is inconsistent. yes EBITDA should be even higher than EBIT, but EV includes debt which Kesturi has quite a bit. so I think it's misleading just using 20 times EBIT and conclude that it is still undervalued

2.I'm not sure if assuming Duke 2 revenue and costs will be equal as Duke 1 is realistic. Duke 1 is 18km, Duke 2 has 2 links (9km and 7km) so toll rates may not be equal to Duke 1. but then again we all have our limitations in projecting these figures

3. personally I think interest cost probably will increase once Duke 2 is completed. this is because accounting rules allow them to capitalise the Duke 2 interest while it is being constructed. so the interest we see in P/L could be just interest related to Duke 1. Once Duke 2 is completed and revenue starts flowing in, the interest for Duke 2 will be recognised in P/L. 4.875% seems a bit low, Litrak's MTN effective interest is about 6.1% p.a. Ekovest 2014 is also around there

some interesting pointers, since Ekovest is only disposing 40%, under accounting rules, Kesturi will still be a subsidiary and will be "fully" consolidated. which means on paper, the debt amount, interest will remain exactly the same as before. the only difference you will see will be the profit attributable to owners of parent. profit will drop because sharing 40% to outsider but if the RM1.1b is used to repay some debts, then there should be some interest savings

wealthizard, could you look into their earnings prospects for the coming 1-2 years? I think it's clear that it's an deep asset value counter but if they couldn't translate that to earnings, they will still have to rely on disposals to unlock value (which could be in a long time).

thanks for the sharing. ekovest could also be a general election stock and chances of special dividend is good. see datuk lim is close to BN so EPF money to buy Duke, Ekovest pay special dividend, datuk Lim then "contribute" to BN election fund. so after merry go round, EPF money indirectly goes into BN election fund. it's screwed up stuff, but what can we do other than ride along?

a broken clock pointing twelve would also be correct twice a day. TTB's bullshit crisis talk of course will come through one day, then he will come out and claim credit. at least the ethical way would have been benchmarking his fees against the fund performance

this is the reason
http://www.thesundaily.my/news/1978501

1. May i know what's pass-through revenue?
2. Why do you say lost earnings contribution is not significant? AAC contributed USD19m or RM80 last quarter (ignoring inter-company), Airasia made RM342m in 2Q, RM412m in 1Q excluding forex. but one-off cash boost also good and may bring down interest cost
3. I think technically net assets should still be RM45.9m. Amount owing to holding is debt, not equity. In disposals, this amount should be settled. other than amount owing to holding of RM185m, there's also an amount owing from related parties RM68. so net for AirAsia group AAC owe RM117m. but it's more likely than this amount would have been factored in the USD1b valuation (if it's true)
4. What do you think about its valuation right now? especially considering the new shares to be issued will dilute the eps

Thanks a lot for sharing

yup i think those calling for buy have been stating those points, but those to sell? other than share price has shot up?

just my 2 cents, a company is not expensive just because it has gone up a lot, similarly it's not cheap just because the price has slumped. It's all about prospects and valuations. kesm is no different, it is still cheap in the eyes of those who believe in its structural growth in automotive chips and rising profits, but expensive for those who think profits have probably peaked. in any case, it would make a better discussion if you could state your rationale on why you think others may be wrong, then everyone can benefit

their earnings seem a bit low, even if the RM1b used to save interest PE also still high....anyone knows which investment properties they own which the revaluation gain was so significant last quarter?

30 days to sign, then probably another 3-5 months for shareholders approval. still got time to get in for those interested

interesting, price dropped more than I expected, this is what I would call "headlines" effect, KESM 4Q results was actually decent (if u read the brokers' reports and some analysis articles today) but news highlight yoy drop without mentioning the abnormal items last year or mentioning the full year or qoq increase. opposite the same for CIMB 2Q, results actually came in lower than expectations, but all people read was 36% yoy increase without realising that 2Q15 was an abnormally low base. just an observation, not saying whether KESM good buy or not

there are so many people here who read news or announcements and didn't even bother to spend a bit more time analyzing. i missed the boat on kesm but let me just state my observations.

4Q net profit RM8.15m, not the greatest but it's the second highest quarter in recent years. the highest? 4Q last year which is why u see it seems to drop by 20%. a simple glance on P/L would also tell you that the main difference is tax in which it's 1.3m tax expense this quarter but 0.7m tax income last year. I'm sure you understand that tax income is not normal, so it's not a fair comparison. On PBT basis, the drop would be 3.9% yoy rather than 20%

It's still growing qoq and the FY16 net profit was actually slightly above the research houses' estimates so I won't say it's bad. that say, it's not spectacular so trailing PE now would be 11 times. not high for those who are convinced of its growth story but could be a bit high for those sceptical, especially since it's still a small cap.

if you compare with SAM, SAM's revenue, PBT indeed dropped qoq and yoy which is why the sell off.

personally, I don't think KESM will fly tomorrow but neither will it drop much as it's pretty much a result in line with expectations. and since recently it has gain some funds' attention, they could mop it up if there is a sell off. a fair price will depend on your expectations of their business and future profits

heard a friend saying kesm directors had a meeting today, my guess is QR should be out today

and please stop misleading people by saying koreans will takeover the company at 1.45. it is obvious that the deal is structured to avoid the MGO trigger. based on the revised takeover code by SC, SC has the discretion to order a MGO if it's borderline 33% and after taking into account other factors. but any competent lawyer would also insert a breakout clause in the S&P in case a MGO is required, so it is very highly unlikely

what the Koreans pay is just a guide. that say, they are in for the long term and in their valuation they would have embedded in value for controlling the company and the synergies to their own operations elsewhere, neither of which are applicable to retail investors, so we shouldn't benchmark ourselves to them. the company financials in recent quarters doesn't look good and valuation also not cheap. the only reason you should buy this counter is if you believe that the financials will improve, which won't happen overnight but for medium to long term

读到“这就是“一不做二不休”的由来，我笑了

just stating some of my observations.

1. Earnings very low so PE wise is not cheap. Management fails to deliver earnings and create value.
2. No dividend so net cash is irrelevant. dividends sometimes is not just about capability to pay, but also speak of the management's willingness to share with the shareholders. For MPHB, seems like both are lacking as they couldn't get BNM approval so far
3. Net assets is the contentious part. Latest NA per share is RM2.23 which means at current price is about 0.6x P/B, which could be consider fair given their low ROE and earnings. I know there are a lot of debates above that argued whether is the NA above RM9+.

In the AR 2015 (published April 2016):

Book value vs estimated fair value
Land and buildings: 74m vs 177m
Investment properties: 832m vs 1311m

The above estimated fair value is by accredited valuers using comparison method of valuation and it's published in AR so I would think it's much more reliable than any outsiders' wild guess.

So revaluation surplus would be RM582m (excluding any deferred tax) or 81c per share. Add this to RM2.23 you will get a revised estimated NA of RM3.04.

Now you can decide whether it's undervalued or not.

For me, it's undervalued from asset point of view but the questions remain when will it realise its value and how much can it realise. And since it doesn't pay dividend, returns would be 0 in the meantime and it won't reduce your average cost.

btw 21 Sept 2016 is the hearing date for their lawsuit against Johor govt. It's already federal court so if they lose again then it's over

I think people are overly harsh on the author. he/she is just providing his/her opinion. if the Korean firm is willing to pay for that price that means they see synergistic benefits and believe in the long term future. but if the author indeed is an ex-analyst, then it's very ignorant to not notice that the deal is highly unlikely to trigger a MGO at 31% (although SC can interpret differently based on latest revamped takeover code). And the valuations of century is also not overly attractive at RM1.00. so sell-down after the previous day speculation is within expectations and this blog post simply came out at the wrong time

that's why people who bought yesterday r seling

minority won't benefit

no mandatory takeover

price recovered a bit but not supported by big volume yet. still waiting for the next wave

I have read the Mycron annual report and some other quarterly commentaries. basically most quarterly statements summarise the better performance due to better selling price and lower costs (more or less) without giving the underlying factors (except Mycron AR). that's why I wanted to confirm my 1st question based on what I understand from wealthwizard's articles.

for the 2nd question, I can't find any confirmation except from observing the HRC/CRC/steel rebar/iron ore prices. it's my speculation. if it's true, then the better margins in 2Q could last shorter than expected.

3rd question actually is a bit tricky. probably even the companies also can't have an exact answer on how they could cope with prices fluctuations but I just wanted to see what everyone thinks about it.

from what I understand, steel price has tracked china sudden surge in demand, which is then followed by iron ore prices increase (the raw material). so would it be correct to assume that local steel producers are benefiting from higher selling prices due to increase in global steel price and enforcement of anti-dumping, while raw material cost didn't increase as much mainly because they don't need to source from megasteel anymore? or is it also possible that the recent quarter results increase in margin is because the steel players are drawing down from old inventories (purchased at last year's price, cheaper than now even if it's was from megasteel) while steel price (selling price) has increased? so the timing mismatch resulted in higher margins? and if steel price (selling price) correct down together with iron ore (raw material price), do you think local steel producers can maintain their current margins? sorry for a lot of questions, just hoping to get a better understanding of the industry dynamics since you seem to have done quite some homework. thanks

thanks wealthwizard. unusually informative article on the steel sector. i think in the past many have shy away from the steel sector (for good reasons). would like to know your views of the changing trend in the sector (higher steel price, lower cost etc.) and whether are they sustainable. steel companies mostly have done very well in 2Q but many (including me) worries if this is a 2,3 quarters wonder...

pisanggoreng to a certain extent I agree with you. but like i said, it could still be a good stock for mid to long term but not for me in the short term. to each its own. however every time a company's price surge after corporate exercise, it's pretty normal for them to undergo consolidation before moving up/down. so what I'm saying is that for me, short term downside is higher than upside. like u, I was also only sharing my views on gadang especially on their coming quarter profits because construction/property companies, unlike your typical manufacturing/retail, revenue and profit can really plunge during dry season (especially if from high base). so while many are very bullish on gadang, I'm just highlighting some potential risks which may be missed by others. if you re-read my comment above, I think it was a pretty balanced view so no need to be so defensive, chill...

I love gadang when it was 1.40, like it when it was 2.00 but now probably not. haven't tracked gadang for some time (so correct me if I'm wrong), but property earnings mainly coming from Hatten JV (if not property earnings won't be increasing in weaker market), construction margins have been better but not sustainable (margins for bigger projects tend to be mid to high single digits).

Short term positives: possibility of MRT contract win. Risks: Hatten Jv won't last forever, once it ends, its own property division probably not strong enough to pick up. Construction orderbook very low, even winning MRT will be more replenish rather than add to its orderbook. High possibility of weaker qoq earnings after 1 to 2 quarters. Share split etc. typically happens when mgmt tries to push the price up for the last mile. Could still be a good stock long term but not for me in the short run.