@Dragon328, again appreciate your sharing. It's certainly worth a more in depth look, despite my impression of its controlling shareholder.

Good reminder. Page 19 of the circular has provided the breakdown - RM1.62m for disposal expenses, and RM8m for general corporate expenses.

Page 16 shows the expenses will be be deducted from the originally estimated RM2,731m (now RM2,739m, after extra RM9 or about 2% p.a. interest income as disposal date was delayed for two months)

The company will pay special dividend RM4.57 * 539m shares (as of Jun 30) = RM2,463m

The estimated amount left for final distribution to shareholders (exclude future interest income) = RM2,739m - RM2,463m - RM9.62m (though expenses could be a bit lower if completed earlier) = RM266m

Estimated final distribution per share (before future interest income) = RM266m/ 539m = RM0.49

As for interest income, as mentioned before, it's better to get tax free FD income ourselves instead of Litrak's taxable interest income.

Did I miss something?

Yes, the cash in bank generates interest. So is money parked in FD instead of chasing after Litrak shares. Moreover companies pay 25% corporate tax for their interest income while our own FD interest is tax free.

Even a holding company still incurs expenses. Up to probably a million a year for directors’ remuneration. There is also staff cost, though it could be minimal. They may also engage advisors/ consultants in winding down the company. This overhead has to be spread over a company which is now only a tenth of its previous size. The cash return will be smaller after offsetting the various cost.

This is why I feel that a few percent discount, to be realized within a 12 month period, is merely fair instead of attractive. Any gain in arbitrage has to be measured against the opportunity cost incurred.

@dragon328, thank you for your sharing. Yes I read about your analysis on SEM.

I did follow the share price since the talk about potential sales of Caring. The gradual share price run up over a 3 week duration and the subsequent dumping looks very strange to me.

On the business side, given SEM has 2,400 stores nationwide, it probably take many new 7-cafe to move the needle?

CIMB has downgraded to Hold in anticipation of weaker earning outlook due to weaker consumer sentiment. However Starbucks still plan to open many new stores. What is your view?

You've also deducted payment of lease liabilities RM17.9m before arriving at the final operating cashflow.
However, this item is the "payment of principal portion of lease liabilities". Given it's the principal portion, it's for capital lease where the company could own the asset eventually. Shouldn't principal payment not be deducted in the operating cashflow? (The depreciation of the fixed asset has already been accounted for)

@dragon328, thanks for sharing your calculation. Yes, interest payment RM6.348m should be deducted before arriving at the net cash from operating activities. I missed it.
While most companies assign interest payment under Operating Cashflow, BJFood has parked it under Financing Cashflow. What might be the reason for this discrepancy in practice?

The management talks about rising cost. "The lower pre-tax profit was mainly due to margin compression as a result of the higher operating costs incurred and the weaker Ringgit Malaysia."
Operating margin has indeed declined from 24% in the previous quarter to 19.4%. However after adding back depreciation, the EBITDA margin remains unchanged at 35%.

Cash from operating activities at RM78m will be over RM310m if annualised, close to last year level.
Investment has run up to RM25m in current quarter, including RM5m for JV (Paris Baguette’s?). Annual CAPEX was RM70m in FY22. Assume FY23 CAPEX is RM100m.
Assume the current gearing is already optimal, the free cash will be 310 - 100 = RM210m or 12 sen per share.

However RM33m has been used to pay down borrowing in the current quarter. In FY22 the company paid down RM80m of its borrowing. If we assume another RM80m is paid down in FY23, the free cash after CAPEX and debt repayment will be 310 - 100 - 80 = RM130m, or 7sen per share.

Taking the middle point, free cash will be about 9 to 10 sen per share, still close to 10% yield. Are the assumptions reasonable? Can the current good margin sustain?

According to company announcement on Oct 13, LITRAK Holdings’ portion of total equity holders’ proceeds RM2,739m. After full exercise of ESOS the number of shares will be 538.263m. Value per share = 2,739/538 = RM5.09.

Before today's ex-date, the share price has traded around RM5, which was about 10 sen or 2% discount before transaction cost.

After ex-date the remaining value is about 5.09 - 4.57 = RM0.52. The volume weighted average price up to this moment is about RM0.50, which is about 2sen or 4% discount.

It seems a fair discount. There is little attraction to buy or sell at this price.

However relative to its size, Harta war chest isn't as large as Kossan or Supermax, not to mention Intco, though much better than Top Glove. The management should preserve cash to outlast competitors incase anyone (especially outside Malaysia) engage in a multi-year price war. Moving forward can't expect much dividend. The 60% payout policy is based on earning which will be minimal at best.

The RM1.8b net cash can sustain RM400m+ annual staff cost for 4 years.

Kossan result reminded all on the weak demand and over capacity issue. It brought the recent glove stock rally back to reality. There isn't much surprise left when Harta result is out.
Both Harta and Top Glove are almost certain to be dropped from KLCI. This is a much anticipated event. Let's see what will happen to their share prices when the moment comes.

2Q22 quarterly report mentions decline in sales volume by 27% YoY, and by 33% QoQ.
My own estimated shipment quantity for Q2 is 4.8b to 4.9b. Based on previously mentioned annual capacity of 42.3b (could be lower now as they take out some old capacity), utilisation is only around 46%. However the poor utilisation is kind of expected based on previous management's guidance on market outlook.

I actually still retain a portion, opting to receive special dividend instead of selling the entire holding which incur transaction cost. I just treat the remaining portion as cash, to be deployed if new opportunities arise. I also keep an eye for price after ex date, just in case the price gap becomes attractive.

Natsuko, good sharing. I enjoy reading the entire article.

It's funny to read that "her local colleagues who informed her that neighboring countries Indonesia and Malaysia were burning rain forests to make palm oil." It's funny to know how the story just get twisted from a misguided Singaporean colleague and eventually fit into the anti palm oil stereotype.

But make no mistake. I believe there are real money betting on palm oil replacement. I also believe it can become successful one day.

Applying biotech to change the world is not new. There are companies working on plastic eating microbes, as well as microbes that produce green aviation fuel to combat climate change. I'm quite confident all of them will succeed one day and make the world a better place. The question is how long will it take to scale up to make commercial sense.

I suspect this palm oil alternative, if ever successful, will for a long time remain a niche application, perhaps first used in the most expensive cosmetic which already commands a premium and their customers don't mind overpaying.

But don't expect the mass market Western consumers to pay 10X or even 100X for their environmentally friendly shampoo or chocolate, no matter how environmentally friendly they are. Not to mention most of the palm oils are sold to price conscious developing countries.

I also foresee little impact from the investment point of view. UP is mostly valued as a dividend stock. Applying a dividend discount model, most of its value will be derived from the first 10 or 15 years of dividends, discounted to present value. The synthetic palm oil, if ever successful, will not make a dent on the global palm oil demand for at least the next 20 years.

I would rather pay attention to foreign labor issue, Indonesia export, Ukraine War etc. But interesting story nonetheless.

If interest rate hits 8% the stock market will be decimated.. There will be many stocks selling at 3 times PE or above 10% dividend yields, yet most of us will be too terrified to buy :)

The 25X historical forward PE I mentioned earlier is based on 5 year record. It has been skewed upwards by 2020 bull run. The 10-year mean used by Affin is a better measure.

Affin has a Sell call. Its rationale:

The equity market, which turned bearish in 3Q22, will likely remain subdued in 4Q22 and 2023, as we anticipate more market turmoil and fund redemptions for both bond and equity markets. Our equity and derivatives market assumptions for 2022E/23E/24E as follows: i) equity market ADV at RM2.0bn; and ii) derivatives volume at 17.5m/12.4m/12.4m p.a.

Reieterate SELL, as we maintain our Price Target from RM6.74 to RM5.20, based on a P/E target of 22x (at 10-year mean) on revised 2023E EPS of 23.6 sen

Despite being in a small pond, Bursa is a monopoly which needs little capex and returns >90% of its earnings to shareholders. Its valuation is never cheap.

Historically Bursa's average forward PE is around 25 times. Current forward PE at "only" 22X has offered support.

The share price may tumble if analysts cut earnings, or it suffers a derating, for eaxmple due to
1. a general stock market crash
2. Malaysian economic recession
3. Government imposes capital gain tax for stock trading

They are structured warrants issued by investment banks. They've taken opportunity to cash in on speculators bullish on rising CPO price just a few months ago.

Yes. The distribution has been defined in the circular. By declaring a special dividend of RM4.57, Litrak would have distributed about 90% of the RM5.08 sales proceed within 45 days of completion date. The remaining RM5.08 - RM4.57 = RM0.51 will be distributed within 12 months, plus maybe 1 or 2 sen of accrued interest.

Litrak should not trade above RM5.08 tomorrow. After ex date of 10 Nov, it should not trade above RM0.51.

I analysed past AGM votes on resolution of directors’ appointment. Over the years the number of shareholder votes supporting directors’ appointment has declined while the Against votes has kept increasing (presumably most are from COL)

Year No. of Shares For No. of Shares Against
2021 43,623,877 (58%) 31,099,317 (42%)
2020 42,332,043 (58%) 30,267,507 (42%)
2019 43,829,446 (61%) 27,963,500 (39%)
2018 46,261,889 (62%) 28,389,753 (38%)
2017 44,554,250 (64%) 24,832,500 (36%)
2016 57,089,178 (71%) 23,646,300 (29%)
2015 60,198,263 (75%) 20,281,250 (25%)
2014 47,978,106 (73%) 17,777,592 (27%)

Hence the urgency to stop COL.

With 140 million shares outstanding, a full 47% have not bothered to vote. If shareholders don’t care to defend their own interests, the current sorry state could continue for many more years.

The Forbes article below explains why closed-end funds often trade at a discount to their NAVs.
https://www.forbes.com/sites/simonmoore/2020/04/12/wider-closed-end-fund-discounts-have-historically-been-a-good-sign-should-you-bite/?sh=1eb964e050a7

Check out this closed-end fund screener mentioned in the article.
https://www.cefconnect.com/closed-end-funds-screener

It lists a few hundred closed end funds. Sort these funds by the Discount/ Premium column. It shows that about 90% of the closed end funds suffer from NAV discounts!

What is even more interesting is out of the few hundred funds, only one fund called DMA (Destra Capital Advisors LLC) suffers from a greater NAV discount than iCAP!

At the time I sorted the list, DMA’s discount was 41%. Based on latest Bursa announcement, ICAP discount was 1 – 1.96/3.23 = 39%.

In other words, if ICAP were to be included in the list, it would be the second worse performer in premium/ discount out of the few hundreds!

Just before anyone concludes that ICAP offers the opportunity where NAV discount may narrow over time, read the last paragraph which says,
“So if you see a closed-end fund trading at an unusually high discount there may be an opportunity. Discounts and premiums do appear to be mean reverting. Unfortunately these opportunity often comes at times of high market panic, such that other opportunities may be large too. Plus these trades do involve some risk and cannot be fully arbitraged in a riskless way. Also, a final note of caution is that closed-end funds can move systematically over time. For example, in the early 1970s closed-end fund discounts in the US and UK exceeded 30% on average for several years. So these discounts don’t necessarily always close as rapidly as an investor might hope.”

I'm not saying Poh Huat is doomed. Its share price has corrected due to the the darkened outlook. However my view is anyone who hold the stock should have a long term outlook and be prepared to ride though volatility. Exchange rate gain and current high dividend yield (which is based on historical earning anyway) may not be sufficient reasons to own the stock.

According to the article, "Paul Krugman has warned the Federal Reserve is at risk of going too far in fighting inflation, causing unnecessary economic damage."

In other words, there is a real danger that in the attempt to regain its inflation fighting credential, the Fed may have gone too far and trigger a deep recession. The Fed would then have to switch back to rock bottom interest rate in order to resuscitate the damaged economy.

I'm not saying this scenario will definitely happen (no one is sure about the future, including the Fed). However based on past experience, when the Treasury 10 year - 2 year bond yield is inverted for a substantial duration, the economy would enter recession in the next few quarters. The yield curve has stayed inverted since Jun.
https://fred.stlouisfed.org/series/T10Y2Y

A complete operation halt for three months will be worse than Covid lockdown. If the news is genuine, which I doubt so, the management would have to make annoucement in Bursa as such decision will have material impact on the share price. However no such annoucement can be found.

Nevertheless it's quite likely that furniture demand and therefore production have slowed considerably in recent months. I shared the news in Jun that US furniture retailers were facing serious inventory problems. It's likely that customer orders are drying up now. But such info should have been reflected in the current share price. The share price has declined by a quarter since Jun.

According to the sensitivity analysis as disclosed in 2021 Annual Report, a 5% appreciation in USD would have increased profit after tax by RM0.48m. Based on FY2021 profit after tax of RM32.2m, it is equivalent to 1.5% increase in PAT, if other factors remain unchanged.

Between end Oct 2021 to today, USD has appreciated by 14% (from 4.14 to 4.72). Let's assume the exchange rate hits 5. The appreciation will be 5/4.14 - 1 = 21%. Based on the disclosed sensitivity analysis, PAT would have increased by 1.5% * (21%/5%) = 6.3%.

However, other factors will NOT remain unchanged. Over the short term, furniture retailers are delaying or cancelling orders as they struggle with inventory problems. Falling revenue will erode profit, offsetting any gain in exchange rate.

A longer term concern is the US 30 year fixed rate mortgage average has almost tripled from the low point of 2.65% in early 2021 to 6.92% lately.
https://fred.stlouisfed.org/series/MORTGAGE30US

Check out the housing start chart below. The US private housing start has increased steadily from 0.5m units per month after Global Financial Crisis in 2009 to 1.8m units per month early this year. The new housing fueled furniture demands over the last decade. The housing boom has provided a tailwind to Asia furniture exporters over these years. But will this multi-year trend go into a reversal if high interest (mortgage) rate persists? How will it impact furniture demand in the coming years?
https://fred.stlouisfed.org/series/HOUST

There are many exporters in Bursa. In theory they all benefit from a weak Ringgit. Exchange rate alone is not a sufficient reason to pick Poh Huat over other exporters.

"Do participate in its coming Annual General Meeting and make your ownership counts. It can help narrow the NAV discount."

How does participation in AGM help narrowing the NAV discount? By indoctrinating and firing up shareholders so that they will buy the shares up?

It sounds like religion. When has value investing turned into a faith based investing?

Benjamin Graham also wrote,
" Given two companies in the same general position and with the same earning power, the one paying the larger dividend will always sell at the higher price"

"Assuming that the reported earnings were actually available for distribution, then stockholders in general would certainly fare better in dollars and cents if they drew out practically all of these earnings in dividends."

"Although we have concluded that the payment of a liberal portion of the earnings in dividends adds definitely to the attractiveness of a common stock, it must be recognized that this conclusion involves a curious paradox. Value is increased by taking away value. The more the stockholder subtracts in dividends from the capital and surplus fund the larger value he places upon what is left."

In other words, Graham observed almost a century ago that the market prefers companies which return idle cash to shareholders. The more idle cash is returned to shareholders, either via dividends, or share buyback (if the stock is undervalued), the more valuable the company becomes. The shareholders will enjoy the double benefits of returned cash and a higher share price assigned by the market.

Graham's wisdom then has become common sense nowadays. The only problem is the self proclaimed Graham's disciple doesn't walk the talk.

Extracted from Security Analysis, the classic written by Benjamin Graham in 1934.

In Chapter 29, The Dividend Factor in Common-Stock Analysis, Graham wrote that
"... if stockholders’ opinions were properly informed, it would insist upon curtailing the despotic powers given the directorate over the dividend policy. Experience shows that these unrestricted powers are likely to be abused for various reasons. Boards of directors usually consist largely of executive officers and their friends. The officers are naturally desirous of retaining as much cash as possible in the treasury, in order to simplify their financial problems; they are also inclined to expand the business persistently for the sake of personal aggrandizement and to secure higher salaries."

Does it sound familiar?

I remember you the promoter of DNEX, when the share price was a lot higher than today.

I agree. There are few places in stock market to hide from such risks. Prudent asset allocation is absolutely necessary to weather the coming storm.

However rising interest rate and the depreciation of British pounds may affect sentiment

Thank you for the clarification.
Based on balance sheet as of Jun 30, the assets side has about RM20b investments, RM1b reinsurance asset. Insurance contract liabilities is RM18b.
Does it mean around 20 + 1 - 18 = RM3b of investments may still be subjected to FV impact post IFRS17?

A report from Am Investment Bank:
https://klse.i3investor.com/web/pricetarget/research/64791

The last point "Upon the adoption of FRS 17, the negative revaluation on the group’s life insurance’s investments which dampened the group’s net profit in FY21 and FY22 will no longer have any P&L impact from FY23F onwards. We understand that the marked-to-market changes in valuation of securities portfolio commencing from next year will flow through the comprehensive income."

Is that true?

@Petermoo, the largest ever research involved more than half a million population in 10 European countries over a period of 16 years. The result was published in 2017. It was widely reported then.
The conclusion of the research was "Coffee drinking was associated with reduced risk for death from various causes. This relationship did not vary by country."

https://www.imperial.ac.uk/news/180494/drinking-coffee-reduces-risk-death-from/
https://pubmed.ncbi.nlm.nih.gov/28693038/
https://www.cnbc.com/2017/07/11/coffee-drinking-could-lead-to-longer-life-studies-say.html

Of course, instead of drinking expensive Starbucks coffee, we may also enjoy the same benefit by making our own coffee (as long as not 3-in-1 or kopi-o)

Current quarter PBT for Power Seraya is RM191m (vs. RM135m last quarter, and RM27m a year ago)
But PBT for Wessex Water is only RM14m (vs. RM89m last Q, RM91m a year ago). Given quarterly revenue is ~RM1b, the margin seems low. Management attributed to higher operating expenses.
YES continues to be loss making.
Full year dividend is unchanged at 2 + 2.5 = 4.5 sen. At current price dividend yield is 6.25%.

@wsb_investor, thanks for the explanation. It makes sense. Liability will reduce when the assumed discount rate is raised.
However is it common for insurance companies to change their discount rate assumption from quarter to quarter? This could open up opportunity for life insurers (probably not Allianz) to massage their profits in every quarter, despite such reported profit may not be reflective of long term company potential.

Sorry I have no idea too. Maybe others can help explain.

You may refer to slide 7 on core PBT calculation. It strips off the FV and tax effects.

Yes, the demand is weak across the industry. In the current year prospect section, it mentions that the higher inflation may impact claim costs while lower disposable income may impact consumers’ purchasing power and spending on longer-term commitments such as insurance products.

It seems that life NBV growth remains weak. The presentation mentions lower sales volume from agency (slide 21, 23)
https://www.allianz.com.my/content/dam/onemarketing/azmb/wwwallianzcommy/pdf/investor-updates/2022/2022_Q2_AMB_Analyst_Briefing.pdf

Truly long term investors will not be overly concerned. Long term doesn't mean buy and never sell. Some would have taken some profits during the glove mania in late 2020 as valuation was clearly not sustainable.
With the market swings to the pessimistic end now, it's good time for LT shareholders to rebuild their glove exposure gradually even though share price is likely to fall further. Calling the bottom in share price is as hard as calling the top.

Another useful input from CIMB on the supply-demand dynamics in the glove sector:

Hartalega’s in-house research indicates that glove buyers would need an inventory adjustment period of approximately 16 months (from peak inventory levels) before they replenish their inventory with new stocks. Hartalega believes inventory levels have peaked in Jun 2021 and hence it expects glove demand to recover by end-2022.

Hartalega did a projection analysis on the global glove demand for 2022- 2025F by assuming i) a 6% annual growth rate for the best case scenario, and ii) that 2022F glove demand would equal that of 2020 for the low case scenario. Note that the Malaysian Rubber Glove Manufacturers Association (MARGMA) estimated that global glove demand could grow 12-15% next year.

It estimates that in the best case scenario, the global supply-demand dynamics in the glove sector could reach equilibrium by 2024F. This is assuming an 80% capacity utilisation rate by then as well as no decommissioning of existing capacity. Should decommissioning happen, it projects the supply-demand dynamics in the glove sector would reach equilibrium earlier, by 2023F.

The report mentions MARGMA. MARGMA should be totally discredited by now given its unsubstantiated bullish forecasts at the height of pandemic, just like Frost Sullivan its rosy projection was used by Top Glove in its HK IPO document.

Extracted from several reports today:
Maybank:
1) Management has turned more bearish on the sector outlook given stiff competition. We understand that ASP has resumed its downward trend since June 22 after stabilising in Apr-May 22 and utilisation rate has dropped to 50% (in line with the industry), from 70% in Apr-June 22,
2) management expects the demand-supply equilibrium to take another 24 months to rebalance. Prior to 2024, it will focus on sharpening its capabilities and improving cost efficiency to prepare for recovery, and
3) management no longer enjoys premium pricing for its products due to stiff competition.

Affin:
Management mentioned that in a worst-case scenario, the current overcapacity situation could persist past 2023

Hong Leong:
We caution that Hartalega could be at risk of being booted out of the KLCI in the upcoming FTSE Bursa Malaysia KLCI semi-annual review should its share price deteriorate further, as it currently ranks at the 35th spot (based on 9th Aug closing).

It seems that the over capacity situation will persist for quite a while yet. Those looking for opportunity to add could probably wait. Exclusion from KLCI, if happens, could trigger another round of selloff as seen in other stocks.

With this ruling, motor insurance companies will automatically pick up the bill. It's only right that innocent accident victims should not go through the legal nightmare just because the motorists are at fault and insurance companies refuse to pay. But could there be unintended consequences?

With the ongoing liberalization, insurance companies need to better differentiate pricing based on motorists' past records, such as traffic summons.

"A landmark ruling by the Federal Court has held that victims of road accidents should be automatically compensated by insurance companies without requiring legal action to do so.
...
According to the report, of the eight appeals, five involved Pacific & Orient Insurance, Amgeneral Insurance, Allianz General Insurance Company, and Malaysian Motor Insurance Pool. The three-person bench, comprised of Rahman as well as Hasnah Mohammed Hashim and Rhodzariah Bujang, awarded RM150,000 in costs to each of the successful parties in the appeal.

The appeals came about as the insurance companies had obtained a declaration in the High Court to nullify the policies of motorists due to allegations of misconduct on the part of the vehicle owners, the FMT report said. This action had denied accident victims monetary compensation that had been due to them, prompting the appeals.
The appeals included a sambung bayar case, where the dispute arose when the vehicle owner attempted to claim on his vehicle following an accident.

However, he had “sold” his vehicle to a third party through such an arrangement, with the insurance company being unaware of this. When it learnt about this, it then obtained a declaration from the High Court to nullify the policy of the motorist, citing misconduct on the part of the vehicle owner. Following this, the insurer refused to cover the vehicle owner’s loss.

In another case, while the Sessions Court had found the driver of the other vehicle negligent after a full trial, the insurance company took a court order alleging it had been defrauded, and declined to pay the vehicle owner who was claiming for damages.

The case victim was eventually found to merely hold a paper judgement, which the Federal Court said was “not even worth the paper it was written on,” continuing that it was unfair because the victim’s constitutional rights to be treated fairly had been infringed"

https://paultan.org/2022/08/09/federal-court-rules-that-road-accident-victims-should-be-automatically-compensated-by-insurance-firms/

You can check the Circular to Shareholders published a few weeks ago.

Assuming no hiccup, over 90% of proceeds will be distributed to shareholders within 45 days of completion date, where completion date is expected to be 15 Aug. The remaining will be distributed within 12 months.

The quarterly report mentions a decrease in sales volume by 28%.

Based on my record, the shipment Q1FY22 was 10.09 billion. It means Q1FY23 shipment was 7.26 billion.

The report does not mention new capacity coming online, so can assume it remains unchanged at 43 billion. The utilization was therefore 7.26/ (43/4) = about 68% (assume shipment and production at the same rate).

If my calculation is right, this would be lower than historical standard. It is about the same level as Kossan's latest quarter.

It's much better than Top Glove which was about 56% in last quarter, not a surprise given Top Glove expanded aggressively, and is also catching up on the lost share in the US market.