Featured Posting: Is The MRT Project Over Priced?

Posted by fellow blogger snowball on his blog: Should We Ask Singapore to Help Us Construct the MRT Line?

Do give it a read.

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Comments from snowball:

• Thanks for highlighting. Some comment though, some people said that the differential in cost between Malaysia and Singapore is due to the soil condition. Apparently, it is cheaper to tunnel through Singapore than Malaysia. But, then again, Singapore underground station are designed as bomb shelter. I don't think our underground station are designed as bomb shelter hence it is cheaper. Plus, this is not the first time that MMC-Gamuda is tunneling through KL, they should know the soil condition better. The question remains, do you still let a contractor to renovate your house when he come back to tell you that your renovation cost 50% more than the previously agreed price? I think most will say "no". But, when it comes to public project, some people think it is ok to say "yes

What's The Current Risk With Japan's Nuclear Catastrophe?

Just read the following posting on ZH: TEPCO: With $91 Billion In Debt, Got CDS?

• Now that the market has had some time to digest the events over the weekend, it may be time to hedge risk on the company most exposed to the nuclear shock in Japan, Tokyo Electric Power Company. The company was just downgraded by Goldman Sachs to Neutral (which means it held it as a Buy until now) as the firm does not see "a dividend hike"... We see far greater issues for the company's equity investors than just a dividend hike. Number one: TEPCO (9501.T) has over $90 billion in debt and roughly $30 billion in equity buffer. As Bruce Krasting points out vis a vis the equity - "it's gone." More from BK: "I used to work on financing these things. It's all long term leases. The actual debt behind the power plants is multiples of what they show on the balance sheet."

Continued...

• Even S&P had some choice words to say about the company back in January:
  
  Standard & Poor's on Friday lowered the credit ratings of five electricity providers, including Tokyo Electric Power Co. (9501), or Tepco, and two city gas firms.
  
  The utilities were knocked down a notch to AA minus from AA in a move that echoed the ratings agency's cut of Japan's long-term sovereign debt a day earlier.
  
  In explaining the move, the U.S. rating agency cited the companies' "status as public utilities," noting that they are "crucial to the government's domestic energy policy." The Tokyo metropolitan government, Aichi Prefecture, and government-affiliated institutions were also downgraded to AA minus.
  
  By contrast, S&P affirmed the ratings of Toyota Motor Corp. (7203), Canon Inc. (7751) and other Japanese companies rated AA. They are likely to maintain their ability to meet financial commitments even if Japan defaults on its debt, explains S&P.
  
  

Update On Ecofirst

Here's an update to an old series of posting on EcoFirst (Kumpulan Emas). The old postings:

1. Sep 28, 2007: EcoFirst (Kumpulan Emas)
2. Dec 21, 2007: Update on EcoFirst
3. July 30, 2007: Update On EcoFirst
4. Nov 25, 2008 New Update On Ecofirst
5. July14, 2010: And What About EcoFirst (Kumpulan Emas)?

Since I wrote that July 14 2010 posting, Ecofirst announced another 3 quarterly earnings:

1. July 2010: Quarterly rpt on consolidated results for the financial period ended 31/5/2010 - loss 21.8 million.

2. Oct 2010: Quarterly rpt on consolidated results for the financial period ended 31/8/2010 - loss 2.1 million.

3. Jan 2010: Quarterly rpt on consolidated results for the financial period ended 30/11/2010 - loss 3.42 million.

Which meant that since Kumpulan Emas changed its name to Ecofirst back in Jan 2006, Ecofirst had recorded losses all the way!

And what's more embarrassing was how they disposed their shares in SEGi last year.

Here's an article on the Edge back on Aug 2010:

• Education rally: A case of two contrasting fortunes
  Written by The Edge Financial Daily
  Monday, 09 August 2010 17:49
  
  IN the recent rally among education stocks, there was one clear winner and one big loser among the publicly listed companies. Selangor Properties Bhd, the major shareholder of HELP International Corp Bhd, was a clear winner, as the value of its 51% stake in HELP appreciated. EcoFirst Consolidated Bhd was the big loser, having divested its stake in SEG International Bhd just before the stock started its big rally, and rose over four times from its selling price
  
  SelProp, the big winner in HELP
  Selangor Properties Bhd (Selprop) is arguably the biggest winner in the education stock rally, as it is the largest shareholder in HELP International Corporation Bhd.
  
  According to HELP's director of corporate planning Adam Chan Eu-Khin, Selprop had been supportive of HELP from the beginning.
  
  "It has stuck by us through thick and thin since the beginning. That is why we are proposing a bonus issue for the first time since IPO as a reward," he told The Edge Financial Daily.
  
  HELP had recently proposed a three-for-five bonus issue of 53.26 million shares, upon the completion of which its share base would increase from 88.8 million to 142 million shares.
  
  Selprop, one of Malaysia's oldest and most conservative listed property companies, has a 51% stake, or 45.27 million shares in HELP.
  
  Selprop is the largest landowner in the prime Damansara Heights suburb of Kuala Lumpur, where it owns 33 acres (13.2ha) as well as several commercial buildings, including Menara Milenium, Wisma Damansara, Kompleks Pejabat Damansara and 16 shops along Jalan Batai.
  
  It also has a 50% stake in Claremont Shopping Centre project in Perth, and sizeable cash reserves.
  
  Interestingly, Selprop's stake in HELP is carried at very low costs as Selprop invested in the company during the early stages.
  
  According to Selprop's annual report for the financial year ended Oct 31, 2009, the cost of its investments in subsidiaries quoted and which refers to its stake in HELP, stood at only RM2.62 million. That is equivalent to a book cost of just 5.8 sen per HELP share.
  
  The market value of these shares then, according to the annual report, was RM70.63 million, which is equivalent to RM1.56 per share. Based on HELP's closing price of RM3.80 last Friday, Selprop's stake would now be valued at RM172 million.
  
  Compared with its book cost of just RM2.62 million, Selprop is sitting on unrealised gain of RM169.4 million, which is equivalent to 49 sen per Selprop share. The property company has 343.617 million shares issued. Selprop's net assets per share stood at RM4.95 as at April 30, 2010.
  
  Adding the "unrealised gain" of 49 sen per share will imply a revised net asset value of RM5.43, some 43% above the last traded share price of RM3.80. And this does not yet include the revaluation of its own property assets.
  
  While analysts note Selprop's shares are undervalued, the stock has been trading below its NTA due to the company's conservative stance compared to other developers.
  
  The company derives most of its income from the rental of its properties, although the upcoming launch of the Jalan Batai condominiums in Damansara Heights will lift future earnings.
  
  Ecofirst, a case of bad timing?
  Ecofirst Consolidated Bhd (ECB) turned out to be the biggest loser in the education stock rally when it disposed its entire 19.87% stake in SEG International Bhd (SEGi) from March to April 2010, just before the counter surged in the following months.
  
  Ecofirst, formerly known as Kumpulan Emas Bhd, pocketed about RM30.6 million, but could have gained at least four times more if it had held on to SEGi's shares when it rallied.
  
  Ecofirst had sold its stake, representing 17.69 million SEGi shares, of which 1.7 million shares were held by its wholly owned subsidiary Sawitani Sdn Bhd (SSB). It was sold to Rexter Capital Sdn Bhd for RM30.6 million or RM1.73 per share.
  
  The original cost of investment of Ecofirst and SSB in SEGi was RM36.1 million, made since 2001. In its Bursa filing, Ecofirst said the proceeds would be used to repay its RM7 million borrowings and for working capital purposes.
  
  In April, just after Ecofirst sold its shares, SEGi announced a one-into-two share split, and a one-for-two five-year warrant issue at five sen per warrant, with an exercise price of RM1.
  
  A month later in May, SEGi added an additional two-for-five bonus issue to the proposals, which took effect after the stock split. The share split and bonus issue was completed on July 15. Prior to the share split, SEGi had surged to a 52-week high of RM4.75 on June 24.
  
  If Ecofirst had held on to the SEGi shares, its original stake of 17.69 million shares today would become about 49.53 million shares, after the stock split and bonus issues, according to calculations by The Edge Financial Daily. In addition, it will be entitled to subscribe for 24.77 million warrants.
  
  Given SEGi's closing price of RM2.22 last Friday, Ecofirst's stake would have been worth RM109.96 million. In addition, the warrants would be worth RM27 million, based on the last traded entitlement rights price of RM1.09, before they ceased trading.
  
  This suggests Ecofirst's stake, which was sold for RM30.6 million in March-April, would have been worth RM136.96 million — or 4.5 times more, just five months later.
  
  SEGi had also declared a final dividend of 3.5 sen per share less tax for the year ended Dec 31, 2009 that was paid on July 28, 2010.
  
  Ecofirst now only holds a small 2.24% stake in SEGi. However, financial woes continue to besiege Ecofirst after the disposal.
  
  For the financial year ended May 31, 2010, it posted a net loss of RM41.38 million, or 6.36 sen per share, on the back of RM21 million revenue, due to an impairment loss of RM26 million on the uncompleted development in Seri Kembangan, Selangor.
  
  Its borrowings stood at RM130.5 million, while its cash and cash equivalents stood at RM26.17 million. Its net debt of RM104.33 million translated into net gearing of 99%.
  
  Had it held on to the SEGi shares a little longer, EcoFirst ironically would have been able to pare down all its debts. While Ecofirst's sale of its stake in SEGi appears to have a case of bad timing, it was not the case for Rexter Capital, which acquired its shares.
  
  It is unclear who is behind the privately held company. Rexter first emerged as a substantial shareholder of SEGi on March 12, 2010, when it acquired an initial 8.29% stake. Its stake as at mid-July stood at 25.4%.

I was more interested to look at Ecofirst's balance sheet from their Jan 2010 earnings. For example, I would like to compare their cash/debt versus what was published on the Edge report to see if there was any progress made. From the payment of their sold SEGi investment, surely Ecofirst's balance sheet should see some sort of improvement.

Here's my answer:

Total cash balance is only 10.55 million.

Its borrowings stood at 130.89 million.

So despite all the selling, Ecofirst's balance sheet did not improve at all.

And their quoted share 'investment'?



And what's interesting is that say in June 2007, if one had looked at Ecofirst, it was trading around 14.5 sen and Ecofirst's NTA was around 41 sen. (you can refer to their Q earnings Quarterly rpt on consolidated results for the financial period ended 30/4/2007 ).

Now if you compare to Jan 2010's Q earnings, the NTA's is only around 16 sen.

What I Think Of KNM's Earnings Guidance

On the Edge Financial Daily: KNM back to earnings guidance mode

'Back' to earnings guidance mode. Yeah. KNM USED to give earnings guide but let's not talk about the past, just yet.

Let's focus on the main issue, which is 'How Much'.

• KNM’s management had met with analysts earlier in the week and guided earnings before interest, tax, depreciation and amortisation (Ebitda) of RM363 million for its FY11 (ending Dec 31, 2011), while the Ebitda for FY12 is targeted at RM564 million

From KNM's own words, KNM is TELLING everyone that it will earn some EBITDA of rm 363 million for fy 2011 and rm 564 million for fy 2012.

Now because KNM's is telling all the research houses that it will earn so much, naturally the research houses have to base their fair value target projection for KNM based on these high numbers.

Yeah what else can they do but base their reports based on such projections, yes?

Now check this out.

What we do know for now is KNM only earned some 131 million for its fy 2010.
And if we do believe KNM's management, KNM can earn as high as 500 million for its fy 2012!

Now tell me if that's rather optimistic.

And consider the fact, the best KNM ever made was for its fy 2008 earnings. KNM had a net profit of rm 336 million.

So KNM is telling us, the investing public that by 2 years KNM will bring in record profits.

And consider the fact, fy 2010 Q3, KNM earned some 56 million.
Its latest fy 2010 Q4, KNM earned some 20.6 million.

Drastic drop on q-q earnings, yes?

But it doesn't matter KNM says it CAN.

Yes it can. It will earn some 500 million plus in 2 years time!

Can ah?

Now let's look at the BACK issue as mentioned at the start of the posting.

See KNM used to give earnings guidance.

Then it stopped.

Aha... doesn't the inquiry mind wants to recall what happened?

Let's use March 18, 2008. I wrote the following posting: Some Musings on KNM Reports. In that posting, I pointed out that in RHB's report, RHB mentioned the following:

• Management is giving guidance that FY08-09 net earnings to be around rm450million and rm700 million respectively.

Ahaaaaaaaaaaaa.....

Let's compare KNM's guidance previously and compare to what KNM actually earned.

Such comparison should be useful, yes? At least we get to know the quality of KNM's earnings guidance.

So how did KNM do?

fy 2008, KNM made 336.175 million. (KNM guided 450 million)

fy 2009, KNM made 257.847 million. (KMM guided 700 million)

Yeah... naturally KNM tanked big time back then!!!

But the point is KNM's guidance back then was horrendous and way off target!

Yeah.. it doesn't take a genius to figure out why KNM stopped giving earnings guidance.

And now... KNM is back at the game again.

Giving very optimistic earnings guidance.

How now brown cow?

Good news for JCY?

San Jose-based Hitachi Global sold for $4.3 billion to Western Digital
By Brandon Bailey
Posted: 03/08/2011 03:55:40 AM PST
Updated: 03/08/2011 03:58:57 AM PST

In the biggest tech deal of the year so far, San Jose-based Hitachi Global Storage Technologies, a Japanese-owned company with deep roots in Silicon Valley, said Monday that it will be acquired by disk-drive giant Western Digital for $4.3 billion in cash and stock.

The deal will give Irvine-based Western Digital control over nearly 50 percent of the market for hard-disk drives, which are facing weaker demand as computer makers turn to greater use of so-called "flash", or solid-state, memory instead.

Some analysts, however, said the consolidation could benefit both Western Digital and its leading competitor, Seagate Technology, which operates out of Scotts Valley. News of the deal sent Western Digital's stock up 15.6 percent to close Monday at $34.68, while Seagate shares rose 9 percent to close at $13.56.

Hitachi Global Storage is a wholly owned subsidiary of Hitachi, the Japanese conglomerate that makes a wide range of industrial, commercial and consumer products. But the Silicon Valley operation has a history dating to the 1950s, when IBM engineers in San Jose developed the first hard-disk drive for commercial use.

For many years, IBM made disk drives and other products at its manufacturing complex on Cottle Road in South San Jose, until the company sold the operation to Hitachi for roughly $2 billion in 2003, which led to the creation of Hitachi Global Storage Technology.

The Hitachi subsidiary currently does much of its manufacturing in Asia, but it has about 2,000 employees at two sites in San Jose, where it maintains its corporate headquarters as well as a research and development operation and some manufacturing.

Hitachi also has pursued plans to convert some of the old IBM property into a mixed residential and retail development; one piece has already become the site of a new Lowe's home improvement store. Hitachi Global Storage spokesman Jim Pascoe said the sale to Western Digital won't affect those plans because Hitachi is retaining the site.

Western Digital is paying $3.5 billion in cash and roughly $750 million in stock to acquire Hitachi Global. Hitachi will have a 10 percent stake in the combined companies and two seats on Western's board. Hitachi Global Storage CEO Steve Milligan will become president under longtime Western CEO John Coyne.

The deal, subject to regulatory approval, will increase Western Digital's share of the disk-drive market from 31 percent to about 49 percent, according to Aaron Rakers, an analyst at the Stifel Nicolaus investment firm. Seagate has about 29 percent of the market.

Although the disk drive business has not been highly profitable for Hitachi, analysts said Hitachi's products should boost Western's standing in the higher-margin business of selling drives for commercial computer systems, where Seagate has been dominant. Western has been stronger in the consumer market.

Overall demand for hard-disk drives has been in decline recently: While the rotating disks are still widely used in PCs and commercial computer systems, manufacturers are making greater use of solid-state "flash" memory in everything from tablets and smartphones to laptops and even some commercial systems. Flash memory is generally faster and lighter-weight, and its historically higher prices are coming down.

The growing popularity of tablet computers is expected to help lower demand for disk drives by 4 percent in the first quarter of this year, according to a report last week from the research firm IHS iSuppli.

While the Hitachi sale could raise concerns about Western's sizable market share, some analysts said the industry consolidation could benefit both Western and Seagate by helping to keep prices more stable and encouraging computer makers to buy from both companies, so as not to become dependent on either one


http://www.mercurynews.com/business-headlines/ci_17558200?nclick_check=1

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So JCY's main customer, Western Digital got bigger market share of the hard disk market, which should be better for JCY, right?

But.... what about the economics of the hard disk market itself?

Is it getting any better?

Or should one note the fact that overall demand for hard disk is on the decline?

The Complexity of Persian Gulf Unrest

Posted on Stratfor.com

KNM Says It Wants To Buy More Foreign Firms And Expand..

I was reading the following article on today's Business Times:

• KNM wants to buy foreign firms, expand product line
  
  By Sharen Kaur Published: 2011/03/01
  
  Process equipment maker KNM Group Bhd (7164)aims to buy foreign firms and expand its product line in a bid to diversify and improve earnings, its chief said.
  
  The group, which has RM300 million cash, is eyeing companies with investments in green technology, total solution and process, nuclear and environment, among others.
  
  “There will be some major things happening within the next one year. The idea is to expand geographically and strengthen our product line,” KNM managing director Lee Swee Eng said.
  
  Lee said the investment KNM made in 2008 to buy Borsig GmbH of Germany for e350 million (RM1.4 billion) has strengthened its belief that acquisitions are the right thing to do.
  
  KNM’s German operations have been contributing 50 per cent to the group’s revenue and net profit.
  
  Lee expects KNM to do better this year and growth to accelerate from 2012, driven by its order backlog of RM4.5 billion and business expansion.
  
  KNM will start to see recognition from its RM680 million turnkey project in Uzbekistan and its RM2 billion biomass plant in the UK.
  
  Last year, KNM posted a net profit of RM131.2 million on revenues of RM1.6 billion.
  
  “Overall, we are profitable and on the road to recovery. Our existing order backlog is at an all time high compared to an average RM3.5 billion prior to the economic crisis.
  
  “We are bidding for new projects worldwide,” Lee said at a luncheon in Kuala Lumpur yesterday.
  
  Lee declined to comment on whether KNM will be taken private with its share price falling below fair market value.
  
  Meanwhile, the luncheon, hosted by Germany Trade & Invest and Malaysian-German Chamber of Commerce and Industry, presented new opportunities for Malaysians to invests in all sectors in East Germany, backed by Europe’s largest airport project, Berlin Brandenburg International Airport (BBI).
  
  BBI will have a capacity of 27 million passengers when it opens in early 2012.

Now since I had blogged several times on KNM, I was a bit familiar with the company.

So on today's papers, the boss said it wants to expand and it wants to buy more foreign firms.

Well, it's good to have ambition but let's have a reality check on KNM.

KNM reported its earnings the other day. The earnings... was rather.... really smallish given the size of the company and as mentioned before I was less than impressed with KNM's balance sheet.

From the posting made on 1 Sep 2010: Review Of KNM's Earnings

That was KNM's financial health!!!

The classical GROWTH in debts.
The classical shrinking cash.

From KNM's earnings last week, KNM cash balance dropped to 296 million. Total debts stood at 1.045 BILLION.

And with such a strong financial, the company tells the media it wants to buy more foreign companies!

Err... are those foreign companies worth a dime a dozen? or what?

Seriously!

Nah... that is why ....

1. 24 June 2010: KNM: I Just Love The Way The Boss Talks!
2. 26 May 2010: Oh KNM, Can You Please Buyout The Company At 90 Sen? ( How unlucky the minority shareholders the buyout failed! :P )
3. 28 April 2010: I Just Like KNM So So So Much
4. 22 April 2010: Why I Like KNM Even So Much More Today!
5. 21 April 2010: Why I Also Like KNM A Whole Lot

Oh yeah....

• Last year, KNM posted a net profit of RM131.2 million on revenues of RM1.6 billion.

A net profit of 131 million?

Should I be impressed? Or should I compare to KNM's financial history as posted in the Sep 2010 posting, Review Of KNM's Earnings

Yeah.. KNM's earnings has been declining since 2007!

Is RHB's Downgrade Of JCY And Fair Value Call Of Only 22 sen Too Harsh?

Posted this afternoon: How Was JCY's Earnings?

In that posting, I highlighted a snapshot of RHB's report on JCY's earning review. The recommendation and target price was a shocker for many.

Yes, as you can see RHB downgraded JCY to an underperform and gave JCY a target price of a mere 22 sen.

Why so low?

Is RHB over reacting?

Now if it was me.. here's what I will do.

Compare the recent earnings of JCY and then compare it with RHB's estimates.

Let's see.....

End Nov 2010, JCY reported a net loss of 22 million for its fy 2004 Q4 earnings.

On Friday, JCY said it made a net profit of 7.512 million for its fy 2011 Q1. Yes, a net profit of only 7.512 million.

And assuming ( I know.. I will make an ass of u and me! :P ) an annualised earnings estimate, at best we can assume that JCY will make 7.5 x 4, which works to a mere 30 million.

Now RHB's estimate earnings is 44 million. Which is much better than using an annualised estimate.

So is RHB's estimate a bit harsh?

Yes? Or maybe fair?

If it's fair... then based on a 10x earnings multiple, 22 sen is not too harsh is it?

And compare the issues JCY is having as per RHB's report:

1. lower revenue (-16.9% yoy);
2. higher cost of sales due to rising raw material prices (+12% pts yoy); and
3. stronger RM vs. US$.

And RHB's outlook for the HDD sector.

• we believe the outlook for the industry is waning as there could still be excess HDD inventory due to the persistent weaker-than-expected demand for desktop PCs and netbooks compounded by the rising demand for alternative storage (i.e. solid state drives (SSD).

Weaker demand for desktop? Is that true? How many are buying a desktop nowadays? And what about laptops too? Are the price of the new laptops getting cheaper?

Or how about the external HDD market? The prices are falling like crazy yes? And if the prices are getting cheaper, how much can these HDD makers make?

And the USD vs RM issue.

Does the USD look like getting some strength against the RM anytime soon?

And then you have raising raw material cost.

How are all these reasonings given by RHB Research? Are they too conservative?

And if the answer is no... what if RHB's projection is true?

And let's stretch it a bit more.... say RHB estimate is off. Let's say it's off by 100 percent! :)

Which means, let's assume JCY makes 88 million instead of 44 million. Now JCY has 2044 million shares. Based on earnings of 88 million, this would equate to an eps of around 4 sen only. An eps of 4 sen. How much do you think it's fair value?