Increase holdings in AirAsia.

AirAsia has always been one of my favourite company.

Besides all those negative factors that affect its short-term prospect,
I had never doubted about its long-term profitability and growth potential.

Hence, I see the recent price correction of its share as an opportunity to increase my holdings, and just bought 2000 shares of AirAsia at RM2.40.

Now the company forms ~10% weight in my portfolio.

Aeon Credit Service Bhd.

This is the first time a finance company is taken into my portfolio.

Few months ago, I had decided to diversify my investment-portfolio into different industry sectors. Hence, in august I bought UoaDev (properties sector), and now AeonCr (finance sector), and the next could be an O&G company.

Bought 1000 shares of AeonCr at RM15.12 (about PE~13) this week, using the proceeds from the sale of TSH recently.

 x x x

Historical Data:

• During past five years: revenue CAGR ~25%, profit CAGR ~32%.
• ROE was maintained >20%, improving in recent years. (now >30%)
• Dividend was increasing at about same pace as profit.

The high growth rate, which I think is sustainable, is the main reason of my investment in AeonCr.

Besides this, there are two reasons I like this company very much.

Niche Market.
AeonCredit had been focusing on its very own special market, namely Easy Payment Plan and personal financing. So far, I had never heard of any other banks that provides installment-purchase facilities similar to AeonCr (other than those through credit card).

So, AeonCr is playing in a niche market that's apparently no competitor at all. When we walk into Carrefour, Jusco, Courts, SenHeng, etc... if we want make an installment-purchase without using credit card, we will find that AeonCr is the only choice.

As a results, AeonCr grew very fast through these years, and able to create brand-awareness successfully. Recently when the company decided to venture into traditional segments (motorcyle and used-car loan), its strong customer-base had make it easier to grab market share very quickly.

Very Low NPL
AeonCr is known to have a higher 'risk profile' of customers -- Many people go to AeonCr only after their loan or credit-card application being rejected by normal banks.

I was actually quite amazed when I find that the company's NPL (non-perfoming-loan) ratio is only 1.64% (as at Aug-2013)...

How good is this figure? As a comparison, NPL ratio of MBSB (whose customers are mostly government-servants and required to sign a salary-deduction-scheme while applying its loan) stood at 2.0% as at Sep-2013. 


 x x x

Long-term Potential
The mother-company of AeonCr had incorporated a subsidiary in India, of which AeonCr (M) holds 20% interest of share. However, I don't think we could see any significant contribution from this associates in near future.


 x x x

Summary: 
AeonCr currently make up ~6% weight in my portfolio.

Target return rate: 15% ~ 25% p.a. in next five years.
Target holding period: keep on holding until its growth rate fall below 15%p.a.

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TSH sold.

Decided to sell all my holdings on TSH.

Reasons:

1. high debt ratio.
As a result of quick expansion during past few years, the debt of TSH had reach ceiling high. This was not a big problem for me, until I saw the company going through several rounds of private-placement to raise new fund. As a shareholder, I saw my interest in the company being diluted... and what worrying me is, seeing the continuous expansion ahead, this dilution could go on and on in next few years.

2. Profitability affected severely by falling CPO price. 
CPO price had been in down-trend since 2011, and "stabalized" at RM2100~2500 in the past few months. I was expecting that the high growth in FFB production of TSH could support its profit from this impact, but it seems that I was wrong. Now I'm in doubt whether the company could still be profitable should the CPO price fall below RM2000.

EPS of the company is around 9sen/share now, which means that its shares is currently traded at a level of PE>30. Looking at its ever weakening fundamentals, I think this is over-valued, and it's time to exit.

 x x x

Summary of my investment in TSH:

• Aug-2010, bought 3000 shares at RM1.80, cost about RM5,428.
• Jun-2011, dividend 6.0sen per share.
• Dec-2011, Bonus Issue 1:1.
• Jun-2012, dividend, 3.5sen per share.
• Jun-2013, dividend, 2.5sen per share.
• Nov-2013, sold 6000 shares at RM2.82, proceeds RM16,833.

Investment period about 3.3 year.
Average return rate ~42% p.a.

 x x x

After selling TSH, there would be no plantation stocks in my portfolio.
(I wont see PPB & CBIP as plantation-stock although they have some business in oil-palm).

Increase holding in UOADEV.

Got some new fund this week, and bought 5000 shares of UoaDev at RM2.27.

Now the investments in UoaDev had made up ~10% weight of my portfolio. This had reached the limit I set for properties sector. Hence, UOA will be the only properties company in my portfolio, in forseeable future.

The company is currently in a high growth stage. I'm in an opinion that UOA will rank among the most profitable properties players in this country.

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UOA Development Bhd.

New fund injected into my portfolio. Bought this company at RM2.39, which is equivalent to PE ~8.5 and DY ~5%。

I had decided to select a properties company into my portfolio recently. But properties is a sector which I''m not familiar with.

To play safe, I decided to choose my candidates only among those biggest players in the sector. (In my believe, bigger always mean safer.)

So here's come the list of candidates -- the Top-10 property stocks listed on KLSE (in terms of market capital):

UEMS, SpSetia, Sunway, IjmLand, IGB, Mahsing, UoaDev, E&O, Trop, TAGB.

At first sight, it seems difficult to make a choice. However, after some comparison on their profitability, operational efficiency and stock price ratio, one company stand out remarkably.

Here's the figures:



Ranking Summary:

• Highest margin: UoaDev,
• Highest ROE : UoaDev,
• Lowest gearing: UoaDev,
• Lowest PE ratio: UoaDev,
• Highest net DY: UoaDev,
• Highest dividend payout: SpSetia.

an inevitable conclusion, UoaDev is The One.

 x x x

Other than these outstanding numbers above, there are also some features found on UoaDev that I love very much.

First, this company doesn't touch the Iskandar zone at all. In fact UoaDev only focus on Klang Valley area, doing development that provide high premium. While other property players are in a hot of running into Iskandar, I'm quite happy to be able to stay out of this.

UoaDev has relatively low amount of land-bank reserves compared to other companies. I like this very much, because it reflect the high turnover rate and efficiency of the company. UoaDev is one of a few developers that has its own in-house design and construction units, which enabled it to develop projects in a "fast-track" mode and reduce the holding cost on land. 

The special model of UOA: continuously seek and buy new pieces of land, construct building on it，sell them fast and make profit immediately. It's profit just doesn't rely on the appreciation of land value through time. Hence there's no need for the company to accumulate a large amount of landbank from many years ago. It will buy new lands only when it is needed.

 x x x

Growth potential.

a short review of the past.

Revenue experiences a good record of growth in past two years, while earnings goes up and down. In long run, I believe that the profit will follow the same growth trend as its revenue.

During the first quarter of 2013, the company record a revenue of RM 381million and profit RM 119million. I see a strong wave of growth coming.

• New sales in 2011 was RM 848 million. 
• 2012 the figure jump to RM 1.71 billion.
• Company's target in 2013 is RM 3.0 billion.
•  (of which RM928million already achieved in Q1.)

Seeing that its Bangsar South project is moving into a high-growth mature stage, I'm quite optimistic that the company could achieve profit CAGR of >20% in the coming years.

 x x x

This investment in UoaDev forms ~5% weight of my portfolio.

Expected return: strong 20~30% p.a. for the next three years, 10%~20% p.a. there after.
Expected holding period: as long as the company maintain its double digit growth.

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Syarikat Takaful Malaysia Bhd

New fund was injected into my portfolio. Bought Takaful at RM4.75 per share, which is equivalent to PE~12x or DY~3%. This is the first GLC that appear into my long-term-growth portfolio.

Takaful Malaysia is a subsidiary of BIMB Holdings, which in turn is a subsidiary of Lembaga Tabung Haji. One thing I know about the management of LTH groups is, they are pretty good in stock-investment. This ability is a big advantage when come to managing an insurance company. Company's profit could be well enhanced by investment-surplus.

Currently, Takaful Malaysia ranked no.2 in term of market share (~20%) in Islamic insurance sector of our country. (The champion is Etiqa which has ~40% market share.)

 x x x

Growth record:



  * FY2010 consist of 18month.

summary:

• 5-years CAGR of revenue was ~9%, while profit CAGR stood above 30%.
• an upward trend of profit margin and ROE since FY2008. 
• ROAE of FY2012 reach 20%.

 x x x

Future Growth Prospect

Bank Negara statistics shows that the contribution (premium) of Islamic insurance products was growing at an average pace of 18~20% p.a. in the past few years.

I'm quite optimistic that this momentum (15~20% p.a. growth) will continue for the next 3~5 years. About half of our country's population are Muslim, yet the current market size of Islamic insurance products is only ~1/4 of traditional insurance. I see a huge potential of growth here.

The company is leveraging on the networks of Bank Islam and Lembaga TH on promoting its products, and I believe that Syarikat Takaful could finally emerge as no.1 in Malaysia's Islamic insurance market.

Another supporting factor for the sustainability of the company's long-term-growth will be its subsidiaries in Indonesia. However, the contributions from these subsidiaries is quite low for the moment.

 x x x

Risk:

Under the newly inforced IFA (Financial Sevices Act) and IFSA (Islamic Financial Services Act) 2013, an insurers are not allowed to carry life insurance and general insurance business under one company.

As a result, Syarikat Takaful, which now operates both family-takaful and general-takaful business, will be required to undertake either a restructuring (separate its business into two legal entities), or a divestment of one of its business.

However, I don't think this will cause a significant impact on my investment in Takaful.

 x x x

Expected return on investment: 15~20%p.a. for the next few years.
Expected investment period: at least five years.

I'll hold on to Takaful as long as it could maintain a double digit growth.

The investment in Takaful takes ~5% value of my fund.
Together with LPI, insurance companies now form ~20% weight in my portfolio.

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Dutch Lady Milk Industries Bhd.

Just realised during this early June, that DLady is such a good company which suit my long-term-growth strategy. Not much research had been done before I decided to take it into my portfolio .

Bought it at RM47.20，a price equivalent to PE ~24，and net DY of 5.5%.... which i think is quite reasonable though not very attractive.


 x x x

company's financial performance review:

(click here for full view)

summary:

• Revenue CAGR stood ~ 9%p.a. for the past ten years. 
• Ten years profit CAGR at ~23%.  
• an up-trend of profit margin and ROE.
• continuous growth of dividend.

The growth of revenue had slow down a bit in past five years, but the profit growth rate still stood above 20%p.a., due to the continuous improvement on margin.

 x x x


The company had just completed its expansion plan which could boost its UHT milk capacity by 50%. There's still many sub-segment of milk products market that DLady is yet to venture into. These markets provide sustainability of its long-term growth.

I'm quite optimistic about the company's new product -- DutchLady Chocolate Drink, which had just been launched last year. I believe it had a potential to gain a significant share in the chocolate drink market.


 x x x

Besides its long-term growth potential, DLady poses some attractive criteria:

• It's the leader in its market (liquid milk and milk powder) -- had a market share higher than Nestle。
• Focus on simple product -- selling liquid milk, and other milk products.
• Focus on single market -- Malaysia and Singapore, that's all.
• High profitability -- ROE had been >30% for many years, and now up to ~50%.
• Strong cashflow -- which translated into good dividend record.
• Huge cash, zero debt.

 x x x


My expectation on DLady:

• Continue to be a Leader, and further increase its share in milk product market.
• Revenue grows at a 7~10% rate, while profit growth rate stand > 10% p.a.
• Dividend maintained at same level as 2012. (RM2.60 per share)
• (further reading: The sustainability of DLady's "high" dividend.)

Expected return on investment, ~15% p.a.
Expected period of investment, 5~10 years.


now DLady weight about 7% in my portfolio.

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The sustainability of DLady's "high" dividend.

Dutch Lady had paid a high dividend of RM2.60 per share in 2012. This is more than 3-folded as compared to 2011. The sudden jump of dividend, which is much higher than its EPS (RM1.93), had caused suspicion about its sustainability.

For this matter, I think we could get some clues from the company's history -- a giant leap of dividend occurred once in year 2004 too, and here's a summary of what happened then:

• 2004, DLady declared dividends that was 80% higher than its profit, and that dividend was more than 4-folded compared to 2003.
• 2005, the company able to increase the dividend, to a level that was 50% higher than its profit on the same year.
• 2006~2007, same level of dividend, while the company's profit catching up.
• 2008, failed to maintain the dividend rate due to sharp hike of raw material price.
• 2009, restored dividend to previous years' level, and maintain it during 2010~2011.

x x x

During years 2006~2011，the dividend of DLady didn't increase although its profit had experienced a strong growth, hence the accumulation of huge cash in the company. So in 2012, we saw the company able to paid a dividend much higher than its earnings, again.

In the coming years, I'm quite optimistic that DLady will be able to maintain its dividend at current level (RM2.60 per share), due to its potential of continuous profit growth, its strong cashflow, and the huge cash reserves.

So, for the current share price, I'm expecting a net dividend yield of >5%.


 x x x

Historical data:

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Risk Management -- reduce holdings on Power Roots.

I had just sold half of my holdings on Power Roots yesterday.

In his book Common Stocks and Uncommon Profits, Philip Fisher mention that there are on three reasons where a good stocks should be sold:

•  We had made an error in our assessment of the company.
•  The fundamental of company has deteriorated and no longer meets our requirement.
•  We found a better investment which could provide higher long term results.

The fundamentals of Power Root remain great since I invested...
In fact, it performed well much better than I expected initially.
So according to Fisher's points I had no reason of selling it now unless there's is a much better investment opportunity.

Incidentally, I just found a great company recently that meets my long-term-investment strategy, and the cash on hand is limited... So this sale of some Power Roots share just come at a right time to fund my new investment.

 x x x

However, there's a more important reason for the reduction in holdings -- to accomplish my portfolio's diversification policy.

For risk management purpose, I always want to maintain an adequate degree of diversification. So, I had set some guidelines to limit my exposure to any single companies or industry.

My portfolio contain companies of different sizes, and I had set different exposure limit for different size of companies. The reason is obvious -- smaller companies tend to have higher risk than big ones, hence should take up smaller share in a portfolio.

For companies below RM1 billion (market capital) I had set a 10% limit for their weight, while big companies like Harta and LPI could have a limit as high as 20%... At the same time, I also make sure that the weight on any single industry must not exceeded 30%. (currently my holdings on gloves, namely Harta, Supermx, Kossan had a total weight of ~28%).

Power Root is the smallest company in my portfolio (mkt cap ~670m). It weight only ~5%  when I invested in it. However, the share price climbed up so fast that the weight come to ~12% recently. This make me a bit uncomfortable, hence the reduction of holding came into place.

 x x x

After selling half of the investment, the weight of Power Roots had now become ~6% in the portfolio. I will be holding this part of shares as long as the fundamentals of the company remain strong...

In future if the share price of Power Roots boost up for another round and break my 10% mark again, I would probably just keep it then, because by that time it would be considered as a medium size company already.

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CB Industrial Product Holding Bhd.

Got to know this company recently through an investment forum.

I like this company very much after doing some research... It got so many criteria that I'm looking for, and no doubt a candidate of long-term growth stocks.

CBIP is a leader in its niche market -- construction and engineering of palm oil mills. The company had been in this business for more than three decades, and had built a very strong customer base... Felda, Wilmar, Sime Darby, TradeWinds Plantation, etc.,  are among its customers. One of its main product, Modipalm Continuous Sterilization System, is patented in Malaysia and Indonesia till 2021.

One thing I like very much regarding the core business of CBIP -- it's relatively less impacted by the fluctuation of  CPO price. Its customers (the palm oil plantation companies) effectively act as a buffer between CBIP and palm-oil market... So, investing in CBIP is like enjoying a piece of pie from the huge palm-oil economics, without taking the risk of CPO price plunge...


Besides these, CBIP had been doing business in retrofitting of special purpose vehicles. It also had associated and JV which involves in palm-oil plantation. Currently the contributions from this two segment are relatively small. However, the profit from associates and JV could leap high if the CPO price rebound.



 x x x


Ten-years financial performance: (full view here)

 * Revenue and profit for FY2011 & 2012 are excluding the discontinued plantation business and one-off gain from disposal of subsidiaries.

Highlights:

• Strong consistent growth record -- 16% CAGR for revenue and 24% CAGR of profit during past ten years. 
• High ROE -- 22% (ten year average), and it's quite consistent.
• Good profit margin, and it show a gradually improving trend over years.

Currently, the company has only little debt, and posses huge cash.

x x x

Short-term prospect:

Resulted from the high CPO price during past few years, currently we are experiencing a boom of new palm-oil estate, especially in Indonesia... during these years, we saw new players entering palm-plantation business, while existing players developing new estate... So, in the next 3~5 years, there will be huge demand on palm-oil-mills constructions to absorbs all these new FFB production.

The momentum of this palm-estate expansion wave in Indonesia is going to last for few years even if the CPO price remain low... so I'm seeing a strong sustainable growth on CBIP's core business, and expecting a CAGR of >20% in the next five years.

x x x

Long-term prospect.

CBIP had been buying plantation lands in Indonesia recently... Currently it already accumulate ~30k ha of landbank, and the figure will jump to 60k ha upon the completion of another two acquisition.

In the next few years, the company will plant these lands with oil-palm, and construct CPO mills in the estates. We will see the contribution from these estates on ~2018 onwards...

When the estates come to mature and start production, they will transform the company into a medium size palm-oil players, and CBIP will going to experience another leap of revenue and profit... maybe 20% CAGR for another 5~10 years?


The land banks of CBIP and its planting plans:（source: CBIP Investor Relation.）

There's a possibility that CBIP won't seriously venture into plantation segment, but instead sell all those estates when they come into mature. (like what it did to two of its subsidiaries recently)... If this happen, then we will see a round of huge one-off profit in its income statement... good news for shareholders though...

 x x x

My Investment:

The company posses an EPS of ~32sen for FY2012... I bought the shares at RM2.88, which is equivalent to ~9x PE, a quite reasonable price I think.

Past records show that pay-out ratio of the company was quite low (exception on 2012, when the company received huge cash from the disposal of plantation subsidiaries). Hence I didn't expect much from its dividend yield...

Expected term of investment: five years, hopefully would be longer.

Expected return: 20% p.a., mainly from stock price gain.

x x x

The investment in CBIP made up ~7.5% of my fund... Combine with TSH, the palm-oil related companies now weigh about 15% in my portfolio.

 -- (End) --
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The Myth of Nitrile Glove's higher margin.

I was among those who think that nitrile glove always had a higher profit margin, hence it should be the better choice for a glove manufacturer...

only untill recently I realised that how wrong this concept is... 

Just like AirAsia making huge profit every year doesn't guarantee that other airlines could earn money in LCC business.... the fact that Hartalega had been maintaining better profit margin doesn't mean that anybody who venture into nitrile glove production will enjoy the same profitability...

Hartalega got its own advantages, e.g. strong R&D and highly automated factory... these factors bring down its cost, make the products competitive enough hence resulted in higher profit margin.... when other manufacturers like Topglov, Supermax or Kossan jump into nitrile glove production, it could be that they only earn ordinary profit (could even lower than NR gloves) if they don't have the high production efficiency as Harta.

following statement is extracted from Supermx 2013-Q1 reports:

"While we are increasing production output of Nitrile gloves, we have been maintaining our manufacturing margins of Nitrile Glove at between 11% - 13% to be in line with global market prices, especially Nitrile gloves from China & Thailand. This is in line with our objective to be globally competitive."

clearly, Supermx's manufacturing margin for Nitrile gloves is much lower that Hartalega, and seems not much superior (if any) compared to its own NR gloves manufacturing...

 x x x

Conclusion --

"higher margin of nitrile glove" is only a myth...

switching to nitrile glove alone doesn't guarantee higher profitability...
there are much more a company have to do for chasing a higher profit margin.

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create my FB page.

Had just registered a Facebook account, and created a page with exactly the same name as this blog -- Investment in KLSE .

I had found it much easier to interact with friends through a FB account instead of blog... On the wall of the FB page will be some short notes of my investment activities, moods, and some this & that regarding stocks I monitor...

This blog, will remain as the place for storing my investment articles.

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House Cleaning -- sold XDL and Notion.

Being disappointed by their latest financial performance, I think it's time to admit my mistake investing in these two companies.

Notion seems to have facing difficulty in expanding its business since 2010... seeing that the HHD segment is going into downtrend, and Camera market was relatively matured, I'm in an opinion that the growth potential of Notion is limited for the years to come...

for XDL, the shoes market at China is so deteriorated that most local branded products are suffering revenue drop.... XDL encountered 40% drop of revenue and 50% drop of profit in 2013-Q1... and I think that this poor performance will persist for quite a long time...  

Cash-out  about RM17k from Notion and XDL, looking for new target to invest...

Bought Supermax

New fund injected into portfolio, bought 7500 shares of Supermx at RM1.85. The new investment result in the glove-companies forming ~28% weight in my whole portfolio now.

a glance of Supermax's historical data:

		RM Million
	Revenue	PBT	PAT
2003	131.2	20.0	17.4
2004	218.4	34.3	30.2
2005	284.7	39.9	36.3
2006	400.3	47.3	39.8
2007	574.3	58.6	55.9
2008	811.8	52.0	47.0
2009	803.6	151.5	126.6
2010	977.3	183.8	159.0
2011	1,021.4	112.1	104.1
2012	1,048.4	140.2	121.5

Supermx is expanding its surgical glove capacity since 2012. According to the management's plan, the nitrile capacity of Supermx will soon be doubled when its new plants are commissioned by next year. This will cause nitrile-glove forming ~50% of the company's total output. 

This change in product portfolio will deliver a better profit margin, hence great potential of profit growth in near future. It's expansion of distribution business in US and Canada will also position the group to secure greater share in these markets.

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Bought LPI.

Pump-in new fund into my portfolio, and here's my new investment in 2013.

Bought 2000 shares of LPI at RM13.80, a PE ratio of about 18.

Reasons of investment:

• a company of Teh Hong Piow, which mean a great management for me.
• great track-record in terms of profitability, ROE, dividend payout, etc.
• and most importantly, sustainable growth potential.

a glance at LPI's records:



LPI's revenue and PAT had achieved a CAGR of ~14% in the past five years (2006~2011), and I believe that it can maintain at least 10% CAGR in the next five years.

the average dividend payout ratio of LPI had been around 100% for years, which translate into a 5%~6% net-dividend-yield according to its current level of earnings and share-price.

My expected return in this investment: a 5% DY, plus 10% annual gain from share price, which means a total return of 15% p.a., for the next few years.

The investment in LPI weighted ~18% in my portfolio, about same level as PPB, AirAsia, Harta.

Increase holding in PPB.

Bought 1,000 shares of PPB lately.

Now the weight of PPB in my portfolio had increased to ~20%, almost same as the weight of AirAsia and Harta.

also sold all my Notion-wb recently and utilised the money to buy 6000 unit of Notion... This is because Notion's share price had experienced a big drop recently while its warrant-b price was less affected.

Jan-2013: sold all my "value-stocks".

I had been maintaining an experimental "value-stock portfolio" since year 2008，which was based on Graham's strategy of net-working-capital.

However, I found that I don't have enough time and energy to manage this group of stocks anymore, hence decided to put it into an end.

All the components in this value-stock portfolio (namely, Tomei, Triumpl, Choobee, Rex, IQgroup, UmsNgb, SmiCorp, Kstar) had been sold recently.

From now on, I will focus only on investment of long-term growth-stocks.

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My Portfolio at the end of 2012.

Activities during the year:

• newly injected fund: RM41,500。
• stock sold: Yahorng，Prkcorp, Sbagan, Kimhin, XDL-wa.
• Increase holding in AirAsia and Notion. Sold all Notion-wa and hold Notion-Wb.
• new investment: Pwroot, PPB.

Gloves companies still make up the highest weight (~25%) in my portfolio, followed by AirAsia which contribute ~20% of my investments. Notions, TSH, PPB and Pwroot weight about ~10% each, and the weight of the net-working-capital portfolio had drop to ~10%.

My return rate of investment in year 2012 was about 10% p.a., not much different from KLCI's performance.

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