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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