Saturday, October 11, 2014

KLSE : Weekly Trades Dated 11/10/2014

1. Traded above last week.

2. Generally all down this week. However still manage to pull through some profit. ^^

3. Good Luck.


hng said...

Whether need to average down or not for particular stock depending on its intrinsic value, earning and future potential. If the stock is penny stock, record negative earning, trade below NTA, non-dividend, involve in loss making business, cyclical business or sunset business, then it is highly advisable to either cut loss, never averaging down or hold till recovery to mitigate loss.

However, if is investment grade stock, then of course it could based on individual risk profile, either opt to averaging down to accumulate more on weakness or hold for longer term while entitle for recurring dividend income. These strategy only applicable for those value driven investor.

hng said...

In the case, refer to KPS, it deliver fairly consistent earning, trade at undemanding valuation of PE <8x, payout recurring 4-6 dividend and the most important is its business is water concession which is recession proof. KPS water business is through 91% stake in Abbass and 30% stake in splash. The gross profit margin is very high, range from 65% (PKNS, Abbass) to 80% (splash) !!

Nevertheless, KPS may no longer involve in these highly lucrative water concession due to State government intention to restructuring water concession and to avoid potential adverse impact cause by numerous ongoing court case due to state refusal to grant water traffic hike back in 2008.

Under ex-MB, Khalid have proposed to take over all concession that began back in 2009 for total RM 9.218bi, in which under the take over offer, State have offer based on water concession 1x Net book value, offering

1. Splash: RM 2.975 billion, consist of equity RM 1.56bil + assume water assets for RM 1.41 bil)

2. Puncak: RM 5.297 bil consist of PKNS RM 1.936b, 70% Syabas 3.36bil

3. Abbass: RM 946m

Under the deal, both splash and Abbass accepted the offer, but Puncak reject.

Subsequently in 2010, Gamuda through its 40% stake in splash make offer to take over all concession for total RM 10.78bil (increase additional compensation RM 782m for syabas and RM 750m for splash operate and Maintenance unit) and promise to only have water traffic hike maximum 9% for every 3 year to keep in par with inflation rate and target to reduce non revenue water in 5 year to reach 15%.

Under the deal, both splash and Abbass accepted the offer, but again Puncak reject.

hng said...

However, after 3 year, in 2013, ex-MB, Khalid again offering even slightly lower offer at RM 8.99bil, but if include state own 30% stake in syabas, total offer is RM 9.65 billion, but these time, Khalid revise the offer term to based on 12% ROE instead of 1x net book value, resulting the offer become like these,

1. Splash: RM 1.8346 billion, consist of equity RM 250.6m + assume water assets for RM 1.584 bil)

2. Puncak: RM 6.155 bil consist of PKNS RM 2.936b, 70% Syabas 3.23bil

3. Abbass: RM 998m

4. State own 30% syabas: RM 662m

Under these current deal, both Puncak and Abbass accepted the offer, but splash reject.

State adopt ROE 12% instead of apply 1 x net book value to acquire water concession, resulting the valuation tag for splash become 0.1x of its latest net book value RM 2.50bilion (account up to Dec 2013), Puncak unit PKNS value at 1.3x of its net book value, Abbass at 0.9x net book value, Syabas value at manifold due to its negative book value.

But, Ex-Khalid insist to move ahead by signing both MOU and HOA with Fed gov and exclude splash, to consolidate first Puncak (PKNS, syabas) and Abbass, but will continue to pursue right offer price for splash under second phase water restructuring. It is generally believe that current water deal favor Puncak (pro-UMMO) instead of splash (pro-PKR), is one of the main reason PKR outed Khalid.

Now, Khalid have outed successfully, Azmi replace as new MB, although is not hand pick Anwar wife Wan Azizah, but Azmi still is PKR deputy President, and he has pressure Fed gov to openly disclose present water deal which favor Puncak and Syabas.

In the meantime, Gmauda as major shareholder of splash, through its latest financial result, has commented that it will re initiate splash deal with new state gov in order to reach win-win solution.

As shown above, KPS 91% Abbass value seem relatively unaffected either previous offer 2009, Gamuda offer 2010 or latest offer 2013, all value about the same. If Abbass deal is materialize, it will essentially free of debt (all water debt will be assume by PAAB), and entitle about RM 78 m in net cash on top of its exiting cash hoard of about RM 185m. KPS balance sheet will be in net cash of RM 263m or 53sen/share. The great thing is even KPS divest its 91% Abbass, its financial earning will largely unaffected. This is because, current KPS earning mostly derive from its 30% stake in splash, as its Abbass profit is almost offset by its interest cost bearing from water asset debt. By divest Abbass, KPS will continue derive steady earning from splash while turning KPS balance sheet from debt laden into net cash position

horse said...


You moved to JB ?

hng said...


Yes, I staying in JB now. Rent out my KL superlink last year.

All properties price have hike so significantly. Imaging last 2 year, i bought current Semi-D at only about 860k, but now resell value asking price at RM 1.30m.......

horse said...

These 2 years property price gone up very high. Feel like a quantum leap, property price will only stagnant or slow down and don't think it will go down by any chance.
With GST coming next year, all thing will be refreshed some how or rather as it will be a good excuse to increase price eventhough some control items are not affected.
Inflation up, M'sia's debt up & RM become even smaller, i think the impact is yet to be seen.
M'sia government need to control spending, increase earning, curb corruption and stop BR1M in order to reduce national debt else it is likely remain in huge debt and no way to recover.......

horse said...


Living standard in JB = KL ?

hng said...


You will surprise!! JB living cost is higher than KL, especially seafood.

Actually, i've just recently withdraw purchase of 2 service apartment, one from IOI property (Wave, Marina Cove, 15% rebate but still net is RM 625k, semi furnish, 943 sqft, about 660 psqft).

Another one is from Mah Sing, Meridin Bayunue, 980 sgft, 490k, about 500 psgft.

Both already secure bank approval, but finally decided to opt out. This is partly because, these service apartment is suppose to rent out in order to offset future installment, but feel bit too high risk as there simply too many supply by the time property is ready in 2017. It risk of untenable property, but still need to bear fixed high maintenance cost (25 sen/sft for Meridin Bayuvue, 30sen/sft for Marina Cove)

The initiate intentions is to invest property to hedge against inflation, but figure out the margin of return and risk/return is relatively high now. Perhaps, timing is no right now, may need to wait till 2017 to really see to impact whether property bubble indeed burst in view of aggressive launching by China and demand ratio still workable or not.

In the meantime, better opt for stock investment to hedge inflation risk, as it more liquid, and share often rade att discount compared to their intrinsic value.

hng said...

The current take offer price for water treatment plant and their respective treated water capacity in milion litre per day (MLD)

1. Splash treated water capacity: 2000 MLD
Splash control by Gamuda 40%; KPS 30%: Sweet Water Alliance, Wan Azmi: 30%

(a). Take over equity price now: RM 250.6m
(total assets and liab: 1.84 bil)

(b). Take offer price in 2009: RM 1.56 bil
(total assets and liab: 2.98 bil)

2. PNSB treated water capacity: 1900 MLD
Wholly own by Puncak

(a). Take offer equity price now: RM 1.18 bil
(total assets and liab: 2.91 bil)

(b). Take offer price in 2009: RM 620m
(total assets and liab: 1.936 bil)

3. Abbas treated water capacity: 530 MLD
KPS control 91%

(a). Take offer price now: RM 99m
(total assets and liab: 990m)

(b). Take offer price in 2009: RM 125m
(total assets and liab: 946m)

4. Langat 2 project, Selangor portion cost RM 3.6bil for water treatment plant under phase 1, to build 2 water treatment plant, each 565 MLD capacity, total 1130 MLD. If take into account cost of construction to build 44.6km tunnel link Pahang to Selangor and construction dam in Pahang at cost RM 5.05 bil, then, total Langat 2 project cost is RM 8.65 bil.

(a) Capacity: 1130 MLD (phase 1, ready by 2017
(b) Capacity: 760 MLD (phase 2, cost pending til after phase 1 completion)

Total langat 2 treated water capacity is just 1890 MLD.

Remark: Langat 2 total cost RM 8.65 bil is 4.7x more expensive than to acquire splash for just RM 1.84 bil or if exclude tunnel/Pahang cost, court only two new water treatment plant, each 565 MLD capacity, cost RM 3.6 bil is still almost 2 x higher than splash and yet the total treated water capacity is just 0.57x than splash

Langat 2, phases 1, capacity 1130 MLD vs. Splash capacity 2000 MLD

hng said...

DRB Q1 2015 financial result

horse said...

Iriz a game changer as claimed . Wonder how is the sale now.?

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