Stock Review – YTLREIT (5109) -2 (YTL HOSPITALITY REIT)

Bursa Malaysia - 5109

Bloomberg - YTLREIT:MK
Yahoo - 5109. kl
Webpage - http://www.ytlhospitalityreit.com/

Income Statement

The hotel revenue had drop compared to previous year despite there is a slight increase in the hotel occupancy for the hotel in Autralia. There are two factors that might face by the YTLREIT’s hotel in Autralia which cause the revenue to drop despite the increase of occupancy rate which are:

1. Stronger  Malaysia Ringgit for the period 1 July 2014 – 30 June 2015 compared to 1 July 2013 – 20 June 2014
2. Strong competitive on the hotel price in Malaysia.

Since the hotel revenue is in Australia Dollar with the Australia government just reduce its interest rate May 2015, the Australia Dollar does not expect to appreciate too much these year so do the hotel revenue.

However in August 2015, Malaysia Ringgit had depreciated and become the worst performing Asia currency for year 2015. If these continue YTLREIT might had foreign transaction gain. Malaysia government had set up a team to investigate the Malaysia Ringgit depreciated issue. If success the Malaysia Ringgit might be stable.

The profit before tax and EPS for year 2015 had drop almost 50% compared to year 2014 these is because gain on fair value of investment had decrease from RM 179,440,000.00 to 44,3061,000. These will not affect the income distribution of YTLREIT because gain on fair value is just a paper gain.

PROS

• The drop of profit before tax to almost 50% for the year 2015 will not affect the income distribution of YTLREIT because it is just lesser gain on investment property. The actual cash flow of YTLREIT does not drop 50%.

CONS

• Australia had reduces their interest rate in May 2015 which might causes the Australia Dollar not appreciate too much.
• Malaysia government had set up a panel to look into depreciating Malaysia Ringgit which might bring the Malaysia Ringgit stronger compared to Australia Dollar.

Financial Statement

The deposits in the bank for YTLREIT had reduced roughly RM 20,000,000 compared to last year. From the balance sheet for year ending 30 June 2015, the deposits in the bank is transfer to other receivable & prepayment which RM 15,553,545 is recoverable from Australia tax authorities in the future.

Partial of the loan which supposed to be pay by 23 November 2017 is converted to Australia Dollar loan of a lower interest rate and the due date of the Australia Dollar loan is 29 June 2020.

The remaining term loan of RM821,800,000 which supposed to be paid by 23 November 2017 support my earlier opinion that YTLREIT might use the RM 800,000,000 placement to repay the loan. If my guess is right YTLREIT is going to do the placement before 23 November 2017 which will dilute the shares after that. Besides that, the management might also consider to do the placement before the shares price drop below RM 1.00.

PROS:

• YTLREIT manage to move partial of their loan which is supposed to be paid by 23 November 2017 to a lower interest rate Australia Dollar loan.
•  YTLREIT also manage to extend partial of the loan term to June 2020.
• YTLREIT had revenue from hotel operating in Australia, the loan in Australia Dollar while not affect much by the foreign currency risk because it will cancel each other.

CONS:

• RM 15,553,545 is removed from deposit account which able to earn interest to Australia tax authorities. Although the money is recoverable, but the money is unable to earn interest rate from bank deposit. Consider 2.4 % per annual which is RM 31,107 per month.
• RM 800,000,000.00 placement might be make soon for the loan which deadline is 23 November 2017.
• Shares placement might reduce the share price.

Summary of Stock Reviews

Stock Review – FIAMMA (6939) - 2 (FIAMMA HOLDING BERHAD)

Bursa Malaysia - 6939
Bloomberg - FHB:MK
Yahoo - 6939 .kl
Webpage - http://www.fiamma.com.my/

Income Statement

For Q3 2015 FIAMMA recorded lower revenue compared to Q3 2014. This is mainly because the decline of the property revenue where Menara Centara had been completed in early 2015 and the revenue had been fully recognised in March 2015. Currently the property segment will only depend on the revenue from Vida Height in Johor. The property market in Johor is slowing down in 2015 hence the property segment did not do well in these quarter.

However the trading and services segment had 10.4% growth compared to last year despite there is GST implemented this year. As I had stated in the earlier post many new houses is completed within 2015 and 2016 these will help to increase the sales for FIAMMA which focus on home appliances. However the depreciation of the Ringgit Malaysia had increase the cost of good sold of the company and might reduce the profit margin of FIAMMA. With the large depreciation of Ringgit Malaysia in the last few weeks to make it to 17 years historical low, these will cause a challenge to FIAMMA on the fourth quarter as well (July 2015 – September 2015).

PROS:

Implementation of GST did not affect the revenue of the service and trading segment.

CONS:

Revenues from the property segment had drop significantly upon completion of Menara Centera in Kuala Lumpur.

The depreciation of Ringgit Malaysia might increase the cost of good sales of the home appliances as the brands are mostly imported from oversea and denote in USD.

Balance Sheet & Cash Flow

In these quarter there show a significant increase in the land for property development compare to previous quarter (Q3) these is because of the bought of the land in Kuala Lumpur in 30 April 2015. However the cash and cash equivalent balance has reduced about 50% in the Q3 2015 compared to Q2 2015. The reduction of cash might due to the increase of the inventory cost and the trade payable payment in US dollar.

For Q3 2015, FIAMMA also double its non-current liability, these might be because of the money borrowed to purchase the land in April 2015. Besides that, the trade payable also increase mainly due to the US dollar trade payable.

As for the cash flow, the operating cash flow for Q3 2015 is negative. This is mainly due to the increment of inventory cost due to depreciating Ringgit Malaysia. However these company is still able to sustain the short term effect of depreciating Ringgit Malaysia because it had large cash reserved. If these Ringgit Malaysia still depreciate these company might face a very large challenge and might not be sustainable anymore.

CONS:

Cash and cash equivalent balance reduce 50% compare to Q2 2015. Non current liability had double compared to Q2 2015. Negative operating cash flow.

Summary of Stock Reviews

Stock Review – AJIYA (7609) (AJIYA BERHAD)

Bursa Malaysia - 7609
Bloomberg - AJY:MK
Yahoo - 7609 .kl
Webpage - http://www.ajiya.com/

Key Value Investor Criteria: -

Description	Value	Criteria	Point
Price to Tangible Book Ratio	0.71*	< 1	5/5
Stock Valuation	CAPM => 2.97% Return (2008-2014) => 10.16% Undervalue by 7.19%	CAPM < Return	3/5
Return on Asset	4.51*	> 0	4/5
Return on Common Equity	6.80*	> 0	4/5
Quick Ratio	2.13*	>1	5/5
Long term Debt / Total Capital	5.81*	<50%	4/5
Continue Dividend over Past 10 Years / Since Inception	Yes	Yes	2/2
Cash From Operation	Positive > 5 years	Positive	5/5
Total Point			32/37

Note:

 *            Data obtain from Bursa Marketplace on 10/8/2015

  *            To understand more about the financial analysis ratio kindly visit my hubpages.

By scoring 32/37 (86.5%), we will look into the annual report and the latest quarterly report of AJIYA before making the decision to buy the stock.

By comparing the CAPM method and the average return of AJIYA from the year 2008 to 2014. AJIYA undervalue by 7.19%. From 2008 to 2014 AJIYA is able to provide an average return of 10.16%.

However with such a good valuation and ratio, as a value investor we always look into the annual report, quarterly report and any announcement before making any investment decision.

Company Profile

AJIYA consists of two main business divisions as follows:

1. Metals Products Operation
2. Safety Glass Operation

1) Metals Products Operation

AJIYA starts with this operation since 1990 through Asia Roofing Industries Sdn Bhd (ARI), a wholly-owned subsidiary of AJIYA berhad. ARI manufactures of metal roofing system, metal frame products, structural products, light weight channel products, metal ceiling and sun shade product in Malaysia.

In 2014, AJIYA developed a new product is Mega Rib 30 PU PVC, a complete insulation system which able to reduced heat and noise. Besides that, AJIYA is also venturing into integrated industrial building systems (“IBS System”). IBS System is a new revolution in the construction industry, now most of the local council in klang valley want the Architect to ensure certain percentage of the building is build using the IBS system before the building plan approval.

In June 2014, ARI has enter a Memorandum of Understanding (MOU) with Gantan Beauty Industry Co. Ltd (GANTAN) to become sole and exclusive agents in Malaysia for Gantan’s product. In December 2014, new plant in Jalan Seelong, Johor was successfully commission which enable the AJIYA to capture the projects in Johor.

Projects undertook by these division are Tentera Udara Diraja Malaysia in Subang, Universiti Islam Antarabangsa Malaysia in Gambang, Langsat OSC Sdn Bhd in Johor and Kipmart Shopping Complex Kota Warisan Sepang.

2) Safety Glass Operation

This division start its operation in 1995 through Ajiya Safety Glass Sdn Bhd, a subsidiary of AJIYA. Its principle activity is manufacturing of curved and flat tempered safety glass, laminated glass, decorative glass and safety glass.

In 2014, AJIYA had expended the glass operation in Johor Bahru plant by addition of one unit of force convection tempering line.

The project which had completed by this division are KLIA 2, Menara JKR 2, Plaza Bank Rakyat, CIMB Tower, 2C10 Putrajaya and 4G5 Putrajaya.

PROS:

Ventures into IBS system which local council in Klang Valley already enforced that new building must be build using IBS system. These will be enforced by other council in other states in Malaysia in near future.   Enter an MOU with Gantan in June 2014 to become sole and exclusive agent of Gantan’s products in Malaysia. Gantan has 49 years in metal roofing industry.     With the operation in Johor, AJIYA might able to cater the building material industries in Singapore since they have an agent office in Woodlands, Singapore.     Having factory for both metal production and safety glass operation in Thailand, these can helps to hedged the weakening of ringgit.

CONS:

In 2014 AJIYA has increase its capacity for metal products operation and safety glass operation in Johor this year there is a slow down in the construction industry in Malaysia especially in the Johor region. The plant might not able to operate at its full capacity.      The safety glass business in Malaysia has intensified competition.     Ajiya Safety Glass Sdn Bhd bought 2 vacant land and a factory lot in Ulu Langat, Selangor for RM 16,600,000.00 in 30 September 2014 announcement. The company haven’t decided the uses of the properties, it is either as short to medium term investment and/or may be utilized for future expansion.

Management & Shareholders

The founder of AJIYA Dato’ Chan is the managing director of AJIYA. This is good for AJIYA because he is the one who bring out AJIYA from scratch and he had proven his ability to lead AJIYA since inception into a company listed in Main Board.

Since May 2015, we had these two Singaporeans , Mr Yeo Seng Chong and Mdm Lim Mee Hwa together with their company Yeoman Capital Management Pte Ltd are start accumulating the AJIYA shares. Yeoman Capital Management Pte Ltd had almost 18 years’ experience in investing and had an absolute cumulative return of 853.39%. From Yeoman Capital Management Pte Ltdwebpages, there are focusing on long term investment style and these is what we want as a value investor.

PROS: The managing director is the founder of the company. Foreign institution investor which focus on long term investment (Yeoman Capital Management Pte Ltd) start buying AJIYA shares since May 2015.

Financial Statement

From the annual report 2014, AJIYA had 45% of account receivable which had been pass due and had impaired around 12.29% of the account receivable which had pass due.

By looking at the quarter report end 31 May 2015 AJIAYA cash and bank balance is capable to paid all the short term borrowing and debt. Despite implementation of GST, AJIYA still able to had higher turnover compared to preceding year corresponding quarter, since these quarter included March 2015 which is the month before GST we might need to wait for the next quarter to see the actual effect of GST to AJIYA.

CONS:

45% of account receivable had past the due date.

Summary of Stock Reviews