Sunday, 31 January 2016

Stock Review – FIAMMA (6939) - 4 (FIAMMA HOLDING BERHAD)

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

Recommendation: -

Date
Status
Price
Current Price (RM)
Accumulate Dividend (RM)
Gain / Loss (%)
28/6/2015
BUY
1.81
1.70
0.00
-6.08%
11/12/15
SELL
1.70
2.31
0.00
+35.88%

On 7 January 2016, FIAMMA prices shot up almost 26 % and continue to 13% the next day make a total of almost 43% in the two day. The sudden spike of the price is most probably the proposal of bonus issues.

Let us look into the bonus issues announcement on 6 January 2016 and the annual report 2015 announce on 29 January 2016 to check whether the sell called still maintain.

Announcement on 6 January 2016

Let look into these multiple proposal which cause the price of FIAMMA spike up. In the announcement there are multiple proposal which going to be table for voting in the EGM on 23 February 2016 after the 33rd AGM. Let look into the proposal one by one and what is the effect:

i)                  Proposed share split (2:1 share split)

If this proposal is pass, FIAMMA share will split from RM 1.00 to RM 0.50. These will cause more liquidation in FIAMMA stock as the share outstanding double. The stock split will make FIAMMA price cheaper and affordable to small investor.

Some investor will think the drop of the share price after the stock split is a good time buy the stock and wait for it to rise back to the price before split. However this will not the case, the stock price drop to half after the stock split because the company is shares between more people after stock split (double the number of outstanding share 1:2 stock split). In actual this does not increase the value of the FIAMMA shares.

ii)               Proposed bonus issue (1 bonus share for every 2 shares owned)

Bonus issue is another way a company can gives back to their investor. If this proposal passes, the investor who has 100 shares in FIAMMA prior to the AGM will have 300 shares (100 shares from stock split and 100 bonus shares).

This will cause the treasury share of FIAMMA decrease and more share outstanding in the market. These will dilute the earning per share.

iii)            Proposed ESOS (Employee Stock Options)

ESOS will only benefit to FIAMMA employees and directors. If this proposal passes, option will distributed to FIAMMA employees and directors.

They (employees and directors) are eligible to exercise the option 20% per year up to 5 years if they exercised their option the stock price will be dilute.

CONS:

  • Bonus issue is similar to dividends issue in term of financial. Bonus issue will reduce the Earning per share of the company.
  • ESOS will not benefit financially to normal investor. It might dilute the share if the employees and director exercise their option.

Exercise of 800,000 Warrants on 6 January 2016

This exercised of 800,000 warrants will dilute the shares outstanding. However some investor did not realised these and push the shares price up after the proposal of bonus issue which announce on the same day. The proposal had not approved yet if the EGM vote no for the proposal there will not be any bonus issue.

CONS:

  • Exercise of warrant will dilute the share.

Annual report 2015

From the annual report 2015, FIAMMA had a loan of RM 168,245,00.00 to be settle in one year time and FIAMMA does not had enough cash to pay the debt base on the annual report.

The diluted earning per share for 2015 increases from 27.34 sen to 36.75 sen. However there is RM 24,838,000 gain in fair value of investment properties which is just paper asset. If we removed the RM 24,838,000 from 2015 earning, the diluted earning per shares is 20.61 sen which is lower that 2014.

2015 annual report showed there is a negative operating cash flow which is not a good sign for a company. The finished good in 2015 had increase compared to 2014 while the work in progress good is reduced significantly in 2015. These might be a sign that FIAMMA inventory is obsoleted.

CONS:

  • There is large amount of loan to be settle in these financial year
  • The increase in EPS for 2015 is cause by increment of fair value of investment properties which is just paper gain.
  • Operating cash flow is negative for 2015
  • FIAMMA goods might be obsoleted as the finished good increase and the work in progress good reduced significantly.

Sunday, 13 December 2015

Stock Review – ORIENT(4006) (ORIENTAL HOLDINGS BERHAD)

Bursa Malaysia - 4006
Bloomberg - ORH:MK
Yahoo - 4006 .kl
Webpage - http://ohb.com.my/

Key Value Investor Criteria: -

Description
Value
Criteria
Point
Price to Tangible Book Ratio
0.78*
< 1
5/5
Stock Valuation
CAPM => 3.04%
Return (2008-2014) =>9.13 %
Undervalue by 6.09%
CAPM < Return
3/5
Return on Asset
3.83*
> 0
4/5
Return on Common Equity
6.72*
> 0
5/5
Quick Ratio
3.36*
>1
4/5
Long term Debt / Total Capital
0.03*
<50%
5/5
Continue Dividend over Past 10 Years / Since Inception
Yes
Yes
2/2
Cash From Operation
Positive > 5 years
Positive
5/5
Total Point


33/37
Note:
 *            Data obtain from Bursa Marketplace on 13/12/2015

By scoring 33/37 (89.19%), we will look into the annual report and the latest quarterly report of ORIENT before making the decision to buy the stock.

Company Profile

ORIENT had four major business segments as follows:
1)   Plantation (50.38% of 2014 segment profit)
2)   Investment Service and Financial Service (22.89% of 2014 segment profit)
3)   Automotive and Related Product (16.54% of 2014 segment profit)
4)   Hotel and Resort (9.16% of 2014 segment profit)

1) Plantation

This division is planting and manufacturing oil palm. This division is generating 50% of ORIENT income for year 2014. Base on annual report 2014 ORIENT consists of 28,051 hectare of plantation in Malaysia and Indonesia. ORIENT able to produce 513,407 MT out of 654,478 MT (78.45%) of oil palm from its own estate in the year of 2014. However the lower price for oil palm in the year 2015 might affect the profit of this division.

2) Investment Service and Financial Service

This division invest in shares and bonds, letting of property and leasing company. In 2014 this division contributed 22.89% of the profit. These division had investment in Singapore and Mauritius.

3) Automotive and Related Product

This division distribute Honda car and motorcycle in Malaysia and Singapore. Although it does not contributed the largest profit for ORIENT in 2014, this division consists of the largest asset for ORIENT 38% of 2014 asset. From January 2015 to September 2015 these division contributed the largest profit based on ORIENT Q3 2015 report. However 2016 might see a slowdown in automotive industry.

4)   Hotel and Resort

Finally the fourth largest division in ORIENT is the hotel and resort division. ORIENT operate hotel and resort in a few country such as Australia, New Zealand, Singapore and etc. The depreciation of Ringgit Malaysia might help ORIENT to gain some profit in term of foreign currency conversion gain.

PROS:

  • ORIENT operate hotel and resort in foreign country which might help ORIENT to hedge the depreciation of ringgit Malaysia.

CONS:

  • The lower price of oil palm might affect the revenue of plantation division which contributed the largest profit to ORIENT.
  • 2016 might be a tough year for Automotive industry.

Financial Statement

By looking at the annual report 2014, the property, plant and equipment of ORIENT is still using the valuation in 1976 & 1978 and depreciated over the last 30 years. I can safely assume that the PP&E of ORIENT report in the annual report is way undervalued.

Besides that, the cash and cash equivalent at September 2015 increase by 15.6% compared to 2014 audited report. Although there a large increase in loan and borrowing in September 2015 compared to 2014 audited report an increase of 67.7%, with the loan and borrowing total of RM 1,109,430,000 it is still manageable for OREINT because it had free cash reserve of RM 2,494,585,000 which is able to pay of all the debt at once. The increase of loan and borrowing mainly because ORIENT loans are mainly in Japanese Yen and Ringgit Malaysia is depreciating.

PROS:

  • PP&E of ORIENT are valuated in year 1976 & 1978.
  • Had enough free cash reserve to cover all debt

CONS:

  • Loans mainly in Japanese Yen.

Management

The key person running ORIENT will be Datuk Loh Kian Chong who was redesigned as Chairman in 1 January 2015. Datuk Loh Kian Chong is just 39 years old he required some time to prove to himself to the shareholders that he can run ORIENT as smooth as his aunt who had run the company from 1987 till 2014.

Besides Datuk Loh KC, the other key personal is Dato’ Robert Wong Lum Kong who had been with ORIENT since 1972. Dato’ Robert Wong currently is the Group Managing Director. Held the same position with Dato’ Robert Wong is Dato’ Seri Lim Su Teng who currently in charge in the plantation and property division. These plantation and property division might be the division ORIENT is going to focus the most in the future.

Besides these three personal, ORIENT had directors in the field of lawyers, accountants and from HONDA who are there to manage the company.

PROS:

  • Having director in many fields that are there to give advice.
  • Having Honda representative as a director.

CONS:

  • Datuk Loh Kian Chong had to prove himself since he just took over the helm of ORIENT from his aunt.

Major Shareholder

OREINT mainly owned by Boon Siew Sdn Bhd who owned 43.00% of direct shares. Boon Siew Sdn Bhd is the company owned by Datuk Loh Kian Chong and family. Besides that, there are many others major shareholder from institutional investors such as EPF, TOKIO MARINE LIFE INSURANCE, value funds, emerging fund and etc.

However recently, Mitsubishi UFJ Financial Group, Inc and Aberdeen Management PLC had disposed their shares. On the other hand, EPF is acquired more shares.

PROS:

  • ORIENT mainly owned by Datuk Loh Kian Chong and family
  • Many other institutional investor.
  • EPF is acquiring more shares.

CONS:

  • Mitsubishi and Aberdeen is disposing shares.