Just 'READ' - Pensonic (Revaluation Play) !!!

Its NTA currently (Sept 2015) stood at rm0.85. However the NTA is said to be understated due to its accounting policy to carry properties at cost model instead of revaluation model.

The company adopted "cost less depreciation model" to value its land and building. This has reflected an unfairly low valuation of the assets that it presently (Sept 2015) has. For example, the property that it isowning in Section 51A Petaling Jaya is carried at rm200 per square feet while the market value is around rm750-850 psf. Valuing it even on a conservative amount of rm600 psf, this would translate it into a gain of RM18million and if the high side of RM800 is taken, then the gain would reach RM25million - on this one property alone.

If were to revalue all … a rm25million of gain is translating into about NTA of RM0.20 per share. In the event if all properties are revalued to the current (Sept 2015) market value, we can see a substantial increase in its NTA and of course the present stock price (26 Sept 2015) is traded at discount below the more realistic NTA.

It returns to the black with a net profit of RM12.6million for the fourth quarter ended May 31,2015 (4QFY15), compared with a net loss of RM1.64million a year earlier, on higher export sales and property disposal gains.

Revenue increased to RM92.9million from RM89.65million.The increase in revenue was mainly contributed by the export market, as its local business was facing a slight drop in revenue, due to the Goods and Services Tax (GST) implementation.

Furthermore, the group has posted a profit before tax of RM12.9million, [as] compared to loss before tax of RM2.7million in the corresponding periodlast year. This gain were mainly came from recognition of financial gain on disposal of property RM8.4million.

For the full year, Pensonic registered higher net profit of RM17.58million, from RM2.87million a year earlier. Revenue increased to RM388.37million from RM373.73million.

Looking ahead, Pensonic anticipated intense competition, but will continue to explore new markets and product innovation.

At rm0.59 it is trading at a 12 month trailing PER of 4.42 times.

Padini

Industry observers opine the worst could be over as earnings for the company retail group’s fourth quarter ended June 30 2015 came in above market expectations.

Its management has indicatead that it is committed to a minumum 10 sen per share. Padini has a strong cash pile to continue rewarding shareholders. As at June 30 2015, the group was in a net cash position of rm98.13 million equivalent to 15 sen per share.
It is worth nothing that a large chunk of Padini’s shares are held by MD Yong via his private vehicle – the single largest shareholder with 43.7% stakes.

Where business operations are concerned, observers think Padini’s worse days could be over as margins stabilise and consumer sentiment recovers going forward. For FY2015, gross margins fell to 43% while net margins declined to 8.2%. In FY2014, Padini registered gross margins of 46% while net margins stood at 10.4%.

While SSSG expected to decline or even turn negative, observers opine it will be new stores that will generate sales growth.

Padini’s penetration into new markets could help to drive eanrings growth even if margins fail to recover. Besides that the group’s value for money Brands Outlet stores are benefiting from consumer down trading given current economic uncertainties.

It is possible that Brands Outlet will overtake that of Padini Concept Stores. Revenue from Brands Outlet came in on par with its higher end sister Padini Concept Stores while segmental profits overtook the latter in FY2015.

Looking ahead, a reovery in consumer sentiment will be positive for retailers like Padini.

SimeDarby

It saw its earnings weaken for its financial year ended June 2015 and how it will address its rm18 billion debt remains unclear.

It is committed to strengthening its balance sheet – which saw net gearing balloon to 58% from 38% after acquisition of New Britain Palm Oil Ltd in March 2015.

It would also consider M&A opportunities to expand its footprint.

It hopes to achieve its target of 30% to 35% gearing in the short to medium term. There has been market talk that the group is considering a rm6 billion rights issue to pare down its debts. However it is believed that a cash call may not be its best option as it would enlarge its share base and dilute earnings.

It is highly likely that until it deleverages sufficiently it might not do another acquisition, or do a combination of debt and equity to maintain gearing at current level (Aug 2015) or even bring down its debt.

In March 2015, Fitch Ratings downgraded its outlook to negative after imputing debts from the NBPOL buy. Its funds from operations) adjusted net leverage has risen to 2.5 times. The negative rating by Fitch is the biggest concern because that will impact its cost of borrowing.

Sime Darby’s borrowing cost is currently (Aug 2015) 3.4% per annum.

As at June 30, 2015, it had cash of rm3.65 billion, giving it a net debt of rm14.4 billion.

If CPO prices start to perk up or cash flow from its businesses starts to improve, then leverage is likely to moderate and they might not need to take on any major fundraising.

The group’s silver lining would be the added earnings from NBPOL, which has already begun contributions to the group.

NBPOL’s palm trees are about 19 years and have brought Sime Darby’s average trees profile down to 14 years. Given its fairly young age profile, it is in a fairly good position to weather low CPO prices.

In the meantime, apart from more borrowings or a rights issue, it is also considering unlocking value by divesting some non core assets. Monetizing assets such as land parcels and its 30% stake in Tesco is the best option for now (Aug 2015).

Sime Darby had sold off its 50% interest in Sime Darby Sunsuria Development Sdn Bhd for rm173.4 million and a 9.9% stake in E&O Bhd for a total of rm319 million.

It had put hold indefinitely the planned listing of its motor division.

FGV

The continuing slump in crude palm oil prices has made a dent in Felda profits over the past year. While the group is now trying to tie up a major deal – the acquisition of a 37% stake in PT Eagle High Plantations Tbk – its purchases over the past two years have so far failed to contribute significantly to its bottom line.

FGV has spent close to rm5 billion since 2013 in an effort to increase its landbank in order to rectify its ageing tree profile.

Despite to secure new parcels to boost its crop production as well as replenish its crops via a replanting exercise, its overall output has remained depressed over the past two years.

Acquiring the strategic stake in Eagle High is essential to FGV’s business aspirations. The deal would enable it to make significantly inroads into the vast Indonesian palm oil market while giving it some 400000ha of Greenfield landbank to work with. Over the next few years from Aug 2015, the group is hoping to lower the overall age profile of its palm tree to 8% years old from 15 years oil presently (Aug 2015).

However the weakening ringgit is proving to be a major inconvenience for FGV in its latest acquisition. This means that FGV’s purchase price has ballooned significantly as it is paying for the company using its ringgit denominated cash reserves.

Investors perceived the price as expensive back in June 2015. Now (Aug 2015) with the ringgit and CPO prices getting weaker, it has become an even pricier purchase.

In fact the sizeable sum may have been the reason why FGV could not transfer a USD174.5 million refundable deposit to Eagle High earlier, resulting in the higher acquisition cost for the group due to the ringgit’s sharp decline in Aug 2015.

It is believed that the deal should be repriced to reflect valuations.

Eagle Highs entire market cap of USD540 million is less than the USD745 million that FGV is paying for a 37% stake. If it goes ahead and pays the amount, there may be a substantial write down in the value of the asset in the future.

Assuming that a significant portion of consideration for the Eagle High transaction is taken from its existing cash pile of RM2.2 billion, it will need further capital in order to continue its capex drive for replanting its landbank.

Due to the worsening fundamentals of palm oil as well as the ongoing turmoil in the equities market FGV is facing an uncertain few months ahead (Aug 2015 onwards). It has to ramp up its monetization exercise in order to balance its books, especially if it intends to wrap up the Eagle High acquisition by end 2015.

On Aug 27 2015, the group announced the disposal of its Canadian downstream assets for rm608 million. The sale of the subsidiary will boost its cash pile as well as its downstream operations, which had been dragged down by the subsidiary losses.

Some say FGV’s falling profits and depleting cash pile will impede its ability to pay dividends. Historically the group has given away more than 60% of its annual net profits as dividends.

It was reported that FGV;s net tangible assets per share of rm1.33 could dip further due to the potential dilution arising from the Eagle High deal, which could affect its cash reserves and operational cash flow.

UZMA

The company is expecting resilient earnings growth for at least three more years from Aug 2105 albeit in the low crude oil price environment.

The group is in a safe spot because it is involved mainly in a business that caters for fields production.

The confidence stems from the group’s order book – which stands at rm2.7 billion and will keep the group busy until 2021 – and its ability to provide services to oil companies so that they can produce oil economically. There are no activities in exploration now (Aug 2015). The budget has been slashed and production has to continue and the products that UZMA has to offer support existing production.

UZMA is not only involved in exploration but also in the provision of services for already producing. On top of that it has recurring income from its chemical business.

Malaysia needs the production and it does not keep up with production, it would not have any money.

It sees a stronger second half 2015 for the group due to is risk service contract and D18 water injection facility which spill over into FY2016.

Its revenue growth projection is backed by its contract wins in 2015.

Its biggest challenge at the moment (Aug 2015) is margin squeeze.