Will be back on November 30

Happy Thanksgiving

Trading volume will be light in the US markets -- things could be volatile in view of low trading volume. See you all over the weekend.

Paulson Bets Bank of America Will Almost Double by End of 2011

This is a quite a news to me as he is one of the top hedge fund managers that made US $ 17 billion out of subprime mortgages mess and financial stocks in 2007/2008. He was also buying some large position in gold mining stocks beting on inflations earlier.

Nov. 18 (Bloomberg) -- Paulson & Co., the hedge fund firm run by billionaire John Paulson, told investors Bank of America Corp.’s stock will almost double in the next two years as writedowns ease.

Bank of America, ranked first by assets and deposits in the U.S., may rise to $29.81 by December 2011, Paulson said in a quarterly letter to clients. A copy was obtained by Bloomberg News. Bank of America closed yesterday at $15.77 on the New York Stock Exchange.

“Banks will have passed the current writedown cycle and have visibility for growth in 2012,” the letter said. Bank of America dropped to $2.53 in February amid concern that the U.S. might seize banks that ran short on capital. While the bank “has risen from when we purchased the stock, we believe considerable upside remains,” the letter said.

Paulson reversed course this year by investing in Bank of America, ranked among the nation’s biggest home lenders. Last year, wagers by his New York-based firm against the U.S. housing market helped earn an estimated $2.5 billion. Charlotte, North Carolina-based Bank of America represents Paulson’s biggest holding among financial companies, the letter said. Earlier this month, he disclosed a stake in Citigroup Inc.

Paulson, who manages about $29 billion, started a hedge fund last year called Paulson Recovery to invest in financial companies hurt by mortgage writedowns. His firm held 160 million shares of Bank of America at the end of the third quarter valued at $2.7 billion, according to regulatory filings.

A weekend assignment -- take a look at plantation sector.

Most plantation companies earnings dropped by half because of crude palm oil price dropped by half on flat output. The market seems like not wanting to price in a scenario of 10-20% increase in 2010(RM 2,400 - RM 2,500). While most brokerage houses singing melancholic tunes, I will want to take a look at some of the counters like Boustead, Hap Seng Plantation, Sarawak Oil Palm, Tradewind Plantation and KLK.

Nov. 17 (Bloomberg) -- Palm oil traded near an 11-week high as JPMorgan Chase & Co. said dry weather in Southeast Asia may curb production in the first half and after soybean oil jumped in Chicago, increasing the appeal of the tropical commodity.

“There’s some value in the palm oil-bean oil spread,” Tobin Gorey, a commodity analyst at J.P. Morgan Securities Ltd. in London, said in a report. The “deep discount for palm” reflects tightening supplies of soybean oil and more palm oil, and “those drivers will shortly go into reverse,” he said.

Palm oil for February delivery climbed as much as 1.5 percent to 2,370 ringgit ($705) a metric ton, the highest level for the most active contract since Aug. 28. It traded 0.4 percent higher at 2,346 ringgit by the 12:30 p.m. break on the Malaysia Derivatives Exchange.

Soybean oil for January delivery surged 2.9 percent to 40.18 cents a pound yesterday in Chicago, posting the highest close since June 4. That left soybean oil $193.59 a ton more expensive compared with palm oil, the widest premium since Oct. 22, according to Bloomberg calculations.

Seasonally, palm oil production has peaked while soybean oil supplies are just coming onto the market, and these factors will reduce soybean oil’s premium, Gorey added.

Malaysia, the second largest producer of palm oil, reported record production of 1.99 million tons in October, lifting stockpiles to a 10-month high of 1.97 million tons, according to the Malaysian Palm Oil Board Nov. 10.

Narrower Spread

Drier weather in Southeast Asia because of El Nino may “crimp” production of palm oil in the first half and lower yields in the second, potentially narrowing the tropical oil’s discount to soybean oil, the JPMorgan report said.

Soybean oil dropped 0.6 percent to 39.94 cents a pound at 2:04 p.m. Singapore time, narrowing the premium to $184.40 a ton, according to Bloomberg data.

“Global vegetable oil inventory levels are, if not tight, then lean,” Gorey added, referring to stockpiles of palm, soybean, rapeseed and sunflower oils. “It would not take big problems with oilseed crops to see inventory levels drop to tight levels.”

In China, the largest consumer of edible oils, May-delivery palm oil on the Dalian Commodity Exchange rose as much as 1.5 percent to 6,452 yuan ($945) a ton, and last traded at 6,414 yuan by the 11:30 a.m. trading break.

Which trading day should I sell out my rights?

Which trading day should I sell out my rights if I have no intention to subsribe to a company rights issues? Based on a limited sample size, as a general rule, the first traded day fetched the highest price unless the "mother" share is emitting some bullish signs.

Turtle Portfolio Record Update

(Click on the image to see results)
Making a net profit of 1.7%(inclusive dividend) by selling out Shell Refining. If you look at the crude oil price chart, so far Q4 '09 price is still higher than Q3 '09. It's not that I don't have the patience to wait though there is a good possibility of better results coming out in February 2010. The main reason, however, I want to have some cash as KLCI is approaching 1,300. Whether there is a shallow or deep correction ( 5 - 15% ), Turtle does not want to get caught with no money when buying opportunities show up.

Faber -- The Empire Strikes Back, Part II

Since the share price has appreciated by almost 30% within a short period of time, it will be appropriate for me to start off with some technical stuffs. Two key price points to watch, $ 1.58 and $ 1.86. Those want to trade on the short-term basis should know what are your odds, either waiting for confirmation whether there are genuine buyers after breaking out from $ 1.58 to cash in 15% short term gain.

Those belongs to investor category, this is what I think about the company. After diposing all the non-core assets, the company has done a good job by focusing in two core competencies:

(i) Integrated Facilities Management health care(IFM). Faber provides integrated services such as facility engineering maintenance, central management information, linen and laundry service, cleansing and janitorial services, clinical waste management services and bio-medical engineering maintenance. It's a stable and steady core division of 6-7%/year growth. Their concession renewal due in 2011 but chance of not getting renewal is very remote. Some worried earlier when the present government lost a big chunk of support in last year GE. This division generates about RM 500 mln revenue.

(ii) Property development. The revenue can swing wildly between 150 mln to 200 mln over the last three years.

This is how the revenue breakdown looks like graphically.


If you look at EPS and price chart, it is clearly that the price is catching up with the fundamentals. There was a huge divergence between price and fundamentals in 2008.How should we value the company given the slow growth of health care unit and cyclical property development. Let assume the IFM unit revenue to grow at 6% for the next three years, the revenue should come in around 600 mln. Property division to generate about 200 mln, in 3 years time Faber group should have revenue of 800 mln. Net margin of 9% will give us earning of roughly 72 mln or EPS 0.20. A simple 10 x PE worth RM 2, 12X, RM 2.4 or 15X, RM 3. The reason I am running through multiple PE scenarios is all depending on the "speculation" mood by expanding their value justifications. I can give you 10 reasons why you pay multiple of 6 and 50 reasons of why you should pay 20 times multiple.

It will be very difficult for the share price to come down below $ 1.41 but I certainly will not pay anything above $ 1.60 to generate at least 10-15% per annum over the next three years.