Parkson. Time for bottom fishing?

A reader asked me whether is it time for Parkson bottom fishing? Parkson Retail Group(HK listed), Parkson(KLSE listed) and Parkson Retail Asia(Singapore listed) have been moving in the same direction - South. Share prices have been performing very badly especially in the last 9 months where its share prices fell between 35 to 50%. Both Parkson Retail Group and Parkson Retail Asia are finding some stabilization footing while Parkson Holdings Berhad is still struggling to find a bottom.

I ran another chart comparing Parkson Retail Group(PRG) to its peers like Golden Eagle Retail and Intime Department Store. The general direction is about the same except the degree of under performing  are different. Overall sentiment towards retail sector has been negative especially with recent corruption clamp down by Xi's government. But then PRG is the worst lot of the three. So fundamentally, there must be differences among them and I suspect PRG is the worst.

Financial Performance of PRG is getting from bad to worse to worst. Operating revenue though exhibit some pressures but the costs are really moving in the wrong direction. Rental cost is escalating. Staff cost is escalating. Over a period of 2 years, the two costs had increased by almost 57%. As a result, margin from operations declined from mid 30s to single digit. Part of the costs increased to be fair are related to losses from six new stores opening and also related to temporary closure of Shanghai flagship for renovation. Even we normalize this, I believe Parkson margin at best may go back to 20s but it is still a lot of works to be done.

To be honest, when I see an analyst issuing a SELL rating, I usually would sit up and take notice -- grill the report and see whether they are wrong and profiting by taking a contrarian  position. When I saw this report a few months ago that the analyst made a sell call when the price was at HKD 3.52 with a target of HKD 2.20, I was impressed with her courage to make such a big call like that. By the way, her target price was really reached that level just recently. The target price was based on 7~8 times PE, cheap but can be dead money for a while to wait for fundamental to catch up.

Now you must be wondering why am I talking so much about PRG and yet to touch on Parkson Holding Berhad(PHB). It's because almost 80% of its profit derives from PRG. The contributions from Indonesia, Vietnam and Myanmar are still small and need to go through a long period of gestation. Malaysia operations is quite decent but kind of stagnant for the last 7 quarters with exception in Q2 of 2013(bungee jump). Let's pray hard Malaysians will still shop a little despite of higher cost of living pressures and hope Visit Malaysia this year can turn things around a bit.

Coming back to PHB. From a technical standpoint, the share price is really in a very oversold territory and a powerful relief rally can happen with RM 3.2 as a first target. If we are lucky, it can continue to climb to RM 3.40 or RM 3.80. Beyond that, I don't have any visibility.

The risk however is lack of institutional buying support. You can see the share price drop accelerated in December when GIC(Government Investment of Singapore) and KWAP(Kumpulan Wang Persaraan) were disposing. Unlike the period from August to November, LTH(Lembaga Tabung Haji) was buying aggressively, hence supporting the share price.

As you can see both KWAP and GIC both hold more than  100 million shares combined, if they turn net sellers as you can see they have been doing so in the last few months - the stock price can be depressed at least 3 ~ 6 months. I hope they can stop selling so that the stock price can have some breathing space.

While the bad news seem to be endless, a lot of bad news had been baked in. I can see now value investors begin to find the stock attractive and beginning to take some positions. From PE stand point, it is cheap. It's selling for a single digit PE with long term direction of consumer spending is there. Having said that, unless one is realy willing to buy and forget(10-15 years horizon with 5% annual dividend yield) or bet more value investors to buy more or making a quick technical rebound trade(1 month horizon) -- I can't really answer whether it is time for bottom fishing. But my advice is don't start with a technical trader to a buy and forget investor when you don't have a stomach to cut loss.

Parkson Holding Berhad Update

I was not that active posting my thoughts for last few months. Some have taken that I was bearish and now have turned bullish. Not bullish but more cautious than ever. I have been constantly sounded cautious though I interjected with some "stocks talk". That is to tell my readers we can be hibernating our fingers busy keying buy and sell orders but we can never be hibernating our brains reading and thinking about companies.

I want to talk about Parkson Holding Berhad today. The stock has been performing poorly in market price terms but the earnings have been catching up -- slowly.

The last few years sold off has made Parkson pushed valuation down to one point of 12X PER. The price recovered a bit and now is selling for 13X PER. It can only be considered cheap if the earning growth is more than 15% per year. I believe this possible.

Parkson China operations still is a major driver in the revenue and earnings growth. However, the profile is changing from China-centric to emerging economies consumption centric. They are pushing their operations into Indonesia, Vietnam, Sri Langka and even Mymmar.  The revenue contribution from Vietnam and Indonesia is still relatively small.

Parkson runs 49 department stores in China and 37 Malaysia, 8 Vietnam and 7 Indonesia. It is obvious that Vietnam and Indonesia have more room to grow but this does not mean China has hit its plateau.

I kind of of agree with the assumptions from RHB estimates on new stores opening. 8 - 10 for China, 1 - 2 Malaysia, Vietnam and 2 - 4 for Indonesia.

Even we are wrong on timing, I think we should be directionally correct. At net profit of RM 601 mln or assuming single digit same store growth and 44 new stores coming on stream, that will translate into earnings of RM 0.55. At PER 15 X, this should translate into potential price RM 8.25/share. On the conservative side, let's say this cannot happen by 2014 and delay to 2015, a waiting period of 3.5 years will probably will still generate a CAGR return of 16% at the entry price of RM 4.80/share.

Government of Singapore Investment has started to accumulate this stock quietly since August 2011 with an entry of 55 million shares. They have been very active in buying for most of the time and take some profits to lower their cost. These activities also demonstrate two important investing principles that worth learning. One, excellent discipline of regular purchase at fixed interval. Two, aggressive buying at lower price. Here are their activities.

Sep 2011 3,67,300 shares. Average price RM $ 5.52
Oct 2011 1,872,900 shares. RM 5.53
Nov 2011 1,490,000 shares. RM 5.58
Jan 2012 (943,900) shares. RM 5.60
Feb 2012 (999,000) shares RM 5.71
Mar 2012 (513,400) shares RM 5.56
Jul 2012 626,100 shares. RM 4.78

Aug through 13 Aug 4,289,200. RM 4.76

( ) denotes sold.

Obviously they think the current price is worth scooping up.

Conclusion: In my personal opinion, buy-and-hold at current price between RM 4.60 ~ RM 4.8 is worth considering. Dollar averaging is also a good strategy.

Reversion to mean

Some stocks or commodities generated poor or good returns for good reasons. Poor fundamentals or stretched valuations but selling for a high price will produce worse results. Improving fundamentals or modest valuations will produce good returns. The European stock markets performed poorly is understandable. Shanghai Composite Index generated closed to 50% losses is getting more attractive by days. The average PE for A shares selling for 11 times PE is very cheap. I have completed my visit in China. There is no doubt that it was slower than before but I could not find any signs of hard landing.  The day of Reversion To Mean will come. My Dollar Averaging strategy has been activated recently. 20% of Turtle Portfolio cash will be moved into Chinese equities spread out over a period of 8 - 12 months.

Funds that worth investigating:

1. Morgan Stanley China A Share Fund. It's a closed end fund listed in NYSE(CAF). It is selling close to 10% discount to NAV but with 13% market distribution yield is very attractive.

http://www.closed-endfunds.com/FundSelector/FundDetail.fs?ID=111897

2. United SSE 50 China ETF http://www.uobam.com.sg/uobam/html/china_etf.html

It is an ETF that has direct exposure to A shares listed in Singapore Stock Exchange. It has just recovered slightly after hitting a new low of USD 1.54.

3. BRIC mutual funds 

4. Mutual funds specialize in H Shares

5. CIMBC25 listed in KLSE.  I sold off last year at RM 0.83/share. It is about time to get back in soon.

Have a good weekend everyone.

Trading Idea: Alam Maritim

Alam Maritim share price is holding the fort at RM 0.50 +/- 0.01 for almost 3 months and survived thus far.

The Chairman of the company Ahamad Sufian B Qurnain @ Abdul Abdul Rashid bought shares with his own money on Jun 04, 2012 from the open market. He paid RM 0.50 for 10,000 shares, added to his direct and indirect interests of 965,000 shares.

Lemabaga Tabung Haji who has quite a respectable records in buying small cap companies has been buying in the open market as well. They already have substantial interests of 9.59% in the company. The dates of open purchased were:

12 July 250,000 shares
13 July 250,000 shares
16 July 250,000 shares
17 July 250,000 shares
18 July 250,000 shares
19 July 250,000 shares
20 July 250,000 shares

The insiders are buying and the share price is quite depressed and over-sold at this moment. For the fun of it, I picked up some shares yesterday with 1 - 3 months holding period.

This post is just for information only and not to promote the compay because I already have position in it.

Cypark who?

Cypark Resources Bhd is one of those counters that caught fire of baptism after it went public. The price shot up 3 folds -- all the way to RM 3+ and came back to RM 1+ for last many months but still above IPO price.

The company started in 2004 as national restoration project service provider. They are providing waste management, treatment and land fill closure. Despite of its short track record, it has already attracted some reputable investors such as Public smallcap fund and OSK-UOB small cap opportunity trust fund and well known individual investor like Chua Ma Yu. For your information, Chua Ma Yu has been known for its shrewdness in business investment.

CIMB Research initiated initial coverage report some time in April 2012. It's long 28 pages report.

What is so sexy about this unheard off company? Short answer: the company is about transforming itself from "garbage" handling business into a pure Renewable Energy(RE) company.

What seems to be exciting is this is a PPA player with very little 8MW capacity and set to jump to 60 MW in 6 - 12 months. Is it solid or just hot air? It is attractive for a number of reasons. All the electricity generated(RE) will be sold to Tenaga. It has secured long term concessions of 21 years for solar PPA and 16 years for Biogas PPA.  The fact that PEMANDU is putting its close follow up mean they are serious to make things happen. This is also a first RE public listed company in ASEAN.

With that kind of convictions, CIMB research is tagging RM $ 2.82 as target price.

The key is execution. Its profit has to jump substantially as it is trying replace landfill business with RE businesses. The current business itself is already selling at a reasonable price of 12X PE. With great potential upside of capital gain and dividend in a regulated business, it seems like a good bet to me.

A couple of key points you should be aware.

RE is still expensive especially solar energy despite of huge drop in the solar panel price. If our government continue to subsidize the traditional(fossil) energy costs, it will not be be able to gain market share substantially. This might remain as niche.

CIMB research mentioned other risks such as the policy direction might change or if it runs into problem of getting funding. You might want to notice their current Chairman and a major owner was working in Ministry of Foreign Affair. It has local and foreign connections but it is also a double-edged sword with the current impending GE.

Just something to think about in case you are looking for alternative investment to Tenage, YTL Power, Gas Malaysia, Petronas Gas, etc....

Alam Maritim -- time for bottom fishing?

After falling for the longest time, Alam Maritim share price appears to be stabilizing around $ 0.50 ~ 0.55. The lowest price it ever hit was in 2008, quoted for around $ 0.36.

Moving sideway but in distribution mode usually is not a good sign especially the shares are held by many reputable institutional owners. It may fall off and breakdown during consolidation stage or take a long long time for big guys to distribute. However, institutional ownership is also a reason the share price is relatively more active compared to Sealink. For your information Sealink hit a new all time low.

The question is it a good time to watch or to accumulate?

The company revenue bottomed out in 2010 and incurred losses of 12 million after tax. There was unusual surged of RM 40 million in other expenses in that year but I could not find the reason in the annual report.

What is troubling is not revenue but the gross margin. Declining margins are very serious, it fell from 45% to 19%. It is very troubling indeed. This is definitely not related to under-utilized capacity(note no dramatic increase in depreciation cost). I believe the real trouble is the collapsed of charted rate.

As we all can see in the chart that charter rates above 20 k pounds/day were abnormal. Thus the super-normal profits of year 2008-2009(lagging effects kicked in later) were not real.

The company reported a few good news recently that they bagged new book orders from major oil MNCs. The book orders stood at RM 700 million that will last them 2 - 3 years. From revenue stand point, it is quite safe to say the worst is over - RM 300 to RM 350 million top line is not a problem. The tricky part is the gross margin as it will affect its profitability tremendously.

OSK research is making very aggressive margin recovery assumptions for 2012 and 2013. They assume net profit margin to improve between 15-20%. With that kind of assumption, they are tagging FV of RM 0.70. If they are wrong,  the downside will still persist.

Betting on fundamental recovery is difficult. Thus, stock left with two technical rebound possibilities:


1. News flow of Petronas awarding them contracts for brown field recovery projects.


2. Being acquired when the MA wave is sweeping OSV world. You may note that P/BV is relatively cheap that may attract vultures.

Buy European Stocks?

If you have access to buy stocks in Singapore, one of the ETFs that can give you exposure to European companies is Lyxor ETF MSCI Europe(LMEU). You might say that I'm crazy, right? Before that, have a look at this information.

Crazy, I'm not. The index is getting closer to 2009 low. I know about the Grexit, the five Pigs and etc.....but these are global companies. To go below 2009 means we are getting into a credit implosion with unknown depth of a black hole. In this case, it's only a regular government bailout or default which I think it is solvable.

Just put it under your watch list and time to pull a trigger will be around 2009 low. If it does breaches 2009 low, like Jim Rogers say always, I hope I'm smart enough to buy more.

Go here for more information:  http://www.lyxoretf.com.sg/sgretail/homesg/products/country/SG/product/ETF-MSCIEURB-SI/

Bumi Armanda - The strongest off-shore service player but fully valued

Among all the offshore service players, Bumi Armanda has the strongest fundamentals.

Background.
It has four business units as you can see in this screen short.

A lot of abreviations here but we have no choice but to know a few of them.
FPSO(Floating Production, storage and offloading system).
OSV(Offshore vessel)
T&I(Transportation and installation).

Revenue Mix

Almost 80% of the revenue are coming outside Malaysia. This is what I like about them. They have proven themselves to compete internationally.

The financial snap shot.

The valuation is certainly rich. I do not intend justify the high valuation or high premium. I do not think it is justifiable to tag 22X PE to 2012 earning. If we were to compare to other regional players, 12 - 14 X are already considered very rich. At the current price, we are pricing in all the way into 2015. Despite of the stock is fully valued, I just want to highlight a few strong points so that it will be handy if the share price happens to come down to around RM 3 to RM 3.3/share.

Strong points:
1. Strong earning visibility. Bumi's order book stand at RM 7.6 billion with RM 3 billion extension option. Many of the contracts are long term in nature. They look busy in the next 3, 5 or 7 years ahead?

2. Strong liquidity -- free float of 55% will attract fund managers. On off contract announcements/news flow may spice up the share price??

3. I like their business strategy. It is crystal clear, isn't it?

4. Strong relationship with NOCs and Petronas especially. It is certainly not easy to navigate in emerging markets that full of uncertainty and political land mines but the risks are certainly equal or greater than opportunities. The reason? Malaysia politics is certainly one of the hardest to deal with as well. I'm pretty sure our pretty "screw up" business environment already given them a good training ground. ( I don't think I want to explain it too explicitly so that I don't get into trouble. Read in between the lines, okay???)

5. It may be too text bookish to say that they have strong management but based on what I read from their public reports, this company is certainly lead by very competent with strong international exposure management.

A study of Offshore Support Vessel Industry - Part II

I learned a lot by reading recent Bumi Armanda IPO exercise. I will extract some of the key points:

We are sitting in a nice spot because Malaysia and Indonesia plan to spend a considerable amount of capex from 2011-2015.


The capex will continue to climb for the next two years and expect to peak out in 2014.

Petronas is going to be the key driver in Malaysia as they are trying to spend more money in marginal oilfield and brownfield under the Economic Transformation Program(ETP). Petronas plans to spend about RM 60 billion in exploration and production activities. This is largely positive but most analysts would expect results can only be seen by the end of 2012 to mid 2013.

The following matrix shows the competitiveness of various players. A few of players are listed in our stock exchange.



Most of them are regional players except Bumi Armanda has been able to compete very effectively globally. One of the names that I did not see is Alam Maritim. Not sure why though because their revenue can easily surpass Tanjong Offshore.

Most of the Malaysian OSV operators are lucky because of Cabotage laws that prioritize the local players. That's why the rates was a lot better compared to international markets. I'm not sure whether this is a good thing or bad because we are protected again. Anyway, I think it is too early to take about liberalization. The implication of liberalization or reform means consolidation that surely will spice up the market a bit hot with M&A rumors.

The industry utilization is improving, most should be operating around 80% now. Unless we have another round of full-fledged global great recession, we should see better prospects ahead. The only issue left is whether investment sentiment will improve towards these counters despite of more stable outlook.

The big picture seems to be okay that worth while to investigate further on the micro-level(stock picking).

A study of Offshore Support Vessel Industry ... Part 1

I need to make this clear before I write further. I made two statements recently:

1. China market is one of the cheapest in the world
2. Buying opportunities should emerge in 3 - 6 months

A 3rd statement of I'm going to study OSV industry will certainly make me look like a bimbo when the markets are hardly corrected - yet.

All the statements do not represent I want to jump into the market now. It's just that I'm getting to hunt but I have no idea when I'm going to pull the trigger.

The thing that prompting me to look into OSV segment is I'm keep hearing bad news of the industry is having over capacity and the charter rates are recovering from depressed level. If the crude oil price is to soften further by 10-20%, that is going to add more pressure to the sector. The share prices of many of OSV players are tanking everyday. It's one of the sectors that is hated by most now. I'm just sniffing around to see whether there are any mis-pricing stocks.

OSV market is a commodity market. The barrier of entry is low. All you do is raise funds, buy ships and rent it out. There may be some technical know how required but it is relatively easy to master if you are in this trade. ISL estimates about 500 vessels in SEA. It's a very fragmented market as well.

Over expansion in 2005 - 2008 cycle led to charter rates collapsed. In 2009, the charter rate was about US $ 2.20 - US 2.70 per bhp but it had a free fall to US $ 1.70 - US $ 1.75 per bhp. That was a 20-30% drop. At one point of time, the rates fell by almost 50-60%.

On top of that it is a very capital intensive industry and most of the players have a big sum of loan on their balance sheet.

Does that sound scary? Why the hell am I wanting to write something about this with such unfavorable conditions? I will come to that later.

For a start, let's try to understand the scope of OSV market. OSV market can be defined as vessels with anchor handling duties("AHTs") which are used for towing rigs and platforms onto location or platform support vessels("PSV") which are primarily use to supply to assiting platforms and assist with construction duties as well..



The drivers that can lead to revenue increase(beside raising capacity, better charter rates) are depending on

1. Global energy consumption
2. Seismic surveying activity(E&P)
3. Compulsory drilling requirements on old license blockage
4. # of rigs in the market
5. Depletion of existing fields

In short, it's all depends on exploration or production of crude oil activities, global economy health, crude oil price and demand and supply of vessels.

Shangri-La Hotels -- Solid investment but no rush

Companies own by Robert Kuok are usually well run. His conservatism and down to earth leadership has strong root that can weather all kind of business conditions, especially cyclical ones.

Hotel business is cyclical in nature. This business can tell us a lot about the global economic boom and bust story. It's a place people conduct businesses to make a lot of money or to indulge themselves after making a lot of money. Keyword: a lot of money = boom. It's also a place many people will desert licking their wounds or get quarantine in their office in bad times. Deserted = bust! There are three bold lines that will tell it all.


The first line reminded us a lot about dot.com bust, 9-11, SARS, etc. Those were the truly difficult times. Right after 2004, the world has unprecedented global economic growth without realizing it would come to an abrupt end. Thank you Greenspan.

The second bold line told a story of the US housing bubble bust that led the world into recession and financial crisis. After the market bottomed out in 2009, everything looks fine for the last one and the half year. Thank you chairman Bernanke.

A little warning. Shangri-La stock price peaked out in October 2010 and has been in a down-trend for more than a year. This is the story of the third bold line but not sure who to thank.



The EPS trend is more or less telling the same story of the price chart. The world went out from the soft patch in 2003 and enjoying a nice long period of 4 to 5 years of prosperity. A little second warning. The yellow light is flashing, again. The earning appears to have peaked out in 2010.

To understand Shangri-La business, we need to understand two drivers. First, Shangri-La operates a group hotels, resorts and property management in Malaysia. In 2010, it had a total revenue of RM 422 million. The breakdown of revenue contributions can be found here.



Three of Shang's hotels contributing almost three-quarter to the group's revenue. The data point of occupancy rate is a contrarian indicator. No good times(2004-2007) or bad times(2001-2003) are going to last forever.



The occupancy rate in the first 9 months of 2011 is very high. Taking comfort in this lagging data is certainly not wise. The typical business segment of Shangri-La hotels like Shangri-La Kuala Lumpur and Traders Penang occupancy rates are very high. 70% occupancy of Shangri-La Kuala Lumpur is as high as 2004 - 2007 period. The Traders hotel's occupancy rate is even unusual, 85%, a new record for the last ten years. Do you think this is going to be sustainable?

On the resorts side of the business, first it will get hit by Rasa Ria because they are renovating and secondly a lot of their clients are Europeans and Aussies followed by Asians from the North.

The rest, Rasa Sayang and Golden Sands, look reasonable.

All in all, I would expect earnings of Shangri-La group to soften in anticipation of lower business volume and slower resort business. This is not a bad news to me because a well run business that being oversold at the bottom of the cycle is a good investment.

Disclosure: None.

TDM.....Fair is fair

I think Badawi is a cleaner among the dirtiest shirts. The GLC transformation that he started in 2004 did bear some fruits. Some of the results were visible in 2007 and 2008. I believe it was too late for him because people ran of patience and could vote for anybody as long as it was not a blue colour. It was that desperate if you could recall. When Najib took over the ruling government after the aftermath, 'till today, I think hapak pun tadak nampak.

Don’t get me wrong. I’m not running a goodwill campaign for the present government but I felt that no matter who they are, when they did a good job, just give them the credit. Pak-lah did something and TDM is his witness today.

Don’t count on the present ruling government, they have good experience of running the country but their superlative corruption experience is also easily one of the top notches in the world. Net of that equals to going no where if not backward! I could recall one of Guan Eng’s speeches that sound something like this: yes we have no experience to run the country but neither have we had the experience to corrupt. Well said Guan Eng. Net of that equals to progress.

A clean officer who refused to participate in an en-mass graft sharing program will certainly be murdered brutally, so don’t count on the old system. We need an alternate new system. Don't expect the final product will look different if it's coming out from the same mold.

Back to money matters, TDM indeed is a very undervalued stock. This company started their journey to reform in 2004 under Badawi's GLC reformation initiative. The first thing that you may notice from the below table is --- their yields were below the industry efficient players which is around 20 MT/hectare.

The yields, as you can see, were certainly crawling upward after they put in more efforts to improve their productivity, replanting, better fertilizing program and etc.

Luck was on their side too, rising commodity price lifted the CPO price. When the twin-turbo(rising CPO price and rising FFB(due to productivity improvement)) is super-charging, any idiot also can make a conclusion that this is a no brainer stock to buy.



I believe Mr. Koon Yew Yin thinks this stock is so undervalued that he does not want to stir the market when he was accumulating. How do I know? I deduced this by looking at how he bought this stock. His public records revealed that he bought through 4 stock brokers. 4 brokers? Yes, using 4 brokers to accumulate speak volume of his convictions. No need to prove beyond reasonable doubt.

OSK 894,400 shares
TA 599,400 shares
HLG 593,000 shares
Maybank 445,800 shares

TDM has a plan to have 40,000 hectares presence in Indonesia. You can sense what they said will come true because they already acquired 25,000 hectares. And by 2014, these 25,000 hectares will be fully planted. If CPO prices stay between 2,500 - 3,000/MT, they can easily double their earnings in the next 7 - 10 years. TDM is currently managing 12 palm oil estates with about 33 k hectares planted.

Disclosure: None.

It's now or much later.........

I've been wanted to capture my thoughts on plantation stocks over the weekend but there have been a lot of interruptions......some baby snails were literally ruining my plants so I've to harden my heart to get rid of them with a loaded pesticide water gun. Hasta la vista, baby!



The sector(plantation index) had a huge run prior to sub-prime collapsed and the Humpty Dumpty had a great fall. All were not lost, the market managed to stick back the pieces(with some help of all king's horses, all king's men and some luck of course). Since then it had a very successful recovery. The sector appeared to have been topped out in the early of 2011 and trapped in the downtrend for last 10-11 months.

The CRB index appears to have a similar pattern. It has been on the downtrend as well since the beginning of the year and the Baltic index is clearly looks like a Vietnam veteran having bad dreams, screaming at nights.



A main competing commodity to palm oil, soya beans, got hammered in September. They said they worry about global growth. They might be right, for once, I agreed with these traders. Damn! did I just shake my hand with them?????



Back to our KLSE, our top guns, i.e. heavyweight like Sime Darby, IOI Corp and KLK have been getting expensive. The valuation has caught up with price pretty fast. There are some issues and worries with these stocks(a story to be told in another day). Those market cap stocks between RM $ 5 - 10 B are also getting expensive. The valuation gap in fact had almost been eliminated. A lot of stocks with less RM 1 B had their days, justice had been served -- the valuation is also appear to be rich too. There are 2-3 more stocks like TDM is waiting for a handsome prince to kiss them. Don't let me stay like a frog forever, she said with her beautify winky eyes. Kiss me please.



Dividend yields are not that generous, on the average of 3+%, are indications of prices had surged too much. Some are even worse - less than 2% - telling us players are willing to go after capital gains only.

A few of the undervalued stocks have only a window of about 6 months, it's now or much later. The logic drives behind this premise is CPO price can still be firm due to the lower harvesting yields caused by heavy rainy seasons. When all stocks slide under water slides, pumping adrenalin will not equal to making money.

Take care all my friends.

Dutch Lady

Until today, it remains as an unsolved mystery to me – why have I not bought this stock? I can keep piling justification upon justification until my reasoning breaks down. Enough of I know, I know, I should, I should….. Procrastination is a great thief of time.

I thought my conservatism worked against me. I thought I was worried that Dutch Lady’s sales growth will eventually slow down. I thought I was worried that PE was too high, etc. Upon reviewing my own writings, I found that I was my worst enemy, I was playing double standards, etc….. why was I sitting on dead money on Parkson for example – I was hanging on to the stock while earnings did not catch up fast enough with valuation. I finally told myself, enough is enough, if the industry dynamics is long term favorable and earning has caught up with valuation, just lock down the target and shoot!

One more point, I think I want to tweak my style a bit. I want to make it like writing letters to “friends” or write the way I’ve written in my diary rather than thinking of myself as an analyst or a preacher.

When I was looking at the stock way back in 2007 ~ 2008, the stock sold for 12 to 16 times PE. The stock was selling for 20 times PE in 2009 and 2010. It was clearly expensive in 2009 and 2010 and many other stocks were cheap. I did allocate some money in many other beaten down stocks. I was churning stocks during that period with around 60-70% return but Dutch Lady probably returned close to 100%. Ouch……why was I going the hard way? Why was I climbing the coconut trees top to pluck the fruits while I can sit back and relax -- let the monkeys to do the job??

The following is the EPS/PER history

2007/0.74/13X
2008/0.67/16X
2009/.944/19X
2010/.998/20X
2011/1.6(E)/14X

The earning jumped by 34% but the stock jumped by 135%, from 2007 to 2010. The last 2 year PE expansion has built in a lot of growth expectation. It was a no brainer to buy in 2007, still ok in 2008 but it was getting really expensive in 2009 and 2010. What about now?

The YTD EPS is RM 1.24, let's add another .36(latest Q3 ’11 result) to Q4 ‘11 and 2011 EPS will be roughly RM $ 1.6. The earning has caught up so much that the stock valuation is getting cheap again.

Given Malaysian lifestyle, I feel that the society will adopt more western style living as we get richer. Milk consumption is likely to go up in the future. Tell that your little boy/girl that he/she can get taller by drinking milk…..he/she will drink in barrels. Our per capita milk consumption is still low, the data is a bit outdated but it's the best I can find(2006). It's direction that I'm looking for.


I think the industry is not that fragmented. Since it’s a concentrated industry, the revenue will likely to go up if the overall industry is favorable. My daughter and I went around doing a bit of Sherlock Holmes’s work and we found that Nestle and Dutch Lady are pretty strong. If we buy Dutch Lay and Nestle, we are in a business to supply to almost to the whole country.






Supermarket and hypermarket operators play an important to nurture this industry. We can see Tesco, Carrefour, Jaya Jusco, Giant, the Store, etc are mushrooming. It has reached a tipping point for many Malaysia to expose to modern shopping and this will reach more and more people – beyond the city dwellers.

One of the things that worried me is the milk powder cost, it’s cyclical in nature. The cost has been going up after it bottomed out in 2009 and now is appearing to have peaked. We have been lucky that Ringgit was strong to offset some of the rising cost. However, if it goes the wrong way – weak ringgit, slow economy, rising milk powder cost – it can be negative catalysts sell off.



One of the more recent moves by new Dutch Lady’s management was to rationalize their product mix. They have been focusing on higher margin products and dropping the lower margin products. They did not give much details but I hope their higher margin products are not sensitive to economic conditions. That’s the reason why their 2011 financial results elevated to higher ground, both revenue and gross margin are expanding. I hope they can hang on, despite of a potential negative consumer sentiments ahead.

Disclosure: none