Latexx to be privatised? The consensus target price on the stock is RM3.49.

Latexx to be privatised?

Written by Yantoultra Ngui Yichen
Thursday, 27 January 2011 11:43

KUALA LUMPUR: Talk of privatisation of Latexx Partners Bhd has surfaced amid the continuous rise in latex price and the weakening US dollar which have hit the once-favoured rubber gloves industry.

The counter has been actively traded recently, with an average daily transacted volume of some 1.3 million shares for the past 10 days, according to Bloomberg data.

Latexx closed 2.27% or six sen lower to RM2.58 yesterday with a total of 3.1 million shares traded. Its shares hit a 52-week high of RM4.25 on April 7, 2010 while its 52-week low was RM2.37 on Sept 24, 2010

A company official said she had no clue on the matter when contacted by The Edge Financial Daily, but said the rumour of possible privatisation had been going around for some time.

Latexx’s executive chairman and CEO Low Bok Tek was not available to comment at press time.

According to Bloomberg data, BT Capital Sdn Bhd is the major shareholder of Latexx with 49.57 million shares or a 22.55% stake, followed by Low with 15.47 million shares (7.04%) and Lembaga Tabung Haji with 11.68 million shares (5.32%).


Given that Low is a shareholder of BT Capital, his direct and deemed interest in Latexx amount to 29.59% stake.

Rubber glove manufacturers took a hit recently from the continuous rise in latex prices and a depreciating US dollar. But analysts said this was not the first time glove manufacturers were facing this situation.

According to an analyst, glove makers have shown they are able to pass on the cost of higher latex prices and weaker greenback to end-consumers, though at one to two months’ lag.

Despite the headwinds, rubber glove makers were still positive on the back of robust demand from traditional healthcare usage and new segments such as the food and services industry.

“The demand growth for gloves has remained healthy although the concern for H1N1 has faded,” Latexx said in notes accompanying its financial statements to Bursa Malaysia on Nov 10. “Upon normalising, the demand for gloves still grows at 10% to 12% annually, which indicates a remarkable upside for any industry.”

Latexx’s present undemanding valuation could be fuelling privatisation speculation and  generating interest on the stock.

According to Bloomberg data, the counter is trading at a forward price-to-earnings ratio (PER) of 7.27 times, lower than prevailing average valuations for the rubber sector.

Its bigger peers such as Hartalega Holdings Bhd is trading at a forward PER of 10.91 times, Top Glove Bhd at 14.62 times, Kossan Rubber Industries Bhd at 8.63 times and Supermax Corp Bhd at 8.53 times.

Other peers such as Rubberex Corp (M) Bhd is trading at a historical PER of 11.11 times and Integrated Rubber Corp Bhd at 24.59 times. Latexx trades at a historical PER of 6.8 times.

With net asset per share of RM1.07 as at Sept 30, Latexx trades at a price-to-book ratio of 2.41 times.

For the nine months ended Sept 30, Latexx’s revenue totalled RM390.53 million, up 73.11% from the previous corresponding period while net profit totalled RM59.89 million, a jump of 71.95% from RM34.83 million previously.

Latexx is relatively cash rich; it had a net cash of RM17.29 million as at Sept 30, with RM18.54 million in long-term borrowings, RM18.78 million in short-term borrowings and RM54.61 million cash.

Analysts are bullish on Latexx despite the continuous increase in average latex price and the weakening US dollar. All four analysts who released reports on its most recent results had a “buy” recommendation on the stock.

The consensus target price on the stock is RM3.49, according to Bloomberg data. This is 35% or 91 sen higher than yesterday’s closing price of RM2.58, which gave the company a market capitalisation of RM567.1 million.

For one, MIMB Investment Bank said it was still positive on the stock as it was expected to focus on operational efficiencies and cost control to boost earnings going forward.

“Notwithstanding the headwinds in the industry, Latexx is expected to continue with its expansion plans,” the research house said in a note to clients on Nov 11, 2010.

According to Latexx in notes accompanying its financial statements to Bursa, the construction of an additional production plant adjacent to existing production facilities has been completed.

Nine double formers and two single formers glove production lines were commissioned and had since started operations, said the company. The expansion was expected to raise its annual production capacity from seven billion pieces to nine billion pieces by 2011, it added.

This article appeared in The Edge Financial Daily, January 27, 2011.

LPI Annual Report 2009 (Summary)

  LPI Annual Report 2009

Underwriting Surplus before Management Expenses By Class

RM’000                           Underwriting Surplus before management expenses
                                                                        2009                  2008
Fire                                                               93,030                68,603
Motor                                                           19,312                30,366
Marine, Aviation & Transit                       6,100                  5,290
Miscellaneous                                                54,997               38,083
Total                                                           173,439              142,342


SUMMARY OF GROUP FINANCIAL PERFORMANCE
At A Glance


                                                              2009 RM’000          2008 RM’000
Profit Before Taxation                                  161,335               141,564
Profit After Taxation                                     126,088               104,247
Total Assets                                              1,488,697               856,201
Shareholders’ Equity                                    900,673               363,741
Basic Earnings Per Share (sen)                           91.6                     75.7
Return on Equity (“ROE”)                                14.0%                14.0%*
Operating Margin                                              21.7%                 22.1%
Net Claims Incurred                                          46.7%                 51.2%

*Restated ROE after taking into account of FRS 139 adoption.



Profit Before Taxation By Segment
                                                                    2009 RM’000      2008 RM’000
General Insurance Operations                           126,311              108,679
Investment Holding                                             34,097                32,322
Financing of Leases                                                    (1)                   (34)
                                                                        160,407              140,967
Share of profit after tax of
equity accounted associated
company                                                                  928                    597
Profit Before Taxation                                       161,335              141,564



RM’000                 Fire          Motor       M.A & T#     Miscellaneous      Total
Gross premium     229,381    194,406       23,446          228,013        675,246
%                          34.0         28.8              3.5                 33.7             100.0
Underwriting
surplus before
management
expenses               93,030      19,312       6,100           54,997         173,439

Underwriting
surplus after
management
expenses               69,319       (9,724)      4,085           33,964           97,644


# Marine, Aviation and Transit




Class                  Total no. of policies    No. of policies per underwriting staff
                             2009        2008              2009         2008
Fire                    284,170     274,520          18,945      17,158
Motor                463,615     416,608          42,147       37,873
Marine, Aviation
& Transit             26,791       26,114            3,349        3,264
Miscellaneous    263,618     197,109            5,492        4,693
Total              1,038,194      914,351          12,661      11,875




Gross Premium By
Agents                                 27.3%
Financial Institutions             25.8%
Direct                                  14.7%
Broker                                 12.4%
Reinsurance Arrangement       5.6%




The statistics of claims registered and settled in 2008 and 2009 are as follows



Classes                         No. of claims registered             No. of claims settled
                                          2009      2008                         2009          2008
Fire                                    2,202      2,119                      1,188            915
Marine                                  849         719                         427            340
Personal Accident              5,667      6,730                       5,106        6,127
Miscellaneous                    2,404      1,768                       1,448           808
Health                                3,319      2,701                       2,589        1,841
Workmen Compensation    2,412      2,928                         997         1,183
Motor                              17,716    18,547                       8,892        7,264
Liability                              1,380      1,029                          467           219
Bond                                    333         123                          213             23
Aviation                                   1             0                              1               0
Engineering                           840        717                           321           161
Total                               37,123    37,381                      21,649      18,881



LPI has been consistent in its dividend payment since listed
in 1993. The gross dividend per share paid by LPI since
1993 is depicted below:

Year    Gross Dividend per share (sen)
2008     85.0
2007   110.0 N1
2006   105.0 N1
2005    70.0 N1
2004    60.0 N2
2003    25.0
2002    15.0*
2001    15.0*
2000    15.0*
1999    12.5*
1998    27.5
1997    40.0
1996    40.0
1995    30.0
1994    25.0
1993    18.0

* Tax Exempt

N1 - Including a special dividend of 25 sen less taxation

N2 - Including a special dividend of 30 sen less taxation

BALANCE SHEETS

AT 31 December 2009

                                                                      Group                    

                                                           2009              2008 

                                                           RM’000        RM’000 

Restated Restated

Assets

Plant and equipment                              6,290            6,435 

Investment properties                            9,487          10,947

Investment in subsidiaries                            -                     -     

Investment in associate                        12,230          11,482 

Investments                                                 -          725,903 

Available-for-sale financial assets       671,348                  - 

Held-to-maturity investments              172,515                 - 

Loans and receivables, excluding

 insurance receivables                         536,985         27,622

Insurance receivables                           69,904          60,735

Tax recoverable                                           -                    - 

Cash and cash equivalents                      9,938         13,077 

total assets                                      1,488,697        856,201 

equity

Share capital                                       138,723       138,723 

Treasury shares, at cost                        (8,628)         (8,611) 

Reserves                                            770,578        233,629

shareholders’ equity                            900,673        363,741

liabilities

Insurance liabilities

-  Claims liabilities                                229,021       242,654 

-  Premium liabilities                             222,545       188,258 

Deferred tax liabilities                                  557                   -     

Borrowings                                            72,880                  -     

Insurance payables                                 37,505         34,422 

Other payables                                      15,416          12,988 

Taxation                                                 10,100         14,138 

total liabilities                                        588,024        492,460 

total shareholders’ equity 

and liabilities                                       1,488,697      856,201

http://announcements.bursamalaysia.com/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/750d1c101e37ba4b482576b10032f4e8/$FILE/LPI-Page%20116%20to%20ProxyForm%20(3.2MB).pdf

Property/Casualty Insurance Accounting 101

Let us investigate how the PC insurance business works on an income statement and balance sheet.  Premium revenue (also known as earned premium) is used to fund claim payments (loss expense), sales commissions for insurance agents (commission expense), and operating expenses (OPEX).  Insurers typically express each of these expenses as ratios to earned premiums.  Claim expenses, for example, typically consume 75% of an insurer's net revenues.

Adding together these three ratios produces the combined ratio - an insurance company's key underwriting profit measures.  A combined ratio under 100 indicates an underwriting profit.  A combined ratio exceeding 100 indicates an underwriting loss.

Companies with combined ratios exceeding 105 for more than a short time have a difficult time recouping their losses via investment earnings, and this type of poor underwriting track record suggests that an insurer's competitive position is unusually weak.  Insurers unable to earn even the occasional underwriting profit will produce the industry's poorest returns and may be tempted to accept large investment risks to boost profitability.

Insurers also make money from investment income, which they often report as a ratio of premiums.  Adding the investment ratio to the combined ratio yields the operating profit ratio.  In many instances, investment income is a key profit determinant because it offsets underwriting losses.

On the balance sheet, the key asset for most insurers is investments.  In addition to float, most insurers invest a large portion of their own retained earnings as well.  The investments account reveals the size of an insurers investments relative to its asset base and details the asset allocation employed.  As a starting point, look for insurers with no more than 30% invested in equities (unless the company is run by Warren Buffett).

Finally, unearned premiums represent premiums received but not yet considered revenue.  This oddity reflects an accounting convention.  When an insurer receives a premium, it is deemed to earn it gradually across the year.  After all, if a customer cancels a policy, the insurer must refund that portion of the coverage not consumed.  After six months, an annual auto policy would be 50% earned, but half the premium would be considered revenue.  Before this occurs, the premiums are held in the unearned premium account, and the insurer is free to invest them.

Nirvana for an insurer is being able to consistently earn underwriting profits on a large, growing customer base.  In effect, this insurer would be getting paid to profit from investing other people's money and could retain this float indefinitely (as long as it grows).  Unfortunately, for investors, these situations rarely occur.

Follow these tips to find some good stocks to invest in any market scenario

A general trend that one observes in the equity market is when share prices start falling, many investors, especially in the retail segment, follow a wait-and-watch policy to enter the market. They try to look beyond at the reversal of the ongoing trend.

However, by the time they react, equity markets usually move up substantially. By then they find the market overheated and either stay out and wait for the next correction to participate or are left with no option but to invest money at those levels.

As it is sometimes difficult for investors to calculate the reversal in trends at its early stage, most enter when the markets have run up significantly. Stocks provide low risk high returns in long run which makes the point of entry insignificant, however, generally not many investors invest with a long term perspective. (Study the chart below to understand this statement.)

Read more here:  http://www.personalmoney.in/5-tips-to-select-stocks-for-investment/1543

Insurers' business model

Insurers' business model

[edit]Underwriting and investing

The business model is to collect more in premium and investment income than is paid out in losses, and to also offer a competitive price which consumers will accept.

Profit can be reduced to a simple equation: 

Profit = earned premium + investment income - incurred loss - underwriting expenses.

Insurers make money in two ways:

1. Through underwriting, the process by which insurers select the risks to insure and decide how much in premiums to charge for accepting those risks;
2. By investing the premiums they collect from insured parties.

The most complicated aspect of the insurance business is the actuarial science of ratemaking (price-setting) of policies, which uses statistics and probability to approximate the rate of future claims based on a given risk. After producing rates, the insurer will use discretion to reject or accept risks through the underwriting process.

At the most basic level, initial ratemaking involves looking at the frequency and severity of insured perils and the expected average payout resulting from these perils. Thereafter an insurance company will collect historical loss data, bring the loss data to present value, and comparing these prior losses to the premium collected in order to assess rate adequacy.^[8]Loss ratios and expense loads are also used. Rating for different risk characteristics involves at the most basic level comparing the losses with "loss relativities" - a policy with twice as money policies would therefore be charged twice as much. However, more complex multivariate analyses through generalized linear modeling are sometimes used when multiple characteristics are involved and a univariate analysis could produce confounded results. Other statistical methods may be used in assessing the probability of future losses.

Upon termination of a given policy, the amount of premium collected and the investment gains thereon, minus the amount paid out in claims, is the insurer's underwriting profit on that policy. An insurer's underwriting performance is measured in its combined ratio^[9] which is the ratio of losses and expenses to earned premiums. A combined ratio of less than 100 percent indicates underwriting profitability, while anything over 100 indicates an underwriting loss. A company with a combined ratio over 100% may nevertheless remain profitable due to investment earnings.

Insurance companies earn investment profits on "float". Float, or available reserve, is the amount of money on hand at any given moment that an insurer has collected in insurance premiums but has not paid out in claims. Insurers start investing insurance premiums as soon as they are collected and continue to earn interest or other income on them until claims are paid out. The Association of British Insurers (gathering 400 insurance companies and 94% of UK insurance services) has almost 20% of the investments in the London Stock Exchange.^[10]

In the United States, the underwriting loss of property and casualty insurance companies was $142.3 billion in the five years ending 2003. But overall profit for the same period was $68.4 billion, as the result of float. Some insurance industry insiders, most notably Hank Greenberg, do not believe that it is forever possible to sustain a profit from float without an underwriting profit as well, but this opinion is not universally held.

Naturally, the float method is difficult to carry out in an economically-depressed period. Bear markets do cause insurers to shift away from investments and to toughen up their underwriting standards, so a poor economy generally means high insurance premiums. This tendency to swing between profitable and unprofitable periods over time is commonly known as the underwriting, or insurance, cycle.^[11]

[edit]

Claims

Claims and loss handling is the materialized utility of insurance; it is the actual "product" paid for. Claims may be filed by insureds directly with the insurer or through brokers or agents. The insurer may require that the claim be filed on its own proprietary forms, or may accept claims on a standard industry form, such as those produced by ACORD.

Insurance company claims departments employ a large number of claims adjusters supported by a staff of records management and data entry clerks. Incoming claims are classified based on severity and are assigned to adjusters whose settlement authority varies with their knowledge and experience. The adjuster undertakes an investigation of each claim, usually in close cooperation with the insured, determines if coverage is available under the terms of the insurance contract, and if so, the reasonable monetary value of the claim, and authorizes payment.

The policyholder may hire their own public adjuster to negotiate the settlement with the insurance company on their behalf. For policies that are complicated, where claims may be complex, the insured may take out a separate insurance policy add on, called loss recovery insurance, which covers the cost of a public adjuster in the case of a claim.

Adjusting liability insurance claims is particularly difficult because there is a third party involved, the plaintiff, who is under no contractual obligation to cooperate with the insurer and may in fact regard the insurer as a deep pocket. The adjuster must obtain legal counsel for the insured (either inside "house" counsel or outside "panel" counsel), monitor litigation that may take years to complete, and appear in person or over the telephone with settlement authority at a mandatory settlement conference when requested by the judge.

If a claims adjuster suspects underinsurance, the condition of average may come into play to limit the insurance company's exposure.

In managing the claims handling function, insurers seek to balance the elements of customer satisfaction, administrative handling expenses, and claims overpayment leakages. As part of this balancing act, fraudulent insurance practices are a major business risk that must be managed and overcome. Disputes between insurers and insureds over the validity of claims or claims handling practices occasionally escalate into litigation (see insurance bad faith).

[edit]

Marketing

Insurers will often use insurance agents to initially market or underwrite their customers. Agents can be captive, meaning they write only for one company, or independent, meaning that they can issue policies from several companies. Commissions to agents represent a significant portion of an insurance cost and insurers such as State Farm that sell policies directly via mass marketing campaigns can offer lower prices. The existence and success of companies using insurance agents (with higher prices) is likely due to improved and personalized service.^[12]

http://en.wikipedia.org/wiki/Insurance

Related:
Analyzing Insurance Stocks:  The Income Statement
http://myinvestingnotes.blogspot.com/2010/07/analyzing-insurance-stocks-income.html

Betting on a Turnaround: John Paulson makes $1bn betting on Citigroup recovery

John Paulson, the hedge fund manager who became a billionaire after predicting the US housing crash, has seen his fund generate $1bn betting on the recovery of US bank Citigroup.

John Paulson sold almost 83m shares in Citigroup in the third quarter of last year, but still had 424m shares in the bank Photo: EPA

10:19PM GMT 24 Jan 2011

Paulson & Co, the fund he runs in New York, made the disclosure in a letter to its investors, according to Bloomberg News. Bloomberg quotes the letter from Mr Paulson as saying that its investment in Citigroup "demonstrates the upside potential of many of the restructuring investments we have added to our porfolio and our ability to generate above-average returns in large positions".

Mr Paulson sold almost 83m shares in Citi in the third quarter of last year, according to the latest filings with the Securities and Exchange Commission, but still had 424m shares in the bank.

Though Citi's fourth-quarter results fell short of Wall Street's expectations last week, the bank returned to profit last year for the first time since being rescued with $45bn of US taxpayers in 2008. Vikram Pandit, the bank's chief executive, last week had his annual salary lifted from $1 - an amount he had pledged to take until the bank was back in the black - to $1.75m.

Mr Paulson also expects the US economic recovery to accelerate this year thanks to the extension of the tax cuts agreed on by Congress and The White House late last year, Bloomberg reported.

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8280003/John-Paulson-makes-1bn-betting-on-Citigroup-recovery.html

It is Fundamentally Unknowable: An important investing lesson for 2011

An important investing lesson for 2011

Greg Hoffman

January 24, 2011

We understand that it’s fundamentally unknowable but, for some reason, we like to believe that someone can tell us what the future holds. Unfortunately, financial journalists, especially at this time of year, often pander to this desire.

Resourceful investing in 2011 was a typical (and to my mind, potentially misleading) example of the genotype. The article began by citing what “the institutions” foresee in 2011; “higher stock market prices driven by the big and small miners and the groups that supply those companies”.


It went on to say that “(b)y contrast there is no joy in banking, retailing and many other local areas of the economy, including the groups that supply the domestic building industry.”

It’s not clear whether the author is talking about the situation in the real economy, or the prospects for stocks in these sectors - a crucial distinction that’s easy to miss.

Spotting trends in the “real” economy is one thing, but directly translating those trends into projected stock market movements is quite another.

And that’s what the journalist seems to do in the next line; “If that’s the way things are going to be in 2011 then the obvious strategy is to raise the percentage of your portfolio held in miners and mining related stocks.”

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This conclusion does not necessarily follow. The stockmarket is frequently referred to as a “discounting machine”. Investors look to the future and incorporate the trends they believe they can see ahead into today’s share prices.

The journalist's contention that increasing your exposure to mining and mining-related stocks is “the obvious strategy” can only be justified by saying that you expect these companies to perform even better than investors already expect. And they’re expecting rather a lot. Prices in the sector have been on the boil for more than six months.

The opposite applies to the banking, retailing and building-related stocks. The prices of stocks in these sectors have already been belted, incorporating lower future expectations into their prices.

The risk the author runs - and his readers may unwittingly be assuming - is conflating current business trends with future movements in share prices. These are not the same thing.

If investors have done their job properly (and sometimes they don’t), obvious trends should already be fully reflected in current prices. If so, then by increasing the percentage of mining stocks in your portfolio today, as recommended, you risk buying near the top.

Buying some miners and mining-related stocks now may make some sense (we have a handful on our current buy list at The Intelligent Investor) but not for the reasons put forward in the article. As author and fund manager Michael Lewitt says, “The sharemarket is not an economy, even though it plays one on TV”.

Missing out

What makes the advice implied in this article doubly dangerous is that, because the market has already gone up, more people may be susceptible to it; fearing that they’ll miss out on further moves.

The sharemarket can inspire odd behaviour in us. Where else do people get excited when the price of something they are thinking of buying is marked up?

For newer investors, this is a potentially expensive trap, which is why our team has prepared a New Year’s educational program starting on 1 February .

Instead of chasing prices up, losing money and swearing off the sharemarket altogether, I’d rather see investors do what we do in other areas of our lives; take advantage of lower prices (in the next downturn). Instead, inexperienced investors are often scared off by them.

Low prices are usually the result of uncertainty about the future, about things going wrong rather than right. That’s in stark contrast to the illusory clarity offered by forecasters and others interested in predicting the future.

Over the next few weeks, that’s what I'll be focusing on in this column; what might go wrong.

Because genuine stock opportunities are more common when things go awry than when we have what Warren Buffett calls a “cheery consensus”.

This article contains general investment advice only (under AFSL 282288).

Greg Hoffman is research director of The Intelligent Investor.

http://www.smh.com.au/business/an-important-investing-lesson-for-2011-20110124-1a2eg.html

Guinness Anchor Berhad: 10 Years Financial Track Record

Year ended 30th June
    2001         2002         2003         2004         2005         2006         2007          2008        2009        2010 


Revenue 
777,198  788,060  796,595   886,208   952,113   976,013   1,072,112  1,194,602  1,285,423  1,358,633
Profi t before taxation
78,448     93,718   107,363   129,254   140,519    142,211     152,159     168,898    191,178    204,991

Profi t after taxation
58,681     72,401     78,006      98,419    107,968    128,197    112,561    125,857    141,988    152,691
Dividends
82,653*    82,655*    84,831*   91,837*     90,871      91,354      99,239     109,873     123,860  135,944

Year ended 30th June

 2001         2002          2003          2004         2005         2006         2007         2008         2009         2010 

Net Dividend per 50 sen stock unit (sen)
27.4*         27.4*         28.1*         30.4*         30.1         30.2           32.8           36.4         41.0         45.0
Earnings per 50 sen  stock unit (sen)
19.4           24.0           25.8           32.6           35.7          42.4           37.3           41.7         47.0         50.5

Dividends (from Yahoo Finance)

Nov 27, 2008	0.17 Dividend
Nov 28, 2007	0.32 Dividend
May 3, 2007	0.13 Dividend
Nov 6, 2006	0.29 Dividend
May 3, 2006	0.13 Dividend
Mar 30, 2005	0.07 Dividend
Nov 30, 2004	0.14 Dividend
Apr 14, 2004	0.12 Dividend
Nov 4, 2003	0.12 Dividend
Apr 9, 2003	0.12 Dividend

Who will be the top market performer this quarter?

Monday January 24, 2011

PETALING JAYA: If we have to summarise global economic performance in 2010, it would be this: the year reinforced the growing differences in economic growth between the developed economies (the United States, Europe, Japan) and emerging markets.

In particular, South-East Asia had a remarkable year, with the region's economies and stock markets charging ahead.

Thailand, Indonesia and our home market Malaysia took the top three spots in the Top Markets for 2010 list, according to analyses fromFundsupermart.com.

But enough about 2010. Which markets do you think will perform best this quarter (January-March 2011)?