Valuation

To get ahead, be creative.

No matter what a client desired, a good banker could always tweak the numbers a bit and could produce the numbers:

• a higher selling price,
• a lower purchase price, 
• stronger margins,
• lower capital costs.

Valuation Basics

Time Value of Money

Present Value   

Methods of Valuation

Valuation is far more of an art than a science.

"The value of that work is $1 million, because that is what the buyer and seller agreed on."

With detailed valuation models, the key factors that drove a company in the past, along with those which will continue to drive it in the future, can be examined.

Both sides are able to form a better picture of the potential as well as the risks associated with this company.

Through this process of dialogue, they hope to be able to build a consensus.  With a little luck, they just might close a sale.

There are numerous uses for valuation.   

A few of the more common ones are:

• Venture capital
• Initial public offerings
• Mergers and acquisitions
• Leveraged buyouts
• Estate and tax settlements
• Divorce settlements
• Capital raising.
• Partnerships
• Restructuring
• Real estates
• Joint ventures
• Project finance.

Even if you have no dealings in these types of transactions and more specifically, no interest in them, it is important to have at least a basic understanding of the underlying principles and techniques of valuation.

Why?   Because so much of what we do and so much of what governs out personal lives is driven by these principles.

• The simple decision to lease or buy a care is driven by valuation.
• The decision to own or rent an apartment is driven by valuation.
• Changes in the stock market that might affect your job are a function of valuation.

It is important that each one of us understand the basics of valuation because we no longer can rely on the experts on Wall Street, in corporate America, and at the big accounting firms.

Ultimately, we all bear some responsibility because we were the ones who failed to educate ourselves.

Various Methods of Valuation

• Replacement Method
• Capitalization of Earnings
• Excess Earnings Method
• Discounted Cash Flow Valuation
• Comparable Multiple Valuation
• Net Present Value
• Internal Rate of Return

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Tesco Grows Its Market Share For the First Time in 5 Years

The supermarket giant’s turnaround plan appears to be working.

Tesco grew market share for the first time in five years over the last three months, the clearest sign to date that Britain’s biggest supermarket chain is recovering from years of turmoil to accelerate away from rivals.

"Tesco has attracted a further 228,000 shoppers through its doors to help the grocer grow to a 28.2% share of the market – its first year-on-year market share gain since 2011,” said Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel.

“Sales growth has been strongest among family shoppers, while improved trading from its larger supermarket and Extra stores has supported this month’s gains.”

Tesco shares traded up 2% to 205 pence, outperforming Britain’s bluechip index which was trading 0.8% higher.

http://fortune.com/2016/10/18/tesco-sainsburys-market-share/

Interesting Donald Trump tough Interview

Trump versus Clinton: The issues in US election.

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Warren Buffett's US Federal Tax: Are you surprised or amazed by the amount of US Federal tax paid by Warren Buffett?

Warren Buffett released his US Federal tax returns.

He reported an income of about US 40 million and paid about US 2 million last year.

I am surprised by the small amount of reported income and Federal tax he paid relative to his actual wealth in the US billions of dollars.

However it is all legal within the tax code.

He receives US 100,000 a year in salary for managing Berkshire Hathaway.

This too places him in a lower tax bracket.

This US election has provided insights into how the rich uses the tax code to pay the minimum amount of tax legally.

The tax code should be revamped to seal up all the loop holes and simplified too.

The tax accountants are doing a great job reducing the taxes of the super rich.

It is not illegal but is it fair and reasonable?  

Top Glove achieved another record performance despite intense competition

PRESS RELEASE
Top Glove CorporationBhd


TOP GLOVE MARKS ANOTHER RECORD YEAR

Group achieves historical highs in Revenue and Profit

Shah Alam, Wednesday, 12 October 2016 – Top Glove Corporation Bhd (“Top Glove”) today announced its results for the Fourth Quarter (“4QFY16”) and full year ended 31 August 2016 (“FY2016”), marking yet another record year, with historical highs in both full year Revenue and Profit.

Posting another outstanding performance for the financial year 2016, the Group attained its highest Revenue ever of RM2.9 billion, an increase of 15.1% over FY2015. Meanwhile Profit Before Tax and Profit After Tax each also registered record highs, at RM442.6 million and RM362.8 million,
respectively representing an upturn of 21.8% and 29%. Volume (quantity sold) was also at an all-time high, notwithstanding intensifying competition and pricing pressure.

The robust set of numbers was attributed to several improvement initiatives which have proven instrumental in enhancing quality and cost efficiency, the twin pillars of Top Glove’s time-tested success formula. A stronger USD, as well as lower raw material prices earlier in the financial year, also boosted the Group’s performance.

For 4QFY16, the Group achieved Revenue of RM722.1 million and Net Profit of RM65.8 million, delivering growth of 7.4% and 4.8% respectively, compared with 3QFY16, notwithstanding intensive competition and cost increases stemming from hikes in minimum wage, as well as the natural gas tariff.

On a year-on-year comparison, 4QFY16 results were relatively softer, with a marginal increase in Revenue of 1.8%, while Profit After Tax declined by 36.2%. The less favourable comparison came on the back of a challenging environment in 2HFY16, as tailwinds from 1HFY16 gradually turned to
headwinds. Increased competition in the second half of the financial year also led to a downward revision of the average selling price, while volatility in raw material prices and forex created a mismatch in the cost pass-through system.

On Top Glove’s performance, its Executive Chairman, Tan Sri Dr Lim Wee Chai remarked, “We have done well in FY2016. Amidst a challenging business environment with substantial cost increases and intense competition, we have achieved another record performance and our best year yet!” “This is a credit to the internal quality and efficiency enhancements we have been implementing continually, as well as our management team and staff, who have worked hard to ensure we deliver a performance worthy of the Top Glove name” he added.

Top Glove which celebrates its 25th anniversary this year, remains on expansion mode. The Group completed the expansion of Factory 27 (Lukut) in August 2016 while the expansion of Factory 6 (Thailand) is expected to be completed by November 2016. Meanwhile, in progress is the construction of a new facility, Factory 30 (Klang), expected to commence production by April 2017, by which time Top Glove will have a total of 540 production lines and a production capacity of 52.4 billion pieces of gloves per annum. With a view to expanding its production capacity, the Group also recently acquired a factory in Klang (Factory 31). The facility is estimated to be able to produce 6 billion pieces of gloves per annum, with Phase 1 targeted to be operational by mid-2017. Top Glove will continue to pursue M&A opportunities that synergise with its current business, both in similar or related industries.

On 28 June 2016, the Group successfully completed its secondary listing on the Mainboard of the Singapore Exchange, an exercise undertaken to add and create value for its shareholders and stakeholders.

Honouring its commitment to enhance shareholder value, the Board of Directors has proposed a final dividend of 8.5 sen, bringing the total FY2016 dividend payout to 14.5 sen, subject to shareholders' approval at the upcoming AGM in January 2017. This represents a 26% increase in dividend per share compared with the previous financial year and a dividend payout ratio of 50.3%.

As at 31 August 2016, the Group also maintained a healthy balance sheet and a positive net cash position of RM303.7 million.

Top Glove foresees a competitive business landscape ahead, with the likelihood of oversupply and eventually, industry consolidation taking place. However, the Group is confident of overcoming any challenges that may arise by enhancing its cost management and optimising the efficiency of its production lines. The Group views the potential consolidation as an M&A opportunity.

Notwithstanding its commendable results, Tan Sri Dr Lim asserts, “We do not take our achievement for granted. Continuous improvement in quality and efficiency is our duty and an ongoing journey for us. This will ensure we stay healthy and competitive for another 25 years and beyond”.




http://www.financialreport.biz/File/2016/10/12/7113%20-%201308477838029.pdf

Investing in economic moats. A lot of investors wasted time on margin of safety and suffered a large opportunity cost.

Overestimating and Underestimating an Economic Moat

For those who invest into economic moats, be mindful of two possibilities.

1.   Overestimating a moat:  

This means (over-)paying for value creation that will never materialize.

2.   Underestimating a moat:

This means there is a large opportunity cost.  

On finding a good business opportunity, invest in it as it is going to compound at high rate.  

This avoid the suffering of opportunity cost.

Wasting time on margin of safety and not a lot on opportunity cost is the problem of a lot of investors.



Moats matter in a long run.

Most of the investors own securities for a short period of time.

Moats matter in a long run.

Most investors focus on short-term changes in price and not long term changes in moats.

Finding moats means finding efficiency of business.


Quantitative versus Qualitative factors

The quantitative data in market tends to be very efficiently priced.

Qualitative insight is understanding the structural characteristics of the business.

All the information is in the past, but all the value is in the future.

The future value creation will come from the things you see today and not necessarily the information that occurred in past.

The economic moats have a significant effect in keeping the organizations at the top and it is a good defense of an organization against competitors.


http://investingjournal.io/investing/economic-moats-pay-dorsey/

Investing in Economic Moats

High profits attract attention which makes more people invest.

As a result,the profit of companies decreases over time for most of the companies as competition comes in.

There are companies who defy economic gravity by creating structural advantages, economic moats.

The moats insulate and buffer them against competition.

Thus, they keep super-normal returns on capital for a longer duration.


Insight of intangible assets having effect on Moats

1. Brands

Being well known is not sufficient.

There needs to be a change in the consumer behaviour by increasing the willingness to pay or reducing the search costs thus resulting in the increase of the value of the company.

2. Patents

Despite being legal, they are subject to expiry, challenge and piracy.

To rely on patents as a moat there is need of portfolio of them as it is hard to invalidate one or the other.

3. Licenses/approvals

It is not easy to get a license or approval and it serves as a solid moat.




Restraints to try new businesses

1.  Switching cost effect

Switching to competitive products is expensive and time-consuming.

Service relationships can be sold in the form of maintainance by attaching a service to the product.

By providing high benefit to cost ratio, it is more beneficial when switching business is being looked for.


2.  Network effect

There are two types of networks - radial and interactive.

Radial networks are less effective and robust.

By providing the service that increases the value of the company as the number of users expand and aggregate demand is increased between parties scattered at different places.

As soon as the number of nodes and connections is increased the network becomes hard to replicate thus becoming a strong moat.


3.  Cost Advantages

Process:  By inventing a cheaper way to deliver a product that cannot be replicated quickly.

Scale:  Spread fixed costs over a large base.  Relative size matters more than absolute size.

Niche:  Establish minimum efficient scale.



Role of Management

Management plays an important role in moats.

Managerial skills are inversely proportional to the quality of business.

Good managers look for ways to widen the companies moat.

Bad managers invest capital outside company's moat.



http://investingjournal.io/investing/economic-moats-pay-dorsey/

Advantages of Moats. Moats matter a lot as it adds to the intrinsic value of the company.

Advantages of Moats

Moats can buffer the mistakes of management and save the business from complete disaster because the business was strong and robust (e.g. Microsoft and New Coke).

Local differences can create moats.

Foreign companies are not allowed to own banks thus allowing Canadian banks to be more profitable.

Minimum efficient scale is more common as big companies may not invest in small businesses thus giving complete ground to the small companies.

Cultural preferences matter a lot since the things famous in one country might not do well in another country (e.g. food products), thus allowing these businesses to build moats around them.


Moats matter a lot as it adds to the intrinsic value of the company.

A firm which can compound cash flow for many years has more worth than the firm which cannot.

Companies with no moats, capital comes down fast, as compared to the companies with greater moats.

The value of an economic moat is also largely dependent on reinvestment opportunities.

The ability to reinvest a lot of cash at high incremental ROIC would make it a very valuable moat.

If a firm has little ability to reinvest it would add a little to the intrinsic value of the moat.

Moats are not limited only to big companies.

Moats are beneficial in creating stability and building confidence.


Role of Management

Management plays an important role in moats.

Managerial skills are inversely proportional to the quality of business.

If the business is good, an average management would also do fine.

For bad business, a good manager is required.

Good managers look for ways to widen the companies moat.

Bad managers invest capital outside company's moat.

There are exceptions where a good manager can do good in bad businesses.

http://investingjournal.io/investing/economic-moats-pay-dorsey/

Warren Buffett & Charlie Munger - 2016 Berkshire Hathaway Shareholder Meeting Highlights

Warren Buffett: Game Changers

Warren Buffett: The Teacher

Scientex matches products with markets to boost sales

September 27, 2016, Tuesday


KUCHING:

Industrial and Consumer Packaging Products

Scientex Bhd (Scientex) has started to make in-roads into new markets for both its industrial and consumer packaging products based on different marketing strategies adopted for specific markets to boost sales demand.

“The group continues to emphasise on quality products and to this end, the ongoing upgrading of facilities and commissioning of new machinery in its Rawang, Pulau Indah, Ipoh and Melaka plants,” the group said in releasing its results yesterday.

“Further, to remain competitive in the global market place and as part of its on-going efforts to boost (profit) margins, the group has taken pro-active steps to enhance its operational efficiency through its continuous efforts to reduce cost and wastages.”

Additionally, the group’s brand new castpolypropylene (CPP) plant is slowly building up its production capacity to meet the demands of its customers whilst the group’s brand new state-of-the-art multi-million biaxially oriented polypropylene (BOPP) film manufacturing plant at Pulau Indah has started testing and commissioning works since July 2016 with full commissioning and commercial operation slated by the second half of the year.

“The group is confident that given the strategies put in place, demand from both local and overseas for its industrial and consumer packaging products is expected to be positive for the coming financial year as it offers quality products with a wider and diversified product portfolio to its expanded global customer base,” Scientex said.



Property Division

Moreover for the property division, Scientex believed the group’s performance for the quarter ended July 2016 was focused primarily on affordable homes in Pasir Gudang, Senai and Kulai projects in Johor where demand remained resilient and robust.

For the quarter ended July 2016, Scientex noted the group was on track and launched its latest Pulai land development which was successfully acquired in early 2016.

“The phenomenal demand for its initial two maiden launches under this development has given a strong boost to the group and plans are underway to tap the huge demand for such affordable homes within the vicinity of this region.

“One of its main attraction is the construction of a new link road by the group that has improved connectivity and accessibility to Gelang Patah, Johor. The upcoming completion of the proposed Kangkar Pulai Interchange to the SecondLink has also boosted the viability and location of this development,” the company observed.

Apart from that, the group also seek to address rising constructional costs by incorporating innovative designs, blending with the environment and tapping operational efficiencies to reduce costs and wastage.

Scientex said its township development projects were all well designed to optimise the use of land space through efficient land usage, density and systematic execution of works to boost operational margins and reduce financing costs through better cash flow management and timing of its launches.

The company noted the group is making preparations for the launch of its two pieces of lands in Ipoh of which vacant possession for its Klebang land has been taken over recently and poised to be launched in the first or second quarter of the coming financial year.

The Meru land acquisition is expected to be completed in September with a maiden launch to be held thereafter, further boosting the sales of the group from these new projects over the medium and longer term.

The group foresees the affordable housing segment will continue to play a pivotal role in contributing to the group’s top and bottomline for the coming financial year.


http://www.theborneopost.com/2016/09/27/scientex-matches-products-with-markets-to-boost-sales/

Scientex’s 4QFY16 earnings up 11 per cent to RM54.14 million, revenue grows to RM561 mln

September 27, 2016, Tuesday


KUCHING: Scientex Bhd’s (Scientex) earnings for the fourth quarter of 2016 (4QFY16) ended July 2016 gained by 11 per cent year-on-year (y-o-y) to RM54.14 million from RM48.91 million recorded in 4QFY15 ended July 2015.

The company in a filing to Bursa Malaysia yesterday said 4QFY16 revenue grew by 24 per cent y-o-y to RM561.06 million from RM452.49 million in 4QFY15.

Scientex noted the improved revenue for 4QFY16 was attributed to higher sales from its property division.

The company in its accounts notes said property revenue recorded in 4QFY16 was RM188.4 million as compared with RM132.6 million in the preceding year corresponding quarter, an increase of 42.1 per cent.

The increase in revenue for the property division was contributed by the steady construction progress and new sales achieved from projects in Johor and Melaka.

However, Scientex noted profit from the division’s operations was lower at RM58.2 million as compared to RM61.5 million in the preceding year corresponding quarter due to product mix for the new project launches in Pasir Gudang, Johor.

Additionally, Scientex shared that its manufacturing revenue increased by 16.5 per cent y-o-y for 4QFY16 to RM372.7 million as compared with RM319.9 million generated in 4QFY15.

The company explained that the increase was attributed to higher contribution from the consumer packaging products as well as contribution from the newly acquired Scientex Great Wall Ipoh Sdn Bhd.

Earlier, on August 5, 2015, Scientex announced that its wholly-owned subsidiary Scientex Packaging Film Sdn Bhd (SPFSB) had entered into a share purchase agreement with Mondi Consumer Packaging International GmbH to acquire Scientex Great Wall (Ipoh) Sdn Bhd for RM58 million with the transaction completed on August 11.

However, Scientex said its operational profit from the manufacturing segment decreased to RM15.9 million from RM24.8 million due to lower product profit margins.

For the full financial year 2016 (FY16) ended July 2016, Scientex said revenue rose by 22 per cent y-o-y to RM2.2 billion while net profit jumped by 52 per cent y-o-y to RM240.87 million.

Scientex noted that the improved profit was attributed to better sales achieved for both the property and manufacturing

http://www.theborneopost.com/2016/09/27/scientexs-4qfy16-earnings-up-11-per-cent-to-rm54-14-million-revenue-grows-to-rm561-mln/

Mixed feedback on Genting Malaysia selling stake in HK branch

October 5, 2016, Wednesday


KUCHING: Genting Malaysia Bhd (Genting Malaysia) latest move in disposing of the group’s entire 16.9 per cent stake in Genting Hong Kong Limited (Genting Hong Kong) has garnered mixed reactions from analysts.

In a filing on Bursa Malaysia, Genting Malaysia announced the group’s disposal of 1.43 billion ordinary shares in Genting Hong Kong, representing 16.87 per cent of the then total issued and paid-up share capital of Genting Hong Kong, for a total cash consideration of US$415 million or the equivalent of approximately RM1.71 billion.

According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), although this is a related party transaction (RPT), it is a positive move as the non-core stake in Genting Hong Kong has not much impact on Genting Malaysia while the disposal proceeds can be better applied for the latter’s expansion program, such as the RM10.38 billion Genting Integrated Tourism Plan (GITP) development.

“In fact, Genting Hong Kong used to be a wildcard and impacted Genting Malaysia badly in which the latter owned more than 20 per cent stake, which qualified for equity accounting.

“However, since Genting Malaysia reduced its stake to below 20 per cent in 2007, the impact from Genting Hong Kong became immaterial,” Kenanga Research said.

While the announcement did not disclose the disposal gain/loss of this divestment, Kenanga Research believed the impact was small given that the Genting group always reported mark-to-market value on their investments in listed companies on a quarterly basis.

However, the research arm made adjustments to its earnings model to reflect this disposal as the proceeds will affect interest income while it has also made upward adjustment on Genting UK and the North America earnings following their strong numbers in the first half of 2016 (1H16).

In all, the research arm upgraded financial year 2016 estimate (FY16E)/FY17E earnings by eight per cent/six per cent.

In contrast, the research arm of Hong Leong Investment Bank Bhd (HLIB Research) was neutral on this disposal as it is a RPT and the disposal price of US$0.29 is at the minimum price allowed under the mandate (in spite at a 8.2 per cent premium to five days volume weighted average market price (VWAMP)) compared to the average purchase cost of US$0.42.

HLIB Research noted that this disposal allows Genting Malaysia to monetise the group’s loss-making investment in Genting Hong Kong which provides minimal income yield (total dividend received RM106 million versus total investment of approximately RM4.12 billion since 1998)!!!!!!!!!!!!.

“The proceeds of RM1.71 billion can be put into better use for its working capital and capex for its expansions, while maintaining net cash position,” the research arm said.

The research arm further noted that having classified the investment as assets held for sale since year 2015 with a carrying value of RM1.74 billion, there will be a one-off accounting gain on disposal of circa RM1.23 billion after the reclassification of reserves (previous year revaluation and foreign exchanges gain/losses).

On another note, HLIB Research said that potential loss of dividend income from Genting Hong Kong is rather negligible given the inconsistency of dividend payment and the quantum.

Dividend received in FY15 was about RM56 million, which was circa 3.8 per cent of the research arm’s FY16 forecasted profit after tax and minority interest (PATAMI).

“This level of yield can be easily recouped from interest bearing deposit or interest savings from the proceeds,” it said.

Forecast-wise, HLIB Research imputed the effect of the disposal into its balance sheet ignoring the one-off gain/loss/reversal arising from the transaction with no change in earnings.

“We opine that growth in 2017 on higher visitors from the amenities under GITP has been largely priced in, impending for more exciting catalysts in 2018.

“Meanwhile, we are still wary on the uncertain overseas operations, the potential risks in execution and the high cost involved,” the research arm said.


http://www.theborneopost.com/2016/10/05/mixed-feedback-on-genting-malaysia-selling-stake-in-hk-branch/

German minister accuses Deutsche Bank of making speculation

October 4, 2016, Tuesday


TEHRAN: German Economy Minister Sigmar Gabriel accused Deutsche Bank on Sunday of blaming speculators for last week’s plunge in its share price when the bank had itself made speculation its business.

“I did not know if I should laugh or cry that the bank that made speculation a business model is now saying it is a victim of speculators,” Gabriel told reporters on a plane to Iran, which he is visiting with a business delegation.

Deutsche, which is Germany’s largest bank and employs around 100,000 people, has been engulfed by a crisis of confidence after the US Department of Justice handed it a demand last month for it to pay up to US$14 billion to settle claims that it missold US mortgage-backed securities before the financial crisis.

The threat of such a large fine has pushed Deutsche shares to record lows and a deal at a much lower price is now urgently needed to reverse the shares sell-off and help to restore confidence in Germany’s largest lender.

Chief executive John Cryan on Friday tried to reassure staff of the bank’s financial strengths in a letter which warned them that “new rumours” were causing the share price to fall and that there were “forces” that wanted to weaken confidence in the bank.

Gabriel, who is also leader of the Social Democrats (SPD), the junior partner in Angela Merkel’s coalition government, said he was worried about those who were employed by the lender.

The problems of Deutsche Bank are awkward for Berlin, which has berated many euro zone peers for economic mismanagement and taken a hard line on other EU nations giving state aid to bail out their problem banks.

Last week the German finance ministry moved swiftly to dismiss a report that a government rescue plan was being prepared in case Deutsche Bank was unable to raise sufficient new capital to settle litigation which includes cases dating back to its expansion before the financial crisis.

With Germany facing elections next year, there is little political appetite for helping a group disliked by many Germans because of its investment bank’s pursuit of business abroad that resulted in incurring billions of euros of penalties for wrongdoing.

— Reuters

Scientex’s FY17 earnings outlook remains promising

October 3, 2016, Monday


KUCHING: Scientex Bhd’s (Scientex) financial year 2017 (FY17) earnings outlook has been viewed as promising, following a results briefing at the newly constructed biaxially oriented polypropylene (BOPP) plant in Pulau Indah.

According to RHB Research Institute Sdn Bhd (RHB Research), Scientex’s highly anticipated BOPP film plant, which would raise capacity ten-fold to 60,000 tonnes, come into operation in September.

“The new plant was part of a strategic alliance with Futamura to employ advanced Japanese film-manufacturing technology to produce high-quality BOPP films.

“As we understand, the BOPP film supply landscape in Malaysia presents promising market potential for Scientex, as the bulk of local demand for BOPP film is currently imported.

“Secondly, its state-of-the art BOPP facility would allow cost-efficiencies to ensure price competitiveness, while offering high quality films that local competition may lack,” the research house said.

On Scientex’s property division, RHB Research noted that new property sales rose a solid 30.8 per cent year on year (y-o-y) to RM794 million in financial year 2016 (FY16) (July).

“Management has plans to launch projects worth about RM700 million in FY17, after achieving targeted launches of approximately RM650 million in FY16.

“Going forward, management plans to direct its focus on affordable housing below the RM500,000 per unit mark, where demand for housing remains resilient,” the research house said.

It added that unbilled sales stood at RM717.2 million in FY16, compared to RM584.9 million in FY15, and would provide earnings visibility for the next few years.

Meanwhile, the research arm of TA Securities Holdings Bhd (TA Research) highlighted that# for the property segment, the group is looking to complete the Meru land acquisition in September 2016 with maiden launch to be held in the second quarter of 2017 (2Q17).

“This will help to boost the sales of the group from these new projects over medium to longer term,” TA Research said.

TA Research noted that the group will be focusing on improving efficiencies by reducing costs and wastage.

The research arm further noted that this could be achieved through better planning and systematic execution of works, coupled with better cash flow management to lower the financing cost.

After imputing FY16 results, TA Research tweaked its FY17-FY19 earnings estimates slightly upwards by 1.8 per cent/-2.1 per cent/0.9 per cent to RM311.4 million/RM363.1 million/RM379.3 million respectively, following some changes in key assumptions (which are revenue and operating expenditure (opex).

All in, TA Research maintained ‘buy’ on the stock.

On the other hand, RHB Research kept its FY17 to FY18F earnings relatively unchanged and introduced its FY19 projection.

It also maintained ‘buy’ on attractive valuations and exciting growth plans in Scientex’s manufacturing segment.


http://www.theborneopost.com/2016/10/03/scientexs-fy17-earnings-outlook-remains-promising/

Security Commission proposals push REITs in the right direction

September 30, 2016, Friday Ronnie Teo


KUCHING: Analysts laud the Securities Commission’s (SC) consultation paper to revise its guidelines for Malaysian Real Estate Investment Trusts (M-REITs) seen as a positive step in the right direction.

The guidelines aims to enhance M-REITs’ growth by broadening the scope of permitted activities, improve governance to safeguard investors and maintain long-term sustainability, and increase efficiency by streamlining post listing requirements.

The main highlight is Proposal 1 for Property Development Activities, which essentially allows M-REITs to undertake greenfield development subject to the development not exceeding 15 per cent of the REITs enlarged total asset value (TAV) in aggregate, thus capping the exposure to development risk.

“All in, we are positive on Proposal 1,” highlighted researchers with Kenanga Investment Bank Bhd (Kenanga Research).

“Although there is no accretion to earnings in the near term, and is only earnings positive in the longer run, we expect news flow on greenfield development to bode well for share price sentiment and valuations.

“We view Proposal 1 positively as it allows REITs to grow earnings given limited opportunities for accretive acquisitions in the current low cap rate conditions.

Kenanga Research observed that current cap rates for retail assets range between four to six per cent, while the rate was between six to eight per cent for industrial assets.

“M-REITs would be able to own assets at lower capital outlays; essentially, the real return on investment on development cost will be better than buying already completed buildings, which are based on market value with lower asset financing cost.

“Additionally, there is the icing on the cake when the greenfield development is completed, arising from revaluation exercise to reflect market valuation, which will further boost their asset and book value without additional cash-outlay.

“This opens the door of opportunity for M-REITs’ earnings growth in the longer run and will help alleviate the burden of low cap rates plaguing the market currently, but the impact to earnings is expected to be neutral in the near term, and accretive only in the longer run post construction.”

It is also important to note that the new guideline stipulates that the REITs would have to hold the assets for a minimum of two years post development, making it unlikely for the REIT to take on development unnecessarily unless there is a clear demand for it.

“We believe industrial REITs would be the main beneficiary. Although all M-REITs would be able to benefit from Proposal 1 by gaining higher development cost yields, we believe industrial REITs may fare better as development cost for industrial assets may be cheaper than retail, while it would also be easier for industrial MREITs such as Axis REIT to find a pre-committed tenant as it can operate on fewer tenants or a single tenant basis,” it said.

“To note, retail M-REITs require multiple tenants and may not be able to secure a pre-commit during or before construction. As such, retail M-REITs have greater leasing risk, which we believe can be mitigated should the REITs have extensive tenant network to leverage on.”

The firm was all in positive on SC’s list of Proposals, as it expect news flow related primarily to Proposal 1 to 4 to bode well for share price sentiment and valuations, with minimal impact to earnings in the near term.

“Besides Proposal 1, Proposals 2 to 4 are expected to be beneficial to unitholders as it is catered towards facilitating earnings growth by increasing the scope of permitted activities by M-REITs, making it easier for them to secure tenants or minimise vacant space,” it added.

“Proposal 5 on unit buy-backs aims to lend stability to share price and is a form of returning cash to unitholders, while Proposal 6 will help limit balance sheet risks amidst increased exposure to property development.

“Proposals 7 to 10 are catered towards enhancing governance and transparency which we view positively as it will benefit shareholders as it aims to protect shareholders and ensures the sustainability of M-REITs without burdening the managers.

“Additionally, Proposal 11 (revaluation of assets) which is also targeted at enhancing governance, requires the REIT to revalue its assets once every financial year versus once in three years previously, which we view as neutral impact to unitholders.

“Although frequent asset valuations capture the assets current market value which is beneficial for transparency to unitholders, asset revaluations do incur additional costs, while volatile property market conditions may affect capital values of the assets, and may negatively impact the REITs gearing ratio,” it added.

Proposals 12 to 13 are geared towards streamlining post listing requirements allowing MREITs to be on par with other listed corporations, including the process for rights issuance which is currently longer and more arduous for M-REITs.

Other proposals include Proposal 14 (Property Management) will be beneficial to investors and managers as it aligns the interest of the REIT Manager with the property manager.

Proposal 15 (Internal Management) will be beneficial to investors as it forces the existing REIT manager to perform, while failure to do so will allow a ‘Change of the REIT Manager’ (Proposal 9), giving shareholders the option to remove the existing manager and allow the REIT to be managed by hiring executives to internally manage the REIT.

Lastly, Proposal 16 which limits the offer of unlisted REITs to Sophisticated Investors aims to protect investors that do not have privy access to information to invest in an unlisted REIT.

http://www.theborneopost.com/2016/09/30/security-commission-proposals-push-reits-in-the-right-direction/

Scientex starts operations of Malaysia’s largest BOPP film manufacturing plant

September 30, 2016, Friday

KUCHING: Global packaging manufacturer Scientex Berhad (Scientex) yesterday inaugurated operations of its new BOPP film manufacturing plant – the largest such facility in Malaysia in Pulau Indah, Selangor.

The new plant, boasting an annual production capacity of 60,000 metric tonnes (MT), was constructed in collaboration with Futamura Chemical Co., Ltd (Futamura), a leading plastic films manufacturer and the largest BOPP film manufacturer in Japan.

The plant was built at a cost of RM220 million, and is equipped with state-of-the-art machinery from Japan Steel Works Ltd, capable of wider-web and higher-speed film production.

The plant was officially opened by Deputy Minister of International Trade and Industry Datuk Ahmad Maslan in the presence of consular representative of Japan in Malaysia Kohei Nakamura, and Futamura president Yasuo Nagae together with Scientex chairman Tan Sri Mohd Sheriff Mohd Kassim, managing director Lim Peng Jin, and executive director Choo Seng Hong.

During the event, Lim said the plant inauguration marks an important milestone for Scientex, as it combines Japan’s technological prowess with Scientex’s manufacturing efficiency to produce high quality BOPP film for domestic and regional markets in Asia Pacific.

“We look forward to fulfilling anticipated strong market demand, as Malaysia presently imports most of its BOPP requirements due to a shortage in local supply.

“We also strive to capture new growth opportunities in the regional markets.

“This is certainly a pivotal moment for our consumer packaging business, as we are now one step ahead in realising our target of becoming a leading single-source provider of international-quality consumer packaging films in the region.”

BOPP film forms the protective outer layer of flexible consumer packaging, and is commonly used in the food and beverages industry.

Futamura holds a 10 per cent shareholding in Scientex Great Wall Sdn Bhd (SGW), the Group’s consumer packaging unit, and would purchase approximately one third of the new plant’s annual BOPP film production.

Lim said that the group is actively targeting growth in sales to local and regional players.

“We have been aggressively marketing our high-performance BOPP film to several packaging players both domestically and regionally, and have also conducted product trials with them.

“We are pleased to receive commendable feedback to date, and look forward to commence supply to them in the near term,” Lim concluded.

http://www.theborneopost.com/2016/09/30/scientex-starts-operations-of-malaysias-largest-bopp-film-manufacturing-plant/