Billion Ringgit Club: Taking PPB’s gems beyond Wilmar’s shadow

Written by Cindy Yeap of theedgemalaysia.com
Tuesday, 25 September 2012

When “Sugar King” Tan Sri Robert Kuok decided in 2007 to spin off PPB GROUP BHD []’s oil palm PLANTATION []s and edible oils business to hold a sizeable stake in Wilmar International Ltd, led by his nephew Kuok Khoon Hong, he probably did not expect the Singapore-listed Wilmar to dictate PPB’s earnings and share price as it does today.

After all, Wilmar only began to make up more than two-thirds of PPB’s earnings two years later following the surprise sale of PPB’s sugar business the Malaysian government in January 2010.

Whatever the circumstances, analysts are finding it tough to make a case to call PPB a “buy” on its own merit today due to the volatility seen in the share price and profit of its 18.32% owned associate Wilmar.


“With over 70% of its earnings coming from Wilmar, you’re basically taking a view on Wilmar rather than PPB,” said one senior analyst.

While some of PPB’s own portfolio of businesses such as the Massimo bread business, are showing decent growth, the analyst points out earnings from PPB’s PROPERTIES [] and wastewater management businesses can also be volatile, while the flour milling and livestock farming business face thin margins and tepid utilisation rates. Even PPB’s film exhibition and distribution business under Golden Screen Cinemas (GSC) continues to face competition from smaller players and piracy.

“The only positive is that the group has been in the commodities and consumer businesses for a long time and if anyone can ride through the volatility, it would be them,” the analyst added. “Anyone who buys them has to take a long-term view.”

PPB’s new managing director Lim Soon Huat, 47, admits there is little PPB can immediately do to outrun Wilmar’s shadow.

Lim has been managing director for only two months, but he has been with the Kuok Group in Singapore, Thailand, Hong Kong and China for over 15 years and had been on PPB’s board as non-executive director since May 2008. Lim helped oversee the Kuok Group’s investments and operations in Indonesia, which include flour milling, sugar cane plantations, sugar milling and hotels,” PPB’s latest annual report read.

It remains to be seen if Lim’s appointment signals increasing investments by PPB in the archipelago where Wilmar has easily 20% of the branded cooking oil business.

“I’ll definitely be spending more time [in Kuala Lumpur] now,” Lim told The Edge Financial Daily on
sidelines of a recent briefing.

Both Wilmar and PPB’s stock prices skidded to their lowest in over three years after Wilmar announced its second back-to-back quarterly loss for its oilseeds trading business in the second quarter ended June 30 — the second such occurrence the past eight quarters since the second half of 2010.

As a result, profit contributions from Wilmar plunged 52% to RM209 million in the first half of 2012,
causing PPB’s group earnings to dip 46% year-on-year to RM302 million.

Both stocks rebounded last week after news got out that Wilmar made its first-ever share buyback on Sept 13, paying S$3 (RM7.50) apiece or S$22.19 million to purchase 7.39 million shares or 0.115% of its share base from the market.

As for PPB, Bursa Malaysia filings showed the Employees Provident Fund (EPF) among recent buyers of PPB shares as its stock plunged. The EPF had 9.92% of PPB as at Sept 6, up from 9.65% in late February.

For his part, Lim said PPB does not expect significant changes in contribution mix from its six business segments in the near term but promised PPB is working hard to grow its core businesses.


Of the RM104 million profit from PPB’s own businesses in the first half of 2012, some 63.5% were from grains trading and flour milling. Film exhibition and distribution contributed 18.8% to group earnings; properties 12.53%; consumer products 8.37%, waste management 4.88%, while the livestock business was loss-making.

He also gave little hints on whether PPB would consider spinning off GSC to get PPB back on the syariah-compliant investment list, and declined to outline a specific dividend policy for PPB apart from a commitment to return excesses to shareholders after considering its capital needs.

Some RM467 million has been earmarked to expand its flour, cinema and property businesses over the next two years, some 73% of which is to expand its flour businesses in China, Vietnam and Indonesia.

It is worth noting, though, that PPB and Wilmar were bound even more tightly together in December 2010 after PPB sold a 20% stake in its flour milling arm FFM Bhd to Wilmar. In return, FFM bought a 20%
stake in Wilmar’s flour milling businesses in China where flour mills are built to make other products like instant noodles as well.

Wilmar, which has some 50% of China’s branded cooking oil business, is keen to leverage its distribution strength to market other consumer products. On Sept 24, for instance, Wilmar announced a joint venture with New York-listed Kellogg Co, which owns the Kellogg’s and Pringles brands, to manufacture and distribute cereal and snacks in China.

The Kuok Group had just over 50% of PPB and about 32.35% of Wilmar as at May this year, including the 18.32% held by PPB. While Lim said PPB has no immediate intention of raising its interest in Wilmar, Singapore takeover rules allow the Kuok Group to buy up to 2% of Wilmar shares every six months without triggering a buyout. Singapore’s mandatory offer threshold is 30% and not 33%, as in Malaysia.

Some market watchers expect more of Robert Kuok’s agriculture and consumer-related businesses to eventually find their way into Wilmar’s fold, pointing out that PPB and Wilmar are already working together to expand the flour businesses in the region.

Analysts, however, are looking out for signs of a turnaround at Wilmar.

If Wilmar succeeds in beating expectations, PPB — which is among 144 companies that qualified as members of The Edge Billion Ringgit Club (BRC) for 2012 — would stand to gain.

This article is appeared in The Edge Financial Daily on 25 September, 2012.

Even Lousy Investing Beats Not Investing

By Chuck Saletta September 18, 2012

It wasn't that long ago that we suffered through a period of time in the stockmarket that has come to be known as "The Lost Decade." The 10-year period between the start of January 2000 and the end of December 2009 was one of the worst for stock market performance, ever.

Yet even during those dark times, one very straightforward strategy would have allowed you to just about break even -- or perhaps even make a few bucks along the way. All you would have had to do is dollar-cost average into the low-cost market-tracking SPDR S&P 500 (NYSE: SPY  ) ETF and reinvest the dividends you received. That's one of the simplest ways to invest, and that strategy -- or one essentially equivalent to it -- is very often available in 401(k)s and other retirement accounts.

Although those returns were lousy, both in absolute terms and when compared to the market's long-run average, there's one strategy that it certainly beat: not investing at all.

The act that matters most
When all is said and done, doing what it takes to invest in the first place matters at least as much as the actual returns you get on your invested cash. There are several reasons for this. Perhaps the most obvious is that if you never put any money away at all, no rate of compounding will get that goose egg to ever be anything but a goose egg.

But on another, more subtle level, the act of investing itself matters because making the commitment to do it well requires the rest of your financial house to be in order. You need to be in control of your debts and have enough cash coming in not only to pay your bills, but also to put some away for your future. In essence, investing takes discipline -- the exact same type of discipline that will help you manage whatever sized nest egg you do manage to amass over your investing career.

Your potential $1 million payout from "lousy" investing

A typical working career may last in the neighborhood of 45 years. Having and keeping a consistent investing plan throughout that journey may seem like a daunting task, especially if we suffer through many more of those "Lost Decades." Still, as the table below shows, the reward at the end of the 45-year process may well be over $1 million, even while earning consistently lousy 2% annualized returns:

Monthly Investment	-1% Annual Returns	0% Annual Returns	1% Annual Returns	2% Annual Returns
$0	$0	$0	$0	$0
$100	$43,499	$54,000	$68,162	$87,466
$200	$86,998	$108,000	$136,324	$174,931
$300	$130,497	$162,000	$204,487	$262,397
$400	$173,996	$216,000	$272,649	$349,863
$500	$217,495	$270,000	$340,811	$437,328
$750	$326,242	$405,000	$511,216	$655,993
$1,000	$434,990	$540,000	$681,622	$874,657
$1,250	$543,737	$675,000	$852,027	$1,093,321
$1,416	$615,945	$764,640	$965,177	$1,238,514

Source: Author's calculations.

Granted, to reach the bottom line of that table, you'd have to contribute the maximum allowable $17,000 to your 401(k) throughout your career. Still, the $1 million nest egg at the end is an incredibly impressive result for only managing 2% annualized returns. No matter how challenging it may seem to sock away more than $1,400 a month, note what happens on that top line. If you don't invest at all, when it comes time to retire, you won't have anynest egg to tide you through your not-so-golden years.

The joys of lousy investing

Once you realize how important making the commitment to invest is, getting past the fear of investing poorly is much easier. You can much more objectively look at every investment you have made as either a place to earn or a place to learn. For instance, I view my investment in industrial and financial titan General Electric (NYSE: GE  ) as one of the best investments I've ever made. It was a good investment because of what I've learned from it, in spite of the lousy returns I've received along the way.

Indeed, the principles I learned from that GE investment -- looking for a strong balance sheet and a well-covered and rising dividend -- have yielded far more successful investments than failures over the years. When coupled with the third key lesson from that investment -- prudent diversification -- the experience formed the foundation of an investing strategy that looks capable of withstanding the test of time. Not bad for an investment with objectively lousy returns.

Often, investing does work out
Of course, not all investments turn out poorly, and in fact some wind up doing quite well. Over the course of an entire career, the combination of lousy and great investments in the context of an overall solid strategy could very likely exceed that 2% annual return level. But if you're planning for lousy returns and wind up with better ones, you'll end at a much better place. Yet no matter what your ultimate returns, it's having the foundation and the dedication to invest that matters most.

http://www.fool.com/investing/general/2012/09/18/even-lousy-investing-beats-not-investing.aspx

The Truth About Stocks for the Long Run

By Alex Dumortier, CFA September 19, 2012

Don't get me wrong. I'm convinced that equities are an appropriate and important component of a long-term strategy to build wealth. However, there are a certain number of popular myths regarding stocks that have taken hold and that can be potentially dangerous to your financial well-being. In this article, I'm highlighting two of them.

Myth 1: Stocks' expected return is 10% to 11% annually
I have seen financial writers and professional investors cite this range (or a figure contained in this range) for the historical average return for stocks innumerable times. That's fine, in principle; the trouble is that they often imply or even assert openly that this is a sound basis for future expected returns.

As far as I can tell, the source for this range may be Long-Run Stock Returns: Participating in the Real Economy (2003), in which Roger Ibbotson of Yale University and his co-author Peng Chen calculate that stocks produced an average return of 10.70% during the period 1926-2000. That's a historical observation (anomaly?) and investors should absolutely not anchor on it when they think about future returns.

That specific period was atypical in a way that can be dangerously misleading if you don't look beyond the "headline" number. Stocks started out at depressed multiples (a price-to-trailing-earnings multiple of 10.2 for the S&P Composite Index) and finished at inflated ones (26.0 for the S&P 500 Index (INDEX: ^GSPC  ) ). All told, the expansion in the multiple's girth alone fattened stocks' average return by a full 1.25 percentage points annually. Unless you have reason to believe that rising valuations will make the same contribution over your investing horizon, expecting the same average return going forward is wrongheaded.

A more realistic benchmark

Taking a longer observation period (January 1871 to August 2012) over which the change in P/E multiple was less dramatic, I found an average return of 8.61%, with the change in P/E contributing just 25 basis points, and inflation 208 basis points (100 basis points being equal to one percentage point).

8.61% - 0.25% - 2.08% = 6.27%

A reasonable historical benchmark with which to begin thinking about future returns is 6% to 7% after inflation. That range is consistent with the long-run stock return estimates in the 2007 edition of Jeremy Siegel's Stocks for the Long Run.

Incidentally, if you don't think a 1.25 percentage point difference is even worth trifling over, consider the end value of a dollar invested at 6.5% over a 30-year period: $6.61. At 7.75%, you'll have $9.38. If you were counting on the higher return and earned the lower one instead, you're now facing a 30% shortfall.

Myth 2: The longer the time horizon, the safer stocks become
This is an idea that has been heavily marketed based on Jeremy Siegel's observation that, historically, the standard deviation of stocks' average returns has fallen as you extend your time horizon. But Siegel himself is pretty cagey when it comes to the broader implications of that finding. This is what he told an audience of financial advisors in 2004:

One thing I should make very clear: I never said that that means stocks are safer in the long run. We know the standard deviation of [stocks'] average [annual return] goes down when you have more periods ... What I pointed out here is that the standard deviation for stocks goes down twice as fast as random walk theory would predict. In other words, they are relatively safer in the long run than random walk theory would predict. Doesn't mean they're safe. [emphasis added]

In a March 2011 paper, Lubos Pastor and Robert Stambaugh, respectively of the University of Chicago and the University of Pennsylvania, show that stocks are more, not less, volatile over long periods.

Siegel compiled historical return data going back over two centuries, and that is fine as far as describing how stocks behaved in the past (strictly speaking, there are problems with this data, to begin with). Pastor and Stambaugh's argument is that observing historical average returns and extrapolating them into the future leaves investors open to "estimation risk." In short, today's investors don't care what stocks did in the past; the only thing that counts is what stocks do in the future, and even two centuries of data does not allow us to know stocks' expected return with certainty. Once you take that uncertainty into account, Pastor and Stambaugh found that stocks are riskier over longer periods.

4 practical recommendations for long-term investors

Don't cling to investing myths such as the two I have highlighted above. Accepting that they are false means recognizing the seas you must navigate are more uncertain and less hospitable than you once thought. It does not mean that throwing up your hands is all that is left to do. Here are four practical recommendations:

• Time horizon is not the only relevant variable in figuring out your allocation between stocks and bonds (and other asset classes). Your risk tolerance, current earnings, and career risk are all things you should consider.
• Use conservative estimates for the equity returns you require in order to achieve your goals to account for "estimation risk."
• Always remain cognizant of valuations -- particularly when they reach extremes (i.e., bubbles).
• Always strive to keep your costs as low as possible; this makes an enormous differenceover time. In that regard, products like the Vanguard Total Market ETF (NYSE: VTI  ) , the Vanguard Dividend Appreciation ETF (NYSE: VIG  ) , and the Vanguard MSCI Emerging Markets ETF (NYSE: VWO  ) are all excellent choices.

http://www.fool.com/investing/beginning/2012/09/19/the-truth-about-stocks-for-the-long-run.aspx

KLCC Property Holdings Bhd

KLCCP					Period (Yrs)	6
	Dec-05		Dec-11		Change	CAGR
	millions		millions
Equity	2268.48		6461.07		184.82%	19.06%
LT Assets	5725.37		13203.98		130.62%	14.94%
Current Assets	638.39		775.12		21.42%	3.29%
LT Liabilities	2635.2		3522.2		33.66%	4.95%
Current Liabilities	384.18		305.74		-20.42%	-3.73%
Sales	598.02		745.89		24.73%	3.75%
Earnings	114.44		657.7		474.71%	33.84%
Interest expense	165.12		87.58		-46.96%	-10.03%
D/E	1.19		0.37
ROA	1.80%		4.70%
ROE	5.04%		10.18%
Number of shares (m)	934.07		934.07		0.00%
Market cap	1882.2		3231.9		71.71%	9.43%
P/E	16.45		4.91
Earnings Yield	6.08%		20.35%
P/BV	0.83		0.50

DPO ratio (historical)	37.64%
Dividend Yield range	4.0%-3.2%
Capital changes	-

Crescendo

CRESCENDO					Period (Yrs)	15
	Jan-97		Jan-12		Change	CAGR
	millions		millions
Equity	158.19		549.15		247.15%	8.65%
LT Assets	67.05		45.58		-32.02%	-2.54%
Current Assets	146.59		731.22		398.82%	11.31%
LT Liabilities	4.84		83.04		1615.70%	20.86%
Current Liabilities	50.41		129.39		156.68%	6.49%
Sales	109.77		290.42		164.57%	6.70%
Earnings	6.87		63.71		827.37%	16.01%
Interest expense	0		0.79		#DIV/0!	#DIV/0!
D/E	0.06		0.26
ROE	4.34%		11.60%
Number of shares (m)	108.5		183.48		69.11%
Market cap	117.18		345.23		194.62%	7.47%
P/E	17.06		5.42
Earnings Yield	5.86%		18.45%
P/BV	0.74		0.63
DPO ratio (historical)	39.85%
Dividend Yield range	7.5%-4.7%
Capital changes
2002	2/5 ICULS
2008	1/2 Rts (ICULS)
	with 1 free wrt

United Plantation

United Plantation					Period (Yrs)	15
	Dec-96		Dec-11		Change	CAGR
	millions		millions
Equity	367.65		1996.39		443.01%	11.94%
LT Assets	365.09		1318.23		261.07%	8.94%
C. Assets	130.54		882.15		575.77%	13.58%
LT Liabilities	17.84		88.93		398.49%	11.30%
C. Liabilities	110.13		114.87		4.30%	0.28%
Sales	261.13		1385.47		430.57%	11.77%
Earnings	49.85		373.95		650.15%	14.38%
Interest exp.	0.33		0.03		-90.91%	-14.77%
Market cap	803		5124.26		538.14%	13.15%
D/E ratio	0.08		0.08		0.00%
ROE	13.56%		18.73%		38.15%
P/E	16.11		13.70
P/BV	2.18		2.57
Dividends
DPO ratio	34.50%
DY range	4.3% - 3.1%

GENM

GENM					Period (Yrs)	15
	Dec-96		Dec-11		Change	CAGR
	millions		millions
Equity	2793.9		11926.8		326.89%	10.16%
LT Assets	2451.8		12781.57		421.31%	11.64%
Current Assets	1113.5		3724.95		234.53%	8.38%
LT Liabilities	80.9		1963.77		2327.40%	23.69%
Current Liabilities	689.2		2615.96		279.56%	9.30%
Sales	2105.9		8493.69		303.33%	9.74%
Earnings	569.7		1427.88		150.64%	6.32%
Interest expense	0		32.25		#DIV/0!	#DIV/0!
D/E	0		0.15		#DIV/0!
ROE	20.39%		11.97%		-41.29%
Number of shares (m)	1091.8		5924.41		442.63%
Market cap	12555.7		22346.5		77.98%	3.92%
P/E	22.04		15.65		-28.99%
Earnings Yield	4.54%		6.39%		40.82%
BV/Share (RM)			2.01			#DIV/0!
DPO ratio (historical)	21.90%
Dividend Yield range	2.3%-1.5%

Aeon Credit

Sales Analysis.
AEON Credit Service (M) Berhad reported sales of 344.27 million Malaysian Ringgits (US$112.43 million) for the fiscal year ending February of 2012. This represents an increase of 27.7% versus 2011, when the company's sales were 269.56 million Malaysian Ringgits. Sales at AEON Credit Service (M) Berhad have increased during each of the previous five years (and since 2007, sales have increased a total of 197%).

AEON CREDIT Feb-07 Feb-11 Change CAGR millions millions Equity 104.17 282.22 170.92% 28.30% LT Assets 192.88 25.93 -86.56% -39.45% Current Assets 378.61 1148.11 203.24% 31.96% LT Liabilities 270.41 596.55 120.61% 21.87% Current Liabilities 196.91 295.28 49.96% 10.66% Sales 116.04 269.61 132.34% 23.46% Earnings 19.7 63.43 221.98% 33.95% Interest expense 18.02 32.61 80.97% 15.98% D/E 4.06 2.95 -27.34% ROE  18.91% 22.48% 18.88% Number of shares (m) 120 120 0.00% Market cap 469.2 1054.8 124.81% P/E 23.82 16.63 -30.18% Earnings Yield 4.20% 6.01% 43.22% BV/Share (RM) 0.87 2.35 DPO ratio (historical) 31.40% Dividend Yield range 4.8%-3.1%

Stock Data:

Current Price (9/14/2012): 10.70 (Figures in Malaysian Ringgits)

Recent Stock Performance:
1 Week -0.6%
4 Weeks 22.3%
13 Weeks 11.5%
52 Weeks 183.4%


Market Cap: 1,540,800,000
 Fiscal Yr Ends: February
 Shares Outstanding: 144,000,000
 Share Type: Ordinary
 Closely Held Shares: 87,446,280