Investment Idea - June 2011

 Middle East, Europe and Japan almost all down last month. China market was flag, US also went down for nearly thousand points close at around 12,000 last week and investors is waiting for outcome of QE2 ending in Jun 2011.

Back to our home, Malaysia “Boleh”, last few week when all countries were down, Bursa Index close at high end. One of the reason could be Malaysia being included into Advance Index Country start from Jun 2011. Anyway, we will not going to predict the market, as we know whether the market up or down, our “best in class” stock will continue to perform well.

For those who are new, below our stock price as of last week and return since last 6 months (I am different from other Dealer/ Remisier, as normally they recommended the stock, but never invest, just for your info, I invested all the below stocks)

REITs : up by 5% plus dividend of 7%

Maybank : RM9 (up by 12% plus dividend of 6%)

Public Bank : RM13 (up by 8%, plus dividend of 4%)

Maxis : RM5.50 (up 5% plus dividend of 5%)

GENM : RM3.60 (up 10% plus dividend of 2%)

Batu Kawan : RM17 (up 5% plus dividend of 3%)

F&N : RM19 (up 20% plus dividend 5%)

Pchem : RM7 (up 12%)

MHB : RM8.60 (up 40%)

TWS : RM10.50 (up 35%)

Tenaga : RM6.70 (up 9%, plus dividend 2%)

We see the investment as portfolio, instead of individual stock, overall, the portfolio given return of 14.5%, this is fix into our investment objective of “ Invest for consistent Stable Income ”, we are not here trying to speculate for biggest return with high risk. Among these stocks, 3 of them, TWS, Pchem and MHB are counters suitable for trading. 

Question from one of my client, what happen if market crash and I still hold all these stocks? My answer, if market down, it provide more opportunities, that's the beauty of the stock market provided you are invest in “best in class” stock, beside you still receive consistent dividend income. For example, if you bought a stock at RM5, then price down by 50% and now the stock price at RM2.50. Say you buy it again at RM2.50, few months later when the price up to RM5, your return is 100% for this 2 ^nd   portion. If take the 2 average, your return now is 50%.

That's why market down is actually opportunities for those who prepared, with condition, invest in ' best in class ” stock!

REITs more appealing in uncertain times

Below article appeared in The Edge Financial Daily, June 29, 2011 - talk about Al-Aqar and AmFirst REIT


Prices for real estate investment trusts (REITs) have been holding up quite well despite weakness in the broader market and this may well remain the case in the near to medium term. With outlook for the global economy and equity markets turning more opaque in recent weeks, the defensive characteristics and higher-than-market average yields offered by REITs are understandably becoming more appealing.

Al-Aqar’s incomes are fairly recession-proof
The Al-Aqar KPJ REIT is among the better-performing of the REITs listed on the local bourse. It is also among the larger REITs, with total assets valued at more than RM1.16 billion. Perhaps more significantly, it is also widely seen as having one of the more recession-proof earnings streams.

For instance, whilst occupancy and rental incomes particularly that for commercial property-heavy REITs may come under pressure from oversupply in the next few years, incomes for Al-Aqar are by and large protected under its long-term leaseback arrangements with KPJ Healthcare. Its typical lease agreements are for a period of 15 years with the option to renew for a further 15 years.

The longer-term outlook for the overall healthcare industry in the country is positive, with steady demand growth expected from both the local population as well as the rising number of medical tourists. Steadily rising demand and costs of healthcare services would in turn support gradual rental income increases under the trust’s long-term lease agreements — which would translate into progressively higher income and distribution to unit holders.

Al-Aqar is on track to meeting its target income distribution of 8.25 sen per unit this year. The trust’s turnover was up 16.9% year-on-year (y-o-y) to RM20.1 million for 1Q11 boosted by contributions from two assets acquired in 2H10, the KPJ Tawakkal Specialist Hospital and a new building at KPJ Johor Specialist Hospital.

The trust declared a 3.3% unit income distribution, which should be paid before the completion of the proposed acquisitions — and issuance of new units — currently pending.

On top of the list is the acquisition of four properties — for Bandar Baru Klang Specialist Hospital, Kluang Utama Specialist Hospital and two hospital buildings in Indonesia — valued at a combined RM159.9 million. This would be the REIT’s first acquisition of properties outside Malaysia. The purchase would be financed by the combination of RM104 million cash and issuance of 56.6 million new units.

The trust is also in the midst of acquiring an aged care facility and retirement village in Brisbane, Queensland, Australia, valued at RM135 million. To part finance this purchase, up to 64 million new units will be issued.

The acquisitions will expand its earnings base, although the overseas acquisitions will also carry a certain degree of risks, including foreign exchange risks.

Currently, the REIT has 20 properties valued at RM1.1 billion. Upon completion of the proposed acquisitions, the total investment properties of Al-Aqar will rise to roughly RM1.4 billion. Assuming the deals are completed by end-2011, income distribution is estimated to rise to about 8.3 sen per share in 2012, based on the enlarged units in circulation of 704.3 million. That translates into a gross yield of roughly 7.1% at the current unit price of RM1.17.

Unit prices for Al-Aqar have gained about 14% since the beginning of June 2010, giving investors pretty good returns totalling roughly 21% including yields.


Expectations of oversupply in commercial space may weigh on rental outlook
By comparison, AmFIRST REIT has performed less well over the past one year — its unit price rising by just about 3% over the same period. This could be attributed in part to concerns of oversupply of commercial properties in the Klang Valley.

The trust is expected to report a decline in income for the current financial year ending March 2012, weighed down by low occupancy rates at two of its properties, the Kelana Brem Tower and Menara Merais.

For FY11, AmFIRST’s income was lifted by a one-off income of RM5.7 million in compensation for the compulsory acquisition of land in front of Summit Subang USJ. Without this item, we estimate income for distribution will decline to roughly 8.4 sen per unit from 9.75 sen in the previous financial year.

Still, that translates into a fairly attractive gross yield of 7.2% at the current price of RM1.17. We suspect the relatively high yield has prevailed after taking into account the probability of further downside risks in terms of rentals and occupancy, in view of current expectations for a softer market for office buildings.

Positively, the successful acquisition of the two proposed assets is expected to boost earnings for FY13. AmFIRST is in the midst of acquiring two office buildings in Cyberjaya, expanding its portfolio of assets outside the Klang Valley for the first time.

The two properties, known as Prima 9 and Prima 10, are valued at RM72 million and RM61 million, respectively. The purchase will expand the trust’s portfolio of assets under management to eight, valued at a combined RM1.16 billion from the current RM1.02 billion. Both properties are expected to achieve 100% occupancy at the point of completion of the purchase secured by long-term lease agreements with multinational companies.

No new units will be issued as the acquisition will be funded entirely by borrowings, which will raise its gearing to about 45.8% from the current 38.9%. Income for distribution in turn is estimated to rise to roughly nine sen per unit, boosting gross yield to 7.7% at the prevailing unit price.

Investment Idea - May 2011

Overall, market is on the up trend for almost 2 years without any meaningful correction. Right now, near all time high. What's happen in middle East, Europe and Japan fail to bring down the market , this is an indication that the market sentiment is still strong.

Bursa Malaysia's Index going to be included into Advance Index Country start from Jun 2011. This is good news but only if you buy the correct counters which prefer by foreign investors. Bank Negara also raised the interest rate and bank's reserve for the first time. As expected, since the market cycle comes to 3^rd years, normally interest rate will start to go up as monetary policy goes from loose to tight. We expect interest rate will go up few rounds before the end of market cycle. This action is similar to China, and if there's any indication, just see how the China's index's perform, it almost side way for few months with a little bit of bias upward. Bear in mind if foreign investors come in, they will only select the blue chip solid counters.

Bull market is not going for long, next few months is time to play safe. IPO is one of the option can try... we will have few good one to come... I will keep you update when time come. Some of counters like F&N, Nestle, Dlady, BAT start to go higher, because many investors move their fund to these counters.

I have been recommended F&N in last few months when it was RM14.50, this counter never fail me since 10 years ago. Many clients told me this counter was very expensive, really? If you see today's price, RM18++ even more expensive, what I trying to say here is the 'Value' of the company, not the share price. Someone also mentioned YHS (RM1.7+) is better, since it's cheaper than F&N.

Below some points for both companies:

F&N RM18, PE 22

EPS on up trend, about 5% every year

DPS is about 55Cent

ROA 10

ROE 19

YHS RM1.7+, PE 22

EPS not stable, for past 5 years, 2 years in red.

DPS is about 10 cent

ROA 1.05

ROE 1.5

Both companies are good but quite expensive, with PE of 22 (normally PE above 15 is consider expensive, but for solid company, you need to pay some premium), YHS profit is not very stable, some years in red, also F&N's ROE is 19 excellent, meaning every 4 or 5 years, the profit will double! (that's why share price double too) Hence, if you just looking for dividend, YHS is not bad, but if you looking for growth with dividend slightly less, then F&N is better option. (no need to buy it now... but keep in the list, buy only if market crash!)

This is one of my idea to share on how we choose a good company for investment.

.