Thursday, September 30, 2010


BCorp posted net profit of RM125.46 million in the first quarter ended July 31, 2010, up 214% from RM39.9 million a year ago. - The better performance was also due to lower investment related expenses of RM17.62 million compared with RM83 million a year ago. - BCorp's revenue rose 8% to RM1.74 billion versus RM1.61 billion a year ago. - Pre-tax profit was RM237.78 million, up 30% from RM182.81 million. - Earnings per share were 2.88 sen versus 1.01 sen.

SapuraCrest posted net profit of RM53.24 million in the second quarter ended July 31, 2010, which a marginal 1.68% increase from the RM52.36 million a year ago - Due higher contribution from the installation of pipelines and facilities (IFP) and the drilling division.

Hai-O's net profit fell 57% to RM7.84 million in the first quarter ended July 31, 2010 from RM18.52 million a year ago as the multi-level marketing (MLM) division recorded lower revenue. - Pre-tax profit was RM10.79 million, down 59% from RM26.28 million a year ago while revenue fell 63% to RM54.75 million from RM148.57 million. - Earnings per share were 3.91 sen versus 22.17 sen.

Wednesday, September 29, 2010

What are the risks in buying call warrants?-by OOI KOK HWA

from the star

Prices are influenced by intrinsic value and time value

LATELY, we notice that there are growing numbers of call warrants getting listed on Bursa Malaysia. Even though there are many call warrants issued and traded in the market, the trading volumes of these call warrants are relatively low compared with the normal warrants.

Besides, a lot of investors have been complaining that they are unable to make money from the call warrants that they have bought.

Many investors cannot differentiate between a warrant and a call warrant.

A warrant is a transferable option certificate issued by a company which entitles the holder to buy a specific number of shares in that company at a specific price (or exercise price) at a specific time in the future. It is normally issued by a listed company.

A call warrant (like a call option) also gives investors a right to buy stocks in a company within a fixed period of time. However, warrants are issued by listed companies whereas call warrants are issued by investment banks.

An investor monitoring share prices at a private stock market gallery in Kuala Lumpur. Many investors have been complaining that they are unable to make money from the call warrants that they have bought.

If investors exercise the rights in warrants, they will receive the listed companies’ shares.

Meanwhile, upon maturity of call warrants, investment banks will only pay investors in cash if the closing price of the listed companies is higher than the exercise price of the call warrants. Investors will get nothing if the closing price of the listed companies is lower than the exercise price.

There are many risks in buying into call warrants. Call warrants have shorter maturity period as compared to warrants. Normally, warrants have maturity period of five years or more whereas call warrants have very short maturity period of less than a year.

In many instances, investors who have bought into these call warrants do not realise that their call warrants have expired. Nevertheless, call warrants will be automatically exercised upon the maturity date if the settlement price is higher than the exercise price.

As mentioned earlier, a lot of call warrants are not actively traded in the market. In fact, a majority of them do not have trading volume on a daily basis. We believe one of the possible reasons is that some of these call warrants are getting nearer to maturity date.

The prices of call warrants are influenced by their intrinsic value and time value.

If the call warrants are getting nearer to their maturity date, the time value will be closer to zero. In addition, if the mother price of the listed companies is being traded at a lower price than the exercise price plus the premium that the investors have paid for the call warrant, the market price of these call warrants will fall below their original issue price.

For those who have subscribed into these call warrants, rather than cutting losses and selling them into the market, they will likely hold on to the call warrants and hope that the mother price will recover one day. Unfortunately, in many instances, investors get nothing upon maturity of these call warrants.

Given that the gap between the buying and selling prices is quite big for some call warrants, many investors find it difficult to buy or sell the call warrants. Hence the fact that call warrants usually have low trading volume implies that this is an instrument with very high liquidity risks.

The main reason for a lot of investors to purchase call warrants is the hope of getting payments from investment banks. However, investors need to understand that the majority of the call warrants are European-styled, which means investors cannot exercise them before the maturity date.

The majority of call warrants are settled in cash for the difference between closing price and exercise price. The formula for cash settlement amount is equal to the number of call warrants x (closing price – exercise price) x 1/exercise ratio. Hence, investors need to pay attention to the exercise price, exercise ratio and premium that they have paid.

For example, the exercise price on Call Warrant Company A (Company A CA) is RM10, the exercise ratio is 10 Company A CA to 1 Company A share and the premium investors need to pay is 10 sen for each Company A CA. To the call warrant holders, in order to breakeven, the mother share price of Company A needs to go higher than RM11 or RM10 plus RM1 (10x10 sen, which is the total premium that they have paid).

Lastly, investors need to pay attention to the fundamentals of the mother companies and check the potential price appreciations for these companies.

Companies with good prospects will have higher possibilities of price appreciation and therefore lower risk of buying into the call warrants.

Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.


Gamuda's earnings surged 77% to RM76.61 million in the fourth quarter ended July 31, 2010 from RM43.29 million a year ago, due to higher contributions from all divisions and expects to perform better in the next financial year
- Revenue however declined 24% to RM714.78 million from RM942.24 million a year ago.
- Earnings per share were 3.79 sen versus 2.16 sen.
- For the financial year ended July 31, 2010, earnings rose to RM280.69 million from RM193.69 million.
- Revenue was lower at RM2.45 billion compared with RM2.73 billion in FY09.

Jaya Tiasa posted stronger set of results for the first quarter ended July 31, 2010.
- Net profit was RM22.69 million versus only RM791,000 a year ago.
- Revenue rose 12% to RM185.5 million from RM166.3 million.
- Pre-tax profit jumped to RM30.1 million from RM2.1 million.
- Better results in revenue and pre-tax profit were mainly due to improved proceeds from logs sales with 7% increase in average selling price;
- Better margin of plywood sales with 16% reduction in costs of production due to higher production volume;
- 66% increase in sales volume and 9% higher average selling price of fresh fruit bunches (FFB).

Bursa Malaysia has sought court action to force Golden Plus to compel it with the directives issued by Bursa Malaysia and consent order over the appointment of a special auditor.
- The directives and consent order are with regards to the appointment of a special auditor (SA) to review the affairs of GPlus and its subsidiary companies.
- This was in relation to its compliance with the Listing Requirements, including proper and accurate disclosures to its shareholders.

Formis Resources Bhd, which is undertaking the RM69.0 million government e-courts contract, said the implementation is on schedule and is about 90% completed.
- Formis executive vice-chairman and chief executive officer Datuk Mah Siew Kwok said Formis had a solid recurring income stream of RM61.0 million from maintenance and service contracts and an order book of RM194.3 million order as at Sept 15.
- He said the group also has a strong pipeline of potential projects, having tendered for a total of RM1.36 billion worth of contracts.

Supermax expects to achieve nearly RM1 billion in annual sales by the end of the current financial year Dec 31, 2010 driven by world demand and good marketing strategy.
- This would be 20% above the previous annual sales of RM800 million.

Tuesday, September 28, 2010

Buying and selling signal --- by OOI KOK HWA

Buying and selling signal

This article by Ooi Kok Hwa, an investment adviser and managing partner of MRR Consulting, tackles some basic skills needed to detect the buying and selling strength of a stock price.

THE price movement of a stock is dependent on the demand and supply of the stock, which in turn is influenced by the buyers’ buying interest and the sellers’ selling interest.

Every buyer or seller has different purposes when entering into a trade. The followings are general “rules”, which provide us with some hints on whether the stock price will probably go up or down.

Investors should not view these “rules” as a foolproof method that will hold true all the time. There are certain occasions that market manipulators might be using these “rules” to mislead the general public.

Rule 1: Buyers are showing small orders and sellers are showing big orders. However, the stock prices are holding quite well – buy signal.

When we want to purchase a stock, we will call our remisiers to check on buying or selling orders on the stock. A lot of selling orders with only a few buying orders on the stock may imply that the stock price would come down.

However, if the stock prices are holding quite well, it could mean there are some net buyers accumulating the stock.

The reason for this is buyers may refuse to show their buying orders to attract sellers to sell at the buyers’ buying price.

Showing high buying orders may delay selling interest, as sellers will wait for the buyers to buy at their selling price. Hence, it is a “buy” signal if we notice the above rule on any stock.

On the other hand, if buyers have big orders and sellers have small orders while the stock price continues to drop, it might be a “sell” signal that this stock has some big sellers that are not willing to show their selling orders but they need to sell the stock now.

Showing big selling orders may cause panic on the stock. Hence, to sell at higher prices, sellers will try to hide their selling orders.

Logically, if a stock has a strong buying interest, the stock price should go up instead of come down. Hence, the weakening stock price may imply that sellers outnumber buyers.

Rule 2: The overall market is weak but your stock price is moving against the overall market trend – buy signal.

In a
down market, if a stock that you own is inching up steadily despite the overall weak stock market sentiment, this may imply that there are some net buyers on this stock.
We view this as a “buy” signal where buyers are eagerly accumulating the stock in spite of the weak market. In most instances, the stock price will move higher the moment the overall market sentiment recovers.

In contrast, if the overall market is moving up but your stock is being beaten down, it is a “sell” signal. Normally, insiders are aware of certain crucial bad news that is still not available to the market yet.

Rule 3: Stocks carry a lot of bad news and are trading at high volume but stock price remains stable – buy signal.
Sometimes a certain stock is facing huge bad news but the stock price is holding on quite well. Normally, it may imply that buyers are not worried about the market concerns on this stock. The current stock price may have discounted all the bad news.

In contrast, if a stock, despite having all the good news in the media, continues to see its price decline, this is a “sell” signal that shows there are certain sellers who have some concerns over the stock, but the overall market is still not aware of the news.

Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.

Monday, September 27, 2010


Buy stocks with low price-to-book ratio
Personal Investing
By Ooi Kok Hwa

A fortnight ago, we elaborated on four of the seven criteria used in stock selection. In this week's article, we continue with the remaining three criteria: B for Book Value, H for Health and M for Management.

THE book value of a company is an important indicator of a company’s value as it tells us what the owner’s cost of a company is. No owner would be willing to sell a healthy and growing company at below cost unless the company has problems that are not known by general public.

Normally, we use book value per share (total shareholders’ funds divided by the outstanding number of shares of a company) to compare with the current stock price.

Price-to-book ratio is computed by dividing the stock price by a company's book value per share. It gives us the number of times the current stock is selling above or below the book value.

A ratio of lower than one means the current stock price is trading at lower than its book value.

One of the selection criteria is to select stocks with lower price-to-book ratio.

Benjamin Graham in his book entitled Security Analysis said we should consider buying stocks with price-to-book of lower than 1.5x. The number 1.5x or below implies that the maximum price that we pay for a company should not exceed 50% of the owner’s cost.

Due to the implementation of new financial reporting standards, there have been a lot of write-downs and impairment on certain assets of listed companies.

As a result, we can safely say that the current book value of these companies should reflect the owner’s real cost.

The price-to-book ratio is also frequently used in valuing banking, finance and insurance companies. In most instances, it is quite difficult to search for financial institutions that are selling at below their book values. This is because the book value is mostly in cash.

Normally owners would not accept any value that is less than the book value. This explains why most analysts use the price-to-book ratio in valuing financial institutions.

H for Health refers to the financial health of a company. We use debt-to-equity ratio (D/E ratio) to determine the level of borrowings of a company.

It is computed by taking a company's total debts and dividing it by a company's total shareholders’ funds.

A lower ratio implies that the company is using less debt but more equity to fund its operations. Even though cost of borrowing is lower than cost of equity, most investment gurus prefer companies to use less debt.

It will be even better if we are able to find companies that are cash rich and have zero borrowings.

According to Graham, a good company should have a D/E ratio of less than 0.5x. It means that for every RM1 the owner puts into the company, the maximum amount that he should borrow is 50 sen.

The rationale is to look for companies with lower financial risk - lower borrowings mean companies pay less interest expenses and face lower bankruptcy risk.

M for Management refers to companies with high management quality. It is always very difficult to determine the management quality of a company.

Almost all investment gurus, like Graham, Philip Fisher and Warren Buffett say that the management quality is one of the most important factors in stock selection.

A good management should exhibit unquestionable management integrity and try their best to maximise shareholders’ wealth through high dividend payment and capital gains.It is almost impossible for each listed company to consistently show high profit during all periods, especially in a weak economy.

However, a good management will make sure that they are able to perform better than their peers even in the toughest business environment.

The writer is a licensed investment adviser and managing partner of MRR Consulting.

Saturday, September 25, 2010

Capital gain versus dividend ? which one is better? by OOI KOK HWA

Capital gain versus dividend ?which one is better?

Personal Investing - By Ooi Kok Hwa

DESPITE the high FTSE Bursa Malaysia KL Composite Index levels, a lot of investors have been complaining about not getting the desired returns by investing in the stock market.

This is because they are holding shares in companies that have poor fundamentals, and the majority of the sestocks are still selling at very cheap prices.

As a result, most investors not only incur capital losses due to low prices but al so not get any dividends from these companies. In this article, we will look into the importance of capital gain versus dividend.

When we look at the performance of listed companies, we find that the majority of companies t hat have performed well in terms of stock prices are companies that pay good dividends; for example Nestle (M) Bhd, Dutch Lady Milk Industries Bhd, Public Bank Bhd etc.

Most investors are aware of these stocks that pay good dividends. However, some would not consider buying into these stocks because to them, the stock prices are too high or too expensive.
Instead, some investors prefer to take the chance and buy penny stocks, which they think are cheap and have higher probabilities of getting huge capital gains.

Unfortunately, most of them find that after a few years, they are still not receiving any dividends from these stocks, while the stock prices are still far from their targets, some of them even below their purchase prices.

Investors wh o buy stocks that pay good dividend s need to have the mindset and habit of holding stocks for long-term.

Normally, people who prefer to invest in di vidend-paying stocks will not speculate on these stocks but keep them for the long-term as the companies have been rewarding them with good dividend payments over the years.

Companies that pay good and consistent dividends also reflect the sharing attitude of the companies and the owners.

There have been instances wher eby some listed compan ies, when in need of funds, would raise the money from investors through various types of capital calls.

However, when the companies start to accumul ate excess cash, they do not reward investors with special dividend payments.

Instead, if their stock prices were selling below the net cash per share of the companies, they woul d consider taking the companies private so that they can have direct access to the cash.

Hoping for capital gains Many companies refuse to pay dividend s to investors because they claim they need to retain profits for future expansion.

Even though there are cases where future expansions turn ou t to be successful and generate good profits to the companies, there are als o cases where expansion projects fail.

We notice that st ock prices for companies that either pay very low or no dividends would fluctuate according to t he overall sentiment of the stock market, whereas stock prices for companies that pay good dividends tend to be relatively more stable.

Most investors know the need to buy low and sell high to make money. However, most do not know when to sell their stocks. We cannot sell a stock just because we have bought it cheap.

According to Benjamin Graham, we should only sell a stock when the fundamentals of the company deteriorates.

We should not sell the stock if the stock price is temporarily above its intrinsic value as it is not easy to identify a company with good quality management.

Besides, this type of company usually pays stable and growing dividends as it usually has a fixed dividend payout policy to reward investors.

However, most investors may sell their stocks too early. Companies that are unable to pay dividends are usually companies that incurhigh capital expenditure for future expansion.

These companies not only do not have any excess cash to pay dividends, they also have high gearing and need to retain all profits for expansion. Hence, investors who buy these stocks will have to bear higher risks.

In short, it is safer to buy into companies that p ay good dividends.

As mentioned earlier, companies that pay good dividends reflect the attitude of the companies and the owners, whether they are willing to share profits with minority shareholders.

This is important as we have growing cases of companies with issues on corporate governance.

Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.

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