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Thursday, September 20, 2012

I-POWER to Morph Into Instacom Engineering, Possibly the Best RTO this Year

HOT NEWS.  This exciting article (below) was extracted from malaysiafinance.blogspot.com, one of the most prominent financial and investment blog in Malaysia. Based on the author's fair valuation (refer Conclusion last para), there is an upside profit potential of 12.5% to 62.5% (calculated based on the current I-Power price of 8c which is equivalent to 32c ex).

I-POWER TO MORPH INTO INSTACOM, POSSIBLY THE BEST RTO THIS YEAR

Haven't been writing much about stocks over the last month because there was nothing much to write home about. At the back of my mind, I had been following the fortunes of I-Power, which is going through a RTO with the injection of Instacom. Instacom is a company I came across last year while looking for candidates to go for an IPO listing.

For an RTO to work well, the new asset coming in has to be "good and sustainable". I regarded Instacom a year ago as a "jewel of sorts", but they chose the RTO route instead of a normal IPO (which would have taken a lot longer, and more hurdles to hump over). Next, the valuation of the existing counter, and the cleaning up of that counter has to be done well. To be followed by a fair valuation of the asset being injected. A RTO could go bad if any of the above factors go haywire.



The final proposal (approved) looks to fit all 3 criteria. Firstly, I-Power shareholders will see their shares being given a 3:2 bonus, to be immediately followed by a 10 into 1 reduction. Which is to say, the current price of 8 sen, if you bought 100,000 shares = RM8,000.

The calculation would be :

100,000 I-Power shares @ 8 sen = RM8,000
Bonus 3:2 = 150,000 bonus shares
Total shares after bonus: 250,000
10 into 1 capital reduction: 25,000 (Instacom shares)
Actual cost of Instacom shares: RM8,000 / 25,000 = 32 sen

The pre and post prices for the exercise would be:

I-Power           Instacom
7.0 sen            28 sen
7.5 sen            30 sen
8.0 sen            32 sen
8.5 sen            34 sen
9.0 sen            36 sen
9.5 sen            38 sen
10 sen             40 sen

The Injection of Instacom

Instakom Engineering Sdn Bhd (principally involved in the telecommunication sector), a company which is principally involved in the following:-

• Turnkey Finance and Build;
• Radio Frequency Design;
• Drive-test, Post Processing, Analysis and Optimisation of Coverage;
• End to End infrastructure Build (Site Acquisition, Technical Site Survey ("TSS"), Local Council/ Authority Liaison/ Tower & Cabin works);
• Equipment Installation, Commissioning & Integration and Upgrading 2G to 3G/ 4G/ Long Term Evolution ("LTE");
• Managed Services Operations & Maintenance;
• Fixed Network Solutions (includes outside plant, open trenching, micro-trenching, Horizontal Directional Drilling ("HDD") and Optical fiber installation); and
• Fabrication of Steel Structures and Materials.

The purchase consideration is RM102,000,000 to be satisfied entirely by the issuance of 510,000,000 new Consolidated Shares at an issue price of RM0.20 per Consolidated Share. The deal also comes with :

1. Profit guarantee RM15m for 2012 and RM15m for 2013 (total RM30m) and that guarantee is pledged with new shares issued to “vendor shareholders” as collateral.
2. For YE2011, the company made an after tax profit of RM9.9m, and management is confident based on orders on hand and pipelines of tenders submitted that the 2012 PG of RM15m will be comfortably met

The financials of the company (as extracted from the announcement):-

                                               FYE 2008         FYE 2009         FYE 2010         1H 30JUNE
Revenue (RM'000)                      54,045             40290                47402                39,041
Profit Before Tax (RM'000)           3,011              1,033                 4,311                 5,594
Profit After Tax (RM'000)             2,019                 707                 3,474                 4,195
Shareholders Funds (RM'000)       6,689              7,396               10,887                15,083
Borrowings (RM'000)               130,260           138,945            121,236               115,209 
Gearing Ratioo (Times)                 19.47               18.79                11.14                     7.64

3. In fact for the first quarter of 2012, the company’s reported a PAT of RM4.16m on revenues of RM20m, annualising at PAT of RM16.64m. Based on such financials, Instakom can easily upgrade to the Main Board from ACE within 24 months, which would augurs well for the counter in terms of interest from fund managers, financial institutions and retail traders, as well as coverage from analysts.
4. With the orders on hand and pipeline of tenders submitted, the company has set a PAT target of RM20m for the full year ended 2012. Assuming the PAT target of RM20m is achieved, with the current shares base of 702m shares, the  EPS (earnings per share) would come in at 2.8 sen.

Sustained Interest Pre-Exercise

If you look at the price chart of I-Power, you can surmise that there has been very steady accumulation of I-Power shares PRIOR to the exercise going ex-all, which is not very common at all. If you infer from likely net EPS figure of 2.8 sen, that implies the following PER for Instakom:

Instacom     Current PER
30 sen            10.7x
35 sen            12.5x
40 sen            14.2x
45 sen            16x
50 sen            17.8x

Key Positives

a) Instacom has a prudent cash management trait, and to me that is a very important aspect in gauging management's strategic ability in deployment and effective margins focus. For YE2011, the company recorded net cash inflow from operations of RM11.9million and overall net cash inflow of RM2 million. As at YE2011, the company has RM11.6million in its coffers to sustain current operations and to finance future expansions and growth plans.

b) Instacom is easily the best managed and most dependable telco services backbone operator in the country by a proverbial mile. Just ask the insiders, ask anyone senior at Maxis, Celcom, etc... Needless to say, the rapid changes from 2G to 3G to 4G and so on will only work towards Instacom's favour. Instacom is the biggest player in East Malaysia in its particular subsector of the telco industry, and with the big players such as Maxis, Celcom and Digi focusing on expanding their coverage in the Borneo states, Instacom is primed to capture a big slice of such business opportunities. In particular with MCMC driving the expansion of telephony and broadband coverage in East Malaysia.

c) Its the right time for them to be listed as their growth has been stalled by the cap on capital. This business requires capital guarantees at times when securing projects. By being listed, they would not have to turn away some of the projects coming their way (which I came to know about when talking to the company a year ago), and believe you me, they had to turn away substantial projects with decent margins, which is why I am keen on this RTO. Thus I think the 2.8 sen EPS for current year is trifling, and they should have no problem getting that up to 3.5 sen to 4.0 sen next year, which may explain some of the hectic accumulation of I-Power shares even at current levels.

d) The telco industry is unique in the sense that there exists only a select few major players at the first tier level such as TM, Celcom, Digi and Maxis whilst the 2nd tier players include the likes of YTLe, U-Mobile, P1 and Redtone. At the principal level of equipment manufacturer and supplier, its even more exclusive, confined to mega players like Nokia-Siemens, Ericcson, Hua Wei and ZTL. This is most advantageous to Instacom as they only have to deal with established reputable players who are not only good paymasters, but who employ the best professionals to run solid businesses with a clear future direction and sound growth strategy worldwide.

The Drivers

One usually can tell how far a company will go by the quality and calibre of its leadership and management team. This is one aspect I must say gives me considerable confidence in Instacom, having had the chance to meet with them a few times over 12 months ago – its well balanced, complimentary and highly experienced, able, proven and cohesive top management team.

The three original founders of Ann Kung, Thomas Ngu and Wong complement each other.

Anne Kung Soo Ching, a Malaysian aged 50, is the  chief executive officer  of Instakom  responsible for strategic development, finance and administration and has been involved in the telecommunication industry for more than eight years.  She holds a Bachelor of Laws (Honours) Degree from the London School of Economics and Political Science, University of London. She has been called to Lincolns Inn in London and the High Court of Borneo in 1984. Prior to joining Instacom, she was the Finance Director of Quality Concrete Sdn Bhd in 1992 before assuming the position of Executive Director in Quality Concrete Holdings Berhad (the listed entity of Quality Concrete Sdn Bhd) in 1996. She has served as the Chairperson of the manufacturing sub-committee of Sarawak Chamber of Commerce & Industry since 1998. She is a member of the SOCSO Appeal Board Member and Industrial Tribunal since 2004. In addition, she is also a member of the Malaysian Institute of Accountants and the Institute of Chartered Accountants in England & Wales.

Ngu Sing Hieng, a Malaysian aged 48, is the director of sales and project management of Instacom, possesses more than 20 years of experience working in the industry. He has been the Executive Director of Instacom since the incorporation of Instacom. He holds a Bachelor of Engineering Degree in Electrical Engineering from the University of New South Wales, Australia. He was a graduate member of the Institute of Electrical and Electronics Engineers, United States of America and the Association of Professional Engineer, Australia. Prior to joining Instacom, he was the director of Tennas Komunikasi Indah Sdn Bhd. He has also served in various companies such as Skypage Communications, Sydney (as programmer and Unix System Administrator), Answer Services (NZ) Ltd (as System Engineer) and Hager Elektronik Sdn Bhd (as General Manager).

Wong Say Khim, a Malaysian aged 48, is the director of operations of Instacom. He has 21 years of experience in civil, mechanical and electrical contracting works and installation of telecommunication towers and cabins. He has been involved in projects awarded by Sapura Telecommunications Berhad, DiGi Telecommunications Sdn Bhd and Maxis Mobile Sdn Bhd for the erection and installations of telecommunication towers and related civil works.

Conclusion

It should be an exciting counter and judging from the fundamentals and sustained collection, I think Instacom should trade between 36 sen-52 sen on an ex-basis and still be within fair valuation range.

Tuesday, September 18, 2012

IPOWER - Salient Points of Coporate Exercise

The Group is undergoing a major corporate exercise of  a reverse takeover by Instacom and the Group will effectively changed its name from I-Power Berhad to Instacom Group Berhad. For the benefit of investors, i highlighed the salient points below and how it would affect your shareholdings upon completion of the corporate exercise.

1..   The scheme involves an acquistion by I-Power of the entire issued and paid-up share capital of Instacom comprising 4,500,000 Instacom shares for a purchase consideration of RM102,000,000 to be satisfied entirely by the issuance of 501,000,000 new Consolidated Shares at an issued price of RM0.20 per Consolidated Share after the Share Consolidation.

Note : The new shares are issued at RM0.20 and not RM0.10. This means that the cost to Instacom shareholders is RM0.20 per share.

2..   Share Consolidation and Bonus Issue
a)    Consolidation of 10 Ordinary Shares of RM0.01 each into 1 Ordinary Share of RM0.10 each in I-Power after the Share Capital Reduction
b)    Bonus Issue of new Consolidated Shares to be credited as fully paid up to the existing shareholders of I-Power on the basis of 3 Bonus Shares for every 2 existing Consolidated Shares held

Note : It is important for investors to understand how the Share Consolidation and Bonus Issue works and how it would affect your existing shareholdings and your shareholding costs. Refer to example below.

For ease of computation, we take the assumtion that you had 100,000 shares which you bougth at 8c (total cost of investment RM8,000). Upon Share Consolidation (completion of 2a above), you will be left with 10,000 shares. Of this balance of 10,000 shares, you are entitled to an additional of 15,000 FREE Bonus Shares (refer 2b above - for every 2 Consolidated Shares you get 3 Bonus Shares).

Therefore in totality, for every 100,000 I-Power shares that you own today, you will get 25,000 new Instacom Shares upon completion of the Corporate Exercise. Based on your total cost of investment of RM8,000, your new cost of per share of Instacom is 8,000/25,000 = 32c.


Tuesday, September 11, 2012

FGV - A Great Mid to Long Term Investment

FGV had shed off 15% of its value since listing day. It touch the high of 5.55 a few days upon listing and since then, it had been all the way down. Today, it touch an oversold position of 4.52 before bouncing back. At the current price, it offers a great entry for mid to long term investors, with a potential capital gain of 30% or more that comes with a decent dividend payout. With election just around the corner, i believe the counter should claw its way back and past its ipo glory. FGV is the world’s third largest oil palm planter with access to 7% of global CPO supply via 49%-associate.

The latest financials shows the Group's revenue rose sharply to Rm3.5bn as the group switch to recognising sales of CPO. However, the net profit declined by 4.9% QoQ and 33.3% YoY to RM186 million. As of 2Q12, the Group's balance sheet stands strong with a cash pile of RM6.0bn.
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According to a Business Times report recently, the Group is currently planning a joint venture with a local partner to buy an initial 30,000ha of land in Myanmar to plant sugarcane and oil palm. Other potential Asean countries that are also being considered are Malaysia, Indonesia and Cambodia

Below are recent price targets by Research Houses, with the exception of ECM, all of them give FGV a fair value above RM5.0.

29/8/2012            Target Price :   RM 5.39         ALLIANCE
29/8/2012            Target Price :   RM 5.80         BIMB
29/8/2012            Target Price :   RM 4.85         ECM LIBRA
29/8/2012            Target Price :   RM 5.27         MIDF
29/8/2012            Target Price :   RM 5.44         PUBLIC BANK
29/8/2012            Target Price :   RM 5.36         TA
06/9/2012            Target Price :   RM 5.05         HWANGDBS

Friday, September 7, 2012

NEXTNATION - Market Darling or Just Goreng

For the past one week, the counter had seen tremendous trading volume, both ordinary shares and warrants. Speculations are rife that this counter will be the next market darling, rumours indicating a target price above 30c. It touch a high of 18c on 3rd Sept with 175.65 million shares traded before trending back to a low of 11.5c. What are the reasons that caused the recent price movement ?

On business development end, the Group recently announced on 30th August that its wholly owned subsidiary, Nextnation Datacity Sdn Bhd (NDSB) had on 29 August 2012 entered into a Memorandum of Understanding ("MOU - valid for 12 months") with PT Graha Tunas Makmur (PTGTM) to collaborate with the objective of jointly developing all that piece of land identified as Lot P58 held under HSD 7817 PT 42830, Mukim Dengkil, Daerah Sepang, Selangor Darul Ehsan, measuring approximately 5.906 acres ("the Land"), in an exercise to be led by NDSB (hereinafter referred to as the "Proposed Collaboration"). NDSB had entered into a Sale and Purchase Agreement with Cyberview Sdn Bhd on 10 April 2012 for the acquisition of the Land.

The Proposed Collaboration is to enable to parties to study and evaluate the commercial feasibility of a joint development of the Land into a mixed property development, incorporating a proposed data centre, corporate office and other commercial and retail space that can be supported by prevailing market demand in the Cyberjaya area, which is estimated to have a gross development value of approximately RM80 million. This project, if successfully executed, should provide the Group group with an opportunity to further enhance its business and contribute positively to the Group's financial in the near future.

Nextnation Datacity Sdn. Bhd, had on 5 September 2012 accepted a banking facility of RM14.82 million (“Banking Facility”) from CIMB Islamic Bank Berhad (“the Bank”), to part finance 80% of the purchase priceof RM18,523,105.92 for the acquisition of a piece of a vacant freehold enterprise lot held under P58, HS(D)28897, PT42830, Mukim of Dengkil, District of Sepang, Selangor Darul Ehsan.


On trading front, Fast Global Investment Limited is seen to be taking some profits during the past few days, which could raised some concern among investors.

3/9/2012     Disposed 67,000,000 warrants and ceased to be substancial shareholder
3/9/2012     Disposed 5,000,000 ordinary shares
28/9/2012   Disposed 500,000 ordinary shares
27/8/2012   Disposed 3,341,400 ordinary shares
27/8/2012   Disposed 1,479,000 warrants
24/8/2012   Disposed 3,000,000 ordinary shares
24/8/2012   Disposed 1,000,000 warrants

Below shows the major Shareholders and their Shareholdings as at a particular date.
  • Tey Por Yee holds 95,837,500 ordinary shares (inclusive direct and indirect interest) - based on announcement dated 9/8/2012
  • See Poh Yee holds 86,410,000 ordinary shares (inclusive direct and indirect interest) - based on shareholdings disclosed on Reports and Financial Statements dated 30/4/2012
  • Fast Global Investment Limited, Singapore (incorporated in Anguilla) holds 35,856,000 ordinary shares as at 3/9/2012
The following are some organizations who had taken up Private Placement on the Group's shares this year.
  • PT Nusantara Rising Rich, Indonesia holds 29,500,000 ordinary shares and 44,250,000 warrants as at 4/7/2012 (Shares acquired via Private Placement on 26/6/2012)
  • Telecity Investment Limited (incorporated in British Virgin Islands) holds 28,000,000 ordinary shares and 42,000,000 warrants as at 12/6/2012 (Shares acquired via Private Placement on 1/6/2012)
  • Nutox Limited, Hong Kong (incorporated in British Virgin Islands) holds 32,016,600 ordinary shares and 48,024,900 warrants as at 25/5/2012 (Shares acquired via Private Placement on 17/5/2012)
To all punters and investors alike, market darling or goreng is insignificant as long as the share price goes up. As the chinese saying, the cat that catch the mouse is a good cat, irregardless whether it is black or white.

Wednesday, September 5, 2012

INGENS - What Went Wrong (WWW)

Ingenuity Solutions Berhad (ISB) created a PANIC in yesterday's trade, chopping off almost 36% of its value in a single day. Its amazing how a counter can rally from 12c to 51c and back to 22.5c in less than 30 trading days. With such a swing, there will be many who make good money and equally there will be some who lost a great deal too.

Reviewing the massive drop, i asked myself, what triggers it ?. After all, there wasn't any bad news or detrimental announcements that warrants the collapse. Or maybe, did i missed out something ?

Below is an extraction of the announcement made recently by ISB on the offer received from Ninetology.

"On 29th August 2012, ISB received a restrictive offer from Ninetology, to purchase all and not partial of the shares held by following at an offer price of RM0.55 per share.

Chin Boon Long  -   65,800,732 shares
Firstwide Success Sdn. Bhd.   -   98,496,924 shares
Landasan Simfoni Sdn. Bhd.   -   25,500,000 shares
Titanium Hallmark Sdn. Bhd.   -  24,500,000 shares

This offer will automatically expired on the 11th September 2012 (14 days from the date of letter) . The offer will only be executed on the premise that all and not one or some of the abovenamed persons accepts the offer unconditionally."

With an offer of RM0.55 per share, it will be silly for ISB shareholders to short sell themselves at the current price level. Anyone who purchase at the current price will expect to profit more than 100% should the deal goes through. The question is, do you think the 4 shareholders will accept the lucrative offer ?.

The last sentence of the offer letter is of utmost importance. It states that "in order for the offer to go through, ALL and NOT ONE or SOME of the 4 shareholders above must accept the offer UNCONDITIONALLY".

There are 2 major factors to addressed for the deal to go through. Firstly, ALL the 4 shareholders must accept the offer of RM0.55 per share, which i don't see why they won't accept such an attractive valuation. Secondly, (this is more critical) they must accept the offer UNCONDITIONALLY. This is a very generic, open and unclear statement. There's no explainations on any sort of conditions. As minority shareholders, we expect to have a clearer picture of the deal which will allow us to make a more judgmental decision. Saying so, we won't have to wait too long for the decision as September 11 (does the date sounds familiar 911) is just around the corner. Two things will most likely happen. The price will shoot up to 50c if the deal is ON or the price will collapse further (possible below 13c) if the deal is OFF. 

The upcoming AGM (Annual General Meeting) on 20th September could be a good platform for shareholders to better understand the company, to mingle around with the Directors or to seek clarification on any matters. For those who wish to attend, the venue is at Tioman Room, Bukit Jalil Golf & Country Resort, Jalan 3/155B, Bukit Jalil, 57000 Kuala Lumpur.

Monday, September 3, 2012

COMING SOON - DON'T MISS OUT

Articles to be posted this week.

1.  NEXTNATION - Market Darling or Just Goreng
2.  1UTOPIA - Building up a Good Momentum

Make sure you logon to checkout the post or register your email and the article will be send to you mailbox directly.