Kaching!! Special Edition

FA vs TA

2006-12-10T10:09:00.000+07:00

I am talking about Fundamental Analysis versus Technical Analysis.

Fundamental analysis deals with the metrics and performance measures of the operations of the company. How much money is it making? How much inventory is kept by the company? How much profits is generated per employee? What is the percentage of sales that go into R&D? These are all information which if accurate will provide you with a comprehensive picture of the company. Some people say fundamental analysis deals with the concrete, rational aspects of a company.

But is the stock market rational? What makes up the market? Humans. All the participants are humans. Sure, there are computerized models design to performed trades automatically based on pre-defined instructions and thresholds but who put these instructions in the first place?

And are we all rational and logical? I think you and I know the answer.

First of all I am still a total amateur when it comes to Technical Analysis. However I have some inkling of what Technical Analysis is capable of and why. And this may sound far fetched but I think it is the precursor to psychohistory (yes I am a Isaac Asimov fan - especially the Foundation series).

Technical analysis does not to determine why a price is moving (that's for fundamental analaysis eg. profit is up) but rather looks at the trend of the movement, which for all intents and purposes are an aggregate of large numbers of human decisions happening in real time, hence my (half-jokingly) claim that it is the beginnings of psychohistory.

By identifying the patterns, technical traders (people who employ TA) try to predict future price movements to profit from it.

My postings so far have all been FA in nature but I agree with my broker's advise that we should look at fundamentals to determine WHICH stock to buy and use technical analysis to determine WHEN to buy.

However I am interested in learning more about TA and will definitely share some here in the future.

Forum on Bursa Malaysia

2006-11-19T13:08:00.000+07:00

I gotta let you know about a forum I just found out from a reader who left a comment. The post in this forum is really sophisticated and analytical (I must confess this is my observation after browsing thru the forum for only about an hour, so I am not a long time participant yet).

Interested? Go here.

Thoughts on this blog

2006-11-19T12:56:00.000+07:00

Some of you who visit this blog will wonder is this one of those blogs that start of strongly but slowly fade away ..... no updates since Oct 30, that's like 2 weeks. Well, rest assured I am not going for hibernation as Kaching!! is still alive and well. Kaching!! will continue to be my main focus of trying to share what I learn in a light and (hopefully) humorous manner.

On the other hand, I feel that whenever I post on Kaching!! SE it should contain a certain level of intelligence (for lack of a better word) and standard. This of course involves more work, up to 1 full day just to prepare the post, hence the limited posts.

In case you think I am so full of myself (I believe the simpulan bahasa is Angkat Bakul Sendiri), hell no, comments and constructive criticism are most welcome. :)

Bolton Berhad

2006-10-30T22:11:00.000+07:00

Another stock my remisier told me to have a look. At this point in time I would not buy it, even though it is clearly undervalued, but will be keeping an eye on it. Check here for my analysis.

Pos Malaysia Capital Repayment

2006-10-27T22:17:00.000+07:00

Kaching!! Kaching!! Kaching!! *Postman ringing the bell on his bicycle, bringing good news*

I watched with disappointment a year ago when as soon as I sold off my Digi.com shares, they started announcing one capital repayment after another (and of coz the share price just keep shooting up like a Saturn V rocket thanks to each announcement).

Anyway this time around I was still holding on to some shares of a company that might announce a capital repayment (a significant one). Admittedly I sold some of the shares about 3 months back (hence the bad news mentioned in my Kaching!! blog) which with hindsight was a classic amateur investor mistake. Yes Pos Malaysia is expected to announce a capital repayment. And when the share resumes trading you can bet it will have anti-gravity jet packs on its back.

Essentially what this means is that Pos Malaysia shareholders can expect to receive a cheque in their mailboxes soon, potentially a large cheque (mine will be of adequate size :P ). Sounds like a dividend? Almost but not quite.

So what's the difference between capital repayment and dividends?
Let's explore that in another post ......

Fancy getting a 8% annual return?

2006-10-17T19:50:00.000+07:00

Get ready for a whole load of MUMBO JUMBO ... as background info for this excel sheet on Puncak Niaga. Note that this provides a yield of 8% at current prices, that's double the FD rate. And given that the government has approved the water tariff increase, this should be good for the company in terms of its ability to service its debt.

Terms of the PDS:

The Company subscribed for RM546,875,000 nominal value of Junior Notes A ("JNA") issued on 20 November 2001 by its wholly-owned subsidiary, PNSB, at an issue price of RM0.322 per RM1.00 nominal value of JNA. The JNA are redeemable, unconvertible, unsecured and substantially mirror the structure of the Redeemable Unconvertible Junior Notes ("RUN") issued by the Company. The proceeds of the JNA was utilised to repay RM168,000,000 of PNSB's Al-Murabahah Commercial Papers ("MCPs") with the remaining balance utilised for its working capital purposes.

The main features of the JNA are as follows:
(a) The JNA carries a coupon rate of 2.5% per annum receivable semi-annually for the immediate ten (10) years from the date of issue of the JNA and 3.5% per annum receivable semi-annually thereafter for the next five (5) years.

(b) PNSB shall redeem the JNA in ten (10) equal instalments each comprising 10% of the aggregate nominal value of all outstanding JNA commencing on the sixth (6th) anniversary of the date of issue of the JNA. On the tenth (10th) anniversary of the date of issue of the JNA, PNSB has the option to redeem the JNA by paying the principal amount outstanding on that date. On the same day, the holders of the JNA also have the option to sell the JNA back to PNSB
for a consideration equivalent to the principal amount outstanding on that day.

(c) The JNA was issued back-to-back with the RUN. Proceeds from the RUN was immediately utilised to subscribe for the JNA by the Company. Accordingly, the proceeds from the coupon payments and redemptions of the JNA would be utilised by the Company for coupon payments and redemptions of the RUN.

Lion Diversified Restructuring

2006-10-14T17:05:00.000+07:00

I first shared this with my remisier about a week back. I usually try to do a study of recommendations given by him. This is what I have come up with. In fact I am considering buying some this coming Monday, even though it has gone up quite a fair bit. The reasons are outlined below.

For details in TheEdge go to here. If that's no longer available the Google cache version is here. If the restructuring steps seem confusing checkout the PowerPoint slide I prepared here.

*******************************************************************
By Chong Jin Yoong

A. Restructuring Steps

1. LionDiv values its 55.5% stake in Parkson Retail Group (PRG) and Parkson Malaysia operations (collectively known as Parkson operations) at RM4.3 billion.
2. ACB issues 3.8 billion new shares at RM1.00 par value each.
3. ACB issues RM500 million worth of redeemable convertible secured loan stocks (RCSLS).
4. LionDiv injects the Parkson operations into ACB in return for the 3.8 billion ACB shares and RM500 million RCSLS.
5. LionDiv buys another 42.32 million ACB shares from LionCorp
6. LionDiv ends up with 3.84 billion ACB shares (99.16% stake)
7. ACB undertake capital reduction (merger of 4 ACB shares into 1 new ACB share)
8. LionDiv now holds 960.51 million new ACB shares which still represents 99.16% stake in ACB
9. LionDiv distribute all 960.51 million ACB shares to LionDiv shareholders on the basis of 1.3 ACB shares for 1 LionDiv share held.

B. Assumptions
The value of ACB shares are currently subject to the pending approval of this restructuring. Without the approval, the market will only place a value on the possibility of the restructuring being approved + the intrinsic value of the ACB current business (which is loss making for the last FY if I recall correctly).

Given the huge market value of the Parkson stake relative to the value of ACB's current businesses, it is easier to value ACB shares by assuming that all current asset and liabilities of ACB are zero, upon approval.

C. Basis of Valuation
The Parkson stake that can be attributed to shareholder equity (upon transfer to ACB) is RM3.8Billion ( RM4.3B – RM 500 million loan stocks). Note this is the value placed on Parkson by LionDiv which may be different from actual market value when the restructuring completes.

However this will be the basis used since it is also used by Lion to determine the nominal value of the new shares in ACB to be issued (the 3.8 billion shares of RM1.00 each) to finance this purchase from LionDiv.

The capital reduction will reduce this stake to 960.51 million ACB shares (99.16% of total). Total shares is about 968.6 million shares.

Since ACB is actually a holding company for PRG, a 20% holding company discount will be applied to the stake.

So each new ACB share is worth
(RM3.8 billion x 80%) / 968.6 million shares = RM 3.14
So 1.3 ACB shares = 1.3 x RM 3.14 = RM4.08

D. Upside for ACB shares
For existing ACB shareholders there is minimal upside of about 4.6% (if restructuring is approved).

Current value of 1000 ACB shares = 1000 x RM 0.75 = RM 750
Upon completion of the restructuring the 1000 shares will become only 250 shares (capital reduction from par RM1.00 to RM0.25 and 4 shares combined to become 1).

If the market values the completed transaction as above, the new ACB shares (over 968 million shares) quoted will be worth about RM3.14 each (from above calculation).

Thus the value of the 250 shares is = 250 x RM 3.14 = RM 785
Upside is = RM785/ RM750 = 104.6%

E. Upside for LionDiv shares
RM4.08 (1.3 new ACB shares) + RM 2.35 (LionDiv cash per share) = RM 6.43 giving a upside of about 22.5% from current price.

F. Conclusion
I think the uncertainty is causing the price of ACB to drop whereas LionDiv is increasing because essentially the Parkson stake is still in LionDiv now. This exercise may have caused more people to revise upwards their fair value of LionDiv given the increase publicity/exposure of the value of Parkson.

I would not buy ACB shares currently pending approval, instead LionDiv still offers better upside at fair value of RM6.43 (about 22% above current closing price) derived purely from the 1.3 ACB shares to be distributed and cash per share in LionDiv. This implies a zero value of all the other existing LionDiv business which is still very very conservative.

*******************************************************************

Dissecting An IPO announcement ...

2006-10-13T16:55:00.000+07:00

A friend posted this to me hoping to make some sense of it:

Issue Of 42,260,000 New Ordinary Shares Of Rm0.10 Each At An Issue Price Of Rm0.21 Per Ordinary Share By Way Of Private Placement And Public Offer Payable In Full On Application Comprising:- - 35,260,000 New Ordinary Shares Of Rm0.10 Each Available For Placement To Selected Investors; - 3,000,000 New Ordinary Shares Of Rm0.10 Each Available For Application By The Malaysian Public; And - 4,000,000 New Ordinary Shares Of Rm0.10 Each Available For Application By The Eligible Directors And Employees Of The Greenyield Group, And Other Persons Who Have Contributed Tothe Success Of The Greenyield Group In Conjunction With The Listing Of Greenyield Berhad On The Mesdaq Market Of Bursa Malaysia Securities Berhad Offer Of Options To The Non-Executive Directors To Subscribe For Up To A Maximum Of 1,000,000 New Ordinary Shares Of Rm0.10 Each Under The Employee Share Option Scheme

Yeah that's a lot of mumbo jumbo in there. And by the way in case you are interested to know where to get this information (actually there are many sources) I usually use this.

So once again let's go back to the Nasi Lemak analogy used earlier in my previous post. I recommend you reread the details in blue here. So I am about to list my super-successful nasi lemak venture (officially called the Fatty Rice Group Bhd) on Bursa Malaysia. I will submit this anncouncement to the Securities Commision:

Issue of 100 New Ordinary Shares Of Rm1.00 each at an issue price Of Rm2.00 per ordinary share by way of private placement and public offer payable in full on application comprising:

20 new ordinary shares of rm1.00 each available for placement to selected investors;

10 new ordinary shares of rm1.00 each available for application by the malaysian public; and

10 new ordinary shares of rm1.00 each available for application by the eligible directors and employees of the Fatty Rice Group, and other persons who have contributed to the success of the Fatty Rice Group in conjunction with the listing of Fatty Rice Berhad on the Mesdaq Market of Bursa Malaysia Securities Berhad

~~Offer of options to the non-executive directors to subscribe for up to a maximum of 10 new ordinary shares of rm1.00 each under the employee share option scheme.~~

I will leave out the option portion as that can get quite complicated and thus I shall save that for another day, another post.

So what does ALL that mean ???

20 new ordinary shares of rm1.00 each available for placement to selected investors;
This is where I sell 20 shares to my friends and family (private placement) for RM2.00 each.

10 new ordinary shares of rm1.00 each available for application by the malaysian public; and
This is where YOU the public (who unfortunately do not know this super-successful entrepreneur personally) will get a chance, I repeat a very SLIM chance to buy this share in the IPO.
For that 10 shares, 500 people applied for it, each applying for 2 shares. So it is oversubscribed 100 times :
Demand is = 500 x 2 = 1000,
Supply = 10 only
So 1000/10 = 100 times oversubscribed

10 new ordinary shares of rm1.00 each available for application by the eligible directors and employees of the Fatty Rice Group, and other persons who have contributed to the success of the Fatty Rice Group in conjunction with the listing of Fatty Rice Berhad on the Mesdaq Market of Bursa Malaysia Securities Berhad
This is where my parents (directors of the company) and the fatty rice cook (employee) gets a chance to buy shares in the company he works for as well.

So I sold a total of 40 shares. So what does it mean at the end of the day?

For me: I still control 60% of the company, I still own 60 shares of Fatty Rice Bhd. But now I have a ready market for my stake in the company, anytime I can sell it based on the daily price quoted. And I am now worth 60 x RM 2.00 = RM 120. Watch out for the next Forbes listing of the richest people in the world!

For the company (note that it is a separate entity in itself, remember your Kemahiran Hidup lessons, or even your Prinsip Akaun lessons?):
It is now a company with RM280 cash, ready to invest in hi-tech Nasi Lemak production process. Hey where did that extra RM80 come from, you ask?? Remember I sold 40 shares at RM2.00, and the RM80 money goes to the company as funds for expansion as they always say in IPO documents.

For the minority shareholders: You get to participate in 40% of the company's future success.