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Tuesday, April 27, 2010

UNDERVALUATION OF A VALUABLE FUND: ICAPITAL.BIZ

ICAP is selling @ RM 1.75 per share,valuing the company at about RM 245.0 mil on 28 April 2010

 Let's look at ICAP's latest balance sheet as at 28 Feb 2010.

Investment cost is about RM 165.3 mil.
Current asset is at RM 38.5 mil.
Addback the dividend from 28 Feb 2010 up to today,28 April 2010, is about RM 1.5 mil
Total Investment Cost plus Liquid Asset = RM 205.3 mil (RM 1.47 per share)

If you buy @ RM 245 mil , you're paying about RM 40 mil premium for the business.Note that RM 205.3 mil is the total investment cost for its portfolio (AT COST) and liquid cash. The 205.3 mil is quite safe because it's liquid and can be recovered easily if anything happens.

What will you get by paying RM 39.7 mil for the business?

  • Potential unrealized gain of RM 56.0 mil (Based on NAV of RM 2.16 per share). The unrealized gain of RM 56.0 mil may go up or down but it has safety margin (unrealized profit) of 16.3 mil (about RM 0.116 per share).
  • You are making about 41% instant return on the premium paid (RM 56 mil minus RM 39.7 mil divide by RM 39.7 mil )
  • You're getting the business for free plus 41% return
  • Margin of safety since the portfolio is selected using value investing principle
  • Good management with solid track record (20% compounded return)
  • Good sleep at night with no worries
Another information which is noteable in the 3Q is ICAP sold all TM, bought Suria and invested in "XYZ" company. XYZ company will be revealed in the 4Q when ICAP complete its acquisition. Subsequent to 28 Feb 2010, ICAP sold all KLK,LION,POHKONG,SWEEJOO and ASTRO to raise cash. I estimated the proceeds from the sale of these 5 counters is about RM 70 mil.The best thing is, the sale is not recorded in the balance sheet because it clearly stated under the note that "Subsequent to 28 Feb 2010,.."

The investment cost for these 5 counters is about RM 46 mil. The picture shows the 3Q balance sheet.



So, if you were to estimate the balance sheet as at 28 April 2010, certain assumptions have to be made. Assume the investment cost in XYZ and Suria is about RM 20 mil.
Hence, the investment cost = RM 165m - RM 46m (sold 5 counters) + RM 20m (XYZ and Suria)
Total investment cost = RM 139 mil
The current asset(CA) in 3Q is RM 38.5 mil. Assume further dividend of RM 1.5 mil. And proceeds from 5 counters sale is RM 70 mil.
Hence the CA= RM 38.5m - RM 20m (XYZ and Suria) + RM 1.5m (dividend) + RM 70 mil = RM 90 mil

So, Total Asset = RM 139 mil + RM 90 mil = RM 229 mil

Assuming no other investment been made by ICAP, that will raise it Total Asset to about RM 1.63 per share with huge unrealized gain in 4Q

Today price is RM1.75 per share only. What are you waiting for?

Tuesday, April 13, 2010

Something Brewing In Advance Information Marketing Berhad?

Advance Information Marketing Berhad, together with its subsidiaries, provides customer loyalty management solutions and business process outsourcing services in Malaysia, Singapore, and Indonesia. It develops and provides loyalty and database management software applications and information technology infrastructure. The company offers Advance Information Marketing System, an enterprise marketing management solution that comprises managed loyalty application to manage various aspects of loyalty program, including members’ information, merchant activities, inventory updates, and redemption process; enterprise application for campaign management, e-auction engine, SKU tracking system, payment gateway, electronic data interchange, B2B integration with Web services, grid computing, and mobile and wireless computing; and business intelligence application that enables users to analyze their customers’ profile, and purchasing behavior and pattern. It also offers various solutions, such as business intelligence services; outsourced integrated marketing services; inbound and outbound contact management solutions, including customer service, telesales, relationship, and contest management; outsourced procurement and fulfillment services; and technology infrastructure solutions.

AIM is listed in ACE market of Bursa Malaysia just in case you can't find it. It has market capitalisation of RM 49 mil,Current asset of RM 40 mil compared to total liabilities of RM 16 mil. So,AIM has about RM 24 mil liquid assets.That means out of RM 49 mil, about 49% is cash or equivalent.Investors are paying half for its business plus the remaining fixed assets of RM 9 mil.Let's exclude the fixed asset of RM 9 mil for simplicity.

The question now is what is so attractive about AIM that I have to pay about RM 25 mil for its business component?

1) Actually there is nothing attractive in the "Income Statement" of AIM. In 2009, its revenue is about RM 46 mil (very stagnant for 4 years) but COGS has been increasing from RM 24 mil in 2007 to RM 41 mil in 2009. Profit margin has been shrinking which signifies intense competition in that industry.It may also means "hanky panky" stuffs have been happening for the past 4 years. My point here is,why spent so much when the revenue is stagnant?

2) Something is happening to the shareholder.
On 8 April 2010,DATO' SHAMSUDDIN BIN HAYRONI has sold all his shares in AIM @ RM 0.23. Before this, he and his wife owned about 19.1% of AIM. Their 19.1% was sold for around RM 8.23 mil.His wife Datin Rahmah Binti Kassim has resigned as the Alternate Director.This is quite a good news because Dato Shamsuddin and Datin Rahmah had sold their 127 m2 condominium in Villa Flora TTDI to AIM for RM 430,000. They bought it for RM 375,000 in 2003.Why the board of directors approve it if it's not in favour of AIM?

3)Who is DATO' SHAMSUDDIN ?

Shamsuddin Bin Hayroni serves as Executive Chairman of Majulia Group of Companies. Dato Bin Hayroni has been Non-Executive Chairman of Advance Information Marketing Bhd. since February 21, 2005. A civil engineer by training and profession, Dato Bin Hayroni started his illustrious career in Jabatan Kerja Raya, Selangor at Public Works Department, Selangor from 1978 to 1988 and Project Lebuhraya Utara Selatan (PLUS) Bhd from 1989 to 1995. He then ventured into the construction and property development industry in 1995. Subsequently, in 1999, he ventured into the CRM business and serves as Director of Electronic Commerce Technology Sdn Bhd (ECT). Dato Bin Hayroni graduated from University Technology Malaysia with a Diploma in Civil Engineering in 1978 and a Bachelor Degree in Civil Engineering from the University of New Hampshire, USA in 1983.

His company Majulia Group of Companies, has obtained many projects from JKR. I don't know whether it was a fair tender but don't play play with this guy because he and his wife are 'orang kuat'. No wonder AIM bought their condominium.

3) Appointment of Tan Chin Yen as Executive Director. She is quite experience in the current industry.
From qualitative point of view,it's a good news that Dato Sham is leaving. And i'm sure that his shareholdings of RM 8.23 mil has been bought by 'someone' else but it was not reported.Tay Woon Teck and Nyang Koon Seng (CEO & Executive Director) jointly owned 43.5% of AIM.

So,nothing to worry because i personally think AIM is planning to offer something "nice" for its shareholders.
Possibilities are
1) Bonus issue
2) Special Dividend
3) Acquisition of another complimentary business
4) Successfully obtained big contract from government
5) Joint venture with another companies

Good news are brewing, Are you buying?