Trade: Magnum & Tanjong

Yesterday, I made a major move by selling all my 13000 units of Magnum share at RM3.30 and the remaining 1000 units of Tanjong at RM15.90. The main reason that I did the sell-off was I am getting worried with the U.S. economy development and I believe the whole global market will be dragged down by it, regardless it will be a soft or hard landing. The fact that many Americans are spending way beyond than what they made and tougher credit facilities to fuel the consumer purchase which triggered by softening of housing market is undebatable. Besides, many local analysts although did upward revise their target KLCI index from 1300 to 1400 by year end, but to me it is not a big margin from what we are today and the risk of going down has out striped the potential of thin gain anticipated.

If I look at the earning of Magnum which is about 16 sen per share, at RM3.30, PE is ~20.5. Compare to BJTOTO with 36 sen per share earning, PE at RM4.40 is only ~12.2. This is way too high for Magnum. Even if we factor in a potential capital return of RM1.00, PE of Magnum at RM2.30 is still ~14.4. I have long never did such a PE calculation on Magnum and was surprised with the figure. Hence, I reckon it is now a good time for me to sell off the share, and keep a close eye on it. Hopefully I can pick it up later when it drops below RM2.80.

Below is my latest share portfolio after yesterday trading.

Portfolio 10-Mar-2007

With the recent rebound of KLSE, my overall portfolio value also goes up by ~1.8% or RM 1630 compare to last week.

Along the week, I made a contra trade on Genting-ca. I bought 10 lots of Genting-ca on Monday with price 70 sen and sold it on Thursday at an average price RM1.16. It was never intended to be traded in such a short time, and the idea of contra play did not ever strike across my mind when I picked up Genting-ca. All just happened spontaneously, following the strong rebound of market. To me, at 70 sen, I strongly feel Genting-ca is a very good bet (there was no big fundamental change at that time and only some negative speculation on spread) and at ~RM1.20, I also think it's value is near saturation. To me, it was a psychological battle against the majority who drives the KLSE trend. Buying the call warrant is my strategy to leverage the amount of my bet. Besides, I really do not think that Genting will drop the ball of Sentosa casino business that was already in its hands. It will be such a hard slap on its face if that happens.

Moving forward, I foresee that KLSE will be very volatile. Genting-ca was my first trade in my "hit n run" portfolio. At this point of time, I do not intend to share and maintain a second portfolio here as I have no time to update it frequently. The amount allocated for this other portfolio is around RM 10k, which is the money that I am willing to lose. It will be a high risk investment as my strategy is generally to go against the big market trend. I will pick up over sold, good value, high liquidity counter that has strong market correlation and sell it out when market stabilized. I am not sure how many more cycle of correction will the market be undergoing before it reaches the peak and / or it starts melting. As of now, I think the market is still in uptrend and it will be quite safe to bet if there is another round of correction to come. In view of the limited fund size, I will also likely to concentrate more on warrant or call warrant. Currently, stocks on my radar are such as Bursa-cb, TA-wb, Megan and of course Genting-ca.

Tanjong has slowly regained its lost over the last few trading days. Again, I am looking forward to sell out the remaining 1,000 units if it reaches RM15.50. I am actually quite regret that I did not sell all when it was ~RM16.00, not very long ago. While for the others, especially on Magnum (but exclude all REITs), I will hold on until the very last days of first half of the year, in hope for the market peak.

Portfolio 13-Jan-2007

Finally, this is my first portfolio update of year 2007. Compare to my previous portfolio which is about a month ago, there has been some major changes.

First, I have disposed all the non "core" investment counters, such as MTD and KASSET. I would like to start off my new year portfolio which is more streamlined and focus on only few selected counters. MTD was disposed at RM2.10 per share while KASSET was sold at RM2.55 averagely. From the trade of MTD, I roughly made a profit of 16% (or RM550) while for KASSET, all the 266 units were essentially obtained for free, deriving from the share distribution of IGB held previously. I am quite satisfied with these trades.

Secondly, I have topped up my investment in AXREIT while added STAREIT into my stock selection. For the latter, I strongly think that market has under valued it at current price of ~83 sen. Although there are few drawbacks on STAREIT which I have posted here previously, with its recent asset acquisition of The Residences (story here), its outlook has changed to be more positive. Furthermore, I also believe the Malaysian REIT investment scene will be much improved in this year, while I am still expecting the stock market to have a sharp correction (hopefully not a hard crash) in very near future. With the potentially brighter future of REIT (related story here), I reckon shifting from common equity to REIT is a safer bet.

On Magnum, there is a very good perspective of view that I strongly recommend it to every Magnum investors (link is here). My personal take is to hold onto it as long as I can, hopefully until the day that all the retail investors are rewarded accordingly (by capital repayment...etc) but not until the worst when bull has finally died and bear is ruling. I have confidence that the best is in making rapidly in view of recent high volume surge of the counter.

As for Tanjong, I start losing patience with it. Time is running out and it doesn't seem to move along with the major market. Moreover, the overdue IPA issue with Tenaga is still hanging. There is no announcement and the fact that Tanjong is heavily rely on this income stream makes me feel very uneasy. I think I will very soon make some moves on Tanjong.

Portfolio 07-Oct-2006

This week, my portfolio value rose 0.90%, outperformed KLCI (+0.35%). Along the week, I have made a switch, converting 10 lots of YTLPWR-w at price RM0.59 to 500 units of Tanjong at price RM12.50.

As mentioned last week, I strongly feel that Tanjong with price below RM12.50 is much better to hold than YTLPWR-w. Besides, referring to The Edge Daily, Tanjong PER is just about 12 and next interim dividend of 12 sen will be due on Oct 18. Its estimated dividend yield of 6.4% (or 80 sen per share) at RM12.50 now is irresistible. This although does not seem to be in line with my overall strategy of cashing out from equity, I bet Tanjong's downside risk is limited and hope that with this cost down, I can achieve a better opportunity to exit later.


Magnum has traded in a narrow band lately, with strong support at RM2.10. There is always the thinking to take profit lingering around in my mind but so far I have been able to suppress that. I still can see occasional share buyback of Magnum and this made me think its current RM2.10 will be well supported. I will only consider to dispose partial of it if it starts to breach RM2.20 again.

This week, my bond fund value increased to RM50399.97 from last week value of RM50298.11, or 0.21% increment w-o-w. PBOND still performed better than PIBOND, with to-date return of 1.03% and 0.57% respectively in a time frame of ~1 month. Frankly, I am very satisfied with these performances, considering the fact that these 2 funds are consistently rising from day to day.

Magnum Quarterly Result 30-June-2006

Magnum Corporation Bhd posted a net profit of RM66.48 million in the second quarter ended June 30, 2006, up 36.1% from RM48.85 million a year earlier due to higher sales and lower prizes payout ratio.

It declared an interim dividend of six sen less tax.

In a statement on Aug 23, Magnum said revenue rose 11.2% to RM716.02 million from RM644.08 million due to higher gaming sales, which grew 11.4% on the back of an additional draw and mBox sales.

For the first half, its net profit was 11% higher at RM126.9 million against RM114.35 million a year earlier, while revenue rose 7.9% to RM1.5 billion versus RM1.39 billion.

quoted from The Edge Daily, 24th-Aug-2006

Magnum has posted an excellent result yesterday. Despite World Cup which traditionally lowered the total revenue of gaming companies, Magnum managed to register 11.2% rise. Contrarily, in World Cup 2002, Magnum suffered 2.5% Y-o-Y drop in revenue. This is mainly owing to its increased sale of m-Box, a similar gaming product that was initially launched by Tanjong as I-Box. It is a renovative product where with just RM1, one can bet on all the permutations of a 4D number. I think it must attracts a lot of small punters such as foreign labor and maid. Furthermore, this product also provides better profit margin. Recently, Sports Toto also followed the herd and launched I-Perm.

With the jump of 36.1% in profit, EPS for half a year of Magnum now standing at 8.70 sen. If Magnum can keep up with current performance, whole year EPS is estimated to be 17.4 sen. At current price of RM2.04, this equals to PER of 11.7! Very attractive I would say. Besides, Magnum's nett cash has increased to RM814 millions!

On the prize payout ratio, Magnum always performs the worst among the other 2 competitors. For the six months period, it is somewhat disappointed to hear that the ratio is marginally increased compare to the same period last year. Personally I view this as a blessing in disguise. This is because higher prize payout ratio will definitely make Magnum more attractive to punters and thus maintain its market share in 4D betting. I think that as long as the ratio is not ridiculously higher than the competitors, it is necessary for Magnum to fence off market share domination, especially from BJTOTO, since the latter has more variety and popular products.

Coupled with its latest 6 sen dividen declared, I strongly think it is a good buy.


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Magnum vs BJTOTO

After my recent purchase of Magnum base on speculation, I did a simple research looking at some of the fundamentals of Magnum compare to BJTOTO. Here I am to share:

a) Price Earning ratio (PER)
Earning per share for Magnum and BJTOTO is estimated at 14.2 sen and 32.8 sen respectively for Y2006. Base on Magnum price of RM2.07, this equals to PER of 14.6. For BJTOTO, with current price of RM4.42, its PER is 13.5. Obviously, Magnum doesn't look attractive, especially with the fact that most analysts will put a discount on fair PER for Magnum because of its non-market leader position in gaming sector.

b) Nett Cash
Magnum has piled up RM683.8 million of cash as reported in 1Q2006 while BJTOTO has -RM82.3 million in debt reported in 4Q2006. However, after settlement of inter-company loan, BJTOTO is expected to have RM450-500 million. For Magnum, after preceeding of Sepang land sale, it will has additional RM210 million. Considering a nett cash position of RM700-900 million, Magnum is capable to return back shareholder RM0.85-1.15 per share. While for BJTOTO, Macquarie anticiapted it will be able to distribute 35-39 sen of special dividen. However, one must take note that the cash pile of Magnum has been built up in years and Magnum had not been generous in dividen payout in the past.

c) Dividen Yield
From past history, Magnum will typically give out 10.0 sen per share dividen compare to 40.0 sen of BJTOTO. This translates to dividen yield of about 5.0% and 9.0% respectively. Again, for long term investment, BJTOTO is much more attractive than Magnum.

d) Potential Earning Growth
Magnum has been volatile and high on the prize payout ratio compare to BJTOTO. Moving forward, analysts are expecting Magnum to improve its payout ratio from 70-75% to below 70%, in line with industry benchmark. This will able to improve EPS of Magnum. For BJTOTO, analysts are confident that it will continue to expand further in market share, despite its current leading position.

So, after this simply study, I have to admit that my latest purchase of Magnum at RM2.07 appears to be quite expensive. AmResearch rate HOLD on Magnum recently at RM2.00. If we apply fair PER of 13 to Magnum, its fair price will be about RM1.85. However, I doubt that with its current price trend, Magnum price will drop back to that level.


Related articles:
1) Brokers' Digest
2) Corporate: End to BToto's intercompany loan woes soon


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Trading: Magnum

Yesterday, I made a speculative move that was opposite with my overall strategy; I bought in additional 3000 units of Magnum @ RM2.07! I made this decision when I noticed that Magnum price has dropped as much as 6 sen from last week closing price at noon. Without second thought, I called my remisier to place the order.

The reason for this is I believe Magnum price still has a lot of room to increase from its current level, supported by share buyback activity of the company, which has >RM700 million of cash in spare. When I made my portfolio update last week, I observed that Magnum was offering RM2.04-2.10 on Friday. I reckon RM2.07 is still a fair price for which Magnum is willing to support. This is further confirmed with the move of Magnum yesterday, at RM2.07-2.10. I understand that this speculative move is very risky, as I have no idea how is the valuation of Magnum compare to BJTOTO at this current price. My purchase of Magnum is purely base on speculation that the price will be further pushed up and also hoping for a windfall like special dividen to be announced. Hence, I quickly make this write-up to note down all my thoughts now for my own reflection in future. Whether this will end up to be a winning or losing move, it still serve a lesson to me. Indeed, I have taken the precaution and limited the purchase to 3000 units, which I have thought earlier to buy 5000 or 10,000.

Technically, like OSK has published, Magnum price is on bullish trend in my opinion, with supporting level at RM1.95. OSK has put an immediate target price of RM2.25 and RM2.45 for longer term. Although I really hope that it will be true (and think it will for once), but I am afraid to believe even 50% of what OSK has recommended, especially on a buy call. From my past experience, 9 out of 10 of their analysis missed, and missed a lot hell from what they have estimated!

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Starhill REIT

With my recent interest in REIT, I decided to take a deeper look into another seem "promising" REIT, Starhill which is among the few available in the market now.

Starhill REIT is currently owned 51% by YTL corp while only 49% is from public. Assets of Starhill REIT are Lot 10, Starhill Gallery and JW Marriott Hotel, which are all strategically located within the golden triangle of Klang Valley. Both Lot 10 and Starhill Gallery are currently enjoying near full occupancy rate, with majority of leases expiring by 2008.

Starthill REIT has indicated that they will distribute near 100% of income as dividen for the period to 1H FY2007, and thereafter 90% for each financial year. For the latest income distribution announced during end of last month (1H FY2006), which is 3.4524 sen per unit, it representing approximately 100% as what they have claimed. If Starhill can maintain the same income for the full FY2006, this will translate to ~7.5% yield, which is attractive.

However, if one delved into more details of Starhill, one will observe its future potential is limited. Firstly, the management of Starhill REIT (which is Pintar project Sdn Bhd, 70% subsidiary of YTL Land) has no plan to aggressively acquire new property (besides those owned by YTL) into its portfolio to improve its yield.

Secondly, the rental hikes of all current 3 properties of Starhill are very limited. JW Marriot Hotel only provides ~1% rental hike annually; Autodome, which is a subsidiary of YTL contributes ~67% rental income for Starhill Gallery, thus there is a conflict of interest for any rental hike; and Lot 10 is unlikely to fetch any significant increase in rental due to stiff competition nearby, e.g. Berjaya Time Square etc.

Thirdly, the distribution rate after 1H FY2007 will be reduced to 90%, effectively lower its overall yield.

With all the above factors and unfavorable interest rate outlook for REIT in the past 6-9 months, its share price has dropped from its peak of RM1.07 to now RM0.915, which is below its IPO price of 0.980. NAV per unit as of 4-Aug-06 is quoted at RM0.983, about 6.9% lower than its current share price.

I personally think that the annual yield for Starhill will remain at ~7% until 1H 2007 base on its current share price of RM0.915. After that, I believe that its yield will drop to 6% or below due to reduced distribution rate and bleak outlook for shopping mall related properties when economy takes a downturn. It will be worse when the bulk of Lot 10 and Starhill Gallery leases expired by 2008, if recession happened at the same time.

As such, taking into account also the risk of depreciating share price, I personally will only consider to buy Starhill REIT for short term (1 year or less) if its share price hits 86 sen or less. This will fetch a yield of ~8%, and at the same time, minimizing the downside risk for capital preservation.

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Axis REIT

I bought Axis REIT 2 months ago after reading the cover story from Personal Money magazine and a book "Road to Riches with REITs" by the famous sifu in capital market, Sherilyn Foong. At that time, I got different recommendations from the 2 sources, book and magazine.

Sherilyn recommended REIT investment strongly. As from her point of view, REIT is sort of "optimized" version of property investment, the next big thing in Malaysia (which was true for some times, but the heat faded off quickly, and the book was written in 2005). While on the other side, concerns of hiking interest rate (which renders the yield of REIT less attractive compare to fixed deposit), less than perfect regulation such as high taxation (28%) for foreign investor, too many red tapes for buying and selling property...etc from the magazine discouraged readers to invest in REIT.

Nevertheless, because of my target is to invest into some stable, relatively high yield generating stocks, I've decided to bet a small amount in REIT. Naturally, for one to invest in REIT of Bursa, there is only limited options, which are UOA, Tower, Starhill and Axis REIT. Despite Axis REIT price has appreciated quite a lot from its IPO of RM1.25 (while others are about or even below their IPO), I have decided to invest in Axis, because of the main reasons as below:

a) Most actively managed, constantly acquires new property for yield improvement

b) Commited dividen payout rate of 95%

c) Strategic properties with high tenancy rate, ~99% and long term MNC occupants such as AIA, Tenaga, Fuji Photo, Fuji Xerox..etc

Its share price has remained very stable along these 2 months, despite KLCI has fluctuated in range 885 - 935 points. And yesterday, Axis REIT brought another good news to its investor. With 6.2 sen interim dividen, which is equal to 97.2% dividen payout rate, it is impressive to me.

"Axis Real Estate Investment Trust (Axis REIT) posted a net profit of RM14.79 million for the second quarter ended June 30, 2006.....Revenue for the quarter ended June 30, 2006 was RM9.64 million while basic earnings per share was 7.18 sen. Axis REIT manager Axis REIT Managers Bhd also declared a 6.2 sen tax exempt interim dividend....."

Quoted from The Edge Daily, 01-Aug-06

If Axis can maintain this earning for 2nd half of the year, it will translate to ~12 sen per year. For the share price of RM1.68 (which I've purchased), this is equal to ~7.1% yield. At this rate, and judging from the stability of its share price (almost non-correlation to KLCI), I have to say that Axis REIT is a very attractive vehicle for me to temporarily place my spare money. Even if I quit before the next dividen payout, I will already received 6.2 sen (i.e. ~3.7%, which is almost equal to 1 year return of fixed deposit in bank). My calculation has also excluded the potential of capital appreciation, in my case, it has already rised ~4.7%.

In addition, I think the overall economy condition now is favouring toward investment of REIT, because:

a) Interest rate hike seem to put on a pause, with economy slowing down globally and locally, easing the concern of inflation

b) Relaxation of regulation / guideline from SC for growth of REIT. Latest change as reported in The Edge Daily as link

c) Potential lower taxation for foriegn investor by government in coming budget. This will attract foreign investment and price appreciation for current REIT.

So, for those who are interested to jump into the boat of REIT investment, make sure you grab some well managed REIT like Axis. The execution date of its current dividen payout is on 17-Aug. For me, I will collect more Axis when its price resides after dividen payout, but before budget. Also, please note that income from REIT dividen is subjected to Malaysian income tax base on individual bracket.

Related links:
http://biz.thestar.com.my/news/

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