Saturday, May 28, 2011

CMSB Is Undervalued

CMSB is a conglomerate involved in cement manufacturing, trading in construction materials, construction, road maintenance, property development, financial services, technology, education and other services.

Its vision is: To be the Pride of Sarawak.

The key statistics as at March 31, 2011 are as follows:
1Q2011: Vs 1Q2010
Revenue: RM 226.367m Vs 177.633m
Profit before tax: 43.095m Vs 21.347m
EPS : 9.30 sen Vs 3.68 sen
NTA: RM4.08
Current Assets: RM1,267,736,000 of which 189,614,000 is in cash
Current Liabilities: RM378,669,000
Borrowings: RM299,668
Share Capital: RM329,446,000
Par Value per share: RM1

In 2010, the government has allocated RM4.7 billion for the construction of roads & bridges, and RM2.6 billion for water supply & sewerage services. It is hopeful that more will be allocated in 2011. These government spendings will be a boast for the bottom line of the company. Looking at the above figures, there is every reason to believe that company will do well going forward. The stock was last traded at RM2.30 per share cum dividend of 10% less tax. At this price, the stock is undervalued.

Technically speaking, the stock was seen to be in demand when trading started last Friday. It is now coming out of a well-formed base. Demand is likely to continue when trading resume come Monday morning.

Review of performance (Excerpt from filings with Bursa)
The Group’s recorded a pre-tax profit of RM43.10 million for the three months ended 31 March 2011, compared to a pre-tax profit of RM21.35 million for the 3 months ended 31 March 2010. The higher contribution was registered by the Construction Division and there was a gain on acquisition of CMS Roads Sdn. Bhd. and CMS Pavement Tech Sdn. Bhd. of RM12.21 million.
The profit before tax for period ended 31 March 2011 was contributed by all Divisions except Property Division. The Manufacturing Division, being the largest contributor to the Group’s profitability, continued to achieve healthy results. The Construction Materials Division continued its excellent performance, recording a hike in profit before tax riding on the back of the government’s spending on continued projects.
The Construction Division registered a jump in profit primarily because of the re-acquisition of the profit-making entities namely CMS Roads Sdn. Bhd. and CMS Pavement Tech Sdn. Bhd., which contributed positively in the quarter under review. The higher contribution was also due to the profit from government’ s spending on periodic road maintenance work and road rehabilitation.
The Group’s associate in the steel fabrication and manufacturing of steel pipes industry, namely KKB Engineering Bhd continued its sterling performance in the 3 months period ended 31 March 2011. However, the Group’s other associate in the investment banking industry reported a lower profit for the current period compared to previous corresponding period.
B2. Material changes in profit before taxation for the quarter
The Group’s profit before tax of RM43.10 million in the quarter under review was 19% lower than the profit before tax of RM53.16 million in the preceding quarter. This was because the Construction and Manufacturing Division registered exceptionally high profits in the preceding quarter.
However, the Group’s associate in the investment banking industry returned to profit this quarter as compared to a loss in the preceding quarter primarily due to the loss incurred previously as a result of impairment made in respect of the investment bank’s loans and advances and impairment of investment in an associate.

In the stock market, nothing is certain. It is said that the only thing certain is uncertainty. Therefore, do exercise caution when you buy. Know your risk tolerance and don't be controlled by greed.

Thursday, May 26, 2011

Whistleblowers To Get Reward

America has decided to reward whistleblowers who raise red flags against frauds, cheating and other insidious crimes that are detrimental to the health and growth of stock exchanges. To promote integrity and transparency at Bursa and elsewhere, Malaysia should follow suit. Here's the story:

WASHINGTON (AP) -- Whistleblowers who report corporate fraud or other misconduct to the government could receive sizable cash awards under new rules adopted Wednesday by federal regulators.

Tipsters would be eligible if they give the Securities and Exchange Commission information that leads to an enforcement action resulting in more than $1 million in penalties. The SEC would pay up to 30 percent of the money it recovers from a company or person.

A divided SEC voted 3-2 to adopt the whistleblower program. The two Republican commissioners objected.

The new rules will take effect in about 60 days. Whistleblowers who provided information starting in July 2010, when the overhaul law was enacted, also would be eligible to receive awards.

The whistleblower program was mandated by the financial overhaul law enacted last year. It was contested by big U.S. companies, like AT&T Inc., Best Buy Co., FedEx Corp., Google Inc., Target Corp. and Verizon Communications Inc., in addition to the U.S. Chamber of Commerce.

They argued that whistleblowers should first have to tell their companies of misconduct and give them a chance to correct problems before informing the SEC. Otherwise, the corporations contend, it will take longer to address wrongdoing.

On the other side, advocates and lawyers for whistleblowers say they would be discouraged from reporting wrongdoing if required to inform company officials first.

The new rules would seek to discourage employees from bypassing their companies' compliance programs. Once employees report potential wrongdoing to their company, the SEC would officially designate them as whistleblowers, potentially eligible for awards -- provided they give the SEC the same information within 120 days.

In addition, the SEC will credit whistleblowers whose companies pass their information to the agency, even if the whistleblowers themselves do not. That way, whistleblowers could receive awards by reporting wrongdoing internally to their companies.

The new rules represent the first time that whistleblowers will be given a financial incentive to report misconduct to company authorities, SEC Chairman Mary Schapiro said before the vote.

Companies' internal compliance programs play "an extremely valuable role" in preventing fraud, Schapiro said. She said the new rules strike a balance between encouraging whistleblowers to pursue internal compliance when appropriate and giving them the option to go directly to the SEC.

"It is the whistleblower who is in the best position to know which route is best to pursue," she said.

Advocates of the new program say whistleblowers can be an effective line of defense against corporate wrongdoing. The SEC was embarrassed by its failure to halt Bernard Madoff's multibillion-dollar fraud over nearly two decades, despite red flags raised by whistleblowers.

The SEC has made few awards to whistleblowers under its bounty program. Until now, it's been limited to insider trading cases. And its system for processing tips from whistleblowers was criticized as chaotic.

Under the new program, if an insider at Goldman Sachs had given the SEC information leading to its $550 million civil fraud settlement with Goldman over its marketing of mortgage securities, that person could have collected up to $165 million.

"The SEC has chosen to put trial-lawyer profits ahead of effective compliance and corporate governance," the Chamber of Commerce said after the vote. "This rule will make it harder and slower to detect and stop corporate fraud, by undermining (internal) compliance systems."

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Saturday, May 21, 2011

The Red Collar Crime Wave

Before you invest in any Chinese stock listed in America, you are advised to read carefully the article appended below.
Better be knowledgeable than be sorry.

Joshua M Brown May 15th, 2011
We are under attack.

Chinese corporate criminals and their US-based enablers are committing Capital Genocide against American investors. We're not talking about "a few bad apples" or "a handful of exceptions", we're talking about a full-blown epidemic. Subterfuge and malicious avarice are simply the tools of the trade when many Chinese companies do business with outsiders.

This undeniable Red Collar Crime Wave is larger in scope and financial consequence than any other international criminal enterprise in the history of the world. We are talking about hundreds of millions of dollars, possibly billions should the Yahoo - Alibaba revelation prove itself to be a harbinger of shocks to come.

At the low end of the spectrum, corrupt representatives of sketchy or even non-existent Chinese companies are conniving their way onto US exchanges via backdoor IPOs, reverse mergers and SPACs. They are slithering through every exchange and regulatory loophole they can find to raise money and establish their fraudulent beachheads here. The penalties for Chinese nationals fudging numbers on a local exchange could range from exile to imprisonment to disappearance. The penalties they face for pulling that stuff here in the US? I don't know, a letter in the mail? "Don't ever do it again"?

Mainland Chinese fraudsters are untouchable, they can only be barred or banned from US exchanges once caught, and so they will get away with whatever they can as long as there are investors here who are stupid enough to capitalize them. And so the ownership of one factory in China becomes the ownership of three for the purposes of a quarterly balance sheet calculation. The ticker symbols will be cutesy and clever while the names of the companies will almost always include the word "China". After all, let's not forget that the name of this game is the exploitation of Americans who "want to play the growth".

It has become an absolute free-for-all.

For a nation that was so economically backwards and pathetic that it could barely feed itself 15 years ago, China's executives have certainly come a long way. They're employing every scam and dirty trick in the book against American corporations and investors while we say thank you and send even more opportunity and cash their way.

I've held my tongue for the last 9 months, watching one scam after another appear on our exchanges. I've said nothing as these financial landmines have been detonated beneath the feet of whichever unfortunate shareholders happened to find themselves in the wrong place at the wrong time. No longer.

We'll limit the scope of my rage here to corporate fraud. For the purposes of this post I'll leave out the Chinese poisoning of America-bound toothpaste, pet food and toys at their manufacturing operations. I'll also leave out the FoxConn factory at which all the Apple products are assembled, a workplace so abusive and abhorrent that the employees must take an oath that they won't kill themselves.

But no, let's not get distracted here, we should simply focus on the accounting chicanery and falsified filings with which Chinese companies are daily relieving US investors of their capital.

The reverse mergers are by far the most insidious manifestation of the contempt that Chinese companies have for our exchanges and rules. Working with American law firms and shameless stock promoters, these companies have found a financial engineering solution that lets them steal on our shores. They've been able to subvert the more highly scrutinized public offering process that would normally have weeded them out. By "cleaning up" shell companies, which should not be trading or available to begin with, the disease gets a foothold first on the pink sheets and then onto the American Stock Exchange where the real grifting can begin.

White Collar Crime columnist Walter Pavlo has collected a slew of recent examples on his blog at Forbes, including:

China Electric Motor – Shareholders lawsuit filed claiming underwriters violated federal securities laws by issuing materially false and misleading information.
China Natural Gas – Class action lawsuit alleges directors and officers issued materially false and misleading statements. CFO of company resigned in late 2010.
Duoyuan Printing – SEC investigating company for fraud, NYSE delisted April 4, 2011
China MediaExpress Holdings, Inc. – Deloitte quit as auditor because “no longer able to rely on the representations of management”. CFO resigned. Stock trading halted March 11
China Agritech – Shareholder lawsuit pending. Dismissed its auditor Ernst & Young.
China Sky One Medical – Under investigation by SEC.
Orient Paper, Inc. – Reauditing previous financials due to license issues with previous auditor (Davis Accounting Group)
The full list is actually quite larger, it includes some of the higher profile blow-ups you may remember with stocks like RINO International and China Green Agriculture - spectacular flame-outs complete with massive insider selling prior to the denouement.

Where are the regulators, you might ask? They are finally getting involved. The SEC's Mary Schapiro is aware of the epidemic and is now on the case...

From Barron's:

Since March 2011 alone, she noted, more than 24 China-based companies have disclosed auditor resignations, accounting problems or both – following the auditors' inability to confirm the amounts of cash or receivables shown on the companies' balance sheets. The SEC has recently suspended trading in three Chinese businesses that "reverse-merged" into U.S.-traded shell companies

The smarter thing to do would be to halt the entire shell company process in its entirety right this minute until we can get the rules up to a standard that will protect investors outright from these foreign liars and thieves. Capital formation can wait fifteen minutes while we get our act together and crack down on this disgusting shell syndicate.

An even more disturbing development of late is taking place in the large cap arena, in full view of the world's media and the global investor class. With the success of Baidu and Sina, Chinese technology companies are now finding themselves as the Belles of the Ball. In at least one case that we are aware of, they are also finding that they can easily mislead their Western partners and shareholders.

Here in the deep end of the pool, newly-minted billionaire Chinese executives are violating contract law, globally accepted corporate best practices and fiduciary responsibility to shareholders. They are disclosing things when and as they choose. They are "on the level" in their own government's eyes so long as they are playing fair with their fellow Chinese investors. This isn't a brand new phenomenon but as the companies involved get bigger, the danger grows.

This week's still-unfolding fiasco involving Yahoo being tricked out of their Alipay subsidiary by Alibaba, a company in which they hold a 43% stake, is just the latest and most outrageous example of what we're dealing with. Here's what Jacob S. Frenkel, a former SEC enforcement lawyer who is an expert in securities law matters and a partner at Shulman Rogers in Potomac, Maryland had to say (via iChinaStock):

"Yahoo! is a victim, plain and simple. With all the negative attention that US-listed Chinese companies, this action by Alibaba only makes worse an already difficult situation. It creates the unfortunate appearance that executives in China may totally disregard their contractual and fiduciary obligations to shareholders. The important message to US partners and owners is to review the effectiveness and enforceability of contracts under both US and Chinese law."

Yahoo will attempt to sue, but they have lost the asset at the end of the day, an asset whose potential was a big part of the investment thesis for the company to begin with. US shareholders were pummeled over something that took place in secret seven months ago, escaping everyone's notice. If major shareholders like Yahoo and Japan's Softbank can be scammed in front of everyone, what chance have any of us got?

The Red Collar crime wave is beguiling American investors both large and small. These crooks are laughing at our securities laws and manipulating their own. None of us are immune:

Not the savviest and most seasoned asset managers - see Glickenhaus & Co watch $4 million evaporate as China Agritech blows up. (Bloomberg)

Not Yahoo, a player in Asian web properties since the late 90's - listen as Alipay's Jack Ma regales us with his tale of how he bitch-slapped the "declining" web portal company. (iChinaStock)

Not even the diligent Warren Buffett can sleep soundly with his Chinese investments - see how the car company he invested in there (BYD) is essentially a counterfeiter playing games with the rules of the Chinese court system to get away with it. (Reuters)

Can American investors trade and hold Chinese stocks? I suppose they can...but they can also practice juggling with live hand grenades and roaring chainsaws...just because you can do something, doesn't mean you should.

I've disagreed with almost everything Donald Trump has had to say during his part-Presidential run, part final humiliation speech circuit this spring. But where Trump and I do find common ground is in our distaste with how the Chinese do business and the lack of regard they show our companies and investors from almost every perspective.

As long as Chinese corporate officers and executives are going to blow cigarette smoke in our faces as they take advantage both here and on their home turf, I'll gladly sit out. Until I get the sense that they have an ounce of respect for our investors, I'll watch the pickpocketing from the sidelines and focus my capital and attention elsewhere.

Friday, May 20, 2011

TDM on aggressive healthcare, oil palm drive

By Zaidi Isham Ismail

KUALA TERENGGANU: TDM Bhd, one of Malaysia's smallest plantation and healthcare companies, is on an aggressive mode to expand its landbank by more than threefold to 100,000ha in eight years, and own more hospitals from four at present.

TDM chairman Datuk Roslan Awang Chik said the company plans to spend RM30 million to set up its first oil palm mill in Kalimantan, Indonesia, once its hectarage reaches 10,000ha in the next three years, from 3,000ha at present.

"Ultimately, we aim to own a total of 40,000ha in Indonesia in eight years and will need an oil palm mill for each 10,000ha. Each oil palm mill will cost RM30 million.

"We have spent RM44 million on our oil palm estates in Indonesia and the first batch will start to impact our earnings in 2013," Roslan told reporters after its annual general meeting here yesterday.

TDM, which is 70 per cent-owned by the Terengganu state government, has a total of 33,284ha and two mills in Malaysia.

It aims to own a total of 100,000ha of oil palm estates, of which 30,000ha will be in Malaysia and 40,000ha in Indonesia.

The location of the remaining 30,000ha has not been decided yet.

TDM chief executive officer Badrul Hisham Mahari said the firm, which has a warchest of RM208.7 million, plans to open estates in Cambodia and Papua New Guinea but it has to balance its growth with dividend payments, cash reserves and staff strength.

Badrul said it is also on the lookout to buy or build new hospitals when the opportunity arises.

"We want to grow both our plantations and healthcare businesses but plantations will always be our core business."

TDM's plantation division currently accounts for 90 per cent of its earnings, healthcare (9 per cent) and food (1 per cent).

It started construction of its RM120 million Kuantan medical centre last year, which is slated for completion by the first quarter of 2013.

TDM also owns and manages the Kuala Terengganu Specialist Hospital and Kelana Jaya Medical Centre. It acquired the Taman Desa Medical Centre for RM16.5 million last year.

"We plan to build a new medical centre in Kuala Terengganu to replace the current one for RM150 million with 150 rooms."

Roslan said TDM's growth prospects are good as crude palm oil prices are expected to remain above RM3,000 a tonne from last year's average of RM2,659 a tonne, and ride on good export of oil palm products.

The company also plans to build its second biofertiliser plant, which can give it a 15 per cent, or RM10 million, savings on chemical fertiliser purchase.

Roslan said the firm is still in the process of selling its poultry business to Vision Poultry Sdn Bhd for RM9 million. It will be completed in the next two to three weeks and the state government has no plans to divest its 70 per cent stake.

TDM has a dividend policy of paying at least 30 per cent of its annual net profit. It employs almost 3,000 workers and has total assets of RM965.6 million with almost zero gearing.

Monday, May 16, 2011

Rubbish Pork

Are you eating rubbish? Here's the story taken from theStar:

ABOUT 90% of pig farms sell low quality pork or “rubbish pork”.

The Malaysian Pork Sellers' Association claimed that this activity had been going on for over 10 years, reported Sin Chew Daily.

Association chairman Goh Chui Lai said rubbish pork was in abundance in Ipoh, Perak and in Tanjung Sepat, Selangor.

The sale of such meat, he said, became widespread after the Nipah virus outbreak.

“Some processed food operators also buy dead pigs for their products as it is cheaper,” he said.

Goh was commenting on a news report that low quality pork were used in the making of sausages, pork balls, dim sum and buns in the market.

However, Federation of Livestock Farmers Associations of Malaysia's pig unit chief Beh Kim Hee refuted Goh's claim.

He challenged Goh to lodge a police report, claiming that Goh had no evidence to support his claims.

He also accused Goh of trying to bring down the price of pork products “with his baseless claims”.

On Saturday, the Health Ministry and Agriculture and Agro-based Industries Ministry assured that it would conduct an investigation to ensure that pork-related products in the market were safe for consumption.

Since the issue was highlighted, Nanyang Siang Pau reported that sales of pork-based products were on the decline.

If you are not sure what is what, better avoid pork products, at least for now, than to fall sick.

Thursday, May 12, 2011

Malaysian Durians To Enter China

Over the years the planting of durians in Malaysia has been a fiasco. It takes at least 7 years for a durian tree to bear fruits. For some variety, it may take up to 10 years. Once a durian tree starts to bear fruits, great care must be taken to ensure that the tree remains healthy. The worst is the D24. Especially those in the low flat land, many will die after fruiting once.

Durian trees are easily diseased and need to be sprayed with insecticide and fungicide periodically. Fertilizer is also a must. All these and labor charges cost a lot of money. The price of durians should be not less than RM7 per kg when collected by durian agents for a durian farmer to have any chance to show a profit.

In Malaysia, there are many varieties. The most popular and expensive is the Raja Kunit which originated from Gua Musang in Kelantan. The fruit is also known as the Musang King.
Next in line are the D24, D2, D78, D88, D168, Red Prawn, Tekar and many other varieties.

Malaysian durians are definitely a class above those in Thailand. Whether in taste or in smell. they are better. Once you have tasted the Raja Kunit, you will never like Thailand durians again. However, taste is subjective. Thus some may disagree with me.

China has never allowed Malaysian durians to be imported into China. After the recent visit of the Chinese premier, Wen Jia Bao to Malaysia, things have changed. Among the many agreements between the two countries, China has agreed that Malaysian durians are now allowed to enter China. As China has a vast population that is likely to like durians, the demand and import of the fruits could be tremendous. This will jack up the price and will benefit durian farmers.

Durian is said to be a powerful aphrodisiac. "Sarongs go up when durians come down", is a popular saying among Malaysians.

Lands in Bentong and Raub are suitable for durians. The most popular varieties are the Raja Kunit and D24. Swiftlet farming is also popular in these two districts. If you are thinking of investing in any of the above two activities and need help, you may contact me for assistance. Be assured that I don't charge you anything.

Doing the right thing at the right time yields the most profit. The time to get involved with durians is now.

Manager loses RM4,200 with just one mouse click

Thursday May 12, 2011 (From StarOnLine)

KUALA LUMPUR: Accounts manager Chua Ming Choo opened a message in her e-mail informing her that there was some irregular activity occurring in her account.

The e-mail told her to click a link to her bank’s website to update her particulars for safer online banking.

Less than five minutes later, the simple mouse click cost her RM4,200.

Chua, 35, from Port Dickson, said she received the e-mail last Thursday.

She added that about two minutes after she clicked on the bank’s website, she received an SMS requesting a Transaction Authorisation Code (TAC) number.

Chua realised that something could have happened to her account and she called her bank to inform them about it.

“They told me they would block my account and I was told to change my e-pin number,” she told a press conference at the MCA Public Services and Comp laints Department here yesterday.

Chua said she then went to the nearest ATM to check her account and discovered the money missing even though she did not key in her TAC number on the website.

She lodged a police report on the same day.

Another victim, Chong Wen Shan, 24, from Teluk Intan, Perak, said he received an e-mail on May 1 informing him that his online services account was about to expire due to a database update on the bank’s system.

Chong said he was asked to update his particulars and being new to e-banking, he thought it was a normal procedure and clicked on the link.

He also keyed in his TAC number when asked and discovered that RM5,000 had gone missing from his account a few hours later.

Department head Datuk Michael Chong said the two cases were the first that he had received so far this year.

He asked Bank Negara and banks to be on alert for such scams.

“I do not rule out an inside job. Otherwise, how do these criminals know our personal details?” he added.

Wednesday, May 04, 2011

Oil Palm The Golden Crop

TDM is now a member of RSPO. It is committed to sustainable practices, balancing economic viability with environment and social respensibility. By end 2012, one of its mill complexes is expected to obtain certification. This is a positive reflection of TDM, going forward.

Sunday, May 01, 2011

TDM Good For Long-term Hold

It came like a bolt from the blue when TDM announced a single-tier first interim dividend of 3 sen for the financial year ended 31 Dec 2011. This together with the single-tier first and final dividend of 13.5 sen for the year 2010 means that for every 1000 shares you will get RM165 which is payable on the June 09, 2011. The x-date for the dividends is May 25, 2011. At RM3 per share, the dividend-yield works out to 5.5%. Considering that the interest rate of fixed deposits at banks is at 2.75% p.a. it is worthwhile to buy TDM now.

As reported in the just released annual report for TDM, the company has cash of RM176.7 million and almost zero gearing. The company is well managed with a strong balance sheet and good earnings per share of 41.49 sen for the year ended 31.12.2010.

The management of the group is confident that its business will continue to do well. It has a piece of very good land measuring 25,000 ha in East Kalimantan. I understand that 5000 ha have been planted with oil palm in 2007 and the remaining land is scheduled for planting of oil palm within the next 3 years. This ensure that the company will have good growth in the foreseeable future.

On its healthcare division, TDM has acquired TDMC Hospital Sdn. Bhd, a 128-bed hospital in Taman Desa. This acquisition is expected to contribute positively to the group in the coming years. This sector has already been doing well, and with the new hospital, more profit is expected to come in.

The food division of the group is the sore spot. It has not been doing well over the years. For 2010, the division still shows some losses. Management has the intention to dispose off the sector when someone suitable to take over comes along.

Action to take: Continue to hold on to your TDM or buy more for long-term hold.