Alcom-The Old WorkHorse!

Fancy Value Investing in KLSE suggesting an old workhorse stock like Alcom.!

Aluminium Company of Malaysia Berhad, engages in the manufacture and trade of aluminum sheet and foil products in Malaysia, other Asian countries, and internationally. It offers pre-coated finstocks for use in air-conditioners.

Aluminium Company of Malaysia Berhad is a subsidiary of Novelis Inc.

A few keys point of ALCOM:

1) Alcom does not produce aluminium but uses it as a raw material for its products. Due to the rise in the commodities prices and depressed demand last year, Alcom suffers a small net loss in its previous financial years. That has been causing the lag in its share price recently.

But many didn't know,when the commodities prices were stable from 2007 to 2008, Alcom were able to consistently produced about RM 14 mil p.a. Alcom has established customers in India, Hong Kong, the Philippines and Thailand.Recently,the company was looking at new markets in India and Middle East.

Alcom has a market cap of RM 142 mil and consistently reward its investors with 10% dividend. Its currrent asset is RM 133 mil against total liabilities of RM 40 mil. Hence, by paying RM 142 mil for the business,investors are getting RM 90 mil net-net current asset plus non-current asset of RM 93 mil. In short, investors are paying RM 50 mil for ALCOM's business which produces RM 14 mil p.a (or P/E = 3.5 x) and gets non-current asset of RM 93 mil for FREE.

2) ALCOM is controlled by Novelis Inc. Novelis Inc. is the global leader in aluminum rolled products and aluminum can recycling. The company operates in 11 countries, has approximately 12,500 employees and reported revenue of $11.2 billion in fiscal year 2008. Novelis supplies premium aluminum sheet and foil products to automotive, transportation, packaging, construction, industrial and printing markets throughout North America, South America, Europe and Asia. Novelis is a subsidiary of Hindalco Industries Limited, one of Asia's largest integrated producers of aluminum and a leading copper producer. Hindalco is the flagship company of the Aditya Birla Group, a multinational conglomerate based in Mumbai, India.

3) ALCOM has RM 62 mil cash with no debt. Alcom can easily raise another 100 mil from debt market (assuming debt/equity = 0.50). In total, Alcom has access to RM 160 mil to acquire other companies with the assistance from Novelis. Or Alcom can distribute its cash to shareholders through bonus issues / special dividend.

To sum it up, Alcom gives you:

a) Stable 10% dividend due to stable business and balance sheet. Potential special dividend

b) Future appreciation due to business link with Novelis which opens up vast acquisition opportunities

c) Great margin of safety at current entry price. The share price has been almost stagnant for the past 1 month. It didn't follow the recovering market sentiment.

d) Good business at cheap valuation. Investors are paying RM 50 mil for ALCOM's business which produces RM 14 mil p.a (or P/E = 3.5 x) and gets non-current asset of RM 93 mil for FREE.

Why Pure Socialism Just Won't Work!

Read this thought provoking story and tell me what you feel after that.

An economics professor at a college made a statement that he had never failed a single student before but had once failed an entire class.

That class had insisted that socialism worked and that no one would be poor and no one would be rich, a great equalizer.

The professor then said, "OK, we will have an experiment in this class on socialism. All grades would be averaged and everyone would receive the same grade so no one
would fail and no one would receive an A.

After the first test, the grades were averaged and everyone got a B.

The students who studied hard were upset and the students who studied little were happy.

As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.

The second test average was a D! No one was happy.

When the 3rd test rolled around, the average was an F.

The scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.

All failed, to their great surprise, and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great but when government takes the reward away, no one will try or want
to succeed.

Could not be any simpler than that.

So what is your reaction or response now on socialism?

What a profound short little paragraph that says it all!

Read also this quotation:

"You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for
without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for,that my dear friend, is about the
end of any nation. You cannot multiply wealth by dividing it."

~~~~ Dr. Adrian Rogers, 1931

Does it possibly remind you of a failing state?

ADB Not too Bullish about Malaysia's Economic Recovery

Singapore's Business Times has this to report today(23 September 2009).

Asia’s emerging economies are proving to be more resilient than had been feared in the face of the global financial and economic downturn and will recover faster than expected, the Asian Development Bank (ADB) said yesterday in its latest Asian Development Outlook.

Led by China, the region as a whole will grow by 3.9 per cent this year, rather than the 3.4 per cent forecast just six months ago while next year it should reach 6.4 per cent against an earlier forecast of 6 per cent, the ADB said.

But Southeast Asia's “more open” economies will fare badly. Singapore is forecast to see its GDP contract by 5 per cent this year before returning to 3.5 per cent growth in 2010, the ADB said. Pulled down also by Malaysia and Thailand, Southeast Asian growth will fall to just 0.1 per cent this year.

“Despite worsening conditions in the global economic environment, developing Asia is poised to lead the recovery from the worldwide slowdown,” said ADB chief economist Lee Jong-Wha. The upbeat tone of the ADB report contrasted sharply with the view taken by the IMF in its latest World Economic Outlook published yesterday in which it warned that recovery from global recession “is expected to be slow”.

Warning of “concerns about the prospect of long-term damage to the path of global output”, the IMF said that some of the global output losses caused by recession could prove to be “permanent”, damaging government revenues and threatening future fiscal crises.

The prospects of a much hoped-for “V-shaped” recovery in the global economy, in which output quickly returns to pre-crisis levels, are not justified by evidence from previous recessions, especially where these are linked to banking system crises, the IMF suggested.

On a more optimistic note, the ADB said that “firm action by many governments and central banks, the relatively healthy state of financial systems prior to the global crisis, and the rapid turnaround in the region's larger, less export-dependent economies, have all enhanced developing Asia's growth prospects”.

The ADB's growth forecast for East Asia was upgraded to 4.4 per cent in 2009, from the 3.6 per cent projected earlier. In China, aggressive monetary easing and massive fiscal stimulus bolstered the region's largest economy, which is now forecast to grow by 8.2 per cent in 2009 and 8.9 per cent in 2010.

A shallower contraction in South Korea is also expected on the back of effective fiscal stimulus measures. Meanwhile, the economies of Hong Kong and Taiwan are likely to “shrink more sharply on account of the severe drop in the demand for their exports”, the ADB said.

Growth in Southeast Asia is projected to fall to 0.1 per cent this year, against expectations of 0.7 per cent growth as of March. “The more positive outlook for Indonesia and Vietnam failed to offset the deteriorating prospects for the more open (Malaysia and Thailand) and smaller (Brunei and Cambodia) economies,” the ADB said.

By contrast, forecast growth for South Asia has been upgraded sharply to 5.6 per cent this year. South Asia's “limited reliance on trade partly shielded it from the adverse effects of the global slump”, the ADB said.

India is now expected to grow by 6 per cent this year thanks to fiscal stimulus and an upturn in business confidence. Despite improved prospects, “the regional outlook should not make developing Asian economies complacent”, Lee said.

“A protracted global slowdown or the hasty withdrawal of stimulus packages can degrade the region's ongoing recovery,” he added.

So being an open economy and using the export model of growth seems unlikely to work for Malaysia.So it's back to pump-priming and more local civil engineering works to be funded by the government. But watch your imports!

Rubber Ball Genting-The Financing Poser

Shares in Genting Bhd rebounded from Wednesday’s selldown after analysts assured investors that the gaming group had the financial muscle to support its 55%-owned Singaporean subsidiary, Genting Singapore plc (GenS), in its fund-raising exercise.

Genting closed 10 sen higher at RM6.97, off its intra-day high of RM7.06, while GenS was down 5 cents to S$1.14.

GenS, which is developing one of two integrated resorts in the island-state, has proposed a one-for-five rights issue of up to 2.1 billion new shares at an issue price of 80 Singapore cents each to raise an estimated S$1.6bil, to be used for “strategic opportunities” and as working capital.

The theoretical ex-rights price is estimated at S$1.13 per share and GenS is expected to trade ex-rights next Friday.

OSK Investment Bank in a report estimated the rights issue to have a 20% dilutive effect on equity and 6% dilution on GenS’ theoretical rights price.
An aerial view shows the sprawling construction site of the Resorts World Sentosa casino on Sentosa Island in Singapore. - Reuters

Nonetheless, the dilution was not seen as excessive and would place the group in a stronger position to weather any operational uncertainties while providing a larger cash pile for future acquisitions, it added.

Meanwhile, parent Genting’s entitled portion, if fully subscribed, is estimated to cost some RM2bil. Given that its net cash amounted to about RM300mil at company level as at Dec 31, 2008 (FY08), Genting would have to raise the additional funds externally.

OSK said funding was not an issue for Genting as it could tap into bank borrowings, raising convertible bonds on its 49% stake in Genting Malaysia Bhd (GenM) or up-streaming cash from GenM via dividends.

Kenanga Research shared similar views, adding that GenS would make management and licensing fees payments to Genting after its operation commenced, which should enable the latter to repay any loans.

TA Securities believes bank borrowing is more palatable as Genting has a clean balance sheet with zero debts.

Assuming its portion was fully funded by borrowings, net gearing would be at a manageable 0.26 times, it said, adding that Genting’s underlying business fundamentals remained solid.

AmResearch said the interest expense, if Genting were to borrow 100% to fund its subscription, would reduce its FY10 estimated net profit by 7% to RM1.2bil.

The research house has revised upwards its assumption of visitors to Resorts World at Sentosa (RWS) by 18% to 12.9 million in FY11 and 15% to 14.8 million in FY12, due to the expected high number of casino patrons.

OSK said the competitive threat of RWS on GenM was likely to be muted due to the vast differing price points.

The average room rate at Genting Highlands is RM75 per night while hotel room rate at RWS is estimated at S$250 to S$350. The average spending per head at Genting Highlands is RM203 per day and S$460 at RWS.

The RWS project costs S$6.6 bil and is expected to have a soft opening early next year.