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ultraman_taro
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Posting #1: Mon Oct 22nd, 2007 17:36 |
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Overview
Mulpha International Berhad is a diversified conglomerate, listed since 1983, with operations and investments in Malaysia, Vietnam, Singapore, China, Hong Kong and Australia.
Australia - mainly property, hotel and car park operation.
Hong Kong and China - trading and rental of construction equipments, and manufacturing of paints.
Malaysia - property development and ownership, and general trading.
Singapore - trading and rental of construction equipments.
Vietnam - service apartments ownership and operation.
Statistics
Price at 22nd Oct 2007 = RM1.39
Shares outstanding = 1,254,971,579
Market Cap = 1.744B
Net Assets per share as of Quarterly Report on 31st May 2007 = RM1.92
Results for the past 5 years
Group Results 2006 RM‘000 2005 RM’000 2004 RM’000 2003 RM’000 2002 RM’000
Profit before taxation 55,734 368,953 95,089 105,915 38,527
Taxation 2,592 (67,913) (12,817) (37,492) (36,855)
Profit after taxation 58,326 301,040 82,218 68,423 1,672
Minority Interest (3,681) (6,644) (6,808) 8,760 (8,992)
Net Profit/ (loss) 54,645 294,396 75,410 77,183 (3,320)
EPS (sen) 4.58 23.59 6.01 5.85 (0.54)
NTA Per Share (RM) 1.80 1.59 1.35 1.26 1.00
I personally do not recommend reading too much into Mulpha's profits history. The group focuses on net tangible assets (NTA) as the key performance indicator, and their 5 years results has plenty of one-time transactional gains, most notably in 2005, when they sold 49.9% of Norwest Business Park for RM379.4M. That contributed to a whopping RM197.814M in profits for 2005.
Pros
Based on my calculations, Mulpha is currently greatly undervalued, no thanks to the limited disclosures and news flow from management.
Basis of calculation; I calculate the value of net current assets, and quoted shares that are held as investments, with total disregard to subsidiaries that accounts are consolidated into the Group's financial results. This means that FKP Limited (11.8% stake), and Mudajaya (23% stake), which does not contribute to Mulpha Int's earnings are calculated based on their market value. Mulpha Land (53% stake) and Greenfield Chemical (75% stake), are considered subsdiaries.
Working capital (Current assets - current liabilities) = RM625.524M/ RM0.50 per share
FKP Shares (Aud6.95)= RM559.304M/RM0.45 per share
Mudajaya Shares (RM3.58)= RM110.98M/RM0.09 per share
This means the market is currently valueing the remaining businesses of Mulpha Int at RM448.192m or 36 cents per share.
This consist of;
Australian Property Assets
Northwest Business Park (50.1% stake)
Sanctuary Cove
Bimbadgen Estate Vines
Cathedral Street Carpark
Salzburg Apartments
Hotels:
Inter-Continental Sydney
Hyatt-Regency Sanctuary Cove
Hayman Island
Melbourne Airport Hotel
Malaysian Property Assets
Leisure Farm Resort, Nusajaya, Johor
Bandar Seri Ehsan, Sepang
Bukit Panchor, Nibong Tebal, Penang
Taman Desa Aman, Kulim, Kedah
Seksyen 16, Petaling Jaya (land)
Jalan Sultan Ismail, KL (land)
Hong Kong and China
Greenfield Chemical Holdings
Vietnam Assets
Indochine Park Tower
To show you how cheap the 36 cents per share valuation is; i would like to point out;
i) Greenfield Chemical Holdings, based on its current share price of HKD4.74/share is worth RM386.851/ RM0.31 per share to Mulpha Int
ii) The remaining 50.1% of Norwest Businesspark owned by Mulpha Int should be worth at least Rm379.4m, if not more, which is the amount paid by FKP to acquire 49.9% of Norwest. Thats RM0.30 per share.
iii) The proposed RM148M sales of Leisure Farm Resort (inclusive of debt) would yield RM0.12 per share to Mulpha Int. The transaction had been blocked by Securities Commision.
Unfortunately, these calculations would not be fair as Greenfield and Norwest are consolidated subsidiaries. Just like all other assets stated earlier; we should value them based on earnings. However, these examples show how Mulpha can easily earn more than 36 cents per share by divesting some of its assets.
Currently, Mulpha International is controlled by the Lee family (about 38% stake), but 2 Australian funds have emerged as substantial shareholders in the past year. McKenzie Cundill has 100M shares (8% stake), and Mercury Real Estate has 68.688M shares (5.5% stake). This is most likely because of Mulpha International's deep assets portfolio in Australia.
Cons
Strip out the extraordinary gains from one-off transactions, and you will see paltry earnings. For those that are seeking stocks that provide predictable and steady profits, stay away. This is a long term play. Value in Mulpha will only be unlocked by deconsolidation of it's subsidiaries.
Currently, market sentiments are generally poor on property counters. In my personal opinion, Mulpha International's price is unlikely to appreciate until sentiments turn better.
Conclusion
Buy; at the current price of RM1.39, its a good opportunity to accumulate. I'm not able to propose a target price as I've no means to evaluate the entire assets portfolio of Mulpha International, but we can refer to the net asset price of RM1.92, which I believe is the best indicator of Mulpha's value.
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random
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Posting #2: Mon Oct 22nd, 2007 18:53 |
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WOW nice effort!
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Moolah
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Posting #3: Tue Oct 23rd, 2007 03:10 |
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Good job Ultraman! 
I personally do not recommend reading too much into Mulpha's profits history. The group focuses on net tangible assets (NTA) as the key performance indicator, and their 5 years results has plenty of one-time transactional gains, most notably in 2005, when they sold 49.9% of Norwest Business Park for RM379.4M. That contributed to a whopping RM197.814M in profits for 2005.
yes, companies like Mulpha, you cannot really rely too much on its historical track record.
But if you look at in a cynical manner (hehe.. i think this is a good practice cos at least u have an understanding why others are not going gaga over the comapny) this one-time HUGE winners came once in their last 5 years.
yes... on one hand, all it takes is just ONE winner... and this one winner is so much more than what others make in a lifetime...
however.. on the other hand.. the cynical hand... would it be wrong to say.. if Mulpha does not find another winner, then this is a pretty below average company (as you said, earnings has been paltry)? Winners are not easy to come by.. esp these big ones...
View of the stock? On the pros side, i do think there is a DECENTchance for re-rating upwards but unfortunately it depends on the pesky unlocking of value exercise. And sometimes... such unlocking exercies could take a rather long time.
Anyway... this is a damn good write! Good set of reasonings and you certainly weighed out your pro and cons rather well!
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stockraider1
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Posting #4: Tue Oct 23rd, 2007 03:16 |
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Ok how can we explain/address the anticipated future eps of only Rm 0.07 agst share price of around Rm 1.38 to give Pe 20.?
In addition the co carry debts of Rm 900 million is it high ?.
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Moolah
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Posting #5: Tue Oct 23rd, 2007 04:19 |
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stockraider1 wrote:
Ok how can we explain/address the anticipated future eps of only Rm 0.07 agst share price of around Rm 1.38 to give Pe 20.?
In addition the co carry debts of Rm 900 million is it high ?.
Hmmm...
I find your comments strange to say the least.
Ultraman has written a review based on the fact that despite Mulpha having a poor earnings record and the whole reasoning to invest in Mulpha is based on the fact that perhaps the market has valued Mulpha too lowly based on the reasonings posted.
hence, it is to my understanding that the reasoning to invest in Mulpha is not based on earnings but based on a 'valuation' theme, which is same as how you had given reasoning why a stock like ecofirst, despite the non-existance of earnings, could be attractive based on value of the company.
Anyway.. perhaps it's best for Ultraman to answer you directly.
Last edited on Tue Oct 23rd, 2007 04:21 by Moolah
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stockraider1
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Posting #6: Tue Oct 23rd, 2007 04:53 |
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Yes alot of Property based companies will have the same peculiarity like Mulpha for example Selangor Properties,Daiman,Ksl,Crescendo and PK.
To isolate this business is not driven by poor asset management and the problem of over borrowing it is important to see earnings improvement and reduction of borrowings.Especially when we faced difficult environment
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ultraman_taro
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Posting #7: Tue Oct 23rd, 2007 06:08 |
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Hi Stockraider,
as Mulpha has a sizable working capital, and owns certain investments that do not contribute to its' earnings, its not fair to factor in the whole RM1.39 when calculating P/E. Both FKP (11.8% owned) and Mudajaya (23% owned), are not subsidiaries. Please note that I do not attempt to value subsidiaries/properties that are consolidated into Mulpha International's group results. Both FKP and Mudajaya can easily be disposed into the open market today for cash.
Working capital (Current assets - current liabilities) = RM625.524M/ RM0.50 per share
FKP Shares (Aud6.95)= RM559.304M/RM0.45 per share
Mudajaya Shares (RM3.58)= RM110.98M/RM0.09 per share
This means the market is currently valueing the remaining businesses of Mulpha Int at RM448.192m or 36 cents per share.
For the EPS of RM0.07 that you mentioned, this would be a P/E of 5x only.
Perhaps you would ask; why are Mulpha holding on to investments that are not contributing to the bottom line? Well, both FKP and Mudajaya's share prices have doubled up since Mulpha invested. These figures won't appear in Mulpha's balance sheet as value of investments are based on cost price.
It's very normal to strip out the net current assets + quoted investments to find the real value in holding companies. For Mulpha, everytime they deconsolidate a particular investment, earnings will definitely reduce because of dilution in earnings. For example, Norwest was contributing RM45M in profits in 2005. That figure is diluted after 49.9% of Norwest was sold to FKP. The same will happen if Leisure Farm Resort is sold to Mulpha Land. Mulpha International owns 53% of Mulpha Land, so they will only be able to write half of LFR's future profits into their books. In return however, the get cash (in LFR's case, warrants).
On whether their debts are high, I will use the debt-to-equity measurement.
Total liabilities / Total shareholders equities = RM1,306,061/ RM2,534,497 = 0.515
I did not check other property counters, but I would say that overall anything less than 1.0 is considered very healthy.
Would like to add on here that, management is doing a good job of buying back shares. In April 2007, they had bought back up to 75.415M shares, which were than sold at a price of RM1.93 (almost at the peak of this year's price) to foreign institutional investors. Prior to that, they had enhanced shareholder value by cancelling shares. As of today, they had bought back another 27.199M shares, kept as treasury shares.
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stockraider1
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Posting #8: Tue Oct 23rd, 2007 06:37 |
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Dear Ultraman,
U make acceptable valid points on current high borrowing and low return on assets of Mulpha.
For me I will put this stock on my radar and monitor it with a trigger point where it see potential reduction in borrowing/or improve earnings,then i will place my bets !
Thank You.
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steveb
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Posting #9: Mon Apr 7th, 2008 19:45 |
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Thank you for excellent "value" analysis of Mulpha International (of 10/22/07), which was consistent with rough valuation I saw in late summer 2007 by US-based hedge fund, recommending purchase at about RM 1.50.
Do you view current price of RM 0.90 as an even better undervalued buy?
Your thoughts on dumping by troubled bankers like Bears-Stearns and JPMorgan, coupled with small float and restricted information, as cause of drop since fall 2007? Or have fundamentals changed.
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Moolah
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Posting #10: Tue Apr 22nd, 2008 02:25 |
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steveb wrote: Thank you for excellent "value" analysis of Mulpha International (of 10/22/07), which was consistent with rough valuation I saw in late summer 2007 by US-based hedge fund, recommending purchase at about RM 1.50.
Do you view current price of RM 0.90 as an even better undervalued buy?
Your thoughts on dumping by troubled bankers like Bears-Stearns and JPMorgan, coupled with small float and restricted information, as cause of drop since fall 2007? Or have fundamentals changed.
Hey Ultraman_taro,
No updates on this bugger ah?
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