Huat Fund grows - capital injection

After investing in QL last week, the cash holding in this fund was quite low and stood at about RM 5k . At the moment I do not intend to sell any stocks in the portfolio since these stocks still have quite some upsides in them. Some comments on these stocks:

Inari - this company is still growing very fast organically. The recently in Oct 2013 completed factory #5 in Penang is now almost fully utilized at 85%. The rights issue announced will be used to fund another expansion and the rights issue is at reasonable price. Will buy more to average up.

Sunreit - this company is quite undervalued due to the impending launch of renovated Putra Place. Earnings and dividend will improve once it is operational.

Cypark - the renewable energy quota for this year will be released soon. Will be interesting to see how many Megawatts this company wins.

Westport - One of the long term buys. Proxy to the economic growth of Klang Valley industries.

Jaya Tiasa - One of the long term buys. Proxy to the palm oil consumption worldwide.

Hovid - One of the long term buys. Proxy to increasing healthcare cost in Malaysia and its' export markets.

QL - New addition.

Since the cash holding in this fund is low, I decided to solicit some extra capitals and expand the fund size in order to grow it further. Starting 15th of July 2014, Sister Ying will inject RM 20k into Huat Fund with the same return rate i.e. guaranteed 10% annual return with capital protection. After this capital injection, the cash holding increases to RM 25k. This could come handy in the next few months if and when the market corrects.  

QL Resources

QL Resources is a company that I wanted to invest for a long long time. Back then in 2009, there are tips circling around that the price would double within a certain period. Being a skeptic, I chose to forgo this information as these types of rumours are usually obsolete by the time they reach normal investors like us. Boy, I was wrong!

At that time, the share price was RM 3.50 with 330million shares and the current price is RM3.58 with 1.248billion shares. This means the stock value has quadrupled in about 5 years. The list of corporate exercises that QL have undertaken in these 5 years:

The QL financial highlights for the past 5 years:

The pulling factors:
1) Resilient business model
QL is involved in common staples like eggs, poultry, meat and surimi that is supported by rising consumption locally and overseas. Even in economic downturn the demand for staples will only be slightly affected. As QL aggressively expand it's production, it stand to benefit from ever larger economy of scales.

2) Good management team that are hands-on and have a defined vision: 
Their vision is to become a global agro-based enterprise. It is very important for a company to have a vision and implement it. For me, QL is slowly working towards achieving it. We might be seeing Datuk Chia Song Kun be a "Tan Sri Teh Hong Piow" in food sector in a decade's time. QL's strategy towards it's vision are:
      - regional expansion and business model replication
      - strengthening and further integration of the value chain
      - development of a stronger presence in the consumer food market
QL's board of directors might be filled with the Chia family members but this is not a bad thing as they are united and are very experienced in this field.

3) Increasing presence in China, Vietnam and Indonesia:
QL has just acquired Zhongshan Food (ZF), a company that produce and sell various kinds of frozen minced fish fillets and other flavoured foods to China's domestic market. QL plan to expand ZF's range of products to build a presence in the China market that is estimated to be USD30 billion by 2015. Meanwhile the contribution from Indonesian and Vietnam operations are steadily increasing : RM250 million in FY2013 from RM109 million in FY2012. Although the profit margin from these operations are still marginal, it will improve as the production volume increases. As the middle class population in Southeast Asia and China continues to grow, the demand for protein food will increase and QL will stand to benefit.

4) Imminent Contribution from Palm Oil sector:
The maturing palm oil segment will contribute more to the bottom line once the CPO recovers.

Risk:
1) Rising raw feed material
2) No successor in sight


Today I bought 3000 units @ RM3.58. Guess the reason?

Huat fund looks like this after this transaction:

Financial assets at 07.07.2014
	Name	Purchase Date	Purchase Price	Current Price	Unit	Current Value	P/L ex Dividend (%)	Dividend	P/L inc Dividend (%)
Cash	Hle-Broking			5072.23
	Inari	24/02/14	2.30	3.11	10000	31100	35.4	72.5	35.7
	Sunreit	04/10/13	1.40	1.42	5000	7100	1.6	282.75	5.7
	Cypark	22/10/13	2.17	2.86	3000	8580	31.7	147.5	34.0
	Jaya Tiasa	24/04/14	2.74	2.58	2000	5160	-6.0		-6.0
	Westport	09/05/14	2.77	2.7	1000	2700	-2.5		-2.5
	QL	07/07/14	3.60	3.54	3000	10620	-1.6		-1.6
	Hovid	14/04/14	0.34	0.41	20000	8200	20.0		20.0
Total Stock				73460.00	93.5	%		502.75
Total cash				5072.23	6.5	%
Total				78532.23
Capital				50000.00
Current paper gain				11106.71
Total profit including current paper gain				28532.23	57.1	%
Total dividend				889.18

Yet another long term play - Westport

Westports 's journey began in 1994 in Pulau Indah, Port Klang. Since the humble beginning, Westports has grown into the second busiest port in Southeast Asia by containers' volume handled. Due to its excellent port and logistics management, Westports currently accounts for 72% market share in Port Klang (the remaining 28% for Northport). 80% of the transhipment and 59% of the import/export business in Port Klang are handled by Westports. The major owners are the Gnanalingam family (43.2%) and Mr. Li Ka Sing who own a stake of 23.6% via Hutchison Port Holdings, the world biggest port operator.

The pulling factors are:
1) Natural advantages:

• In the Straits of Malacca there are main competitors for Westports are Northport, Port of Tanjung Pelepas (PTP) and Port of Singapore (PSA). Other than Northport, these ports have natural deep water berth, which allows them to       accommodate large vessels. Northport has only 12m canal depth im comparison canal depth of at least 17m for Westports and the other two. This means Westports can handle bigger vessels of up to 18000 TEUs.
• Westports is also naturally sheltered by Pulau Mat de Zin and this eliminates the need for costly artificial breakwaters. 
• According to Drewry Maritime Advisors, the deviation of Port Klang, PTP and PSA from the main shipping route along the Straits of Malacca is approximately 12, 15 and 9 nautical miles, respectively. The lower the deviation, the more suitable a port's location is to operate as a transhipment hub.

2) Operating efficiencies:

• Besides location, operating efficiency is very crucial for port operators because shipping liners opts for ports which are able to load and unload their container cargo fast as this allows them to maximize vessels utilization and reduce cost. Westports earns the recognition of one of the world’s highest productivity with more than 35 moves per hour (mph) per crane for vessels over 300metres as compared to industry’s average of 27 mph. Its terminal utilization is maintained at the optimum level of 76% which translate to the least waiting time for vessels (2-3 hours) while its peers, PTP and PSA, have rather high terminal utilization of close to 90% that implies average vessels’ waiting time of 12 hours. To note, for every hour a ship waits to unload its cargo, it will cost them USD10,000 per hour. Therefore, it is extremely material for port operator to maintain their terminal utilization at the optimum level.

3) Low port tariff - Possible tariff hike?

• Another competitive advantage of Westports is the attractive port tariffs offered to shipping liners; lowerst transhipment tariff rates in the region with huge discount of 50% to PSA's rate and 30% to PTP's rate. Despite the huge discount, it still managed to achieve relatively high EBITDA margin of 51% (PSA: 51% , PTP:46%). The tariff rates in Port Klang is set by the Transport Ministry and regulated by Port Klang Authority. Last tariff review was in 2002.

4) Concession secured and capacity expansion in place

• The port concession has been extended by another 30 years until 2054. With the commission of berth CT7 at end of 2014, Westports will increase its capacity from 9.5mil TEUs to 11mil TEUs per annum. The future CT8 and CT9 will enlarge the capacity to 16mil TEUs. The competitors PTP and PSA are also expanding to cater to new volume diverted from new alliances and to optimize terminal utilization respectively.

5) Proxy to growth in greater Klang Valley

• Most of the industries in Malaysia are located in the greater Klang Valley. As long as the industries are growing, the port business should grow in tandem. The port business is a monopoly similar to airport whereby the port will continue to earn money even if the shipping lines slash their rates and compete amongst each other. 

Risk - P3 alliance?

• The risk of reduced volume from its major customer CMA CGM after the formation of P3 long term alliance of world's three largest shipping liners with Maersk Line and Mediterranean Shipping is overrated. The P3 rationalisation plan from middle of 2014 will be minimal and involve only 200k TEUs which is 3% of Westport's total volume. This will be compensated by the allocation of more non-P3 alliance services for growing Intra-Asia, Asia-Africa and Asia-Middle East trade.

This stock is starting to gain some recognition from the investors of late as seen by the volume and price rise in the past week. As a start, I bought 1000 units of Westports at RM2.76. The huat fund looks like this now:

Financial assets at 09.05.2014
	Name	Purchase Date	Purchase Price	Current Price	Unit	Current Value	P/L ex Dividend (%)	Dividend	P/L inc Dividend (%)
Cash	Hle-Broking			15618,78
	Inari	24.02.14	2,30	2,83	10000	28300	23,2	72,5	23,5
	Sunreit	04.10.13	1,40	1,37	5000	6850	-1,9	188,8	0,8
	Cypark	22.10.13	2,17	2,88	3000	8640	32,6		32,6
	Jaya Tiasa	24.04.14	2,74	2,7	2000	5400	-1,6		-1,6
	Westport	09.05.14	2,77	2,77	1000	2770	0,1		0,1
	Hovid	14.04.14	0,34	0,355	20000	7100	3,9		3,9
Total Stock				59060,00	79,1	%
Total cash				15618,78	20,9	%
Total				74678,78
Current profit				7761,27
Total profit				24678,78	49,4	%
Total dividend				642,92