The Investssmart portfolio decline by 0.32% for the week but still outperformed the KLCI which lost 0.84% and the Second Board Index that dropped even more. Despite rising at a lower rate compared to the KLCI, the Second Board Index somehow managed to drop almost 3x as fast as the KLCI during the week. Judging from the latest quarterly results, I can assure you that the Malaysian economy is showing no signs of recovery. While earnings of large caps have improved, the same cannot be said for the majority of small caps. Over the week, 5 counters in the portfolio rose and 9 declined.
During the week, two transactions took place. I sold have of my stake in DIGI at $15.60 and used the funds to purchase MAXIS at $10. At $15.60, I believe that DIGI is fairly valued based on 13x PE and EPS of $1.20. Valuation is still not excessive and there is still room for share price appreciation as earnings continue to grow. However, I believe that the growth prospect of MAXIS is brighter due to the unrealised potential of its Indian operations, Aircel. In the long term, Aircel's earnings contribution could even eclipse MAXIS' Malaysian operations.
Aircel currently contributes just under 7% to MAXIS' profit before tax. However, with its phenomenal growth rate, its contribution will increase sharply as its Malaysian mobile phone industry becomes saturated. Aircel's revenue and EPS grew by 17% and 28% over the quarter. If it continues to grow at that rate, annual revenue and EPS growth rate will be an incredible 87% and 168%, respectively! With a good dividend yield, strong balance sheet and cash flow, I believe that MAXIS is an attractive yet defensive investment at just 11.8x 2007 PE.
PPB gained sharply during the week as Wilmar announced takeover bids for its palm oil plantation, PPBOIL and its stakes in PGEO Group and Kuok Oils and Grain Pte Ltd. Since the bid, Wilmar has gained 23% whereas PPB has increased by just about 10% despite the fact that PPB's stake in Wilmar will account for almost 85% of PPB's market capitalisation. Hence, I believe there is still some upside left in PPB.
TANJONG was the top loser for the week, declining by about 9%. However, I believe that the downtrend will be short lived. TANJONG posted an impressive quarterly result on Friday. Earnings from all its major segments showed improvement. Its gaming segment, which had underperformed in the last two quarters, finally delivered. Its power generation operations, which are governed by concessions, performed up to mark whereas Tropical Islands posted lower losses due to government grants received. At $13, TANJONG appears undervalued and I believe it should easily be worth $15-$16 in a year's time.
Disclaimer: This report is brought to you by Investssmart, an unlicensed investment adviser. Please exercise your own judgment or seek professional advice from your remisiers. By law, they are the experts. I am not responsible for your investment decisions.