Monday, December 12, 2011

Malton, Linked To VVIP?

Office tower, under construction project 

Malton Berhad, a property  company which has two main business namely;
  • Property development
  • Construction and project management

Historically, the company having completed a number of project worth more than RM1.3 billion as well  managed and completed projects with contract value more than RM2.0 billion.

Previously, there was a gossip which linked Malton to “Datin Sri” who is a wife of senior government  leader, therefore it is good to buy. But difficult to confirm how far the truth of  the “gossip”, but I remain agree with the point of view saying Malton is “good to buy”. My judgment based on fundamental factors instead of “Datin Sri” factor as below;

1)  Financial Strengths

a.  Financial report ended 30 June 2011 has shown, Malton was in a good cash position and very low debt level as illustrated  by current ratio which equal to 1.65 times and debt to equity ratio which only 0.23 times.

b.  Actual value illustrated by NTA stands at RM1.22 meanwhile the price was trading at RM0.73 in stock market on 7 Dec 2011 meaning that  Malton’s  price is undervalued. Price to NTA ratio (P/NTA),  was only 0.6 times. Therefore if investors  buy Malton at RM0.73, it will cost them  only 60 percent of actual value. In other word, investors  buy at  40 percent discount.

c.  PE ratio was 4.3 times. It  is very low compare to 11 times, a ratio that acceptable by most investment experts in stocks purchase. The lower PE ratio the better but please bear in mind that negative PE ratio is not good.

d.  Recent Return On Equity (ROE) was 14.28% which close to 15.0%. Great investor like Warrant Buffet will only invest in company with ROE of 15.0% or above. ROE is a ratio which measures the capability of generating  profit for every share. The higher the better.

e.  Value investors always pay attention to shares with the above criterias.

2)  Profit
Malton has recorded losses as much as RM4.66 million in financial year 2008 but in the following years, it  has shown a tremendous improvement in net profit and jumped to RM72.70 million for financial year 2011 ended on June 30th. The improvement can be seen as below;

                Financial Year (ended 30 June 2011)                        Net Profit (RM million)
2007                                                                   3.40
2008                                                                  -4.66
2009                                                                   6.64
2010                                                                 22.07
2011                                                                 72.70

Note: Net profit for financial year 2012 is estimated at RM80.0 million.


3)  Current And Future Projects

a.  Malton currently has six under construction projects consisting of two terrace houses projects, three luxury residential projects and one office tower project. The value of project is estimated not less than RM1.5 billion.

b.  There are also five future projects to be undertaken by Malton consisting of terrace houses, bungalows, retail lots and shop offices in Penang and Selangor. It is  estimated not less than RM1.0 billion.

4)  Will Malton Be A Privatised?

a.  major shareholder of Malton is also major unitholder of newly listed RIET i.e. Pavillion REIT which listed on last 7th December 2011. There was an article  reporting,  Malton will be privatized after the listing of Pavilion REIT . Undervalued price is a main reason of privatization plan.

b.  very sure the truth of the news, but if the plan is materialized, I  expect the price may go up as happened to the previous privatization cases as major shareholder normally will offer higher price to lure minority shareholders accepting the privatization offer.

c.  It is a normal to see the price react positively when the privatization is suggested. Nevertheless,  it depend on the offer price of privatization.

5)  Target Price From Local Research House

On 17th November 2011, a research house has set the target price at RM1.60.

The article above is only my personal view.

- Sabri Jalil