IN the trail of Valuecap. It has been more than four months since we last wrote on Valuecap Sdn Bhd, the establishment of which generated considerable excitement back in January. With the renewed vigour of the KLSE, we believe it is appropriate to provide an update, especially in view of the rising pace of companies releasing their annual reports for the financial year ending June 2003.
For those who may not be familiar, Valuecap was set up with a fund size of up to RM10bil, and is owned equally by Khazanah Nasional Bhd, PNB (Permodalan Nasional Bhd) and KWAP (Kumpulan Wang Amanah Pencen, or Civil Servants' Pension Funds). As Valuecap buys no more than 5% of individual stocks, it is not required to file its interests and dealings to the KLSE, which also means that its presence will only show up in annual reports, if at all.
Presence in 29 listed companies so far? Based on annual reports released up to Oct 23, we have “uncovered” the presence of Valuecap in 29 listed companies, not counting Public Finance which was privatised in June. This represents new investments in 15 stocks since our last update (see table. For the complete list, click on www.surf88.com).
At this juncture, we would have to stress that the list is compiled based on “static” information at the time of respective annual reports, and only captures cases when Valuecap emerges among the top 30 shareholders. It may hence not be representative of Valuecap's latest holdings, nor does it present a “complete” list as Valuecap may well invest in companies where it does not feature among the top 30 shareholders, or on the other hand, it may have turned shareholder only after the publication of annual reports.
?with estimated market value of RM2.6bil? Based on our compilation, Valuecap's listed portfolio would have a current market value of RM2.6bil.
Considering the investments have been progressively built up since the beginning of the year and before the recent upturn of the KLSE, Valuecap’s cost of investments is likely to be considerably lower than RM2.6bil. If so, this would be a relatively small proportion of its RM10bil mandate.
?anchored by Maybank, MISC and Sime Darby. Perusing the list, we note that Valuecap's three largest investments account for 55% of its total portfolio at current market values. Incidentally, the three anchors have also been on Surf88’s BUY list for sometime, i.e. Maybank (RM10.10), MISC (RM10.50) and Sime Darby (RM5.50).
Maybank is the largest by far at more than a quarter of the estimated portfolio size, followed by MISC at 16% and Sime Darby at 13%. Of the three stocks, we believe MISC and Sime Darby have further room to catch up in terms of valuation, but Maybank may have to take a breather following recent strong gains and further in light of its premium valuation.
Largest sector exposure in banking. As it is, Valuecap should have done very well with its banking investments that include AMMB (RM5.25), Commerce Asset (RM4.16) and Public Bank (RM2.52). Sector-wise, banking is also Valuecap's largest holding at 35% of its estimated portfolio value.
Hume and PLUS stand out as other value picks. Also worth a mention are Hume (RM5) and PLUS (RM2.57), which we see as still undervalued after recent share price gains. We have a BUY recommendation on both stocks.
Dividend focus? Meanwhile, Valuecap's dividend focus is rather apparent. In fact, its top three investments of Maybank, MISC and Sime Darby already pay above-average dividends, and similarly, Hume and PLUS. At the same time, we also notice Valuecap's exposure to almost purely dividend-driven stocks such as BAT (RM40) and JTI (RM4.26).
Emulating Valuecap? For investors looking to emulate Valuecap, we would caution that investment strategy should be tailored to individual circumstances, factoring in among others, funds requirements, investment horizon and risk preference. For instance, we believe Valuecap would have a much longer investment horizon than most individual investors, which is an important issue to bear in mind. Happy investing!