Good time to review Valuecap

  • Business
  • Thursday, 15 Jan 2004

Online investment advisor on Valuecap Sdn Bhd. 

GOOD timing? Indeed, with Valuecap Sdn Bhd having celebrated its first anniversary not too long ago, we believe it would be timely to review the reported investments of this value finder.  

This coincides with the recent appointment of Tan Sri Nor Mohd Yakcop as the Second Finance Minister.  

As many would know, Nor Mohd was credited with the formation of Valuecap, a then somewhat controversial move which has since found acceptance.  

This was the case as Valuecap has so far proven to be a long-term passive investor, limiting itself to no more than 5% stake in individual stocks, and showing no unusual preference for government-linked stocks as well. As such, earlier fears of Valuecap being a “bail-out vehicle” have also subsided with time. As Valuecap owns less than 5% of individual companies, it does not leave an obvious trail of its investments.  

Detecting its presence then becomes a rather tedious task as one has to comb through published annual reports for its holdings, and this is only possible when it emerges among the top 30 shareholders on the annual report date.  

As such, even our 100% coverage of annual reports would not be able to produce a complete list of Valuecap’s investments, although we believe this would already be the best available under the circumstances. 

Reported investments in 37 listed companies. On this basis, our latest efforts showed the presence of Valuecap in 37 KLSE-listed companies, which is an addition of 8 companies from our last update in October (the new candidates being highlighted in BLUE).  

The list of stocks and Valuecap’s respective holdings are tabulated at the end of this report, adding up to total investments of RM3.3bil based on current market prices.  

As mentioned earlier, we believe this is likely to have under-stated Valuecap’s actual portfolio worth as we are not able to include cases where it does not emerge among the top 30 shareholders, or when it made its entry after the annual report date.  

Also, note that Valuecap is likely to have bought/sold shares since the last reported date, hence its latest portfolio would again be different from the compiled list. 

No presence in second board stocks. Perusing the list, we note that 10 stocks account for more than 70% of the reported portfolio, of which more than 50% comes from the top five, i.e. Maybank (RM10.30), MISC (RM12.00), Sime Darby (RM5.45), YTL Power (RM3.36) and Telekom (RM9.40). 

Interestingly, there are no second board stocks at all on the list, suggesting that liquidity could be an important criterion in Valuecap’s investment decision. There are also no “sin” stocks as in gaming and beer companies. 

In any case, the purpose of this write-up is more to uncover “values”, taking a leaf from Valuecap’s reported investments so far.  

Here, the key is on its “value” focus, and the fact that it takes time to surface values, which means that one might yet find gems in Valuecap’s investments which have relatively under-performed so far.  

As Valuecap would have bought into individual stocks at different times, we have turned to relative share price performance from Dec 31, 2002, to date as a guide. 

Finding values in?To start with, let us take a look at the out-performers, where we note that Valuecap’s investments in Hume Industries (RM5.50), YTL Cement (RM4.94) and MISC have paid off most handsomely! 

Incidentally, we have also recommended all three stocks at significantly lower levels than prevailing! 

Meanwhile, we should highlight that high-dividend payers like Amway (RM6.90), BAT (RM43.25) and JTI (RM4.38) would inevitably pale in terms of capital appreciation potential, hence their relative share price under-performance is understandable. 

? Road Builder, PLUS, Sime Darby ...As for other under-performers, three stocks have particularly caught our attention as offering good values.  

We refer to Road Builder (RM3.60), PLUS (RM2.59) and Sime Darby. In particular, Road Builder has been punished almost as much as Gamuda (RM6.45) despite its non-involvement in the double-track project.  

At current levels, the construction major has been derated to sub-market valuation of about 13x June 2004 PER despite its secured order book and the buffer from its global construction presence, and exposure to tolls, ports and property development. 

Meanwhile, we believe Sime Darby as a heavyweight laggard will eventually catch up while PLUS offers the strong anchor of cashflows, which should underpin progressively higher dividends going forward. 

?and YTL Corp. As it is, we should highlight that we remain positive on the likes of Maybank, MISC, YTL Cement and YTL Corp (RM4.32), which also feature among Valuecap’s reported investments but in terms of relative upside, there is probably better potential with the under-performers.  

A case though should be made for YTL Corp, which has significantly under-performed most of its listed subsidiaries (despite out-performing the CI), which has indeed surfaced value for the holding company. 

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