Friday, November 13, 2009

Why I Like Inch Kenneth

Ever since they gave out the 50 to 1 bonus issue, I have considered Inch Kenneth as a very under-managed company. I mean, seriously, nobody regards it as an out and out plantations company. I was waiting for some sort of indications that their land sale and property development plans were starting to take off. It was listless around 30-35 sen for the longest time, and it had to take the day I was flying back to KL to shoot up from 32 sen to 53 sen. By the time I landed, I thought I missed the boat, but the price has fallen back to decent levels to start a position. I think anything under 50 sen would be a lot of comfort on a 3-6 month view for my anticipated 30% return.

In the Annual Report dated Dec 2008, the Chairman stated: "Our planned sale of the Bangi land is still on track and we hope that it can be confirmed within the first half of 2009. Once this is concluded, we will then be able to focus on the expansion of our plantation sector either into Sabah, Sarawak, Indonesia or other ASEAN countries."

Catalyst #1: Inch Kenneth has converted its 600-acre piece of plantation land in Bangi in 2007. This marks the successful conversion of its entire plantation land bank for mixed development purpose and brings the company one step closer to realising its land bank unlocking strategy. Its 350 acres of plantation land in Kajang had received the conversion approval back in 2001. The group expects to sell the 600-acre Bangi land for an estimated RM250-300m, which is equivalent to RM11.50 psf on the high end. Based on this price, the company could realise a windfall gain of RM144m as the land is carried in the company’s books at just RM6 psf. With 420m shares, the market cap at the share price of 0.44 = RM184.8m. People, the windfall gain is nearly 80% of the existing market cap!!!!!!!!!

Catalyst #2: The 350-acre land in Kajang has been earmarked for the development of a township project and will be Inch Kenneth’s maiden property development foray. Although the company’s lack of experience in property development is a cause for caution, it will be doing this with joint-venture partners on this front. Herein lies the key, the full name of the company is Inch Kenneth Kajang Rubber. Kajang... 10 years ago, nobody would bat an eyelid, today, 350-acre in Kajang means a lot. The estimated gross development value of the township is slated to be between RM1.2bn-RM1.5bn.

The sharp jump was probably due to certain "sale being done" and the launching of the property project. Despite the sharp jump, its still very very cheap no matter how you look at it. If you sit on a high NAV and your share price is at a deep discount, it will stay that way if nothing is done to unlock the values. Inch Kenneth is selling the land and launching the property project - what more do you want, if this is not unlocking, I don't know what is. Last known NAV is RM1.15, and that is being conservative. There is no need to mention much about its diversion into tourism, its a safe and small business for now. How I wish there was a rich backer for me to take over this company, there is so much value to unlock - if its there to be taken over, a new owner would easily pay up to 80-85 sen per share for control.

The above were views on stocks and sectors that I like, not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

p/s photo: Haruka Ayase


The Contrarian said...

dear dali,

I would like to raise a point regarding the media prima's offer on privatizing NSTP, I dont understand how can a share exchange be fixed at 2.00 pershare when its an auction and liquidity based market? maybe im new to this but i don see how they can fix this at 2.00 and wouldnt this carry a market risk for all NSTP holders since Media might be to heavy and diluted? hope that i can gain something from ur response

taninvest said...

Actually, Bangi land is valued at $8/SF, or $210 mill. See notes in Annual Report.
Otherwise, I agree with you--shares are undervalued. Catalyst for realizing value will be sale of land. This month??? (1yr later than mgmt expectations.