WHY IS EPF + MD ACCUMULATING GADANG SHARES?
GADANG - 659 MILLION SHARES
1. Announced on 11 Aug 2017 - became substantial sharheolder - owns 33.0 million shares or 5%.
2. Announced on 22 Aug 2017 - ceased to be a substantial shareholder - after selling 0.70 million shares.
3. Announced on 9 Jan 2018 - bought another 0.5 million shares, bring it to 40.5 million shares or 6.14%.
4. I take it as a positive development, as Gadang attracted this "blue chip" shareholder.
5. Similarly the MD also bought around 7.0 million share with highest at RM1.28 per share (in May 2017).
6. Again, I take it as a positive development, or at least neutral, as it only represent 1% of the total of 659 million shares.
7. In a short run, the market behave like a voting machine, i.e. it is based on popularity. As we can see, many stocks went up over the last one week until today, 10 Jan 2018, correction perhaps. Volume exceeded 5 billion shares, this is consider very good comparing with the last 6 over month, volume around 2 billion (consider quiet, or half dead).
8. Why should we take note of EPF and MD's purchase of Gadang. I remembered in 2016, the MD sold a couple of million shares at RM2.90. Why is he buying back (more) at RM1.29 (RM3.20 before bonus and split and free warrant, and 7sen dividend)? I understand the MD is quite a conservative person, based on its selection of projects.
9. The closes relation EPF has with Gadang is the Kwasa Land deal (Sg Buloh). I believe, EPF sees the potential in Gadang, else wouldn't be accumulating up to 40 million shares in a quiet market since Aug 2017.
WHY WAS GADANG UNDER APPRECIATED?
1. Could it be lack of IR work?
2. Analysts underestimated its potential?
3. Not sufficient contract order? Well, it has close to RM2b, much better than in 2016 when it was left with RM600m.
4. Analysts is not aware of its Capital City 21 potential? As clearly disclosed in the AGM, still has about RM260m to be recognised (for next 2-3 years).
5. It may be frustrating, to use logic to understand today's market. When some shares has poorer results or contract order trading at historical PE of 18x, while Gadang only traded at about 7x. It is even irrational that Gadang next 3 years average will be expected to be trading at 5.6x PE as compare with the market PE accorded to small cap stocks of about PE of 10-18x.
6. Perhaps this is the opportunity. It is a general principal to enter the market when the market is quiet, and exit when it is hot. Similarly, for individual stock, we should accumulate them when it is in the quiet mode, not during the hot mode (when volume goes up 10-20x the average). (Example: Ekovest when trading at 90 sen)
7. I believe in the long run (12-18 months), when the positive (better than expected) results is announced, many will come to appreciate this stock, and accord it with a higher rating. By then, perhaps, you can reap 10 times the FD rates. What is needed is simple, and yet difficult to follow, the right temprement.
(At time of writing, the stock is traded at RM1.14 per share. TP: above RM2.00 within next 2 years).