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Dear all,
Some of the material below is copy paste from KCChong article:
It is fascinating that when we value our net worth we value our properties(s) at market value and ignoring the little rental it generates, our stocks at marked- to-market value again ignoring the little dividend it generates and our bank balance at more than it face value as we like to say “cash is king” and we are just waiting for market to crash and be spoilt for choice to pick up the beaten down stocks. However, when it comes to investing in stocks, most investors place greater emphasis on earnings of company or projected future earning and often, ignoring the company's balance sheet. This is why faddish companies occasionally rise to incredible market valuations despite a relative absence of hard assets, current assets, cash and bank balance but plenty of revenue, receivable and bank borrowing. So my question why asset-rich companies occasionally trade well below replacement value? Is Mr. Market always right and can do no wrong?
Equally why Mr. Market likes to rewards CEO of dubious characters that over promises/tall tales (MOU, Vision 202X to pump the share price) but under delivered (many excuses with smoke screen, countersuit and etc) and punished a honest, hardworking and maybe a bit conservative and prudent CEO who had accumulated so much wealth into the company balance sheet? So are we been fair to INSAS and for that matter Dato’ Sri Thong for building up and loaded into INSAS so much wealth?
Let’s examines INSAS:
Number of Share: 663,006,342 (EXCLUDING 30,327,291 TREASURY SHARE)
Dato’ Sri Thong and his brother Dato Thong direct and deemed interest: 32.98%
Number of Warrant B: 265,202,536 (Exercise price: RM 1.00. Expiry date: 25 FEB 2020)
Dato’ Sri Thong direct and deemed interest: 31.45%
Number of RPS: 132,610,268 (Expiry date: 25 FEB 2020)
Dato’ Sri Thong direct and deemed interest: 41.80%
INSAS still hold 609,212,026 Inari share or 19.19%
Insas was a major shareholder of Inari way before its listing in July 2011 which it held more than 40% share then. After listing, and some corporate exercises, and selling of some shares, Insas still own 19.19% of Inari shares and equity account as associate companies (by virtue of having board representation in Inari). At the present price of Inari of RM1.66 as on 16th July 2019, the market value of Inari is worth RM 1 billion to Insas or about RM1.51 per share of Insas. This alone is already more than 85% above the market price of Insas of 80 sen. That also means Insas is trading at 53% below the value of Inari’s shares it holds, alone! Insas, besides Inari and other associate companies, it has heaps of cash and cash equivalent and huge amount of marked-to-market financial assets and a few other businesses.
Balance sheet on 31th March 2019: Total current assets 1,531,914,000 against Total liabilities 632,992,000 and healthy total non-current assets 825,432,000.
So my question: Mr. Market what mental models or human behaviors at play in buying Inari at RM1.66 when you can use the same capital to buy 2.075 Insas share at 80 cents and hold indirectly 1.90 Inari share and all the cash and cash equivalent and all the other Insas business?
Company business
Insas Berhad (Insas) is engaged in the investment holding and the provision of management services. The Company operates in the five segments:
1. Financial Services: Stock broking, provision of corporate finance & advisory services and structured finance
2. Investment holding and trading
3. Technology & IT related services
4. Retail trading and car rental
5. Property investment and development,
1.1: Financial Services
M&A Securities Sdn Bhd (“M&A”), a wholly owned subsidiary of Insas, is a stock broking company providing trading services for stocks and shares listed on Bursa and recognised foreign stock exchanges share margin financing, corporate advisory services and other regulated activities.
In June 2017, Bursa launched the Leading Entrepreneur Accelerator Platform (“LEAP Market”) aimed at facilitating access to the capital market by small and medium sized enterprises (“SME”), and M&A has acted as principal advisers and successfully listed 3 companies on the LEAP Market since its launch in June 2017. M&A has also successfully listed 2 companies on the ACE Market. It is ranked as one of the top principal advisers in the IPO market for ACE & LEAP Market. M&A will continue its niche in the stock broking and corporate advisory role in promoting SME companies to list on the LEAP and ACE Markets.
1.2: Structured Finance
The Group’s lending arm, Insas Credit & Leasing Sdn Bhd (“ICL”) is licensed under the Moneylenders Act, 1951. ICL has established itself as a boutique structured finance provider to selected sophisticated investors and corporations seeking short- and medium-term financing for working capital and investment purposes.
As of 30th June 2019, ICL has outstanding loans portfolio of RM267.455 million which are fully collateralized and unsecured corporate loans RM30.162 million generating interest income to the Group. The interest rate charged by ICL is in accordance with the Moneylending Act, which is not more than 12% p.a.for secured loans and not more than 18% p.a.for unsecured loans.
2: Investment holding and trading
The Group’s investment strategies encompass stringent asset allocation and diversification to manage risk of the portfolio investments of the Group. To that, the Group acquires fixed and variable income investments typically money market funds, debt securities and high yield growth stocks and listed equities and options. These investments are held on a medium to long term investment horizon of 1 to 5 years. The Group’s investment objectives are to maximise capital growth with recurring income and cash flows above the cost of funds.
As of 30th June 2018, the Group’s investments in listed equities are primarily in the properties, technology, consumer products and financial services sectors in both local and overseas stock exchanges, and the key equity investments include, amongst others, IGB REITS, Omesti Berhad, SYF Resources Berhad and Oversea-Chinese Banking Corporation Limited.
Quoted securities, at market value:
- In Malaysia RM 57,744,000 with gross dividend received RM 2,750,000
-Outside Malaysia RM 178,818,000 with gross dividend received RM 6,797,000
USA: RM 44,468,000. Singapore: RM 93,362,000. EU: RM 1,835,000. UK: RM 4,784,000. HK: RM 6,045,000. Australia: RM 23,373,000. Others: RM 4,951,000
Note: Inari, HoHup and DGSB quoted securities is considered as associate companies and not as investment in quoted share.
3: Technology & IT related services
The Group’s technology’s core activity is investment in high growth technology companies in three broad technology sectors namely electronics manufacturing services (“EMS”), financial transaction processing (“Fintech’) and bio-technology. The major investee companies in the respective tech sectors are Inari Amertron Berhad, Numoni Pte. Ltd. and Sengenics Corporation Pte. Ltd.
19.19% associated companies: Inari is involved in the Outsourced Semiconductor Assembly and Test (“OSAT”) industry for RF products and tailored EMS contract manufacturing to the semiconductor optoelectronic industry. As at 30 June 2018, Inari operates 12 plants situated in Malaysia, Philippines and China with total production floor space of over 1 million square feet.
42.6 % associated company: Numoni was originally formed to bring financial inclusion to the under-banked with its Cash-in Cash-out solutions. Numoni’s timing also coincided with rapid changes in the financial payment industry with the onset of mobile enabled financial technology (“Fintech”) during the last few years.
17.4% associate company: Sengenics is a functional proteomics company that was originally spun out from research that was originally carried out at Cambridge University in the UK. The company has a patented technology called KREX and has made good progress engaging world-renowned customers and collaborators that include top pharma, biotech companies and ivy league-class academic institutions in the USA, Europe and Asia as it expands its footprint in the biomarker industry.
The Group’s Technology segment, as in the past financial years, remains a key contributor to the Group’s profits and cash flows.
4: Retail trading and car rental
43.4 % associate: Melium Group is one of Malaysia’s leading retail group on international luxury fashion brands. It also owns and operates the Seminyak Village, a boutique mall in Bali that offers international brands along with the best of Bali’s home-grown labels.
Melium Group also holds the Malaysian franchise chain of Dome Café which operates in over 20 outlets in Klang Valley, Genting Highland, Johor and Penang.
Car rental
The Group’s car rental operations are carried out mainly by the 79.5 % subsidiaries of Insas Pacific Rent-A-Car (IPRAC), Roset Limousine Services Pte. Ltd and 63.2% Tribecar Pte. Ltd.
IPRAC offers the conventional self-drive and chauffeured services on short or long-term leases with its wide fleet of sedans, SUVs and MPVs. IPRAC’s headquarter is in Kuala Lumpur and it has 5 branches centered in the airports in KLIA 1, KLIA 2, Bayan Lepas, Johor Bahru, and Senai. During FY 2018, IPRAC consolidated its fleet operations and closed 5 non-performing branches located in Kuantan, Kota Kinabalu, Bintulu, Miri and Kuching.
Roset operates as a premium limousine service provider in Singapore with its current fleet of luxury premium sedans, SUVs and MPVs to cater for both long term and transient leases. Roset is now among the rapidly expanding independent automobile solutions provider in Singapore and it also provides premium chauffeured services with experienced professional drivers, fleet management as well as vehicle repairs and maintenance services that are equipped with the latest equipment and tools specialised for Japanese and Continental vehicles.
Tribecar’s innovative car rental system allows for ultra-short-term car rental on hourly basis and makes it convenient for customers as the registration, hiring and access to a vehicle are all done using the customer’s smart phone. Tribecar’s revenue in FY 2018 increased by more than 10 folds to RM15 million due to the flexibility and efficiency focused on innovation and strategies, and it managed to increase Tribecar’s edge in this highly competitive and fast change in the vehicle rental industry in Singapore.

5: Property investment and development: Value at RM 198,304,000
The Group’s property portfolio comprises a mix of landed and high-rise residential units and shops/office spaces held to generate rental income for resale and own usage (KL, Selangor, Perak, Pahang and Singapore). A 130 acres freehold vacant land at Bukit Tinggi Resort for development. Occupancy for the shops/office spaces remain encouraging with near full occupancy during FY 2018 whereas occupancy rate for the residential properties remained soft primarily due to the oversupply of residential properties in the Klang Valley.
12.2% associated company, Ho Hup Group has 3 core divisions ie. construction, property development and building materials. For FY 2018, Ho Hup’s property development arm, Bukit Jalil Development Sdn Bhd (BJD) continues to be the main profit contributor to Ho Hup Group, primarily derives income from its entitlement from the 50-acres joint venture development in Bukit Jalil, Kuala Lumpur and the development of the Aurora Place mix development project in Bukit Jalil. BJD also carried on with its new property development projects in Kulai and Kota Kinabalu.

Refer below link: Financial performance of Insas for the last 10 years.
With the core businesses in financial services in stock broking, trading and investment, it is natural that its revenue and earnings will be volatile:
Revenue for the last 10 years: RM ‘000. CAGR

Net profit to shareholder for the last 10 years: RM ‘000. CAGR

Net Worth for the last 10 years: RM ’000. CAGR

Per Share Value based on NOSH - 693,333,000 for the past 10 year:  RM. CAGR

EPS based on NOSH - 693,333,000 for the last 10 years: sen. CAGR
Operating income has been positive for all the ten years, except of a very small negligible loss in 2012. The average operating income is decent at RM73.6m a year. Net income to shareholder has been higher and positive for the last 10 years, mainly due to equity accounted income from Inari and profit realization from the sales of some Inari shares, averaging RM88.32m, or 12.74 sen per share a year. Average EPS for the last 5 years was 17.32 sen base on NOSH - 693,333,000 or 18.1 sen base on 663,006,342 (EXCLUDING 30,327,291 TREASURY SHARE). At a price of 80 sen, the price of Insas was only 4.4 times its 5 years’ average earnings.
Financial Position of Insas
With the persistent earnings every year, its book value increased every year without fail. From a book value of RM1.03 ten years ago, it has increased by a total of RM1.35 to RM 2.38 in 2018, or a high CAGR of 9.81% over the last 10 years. Coupled with a distribution of 5.3 sen in dividends, dividend share 1:50 and 1:25 there is indeed clear evidences that Insas’s management has been doing a fine job for increasing the value of shareholders.
Note: For financial end 30th June 2019 an interim dividend of 2 sen paid on 10th Jan 2019
Latest Insas financial report
Refer Insas’s latest q3 financial period ended 31 March 2019: https://klse.i3investor.com/servlets/staticfile/358668.jsp
Page 13: The segment analysis on the Group’s results for the financial period ended 31th March 2019:
  1. Financial services and credit & leasing: After-tax-profit RM 10,551,000
  2. Investment holding and trading: After-tax-profit RM (4,567,000)
  3. Technology and IT-related manufacturing, trading and services: After-tax-profit RM 54,027,000
  4. Retail trading and car rental After-tax-profit RM 2,224,000
  5. Property investment and development: After-tax-profit RM 1,957,000
Total: After-tax-profit RM 64,192,000 out of this share of profits less losses of associate companies is RM 34,215,000
Page 7:
Cash flows from operating activities: Interest received RM 13,859,000
Cash flow from investing activities: Dividend received RM 35,056,000
Note: 1 sen dividend from Inari is about RM 6m to Insas.

Insas is not your typical NTA (land and properties) play it is both assets value (liquid assets) and earning play.
Balance sheet on 31th March 2019: Total current assets 1,531,914,000 against Total liabilities 632,992,000 and total non-current assets 825,432,000.
Insas has an accounting net asset of RM2.59, net current asset of RM2.31. Most assets are made up of cash and cash equivalent, and other financial assets which are marked-to-market and can be readily converted to equivalent cash value. The difference in Inari market value (RM1.66 as on 16th July 2019) and book value of its associated companies, Inari and others (RM 428,986,000), could add an additional RM1.00 to the above values of Insas share. Insas is also a negative enterprise value company.
The investing thesis for Insas lies in its compelling assets value, which is way above its current market price. The share price of Insas is only a third of its accounting asset value, and less than a third of its conservative Graham net-net value. Moreover, the bulk of its assets are in liquid cash and cash equivalent and marked-to-market securities.
Besides, Insas has been profitable every year in the last 15 years or more, with average EPS for the last 5 years of 17.32 sen base on NOSH - 693,333,000 or 18.1 sen base on 663,006,342 (EXCLUDING 30,327,291 TREASURY SHARE). At 80 sen on 16th July 2019, the price is just 4.44 times normalized earnings. This itself already presents a good investing thesis based on earnings. Its associated 19.19% holding in Inari which has good growth prospects, and its other business sections remain profitable on average. Hence, there is no likelihood of cash burning in its businesses. Moreover, the management is seen to be actively pursue new businesses with the aim of improving the visibility and stability of its future earnings.
I see very little risk investing in this stock at this price at 80 sen. Insas remains a major stock in my portfolio.
The share price of Inari Amertron rose to all time high of adjusted price of RM2.53 in early 2018 due to the exponential growth of its revenue and earnings. Shortly after that the US-China trade war fear came into play and post GE14, further exaggerated by the profit warning of Apple, its share price shed 34% and closed at RM1.66 on 16th July 2019. This gives the company a market capitalization of about RM5.28 billion. It is probably the largest semiconductor company in Malaysia in terms of market capitalization. For the past 5 year Inari had contribute a stable net profit/dividend to Insas and will continues to do so for many year to come.
I am sorry if many of you had given up on Insas as Insas had been known as undervalued stock in Bursa for many years, for me it was the recent exponential growth of Inari revenue and earnings that make Insas the most undervalued stock in Bursa. Insas major share holder Dato’ Sri Thong and his brother hold 32.98% hence unable to do much to push up the share price but recently according to theedgemarket article:
Quote, “A few months ago, Kok Khee is said to have told a group of friends, “Insas is the most undervalued company on Bursa Malaysia, unquote” I believe Dato’ Sri Thong will do something about Insas share price.

Thank you.

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