Wednesday, November 26, 2014

S&M Show Podcast

A Sobering Look At Sona Petroleum

A look at the implications and prospects for Sona following the developments surrounding the Salamander deal.

Song Pick:  My all time favourite instrumental and instrumental album. George Winston's Thanksgiving from the beautiful album December.

another song from the great album ...

Tuesday, November 25, 2014

Sobering Look At Sona Petroleum

Ok, the deal seems to be off. If you look at it, that is possibly the BEST thing that can happen for Sona. The mother shares have been pummelled from 55
sen to be around 44 sen following the proposed deal with Salamander, owing to the sharp falls in oil prices. No deal means back to cash valuation. Why still fall when the deal is off... its good that the deal is off since oil prices has corrected a lot from whence the deal was announced. Now they can skeet new assets with better pricing. Maybe not 55 sen, but should have no issue climbing back to 50 sen.

On behalf of Sona Petroleum, CIMB Investment Bank Berhad and RHB Investment Bank Berhad wish to announce that Sona Petroleum had, on 24 November 2014, received a notice from SEBHL and Salamander pursuant to the SPA stating that the boards of directors of Salamander and Ophir Energy Plc (“Ophir”) have reached an agreement on the terms of a recommended acquisition to be made by Ophir and/or a wholly-owned subsidiary of Ophir for the entire issued and to be issued share capital of Salamander via a scheme of arrangement (“Offer”). It is a condition of the Offer that the agreement between Salamander and Sona Petroleum in relation to the Proposed Transaction is terminated. A copy of Salamander’s announcement dated 24 November 2014 (“Announcement”) is attached herein. 
Notwithstanding the above and with the receipt of the SC Approval, the Board of Directors of Sona Petroleum (“Sona Board”) remains highly committed to complete its Proposed Transaction. The Sona Board is seeking further advice on the Offer and will engage with Salamander before deciding on the next steps.

The Sona Board will continue to provide updates on any further development as and when they arise. 

 This announcement is dated 25 November 2014.

Things Moving For Sona Petroleum

All things said and done, Ophir is offering to buyout Salamander. But Salamander must reject the sale of assets to Sona.  A deal is an agreement, and if Salamander wants to get out of the SPA with Sona, there would be hefty penalties coming the way for Sona Petroleum. Getting SC/Bursa approval would be the nail in the coffin ... now Salamander will vote for or against the deal... but Ophir shares dropped by one third on announcement of the all shares deal, which is to say most Salamander's shareholders will nix the Ophir offer.

Sona Said to Get Malaysian Approval for Salamander Thai Assets

2014MarMayJulSepNov0.450.500.550.60* Price chart for SONA PETROLEUM BHD. Click flags for important stories.SONA:MK0.430.01 1.16%

Sona Petroleum Bhd. (SONA), a company with no assets or track record, won approval from the Malaysian Securities Commission to buy a stake in two Thai oil and gas blocks, a person with knowledge of the matter said. 
The so-called blank check company targets to complete the deal by the end of this year after getting shareholder approvals, the person said, asking not to be identified as the details aren’t yet public. Sona, which raised 550 million ringgit ($164 million) in an initial public offering last year, agreed in June to buy 40 percent of London-based Salamander Energy Plc (SMDR)’s assets in the Gulf of Thailand for $281 million. 
The Salamander assets would be the first for Sona since its listing and pave the way for the Kuala Lumpur-based company to become an independent upstream oil and gas company. To complete the purchase, it will need to overcome African explorer Ophir Energy Plc (OPHR)’s offer to acquire Salamander on the condition it doesn’t sell the Thai assets. 
Saw Choo Boon, vice president of business development at Sona, declined to comment when contacted by phone today. Malaysia’s Securities Commission head of corporate affairs Jaya Menon could not be immediately reached for comment when contacted on her mobile and office. 
Ophir said in an exchange filing today Salamander accepted its all-stock offer to buy the company. One of the conditions of Ophir’s offer is that Salamander shareholders reject the sale of the Thai assets to Sona. Owners of a 25.9 percent stake in Salamander have agreed to accept the Ophir offer and reject the Sona deal, according to today’s filing. 
Sona is trying to buy a stake in the Bualuang oilfield, which has been operating since 2008 and is expected to produce an average of 11,000 to 14,000 barrels of oil daily this year, according to Salamander’s website. It would also gain an interest in an nearby exploration concession. 
To contact the reporter on this story: Elffie Chew in Kuala Lumpur at

Monday, November 24, 2014

The Wayang Kulit Behind Oil Price Gyrations

Is there a puppet master, I mean nothing much has changed for much of 2014, so why the sudden drop in oil prices over the past two months? One can cite US production of shale oil but thats not like something happened overnight. All knew the numbers coming on from shale oil. So what gives?


Opec divided on oil output
LONDON: The Organization of Pe- troleum Exporting Countries (Opec) oil producers cartel will hold one of its toughest and most significant meetings in recent years as, faced with sliding prices, its members must contemplate whether to cut output.
Ahead of Thursday’s Opec meet- ing in Vienna, its dozen member countries are split on what direction to take after a 30% drop in crude prices since June has slashed rev- enues.Opec’s poorer members, led by Venezuela and Ecuador, have
called publicly for a cut in output, while Iran has hinted at a need to reduce production.
But the cartel’s Gulf members, led by kingpin Saudi Arabia, are rejecting calls to pump out less oil unless they are guaranteed market share in the highly competitive are- na, according to analysts.
“The minimum consensus that appears likely to be reached at Opec’s meeting is a commitment to better comply with the official production target of 30 million bar- rels per day,” Commerzbank ana- lysts said in a note to clients. — AFP 

As you can see OPEC is almost toothless... not really toothless but rather that Saudi Arabia is not brandishing their big stick. So whats their motivation?

Apa Lagi Saudi Mahu?

Some cynics might say that its Saudis' way of trying to curb or trash the US shale oil's viability. That does not hold much water though nice conspiracy theory for a Hurt Locker movie script. 

Much of US shale oil can cost between $50-100 per barrel just to get the oil out. That is official figures fro International Energy Agency. The IEA confirms that ONLY 4% needs oil prices to be above $80 for it to be viable, though some analyst reports put that at as high as 20%.

It is very hard to displace shale oil as their wells are much shallower, which is to say they will move to more viable wells and will only tap harder to get at shale oil till prices move back above $90. 

Plus politically, it does not make sense to screw with USA while they are an important ally in the current 'war' against Islamic State.

It also does not make sense to screw with shale oil as their production costs will never be competitive against their own oil extraction cost. Saudis (and North Africa) cost per barrel is closer to $10 per barrel, though some areas may reach as high as $25 per barrel. Hence in actual fact it would make more sense for shale oil to continue as a base for oil prices, plus adding sufficiently to a resource that is limited. Its pointless to push oil to $200 per barrel, even if they can. The fallout to the global economy, and making themselves more a 'future target' for war for oil.

This Is Why Saudis Are Letting Oil Price Slip

Saudis can easily move oil prices back above $90 if they reduce their output and they can do so as they have the reserves to do so. Saudi Arabia has about 260n barrels in reserves and about 9-13m barrels a day. So what did the Saudis do in recent weeks... they actually increase their daily output by 0.5% to 9.6m a day. Strange isn't it? Not only that, the Saudis in recent weeks even offered discounts to big Asian consumers thus depressing oil price further.

Financially Saudi Arabia has over $700bn in cash/bonds reserves , so they do not need the money and can stay at this status quo for a couple of years if need be. The worst country to be affected is their 'enemy' Iran, which actually needs oil to be above $120-140 for it to break even. Russia needs $100 per barrel or else its budget loses $2bn for every dollar below $100... hence for now Russia will need nearly $40bn to watch the hole in their budget this year alone. 

It is also an important way to make life very tough for rogue nations in the Middle East supporting the IS as the funds are necessary to fund the war and terrorist acts.

The unfortunate nations who get steamrolled from all this include Venezuela and to a lesser extent Malaysia. 

Saturday, November 22, 2014

Wednesday, November 19, 2014

MEGB, Almost A Steal For Brahmal and SMRT

A pretty good analysis of the deal surrounding Masterskill. I agree with the writer that MEGB is almost a steal at 60 sen. SMRT has to do due diligence as its proper for a listed firm. Brahmal is more than satisfied to buy his stake without needing a due diligence.

NOTE: The opinion above and below is 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). I may already have positions in the stock mentioned above. 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.-----------------------------------------------------------


For now, you guys should know that Creador headed by Brahmal Vasudevan, aka hand of midas, has partnered with SMRT to acquire Masterskill at RM0.60 per share. However, they have expressed their interest to remain the listing status of MEGB, so be rest assured, MEGB will be trading close to RM0.60 for the next 3 months except SMRT decides to abandon the deal.

My take: Creador has already bought into MEGB and they have no option to not take up the shares, but SMRT has the option, should they decided to cancle the deal after due diligence. But wait, Brahmal is also SMRT’s shareholder right? So, what are the chances this deal will fell through? I would say 1%? Even if the deal fails, Creador will have to stuck with MEGB too, just that with SMRT, it makes it easier for Creador to turnaround MEGB. 

TP: RM1.00
Current price: RM0.615
Market cap: RM250m 
Upside: 63%

(A) Company Background
You could find a lot of information on how a huge IPO advised by Goldman Sach and CIMB went down the drain last 3 years from the web. I shall focus on some important information here. 

-MEGB used to be no.1 in population in Health Sciences programme
-MEGB has more than 14 international partners, with 5 of them from China.
-MEGB offers 2 foundations and 9 diploma programmes according to their site. Currently, they have about 4,000 students
-Currently, MEGB operates in 4 campuses, Cheras, Kuching, KK and their PJ Campus’s opening is still delayed. They have recently sold the land in Bangi and according to Q2 2014 announcement, by July 2014, they will close down the Ipoh campus and by Sep 2014, they will close down the Kota Bahru and JB campuses and all of them will be moved to Cheras.
-The group recently decided to embark a different business model, by using an asset light model, which they will dispose most of their campuses' property (RM176m here) back to Mr Siva and public and lease it back for ten years. Why this is a good move? The company no longer need to recognise huge depreciation expenses, but it replaces it with rental expenses and this would free up cash for the company!

How could SMRT work with MEGB?
(i) MEGB focused more in their foundation and diploma courses, with more than 80% of its students intake were from these categories. CUCMS focused more in degree courses and some of the diploma courses that MEGB does not offer, eg, Diploma in Psychology? Students that passed the Diploma courses in MEGB could further pursue their degree in CUCMS.
(ii) MEGB owns 4 campuses (Cheras, Kota Kinabalu, Kuching and PJ with capacity of 15,000 students) while CUCMS is renting on only one campus in Cyberjaya (capacity of 5,000 students). According to insiders, CUCMS has oversupply of students, and these students could be parked in MEGB’s campuses or via other type of collaboration.
(iii) MEGB and CUCMS are able to work together and cross sell their programmes. Marketing efforts and costs could be saved.
(iv) CUCMS is able to leverage on MEGB’s infrastructure while MEGB is able to leverage on SMRT’s experienced management team together with Creador headed by Brahmal aka the midas hand.
(v) With SMRT focusing on Middle East and MEGB focusing on China and other parts of the world, both of them are expected to have more international students in the future, therefore, margins could be expanded
(vi) According to CIMB, SMRT/CUCMS has an oversupply of medical students from AUCMS and EGYPT, if a 5-year medical course cost RM275k, with 440 potential medical students, that will be extra RM24m of revenue for CUCMS. SMRT is able to leverage on MEGB’s quota to achieve this.

(B) Shareholders
Siva Kumar – 32.9%  
Raphia Limited (A vehicle from Creador – Brahmal Vasudevan) – 16.2% 
Free float – 50%

Masterskill has started to buy back their own shares, after Mr Siva has decided to terminate his put/call option with Gary How, and up to date, the company has actually bought 33.8m shares from open market, suspected to be a sell down by previous shareholders, How and other previous substantial shareholders has also resigned from the board. From here, the actual outstanding shares of the company have actually reduced from 409m to 375m, which is a good sign. 

Post due diligence, Creador will be the single largest shareholder in Masterskill with potentially 26.1% shares and SMRT being the second largest at 23%, after you deduct the treasury shares.

(C) Financial analysis
When Masterskill was listed, it hits a PAT of RM103m with 19,000 students! And now it has only 4,000 students. However, Mr Siva actually highlighted that if they add another 2,000 students, they will be in a profitable position, and recently, MEGB has also come up with additional 6 new courses, and to breakeven on Q4 2014 is very much likely. In order for MEGB to reach RM100m revenue in FY2016, it will probably need more international students and higher tuition fees courses, which I think SMRT is able to offer.

Why there will be profits for Q3 2014 and possibly after that?
On 28 March 2014, MEGB has bought 4% interest in Gayety Holdings at HKD0.40, and within 6 months, it has surged more than 100%, and MEGB has realised their RM12m gains from here, and this will be reflected in their books on Q3 2014, therefore an additional 3cents to their NTA, if they cancle their treasury shares. The 3 campuses will also be closed down in Q3 2014, saving RM4m worth of profits on an half-yearly basis, making it RM8m profits. 
Masterskills still has RM176m land and buildings that will be sold to Mr Siva and public, and another assuming MEGB is able to dispose all these properties and with the RM30m capital with gains, that would boost up their cash value to RM200m. After paying off their RM41m debt, they will be left nearly RM160m net cash, about RM0.42 per share! And what? You are buying RM0.18 for MEGB's business!

(D) Valuation
As mentioned above, after the proposed disposal, MEGB will be an asset light company without much assets in their books! My TP is just RM1.00 in 12 months time, that will value MEGB's business at RM0.58, while the rest are net cash RM0.42!

With all the synergies listed above and whatever you could think of, MEGB might be able to turnaround and possibly exceeds their FY2013’s revenue levels in FY2016. Using CUCMS' margin (20%) as a guide, if Masterskill is able to hit RM100m worth of revenue, a mere 15% PAT margin is sufficient to register a PAT of RM15m, therefore, rerate the company above RM1.00, make sense?CUCMS has only 2,000 students, half of MEGB, and they are expected to make RM10m next year, so RM15m for MEGB is not a huge number.

RM15m x P/E of 15x = RM225m
MEGB' business value = RM225m/375m of shares = RM0.60

RM0.60 + RM0.42 (net cash after disposal) = RM1.02!!

(E) Technical analysis
Masterskills used to be trading at RM4, it was a nightmare for IPO shareholders back then, but at current level, it reminds me of KNM last year, when they suddenly a show of profit on their quarter books after their cost cutting exercises, propelled KNM from RM0.40 to RM1.10 in a year. No research houses were covering KNM when they were 40cents and when it doubles, suddenly those analysts are back to track the stock again. I hope the same thing will be happening to MEGB soon.
After the announcement, MEGB attempted to breakout from its resistance zone, but it failed to do so, I believe it will take 2-3 days for people to search for the answer for this M&A. I am very confident Masterskill will attempt to cross this zone and move very swiftly to breakout from its “double bottom” and hence, if you replicate that target price, it could potentially reach RM1.00.
S1: RM0.585, S2: RM0.53
R1: RM0.65, R2: RM0.715, R3: RM0.80

(F) Risk reward ratio
(i) Upside return of 63% - Turnaround is for sure, how much Masterskill could generate is the question, for me, RM20m in FY2016 is no problem to them.
(ii) Downside risk of 5% at RM0.585 – Mandatory General Offer will surely take off if SMRT has completed its due diligence on MEGB, therefore the floor pricing is RM0.60 because that is the cash they will offer to pay off the shareholders of MEGB if they do not like this deal. However, most of the companies that did MGO went above its MGO price when new shareholders appears, I shall give you some examples here, Maica aka Sunsuria, HCK, TMClife, etc.

I am very confident that MEGB would be able to hit RM0.80 easily.

R/R ratio: 9 times. 

(G) Rerating factors/ Catalysts
(i) The one off profits – RM12m from sale of Gayety shares to be reflected in Q3 2014
(ii) Ceasing operations in 3 smaller campuses which will save more than RM2m profits per quarter!
(iii) Creador/Brahmal factor – Look at GHLsystem, triple up since they acquired
(iv)No research house covers this stock yet because everyone dislike the naughty Siva and Edmund, the "overpromised" ex-CEO or hates MEGB for their “con-act” IPO?
(v) Students injection from SMRT/ Experienced management from SMRT to be on MEGB’s board soon
(vi) All the synergies I could think of mentioned above
(vii) At RM0.60, you are buying a business at RM0.18 with RM0.42 net cash!

Cheers. If MEGB surged, your next stock pick should automatically be SMRT, because they are buying at RM0.60, and there will be potential gains from their investment. There will be alot of synergies that SMRT could leverage on, but generally, the market seems to be negative on this news due to the previous sucky management of MEGB and its previous dodgy owner, but they probably do not know, MEGB might show profits in Q3 and possibly, Q4 2014! SMRT will also be rerated further, I mean now below RM0.80 is a no brainer, right? And if the acquisition succeeds, maybe SMRT would eventually swallow MEGB in 2-3 years time, and hits RM2, who knows?And one more thing that people worry on SMRT is because they do not have cash to buy that 23% stake in MEGB, but haha, after MEGB disposed all their property, they could pay their shareholders back, possibly RM0.30 per share! What SMRT needs is probably only 6-12 months bridging loan facilities at the moment, and rights issue is very unlikely!

S&M Show Podcast


Both stocks came under heavy selling, accompanied by vicious rumours via SMS. Maybe CEOs of local listed firms can be more proactive on the PR front.

Song Pick:   CHICK CHICK by Wang Rong Rollin ...

Monday, November 17, 2014

Canto-Mando Movie Reviews

Time to bring up some movie recommendations cause there are a couple recently that piqued my interest. The first is Kung Fu Jungle, its a badly titled movie in English, sounds so much cooler in Chinese. Its a great kung fu movie but its significant for a lot more than just entertainment. 

If you remember the comedy classic Kung Fu by Stephen Chow Sing Chi, where he tried (successfully) to incorporate the many popular kung fu techniques and "fantasy kung fu stuff" into a well woven comedy. In many ways its a great tribute and acknowledgement to the discipline in movie making.

Well, KFJ is like Kung Fu except that it took the more serious route, and the kung fu is a lot more realistic and authentic. Besides entertaining audiences, KFJ roped in as many as possible the HK kung fu movie stars from the late 60s, 70 and 80s and gave them roles in it. In many ways, its an excellent tribute, as the story goes about a guy wanting to be the ultimate kung fu master and he goes about it by seeking out the top masters in each genre of kung fu, but he has gone a bit cuckoo so he not only wants to beat them but kill them as well for no apparent reason.

Donnie Yen was amazing and so were his co stars. 

The second recommendation is a romantic comedy. Its part 2 of Don't Go Breaking My Heart, you need not have watch the first to watch this, but it would help a lot in enjoyment. When masters such as Johnnie To and Wai Kar Fai decide to ditch their usual gangster-police-shootout hats and go into rom-com, it usually leads to pretty watchable stuff.

The interlinking relationships between the main stars were fantastic. The energy and believability, the characters all fleshed out properly and you would feel for each of them. Gao Yuan Yuan was adorable and sublime. Koo Tin Lok, Miriam Yeung and Daniel Wu were great. Storyline was solid and layered. No kiddie mushy stuff here. Great movie, watch both parts.

There is a running theme and its more for those jaded but yet still looking for love in the modern world - love is not so much determined or predestined... its in your own hands, you have to take it, grab it, or let it go. I think I can use the word "satisfying" here for a really good romantic comedy.