Marco Polo Marine: Indonesian Cabotage Law (Part 2).

Some of the best kind of information we can collect regarding a company's prospects is from revelations by other companies in the same industry. I would like to share something I came across in NextInsight on Jaya Holdings which was published on 12 February 2013.

It was revealed that Jaya Holdings, from chartering its vessels to the O&G industry, "reaped US$7.8 million net profit compared to the paltry US$0.4 m in the same quarter a year ago."

"The jump in chartering net profit came from Jaya's charter fleet enjoying an 80% utilisation rate in 2Q2013 versus 62% a year earlier.

"The higher demand came with higher averge daily charter rates: US$12,685 versus US$9,222.

"The seas, however, have turned choppy. Jaya is expecting its fleet utilisation rate to sink somewhat in the current 3Q2012.

"A key reason is the implementation of (long-deferred) cabotage rules by Indonesia effective 1 Jan this year, which has led to the cancellation of charters for 3 Jaya vessels in Indonesian waters. That's 3 out of 28 vessels in Jaya's fleet."

CEO Venkatraman Sheshashayee revealed that chartering vessels in Indonesia was providing a decent rate of return on investment. However, now, "the rates there are probably climbing upward because now there is a serious shortage of vessels there."

Jaya's revelations bolster my strong believe that Marco Polo Marine's economic moat has strengthened and that it is positioned to benefit from higher charter rates in Indonesia this year.

The writing is on the wall and early investors in Marco Polo Marine will benefit.

To read the full article, visit NextInsight:
JAYA HOLDINGS: Strong Chartering Profit in 2Q

Related post:
Marco Polo Marine: Indonesian Cabotage Law.

China Minzhong: Indofood is a new substantial shareholder.

The reason for China Minzhong's trading halt in the last session has been published.

Indofood is paying 91.5c per share to take up a 14.95% stake in China Minzhong. Indofood is, of course, a leading food producer in Indonesia and some of us are familiar with their instant noodles in Singapore.

This surprise development is strongly positive for China Minzhong as they receive funds for further expansion of industrial farming facilities which will raise productivity and lower costs, making them more competitive. Industrial farming also means greater accountability and ease of audit which in turn should raise investor confidence.

There is also expected synergies between Indofood and China Minzhong, both established food companies in their respective countries of Indonesia and China which have huge populations which, of course, have to be fed.

However, before we send in the lion dancers and drums, Indofood is buying into China Minzhong through the purchase of new shares to be issued. So, unlike what happened in December last year when Olympus Capital Holdings sold its 10.3% stake for 80c a piece to various institutional funds and HNWIs, Indofood's buying into China Minzhong is dilutive for current shareholders.

The new shares which are being issued at a discount of about 10% from market price will water down the valuation of China Minzhong's shares by about 13%. On a per share basis, everything else remaining constant, we would see a lower EPS and a higher PER, for instance.

So, from a valuation perspective, if Mr. Market should go into protest mode on Monday and sell China Minzhong's shares at 90c a piece next week, it is actually not any cheaper than buying the shares at $1.03 this week.

If Mr. Market should go into a buying frenzy because of this development and push the share price to gap close at $1.20 per share, we should note that $1.20 is actually the old $1.38 from a valuation perspective. So, if we had a target price of $1.38 to sell, we should sell at the gap close of $1.20.

Of course, if we believe that this tie up will add fuel to the growth trajectory of China Minzhong, then, a higher PER becomes more acceptable. If Mr. Market believes this, it will be reflected in a much higher share price.

Unfortunately, there is no way to tell in which direction and by how much share price would move. We can only tell what this latest development means for the valuation of the stock.

See press release: here.

Related post:
China Minzhong: 2Q FY2013 stellar results.