Thursday, May 3, 2012

PJB ... May12


A low-key construction company invests much of its earnings back into the stock market by employing fund management companies to do the job. It has so far appointed fund managers Pheim Asset Management Sdn Bhd, Singular Asset Management Sdn Bhd, Kumpulan Sentiasa Cemerlang Sdn Bhd to manage the cash that it has accumulated so far.

The appointment of the investment manager forms part of the PJB group's effort to generate maximum returns from its cash reserves and will ensure that the funds would be managed by professional fund managers.

According to PJB's latest financial statements issued for the second quarter ended Dec 31, 2011, the company had parked 87% or RM61.57mil of its cash reserves to be invested in the equity markets through the three fund management companies mentioned earlier.

As much as the management aspires to maximise the returns by investing the proceeds of their business, PJB is, however, by virtue of being invested into the equity markets through these fund managers also directly exposed to the risks presented with the equity markets which is higher than putting your earned money in the bank.

PJB is therefore a direct proxy to the equity markets and its business performance will in part have a direct correlation with the equity markets.

Cash and cash equivalents are mainly used for the business and working capital purposes, since it is a construction company it can estimate its cashflow needs as and when the need arises.

The company had only once disclosed the details of these investments back in July 2004.
PJB had first started this practice of investing its cash with investment managers back in August 2003.

Its second quarter showed that PJB had spent RM18.22mil to buy more of these investments with these fund managers which it terms as “marketable securities” while it had sold RM23.40mil in these invsetments for the period until Dec 31, 2011.

Total cash and cash equivalents until Dec 31, 2011 amounted to RM70.64mil and about RM9mil from this amount is parked in a bank. It is also noteworthy that PJB had also duly informed investors via statements to the stock exchange of the effects of their adopted style to manage its funds and the correlation that it will have on its bottomline.

The financial effects on the PJB group for the financial year arising from the above transaction will depend on the performance of the investment manager through investment decisions made on a discretionary basis.

This is quite an unconventional way of managing its funds, although investment into equity markets could see good returns when markets do well.

It is to be noted that companies such as Google, which is listed on the US' Nasdaq, parks much of their cash on very liquid US government bonds which provides it with higher yields compared with the the low interest rates provided by banks.

PJB, which is a construction company, had this calendar year secured its first contract of RM34.38mil when its wholly-owned subsidiary, Pintaras Geotechnics Sdn Bhd was awarded a project to undertake earthworks, piling and substructure works for a condominium project in Kuala Lumpur over a 24-month period which is expected to positively contribute to its earnings.

Observers noted that the constructor could likely attract a broader range of investors should it provide more disclosure about its investments to the stock exchange, since the outcome of these discretionary investment decisions by these fund managers would have a direct impact on its bottomline.

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