Friday, March 10, 2006

Problems With Bursa Malaysia

The Bursa people did a press conference yesterday, trying to address the poor investor interest in Malaysian stocks. The following are factoids regarding Bursa's strategy, their understanding of the real problems, and whether their priorities have been misplaced.

1) Yusli, the CEO, said that the Bursa expects to maintain its 2006 financial results around the same level as last year. In 2005 the Bursa reported a credible net profit of RM81.3 million on revenues of RM257.6 million, and declared a hefty dividend.
My Take - That's what you get when you give your CEO and senior executives large chunks of shares/options in Bursa shares. It will make them think that financial results and cash back in "my pocket" are the most important things in running an exchange. (Please read my blog on Bursa and what's wrong with their corporate strategy) - its high time to refocus priorities on other more pressing issues, its not just a net profit thing for the Bursa. A lot of remisers, dealers and brokers who depend on the Bursa DO NOT have Bursa shares to help cushion the fall, like some.

2) Yusli also trumpeted that local and foreign funds could return to Malaysian stocks, and to do that, one of the first thing will be showcasing 30 companies in a big joint conference hosted by the Bursa, CIMB and UBS on March 22 to 24. Yusli added that there will be GLCs and plantation firms. "We have some really good companies and we want to tell as many investors as possible".
My Take - Most institutional investors KNOW THE 30 companies a lot better than the CFOs/CEOs doing the presentation already!!! Not investing in Malaysian companies is not due to a lack of awareness or lack of intimate knowledge of the companies per se, good investors also know why they should not be investing after doing their own research. It is so naive to think that a few conferences like these will perk up buyers - my, I didn't know how good these companies were, I should buy now.... really Yusli...

3) Yusli did mention that after speaking to big foreign investors, they did mention that the Bursa needs to have more big, quality and liquid stocks.
My Take - Okay man, here are some real issues. BIG - how to be big, well similar GLC could merge; good GLCs and other listed firms with proper expertise could venture overseas to by up regional stakes (Malaysian market is too small to grow into anything decent if a company stays local).
QUALITY - That is being addressed by Khazanah on its GLCs, have to wait and see if the strategy pans out. As for other listed non-GLCs, quality is there but there is a big complacency around many of those companies. Many are happy to be Jaguh Kampung (backyard champs) and stay that way, they are happy making their RM30 -100 million. Companies to emulate: Tanjong, YTL Power, IJM, IOI Corp, etc...
As for LIQUIDITY, this is one thing the Bursa can do more effectively. Khazanah can take the lead, too many companies are holding about 45%-55% of their shares. There is no need to do that. Believe in sharing growth values. Have the confidence to operate with just 34% stake or thereabouts. More transparency, accountability will put more pressure on strategic decisions and management decisions, but that's the way forward. Studies in the past have shown that companies who have placed out shares from a high majority stake to just a controlling stake, actually saw their share price rise, and activity level also rose despite the greater free float. Greater free float means more big institutions can then consider buying them as there will be sufficient liquidity to move in and out. Khazanah should really take the lead, reduce stakes and place them out.

Part of the reason for the under-performance by Malaysian stocks last year was the tight control on the ringgit. Many funds were in agreement to load up on ringgit based assets last year in anticipation of a stronger ringgit or revaluation. That did not occur, and wasted a lot of investors' time. Malaysia is such a small market, you don't want to get disappointed by a small market. Its like a guy, if he got rejected by a supermodel, that's kinda ok, but to be rejected by a 4' 11" pork chop, that's another thing. Stop making the ringgit artificially weak, the authorities are only helping to make the plantation companies look better than what they really are.

Sometimes we are just like a piece of pork chop, in Cantonese, a very average looking girl. The corporate results are not outstanding, liquidity is a problem, not enough big companies. Companies that do well are actually helped by the ringgit, what if the ringgit is allowed to appreciate from here. Other bourses offer more upside. Malaysian stock prices while not expensive is not cheap either. Liquidity in the system is decent but countered by firming interest rates. Property prices have been stagnant.

Sometimes no one will want to date your daughter, and you will feel sad about it. Every dog has its day, nobody stays down forever. The KPIs to be announced by the GLCs should be looked at closely. Not so much what they reveal, but how and what Khazanah will be doing with performers and non-performers - that will be the crucial thing. Of the GLCs such as plantations, banks, conglomerates, utilities and services - the one sector that is "easier to navigate" and control is utilities - I suspect real improvements and changes will be more evident in utilities - hence TM and Tenaga should see more upside activity, if there happens to be any.


hhc1977 said...


I dont agree with your assumption again.
"Khazanah can take the lead, too many companies are holding about 45%-55% of their shares. There is no need to do that. Believe in sharing growth values. Have the confidence to operate with just 34% stake or thereabouts"

1) We have to see what are the candidates to divest? Are they investable securities?

2) Gov meddling with really readlly business logic wont do any good to entice foreigner. Wont u be a part of tenaga today where u wont even know when u can increase yr tariff while the other cost escalate out of proportion.

3)The social re-engineering project wont do any good to entice investor. Imagine u r paying 1B for a company and u r forced to SHARE/Give 30% to other who are not contribute anything to the growth. And let's assume u can get exemption, u will be deprived of contract which local comp will be given preference (Digi).

So dali, tells me, would that be a buyer if Khazanah wants to divest stake in GLC? See temasek is out of TM just after 1 year with 5% stake. Dont tell me Temasek is coming in just for the fun.

Salvatore_Dali said...

dear hhc,

1) of course any listed stakes can be divested, what I am arguing for is that K holds too much of most of the companies - it affects liquidity. K is not holding very important strategic stakes, they can still exert control with just 33%, plus some of the stakes are also held in EPF and PNB, so why hold so many shares.

2) Tenaga is a unique animal, foreign investors know what they r getting into, whether Tenaga is controlled by K or not does not matter, say the biggest shareholder in Tenaga holds only 15% stake, any tariff increase will still ahve to be approved by the govt.... don't see yr logic. Just because you are a listed utility does not mean any tariff increase will be granted automatically.

3) Live with it already, you live in Malaysia. I'd rather live in a country where if a Malay or Indian guy is driving a Mercedes, I don't know for sure if he is the chauffer - rather than the other option. Price has to be paid to even out society. Not all measures will be fair, and sill be abused, and some benefits will not trickle to the right people. But we have to have the NEP, just have to keep voicing out that it must be more transparent.

Temasek could be selling for various reasons beyond our control. There could secret agreements to do other things ... allowing K to buy MobileOne, or do JV in other countries, or Temasek has to lighten up their telco exposure, or could buy back TM later on.


The Leakers - Helmed by the often brilliant Herman Yau Nai Hoi (whom I believe was from Malaysia who became a great success in HK films). 7...