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Showing posts from September, 2006
The Ryder Cup Experience
Some Business Lessons

Its been an amazing week, probably the best week in golf for a very long time. Not that I am a particularly good golf player, I mean, I tell people I am a "natural", no lessons required..., yea, a natural 120! But, I play more for laughs and don't take my golf too seriously. So, what went wrong (again) for the Americans??

1) Technically and on merit, the US players in general are ranked higher on the world stage, though if more European players played on the US tour, they could figure higher in the rankings. However, without a doubt, you have Woods and Mickelson, its like having Ronaldhino and Drogba in your team. It was so obvious, the Americans were too individualistic in spirit and attitude. Just look at them standing together in a group, while golf is a very solo thing, the Ryder Cup is certainly not.
Biz Lesson - No point hiring or having primma donnas in your company, even though they may be highly qualified unless they co…
OZ, OZ, OZ ... Oil, Oil, Oil

Received a well written reply on my post on oil prices, my comments in blue.

investequities said...
Hi Dali, nice write-up on the energy sector. However there are a few points that are quite confusing. Hopefully you can clarify further. Thanks. You have mentioned that oil price should not drop too much too fast as that could easily ignite good-feelings among consumers (especially in the US where their housing starts and activity depends largely on sentiment and liquidity). Too fast a drop may cause housing figures in the US to spike up and may leave the Fed with no choice but to raise rates again come the next round. If I remember correctly, the FED's have to raise interest rate 17 times this year to control inflation which is mainly due to the spike in oil prices. As such,it would be safe to say that,with the current downtrend in the oil price inflation should moderate and this renders further increase in rates by Fed's unjustifiable. The Fed's a…
Slippery When On A Slide

sopskysalat said: One issue in everyone's mind, "is the oil dropping too fast and too much?"

I did mention before that we needed the oil price not to drop too much too fast as that could easily ignite good-feelings among consumers (especially in the US where their housing starts and activity depends largely on sentiment and liquidity). Too fast a drop may cause housing figures in the US to spike up and may leave the Fed with no choice but to raise rates again come the next round. That is the danger. However, when we look at the down trend in oil price, it looks too fast and smooth. The massive losses suffered by the hedge fund Amaranth could cause some of the hedge funds to also unwind their positions. Just how big is hedge funds? Amaranth lost a US$6 billion bet in natural gas and there are 7,000 hedge funds, so its anybody's guess as to how much big bets are placed on oil and gas futures. We have to remember that oil and gas futures have been…
Branding For Bursa

I was talking with a friend on how many government and semi government bodies needed to brand themselves just like the private sector companies. We remember the branding by Standard Chartered Bank of old. Who can forget the very effective slogan/branding:

Standard Chartered

That worked well, very well indeed. A lot of companies nowadays do not stand for anything, if you do not know what drives at the core of your company, you do not deserve the full value of how well your company is doing, because you did not appreciate how/why the company did well. So, these companies will be doomed when trouble and strife come-a-looking for them. If you did not know why you did well, you will not know what to do when the shit hits the fan. Good fortune comes more from good luck for these companies rather than from good planning and execution.

If you ask CIMB's top management about their branding and core values, you can bet they have an answer, and their …
Must Read - Bumi Armada Experience

"whereiszemoola" has posted a brilliant blog on Bumi Armada, dated 16th September. In fact, it should be required reading for everyone at the SC and Bursa. There is alsoa substantive commentary by Claire Barnes of the respected Appollo Investment Management company, which invested in Bumi Armada. She articulated very well on why rules/regulations get bent and the SC/Bursa did not do the right thing for minority investors. You wonder why our index still trails the regional markets, this is symptomatic of the disease invading the entire system. Unbelievable to see Ananda Krishnan being involved in something like this... and even more ludricous to see reports that after delisting, they will now try to list it again ... you think all investors are cows or mushrooms?? The experience for one international fund manager was soured, and it is just the tip of the iceberg. Sure enough, most of those at SC were not responsible for what happened, now is …
Tenaga Covered Warrant A&B

xatomic wrote: Hi Salvatore, I follow your blog quite often and always do admire your freespoken and candid views on the market and other interesting issues.I would appreciate your views on Tenaga now if you can do a write-up, especially the warrants coz I remember you wrote bout it before last time. Tenaga-CB seems to be trading at ridiculously low premium compared to its counterpart Tenaga-CA. At the current price relative to the mother share, the premium is only 5.7% compared to 18.6% for the latter.The expiry date difference is only 3 months and gearing is much higher, so why the difference in valuations? Is the market undervaluing the warrant now?

Tenaga-CA 28/1/08 Ex px RM7.96 Warrant px RM2.04
Tenaga-CB 19/10/07 Ex px RM4.54 Warrant px RM0.79

Tenaga-CA premium would be 2.04+7.96 divided by 10.00 = 0%
Tenaga-CB premium would be (2 x 0.79)+ (2 x 4.54) divided by 10.00 = 6.6%

So, in actual fact Tenaga-CB is costlier than Tenaga-CA. The crux being t…
And They Are Off ...

A payout of 77% on Malaysian horseracing is just way too low, especcially for place bets and win bets on favorites. If they (turfclubs + totalisator + government) seriously want to try to get a chunk of the bookie turnover they have to increase the payout. By increasing the dividends, by rebates or both. If they combine this with state-of-the-art technology, then the bookie only has one advantage left: punters can bet with them on credit. Both Singapore and Hong Kong have started giving rebates, when will Malaysia wake up?

My Take - Yes, that's the third pillar of eradicating illegals. I mean, the NFO payout ratio is even worse. Racing clubs should aim for 85% at least, then life would be a lot tougher for bookies. Right now bookies can comfortably offer 20% discount on each ticket and still come out on top.

Rebates for big ticket bets is a wierd thing. Its like racing clubs are acknowledging the strength of illegal bookmaking. But the small punt…
Queries On Genting & Call Warrants

hi dali, perhaps if the tight old beancounters so adept at kiasuness there did not put such a tight squeeze on the fees, yields and spreads, given the current market conditions, the investment bankers would've made their chinese walls a bit more transparent ala david copperfield?? and does anyone seriously think the kiasu kings down south would award their only pleasure island to a MALAYSIAN company thats already taken so much money from their countrymen for the last few decades? somemore without even a local partner? (unless they commit, say, 6 bil US? hahahah just like TM (aka Totally Mad Bhd?) buying M1.. another hahahah) I would rate genting a SELL (on strength-lar..) the research houses are still being too kind.different matter - i hope david's got nothing to do with the landmarks buy??..
gsg said...
hi, any chance you have take a look at Genting international, do you think it is a buy at current level 33-34ct, before the…
Genting Should Be Pretty Pissed
But Corporate Credentials Soar

Genting International’s bid for Stanley Leisure is a good move, even though its NTA would take a whack. There are not that many gaming properties available with the size as Stanley Leisure or London Clubs. Genting has to make the move even though that was probably hastened by Harrah’s bid for London Clubs. What would piss the management off a bit is that Citigroup is advising its Stanley Leisure bid, but Citigroup’s research has rated Genting as Neutral/Reduce in ratings terminology. With the firm implementation of the Chinese Wall, the research side would not have any inkling on the investment banking’s strategy and vice-versa. Only Genting’s management has access to both division. While Genting may find the situation a bit awkward, there is nothing much it can do. Neither can the investment banking side do much persuasion.

The double whammy came when Resorts World just raised RM1.1 billion in a convertible note issue, lead …
Privatisation And M&A Activity

Following the blog on the same topic last week, the privatisation / M&A juggernaut seem to be gaining fervour. First the rumoured Esso Malaysia, then an actual bid by QSR for KFC, and then Intan Utilities. Rather than focus on those, it might be good to look at other likely potentials, it is not a coincidence that the bulk of the concentration will be in banks:

1) RHB Capital - The debate continues with respect to the pricing for RHB Capital. While many analysts peg a likely buyout price at RM3.30-3.40, there are good reasons that the buyout price could even be higher (current price RM2.60), closer to RM4.00 owing to the implied pricing betwwen RHB and Utama.

2) Affin/Boustead - Not a particularly well managed bank but Boustead should be asking for at least RM2.10 (current price RM1.70). This will also boost Boustead's RNAV from the present RM2.82 to RM3.00. Boustead's pretty illiquid and now trades at RM1.86. Could be interesting should the…
Return Of The 'False Kings'
Plus, The Temporary Demise Of Plantations

As we are still in a generally uptrending market, the correction in second and third liners seem to be over for now. Major bourses were affected by a sharply lower oil price and similar weakness was to be found in many commodities and its related stocks as well. Again, I have to stress that we do not want oil prices to drop sharply and significantly as it may propel inflationary forces. Though second and third liners have recovered somewhat today (e.g. Iris, Mobif, DCIB, Tebrau, Sanichi, etc..), I do not think syndicates are well at all, plus at the back of their minds they have Bursa/SC with strong big canes aiming and waiting for them. Thus I do not believe the recovery in second and third liners will be a prolong one, just bringing up the bottom a bit, punters should not be overly excited.

The sharply lower oil prices at US$65 would cause a natural correction in certain palm oil stocks, particularly those wi…
Genting & Resorts World - The Bigger Picture

Britain's Stanley Leisure agreed on a cash offer from Genting International (listed in Singapore) that values the UK casino firm at 639 million pounds (US$1.2 billion).Genting, which already owned a fifth of Stanley, bought a further 5.3 percent stake on Sunday from its founder and Chairman Leonard Steinberg, the two companies said. Steinberg, who built the group from a single betting shop in Belfast 50 years ago, also gave an irrevocable undertaking to accept the offer and granted Genting a call option on his remaining 5.3 stake.Genting said it now owned or had commitments for 30.5 percent of the shares in Stanley, owner of the high end Crockfords casino in London's Mayfair district. Stanley Leisure and rival London Clubs, nearly 30 percent-owned by Genting, had been in merger talks until last month, when London Clubs agreed a 279-million-pound takeover by Las Vegas-based Harrah's Entertainment. Genting, which had been viewe…
Ringgit, Reserves, Revaluation

- of cabbages and kinks -said...
I would be grateful if you explain this statement: "Bank Negara's international reserves at a steady US$79.3 billion, meaning the ringgit should see at least room for a 5% gain over the next 12 months." How does the reserves affect the appreciation? Why 5% ?

I see 5% gain over the next 12 months, not because of the reserves, the reserves act as a basis for supporting a stronger ringgit over the near to medium term. The reserves do point to better management of ins and outs. If you look at the correction in emerging marts in May, it was swiftly followed by a correction in currencies of emerging marts, but there were three or four currencies which rebounded well. Besides the Chinese yuan, which was managed, so it did not move much - the currencies which rebounded well included the Brazilian real and ringgit, bit "where there is surpluses in trade and reserves". My statement only lends crednce to my opi…
Fitch You!
Fitch You Too ...

As reported in Bloomberg today, Fitch Ratings came out with some good constructive criticisms, some so-so ...

Sept. 8 (Bloomberg) -- Malaysia's plan to reduce its budget deficit next year isn't enough to win the country a rating upgrade because the government is still spending too much and its debt is too high, according to Fitch Ratings.Fitch won't review its A- rating, the seventh-highest investment grade, for Malaysia, said James McCormack, head of Asia sovereign ratings at Fitch.``If you look at overall deficit levels in Malaysia and you look at government debt levels, they're not in line with the sovereign ratings, .. The debt levels are too high, the government spends too much money, and the budget has taken a problem and really has not improved it at all.''

My Take - The 4-5 years following 1998 was a necessary step to give the economy some platform shoes to stand on, no need to criticise that, it was a necessary move. The last …
Crux Of Bursa's Problems

It must be funny when the papers blared that the Malaysian market is at a 6 year high, and you look at it and it felt like a 6 year low. What is so great about hitting a 6 year high?? Tons of markets have went past that already. Let me qualify first, I still think KLCI will test 1,000 by year end and 1,050 by 1Q2007, even with that performance, there are deeper issues with listed Malaysian companies that needed to be addressed. Am I being harsh? Well, just look at the pre1997 crisis index levels, and where they are now:

KLCI 1,077. Now 955. -11%
Hang Seng 15,196. Now 17,096. +12.5%
Dow Jones 6,823. Now 11,373. +66%
Jakarta Composite 724. Now 1,470. +103%
Straits Times Index 1,921. Now 2,505. +30.4%
SE Thailand 527. Now 692. +31%
Philippines Comp 2,447. Now 2,405. -2%

I have selected the big ones for comparison, and the regional indices because they are most comparable as we all had the Thai baht crisis, and we all have had the SARS effect, etc... What is so amazing…
& News Headlines

Steve Irwin, what a guy, very unfortunate but lived his life full and well, died doing what he loves. I think if you ask him now if he would do everything the same knowing what would happen to him ... he would say "sure matey, no worries". Its the spirit of the guy that gets to you, whether you like him or not, its infectious. Cheers, mate!

Today's newspaper headlines in the business pages in Malaysia:

The Star: KLCI Rises To 6-Year High, Ringgit Strengthens Against US Dollar

NST: Local Stock Mart Hits 6-Year High

Only one paper did not have such exuberence, The Sun. Somehow, today's market did not mirror the exuberance of The Star and NST. Despite hitting a 6-year high, it does not mask the underlying structural weakness with Malaysian listed stocks (please read blog on what's wrong with Malaysian companies/Bursa).
Privatisation / M&A In Malaysia

There was a report in Business Times stating that there was RM28 billion in market cap to be taken off the stock market if all the privatisation deals announced in 2006 were to be completed. The deals cited include:
- Amcorp RM883m
- Southern Bank RM6.7b
- Koa Denko RM55m
- Johor Port RM398m
- Guocoland RM291m
- Malakoff RM9.3b
- OYL RM7.6b
- UBS RM98m
- UDA RM529m
- Worldwide RM304m

"Where Is Ze Moola" (you can access his credible blog by clicking on the link on the right column) wrote in his blog: "... the privatisation and the subsequent delisting of the listed subsidiary, this one i really dun like at all. It's just totally unfair to the minority shareholder and it makes a total mockery of the whole stock exchange. Listed Companies should not be given the approval so easily to privatise their listed subsidiary company in which the general investing public is forced or threatened with the issue of delisting. And as mentioned earlier once t…
Is There Anything Wrong With KLSE?
You Betcha!

Though the SC and Bursa have done well over the last couple of months when it comes to being more stringent and vigilant with syndicates and meaningless IPO applications that cannot stand on its legs. That's the regulatory part. What irks many foreign investors, local funds and investment pros in Asia is that the country, Bursa, EPU and Finance Minister seem to be clueless as to the real problems affecting Malaysian listed stocks - the really sad thing is that most of them do not even think that there are significant problems affecting Malaysian stocks. Let's consider the tell-tale signs:

Singapore has surged way past Malaysia. Of course, to be fair, KL cannot compete as a financial center with HK and Singapore - how to compete, I mean to simplify rules, regulations, application procedures, turnaround times, tax codes... all are very "difficult" right??!! What is most galling is that Singapore exchange has surpassed in mark…
Economy & Equity Market - US

Economy - The underlying economy is strong, not as strong as China or India but strong. Jobs are there. The most important factor is housing, a lot of Americans have a lot of savings tied into housing. A robust housing market over the last 3 years have allowed many to tap into the gains via revaluation or trading up of properties. The one thing which threatened to derail the economy was fuel prices, which caused iflationary pockets in the system. As mentioned before, if it wasn't the higher fuel prices, it would be the stronger consumer spending to put on the inflationary pressures. So, either one or the other, the higher oil prices have flattened housing stats, which was sufficient to give the Fed balls not to raise rates.

Is the US economy slowing? Not really, consumer spending is still there as the gains made or locked up in properties is still substantive. Jobs are still there. US companies have never had so much cash in their system. But its no…