Thursday, November 30, 2006


Takafulofshittystuff

As reported in theedgedaily today:
"Syarikat Takaful Malaysia Bhd chief executive officer (CEO) Md Azmi Abu Bakar failed to get re-elected as a non-executive and non-independent director of the company at its AGM on Nov 29. Md Azmi, 42, was appointed as CEO on Sept 15, 2005 and prior to the appointment, he was the chief operating officer from 2003. He took over as CEO from Datuk Mohd Fadzli Yusof, who also failed to get re-elected as a non-executive and non-independent director. Syarikat Takaful said the resolutions to re-elect them were rejected by the shareholders. It said the resolution to adopt the audited financial statements for the year ended June 30, 2006 was carried, but the auditor KPMG Desa Megat & Co had modified its report with an "except for" qualification. It did not elaborate on the qualification."

There is obviously something not right. If you were to glean through the NSTP BIz Times today you will find interesting sentences which kinda points to what is inherently wrong about having less than professional managers, or seeming pros who does not act like one.

Shareholders were shocked when the company disclosed that there were RM200m "unreconciled differences" in its financial statements ended June 30 2006. However the company's auditors, KPMG Desa Megat & Co, issued a modified report just before the AGM took place.
My Lima Sen - Unreconciled Differences, that only makes sense in a divorce case, if its an accounting thing, its not good. The auditors would have been trying to reconciled the differences for the longest time, and probably the accounting partners would have had to rolled up their sleeves when they also could not reconcile them - still unreconciled at AGM, very bad form. UR means you don't know where the balances went to, or things just went missing.


Syarikat Takaful Malaysia Bhd chairman Tan Sri Hadenan A. Jalil assures shareholders that there is no need to be alarmed over some irreconcilable items which the auditors brought up at the company AGM yesterday.He said there was no evidence of misuse of funds or other wrongful acts. It will not affect the performance of the company in terms of profits.
My Lima Sen - Accounting is a simple concept, its man-made, every credit must have a debit entry, left hand right hand. When it doesn't balances, and the accountants cannot find them .... there implies something grossly not right, and very poor controls, apparently nobody knows where is the RM200m. My god, even my mum would scream if RM20 was missing from her shelf! Whether there was misuse of funds or CBT we don't know, but we can be sure that the company have VERY POOR CONTROLS. Can someone from the company even admit to that? Even if the differences were to be on the credit side - that doesn't detract from poor operational controls.

The chairman added that the company's accounting system was changed from a cash to accrual accounting is also to be blamed for the differences.
My Lima Sen - That statement reveals a lot about what is wrong with a lot of senior management. If it was a Japanese company, the chairman and CFO would have committed seppukku already. Here we find the chairman grasping at straws, Takaful is NOT THE ONLY COMPANY or THE FIRST COMPANY to change from cash to accrual system in the history of corporate accounting. Just admit that the CFO was not up to speed and apologise on behalf of the less than perfectly-qualified accounting staff and overall poor supervision. Apologise for not being able to be aware of prevailing problems and inability to rectify them within a reasonable time frame. The failure to "acknowledge inferior performance", "inability to admit fault or what is lacking", "the persistence of coming up with slogans and excuses to mask inferior performance", "the inability to anticipate problems and plan ahead properly" - in one zorro slash of the sword, that's largely what's lacking in professional management in most GLCs.


Composite Index Reality

Its 11am and the Composite index is up a significant 14 points to 1078. However, everyone knows the underlying tone is not as strong as what the index is showing. What I am saying is, the market is good and there is good undertone to it but just not as strong as what the index is throwing off.

The index will have a very good chance this few days to tests the 1,100 level because:
a) the mega merger automatically pushes up a few index component stocks and will ensure that it stays there for some time owing to the merger proposals and premium pricing, as the deal is expected to take 12 months to complete, in a way the index will have a strong support level from these group of companies.
b) the view on plantations has been positive 6 months back on biodiesel, now most believe the palm oil prices will continue to surge ahead as biodiesel plants are actually up and running and even exported, bringing forward the reality, even the recent slump in oil prices did not deter from the feasibility of biodiesel.
c) the ringgit is still and undervalued currency and the weker USD over the last few days will only prompt more international investors to plonk their money here in Asia for better stock returns and currency exposure, the strongish ringgit will be able to deter imported inflation somewhat which is another positive for investors.
d) the mega merger may be seen as the beginning of a move to drive M&A activity for GLCs and other governemnet controlled companies, and this will be a very good thing as it will force better productivity and reduce duplication and harness economies of scale, we now have NSTP/Utusan, maybe more construction firms later
e) better openess by Bank Negara on the Anz Bank stake in AMBank is a very positive move and will improve market perception a long way, if only we can redress the REITs thing by waiving NEP equity participation for foreign controlled REITs, watch the surge of funds moving in if we do that.


Some Investing Pointers

1) Out of the blue - When someone ask you about a stock "out of the blue" (just like simon-alibaba below), gotta be suspicious. Especially if its a stock not on everybody's lips. Especially if its from someone who does not play stocks often as their sources have a higher hit rate.

2) Opening lower on huge volume - Look at MBf Corp today, top volume stock with a closing price yesterday of 21 sen. The stock opened at 16 sen and reached a high of 18.5 sen. You don't even have go looking for news, a stock that opens much lower on good volume, you can forget about bottom fishing. Its a very poor bet to buy now. Most investors have a big drawback, and that is Good Recent Memory, Poor Long Term Memory. Recent memory means we make recent experiences as a reference point - i.e. we are aware MBf Corp has risen and traded above 20-22 sen for the past few days, hence a pullback to 16 sen. looks bloody attractive. Poor Long Term Memory, sigh, remember 1997, ok too far back, were you aware that MBf Corp spent a long time around 10-12 sen with volumes being collected over the last 8 months, go back and check the charts. Nobody will sell you so much lower for no good reason.

3) Sporadic Shifting Themes - Yes, we are in a bull market, but you can easily spot weakness when players are rotating from one type of counters to another day by day. If the switching is rapid, it indicates weakness. For example, the market when breaching 1,050 was a bit shaky, and there was some sell off in plantations but undertone was still strong and players switch from counter to counter with no strong theme - when there is no strong theme but undertone is still firm, most players will look for leads in the newspapers - when that happens, we should withdraw and not join in. Looking for leads from newspapers is like going to Lucky Garden morning market and listening to the vegetable seller for tip of the day.

4) Judging strength of bull market - Again, look at the themes. There must be some themes you can quickly come up with. If you can't, then there is little strength left. Now, everybody can rattle off things like Plantations, M&A activity, GLCs being merged for efficiency and economies of scale, more openess with Bank Negara/ANZ, stronger ringgit/weaker USD and funds leaving more established exchanges in favour of Asian bourses. Plus a very mix of speckies and solids on the top 20 volume like now. Remember the market at 950-960, almost 90% are speckies and that is only a trading market (means have to cut swiftly on any signs of weakesness).

Wednesday, November 29, 2006


Ranhill Baby

simon_alibaba said...
do you have any call on Ranhill Utilities or RUBHD?


What a nice name... Ranhill ... sounds so British. Ranhill Utilities is not on any brokers' watch list, i.e. no coverage, i.e. nobody will touch the stock. Let's be fair and have a view on Ranhill Utilities. Its 100% subsidiary, SAH Holdings holds the water supply concession in Johor - some hoo-hah with the state government to restructure the concession. The project IRR is about 18%.

The only stock that research houses cover within the umbrella of Ranhill is Ranhill Berhad (the other listed counters are Ranhill Power and Ranhill Utilities). Surprise, surprise, the only exciting counter of the 3 is Ranhill Utilities. The Ranhill Power is also good but is plagued with land acquisition issues in Sabah. Both the power and unitilities units contribute nearly 50% of turnover for Ranhill Berhad. At operating profit level, the figure is even more ridiculous as the two account for 95% of Ranhill Berhad's profit.

So, the first thing to do, throw Ranhill Berhad out of your buy list. Of the other two, Ranhill Utilities is a better bet, but because there is scant coverage, it is difficult to move the stock, you will have to hold and wait because the company is controlled by Ranhill Berhad - so RB have not much incentive to improve the share price of RUB, RB would probably use the balance sheet and cash flow of RUB to finance their expansion (not a good thing). RB has ventured to very high risk areas for their construction projects, e.g. Libya... OMG.

Looks like Ranhill group needs a good advisory team... quick. Sell down stake in RUB, let RUB fund its own expansion into water projects on its own balance sheet. RB should refinance its own projects and cut ties with RUB and RPower. Right now, the best any of the companies can do is what the weakest link shows. Nobody is willing to embrace the stronger units.

Tuesday, November 28, 2006


Kinsteel, Looking Good
Whats Driving The Profitability

If you were to check Kinsteel's share price and volume traded for the past couple of months, there is nothing to suggest anything "sinister" or devious was syndicate involvement. The share is pretty clean. The company reported a ridiculous RM422m net profit for the 9 month preiod. That's largely due to recognition of negative goodwill (don't ask... go take an accounting class). What is a more relevant figure is the net profit after minority interests which came in at RM49.6 million for the 9 months. That was still a huge jump of over 200% from the same period last year's net profit figure of RM16.4m. The cumulative EPS for the 9 month totals a staggering 42.5 sen (mother share rose to RM1.40 today from the previous day's close of RM1.18).

The overall improvement was due to the enlarged group which resulted in strong upstream activities, and overall improved demand from the region. ... That's basically bulls shit stuff. Kinsteel on its own is a decent company. In 2004 it made a pretax profit of RM26.2m from revenue of RM453m. In 2005, the pretax profit was RM20.5m from revenue of RM550m. However, cash flow was in the negative territory slightly, not a major concern but dissuades the company from expansion plans. In steps Maju Group, this is actually a very good backdoor listing for the revived Perwaja Steel.

The key was on 7 October 2005, the company entered into a conditional Strategic Alliance Agreement with Equal Concept ( Maju subsidiary) to acquire a 51% interest in Perwaja Steel. At the same time, Kinsteel will use a SPV named Perfect Channel, to acquire a 51% interest in Gurun Assets from various Maju subsidiaries (Maju Rebar Coatings, Maju Steel Centre, Perwaja Rolling Mill and PS Water). However, no liabilities will be assumed by Kinsteel.

Here lies another key: the purchase of Perwaja Steel is for RM197.6m, which will be satisfied via an issuance of 60m new Kinsteel shares at RM1.36 and a cash settlement of RM116m. The deal is a sweet deal for Kinsteel and also leveraged on Perwaja's strengths and masks its deficiencies.

Not many are aware but Perwaja is the biggest producer of hot briq iron and DRI at 1,200,000 MT. The nearest competitor is Amsteel at 750,000 MT. Perwaja also towers in Billet/Bloom at 1,300,000 MT production capacity equalling Southern Steel's capacity, while Amsteel has a 1,050,000 MT capacity there.

While I thought the deal was sweet for Kinsteel and Maju, the swiftness of results after consolidation took me by surprise. The big question for all is whether there is more upside... The key is in the issuance price to Maju, its at RM1.36. The stock basically was ignored for the past few months despite the proposed deal. Now that that is sealed and done, the company just went about reporting the actual financial figures and let the market do the rest. The stock jumped today from RM1.18 to RM1.40. The 9 month EPS figure is already at 42.5 sen. Even giving that a 4 times PER is already RM1.70. Again the issuance at RM1.36 to Maju is very critical as it already assumes a huge undervaluation in most cases of share issuance, thus more upside is very likely. In addition, there was no hanky panky in stock price and volume for past few months and that would also suggest that no one will be selling for a long time.

The warrants are even more attractive. Conversion price at RM1.00 and expiring in only 2011. Even at 61 sen, the premium is only 61+100 / 140 = 15% premium, and a healthy gearing at 2.3x. Assuming RM1.70 as a short term target and giving it a 10% premium, the warrant would then go to 86 sen minimum. Bodes well for all kind of players, just wished I had looked more closely at Kinsteel earlier, however, it looks like still not too late to venture in.


What Now, Brown Cow?
Just Don't Be A Bigger Sime Darby

If the end result of the mega merger of PNB companies result in just a much bigger Sime Darby, then don't do it. It is very silly and exhausting. I basically agree to the concept. There are a few questions though:

1) It looks like Synergy Drive was "created" as an independent party so that PNB could vote on the deal, which requires 50% plus 1 vote to push it through. If PNB has mooted the deal on its own, PNB will be forbidden from voting its stake. Hence Synergy Drive may not as "sinister" as the cynics might have it. However, Securities Commission could be tasked to look over Synergy Drive's existence, and whether PNB is in cohorts to circumvent the regulations to the detriment of minority shareholders. Ball in your court SC.

2) The entire exercise is expected to be complete by 4Q2007. This is one of the major hurdles we have to eradicate. By making companies having to jump through so many hurdles, and knowing that each hurdle tends to take time - this is what we call red tape, bureaucracy, causing misallocation and wastage of resources = inefficiency and lower productivity. Can the powers to be, please, implement a task force to reduce the red tape-gate. It is certainly not hard. If this deal were to be done via SGX or HKSE, I can tell you it will be completed with all the approvals within 4-6 months. The sad thing is, we don't seem to care, and just accept it as status quo - we could do things so much better. Dragging out the approval process to 12 months is highly unacceptable. Yes or no, it should be decided asap, as a lot of things get hung in the air, suspended like inert useless things.

Corporate moves like this is welcomed and would excite foreign investors. I am surprised that Bank Negara would be so welcoming to ANZ's investment into AMBank Group. This is yet another positive step and would win points in the eyes of foreign investors. As a whole, we need to keep an open mind and not be so nationalistic if we are to compete and attract FDIs. We can lock ourselves up and not sell anything and end up like North Korea. Certain critical sectors, we need to maintain national ownership but we must also be flexible. As proposed before, if we could revamp the rules regarding REITs - e.g. foreign controlled REITs need no longer comply with NEP equity ratio, watch the flood of funds snapping up commercial properties in Malaysia. Its a willing buyer, willing seller, no need to protect and say foreign interest owns a majority of our commercial properties - so what, its a reallocation of resources. Our minds need to think bigger than that.

Friday, November 24, 2006

Thursday, November 23, 2006

Mega Merger Of Sime Darby, GHope & Guthrie
The Good, The Bad & The Ugly

Well, its about time, and I thought it was never going to happen. Both Golden Hope and Kumpulan Guthrie have performed well in share price returns this year, while Sime Darby has been ignored. Based on pure palm oil play and the biodiesel rally, Golden Hope has gained some 21% over the last 6 months year while Guthrie has registered a scorching 53%, meanwhile Sime Darby just beat my savings account rate coming in at 2.5%. Is this to save Sime Darby? Despite that underperformance, there isn't a shadow of a doubt that the management at Sime is still top tier.... although they could do with a bit of reinvention and strategic shifts.

Already Sime Darby has been dragged lower due to the aversion by fund managers from conglomerates, why add more slices of bread to the pudding? In fact, Sime Darby would be better advised to properly distinguish the various business units into a cleaner structure. The work is only halfway done, you have: Sime Properties, Sime Engineering. What you need is also Sime Energy & Utilities, Sime Manufacturing, Sime Infrastructure and Sime Plantations. Then take Sime Darby private, and leave the business units listed. All capital needed for business ventures would be raised via these business units. If Sime Darby stays listed when the plate is so huge, even when all units make a lot of money, it would not be reflected in the real value behind Sime Darby. As you can raise funds via the seperate business units, there is no longer a need for the holding company to be listed.

If I was the adviser, I would use the listed vehicles of Golden Hope and Guthrie to inject the various assets to align the business, for example I can inject all plantations into Golden Hope, and all infra related businesses into Kump Guthrie. I betcha that would make a lot more sense. It also streamlines management of business units and not by listed vehicles which may have similar businesses under different unit managers.

Size, its all about size. We need more big swings dicks in the market place. Sime's market cap is RM15.2b, Kump Guthrie's at RM4.1b while Golden Hope is at RM7.4 b = RM26.7b (finally a stock with a decent US$7.5b market cap). In fact, if they follow the formula to create listed seperate units the total market cap could be boosted by another 10%-15% at least (RM3b is nothing to be sneeze at).

Things that look good on paper - economies of scale in terms of management of resources. Sime Properties suddenly looks very good with the prime pieces of development under Guthrie, and I think it would be a much easier sell under the Sime UEP Properties banner.

That is also why I have rated PNB as the better manager of resources and in strategic planning. As all 3 come under the banner of PNB, it just makes sense. Look forward to a favourable VSS - its a good thing, a better redeployment of resources. It also makes for better leveraging based on Sime Darby's superior managerial layers of professionals.

The one thing Sime Darby has not been that good in, its when they go overseas, they need to buckle up, get better people and do more vetting of partners. Their HK and China record could be much better. CONSOLIDATE then REFOCUS. Malaysian companies once they get big will want a finger in every pie, that's OK, just manage them as seperate business units and allowed to be valued and listed as such. Even the wonderful General Electric is a conglomerate that can be valued and managed clearly via business units - but they also get rid of non-performing units very fast. Sime needs to learn to do that, or rather PNB has to give Sime the leeway to do that.

Wednesday, November 22, 2006

Advantage Kerzner!
Why Genting Will Not Win Sentosa

Sticking my neck out here but am pretty confident now that Kerzner will get the Sentosa IR project ahead of Genting. Let's look at Genting's bid details:
- partnering Star Cruises and Universal Parks
- build a Universal Studios theme park to draw 5m visitors a year with 16 new/unique rides
- new rides based on King Kong and Madagascar, Revenge of the Mummy and Waterworld
- larger than the one in Hollywood with room for expansion
- plenty of shade structures in keeping with the sunny weather
- some additional juice based on Universal's relations with NBC but no details as yet

The trouble with Genting's bid:
- another theme park thing, theme park thing is so 90s
- it's Universal but not Disney, and what if Nusajaya gets Disney (its a longshot but still a possibility)
- theme parks and fun rides does not add much "real value" to kids

After Marina has been awarded, the Sentosa IR would have to be awarded on being a different IR, no point having same IR. The Sentosa IR has to be more focused towards family and kids and less towards MICE. Marina is city casino while Sentosa is a resort based casino. Whoever wins Sentosa has to be different and offer different things than Sands.

Looking at Kerzner's bid yesterday, the advantage goes to Kerzner. Here are the details:
- partnership with Discovery Channel, MTV and Nickelodeon
- 34 f&b outlets with internally recognised chefs such as Gordon Ramsay and Nobu
- its the seaworld concept and will be called Atlantis Sentosa
- teamed up with Capitaland
- clearly targets 4 age groups: "under 3", 4-8, 13-18 and adults
- Kerzner's Discovery Kid's Camp in the Bahamas, a jv with Discovery Channel, will be a trump card
- the resort design will be led by Frank Gehry, this looks to be another trump card for Kerzner as it plays on Singapore's feelings of inadequacy. Singapore has made it as a developed financial center, with very high GDP per capita, and some of the priciest real estate. Singapore can get the best entertainment and shows and artists to perform in the island state, it tries to buy and import some culture, and a building by a renowned architect is lacking in Singapore. All major cities have their IM Peis and Gehrys, so to have a Gehry designed building is like having a Dali or Picasso masterpiece in the real world.

Looking at the price jumps, investors seem to have factored in a 70% chance that Genting will get Sentosa IR. Not going to happen.

History & Stock Markets
We Are At Crossroads

Now that most equity markets are near or just surpassed their all time highs, most investors are loathed to put forward their opinions on the near future direction of equity markets. Most had been wrong for the past 6 months as they expected markets to be weakened by the high oil prices and the mess in Iraq.

As mentioned before, I am still bullish on equities globally, in particular on markets where their currencies are still deemed undervalued. That's because growth in earnings will be there, but equally as important is the inflationary aspect. The more undervalued your currency is, the better it is to withstand imported inflation by rising in value and yet not hurt your export competitiveness much.

While we are standing by and watching equity markets at highs, there has been a general wave of increase in almost all asset classes. Commodities did their thing over the past 24 months, and even with the correction, the prices are still relatively high. The other notable class of asset which rose enormously is real estate. Especially at centers of financial money making. Has anyone try to buy an apartment in London or New York, and just look at the up-upper class property launches in Singapore over the last 6 months - you'd think that the top 10% popoulation in Singapore earns S$500,000 minimum a year!! The St Regis Residences developed by City Developments sold at S$3,030psf or RM7,086psf (or US$1,970psf or HK$14,770psf). Surprisingly, real estate prices did not rise by that much in HK or Japan... yet.

They point to a lot more liquidity swishing around. Despite in rate increases over the last 2 years in the US, there is still ample liquidity in the system. China has plenty of cash and so too does the oil producers. When painting by Klimt can go for US$137 million, when money chases after ugly art, something is not quite right. However, this time around, most equity markets are still not at excessive valuations. As far as I can see, I can only be wary of one possible time bomb in all asset classes, and that is the over-exuberant valuations of Chinese banks. There is still a lot of shitty stuff in the provisions and those items not classified as NPLs yet, and the new loans growth should be viewed suspiciously as the risk inherent in most of the loans are tied to the excessive property prices in Chinese markets. One can just imagine the dominoes thingee... and no one seems to want to write anything bad about Chinese banks or the over-glorifying-performances by all parties involved in IPOs.

For the last 2 years, most central bankers would promote easy money on fears that higher oil and comoodity prices might choke off growth or even result in depressed economies in their own sphere - that fear is largely gone now. So, the way forward is to see if central bankers will be tightening soon. However, most of the world looks to the Federal Reserve for direction. And, surprise, surprise, we just went past the mid-term elections, which means we are in the final two years of a presidential term. Believe it or not, since 1923 there were 23 mid-term elections and for the next 15 months, 21 out of 23 times the equity markets were up. They were up by an average of 23%.

I don't know about you but 21 out of 23 times is a pretty good strike rate. That's an incredible 91% strike rate. One can even explain it as the final two years of a presidential term tend to see markets performing better because deliberate policies and things tend to converege and happen more often. In fact the only two times out of the 23 when the markets were negative were in 1938 and 1948-49, no need to elaborate further I guess.

What the historical data confirms is that while we have strong surges in asset prices, and liquidity is ample, chances are the Fed would still maintain a relatively easy money period owing to fact that we are moving into the last 2 years of the presidential term. Plus the sharply lower housing starts in the most recent US figures would at least delay any raising of rates till at least March-June 2007, if there should be one. One final comment, the fact that Paulson is there at the White House would ensure a very positive global trade/biz relations with China, Japan and the rest of the world - in fact, I expect him to revamp the Sarbanes-Oxley thingee to the betterment of the US markets very soon as well.... and that can't be a bad thing.

Hard to believe, but most equity markets should have a clear road ahead, till March 2007 at least. Over and out.

Tuesday, November 21, 2006

Gawd, I Hope Nobody Finds Out That I Am So "Average"
An Investment Pro's Biggest Fear

Why so harsh on JP Morgan Asia? Well, just have a look at the share prices in Southeast Asia, which have climbed three times faster than in the Asia-Pacific region. Stocks in Indonesia, Malaysia, the Philippines, Singapore and Thailand, tracked by the FTSE/Asean Index, have gained 27 percent in dollar terms this year. FTSE Group's Asia Pacific Index has risen 8.6 percent. ... and our JP Morgan friend has the audacity to proclaim in a report just a few days old that they JUST RAISED Thailand equities to overweight and JUST RAISED Malaysia and Indonesia to NEUTRAL. So, Malaysia and Indonesia were to be underweighted or an avoid for the past few months, I guess! Its people like that that gives investment analysts and strategists a really bad name.

Let's checkout a recent Bloomberg survey on what investing pros were saying and rate their statements by their insights and intelligence, or lack of.

'`We're still buying heavily into Southeast Asia,'' said Ian Beattie, who manages US$1 billion in Asian equities at New Star Asset Management Ltd. in London. ``Fundamentals are still sound even with the recent performance.
(the key here is "still buying", as usual, the sharper SEA fund managers are based out of Europe)

Indonesia's economy, the largest in Southeast Asia, expanded in the last quarter at the fastest pace in a year. The Asean index climbed 1.1 percent last week, beating the 0.1 percent gain in the Asia Pacific measure. The Straits Times Index in Singapore, Southeast Asia's biggest market, performed the best among Asean country indexes by rising 1.9 percent. Southeast Asia produced the best-performing benchmark in all of Asia this year: Vietnam's Ho Chi Minh Stock Index, which has jumped 87 percent.

Asian equities strategists at Merrill Lynch & Co., Macquarie Securities Ltd. and JPMorgan Chase & Co. recommend investors hold more Southeast Asian shares than are represented in benchmark indexes because lower borrowing costs will spur economic growth in the region. The central bank in Indonesia reduced its benchmark interest rate this month for the sixth time since May. The Philippine central bank on Nov. 2 effectively trimmed borrowing costs for the first time in three years by reducing the interest paid to lenders for deposits.
(many strategists cite lower borrowing costs as the kicker for SEA markets, that's a bit underdone for me, its the currency stupid, just have a look at the underlying strength of each of the country's currency, that explains the lower production cost per man hour and hence the more competitive exports, its that each of the SEA currency is at least 15%-25% undervalued still... with the exception of Sing dollar. The strategist at Merrill's (interviewed below) also seems to have missed the bigger picture just like the JP Morgan guy..)

Indonesia's Jakarta Composite Index has advanced 44 percent this year, the third-biggest gain in Asia behind Vietnam's index and China's Shanghai and Shenzhen 300. The Philippine Stock Exchange Index has climbed 36 percent. Policy makers have yet to lower rates in Malaysia, where the Kuala Lumpur Composite Index has risen 16 percent this year, and in Thailand, where the SET Index has risen 2.8 percent. The Malaysian central bank has held borrowing costs unchanged since April, and Thailand last month kept rates steady for the third straight meeting.``Indonesia and the Philippines have been driven up by falling rates and an improving economic outlook,'' said Spencer White, a Hong Kong-based strategist for Merrill. ``Looking into 2007, Thailand and Malaysia both look interesting. Rates will fall in both and there will be a cyclical recovery in the domestic economies. ''Singapore's economy grew at an annual 5.7 percent rate in the third quarter, after expanding 3.9 percent in the previous three months, according to revised estimates released today by the trade ministry.Indonesia last week reported 5.5 percent growth from a year earlier during the quarter. The country outpaced expansion of 2.7 percent in Japan, Asia's largest economy, and 4.6 percent in South Korea, the region's biggest emerging market.

``Growth is still in the emerging world rather than developed economies,'' said Franki Chung, who oversees US$700 million of Asian equities at CIBC Global Asset Management (Asia) Ltd. in Hong Kong. Emerging markets ``will continue to do better than, say, Japan or Australia.
(nothing spectacular, but at least he is saying something decent and a worthwhile opinion, rather than a wishy-washy one... you know one .. the one hand, and on the other hand statements...)

``The potential for surprise in Southeast Asia is really that domestic consumption has yet to be mobilized,'' said Anthony Muh, who helps manage US$1 billion at Alliance Trust Plc in Hong Kong. ``We've bought into the story and I think it will continue.'' His biggest holdings in the region are in Singapore. Because emerging markets dominate Southeast Asia, the region tends to be hit relatively hard when fund managers switch to less risky investments. FTSE's Asean index tumbled 19 percent between May 8 and June 13, exceeding the 15 percent loss in the Asia Pacific index, as stocks fell worldwide.
(at least this guy gave a worthwhile opinion)

'`If there's a global slowdown or investors become risk averse, they will withdraw money,'' said Grace Tam, a manager of investment services at JF Asset Management in Hong Kong, which holds US$78 billion of assets in Asia.
(sure, this may have been taken out of context, but statements like these should never be printed, its like saying my mum is a woman ... adds zero value and makes the investment pro look bad ... bad business journalism)

Fund managers appear bullish for now. Investors were the most optimistic this month about equities since April, according to a Merrill survey of 216 fund managers that was published Nov. 14. Respondents investing in the Asia-Pacific region excluding Japan rated Singapore, Indonesia and Thailand as favorite.``We see a lot of fund inflows into Southeast Asia,'' Tam said. ``We prefer Southeast Asia more than Northeast Asia right now because of falling interest rates and also because of strong domestic demand.''
(at least Tam was quoted better this time around, and the opinion has more meat in it)

Better Late Than Never
But Why Are They Paid So Much For?

JPMorgan (JPM) has upgraded its recommendation on equities from Thailand, Malaysia and Indonesia, citing "pro-growth monetary policy" in all three countries. In a report released Monday on the 2007 outlook for emerging market equities, JPMorgan said it has raised Thailand equities to overweight and Malaysia and Indonesia to neutral. Other macroeconomic factors working in their favor include strengthening local currencies and increased domestic consumption as a result of lower gasoline prices, the report said. JPMorgan was more specific on its view on Thai equities, saying it "expects that both economic and profit forecasts will be revised higher over 2007." A more defined economic policy from the government during next year will also benefit Thai stocks.

As for the broad asset class of emerging market equities, JPMorgan predicts that conditions in 2007 will remain about the same as this year. Earnings growth will still surpass rates in developed markets. Headline growth rates in all regions remain robust, with domestic demand a key constituent of growth. The U.S. economy is expected to slow somewhat, but a moderation to 3% growth would augur well for emerging markets, as it is likely the Federal Reserve will stand pat on interest rates. Risk appetite in the context of moderating U.S. growth should put the spotlight on robust domestic demand stories, which abound in (emerging markets), the report said. In this scenario, international allocation to the asset class should rise.

One danger, JPMorgan pointed out, is that the market appears unprepared for the Fed to start raising rates again. The investment house expects the tightening cycle to resume in June 2007. If the shift in policy catches the market by surprise, emerging markets could sell off in the second quarter, JPMorgan warned.

According to the survey by Thomson Extel, what JP Morgan writes we should listen cause they were the top equity house in Indonesia and HK. But alas, just look at the report, it would have looked better if it was released in June 2006 or even January 2006, and not November 2006. To me, the strategy proclaimed is so stale and regurgitated already. Tell us something new, please ... buggers at JP Morgan Asia are way overpaid to write this diatribe. ... Gee, if I were them, I would prayed nobody finds out how "average my investment mind" is .... that I am really way overpaid and just ambling along, you know... smoke and mirrors to mask my inadequacies.., , and kinda got lucky to land this job...

Friday, November 17, 2006

Country Manager For A Day ... For Make Benefit Glorious Nation of Malaysia
If I Was An Invited Speaker At The UMNO Assembly...

I am basically a supporter of Malaysia's current PM Badawi. I believe his heart is good, just that he may be pulled by many "hidden forces" in all directions which prohibits him from doing a better job. May never be PM, but if I was, for a day, I would implement the following Ten Things:

1) Instruct all government depts to pay outstanding bills of more than 3 months, and work towards a target "to pay all outstanding bills within 30 days" from mid-2007 onwards

2) Remove KJ from UMNO

3) Raise Anti Corruption Agency's annual budget to RM250m a year, set conviction targets to triple current convictions (less than 100 a year), strengthen the independence of ACA with new regulations. Cash incentives for informers resulting in positive convictions.
Install a new Internal Audit department of all local government bodies, municipals, trade units, cooperatives - to audit that all funds allocated to specified bodies are accounted for and reaches the target audience (e.g. if RM500m was to be spent to improve livelihood of rubber tappers and its owners, the funds must reach the final targeted parties minus reasonable operational cost)

4) Once a company is controlled by foreign investors, the company no longer needs to comply with NEP equity ratio. This is to boost investments into REITs, private equity and M&A activity

5) A one-stop center manned by EPU, which will process all applications concerning FDI, capital transfers, professional job permits and travel visas, FIC approvals, fund mgmt applications, MSC relocations and investments and tax holidays - turnaround time within 24 hours on all issues

6) Stop subsidising any industry in the country with a clearly mandated time frame. Removal of import taxes and duties on all autos by end-2007. No more APs. No more minimum or maximum prices for steel and cement. Fuel and gas subsidies to be erased with a proper time frame - 50% of current subsidy by 2008, 25% subsidy by 2010, total removal by 2012. (The subsidy removal will be cushioned by zero duties and import taxes on cars). Only subsidy to be maintained for "necessities" (poultry, flour, rice, sugar, etc.)

7) Establishment of proper masterplan economic zones, not just for South Johor alone. Do one for Kedah-Perak area, that is a huge area untapped. Another for East Coast/Terenggannu-Pahang. And another for East Malaysia. Each economic zone should have a concentration of specified industries, target investors, critical mass for production, export and dissemination, tax incentives and financing plans.

8) Engage an Asian/European clearing system for Malaysian stocks and derivatives. This way you do not have to send funds to Malaysia or keep CDS in the country to buy/sell stocks and derivatives. Things get cleared in places like Euroclear and custody is kept there as well. You know and I know why we need to do that, the CLOB thing and capital controls are things we need to rectify.

9) Transparent bidding and awarding of all contracts and projects. Blacklisting all parties publicly who are just rent-seekers, alibabas, and those who fail to carry out projects effectively from any future government projects

10) Stop dreaming! ... and remove KJ again (just in case).

p/s ... actually I have a number (11), but ... sigh ... anyway, it is to sell Johor to Singapore for RM300 billion - then we don't have to fund the South Johor miracle, plus those who want to stay with the economic miracle of Singapore can do so, and be citizens of the Mega Free Trade SJ Miracle Zone. The RM300 billion will be divided among 25 million Malaysian citizens only (Indonesians living less than 5 years in Malaysia need not apply) and we will get RM12,000 each, every man, woman and child...

.. actually on further deliberation, this might not be such a great idea ... a family of 4 will get RM48,000 ... they will probably go to holiday in Singapore because of the new IRs , the wife will spend RM20,000 on shopping while the husband will lose another RM20,000 at the very nice Sands casino ... before you know it, we will have dumped back RM300 billion into the Singapore economy, and lost Johor in the process (not that that's a bad thing, anyway) ..

Wednesday, November 15, 2006

The WSJ Asia 200
Now For The Smaller Companies

The cover pages of The Edge last week carried the top 10 companies from Malaysia which made the WSJ Asia 200 rankings. Ranking was based on:
Long Term Vision
Innovation
Quality
Reputation
Financial Soundness

Unfortunately, those which made the top 10 for Malaysian companies were all players which have been hanging around for some time, they include:
1) Maxis
2) Public Bank
3) DIGI
4) YTL
5) Star Publications
6) Genting
7) Resorts World
8) IOI Group
9) UMW
10) Southern Bank

When you have hung around for so long, you must be doing something good. But what about the younger listed companies? Good companies if they possess the crucial growth traits and sensible management, will see their market cap expand exponentially over the years - hence it pays to spot them early. Here I have attempted to list my top ten for "stars-of-the-future" based on the same criteria as above:

1) Astro
2) Pelikan
3) CCM
4) Commerce/CIMB
5) IJM
6) NextNation
7) Pos Malaysia
8) Mah Sing
9) UchiTec
10) Scicom

Friday, November 10, 2006

Thursday, November 09, 2006

Asia-Pacific Brokerage Firms Rankings

Asiamoney provides good ranking services, but this year Thomson Extel has muscled into Asia Pacific territory by announcing the awards ahead of Asiamoney. The awards were voted by more than 100 fund management groups across Asia. Voting was conducted among 109 buyside firms in Asia.

Leading Equity House

Australia & NZ - Macquarie Equities
China - CLSA
HK - JP Morgan
India - Citigroup
Indonesia - JP Morgan
Malaysia - UBS
Singapore - Citigroup
South Korea - UBS
Taiwan - CLSA
Philippines - UBS
Thailand - Credit Suisse

What is surprising is the number of awards UBS managed to snare because despite their strong brand name, most of the employees at UBS do not get paid as much when compared to their peers. Head HR honchos at UBS always trumpet the fact that employees of UBS should be glad to have the opportunity to work there, and that money making is largely due to the company's name rather than the individual's efforts. Hmmm... Looks like UBS is going down the same path as BNP Paribas (losing staff by the dozens and losing money in sure fire places like China), and surprise, surprise, the French bank also trumpets largely the same mantra as UBS. As the American houses try to establish a stronger foothold in Asia, primarily China, HK and India... rest assured that UBS will lose even more people to them. And lets see if the name does bring business in.

The smugness of UBS is largely due to their very strong private banking and funds management side, which provides the turnover and large buys/sells movements across Asia. Their very strong quant funds management side moves markets, and clients need to have that information flow from UBS. That is largely why UBS need not pay well. So, UBS... no need to call me... OK!

Tuesday, November 07, 2006

Market Outlook

Readers of this blog would be aware that I have been bullish on all equity markets, yes, even Malaysian equity market, since the beginning of the year. The correction in oil prices was a boost to the underlying strong tone for equities. I did mention that if oil and gas prices fell too fast, it could hasten a more hawkish Federal Reserve. Thankfully, the biggest factor which is US housing has shown some weakness despite the dip in oil prices. The decline in residential construction could reduce GDP by 0.5 to one percentage point over the next 12 months. That’s not enough to push the economy into a recession but could easily persuade the Fed to leave rates alone for now and even to nudge it lower come 2Q2007. However, firm labour costs is the other side of the coin as many companies are reporting strong earnings growth and bonuses should be substantive and that may cause the Fed to leave rates alone for now.

The way it is now, markets will bring one another up, and naturally it will lead to some over valuation but is there any negative triggers in the horizon. Not any that I can see. If there are no negative triggers, chances are the party will continue with more drinking and merry making. Flushed with liquidity, it takes a while to wind down the party. Even when there are pullbacks, it should not be severe because I still think we are only in the middle of a bull market, one that is quite silent and not as voracious or loud as the bulls of the past.

For the bigger markets, they should continue to chug along even though, every now and then you have doom sayers. One has to get the big picture right. The big picture is the developed economies are outsourcing a lot of stuff to cheaper cost nations, and this has enabled many of these companies to post good earnings growth. Of course this will reach a climax but not so soon as the per labour cost differentials are still wide, and that means companies in developed countries will be able to maintain and massage their profit margins. The opening up of markets in China and to a lesser extent India and South America spell of substantive growth opportunities for the big companies. This reinvestment and liquidity recycling thing will prompt better demand from these poorer nations. We are seeing the benefits of globalisation.

If the big boys do well, they also import more from smaller nations, and that cycle is underway. The recent boom and bust of commoditie is but a side effect of the confluence of these factors. You will also note that the markets tend to be careful in their increments as many are still wary of being caught by a market slide. These has kept most markets within reasonable valuations still.

The other big developments to consider is the amount of cash residing in many big companies, and the way they have been buying back shares and cancelling them to boost eps. As mentioned before the amount of cash within listed US firms has never been at a higher level. Another factor is the rise of hedge and private equity funds, they now tend to be more carnivorous and bigger. Any mis-pricing in any stock will be noticed by these firms which can only bring up valuation of these companies. Correlated rise within same industry due to M&A activity also brings up prices and valuations of similar companies. For example, you see private equity bidding for Bally, and then the rush for Stanley Leisure abd London Clubs, followed by a takeover notice for Harrah, all conspiring to lift valuations for all gaming companies. These activity cannot be underestimated owing to the size of funds under private equity now.

p/s while the KLSE will also go higher, it does not detract from the fact that the Malaysian bourse is still lagging its regional counterparts in market velocity, status, new listings and strategy

Saturday, November 04, 2006

The World Needs A Democrat President In USA

Like it or not, the global military, technology and economic leadership comes under the umbrella of USA. I think we have enough of the Bushes or Cheneys. I wouldn't have minded so much if Colin Powell stood for Presidency but he prefers doing something else. We need a more empathatic leadership from the US, a better way to mend fences and heal internal wounds and international bruises. Hilary Clinton should secure one of the nominations, and its high time for a woman to lead, and a crucial time to signal a new era for the world. Many countries have had wonderful female country leaders, and America is lagging. Its a big education for all, if a woman can be President of America, what institution, company dare to deny a similar fate. Young girls everywhere will be empowered even more to think big, and step out of the invisible box.

However, a spanner has been thrown in the works, now there is another very credible candidate from the Democrats too, Barack Obama. His father is black and mother white as chalk. Obama is highly intelligent and a wonderful speaker, and would rally not just the blacks but also most of the other minorities to vote for him. The empathy vote would be stronger for Obama. You either love or hate Hilary ... and that could swing the Democrats to choose Obama to get a better sense of victory. While some question the fact that he does not have actual military or foreign policy background... surely you cannot be worse than Bush??!! The tv comedians will have a big day rapping Obama to Osama in their skits.

Wednesday, November 01, 2006

MBF Holdings - A Goodie Or Baddie?

esteoh said...
nothing wrong with MBFH and I believe it is NOT sanbumi...major share holder own more than 66 % and it is cutting dept fast...I think we should give the new management a chance as they took over 2004


Issued Capital: 570m
Market Cap at RM0.50 = RM285m
Cash flow per share 2005 +19.7 sen
Cash flow per share 2006 +19 sen
Net gearing: 1.6x
NTA/share: RM0.40
Net Profit 2005: RM50.6m
Net Profit 2006 (estd.): RM26.5m

2005 saw a RM32.7m one off gain owing to the deconsolidation of Alamanda Development. The Mandatory General Offer was at RM0.215, and now the share is above RM0.50 ... hmmm... wanna sell or buy?? Basically this pony has two main tricks, one is credit card and the other is the large exposure in plantation, auto merchandising but in Fiji and PNG. The rest are too small to matter to bottom line. The share has surged past NTA and with the kind of businesses they have, they should be at a discount to NTA, the company is not a Rothmans. So, a fair valuation should be no more than RM0.35 at most. Wanna buy some auto merchandising cum plantation in Fiji or PNG?? The high business risk exposure and lack of scalability, plus lack of capital for credit card business caps any interest in the stock. Below RM0.40 it was still good, above RM0.50 it became speculative. Profitable but speculative, and looks to be headed for highly speculative grounds judging from price trend. Looks like main owner is pumping to release some shares as he controls only 50% of company, plus coming through the MGO at the cheap RM0.215 level.