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Showing posts from July, 2007
PetroChina Update

Shares of PetroChina, the world's second largest oil company, continued to ease as investors panicked after Warren Buffett unexpectedly reduced his stake in the oil giant, sparking fears he may cut his stake further. Hong Kong stock exchange filings show that Buffett's Berkshire Hathaway reaped HK$210.3 million by selling 16.9 million PetroChina shares at an average price of HK$12.441 apiece on July 12, trimming its stake to 10.96 percent from 11.05 percent. It marked the first time Buffett had lowered his stake in PetroChina since 2003, when his investment became public knowledge. Some speculate that Buffett's divestment was motivated by profit taking after the stock hit a record high of HK$12.44 on July 9.
The shock over the sale by Warren is a bit silly when he is just selling down just a small portion of his stake. As Berkshire Hathaway still holds a very significant 10.96% in PetroChina, people need not worry. There could be so many reasons for him sel…
Stock Calls & Differentiation
ccdev said...
bro, read in zemoola's blog that RHB and TA got sell/underperform on this counter. Wonder why? Does anyone have a copy of the report from the brokerage houses?
Salvatore_Dali said...
ccdev, i get access to almost all research reports... when i started to highlight the stock, i believe it was at 1.70 and there were so many sells or underperform... by ta, aseam, hwang, affin, rhb ... i think there was only one buy report by citigroup... so most were wrong since beginning of the year, and continue to be wrong ... research reports are only as good as the ability to identify the real catalysts,... ... missing out on trends or themes is not an excuse... sticking to a proven valuation modelling technique does not absolve misreading a sector or a stock, ....... the market is fluid and so too must be our reading ability of trends, stock specifics and unique catalysts ... if everything is predictable according to history, then there is no need fo…
UMW, The Undiscovered O&G Play

The principal activities of the Group are import, assembly and marketing of passenger and commercial vehicles and related spares and manufacturing of original/replacement automotive parts; manufacturing and trading of oil pipes and providing various oil and gas services including drilling and pipe-coating. UMW manufactures automotive parts and offers after sales service. The company is also engaged in the manufacturing and trading of a wide range of light and heavy equipment such as LG agricultural equipment, asphalt pavers, Toyota forklifts and others. These are for use in the agricultural, industrial and construction sectors. The company also manufactures and supplies equipment and parts to the oil and gas industry. Through its subsidiary, UMW has about 28% market share in the non-national motor vehicle market. Also through its associate, the company has an overall market share of 28.8% in the national motor vehicle market. UMW's subsidiary is 5…

Petronas Carigali has extended the contract to Sapuracrest's tranportation and installation of offshore facilities that was awarded btw 2004-2006 for a further 3 years, ending in March 20010. Contract value has gone up by 50% to RM3bn. The works will be for the fields offshore of Terengganu, Sabah and Sarawak which include the Angsi, Samarang, Sumandak, Bekok and Bertam fields. The works would involve the installation of subsea pipelines and the transportation and installation of drilling, production and wellhead platforms. Hence contracts secured year to date have reached RM3.8bn. This include the extension of Exxon Mobil's RM200m contract for installation works at Tapis, Guntong and Jereh fields off Terengganu and aother RM606m contract from Murphy Oil for the instllatin and commissining of the 140km gas ipeline transportation from the Kikeh fields to the Labuan Gas Terminal. This will boost Sapuracrest's order book to RM6bn which will carry them for at east …
Some Panic SellingOnce markets get a bit tired of rising, they will decide to play around with volatility. Volatility happens when more big players take their chips off the table. Yesterday's correction was significant for the manner which it was sold down. At one point the Dow was down 430 points, highly significant.
What can we blame this on, the usual suspects: tight credit markets, a continuing housing slump, and the price of oil, which shot up past US$73-a-barrel for the second time ever. Same old, same old, I wouldn't be too disturbed with the sell factors. Price of oil, we all know its headed for US$80.
Subprime worries, we are seeing the end consequence, not the beginning of a slide. Some companies are bound to fail, some hedge funds are bound to lose money. More poor housing data only underlined the mortgage worry. Sales of single-family homes dropped 6.6% to a seasonally adjusted annual rate of 834,000 units, the Commerce Department said. Inventories stayed about e…
MS Emerging Markets Strategy Update

While Morgan Stanley has been relatively more cautious on global equities, they have made their latest Emerging Market strategy weightings, which was very interesting. MS have reduced weightings on two large markets which have led the index this year, cutting Brazil from O/W to E/W and China from E/W to U/W.
Still bullish, MS have raised recommendation on three large markets: Malaysia and Israel to O/W and Mexico to E/W.
Other markets downgraded were Poland to E/W and on Czech Republic to U/W while raising Philippines to E/W. Still bullish, MS remain O/W on Thailand, Taiwan, Korea and Hungary and U/W India, Indonesia, Argentina, and South Africa.
The Big Sale
Asian governments, especially those flushed with cash and no longer content with the meager returns to be had on safe but low-yielding investments like Treasuries, are becoming increasingly aggressive players on the equity front. It used to be just Singapore via Temasek and the GIC. They now have a new partner in China. The governments of China and Singapore agreed to invest as much as US$18.5 billion in return for stakes in the big British bankBarclays Plc. In doing so, Chinese lender China Development Bank and Temasek could play a role in the outcome of the biggest bank-takeover battle ever. That increasingly bitter contest pits Barclays against a consortium of European banks led by Royal Bank of Scotland Group PLC in seeking to acquire Dutch banking giant ABN Amro NV. Mind you, Temasek already controls Standard Chartered Bank Plc as well.

The Barclays deal is the latest in a string of investments in U.S. and European companies by governments in Asia and the Middle East. …
MS Gets Bearish

Morgan Stanley has warned that current jitters on the global credit markets could spread to equity markets. Stock market corrections - after an increase in the cost of debt - historically follow six months later, suggesting that the current rally on Wall Street and European bourses may be more fragile than it looks.
(the key words are "could spread", I love how non-committal highly paid people are remunerated to say wishy-washy stuff)

The current rally on Wall Street and European bourses may be more fragile than it looks. A rise in the interest rate spread between risky debt and benchmark treasuries knocks away a key support for share prices by raising the cost of money for leveraged buyouts, but there is often a long delay before investors react. A study by MS found that credit spreads began to widen on average six months before every stock market correction of 10pc or more over the past 20 years. The current widening began in February, picking up speed over th…
Mega First, The Undiscovered Gem
Mega First Corporation Bhd (MFCB) is an investment holding company engaged in power generation, property development, manufacturing and quarrying. Through its 60% owned subsidiary, Shaoxing Mega Heat and Power Co Ltd, MFCB owns and operates a power plant in Shaoxing, China, with electricity and steam generating capacities of 42MW and 290 tonnes per hour respectively. The company also owns and operates a power plant in Tawau, Sabah.
Meanwhile, MFCB is also involved in developing residential properties, namely Taman Bertam Jaya in Malacca and Taman Mawar in Sepang, Selangor. The company also undertakes commercial development in Ipoh. Through its subsidiaries in Malaysia, UK and South Africa, MFCB is engaged in the engineering, designing and manufacturing of automotive and transport components and the manufacturing and trading of security seals. Lastly, the company undertakes quarrying activities and is involved in the manufacture of quicklime, hydrated li…
AZRB, New Favourite Son
Ahmad Zaki Resources Bhd’s (AZRB) share price surged to a historic high of RM4.50 as investors were upbeat on the company’s acquisition of a 20.8% stake in Eastern Pacific Industrial Corporation (EPIC). The acquisition of the EPIC stake would provide AZRB with a larger exposure to the East Coast Corridor. The acquisition of the stake from Lembaga Tabung Haji for RM82.56 million or RM2.40/share via cash settlement was at a 25% discount to its estimated fair value of RM3.00 on EPIC.

The East Coast Corridor was earmarked for the development as the hub of Malaysia's petrochemical industry. Remembering that EPIC is actually the defacto state government oil & gas vehicle: this makes it even more incredible that AZRB got to buy that stake. My new favourite son! With increasing O&G offshore activities at the port, AZRB would gain an even larger exposure to the East Coast boom via its 20.8% stake in EPIC and its 100%-owned cash-cow O&G bunkering services a…
Sime Ready To Rumble
As reported in theedgedaily:Synergy Drive Bhd is a step closer to its multi-billion ringgit merger exercise involving Golden Hope Plantations Bhd, Kumpulan Guthrie Bhd and Sime Darby Bhd group of companies, after obtaining the Securities Commission's (SC) approval.
Synergy Drive secured the approval on Monday to proceed with the mega merger exercise, it said in a statement yesterday. The eight companies involved in the merger are Golden Hope, Kumpulan Guthrie, Sime Darby and their respective subsidiaries — Mentakab Rubber Company (Malaya) Bhd, Highlands & Lowlands Bhd, Guthrie Ropel Bhd, Sime Engineering Services Bhd and Sime UEP Properties Bhd.
Synergy Drive will acquire the entire businesses and undertakings, including all assets and liabilities of the eight companies, to be satisfied by the issuance of redeemable convertible preference shares (RCPS). "Shareholders can immediately convert the RCPS receivable as purchase consideration to Synergy Drive s…
Lessons In Globalisation - Astro On-Demand

I think TVB serials got distributed back in the early 70s and I still remembered being glued to The Bund which starred Chow Yuen Fatt. Free TV and paid TV battled the airwaves. At the end of the day, its the software which counts. Ananda Krishnan was smart enough to snap up some 20% of TVB a few years back. You have the delivery methodology, you don't want to be held ransom by the software side.

Now picture this, you have slogged hard to be the main distributor for TVB serials and programs in Malaysia, or pick any country for that matter. (Through the years, there have been many change of hands in the role as main distributor as the business is actually not that lucrative.) When Astro was launched, you have "old TVB series" acting as the main attraction to lure subscribers. Now with Astro On-Demand, you are basically crushing the business of the TVB distributors. Of course, Astro couldn't care less as a profit making entity.…
Astro On-Demand?? NOT!

The person responsible for coming up with the name On-Demand ought to be sacked. The superiors above the person responsible ought to be sacked as well. Because, and I assume all are graduates here, apparently nobody at Astro understand what "On Demand" is. The channel 931 onwards are supposed to broadcast at the same time the series is being released in HK. Well, its On-Demand, provided you demand it at the advertised time only!

On-Demand is NOT A NEW THING. If you had stayed in some hotels over the past few years, you can access Video On-Demand as some places. It really means I come back at 11pm, take a bath and order the movie I want, and it starts to play from the beginning within 3 minutes - that is on demand.

I wouldn't want to make a big fuss about it but the amount of advertorial in papers and through out all Astro channels kinda grinds on me nerves. Please rename the channel/concept, call it Astro Simulcast or Astro LiveLink, even these two su…
Oil & Gas Hype

SapuraCrest Petroleum Bhd’s subsidiary TL OffShore Sdn Bhd has won a US$175.8mil (RM542m) contract from Murphy Sabah Oil Co Ltd. The contract was for the provision of engineering, procurement, construction, installation and commissioning of the 140km Kikeh gas pipeline, which would transport associated gas from Murphy’s Deepwater Kikeh Field to Labuan Gas Terminal. Kikeh Field, located about 1,300m offshore Sabah, is the first deepwater development in Malaysia. SapuraCrest said the deepwater pipelay would be executed using Sapura 3000, owned by SapuraAcergy Group, its 50% joint venture company with the Acergy Group. The project is scheduled for completion in the first quarter of 2008 and is expected to contribute positively in the current year ending Jan 31, 2008.

All the hooplah over oil & gas stocks for the past 12 months have yielded a lot of hot air. Many oil & gas related stocks have seen their share prices more than doubled, and the size of the…
Resorts In Play

A significant moment on selling down Star Cruises to CMY. This really puts Resorts in play for the next 6 months. I still suspect Stanley Ho is eying some sort of participation with Genting or Resorts. Briefly, the sell down to CMY will see almost all research houses booting their target price for Resorts from RM4.10-4.30 to RM4.80-RM5.00. Thats because the sale will remove part of the drag on earnings growth.

All up, cash available for dividend, should they decide to do so, can amount to a dividend of 60 sen per share.CMY did not make his billions by buying dormant money losing stakes.

CMY has been a very big buyer of Resorts for the last 2 weeks. Resorts can and should distribute its 6% holdings in Genting International to Resorts shareholders. This way it eliminates direct links with Genting International (i.e. Singapore authorities). Following the distribution, Resorts could be better placed to consider any deals with Stanley Ho. The 6% value in Genting International …
Resorts World, Not The Full Picture Yet
At current prices, Resorts World is about RM20 prior to the share split exercise. The huge jumps in volume sent many scurrying around to look for answers. First bit of news was that Genting Bhd has reduced its shareholding in subsidiary Resorts World Bhd 49.98 percent. This follows two measures it has taken. One is the exchange of US$199.5 million - from the US$300 million one percent guaranteed exchangeable notes due 2008 issued by Genting's wholly-owned subsidiary Prime Venture (Labuan) Ltd - into existing RWB ordinary shares. The other is the conversion of RM655.4 million of the RM1.1 billion nominal value convertible notes issued by RWB into new shares. Genting deputy chairman Tun Mohamed Hanif Omar in a statement to Bursa Malaysia said Genting's percentage shareholding in RWB will continue to be reduced progressively until the exchangeable notes and convertible notes are fully redeemed. Although the company's shareholding in RWB …
Asia 2H 2007

Some salient points:

a) A diversion away from US denominated assets over the subprime worry, which gives rise to a likely rate cut by Fed in 2H 2007, which translates to a weak USD outlook 2H

b) A big realignment in global bond yields and sovereign debt at the moment, no big thing

c) Despite strong inflows into Asian equities over the last 18 months, valuation in Asia are fair and not overvalued

d) Danger in some Asian currencies being subjected to heavy inflows but not matched by sufficient reserves to withstand currency volatility, e.g. Thai baht, Indian rupee

e) US spending outlook critical for sustaining Asian equity momentum, despite subprime worries, US labout conditions still tight, and Fed's likely rate cut will keep momentum in Asian equity

f) Swift measures by China to create outlets for its liquidity kept Chinese stocks tame for the time bring but significantly boosted the fundamentals for HK via QDII and H-share activity

g) Significant investing upgrades for stock…
Market Excess Spillover

While I am a firm believer in the China story, the stock market gains there needs to be continually reassessed. Many bulls would cite the huge profit growth in store for many listed companies as the main pillar driving higher valuations. The above chart from WSJ is very revealing. Just look at "investment income as a percentage of net income of listed companies". Listed companies flushed with cash usually invest in other Chinese listed firms. On a sharply rising market, the "unrealised / realised gains" will be substantial. Now if 24% of a listed company's net income comes from these holdings, I'd be very worried.

The oft cited profit growth need to be adjusted for the stock market effect. Savvy investors should strip out these type of gains to get a better hold of fundamentals. Imagine a 30% crash, what will happen to the write downs affecting these so called profits.

There are normal earnings and quality earnings. Investment gains f…
Baht Is Going On?
Foreign purchases of Thai stocks have pushed the currency to the highest since the Asian financial crisis, eroding overseas earnings of the nation's food producers and manufacturers. Thai baht had the biggest gain in more than five months on speculation that exporters accelerated buying of the currency after it rose beyond 34 to the dollar. In NY, the quote for the baht went as high as 31.36 to the dollar. The baht has gained some 8% against the dollar so far this year. The appreciation of the baht stemmed from capital inflows by investors in the stock market. To get a sense of perspective, the yuan has only risen by 7% against the dollar since July 2005.

Capital inflows were affecting the entire region any move by the central bank to weaken the baht against the market trend could spur even greater inflows and speculative activity. In any case, regulators expected the baht to weaken in the second half of the year as exports slow and the current account surplus shr…
Nextnation, Not Good
Wisdomwise wrote on Nextnation, which I had posted something a week back, and again today. Am reposting the comments for readers of this blog:
A week back: Salvatore_Dali said...
i had highlighted this company before as the fundamentals looked solid, but the way the share has been trading for the past 2 months, esp following its bonus looks very bad... methinks something inside is rotting ala megan cos the only way the share can keep falling is insider selling all the way.... cut loss
2:39 PM
this morning:
Salvatore_Dali said...
finally out, huge jump in receivables ... after a good rebound this morning I expect the stock to slide to oblivion... when receivables jump like that, for a services based company, its not a good sign... the share price has been weakening since a few months back, only explanation is insiders are selling, they know how "good" the receivables are and how hard it is to retrieve them ... services rendered are gone, most need not reorder se…
Coastal Is Clear

I have highlighted very few specific stocks of late because good ones are hard to locate. However, in light of my view that oil & gas is in for a spectacular 6-12 months ahead, its time to dig deeper. I think small-mid caps such as Coastal Contracts & Ramunia are worth buying for safekeeping.

In 2000-2004 there were 91 deepwater fields being developed. For 2005-2009, there are approximately 195 deepwater fields scheduled for development. Sustained high oil prices can only support the growth in this area. Aker Kvanaer has recently set up a US$100m subsea manufacturing center in Port Klang. The place can assemble a complete range of subsea systems equipment including Christmas Tree, a set of valve spools and fittings connected to the top of an oil well to direct and control the flow of formation fluids. Aker has completed the first Kikeh subsea tree and control module, their setting up in Port Klang is a vote of confidence on the excellent outlook for deepwater de…
CTOS, No Sympathy
There are two camps on the witch hunting into CTOS. Those who have no sympathy that they are in trouble with the authorities. The second camp are family, relatives and friends of the people at CTOS. Why so miserable-one?
There are certain businesses you don't want to be in for a variety of reasons. You may not want to start a brothel for moral reasons and that it degrades women folk (unless the brothel is a gender-less one, then you degrade everyone.) Some may not want to go into fengshui or fortune telling, as it may be 80% gift of gab (white lies) and 20% of some semblance of logic.
Playing the stock market, some investors would never choose to short the futures even ahead of predictable calamity, or in the face of calamity, or when markets are all plunging rapidly - because to them, sometimes you don't want to be making money when people's lives are being decimated.
Certainly in all the above, one can still venture into those areas and try to make money,…
Mutual Fund Performance: Pacific Ex Japan Funds

Fund performance is as of the close of business July 05
Top 10 Pacific Ex Japan Funds (ranked by one-year performance)

Assets Returns
(Size In US$Millions) 1 YR% /3 YR% / 5 YR% / YTD%

T Rowe Price Int:Asia (3,114.3) 73.06 / 183.13 / 246.69 / 30.89
Fidelity SoEast Asia (2,833.4) 68.50 / 200.55 / 253.80 / 34.00
DFA Asia Pac Small Co (120.7) 66.30 / 152.52 / 297.86 / 36.39
iShares:MSCI Malaysia (1,113.7) 64.90 / 93.11 / 129.48 / 30.75
Guinn Atkin:Asia Focus (54.5) 63.10 / 159.72 / 237.99 / 32.95
iShares:MSCI S'pore (1,912.8) 60.1 / 141.48 / 200.49 / 22.1
Fidelity Adv Korea;A (34.4) 59.43 / 240.25 / 228.10 / 38.11
JPMorgan:Asia Eq;A (13.9) 56.97 / 135.93 / 151.90 / 25.58
Fidelity Adv Em Asia;A (87.3) 56.56 / 180.99 / 211.61 / 24.04
TCW:Asia Pacific Eq;I (29.0) 55.57 / 137.24 / 162.71 / 25.02
The above compilation for Asia based funds (excluding Japan) is very interesting indeed. Among the hundreds of funds investing in Asia, these are the creme de la …
Gems From The Pool Of H-Shares Warrants
Now that I got your attention ... There are some great buys available on some of these H-shares covered warrants listed on KLSE. I shall not bore you with my outlook on H-shares, QDII etc... I have ranked the best buys taking into account their valuation and stock fundamentals as well:

Top Tier Buys
a) China Mobile - C3
b) HK Exchange-C1 (this one not H-share)
c) Petrochina -C1
d) Petrochina - C3

Secondary Buys
a) CCCC - C1
b) ICBC- C3
c) China Mobile - C1
d) China Life - C1

Should just buy and hold these suckers till expiry.
Asian Real Estate
Or Why Malaysian Real Estate Is So Cheap
The Star highlighted the relative property values in the region. Basically the entire series of articles was to highlight how "cheap" Malaysian property prices were. As higher end prices zoomed to stratosphere in Singapore, there was some spillover into KL and Penang high end as well. In the table compiled by JLW and OSK on regional comparisons among luxury condos are the current average psf in ringgit (usd):
Kuala Lumpur 560 (164) Singapore 4,616 (1,357) Bangkok 714 (210) Jakarta 425 (125) Hong Kong 5,563 (1,636) Shanghai 1,225 (360) Beijing 646 (190)
What would be useful is to look at GDP per capita to get a gauge on income per person. Its not exacting but a good indicator (in USD).
Malaysia 10,400 Singapore 29,700 Thailand 8,300 Indonesia 3,700 HK 36,800 China 6,200
Now it would be easy to look at GDP per capita in usd / psf in usd to get some interesting ratios:
KL 63.4x Singapore 21.9x Thailand 39.5xx Indonesia 29.6x HK 22.5x Shanghai…