Thursday, August 30, 2007
It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way - in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.
Charles Dickens, A Tale of Two CitiesEnglish novelist (1812 - 1870)
Tuesday, August 28, 2007
Here's The Ad:
Friends have been saying how difficult it was to try and catch the ad, well now that its on youtube, np lah.
What An AD By Petronas
We all love the festivity ads and commercials by Petronas - they are always hearfelt, nostalgic and meaningful ... remembering better times and sees the goodness in Malaysians ... that the more different we are, the more things we have in common. Well, when you have Yasmin Ahmad's sensitivity and creative brilliance, its a potent mix.
But have you seen the new Merdeka ad??? OMG, what a daring one! It shows a guy being asked to build a sampan to pay off his debt ... in the end the creditor friend gave the boat to him as a gift which will allow him to be independent and make a decent living. The new boat sank, and the tag lin at the end was in Malay but its resounding, loosely translated: Are what we putting in now able to carry us to the future, what our future will be depends on what we put in now.
Now, I don't know about you but its amazing that this was passed by the Ministry of Information. Yes, the ad was meant for all Malaysians, but one could not help but think of our government. Its very daring, its very timely ... just for that I will try to pump at Petronas as much as I can.
The nuances within the commercial is what makes it special and daring. The guy who owes money said he didn't have money to buy resources to build the sampan. The creditor friend said its OK, he can use the resources and wood available at his house to build the sampan. The symbolism, the symbolism.
Catch the ad if you can cause I believe it could be pulled off the air soon. Some bigwigs are bound to be sitting in their living room thnking, "Hey, its about .... ".
Views On Selected Stocks
SD, Whats your take on Dialog, Equine and RBLand? Reckon its good? When u reckon this toxic debt scenario will peter off? Will there be a run this week prior to the Budget?
yusuf,dialog = overpriced, considering the projects they got... sapcrest, coastal and ramunia the way to goequine = fortunes tied with connections, if connex go down, the stock is kaput, connex is in icu now
rbland = nta of rbland is 1.80 only, above 2.50 u r paying too much premium for ijm properties injection, might as well wait for requotation after absorption for better entry px, or just go into Talam as next possible exercise, the catalysts are looking good for talam anyway
Subprime = thrashed the subject to death, pls re-read old postings
Budget = personal n corp tax cuts definitely, nothing to shout about, all the corridors also announced and strategised to death already, whats new, no budget rally
Hold Till When?
For those long or very long in China H-shares covered warrants, you should be feeling good. Now, many are asking "hold till when"? You have to monitor the Shanghai and Hongkong markets to get a sense of perspective. You also have your own investing objectives.
Some Pointers :
a) If your aim is to get 50% or 100% returns, you can get out soon, if not already.
b) If you generally agree with what I have been writing on H-shares' attraction, then you should HOLD TILL the buggers expire. This is because the entire H-shares discount scenario, pouring in of China money into H-shares will play itself out over 6-12 months.
c) The longer term factor in that most will have to requote their shares back to Shanghai can only narrow the discount. We should see some having dual listings in HK and Shanghai. Some may completely leave HK and just list in Shanghai owing to government's directive and its more lucrative to re-sell shares in Shanghai (easier to raise funds and get better valuations).
d) Or, they will more likely use my strategy prediction - keep dual listing, but keep buying free float in HK H-shares, then re-sell for a subsequent second listing in Shanghai.
e) Of course, if the China markets start to look shaky dropping by more than 100 points a day, you may want to take profits and wait for re-entry levels.
I can also sense some holders will want to trade these covered warrants instead of holding to maturity, that's their perogative. The need to time the markets and incur transaction costs may/may not work in your favour. If you bought at 10 sen or lower, just let it ride, you would be amazed at the price at expiry. Then we might be able to say we have a 5-bagger or even a 10-bagger.
Friday, August 24, 2007
Thursday, August 23, 2007
Wednesday, August 22, 2007
Where Do You Go To, My Lovely?
I was intrigued by the timely article by The Edge back in July on the "high receivable among certain Mesdaq companies". whereiszemoola has been tearing companies to shreds over these doubtful issues. I have changed my positive view to a negative view on Nextnation based on the surge in receivables. I will be trying to go through each one of those companies highlighted by The Edge. First on the chopping board is Airocom.
From their website: Airocom is a provider of Value-Added Wireless Messaging Platform and Telecom Applications Development. Airocom develops scaleable messaging solutions and telecommunications software via smart partnerships with customers and suppliers.
Airocom provides consumers, enterprises, mobile operators, service providers, carriers, portals and ISPs a complete end-to-end solution to their present communications needs. Our homegrown and flagship product, AiroGate Wireless Messaging Gateway provides maximum performance and availability and has been deployed widely by Malaysia’s mobile communication operators, service providers and enterprises.Airocom was only listed on Mesdaq on 27 April 2006, and things already does not look that good. Surprisingly, the revenue and net profit figures were excellent in 2005, somehow the listing did not bode well at all for the company and management. Revenue slumped by some 75% and net profits of 5.4m in 2005 became a loss of 3.1m in 2006??? The chairman of the company is Datuk Ali Kadir, the former SC's chairman, and I thought he did a good job at SC. Vellapan??? To be fair, unlike other dubious counters, Datuk Ali Kadir has been adding shares to his stake a few times in the months of April and May this year. At least he is not disposing like crazy.
The supposed CEO Jalaluddin Jaffar resigned in July 2007. In the annual report it stated that the company have a significant concentration of credit risk in the form of outstanding balances due from Mekong Communication Corp Sdn Bhd and PT Ochabawez Dinamika Persada, which together makes up 92% of receivables. Just look at the receivables. The merchant bank bringing the company to list can easily see that the receivables in 2005 was already 19.8m or more than 90% of the revenue for 2005, and nearly 4x the net profit figure. No warning bells, simple first year accounting student would have red-flagged this.
So, who actually gave permission for this company to list? Did the Bursa or SC even go through the figures and projections? Were the merchant bankers at Ambank sleeping or just signing off on the deal with their eyes closed? The company almost immediately went into losses less than 12 months after being listed. How can investors have any kind of confidence in Mesdaq listings? One or two good ones out of twenty is a terrible hit rate. You get better odds at Magnum and the horses.
We have to bring up the role of the sponsor / merchant bank bringing these companies to Mesdaq, what were they thinking of? Where is the "due diligence"? Was there a proper examination of the solidity of the business model? If it went from a profit to a loss after a few years, I can absolve much of the merchant bank's role. Guys, the company went into the red less than 12 months after listing???
2005 / 2006
Revenue 21.1m / 4.8m
Net Profit 5.4m / -3.1m
Receivables 19.8m / 23.9m
Airocom has a 52 week high low of 0.34 to 0.11 and at present has been rarely traded at 0.14. Airocom's slogan, "get unwired", ... well things are really unraveling fast! Somebody should be asking a lot of people a lot of questions.
Tuesday, August 21, 2007
SAFE earmarked Tianjin's Binhai New Area for the trial run. In a statement on its website yesterday, the forex regulator designated Bank of China's (3988) Tianjin branch and its Hong Kong-based securities arm BOC International to handle transactions. All mainland citizens will be allowed to invest and it is not limited to residents of northern Tianjin.
Friday, August 17, 2007
The New Investing Paradigm
I still think that the subprime thing is just a small thing, however the blowout due to the repercussions of subprime give rise to many fresh lessons in the continually evolving investment paradigm. You can call it the globalisation effects. Unless you still have walls around your stock markets like China, you are no longer immune to seemingly unrelated hiccups 10,000 miles away.
Put it another way - almost every asset class or sectors or country effects will have an effect on your stock portfolio, whether you like it or not, whether you have even heard of them in the first place is immaterial. Hence you can be safely buying and keeping Public Bank and UMW and IJM, but something could have happened to cause wild gyrations in gold futures due to a no-export and no-gold trade rule put up by Russia, leading to a 25% jump in gold prices. Now, nothing PB, UMW or IJM does is in any way related to gold or even something as far away as Russia. But the thing is NOTHING is unrelated anymore. By virtue of the leveraged hedge funds seeking out investments in every nook and corner of the world, all investments are related, whether you like it or not!
Imagine a US$2 billion hedge fund, they gear up by borrowing an additional 100% in Kiwi-carry trade, and then gear up another 100% doing a yen-carry trade. Now the fund has US$6 billion in investible funds. The US$2 billion borrowed on Kiwi dollars is used to invest in Singapore REITs which are yielding 5.5% in Sing dollars - the bet being the Sing dollar will appreciate at least 4% against the Kiwi dollar over the next 12 months, and the REIT yields give a good buffer. Then with the other US$2 billion in yen carry trade, borrowed at a ridiculous rate of 1.0%, the fund invests in hot markets such as Malaysia, HK, Singapore and Vietnam shares. Again the rationale being the stocks there are hot and the currency outlook all looks better than the yen. The remaining US$2 billion is invested in American instruments. Now somebody in the firm decides to sell US$500m in gold futures as a hedged bet against oil as the volatility indicates a spread play. They get caught in the 25% gold price correction, investors got wind of the US$500m losses from the gold exposure gone bad. Hedge fund put up no-redemption as each US$1m redemption will require them to dump US$3m in actual stocks. They sell stocks where they could get liquidity fast.
This kind of scenarios will play out more often in the future. As long as leveraged hedge funds' portfolio have 10 different assets exposure, each of the 10 asset class will be related whether you like it or not. As investors, its not enough to study capital flows, yield differentials, economic growth rates and inflationary rates. You have to open your eyes to Colombian stocks and maybe even English football clubs because certain hedge funds have bought heavily in them, etc... you get the drift. Hence its time for more regulations to have all hedge funds reveal their asset class exposure so that this information is known to all. Money supply growth figures have been compounding in most countries leading to high liquidity in the financial systems. Unfortunately a disproportionate amount has found its way to pump up private equity and hedge funds. The sheer size and the ability to leverage easily makes the hedgies the probable root cause of this new investing paradigm shift. The sheer size of many of these hedge funds forced them to bet big stakes in order to obtain alpha returns - these big bets can only be in certain instruments, and many of these quants think alike, thus ending up making similar bets: when there is even a little wobble in these instruments, the whole chain reaction gets magnified along the way.
Its the new investing paradigm, get used to it. On the flip side, we can also benefit from the new paradigm - when they are throwing out the baby with the bathwater, you know they are being irrational, and you can easily spot stocks that have been battered for nonsensical reasons.
Thursday, August 16, 2007
Equity Strategy from Morgan Stanley: Credit market turmoil in the US is likely to extend the period of sluggish US growth well into 2008. It may also slow Europe and the commodity producers. The fallout in Asia, however, should be limited, given Asia’s strong momentum, liquidity boom and potential for stimulus. We foresee Asia outperforming the US like it did in the early1990s. On our indicator checklist, we believe we are close to the trough in this correction. The implications of the US credit squeeze: The housing downturn will deepen, declines in housing related employment will accelerate, household debt burdens will rise, and wealth effects unwind, in our view. Whilst the US is vulnerable to downside risks, Federal Reserve support should be quickly forthcoming if the outlook deteriorates.
Tuesday, August 14, 2007
Sunday, August 12, 2007
Saturday, August 11, 2007
Friday, August 10, 2007
The move came in the aftermath of France's largest listed bank BNP Paribas shutting the door on withdrawals of funds worth 1.6 billion euros, tied to subprime securities. BNP Paribas said it can not provide a fair value of the holdings of the funds, regardless of their quality or credit rating. Credit issues spilled deeper into the European markets, engulfing more of the continent's banks, and concerns grew that losses could multiply. BNP's woes and ECB's firefighting move sparked a sell-off in all major European markets
Thursday, August 09, 2007
Just the hint of a selldown could send US bond yields further up, probably destroyng the US housing market, sending the US ecnomy into recession, and exert a substantial correction in the US dollar (10%-20%). Can you imagine the repercussions? It is estimated that China holds more than US$900bn in a mix of US bonds. Xia Bin, finance chief at China's Development Research Centre (which has cabinet rank), kicked off what appears to be government policy, with a comment last week that Beijing's foreign reserves should be used as a "bargaining chip" in talks with the US. "Of course, China doesn't want any undesirable phenomenon in the global financial order," he said. He Fan, an official at the Chinese Academy of Social Sciences, went further yesterday, letting it be known that Beijing had the power to set off a dollar collapse, if it chose to do so. "China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US Treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency," he told China Daily.
Wednesday, August 08, 2007
Talam was one of my better calls in 2006. Below was the posting made almost a year ago on 24 August 2006 when the share price went to 10 sen:Desperately Seeking Talam
Making Sense & Assessing Risk
August 24, 2006 - When things like Talam happens, what do you do? Talam's shares already at a 52 week low of 17 sen, dropped as low as 10 sen today on huge volumes after both Bursa and the company disclosed that Talam has again delayed finalisation of its annual accounts for year ended 31 Jan 2006. Bursa has warned that failure to submit by 31 August will result in suspension and maybe delisting. The knee jerk sellers would theorise that most companies who delay submission are prime candidates for PN4/PN17, or there is a huge writedown, or need to restate losses for previous years, etc...
1) The company has a MOU with major financiers to pare down debts by 70% over a 2 year period. Its current debt is RM864.3m. That makes its current gearing at 1.4x, not that exceptionally high that it is unmanageable.
2) Knowing IJM, it would want Talam to clean up its books before doing anything with Talam/K-Euro.
3) It has a good NTA at RM0.89. It will have impairment losses and losses on land disposals, and late delivery charges. Prudent to whack 75% off NTA = RM0.225.
4) Outstanding shares 629.18m. Market cap at RM0.12 means the company is worth just RM75.5m. Even a Main Board shell is worth RM20m.
5) If it fails to submit by National Day, an automatic suspension will be imposed. Talam knows that and acknowledged that, so what gives??
6) The delay has been invoked since end May 2006, so nothing really new here.Why the sell-off?? The delay has been known for sometime. Not having enough employees is a stupid excuse, should not even put that in. Valuation and restructuring stuff, plausible excuse. The market is pricing in a lot of potential bad news. The threat of delisting is just a normal announcement of Bursa, so its not a real threat. Look at the existing PN4/PN17 companies, most are trading higher than RM0.10 and they are in a lot more shit than Talam. These are the facts, make your own assessment. Of course, I could be proven terribly wrong... and end up with just eating kuih talam for a very long time...
April 11, 2007 - Talam sold 25.1 acres of land in Bukit Beruntung to Tesco Stores (Malaysia) Sdn Bhd for RM18,587,052 (US$5.4 million). The net proceeds from the sale will be utilised to pare the group's borrowing and sales related expenses. The sale will reduce Talam's gearing and enhance the development in this location.
March 28, 2007 - The long-delayed RM3.12 billion west coast highway project linking Banting in Selangor to Taiping in Perak will resume and the work will be given to the original contractors, Datuk Seri Najib Tun Razak said today. The deputy prime minister told reporters that the decision to resume the project covering 215.8km was made at today's Cabinet meeting.
The project, mooted 11 years ago, was put on hold due to the 1997 Asian financial crisis. Concessionaires for the project, touted to be the alternative to the North-South Expressway, include Talam Corporation Bhd and Kumpulan Europlus Bhd. In November 2006, Works Minister Datuk Seri S. Samy Vellu said that the Economic Planning Unit (EPU) would re-submit a working paper on the project to the Cabinet.
Things got really interesting yesterday with the news that KEuro may sell its stake in Talam.
August 7, 2007 - In an announcement yesterday to Bursa Malaysia that departs from the norm, K Euro's directors highlighted several observations. The directors pointed out that the two companies – Selasih Jauhari Sdn Bhd and Desiran Johan Sdn Bhd – were private limited companies with paid-up capital of RM2 each, and that they were in no position to ascertain their credibility. It was further highlighted that the K Euro board was not certain the option agreement would be successfully implemented because “there are numerous conditions precedent to be fulfilled”.
The two private companies represented to K Euro were in a position to offer a scheme to enhance the value of the assets of Talam Corp Bhd, an associated company of K Euro. They also said the scheme could enable Talam to generate cash to reduce its borrowings. Should the proposed scheme be unable to meet what the two companies have represented, the boards of Talam and K Euro would not accept it, and the option agreement would lapse. K Euro's board also highlighted that the purpose of the option agreement was to enable the two private companies to submit their proposed scheme to the boards of K Euro and Talam for consideration. In the announcement, K Euro said the option agreement was for Selasih Jauhari and Desiran Johan to acquire a 25% stake in Talam, amounting to 157 million shares, at an exercise price of 30 sen a share.
Presently, K Euro holds 42.94% of Talam, and upon an exercise of the call option, Selasih Jauhari and Desiran Johan would have a 17.94% stake in Talam. The scheme proposed by the two private companies would not increase the borrowings of Talam. Further, the option price was fixed at 30 sen a share but they represented to K Euro that there would not be a reduction in the value it held in Talam, being RM141.4mil, or 51 sen a share, in book value. The granting of the call option is conditional on several approvals, including agreement from the board of K Euro, and the board and shareholders of Talam for the proposed scheme. K Euro said it would now concentrate on its two principal projects: the West Coast Expressway and Canal City.
Sources said while it was announced in June that IJM Corp Bhd would proceed to acquire a 25% stake in K Euro for RM33.1mil cash, or 28 sen a share, the exercise was not completed and as such, IJM was still not represented on the K Euro board. The conditional agreement with Selasih Jauhari and Desiran Johan was, therefore, a decision made by K Euro's existing board.
There might be a desire to enhance the value of Talam, especially since K Euro's stake in it would eventually be diluted anyway, when the convertible instruments in Talam are issued and converted into shares by its creditor banks.
The sources believe the two private companies' proposed scheme might involve an injection of some assets that have yet to be disclosed. They also believe that although the private companies have paid-up capital of just RM2, they are owned by a businessman of means whose identity had remained undisclosed.
My Two Sen:
- Things were going along hummingly for IJM when they went through with the injection of IJM property division into RB Land. Everything seems to be OK with KEuro as well and Talam was supposed to be next on IJM's plate. KEuro and Talam were operating AS IF they were under the IJM umbrella already. For example: Talam appointed IJM as the contractor /jv partner to resume its various stalled developments such as Taman Puncak Jalil, Putra Perdana, Kinrara Section 3, Bukit Beruntung, Lagoon Perdana, Sierra Selayang and Ukay Land. All that activity has been happening since late last year.
- IJM will almost control Talam anyway through its probable acquisition of KEuro as the latter controls 43.1% of Talam.
- Thanks to a stronger property market, Talam should be able to dispose off its hotel, shopping mall investments and hospital for RM200m-RM250m.
- Talam's NTA per share is at 52 sen (revised from 89 sen last year).
- Major land assets: 400 acres Bukit Sentosa 3 valued at RM258m; 260 acres Puncak Jalil valued at RM159m; 1,284 acres at Batang Berjuntai valued at RM146m; 2.16 acres at Larkin Centre, Johor Bahru valued at RM37m; 67 acres at Bukit Sentosa 1 valued at RM38m; 58 acres at Bukit Sentosa 2 valued at RM33m; 340 acres at Tanjung 12 valued at RM43m; 50 acres at Danau Putra valued at RM51m; 401 acres at Ulu Yam valued at RM25m; 120 acres at Saujana Putra valued at RM58m; the killer asset is 2,500 acres at Bukit Beruntung valued at RM624m; 40 acres at Ukay Land valued at RM45m; 90 acres at Sierra Ukay valued at RM27m; 10 acres at Kinrara 3 valued atRM39m; 80 acres at Lestari Puchong valued at RM109m; 1.5 acres Yin Hai Complex, Jilin, China valued at RM56m; Marcourt Hotel, Jilin, China valued at RM123m; Menara Maxisegar valued at RM58m; Pandan Indah Medical Centre valued at RM40m; etc.
- IJM probably was not going to buyout Talam as by virtue of buying KEuro, it also controls Talam and will get the benefits of the development works under Talam. However, with the presence of the new potential buyers, IJM may be forced into making a bid to control Talam.
- While Talam has its debts to work out, it has a good extensive landbank. Those assets probably rose in attractive ness over the last couple of years from being unwanted to "hey, looks kinda interesting now". The killer asset is Bukit Beruntung, whoever wants to be a player for the next 10-20 years will need this vehicle. The race course will be shifting from Sg Besi to near Bukit Beruntung sometime the next few years, could be interesting for a long term player.
- Methinks IJM will come in aggressively to control Talam, after all save yourself a lot of time to accumulate the assets under Talam. In order to propel RB Land /IJM Property to be a major player, NOT controlling Talam seems to be a bit silly. This is quicken IJM's resolve to control KEuro asap so that they do not sell their 43% stake in Talam. If IJM is going to control KEuro, it will not cost them much to also control and clean up Talam - this strategy could be to force IJM to quicken its acquisition of KEuro and stop them demanding so much from the jvs and contracts under Talam, and take Talam private.
- The danger is in the 2 companies submitting the proposal to KEuro. Esp RM2 companies, man, you know these RM2 companies will be very influential vehicles. Maybe I should use my RM2 and also submit a proposal to KEuro.
- Any way you cut it, Talam is in play and players will be looking hard at Talam's landbank, not many like them around despite's Talam's debt crisis. If IJM loses indirect control of Talam, it may lose out on the development contracts and jv opportunities. An aggressive bidding war could send the share price closer to 60 sen. More upside for Talam surely.
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