Tuesday, March 31, 2009

New PM & New Business Landscape?


This is the kind of article that people like to read. Following Najib's "confirmation", the witty guys at CLSA came up with an assessment of the important business people "close" to Najib. Twenty years on and we are still a politically-linked market place. A politically linked market place naturally implies favoritism, and that in turn implies a lack of transparency - back to square one??? If we are to mature as an economy and democracy, we shouldn't be revisiting these politically-linked themes at all - old habits die hard? Yes, it is very difficult to change the status-quo with so much vested interests, and that is the crux of what is the tippling point for our country. I am not an idealist, I am pragmatic enough to know that changes cannot be done overnight. Even if Pakatan were to win the next election, these things will take at least a decade to change. All I hope for is at least Najib will turn the ship towards transparency and better democracy. You cannot change the stripes on a zebra, but maybe the zebra can start acting like a better behaved animal. I really hope that the new administration will take the opportunity to liberalise investments, improve transparency, usher in a more merit based society, and help formulate strategies to move local industries further up the value chain.

As for me, I really couldn't be bothered about which counter is more politically-linked than the next.....
if your company's existence and fortunes is based on that factor, what kind of business model are you operating on???... certainly not replicable or scalable when you venture overseas.

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TheEdgeDaily:
Najib Razak will win the UMNO Presidency uncontested and become Malaysia’s 6th Prime Minister. · With the changing of guards in Putrajaya, we highlight Najib’s six confidants and four brothers. · Politically-linked stocks like MRCB and IJM will benefit from the government’s stimulus packages. · We remain concerned on the banking sector in a cyclical downturn but Bumi-Commerce is well-run group with Nazir Razak at its helm. · Small cap politically-linked stocks, including loss making ones, have been outperforming the market. UMNO General Assembly 24-28 March

In a CLSA report issued last week, the brokerage and investment group try to ascertain if traders can profit from the changing of guard in Putrajaya, and if longer term investors should start to pay more attention to Malaysia's structural growth story.

Najib Razak won the post of UMNO President in the UMNO General Assembly uncontested. Seeing as how UMNO is the largest member in the ruling coalition Barisan Nasional, the UMNO President is traditionally made the nation’s Prime Minister.

Najib’s six confidants

Very soon after Najib was appointed Finance Minister in September, he personally picked six individuals for a corporate roundtable. It is widely believe that these six individuals with corporate and investment background, have at one point or other given significant input to Najib on issues ranging from the economy, capital markets and business in general. It is also interesting to note that out of the six, three are currently board members at Khazanah. Thus although it is the outgoing Badawi administration that empowered Khazanah as the government’s strategic investment vehicle, we believe Khazanah will remain very relevant in the Najib administration.

Najib’s four brothers

Najib is the eldest of the five siblings in the Razak family and he was 17 years old when his father Abdul Razak was Malaysia’s 2nd Prime Minister from 1970-1976. Najib is also a nephew of Malaysia’s 3rd Prime Minister Hussien Onn. Out of his four brothers, Nazir Razak CEO of Bumi-Commerce is the most well-known one and has also been very vocal in the press, regularly calling for a revamp of the archaic National Economic Policy (NEP). Thus it is no surprise that Nazir has Najib.s ear as the latter has recently been on national TV promising to make changes to the implementation of NEP.

We continue to believe that the Najib administration has plans for further liberalisation in the services sector. In Najib’s mini-budget speech on March 10, he said that the Foreign Investment Committee (FIC) will be adopting a more liberal approach to nurture a more investor-friendly environment, i.e. to attract more investments including foreign direct investments. Therefore the government is formulating new guidelines to reflect this new role for FIC. We are guessing that they may further relax the NEP in the services sector. Many have argued that the NEP has been a disadvantage in attracting FDIs/portfolio investments into Malaysia. Thus further dismantling of this arcade policy could put Malaysia back on the path to structural growth over the longer term, and will correspondingly boost the local equity market in the long run.

Stocks to keep an eye on

We have done a screen of stocks which we believe traders and investors should keep an eye on as the guards change in Putrajaya. We continue to like MRCB (MRC MK-RM0.87-BUY) and IJM (IJM MK-RM4.02-BUY) as they stand to benefit from the government’s fiscal spending ahead. Furthermore, CEO of MRCB Shahril Ridzuan was hand-picked to be one of the pioneering members under the government’s GLC reform initiatives. As for IJM, ultimate parent is MMC Corp (MMC MK-RM1.41-N-R), whose major shareholder is Syed Mokthar Albukhary, who many believe will remain in the inner circle. Both MRCB and IJM have Employees Provident Fund (EPF) as their single largest shareholder.

We remained cautious on the banking sector given the cyclical downturn ahead, but Bumi-Commerce (BCHB MK-RM6.55-SELL) will continue to draw interest from long term investors. Despite concerns on withdrawal of Middle Eastern investments in Iskandar Malaysia, another favourite amongst traders is UEM Land (ULHB MKRM0.75- N-R).

Finally a few of observations from Figure 3. Firstly, three groups are prominently featured in the table, i.e. Sapura, Hong Leong and MMC. Secondly, oil & gas companies namely Sapura Crest and Wah Seong with cheap PE multiples of 7-8x have been outperforming the market over the last three months. Thirdly, TH Group, George Kent, Johan and Paramount are loss making but have outperformed the market.

The faces to remember

Najib's brothers

Key to CLSA investment rankings: BUY = Expected to outperform the local market by 10%; O-PF = Expected to outperform the local market by 0=10%; U-PF = Expected to underperform the local market by 0-10%; SELL = Expected to underperform the local market by >10%. Performance is defined as 12-month total return (including dividends).

©2009 CLSA Asia-Pacific Markets ("CLSA")

p/s photos: Noon Wongsawan



6 comments:

Jasonred79 said...

Did you read my article?

Of COURSE the economy is politically linked... Najib basically just announced that the Rm4 billion to be spent up to June will ONLY be awarded to loyal UMNO supporters.

http://www.nst.com.my/Current_News/NST/Sunday/National/2517798/Article/index_html

Najib disclosed that a website to keep tabs on spending of the stimulus packages would be launched within the next two weeks.

He said RM1.5 billion would be spent up to the end of next month and RM2.5 billion by end of May.

"They involve about 32,000 projects, which would involve class F contractors, who are also loyal supporters of Umno."


Basically, if Najib can be so blatant about this political-economic favoritism, anyone who expects transparency and fair deals under him is DREAMING.

Present Value said...

It is imminent that we are getting a new Prime Minister, which will certainly alter the rules of game for many in the business and political realm.

It remain to be seen and only time-tested results will tell IF and only IF the new Premier and his administration will move to which and what direction in the years to come. Yes, we heard him said CHANGE for survival, but there are too much of interpretations and discretionary power in the hands of our ministers and politicians. CHANGES for the survival of those aligned to "me" or for the sake of the well being of the citizens of this beautiful country?

Investing in a company basing on its key people with the right connections is not my cup of tea, although it may be very appealing to many. People come and go, relationship based on political links are too valuable yet vulnerable to the winds of change that will not stop, it may be 3-5 years or like Dali said, another decade before we see real up to notch TRANSPARENCY & DEMOCRATIC practice as values in our culture and way of life.

Until then, countless resources - natural-resource, talents, land, etc will be wasted in the name of DEVELOPMENT and EQUALITY !

Present Value said...

It is imminent that we are getting a new Prime Minister, which will certainly alter the rules of game for many in the business and political realm.

It remains to be seen and only time-tested results will tell IF and only IF the new Premier and his administration will move to which and what direction in the years to come. Yes, we heard him said CHANGE for survival, but there are too much of interpretations and discretionary power in the hands of our ministers and politicians. CHANGES for the survival of those aligned to "me" or for the sake of the well being of the citizens of this beautiful country?

Investing in a company basing on its key people with the right connections is not my cup of tea, although it may be very appealing to many. People come and go, relationship based on political links are too valuable yet vulnerable to the winds of change that will not stop, it may be 3-5 years or like Dali said, another decade before we see real up to notch TRANSPARENCY & DEMOCRATIC practice as values in our culture and way of life.

Until then, countless resources - natural-resource, talents, land, etc will be wasted in the name of DEVELOPMENT and EQUALITY !

see said...

Funny, they all look like same people during Mahathir time

Nostradamus said...

You have not included MESDAQ counters politically linked to Najib's brothers eg. CWORKS etc etc

P S Lak said...

You may be wrong with Paramount. It is a profitable company with low PE and high yield to boot.