Wednesday, September 30, 2009

New Way To Look At Risk In Emerging Markets

As of the end of August, the MSCI Emerging Market Index have gained 48% year to date, while MSCI global equities have increased 18%. High global liquidity, improvements in risk appetite, falling core markets volatility (VIX), rebounding commodity prices and relatively stable emerging markets fundamentals in comparison to past episodes of crisis are behind the recovery. Moreover, EM countries' policy response to the crisis has been relatively aggressive, planting the seeds for a positive domestic demand story. However downside risks remain in place due to uncertainties about the shape of the global recovery, profit taking, revival of global risk aversion, and higher US Treasury yields. Moreover, corporates may post worse-than-expected earnings reports as Q2's improvements were largely driven by cost-cutting efforts not by a recovery in demand. Since it reached bottom in November 2008, EM equity markets have jumped 81%.

In August, EM equities lost some steam (-0.8% m/m vs. +14.6% m/m in July), lead by a correction in Asia ex-Japan (-5.3% m/m vs. +17% m/m in July), while Latin America (+3% m/m vs. 11.3% m/m in July) and EMEA (+5.1% m/m vs. 11.7% m/m in July) showed less buoyant performances. Increasing concerns about the global recovery, in particular concerns that China's government will start slowing down credit extension and companies reporting worse-than-expected earnings, as well as profit taking and higher risk aversion, capped these markets. In the same month, world markets increased 4.4% m/m vs.8.8% m/m in July.

  • August 3, 2009: According to Michael Wang, emerging markets strategist at Morgan Stanley: “Previously, emerging markets were seen as a geared play on developed markets because of their dependence on exports. But this is different. Asia and Latin America haven’t had the fundamental problems in the banking sector that the developed world has had, so lending and credit growth has resumed rapidly and this is helping drive growth.” However, Mr Wang pointed out that “There is the possibility of an incipient asset bubble, particularly with regard to China, but that is not our base case scenario, which is still for them to go higher”.
  • July 27: "Research by Société Générale's cross asset team argues it is time to sell because the price-to-book value of emerging-market stocks is now higher than those in the developed world. The only other time this valuation measure was at a premium to that of the developed world was from mid-2006 to mid-2007. Emerging-market equities fell by two-thirds in the 12 months to the start of November 2008.
  • July 13: July 13: According to Citigroup equity strategist Geoffrey Dennis and Jason Press “The correction in regional equity markets has reached the expected 10-15 percent range.” “Although the mood has turned sour on worries over the timing of economic recovery, there is little more downside from here and expect regional markets to break out to the upside again later this summer.”
  • The MSCI Emerging Markets Index may climb to 985 by June 2010 from its closing price of 743.72 on June 18th, Jonathan Garner, Morgan Stanley’s chief Asian and emerging-market strategist, wrote in a research note. Profits will rebound 28 percent next year after a 15 percent slide in 2009, Garner wrote. That compares with his earlier forecast for a 20 percent gain in 2010 and a 25 percent drop this year.
  • June 15: Deutsche Bank AG said that Latin American stocks may drop 15 percent this summer (2009) because of increased share sales in Brazil, weaker China bank lending and the unlikelihood of a rebound in the U.S. economy in the second quarter.
  • June 2: The surge in emerging-market equities may last another six months (until the end of 2009) as faster economic growth in developing countries prompts investors to keep shifting out of lower-yielding assets. Emerging-market stocks may keep on gaining as investors shift some of the $3.8 trillion in money market funds into equities.
Regional Performance:

    Asia (ex-Japan): Asian equities have outperformed mature markets in 2009 thanks to continuous foreign institutional investor (FII) inflows amid diminishing risk-aversion among global investors and relatively resilient macroeconomic fundamentals. Markets have gained 46% YTD as of August 31 (78% since October 2008) with India (68%) and Indonesia (75%) as the best performers, and China (39%) and Malaysia (36%) as the laggards. Sri-Lanka posted an exceptional 131% gain due to the end of the 26-year civil war, a $2.5-billion loan agreement with the International Monetary Fund and the government's positive stance on reforms and liberalization. Asian markets have recovered 54% of the losses incurred in 2008 (peak to trough, down 59%).

    Latin America: Latin American equities has outperformed the other emerging markets regional indexes by rising 59% YTD to August 31 (99% since it hit bottom in November 2008), with strong performances in Brazil (71%) and Colombia (55%). The laggards are Argentina (41%) and Mexico (34%). Overall, LatAm equities market have recovered 46% of the 2008 crash (peak to trough, down 68%).

    Eastern Europe, Middle East and Africa (EMEA): EMEA equities market have gone up 42% YTD to the end of August and 77% since it reached bottom in March 2009. Turkey (66%) and Russia (59%) lead the mark, while Morocco (-3%) and South Africa (16%) have underperformed. EMEA stock markets have recovered 39% of the sharp correction induced by the global crisis (peak to trough, down 66%)

    Recent EM market Dynamics:

  • Latin American stocks reached a new 2009 high while Brazil's currency rose to the highest level in a year on Tuesday, after the improvement of the country's ratings. Brazil's real strengthened 1% to 1.799 per dollar, which was its strongest since exactly a year ago. The Latin American stock index rose 1.02% to 3,643.10, and the broader emerging markets stock index added 1.27%.
  • Stocks from developing-nation dropped 0.9% after trading at the highest level relative to profits since 2000, according the MSCI Emerging Markets Index. (Bloomberg, 09/21/09)
  • August 31, 2009: Emerging market stocks fell sharply by the end of August on concern a slowdown in Chinese lending will curb growth in the world’s third-largest economy.
  • August 13, 2009: August 12th: Emerging market stocks contracted the most this month after Chinese companies reported worse than expected earnings and Russia's economy contracted by a record amount, creating concerns about an economic recovery. The MSCI contracted 1.4%. On August 3rd the MSCI closed above 855.47 on for the first time since the collapse of Lehman Brothers in September, as speculations of an easing to the global recession were bolstered by a positive report on U.S. manufacturing and rising commodity prices. In Asia, stock indices were supported by better than expected earnings from energy producers due to higher oil prices.
  • August 12, 2009: Emerging market stocks contracted the most this month after Chinese companies reported worse than expected earnings and Russia's economy contracted by a record amount, creating concerns about an economic recovery. The MSCI contracted 1.4%. (Bloomberg) August 6, 2009: "Moody's reiteration, on Wednesday, of Mexico's existing sovereign credit rating (Baa1), with a stable outlook, does not alter Citigroup's view that the risk of a ratings downgrade is a threat to Mexican equities later this year. Accordingly, the positive market action in response to the Moody’s announcement (including a rally in the peso through P$13.00/dollar) may be overdone."
  • July 28: "I wouldn't want to encourage people to invest in China and India who have never invested before," cautioned Jim O'Neill, Goldman Sachs chief economist. "Wait for a correction."
  • July 28: "Investors around the world have been pouring money into emerging-market stocks faster this year than at any other comparable time on record, despite strategists' fears of a bubble. They plowed a record $35.5 billion into emerging-market stock funds in the first half, according to funds-flow research firm EPFR Global, whose data go back to 1995. By contrast, investors withdrew $61 billion from developed-market stock funds over the same period, EPFR said."
  • July 8:“Risk aversion levels have risen across the board,” said Nigel Rendell, a senior emerging-market strategist at RBC Capital Markets in London. “While sentiment is still uncertain, emerging markets generally will be weaker.”

A Funny Thing Happened On My Way To The Stock Market


2.30pm - 5.00pm
Saturday October 31st, 2009

After weeks of planning, juggling the topics and all, I have finally arrived at sufficient material that would be highly interesting. I have set out some of the topics on the jpg file (flyer) but the most important nuggets will be on how I arrive at my decision to buy a stock, the step by step mental process and tools I use to consider.

However, possibly the most exciting part should be the extended Q&A session planned at the end. It should be a lot of fun, and hop
efully we all get to learn something new from each other. See ya!!!

+ Please note that this is NOT a talk whereby stock tips will be given out. It is a collection of investing rules, opinions, clarifications on myths and some useful
pointers on equity investing.

Some of the topics covered:
Getting the big-picture first ~ Bottom-up for certain type of stocks ~ When to use PE ratios, and when not to ~ What I look for in reading Annual Reports ~ Sector and industry research under-analyzed and under-appreciated ~ How and when to use NTA / NAV in investments ~ A defensible business model ~ The trader’s view of investing ~ The long term buy and hold mentality, is that for you? ~ Everyone must diversify? ~ Over 90% of all fund managers fail to outperform their benchmark indices? ~ Spotting the 2, 3 or 4 baggers ~ Letting winners run and cutting losses ~ Why research reports are generally useless ~ Sell In May & Go Away ~ I am so smart but not making money from the stock market? ~ Reaction patterns in a panic / crisis situation ~ Buffett’s “Our favorite holding period is forever” b.s. or golden rule ~ Understand the flimsy ways we make decisions (e.g. anchor & adjust, media power, analysts) ~ Value investing vs Momentum investing ~ Economics, like most economists, are basically useless tools ~ Malaysia’s own bubbles and cycles ~ Sunsets, rainbows and pots of gold ~ Accumulate gems, trade rubbish, spring clean your portfolio – How important is management in stock selection ~ Why dollar-cost averaging is for imbeciles ~ Technical analysis and chartists are from Uranus ~ Should you invest overseas?

RM188pp (normal)

RM168pp (if purchased btw 1 Oct-15 Oct)
RM138pp (group bookings of 4 or more)


Auditorium, Sime Darby Convention Center, Bukit Kiara

(complimentary parking)

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Financial Times Article On Nusajaya

It is always interesting to see how foreign media view Malaysia. This is the latest article from the influential FT paper:

More than $13bn has been committed to an ambitious plan to create a metropolis at the southern tip of Malaysia three times the size of Singapore, says the chief executive of the state agency set up to drive the project.

Arlida Ariff, chief of Iskandar Investments, told the Financial Times in an interview that a further $2bn was likely to be committed in the next two years, including nearly $300m in retail investment expected to be announced over the next few months. Ms Ariff said the 2,217sq km project, launched in 2006 by Abdullah Badawi, former prime minister, was beginning to make “real progress” as contractors drove highways and other basic infrastructure through thousands of hectares of jungle and abandoned palm-oil plantations in the state of Johor.

In the long-run, the biggest single source of investment is likely to be Singapore, whose central business district is not much more than half an hour’s drive from Iskandar’s proposed financial district. The attraction for Singapore is the low cost of land, office space and housing, which are currently about 80 per cent cheaper in the Iskandar economic zone. Lee Hsien Loong, Singapore’s prime minister, has joined Najib Razak, his Malaysian counterpart, in backing the project.

However, a surge of Singapore investment could raise nationalist hackles in Malaysia, which has had a prickly relationship with the island state since the two split in 1965 after a brief union.

Mahathir Mohamad, prime minister of Malaysia for 22 years until 2001, last year dismissed Iskandar as little more than a platform for Singapore to extend its sovereignty into Malaysia, warning that Malays would be “driven to live at the edge of the forest”. Ms Ariff said such fears were overblown, pointing out that Singapore had always been the largest investor in Johor because of its physical proximity and requirements for crucial goods from the state, including food and water supplies.

Much of the investment Iskandar is seeking would help Singapore companies by allowing them to expand locally at low cost, she said, suggesting that the initial ambitions of the financial centre were limited largely to attracting back-office activities such as data processing centres.

“This means we can work in collaboration with Singapore rather than competiting for the same brands and the same products to come across [to Malaysia]. Some of this [fear of Singaporean involvement in Iskandar] is to do with the traditional rivalry. Singapore used to be part of Malaysia and it’s like watching your kid brother grow up and become more successful than you.”

The project has attracted a clutch of Middle Eastern investors including Mubadala Development, Abu Dhabi’s state investment vehicle; Kuwait Finance House and the Kuwaiti Bank. Other investors include Newcastle University of the UK, which is setting up a medical school, and UK-based Merlin Entertainments, which is building a $220m Legoland theme park.

Ms Ariff said several other investors were in negotiations, with three more university campuses dedicated to engineering, logistics and leisure industries likely to be announced before the end of the year. Investors are being offered a raft of incentives, including a 10-year corporate tax holiday and exemption from rules requiring local participation in foreign-owned projects. However, the project remains well short of the target of M$383bn over 20 years that will be needed to finance the planned doubling of the local population to 3m, a 1.5sq km financial district, eight university campuses, theme parks, hospitals, schools, retirement homes and a resort.

p/s photo: Olivia Ong

Tuesday, September 29, 2009

Why I Like TA Enterprise

This is tough, its taking me 2 hours to write this and the bloody stock is moving as I write. Everybody should know TAE and what it does well, its a solid retail client based stockbroker. However, it has failed to broaden its investment banking side of things, and that has always relegated TAE to a discount to other players. The fact that it is not bank backed may have been a huge reason for not being a major player in investment banking. Anyways, that being the case, it has always been a good proxy vehicle whenever the stock market goes on a good run. Its a well managed broking operations with very strong and discipline credit control, and being the largest retail broker gives it a high beta when the market is on an upswing. Even in dull trading days, the financial figures have shown that it can still operate quite profitably as its business model is very much remisier based which has low incremental and operational cost to its structure.

Shares Issued: 1.428bn
52 week High-Low: RM1.40 - RM0.52

As of Monday, it has started to break out from its 52 week high. I was waiting and waiting for the details of the listing of its property arm before I can make a good assessment. You try looking around for research coverage on TAE, there is none bar one (the last one was by Citigroup and that was more than 6 months ago), and even that was just issued yesterday by Hwang-DBS. So, apologies to Hwang-DBS, much of what I am writing is based on a pretty decent research piece from your side.

Why I Like:
a) Its the surprise factor. Not many people realise just how cohesive and attractive TAE's property operations are. It is hard for investors to imagine that a stockbroker can be a decent property player - in fact, to me, they are a much better property player. They have accumulated a highly attractive landbank and also highly attractive hotels for decent investment income. In one fell swoop, you have an investment income side with solid real assets and the other being property development with very attractive landbanks.

b) By listing TA Global, it bring enormous value because as it is TAE is always rated as mainly a stockbroking operation. Following the listing TAE will still own 55% in TA Global but TA Global will suddenly become the country's 5th largest property company. This will allow TA Global to shine and be rated fairly on its own prospects, and with that comes a more proper valuation, which will indirectly benefit TAE anyway.

c) Once on its own, everyone will get to appreciate just how attractive TA Global's landbank is: 6.7 acres within KLCC (which could have a GDV of RM2.5bn); and another 236 acres scattered around Sri Damansara (48 acres), Bukit Bintang (3 acres), Dutamas (3 acres), U-Thant (1.4 acres), Kluang (95 acres) and Serendah (78 acres).

d) The general public were a bit skeptical at first when TAE went into property but just have a look at its completed and partially completed portfolio: Damansara Idaman, Idaman Villas and Idaman Residence. They can deliver solid premium projects, a big badge of honour. So, there is no problem with branding. In fact Damansara Idaman won the CNBC Asia Pacific Property Awards in 2008 for best development. (A bit of dejavu akin to the Mont Kiara projects in the early 90s by the Tong family).

e) I like their investment properties a lot. It is not haphazard or a mishmash of assets but a thought out acquisition strategy. It has acquired 4 major hotels: Radisson Plaza in Sydney for RM233 (97), Westin Hotel in Melbourne for RM389m (09), Aava Whistler in Canada for RM107m (08) and Swissotel in Singapore for RM635m (to be completed by Jan 2010). Besides their Grade A hotels portfolio, they also have two office buildings in Menara TA1 and the Teresan Center in Vancouver.

f) TAE as a whole maintained very good net margins as a group. For the last 7 quarters, net margins was between 24.7% to 48.3%. There was a blip at the height of the subprime implosion (Nov 08-Jan09) where it registered a negative 22.8% margin loss. That was quickly cast aside as their following quarter (Feb 09-Apr 09) saw net margins rebounding back to 42.3%.

g) Following the listing of TA Global, TAE will receive RM230m cash which could give TAE shareholders a special dividend in the months ahead.

h) After all that, the timing is just nice as it is slated to be listed by November 09. The fact that it has broken through its 52 week high cannot hurt.

The proposed listing will see TA Global issuing 4.8bn shares (50 sen). If you are thinking of subscribing its IPO, well forget it, there is no public portion. The only way you can get a piece of the action is to buy and hold TAE shares. TAE shareholders will receive 3 TAE shares and 3 ICPS for every 5 TAE shares held. To make it clearer, if you have 10,000 TAE, which will cost you around RM14,000 you will get 6,000 TA Global shares and 6,000 TA Global ICPS. Hence its really like an IPO if you buy TAE now.

Of course the attraction is at what levels TA Global will list. Hwang-DBS accords a fair value of RM2.10 on TAE, which to me is a bit conservative. I expect TA Global to perform very well upon listing. The projected market cap for TA Global may be around RM2.4bn - RM2.6bn, making it number 5 behind SP Setia (RM4.18bn), UEM Land (RM3.81bn), KLCC Property (RM3.3bn) and IGB (RM2.64bn). In fact I think TA Global will be number 4 once it gets listed as it should easily shove aside IGB.

Being the number 4 player, plus its landbank being a lot more accessible than others, will make it attractive to foreign institutions. Next will be the elevation to be part of FBM-70??? I don't have a price target but I think TAE has no business being at current levels looking at the upcoming developments and I also think Hwang-DBS RM2.10 is a bit conservative.

p/s photo: Tavia Yeung Yi

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

Big Picture View - Equities Well Supported (Updated)

Stocks gained on a fresh wave of M&A announcements, including a deal by Xerox to acquire Affiliated Computer Services for $6.4 billion.Abbott Laboratories gained after the company said it will buy the pharmaceutical business of Belgium's Solvay for as much as $7 billion in a deal that will expand its presence in emerging markets. Covidien will acquire brain-monitoring technology firm Aspect Medical Systems for $12 a share in cash, or a total of about $210 million, net of cash and short-term investments acquired. Johnson & Johnson says it's bought 18% of Crucell for 301.8 million euros ($440 million) -- a 30% premium to Friday's close -- and will pay development milestones and royalty payments if flu vaccines that the two firms will develop make it to the market. Among major economic news this week, the Case-Shiller housing price index and consumer confidence data are due out Tuesday morning, while GDP, ADP employment and crude inventories are slated for release on Wednesday. The above news indicate that corporations are more willing to tap the markets for the low rates. Expect more such M&A activity in the coming days. This links up nicely to the article posting below. Of course we have to bear in mind that the US$ weakness is also supporting US equity purchases.

Every now and then, its important to reassess the big picture view. Getting the big picture correct will make for a more confident trading mindset, or reasons not to trade the market. It is clear that the developing economies are recovering more rapidly than developed nations. If you look at central banks at developed countries, they are still keen to keep rates low. This emphasised the fact that while there is some sort of recovery, it will be a long drag to becoming substantive.

By mid-2009, most central banks in advanced economies reached the trough in their rate cycles. Fed and Swiss National bank reduced the lower end of their target bands to 0%. Bank of Japan has been taking a "zero rate interest policy" 0.1% interest rate for sometime now. Sweden's reserve deposit rate is negative, and that's a useful indicator. A few central banks - Fed, BoJ, Sweden and Bank of Canada - have made explicit commitments to keep policy rates low for a long period. Australia should be the first to tighten among the G-10 central banks, as early as Q4 2009. Bank of England could be next, possibly by December/January.

Whether a central bank starts to tighten is a clear indication of how confident the central bankers are of the recovery in their country. The danger is that some could stay loose for too long, thus fomenting a bubble. That is exactly what is happening in HK, owing to its dollar peg, which resulted in very low rates, but that does not correspond with its real economy which is recovering quicker thanks to its ties to China - thus fueling its property boom.

  • ECB held at 1% in June 2009 and may stay there depending on economic data.
  • Federal Reserve held at 0-0.25% since December 2008 and will likely remain there all 2009 and 2010.
  • Bank of Japan held at 0.1% since December 2008 and will likely remain there all 2009 and 2010.
  • Bank of England held at 0.5% since March 2009, lowest rate since 1694.
  • NZ held at 2.5% since April 2009 but may resume cutting to 1.5% later in 2009.
  • RBA of Australia held at 3% in June 2009, lowest since 1960, and may hike in Q4 2009.
  • Canada held at 0.25%, its lower bound, since June 2009 and may resort to quantitative easing.
  • Swiss National Bank cut target range for 3mo Libor to 0-0.75% in March 2009 and may stay there until 2010.
  • Norway cut 25bp to 1.25% in June 2009, its rate trough. Norway may hike in Q4 2009.
  • Denmark cut 10bp to 1.55% in June 2009, maintaining a 55bp spread versus the ECB.
  • Sweden cut repo rate 25bp to 0.25% in July 2009, committed to staying there until end-2010. In a break with the tradition of zero setting the lower bound, the deposit rate was set at -0.25%.
Economic indicators can be sluggish and yet stock prices can rally, there is nothing wrong with that. The equity markets collapsed a few months before the subprime implosion took over. The recent G20 meeting reinforced the view that they will plan to leave the emergency stimulus in place even though there are signs of some recovery. The G20 basically did not want to pull the brakes too soon. That can only mean one thing, higher equity prices. Yes, there will be bouts of minor correction, but these are just bumps. You have very low interest rates, some signs of recovery, an easy monetary policy, a much lower risk aversion attitude, where can you place your bets ... bonds??? ... of course its equities.

Even when stocks rake in just 5% or 6% return, that is still powerful compared to the prevailing interest rates of 2%, and the differentials are substantive enough for people to put their money to work. Asset managers will have to reduce their cash holdings and put them to work in order not to under perform. The very low rates are not designed to prop up the stock markets per se... its really to boost corporate borrowing and corporate lending, which is a much bigger concern, all of the G20 are grappling with unemployment and needs the corporate side to borrow and spend more. The stock markets are just a bystander beneficiary to that objective. Good till year end.

p/s photo: Zhang Xin Yu

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Monday, September 28, 2009

HK IPOs, Quek & Chua Bet On Wynn To Win

HK IPOs are very very hot. The few that listed in August and early September were fantastic performers. Our own Quek Leng Chan and Chua Ma Yu have latched onto the IPO of Wynn Macau (please read my posting on Wynn Macau ) . Last week saw Glorious Property pricing its IPO in the bottom half for a $1.28 billion deal, while CR Cement raises $825 million after pricing at the top.

But what got everybody a bit nervous was the very dismal performance by Metallurgical Corporation of China, which fell 11.65% below its IPO price on its debut last Thursday after completing the largest Hong Kong IPO year-to-date. MCC's A-shares gained 35% in their debut last Monday in Shanghai, but have since been on a declining trend. MCC's H-shares recovered marginally on Friday with a 1.25% gain to HK$5.68, but went into the weekend having lost 10.6% versus the IPO price of HK$6.35. The H-share is listed in HK and the A-share is in Shanghai. The funny thing is that on a dual listing, you can get the A-share going one way and the H-share going the other.

MCC's dismal performance should be noted because there are tons of big IPOs to follow, including the closely watched Wynn Macau. MCC's poor performance showed that a very high majority of investors are flipping the IPOs. Secondly, many HK tycoons are also big special subscribers to these IPOs and their sell orders can move the market. In MCC's case the grey market was already down 5% prior to the actual listing, an indication of big pre-selling by some big early investors who got the placement. Thirdly, it is after all, the biggest IPO this year, and it coincided with a consolidating global equity market following a torrid run up. Fourthly, these issues are too big to be "managed by approved syndicates", and in HK, investors are very very willing to "cut their losses" with any sign of suspicion that things are not headed in the right direction - quite different in mentality when compared to the average investor in Singapore and Malaysia, who are more incline to be a bit religious in the investing discipline ... "hope & pray".

Quek and Chua's foray to pick up Wynn Macau's placement, to me if I was advising them, is a big no-no. I would be happier to buy Genting Singapore in the open market up to S$1.10 than to subscribe to Wynn Macau. Wynn Macau's HK$12.6 billion offering was only 61.3 percent covered with subscription via margin financing hitting HK$773 million so far. Even before this news, I wasn't keen on Wynn Macau one single bit.

Actually with their contacts, the one IPO that I would highly recommend to buy and hold is Wilmar International's listing. Buy all you can even up to +10% of its IPO price.


FinanceAsia / StarBiz: Evergrande Real Estate - a Guangzhou-based home developer seeking to raise HK$11.7 billion - is set to go through a listing hearing tomorrow. More mainland developers plan to tap the Hong Kong market for more than HK$20 billion despite the poor performance of newly listed companies.

Mingfa Group, which is aiming for HK$8 billion, will also have its hearing tomorrow and Yuzhou Group, which is seeking up to HK$3.9 billion, may present its case later this week. Meanwhile, the directors of United Company Rusal - the world's largest aluminum producer - will decide this week whether to approve an IPO plan to float a 10 percent stake in Hong Kong, the Sunday Times reported. The Russian aluminum giant is expected to start bookbuilding in November and list in December. According to the British newspaper, Rusal is in talks with potential cornerstone investors including sovereign wealth funds China Investment Corp and Singapore's Temasek.

Wilmar International, the world's largest palm oil processor, plans to raise as much as HK$31.2 billion from listing 733 million shares of its mainland business. The firm is chaired by Kuok Khoon-hong - nephew of Robert Kuok Hock-nien, known as "sugar king of Asia."

Greens Group, a maker of waste heat recovery products had its listing hearing last Thursday. It plans to raise as much as HK$1 billion. Shenguan Holdings, a mainland sausage casing maker, starts bookbuilding today and will open its retail book on Wednesday, eyeing up to HK$1.17 billion. The firm plans to invest 240 million yuan (HK$272.38 million) this year and 469 million yuan in 2010 to expand production capacity. Its first-half net income surged 66.5 percent to 129 million yuan. Shenguan's clients include Yurun Group, an unit of China Yurun Food (1068).

Yingde Gases, Ausnutria Dairy Corp and China Vanadium Titano-Magnetite Mining, which will close their retail book tomorrow, had their retail tranche oversubscribed 3.5 times, twice and 5.6 times respectively, according to margin financing orders at nine brokers as of Friday.

Tycoons Tan Sri Quek Leng Chan and Tan Sri Chua Ma Yu have agreed to take part in the initial public offering (IPO) of Wynn Macau Ltd on the Hong Kong Stock Exchange by investing US$80mil and US$70mil respectively. Quek’s investment is via Guoco Management Co Ltd and GuoLine Group Management Co Ltd, which are indirect subsidiaries of Hong Leong Co (M) Bhd, while Chua’s vehicle is CMY Capital Markets Sdn Bhd. It is learnt that these Malaysian parties are going in independently. Chua is an investor and the attraction in Wynn is purely seen as a China play. But Wynn Macau's HK$12.6 billion offering was only 61.3 percent covered with subscription via margin financing hitting HK$773 million.

Powerlong Real Estate also got a lukewarm. response Both will close their retail book on Wednesday.

p/s photo: Maki Goto

Why I Like Hock Seng Lee

Hock Seng Lee is a marine engineering, civil engineering and construction company. The company undertakes dredging, land reclamation and earthworks, road and bridge construction, coastal protection works and other infrastructure and building works. The company through its subsidiary is engaged in property development and building construction activities. The company primarily operates in the Malaysia where it is headquartered in Sarawak and employs about 570 people.

The company recorded revenues of MYR309.1 million in the fiscal year ended December 2008. Its net profit was MYR41.8 million in fiscal 2008.

Projects are on track, with the Kuching City Wastewater Management System, Tanjung Manis land reclamation and infrastructure works and the Sibu flood mitigation project collectively accounting for 40% of HSL’s outstanding RM1.3b order book. Property development, though contributing only 15% of group pretax profit, will also provide medium-term earnings support, as HSL has a land bank of 600+ acres with GDV of RM1.5b. HSL is a steady, reputable company. Too many analysts have been focusing on major construction firms in the peninsula and kinda forgot about HSL.

Why the timing to buy is right:

1) Hello people, its October, and we have a budget if I am not mistaken. Sarawak is requesting additional funds from the federal government to complete the RM3 billion Centralized Sewerage System for Kuching City to treat household wastewater in the city. Sarawak Urban Development and Tourism Minister Datuk Michael Manyin said the project with three major components namely the wastewater treatment plant, sewer network and property connection would cover areas which are fully developed and densely populated. The Centralized Sewerage System for Kuching City project is divided into four packages and it costs RM3 billion. "I hope the project could be completed soon. However, it all depends on the availability of the money. Therefore, I'm going to fight for additional funds to implement the other three packages," he said.
Sarawak Sewerage Service Department is responsible for implementing all sewerage-related projects in the state, and has been entrusted by the government to implement the centralized sewerage system for Kuching City. Kumpulan-Nishimatsu-Hock Seng Lee Consortium is the turnkey contractor while the consultants involved are Jurutera Jasa (Sarawak) Sdn Bhd and CH2M Hill, a US-based company with a branch in Singapore. Manyin said Package One of the project, costing RM530 million and covering five major areas in the city, had started in October last year and was scheduled for completion in 2012. The Package One is 9.35 per cent completed as of August this year.

2) On 17 July 2009,
Hock Seng Lee together with Dwimula Bina Sdn Bhd and Pembinaan Nomisual Sdn Bhd have been awarded a government project worth RM137.15mil for a flood mitigation project in Sibu, Sarawak. HSL said the project would be carried out as an unincorporated joint venture with Dwimula and Pembinaan Nomisual with HSL having an 85% stake. It said the project would be completed by February 2012 and was expected to contribute positively to its earnings and net assets for the financial years ending Dec 31 2009 to 2012.

3) Potential projects that HSL could garner in the near future
Estimated project value (RM m)
1) Murum Road, Kapit (5 packages) 700-800
2) Nanga Merit, Kapit (2 packages) 1,400

3) Ba Kalalan road building 600-700

4) Maritime Base 300-400

5) Bridge in Batang Sadong 200

6) Extension of Sibu Airport 150

7) Dredging works at Miri port 120

8) Road construction works by Kementerian Pembangunan Luar Bandar in Sabah and Sarawak

4) The Sarawak state elections are expected to be held between end-2010 and early-2011. Like it or not, its politically plausible to believe that there will be an acceleration in development in Sarawak before the next state election given that East Malaysia played an important role in Barisan Nasional’s 2008 General Election win.East Malaysian construction players would benefit from further good news from the budget for infrastructure development in that region along with the Sarawak Corridor of Renewal Energy (SCORE). HSL niche in Sarawak’s dredging and land reclamation activities have been undervalued and out of the radar of too many investors and analysts.

has about 582.6m shares and currently at just RM1.00, making its market cap at RM582.6m as well. HSL SB holds 57%, Amanah Raya (Skim Amanah Saham Bumiputera) holds 11.05% and EPF has 6.4%. The free float is around just 25%. Doesn't take much for HSL to move towards fairer valuation levels. EPS should grow by at least 26% in 2009 and 2010. The earnings momentum is just about right with October budget around the corner. Currently at just 10x 2009 earnings and 8x 2010 earnings, its relatively cheap and undemanding. HSL has a current order book of some RM1.8bn. The potential new projects will swell the prospects of HSL.
Its net cash flow was a respectable RM15.8m in 2008 and should swell to RM23m in 2009 and RM35m in 2010. Looking to break through its 52 week high of RM1.02, HSL should trade closer to RM1.30-RM1.40 on a better recognition of its prospects ahead.

p/s photos: Chen Kuang Yi

I Kinda Like Marc Faber

Even though he is know as Dr. Doom, usually bearish, he does talk sense most of the time. He is best known for the Gloom Boom Doom newsletter. He was a managing director at Drexel Burnham Lambert Hong Kong from the beginning of 1978 until the firm's collapse in 1990. In 1990, he set up his own business, Marc Faber Limited. Faber now resides in Thailand, though he keeps a small office in Hong Kong. Faber's company, Marc Faber Limited, acts as an investment advisor company concentrating on value investments with tremendous upside often based on contrarian investment philosophies. Faber also invests and acts as a fund manager to private wealthy clients. Faber is a regular speaker on the investment circuit, often quoted in the financial press for his non-conformist viewpoint and alternative investment philosophies.Economic provocateur Marc Faber joined a chorus of commentators picking on Paul Krugman’s recent state-of-economics magazine article. Krugman “thinks it would be very good to have another bubble in the world and deal with it later on". Krugman, the columnist and Nobel prize winner, has advocated a strong government stimulus and big deficits to jumpstart the economy.
Faber, a Hong Kong-based investor and author of the Gloom, Doom & Boom report, suggested Krugman’s piece, entitled “How Did Economists Get it So Wrong,” missed the mark. There wasn’t “a single word about excessive credit growth” in Krugman’s article, he said. “He should have written ‘How did I get it so wrong?’”

Faber’s view is that the collapse was due to the massive increase in credit stoked by the Federal Reserve. The Fed and academic economists such as Krugman failed to acknowledge that the borrowing boom would create economic chaos, he said.

Faber was speaking at the CLSA Asia Pacific Markets investor conference in Hong Kong. (Probably as the counterbalance after listening to Sarah Palin speak at the same conference).

Faber, is, to put it mildly, a pessimist. “You can’t find anyone more negative about the world than I am,” he said. “But stocks can still go up,” thanks to continued printing of money. He actually expects stocks overall to rise around 7% a year over the next decade, though in places like the U.S., much of that return will be eroded by inflation, brought on by the increase in the money supply.

The last few years saw the world economy in a synchronized boom, and then bust, a rare thing in economic history. Going back 200 years, capital flowed to some sectors or geographic areas, stoking bubbles, yet other places saw deflation as capital fled.

This latest bubble was different. “You have to give credit to Bernanke and Greenspan. They have achieved something no central bankers have achieved in history. They created a bubble in everything…The only asset that went down from 2002 to 2007 was the U.S. dollar.”

There was one place he said that didn’t grow in the final years of the latest bubble. That was Zimbabwe, which suffered hyperinflation and economic collapse at the hands of dictator Robert Mugabe. The African country was “run by a money printer, Mugabe, a mentor of Bernanke,” Faber said. (That's a bit harsh, I think Bernanke did well, maybe he could have just lashed at Greenspan alone). The crowd chuckled.

Faber told the audience to put money in Asian equities and commodities. He said gold is important, but buy real gold, not derivatives, and keep the gold outside the U.S. The U.S. confiscated gold during the Great Depression, he noted. He, like Warren Buffett, Nouriel Roubini and others, thinks the dollar is destined to erode, though Faber said it could rebound over the next few months as signs of deflation stick around. “The dollar in the long run is a doomed currency,” he said. “This is the short of the century…The government’s policy is to make it worthless.”

p/s photo: Misha Omar

Friday, September 25, 2009

NSTP In The News (Business Times Singapore)

Business Times Singapore chose to highlight some critics on the pending NSTP corporate restructuring. I think the fact that the share price has been so far away from its NTA really showed that nobody wants to hold the stock as it is. What is more important is that the minority shareholders are not mistreated in any major corporate restructuring.

KUALA LUMPUR, Sept 25 — Criticism in cyberspace is mounting against a plan to privatise the country's most established publishing company, the New Straits Times Press (NSTP).

The plan, which was presented to NSTP's board a month ago, proposes that free-to-air television station Media Prima completely take over NSTP through a share swap. In the process, NSTP will be delisted from the stock exchange.

Media Prima is NSTP's single largest shareholder with a 43.3 per cent interest. The other large shareholders include the Employees Provident Fund (EPF) and another state agency which together hold around 13 per cent.

The sticking point could be Media Prima's ownership. Its single largest shareholder is private company Gabungan Kasturi, which is owned by business nominees of Umno, the dominant political party in the ruling Barisan Nasional. As a result, top editors of the paper have always been appointees of the prime minister of the day.

Writing in his blog on Wednesday, Datuk A. Kadir Jasin, a former editor-in-chief of NSTP who still has strong Umno links, called the plan a “plot” to use “the goodwill and stronger financial position of NSTP to shore up” Media Prima.

Kadir argued that the publisher's brand name “must never be allowed to be destroyed or undermined”.

Blogger Ahiruddin Atan, the editor of the Malay Mail tabloid, wrote yesterday that the move could provoke a political backlash against Prime Minister Datuk Seri Najib Razak. He said that the plan “would provide his detractors with the firepower to accuse Najib Razak of trying to put the media under his direct control”.

For all the criticism, however, the deal is likely to go through as Najib is said to be amenable to the idea. More to the point, the main minority shareholders — the EPF and the other state agency — have endorsed the plan. The only remaining hurdle remains consent from Umno's powerful political bureau which will meet some time this week to consider the plan.

Analysts generally agree that the deal favours Media Prima as the underlying value of the newspaper group is more than twice the value of its debt-heavy controlling shareholder. Even so, NSTP has not been performing: its share price (RM2.15 yesterday) has been below its net asset value (RM4.52) for the longest time.

The deal would also transform Media Prima, which owns all of the country's free-to-air television stations, into Malaysia's most powerful media company and allow it unhindered access to all of NSTP's earnings.

The newspaper group has relatively low debt but has increasingly seen its fortunes flagging. Once the premier English-language daily, its flagship publication the New Straits Times has seen its circulation plummet amid declining advertising revenues. The NST's circulation is just under 120,000 now from its peak of 280,000 in the 1980s.

Indeed, NSTP's earnings are now largely driven by its Malay publications, Berita Harian and Harian Metro, a racy tabloid with the highest audited circulation in the country. The group reported a net profit of RM47.4 million for the year to Dec 31, 2008.

Media Prime, meanwhile, reported a net profit of RM86 million for the same period. — Business Times Singapore

p/s photo: Maggie Cheung

Thursday, September 24, 2009

Why I Like NSTP (Seriously... A Lot ...)

Granted, NSTP is not a great company. This is more a value proposition in taking it private. Of course such a proposition will only remain as such unless there are ready catalysts that will make it "happen sooner" than indefinitely. I have good reasons to see corporate restructuring / privatisation for NSTP in the very near future. The gobbling up of shares over the last 4 weeks also gave me a lot of confidence in the stock as a strong value play.

The boring industry data factors such as 1) the consumption of lower priced newsprint, 2) a pick-up in ad spend, 3) cover price hike taking effect, and 4) full impact from ad rate increase .... are all mundane and blah-blah. If NSTP is privatised, shareholders are unlikely to accept an offer at current prices as the group’s assets are worth RM4.51 per share... in fact a privatisation would have to be at least RM4.20 for it to be considered as worthwhile. And let me tell you that it is worth paying RM4.20 for NSTP.

The best reason for privatising is this, the value of its land holdings and buildings alone is worth RM310m. Taking that out the underlying print business is being valued at less than 2x PER. Why do you want to keep a business listed at just 2x PER valuation? If you can somehow revitalise the business or investor confidence or need huge capital raising, then by all means wait for the markets to revalue the stock - but nothing of that sort will be happening. While the print business is second rate, it is still a viable business and certainly not at just 2x PER.

The stock had a run in early July with the revival of market talks on the merger with Utusan, which had previously been in the news back in 2006. In recent weeks there have rife rumours on the potential privatisation of NSTP by its major shareholder, Media Prima via the acquisition of the remainder 56.7% stake that it does not currently own in NSTP. On Aug 11 a financial daily reported that NSTP’s board is considering the offer from Media Prima, which involves a straight 1-for-1 share swap. Based on the last closing price of Media Prima of RM1.56, the offer stands the risk of being rejected as it would significantly undervalue NSTP given its NTA of RM4.51/share as at 2Q09. EPF and KWAP collectively hold 13% in NSTP, and are likely to have an influence over the outcome of any proposal, and would probably demand some form of cash component.

The timing is very ripe with the departure of the previous CEO from Media Prima. Datuk Amrin Awaluddin who was appointed as the group managing director of Media Prima Bhd (MPB) effective Sept 1, has joined the board of NSTP as a non-independent non-executive director as well. Amrin was previously the chief operating officer of MPB and has also assumed the position of chief financial officer of Sistem Televisyen Malaysia Bhd. The main strategic thinking behind this is that it is no longer viable or even attractive to let NSTP be listed alone. Media as an industry is a lot more than just being a newspaper or a tv operator, you need to have a collaborative media unit in all facets of the industry. You need to cross sell and leverage on the multimedia concept.

Should Media Prima acquire the remainder stake at NSTP at current market values via a share swap (which would likely be the case given the former’s high debt position), the deal would enable NSTP shareholders to participate in the longer term growth potential offered by the more liquid and enlarged Media Prima entity. The deal would:
- Unlock value through the sale of NSTP’s valuable non-core assets.
- Media Prima would be able to tap into NSTP’s strong balance sheet and cashflows for investments in additional media platforms. The Utusan deal would probably not go through as the political and cultural hurdles may be too hard to overcome, especially when you have Media Prima with the highly attractive free to air stations. You do not want incompatible content.

Just 217m shares, Media Prima has 43.3% and EPF has 10.5%, and I doubt they will be selling , in fact they should be accumulating ahead of a positive restructuring.... and Maybank Investment Research has ceased coverage on NST since May 2009, and thats always a good sign. No, that's not a slight on Maybank Investment Research but rather the act in itself confirms that institutional investors could not care less on NSTP as a listed vehicle - confirmation that something has to be done and quick.

52 week high-low 1.94 - 0.975 ... Although I am not an out and out technical analysis guy, I do subscribe to volume and breakouts. Plus I love it when the breakouts are accompanied and substantiated with a strong fundamental or corporate catalyst play. That is a strong indication that the timing is about just right. It broke through its 52 week high strongly today with volume, I like that very much. As a pure buy I would be prepared to buy up to RM2.45 just to hold till restructuring, which should see the shares closer to RM4.00 by then.

Update On Asian Equities

Overview: Asian equities have outperformed mature markets in 2009 thanks to continuous foreign institutional investor (FII) inflows amid diminishing risk-aversion among global investors and relatively resilient macroeconomic fundamentals. In September, markets continue to march upwards after seeing some volatility in August, driven by concerns that the Chinese government is tightening the credit.

As of MSCI Asia Pacific has gained 30.5% YTD as of September 16, with Sri Lanka and Indonesia as the best performers, Japan and New Zealand as the worst performers. In terms of valuations, Asian equities are no longer considered to be cheap, following the rally since March. The region's price/earnings ratio has risen significantly above its historical average. In addition, downside risks still remain in H2 2009 with revival of any global risk aversion. Economic recovery may be slower-than-expected if stimulus effects fade out and the current global recession has greater-than-expected impacts on regional economies. Also, corporates may post worse-than-expected earnings reports as Q2's improvements were largely driven by cost-cutting efforts not by a recovery in demand.

Will Asian Equities Continue to Outperform Mature Markets?

2009 MSCI Asia Pacific performance in USD terms: 30.5% YTD as of September 16, up 66.6% during March 9 - September 162009 MSCI Asia performance in USD terms: 26.7% YTD as of September 16, up 61.2% during March 9 - September 162009 MSCI Asia (excluding Japan) performance in USD terms: 54.8% YTD as of September 16, up 85.4% during March 9 - September 16Best performers (YTD as of September 16, 2009): Sri Lanka: 91.9% | Indonesia: 80.0% | Vietnam: 76.5% | India: 72.9% | China: 64.8% | Taiwan: 62.1% | Thailand: 57.9% | Pakistan: 55.8% Worst performers(YTD as of September 16, 2009): Singapore: 51.8% | South Korea: 49.7% | HK: 48.8% | the Philippines: 47.8% | Malaysia: 38.4% | Australia: 24.9% | Japan: 15.9% | New Zealand: 15.4%

In 2009: Asia's equity market (excluding Japan) have outperformed mature markets, up 54.8% YTD as of September 16 2009, while the S&P 500 Index and the U.S. Dow Jones Industrial Average rose mere 14.7% and 8.4% respectively during the same period.

Since March 2009, Asian equity markets have witnessed a rally following a surge in U.S. markets and began to benefit from the widening valuation gap on the back of relatively resilient macroeconomic fundamentals. During the March 9- September 16 period, MSCI Asia (excluding Japan) rose by 85.4%, significantly higher than the S&P 500 Index and the Dow Jones Industrial Average which gained 58.0% and 49.6% respectively.

Capital flows: Continuous FII inflows to Asian equity markets have taken net flows to a positive US$14.4 billion as of June 24 2009, significantly up from US$10.8 billion in H1 and US$9.6 billion in H2 2008. Since end-June, however, fun flows have been volatile, with inflows and outflows each recoded half of the time. In the middle of August, the region saw fund outflows the most in 24 weeks as investors start to cast doubts on Chinese rapid expansion of bank lending, which has helped regional economic recovery and asset market reflation.

Valuations: Taiwan (122.8) has the highest price/earning ratio in the region as of September 9 2009, followed by Australia (83.9). In opposite, valuations of Pakistan (12.4) and the Philippines (15.1) are among the cheapest. The P/E ratio of 32 for Asia (excluding Japan, unweighted) is significantly higher than that of U.S. equities, 19.1 for the S&P 500 and 13.7 for the Dow Jones Industrial Average.

2008 Review: The peak-to-trough decline in Asian equities in 2008 (more than 70% for some markets) surpassed the 60% fall in local currency terms during the 1998 Asian financial crisis. Sustained outflows from offshore Asian funds took total net redemptions in Jan-Oct 2008 to a record high such that all money that flowed in during 2007 flowed out.

Market Integration: There is a noticeable upward trend in the Asia-U.S. correlation with the correlation parameter picking up sharply in H2 2008 (peaking during mid-Oct 2008). However, average correlations for emerging Asian equity markets are generally higher between the region's markets than with U.S. markets.

Government intervention: Several countries including Taiwan, Pakistan, Vietnam, Thailand intervened in the stock market by narrowing the trading band, introducing stabilization fund to contain volatility, banning short-selling, directing government funds to buy share.

Will the Rally Continue? Or Will a Correction Follow?
Upsides: Better-than-expected earnings reports, relatively healthier macroeconomic fundamentals, aggressive fiscal stimulus spending and ample liquidity in the region would have positive impacts. Also, buying into most of the region's equity markets seems a better bet than bonds amid increasing bond issuance.

Downsides: Worries over the U.S. economy, exit by local investors and also FIIs alarmed at greater-than-expected impact of global slowdown on Asia's growth, exports, fiscal deficits, slowing consumer spending and investment may have negative impacts. High (external) debt exposure of corporate sector in some countries and risks of real estate correction and bank profitability are additional risks.

Global portfolio rebalancing toward U.S. equities, expecting "a U.S. growth spurt," will pose risks to Asian (exculding Japan) equities. U.S. equities have gained much less than Asian (excluding Japan) equities and have lower valuations.

The recovery is real. Asian equity markets will continue to have good momentum and corporate earnings may rise substantially until 2010. Liquidity conditions will support the equity market in the near-term. But authorities may have to limit further monetary and fiscal expansion as inflation may resurface before growth normalizes in the medium- to longer-term.

Risks remain, driven not by earnings but by still weak real economy. Exports and domestic demand should rebound quickly in H2 2009 to meet the forecasts and to justify V-shaped recovery. In the past, Asia's stock market performance was highly correlated with that of western counterparts. However, Asian equities may plot a more "independent course" backed by less leveraged economy, better capitalized banking sector, huge FX reserves and healthier fiscal position.

Prospects for further inflows into Asian equities remain substantial, as global portfolio continue to adjust from relatively underweight positions, and given cheap equity valuations relative to bonds.

Adrian Mowat, Chief Asia Strategist, JP Morgan: Asian stocks have yet to reflect expectations for a powerful, synchronized recovery in the global economy as markets are still bearish on global growth and on emerging markets growth.

As of end April 2009, market capitalization of Asian Pacific markets (US$10.2 trillion) has come ahead of that of European markets (US$9.3 trillion, including Africa and the Middle East) as Asian stock prices sour at a faster pace than European ones.

Banks remain the single largest sector in Asia. However, its share has been decreased to 20.1% as of June 2009 from 43% in 1975. In opposite, the share of cyclicals has risen to 38.7% (including basic materials, industrials, oil & gas and technology) from 18% (industrials) in 1975.

p/s photos: Olivia Ong

Wednesday, September 23, 2009

And They Say There Is No Collusion ...

You can actually get governments to do certain things. Shares of Macau plays rocketed yesterday, bucking the general market declines, following a report that China has quietly eased restrictions to allow residents of Guangdong province to visit the enclave more frequently.

Industry executives now expect the Macau casino sector to bring in record gaming revenues in October, boosted by the looser restrictions and the upcoming Golden Week holiday, Reuters reported.

Galaxy Entertainment (0027) jumped 9.5 percent to close at HK$3.79, defying a 0.7 percent decline in the benchmark Hang Seng Index.

Shun Tak Holdings (0242), a Macau- focused conglomerate controlled by the family of Stanley Ho Hung-sun, jumped 9 percent to HK$6.69. SJM Holdings (0880), Ho's casino flagship, rose 5.1 percent to HK$4.52. Melco International Development (0200), which is owned by Lawrence Ho Yau-lung, jumped 7.7 percent to end the day at HK$5.87.

The authorities now allow mainland travelers from Guangdong to visit Macau once a month under the Individual Visit Scheme, instead of just once every three months, Reuters quoted industry sources as saying. The restrictions started to be relaxed 2 months ago and were loosened even further since September 1.

"Gaming revenues for the first two weeks of the month have been good," one executive said. Another unnamed casino executive said September gaming revenues will be "very good" and October will likely set a new record high. Now is it just kind timing or what??? Just when the 3 major operators in Macau have filed for IPOs in HK, we see these restrictions being lifted??!!

Backed by big-name cornerstone investors, the institutional tranche of Wynn Macau's HK$12.6 billion public offering was oversubscribed by up to five times when it started bookbuilding yesterday.

The casino operator attracted six high-profile investors who poured US$250 million (HK$1.95 billion) to subscribe for shares with a six-month lock-up period. They include Lifestyle International (1212) managing director Thomas Lau Luen-hung who subscribed for US$50 million worth of shares and Sun Hung Kai Properties (0016) non-executive director Walter Kwok Ping-sheung who is seeking US$20 million worth.

Wynn Macau plans to offer 1.25 billion shares at HK$8.52 to HK$10.08 each, which is 29.4 to 34.8 times its estimated earnings per share of 29 HK cents this year. Wynn Macau's net income slumped 34.8 percent to HK$903.7 million for the first half ended June 30 as Macau's gaming industry contracted.

These developments will pave the way for a spectacular listing of Wynn Macau and Macau Sands - and guess what, Genting Singapore will be an indirect beneficiary, followed by Genting Berhad, but the former is a much better play.

p/s photos: Miwa Oshiro Cocoa

Tuesday, September 22, 2009

Jamie Dimon, Sandy Weill, John Reed

I am giddy, usually most of the business and finance books I read are just above average. I am only starting to sink my teeth into a pretty good one in The Partnership - The Making of Goldman Sachs by Charles Ellis (updated and revised version), and guess what, another very exciting sounding book on my "hero" Jamie Dimon is to be out soon. Fortune magazine has been featuring excerpts from the book, and its voyeuristic and exciting (if business and finance is your porn diet). I am often amazed at what transpires between bigwigs when they decide to merge mega companies. How much of it is due to placating egos? The Citigroup that we know of now was made up of the acquisitive Travelers, led by Sandy Weill but with Jamie Dimon bringing in much of the growth and consolidation towards the last few major pieces of acquisition, in other words, the top guy really at Travelers. John Reed did well but was at the end of his career and probably wanted to go out with a bang but without shouldering the responsibility of seeing the whole thing through. Juicy, juicy .... now Sandy Weill almost acknowledges that firing Jamie Dimon was his biggest mistake. Hell yeah...

NEW YORK (Fortune) -- .... from journalist Duff McDonald's new book, Last Man Standing, Fortune offers up the account of an embarrassing confrontation that led to Jamie Dimon's ouster from Citigroup by Sandy Weill.

--Editor's Note: This story contains profanity.

Citicorp CEO John Reed didn't quite know what he was in for when he agreed to a meeting with Sandy Weill in early 1998. He thought Weill was going to ask him to spend $25,000 on a table at a charity dinner, or something of that sort. Instead, Weill proposed a merger of equals between the Travelers Group and Citicorp, a combination of the two firms that would sit powerfully atop the financial world. He proposed sharing the leadership role as co-CEOs, and splitting the board 50/50 with directors from both companies.

Reed did not reject the idea out of hand, and the two companies' deal teams agreed to meet at the Travelers' Executive Conference Center in Armonk, New York on March 20 and 21. Over the next two days, the deal teams hashed out much of the conceptual framework for a merger, including a name -- Citigroup -- and a plan that the company would have three main divisions: the Corporate Investment Bank, the Consumer Business, and Asset Management. Given the regard in which executives from both sides held him, Jamie Dimon would be president of the parent company, beneath co-CEOs Weill and Reed. But that was just a corporate job. When it came to operations, Dimon quite reasonably assumed that he would be put in charge of running the corporate investment bank, the same job he had shared with Deryck Maughan at Salomon Smith Barney. Instead, Reed suggested (and Weill agreed to) a power-sharing arrangement in which Dimon, Maughan and Victor Menezes, Citicorp's head of commercial banking, would be co-CEOs. (Weill first suggested Dimon and Maughan. Then Reed suggested the three-way power-sharing arrangement, so as to not alienate the Citicorp crowd by putting two Travelers people in charge. )

This was bad enough for Dimon, but what he did not even consider, given his place on the boards of Travelers and its predecessor companies, was the possibility that he would not be on Citigroup's board. So he was shocked when in mid-March, as Weill went over details of the deal, that he informed his long-time lieutenant, "Jamie, you're not going to be on the new board."

Dimon protested, making the argument that he would be one of the only presidents of a major public company not on its board. In other words, it was an embarrassment, a snub. But Weill was resolute. "We've decided." Frustrated as Dimon was with what he saw as the unfairness of the situation, he somehow failed to grasp the larger implication of Weill's remark. Weill had begun to dismantle what had been corporate America's longest-running, best-known, and widely lauded succession plan.

Despite Weill trying to sweet-talk him into believing that the president title meant he was well positioned, Dimon saw the empty title for what it was. "I should have left the company at that point. You'd think by then I might have figured it out, but I didn't. I accepted that too, didn't I? Sandy knows exactly how far he can go. I loved the company. It was my family. I couldn't leave them. But Sandy doesn't always think about just right or wrong; he thinks about his options down the road. The board decision was the sign, and I should have known better. But look, you live and learn."

Dimon and Maughan, who had been openly hostile before the merger, were now engaged in full-scale warfare. Salomon was getting destroyed in the bond markets -- it was during that fall that the collapse of hedge fund Long-Term Capital Management had sent global capital markets into a tailspin -- and Dimon criticized Maughan at every turn. While Dimon quite likely assumed that he would eventually work his way through this predicament and reclaim his position as Weill's heir, he was definitely playing with a weaker hand than in years past. Sandy had other courtiers now, including Maughan and general counsel Chuck Prince, the company's future CEO. (Mary McDermott, Weill's longtime head of public relations, remembers Prince as "the quintessential ass-kisser" during this time.) Finally, Dimon's constant nay-saying also hurt him in Reed's eyes, especially considering the nonconfrontational ethos Reed had so meticulously installed at Citicorp. (Both Reed and Prince declined to comment).

On the weekend of October 24, 1998, the 15-year partnership between Jamie Dimon and Sandy Weill collapsed in a way that almost nobody saw coming. The occasion was a five-day retreat for 150 top executives and their spouses at The Greenbrier, the luxury resort in White Sulphur Springs, West Virginia. During presentations by various business heads, Weill recalls being struck by the difference between a polished Maughan presentation and an "incoherent" one by Dimon, including "a strange analogy with the Peloponnesian War." Weill felt that Dimon's apparent lack of preparation was insulting and that he seemed anything but "presidential" as a result. Dimon's memory about the quality of his presentation is hazy, but the suggestion that his career be judged on one presentation at an executive retreat rankles. "Maybe I didn't give a good presentation," he says. "But do you think it's acceptable to judge a 15-year career on one presentation?"

Then, during a black-tie ball on Saturday night, Dimon and his wife Judy sat with Salomon Smith Barney capital markets head Steve Black and his wife Debbie. In a gesture that could have moved things in another direction entirely, Black turned to Debbie and told her he was going to ask Maughan's wife, Va, to dance as a peace overture. The couple went over together to where the Maughans were dancing, and he politely cut in. Maughan, however, failed to return the gesture, leaving Black's wife standing alone on the dance floor. Embarrassed, Debbie Black began to cry.

As if that weren't sufficiently "high school", the situation quickly devolved further. After comforting his wife, Black lost his temper, marching over to Maughan -- who is not a small man, standing some 6'3" -- and seized him by the flesh of his arm. "You fucking asshole," he said. "You can do whatever you want with me, but if you ever do something like that to my wife again, I will drop you where you stand."

Expecting a fight, Black was surprised when Maughan simply turned and walked away. Black had momentarily forgotten who wore the pants in the Maughan family. Moments later, an enraged Va Maughan came steaming across the dance floor headed right for him. Sticking her finger in his chest, she said, "Don't you ever talk to my husband like that again. You can't talk to my husband like that."

At this point, Dimon tuned in. "What was that all about?" he asked Black after Va Maughan had retreated. After hearing Black's side of the story, Dimon himself became enraged, and went off to find Maughan. "Deryck," he said, when he tracked him down. "If you snubbed her by accident, explain it. If you did it on purpose, that's a whole different thing." Once again, Maughan responded by turning away, at which point Dimon grabbed him and spun him around, tearing a button from his jacket in the process. "Don't you ever turn your back on me while I'm talking!" he shouted. "You popped my button!" was all Maughan offered in reply. (Maughan declined to comment).

Nobody came out of the night's events looking good -- not Black, not Dimon, not Maughan. And all three paid a steep price. Maughan would be kicked upstairs at Citigroup; Black would resign. (Judy Dimon looks back on the entire weekend as a bit of an out-of-body experience, the kind of thing you can't bring yourself to believe is actually happening.)

Remarkably, Dimon failed to see that the incident had sealed his fate. On Friday evening, October 30, he sat in his office with his assistant Theresa Sweeney and asked her what changes she thought would come out of a Sunday management meeting in Armonk. It was his belief that the management structure would finally be adjusted to his advantage at the meeting. It never crossed his mind that his own ouster was in the works. He was so oblivious that he had invited 100 Salomon Smith Barney brokers over to his apartment at 1185 Park Avenue on Sunday for brunch. Then Weill called, asking him to come up to Armonk early.

In Armonk, Weill and Reed sat Dimon down in a small conference room. "We've done a lot of thinking about the organization...and John and I have decided to make the following changes," said Weill. "Deryck is going to move to a strategy job, Victor will take the Global Bank, and Mike Carpenter will run Salomon Smith Barney." That last one threw Dimon for a loop, as that was his job. But Weill wasn't quite done. "And...we want you to resign."

Dimon offered only a one-word reply: "Okay." Weill asked him if he wanted to know why. "Nope," replied Dimon. "I'm sure you thought it through." Reed was stunned. "Is that it?" he asked. "Well, yeah," replied Dimon. "You've obviously decided."

In February 1999, Dimon filed with the Securities & Exchange Commission to sell 800,000 shares of Citigroup worth some $42.5 million, thus formally severing his ties with Citigroup...and Weill. Dimon also severed ties with most people he considered Weill partisans. A year later, he moved to Chicago to head the struggling Bank One. In 2004, he returned in triumph to New York in a merger that made him the CEO and Chairman of JPMorgan Chase. And five years later, he is a titan of the banking world, one of the victors of the financial crisis.

For his part, Sandy Weill retired as chairman of Citigroup in 2006. A retirement party was held in the Egyptian Room at the Metropolitan Museum, and the guest list included former president Bill Clinton and Saudi Prince Alwaleed bin Talal. Dimon attended, but kept a low profile. Although a few dozen people spoke in tribute to Weill's lengthy career, Dimon was not among them. He wore a regular business suit to the black tie event, and though he did greet people beside Weill for a bit, he left before the party got going. "You know what they say about cars that have been in a wreck?" muses a former colleague about the relationship between two men. "You can send them to the body shop, but they're never going to be the same."

Today, if and when the two men do run into each other, things are civil, but no longer warm. The days when they'd plan on drinks once or twice a year are over. Still, enough time has passed that each will grudgingly admit that the other has traits worth praise. "Sandy wasn't a mentor in the traditional sense," Dimon recalls. "In the sense of people giving you advice and sitting you down. That's what most people mean. I got none of that. Sandy was much more sink or swim and he just shed people left and right who didn't meet his standards, but it wasn't really a mentoring thing. He had a tremendous work ethic, and he was always thinking about how the world was going to change. He was brave and bold. I learned a tremendous amount from him. To do the deals that we did? I look back at those and think, 'God, Sandy, you had guts.'"

In December 2008, in his corner office in the General Motors Building, Weill was subdued. The markets were in complete and utter turmoil, and Citigroup, the company he built, was on the verge of being broken apart. A few blocks away, Dimon presided over JPMorgan Chase, the bank widely considered the sole standout of the financial crisis. During the interview, Weill came close to admitting the biggest mistake of his career: firing Jamie Dimon. "I think I made a very bad decision on succession," he said. Today, he only has the highest compliments for his one-time protégé. "Jamie obviously has far fewer blind spots than most people in this business. He's outperformed most of them."

Part two of two parts excerpted from Last Man Standing: The Ascent of Jamie Dimon and JP Morgan Chase, by Duff McDonald, to be published by Simon & Schuster on October 6, 2009. © Duff McDonald