Thursday, May 06, 2010

Where Top Companies Will Be In 3 Years?



If you were to chart CIMB against Maybank or any other local banks on its progression over the last 3 or 5 years, you'd begin to understand the importance of management strategy. Too often research reports focus on just the financials to make their calls. Financials only indicate data, data can look attractive when compared to peers but it does not tell us anything about management ability. Great strategy and execution will mean that the stock commands or deserves a premium rating. Too often analyst reports do not even write a view on management 's ability in execution and strategy, and/or management's grasp of its industry, competition or soundness of its business model. To me, that is the most important consideration when going to bed with a stock in a big way. Its different when you are punting or trading, but if you are being a genuine investor for a prolonged period, rating management is the number one criteria.



If you have a look at where they are now in terms of market cap, you can do a good guesstimate on where they will be in 3 years time just based on the perceived management's ability, as that will tell us a lot on deployment of resources, ability to execute, ability to manage costs and improve margins, the ability to navigate and plan ahead of crisis and opportunities, etc. Of course another big factor will be the industry they are in as certain industries will grow faster than others.

Well, in my view, CIMB will maintain its #1 position. May I add that I still think CIMB will merge with Public Bank. Maybank will slip from its third position to maybe 6th or 7th - even with recharged management, its structure is too unwieldy to effect significant changes to culture and transformation of processes.

I predict IOI Corp will rise from #5 to #3 owing to a strong bull phase for soft commodities over the next 2-3 years. Tenaga Nasional will gradually move down the ladder as other stocks are managed for growth and profits, and TNB is managed for many other reasons than just profit and growth factors.

Genting at #8 will move out of the top 10 as I see massive consolidation in the gaming industry, too many players, too much money money being poured into the industry. AMMB may move up slightly, not aggressive enough in human resource management, top people are not empowered enough to act and raise the bar.



Maxis may make it into the top 10 but at the expense of other providers. PPB Group will no longer exist as a listed vehicle, probably shuffled to under Wilmar. Telekom Malaysia will drop a lot faster than we can say "what tf" to high teens.

KLK will be KLK, staid, slow and predictable. Even if soft commodities rally, their beta will be lower than for IOI. YTL Corp will stay there, but YTL Power should charge towards the top 10. Great long term assets that can only grow inline with replacement cost, its good yield will mushroom its market cap base towards the RM10bn mark within 3 years.

DIGI may have reached its peak in terms of branding cycle, they were in front of the curveball. Now, quality issues will see them lose out to other providers, have you used DIGI broadband??? Expect to dip from #18 to out of the top 20.

Possibly the biggest riser will be HLB, its at #21 and would be seen as the "great alternative" to Public Bank should you know what happens. Its branch base and deposit base have gone past critical mass which would see them enjoying the same stellar growth path as Public Bank did back in the 90s. I expect it to jump from #21 to #15 or higher in 3 years.

UMW, good strategy into critical O&G and China, I expect UMW to just make the top 20 from its current #23. B Sports Toto, still under valued in terms of its games potential, should move up a bit. Tanjong, same, should move up a bit. MMC will see a gradual dropping out of the top 30 for reasons I would be better off not elaborating.

RHB Capital, is in a dicey place. Uncertainty among ownership and seeming uncertainty over management's strategy and positioning makes this a strong candidate for consolidation. RHB Cap should no longer exists within 3 years (not that its very bad, but that it would have been bought out by then).

1 comment:

Roy said...

Sir,

What do you think of Axiata? Is it a better company than Maxis? I'm very much leaning toward Axiata with its growth potential. Or, is it falsely being sold on its growth story by analysts?