Wednesday, June 29, 2011

Updates On HK Property Market


Despite concerns over a property bubble in Hong Kong and government efforts to cool the red-hot sector, two Hong Kong tycoons: Cheung Kong Holding’s Li Ka-Shing and Henderson Land’s Lee Shau kee have been snapping up shares in their own firms.

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Robert Halili, Managing Director at Asia Insider told CNBC on Wednesday, this insider buying is encouraging news for shareholders and investors looking to bet on the real estate sector.

“The one thing I want to point out to investors is that whenever these 2 titans buy at the same time, it is almost like a solar eclipse. It only happens once in a blue moon.”

Out of the $2.6 billion dollars invested in property-related stocks over the last 10 weeks, according to Halili, Lee Shau-kee’s purchase of 39 million shares in Henderson Land accounted for $2 billion or 76 percent of the total amount.

“Prior to this year, the chairman [of Henderson Land] acquired an average of 8.5 million shares worth $309 million per year from 1993 to 2010,” he added.

So, who do you believe, the property tycoons or the more rational government officials and analysts???

Protestors are on the streets all around the world these days. In Europe people are angered by harsh austerity measures, in the Middle East they are trying to topple failed governments and on the mainland protests are invariably sparked by some form of brutality — driving over a protestor in Mongolia or pushing around a pregnant street vendor in Guangzhou. The world’s masses seem to be taking to the streets.

Except in Hong Kong, where life goes on in its disconnected-from-the-woes-of-the-rest-of-the-globe bubble, which is of course encapsulated in another bubble: the housing one. Property prices remain outlandishly high, despite signs around the world that the economic outlook isn’t exactly rosy.

The reasons are myriad, yet simple. The masses are provided with subsidised public housing. The next layer, the middle class, owns housing that is then rented out, often to foreigners whose companies enable them to discount the rent from their taxes, providing enough of a subsidy to let them rent a small flat with a maid’s room for the same price they would pay back home for a McMansion with a garden, pool and two-car garage in the suburbs of a major metropolitan area. Their landlord doesn’t need to work, but rather lives off the rental income. Then there’s the next layer — housing owned by wealthier Hong Kong families or corporations that is rented to companies that pay outlandish rents for their senior expat staff. The company writes it off as a business cost and the Hong Kong family or business laughs all the way to the bank.

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The Hong Kong Monetary Authority (HKMA) has tried to keep the genie in the bottle through policy measures. On June 10, Norman Chan, the chief executive of the HKMA, announced the latest tightening measures: with immediate effect, a 50% down payment will be needed for transactions of more than HK$10 million ($1.3 million), from the previous limit of HK$12 million. Down payments of 40% are needed for homes costing between HK$7million and HK$10 million (previously the band was between HK$8 million and HK$12 million) and subject to a maximum mortgage cap of HK$5 million. A 30% down payment is still applicable for homes below HK$7 million (previously HK$8 million). The HKMA also imposed a new rule, lifting the down payment requirement by 10% for mortgage applications with principal income sourced outside Hong Kong, but of course if this is targeted at mainland buyers (more on them later) it’s meaningless, as most don’t borrow from Hong Kong banks anyway. As a result, analysts have generally viewed such tightening measures as having a limited effect.

Rating agencies such as Standard & Poor’s forecast a stable outlook for Hong Kong’s property market, though sensibly warn that the market is vulnerable to external shocks. S&P notes that the credit profiles of rated developers have a reasonable buffer thanks to that recurring rental income from a diverse population.

But it cautions about the possibility of a “sharp correction in prices”, noting in a June 14 report that “affordability has deteriorated because of high prices and could weaken further if interest rates rise from their current low levels”. The rating agency further points out that “strong liquidity could reverse because capital flows are fickle. Hong Kong is susceptible to external shocks, due to its open economy and free capital movement”.

External shocks to watch out for include “a sharp rise in interest rates, a hard landing in China’s economy, and a significant adjustment in equity markets", Christopher Lee, director corporate ratings for S&P, said in an interview.

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The China connection
The recent financial crisis underscored one of the most important buyers in the Hong Kong market of late: mainland Chinese. During the crisis, Chinese investors flooded to Hong Kong, snapping up property, particularly in the high-end residential sector. And the influx continues.

According to Centaline, 24.9% of all primary transactions were by mainland buyers in the first four months of 2011, up from 24.1% in the second half of 2010. They are most active in the high-end property market, making up 38.1% of buyers in the primary market and 22% in the secondary market for transactions above HK$12 million, an increase from 33.8% and 20.8% in the second half of 2010, respectively.

That’s good for Hong Kong developers, but bad for renters or other potential buyers, who have stood on the sideline watching prices skyrocket. But a shock to China’s economic and credit conditions could trigger a correction in the high-end property market, which would then have a knock-on effect in mass-market prices, notes S&P. That shock might already be in the works. In the same report, S&P downgraded China property, pointing out worsening borrowing conditions.

If the mainland market cools and oversupply ensues, cash-strapped developers could fall into a price war to attract customers, who might then reconsider buying back home rather than in Hong Kong.

For our readers, many of whom have tried to play the Hong Kong property market by buying property here in the hopes of flipping it before leaving, it’s possible you’re sitting on — or nearing — the peak of this cycle.

“We believe the various measures that have been put up have brought a cooling effect to the secondary market, and thus transaction volume will stay low given a reduction in both supply and demand, continuing policy risks and concerns about potential asset bubbles,” explained Ken Yeung, Citi’s Hong Kong real estate analyst.

“Prices that are supported by thin transaction volumes may not be sustainable,” added S&P’s Lee.

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Of course, it depends on what you own — and are trying to sell. Colliers International reasons that supply-demand imbalances and inflationary pressure continue to drive rents upwards. The average luxury rent increased 3.62% quarter-on-quarter in the first quarter of 2011 to HK$45.42 per sq ft per month, only 0.7% below the previous peak in mid-2008.

“In spite of the market consolidation in terms of sales volume during the short-to-medium run, the sustained low-interest-rate environment, rising inflation and tight luxury residential supply will drive the price growth for luxury residential further. Luxury residential property prices are forecast to grow 6% in the next 12 months,” Colliers forecast in a recent property report.

Some property specialists (particularly those who aren’t employed by companies trying to sell you property) note that the so-called supply shortage in Hong Kong is a myth. By some estimates there are as many as 200,000 empty flats in the city — certainly not a shortage that warrants price hikes. So why the high prices? Landlords are willing to sit on empty (unrented) supply.

“Prices have been sustained by the flood of liquidity and currently very low interest rates,” said Lee. “There may not be a shortage of apartments, but landlords are not renting them at below market rates. Therefore, prices are sustained by expectations of prices remaining high or continuing to grow.”

In other words, market fundamentals be damned. Given the eternal optimism of Hong Kong developers and sellers, trying to time the market is even more difficult in Hong Kong than anywhere else, and in the best of situations it is as safe a game as juggling lit firecrackers. The high could be this week, or a year from now, or five years from now. But given the global skittishness, it’s perhaps time to take a look at how much you’ve made from a property investment, and question if it’s good enough.

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Bears Are Prowling

On June 10, the government announced the launch of eight sites for sale, on which it expects developers to build 6,000 flats. The move coincided with an order from the Hong Kong Monetary Authority that banks should lend no more than 50 per cent on homes valued at above HK$10 million (US$1.3 million) (down from a cap of 60 per cent).

The authority for the first time also added tougher restrictions on non-resident borrowers. Momentum is also building for the government to revive its subsidised Home Ownership Scheme, suspended in 2002. Koh said the resumption of the scheme would shorten the cycle, bringing the correction forward into the second half of this year.

“Things have certainly taken a turn for the worse,” said Lee Wee Liat, head of regional research at Samsung Securities (Asia). The government’s willingness to resume building subsidised housing for sale, together with measures targeting foreign investment demand, showed a determination to cool the market down, he noted. “A short-term correction is now possible,”

he said.

The latest data suggest a slowing in demand. Just 21 new homes were sold over last weekend — down from the 47 homes sold over the previous weekend, according to Samsung.

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Secondary transaction volumes also fell to their lowest level so far this year, with just 21 flats sold at the 10 largest residential estates tracked by Midland Realty, down from 24 the previous weekend.

Developer Cheung Kong (Holdings) has lowered asking prices at its Uptown apartment block in Yuen Long by between 5 per cent and 8 per cent, putting new average selling prices in the range of HK$5,300 (US$681) to HK$5,500 (US$706) per sq ft, noted Lee in his latest research report.

For Husbands & Wives

The speaker is a renowned marriage counsellor in HK, and he gives funny insights into how marriage breaks up and how to make it better. Its in Cantonese. Though some will say the advice is a bit archaic and chauvinistic, but I think there is a lot of truth in what he says.

I know many husbands will try to get their wives to watch the video immediately.





Thursday, June 23, 2011

The Lowdown On Football Jersey Sponsors

It cost millions to sponsor a top club's jersey a year. There is much politics and interesting twists to which company gets which club and how much they paid. Bottom line a jersey sponsorship may only pay for 3 or 4 top players' annual salaries only, but every bit helps I guess.

Following the article is a series of tabulation of the top sponsored jerseys. But first, we can look forward to the jersey for Cardiff City, owned by Vincent Tan. In fact, the club has had to reject many potential advertisers. (So, what's next higher title after Tan Sri for Vincent Tan?). This may look like a joke, but its not. Hold on tight for next season's Cardiff City's jersey .... (I reiterate, this is not a joke!!!):

http://www.soccerjerseysclub.com/wp-content/uploads/2011/06/malaysia.jpg

Hot off the press, Genting is the new sponsor for Aston Villa jersey, Malaysia Booooleehh ... (gee, I cringe whenever I hear that!!!)

Aston Villa Nike 2011/12 Away Football Kit / Soccer Jersey



Wall Street Journal

The biggest deals in football used to be multimillion dollar transfers to land the sport's biggest stars. These days, arguably the most important signings for Europe's top clubs are the corporate sponsors on the front of their uniforms.

Research released last Thursday paints a rosy picture of the commercial value of European club football, with shirt sponsorship up nearly 20% across the major leagues.

The European Jersey Report by sports marketing consultancy Sport+Markt aggregates the amount of money received from shirt sponsorship by all clubs competing in the top leagues of England, Italy, Spain, France, Germany and the Netherlands. The study showed that shirt sponsorship revenue for these clubs increased by 18% to €470.7 million ($656.2 million), a jump of €75.2 million from previous studies.

The 20 teams in England's Premier League attracted the most money—a combined total of €129 million, up from €84 million—ahead of Germany's Bundesliga (€118.5 million), Serie A in Italy (€65.9 million). For the first time since the company began compiling its findings, clubs in Ligue 1, the French first division (€58.8 million) placed higher than those in Spain's La Liga (€57.5 million). In all, only Serie A recorded a decline in total revenue for its clubs.

Beneath the headline figures, however, the detail tells a different story. Far from being a sign of health, the study reveals the extent to which the world's most popular sport has grown dependent on money from the gambling sector. It also provides evidence of the broad and widening divide between a small number of elite clubs and the rest, a fault line that threatens to undermine the long-term health of the sport.

Two sectors dominate jersey sponsorship: banking and gambling. The latter is largely due to the liberalization of the French gambling market, said Gareth Moore, a director for Sport+Markt. France opened up its online horse-racing and sports-betting industry to competition in June, relaxing a state monopoly on gambling that traces back to the 16th century.

Online gaming companies such as BetClic Enterprises Ltd and Bwin Interactive Entertainment AG now see football shirts as a way of differentiating their brands in a very competitive market. BetClic ranks third among a host of new brands entering the football market with €20 million paid for jersey sponsorship deals with Juventus FC, Olympique Lyonnais and Olympique Marseille.

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This season, seven of the 20 clubs in the English Premier League have jerseys emblazoned with the names of online betting companies and in Spain, Real Madrid's famous white jersey carries the corporate logo of Bwin, the club's major sponsor following a deal worth roughly €23 million.

"Betting and gambling have helped to deliver significant revenues for football clubs across Europe in what are challenging economic times and the importance of the sector cannot be overlooked," said Mr. Moore, who suggests future liberalization of the gambling market, particularly in Germany, will ensure the market for elite football jerseys continues to rise.

Despite this optimism, the presence of so many online gambling companies raises issues beyond football. "It's an example of how gambling is thrust in our faces following the liberalization of the law," said Professor Jim Orford, an expert in the psychological effects of gambling at Birmingham University in the U.K. Children are particularly exposed to football sponsorship, according to Prof. Orford, since there is no way to stop them seeing the logos on television.

This talks to another point: the perception, commonly held among marketers, that football shirt sponsorship is in essence a blunt instrument.

In modern marketing terms, shirt sponsorship deals are "a bit of a relic," according to Tim Crow, chief executive of U.K.-based sports sponsorship consultants Synergy. "It's really a 20th century media buy—the players as walking billboards—rather than 21st century sponsorship, which is a highly sophisticated form of marketing involving engagement and dialogue with consumers," he said.

Mr. Crow suggests the market for jersey sponsorship will continue to be sustained by companies with low brand awareness, who will buy it just for the media exposure. But only the big clubs are price-setters, because of the amount of fans they have around the world. "The other clubs are price-takers because they have much smaller fan bases," he said.

This is true of each of the European leagues. In the Premier League the disparity between the elite few and the rest is stark, with the ability to offer a global media platform the dividing line between haves and have-nots.

Jersey sponsorship revenue from just three clubs—Manchester United, Liverpool and Chelsea—makes up 49.1% of the €129 million total received by all 20 league teams. Standard Chartered PLC, the U.K.-based but Asia-focused bank, signed up with Liverpool for more than €23 million a year, the same amount paid by U.S. insurance broker Aon Corp. to splash its logo on Manchester United's jerseys.

Lower down the league, however, teams such as Blackpool and Wolverhampton Wanderers operate on a fraction of these sums. The shirt sponsorship deals for those two clubs are estimated at less than €1 million.

The inability to fetch a competitive price has forced some clubs to innovate. Newly promoted West Bromwich Albion sought permission to sell its shirt on a match by match basis, with local shop-fitters Esprit signing up for a non-televised game, following similar short-term deals with betting companies Blue Square Ltd and Victor Chandler International Ltd.

Tottenham Hotspur even sold its shirt twice—once for Premier League games and the other for games in the UEFA Champions League. The commercial realpolitik of such a deal was revealed by Mike Lynch, chief executive of software company Autonomy PLC, which sponsor's Spurs' league shirt.

"We were getting phone calls from every sport under the sun as normal sponsors disappeared," Mr. Lynch said. "The [Spurs] price fell to a fraction of the normal rate the closer we got to the season." Despite being the biggest software company in the U.K., Mr. Lynch said the firm's brand is virtually unknown to the general public, a situation it sought to rectify ahead of a consumer launch over the next year.

Manchester United have recently set about carving their rights into smaller region-specific chunks, with three new partners announced including communications group Telekom Malaysia, Turkish Airlines and South Africa's MTN Group. The club also has country specific partnerships with firms including India's Bharti Airtel and Saudi Telecom Company. "These companies have rights to Manchester United IP around which they can activate globally," said Richard Arnold the club's commercial director.


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Barcelona - Qatar Foundation, an educational organisation, secured a 5 year deal, annually costing $41m. Why, who knows, how it translates to their foundation's work is anyone's guess.


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Bayern Munich - The German telecommunications giant will be spending $35.7m a year on this.

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Liverpool - Gee, no more free Carlsberg beer??? Now, big strong and friendly, and spending $33m a year on this.

http://www.newkits.co.uk/wp-content/uploads/2011/05/Manufront.png

Manchester United - MU switched to this Chicago based insurer after the collapse of AIG. Cost $32.75m a year. Would have been more but the savvy marketing guys got regional jersey sponsors to top it all off. Manchester United have recently set about carving their rights into smaller region-specific chunks, with three new partners announced including communications group Telekom Malaysia, Turkish Airlines and South Africa's MTN Group. The club also has country specific partnerships with firms including India's Bharti Airtel and Saudi Telecom Company.



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Real Madrid - The Austrian internet betting site will be paying $29m a year. Bwin swooped in after last year's sponsor BenQ of Taiwan, suffered almost the same demise as Mourinho's success rate, the company went bankrupt.



http://the-football-shirt.com/images/ac-milan-10-11-home-kit-b.jpg

AC Milan - The embattled and viagra ladened Berlusconi owns this club. Emirates Airlines will pay $20.5m for this, but Emirates Airlines is also sponsoring France's Paris Saint Germain, Germany's Hamburger and England's Arsenal. How many people you have to fly to pay for all this???

http://www.football-marketing.com/wp-content/uploads/2010/08/tottenham-hotspur-Investec-shirt-sponsor.jpg

http://buyjerseysonline.com/images/uploads/tottenham_hotspur_home_soccer_jersey_10_11.jpg

Tottenham Hotspurs - When one is not enough, get two sponsors, Investec is an asset manager, while Autonomy is a software company. The former will be for cup matches and the latter for league matches. Total $20.4m a year. If Spurs exit early from cup matches, Investec will be making a sorry decision indeed.



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Chelsea - Roman does not need this type of money to help him. Roman has had a history of neglecting this type of indirect marketing deals till this deal, guess he may finally need some money to help him. Just $16.3m a year.

http://www.buyjerseysonline.com/images/uploads/manchester_city_home_soccer_jersey_10_11.jpg
Manchester City - Etihad got in cheap considering the amount of money spent by the new owner. Etihad Airways will only pay $12.3m a year.

Wednesday, June 22, 2011

For Those Who Do Not Trade

Blogger soonyeah said...

Dali, I know your investment horizon is short term. As some of your reader don't have a lot of team to monitor the market, can you help write write up a post on "What you like for long term" ? What stocks can we contribute as a fund to buy every months to fight inflation ? Kindly advise.


If you are not a trader, your view would be to hold stocks that will outperform amidst the volatility. Below are some stocks that I would like to hold (if I can) till year end or end March 2012 at least:

1) QL
2) Sunway Holdings-W (to convert)
3) Sunway City-W (to convert)
4) Press Metal (to go through the exercise)
5) Coastal
6) MRCB


For inflation hedge and long term equity performance:

1) UOA Development
2) IOI Corp
3) F&N
4) PPB
5) Cocoland



Please don't ask me to explain why, this is not an investment service. These are suggestions, you have to do your own research.

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.

Tuesday, June 21, 2011

Market Commentary On Selected Stocks

Its a tough market this month, many combustions, IPOs and then Muhibbah, followed by MAA and out of the blue TimedotCom. Sigh, if listen to the mantra to stay away from May onwards, many of us would have lost a lot less if we went to play golf everyday.



TimedotCom
Shares slumped after its major shareholder fixed the offer for sale of the shares at a sharp discount. Time fixed the renounceable offer for sale of up 626.18 million shares of Time dotCom at 53 sen. The offer price of 53 sen was 33.75% below the five-day volume weighted average market price up to June 17. The offer for sale is on the basis of eight offer shares for every 10 shares held in Time Engineering held as at 5pm on July 5. Time dotCom’s net asset per share was 55 sen as at March 31, 2011. It reported net profit of RM22.88 million on the back of RM70.60 million in revenue in the first quarter ended March 31, 2011.

This one was overdone a bit, yes the price was a lot lower, and certainly shouldn't it be 10% discount to the 5 day weighted average and not 33.75%? Big picture, its a good company now with its new assets. Expect a ginger climb back to sanity.



MAA
Read my posting yesterday.

Muhibbah
Muhibbah made an announcement:

With reference to the articles in the Singapore Business Times on 15 June 2011 regarding the appointment by CIMB (the financier of APH project) of receivers and managers for APH, the Company wishes to inform that according to APH, they have identified an investor, and are in negotiations with the investor to fully finance the completion of the APH Project, including making due payments to contractors.

As this is a oil and gas project with a secured business and the said investor due to finalise its financing transaction with APH, there are reasonable grounds to hold that the receivables are recoverable in due course.
Selling is overdone. For such a big project with decent prospects, it should not be difficult to offload to another investor. Will be volatile though. Won't climb back to RM1.80 anytime soon, may find fair value around RM1.55. But do you want to hold onto a stock with so much uncertainty, what if the new investor does not eventuate. Should exit when gets closer to fair value.



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.

The Perils Of Trading MAA

Sigh ... you can be wrong or wronger. No, there was no assumption of the liabilities which might have added RM200m to the deal.

MAA Holdings will sell its entire stake in Malaysian Assurance Alliance Bhd (MAAB), Multioto Services Sdn Bhd for RM344m cash, valuing its assets at 1.36x book value, considerably lower than the recent transactions in the industry.

The bomb exploded when you read how the funds will be used, don't even think of getting a RM1.00 dividend:

The Company intends to utilise the cash proceeds from the Proposed Disposal in the following manner:
Purpose Notes Estimated timeframe for utilisation
- Repayment of medium term notes programme (“MTNs”). Immediately upon the date of
receipt of the proceeds from the Proposed Disposal (RM144m)
- Repayment of borrowings and payment of restructuring fees. Immediately upon the date of receipt of the proceeds from the Proposed Disposal (RM40m)
- General working capital requirements . Within 24 months from the date of receipt of the proceeds from the Proposed Disposal (RM164m)

TOTAL RM 344,000,000

So, to even get a 50 sen special dividend would be tough. Considering the company would technically be in PN17, any buyers or holders will have to wait and see what business will be injected to maintain its listing status.

When the cards are dealt this way, in poker, its best to fold and cry.

Monday, June 20, 2011

There Is (Really) Wind And Water In My Stocks

I decided to feature this again, because obviously fundamentals analysis and/or technicals charting do not always bring the desired results. Every year we look forward to the CLSA fengshui chart prediction just for a chuckle. But seriously, the masters they employ seem to be getting better and better. I suspect in the early days they hired a few masters to help them come up with the report. Over the years they probably got a better idea of who among those masters were better than the rest.




Seriously, ask any market expert, analyst or strategist in January what their market prediction would be for 2011, I think 99.9999% will never draw the chart as shown above for February and March 2011. I think fengshui is basically 10% OK and 90% crap. I mean seriously, it was meant for divining burial sites ... somehow people get carried away using it to divine for everything else.

However, when it presents tangible results, you could show me a kid throwing dice but has an 80% accuracy using the dice to predict stock market movements, hey, I will listen. Just look at the chart above, they got February and March spot on, these are usually very bullish months.

The KLCI chart starts from January, the CLSA fungshui chart starts from February, look at February, spot on. March was flat just like the wind-water chart. There was supposed to some improvement in April according to the wind-water chart, and wallah, so it came to be. May was flat, correct again. June was supposed to dip down again, well, the reality was more flattish trading but I wouldn't say they were wrong cause the conditions weren't good for the markets in June. June and feb are supposed to see the year lows, hence we all should be buying NOW!!!




But were they just lucky? OK, let's look at the prediction in the Water Pig year of 2010 above, the blue line representing the Hang Seng index. Any economic statistician will be able to conclude that there is a at least an 80%-90% correlation between the two lines. Save for the last 2 months of 2010 - must be the Justin Beiber effect throwing the wind and water factors into chaos.

Let's throw out our thinking caps, CFAs and degrees for the moment and assume the 2011 prediction is probably correct. Here are the pointers:

a) March 2011 and June 2011 will be the LOWEST point for the markets for the whole of 2011, yea ... although there will be a dip in second half of June back to the same level but everything else is roses.

b) Stay fully invested and trade from now till early June. The first couple of weeks of June, try and sell everything. Hmmm ... could that have something to do with our Malaysian elections???

c) Buy like nobody's business in the last week of June, sell everything in the week leading up to Merdeka Day, go for a 4 week round the world holiday in September. Buy like nobody's business in the last few days of September.

d) Trade like crazy till November, sell everything in the last week of November. Use part of gains to buy lots of Christmas presents and prepare for a festive CNY. Buy like crazy after Christmas.

If only .... but still I will be watching the chart and markets closely. Damn if I am going to be beaten by wind and water in my stocks again.

Sunday, June 19, 2011

Aces & Kings

Starbiz had a detailed coverage of ACE/Mesdaq companies on Saturday. Here are my thoughts:

a) We need the ACE market. We need it to be vibrant, with their share of heroes and villians. Do not over react when investors throw brickbats, or just bricks and bats - just part of the process.




b) ACE is important as it allows for exciting companies seeking capital for further expansion. They may or may not have a profitable track record but herein lies the attraction and risk.

c) The most important factor for having a vibrant ACE market is in the recycling of capital. If invested capital gets "realised" or have more avenues for risks to be shared and enjoyed, then you will more velocity in "invested capital" willing to fund entrepreneurial activities.



d) ACE market is not mean to give excellent IPOs every single time. In hindsight, after mulling over the last 2 weeks, I think the regulatory bodies such as SC and Bursa, may have their hands tied when it comes to companies coming on board, they just work with the parameters. The guys mostly responsible for bringing the good and bad hats onto the ACE market has to be the investment bankers.

e) I have arrived at the conclusion that its the investment bankers that bring the really bad apples to ACE. I mean, ACE market companies need not be making profits but their business models must be sound and the industry or business must be "ladened with prospects". Without naming the companies, we can already see for ourselves that some of the dismal companies coming on board have less than attractive platform for anything.

f) I do agree that sentiment may be against new listings as the chart shows for other alternative exchanges, that aside, we should be more vigilant in the kind of companies we are bringing on board. We have to to strealine a "penalty system" for investment bankers that bring shoddy IPOs to the market place. I mean, just look at the performers and non-performers ... and the put them side by side with the investment bankers. You know which houses can be relied on and which are crap.

g) In the same vein, SC and Bursa should "reprimand" or penalise the investment banks that continues to fail to meet the acceptable mark. There has to be some sort of reassessment of the process of approval to ensure "decent/quality companies get through". I do not think regulations should be more stringent, its stringent enough for an alternative exchange.

h) One of the main sore points is the way some IPO companies announce the quarterly losses just days after being listed. There was no warning, nothing to indicate that in the prospectus something untoward was happening. Maybe the authorities can make it a requirement for the sponsoring investment bank and company management to alert potential investors prior to subscription period IF there were any significant deviations in the current quarter's results compared to last quarter's results (significant deviations could be in the 25% range). At least, that way no one will be surprised just a couple of weeks after successfully balloting the thing.

i) Why I say investment banks must shoulder the bulk of the blame, look at the fees they get. They are the ones who decide whether to bring certain companies through the process. They know all the parameters for qualifications - they also know how to "get the companies to meet those requirements" to get through the process. To qualify is the easy part, what an exchange cannot legislate is the "management's mindset, quality, ability to deliver". That assessment is critical in deciding whether to bring a decent company on board or reject a wishy-washy one.

Friday, June 17, 2011

Eversendai, Good Or Bad IPO

If you were in a coffee shop and you mention IPO, you'd be safe and sound if you just start swearing. One of the bigger ones to come onboard is Eversendai. Well its not as safe and secure as MSM, and looking at how UOA got hammered, good fundamentals may not be exciting enough in this market sentiment.



I liked this comment in one of the forums, "only pondans buy IPOs"... lol.

Institutions indicative price range of between RM1.66 and RM1.80. Individual investors RM1.70 per share or 95 per cent of the institutional price.

Opening of application: 15/06/2011

Closing of application: 21/06/2011

Balloting of applications: 23/06/2011

Allotment of IPO shares to successful applicants: 29/06/2011

Tentative listing date: 01/07/2011

Its a big issue with 774m shares and IPO priced at 11x. Public issue is decent at 160.7m to institutions and 71.5m to the public.

Book order stands at RM1.5bn. Its a fabricator, and one of the better ones in the business. FY 2009 RM94m pretax profit, FY2010 RM126m pretax profit. For FY2011, it is forecasted to make RM145m.



Its a master in the Middle East, esp Qatar and UAE. Not many realised that Eversendai did important work for the Twin Towers, KL Tower and KLIA. The fact that Qatar will be hosting World Cup in 2022 bodes rather well for the company.

I think its a safe bet as RM2.00-RM2.10 should be a nice level for trading. But would need better flow of updated research as bulk of earnings are from overseas, till then it would be hard to hold for the long term.


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.

Thursday, June 16, 2011

EAH Finalises Terms For Purchase Of DDSB

Since I have been highlighting EAH, its only appropriate to follow up on the developments. Latest announcement showed that they have finalised the proposed terms:



EA HOLDINGS BERHAD ("EAH" OR THE "COMPANY")
I. PROPOSED ACQUISITION OF 1,275,000 ORDINARY SHARES OF RM1.00 EACH IN DDSB (M) SDN BHD ("DDSB"), REPRESENTING 51% EQUITY INTEREST IN DDSB FOR A TOTAL PURCHASE CONSIDERATION OF RM19,380,000 TO BE SATISFIED BY THE ISSUANCE OF 48,450,000 NEW ORDINARY SHARES OF RM0.10 EACH IN EAH ("EAH SHARES") AT AN ISSUE PRICE OF RM0.40 PER EAH SHARE ("PROPOSED ACQUISITION");
II. PROPOSED INCREASE IN THE AUTHORISED SHARE CAPITAL OF EAH FROM RM25,000,000 COMPRISING 250,000,000 EAH SHARES TO RM50,000,000 COMPRISING 500,000,000 EAH SHARES ("PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL");

On behalf of the Board, OSK wishes to announce that the Company had, on 16 June 2011 entered into a conditional Share Sale and Purchase Agreement ("SSA") with Farisah binti Mohd Farid, Peter Ambrose Sequerah, Tan Soon Moi and Syed Shah Redza bin Syed Mohamed Redza (collectively referred to as "Vendors") for the proposed acquisition 1,275,000 ordinary shares of RM1.00 each in DDSB ("Sale Shares") representing 51% equity interest in DDSB. The total purchase consideration for the Proposed Acquisition is RM19,380,000 ("Purchase Consideration"), which will be fully satisfied by the issuance of 48,450,000 new ordinary shares of RM0.10 each in EAH ("EAH Shares" or the "Share") at an issue price of RM0.40 per Share ("Consideration Shares").

.... the Vendors' guarantee of the profit after tax before minority interest ("PAT") of DDSB that it shall be at least RM13,500,000 in aggregate for the two (2) financial years ending ("FYE") 31 December 2011 and 31 December 2012. Based on the following, this translates into an average PAT of RM6,750,000 per annum;

........ The value accorded to DDSB based on 100% equity interest is RM38,000,000. Accordingly, based on the average PAT per year of RM6,750,000, the purchase consideration represents a price-to-earnings multiple of 5.63 times.

...... The Vendors further jointly and severally agree, covenant and undertake to inter alia, as shareholders and/or directors of DDSB after the completion date of the SSA, to approve declaration(s) of dividends and endeavour to procure DDSB to declare dividends of not less than 50% of the profits of DDSB for each of DDSB’s FYE 31 December 2011 and 31 December 2012.



INFORMATION ON DDSB
DDSB was incorporated in Malaysia on 8 July 1999 under the Companies Act, 1965 as a private limited company under the name of Distinct Diversified Sdn Bhd. It was subsequently changed to DDSB (M) Sdn Bhd on 25 September 2001 and assumed its present name. DDSB is a Multimedia Super Corridor ("MSC")-Status company registered under the Ministry of Finance of Malaysia. It is principally involved in the provision of enterprise software services and solutions, which consist of enterprise resource planning solutions, mobile enterprise solutions and geographical information system ("GIS") solutions.

DDSB offers a range of products and services catering to both private and government linked companies. DDSB’s enterprise resource planning and human capital management solutions leverage technology to provide the platform for aligning and bridging the gap between organisation, business targets, people, process and technology. In addition, its mobile enterprise solutions allow businesses to manage its business relationships through a wireless technology platform and to improve efficiencies of its field crews. Lastly, its GIS solution business is a monitoring and management solution for large enterprises that have assets distributed over wide geographical areas.

DDSB has also developed its own niche solutions for managing remote assets based on the GIS mobile field force automation system ("MoFFAS") platforms. These solutions are capable of consolidating information and data of assets from all locations into a single database for easy retrieval, referencing and decision making.

Barring any unforeseen circumstances, the Board after having considered all the relevant aspects, including the aforementioned prospects of DDSB as well as the industry overview and outlook as set out in Section 8 of this announcement, is of the opinion that the Proposals are expected to contribute positively to the future earnings of the Group and to enhance EAH's shareholders' value in the long run.
(Source: Management of DDSB)



My take:

- Pure share issue purchase. Allows EA to conserve its cash reserves for other uses;

- The acq price is pegged at approximately 5.63 times the Profit Guarantee provided by vendors of DDSB of RM13.5 mil (portion attributable to EA RM6.8 mil). Shareholders of EA are guaranteed of PAT of RM6.8 from the DDSB acquisition;

- The Profit Guarantee is secured against the vendors shares;

- The issue price is at set at RM0.40 which represents a PE of 11.9 times vs the acq PE of 5.63 time. EA shareholders should be pleased that EA is buying a co for PE of 5.63 time vs issuing EA shares which is trading at 11.9 times. Earnings accretive as they say.

- The acquisition comes with a guarantee of min 50% dividend payment for 2 years (2011 and 2012).

- If one is to analyze this deal deeper, the company is buying something for RM19.38 mil, however with the aforesaid dividend of approximately RM3.4 mil, the net purchase price works out to only approximately RM16 mil. At RM16 mil the acq PE is only at 4.64 times which is savvy.

- The purchase is deemed earnings accretive. The current EPS based on the annualized earnings of EA is at RM0.043 , with the acq coupled with the additional shares issued to finance the acq, the EPS of EA is at 5.07 sens. With the similar current PE trading of EA of 11 times, the share price of EA should be fairly valued at 55 cents.

- There is no need to take into dilution of the warrants as the conversion price is close to 60 sen per share. Any conversion will boost cash per share and NTA of EAH anyway. Dilution effect almost immaterial.


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.

Market Readings

Had written tons and was about to post something on the video clips by NasiLemak2020 group, but after thinking about it, decided not to, even though I find their videos exceptionally funny, cutting, politically enchanting and fun. So, just go to YouTube and search for them.

The market seems to be trying to dig itself out of a hole. Even the blue chips are trying to get some attention, but no visible market leader as yet. For a market to have a sustained run, there must be a market leader. No, penny stocks cannot be market leaders.

Sunway merger plans now look like a grand champion for those who held through for the exercise. The likely leader will be UEM Land, Tebrau from the Iskandar story. If they make it to the top, then we are in for a upswing. Seeing Axiata and Tenaga up there is not the same.

E&O has been trying for something now for the past few months. There better be some thing or else this overbought stock will have a lot of sellers. Even Muhibbah and MRCB are making moves. Bodes well if the property plays or ETP plays come roaring back.

For those with a trading bent, Kurnia Asia looks to be starting their engines, you can also put Timedotcom into that mould also.

Let's see if this is the start of a rally or just a false start.

Sunday, June 12, 2011

World's Strongest Banks by Bloomberg (Or Are They)

Picked up my favourite magazine, Bloomberg Markets, and splashed as one of the top articles was The World's Strongest Banks. The list is all too predictable but this is where STATISTICS LIE. I am not saying the banks weren't great, but they are not as great as the article made them out to be.



I have no questions about the methodology as they looked at the usual Tier 1 capital to risk weighted assets, NPL to total assets, loan loss reserves to non performing assets, deposits to funding and efficiency (costs to revenue).

Singapore banks came in numbers 1, 5 and 6. Canadian banks came in 3, 4, 12, 17 and 19. What's the common denominator - strong property markets. If the Singapore and Canadian property markets were to fall 20%, I can assure you the whole lot would be out of top 20.

The article seems to be pushing for banks to remain traditionally old school banks. Nothing wrong with that. But how can a bank be strong just because other property markets have fallen substantially but their local turfs have not - I would take that with a grain of salt.

The second argument is that banks that do little or none of the exotics, derivatives, tend to do a lot better. Again, don't blame the weapons, blame the person operating the weapons. The risk is not in derivatives or exotics but risk management, or in the banks' case, the number of times capital was leveraged.

Yes, plenty of major banks over geared their balance sheet, but they were paid to be aggressive. The true mettle of a strong bank is to provide as many services as possible, pushing the envelope, and yet managing their risks well. Those banks that just do the humdrum may be solid but they will eventually be eclipsed, or be masters of their small pond only.

To that end, I would not be moved by an article about World's Strongest Banks but rather the World's Great Banks (which would not just measure provisions and deposits but how they continued to be in the forefront of expansion and global conquerors). Yes, many of those global conquerors have been decimated, but herein lies the next wave of kings. The real kings will never come from the DBS or OCBC or Toronto Dominion.



What's more relevant is to look further down the list and to see some of these battered down conquerors still making the list after plentiful of writedowns, smacks on their bottoms for misusing their balance sheet, taken govenment aid and repaying back. To me, these are the Great Banks, if you do not push the envelope, you would never be kings, just a kampung player.

To follow on, I would note these following banks with greater respect: #9 UBS, #13 Credit Suisse, #14 JP Morgan, #16 Citigroup.

----------------------------------------
The Bloomberg piece:

Ask David Conner, chief executive officer of Oversea-Chinese Banking Corp., what makes a world-class bank and he smiles and tells the story of how he was hired. It was April 2002, and Singapore’s banks faced a struggling economy, poor demand for credit and rising competition from foreign lenders that had just won greater access to the Singaporean market.

Conner, then 53, had taken charge of OCBC after 25 years as an executive at Citigroup Inc divisions in Singapore, India and Japan. When Conner -- who grew up in St. Louis -- sat down with OCBC’s top directors, they told him they wanted him to make the lender a world-class bank, Bloomberg Markets magazine reports in its June issue.

“What is a world-class bank to you?” Conner asked.

One board member responded, “You tell us.”

Conner worked up a presentation outlining his goals. Among the high points: focus on the customer, establish a strong capital base and minimize risks. He appears to have achieved those goals. Based on its performance for the 2010 fiscal year, OCBC, founded in 1932, ranks as the world’s strongest bank, according to data compiled by Bloomberg.

OCBC is one of three Singaporean banks that make the top six in the Bloomberg Markets ranking. The other country that’s prominent on the list is Canada. National Bank of Canada is No. 3, and the country has five banks in the top 20.

No. 2 is Svenska Handelsbanken of Sweden.

Size Overrated

Canada’s performance in the ranking “shows that size is not everything in financial services,” says Louis Vachon, CEO of National Bank.

Just three U.S. banks - Fifth Bancorp (No. 7), JP Morgan (No. 14) and Citigroup (No. 16) -- make the top 20.

The ranking includes banks with at least $100 billion in assets. It weighs and combines five criteria, including Tier 1 capital compared with risk-weighted assets; nonperforming assets compared with total assets; and efficiency, a comparison of costs against revenues.

Tier 1 capital includes a bank’s cash reserves, outstanding common stock and some classes of preferred stock, all of which combine to act as a shock absorber against losses when the economy hits a rough patch.

“Singapore banks would score very high here largely because, historically, the Monetary Authority of Singapore has always required Singapore banks to keep more Tier 1 capital than other banks,” Conner says.

DBS, UOB Also on List

The MAS is both the central bank and chief regulator of Singapore’s financial system.

Singapore’s DBS Group ranks No. 5, while UOB is No. 6. OCBC has operations in 15 countries, including a strong presence in China, HK, Indonesia, Malaysia and Taiwan. It was founded by the Lee family, and their descendants are still the biggest shareholders.

Billionaire Lee Seng Wee, 80, is a former chairman of the bank and still sits on its board. His son, Lee Tih Shih, 47, is also a board member.

Hugh Young is a Singapore-based managing director of Aberdeen Asset Management. Aberdeen owns about 6 percent of OCBC and more than 4 percent of UOB. Young says he’s not surprised that Singaporean banks score so highly on a global ranking.

‘Stupid Things’

“We are big holders of OCBC and UOB and have been for a long time simply because they don’t do the stupid things Western banks do,” says Young, who helps manage $70 billion in Asian equities. “They don’t do things like lending 120 percent of the value of a property to people without a job, and they don’t do stupid things in the derivatives markets and proprietary trading.”

Not all of the strongest banks are exemplars of smart banking practices. No. 16 Citigroup was rescued by $45 billion in U.S. Treasury loans and investments in 2008 after it was deemed by the Federal Reserve, the Federal Deposit Insurance Corp. and the Treasury to be “systemically important.” Its stock has quadrupled since it hit its all-time low on March 5, 2009. At the end of last week Citi did a reverse split of its shares, which raised the price ten-fold, to $44.16 at the close of trading May 9.

Citi Recovery

“Citi is a much underappreciated recovery story,” says Kevin Conn, an equities analyst and co-head of the financial services research team at Boston-based MFS Investment Management. “They overmedicated the balance sheet, raising too much equity and setting up massive reserves. It’s a very strong balance sheet at this point.”

All major banks march to the tune of the Basel Committee on Banking Supervision, an arm of the Bank for International Settlements, based in Basel, Switzerland. The committee issued its first internationally agreed upon capital guidelines, known as Basel I, in 1988. The early rules focused narrowly on banks’ credit risk: the possibility that borrowers might not pay back their bank loans. The committee recommended that banks’ cash reserves, common and preferred stock total at least 4 percent of assets.

The rules changed in 2004 with the adoption by regulators of Basel II, which set more-sophisticated guidelines for how to assess and quantify the risk of a bank’s assets, much as a modern blood test breaks down cholesterol into good HDL and worrisome LDL.

Risk-Weighted Assets

Under the standard Basel II guidelines, just 35 percent of a mortgage issued to a family with an excellent credit history would be counted as a risk-weighted asset, while an investment in a hedge fund would get counted for risk purposes at 400 percent of the amount invested.

Bank managements aim to keep their risk-weighted assets -- the bad cholesterol -- low because regulators insist that banks hold precious capital, such as retained earnings, against it.

The 2008 to 2009 financial breakdown sent regulators hurrying back to Basel to rewrite the rules one more time. Basel III, whose basic outlines were approved in November, raises requirements for Tier 1 capital to 6 percent starting in 2015. Basel III also phases in extra capital cushions for very large banks, which could take the total capital requirement north of 10 percent.

Full implementation of Basel III will be phased in over six years to assuage fears by both bankers and regulators that the new capital rules would suppress lending if implemented too quickly.

Warning Labels

“Broad-brush-stroke regulatory changes should come with a warning label and with sufficient time for informative exchanges between affected parties,” wrote Donna Alexander, CEO of BAFT- IFSA, a banking-industry trade group, in a September note to members.

Although Asian banks have fared better than their Western counterparts in the downturn, Conner also worries about the impact of Basel III’s capital requirements.

“Keeping the capital ratio high all the time makes it potentially difficult to expand,” he says. “We are operating under considerable uncertainty, and as a result, we’ve added significant amounts of capital.”

Some banks cruise far ahead of regulators.

“For Canadian banks, having higher capital ratios than anyone else in the world is a source of pride,” says Mario Mendonca, a financial services analyst at investment firm Canaccord Genuity in Toronto. Canada’s banks held average Tier 1 capital of 9.8 percent in 2008, as the financial crisis set in.

No Crisis at Canada Banks

The extra cushion paid off when U.S. banks teetered on the edge of failure in the fall of 2008 and had to be bailed out with $700 billion from the Treasury.

“We all went into the downturn with very strong quality of capital,” says Edmund Clark, CEO of Canada’s Toronto Dominion Bank, No. 12 on the strongest-bank list. Canada also suffered a much milder housing downturn than the U.S.

U.S. banks, meanwhile, are still working to implement the 2004 Basel II accords.

“Currently, in the U.S., none of the banks are calculating their capital requirements based on the Basel II numbers,” says Hugh Carney, senior counsel at the American Bankers Association.

The banks, Carney says, are in a transitional phase called a parallel run, which means they are still operating under Basel I and are testing and calibrating the risk sensitivity of their loans and investments under Basel II. U.S. banks will only shift to Basel II risk assessments once the Fed approves their risk- weighting methodology, Carney says.

Saturday, June 11, 2011

More Queries On Actual MAA Deal

It may seems like the details are not all out. The whispers have it that Zurich will also assume RM200m of loans, which will actually add another 65 sen to the 1.13 cash deal. Maybe that explains the funny support at RM1.10? This may make more sense because the RM344m was on the low side based on recent similar transactions. Still, its unconfirmed views.

Dali,

How do u derive the rm1.50-1.60 figure?

Pls do a detail valuations of the cash & takaful assets.

Thx.

8:55 AM

Delete
Blogger Jeff said...

Dali,
TY deserves an oscar. Selling MAAB cheap & failure to disclose the details of the pricing.

Sales proceeds plus NTA works out to be approx. RM2.20
Applying a discount factor of 30% fair value should be RM 1.54 in line with your valuation.

Mkt unhappy with cheap sale hence the sell down. Buyer retailer nah. The wolf & gang laughing at us all. Why??? cos the omission of material fact..... Zurich assumes the liability of RM200m syndicated loan.

TY will is not telling lies as MAAH will get RM344m as Zurich will pay the RM200m loan directly to the bankers.

Hence the NTA ramps up to RM 2.80 as actual sale proceeds will be RM544m.........smart wool eh.

Watch the unfolding of the drama.

10:18 PM

Thursday, June 09, 2011

Warren Buffett Is Not Infallible

Why bother writing this? I am a fan of Buffett's investing philosophy and long term returns. However, before anyone starts to deify him, its worth noting that Buffett is very human, fallible like the rest of us. To identify the "oops" by Buffett is not to shame him but to give clarity to him as a person. He is very normal and is open to make mistakes. Not a saintly investor as some might try to opine but a flawed one who is possibly the best investor for the past 50 years.

[buffett+(TNR,+June+3+09+article).jpg]

The Sokol Incident: Sokol basically bought a few million shares of Lubrizol Corp for himself, and shortly after recommended Buffett and Berkshire to buy the company. Berkshire did buy in the end. Initially Buffett insisted that Sokol did nothing wrong, although later a Berkshire committee said the opposite in "a scathing report". Now Buffet is done defending Sokol. During the meeting, he said he should have probed more deeply when Sokol first revealed in January that he owned Lubrizol stock. "I obviously made a big mistake by not saying, 'Well when did you buy it,'" said Buffett. He called the Sokol situation "inexplicable and inexcusable." Apart from openly stating that Sokol violated the rules, Buffet also said he regretted the lack of initial outrage over the matter.

Coca-Cola: Buffett was on the audit committee for Coca-Cola, and an investor, when the SEC found that the company had misled investors about its earnings through the 1990s. The buck stops with the audit committee.

Moody's Corp: This one really irked me no end. Buffett has plenty to say about the market's exuberence and ponied up many reasons for the global subprime crisis. But never did he admit anything wrong about the ratings agencies in general. Why? Because Buffett is a substantial shareholder of Moody's. We are not talking of hundreds of ratings companies here, the top 3, namely Moody's, S&P and Fitch are responsible for giving AAA to so many CDOs, which led many investors to blindly rely on the strength and integrity of those papers. The silence by Buffett on this was deafening. The CEO of Berkshire Hathaway has said very little about his 13% stake in the rating firm, which has come under heavy fire for its role in the financial crisis. You know the complaints by now: That Moody’s and rivals S&P and Fitch negligently inflated ratings on mortgage securities, as they grew ever keener to win business from Wall Street banks and other underwriters.

Deloitte & Touche Incident: Berkshire kept D&T as its outside auditors AFTER learning that Deloitte's vice chairman had been trading in and out of Berkshire shares while he was on Berkshire's audit committee. That caused D&T and Berkshire to violate SEC's auditor-independence rules.

Munger, Family & Sons: If we can criticise Singapore Inc for this kind of transgressions, Buffett and Berkshire committed the same mistakes. Berkshire's VIP investing partner and vice chairman is Charlie Munger. How the hell can Berkshire still send so much legal fees to Munger's old law firm of Munger, Tolles & Olson. Very weak transparency and corporate governance here.

Buffett's Mclean Incident: If you happen to lost bucket loads of money buying and selling Mclean or any of the Chinese footwear companies, don't worry, you are in good company. Buffett also reveals that he spent $244 million for shares of two Irish banks that "appeared cheap" to him. At the end of the year, they were written down to their market price of $27 million, for a loss of 89 percent, and they've continued to drop.

Do What I Say, Not Do What I Did: He railed against derivatives as weapons of mass destruction, and now turns out to have been sitting on a $68 billion pile of credit default swaps and exotic put options on various stock market indexes. And having vowed never again to become entangled in a big Wall Street investment bank, he has gone and sunk $10 billion into Goldman Sachs, a virtual re-enactment of his investment in Salomon Brothers--cash for reputation.

Tax Them, Don't Tax Me: Buffett's views on taxation, especially those on estate taxes, have been pathetic. There is a sordid irony if not an artificiality or phoniness about urging the continuity of high estate taxes and concomitantly avoiding the situation through setting up trusts and foundations. Evidence of avoiding income taxes is evident throughout Berkshire's life, as the company and Buffett have always used the IRS Tax Code to their advantage. There is clearly nothing wrong with that but similarly, it is somewhat disingenuous to urge higher taxes after a career of avoiding them.

MAA Clarified

I was going through some comments in some forums, most were negative on the news of selling 100% of MAAB for RM344m. Do not mistake MAAB for MAAH, the listed vehicle. The listed vehicle is MAAH.

MAA Holdings Bhd owns:

100% MAA Berhad
75% MAA Takaful
100% MAA Corp Sdn Bhd
49% MAA Bancwell Trustee

http://img42.imageshack.us/img42/7077/img2744sm.jpg

The deal does not include MAAH's Islamic insurance unit, MAA Takaful Bhd and the rest, which are quite attractive on its own. However, it is learnt that both parties may talk about the takaful business once the latest deal is concluded.

Zurich FS' acquisition of MAAB may spell the end of its alliance with Koperasi MCIS Bhd through their joint venture, MCIS Zurich Insurance Bhd. Koperasi MCIS holds a 43.69 per cent stake in the joint venture, while Zurich FS owns 40 per cent. In 2009, Business Times reported that Zurich FS, Switzerland's biggest insurer, may sell its shares in MCIS Zurich after a failed plan to expand the business had strained relationship between the major shareholders.

http://www.jpopasia.com/img/album-covers/1/7440-oliviaong-ysf8.jpg

"It is well known that Zurich FS has been planning to reposition its operation here since early 2009. It has considered several options, including acquiring an alternative licence and gaining control of another insurer such as MAA," said the source.

Nevertheless, Zurich FS could also merge MAAB with MCIS Zurich and retain management control of the enlarged entity, or sell MCIS Zurich and transfer its business and expertise to MAAB.

Zurich Insurance's 70 per cent stake in MAAB is the maximum allowed under Bank Negara Malaysia's (BNM) relaxed foreign ownership rules. BNM does not allow insurers to own two insurance companies in Malaysia. This means that Zurich FS must sell its MCIS Zurich's insurance business or merge the insurers.

Though MAA Holdings got the approval to sell 100% of MAAB to Zurich, that would contravene the 70% rule, unless Zurich gets an exemption, or a time frame to sell down the 30%.

It is also understood that Zurich FS may have had prior engagement with BNM to explain its intention and address its concerns.

As at end of 2010, MAA Holdings has a net asset per share of RM0.94. Its paid up is 304.3m shares. There are no major liabilities that is not covered by its net assets.

http://pic.pimg.tw/hada/4bcf044f17486.jpg

Verdict: The deal is very good for MAA Holdings, with their remaining Takaful business and cash, they could go into takaful in a big way, possible merging or buying a listed/unlisted takaful business ... I would think RM1.50-1.60 is the fair value as the game plan unfolds.