Wednesday, November 28, 2018

Low PER & Low P/B Ratio - Privatisation/Investing Candidates

The Edge did a marvellous compilation on stocks with low PER and low P/B, citing considerations that there may be plenty of opportunities for privatisation. Let's look at the low PER first.

Granted the equity markets have been in the doldrums for sometime now, hence as a collective group PER valuations would move down. It has to do with what we call "earnings visibility".

Privatisation is seemingly easy to suggests but the reality for most listed companies, even when their PER or PB are low, they needed the access to capital markets via their listing vehicle. Hence to take them private be it the owners themselves or PE funds, they probably have to tag another extra 30% as capital needs as each privatisation will need to wait it out maybe 3-5 years before relisting.


a) PER refers to the earnings ratio. Hence there are a few assumptions, PER is only a valid reading if its a "going concern". PER has to do with earnings predictability. How low is deemed as low? Well it varies according to the industry they are in.

Product life - Easy to explain if its steel products or oil palm earnings, the paradigm rarely shifts much. Even when its cyclical one can argue that it is predictable as the four seasons. However, some products, esp technology based, require reinvention and R&D spending cause products can be obsolete within a shorter cycle (3-5 years). Which is why every new I Phone will hit share price of Apple up or down every 2-4 years.

Predictable Margins - This should be the most important factor for high/low PER. If you are capital intensive (steel) your margins are going to be low, which partly explains a lower PER range. Same for tech companies which should command higher margins and as such higher range of PER.

Thus we cannot say just shoot for the 5 lowest PER stocks for investing purposes or prvatisation.

b) The Banks - The banks are quite attractively priced in terms of PER now compared to historical range. Earnings is clouded becaus enothing much is moving. Equity markets very slow, investment banking very slow, property loans even slower. But thats the present and the immediate future (1-2 years out). If you are considering as a long term investment, banks look good, if you want a proxy on a recovery in 2-3 years, banks would be excellent. Its not like any of the top few are losing money.

Should you privatise then? It takes a hefty sum to privatise plus tack in another 2% in fees. Then most probably you need to relist, which might take 3-4 years out in this scenario to get a better valuation. Plus the valuation then must be lucrative enough (e.g. maybe in the 30-40% range). Can we relist CIMB in 3 years at 15x, maybe.

But the biggest obstacle in the period when it is privatised, as banks are capital hungry vehicles. Can the funder also fund the capital requirements.  Which is why banks are usually out of the question when it comes to privatisation opportunities.

c) Genting Malaysia - Hit very hard by higher duties and taxes in the recent Budget, and got hit again by the Disney/Fox legal issue. Investors must be very careful to use historical prices and PER for Genting Malaysia to base their investing decisions. The whole earnings structure, in particular margins, have shifted substantively. The previous high will be insurmountable in today's rules.

GM will earn a lot less for every ringgit. The upside is that now GM is highly uncompetitive in the region - in that the government would have very little room to further raise taxes and duties on GM in the future. Now that it second in the region in terms of duties and taxes.

So, another no-go candidate for privatisaton. Share price will have to hit RM2.50 before the Lim family should do any serious privatisation considerations.

The rest in the first table still have exceedingly high PER valuations, e.g. Maxis, Westport, DIGI.

d) Hengyuan Refinery - Two to three x PER, where to find??? When something is so cheap, there must be a catch. The catch would be that the previous earnings which the PER is based on is not sustainable, or in fact is likely to dip substantially in the future. You need to do a lot of research first for this stock, not as plain as it looks.

e) Air Asia Group - This 4x PER is pretty ridiculous. It is very much a going concern, and even if it stops operations, P/B is at 1.0x which means you should be able to sell most assets and get back your money. I give you RM5bn and you try and build another AirAsia. This could be a good stock to look at for short or long term.

The auto makers, brokers, insurance and property counters are about there, and nothing terribly exciting, no one will be thinking of privatisation.

f) Stocks like Mulpha or TA Global, nobody really knows what they want to do or are doing. They might not do much over the next 10 years. No point looking at them. You get charkuayteow at 20 sen a plate also no use as the horfun is made of plastic.

g) Politically Out Of Favour - Without needing to name names, they should be forgotten in the new era, earnings visibility ZERO.

h) Paramount Corp - At 10x, looking very interesting but I think it needs to get to 7x before they will act.


P/B is a low confort investment factor. P/B is only relevant IF the company is bundled up and sold in pieces or as a whole. Too many vehicles have too many local funds and government interest involved that they won't be sold even if Blackrock makes an attractive offer.

a) KLCCP Stapled - PB at 1.07x. This one is interesting because we are talking about the creme de la creme of property REIT. Highly desirable if it drop to 0.95x.

 b) Owner Driven - Many of these owner driven counters have shocking low PB. Well, if the owner also don't want to privatise at 0.3x, why would you want them? The exception maybe is Tropicana Corp, which has astutely offloaded a lot of Johor land last couple of years. Tropicana with a PB 0.37 has reached a level that makes it highly attractive to privatise.

Some of the property companies has a low Pb ratio too but you have to assess how "realisable the bulk of the assets (land bank) are".

Saturday, November 24, 2018

Khazanah's Portfolio Assessed

Khazanah's portfolio makes for a very interesting read, but probably not for the reasons you are thinking. Yes, the markets have been bad. It would have been a very cheap shot to snap a portfolio's performance at ONE specific date and try to "shame" the managers. That is not my intent and I don't think Star Biz wanted to do that at all.

a) Performance - It is in line with the rout in global equity markets, more so for emerging or developing markets. The trade war exacerbated the situation.

b) Key Holdings - Mind you, these are key holdings, or substantive holdings of the said company, hence it is not like you can trade in and out easily.

c) Blame - Well, even in a rout you have losers and real outsized losers. Could Khazanah have known or impacted on those companies. We are talking about Axiata, Telekom and Astro in particular? They could only make their input at board level. Failing which, they could have initiated a replacement of the CEO with someone with a better strategy and execution ability to navigate the changing landscape or difficulties within operations. On that level, yes, some blame could be attributed to Khazanah.

d) In Line - The rest, the losses were understandable and in line. Even UEM Sunrise would have a down trodden property market to help explain its performance.

e) Crowding Out Effect - Curiously, the best lesson to be learned from the table is the crowding out effect, or lack of rather. I used to hammer home the point that the big danger for Malaysian equity market is that local funds are getting much too much funds flow, and together they keep holding an increasingly larger and larger slice of the ownership of key index component stocks. 

The follow on thesis is that at a very substantive level, the local funds may be able to "control" prices of selected stocks which would then give an unfair picture of the true worth of their holdings. If retailers and foreigners keep selling, and local funds keep buying, technically prices wouldn't change. But the table above showed clearly that NONE of that is happening - which is a good thing.

Conclusions:  Khazanah, and other local funds which hold substantial stakes in listed firms, must be more proactive and vigilant in assessing the direction, strategy and operations of the said companies. Questions need to be asked more frequently whether they are aware and prepared for the forever changing competitive landscape and shifting economic paradigm they are operating in.

In my view, too often the CEOs of GLC linked firms are given too wide a berth to manage the companies. Are they mere messengers to comply or are they active agents for change and improvements? The hiring and firing must be swifter. You dilly-dally you get FGV.

On that note, EPF has a brewing problem at RHB Bank. The rapid departure of many key staff did not happen just the last few months. You can trace it back as far as two years but NOTHING changed. As a cursory member of the financial industry, one can see that there are huge problems at RHB. Anecdotal hearsay: too many decisions done by committees, HR is the most powerful department there (not in a good way), the old guard act like gatekeepers and not many are keen to stick their necks out for taking on more risks. Only now we are talking about changing CEO. In my view, not just the CEO but probably another 10 top people there needed to go as well.

China - That's Bullying

This happens about 2 to 3 times a year, in China. It is always either the Koreans or Japanese. Sometimes its the Americans, now its Dolce & Gabbana. Every time something is not right or not nice happens to China, usually corporate wise, the said country's products will be boycotted. Sometimes it can happen via tourism where they vote with their feet. You get angry at MAS, you will stop coming to Malaysia. You did not do rescue operations well in Thailand, I will not go there.

Its like a belligerent child getting his/her way with the parents' approval.

China needs to understand and its citizens need to understand - people make mistakes, companies make mistakes would you like it if a Chinese citizen in Hubei ranted off on FB racist comments about "pick any country". Does it make sense then to boycott all Chinese products? Come on, grow up.

Deal with each instance properly. Just because you are the world's biggest consumer group does not mean you use that as leverage every time you go crybaby. Be angry at the issue or the person, but not put the whole country's products at risk. One person's action is not representative of the whole company. One company's action is not representative of the entire country.

You behave as if China does NO WRONG. Just grow up if you want to be a citizen of the world. If you do not like the policies of ANOTHER COUNTRY, deal with it diplomatically. Not by asking your citizens to boycott that country. Just because you are the biggest kid in class does not give you the right to be a bully. Because you know very well the smaller countries cannot do likewise. If thats not bullying I don't know what is.

The thing is not all Chinese citizens feel the same way, some are more mature and may not feel the same way, but they will also feel the pressure to conform. Just ask the celebs who pulled out of the D&G contracts. Plus most foreign products in China are usually joint ventures and employ a lot of Chinese anyway, you end up hurting your own.

It is up to Beijing to to defuse and come up with a better plan to deal with such events and crises. Everyone looks to the parent. Teach them well to be better global citizens.

Ever wondered why there are so many untoward incidents by Chinese tourists overseas (refusing to leave plane; highly agitated protests by travel groups at airports; etc.).  Its the comfort that Beijing will look after them, its the Wolf Warrior 2 movies that preaches ultra patriotism and nationalism that the country will cover you in everything... and when the country practices "bullying" whenever things are not right or they feel slighted, everybody think its okay when they do it on their own accord.

The boycott policy can lead to a lot of negative behaviour. Everything need not end in a large scale protest. The age for China's wallet diplomacy is over, or rather should be over.


The founders of the Italian fashion label Dolce & Gabbana have issued an apology to the Chinese people after a growing backlash over Stefano Gabbana’s "racist outburst". The fashion house has faced intense anger after an Instagram conversation in which Gabbana described China as a “country of s***” was leaked.
The brand had already faced widespread criticism for an advertising campaign, which featured a Chinese model struggling to eat Italian dishes like pizza and cannoli with chopsticks and prompted accusations that it was stereotyping the Chinese.
The resulting backlash has forced the fashion chain to cancel a show in Shanghai and retailers in mainland China and Hong Kong have stopped selling its products.


Perhaps no other country felt the economic cost of China’s wrath as South Korea did in 2017.
By one estimate, China’s decision to boycott South Korea’s tourism industry over Seoul’s decision to install a US-made anti-missile system cost the economy some 7.5 trillion won ($6.8 billion), according to South Korea’s National Assembly’s Budget Office.
Since 2013, China has been the largest source of foreign tourists to South Korea, and made up around half of the 17 million people from overseas who visited the country in 2016. But since Seoul and Beijing’s falling out, the number of Chinese tourists visiting South Korea between March to October this year plunged more than 60%from the same period last year.

The pattern was similar for the 2012 boycott of Japanese products. Kilian Heilmann, a researcher at the University of California, San Diego, found that Japanese car exports to China tumbled 32 per cent, or $1.9bn, in the 12 months after the boycott launched in September 2012 in response to Tokyo’s purchase of disputed islands known as the Diaoyu in China and Senkaku in Japan. 

Thursday, November 22, 2018

RPGT Should Not Be Calculated From Year 2000 But 2013

Our Finance Minister clarified that RPGT would only be calculated from year 2000 onwards. We also have to remember that, in 2007-2009 the property market needed stabilisation and PM Badawi suspended RPGT from April 2007 till December 2009.

The move, was it to allow people to sell at a profit without RPGT??!! NO!!! It was to encourage people to buy then. Hence to say that all RPGT will be calculated from year 2000 is grossly unfair. 

Here we are only arguing over the just implemented 5% RPGT for properties held for more than 5 years. Hence the more than 5 years should be worked back from 2018, which is for properties bought on or after 2013.

KUALA LUMPUR: The Real Property Gains Tax (RPGT) valuation on property would only be calculated from the year 2000 onwards, says Finance Minister Lim Guan Eng.
He said that this is done to give clarity on the issue following feedback from concerned property owners who have bought and owned land extending decades before 2000.
“On RPGT, the government previously announced rise to five per cent, but (the ministry) had received feedback that the cut-off date of evaluation was not set.
“There were parties that raised concerns that if the property was bought since 1960 and later sold, how much is the tax that they need to pay.
“Therefore, the ministry had set the date of valuation to begin from the year 2000 despite the land being owned since 1960. It would only be valued from 2000,” he said at the Dewan Rakyat during his wrapping-up speech on 2019 Budget at the Dewan Rakyat today.
Previously when tabling 2019 Budget, Lim said the government raised the RPGT to five per cent.
However, this tax is exempted on low-cost houses and affordable housing priced below RM200,000, among others.

PETALING JAYA: Prime Minister Datuk Seri Abdullah Ahmad Badawi, who announced the scrapping of the real property gains tax (RPGT) from April 1, hopes the move would “inject more excitement and dynamism to both the property and financial sectors.” 
Speaking at Invest Malaysia 2007 yesterday, Abdullah said the abolishment of RPGT would improve the property sector.  
He said it was among the immediate measures intended to further increase and facilitate investments in the country. 
Property companies and analysts welcomed the news. They said it would benefit the sector, especially the high-end segment. 
OSK Securities analyst Mervin Chow told StarBiz: “We will definitely see an increase in the earnings prospects of property companies, either through an increase in demand or sales values. But it is very hard to quantify the extent at this juncture. 
“We will also see increased foreign buying interest in Malaysian properties.” 

 managing director Datuk Leong Hoy Kum said: “It is heartening that the Government has been so proactive in promoting an investment-friendly regime to enhance local investment, and draw foreign direct investment to Malaysia.”
He said Mah Sing would be a direct beneficiary of the RPGT abolishment, having established a premium branding for its lifestyle products in the Klang Valley and Johor Baru. 
“We are in the right segment and locations. The Government's announcement is timely and we anticipate this feel-good factor will be an additional crowd-puller for our preview of Hijauan Residence this weekend.” 
 property divisional director Jauhari Hamidi hailed the tax waiver as the “best news” for the property industry, homebuyers and investors, because it “will revive the market which has been soft in recent years.”
“The abolishment will help create more excitement in the property market.  
“As for our newly-launched Ara Hill project, the move will encourage earlier upgrades among the growing affluent,” he said. 
 chief executive Shah Hakim Zain said the move would further attract foreign investments, while former Road Builder (M) Holdings Bhd executive vice-chairman Tan Sri Chua Hock Chin said it would spark interest in the secondary property market.
Sunway Group founder and chairman Tan Sri Jeffery Cheah said the move would help attract more foreign buyers to the group's properties. 
 Bhd managing director Shahril Ridza Ridzuan told reporters that the scrapping of the property gains tax would encourage more secondary trading and liquidity in the secondary property market.
And IJM Corp chief executive Datuk Krishnan Tan said the lifting of the RPGT would benefit property investors and developers would see improved demand for property. 
Tan did not expect an immediate impact on companies' bottom line. 
Despite the mostly positive sentiment, some fund managers think the tax waiver could encourage speculation and increase property prices. 
They also said the lower income group could be hurt as it would be more difficult for them to own properties. 
A fund manager said: “Property prices could surge when speculative activities start. Lower income people could bear the brunt, especially if their salaries do not increase as quickly as property prices.”



Real Property Gains Tax (RPGT) is a form of Capital Gains Tax that is imposed on the disposal of property in Malaysia. It was suspended temporarily in April 2007 to December 2009, and reintroduced in 2010. In 2014, the RPGT was increased for the fifth straight year since 2009. Now, there's a revision to the RPGT for 2019 in the latest Budget.

There are some exemptions allowed for RPGT. Among the exemptions are:
  1. Exemption on gains from the disposal of one private residential property once-in-a-lifetime to individual (please utilise this once in lifetime opportunity wisely).
  2. Exemption on gains arising from the disposal of real property between family members (e.g. husband and wife; parents and children; grandparents and grandchildren).
  3. 10% of profits OR RM10,000 per transaction (whichever is higher) is not taxable.

Wednesday, November 21, 2018

Why The Accounting Firms Must Face The Music

All the accounting firms signing off on dubious financials MUST be fined heavily or even jailed. Accounting was not just my bachelor degree's major, I also did bloody Honours classes in them. Its boring like hell but important as well. It is a man made system of keeping track of data... seemingly simple but oh so important. In a capitalistic society where there are investors, owners, minority shareholders, regulators, ... so many facets of society who have to rely on the validity, integrity and authenticity of these numbers. 

Failing which, the entire economic ecosystem of trust, reliability and enforcement of rules and regulations (of those financials) breaks down. 

Just look at the pictorial below, all the asset movements, valuations, justifications, collaterals for loans, asset valuations, asset disposals, veracity of figures, actual audit trail of assets and cash flows, etc... ALL required the reliance on verified figures. If NO ONE CAN DEPEND on them, the whole thing breaks down!!!

a) You cannot charge hefty fees and then say "oh well, its just financials", ... because people relied on it, investors relied on it, ratings agencies relied on them, etc... 

b) If we just sign off on anything and everything WITH NO CONSEQUENCES, what kind of crap society we live in.

c) The accounting profession is a professional industry, which means, your opinion can be relied upon for making other important decisions. The hefty fees are not just to feed the bloody partners ok.

d) You cannot say "I am just an accountant".... NO, you are the very core of approval processes, gatekeeper, and policeman of financial assets/data/cash/liabilities & their VERACITY ... Decisions worth billions and billions are going to be made based on these figures (to lend, to buy, to collateralise, to sell, to invest, etc.).

e) If I know then what I know now - The defence that in light of the discovery "of new findings by DOJ etc..." now the older accounts can no longer be relied upon... does not hold up that well. DOJ was not the only one digging. Plenty of business journalists were doing the same at the time. Edge, WSJ, Sarawak Report... almost all of them were coming to the same conclusions that something is very wrong with the whole shebang then. Yes, even then.

KUALA LUMPUR, Nov 21 — Kepong MP Lim Lip Eng said action must be taken against Deloitte Malaysia for providing a falsified audit of 1Malaysia Development Berhad (1MDB) to the Public Accounts Committee (PAC).
Lim said Deloitte’s then-country managing partner Datuk Tan Theng Hooi must also be made to answer as he signed off the account on behalf of Deloitte Malaysia.
“He even came to Parliament to testify before the PAC in defence of the 1MDB account, which we now know to be untrue,” he said during a press conference at the Dewan Rakyat today.
Lim pressed the Malaysian Institute of Accountants (MIA) to finally take action against the firm over this.
The MIA previously it was investigating both Deloitte and KPMG, another former 1MDB auditor that disavowed its audit following later third-party disclosures.
“My colleague (Damansara MP) Tony Pua lodged an official complaint with the institute in 2015, but until now there has been no official reply.
“I want MIA to state clearly and immediately as to what their position is on the account audited by one of its members,” he said.
Kampar MP Thomas Su, who was also present, called Deloitte’s actions indefensible and said it was imperative that the MIA take action over the deception of Parliament and the PAC.
In 2016, Deloitte stated that its audit reports for 1MDB’s financial statement for 2013-2014 should no longer be relied upon due to new information revealed by the US Department of Justice when it filed complaints in seeking to recover over RM6.8 billion in 1MDB-linked assets.

Monday, November 19, 2018

Why Namewee Is A Humanitarian Genius

Many of my friends were surprised when I told them that I considered Namewee a really smart, musically gifted, funny and noble guy. If you do not share this opinion, well, read on and maybe you will change your mind.

Namewee may ruffle some feathers with his antics, protest songs or even profanity. To me, I am very much like him, except for the musically gifted part.

Namewee is a lot more popular elsewhere in particular, China, taiwan, HK and Singapore than Malaysia. Malaysians again are generally uncertain or take for granted the talents we have until we are told by others outside the country. we tend to under-rate ourselves a lot.

Why "humanitarian"... he fought for most things which resulted in us having a new government, he played his part long before it was safe to do so ...

His latest creation was brought on by his experience being locked up in a cell with loads of illegal Burmese migrants. The new government must find ways and implement effective rules to treat the migrants, legal or illegal, much better. 

Already I am so fed up with the ways some families treat their maids. Malaysians have a long way to go in terms of being empathetic and treating everyone as equal and with respect.

Hopefully Namewee's video will go some way to further highlight the plight of these migrants.

Many of us may not be aware of Namewee's achievements abroad. His biggest feather in his cap has to be the highly moving duet with Wang Lee Hom. Stranger In The North highlighted the desperate plight of the many rural folks who had to move to urban cities to eke out a better living for their families. The angry rant and rap resonated loudly with many in China.

A protest song for the present times. The disparity in incomes, the long time being separated from their loved ones, all for what...

Look at the hits, 140 million and counting ... splendid for a non-Gangnam style song. The song was and is still very popular throughout all Chinese speaking nations. 

and, when he wants to be funny, he can be damn funny... below was the catchy, pun ladened Thai Love song, made into an extended video with storyline.

His Cantonese is better than my Mandarin... accented but damn funny. His pronunciation was so deliberately close to foul language. Big big hit in HK. 

Namewee is highly respected by most music celebrities in the region and has worked with many, including G.E.M., Candy Lo, Meu Ninomiya, Amoi-Amoi, etc..

There are still so many wonderful songs by Namewee. He is still way under-rated. Still misunderstood by many. 

Jack Neo was also featured in Namewee's tribute to Jack's comedy show and the Singapore cultural nuances. 

Sunday, November 18, 2018

Why No Premium - Daibochi & Scientex

TheEdge Weekly asked the question: WHY NO PREMIUM

Scientex is one of the world’s largest producers of stretch films. Scientex also produces BOPP films with an annual production capacity of 60,000 tonnes. 

The company also produces cast polypropylene (CPP) and metallised films with an annual capacity of 12,000 tonnes, the biggest producer in the country. 

“This merger will enable Scientex to offer an integrated range of products to a larger client base and enhance its capabilities in the flexible packaging business through synergistic and complementary products to better serve global clientele.  Scientex also intends to maintain Daibochi’s listing status on the Main Market of Bursa Malaysia, and retain all the management and staff,”  Scientex spokeperson said.

“We believe it is good value for Scientex to acquire Daibochi on [a] PER basis, with about 20 times PER for Daibochi’s FY17 (financial year ended Dec 31, 2017) earnings, 16.5 times for FY19, and 12.3 times for FY20. Industry average PER is about 15 times excluding Tomypak Holdings Bhd.” - TA analyst

Daibochi is a leading flexible packaging provider in the South East Asian region, with manufacturing plants in Malaysia and Myanmar. 


1) The pricing based on current and forward PER was fair and slightly higher than the industry average.

2) Why should there be a premium??? A premium suggests that current prices were undervalued. Was Daibochi undervalued? Why should there be a premium - Daibochi's share price could have been at RM1.20 or RM1.60 or RM1.80 when the deal is struck... at differing prices you would have called in undervalued, overvalued, etc... why base your opinion on the average price for the last 30 days. Historical prices is but one minor factor. Hence most M&A of established businesses (not startups or tech firms) would use PER or forward PER, as that will show whether the deal was PER accretive to the buying company.

3) Why there is no premium - Probably, I am guessing here, was because there were 14 shareholders in Daibochi. When you have 14 drivers in a Proton you won't get far. Even if you have an appointed leader, it will never be as smooth or as decisive as one person with the substantial block.

4) The main key why there was no premium - Well, it is not a cash sale... it is a swap. A swap means the future fortunes of Daibochi shareholders will be in the merged entity under Scientex. They will be getting Scientex shares. There is really NOT MUCH point to do a "severe deal" for themselves as then it would weaken Scientex share price anyway (which they would be getting shares in). Just a proper arms-length deal that satisfies the regulators would do.

5) Listing Status - Part of the reason for the lack of premium was that Daibochi's listing will be maintained. Everyone knows there is a RM20-40m premium for a Main Board counter. Scientex can sell Daibochi listing status later, which will be reflected then in higher Scientex prices, which would be what current Daibochi shareholders will be holding.

6) Control - That would be the only issue that might give rise to a premium. Losing control. But can the existing G14 move the company to the next level. Control is not everything. Malaysians have this silly over estimation of the need for control. Contro, is only important if you are mainly going to do shenanigans. Otherwise, any deal must be weighed by their accrued financials. Is 1+1 more than 2. If yes, then it is a good deal. 

Friday, November 16, 2018

Assessing "FundMyHome" Concept

Let me say that I think the concept has a lot more merits than the current 'reception' is willing to give it. I am not aligned with anyone or any company dealing with this business segment.

It is very important to note the group of people that the concept is targeting: FIRST HOME BUYERS. More specifically, first home buyers who are having problems buying the said property. It is not for anyone else.

Issues that I have against the concept:

a) Tough for the funders - The 5 year lockup period will actually stave off speculation or that the funders side will get a hefty return on their investment at the expense of first home buyers. In fact, in there is no interest paid to funders, its actually quite a sad deal for the funders.

The funders pay 80% of the property, for what? For a maybe/potentially/ yes-no 20% gain after 5 years. If you put your own funds in a savings account, 12-month automatic rollover, you could get 3% compounded over 5 years = 15.9%. Hence 20% versus 15.9% is nothing to shout about.

Even if you compound it at 2.5% over 5 years = 11.3%. The 20% return is not guaranteed. Funding the project also means you have to take a view on the local property market.

Developers do not get 100% of purchase price but rather just 80%. The 20% is granted to developers only if the property rises above the purchase price at the end of 5 years. Otherwise the 20% will be earning a 5% p.a. and used to protect the downside for investors.

b) Saving the developers - We know we have a lot, a bloody lot of properties that are unsold. If nothing is done, the markets will unwind itself eventually - either developer keep dropping prices till it reaches real affordability levels, or it keeps the properties on their books till the sentiment recovers or the cows come home (bankruptcy). 

The latter has the consequence of suppressing the rest of the property market in terms of prices. The sad fact is that too many Malaysian households have taken on hefty property mortgages. In a flattish or slowdown market, these households will have to crimp their spending or even sell additional properties at a loss.

The Fund My Home project will "save" many developers from "losses" as cited above or eat into their capital for having to keep the properties on their books.

They have overbuilt for sure, they have overestimated the demand and affordability, and in a neutral stance, they have to bear the downtrend and their business mistakes.

While the Fund my Home project has a lot of merits, I do not wish to see first time home buyers being too eager to snap up "substandard" properties that developers cannot sell. To a certain extent, that concern has been mitigated by the "screening process" by TheEdge team. Not all properties will be permitted on the platform.

Why protect the buyer and not the seller? Because we are not here to save the developers. As a matter of fact, we are already helping the developers to sell properties that they themselves CANNOT sell. Hence the developers should not be looking at normal profit margins (judging from the fact they made so many business mistakes such as overbuilding, overestimating demand, etc.). 

The bulk of pain has to be shouldered by the property developers, as explained above.

c) What if the buyer defaults - The developer is supposed to take back only 80% of the property price at the beginning. The remaining 20% will be kept as minimal returns for investors in the home. Hence the funders are protected even if the property were to lose 20% of its value at the end of 5 years.  

However, say within that 5 years the buyer lost his/her job and the property at the end of 5 years has a market price that is 40% below the initial entry price for the buyer? The buyer basically is bankrupt now, so at 40% loss, no party will want to sell into the market. Who bears the additional 20% losses?

d) EPF Account B - Currently Account B takes up 30% of our contributions. I assume first home buyers will be drawing down from Account B to help with the initial 20% payment. I think the government can make the exception for first home buyer to take out the full Account B plus an additional 20% from Account A (if required) for the project. Seriously, its the 20% payment that will be the biggest hurdle. Plus the same person is building equity and not speculating. Same as before, if they were to sell the property, they will have to put back the same sum back to their EPF account.


a) First time home buyers can almost forget about owning a home on a RM4k-5k salary. Hence FundMyHome should be weighed AGAINST the alternative of renting. I need not do a Renting vs owning 101 course here to highlight the miniscule difference to participating in the program vs renting. Or do I?

Say you cannot afford the 20% down payment but you have a salary of RM4,000. The platform will help to try secure a RM100k personal loan. Say the interest payment is 7%. The person would be paying interest RM7,000 a year = RM583 a month. Assuming nothing changes, RM583 in rent cannot even get you a room at Choo Cheng Kay flats. But the family gets a house/unit all their own now.

Even if at the end of 5 years, you decide not to take up up the remainder, you can still sell your 20%, assuming market was flat, and get out. But you got a silly RM375 rental a month for a nice home for 5 years.

b) Catch up - The worst thing for first home buyers is not being to catch up to the property prices. Imagine waiting for your household income to jump from RM5k to RM10k a month. Maybe it will take 5 years but where will property prices be then. Your RM400,000 unit may now be at RM550,000.

You can do the math yourself that you have bought insurance for your affordability. Giving up the initial 20% is not such a big deal, as I have explained that the funder's side have their risks and rewards to be weighed out as well. In this case you are giving up RM80,000 gains and could refinance for the whole unit/house for RM400,000 - RM80,000 (initial payment) + RM80,000 (funders' returns) = RM400,000. 

You will be financing a mortgage of RM400,000 at the end of 5 years for a property that is worth RM550,000. Giving you an equity of RM150,000 already.

c) EPF Account B - After 5 years, the same person with RM4k salary, assuming no increase, would have saved 11% +13% (contribution) = 24% of RM4,000 x 12 x 5 = RM57,600. Thirty percent would have gone to Account B for housing = RM17,280. That amount could be used to pay down further or refinance purposes. 

We should allow another 20% from Account A for this purpose, which would have made for a total of RM28,800 at his disposal. 


Overall a brilliant idea that tries to balance the risk-return for the interested parties. 

 If the team stay vigilant on the screening process of properties allowed to be on the platform - this will succeed wildly. This proposal should get full support from the government, and property developers should be thankful. Those making noises are those overpricing their substandard properties and probably lamenting why they cannot get on the platform.

Thursday, November 15, 2018

Rethinking About Recycling

This is a damn powerful image. The work he is doing, recycling, is so noble and forward thinking...and yet we know that he is also probably not paid well for it. Something is not right, for something that is so right.

Photo: Shen Yu / Imaginechina

Why The Government MUST Implement These To Save SMEs

The government tried to assuage the fears faced by SMEs by directing a lot of help in credit and financing. This shows very clearly th...