Wednesday, January 30, 2019

Our Archaic Bankruptcy Laws Need Immediate Attention



















I think I have posted on our archaic bankruptcy laws more than 4x already over the past 10 years. Our bankruptcy laws are archaic and unnecessarily favors the banks/finance companiesThe trouble with our system is that bankruptcy runs in perpetuity (i.e. almost never ending till you die). Unlike in HK, Singapore and many forward-thinking economies where you only have 4 or 5 years to pay down your debt and after that, you are free from the debts.

Why is it so important to implement a limited period for bankruptcy?

1) Being bankrupt means you are also literally removing around 5-8% of the working public and 5-8% of households from participating in the real economy. Cannot do business, cannot get loans, even job hunting may be a problem every now and then.

2) The Malaysian archaic system overly favors the banks and financial lending institutions. When it is in perpetuity, the banks can clamp down on you for the rest of your life. We have to make banks and other lenders also responsible for their part in giving out the loans. Look, even creditors to EU give haircut once Greece is in trouble. That is why banks in Malaysia can be so bloody aggressive with credit cards, they know they have a very long recourse to make your life a living hell.

3) The 250,000 figure (back in 2013, the present figure could be around 300,000) will jump soon. Why? Just look at the way they are dishing out the study loans under PTPTN. Look at the surge in personal loans by non-bank institutions, look at the aggressive credit card schemes. When you give out RM30,000 or RM40,000 or RM50,000 to someone and their job is only likely to pay them RM2,000-2,500 when they graduate, if they graduate, and if they can find a job then, ... you are going to have huge problems. Plus, we haven't got to the credit card users yet.

4) Even people who end up in jail for a few years and come out, they are free ... not if you are a bankrupt, man, they will drag you till you go to your grave.

5) The onus needs to shift back to the banks and other institutional lenders for a more balanced and equitable solution. For far too long have the banks been operating giddily under such a protective umbrella in their favor. There has to be a fairer distribution of risk for lending and borrowing. I am not suggesting that debtors need not pay, I am saying you need to give them a limited timeline.

6) When you take out 5-8% of the household from the real economy in perpetuity, it has a lot of indirect repercussions: cannot get study loans for children, making it very difficult to reverse their position as their job prospects may be affected as some companies frown on their status, etc. Needless to say, this 5-8 % will also NOT play a part in the real economy in an effective manner - talk about dropping an anchor on the economy, it weighs heavily especially if it is in perpetuity.


7) Malaysians have a strong entrepreneurial streak. Our government strongly encourages that. We take on risks to start businesses, invests, etc... I think it is only fair that when things do not work out, we treat those affected with empathy. It is good for the well being of the economy. We need to strike a balance between risk taking and fair accountability. Now it just favors one side of the equation. 




To that end, I would suggest making the threshold for making a person bankrupt to be raised to RM50,000, and that automatic cancellation is enforced after 4 years. This is in keeping up with HK and Singapore bankruptcy laws.

From the news article today (The Edge), further points can be made:

- The figure was 250,000 back in 2013 ... now it stood at 303,415. In 6 year the figure has jumped by 21%, that's the most bullish segment of our economy I think. Plus we had a terrible 2018, which is to say the cases would have had another spike over the last 12 months.

- 303,415 cases do not mean 303,415 individuals. Each case will have a trickle-down effect, on his/her family members and people who depend on him/her for financial care. Hence if you just consider 4 family members to a case, we are talking of 1.2 million Malaysians affected directly or indirectly.

A progressive nation and one that cares, must show empathy and afford the many a second chance. Even criminals get a second chance after jail, but for bankrupts, it is in perpetuity. Stop that nonsense already.



Tuesday, January 29, 2019

RM22.5B Property Sale - Implications


Let's see how fast can the research analysts and fund managers react. RM22.5b property sale is nothing to snigger at. It is anticipated that there will be 180 property developers participating.

Of course, we are not going to clear the bulk of it. We are talking of over 30,000 properties. Each buyer will be another "potential buyer" off the market for normal property launches.

We can expect hefty discounts and even at bargain prices. There are 180 developers, how will you stand out. There are only so many buyers. One buyer for another property is buyer lost to the developers. Developers have been asked to offer at least a 10% discount. I can foresee even some will sell at a slight loss just so to improve their capital management and cash flow.


There will be repercussions and implications. How will banks and finance companies view the lending part? Will they be expected to "loosen their lending guidelines"? What about Bank Negara, which has been making it tough (necessarily) to get housing loans? These are pertinent questions which will need to be addressed openly prior to the March event.

- Any loosening of lending guidelines by the banks will result in a downgrade for all banks, owing to the deteriorating loan book. Hence we need more clarity for the government.

- A more realistic impact will be on property developers. The event will suck potential property buyers from the normal market. Watch the resale market prices, go ask your real estate agents, prices will come down by 10-20% minimum just based on the news, in particular for motivated sellers.

- Smaller property developers might as well close shop for a while unless you are very niche and has enormous value add to your products.

- Bigger property developers with townships will see a much longer period for the township to be developed. Not good for them, but this is a necessary evil owing to over-building and mismatching of needs by developers in the first place.


Monday, January 28, 2019

What Should We Make Of Prestariang


I hate it when people give tips or stocks' potential based on "insiders' information". How is that a fair situation? What about the rest of investors who do diligent research and still get knocked about by these "insider informants". Can you still be a good investor based on publicly available information? We can only try.





















THE SELLDOWN

Prestariang has had a very dramatic last 6 months. It could easily fill a business book by Michael Lewis... and that's just based on public information. If Michael Lewis gets to interview a few of the deemed players, it should be a great best seller.

SKIN was the project which was awarded on 18 July 2017, and the stock was around RM2.00 around that time. Now it's about 16% of that level. The project is a 15-year concession and will consist of three years of build and deployment phase and 12 years of maintenance and technical operation phase. 

Payment to Prestariang was to only commence upon the full commissioning of the system after three years with an average annual payment of RM294.7 million from year four to year 15 during the maintenance and technical operation phase.


The big selling seems to have coincided with the resignation of Puan Nik Amlizan Binti Mohamed as an non-executive director on 1 October 2018. Interestingly,  since then she had also resigned as a chief investment officer of KWAP too. 
But the sharp sell down by KWAP was exacerbated withAIA selling its 9.73% stake which is around 46,968,900 shares in within weeks. 
Those two events caused CEO Dr Abu Hasan Ismail to be faced with forced selling due to margin call. Pres­tariang founder and group CEO Dr Abu Hasan Ismail, who is also the company’s largest shareholder, saw forced selling of 15.1 million of his shares (late Nov/early Dec 2018)— representing a 3.13% stake held via his privately owned companies — to rectify a personal margin account position. Abu Hasan now holds a 24.3% stake in the company.
Prestariang’s other substantial shareholders are Kumpulan Wang Persaraan (Diperbadankan) (KWAP) with an 8.6% stake and Brahmal Vasudevan — who is the founder and CEO of private equity firm Creador — with a 6.2% stake. Over the past couple of months KWAP has been rapidly reducing its stake, and from the filings, it looks like Brahmal has fully exited his position over the last two weeks.




















THE FUNDAMENTALS

So the base scenario is to strip out SKIN to see what's left for Prestariang. Assuming a weighted average cost of capital (WACC) of 6%, CIMB estimates SKIN’s value to be around RM750 million and since Prestariang owns 70% of it, the concession is worth RM525 million or RM1.08 per share to the company. PublicInvest Research has a similar valuation of the project. In a Sept 5 note, it says Prestariang’s stake in SKIN is worth RM521.3 million or RM1.08 per share, assuming a WACC of 7.48% and internal rate of return of 17%.

Hence even if you took the RM2.00 share price, much more than the "valued" RM1.08 has been eradicated from the share price. The excess losses may be attributed to previous "over-exuberance" and/or loss of favor with the ruling government. Even so, the "loss in share price is already deemed as probably excessive". A local research house has estimated that Prestariang’s book value could drop to 26 sen per share from 32 sen if earnings from the SKIN project are reversed. 




Prestariang's financial results, with or without the first few inclusions of SKIN earnings, were decent. Not spectacular but decent. It is in no danger of falling into PN17 or anything like a big hole.

Apart from SKIN, Prestariang’s other dealings with the government include its contract to supply Microsoft software licences, products and services. In January this year, its subsidiary, Prestariang Systems Sdn Bhd, received an extension of its contract to supply the licences to MoF under the Master Licensing Agreement 3.0.The extension is for three years, from Feb 1 this year to Jan 31, 2021, at an estimated value of RM222.6 million.


Read more at https://www.thestar.com.my/business/business-news/2018/12/12/prestariang-seeks-compensation-over-skin-termination/#j3maqxqwwdDrxGTQ.99



WHO WERE THE BUYERS

We have talked about the many substantial sellers over the last 4 months. Were all the shares bought by small time investors who do not know of the bigger picture? Well, there were two big buyers. It is up to you to research who they are.

One has 8.29% and the other ended up with 16%.








CATALYST?
Oversold is not a catalyst. Prestariang will get compensation as it is already written into the agreement.  Prestariang has spent around RM156 million for the project. One may surmise that in a compensation case, the amount spent should be the base, coupled with time and resources spent. Thus it would not be far off to ascertain an amount of between Rm156-250m as compensation.

The funny thing is that at 33 sen, its market capitalization on 484m shares is RM160m. Without SKIN, a low base valuation for the remaining business should be circa 20-25 sen. I am sure you can do the math.

There could be a windfall of more than the market capitalization of the stock now. Trade at your own peril. This whole article is in no way an endorsement to buy or sell the stock.




Saturday, January 19, 2019

Asset Class Returns 2018

Suffice to say, when the big boys rumble, its never good for the small ones.  The table below showed the best place to have put your money in 2018 was in CASH.



The next best performers were bonds. Even REITs produced negative returns. This being a USA centric table of assets, the worst two performers were International Stocks and Emerging Market equities.

The only solace I can get from the table is that every time EM loses more than 10% a year, the next year will see double-digit positive returns for EM. Have a look at 2011/2012, 2015/2016 ... and since EM lost 14.3% in 2018... chances are high for a sharp rebound in 2019.

Could this be chance, coincidence or what?? There is more to big data, sometimes we can decipher patterns and in them lays deeper truths which we may or may not be able to uncover. 

Happy Year of the PIG, I think ....







Thursday, January 17, 2019

Discovering Tom Waits


It was so gratifying and exhilarating to discover a musical artiste, who somehow bypassed me all throughout 70s and 80s. Listening to Tom Waits patiently is so addictive and calming. The brilliant composer and cutting poet should be heard by more people.

There are about 20 albums he has issued and his repertoire was quite varied with blues, jazz, folk influences. The best place to start has to be his Anthology of Tom Waits, possibly one of my top 3 favourite albums of all time now, suddenly.



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Tuesday, January 15, 2019

How Small Is Your God


I have always wanted to write a short book on HOW SMALL IS YOUR GOD. Any religion, any religion... that has a God by definition, needs to appreciate the kind of God they worship. We look around, plenty of religious people get offended at the slightest agitation.

How small is your God ... who would take offense at Human 'Wrongdoings' or non-believers' 'wrongdoings or insensitivities' ... Why do you get angry on behalf of your God... how small is your God that he/she cannot see through human frailties, lies, deceits, misbehavior, insolence, immaturity, rebellious streaks, impudence, egos, arrogance, ... HOW SMALL IS YOUR GOD???

I am certain your God will be more than capable of fighting his/her own battles. If you wish to get angry, be angry, just voice it, move on, and God will take care of the rest. Do get to know your own God before you even try to get angry on his/her behalf.


https://news.artnet.com/art-world/violent-protests-mcjesus-israel-1438402?utm_source=facebook.com&utm_medium=social&utm_campaign=news&utm_content=everyday-news&fbclid=IwAR2Sfv3gE68ODzPGEOkaXmCNwIRXJCCTLcqiu1E_Dc0bWy7JiassYmMJ5as


Saturday, January 12, 2019

Amazing Photos That Capture The Malaysian "Kampung Spirit" by Mohd Nazri Sulaiman aka Dallah Deen


These amazing photos of a young boy in Terengganu playing with buffaloes were taken by Malaysian photographer Mohd Nazri Sulaiman aka Dallah Deen. The image below, titled “Sharing Emotion”, even managed to win the grand prize in IOA’s Street/People category! He was also deemed Photographer of The Year by the Asian Geographic magazine. 






The kid in the photos was 14 years old Mohd Syukur Khamis (Thank God Its Thursday??!!). The buffaloes were reared by his father and he seemed to have a special connection with them.


These images totally captured the kampung spirit of running wild with nature and its beings. Very Malaysian indeed.




These images evoke feelings of days gone by, where time sometimes stood still and at the same time rush past us like fleeting memories trying to catch the light of yesteryear. 

People and businesses who wish to contact the photographer please do so:




CONTACT INFO
Call 0109222680






















Sunday, January 06, 2019

Stocks For 2019 - A Discussion


This is merely a discussion and not an invite or recommendation to buy or sell any stocks. Yes, Bursa and SC do look at what I write, even when most of what I write is for the benefit of all investors. It is also good that investors and regulators alike are nowadays more circumspect of potential shenanigans. 

I do think 2019 will be a much better year for stocks locally. Almost anything that could have gone haywire,  have. 

Oil Prices
Palm Oil
Caught up in international trade wars
Property slump



Since the election, we have been bombarded, necessarily, by the implosions in:

Tabung Haji Fund
Felda/FGV
Bank Pembangunan questionable loans
Bank Negara land deal
LGM's "forced" land deal that profited MOF and had EPF as the end buyer

...the government needs to step up do positive market-boosting measures. That is because, for the past 6 months, almost every single thing has been negative, restrictive, constrictive, regressive, deflating for economic activity ... even though many of the measures taken WERE NECESSARY for the good of governance and fiscal responsibility. But you cannot strangle the bad till the good part also suffocates.


Politics - The Warring States Revisited


Please remember the rakyat who voted you in. Not just that, but the sacrifices, the toiling by the rakyat for years before that to get the "change effected". Then you guys go and play politics. I know that it is always difficult to hammer a loose coalition within a short time span and expect everything else to be hunky dory... but please, be reminded of how hard the struggle was for most of us to get here. ITS NOT EVEN ONE YEAR!!! The worst "bad spot", ...it is not even a year old and we have the following questionable questions about the current Pakatan Harapan:
- will Anwar be able to take over in 2 or 3 years, or at all
- is Azmin the preferred next PM by other parties in the coalition
- isn't Bersatu looking too much like the old UMNO in accepting frogs
- is Bersatu behaving that way to stave off a possible breakaway by Keadilan
- enough already with the Azmin or Rafizi thing, both are important and useful, don't split the party unnecessarily
- what was so bad that Nurul can't take it anymore
- the silly DAP voting "out" Tony Pua because not enough grassroots "work put in" and that there were too many "parachuted candidates" now getting important positions at the expense of longtime members - grow the fuck up, without the newer candidates DAP would not have reached the masses
- some Ministers should not be ministers (please read next para.)

Yes, Minister! - All Ministers must be made aware that there are: Strategic Issues and Initiatives (most important, as they set the course and direction of the "goals of the ministry". Then there are the Operational Issues, that has to do with day-in-day-out stuff, just make them more efficient and effective and properly enforced. Then there are the Peripheral Issues: not important and do not ever confuse that you are doing excellent work by announcing these peripheral new rules and changes.

Black shoes for students, very peripheral issue, and as a first announcement it was deflating. Swimming pools, omg, so peripheral. We appointed a Minister, not a Trainee Assistant Vice President!!!

Tackle the UEC head-on, that's Strategic Issues and Initiatives. No balls. 

On that note, asking us to consume more palm oil was worse than peripheral issues. It is like asking us to plant our own veggies. Want to go down that road again...??!! Tackle the palm oil Strategic Issues, we have been the target of very biased propaganda against the usage of palm oil. We seem to have no defense against that except to accept/not accept the various palm oil certification. Why no certification against soy oil and other oils? Why we do not have a concerted and sustained campaign on the real benefits of palm oil over other oils? Why not have a long-term "barter trade" exchange agreement with big users such as China and India which would make palm oil producers less of a coward in the face of European buyers?

Get the politics straightened out and start recharging the economy.


The bright spots were:

The new government, starting to clean up the balance sheet
Hopefully, new leaders at regulatory, GLCs and judicial... will invoke a new Malaysia


BULL AROUND THE CORNER


Why I think the turnaround is just around the corner. Must look for catalysts, cause prices itself has already gone past what is considered cheap by most financial measurements. 

a) The issuance of the RM7.4b Samurai bond at 0.65% 10-year before the end of March 2019

b) The upcoming indictment, resolution, conviction, repatriation of fines by DOJ/US Courts on Goldman Sachs involvement


c) The re-issuance of government electronic government programs contract, albeit at a "more cost savings to the government" mode

d) Government restarting some of the stalled big projects, albeit a lower scale


We should be looking at some small caps fishing because the bear market is nearing its last legs rather than in the middle of one.

You will note I won't be mentioning the run of the mill stocks covered by analysts, blah, blah... you can read them yourselves. Just so you know, most of those analysts who write decent reports about big caps and decent stocks, ultimately trade the most in stocks they don't write about, hint, hint, second and third liners. Stop laughing and tell me it's not true.


Small Caps Fishing

1) must have volume (liquidity) - you need this to move in and out, a great value stock with no liquidity is no use in a stock market.

2) must have lost more than 50% from its 52 week high - the bigger the losses the better; why 12 months, not longer?... cause 12 months would have captured the period before the elections, anything longer might not be as meaningful.

3) P/NA (share price /net asset per share) must be less than 50% - this is where the value comes in, even if you factor in some dubious "assets", below 50% is a good comfort level.

4) Cumulative losses for the past 7 Qs must not be more than RM2m; better if its positive - naturally most will not have been doing well, but you want their PAT to be manageable, this will be reflective via their cash flow; by adding up the PAT for the last 7 Qs, it gives a good measure of its "PAT/cash flow. I can't emphasize enough how important this measurement is, its to ensure that it has some sort of viable business and that they are in no danger of falling into PN17. .. which translates into better viability to bounce back later when sentiment improves.

5) Bearing in mind the premium for a relatively clean listed vehicle will be between RM20-30m in a normal functioning market - hence that can be used as a base for our own valuation.

6) No RTO /listing by China companies type - I am still not convinced (for the past 8 years) on the veracity of the financials.


Example:

ASIAPOLY (0105)
Share price:  0.07
52 week high:  0.155
P/NA:  37%
Market Cap:  RM31m
Last 7 Qs Cumulative net figure: +RM206,000

HHH (0160)
Share price:  0.085
52 week high:  0.125
P/NA:  50%
Market Cap:  RM29m
Last 7 Qs Cumulative net figure: +RM2,417,000

FINTEC GLOBAL (0150)
Share price:  0.065
52 week high:  0.18
P/NA:  24%
Market Cap:  RM39m
Last 7 Qs Cumulative net figure: +RM24,134,000



You can peruse all these figures by going to i3 site. You can tweak for your own parameters and you will come up with some decent picks. Mind you to bottom fish on small caps, you will need holding power, but we are looking at a 50%-100% return. Buy, lock it up, come back when sentiment flourishes.


SITUATIONAL INVESTING

If you don't like small caps, then have a look at these two stocks for situational investing. Both counters were subject to massive forced selling by the principals or substantial shareholders. Margin calls are common in a bear market. Look at Seacera, forced selling but it took some big punters a couple of days to start fishing - it didn't look like the new big buyers knew anything more than just trying to sniff out a bargain.








However, look at the buyers for MYEG and Prestariang following the forced selling, they were firm and big. Its a follow the money strategy. You may not need to know much on the fundamentals (both are more than decent), but the "firmed up" buying would indicate a likely positive turnaround.

http://malaysiafinance.blogspot.com/2018/12/two-notable-corporate-announcements.html

http://malaysiafinance.blogspot.com/2018/12/my-eg-unexplainable-drop.html


So, yes... one can consider both Prestariang and MYEG for the above reasons.


Things To Do During Lockdown

All local councils, utility companies, construction firms (those with permission) and city planners in Malaysia should take the opportunity...