Tuesday, October 29, 2019

Understanding The HK Situation

I have HK friends who cannot sit at the same table for dinner because of differing opinions on the way the protests have descended to. Even back in Malaysia, I have close friends who keep posting how the rioters should be handled, locked up and punished.

I don't think that the majority understand fully why the protests are ongoing; why it has descended into rioting and mayhem ... and many people in HK are still in support.

Anyone who is outside of HK would find it easy to question and condemn the silliness, naivety, and futility of the rioters' efforts.

This is by no means an apologetics diatribe to justify the protesters and (maybe even) the rioters. Rather, it is an attempt to understand the thinking and makeup of most Hongkongers.

First, let's look at why a lot of foreign people dislike the protesters/rioters:
- a complete disregard for rule of law
- the HK police force has been too 'lenient' and the "rules of engagement" too humanist as to limit the powers of the police to counter the protesters
- doesn't HK belong to China anyway?
- in less than 30 years HK will go back to China whether you like it or not
- to go against Beijing is almost a truly futile effort in the end
- doesn't HK people know how dependent their economy and business future is on China?
- there's nothing much that HK is good at other than shipping, logistics, property (domestic) and as a financial center.

To try and blame foreign sources for funding and influencing the rioters and protesters is exactly why the local people in government and Beijing to a lesser extent fail to appreciate the depth of the discontent among the majority of HK people. Let's put that aside and try to understand the whys'.

ANGST Section 1 - Historical & Political Apathy

- most of the older people in HK now FLED China, now let that sink in a bit. FLED, past tense of FLEE. The younger folks who were born in HK only knew of their colonial master, as a dominion of the British empire
- hence we can appreciate the political apathy for much of the past 100 years, there wasn't a call for universal suffrage because it was a British colony and to my knowledge, there was never a substantive call or formation of a movement to declare that the population wishes to form a separate country or government
- when the Brits agreed to sign back HK to China in the 1997 agreement
- on June 9, 1898, the British under Queen Victoria brokered a 99-year lease agreement for the use of Hong Kong after China lost a series of wars fought over the British trade in tea and opium
- in 1984, British Prime Minister Margaret Thatcher and Chinese Premier Zhao Ziyang negotiated the underlying plan for the lease to end, such that Hong Kong would remain a semi-autonomous region for a 50-year period after the lease ended
- the lease ended on July 1, 1997, and since then tensions between the democratically-minded Hong Kong population and the PRC have continued, although Hong Kong remains functionally separate from the Chinese mainland
- the perceived increased  of Beijing influence over the past 15 years have left many HKers shaking their heads
- most HK people did not feel the need to ask for universal suffrage under the British because the latter allowed HK to flourish under the laissez-faire economic system, backed by ICAC for corruption eradication, the independence of the judiciary and legal system, and the relative independence of the police force ... all hallmarks of good governance of a capitalistic economy

ANGST Section 2 - Culture/Displacement

- way too many Chinese from the mainland has been invading HK in various means: shopping, buying up properties and stocks to start with
- thousand of kids from southern China take the long train ride to go to schools in HK, causing a strain on resources and places for HK kids
- the mass buying of baby powder and a plethora of other stuff to trade back in China
- the huge surge in the number of Chinese women from the mainland to have their babies in HK, straining resources and places further
- these are more than just tourists' troubling behaviour; it is considered intolerable to the extent that HK's culture is being eroded, their rights and privileges are also being eroded, their home is no longer the home they were used to, HK is more dependent on Mandarin in a way that is unsettling for most, and most ironically most HK people no longer can afford to live in HK while many of the rich mainland Chinese can and do so with aplomb.

ANGST Section 3 - Affordability Gap

- unless you already paid-up on your unit in HK, you are basically the majority of them striving to carve out 60-70% of their monthly pay for the mortgage or to save enough for a down payment
- even you daily existence is paying homage and duties to the landlords via higher rents, higher food prices, higher everything really because rents, space, and buildings are all owned by the elite few and cost more than an arm and a leg
- the cosy relationship between the ruling elite and property barons has led to a stifled release of land for public housing over the past 30 years; is it a wonder that more than 70% of HK land has been gazetted as reserves (for environmental protection, or other altruistic reasons) ... I am all for being green but not when the majority of your citizens are suffering indirectly due to these political moves
- despite years of schooling and using loads of funds for education, many of the youths find the future bleak - rising costs and property affordability gap and lack of freedom, all were a recipe for an uprising ... mixed that in with undisguised contempt for the influx of mainland Chinese into many things in HK, you have a fire morphing into a fireball
- Hong Kong has also set world records in home prices and has a glaring income gap. In 2016, it had a Gini coefficient – a measure of inequality – of 0.539, which Oxfam said was the highest in 45 years.

ANGST Section 4 - Trust Deficit With Beijing

- remember that the bulk of HKers were made up people who chose to flee to HK, now you want them to go back to be governed by the motherland
- while Beijing does a lot of things well, it has a very different way of doing things when it comes to dissent, political opinions that differ from the "official stance" ... and that translates itself to overbearing laws for "control" purposes and to stifle and the lines of control from the courts to the police to the army act as one machinery for the good of the party (I mean, how to trust a state prosecution process that has a 99% conviction rate??!!)
- the Legco was set up as a mouthpiece for Beijing, even though some seats were available for election by the masses, the entire setup was such that there was no way to overthrow or even pass legislation without Beijing's approval
- the extradition bill was just the straw that broke the camel's back, hence even when the bill was finally withdrawn and killed off, it was too late to stop the protests.

ANGST Section 5 - Trust Deficit With Local Government

- In many ways, the distrust with local government is greater than with Beijing although both are similar in the eyes of most HKers
- By being appointed, and by inference cosying up to the richest in HK and Beijing, the entire Legco has to go
- for those who say the protesters could have gone about their protests in the proper way... that is exactly the point of protests breaking out into riots, there is no way for any "voices" to be heard or to lead to substantive changes in the current political ecosystem.

A WAY OUT? - HK is important to Beijing but not as important as say 20 years ago. There is no way for Beijing to grant independence, even the protesters know that. But why force a group of people to be back into your system when they clearly don't want your ways.

If I was Beijing, I would extend the 50 year agreement of two systems to 100 years. Next, I would revamp Legco to allow for absolute universal suffrage. To have 100% seats being elected by the people. Much like a federal government and a state government structure. Absolute no question on wanting independence will be tolerated.

Friday, October 04, 2019

The Not-So-Enigmatic Success Story Behind QL Resources?

CAVEAT:  This is entirely MY OWN VIEW, I could be wrong here. It is mainly conjecture on my part.

It has been said when you wish to emulate someone, learn from the best. QL Resources, a shining star in terms of stock price performance for the last 15 years, did very well again in 2018 in spite of trying conditions. 

 QL was founded in 1987, but its roots stretch back to the late 1970s. In those early years, Dr Chia Song Kun and his brothers harvested the calcium-infused shells of dead mollusks from a remote shoreline near their home village, which they supplied to local feed millers. The hard-fought success of this modest business allowed them to expand their product range and open new branches across Malaysia. 

 After establishing a core business in feedstuff trading the company grew through adjacency expansion, which led to diversification into food for human consumption. QL now operates in three distinct sectors: Integrated Livestock Farming, which includes poultry farming, feedstuff trading and consumer brands; Marine Products Manufacturing, which includes surimi and fishmeal processing and consumer brands; and Palm Oil Activities, which includes milling, plantations and biomass clean energy.

QL’s strategy involves the deployment of technology, capital and management expertise into populous emerging markets. Despite new market challenges and geopolitical risks, regional expansion in adjacent ASEAN markets is fuelling QL’s medium and long-term growth.
Dr Chia and his team pursue a strategy of strengthening and additional integration of QL’s value chain. This provides the company with more opportunities to add value, multiplies its ability to generate profit, increases efficiency, mitigates the business cycle risk that often affects singular parts of a value chain, and ultimately ensures consistent quality in the final product. Greater competitive advantages are held over businesses in any one segment of the chain as a result.
QL’s marine products manufacturing division is the fastest-growing among its three business divisions. It is involved in deep-sea fishing, aquaculture farming, surimi and fishmeal productions. Presently, QL is the largest surimi producer in Asia. Over the last 10 years, QL has achieved a CAGR of 13.59% in revenues for this division. It has grown from RM245.4 million in 2007 to RM877.1 million in 2017.

QL’s livestock farming division remains the biggest revenue contributor to the group. It has grown as a result of organic growth and a series of acquisitions. In 2007, this division was producing 1.5 million eggs a day. In 2017, QL produces 4.6 million eggs a day. It also produces 40 million day-old chicks (DOC) and 20 million broilers and trades over 1 million metric tonnes of animal feed raw materials a year. Over the last 10 years, QL has achieved a CAGR of 10.50% in revenues for this division. It has grown steadily from RM657.2 million in 2007 to RM1.78 billion in 2017.

QL has achieved a CAGR of 14.04% in dividend payouts to its shareholders over the last 10 years. It has increased from RM14.3 million in 2007 to RM53.0 million in 2017. QL has maintained an average dividend payout ratio of 24.51% over the last 10 years. For the financial year ended 31 March 2017, QL declared 7.25 sen in dividend per share. It comprised 3.00 sen in special dividend and a final single-tier dividend of 4.25 sen. The special dividend is one-off and declared as a token of appreciation to reward its loyal shareholders. As at 4 September 2017, QL Resources share price is trading at RM4.82 a share. Excluding the special dividend, if QL is able to maintain its final single-tier dividend of 4.25 sen for the financial year 2018, its expected dividend yield is 0.88%.

As of May 2019, FamilyMart Malaysia opens its' 100th store in Melaka, earmarks to open another 50 stores in FY19 towards their FY22 target of 300 stores. While operations are not expected to break even in FY19, management expects the store chain to become profitable in FY20 from an expected store base of around 120 branches.

Today QL has a coherent, complementary set of businesses with a combined objective: to add value to our broad, resource-based Group.

  • Marine Products Manufacturing Activities

    • We are the largest producer of surimi in Asia as well as the largest fishmeal and surimi-based products manufacturer in Malaysia.
  • Palm Oil Activities

    • We are the leading independent crude palm oil miller in Sabah, Malaysia.
    • Own and manage a 1,200 HA mature palm oil estate, also in Sabah.
    • In Eastern Kalimantan, Indonesia, we own and manage a 20,000 HA oil palm plantation, of which 5,000 HA are mature.
  • Integrated Livestock Farming Activities

    • We are one of Malaysia’s leading distributors of animal feed raw materials.
    • We are also one of Malaysia’s leading poultry egg producers, with a production rate of approximately 3.2 million eggs per day.
    • We are a leading integrated broiler producer in East Malaysia

So which company did Dr Chia Song Kun patterned (emulated)  after? This is entirely MY OWN VIEW, I could be wrong here. It is mainly conjecture on my part.  Coincidentally, or not, it was after another Chia family... but from Thailand. I think it was more than coincidence that both have the same surnames.

To be fair, QL after making great inroads into the agro-farming, livestock feed, marine farming... did venture into something big which CP did not have a natural advantage, i.e. palm oil. The Family Mart venture puts QL back on the CP treasure map (CP own's the 7-11 franchise for Thailand, the best performing of all 7-11 franchises globally).

CP or Charoen Pokphand Group

Key Dates: 
1921: Chia Brothers, from China, set up a seed shop in Bangkok's Chinatown, then begin exporting poultry and pigs to Hong Kong. 
1954: The company diversifies into animal feed production and launches a subsidiary, Charoen Pokphand Feedmill. 
1964: Dhanin Chearavanont, son of one of the founders, takes over as company leader. 
1970: The company launches a poultry breeding business in partnership with Arbor Acres of the United States. 
1973: The company begins exporting poultry to Japan and becomes one of that market's leaders. 
1979: The company becomes the first foreign firm to invest in the Chinese market, opening a feed subsidiary in the Shenzhen economic trade zone. 
1986: The company diversifies into shrimp production and becomes the world's leader in this market. 
1994: Lotus Supercenter retail network is launched in Thailand. 
1998: The company restructures as a "focused" agribusiness. 
2003: Dhanin Chearavanont is named one of Fortune magazine's "World's Most Powerful Business Leaders." 

Textbook Play

This post is in no way to dilute Dr. Chia's business ability, rather, it is to highlight how an academic can parlay his book knowledge (case studies and research papers) with great entrepreneurship to bring about great businesses.

I am a great admirer of Dr. Chia. I would use the words "emulated" or "patterned" and NOT "copied", when referring to QL's achievements. I think Dr. Chia is easily Malaysia's best business person for the past 50 years.

We all want to learn from the best. We buy good books on business, we pay for solid business centric magazines and papers - just to improve our knowledge and hopefully learn more about business insights and strategies. Dr. Chia is a fine example of learning from the best, parlaying his astute business knowledge, and executing very well.

CP In Everything Now

Just how much more can QL grow? Well, QL has managed to replicate CP's top two businesses: Agro-Industry/Food and Retail/Distribution. That has taken a lot of effort for QL. We have to remember CP is so much bigger than QL because of its early mover advantage and a domestic population that is almost 3x the size of Malaysia.

Is QL Still Attractive As A Stock

Definitely yes. Just have a look at its long term share price chart. One caveat though, I think some investors have been too exuberant over the Family Mart business and has pushed its near term valuations on the high side. If I had been holding QL for more than 5 years, I would sell 2/3 at current valuations if not all BUT would definitely look to buyback when earnings start its next wave 0 when Family Marts shows better cash flows. Now Family Mart is in its capital expenditure phase.


Wednesday, October 02, 2019

AMLA Overkill For the Majority Of Malaysians

The objectives for AMLA are fine. However, most will agree that the "checks and balances" on ordinary Malaysians of late (over the past 6-9 months) have been bordering on overkill. A sudden substantial sum should attract proper queries. But please, not RM2,000 or RM8,000 here, TT here kena and TT there kena. For the majority of Malaysians, we are being "mildly persecuted for having and using and receiving money", so much so that we are "made to feel that we ordinary Malaysians cannot and certainly should not nor are we capable of earning or handling money more than RM500".

New accounts should be checked sure. But if we have been holding active bank accounts for 15-20-25 years, why now? Even so, ask once every 6 months, please ... not every other transaction 2-3 times a month. We feel like ex-prison convicts being checked by our supervisor for post-good behavior.

Why should Bank Negara tone down the "overkill":

- You are letting the eagles go free, but go rustling for chickens. We only see "justice being carried out now" on maybe the top 10-20 senior politicians from the old government. I mean, come on, what about the day in day out shenanigans for the last 10 years by the next layer of 500-1,000 top "politicians / influencers / gatekeepers"???

- It is disruptive to our lives, and put the poor souls at the banks having to make these incessant ludicrous calls. Making them subjected to temper outbursts and being called names and profanities for no good reason. WHAT A TOTAL WASTE OF RESOURCES on all counts.

- We have people appointed to look for real money launderers, don't we? Or suddenly bank officers were appointed as RELA members? Let MACC and the Police money laundering unit do their job. If it is not effective, pour resources there.

- Already the economy has been slowing down for the past 2-3 years. The velocity of money has dipped appreciably, and here comes the phone call questioning my funds' movements. It is a wonder that funds even move at all.

- Bank Negara, no need to go so micro. These scare tactics supposedly preventive just give rise to an unbalanced cost-benefit result. Don't use or test the general public's patience to bring about some "scare tactics". Criminals will be criminals, they will find other ways.

- The GREY economy: I am sure Bank Negara knows how big our grey economy is. The side that pays no taxes. A lot of funds swish around because of the grey economy. If you want to capture the taxes there, do a proper GST on consumption. Don't unnecessarily burden and frustrate the majority of good standing citizens.

Preventive Measures for Reporting Institutions

All reporting institutions are required by law to undertake preventive measures to prevent their institutions from being used as a conduit for money laundering and terrorism financing activities.
The preventive measures include conducting risk assessment, application of customer due diligence, submission of suspicious transaction report (STR) and cash threshold report (CTR), maintenance and retention of records of transactions and implementation of AML/CFT compliance programme that is reflective of the reporting institutions’ money laundering and terrorism financing risk profile.


Money laundering is a process of converting cash or property derived from criminal activities to give it a legitimate appearance. It is a process to clean ‘dirty’ money in order to disguise its criminal origin.


Terrorism financing is the act of providing financial support, funded from either legitimate or illegitimate source, to terrorists or terrorist organisations to enable them to carry out terrorist acts or will benefit any terrorist or terrorist organisation.
While most of the funds originate from criminal activities, they may also be derived from legitimate sources, for example, through salaries, revenues generated from legitimate business or the use of non-profit organisations to raise funds through donations.


  • Increase in the overall rate of crime that could threaten national security.
  • Inhibit the growth and competitiveness of the economy.
  • Taint the integrity and reputation of the business and financial sector.
  • Increase cost of doing business and operations of various sectors of the economy.

Things To Do During Lockdown

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