Whodunit

Forced-selling doesn’t kill investors. 

Investors who go max on margin buying kill themselves. 

Why blame the system when the rules and conditions are there for all to see before they signed up?

What Kind Of Bear Market Are We Talking About Here

Well, its official, its a bear market. We somehow still cannot call it a crash but a correction. I don't mind this bear market at all cause it is "within reason" and "within grasp". Let's look at how different the current bear market is from the 2008 crash and 1998 Asian crisis.

1998 - This one you can feel it in your bones. Once it happened, there was an immediate domino effect on all emerging markets' currencies. Our currencies were suddenly seeing 20%-35% drop in value in a matter of days. That sobering crash allowed us to see the extent of the mess that easy credit had on everyone, and how everyone geared to the hilt. 

I immediately knew I would be out of a job within a few weeks. You know very well that the whole Asian emerging markets' economies will shrink, the effect was close to 20%-30%. Companies were trying their hardest to park loans and renegotiate terms, but it was inevitable, we needed these companies and these loans to fail. The longer we stave them off the longer the contraction and slower the recovery.

That was a big lesson from Japanese markets. Since the correction in 92/93 in Japan, all listed companies there refrained from facing the music. Even banks dared not collect. The whole taichi movement last 12-15 years.

2008 - This was scary cause it involved the very existence of the top 5 banks. If they failed, the whole capitalist system could unravel, and that could unravel the whole financial infrastructure for all markets and capital flows. 

It was a lot scarier because financial markets and its derivative instruments (in particular) have dwarfed the real economy. Hence any big missteps will be amplified in a bad way to the real economy.


2020 - This one has to do with the virus morphing into a pandemic. Oil prices has shock value but not much to do with the real bear market. Saudi Arabia wanted Russia and the rest of OPEC to toe the line. Russia wants lower prices in order to kill off Americal shale/fracking producers. At most, the US producers will file for bankruptcy. The top 5 banks in the US only has between 1%-3% of the loans exposed to shale/fracking companies. No big deal.

The good thing about this bear market is that it has very little impact on the integrity of the financial markets and liquidity. The prolonged impact is what everyone is looking at. But just on the fact that it has little systemic effect on the financial system is a huge load of relief. In that way, this bear market IS NOT SO SCARY.

Looking at China, where the outbreak has peaked, we saw economic activity dropping by 30-40% over a 2-3 month period. HK had a longer tough run with the protests over democracy reforms and almost immediately by the corona virus - companies on the frontline are failing by the droves. Nobody will sympathize with the mall or commercial property owners. The lack of business will not be able to counter 50% discounts to rentals.

These frontline industries (retail shops, f&b outlets, airlines, etc..) will feel the brunt very fast, as soon as 1-2 months. Subsequently, the contraction will be felt via employment cutbacks. By 4-6 months, significant job losses will be next. Followed by defaults on mortgages and subsequent forced sales and personal bankruptcies.

Governments can step in to address the situation: no mortgage payments for 3 months or personal tax cuts... but business failures will overwhelm and job losses at smaller firms will be more pronounced than bigger ones.

The markets are now trying to discount a substantive contraction in their economies by 20-30% over a 1-2 month period. If it drags on, the equity markets will dive again later.

For now, we are reaching a good level for a quick buyback during tomorrow's weakness. Trade, don't hold as the situation is still fluid.

https://andropausesuccor.com/

https://andropausesuccor.com/

Irrational Market Blue-Black

There are black swans and there are Black Swans... but this swan somehow can give birth to many little black swans. The world is already trying to come to terms with Covid 19. Central banks have cut rates, governments have put through fiscal packages to alleviate the economic effects. Now suddenly we have the oil plunge. 

Let's be sober here, Saudi Arabia is cutting its nose to spite the face. Even though their cost of oil production is a lot less than Russia, its not that cheap. The strategy is to get Russia to come kowtowing for the March 18th meeting. NO ONE affiliated with OPEC wants the current situation, no one wants USD25 to prevail. Would you keep going to work if you KNOW FOR A CERTAINTY you have to pay the employer RM1,000 a day??!!

Hence it is a short term strategy, but I would still avoid oil & gas stocks for the time being because sentiment is bigger than facts now.

Last time I heard: low oil prices is good for the global economy, generally. Why are we reacting this way??? Are the OPEC countries a substantive consumer of global goods??? Rhetorical indeed.

If G7 and G15 can come together so quickly to address Covid 19, don't you think calls will be buzzing across continents to say WTF ... we don't need this shit now?!!

If you are among the lucky ones who are not exposed that much to the markets, and can take a 1-3 months view at least, you should put your money to work, even in some local stocks.


That's because there are some great second liners that have been hammered 15%-30% over the last few days alone. Just look for the ones with least exposure to disrupted supply chains owing to the virus and not entirely correlated to oil prices, plus they are profitable and cash flow positive.

The list is meant for readers to go and do their own research and not a call to buy blindly.


MYEG - (Recent high 1.38, today 1.03) How da hell is oil prices important here? Slowdown in economy, ok a bit, but you know our we have car registration, etc... that is humdrum transactions but must go one.

NOTION VTECH (Recent high 1.38, today 72.5 sen) - Last quarter made net profit of RM14.2m, bonus issue coming up soon. Chairman reiterated that they are actually benefitting from the breakdown in supply parts.  Project Nixon (EMS codename)  need 600k pieces of aluminium tubing for vacuum cleaners worth RM4.5 mil sales per month from June 2020 onwards. Project Stingray (Extrusion solutions codename) is a major expansion of the extrusion business from 200 tons per month capacity to 1000 tons capacity and billet furnace for upstream recovery of aluminium leftovers. Mainly for external customers. Notion is transforming the group into an aluminium total solutions company more than precision machining or fabrication.

DIALOG - (Recent high 3.45, today 3.03) This company stands to benefit as an oversupply of oil will require companies to find storage space. Probably at Pengerang SPV1.

Follow Me On TWITTER

Owing to the shifting paradigms on communications ... I feel a Twitter feed is imperative to send out messages concernings markets, stocks, new posts. Do follow me on Twitter so as to not miss out on important "stuff". Button on the right side.

Quarterly Reporting Must Stay

The Edge:

The Singapore exchange is about to make life easier for listed companies -- the safer ones, at least.

The bourse’s regulatory arm plans to end quarterly earnings reporting requirements that currently apply to all companies with a market capitalization of at least S$75 million ($56 million), according to Tan Boon Gin, the chief executive officer of Singapore Exchange Regulation.

When the rule change takes effect on Feb. 7, only riskier companies will need to report earnings every three months, Tan said at a press briefing. SGX RegCo will also tighten other disclosure rules and introduce a new whistleblowing policy as part of efforts to protect investors, Tan added.

Other global exchanges have moved away from mandating quarterly reporting for all their companies. The European Union ended its requirement in 2013, while Hong Kong only applies the rule to companies on its small-cap exchange. The U.S. Securities and Exchange Commission is currently reviewing the issue.

”Internationally, there’s a shift away from quarterly reporting and this is to allow companies to focus on the long term,” said Tan. About 75% of the local market currently reports on a quarterly basis, according to SGX RegCo.

Under Singapore’s new policy, a listed company will have to report each quarter in circumstances including when it receives a qualified report from its auditors, or when they express concern about the company as a going concern. The requirement can also be imposed if SGX RegCo has regulatory concerns about a company regarding disclosure breaches, for instance.

Additional disclosure requirements will be introduced for rights issues
    Acquisitions that reduce net profit or net asset value by 20% or more, or where the target is loss-making or in a net liability position, will be subject to listing rules.
    Companies will need to appoint an independent valuer for significant asset disposals.
    Firms will be asked to disclose material price- and trade-sensitive information, and any changes to near-term earnings prospects.


(Sept 19): AirAsia Group Bhd chief executive officer Tan Sri Tony Fernandes said he agrees with US President Donald Trump's call for companies to issue financial reports just twice a year, rather than four times, as it drives analysts to make short-term decisions.

"One of the few things I agree with Donald Trump is quarterly reporting is null and void. Should be six months. Analysts driving to much short-term decision," he said via Twitter today.

My View:

a) QR should stay. Any listed company, big or small, should have the discipline of being able to look at their financial status at ANY TIME, be it monthly or quarterly at the bare minimum. Half-yearly leaves too much room for things to happen. A company's management should have the desire to be able to close their books at a week's notice. Financial discipline is paramount to any company that rides on sound management and have a close eye on deviations. If a company needs to have that, investors should be just as eagle-eyed.

b) QR may be lighter in its requirements. Just the basic financials BS/CF/IS, plus commentary on substantive changes to Debtors and Creditors, or any revaluations/disposals of significance. Keep it to the bare minimum.

c) QR does not and should not add much financial burden on listed companies. As mentioned, all companies should be able to close their books within a week. Are you to tell me monthly meetings obtain figures for discussion that are 6 months past? These are things all listed companies should be doing already.

d) QR would also "help to reduce the leeway" for the massaging of earnings. Enough said.

e) There is already insufficient information pertaining to the company's fundamentals. The sector's prospects and outlook are not being highlighted sufficiently by basic financial media. Only the top 40 stocks in Malaysia get any form of decent analyst coverage, what about the other 900? There is a dearth of "credible information" for local investors on local stocks. If The Edge can find a willing audience on a daily basis, shouldn't that tell you investors need better information flow?

f) Half-yearly reporting also gives rise to "insider knowledge". The longer the reporting period, the higher the "value" that is accrued to insiders. Owners, board members, CFOs, accountants, corporate lawyers, industry followers, insider share movements, etc... all will benefit more from Half-Yearlies than QR.

g) If you were a substantive shareholder, would you be happy to only get a half-yearly update on your invested company? No. Why should normal investors be deprived of that information?

h) Does QR limits a company's long range planning? No. Why should short term price gyrations affect your company if your fundamentals are strong. Eventually all QRs will even out positively if your long term fundamentals are good. Yes, stocks will react to QRs, but these are the norm of a market, a daily market place that tries to forward discount a company's prospects. 

If you argue for long term reporting, why not report all earnings in one month and then close the market for one year, then report again... that is as preposterous as eliminating QRs.

Coronavirus Impact On Local Stocks

How should one play the "coronavirus" as an investor? Should we even invest at all? Isn't there something "not quite right" about making money out of certain people's sufferings? If you bought certain stocks which jumped owing to the coronavirus, is it evil to think in your heart that the longer the virus spreads, the better my returns?

So what is ethical investing anyway? Do these funds shy away from these healthcare-related counters? Do you buy and hold fire extinguisher companies that benefited enormously from the unrelenting Aussie bushfire??? Where do you draw the line? Do you even bother in the first place?

Hence, my views here are not an indication of my values barometer. I assess these stocks as an investment option. How the situation develops is part of the fundamentals' story. So, please, leave your principles, values, morality and political correctness behind.


Momentum Investing

You can try to rationalize why you shouldn't jump in, but you cannot block a momentum rally owing to a significant perk in "substantive factors" in a stock's earnings prospects. 

 Demand yet to surge, but this could happen anytime soon. MQ Research’s checks show glove manufacturers have not yet seen a surge in glove demand on the back of the virus outbreak. MQ Research believes Chinese buyers have increased demand for cheaper vinyl gloves in the first instance. If the outbreak is prolonged, there could be a spillover to rubber gloves. The upcoming travel period around the Lunar New Year holiday could spark an acceleration of the outbreak and spur global glove demand.

Who will be the biggest beneficiary? Glove manufacturers are running close to an optimal utilization rate of 85%. Thus, any spike in demand could tilt the pricing power back to the manufacturers. MQ Research believes manufacturers with the highest exposure to the Asia market and with the highest capacity additions could be the biggest beneficiaries in terms of sales volume from this virus outbreak. Among glove manufacturers, Top Glove has the highest capacity additions, while Supermax and Sri Trang have strong exposure to the Asia market.


Biggest Consideration: Utilisation Capacity, Product Mix & Clientele's Region Exposure

MQ Research believes manufacturers with the highest exposure to the Asia market and with the highest capacity additions could be the biggest beneficiaries in terms of sales volume from this virus outbreak. Among glove manufacturers, Top Glove has the highest capacity additions, while Supermax and Sri Trang have strong exposure to the Asia market.

Of MQ Research’s covered stocks, MQ Research prefers Top Glove over Hartalega due to its wider product mix, diversified market exposure as well as the potential benefit it could see from this virus outbreak. Nonetheless, Hartalega could also benefit if customers in developed countries (Europe and United States) start stocking up on rubber gloves as a preventive measure. 


Is It Too Late To Get Into The Big 4?

The Big 4 Heavenly Stars: Top Glove, Hartalega, Supermax, and Kossan. Yes, it is late if you get in NOW and you are a trader (i.e. window period of less than a week). No, if you planned to hold. Just look at the long long term charts (2003-now) of some of the Big 4.

You cannot fully anticipate the outbreak of each epidemic, but rest assured epidemics or health scares will be the norm moving forward owing to the mutation abilities of viruses. As long as you buy and keep, EVERYBODY makes money from glove makers. You are even more "secured now" as the Big 4 have reinvested heavily and now carries a huge moat around their business that will be hard to knock off from their perch.

Even the "political collateral damaged" Supermax maintained its long term outperformance since 2003 till now.

Just look at the lovely rise over the years for these stocks. These are stocks you can keep and keep and reinvest.

What About the Newer Players?

You mean Careplus and Comfort. well, just look at these two tables:

Capital expenditure can do a lot of things for the same companies in the same industry. But when the bigger players have the bulge bracket, it is very hard to even be competitive in terms of margin. Even if demand jumped 3x, they do not have the capital to take advantage of the situation.

Cost To Income ration, again in almost any other industry, there will be niches you can explore. However, the overwhelming size of the Big 4 will make it inevitable that every single resource will cost the small guys more. The Big 4 have economies of scale in almost everything.

OCNCASH, Only Small Player I Like

Oceancash Pacific Berhad, together with its subsidiaries, is engaged in the manufacture and trading of non-woven products and thermobond felts for thermal and acoustic applications in Malaysia. Its products are used in various applications, including the interior and exterior trims of automobiles, and noise damper for the compressors and outdoor units of split unit air-conditioners, as well as insulation in buildings including roofs, ceilings, walls, partitions, and floors as carpet underlay. The company is also engaged in the manufacture and distribution of thermobond and airthrough nonwoven cloth and polyethylene film for hygiene applications, which include top and back sheet of diapers and sanitary napkins, and wet wipes, as well as surgical apparel, such as caps, masks, and gowns. In addition, it produces laminates of nonwoven and PE films for various applications. Oceancash Pacific Berhad is headquartered in Bandar Baru Bangi, Malaysia.

Oceacash is involved in wide ranges of hygiene manufacturing of diapers, sanitary napkins, wet wipes, surgical apparel, caps, masks and gowns.

Today was only the first day it jumped. Even so, its market cap is still just RM180m on just 245m shares. The hygiene business should dominate proceedings. I think RM1.00 is around fair for a company that happens to be in the right sector, plus with a fantastic correlation to supplying Malaysia's best selling car. 

We remain positive on Oceancash’s (OCP) business outlook after our recent meeting with management. We continue to like OCP, considering the i) favourable growth prospects in the hygiene’s nonwoven segment, ii) steady contribution of foreign felt sales from Thailand and Indonesia, as well as iii) strong management team with in-depth technical know-how. At 10x 2020E PER on the back of a projected EPS growth of 33% for 2020E, OCP’s valuation looks appealing. We reiterate our BUY call with an unchanged price target of RM0.61. This note marks a transfer of coverage.

Foreign Felt Sales to Drive Insulation Segment Growth
Profitability of the insulation segment was flat in 9M19 despite higher felt sales (+6% yoy) as this was largely offset by weaker PBT margins (-1ppt to 18.7%, exacerbated by adverse forex movement in 1H19). Prospects wise, we believe the increasing contribution from Thailand and Indonesia (foreign felt sales accounted for c. 61% of 9M19 insulation revenue) should be more than sufficient to cover for the expected shortfall in local felt sales (est. 2020 TIV forecasts lower by 1% to 590k units).

Insulation Felt Plant in Thailand Should be Ready for Action by 2H20
Elsewhere, construction of the felt production facility in Thailand remains on track to be completed by 2H20, and OCP is planning to relocate one of its two existing Malaysian production lines to tap into 1) the strong demand for resinated felt and 2) increase utilisation of excess capacity (current utilisation rates: est.50%). Locally, we understand OCP has been supplying felt to Proton refreshed models (ie. Saga, Iriz and Persona), and with this track record, the company is hopeful to participate in the Proton Complete Knocked-Down (CKD) X50 supply chain moving forward. We think OCP may give the CKD X70 contract a miss due to unfavourable pricing, similar to our observation of other auto-parts players.

Hygiene Segment’s Margins to Benefit From Cheaper Resin Cost, …
Outlook for the hygiene segment still looks promising - 9M19 PBT rose by 10% yoy to RM2.5m, on higher revenue (+1% yoy) and improvement in PBT margins (+0.5ppt to 6.1%). We believe the cheaper resin cost (est. 80% of hygiene’s raw material costs) will likely see an uptick in hygiene’s margins in the coming quarters.

Source: Affin Hwang Research - 3 Jan 2020

Well managed, look at the steady earnings. Now what if PBT jumps by 100% over the next 2 years. Is RM180m market cap still valid???

Talking About ICON

ICON went limit up for the wrong reasons. Some are saying its because the terms were so convoluted and that not many know how to calculate the capital reduction.

PLEASE, this is not your first rodeo, this is not the first capital reduction exercise. You are all supposed to be professional investors or advisors.

The limit up was obviously caused by the 50 into one capital reduction. A simple calculation showed that ICON had 2.377bn shares. Divide that by 50 = 47.5 million shares. That must be close to the fewest number of shares listed by a company on Bursa.

The complaining parties ARE those who SOLD SHORT unwittingly. Imagine you had 100,000 prior to the ex date. It was trading at 4 sen, you value was RM4,000, and as with 99.9999% of ICON investors, you had lost money already big time.

Then you woke up and saw the price going limit up.

(0.035 x 50) + (100 × 0.105) ÷ 101 = 0.12 

Add the 30 sen limit up, you have 42 sen, today add another 30 sen you have 72 sen.

As you can see even at 72 sen, with just 47.5m shares its market cap is just RM34.2m. Of course, there are still other derivatives to cater to but let's forget that for now.

The main reason for the double limit up... OVERSOLD SHORT. Imagine that same guy with 100,000 shares (value RM4,000) and seeing it going limit up at 42 sen. Sell first lar... Trouble is he sold 100,000 consolidated shares when in reality he had only 100,000/50 = 2,000 shares.

Imagine you have to buy back the 98,000 ... say at an average of 62 sen ... you would have lost 62-42 = 20 sen x 98,000 =RM19,600

Bearing in mind your value was just RM4,000 to start with. The figures will multiply if you had shorted 1,000,000 ...

Bursa has done no wrong. This has been the same process for the longest time. Even our online accounts have default settings that do not allow investors to short sell stocks, i.e. selling what you don't have in your portfolio.

The ONLY people who can short sell are DAY TRADERS or proprietary traders or company dealers... though some bigshots do deal through company dealers' accounts first. Hence if you kena short sell... you get very little sympathy from all.

Psuedo Canto Movie Titles (Updated with Answers)

Most must have watched Douglas Lim's hilarious take on putting Canto-slang translated English to movie franchises. My kind of twisted sense of humour. So here's my contribution... see if you can decipher their Canto-slang meaning of these movie titles:

Sei Lun Ngang

Hai Lutt

Chi Seen

Hum Kar Chan

Hum Kar Ling

Asian Gaming Traits & Extrapolations To Business and Markets

Go to any casino in the world, be it Perth, Sentosa, Vegas, Seoul, London, ... and you are likely to hear occasional shouts of "Picture". Mind you, the shouts will largely come from groups of Asian gamblers from various countries, most of who will not be able to pass English at O Levels.

I have often wondered how the locals (those in non-Asian countries) viewed these Asian gamblers. Should you classify them as rude, boorish, madcap, poor appreciation of math and house margins', "should be in gamblers' anonymous", class-less, "does not know the value of money", etc...

As in any generalizations, there are more truths in these generalizations rather than pure myths. 


The Game

Ask a group of diverse people, you can easily separate true gamblers from amateurs:  the last 4 games of baccarat showed the PLAYER winning ... will you bet, and if you do, what will you bet on?

Normal Gamblers: BANKER, even though each game does not rely on past events, it is more unlikely that a fifth game will be won by PLAYER

Real Gamblers: PLAYER, a trend is hard to find, and when you find a trend, it is not just your friend but a best friend ... the fact that its 4th time in a row does not mean it more unlikely to be PLAYER, it just reinforced the momentum of the PLAYER going forward ... FOMO (fear of missing out)... this might be the only trend to run more than 10x tonight ... for every time it hits PLAYER you are just going to get a more religious group of converts shouting catchphrases like true believers .. they do not think of the negative but only positive, they visualize the 10th or 15th time it hits PLAYER

Conservative Gambler: Wait for the trend to turn, then bet. Thinking that they missed out on 4 of the runs, they just don't think it is worth it. These people want to catch it all rather than a tiny bit of it


Fate vs Destiny

To most Asians, gambling is more than just a past time activity. It is a means of challenging your own fate against destiny. Destiny is the bigger over-riding preordained feature for oneself. Fate is the inevitability of a usually adverse outcome. Like the saying goes, you won't know you are lucky unless you gamble. It sounds more like a gambler's epithet. 


Risk-Taking Nature

Asians by nature are ranked higher in risk-taking. The same argument can be made for early migrants to foreign shores as that must have been a massive risk-taking. It is also said that owing to that "genetic predisposition", you will find most migrants in foreign shores having a strong predisposition towards gambling. Not just Asians, in fact, you can include Greeks, Lebanese, Italians, etc... Generally, it takes one or two generations before that "genetic predisposition" is tamed (lol, need further study).

https://andropausesuccor.com/

Trend Is Your Friend

This is probably the most correlatable trait. Most Asian gamblers did not even know that they were master chartists even before they were born. Never go against a trend, even if there is a slight aberration, you can more easily explain it away to continue riding the trend. This is why history has shown consistently that Asian bull runs have been more vociferous and boisterous than Western bull runs. Part of the reasoning may be due to a larger market participation rate by individuals in Asian bourses compared to no-Asian bourses. Nonetheless, robust market activity in a bull run will be heightened on this "trend factor" or FOMO (fear of missing out). 


Math Is For Business

Will a smart business person be a good gambler. well, a truly smart business person will not be a reckless gambler. If I were to survey the Chinese company owners in Malaysia, there are just as many who are avid casino players and also as many who rather shun the place. Hence a good business person is and should not be a reckless gambler. 

Of course, there have been cases aplenty where company owners have gambled away their companies. As in anything, if you give in to excesses in life, be it gambling, drinking, sex or drugs ... there's no way your business life will be untouched.

Surely smart business people know the odds are stacked against them at casino games. Here, math matters only a little. However, one should know the odds margin that the casino holds against you in all games. Baccarat and blackjack have the smallest margins favouring the house. The more exotic the games become (e.g. 3 cards poker, 5 cards Carribean, ...) the margins are higher to the house. Don't even get me started on slots.






Control and Strategy

In gambling as in business, there must be a strategy, control factors and exit plan. Going in without them will almost guarantee "play till you lose it all".


Gambling Highs vs Business Highs - The Dopamine Effect


Research has shown that the drugs most commonly abused by humans (including opiates, alcohol, nicotine, amphetamines, and cocaine) create a neurochemical reaction that significantly increases the amount of dopamine that is released by neurons in the brain's reward center. 

These highs can be achieved in a smaller way via good companionship, regular exercise, a bit of alcohol and jolly friendships. People will tend to seek out the "darker evils" for dopamine when they cannot find them in their normal lifestyles. 


Advice

If you are going to gamble, first find something you are good at, or you like passionately. At the crux of it all its betting red or black, player or banker. If you are going to do that, do it where there are more variables involved, such as trading forex ... but you have to be good at reading economic variables, be on top of major business developments, read trends in economic figures, as well as be cognizant of chart movements and volume spikes ... then you may have a better than 0.5 chance of winning ... pick the best instrument that you are familiar with e.g. sgd/usd, or aud/usd, or yen/usd ... only do cross rates when you are really good.

If you are going to gamble, again find things that have more variables like stocks... earnings projections, aberrations and anomalies, learn to read financials, read industry trends, judge market sentiment, monitor shareholding changes, read charts for entry and exit points, etc... then if you are good at it you may have a better than 0.5 chance of winning.

Another safer way, go play Texas Poker among your friends, with a controlled budget. Even then, I doubt your chance of winning is 0.5.

London Biscuits - The Only Value Left Is In The Name

Let's look at the demise or downhill run by London Biscuits. We may then be able to see the various permutations involved and announced. How investors should react and so on.

Timeline

2019 February, London Biscuits’ external auditors Nexia SSY had expressed a qualified opinion on the group’s financial statements for the financial year ended Sept 30, 2018 (FY18). It had raised concern on the group’s physical inventories held at Sept 30, 2018, which were stated in the statements as RM26.89 million at the group level and RM20.79 million at the company level,
(LESSON: any kind of qualified opinion, one should sell first... our professional accountants are loathed to qualify anything unless its really necessary ... sell first then do research later, a lot of time to buy back if you were wrong)

On July 8, London Biscuits slipped into PN17 status after it defaulted on a RM9.8 million in loan payment to Bank of Nova Scotia Bhd,

(July 3), London Biscuits said that its executive director Datuk Ranjeet Singh Sidhu and its chief financial officer Loo Seng Kit had voluntarily resigned. Both had taken on their roles only on June 17,
(LESSON: when top management or board members resign suddenly, another big red flag... this one more so as these two were less than one month into their jobs)

https://andropausesuccor.com/

 (July 8), London Biscuits updated in a fresh filing with Bursa Malaysia that it was now a PN17 company due to the payment default,
(LESSON: PN17 generally will yield a shock selldown, PN17 is not all that bad, you have to assess how bad are the books as any potential asset injection or white knight to come in will have to judged on its viability... London Biscuit with just a cursory glance on numbers may require too much debt forgiveness and capital reduction to work for existing shareholders and creditors)

(Aug-Oct) Meileelanusa S/B disposed 5.9%, as of Oct 15 the company has only 7.35% from 13.8% in July,

 (Sept 24): Johor-based confectionery maker London Biscuits Bhd has been slapped with a lawsuit by Kuwait Finance House (Malaysia) Bhd (KFH) for RM5.06 million in outstanding debt,

(Oct 23), wind up petition and court-appointed PWCoopers Advisory as interim liquidators,

(Nov 12), MembersOne Ventures Fund, a Sydney based fund, has acquired 11.35%,

(Nov 15), in total London Biscuits has defaulted on RM285m

So who would buy now? Who are MembersOne Venture Fund? Only set up in 2017? Those who are cynical may say that the controlling shareholders, having sold at much higher levels, may have a reason to buy now to still "control" future firesale and/or white knight's

emergence. It is well known that most of the machinery in the company needs replacing or upgrading, hence you may even write that asset off altogether. SC needs to be more vigilant here looking at how volatile the changes have been to the company over the past 6 months. Too many things have happened, too many questions have surfaced.

Any value left in the company. The latest quarterly showed a Net Asset per share position of RM1.28. If you multiply by the number of shares 291m = RM372.5m. That is only slightly more than the loans being defaulted of RM285. Naturally net asset value would have already taken into account the loans, hence there should be a lot of vultures buying! But wait, they lose about 30-35 sen each quarter in net asset value. Looking at that trend alone, you would have avoided the stock 6 months ago. Judging on the qualified opinion and swift resignations of new management, one may suspect that the figures may not be reliable at all.

https://andropausesuccor.com/

Hence it is prudent to ignore the net asset value altogether, thus the only value left is the brand name London Biscuits. People who buy biscuits are usually not share investors.

My Own Comics

A few years back, on the official Dilbert site, you could pick any strips and put in your own words to create your own comic strips. I did quite a few. Hey, maybe I could make a living writing for a good cartoonist. Sadly the site does not allow "user creativity" anymore.

https://andropausesuccor.com/

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'.

https://andropausesuccor.com/

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

https://andropausesuccor.com/

- 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.

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.

http://andropausesuccor.com