Rejuvenation Led By Bank Of China's IPO
Bank of China's Shanghai-listed A shares soared as much as 31 percent on their trading debut Wednesday, helping to drive Shanghai's benchmark index to a two-year high and closing at a premium to its Hong Kong shares. The A shares closed at 3.79 yuan (HK$3.68) apiece, 23 percent up from the 3.08 yuan price set on June 20, with 1.8 billion shares changing hands. The benchmark Shanghai Composite Index, which included BOC on the bank's trading debut, climbed 2.2 percent to 1,718.56 points. The stock closed at a 4percent premium to the H shares, which slid 3.4 percent to HK$3.55. Mainland Chinese investors are returning to the stock market after the ending last month of a year- long ban on local listings imposed by the government while companies underwent share reforms.
BOC sold 6.5 billion shares at 3.08 yuan each to raise 20 billion yuan before listing Wednesday in Shanghai. The bank last month sold 25.6 billion shares at HK$2.95 each to raise US$11.2 billion before a Hong Kong listing. Investors in the Hong Kong stock were frustrated by the falling H-share price as they had expected a gain in line with the mainland increase. The spread between the A and H shares is mainly because there is no arbitrage mechanism in play, although one was proposed by former Hong Kong Exchanges and Clearing chairman Charles Lee Yep-kwong earlier this year. Arbitrage would allow investors to exploit the difference in value between two markets and so help to reduce the price difference.
The mainland and Hong Kong markets are serving different investors. H-share buyers are mostly institutional investors, while A-share purchasers are mainly the high net-worth retail investors. The bank, China's second largest lender, raised US$11.2 billion in an IPO in Hong Kong in May that was the world's fourth-largest ever.
The bank's IPO marks the beginning of a major transition for the markets, which until now have been dominated by manufacturing giants like China Petrochemical Corp., or Sinopec. With its listing, Bank of China displaced Sinopec as the Shanghai Stock Exchange's biggest listed stock, comprising almost 20 percent of its overall market capitalization. Other big state-owned banks such as ICBC (Industrial and Commercial Bank of China) and China Construction Bank will follow. So in the near future, the most important shares for the market will surely be financials. Regulators have said they expect IPOs by other major corporations to improve the quality of companies listed on the mainland Chinese exchanges, boosting investor confidence in China's markets, which have languished for years amid trading and corporate governance scandals.
Like other state-run commercial banks, Bank of China needs to replenish its capital after massive write-offs of bad debts. It also hopes to boost its competitiveness ahead of the full opening of China's banking industry to foreign competition later this year. China recently resumed IPOs after a yearlong break for shareholding reforms. So far, the offerings have received a warm reception. Construction contractor CAMC Engineering Co., the first company allowed to conduct an IPO after the moratorium ended, saw its share price more than quadruple on June 19, its first day of trading. Shenzhen Stock Exchange officials reportedly launched an investigation after the shares fell by their 10 percent daily limit in several successive trading sessions.
Performance of subsequent IPOs has been more moderate. Last week, Shenzhen Coship Electronics Co.'s shares more than doubled from their IPO price and Yunnan Salt & Chemical Industry Co., the next in line, netted a 75 percent gain on the first day of trading. People learned a lesson from the CAMC case, so they're likely to be more cautious about the Bank of China. Bank of China reported last week that its net profit rose 31 percent in 2005 to 27.5 billion yuan (US$3.4 billion)over the previous year.
Friday, July 07, 2006
China New Property Curbs
Beijing will soon issue rules to restrict property purchases by foreigners living in the mainland to cool speculation. The new policy would likely come in administrative orders, including strict systems on approval and registration. Government officials have previously said the new rules would include tax and administrative measures involving the Construction Ministry, taxation authority and foreign exchange regulator. The new measures may limit foreigners to buying only one or two homes for their own use and forbid them from selling them within a certain period of time. China previously encouraged foreigners to buy property as a means to attract foreign investment to help spur the economy, but a tide of money inflows has fueled housing speculation.
People from outside the mainland have been flocking in to buy expensive apartments or villas in fast-growing cities in an attempt to cash in on rising prices and to profit from the yuan's appreciation. Officials say recent steps to cool the sector are aimed at reining in speculation rather than choking demand from people buying their own homes. While the move to be introduced is "good", the real buying and speculation in China properties is by Hong Kongers. Beijing cannot alienate HKers by saying to them that they cannot buy more than one property in Beijing or Shanghai, so the next best thing is to stop the Taiwanese and Indonesians from speculating. China high end properties is a natural yuan denominated asset, and if you are looking at a 20% gain in the yuan over the next 24 months (very likely), your property will get a double whammy in returns.
What would have been better is to impose new rules such as a sliding property gains tax: 70% tax on gains if sold within the first 2 years; 50% tax if sold between 2-4 years; and normal tax rates if you had held it more than 4 years. That would certainly encourage genuine buyers only.
Beijing will soon issue rules to restrict property purchases by foreigners living in the mainland to cool speculation. The new policy would likely come in administrative orders, including strict systems on approval and registration. Government officials have previously said the new rules would include tax and administrative measures involving the Construction Ministry, taxation authority and foreign exchange regulator. The new measures may limit foreigners to buying only one or two homes for their own use and forbid them from selling them within a certain period of time. China previously encouraged foreigners to buy property as a means to attract foreign investment to help spur the economy, but a tide of money inflows has fueled housing speculation.
People from outside the mainland have been flocking in to buy expensive apartments or villas in fast-growing cities in an attempt to cash in on rising prices and to profit from the yuan's appreciation. Officials say recent steps to cool the sector are aimed at reining in speculation rather than choking demand from people buying their own homes. While the move to be introduced is "good", the real buying and speculation in China properties is by Hong Kongers. Beijing cannot alienate HKers by saying to them that they cannot buy more than one property in Beijing or Shanghai, so the next best thing is to stop the Taiwanese and Indonesians from speculating. China high end properties is a natural yuan denominated asset, and if you are looking at a 20% gain in the yuan over the next 24 months (very likely), your property will get a double whammy in returns.
What would have been better is to impose new rules such as a sliding property gains tax: 70% tax on gains if sold within the first 2 years; 50% tax if sold between 2-4 years; and normal tax rates if you had held it more than 4 years. That would certainly encourage genuine buyers only.
Wednesday, July 05, 2006
Update On Tebrau Teguh
Well, I wish I was that influential, the share price shot up from 38 sen to the present 53 sen in just a couple of days. The gratifying thing is that the rise was controlled, steady and any profit taking was swiftly bought back up. The positives:
a) broke past its 52 week high of 46 sen convincingly, technically next technical barrier is around the 72 sen barrier
b) the volume for past 2 days were 50 million and 84 million. Today's volume should close at around 60 million. These are very decent volume and the closing price was near the day's high and always in the plus. The implications are that if there was one or two big players behind this, they are still collecting.
c) All and sundry are allowed to take their 15%-25% profits and run, and the buyers are very strong. There appears to be a few very deep pockets from Singapore collecting tons of Tebrau for keeps. Well, its better than buying Johor property for the Johor Play or the Malaysian Plan right?!~! d) considering the volume, just the last 3 days would have seen at least 60-80 million being collected from the free float for keep. The paid up is nearly 700 but the Johor state body can never sell down its 42% stake in the market, so the actual free float is getting less er by the day. At my estimate, only less than 200 million shares are floating now - should volume keep at 50 million a day and assuming 70% are contra players - natural forces will work to mop up the free float. The story and fundamentals are convincing enough for enough buyers to buy and hold to only sell at much higher levels (e.g. RM1.00), this will continue to restrict free float and dry up supply, making the uptrend easier.
e) Again, this might be the likely market leader for the 9th Malaysia Plan Johor Play (which is supposed to take up over RM12 billion of the 9MP).
While I am not advocating buying or selling but just on facts and technicals, Tebrau has some legs in this run. The fundamentals are supporting its run also. The 9MP is helping matters and the story is easy to convince anyone and everyone. Good luck!
Well, I wish I was that influential, the share price shot up from 38 sen to the present 53 sen in just a couple of days. The gratifying thing is that the rise was controlled, steady and any profit taking was swiftly bought back up. The positives:
a) broke past its 52 week high of 46 sen convincingly, technically next technical barrier is around the 72 sen barrier
b) the volume for past 2 days were 50 million and 84 million. Today's volume should close at around 60 million. These are very decent volume and the closing price was near the day's high and always in the plus. The implications are that if there was one or two big players behind this, they are still collecting.
c) All and sundry are allowed to take their 15%-25% profits and run, and the buyers are very strong. There appears to be a few very deep pockets from Singapore collecting tons of Tebrau for keeps. Well, its better than buying Johor property for the Johor Play or the Malaysian Plan right?!~! d) considering the volume, just the last 3 days would have seen at least 60-80 million being collected from the free float for keep. The paid up is nearly 700 but the Johor state body can never sell down its 42% stake in the market, so the actual free float is getting less er by the day. At my estimate, only less than 200 million shares are floating now - should volume keep at 50 million a day and assuming 70% are contra players - natural forces will work to mop up the free float. The story and fundamentals are convincing enough for enough buyers to buy and hold to only sell at much higher levels (e.g. RM1.00), this will continue to restrict free float and dry up supply, making the uptrend easier.
e) Again, this might be the likely market leader for the 9th Malaysia Plan Johor Play (which is supposed to take up over RM12 billion of the 9MP).
While I am not advocating buying or selling but just on facts and technicals, Tebrau has some legs in this run. The fundamentals are supporting its run also. The 9MP is helping matters and the story is easy to convince anyone and everyone. Good luck!
No Capital Gains Tax For Paulson
Is Paulson Friends With Thaksin?
Former Goldman Sachs CEO Henry Paulson filed to sell about US$500 million worth of Goldman Sachs stock last Thursday shortly after the U.S. Senate voted to confirm his appointment as U.S. Treasury Secretary. Paulson filed to sell 3.23 million shares in a shelf offering of Goldman Sachs stock according to a prospectus filed with regulators. Based on the bank's closing price of US$152.50 on Thursday, the stock is worth about US$492 million. The banking chieftain is unloading the shares to adhere to conflict-of-interest rules. In addition to the 3.2 million shares, Paulson also owns restricted stock units representing 494,054 shares of common stock, all of which are vested and deliverable. The restricted units are worth about $75 million. He also owns options to purchase 680,474 shares of common stock, all of which are exercisable. Paulson's common stock, together with the shares of common stock underlying the restricted stock units and options represent approximately 1.02% of the outstanding shares of common stock of Goldman Sachs.
Paulson became chairman and chief executive officer of Goldman Sachs in May 1999, US$35 million in salary including cash and stock options in 2005. Interestingly, under U.S. government ethics rules, while Paulson is required to sell the shares, he is also exempt from paying taxes on any capital gains on the sale if he obtains a certificate of divestiture. The rule granting the exemption is designed to make sure prospective government employees who own a lot of stock are not dissuaded from joining the government. The Economist magazine estimated the rule eliminate a tax liability of up to about US$200 million for Paulson. As a result, Paulson, and others in the same position, are able to sell shares have the funds reinvested in more diverse holding, and will only be subject to taxes on the capital gain when and if they are later realized.
Paulson, who joined Goldman in 1974, is following the path of former Goldman CEO Robert Rubin, who was Treasury Secretary under President Bill Clinton. Other recent Goldman Sachs executives now in high-profile jobs include New Jersey Gov. Jon Corzine and John Thain, a former Goldman Sachs operations chief who now heads up the New York Stock Exchange. Current White House Chief of Staff Josh Bolton was working at Goldman before being tapped as policy director for President Bush's 2000 campaign.
Is Paulson Friends With Thaksin?
Former Goldman Sachs CEO Henry Paulson filed to sell about US$500 million worth of Goldman Sachs stock last Thursday shortly after the U.S. Senate voted to confirm his appointment as U.S. Treasury Secretary. Paulson filed to sell 3.23 million shares in a shelf offering of Goldman Sachs stock according to a prospectus filed with regulators. Based on the bank's closing price of US$152.50 on Thursday, the stock is worth about US$492 million. The banking chieftain is unloading the shares to adhere to conflict-of-interest rules. In addition to the 3.2 million shares, Paulson also owns restricted stock units representing 494,054 shares of common stock, all of which are vested and deliverable. The restricted units are worth about $75 million. He also owns options to purchase 680,474 shares of common stock, all of which are exercisable. Paulson's common stock, together with the shares of common stock underlying the restricted stock units and options represent approximately 1.02% of the outstanding shares of common stock of Goldman Sachs.
Paulson became chairman and chief executive officer of Goldman Sachs in May 1999, US$35 million in salary including cash and stock options in 2005. Interestingly, under U.S. government ethics rules, while Paulson is required to sell the shares, he is also exempt from paying taxes on any capital gains on the sale if he obtains a certificate of divestiture. The rule granting the exemption is designed to make sure prospective government employees who own a lot of stock are not dissuaded from joining the government. The Economist magazine estimated the rule eliminate a tax liability of up to about US$200 million for Paulson. As a result, Paulson, and others in the same position, are able to sell shares have the funds reinvested in more diverse holding, and will only be subject to taxes on the capital gain when and if they are later realized.
Paulson, who joined Goldman in 1974, is following the path of former Goldman CEO Robert Rubin, who was Treasury Secretary under President Bill Clinton. Other recent Goldman Sachs executives now in high-profile jobs include New Jersey Gov. Jon Corzine and John Thain, a former Goldman Sachs operations chief who now heads up the New York Stock Exchange. Current White House Chief of Staff Josh Bolton was working at Goldman before being tapped as policy director for President Bush's 2000 campaign.
Dinner Anyone?
Duan Yongping To Brush Up Table Manners
A lunch date with billionaire investor Warren Buffett is getting pricier. Someone paid US$620,100 in an online charity auction to dine with the Oracle of Omaha in New York. In last year's auction, the winning bid was US$351,100. Five individuals placed 29 bids in the eBay auction that ended Thursday evening. The winner of the auction was identified only by the eBay user name "fastisslow." Proceeds from the auction go to the Glide Foundation, which provides social services to the poor and homeless in San Francisco. The winning bidder will be able to take seven friends to lunch with Buffett, who is chairman and chief executive of Omaha-based Berkshire Hathaway. The owners of the Smith and Wollensky restaurant in New York contributed US$10,000 to Glide and will host the lunch.
This year's lunch with Buffett is the second-most expensive charity item ever sold on eBay. The most expensive charity item ever sold on eBay was a Harley Davidson motorcycle autographed by celebrities that Jay Leno offered last year. That bike raised US$800,100 for the American Red Cross' tsunami relief effort. The next highest-priced charity item was a lunch and golf outing for four with Tiger Woods that sold in 2001 for US$425,000. This is the fourth year Buffett has auctioned a lunch on eBay and donated the proceeds to the Glide Foundation. Buffett began auctioning the lunches for the charity off-line in 2000.
Yongping Duan, a 45 year old California investor and former consumer electronics company owner is the proud winner of Ebay's auction for Lunch with Warren Buffett. Identified on Ebay as "fastisslow", he beat out a Taipei businessman named Rocky Liang whose Ebay name is "magicyourlife". After reading one of Buffett's books Duan said "I mostly want to thank him'' for the advice."... Duan gets to bring seven friends to a New York steakhouse to query Buffett, the world's second-richest man, about his business strategy and investment philosophy. The 75-year-old chairman and chief executive officer of Omaha, Nebraska-based Berkshire Hathaway Inc. transformed a failing textile manufacturer into a US$142 billion holding company by acquiring out-of-favor securities and businesses in dozens of industries.
``We didn't pay for the lunch, we paid for the fundraising,'' Duan said. The Enlight Foundation, which his family founded and runs, will provide the donation, he said. ``Warren Buffett chose the pocket for me to donate to.'' ... Duan was a ``proxy'' bidder, meaning EBay automatically topped the highest offer by $100 on his behalf. The world's largest online auctioneer was authorized to do so as long as the offer didn't exceed his limit of US$650,000.
Mohnish Pabrai, who manages US$300 million at Pabrai Investment Funds in Irvine, California, including about US$30 million in Berkshire shares, stopped bidding at $502,300. ``My wife will treat me to a good dinner, and we will come back next year,'' he said of losing, in an interview before the auction ended....
Duan Yongping went to Zhejiang University in 1978, majored in Wireless Electronics Engineering. After his graduation, he worked in Beijing for a while and then obtained a master degree in Econometrics from Renmin University. After that, Duan started his career as an entrepreneur in South China in 1989. Ten years later, he achieved great success in building up two of the most famous brands in China ¨C Subor ( Xiao Ba Wang) and BBK ( Bu Bu Gao) and became a young hero of business in China....
Duan Yongping To Brush Up Table Manners
A lunch date with billionaire investor Warren Buffett is getting pricier. Someone paid US$620,100 in an online charity auction to dine with the Oracle of Omaha in New York. In last year's auction, the winning bid was US$351,100. Five individuals placed 29 bids in the eBay auction that ended Thursday evening. The winner of the auction was identified only by the eBay user name "fastisslow." Proceeds from the auction go to the Glide Foundation, which provides social services to the poor and homeless in San Francisco. The winning bidder will be able to take seven friends to lunch with Buffett, who is chairman and chief executive of Omaha-based Berkshire Hathaway. The owners of the Smith and Wollensky restaurant in New York contributed US$10,000 to Glide and will host the lunch.
This year's lunch with Buffett is the second-most expensive charity item ever sold on eBay. The most expensive charity item ever sold on eBay was a Harley Davidson motorcycle autographed by celebrities that Jay Leno offered last year. That bike raised US$800,100 for the American Red Cross' tsunami relief effort. The next highest-priced charity item was a lunch and golf outing for four with Tiger Woods that sold in 2001 for US$425,000. This is the fourth year Buffett has auctioned a lunch on eBay and donated the proceeds to the Glide Foundation. Buffett began auctioning the lunches for the charity off-line in 2000.
Yongping Duan, a 45 year old California investor and former consumer electronics company owner is the proud winner of Ebay's auction for Lunch with Warren Buffett. Identified on Ebay as "fastisslow", he beat out a Taipei businessman named Rocky Liang whose Ebay name is "magicyourlife". After reading one of Buffett's books Duan said "I mostly want to thank him'' for the advice."... Duan gets to bring seven friends to a New York steakhouse to query Buffett, the world's second-richest man, about his business strategy and investment philosophy. The 75-year-old chairman and chief executive officer of Omaha, Nebraska-based Berkshire Hathaway Inc. transformed a failing textile manufacturer into a US$142 billion holding company by acquiring out-of-favor securities and businesses in dozens of industries.
``We didn't pay for the lunch, we paid for the fundraising,'' Duan said. The Enlight Foundation, which his family founded and runs, will provide the donation, he said. ``Warren Buffett chose the pocket for me to donate to.'' ... Duan was a ``proxy'' bidder, meaning EBay automatically topped the highest offer by $100 on his behalf. The world's largest online auctioneer was authorized to do so as long as the offer didn't exceed his limit of US$650,000.
Mohnish Pabrai, who manages US$300 million at Pabrai Investment Funds in Irvine, California, including about US$30 million in Berkshire shares, stopped bidding at $502,300. ``My wife will treat me to a good dinner, and we will come back next year,'' he said of losing, in an interview before the auction ended....
Duan Yongping went to Zhejiang University in 1978, majored in Wireless Electronics Engineering. After his graduation, he worked in Beijing for a while and then obtained a master degree in Econometrics from Renmin University. After that, Duan started his career as an entrepreneur in South China in 1989. Ten years later, he achieved great success in building up two of the most famous brands in China ¨C Subor ( Xiao Ba Wang) and BBK ( Bu Bu Gao) and became a young hero of business in China....
Tuesday, July 04, 2006
World Is Getting Smaller 3
M&A Deals Shaping Our World
Gosh... Nissan-Renault-GM
The board of Nissan has agreed to explore ways to create a 3-way-auto-giant by linking up with Renault and General Motors. Renault's board is expected to come to the same conclusion this coming Monday. The proposal will help old foggie Kirk Kerkorian to make a lot of money thanks to his stake in GM, and yes, the proposal was mooted by Kerkorian with Ghosn.
Mittal Steel - Arcelor
Surprisingly, Arcelor shareholders voted not to proceed to a merger with Severstal of Russia. The proposed deal was supposed to thwart Mittal's appetite for Arcelor. This puts Mittal back in the driving seat. Arcelor should just sell itself to Mittal Steel instead of flubbing around. The termination of talks with Severstal meant that Severstal will receive a US$179 million termination fee from Arcelor. Why is control so important? The right price should be the final determinant, a company is not a playground for egos or toys for geezers.
Nestle - Jenny Craig
This deal is smallish but still significant. Nestle, a confectionery superpower and chocolatey-milky giant, already bought Lean Cuisine (prepackaged food for those on a diet), and the purchase of Jenny Craig slimming centers basically helps Nestle to cover all bases from A, B and C. First, you indulge on Nestle products (A), you get overweight, then proceed to Jenny Craig (B), who will inadvertently recommend Lean Cuisine (C). Successful completion of B+C will allow you to revert back to A. At any point should you be stuck at B or C or A is fine by Nestle. Nestle will kepp you in the loop and will make money off you for the rest of your life, unless you are bulimic.
M&A Deals Shaping Our World
Gosh... Nissan-Renault-GM
The board of Nissan has agreed to explore ways to create a 3-way-auto-giant by linking up with Renault and General Motors. Renault's board is expected to come to the same conclusion this coming Monday. The proposal will help old foggie Kirk Kerkorian to make a lot of money thanks to his stake in GM, and yes, the proposal was mooted by Kerkorian with Ghosn.
Mittal Steel - Arcelor
Surprisingly, Arcelor shareholders voted not to proceed to a merger with Severstal of Russia. The proposed deal was supposed to thwart Mittal's appetite for Arcelor. This puts Mittal back in the driving seat. Arcelor should just sell itself to Mittal Steel instead of flubbing around. The termination of talks with Severstal meant that Severstal will receive a US$179 million termination fee from Arcelor. Why is control so important? The right price should be the final determinant, a company is not a playground for egos or toys for geezers.
Nestle - Jenny Craig
This deal is smallish but still significant. Nestle, a confectionery superpower and chocolatey-milky giant, already bought Lean Cuisine (prepackaged food for those on a diet), and the purchase of Jenny Craig slimming centers basically helps Nestle to cover all bases from A, B and C. First, you indulge on Nestle products (A), you get overweight, then proceed to Jenny Craig (B), who will inadvertently recommend Lean Cuisine (C). Successful completion of B+C will allow you to revert back to A. At any point should you be stuck at B or C or A is fine by Nestle. Nestle will kepp you in the loop and will make money off you for the rest of your life, unless you are bulimic.
Monday, July 03, 2006
Top Buys For 2006 #7 - Tebrau Teguh
Johor Play
Followers of Malaysian stocks would have been noticing the fortunes of Tebrau. It has been going up and down between 28 sen and 40 sen over the last 2-3 weeks, but appears to have more legs this time around. Its a known fact that the 9th Malaysian Plan will proceed soon and that South Johor is the key lynch point for the development. Its about time too as the vast tracts of land in South Johor is not being used to its potential. The proximity to Singapore has not been capitalised. Instead of just being a cowboy town for Singaporeans to come and buy one and all things cheaply, its high time that the government leverage the cheap landbank, huge labour force, proximity of the people with spending power in Singapore, latch onto the rise and rise of tourism with the two Integrated Resorts in Singapore, take advantage of the double strength Singapore dollar to attract investment, and basically to up the quality of earnings from South Johor.
The logistics are there with international airports at Changi and Senai. Plus the seaports at Tanjung Pelepas, Pasir Gudang and Pasir Panjang. Singaporeans view investing in South johor as a much better option than even investing in KL (seriously), so the captive attraction is already there, ... just put on a show. Already manufacturing investment has jumped enormously over the last 5 years, as the land starved Singapore operations were being moved to Johor. Johor to Singapore is a lot like Shenzhen to HK. Just have a look at the recent approved FDIs into Johor: Flextronics (Dutch) RM1.4 billion, JST Connectors (Japan) Rm1.0 billion, Podoyo Plastic (S'pore) RM1.5 billion, Sanyo PT (Japan) RM1.0 billion, CIBA Vision (Switz) RM0.5 billion and the mega OSI System (US) RM6-8 billion.
Under the 9MP, some RM12.2 billion is to be spent developing South Johor. Projects include: Integrated Leisure Resort (yes, the Nusajaya project with the rumoured Disney), Education City (4 foreign universities and an expected 20,000 student population), Medical City (regional hospital facility to attract regional patients), Bullet Train (KL-Johor). etc...
There are many listed counters which will stand to gain enormously from the long term plans: MMC, UEM World, Gamuda, SP Setia, Mulpha and to a lesser extent IJM. However, all of them are already relatively big companies and the benefits accruing to them could be dwarfed by their size. The situation quite different for Tebrau Teguh.
Its 42% owned by Kumpulan Prasarana & Rakyat Johor and has 670 million shares only. At current prices, its market capitalisation is only RM240 million or thereabouts. The biggets asset they have is one of the largest piece of undeveloped land measuring 1,012 acres just 5km from Johor Bahru city center. Its right on the Tebrau-Plentong River Basin, and just next to the JB-Singapore causeway, accessible via the North-South highway. Recent transactions of commercial land in JB was around the RM110psf. Tebrau's book value sits at RM13.40 psf.
The triggers to a revaluation of the stock price would stem from probable joint ventures with Malaysian or even Singaporean construction and property development firms - the company must be fielding tons of meetings from prospective JV partners everyday. A simple revaluation to 90% of the current land values would already push the NTA to RM1.50. However, this is a medium and long term stock and should be regarded as such.
Paid Up: 669.9 million shares
Current Price: 38 sen
52 week Hi-low: 10 sen - 46 sen
Bloomberg Code: TEB MK
KLSE Code: 1589
Current NTA: 70 sen
Revalued NTA to 90% Of Market Price: RM1.50
Dec 2006 Target Price: RM0.80 (Return 110%)
Dec 2007 Target Price: RM1.20 (Return 215%)
Debt is almost zilch, and the other great thing is that the main owner "cannot / should not" sell down its shares. The market cap is also too ridiculously low for the share to collapse, but to gain a couple of times market cap is very easy. So buying below 45 sen looks very safe indeed as there would be no substantive sellers.... c'mon who would sell an almost debt free company with just RM300 million in market cap sitting on the most lucrative piece of land in Johor, and trading 50% below NTA???!!! Any selling would find willing buyers of the stock at every juncture.
Johor Play
Followers of Malaysian stocks would have been noticing the fortunes of Tebrau. It has been going up and down between 28 sen and 40 sen over the last 2-3 weeks, but appears to have more legs this time around. Its a known fact that the 9th Malaysian Plan will proceed soon and that South Johor is the key lynch point for the development. Its about time too as the vast tracts of land in South Johor is not being used to its potential. The proximity to Singapore has not been capitalised. Instead of just being a cowboy town for Singaporeans to come and buy one and all things cheaply, its high time that the government leverage the cheap landbank, huge labour force, proximity of the people with spending power in Singapore, latch onto the rise and rise of tourism with the two Integrated Resorts in Singapore, take advantage of the double strength Singapore dollar to attract investment, and basically to up the quality of earnings from South Johor.
The logistics are there with international airports at Changi and Senai. Plus the seaports at Tanjung Pelepas, Pasir Gudang and Pasir Panjang. Singaporeans view investing in South johor as a much better option than even investing in KL (seriously), so the captive attraction is already there, ... just put on a show. Already manufacturing investment has jumped enormously over the last 5 years, as the land starved Singapore operations were being moved to Johor. Johor to Singapore is a lot like Shenzhen to HK. Just have a look at the recent approved FDIs into Johor: Flextronics (Dutch) RM1.4 billion, JST Connectors (Japan) Rm1.0 billion, Podoyo Plastic (S'pore) RM1.5 billion, Sanyo PT (Japan) RM1.0 billion, CIBA Vision (Switz) RM0.5 billion and the mega OSI System (US) RM6-8 billion.
Under the 9MP, some RM12.2 billion is to be spent developing South Johor. Projects include: Integrated Leisure Resort (yes, the Nusajaya project with the rumoured Disney), Education City (4 foreign universities and an expected 20,000 student population), Medical City (regional hospital facility to attract regional patients), Bullet Train (KL-Johor). etc...
There are many listed counters which will stand to gain enormously from the long term plans: MMC, UEM World, Gamuda, SP Setia, Mulpha and to a lesser extent IJM. However, all of them are already relatively big companies and the benefits accruing to them could be dwarfed by their size. The situation quite different for Tebrau Teguh.
Its 42% owned by Kumpulan Prasarana & Rakyat Johor and has 670 million shares only. At current prices, its market capitalisation is only RM240 million or thereabouts. The biggets asset they have is one of the largest piece of undeveloped land measuring 1,012 acres just 5km from Johor Bahru city center. Its right on the Tebrau-Plentong River Basin, and just next to the JB-Singapore causeway, accessible via the North-South highway. Recent transactions of commercial land in JB was around the RM110psf. Tebrau's book value sits at RM13.40 psf.
The triggers to a revaluation of the stock price would stem from probable joint ventures with Malaysian or even Singaporean construction and property development firms - the company must be fielding tons of meetings from prospective JV partners everyday. A simple revaluation to 90% of the current land values would already push the NTA to RM1.50. However, this is a medium and long term stock and should be regarded as such.
Paid Up: 669.9 million shares
Current Price: 38 sen
52 week Hi-low: 10 sen - 46 sen
Bloomberg Code: TEB MK
KLSE Code: 1589
Current NTA: 70 sen
Revalued NTA to 90% Of Market Price: RM1.50
Dec 2006 Target Price: RM0.80 (Return 110%)
Dec 2007 Target Price: RM1.20 (Return 215%)
Debt is almost zilch, and the other great thing is that the main owner "cannot / should not" sell down its shares. The market cap is also too ridiculously low for the share to collapse, but to gain a couple of times market cap is very easy. So buying below 45 sen looks very safe indeed as there would be no substantive sellers.... c'mon who would sell an almost debt free company with just RM300 million in market cap sitting on the most lucrative piece of land in Johor, and trading 50% below NTA???!!! Any selling would find willing buyers of the stock at every juncture.
Friday, June 30, 2006
World Cup 2006 Update
Quarter Finals
Germany vs Argentina
At the start of the tournament, only 20% of Germans surveyed believed that their team can win the cup. I am certain the figure is up to 80 or 90 percent by now. The trouble is, Germans are playing well and may have peaked too soon. If its the spectacular to win the match, then Argentina has more flair and firepower. Neutral on this game, slightly favouring Argentina to win as this team is the least cynical of all Argies teams for the past 20 years. When you have the skill and ability, you need not resort to cynical play.
Italy vs Ukraine
I was a neutral on Italians before. The grave injustice in their match with Australia makes me wish I was a Buddhist, then karma should prevail and have the Italians playing well this match and then losing to a very dubious penalty to Ukraine. Italy can go home for all I care.
England vs Portugal
The team that coached itself. What is the value of having Ericksson? If he plays Rooney as a lone striker again, England should lose. If they play a 4-4-2 with Rooney and Crouch upfront, England will win. England needs Crouch to hold the ball up for flicks and allow others to run into spaces. Needs Joe Cole and Lennon at wings to run at defenders and draw Portugal's defence wide. Hargraves should not play. Same with Carrick. Although I was brought up following the Red Devils, England should lose thanks to Ericksson, unless he follows what I have written... lol... Its a match, more for England to lose, rather than Portugal to win.
Brazil vs France
The old foggies got lucky, nothing to write home about Vive La blues shyyytt... Go home and eat your innards and fine cheeses. You stink. I mean, you stunk, and you stink.
Quarter Finals
Germany vs Argentina
At the start of the tournament, only 20% of Germans surveyed believed that their team can win the cup. I am certain the figure is up to 80 or 90 percent by now. The trouble is, Germans are playing well and may have peaked too soon. If its the spectacular to win the match, then Argentina has more flair and firepower. Neutral on this game, slightly favouring Argentina to win as this team is the least cynical of all Argies teams for the past 20 years. When you have the skill and ability, you need not resort to cynical play.
Italy vs Ukraine
I was a neutral on Italians before. The grave injustice in their match with Australia makes me wish I was a Buddhist, then karma should prevail and have the Italians playing well this match and then losing to a very dubious penalty to Ukraine. Italy can go home for all I care.
England vs Portugal
The team that coached itself. What is the value of having Ericksson? If he plays Rooney as a lone striker again, England should lose. If they play a 4-4-2 with Rooney and Crouch upfront, England will win. England needs Crouch to hold the ball up for flicks and allow others to run into spaces. Needs Joe Cole and Lennon at wings to run at defenders and draw Portugal's defence wide. Hargraves should not play. Same with Carrick. Although I was brought up following the Red Devils, England should lose thanks to Ericksson, unless he follows what I have written... lol... Its a match, more for England to lose, rather than Portugal to win.
Brazil vs France
The old foggies got lucky, nothing to write home about Vive La blues shyyytt... Go home and eat your innards and fine cheeses. You stink. I mean, you stunk, and you stink.
Rise Of Buyout Funds & Implications
Companies Cash Hoard Targeted Soon
Kohlberg Kravis Roberts is looking to collect US$15.5 billion this year for what will be the biggest takeover fund ever formed - topping the loot raised by fellow barbarians Stephen Schwarzman, David Bonderman and Leon Black. Schwartzman's Blackstone Group, Bonderman's Texas Pacific Group and Black's Apollo Management are all raising new war chests that are likely to be filled with more than US$14 billion EACH. KKR's new fund will give it the firepower to pursue bigger takeovers of better-known corporations. The firm, founded in 1976, has already controlled some of the world's most iconic companies including Toys 'R' Us, Texaco and Gillette. The billions flowing into private-equity funds this year have many betting that KKR's record US$31 billion leveraged buyout of RJR Nabisco in 1988 will be shattered.
This week, four buyout firms including Texas Pacific agreed to shell out US$900 million each for Spanish-language broadcaster Univision. New York-based KKR has made tons of money for its investors, and its current buyout fund, formed in 2002, has paper gains of nearly 400 percent. If you were to total the amount of funds raised for buyouts this year alone, you know that these funds will have to make big acquisitions. Its silly to do 20 smaller deals to invest the fund size, its better to do 2 or 3 deals to matches your fund size. Having said that, opportunities will dry up in the US and Europe and thats why a number of the buyout funds have already set up shop with offices in Asia over the past 2 years. Even if 10% of the funds raised by the top 5 were to get to Asia, that would be substantive.
Carlyle Group plans to double the size of its new Japan buyout fund to 200 billion yen (US$1.7 billion) as investors seek to profit from Japan's economic expansion. The fund size might pale in comparison to KKR, Texas Pacific or Blackstone but we have to remember that this is a country specific fund. The firm's second Japan fund will be the biggest targeting acquisitions in the world's second-largest economy. Overseas funds including Fortress Investment Group and RHJ International spent US$2.9 billion buying Japanese companies so far in 2006, betting the nation's fastest economic growth in 15 years will boost corporate profits. Takeovers in Japan almost doubled to US$125 billion last year. Combined net income for 2,250 Japanese companies rose 35 percent to 36.5 trillion yen in the year ended March 31 2006. Japan's economy expanded 3.2 percent in the same period.
Buyout funds profit by selling stakes in their acquisitions through initial public offerings after cutting costs and shedding assets to boost earnings. The early bird should be applauded for its risk taking strategy to step in when no one dared - Ripplewood Holdings LLC, a New York- based fund, reaped an almost fivefold return when it sold two- thirds of Shinsei Bank Ltd., the first Japanese lender acquired by overseas investors. Carlyle's capital raising follows its announcement earlier this month of a US$668 million fund to invest in Asia, and is four times the 50 billion yen raised for its Japan Partners fund in 2001. It's more than double the 82.5 billion yen raised by Mark Chiba's Longreach Group in April. Carlyle and other investors in mobile wireless firm Willcom Inc. plan to sell some of their holding in a 100 billion yen initial public offering early next year, people familiar with the plan said in April. Carlyle, Kyocera Corp. and KDDI paid 220 billion yen for 90 percent of the company in October 2004, with Carlyle taking a 60 percent stake. Carlye last year sold Asahi Security Co., a provider of cash-management services acquired in 2002, and Colin Corp., a failed Japanese maker of blood pressure monitors purchased in 2003.
Carlyle, as a whole group, and New York-based Riverstone Holdings LLC in April raised US$4.5 billion to purchase oil drillers and suppliers of solar and renewable power. Buyout funds gathered a record US$134 billion last year, more than twice the amount amassed in 2004.
I am sure the top management of well managed companies are smiling to themselves, waiting for that phone call from Texas Pacific or KKR. You would find many of the companies being willing sellers are many of the top management have huge options and even parachute agreements (forced out due to a new controlling owner). Most of these buyout funds would however, negotiate an even more attractive package to ensure key top managers stay to improve the company's fortunes. No wonder many CEOs are smiling.
Its also a very good time to do buyouts because never in the history of US companies when you have some many top companies sitting on so much cash in the bank. After enjoying 16 straight quarters of double-digit earnings growth, industrial companies in the Standard & Poor's 500 have stuffed their corporate piggy banks with US$642.7 billion in cash. Not only is that a record, it's a big enough chunk of change to throw off some serious interest revenue which adds to companies' profit. Interest revenue generated by the cash held by industrial companies in the S&P is expected to soar 64% this year after gaining 38% in 2005.
The higher interest payments are coming at an opportune time. S&P 500 companies' earnings are expected to rise just 7.6%. The added interest income might be just enough to help some companies stay above the 10% growth mark. Top companies with the big stash include:
•ExxonMobil - No company in the USA has more cash than the world's No. 1 oil company. It has approximately US$36.5 billion in cash. That's more than the annual gross domestic product of Iceland. Interest generated by its cash pile hit US$946 million in 2005, up 162% from 2004 and 313% from 2003.
•Goodyear Tyre - Goodyear's cash stack of US$1.8 billion doesn't rank in the top 10. But it's a staggering amount considering the company's market value is US$2.3 billion.
•Microsoft - Despite paying a US$32 billion one-time dividend in 2004 and starting an annual dividend in 2003, the company still has US$34.8 billion in cash and short-term investments.
Other notables include Johnson & Johnson with US$17.2 billion, Pfizer with US$15.5 billion (that could be doubled with the recent sale of their comsumer product unit), Cisco with US$15 billion, Motorola with US$14.6 billion (thanks to its superior Razr phone, the amount show grow at a faster pace), Aetna Insurance US$14.4 billion, Merck with US$12.4 billion, IBM with US$12.3 billion and Hewlett-Packard with US$11.9 billion.
A company having lots of cash makes for a great takeover target. Of the lot, HP looks like a sitting duck. Even Motorola is attractive should the controlling family wants to exit. Now, no one is safe from a takeover, just being big is no longer a defense. All in, the enormous amount of cash hoarded by so many companies, coupled with the sizable funds raised by buyout firms, and the rise of hedge funds - all are underpinning the buy side of the companies.
Companies Cash Hoard Targeted Soon
Kohlberg Kravis Roberts is looking to collect US$15.5 billion this year for what will be the biggest takeover fund ever formed - topping the loot raised by fellow barbarians Stephen Schwarzman, David Bonderman and Leon Black. Schwartzman's Blackstone Group, Bonderman's Texas Pacific Group and Black's Apollo Management are all raising new war chests that are likely to be filled with more than US$14 billion EACH. KKR's new fund will give it the firepower to pursue bigger takeovers of better-known corporations. The firm, founded in 1976, has already controlled some of the world's most iconic companies including Toys 'R' Us, Texaco and Gillette. The billions flowing into private-equity funds this year have many betting that KKR's record US$31 billion leveraged buyout of RJR Nabisco in 1988 will be shattered.
This week, four buyout firms including Texas Pacific agreed to shell out US$900 million each for Spanish-language broadcaster Univision. New York-based KKR has made tons of money for its investors, and its current buyout fund, formed in 2002, has paper gains of nearly 400 percent. If you were to total the amount of funds raised for buyouts this year alone, you know that these funds will have to make big acquisitions. Its silly to do 20 smaller deals to invest the fund size, its better to do 2 or 3 deals to matches your fund size. Having said that, opportunities will dry up in the US and Europe and thats why a number of the buyout funds have already set up shop with offices in Asia over the past 2 years. Even if 10% of the funds raised by the top 5 were to get to Asia, that would be substantive.
Carlyle Group plans to double the size of its new Japan buyout fund to 200 billion yen (US$1.7 billion) as investors seek to profit from Japan's economic expansion. The fund size might pale in comparison to KKR, Texas Pacific or Blackstone but we have to remember that this is a country specific fund. The firm's second Japan fund will be the biggest targeting acquisitions in the world's second-largest economy. Overseas funds including Fortress Investment Group and RHJ International spent US$2.9 billion buying Japanese companies so far in 2006, betting the nation's fastest economic growth in 15 years will boost corporate profits. Takeovers in Japan almost doubled to US$125 billion last year. Combined net income for 2,250 Japanese companies rose 35 percent to 36.5 trillion yen in the year ended March 31 2006. Japan's economy expanded 3.2 percent in the same period.
Buyout funds profit by selling stakes in their acquisitions through initial public offerings after cutting costs and shedding assets to boost earnings. The early bird should be applauded for its risk taking strategy to step in when no one dared - Ripplewood Holdings LLC, a New York- based fund, reaped an almost fivefold return when it sold two- thirds of Shinsei Bank Ltd., the first Japanese lender acquired by overseas investors. Carlyle's capital raising follows its announcement earlier this month of a US$668 million fund to invest in Asia, and is four times the 50 billion yen raised for its Japan Partners fund in 2001. It's more than double the 82.5 billion yen raised by Mark Chiba's Longreach Group in April. Carlyle and other investors in mobile wireless firm Willcom Inc. plan to sell some of their holding in a 100 billion yen initial public offering early next year, people familiar with the plan said in April. Carlyle, Kyocera Corp. and KDDI paid 220 billion yen for 90 percent of the company in October 2004, with Carlyle taking a 60 percent stake. Carlye last year sold Asahi Security Co., a provider of cash-management services acquired in 2002, and Colin Corp., a failed Japanese maker of blood pressure monitors purchased in 2003.
Carlyle, as a whole group, and New York-based Riverstone Holdings LLC in April raised US$4.5 billion to purchase oil drillers and suppliers of solar and renewable power. Buyout funds gathered a record US$134 billion last year, more than twice the amount amassed in 2004.
I am sure the top management of well managed companies are smiling to themselves, waiting for that phone call from Texas Pacific or KKR. You would find many of the companies being willing sellers are many of the top management have huge options and even parachute agreements (forced out due to a new controlling owner). Most of these buyout funds would however, negotiate an even more attractive package to ensure key top managers stay to improve the company's fortunes. No wonder many CEOs are smiling.
Its also a very good time to do buyouts because never in the history of US companies when you have some many top companies sitting on so much cash in the bank. After enjoying 16 straight quarters of double-digit earnings growth, industrial companies in the Standard & Poor's 500 have stuffed their corporate piggy banks with US$642.7 billion in cash. Not only is that a record, it's a big enough chunk of change to throw off some serious interest revenue which adds to companies' profit. Interest revenue generated by the cash held by industrial companies in the S&P is expected to soar 64% this year after gaining 38% in 2005.
The higher interest payments are coming at an opportune time. S&P 500 companies' earnings are expected to rise just 7.6%. The added interest income might be just enough to help some companies stay above the 10% growth mark. Top companies with the big stash include:
•ExxonMobil - No company in the USA has more cash than the world's No. 1 oil company. It has approximately US$36.5 billion in cash. That's more than the annual gross domestic product of Iceland. Interest generated by its cash pile hit US$946 million in 2005, up 162% from 2004 and 313% from 2003.
•Goodyear Tyre - Goodyear's cash stack of US$1.8 billion doesn't rank in the top 10. But it's a staggering amount considering the company's market value is US$2.3 billion.
•Microsoft - Despite paying a US$32 billion one-time dividend in 2004 and starting an annual dividend in 2003, the company still has US$34.8 billion in cash and short-term investments.
Other notables include Johnson & Johnson with US$17.2 billion, Pfizer with US$15.5 billion (that could be doubled with the recent sale of their comsumer product unit), Cisco with US$15 billion, Motorola with US$14.6 billion (thanks to its superior Razr phone, the amount show grow at a faster pace), Aetna Insurance US$14.4 billion, Merck with US$12.4 billion, IBM with US$12.3 billion and Hewlett-Packard with US$11.9 billion.
A company having lots of cash makes for a great takeover target. Of the lot, HP looks like a sitting duck. Even Motorola is attractive should the controlling family wants to exit. Now, no one is safe from a takeover, just being big is no longer a defense. All in, the enormous amount of cash hoarded by so many companies, coupled with the sizable funds raised by buyout firms, and the rise of hedge funds - all are underpinning the buy side of the companies.
Thursday, June 29, 2006
Understanding Bubbles
The present day financial markets are very jittery, almost all asset classes are in some kind of frothiness, and having to come to terms with higher rates by Federal Reserve. Are prices in each of these assets over priced? Is the market shaky? Should everyone exit into cash? Let's look at a few asset classes that seems bubblish. I would also rate them on a scale of 1-10 for bubble effect (1 - very safe and a tad undervalued; 5 - fairly valued; 8 - overpriced; 10 - soap in mouth). Isn't it amazing that we have so many presumably "bubbles" in the present financial markets!!! The so called unconfirmed "bubbles" are there because underlying all these financial assets are pretty solid fundamentals - keep that in mind.
China Economy - Seems to be overheating. 1Q2006 growth was a spectacular 10.3% and industrial production rose 18% in May, the fastest rate in 2 years. Trade surplus in May topped US$13 billion. A year ago in May, it was just a surplus of US$9 billion. Not only that, moneysupply jumped 19% year on year in May. Banks have lent out US$26 billion in May, doubled the level a year ago. The authorities know they have to rein in the economy and cueb easy money, but they cannot overdo it. They can raise interest rates substantially which might totally derail the economy - not a feasible option. The other is to rein in the property boom, which is causing a leveraged velocity effect in liquidity. Beijing have introduced various decrees to contain the luxury real estate market, the impact is slow. The safest way is for Beijing to allow the yuan appreciate faster, not an entirely appetising option but probably the best of all evils. We can expect the yuan to be allowed to increase more tthis year. The Chinese economy cann collapse as the impact would be felt across all continents. Now, China consumes 20% of global aluminum supply, 30% of global steel and coal and 45% of global cement supply. One can imagine the domino effects on a major correction. The positive is the fact that foreign players have been allowed to invest in China banks, as in my blogs on China banks, that should go a long way to address the looming bad debt situation before it explodes. (Bubble Rating 7/10)
Commodities - Driven by demand from China and India primarily but also a jump in hedge fund investing. commodities were way overpriced and has corrected. The main thing is that prices are underpinned by demand from China, so we would not see a devastation here. (Bubble Rating 6/10)
US Dollar - Way overpriced and could fall substantially. Do read my blog on why US dollar remains strong amidst all the negatives (23 Jan 2006 "US Dollar On Prozac & Levitra"). For all intents and purposes, the dollar have more triggering factors to fall especially when the interest rate cycle is viewed by most as having peak. The next rate increase should just about do it. We can expect another 5%-10% drop in the dollar for the rest of the year. (Bubble Rating 9/10 but will stay bubblish for a long time)
US Housing - Again, underpinning the American economy, and have stayed firm and even overheated in many regions. One thing we must understand is that while officially Americans do not have much of a savings rate compared to other nations, a lot of the actual savings is hidden in their properties, and that is an area which is not usually accounted for as savings. Much like the real estate in Britain and Australia, there is a strong underpinning in the housing market. Yes, there is speculation but overall, it does not look that bad. Firm prices are holding up consumer confidence. Even if the dollar takes a dive, the US housing sub sector should remain firm and hold the economy up. (Bubble Rating 6/10)
Emerging Equity Markets - Countries which benefitted from a strong rise in their equity prices for the past 2 years - e.g. India, Turkey, Indonesia, South Africa... - also saw bigger losses over the last 2 months as funds exited on rates fears. The rise and rise of hedge funds have forced them to seek better opportunities in unfamilar markets. There are some solid fundamentals there too, there is a renergising of these emerging economies, a stepping up in their level of global competitiveness, and a general redistribution of wealth effect on strong currencies. Hence I do not forsee a fleeing of hot money never to return, but rather better discernment when the hot money returns. (Bubble Rating After The Recent Correction 7/10)
Hedge Funds Effect - Too many chasing too few assets? Plus you can even add the huge private equity units to the equation. Will hedge funds exit trigger collapses in asset classes? The simplified fear is based on the thinking that most hedge funds act alike - they don't. They are those who go short, long, etc.. To fear something because they are big is to assume they act as one - they are in a dog eat dog environment. (Bubble Rating Effect 5/10)
Oil - Been blogging too much on oil. If oil goes pass US$95, all bets are off, go cash. All arguments point to the fact that oil prices are not bubblish but just demand/supply disequilibrium. Will stay firm, be lucky to get a 5% ease for the rest of the year. (Bubble Rating 4/10)
MOST IMPORTANT POINT TO NOTE - In all these asset classes, there is an interplay among them. They swing accordingly to interest rates, in particular the rates set by Federal Reserve as a benchmark. Why are we not seeing a more severe correction with Fed funds rate at 5% (and going to 5.25% over the next couple of days)?? Given the scenario 10 years ago, equity prices would have doubled the recent correction quantum. The Fed funds rate, akin to the risk-free rate, is viewed together to the earnings return or potential return investors can get from equities or any of their other asset classes. The difference needs to be ample to justify giving up the risk free rate - its risk free! The reasons why this time around with rates approaching 5.25%, we are not seeing greater calamity are:
1) Corporate earnings growth is good
2) US dollar is not a favoured place to park funds
The second reason is more important. More investors are choosing not to park their funds in dollar even at these "highish" rates as they fear that the real return over the near term might be reduced by its potential dollar weakness. That is a big factor why big funds and investors are not exactly lured by the high Fed funds rate. They are affected in the way they perceive it as an interest rate cycle phenom, and try their best to read into the peaking of the cycle and NOT as an alternative to park their funds for risk-free purposes.
That being the case, I am quietly confident that things will be more positive after the funds rate have reached 5.25%.
p/s any investment house wants to hire a strategist???
The present day financial markets are very jittery, almost all asset classes are in some kind of frothiness, and having to come to terms with higher rates by Federal Reserve. Are prices in each of these assets over priced? Is the market shaky? Should everyone exit into cash? Let's look at a few asset classes that seems bubblish. I would also rate them on a scale of 1-10 for bubble effect (1 - very safe and a tad undervalued; 5 - fairly valued; 8 - overpriced; 10 - soap in mouth). Isn't it amazing that we have so many presumably "bubbles" in the present financial markets!!! The so called unconfirmed "bubbles" are there because underlying all these financial assets are pretty solid fundamentals - keep that in mind.
China Economy - Seems to be overheating. 1Q2006 growth was a spectacular 10.3% and industrial production rose 18% in May, the fastest rate in 2 years. Trade surplus in May topped US$13 billion. A year ago in May, it was just a surplus of US$9 billion. Not only that, moneysupply jumped 19% year on year in May. Banks have lent out US$26 billion in May, doubled the level a year ago. The authorities know they have to rein in the economy and cueb easy money, but they cannot overdo it. They can raise interest rates substantially which might totally derail the economy - not a feasible option. The other is to rein in the property boom, which is causing a leveraged velocity effect in liquidity. Beijing have introduced various decrees to contain the luxury real estate market, the impact is slow. The safest way is for Beijing to allow the yuan appreciate faster, not an entirely appetising option but probably the best of all evils. We can expect the yuan to be allowed to increase more tthis year. The Chinese economy cann collapse as the impact would be felt across all continents. Now, China consumes 20% of global aluminum supply, 30% of global steel and coal and 45% of global cement supply. One can imagine the domino effects on a major correction. The positive is the fact that foreign players have been allowed to invest in China banks, as in my blogs on China banks, that should go a long way to address the looming bad debt situation before it explodes. (Bubble Rating 7/10)
Commodities - Driven by demand from China and India primarily but also a jump in hedge fund investing. commodities were way overpriced and has corrected. The main thing is that prices are underpinned by demand from China, so we would not see a devastation here. (Bubble Rating 6/10)
US Dollar - Way overpriced and could fall substantially. Do read my blog on why US dollar remains strong amidst all the negatives (23 Jan 2006 "US Dollar On Prozac & Levitra"). For all intents and purposes, the dollar have more triggering factors to fall especially when the interest rate cycle is viewed by most as having peak. The next rate increase should just about do it. We can expect another 5%-10% drop in the dollar for the rest of the year. (Bubble Rating 9/10 but will stay bubblish for a long time)
US Housing - Again, underpinning the American economy, and have stayed firm and even overheated in many regions. One thing we must understand is that while officially Americans do not have much of a savings rate compared to other nations, a lot of the actual savings is hidden in their properties, and that is an area which is not usually accounted for as savings. Much like the real estate in Britain and Australia, there is a strong underpinning in the housing market. Yes, there is speculation but overall, it does not look that bad. Firm prices are holding up consumer confidence. Even if the dollar takes a dive, the US housing sub sector should remain firm and hold the economy up. (Bubble Rating 6/10)
Emerging Equity Markets - Countries which benefitted from a strong rise in their equity prices for the past 2 years - e.g. India, Turkey, Indonesia, South Africa... - also saw bigger losses over the last 2 months as funds exited on rates fears. The rise and rise of hedge funds have forced them to seek better opportunities in unfamilar markets. There are some solid fundamentals there too, there is a renergising of these emerging economies, a stepping up in their level of global competitiveness, and a general redistribution of wealth effect on strong currencies. Hence I do not forsee a fleeing of hot money never to return, but rather better discernment when the hot money returns. (Bubble Rating After The Recent Correction 7/10)
Hedge Funds Effect - Too many chasing too few assets? Plus you can even add the huge private equity units to the equation. Will hedge funds exit trigger collapses in asset classes? The simplified fear is based on the thinking that most hedge funds act alike - they don't. They are those who go short, long, etc.. To fear something because they are big is to assume they act as one - they are in a dog eat dog environment. (Bubble Rating Effect 5/10)
Oil - Been blogging too much on oil. If oil goes pass US$95, all bets are off, go cash. All arguments point to the fact that oil prices are not bubblish but just demand/supply disequilibrium. Will stay firm, be lucky to get a 5% ease for the rest of the year. (Bubble Rating 4/10)
MOST IMPORTANT POINT TO NOTE - In all these asset classes, there is an interplay among them. They swing accordingly to interest rates, in particular the rates set by Federal Reserve as a benchmark. Why are we not seeing a more severe correction with Fed funds rate at 5% (and going to 5.25% over the next couple of days)?? Given the scenario 10 years ago, equity prices would have doubled the recent correction quantum. The Fed funds rate, akin to the risk-free rate, is viewed together to the earnings return or potential return investors can get from equities or any of their other asset classes. The difference needs to be ample to justify giving up the risk free rate - its risk free! The reasons why this time around with rates approaching 5.25%, we are not seeing greater calamity are:
1) Corporate earnings growth is good
2) US dollar is not a favoured place to park funds
The second reason is more important. More investors are choosing not to park their funds in dollar even at these "highish" rates as they fear that the real return over the near term might be reduced by its potential dollar weakness. That is a big factor why big funds and investors are not exactly lured by the high Fed funds rate. They are affected in the way they perceive it as an interest rate cycle phenom, and try their best to read into the peaking of the cycle and NOT as an alternative to park their funds for risk-free purposes.
That being the case, I am quietly confident that things will be more positive after the funds rate have reached 5.25%.
p/s any investment house wants to hire a strategist???
Wednesday, June 28, 2006
World Is Getting Smaller 2
M&A Deals Shaping Our World
Phelps Dodge - Inco - Xstrata - Falconbridge
Xstrata, the Swiss-based mining company who’s hopes to buy Falconbridge of Canada, began to fade when the copper miner Phelps Dodge agreed to acquire Falconbridge and its rival Canadian nickel producer Inco in a US$40 billion deal. Xstrata is not expected to abandon its pursuit of Falconbridge -– the Swiss company will emerge a winner either way, thanks to the premium it would receive on the 20 percent stake it holds in Falconbridge. By accepting Inco’s new offer, Xstrata will realize a profit of about US$2 billion on its Falconbridge investment, which it made last August. If it increases its bid for Falconbridge, then Inco and Phelps Dodge will probably counter it. BHP Billiton and Rio Tinto will have another heavyweight rival if the industry-transforming $US58 billion ($79 billion) merger between North American copper producer Phelps Dodge and nickel miners Inco and Falconbridge proceeds. The formation of a North American giant would rival the other two giants , BHP Billiton and Rio Tinto. This could lead to raids on other large miners such as Anglo American, Alcoa, Alcan or Teck Cominco. The Phelps Dodge deal points to the fact that it is more effective to be a buyer than a builder. BHP or Rio would probably stay away from the the North American battle, but many said their Anglo-Swiss rival, Xstrata, would attempt to thwart the giant deal. A BHP-Inco merger has been all but ruled out due to anti-trust concerns and while Rio is keen on adding a nickel division, its management team is regarded as too conservative to buy in at the top of the commodities cycle. And Phelps Dodge's copper assets are seen as too high-cost. .... What if the world's top 5 commodities are controlled by two or three companies .... hmmm... don't wonder, we are there already!
NYSE - Euronext - Tokyo Stock Exchange
The NYSE Group’s chief executive, John Thain, said he expects to have the agreement to purchase Euronext in front of the shareholders of both companies for a vote in the autumn and the merger closing in early 2007. Mr. Thain also repeated that he did not see anything in the modified rival offer from the Deutsche Borse to require the N.Y.S.E. to sweeten its deal with Euronext.
“We’re not going to change our proposal. We have a signed deal. We have a contractual deal with Euronext. So I expect us to move forward,” Mr. Thain told reporters. Last week, the Deutsche Boerse's supervisory board modified some structural details of its proposed offer, but left the financial terms of the bid unchanged. Thain said the deal makes sense and cited comments from Tokyo Stock Exchange head Taizo Nishimuro earlier this month that a merger between the NYSE and Euronext would create an attractive potential partner for the TSE. When asked if the combined NYSE-Euronext entity would be interested in future merger opportunities in Asia, Thain said it would be, but expects any partnerships to be a couple years down the road. This wave of consolidation would definitely force the proud but small Asia-Pacific bourses to start talks on "merging or combining their resources". As mentioned before, HKSE will never cede to Singapore Exchange. So, in all likelihood, a KLSE-SES tie up should be contemplated with a possible link up with Tokyo or Australia SE. These exchanges may have no choice but to link arms in order to survive.
Palm Wooing Research In Motion (RIM)
Gadget lovers love Palm. Research in Motion's got the lawsuits. Might this be a match made in heaven? A buzz is starting to build around the possibility that Palm and RIM might announce plans to merge soon. The two well-known mobile computing companies do complement each other. Palm has been searching for ways to connect with enterprise customers for years, finally agreeing to use Microsoft's Windows Mobile operating system on one of its Treo phones to improve its corporate chances. Office workers across the country have been dealing with management-by-BlackBerry for several years, but isn't a major player in the consumer market. But trade combinations that seem drawn from the fantasy sports world don't usually happen in the business arena. With a market capitalization of US$1.86 billion, Palm's an option for a company like RIM, which has a market cap of US$12.4 billion and more than US$700 million in cash. Earlier this year, a major investor in Palm wrote a letter to the company urging a sale to a larger company like RIM while Palm was still an attractive company. Freed from its legal battles with NTP over the patents to the BlackBerry technology, RIM might be looking to make a move, but it faces a fresh legal challenge from Visto, another wireless e-mail vendor. Buying Palm might be a way to reduce the legal battles as RIM could adopt and reinvent using Palm's technology to better its product. It will also act as a hedge should there be more legal battles on infringement on the BlackBerry.
M&A Deals Shaping Our World
Phelps Dodge - Inco - Xstrata - Falconbridge
Xstrata, the Swiss-based mining company who’s hopes to buy Falconbridge of Canada, began to fade when the copper miner Phelps Dodge agreed to acquire Falconbridge and its rival Canadian nickel producer Inco in a US$40 billion deal. Xstrata is not expected to abandon its pursuit of Falconbridge -– the Swiss company will emerge a winner either way, thanks to the premium it would receive on the 20 percent stake it holds in Falconbridge. By accepting Inco’s new offer, Xstrata will realize a profit of about US$2 billion on its Falconbridge investment, which it made last August. If it increases its bid for Falconbridge, then Inco and Phelps Dodge will probably counter it. BHP Billiton and Rio Tinto will have another heavyweight rival if the industry-transforming $US58 billion ($79 billion) merger between North American copper producer Phelps Dodge and nickel miners Inco and Falconbridge proceeds. The formation of a North American giant would rival the other two giants , BHP Billiton and Rio Tinto. This could lead to raids on other large miners such as Anglo American, Alcoa, Alcan or Teck Cominco. The Phelps Dodge deal points to the fact that it is more effective to be a buyer than a builder. BHP or Rio would probably stay away from the the North American battle, but many said their Anglo-Swiss rival, Xstrata, would attempt to thwart the giant deal. A BHP-Inco merger has been all but ruled out due to anti-trust concerns and while Rio is keen on adding a nickel division, its management team is regarded as too conservative to buy in at the top of the commodities cycle. And Phelps Dodge's copper assets are seen as too high-cost. .... What if the world's top 5 commodities are controlled by two or three companies .... hmmm... don't wonder, we are there already!
NYSE - Euronext - Tokyo Stock Exchange
The NYSE Group’s chief executive, John Thain, said he expects to have the agreement to purchase Euronext in front of the shareholders of both companies for a vote in the autumn and the merger closing in early 2007. Mr. Thain also repeated that he did not see anything in the modified rival offer from the Deutsche Borse to require the N.Y.S.E. to sweeten its deal with Euronext.
“We’re not going to change our proposal. We have a signed deal. We have a contractual deal with Euronext. So I expect us to move forward,” Mr. Thain told reporters. Last week, the Deutsche Boerse's supervisory board modified some structural details of its proposed offer, but left the financial terms of the bid unchanged. Thain said the deal makes sense and cited comments from Tokyo Stock Exchange head Taizo Nishimuro earlier this month that a merger between the NYSE and Euronext would create an attractive potential partner for the TSE. When asked if the combined NYSE-Euronext entity would be interested in future merger opportunities in Asia, Thain said it would be, but expects any partnerships to be a couple years down the road. This wave of consolidation would definitely force the proud but small Asia-Pacific bourses to start talks on "merging or combining their resources". As mentioned before, HKSE will never cede to Singapore Exchange. So, in all likelihood, a KLSE-SES tie up should be contemplated with a possible link up with Tokyo or Australia SE. These exchanges may have no choice but to link arms in order to survive.
Palm Wooing Research In Motion (RIM)
Gadget lovers love Palm. Research in Motion's got the lawsuits. Might this be a match made in heaven? A buzz is starting to build around the possibility that Palm and RIM might announce plans to merge soon. The two well-known mobile computing companies do complement each other. Palm has been searching for ways to connect with enterprise customers for years, finally agreeing to use Microsoft's Windows Mobile operating system on one of its Treo phones to improve its corporate chances. Office workers across the country have been dealing with management-by-BlackBerry for several years, but isn't a major player in the consumer market. But trade combinations that seem drawn from the fantasy sports world don't usually happen in the business arena. With a market capitalization of US$1.86 billion, Palm's an option for a company like RIM, which has a market cap of US$12.4 billion and more than US$700 million in cash. Earlier this year, a major investor in Palm wrote a letter to the company urging a sale to a larger company like RIM while Palm was still an attractive company. Freed from its legal battles with NTP over the patents to the BlackBerry technology, RIM might be looking to make a move, but it faces a fresh legal challenge from Visto, another wireless e-mail vendor. Buying Palm might be a way to reduce the legal battles as RIM could adopt and reinvent using Palm's technology to better its product. It will also act as a hedge should there be more legal battles on infringement on the BlackBerry.
Global Demand For Biofuels & Malaysia
Carotech and Golden Hope
The growth in global demand for oilseeds such as palm and soy will exceed increases in production in the year to October, reducing stockpiles and sustaining prices, Oilworld trade publication said. Consumption will rise 17 million tons to 396 million tons, while production will increase 6 million tons to 392 million tons. The forecast production growth of 1.5 percent compares with an average annual growth rate of 4.2 percent in the preceding 10 years. The longer-term outlook is for a price appreciation in oilseeds and vegetable oils owing to increased demand for energy. Fundamentals have changed due to the boost in production of biodiesel and the resulting increase in vegetable oil demand. Governments worldwide want to increase biofuel use to curb reliance on fossil fuels, and curtail emissions of so-called greenhouse gases. The European Union has set a biofuel target of 5.75 percent of all gasoline and diesel sold by Dec. 31, 2010. Biodiesel is based on vegetable oils obtained from crushing palm, rapeseed and soybeans, or animal fat. Ethanol can be made from cereals, sugar beet and sugar cane.The price of soy oil, the world's most consumed vegetable oil, has risen by about a fifth this year to US$26.12 a pound on the Chicago Board of Trade. Soy meal futures have fallen 11 percent in the same period to US$174.70 a ton on the same board because of increased supply.
The U.S. is the world's largest producer of soybeans, followed by Brazil. Palm oil, the world's most traded vegetable oil, has gained 3.4 percent since the year started to 1,463 ringgit (US$397) a ton in Malaysia, the world's largest producer of the commodity. Palm oil may rise to an average US$475 a ton, or 1,749 ringgit, for the July 2006-June 2007 period, 10 percent more than the previous 12-month average. Oilseeds are crushed to produce oil, usually for cooking fats, and meal, largely for animal feed. Besides oil from oilseeds, world demand for oil is met through tallow, grease, and fish oil, among others. Demand for 17 oils and fats in the year starting October will rise 8.3 million tons, or 5.7 percent, to 153.1 million tons. That's faster than the growth in production, forecast at 7.03 million tons, or 4.8 percent, to 152.87 million tons. The forecast gain in tonnage is the lowest in three years. This would deplete inventories to 15.42 million tons from 15.7 million tons in the year that started October 2005.
Biofuel stocks continue to ignite interest in the US. VeraSun Energy Corp, an ethanol producer, made its debut on the New York Stock Exchange in the middle of the month and surged and surged. VeraSun's share price closed 30% higher from its initial public offering (IPO) price on its listing day. The listing exercise of VeraSun raised US$420mil (RM1.5bil) that will enable the company, which already operates two large ethanol plants, to build two more. Upcoming IPOs of other ethanol companies are therefore also expected to draw large sums of fresh capital to finance their expansion. VeraSun now has a market capitalisation of almost US$2bil. It's not all hype. The company reported a net profit of US$13.6mil in its first quarter, and it has large new capacities in the works. There is, however, much discussion in the US over the economics in the production of ethanol, extracted from sugar-rich crops, to replace petrol. The differences of opinion centre on huge government subsidies for corn - the feedstock for ethanol in the US - and some studies that claim that in the production of ethanol, fuel input is higher than the fuel output. According to these estimates, the amount of energy needed by tractors on the cornfields and in running the factories exceeds the output of ethanol. This energy loss does not occur in the production of biodiesel - the fuel that can replace petrodiesel.
This is, therefore, not an issue that Carotech Bhd faces. Carotech's second plant in Ipoh has just been completed and should be full production next month, just in time to contribute to its next financial year that starts on July 1. This new plant doubles Carotech's capacity, measured by crude palm oil input, to 90 tonnes a day. Next, it will construct seven new biodiesel plants in Lumut that will raise its capacity by 300 tonnes, or four-fold, to a total of 390 tonnes a day. Its expansion is not likely to end there. It may pursue continuous expansion, especially as the growth of biofuel demand is a global trend, it has a competitive production technology, and it will have the support of the capital markets.
The Malaysian government has approved 32 biodiesel-related projects worth 2.7 bln rgt which will churn out 3 mln tonnes of biodiesel. About 62 pct of the approved projects were domestic investment while the rest were from overseas including Australia, India, Indonesia, Singapore, Canada, Japan, Italy and the US. These projects, however, are still in various stages of implementation such as site acquisition, land purchase, loan application and plant construction and machinery installation. Golden Hope plans to build a biodiesel plant with an annual capacity of almost 400,000 tons, which will start operations in 2008. the plant is expected to generate a total net profit of 147 mln rgt, based on a net profit projection of 368 rgt for every ton of biodiesel. Golden Hope Plantations Bhd (GHope) hopes to hit a total annual production capacity of 390,000 tonnes of biodiesel when four of its planned facilities are up and running. In a press briefing yesterday, group chief executive Datuk Sabri Ahmad said about RM250mil would be invested in the four plants three in Malaysia and one in the Netherlands. Its first plant, Golden Hope Bioganic Sdn Bhd in Banting, which has begun commercial production of biodiesel, is expected to produce 30,000 to 35,000 tonnes annually. “It's a small amount compared with some plants that produce 60,000 to 100,000 tonnes a year, but it makes our quality control much easier,' he said.Sabri indicated that there already was interest in its product and the first shipment would go to “a big customer in Japan,' with a shipment of 2,000 to 3,000 tonnes per month. GHope will also be setting up another plant in Carey Island, Klang, together with the Malaysian Palm Oil Board. An allocation of RM20mil has been set for the plant, which is expected to produce 60,000 tonnes of biodiesel a year. Commercial production will begin next April. Sabri said the company was also in talks with a public-listed European company to set up a biodiesel plant in Rotterdam, which would have a capacity of 100,000 tonnes a year. The plant will cost GHope about 25mil euros. It will also build another plant near the port of Bintulu in Sarawak, in a joint venture with what he termed as “a big group?
I believe biofuels will be more than just a passing fad. These are the early birds, while others are still adopting a wait and see attitude. Should the biodiesel platform takes hold, this will create a very strong underpinning of the market price for palm oil. We may actually see a the entire sector being rated up over the next 2 years. It is best to follow the ethanol companies which are lining up to list, to see how they perform. Should consumers adopt the product and it be better distributed (and currently enjoys tax benefits too), we could see a revolution in the way palm oil is priced.
Carotech and Golden Hope
The growth in global demand for oilseeds such as palm and soy will exceed increases in production in the year to October, reducing stockpiles and sustaining prices, Oilworld trade publication said. Consumption will rise 17 million tons to 396 million tons, while production will increase 6 million tons to 392 million tons. The forecast production growth of 1.5 percent compares with an average annual growth rate of 4.2 percent in the preceding 10 years. The longer-term outlook is for a price appreciation in oilseeds and vegetable oils owing to increased demand for energy. Fundamentals have changed due to the boost in production of biodiesel and the resulting increase in vegetable oil demand. Governments worldwide want to increase biofuel use to curb reliance on fossil fuels, and curtail emissions of so-called greenhouse gases. The European Union has set a biofuel target of 5.75 percent of all gasoline and diesel sold by Dec. 31, 2010. Biodiesel is based on vegetable oils obtained from crushing palm, rapeseed and soybeans, or animal fat. Ethanol can be made from cereals, sugar beet and sugar cane.The price of soy oil, the world's most consumed vegetable oil, has risen by about a fifth this year to US$26.12 a pound on the Chicago Board of Trade. Soy meal futures have fallen 11 percent in the same period to US$174.70 a ton on the same board because of increased supply.
The U.S. is the world's largest producer of soybeans, followed by Brazil. Palm oil, the world's most traded vegetable oil, has gained 3.4 percent since the year started to 1,463 ringgit (US$397) a ton in Malaysia, the world's largest producer of the commodity. Palm oil may rise to an average US$475 a ton, or 1,749 ringgit, for the July 2006-June 2007 period, 10 percent more than the previous 12-month average. Oilseeds are crushed to produce oil, usually for cooking fats, and meal, largely for animal feed. Besides oil from oilseeds, world demand for oil is met through tallow, grease, and fish oil, among others. Demand for 17 oils and fats in the year starting October will rise 8.3 million tons, or 5.7 percent, to 153.1 million tons. That's faster than the growth in production, forecast at 7.03 million tons, or 4.8 percent, to 152.87 million tons. The forecast gain in tonnage is the lowest in three years. This would deplete inventories to 15.42 million tons from 15.7 million tons in the year that started October 2005.
Biofuel stocks continue to ignite interest in the US. VeraSun Energy Corp, an ethanol producer, made its debut on the New York Stock Exchange in the middle of the month and surged and surged. VeraSun's share price closed 30% higher from its initial public offering (IPO) price on its listing day. The listing exercise of VeraSun raised US$420mil (RM1.5bil) that will enable the company, which already operates two large ethanol plants, to build two more. Upcoming IPOs of other ethanol companies are therefore also expected to draw large sums of fresh capital to finance their expansion. VeraSun now has a market capitalisation of almost US$2bil. It's not all hype. The company reported a net profit of US$13.6mil in its first quarter, and it has large new capacities in the works. There is, however, much discussion in the US over the economics in the production of ethanol, extracted from sugar-rich crops, to replace petrol. The differences of opinion centre on huge government subsidies for corn - the feedstock for ethanol in the US - and some studies that claim that in the production of ethanol, fuel input is higher than the fuel output. According to these estimates, the amount of energy needed by tractors on the cornfields and in running the factories exceeds the output of ethanol. This energy loss does not occur in the production of biodiesel - the fuel that can replace petrodiesel.
This is, therefore, not an issue that Carotech Bhd faces. Carotech's second plant in Ipoh has just been completed and should be full production next month, just in time to contribute to its next financial year that starts on July 1. This new plant doubles Carotech's capacity, measured by crude palm oil input, to 90 tonnes a day. Next, it will construct seven new biodiesel plants in Lumut that will raise its capacity by 300 tonnes, or four-fold, to a total of 390 tonnes a day. Its expansion is not likely to end there. It may pursue continuous expansion, especially as the growth of biofuel demand is a global trend, it has a competitive production technology, and it will have the support of the capital markets.
The Malaysian government has approved 32 biodiesel-related projects worth 2.7 bln rgt which will churn out 3 mln tonnes of biodiesel. About 62 pct of the approved projects were domestic investment while the rest were from overseas including Australia, India, Indonesia, Singapore, Canada, Japan, Italy and the US. These projects, however, are still in various stages of implementation such as site acquisition, land purchase, loan application and plant construction and machinery installation. Golden Hope plans to build a biodiesel plant with an annual capacity of almost 400,000 tons, which will start operations in 2008. the plant is expected to generate a total net profit of 147 mln rgt, based on a net profit projection of 368 rgt for every ton of biodiesel. Golden Hope Plantations Bhd (GHope) hopes to hit a total annual production capacity of 390,000 tonnes of biodiesel when four of its planned facilities are up and running. In a press briefing yesterday, group chief executive Datuk Sabri Ahmad said about RM250mil would be invested in the four plants three in Malaysia and one in the Netherlands. Its first plant, Golden Hope Bioganic Sdn Bhd in Banting, which has begun commercial production of biodiesel, is expected to produce 30,000 to 35,000 tonnes annually. “It's a small amount compared with some plants that produce 60,000 to 100,000 tonnes a year, but it makes our quality control much easier,' he said.Sabri indicated that there already was interest in its product and the first shipment would go to “a big customer in Japan,' with a shipment of 2,000 to 3,000 tonnes per month. GHope will also be setting up another plant in Carey Island, Klang, together with the Malaysian Palm Oil Board. An allocation of RM20mil has been set for the plant, which is expected to produce 60,000 tonnes of biodiesel a year. Commercial production will begin next April. Sabri said the company was also in talks with a public-listed European company to set up a biodiesel plant in Rotterdam, which would have a capacity of 100,000 tonnes a year. The plant will cost GHope about 25mil euros. It will also build another plant near the port of Bintulu in Sarawak, in a joint venture with what he termed as “a big group?
I believe biofuels will be more than just a passing fad. These are the early birds, while others are still adopting a wait and see attitude. Should the biodiesel platform takes hold, this will create a very strong underpinning of the market price for palm oil. We may actually see a the entire sector being rated up over the next 2 years. It is best to follow the ethanol companies which are lining up to list, to see how they perform. Should consumers adopt the product and it be better distributed (and currently enjoys tax benefits too), we could see a revolution in the way palm oil is priced.
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