Saturday, July 31, 2021

Equity Markets Participants In Malaysia

Performers in 2020 - Look at the gainers for 2020 for local stocks in the 3 pics. We have about 1,000 stocks listed and where less than 500 trade regularly. Hence to look for the gainers out of 500 stocks was easy, when the ecosystem is right.

 Bursa came out with some nice data and charts on foreign funds in Malaysian stocks. Realistically,  stocks are usually not considered in an Asian portfolio. Most wouldn't even be bothered to have exposure to it as it is so insignificant compared to the rest. China, Japan, HK and India collectively would dwarf the rest. In a South East Asia centric fund yes, but these are far and few in between. Asia-Pacific funds are more popular, even so you do not want to spend so much time on too many countries. 

A fund manager given a USD300m Asia Pacific fund can only look at so many countries closely, imagine if you have to keep track of more than 5 economies, and then drill down to at least 10 per country. The resources needed do not justify the fund size. Usually they will just buy the index as an exposure.

Looking at the second graph, the white portion showed the diminishing participation of foreign funds. Even more so with the onset of the pandemic. What that means is we can 'almost' forget about them. Their participation is neither impactful or "important". If you had to rely on them for fund raising, then we should be circumspect, we don't. But when we do, nowadays, like AirAsia, we will have to go to SG, Thailand, HK and maybe China to drum up funds. Not a frequent enough requirement to place too much emphasis on foreign funds participation in the market.

When we went through the Asian Financial crisis, where locally everyone have little ability to recapitalise, and when almost all the top 40 stocks have to raise funds to restructure - then we have to "beg" for foreign funds to participate. 

The third graph showed the unusually steady rate of foreign holdings of local stocks. It would be fair to infer that a substantially large portion of that is satisfied by the need to index the country for exposure.

What you can see from the first graph was the rise and rise of retail investors. The last 12-18 months have been more than incredible to see the massive backlog of new retail account applications. For more than 15 years, Bursa has been worrying about the dramatic decline in retail investors in the country. So much so, many thought the trend was irreversible. Oh, how wrong most of us were. 

Is it a trend or fad? I thinks a lot more than that. The rise of penny stocks, coupled with the sustained jump in interest in glove stocks, somehow were the needed catalysts. It coincided with the pandemic which causes lower employment and less "business activity" (side incomes) for all. 

This trend was reflected in most developed countries. The Robin-hooding and GameStoppers effects cause a significant wave and rise in younger investors. The culmination of Bitcoins (and others) gaining wider acceptance captured more younger investors, who then parlayed their gains into equity. Naturally the over-riding conduit that made all these events possible was the Internet.

Collectively, the new younger investors, together the rest of the investors in Malaysian stocks, have shown that we can generate incredible volume and volatility in stocks locally. That is going to lend a lot of comfort to big day traders, syndicates, local funds and listed/unlisted company owners - in that they can raise funds, participate in share price growth, way ample liquidity - provided the timing is suitable. 

I foresee many more of these bouts of supernormal market volatility, each lasting 3-12 months over the next few years. Malaysia Boleh! Just look at the gainers for 2020. As the last 3 months in 2021 have been a lot weaker, no point dragging out the list this year, but we should be back to a more vibrant market as soon as the political stage is clearer, one way or the other.

Wednesday, July 28, 2021

Something Is Brewing In PUC

The company went through a share consolidation not too long ago. In the process the books have been cleaned up substantially. Where are they headed now? Number of shares now stands at 1.25bn giving it a market cap of just RM225m.

 Digital Bank Malaysia - PUC Berhad

Interestingly they have also submitted for one of the Digital Banking license. The red-hot interest in the digital banking space is understandable, considering that this could be the only type of banking license that will be issued by the country’s central bank, at least for now, more than 20 years post-Asian Financial Crisis when banks with smaller capitals were required to consolidate.

Malaysia requires only RM300 million of capital funds for digital banks, which has drawn interest from fintechs to money remittance companies to co-operatives representing banks and housing sectors. In contrast, Singapore needed licence applicants to have S$1.5 billion in paid-up capital for fully functioning digital banks or S$100 million for digital wholesale banks.

Digital or virtual banking is usually confused with online banking since all banks involve some kind of digitalisation. Digital banking is mostly used as an umbrella term to outline all forms of financial transactions taking place with the use of technology. It has also been used to describe financial services which take place strictly online without the providers having any physical branches.

A joint venture of Grab and Singtel, which also won a full digital banking licence in Singapore, has applied with a consortium of other investors. AirAsia has tied up with a consortium for the application through its fintech unit BigPay, sources said. Axiata has teamed up with RHB Bank.

Some of the front runners, in no particular order:

Digital Bank Malaysia - MyAngkasa Boustead

Digital Bank Malaysia - Axiata RHB

Digital Bank Malaysia - BigPay MIDF Ikhlas Capital

Digital Bank Malaysia - Grab Singtel

Digital Bank Malaysia - GreenPacket Zico M24 Tawreeq

Digital Bank Malaysia - iFast Koperasi Tentera, 99 Speed Mart, Yillion, THZDigital Bank Malaysia - Managepay

Digital Bank Malaysia - Paramount Star

Digital Bank Malaysia - Pertama Digital Crowdo

Digital Bank Malaysia - PUC Berhad

Sunway-LinkLogis-Bangkok Bank 

Bank Negara received 29 applicants.The central bank said it may be issuing up to five licences, and successful applicants will be notified in the first quarter of 2022.

Kuala Lumpur, 27 Julai 2021: Pada 1 Julai 2021, PUC mengumumkan permohonan lesen perbankan digital daripada Bank Negara Malaysia (BNM) bersama rakan strategiknya. PUC memimpin konsortium ini yang juga terdiri daripada Kerajaan Sabah, Kerajaan Pahang dan sebuah konglomerat.

Sabah and Pahang together makes up nearly 20% of total population of the country. Suffice to say, both states have a unusually larger share than the median of the country's  under-banked.

Up to 5 licenses, well the odds are stacked against all applicants. Hence your business partners will be highly significant. Ability to raise capital is one. The ecosystem that the partners can bring to the table is another. 

Earlier in the year, well after the share consolidation, 165m shares was placed out privately. This is a significant amount and was largely subscribed by one shareholder. If you have the means, you should look up the shareholders' list. It is  definitely a prelude to more exciting times ahead as to obtain a strong placement of substantive size AFTER a massive share consolidation exercise is not an easy thing. There should a significant strategy ahead that would entice someone topiary with their funds.

Bank Negara's primary consideration concerns should the following (after their abiity to raise funds, what they each bring to the ecosystem, technical execution ability):

  • broader scale and a larger customer base, especially in retail (deposits!);
  • gain retail depositors trust via deposit guarantee schemes;
  • long-term efficient capital base;

Herein lies the key. Which of the entities do you feel most comfortable depositing funds? Watch this space.

Strangely enough, the "conglomerate partner" was not mentioned. It appears that every applicant has shown their cards. The two state governments represents a very strong hand. Let's see if the "conglomerate partner" (turn/river) can measure up to the sparkling "poker flop" (apologies, texas poker terms).

The huge run up in volume over the last 2 days: 100m and 67m ... amidst a lethargic overall market makes these developments more than interesting. Stay tune.

Monday, July 26, 2021

Herd Immunity & Anti-Vaxxers

At least now, we are not so perturbed by the rising figures of daily Covid positives. We seemed to have come to an acceptance that the figures will go higher, even 20,000 before plateauing. We are now more concerned with getting to herd immunity ASAP. Hence our disdain for anti-vaxxers. 

I think there wouldn't be much sympathy from the rest of us if anti-vaxxers die from Covid, as harsh as that would sound. That needs to be made clear.

Is it a personal right not to to do so? Even if you are uncomfortable with the vaccines as they "may not have gone through a thorough enough testing", statistics already clearly indicate that those vaccinated will likely only get a milder form of Covid. 

For all you anti-vaxxers, just look at our numbers. You are most definitely going to get the antibodies. Either via vaccination or infection. Its just that the latter may be deadly. Good luck!

As herd immunity is paramount, the government should put into place measures that reward those who have vaccinated and place restrictions on those who did not. All F&B establishments should have all staffers vaccinated (two doses) and only vaccinated people can dine in. Plus social stuff: bars, pubs, cinemas, karaokes, swimming pools, gyms. Same for interstate travel.

I know its a bit of a coercion - the "bantuan" payments should only go to people who can show they have been fully vaccinated. This will capture a lot more of those missed by Sejahtera.

Lastly, the government still has yet to come up with a proper plan to vaccinate the undocumented (illegals). One minister said early in the year that they will not be caught by the police or immigration officers if they come out. Another minister later saying the police or immigration officers will have to seek them out and catch them.

Let's be honest,  our country has a very large proportion of our workers being from foreign shores, and possibly an equal number who are undocumented. Malaysia probably has the largest percentage of population being foreign workers in the world, legal or otherwise. Hence our Covid strategy MUST include them.

The police and immigration officers had all the time in the world to catch them in the past - did they? Even with a concerted effort, you think we can even get even half? Be realistic, and in this situation, time is of essence, not a luxury.

There are easily about 2.0m to 3.0m illegals depending on whose estimate you rely on. That is not an insignificant number. Its pointless to get herd immunity when you have the undocumented roaming around. Legal or not, arrange amnesty halls for them to get vaccinated. That's the only sensible thing to do.

Thursday, July 22, 2021

Mr DIY, Now & Then

Last year in 2020, I SMS to about 40 of my close contacts as the market was buzzed with the upcoming IPO of Mr DIY. I was a frequent visitor to their stores and a back of the envelop calculations showed that a large part of the market had assessed the stock wrongly. The text was sent out a couple of weeks (I think September 20, 2020) before listing of Mr DIY:

As you can see the way I speak privately lends me few admirers. But finance fuckers talked like that all the time, even when referring to buddies. 

That was a brave SMS as almost everyone was rubbishing Mr DIY as a mom n pop shop. Even the IPO was supposedly nearly under subscribed, apparently.

So, after two years, most research houses finally caught up to my RM1.1bn pretax profit.

Unfortunately I did not post this on my blog then cause I was feeling very lazy to update my blog. If you remember, I only promise to rejuvenate my blog with more frequent postings only a few months back.


We are positive on MR D.I.Y. for its: (i) robust growth potential, driven by both higher market demand for its products and stores expansion, (ii) strong GP margins (above 40%) with the absence of near-and long-term margin volatility thanks to its supply source, China’s 

massive economies of scale, (iii) robust balance sheet, providing it ample cash for expansion, and (iv) net cash position ahead, allowing MR D.I.Y. to deliver sustainable dividends.

Risks to our call include: (i) a dominant import source, (ii) foreign labour issue, (iii) unfavourable Ringgit and (iv) prolonged lockdown

My present view: At RM3.30-3.60, its about right, with a larger likelihood to reach RM3.00 than RM3.80 over the next 12 months. Why? Because, the goalposts I have set out (which I think he has as well) have largely been hit. Including inclusion into certain indices. 

Watch for the cash pile of over RM300m. I think BV will do a special dividend before exiting a large chunk at the same time. Mark my words.

Do I see no more gains? While the current retail space landscape actually favours Mr DIY (in that they can take the opportunity to close under performing outlets and secure nice spaces in good locations with the dire mall space rental situation), I think the newer outlets now will be diminishing returns on the book. The correlation of mall prestige and traffic, Mr DIY are in the top tier already. Their growth will be in smaller malls with lower spending power. Overall the sunk cost for a new outlet will not be very much less for a nice mall and a secondary mall, except for the rental. But the reduction in foot traffic and spending power do not and would not generally make up for the difference.

Below are the reasons we are settling for 200% gains from IPO and not 300%:

Relative to its demanding PER, its not feasible. The current forward PER can ONLY BE JUSTIFIED if it has some regional expansion certainty and deliverables. The Malaysian market is 30m population full stop.

While Mr DIY has been closing poorly performing outlets, they are not doing it fast enough. Has anyone visited the Paramout Garden outlet. Its a shameful reflection of how they handle poorly performing outlets. Sure, the glitzy mall outlets get top treatment but not th under performers. This tells me they are not cutting swift enough, and they have a huge lacking in "decent knowledgeable staff" to deploy. 

Mr DIY is picking all the low handing fruits but have turned in a poor report card on "inventory management" (speed in replenishment, product differentiation, product display and placement, product preference ratings) and more importantly staff training (sorely lacking in product knowledge, general customer relations, esp verbal and interpersonal skills).

IF I can just switch the top management of Daiso Malaysia with Mr DIY, then Mr DIY can go to RM5.00 in a couple of years. Nuff said.

Sunday, July 18, 2021

Being Human & Humane

I have said this time and again... money cannot buy EMPATHY or BASIC HUMAN DECENCY. I think there should be a test before a family can hire a maid. So many people have revealed what assholes they are by the way they treat their maids. 

I have seen maids standing next to the restaurant table because there was no more space to seat them. The family and friends continued to eat. What do you think the kids will be thinking? They'd be thinking that "there are certain human beings that can be treated differently for they are lesser of a person" - and they will carry that mindset throughout their lives in every facet.  I'd rather eat somewhere else where the food is less tasty. The examples of pathetic behaviour by employers are too many to mention in one posting.

Usually you have maids to help with the kids. Too often the kids are not taught well enough to treat the maids well. Parents, if you cannot set a good example, you are setting a very bad example for your kids. The impressionable age, they will learn from parents that some people are dispensable or less than human. Parents must educate their kids well in all facets of relationships and in being human and humane. It is an excellent way to teach what is empathy.

I voiced my opinion as above and many people will say to me that you cannot trust your maids, that they might steal or run away. Oh, you mean, they are human and can act badly like you and me? How would you like if you were "sentenced" for crimes you might commit? Limiting freedom for fear of what bad influence you might pick up? Its heinous and despicable.

Your inconvenience, incurred cost, difficulty in getting a maid, bad experiences DO NOT stand up in the court of human decency if you use that defence for behaviour/rules that are less than human and humane.

If you happen to be religious - thats one fucked up FINE EXAMPLE of you being changed for better, cause your heart is still screwed up no matter how much you pray, how many times you pray, how often you go to these institutions for fellowship or how fervently you protests wrongdoings. If this is happening in your household, get that right, ask yourself why and why not.

p/s YES I have had maids before... yes, one has ran away before, and one even got pregnant by her boyfriend ... and I would still NOT change one IOTA... its basic human decency to give them one day off at the very minimum. You can tally up 100 excuses why they should not... but think again if your mum or sister was the maid in question.

Friday, July 16, 2021

RomCom Recommendations

Yes, confession here, I like romantic comedies. As I mainly watch English and Chinese movies, my references will be centered on those. In particular, during this prolonged lockdown period, our access to movies has been heightened. Romcoms in my view should be light, not too much thinking or dark subject matter. Surprisingly, many romcoms have lineage. Stay with me. It is somehow better to be linked somewhat.

Prior to the 80s, in my view, there hasn't been many romcoms of significance. Maybe its the prevailing culture then. The ones in black and white to vouch for include An Affair to Remember and It Happened One Night

Number one on many people's list has to be When Harry Met Sally. The often heart to heart talk about personal relationships was illuminating and heartfelt. Personal flaws and over-thinking were prevalent. 

In the 70s, there was one which was spectacular and still has strong cult following: Somewhere In Time. It starred Christopher Reeve and Jane Seymour. Way before time travel became popular. Must watch and you will be mesmerised by the score alone.

The next few  good ones: My Best Friend's Wedding, Pretty Woman, Groundhog Day, 50 First Dates, There's Something About Mary, While You were Sleeping, The Notebook,  to name a few decent ones.. Meg Ryan's involvement cannot be under-estimated: Sleepless In Seattle, You've Got Mail and When Harry Met Sally.

Then the English got onto the scene with the magnificent 4 Weddings & A Funeral, Bridget Jones' Diary, Notting Hill etc.. The running theme is all those movies ... is Richard Curtis. More recent strong offerings by Curtis include Love, Actually and the way under-rated About Time.

Can anyone link these 3 movies together: An Affair To Remember, Sleepless In Seattle and Love Affair. An Affair to Remember made back in the 50s with Cary Grant and Deborah Kerr, is a MUST WATCH. But that 1957 movie was a remake of a lesser known Love Affair (1939, Charles Boyer/Irene Dunne). Sleepless In Seattle structured itself around that movie just mentioned, in a most pleasant way. Love Affair, with Warren Beatty and Annette Bening, was a more than pleasing remake of Love Affair ala An Affair to Remember.

Decent Chinese romcoms are far and few in between. If its too soppy, they don't make the list. The top two: An Autumn Tale with Chow Fun Fatt and Cherie Chung. Tying for first place: Comrades, Almost A Love Story with Leon Lai and Maggie Cheung. 

Those were made in the 80s and 90s. For the last 20 years I have yet to watch one Chinese romcom of note until Book of Love with Tang Wei in it. There you go, enough recommendations to keep busy for the lockdown.

Saturday, July 10, 2021

Sentiment / Political Uncertainty

 I am sure many traders and investors were quite pissed off with the markets for the last 3 days. Just when everyone have been hunkering down and bearing out the weak local markets for the last 5 weeks ... just when the market showed brilliant signs of life 4 days ago ... we get dragged down by a fierce wave of selling because of sentiment or more correctly "political sentiment".

Is that a thing? I guess so. The newbies will question how political sentiment affects earnings and outlook - I mean will the guy harvesting palm oil bunches be so put off by the potential change in politics that he/she worked less hard? You can drum up thousands of examples here of how workers and employers might react.

Realistically changes in political spectrum may only change the main beneficiaries, the players remain the same kind. We also have to acknowledge the timing of the uncertainty - were we on a high or we were at an ebbing low? If it was the former then taking some chips off the table seems fair and smart. If it was the latter, and WE WERE in the latter, what then?

Ebbing low (you may choose to replace the word "ebbing" with another "ing" word if you prefer) - Look at where we ARE: Covid cases approaching 10,000 a day though we are finally ramping up vaccination rates of late; the country has been enduring the longest number of days of various types of lockdowns compared to 99% of other countries anywhere; and you may also put in the longest "non-convening of parliament" as well.

Whats not mentioned was that as of last couple of days, Bursa index has hit new lows not seen since August 2015.

So, when you say there is political uncertainty .... is that a bad thing for the markets? I mean you all can draw economics curve, when you are at the low or lowest points on the graph, you can only move up. In particular, when you are on a curve that is ebbing lower and lower, you need a catalyst to change that curve's direction. No change or no catalyst, means continuance of fresh lows.

Equity Markets Participants In Malaysia

Performers in 2020 - Look at the gainers for 2020 for local stocks in the 3 pics. We have about 1,000 stocks listed and where less than 500 ...