Quietly Steadfastly .. Change Is A' Coming

Pelham Blue's Letter To Sc (Parody)

Have to admit, this person is certainly funnier than me, so, here's the link, it is hilarious:

http://www.pelhamblueassetmanagement.com/2019/03/complaint-by-concerned-shareholder.html

Dear Securities Commission of Malaysia,

I am writing to register my complaint about the conduct of some investment banks and their analysts, whose recent downgrade of my favorite stock has caused the price to drop considerably.

I am of course writing about TalkCock Industries (TCO), an investment education company that had gone through tough times but whose financials have been recovering. The stock fell to RM1 recently, after gaining 250% since January to RM1.80. 

I have repeatedly told readers of my blog that TCO is worth at least RM4. How did I come up with this? Simple - my 'platinum rule' is when the company records three consecutive quarters of profit recovery. Never mind that the sector is cyclical, vulnerable to broader market factors, and that the company has yet to prove that talking cock is an inherently sustainable business model. These are not as important, OK?

My logic is very simple. TCO reported earnings per share of 12 sen in its latest quarter. Multiply by four quarters, assuming it will report at least this much EPS, and you will get annual EPS of 48 sen. From this observation, and assuming a conservative PE ratio, the stock is undoubtedly worth RM4 at least. This observation is worth the content of at least ten research reports. 

My followers and blog readers evidently shared my unbridled enthusiasm. This explained the recent 250% rally - I did not tell them to buy the shares, of course! Not even once, twice, or four times. 

I now find myself in the awkward situation of explaining to them why they have lost money and I sort of didn't, since I was smart enough to buy into TCO very early. This is clearly unacceptable, so I have a list of demands. 

I urge the SC to reprimand the analysts whose stock analysis skills are undoubtedly subpar. Please don't give me acronyms like CFA and SWOT analysis - my platinum rule trumps them all. I am of course very happy when the research reports support my stock position. When they reverse course, not so much. 

One of the analysts had the nerve to downgrade his target price for TCO, saying that 'the last quarterly performance is unlikely to be repeated'. Another analyst - presumably very young and has no clue about trading shares - dared to say in his report that 'investors would be wise to take some profits'. What is going on here!

This stock price movement after the UNREASONABLE downgrades are a TRAVESTY.

These downgrades, and the concerted efforts by certain parties, have caused me considerable grief as I have lost vast sums of money. I am at a struggle to explain why; I have always used my margin account and utilised the leverage responsibly.

I challenge these investment banks to prove that they do not hold any TCO shares. Additionally, they each have to write a written confession that there is no conspiracy to destroy Malaysia's fledgling talking cock industry. 

After that, I urge them to reimburse me for the sums I have lost due to these unforeseen downgrades. My followers are unhappy that my target price are nowhere near being met. I expected better out of them as there were no complaints when TCO did nothing but go up, every day. 

Investment banks' research reports are such dangerous things. Analysts can be so irresponsible sometimes. To these people, I am willing to forgive them for their lack of experience and market nuance. I am also willing to help them make better investment decisions and analysis, simply by following what I say and write about. 

A properly well-informed analyst would easily share my views; TCO is worth at least RM4 and not one sen less. With an expected GDP growth of 4.9% this year, and higher subscription rates for classes where investment gurus do nothing but talk cock, I am certain the business will pick up. 

The SC has a responsibility to protect shareholders' interests. Especially when I tell people to buy and now they're angry at me for being stuck at high prices.

These people will hold everybody accountable when they lose money trading shares : the SC, TCO's management, Tun Mahathir, Najib, and even myself. I am not saying I am the same but somebody, anybody has to be held responsible when I lose money. Enough is enough.



Sincerely,

Concerned Shareholder

**this post is purely a work of fiction. 

Do Good, Be Good .... Why

Look at the poster ... its what I call CRAP!!!

Why write this? Well, if other people feel so freely to share their convictions, I think I also need to share my convictions.

Problems I have with organised self-delusional groups: 
a) there is something inherently wrong or misdeeds you or your forefathers have done, so shut up and make the best of it;
b) all these units of charm offensive promises you something in return.

Original Sin/Previous Lives - Imagine you have a 5 year old kid going to kindergarten for the first day. He sat down, the teacher comes over and gave him one tight slap. He cries why ... the teacher said "oh, its something your forefathers did or you did in your previous life". What kind of logic? Well, in every organised charm offensive, there has to be something that you can never question, something you are "guilty of" and there is nothing you can argue or question its logic. It is only by getting you to be "you might not know it but you have already done something wrong" mode that they can proceed to show how they can "bail" you out.

The Uncertain and Unknown Afterlife - Most are just buying insurance or just doing things because they have been culturally inclined to. Just in case there is really a purgatory or heaven or hell, or really another life. We need to hedge our bets against the unknown. IF there is a "plan", you are here... then just live your life HERE and NOW well. Any kind of afterlife plan that looks like a health insurance place is bollocks: oh well, you didn't tick these boxes. Live your current life well and with joy, whatever happens (or nothing happens) after, will sort themselves out.

In Christianity its because God so loved you, and now that you have been saved, you should be like Christ, be good, be nice.

In Buddhism, we are all just passing through, its cycles, we need to improve the present life so that our future life cycles higher on the road to nirvana. Karma is a bitch too, what you put in you plow... maybe not this life but eventually.

Every single organised charm offensive is selfish in nature. You do something in order to get something in return. You do charity, social work, bring kind, even being a better person generally ... because of something you are getting.

Better life cycles to nirvana, isn't that just selfish as well... it is me me me, better for me. 

My problem with the above two postulations is why can't we be good for GOODNESS SAKE!!!??? Why do we need this carrot being dangled in front of us, what are we, PETS!!???

I am not an atheist, and I do believe there is a God (power/force) and its all very nice the love thing but let's leave it at that. Do not extrapolate that into my character. I am still me. 

If I do good its because good is really good, it brings out the best in humans. It is the right thing to do, AND YOU DO NOT NEED TO HAVE SOMETHING IN RETURN - you don't need presents,  good luck, eternal life, good karma ... those are some other shit.

We have a mind, a sense of morality ... you may ask where do these come from ... even if they are God given, just say thank you ... but you do not need to do good because of that. You as a good parent, you take care of your kids because it is the right thing to do, because of the love you have in your heart for the kid... and most will not even want anything in return, most will not want the kid to worship them, most will not need the kid to repay them... and so it is. Do good because the other side is evil/grey.

Yes, I do feel good when I do good, so is that something for something, who cares... don't do it for presents or promises or to change your luck because those will only reveal how shallow your character is, and in the end, your goodness is tainted and watered down. 

Will you still do good if there were NO CARROTS!!?? If you answer yes, thats the best answer and the only answer you need to hear. Good hearts can't be bought. You can nurture it but don't bribe me.

WE ARE NOT PETS... don't dangle carrots/bones in front of us!!!

A Most Important Blueprint

The local bourse went into a groggy sleep today. That was a surprise considering our PM's speech at Invest Malaysia 2019. The bulk of the recommendations and initiatives were SPOT ON to reinvigorate Malaysia domestic economy, export competitiveness and capital markets. I couldn't have scripted a better blueprint, I think. Seriously, I think the markets should be up 20-30 points today, headed to 1850 by end April.

PM Tun Mahathir’s speech at Invest Malaysia 2019:

*Friendly ties with Singapore and China – growth partner. Key trading and investment partner. 

*GLC not to crowd out private sector – become a catalytic role in driving growth. (This is important but to actually see it, in reality, is another thing, a good initiative if carried out effectively).

*Fix and strengthen government – Cabinet committee set up for anti-corruption. (Just give MACC more teeth and more protection and/or reward for whistleblowers).

*No political appointees in GLCs. (Major... implement well).

*Change in the constitution – Prime Minister term to limit to 2 terms. (Do it while you have 2/3 majority cause somebody else could very well overturn this some years down the road).

*Parliament to appoint MACC Chief. 

*Budget transparency – mid-year Budget review to be done. (Budget is one thing, the government should place utmost importance on the Auditor General's annual report and punish all perpetrators and their heads. What's the point in Budget clarity and integrity in the numbers if "crimes/leakages" are not punished at the end of the day?).

*Ministry of Finance to provide guidelines on appointing Head of GLCs. 

*Prime Minister’s to review salary and remuneration of government agencies and GLCs. (Too narrow, and too much discretion here. Better to have a committee of 5 from respected disciplines. Successful business people who are in tune with the labour market for top executives on a domestic and regional basis).

*Look East Policy – Learn Japan culture in hard work. 

*Shared prosperity in income levels – Income gap widening and needs to narrow with higher worker salaries with growth in profits. (Local salaries won't grow much unless we fix the foreign workers numbers and minimum salary. Limit the number of foreign workers in certain industries over time. Increase minimum salary of foreign workers over time - e.g. RM1,300 by January 2020; RM1,500 by January 2022; RM1,700 by January 2024... thus allow business owners to plan accordingly).

*Fiscal Responsibilities Act – Government balance sheet to reduce debt and guarantees, greater risk control on government guarantees. (Need actual RATIOs, % of GDP, % of foreign reserves, etc... so that there is actual accountability and structure).

*Reduce GLCs stake of the government – monetization must not be at fire-sale prices. No disruption to capital markets. Some GLCs to be listed. 

*Fiscal Consolidation Committee headed by Prime Minister is on track to achieve targets. 

*Reduce tax leakages. 

*Holistic and simplified tax incentives for future investments. 

*Corporate tax to be reduced to 17% for SMEs. (Standing ovation!!! This will be major in boosting entrepreneurship - just remember to repeal bankruptcy laws to a 4-5 year non-perpetuity system. 17% brings us in line with even HK, and when you put in the indirect subsidies in electricity, gas, fuel... that will put Malaysia miles ahead. Thailand is not even in the race thanks to their silly foreign ownership laws).

*No new tax this year – only sugar tax to be implemented. 

*Rationalising government expenditure to be more effective – streamlining programmes for poor headed by Deputy Prime Minister. 

*NEAC given mandate to identify pain points and proposing measures to improve growth prospects. 

*Education improvements – Make National Schools Great Again. No exams for Standard 1-3. Single vocational schools. A special task force reviewing entire education policies to complete next month. 

*Regain status as Asian Tiger.

Malaysia's Surprising FDI

Foreign Direct investments, to me, is the singular most important macro indicator for the mid-long term outlook for the economy. Following the stupendous May election result, many were optimistic over the reforms and plugging of leakages to the system. However as the months dragged on, nothing seems to be moving. All we saw was a prolonged process of getting the culprits to their destinies. 

Some GLC heads and other high ranking officers were removed, but nothing concrete was moving the real economy. The stock market went into a slow death mode. Projects were canceled
 and still,  more inertia seems to be bugging most ministries.

Even the most apologetic among the supporters were murmuring. Things seemed to be finally moving just before CNY this year. The following bit of news will surely spark a lot of things. A 48% jump to RM80.5bn in FDI for 2018, largely came about in the second half of 2018 - which speaks volumes about the confidence foreign long term investors have in the new government. 

The figure is all important and would be an indicator of bright things to come. Long term FDI takes some time to trickle down to the real economy. 

Expect fireworks... the nice kind.

 Malaysia recorded a 48% increase in approved foreign direct investment (FDI) across all sectors amounting to RM80.5 billion in 2018, the finance minister said.

Approved FDI in the first half of the year was only RM26.5 billion but this grew significantly higher at RM54 billion in the second half, Lim Guan Eng said.

Lim said the FDI growth was augmented by a 3.2% year-on-year expansion in the Industrial Production Index (IPI) in January this year, higher than the market consensus of 2.3% compiled by Bloomberg.

A Way Out For MAS

How many times, how much longer should we keep bailing MAS? How much have we spent... RM26bn!!! If you take from year 2000, that is more than RM1bn a year to keep this thing afloat.

We see a figure like RM26bn and it does not make much impact because we have no frame of reference. What is RM26bn? 

Let's say the 1MDB, which was a financial crime and CBT, cost us Malaysians RM5bn. Then MAS would have meant going through about 5x 1MDB disaster. To be fair, MAS is a business and while the comparison is not entirely apples vs apples, there is still some painful truth in comparing it to 1MDB.

a) There is no shame in not having a national airline but there is a lot of shame and fiscal irresponsibility when we keep losing more than RM1bn a year for the past 20 years.

b) It doesn't take a rocket scientist to see that MAS is almost unfixable owing to the: i) the union and their contracts (back in 2015 20,000 employees were terminated and 14,000 rehired, were the terms too generous our is it the culture which still infects the company?); ii) the legacy of bloated supply contracts and the greedy gatekeepers and their leakages; iii) the overcrowding for short haul flights; iv) having depleted so many international routes, MAS is having difficulty branding itself properly other than a codeshare specialist.

Since we are going to lose more than RM1bn a year, just sit down with the unions and supply chain contractors - declare bankruptcy and negoatiate to tear up all contracts at a steep discount or haircut resolution. While I am all for good unions and employee rights, somewhere along the way the MAS union has gone past what is good for the company - be honest.

Value all existing planes and landing rights, come up with a figure. Sell to AirAsiaX for shares, but golden share remains with current AirAsiaX management for 10 years.

Inject into AirAsiaX as that would be more palatable for Tony and his team. At least the better margins at AirAsia stays intact. All domestic routes to be integrated and managed by AirAsia. We cut out the duplicity and may even be able to fly more secondary support routes (such as twice a week Ipoh-Bangkok, Ipoh-KK,etc..).

As for ex-MAS employees, after getting their severance, those who are interested will need to re-apply to AirAsiaX to be integrated as AirAsia employees. This part will be critical because you don't want an us-them situation camp fight if you were to absorb all staff automatically from MAS. Pick and choose those who will conform.

By selling to AirAsiaX, MOF will keep a healthy stake to hopefully plow back some profits to compensate for the losses to the people. Secondly, it would not be 'nice" to sell MAS to a foreign party, only to see them turnaround the thing. 

20 years and multiple CEOs have shown and proven that MAS is not fixable because we "allowed" it to be unmanageable, hence the best professional will also not be able to do much - its like asking a chess Grandmaster to play for your country but he/she can only move your rook two spots and your bishops once every 10 moves, etc... it is ridiculous.

Bite the bullet and move on already. Forget about the votes of the employees and relatives, that's not the way to manage a country properly.

ECRL Theme To The Fore

Our government has given out soundbites that offered a more conciliatory stance towards restarting ECRL. For those who have missed the large re-rating upwards of oil & gas plays, these stocks under ECRL theme may be worth doing more research into.

The mini bull run seems to have gotten some legs, thanks to the upcoming Samurai bond and PM's visit to China in April. 

The last two by-elections, which the rakyat handed a sound thumping to the ruling government, was actually a good thing. To me, they are not really racially based swings but more dissatisfaction from the general populace over the "excessive handbraking in the real economy" by the ruling government.

While we want to eradicate corruption, primarily by cronies of the previous government, the collateral damage has been excessive to bystanders. Coming at a time which coincided with the US-China trade war spat just made things worse over the last 12 months.

Just imagine the number of subcontractors and workers linked to the HSR and ECRL, what were they doing for the last 12 months. The stock market mostly edged lower for most of the last 12 months. The velocity of money almost ground to a halt. Coupled by a weakish palm oil price regime and gross overbuilding of properties - we have a recipe for a sluggish economic period to put it kindly.

The ECRL has merits. Not just in revitalizing domestic economic activity to Eastern block of the peninsula, but for paving access and logistics for goods and services which have a higher multiplier effect.


Why Restarting ECRL Is Probable:  Our side has apparently paid 39% of the supposed total cost already for just 13% work done. Whether some of the sums were "diverted" or "misused" is up for conjecture for now. 

Now let's use RM55bn as the benchmark, 39% = RM21.45bn. That figure is probably not retrievable. It is likely that the Chinese side has agreed to finish the project for something a lot less than RM55bn. Judging from the statements issued thus far, a figure of RM33bn-36bn seems plausible. The pragmatic thing to do, since we have paid RM21.45bn is to get the project finished. Plus it is not wise to further irk China as a major trading partner.

ECRL - If restarted, will be at a much much lower price. Thus the main con and even sub cons should only be eyeing much tighter margins. 

Beneficiaries based on networking: Those companies who were in the front running for the ECRL scraps before, may no longer be in vogue IF they relied upon or seemed to rely extensively on their connections to the past government. I shouldn't name names but you should know.

Beneficiaries based on need supplies: Steel - you can't get away from that. You can't be silly enough to import. Most steel players had a rough past 6 months thanks to the US-China trade war spat. 

I am benchmarking their stock price to their April/May 2018 prices. We may expect a reversal back close to those April/May 2018 prices should the ECRL be restarted. Using 75% of the April/May 2018 prices may be a sensible trading target.

                             Current Price        Apr/May 2018 price

LION INDUSTRIES      0.58                         1.05
MASTEEL                   0.48                         0.80
ANNJOO                    1.60                         2.90

Lafarge Malaysia has showed buying interest of late, possibly on the back of ECRL theme as well. Trading around RM2.30, its April/May 2018 price was around RM4.20.
Possible the biggest beneficiary, not that they asked or lobbied for it I think, should be AZRB. It may not be the best-run company or most aggressive company out there, but the stars are aligning just for them. The other big landowners in that area will be Pasdec but owing to nature of its shareholders, its prospects will not be as clear as AZRB.

AZRB Strong Points: 
- has a RM1.55bn contract to build an expressway from Gombak to Kajang tagged with a concession for the tollway for 50 years
- jointly awarded the RM1.7bn MRT line from Sg Buloh to Kajang with IJM
- Class 1 Bumi contractor
- 50 acres quarry land in Terengganu
- 67 acres of development land in Marang, Terengganu
- 11 acres in Bentong
- 30 acres of commercial land in Kuantan

The two oil & gas marine supply bases of AZRB at Tok Bali and Kemasik are gems.

Kemasik - RAPID refinery is there and needs more than 50m barrels of crude yearly for its refinery. AZRB has been extended another 5 years for sale of marine diesel oil. AZRB also has around 4 acres of land in Kemasik.

Tok Bali - It is the intention for Petronas to develop this into a petrochemical hub. AZRB is already in a joint venture with Petronas for marine oil supply and other supporting industries.


http://malaysiafinance.blogspot.com/2019/02/whats-up-with-azrb.html


Not a recommendation to buy or sell but information for discussion and further research if you believe there is a good likelihood of ECRL being restarted.