Property Rally - Something Bigger Or Just A Wet Fuse?

The local stocks have been in the doldrums for the longest time. We are talking of at least 4-5 years with the exception of a big run on glove stocks during the pandemic. The market is huge and it takes a lot of factors to collide for it to mushroom into a full-blooded bull market.

Malaysia has one of the highest GDP/market capitalization of stock exchange companies in the WORLD. Please wrap that around your finger. We are talking of 80 odd percent of local GDP. Every time a company starts to make RM4-6m a year, investment bankers will start shadowing those companies and groom them for a listing. The only companies not listed in Malaysia are your laundromats, kedai runcits, cendol seller, etc...

PM Anwar and his team have inherited a poor economy with loads of issues. At the same time, we are battered by the flight of money away from local shores owing to the presence of a new government. Plenty of "gray wealth" has left the shores thus exacerbating the ringgit's strength.

PM Anwar and Rafizi know too well how they need to supercharge the economy while taking time to curtail past misdeeds on our balance sheet. PM announced that Forest City has been designated as a special financial zone to spur the economy in Iskandar Malaysia. Amongst the incentives that have been announced include multiple entry visas, fast-track entry for those working in Singapore, and a flat income tax rate of 15% for knowledge workers. He said this should spur the growth of those involved in the healthcare, education, and tourism sectors.

Now, that announcement was in the middle of August... have a look at UEMS chart:

(UEMS 30 sen to 70 sen rally is about +130%; as the leader and th one with the biggest landbank the rally is still early)

Our superboy has been picking up steam since the middle of July from 30 sen, and it's around 70 sen in less than 1.5 months. OK forget about the fact that someone, somewhere... will also hear about the news first. Where do we go from here? Can this be big and sustainable enough to spark a broader bull run? Or will it just fizzle out?

My Views

a) The announcement by the government is not a haphazard thing; it is a thought-out plan with eventualities mapped out on logistics, people movement issues, visa issues, the proper monitoring and regulatory side on Forest City, etc.

b) This is certainly big enough to trigger a broader market rally; the concept... remember Putrajaya in 1995... that was a concept ... in 2001 it is real, viable, and operating; the same here, Forest City is not a concept, while it has not been fully built out yet, there are sufficient developed parcels to jump-start the whole new concept.

c) Political will: The Federal is for it, they need something big to revive the economy and hope to stand a better chance of winning the next general elections; We all know the Johor state government has been waiting for a long time to kickstart this mega project; and Singapore is exactly at the property cycle whereby, it needs to move the industrial sites to cheaper locales, to the Singapore side, this is the best alternative for them but they CANNOT be seen as the one proposing the scheme as that might be construed as a "takeover or buyout"; this way its more accommodating, you scratch my back I scratch yours.

The Johor Bahru-Singapore Rapid Transit System (RTS) is not a new project. It started in 2020 and will only be completed in 2026. While MyHSR Corporation recently initiated a request for information (RFI) to solicit concept proposals from local and international players for the behemoth Kuala Lumpur-Singapore high-speed rail project, the bankability of any public infrastructure project of this scale is always in question, however, with this new development, the "success factor" for this will be bettered substantially. 

d) As explained earlier, our local economy is intrinsically tied to our stock market; what it means is that it has a very high BETA, i.e. you pump RM100m into the stocks, it will have a velocity of money of around 7x-9x to the real economy; making it imperative to jumpstart the local economy; thus the Federal will move mountains to ensure that this gets delivered and executed promptly and smartly.

(IOI Prop's rally from 1.10 to 1.60 is about a 45% gain; that's a lagging performance and should have the legs to test RM2.00 soon)

The above table is a useful guide but I would also consider real float /controlling shareholders' real interest/ funding capacity/ stale bulls on the way up.

What's Next

Now, we need subsequent REAL CATALYSTS, and they need to come every few weeks. The newsflow will have to be positive and consistent.

Catalyst #1: This one has to happen soon. Since PM Anwar's announcement, I have been scouring the pages of The Straits Times to read any news or opinions from the government down south. The silence was deafening. Seriously, nothing of substance, just the announcement, nothing from the related ministries or PM down south. This just makes it more LIKE and PALPABLE that some major announcement will come soon. That's because obviously, it looks like a huge collective PR and rhetoric will come soon to applaud how the plan will enhance every facet of Singapore's economy and future prosperity.

Catalyst #2: There has to be REAL DEMAND, the real movement of companies. That should come from MNCs and some Singapore GLCs to start with, followed by local Singapore companies. Once timelines is heard and seen, these catalysts will further enhance the rally in stocks.

Catalyst #3: To restart many of the projects, they will need funds. Foreign companies coming to JV will be big catalysts as well. Fundraising will take center stage, thus providing more climaxes for the local bourse.

Catalyst #4: Asian stocks have been a blur over the past few years. The Forest City is a sufficiently big enough idea to draw back foreign investors. Keep an eye on the level of foreign buyers in local stocks over the coming months.

Catalyst #5: Any positive announcement on the Johor-Singapore rapid transit system, in particular on the funding side, JV partners, and timeline.

(stuff like this ... in today's The EDGE CEO)

Catalyst #6: Any positive developments from Country Garden; as they have been defaulting their bonds, the designation of Forest City is a glimmer of hope; at least CG may be keen to complete the whole project, failing which the rest of the project can now at least be sold to other parties to complete (owing to its attractiveness). Any positive news concerning the above will be well regarded.

Final View: Yes, I think this has a solid chance to propel a big rally in local stocks.

Let's look at the LINKED stocks:

(Sunway's run from 1.60 to 1.90 is only a gain of 18%, judging from the factors above 2.50 should not be difficult)

(Somebody forgot to inform them, that it ran up only 9% from 1.40 to 1.52; looks to have some legs yet)

(by virtue of them being a small taikor in Johor; access to mid-priced projects; delivering very solid profits; and having substantial landbank in and around Johor; this has lots of legs; just the run from 85 sen to 1.11, a 30% gain is insufficient to account for just the spectacular profits, and we are not even talking of their Johor exposure)

(up 53% from 60 sen to 92 sen; think there are better counters to ride the coattails)

Disclaimer: This is not a call to buy or sell, just an opinion from a market watcher, please consult your dealer or remisier before any action.

Most Deep Value Stock On Bursa?

 KSL just announced its last quarterly. It was spectacular, well not just last quarter, look at the last 5 quarters. While many property companies have been suffering, KSL has been thriving, buying land cheap, diligently adding value, ... recently opening the biggest mall in Klang, the Esplanade quietly. Apa lagi lu mau...??

Look at the NTA: RM3.33 ... current share price is around RM1.00. They have been conserving cash by not paying dividends since 2015, and wisely so as to push through the difficult years for property counters.

EPS: 25.11

P/E:3.64

NTA: 3.33

Net cash company with RM348,403,000 in bank account

Retained Earnings:RM2,695,442,000(RM2.695 billion) as of 31 March 2023

Call it deep value, the stock has used its cash well. Last year it bought 54 acres of land from Tropicana in Johor for RM103m. Judging from the recent announcement for the big Johor property nugget, it was timely.

The stock can trigger a huge revaluation since the NTA is so far away: one is the attraction in going private; two is giving a 10-20 sen dividend. They have not given any since 2015. The company should reward loyalty and themselves soon.

The directors' emoluments is a bit rich. The company has not paid dividends since 2015, so the directors and owners should "suffer" alongside with shareholders. This does not look good no matter how you cut it. Yes, you made more than RM100m in net profit last year and look set to make more than RM300m this year. As a percentage of net profit, is not justifiable.

At least the company is still highly profitable.

Looking at the table, the controlling shareholders should collectively have more than 75% locked up. No point in holding so many shares unless you are going to reward yourselves or take it private.

Disclaimer: This is not a call to buy or sell, just an opinion from a market watcher, please consult your dealer or remisier before any action.

Gold Reserves / GDP - Implications

 

One can easily tabulate countries with the largest gold reserves but it is meaningless unless it is expressed as a benchmark against a relevant factor. GDP, or rather nominal GDP is a useful benchmark. It is the value of all goods and services from a country, with no taking into account the differing cost of living in other countries.

The caveat here is that China's gold reserves are actually closer to 4,000 metric tons according to many experts' newsletters. There have been too many big "unknown" transactions over the past 2 years that can only be linked to China, even though officially it was not recorded as so.

If you divide the GDP (in million) by their gold reserves you will get a pretty picture. Naturally the lower the figure the more gold you have covering your GDP. I would put 2.0-4.0 as being in an astute position, a more than adequate coverage should anything resembling a currency crisis comes about. If ever a reversion to some sort of gold standard or linkage to a gold standard following a major currency paradigm shift, those with a good gold stash relative o their economy would be sitting pretty.

Italy 0.85  - the Italian economy is in the doldrums but thankfully their central bank has amassed a sufficient gold arsenal; in the event of a dislocation of the euro, the Italians would swiftly support any kind of SDR (special drawing rights) with links to the gold standard.

Turkey 1.02 - where the economy has been battered by high-interest rates and constant devaluation but fundamentals show that Erdogan has doubled up on gold reserves over the last few years; while economic winds have not been in their favor, they kind of have a last bastion in gold reserves, which may indicate that their currency has been way oversold. The economy has to stop using USD for most of their transactions, the problem being Turkey does not have many friends to do barter trades on major transactions.

Germany 1.28 - solid fundamentals; the central bank here has protected the integrity of their economy no matter how the economic winds blow.

France 1.2 - same here.

Russia 0.89 - a deliberate strategy to buy gold over the last 10 years and more of late, indicates why Russia is championing de-dollarisation. China is definitely an ally in that strategy.

Switzerland 0.835 - is it because the country is the biggest refinery for gold; anyways, the country is a firm believer, and hence their arrogance to keep having their own Swiss franc as a solid currency exposure.

Taiwan 1.86 - for all the gangsterism in politics, the central bank has shrewdly backed itself with more than sufficient gold reserves; a political pawn in the global chess game, it has tried to shield itself from things "they can control".

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You may be able to get away with holding less in gold reserves if you are a commodity-rich country such as Australia, Malaysia, Indonesia the OPEC nations.

Australia 10.0; Malaysia 11.5; Indonesia 17.8; Brazil 16; Mexico 13.8; heck, Canada does not hold any gold reserves even cause its got tons of gold and other commodities in the ground.

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In the comfort zone, 2.0-4.0:

USA 3.3 - for all the talk emanating from the USA in particular, on how gold is a useless thing and the gold standard should never be considered, they are holding a pretty decent amount; of course, their problem is not gold reserves but their unending printing of money and highly excessive debt levels; they do not want others to even consider de-dollarisation as a possibility but their reserves level tells us they are prepared somewhat for it.

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Outside the comfort zone, i.e. more than 4.0 to 8.0:

China 4.8 - just outside the comfort zone but judging from the way China has been buying over the last 5 years, I think they will be headed for 3.0 within a couple of years; the country's disappointment over the US currency's reserves status, exporting of inflation, the exporting of US economic woes to developing countries via their excessive printing and liquidity injections - all points to ganging with Russia to change the status quo.

Japan 5.2 - just outside the comfort zone but I suspect their gold buying will be keener over the coming years once interest rates start to indicate more buoyant activity; the last two years have seen a deliberate strategy to weaken the yen.

India 4.3 - again India ha shored up its buying activity over the last few years and should see a similar strategy for the foreseeable future.

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Danger zone, i.e. more than 8.0:

UK 10.0 - Brown sold UK's gold reserves poorly over the years; neither is it commodity rich; the Brexit as well - I see cloudy days for the British pound over the next few years.

Argentina 11.8 - the peso was devalued 18% a few days ago; more trouble in store (which is why I think Turkish lira is presently way oversold); lacking the gold backing will limit the options you can take to recharge your economy; any printing of money will result in a disastrous and vicious cycle of devaluation.

South Korea 16.0 - This open economy is kind of vulnerable; very export-oriented but has no legs to stand on in the event of a major financial currency crisis; limit your exposure.

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Safe to say this is a crude benchmark but it also should tell us a lot of nuanced economic survival strategies among major nations. In the event of a major currency crisis, those with sufficient gold reserves and other important commodities will have a better seat at the table. I suspect a SDR linked to major currencies/gold and other important commodities will take effect. A de-dollarisation is in effect but not as painful as anticipated in the past for USD.

p/s.   1Q2023 Gold Buying Tally

Best Kopi Tiam In Selangor

 

Well, that is a bold statement but I can safely say that with confidence. Kopi tiams are usually rented to different vendors with varying qualities of food. You'd be lucky to get 2 or 3 good stalls out of ten. That's why it was so easy to put up the Restoran Chicken Cuisine kopi tiam. One of the most weirdly named places for sure.

There's a better handle on QUALITY because it's all run and cooked by May and her team. May, from Ipoh, is a super cook. The kopi tiam is really two shop lots merged into one. Even the worst dish is a 6/10.

Most people come for the Curry Laksa (8/10), which may not look like much but packs a punch. The second most popular dish has to be kaiseehorfun (8/10). Followed by their CKT (8.5/10) and kaifarn/siulap (8.5/10). Hakka mee (7.5/10) also not bad. 

But my favourite is the dry curry mee (9.5/10). Can match the best from Ipoh. I usually add their wartkai (chicken) to the dish for extra oomph. Naturally their drinks also kaw-kaw style. I also strongly recommend their turnip and yam steamed cakes, great chilli and packed with real ingredients.

She also cooks lots of dishes for tapau: petai prawn curry, pork ribs curry, chicken curry, vinegar pork trotters, yellow tumeric rice, choykeok, wonderful kuihs from all over and to die for nasi lemak non-halal style etc... You will end up tapau-ing more than RM100 even though you as two pax for breakfast.

Bear in mind the kaiseehorfun and dry curry are only available on Saturdays and Sundays. You know you are in a happy place when the foreign workers give the best service, for them to do that means the boss treats them well - its a happy place.

RESTORAN CHICKEN CUISINE NOODLE

Address:
4a, Jalan Pekedai U1/36,
Hicom-Glenmarie Industrial Park,
40150 Shah Alam, Selangor

Operating hours: 
6am - 4pm (Daily)

Reimagining Stephen Chow

 Yes, most people love Stephen Chow's movies ... I am a superfan but I also acknowledge that he is a comedy superstar but not one with a good character (how he treated people around him, his friends, etc.). But we are not here to debate how wonderful a person he is. As an artist, I think he is beyond iconic. Wish I knew who drew this magnificent image.  All and I mean all, of the important supporting characters in all his movies.

Surprisingly, I cannot locate two actors in the painting, whom I deem as important - Zhao Wei and Cecilia Cheung Pak Chi. Deliberate move?

Maybe I am thinking too much. Maybe the artist's intention is to let Stephen know how "dependent" his success was on people who collaborated with him. One of the biggest criticisms against him was how he "literally treated friends and collaborators" as rubbish to be thrown away after a while. Whether it was his master, people who mentored him, got him into pictures, got him the financing, a girlfriend who boosted his wealth no end, or close film directors and actors ... in the end, he has less than a handful of friends and chose it to be that way. Sigh... there are more important things in life: self-actualization; finding your purpose in life, your legacy with the ones you love, reshaping your heart and attitude so that you become a blessing to others, and that the world is a better place with you in it. 

The Relevance of Research In Financial Markets

 In a nutshell, research in financial markets should be taken with a gargantuan truckload of salt. Recently, there's been a massive contradicting research recommendation on Mr. DIY. One house calling a SELL with a target price of RM1.29 (Affin Hwang) ... Maybank was bullish calling a BUY with a target price of RM2.40.

This is expected in research in financial markets, be it stocks or interest rate movements, or economic growth predictions. Differing predictions stem from different ASSUMPTIONS on key factors. Even when these assumptions on key factors are similar, there is a nuanced emphasis/bias on the weightage of each factor. Some will feel certain factors are more important than the rest.

 

How Do We Regard Research Then?

Research papers and opinions are only worth reading according to the author. Analysts and commentators are only as good as their body of work. They are just like actors or novelists, you like to see certain actors more than the rest or will buy the latest book by the author you like ) and trust.

How To Judge Good Opinions or Recommendations

Being correct is one thing but not the most important thing. Some people could be correct because they were lucky. Hence to me, the most important thing is that their justifications and arguments MUST BE PERSUASIVE. It has to be persuasive reading. Persuasion is not a psychosomatic quality that can be manipulated. Persuasiveness is based on laying out points and factors and layering arguments and insights to arrive at building conclusions. It also should not be a one-way street, in that the writer has to point out good and bad stuff so as to present a more cohesive and informed opinion.

Thus we read research reports and opinions, not so much to get an actual recommendation but to look at their justifications and insights. It is more important to come away with additional insights into a stock or industry.

If you have 10 reports on stock, say 8 buys and 2 sells... I would want to read the 2 sells. Always give minority views a chance because they dare not to go along with the crowd. They may be wrong but got to give them a chance as people with something to say, have balls (male/female).

Mr. DIY

The business is easy to dismiss. It is just an aggregation of household stuff. The company keep getting dismissed by investors but they kept charging on with sound financials. People may get lost looking at topline growth or PER. For me, the company's strength is it can weather any economic conditions, people buy useful and silly stuff all the time, whether they need it or not. They weathered the pandemic very well. They were aggressive to close non-performing shops quickly, and now with a deliberate strategy to be in malls as they realize foot traffic at malls is relevant to their business model - people who go to malls will eventually want to buy something, anything before going home empty handed ... Mr DIY is a convenient place to do that.

They now have more than the critical mass to do generic products in their own brand. This yields more value and margins, do not overlook this factor.

As simple as the business model looks, the key is managing inventory. The margins should be hefty as there are multiple choices for each product, and hard to do comparative pricing. Hence now it's just replication in other countries. The company has gone through highs and lows, plus a prolonged pandemic. I am more aligned with the bullish report.

Disclaimer: This is not a call to buy or sell, just an opinion from a market watcher, please consult your dealer or remisier before any action.