M&A = Private Equity Mania

The driver for the bullish undertone in KLSE stocks should be M&A activity. Why are so many Malaysian listed companies considering M&A exercises? Not due to the ingenuity of our under-powered merchant bankers for sure. Its directly correlated to the private equity boom over the last 24 months all over the world. The boom started in the US, rolled over to Europe and then into bigger markets in Asia.

Malaysia kinda missed the boat owing to "equity ratio thingee", the general fact that Malaysian companies are too small, and the fact that many of the "undervalued companies or under-managed companies" are GLCs (which would present a whole new set of issues when trying to take them private).

Still, I do believe that the smaller private equity funds will find their way via JVs into Malaysian markets sooner rather than later. Many savvy company owners would be able to see the trend and they'd better move to gobble up undervalued companies themselves or face a bidding war later. Owners of undervalued companies themselves would want to quickly take themselves private before going into a bidding war with someone else.

Privatisation works on two levels generally: one, where the breakup value is much higher than market value (market cap); the other being "synergistic values" where bigger is better and stronger.

Candidates

BANKING - The relaxation of rules by Bank Negara in November to allow banks to talk with more than one suitor at a time is a boost to the players. Basically, what they are saying is Bank Negara is allowing competitive bidding. Best candidate should be RHB Capital and EON Capital. For the record, Cank Commerce bought Southern Bank at 2.3x NTA and Temasek paid 2.0x NTA for Alliance Bank. This would translate into a pricing of RM4.00 to RM4.20 for RHB Capital, and a pricing of RM6.70 to RM7.20 for EON Capital.

PROPERTY - Quite straight-forward, just look at P/BV and just consider the discount. Sapura Resources RM0.32/BV1.93. Menang RM0.14/BV0.70. Pasdec RM0.38/BV1.57. Equine Capital RM0.48/BV1.84. Malton RM0.29/BV1.18. Mutiara Goodyear RM0.52/BV1.63. Meda RM0.18/BV0.59. Tanco RM0.075/BV0.25. PJ Dev RM0.47/BV1.59. Matrix International RM0.43/BV1.31. Of course the list of discount to NTA is long, when we try and pick winners we have to note the existing volume trends and shareholding spread as well to determine likely winners. So do the homework and put them on your watchlist.

STEEL - Those looking best in terms of having a discount to Book Value plus a strong dividend yield: 1) Ornasteel 2) Prestar

Email Contact

Jomaropol said...
Salvatore, I was wondering do you have any email which we can email you with, if we heard anything worthwhile?

Dear Visitors & Friends,

You may contact me anytime at:

malaysiafinance@gmail.com

What Are The Dangers For 2007

Everyone seems to be quoting the following article about US$22b being plowed into emerging markets:

Emerging market equity funds attracted US$22.4 billion (about RM77.6 billion) in 2006, of which US$11.2 billion or half of total inflows went into China related equity funds, according to Emerging Portfolio Fund Research (EPFR). The US-based EPFR - which tracks equity and bond fund flows of 15,000 international and emerging market funds with US$7 trillion in assets - said on Jan 3 it was another record setting year for flows into emerging market equity funds. “Strong fund flows for Asia ex-Japan and China Equity Funds in the latest week (final week of 2006) suggests that the ripples caused by Thailand’s recent imposition of capital controls have rapidly faded,” it said in a report. EPFR said global equity funds recorded inflows of US$29.7 billion, a 51% increase on the tally for 2005 and the third straight year that these funds had posted a record for inflows. “It is clear that global investors continued to seek more global exposure in 2006 in comparing EPFR’s total universe of US and non-US equity funds,” it said. EPFR said total inflows into all non-US equity fund groups (including global, emerging markets, Europe, Japan, and Pacific region funds) amounted to US$116.5 billion in 2006, compared to US Equity Funds that sustained net outflows of US$15.9 billion.

Among emerging markets fund groups, it added that Asia ex-Japan funds raked in US$635.9 million in fresh money - of which flows into China Equity Funds accounted for more than half. BRIC Equity Funds, which invest in Brazil, Russia, India and China, ended the year with net inflows of US$4.3 billion. On Japan, it said despite the benchmark Nikkei 225 was at a seven-month high, it was not enough to spare Japan Equity Funds their eighth straight week of net outflows, thereby keeping this fund group on course to post net outflows for the first time since 2002. “The redemptions have come in spite of solid performance by Japanese equities which has added US$4.95 billion to the value of these funds’ collective portfolios since Nov 30,” it said. EPFR said Japan’s export story remains strong, in part due to its surprisingly weak currency. But its domestic story remains uncertain despite an economic recovery that is now in its fifth year. “With tighter fiscal and monetary policy on the horizon, investors question resilience of Japanese consumers and worry about a fresh bout of deflation,” it added.

1) Relative - The size of the funds into Asia ex-Japan went mostly into China, the rest got crumbs, nothing to shout about.
2) The Ringgit - This is crucial because a large motivating factor for continuing foreign purchases of equities into Malaysia lies on the outlook of the ringgit. Generally, the outlook is still good and I do not forsee any spectacular problems till the ringgit reaches 3.2 or thereabouts. The other good thing is the recent turmoil initiated by Thailand's central bank - this would serve as an excellent warning to Zeti and her team on HOW NOT TO SCARE the markets. Hence a sudden policy or capital movement change is unlikely, or largely will be watered down. Look for Zeti's opinions in the papers to monitor Bank Negara's shifts in policy thinking.
3) Interest Rates - Inflation will be a factor in 2007 as wages and prices move higher (higher tolls are but an indicator). As part of the policy to subsidise the economy less (which I strongly support), higher wages (esp in the public sector) and prices for goods and services are inevitable. The buffer is still there though. The strong ringgit is a lever we will rely on to a certain extent to manage the buffer. Bank Negara cannot really raise rates much further because that will send the ringgit higher too fast. Bank Negara's stance is quite obvious, it will allow the ringgit to appreciate in step with China's yuan. That is smart because in the end that is the main competitor in production of goods and services which we should benchmark upon. Hence on the interest rates front, it will be OK for the equity markets.
4) Timing - As usual, most equity rallies come in spurts, and the first and last quarters will still be the best period to invest or punt. Go away in May, come back in October, you will miss many anxious periods.
5) What can unbuckle the bullish undertone??? - Problems in China, politics, equity or property corrections. I am still a believer that the bullishness over Chinese banks is a tad overdone. In all likelihood, if there is a severe correction, it will affect other Asian markets more. Keep an eye there, and it also puts HK in the same boat as a large part of the stupendous rally in the Hang Seng last year was due to the large market cap and listings of China-related companies there. We can and should assume both markets as one.

I see a seperation of the influence of US and European equity markets on Asian markets. Just monitor China. Have a good, healthy, safe and prosperous 2007!

The Good, The Bad & The Fugly
Lessons From Bangkok

The Good

Willingness to rectify rules immediately when it does not look to be going the way they thought it should. Many govenrments would have hung on a day or two too long, or longer.

The Bad

Foreign investors sold 25bn baht of shares or US$690m in value the day it fell 15%. Even when it recoup 11.2% the following day, foreign investors were still net sellers to the tune of 2.8bn baht. Hence most of the bargain hunters were Thai local funds and retail players rather than foreign funds. That being the case, it would be difficult to see how the SET can sustain its stock prices recovery. Who will come in to take the share from the Thais? Shit happens, but we should try and learn from them. It will take time to regain foreign investors' trust.

The Fugly

Pridiyathorn, a former central bank governor, and now the finance minister and economic policy maker, was believed to have given his blessing to the capital controls that he vigorously defended. But after declaring that the measures would not apply to capital inflows for equity investment, he said: "A lesson has been learnt, but no one needs to be responsible for this".

Hmm... so no head on the block, reminds me of ancient history of capital punishment, when a certain village wants to behead someone, the entire village would pull on the rope attached to a lever which then causes the axe to fall, thus blood is on everyone's hands and on no one's at the same time. Taking responsibility is a good thing, not a bad thing. Admitting to fault is strong not weak. It clarifies and clears doubts, and then let's move on. It builds trust rather than uncertainty. However the environment must be such that admission of faults do not paralyses the person, the environment must be strong and transparent enough to recognise good deeds and genuine mistakes, and react accordingly. There must be room for mistakes and also room for improvement. Striving for perfection or the existence of "career/political suicide" issues only highlights how backward the management environment is.

Mai Pen Rai

Bloomberg: The Finance Ministry late yesterday in Bangkok reversed the Bank of Thailand's move requiring banks to lock up 30 percent of new foreign-currency deposits for a year on funds earmarked for stocks. The restrictions sent Thailand's SET Index tumbling 15 percent, wiping away US$23 billion in market value and prompting declines in emerging markets globally. PTT Pcl, Thailand's biggest energy company, plummeted 17 percent yesterday, while Bangkok Bank Pcl, the largest lender, sank 16 percent. Shares of companies in the 458-member SET Index now trade at 9.91 times forecast earnings, the cheapest of any country in the MSCI emerging markets index. The benchmark slid to a more than two-year low of 622.14 after overseas investors dumped a net 25.1 billion baht (US$699 million) worth of shares, the largest such sell-off since at least Jan. 4, 1999, according to data compiled by Bloomberg. The drop erased all of the SET's gains this year. The index is now 13 percent lower than at the start of 2006. ``The stock market has fallen too much today,'' Finance Minister Pridiyathorn Devakula said yesterday. ``This is the side effect of the central bank's measure, but we have fixed it already.'' The requirements stay in effect on other investments, including bonds and property, he said. Asian stocks have advanced this year as growth in the region's emerging markets drew funds from overseas investors. Funds investing in shares of developing countries had a net inflow of US$1.65 billion in the week ended Dec. 13, figures from Emerging Portfolio Fund Research showed. The net fund inflow was the biggest since the weekly period ended May 10, when they drew US$2.86 billion.

Central banks in Malaysia, the Philippines and Indonesia said that they wouldn't implement capital restrictions to control their currencies. The Thai rule came after the baht appreciated 16 percent in 2006 to a nine-year high against the dollar, threatening exports and economic growth. The baht had its biggest two-day decline in Asian trading since April 2005, following yesterday's measures. The currency climbed 0.22 percent against the dollar to 35.90 as of 1:09 p.m. in New York on Dec. 19. Emerging-market stocks plunged 25 percent in 26 days between May and June on speculation higher interest rates would damp economic growth and reduce the appeal of riskier assets.

After slumping to its low for the year on June 13, the MSCI emerging markets index has recouped all its losses, climbing to an all-time high on Dec. 18. For the year, the measure has gained 25 percent, compared with a 14 percent rise in Standard & Poor's 500 Index. In the past five years, the MSCI emerging markets index has advanced an average of 26 percent each year, more than quadruple the 6.2 percent average gain the S&P 500.

My Lima Sen - The U-Turn was basically a Britney Spears' admission - "Ooops, I did it again!". But investors need to remember that it is still in force for property and bonds. Especially property, so this is not that bad a thing. The Dow continued on its merry ways, and investors would be silly to think that this morning you can plough all your savings into the markets. Regional markets will spike up especially Thailand but I think the Thai market WILL weaken FURTHER after the first hour or so because the act of clamping down on inflows and outflows of currency IS possibly the most distressing thing you can inflict on foreign investors (second to doing something ala to the CLOB by Malaysian authorities). Hence even if you reverse the decision, damage has been done already. I tell you, Malaysia till today IS STILL PAYING FOR THE CURRENCY CAPITAL CONTROLS thing even though we have lifted it. You cannot slap people in the face and ask them to continue to give you money, then say "no hard feelings", then slap them again.

In a way the controls implemented by Thai central bank did its thing even though part of it was reversed. It already scare the shit out of all speculators. So, u-turn or no u-turn, after the slight recovery today, many will continue to exit the Thai market, and the regional bourses would be affected slightly. So don't get overly confident.

Central bankers have to learn that managing the currency and funds flow is a very tedious thing. Speculation has to be managed way before it gets too hot, and there are a hundred and one ways to massage the thing before it reaches breaking point. Don't just suddenly whack the kid with an acid dipped cane when all you have been doing all along is some verbal rebuke.

Mai Vee Vella Sarm Lap Koun
Dejavu 1997?

As reported in Bloomberg: Thai stocks plunged after regulators yesterday told banks to lock up 30 percent of new foreign- currency deposits for a year to curb speculation. The baht dropped the most in three years. The benchmark Stock Exchange of Thailand index slid as much as 8.9 percent, the heaviest in more than three years, and the baht almost doubled yesterday's 0.8 percent drop after central bank Governor Tarisa Watanagase said she was ``confident'' the measures will reduce inflows. The currency, Asia-Pacific's best performer, had surged 16 percent this year before yesterday as overseas investors bought the nation's stocks. ``Foreign investors will rush to take money out as they're afraid the baht may weaken further,'' said Visit Tantisuthorn, Secretary General of the Government Pension Fund, the country' biggest fund with more than US$7.8 billion in assets. ``It'll help exporters and the country's trade balance.'' The baht climbed this year to a nine-year high yesterday amid optimism the economy will accelerate after a Sept. 19 coup ended a political deadlock that curbed spending and confidence. Exporters including Thai Union Frozen Products Pcl, the world's second-biggest tuna canner, on Nov. 16 asked the central bank to stem baht gains that are undermining their competitiveness. The baht lost as much as 1.5 percent, the biggest fluctuation of any currency today, to 36.08 against the dollar. It traded at 35.66 at 10:03 a.m. in Bangkok. It last fell more on Sept. 14, 2003. The Stock Exchange of Thailand index slid the most since February 2003. Starting today, overseas investors buying the baht will only be able to invest 70 percent of what they transfer and recoup all of their funds if they keep the money in Thailand for more than a year. Those who withdraw the reserved amount in less than a year will be fined 33 percent of that 30 percent portion.

My Lime Sen: Rather than conjuring up memories of 1997, this time around, the Tahi central bank acted well. The speculative funds kept pouring in over the last 6-9 months, with silly speculation that foreign investors were busy snapping up expensive villas and plush condos in Thailand. All pure speculation, in fact the speculators turned it up a few notches over the last 3 weeks despite uncertainty with the political junta government and the ouster of Thaksin. The currency controls into Thailand are not as severe and they thought they could do another round of 1997.

It may temporarily affect regional equity markets, but in actual fact, its an excellent medicinal dosage to keep the baht from being excessively manipulated. Having said that, nothing much will happen with regional stocks ahead of the holidays, maybe some window dressing come 28/29 December but wait for end of first week of January to replenish positions.

REIT Me My Rights

gsg said...
i do believe that with the malaysian govt at this right juncture doing the right things to lure/improve foreign interest in malaysia, will eventually do the necessarily to make malaysia competitive in terms of REITs.....so yes, it will be something to watch for,.....the smart companies are waiting for the right time to REIT their assetsany suggestions on which in KLSE will benefit?

I do agree that REITs will be a big theme in 2007 for Malaysia. Malaysia only have less than RM4bn in REITs while Singapore has a stupendous RM52bn. The issue is Malaysian commercial properties are not all-REITable immediately, maybe just 5% of the total passes the basic criteria required. However, more savvy player will be able to reinvent, refurbish existing commercial properties to a REITable state. We can also expect players to come in and buy up existing big commercial properties and do it up to a REITable state, or like CapitaLand - buy some, build the rest. The key players:

a) Singapore's CapitaLand Group, which is already managing 14 REITs in Singapore and 4 outside of Singapore. The company has already announced a US$250m or RM890m Malaysia Commercial Development Fund, in a jv with Maybank. This will be the seed capital which should see a gross development valued at US$1bn. This will result in a sustainable completion plan of properties for an eventual REIT. The project will complement the existing REITable properties CapitaLand has in mind. Initially the fund will buy about RM200m of existing properties for immediate injection.

b) Resorts/Genting/Landmarks - There should be a bigger REIT here after the failed SungeiWang REIT.

c) Some of the real estate fund managers will try to tap into the REITs market by placing out shares or doing an IPO.

d) Other big groups a bit stretched for cash will be the first to enter the fray, such as Lion Group and Sunway. Others who do not need it so much will come much later.

e) A number of big government fund management units could very well develop Islamic REITs as a by product. With a number of big sized Middle Eastern banks in Malaysia, we can look forward to a useful listed exchange for these product if we play our cards right.

In actual fact, any of the top 20 companies in market capitalisation will have sufficient properties to consider selling/merging the properties into a REITable state. Look for independent managers such as Macquarie to piece together a few different owners' properties to a REITable state.

Hello Tourism Minister!
Not My Area Of Responsibility La...

Malaysia's recently opened low-cost airline terminal is to be expanded and upgraded next year in response to complaints about overcrowding and a lack of facilities. "We will be providing better amenities and more chairs for the comfort of those using the LCCT (low-cost carrier terminal)," Malaysia Airports CEO Bashir Ahmad told The Star newspaper. Bashir said that Malaysia Airports has been holding talks on the project with AirAsia which is so far the only airline to use the terminal. The Star likened the scene at the terminal to a "disaster relief centre", with weary travellers sitting on trolleys, lying asleep on the floor or slumped over tables at fast-food outlets. The low-cost facility which is designed to handle 10 million passengers a year opened in March, just before neighbouring Singapore launched its own no-frills terminal in a race to secure the burgeoning budget sector. From the start, the Malaysian terminal, a warehouse-style building located 20 kilometres (13 miles) from Kuala Lumpur International Airport, has been criticised for expensive food and a lack of seating. There was also dismay that the high-speed train which connects far-flung KLIA with the city does not run to the new terminal and construction on an extension line is yet to start. However travellers continue to flock there and aviation industry analysts say the facilities are a boost for budget airlines which face a constant battle to reduce costs.

My Lima Sen - Oh, yea... 2007 is a very very big VISIT MALAYSIA YEAR! I can understand if the LCC Terminal was rushed to completion in order to be launched before the Singapore's LCC Terminal, so there were bound to be hitches. Now, how long does it take for hitches to be unraveled? Hmmmm ....

Let's look at other pathetic hitches which marrs our Tourism water-face. Why am I still being pestered when I arrive back at KLIA by illegal/private taxi operators - how long do we have this problem, how long have we been highlighting this issue - it makes us look Third World (the senior government officials wondering "what does Third World look like", look in the mirror). Third World mentality - problems and issues do not get rectified or solved professionally, always gaps and holes appearing even in solutions carried out, things do not get done on time or at all, need lotsa kicking from the top before things get done at the bottom, poor productivity at all levels, sub standard facilities and infrastructure, no proper masterplan or strategy, and very very poor execution skills, incompetent people at important positions...

The other airport involves the handling of the limos and taxis ferrying passengers from KLIA. You got the concession, do it well la... if passengers have to queue for more than 30 minutes with no sight of taxis, something is very wrong somewhere. So who is in charge? The Malaysia Airports guy would say that they have given out the concession, so not their jurisdiction ... meanwhile the Datuk with the concession is nowhere to be found as no one is really running the concession day in day out ... whispers had it that certain operators wanted passengers to use their overpriced vans instead, so the limos and taxis have been asked not to show up ... if that is true ... sigh, worse than Vietnam or Cambodia man...

The other aspect which pisses off many tourists is the devious taxi drivers with special meters, or those who don't use meters and quote RM50 for a 10 minute trip. If we can have police speed traps and Mat rempit traps, why can't they also check all the taxis at the same time for tampered meters and ask passengers if the driver had just quoted a price instead of using the meter. Having said that, taxi drivers are way underpaid, so cannot exactly blame them for trying to make more money. Increase flag fall to RM3.00 and per km rate by 30%, then implement strict adherence to rules and meter usage.

These are just 3 things which will piss off any goodwill generated by our tourism campaigns. Tourism should be a top 3 industry for Malaysia, so we should handle it well. First, appoint a more hard nose Minister. We have top beaches, top beach resorts, world ranked spas and hills resorts, excellent eco-tourism in east malaysia, now serviced by cheap LCCs, with AirAsia we can be a must stop centerpoint for tourists wanting to go regional (use KL as a base and then go to East Malaysia, Thailand, Cambodia and Indonesia cheaply), Malaysia has a huge natural advantage being the preferred place of travel for Middle East tourists and must leverage on that.

This is important, please somebody high ranking, do something ....... The above things need immediate rectification, the LCC Terminal situation is quite dire, how long do you think it will take to address the problems?? Or, do we just brush it of as doing it ala Malaysian style la .. eventually will get done la, why the hurry , ...don't like it, don't come la...

Wake Up BURSA!

As I was trying to do a review of the covered warrants, I had great difficulty trying to come up with essential information on these covered warrants.

a) If you check the newspapers, Star and NSTP - Star has a 52 week high low, closing warrant price, +/-, volume traded, exercise price and expiry date. No mention on the conversion ratio. Conversion ratio is very important as investors would need to use the formula to calculate premium and gearing.

NSTP shows the week's high and low, closing warrant price, change, year issued, maturity year and exercise. OMG, biz editor at NSTP, please wake up! Why show us maturity year, no use punya info. Plus year issued, why, why do we need that info. Does anyone at the NSTP biz desk understands warrants. The most important info one MUST have:
- warrant price
- conversion price
- maturity date
With these 3 data, only then can an investor work out the premium and gearing. Mother share prices are available everywhere, so no bother there. But as you can see, the NSTP info is sorely lacking, very amateurish indeed.

Of course The Edge provides the infomation on premium, gearing and even delta. As for conversion ration, some yes, some no. Anyway, as the warrant and/or mother share price move, one must be able to calculate the Premium and Gearing by themselves - there is NO LIVE INFO the last I heard.

b) Not happy at not getting the conversion ratio, I moved to the website of Bursa... go to company's announcements, no luck, covered warrants issued by difffering merchant banks not by company itself. Go to Call Warrants page, no good, only report monthly outstanding call warrants. One actually has to go to the correct bank/broker company announcement page, search for the right date, then read through the offering prospectus to GET THE CONVERSION data.

Tell me Mr. Bursa, can you tell me in 1 minute, what is the conversion rate for the following Call Warrants - Genting, IOI Corp, MISC, Tenaga... see how long it takes for you to come up with the info...

Why does this happen? Poor execution, having the wrong people at the wrong jobs, having inept people doing important jobs ... If the Bursa does not even allow investors to get the said information in a quick and precise manner, either the Bursa does not understand how important the information is, or couldn't care less - either way, NO GOOD!

Why bother going on roadshows asking people to invest or complain on why local investors are still speculative driven only WHEN you do not provide important trading information, important BASIC information for people to trade with an informed mind. Does that mean that Bursa people do not want to provide the info; or does not know whether it is important; or doesn't even know shit about a WARRANT, and YOU WANT TO LAUNCH SINGLE STOCK SHORT SELLING??!!!

Already only a minority even knows how to calculate PREMIUM and GEARING or even understand why they are important... and you encourage merchant banks to keep issuing these fucking papers to be placed out through remisiers and dealers.... when most end buyers do not have a fuckin' clue, and it takes me fuckin' 30 minutes to find the conversion ratio for one covered warrant... and I am a professional in the investment field. Buck up, bucko!

p/s that's why my Culling The Covereds posting was cut short, was so frustrated... sorry for the fuckin' language but I cannot express myself well enuff, limited vocab la, sometimes I think to swear gives the right measure of weight on the level of "pissed-off-ness" ... yes, you are right, I cannot tolerate incompetence and stupidity ...

Culling The Covereds (Part 1)
Call Warrants Review

Air Asia-CA 10/2007
Warrant Px 0.225
Mother share 1.46
Conversion Px 1.96
Premium 49%
Gearing 6.5x
Verdict: Premium very high, not the best (B-)

BToto-CA 3/2007
Warrant Px 0.54
Mother share 4.66
Conversion Px 4.43
Premium 6.6%
Gearing 8.6x
Verdict: Great gearing and low premium. Even though time to maturity is near, but like I say, a market's best chance for a bull run is in the 1st and 4th quarters, so not much point holding onto a warrant expiring in the 2nd and 3rd quarters (A)

Bursa-CA 4/2007
Warrant Px 1.51
Mother share 7.80
Conversion Px 6.07
Premium -2.8%
Gearing 5.1x
Verdict: Discount, ok maturity into 1st quarter, ok gearing, but nobody believes me when I say Bursa shares can go to RM9.00, even though I always blast the Bursa (A+) please ignore this opinion as it was based on one for one conversion (which was wrong)

Well, ty Tangee888, see what i mean, the bloody Bursa covered is 2 to convert into one share, hence my calculations were wrong!!! So, I'm just gonna leave the original posting to reinforce my point. The proper calculation and verdict would be:
Premium: (2 x 1.51) + 6.07 / 7.80 = 16.5%
Gearing: 7.80 / 3.02 = 2.58x
Verdict: OMG, this warrant is quite expensive and the gearing is quite low too. I think its some kind of karma that the Bursa-Covered is the one to give me the problems - all the more ironic!! (C)

Commerz-CA 11/2007
Warrant Price 3.18
Mother share 7.85
Conversion Px 4.59
Premium -1%
Gearing 2.4x
Verdict: Good time to maturity left but gearing is pathetic, totally loses out on what makes a warrant. Even though no premium, not a good play (C)

Investment Themes - Malaysia

sopskysalat said...
dali, given the many investment theme being played, going into 2007, oil and commodities may continue to be in focus. looking into the domestic scene, the boom in property sector happening in singapore and malaysia may well put the construction into the limelight with many const. co. being badly battled down for the past 4 years or so. infrastructure deal are popping everywhere. therefore, isn't it time to seriously consider const. co. again? my view is yes. what's yours?

Usually, I am averse to construction as it is cyclical, and in Malaysia's case, a lot depends on who you know rather than what you can do. Still, there have been winds of change over the last 3 years, as projects dried up and the better ones had to venture overseas to secure a better portfolio. Those who stayed back and keep begging for crumbs are not the ones to buy and hold. Leverage on your expertise, we can do a lot of thing well, even in construction, and our cost structure is undemanding compared to construction firms in the region.

However, due to the "inefficient operations" of many construction companies, we should see a lot more M&A activity as only the big ones will survive in the end. IJM and Roadbuilder will win favours with local and foreign investors, and will get bigger and better. Others who have their heads above water include: Gamuda and YTL Corp. As for those who will benefit with M&A buzz activity: MTD Capital, UEM Builders, UEM World and MRCB.

The dominant themes for the 2007 first quarter should still be plantations (I think CPO prices have a lot more upside), followed by M&A activity in banks (Affin, RHB Cap) and companies involved in REITs (not those listed already but those having the capacity to piece together/buy a good portfolio for REITs). I believe there will be significantly more foreign participation in REITs in the coming months. Do not think that REITs is a small thing. Just have a look at Singapore (and to a certain extent HK as well), REITs have been flourishing there. More importantly, REITs frees up huge amounts of capital to be reinvested in other areas of the economy. This adds a huge impetus to the velocity of money swishing in the system. We need SC, Bank Negara and the Minister of Finance to work together on this to remove the "obstacles" dampening the growth of REITs in Malaysia asap... (the tax issue, the repatriation of dividends, etc... foreign participation, equity issue, etc..). Believe you me, we do this one well, watch the domino effect.

For Whom The Tolls Toll
Probably My Least Popular Posting

As reported in Reuters:
Malaysia will announce on Thursday a sharp rise in road toll rates to help trim state subsidies, in a move that could spark a public outcry and raise inflation. Tolls will go up by as much as 60 percent and will affect users of five highways in and around the capital, Kuala Lumpur. The new rates take effect on Jan. 1. A spokesman for the Works Minister confirmed that an announcement would be made at a news conference at 3.15 p.m. (0715 GMT) on Thursday. He declined to give details. Under toll concession agreements that critics say favour operators, the government has to reimburse operators if traffic volumes and revenues fall short of pre-agreed projections. Works Minister S. Samy Vellu said recently the government would have to fork out 2 billion ringgit (US$565 million) in compensation to five highway operators if toll rates were not revised. The operators include listed firms Gamuda Bhd and Lingkaran Trans Kota Holdings Bhd. Litrak operates the 40 km Damansara-Puchong highway, where the toll is to rise 60 percent, to 1.60 ringgit from 1 ringgit now. The real toll is 2.10 ringgit, so the government is still subsidising 50 sen for each user. Residents along the densely populated stretch had protested strongly against an initial proposal to levy a toll of 1.50 ringgit, forcing the government to fix it at 1 ringgit. Some 418,000 vehicles used the highway daily on average, reflecting a 14.5 percent compounded annual growth rate for the past seven years, rating firm RAM said in a review of Litrak. Government officials told the briefing that one reason for the shortfall in toll collection was due to motorists switching to alternative non-toll roads, the source said. The toll hikes, however, will not apply to Malaysia's biggest toll-road firm, Projek Lebuhraya Utara-Selatan (PLUS), a PLUS spokeswoman said. PLUS' rate increase is fixed at 10 percent every three years and the next increase is not due until January 2008. Malaysia's annual inflation was 3.1 percent in October year-on-year, down from a 7-year-high of 4.8 percent in March.

My Lima Sen:
a) Its a good move, I know the Bandar Utama and Taman Tun residents will yell and scream, but hey, you can afford it.
b) Why are we jumping up and down on something which has been written in contract to the companies?
c) There is only so much a country can do to subsidise infrastructure, would you mind paying even higher taxes?
d) Of course if you harp on the enormous wastage in bribery, inefficiency and misallocation of resources... that is a completely seperate issue. Toll roads would not be built if there was no toll. You think this is your grandfather's road aaahhh?
e) You use, you pay, if not then the rest of the nation is shouldering the toll for you, including the pakciks and grandfathers back in Ulu Langat or Kuala Lipis.
f) WE CANNOT KEEP SUBSIDISING the economy or even pockets of the economy. Be it in petrol prices or otherwise. That would create an inefficient allocation of cost and resources. Of course we cannot withdraw all subsidies all at once, we have to do it gradually. Live with it.
g) If we can withstand a 33 sen increase at the petrol pump, this is nothing.
h) While this may sould like a propaganda piece from the government, somebody must always see things from a bigger perspective.
i) No point saying how much money we make from oil and gas, or lose to corruption, or misallocation of resources - say that during a seperate platform. Just on toll roads alone, voice your dissatisfaction based on toll roads issue alone.
j) Its good for the toll companies as their cash flow is more assured instead of up in limbo.
k) In the long run, the government is just preparing the nation to live with the "real cost of living", and for companies to "operate on real cost of production". Its kinda neat if you think about it.... about time man!!

pssstt ... don't I sound like KJ??!!... lol... if only he was talking sense, if only...

Patient's Condition

Nurse, pass me the anal thermometer .... two straight days of hammering, now everyone who was cheering "Malaysia Boleh" last week has turned cynical. Some gleefully shorting the index waiting for a pickup at 1,050.

Prognosis: The selldown on Tuesday and Wednesday was good for the patient, he had gorged on durian and stout, plus two packets of nasi lemak. Needed to do a body cleansing you know, detoxification ... now, nurse, did the patient vomit blood??

I see, no cold sweat on his forehead also, nothing to worry about.

Seriously, the Tuesday and Wednesday activity was largely due to contra plays, just check the volume late last week. It couldn't continue as the contra plays would just get bigger and bigger. The huge buys on Sime and PNB companies was not due to the Credit Suisse report, it was just the prop trading desk of Credit Suisse buying a huge position in those stocks - which is still a very good sign, the play is on for Malaysia stocks.

How can it be bad, we have a strong platform for the index with the merger to be passed for Sime and the related counters. Banks are still very attractive. Tenaga and Telekom have their favours. Plantations still going strong. If Typhoon Durian gets worse or any kind of natural disasters hit plantations, CPO prices would go through the roof even more. Some funds exited US stocks in favour of Asian exposure, just look at the liquidity surges in HK and Japan. Its swishing in Asia.

The contra plays got hit. but there are buyers and it looks solid. I don't think the index will even go anywhere near 1,050. Too many corporate exercises in the pipeline. Accumulation in Proton-C is just too obvious, with or without market weakness. Kuok's merger plans looks very good for PPB. Even the higher tolls have a positive spin on it for the related stocks, not heavy enough to derail the local economy. Ringgit looking for further headway, no way funds are leaving local shores just yet. Its December, time to play till March at least, baby...

ooh... nurse, take the thermometer out from the patient ...