Opensys: Cashflow tells more than Net Earnings, Actually!

Check out Opensys cashflow for the 9 months ending 2011 vs the PAT of RM1.32 million only.

This is the reason why the company has just announced a 5% interim dividend. From my previous post, I believe this company will be a very strong candidate for defensive stock picking. We have a winner here despite it being a not noticeable stock. This stock will provide better return via dividend yield than many other investments.

Serious Investing!

Probe on Sime-E&O deal, pressure for general offer - Is there a hidden agenda?

An article by MalaysianInsider.com got me thinking. Sime Darby has signed an agreement with 3 different shareholders for 30% of the Eastern and Oriental (E&O) stake at 60% premium to the market price.

The contention is that the SC chairperson's (Zarinah Anwar) husband is the chairman of the E&O board. He has over the last 4 months bought 450,000 units of E&O. The market is basically saying that since he is the chairman, he would have known about the transaction and now his stake is worth 60% higher than when he purchased the shares. Was there any insider trading involved? I do not think so. Why?

1. He was not the seller although being the chairman, he would have known the shares are undervalued - hey! that's why he bought, anyway but he may not know that there is a private deal going around;
2. The 450,000 shares bought over last 4 months was not the only time he bought the shares. In fact that 450,000 shares only represents 11% of the E&O stake he owns. He was buying the stocks from years before in fact. Prior to the purchase, he already owned 4.05 million shares. Hence claiming that he has taken advantage of the pending deal may not be right. If he knew, he would have bought much much more, and normally in this situation they do not use their own name. In this case, he used his name and did announce to Bursa. To me nothing wrong here;
3. Are we saying that the price of E&O is now RM2.30 per share? Not really. Sime Darby wanted a controlling stake and that 30% is the controlling stake. To have a controlling stake, usually a premium has to be paid.
While I may not think there are any hanky-panky involved surrounding Zarinah, I welcome SC and the Watchdog to probe the deal further. Zarinah also has to come clean and reveal their position in this deal. My advice is this though: Since you are the SC's chairperson, get your husband to resign from all public company's position unless of course his own business. We have too many of ex-politicians or even current politicians in the public listed companies board.

Read the article below:

KUALA LUMPUR, Sept 9 — Securities Commission (SC) chairman Tan Sri Zarinah Anwar is under pressure to investigate her husband, Datuk Azizan Abdul Rahman, for insider trading over conglomerate Sime Darby Bhd’s recent purchase of 30 per cent in property developer Eastern & Oriental Bhd (E&O).

There is also pressure on Sime to make a mandatory general offer (MGO) to E&O’s minority shareholders as the plantations-to-property group had paid a 60 per cent premium for the 30 per cent stake bought from three shareholders. Azizan, who is E&O chairman, did not sell to Sime but has been reportedly buying shares in the past few months.

The SC has already said it is investigating the deal although it did not note the relationship between Zarinah (picture) and Azizan.

“We are also examining the circumstances surrounding the transaction for any Takoever Code implications. Our course of action will be based on our findings,” SC said in an e-mail response to local newspapers on Wednesday.

Minority Shareholders Watchdog Group (MSWG) chief executive officer Rita Benoy Bushon had also questioned the deal and asked if there would be an MGO although the share purchase was below the 33 per cent threshold to trigger a mandatory buy.

“Where does this leave the minority shareholders? Is it fair to them?

“We believe that in the circumstances, the Securities Commission should investigate whether the other conditions for an MGO have been fulfilled,” Bushon wrote in The Star newspaper yesterday.

Bursa Malaysia filings showed that shareholders and board members of E&O and investment firms had been buying up E&O shares ahead of the deal being announced on August 28.

Just before the Hari Raya break, Sime Darby announced it wanted to buy a 30 per cent block (involving 273 million shares and 60 million irredeemable convertible secured loan stocks) in E&O at RM2.30 per share or a total of RM766 million from three vendors — E&O managing director and founding member Datuk Tham Ka Hon, Tan Sri Wan Azmi Wan Hamzah and Singapore-listed GK Goh Holdings Ltd.

The RM2.30 offer price represented a 60 per cent premium to E&O’s then market price.

The filings revealed that GK Goh bought shares totalling 1.25 million shares from the open market for three consecutive days starting August 10. Others buying up E&O shares in August ahead of the deal being announced include ECM Libra Financial Group Bhd, which acquired 6.16 million shares, increasing its stake by 0.63 per cent amounting to 6.25 per cent in four transactions in August.

Azizan also purchased 100,000 shares on August 12 from the open market, bringing his total purchase to some 450,000 shares from the open market involving five separate transactions from April to August this year.

In a statement to The Star, Azizan said: “With regard to the issues raised pertaining to Sime Darby’s proposed acquisition of a 30 per cent interest in E&O, I would like to highlight that it is a private transaction between major E&O shareholders and Sime Darby.”

“The transaction does not require board approval and, hence, was not discussed at the board level. As such, board members were not privy to the transaction and continued to trade in accordance with the prevailing rules and had made appropriate filings with Bursa Malaysia,” Azizan said in the e-mail response.

Apart from these transactions, three of the transactions were done in July and August. Based on Bloomberg data, E&O saw trading volumes increase drastically in July and August, with the company’s share price hitting an initial high of RM1.70 ahead of the deal being announced. E&O’s share price had been moving upwards since mid-March (RM1.08 on March 16) and closed at RM1.68 yesterday.

“The main sore point is the offer price which amounts to 19 times E&O’s forecast earnings for 2012 and 1.85 times its price-to-book value, where, by comparison, the property sector has an average of 12 times forecast earnings for 2012 and 0.8 times price-to-book value,” Bushon had said in her column in The Star daily.

She argued while the premium could be partially justified since it is a controlling block, “but with a mere 30 per cent stake, the extent of earnings contribution accruing to Sime is merely at the equity-accounting level as an associate, or a mere 0.6 per cent increase to Sime Darby’s profits in 2012 and 2013”.

“So soon after reeling from its recent billion-ringgit losses in its energy division, it is hoped that the board had undertaken all due diligence in this deal,” she added.

Serious Investing!

Sold Airasia and bought Oldtown

I just sold Airasia, basically took profit (made RM1,653.36) and bought 6,200 units of Oldtown.

Reason for doing so is that I have liked Oldtown in my previous writing. Now the price is below its IPO price of RM1.25 i.e. I bought at RM1.15 which is amazing as I get to buy much lower than the price I envisioned would have put my hands in - the latest quarterly report of 30 June 2011, I do not see any reasons for me to change my view on this coffee chain. It has built itself into a strong brand. Ironically I am selling a strong brand as well - Airasia.

Why I sold Airasia? If you previously read some of my blogs, while I like this airline, I could not comprehend the deal with MAS. Anything I am not very sure, well I do not like and this deal with MAS is big, although may benefit Airasia in the long run.

Anyway, Oldtown will bring much better cashflow than Airasia. Airasia is not a cashcow while Oldtown has a very good chance of building itself towards a cash cow. Hey! it just announced a 0.025 dividend - keep it up.

How does my investment position look like now?

Serious Investing!

Why I do not like the MAS - Airasia deal?

I am an investor of Airasia. This deal in fact should have called the Airasia - MAS deal as who knows after 10 years, Airasia can be valued at 2x MAS. How much things have changed. While I like Airasia as a business and how well the company has executed in turning itself into a respectable airline, I do not like the deal at all. Let's see what are the differences between MAS and Airasia.

1. Airasia is a privately owned company and MAS is a government controlled company although it is listed. It is much easier to run a privately controlled company while there are too many hands trying to reach at the cookie jar of a government controlled. Imagine what will happen if there are changes in the group of people running the government. Will Tony Fernandez have much say in the running of MAS with his group's 20% stake?
2. Airasia again is a privately owned airline while MAS is a national airline. For a private airline, you can do a Thai Airasia deal. You can also do a Indonesia Airasia deal. So is doing a Japan Airasia deal. Can MAS do that? Little chance. A national airline will have to compete against SIA, Cathay Pacific, Emirates Air. These airlines are definitely financially stronger competing in a similar space as MAS. While Airasia is a competing airline as well, it is different as it reaches out to a different group of consumer group.
3. Analysts say that the MAS - Airasia deal will lower costs as MAS and Airasia can possibly share spare parts etc., i.e. some of the costs. That theoretically sounds good as in an investment bankers pitch but executing it is very difficult. Airasia only operates Airbus 320 and 330 (for Airasia X). MAS on the other hand has much more variety in their fleet. How is that costs sharing helping?
4. The deal could potentially reduce competition. I do not like anti-competition deal. It is bad for consumers. I like companies which are competitive as that DNA will make them more competitive naturally. Look at MAS, you think it will ever be successful? The mindset of the people behind the company was totally wrong from day 1 and it will be a tough task to change that. Not even Tony.
5. To me Airasia should just go ahead and do more international deals like what they have done in different countries as the expertise and strength in negotiating financial and airplane deal could have brought them into those positions. With the deal with MAS, I do not know how other government could have viewed that.
6. You think Tony could change MAS? Today if you ask around, private corporations are beginning to warm to getting their employees to take Airasia or any budget airlines. Reducing costs will help companies to be competitive. Who are the ones who still insists on taking business class of a national airline? People behind the government. Can Tony introduce no frills or reduce the service level on those flights?
7. If you look at the Tune group, they thrive on providing value - meaning if anyone is willing to accept a reduced service by paying less, they are able to provide that to you. Hence with these kind of expertise, they will not be able to bring that same model to MAS, a premium service provider. In short, running a low cost airline is very different from running a national airline. I do not think Tony is able to execute well in that space.

I feel that the share swap deal was a deal for Tony and his group as at the time the deal was executed, Airasia's price was rising while MAS' price was poor. When you see Nazir's face in that deal, it was just a deal to make certain group's happy. It was not meant to be a deal that will change the face of the airline business in Malaysia or anything that will benefit Malaysians.

Serious Investing!

MAS - Airasia deal: When politicians plot, public gets shafted

As an investor in Airasia, perhaps I can show my disgust by reproducing the below article by Mariam Mokhtar. I have to say I totally agree with her as I do not think Tony Fernandez and gang can turnaround MAS, and if they are able to do so, why should they.

Tony, as a CEO of Airasia, just concentrate on building Airasia. You are not a superhero.

When politicians plot, public gets shafted


The fly-by-night people in charge of MAS are no better than a posse of cowboys. Why do we continue to tolerate the wasteful antics of our politicians who indulge in a game of real-life Monopoly and who use taxpayers’ money to bail out ailing companies?

In a perverse reversal of the saying “King Midas and his golden touch”, it appears that whatever BN-Umno politicians “touch” will always turn to dust and ashes.

This deal that is struck with MAS and AirAsia is another smack in the face for the public. What sort of responsible government allows such a merger to take place? By agreeing to this merger, the government has neglected to address healthy competition which in essence should benefit the airline customers, companies and the Malaysian economy.

What about fair trading practices? Or conflict of interest? Or share prices? Maybe the Securities Commission should start probing both AirAsia and MAS about insider trading or any other irregularities. What about the jets each carrier uses, the agreements and maintenance contracts signed with Boeing and Airbus? Who honours what?

However, the most scandalous revelation is that all government-linked companies, have been instructed by Nazri Aziz, Minister in the Prime Minister’s department, to cease all civil suits against Tajuddin Ramli, the former chairman of MAS and settle out of court.

Yet again, Tajuddin has been let off scot-free and the public, denied justice. Any court revelations now would not look good for Barisan Nasional, especially as the general election draws near.

With this latest defrauding of the public purse, how much of the taxpayers’ money has gone unaccounted for? This government is neither transparent nor accountable. It does not adhere to its own catch-phrase, “People First, Performance Now”. It doesn’t even match up to its own Key Performance Indicators.

In the late 1960s and 1970s, working for MAS was both a privilege and carried great prestige. Today, there is a different portrait of the MAS employees. Many are unhappy and morale is at an all-time low. Disaffection with MAS is felt by cabin, flight and ground crews including engineering and maintenance staff.

Jala’s forte

When Singapore Airlines (SIA) and MAS emerged from the ashes of the now-defunct Malaysia-Singapore Airlines (MSA), SIA went from strength to strength while MAS was left in the doldrums.

When former prime minister Dr Mahathir Mohamad gave his blessing to Tajuddin to be installed as the chairman of MAS, the airline started to go downhill. Tajuddin received the support and protection from his influential patron, the former finance minister, Daim Zainuddin, which spelt further doom for MAS.

In these days of rising fuel costs and tight profit margins, the airline industry is more competitive than ever. However, the Malaysian Cabinet denies putting government officials in charge of a global brand.

These officials are clueless about most things and have no experience of running an airline. The first thing to effect a turnaround should have been to disband the senior management, all of whom are mere government puppets.

If there was one brief moment of respite for MAS staff, it was when Idris Jala took over and was “praised” for turning the company around. But even simpletons realise that selling your best assets just to make the books look good, is not financial wizardry. Many in MAS are still angry with Jala.

Asset stripping was Jala’s forte. He also engaged in cost-cutting by reducing many of the privileges enjoyed by the staff without addressing the problems created by Umnoputras and BN politicians who treated the airline like it was their own private transport.

Jala, having collected his performance bonus, then entered the government’s bloated political élite club via the back door and became a senator and Minister in the Prime Minister’s Department.

So if Jala has turned MAS around, why is the MAS-AirAsia merger necessary? Was it to help MAS or AirAsia? No one really knows as this deal is shrouded in mystery.

Mahathir remarked that the MAS-AirAsia merger was a “very good idea” as “AirAsia can learn about the experience of MAS and MAS can learn how to reduce costs as done by AirAsia”.

How prophetic. Anyone with half a brain will know that MAS is run along government lines. “You do as we say” is the norm and the person who kowtows to the government will be rewarded with a title and other benefits. And if others want to haul you to the court for non-payment of debts, the government does a good service in whitewashing and “proving” your innocence.

Being held accountable

When will we have a head of MAS who is brave enough to say “No” to the government? MAS was a fine airline decades ago and many Malaysians were proud to fly with it. These days, MAS is overpriced and uncompetitive.

AirAsia is nothing to shout about. Customer service is non-existent and it is not cheap flying AirAsia on some long-haul flights. The merger will be another nail in the coffin with regard to competition.

Billions of ringgits of taxpayers’ money are unaccounted for. The scandals of Bumiputra Malaysia Finance, Bank Bumiputra Malaysia Berhad, Felda, Defence Ministry, Perwaja, PKFZ, Proton, Sime Bank/UMBC are a few from a long list.

Perhaps Islamic institutions like JAIS should start condemning and investigating these criminal acts against the rakyat rather than running around and meddling in charity dinners like a blue-arsed fly, in the recent allegation of proselytisation.

Tajuddin must be tried, and if found guilty, punished by the courts for his alleged corruption when he led MAS. His alleged accomplices – ministers, former prime ministers and the current PM – should also be held accountable.

Maybe pigs will fly before there is any sign of judicial retribution.

Mariam Mokhtar is a FMT columnist

Airasia moving HQ to Jakarta - Right move?

Airasia, a brand that originates from Malaysia has always been directing from its HQ in KL. Now, it has announced that it is moving to Jakarta. Why? Here I think are the few reasons:

1. Airasia, while has been given quite a number of landing rights by the Malaysian government, its relationship with them has never been smooth. From buying the company at RM2 from DRB-Hicom about 10 years ago, it has grown its operations into a very respectable one - or probably one of the most respected airline globally. Currently, the company is valued at RM10 billion or more by investors. Despite that, its growth has always been hindered with the government not allowing them to operate off Subang airport and having been too slow to build a new low cost terminal to handle the volume that is ever growing. Note that, for several times Airasia has postponed the delivery of aircrafts from Airbus most probably due to current airport not allowing it to grow fast enough. Hence the very government that allowed the sale to Tony the airline has now hindered its growth.
2. Tony Fernandez has always been on the lookout to grow its business from anywhere that can provide them opportunities to even growing further. My last check, Airasia is flying to 68 destinations from Kuala Lumpur while it is only flying to 22 destinations from Jakarta. To obtain the route rights, it needs the assistance from the government in countries where it intends to fly from and land into. Hence, this is probably why Tony is willing to move - i.e. to grow Airasia even further.
3. Furthermore, just look at Indonesia alone, other competing airlines such as Merpati Air and Garuda have much more routes. Airasia if provided the route rights will benefit much more from there. I do not know what are the arrangements that the Indonesian government has provided to Airasia for the latter to move the HQ to Jakarta but looking at the moves that Tony has made before, it could be substantial. Tony is a negotiator and he is good at it. He is not afraid to make drastic decisions and the latest is another example to prove a point as well as showing who's the boss. At Airasia's size currently, he thinks he can be the boss, even to the Malaysian government. (I like that)
4. Operationally, while it may not be a smooth one to move from KL to Jakarta but an airline business is one which can be managed from anywhere in the region, what more from an airline which thrives through online booking, not so much via agencies. If it is implemented well, in fact it may save Airasia costs and to Tony saving costs is what it matters while it still manages to execute. After all, Airasia is never popular for its services. It is just there to provide the best bang for your buck to its users - that is what makes it successful. Hey! Ryanair is one of the most hated brand in Europe but look at them grow.
5. For a while, Indonesian airlines have always been viewed negatively until at one point of time, no Indonesian airline is allowed to fly to Europe. On safety, Airasia is viewed positively. Airasia by growing big in Indonesia will bring something to the country what the current bigger airlines in Indonesia are not able to bring immediately. Hence, to Indonesia besides creating jobs will be a win-win situation for the country.
6. Look at all the benefits - tourism, airport tax, jobs, country's airline perceptions, business travel etc. Indonesia sees it and Malaysia does not see it - this goes to both the government of Malaysia and its opposition who sometimes say things that does not make sense.

In the end this move I think is positive for Airasia but a loss to Malaysia - yet again.

Serious Investing!

N2N Connect - A RM15m revenue company buying a RM36 million property?

I am just wondering for an IT company with registered revenue of below RM4 million for last quarter of 31 March 2011. Current cash and some marketable securities totaling RM13.9 million, registered a net loss of RM6.5 million last year got the guts to use shareholders money to buy a RM36 million property. Although I am far from owning any of this shares and not interested to know much about N2N, I think the thought of using these money to buy a RM36 million property is disgusting. In Malay it is called "menjijikkan".



 
Serious Investing!

Oldtown's IPO - Certainly one of the more exciting company

More recently there are many more IPOs coming onstream. To me one of the more exciting one is Oldtown - compared to MSM, UOA and Bumi Armada although smaller in size. Why?

I regard Oldtown as a company with strong prospect compared to the other 3 above as it is a company which do standout among the local food chains. It is definitely easier to be identified with. Any company that raised eyebrows to Starbucks, McDonald with it managing to grow to 182 outlets within 6 years is no small feat. It just started its coffee chain operations in 2005 and from Oldtown, we would have seen somewhat similar concept as in Pappa Rich, Hai Lam Coffee, Station 1 and several other local chains. This goes to show that Oldtown has management that understand retail very well - while the others are trying to follow. Growing so quick in a short time is not easy.

While I do not fancy Oldtown's food, for a food outlet industry, its taste is not everything. It is about location and convenience - places that people can identify. Tell me you really love a McDonald's burger or Starbuck's coffee. It is about branding and Oldtown understands that. You will not see an Oldtown on a 4th Floor of a shopping complex. In a commercial area, you will be able to find an outlet Oldtown easily.

It is trying to raise some RM79+ million and post IPO, the market capitalisation would be RM412.5 million based on the IPO price of RM1.25. With the small issuance of 10 million stocks, do not even bother about applying for the stocks from the public offering.

Why is it a good prospect? Just look at the performance and to me it is believable...For a while there has not been a IPO with such exciting characteristics.

From PAT of 10.9 million in FY2006, it has grown to RM31.7 million last financial year. Revenue grew more than 3x over the 4-year period. The sprawling of new outlets over last few years has made the numbers make sense - which is why I said it is easily identifiable. It has strong cashflow as well which is why they have committed 50% of earnings for dividend payment.

Now, since we are not going for the public offering, at what price would it be made still buyable since its shares is scheduled to be tradeable from 13 July onward? At RM1.25 it is being offered at 13x PE. I have read some analysts comparing it to KFC (19x PE) and Berjaya Food (don't know and not interested as I could not identify myself with Kenny Rogers Roaster). Comparing with KFC is not wrong but I do not think it has the same growth prospects as Oldtown. While at one time KFC was attractive, at 19X PE it is not that great anymore. (The only good thing about KFC is that it has good dividend due to its holding company, QSR has huge debt to pay)

I think around RM1.45 (around 15x PE) is a good price to go in, that is if you can have some shares for that price.

Serious Investing!

Lim Kok Thay as Genting's CEO remuneration an absurd RM106.7 million

It is quite astonishing for a son who became a Chairman / CEO from largely his father's effort to pay himself an annual remuneration of RM106.7 million in 2010.

Do not get me wrong, I like the company for its potential and everything else, however Genting Berhad only registered RM2.2 billion PAT last year. LKT took a 5% paycheck of the profit for such a large company?

It must be remembered that the company while does quite well in Singapore, the success does not come from him basically. His success was when he got the concession from the Singapore government to build a gaming resort. I do not see RWS doing better than Marina Sands. In fact Sands I feel is slightly better than RWS.

In UK, Genting failed miserably. Due to Singapore, Resort World Malaysia's income deteriorated. Is this the mark of a CEO who deserves to be paid so high.

How does he justify his RM106.7 million paycheck? Nazir (around RM9 million) or any other CEOs who basically have to work their way to the position does not earn that much while in fact these companies registered better profits.

I could not imagine the son of Genting got paid more than 20x of a normal large company CEO in Malaysia and they still own around 40% of the RM40 billion company.

When you have an owner controlled CEO paying himself so high, you start wondering whether he ever respects the shareholders or is he for himself only? Remember every dollar he makes for the company, he already benefits 40% from it. Isn't that motivating enough?

Can the shareholders do something about this? I bet they can't for obvious reasons!

Serious Investing!

Time Dotcom - Til today they can't get their heads straight

Most investors would remember that Time Dotcom was rescued by the then, Telecommunications Minister Lim Keng Yaik. LKY was probably forced to not provide a 3G license to Digi (when it is the one who can do something with it), but yet gave the license to Time (the one with financial trouble) - forced Digi who had no choice but to lease the license from Time and voila, Time's big hole was patched allowing it with a positive cash position today. Not bad for the rejuvenation of a Malaysian company without doing anything strategic. (If you notice, Time owns some Digi shares which they listed as investments in the books. FYI, they have sold a large chunk for the cash they have as at todate)

But yet Time's predicament which is not having a strong business (yes they continue to have the fibre from the North-South Highway) persisted until few years ago. Until they found Afzal (a guy who has ideas worth some millions but not the hundreds of millions he has now!). Afzal owns AIMS with several connected partners probably had it tough to grow the business until that big break. I cannot comprehend the valuation of a group of companies which in their mind is valued at RM334 million by CIMB assisting. Tell me how are we supposed to value some small data centers which they put little money to start with and later tell Time Dotcom shareholders it is now worth more than RM330 million? No profit guarantee but some wishy-washy profit forecasts.

And 2 days ago, what makes me sick is that Time Engineering (another listed entity who owns around 24% of Time Dotcom), puts up their holding of Time Dotcom for sale at RM0.53 per share. Can someone tell me why then Time Dotcom is valued at RM0.80 per share during the proposed sale of the shares? No analysts dare to make any comments on this?

Does this mean that Time Engineering does not believe that the share is worth RM0.80 as in the market price (before the announcements) or could again something is done behind the scene?

I suspect that someone is using this opportunity to wipe the overhang shares from the market at a below market price.

Serious Investing!

Muhibbah - Are they telling the truth?

Today Muhibbah took a 1 hour trading halt to announce their position with regards to the receivership in the Asia Petroleum hub ("APH") case. The fact of the matter is that their stocks took such a beating that it forced them to announce the matter a day late rather than allowing a Singaporean press to announce it and let the market making presumption on the rumour.


The announcement in Bursa at 10.30 am today.

The Company is one of the contractors in respect of the Project known as Procurement, Construction and Commissioning of a Petroleum Hub and Bunkering Facility at the Reclaimed Island Off Tanjung Bin, Johor (APH Project). The receivables for certified work done and related costs amount to RM 370.8 million as at 31 Dec 2010.

With reference to the articles in the Singapore Business Times on 15 June 2011 regarding the appointment by CIMB (the financier of APH project) of receivers and managers for APH, the Company wishes to inform that according to APH, they have identified an investor, and are in negotiations with the investor to fully finance the completion of the APH Project, including making due payments to contractors.

As this is a oil and gas project with a secured business and the said investor due to finalise its financing transaction with APH, there are reasonable grounds to hold that the receivables are recoverable in due course.

Anything wrong with this announcement?

1. They are making assumption that they will recover fully under this receivership case within 24 hours after the project was in receivership. How do they know so soon I wonder or are they just assuming?;
2. I am questioning their project risk management handling. How can this construction company which is one of the more established in Malaysia, be allowing APH to owe them more than RM370 million? Where is the risk management especially when this issue was already in the news for more than 3 years;
3. One question I am asking is (high chance that they are a non-secured creditor), they are that confident they can fully recover the receivables - I say that the white knight if there is any, will not want them to take the haircut? As a potential new owner, I will even want CIMB (the bank that calls for the receivership) to take the haircut;
4. If there is a white knight, why take so long for the white knight to appear? - the white knight must be waiting for the receiver to take action first, then ask for haircut.

I say that there is a high chance that Muhibbah is forced to write off most of the receivables - and they are not going to do it soon - at the expense of shareholders again.

How is Maybank or CIMB going to pay off RHBCAP's shareholders?

While I am in the camp that do not agree to either Maybank or CIMB acquiring RHB, as the purchase does not makes sense for either of the acquirer, it is probably going to happen anyway.

Can someone let me know where is the synergy, if the 2 largest Malaysian banks is (fight it out) to acquire a bank which is a result of a merger among DCB Bank, Kwong Yik and UMBC. Does Malaysia need such a large bank?

Anyway, as I do not hold any CIMB or Maybank shares, I just would like to ask 1 question - how will RHBCap shareholders be paid (since I have my money in EPF)? I do not want the shares of Maybank or CIMB please, as EPF already holds substantial stake in the 2 banks.

What I want is cash and see that EPF makes good use of the cash. Based on the latest market valuation of RHBCap, EPF's holding of RHB is valued at somewhere in between RM9.5 to RM10 billion.

Now the question is where is CIMB or Maybank going to find the RM21 billion or more to pay for the RHBCap stake in cash? My guess is that it is going to end up being a share swap deal and we holders of money in EPF will end up with more stakes in the 2 largest banks in Malaysia.

I am pro the selling of RHB to a foreign party but I know that is not going to happen.

Serious Investing!

How will AEON's expansion plan in South East Asia impact its stock?

Last week Friday, The Edgedaily ran an article on AEON saying that the second largest retailer in Japan is on an aggressive expansion mode in South East Asia.

What will the impact be to AEON Malaysia as a traded co? Well, let me do some guessing...

1. Since the expansion will not only involve Malaysia but also other countries such as Thailand, Indonesia and Vietnam, they may use Malaysia's success as a platform. However one must realise that AEON in Thailand is one with heavy competition against likes of Tesco Lotus group. Other than Thailand, the expansion to Indonesia and Vietnam, I probably see it as interesting and more positive.
2. Aeon Malaysia intends to increase its outlet from current 27 to 100 in next 9 years - which means they are going for the smaller township I believe as I do not know how many more outlets they can open in the cities. They are also probably looking at expanding their Maxvalu brand as well. Is this happens, competition which is already great will be greater as the main competitors are Tesco, Giant and Carrefour. I do not look at this as largely positive although costs wise it may benefit out of this strategy. Having said that, I believe the expansion to smaller town, may compete against the smaller groceries outlet as well as local owned stores such as The Store and Mydin.
3. If we look at South East Asia as 1 large market with 500 million population, in theory it makes sense, however I am not sure if strategies that are proven in Malaysia can be replicated elsewhere in other neighboring countries.
4. One of the things that I notice AEON does very well is the localization of its products. For example the things they sell in Mid Valley is different from the one in AU2 and Alpha Angle. The one in Mid Valley has more upscale products on its shelves while AU2 and Wangsa Maju carries lower end brands. I believe if they do push to smaller towns with this mindset, they will do well.
5. Overall I continue to believe that AEON as it has proven to be successful to do well in future.
   
   
   I reproduce the article below:
   
   AEON eyes M’sia for Asean growth
   
   
   KUALA LUMPUR: Japan’s second largest retailer AEON Co Ltd and owner of the Jusco retail chain store is placing greater weight on Malaysia as the group seeks to strengthen its position and grow sales from Southeast Asia to RM45 billion by 2020.
   
   “In 10 years, there will be a big change in our retail situation and market share here. The Asean region experiences 5%-6% growth annually and the market keeps getting bigger,” said Nagahisa Oyama, who is tasked with spearheading AEON’s expansion in the Asean region from its new Kuala Lumpur headquarters.
   
   Speaking to reporters after AEON Co (M) Bhd’s AGM here yesterday, Oyama said the group plans to open more stores and introduce more brands under its umbrella to the region. “Many of our group companies will be coming here,” said Oyama.
   
   The group will also invest in new retail companies as it seeks to speed up expansion to capture a larger slice of burgeoning consumer spending in many parts of populous Southeast Asia and be among the top three retail brands in the region over the next decade.
   
   “My new mission is to expand the retail business in the Asean region. Now, I have three projects which are Vietnam, Indonesia and Cambodia... we are still studying these markets,” said Oyama who is leaving the post of managing director of the Malaysian subsidiary to be CEO of Asean business at the parent company.
   
   Pressed for a timeline, he said AEON hopes to set up shop in Vietnam by 2013, and thereafter in Indonesia as well as Cambodia by 2014.
   
   The group’s increased aggression in expanding in Asean and China followed the devastating March 11 earthquake in Japan which AEON last month warned may cut this year’s net income by 33% to ¥40 billion (RM1.5 billion).
   AEON seeks to expand market share in the Asean region's burgeoning retail segment over the next decade.
   
   Apart from Kuala Lumpur, AEON will also set up headquarters in Beijing to speed up its regional expansion in and gradually cut reliance on Japan.
   
   Some 25% of the ¥830 billion allocated by AEON to open and refurbish existing stores over the next three fiscal years ending February 2014 will be for China and Southeast Asia, up from 8% of ¥960 billion allocated in the earlier three-year period, Bloomberg reported last month.
   
   “Directions to these new companies will come from the Asean headquarters, so things will be faster,” he said.
   
   Within the region, AEON Japan is the holding company of businesses in Malaysia and Thailand through AEON Co (M) Bhd, AEON Credit Service (M) Bhd (ACS) and AEON (Thailand) Co Ltd. AEON Japan has a controlling stake of 51% in AEON Malaysia.
   
   Through its substantial shareholdings in AEON Credit Service Co Ltd and AEON Malaysia, it is also a major shareholder of ACS. AEON Credit Service Co Ltd and AEON Malaysia have direct interests of 58.2% and 2.15% respectively in ACS.
   
   “There will be changes in the group (as Asean plays a more active role). For example, the headquarters in Japan are now planning for merchandising for the whole group, but in the future it is necessary for (this part of the business to be directed from) the Asean region and China,” he added.
   
   AEON’s house brands include the Topvalu label. As the sole agent for South Korean cosmetics maker TheFaceShop in Japan, AEON is looking to open as many as 700 shops there.
   
   In Malaysia, AEON is looking to grow the number of stores to 100 over the next nine years. It currently has 27 stores, all situated in the peninsula, 18 of which are in Kuala Lumpur and Selangor. The rest are in Johor Bahru, Penang and Melaka.
   
   As the group expands outside the main cities here to the heartland to attain its 2020 target, some of the new outlets would not just be supermarkets but may include other retail formats like convenience stores, discount outlets or even new retail businesses.
   
   The company has set aside RM300 million in capital expenditure to open two new stores — a community shopping centre in Rawang, Selangor this year, and a shopping centre in Ipoh early next year. On its expansion into Terengganu, Kelantan and east Malaysia, Oyama said the company has made progress but is currently “still looking”.
   
   Oyama, who spent six years with AEON Malaysia, is credited with tripling the company’s sales to RM2.89 billion in FY10 from RM1 billion in 2005.
   
   Replacing Oyama as AEON Malaysia’s managing director is Nur Qamarina Chew. “Last year sales were close to RM3 billion and we had growth of 5.3%. This year we hope to better that and have incremental growth (over the next few years),” said Chew.

Serious Investing!

Portfolio performance - 27 May 2011

My little portfolio did very well since its commencement on 28 January 2011 - exactly 4 months ago. Overall based on my comparison of performance against KLCI and Malaysian Fixed Deposit average of 3%, the portfolio's return of 29.77% over 4 months thumped the others.

The portfolio are as follow i.e. the stocks which I recommended. (FYI, I actually put real money into the stocks with intention to evaluate the performance of the stocks over a long period. Hence I am actually putting money where my mouth is)

Over the last 4 months I have realised some small profit taking some advantage of the fluctuations. Although these are not my most preferred method of investment, I may take profit to make investments a little bit exciting rather than buy and hold for a long time. Over time, we may want to pat our own back if we do well. These are the realised profits:

As we are moving towards the ending of the first quarter reporting period, all the 4 stocks that I hold has performed well financially which is the main basis of my investment. Although I do not want to elaborate here, basically these companies that I invested in (as in you would have read in my other pieces in the blog) are well run companies. Besides these few stocks, I am currently studying several other exciting stocks which I may want to put up over time.

Tricubes - see what I mean...

I mentioned before Tricubes was not worth the run they had. Something must be there. See CIMB sold its 10.8% stake.

Yesterday's news from The Edge daily:


Commerce Tech Ventures pares stake in Tricubes

Kuala Lumpur: Commerce Technology Ventures Sdn Bhd has ceased to be a substantial shareholder in ACE Market listed Tricubes Bhd.

In an announcement on shareholding changes yesterday, Tricubes said that Commerce Technology Ventures sold 14.5 million shares or 10.82% equity interest in the company, leaving it with 6.2 million shares or 4.63%.

About 8.33 million shares were sold on the open market on April 27, while five million shares were sold on April 26 and 1.16 million on April 25.

The price at which the shares were sold was not disclosed, but in the three days of trading Tricubes hit a low of 25.5 sen and a high of 29.5 sen. Tricubes closed at 20 sen yesterday.


This article appeared in The Edge Financial Daily, May 4, 2011.

They don't even care that you will know. By the way, today's latest price for Tricubes - RM0.195. I hope some of you don't get burned...

What I managed to decipher from AEON's Annual Report

Aeon's annual report for FY2010 was out recently. I allowed myself some time to read through the CEO's report as well as looking at the numbers. Here are some of the summaries which I think will have impact on Aeon and what I think of them:

- revenue registered a nominal growth with most of its outlets registering between 5.8% and 9.6%;
- Aeon has more than 20 outlets today and some of its new openings did affect its older outlets for example in Jusco Melaka and Jusco Bandaraya Melaka. Similarly, the Jusco Wangsa Maju only had below 1% same store sales growth due to the maturing of the AU2 Setiawangsa outlet;
- it does say that it is getting tougher competitions from its competitors. From my observation, its major competition came from Tesco and Giant. It shows that while there are a handful of players left in this market, the competition among the few players are pretty stiff;
- the increase in food prices towards end of the year which Aeon is selling probably the most may cause them to have reduced margin - this is something no one in the industry can eliminate, but I suspect the better managed ones will be able to pass the costs better;
- an important one to note - Since August 2010, it no longer manages the One Utama Shopping complex (the old wing). Impact to the property management income was 5.3%. Hence I believe that the impact this year which is a full year would be more than 10%. That affects its profit by around RM11 - RM12 million by my calculation. Nevertheless, I believe that this loss of profit will be overcome by new outlets opening from last year and this year.


I have always thought that Aeon is a steady, well-managed and solid stock. The fact that I have managed to get these information from its Annual Report shows that it is a company that respects its shareholders and do not do the normal run of the mill Malaysian type of Annual Report reporting which says about the general economy (c'mon, I can read The Star or CNBC to know how well the economy does) and left one last paragraph to tell about the performance which I can also calculate myself.

From what I have read, it shows that competition is toughening but Aeon will still continue to show growth. At around 12.5x PE and considering its very strong balance sheet, I feel that it is still a very strong company to consider. Note that I have a tendency to like companies that do cash business and Aeon happens to manage that cash business very well.

Serious Investing!

Two significant headlines tilting towards Apple's dominance

This morning I read 2 headlines which can be significant for Apple. 1 for its Iphone product, another for the Ipad. What we see here proves that Apple is gaining market share for 2 of its products, smart mobile and tablet. It is interesting to see that in these 2 segments - they are still very much at growing stage!

Microsoft Profit Falls Below Apple's After IPad Eats Into Windows Revenue

via Bloomberg
Microsoft Corp's Windows sales slumped last quarter as the iPad crimped demand for consumer laptops, marking the first time in 20 years that the software maker reported a smaller quarterly profit than Apple Inc.

Revenue in Microsoft’s Windows division fell 4.4 percent to $4.45 billion, the Redmond, Washington-based company said yesterday in a statement. That missed the $4.6 billion average prediction of analysts surveyed by Bloomberg. Net income was $5.23 billion, eclipsed by the $5.99 billion reported by Apple last quarter.

Consumer PC shipments dropped 8 percent in the quarter, Microsoft Chief Financial Officer Peter Klein said. Netbooks -- the cheap laptops that became popular during the recession -- plunged 40 percent, partially because of defections to tablet computers, he said. The decline overshadowed a better-than- anticipated performance from Microsoft’s Office unit and increased PC demand from corporations.

“You have to live underneath a rock not to know that the iPad has taken share from the netbook,” said Pat Becker Jr., principal of Portland, Oregon-based Becker Capital Management Inc., which holds Microsoft shares as part of its $2.5 billion in assets. “It’s a problem on the consumer side, and that’s a market where Microsoft continues to give up territory to Apple.”

Microsoft declined as much as 74 cents in late trading yesterday after the report. The shares, down 4.3 percent this year, had closed at $26.71 on the Nasdaq Stock Market.

Less Than Apple

Net income rose to 61 cents a share, from $4.01 billion, or 45 cents, Microsoft said yesterday. Excluding a 5-cent per-share tax benefit, earnings matched the 56-cent average of estimates compiled by Bloomberg.

The results underscore the ascendance of Apple, which surpassed Microsoft as the world’s most valuable technology company last May. The last time Apple’s profit was bigger than Microsoft’s was 1991.

While PC shipments to corporate customers rose 9 percent, tablet competition accounted for some of the sluggishness in consumer sales, Klein said in an interview.

“It’s fair to say tablet is some of that,” he said.

Total PC sales declined 2 percent last quarter, Microsoft said. That the Windows business performed even worse adds to the concern over Microsoft’s performance, said Brendan Barnicle, an analyst at Pacific Crest Securities in Portland.

“That’s suggesting some market share loss, some real deterioration,” said Barnicle, who rates Microsoft’s stock “sector perform.”


Another headline:

RIM Shares Plunge After Firm Lowers Guidance

by CNBC
Research In Motion shares were hammered in after-hours trading Thursday after the BlackBerry maker lowered its earnings and revenue guidance for the first quarter.

The company said it expects first-quarter earnings of between $1.30 to $1.37 a share short of analyst expectations of $1.48 a share.

Also, RIM said it sees first quarter revenue slightly below its previous guidance of between $5.2 and $5.6 billion.

RIM blamed the move to weak shipments of its BlackBerry phones and a shift toward handsets with lower price points. The firm has been struggling to compete against Apple's popular iPhone and other rivals of the smartphone market.

"This is the beginning of the slide," said Edward Snyder, analyst at Charter Equity Research. "The competition on the smartphone side of the business is getting very intense and they've not been able to field a decent smartphone, so they're going to start losing ground here."

"Increasingly, RIM is being relegated to the low-end, quasi-smartphone—without a flagship touchscreen, high-end smartphone, they are going to continue to lose traction," Snyder continued. "It's going to be like air coming out of a balloon slowly."

Serious Investing!

Apple - the 35-yr old Giant that Tangos, Ballet dance and Runs 9sec in 100m

Apple just announced a US$6 billion profit for its first quarter 2011 result last night - amazingly it almost doubled its profit from the same quarter a year ago. What is the significance of a US$6 billion profit for a company to many who really do not realise Apple is a Giant.

Well two quarters of Apple's profit, could probably be similar to CIMB's (Malaysian's largest cap company in Bursa) total PAT from the day it was incorporated till now - and Apple meets that in two quarters. Note that Apple registered almost a similar PAT in its previous quarter (usually a good quarter due to Christmas period).

Frankly, I am a late Apple believer. When my friends were crazy over the Macintosh, Ipod, Iphone 3, Iphone 3GS and lately Ipad - I was still a non-believer. Being a macho person (in thinking), I always thought that Iphone was only for those who wanted to show off. Basically, to me it was almost like the ladies who could not wait for the latest season's Louis Vuitton handbag. And Iphone covers that demography (to ladies who puts their Ipad and Iphone in their LV handbag) in addition to school children, men, young and old - basically all walks of life who can afford an Apple's product that is.

Well, I had a changed of mind when I looked at its financial performance, tested Iphone 4 when my wife got one and imagine this, my mum got an Ipad recently. That changes everything!

To me Apple is no longer a nice to have - I to a certain extent understand why people queued up days to the launch in every single city it launches its iconic products - and it will be no different when it offers its first Ipad 2 in KL this 28 April (notice I know the date, I am not queing up though).

Enough said about how amazing its product is (hey, my blog is about stocks). Amazingly, Apple a US$320 billion company - larger than GE, Microsoft, IBM, Intel, Citigroup, JP Morgan etc - fact is Apple is the 2nd largest market cap company in US after Exxon Mobil. And it can dance!

How many products Apple has? Well, you can go to a less than 3,000 sq ft Apple store - you can see all its products. Another question, how many models are there for Iphone 4? 2 and both looks the same - only difference is whether it is 32G or 64G. Can you differentiate them from the outlook? 1 design means cost of production must be low while it continues to produce solidly made products. I have a feeling that the Iphone 4 is the single most profitable product made over the last 1 year. It for one contributes to 50% of Apple's revenue last quarter!

At US$6 billion per quarter profit and growing (news say that this little company cannot meet demand), it is trading at slightly more than 12x PE. Expensive? No. Hence it is not that you are getting a company at 70x PE as to what we paid for Google when it was first listed.

I actually do not know what is the limit for Apple. Will its iconic status continue to overwhelmed its customers? Fact is in every launch it made over the last 5 years, it does overwhelmed the enthusiast. It now overwhelmed me. Imagine a new introduced product - the tablet called Ipad - Apple controls 80% of the market. No other companies are able to introduce tablet successfully. Only Steve Jobs and Apple can. And I do not know how many more tablets will be sold. I also do not know how many tablets can be sold in a year. If it is 100 million units, then Apple can theoretically and potentially sell 80 million units assuming it maintains the market share.

Only the factories that produce the tablets, Iphone, Ipod can limit Apple's revenue upside. Imagine this! Its products especially Iphone are not even available in some countries. I see Vietnamese coming to Malaysia to get an Ipad.

And my first Apple is its stock. :)



p.s. I wonder if Forrest Gump still holds his Apple shares...

Serious Investing!

Pemandu: Government agencies to pay for 1 Malaysia email database - Tell me about it!

In the article by MalaysianInsider today, Pemandu: Government agencies to pay for 1 Malaysia email database, only now I get it - it is actually paid by the government, not private sector's initiative my friend.

Please answer my question. Currently, I receive my EPF, LHDN's email via my gmail account. Do they pay Google?

Serious Investing!

Tricubes - 500% increase in 3 days. Seriously, do I look like I am stupid?

After the announcements of the 1Malaysia email project with the Economic Transformation Programme which they claim that they are going to spend RM50 million, its shares rose by more than 500% - from RM0.05 to now RM0.35 within 3 days! Market cap - rose from RM7 million to RM48 million. Its book value is still below RM5 million while the initiative is being announced. Not that what they announced would immediately bring to your mind - ya, I know what they are trying to do - and if they execute it well, it may worth some few hundred millions to the company. NO!

While trying to understand why people will bother to have another so-called secured email for the receipt of EPF, IRD etc statement, its shares continued to rise. While on the other camp, through Facebook and Twitter, Malaysians continue to condemn the initiative - I am trying to comprehend what kind of value-add can Tricubes bring via the 1Malaysia email. Is it really that great, I mean I already received notices from IRD, Telekom, Celcom, Maxis etc through my gmail. Is gmail not secure? Then Google - you better be careful because even though your market cap is USD200 billion, and never mind if you have spent few hundred million in your gmail initiative, you may lose out to this little company in Malaysia. Google! Do you know that security is upmost important to an email account holder? Maybe Google does not know that and is not as good as Tricubes when comes to email securities. But hey, I looked through Tricubes' website, it has never mentioned anything about internet security being its core competency. Maybe by spending a couple of a million ringgit in research that competency can be acquired. Not bad...

Then I thought of MYEG which is now about RM430 million market value (which I have admitted the company really has value and its current and future initiatives bringing e-government services can be attractive). Then again, I think (not very hard) of Tricubes. I could not really get what they are trying to bring in terms of value that really immediately creates a RM40 million value to the market. But people are punting the stocks. Please be careful, that's what I can only advise on.

You do not want at the end of the day the directors and several bookmakers make money from that while the layman suffers.

p.s. another thing about this company that still causes me to wonder, how is it by announcing that they are spending RM50 million will cause the company to increase its value by RM40 million over 3 days. I think I will do the same thing - announce only mah!

Serious Investing!

Have you read Airasia's Annual Report?

One of the things noticed which is somewhat stands out among other companies in the Airasia's Annual Report is that BP, Credit Suisse, Deutsche Bank, BNP Paribas, Citigroup, Kuwait Finance House and maybe few more companies advertised in the Annual Report. I did not know this is allowed in Annual Reports where it is supposed to be a document which is to have fair, no frills reporting i.e. no advertising allowed - at least from third party. Well, again Airasia will do something different from the rest. It probably saved them their printing costs for the Annual Report. As a potential shareholder, I have no complains as long as their reporting is true.

Tony Fernandez and gang are a bunch of creative advertising big wits. First having an advert on the EPL referees' sleeves. Now this?

Anyway, after my earlier article, I bought 2,000 units ofAirasia for the portfolio.


Market has been down for last 2 days, hence it may be time to buy shares when it is cheaper.

I like MYEG but...

This one company caught my eyes even before the days where it got involved in sponsoring the EPL or some of the football shows on ESPN. To me it has solid business, a brand that is getting noticeable, a winner in the e-Government space. Revenue is ever growing, so is its profitability.



This company has the trait that will make me continue to lookout for its performance. In my mind, the business it is in will continue to grow and the fact that its competitors are far behind. Name me its competitors in the online e-government space - I could not even remember any name (that speaks for itself).

BUT...

Nevermind the price at 20 - 22x PE, there is this little thing which sometimes make me a little wary: - 2 of its directors are UMNO's people and in the director's profile, they are not shy of telling that they are UMNO people. In reality, I have not come across such things in any other companies' directors profile except for this company. Usually, political figures do not reveal their party's name in the director's profile but why MYEG's does that I am having a suspect. Is it revealed by mistake or it actually does it on purpose, I do not know. The 2 person are Datuk Dr Norraesah and Raja Munir Shah (check it out in the director's profile page in the Annual Report as reproduced below)

Profile of Dr Norraesah



You see, Dr Norraesah is in several public listed board, but as far as I know MYEG is the only one the UMNO word is revealed. Are they trying to reveal that UMNO is Government and without UMNO people there is no e-Government for MYEG? Then be very afraid.

Profile of Raja Munir



I tell you why investors have to be wary of this, although it is common for political figures to involve themselves into business. (No prizes either for second guessing how MYEG got its license to be in the business where they are today.)

Suspect expenditures can however happen due to the need to contribute for political funds. You see political people do not really work in the companies they are representing. They just get you the contract or license for your business. And their reward are not little. If you are an investor in the business they are in, be afraid of this might happen - and as an investor you might lose out to them - especially UMNO people. Of course, you would say without them, MYEG will not be where it is today. True. Then it is about ethical investing. Getting assistance from Government is allright, but through unfair advantage? That is not the trait of a winning company. Winners do not need that to be winners. Only monopolies need that. Also, in my encyclopedia of investing, these types of companies usually do not give a damn to its shareholders. Look at Vincent Tan, Syed Mokhtar - they have some of the greatest businesses in Malaysia, but do they look like they care? Good businesses they keep to themselves. Not so good businesses, they share with you and I. I would not be surprised that much of their political contributions derive from the public companies they led - companies that you and I probably have shares in. How do you account for that?


Let me give an example. Have you ever seen monopolies being run well in Malaysia? Example, BERNAS (under Syed Mokhtar). Not that Syed Mokhtar does not own well-run companies. Look at Honda. Just that there is this little thing about monopolies that is a suspect to an investor.

p.s. I am not against politically linked companies, but in this particular case I am only afraid of unaccountable expenses which may go overly excessive. MYEG however has proven its consistent performance over the last 5 years - which is a positive. For me, let's continue to monitor this company. It has a good business. That's for sure

Serious Investing!

Should you buy Airasia?

This is somewhat a difficult question to me. All the while, I am a supporter of a well-managed, strong brand, low priced or maybe fair priced company - and Airasia meets that criteria. What more it is perhaps one of the the best Malaysian run company (I know, I know many would not concur with what I said, but let's answer my question - tell me any other company in Malaysia, which does not have government backing but well-run or let's turn the question around - tell me any government backed company that is as well-run as Airasia...). I can assure you there are not many names that can pop-up in your mind because the keywords here are "government" and "Malaysian-run". Again, another camp will ask, "Airasia, government backed?" Answer is it is. Government should back them!

The fact is if I am government, I would also back Airasia. This company caused some nervy sensation out of probably the most well-run airline in the world - Singapore Airline. The fact that until today Tiger Airways (partly owned by SIA) is still losing (by far) to Airasia speaks volumes on the management of Airasia. This is a company, whom as a Malaysian I can see the eyes of a Singaporean and say - look at Tony Fernandes and Airasia (and have a wily little smile) to show that we Malaysian can be better. Not all aspects but do not look down at us. We can kick your butt if we want to.

Anyway, back to my question - why buying Airasia is tricky? Does these three things caused you to think twice:
- airline industry
- price of oil
- security

One of the most famous sayings in investment is, "Buy any industry but an airline". Why? High capex. Difficult to manage. Unfair competition as airline is an industry which is government-backed due to national interest. Look at MAS. How many times it could have gone bankrupt.

Oil - I do not have to go there as almost everyone know that oil prices is moving upward due to demand and lack of new supplies. Only how much more the increase and to what price will be the question. This is a question nobody can answer. This is also a factor that causes some government to fall. The higher the price of oil, the less attractive the airline industry becomes. No single airline company has a competitive advantage on this.

The third one - security. A 9/11 or SARS again can cause panic to the airline industry. The fact that Airasia is privately owned means that it does not have the immunity that MAS or SIA or better still Emirates Air enjoy.

Airasia - at current price of RM2.61, it is trading at around 7x PE of its FY2010 numbers. But what makes me little bit cautious is - net profit margin is at 26.72% (RM1.067B / RM3.992B). As a comparison, a similarly well-managed Ryanair (in Europe) was having a 10.2% net profit margin at the same time. Does this brilliant and cunning Tony guy play with numbers, accounting wise?

However at the same time Ryanair is currently trading now at around 16.7x. Yes, Ryanair is better established and just as controversial (maybe even more) as Airasia's Tony, but it has far tougher competition that Airasia. Note that Micheal O'Leary is one of the most hated person in UK besides Alex Ferguson. Both run their companies well as they only have one thing in mind - winning!

Looking at the potential of the Asian airline industry with which there are going to be more people travelling and the possible relaxing of the open-skies regulation, perhaps Airasia may not be that bad an investment - even if they do play a bit with numbers. And the way I look at things is no matter how brilliant Tony can be, I noticed he is still learning (hey, he only has 8-9 years experience in the airline industry!) He is still learning from hedging the oil prices, negotiating with each government for routes etc. And the fact is, he is winning while still learning.

Perhaps, this is not a bad stock after all. Go with your first instinct. Don't think too much.

Serious Investing!

Why did I buy DKSH? Cheap

You would have noticed that I put my hands into a stock called DKSH. Who are they? Why I decided to put money into such a company? When I looked at the odd stock, it attracted me, however due to the low free float, it puts me on a cautionary position.

When I said odd, this is because DKSH is a stock that nobody follows, no analysts provide recommendation to this stock. Well, analysts only takes care of their own rice bowl. You do not make money out of a company where it is difficult to get hold of the stock. The free float value for the stocks at the time I put my money in was some RM12 - RM14 million. Nobody follows stocks that has such a low free float.

However, it does not leave my sight when I see a good, well run company. The parent company in Switzerland owns 74.3% of the company. LTAT (Lembaga Tabung Angkatan Tentera) - Malaysian military fund, owns 15%. Hence, it is left with about 10% free float. I am sure based on the list there are some shareholders who do not sell. Hence it is a very low liquidity stock. In fact, back in Switzerland, DKSH is a private company. Why it is listed in Malaysia, I do not know. DKSH has very strong presence in Asia. It calls itself a market expansion company, but in easier terms it is a distributor of products with its strong logistic presence in the countries it operates in. It has a very strong warehouse and logistic management that allows companies which do not have a strong distribution strength in the respective countries to engage them.

DKSH in Malaysia distributes for Wyeth, Mead Johnson, Pfizer, even for some Kraft products. These are no small companies. Although, DKSH has competitors such as Harrisons Holdings and other smaller companies, it does have a strong competitive position. Larger companies like Nestle, F&N, Dutch Lady do their own distribution. Other than that, DKSH is a winner in what it does - at least in Malaysia.

So at what price do you put for a company that is a winner? Think of it this way - what price would you pay for a company that has a strong distribution strength in Malaysia? I don't know actually, but for an economy like Malaysia, if you ask for a number I feel that it may cost around... maybe RM500 million is a number which sounds not too high. Hence when I bought at RM0.87 or at RM140 million market capitalisation, does it sound cheap even for a company that has low free float? Perhaps. It was trading at around 5x PE for a company that is probably the strongest in what it does specifically in Malaysia. I like cheap and well managed companies. DKSH meets that criteria.

And I look at my portfolio, I seek to invest for long term. DKSH seems ok even though I may not enjoy capital appreciation over the short term. Voila! However, this stock appreciates to RM1.02 at the point of writing, but this is just making me smile but I am not cashing the gain. And if you do a bit of research, reading its Annual Report, for a small free float company who perhaps have to do proper reporting to its 2 largest shareholder only, they report very well. They, to me - maybe is one of the best Bursa Malaysia listed company in terms of reporting. Better than even Nestle, F&N, or any of the bank companies who year in year out win the not so coveted "Best Annual Report". I think the party that does the awarding does not know how to award.

Well, I can only say with signs that says do not touch a company that has low trade volume - this one screams to me - Buy me! I am cheap.

Serious Investing!

Portfolio Position - 6 Apr 2011

After investing for less than 3 months (the first investment was done on 28 January 2011) and with RM27,500, here is the portfolio position (the below is a real portfolio): Remember, I was talking about putting in money for my child's education. Let's see whether we can do it. I am going to put in more cash into investments if the time is right for me to put in more or any of the stocks become attractive in terms of prices. During the period, I have sold twice and made RM677.90 (although the below table shows RM612.58, the actual profit is higher due to lower brokerage fee paid as compared to the reported table). Cash position stands at RM245.90.
Hence in effect, the profitability is as follows:

This blog is in effect to proof to those potential investors that with a small amount, you can still make a difference with the money you have. A caution though, while investments do provide better returns over a long period, it can be more volatile. Hence do not be let down if your investments do not return you as expected. More importantly, learn from mistakes and do your homework. Can be fun!

Serious Investing!

Sold TopGlove

Got chicken out. Sold Top Glove. Made some 4+%. Wonder why their pricing is not as elastic as I thought they would be.



Its revenue dropped 5%, year on year from RM509.9 million to RM491.5 million. This is a surprise to me as it shows that their unit sales dropped substantially (although this stats is not provided) - my reasoning is that since price of rubber increased more than 40% over the last 1 year, they should be able to increase the pricing of latex gloves by at least 20% to 25% since raw material consists of 60% of costs.

Management of Top Glove in their press release mentioned that they have been impacted greatly by the depreciation of USD and increase in raw latex.

Would make a come back once the position is more assured. I still believe this is a good stock. Should have looked at longer term but I believe in the short run it will have some price pressure due to the weak result for 2Q11. Hence became greedy and took profit.

Meanwhile, I become interested in AEON as it dropped a bit - don't know why, it has no relation to the tsunami in Japan as this stock is only its Malaysian operations.

Serious Investing!

Opensys - attractive but are they up to it?

Today I am going to introduce a sub RM20 million market capitalised company. Usually, these types of companies are not worth looking at. However, sometimes we can find a gem among worthless stones. I found one which looks rather interesting. The company is Opensys.

In studying the financials for Opensys, one should not just look at the revenue and PAT, but instead look through the Balance Sheet and Cashflow Statement. This is because income statement is much easier to dress in terms of financial presentation as compared to cashflow statement and balance sheet.

Below are the summary on the important numbers for the company.



Based on the numbers, we can summarize as follows:
- its revenue and PAT have not been showing eye-catching growth between 2003 to 2010;
- the company faced high gearing problem during 2005 to 2008;
- development expenditure was way too high as compared to its revenue between 2005 to 2008;
- from 2007, its debt was reduced substantially from RM33 million to RM11.5 million in 2010. I believe the gearing will reduce further in upcoming years looking at the trend. So are the development expenditure;
- in the initial years it was facing negative free cash flow (cashflow from operations – capital expenditure). Its cashflow however improved to much healthier note in the last 3 years in operations;
- if the trend continues, it will show much healthier balance sheet and dividend payment capabilities;
- with the reduction in PP&E, development expenditure and borrowings, in the long run the Earnings before tax will naturally improve as well.

Why are the numbers as such?
- Can see that the company is trying hard to register profit numbers each and every year which is probably why they have capitalised quite a bit of the capital purchase and expenses between 2005 to 2007 (Note that by capitalising your expenses, it will be shown as asset rather than a cost shown in the income statement);
- It was facing high gearing problem between 2005 to 2008, hence was seriously short of funds. Their total debt to cash was between 10x to 15x during those period;
- Business nevertheless improved substantially, can witnessed from the cashflow and where they reduced the net debt. Its reduction in debt are paid off from free positive cashflow;

With the weak balance sheet in the earlier years between 2005 to 2007, you will see that its PAT has not improved even though balance sheet became healthier. (Note that they did not raise any equity fund except for the IPO in 2004)

One thing to note however, at RM0.09 per share, its market capitalisation is at RM18.99 million which is equivalent to 1.93x of its free cashflow generating capability for FY2010.

While the financial numbers are very attractive - whether it is an investible company, one should look at their business i.e. are their earnings sustainable. If the fundamental of its business is strong as seen in the last 3 years, the share price then should improve from the current level.

Business wise, they offer services to two main sector i.e. banking and utility. It claims that it has an 80% market share in the back-end cheque processing business from the banks. It is worthwhile to note that Bank Negara imposed a faster cheque processing turnaround time since July 2009. And Opensys has gotten the bulk of the business from the banks. Another of its competitor, Symphony House, a Business Process Outsourcing house has a different proposition to Opensys. Symphony House (under Azman Yahya) does physical processing on the cheques while Opensys computerise those processes.

As for the utility sector, Opensys provides the kiosk payment solution for some of the larger utility companies such as Celcom, Maxis and TM.

Based on that, it does have a serious, sustainable business to go with. However, as the company is small, most investors might not have interest in such small company. Hence, what Opensys must be able to do is to continue to do what it does best. Time will then only be its friend as fundamental will over time take over the pessimists.

How do you trace a problem that may appear in the stock you buy?

As in any investment, I always recommend you to do homework - be it investment into properties, stocks or even cars. Have you ever heard of property investors losing money in houses that they have bought which the developer did not complete - example some of the properties that Talam built, just to name one of them. The tip is if you ask around or look at Talam's books before making that decision to buy, you may end up not taking that risk, as they may not have the funds to finish a project.

Tonight, I was looking through announcements on Bursa since this is the final day for companies that have either March, June, Sep and Dec year-end to announce their quarterly results. What pissed me off is that as I was glancing through one of the companies that I remember approached me to raise some funds few years ago - I knew their numbers may not be real, during then. I know that these companies through accounting loopholes or rather the eagerness of their auditors to just earn fees. Or rather too many inexperience auditors around, allow this things to go through!

Here I am showing a simple example (from that company I mentioned), but yet many investors just fall into that trap.






Just look at the trend, nice results from FY2005 to FY2008, showing a healthy trend in its P&L. Then came FY2009, it shows a sudden loss (you may think probably due to the crisis.) Well I do not think so. Look further! The balance sheet or a cashflow trend would probably tell you the answer. (I normally treat P&L as the last thing to look at - however, not for all companies though.)



True enough, if you look at the receivables it is more that 1.5 times of the revenue preceding year. Total revenue last year was around RM160 million while the receivables was RM257 million. Now tell me what type of company cannot collect its debt that is already more than 1-1/2 years on average. Or probably this company will not be able to collect that debt, anyway. They could just be playing with the auditors, as these revenue were never there anyway. If it can collect, I would not be investing into a company that has poor collection record, anyway. Another big number if you noticed is the "amount due from customer for contract work" - RM360 million. I wonder who is their auditor? BDO. Not a big four, but large enough to have that probing mind among their partners.
(Well, I am not going to name this company, but this is a post to allow you not to fall into this trap. This company was enjoying a run in its share price from 2005 to 2009 - Some people may already have fallen into their trap.)

Berkshire Hathaway's Annual Report 2010

To be an investor or any inspiring one, if you could not find the time - do still find the time in reading the Annual letter to shareholders by Warren Buffett. This usually 30+ page letter (this year the same) provides a lot more investment wisdoms than we spend months watching CNBC or even Bloomberg.

Example: talking about his management style
To start with, the directors who represent you think and act like owners. They receive token compensation: no options, no restricted stock and, for that matter, virtually no cash. We do not provide them directors and officers liability insurance, a given at almost every other large public company. If they mess up with your money, they will lose their money as well. Leaving my holdings aside, directors and their families own Berkshire shares worth more than $3 billion. Our directors, therefore, monitor Berkshire’s actions and results with keen interest and an owner’s eye. You and I are lucky to have them as stewards.

This same owner-orientation prevails among our managers. In many cases, these are people who have sought out Berkshire as an acquirer for a business that they and their families have long owned. They came to us with an owner’s mindset, and we provide an environment that encourages them to retain it. Having managers who love their businesses is no small advantage.

Cultures self-propagate. Winston Churchill once said, “You shape your houses and then they shape you.” That wisdom applies to businesses as well. Bureaucratic procedures beget more bureaucracy, and imperial corporate palaces induce imperious behavior. (As one wag put it, “You know you’re no longer CEO when you get in the back seat of your car and it doesn’t move.”) At Berkshire’s “World Headquarters” our annual rent is $270,212. Moreover, the home-office investment in furniture, art, Coke dispenser, lunch room, high-tech equipment – you name it – totals $301,363. As long as Charlie and I treat your money as if it were our own, Berkshire’s managers are likely to be careful with it as well.

(FYI, Berkshire is a USD200 billion market cap company.)

Serious Investing!

AEON - One long term investment to consider

I have always been interested with quality management, a board that respects its shareholders, a company that continues to bring value to its customers and stock holders. AEON is to me that company. (For the first look at its business, for the 2nd and 3rd look at its annual report - then you will know what I mean)

Besides consistently showing improved performance every year, it continues to provide higher dividends to its shareholders. I am disappointed that I did not notice this stock until recently.

AEON has no debt - amazingly, it continues to expand (buying land and build the stores) using its cash flow from operations. If you notice, AEON is one company that whenever it decides to operate in your neighbourhood, it enhances the property value in that area - pretty much a McDonald's trait.

It gives out good dividend as well - consistently at 2 - 3% yield depending at the share price during the period.

At the same time, it still finds room for growth. In an industry where the larger players continue to thrive, AEON is that winner. If you notice, in this space where are the Oceon, The Store, Hankyu, Hiong Kiong etc? They are gone or some almost. There are of course several players i.e. Cold Storage, Parkson or the hypermarts such as Tesco, Carrefour and Giant but AEON is one that manages to find its niche.

On the business side, I like AEON (or rather Jaya Jusco) for its neat store. You can basically bring your child and facilities for children that are offered are a lot better than other players especially the hypermarts. In this respect, you often find that it will always manages to find its space in the business. (Of course I like one hypermart out of the 3 in Malaysia, i.e. Tesco and if it is a listed company - it will interest me as well - I suggest looking at Tesco UK if you are willing to explore investment overseas.)

On the financial point of view, PAT grew from RM73 million in 28 Feb 2006 to RM164 million in 31 December 2010 - more than doubled over a 6 years performance. The fact that its performance has been consistent is important i.e. does not experience the ups and downs of a property or any cyclical counter. Having that, you can be pretty sure that it does not have to play around with its numbers as consistency counts in this stock rather than a short term view. (This blog is not about guessing what the owner, CEO and CFO wants to do with their company's stock price.)

This is one investment that you can basically have a sound sleep and do not have to guess where the real estate market is heading over the next 6 months or whether any particular bank is overly exposed to any particular sector - etc. Know what I mean!

Its current price at RM6 is not expensive and as in buying anything, you will pay decent money for a good company.

Serious Investing!

KFC - revaluing its properties. Is it needed?

While I like KFC as a business and brand, I hate the wastages that the BOD has a hand in wasting company's funds. Do they really need to revalue their assets? If they need to revalue because they wanted to sell the business, they can always do it once the sale is confirmed (i.e. due diligence) Just because they want to improve the balance sheet, they do this in wasting shareholder's funds. Will the revaluation change the fundamentals of the company. By doing revaluation, you think more people will eat KFC's fried chicken?

I am wondering whether anyone is related to First Pacific Valuers Property Consultant, the company that was appointed to do the revaluation.

Johor Corp must learn how to be a majority shareholder.

See the announcements below
The Board of Directors of KFC Holdings (Malaysia) Bhd (“KFCH” or the “Company”) wishes to inform that it has carried out a revaluation exercise on all its properties as per attached.

(a) Rationale for the revaluation

The revaluation was conducted to determine the current market values of all its properties as per its accounting policy where the Group revalues its properties comprising land and buildings every five years and at shorter intervals whenever the fair value of the revalued assets is expected to differ materially from their carrying value. The Group had previously revalued all its properties on 24 August 2005.

(b) Revaluation surplus

The details of the revaluation surplus/impairment losses are as per attached.

(c) The effect of the revaluation surplus on the net assets per share of the group

The revaluation exercise has resulted in an increase in the net assets per share of the Group by 11 sen.

(d) The name of the valuers

The valuations of all the properties were carried out by independent professional valuers, First Pacific Valuers Property Consultants Sdn Bhd.

(e) The date of valuation

The date of the revaluation was 15 December 2010.

Serious Investing!