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!