See how confident the principal officers are on IHH's shares

Just to highlight how confident the principal officers are on IHH's shares. They are insiders who work for the IHH group.

Tan See Haw - Group CFO of Parkway (Singapore)

Transfer of 450,000 units (25 Jul which was the first day of trading)

Lee Swee Hee - CEO of Pantai Group's operations in Malaysia

Now the question is whether IHH are being supported by EPF and other government controlled bodies so that it is being listed at such a high price? Are you confident now?

Coincidentally these are people of financial background who were selling.

IHH, KPJ, Sime Darby: Why listing healthcare is such a dangerous thing

Greed is good. Or is it?

Have you heard of these rumblings before? A simple procedure may cost us RM10,000. Delivering a baby may cost you more than RM10,000 in total. A son who faced with his passing father is slapped with total hospital bill of more than RM100,000 in the process of trying to save his dying father. The hospital would not let go of the body until all the outstanding bills are cleared. How ridiculous, but it is happening.

There is no doubt that these are charges which are the results of greedy hospitals and some medical practitioners - taking advantage of people who need healthcare assistance. Are these charges called for? Yes, we may say there is public hospital as an option.

But see this...

IHH is controlled by Khazanah, KPJ by Johor Corp and Sime Darby which is going strong on expanding its healthcare portfolio is owned by ASB / PNB. These are all states corporations and the hospitals they own are the largest hospital groups in the country. Are these government who owns the states corporation for the public or for the profits, you may wonder?

IHH for example, registered at most RM400 million last year as a group (inclusive of the Turkey's subsidiary - Acibadem group) This year, they sort of promised RM800 million. Double the profits? For a group which already has such long presence, what do you think they will do to register such profit growth? Either they already would have to double their presence (hospital beds) over such short period of time or do the unethical - increase their charges inconsiderately! Do you think within less than a year they would be able to increase their total visiting patients to high double digit percentage. No! They probably are not even able to increase their occupancy (per hospital). (Do you see these numbers reported in the Annual Report or Prospectus? No, I have yet to see them)

The most important number I want to see is the Average Revenue per Patient which I am not able to see. Why? They do not want to let us see how ridiculous this stats are - how much these numbers increase year on year. IHH has no choice but to reach the RM700 - RM800 million profit benchmark this year, as it is now they are being valued at more than RM25 billion (i.e. more than 60x historical PE). If they don't a much higher bottomline, it would be a disaster as investors would be claiming that they are over promising.

As the government, what would you do if the private hospitals increase their rates exorbitantly? Control these hospitals from increasing their rates? I do not see that. Adding to that, doctors are now asking for allowance to increase their fees. Don't you feel surprise that the doctors themselves are claiming the high charges all the while are due mainly to the hospitals, Managed Care Organizations and insurance companies?

Now, I feel that the government has no choice but to allow the doctors to increase their fees, otherwise this most important part of the chain is going to do a silent boycott (or the least, voice out their displeasures)! Imagine what can happen when the doctors are unhappy.

In increasing profits, another way to achieve that is by reducing costs - even this is dangerous don't you think as reducing costs could as well be reducing the number of staffs per patient or not increasing their wages proportionately to the increase in revenue. Mind you, these are all dangerous, and I can see it coming.

At a time when during the most critical of economic times, Barack Obama's administration is trying to solve the healthcare issues (which has been running for decades) of his country, we are embracing our ownership of this potentially catastrophic idea - celebrating private ownership of healthcare.

Could we have moved onto the wrong direction?

I am not against private healthcare but over-concentration in getting the numbers may be a really bad thing.

If you want to pit your trading skill, pit against this man!

Not Vincent Tan, not Syed Mokhtar as these guys are not traders. Check this out.

As at 25 Jul 2012

He controls a total 8 companies BUT with a combined market capitalisation of less than RM1 billion. Maybe in fact even more counters, which I may have lost track of. Anyone heard of these counters? All Main Board though. Collecting SMALL USELESS counters is a HOBBY (except for GBH).

Why so many but yet so small? So that he can trade against you. Look at the list of companies. Officially, he does not even own more than 40% on any of the companies he controls except for GBH. But try buying those counters.

These companies are not at all exciting. Minimal profit, if any. Hence, minimal dividend as well, again if any.

Then why bother buying these companies - only for the traders or speculators. But I am willing to bet he will beat most of us hands down. His companies are all zero sum game - maybe even negative sum as he wins we lose.

Why? He has most information at hand. He knows who are the ones who have the power to hold for longer period, who cannot. Eventually, these so called long term holders can't hold on for long anyway, as they do not gain anything from these shares. Most who hold his counters are those who got caught. He likes it that way actually.

Also, he can bet big, we can't. He has cash, we have little. On paper, he already wins.

He is not bothered to build the business of these companies, ONLY for the traders.

So, who is he?

ROBERT TAN (TAN SRI) - not the IGB one ya!

Check him out. Mind you, he does not understand what I write, as he does not read English, but yet thousand times richer - than me. Now you know why I am not a trader.

Airasia acquiring Batavia Air - see what I meant

Airasia is acquiring 49% of Batavia Air while the remaining 51% is acquired by its Indonesian partner. I have mentioned that it is looking at Indonesia as the base for growth and in fact this deal is even better, accelerating further the growth of Airasia as a group.

If anyone is holding any airline stocks in the region be it SIA, MAS, Cathay Pacific, Qantas etc, do change your holding as this Malaysian company is moving mountains. The larger premium airlines should be very afraid as the future of airline business is in low costs not your premium business seats!

Do not even bother about looking at the acquisition price they are paying for, as there is no point comparing someone so flexible who can bend, squat, run, hide while the other national airlines can only sit and watch. There is no competition in the future when comes to a company which can do deals with anyone overseas. Against these players, Airasia is just competing on a different rule. The deal is just an example on how fast they can get things done. National airlines would have it much more difficult.

This is the real Airasia as it no longer is a Malaysian based airline.

See announcements below.
----------------------------------------------------------------------------------------------------

AirAsia Accelerates Indonesian Expansion Plans

AirAsia and PT Fersindo Nusaperkasa acquire Batavia Air

Thursday, 26 July 2012 for immediate release

Jakarta, Indonesia: AirAsia Berhad (“AAB”) today announced that it has through its fully owned subsidiary AirAsia Investment Ltd entered into a Conditional Share Sale Agreement ("CSSA") together with its partner PT Fersindo Nusaperkasa (“Fersindo”) to acquire PT Metro Batavia (“Metro Batavia”), which operates the Indonesian airline, Batavia Air, and Aero Flyer Institute (“AFI”), an aviation training school (together “Metro Batavia Group”). The agreement was signed today between AAB, Fersindo and Metro Batavia at a signing ceremony in Jakarta.

In accordance with Indonesian civil aviation ownership regulations, AAB will hold a 49% stake in Metro Batavia Group with the 51% majority held by its Indonesian partner, Fersindo. Fersindo is also the 51% majority shareholder of PT Indonesia AirAsia (“IAA”). The total purchasing consideration for Metro Batavia Group is USD80 million (equivalent to approximately RM253 million) and will be settled in cash. The acquisition of 100% interest in Metro Batavia by AAB and Fersindo will be carried out in two stages, through acquisition of a majority 76.95% stake and subsequently followed by the remaining 23.05% held by its existing shareholders.

Correspondingly, the total purchasing consideration for 100% interest in AFI is USD1 million (approximately RM3.2 million). The acquisition is expected to complete by 2nd quarter 2013 and is subject to regulatory approvals in Indonesia.

This new acquisition will complement AirAsia’s existing Indonesian operations, IAA, which has successfully captured strong market share in Indonesia’s international airline traffic, with an extensive and well-established domestic route network throughout the Indonesian archipelago. The Batavia Air acquisition provides greater domestic connectivity and an extensive feeder network into IAA’s existing hubs in Jakarta, Bandung, Denpasar, Medan and Surabaya. Upon the successful acquisition, Batavia Air and IAA will fly more than 14 million customers serving 42 Indonesian and 12 international destinations. The addition of Batavia Air will provide AirAsia immediate access to an enlarged fleet of aircraft, experienced pilots and flight crew and increasingly competitive slots at major Indonesian airports at a time when Indonesia’s travel sector is experiencing double-digit growth on the back of rapidly growing consumer demand for air travel.

Following the acquisition the number of distribution channels in Indonesia will increase ten-fold to over 5000 authorised agents and more than 70 sales outlets. With this enlarged agency footprint AirAsia will be able to reach even more customers while complementing our internet based sales. “The Batavia Air acquisition is a fantastic opportunity for AirAsia to accelerate our growth plans in one of the most exciting aviation markets in Asia and further underlines our belief in the growth potential of Indonesia’s aviation sector,” said Tan Sri Dr Tony Fernandes, Group CEO and Director of AAB.

Founded in 2002, Batavia Air has earned its reputation as a leading domestic airline with a strong safety track record throughout its operating history. Operating a fleet of 33 aircraft, Batavia has consistently held significant domestic market share through serving 41 domestic routes and has recently expanded its route network to international destinations such as Singapore, Jeddah, Riyadh, Kuching, Dili and Guangzhou. A certified flight school, simulator training centre and aircraft maintenance facilities also support Batavia Air’s operations.

“I am proud to have built Batavia Air into a leading Indonesian airline from its humble beginnings. Recent developments in the airline industry have made me recognise that Batavia Air requires greater scale in order to compete and grow further, and I am so pleased that AirAsia will now take Batavia Air to even greater heights,” said Bapak Yudiawan Tansari, Batavia Air’s founder.

“We are impressed with Batavia Air’s achievements over the past 10 years and will continue to build on Bapak Yudiawan’s legacy. We are excited with the potential synergies this acquisition will bring to AirAsia Group and see this as a natural extension of the success we have achieved with IAA . Indonesian air travelers can all look forward to even more affordable fares soon,” remarked Tan’ Sri Dr Tony Fernandes.

Slashing car taxes may even help the country

Every time I was reading on affordability index on cars in US, their basic rule is not to buy a car which is more than 6 months a person's income. If that man's income per month is USD4,000, he can afford a Camry based on what that index is saying.

If I want to calculate based on Malaysian income per capita which we are at the current number of RM28,000, we're way off the chart - of course we are comparing against US here. A new MyVI (please, don't mention foreign brands to me) already costs something like RM50 - RM55k - Two years average income per capita, that is.

Now the idea of slashing car taxes is going to be a very popular idea for sure, but can we do it as it may affect government's revenue, some may say. I do not think we can model this until the actual implementation is taking place, but Think along these lines:

1. There's a higher turnover for new cars, hence the absolute amount of earned taxes may not reduce by that far. Government do not earn (much) from the second hand market. If cars are affordable to more people, perhaps (I am sure) there are a smaller market for second hand cars and definitely a larger market for new car sales. Car scrapping industry may just be kick-started;
2. Disposable income will definitely improve - imagine the wonders that can happen from here - nothing beats giving money to the people on the streets in terms of recycling the cash;
3. More cars sold means more income to the sales people, distributors - again more money to people on the streets;
4. Less breakdown on the roads, and perhaps even lesser jams. Some may say more cars means more jams - think again;
5. More cars means more pollution, yes - but I did not recommend reduction of tolls. In fact, more new cars may mean less pollution per car;
6. I have to really promote reduction of subsidies for petrol though as this is not right;
7. Other means of taxes on cars: road tax, automotive components maybe hence government may not lose much here;
8. Lesser APs means lesser illicit monies transferred out of the country??? Hello! APs are never right ok, so is illicit money transfer;
9. A more dynamic automotive industry in Malaysia - imagine what can really happen here.

If slashing taxes for cars really happen, I will re-rate (positively) all automotive assemblers in Malaysia except for perhaps DRB-Hicom or maybe DRB may even get re-rated as they do assemblies and sales for Honda and other marques? That has to be really studied in-depth though as one brand may just be scrapped (almost, as I heard the news VW is interested again?).

But we know for sure that for more than 25 years we have really suffered under the protect "local cars" scheme. I am just giving up as you know who is being protected - yet again!

Some commentaries from ICapital - quite interesting

Was looking through ICap's 4th quarter report - quite interesting comment. Read below:

Meanwhile, ICap continues to hold RM134 million in cash. Between 29 Feb and 31 May 2012 there were no trades. So bloody easy their job, they would just stick to long term investment and call. Remember the saying, "It is much harder to find good stocks than finding bad ones."

The sale in most recent financial year was probably some units sale of F&N's shares, I believe.

It seems that the European economic calamities is causing havoc to the entire world. Yesterday's market in NYSE / Nasdaq and Europe were pretty precarious and it does not help when John Paulson predicted a 50% chance that Euro will collapse!

Oldtown: Insider Trading is not something you should do a lot!

Oldtown has created a brand for itself. Although I like the company until I have purchased some of its shares, the recent action of buying and selling is not something which I like.

See below.

 Bought shares at RM0.90 and RM0.92

Sold small quantities at RM2.03 and RM2.04

Of course there are many companies who do this, but most of them have no business that are decent enough for them to concentrate on building. Oldtown has, at least I think so!

Now the transactions above are peanuts, and I do not believe that you are selling these for the sake of cashing out as the recent RM0.04 dividend which you have received, easily could have net more than RM6 million AND should be more than enough for you to not needing to transact the shares (IN SUCH SMALL VOLUME). I believe these are to show that you are cashing out at a price so that speculators believe at this price your share is overly expensive and this is to allow yourself and the rest to move in at a lower price.

But remember, you are the face of Oldtown and it is not the right thing to do as it will just create non-confidence to the management or owner majority shareholder.

Although you may say I am angry which I am not as I have experienced this often enough but being a listed company, you do not want to create suspicion in your handling of your company. As it is there are quite a lot of inter-company trades in your balance sheet!

As a company which has done so much, you should concentrate on building the company and brand and not too concern on how people will second-guess your action in the share market.

Do you think now is the right time to buy Top Glove?

It is no surprise that Top Glove has high ambitions as it has been proven in their past records. It is mentioned in the article by EdgeDaily that this largest glove manufacturer is planning to triple its production capacities over the next 15 years while planning to increase its global market share to 50%. Doable? A bit overoptimistic I would think but it is not an impossible task.

I have mentioned in the past that if we want to buy glove manufacturers, one may not need to look beyond Top Glove and Hartalega. My reasoning is simple. In a mature industry which has decent growth, look for company that has size, strong balance sheet, reach and ability to scale. Both Top Glove and Hartalega have that. I am not discounting other players like Supermax, Kossan, Latexx Partners etc. but chances are that the dominance would probably be by the 2 companies. Only thing is that we do not know latex gloves or nitrile gloves would be the preference. The way I look at it industry players themselves do not know as they are preparing production lines that are switchable.

Anyway, over the last 6 months, prices of latex has tapered down as it was over speculated few years ago. At one point of time the price was so high that costs of production for latex gloves was higher than nitrile gloves, an unprecedented event. We will not know the future of these raw material however, but I believe these players would be more ready in future in the event any of the raw material shot up in price again.

With the recent price of raw latex reducing to below RM7 per kg, I am just wondering whether it is time to buy Top Glove again. Prices of these raw material however should not be a consideration for any long term investors. The main concern is the strategy.

Over time, it may not be the prices of latex or petroleum that is to cause concerns to these players but what I am more concern of is whether there can be a glut in terms of supplies as well as the increasing labor costs. Hence, these players will have to convert their plant to embrace automation much more than before as Malaysia and Thailand are introducing minimum wages almost at the same time.

On the concern for glut in supplies of rubber gloves, I am just worried as every time I read about the industry news, these players are preparing themselves for massive expansion. Can the demand be taking so much?

What are intangibles?

Perhaps one of the biggest factor for investment decisions but yet not many have valued the significance of it. A lot of times it is much easier to calculate a business based on its Net Asset Value or if the business has significant goodwill, Net Tangible Assets. Remember I was highlighting Maxis which is trading at negative NTA but yet the valuation it gets is way higher than that.

Intangibles is brand value

For example, BAT is having Net Asset per share of below RM2 whereas its share price is trading at RM58 per share. Besides the manufacturing plant, distribution channel, management, the bulk of it is in its brand value. A lot of money have been spent on advertising for the brand and these costs are usually expensed off. However these branding enhancement spending, most of the time will not go to waste.

While PE ratio is historical, the brand value is what carries the business valuation to the future. PE and its profit trend is what guides us towards the valuation of the company but really the brand intangibles is what we are buying for especially for companies that has very little tangible asset value.

Intangibles is your perceived value on the company

For a company which has yet to make any profit - example Groupon, the market was valuing it at beyond $12billion at its IPO (now has dropped to below $5 billion). Few years ago Google was offering the shareholders of Groupon for somewhere around $6 billion. Hence it is the perceived value which we think the business value should be. Amazon is currently trading at 187x PE. Why? Because investors have so much confidence on this largest online retailer especially on its intangibles. They think Amazon will conquer online retailing so much so that the value that they are giving to Amazon is perhaps illogical for value investors.

Intangibles is where Property asset owned by a non-property company is very different from a premium property player

The land that Tan Chong Motor holds is valued differently to the land that say SP Setia or Sunrise may own even though it may be the same piece. Believe me on this? If Tan Chong or F&N Malaysia (which it is) becomes a property player, its valuation as a developer will be different from SP Setia or Sunrise or even IGB the developer. Hence, if Tan Chong is to develop on its Segambut land, its net sellable value may be lower than if Sunrise is to develop it.

Often in an analysis that I have read, the analysts would have calculated the properties based on the market value of the land but I sometimes disagree. For example, a piece of land in Klang which was valued at less than RM10 per sq ft can be turned into more than RM100 / sq ft by SP Setia within less than 10 years. Land adjacent to Setia Alam or Setia Eco Park do not carry the same valuation as the one owned by SP Setia. So if you want to buy properties, buy a property company which has a strong perceived brand value. If you disagree, do buy Talam (or Trinity) as they are trading at below NTA. If you noticed, even after Talam has changed name the perceived intangibles of the company is still low.

Negative intangibles is when consumer has negative perception of the company or the brand

Think of Proton. Proton has lost so much value that before it was delisted it was trading at below it NA. Why? Was it undervalued? You may think so now, but why not buy the shares during then? So a brand can have negative value - which is also why whenever there were rumours of Volkswagen or GM taking over the operations of Proton, its share price jumped.

Intangibles is the value we put onto the management and owner

Sometimes management can make a change to the value of the company instantaneously. Remember Steve Jobs and Apple? Most of the times however, it may not create much impact.

In Malaysia, I feel that recently there is a tendency to provide higher valuation to professionally managed companies (especially well managed ones) rather than owner managed companies. I may not know the exact reasons for it but it may go to trust as there are fear of owners who are management themselves influencing the share price or perhaps taken some questionable actions as I have highlighted in Digistar.

Can you see the significance of that value creation as it takes a whole effort to build it? Hence investment is not just Price / NA or PE as there are much more in intangibles to the whole lot effort to valuation.

Happy Fasting Month

To all my muslim friends, Happy Fasting Month.

For a stock picker so difficult to find value now

Seriously, over the past few months, it has been getting tougher and tougher to find value now. Many good stocks are now at more than 20x PE and sometimes, I am just wondering how fast the growth some of those companies can garner. Most of them only have Malaysia as their market hence they tend to pay higher dividends but little capital investment is made anymore.

I just looked at companies like Carlsberg (at one point of time, because of their non-Syariah stock status), they were not that attractive anymore. Over the last 1 - 2 years, it started to move. So is Guinness Anchor. Ya I know that F&N Singapore suddenly became a hot stock as major breweries are eyeing Asian market. Beer stocks became a sudden war for these companies now. I think they will bypass Malaysia though.

Even the one which I have mentioned, Nestle - it has now gone to 30x PE. Banks in Malaysia are now trading at almost 20x PE and more than 2x NA. Provision for bad debts as well as NPLs are very low. Good if we may think, but as in a country with very low unemployment for how long can this last. Already the personal consumption loan is at its high. Indonesia story again? I am hearing of too much Indonesian story - really.

Properties as you know I have mentioned of my apprehensiveness.

I am quite sure for long term investors, it may not be too difficult as the viewpoint is for a longer period and we do have some good companies although more and more of them bypass Malaysia for their listings.

But finding value is really difficult here.

This is especially so when we look at US markets - not for the ones who do not have patience though. I can give examples of companies like some of the banks are now trading at below 0.5x NA, less than 10x prospective earnings. They are still decent banks despite all the hoo-hah on their actions more recently. Even some very good companies are now trading at around 10x PE.

Any good solid pick for Malaysia still?

Digistar: Anything fishy about buying company with NA of RM89,271 for RM32.5million valuation?

This is not Digi, but on Digistar. I am going to highlight the sequence of event and perhaps you can piece them out as well.

Note the date where the JV was entered into - 12 October 2010

12 October 2010 - Seni Pujaan entered into a Joint Venture with Yayasan DMDI to undertake a property development.

28 April 2011 - Digistar Holdings Bhd subscribed for 150,000 shares of Seni Pujaan for RM150,000 cash. (See below)

28 March 2012 - Seni Pujaan managed to get a loan for RM28 million for development project on the piece of land from UOB Bank. Notice the word third party charge as the land is not owned by Seni Pujaan or Digistar but in fact owned by Yayasan DMDI. (See below)

16 & 19 Jul 2012 - In an announcement and its answer to Securities Commission, Digistar is paying RM13 million for remaining 40% of Seni Pujaan (Net Asset Value RM89,271), the same company it paid RM150,000 for 60% ownership a year ago.

Minority shareholders, you should have asked how come a company which has Net Asset Value of RM89,271 is being bought for RM13 million, 40% stake - hence valuing the company at RM32.5 million. Add on to that, the 60% was for RM150,000 and that was just a year ago.

This deal does not need shareholder's or SC's approval as it is an all cash deal. (See below)

Enough said. Minority Shareholder Watchdog Group - can you help to check on this? I am thinking how can a company with Net Asset Value of RM89,271 and no track record be valued at RM32.5 million...

Don't you think the minorities deserve a better answer?

As I am highlighting this, need to be careful as well.

Property prices beyond reach? Think again.

During good times, banks can act as the lubricant of the economic growth of a country. If over exposed and uncontrolled, banks can also cause havoc to a country's economic health. We do not have to look too far behind - remember the sub-prime crisis in US in year 2008. Started off before Obama's presidency and now it is towards the end of his first term, until today, the housing crisis is yet unresolved.

I could not help thinking why over the last few years - in fact a year after the sub-prime crisis, why is it that the property prices in Malaysia (similarly in many other cities around Asia) jumped by leaps and bounds over a period of just 3 years. For example, I was looking at a piece of leasehold residential land in Kota Damansara - 3 years ago the price it was fetching - RM60 per sq ft, now RM150 per sq ft or even more. Now that's land, I have even heard of completed properties (especially high end) have gone up even more in terms of percentage.

Who is at fault? If you believe me, banks and developers are the biggest speculators. Are they overplaying their role here?

Let me provide you a scenario.

To get a smallish decent little new apartment of around 1,000 sq ft at the outskirt of the KL or PJ city, it would have costs at least RM350,000. You may think that it is very expensive, but try to do some calculations. For a household / person who earns say RM4,000 (now RM4,000 per household in Klang Valley, Penang of JB for that matter is not high), would the person be able to pay for a RM350,000 apartment? Let's look at the calculator provided by Maybank below.

Based on the above, the affordability level is possibly yes. As an illustration from above, for any household to buy a property worth RM350,000, his / her monthly repayment is RM1,504 assuming the interest rate is being charged at 4%. Mind you the loan is for 30 years which means for a 30 year old, he / she will have to pay until 60 years of age. He / she however will still need to fork out the downpayment of RM35,000 for 10% (as banks will only fund 90%) as well as other related fees which will probably come to another RM20,000. All in all, that is RM55,000 for just the downpayment and fees alone. Will the person be able to save up or come out with that amount? Possible. Assuming that they have saved some RM20,000 to RM30,000 and with the assistance from EPF's withdrawal for housing loan, the person may be able to manage.

(Let's not talk about renovation as some of the times, the property is for speculation.)

With the repayment that he / she has to make to the bank, what about his lifestyle - can he / she makes ends meet? With RM4,000 income, the take home will probably be around RM3,500. Deduct the loan repayment of RM1,504 - around RM2,000 will be available to pay for transport (if car, bank financing again), utilities, travel costs, food, some slight entertainment. That's tight but for anyone which has some flexibilities from credit card, some little additional claims, bonuses here and there etc., it is possible.

Now, let's look at what has made this possible? Wasn't this same thing made available by the banks 5 - 10 years ago?

Because of the Banks - Interest rates at its lowest

If you look at the BLR table below, because of the spillover effect of sub-prime, Bank Negara has caused reduction of BLR to a historical minimum 5.55%. To top off with that, because of costs of funds for banks have gone much lower, property financing rates have gone below BLR rather than above BLR which was the norm prior to this. Hence, at BLR - 2.4% or even more today for example, borrowers are able to get rates as low as 4% - 4.2%.

The lower the rate, the higher the affordability.

What about years of financing? I remember, prior to 1997, it was 20 - 25 years for maximum years of financing. After the Asian crisis, now there are banks (in fact most) which are providing property financing terms of up to 40 years.

What about developers?

Heard of the 5/95 plan? To make properties even more affordable, I have seen this plan initiated since 2008. Basically the 5/95 plan is to allow buyers to just pay for 5% downpayment for their booking and purchase. The remaining 95% will only be paid upon completion of properties. No interest will be paid during the construction.

Of course banks will still have to approve the loan as the risks of payment is still at the purchasers side. Hence, over here again the banks and developers are working together - knowingly or unknowingly in increasing the value of launches.

(This is different from the Build Then Sell concept which is highly recommended)

In essence, this has caused higher affordability level and of course even more speculations. Why? The person only needs to pay 5%, and nothing else until completion. After completion, some would expect to flip the properties hence making a quick profit out of this speculation albeit from a low upfront downpayment.

This scheme while it is helpful to the developers to sell properties, unfortunately may have caused some over excessive speculations.

Do you now believe the excessive pricing are due more to these 2 sectors rather than inflationary pressure - say oil, or material prices? Do you think that because price of property is part of the CPI, it is inflationary as well?

Now you know why in my blog, I have never covered any property companies or banks, especially now. This is because if there are any economic calamities (and I am not saying for sure there are), do run cover from these sectors fast. More often than not, we would not be able to sell fast enough. The risk for me is a little bit too high.

I couldn't help thinking the design of the packages for the last few years was to allow potential buyers within reach based on the income level, but basically the developers could not care less of what happens when the economy face a slight twitch or banks just could not hold on to the largely consumption loan anymore. Even if there are no crashes in the property prices, I still feel that the overpricing of the properties are due to the two parties - banks and property developers. And some parties have just the role to regulate more to help the man on the streets, as we do not want another Greenspan - who overslept and caught it way too late.



Note: If 16 or less banks can illegally coordinate to control the LIBOR rate, I have no doubt that banks and larger property companies can do the same together and it may not even be illegal in this case.

EPF's full withdrawal at 60

It seems that the proposal for full EPF's withdrawal extended to 60 is true. Unfortunately, it went without much to be debated. The time for government knows best is over and yet we are being treated like kids. Priority should be on money management which we are to do ourselves rather than thinking of managing it for us.

C'mon, this is just too disappointing.

My other article on this:

EPF, I want all my money back by 55.

I may be wrong on FGV's trade?

It seems that I may be wrong on FGV's trade as EPF has been trading down FGV to the extent that it no longer holds 5% (the substantial shareholders) threshold on FGV.

This probably prompted FGV's price to deteriorate to RM5.30. I will continue to question the valuation of FGV as I feel that the more than RM19 billion valuation it has been accorded with is a little too rich. Anyway, EPF, KWAP and Tabung Haji - the 3 funds that have been trading FGV almost daily are so big that any major movement by them would probably rattle the share price of any listed company in Malaysia. We cannot be sure what they are going to do next, aren't we?

Meanwhile, read the below very well written article via Reuters on the competing arm of the Indonesian palm oil industry which will provide the much bitter competition against Malaysian palm.

Top palm oil producer Indonesia wants to be more refined

First Read

Written by Michael Taylor, Niluksi Koswanage & Chew Yee Kiat

Monday, 16 July 2012 10:22

JAKARTA/KUALA LUMPUR (July 16): For decades, Indonesia has shipped out tanker loads of raw palm oil for processing into higher value cooking oil and margarine in Rotterdam, Mumbai and Kuala Lumpur. Now, the world's No 1 producer of the edible oil is seeing a more than US$2.5 billion (RM7.95 billion) wave of investment to build a refining industry that will double its capacity and mean it could supply the entire needs of Asia's top food consumers - India and China.

The transformation - driven by Indonesia's move to slash export duties for processed oil last October - will heat up competition with rivals such as Malaysia and send ripples through the palm oil market as new supply pressures prices of traded refined products such as palm olein, used as cooking oil.

A Reuters survey of 30 firms operating in Indonesia - from the world's biggest listed palm oil firm Wilmar to conglomerate Unilever - shows plans to nearly double refining capacity to 43 million tonnes of palm oil, or 80 percent of total world output. "The government is sending a clear message - to survive, you need a refinery. So the palm oil firms are putting their money out and following the big guys in the industry who have already done so," said Thomas Mielke, an analyst at industry publication Oil World.

"There is the threat of over capacity. But palm oil firms with the whole supply chain behind them, we are talking about having plantations to mills and ports, will be the kings." Gleaming silver storage tanks standing ten-storeys' high are becoming a feature of Indonesia's landscape as more refineries spring up, threatening the stranglehold on processing held by neighbouring Malaysia, the No.2 palm oil producer. At a newly built refinery near Jakarta, staff wearing face masks and hair caps work on conveyor belts carrying boxes of margarine and cooking oil.

The US$249-million Marunda plant run by PT SMART was launched before the tax change and Indonesia's top palm oil firm plans to spend a further US$200 million on new refining capacity despite the infrastructure issues it faced building Marunda. PT SMART will be one of the biggest investors in the sector along with Wilmar and unlisted Musim Mas, which plans to spend US$860 million, according to the survey.

Government officials in Malaysia and Indonesia say these firms had aggressively lobbied Jakarta to cut duties on refined palm oil to half those levied on crude. Much of the expansion is led by companies owned by powerful tycoons in Indonesia. SMART is controlled by the family of Eka Tjipta Widjaja, who created a palm oil empire from his humble start selling biscuits from a rickshaw. Foreign firms are not far behind. Commodities trader Louis Dreyfus formed joint ventures with planters such as Singapore listed Kencana Agri to build refineries in Indonesia.

Until now, Indonesia had focused on expanding plantations. Oil palms cover roughly 8.2 million hectares (20.3 million acres), an area about the size of the island of Ireland, and their cultivation is often blamed for rainforest destruction.

BRING DOWN PRICES

Palm oil, the world's most traded and consumed edible oil, is used mainly as an ingredient in food such as biscuits and ice cream, or as a biofuel. For decades, refined palm olein enjoyed premiums of 5-10 percent over crude palm oil futures. But with more Indonesian supplies coming on stream, more inefficient refining operations could get shut.

On the flip side, greater competition could cut final product costs to the benefit of consumers in India and China, where food inflation is a constant concern for policy makers. So far this year, palm olein prices have fallen nearly 10 percent on higher Indonesian supplies. Under its refining plans, Indonesia could meet domestic needs of around 10 million tonnes annually as well as supplying the combined 20 million tonnes of edible oil imports required by top buyers China and India.

Indonesia's crude palm oil output - estimated at 23 to 25 million tonnes in 2012 - looks set to be outpaced by the planned increase in refining capacity in the next two years. That means some palm oil firms may build refineries run at lower capacities until more edible oil supply comes in. DBS analyst Ben Santoso said latecomers to Indonesia's refining business could see margins squeezed to US$40 per tonne from US$70, although still healthier than its main competitor.

"The capacity of some of these smaller companies will turn idle. But let's not forget, Malaysia's refining margin is just US$9 to US$10 a tonne," he added.

MALAYSIA AND INDIA FEEL THE PRESSURE

As Indonesia rushes to build refineries, vegetable oil refiners in Malaysia and India are feeling the pressure. "I am having sleepless nights. I have closed down 30-40 percent of my factory and I hope it won't be more," said a refiner in Malaysia's Johor state.

Malaysia currently has 22.9 million tonnes of refining capacity, with only about three quarters of it used last year down from a record 90 percent in 2005. And this shows in exports. Malaysia's combined refined palm olein exports in April and May dropped 19 percent to about one million tonnes from a year ago, according to cargo surveyors.

Indonesian palm olein shipments jumped 55 percent in the same period to nearly 600,000 tonnes. Malaysia could respond by removing a tax free export quota for crude palm used to feed the overseas factories of some firms or replicate Indonesia's tax system to level the playing field. Both options are politically risky with an election on the horizon, as they entail taxing crude palm oil that in Malaysia is mostly produced by small farmers who make up the bulk of the electorate and come under the tax free export quota.

To capitalise on Indonesia's export tax changes, Malaysia's top planter Sime Darby is building an Indonesian refinery. KL Kepong and IOI Corp are expected to follow suit. India, the world's largest edible oil buyer, has been fending off industry calls to hike the import duty on refined palm oil to stem the inflow of cheap cargoes from Indonesia for fear of stoking inflation. India currently imposes a 7.5 percent tax on refined palm oil from Indonesia. But it is still US$15 cheaper a tonne to import Indonesia's processed palm oil than to ship in crude and refine it, traders say.

"Before Indonesia changed the export taxes, a lot of refiners were expanding their factories," said Ashok Sethia, President of the Solvent Extractors Association of India. "Now all those plans have been abandoned," he added. Refined palm olein used to make up below 5 percent of total imports and now accounts for nearly 20 percent of 883,410 tonnes shipped into India in May. This will make it hard for India to preserve its processing capacity of 15 million tonnes.

SENSITIVE POLICY

Palm oil is just part of Indonesia's efforts to attract investment and squeeze more from its agricultural and mineral resources, a policy that has sometimes backfired. In May, Indonesia imposed a 20 percent tax on some metal ore exports and told miners to submit plans to build smelters or process ore domestically. The government says this should help Indonesia earn more revenue, although a union said miners had laid off more than 200,000 workers since the ruling.

Taxes on palm oil were introduced in 1994 with the aim of ensuring palm-based cooking oil was available in the developing country of more than 200 million people. But the system fell apart when the rupiah currency collapsed during the Asian financial crisis in the late 1990s, prompting palm oil firms to export more and triggering food riots at home. With this in mind, export taxes on crude palm oil were kept much lower than on refined oil to shore up domestic supply. That frustrated the processing industry with many firms thinking of exiting Indonesia in 2010 and 2011, said Sahat Sinaga, executive director of the Indonesian Vegetable Oil Refiners Association.

"If the government did not take action, we would have just remained a crude palm oil exporter and earned much less," said Sinaga." - Reuters

Maxis Malaysia and the power of cashflow

I have written about the power of cashflow for company like AEON where they basically used suppliers financing to finance some part of their business. Of course business like AEON will need to do the investment first (such as capital expenditure on buildings, land, equipment etc) then only they will stuff suppliers goods in their outlet. Collections are in cash, payment to suppliers can be up to 90 days.

This time, I am going to introduce another company which on its balance sheet, it can seemingly be seen as insolvent as it is on negative tangible asset value but yet the company is valued at RM48 billion valuation.

Just look at above - as at 31 Dec 2011, Maxis has locked in a intangible assets of RM11.06 billion while cash holding was just RM838 million. Total equity at that period was RM8.088 billion hence the company's total NTA was negative RM2.971 billion. To add further, its total borrowings was RM5.873 billion as shown below. Is its balance sheet under duress? Hell NO.

Borrowings for Maxis Malaysia

Why?

Just look at the amount of cashflow it is generating yearly. Operating cashflow of over RM4.3 billion yearly. From these cashflow, how much are needed to invest into the maintenance or ungrading of equipment. Lets look at another table...

Operating Cashflow of Maxis Malaysia

Based on below, it is reinvesting somewhere between RM1 - 1.5 billion for equipment upgrades or enhancement.

Hence, the net free cashflow Maxis Malaysia is generating is in excess of RM3 billion yearly. This is why they can be more than RM5.8billion in debt, negative NTA and yet the market is valuing Maxis at RM48 billion. Of course, the company is generating Net Profit of more than RM3billion as well, yearly.

You may want to ask, if the company is generating so much cashflow, how come its balance sheet is in so bad shape?

Remember, the delisting and listing back in Bursa. Well the delisting is for some magic financial trick where all the major absorb-dable debts are park at Maxis Malaysia, the vehicle to issue dividend as well and at the same time it can still get good decent valuation. The one that needs much more funds and perhaps may not be generating such cashflow will be held private and not seen in the eyes of public. (When you do not have a beautiful wife why bring them out that often?)

After the financial cleansing are done, they then list Maxis Malaysia. Usually Ananda's stable would be showing (and listing) the nice companies with strong cashflow so that they can issue (and proven to) dividends, while the non-paying dividends companies will usually be held private. This is because Malaysian investors are quite a sucker for dividends (me inclusive), hence the valuation.

A better example of a Malaysian telco with full-fledged regional operations where one country's operations will provide the cashflow while some other countries will absorb / use up the cash generated - look at Axiata. You will get a bigger and better picture from there as not all telcos are purely cash generating alone.

Maxis-Redtone 4G deal: Is this how the telco players are moving forward?

MAXIS Bhd has signed an infrastructure sharing agreement with REDtone International Bhd, for both parties to offer better high speed wireless broadband services.

This will be done by combining their soon-to-be-awarded 4G spectrum.
 
Earlier, there are news that the Malaysian government is providing 9 licenses to telcos - in my opinion my order of companies strength - Maxis, Celcom, Digi, YTL Communications, UMobile, Green Packet, Redtone, Syed Mokhtar's linked telco, Asiaspace.

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There is no doubt that this deal will be beneficial for both parties as it is mentioned it allows the companies to save costs while at the same time fast tracking their rollout. No other terms are revealed, for example the pricing terms for usage of each others network etc. Hence, we do not know.

My question is that since there are 3 mobile players which are head and shoulders above the rest, would this method be used by Celcom and Digi as well. They would definitely be needing much bigger network than the smaller players. The smaller players on the other hand needs money to even kick start their rollout.

I am sure MCMC's intention in awarding the 4G LTE's license is for the players to end up being operator rather than selling network. They can be operator allright but to make it big from being operator, I am not able to see it beyond Maxis, Celcom and Digi still.

This deal is still beneficial to Redtone though, although at the moment its share price is already quite full. The RM150 million value that the market provides to Redtone is largely on the license which it holds - absolutely bizarre. For a company like Redtone, to be a full fledged operator, I see them raising funds just like what Green Packet and UMobile did. Remember to be an operator, network is just one part of the solution. Devices, billing systems, distribution, customer service, marketing, advertising etc. - you will still need those especially in a retail network.

Let's see where it leads to.

How is Padini faring?

Padini is one company that has done extremely well over the last 5 years. Its share price has also done very well climbing more than 100% over the last 1 year. Is it justified? It is now worth more than RM1.3 billion, not bad for an apparel and shoes company which relies on 90% of its revenue from Malaysia. Can this sustain?

Firstly, let's look at what does it do so that we would like to know what kind of metrics we would concentrate on. Padini is an apparel company with brands such as Padini (men and women), Vincci (women's shoes), Seed, Miki (children's apparel), P&Co and several other smaller brands. In terms of operations, it operates its own outlet namely Padini Concept Store and Brands Outlet. Besides that, it sells its merchandise through supermarket outlet as well throughout Malaysia. It has smaller operations overseas which only contributes 10% of revenue to the group.

If you ask me, in terms of the branding of apparels and shoes, Padini's positioning is towards lower to mid level brand targeting younger generations. In terms of competition, obviously it is a very competitive space, but to me as long as company has proven to do well, competition is not a major factor.

Anyway for an apparel company like Padini what do we want to look at?

• cashflow;
• receivables which is related to cashflow as well;
• inventories;
• profitability of course which includes return on equity;
• gross and net margins;
• revenue strength.

Important financials for period between 2008 to 3rd quarter of 2012

Looking at above, hence what do you see?

• Nice trend in terms of Revenue and Profit. In fact, it shows a good consistent trend in this area;
• Margin is also consistent with gross margin around 50% while net margin is between 10% to 14% with consistent improvement;
• Return on Equity is consistent with slight growth from 24.6% to 26.8%. Seriously, you can't go much farther from there;
• receivables - It in fact manages to keep its receivables at around RM30 million to RM37 million (during the period in review) despite the growth in revenue from RM383 million in 2008 to more than RM700 million expected for 2012. Why? I would suspect that sales from its own outlet has grown so much more than sales though the retailers such as Isetan, Parkson, AEON etc. This trend is good especially when comes to dependency. It shows that Padini is able to stand on its own selling from its own store i.e. Padini Concept Store and Brands Outlet. Look below for its total growth in floor space which shows that the growth in its own retail space has grown substantially compared to stand-alone store;
• One concern is the inventory level. It does seem the company has stocked up for further sales. Well, of course its revenue has increased, hence ideally inventory should have increased as well. I however would have expected the company to be able to manage the inventory much better due to the growth in sales;
• due to the expansion and increase in inventory level, free cash flow is not growing as fast as the Net Profit. This however is expected from a company that continues to expand its retail space. What is important though is that it is able to generate enough cashflow on its own to pay dividend that it wants to pay as well as grow. As long as its free cash flow is positive and enough to pay the dividend, the company should be fine.

This company it seems has been able to stand on its own despite the tough competition in the space it is competing in. Who says Malaysian company is not able to compete despite we see overseas brand coming into the local market?

Despite some concerns over macroeconomy of the country due to spill over effect from Europe and even the slowing down of China, I would think Padini is a company which will be able to compete on its own ground. I am impressed actually.

What about the pricing? I am expecting the company to be trading at around 12x to 13x PE based on its current price of RM1.95. Not too bad still (despite the growth in price in the last 12 months). But not that cheap either.

A slight change in policy for commenting

As I am still learning the trade of blogging, I am still taking advice. For those who would like to comment, I am adding the requirement for either a Google account or Open ID account. I no longer allow "Anonymous" posting. You may also go to my facebook for comment. In fact, I do like that.

I am sorry that you may not like some of my articles that I may have written. It is strictly my own opinion, however and I may be wrong. While I am on the constant lookout for good stocks or companies, there are times I may have found stones rather than gem. I may still comment on that.

If I encounter any financial trend or doings which I may not like, sometimes I may highlight them as well.

Another thing which I would like to highlight is I do value "owner" and "management", in fact in most cases more than financials. Hence, the companies I like may not necessarily be just strong financials or undervalued assets.

How do we judge management? Most of the time track record, as I am trying to do here for myself.

Thanks for the support though.

Why I bought ICap

When I first started this new portfolio which I am going to call "Intellect Point Portfolio", I did say that it is going to be a small and long term portfolio for kids education. Started off with RM32,500, now it's NAV has exceeded RM60,000 after 1-1/2 year. The original intention is for this fund to continuously beat the market, that's it. Honestly, I do not expect it to perform so well, as I was going to take a very long term view of this fund. I have more than 15 years to go with this fund and most probably (hopefully) I am not going to touch it. This is not a retirement fund though.

With the sale of AEON few days ago, I have decided to buy 3,500 units of ICap at RM2.17 today.
 
Why do I buy ICap

Frankly, this is a much more careful purchase. Why?
(Hey, if I am wrong in this call, I can safely say Tan Theng Boo also wrong, mah! :) Hence the pressure off myself )

Besides that, first of all, it is undervalued. Yes, it is much easier (against any other businesses) to determine whether the closed-end fund is undervalued by virtue of its traded price against NAV. As at yesterday, ICap's NAV was RM2.95 while its traded price today which I have bought at is RM2.17, a whopping 26% discount from its NAV.

Secondly, the fund is sitting with cash. As at 29 Feb 2012, RM134 million is held in cash. This cash it is sitting on is higher than the RM115 million cash it was holding as at 31 May 2011, its last year-end closing. This shows that ICap has been a net seller of stocks (on top of the cash dividends they get). They are hence sitting on 1/3 with cash while the other 2/3 is invested. With the amount of cash they are sitting on, it shows that they probably are more careful than me. You see, the beauty of closed-end fund is that they are not susceptible to investors pulling out, hence the cash holding only shows that they are taking a little pessimistic view of things thinking that shares will drop in future - that's where they will buy.

With RM134 million in cash, this means that literally they are having RM0.957 in cash out of the traded price of RM2.17. Then, why is it that ICap is trading at such a discount? You can see that some shareholders are probably not patient. In shares investing, patience is a virtue. ICap has in fact been trading further apart from its NAV.

I can only speculate that since Icap has never issued any dividends, some investors just got tired of holding it for long term and sold. Most of them of course probably sold at a slight profit I believe, as RM2.17 to RM2.25 is probably the upper end of its historical traded price over the last 3 - 4 years. These investors just got tired and been selling.

What has changed since my last article.

If you have read it, over the last few months, ICap has just gotten a seal of approval from 2 decent-sized funds. See below. Both the funds - City of London Investment Management Company and Laxey Partners Limited are now holding more than 6% each of ICap - hence making it for first time ever ICap has a substantial shareholder (means more than 5% holdings).

This seal of approval is important as it shows that some decent sized funds are giving a seal of consent on trusting the managers of ICap to act on behalf of them. (Do Google these 2 funds to see whether these are very small or somewhat trusted funds)

I sincerely do not expect this fund to have a run as it is holding a substantial percentage in cash (except for the readjustment to its NAV). Hence from this is a very long term view as I do not expect dividend either.

What is my status on the "Intellect Point Portfolio" then.

No more cash, huh!


This is my personal view and is not representing an advice to the readers to buy or sell.

Maxis selling India operations - a little note

Based on this headline, we have seen sometimes how difficult it is to expand overseas (beyond Malaysia). This is not the first time Ananda's stable had difficulties in moving beyond Malaysia for its telecommunication ventures. Astro had a tough time penetrating Indonesia as well few years ago.

However, when we read of some companies in exploring overseas ventures, we get excited with those stocks without thinking of the potential challenges. Imagine FGVH saying they are going to use the listing and money raised from IPO to go Africa. Try to think of this headline. Some see it positively, but if we are to do some critical thinking - I will say let's wait and see. Even IHH claiming that they are moving forward to open its first private hospital in Shanghai, China is a case to be deliberated. China is attractive for healthcare and so is India for telecommunication. IHH should go and explore China but this headline does not give me any excitement until they report back success.

One of the few Malaysian (born) tycoons which had made it overseas until the stage where his operations overseas dwarfed Malaysian operations is Robert Kuok. See Wilmar - if I am not mistaken, his total acreage of plantation land in Indonesia is bigger than Malaysia. I can foresee that it is not easy. And of course he has made it very well in selling edible oil in China. Shangri-La as well.

Another person potentially could have had success overseas - Tony Fernandez via Airasia. This is not necessarily because Tony is special, but Airasia is special. Many Asian countries want that kind of operations. Airasia is almost a franchise. I did write on Indonesia wants some help from Airasia if the officials from that country is level headed. Why? They have bad publicities for their airlines, and for a country such as Indonesia they want better connectivity. Not many privately owned airlines can expand so fast in such a short timeframe. Airasia can and have proven to have done it.

I am not saying that we should not invest into companies that have overseas operations, however sometimes it is good to evaluate how potentially successful it can be as treading unchartered waters for Malaysians may be a different ballgame. Some businessmen are very successful but some had different challenges.

It does not mean Ananda does not have success overseas before. His Bumi Armada's business does see some success.
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From ZD Net

Report: Maxis looks to exit India

Maxis Berhad is looking to sell its stake in Indian telco Aircel, with Russia's Sistema touted to be an interested party. This development comes amid regulatory uncertainty regarding the 2G spectrum auction slated for later this year and the ongoing probe into the sale of Aircel to Maxis, one report states. The Times of India reported on Tuesday that Maxis had held preliminary discussions with bankers representing Sistema, although talks have yet progressed to a "serious" stage of negotiations when the prospective buyer requests to conduct due diligence of Aircel's accounts.

Citing an executive close to Maxis with direct knowledge of the discussions, the Indian news agency stated: "Maxis sees itself as a long-term player in India, but will listen to offers in the wake of regulatory and policy uncertainty. Bankers have brought many potential permutations and combinations for mergers and strategic alliances, including that of Sistema, to the company."

The source said Maxis was upset with the way the Indian government's investigations into the sale of Aircel had dragged the Malaysian telco's founder Ananda Krishnan and other top officials into the probe.
The country's Central Bureau of Investigation (CBI) had alleged that "undue favors" were given following the sale, when then-telecommunications minister Dayanidhi Maran was said to receive 328 million ringgit (US$107 million) for getting Aircel's owner C. Sivasankaran to sell 74 percent stake in Aircel to Maxis.
A Sistema spokesperson, however, said the company was not in talks with Aircel. "Sistema Shyam Teleservices believes that the talk of engaging with other telecom service providers for a possible acquisition deal is motivated," the spokesperson stated in the report.

Despite exploring avenues for exit, the unnamed source added that Maxis will continue to invest in Aircel and recently lined up new leaders for the Indian telco. This is because given the uncertain regulatory landscape and depressed valuations for telcos, it would be difficult to strike a deal now. Times of India stated that Maxis Group CEO and Aircel Director Sandip Das declined to comment.

Analysts had stated earlier that the lack of urgency within India's government to resolve the allocation of 2G spectrum by fixing an auction date and reserve pricing is a blow to its credibility and will hamper the development of the local telecommunications industry.