2014 could be tough

All signs point towards a tougher condition for 2014. Firstly, cost of goods will definitely be much higher with the multitude of increases in fuel price, electricity, possibly toll, assessment for those who stays in KL etc. One thing for sure, these increases would usually cause chain reactions where if not kept in check it will cause substantial inflationary pressures.

One of the stocks which have been under pressure already is Parkson dropping more than 30% from the time I bought it. Parkson is more of a retailer targeting the richer people or higher middle income nowadays with outlets in expensive locations such as KLCC, Pavilion, 1Utama and in Beijing, China I remember seeing an outlet in one of the most expensive streets near Tiananmen Square. When times are tough, the luxury goods are the ones to suffer the most. People will probably go to a Padini rather than a Marks and Spenser outlet. In 2009 for example, Walmart which targets the general lower and middle income group was the only Dow 30 stock that was higher for the year. The other 29, like Microsoft, Bank of America, GM etc were down for the year.

AEON is unlike Parkson where its market are more for the average people. So are Giant, Tesco etc.

Similarly, beer in Malaysia is probably a more luxury item targeting the non-Muslims. One can say that many people tend to shift to wine etc., but that too. In the most recent, quarterly report this is what Guinness Anchor ("GAB") had to say. GAB is the distributor and brewer for Tiger, Heineken and Anchor. It is the larger of the two between GAB and Carlsberg. It says that it is in fact feeling the heat, after several measures by the government - so fast already?

During tougher times, investors should go for defensive stocks - this does not mean one should look for cash to hold as it seems that governments all over the world are printing more and more money and I just do not know what to predict out of it. It seems to me that the period of low interest rates will continue to persist but yet economies are moving quite slowly. Last Thurs or Fri, US just announced a very good quarter with GDP growing 4.3%. This is one good sign.

Malaysia is quite different, possibly facing tougher moments in near future, as only the last few years, BR1M was introduced, petrol price was not increased, while the country's debt was on the increase. While giving direct money to the public is good, surely, this cannot persist which is why the reduction in subsidies we are seeing now. The more I look at it, the more I think the government has just no choice but to allow them to happen. The right thing to do? Let's see the results in 2014.

So, what should we do for 2014. For me, I would be more careful. As I have been, financial and property sectors are always a danger. I have been avoiding these sectors for a long time and it seems that I have not been too wrong although they do not face deterioration in market cap and price but the increase were not great. Look at Maybank, CIMB. The ones that are probably doing better is Hong Leong Bank, RHB Capital.

Properties. Look at this announcement by BNM. As one now should know DIBS will not do the trick in slowing the property prices but brakes on interest capitalisation scheme would just do the trick - hopefully as high property prices would just put people in tougher situation as property is one of the largest ticket item for any family or individual.

Do not expect tough prices or to be launched properties to drop as the developers are used to these prices nowadays, and will not drop prices, but slow down launches - and with inflation, their costs will definitely be higher. So are the challenges in hiring foreign workers, now.

So, what are defensives? Food staples - good, strong brands. Companies that do lots of exports as it seems some of the countries are picking themselves up again - remember one of my article on latitude tree earlier. Perhaps palm oil stocks again? - if they ever drop to a good price point?

Rubber gloves may be still strong, although it seems that Hartalega nowadays is winning against Top Glove. Toll roads as with higher petrol price, people have no choice but to use shorter or faster route although this may not be popular stocks.

Anything, do let me know.
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Anyone who have been asking me whether do I look into averaging down for Parkson - I do not, as I am still saving the money for Keuro's rights and I do not see selling any of my stocks for now, as NTPM, MAHB, DKSH, Padini seems to me defensive enough.

Bright: When a right is not RIGHT

Well, I did say in one of the comments, "be careful what you wish for". I knew something like this is coming but never thought that it is done so cunningly. Since it is now early Christmas for Bright Packaging's shareholders, post change of control, it may seem worse off for the shareholders.

When you look at the latest balance sheet, do you think Bright needs to raise more money? Whereas in fact, during the fight for control, one of the reasons for taking out the shareholders then was lack of dividends. Now the company is raising more money from shareholders? The new guys are supposed to issue more dividends, not asking for more from shareholders.

The probable reason the current controlling shareholders are asking for more money is to dilute the previous controlling shareholders.

And how it is done is to issue the rights at a very low price RM0.55 whereas the parent share was trading at around RM1.20 to RM1.30. On top of that, it is at 2 for 1 right! No major shareholder who are not controlling would be in the right frame of mind to put in more money, especially into the group whom had just taken them out of their control.

Well, this is it. To the minority shareholders, it is "From a frying pan into the fire."

Keuro's call for rights (Updated)

24 Dec 2013: Keuro just received final confirmation for the concession agreement from the government.

3 Jan 2014: Shareholders have approved the rights and warrants issue.

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Rights are not for everyone. I tend not to like rights issuance except for this one. Usually, whenever a company is seeking to raise funds, only then it will call for rights. Strong companies usually do not ask for money. They return money to you. Except for some cases like the recent BIMB call, which was raising funds to pick up the remaining shares it does not own in Bank Islam and Keuro (which is deprived of cash) raising money for WCE.

As mentioned in my previous posts, Kumpulan Europlus is raising funds through rights issue (for mainly the WCE project) and as follows are the basic information about the rights issue:

• Rights 3 for 4 with attached warrants of 1 for 2 for every rights subscribed. This basically means that for every 4 Keuro shares that you own, you will have the right to subscribe for 3 rights. On top of the the rights, you will get 1 warrant for every 2 rights (which acts as sweetener) for free;
• Profile of the warrants - take note that the exercise period is only for 2 years from the date of issuance of the warrants - very unusual as normally warrants are for 5 years to 10 years for some. In this case, it is I believe due to the company needing to raise funds through the warrants for the West Coast Expressway project, hence they are indirectly requiring the warrant holders to subscribe within the 2 years assuming it is in the money;
• Current share price of Keuro at RM1.20, assuming a discount of 10% is applied to the rights, it will probably be pricing the rights at around RM1.08.

One has to be careful about rights as if you do not intend to subscribe, you should take note of what you can do:

• Sell the shares as if you do not pick the rights which usually is offered at a lower price than the share price. Note that the share price will adjust after the ex-date of the rights, which means you will lose out if you do not intend to subscribe; or
• nowadays, you can have the option to sell your rights - usually for a limited time. What basically this offers is that through your CDS statement you will know that you will have a period where your options for rights can be sold to the market - they will probably be termed as Keuro-OR. This option is presented if you do not intend to pick up the rights but yet want to hold on to the shares.

Keuro is having an EGM to approve the rights issuance and warrants on 3 January 2014. Assuming it is approved during the EGM, do expect to prepare for your subscription by end of the month of January.

From Proton Perdana, you basically know how far DRB can go

I have nothing much to comment here except recommending you to read the article from Paul Tan's blog. And be a little bit critical in your thoughts. Of course Paul Tan is not going to be saying anything negative as his livelihood is dependent on blogging - me? No.

One can just walk into any of the Honda's showroom if they still have the model in display to judge how far the difference the one provided to the Malaysian government versus the current Honda Accord model. I believe Honda is coming up with a new model soon as can be seen through here.

DRB-HICOM has many hidden assets but that remains to be it. Proton will be the largest achilles heel while juggling to be a conglomerate, with many diverse interests at the same time. It will continue to recycle Persona, Saga etc. and not able to come out with much of a new product.

The larger car manufacturers - Toyota, GM, Ford, VW - are producing new models in double digits, while Proton is struggling with one a year. In a globally very competitive market, it is of no use to continue with the car project except for just being stubborn, as it is not even a national car project.

Looking at Inari to understand Insas (Revised)

This is an update after a highlight from one of the readers. Thanks

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Anyone who puts in money in Insas over the last 4 - 5 months would have made decent sum - increase from RM0.50 to now RM0.94, which coincidentally was about the period which I wrote about the company. In this particular article, I wanted to know what makes the sudden rise in the stock price whereas it has been in trading in the RM0.40 to RM0.60 for a long time.

I wanted to know what type of character are behind the owners. As in my previous article, again not much can be known except that it is led by a careful investor, Datuk Thong. To do this, I would like to take a look again at Inari. Inari is a hugely successful invested company made by Insas and I would deem it to be successfully managed by the group of management. Insas has about 36.6% of Inari and on top of that it has about 16% of its warrants. Those holdings in Inari alone is worth about RM292 million according to Inari's price todate.

Inari Amertron is involved in EMS business. Just for knowledge, the largest EMS company in the world is Foxconn or Honhai which many people know manufactures for Apple and many other companies. To provide a simple analogy, EMS is something which some technology companies do not want to deal with as many of these companies largely concentrate on the technology aspects, hence phasing out some of the work to specialised companies like Hon Hai (for Apple). Inari is such for a company called Avago.

Avago, a spin offs from the old HP company and is hugely successful in having a large penetration supplying power amplifier chips and other technologies to most of the smartphones and tablets companies. As smart phones' penetration continues to grow, Avago as expected flies. Similarly, Inari riding on that wave as a contract manufacturer for Avago is enjoying that as well to the extent that its share price becomes one of the most successful IPO of recent times.

Inari's price chart since IPO

I know that Inari is doing well. But I wanted to probe further as I also wanted to know is there any action taken to take advantage of the over-exuberance towards the company. While Avago and Inari are performing, it is a business which I am not able to gather my thoughts or foresee over the next 5 years for example. It is a business which is largely dependent on orders and contracts. Apple's iphone and ipad, and Samsung's Galaxy or HTC's line of products may be using Avago's technology now. This things, as we know can change, which is why over the longer term it is important for Inari to not be overly dependent on Avago although it has been a very good partner.

A look at its financials can be done to sometimes ascertain that.

Based on the above numbers, it is pretty solid with good revenue and PAT growth. Against its free cash flow however, Inari does not seem to be doing that strong. I can partly understand however as one will need to invest quite substantially for it to grow as a EMS player. This I believe is warranted.

PAT and GP margin for last 9 quarters

I would be a little bit careful of this numbers although it is a registered audited number. Looking further into its 2Q2013 quarterly announcement, I felt that its statement was too bullish. It mentioned that its margin improved substantially due to economies of scale as provided below.

Would Inari be a good buy for the future and how about Insas? As mentioned before, Insas has some intrinsic value where as a investment company, it is doing decently well. To how much would the shareholder be providing value to its investor, that very much remains to be seen.

Inari, on the other hand would still be very dependent on Avago while Avago would be dependent on its technology for the smart phones and tablet industries. That is a lot of "IFs" I would say and looking at its share price todate, if one is to still jump in - I just have too many questions still. It is now priced at close to Globetronics market capitalisation and how it achieved this is just too strong for a EMS player.

Nevertheless, if it is able to achieve that momentum, the current traded price is still attractive.

Maybe it is one reduction in subsidies too many

Malaysians are never taught to plan for ourselves. When we are encouraged to save, the government created EPF for the private sector employees and basically put it to rule that every employee is to have 23% of his salaries into EPF as a savings. When we are to pump petrol, it does not matter which petrol station as all petrol stations have the same rate for RON95 for example. When we are to do financial planning, the take is that the money should be invested into PRS or some unit trusts scheme when many of the funds have yet to proof that they can be overperforming the market for a long period of time. Now, my question is, who is to decide for the people that unit trusts is to way to go. I have no complains as currently, I am happy to reduce my personal income tax and to just recently put RM3k into a PRS which I am not sure will perform.

(Let me put this test to you for your thoughts: name me one fund manager you know - other than the names of the fund management companies like CIMB, Public Mutual etc. as the ones that invests your money is the person not the company!)

Seriously there are incentives which should not be there and similarly, subsidies which should not be there as well. But yet, I am just wondering with first the petrol price hike of 20 cents, then the GST announcement which is supposed to be implemented by April 2015, and then the hike in quit rent for KLians, we are now burdened with hikes in electricity bill. Is it one hike too many at such a short period of time.

I can understand the logic behind some of these hikes (or reduction in subsidies) as I am (and still) supporting the GST implementation, but wouldn't it be one hike too many. As mentioned, we are never taught to be planning for ourselves. The government knows best mentality has been planted into the mind of the rulers or policy makers. The sudden hike in too many areas, I am afraid will just allow profiteers or businesses to increase the price of their goods hastily, out of greed.

A case in point, I had just visited a "yongtowfoo" store in Ampang, and to my surprise, the increase from the last time I visited (maybe a year ago to last weekend) was from RM0.90 to RM1.20 per piece i.e. more than 30%. Frankly, I am not able to figure out where did this come from, when we have yet to experience the real increase in electricity and GST as yet.

Price increase as we know can be a chain reaction. Petrol and electricity price increase may cause a lot of other stuffs to increase from food to transport to rental to construction and other related services as companies may need to increase salaries now beyond the usual threshold. Will inflation be a concern? We do not really need some of the fancy stuff like increase in BR1M or some of the tax incentives like the PRS.

I am baffled as it is again the government that decides they should be providing the RM650 to the above 60s, some monetary incentives to the youth generation, income tax savings which probably benefits a handful of fund managers only, while telling the general public that putting their savings into long term PRS is the way to go for old age. While trying to be the decider on where we should be saving and spend, it is not allowing enough opportunities to let the market decides. I feel that what we are really facing is that suddenly the government woke up one day and realises that the country has been living on too much subsidies, and furiously trying to cut that, but yet still trying to dictate many areas of our lives. On the other hand, the people are just not ready for the sudden reduction in subsidies, as we have been spoon fed for too long.

Why Padini is the leading Malaysian fashion retailer

There is no doubt that I like retail business and I like the leading player best. Hence there is no doubt that I have bought and sold some of them - like in buying into Bonia and Wing Tai.

The thing about retailing business is that I personally felt that Malaysia is doing extremely well. I in fact like Malaysian retailing than Singapore or Bangkok or Jakarta for that matter. In Asia, besides Hong Kong, there has been some positive work done by Malaysian retailing industry and I would in fact commend the good work partly due to the government's policies for retailers.

The one player targeting the middle income group which I do get attracted to and continue to do so is Padini, so much so that I am selling Bonia and buying more Padini this time around. The latest portfolio can be found here.

Why am I calling it the leader among the Malaysian retailers? It has executed well where the other Malaysian companies have yet to really achieve. The reporting season for the quarter ended Sep 2013 is just over and although I do not want to dwell too much on the results, Padini to me has been consistently performing. It is in fact the only one which has modelled and able to achieve the hugely successful model among players like Zara, Gap, H&M, Uniqlo etc. It is successful in selling its products through its own outlet and that to me is very important as relying too heavily on retailers like AEON and Parkson would have limited its growth.

In accounts, I am just as concerned about the assets as much as the liabilities. To me, cash where how fast the business can generate cash is very important and that goes with the receivables. Through its own outlets, it is almost cash business (for credit cards transactions). The most challenging part though would be the turnover i.e. how fast is it turning the inventories to cash. Over the last 8 quarters or more, I have noticed that Padini is able to achieve that consistency, which means that it has probably been very comfortable with its strategies of maintaining a certain level of inventory while able to bring in the sales. One way of looking at that is its inventory and receivables against sales. If a company is able to find that consistencies, that's amazing.

What has been successful for Padini is however a bit of concern for Parkson as shoppers nowadays seem to get to the idea of buying from a specialized retail shop. That means, traffic is getting away from retailers such as Isetan and Parkson. That seems to happen to Parkson in its last few quarters results although I am not so sure of Isetan. AEON is slightly different though.

What about DKSH and Malaysia Airport? Malaysia's strength in the retailing business seems to benefit them as well - as there are more people transacting and more people moving around, perhaps to shop i.e. between KL, Penang or KK and any other cities. That's definitely good for those 2 companies.

My money into Keuro? Really long term thingy, and it does not seem that the West Coast Expressway project is dropping. With that, I still feel that its current price is way too low for a highway concessionaire.

Maybank Analysis Part II: Risk Exposures

In the first part of this series I looked into Maybank’s profitability. However, profits don’t mean nothing if they’re not accompanied by sound risk management practices. Just ask Citigroup, it made crazy profits when it was all rainbows and butterflies, but destroyed a ton of shareholder value when reality caught up to it. In part 2 of this series, I will look into Maybank’s risk exposures. So grab a cup of coffee and a packet of nasi lemak and let’s get started on them risks.

Credit risk:

Credit risk for a bank mainly relates to the risk of customers defaulting on their loans. We need to look at a bank’s loan write-off rate to tell if it has been managing its credit risk prudently. For the 5-year period of 2008-2012, Maybank had an average loan write-off rate of 0.75%. Public Bank’s average loan write-off rate was 0.34% for the 5-year period of 2008-2012. As at September 30, 2013, Maybank’s ratio of net impaired loans of 1.06% is manageable.

Maybank’s loan write-off rate is acceptable. However, Maybank had a net interest margin of only 2.01% (annualized) for the 6 months ended June 30, 2013. After accounting for the loan write-off rate, Maybank’s asset portfolio would be earning a pretty low rate of return. Sure, if things stay the way it is, Maybank’s asset portfolio should be fine. But what if Malaysia enters a deep recession and loan write-off rates skyrocket? There’s a real possibility that Maybank’s asset portfolio could give back all the profits it made over multiple years. It may be unlikely that Malaysia would enter a deep recession in the foreseeable future, but I only feel comfortable when investing in a company that can handle extremely negative scenarios. To be fair, we can’t pin this on Maybank. It’s the low interest rate environment that contributes to the lacklustre position of Maybank’s asset portfolio.  

Public Bank has been excellent at managing credit risks. The lower loan write-off rates should result in Public Bank being able to build up more profits during the good times and reduce the risk of many years of profits simply being wiped out by loan write-offs during tough times.  Is Public Bank’s asset portfolio great? Hell no! Its net interest margin of 2.02% (annualised) is simply too low to compensate for the risks and still earn a good return over the long-term. But that’s the fault of the low interest rate environment. Some of you may be wondering why I’m kicking up a big fuss over a 0.41% difference in loan write-off rate. Over the long-term, however, it really adds up and it can separate an average bank from a good bank. Just like how adding a slice of cheese to a ramly burger makes something that tastes alright into something awesome.

Liquidity risk:

Maybank has a very solid deposit base. Its loan to customer deposit ratio was 88.24% as at September 30, 2013. Maybank’s loan to customer deposit ratio is low and indicates that it’s in a good position liquidity-wise.

Deposits are generally a more stable source of funds than the debt markets. During tough times, a bank that relies heavily on the debt markets could find itself having trouble raising funds to meet its obligations. Such a bank may be forced to pay very high interest rates to issue new debt securities and may even face insolvency if it can’t raise the necessary funds to meet its obligations.

Maybank also has a lot of cash and investment securities that it can sell to raise liquidity. As at September 30, 2013, Maybank had Ringgit Malaysia (RM) 58.95 billion in cash and RM 107.73 billion in securities. Maybank also has RM 98.63 billion in loans maturing within 1 year. Maybank could survive an extreme scenario where 20% of customer deposits and 70% of deposits from financial institutions are suddenly withdrawn within 1 year as that would only add up to RM 105 billion. On top of surviving such an extreme scenario, Maybank would still be able to cover the sum of RM 14.94 billion in other liabilities and borrowings that mature in 1 year. Overall, I would say that Maybank has very low liquidity risk.

Side note: In investing, it’s good to be paranoid and examine the company’s ability to survive in extremely negative scenarios. Think of risks as lego men lurking around corners, waiting to rob you of your investment capital. That way you would be more careful when assessing risks.

Interest rate risk:

Interest rate risk relates to the risk that the bank’s profitability may be impaired as a result of adverse movements in interest rates. When interest rates rise and interest-bearing liabilities mature or adjust faster than interest-earning assets, profits could suffer for a while as cost of funds might increase more than interest earned on loans. When interest rates fall and interest-earning assets mature or adjust faster than interest-bearing liabilities, profits could suffer for a while as interest earned on loans might fall more than cost of funds.

I think Maybank shouldn’t be in much trouble whichever way interest rates move as its loan portfolio seems to have the flexibility to adjust to changes in interest rates.  As at September 30, 2013, 66.70% of Maybank’s loans are variable rate loans. 29% of Maybank’s total loans are set to mature within one year.

Solvency risk:

Solvency risk relates to the risk of losses causing the bank’s capital ratios to fall below the minimum requirement. This could cause the bank to go bankrupt or be forced to raise additional capital at the expense of wiping out existing shareholders.

Maybank has pretty strong capital ratios. As at September 30, 2013, Maybank has CET 1 capital ratio, tier 1 capital ratio and total capital ratio of 10.734%, 12.585% and 15.203% respectively. The minimum capital adequacy requirements that will take effect on January 1, 2015 is 4.5%, 6.0% and 8.0% for CET 1 capital ratio, tier 1 capital ratio and total capital ratio respectively. Even the CET 1 capital ratio which has the smallest buffer is 6.234% above the minimum requirement. Unless Malaysia experience some severe recession, Maybank should have enough capital to absorb losses and remain as one of Malaysia’s most stable banks.

Conclusion:

I think Maybank has managed most of its risks well and should be safe as a long-term investment if bought at a reasonable price unless something extremely negative happens like a deep recession, nasi lemak getting banned or investors start taking stock tips from sex bloggers. I don’t really like Maybank’s asset portfolio as there’s a risk that it could deliver underwhelming returns over the long-term. However, if you include Maybank’s other income sources, I guess it earns decent returns on capital.

This concludes the series, and I just want to say that it was really awesome writing for intellecpoint. I hope you enjoyed this series and that you can find the time to visit my blog every now and then. Thank you for reading and may you always sustain good returns on your portfolio. Take care.

About me: Hi, my name is Justin Teo and I run the Greedy Dragon Investment blog which discusses my stock picks, opinions on the business world and value investing principles. I passed the level 1 CFA exam and graduated from Monash with a degree in banking mid this year. I may be young and do not have any professional experience, but I’ve been investing for a few years now and I think I’m pretty good at analysing companies. But don’t take my word for it, judge me by my analysis. I’m currently willingly unemployed as I plan to work on my project portfolio for track record purposes and just chill for the rest of the year.   

Disclaimer: I’m not encouraging anyone to follow my opinions. I’m not a professional wealth manager. I may make errors in my calculations and analysis. I may choose not to follow conventional ways of calculating certain figures and they may differ significantly from the actual figures you may get using conventional formulas. Whatever investment decisions you make should be based on your own independent judgement. I will not be responsible for any of your losses.    

Side note:  Some if not all of the figures in this article are calculated by myself and may differ from the actual figures that you may get using conventional formulas. Please let me know if you’re interested in how I calculate any of the figures in this article.

Credit Card Interest Rates: What You Need to Know

This is a guest post and the opinion is strictly from the writer himself.

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Credit cards allow you to pay for everything you need: basic necessities like food, school materials, and gas. You don’t even have to carry money around. Just a piece of plastic and you’re all set. You can use it to pay not just for anything, but to almost anywhere in the world through online shopping.

There are some credit card owners, however, who apply for credit cards so they can buy big purchase-items such as a van, or maybe a trip to Europe, or just about any other thing that usually takes the average consumer months to save for. Of course, when you borrow money through credit card, you will be charged with interest rates by your bank.

Here is a lowdown on what you need to know about credit card interest rates:

1.     APR (Annual Percentage Rate)

This is the charge you get when you fail to pay your monthly charges in full. Not paying your credit card balance for the month will result in your balance being carried over to the next month. When this happens, you will incur interest charges for the outstanding balance you did not settle last month. The APR can rapidly increase without you realizing it when you’re not careful. To prevent APR charges in the future, make sure to pay the full amount of your credit card bills every month.

2.     Annual Charges

          Credit cards will normally require you to pay a fee for each year that you use them. Some credit card companies waive their annual fees for the first year as part of their credit card promotional offer. For these types of credit cards, you can start paying when you reach the second year of use. Annual fees can cost anything from RM38 to RM800.  

3.     Balance Transfer Charges

        Balance transfer fees will be charged to you when you want to lower the interest rate you’re paying by switching to a new credit card because the credit card you currently own charges you with high interest rates. By switching to a new card, your interest rate can temporarily be turned to zero for the first year. You will also incur balance transfer fees when you own many credit cards, and you want to simplify payments for all of them. You can then pay for your outstanding balance for all your credit cards with the use of just one credit card. Balance transfer fees can charge you a minimum transaction fee of 2% or higher, as it will be based on how much balance you want to transfer. In doing balance transfer transactions, you should remember that the outstanding balance you can transfer can be limited by the credit limit capacity of your new card.

4.     Cash Advance Charges

         When you absolutely need cash, and you have no other options available, sometimes you may be tempted to make a cash advance on your credit card. This is when you withdraw cash from your credit card account thru an ATM machine. The interest rate for these kinds of transactions is normally around 4% of the cash amount you have withdrawn. It can also charge you a fixed fee for cash advances–whichever is higher. Interest rate charges for cash advance transactions are not fixed, as these can also be based on how long it will take you to settle your cash advance loan.

5.     International Transaction Charges

-          These additional fees are charged to you when you travel abroad and use your credit card to pay for meals, rides, shopping and so forth. Call your bank before traveling to learn about the international transaction charges. International transaction charges usually amount to approximately 3% of what you pay for across the seas.

6.     Overlimit Charges

     Surpassing your credit card’s limits also comes with additional charges. Although the interest rate charge is low, it is still money wasted, so better control your spending and try not to exceed your credit limit.

7.     Underpayment Charges

-        When you pay your monthly credit card fees, make sure you are paying the minimum amount required or more than the minimum amount required. Paying less than the minimum will lead to an underpayment charge. This will be added to the regular interest rates you normally incur.

Owning a credit card comes with the responsibility of paying on time and paying beyond the minimum amount required every month. Learn about all the interest rates that come with owning a credit card such as the APR charges, annual charges, balance transfer charges, cash advance charges, international transaction charges, overlimit charges, and underpayment charges so that you can avoid paying for all these in the future.

About the author:

This article was prepared by Compare Hero for Intellect Point. Compare Hero is Malaysia’s leading credit card comparison website. Compare a broad range of financial products, from credit cards to insurance plans. 

When the tide gets low ... Part 2

Market will readjust by itself, but many times over the short term it may act irrationally. When times are good, you will see companies issuing bonus shares, splitting, some exercises to make their companies become more attractive - however those exercises do not construe to any particular intrinsic value improvement.

I can talk about bonus shares, shares split but they are just an accounting exercise. Coincidentally, 2 companies that I have invested in Wellcall and Oldtown are succumbing to those - which leads to nothing much. Overall, the most basic thing is the valuation - PE ratio, cashflow and other more fundamental stuffs.

The most recent trick to make their shares even more attractive and yet very misleading is issuance of warrants but without anything else followed by it. During school days, I was taught or learned that warrants act as a sweetener in case the company is doing a rights for example. Issuing warrants here though without any other issuance to tag with (hence pure additional warrants shares) is just an exercise to make the owners rich and speculators seemingly stupid at following their game plan.

The last 2 times I saw that in Instacom and more recently EA Holdings issuing warrants without rights is displeasing. In fact, I feel that SC has to check on this and relook at this policies. Why do companies issue warrants only? Enrich themselves - the owners. There is no real benefit to the company and no real commitment from the largest shareholders. They do not want to commit to putting more monies into the company through rights if the company needs money. What they want is issue the new warrants - push up the shares. Step 2 - sell the warrants to some freshies (new players) whom are just happy to follow the trend.

Don't believe me? Look at Instacom's owners - how long since they issued the warrant to then dispose off those warrants.

EA Holdings is another. One can have a look at the share's trend.

I remember I did provide the warning signs 1-1/2 years ago. My fear during then on EAH was right smack accurate. Chances are the net effect would be more people will lose money if they are followers than those who gained from the speculation. You can see it through the company. But yet gambling is into many peoples blood. They don't do the check first, then invest.

Seriously, the way the market is being treated and approached, it is getting dangerous. Another example, Sumatec - a company which has nothing but a MOU with a vague oil and gas business proposition but yet may be worth close to RM1 billion is just insane!

When the tide gets low, you know who is swimming naked

Warren Buffett used to say this and I like this particular quote by the oracle the best. It basically says that among the competitors in the industry, you only look for the best and during good times, it is hard to identify the best because everyone seems to be doing well. This happens to many of our Malaysian companies in several industries - among them oil and gas, banks, properties etc.

However, recently one industry seems to have some challenge i.e. the palm oil industry - and yet they are still enjoying good market price although it has dropped from RM3,100 to some RM2,300 per tonne.

In one of my early article during FGV's IPO, I was warning that yes FGV has one of the largest landbank among the palm oil guys but we do not really value the company based on that. What should be looked at is the efficiency in terms of processing and as what I have thought FGV is not one.

3Q13 results for FGV

The recent drop in palm oil price has not even reached a bad level and we know that economies will not stay positive all the time. But look at what FGV has suffered. Imagine, what would happen if palm oil price drops to below RM2,000? It won't happen? I don't know, but when other palm oil companies were just experiencing some 20% drop, FGV is suffering much worse.

The quote by Warren Buffett has its relevance for all industries and one is to take note as we are seeing many companies have been enjoying for a long time. Good times does not last forever.

Analysis of Maybank Part I: Business Performance

This is a guest article and the opinion is strictly from the author.

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I love the banking sector as long-term success really hinges on management’s ability to both effectively allocate funds to generate a decent return as well as manage risks prudently. In this series, I will be analysing Maybank to see if it would make a good long-term investment. Part I of this series will cover Maybank’s business performance while part II will look into Maybank’s risk exposures and valuation. Is Maybank the addictive nasi lemak kukus that people line up 20 minutes for or the 2-day old basi nasi lemak? Let’s find out.

Maybank achieved returns on average assets (ROA) and returns on average equity (ROE) of 1.23% and 14.11% respectively for the 6 months ended June 30, 2013 as compared to Public Bank which achieved ROA and ROE of 1.42% and 20.95% respectively for the same period. Maybank will be benchmarked against Public Bank as Teh Hong Piow just has the secret recipe for making an awesome bank. There are 2 main reasons why I think Public Bank has a higher ROE than Maybank:

1)     Public Bank is more financially leveraged than Maybank as evidenced by its lower capital ratios. As at June 30, 2013, Publick Bank’s tier 1 and total capital ratios was at 10.823% and 13.196% respectively while Maybank’s was at 12.152% and 14.763%  respectively. While higher financial leverage may result in higher ROE, it can also make the company more exposed to insolvency risk.

2) Public Bank has a significantly lower operating cost structure than Maybank. Public Bank had an efficiency ratio of 0.42 while Maybank had an efficiency ratio of 0.58 for the 6 months ended June 30, 2013. The efficiency ratio can be thought of as the number of cents in operating expenses incurred to earn each Ringgit (before taxes). In Public Bank’s case, it has to spend around RM 0.42 cents in operating expenses to earn RM 1. I heard rumours of how Public Bank has the traditional Chinese businessman kiam siap (penny pinching) style of management which is really awesome if you’re a shareholder. I know that my main man Warren Buffett digs a culture of frugality, especially in a commoditized business such as banking.

Maybank’s net interest margin is line with that of Public Bank. Public Bank had a net interest margin of 2.02% while Maybank had a net interest margin of 2.01% for the 6 months ended June 30, 2013. While Public Bank earns a higher yield on its loan portfolio and investments, Maybank has a lower cost of funds.  Maybank’s cost of funds was 1.47% while Public Bank’s cost of funds was 2.19% for the 6 months ended June 30, 2013. Maybank’s and Public Bank’s yield on average earning assets was 3.35% and 4.11% respectively for the 6 months ended June 30, 2013. All said and done, I prefer Maybank’ position as a lower cost of funds is a straightforward advantage while a higher yield could result in a higher charge-off rate. I will look into the charge-off rates of both banks in part II of this series as it relates to their ability to manage credit risk.

Maybank has done well in terms of growing its deposit base. Maybank experienced customer deposit growth of 7.30% over the 6 month period ended June 30, 2013. Maybank also grew customer deposits at a compounded annual rate of 11.28% for the 6-year period of 2007-2012. Deposits are a much more stable source of funds to expand the loan and/or securities portfolios. Banks that rely heavily on debt securities to fund their operations face the risk of not being able to meet their obligations during tough periods when liquidity dries up in the money and capital markets. We’ll look at Maybank’s liquidity risk in part II of this series.

While not great, Maybank’s ROE of 14.11% is still respectable. Charlie Munger (Warren Buffett’s badass partner) once said: “Over the long term, it's hard for a stock to earn a much better return that the business which underlies it earns. If the business earns six percent on capital over forty years and you hold it for that forty years, you're not going to make much different than a six percent return - even if you originally buy it at a huge discount. Conversely, if a business earns eighteen percent on capital over twenty or thirty years, even if you pay an expensive looking price, you'll end up with one hell of a result.” If Maybank is able to sustain a ROE of 14.11% over the long-term, I think an investor would do very well holding on to the stock.

If we go back to the nasi lemak metaphor, we can establish that both Maybank and Public Bank are decent tasting (Public Bank tastes better but not by a huge margin). Not worth lining up in the rain for, but definitely something I won’t mind eating once every week. However, just because something tastes alright doesn’t mean it won’t give you the runs, you need to make sure the ingredients used are not of inferior quality. Join me in part II of this series where I will look into the risk exposures of Maybank to find out if the stock is a sound long-term investment. Thank you for reading and I hope you can find the time to pay the Greedy Dragon Investment blog a visit. Take care.

About me: Hi, my name is Justin Teo and I run the Greedy Dragon Investment blog which discusses my stock picks, opinions on the business world and value investing principles. I passed the level 1 CFA exam and graduated from Monash with a degree in banking mid this year. I may be young and do not have any professional experience, but I’ve been investing for a few years now and I think I’m pretty good at analysing companies. But don’t take my word for it, judge me by my analysis. I’m currently willingly unemployed as I plan to work on my project portfolio for track record purposes and just chill for the rest of the year.   

Disclaimer: I’m not encouraging anyone to follow my opinions. I’m not a professional wealth manager. I may make errors in my calculations and analysis. I may choose not to follow conventional ways of calculating certain figures and they may differ significantly from the actual figures you may get using conventional formulas. Whatever investment decisions you make should be based on your own independent judgement. I will not be responsible for any of your losses.    

Side note:  Some if not all of the figures in this article are calculated by myself and may differ from the actual figures that you may get using conventional formulas. Please let me know if you’re interested in how I calculate any of the figures in this article.