On a holiday, I was watching CNBC Europe yesterday and what CNBC had was a 15 minutes interview with Tony Fernandes. They were not just talking about Airasia and Airasia X as well as the challenges that his airlines are facing but also QPR.
What strikes me about the interview with Tony was that, unlike some other interviews, CNBC Europe was pre-empting viewers (for some 2 hours) that Tony was to be part of the show for the day which made me stayed on to watch. Like I said, it ended up as only a 15 minutes interview - maybe less even.
Now - let's think it over - Airasia is not even a part of Europe nowadays. It does not fly to Europe anymore. He is part owner of QPR and QPR is not even a Premier League team now. But what makes CNBC pre-empting its viewers for some 2 hours not letting us know at what time the interview was supposed to happen? Tony Fernandes is a big brand himself even in Europe.
One may or may not support Airasia - due to several things that it made to its consumers - like charging for almost anything, but as a Malaysian ain't we proud that we have someone like him?
How do we leverage on his brand? How does Malaysia support him rather fight him? We embraced lesser stars aren't we? - Jimmy Choo (whom does not own the Jimmy Choo brand anymore) and Michelle Yeoh and her husband (not a Malaysian), even.
I have been on local flights every week nowadays - and the thing that strikes me is that airfares price competition has gone to quite ridiculous stage. I like it, as it allows me to buy cheap flight tickets, but I also know that it probably will not last - got to enjoy it while I can.
While I know Airasia is one of the brands controlled by Malaysians and made it big by Malaysians is facing lots of challenges from the likes of Malindo and MAS - we know that the current situation will not last. We should not give in to Tony Fernandez and his group with a silver platter. He is a furious fighter. What Airasia has is scale, speed and sourcing. If Malaysia does not turn out well for Airasia, it has the ability to move beyond Malaysia. Not MAS.
But we are using taxpayers money (for MAS especially) to fight on something which you know MAS will lose without the support of government's money. Malindo is facing the same thing. I do not know who owns the 51% of Malindo (except that it is NADI - and who is behind NADI?) and I like the price competition but not the way it is fought.
We are just fighting a war which all will lose. Consumers win for now - but somehow or rather it is very short term. What we need is a major revamp in terms of cost structure for MAS, not giving extra privilege to Malindo whom is allowed landing in Subang but not Airasia. Not the way the war is fought currently.
You can watch his interview with CNBC Europe here.
Saturday, January 18, 2014
Thursday, January 16, 2014
Thoughts on BLR replacement plan
We know that BNM is going to have a review on BLR as the lending based rate. This is because as we know the rates that are being offered for housing and other property loans especially are offered at BLR minus, some to as low as 2.5%, as I understand. This basically mean that as BLR is now 6.6% for most banks, BLR minus 2.5% - the rate is offered at 4.1% i.e. very attractive as compared to what were used to be. This very low rates is one of the main reason for properties to have moved up substantially and we are not alone - many countries are having the same predicament.
Years ago, BLR minus was unthought of as BLR was supposed to be the benchmark cost for banks - now it is not anymore as there used to be a method to calculate BLR. BLR minus would mean the banks are losing money - and we know banks would not be doing business at a loss. Hence, their costs of funds are actually much lower than BLR.
Now the issue is that if BNM is to move on with a replacement rate what would happen to all the BLR benchmark loans. Would they be changed? We know that BLR is a floating rate - hence if the costs of funds go higher, banks would be increasing their rates and our borrowing costs would go higher as well.
Assuming the benchmark is to change, what would the banks do? Would they instantly increase their rates? Would banks be fixing the rates to fixed rate (giving the borrower an option) as what many banks overseas are doing - which means the borrowers are getting at a fixed rate. How would all the loans letter of offer ("LO") be dealt with as we know rates is a sensitive thing - and I am very sure somewhere in the LO, the banks would have a clause that says they have the liberty to change the spread anytime they want.
Food for thought - as I am pretty sure BNM is already looking at this as one of the issue.
Years ago, BLR minus was unthought of as BLR was supposed to be the benchmark cost for banks - now it is not anymore as there used to be a method to calculate BLR. BLR minus would mean the banks are losing money - and we know banks would not be doing business at a loss. Hence, their costs of funds are actually much lower than BLR.
Now the issue is that if BNM is to move on with a replacement rate what would happen to all the BLR benchmark loans. Would they be changed? We know that BLR is a floating rate - hence if the costs of funds go higher, banks would be increasing their rates and our borrowing costs would go higher as well.
Assuming the benchmark is to change, what would the banks do? Would they instantly increase their rates? Would banks be fixing the rates to fixed rate (giving the borrower an option) as what many banks overseas are doing - which means the borrowers are getting at a fixed rate. How would all the loans letter of offer ("LO") be dealt with as we know rates is a sensitive thing - and I am very sure somewhere in the LO, the banks would have a clause that says they have the liberty to change the spread anytime they want.
Food for thought - as I am pretty sure BNM is already looking at this as one of the issue.
Saturday, January 11, 2014
Too much family involvement
In Malaysia, most stocks are either government controlled, EPF's involvement, or family controlled with many of the family members in the board - uncle, aunty, nephew, niece, sister, brother etc. Bonia now has 6 family members in the Board.
I am just wondering a 29 year old Dato' Sri. Quite an achievement. He must have contributed a lot to the country. Don't see that many in US or Europe except maybe Donald Trump's.
Note that Padini which I am currently holding has that same problem. Someone forgot to tell them these are public listed companies.
I am just wondering a 29 year old Dato' Sri. Quite an achievement. He must have contributed a lot to the country. Don't see that many in US or Europe except maybe Donald Trump's.
MAHB's dividend reinvestment
Just received the dividend reinvestment option from Malaysia Airport. As it is offered at RM8.06 and the share is being traded at RM8.75 as of yesterday.
It is a good option to take up. As below is the one I received. What one need to do is to put down how many units you would like to take up - in my case it is 16 units and send back to the address as in the envelope. Stamp duty not needed.
On Airport's potential, despite the challenges for 2014, I believe that with Visit Malaysia Year 2014 and more people warming to the idea of travelling either for business or leisure - they will do well.
This year is also the year where KLIA2 will open. This means that potentially low costs airlines will ramp up the number of planes that will use KLIA which is good for Airport. There are much larger retail space as well.
It is a good option to take up. As below is the one I received. What one need to do is to put down how many units you would like to take up - in my case it is 16 units and send back to the address as in the envelope. Stamp duty not needed.
On Airport's potential, despite the challenges for 2014, I believe that with Visit Malaysia Year 2014 and more people warming to the idea of travelling either for business or leisure - they will do well.
This year is also the year where KLIA2 will open. This means that potentially low costs airlines will ramp up the number of planes that will use KLIA which is good for Airport. There are much larger retail space as well.
Wednesday, January 8, 2014
Why good ideas may not have a chance to be good businesses
In US, the best internet search company becomes the largest internet company in the world - Google. Lots of money were invested into the company and they are managed and founded with among the best minds in mathematics.
Then in UK, they have people like Richard Branson whom are willing to try on lots of ideas, in many cases against difficult odds helming the Virgin brand.
In Taiwan, we also see the best of minds with great entrepreneurial spirits - 20 million people and delivering lots of technologies that makes Iphone and many other new gadgets ideas possible.
In Malaysia, we have 1 person who is so talented that he can be good at many things including distributing rice, letters as well as digital television content.
I can understand better now why banks are not interested to lend for small and medium businesses (but rather consumption loans) and why people are against GST.
Then in UK, they have people like Richard Branson whom are willing to try on lots of ideas, in many cases against difficult odds helming the Virgin brand.
In Taiwan, we also see the best of minds with great entrepreneurial spirits - 20 million people and delivering lots of technologies that makes Iphone and many other new gadgets ideas possible.
In Malaysia, we have 1 person who is so talented that he can be good at many things including distributing rice, letters as well as digital television content.
I can understand better now why banks are not interested to lend for small and medium businesses (but rather consumption loans) and why people are against GST.
Saturday, January 4, 2014
Rights, warrants, buybacks, dividends 101
Seriously, what does one expect from stocks investments? Capital appreciation, dividends, excitement - win or lose, learning experience?
Investment is a serious game. Unless, you are into it as a replacement for your weekly casino frequency, one should study the behaviour of the management, owner, company besides their financials which is equally important.
In studying the company's management, one should look at the behavioral trend of the company with their financials, which is why how these companies do their capital repayment, dividends, rights, warrants are important.
Think of companies as like running a family's expenses - whenever you need money, you borrow or ask from other members of family maybe in the form of capital investment. If you have more than enough, you will give more to your siblings, parents. You do not take in more debt if you do not need them. You do not mislead your family members that you need more money when you do not need them in order for you to buy a bigger car or a bigger house.
Similarly, rights, warrants, dividends and even buybacks are the same conceptually.
Dividends - Dividends are important when the company feels that it has more than enough money to be used for a period say more than a year and it is willing to share with you, the shareholders the extras beyond its need for operations. If it does not have enough or feel that it needs to use the money for further expansion or in anticipation of future needs, it should not be ditching out more than it should. If you follow my blog, I am wary of companies that issues dividends and yet over the short term, requesting for more money through rights.
Of course dividend is important to most shareholders, as this is a gesture that the company is showing to its shareholders that it is willing to share its extra cashflows - which is why sometimes, dividend policy is useful.
Equally useful to the shareholders is share buybacks. The flipside of buybacks is only that when the management or controlling shareholder uses it for their advantage. It is when they uses the company's financial resources to buy the shares from the market but at the same time, selling their own shares. Buybacks are good when it is used as a tool to provide support for its share price especially during high volatility and even more so, when the prices of the shares are undervalued. One should not underestimate the confidence that the management can create towards its share price especially during high volatility by doing buybacks.
On the other side to sharing their additional funds through dividends or capital repayment, is rights issue. Rights issue is when the company is asking you for more money due to their needs. As a shareholder, we always entrust the controlling shareholders to manage the money carefully - which is why one would probably wonder why I am writing an article on a company which I do not intend to invest in anyway - on its rights issuance.
In my mind, that company does not need the fund - it uses it for its controlling shareholders benefits - which you, as shareholder or potential shareholder have to be careful of. You do not give money to one who will probably misuse your money. Worse still in that case, it is not beneficial to the shareholder to not pick up the rights and it is not beneficial either to pick up the rights as the money may not be used in the right manner. The shareholders of Bright are caught in between a rock and a hard place.
Almost all companies need to reinvest or do investment. Anyone who underinvest, may lose out in the future as competition will always take opportunity on any conservative companies that do not take the more aggressive or continuous investment approach. in this case, rights are not always wrong. On that note, quite a lot of companies - Gamuda, IJM, WCT etc.- that do rights in their early days would go on to be successful as they have acted upon the rights correctly and carefully and by sharing that piece of investment needs with their shareholders. We as shareholders, can only hope their decisions are the right one.
What about warrants? Warrant is an option to pick up more shares of the company in the future. As for the company, it is a way for the company to raise more funds in the future. Warrants should not be used as a tool for the controlling holders to cash out, as that action is almost like misleading the investors - many of whom may be ignorant. Worse still if one is to buy the warrants from the market, and they end up out of the money. The warrants are worthless.
And even if it is in the money, one should think twice of exercising the warrant as putting more money into the management that you do not trust, is something which you should not do.
Investment is a serious game. Unless, you are into it as a replacement for your weekly casino frequency, one should study the behaviour of the management, owner, company besides their financials which is equally important.
In studying the company's management, one should look at the behavioral trend of the company with their financials, which is why how these companies do their capital repayment, dividends, rights, warrants are important.
Think of companies as like running a family's expenses - whenever you need money, you borrow or ask from other members of family maybe in the form of capital investment. If you have more than enough, you will give more to your siblings, parents. You do not take in more debt if you do not need them. You do not mislead your family members that you need more money when you do not need them in order for you to buy a bigger car or a bigger house.
Similarly, rights, warrants, dividends and even buybacks are the same conceptually.
Dividends - Dividends are important when the company feels that it has more than enough money to be used for a period say more than a year and it is willing to share with you, the shareholders the extras beyond its need for operations. If it does not have enough or feel that it needs to use the money for further expansion or in anticipation of future needs, it should not be ditching out more than it should. If you follow my blog, I am wary of companies that issues dividends and yet over the short term, requesting for more money through rights.
Of course dividend is important to most shareholders, as this is a gesture that the company is showing to its shareholders that it is willing to share its extra cashflows - which is why sometimes, dividend policy is useful.
Equally useful to the shareholders is share buybacks. The flipside of buybacks is only that when the management or controlling shareholder uses it for their advantage. It is when they uses the company's financial resources to buy the shares from the market but at the same time, selling their own shares. Buybacks are good when it is used as a tool to provide support for its share price especially during high volatility and even more so, when the prices of the shares are undervalued. One should not underestimate the confidence that the management can create towards its share price especially during high volatility by doing buybacks.
On the other side to sharing their additional funds through dividends or capital repayment, is rights issue. Rights issue is when the company is asking you for more money due to their needs. As a shareholder, we always entrust the controlling shareholders to manage the money carefully - which is why one would probably wonder why I am writing an article on a company which I do not intend to invest in anyway - on its rights issuance.
In my mind, that company does not need the fund - it uses it for its controlling shareholders benefits - which you, as shareholder or potential shareholder have to be careful of. You do not give money to one who will probably misuse your money. Worse still in that case, it is not beneficial to the shareholder to not pick up the rights and it is not beneficial either to pick up the rights as the money may not be used in the right manner. The shareholders of Bright are caught in between a rock and a hard place.
Almost all companies need to reinvest or do investment. Anyone who underinvest, may lose out in the future as competition will always take opportunity on any conservative companies that do not take the more aggressive or continuous investment approach. in this case, rights are not always wrong. On that note, quite a lot of companies - Gamuda, IJM, WCT etc.- that do rights in their early days would go on to be successful as they have acted upon the rights correctly and carefully and by sharing that piece of investment needs with their shareholders. We as shareholders, can only hope their decisions are the right one.
What about warrants? Warrant is an option to pick up more shares of the company in the future. As for the company, it is a way for the company to raise more funds in the future. Warrants should not be used as a tool for the controlling holders to cash out, as that action is almost like misleading the investors - many of whom may be ignorant. Worse still if one is to buy the warrants from the market, and they end up out of the money. The warrants are worthless.
And even if it is in the money, one should think twice of exercising the warrant as putting more money into the management that you do not trust, is something which you should not do.
Thursday, January 2, 2014
Beware of SHORT-TERMISM
The one thing which I noticed about the market is that how 'short-termed many investors are" and many are trend followers. Even some of the most senior and experienced investors, pretty many of them are short term in nature. However, on the contrary, many great investors - they are looking much longer term in nature - from Peter Lynch to John Bogle who created Vanguard to Warren Buffett.
These are the fund managers and investors whom would look into potential undervalued stocks, identify the opportunities early, understands stocks as business and invest early.
The thing about business is that it is never short term - entrepreneurs have to stay through thick and thin - build the business, continue to invest and reinvest - enhancing their processes, brands, customers acquisitions etc. These however are seldom practised among many stocks investors. The excitement of getting in and out are much much more exhilarating.
Why am I saying this?
For a while, I have been looking at "Latitude Tree" for example. It was trading around RM0.60 for quite a while. One would know that with the return in pick-up for US real estate, and with Latitude selling 90% of its furniture to US, it will not have stayed at around 3x PE and market cap during then of RM60 million. US still has young population, and one should know that usually younger populated country like US will have strong demand for properties, despite the setback in and resulting crash in its property market back in 2008 - 2009. Young families will one day definitely be buying its own home although they may be renting for the short term. Today, with the properties market picking back up in US, Latitude is now trading at RM2.20 - almost 3x higher than the RM0.60 back in 2011. And I am seeing much higher volume today than those days when hardly any transactions happened.
Now, on Malaysian economy - what is at danger point? One can notice that at this stage, Bank Negara, government, commercial banks are tightening lending especially towards properties, automotive purchases.
We know that Malaysia is now having one of the highest household debt to GDP among Asian countries. Surely, all the banks are going to go slow on lending especially to consumers going forward. We now have a very low NPL of 1.2%. How much lower can it go?
On the Malaysian property end, you can read many stories of how dangerous it can be moving forward with extended lending for the last few years and ease of getting credit for many consumers. Of course there are some of those who do not think there is a bubble. We do not know who is right and who is wrong. But why buy at the high? And hope to sell higher. Shouldn't one be buying low and sell high , which is a safer route?
A stock should be looked at like a business. If you would invest into a business that is worth RM100 million today and in 5 years down the road, you are confident that it would be worth in your opinion RM500 million, would you invest? What if I tell you that you are not allowed to sell and in fact, you are not able to sell because it is not a publicly traded company. Would you invest? Yes, one may say but this is not what I see in the stock market behaviour today. Many are more concerned over what is the performance in the next quarter, more worryingly next week or next month. Many investors look at today, and discount the investment that a business owner or manager has to put in.
Businesses are never short term. It definitely has its ups and downs. The problem with many investors is that with his / her investment, they expect return next month. Then they move to a new stock. But to find a good company or business that you are confident with is very difficult. The keyword here is "you are confident with" which means a lot of time are to be spent on studying the company, knowing the business to some extent, be faithful and be patient.
However, that is not what I see and many are just falling into the speculation trap.
These are the fund managers and investors whom would look into potential undervalued stocks, identify the opportunities early, understands stocks as business and invest early.
The thing about business is that it is never short term - entrepreneurs have to stay through thick and thin - build the business, continue to invest and reinvest - enhancing their processes, brands, customers acquisitions etc. These however are seldom practised among many stocks investors. The excitement of getting in and out are much much more exhilarating.
Why am I saying this?
For a while, I have been looking at "Latitude Tree" for example. It was trading around RM0.60 for quite a while. One would know that with the return in pick-up for US real estate, and with Latitude selling 90% of its furniture to US, it will not have stayed at around 3x PE and market cap during then of RM60 million. US still has young population, and one should know that usually younger populated country like US will have strong demand for properties, despite the setback in and resulting crash in its property market back in 2008 - 2009. Young families will one day definitely be buying its own home although they may be renting for the short term. Today, with the properties market picking back up in US, Latitude is now trading at RM2.20 - almost 3x higher than the RM0.60 back in 2011. And I am seeing much higher volume today than those days when hardly any transactions happened.
Now, on Malaysian economy - what is at danger point? One can notice that at this stage, Bank Negara, government, commercial banks are tightening lending especially towards properties, automotive purchases.
We know that Malaysia is now having one of the highest household debt to GDP among Asian countries. Surely, all the banks are going to go slow on lending especially to consumers going forward. We now have a very low NPL of 1.2%. How much lower can it go?
On the Malaysian property end, you can read many stories of how dangerous it can be moving forward with extended lending for the last few years and ease of getting credit for many consumers. Of course there are some of those who do not think there is a bubble. We do not know who is right and who is wrong. But why buy at the high? And hope to sell higher. Shouldn't one be buying low and sell high , which is a safer route?
A stock should be looked at like a business. If you would invest into a business that is worth RM100 million today and in 5 years down the road, you are confident that it would be worth in your opinion RM500 million, would you invest? What if I tell you that you are not allowed to sell and in fact, you are not able to sell because it is not a publicly traded company. Would you invest? Yes, one may say but this is not what I see in the stock market behaviour today. Many are more concerned over what is the performance in the next quarter, more worryingly next week or next month. Many investors look at today, and discount the investment that a business owner or manager has to put in.
Businesses are never short term. It definitely has its ups and downs. The problem with many investors is that with his / her investment, they expect return next month. Then they move to a new stock. But to find a good company or business that you are confident with is very difficult. The keyword here is "you are confident with" which means a lot of time are to be spent on studying the company, knowing the business to some extent, be faithful and be patient.
However, that is not what I see and many are just falling into the speculation trap.
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