Will the value of Grab drop because of this?

We know that Grab has put its focus on Indonesia, so much so that the Malaysian founder Anthony Tan moved to Indonesia as his base. This is because for Grab, Indonesia is such a huge market that it cannot ignore. Singapore has lured to be the first base - but the country's size and market is not attractive enough despite the $$$ offered. Malaysia has tried to reach out to him for several endeavors but I have been made to understand that he ignored Malaysia as he thinks that Indonesia will make him his billions. Not the wrong thoughts. Until...

Well, then the latest news, is that Grab's biggest competitor in South East Asia, Gojek's founder has been asked to join Jokowi's cabinet. We know who is the preferred son then. Do we believe that Gojek's founder is going to be impartial?

Well, the moral of this story is there is no such thing as adopted country or adopted sons.

Back to Malaysia, if the country is not supporting its own business people, so who do we expect to get support from. Indonesia's Jokowi has done so much for its own business people, such as the current ambassador to Malaysia is actually the owner of Lion Air and indirectly Malindo. There is this thinking that at one point of time, Malaysia's government does not mind to bring Lion Air into Malaysia to suppress Airasia. If MAS cannot do it, bring another competitor. If one country is not strong enough, borrow the strength of our neighbor.

Moral of the story, if they are vocal, shut them down, invite our neighbors to stop our own people. It is allright to do that. After all, our neighbor's children are better.

Malaysia is the best. One of our Ministers, went all the way to invite Gojek into Malaysia, with red carpet and open all doors. There is no better country who invite foreign businesses with open arms than Malaysia. We are the most meritocratic when we do not need it. When we need it, we did the opposite.

Lessons learned. No country is fully open for business. They will support theirs - i.e. their people born and bred. Huawei (China), Samsung (Korea), Lion Air (Indonesia), Boeing (US), rapeseed oil (EU). Do these companies or industry serve as an example?

What then, Malaysia?

Why Airasia is winning its local fight and that's hugely important

I have not written on Airasia for a long while, as over the last 18 months, its business has taken a strategic operational direction change. The group has moved into not owning its planes largely, getting hugely aggressive in its digital initiatives. I have to admit, it is hard to measure its digital initiatives when in the market we have Grab which was valued at $14 billion while Airasia as a whole is barely $1.5 billion.

At the same time, Airasia which is operating in markets such as Malaysia, Indonesia, Thailand, Philippined, India and Japan is growing aggressive. By not owning planes, it has rooms to grow more aggressively as long as it can keep its operational cashflow strong. This is what Airasia has been able to do despite growing strong. As an example, its operational cashflow for last 2 quarters combined was RM1.252 billion. Assuming it can keep up to the trend, the business is operating at close to 3x Price / EBIDA or Price / Operational Cashflow.

Without the high spending on capital expenditure as it now do not buy planes, the price it is trading at is hugely attractive. As a result, I am not sure why most analysts are putting down the price of the company.

Airasia's biggest tradeoff actually is the weak Asian currency (except for Thai Baht) as its leasing and fuel costs are in USD. The good part is that all its competitors are facing the same situation. Scoot, one of its closest competitor may have a slight advantage as SGD seems to be stronger and its parent flies globally where it can earn USD and Euro.

However, those are not the biggest factor to Airasia. I seem to think that Airasia, with its management can control its ownself if it is operating in an environment that is based on free competition i.e. open skies. Airasia, unfortunately is not operating in this environment. To sum up its founder closely, Airasia is operating in a hugely regulated environment. To make matters worse, the airports operations in this region is largely monopolised and regulated.

In the past, and up until today, Airasia's largest base is KLIA2 and it is not getting the support from its airport partner. If I am a Tesco, and I rent 95% of the space and bring 97% of the traffic to my property owner. However, I am consistently in dispute with my owner, how would investors think. My owner consistently would like to increase my fees. I have no other options as airport operations license is given to only one operator.

Even then, I am still able to turn a decent profit. We have MAVCOM which was created in 2015 and it seems to think Airasia's business concept is the same as other airlines. MAHB seems to be able to understand Outlet Mall concept as it ties up with Mitsui to operate one, but when comes to airports it is not able to think so. Emirates and Qatar Airlines does not mind paying for a premium service equivalent airport, but Airasia does not mind the no-frills airport. The food outlets are the added convenience - not as a mean to attract traffic. This thinking is conveniently ignored by MAHB.

The National Transport Plan is working to readdress the situation. It is recognizing the impact of a low frills airline and has plans to consolidate the regulators i.e. Civil Aviation Authority of Malaysia (CAAM) and MAVCOM.

Hopefully that is a beginning for a locally developed airline that one that is able to expand overseas to have a good local base. Just like many huge international companies getting their government to support them in their own countries so that they are strong enough to grow beyond its home.

Market is idiot to treat all semiconductor companies the same

The world's semiconductor market is a $400 billion market. Thank goodness, some of the Malaysian companies and economy is in the play. A large part of the Malaysian semiconductor industry though is dependent on foreign companies such as Intel, Agilent, First Solar, Infineon. The real serious local companies only comprise of not more than 100 companies. The ones that are listed on Bursa Malaysia and seriously in play may not exceed 20.

Just take a look at China's exports below, which electronics have been the largest by far. The trade war is about semiconductor and its related industries (or larger context, technology per se) war. Electronics and electronics related products probably comprise 40% of its exports. 

"The following export product groups categorize the highest dollar value in Chinese global shipments during 2018. Also shown is the percentage share each export category represents in terms of overall exports from China.

1. Electrical machinery, equipment: US$664.4 billion (26.6% of total exports)
2. Machinery including computers: $430 billion (17.2%)
3. Furniture, bedding, lighting, signs, prefab buildings: $96.4 billion (3.9%)
4. Plastics, plastic articles: $80.1 billion (3.2%)
5. Vehicles: $75.1 billion (3%)
6. Knit or crochet clothing, accessories: $73.5 billion (2.9%)
7. Clothing, accessories (not knit or crochet): $71.4 billion (2.9%)
8. Optical, technical, medical apparatus: $71.4 billion (2.9%)
9. Articles of iron or steel: $65.6 billion (2.6%)
10. Organic chemicals: $59.8 billion (2.4%)"

If US, and probably Europe in the future is to reign on China's strength in technology related sector, a large sum of these businesses is going to move to countries that are to pick them up.

Vietnam is going to be the largest beneficiary. Singapore will not. Malaysia will benefit partially, but we need to know which company will benefit from it. If we look below, we are just playing every company in the semiconductor list. I have seen that the market have been excited about the better pick up in Iphone 11 sales, hence Inari's shares have picked up. Are we looking that short term? Is Inari mainly only produces its chips for IPhone?

Let's look at where in the value chain is Inari. Who does Inari sells to? And to which value chain it is in. Inari sells to Broadcom, Osram largely. These companies a portion of it sells to companies in China or Chinese companies and they are most of the time assembling their products in China. These products are sold to US and many parts of the world. That's why packaging companies are assembling semiconductors in package format. Many of Broadcom's components are not substitutable. If there are, high chance it is another US or European company.

But, China is working very very hard to make themselves. I cannot see Inari to be exciting as they are supporter of American based companies. China, if they can will try to avoid.

Let me put in this perspective. No semiconductor company if they are substantial in size, can be just dependent on one country. I have heard of China, because of the threat from the trade war has asked its companies to support Chinese companies first. Hence, the Chinese manufacturers are looking within then only external. Usually, in this scenario if they can find substitute, they will buy local. Only when there is no substitute, they will have no choice but to buy foreign. On the other hand, foreign companies that have been having products manufactured in China, will want to look for other alternatives.

Why I like box-build companies

Unlike Inari for example, which is dependent largely on Broadcom, many of these box build companies are more spread out when comes to its customers base. They can build for US. They can also build for Europe. When US is threatening to impose 25% tariff, and they have done it, many companies will look beyond China because the final product after VS Industry or PIE Industrial have produced will be shipped to US. That is where the 25% is imposed - after VS has manufactured and put them in the corrugated carton box - and later sent to US.

Today, if I am a big size manufacturer and doing assembly out of China, some of these companies may want to approach me. 

If I am a company that my product is sent to China for it to be assembled, I may be suffering. If I am doing something where my work or product can be replaced by some Chinese companies, I may be suffering as well - since China is working on "Buy Chinese goods first".

Remember, we have to know which part of the value chain our Bursa companies are.

Lin See Yan's take on our economy

I find that this morning's interview by BFM with Lin See Yan on the current state of the economy is pretty straight forward.

Here's the link.

PLUS is already owned by the public

I have read on the news on PLUS where the government prefers it to be acquired by the public. As it is, PLUS is already owned by the public. PLUS is owned 51% by Khazanah, 100% MOF company, and 49% EPF. We know already whose money is EPF.

Why restructure the ownership when it is perfectly fine with the ownership. The reason why potentially some government is looking at private sector is because of efficiency. I do not think PLUS is efficiently run - although this comment is up to argument.

If everything is preferably public sector to manage, then the country is getting closer to being leaning to socialism. As it is, we have been facing assets where it is too much owned by the government - and I thought the last promise in election was to reduce that.