Friday, August 26, 2016

Padini: Another mistake

I make many mistakes in investment and the sale of Padini is another mistake. I sold it for Airasia, which obviously was not a mistake but it was from a wrong stock sale to a right stock purchase. Padini achieves an amazing result, one that will be comparable against Airasia for this year.

I did not do enough checking. I did not go to the store anymore to look. In fact, when I saw the concept store in Mid Valley several months ago, I knew I already made a mistake. The store was full of people who shops, made payments not 1 piece of clothing but several. They collected several hundreds of Ringgit from each and every customer. The queue for payment was long.

Why then did I sell it? I thought due to the economic slowdown and GST, it will impact all retailers. Yes, it does impact AEON, Tesco, Bonia, many brands in malls but not Padini.

How did it progress so much. It went for volume as opposed to margins. The display and design was made simpler. Prices was at RM19, RM29, RM39, RM49 - hence its product went lower end. I guess due to the economic reason and its mid-range branding, this strategy works. For how long more? This is a big question. Its business went for the FOS market in fact and it beat them hands down.

If it can continue with this momentum, I would have no doubt buy again even at the price of RM2.75 (now).

When I bought Padini, I have mentioned I like its business of moving from stores to its own stores. It has managed to do well collecting all its brands under one big store. Another thing that could potentially be of advantage to Padini is that perhaps rental has stopped increasing last year due to oversupply and more purchases are made through e-commerce.

It also has very strong cashflow as can be seen from results from several years.

Well, for those who still have the stock do check them out at the physical store. Do not just look at the numbers, announcements and dividends. It is a strong company - just that whether it can keep to the momentum!

Thursday, August 25, 2016

DKSH: 1H2016 webcast

I am still holding DKSH and on private note, in fact I bought more but in small quantum. It is a unique company with very little competitors in Malaysia. The only thing is it was not performing as well, but recently in the recent quarter results it managed to do better which causes its share price to rise recently. To be frank, I was not happy with its cashflow last 2 -3 years, but I feel that there are not that many similar opportunities just like this company. In its latest announcement, it terminated a telco business and it seems it replaces the business with a smaller telco. I am not sure who, but it seems that the margin was too small, hence the termination of the bigger telco.

I am not going to provide guidance, but one will need to understand the business better. From this webcast, you will know the uniqueness of the company although it is for entire Asia.

Listen to the webcast for DKSH's 1H2016 parent. Again, to invest one will need to understand the business.

I like its business, its strength and uniqueness. As countries (Malaysia included) push for consumption based economic growth, DKSH will benefit more. In the webcast, it says DSKH takes opportunity from companies who want to turn its fixed costs to variable costs, hence its engagement with DKSH who has larger and stronger presence to any company who wants to do business in those countries. More and more companies are focusing on what they do best, hence leaving DKSH on distribution and marketing.

There were many questions with regards to its competitors and according to the Group CEO, he sees only 2 major competitors - Li & Fung and Zuellig. Zuellig has presence in Malaysia but I do not see Li & Fung.

In future, I do see however China distribution company wanting a piece of the pie here in SEA region but it is not that easy to take DKSH's strength away.

Wednesday, July 13, 2016

What to expect from a lower interest rate?

With the reduction of the Overnight Policy Rate by BNM, as seen as a surprise, I really do not see it as a surprise. As mentioned in an earlier article, Malaysia probably is growing at already a growth of below 4% as the results from the first quarter of 4.2% was due to an extra day existed for February this year.

With Brexit and many developed countries such as Japan, some countries in Europe (Germany and several others) already offering bonds at below zero rates, it is soon to bring that pressure for BNM to do the same i.e. lowering its rates.

I guess one of the issues where BNM has taken a "STAY" stance was due to the much weakened RM which caused some uncertainties over the last 12 months or more. Now that the currency seems to be stabilizing (although could have strengthened further which I hope), it is time to take a bolder move for the central bank.

What is that impact of lowering OPR?

Almost certainly, lending rates by banks will go lower by as much as 25 basis points as well. Deposits rates will surely go down as well but I do not see them going lower by that similar quantum as banks nowadays are already facing challenges getting public deposits.

At such a low deposits, people will surely and certainly be looking for alternative investments. It is just that so much uncertainties has put people into the sidelines while looking for more certainties.

At this moment, I would think the lower interest rates would create attraction for investors to look at property sector. This sector will see a double blessing. Firstly, their own loans will be cheaper and for property investors, it will now be cheaper to buy properties due to the lower rates. One thing to be careful of though is, Malaysia is already a high private debt to GDP (90%) nation.

Companies that consistently provide good dividends will certainly be preferred (if not already due to the low deposits rates) as well.

Also companies that depends on much borrowings to operate may definitely benefit from the lower interest rates as long as their borrowings are manageable. In my portfolio, those are like DKSH, Airasia, Ecoworld and even Tropicana. I do not think it will impact Keuro so much as they probably locked in their rates. The only positive for Keuro could be that costs of doing business perhaps would be slightly lower.

Banks will not be that attractive as it is already facing challenges from the low rates. The only strong point for banks is that their non-performing loans are very manageable. I would expect that banks that continue to lend to retail sector to do well.

Despite the lower OPR, what it should happen to RM, today happened a reverse. Whenever banks lower its rates, currencies will go the other way due to the less attractiveness of its rates, but it is doing the opposite for now as probably funds that stay denominated in currencies other than RM is probably buying Malaysian stocks. That seems to be the bigger impact than the RM currency in fact today.

In the long run, it depends on whether the lowering of OPR will bring enough positive impact to the Malaysian economy. That one is hard to phantom as all over the world, growth is really crawling, and it seems that low interest rates are not creating that much of an impact.

Friday, July 8, 2016

What Other Ways Can You Start Saving For Retirement?

It’s never too late to start saving for retirement right? Wrong!

Studies by EPF Malaysia have shown that 50% of retirees run out of savings after five years of retirement, and only 23% of EPF members had the minimum amount of RM196,000 in EPF savings to sustain them till 75. (That’s equivalent to RM800/month for those of you who are curious or just love numbers.)

But don’t panic just yet. Because while we may have exaggerated a little in the beginning… it’s still crucial for you to start planning for retirement right now! Here are some basic financial products and services you can look out for:

Employees Provident Fund – EPF Malaysia
This is the most basic possible means of saving for retirement for most Malaysians. Trust us, it won’t be enough if you want to live comfortably without penny-pinching in your golden years. For those who want a Shariah-compliant option, EPF Malaysia will be launching its Simpanan Shariah fund in 2017.
Tip: This is a must-have and you should let the money grow so you can pursue other means of growing your retirement savings.

Private Retirement Schemes – Private Pension Administrator
Launched as an alternative retirement savings plan for Malaysians, PRS are voluntary long-term investments that are designed to complement your EPF savings. Plus there’s the added bonus of RM3,000 tax relief every year for your PRS contribution.
Tip: If you are aged between 20 -30, don’t miss out on the RM500 PRS Youth Incentive before 2018.

Fixed Deposits – Various Banks
Ever heard of the power of compound interest? Well that’s exactly what fixed deposits (FD) are meant to be used for. Some might say the interest earned is too low or it takes too long, but slow and steady wins the race.
Tip: ‘Roll over’ any interest you earn directly back into your FDs and savings account so you keep earning more interest every year.

Unit Trusts – Various Financial Service Providers
Do consider taking up Unit Trust as a great option for you to grow your savings, as they are professionally managed investment schemes which trade in a diversified portfolio of securities or assets.

Tip: Do your homework and speak to licensed financial planners to find out how to include a Unit Trust into your retirement savings plan as well as to gain expert advice. (The advice should be completely FREE until you engage their services. Don’t get taken for a ride.)

There are many ways for you to diversify your retirement savings and there is no ‘right’ or ‘wrong’ way to go about it. Let’s put it this way, the WORST financial mistake you’ll ever make is to not even save for retirement.

This article is contributed by