Tuesday, January 17, 2017

Ekovest's new highway(s)

This is certainly a surprise. Ekovest announced not another highway that it has gotten an approval in principle but 3 highways! These highways are named Kampung Baru Link, Istana Link and Kapar Link Expressway (as below).

Before anyone got excited (me included) these are non binding agreement as mentioned above. Basically, non-binding means that it is NOT CERTAIN. However, in most situations - they do have merits for Ekovest to announce them. Otherwise, no one would go to the process of looking through a detailed project such as a RM6.32 billion highway.

Very little information (or non at all) can be found on these links - which makes this announcement a big surprise. To be honest, I did not put any projections for Ekovest to secure (or bid) for new highways as I thought the Setiawangsa-Pantai Expressway is tough enough.

My little worry is whether Ekovest has taken too much than it can chew?

Anyway, who am I to say don't take on more jobs. If this thing comes fruition, I definitely look at it as positive and it seems Ekovest is going to be the largest highway operator in the country, after UEM. Larger even than IJM, I presume (in terms of value not length).

Now, the subsidiary that received the letter is not KESTURI (which is DUKE 1 and 2 which just sold a 40% stake to EPF) or SPE (under Lebuhraya DUKE Fasa 3 Sdn Bhd). It is another company - a 70% owned Lebuhraya DUKE Fasa 2A Sdn Bhd - not 100% owned.

The name itself, signifies it may have linkage to the current DUKE. However, one point to note - unlike other highways which are all within Kuala Lumpur, this one seems like it would have to pass through Selangor (especially Kapar Link). Kuala Lumpur and Selangor is different and we know the difficulty of getting it approved on another state front as land matters are under the state government. There was one highway which was cancelled and another - DASH which is still under consideration.

Well, these are too much of speculative thinking.

Friday, January 13, 2017

FGV's delisting?

So, when you do not do well and feel that the market is not fair towards your value, what do you do? Delist. In the case of FGV, it is not that simple. It is a lot of small shareholders and some big shareholders losing money - including EPF (which is our money) I presume.

I had an old article back in 2012 where I questioned the rationale of FGV being aggressive. At that point of time, I obviously did not know it is going to be so bad even. Expected EPF to even support its shares and it happened for a period.

I am glad that EPF is the first to pull back and see what happened to its shares. Hence, the drop in FGV shares is both poor management as well as lack of support from what is supposed to be their saviour. I would not put it that bad-ly but if I want, it (the script) was supposed to be some big fund to support a listed company hoping it should sustain the share price while the company will pick itself into its supposed value. It did not happen according to script. Hey! Happened well with IHH isn't it? (Can you see that it is just a joke.)

The party that caved in actually is not EPF but greed probably from a group of managers who think that they can go and conquer the world. They have not managed to and to the extent, could not even do well in its own backyard.

Now KWAP is fearing of a delisting as if it is to be bought back at say RM3.00, they probably would lose substantial - which is probably what the article below is all about.

To be fair to this new team of managers, they probably realise that doing M&As are not that easy. Good deals is when you wait (learn that from YTL) not when you charge towards your targets.

The current situation for FGV is when it has to do a lot of revamping over the poor management in the past few years. I remember it even went to acquire a Cambridge GRAPHENE company. Who really know what graphene is? Even if it is, would FGV be in the position to execute well on the technology?

See - to clear up mess is harder than to create them. What FGV should do is to go back to basics i.e. improving yield, market exposure, partnerships etc. etc.

The fact of the matter is that it is still a substantial size organization and has the assets to put itself back into position. Prices of palm oil is also getting friendlier towards its mission. (For those who particularly like export stocks, it is an export stock!)

And the major seller (EPF) is also out now but REALLY, the most important thing for FGV is to get back to work - not being creative in exercises such as listing and delisting.

Thursday, January 12, 2017

Paramount acquisition of REAL: Private education trend

I was just reading Paramount's acquisition of R.E.A.L Education. One thing which makes me thinking is the below trend. In 2002 of 1% Malaysian student has now grown to 15% in 2013. Why says Malaysian do not have money? 15% of Malaysian kids is a lot.

I think it is a good move by Paramount i.e. it has gone defensive given that properties has its cycles.

On the flip side, however education as in healthcare has gone BIG into business - to me it is not right.

Thursday, January 5, 2017

Deutsche Bank downgrades Airasia

Deutsche Bank just downgraded Airasia to RM1.75, which is below the price of RM1.80 where the 2 founders are committed to put in RM1 billion of new injected funds. Hence, I would suggest Tony and Kamaruddin to stop the private placement and instead do a rights at RM1.75 in which case is the fair price as provided by Deutsche Bank. It is also fair to all shareholders.

I however do have a comment on his paper, he commented that fuel price has notched up 33% and this would be a concern to Airasia. Actually, he did not remember that fuel price dropped more than 50% over the last 2 years from a height of USD120 per barrel. Today's price at USD65 is still about 45% lower from where it was paying for between 2011 - 2014. As close as 2015, Airasia (and most airlines) were still paying USD90 barrel oil.

In his paper which is not shared in the article, he also says that,"

Recall that Airasia announced its Board had approved the divestment of AAC ... In its 3Q announcement, the management said this leasing business had been valued at $1 billion. We struggle a little to understand how the number is derived, given the balance sheet numbers given in its 3Q16 results.

He further went on to say, our forecast does not include the impact from the AAC sale.

Seriously, I am perplexed. For an analyst, if he is looking at the current number from AAC's balance sheet, he will STRUGGLE of course because AAC is not just about current fleet but also future planes which AAC has secured. If a new leasing company is to negotiate for new planes, they will only able to get new planes perhaps from 2019 onwards (note that MAS mentioned they want new planes but only able to get fresh ones from 2019 onwards, and this is from last year's order) and probably at not so attractive price as Airasia group as the bulk buying is not there. Airasia's group of companies would also be the one leasing the planes from AAC which makes the leasing arm all the sweeter. This includes the future - hence he is struggling as he is looking at numbers alone, not business.

Also, if he is to say, the forecast does not include the impact from AAC sale - that is weird as even if Airasia is to not sell the leasing subsidiary, value is value. It is the same as AAC is already ring-fenced. It is part of Airasia hence the value of USD1 billion is still value of USD1 billion. If it is USD800 million, then it is USD800 million. He cannot say, he has yet to look at the impact from the sale especially if one is to use SOTP as the valuation method. He has mixed up fundamental valuation against technical reasoning.

Remember, "Value is what you get, price is what you pay." Further, in valuation method, he says he is using SOTP, which I assume is Sum of The Part valuation. Which school of SOTP is he from if he excludes AAC?

No wonder Deutsche Bank is struggling!

Note: Sum of the Part valuation is a method which one will take individual company from the group example MAA, TAA, AAC, IAA etc. do valuation based on its individual subsidiary or associate, after that sum them all together. Hence, he cannot not include AAC valuation be it internally or from external parties! Technically, if someone wants to downgrade, he/she should not use SOTP as SOTP is the most optimistic of valuation being provided for any company with several substantial subsidiaries. That person should be a technical chartist as charts can provide a price (not value) out of wag.

I also would like to note that based on his SOTP method, he valued Malaysia Airasia at RM0.88 which is around RM2.45 billion (2,782,974,080 x RM0.88). On the other hand, based on market value, he values Airasia's stake of 45% on Thai Airasia at RM2.701 billion. This means he values Airasia's 100% stake of a bigger MAA at a lower value than its 45% stake of Thai Airasia. As a note, 100% of MAA's profit this year (year 2016) is 2x 100% of TAA's profit.  Again, I am perplexed, for things which should include the future, he looks at current. For things which he should also include current, he looks at future.

He also gives zero value to Indonesia Airasia - i.e. zero value for all the hard work. I should remind Tony Fernandez of the day when he bought Airasia for RM1 from DRB-Hicom. Perhaps anyone would offer that to Tony for IAA?

Tuesday, December 27, 2016

What is one question to ask Airasia?

To me it is time to be really be excited about Airasia again. At my point of writing, it has dropped to RM2.23, hence even with the addition of shares issued to both Tony and Kamaruddin, its market cap would be around RM7.25 billion. In dollar terms it is around USD1.63 billion. If Asia Aviation, the leasing arm is USD1 billion as assumed, the entire airline ex-leasing is USD630 million. Let's ask ourselves, whether Airasia is a low costs operating airline or a leasing company. If our answer is LCC, we should be focused on how it can be operating advantageously as a LCC.

It is now the largest LCC with Lion Air being the second closer competitor in the region. To me, it is no doubt that USD being strong, it will impact Airasia as a company - not because of its current costs as most of its USD costs are already hedged - for fuel and currency. What is important as a question to Airasia is

How much of its future planes purchases in terms of USD is being hedged?

In the article on the Edge today, it is mentioned by Tony Fernandez
“We are looking good. The year 2016 is set to be a record year and we will build on it [in the coming year]. We have hedged 80% of our [anticipated] fuel [use in 2017], while most of our aircraft purchases are hedged against the US dollar with fixed interest rate loans. So, our risks are mostly covered,”.

For 2017 and beyond, Airasia will be getting lots of new planes to the tune of 20+ every year. That would be in USD. If it is already hedged partially, then that's good. If it is not, then not so good although it is not fully doomed as firstly, it is competing against other airlines that are also buying in USD terms. Prices will be adjusted according to competition. Secondly, if it is selling its leasing arm, Airasia is supposed to be leasing back some of its future planes from the leasing company in USD and I am sure the sale would incorporate the future planes (bought at attractive price) which are discounted to today's valuation (in USD). I am quite sure that the current assumed USD1 billion valuation incorporates the purchase terms of upcoming planes into the leasing arm - not just its current fleet.

Hence, if we assume USD is good pricing today, Airasia should sell its leasing arm. If we think USD will appreciate further over the next 5 years, then not so good for Airasia as selling the leasing company would deprive it of a better value in Ringgit terms in future.

I am not good at seeing where USD will head in the future but one thing for sure, United States cannot be a competitive country if its USD is too strong. Its imbalance of trade would grow worse and that is not what Trump wants.

Whatever it is, I am thinking it is oversold basically due to its high foreign holdings - which is good if we want to buy cheap, wouldn't it?