Monday, August 13, 2018

3 BIG themes in the long short and medium term - Corporatisation Malaysia, Trade War, SST

The past 3 - 6 months have seen huge movement in the policies and changes locally as well as internationally which should change how we are investing in the market here in Malaysia.

Short to Medium Term - no SST on construction materials will benefit construction companies

The exemption of Sales and Services Tax on some of the construction materials will benefit the construction sector immediately. Although the new Pakatan Harapan government has terminated or postponed several mega projects, construction is still a big contributor to the country's economy. Construction is not sexy at all, but is needed to oil the economy - pretty much in most countries. Many projects have continued and some of these projects such as the MRT2, highways which was awarded last few years are still continuing. The exemption on SST towards construction materials will definitely benefit the construction companies whom have secured large contracts immediately.

I see the larger construction companies such as Gamuda, IJM, Gadang, MRCB, Kerjaya Prospek to benefit from here.

The new government is also looking at opening up tender for projects. With this, I would think the companies that have capabilities but all this while have remained second tier will probably get more jobs due to their inherent capabilities rather than connections.

As for the property companies, although it will allow their cost of building to ease, to me the overhang will still see some challenges for this sector. Some of these property companies however has been cheap and their valuation has been much below book value. To decide to invest into this sector however, will need patience.

As for toll highways, the idea for its abolishment is postponed as answered by YB Baru Bian, the Works Minister in this video. Apparently, the RM400 billion total to buyback all the toll highways is quite consistent is almost all the figures which have been shared.

The US - China Trade War

As one know, Malaysia is a huge trading nation in comparative to our size of economy. The Trade War between China and US, if prolonged will have impact to Malaysia and it is not easy to figure out how it works for Malaysian companies. I would think, in the shorter term, as long as Malaysian manufacturers can accommodate some of the demand shifts from Chinese to Malaysian companies, those companies will immediately benefited.

Some of these companies that would have benefited are the electronics manufacturers especially the Electronic Manufacturing Services and Precision Engineering companies. Examples of these are companies like Globetronics, KESM, Salutica.

Whether the Trade War will cause a global inflation and recession, it remains to be seen.

In the longer run, the continuous reduction on dependence on foreign labor will impact some of these manufacturers.

Tun Dr Mahathir as I can see is also a supporter of the technology based companies. Overall, this sector will see some revival, and for me the best way to invest in this sector is to diversify as it is quite hard to pick particular winners. Do be particularly careful though on the ones which are overdependent on certain company as well as those that have been overvalued.

Corporate Malaysia

There could be a major shift when comes to what type of companies to buy - GLICs or privately controlled. In the last 20 years, Malaysian GLICs has outgrown private companies, and I see that is going to be reversed. Firstly, there is a smaller room for these companies to grow further as whatever that can be monopolised or oligopolised would already be done. There is a very few new sectors for these companies to monopolised anymore and where the previous government's policies would not have done so.

In the next 10 or more years, many of these policies is to reverse this. And it started with Telekom Malaysia and Bernas (not listed). I foresee companies like MAHB, TNB to be affected as well. A large part of investments in Malaysian is done by EPF. They probably now have between 15% to 20% of Malaysian stocks in market capitalisation. The only way for them to continue to perform in the past was to continue to buy the large GLICs, and these companies are not cheap. For many years, they have been expensive.

The way forward to buy Malaysian stocks is to look for well run smaller to mid-sized companies and it is more so in the coming years as we try to disentangle ourselves from having large GLICs.

Friday, August 10, 2018

Go and approach Elon Musk

It seems that the idea of privatisation by Elon Musk to take Tesla private is getting more real by the day.

As of today, if we are looking at pure numbers, the valuation of $70+ billion is crazy but if we look at the future, it may not be. What's more for some parties whom would want to reboot their national car plan. It appears that Malaysia now is dead serious about having a new national car, and it is almost a no brainer that Electric Vehicle is the way to go. There is no point creating cars from the combustion engine and we are just an adopter of technology. The EV initiative will be different as there are much more to the car in terms of innovation.

The infrastructure is also needing rethink as EV cars are running on batteries. The charge stations etc. A country like Malaysia can relook at the entire scenario- never mind we do not have the money as almost on daily basis we are hearing the tricks that the old government has done to squeeze every penny from the kitty - whether it is real of not with the RM19 billion refunds on GST.

Anyway, I would suggest for us to approach Elon Musk and the only probable investment fund that can do this is Khazanah.

I would think it is time for us to rethink and reboot the mentality of sure winners in investments as if we are looking at within into nation building. Tesla is surely worth a try and are we ready with RM40 billion for a 10% stake with further local investments? Just a ball park figure.

Thursday, July 19, 2018

Buying more WCE

I have decided to purchase some 13,200 units of WCEHB. In the process, I have sold 5,700 units of Power Root for the fund.

I have held the stock, WCE for a long time since 2014 and this drop largely to do with fear of termination of most tolled highways in Malaysia, I think is overdone. There is no denying that any government of the day can do whatever they like - or could they?

More than 50% of tolled highway assets are owned by government linked organizations such as EPF, PNB, Khazanah. Those examples are PLUS Expressway, AKLEH, LKSA, SILK and several more under Prolintas. Many investors do not differentiate the difference between government linked and government. These highways are not owned by government but by the people. Best example is PLUS which is 51% owned through Khazanah and 49% by EPF. The government does not hold ownership of EPF but run the organization on the people's behalf.

By terminating PLUS without fair compensation towards EPF especially will be bad for the governance and future investment profile of the country.

WCE Sdn Bhd is indirectly semi-private and public, as I call it. 20% of the highway is owned by IJM direct, and the largest shareholder for IJM is EPF (yet again). Although it is professionally run by a set of managers, its 2nd and 3rd largest shareholders are Amanah Saham Bumiputera and Tabung Haji respectively. Besides that IJM also holds 26% of WCE Holdings, the listed company which I am buying.

In the event the government is exercising its pitch of eliminating toll highways, it will hugely impact the stock market - and not just tolled highway stocks.

At the price of RM0.75, I think the market is already putting the company on the huge assumption that the highway will not continue. Todate, WCE is 51% completed and it seems that they are continuing with the project without stopping.

On the other hand, as it seems MWE - the other 26% shareholder is picking up its shares of the additional funds - through rights - that is to be raised for the company in the next few months. If the project is affected, usually no one will inject more money. MWE is actually going private which means its company's largest shareholder is now having a larger effective stake of WCEHB.

On the merit of the highway, I do not think there is much change. The government could hold back on price toll increases in the long run which may affect WCE. I still think at RM750 million valuation, it is compensated for whatever that may be negative.

Friday, July 6, 2018

Teguran ke atas Khazanah...

On Malaysiakini today,

"Perdana Menteri Tun Dr Mahathir Mohamad mendakwa syarikat pelaburan negara Khazanah Nasional telah menyimpang daripada matlamat asalnya untuk membantu bumiputera.
Dalam wawancara dengan laman web perniagaan Investvine, Mahathir turut berkata mahu memotong gaji tinggi bos syarikat-syarikat berkaitan kerajaan (GLC)
Bercakap mengenai Khazanah yang ditubuhkan pada 1993 ketika kali pertama pentadbirannya, Mahathir berkata firma pelaburan itu ditubuhkan untuk memegang saham bumiputera, sehingga mereka mempunyai keupayaan untuk membeli saham tersebut.
"Tetapi dalam proses itu, Khazanah memutuskan ia perlu mengambil semua saham itu untuk syarikat itu dan jika ia suatu saham yang baik mengapa tidak mendapatkan saham berkenaan semasa penyenaraiannya ketika harga saham itu masih sangat rendah dan lantaran itu mereka lupa sepenuhnya tentang memegang saham untuk bumiputera.
Kecenderungan jual saham
"Mereka memutuskan perlu memegang saham berkenaan untuk selama-lamanya menjadi sebahagian daripada syarikat-syarikat kerajaan yang dimiliki oleh kerajaan," katanya.
Ini menurut beliau kerana bumiputera yang mendapat saham berkenaan memiliki kecenderungan untuk menjual saham itu dan memperkayakan diri mereka sendiri.
Beliau berkata Putrajaya kini sedang meneliti pegangan saham Khazanah dalam syarikat-syarikat tersebut dan akan menyusunnya mengikut kategori keuntungan serta mengembalikan tujuan asal penubuhan Khazanah.
"Kami perlu bersetuju untuk beberapa syarikat ini mengurangkan bilangan (saham yang dipegang oleh Khazanah) dan setakat ini kembali ke niat asal untuk memegang saham yang diperuntukkan kepada bumiputera sehingga tiba masa apabila mereka boleh membelinya," katanya.
Era lantikan politik bergaji besar telah tamat

Sementara itu mengulas syarikat berkaitan kerajaan (GLC), Mahathir berkata zaman pemegang jawatan lantikan politik mengetuai firma tersebut dan meraih gaji besar telah berakhir.
"Gaji orang-orang ini (dilantik politik) sangat tinggi dan mereka menikmati gaji tinggi tanpa ambil peduli sama ada syarikat itu membuat keuntungan atau tidak.
"Di sisi lain, kami mahu meletakkan profesional dan gaji mereka tidaklah terlalu tinggi, ia mungkin sedikit lebih tinggi daripada gaji perkhidmatan awam, tetapi jika prestasi mereka bagus maka kami akan membayar mereka bonus.
"Sekiranya mereka tidak bagus, mereka tidak akan mendapat pendapatan tinggi yang mereka dapatkan sekarang dan kami akan mengubah pengurusan supaya kami dapat melantik golongan profesional (tidak kira) sama ada mereka orang parti atau tidak, itu semua tidak penting, tetapi mereka mestilah profesional yang mahir dalam urusan perniagaan syarikat itu," katanya.
My comment
1. I did not know that Khazanah was meant to hold shares on behalf of bumiputra's. Has always thought that it is meant to be a sovereign fund which is the country's wealth.
2. Since this is mentioned, we have to be mindful of the past days of Halim Saad, Tajuddin Ramli, Samsudin Abu Hassan whose businesses were rescued by government eventually. They did not just get millions in salaries but many people know what they did. MAS, Renong, Time, UEM. Where do these companies ended up today?

3. Khazanah's dividend currently goes to the government which is used for development, operational expenses of the government. We as a country could do more with entrepreneurship but threading this is a fine balancing act between good and bad.
4. At the very least when the new government takes over today, those under Khazanah need not be rescued. Maybe except for MAS and Silterra. The Renongs and UEMs of those days were ripped apart - by business people.
5. Hence, while promoting entrepreneurs is important, we have to thread this very carefully. Many people are on the high over the new government - me included. But when "rubber hits the road", we have to be also be mindful of what we wish for.

Saturday, June 23, 2018

RM1 trillion debt: We have gotten the measurement and messaging wrong?

I like less corruption. I like the ability to change the management of the government as long as they are for the people. I like a government that is transparent. I like a government which is more truthful and not trying to spin.

My article here is to put Malaysians into the mindset to think rather than be blindly led. I have always been supportive of this government or the people behind them long before the change. But things have to be put into clear perspective.

Over the last 6 weeks, we have been bombarded with the RM1 trillion debt message. I think no one single day, we have been told and drilled that Malaysia is now a country with huge debt and we have to tighten our belt, and to show patriotism there is a a save the country fund called Tabung Harapan. To be fair, the government has also told us that the fund is not meant to repay all the RM1 trillion debt but it is more of being a message to allow Malaysian to show that we care about the dire situation of this country.

First of all, let me put this question into the mind of all Malaysians. Are we serious with the message of having a ZERO debt country. Name me a country that has zero debt. Singapore? China? US? Japan? South Korea? These are countries which we are taking as our benchmark. Countries which have almost no debt - Norway, Saudi - and we know how their wealth came from. I have not heard from their government that they want to pay off their debt.

(Prof Jomo and Zeti are in the Council of Elders. I would love to hear from them on this perspective, as they have been quiet.) So far the ones that have drilled the high debt message are the politicians - Lim Guan Eng, Tony Pua, Mahathir Mohamed. They still want to win more seats in parliament, please remember. I want to hear from the professionals. The BNM governor, ex and current and others whom have been helping the government.

We mentioned that our debt during then was about RM200 billion. Today, it is RM1 trillion - I am not going to challenge the ones used by Moody's as their record still shows our debt is RM650 billion. In fact, I have not heard from any other government that they are willing to show to people how bad is their debt situation when they are the government. Is this a manner to create confidence? As opposition, yes! Not as the ruling government.

Now, let me give a case study from our past in 1990s and now. One of the barometer to show the difference between those days and today is the wealth of Khazanah. To put into perspective, look at this link to see the history of Khazanah. From its creation in 1994, now Khazanah has Net Worth of RM116 billion and assets of RM157 billion. Back in 1994, it was probably zero in assets.

There is a difference between then and now. TimeDotCom, Malaysia Airport, PLUS Expressway, UEM, Axiata, IHH and many more were under private hands. Today, it is owned by the government and obviously it can be sold. With more assets, there is a chance that there would be more debt. One of the measurement which have been used largely to measure how much debt the country can take is Debt/GDP. Even then as above, it is not the right measurement as countries like China and Singapore for example have huge reserves. They have huge sovereign controlled assets which can be utilised when needed.

Besides Khazanah, there are several more sovereign funds which are owned by the country such as KWAP, Johor Corp. Back then in 1990s these organizations were worse off than today. Example, KFC which is now part of Johor Corp was under private hands and the good company was wrongly mismanaged.

As a country, the private savings is also much healthier. EPF is now having fund size of around RM700 billion. I believe back then it was probably around RM200 billion. The wealth of the people is also the wealth of the country.

Truth be told, our country has progressed but of course as compared to many other countries and even our neighbors, we may not have come out ahead. Generally, the world has moved on to the better. And we have to call spade a spade.

Anyone who is saying I am not fair to this government should read this where I wrote it in 2013. A spade is better off being shown as a spade. So that as the people of this nation we are better off better educated - on the economy.