Tuesday, July 15, 2014

MOL Online's IPO in Nasdaq: Must be easier sell in US

Frankly, I do not have a good feel of the company. I remember many years ago, MOL Access Portal was delisted because the company was not going anywhere despite it being an online payment system company and it was mainly selling credits at cybercafes for mainly those playing online games.

I could not really see and vision how it can grow much. Then few years ago, we hear of it buying Friendster and that was the smart financial dealing when Friendster's patents was used as a negotiation tool for a small portion of Facebook's shares. It must have been worth a lot now i.e. to the tune of at least a billion ringgit now that Facebook is worth USD172 billion (15 Jul 2014).

However news keep on prompting us that MOL Online is doing a hundreds of millions fund raising first locally and over the last few years it seems they have moved to Nasdaq. Frankly, I would have thought this company would have made at least RM50 to more than RM100 million in profits as anything less, it would not be Vincent Tan worth, or at least may not be able to raise that few hundreds of millions. It is not. At last the financial numbers are out with news claiming that it is raising USD300 million. For it to raise USD300 million, the company must be worth at least USD1.5 to USD2.0 billion as they would probably only release 20% of their shares? Maybe more, I do not know. But let me know from the below numbers, is MOL worth that much?

MOL's last 3 years P&L. Click to enlarge
In Malaysia, I would not have that buy in, as I do not really have a strong vision of how much growth the company can have. Already, it has been around for many years and online payment company has many competition. The modest operandi to operate this is not to sell through 7-ELeven or any shops but I have always thought the best way is to convert points is through your e-banking systems, ATM machines etc. Hence, I thought the winners would be the banks. If the winners are through the purchases at 7-Elevens and petrol stations, MOL would have made that RM50 million or more profits at least by now. This is because the reach that MOL and through Vincent Tan's retail reach are easy and plenty, especially in Malaysia. Banks would still be the winners as they have the best reach and marketing money. MOL would still be far behind.

Currently, MOL is already operating in many countries - Malaysia, Thailand, Vietnam, Philippines and very recently it bought some operations in Turkey (we Malaysians like Turkey now) and Brazil.

Quarterly income statement for last 8 quarters. Click to enlarge
If you notice the last 8 quarters results, the main growth was over the last 4 quarters. You see, if I have loads of cash, I can make more cash as through acquisition, I can show that the company and business grows by leaps and bounds but these are not organic growth. See above's image. If the revenue is big for especially businesses with thin margins such as MOL's business, more magic can be squeezed for profits. Why am I seeing that it is starting to make much more profits over the last few quarters when the business has been around for more than 10 years? The cashflow as below may be better reflective of its actual ability, I hope.

Cashflow for last 3 years - Click to enlarge

If your read below, most of the growth are through acquisition recently i.e. Thailand, Brazil, Turkey etc. Usually, revenue will also increase especially prior to any IPOs.

Click to enlarge

If these numbers are not that fantastic, how can it be worth more than RM4 billion as it would have been. Well, I am also reading Janet Yellen's remark during her statement to Capitol Hill today, "In equity markets, the Fed saw signs of increased risk-taking limited to small-cap stocks and biotech and social media shares.

MOL is not under any of that category though, i.e. social media or biotech - maybe it is not risky then?

However, I personally think that the space it is in is hugely competitive. The barrier to entry is huge and it will not be able to compete against many free platforms such as banks platforms, ATMs etc. when they are providing it as a service. In other areas it is competing against the likes of Whatsapp, Wechat etc. No way it can be dominant as this space is hugely convulated.

Monday, July 14, 2014

Is Jobstreet underpriced by Seek?

How can a footballer which is banned for four months, aged 27 years old be sold still at the 3rd highest price paid for a footballer ever? This is because he is one of the best despite the risk that Barcelona is taking with him potentially biting again - yes I am talking about Luis Suarez. It is very hard to find a player similar, barring the risk of further suspension on him if he bites again. Barcelona knows that they have to pay to get the best.

To get the best, you have to pay a high price, higher than fair. For a below average company, one should pay below average PE. For an average company, it should be priced at average PE. And for a top company, an above average price earning should be paid for. This is despite the price is at 29x PE. And this is what the Jobstreet's management did not negotiate well, despite they have some of the dream team of Malaysian best brains in its board. (And I am not saying Jobstreet bites)

For Seek to pay 29x PE and eliminate competition in many South East Asian countries, this is a dream come true. For a while, Jobstreet and Jobsdb are competing mainly as the top two in many countries - Malaysia, Singapore, Indonesia, Philippines.  As a football team, imagine you have all the best players after you have bought your competitors best. 

In fact - the football analogy may be different from business. In football, you can still buy many good players, to replace one top player, but in business you cannot just throw say RM1 billion to recreate another Jobstreet. It just does not work like this! And if you just do this, it will take many years - not immediately.

One cannot recreate a dominant company just like that and Jobstreet dominates together with Jobsdb in most of the countries they are operating in.

Note: I am bringing this up because Jobstreet is renegotiating the selling price with Seek.com as it seems that there is delay in Competitive Companies Singapore in approving the deal due to anti-competition law. And it seems that if the deal extends beyond July 1, 2014 - there is a right for Jobstreet to renegotiate or walk away from the deal. To me, the thing that Jobstreet is doing is right but it may be too eager to sell. It has to negotiate thinking that Seek is eliminating a key competitor - not based on fair value as in what most investment bankers will use i.e. comparative acquisition multiple.

Wednesday, July 9, 2014

CSL: Can you trust its cash holdings?

Most investors are wary of Chinese red chips stocks. It has happened in US, Singapore and more recently Malaysia. We just do not trust the accounts and we do not know how to address that. The most recent case is China Stationery where the company had one worrying sign after another:

- change of auditor - last year where Grant Thornton Foo Kon Tan resigned - one big warning sign;
- fire to one of its factories - when times are bad, a fire would partly solve it as it would have erase a lot of records, if needed to;
- resignation of directors - 1 just resigned a fortnight ago; and
- auditor's disclaimer.

When an auditor disclaim its findings, we have to read what it disclaims - as below.

Ironically, it does not disclaim the cash position of the company, in which case it is very substantial. This also points to me that after having audited through the account, except for the items above that it disclaim or basically telling people it is unsure of, the cash position is verified. Below is part of its position of its balance sheet where it has RMB2.366 billion cash or RM1.2 billion. CSL's current traded value is RM124 million i.e. 10x below its cash holdings!

 Did the fire burn any of those cash? Not possible as it would most definitely be in the bank.

Can we trust the bank statement? I don't know! As too many things have happened to the company until I do not know what to trust and that means, we have to take the accounts that the auditor signed-off as still questionable?

Monday, July 7, 2014

Khazanah buying back land from the Middle Easterns?

Rumours that Khazanah is buying back land from the Middle Easterns makes me wonder why our funds are being used to support development in Johor...If one remembers, the Middle Easterns were the early ones to back the Iskandar project but to later back off from their overly ambitious ideas. As a result of this, the land measuring about 2,500 acres as reported is now sort of abandoned or postponed to say the least.

It would be good for the development of the area for the land to be repurchased but I am wondering why Khazanah, a national fund rather than other property developers? Why not UEM Sunrise which is owned by Khazanah anyway. I am sure if the land has good value, many developers would not hesitate to bid for it. One can see this through many purchases of land recently by Ecoworld, Tropicana and even E&O but isn't it a coincidence that these purchases centered around Klang Valley or Greater KL?

Is Iskandar worth that much or is it just a lot of sovereign money thrown into but the return is just minimal. It is high time, the government start looking at ROI i.e. the true level of investments rather than just a handful of Legoland, Hello Kitty projects. One thing for sure, Singapore would not be complaining about this though...