Tuesday, June 30, 2015

IPIC's interests

It is interesting to see in the announcement that was made by IPIC on the London Stock Exchange.

We know that IPIC is part of the Aabar group which owns a portion of RHB Capital. The Chairman of IPIC is also the owner of Manchester City which as we know can just pay very high price for players to get its club into winning.

What is interesting is the below which was announced in the London Stock Exchange.


Click to Enlarge
If we read it properly, these parties - 1MDB, MOF, IPIC, Aabar signed a binding term sheet. IPIC will provide for USD1 billion, assume USD3.5 billion in principal amount of notes as well as assume all liabilities under the Notes which they are due.

In return (interestingly), as mentioned by 30 June 2016 (a year from now), IPIC is to receive transfer of assets amounting to the total of USD1 billion + USD3.5 billion and the outstanding debt forgiveness. That would amount to around USD4.8 billion?

What I am interested in is which assets that Aabar or IPIC would be interested in? The power assets? From below, IPIC was formed to invest into energy and related sectors. We know that 1MDB has 3 assets which are valuable - Tun Razak Exchange, Bandar Malaysia and the power assets, Edra Energy. But from the 3, the power assets probably meet the criteria of its investments closer. If that is the case, IPIC may become one of the largest independent power company in Malaysia. But would the power assets be worth RM18 billion? Or could it be any other assets as in the announcement it just merely says assets.


Monday, June 22, 2015

Chinese Bubble

The article on Chinese stock market which made $6 trillion in just 12 months reminds me of 1993 and 1997 in Malaysia. KLCI back then peaked at around 1300 points and of course Second Board stocks in 1996 and 1997 was at prices that were ridiculous. If one were to put their money in some of the stocks, they will not have gotten their principal money back.

Malaysian market between end of 1993 until today
Of course, for the Malaysian stocks (Bursa CI) to manage to get back to 1300 points, it took another 10 years and I can imagine that financial performance of the Top 30 stocks today are much better than those days.

There is no doubt that we will see a crash in Chinese stocks - by how much only and when. Will it impact Malaysian market - I think it may cause a ripple. Economically, will China face a downfall - that is hard to say, but things certainly do not seem good.

Shanghai Stock Exchange for last 5 years

Thursday, May 28, 2015

Has Airasia X actually improved?

The performance of Airasia X or even Airasia for that matter is very much dependent on the following factors:

  • fuel costs;
  • load factor i.e. what is the occupancy if I own a hotel; and 
  • average revenue per passenger.
It is a no-brainer for Airasia to be performing, ideally fuel costs has to be low, load factor high and of course average revenue per user should be high as well - the higher the better. This is not to say that other costs factor are not important but they are much more manageable. Typically, if one is to do a lot of promotion, average revenue would probably deteriorate while load factor would have improved, and vice versa. Hence, a good strategy would be finding a good balance - good load factor while not sacrificing on average revenue.

In accounting sense however, there is one factor that may also provide a huge variance - forex loss or gain. Just look at the forex loss or gain over the last 7 quarters. Why is the forex changes impacting it so much? Because a large costs including borrowing factor for Airasia X is in USD. In essence, the weaker its revenue based currency against USD, the worse off it would have been - i.e. Ringgit Malaysia against USD. This is basically what Airasia X was against in the past 2 quarters.

income statement for Airasia X over last 7 quarters
If I were to compare the performance over the last 7 quarters against its performance prior to IPO, I would say it has deteriorated after its IPO, but has actually improved in its recent quarters. It actually registered operating losses between 4Q13 to 3Q14 (over 4 quarters) which is a big NO. And for the last 2 quarters, that turned by it posting operating profit and that actually (I would say) improved in the most recent quarter despite the low load factor (74%) due to low advertising effort after the crash of one of its plane in Indonesia in December 2014. One should notice that the higher operating profit in 4Q14 was mainly due to much higher other income (mainly sale of aircraft and others).

Hence, in terms of operating performance, on the overall I would say Airasia X has improved despite some forex challenges that affects its financial performance. For Airasia X to be fully profitable for the year, I think it also depends on how it executes to improve its load factor while maintaining its average revenue per passenger as well as hoping that Malaysian Ringgit does not depreciate further. Lower fuel costs over the long term is also very important towards its performance.

It is however good to see that its performance in reality has actually improved as we do need a second local long and medium haul player despite the challenges.

Tuesday, May 26, 2015

What Keuro's 4Q15 results says

The latest quarterly results for Kumpulan Europlus was just announced yesterday and here are what can be deciphered.

- The West Coast project seems to be slow although it has started.
- lower contribution from Rimbayu for the month.
- adjustment for the fair value of holdings in Talam Transform is the major factor for its losses.

West Coast project

It seems that it has started to record in revenue and there are some progress in the project, albeit slow. By looking at the Other Intangible Asset (Concession Assets are intangibles under accounting standards), one can know that the amount has increased from RM139.7 million to RM158.5 million. Additionally, it has recorded construction revenue (Diagram 2) for the quarter of RM14.8 million. As one can see, previously construction revenue was rather non-existent. I am not sure whether project has been delayed or is it normal that it registers such low revenue, as it has just only begun.

Diagram 1: Assets representation for 4Q15


Diagram 2

Contribution from Rimbayu

Based on its Income Statement as below, I would think that RM3.12 million was part of the share of profit from the Rimbayu's project. The other sharing being in the forms of distributable income totalling RM2.92 million in Diagram 4. Few reasons, properties has slowed down and its progress billing was also slowed in the review period. Keuro has mentioned that the project for Phase 1 has been delivered but I doubt all have been delivered during the period. Would think that it would have spilled over to subsequent quarter.
Diagram 3

Diagram 4

Adjustment of fair value of Talam Transform

The main reason as mentioned for the losses was that provision for impairment on investment in associate. Keuro mainly only has Talam Transform as the significant associate. As depicted below, since it has already decided to sell those shares to Tan Sri Chan Ah Chye for RM99 million, I am just wondering why it devalue the investment held for sale as I highlighted in Diagram 1 above. On the books, those are now valued at RM78.5 million although would be sold at RM99 million. Is the sale not going to be completed?



All in all, I am not too happy with the disclosure by the management of Keuro on the progress.