Wednesday, April 28, 2010

Properties - Any more room for growth?

Malaysians who invested in residential properties (landed especially) would probably be laughing their way to the bank over the last 10 years of their investments - especially those in the Klang Valley, Johor and Penang. For example, a Bandar Utama 2-storey link house which was sold for RM250k - RM300k is currently selling for RM650k to RM700k, a decent >100% increase in value not to include the rental income. There are many more examples that others may highlight to me which may see even better increase in value.

I would put the increase in property value to be due to the following factors:

- interest rates - I remember when I started work during the 90s, interest rates were at range of between 9% to 12%. Now banks are offering rates at below 2% BLR - something which would have been unheard of few years ago. Today, house owners are enjoying rates of 4% effective. Problem is would this sustain? I do not think so. Today's banks are concentrating on lending for consumption which includes credit cards, housing and cars. While this may be positive for the public, it may not be good for the future of Malaysia as lending to commercial sectors are not preferred as compared to personal loan. (This is the reason why Public Bank is doing well over the last 10 years);

- easy access to credit for properties - banks are more keen to lend for properties than anything else which was also why last year in 2009, we see that financial institutions were competing for loans by undercutting each other in providing lower rates;

- longer loan tenure - remember 20 years ago when loan was for 15 years max, but today literally banks are allowing loans to be extended to 30 to 40 years which means they are probably asking your children to be pay your loan, days when you are already not having any active income;

- Malaysians have less area to invest - unlike the 90s, Malaysians today are keener to invest in properties as investment elsewhere does not guarantee positive (or as much) return as compared to properties. Stocks are not doing much headway. For example, the KLCI was hovering around 1200 - 1300 in 1996, it is pretty much the same today. What more the index is to a certain extent rigged by EPF's involvement in the market. FD rates are also very low.

- urbanization of the work force - this factor will be one of the factor that will continue to cause property prices in the urban areas to rise at above average rate.

- mentality of do not want to lose out - it is quite surprising to me that a piece of bungalow land at Setia Eco Park is selling at RM80 - RM100 per sq ft. It is next to Klang but hey to many if you do not buy now, you will never be able to afford anymore, that's the mentality of most property owners - herd.

With the above, will we see properties to continue to enjoy such boom? I doubt so as I do not think interest rates (one of the main factor) to remain this low over time. Additionally how much more can we extend the loan tenure 50 - 60 years (totally ridiculous).

The rise of properties is also dependent on the success of Malaysian economy. For the next 10 years, I do not think Malaysia will enjoy a continuous economic growth of 8% for more than 10 years.

With further increase, will Malaysian be able to afford anymore? I think it is tough, and I also feel that anymore substantial increase would be unhealthy for people here.

Why Malaysians should consider investing overseas...

Many Malaysians who have been investing for the past 10+ to 20 years would have concurred with me that although the Bursa is a little bit undervalued, we could not find much excitement here. Why?
These are the reasons why:
- Malaysian stock exchange has deteriorated from being the 4th largest in Asia (ex- Japan) in 1997 to god knows what position we are now - are we now smaller than Jakarta? - or perhaps we definitely are less exciting than the Jakarta Stock Exchange;
- Bursa is now more like a training trading ground for EPF's and PNB's fund managers;
- let me give you a question - if you are a Malaysian who would like to put your extra money, what are the chances of you putting your money in the stock market as compared to properties;
- investors (although they may not be shorter term speculators) would prefer higher volatility - Malaysian market volatile? Nehhh!;
- the last 10 years with Internet, we now have more opportunities to invest anywhere in the world especially in the more developed exhanges - for example why do we want to put our money in KFC (in Bursa) whereas we can put our money in the company that gives the license to operate for KFC Malaysia i.e. Yum! Brand in the NYSE?;
- my friends say try putting your money in UMW - I say lets be more exploratory by putting our money in the company that gives the distributorship to UMW i.e. Toyota;
- what is Malaysia exciting for? Palm? Oil and Gas? hmmmmmm...perhaps only palm oil stocks - even then would you want to put your money in Sime Darby when your EPF money has already invested there?
- opportunity to not overly exposed by holding too much Ringgit - we already hold our pension money, properties etc in Ringgit. In a globalize world, why should we be exposed to just Ringgit?
Any other reasons?

Tuesday, April 27, 2010

MASTERSKILL - Probably not worth the IPO price?

I have been looking around for alternative comments regarding the new IPO wannabe - Masterskill - in Malaysia but have not found any worth reading.

A month ago since, I've already been preempted that the market is already buzzing with Masterskill going IPO - especially CIMB (as they are the ones who are going to carry the company - of course they are supposed to say good things - and also probably they are starting to believe their own bullshit). Masterskill is the country's largest operator of private nursing college in Malaysia.

Here I am probably going to be a few who are probably going to have a negative view of this company based on following points:

- first dangerpoint in an investment - over reliance on government - 95+ percent of its students are PTPTN backed. (For those who do not know, PTPTN is a government aid to students who are pursuing tertiary education.) I am presuming that PTPTN is assisting Masterskill a lot in terms of attracting students from rural areas. These students do not have to pay from their own pockets during the tenure of their studies. But what they do not really get is that they have to repay the loan after their studies.

- The course itself is not cheap (Masterskill is charging some RM60k per student inclusive of fees, accommodation - from my calculation of revenue of RM290 million / 15,000 students which comes to RM19,333 per year hence for a 3-year course it comes to RM60k) - think of newly graduated nurses that do not earn that high to pay their loans after they graduate. It seems that to be a nurse, the tuition fees are not cheap. My source from one of the largest private hospital chain in Malaysia informed me that starting salary for their nurses is between RM1200 and they can only probably earn RM1900 with all allowances and OT inclusive.

- for a similar fee of RM40k-45k for the entire course, a student in Malaysia can probably obtain a better degree (but this of course may not necessarily obtain the loan assistance from government).

- with a PE multiple of assuming 13x - 14.5x (this is what Masterskill is asking for hence valuation is above RM1.4 billion) and PAT (2009) of RM97 million it is already going to be almost simlar in size compared to KPJ? KPJ (at current market value of RM1.55 billion) is an established private hospital group with various income stream. It does not have to rely on a single income stream unlike Masterskill - how is Masterskill supposed to be as big as KPJ in terms of market valuation? This is a little mind-boggling.

- HELP and SEGi are both currently valued at RM220 - 230 million each in the market, Masterskill is valuing itself more than RM1.4 billion? Although one may say that PE wise it can be fairly valued as against these two companies, but for how long can Masterskill maintain its momentum? Is this company one of those who has a business model that rides on the sudden surge of need as well as with a little help from Government of Malaysia, they manage to achieve certain successes for only a short period? But in the long run, will its business model that relies on PTPTN (i.e. government loans to students) sustain?

- the CEO has mentioned that they are targeting overseas expansion. I am a bit apprehensive as its business which relies on loan to local students, how much can they attract foreign students this way.

I think their asking price is way too expensive, but I may not be surprise that the take up rate can be good as they seem to market this particular IPO well, and judging from the market's excitement over Masterskill due to their story line as well as growth, the market can be excited but not me.

I would love to see how well they will do 3 years down the road. Will they be another GPacket or many other companies in Malaysia that has a loud IPO but fizzle out on its performance over time?

Update: 20 April 2012
Well! This stock is a big time failure! Dropping from RM3.50 during IPO to now RM1.16. I probably was overly careful in my analysis. If you remember, many analysts (professionals?) were giving a positive call on this stock.

Serious Investing!