Monday, February 28, 2011

How do you trace a problem that may appear in the stock you buy?

As in any investment, I always recommend you to do homework - be it investment into properties, stocks or even cars. Have you ever heard of property investors losing money in houses that they have bought which the developer did not complete - example some of the properties that Talam built, just to name one of them. The tip is if you ask around or look at Talam's books before making that decision to buy, you may end up not taking that risk, as they may not have the funds to finish a project.

Tonight, I was looking through announcements on Bursa since this is the final day for companies that have either March, June, Sep and Dec year-end to announce their quarterly results. What pissed me off is that as I was glancing through one of the companies that I remember approached me to raise some funds few years ago - I knew their numbers may not be real, during then. I know that these companies through accounting loopholes or rather the eagerness of their auditors to just earn fees. Or rather too many inexperience auditors around, allow this things to go through!

Here I am showing a simple example (from that company I mentioned), but yet many investors just fall into that trap.

Just look at the trend, nice results from FY2005 to FY2008, showing a healthy trend in its P&L. Then came FY2009, it shows a sudden loss (you may think probably due to the crisis.) Well I do not think so. Look further! The balance sheet or a cashflow trend would probably tell you the answer. (I normally treat P&L as the last thing to look at - however, not for all companies though.)

True enough, if you look at the receivables it is more that 1.5 times of the revenue preceding year. Total revenue last year was around RM160 million while the receivables was RM257 million. Now tell me what type of company cannot collect its debt that is already more than 1-1/2 years on average. Or probably this company will not be able to collect that debt, anyway. They could just be playing with the auditors, as these revenue were never there anyway. If it can collect, I would not be investing into a company that has poor collection record, anyway. Another big number if you noticed is the "amount due from customer for contract work" - RM360 million. I wonder who is their auditor? BDO. Not a big four, but large enough to have that probing mind among their partners.
(Well, I am not going to name this company, but this is a post to allow you not to fall into this trap. This company was enjoying a run in its share price from 2005 to 2009 - Some people may already have fallen into their trap.)

Sunday, February 27, 2011

Berkshire Hathaway's Annual Report 2010

To be an investor or any inspiring one, if you could not find the time - do still find the time in reading the Annual letter to shareholders by Warren Buffett. This usually 30+ page letter (this year the same) provides a lot more investment wisdoms than we spend months watching CNBC or even Bloomberg.

Example: talking about his management style
To start with, the directors who represent you think and act like owners. They receive token compensation: no options, no restricted stock and, for that matter, virtually no cash. We do not provide them directors and officers liability insurance, a given at almost every other large public company. If they mess up with your money, they will lose their money as well. Leaving my holdings aside, directors and their families own Berkshire shares worth more than $3 billion. Our directors, therefore, monitor Berkshire’s actions and results with keen interest and an owner’s eye. You and I are lucky to have them as stewards.

This same owner-orientation prevails among our managers. In many cases, these are people who have sought out Berkshire as an acquirer for a business that they and their families have long owned. They came to us with an owner’s mindset, and we provide an environment that encourages them to retain it. Having managers who love their businesses is no small advantage.

Cultures self-propagate. Winston Churchill once said, “You shape your houses and then they shape you.” That wisdom applies to businesses as well. Bureaucratic procedures beget more bureaucracy, and imperial corporate palaces induce imperious behavior. (As one wag put it, “You know you’re no longer CEO when you get in the back seat of your car and it doesn’t move.”) At Berkshire’s “World Headquarters” our annual rent is $270,212. Moreover, the home-office investment in furniture, art, Coke dispenser, lunch room, high-tech equipment – you name it – totals $301,363. As long as Charlie and I treat your money as if it were our own, Berkshire’s managers are likely to be careful with it as well.

(FYI, Berkshire is a USD200 billion market cap company.)

Serious Investing!

AEON - One long term investment to consider

I have always been interested with quality management, a board that respects its shareholders, a company that continues to bring value to its customers and stock holders. AEON is to me that company. (For the first look at its business, for the 2nd and 3rd look at its annual report - then you will know what I mean)

Besides consistently showing improved performance every year, it continues to provide higher dividends to its shareholders. I am disappointed that I did not notice this stock until recently.

AEON has no debt - amazingly, it continues to expand (buying land and build the stores) using its cash flow from operations. If you notice, AEON is one company that whenever it decides to operate in your neighbourhood, it enhances the property value in that area - pretty much a McDonald's trait.

It gives out good dividend as well - consistently at 2 - 3% yield depending at the share price during the period.

At the same time, it still finds room for growth. In an industry where the larger players continue to thrive, AEON is that winner. If you notice, in this space where are the Oceon, The Store, Hankyu, Hiong Kiong etc? They are gone or some almost. There are of course several players i.e. Cold Storage, Parkson or the hypermarts such as Tesco, Carrefour and Giant but AEON is one that manages to find its niche.

On the business side, I like AEON (or rather Jaya Jusco) for its neat store. You can basically bring your child and facilities for children that are offered are a lot better than other players especially the hypermarts. In this respect, you often find that it will always manages to find its space in the business. (Of course I like one hypermart out of the 3 in Malaysia, i.e. Tesco and if it is a listed company - it will interest me as well - I suggest looking at Tesco UK if you are willing to explore investment overseas.)

On the financial point of view, PAT grew from RM73 million in 28 Feb 2006 to RM164 million in 31 December 2010 - more than doubled over a 6 years performance. The fact that its performance has been consistent is important i.e. does not experience the ups and downs of a property or any cyclical counter. Having that, you can be pretty sure that it does not have to play around with its numbers as consistency counts in this stock rather than a short term view. (This blog is not about guessing what the owner, CEO and CFO wants to do with their company's stock price.)

This is one investment that you can basically have a sound sleep and do not have to guess where the real estate market is heading over the next 6 months or whether any particular bank is overly exposed to any particular sector - etc. Know what I mean!

Its current price at RM6 is not expensive and as in buying anything, you will pay decent money for a good company.

Serious Investing!

Wednesday, February 23, 2011

KFC - revaluing its properties. Is it needed?

While I like KFC as a business and brand, I hate the wastages that the BOD has a hand in wasting company's funds. Do they really need to revalue their assets? If they need to revalue because they wanted to sell the business, they can always do it once the sale is confirmed (i.e. due diligence) Just because they want to improve the balance sheet, they do this in wasting shareholder's funds. Will the revaluation change the fundamentals of the company. By doing revaluation, you think more people will eat KFC's fried chicken?

I am wondering whether anyone is related to First Pacific Valuers Property Consultant, the company that was appointed to do the revaluation.

Johor Corp must learn how to be a majority shareholder.

See the announcements below
The Board of Directors of KFC Holdings (Malaysia) Bhd (“KFCH” or the “Company”) wishes to inform that it has carried out a revaluation exercise on all its properties as per attached.

(a) Rationale for the revaluation

The revaluation was conducted to determine the current market values of all its properties as per its accounting policy where the Group revalues its properties comprising land and buildings every five years and at shorter intervals whenever the fair value of the revalued assets is expected to differ materially from their carrying value. The Group had previously revalued all its properties on 24 August 2005.

(b) Revaluation surplus

The details of the revaluation surplus/impairment losses are as per attached.

(c) The effect of the revaluation surplus on the net assets per share of the group

The revaluation exercise has resulted in an increase in the net assets per share of the Group by 11 sen.

(d) The name of the valuers

The valuations of all the properties were carried out by independent professional valuers, First Pacific Valuers Property Consultants Sdn Bhd.

(e) The date of valuation

The date of the revaluation was 15 December 2010.

Serious Investing!

Tuesday, February 22, 2011

Performance from Genting Singapore not up to expectations

Genting Singapore reported its final quarter results today. In its report,

"Revenue was registered at S$788.5 million and adjusted EBITDA was S$385.6 million.
Singapore IR contributed revenue of S$775.2 million for the fourth quarter of 2010, an increase of 6% from the third quarter of 2010. The improvement in the revenue is substantially contributed by the increase in the volume of premium players‟ business with significant contribution from USS and the hotels. There was a daily average of around 8,300 visitors to USS with an average spend of S$85 per visitor. RWS‟ hotel occupancy for fourth quarter of 2010 was 79% with an average room rate of S$294.
Adjusted EBITDA of Singapore IR for the fourth quarter of 2010 was S$389.8 million. This is an improvement of the margin from the third quarter of 2010 and is attributable to the increase in revenue. It is, however, diminished by a lower luck factor in the VIP business compared to the third quarter."

As a comparison Sands Singapore registered a USD305.8 million (S391.4 million) EBITDA. Hence, results from both seems to be almost identical.

The poorer performance seems to be the case, as while the government is attracting more visitors to visit Singapore as a tourist destination, at the same time they are trying to reduce its own people from visiting the casino that often. Seems to me the above expected performance registered in the 2nd quarter may be due to Genting Singapore was using the opportunity to make the most out of it as it was the only casino in the country during then as Sands was late to open.

Over time as I was expecting results to constantly improve at above average speed (>10%), the competition between Sands and Genting is a healthy thing as who will ultimately be winner is Singapore, the country itself. Remember, Singapore is just a small little country with its country within the city and vice versa. If you compare Vegas as a metropolitan, what was Vegas 50 - 60 years ago? Despite the downturn during the financial crisis, Vegas is the fastest rising metropolitan in US over the last 50 years! Given half what Singapore can achieve as a destination for gaming or even convention for Asia as compared to either Vegas or Monte Carlo, you will see these related businesses thriving.

This is a two horse race but both can turn out to be winners. Remember, this blog is into finding winners!

Monday, February 21, 2011

Green Packet to face liquidity trouble in 12 months time?

In a financial report, you can cheat (or disguise) a P&L or even your balance sheet, but you cannot hide your cashflow statement. I am not claiming that Green Packet (GP) disguise its financials but here to study GP, perhaps the best numbers come from the cashflow statement not the P&L.

In my previous post, I did question why companies such as GP bother to compete against incumbents such as Maxis, Axiata, TM as the telco business is a very high capex business and you need financial muscle to fight, here it is you can see that GP spent a lot for its size and almost getting nowhere:

Over the last 8 quarters, GP faced a negative free cashflow of RM770 million (a sum which is not large for companies like TM, Maxis but excessive for GP). If you notice, its current cash position is around RM172 million, but more importantly, it is facing negative operational cashflow quarter after quarter. Positive operational cashflow is what you need to repay your loan. The rate it is going, it may be some time before it will achieve a positive operational cashflow, but time is what GP may not have. (but of course unless it raises another round of fund as what it did with SK Telecom- this of course I do not know) If you look at its total borrowings, it did not move much, most probably to its inability to raise funds from the debt market.

Cashflow expenses for a player like GP are probably as follows:
  • equipment purchase i.e. PPE expenses (probably the largest in the context of GP) which includes telco tower equipment and Consumer Premise Equipment;
  • marketing and advertisement expenses which I believe depends on whenever GP has the funds;
  • costs for access such as payment to TM, TimeDotCom etc.;
  • other operational expenses like staff costs, acquisition costs.
If GP wants to remain in the business, the expenses that GP can reduce are the marketing and advertising expenses. It cannot stop expanding hence stopping the expansion of its coverage would be futile for its business and planning. How much coverage it already has is not known though (for me). By my reckoning, without inclusion of the PPE expenses, GP's negative operational cashflow is around RM20 - 30 million per quarter. Hence, if you look at the cash position against the debt that GP has, it could already be in trouble.
It is always tough to compete against incumbents that already have positive operational cashflow. GP is just squeezed in all areas i.e. size, costs structure, economies of scale, funding abilities. Any aggressive action that the other competitors take would just kill GP! And I really see that happening. Hope I am wrong, but in my mind GP just took the wrong fight!

Serious Investing!

Sunday, February 20, 2011

My top 10 wish lists to EPF

After it declares 5.8% today, I have a wish list for EPF as I know it will not be able to sustain its performance over a long period unless it changes its style of investments. Consistency will not be easy to be achieved as it now has a large proportion of its investments into equity. I do not actually mind this as long as it manages to maximise its investment.

Top 10 wish lists

  1. Move more funds overseas - be careful though. Since your fund is not small, invest in only large cap companies. Companies that are tried and tested. Invest in companies that has strong dividend track record;
  2. Be more transparent - do not just list down the top 30 stocks, provide the rationale for your investments. We do not ask for you to reveal your rationale pre-investments as you do not want to give away your planning and secrets but please provide your reasoning for your doing so post-investments;
  3. reduce your holdings of Malaysian stocks - fundamentals are fundamentals be it overseas or local. By holding more than 10% of any company or worse still holding a controlling stake will do harm to you as an investor, more so a pension fund;
  4. do not hold more than 5% of any company - be an investor rather than someone that any company deems as potentially threatening. If you hold more than 5%, companies will have to start listening to you. You do not want to be that - be a passive investor;
  5. Corporate Bonds - while today bonds may not be returning that high, do look at them and consider private sector bonds - but only investment grades;
  6. do allow individuals to withdraw our savings in EPF before 55 years of age if it exceeds RM500,000 as you will want those money in our pockets rather than you manage it for us;
  7. reduce the employee's contribution to 5% from 11% currently if a person's annual income exceeds RM 150,000;
  8. invest into assets generating income both locally and overseas - your move into PLUS is the right one. Keep it up;
  9. invest into companies that has large free float;
  10. try not to invests into companies that are family controlled.

Telecommunications in Malaysia - a sector not to be missed

When I thought of how much monthly expenses are spent on communication, I thought I should not miss out this sector.

I spend around RM430 a month paying these companies. Some may pay much lower, some may even pay much higher, nevertheless it is already a necessity. We use their services from voice to data (3G or High Speed Broadband), whereas for video content, we use Astro's services.

Few thoughts about this sector:

  1. voice has matured, with more spending on mobile rather than fixed. Fixed line usage will continue to deteriorate;
  2. data is growing, but who will be the winner ultimately. Current seems to be TM. Will they continue to grow their market share?;
  3. mobile has the Big 3 i.e. Maxis, Celcom (under Axiata) and Digi. The others such as UMobile, YTL, Redtone are just passers-by;
  4. this is a high capex game. Remember telcos are technology adopters not so much of a technology innovative companies. AT&T used to have Bell Labs which churned out tonnes of new technologies during the earlier days. Now this is not so - I remember Bell Labs became Lucent and now it is Alcatel-Lucent. Look at where Alcatel-Lucent is right now - almost animosity. Telcos are more of adopters today. Look at how AT&T, Verizon, even Maxis and the Singapore telcos are so reliant on Apple, Blackberry and recently Google to help them to push their 3G packages;
  5. since it is a high capex game, why the smaller players bother mind-boggles me;
  6. anyway I believe they are looking at the post investment effect which is the amount of free cashflow received is very rewarding;
  7. all the big boys (Axiata, Maxis, Digi and TM) are fighting over the data market share. Smaller players are also putting their effort in not allowing this to be just the big boys game;
  8. Will any player be able to break Astro's dominance? Is yes, when and who can possibly be the player?
The industry is gamed for exciting times (has always been since mobile became something big).
Here are some of the market cap size of companies in this space:

As you can see, the telco sector consists of around 9% of the total market cap - very significant. Now who will be the winner? - as my blog is trying to identify the better play. I will have more of the industry and individual company analysis of this sector.
See ya!

Saturday, February 19, 2011

What EPF did last quarter?

I reproduced and provided some additional analysis on the EPF investment numbers to study its portfolio by value. Here they are:

Note that based on the Top 30 holdings, their total investment value was RM74.76 billion. Their most significant increase in investment by percentage was IJM Corporation (+2.23%) while they sold 6.33% of RHB Capital which tells that there is a probability of EPF reducing their significance in being the largest shareholder in RHB. However, EPF remains to hold large stakes in Malaysian banks - i.e. all 4 of the Top Malaysian banks - Maybank, CIMB, RHB, Public. Talk about stocks picking! They don't do that aren't they?
During the same period, KLCI improved from 1,463.50 to 1,518.91, an improvement of 3.79%. By my counting, EPF was a net seller. (Although I may not have the full details of what they do, my analysis was based on what they report which is the top 30 investments only.) Anyway, it may be good enough to see what EPF was doing.
From their action, I would commend on them, as they were selling at the time when the investment value was on the up. (This does not mean that I agree that they put so much money in the Malaysian equity market.)
From the behavior that is reflected by EPF, would my guess of EPF being the most significant vehicle which will support the market when it comes down, while they will be selling when the market is performing better - be true?
Another barometer that you are seeing is that EPF holds more than 12% in 17 of the FTSE KLCI 30 companies (see the 2nd and 3rd column). That I would say they have their hands in a lot of our Malaysian large cap companies!

Thursday, February 17, 2011

Significance of EPF in dictating the KLCI Index

I have always been wondering the significance of EPF's fund to the KLCI Index. I know they have a big say, but how much?
In most reports, analysts have always play the importance of foreign funds in dictating the market strength in Bursa Malaysia. Those are crap actually! In my blog here, I am to show you they play a much lesser importance than our EPF. Here's why:

Based on the above, what is KLCI (Kuala Lumpur Composite Index)? It is consisting of mainly the Top 30 companies in Bursa where the composition is as per above as at 31 Dec 2010. As you can see the market capitalisation then was RM481.5 billion.
Now what about the amount of money EPF puts into the equity market, please see below:

Assuming 95% of those highlighted in yellow are invested into Malaysian market and out of that 80% are into the KLCI companies. Hence RM108.92 billion (RM143.31B x 95% x 80%) are probably invested into the KLCI i.e. Top 30 companies. (I do not have the actual numbers, but I am presuming these are pretty close.)
Now, what do you think would the % of free float be for the KLCI companies? 30% perhaps - which comes to RM481.449B x 30% = RM144.434 Billion. This hypothesis shows that EPF has a staggering 75% say in the KLCI Index. Hence who dictates the market. You and I who contribute to the EPF funds actually, and we indirectly contribute to make them look good - performance wise.
And I was reading somewhere that EPF funds is compounding at 8% per year due to more and more Malaysians are getting into the workforce as well as our pay gets higher per capita wise on an annual basis. Hence you think getting a compounding 8% at minimum for the KLCI index is difficult.
From this, I think I can be a top performing fund manager for EPF too. Does not need Shahril Ridza, who?

Wednesday, February 16, 2011

Why do I buy Top Glove?

When I decided to make a purchase on Top Glove at RM4.98, several reasons as below caused those decisions to be made:

Macro level

  1. Malaysia is a top rubber gloves producing country with our own technology as well as raw materials supply. Although there are inherent competition from Thailand and Indonesia, we are still a leading country due to mainly the quality of our product. Name me any industries that we are good at except for probably another commodity industry i.e. Palm Oil!;
  2. As far as I know there is no substitute for latex gloves and nitrile gloves i.e. syntetic rubber gloves;
  3. Demand for gloves will naturally be on the uptrend due to demand for better health facilities from emerging countries. Currently, the top gloves importing countries are US and EU. Supermax will show you that percentage of export contribution to other emerging countries are on the up. Ultimately, this is a no brainer thing unless science has found an alternative product;
  4. Besides prices of latex and raw material for nitrile gloves, all the players are on a level playing field except for quality, economies of scale, size etc. Now we head towards micro level, why Top Glove?
  1. It is the largest player by quite a far margin in terms of both revenue and profit;
  2. It has the healthiest balance sheet (net cash of >RM340 million) as compared to its other listed competitors Supermax, Hartalega, Kossan and Latexx Partners which has larger debt;
  3. If you read Top Glove's report, they have this tendency to having eagerness to eliminate competition. Example recently when the latex gloves industry was hit by high latex prices, in their report "Nevertheless, this adverse situation will possibly lead to further consolidation among the industry players and Top Glove is in a good position to further enlarge its business when the opportunities arise." I believe as any industry matures, the competition will substantially reduce. Top Glove is on the right track by virtue of its size, balance sheet and ability to absorb any negative impact on its business. At the end of the day, the glove industry will have fewer players with a handful of them with larger market share collectively;
  4. Top Glove has proven to be the most successful in growing big in terms of capacity, revenue and profit. Why do I need to choose another alternative competitor if it has already proven to us that it is the most successful;
Where are the dangers?
  1. If I am buying short term, volatility will affect the performances of these glove makers especially those large latex gloves producers. I believe Hartalega is the least affected due to their large proportion of produce are nitrile gloves;
  2. Report from Supermax says that nitrile gloves are in fact cheaper than latex gloves at this moment due to the high price of rubber. (Now this is news to me. Will the industry change to nitrile gloves?) While it may opt for a higher percentage of nitrile gloves, I believe there will not be total change. Currently, I believe the high price of rubber is due to speculation largely as in other commodities. The world now has a huge craze over commodity speculation largely due to people like Jim Rogers whom I believe hyped up commodities too much. This is bad for ordinary people like you and me. Well this is another day's story;
  3. While Top Glove is the largest player, it is not the most efficient in terms of profit margin.
I believe on both sides i.e. macro and micro, Top Glove over time will be the winner.

Serious Investing!

Tuesday, February 15, 2011

Genting Berhad vs Genting Singapore

Singapore gaming stocks (Genting and Las Vegas Sands("LVS")) have been the darling of the stock market for a while now.

Over last 9 months, price for LVS has pulled away from their other 2 competitors, i.e. MGM and Wynns. When I was contemplating, price for LVS was hovering around USD16-17. Now it is priced at USD47 a share, a staggering 176% over 9 months, mostly to do with the success of the Singapore casino. Genting Singapore (GenS) is almost similar, its price has upped from SGD1.00 to now around SGD2. Genting Berhad which owns 51.7% of GenS has increased from RM6.70 to now more than RM10.20 an increase of more than 50%. Now the question is whether Genting is still a buyable stock? If yes, should we be buying Genting Berhad or GenS.

Now let us look at GenS and its pros and cons:
  1. Direct exposure to Singapore gaming industry, Singapore government has proven to be a successful country in whatever they attempt to do;
  2. Not fully completed yet, hence it is presumed with its completion it may be gaining more in profitablity;
  3. By selling its UK casino business to Genting Malaysia, its balance sheet is now much healthier;
  4. In fact its balance sheet is much healthier than its direct competitor and foe i.e. LVS;
  5. cheaper than LVS, MGM and Wynn - the other big 3 gaming companies which have exposure in different markets.
  1. Already quite highly priced, at 20x PE;
  2. More expensive than Genting Berhad;
  3. Single exposure to a single market, hence volatility in terms of performance can be very high, very much follows the economy of Singapore where for one quarter can register more than double digit growth and another can have deficit.
What about Genting Berhad, I for one have more preference over Genting Berhad due to the following reasons:
  1. a cheaper entry than GenS, priced at around 17x-18x PE with potential for growth as well;
  2. Genting Berhad which owns GenS, Genting Malaysia, plantation, power plant and properties has more of a hedge than GenS. At the same time, they do enjoy the ride of success from the Singapore gaming sector;
  3. propensity of a higher dividend from Genting Berhad is better due to its balance sheet healthier;
  4. as a Malaysian I do not need to change to a different currency when buying Genting's stock;
  5. while I may not like saying this, it is better hedged from the management doing stupid things (or rather unfavorable things to minorities) like moving the Genting UK business from GenS to Genting Malaysia.
Globally, due to the strength of its balance sheet, I feel Genting Berhad is a better bet in gaming than any other i.e. LVS, MGM, Wynn as well as its subsi i.e. GenS.

Monday, February 14, 2011

New Portfolio - 14 Feb 2011

The below portfolio is something I must make sure I do not fail as if it fails, my kid may not have enough funds for education. :)

I will provide more details on my decision on another blog.

Masterskill - NOT that skillful after all

After my posting as below, I have gotten them right from day one:
Masterskill: Is it really that good?
FMR LLC (a unit under Fidelity Management) has been acquiring the shares of Masterskill between RM3.90 and RM4.20 per share between May to Sep 2010. Now they are selling desperately and my most recent guess is that they are selling down from RM3.80 onward to recently below RM2. Smallcap world fund has joined in the fun by selling as well. Why is FMR selling when this company has just been listed on Bursa? I guess either the investor (professional as they may think) has been conned by Masterskill or they play along with the owner, but who would you think as a professional investor would allow the public to see that they have made a mistake? On paper, they had made a mistake, hence the selling. Remember MEGB's (Masterskill) revenue is fully supported by PTPTN, hence government. Their revenue is 95% contributed from there. Do you think they are worth as much as RM800 million as at todate? Way higher than any other colleges in Malaysia (HELP, Inti and others) offering mainly nursing courses? How many nurses does the country needs? At its height, MEGB was valued as high as KPJ group, one of the largest private hospital chain in the country. Well, well, well.


Update - 11 April 2012

Now with PTPTN under contention as some of the loans to the nursing students went bad, the maximum loan that can be forwarded to these students have been reduced to RM45,000 from RM60,000.

Anyway, what do you expect the nursing students to do. Do you think they can pay back the loan with a basic salary of RM1,200? That is paying RM4,500 to RM6,000 a year without even considering interest yet.

Earlier article on Masterskill:  Not worth the IPO price?

Serious Investing!

Tuesday, February 8, 2011

Bank stocks in NYSE - will they follow the Malaysian experience?

I know it sounds weird that I post a question on whether US Banking stocks may follow the Malaysian trend. Back in the 90s, if you remember as a Malaysian investor, there were more than 10 local banks. Then came Daim, who personally has his hands on several of the banks (do not want to name them). As a Finance Minister, he sort of forced the Malaysian banks to merge. These merger augurs well for the more efficient banks such as Public as their performance better many times. CIMB has its run as well, with Nazir taking over the helm. (He basically manages it better than any other managers pre-his period considering that it was a former BBMB)
Anyway, back to my question - why did I think of this?
Well, US banking system for a start is not as recent or innovative as Malaysian banks or any other financial systems for that matter. There are today more than 6,00 banks still. Considering that and due to the financial crisis, they seriously need to consolidate. You see that in Bernanke allowing some of the smaller banks that are not able to survive to fail (and later merge with the bigger competitors). Well I am agreeing to this although the government has historically rescued the big banks that were sort of too big to fail.
With the consolidation of the regional banks, the big banks are now dominating the scene. The big 3 i.e. Wells Fargo, Bank of America and JP Morgan controls more than 25% of the deposits in US. I believe if the big banks are managed well, we will see a similar trend in what has happened in Malaysia.
Hence be in a watchout for well managed big banks in US - Wells Fargo (USD32.2) and JP Morgan. Watch out this space.