Monday, July 25, 2011

Airasia moving HQ to Jakarta - Right move?

Airasia, a brand that originates from Malaysia has always been directing from its HQ in KL. Now, it has announced that it is moving to Jakarta. Why? Here I think are the few reasons:
  1. Airasia, while has been given quite a number of landing rights by the Malaysian government, its relationship with them has never been smooth. From buying the company at RM2 from DRB-Hicom about 10 years ago, it has grown its operations into a very respectable one - or probably one of the most respected airline globally. Currently, the company is valued at RM10 billion or more by investors. Despite that, its growth has always been hindered with the government not allowing them to operate off Subang airport and having been too slow to build a new low cost terminal to handle the volume that is ever growing. Note that, for several times Airasia has postponed the delivery of aircrafts from Airbus most probably due to current airport not allowing it to grow fast enough. Hence the very government that allowed the sale to Tony the airline has now hindered its growth.
  2. Tony Fernandez has always been on the lookout to grow its business from anywhere that can provide them opportunities to even growing further. My last check, Airasia is flying to 68 destinations from Kuala Lumpur while it is only flying to 22 destinations from Jakarta. To obtain the route rights, it needs the assistance from the government in countries where it intends to fly from and land into. Hence, this is probably why Tony is willing to move - i.e. to grow Airasia even further.
  3. Furthermore, just look at Indonesia alone, other competing airlines such as Merpati Air and Garuda have much more routes. Airasia if provided the route rights will benefit much more from there. I do not know what are the arrangements that the Indonesian government has provided to Airasia for the latter to move the HQ to Jakarta but looking at the moves that Tony has made before, it could be substantial. Tony is a negotiator and he is good at it. He is not afraid to make drastic decisions and the latest is another example to prove a point as well as showing who's the boss. At Airasia's size currently, he thinks he can be the boss, even to the Malaysian government. (I like that)
  4. Operationally, while it may not be a smooth one to move from KL to Jakarta but an airline business is one which can be managed from anywhere in the region, what more from an airline which thrives through online booking, not so much via agencies. If it is implemented well, in fact it may save Airasia costs and to Tony saving costs is what it matters while it still manages to execute. After all, Airasia is never popular for its services. It is just there to provide the best bang for your buck to its users - that is what makes it successful. Hey! Ryanair is one of the most hated brand in Europe but look at them grow.
  5. For a while, Indonesian airlines have always been viewed negatively until at one point of time, no Indonesian airline is allowed to fly to Europe. On safety, Airasia is viewed positively. Airasia by growing big in Indonesia will bring something to the country what the current bigger airlines in Indonesia are not able to bring immediately. Hence, to Indonesia besides creating jobs will be a win-win situation for the country.
  6. Look at all the benefits - tourism, airport tax, jobs, country's airline perceptions, business travel etc. Indonesia sees it and Malaysia does not see it - this goes to both the government of Malaysia and its opposition who sometimes say things that does not make sense.
In the end this move I think is positive for Airasia but a loss to Malaysia - yet again.

Serious Investing!

Thursday, July 21, 2011

N2N Connect - A RM15m revenue company buying a RM36 million property?

I am just wondering for an IT company with registered revenue of below RM4 million for last quarter of 31 March 2011. Current cash and some marketable securities totaling RM13.9 million, registered a net loss of RM6.5 million last year got the guts to use shareholders money to buy a RM36 million property. Although I am far from owning any of this shares and not interested to know much about N2N, I think the thought of using these money to buy a RM36 million property is disgusting. In Malay it is called "menjijikkan".

Serious Investing!

Saturday, July 2, 2011

Oldtown's IPO - Certainly one of the more exciting company

More recently there are many more IPOs coming onstream. To me one of the more exciting one is Oldtown - compared to MSM, UOA and Bumi Armada although smaller in size. Why?

I regard Oldtown as a company with strong prospect compared to the other 3 above as it is a company which do standout among the local food chains. It is definitely easier to be identified with. Any company that raised eyebrows to Starbucks, McDonald with it managing to grow to 182 outlets within 6 years is no small feat. It just started its coffee chain operations in 2005 and from Oldtown, we would have seen somewhat similar concept as in Pappa Rich, Hai Lam Coffee, Station 1 and several other local chains. This goes to show that Oldtown has management that understand retail very well - while the others are trying to follow. Growing so quick in a short time is not easy.

While I do not fancy Oldtown's food, for a food outlet industry, its taste is not everything. It is about location and convenience - places that people can identify. Tell me you really love a McDonald's burger or Starbuck's coffee. It is about branding and Oldtown understands that. You will not see an Oldtown on a 4th Floor of a shopping complex. In a commercial area, you will be able to find an outlet Oldtown easily.

It is trying to raise some RM79+ million and post IPO, the market capitalisation would be RM412.5 million based on the IPO price of RM1.25. With the small issuance of 10 million stocks, do not even bother about applying for the stocks from the public offering.

Why is it a good prospect? Just look at the performance and to me it is believable...For a while there has not been a IPO with such exciting characteristics.

From PAT of 10.9 million in FY2006, it has grown to RM31.7 million last financial year. Revenue grew more than 3x over the 4-year period. The sprawling of new outlets over last few years has made the numbers make sense - which is why I said it is easily identifiable. It has strong cashflow as well which is why they have committed 50% of earnings for dividend payment.

Now, since we are not going for the public offering, at what price would it be made still buyable since its shares is scheduled to be tradeable from 13 July onward? At RM1.25 it is being offered at 13x PE. I have read some analysts comparing it to KFC (19x PE) and Berjaya Food (don't know and not interested as I could not identify myself with Kenny Rogers Roaster). Comparing with KFC is not wrong but I do not think it has the same growth prospects as Oldtown. While at one time KFC was attractive, at 19X PE it is not that great anymore. (The only good thing about KFC is that it has good dividend due to its holding company, QSR has huge debt to pay)

I think around RM1.45 (around 15x PE) is a good price to go in, that is if you can have some shares for that price.

Serious Investing!

Friday, July 1, 2011

Lim Kok Thay as Genting's CEO remuneration an absurd RM106.7 million

It is quite astonishing for a son who became a Chairman / CEO from largely his father's effort to pay himself an annual remuneration of RM106.7 million in 2010.

Do not get me wrong, I like the company for its potential and everything else, however Genting Berhad only registered RM2.2 billion PAT last year. LKT took a 5% paycheck of the profit for such a large company?

It must be remembered that the company while does quite well in Singapore, the success does not come from him basically. His success was when he got the concession from the Singapore government to build a gaming resort. I do not see RWS doing better than Marina Sands. In fact Sands I feel is slightly better than RWS.

In UK, Genting failed miserably. Due to Singapore, Resort World Malaysia's income deteriorated. Is this the mark of a CEO who deserves to be paid so high.

How does he justify his RM106.7 million paycheck? Nazir (around RM9 million) or any other CEOs who basically have to work their way to the position does not earn that much while in fact these companies registered better profits.

I could not imagine the son of Genting got paid more than 20x of a normal large company CEO in Malaysia and they still own around 40% of the RM40 billion company.

When you have an owner controlled CEO paying himself so high, you start wondering whether he ever respects the shareholders or is he for himself only? Remember every dollar he makes for the company, he already benefits 40% from it. Isn't that motivating enough?

Can the shareholders do something about this? I bet they can't for obvious reasons!

Serious Investing!