Thursday, November 29, 2012

Padini for purchase

I like retail stocks cause one just need to observe to make the right pick most of the time. And I like to observe rather than shop actually. As in my previous post, Padini is a company which impresses me. I like the way the company built upon its own house brands in the name of Brands Outlet as well as Padini Concept Store.

If you look further upon Padini, it has built an array of its own brands and put them under its own retail outlets. To do that well, it takes a lot of effort (notice some of the fashion companies did not do as well - even Bonia) but once you have hit the right spot, there is a run. The irony about retailing is, if you are a well-known brand, the malls will look for you. If your brand is unknown, to even get a space is going to be extremely tough.

Padini has done extremely well in this area, to the extent that I believe that the sales from its own outlets overwhelmed its consignment sales with departmental stores. The traffic I see in its Padini Concept Store is amazing.

How do I know that its consignment sales are reducing as compared to its own outlets? Notice the trade receivables (less than 10 days), which is extremely low for a apparel retailing company. It shows that it is doing mostly cash sales itself - and where are these sales from? Its own outlets.

In my previous post, Padini's inventories was a concern which I have mentioned. Why? I do not know how much are old inventories - and that can be a cause for concern for an apparel company. Today, based on its latest quarterly report, that amount has lowered to less than 3 months of stocks assuming this financial year, Padini is achieving RM800 million of revenue, which is to me achievable. A manageable inventory level is positive for company such as Padini.

I have already expected the most recent quarterly performance to be under the weather due to increased competition from brands such as H&M and Uniqlo, but its continuous revenue growth shows that the brands that Padini carries are able to hold their own albeit the margin squeeze.

Apparel retail companies should not fear competition as there are tonnes of brands which will compete against them and as long as they do them correctly, they have their own space.

And with that fear which I see in some investors, I am taking opportunity from the recent downtrend in Padini to buy 4000 units at RM1.76.

Wednesday, November 28, 2012

Why only now selling MAS?

Today, MAS is being thrown into pieces - dropping 15% after it announced a capital restructuring exercise last night. Why only now investors are realizing this? In fact, this exercise was way overdue. See the below balance sheet.
It has more than RM8 billion debt with additional RM1.5 billion in perpetual sukuk. It needs another financial restructuring, that's for sure.

Now look at what it intends to do in shoring up the balance sheet - a 3 for 2 rights issue with assumption of its rights to be issued at RM0.60. In this exercise, it is trying to raise RM3.1 billion from the shareholders.

And the ones that are going to pick up the shares are mainly...Khazanah and EPF.

Why does it need the additional capital fund raising?

Would this exercise revive MAS? It will improve its balance sheet and ability to raise funds for sure, but operationally this has to be addressed to make it a viable airline again. Otherwise, even at this price (which is valuing MAS at RM2.84 billion, RM0.85), it is not worth the money.

Tuesday, November 27, 2012

Astro targeted at RM3.50?? by Credit Suisse

I received a report from Credit Suisse on Astro. Here are the excerpts:

A media powerhouse

■     Initiating coverage with an OUTPERFORM. Astro is the only satellite pay TV operator in Malaysia, with a subscriber base of over 3 mn. We expect Astro to grow its subscriber base as well as ARPU at the same time. We initiate coverage on Astro with an OUTPERFORM rating and a DCF-based target price of RM3.50, implying c.32% potential upside.
■     Proxy for rising Malay household income. We believe Astro is a potential beneficiary of Malaysia’s attractive demographics: a young and growing population, whereby a growing economy is driving income growth. Malay households, which account for 60% of Astro’s subscribers, have the highest income growth within the Malaysian population. Astro’s wide range of content is suited to Malaysia’s multi-lingual population, whereas free-to-air (FTA) TV has limited capacity to offer dedicated vernacular channels.
■     Growth drivers. Astro’s ARPU grew 8.5% from FY10A to FY12A. Potential ARPU drivers include high definition (30% take-up currently), personal video recorder (PVR), Super Pack and IPTV. We have baked in mid-single-digit ARPU growth for FY14-16E but if management delivers high single-digit ARPU growth, we estimate, 16% further potential upside to our target price.  
■     Trading 11% below IPO price. We apply a mid-point 15% discount-to-DCF to arrive at our RM3.50 target price. Historically, Astro has traded at a 3%-29% discount to DCF valuations—this suggests a share price range of RM2.90-4.00. Key risk factors, in our view, include content cost, satellite transponder capacity, technical/broadcast failure, competition, regulatory risks and currency. While FY13-14E EBITDA is dampened by significant costs related to a box swap, we expect profitability to rebound in FY15E when the bulk of Astro’s subscriber homes will be equipped with an HD-box.

It went on to compare Astro in Malaysia against UK and US as well as India. Yes, comparison is not wrong but the things he fails to see is this and this. So, before Astro reaches the potential that he sees in US and UK, other threats will just kill it. And, where are Astro's threat coming from? Here.

I am just wondering, where he gets these data... Astro itself?

Monday, November 26, 2012

What I see in Jobstreet...

Besides the worry in Linkedin as a competitor which to me is overdone, this is what I see in Jobstreet - its contributions from its oversea's operations particularly Philippines. From this year onward, revenue from Philippines will probably exceed its Singapore's revenue - all the while its second largest market.

Look at the table above as compared to its FY2011's geographical contributions below. From this, we know that Jobstreet is not a "jaguh kampung". It has found secret formula for success in Philippines, hence telling that this is not a one-hit wonder. Revenue in Philippines has grown at high double digits percentage and it seems that it could have still continued to do so. Apparently, Indonesia is a high double digit growth market as well although it is categorised under "Others" for now.

This is important. Another factor, despite Linkedin having a representative sales office in Singapore, revenue in Singapore for Jobstreet nevertheless continues to grow - although slower than Philippines. Hence, all the fear of loss in revenue in the job advertisement space should be concentrated on the print media rather than online jobs posting companies such as Jobstreet and SEEK.

Low assets

What are Jobstreet's assets? The jobseekers who posted their resumes in the company's database as well as the employers that are looking for employees. These, you can't see in the balance sheet. Unlike the traditional print media companies, there are no printing presses as owned by Star, huge factories like those owned by F&N etc.  Hence, if you look at the balance sheet of these companies, they basically are just cash, some receivables as well as some intangibles. However, as in previous post, I have mentioned of Jobstreet expensing off all their R&D expenses - which is a good thing looking forward. The free cash flow that are received, a huge sum are actually redundant if they do not use them wisely.

There is no need for building huge factories or distribution channels except for office for staffs. The more successful or the larger the databases, the more job-seekers and employers are going to use them. That's the beauty, as in a way you can say that it is almost free marketing for Jobstreet.

This is also why Jobstreet is able to pay out higher dividends and keep a very lean balance sheet. In fact, for Jobstreet, what you want to see is how efficient they use their equity as in ROE overtime. As an investor though as it has proven to me successful, I am willing to let them build the market they intend to target such as the Philippines and Indonesia as well as Vietnam.

Similar to Linkedin's as well as Facebook's or even Jobsdb or any of the competitors per se, these are never heavy assets companies.

Is Linkedin a threat? Yes, but I still think that both of them can co-exists - the earlier generation jobs seeking websites such as Jobstreet or even Monster as well as the social media typed such as Linkedin. This is because Linkedin has yet to prove to me how it is going to fill some of the gaps such as the lower management, executives jobs etc. I, in fact see Linkedin as a threat to the employment agencies or head hunters as some companies or people may just go direct - although if you notice employment agencies use Linkedin to a large extent currently.

Why do I not buy Linkedin then? Yes, I believe Linkedin is here to stay, but notice the 700x PE albeit the higher growth.

Catcha Media: When a Press Release is not really that useful

Press releases in Bursa are supposed to summarize and help identifying to investors important areas where we want to know on the operations of the business. But the press release by Catcha Media is hardly that. Instead of telling us the performance of the company, it releases something which is of less significant. I wanted to know the current performance of its business as well as where it sees it is heading.

The profit from its disposal is supposed to be one-off and of less significant, but yet this is what we get. Why waste Bursa's space?

In the actual results, what is more important is the one boxed in red as below. Instead, it highlighted the results boxed in yellow.

Also notice the cash reserves after 1-1/2 year of listing. The company just went on a spending spree.

Today, the company is worth RM57 million in the market, but there is hardly anything in the balance sheet.

Saturday, November 24, 2012

IHH's Trade: Something interesting to note

I think this is probably expected.

Last 3 major IPOs, those with EPF's involvement - FGV (RM4.65), IHH (RM3.19) - they are still above the IPO offer price.

As for Astro's IPO where it is rumoured that EPF did not take up stakes, it is currently trading below offer price. Hence, for upcoming IPOs, among the larger ones, we can probably take the cue. It would be much safer if EPF is taking stakes.

Wednesday, November 21, 2012

Letting go of iCap

I have decided to let go iCap. As mentioned before, while I think that iCap has a good manager, the investment ideas may not suit me. Anyway, I am selling to be able to buy some other stocks in future. The reason I bought iCap was due to it was really cheap. Now it is still cheap but not as cheap when I bought it at RM2.17. I have sold it at RM2.36 despite iCap hovering around RM2.4+ last week. Have to admit I am not a good seller.

Actual amount made over 4 months
Whatever it is, I think that the fight for board positions may not be over with today's large volume traded. Although, City of London Investment Fund has sold some stocks over the last few days, Laxey Partners may buy more. However, it remains my speculation for now.

ICap is now trading at a discount of 19.5% from its last week's NAV. Its major holdings remain to be PetDag, Padini, Parkson, F&N and Boustead.

Among the holdings, these are how I see it.

Petronas Dagangan

I like PetDag despite we seeing more and more oil and gas companies moving into the upstream side of the market. We saw BP letting go of the retail business many years ago and if I am not mistaken I am seeing many of Exxon-Mobil's branded stations changed to a brand called Petron. The letting go of the retail side of business could be good for PetDag in the longer run.


I have mentioned of my liking for Padini before, hence not repeating.


As I like AEON and Tesco, I do like Parkson as well but the Malaysian operations only. Parkson is however heavily dependent on its China's income. For its China's operations, I am not able to reckon the position it is in. My guess is that the competition is getting really stiffer with Wal-Mart, Carrefour, Tesco fighting really hard in the hypermart business. Parkson's positioning is different but it is bound to affect Parkson no matter what. The 3 players are the largest retailers in the world ranking 1, 2 and 3. Where is Parkson? That could have affected the Malaysian owned retailer.

As for Parkson's venture in Indonesia and Vietnam, it is too early to tell the impact it is going to have onto the retailer.


Good company but its competitors are better brands and much bigger. I see its price as expensive although it does try hard diversifying into properties the next few years to cushion the negative impact.


Great assets but I always have doubts on armed forces running companies. If you happened to be in Damansara, just compare One Utama (private owner, See Hoy Chan) against The Curve (Boustead). They are not far from each other. Which one you think has more potential or already is on the home run? This reflects management capabilities, in the eyes of an investor.

I always have the feeling that since most plantation, banks, properties stocks were doing well, Boustead will of course do well. Warren Buffett used to say, "Only when the tides are down, we will know who has been swimming naked."

Out of the largest 5 holdings, I like 2-1/2, hence may not suit my taste for now.

Tuesday, November 20, 2012

Sometimes when you hold the stocks for too long

A lesson on long term stocks investment, despite the word - long term - is never to fall in love with the stocks you hold. Just about last month, I met a long time friend who had worked in HP for many years since he left college. He had just left the company for a year now letting go quite a senior position after having been much traveled along with the company.

Throughout his career there, he had accumulated hundreds of thousands dollars worth of stocks options of HP which he exercised, and part of them are bonuses in kind (in the form of stocks) as I understand. The thing about him is that he had never sold a single HP stock despite having lost confidence on the company a year ago (or so). As HP continues to lose momentum and market share, he was still holding on to the stocks.

What I am a bit surprise is that he knows HP is facing a barrage of problems as well as new competitions, which it is not really able to solve. In fact, as an employee who has been there for a long time, he as an insider realizes it much more than me as we were talking about the future of PCs and what other stuffs HP is in to. (Funny thing is that if you read Steve Jobs' biography, he pretty much looked up at the company when he was young, as HP probably was one of the first to be successfully started from a garage environment)

Back to this school friend, as an employee who has never been thinking much about the stocks but more of the future of the company, he is just holding on to the stocks. If you look at the below chart, most of his stocks were bought at between $30 to $50, when times at HP was better (as your position gets higher, obviously you will get more stocks options). Hearing this, I asked him to sell and change to other US companies which probably would have better and clearer future (and he does not want to bring back his money in US). Names like the bigger banks such as Bank of America, JP Morgan, Wells Fargo (as I see the that the housing recovery would have carried these large banks) or some stronger names more directly related to the housing sector like Home Depot or even Berkshire Hathaway.

Ironically, he called me again last week and said that this time around, he is going to do it. I hope he has changed his portfolio from a single HP stock to some of the larger names as it seems, HP had just hit a bummer today.

Whatever happens, sometimes it is hard to let go of the stocks that we have held on to for many years. However, if the feeling on the company (or management) is trending negative and without any sight of turning around, it is best not to hold on to the company anymore and, just Move On.

KNM: ??

Frankly, I do not know how to make of this company, but people I know (my relatives went in big 2 years ago - I hear around RM2.00) probably are still hoping right now, as I dare not ask when meeting them recently. Never ask when you know that the person is losing much in the market, is the mantra. I remember I was asked about this company, during one dinner. I have nothing to say but acknowledging it as a stock for "Play" as well as it is in the much exciting and extravagant O&G sector. I could not make much out of it at that point in time, whether it is worthwhile putting in money. I guess it ain't.

Just look at its share price, 2 years later.

Recent financial performance (including today's) seems decent with a RM40+ million 3rd quarter profit, BUT...notice something amiss...

Intangible assets and goodwill from acquisitions for sure. But the piling receivables and WIP. Cash to borrowings? RM127 million against short term borrowings of RM741 million and total debt of RM952 million. I hear Maybank is supporting this company in terms of financing especially for its purchase of Borsig few years ago.

Besides not knowing O&G sector well enough, I do not think the numbers look good.

Saturday, November 17, 2012

Buying Jobstreet

This is a stock I have liked for a long while and have written extensively about. In fact, I have held the stocks via different accounts. Surprisingly, many years ago when I was introduced to this stock during the early listing days, the name of a dotcom company getting listed provides no appetite.

Surprise, surprise. Now I like the Board. I like the way the company is run. I like the management and I like the brand especially in the countries where it is especially strong in. And I like the way it conducts its listed status, fair remuneration, buyback, dividends etc. The only think I do not like is that it is highly illiquid. This is a problem which it can't do much as I see it, many investors are not very familiar with businesses like this and Jobstreet is not one company which is particularly interested to make its stock highly tradeable. In fact, the more it repurchases its stock, the lesser the number of shareholders may end up holding its stocks. I would say, it has done the right thing, hence nothing much can be done.

Jobstreet is particularly strong in Malaysia, Philippines and Singapore although it is the second largest in the latter country. For your information, below is the scenario of competitive strength of online jobs recruitment companies as presented by, the leader in Australia.

Ironically, controls a strategic 22% shareholding in Jobstreet since few years ago. Another investor in the online job recruitment which believes in companies in this space is Fidelity, whom has invested in both SEEK and Jobstreet. To add to the twist, SEEK bought a controlling stake in JobsDB in 2010. Hence, SEEK is the largest player by far in this region.

Although this space is highly fragmented, it is not an easy market to secure with the respective companies having dominated in each of its own space.

One company which could potentially disrupt the dominance of the incumbents is LinkedIN. Obviously, SEEK and Jobstreet are very much aware of it to describe LinkedIN's potential market share grab in their Annual Report. Below, is what Jobstreet has to say about LinkedIN, calling it a company with a social media twist.

As for SEEK, it is doing something to get involve in Social Media itself. See below.

Whatever it is, this is something where Jobstreet has to be really aware of as technology acceptance is something it has thrived from, and technology is something which can replace its dominance. I would not be able to comprehend the dominance of facebook until it is what it is today. Google did not see the importance of social media as well.

Anyway, I have still liked Jobstreet as it continues to grow its business especially in Philippines and it is a market where it can seriously grow in having the No 1 position. So is Indonesia. With its good sense of corporate responsibility, dominance in the market it has presence and its continuing attractiveness, I have bought 4,300 units of Jobstreet at average price of RM2.277.

Friday, November 16, 2012

Telco: The signs of times to come

After reading through SingTel's results, I have a feeling that our local telcos will face the same predicament. Revenue for SingTel from the more developed mature market such as Australia and Singapore continue to face growth pressure, while India remains very competitive. Telcos will find more opportunities from Indonesia.

Click to enlarge
As you can see above, among the big 3 mobile players in Malaysia, total revenue seems to be stagnating with a CQGR growing at 1.1% from 30 Sep 2009 to 30 June 2012. It also seems that the larger telcos are getting squeezed in terms of revenue as the product becomes more and more commoditized. It happens in Japan (with Softbank's ability to get a big chunk of revenue from especially NTT and KDDI). It happens in Malaysia with Digi.

In terms of stocks, both Maxis Mobile and Digi only have operations in Malaysia while Axiata has better exposure with more potential. I feel that with the exception of Axiata which is potentially still a stock with some decent growth, Digi and Maxis will just be a dividend stock.

Monday, November 12, 2012

Run Fraser Run!

F&N is more than 100 years old. Usually for a company this age, it's nice to be able to have an occasional walk, sometimes jog while still continue to maintain that level of comfort as well as fitness. For a while, F&N has been enjoying such. As I have mentioned in earlier article, watch out for its deterioration as well as the increase in competition.

Its results for the last financial year has shown signs that it is gearing itself to be fit enough to run. It has moved its dairy operations to Pulau Indah. The Seksyen 13 land is to be turned into a mixed development project. Hence, I can say that it has tried very hard to be what it is over the last many years.

That poor 4th quarter results is being cushioned with announcement of its planned RM1.65 billion project. As it seems to be so, I think the job for F&N for now is trying to reduce the negative results that are to be seen in its food and beverage business in years to come.

At the moment, the concentration for F&N is to increase market share using brands like 100Plus, Seasons, new cola drink - MyCola etc to fend off competition. While I am allright with companies like Top Glove, NTPM in using reducing margin or aggressive pricing strategy to kill off competition, the competitors that F&N is trying to beat - Coca-cola and Pepsi - will never be killed. The more you try, the harder they will come to hit you. That's the biggest problem facing F&N because these 2 larger players are global giants while F&N is fighting it as a local champion.

Seeing F&N is like sending our best Malaysian (or Singaporean) Muay Thai exponent to Thailand to compete where Thailand will forever produces many quality exponents while once a while Malaysia will try to produce our local best whom can be exceptional.

As can be seen below, despite garnering better revenue (except due to the impact from Thailand's flood) from its existing lines of business, the margin will continue to be thinning. This is because a 500 pound gorilla in Coke is also using a similar strategy to build market share.

To top it off, its dairy business is not performing as well either except for some one-off recognition as below. As opposed to companies like Dutch Lady and Nestle, its lines of products from the dairy business like the evaporated and condensed milk is not as wanting. F&N does have Magnolia but the brand again is a tougher one to pull off as compared to the "Nestle and Dutch Lady".

Frankly, although F&N will continue to be profitable, I think next few years ahead will be challenging for F&N as it is trying to introduce new lines of successful products while some other F&N competitors with less new challenges will have it easier.

As the saying goes in investments, "Never try to attempt to scale the height of a five foot pole. Look out for those that you can just walk over." At the moment, some of the challenges that F&N has are 3 to 5 feet high.

When investment does not turn out as planned

I remember one reader asked me about unit trust. I can only say I am sorry if my sole experience turned out to be not a sweet one. Although I have not thought of this investment (in fact sometimes I forgot about it), I did not have the chance to close it after intending to do that 6 years ago.

And since my brother is in town this week, I have decided to close my single and not so successful unit trust investment in my lifetime as his name is in the fund as well. Back in 1995, after a bad 1994 experience in the stocks, I decided to park some of the cash from my savings into a fund. I thought that since I did not make money from investing myself, why not letting professionals do it for me. Professionals, hmmm.... may not perform better than any layman on the streets though despite they continuing to charge you fees.

Despite being just RM1,500, that decision to put this savings into one of the local unit trust fund is not a beneficial one, although it is a lesson learned. How did it performed?

After 17 years or exactly 6,355 days, I made an amazing 7.5%, closing at an earned profit of RM110.32. How nice.

I am going to celebrate by going for a nice dinner tonight!

Saturday, November 10, 2012

To many ICap's shareholders, TTB is their Oracle!

Perhaps you have heard of the Oracle of Omaha, the namesake accorded to Warren Buffett. I was at the AGM this morning, my first attendance and the thing I can say is that Tan Theng Boo ("TTB") is like the Oracle of Malaysia for many of these shareholders.

In fact, the presentation provided by TTB himself is loaded with Warren Buffett's quotes, such as - "Rule No 1: Never Lose Money, Rule 2: Never forget Rule No 1" and "Price is what you pay, value is what you get" and many more. I would say that much of TTB's investments philosophies and actions is trying to resemble Buffett's. He even claimed that to save costs, his prospectus and Annual Reports are in black and white (as color printing is more expensive) - resembling the same careful spending trait that Buffett had on his vehicle, Berkshire Hathaway.

However, few differences that tell are Buffett's Chairman's statement to shareholders consists of more than 50 pages each year and spends a lot of time explaining his investments rationale and why he invested in some of the portfolio companies. TTB is much stingier in his Annual report statement ditching out less than 2 pages each year. I think that the iCapital newsletters subscription would probably be where he is concentrating on his write-ups.

Another difference is that for of Buffett's hardcore believers, they would be willing to buy just 1 share of Berkshire Hathaway to be able to attend his AGM. (Berkshire Hathaway's A share costs USD127,000 by the way) Well, TTB is still far from that, but there are still some hard core supporters (I would think 500+ or maybe many more) as shown in the majority who supported him during the AGM.

In fact, some of them complained that the AGM this time around is time consuming and non-beneficial as most of them were there in most of its previous AGM's to obtain their annual tips from their Oracle, not to really vote. This time around, their presence are to support their oracle as the threat of resigning was too much for them to absorb. One came out to actually say, "No Tan Theng Boo, No ICap." - and its the end of the world?

I did not stay to learn about the results of this unusually extended AGM as I had to rush off to another event, but I can guess that judging from the support provided to TTB - rightly so - many of them would stay thick and thin with him - to the extent that he has become "Godly".

I would have to say, at the end of the day, I am impressed and despite the initial thoughts of voting in some of the so-called non-friendly Directors to Capital Dynamics', at last I changed my mind. However, I doubt that I can be so attached and would still be looking for opportunities to sell whenever the fund is close to its NAV - unless some of the issues that I have mentioned before are really addressed.

Whatever it is, I guess I am a different type of investor anyway, as I am the type who is hoping to control my own destiny, than relying on another to do so for me. Err someone said that already, and that someone is Jack Welch.

And hah! hopefully this is my last article about ICap for a while as some readers would be bored with these articles already. I would just concentrate on researching something else myself.

Friday, November 9, 2012

Icap: My opinion on some of the remarks made on The Star

It seems interesting that both parties - Tan Teng Boo and representative from Laxey are appearing on The Star to rally for votes from the shareholders.
Here below, I am trying to find whether rationale from Tan Teng Boo makes sense:
Point 1
Tan, however, pointed out that a share buyback in a closed-end fund such as would benefit only short-term investors looking to make a fast buck.
It’s not quite true. It seems that over the years iCap has accumulated cash sitting on a low interest income from short term deposits. One would say that he is waiting for opportunities. It does not matter however if a fund allows people to make fast buck as a closed end fund is a closed end fund. It is different from an open ended fund. In a closed end fund, the fund manager is not afraid of the shareholders selling as the total number of shares remain the same. The fund manager is in control of the amount of cash and equity he holds. There is no fear of run in the fund. If the share price of the fund trades far below the NAV, he can initiate a buyback which will improve the value of the fund further, which I am supporting him to do. I am perplexed why he is adamant that this is not a good option or even consider it.
Point 2
The top 30 shareholders of have remained since 2006, he said.
Not quite right. See below.
Top 30 shareholders 2006

Top 30 shareholders. 13 shareholders (see the one underlined) remain in the Top 30. Some of them are related party like Yeoh Ah Tu, Capital Dynamics, Tunku Sara
Point 3
“Hence, it would not matter if the discount between the share price and the NAV narrowed, because, these shareholders are in it for the long haul.
“If Laxey comes in and initiates a share buyback, this means that it will be using the fund's excess cash to boost's share price, which will only benefit short-term traders,” he said
I do not think so. In fact, once the fund initiates a call for share buyback (say if the share price is traded at below 90% of its NAV, the management initiates a share buyback), I doubt the share price will trade much below 90% anymore. Investors will be cognizant of this. How is this benefiting short term traders only and not benefiting the fund? Is the fund manager too against short term traders benefiting? In this case, both parties are benefiting.
Point 4
Furthermore, for a closed-end fund like, share buybacks would not work, Tan said.
He pointed out that share buybacks to increase the share value for companies such as IOI Properties and AirAsia Bhd, would work as they have their business operations and are not reliant on their cash pile to generate profits for the company.
However, in the case of, its cash is its main asset and that is needed to invest in other equities in order for profits to be made.
Look below. iCap is not a fund that time the market (as it did not time 2008 market crash very well. It was holding too little cash for the 2008 drop. In fact, it held to cash since 2010 which was too early). ICap is a fund that is good at picking stocks. But yet it continued to hold on to cash (1/3 of NAV) until today. By doing some buy back at a very much discounted price from NAV, it is making better use of its cash.
iCap's cash holding
Point 5
“If it is using that cash to buy back its own shares, how can it buy other equities, and thus add value to the fund?” he asked.
Share buyback is adding value no matter how it is termed if the price bought is below the NAV. In this case, it is way below NAV. The only worry for not buying back is that the fear of the funds NAV will deteriorate in the short term future. If that is the case, then one should not buy the fund either. This is where we cannot foresee.
Point 6
On Laxey's statement that the board should concurrently engage advisers to research other methods to permanently remove the substantial discount at which the shares trade, Tan said this would imply that the fund would be liquidated.
“How else do you permanently remove the discount between share price and NAV without liquidating the company?
Not necessary, liquidating is selling out and closing the fund. Share buyback is not selling out. In the share buyback, there is an option to resell back the shares to the market. Anyway the option to buyback is up to 10% (under guidelines by SC) of the total shares. It is not like the call is to buy all the shares or half of the shares.

Thursday, November 8, 2012

A relook at Latitude Tree

I know many would not be interested in this particular stock, but I am just looking at the company - Latitude Tree. It is in the furniture industry with 95% market to United States. Nothing fantastic, but the company has been consistently doing good with some ups and downs but seldom in the red. As in my previous article, if the US housing market is making a comeback, Latitude may be doing well. US Housing market is definitely doing a comeback or at least a revival. Warren Buffett is betting big on the revival and he is positioning himself well for the pickup in the housing market.

Now back to Latitude Tree. Some may be afraid of the previous Kenmark (another Taiwanese owned) news where the company just went under, with possibly some major write-offs in receivables as well as its inability to pay its debt. Look below, Latitude is different. Its receivables are very manageable - below 10% of its total revenue.

Its debt position is also very manageable with its debt to equity less than 0.5x. The bulk of the debt are short term, dangerous if it overuse them but I do not think so as it looks more like a position for its manufacturing concern with trust receipts loaded. This means it is borrowing more for buying raw materials - seems like.

Additionally, I have checked out this company. The management does seem to be very careful in terms of its actions over the years. More recently, it announced a 3 sen dividends (up from previous year of 2 sen), hence providing 4.9% dividend yield at current price. I do not think it is a Kenmark and it uses EY as its auditor which provides the additional comfort.

To top it off, the company is trading at less than 4.2x PE with potential better numbers in near to medium term future due to its market. Price / NTA does not look shabby either i.e. less than 30%.

Tuesday, November 6, 2012

Frankly, it is not right to take out all ICap's reps

In this coming AGM, 4 directors nominated by iCap are seeking re-appointments. 2 others are newly nominated by iCap while Laxey is trying to put in 3 directors. Total maximum directors iCap can have are 7 in total. My hope is not for all iCap's nominated directors to be taken out but rather to have some representatives from alternatives i.e. those representing shareholders.

It does not mean Laxey is preferred but since it is a substantial as well as largest shareholder, I believe the mindset for Laxey Partners is being more of a shareholder rather than the fund manager. The fund manager will have different mindset as compared to shareholders. As shareholder and especially when the fund manager has not done enough to close the gap of the NAV and share price, it is good that we as shareholders have representatives so that measures done by fund manager are kept in check. It should not be a open check book especially when the price of shares was way below the NAV.

As mentioned, I certainly think that as an investor what do you do when the share price was 25% or more below the NAV. Shares buyback is a very good, immediate and fantastic tool which was not taken. It is way better than issuing dividends. For a value investor, what is easier than to put in money to buy your own shares especially when it is way undervalued.

I will not agree if anyone is to say that the cash is kept (with 3% interests?) so that to wait for better opportunities especially when your own undervalued share is in front of you. By not doing that is an injustice to the shareholder itself.

However, I am not hoping for the management of iCap not to be represented as by not having representatives, it is like putting a gun in front of the fund manager and ask him to resign. He should be provided enough support to manage the fund.

Monday, November 5, 2012

My take on the ICap debacle

I am a shareholder of ICap. So are my family members albeit small shareholdings. I think by now you would already received notice from the management company, under Tan Teng Boo who is asking you to consider long term investment vs short term return.

I am a long term investor by nature. However, the main reason why I have invested into ICap was mainly due to its share price was way underpriced. At the time of my purchase it was at 26% discount. Another reason is that it is a long term fund which suits me.

As mentioned during my purchase, I was not considering dividends either but as long as the fund manager protects the interest of its shareholders. I have read of commentaries that the fund has stocked up with "yes men" in its board, which to a certain extent is true. In fact, ICap has added 2 directors after my purchase - one from the ex-DAP fame (Tunku Aziz), another from UMNO - Dato Dr Noraesah (both whom I do not like). Naturally, most companies do appoint their friendly directors, if they are allowed to and if minorities do not make any demands. ICap's shareholders have never demanded anything, which is why there have not been any share buybacks despite the fund trading at huge discounts, provide dividends, capital return etc.

One of the commentators mentioned that Warren Buffett has never provided any dividends from his trademark Berkshire Hathaway. True. However, recently whenever the company reaches below 110% of its NAV value, he commenced buyback of the company as he deemed that the company was way undervalued. Whenever the share price trades above 110% of NAV, he will stop the buyback.

Now, my mistake as well as Tan Teng Boo's (read one of his quarterly) is that we thought Laxey Partners is there to support the management. It may not seemed to be or is the fund acting as activists fund?

My say is that for those who are going to the AGM, hear both parties out. Having alternative board members in the board may not be a bad thing as it actually allows better corporate governance. Yes, most people are for their own investments. Who aren't? I am, as in protecting my own investment as well.

Tan Teng Boo with Capital Dynamics has done well for iCap, but that is not a license for him to do anything. As I have said, he is paid with a very good fee and last year alone he was paid more than RM5.9 million based on 1.5% x NAV + fund manager's fee.

The right decision to do when the fund was way undervalued was to do share buybacks (if the AA allowed to). Although being a smart investor, he did not do that, and as a shareholder, you should ask him why rather than agreeing to all that is done by the management company.

My say is let's hear all parties out. Do not blindly appoint your directors. Besides 5 seeking elections, there are actually 4 more seeking re-appointments. Just remember, it is not just about the 5 seeking elections.

Saturday, November 3, 2012

Lesson on iCap: How do you attack a Closed-End Fund

Something is definitely brewing for this usually inactive closed end fund, Firstly, as in my previous article, this fund has been trading way below its Net Asset Value (NAV) for a while now. While the fund has continually been trading at steep discount, sometimes as high as 29%, Laxey Partners and City of London Investment Management Fund (both UK based) have been slowly but religiously accumulating the stock for more than 8 months now. As at now, both of them have accumulated close to 14% of iCap. Note that the discount between the stock price and NAV has closed its gap, with just last Friday itself iCap rising 6 sen to RM2.38. Its latest NAV is RM2.96 hence still trading at close to 20% discount.

What is the probable reason? Just 2 days ago, Icap announced that Laxey Partners is requesting for 3 board seats in the next AGM on 10 Nov 2012. Read below properly.

Laxey Partners is requesting for 3 board representatives, iCap countered back with 2 others (besides some who are up for reappointment) where one of them is a former CEO of F&N Malaysia (now I can see some links as iCap does hold F&N). iCap currently has 6 directors and the maximum allowed under its Article of Association is only 7. Hence, already there is a small war here as some names will not end up as directors at the end of the voting. And as you can see this war could turn major. It could go to as far as the fund being liquidated.

The question is with the representation from Laxey assuming that it manages to get its representatives into the Board, what could potentially happen. Dividends and even liquidation comes into my mind. As I have mentioned before, the reason why some people are not interested in this closed-end fund is due to no dividends paid by the management. It seems that there are other reasons as well, such as fees.

I am not surprise by the management's decision not to pay dividend as their income are measured by the NAV (x 1.5%) annually consisting of management (0.75%) and investment advisory fees (0.75%). The more dividends it pays, the lesser the NAV. Hence, it is rightly so that it protects its turf by not paying.

Management fee of 0.75% per annum
Investment advisory fee
Now, the irony is that Laxey Partners under Andrew Pegge did the same thing 5 years ago on Amanah Millenia Fund. Laxey basically accumulated up to 19.41% of Amanah which was then trading at a similar huge discounts to its NAV as well and basically garnered enough friendly votes to liquidate the fund. The only difference was, Amanah was not a well-performing fund. iCap is.

Same story re-hatched from Amanah Millenia Fund 5 years ago?

How will the war penned out?

Actually, I don't know. Based on the statistics of shareholders, I am not sure who will support who. The thing is that Capital Dynamics Asset Management and several directors collectively hold around 3% of the fund. They will have friendly parties but I think that the bulk of the shareholders are pure shareholders who basically invest for long term. Nevertheless, I do sense that the situation could be quite dire for Capital Dynamics.

I have tried looking at the movement of shareholders. Over the last few years, the number of holders actually consistently decreased, which is not surprising as some are just taking profits while others were not willing to wait. They could have been the weaker and shorter term holders.

No of shareholders as presented in its Annual Report
In what situation can the fund be terminated? I do not have the Article with me but I am guessing that it will need 75% approval from shareholders through a special resolution. See below.

The only thing I can find on the clause for the fund's termination from prospectus

First things first though, which is the appointment of directors - what will happen in the coming AGM? I don't know, but if the fund is going for liquidation, I think most neutral investors may opt for it as immediate return would just overwhelm long term wait, at least in this case - which means they would be supporting Laxey Partner, the gwailo fund company. Hey! Over the last few years iCap has not been doing much and investors can just take the money and and buy F&N, PDB and Parkson themselves, if they want to.

Another thing, I have a feeling that this presents trading opportunities at this moment, as some people might want to snap up the shares so that they can be strong enough to fend off any decisions to take away the funds. Hence, if Capital Dynamics is really in defense mode, the shares may in fact trade right up to just a slight discount from its NAV. I am actually surprise why Capital Dynamics does not see this earlier though. To me, if it really is terminated, just represents a big blunder on the part of the management. To me, if the existence of the fund is under attack, the management has got to provide more than managing it well - after all they are being paid very well.

Friday, November 2, 2012

I think I'll say "X" to AirAsia X's IPO

The draft to SC just published. I had a quick view to see how this low-cost long haul airline is doing and for the IPO, would it be attractive. Let me provide some of the numbers which I have captured.

Still loss making despite profits in FY2010. Seems like FY2012 will not be a good year either. Note the deferred taxation in earlier years of FY2009 and FY2010
Notice the tapering off in revenue especially for FY2012. This could be perhaps due to the moving of routes from London, Paris, Christchurch to other shorter lower priced destinations like Sydney, Osaka and Beijing. It seems that competition is different for Airasia X. Airasia, the parent had a good headstart of competing against a poorer and weaker MAS. However, probably for the long haul, competition is different. It could be against many other airlines which uses Malaysia as hub. They could also be of much stronger competitors as compared to MAS. AirAsia X additionally could be selling more discounted price seats as compared to short haul flights.

One example, anyone who flies to Sydney, may opt for connecting via Singapore and uses SIA. In a short haul flight, if I am to fly to Bangkok, my options are lesser. No stopover for sure, hence the short haul Airasia is a very good point to point airline. In a short haul flight, a 30% lower in air-ticket price is an important decision making factor for someone to choose.

For a longer haul flight, it will be harder for AirAsia X to reduce costs as the major cost, it seems is fuel costs - up to 60%, which is a major problem for a low costs airline as it is much harder to reduce that part of the costs. Ancillary revenue does not seem to be a major factor than I thought it would. As much as Airasia X is trying to sell the extras, I think it does not translate to enough income yet for it to turn into good profits.

On its major costs, See below.

Balance Sheet

For Airasia X's balance sheet, it will be looking for immediate cash (similar to the IHH's IPO symptom) to beef up its balance sheet. In fact, more than 55% of the funds to be raised will be for debt repayment. Also look at the cash level. Remember, a huge sum of Airasia's model is based on early cash collection. Hence, it is collecting upfront ahead of its flights which would be scheduled later on. Look at the accounts payable as well as sales in advance figure (a whopping RM271.5 million against cash of just RM24.8 million as at 30 June 2012). Those upfront collected cash are parked under the sales in advance until the flights take off. The more it is in this situation, the more dire it needs to sell early and at very cheap price.

AirAsia X's Balance Sheet is obviously not strong which is why it needs funds quick. Look at the cash level while long term debt is almost RM1 billion.

Shares on offer

AirAsia X is offering 790,123,500 shares out of which 197,530,900 are offer shares from current shareholders. According to reports from Bernama via, it is trying to raise RM760 million. An updated report says that Airasia X is trying to price the shares at between RM1.20 to RM1.40. Assuming it is priced at the low end of RM1.20, hence could potentially be valuing AirAsia X a whopping RM2.844 billion. That's very expensive for an airlines which is still small although riding on Airasia's branding.

Enlarged share capital upon listing

As in other IPOs of recent, the shares are being offered to again mostly institutions. There are only 3% on offer to retail investors. After Astro's IPO which I think most of them are still underwater, I wonder how many will pick up - especially the MITI's portion. Hence, people will learn that there are no free lunches in IPOs.

With the limited routes and just 11 planes in the balance sheet, I think I'll give this a pass especially with the assumingly high price for still a loss making company.

Purchased aircraft

For any potential investors, it is a high price for purchasing hope. From here, I can say that a low costs long haul may be a different ball game. I like Airasia, but not this one although I myself like the cheap flights.

For update on Airasia X's IPO, please read here.

Is Johor Corp underpricing KFC in its delisting?

Nobody will overprice a delisting, if they can. Johor Corp and partners are proposing a buyback exercise for KFC Malaysia at RM4.00 per share hence the entire exercise pricing KFC at RM3.3 billion. As a shareholder, I am trying to look at it realistically. The points raised by minority shareholders are very valid as KFC's share price has not risen much whereas over the last 12 months, other good quality consumer stocks were having sort of a run. To add to that, as a double whammy, KFC did not pay any dividends due to the prolonged delisting exercise.

Hence, shareholders of KFC are holding the shares without getting any payback for a longer period than expected while seeing other shares in the same space increased in value. Nevertheless, let's look at the company objectively besides KFC being just the strong franchise name over the years.

As you can see from above, while revenue, net cash from operations and net profits have been growing steadily, KFC Malaysia has been reinvesting as well. As a result, its free cashflow is not something to shout about. The debt situation faced by Johor Corp has caused it to declare dividends to reduce the burden of KFC Malaysia's ultimate parent. As a result, dividends have increased steadily as well while its borrowings at the same time increased as well. The multiple for cash / borrowings has deteriorated from 0.69x in 2008, the time when Johor Corp just managed to control KFC to 0.40x in 2011.

While the KFC brand name is good and still has room to grow, I think the comparison against other consumer stocks currently is not justified. Competition is greater today and it is not that its growth will be fantastic. The pricing provided for KFC is around 22.5x PE for 2011's income. Even if I think it is slightly underpriced, as a shareholder, I would be agreeing to the delisting. Remember, KFC Malaysia at the end of the day is still a franchisee.

AEON: It is not right

The decision to manage the purchased Carrefour Malaysia separately from AEON Malaysia is not a good decision. As a shareholder, how do we see it...

Firstly, there is a 51% owned AEON Malaysia managing the supermarket. And then the 100% owned AEON Big (now that it is going to be called) will be managed from AEON Ltd, Japan.

Synergy in terms of purchasing power is one thing. Competing against its own chain where there are nearby locations is a whammy. Just a scenario, what do you think the staffs and management of AEON Malaysia will feel and do? What do you think the shareholders will feel?

It does not go well with transparent decision making as well.

I have overlooked this matter and because of today's decision have decided to sell all the AEON shares.

Thanks to readers for highlighting.

Thursday, November 1, 2012

So it's confirmed AEON buying Carrefour Malaysia

News today, AEON (don't know which yet, but the news is saying AEON Ltd, Japan) is buying Carrefour's Malaysian operations for Euro250 million (almost RM1 billion) lock stock and barrel (which includes the debt). I do not see Carrefour Malaysia having much debt though.

Contrary to some of the analysts reports, I doubt AEON will be operating a hypermart but rather supermart and mall. That's my speculation as AEON is better off operating malls and supermarts being its expertise.

On another note, whether it is AEON Japan buying or it using AEON Malaysia's balance sheet to buy, I see the purchase to be merged up with AEON Malaysia's operations. No sane management would be managing and having a structure which is separate from one another in terms of holding structure.

In fact, AEON Malaysia's balance sheet is strong enough to absorb the operations almost immediately. This is premature, but I am even confident of it not needing to raise additional cash from rights issuance or private placements. But any of these options may be possible as well so as not to burden the balance sheet too much.

If anyone is interested, in the longer term or even shorter term, AEON Credit would benefit from this immediately as compared to AEON Malaysia itself.

I nevertheless sees it as positive for both AEON Malaysia and AEON Credit despite reports that there are overlapping in locations.

AEON Credit would be able to immediately increase its reach while AEON Malaysia (the supermart and mall) tasks would be trickier - i.e. turning around a hypermart. Nevertheless, the move is good for an immediate increase in outlets as well as doubling its reach. The business of supermarket is about reach, size, logistics and strong balance sheet.

My other articles on AEON:

AEON Credit: Perhaps this other AEON is even better

AEON: Using other people's money

AEON buying Carrefour would be positive for AEON Malaysia