Thursday, August 30, 2012

There's still growth in Genting Malaysia

At a time when we thought, Resorts World Malaysia is to have tough competition from Resorts World Singapore and Sands Singapore, as well as other more popular gaming destinations as in Macau, Genting Malaysia actually sprung a surprise in terms of what they can achieve. When Genting Malaysia was acquiring the group's gaming businesses in UK from Genting Singapore, the group got some flak as in it was presumed that the UK business is not a profitable business to be acquired. This time around based on its performance for the first half a year, there are some surprises considering the economic condition Europe is suffering from. As you can see, RW Malaysia still has growth both in revenue and EBITDA.

Quarter vs Quarter comparison is great even for revenue and EBITDA
The growth in UK shows that the group could possibly be very serious in building their businesses beyond Malaysia and Singapore. As I said in my previous article, we do not know how well these businesses in UK and US will turn out despite the seemingly bad press they are getting. One thing I know from my observation of its competitors, Genting is the strongest among the big players - and that includes Sands ("LVS").

We do not know that the group is taking this opportunity to expand fast and usually when a company is trying to do things fast there could be mistakes - as long as they are learning and manage those mistakes, that's allright. Remember, Malaysia and Singapore operations are huge cash cows.

Wednesday, August 29, 2012

IHH: Accounting Income vs Real Income

IHH has much potential. However, it has tried too hard to show numbers. The fact of the matter is that for a private hospital with strong brands, its results will come.

Reading yesterday's announcement, I can already envision what the headlines would be. The Star reported with headline, "Sterling performance for IHH Healthcare post-listing".
 
IHH reports - Total growth is driven by combination of factors:
  • Consolidation of Acibadem Holdings from 24 Jan 2012
  • One-time profit from sale (add RM193.6 million) of Mount Elizabeth Novena medical suites as well as fair valuation gain (add RM132.6 million) on Mount Elizabeth Novena’s investment properties held for rental
  • Improved performance of existing operations
  • Greater demand for quality healthcare services in Asia
Now, remember that this is one business which foresees full year PAT of between RM700 million to RM800 million during listing. Based on the report below, it seems it is on track, but of course with one-off items.

To be fair, they did have pre-operating expenses for Mount Elizabeth Novena which was charged to the accounts. Inclusive of those one-off items, its results look like this.


Now, all in all without the exceptional items, here are the actual results which we will see moderate to good growth over time - not exceptional.

You will note that with those income minus the one-off items, its performance should more resemble PAT of between RM500 - RM550 million. And it is trading at RM25.5 billion market capitalization. Shouldn't that be still expensive?

Bonia: Take note that the original owner has acquired >17%

To those who read my blog on this, the PNB block is actually in the hands of the founder of the company, CSS. See below, where he and his sibling have formed a company under the name of FTSB to acquire a 17.38% block from unknown parties.

What could potentially happened was as PNB and ASB were selling, these block were actually bought by several parties related to CSS - in multiple nominees so that the 5% substantial shareholding was not triggered. Otherwise, they would not have sold at a price below market i.e. RM2.04. Hence, if my speculation is right, they could have planned this all along. Bonia has not traded much below RM2.00 for this year, once PNB / ASB started to sell sometime around February.

While, I have highlighted this, as I have said often, do not mess with the owner as they have all the tools while retail shareholders do not.

Tuesday, August 28, 2012

Catcha Media: In the eyes of an analyst vs mine

Catcha Media reported its earnings yesterday. I originally thought of writing something today, however before that, I read an analysis from a local investment banking firm. It says as below:

To summarize, basically it says Catcha is not doing well and below their expectation. It in fact made losses over half year 2012. However, the investment banking firm expects the company to turnaround with better results due to the following:
  • its foray into online regional auto (via iCar) portal looks good in the future;
  • its acquisition of an online e-commerce business Haute Avenue looks good as it promised a profit guarantee of SGD1.5m per annum.
The Investment Bank values the company at a price of RM0.77. Catcha is trading at RM0.52 currently. Hence, it calls for a Buy.

My analysis

I am looking at the perspective of business. How it will trade I do not know as the company seems to be short on float. Hence it is easier to manoeuvre the share price by traders.


Catcha Media is a company which has not shown any strong potential. Its drop in revenue as well as registering losses despite its expectation of doing much better after its listing really disappoints. Over the last year, after its listing it has gone on acquisition (Haute Avenue) and exercise (iCar listing in Australia) to boost up its revenue and future. Those are exercises, but not something of substance as yet.

If it is claiming its foray of having a regional car web portal will succeed - that I have yet to be assured of. It is not that there are no automotive portal. Jobstreet acquired Autoworld.com.my years ago. For a company which has much cashflow than Catcha and already has proven ability in terms of building a dotcom business is not able to turn the business into something worthwhile. The most followed blog / portal for cars in Malaysia is www.paultan.org. I do not see Paul Tan making much despite he is very much widely followed. (I respect his ability to pull crowd though - it's not easy)

Success in Malaysia does not mean success in any other parts of South East Asia. Jobstreet is largest in Malaysia and Philippines. JobsDB is most successful in Singapore, Thailand and Hong Kong. Seek.com is largest in Australia.

I do not see an online portal on high end fashion been able to prove successful in any parts of the world. How is Haute Avenue being foreseen to be so?

For now based on the below financials as at half year 2012, it is showing more pain than gain. Its cashflow does not seem good as well with less than RM3 million cash remaining. Its listing in Australia for iCar may have raised it some cash for the South East Asian portal but making it successful is different from convincing investors to put in cash.

My question is, how is the analysis by the investment bank going to be prove us otherwise?

The only one substantial is iProperty.com which to some extent increased its presence nicely. However, if you look at the expenses, it has much revenue from other sources which is event management. Hence iProperty made much from event management as well as online services (although its Annual Report does not tell us anything). And in fact, iProperty still loses money despite it trying to expand at a vigorous speed.


Just in case you are interested, below is the Proforma Income Statement for iCar which is expected to be listed in Australia.


Monday, August 27, 2012

RRI land bought at around RM22.50 per sq ft

In an announcement today, Kwasa Land, a subsidiary under EPF has bought 2,330 acres of land at RM2.28 billion from the government. That comes to around RM22.46 per sq ft (which is seemingly very cheap). The development is planned for 15 years.

With such a large development being offered, will property prices taper down? - as supply will definitely increase.

Can I say something needs to be done to reduce the prices of properties? And this can be a good start.


p.s. Although I need a new house, believe me I am not in those category that seriously in need of one.

Saturday, August 25, 2012

DKSH: Still good?

Looking for consumer related stocks still? One that does well, good growth prospects? Well managed?

One of the companies which has continued to do well over the last few years after its internal restructuring in 2008 / 09 but still attractive is DKSH. It has just announced another growing numbers in its latest half yearly numbers. What does it do? It does distribution for consumer related, pharmaceutical companies. From that, it owns a logistic arm and I think some would have heard of Famous Amos - which it owns as well. The revenue size is a big as Nestle Malaysia, the largest consumer stock - but obviously DKSH (much smaller) is only distributing for others while Nestle sells its own product.

This was the first company which I bought under the portfolio and I would dare to say at its performance below, it is possibly still undervalued - to me.


Current Market Capitalisation is around RM320 million. PE on course to be below 7x for the year. I will continue to say that one of the largest distributor (maybe largest) in Malaysia should at least be worth RM500 million as it has the scale, ability and name to do that. It represents many consumer stocks in Asia and with the debacle of Heineken and many others looking at Asia, there are bound to be companies looking at this region to sell their products. If you do not have a good distribution channel, who do you look for? Company like DKSH- which is why I think it will still continue to grow.

One of the biggest problem with DKSH was the parent company and LTAT owning a total combined 90% of the stock - hence it was low in float.

Last one year however LTAT has been selling down to about 10% hence increasing the float to 15% which is good. It will attract more investors which is why you already see more volume traded.


Friday, August 24, 2012

Bonia: Am I seeing something weird? (Updated 26Aug)

Bonia is a company I Like. However I found something weird from its today's announcement. Read below:


Read the one in the red box, indicative price of RM1.80 to RM2.00. What is Bonia's price traded at now? RM2.59. Past few days assuming this news has been leaked it was trading around RM2.23.

I am thinking is there anything amiss in this deal?

I believe that the large chunk of shares that CSS, the controlling shareholder is looking at is from PNB. Look below where PNB is holding after selling major bulk of its shares over last few months. PNB has sold a lot of shares to my counting (there could be cross selling among the PNB controlled groups). Hence, PNB has reduced its holdings over the last few months. Who does PNB's group sell to, there are no reports. The selling was probably via direct trading and not through the market as Bonia's volume over the last few months did not indicate large volume traded.


Only few things I can think of:
  • Bonia has become unattractive at its current price of RM2.23 to RM2.59 - don't think so;
  • hard to dispose such a large chunk of shares - don't think so. Don't we have CIMB and Maybank who are best at what they are doing with IHH, FGV and Astro recently? That block is only at around RM150 million. I am sure it can be passed to some private equities..I am sure CSS would not want to have another shareholder. Look at what Thai Beverage did to Heineken.
  • PNB in need of money? Perhaps, but again why such a big block at such price? I know that this price is to make a General Offer unattractive as its price of RM1.80 to RM2.00 would not lead to minority shareholders disposing to the major shareholder.
  • There are news of PNB looking for acquisitions (as in this article by Business Times) in fact but the recent selling by PNB was an action which was otherwise and defied that logic. PNB selling to related or similarly interested parties? As a result of this, Bonia's management has taken action to increase their control? The biggest question is the pricing. It says that CSS is looking to acquire at RM1.80 to RM2.00. How on earth they can get that kind of price when we know that large controlling blocks could be more expensive. Again these strategies are to avoid other shareholders from selling to CSS as that price are deemed unattractive.
  • Whatever it is, these transactions could have involved third parties to avoid the minorities from selling during the GOs. 
  • These news put up by CSS is just a "BLUFF" calling as they are seeing third parties snapping up their shares (potentially dangerous to CSS)?
  • Or, someone making money somewhere else? This could be another logic which we cannot discount.

Just to add on - Bonia bought Jeco (a competitor with brands such as Braun Buffel, Renoma etc., 2 years ago): it was a sweet deal (not expensive) and you can basically see how smart the Chairman is - so much for once a tailor!

Only one-third of proceeds goes to Astro

The EdgeDaily yesterday reported that proceeds from the IPO would be used for the following:


This shows that a possible netting of RM3.764 billion by both Ananda's company and Khazanah.

Hence, what does that tell you. It is going to be a dividend stock. If you are looking for dividend, this is not a too bad a stock however, it will face challenges in terms of its business in future.

Thursday, August 23, 2012

Time Dotcom: Fiber is the future

Let's face it, despite the uneasiness on how the Time Dotcom's (TdC) deal was crafted out, this is a changed company. It has gone from a boring, old, overstaffed, lack of leadership and direction type of company to something of a challenge to Telekom Malaysia (TM). It has a young CEO, a small Board (I do not like large Board), healthy Balance Sheet and a cashflow positive company now.

Despite that, is TdC up to the challenge against TM? Remember, TM may still have the symptom of an old TdC, as it is a much bigger company but its focus on fiber and with a breathe of fresh air from some of its new management people, this giant has sort of awakened - thanks to a large part from the help of government's fund (or rather our fund) for the HSBB rollout, as well.

Will TdC being the second largest in terms of providing wholesaling of bandwidth be able to compete? Now, let's look where it is heading in terms of what it does. This is what it says it provides from its website:

"As a data-centric operator, TdC’s business is anchored at providing backhaul and wholesale bandwidth solutions to leading local, regional and global operators. The Group also offers extensive fibre optic-based telecommunications services to large corporations, government organisations and enterprises that demand uncompromising reliability. Within the consumer space, TdC offers 100% fibre-based broadband services." 

Sounds confusing? - it does, which is why it is not getting much followings despite the change in management and focus. Basically to explain, it is a company that looks at multiple ways into providing the highway to the telcos (Maxis, Digi, Celcom, Green Packet or even regional telcos), while these telcos concentrate on building the smaller roads, retailing, marketing and billing system.

If we look at it, as mentioned, its main challenger is TM with the mobile players themselves building their own roads as well. Does this mean TdC has quite some competition? Yes, however as with the new team, it concentrates on doing what it thinks it knows best which is providing a better highway than the rest. With that, and considering that the number of players in this area are still not that many (due to size required, cashflow and licensing), TdC has a targeted role to play.

Just look at its financial summary below for its performance for the last 4 years.


The new management took over the business in October 2008. As you can see, large write-offs were done in 2008. From then on, major VSS was done to reduce its operational costs as the group was involved in all kinds of telco-related businesses which were largely unprofitable.

While revenue was not growing much at all, its restructuring was good enough for the company to see very nice profits growth.

You will notice that I have pulled out "Income from Investments" from the financial statement. This is due to its holdings in Digi which it now owns 275 million shares worth about RM1.35 billion now. While this is very substantial to the group, the holding should not be looked at a measure of the group's performance. (Remember Digi issued 5% of its shares to TdC for the 3G license few years ago.)

For the valuation of TdC, I would like to put a 20% discount on the value of Digi. Why? We have no direct holding on Digi. If we are to put the full value, we might as well buy Digi direct.

At its current price of RM3.41, the market value of TdC is now RM1.95 billion. Deducting Digi's value of RM1.078 billion after the 20% discount given, TdC's business is being valued at around RM870 million. (Get over the valuation that TdC gave (RM337 million) for its purchase of AIMS and GTC.) Are TdC's businesses alone worth RM870 million?

What would the new acquisitions of AIMS and GTC be contributing to TdC's bottomline? An extra 20% to 30% in terms of profit (ex-dividend from Digi). Now, with that I would think TdC would be able to hit almost RM100 million PAT (before Digi's contribution) a year. On top of that, it has some great assets which the group is continuing to reinvests into.

I feel that TdC, with its concentration on being a wholesaler, though not fantastically sweet, it is doing the best it could with what they have with the existing competition. It has let go of the B2C business which is vastly competitive. Currently it is concentrating into providing pipes as backhaul (and other hosts of services) for the telcos, which I think is the right decision. And importantly, at its current market value of RM1.95 billion together with its holdings of 275 million Digi's shares, I think it is attractive. On what angle?

If you look below, the TdC's sweet spot are the potential growth of data revenue as well as its tie-up with Astro into providing Astro's B'yond IPTV. To a certain extent, as I have mentioned in an earlier article on Astro, the future is going to be delivering content via fiber pipes not satellites. As Astro is now a direct competitor to TM, it may not yet want to rely on TM's fiber, but TdC's. Hence, revenue from selling these pipes to home can be a significant revenue growth to TdC although these are yet to contribute as of now.


What about depreciation? Importantly, as seen below, it has not carried much assets anymore in the books as we do not want to be surprised by large write-offs in future.



With that, I have bought a small quantity of 2,100 units at RM3.41.


Monday, August 20, 2012

Portfolio Update: 17 Aug 2012

Since the last update 2 months ago, stocks have gone substantially higher. For example, Wellcall has gone from RM1.90 to RM2.63. During the last 2 months, I have sold Oldtown at RM2.20 (see below). For Oldtown, I have made 90% over less than a year, buying it at RM1.15 and selling at RM2.20. During the period, it has paid 6.5% dividend as well. While comparatively against some of the consumer stocks it is still lower, I felt that the action of the major shareholders in trading the stocks may have affect it in the short run. Despite that, I still have much respect over their abilities to build the business to what it is today. Look around for the similar type of business, you will not be able to find a local franchise as strong as the one that they have built.


Anyway, here are the latest holdings, where I bought 2 shares ICap and Genting. Basically, these are the two stocks that did not enjoy such a run probably because of some of the reasons which I have highlighted earlier - Icap for its non-dividend payment while Genting has been lagging in terms of performance over the last year.

The total value of portfolio is about RM80,000 now.


Against Bursa Composite and Fixed Deposit, the performance of my small portfolio has beaten them over the last 1-1/2 year. If you look below, Bursa's Composite has done relatively well against Fixed Deposit - hence its proven do not bother about putting your money in the bank, as giving your money to your banker basically says you are asking your bank to make money for themselves using your money. Why should you? Even if you just follow the Composite stocks, you will do better over the long run.


With the sale of Oldtown, I have some RM14,627.07 in cash. So stay tuned.

Saturday, August 18, 2012

Astro's IPO: Primetime still?

Imagine 10 - 15 years ago, what was your most viewed screen? TV? PC for work and some surfing? How about today? How many active screens do you own? Mobile (smart), tablet (iPad probably), notebook with built in wifi (whole lot of apps for video viewing, blog reading, stock charting, facebook-ing?), then your TV screen. In my house, for example I have some 6 active screens in total (2 TVs, 2 PCs, 1 tablet and 1 mobile).

With that, the biggest question for Astro in the future is how to grab that eyeballs from Malaysians as much as it can. The question is can Astro with the tonnes of content it is creating and to some extent have exclusive rights in some premium content, would it be able to grab your attention. Would more people be shifting from watching Astro's TV to reading my blog for example, or me spending time blogging rather than watching Astro's content? How would YouTube's premium content strategy turn out to be? Will YouTube be a competition to Astro? How about Apple's TV strategy?

Even TV is changing

One of the biggest question now is whether Apple coming out with "iTV"? The fact of the matter whether Apple is coming with TV or not is actually not important. The more important fact is that SmartTV is here to stay and grabbing market share from the more traditional TVs. Apple's iTV is about SmartTV, only thing is how are they going to make it smarter as in the iPhones for mobile and iPads for tablets. If SmartTV is here to stay, and with capabilities of viewing youtube, international channels not related to Astro and other hosts of applications now being made available from your PC to your TV screen, it is going to be bad news for Astro. They will lose their share of your eyeballs.

Will Astro with a whole lot of highly paid and smart people be able to address that problem? Its competitors - Google, Apple, Samsung have very highly paid (and smart) people as well. Much higher in fact. And these guys are thinking of getting into TV and content. (Yes, Astro's competition may not just be Media Prima and RTM but people like Larry Page, Sergey Brin, Tim Cook, even Microsoft's Steve Ballmer - am I over speculating? I am not.)

Netflix?

Heard of Netflix? The top darling stock in US for 2011 (of course it came down later while its strategy has proven to be a threat). It is basically a company that aggregates content - be it movies, dramas, series, - new or old - and bringing them to your living room. Their charging model is via per movie purchased or monthly subscription. Hence, households will have a huge library of content available in their living room, and they can watch it by paying a minimum sum whenever they want to watch them. The more they watch the more they pay - basically On Demand.

Of course, over here in Malaysia, this Netflix model is a bigger threat to the pirated DVD dwellers than Astro for now. But imagine you can pick and watch whatever you want anytime you want - that is OnDemand TV already here right now. YouTube can do that too. The biggest challenge right now for this things to be here, in Malaysia is licensing.

Can Astro do what Netflix is doing? As a predominant Satellite TV provider - difficult, as technologically it faces a challenge. What netflix does is it does not care which "platform" you are watching your TV on, you can basically get a USD50 set top box (STB) from any shop out there, pre-downloaded with Netfllix and watch. From there, the content will reach any home which has STBs that supports Netflix. (Most homes in US has that.)

While Netflix may not be here, what may happen are operators with Netflix model may be here and again these are potential threats to Astro in terms of grabbing your eyeballs.

Current challenges to Astro

What has been said above are potential threats to Astro - although, it may or may not be here, yet. The single biggest challenge to Astro NOW is the challenge with content costs and increasing the Average Revenue Per User (ARPU). If you see below, it may seem to be that they can pass the costs to the users as it seems that they have been able to grow the ARPU from RM82 in 2010 to RM91 in 30 Apr 2012.


How high more can this continue? Above RM100? While the actual data may not be available, let's face it - my experience in Astro being able to increase its ARPU is not by providing better and more content to the household, but by increasing its charges. The amount of content that I get from Astro is still the same or lesser in fact but over the last few years it has repackaged their pricing to squeeze more dollars from its subscribers.

Again the question is how much content do we really need. Yes, Astro is smart to repackage content so that we may need CNBC, Sports, History Channel and other useless channels which I do not watch - repriced them yearly so that we will be paying more, but this is to backfire if it does this too many times.

It already has 50% market share on the households in Malaysia. Anything more would be getting tougher as there is a percentage who would not bother or just cannot afford. Look below, it manages to increase less than 200,000 subscribers over the 2 years, still a decent sum but already it is showing a slow down in terms of getting new subscribers.


However, I would feel that the bigger challenge in the long run is to reduce its churn. While this may not seemed to be, based on the above current numbers, it will be a challenge over the long run.

How come?

- Monopolistic environment - besides what are already mentioned above, one thing that people do not realize is that Astro has been pretty much operating off a "monopolistic" environment. Astro is the only 1 operator who is able to offer satellite TV, and Ananda is smart to be able to expand this advantage fast to be able to control premium content deliveries in Malaysia. Astro now has exclusivities over ESPN, Star Sports, EPL, CNN, CNBC (basically the premium content that most Malaysians until now are not able to live without). Will that change is a question?

It may, it may not. The most recent example where Live Olympics content was already available off YouTube (owned by Google) is already an example. You can basically watch Olympics live on Youtube as in what we get from Astro. Google is a USD250 billion behemoth, and I am sure this is just the beginning. If Apple is going into offering content through TV, I am (carefully) sure things like this will be here as well, or much more.

Yes, we may say the content owners may have different ideas but content delivery partners to these guys are equally important and these giant of companies have a lot of power and money to make statements. Movie content guys are facing some of the threat that the music industries were facing since the days of Napster.

Hence, that monopolistic situation may even be cancelled out, even with the Malaysian government fully behind Astro. Content may have just gone borderless with the advent of YouTube.

- younger generations - again, more and more eyeballs have gone to tablets, phones, notebooks and other screens and moved away from TV in the last 5 years. Hows that going to translate to Astro getting more of your time? They may be able to continue to charge you subscription and increase them. But don't you think over time, we will not be that naive anymore? - paying for something which we use lesser and lesser.

- costs - at last, I am going to show the financials. Look at the revenue growth - great. But look at the PAT growth as well. In fact, for the most recent quarter, its PAT deteriorated (from RM196 million to RM123 million - 30 April 2012 quarter). How is this?


It is basically spending more to deliver content to us - either by way of purchasing them or making (producing) them. Over the years, premium content are getting much much more expensive. This is why much watched "Live" content such as EPL, NBA, Olympics are getting "record-breaking" bids. This is also why content such "American Idol" is getting value - that is if you are able to produce them well. Nothing beats live content nowadays. Beyond live content, their value deteriorates due to "On Demand" technology. And this is why strategies like Netflix's will thrive in the future. Not Astro's as it does not have the delivery mechanism to do this - besides Beyond IPTV. Who has? Actually, Telekom Malaysia through HyppTV's IPTV (but TM currently does such a bad job in this - they will learn but this is a story for another day.)

Why are Astro's other expenses higher besides the costs of sales? It has to concentrate to make more localize content of its own. And it has to spend more on getting better and newer technologies to deliver the content to your home - better Set Top boxes (the PVR, HD), having more satellites to deliver High Definitions content. However the platform that it is using is just too much a challenge against the one that TM is having - fiber.

Another potential reason for the higher revenue and ARPU could be due to the sale of broadband. Started few years ago, Astro has tied up with Time Dotcom to offer Astro Beyond IPTV. Part of the package offered for Beyond IPTV is broadband (minimum price package I think is RM138 for a 3MB broadband). Hence, if it is recognizing revenue from broadband, for sure its revenue and ARPU is going to be higher. So will the costs of sales be. Hence probably from there, that's the reason we are not able to see higher profitability despite the higher revenue.

It seems that the journey Astro is going to have is getting more and more challenging. It is just facing competition from many angles.

At RM15 billion market valuation it is trying to ask for from us, is it worth it? Would you pay 24xPE (2012's Net Profit) for so many things unanswered? But yet again, since Khazanah is there, EPF is potentially going to be there as well. And from there, Astro may get some premium - but for how long with all these questions? Yet again, it may promise all the dividends in the world - and when we hear things like this we get excited.

Anyway, there aren't much for those who would like to apply through the usual balloting. See below.




Read my other article on Astro's IPO.

Astro IPO: How delisting and relisting may create additional RM6.5 billion from the market

Thursday, August 16, 2012

Astro's IPO: How delisting and relisting may create additional RM6.5 billion from the market

Guess who owns Astro and Maxis. Both listings exercise strategies are cut from the same cloth. If one can remember, both went through a decently successful initial IPO (Maxis much more successful) and both were delisted. Then Maxis was relisted, Astro is about to be relisted.

What is that strategy? Originally, Astro prior to its delisting has operations in several countries but Malaysia is the only successful and significant one. Malaysia is the only one making money while everywhere else are just too volatile and bleeding cash as well as affect its P&L.


I have pulled out the Income Statement prior to its delisting in 2010 and compare it to the Proforma Income Statement which it is going to use for its prospectus this coming IPO. See the difference, prior to delisting, the marketing, distribution and administrative expenses was much higher. So was the share of losses from its associate companies (which are using equity method of accounting). The PAT was RM233 million for the accounts prior to its delisting. After the restructuring, we are seeing an account with a healthier PAT of RM614 million. And this structure is the one it is using for the new listing.


Which were the associate companies? Well, pretty much as below.



What did it do? The below is what I have cut out from its prospectus (which it submitted to SC). Astro basically reorganized its business by pulling out the profitable Malaysian operations and offer them to the people again. It also cuts off most of its associate companies above from the listing.

For the point of delisting, Ananda and several group (Khazanah included) were buying off minorities at RM8.5 billion valuation. Now, it is expecting a valuation of between RM11 billion to RM15 billion and I believe it is able to achieve at least RM12 billion judging from the more recent IPOs for large listings in FGV and IHH. If they achieve RM15 billion, it is going to be a cool RM6.5 billion that it has managed to pull from the market.

The question is, are all these illegal? It definitely is not. But just pure assets shuffling (for gains) which is just too much of unproductive work and thinking into it - and that is much we are all about nowadays - tonnes of hot air for nothing!
Do you see anything productive here?

BTW, as I see it again CIMB is involved. Guess who is always thinking of creating something out of nothing.

Other article on Astro's IPO:

Astro's IPO - Primetime Still?

The rise and rise of Consumers

When everything else are not so safe, people go for the presumably the safest - consumer goods. We need to eat, we need to drink, we still need to have that puff. However, have you heard of in times of despair, its also time for opportunities. This is also times when institutions and retail together are looking for safe haven. Why? They themselves especially the institutions have to be safe - otherwise they may be out of job. Hence, in times of uncertainty, we might as well be travelling on the "Road Most People Travelled". Humans can't move away from that herd mentality.

Look at the four charts below for Carlsberg (supposed to be a sin stock - we would think Malaysia especially to be a shrinking beer drinking country?), BAT (cigarettes supposed to be a stock to be avoided as they have not much growth story anymore  - NOT quite TRUE), Nestle (a strong food brand - strongest in fact) and Dutch Lady (a strong regional dairy products brand). Hence, we are looking at four consumer goods with different profiles. But they have 1 similarity!

BAT Share Price

Dutch Lady Share Price

Carlsberg Share Price

Nestle
After looking through the 4 charts, can you spot the difference? I can't. Basically, the trend is an assumption of them doing very well. Yes, these companies are doing well, BUT not all of them deserves the word very. They consistently do well, that is all. Probably, that's the next best thing for now.

These are the stocks where it is supposed to provide us with the comfort as they have strong brand names. They provide some comfort but are we just looking for that comfiness? - especially when it has gone that high. Very quickly, over the last 2 years some of these stocks have gone from very cheap to expensive. How fast things have changed? Is it a herd thing? After all, we people move in herds.

Now, who dares to move out of that pack? Now is the best time to look for the next best thing after this. Question is, which one is it?

Tuesday, August 14, 2012

IGB Reit: For those who have limited alternatives and lazy to do any analysis

Properties had its run the past few years especially after the 2008 crisis when most central bankers have the view of keeping interest rates at their lowest. Liquidity suddenly became over-plenty and banks have to find places to lend to - not businesses supposedly for economic growth (as they are getting riskier) but the other side of it - consumer credit (basically asking us to spend). With that, property developers would obviously have their killings, not bothered about affordability level of the man on the streets down there when their concentration been on high end properties. Hence, the focus have been on how nice your new unit will be rather than the practicality side of it.

Now let me ask that person on the street (me inclusive), with return so low (3%) from the safe haven money keeping in the bank, where am I to put my savings? Some went for properties which have now gone amazingly unaffordable. Stocks? Over the last few years, it had its run as well. Many people are going for the tried and tested such as Nestle, Dutch Lady, Digi, Carlsberg. Even F&N which has suffered from Coke's eagerness to compete still sees its share prices continuing to go higher (forget about the rumours of there are several interested parties). What are the causes of this? People are running out of ideas on where to put their money - and South East Asia has apparently now become a safe haven. How nice.

TheEdgeDaily had a nice piece on IGB Reit yesterday. It basically had the notion that Malaysians (both people and institutions) are willing to pay more for less. At RM1.25, we are willing to get a 5% return from another so-called tried and tested. There is no doubt that IGB Reit with its Mid Valley retail Mall as the prize is one beautiful property. For those who are not sure yet, let me bring you there - every inch is occupied - seemingly. Every single day are pack with people - weekends and weekdays, holidays, non-holidays. There are not many more properties like this, despite the seemingly over building of retail malls. Successful retail malls feed on the expiring date of most tenancies - as it is the time to increase their rates again. If you are not willing to pay for the hike, plenty more are waiting in line for your lot.

Now, think again - with savings rates so low, inflation on the rise - on paper or not. Properties now as investments? Maybe not. What are the alternatives if we are not seriously into stocks? Perhaps this IGB Reit is still a decent and tolerable safe haven despite its not so attractive yield. Like it or not, we have to look for better alternatives than the money in the bank. This is also attractive for the shoppers as rather than spending your money at Mid Valley, what about making your money from there? Hence, next time you are at Mid Valley, rather than just doing shopping - look at the crowd. You should be happy with more crowd, hence  potentially signalling time for your little investments to do well.

I am not going there though, as I like the challenge of doing more - as in slightly riskier investments. At least for now - but never say never.

UOB KayHian on Malaysian market

Time and again, I have presented my views on the danger of Malaysian institutional funds (like EPF, KWAP) distorting the market. Here are the views of UOB Kayhian (Vincent Khoo).

In my earlier article, I have mentioned of it getting tougher to pick stocks as I am finding the valuation is getting full. Nevertheless, I am finding some stocks to be still attractive and will present them these few days.


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Mixed institutional investor feedback. We presented our market strategy outlook to clients in Asia. Foreign institutional funds, which we met, were generally UNDERWEIGHT on Malaysia and continue to be wary of Malaysia’s index components’ high valuations relative to regional peers (although we note that foreign ownership has resumed inching up in July to over 24% after easing in June). Meanwhile, we sense that most local institutional investors have raised their equity exposure, although some are taking profits on the more illiquid small-cap stocks. Most investors expect market to weaken when elections are held.
Market vulnerable to swift profit taking… Overall, we remain cautious of a market selloff as markets would eventually react to deepening recession in Europe and slowing global economic activities, and also noting the calendar effects of a generally weak August-September period (the FBMKLCI fell on average 3% in this period over the past five years). We also highlighted that General Elections (GE) would most likely be delayed to 2013, following the defections of two parliamentarians in Sabah, which should erase the perception of immediate market support ahead of the GE. Overall, we expect the FBMKLCI to trade in a range of 1,500 to 1,650.
• …as risks ignored. We note that the over-compression of dividend yields – as best highlighted in some retail REITs’ net yield spread to the risk free rate of only <150 bp="bp" peers="peers" singapore="singapore" the="the" vs="vs">300 bp spread – demonstrates that downside risks are largely ignored. Many historical yield plays now feature prospective net dividend yields of below 5%, which is only a tad higher than the present 3.7% yield for 10-year Malaysian Government Securities.
Key investment themes. Under the outlook of a protracted global malaise and low interest rate environment, relevant key thematic plays continue to be; a) yield compression for high-yielding stocks, b) growth in oil & gas, c) lingering M&A plays, d) favourable supply-demand dynamics for rubber glove manufacturers, d) low yield in the plantation sector (more relevant for 4Q12, post the peak production period). Favourite sectors include the number forecasting operators (NFO).
Looking forward to 2013, five sectors are expected to trade significantly below their historical 10-year mean PEs – Banking, construction, exchange, gaming and plantation (refer to table overleaf). Among these, the construction and casino sectors should outperform given their hefty underperformances this year and emerging catalysts anticipated. The construction sector features strong earnings visibility through 2014 as mega projects roll out, and we foresee renewed interests in casino stocks, which tend to perform post-GE, on the Genting Group’s ongoing efforts to capitalise on new greenfield developments and liberalisation in gateway cities in the US.
Action
• Top large-cap picks are Maxis, Multi Purpose Berhad and Sapura Kencana, while mid-small favourites are Perisai, Top Glove and Tradewinds Plantation. DiGi.Com, a favourite yield compression play, could benefit from the capital management front with the legalization of business trust framework in 2013.

Thursday, August 9, 2012

Rubber gloves companies buying land: Just when you thought Top Glove is wrong

Some people were questioning the rationale for a rubber gloves company such as Top Glove into moving upstream - i.e. buying land for cultivation of rubber trees for the gloves. Kossan is now doing the same - and getting some flaks from CIMB.

I would presume because of the volatility of commodity prices, it is very difficult to predict what can happen in the future. What CIMB Research is saying is that these rubber gloves companies can hedge their future positions. Perhaps, we can learn from Airasia few years ago when they hedged their positions in fuel futures and the company had to write off hundreds of millions in derivatives losses. In hedging, it can go either way, as we do not know where prices of commodities are heading.

I am just wondering, wouldn't buying land and cultivating rubber trees itself is a form of hedging? - for the very long term in fact. (Perhaps, better than paying banks for hedging fees) I am suspecting that the reason why these companies are into cultivating their own rubber trees could be due to supplies as well besides the high volatility in prices. We sitting here sometimes may not know the difficulties or challenges companies get in terms of supplies. Remember, gloves is not the largest consumer of rubber. Perhaps tire is. Hence, these guys can't act like Nestle or Starbucks in capitalizing on their scale into cornering coffee supplies.

Let me give another example. When the Kuok group was owning a large chunk of sugar refinery and distribution in Malaysia, they had no problem getting supplies at fair price as they have large trading desks for supplies of these raw material for sugar. Now Felda is the largest supplier of processed sugar in Malaysia after buying these stakes from the Kuok's family - see what happened to prices of sugar over last few years.

Going back to rubber - The biggest question for these companies which are buying land is what can they do better with the cash reserves that they have. Branding, distribution, expansion OR buying land for cultivation? I guess the biggest question now is whether for gloves is there such importance in the need to have very strong brands in rubber gloves. Condoms - we have seen it in Durex! In gloves, probably Kimberly Clark is one of the strongest.

There may be in gloves as branding may bring confidence in the buyer's perspective of quality. When there is a strong brand, the pressure to pricing may be reduced. However, one thing I know is that condoms it is a B2C consumer business where branding is very very important - see Apple, Coke, Toyota, even Kimberly Clark's Kleenex or Kotex. B2B business such as rubber gloves where they are selling to healthcare companies, the need for branding is not that prevalent - important still but not that much.

Additionally, sitting here I am also wondering - if these companies start to create their very own strong brands, what happens to being OEM as that's what they do best now? Buyers may opt for other suppliers as they have started to compete directly against the likes of Kimberly-Clark, Ansell and several other brands. These are players who have very strong network at the healthcare space. Will this be a strategy where the companies are shooting themselves on their foot?

I guess there are many questions which we do not have the answers in terms of strategy where these rubber gloves players are going on their own to create the raw material supplies themselves. It may not be the wrong move judging from some of the examples in other industries that we have seen before.

Tuesday, August 7, 2012

It's time to revisit Genting

Genting Berhad ("Genting") is one company which receives a lot of negative news recently due to its seemingly difficulties in having a strong gaming presence in the US gaming market. Firstly, the plan to open a massive casino was faced with legislative approval in Miami. Then, a USD4 billion plan in New York for a convention center faced brickwall as well, when other competitors of this largest Asian gaming company complaint about the lack of equal bidding opportunities.

Recently, the shares of Genting has gotten a beating dropping from RM11.00 per share to below RM9.00 at a time when other blue-chips are doing well. While I may be one of those who is in criticizing the stock, I think the loss in confidence in the company is probably overdone.

Let's not forget, Genting has 2 very strong casinos in Malaysia and Singapore. The casino in Malaysia is generating income of RM1 billion a year with a net cashflow of more than RM1 billion a year assuming that it has no new investments to be made. Of course, it plans to invest USD4 billion for the New York convention centre and the cashflow outlook may be different once that commences.

As for the Singapore's operations, once RWS is fully completed (by end of 2012), it would have very strong cashflow from the business. It gets around net operating cashflow of SGD1.4 billion a year from RWS. You would be wondering what it would be doing with that SGD1.4 billion generated a year. A small sum of it would be reinvested into the resort in Singapore. The rest - is what we see in Genting - investing into areas that it sees opportunities in, and the areas it deems (seems to me) to be attractive are casinos businesses in US.

We have seen that the Genting Group is in a hurry, trying to do deals in 2 major cities in US - New York and Miami while it is already the largest casino operator in UK. It is also looking at Australia. With that, there is no doubt that Genting is looking to be a major casino powerhouse globally. Already, it is the largest Asian operator. In terms of profitability (measured over the last 2 years), it is probably the 2nd largest after Las Vegas Sands. In fact, it has the strongest balance sheet among the major league casino players - Sands, MGM and Wynns Resorts as these players were affected by the US slowdown.

In US, Sands is the most attractive gaming operator, 2nd came MGM. Sands is now trading at USD33.7 billion market capitalization with PE of around 23x. If you look below at Sands Balance Sheet, Genting's is much stronger. Comparatively, Genting is now trading at slightly more than USD10.5 billion market capitalization.

Sand's Balance Sheet as at 31 March 2012
Genting is in a net cash position and even though with the new investments that it is trying to do, its balance sheet will still be strong with very good net operating cashflow from its 2 very profitable casinos in Malaysia and Singapore. Besides that, Genting has a very decent earnings from its Power Plant and plantation businesses - just that its current income from gaming dwarfs that.

Based on Genting's prospective income this year, the current price Genting Berhad is trading values the company at 12x to 13x PE. That to me is a very attractive proposition despite the troubles it may face in trying to expand its gaming businesses in US. What Genting lacks now as in article by Miami-Herald is a strong brand globally (although it is well recognized in Asia). I however feel that we will see that changed over the next decade if it continues to push hard towards global recognition.

With that, I have bought 1,000 units at RM8.92 for my small portfolio.


Following on to that, I have also injected another RM10,000 into the fund and this is what the position looks like as at today.

Saturday, August 4, 2012

EPF, KWAP, TH on FGV: The big 3's position

I wanted to have a feel on the largest national funds with regards to their holdings on a company which can be thought to be controversially supported - FGV.

Let me show the table which I have prepared. As you can see the three funds:
  • EPF started with 5.06% holding, now after 1 month owns 5.65% of FGV;
  • KWAP started with 5.30%, by 26 Jul it increased its holdings to 6.33%;
  • Tabung Haji started with 7.55%, 1 month later reduced slightly to 7.49%.
  • As for share price, FGV opened at RM5.30 on 28 June, latest was RM5.12 (for the period in review).


Now, you see that as the share price of FGV dropped, the funds continue to increase their holdings especially from mid July. It is not wrong to buy as shares continue to drop, but this I think is not the case here. Currently, the three funds hold in excess of 19.3% of FGV from the initial period of below 17.9%. As EPF has proven to hold more than 10% of many Bursa Composite companies, I will not be surprised that it will continue to increase its holdings.

Now the question is whether these purchases allow some to sell especially the huge list of MITI's holders? Currently, palm oil stocks are on the slide due to potential weakening of crude palm prices but this is not the case here. Many of the shareholders of FGV at the moment are just not the believers type (and they were just doing trading) and I have the suspicious mind that these funds are doing their best to not let it slide much further.

Do you know why I am not supportive of these funds being heavily involved in Malaysian stocks?

ICap: One should not look at P&L as indicator of performance

This morning I was talking to my mum. While talking to her about ICap, she was saying that ICap's profitability is low. Only then I realize that perhaps why its share price is low comparative to its Net Assets. Some may look at PE as indicator. Not unusual as if based on your indicator from Bloomberg or any other financial sites, they only mention PE or Dividend Yield.

The right indicator for closed end fund (or any investment fund for the matter) is Net Asset Value. Net Asset Value is the barometer which values the market value of investments ICap holds. The Net Asset can be in the form of cash or shares that it invests into. For example, as at 2 August 2012, its Net Asset Value (NAV) was RM3.01 per share while the share price it was trading at was RM2.24 - which means a RM0.76 discount from the NAV.

Why one should not look at P&L?

Well, P&L indicates the revenue or income that the closed end funds get. For example, dividend that it gets from shares it holds during the period is a revenue. So is the interest income that it gets from the cash investments it puts in the bank account or money market. If for the quarter, it does not sell any shares, it will not register any profit or losses from investments. It however does not mean the companies that it invests in is not doing well.

As an example, if it bought Parkson at average RM2.00 per share and the shares of Parkson is trading at RM4.80 as at the reporting period, and ICap does not sell any, it will not register any profit.

See below.



For my other article on ICap, please see below:

Why I bought ICap


ICap: An overperforming fund with underperforming price

Thursday, August 2, 2012

Any bidder (especially Coke) is good for F&N Malaysia

My previous article on F&N is getting it tougher with Coca-cola going alone may not create friends, as there are quite many who loves the stock. I do as well since now I hold ICap who has F&N as stakes in the closed-end fund.

The latest to join in the fray to acquiring some bits of F&N is Coke itself - once a friend, now an enemy. The piece by Bloomberg is quite comprehensive as well as tells that Coke is only interested in F&N's soft drinks business - which I think could be very true. Now with the multiple parties interested in different bits and pieces of the business, it tells that there is a huge potential, F&N may be split. Its brewery business is seemingly important for Heineken, Thai Beverage. Kirin is reportedly interested in the soft drinks and dairies businesses - to me a surprise.

How do I see it? Coke is interested in the soft drinks business, which is similar to thoughts from Bloomberg's reported piece. 100 Plus is valuable. Others not so much but it will help Coke to eliminate competition such as the F&N's branded fizzy drinks. I however feel that Coke will be buying it at a fair price or maybe a slight premium. Remember, Warren Buffett used to chair the company (he does not control) and he had used before his power or influence to reject Coke's purchase of Gatorade because of price (at that time, controlled 90% of the sports drinks business in US). Of course now, Gatorade is owned by Pepsi.

That DNA I feel is planted into Coke until today, and I do not think that Coke will purchase at a overly high price. One of the reason they are interested is because since parties are interested in mainly the brewery business, the soft drinks piece is up for grab at a much attractive price. Buyer like Heineken may opt for partners as they may be interested in the beer business alone.

In any case, if F&N is up for sale (and seemingly it is), it might as well sell all the food and drinks business as keeping any single one (i.e. either beer, dairies or soft drinks) is not helping its cause. The only one they probably can hold onto is the property arm (where Singapore is bigger - for now).

Now I am wondering who is interested in the dairy business besides just pure investors?

I am wondering why is it that F&N Singapore is suspended while F&N Malaysia is not as at today.