Saturday, June 29, 2013

2013: A half year thought

Time has past. But still the same, in investments, you just do not know what you are going to expect. Despite the ups and downs, generally the market have been very good for many investors. I was watching CNBC this morning and it seems that the Dow has rose more than 15% over the last 6 months. FBM KLCI, over the same period on the other has rose 6.95% - see below.

Over the same period, we have seen a general election - at long last, with little change in the local political scenario, so it seems. I believe policies will still be the same (as we are having the same government with the same team) but with some tightening of the government's expenditure as we cannot continue to grow our spending as much as we have had over the last 5 years. Nevertheless, as in anywhere, we just have to do what's best for ourselves and stop hoping for things to happen externally, which may or may not affect us.

On the performance of the portfolio which I share, over the last 6 months it has been fantastic. I do not have the record on the last day of closing for 2012 but the latest I have was for 28 December 2012 and here it is.

Against the latest as at 28 June 2013, which was the last trading for the closing mid-year 2013, the portfolio rose by about 50% to about RM135,000. Anyway, this kind of performance is one which we do not expect to emulate all the time. What we hope as an investor is to do a 10% to 15% and anything between those numbers on the average over a long period of time is just good. Anything beyond 25% over a long period of time would just be out of this world.
Even Berkshire Hathaway over a period of more than 47 years (1965 - 2012) did a 19.7% on a compounded basis. Look at where the company is today - but of course we can say that it started from a much larger base.

What do I see in the portfolio

As you can see in the portfolio, I hold 8 stocks today after having bought and sold SP Setia and Wing Tai. Over the last half year, I sold Padini and TimeDotcom as well. Then of course, I bought Bonia. YSP and Parkson.

You would have noticed in those portfolio, these are the companies which have a common theme. They may be in different industries but they seem to be much easier to understand or comprehend where their strengths are.

  1. DKSH - not that many people will know DKSH but if you are in the daily grocery shopping be it for milk, foodstuffs, pharma products, one will not miss this company. DKSH is one of the largest market expansion company in Malaysia, if not the largest. They distribute for all kinds of brands except for their own. A very focused company and I have made a lot from this company having seen the turnaround early on.
  2. Wellcall - again another company which not many would notice. It does rubber hoses for mainly industrial use. Rubber hoses means it uses rubber as its main raw material and in Malaysia what do we have? Globally, it does not have many competitors and having located in Malaysia and it being already established means that it is a company which has a certain competitive advantage.
  3. NTPM - Another company which is a leader and again not that many people would have noticed it. The largest tissue paper seller in Malaysia - whether economy is good or bad, I would think today, not that many can reduce on tissue paper usage. In Malaysia, tissue paper has become a 2 player game (of course with some smaller players) - Kimberly-Clark and NTPM. The growth for NTPM would be dependent on its foray overseas as well as its other products which are gaining momentum.
  4. Jobstreet - need I say more? It is the leader in Malaysia, and its second competitor, Jobsdb is probably losing market share (the way I see it although there is no data available) in Malaysia. Has a good momentum seen in Philippines as well. Very strong cashflow and dividends - which is all important.
  5. Airport -  Anyone do not agree this is a monopoly? There are many other companies which are monopolies but still I do not buy them, but this one is for the eagerness among the people in Malaysia and regionally towards travelling be it for business or leisure. It has received some flaks (because of mainly KLIA2) - me inclusive but yet, this company will just do well. If it is not, then something must be very wrong.
  6. Parkson - Again a common theme. I have held AEON before. During then Parkson was more expensive. Now this has sort of turnaround mainly due to the results of each of these companies - moving a different direction. AEON has done very well, due to it seeing the change of the retail business early on. Parkson caught on that a little bit late, but they are changing to the tune of the need for change. The overseas expansion attracts me, and I think it is the right decision. Whether the execution is done correctly or not, remains to be seen. However, I rather have a company which does not sit still rather than seeing a company which allows its market share being taken away.
  7. YSPSAH - now this one is a little bit of a surprise. It is a smallish company doing pharma. Pharma is a competitive business but yet for those that have their mainstay over a long period of time, as long as they consistently fight on, they are doing ok. The market for pharmaceutical products will grow, but more and more people or companies would be going for the lesser brands due to price. Globally the large pharma are facing a good fight from the more generic drug producers and I am betting on this small company to continue with its niche supplying to the regional market.
  8. Bonia - there is a market for mid-level leather products although the world at one point of time went crazy over the luxury goods products players such as Prada, LVMH, Coach etc. This company is inexpensive when I bought it and I think its positioning is superb. More people at the middle income level would be having more than one handbags, working or casual shoes and Bonia will benefit out of it as long as they keep themselves in the fashion. They do not need to be the leader in making fashion statement but they have to stay current.
Now, what do I think of the market moving forward.

Obviously, it is getting more expensive especially for some of the mid-cap stocks but as compared to many other investment options like properties, bonds, commodities, I still think at this moment of time stocks are still the more attractive asset class to hold. Little do I see the over-exuberant side of the people whom are into stocks, but for a while commodities and now properties seem to be heading that side. In fact, if you noticed, commodities play are facing some challenges (Jim Rogers would want to rebut this though!).

On properties, haven't anyone felt the craze and to a certain extent led to the herd mentality started over the last few years? The lending data and everything else points to that. In fact this issue is not Malaysia alone but the entire region. I have been wrong many times but this kind of feeling just gotten me uneasy. The developers just have got to find new and indigenous ways to sell and often times when there are new creative ways to create sales of product, in the beginning it would fuel the growth but after a while it cause crashes. My experience seeing and reading from during my lifetime:

  • Junk bonds led by Micheal Milken and several others (KKR etc) in US and the latest in US again the sub-prime products created was once thought to be clever but see what happened!
  • In China now, the central government just do not know what to do. Seldom is the shrinking of the monetary policy practiced, but this is just what they are doing now. We just would not know the quantum of the problem there as the government is not very open in terms of what they do.
  • In Malaysia, once a collapse was due to the unchecked practice of the stock broking houses in terms of credit they were able to give which probably give led to the collapse of the stock market in 1997. There was just too much credit into the system.
In stocks, among many friends, I do not see people talking about them and this makes me comfortable. In fact, they talked more of how much their properties are worth nowadays and some intend to buy one or two more for their children as they feel that their children may not afford one later on. From there, I still think stocks is the way to go although we may not see another 50% rise in the next 182 days.

Wednesday, June 26, 2013

Doing away with DIBS may not solve the problem

There have been much talk about Bank Negara outlawing DIBS or Developer Interest Bearing Scheme. You can basically read about DIBS here and here.

DIBS are bad for the market as it is misleading especially to those whom are unaware of the risks that they are taking. Obviously, the S&P lawyers as well as the banks whom most of the time are representing the developers would not be warning the buyers of the risks, and even if they did, buyers whom have witnessed the emanating rise of the property sector would still be willing to take the risk. I have read and heard of a young guy in his early 30s with 10 properties into his name - basically gearing himself to the maximum and riding on the property boom. Hearing from the market, there is no one such guy but many.

If you walk into the local books section of MPH, quite a number of them on display are how to be rich through properties. There is already a sense of something wrong here as whenever the market is over exuberant, there is always a huge danger. I can probably bet you that if I put a book on stocks investment, it will probably not get picked up as much as a book on property investment.

The rise of the property prices I think pose a problem to Bank Negara and as in most central banks, the trick of the trade is to slowly cool down the sector. It may seem to be easy as reducing credit, coming out with more stringent lending practice will look like able to do the trick. However as in most central banks, they would want to have what you call a Goldilocks economic results from the steps taken - i.e. not too hot and not too cold, just nice. What they are afraid of is it gets too cold after a certain measure has been put in place. That would again jeopardize the economy. Look at what Bernanke has done to the stock markets in the last few days - just from a very honest statement!

Although eliminating DIBS is a must, this I think may still not be enough, though. Why? Singapore has already outlawed DIBS in 2009. The property market in Singapore is still hot and continue to rise - that's one. China has put in place very tough measures - years ago - for those who buy their second home. It did nothing to the market. It was very hot, until very recent few days where there were talks of a probable crash in the property sector there, and obviously the banks are the ones which will get impacted due to over lending. Mark Mobius has come out and made his comment that the Chinese banking sector is seriously in a critical situation.

While eliminating DIBS is a must-do, the core of the problem is not that. It is to do with the players in the sectors - banks and property developers. They have always worked hand in hand. Some banks are giving 100% loan with low interest rates especially during the construction period. Yes, that is not as bad as having DIBS but still...And recently, the government is introducing a 100% financing scheme to families with income below certain level. That is sending the wrong message. Where has the government housing scheme gone to? The government has land, but like what it is for the Kwasa Development under EPF, most probably it will go towards the higher end market - as I see it.

As I walk into some launches or sale at the malls, another indigenous scheme which the developers have come out with is rebates. One which I have come across is a newly-launched property put up for sale at RM1.3 million. And if I were to lock in my purchase by say 31 July 2013, I will get a RM100,000 rebate from the purchase price. That is vastly cheating, in another name. This basically mean that the price of the house is actually RM1.2 million but the developer has just jacked up the price to RM1.3 million and reduce my minimum upfront payment by 77%. That's all. I think sooner or later property developers will just go to Groupon to do their discounted sale.

Another wrong message is, now that pushing up the property price among locals would be difficult, guess what the developers have done - just go overseas to do the launches - Singapore, Hong Kong, China. Like it or not, it will just push up property prices again. That's just what happened to Singapore and many other larger cities in Asia.

I think with just Bank Negara trying hard, it will not do the trick as the other sectorial players together with authorities have not done enough and in fact sending the wrong messages and that would just be very bad for the man on the street.

Tuesday, June 25, 2013

This is something no normal airline can do

Can an airline dance? Can it bend backward? Most normal airlines can't. When I say normal means they are usually state owned or state backed as it has been mostly state-backed as we can see it.

But the new normal for an airline can just do this...and they are competing against the state-backed.

Which is what makes them different. Can you remember an airline doing a deal with the government of Malaysia - MAS - few months later, walked out. Launch the London route - make a big publicity from it, the CEO met the Prime Minister of UK - years later walked out.

A successful person or company will just know when to cut and do something else, elsewhere.

Well, which is why I am betting that it will continue to grow.

Trading Thoughts: What's brewing at Salcon???

Now this is one company which should not be within the radar of a fundamentalist - hence defies what I practice. Its PE is about 25x or even more. Revenue trend is unsure. The only saving grace is that the share price of RM0.62 is currently below the NA price of RM0.80.

What causes the stock to have a recent uptrend or attracting some attention is the signing of contract with Eco-World Development ("Eco-World"). Most people know (or speculate) that Eco-World is the proxy to Tan Sri Liew who has his son as a director and several of his ex-partners from SP Setia. He is after all leaving SP Setia come 2015. Definitely need something to carrying his brand and cash he has gotten from his sale of SP Setia's shares.

Eco-World is also in a hurry as it has bought up land worth hundreds of millions from MMC and DRB-Hicom and one or two more if not mistaken. What is not said in the article if we turn it around is the deal with DRB-HICOM, where Eco-World is allowed to do staggered payment which is going to be beneficial to the latter. Why would Eco-World negotiate for staggered payment? Cashflow! From this term, Eco-World would need to be aggressive NOW, hence the major launches and hiring of staffs in a hurry. Now we know that the third, fourth and fifth payment is over the next three years (as below) which could become significant in terms how much in a hurry Eco-World must be to get as much as possible from launches.

Trying to piece up together - one of the ex-director in SP Setia - Datuk Leong Kok Wah is a director in Salcon.

Cashflow is fundamental to Eco-World, as through the namesake and people involved, I think selling properties is not going to be a big issue given the vast experience these group has. One should also note that some of these guys have sold SP Setia's shares to the tune of hundreds of millions. Eco-World may need a vehicle though. Salcon is one company which behind the scene, there are some very rich people. Look through the Chairman's CV (who owns the largest chunk) as well as the second largest shareholder. They will not have problems raising funds. On top of that, it is not controlled by one major shareholder - as below - which is attractive for any party as large as Eco-World.

I sincerely do not know what's happening but these trend and connection - be it they want us to know or just pure speculation, I definitely am not able to confirm.

But yet again, these guys behind Salcon are rich, they do not need or I would think even bother about the play. What Salcon needs though is the boost in its business as it has been struggling to grow - although some reports say that they are in the midst of building a decent concession business. This I am not in the know to evaluate.

Notice another thing, after all these while, until recently some of the directors have started to exercise their ESOS at RM0.50 - could there be something brewing?

Monday, June 24, 2013

Why Airasia X may not be an Airasia

For this article, I am not going to compare financial numbers but would look at in terms of size for each of the company. Airasia X (“AAX”) has just been provided a valuation of RM1.98 billion at RM1.25 per share, hence effectively valuing AAX at a post IPO valuation of RM2.9629 billion of its enlarged share capital.

Now in comparison, let’s look at Airasia. At today’s price of RM3.07 Airasia has a valuation of RM8.5 billion. For the matter, Airasia is going to be 2.5x larger than AAX in terms of market valuation. Airasia has established operations in Malaysia, Thailand, a growing Indonesia and seemed to have sorted out for a good start for India. 

The reason I like Airasia is due to it having a business model that can replicate as long as it manages well in the countries it operates in. Future looks bright for the company with its dominance in the low cost airline business in Asia. One would consider the attractiveness of the growing middle class in Asia to be able to comprehend what’s the outlook for Airasia.

It has the strength, advantage and capabilities of raising funds as opposed to many other of its competitors. This portion of Airasia’s strength should not be underestimated as airline is a hugely difficult business when comes to funding. Airasia is less of that, now as it seems.

Replicating that to AAX? Yes, the brand of Tony Fernandez, the Airasia model seems to be able to cause the take-off of AAX in a much less strenuous manner if one is to start off a low-costs longer haul airline. But yet, it can still be an arduous task. Airasia is a very much a strong local flight operator although a lot of its flights are still inter-country. Inter cities within the country is very lucrative. 

AAX model, on the other hand is entirely inter-country unless one can think of more than 4 hour flight between India’s cities or Australian cities.

Business model
AAX on the other hand is still sorting out its business model with flights now flying off from Malaysia to other destinations beyond the 4 hours threshold. It has changed from a long-haul operator to now calling itself a medium haul operator, flying to destinations like Melbourne, Sydney, Taipei, Tokyo, some cities in China, Jeddah etc.

There are a lot of cities that one can go to but yet for one to take a long haul flight, many factors have to be taken into – comfort, competition (which in this case is way more competitive due to many locally owned national airlines). I provide a scenario of KLM, the Dutch operator – for its flight to Australia for example, it can provide a very competitive rate for those stopover flight in Kuala Lumpur as it has already have a large portion of its plane filled from Europe. This is going to be in competition to AAX. In terms of comfort between AAX and KLM for example, there is a significant difference especially for an 8-hour flight.

Another  thing on competition – SIA for example can allow its market share for shorter haul flight to be lost, but it will never allow its market share for longer haul flight to be greatly affected. Business is about changing to the landscape of competition. If for a short period, SIA, Qantas can afford to lose out, but in the longer run it will not and these are national airlines we are talking about.

These are the things you will see happening to AAX as compared to Airasia which has put itself in a much better situation as compared to its sister company.

Saturday, June 22, 2013

A review on NTPM's FY2013 full year results

NTPM's results came out basically consistent with the recent quarters. What is seen to be where the paper products  are experiencing a tapering off in its margin as well as revenue growth have been offset by the growth in the personal care products. Its revenue grew by about 7% while PBT improved by 13.5%. Based on the 6-years report as below, it is yet to see the good days of FYE2011 and FYE2010, presumably due to the much competitive environment especially from its main challenger, Kimberley-Clark which is doing very well globally over the years.

Basically, the surprising thing about NTPM is the success seen from its baby diapers products, Diapex - which I would call a mid level priced products in the local market. From its announcement, it attributed the growth in both revenue and profits from its improved sales in the baby diapers segment. One should note that a few years ago, NTPM was not even producing baby diapers but were distributing for another company, fearing that the business of baby diapers were very competitive.

Looking at the number of competitors, this segment is definitely competitive with several main players being Kimberley Clark in Huggies, SCA for Drypers and Unicharm distributing Mamy-Poko. I would even dare to call it that the originator of the product, Pampers by P&G is not even strong among those of the Malaysian market players.

However, looking at NTPM that it is able to make a breakthrough in the baby diapers business is a good sign as there is even much more stickiness in this segment than maybe even tissue papers. I notice it has spent quite a huge sum of money marketing its Diapex brand, and in fact I fear that the strategy may not be the right one, but it proof me otherwise. Once it has built that momentum, I think NTPM should be OK for its personal care segment. Products for adults, one can still change but for products for babies, parents are more careful and picky. Once one uses a product which they are comfortable with, the likelihood to continue using would be much higher. Its Diapex brand has a long way to go to reach where it has reached in the tissue papers products, but the important thing about NTPM now is that it is no longer a one product company, with personal care contributing a significant portion of its revenue.

For the tissue products, one should know that NTPM is already a leading player in Malaysia and it is quite hard to unseat the company despite the competitiveness.

On its growth, it is seen to spend quite a huge sum on expansion. I would think a lot of money has been put in for Vietnam as well as its warehouse operations locally. One can read on its expansion plans here.

On dividends, it has proposed a 1.45%, adding to the earlier 1.45% this year, that comes to total about 5.4% yield based on the current price of RM0.545. Not bad at all.

Looking at NTPM, despite the average growth and continuous competition, I am still very comfortable with this company - both on its positioning and future growth.

Thursday, June 20, 2013

Is there success in Success Transformer?

A reader sent me a note on this company. I would have to admit, I am not too familiar with this company (as well as industry) which manufactures low voltage transformer and industrial lighting. I am a little bit attracted due to its low valuation and growth over the years to take notice.

Done up some numbers which is as per below:

I believe there are many smart readers whom can dissect the numbers and provide some comments. While the growth is pretty consistent, few factors which are not so great are the deteriorating ROE, Debt / Equity although it is still very healthy. Free cash flow is not good.

Price earnings as shown below is very low i.e. 4.61x. It is a very small company with market cap of RM136 million. Under the group it owns 65% Seremban Engineering, another of its company which is listed in Bursa. I am not sure why it lists 2 such small companies in Bursa but probably for fund raising reasons perhaps.

The price chart is as per below, considering the recent run for small to mid cap stocks, this has not shown much success I would say:

Tuesday, June 18, 2013

Running an airport is easy but...

To directly quote the COO of Philippines Airline and President of San Miguel Corp, Ramon Ang on CNBC, "Even my high school son can run an airport. It's easy. You just have to hire the right people."

Is it that easy? It is easy now it seems as the competition internally among the airports are almost non-existence. It is easy when the rates are fixed by the government. Hence, whenever the airlines are pushing hard for your dollars, the airport makes money. The hard selling part are not by the airports but the airlines. It is easy when you have Airasia, Malindo, not MAS though. It is easy when there are more people whom are looking forward to travelling when flying is made cheaper.

Now, when it is easy, one cannot help thinking it is even easier to negotiate a good contract especially for Malaysia Airport. I am reading an old article where it says the LAD (Liquidated and Ascertained Damages) could be as high as RM4 to RM million a month for the delays. RM4 - RM6 million is hardly a decent LAD sum.

I am aware that with the KLIA2, Malaysia Airport will be the main beneficiary out of this as the low costs airlines are already delaying their plans where the current LCCT is already choked. I have yet to see how the KLIA2 will be different from the main airport terminal in Sepang, but the grand plan and size will definitely be positive for its earnings.

I know it can be easy as what Ramon Ang says, but one can for sure negotiate for a better contract...

So the LAD as announced below of RM199,445.40 comes to about RM6 million a month. My feel is this is way too small for both UEM and MAHB.

Friday, June 14, 2013

Buying Bonia

It took me a while to make this decision. I have been monitoring this company for more than 8 years but yet could not make a decision to do anything. For people who do not know, Bonia is a local brand - yes it is, fully local.

I have put forward my views on this company before. The founder / owner is a brilliant guy, smarter than many of us who have been to universities, getting our degrees, masters and maybe even PHDs and having worked in all places. Why do I say this? Besides his ability to grow the company, his acquisition of Jeco Ltd was a masterstroke. It was priced at around 5 - 6x PE, and through the acquisition he has sort of eliminated a strong competitor in the same space, Braun Buffel. While Braun Buffel is a nobody in Europe, in Malaysia and Singapore, the brand value is worth something. And it is in the same space as Bonia's leather products - low to mid range. There aren't many mid range leather products in the region if you notice. In fact, I would think there are probably more high range such as LV, Burberry, Coach etc. The growing middle class in this region would be fantastic for Bonia, if it executes its strategies well.

Another right move that he has made, see my article here. This shows that he is not buying anything above the price which he deems to be not fair to him. In other words, he only wants to buy cheap. While doing that, he has managed to increase his holdings of the company. Note that at one point of time, PNB was holding almost the same amount as him (the controlling shareholder), which could be deemed to be dangerous. I would think knowing that they (PNB) were not able to make a break into the holding, the decision was to reduce their stake (purely my speculation). Otherwise, why would PNB buy up to more than 30% at one point of time and later sold?

People, may laugh at him (ya, over the radio, I have heard), but he had never wanted to make a General Offer for Bonia. All he had wanted was to reinforce his control of the company, while at the same time, snap up some shares at a price which he was comfortable at.

Hence, during the period of the offer, Bonia was not buy-able as the controlling shareholder was never willing to buy up the shares if it trades above certain price (more than RM2 - RM2.10). I would think that period is over. Yes, Bonia fell to below RM2.00, but at the same time many other stocks have moved up between 15% to 30%. Bonia was not really moving.

Now on its performance. No point talking about how smart the owner is, if the company is not worthy of buying. We know that he can be aggressive, hence the purchase of Jeco. With the purchase, under Bonia, there are quite a list of brands - Bonia, Sembonia, Carlo Rino, Braun Buffel, Pierre Cardin (Singapore), Renoma etc.

Having done well in Malaysia, Bonia is seeking expansion to Indonesia and Vietnam. Hence do not expect great dividends as this is a company which is expanding - pretty much Parkson like. We are hence seeing growth in revenue as well as decent growth in profits. Its ROE is maintainable at 16% - 18%. These few years, judging by what they have said in their announcements, it is aggressively expanding. I would hence be betting for future growth outlook on this company over the next few years rather than great profit and dividend numbers, now.

Bonia is a company with its own list of brands. It is trading at around 10x PE, if we annualise the results. Market cap is around RM430 million. It has a decent cashflow as well as business reach and importantly a very decent mid-level brand for a fashion retailer.

I have hence bought 3,500 units of this Malaysian company.

Wednesday, June 12, 2013

Update on Airasia X's IPO

My previous article on the Airasia X's IPO was 6 months ago and it was based on its draft prospectus. I felt that it is injustice to the company if I do not update some of the details. The pricing is in fact even more bullish now than when I wrote the paper. It is now pricing the IPO at RM1.45, hence valuing the company at RM3.437 billion post IPO.

The amount to be raised is RM1.146 billion with RM286 million going to the selling shareholders.

Airasia X will now use 33.3% of its proceeds for repayment of bank borrowings. Others are for capital expenditure, working capital and listing expenses.

Now straight to the valuation. Obviously, after the December numbers, Airasia X has its financials updated. For FY2012, it registered a PBT of RM38 million. After stripping out the forex gain though, it was still registering losses. First quarter 2013, it registered a PBT of RM34.8 million. Assuming a full year 2013 annualised numbers, that may exceed RM150 million (assuming it reduces its financing costs and growth).

With the profitability, the valuation seems to be lower although it could still be at a high twenties PE or even 30x. Do note that I used PBT because the add back on deferred taxation is misleading .

Now the thing about this IPO is that it is a company which attracts global attention. The high valuation has been the same on IHH and it does not seem to deter these international guys to take a stake in the company. The original thought that retail portion is going to be bigger is not true - that actually surprised me when I heard it. Institutional portion is still 22.7% as compared to retail portion of 10.6%.

I do not invest in a company with such valuation, but again Airasia X is a growth company. It will be using up more cash as it is a capex heavy business, but one should not fight the attractiveness part of the brand and guys who are selling the IPO.

Other related article:
Why Airasia X may not be Airasia

Sunday, June 9, 2013

The growth of residential properties and housing loans

Properties cannot grow without its twin brother's help - the banks. Over the years, we have witnessed the growth of the residential property sector, both in terms of prices as well as total houses sold. I have not been comfortable with the property sector for quite a while, especially since 2010. There are very little being talked about the danger of the loan exposure to the property sector as well as the financial sector - mainly banks because the lesser we talk about this, it is hoped that nothing will happen.

I could not see or project for sure how the sector will pan out in the near of medium future, but as I said I have not been comfortable. Let me show some numbers as below.

The above chart shows the loans to personal consumption market. I have taken out the commercial sector loan. The total loan is the total for all purposes - inclusive of housing, credit cards, commercial purposed, cars etc. As it is based on above, the Compounded Average Growth Rate (CAGR) of Total Loans between 1997 and 2012, is already very high at 9.03% (above average GDP) but the CAGR for loans to the residential property sector grew even faster - at a whopping 15.34%.

Another clearer table is shown below. The percentage of residential property loan to total loan size grew from 11.07% in 1997 to 27.24% in 2012. (highlighted in yellow)

On the other hand, the loans for purchases of securities to total loans dropped from 11.85% in 1997 to 4.54% in 2012. As at 2012, loans to residential consists of more than a quarter of the total loans. Is it worrying enough?

To soothe the worry, % residential loans to total loans exceeded 20% since 2001. Total loans however has started to register double digit growth since 2004 (except for 2007 and 2009). The question now is whether keeping residential loans to total loans of 25% to 30% is a new normal.

We have heard of the sector being still bullish-ly projected by research houses still in the future. Frankly, I am not too sure but we know the housing sector is much too dependent on financial sector. And I am sure that the loans growth cannot continue to grow more than 10% all the time. Sometime, it has to slow down.

We see what happened to the US housing market and the collapse of it. The aftermath, what happened to the banking sector - i.e. to Bank of America, Citigroup and many others. The Malaysian housing loan profile is a lot different to the US crisis, as the collapse were quickly done by subprime in US while in Malaysia, that part is not a thing to worry about. But still these numbers does not seem good.

Saturday, June 8, 2013

Is MYEG worth it?

I have liked and been very critical of MYEG. You can read through some of my articles which I have written here.  This is one company which have always been on my radar. Why? I know that this company will do well as it is now the undisputed e-government provider in Malaysia. There are no competitors that can go near the company. Hence, the limit is the type of services that they can offer as well as the market itself. As you look below, the company's growth is fantastic. In fact, for FY2013 it continues to grow further with its PAT expected to exceed RM35 million this coming closing financial year.

The performance is reflected in its share price as well. However post General Election, the company has in fact had a field run - registering 100% growth over a period of less than 1-1/2 month. There is no doubt that MYEG will continue to perform with the company continuing to get more jobs as long as it can successfully lobby for the services from the government.

However, the biggest mystery for the company is the payment of dividends, where it only paid 1.1 sen and 1.4 sen for its FY2011 and FY2012. This is supposed to be a company with very good cashflow. Its business is very similar to Jobstreet, very much scalable business with one of the main costs being advertisements. Revenue earned is almost going to be profit earned as the costs are all sunk costs.

I have tried looking at its free cash flow (FCF). See below:

Its FCF is not something to shout about, which is now I realise why it is not paying that high a dividend. Anyone that is trying to pitch EBITDA, I would say look at FCF as over here you can see the vast difference. I do not know when the company will slow down on its purchases of capex, as I thought it should have done that years ago as servers, storage etc. are supposed to be cheap. This is a company where the FCF is supposed to be higher than its Net Profit, but it is not - yet.

Again, I am not going to dispute the company's growth potential. Currently it is however trading at RM940 million market capitalisation. PE is close to 30x. P/FCF is still higher. Is it worth it? Or rather should I term it, is it worth it now?

Friday, June 7, 2013

Selling Wing Tai

Over the months, market has been doing well. I have hence taken the opportunity to sell some of my stocks. Earlier I have sold Airasia, now I have decided to sell Wing Tai Malaysia.

The stock has gained more than 30% over such a short period of time, obviously with the help of the pushing post GE. At the moment, am holding slightly more cash, and do not have a specific plan on what to do yet.

Wednesday, June 5, 2013

Dissecting a P&L

Very often we look at much simpler companies with a few lines of businesses and they are owned almost 100% entirely. I like to analyse these kind of companies as they are easier to understand. Investment need not be complex.

However we still need to learn. There are few conglomerates, and most of the time we relied on Bloomberg, websites for the financial data. I would think few people do their financial calculation as many companies reported the more relevant data in their report. However, sometimes companies may not want to highlight what's important and what's not. Often times, I see press release which are meant for the press. They do not do analysis. Press releases are being taken from the companies which provided the write-up, numbers and I most of the times do not see changes made by reporters.  Let me highlight a complex company (I do not want to name here - perhaps you can check out yourself) and see where are the flaws.

The below is a Malaysian conglomerate with lots of line of business. It has RM13.1 billion revenue. On paper, it looks like it does decent, which based on its bottomline is true. However, in a financial statement, there are more than just topline and bottomline.

Now, as above there are a lot of numbers, but which one do we focus on. I have circled several with different colors.

Certainly not the revenue as revenue can grow 90%, but if you look properly, the company is not that profitable. In fact, for this company, the reporting is minimal reporting. If you look at the revenue vs the cost of sales, the gross profit is RM465 million (RM13.134 billion - RM12.665 billion). Where is the other income from? Most probably profit from sale of assets, businesses etc., it is not revealed. But more often that not, these are one-off item. Without the other income and other expenses, the business itself is much less profitable.

Next is the profit line. Which one to take? There is a Net Profit for the Year. Then there is comprehensive income, then Net profit attributable to the owners of the company.

Net profit for the financial year, represents the profit for the company before taking into account of the minority stake. What is minority stake? It basically means that for some of the business that the company has consolidated, it does not own 100%. A business can be owned say 40% but yet it is consolidated. How? Because the principle says that as long as the company has a controlling stake of the subject, it can be consolidated. For a company that is consolidated, they will take in the topline right down to the profit is are consolidated. Only after the profit for the financial year line, you will see that the non-controlling interest are deducted - hence the net profit attributable to the owners of the company.

If you are the shareholder of the company as reported above, the profit line for the company that you own partially is the one circled with red. And EPS is calculated using that profit line.

What is comprehensive income then? These are not that important as the numbers are inclusive of the changes in items (like securities owned) that are marked to market, foreign exchange gain or losses etc. Again, these lines are not so reflective of the actual business.

By the way, I do not do insurance or unit trusts. And if you have articles that you want to share and you think are of quality, do send to me.

Things to Consider for First Time Investors

This article is brought to you by – the service that gathers information from different banks across Malaysia to make life easier for you.

Every human being is unique. We differ in our opinions, points of views, and beliefs. In investing, ideas of every individual also vary.

If you are a novice in the world of investment, you’ll definitely need to ask yourself, “What kind of investor am I?” before you carry out actual investment activities. 
To know what category of investor you fall under, consider these two points:

     Which Age Group Do You Belong To?

Younger investors, especially those who are under 30 years old, are usually very versatile in dealing with the risks that come with investments. Even in the worst case scenario, they’d be much more ready to handle any losses because they are not nearing retirement age and have ample time on their side.
Investors aged 50 and above, on the other hand, are usually advised to be more cautious in their investments.  Unlike younger investors, folks nearing retirement age have limited years to replace any potential losses should their investments fail.  Hence, a more prudent stance is definitely in order.

     How Much Money Do You Have? How Did You Earn Them?

To make an investment, you’ll need money.  And the more funds you have, the more tolerance you’ll usually have when it comes to dealing with the volatile nature of investments, simply because you have the additional resources to spare. 

But sometimes, it’s more than just about the money.  Your background comes into the picture too.

Commonly, individuals who have a strong background in business and entrepreneurship are more aggressive in taking risks. The reason behind this is that, the nature of their financial background involves making gambles (i.e. starting a business is arguably a leap into the unknown).

On the other hand, individuals who have struggled for the longest time to earn and save money are understandably more fearful in facing risks. Hence, you’ll be more inclined to spend on low risk investments if you fall under this group.

Know What Kind of Investor You Are, then Take Action

Prior to making investments, it is vital that you spend some time thinking about the kind of investor you are, so you know exactly what kinds of investments you should be researching on and placing your money into.

Ultimately, understand that whilst investments promise big gain, the potential of suffering losses is very real too.  If you have barely enough to survive, jumping into an investment could yield unnecessary stress and emotional distress that you really shouldn’t be subjecting yourself to.  Hence, always make sure your everyday commitments and personal needs come first.  After all, investments can always wait until you’re financially ready to commit.    

This article is brought to you by – the service that gathers information from different banks across Malaysia to make life easier for you. Check out its website to compare rates and find the best deal for deposits, mortgages, loans, and credit cards.

Tuesday, June 4, 2013

When a FBM KLCI company has its shares cornered?

At last, the list of the Top 30 shareholders are out after the much fanfare about the stocks being placed out to mainly cornerstone investors. For IHH's IPO, we know why most of the stocks are left for the institutionals. Just look below after 9 months from its listing, Top 30 consist of a whopping 92.83% of the total shares held. 

Frankly, this is not good for the exchange which is supposed to promote its vitality to the world. Already EPF owns more than 10% of the Malaysian market, which is bad. We do not want a company which has RM30 billion market capitalization but almost 93% of its shares are held by the Top 30.

The tightly held shares is bad as it would allow the misperception that Malaysian shares can be controlled. It is allright that they are held by the large funds like Blackrock, JP Morgan, Tiger Funds but not like this. On one hand we try to keep a minimum free float but on the other hand a KLCI company has such a large number of its holdings by so few hands. Yes, it has lots of shares but this is still not right.

For those whom would like to know as a comparison, UMW has its Top 30 holding less than 80%.

Telekom Malaysia has around 80% as below.

Monday, June 3, 2013

Letting go of Airasia

I have got to sell something. While I must admit, this is one of the company which I admire the most, I looked though my portfolio and I decided to let go Airasia. It is a company which will do well. It will dominate the Asian air space. It will beat Malindo or Lion Air. It is the fastest growing and the leanest.

However, having said that, Airasia will be a company which will use lots of cash. It will buy into lots of capex in the form of planes. The business of airline is a tough one. Singapore Airlines made losses last quarter. MAS will not be able to get into long term consistent profitability - that's my prediction, despite the government will not like to hear this. There will be more rescue going on for MAS in the future.

Because of that, many government will be very protective of their own airlines. Despite that, Airasia will be the model to go for Asia despite it being a privately run company and against all the government coffers can assist.

This is also why I am selling as I want more stability in the investment portfolio that I own.

The update for the portfolio is here.

Saturday, June 1, 2013

The last of the consumer stocks

Kenanga called it a hidden gem and put a target price of RM1.50. I do not put a target price in my blog (as I do not think of my purchases and sale this way). I however would not go so far to call it a hidden gem. A hidden gem is a precious stone which nobody have yet to find.

Yee Lee is a very old consumer stock which have been rather consistent i.e. in being profitable. The bulk of its business is in the trading and manufacturing of edible oil in Malaysia. If it is a gem, what are the products that it does. So here it is as below. Which one you think is the Star among the list of products? Helang. Vesawit and maybe the other edible oil products. I do not think the Sabah Tea and Morning Kiss are much of a value. Besides the below, it also owns an associate stake in Spritzer - a very decent drinking water brand.

Now, what makes me feel like wanting to write about this stock. It is again probably a boring stock. It is hidden among many investors but is it a hidden gem? Currently at RM1.20, it is trading at RM212 million market cap. Given that the company has been around for so many years, I would say it has come a long way. The business that it is in is rather competitive, but Yee Lee has proven to be able to be equal among the others. It may not have the brand strength as Knife (Lam Soon) or perhaps the balance sheet strength of Neptune (under Robert Kuok's PPB), but it has survived and well alive.


If you look at the above 5 year financial highlights and inclusive of its better performance in FY2012, it has done pretty well for the last 5 years from 2008 to 2012. The first quarter results for FY2013 is even better achieving PAT of somewhere around RM8 million for the quarter.

Now, I want to highlight another segment which is in the second red boxed. Not the ROE though. Do not expect the ROE to be good for a business with refinery like Yee Lee. Margin is not expected to be good and we cannot expect business like this to have a ROE of 15%. If ROE is the main indicator, walk away as Yee Lee will never provide this figure as long as it is selling edible oil.

A very important trend is the Net debt to equity ratio. If we look way to the right, it was not doing so well there in terms of its health of its balance sheet. A business like Yee Lee is where it buys crude palm oil or Fresh Fruit Bunch, crush them and turn them into refined oil, brand them and sell. To do that, it needs to use some financing to purchase the raw bunch (it also use the financing for terms provided to retailers). This is where mainly the net debt is from, not overly worrying but if its balance sheet is not strong, it will need to finance it longer or even at a higher rate.

Walk through the left, that indicator which is the net debt to equity has gotten much stronger. Partly to do with the shareholders funds getting bigger as well as a much controlled short term financing. This is also to do with better collection, which could be internal as well as a healthier overall industry - AEON, Giant, Tesco probably pay earlier. Another indicator which is my favorite is cashflow.

If you look above where I have included 2012 numbers for Net cash from operating activities. You can look at the record from 2008 onward from the above chart. It shows a huge improvement. A better cashflow despite the consistency of profitability is very important. Better collection means, lesser bank borrowings as compared to turnover. It hence means lower interest costs. Why did I highlight the depreciation? This is because in a operating cashflow, the depreciation following accounting principle where the earlier or continuous investment will need to be depreciated over a period of time. It is not a cashflow item.

What makes me excited? The better cashflow although I doubt it will achieve another RM64 million of net operating cashflow for FY2013 would probably mean better balance sheet (again), hence better profits as financing costs will be lower and hopefully better dividend as well. As usual I do not know where it stands in terms of wanting to pay and its strategy moving forward, but the much better balance sheet is something which we can appreciate.

Yee Lee has gone up to RM1.20. Frankly, at one point of time few years ago, around RM0.70 I took a look and deemed its balance sheet as not attractive but with the trend of its cashflow and strengthened balance sheet, I am relooking at the business and where it stands.

The business is rather consistent, the lower the crude palm oil price, it probably would be better for Yee Lee, as in current situation. But even if the price of palm oil gets higher, the subsidy from government would have allowed companies like Yee Lee to still be profitable. And, I do not think the subsidy for palm based edible oil would be taken away as by doing so, it would be negative to the country and probably allow other types of edible oil to be more competitive against palm oil based edible oil. It would be inflationary as well. Another thing with this industry in Malaysia is that there seems to be a quota for each of the palm based edible oil producer. Hence, there is always some small margin to be made, but it will remain to be small. For these companies to get out of that trap, they would need to sell some other things. This strategy has been used by Lam Soon pretty well. As for Yee Lee, it does try as it has other businesses in can packaging and corrugated carton packaging. These businesses are always competitive but given where Yee Lee is at, they I would say have done decent, but not fantastic.

The gist of it, Yee Lee is a smallish consumer stock, with a rather steady business, decent balance sheet, positioning in terms of its brand and at its current valuation of around 8x PE, I definitely do not think it is expensive.