Saturday, August 24, 2013

What now after this?

The thing about market is that you do not know what you are going to get. It is akin to the fishermen whether the professionals or apprentices or even the enthusiast, we just do not know whether it would be a good day tomorrow, next week or next month. We just have to get prepared. The only thing we know is that to be a good fisherman, one will need to improve on the methods, know where to fish and with the right equipment and technologies. One just need to be prepared and the ability to sustain.

The market had a shock, dropping substantially over the last 1 week. In fact, I had noticed of something which is not normal in one of my small article, but not able to foresee that the large funds are readjusting their portfolio. Even the large Malaysian funds are not able to defend, or rather they would not, preferring it to take a much needed breather, then go in again. Smart funds do that.

On the market, it seems to me that the market is seen a tapering off. Now, as retail investors, what do we do. We have to take a smart take ourselves. I am not able to predict (or foresee) where the economy of Malaysia as well as the world are heading. It is hard to predict where in some articles, say that the world is doing ok, while another one say otherwise. Let me provide an example, while one may say that the market is getting too expensive, the amount of liquidity today (despite tightening) will still see funds and individuals looking for places to invest. Some have invested into properties but again between properties and stocks, properties to me is much much more expensive. The tightening of liquidity will see it affecting properties more than stocks.

The thing about buying stocks or investing is that, we have to continue to buy something that we believe in i.e. those that will do well over a longer period. This is what fundamental investing is about. Throughout my investing life, I have seen many rounds of the similar situation happened. The same scenario, I have seen sometime back in 2005 or 2006, where stocks like Iris, FTEC (if one can remember) were trading at absolutely abnormal prices. The same scenario I have seen recently, where trading on penny stocks were abnormally high. This time around, it is not at those crazy stage but were moving towards that. The small crash however halted the rise. I am not sure whether the market will continue with the rise, but the important thing is to continue to look for good fundamental stocks. Much safer this way.

On advise given by investment firms which is to try to stay away from stocks that are largely held by foreign funds, it is the right thing to do in the short run, but foreign funds come and go actually. The move around. The funds may leave in July, August but may come back next year. Most of the time, foreign funds will just buy certain stocks. They for example will not touch stocks like Wellcall, but recently one did. They may not invest in NTPM.

These funds largely concentrate on larger companies that are covered by the analysts especially the MSCI stocks. Now the thing to continue to do is to see what will happen to the companies assuming that there is a minor slowdown in spending and GDP. What will happen to the banks, properties, consumer stocks, defensive typed stocks. Well we have to figure out as companies as in individuals are dynamic. Industries are dynamic as well.

By the way, note that IJM has bought a 3.4+% block from Tan Sri Chan Ah Chye. What does that mean?

Friday, August 23, 2013

The One Thing We Overlooked on our Wealth Accumulation Journey

The following is a guest article on personal money management.

Growing wealth is no brainer. Get a pay rise (either by promotion of “jump motion”), invest prudently, generate multiple sources of income, start a business, etc.

Today, if you are reading this, I suggest we take a step back and revise our medical coverage.

Here’s an analogy. Like a good soccer team, having world class strikers are just not enough. A good line of defense is equally crucial, although they aren’t as glamorous as the strikers. But in soccer or in life, it is about looking at the big picture. I doubt a rectangular table can be stable with only 3 legs.

They say 2 things are certain in life; death and taxes.

I’ll like to add one more - rising medical costs.

That’s exactly how much common critical illnesses will cost you (as of 2013)

Is it easy or hard to make, say, RM 100k from our investment? Are you OK to grow your wealth to pay for any of these events above?

It is no secret that medical inflation hovers at 14% a year in Malaysia. If you observe the room rates in private hospitals now, a 4 person room costs the same as a 2 person room 5 years ago.

If you’ve bought a medical policy more than 5 years ago, it is likely that the coverage is sorely lacking now. As of 2013, the minimum coverage I will advise my clients as an independent financial adviser is a RM 200 room and board daily, RM 100k annual limit and a RM 1 million lifetime limit, regardless of any insurance company. The features will differ from company to company but these are the 3 major things one should look for when we talk about medical card.

Some of my clients still hold a RM 150k lifetime limit (yes, lifetime limit, not a typo error) medical policy sold by their previous insurance agents. And they thought it is sufficient for lifetime and they don’t need to look at it anymore. The fact is, insurance coverage, whether life or medical insurance changes in different stages of our lives. You must be aware that no single insurance policy is set in the stone once it is in-force. You can always request to reduce or increase (subject to underwriting) the coverage and add in or remove features (riders) from your policy, depending on your most pressing current needs.

So, dust off that policy of yours and see your current coverage. Call your servicing agent or financial adviser to revise the coverage higher if insufficient. Don’t wait until it is too late because it is very hard to get additional medical coverage once you are struck with any chronic illnesses. A recent true story I could share with you is that a 42 years old father of 3 just underwent angioplasty and realized his medical coverage (lifetime limit) has been maxed out. Seek my advice but I got to disappoint him. He has to live with the fact that he need to liquidate his assets or investment to pay for any future medical expenses. And may I repeat he is just 42 years of age?

The irony about insurance is the same like banks. Banks don’t want to lend you money when you are in financial distress, but are begging you to borrow money from them when all is fine and dandy. By the time you desperately need coverage, insurance company refuses to cover you. Nothing personal, it’s just business.

Any reason you don’t need any medical insurance? Yes, if you really don’t mind paying future medical bills from your own pocket.  I’ll advise you to build up and  accumulate a substantial medical fund. It’s really up to a person if they want to pay 1 ringgit for a 1 ringgit cost of medical expenses or pay a 1 ringgit premium for a 100 ringgit of coverage.

Another objection among working people is this - they might retort “Company cover my medical expenses, I don’t need any!”

Yes you are right. Now, check with your company if the coverage extends beyond your mandatory retirement age. If yes, congratulations! If not, then I’ll also advise you to build up a substantial post retirement medical fund or ensure your health is in tip top condition to still buy a medical card after retirement. The easier way is of course, either learn to love general hospitals or to get a medical coverage sooner rather than later.

It is ok to grow your wealth for others? My take? ”What a waste of all the effort to invest and make money over the years!”  The reality is - that’s exactly what we are doing if we focus only on growing our wealth without getting sufficient medical coverage. Most of us will be devastated if our wealth are squandered by our kids - I reckon we will be more devastated if we let private hospitals do the same. Without sufficient medical insurance, whatever we have accumulated will vanish into the thin air in an instant.

Lieu Ching Foo is the founder of Malaysian personal finance blog and an independent adviser with financial advisory firm Fin Freedom based in Penang.

Friday, August 16, 2013

Breaking bad?

I know I will not be able to get away with this. All these while, consistencies, track record, good management have always been the mantra. But this?

Like I have said in my earlier article, I have looked at this deal for a long time. Keuro is not the mark of the type of company which I have pitched all these while. It has not really gotten any real profits for the last 5 years. Balance sheet is cleaner now, but nowhere near where I want to see it having. People behind the company have not been what I can call good management. Nothing is there. Or is it?

As in the earlier article, it has great assets or soon to be. A company with great asset but bad management is like a country like Cambodia with its Angkor Wat but the assets (or relics) in Angkor Wat have been stripped by thieves piece by piece. I am not saying Cambodia has bad leaders but it has gone through tough times not too long ago, but turning around now. Will Keuro be that one day? I am counting on the new managers (whom are yet to known, or will there be?) to protect that assets, or rather kick start the projects.

It is announcing its raising of new funds in the form of rights and warrants to fund for the West Coast Expressway ("WCE") project. The Rimbayu project has gone off really well, and the latest I have heard is that the 2nd phase which consists of 484 units (priced at the minimum RM660,000) have received overwhelming response with non-bumi units fully taken up within days. Try multiplying RM660,000 with 484, assuming it is sold at minimum price without considering the corner lots and the larger units. And this is just one of the early phases - heard that it has 20 phases with pricier units later stage. What would the profits be assuming the land is almost free? The sad part is the sale of the 10% to IJM - a golden handshake? Question is, will there be more of these kind of golden handshake?

More importantly will the WCE project commence? I am buying without much details in hand with regards to the terms of the project. Hence valuation of Keuro is not certain and that is assuming that it will be able to complete WCE. The thing I can see is that IJM will be taking lead on this project - hence it is on safe hands.

Now, with these risks, what makes me buy. Remember, more money will need to be coughed up for the rights. At 3 for 4, I would think at least another RM7,000 will be needed for the subscription for this portfolio. At today's price, despite no show in the 5 years track record, the company is trading at RM700 million valuation. New funds have been injected in through private placements with more than RM100 million injected over the last 2 years to survive the company. No one will put new cash into a dying company - that's what I have experienced. No one would put something for nothing especially if it is more than RM100 million. But yet, Keuro manages to raise that kind of funds. And it is asking for more funds. Will all the large shareholders be willing to put in more money if they are not too confident of what lies ahead for the company? Remember, the ones that just put in close to RM60 million recently will need to cough up more in the near future.

Like I have said, I am not sure of what would the valuation of its 80% WCE be like - Keuro's crown jewel. But I guess, it may not be at RM700 million. If all questions are answered, it won't be at today's price, won't it? Another thing with this investment is that I am into it for the long haul - as WCE will not be seeing money until 2018 or 2019. At least that part is where I preach - long term. But for a concession highway, despite how much we may dread it as a motorist, it provides consistent return to the shareholders with the assumption that it is the right link with the right traffic. The question now is, whether WCE is the one where motorists will use in the future, competing against PLUS. Sometimes, we may look at it as competing but in certain cases it may be complimenting.

For the funding of this investment, I have sold YSPSAH. Question, is it the wrong move - from a decently good company into a potentially bad one?

And the portfolio looks like this now.

For those who do not know, Breaking Bad is a very popular series currently running in US. It is about a very brilliant chemistry teacher who decided to turn into the world of methamphetamine (a kind of drug) or in short "meth" or "ice" (or in Malaysia if not mistaken, it is called "feng tau" drug) after finding out that he had lung cancer. I must say it is a very well written series, and sadly it cannot be shown here as it is about meth. Err...I have yet to watch it. Sort of heard from friends from US.

Thursday, August 15, 2013

Small time play...

Ironically, the top 35 volume trade today are all on stocks that are priced below RM1.00. These includes many warrants. Although there is no such thing as penny stocks in Malaysia, but most of them are. One could not be regarding MAS, NTPM as penny stocks right?

Anyway, could it be the concentration on these low priced stocks on:

a) the big boys among the local fund managers are yet to be back from Raya holiday;
b) the big boys among the foreign fund managers have left Bursa; or
c) the play now has gone highly speculative.

Also notice the continuous drop in the Malaysian Ringgit against other major currencies.

Wednesday, August 14, 2013

Is MAS undervalued?

I hope so, but it is not. One can't use the price when it was RM6 to today's price. At today's price, it has just raised a 4 for 1 rights at RM0.23. That means the costs for every 4 of the 5 shares were at RM0.23. Putting that argument aside, I would like to ask a few questions.
  1. What is the future outlook for MAS?
  2. Are the other airlines almost similar to MAS - KLM, SIA, Thai Airways, British Airways in almost similar situation?
  3. Is the business competitive?
If you do not see the situation surrounding MAS as positive, what makes one think MAS is undervalued? EPF has just reduced its stake in MAS to below 5% few months ago. If MAS is undervalued, then EPF has done something very wrong. To be fair to EPF, I support its move. MAS is a company that is bleeding money while the situation surrounding issues such as being a national carrier, manpower, and tougher competitors are difficult situation in play.

The current situation faced by MAS is 50% itself's wrong-doing while the 50% is due to situation in the market. There are too many competitors around and it seems that the low-costs airlines are winning - although barely.

At today's valuation (RM0.335), MAS is trading at more than RM5.5 billion market capitalisation. Yes! One would say that it raised more than RM3 billion to survive it. As a Malaysian, I would welcome any suitor whom would try to take the burden off the Malaysian government at say RM6 billion valuation. That would put it at around RM0.36. But to that suitor, sorry no more rescue if you could not make it.

Dare to try? 

You know who are the winners nowadays - Boeing, Airbus and the engine suppliers like GE, Rolls Royce.

Tuesday, August 13, 2013

Kumpulan Euro and IJM: True to my fear

I have feared for this in my previous article and it is true. In fact by reading through the below reason for the RM52.5 million valuation on a 10% of Radiant Pillar, I do not get the value. It is a a piece of poorly explained justification. Another thing, it is not so much willing buyer, willing seller - my last research was that IJM has about 21% of Keuro. On top of that Tan Sri Chan Ah Chye has already signed a Share Sale Agreement to sell a 22% stake. Based on that, IJM is the largest shareholder, assuming MWE is not in discussion in this sale as it has not completed the purchase. Are we also saying Chan Ah Chye is agreeing to the sale of the 10% considering he is going to be selling out a major chunk of his stake anyway.

Does not matter on the NA but in any case I do not know how the RM50 million is derived

The sale of 10% of Radiant Pillar firstly allows IJM to have controlling stake of Radiant Pillar hence allowing it to consolidate in its account. For a controlling stake, it should not be based on the total value of the piece of property. A controlling stake is on a premium pricing - any deal maker would know that. On top of that it is a piece of land which is situated in the south Klang Valley. It is not going to be worth RM1.3 billion if the developer has been approved for a RM12 billion project especially when the costs of the land is almost nil.

Based on above, I do not know how the 10% or equivalent to RM50 million of the effective NA (for 10%) is derived. Based on my calculation, the 10% of Radiant Pillar is effectively 7% of the Rimbayu land and based on that, the piece of land is worth RM753 million (100/7 x RM52.5 million) according to the selling price.

On top of that, in a S&P, one do not include the tax liabilities into a valuation considering that future sale of properties would have profited the company anyway. The valuation of Rimbayu should be based on future value, not current NA value. These are all flawed valuation and reasoning.

I am also not too sure the going to be appointed independent advisor would be that independent as you can see that the advisor of this deal had previous connection to Hong Leong Investment as the founder / director of Newfield Advisor is Seow Lun Hoo, a once President of Hong Leong Credit (for many years in fact).

I know that the sale would have netted some needed amount for the West Coast Expressway project, but this is not the point I am saying here. The sale is too low a price to IJM and we are not clear on the plan as Keuro is to do a rights issue anyway. RM52.5 million from a sale which allows controlling stake is a meagre sum.

Monday, August 5, 2013

Red Sena, a F&B SPAC? Are we really serious?

Malaysia suddenly has become a land of SPAC. Firstly, there were these petroleum SPAC, in the form of Hibiscus and Cliq. Well the success so far is in the share price hence capital appreciation than anything else. A few more are coming. The beauty is that of course none of them are making money right now, and again the beauty of the story is that we are supposed to wait. These are long term investments. If we are not careful, these investments are going to be long shot for success, rather than long term investment. And the beauty is that, people are willing to wait through the SPAC story but not any other stocks that are in the market already.

How is it going to be successful? A SPAC is a way to raise capital for a team of supposedly professionals in what they do and well professionals are supposedly to be paid well. Another way of calling it, they are going to be expensively paid people - I presumed so.

A consumer based company FMCG or something close to that is supposed to be a business that is built to last. It will take time to be built, a lot of execution, and perseverance. Through this method, a brand is built, using lots of manpower, time, money and maybe more importantly perseverance and luck. It is not supposed to be using a bunch of expensive people, to do the selling and then what? Maintain the team, use up people's funds and we are supposed to be trusting for it to hopefully do well in the long term future.

If the business is to be built this way, it is not through a SPAD but rather private equity or venture capitalists. Sometimes, a petroleum SPAC I can understand where they are investing into a "make or break" oilfield or technology or something like that. Engaging professionals would probably allow us to reduce that probability of failure.

But again in F&B? C'mon. What are they going to do? Buy some businesses? Things like buying businesses to compete against the likes of Coca-cola, Pepsi, DKSH, Harrisons and some private companies? If this is the case, my question is why not turn them into a closed-end fund? Just purely investments. Private Equity rings the bell?

If on the other hand, buying start-ups is the idea. That's even worse. How long the investor is going to wait, if return from investment is to be used as a benchmark rather than just capital appreciation.

I am just wondering, first the Second Board. When it was a ring for syndicates to play and many businesses failed, it was abolished. Then MESDAQ (which later renamed to ACE). We sort of failed although created few really good businesses. Then the Red Chips stocks. We are failing now, after again the experiment. Then the SPACs, 2 good stories so far, in terms of share price but nothing else. Do we want more with an absurb plan of an F&B team of superstars?

Is it a way of just creating stories after stories without much to show success of. Where has the traditional mindset of proving that you are successful then the reward goes rather than the preference for get rich quick scheme? I surely am not favoring the black cheque for SPACs...

Friday, August 2, 2013

It is not just through what we read

I think the most recent debate through my blog is the latest piece that I commented on the national debt, but it turned out into a debate on YTL Power and where it is heading. In Malaysia, there are these large blue chips companies which are either state-owned or by the rich tycoons. The ones that are state-owned are CIMB, Maybank, Sime Darby, UMW, Tenaga, Telekom, those under Johor Corp etc.

The ones which are controlled by the individuals or families are PBB, YTL, MMC, Hong Leong Group, PPB, Ananda Krishnan's stable of companies, DRB, and increasingly Tony Fernandez's group etc. etc.

Another smaller group which market capitalisation has become increasingly strong is in the likes of Nestle, Digi, AEON, BAT, Carlsberg. These are foreign controlled and we like to think of them as being professionally managed as the parent company in most cases comprised of very large corporate and in its own country it is a MNC as well as its shareholding are very diverse.

Now let us make comparisons among these groups.


Despite the so-called nationalisation of some of these assets i.e. from private into public such as PLUS, IPP assets, hospitals such as the Pantai group (which later was sort of pushed back into the private domain through IPOs), these group has become much stronger. Over the last few years, we are seeing the floating of shares of these groups - to the tune of in fact, in the worst of times for global IPOs, Malaysia had become one of the largest IPO destination in the world last year - where IHH and FGV were listed. This year, it seems there are going to be several more such as UMW's O&G outfit, Iskandar Medini and then we are now talking of Sime Darby's property arm to be relisted again. Isn't it ironic, actually?

There are reasons why these are done. Partly the Singapore model, where government has become owners of assets and when these assets have become ripe for value maximization, pass them to the public. Such strategy has become successful as we see it in IHH (although I still would like to differ to an extent where it's price can sort of be dictated to a certain extent - purely, my observation). Often times, EPF and KWAP being the largest fund manager by far in Malaysia would take up a large chunk.

Frankly, I am not too unhappy with this strategy as anything that the public takes up, in any case the profits that are associated to it, will be passed back to the government and hopefully, the funds that are collected are being put into good use, such as infrastructure program, education etc.

As an investor, I would like to think, I am experienced enough to be able to think through what is bad and what is good for me. That does not mean that I will avoid these companies, but before making any decision, I would probably be more careful. I have invested into companies (in the portfolio) which are sort of state controlled (but professionally managed) such as Time Dotcom, Airport, SP Setia and these have turned out into good investments actually.

Family owned

Now this category is the most dangerous category. You either make it big or you will lose your pants. In a lot of cases, to invest into such companies, financial knowledge is not sufficient. The person has to know at least a little bit on the ins and outs of the political scene. For example, how come YTL Power was a hot stock and can pay good dividends few years back but its dividends has diminished recently. Frankly, I am not in the inner circle to understand it but I can probably guess.

Another question is how (the he**) some of these companies have gone overseas in a very large manner to the extent that revenue and profits contribution from abroad far overwhelmed local income. We can see that in YTL Power, Genting, TA, Hong Leong, even some under Airasia and to some extent Ananda's companies. Why YTL Power bought Power Seraya for SGD3.8 billion, besides having decent to good DCF? Why Genting invested large sums of money in Singapore, Australia, US? - Looking for growth? Why they sell their local assets to go overseas? If there are enough sweet local projects, don't you think these companies would want to keep a large sum of money locally? Geographical diversification sometimes is a convenient reason.

Then another question is we know that those companies under Syed Mokhtar's stable have beautiful assets but how is it that the companies are not that profitable. Is it due to as easy a reason as poorly run? What about those Sarawak tycoons such as the Tiongs, WTK, Samling? They are rich, but can we gain from their companies? Big question (???) MARK!

Then there is the oil and gas groups, which until now I am able to comprehend each and every of its companies, except for perhaps Bumi Armada, Dialog maybe (and the ship or barge builders)? Remember, when our PM was Abdullah Badawi, Scomi was strong. Now a different PM, where is Scomi now? Who is now strong? Sapura Kencana ("SKB"). Frankly, I am not able to comprehend how good is SKB except that they do get a substantial amount of book orders from abroad. Would we like to think harder besides looking at just the financial reports and these orders?

Professionally and competitively run ones

As a lay investor (whom may not want to think too hard, sometimes), the consumer sector, the manufacturing (such as rubber gloves, furniture), the plantations and those that have no choice but to compete hard and yet able to stand on its own 2 feet, these are largely my choice. Airasia is HERE! These are the ones whom probably would respect shareholders more in fact, as through shareholders mainly they are able to grow.

Let me give you a scenario. No RM100 billion being put into any new company can unseat Nestle, or Dutch Lady or even Amway for that matter. These companies does not really need government's licenses to operate, but it needs a strong local government whom have strong discipline to look into local economic matters.

The other group, export led businesses. You think for example Top Glove and Hartalega, if they are not competitve, the hospitals of the world would buy their gloves? A scenario, I know why after the General Election, Supermax' price was dropping - but the controlling shareholder could not care less, it seems. Of course, I am still not investing into Supermax, but this is for arguments sake.

Another one, who are Jobstreet's management? A nobody. If you search through the management, there is not a single Datuk or Tan Sri. A nobody (in a good way) is what I like. These are the companies where after studying the financials, we can confidently say, that's it, this is just what I will look through!

In investments, we sometimes do not want to face complicated scenarios, but we have no choice. However, if we stay to our true course, it actually is not that difficult and complex.

Another food for thought, you know why the companies like Apple, Microsoft, Oracle, Google, Facebook in the so-called Silicon Valley are so strong and no Wall Street or the congress can touch them?

Because they are competitive and could not care less on what Wall Street or the government thinks. If the government is appreciative, they may or may not stay in US. If government is not, they will move more operations overseas. Just few days ago, Obama had to attend a session (and made public) where Amazon announced they are going to additionally hire thousands of new hirees in US. In Amazon's land, Obama is doing the KOW-TOW-ING.