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.

State-owned

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.

6 comments:

hng said...

Hi Felicity

Do you have investment idea on Puncak and KPS? Both involve in Selangor water restructuring

Multi Bagger said...

HI Felicity,

Well articulated, thanks for such an exciting sharing. I personally agree with your approach.

felicity said...

I do not have anything on Puncak. Isn't it in a mess now, and the resolution is yet to be certain.

hng said...

Hi Felicity

Just want to update new development and its source link which may impact on YTLP.

a) Electricity charges in Indonesia will rise an average 4.3%, effective April 1, 2013.

Positive impact on PT JAWAPT Jawa Power which owns a 1,220MW coal-fired power plant located at the Paiton Power Generation Complex in East Java

http://www.balidiscovery.com/messages/message.asp?Id=9266
http://www.jakartaupdates.com/2085-the-electricity-price-increased-effective-1-january-2013-for-large-customers

b) 30% stake in Jordan- potential earning capacities from next IPP (500MW) since 2017

https://www.enefit.com/news/-/news/2013/06/13/enefit-jordan-given-green-light-by-ministry-of-environment-to-proceed-with-oil-shale-fired-power-plant

c) Average household water bill to rise by 3.5% to £388 a year

http://www.telegraph.co.uk/finance/personalfinance/9849057/Average-household-water-bill-to-rise-by-3.5pc-to-388-a-year.html
http://www.theguardian.com/money/2013/feb/09/rising-water-bills-profits

d) Underestimate of 33.5% in ELECTRANET- - revenue and price hike in 2014-2018

http://www.aer.gov.au/sites/default/file/ElectraNet%20Revenue%20Proposal%20.pdf

e) Potential earning from YTL Communication via YES, after subscribes more than 600,000

felicity said...

Thanks Hng :)

James Lau Chea Yong said...

Very good comments and advice for serious investors.Thanks and keep it going.