Wednesday, February 20, 2013

Tune Insurance: Where does it swings?

I am amazed with the Malaysian market - at a time when some are afraid of Airasia's growth prospects due to competition from presumable Malindo, we are celebrating the high price valuation of Tune Insurance. (have you heard of Malindo news nowadays - is the March launch still on, BTW?)

Now, let me put this right. Airasia is offering a service which people would like to have - i.e. cheap travel. Tune Insurance which is an exclusive partner to Airasia is offering something which we can do insurance. Once in a while we may be afraid of the risks associated with flying, but if we are afraid, why fly? A travel insurance will not do much help except enriching the provider. Airasia as in other low costs airlines like Ryanair will push for these kind of services as they are fringe income from the Low-Costs airline business. But, overtime as I see it regulators will want these airlines to be much more upfront - such as the case of Australia summoning Airasia for misleading customers in its pricing.

No doubt I still very much like Airasia as I think it is going to be the leading contender in the low frills airline business in much parts of Asia, I think that Tune Insurance is overpriced. I am reading somewhere that at its current traded price of RM1.35 (market capitalisation of RM1.014 billion), the prospective PE for FY2013 is somewhere along 16x? Is it possible? Lets look at the Proforma Income Statement for the past 4 years. Firstly, lets look at the red block for Operating Revenue. Notice the growth in revenue and if you look at the Audited Report for 2009 to 2011, the travel insurance business has very high profit margin.

Proforma Income Statement for Tune Insurance
How not possible that it is not highly profitable in terms of margin? The marketing is all done by Airasia. A minimal fee and commission is probably paid to Airasia - that's all AND look at the gross claims paid. Nobody is claiming because there is not much you can claim from the coverage terms in the insurance anyway. Additionally, its costs is all in the commission and fees paid. If there's no sales, there's no commission to be paid. In fact, Tune Insurance has no costs literally speaking except for the "gwailo" CEO which it does not need - unless you need the slang when being interviewed by BFM.

That is why as you can see it, once the main business i.e. airline business is becoming successful - Tony and his team are reaping the benefits from this travel insurance business. I do not see how this insurance business is not profitable. It is a LPI (Lonpac) to Public Bank - a hugely successful bank in Malaysia. Lonpac does not do much marketing - Public Bank does most of the marketing. In fact, what's a potential loss to Airasia from its additional source of income from insurance will be a gain to Tune Insurance and can be vice versa, anytime. The CEO's job for the insurance company must be a good one!

Anyway, now that we know it is highly impossible that Tune Insurance will not be a hugely profitable business in terms of margin (unless there is a major plane crash - and even that I think it is covered), what about its growth and other potentials. The travel insurance will grow in tandem with Airasia's in Malaysia - probably slightly better growth due to the high inelasticity in its ability to price - who will notice if Tune is to add another RM1 or two?

But for its other side of business...Mid of last year Tune Insurance bought over a very small general insurance business despite the hugely competitive environment as there were several much bigger and more competitive insurance companies having their M&As over the last few years. That acquisition is what you see in the segmental revenue as below.

Segmental revenue
As you can see above, the revenue from travel insurance is being dwarfed by other general insurance business in 2012. This percentage will get bigger with the full year income being recognised. What about the impact? As much as the travel insurance business is highly profitable, the motor and non-motor insurance is NOT. It is a totally different business for Tune. It is highly competitive, highly regulated and highly not TUNE.

If it is pitching a different tune for the other general (motor and non-motor insurance), then I probably would buy it - something like they are going full-fledged online and selling it cheaper. The pitch as at now however is (not convincing for the price paid for) i.e. the "beautiful" low cost no frills airline (Airasia) and Tune Insurance is to be riding on the strength of that growth while it now has another side of business with 1,000 agents selling for the motor and non-motor general insurance. That does not go past me as P&O is only valued at less than RM400 million. How is Tune supposed to be worth more than RM1 billion.

Why did it acquire that insurance business anyway if it is not attractive in terms of prospects? It is cheap for one - with the money raised from the IPO, it has already covered the acquisition price. Tune needs to be a larger insurance company to survive despite the profits as there are minimal regulations requirements as a insurance company that it needs to meet. Another thing is that with the higher revenue - the income statement looks good. Who will pay for a company with RM1 billion valuation but its revenue is just a meager RM55 million?

Now back to the valuation again. The travel insurance is great but the other general insurance is not. For it to meet the 16x PE for this year as claimed in some newspapers, it all depends on how much can the Tune group swings the profits - and the list of directors in Tune Insurance are very much capable of that. That's why I am not interested.

Tuesday, February 19, 2013

Sometimes foreigners just won't buy

How many times have I read of statement which says a prospective investment is attractive because it is under invested by foreigners...

I read an article today which claims as below...

"Meanwhile, Malaysia Property Incorporated (MPI) said only up to three per cent of property investors in Malaysia are foreigners."

Let me ask a few questions:

  1. Is Malaysia yet a main destination for foreigners (high income) seeking work or as an alternative place to stay? How successful is our MM2H?
  2. Is Malaysia yet a strong education hub? Look at performance of the education sector (colleges and universities) such as HELP, Paramount. The strong performance are due to strong interest in private and international schooling, not foreigners looking at Malaysian universities or colleges.
  3. Are we there yet in terms of safety? 
  4. Is Malaysia a destination for hot money flowing in? Or rather flowing out!!!
  5. MYR cheap? MYR will always remain to be cheap. What is the prospect of Malaysian Ringgit over a horizon of 10 years? Will Malaysian Ringgit outdo other regional currencies such as SGD or RMB or even Aussie Dollar?
  6. What makes Malaysian property hot - speculation? Or investments i.e. including for stay?
  7. Will interest rates remain this low over the next 5 years?
  8. There is a reason why Singapore and Hong Kong are trying to cool down their property prices despite the much liquidity in the market. It is hightime we do the same rather than continuing to provide more liquidity to the property market as in what the government is doing. One can't provide more than 100% loan to a buyer. That's the limit.
  9. Iskandar? Singaporeans are buying for investments, speculation or stay? Will there be a third, fourth or fifth link into Singapore. MRT right through Iskandar as mentioned or planned. Has anyone thought of the security concerns and checks that Singapore does to its visitors? Has anyone gone through the Singapore security checks especially peak hours? Will there be bottlenecks for daily travels into Singapore? If Singapore is ever willing to do connections like Hong Kong Island and Kowloon or Manhattan and New Jersey then ISkandar will thrive. Travel has to be seamless. Can that happen with Singapore? If there is a bottleneck getting in and out of Singapore, then I am doubting that Iskandar will be hot over the longer term. For Iskandar to succeed, Singapore government's mindset has to change - not just Malaysia.
  10. Schooling. Singapore's children studying in Malaysian schools in Iskandar? Have you seen the number of Malaysian children commuting to Singapore for schooling everyday? They basically travel into Singapore through the causeway before 6 am every morning. With Singaporean buying properties for stay in Iskandar - that will reverse? I think Singaporeans have much trust in their own public schools than our private schools - at least for now...
Note who all the interviewees are for the article...they are all industry players with vested interest.


Eye on Malaysia as HK, Singapore curb property investments

KUALA LUMPUR, Feb 19 — Iskandar Malaysia, Kota Kinabalu, Kuala Lumpur and Penang are set to become hotspots for foreign property investors as the Hong Kong and Singapore governments “cool” their respective overheated property industries.
Malaysia has become a preferred country for foreign property investors and is now the main focus after Hong Kong and Singapore imposed 15 per cent levies to slow down foreign investments that had overheated their property markets.
These “cooling” measures have shifted some of the surging demand for residential and other properties to Malaysia, including a Malaysian-Singapore joint-venture iconic wellness project to be launched in Iskandar Malaysia later today.
Prime Minister Datuk Seri Najib Razak and his Singaporean counterpart Lee Hsien Loong will be accompanied by the largest gathering of Cabinet ministers from both side of the Causeway for the wellness project launch, according to officials involved in the venture.
A survey carried out by iProperty revealed that Malaysia is fast becoming a preferred investment destination for Singaporeans.
In the survey conducted among 2,099 Singaporeans, 42 per cent chose Malaysia as the number one destination for overseas investment, with Australia and the United Kingdom following close behind.
“According to Bloomberg, the Singapore dollar has risen more than 5.5 per cent in the past 12 months, the second-best performer among 11 Asian currencies.
“With a stronger currency, it is likely that even more respondents would pick Malaysia’s comparatively weaker currency (increased from 33 per cent to 42 per cent) over Australia (14 per cent) as their preferred overseas property location,” stated the iProperty Asia Market Sentiment Report (H1) 2013.
Fiabci Asia Pacific executive director Dr Yu Kee Su agrees that the cooling measures will drive up Malaysia’s property market and increase purchases in Malaysia and Australia.
“These two countries are the region’s investment grade countries for property investors from China,” he said.
He pointed out that Iskandar Malaysia, Kota Kinabalu, Kuala Lumpur and Cyberjaya will be the main hotspots that foreign investors are looking at.
Fiabci Malaysia national committee member Michael Geh concurred, saying that Kota Kinabalu and Iskandar will be the fastest growing spots due to both destinations’ flight connectivity to China.
“These two destinations are in the top tier of investments with new launches but this will not necessarily drive up prices as these investors will soak up the supply of new launches to keep the industry alive,” Geh said.
iProperty chief executive officer Shaun Di Gregorio seemed to have the same view by stating investments from Singaporeans will only have a marginal impact on property prices here.
Geh said foreign investors will only form the 10 to 15 per cent of the buyers.
“This is actually good for Malaysia’s property industry with external money coming in especially at a time when our domestic market is experiencing a credit crunch and liquidity,” he said.
Meanwhile, Malaysia Property Incorporated (MPI) said only up to three per cent of property investors in Malaysia are foreigners.
MPI agreed that the tightening of property investment regulations in Singapore and Hong Kong will likely draw more foreign buyers to Malaysian shores.
“Internally, Malaysia has also improved in the Doing Business 2013 report which would boost investors’ confidence in the country’s growth so this could help in attracting more foreign direct investment into the country and possibly translate into some property purchases,” MPI said.
MPI also said a large portion of foreign property owners in Malaysia are Singaporeans.
On whether this could somehow drive up prices in the housing industry, MPI said the industry in Malaysia was not a speculative market.
“Looking at our historical house price index, we can see that we have had steady appreciation in prices over the years with no peaks or troughs, unlike the more speculative markets of Singapore, Hong Kong or Shanghai which experience acute fluctuations during the recent economic crisis,” MPI said.
According to Smart Investors Club co-founder Jeffery Lam, Malaysia’s property industry is still one of the most affordable in the Southeast Asia region and that it still has a very huge potential to grow.
“Malaysia will definitely be one of the shining stars in the region and this is surely a good sign for the country’s economy,” he said.

Wednesday, February 6, 2013

I want to be an employee of SP Setia

I would love to be an employee of SP Setia, if I can get a job there but if I am an investor (which I am) I may think again. Why?

Well, I leave it late to comment on this but the full proposal came yesterday, and here it is. It is basically a free share award (up to 15%) for the employees which also includes the directors of course. The keywords are "no consideration" and "in recognition of loyalty". If you are to buy loyalty, and that affects the shareholders - then forget about loyalty!

I am not against rewards at all, but reward in a proper manner - cash and remunerations in other forms.

Here are the impact to the shares...According to its current price of RM3.13, the impact can go to as high as RM1.15 billion in value over 4 years - for a property company which is usually heavy with assets? Hello, it is not a services company such as IT, investment banks, pharma research etc...For a property company, land assets, market conditions presides over others. The 15% is on top of salaries and other expenses - fyi! Even for a top investment bank like Goldman Sachs, you know how much investors would jump over a 15% free share award over 4 years? The CEO of Goldman would not dare to come out with a plan like this even...You know when Steve Jobs proposed an option scheme for himself back in 2001 without the approval of the board, the media had a field day when the news appeared in 2006 - that was options, not free shares and it was way below 1% of total Apple's shares - for SP Setia, a property developer, not an Apple - total 15%!

What about its reasoning for the issuance? One of it is to provide valuable incentive to Employees without adversely affecting cashflow.

To me this is nonsense, firstly PNB bought a controlling stake over the property company afraid that it goes to the wrong hands. And it being afraid of the employees leaving, this kind of offer? This basically shows that the company has no understanding and respect over shareholders - minority that is.

If TSL can think that SP Setia is him and he is SP Setia, then that's really wrong!

Monday, February 4, 2013

Another Chinese news another worry

What is with China based Chinese companies when Chinese New Year is near? This time around rumour is Patimas is to be invested around 10% presumably by Tencent Holdings.

Let me reproduce the Balance Sheet again...

This kind of Balance Sheet needs rebalancing through injection of new funds. Why buy from the market or off the market - whichever happens? Let me say again - Patimas needs new injection from new shares issuance. There are no hidden assets which are undervalued. The only attractive part if the company is - the data centre presuming that it is working well.

EY had provided disclaimer on its accounts last can read more through its Annual Report.

Then another rumour, apparently Nur Jazlan, the son of an ex-Information Minister (keyword Information Minister) is taking over Patimas. Good news for shareholders? At what price? Patimas - A negative NTA company is now already trading at RM100 million valuation. Perhaps a premium of 50% to sweeten the taste of the list of punters who are already punting on the stock big time. That comes to RM150 million valuation?

Well, these are all the question marks - firstly why a company that needs injection is being bought from the market (if its true) and why Nur Jazlan is only interested after the share price had run from below RM0.02 to now RM0.13? Suddenly Patimas becoming so attractive?

Sunday, February 3, 2013

Another election fear: Currency?

Malaysian Ringgit has gone through a bad patch over the last 1 week. It seems that the General Election is having its effect on our currency as well? As below, usually Ringgit traded within a range against Thai Baht - most of the time trading around 1 MYR = 10.10 THB. Most recently, MYR has weakened to 9.58.

The usually stable MYR against Thai Baht faced a change where MYR dropped significantly over the last week
Usually, currency trading over the short term really reflect the sentiment rather than longer term fundamentals. Why has MYR dropped? Funds pull out? These are short term funds so to speak - have foreign funds been selling on our stock market as over the recent month, most markets have been performing with the exception of Malaysian market. Or could it be the currency traders have been shorting the Malaysian Ringgit?

The sharp drop in MYR against Euro. Pretty much the same against most other major currencies