Friday, December 5, 2014

A tale of two different plays

Ever wonder why the regional markets (especially China) are mostly doing well, while Malaysia's Bursa has been dropping? This is because a lot of the plays in the last 7 - 8 years or even more have been on oil and gas (O&G). The O&G play have been exacerbated by the proposed investments into marginal oil fields, huge plan for Pengerang pushing Malaysia into a country that is more and more dependent on O&G. The Malaysian stock market have been largely dependent on that sector. The first 3 SPACs are all O&G although many investors still do not know what that means. SPACs basically means taking your money and only decide (or search) where to invest in. Before they have your money, usually they have very little clue except borrowing their namesake. Also, it you do your search, there are more and more RTOs that are mainly by O&G related companies. Any companies that are into O&G are deemed to be good standing. Now comes the time for the famous saying, "When the tide's go down, only you discover who is swimming naked." as every Ali, Muthusamy and Ah Kau wants to be in the O&G business suddenly.

The O&G play, I believe are because of 2 main factors - price of oil since 2006 (except for dips in 2008) and PEMANDU. PEMANDU has been formed to look at large projects (especially) and O&G can be large projects, very. Imagine a name whom many would not have heard of before Dialog (joking, I know they are big among Malaysian O&G players) can declare that they are going to invest RM15 billion into Pengerang! The entire Pengerang is like RM100 billion investment altogether - more than the total investments for MRT1, MRT2 and MRT3!

With these investments, we are going to be one of the largest in the world in O&G trading!

Now! Brent crude at USD70/barrel. Now how? Ohh, btw, we are not selling Brent, we are selling Tapis. Even when Brent can be low, Tapis' price was priced at USD100. Betulkah? That was before. We are now talking about what happens in the future.

Will the USD100/barrel be back soon and all the projects will be at full steam again? What if it drops again? I know many projects will not be shelved by this factor but I am just wondering why is Malaysia pushing so hard into O&G.

O&G is a volatile play. It is a commodity and while many countries are pushing harder into alternative and renewable energy, we are pushing hard onto depleting energy source. We are trying to build expertise into an area where other countries are many years ahead while we are doing catching up. Diversification is key as O&G is too risky even as a trading hub. In addition, O&G is too small a job sector focus for Malaysia. There can be very few rich people (in this sector) but a lots more poorer people if we put our energy into this area. Yes, part of it is into logistics sector as a bunkering hub is good for Malaysia, but still O&G centric.

In any case, Malaysia is not like Russia or Saudi Arabia or Qatar where those countries are very dependent on oil. We should embrace that diversification. But yet we seemed to be pushing hard onto one sector currently.

For example, we used to have a strong technology sector - E&E and software - now that is dissipating although Malaysia is still a large exporter of semiconductor. These are good sectors to even out wealth and with that the local consumption economy will do better.

However, I believe economically Malaysia is fine with the price of oil drops. The drop in Bursa is largely to do with the O&G companies and along it pulls together the others as well. There are still more to drop for the O&G companies if the price of oil stays at current level for some time as these counters are still expensive.

Government's budget seems fine as it has eliminated subsidies in petrol and diesel altogether. Good move and right timing! I in fact feel that the government has more money for development next year although contributions from Petronas will drop.

But we got to do more.

With that, I still believe over time, by 2015 the other sectors may pick up back. Those that are not related to commodities. The construction sector should do well. Banks was on the rise and rise over the last 15 years or so. There is time to slow down. It seems to be now. I do not know of the banks exposure to the O&G sector, but looks like it is little as banks nowadays are happier lending to properties and automotive purchases. Retail should do better once the GST and other factors have put people on firmer footing. So are other industrial sectors that are export oriented now that our RM is getting smaller.

Hence, while the Malaysian market looks bad, it is more to do with one sector. The rest will be fine as commodity prices are now down and I am just hoping my Char Kway Teow seller will not increase price come 1 Jan 2015 in the name of high oil price! As it is not true.


Kit said...

as per federal gazette order P.U.(B) 528, for the purpose of the levy and payment of customs duties under the Customs Duties for period 27 Nov to 10 Dec 2014, Tapis Blend value at RM298.63 (USD90) per barrrel

GL said...

Hi Felicity... is it time to get greedy on O & G stocks? ... which of the O & G stock is most attractive in your view. ..? Thanks

felicity said...

Probably dialog? 😎

Bn911 said...

Dialog market cap( 6.7B) higher than Bumi armada (6.1B) now, is Dialog worth that much?

felicity said...

I am not keen in any O&G as I feel it is just beginning of the drop. O&G should be finding its bottom, but not yet now

alex said...

HI Felicity,

Do u have time to look into REV ? thanks !

felicity said...

Hi Alex

You can take a look here,

Malaysia Home Reno said...

HI Felicity,
do you think padini is a good buy now at 1.61? cheers

felicity said...

I think Padini is a buy considering the strength of its brand.

GL said...

Hi Felicity
Would you consider exiting n moving the funds from Parkson to pick up Padini? As usual thanks for yr views n insights. ..

paperplaneinc said...

Hi Felice, whats your strategy on jobst? Will reinvest back into Jobst??

felicity said...

Hi Paperplane

No I will not reinvest into Jobst. Although I support the management, until I am sure of its business drivers, I will be finding other investments.


On changing to Padini, yup that is a thought.


fy said...

Hi Felicity,
Is MBSB is a good buy since the price is fixed at RM2.82 for the grand merger of CIMB-RHB-MBSB while currently MBSB is only RM2.51.

felicity said...

hi Lim Foo yee

I am not so sure that the deal will be through but if it is through definitely a good buy. Owner of MBSB will be offered RM2.82 cash as an option.

I would however take my chance and foresee that it will be a done deal.