Wednesday, December 30, 2015

Confusion on VS Industry

On 21 February 2015, one JXX (not real name) claimed that he (and wife) purchased 15 million shares of VS Industry due to its fantastic latest quarterly performance (Table 1 below).

Table 1 (Blog on 21 Feb 2015)

At that point of time if one was to have around 15 million shares, it would have triggered disclosure to Bursa as the number of shares would have exceeded the 5% threshold. Total number of shares for VS Industry at that time was 205.3 million shares - 15 million / 205.3 million = 7.3%.

1 April 2015, VS Industry announced that it planned to issue around 10% shares via private placement. I would say this is a good move as if it raised them at a good (high) price, would be beneficial to the company. If however, it was issued at below what its value should be, then a bad move. 10% comes to about 20 million shares.

That private placement was completed sometime around June 2015 with 20.58 million shares issued (as below Table 2). (It was issued at RM3.83. Recently, the stock was split into 5 shares hence the placement by today's price should be RM0.69. At its latest trading price of RM1.55, the buyer should stand to earn a handsome 1.25x. Not bad but to sell some 10% or more assuming the largest shareholders would like to sell as well is not an easy task. It will need small shareholders to believe in the stock.)

Table 2. Private placement of VS Industry
Around the same time, JXX (again not the real name) announced that he bought 20.446 million shares (Table 3 below) through a single transaction (I think). Could this be purchased through the private placement? If yes, could he be purchasing almost all the shares offered through the placement?

Table 3

Now my confusion is, if the same person claimed that he and wife bought 15 million shares prior to 21 February 2015, then why the 29A submission tells otherwise? He should have declared prior. Were these bought through proxies?

The same JXX also has been promoting the shares since February 2015 but did he owned any or could some of those shares be bought by the wife?

Note that the claim of purchase was done in February 2015 while the private placement was done in June 2015. I refuse to think that something is not right here, but these are things that does not seem right.

I stand to be corrected. If however the placement was made to JXX, then it is definitely not right or ethical.

Some questions to ponder for 2016 and beyond

It is easy to think that all companies that sells overseas (exports) their goods or services will do well in 2016. Nobody if I were to ask 12 months ago would think that our Ringgit would have dropped to 4.30 against USD. Nobody would expect the unusual exposure of the supposedly wrongdoings of our government would happen in 2015 - true or not many still think that it is true.

Same things may happen again for 2016 - I don't know. If one is to look at now, companies that mainly depend on local input cost and sells overseas would be an easy pick. They are of course all the companies such as the rubber gloves - Top Glove, Hartalega, Supermax, Kossan - or companies like Wellcall, Chin Well or the furniture companies like Latitude, Homeritz - or those in the electronics exports - Inari, Vitrox or even the new kid on the block, Aemulus etc.

Would they continue to perform. All these companies have already done well and their shares have reflected that - some have increased many folds. Of course, the companies claimed that they are better in costs control, manage the companies better (Hey, nobody would say that they are not good) but in actual fact it is the Ringgit vs Dollar - STUPID! It is the low oil price and price collapse in almost all other commodities - copper, gold, palm oil, iron ore, cotton. That's the story of 2015.

Now, if oil can drop to USD36 from USD100 a year ago, can it go back to USD60 in a year? What if Ringgit improves to 3.70 or 3.80 - let's not be too optimistic that it would go back to the level we see 18 months ago i.e. 3.3. What would happen to all those super performing companies in 2015? Would they look like an Average Joe again? Let's not forget their extra margins for 2015 was the currencies. Nothing else!

Hence a company that usually makes profits of RM100 million back in 2013, 2014 - for 2015 alone they could make RM300 - RM400 million. An example, an exporter that typically makes 10% net margin, just because Ringgit dropped 30% in one financial year suddenly stands to make that extra 30% margin without being extra smart. Hence, if the revenue is RM1 billion and typically the company would make RM100 million profit, they stand the chance to make RM400 million just for 2015 (see the change). There's no strategy involved. That's luck and they were at the right place at the right time. (Nothing wrong with that, but we think that they suddenly will continue to make the same)

But all of a sudden we think these companies are superstars. They are not. They are good but not extraordinary. One if looked further will know that the owners are not stupid and they have been selling. They know that this unusual situation does not come all the time and will not last. But we are that stupid to chase for them to sell.

So when things go back to normal, they will perform normal. But the share price at the moment is not normal. It is expensive if we average out the performance in the last 5 years. Only for 2015, they look cheap.

On commodities

There are so many theories of what would happen to oil price next year and I am not sure which is right. Nobody knows. The main story is that Saudi wants to kill off all the fracking companies in US and Iran since the embargo is to be lifted early next year.

Of course the other story is that China is slowing down - on purpose or due the actions and policies of Xi Jinping. Suddenly, they do not need that many iron ores. China does not think they will consume that much steel, oil as expected. China was overbuilt and they do not want to continue to be the low costs producer for the world. They want their people to start consuming what they produce not helping the world to live a better life while they slog 14 hours a day. They do not want their people to have 2 jobs anymore, unlike Malaysia.

What's for 2016?

No predictions as 2015 was not normal. I am not sure how abnormal 2016 would be. However, what I can say is that let's identify companies that are cheap, fundamentally remain unchanged despite the setback of 2015. The companies that would continue to be managed well. Companies that will consistently pull through and when the times are right they will be back to normal.

But I am not going to buy any companies that are just plain expensive but just because they did extremely well for 2015 we think they will be good for 2016 and beyond.

Happy New Year!

Wednesday, December 2, 2015

Why I bought Airasia and intend to buy more

When I bought this low costs airline at RM1.12, many thought I was crazy. It is  a difficult sector - I agree. Warren Buffett said no, where many American airline companies went bankrupt before. Many Asian airlines went bankrupt as well and needed rescue by their government. Among them Japan Airlines, Thai Airways, Qantas (in trouble) and of course every now and then MAS had that problem and it may not just end.

Why? Because these are national airline companies and (as I have mentioned before), no country would allow their national airlines to be taken off the sky. That was how it was deemed before. Today, many countries still support their national airline, but that thought of supporting the national airline company - at all costs - is being less considered or shall I say is less important.

I would consider having an airline company to a country as like a country having a football team. No country that is able, would not NOT have a national football team - and believe me except for several very strong national teams, for most countries, these are a costly affair. One cannot however say due to this, we should not have a national football team. This is also why the current suspended FIFA president, Sepp Blatter has been in power for 5 terms. He knows what a poor country needs and through FIFA's financial strength, he supports them albeit the many corruption scandals as well.

Back to airline
So when all these countries fight, in a competitive world, most cases there is 1, 2 or at best 3 winners while all the rests would lose - badly. Until 10 years ago, in this region these winners were SIA, to some extent Cathay. The rest were losers that went bankrupt and relived through government rescue. Then came airlines from oil rich countries whom have nothing else to do but to continue throwing oil revenues into their own airlines. These countries supported Emirates, Qatar, Etihad and had seemingly unlimited cash so much so it seems that they are the one until today whom are supporting the Airbus 380 initiative. Without them and originally SIA, A380 would never had gone off the tarmac.

About 20 to 30 years ago, it was also the time where low costs airlines just about were getting traction. First, it was Southwest (in US), in the process killing several full-service airlines in US indirectly. Then of course were Ryanair and Easyjet in Europe. These airlines thrive on deregulation of the air passenger business in their own country (for Southwest) and continent (for Ryanair and Easyjet). If you study, how would an Irish based company (Ryanair) and a Texas based company (Southwest) thrive against competition which are based from higher traffic cities such as New York, Los Angeles, London, Rome, Paris etc? Where they are operated from, these are not the most high traffic places.

These low costs airlines do not follow the usual (past) airline business convention. To be able to compete on price and other means such as efficiency is their business model, with the main intention to carry people point to point - at very affordable price. Prices which were unimaginable, are now possible for mass public to be transported. It is not that we are better off that we are able to fly more often. Our ability to fly is due to there is a big shift in how this sector has changed. Flying should not be a luxury anymore.

Back to Airasia
Where Airasia is operating and competing and driving, it is the same as where Ryanair has been so controversially despised by many of their customers, partners etc. But think about it, they revived many of the smaller or older airports, making commuting easier and faster. Of course, at the same time, making themselves very rich. (Micheal O'Leary, Ryanair's brash CEO is one of the richest person in Ireland). You can also see that Airasia sort of made Malaysia Airport what it is today - that's why Tony Fernandes is furious with KLIA2 and KKIA more recently.

Companies such as Airasia and Ryanair of course changed the landscape of the airline business, pushing hard for deregulation - an area where they will thrive. Of course, Airasia is still fighting hard against MAS in Malaysia, Thai Airways in Thailand, Garuda in Indonesia and many other countries. But their business model is different, so much so that sometimes these airlines do not know how to react - to a low costs competitor. For MAS (where they had done), it cannot afford to compete on prices relying on the operational platform they are in. When it competed on prices, it lost more than RM1 billion in 2014, injuring Airasia as well. In the end, it was MAS whom surrendered first, although Airasia was also badly hurt. Think about it, should it not be a private company that is more seriously hurt competing against a government behemoth?

Ironically from there, Khazanah appointed Christoph Muller. In his resume, he was acclaimed as the turnaround specialist whom made it happened for Aer Lingus, the national Irish airline. He is expected to do the same for MAS.

No article in Malaysia carries his work in Ireland and mentioned whom he was up against. The fact is, he was against Ryanair. He did not really try to compete head-on with Ryanair as I would think he knows he would have lost. As in what we have seen in Malaysia where has been trying to do onto MAS, he made Aer Lingus more agile and smaller - and focus on what a full-service airline would do.

As in most turnaround stories, a person is considered successful if he is able to do complete the turning around, but in most cases, the winner is still your competitor - Ryanair in his case. He did not make Aer Lingus very profitable. Aer Lingus stopped bleeding - and that's success. I am expecting the same to happen in Malaysia. MAS would go smaller, while Airasia will be the one transporting more Malaysians. In Ireland that is the same, so much so that Micheal O'Leary would argue that Ryanair should be the national airline of Ireland rather than Aer Lingus as they transport more Irish than the flag carrier.

Where Airasia has gone regional

We have also seen Airasia is not just a carrier whom are operating off Malaysia. It is going after the regional business, much more difficult but needed. Why?

Flying in most part of Asia, it is not about inter cities within the same country but also between countries. In this sense, Airasia should seek to expand (as it already does) as it does not carry the baggage of a national airline where in Asia especially is a no no for one country's airline to be doing well in other people's country. It is much harder for SIA to propose holding stakes in another country's airline company as compared to Airasia, I would think - although SIA does own stakes in some other Asian countries. For SIA I would think, it is their national duty to bring more traffic into their own country rather than making strategic investments in another country's airline. That is also probably why SIA has offered Tiger Airways shareholders and making the Singapore based low costs airline go private. There must be strategic reasons from this and I am speculating that, the future growth of the business is low costs.

For Airasia, as it is going into many other countries such as Thailand at first, Indonesia, Japan, Philippines, India - it is not without challenges. In each of these countries there are already their incumbent. These are Lion Air, CebuAir, Indigo etc. and they are probably given preference by their own government. This is also why Airasia, as you have seen are facing countless challenges - but these are challenges it must overcome and learn from mistakes.

What investors today is expecting is Airasia to be profitable immediately from these ventures - so much so that there are negative valuations provided for these overseas investments. In actual fact, it should not be. If Airasia's venture is to be valued individually in their respective countries, there would be different value provided added up for Airasia as a group.

The fact is the international investments is pulling Airasia's value down as a whole. Are we saying that Airasia should stop holding stakes beyond Malaysia? Is we say no, that's what today's valuation is however telling us. (as an analyst, we are taught sum of parts - where we break up individual business or investment and value them separately. After that, we will tally them up into one valuation for the group. No analyst has done that for Airasia. If I were to ask to have the exercise differently, just value Airasia's Malaysian operation, what should be the value?)

Today, Airasia is being priced at below RM4 billion - i.e. not even USD1 billion. For the first ever low costs airline in Asia and how much it has done to achieve to where it is today, do you think it is worth less than USD1 billion? Of course, no PE ratio or dividend yield or even NTA would have provided a good valuation threshold. This is because Airasia is continuing to invest in overseas where it will create negative valuation to the group as a whole. People is putting huge value on hope and based on aggressive investments into Amazon and Alibaba (and Lazada, Snapdeal) - all e-commerce - for example but not on hope for a low costs airline business where there is also tremendous growth opportunities as well.

What Airasia needs to do is continue to push and survive during bad times while it grows in times - like now - where low oil price is beneficial for all airlines. If it wins in Asia (that means largest low costs airline in Asia), I am sure it will be a USD10 billion company in 10 or 20 years time - where I see a more open Asian skies.

Thursday, November 26, 2015

Airasia 3Q15: Not all things negative

Airasia's results seems about right although I expected its operating profit to be better due to the downsizing of its main competitor - MAS and lower oil price.
Anyone that has a quick look at the results would be shocked as it reported a net loss of RM406 million. However, before one trembles, take a look at what caused these losses. It absorbed RM625 million in losses mainly due to the conversion of Indonesia Airasia's owings into shares - to reverse the negative shareholders funds as required by the regulators in Indonesia. This shall I say is already expected and announced.

3Q15 Income Statement
However, what's exciting and as happened to most of the other airlines is that the low oil price is now allowing them to really make money despite the stiff competition. For the quarter, Airasia achieved a RM166 million Net operating profit. If you looked at the poor Ringgit strength, it seems that its forex losses seems to be cancelled by the gain from amount due from associates and jointly owned entities. It however hit them harder on the finance costs as lower Ringgit may costs them higher interest payment.

What's key in the results

One of the things that's noticeable is the challenges it faces in the newer markets that it has gone to - Indonesia, Philippines and India. As a result, do not expect these new ventures especially India and Japan to be profitable fast.

Airasia has also started to publish results for all its markets and provide its consolidated report. Notice the low right number of RM64.91 million...That's consolidated number in the event it is assumed as it has control over those companies.

Another point to note is that with oil price at around USD42- 45 per barrel, there is still room for Airasia to enjoy better margin due to low fuel price. For the quarter, its average price was USD77. I would expect it to be below USD 60 by 2016. Most airlines have hedged a significant part of their fuel causing them to still buy fuel at higher than spot prices. Most of them has lessen their hedges for 2016. (Notice that fuel still comprise of 38% of the total costs, hence making it the single highest costs element for Airasia and in fact for all other airlines)

All in all, while most may just be looking for a single headline, as shown below, if we look deeper, there are many positives especially for one of the largest airline in Asia and with such a deep discounted price.

Flash headline via TheEdgedaily

Insas: When the investor is not properly informed

In several of my earlier articles, I have mentioned of companies which holds their businesses in form of investments should be at the very least be measured using its book value.

In Buffett's Letter to Shareholder in 2011 Warren shared his thought on share repurchases, and book value valuation.
“We have no way to pinpoint intrinsic value. But we do have a useful, though considerably understated, proxy for it: per-share book value. This yardstick is meaningless at most companies. At Berkshire, however, book value very roughly tracks business values. That’s because the amount by which Berkshire’s intrinsic value exceeds book value does not swing wildly from year to year, though it increases in most years. Over time, the divergence will likely become ever more substantial in absolute terms, remaining reasonably steady, however, on a percentage basis as both the numerator and denominator of the business-value/book-value equation increase.”

Besides being critical of stocks or funds such as i-Capital which has been trading at 0.8x or lower on its book value, another stock which has been trading like a fund is Insas. In its latest comment in the Annual Report 2015, here is what the Chairman has got to say.

Taken from Chairman's statement AR2015

While, it does say that its accounting does conform to MASB, its holdings in Inari is being reflected wrongly. Investors are not well informed enough on what the valuation of its holding is in the books.

Another test in its holdings of Inari is that it does control the company as it is the single largest shareholder by far, in its accounts it is not taken as a subsidiary. It has representation by way of having 5 members / out of 9 board members in Inari. The Chairperson (Tengku Hajjah) and Executive Vice-Chairman (Tan Seng Chuan) of Inari are both from Insas.
How is this not considered a company that is controlled by Insas? I feel that the auditors have erred and did not challenge the management enough on this.
Treating Inari as an associate

Sunday, November 22, 2015

Why Mutual Funds Are Great For First Time Investors gives you the lowdown on what you need to know about mutual trust funds and why it’s ideal for first time investors.

What Are Mutual Funds?
Mutual funds (a.k.a. unit trust funds in Malaysia and referred to as such in this article) are an investment method whereby assets management companies (e.g. securities investment trust companies) get capital from the public by issuing specific quantity of shares or beneficiary certificates.

The company then uses the investment from the public as capital for their professional investments. Basically, it is an investment method through the sharing of risks and profits. Among the types of unit trust available are equity funds (the most common type), fixed income funds, real estate investment trusts (REITS), balanced funds as well as syariah funds.

There are risks involved when you choose to invest in them, but you can also decide the risk tolerance level and choose to invest in unit trust with risk ranking from low, medium or high risk.

Why It Is Good For First Time Investors?
Unit trusts are affordable and beginners can start with an investment from as low as RM100, depending on the type of unit trust fund you invest in. You can then buy additional units when you have more money and grow your investment.

As a beginner in investing, you can take comfort that unit trust funds in Malaysia are under the regulation of the Securities Commission Malaysia which is the sole regulatory body for authorization of establishment of unit trust funds, including the approval of the fund’s management company.

Professional Management

Investing also means that an individual would need to maintain his or her own portfolio of investments. This includes keeping up to date with the financial market information which can be difficult for individual investors.

What’s great about investing in unit trust funds is that it transfers most of the hassle to the professional fund managers. The people who are entrusted to manage the unit trust are all approved professionals whose training and background ensure the decision making will be based on sound investment principles.

For those interested in equities but lacking the funds to diversify, unit trust funds offer the opportunity to invest in diversified portfolio with a low starting capital. Rather than investing into a portfolio of only one or two investment or shares, the unit trust portfolio usually consists of a combination among which are cash, bonds & deposits, shares, properties and commodities.

Simply put, the wider the spread of the investments means less chance for volatile investment returns. So investing in unit trust provides a diversification of risk along with opportunity to invest in a diversified portfolio.

Beat The Inflation Rate
You can have the option to invest in low risk unit trust funds, making it a good option for first time investors rather than leaving your money idle in the bank. Investing in unit trust funds can help you beat inflation and make your money work for you as most funds provide potentially higher returns compared to if you were to put your money into a savings account.
How To Choose The Right One? 
The first thing to do is to weigh the risks and merits before deciding on an investment. You do this by reading the prospectus of the company which you are looking to invest into. You need to know how your money will be invested, where it will be put into and also the fees and charges involved.

Among the charges are the initial service charge and the annual management fee. In addition, the key factors to take into consideration when deciding on an investment is the safety criteria, stability, liquidity and the risk-adjusted returns.

When Is The Right Time To Invest?
Before you decide on any investment, you need to set your financial goals. Are you looking to generate a second income or looking to grow your money? If you’re looking to grow your money, ideally it would mean the investment would be a long term investment. If you’re planning for the investment to be a form of your second income, then it would be a short term investment. The next step to take would be to make sure you clear any existing debts before you start investing your money.

Check out InvestSmart by Securities Commission Malaysia for more information and to get the latest updates on unit trust funds.

Monday, October 26, 2015

UMA - Don't you think is a waste of time?

Every now and then we are exposed to Bursa's query for shares that have surged (sometimes drop more than usual). But does is help?

The query on XOX. I think I can figure out what the answer would be...

Tuesday, October 20, 2015

Stopping PLUS toll collection - REALLY?

I am hearing from Lim Guan Eng that he can eliminate the toll for PLUS based on the youtube video below.

Not so easy. PLUS has RM30 billion debt. Who is going to pay off that debt? EPF owns 49% of PLUS while Khazanah owns remaining 51% of it. Is the government going to pay off that debt for PLUS? Agree on the return for PLUS but I do not think one can so easily dismantle the debt issue. To be frank, it was actually a very smart move by all the parties involved in the privatisation of PLUS. It is structured in a way where if we are to stop the toll or soften the price hike, it will affect the EPF contributor's pockets - i.e. yours and mine. Damn if you do, damn if you don't. They are quite smart people out there structuring this deal!

In restructuring to take tolls out of PLUS, one will definitely need to obtain the approval from the bond holders. Easy? Nope. Otherwise, they would need to find RM30 billion to pay the bondholders off.

Based on the principal amount of RM30.6 billion debt and at weighted average yield of 5%, its interest is more than RM1.5 billion/year. Ever wonder how it can be barely profitable? Huge interest costs of course.

So now on investments - with its ability to fund a RM30 billion debt, do you know what is PLUS cash generation capacity? HUGE!

Interest payment alone is going to be around RM25.4 billion. Total repayment including interest over the 27 years is going to be about RM56.2 billion. That's how much the banks think PLUS can generate free cashflow over the 27 years from 2012 to 2038, at the very least. This comes to on average more than RM2  billion a year.

Thursday, September 10, 2015

Buy Airasia

A stock which I have been looking at for a long time - have previously purchased and sold cause I felt that others could have gained more.

It has been sold down crazily due to fear as well as foreign selling so much so that many is thinking that it would have collapsed. This is definitely not me chasing the stock. However Airasia has seen substantial rebound from its down previously. If I am not mistaken, it has gone to below RM0.78 - something unthinkable of.

This is a company which has built value over the years and to trade at substantially below its Net Asset Value of RM1.70 is crazy. But the market has been crazy. I definitely have taken some buying position but not in this portfolio.

Globally, economy is not getting better, but essentially that's good for a low costs airline right? I still believe that Low Costs is the way to go. Or shall we say the ways airlines will operate in the future will change - or already on the way. It is not low costs but more like minus the frills.

Southwest Airlines has been benefiting from low prices of oil and so are many other airlines companies especially the Ryanair, Easyjet etc. Airasia, Lion Air, Cebu Air are all going to benefit the same as their model is based on providing less for a lesser fee. Hence it makes the fuel costs to be a significant portion of the costs for these airlines. When fuel price drop by more than 50%, that essentially brings benefits to these players.

For Airasia, the weakening of RM will bring some causes of concern but it has managed to hedge some 52%+ of its exchange risks. I am also seeing that it has managed to build its cash position but delaying or foregoing purchasing of new planes. This is probably due to the glut of planes for lease as well as slowing down of its expansion.

I think the breather is good as it will provide Airasia time and avenue to replan and stabilize. All in all, I am pretty bullish of its future despite it climbing back from its low of RM0.78. At RM1.12, it still has a lot to climb in the short to medium term. Longer term, Airasia is the way and model to go.

Sell Padini

Felt that much more could be gained from some other stocks. Although Padini is a good company, there are others that are getting much more attractive now. In the future, costs is playing a big role despite prices of commodities like cotton is already substantially down.

Economy is definitely slowing as we can see in Malaysia and regionally.

Hence decided to sell all of Padini at RM1.41. It is sold at a loss despite the company providing consistent dividend. I am definitely selling to buy something else.

Friday, July 31, 2015

Keuro: Audited Accounts mistake

Just had a quick run through of Keuro's audited account put up today. I believe there is a mistake on the total assets for Radiant Pillar's net assets (page 64).

If the amount is actually RM1.94 billion would have been fantastic.

Thursday, July 23, 2015

Airasia's comparisons against others

I am wary of the fear in investing into an airline given the past experiences of many collapses - and Malaysia Airlines has been our closest example. Thai Airways did not fare well either. The list goes on and on. But those are the traditional airlines and their possible collapse could be due to the proliferation of low costs model. Airasia's drop however warrant me to look deeper into the company as I feel that it is managed by people who are capable.

Let's look at comparison of Airasia's successful peers (except for Tiger) than look at the non-performing ones. I have taken some examples of Ryanair, Easyjet, Cebu Air (Airasia's top furious competitor in Philippines) and Tiger Airways. Why did I chose those?

Ryanair - model low costs airline operating only in Europe
Easyjet - second to Ryanair and hugely successful as well
Cebu Air - as mentioned, Airasia's top competitor in Philippines. It is dominant there and Airasia is having a tough competitor. But it is predominantly a Philippines airline.
Tiger - well, nearest financially available competitor to Airasia. Not very successful and it needed injection of capital last year.

The significant names that are not here - Southwest (largest low costs in the world and operating only in US) and Lion Air (not listed). I did not pick up Southwest because over the last year, non-US airlines have suffered from the appreciation of US Dollar but benefited from the huge drop in oil price. US Dollar of course appreciated against many currencies and Malaysian Ringgit suffered the most. However, if one is to believe that USD could not appreciate much further, this forex losses will stop. No single currency will appreciate the way USD appreciated in the last few months and continue to appreciate. Think of what the consequences would be to US economy if that happens.

Anyway on the numbers, I have picked up revenue operating gain / loss, GP and shareholders funds. Why I did not use Net Profit is due to the forex loss that some of the companies experienced including Airasia which I do not think will be a long term thing. Fundamentally it is how well the company manages the gross margin as well as the fuel hedges.

The accounting policy for foreign exchange for Airasia is as below.


As below are the important numbers for the list of companies.

Airasia's of course is the Malaysian operation only where it can consolidate the numbers. Others are based on equity accounting.
While one can understand that Airasia's balance sheet is not that strong as compared to its stronger peers like RyanAir and Easyjet, I do not think that it is cashflow starved. One should note that Airasia's business model is to collect cash upfront and pay later. There is a period where it is benefiting from customer financing and that business model is great especially if applied to one's advantage. Airasia, to some extent have managed to use that to its advantage.

And based on its market value to its book value, would it be a reason to buy? Personally, I would say yes, especially for an airline which is still growing. There should be continuous competition but gone are the days where "everyone wants to own a low costs airline" as the barriers of entry is getting much much tougher.

Remember, the stock market in the short run is a voting machine, but in the long term is a weighing machine. What's substance is more important. Think of Airasia's substance.

Tiger Airways 1Q16 results

Tiger Airways is the first to announce its quarterly (courtesy from TheEdge Singapore). Although quarterly results is not an important thing, the long haul business perspective is more important, one can get a hang of what the regional airlines are performing. This could provide a gauge of what could be in store for Airasia and Airasia X.

On comparison perspective, Tiger Airways is valued at SGD824 million (RM2.293 billion), not too far from Airasia ya which is around RM3.7 billion. Which is a much bigger airline and on a more important note, what has Airasia achieved against Tiger. Airasia now is below NTA. Tiger is around 3x NTA.

Wednesday, July 22, 2015

Fantastic headline

For those whom have not read the article, please get it from here.

Alternatively, you may also want to read the statement from RAM themselves.

Tuesday, July 21, 2015

About Airasia

Before one have negative thoughts on Airasia's operations, lets see some of its perspectives.

  1. It is the largest low costs airline in Asia, yes?
  2. Who in the region is its largest competitor? Lion Air? SIA's bunch of holdings - Scoot, Tiger etc? Why would SIA be interested in a low costs carrier, anyhow?
  3. Who else is able to have partnerships in and multiple hubs in other countries besides Malaysia? Airasia has Thailand, Indonesia, Philippines, India. 
  4. Name one business which will make tonnes of money from year one of operations. On this think of Indonesia and Philippines. Is Indonesia esp. a key operations hub for Airasia. If yes, is it important for Airasia to focus on its operations there?
  5. Airline is a tough business. True especially for many American airlines and some national airlines, but some low costs do very well. Check out Southwest, Ryanair, Easyjet.
  6. Is Asia a key growth area for many suitors? Think strategic investors. If no, why did Heineken, (was it) bid extensively for F&N's brewery in Singapore? Why does AEON look at SEA as a key investment destination?
  7. Is there stronger growth in Europe and North America than Asia (especially South East and East Asia)?
  8. Is Airasia better off today than it was say 3 - 5 years ago? Lower oil price (What's the impact of Iran on the price of oil in the future?). Airasia today with better reach. More key partnerships. These are progress. No?
  9. MAS comes to its senses? It needs to turn profitable, now - remember MAS was losing a billion ringgit a year.
  10. Is its current price lowest ever for a long long time?

Tuesday, June 30, 2015

IPIC's interests

It is interesting to see in the announcement that was made by IPIC on the London Stock Exchange.

We know that IPIC is part of the Aabar group which owns a portion of RHB Capital. The Chairman of IPIC is also the owner of Manchester City which as we know can just pay very high price for players to get its club into winning.

What is interesting is the below which was announced in the London Stock Exchange.

Click to Enlarge
If we read it properly, these parties - 1MDB, MOF, IPIC, Aabar signed a binding term sheet. IPIC will provide for USD1 billion, assume USD3.5 billion in principal amount of notes as well as assume all liabilities under the Notes which they are due.

In return (interestingly), as mentioned by 30 June 2016 (a year from now), IPIC is to receive transfer of assets amounting to the total of USD1 billion + USD3.5 billion and the outstanding debt forgiveness. That would amount to around USD4.8 billion?

What I am interested in is which assets that Aabar or IPIC would be interested in? The power assets? From below, IPIC was formed to invest into energy and related sectors. We know that 1MDB has 3 assets which are valuable - Tun Razak Exchange, Bandar Malaysia and the power assets, Edra Energy. But from the 3, the power assets probably meet the criteria of its investments closer. If that is the case, IPIC may become one of the largest independent power company in Malaysia. But would the power assets be worth RM18 billion? Or could it be any other assets as in the announcement it just merely says assets.

Monday, June 22, 2015

Chinese Bubble

The article on Chinese stock market which made $6 trillion in just 12 months reminds me of 1993 and 1997 in Malaysia. KLCI back then peaked at around 1300 points and of course Second Board stocks in 1996 and 1997 was at prices that were ridiculous. If one were to put their money in some of the stocks, they will not have gotten their principal money back.

Malaysian market between end of 1993 until today
Of course, for the Malaysian stocks (Bursa CI) to manage to get back to 1300 points, it took another 10 years and I can imagine that financial performance of the Top 30 stocks today are much better than those days.

There is no doubt that we will see a crash in Chinese stocks - by how much only and when. Will it impact Malaysian market - I think it may cause a ripple. Economically, will China face a downfall - that is hard to say, but things certainly do not seem good.

Shanghai Stock Exchange for last 5 years