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.