Thursday, November 26, 2015

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


felicity said...

Hi Fung, They have 5 directors from Insas represented in Inari. That's 5 out of 9. If that is not control, what is?

felicity said...

NO company is able to have majority representation in the board if there is no control.

SleekX said...

Agree with Fung. Inari shareholders other than from Insas may sack the BOD if they unite. Insas doesn't have absolute control, but it has an executive influence on operations as per agreed during AGM. Practically, Insas most of the time get to do what they want with Inari. Legally, they can be thwarted if other shareholders put their mind and heart into one.