Friday, December 28, 2018


During a period when we have terms such as "Trade WAR", "Trade Friction", "Trade Skirmish", "Trade Scuttle" - it just means that we are living in a world where we cannot do without TRADE. With trade, it also means more people, goods, food are transported. With trade means more roads, bigger ports, more flights, more containers, oil are traded. Think about it. In the context of business, transportation and trade, in several aspects there are big winners - Alibaba, Amazon, Airasia, Maersk, Hutchison, Keppel Port, Grab - but trade also create ecosystems where the middle size players, small players are able to survive and some consequently thrive.

Over the past few decades, there have been massive growth in movement of goods, people between the Pacific, Europe to Asia to American continent. And that growth will not stop. Will a friction between China and US on trade ever reduce that? It will slow it down a little - but over the long run, this will not reduce - unless there is a real war!

Some of things that the US government is pushing for example, i.e. more electronics being manufactured in US will not happen in a big way. Today, China, perhaps is contributing 80% to 90% of the world's electronics manufacturing.  That percentage will not grow anymore as China has over the last few years been rethinking its economy model from largely producing to more consumption based - but it will take time but eventually they will succeed. While the percentage will not grow, the total will continue to grow - for the next decade at least.

So what does it means? Some other countries such as Vietnam, Malaysia, Indonesia, even India will slowly take over the small role of producing for the world. (With that, Malaysia for example will even experience bigger trade volume.) Unfortunately, Malaysia has stagnated to some extent, and we are still being considered as an alternative place for large medium and large manufacturers. With that though, Malaysia will ever need bigger ports, more and bigger roads, IT systems, logistics companies.

Today, it is inconceivable that US will be growing its manufacturing base in a big way, as its economic base has passed that. It will not be manufacturing textiles, furniture, phones, shoes in a large way but what will happen is that high end products such as planes, machines, may still be from there.

Many commentaries I find have also said that the so-called Trade War seems more like a "Technology War". It is not surprising considering the attention given to one of China's more respected company, Huawei - as the world is moving towards usage of technology and electronics.

Looking back into Malaysia. What will the Trade War bring to us? Malaysia still has a strong manufacturing base. We do have talent, infrastructure for that - although it is never enough - no country has enough. Both US, China and some of the large companies that are in between i.e. from Germany, UK, Japan - will always look for alternatives. It has been proven that Vietnam has been the main beneficiary. Malaysia, is another alternative. Hence, while the world will trade a little less, Malaysia may not be that affected when comes to physical goods trade as goods may be manufactured and traded off from here. The hike in oil price will be curtailed as demand may soften. But our logistics companies, transportation related companies, toll roads especially such as PLUS will not be that affected. In fact, these sectors' fundamentals will improve.

I have hoped that our government sees through this. We need more technology companies, talents. MESTECC has to look at how to encourage more creation of tech companies rather than focusing on plastics (i.e. what harms it brings), solar, LYNAS. MITI has to look at making Malaysian companies ready for this change. Which is, more Malaysian companies taking opportunities rather than solely dependent on foreign investments. From this part, I still do not see the light.

However, with the last 7 months uncertainties - I think there will still be uncertainties riding through 2019 - coming from Malaysia and the world. Like someone whom I know said, she is still uncertain over what will happen to toll businesses as it seems the government is allocating RM1 billion to pay the concessionaires next year while in the past they claimed that it could have easily been solved through buying out of these concessions. (If you read my previous articles, one will understand that it is not that easy - as these businesses, financing have already been intertwined - if one is taken away, the other will collapse - just like playing Jenga and in a situation where there are only very few pieces to hold one another. Many whom are hoping for toll elimination or even simple reduction just do not see the complexities although it has been made into simplified context during the election period.)

The massive drop in the market has also created opportunities - one has to continue to look for well-run, good companies and hopefully those that are less dependent on government and their "flippings and floppings". (In a way, I can understand as they are still in learning mode - many newbies, although it is hopeful that the learning can be much faster.)

I have hence decided to buy 7000 units of Freight Management. Why? Because it is a company that has dropped in its price but not value, lesser affected by some drastic change in where the world has moved into in terms of e-commerce and trade and less affected by government's action.

For Freight, if we understand what caused its stagnation in the past 3 years and looking at its growth trend for the longer term i.e. revenue (micro), macro economy situation, I think it is cheap as it is currently at 5.5x PE and having about 6% dividend yield.

With that Happy New Year to all readers!

Saturday, December 8, 2018

Airasia is not pulling back from India

In my previous analysis, I have opposing view towards the Maybank's analyst's view that Airasia is pulling back from India.

True enough, it is not pulling back from India as in its plan through the analyst's briefing. By end of 2018, Airasia will have 20 planes in India to enable it to fly internationally. In its plans for 2019, Airasia will allocate 6 planes for India (out of its total 24 net additions). Watch the analyst's briefing below (26:00 to 26:40). In its plans for 2019, net additions are as follows: 6 for Malaysia, 4 Thailand, 3 Indonesia, 3 Philippines, 6 India, 2 Japan.

Hence, it is probably being the most aggressive for India, planning a 30% growth in terms of planes for India.

I have explained before for Airasia to operate successfully in India, probably the best strategy is by having a hands off strategy. It's overall growth plan and how it franchises and automate processes is Airasia's strength.

Saturday, November 24, 2018

Why we should look at beyond Price Earnings Ratio

One of the subjective area to look at in evaluating a business or listed company is not its Price Earnings, Price to Net Asset Value but its planning, vision, how it makes use of situation to make itself a leader in the future. Most professional analysts, amateur investors (like me) forget about that.

We more often than not concentrate on concession value, delivery, Price to Net Assets, total book order etc etc. Those are very much Graham and the old Buffett. The new investors including the new Warren Buffett, Softbank, some of the best PEs and VCs in Silicon Valley look way beyond what we see. That is why they were able to figure out Google, Uber, Grab, Facebook, Alibaba and many more.

I have to admit I do not have the capabilities and capacity to be in that realm. I do not have that opportunity as well as my universe of looking at companies does not include the very good startups or visionary companies that remain private.

However, among the local traditional companies, we can possibly decipher which company that look beyond its current as compared to those who do not. There are those we know is is danger of being or already been disrupted. Those are the transportation companies for example, media company such as Media Prima, TheStar for which I am not able to figure out where its future is heading.

The easier intangible investment is one where we see the macro picture - i.e. where disruption of affecting, and then we look at micro level and see at what stage is the position of the company. I will take one example. We know that e-commerce is in the midst of disrupting retailing, we then take several malls and try to figure out its positioning. Will it be disrupted? Is the space they are playing different. One example is IGB REIT. How do we see its future. Company or business like Mid Valley will not be disrupted like a taxi business being disrupted. It may face a slower growth. The much lesser malls may face a harder truth where they may not even survive at all, but perhaps not One Utama, MidValley or KLCC. They will face slowdown but not death in the short term.

Over in this, I would like to highlight 2 traditional companies where if they play it right, they can be part of the disruptor. If they are not, they will also be disrupted.


18 years ago, Airasia was a disruptor to the traditional airlines like MAS, SIA. It is so successful, so much so that what we would have thought a business that is hard to survive has in fact caused continuous difficulties to MAS. It is now much bigger than MAS today and I am not able to figure out the survival of MAS beyond the next 3 years - unless there is another round of financial support from Khazanah.

Airasia, however is facing a new challenge. A wave of disruption to disrupt its own business. At the moment, its business model is being copied and airlines that are operating from a bigger airspace may want to eat into its market share. Its vast advantage in costs is also reducing as other airlines are now figuring out how to reduce costs as well.

Hence, it is now facing different challenges as it expands into other countries like India and Japan, 2 countries that are very different when looking at low costs tickets. India already has a very dominant low costs airline which is more competitive than Airasia India - Indigo. It is much larger, probably politically stronger and has more planes and better command of routes. Hence, Airasia in competing has to look at 2nd and 3rd tier cities. Luckily enough, India is such a big country that not one airline can dominate the airspace. It is more like China and US than Malaysia or Thailand.

To compete, I strongly believe that what the management of Airasia led by Tony Fernandes is doing is right. Going digital. By going digital, it is probably going to create that little inch of advantage as it goes regional. When Airasia was at its infant age, it started credit card purchase. That was a small disruption but its other advantages in the digital space was still early. Today, its booking system, checkin and others are ahead of many airlines including SIA - as I tried using Scoot. I happily admit Scoot still lose out to Airasia's booking system despite it not being perfect.

The community today is also more used or susceptible to self booking, payment, checkin etc. That is something which brings advantage to Airasia as it is trying to reduce its manpower per passenger. Airasia's digital strategy is beyond what I can imagine. I believe it is looking how to attract its recurring customer, minimising fuel costs, introducing new routes, new marketing channel, payment system from using its digital initiatives.

Going digital is what Airasia have to continue to invest and its push has to be continually better than others for it to continue to thrive.


Ironically, Gamuda is a company which I now look more in depth after the many situations where its projects was under the threat of being cancelled especially MRT2 underground contract that I now think that it is probably a lot ahead of other construction and developer companies in Malaysia such as IJM and UEM. My previous perception of the company, today I have to eliminate - not because I invested into the company but because now I look at the company more inept. This is because, my investment into Gamuda is still way too small to affect me, personally.

But Gamuda, with its group of management, knowledge depth has to be developed somewhat like Airasia rather than threatened. Most countries that are developed, has strong construction technologies and knowhow. We see that in Korea, Japan, China and previously US. We cannot continually be dependent on foreign technologies when building the country - like what we have done in the past government.

In my reading of several largest construction companies in Malaysia, the other construction companies in Malaysia - like I said even UEM and IJM talks about digital threat and taking advantage of it like how Gamuda sees it. This is unless these other companies do not communicate like how Gamuda does now - but I do not think so.

From here, I strongly believe, because it continuously in the discovery mode - like its investment in tunnelling technology, Industrialised Building System, this mindset is the right mindset for the future of the company. From here, as in any analysis, we should not just look at Gamuda's book order and how many future projects the current government is trying to introduce. We should rather look at how the company get readied itself towards the future.
To understand my writing further, do look at these companies Annual Reports and compare with its industry competitors.

Wednesday, November 21, 2018

Bought Gamuda and Sold MRCB

I decided to buy Gamuda as I thought that the selling was overdone. I was not around during that time, this trade was made in 8 November 2018.

Generally, I thought that the MRCB announcement of compensated for its highway was already accepted by the investing public. Despite selling, I still think that MRCB is still undervalued but I feel that Gamuda is a better bet in the long run.

I think despite both are not apple to apple, but Gamuda is a better company in terms of capabilities and capacities. Although it has lost several contracts like the MRT3 and HSR due to postponement, Gamuda is still a more solid company in the long run.

Monday, November 5, 2018

One can see that Maybank analyst is targeting Airasia

There is definitely going to be impact onto aviation business with the introduction of levy for travellers by government, RM20 for ASEAN and RM40 for non-ASEAN. Local travelling, there will still be no levy.

However, in reading the release here by Maybank, I think the opinion is wrong. How can Airasia and Airasia-X be impacted while MAHB is not impacted?

MAHB's revenue is dependent on passenger traffic. If ever, MAHB is more affected than Airasia's revenue is only about 30% from Malaysia, whereas MAHB's bulk of revenue is on passenger traffic.

His analysis is wrong.

Part of the article from STAR is below:

Maybank Research said the departure levy will negatively impact AirAsia and AirAsia X’s passenger load as their passengers are perceived to be price sensitive. 

Historical accounts are mixed regarding the impact of tax hikes on air travel; in Europe, it caused a multi-year traffic decline while in Hong Kong and Singapore, it merely reduced the traffic growth momentum ever so slightly. 

“The jury is not yet out whether the departure levy will kill passenger demand,” it said.

Maybank Research said the tax burden for international air travel will rise by 49% (within Asean) and 51% (outside Asean). 

MAHB is largely unaffected but it is negative for airlines. 

Tuesday, October 16, 2018

Airasia: The Maybank analyst may have gotten it wrong

The Maybank analyst in putting his opinion after a change in board and management structure in Airasia India may have gotten his analysis wrong. India despite opening up its doors for foreign participation is still a nationalist country. There are already rumors that Tony Fernandes is wielding management power over Airasia India and that does not bode well with the community in India.

The thing that Tony or rather the Malaysian team can do is to take its hands off the management control from within Airasia India. Just look at Airasia Thailand's board, it does not need to have board and management control.

I think the poor opinion over Airasia refocusing into 2 markets is wrong. What Airasia has developed is a franchise, and in a franchise, what is really needed is the development of its business culture and systems. Airasia as a company - believe it or not is the system, some initiatives as a group and then proliferate them towards their business units. Purchasing of planes, booking systems are for example centralised. Ground management are better off left it to the ground managers anyway.

This is what Airasia has done well and many investors do not see that this is highly valuable. One can put in the system and then deploy them to the subsidiaries. Many successful multinational companies have successfully managed their operations overseas these way and that is why several of these US companies are hugely successful as compared to Japanese and Chinese companies i.e. overly dependent on their people rather than local people. Seeing Tony and his team, he is very good at having hands off when things can be run without his local team.

As it is Airasia India is facing criticism over control from Malaysia and that is the best way to fend off that rumor. India being India will find new stories to attack and that is India.

If one tracks Airasia well, the demand on planes will also depend on the performance and need of each country. As it is I do not see there is less planes being allocated to Thailand despite Airasia Group does not have management control over that country. That is the way the franchise is being managed. Another thing which I am amazed is the appointment of a Thai national for its Group CFO position. Very rarely in Malaysian companies, we see that.

Hence, I do not see India is being forgone by Airasia but more of letting the locals manage the show.

As it is, as I have always said, Airasia is a different company. It is not just a Malaysian company but also a regional company. I just wish more Malaysian companies especially the ones that have regional operations to have such structure. The stock market needs more of this than the typical old structure. Without this, our country capital market will not be able to grow.

Thursday, October 11, 2018

Capital Gains Tax may just kill our competitiveness

Please! Do not shoot ourselves on the foot.

When we did away with GST, I thought the government really meant what it promises. It certainly did not promise introducing various new taxes, though - hence long story short, eliminating GST is a mistake. Capital gains tax (CGT) is not a new kind of tax but for Malaysia and this region it certainly is unusual. All our neighbors and sometimes competitors certainly do not have CGT in their playbook. In fact, we have already lose out to both Singapore and Thailand in terms of our corporate tax rate of 24% against Thailand (20%) and Singapore (17%).

Now, we want to introduce something which is really going to be against business - capital gains tax. Malaysia's economy is an open economy and we most of the times will be competing against other neighboring countries. As an example, to enter the capital market some companies can now decide which market they want to get listed. An IT business that operates regionally, can opt for Singapore rather than Malaysia. Airasia for example can go to Singapore or even Hong Kong if it wants to list its group's business. The decision to pick markets to list on depends on how attractive each market is for the issuer.

Introducing CGT will certainly destroy that. In the long run, these kind of decisions which is to address short term problem will just kill our country's competitiveness for existing investors as well as would be entrepreneurs.

In the field that I am in, there is already concern over weak capital flow for both investors and entrepreneurs to tap on. Having a strong capital market means more Malaysians or regional entrepreneurs willing to tap onto as well as invest into our market, and that means more foreign long term money into the market. Do we not want that?

As it is, we have already complained of why did the most successful startup in our history - one that is valued in excess of $10 billion i.e. Grab moved from Malaysia to Singapore despite both the founders started them in Malaysia and being Malaysians. Singapore is just more attractive for them in many aspects and one of them is their ability to raise funds. By my count, Grab has raised more than $5 billion so far. (For one's visualisation, Grab is easily more valuable than Genting today - and capital market plays a very big role in that)

Introducing CGT is an antithesis to that effort of reversing the drain. The government must understand that to reverse brain drain - it is not just about creating job opportunities but it is also about having a conducive business environment. A conducive business environment also means a having and creating a vibrant capital market. Having CGT is hence sheer short sightedness if it is really being introduced.

More often than not, the capital market is pointed as the playground for the rich. It is not that true. It is more of a place for opportunity creation. People or entrepreneurs that would want to tap onto funding, will depend on a strong, consistent and vibrant capital market. As it is, I am seeing a sign of that being reversed by this new government.

If one reads Billion Dollar Whale, i.e. the story on Jho Low, one of the basic message on that story is that rich people do not play by one country's rule. If Malaysia is not friendly to their investment money, their funds can be transferred anytime anyday in an instance. Hence, does our government think that CGT is to tax the rich?

Before we start taxing them, their invested money will no longer be in the country in a flash. That's how fast it is - and does anyone get it. The super rich that we want to gain more taxes do not need to play by Malaysian rules. It will not be long before the not so rich but rich enough to invest in the capital market will be able to do that as well. Fintech companies will enable that and as it is there are already such business startups.

Despite what we may think, one of the success of Trump's administration is to have a swiping change in its tax structure - corporate tax of 35% reducing to as low as 21%. That effort was mainly to bring back businesses that have been locating overseas back to America and it has been hugely successful.

It is time for this government which we have such high hopes to stop being populists.

Tuesday, October 9, 2018

Could it be Gamuda is NOT the problem?

When the government announced the termination of MMC-Gamuda being the contractor for the underground portion of the MRT2, it obviously came as a surprise - as it shows that this government can really terminate contracts. As an investor, it does not appear comfortable for me as where and whom do we trust.

When one invests into Gamuda as an example, it is obvious that their contracts in hand (or book order) is one of the largest determinant towards deciding the investment. I am sure, its largest shareholder such as EPF, KWAP does have the similar information as we are - and we hope it is that way.

The new government, when in power promises us one thing. Go by contract and rule of law. We have yet to see that they are not going by the contract as any contract can be terminated and they have not mentioned anything with regards to compensation. Compensation, however does not console the ones whom they feel they may lose their jobs because of this.

We know for sure that it is not the incapability of the JV between MMC-Gamuda in delivering the project but for it is because of the need to reduce costs. However, I am perplexed over why then they do not negotiate until both parties come to an agreement? Usually, that is the spirit as in any negotiation especially towards company which is dependent on government projects, the one holding the trump card is the awarder.

Or could it be Gamuda has been arrogant as they feel that they are the only one who can do the job in Malaysia as it does seem that way. They have mentioned it as well in a 4-pager explanation as announced in Bursa's webpage that in the event it is opened to international companies, there is none others that have the capabilities to bid from within Malaysia - not IJM, WCT, UEM etc. It is because Gamuda and MMC only have the capabilities of such extensive tunnelling work, it seems.

Ironically, the other 50% partner being MMC announced  the below - lacking the detailed explanation, unlike Gamuda.

Gamuda it seems is the only one which is more vocal and concerned; and it also seems that they are the one that is affected more. If one is to ask around, people are more confident of Gamuda's engineering capabilities when comes to this. Rarely, one would mention MMC.

There is obviously more than that, which one could not help to think of. Hence, cronyism came into mind. In my observation, Gamuda does not seem to be the one that seems to be the crony. It seems that the other company - MMC - is more of the concern here.


If Gamuda is the crony, it would not have been awarded the Penang Transport Masterplan project where it holds a 60% JV stake. That multi billion ringgit project was awarded in 2015 when the current Minister of Finance, Lim Guan Eng was the Chief Minister of Penang. In fact, until the recent change of government, the project faced great difficulties to commence - from getting approval from the federal to getting financing. Now, this announcement of termination came from the MOF although it is mentioned that being the Cabinet's decision.

Najib Razak today, pointed the top 30 shareholders of Gamuda and in the list the largest shareholders are EPF, KWAP, PNB and many other funds that invest into Malaysia. Why not? As in any companies that depend on government contracts, they need to be friendly, but we know that they need to be that. We however do not have complains of their deliveries. In my mind, Gamuda is a quality company, hence the diversified investors. In fact, this is the type of shareholder composition we want among our top listed companies - not the ones which PNB, EPF, Khazanah are the controlling shareholders - where they hold more than 30% to 40%.

MMC - It seems is the other type and Najib may have pointed onto the wrong company. We know who Syed Mokhtar is. Contracts monopolies etc. From Bernas to Pos Malaysia to Proton to port and IPP businesses. He also owns Penang Port and probably caused difficulties to some people from the current government.

Substantial shareholders of MMC Corp

To my concern however is not on Gamuda the stock, but my bigger concern is Gamuda the business and company that it has built itself to be. I have always believe that we need to build our Malaysian companies. Gamuda is one of such. It is capable of delivering what other large companies such as Hyundai, Chinese state companies can deliver - tougher projects - tunnelling. Do it in Malaysia and then overseas - compete there.

I thought the pitch that has always been provided so far is about building our Malaysian capabilities. This is why there is keenness to have our 3rd national car - I thought.

Hence, as a Malaysian, I feel that the government has to revisit the termination. Renegotiate again but try not to give this kind of projects to another Chinese or Japanese company - otherwise we are just another buyer of capabilities. I know they perhaps can be capable or even cheaper but this is not what we have been voting for.

Monday, September 3, 2018

Before providing Government with fuel cards, Petron was already attractive. Now?

Last year, I gave my opinion on Petron over Hengyuan as well as the potential for the stock from a defensive investment perspective or even if we are to look at mid-growth stock. When I was about to collect the stock, there was a craze over an almost similar stock - Hengyuan. Hengyuan had a run until a huge (enough) stock investment community became well-verse about crack spread even though we have never visited any kind of refinery before.

As in all spikes up or down, it will always come to normalcy, this is what happens to a refining business - and it was pretty shortlived. This is also the usual trend of any economic concern especially for the more traditional business. Petrol is now a traditional business with a threat towards its existence - electric vehicle - but not in the next short decade.

In a normal situation, a B2C business is more often a better bet and provide better stability. Petron and Petronas Dagangan (PDB) are the only 2 traded stocks that has that exposure for investors in Malaysian stocks. PDB is trading at around 23x PE while Petron is trading at less than 7x PE.

What causes the difference in valuation? My theory for that is the wealth of our government controlled funds - Khazanah, EPF, KWAP, PNB and few more. They have less options to invest with the continuing strength in their deposit taking. PDB moreover is a Composite stock whereas Petron is not hence making it more reason for government related funds to buy more.

As a value investor, these are what I try to take opportunity of. To me Petron has built its business to be just as good as PDB albeit the size. In fact, I like it more as a private company as opposed to PDB being a government owned business.

The approval for Petron to be a provider to government fuel provider for its fleet of vehicles has also probably allow us to see the change in attitudes towards private businesses as we have been exposed to preference for GLICs and GLCs in the past decades.

As it is Petron has been growing at around 5% to 7% over the last few years, above its peers and from this new business opportunity, I see a spike in its business in the short term.

Last quarter (April to June 2018), we see Petron making around RM92 million net profits and I see this is a number where it is pretty much an average for the company with continuous growth of around 7% to 8%. This is a period where fuel price was fixed at RM2.20 (RON95) for most period of the quarter. This action taken by the new government will also allow petrol station operators to lose less than when they allowed it to float. This is positive for company such as Petron.

Crack margins was also weak for the period in review, hence the allowance for upside is also there.

At its normalcy, Petron should have been a strong defensive stock but in its price as I reiterated, has not shown anything of that. Hopefully yet!

Sunday, September 2, 2018

How should we see Ekovest?

The change in government is going to see changes in Ekovest from a company perspective which is from largely construction based (from government related contracts) to more of its dependence on its long term assets - toll and land. I know many would be concerned on the toll assets as the new government is looking at ways to eliminate toll but lets face it, this is going to be difficult as the country juggles with our finances and continuous development. Toll over the period like it or not it is still an asset which is generating very good cashflow.

For the next 3 years the consistent revenue that is to be generated is going to come are mainly from construction (SPE highway) and toll (DUKE 1 and 2).

Property business as one know is going to be sporadic until it manages to obtain consistent revenue from its property investment - which potentially will come from EkoCheras mall.

The below is a pick from its latest 4Q18 quarter results, and as we see there is new revenue from DUKE 2 (which increases the contribution from toll) since December 2017. However, in accounting for concession assets, this is also the start where it is starting to recognise the interest expense from the toll assets (see Figure 2).
Figure 1
Hence, profitability from toll concession will not be good, but that is a different story when concerning cashflow. Its cashflow will be good and when the third highway is completed - i.e. the SPE it is all full throttle for the company. Again, I am not worried when it comes to abolition of tolls, it is very hard for the government to do that. Otherwise, they would have contacted the concessionaires and discuss. So far, the only concession that they have contacted is their own - PLUS which is owned Khazanah and EPF. The way I see it is that the current government is trying to avoid the topic until when they are ready to discuss about this.

Figure 2
The concern over the losses for 4Q18. As mentioned in Figure 3 below, part of the losses is due to costs of the failed acquisition of IWCITY - turns out to be a blessing in disguise and its provisioning for LAD - Ekocheras and highwe interest expense as mentioned earlier.
Figure 3

How I see Ekovest

As in many of my investments, I see Ekovest as a good long term investment with solid assets. It is moving into a territory where it will be less dependent on new projects while focusing on what they have built in the last one decade.

Seems to me, after this few years, it hopefully can become a good dividend stock if the controlling shareholder is fair.

Thursday, August 30, 2018

TA's verdict - How should we act?

Tony Tiah, the controlling shareholder of TA Enterprise has made an offer to buy all the remaining shares of TA at RM0.66. That exercise is to allow him to get across the 33% General Offer threshold.

In my opinion, it is to allow himself to buy more. Since the offer announcement, he has been accumulating some 3+% of TA's shares that he is now owning 36.369%.

Why? Because he just wants to own more. The way to do it is to control the share price at low and as he buys to trigger the 33% threshold, he is forced to purchase at highest price transacted which was 66sen.

Is it fair? Well this is the independent report from BDO, which is one of the better more willing to take a fairer and neutral job. Others such as an independent advisor whose name starts with an "M......", we can be more careful. In this exercise, it says TA's share price is between RM2.59 to RM2.60, a whopping 74.5% discount from the offer price. See below.

One can also read the full report by BDO, which is also one of the few chance to allow us to see the good assets that TA Enterprise owns - where a large portion of it is also owned through TA Global.

Since the price is so low, it is obvious that Tony is offering to purchase more of it. It appears that he is in fact prepared to buy more.

BUT - a big one, will the share price go up?
Hard to say, the exercise does allow Tony Tiah to wrangle himself out from the 33% General Offer trap. From now on, he can take his time to purchase more of his shares, and as sometimes the saying goes, "He has time." He may be taking his own sweet time to accumulate and not be trapped by the regulation until he reaches another threshold which is 50%. He is like the same when building properties i.e. the TA 3 and 4 next to KLCC, that has been postponed for uncountable times. He is just waiting for the right time to make his move.

On my opinion, whether the shares is undervalued? IT IS. BUT...not all undervalued shares will move as it should be...

Sunday, August 26, 2018

Reduce focus on controlling prices. Focus on developing the country's talent

When Dr Mahathir visited China, I presume he must be sad as his vision of turning Malaysia into a highly developed nation and exporting technologies to the world seems far from fruition. He was introduced to Alibaba, DJI - the drones company, Geely - companies that were not even around when we mooted MSC. What was envisioned through the Multimedia Super Corridor back in 1996, has remained a vision. Cyberjaya is now a place where outsource services is more prevalent than companies developing solutions that are used by people from all over the world.

We now invite Alibaba, a company which was created by Jack Ma and his partners after MSC was mooted - i.e. 1997. What rubs salt into the wound is that when Jack Ma visited Dr Mahathir, he told our PM his vision of Alibaba was partly inspired from Mahathir's vision of MSC.

I know of friends who work in Alibaba's Malaysia's office, Lazada which is 80+% controlled by Alibaba. Jack is not interested in developing or help Malaysia. He is interested in developing Malaysia as a trading hub - which is an import and export base. He is much more interested in bringing Chinese goods into Malaysia and the region. In short, Jack Ma is economically colonising us in Mahathir's words and we do not have any other options.

Alibaba and Lazada means reducing opportunities for local entrepreneurs, but we are happy because we are buying cheaper goods through Taobao - an Alibaba equivalent of Amazon. Yes, someone may say there is little choice as we are not opening up, other countries will - such as Thailand and Vietnam.

But do check Alibaba out. Are they hiring any Malaysian developers? Their developers are from China, India and even Vietnam. Malaysia is not a place for them where they think about hiring and training knowledge people - or if this is what we called. In short, we are not a place where they look at our people, but more of a geo location for trade.

Alibaba's vision for Malaysia is no better than Ikea's vision of making this place a distribution centre. Why? Because we are geographically strategic in Asia and South East Asia and our labor costs is right for them. They can't go to Singapore as it is too expensive, but still Lazada is based off Singapore. Why? We must ask ourselves although Singapore's costs is easily 300% to 400% more.

When companies like Lazada, Alibaba, Grab sets up its regional centers in Singapore, what does this mean? We, Malaysia lacks the opportunity to train people who are able to develop strategies, plan, manage. We are only a nation whom develops middle managers for these multinationals. They deploy, but when comes to making decisions, we are not given opportunities, hence not trained well.

I meet a lot of people from big multinationals - Intel, Motorola, HP, Agilent, Flex. Most of the people they hire in Malaysia are just to deliver - little questions ask. Hence, for many years we have the opportunity to develop a team who delivers the small projects, solving non-critical problems but creative and strategic thinking skills is lacking.

Ask any senior employees who have worked in the technology sectors through 1980s, 1990s to today, they are not as optimistic.

Here, I am also questioning the message on trying to reduce prices of goods. Are we serious? We are a country that do lots of imports and exports. For decades, we have been a trading nation. The fishes, meat, fruits, vegetables that we eat, the building materials used to build houses - many of them are imported. Even the labor used to serve us at certain restaurants, build our houses are from foreign countries. How are we to control prices. It is a task which will most probably fail. I have this opportunity to meet a non-politically aligned senior government servant. He was telling me the reason for the country to reduce subsidies is because subsidies more often than not goes to the poor and who are the poor in Malaysia? The B40 or Bottom 40? Not quite so.

Actually, they are the foreign workers. They are the ones that consume the most subsidized goods. Flour, rice, free or subsidized transport. Foreign workers comprise as much as 25% of Malaysian workforce. And we often missed them out in our policy making. Not so much to support them but whatever we subsidise, it goes more often to them than the average Malaysians.

Today the country is promoting Industry 4.0 - a buzzword which means using technologies that are available today and integrate them to bring advantage to manufacturers. In the process, reducing dependence on low skillled workers. It is about using cloud, big data, analytics, AI, robots.

Again, are we serious? If we are serious, as a country we have to seriously do things differently. Often it is about biting some bullets then only we see sunshine. If we are still dependent on low costs foreign labors, the Industry 4.0 will not happen, no matter how much is the incentives. It is about bringing foreign workers - but the ones with talent. It is about not afraid of sending away industries which is dependent on huge low costs labors. Perhaps the rubber gloves industry in Malaysia is not going to be as big as we have today as some are still complaining about the minimum wages which we implemented few years ago. I respect the rubber gloves industry as this is one industry which we have successfully dominate globally but not the low costs labor they continue to use and continually ask for government support for that.

When I invest in some of the stocks in Malaysia, there is a strategy. I invest in companies such as Airasia, Power Root, IJM. Some of these are simple business, but they are the ones that create their own expertise, brands, marketing channels. I like those that, so called "Create their own destinies." especially Airasia - and often I also complain as a country we try to suppress these companies who are building their expertise from within the country.

Seriously, as a country we have to think of supporting companies that directly and indirectly think of Malaysia as a home - which in the past 2 decades we have not. That's how we really develop the needed talent for the country.

Monday, August 13, 2018

3 BIG themes in the long short and medium term - Corporatisation Malaysia, Trade War, SST

The past 3 - 6 months have seen huge movement in the policies and changes locally as well as internationally which should change how we are investing in the market here in Malaysia.

Short to Medium Term - no SST on construction materials will benefit construction companies

The exemption of Sales and Services Tax on some of the construction materials will benefit the construction sector immediately. Although the new Pakatan Harapan government has terminated or postponed several mega projects, construction is still a big contributor to the country's economy. Construction is not sexy at all, but is needed to oil the economy - pretty much in most countries. Many projects have continued and some of these projects such as the MRT2, highways which was awarded last few years are still continuing. The exemption on SST towards construction materials will definitely benefit the construction companies whom have secured large contracts immediately.

I see the larger construction companies such as Gamuda, IJM, Gadang, MRCB, Kerjaya Prospek to benefit from here.

The new government is also looking at opening up tender for projects. With this, I would think the companies that have capabilities but all this while have remained second tier will probably get more jobs due to their inherent capabilities rather than connections.

As for the property companies, although it will allow their cost of building to ease, to me the overhang will still see some challenges for this sector. Some of these property companies however has been cheap and their valuation has been much below book value. To decide to invest into this sector however, will need patience.

As for toll highways, the idea for its abolishment is postponed as answered by YB Baru Bian, the Works Minister in this video. Apparently, the RM400 billion total to buyback all the toll highways is quite consistent is almost all the figures which have been shared.

The US - China Trade War

As one know, Malaysia is a huge trading nation in comparative to our size of economy. The Trade War between China and US, if prolonged will have impact to Malaysia and it is not easy to figure out how it works for Malaysian companies. I would think, in the shorter term, as long as Malaysian manufacturers can accommodate some of the demand shifts from Chinese to Malaysian companies, those companies will immediately benefited.

Some of these companies that would have benefited are the electronics manufacturers especially the Electronic Manufacturing Services and Precision Engineering companies. Examples of these are companies like Globetronics, KESM, Salutica.

Whether the Trade War will cause a global inflation and recession, it remains to be seen.

In the longer run, the continuous reduction on dependence on foreign labor will impact some of these manufacturers.

Tun Dr Mahathir as I can see is also a supporter of the technology based companies. Overall, this sector will see some revival, and for me the best way to invest in this sector is to diversify as it is quite hard to pick particular winners. Do be particularly careful though on the ones which are overdependent on certain company as well as those that have been overvalued.

Corporate Malaysia

There could be a major shift when comes to what type of companies to buy - GLICs or privately controlled. In the last 20 years, Malaysian GLICs has outgrown private companies, and I see that is going to be reversed. Firstly, there is a smaller room for these companies to grow further as whatever that can be monopolised or oligopolised would already be done. There is a very few new sectors for these companies to monopolised anymore and where the previous government's policies would not have done so.

In the next 10 or more years, many of these policies is to reverse this. And it started with Telekom Malaysia and Bernas (not listed). I foresee companies like MAHB, TNB to be affected as well. A large part of investments in Malaysian is done by EPF. They probably now have between 15% to 20% of Malaysian stocks in market capitalisation. The only way for them to continue to perform in the past was to continue to buy the large GLICs, and these companies are not cheap. For many years, they have been expensive.

The way forward to buy Malaysian stocks is to look for well run smaller to mid-sized companies and it is more so in the coming years as we try to disentangle ourselves from having large GLICs.

Friday, August 10, 2018

Go and approach Elon Musk

It seems that the idea of privatisation by Elon Musk to take Tesla private is getting more real by the day.

As of today, if we are looking at pure numbers, the valuation of $70+ billion is crazy but if we look at the future, it may not be. What's more for some parties whom would want to reboot their national car plan. It appears that Malaysia now is dead serious about having a new national car, and it is almost a no brainer that Electric Vehicle is the way to go. There is no point creating cars from the combustion engine and we are just an adopter of technology. The EV initiative will be different as there are much more to the car in terms of innovation.

The infrastructure is also needing rethink as EV cars are running on batteries. The charge stations etc. A country like Malaysia can relook at the entire scenario- never mind we do not have the money as almost on daily basis we are hearing the tricks that the old government has done to squeeze every penny from the kitty - whether it is real of not with the RM19 billion refunds on GST.

Anyway, I would suggest for us to approach Elon Musk and the only probable investment fund that can do this is Khazanah.

I would think it is time for us to rethink and reboot the mentality of sure winners in investments as if we are looking at within into nation building. Tesla is surely worth a try and are we ready with RM40 billion for a 10% stake with further local investments? Just a ball park figure.

Thursday, July 19, 2018

Buying more WCE

I have decided to purchase some 13,200 units of WCEHB. In the process, I have sold 5,700 units of Power Root for the fund.

I have held the stock, WCE for a long time since 2014 and this drop largely to do with fear of termination of most tolled highways in Malaysia, I think is overdone. There is no denying that any government of the day can do whatever they like - or could they?

More than 50% of tolled highway assets are owned by government linked organizations such as EPF, PNB, Khazanah. Those examples are PLUS Expressway, AKLEH, LKSA, SILK and several more under Prolintas. Many investors do not differentiate the difference between government linked and government. These highways are not owned by government but by the people. Best example is PLUS which is 51% owned through Khazanah and 49% by EPF. The government does not hold ownership of EPF but run the organization on the people's behalf.

By terminating PLUS without fair compensation towards EPF especially will be bad for the governance and future investment profile of the country.

WCE Sdn Bhd is indirectly semi-private and public, as I call it. 20% of the highway is owned by IJM direct, and the largest shareholder for IJM is EPF (yet again). Although it is professionally run by a set of managers, its 2nd and 3rd largest shareholders are Amanah Saham Bumiputera and Tabung Haji respectively. Besides that IJM also holds 26% of WCE Holdings, the listed company which I am buying.

In the event the government is exercising its pitch of eliminating toll highways, it will hugely impact the stock market - and not just tolled highway stocks.

At the price of RM0.75, I think the market is already putting the company on the huge assumption that the highway will not continue. Todate, WCE is 51% completed and it seems that they are continuing with the project without stopping.

On the other hand, as it seems MWE - the other 26% shareholder is picking up its shares of the additional funds - through rights - that is to be raised for the company in the next few months. If the project is affected, usually no one will inject more money. MWE is actually going private which means its company's largest shareholder is now having a larger effective stake of WCEHB.

On the merit of the highway, I do not think there is much change. The government could hold back on price toll increases in the long run which may affect WCE. I still think at RM750 million valuation, it is compensated for whatever that may be negative.

Friday, July 6, 2018

Teguran ke atas Khazanah...

On Malaysiakini today,

"Perdana Menteri Tun Dr Mahathir Mohamad mendakwa syarikat pelaburan negara Khazanah Nasional telah menyimpang daripada matlamat asalnya untuk membantu bumiputera.
Dalam wawancara dengan laman web perniagaan Investvine, Mahathir turut berkata mahu memotong gaji tinggi bos syarikat-syarikat berkaitan kerajaan (GLC)
Bercakap mengenai Khazanah yang ditubuhkan pada 1993 ketika kali pertama pentadbirannya, Mahathir berkata firma pelaburan itu ditubuhkan untuk memegang saham bumiputera, sehingga mereka mempunyai keupayaan untuk membeli saham tersebut.
"Tetapi dalam proses itu, Khazanah memutuskan ia perlu mengambil semua saham itu untuk syarikat itu dan jika ia suatu saham yang baik mengapa tidak mendapatkan saham berkenaan semasa penyenaraiannya ketika harga saham itu masih sangat rendah dan lantaran itu mereka lupa sepenuhnya tentang memegang saham untuk bumiputera.
Kecenderungan jual saham
"Mereka memutuskan perlu memegang saham berkenaan untuk selama-lamanya menjadi sebahagian daripada syarikat-syarikat kerajaan yang dimiliki oleh kerajaan," katanya.
Ini menurut beliau kerana bumiputera yang mendapat saham berkenaan memiliki kecenderungan untuk menjual saham itu dan memperkayakan diri mereka sendiri.
Beliau berkata Putrajaya kini sedang meneliti pegangan saham Khazanah dalam syarikat-syarikat tersebut dan akan menyusunnya mengikut kategori keuntungan serta mengembalikan tujuan asal penubuhan Khazanah.
"Kami perlu bersetuju untuk beberapa syarikat ini mengurangkan bilangan (saham yang dipegang oleh Khazanah) dan setakat ini kembali ke niat asal untuk memegang saham yang diperuntukkan kepada bumiputera sehingga tiba masa apabila mereka boleh membelinya," katanya.
Era lantikan politik bergaji besar telah tamat

Sementara itu mengulas syarikat berkaitan kerajaan (GLC), Mahathir berkata zaman pemegang jawatan lantikan politik mengetuai firma tersebut dan meraih gaji besar telah berakhir.
"Gaji orang-orang ini (dilantik politik) sangat tinggi dan mereka menikmati gaji tinggi tanpa ambil peduli sama ada syarikat itu membuat keuntungan atau tidak.
"Di sisi lain, kami mahu meletakkan profesional dan gaji mereka tidaklah terlalu tinggi, ia mungkin sedikit lebih tinggi daripada gaji perkhidmatan awam, tetapi jika prestasi mereka bagus maka kami akan membayar mereka bonus.
"Sekiranya mereka tidak bagus, mereka tidak akan mendapat pendapatan tinggi yang mereka dapatkan sekarang dan kami akan mengubah pengurusan supaya kami dapat melantik golongan profesional (tidak kira) sama ada mereka orang parti atau tidak, itu semua tidak penting, tetapi mereka mestilah profesional yang mahir dalam urusan perniagaan syarikat itu," katanya.
My comment
1. I did not know that Khazanah was meant to hold shares on behalf of bumiputra's. Has always thought that it is meant to be a sovereign fund which is the country's wealth.
2. Since this is mentioned, we have to be mindful of the past days of Halim Saad, Tajuddin Ramli, Samsudin Abu Hassan whose businesses were rescued by government eventually. They did not just get millions in salaries but many people know what they did. MAS, Renong, Time, UEM. Where do these companies ended up today?

3. Khazanah's dividend currently goes to the government which is used for development, operational expenses of the government. We as a country could do more with entrepreneurship but threading this is a fine balancing act between good and bad.
4. At the very least when the new government takes over today, those under Khazanah need not be rescued. Maybe except for MAS and Silterra. The Renongs and UEMs of those days were ripped apart - by business people.
5. Hence, while promoting entrepreneurs is important, we have to thread this very carefully. Many people are on the high over the new government - me included. But when "rubber hits the road", we have to be also be mindful of what we wish for.

Saturday, June 23, 2018

RM1 trillion debt: We have gotten the measurement and messaging wrong?

I like less corruption. I like the ability to change the management of the government as long as they are for the people. I like a government that is transparent. I like a government which is more truthful and not trying to spin.

My article here is to put Malaysians into the mindset to think rather than be blindly led. I have always been supportive of this government or the people behind them long before the change. But things have to be put into clear perspective.

Over the last 6 weeks, we have been bombarded with the RM1 trillion debt message. I think no one single day, we have been told and drilled that Malaysia is now a country with huge debt and we have to tighten our belt, and to show patriotism there is a a save the country fund called Tabung Harapan. To be fair, the government has also told us that the fund is not meant to repay all the RM1 trillion debt but it is more of being a message to allow Malaysian to show that we care about the dire situation of this country.

First of all, let me put this question into the mind of all Malaysians. Are we serious with the message of having a ZERO debt country. Name me a country that has zero debt. Singapore? China? US? Japan? South Korea? These are countries which we are taking as our benchmark. Countries which have almost no debt - Norway, Saudi - and we know how their wealth came from. I have not heard from their government that they want to pay off their debt.

(Prof Jomo and Zeti are in the Council of Elders. I would love to hear from them on this perspective, as they have been quiet.) So far the ones that have drilled the high debt message are the politicians - Lim Guan Eng, Tony Pua, Mahathir Mohamed. They still want to win more seats in parliament, please remember. I want to hear from the professionals. The BNM governor, ex and current and others whom have been helping the government.

We mentioned that our debt during then was about RM200 billion. Today, it is RM1 trillion - I am not going to challenge the ones used by Moody's as their record still shows our debt is RM650 billion. In fact, I have not heard from any other government that they are willing to show to people how bad is their debt situation when they are the government. Is this a manner to create confidence? As opposition, yes! Not as the ruling government.

Now, let me give a case study from our past in 1990s and now. One of the barometer to show the difference between those days and today is the wealth of Khazanah. To put into perspective, look at this link to see the history of Khazanah. From its creation in 1994, now Khazanah has Net Worth of RM116 billion and assets of RM157 billion. Back in 1994, it was probably zero in assets.

There is a difference between then and now. TimeDotCom, Malaysia Airport, PLUS Expressway, UEM, Axiata, IHH and many more were under private hands. Today, it is owned by the government and obviously it can be sold. With more assets, there is a chance that there would be more debt. One of the measurement which have been used largely to measure how much debt the country can take is Debt/GDP. Even then as above, it is not the right measurement as countries like China and Singapore for example have huge reserves. They have huge sovereign controlled assets which can be utilised when needed.

Besides Khazanah, there are several more sovereign funds which are owned by the country such as KWAP, Johor Corp. Back then in 1990s these organizations were worse off than today. Example, KFC which is now part of Johor Corp was under private hands and the good company was wrongly mismanaged.

As a country, the private savings is also much healthier. EPF is now having fund size of around RM700 billion. I believe back then it was probably around RM200 billion. The wealth of the people is also the wealth of the country.

Truth be told, our country has progressed but of course as compared to many other countries and even our neighbors, we may not have come out ahead. Generally, the world has moved on to the better. And we have to call spade a spade.

Anyone who is saying I am not fair to this government should read this where I wrote it in 2013. A spade is better off being shown as a spade. So that as the people of this nation we are better off better educated - on the economy.

Friday, June 22, 2018

How to not miss the Airasia's 2017 AGM

If one is not able to make it to the AGM which happens to be held in a far away land in Sepang where it is some 90km from heart of KL, do spend 22 minutes to watch this IR video. Believe me, you will not miss much.

Basically, during the AGM which covered more than 150 minutes, Tony Fernandes presented the strategy of the company and the bulk of his presentation was spent on its digital strategy. He went on to say that analysts until today do not know how to value Airasia while he deemed the company to be more of a digital company than an airline company. Or at least he wants people (especially investors) to deem it that way.

For me, as an investor, basically I want to put a message that in buying Airasia, one is buying into a company which really has strong substance (with good profits) and it has game plan which will put the company into becoming more than an airline  for the next 10 years.

(Despite painting the plane blue in one instance), Tony I can say is ahead of its time when coming to do with strategy for its group.

Normally, for any thriving or not so thriving airline, it will try to find disruption points and react to it. Airasia is trying to be the disruptor. It is not looking at just being an airline but it also looks at the tourism and even e-payment industry. Through its platform, it goes into the business where Expedia is in. It goes after Alipay. But in other ways, it also complements Expedia, Airbnb. Think of this, while Jack Ma manages to convince people that Alipay is potentially bigger than Alibaba, and raising funds to that value, it is not that crazy to pursue Airasia in that manner. In most areas, it does not compete against Alibaba but in areas on digital payment, e-commerce it may be.

Many companies which are burning money such as Grab, GoJek are moving into adjacent areas such as e-wallet, delivery service and they are today valued at much higher valuation than Airasia. Grab was just valued at USD10 billion by Toyota while Airasia is valued at RM10 billion from its market cap.

Even among its peers (VietJet, SIA etc) in the airline business, Airasia is much lesser valued.

Do watch through the video, and think and compare against other companies of today.

Saturday, June 9, 2018

Good start, but it is not just Bernas!

I applaud the government for having the guts to go against a monopoly which was created more than 15 years ago. Almost every time I take rice, I am mindful of the staple of this country is a business that is monopolised by one single company.

I am just hoping that with this the current government can also look at other monopolies as well. The list of those are as follows:

- Astro - being the only one which has satellite license;
- Tenaga Nasional - yes controlled by PNB but we need to allow an open system for power;
- Malaysia Airport - except for Senai airport, all airports have been under the control of this company. Look at what opening on ownership of airports have done for Europe and US. We need to lead the way and I am confident Malaysia today is even more ahead against our neighboring countries;
- Telekom Malaysia and Timedotcom for fiber optic usage. I think their control is the main reason why our internet is expensive. Although the current Multimedia Minister has mentioned of wanting to reduce the costs of broadband by half and increase the speed 2x, these are trends which are happening all over the world. Even without the Minister saying it, it is bound to happen. More need to be done i.e. democratising or relook at the ownership of broadband fiber rather than having Telekom to own the most of it;
- Grab - yes, Grab pretty much has no competitor, the weakness of previous government at the height of election period just do not know what to do when Uber was taken over by Grab. The government today under a much proactive Minister of Transport I hope is doing something about this. We complained about the previous taxi license misuse but Grab is heading that direction;
- relook at e-commerce as it is going to be monopolised by large groups which believe or not will impact Malaysian businesses;
- unit trusts - while it is not monopolised, please look at the charges - perhaps MOF or Minister of Economic Affairs can look at this;
- PUSPAKOM - under Ministry of Transport as well;
- FOMEMA - well Ministry of Health or Human Resource. Why is it we do not have options when we want to hire foreign workers for healthcheck?;
- MYEG - I think this is coming as the shares have largely tracked back. People are expecting things to change I guess as the owners obviously have connections to the previous government?;
- yes buses as well - Prasarana seems to be in huge debt but obviously this structure is not the most efficient.

Wednesday, May 30, 2018

Buying MRCB

The day to day announcement of cancellation of projects have spooked the market so much so that I feel there has been certain stocks being oversold quite a lot.

One of the example is MRCB which had just had a fund raising late last year. From that exercise, I think what the investing community has been thinking of MRCB is that it is about the HSR project alone.

To be fair, the fund raising is not purely for HSR but as per my article earlier, it is part of its reorganization exercise where it cures its balance sheet and at the same time refocus. MRCB has gone from owning many parcels of land that has lower GDV to larger projects where each GDV is much larger.

Key among them are the MX1 project which is the city center project on Kwasa Damansara, Bukit Jalil etc. Many of these projects are private projects which have been secured.

Through several exercises, MRCB had raised close to RM3 billion over the last 6 months and those would have improved its balance sheet, while having larger order books.

As a result, I have sold Tropicana which does not get impacted during the bloodbath and bought MRCB.

Tuesday, May 29, 2018

Why floating Petronas is not a bad idea

As a Malaysian, while I do not like to see our nation's asset to be sold, the idea of floating Petronas perhaps should be different. Floating it does not mean we are selling the entire stake but perhaps 25% like what is being proposed by some personalities recently.

Why is it good for the country?

  1. Although Petronas is a national asset, I for one do not have a clue of its value and in the name of transparency, despite being someone who follows Malaysian economy closely as well as track our country's controlled companies, this is one asset which I have very little knowledge. Those things are such as, where are the asset listing, reserves, liabilities. I know that it can be found here and there but not in one consolidated report. Floating Petronas will allow every Malaysian public that access.
  2. Malaysia will be at the forefront of being transparent. One of the biggest hope in this new government is the act of being transparent. Petronas is the largest asset (company) of the country by far. We will be showing the way to attract investors in this manner. It will also enhance Malaysian capital market as I am sure Petronas will be viewed as one of the must own asset among larger funds. Hence, probably from this, weightage on Malaysia would be higher.
  3. Dependency on oil would be lessened. We know that over the next 20 years, the world's dependency on oil is being relooked at. As an example, several countries such as Britain, France, China are doing away with full carburetor cars and with that many other countries would follow as these are car producing countries. By floating Petronas, we would have been less dependent on Petronas  and as such can use the funds to build other sectors. We need to bring back the push for some technology sectors which the government has not focus on like the semiconductor, ICT, Industry 4.0 etc.
  4. Petronas's Board and CEO would have a different focus. Today, they report to the PM, and that is not what we want. We want them to report to the public. We want international analysts to review them. We want others to be critical of them. Again, one of the things I am not able to comprehensively have a view is the close structure of our most valuable asset.
Much has been said about our national debt but we will need to continue to grow as a country, and not pull back our development work. We will still need modern infrastructure such as MRT, roads, ports, intellect people, telecommunication assets.

And this is probably the best time to do that as we are moving towards a new era of development and governance.

Monday, May 28, 2018

The Edge: Dr Mahathir on toll concessionaires

The most recent Edge Weekly is quite a meaningful edition as it had the opportunity to interview Tun Dr Mahathir i.e. the first to do so in a private setting after GE14 where Pakatan Harapan had won the election.

I managed to get a copy during the weekend, and Dr Mahathir was enquired about his views on toll abolishment in stages as in the Pakatan Harapan's manifesto.  Here are some of it (but please go and buy a copy as there are much more to read especially on ECRL, HSR etc).

TheEdge: The national debt is already so high. The government has zero-rates GST, reintroduced petrol subsidy and is reviewing toll charges. These will cost the government money. How is it going to handle the situation?

Tun Dr Mahathir: Much of the work being done now is to downsize the financing of the government. By doing away with all these expensive projects, we are already reducing (debt) servicing costs.


I must admit that when we were campaigning, we proposed things so that the people would want us to be the government. But, of course, we have to manage these promises. For example, the toll review is not going to be immediate, it will be in a gradual manner.

Is the government going to acquire all the toll concessionaires?

Some we have already acquired. But we have to work with the private sector. I have read some of the proposals; they sound quite reasonable. You see, the main point is we don't want to punish the people (toll operators). At the same time, we have to ensure the government has some money to build roads.

Based on the above, it is unknown what he meant by "Some of the toll we have already acquired." Could he have meant that PLUS was for example is already 51% owned by Khazanah, the only government owned that I know which is owned by the government. Many other toll businesses are either owned through PNB (a government managed fund), EPF or some of them the shares are passively owned by Malaysian funds.

Toll business which traditionally have been the safer bet assets, have been hammered especially when several individuals have appeared to justify that they will follow the Pakatan Harapan's manifesto of abolishing toll in stages. From there, the toll concession shares have suffered drastic drop and some of them have been owned by my investment fund. These are WCE, Ekovest, LITRAK, MRCB.

What was initially feared is that the government will be using a clause which is available in the toll contract i.e. in the "expropriation clause" where the government can acquire them for national, public interest or public security.

Of course, the argument from many (including me) is that in doing so, it will collapse the capital and bonds market where toll concessionaire's bonds are among the highest in total.

What I think may happen?

As mentioned by EPF's CEO, the toll business acquisition has to be looked at holistically. In my mind, holistically means it has to be looked at in its entirety and it may involve Khazanah, PNB and EPF in acquiring these assets. The bonds may also be repackaged and new shares may also be offered in the capital market.

One may ask: But, it does not eliminate toll charges. Yes, but in reducing the toll charges, it is already a win. When the government together with the funds are able to negotiate a package with the toll owners, they can relook at an optimum charge towards the users as well as a decent return for the investors i.e. the funds.

It has to be understood, rightly so, some of these toll businesses have made quite a lot throughout the concession period. Among them are LITRAK and PLUS and these have been the topic of contention among the politicians like Tony Pua.

Hence, by acquiring the concessions outright at a fair price and repackage the toll rates, they may seem to be the best option.

Sunday, May 13, 2018

My thoughts on WCE after the GE14

I am sure many people would be concerned and confused on what to do with WCE which is a toll concession business after the Pakatan Harapan (PH) has won the election. Among the manifesto, PH has proposed for a staged elimination of toll concessions in Malaysia. They are also proposing for renegotiation of the highway concession contracts.

I have seen several press articles as well as a video put up by Tony Pua.

Well, while some of the toll concession businesses has made tonnes of profits (such as LDP, Maju, PLUS), the way it is presented (by Tony) is somewhat misleading. One cannot just say that because of the concessionaire has invested a "y" amount of money and they have profited several times more from the y investment, then the concession should be bought back at cost +.

In finance, where especially projects are concerned, one of most important theory is "Time Value of Money". I do not want to explain so much on that concept, but here is a good explanation. From that explanation, usually for a project to kickstart especially concession business such as the toll, the concession owner will invest upfront for a number of years (in the case of WCE - more than 5 years), and upon the completion, they will start collecting from the tolling proceeds.

Note that finance is different from accounting. Finance has element of time while accounting does not take into account time. In this case, finance is more relevant.

As in any business, the biggest question is who will be coming up with that big sum of money (including cash and borrowings) and ultimately allowing the government to buyback the projects at cost or even cost plus? Nobody.

It is illogical. Nobody wants to take up that risk that way. It defeats entrepreneuralism.

This is because there are completion risk, borrowing risk and return risk that the business concession has to stomach. As an example again for WCE, there are not many construction companies that can complete these kind of projects. Why it has been delayed is that companies like Talam were not capable of doing it and ultimately not getting the financing and support needed. Hence, me being convinced to invest into this project is because it is a IJM led project. Even then, as one can see, there are additional risks now.

One of the biggest message that has been given by the current PH government is the application of the "rule of law". Mahathir also put huge importance onto the economy (which is why the council of elders comprising of 5 very experience people i.e. Daim, Zeti, Robert Kuok, Hassan Merican and Jomo) are all financial and economic experts. Many other countries, their advisors are mix of security, financial, legal etc. But the first team formed in Malaysia are all finance and economy.

To eliminate tolls, the older projects are those such as PLUS, LDP, and PNB owned Prolintas.

All our large funds such as EPF, PNB (ASM and ASB), KWAP, Khazanah etc. owns large proportions of these projects. Prolintas which owns 6 highways i,e, AKLEH, SUKE, LKSA, SILK, DASH, GCE is wholly owned by PNB.

EPF owns 49% of the biggest highway chain in Malaysia i.e. PLUS while the remaining 51% is owned by Khazanah. PLUS has a RM23.35 billion sukuk bond  which is largely unpaid, probably not even paid principal yet. If the government wants to eliminate toll, it has to find ways to repay this i.e. more than RM23.25 billion bonds. By taking out PLUS, it will impact EPF contributors as well. And Khazanah also, which is under MOF.

As it is, there are a lot of financial issues that the government has to tackle and the main part of them are eliminating GST, continuing with BRIM, bringing back some of the subsidies. Obviously, to look at doing away with tolls, it is a very hard task and not as easy as explained by Tony Pua.

The merits of WCE itself

WCE is an important project. It not only connects the west coast where if one is to take the old Federal roads which is inconvenient, but it also connects ports such as Klang, Penang and Lumut. The road is much flatter and more friendlier to heavy vehicles. These are all the important economic development which has been promoted by many of the PH leaders, chief among them Mahathir, Daim and perhaps even Anwar.

Moreover, which part of Malaysia gave the biggest endorsement to the new government? West coast of Malaysia. I.e. connecting Taiping, Lumut, Tanjong Malim, most parts of Selangor - all which have brought the wins to PH.

In fact, I may not be surprise, the new government is better for WCE as some alignment as it is now is still not finalised, especially Tanjong Karang. 

IJM is one of the most respected construction company and without them, the costs of the highway could have been even higher as they are not only capable of building the highway but they are also able to manage the costs.

One should take note that the large part of its management today is from Road Builder Bhd - which was merged into IJM back in 2005. Road Builder as in its name is particularly strong in building roads and West Coast Expressway is not one easy feat. Portions of WCE is on soft soil, which is not easy.

What may happen with the new mandate with the Manifesto

To entirely take away tolls, that is not easy. But to payoff especially the older tolls, that will show that current PH government meant what they promised. The older tolled highways are LDP, Lebuhraya Sungai Besi, first Penang Bridge etc. But even to do that it can be costly as it is not about buying back but also the costs of maintenance.

I would suggest the current PH government to declassify the contracts so that it is becoming more transparent. Speaking of the fairness of the contract, I believe the WCE contract is one of the most fair tolled highways. This is because it has fixed the IRR (actual IRR is not revealed but I hear that it is a higher single digit percentage - not double digit) and if the highway achieves that IRR, government will get a share of the profits over and above the IRR threshold.

I also believe some part of the contracts may be renegotiated. But as mentioned above, a decent IRR (I think) has already been incorporated for the WCE highway.

What about WCE's valuation?

Assuming that the current government is not illogical (by killing the project, and not paying compensation, where even then the court is the remedy for WCE) and follow the rule of law - the price of WCE where it is currently at 93 sen continues to warrant my interest. With the recent proposed fund raising, at 93 sen it will increase the market capitalisation of WCE to RM1.5 billion. This is still a good valuation for investors.

Mahathir has already said the abolishment of tolls will be done according to the contracts. And the contract mechanism for WCE I believe will have elements of protection for the shareholders.  After the contract has been finalised, there were 2 major new shareholders that has gone into the business - MWE and Mamee. They would not have bought into the company if their rights are not protected in the contract.

In summary, the bigger risk after the new government is formed is whether they will follow the "rule of law" as promised and being rational in terms of financial management. Now, let's see!

I have been one of the guys whom have been rooting for a change. That was why I was not concerned with the manifesto of PH especially on tolled highways, but after their big surprise win, it made me think of the consequence of the promise.