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.