Dilbert@Malaysia

Commentary On Selected Stocks

Hap Seng - The euphoria died a slow and painful death. Unfortunately normal investors only got wind of the poor placement when its all a bit late. After hitting a high of RM7.36, the promoters were all geared up to place out 124.5m shares, hopefully at RM6.10-6.20. To do that they probably had to make sure the mother share stayed above RM6.50. But there were apparently almost zilch takers above RM6.00 for the new shares.



Again, painfully, normal investors do not get wind of this information till its too late. The company could abandon the exercise or still push through, but the new shares will have to be priced a lot lower than RM6.00. Finally done at RM5.25 and even then only 43.8m out of 124.5m proposed amount.

Is there light at the end of all this? Well, yes, in that the indication was to have been 62m shares but only 43.8m was placed out in the end, an indication that the company was not willing to issue too many shares at the eventual pricing. There is a second phase whereby following the exercise, the company can prove to those who did not subscribe at higher levels that they missed a great opportunity.

In hindsight, the whole strategic exercise was very good, but the promoters were too greedy, I mean the shares were whacked all the way from below RM4.00 to RM7.36 - many institutional investors would immediately turn wary of such a jump prior to an exercise which they were being asked to pony up for new shares, when they could have bought new shares at RM4.00 or below if the promoters HAD NOT collected shares like nobody's business prior to that. Too greedy and not leaving enough on the table for others to make.



So how? It would take some time to work through the exercise, new shares floating, bonus issues and all. I guess if you have no positions, HapSeng at current levels of below RM5.30 is OK but be prepared to go through the exercise. If you have Hap seng at higher levels, I don't think its necessary to average, just go through the exercise and hopefully you should at least make back the difference on an ex-basis.

Mclean -The worst IPO in recent times, any reason, maybe because its Kenanga led? Either the promoters / owners were really naive or really smart. Its not a terribly high paid up, plus the shares DID NOT even went for any kind of goreng activity, there was like no one "taking care" of the counter. Judging from the stupid volume, everybody who got the private and public placements sold. There was no support from anyone.

Why I said naive ... the whole setup, if properly managed would have seen sustained demand and the shares could have held up well above 70 sen. Why I said they could be really smart ... they could be really smart if they anticipated sufficient buying for the first two days which would allow all shares to be out, by last Monday which was T+4, that should flush almost all traders and punters.

If they were really smart, they could keep buying all the way down from 50 sen to 41 sen but not in big lots as to push the share price up. You cannot sell all 100% of the shares (moratorium), the paid up is really pretty small and the free flot is not big at all.

Malaysian Public 2,700,000 (1)
Private Placement 8,600,000 (2)
Business Associates 4,100,000 (3)
Private Placement 11,050,000 (4)

We are talking of a free float of just below 26.5m shares swishing around. At 41 sen, thats not even RM11m in value. Which for me, is a ripe scenario for me to favour the "some very smart but severe buggers" working this counter. If you did not already lose money on this counter, for a pure trading play, I would favour a bullish bet by going long now.



The key is looking at the very assiduous accumulation in Maclean-W over the past 3 days. The mother was "allowed" to do a free fall but the warrant was well bought at every level. Its so easy to send this back to 60 sen with minimal effort. Judging from the fact that there is little baggage (old debts, stale bulls, etc.) and knowing the free float equation and assuming the business is not flawed (shouldn't be because it takes so many hurdles and due diligence and audits from the authorities to get to IPO stage) ... it may not be an exciting business but to assume that its a fake thing should be the last thing on our minds.

AirAsia - for those who do not already know. Super investor Koon Yew Yin, who has hit another home run in Coastal Contracts, has already accumulated a sizable stake in Air Asia. Take that information whatever way you want. Just FYI.



NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). I may have a position in the counter already. The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

Commentary On Hot Stocks

Its been a tough week for the markets. You know people are disturbed when I have readers emailing me to ask me to stop with the sea creatures mastheads, and switch back to louts flower as they made a lot of money when the lotus flower appears as masthead.



Realistically, nothing much has changed an markets uptrend is intact but in a moving market it will always be susceptible to minor negative news as those will always be reason enough for people to take chips off the table. I do think its a good time to reload your guns, both for traders and fundamental longer term players as the markets whipsaw action brought quite a number of opportunities.

Some of the stocks to take a look:

Air Asia - I have not been keen on it for the longest time. However the recent 3Q 2010 PBT was a shocker on the upside. Looks like it has surged past critical mass. The second factor which is causing analysts covering the stock to scramble to upgrade Air Asia is the potential of its Indonesia operations - looks to be surpassing the size of Malaysian operations soon if not already. That is testament to a good replication strategy and the ability to transplant its business model successfully in the region. The execution ability will be well regarded as that can only hint of future successes in other regional countries for Air Asia. Now, maybe the plethora of Air Asia covered warrants will finally start to move up. Its currently at a 30% to regional peers, watch funds surge to buy the stock.

EAH - Maybe its because of the missiles thingee but many investors may have missed the fact that it is trading cum-free warrants on Tuesday 30 Nov, which means its the last day to buy and still be entitled to the 1-for 2 free warrants. As the warrants are exercisable at 59 sen, its a no brainer. Company fundamentals are intact for this new kid on the block. Recently visited the company and am confident with their outlook. It does not want to be just another ACE company but with grander plans to move to the next level via smart acquisitions. Pipeline is healthy with a good chance of securing a couple of significant GLC related contracts, which should make current valuations cheap in 3-6 months time.



IJM Land / IJM Land-W - Both suffered the North Korean dengue, but among the recent flurry of property mergers, this looks to have the better upside. Even though it may take 6 months for the merger to be completed, the price is now too skewed to the negative. All things being equal, IJM Land should be at RM3.30 and the warrant should be closer to RM2.05. Let it be known that IJM Land is about the only one which will get an upper hand in these recent mergers, most of the rest are a merger of equals, while IJM Land gets in with something in hand and more.


NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

How Others View AirAsia & MAS

Its wonderful to see how we are perceived, corporate wise. We have such vested interest and then some more. Left on its own, imagine ten vest interests vying for the same pie - we get a detente, a war where nobody really wins because the country loses out on a roadmap to move forward, we loses on getting efficiency, we pay higher prices collectively, we use resources ineffectively, we keep cannabalising among ourselves, we do not allow consolidation and stifle competition, we remove ourselves from being able to compete. Our auto industry is a prime example, and we are stuttering with our airlines - only the spin doctors will tell you its a good thing.

Sydney Morning Herald: Australia is caught up in a battle between economic liberals and protectionists that is delaying the expansion of air services - and the reduction of airfares - between Australia and Malaysia.

The Malaysian government is siding with the protectionists who argue that the government-owned Malaysia Airlines has to be protected from aggressive new price competition from Air Asia X if it is to avoid the fate of Japan's national carrier, Japan Airlines, which has gone broke and is trading under bankruptcy protection.

AirAsia X's budget beds

AirAsia X has become the first low-cost carrier to introduce flatbed seats to its aircraft.

The government is blocking Air Asia X from starting new services from Kuala Lumpur to Sydney and Seoul - two of Malaysia Airlines' most lucrative routes.

By contrast, Air Asia X is about to increase services between Kuala Lumpur and Melbourne to twice daily, charging regularly available fares of A$600-A$800 return and sales fares as little as A$100 one-way.

Air Asia X, which also flies daily from Kuala Lumpur to Perth and the Gold Coast, was mainly responsible for a 25 per cent increase in travel between Australia and Malaysia last year.

"The complexity is that there's no one single position from the Malaysian Government," the CEO of Air Asia X, Azran Osman-Rani, says. "A lot of stakeholders in the government want to see us fly. The tourism ministry is right behind us because they see how we have stimulated tourism with our flights from Melbourne and Perth in 2009 when most markets shrank. The ministry of transport is equally supportive; they submitted the paper recommending that we be granted rights. A lot of ministers who we've met think it will be a plus for the economy.

"We've made many presentations to the prime minister and the economic council [of Malaysia]. We don't have anything in writing but the informal feedback we've received is not positive and I can only surmise that the conflict is related to Malaysia Airlines, which is owned by the Ministry of Finance and the National Sovereign Wealth Fund.''

Osman-Rani says that two new 377-seat Airbus A330 aircraft arriving in June and July that would have operated the Sydney service now have to be allocated to other routes, including new daily flights the carrier is about to start to Delhi and Mumbai in India.

They will also be used to increase the Melbourne frequency to twice daily on all days of the week, Osman-Rani says.

The carrier has also begun swapping its premium economy seats for lie-flat beds with a pitch of 60 inches, which the carrier will be selling for as little as A$1000 return on the Melbourne-Kuala Lumpur route, Osman-Rani says.

However, the carrier is persisting with nine-abreast economy seats of 31 inches, which are just 16.5 inches wide - half an inch less than the standard 737/767 seat or 1½ inches less than the 18-inch-wide economy seat in the A330 in standard eight-abreast configuration.

AirAsia, Well Managed But Just Not Time To Buy Yet

The move to raise funds by AirAsia was anticipated. Why am I not terribly excited with AirAsia for now? I have to say it is a highly attractive business model, and is establishing itself as the numero uno player in Asia-Pacific region for low cost carriers.

The success of Ryan Air and the likes have attracted a lot of European institutional investors being very keen on AirAsia. Following the placement, the foreign shareholding level is about toppish, where will the follow on buying come from?

Yes the move will reduce its net gearing from 3.5x to 2.5x but on the same note it is delaying delivery of 8 planes. The biggest nullifier for me is the volatile fuel prices - no one can feel thoroughly comfortable to invest in AirAsia not knowing how that will play out. Whether they hedge or don't hedge, its a big unknown every quarter.

While I can criticise that aspect, I don't really have an answer on how to better do things. The capex will still be heavy over the next 2 years and the major carriers are cutting at AirAsia's pricing game plan as well - so many uncertainties, not my cup of tea for now. But its a well managed company, just don't like some of the factors affecting the low cost carriers industry.

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FinanceAsia: Low-cost carrier AirAsia Berhad yesterday raised M$505 million ($144 million) through a fully marketed follow-on. The deal ended a little smaller than originally intended after it ran into restrictions regulating the foreign ownership of airlines. The base deal size was 400 million new ordinary shares, offered at a price between M$1.33 and M$1.40 apiece, which translates into a discount of 0.7% to 5.7% versus Monday's closing price of M$1.41. The deal priced at the bottom, M$1.33, giving the full 5.7% discount. There was also an upsize option which could have increased the deal size by 75 million shares. Fully exercised, the 475 million shares could have raised as much as $180 million, based on the bottom-end pricing. However, the final deal size consisted of just 380 million shares. The decline was a result of Malaysian regulations limiting the foreign ownership of local airlines. The deal size was therefore constrained by the strength of the domestic demand. So even though the overall demand was enough to cover the base deal, the low level of domestic demand meant that it was not possible to do so in a way that did not cross the foreign ownership threshold. As such, the order book tells two different stories. Domestic demand was centred around a few large orders, which is not surprising considering that Malaysia has a relatively small number of institutional investors. Demand from international investors, however, was much stronger, with UK investors in particular putting in some sizable orders. There was also interest from a big name out of the US alongside some Hong Kong investors. The 34 accounts that did participate were confident that Air Asia's share price has not already peaked, even though it is up nearly 60% so far this year. The follow-on did not come as a surprise; the company flagged a placement of up to 20% of its issued share capital in June and provided further details in early August. There was a marketing roadshow in the first week of September and shareholders approved the capital raising on September 10. The deal launched on Monday evening. The company intends to use the capital to pay off debt and for working capital requirements, according to a term sheet. A research report by RHB Research early last month estimated that the placement could reduce the company's net gearing to 2.54 times from 3.71 times. Correspondingly, net debt will fall to M$6.11 billion from M$6.71 billion. In mid-June, AirAsia announced strong results for the second quarter. Profit before tax of M$128 million was way above analyst estimates and a massive improvement on the M$1.5 billion loss in the same period of 2008. "AirAsia is one of the few airlines in the region to post profits in the second quarter without the aid of fuel hedging or currency gains," Merrill Lynch said a report. "Its efforts to build high-margin ancillary revenues are having a significant impact on the bottom line, as is the focusing of its growth on major markets, like Singapore and Hong Kong, against weakened competitors." In response to the strong second quarter results, Merrill put a "buy" rating on the stock, with a target price of between M$1.75 and M$1.95 a share. AirAsia is Southeast Asia's largest low-cost carrier. Its focus is on short-haul, point-to-point domestic and international routes. It has four operating centres in Malaysia, as well as a unit based in Thailand. As of the end of February, the company had a total of 74 aircraft - 58 Airbus 320 and 17 Boeing 737. The joint bookrunners on the AirAsia deal were CIMB and Credit Suisse.

p/s photos: Aum Patcharapa Chaichua

High Profile Companies & Their Dangers

We all know what high profile companies are, they are always in the press, their CEOs are constantly in the papers giving bullish comments, they are usually highly traded, and usually have a good proportion of institutional funds as investors. Why are some companies keen on this route while some tend to keep quiet?

I welcome companies being media friendly, that they are open to analysts. However, we always remember that the most talked about and most high profile companies failing most dramatically - remember Aokam Perdana, Transmile, Repco... Of course we cannot put all high profile companies into the same basket, ... just to watch out for the dangers.

Companies taking this route usually have a high debt level, and the controlling owners usually have a smallish stake, usually less than 30% - thats usually because they have used issuance of shares liberally for acquisition or placed out large tract of shares for funds. You have to watch out not to be lured without sufficient information and clarity.

Let's take two high profile companies as examples: AirAsia and KNM. I am not saying they are prone to fail because they are so high profile, but we must be on our guard. They always have to put up an optimistic view of their company to promote their company and sustain interest in their company. The fact that they usually have a high debt level also causes them to always be promoting as they fear their debt levels could be down rated, thus making it more costly to seek out fresh funds or being unable to roll over their debts.

If management is set out to deceive, like Transmile or Fountainview, it is very hard for investors and analysts to be able to uncover them without a thorough audit of their financials. We all can only go via publicly available information. Hence buyers beware. That is why blue chips are called blue chips as they have been around a long time and have shown a substantial track record. Companies that rise up within a few years may be gems but they also have a good chance of being duds. Sometimes the pressure to continually perform in the eyes of the media and investors may entice management to act irresponsibly in order to maintain a good track record.

I have commented many times on KNM, I am not trashing KNM here, I am just asking investors to be cautious because sometimes publicly available information can only give us just so much assurance, not total assurance - don't put all eggs into an uncertain basket.

I am a fan of Air Asia, i love their business model. Investors are shortchanging the company if they view it as a pure budget airline. AirAsia is in inventory management and maximising capacity. They are also the most well known budget airline in Asia Pacific, and has a huge head start in Asia compared to their competitors. The company is a growth company and needs to put down their footprints in new routes to stake their claims. Unfortunately this give rise to huge capex requirements which means huge debt levels. It also leaves a lot of space for mismanagement as too many new routes come online before they are profitable. Longer term, AirAsia would be a wonderful story if all goes accordingly to plan, but the steps leading to that allow little room for mistakes. One can easily imagine if "something goes very wrong", management may be more than tempted to "rework financial figures" to put up a good impression. I am not saying that AirAsia or KNM are doing that, just to know why they may be more at risk.


p/s photo: Throw away all the photos you have seen of Deborah Priya Henry. None of them do justice to how she looks in real-life. I bumped into her at Bangsar Village supermarket and was stopped dead in my tracks. She looks heavenly in real-life. I am tempted to say she is the loveliest looking girl in Malaysia.

KUL-SIN - Why Are We (Still) Subsidising The Two Airlines???

Malaysia announced yesterday that it will not allow more Kuala Lumpur-Singapore shuttle flights ahead of the Asean "open skies" policy which will come into effect in 2008. As reported in The New Straits Times (6/12/05). Malaysia is not in favour because the benefits accruing to MAS from liberalising the route will be limited, according to the authorities.

"SIA and possibly SilkAir will be able to fly to Kuala Lumpur and several other destinations in Malaysia when all present restrictions on passenger flights between Asean capital cities are lifted by 2008.

"But for MAS, Singapore will remain just one destination. The benefits derived from liberalisation will not be the same.

"Under the circumstances, Malaysia has no choice but to stick to the present schedule of the KL-Singapore shuttle flight," said a transport ministry official here.

MAS operates 14 flights a day, and SIA, which operates 12 flights, will sustain the virtual joint monopoly to account for 182 of the 213 weekly flights. That's 85% of the market share for the KL-Singapore route. We don't really care about the open skies thing. This monopoly has been going on for way too long. Even toll bridges have an expiry date for collecting tolls. Nowadays, fares for flying to Bangkok, Bali, Phuket are even cheaper than flying between the two countries. Where is the justification?? Already Malaysia and Singapore are among the two places on earth that prices cars most expensively (I'm sure we are in top 10 if not the top 5 countries).

Both airlines operate a total of 26 flights a day. The pricing is dampening real demand. If we were to liberalise the market, we could see return fares plummeting to RM250 at least - the drop would be more than compensated by the jump in traffic. At RM250 return, I think the daily traffic should easily triple on conservative estimates (just have a look at the number of buses traveling to-and-fro between the two countries on a daily basis).

If the Transport Ministry say that there is no real benefits accruing to MAS, what about the benefits for Malaysians in general? You can still keep the monopoly, but just agree to price it cheaper, say RM350 return - its more than a fair price as the load factors for the KUL-SIN almost surpass 90% for every flight anyway!!! Certainly we cannot save the red ink for MAS just from the subsidy of this KUL-SIN sector!!??

Ipoh to the rescue. As reported in The Star today (7/12/05), the under-used Sultan Azlan Shah Airport here is set to be a low-cost carrier hub with AirAsia introducing flights from Senai to here in February. Datuk Tony Fernandez said the airline would begin operations on Feb 1, with 4 Senai-Ipoh flights a week. “We will increase to a daily flight frequency when we take delivery of our A320 Airbus by the end of March,” he said, adding that the Boeing 737 aircraft would initially be used for the sector. Fernandez said flights to the airport would boost economic development in the city and its surrounding areas. “We also believe that with the help of the minister and the mentri besar, the airport can be developed into a northern low-cost hub complementing the KL International Airport,” he said, adding that the flights would attract more tourists to the city. To a question, Fernandez said AirAsia may fly to Indonesia, Thailand, Sabah and Sarawak from Ipoh.

“We are considering a state proposal to turn the airport into a low-cost hub,” said Chan, who is also MCA deputy president. On calls to increase facilities at the airport, Chan said it would depend on the routes AirAsia wanted to create. Tajol Rosli said AirAsia would “breathe some life” back into the airport.

Concluding Comments - I think this is a brilliant idea. Ipoh's airport has been way under-utilised due to the popularity of the Nort-South Expressway. By making it the low cost carrier hub, it will generate enormous traffic. As it is, it takes a KL person about 1 hour - 1.5 hours to get to KLIA, a bit faster if they take the KLIA Express train. It takes 2 hours to get to Ipoh. Let's be smart here and make parking at Ipoh airport free, that way travellers can leave their cars in Ipoh and travel to wherever they want without incurring high parking charges. Ipoh is an ideal catchment area for people from Penang and even KL.

The move should be a highly successful one for all concerned (except MAS) and would also prove a trigger to accelerate the opening up of routes for all carriers. Hey, KL-Sin is still at RM650 return, I think RM200 return Ipoh-Senai would be highly attractive, plus I can get a taste of the the good food in Ipoh before embarking on my flight... that's Malaysia... Truly Asia!