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.

Takeaways From Major Oil and Gas Seminar

For the majority of investors, we are usually not privy to some of the more important "investor meetings". There was a major event a few days ago which may explain a lot what is happening in the days and weeks ahead. (Taken from CIMB research summary).



Spotlight on asset ownership & marginal fields

Asset ownership and marginal field development were the main industry takeaways from our recent Malaysia Oil & Gas Day
1) Asset ownership: More companies are scouting for assets to achieve sustainable earnings growth. Among the six featured companies, Perisai (PPT MK, Outperform) is the most aggressive with its asset base expansion.
2) Marginal field development: SapuraCrest (SCRES MK, Outperform) and Kencana (KEPB MK, Outperform) are ahead of the pack but other service providers, including Dialog (DLG MK, Outperform) and Petra Energy (PENB MK, Not Rated), are catching up.

We remain OVERWEIGHT on the oil & gas sector, with the potential re-rating catalysts being the Economic Transformation Programme (ETP) newsflow and more contract awards. Our top pick is SapuraCrest.

CIMB Malaysia Oil & Day 2011

Our Malaysia Oil & Gas Day conference on Tuesday was as well-received as our inaugural event in 2008. Some 90 fund managers and buy-side analysts attended the conference, indicating healthy interest in the sector generated by the high oil price environment and the sector’s prominence in the ETP.



Asset ownership

An increasing number of Malaysian companies are going into asset ownership, breaking away from low-margin services and volatile project-basis type of operations. This demonstrates the companies’ commitment to consistent and sustainable earnings growth where there is less chance of margins being compromised or order books going through a prolonged dry spell. During the company presentations, we learned about the race for bigger fleets of pipelay barges and drilling rigs as the demand for these assets is intensifying. In the marine support segment where there is an oversupply of 5,000 AHTS vessels, companies are now eyeing workboats and
workbarges.

Figure 1: Featured companies / Company Representatives

Dialog
Chew Eng Kar - Director, Corporate serv ices
Ngau Sue Chin - Manager, Corporate finance

Perisai
Zainol Izzet Mohamed Ishak - Managing director
Yeo Peck Chin - CFO

Petra Energy
Kamarul Baharin Albakri – Ex ecutiv e director & CEO
Ahmadi Yusoff – Ex ecutiv e director
Chung Chee Onn – Financial controller
T. Thiruchelvam – Manager, Group corporate communications
Alicia Ann – Senior ex ecutiv e, Group corporate communications

Petra Perdana
Shamsul Saad - Managing director
Dato' Henry Kho - Ex ecutiv e director
Francis Koh - Ex ecutiv e director
Soon Fook Kian - GM, Corporate finance
Abdul Ghani Hamat - Senior manager, Corporate affairs

Petronas Dagangan
Rozaini Mohd Sani - GM, Finance
Ahmad Kushaini Ramli - Senior Manager, Strategic Planning
Mohd Zaki M Isa – Senior Manager, Financial & Management
Muhammadiah Muhammad - Manager, Strategic Planning
Nur Asy irin Ibrahim - Business Analy st, Strategic Planning

SapuraCrest
Rohaizad Darus - CEO
Zulkifli Abd Rani - COO
Azmi Arshad - CFO
Aliza Ashari - Deputy CFO
Sazly na Sapiee - Financial controller
Datuk Kris Azman Abdullah - Ex ecutiv e director (Sapura Group)
Chow Mei Mei - Ex ecutiv e director (Sapura Group)
Azlan Asidin - Ex ecutiv e director (Sapura Group)
Sy ed Hasan Alsagoff - CFO (Sapura Group)



- Perisai’s asset base is undergoing radical improvement. The company started FY11 with only one revenue-generating asset, namely pipelay barge Enterprise 3 (E3). However, going by the corporate exercises in 1Q alone, it will end the year with 10 assets, namely the E3, Intan’s eight vessels (two AHT vessels, three AHTS vessels and three crew boats) and Garuda’s jack-up rig, Rubicone, which is being converted into a mobile offshore production unit (MOPU).

- In Feb 11, Petra Energy, which is 29.6% owned by Petra Perdana (PETR MK, Underperform), indicated that it may raise funds via the capital market but did not mention the type of the fundraising and the timeline. At our event, management disclosed that the fundraising could involve a rights issue to finance the expansion its current fleet, which consists of three workbarges and two workboats.

- Petra Perdana currently has 25 vessels. In Jun 11, the company will accept delivery of a 300-men workbarge, Petra Odyssey, which has yet to land a contract. One of the company’s newer vessels, Petra Superior, which is also a 300-men workbarge, has been booked for a Petronas Carigali job. Currently, workbarges can fetch charter rates of about US$20,000/day, lower than US$25,000/day a few years ago.

- SapuraCrest does not discount the possibility of adding another pipelay barge to its current fleet which consists of a deepwater barge Sapura3000 and shallow-water barges LTS3000 and Quippo Prakash. The new barge could come in handy if the company succeeds in its bid for a Petrobras contract that requires the deployment of a pipelay barge. Management did not specify if the fourth barge will be a deepwater barge or a shallow-water one. For the drilling business, management stressed that a 6th rig is possible only if there is a contract. Currently, the 51:49 SapuraCrest-Seadrill JV owns five rigs.

- Debt-free Petronas Dagangan (PETD MK, Outperform) sits on a cash pile of RM1bn. Management is on the lookout for suitable assets for acquisition to strengthen its retail network, which goes beyond the petrol stations and includes bulk depots and bunkering facilities nationwide. We understand that Shell may exit East Malaysia’s LPG market where it is trailing behind Petronas Dagangan.


Marginal field development

The ETP projects that have been announced so far, i.e. marginal field development, Pengerang tank terminal and Tanjung Agas industrial park, have kept up the excitement level in the sector. The project that has created the most buzz among the service providers and investors alike is marginal field development, which gives players such as SapuraCrest and Kencana a shot at moving up the value chain from service providers to developers and producers. At the event, SapuraCrest updated us on the Berantai contract and a few companies talked about their efforts to get a piece of the action in marginal field development.

• SapuraCrest has started on the transport & installation works required for the Berantai contract, helped by its in-house pipelay barges. Management indicated that some contribution from the contract is expected to be booked in 2HFY1/12. To recap, on 31 Jan 11, a consortium comprising Petrofac (50%), SapuraCrest (25%) and Kencana (25%) secured the 9-year, US$800m Berantai marginal field contract. SapuraCrest is in charge of the transport & installation portion of the works required under the contract. Kencana will undertake the engineering, procurement, construction and commissioning (EPCC) portion.

• Perisai’s RM210m Garuda acquisition will give the company access to a MOPU. The new asset will help position the company to offer solutions for marginal field development. With the MOPU to be delivered in 2H11 and a Petronas licence clinched in late Feb 11, Perisai is strategically placed to bid for marginal field projects.

• Petra Energy also aims to become a marginal field partner over the long term. The rights issue it is mulling over may be the first step in that direction. The company said that the proceeds will be used to enhance its financial capability and support Petronas’s initiatives.



Current Prices / Target Prices

Dialog 2.31 / 2.67
Kencana 2.61 / 3.40
Perisai 0.88 / 1.40
Sapura Crest 3.69 / 5.12
Wah Seong 2.09 / 2.50
Petra Perdana 1.09 / 0.87

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.

Why I Like EAH

As promised, among the upcoming listings, the one stock I like a lot is EA Holdings. The fact that its ACE bound should not be held against the stock. I have mentioned that most IPOs have performed poorly but there have been exceptions, one just need to do a bit more legwork.




Every time we come across a technology services, I have to make sure that its not just another plug and play company, or a purely systems integration services company.

At a glance, EA may look like the usual technology services company. In fact it is very much product driven. EA Holdings' wholly‐owned unit EASS Sdn Bhd was granted bumiputera contractor status by the ministry of finance in 2007. This status allows EASS to bid for tenders reserved for bumiputera companies, giving it a foothold in the lucrative government‐linked companies sector. This unit basically anchors the company's bread and butter revenue stream.

The second unit of the company is Concorde MSC, a provider of IT solutions for financial services sector. Reading that would make most of us fall asleep. They are adept at developing bank wide data warehousing, automating central bank reporting, implementing Basel II data marts and risk calculators, and implementing risk management and CRM.



Concorde MSC has been servicing numerous banking clients already as some of the senior team members were originally from Silverlake, a highly recognised IT solutions player in Asia Pacific. The 'bankability' of this team within the financial sector should not be under estimated.

The third prong is EA MSC which is in RFID. There is RFID and there is RFID. Most of the RFID in other listed firms like CBS Tech is about 2-3 years behind the curve. I happen to know a bit about RFID and EA MSC has its own product and patent pending as well. Theirs is in active RFID while most are still toying with passive RFID.

One of its edge is in using wireless mesh networking which save a lot on implementation costing as there is no complicated communication wiring. The bulk of the revenue comes from their popular Rain Tag which is the long range active tag. The kicker is the soon to be launched RTLS or Real Time Location System, Quatis. The product was a big hit at the recent Security Expo at KLCC.

The beauty of RTLS is that the tags are aware of its own location and its location can be tracked and logged in real time. There are competing products in RTLS internationally such as Radianse, WhereNet, PanGo and AeroScout. Quatis has a real difference, thanks to its IP. This translates into a much lower cost per standard tag. Quatis cost is about one third the average cost of the same tags under the earlier mentioned international names.

The cost factor is a significant factor as the implementation cost and tag/reader costs inhibits the "return on investment" hurdle for many businesses. This advantage will put Quatis on a highly competitive platform.

The lack of standardizing various protocols used for communication between the RFID systems and the back-end systems such as the Enterprise Resource Planning (ERP) system, Warehouse Management System (WMS) system have hindered a wider acceptance of active RFID. EA MSC technology platform conforms to IEEE 802.15.4 standards and is more widely accepted to most existing equipments.

RTLS serves in operational areas for logistics and other services, as e.g. stock grounds or storehouses, and for servicing areas in clinics and industrial plants

• to combine identity and location of any type of items or objects
• to combine identity of items with location of lifter placing the items
• to ensure permanent availability of proper information about temporary placement
• to support notification of placing of items
• to prove proper manning of operational areas
• to prove consequent evacuation of endangered areas
• to make marshalling staff dispensable
• etc.

I can see Quatis contributing significantly to EAH's bottom line as it is due to be launched in 3Q2010. Its basically an asset location tracker and has enormous potential in security-safety-asset protection businesses.

For financial year 2009, EA's net profit surged 87.2 per cent to RM3.64 million compared with RM1.94 million in 2008. EA reported its 1Q2010 results recently and registered a net profit of RM1.39 million and a revenue of RM5.43 million. Annualising that the 2010 PAT should come to RM5.56m, a 52.7% jump from 2009. That translates to a net EPS of 3.5 sen.

Looking at growth companies, the attraction is to look at their net margins and how sustainable they are. For the 1Q2010 figures, the ICT Services unit registered a net of RM86,000 on RM1.091m revenue or a net margin of 7.8%. Software and banking solutions unit posted a net of RM367,000 on RM1.501m revenue or a net margin of 24.4%. RFID and access control systems saw a net of RM942,000 on revenue of RM2.846m or a net margin of 33%.

The ICT side is bound to have smaller margins as it is in a competitive arena. The other two are more attractive and the strong margins are indicative of the edge in deliverables. I expect the company to be on an exponential growth path for at least the next 3 years, which is why I consider the company listing itself a tad too early, giving rise to significant under valuation. They can manage to sustain such strong margins owing to "in house expertise in software banking solutions" and "own patent-pending products in RFID".

Unlike a number of "growth companies", EA does not have a "burn rate" as their products and services are gaining traction already. That is, EA is going to be building equity rather than burning their proceeds - which may explain why many Mesdaq companies find themselves in financial dire straits after a couple of years of being listed.

The bare facts to me is that the company kind of went for its IPO a year too early as I am sure it could get much higher pricing for its IPO if it was listed 6-12 months later, possibly doubling its IPO price. Its over subscription for the public portion was a healthy 19.4x.

Having said that, and judging by its good 1Q2010, the company is on a strong growth track. Its on track to make PAT of RM5.56m this year with a very good chance of hitting even RM7 or RM8m if Quatis is rolled out on time.

This should bring about a fair valuation of between 45 sen to 65 sen depending on how optimistic you want to be.



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. The author may have bought shares in the company already. 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.

Skytrax World Airlines Awards

Well, readers would have noticed that I have not commented much on stocks for the past few weeks, isn't it obvious. You cannot be always in the market. There are periods which you will save a lot of money and anguish by taking holidays or playing golf.



Skytrax awards are coveted because they are voted on by some 18 million passengers. Naturally we get seduced by all the ads but most will focus only on the luxury side of things. At the end of it all, its how well you treat the economy passengers that count.

Increasingly, it is the economy passengers who are paying the airlines' bills. Business class is shrinking, premium economy and economy are growing. But most airlines still treat economy class as the riff-raff who deserve to be uncomfortable because they're not willing to pay the big bucks up the front.

Well, this year Skytrax's popular vote – by the biggest electorate in airline awards-land – has spoken loudly about seating comfort: three of the top five airlines and five of the top 10 are the ones that give economy passengers up to three inches (7.6 centimetres) more seat row space than the sardine-can airlines (like Qantas) that insist on 31-32 inches (79-81cms) per row: the overall winner, Korea's Asiana, the Middle East's Qatar Airways (No. 3), Air New Zealand (No. 5), Thai Airways (No. 9) and Malaysia Airlines (No. 10).

Significantly, Air New Zealand (33-34-inch long-haul) zoomed past Qantas (No. 7 – 31 inches) for the first time. Just as significantly, Singapore Airlines came second in the award it has won twice on the strength of its cabin service, which a number of Travellers' Check readers reckon has gone off.

The World's Top 10 airlines in the 2010 Awards :

1. Asiana Airlines
2. Singapore Airlines
3. Qatar Airways
4. Cathay Pacific
5. Air New Zealand
6. Etihad Airways
7. Qantas Airways
8. Emirates
9. Thai Airways
10. Malaysia Airlines

Qatar Airways was named the winner of the World's Best Business Class Award at the 2010 World Airline Awards, that took place in Hamburg. WORLD'S BEST BUSINESS CLASS 1. QATAR AIRWAYS 2. SINGAPORE AIRLINES 3. ETIHAD AIRWAYS Qatar Airways was also named among the top three airlines in the world at the Skytrax World Airline Awards 2010. The honour was among several awards that the airline collected at a ceremony in Hamburg. Qatar Airways global ranking among more than 200 international airlines rose to number three in the world – up from fourth spot last year, further cementing its stature as a world leading airline. Qatar Airways took the World’s Best Business Class award in one of the most hotly contested categories. The airline’s Business Class catering was recognised separately as the best in the world.

The airline also took the title for Best Airline in the Middle East for a fifth consecutive year, emphasising Qatar Airways’ competitiveness and dominance in a region boasting several world-class airlines.

Malaysia Airlines was named the winner of the World's Best Economy Class Award at the 2010 World Airline Awards, that took place in Hamburg.

WORLD'S BEST ECONOMY CLASS
1. MALAYSIA AIRLINES
2. QATAR AIRWAYS
3. SINGAPORE AIRLINES

Malaysia Airlines won 2 awards, the "Staff Service Excellence for Asia" and "World's Best Economy Class" at the 2010 World Airline Awards in Hamburg.

Etihad Airways was named the winner of the World's Best First Class Award at the 2010 World Airline Awards, that took place in Hamburg. WORLD'S BEST FIRST CLASS 1. ETIHAD AIRWAYS 2. SINGAPORE AIRLINES 3. QANTAS AIRWAYS Etihad Airways won three awards for its First Class at the Skytrax World Airline Awards, having the World’s Best First Class, Best First Class Airline Seat and Best First Class Onboard Catering. The annual Skytrax survey takes into account all aspects of the air travel experience as well as the quality of customer service delivered by each airline’s staff. "We are exceptionally proud to have won these three awards for our new and innovative First Class product and service which is now recognised as the world’s best by the ultimate judges - air travellers,” said Peter Baumgartner, Etihad Airways’ Chief Commercial Officer.

Etihad unveiled its new First Class cabin suite in 2009. The cabin contains 12 individual suites, accessed by its own sliding door and includes a personal wardrobe and a mini bar. It also has a 23-inch wide-screen TV LCD screen and luxurious soft furnishings and leather upholstered by Poltrona Frau, which also provides interiors for Ferrari cars.

Etihad Airways 'Inspired Service' concept on the ground and in the air seeks to provide its First Class customers with service individually tailored to their needs. On the ground, First Class customers flying from the Abu Dhabi airport can take advantage of the concierge and limousine service as well as a dedicated premium check-in zone. Onboard, a food and beverage manager is on hand to assist customers during the long and ultra long haul flights.



AirAsia was named the winner of the World's Best Low-Cost Airline Award at the 2010 World Airline Awards, that took place in Hamburg.

BEST LOW COST AIRLINES
1. AIR ASIA
2. AIR BERLIN
3. VIRGIN BLUE

AirAsia has picked up two different Awards at the 2010 World Airline Awards in Hamburg. For the second year running, AirAsia was was named winner of the World's Best Low-Cost Airline award. AirAsia also picked up the Award for Best Low-Cost Airline Asia.

Commenting on the awards received by AirAsia, Skytrax Chairman, Mr Edward Plaisted said : "this is a fantastic achievement for AirAsia to be here collecting the award as World's Best Low-Cost Airline for the second year running. They are clearly meeting and exceeding their customer's expectations to have been named winner of this outstanding, global recognition. The awards represent a true recognition of the front-line product and service that AirAsia is delivering to it's customers, and the award slogan of 'The Passenger's Choice' underlines the fact that AirAsia are succeeding in satisfying the hardest critics - their users."

'China-apeks' In Bursa

Great article in StarBiz. Yes, I have finally come around to comment on the Chinese boots-sports shoes-laces-etc. companies listed on the local exchange. Many people have asked me what I think, most just want me to reassure them that they made the right calls. Those who asked me probably would have bought and cannot understand why share prices still go lower and lower still.



Are they good buys? YES.
Are they mostly great buys? YES.
Their dividend yields are spectacular, can they last? Probably for a few years at least, but generally YES.

Then why tf are prices still drifting lower? The article below basically addresses the key issue. Some may have thought that the Malaysian investors are at fault, that they do not know a great investment even when you hit them over their heads.... WRONG. We know a good thing, but we cannot override a good thing that has a lot of baggage.

Its not that investors are not buying, its that the owners are selling, much more than we have been buying. Why are they selling if they are on such a good thing? Imagine a PER of 3x and a dividend yield of 20%-30%... where in the world to get that? Why would anyone want to sell? I wouldn't ... but some people would. Who are those people?

They are the private equity buggers. Say Mr. Wong has a small factory making shoes in Hell-looong-jiang, turning over RM10m a year and making RM500,000 profits. He started with RM100,000 capital 4 years ago. A private equity team thinks that they can pump in capital and modernise processes and put in professional management. So, they put in RM10m in additional capital for a 60% stake, valuing the company at about RM16m or thereabouts. Within a year revenue jumps to RM30m and they start making RM4m profit. They then rope in more private equity and pump in another RM5m to start opening retail outlets. Now the paid up is RM15.5m, and at RM500,000 a pop, they opened 16 branches over the next 12 months. Revenue jumps to RM60m and they make RM18m in profit.

They think of listing the bugger but their paid up is still minuscule and its faster and easier to list smaller companies in places like Bursa. Anyway, they ramp up their paid up from retained earnings, did some clever accounting and ta-dah, paid up jumps to RM40m. They list on Bursa with a valuation of 8x = market cap of RM320m.

The private equity guys' 60% stake cost them only RM15m, and now their 60% stake is worth RM192m. Which is why, they will take money off the table, you can't really blame them when their cost of shares is literally zilch. In this case, say they list at RM1.00. In actual fact, their cost per share is 15/320 = 4.6 sen per share. Hence you may be able to appreciate why they will sell at RM1.00, or 90 sen, or 80 sen, heck even 50 sen, hell why not 30 sen even.



Paying good dividends will lift the yield, that is all well and good, but to invests in these type of companies, look closely at the stakes that have to come onto the market. Xinquan is probably the best of the lot as the private equity partner has almost finished selling all their stake, after nearly one year. You have to do your homework and look for these additional information - yes, its all in the bloody prospectus that 99% of investors never read.

The proposed new rules should include:
a) all owners, promoters, minority shareholders of future China-companies have a moratorium on their shares. First 6 months, all locked up, 6-24 months: all can sell up to 20% of their stakes; beyond 24 months: no more moratorium.
b) In addition to quarterly results, there must be more regular news and updates from lead investment banker. Any news, positive or negative in mainstream media or business publications must be highlighted and hyperlinked from Bursa main site.
c) For all China listing, owners/promoters are only allowed to sell 10% of their shares as part of IPO, the rest will be all new shares issue.

The rules have to be stringent because you have to regain confidence for the investors in these counters. What about the juicy dividends, just buy and hold when dividend yields goes above 20%, you cannot predict when the shares will turn around but no one should argue when you are getting 20% dividend yield. The only question is how long can the dividend yields stay above 20%. If it stays above that, then heck care, just lock it up, but always monitor the quarterly earnings to make sure the numbers and metrics are looking ok (i.e. no huge jumps in inventory and/or debtors).

Once the private equity or peripheral shareholders finish selling, stocks will climb back for sure. You will have to do a lot more work, you need to keep abreast with company filings when and where substantial shareholders have been selling, and note how many more shares they have to sell.

In fact, the EPF should really send their analysts to these China companies and go to their factories and retail outlets to double verify the figures. If they stand up, and from a few people who have went there, they actually do stand up quite well - then EPF should collect the shares... I mean 15%-25% dividend yield, come on!!!

You want to invest overseas, they don't come more juicy than this. Yes, you will have to keep a close eye on operations but every investment has their risks. In another way, you will also help shore up confidence in luring overseas companies to list on Bursa.

-------------------------------

by Lee Kian Seong, StarBiz: THERE was a lot of buzz in the market when three Chinese companies – Xingquan International Sports Holdings Ltd, Multi Sports Holdings Ltd and XiDeLang Holdings Ltd – listed on Bursa Malaysia in the second half of last year.

However, the weak performance of these stocks since then has disappointed a lot of investors. Some analysts point out that Malaysian investors need greater awareness of the fundamentals of Chinese companies listed here.

With two more Chinese companies – Sozo Global Ltd and K-Star Sports Ltd – scheduled to list soon, how will investors react?

Private equity banker Sherilyn Foong said investors’ lack of confidence in China companies seeking to list in Malaysia was not due to poor fundamentals or high valuations. She believes this “selling out” behaviour was contributing to the weak share price performance of these China companies listed on Bursa Malaysia.

Foong, who expects more Chinese listings in Malaysia this year, said companies should restructure their initial public offerings (IPOs) to reduce the offer for sale portions; i.e. the portions where the promoters are selling as part of the IPO exercise.

“This will help to allay investors fear that the promoters are cashing out,” she said.

In April, StarBiz reported that a wider moratorium on the sale of shares was being applied on new listings of China companies in Malaysia.

Investment banks sponsoring the new IPOs, in consultation with the SC, have initiated the move that imposes at least a six-month moratorium not only on the promoters of the company – which has been the usual practice – but also on a list of other shareholders who have emerged prior to the IPO.

The move is aimed at preventing a repeat of the heavy selling by a pre-IPO investor in one of the three listed Chinese companies. According to OSK Research, there is a perception among investors that only weak China companies would choose to list here. It also said that investors were sceptical of their earnings following accounting irregularities involving several China companies listed in Singapore.

“They (investors) believe that any Chinese IPO will just underperform following the three Chinese listings recently,” it said in a note.

OSK said to dispel these perceptions, China companies listed in Malaysia must deliver good earnings track record and payout dividends to show that they are genuinely generating cash.

“The management should be prudent and give achievable guidance. They should not over-promise and under deliver as it will dampen the market’s confidence towards these Chinese companies,” it said.

OSK said consistent updates and communication with the investment community was also necessary to lift investors’ confidence.

On company developments, Xingquan International, which recently concluded its Autumn/Winter 2010 Sales Fair, recorded a 35% rise in sales orders to about RM323mil compared with orders received at the same event last year. The company plans to further expand in inland China during the next financial year ending June 30, 2011. For the second quarter ended Dec 31, 2009, Xingquan International posted a 34.1% jump in net profit to RM30.6mil while revenue surged 61.3% to RM179.7mil from a year ago. The company’s share price closed at RM1.15 last Friday, up 1 sen. Xingquan International’s offer price was RM1.71 for retailers and RM1.80 for institutional investor.

On May 6, Multi Sports proposed a one-for-four rights issue, which will raise up to RM36mil for the construction of a new plant in Jinjiang City, China. The company plans to undertake a subscription of 54 million right shares at a price to be determined later. The Chinese shoe sole-maker intends to increase its production capacity to 79.6 million in 2011 from 24 million in 2009 to meet growing demand. For financial year ended Dec 31, 2009, the company posted a net profit of RM56.7mil, 22.7% higher than a year before. Its revenue rose to RM237.9mil from RM193.3mil in the previous corresponding period. Multi Sports share price shed 1 sen last Friday to close at 41 sen. Its issue price was 85 sen during the company’s IPO.

XiDeLang posted a net profit of RM68.4mil on revenue of RM385mil for the financial year ended Dec 31, 2009. The company is expected to benefit from the growing sports wear industry in China. The first phase of XiDeLang’s plant expansion exercise is expected to be completed by the third quarter of this year. The second phase is expected to start in mid-2011 and would be completed by end-2012. XiDeLang’s share price closed unchanged at 35 sen on May 7. Its IPO price was 58 sen.

Further Updates On Notion Vtec & KPJ

As I have been following both shares closely, I will comment on recent developments on both companies, which are really quite interesting.

This announcement is dated 6 January 2010.
Announcement Details :

Table 1
Name of Director	Name of Registered Holder	Date of Acquisition	Purchase Price per share	Number of Ordinary Shares of RM0.50 each acquired	% of Issued Shares#
Thoo Chow Fah	Choo Wai Sook	6 January 2010	RM2.75	100,000*	0.07*

Comment: A director buying at RM2.75. Its not a significant size, but the timing is significant.

Type	:	Announcement
Subject	:	NOTION VTEC BERHAD (“NVB” or “Company”) Private placement of up to ten percent (10%) of the issued and paid-up share capital of the Company (“Private Placement”)
Contents	:	Further to our earlier announcements made on the Private Placement, HwangDBS Investment Bank Berhad, on behalf of the Board of Directors of NVB, is pleased to announce that the Company has on 6 January 2010 fixed the issue price for the new 13,844,694 ordinary shares of RM0.50 each in NVB (“NVB Shares”) to be issued pursuant to the Private Placement (“Placement Shares”) at RM2.44 per Placement Share. The issue price of RM2.44 per Placement Share represents a discount of approximately 10% to the volume weighted average market price of NVB Shares for the five (5) market days immediately preceding 6 January 2010 of RM2.7066. Details of the placee, who is a strategic corporate investor, will be announced upon the completion of the Private Placement, which is expected to be no later than 20 January 2010. This announcement is dated 6 January 2010.

Finally, supposed to be in December, about one month late. Its whom will be taking up the placement which will be important, not the price. Please read posting on Notion Vtec back in October:

http://malaysiafinance.blogspot.com/2009/10/why-i-like-notion-vtec-tons-of.html

Type	:	Announcement
Subject	:	KPJ HEALTHCARE BERHAD (“KPJ” OR “COMPANY”) ACQUISITION BY KUMPULAN PERUBATAN (JOHOR) SDN. BHD. (“KPJSB”), A WHOLLY-OWNED SUBSIDIARY OF KPJ OF 40,800,000 ORDINARY SHARES OF RM1.00 EACH, REPRESENTING 51% EQUITY INTEREST IN SMC HEALTHCARE SDN BHD (“SMCH”) FROM SABAH MEDICAL CENTRE SDN BHD (“SMC”) FOR A CASH CONSIDERATION OF RM51,000,000 (“PROPOSED ACQUISITION”)
Contents	:	The Board of Directors of KPJ (“Board”) wishes to announce that KPJSB, which is a wholly-owned subsidiary of KPJ, had on 6 January 2010 entered into the following agreements:- (a) a conditional Share Sale Agreement (“SSA”) with SMC for the acquisition of 40,800,000 ordinary shares of RM1.00 each (“Sale Shares”) which is equivalent to 51% of equity interest in SMCH from SMC for a cash consideration of RM51,000,000 (“Purchase Consideration”); (b) Shareholders Agreement with SMC to regulate their relationship as shareholders of SMCH; and (c) Management Agreement with SMCH for the appointment of KPJ to manage the existing private and the new private hospitals of SMCH. The details of the announcement are as per attached. This announcement is dated 6 January 2010.

Comment: Very interesting announcement during the share split and ex period for bonus and free warrants. How significant is the acquisition. Well, industry insiders will tell you that there were a lot of bidders for SMCH, and for KPJ to even get 51% is nothing short of a coup. 51% for RM51m, have you tried building a hospital now for less than RM150m??? ... thats why its a coup.


p/s photos: Fiona Xie

Genting Singapore In Cairo - Some Perspective Please

Genting Singapore said on Tuesday that one of its subsidiaries has been selected as the new operator of a casino in Egypt. The firm said Genting Casinos, an indirect wholly-owned unit of Genting UK, has entered into a casino concession agreement with Misr Hotels. Genting UK has been awarded the casino concession for The Nile Ritz Carlton Hotel in Cairo for an initial period of 10 years. It plans to open the new operation under the brand "Crockfords on the Nile".

The move is part of Genting's strategy to expand its casino resort network. It will also strengthen and develop Genting UK's position in the premium market through its key high-end London casino clubs, Crockfords, Colony and Maxims.

The Nile Hotel, located on the banks of the Nile and in the heart of the Egyptian capital of Cairo, will undergo a major refurbishment. The hotel is considered one of the iconic developments in Cairo which has contributed to the Egyptian travel industry since it first opened in 1958.

Renovation work is expected to be completed in early 2012. Genting said the Casino concession agreement is not expected to have any material impact on its earnings in the current financial year.

My Take: If my readers can remember, in September last year I went to Cairo and had a zen moment with my camel boy. Anyway, yes, I did visit the casino as I was just as surprised as anyone that there were casinos in Cairo.

There are about 25 casinos in Cairo already. Each casino has to be within an "approved hotel", usually only one floor or a section of one floor.

All casinos in Cairo are not open to Egyptians but only to tourists, and naturally those of Islamic faith are prohibited as well. Let me tell you that the actual number of people playing there were very few. You almost can have the table all to yourself, and I am not kidding.

Hence all the casinos have less than 10 tables and less than 20 slot machines. The actual impact of having one at Nile Ritz Carlton Hotel is that it will be glitzy, but let me assure you that at any one time you will find less than 20 people playing and you can probably only put in 20 tables max. Anymore tables will just be a waste.

One of the bigger casinos in Cairo is Inter-Casino at the Ramses Hilton Hotel. It has 18 tables and 42 slots. Another is Casino Royal at Movenpick Jolie Ville Resort (yes, Movenpick) with 16 table games and the biggest number of slot machines at 154. The other big one is Taba Hilton & Casino with 19 table games and 76 slot.

Hence people should not be overly excited with the Cairo project, not when there are already 25 operators, and all catering to tourists. This is like adding two gaming tables at Resorts World, seriously folks. The problem is not with Ritz Carlton or Genting, its the number of tourists that actually visit Cairo, and spread that out to over 25 casinos in the one city - that's the problem.

Yes, being with Nile Ritz Carlton is probably the grandest of the lot, and on the Nile some more. But, do you know how many 5-6 star hotels there are on the Nile already - Four Season Cairo Nile Plaza, Intercontinental City Stars, Sheraton, Sofitel, etc... Its just another one.


p/s photo: Fiona Xie

Big & Juicy (Or Is It Dicey) IPOs - Sands China & UC Rusal

Sands China, the Macau casino operations owned by Las Vegas Sands (LVS), yesterday kicked off the roadshow for its Hong Kong initial public offering with the aim of raising between HK$19.41 billion and HK$25.96 billion ($2.5 billion to $3.4 billion). The launch came on the same day that China Minsheng Banking also launched its $3.6bn IPO, which looks set to become the largest Hong Kong listing so far this year.

The institutional tranche for Sands Asia, accounting for 90 percent of the shares, has apparently been "multiple times" oversubscribed. The Macau unit of billionaire Sheldon Adelson's casino company will offer locally 10 percent of its 1.87 billion shares at between HK$10.38 and HK$13.88. It costs around HK$5,608 for a lot of 400 shares. Sands China will spend 42 percent of the net proceeds on repaying shareholder loans and inter-company payables, and one-fourth on the completion of Parcels 5 and 6 in Cotai.

Michael Leven, chief operating officer of Las Vegas Sands, said as a growth company, Sands China requires a certain amount of earnings to be retained to develop the Cotai project. Sands China will seriously consider more rapid growth or dividend issuance only after the monetization strategy kicks in. Chairman Sheldon Adelson said Sands China will sell the non-core assets such as shopping malls and serviced apartments. The capitalization rate on malls will increase as they take time to benefit from full hotel operations. He said net debt will drop from 2.86 times to around 2.3 times on the offering day while the full operation of Parcels 5 and 6 in 2012 will further bring its leverage to below one time.bankers argue that Sands China could be the ticket.

The casino operator, which is owned by Las Vegas gaming magnate Sheldon Adelson and holds one of six casino licences in Macau, already controls about 30% of the mass market and is raising money that will go partly towards the re-starting of a development project on the Cotai Strip that was halted last year as the parent company was running out of cash. According to syndicate analysts, the company is also in a prime position to capitalise on any growth in retail spending by Chinese visitors to Macau as it operates about 74% of all grade-A retail space available in the former Portuguese colony.

As I considered the Wynn Macau offering to be an avoid, and a purer gaming play, hence my view on Sands China is even bleaker - although I think their Marina Bay unit is more attractive if you can hive that out. Big offerings like this are market-timed vehicles, it can cause you to lose a lot of money (e.g. going 10%-20% below IPO) if you get caught in a wrong market mood when its actually listed. But at the same time can get you 10% (looks to be the topside considering the size of the offering) upside if the market mood stays good.

A more combustible and heady IPO, closely watched by all foreign media, is the listing of UC RUSAL, a vehicle owned by one of Russia's favoured sons, Oleg Deripaska. Well, they can't list in Russia for now owing to the market sentiment there. Surprisingly, they bypassed London as well, which was considered as a natural for a company like this.

Before a planned $2 billion Hong Kong IPO in December, the world's largest aluminum producer UC RUSAL is close to a deal to restructure $7.4 billion in debt to foreign banks, according to The Wall Street Journal. Controlled by Russian oligarch Oleg Deripaska, the aluminum producer is expected to announce the deal as early as next week, which will allow it seven years to repay $16 billion of debt. HK regulators are expected to give the green light to RUSAL's listing on November 19.

United Company RUSAL is the world leader in the aluminum industry sector, implementing the full production cycle from the extraction of bauxites to the manufacture of primary aluminum and alloys. The company has operations on five continents and in 19 countries around the world. The market share of the company encompasses approximately 12% of the entire global output of primary aluminum and 15% of the world’s alumina production, the necessary raw materials for manufacturing.

United Company RUSAL was founded in March 2007 by the merger and consolidation of RUSAL, SUAL, and the alumina assets of the Swiss company Glencore. Currently the company is comprised of 15 aluminum smelters, 12 alumina refineries, 7 bauxite mines, 3 foil rolling mills, and power-generating assets. UC RUSAL employs more than 100,000 persons at within its structure.

The Russian billionaire is in the final stages of agreeing a restructuring deal with foreign creditors on $7.3bn in debts, a vital precondition for the initial public offering valued at between $1bn and $2.5bn to go ahead. But even if the tycoon reaches agreement in time for a key November 19 hearing at the Hong Kong Stock Exchange, he must still race to win creditor committee approval from the more than 70 banks by the end of November and then market the sale to investors in the two weeks left before most leave for Christmas in mid-December.

It would be the first time a big Russian company has listed on the HK bourse, but they should perhaps first ask why Mr Deripaska is not going straight to London - long the natural harbour for large commodities groups seeking funds on the market. What is the attraction of HK, if not the lure of easy money and bucket loads of liquidity and enormous interest from China over resource plays? All adds up to a recipe for a big truckload of bad things waiting to happen - too eager, too much backslapping, too many wink-wink nods, ...

Could it have anything to do with his problems in the UK, where he is facing legal action, including a suit in the high court from a former partner in Rusal claiming massive compensation? Clearly, the uncertainty surrounding a case that could potentially cost Rusal up to $4bn is mathematical sum that is hard to put inside research reports. The last-minute withdrawal of Goldman Sachs as a lead adviser on the IPO underlines the risks surrounding what would be one of the biggest offerings of the year. Goldman Sachs withdrew as a lead adviser just one week before the company filed its initial application to the Hong Kong Stock Exchange on October 2, because it said it needed more time to familiarise itself with the deal, people close to the situation said. That should be the key already, where in the world would Goldman Sachs relinquish the right to lead a massive IPO if not for "graver concerns".

Mr Deripaska, once Russia’s richest man, has been dogged by issues surrounding his past partnerships in the Russian aluminium industry in the 1990s, a time when it was racked by crime. He is being sued by one former partner, Michael Cherney, in London’s High Court for a stake in his UC Rusal; Mr Deripaska contends he owes nothing to Mr Cherney, who he claims was not a partner but ran a protection racket to extort money out of his company. Mr Cherney denies any ties to organised crime.

IPOs being IPOs, in HK the IPO market is in full swing, issues are very huge, they suck up a lot of liquidity - anything untoward happening to just one could derail the overall markets for s sustained period, and will affect capital flows negatively for the rest of Asia. Enough said ....

p/s photo: Fiona Xie Wan Yu

Obamafying Japan, The Democratic Party of Japan (Part 2)

Overview: Early lower house election results indicate that the Democratic Party of Japan (DPJ) has defeated the long-ruling Liberal Democratic Party (LDP) in a landslide victory. Prime Minister Taro Aso and the LDP had grown unpopular due to their response to Japan's economic woes. Though a new ruling party may not transform Japan's economy overnight, it is a step towards reform and brings many new (and much younger) faces to government in Japan.

Election Results

• The Nikkei reports that early results indicate the DPJ winning 308 of the Lower House's 480 seats. A minimum of 241 seats is required to capture a simple majority. The DPJ has won even more seats than the popular Junichiro Koizumi and his "band of reformists" won for the LDP in 2005.
• NHK estimates that voter turnout was around 69% and was the highest turnout since the current electoral system was introduced in 1996.
• DPJ President Yukio Hatoyama will be elected the country's new prime minister in a special Diet session in mid-September.
• This will be the first time since 1955 that the LDP is not the controlling party in parliament.
• DPJ President Yukio Hatoyama announced in a press conference that the DPJ will begin discussions with the Social Democratic Party and the People's New Party to form a coalition government.
  
• Prime Minister Taro Aso indicated that he will step down as party head. Additionally, LDP's Secretary General, Hiroyuko Hosoda informed Prime Minister Taro Aso that he plans to step down.
• On a Tokyo Broadcasting System (TBS) televised interview, Hatoyama stated that the DPJ would quickly compile an extra budget to restructure the current government's last stimulus package.
• The Nikkei reports that Hatoyama said the DPJ government would soon organize a grand policymaking body called the National Strategy Office which will outline Japan's national budget and set the nation's foreign and security policies.
• Kyodo News projections show the following LDP heavyweights have lost their seats: Ex-Finance Minister Shoichi Nakagawa, current Finance Minister Kaoru Yosano, Ex-Defense Fumio Kyuma, another ex-Defense Minister Yuriko Koike, and Consumer Affairs Minister Seiko Noda.
• Bloomberg reports that former Prime Minister Toshiki Kaifu lost his seat in the Aichi prefecture against a candidate half his age. Kaifu is the first former prime minister to be voted out since Tanzan Ishibashi in 1963.
• Ex-Prime Minister's son, Shinjiro Koizumi, is expected to provide the LDP a win in the Kanagawa No. 11 constituency.
• Eriko Fukuda a 28-year-old member of the DPJ, is projected to win the Nagasaki No. 2 constituency from former Defense Minister Fumio Kyuma. Fukuda is known for filing a lawsuit against the government for people that contracted hepatitis C from tainted blood products. She herself contracted hepatitis C as a child from a blood transfusion.
• NHK reports that Akihiro Ota, head of the New Komeito party and a partner of the ruling coalition, lost his seat in the Tokyo No. 12 electoral district.
• Kyodo News reports that 23 people were arrested on suspicion of election law violations.

What Will a DPJ Win Mean for the Economy?

• Heizo Takenaka, former Finance Minister under Koizumi, notes, "Japan's politics and its economy are just not sustainable in their current forms...something has to give, be it the ruling party, the yen, the bond market, the stock market or a combination thereof."
  
• Naomi Hasegawa, Senior Fixed Income Strategist, Mitsubishi Debt Research Division: The DPJ promises to shun U.S. dollar bonds if elected.
• Sentaku Magazine: "The DPJ's announced economic policy may be summarized as one of 'reckless spending.' It calls for, among other things, making all expressways free of tolls, giving every child 26,000 yen a month until he or she finishes the nine years of compulsory education and providing compensation for farmers who have to sell their products below cost. It is estimated that these policies would cost an estimated 20.5 trillion yen in fiscal 2012."
• The LDP proposed to outspend the DPJ, but the DPJ seemed more likely to rebalance economic growth towards domestic demand. JGB issuance was likely to increase with fiscal expansion regardless of which party won.
  
• Though the DPJ promises it won't hike the consumption tax for another four years, it is highly likely it will need to do it earlier because tax revenues may not keep up with increased government expenditure.

What Will a DPJ Win Mean for Domestic and Foreign Politics?

• DPJ wants to turn the bureaucrat-driven government into a more cabinet-driven one.
• Gerald Curtis, FT Columnist: "The DPJ talks about replacing bureaucrats with politicians in key ministerial positions but says virtually nothing about what policies these newly empowered politicians would implement.".
• Japan may become slightly more pacifist and less pliant to the U.S..
• American Enterprise Institute fellows Dan Blumental and Gary Schmitt believe, "Tokyo's foreign policy is unlikely to change drastically," but caution that "the fact that Japan will now have truly competitive political parties means that Japanese policy makers will be more attuned to public opinion.".

p/s photo: Fiona Xie

Looking Back On Returns

For the first quarter of 2009 I don't think I recommended to look at any one stock as I was not convinced of a rally or a substantive run. The good thing about blogging is that your views are all there to be examined, scrutinsed and criticised ... but it also allows you to reflect and note how your views evolve. Like a diary, the most notable postings started around April 24 this year (can go and check). Its fun to look at how things have turned out, bearing in mind that my assertion that stocks I like should have at least a 30% upside within 6 months, so far so good. If I can get a batting average of 65%, I am happy. There are not many runs in a year for a market like Malaysia, once its there, you have to seize the day and then exit when things are looking dowdy. Usually you can count on 2 runs a year lasting anywhere from 4 -15 weeks each time. Bull markets do not make us smarter, it makes picking winners easier.

FBM 100 Gainers and Losers In August 2009
Top 20 Gainers TR
IJM LAND BHD 23.13%
MULTI-PURPOSE 20.93%
SARAWAK OIL PALMS 18.57%
PROTON HOLDINGS BHD 12.13%
SUNWAY CITY BHD 11.51%
TITAN CHEMICALS CORP BHD 11.32%
MAH SING GROUP BHD 9.78%
BOUSTEAD HEAVY INDUSTRIES CO 9.66%
LINGKARAN TRANS KOTA HLDGS 7.57%
AXIATA GROUP BERHAD 7.14%
SELANGOR PROPERTIES BERHAD 7.14%
AEON CO (M) BHD 6.67% UBG BHD -4.94%
KUALA LUMPUR KEPONG BHD 6.40%
TAN CHONG MOTOR HOLDINGS BHD 5.95%
EON CAPITAL BHD 5.60%
AFFIN HOLDINGS BERHAD 5.56%
GUINNESS ANCHOR BHD 5.48%
AMMB HOLDINGS BHD 4.78%
PETRONAS DAGANGAN BHD 4.78%
PPB GROUP BERHAD 4.63%

Source: Bloomberg Note: TRs (total returns), CG (capital gain) & DY (div yield)

Looking Back

April 24 - Confirmation of A Bull Run For Bursa
April 24 - Stocks & Sectors I Like As CI Breaches 1,000 (Property: SP Setia, UEM Land, even Talam, Sunway City, even MK Land. Financials: AMMB, EON Cap). ... safe to say that these property and financial picks outperformed the market substantially ... so far
April 27 - Talam Coming Out Of PN17 0.08 ... had a good run for a while even at 0.14 or 0.15 at some point I believe, still the run should come when its officially out of PN17
April 28 - MK Land Is Pretty Oversold 0.28 ... now at 0.40 but went as high as 0.47, we got our 30% or more
May 1 - Sell In May & Go Away " History repeats itself for a reason, because they do, people never learn and they keep repeating their actions and decisions time in time out. This is the same posting I did 4 years back in May 2006, and repeated this in May 2008, so for all intents and purposes, I should also repost this for May 2009. Personally, I don't think this May-August will be a down period."
May 5 - Stock Picks For A Nice Trade ... these were ok performers, not spectacular, its for a quick trade, if it works good, if not, get out...
SAAG long up to 0.29
Sapuracrest long up to 1.24
IOI Corp long up to 4.50
Kulim-WB long up to 3.32
Kulim long up to 6.00
May 7 - Go Long On The Brokers .. these were good runs, TA went to 1.27 (now 1.20), Affin went to 2.04 (now 1.88), ECM went to 0.78 (now 0.63), HDBS went to 1.75 (now 1.58), Kenanga went to 0.75 (now 0.65), OSK went to 1.58 (now 1.39)
TA long up to 1.03
TA-WB long up to 0.06
Affin long up to 1.77
Affin-WC up to 0.14
ECM long up to 0.66
HDBS long up to 1.45
Kenanga up to 0.68
OSK long up to 1.38
May 29 - Why I Like Pelikan 0.98 ... possibly the best call so far, now still at 1.52, we got our 30% here
June 4 - A Timely Look At B-Land & B-Toto 3.26 / 4.74 .. both did well, especially B-Land
June 11 - Tanjong, This One Can Buy & Hold 13.00 ... now at 15.82, up 21% so far, a bit more to go to get our 30%
June 11 - Whoops! There It Is (GenM) 2.90 ... now at 2.79, not good, I would cut now ..
June 23 - I Like Green Packet At Current Levels 0.70 ... very good entry levels at 0.70, now share price still at 0.705 but I get 1 right and 1 warrant basically FREE for every 2 shares, great return, easily way past 30%
July 13 - Market Commentary - "I don't like many stocks now as I think markets do look tired, but if you point a gun to my head to force me to buy one stock to hold till rest of they year, I would probably say E&O" 1.04 ...if anybody read this closely, they would have made a bundle, went ballistic today to a high of 1.52
July 17 - Why I Would Buy Astro Now 3.62 .. 3.43 now, news did not filter out as I had hoped, wishy washy developments, sell
July 24 - Why I Am Keen On MPHB Now 1.58 ... 2.11 now, we got 33%, enough
August 4 - Why I Like DRB Hicom 1.13 ... went towards 1.30 but fizzled out, still very keen on this, can hold on
August 12 - Why I Like IJM Land 1.81 ... went to 2.05, now at 1.98, will wait for my 30%
August 21 - Why I Like Bumi-Commerce Bank 10.30 ...recent call...
August 27 - Why I Like QL Resources 3.34 ...recent call ...

The above were views on stocks and sectors that I like, 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.

p/s photo: Fiona Xie

Foreign Funds Flow

Suddenly foreign media is picking up on a surge in the flow of funds into Asian markets. Any truth in that?

----------------
Foreign fund managers are banking heavily on an Asian earnings upturn and continual growth in China to drive market momentum forward. Following a lull, a sudden leap on Wall Street has boosted foreign investor interest in Asian markets. The psychology of the markets has changed from the fear of losing money to a fear of losing opportunities.

According to EPFR Global fund research, US$137.5 billion flowed out of money market funds and almost a fifth went into Asian and other emerging market funds in the second quarter. The trend has continued in recent weeks, although the size of inflows is subsiding. MSCI Asia ex-Japan rose by 34 per cent year-to- date to July 24 and emerging by 46 per cent in US dollars, but lower gains in euro and sterling. Credit Suisse said there are several positive fundamental factors which support foreign investment in Asia.

Asia is expected to lead the global recovery due to its low leverage and financial flexibility to pump-prime economies. Second, China and India are growth engines. Third, emerging Asia is projected to deliver an average earnings recovery of 33 per cent in 2010, according to the Institutional Brokers Estimate System. Finally, company directors are signaling earnings upgrades.

Recovery leaders include companies which benefit from the massive fiscal stimulus packages in China and selected Asian countries, and technology companies with the largest potential earnings rebound. Credit Suisse advises that the collapse in Asian and global trade was a function of falling final demand and liquidation of bloated inventories.

The Asian stockmarket boom has been a boon to fund managers who had a dreadful time between 2007 and spring of 2009. Over twelve months, MSCI ex-Japan is still down 26 per cent in US dollars. Thus, the 2009 rebound has only profited investors who entered the market this year and reduced the pain of others.

Jason McCay and Richard Evans who manage the Martin Currie Asia Fund, a hedge fund, are focusing on companies that concentrate on the domestic markets. They increased exposure to Chinese banks and have purchased residential Chinese developer Guangzhou R&F Properties. Bullish on coal, they have bought Bumi Resources in Indonesia and have also invested in the Indian property sector through Unitech. They are concerned, however that the market surge has been caused by a surplus of liquidity. 'Valuations are no longer cheap and many companies are already pricing in a meaningful recovery in profits.'

Aberdeen Asia Pacific Fund contends that equities 'appear to have run ahead of earnings and economic fundamentals and a pullback would be healthy.' Longer-term, Asia's sounder economic fundamentals will enable it to bounce back more strongly than the West'. Top stocks include OCBC, Jardine Strategic Holding, Samsung Electronics, China Mobile and Singapore Telecommunications and Singapore Technologies.

Andrew Beal, fund manager of Henderson Asia Pacific Capital Growth, notes that aggressive government policies, loose monetary conditions and a steady improvement in economic activity have all helped to drive markets higher since March. Taking a long-term view, he says there is growing awareness among Asian governments over-reliance on exports to the West has become a structural weakness. It needs to be addressed by stimulating domestic consumption.


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I do think stock prices have run a bit ahead of fundamentals. I do think the worst of the global crisis is behind us, although I do think Central & Eastern Europe still has some ways to go. Why are markets so inherently bullish now? You still get the majority of "experts" claiming that things are a bit too much, and yet they still keep running. Not just in Asia but look at the US equity markets in recent weeks.

I believe the answer lies in the massive liquidity on the sidelines. The massive liquidity stem from the government printing presses and various fiscal stimulus programs. Now that risk aversion has subsided somewhat, now that the bigger US banks seem to be on better footing, investors are more willing to place their bets ... no more bloody T-bills.

Naturally in such a situation liquidity would seek out the most liquid of assets. While bashed down property prices in the US might look attractive, its liquidity and gestation period may require a bit more patience. Most investors probably think its a better whack to trade the markets than to buy a depressed property now as you might have some time to wait out the property cycle. Even though many might be getting a bargain in the US property markets, getting a decent rental is another thing, getting a paying tenant that won't turn into a non-paying tenant quickly is another problem. All said, equity seems to be the only channel for these funds to trickle in.

In Malaysia, do not be fooled by the huge surge in the new index since launching because the index is very very skewed. Take the top 10 stocks and see their performance over the last 2 weeks and you will know what I mean. There has been a strategy to make the new index "look good", yes... there might have been some rebalancing by indexed funds as well ... but ... So, local equity market has not been as bullish as the new index would want you to be thinking. Its a rotational market, not entirely convincing... just look at weekly turnover value week by week for the last 6 weeks, you will find a distinctive trend... and you should be able to draw your own conclusions.

p/s photos: Fiona Xie