How To Spot A Good Trade Part 4

This featured column is based purely on volume, breakouts, hence very little fundamentals for me to write about. I have to say, I never studied any technicals topics or read even any chartist books. The closest I can say its intuition. I get a gut feel from the way it moves, the range it traded, the underlying stock and its characteristics, and most important the volume formation.

The track record for this feature "How to spot a good trade" has been pretty good. But I still get whacked by some readers as they expect a stock to make money "immediately". I mean 4-8 weeks is not too long, is it?

How to spot a good trade (parts 1, 2, 3):

17 August 2010 GOPENG (~RM1.02) Current: 1.18, 10 week high 1.34

24 August 2010 LION FIB (~RM1.48) Current: 2.09, 10 week high 2.14

20 September 2010 UEM LAND (~RM2.00) Current: 2.29, 4 week high 2.37

Plus, there is no need to chase, you have plenty of time to buy and still make a decent trade. Mind you, its a trade, not a fundamentals type thing, so do not question what they are doing etc. ... AND NEVER, EVER (for the love of God) WRITE TO ME TO ASK WHAT PRICE TO SELL AT!!!!!!

Well, first breakout from RM2.50 to RM2.75 was significant. Last Friday's breakout to RM3.12 was significant. Some charts will tell you the stock is headed for a triple top, like I said, I don't know what that means really. My gut feel was triggered because it gap up to RM3.16 on opening today, went to RM3.32 and closed at RM3.20 on very good volume.

The fact that it did not retrace back to close the gap, which some chartists will tell is very important, was significant. Short term traders who bought below RM3.00 had ample time to sell, and most did. I really liked the way it closed, the stock pattern and volume are telling me a nice story behind it. Don't know what it is, but it should be good.

I couldn't really care about the rumours surrounding the stock but if you like you can read below. To me, if the pattern of movements does not feel good, it does not matter what the rumours are about.

In the news: Syed Mokhtar Al-Bukhary, the Malaysian billionaire, has written to the country’s government offering to buy 1,200 hectares of Rubber Research Institute (RRI) land outside of Kuala Lumpur, the Malaysian Insider reported today online, citing an unidentified government official familiar with the matter.

Syed Mokhtar, who controls MMC Corp, has also offered to buy a police training center in the capital, according to the report. -- Bloomberg

http://www.tnt.net.my/home

MMC MAKES OFFER FOR ENTIRE UEM GROUP

Proposal hangs by a thread as EPF and PNB chafe at being relegated as junior partners to MMC, while the company’s already high debt gearing at 2.6 poses hurdle in raising fresh debt

KUALA LUMPUR. Sept 29: MMC Bhd’s formal bid to the Ministry of Finance to acquire the entire UEM Group Bhd is hanging by a thread as the Employees Provident Fund (EPF) and Permodalan Nasional Bhd (PNB) has refused to join the bid as junior partners.

The proposed buyout sees MMC valuing UEM Group at RM15.6 billion and sees it planning to raise RM16 billion, which would include a working capital of RM500 million.

UEM Group’s listed entities include Plus Expressways Bhd, Faber Group Bhd, UEM Land Holdings Bhd and Time Engineering Bhd.

Among the group's business includes UEM Builders, part of its unlisted stable, which is undertaking a large portion of the construction of the second Penang bridge, along with wholly owned subsidiary Penang Bridge Sdn Bhd which holds the concession on the 25 year-old Penang Bridge.

How does MMC intend to acquire PLUS via takeover of UEM

posted Sep 29, 2010 8:02 PM by CT Print

Along with the very very interesting story of how we now know that MMC has been pursuing PLUS is the even more exciting way of how they are going to do it.

This is what TnT has been told:

• The Proposal submitted by MMC was done when PLUS's share price was quoted at RM3.80
• MMC proposes Special Purpose Vehicle (SPV) to acquire PLUS through the acquisition of UEM at toal cost of RM15.5 Billion
• Plans to raise RM16B including working capital of RM500M
• Plans to keep toll rates staus quo till the end of concession in 2035
• does not intend to seek compensation until the end of concession
• Word was that MMC will reduce toll collection by 20% by giving discounts, but such has not been mentioned in the purported proposal
• Funding structure tri-party; MMC - 40%, EPF and PNB - 30% each, amount to be raised in market RM11.2B
• (This is the clincher) SPV requests corporate tax to be capped at 15% or lower for PLUS for the entire duration of concession; in addition SPV to be able to utilise all unabsorbed tax losses and capital allowances of other entities within the group
• SPV to also seek concessions from government which includes tariff increases after a few years, as well as financial assistance by means of getting government involvement to provide 'below market level funding' or better still the taking over of existing debt

TnT was given a long list of other details, but right now, all that is important is this very interesting proposal by some big wig Taikors.

PM says MRT among large projects, MMC Corp shares up on upgrade
The Edge - Business (1 October 2010)

Shares of MMC Corp rose in the morning session on Friday, Oct 1 after Credit Suisse upgraded it to an Outperform and raised the target price to RM3.80.

At 11.17am, MMC Corp was up 12 sen to RM3.12 with 4.13 million shares done.

The positive sentiment was also boosted by a wire report that the government would soon announce seven large projects including the mass rail transit (MRT) soon in Kuala Lumpur.

Prime Minister Datuk Seri Najib Razak was quoted saying the government was ready to announce the seven huge projects soon. “The MRT will be one of our largest projects and it will have a huge impact to the country’s economy,” he said.

Meanwhile, Credit Suisse upgraded MMC Corp to an Outperform (from Neutral), as the market had underappreciated two key developments on the stock. They were the South Johor land and the Kuala Lumpur MRT. It viewed MMC as a laggard play on these developments

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.

The Real Business Of 1+3D and The Racing Totalisator

The Edge Weekly reported that the Cheng family is believed to be eyeing the gaming business of the soon-to-be privatised Tanjong plc. Other interested parties are said to be the Genting Group and Multi-Purpose Holdings. The key surprise is that the Chengs could be a new entrant into the NFO (Number Forecast) arena. Sure, many would be keen to claim the last NFO but they could face hurdles in the form of competition objectives and regulatory approvals.



The key is many seem to forget that the "dastardly-run-hands-tied" Racing Totalisator (RTO) will be part of the package. If its just 1+3D operations, thats fine, I am not sure if the bidders are aware of the "most 'beguiling' business unit in the whole of Malaysia". Many would think they know what they are buying, when even Ananda Krishnan cannot get the "political will" to make the necessary changes to the RTO, you think anyone else can???

While AK may be wanting to shed the gaming business to mould the business to be shariah compliant for future fund raising purposes, I doubt that is his main motivation. I mean, he can easily source for lenders, shariah or otherwise. Who does not want a mini-monopoly with the 3rd leg of NFO business in Malaysia? Its a brilliant cash cow. Its the RTO business that is making them crazy.

The Chengs are looking into the deal and have arrived at a valuation of about RM2bn for the entire business. Should the Chengs decide to bid, the proposed acquisition will be done in a private capacity, and that they will probably partner a private equity fund.



Of course the Genting Group would be a keen bidder as well. Four years ago, when Tanjong expressed interest in selling the business, Genting Bhd and Multi-Purpose Holdings had said they were interested, but pricing was a problem then. There has been speculation in the past that Tanjong and Genting could swap assets, with the former hiving off its gaming business in exchange for the latter’s power division. That would make a lot of sense.

For MPHB which owns 51% of Magnum Corp, acquisition of Tanjong’s gaming assets is, on the surface, an easy way to expand its market share. But most NFO outlets are so close to one another that the real value may not be as attractive to Magnum's operations. To relocate some of the outlets to improve yields may not be as easy as it is on paper.

The Cheng family: Headed by Datuk David Cheng, is in the gaming slot machine business, mostly in the Klang Valley. The family is also in the food and beverage industry. One of David’s two sons, Datuk Douglas Cheng, teamed up with Datuk Vincent Tan Ting Wong and Henry Yip to establish the popular Chinese restaurant chain Dragon-I in 2004.

Trust me, AK wants to get rid of the RTO and he wouldn't mind bundling the NFO with it. However all bidders would want the NFO business only and they should get that out of their business model, it will come with the RTO.



For the year ended Jan 2010, NFO under Tanjong recorded an operating profit of RM234.9m while the RTO registered a loss of RM65.8m. For the previous year the RTO business posted losses of RM26.9m. I tell you that the RTO business will be losing RM100m or more a year very soon.

The key here is, what ails RTO. I mean its a monopoly with the 3 turf clubs in Malaysia. For those of you not familiar with horse racing, Malaysian horse racing garners possibly more betting revenue than the Genting Highland casino + illegal football bets + all 4D operators all added together, and is in multiples of that collective sum. I would not be off a lot if I were to say that the number one place on earth for horse race betting is HK, followed by Australia and then Singapore and Malaysia. How on earth can the RTO business be in the red all the time???

Its the most "hands-tied-business" in the country for sure. Its also the biggest sector in the "shadow economy". The country loses billions in taxes foregone, at least we still get taxes from NFOs and the casino business.

There is a lot of inertia with the "boards" that run each turf club, there is so much vested interest. Race fixing is rampant in Malaysia, probably second in the world next to Macau. For each race, the total betting received by the local turf clubs may be around RM300,000. The actual real betting with bookies is conservatively 20x-30x that amount.

Say the government tax is 15% and the RTO gets 10%. Technically the government gets RM45,000, the RTO gets RM30,000. Now, you add the fact that there are at least 30 races a week x 52 = 1,560. The government gets RM45,000 x 1,560 = RM70.2m and the RTO getsRM46.8m. When you start to deduct funds needed to pay the prize money for each race and the usual operating expenses, its a wonder they only make RM80m losses.

If we take the low end of estimate of actual illegal betting, the government is losing 20 x RM70.2m = RM1.4 billion a year in uncollected taxes/duties. While the RTO could very well have gotten 20 x RM46.8m = RM936m in revenue.



Why would the RTO allow that to happen? Firstly, they are not paid as per revenue/profit achieved. It is better to allow for status quo because of "certain information flow". Now, it is so rampant that a substantial number of horse owners are also bookies themselves, how to win at this?

New owners of NFO and RTO would be likely to try to implement the following (which I am sure Tanjong and Ralph Marshall have tried their hardest):
- reduce government taxes by half, the lower the duties, the better the pool payout which will eat into bookies' margins
- improve access, convert at least half of 1+3D outlets to take racing bets and allow for live broadcast at these outlets
- have a truly independent steward board and disciplinary board, now 90% of all riders who "pull" horses get off scot-free, same for the trainers (btw do you know how many jockeys and trainers get bashed up a year ...more than you know)
- have a special task police unit to haul up all illegal bookies, at the tracks and elsewhere, if they can be so effective during the World Cup, this can be done
- remove all the turf club board members, replace with one professional management unit that is paid professionally and with credibility
- work with authorities to block the enterprising internet betting sites continuously

So, think again before you bid for Tanjong's NFO and RTO business. If you want just the former, I think AK will ask to to go fly wau.