Economy & Equity Market - US
Economy - The underlying economy is strong, not as strong as China or India but strong. Jobs are there. The most important factor is housing, a lot of Americans have a lot of savings tied into housing. A robust housing market over the last 3 years have allowed many to tap into the gains via revaluation or trading up of properties. The one thing which threatened to derail the economy was fuel prices, which caused iflationary pockets in the system. As mentioned before, if it wasn't the higher fuel prices, it would be the stronger consumer spending to put on the inflationary pressures. So, either one or the other, the higher oil prices have flattened housing stats, which was sufficient to give the Fed balls not to raise rates.
Is the US economy slowing? Not really, consumer spending is still there as the gains made or locked up in properties is still substantive. Jobs are still there. US companies have never had so much cash in their system. But its not charging ahead.
Equity - Companies never have so much cash in the books. private equity never had so much money to spend. Put them together, bigger M&A activity will follow, which will have the effect of raising industry valuations whenever A company is acquired. The government bond yield and corporate bond yield differential is in the lower end, indicating little risk of over-valuation in companies - a good set up for bull run to continue. The weaker US dollar kind of works well for everyone, including the Americans. What we want to see is a gradual weakeneing, maybe anothe 3% for the rest of the year and another 5% next year. All in all, US markets have a higher upside than most Asian markets including Malaysia. My targets for S&P 500 is 1,450 (+11.2% from current levels) by 1Q2007, and the Dow at 12,500 (+9.8% from current levels). Currently, the S&P 500 is at 1,303 while the Dow is at 11,381.
Economy & Equity Market - Malaysia
sopskysalat: wonder if you can post your view on us economy going forward as the current slowdown is lingering in everyone's mind. also, i find the equity market also find itself in an uncertain state.
Economy - Excellent, currency is the main issue, then interest rates. If you line up our ringgit against all major currencies, you will find that the ringgit has the highest correlation with the renminbi over the last 10 months. Bank Negara sees being competitive vis-a-vis the Chinese currency as the most important determinant even though US remains our top trade nation. But as a bloc, Asian countries will be increasingly important as a trade bloc and trade partner. No point benchmarking to the US as the dollar has a lot of things they have to rectify with the underlying US economy. Beijing is loathed to raise rates owing to gthe massive credit binge in their system. Beijing will continue to allow the yuan to appreciate and that means the same thing for the ringgit. In terms of purchasing power, the ringgit can go to 3.4/USD this year without affecting competitive edge too much. For 2007, we can average 3.2. That is an important consideration when in the eyes of investors. Foreign investors were pretty pissed off in 2005 with Malaysia cos they betted for a revalued ringgit but it came way too late, which was why other emerging mart performed so much better than KLSE. A firming ringgit gives investors a good safety margin in equities. Hence interest rates would not be excessive as well. Imported inflation will be subdued.
Equity - If you look at the quarterly earnings of top 20 stocks in 2004 and 2005, most are flat or down year on year basis. The uptick started over the last 2 quarters and corporate earnings seem to have turned a corner. Liquidity is good but not excessive. Khazanah's KPIs are a good start, let's see how that goes. Palm oil has a new bottom threshold underpinned by a substantive new form of demand. Palm oil rally not over, PER ratings for all palm oil stocks can move up another 10% at least over the next 6 months. Look for companies with a bias towards younger plantations coming onto to mature stage in 2007 and 2008 in particular. KLK and PPB stand out. While things look good, they are not exactly the recipe for a major bull run. Its a gradual rise, I see index trying for 1,000 before the year is over and 2007 may see a test of the 1,035 by March/April before subsiding. M&A plays will take centerstage - RHB Capital, EON, DRB Hicom, Proton will take their turns. Trading stocks with corporate exercises - Konsortium.
sopskysalat: wonder if you can post your view on us economy going forward as the current slowdown is lingering in everyone's mind. also, i find the equity market also find itself in an uncertain state.
Economy - Excellent, currency is the main issue, then interest rates. If you line up our ringgit against all major currencies, you will find that the ringgit has the highest correlation with the renminbi over the last 10 months. Bank Negara sees being competitive vis-a-vis the Chinese currency as the most important determinant even though US remains our top trade nation. But as a bloc, Asian countries will be increasingly important as a trade bloc and trade partner. No point benchmarking to the US as the dollar has a lot of things they have to rectify with the underlying US economy. Beijing is loathed to raise rates owing to gthe massive credit binge in their system. Beijing will continue to allow the yuan to appreciate and that means the same thing for the ringgit. In terms of purchasing power, the ringgit can go to 3.4/USD this year without affecting competitive edge too much. For 2007, we can average 3.2. That is an important consideration when in the eyes of investors. Foreign investors were pretty pissed off in 2005 with Malaysia cos they betted for a revalued ringgit but it came way too late, which was why other emerging mart performed so much better than KLSE. A firming ringgit gives investors a good safety margin in equities. Hence interest rates would not be excessive as well. Imported inflation will be subdued.
Equity - If you look at the quarterly earnings of top 20 stocks in 2004 and 2005, most are flat or down year on year basis. The uptick started over the last 2 quarters and corporate earnings seem to have turned a corner. Liquidity is good but not excessive. Khazanah's KPIs are a good start, let's see how that goes. Palm oil has a new bottom threshold underpinned by a substantive new form of demand. Palm oil rally not over, PER ratings for all palm oil stocks can move up another 10% at least over the next 6 months. Look for companies with a bias towards younger plantations coming onto to mature stage in 2007 and 2008 in particular. KLK and PPB stand out. While things look good, they are not exactly the recipe for a major bull run. Its a gradual rise, I see index trying for 1,000 before the year is over and 2007 may see a test of the 1,035 by March/April before subsiding. M&A plays will take centerstage - RHB Capital, EON, DRB Hicom, Proton will take their turns. Trading stocks with corporate exercises - Konsortium.
Pantai, Khazanah, Bailouts?
What's Wrong With The Picture?
As reported in The Edge: "Khazanah Nasional Bhd's move to take control of Pantai Holdings Bhd, which holds two government healthcare concessions, will not hurt investor perception of Malaysia, said Second Finance Minister Tan Sri Nor Mohd Yakcop. “This is not a bailout. This is a market-driven solution to a problem where there is a willing buyer, willing seller. Pantai is seen to be in an industry which is viewed as sensitive as it holds two concessionaires. It (Khazanah's taking control) has resolved the issue of this sensitive sector," he told reporters in Putrajaya on Aug 29.
On Aug 28, Khazanah said its wholly owned subsidiary Pantai Irama Ventures Sdn Bhd had bought a 6.6% stake in Pantai and entered into a deal with Parkway to acquire the Singaporean company’s 134.7 million Pantai shares at RM2.65 each. Parkway would in turn acquire a 49% stake in Pantai Irama, which will have a 35% stake in Pantai. Parkway will be the operating partner through a management contract. Meanwhile, Parkway said Pantai Irama would have four directors with two each coming from the Khazanah arm and Parkway. The two Khazanah appointees are its executive director (investment) Ganen Sarvananthan and its senior vice president (investment) Tunku Ali Redhaudin Tunku Muhriz. Parkway's appointees are its chairman Richard Seow and managing director Dr Lim Cheok Peng. Meanwhile, Pantai's share price rose 10 sen to close at the year’s new high of RM2.61 on Aug 29, with a total of 5.56 million shares done. Its warrants also ended 10 sen higher at RM1.48."
Issues To Consider:
1) Not a bailout, yes and no, but the problem with Pantai and Parkway was created when Parkway bought Pantai. Parkway is a foreign entity. The company definitely needed to secure approvals from SC/Bursa and most importantly FIC. What was the FIC doing in approving such a deal without batting an eyelid?? If a company was given a government concession, which materially effected the value of that company, that company is an entity that has "national interest" written all over it. Hence to sell controlling interest in that company is inequitable.
2) That very same issue was what derailed Shin Corp and Temasek's deal early this year - so much so that Thaksin was eventually removed because of the deal. Shin Corp was started based on government concessions, and then to resell the company to a foreign party pissed a whole lot of people.
3) A bailout is ... like TRI and MAS and the government. When the company is bleeding and the owner does not have a clue on how to turn it around. Pantai is not a bailout in that sense, but of a different kind. The Parkway people found themselves in the middle of a storm in a teacup, much like the way temasek found itself embroiled in a stewing pot luck of tom yam goong. The politcal backlash was too much to endure for Parkway, and if Parkway were to maintain its independence, it will have to give up the concessions or sell it cheaply. That would have reduced Pantai's value dramatically. Khazanah stepping in would have been a solution in keeping the value in Pantai and appeasing the backbenchers.
4) This deal mirrors excatly why Malaysia corporate still has some ways to go. We plug holes instead of making sure there are no holes to start with. We do crisis management when better planning and execution would have eliminated much of the need for crisis management. We find second rate solutions to unecessary problems which would not have sprung up with everyone exibiting more professionalism. If FIC did its job, or was allowed to do its job, instead of being railroaded to let the deal pass, such a thing would never needed to happen in the first place. If the authorities in the proper approval stages were allowed to do their jobs, and not being instructed to clear the approval processes, maybe such a thing would not need to happen.
5) Khazanah stepping in needed the a spin from the Second Finance Minister to tell everyone why Khazanah was required to step in. We make life difficult for ourselves. The fact that Khazanah was asked to step in need not happen in the first place, it probably wasn't something they wanted control of. Can you imagine if Khazanah was asked to "step in" once a year to clean up the mess made by other - then after a few years, Khazanah would be holding controlling stakes in companies it did not wanted, and not part of its masterplan. Things like these saps the power and management time from Khazanah to do really fruitful things or maintain its long term investing strategy, without having to deal with unecessray hiccups. Just one of these deals a year can kill the effectiveness of Khaznah. The problem is these type of deals are not that infrequent ... want to go into examples?!!
Please, more professionalism, and no more railroading of certain projects/approval processes because certain people asked for them. Let the people appointed in their respective governing bodies to do their job, instead now they can only shrug their shoulders in exasperation. I love my country, Merdeka ... we have come a long way, no need to do everything the long way ... man!
What's Wrong With The Picture?
As reported in The Edge: "Khazanah Nasional Bhd's move to take control of Pantai Holdings Bhd, which holds two government healthcare concessions, will not hurt investor perception of Malaysia, said Second Finance Minister Tan Sri Nor Mohd Yakcop. “This is not a bailout. This is a market-driven solution to a problem where there is a willing buyer, willing seller. Pantai is seen to be in an industry which is viewed as sensitive as it holds two concessionaires. It (Khazanah's taking control) has resolved the issue of this sensitive sector," he told reporters in Putrajaya on Aug 29.
On Aug 28, Khazanah said its wholly owned subsidiary Pantai Irama Ventures Sdn Bhd had bought a 6.6% stake in Pantai and entered into a deal with Parkway to acquire the Singaporean company’s 134.7 million Pantai shares at RM2.65 each. Parkway would in turn acquire a 49% stake in Pantai Irama, which will have a 35% stake in Pantai. Parkway will be the operating partner through a management contract. Meanwhile, Parkway said Pantai Irama would have four directors with two each coming from the Khazanah arm and Parkway. The two Khazanah appointees are its executive director (investment) Ganen Sarvananthan and its senior vice president (investment) Tunku Ali Redhaudin Tunku Muhriz. Parkway's appointees are its chairman Richard Seow and managing director Dr Lim Cheok Peng. Meanwhile, Pantai's share price rose 10 sen to close at the year’s new high of RM2.61 on Aug 29, with a total of 5.56 million shares done. Its warrants also ended 10 sen higher at RM1.48."
Issues To Consider:
1) Not a bailout, yes and no, but the problem with Pantai and Parkway was created when Parkway bought Pantai. Parkway is a foreign entity. The company definitely needed to secure approvals from SC/Bursa and most importantly FIC. What was the FIC doing in approving such a deal without batting an eyelid?? If a company was given a government concession, which materially effected the value of that company, that company is an entity that has "national interest" written all over it. Hence to sell controlling interest in that company is inequitable.
2) That very same issue was what derailed Shin Corp and Temasek's deal early this year - so much so that Thaksin was eventually removed because of the deal. Shin Corp was started based on government concessions, and then to resell the company to a foreign party pissed a whole lot of people.
3) A bailout is ... like TRI and MAS and the government. When the company is bleeding and the owner does not have a clue on how to turn it around. Pantai is not a bailout in that sense, but of a different kind. The Parkway people found themselves in the middle of a storm in a teacup, much like the way temasek found itself embroiled in a stewing pot luck of tom yam goong. The politcal backlash was too much to endure for Parkway, and if Parkway were to maintain its independence, it will have to give up the concessions or sell it cheaply. That would have reduced Pantai's value dramatically. Khazanah stepping in would have been a solution in keeping the value in Pantai and appeasing the backbenchers.
4) This deal mirrors excatly why Malaysia corporate still has some ways to go. We plug holes instead of making sure there are no holes to start with. We do crisis management when better planning and execution would have eliminated much of the need for crisis management. We find second rate solutions to unecessary problems which would not have sprung up with everyone exibiting more professionalism. If FIC did its job, or was allowed to do its job, instead of being railroaded to let the deal pass, such a thing would never needed to happen in the first place. If the authorities in the proper approval stages were allowed to do their jobs, and not being instructed to clear the approval processes, maybe such a thing would not need to happen.
5) Khazanah stepping in needed the a spin from the Second Finance Minister to tell everyone why Khazanah was required to step in. We make life difficult for ourselves. The fact that Khazanah was asked to step in need not happen in the first place, it probably wasn't something they wanted control of. Can you imagine if Khazanah was asked to "step in" once a year to clean up the mess made by other - then after a few years, Khazanah would be holding controlling stakes in companies it did not wanted, and not part of its masterplan. Things like these saps the power and management time from Khazanah to do really fruitful things or maintain its long term investing strategy, without having to deal with unecessray hiccups. Just one of these deals a year can kill the effectiveness of Khaznah. The problem is these type of deals are not that infrequent ... want to go into examples?!!
Please, more professionalism, and no more railroading of certain projects/approval processes because certain people asked for them. Let the people appointed in their respective governing bodies to do their job, instead now they can only shrug their shoulders in exasperation. I love my country, Merdeka ... we have come a long way, no need to do everything the long way ... man!
US Stocks' Dividend Yield & The Hidden Devil
Recently I posted that as of the end of July, the US equity markets (S&P 500) were trading at a PE of 17.6x, Price/Book of 2.8x with a dividend yield of just 1.9%. International stocks trade at a PE of 15.9x, P/BV of 2.3x and a DY of 2.5%. Emerging markets stocks trade at a PE of 14x, P/BV of 2.3x and a more respectable DY of 2.5%. In effect, there is another point which I have failed to account for, which would bring the US markets' valuation closer to the other two. The hidden devil in disguise is stock buybacks. According to S&P, if you add in stock buybacks to dividends, the S&P 500’s yield jumps to 5.34 percent!
S&P says that companies in its 500 index have spent a stunning US$116 billion on stock buybacks in the second quarter, up 43 percent from 2005 levels and a stunning 175 percent from 2004. Thats about US$2 billion a day. Buybacks are similar to dividends - you are in effect returning money to shareholders, only thing is that instead of cheque in the mail, they reduce the float. Of course, as I have argued many times before, share buybacks only works IF you cancel those shares. That's the main reason why the so-many-buybacks in Malaysia does not work. You have to tell investors you are buying them, and then canceling them. If you buy on the pretext of redistributing them later or selling at a profit, that is not share buybacks. It does not work like that. The good thing in the US is that most share buybacks involve share cancellation as well.
The record US$116 billion in buybacks is the result of over 40% of the S&P 500 companies reducing their share count during the second quarter. The unprecedented expenditure on buybacks and the resulting share count reduction is having a material affect on both earnings-per-share and cash flow. Left unabated, this will eventually impact the supply of open market shares, and therefore the share price itself. With US bank accounts paying just over 4 percent, and bonds yielding not much more than that, the 5.34 percent buyback/dividend yield doesn’t look half bad.
The enormous buybacks also show something that’s been obvious to index watchers for some time: Despite relatively flat returns in the market, corporate America is swimming in cash right now, and they don’t know what to do with it. According to S&P, companies spent as much money on stock buybacks over the past twelve months as they have on capital equipment expenditures. Doing massive share buybacks is also a tendency to boost share prices by senior management as they have enormous options, and stand to gain from that strategy. It also points to the fact that corporate America is cash rich. But it also points to the fact that most companies find few reinvesting ideas.
Now the differentials between US equity, International equity and Emerging Markets equity does not look so bad at all. In fact with a dividend yield of more than 5%, US stocks still has a long way to go up. Look on the bright side, things good for US stocks, will also make other equity markets good.
Recently I posted that as of the end of July, the US equity markets (S&P 500) were trading at a PE of 17.6x, Price/Book of 2.8x with a dividend yield of just 1.9%. International stocks trade at a PE of 15.9x, P/BV of 2.3x and a DY of 2.5%. Emerging markets stocks trade at a PE of 14x, P/BV of 2.3x and a more respectable DY of 2.5%. In effect, there is another point which I have failed to account for, which would bring the US markets' valuation closer to the other two. The hidden devil in disguise is stock buybacks. According to S&P, if you add in stock buybacks to dividends, the S&P 500’s yield jumps to 5.34 percent!
S&P says that companies in its 500 index have spent a stunning US$116 billion on stock buybacks in the second quarter, up 43 percent from 2005 levels and a stunning 175 percent from 2004. Thats about US$2 billion a day. Buybacks are similar to dividends - you are in effect returning money to shareholders, only thing is that instead of cheque in the mail, they reduce the float. Of course, as I have argued many times before, share buybacks only works IF you cancel those shares. That's the main reason why the so-many-buybacks in Malaysia does not work. You have to tell investors you are buying them, and then canceling them. If you buy on the pretext of redistributing them later or selling at a profit, that is not share buybacks. It does not work like that. The good thing in the US is that most share buybacks involve share cancellation as well.
The record US$116 billion in buybacks is the result of over 40% of the S&P 500 companies reducing their share count during the second quarter. The unprecedented expenditure on buybacks and the resulting share count reduction is having a material affect on both earnings-per-share and cash flow. Left unabated, this will eventually impact the supply of open market shares, and therefore the share price itself. With US bank accounts paying just over 4 percent, and bonds yielding not much more than that, the 5.34 percent buyback/dividend yield doesn’t look half bad.
The enormous buybacks also show something that’s been obvious to index watchers for some time: Despite relatively flat returns in the market, corporate America is swimming in cash right now, and they don’t know what to do with it. According to S&P, companies spent as much money on stock buybacks over the past twelve months as they have on capital equipment expenditures. Doing massive share buybacks is also a tendency to boost share prices by senior management as they have enormous options, and stand to gain from that strategy. It also points to the fact that corporate America is cash rich. But it also points to the fact that most companies find few reinvesting ideas.
Now the differentials between US equity, International equity and Emerging Markets equity does not look so bad at all. In fact with a dividend yield of more than 5%, US stocks still has a long way to go up. Look on the bright side, things good for US stocks, will also make other equity markets good.
Zentrader's Question On Analysts
Zentrader asked:
Dear Dali
I think a lot fund managers and analysts are 'visiting' your blog for insider trading idea. BTW, do you think we should trust those analysts employed by firms? As sometimes I think they are writing for the big boys instead of small boys like us.
Zen
First of all, I don't think FMs and ANALs care very much for blogs. Should people trust ANALs. There are those who by virtue of whom they work for, their work will get read and promoted more, e.g. US houses by virtue of their reach and size. Hence they produce market moving reports. But eventually good research has to stand the test of time, so good ANALs do stand out no matter which houses they are from.
Secondly, research is for big boys, fullstop. At times its a two way thing. You look at the top ten volume stocks, everyday, you'd be lucky to find two with research reports on them - this means people are trading blind everyday. How do you expect broking houses to cater to people who do not wish to read too much? Of course, its a growing up process also. The local bourse is probably 60-40 dominated by individual investors against institutional trading wise. Most developed markets have that ratio 80-20 favouring institutional side. So, you can see that we have a very long way to go, its part of a normal exchange development curve. As the capital markets develop further, the amount of individual investing will ease in favour institutionalised investing. There is a caveat though, Asian investor by and large prefer to do individual investing, given the chance. Just look at HK, where the markets are more developed than ours. So, in reality, Malaysia can look forward to a 60-40 trading ratio in favour of institutions ultimately, and not the normal levels exhibited by the Western world.
Can ANALs be trusted? Some just go through the template of coming up with a report, there is no feeling or passion or even obsession with the various numbers, so the buys or holds that come out is reflected in the writing and the justifications are not sufficiently convincing enough. You can tell a good report - intimate knowledge of figures, and able to identify the "determining factors" moving the stock up or down, can identify the probable catalysts, good industry knowledge (following deep industry data and even anectdotal evidence, if you only go to the company for info, you can be misled sometimes) - and the writing is easily persuasive because they themselves are convinced.
Zentrader asked:
Dear Dali
I think a lot fund managers and analysts are 'visiting' your blog for insider trading idea. BTW, do you think we should trust those analysts employed by firms? As sometimes I think they are writing for the big boys instead of small boys like us.
Zen
First of all, I don't think FMs and ANALs care very much for blogs. Should people trust ANALs. There are those who by virtue of whom they work for, their work will get read and promoted more, e.g. US houses by virtue of their reach and size. Hence they produce market moving reports. But eventually good research has to stand the test of time, so good ANALs do stand out no matter which houses they are from.
Secondly, research is for big boys, fullstop. At times its a two way thing. You look at the top ten volume stocks, everyday, you'd be lucky to find two with research reports on them - this means people are trading blind everyday. How do you expect broking houses to cater to people who do not wish to read too much? Of course, its a growing up process also. The local bourse is probably 60-40 dominated by individual investors against institutional trading wise. Most developed markets have that ratio 80-20 favouring institutional side. So, you can see that we have a very long way to go, its part of a normal exchange development curve. As the capital markets develop further, the amount of individual investing will ease in favour institutionalised investing. There is a caveat though, Asian investor by and large prefer to do individual investing, given the chance. Just look at HK, where the markets are more developed than ours. So, in reality, Malaysia can look forward to a 60-40 trading ratio in favour of institutions ultimately, and not the normal levels exhibited by the Western world.
Can ANALs be trusted? Some just go through the template of coming up with a report, there is no feeling or passion or even obsession with the various numbers, so the buys or holds that come out is reflected in the writing and the justifications are not sufficiently convincing enough. You can tell a good report - intimate knowledge of figures, and able to identify the "determining factors" moving the stock up or down, can identify the probable catalysts, good industry knowledge (following deep industry data and even anectdotal evidence, if you only go to the company for info, you can be misled sometimes) - and the writing is easily persuasive because they themselves are convinced.
Desperately Seeking Talam
Making Sense & Assessing Risk
When things like Talam happens, what do you do? Talam's shares already at a 52 week low of 17 sen, dropped as low as 10 sen today on huge volumes after both Bursa and the company disclosed that Talam has again delayed finalisation of its annual accounts for year ended 31 Jan 2006. Bursa has warned that failure to submit by 31 August will result in suspension and maybe delisting. The knee jerk sellers would theorise that most companies who delay submission are prime candidates for PN4/PN17, or there is a huge writedown, or need to restate losses for previous years, etc...
The company's part of the announcement said:
Talam wishes to inform that it has failed to issue the Talam Group's Annual Audited Accounts for the financial year ended 31 January 2006 ("Audited Accounts") to Bursa Malaysia Securities Berhad ("Bursa Securities") for public release within the stipulated timeframe pursuant to Paragraph 9.23(b) of Bursa Securities LR which was due on 31 May 2006. The delay was due to the following reasons:-
1) The Company is presently experiencing an acute shortage of personnel in the Accounts Department and it has seriously affected the timely finalization of the Audited Accounts of the Company and its Group of Companies. This is further compounded by the fact that certain key personnel are tasked to special assignments in the Group's debt restructuring and the proposed scheme of arrangement pursuant to Section 176 (10) of the Companies Act, 1965 undertaken by Maxisegar Sdn Bhd, a major wholly-owned subsidiary of the Company.
2) The above has invariably delayed the progress of the audit work presently carried out by the external auditors. The completion of the audit is also pending the confirmations and / or certain valuation reports from external parties.
The Company is currently working very closely with the external auditors towards the finalisation of its Audited Accounts and this will be submitted to Bursa Securities and relevant authorities on or before 30 August 2006.Pursuant to Paragraph 9.26(4) of the Bursa Securities LR, if a listed issuer fails to issue the outstanding financial statements within 3 months from the expiry of timeframes stated in Paragraph 9.22 and 9.23 of the Bursa Securities LR ("Relevant Timeframes") ("the last day of the 3 months period shall hereinafter be referred to as "Suspension Deadline"), in addition to any enforcement action that Bursa Securities may take, the Bursa Securities shall suspend trading in the securities of such listed issuer. The suspension shall be effected on the market day following the expiry of the Suspension Deadline.Pursuant to Paragraph 9.26(6) of the Bursa Securities LR, if a listed issuer fails to issue the outstanding financial statements within 6 months from the expiry of the Relevant Timeframes, in addition to any enforcement action that Bursa Securities may take, de-listing procedures shall be commenced against such listed issuer.
Facts
1) The company has a MOU with major financiers to pare down debts by 70% over a 2 year period. Its current debt is RM864.3m. That makes its current gearing at 1.4x, not that exceptionally high that it is unmanageable.
2) Knowing IJM, it would want Talam to clean up its books before doing anything with Talam/K-Euro.
3) It has a good NTA at RM0.89. It will have impairment losses and losses on land disposals, and late delivery charges. Prudent to whack 75% off NTA = RM0.225.
4) Outstanding shares 629.18m. Market cap at RM0.12 means the company is worth just RM75.5m. Even a Main Board shell is worth RM20m.
5) If it fails to submit by National Day, an automatic suspension will be imposed. Talam knows that and acknowledged that, so what gives??
6) The delay has been invoked since end May 2006, so nothing really new here.
Why the sell-off?? The delay has been known for sometime. Not having enough employees is a stupid excuse, should not even put that in. Valuation and restructuring stuff, plausible excuse. The market is pricing in a lot of potential bad news. The threat of delisting is just a normal announcement of Bursa, so its not a real threat. Look at the existing PN4/PN17 companies, most are trading higher than RM0.10 and they are in a lot more shit than Talam. These are the facts, make your own assessment. Of course, I could be proven terribly wrong... and end up with just eating kuih talam for a very long time...
Making Sense & Assessing Risk
When things like Talam happens, what do you do? Talam's shares already at a 52 week low of 17 sen, dropped as low as 10 sen today on huge volumes after both Bursa and the company disclosed that Talam has again delayed finalisation of its annual accounts for year ended 31 Jan 2006. Bursa has warned that failure to submit by 31 August will result in suspension and maybe delisting. The knee jerk sellers would theorise that most companies who delay submission are prime candidates for PN4/PN17, or there is a huge writedown, or need to restate losses for previous years, etc...
The company's part of the announcement said:
Talam wishes to inform that it has failed to issue the Talam Group's Annual Audited Accounts for the financial year ended 31 January 2006 ("Audited Accounts") to Bursa Malaysia Securities Berhad ("Bursa Securities") for public release within the stipulated timeframe pursuant to Paragraph 9.23(b) of Bursa Securities LR which was due on 31 May 2006. The delay was due to the following reasons:-
1) The Company is presently experiencing an acute shortage of personnel in the Accounts Department and it has seriously affected the timely finalization of the Audited Accounts of the Company and its Group of Companies. This is further compounded by the fact that certain key personnel are tasked to special assignments in the Group's debt restructuring and the proposed scheme of arrangement pursuant to Section 176 (10) of the Companies Act, 1965 undertaken by Maxisegar Sdn Bhd, a major wholly-owned subsidiary of the Company.
2) The above has invariably delayed the progress of the audit work presently carried out by the external auditors. The completion of the audit is also pending the confirmations and / or certain valuation reports from external parties.
The Company is currently working very closely with the external auditors towards the finalisation of its Audited Accounts and this will be submitted to Bursa Securities and relevant authorities on or before 30 August 2006.Pursuant to Paragraph 9.26(4) of the Bursa Securities LR, if a listed issuer fails to issue the outstanding financial statements within 3 months from the expiry of timeframes stated in Paragraph 9.22 and 9.23 of the Bursa Securities LR ("Relevant Timeframes") ("the last day of the 3 months period shall hereinafter be referred to as "Suspension Deadline"), in addition to any enforcement action that Bursa Securities may take, the Bursa Securities shall suspend trading in the securities of such listed issuer. The suspension shall be effected on the market day following the expiry of the Suspension Deadline.Pursuant to Paragraph 9.26(6) of the Bursa Securities LR, if a listed issuer fails to issue the outstanding financial statements within 6 months from the expiry of the Relevant Timeframes, in addition to any enforcement action that Bursa Securities may take, de-listing procedures shall be commenced against such listed issuer.
Facts
1) The company has a MOU with major financiers to pare down debts by 70% over a 2 year period. Its current debt is RM864.3m. That makes its current gearing at 1.4x, not that exceptionally high that it is unmanageable.
2) Knowing IJM, it would want Talam to clean up its books before doing anything with Talam/K-Euro.
3) It has a good NTA at RM0.89. It will have impairment losses and losses on land disposals, and late delivery charges. Prudent to whack 75% off NTA = RM0.225.
4) Outstanding shares 629.18m. Market cap at RM0.12 means the company is worth just RM75.5m. Even a Main Board shell is worth RM20m.
5) If it fails to submit by National Day, an automatic suspension will be imposed. Talam knows that and acknowledged that, so what gives??
6) The delay has been invoked since end May 2006, so nothing really new here.
Why the sell-off?? The delay has been known for sometime. Not having enough employees is a stupid excuse, should not even put that in. Valuation and restructuring stuff, plausible excuse. The market is pricing in a lot of potential bad news. The threat of delisting is just a normal announcement of Bursa, so its not a real threat. Look at the existing PN4/PN17 companies, most are trading higher than RM0.10 and they are in a lot more shit than Talam. These are the facts, make your own assessment. Of course, I could be proven terribly wrong... and end up with just eating kuih talam for a very long time...
Oil & Gasoline Back To Reality
Oil prices fell over US$1 yesterday after the US government reported a high level of domestic petroleum supplies and tensions eased with Iran over its nuclear program. U.S. light crude for October delivery slid US$1.20 to US$71.90 a barrel on the New York Mercantile Exchange. In its weekly inventory report, the Energy Information Administration said crude stocks fell by 600,000 barrels last week. Analysts were looking for a drop of 1.2 million barrels. Gasoline supplies posted a surprise gain of 400,000 barrels, while distillates, used to make heating oil and diesel fuel, swelled by 2.3 million barrels. Analysts were looking for a 1.9 million barrel drop in gasoline supplies and a 600,000 barrel build in distillates. EIA said stocks of crude, gasoline and distillates were all above average for this time of year.
Analysts had factored in a loss of 200,000 barrels a day from the closure of 200,000 barrels a day from BP's giant Prudhoe Bay oil field in Alaska. BP had originally said 400,000 barrels a day, the entire field's capacity and 8 percent of the country's domestic production, would be shut in for months after severe corrosion was found along sections of pipeline. But the company later said half the field could remain open, easing jittery markets.
Also pushing prices down Wednesday was an apparent cooling of tensions between Iran and the West over the country's nuclear program. The Tehran government offered Monday to resume talks about its nuclear program but gave no public indication on whether it would agree to halt uranium enrichment and reprocessing. It was unclear if the gesture by Iran would avoid United Nations sanctions, threatened if the country doesn't halt uranium enrichment by Aug. 31. Western diplomats are still studying the proposal, but the the fact that it wasn't rejected outright has offered hope of a breakthrough. The threat of sanctions against OPEC-member Iran has rattled traders for months, as the country is the world's fifth largest oil producer and sits astride the narrow Strait of Hormuz, through which 25 percent of the world's oil passes. But the likelihood of sanctions actually passing the security council is far from certain, as veto-wielding China and Russia have been cool to the idea.
There are still some upward pressures such as a continued tight supply and demand situation and other geopolitical standoffs, including trouble in Nigeria. On Wednesday, the president of the Petroleum and Natural Gas Senior Staff Association of Nigeria said oil workers' unions might pull all members from the Niger Delta over safety fears following a spate of abductions by militants and a military crackdown. Over half a million barrels of Nigeria's high quality crude remains shut in as militants from poor but oil producing sections of the country fight for a larger share of the nation's oil wealth.
For equity investors, you do not want oil prices to drop dramatically, it would be much better if prices atyed around the US$70 level for another 3-4 months before easing to US$65. Too sharp a drop will create irrational exuberance - pockets of economy and capital spending will arise and create unecessary inflationary spikes, which will lead to the Fed having to raise rates further. Higher rates is a much more potentially damaging thing than oil prices hitting US$90. The firm oil prices have forced consumers to rein in spending, which is largely responsible for the lower housing stats, which in turn allows Fed to pause the rate hike cycle. The underlying US and global economy strong enough already, plus corporate earnings growth are at a good level. Its a balancing act which is tricky in a bullish market.
Oil prices fell over US$1 yesterday after the US government reported a high level of domestic petroleum supplies and tensions eased with Iran over its nuclear program. U.S. light crude for October delivery slid US$1.20 to US$71.90 a barrel on the New York Mercantile Exchange. In its weekly inventory report, the Energy Information Administration said crude stocks fell by 600,000 barrels last week. Analysts were looking for a drop of 1.2 million barrels. Gasoline supplies posted a surprise gain of 400,000 barrels, while distillates, used to make heating oil and diesel fuel, swelled by 2.3 million barrels. Analysts were looking for a 1.9 million barrel drop in gasoline supplies and a 600,000 barrel build in distillates. EIA said stocks of crude, gasoline and distillates were all above average for this time of year.
Analysts had factored in a loss of 200,000 barrels a day from the closure of 200,000 barrels a day from BP's giant Prudhoe Bay oil field in Alaska. BP had originally said 400,000 barrels a day, the entire field's capacity and 8 percent of the country's domestic production, would be shut in for months after severe corrosion was found along sections of pipeline. But the company later said half the field could remain open, easing jittery markets.
Also pushing prices down Wednesday was an apparent cooling of tensions between Iran and the West over the country's nuclear program. The Tehran government offered Monday to resume talks about its nuclear program but gave no public indication on whether it would agree to halt uranium enrichment and reprocessing. It was unclear if the gesture by Iran would avoid United Nations sanctions, threatened if the country doesn't halt uranium enrichment by Aug. 31. Western diplomats are still studying the proposal, but the the fact that it wasn't rejected outright has offered hope of a breakthrough. The threat of sanctions against OPEC-member Iran has rattled traders for months, as the country is the world's fifth largest oil producer and sits astride the narrow Strait of Hormuz, through which 25 percent of the world's oil passes. But the likelihood of sanctions actually passing the security council is far from certain, as veto-wielding China and Russia have been cool to the idea.
There are still some upward pressures such as a continued tight supply and demand situation and other geopolitical standoffs, including trouble in Nigeria. On Wednesday, the president of the Petroleum and Natural Gas Senior Staff Association of Nigeria said oil workers' unions might pull all members from the Niger Delta over safety fears following a spate of abductions by militants and a military crackdown. Over half a million barrels of Nigeria's high quality crude remains shut in as militants from poor but oil producing sections of the country fight for a larger share of the nation's oil wealth.
For equity investors, you do not want oil prices to drop dramatically, it would be much better if prices atyed around the US$70 level for another 3-4 months before easing to US$65. Too sharp a drop will create irrational exuberance - pockets of economy and capital spending will arise and create unecessary inflationary spikes, which will lead to the Fed having to raise rates further. Higher rates is a much more potentially damaging thing than oil prices hitting US$90. The firm oil prices have forced consumers to rein in spending, which is largely responsible for the lower housing stats, which in turn allows Fed to pause the rate hike cycle. The underlying US and global economy strong enough already, plus corporate earnings growth are at a good level. Its a balancing act which is tricky in a bullish market.
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