Reassessing Talam

Talam was one of my better calls in 2006. Below was the posting made almost a year ago on 24 August 2006 when the share price went to 10 sen:

Desperately Seeking Talam
Making Sense & Assessing Risk

August 24, 2006 - 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...

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...

Recent News:
April 11, 2007 - Talam sold 25.1 acres of land in Bukit Beruntung to Tesco Stores (Malaysia) Sdn Bhd for RM18,587,052 (US$5.4 million). The net proceeds from the sale will be utilised to pare the group's borrowing and sales related expenses. The sale will reduce Talam's gearing and enhance the development in this location.

March 28, 2007 - The long-delayed RM3.12 billion west coast highway project linking Banting in Selangor to Taiping in Perak will resume and the work will be given to the original contractors, Datuk Seri Najib Tun Razak said today. The deputy prime minister told reporters that the decision to resume the project covering 215.8km was made at today's Cabinet meeting.
The project, mooted 11 years ago, was put on hold due to the 1997 Asian financial crisis. Concessionaires for the project, touted to be the alternative to the North-South Expressway, include Talam Corporation Bhd and Kumpulan Europlus Bhd. In November 2006, Works Minister Datuk Seri S. Samy Vellu said that the Economic Planning Unit (EPU) would re-submit a working paper on the project to the Cabinet.

Things got really interesting yesterday with the news that KEuro may sell its stake in Talam.

August 7, 2007 - In an announcement yesterday to Bursa Malaysia that departs from the norm, K Euro's directors highlighted several observations. The directors pointed out that the two companies – Selasih Jauhari Sdn Bhd and Desiran Johan Sdn Bhd – were private limited companies with paid-up capital of RM2 each, and that they were in no position to ascertain their credibility. It was further highlighted that the K Euro board was not certain the option agreement would be successfully implemented because “there are numerous conditions precedent to be fulfilled”.
The two private companies represented to K Euro were in a position to offer a scheme to enhance the value of the assets of Talam Corp Bhd, an associated company of K Euro. They also said the scheme could enable Talam to generate cash to reduce its borrowings. Should the proposed scheme be unable to meet what the two companies have represented, the boards of Talam and K Euro would not accept it, and the option agreement would lapse. K Euro's board also highlighted that the purpose of the option agreement was to enable the two private companies to submit their proposed scheme to the boards of K Euro and Talam for consideration. In the announcement, K Euro said the option agreement was for Selasih Jauhari and Desiran Johan to acquire a 25% stake in Talam, amounting to 157 million shares, at an exercise price of 30 sen a share.
Presently, K Euro holds 42.94% of Talam, and upon an exercise of the call option, Selasih Jauhari and Desiran Johan would have a 17.94% stake in Talam. The scheme proposed by the two private companies would not increase the borrowings of Talam. Further, the option price was fixed at 30 sen a share but they represented to K Euro that there would not be a reduction in the value it held in Talam, being RM141.4mil, or 51 sen a share, in book value. The granting of the call option is conditional on several approvals, including agreement from the board of K Euro, and the board and shareholders of Talam for the proposed scheme. K Euro said it would now concentrate on its two principal projects: the West Coast Expressway and Canal City.
Sources said while it was announced in June that IJM Corp Bhd would proceed to acquire a 25% stake in K Euro for RM33.1mil cash, or 28 sen a share, the exercise was not completed and as such, IJM was still not represented on the K Euro board. The conditional agreement with Selasih Jauhari and Desiran Johan was, therefore, a decision made by K Euro's existing board.
There might be a desire to enhance the value of Talam, especially since K Euro's stake in it would eventually be diluted anyway, when the convertible instruments in Talam are issued and converted into shares by its creditor banks.
The sources believe the two private companies' proposed scheme might involve an injection of some assets that have yet to be disclosed. They also believe that although the private companies have paid-up capital of just RM2, they are owned by a businessman of means whose identity had remained undisclosed.

My Two Sen:
- Things were going along hummingly for IJM when they went through with the injection of IJM property division into RB Land. Everything seems to be OK with KEuro as well and Talam was supposed to be next on IJM's plate. KEuro and Talam were operating AS IF they were under the IJM umbrella already. For example: Talam appointed IJM as the contractor /jv partner to resume its various stalled developments such as Taman Puncak Jalil, Putra Perdana, Kinrara Section 3, Bukit Beruntung, Lagoon Perdana, Sierra Selayang and Ukay Land. All that activity has been happening since late last year.
- IJM will almost control Talam anyway through its probable acquisition of KEuro as the latter controls 43.1% of Talam.
- Thanks to a stronger property market, Talam should be able to dispose off its hotel, shopping mall investments and hospital for RM200m-RM250m.
- Talam's NTA per share is at 52 sen (revised from 89 sen last year).
- Major land assets: 400 acres Bukit Sentosa 3 valued at RM258m; 260 acres Puncak Jalil valued at RM159m; 1,284 acres at Batang Berjuntai valued at RM146m; 2.16 acres at Larkin Centre, Johor Bahru valued at RM37m; 67 acres at Bukit Sentosa 1 valued at RM38m; 58 acres at Bukit Sentosa 2 valued at RM33m; 340 acres at Tanjung 12 valued at RM43m; 50 acres at Danau Putra valued at RM51m; 401 acres at Ulu Yam valued at RM25m; 120 acres at Saujana Putra valued at RM58m; the killer asset is 2,500 acres at Bukit Beruntung valued at RM624m; 40 acres at Ukay Land valued at RM45m; 90 acres at Sierra Ukay valued at RM27m; 10 acres at Kinrara 3 valued atRM39m; 80 acres at Lestari Puchong valued at RM109m; 1.5 acres Yin Hai Complex, Jilin, China valued at RM56m; Marcourt Hotel, Jilin, China valued at RM123m; Menara Maxisegar valued at RM58m; Pandan Indah Medical Centre valued at RM40m; etc.
- IJM probably was not going to buyout Talam as by virtue of buying KEuro, it also controls Talam and will get the benefits of the development works under Talam. However, with the presence of the new potential buyers, IJM may be forced into making a bid to control Talam.
- While Talam has its debts to work out, it has a good extensive landbank. Those assets probably rose in attractive ness over the last couple of years from being unwanted to "hey, looks kinda interesting now". The killer asset is Bukit Beruntung, whoever wants to be a player for the next 10-20 years will need this vehicle. The race course will be shifting from Sg Besi to near Bukit Beruntung sometime the next few years, could be interesting for a long term player.
- Methinks IJM will come in aggressively to control Talam, after all save yourself a lot of time to accumulate the assets under Talam. In order to propel RB Land /IJM Property to be a major player, NOT controlling Talam seems to be a bit silly. This is quicken IJM's resolve to control KEuro asap so that they do not sell their 43% stake in Talam. If IJM is going to control KEuro, it will not cost them much to also control and clean up Talam - this strategy could be to force IJM to quicken its acquisition of KEuro and stop them demanding so much from the jvs and contracts under Talam, and take Talam private.
- The danger is in the 2 companies submitting the proposal to KEuro. Esp RM2 companies, man, you know these RM2 companies will be very influential vehicles. Maybe I should use my RM2 and also submit a proposal to KEuro.
- Any way you cut it, Talam is in play and players will be looking hard at Talam's landbank, not many like them around despite's Talam's debt crisis. If IJM loses indirect control of Talam, it may lose out on the development contracts and jv opportunities. An aggressive bidding war could send the share price closer to 60 sen. More upside for Talam surely.

Public Service Announcement

A couple of weeks ago I had a fever for a few days, then rashes appeared, yup it was dengue. Never thought I would get dengue, after all they do fog my area once a week and the place is very clean. Sigh!

Deaths from dengue fever in Malaysia have risen by a third so far this year and health authorities said recently that the worst is yet to come. The mosquito-borne virus has killed hundreds in Southeast Asia this year, prompting the World Health Organisation to warn that the Western Pacific region could be at risk from a major dengue outbreak. Malaysia recorded 30,285 dengue cases so far this year with 65 deaths, up from 20,258 cases and 49 deaths in the first seven months of 2006, said Hasan Abdul Rahman, director of the Health Ministry's Diseases Control Division.

You can ask your doctor till the cows come home and they will tell you that there is no cure. Plus as western educated medical doctors, they cannot bring themselves to tell you the alternative cures. Not that I am forcing them to say anything but I am sure they have heard of traditional remedies, but they will still not tell me anything except check into the hospital and drink 100 Plus. Now I was left with the situation of leaving things as it is and go over my will, or ask around. It was a good survey, what was surprising was that there were the same 3 remedies from asking about 20 friends and contacts.

Now, I am not saying that these are indeed cures but hey, they won't kill you. Do you just want to check into hospital (you should if your platelet count dips below 100) or try something that won't kill you. The few doctors / nurses and even the Health Ministry lady said to go to hospital and get a drip and drink lots of water esp 100 Plus. That's the funny thing, all the western medicine staffers recommend 100 Plus (an isotonic drink). Now that's great marketing information - somebody should try and buy out the drinks manufacturer cause I can see their popularity growing strongly forever.

I took the 3 options for 2-3 days and the rashes were gone by the second day. The fastest working remedy was the soup, I felt "recovery" almost immediately. So, here's the public service announcement about the remedies:

1) Papaya Leaves - Put the 4-6 papaya leaves into a blender plus half a cup of water. You won't be able to blend the fibrous leaves totally, so just filter it and drink a couple of table spoons twice a day. Tastes very bitter but not that bad actually.

2) Replenishing Liquids - Blend bitter gourd, green apples, starfruit with a dollop of honey. Make a liter a day and keep it cold as the concoction will turn brown after a day. Drink throughout the day - it actually tastes very nice. I think Jusco prepares the same fresh juice mix for sale. Naturally also drink lots of water and 100 Plus in between.

3) Bitter Gourd & Frog Soup - To me, this had the greatest immediate relief. Cut up one bitter gourd and boil with three whole frogs (getting fresh frogs from the markets was the difficult thing and get them to de-skin for you). Use 8 bowls of water and boil till you get 3 bowls over low heat half-opened top, season with salt. It actually tastes pretty good and the frog tasted well. Do that once a day. Eat some of the bitter gourd as well.

Most of the remedies are based on the concept of heatiness, which western medicine cannot and do not accept as a valid condition. Like I say, these remedies will not kill you and the fact that friends who have had dengue also gave similar remedies (esp the soup) lends credence to the remedies.

Hey, you are supposed to have a no cure sickness, why not try a no-side-effects remedy!? Of course, you should do that and check into the hospital at the same time as they need to do a blood count thingee regularly to see if the count is dropping. If it drops to a precarious level they may have to resort to some blood transfusion - so its not a small matter. With or without the remedies, one MUST take a blood test every day to check the count. If its dropping, its not good.

However, thankfully my count recovered immediately following taking the remedies and continued to improve quickly. Yes, I may have had a mild one and might have been improving on my own anyway - but the soup really made me feel much better almost immediately, can sleep soundly even.

Cut To The Chase

The Great Game said...
Hi Dali, Have been a silent reader of your blog for some time, and I found it to be highly educational for a novice like me. Just to share my 2 cents on this subprime crisis. Although subprime only constitutes a relative small % of total mortgage market, the rippling effect to other credit markets (or the investor confidence in strucutred finance), e.g. the leveraged loans is unquantifiable, & has been grossly underestimated by many. The financial institutions are trading at such low multiples mainly due to the huge leveraged loan (those funky 'covenant-lite' notes) that they warehoused for the buyout house especially for the notoriouly tough negotiator like KKR.

In particular, I think Bear Stearns and Lehman would be hit the worst, given their lack of balance sheet strength and hence high % of leveraged loan to market cap, vs the like of Citi & JP Morgan. If the credit market deteriorates, some of the early LBO transaction commensurated might even folded. Let alone the constraints on capex spending (which further impending growth), massive layoff to meet the rising interest cost might even be plausible. Thus, the current healthy corporate performance is not going to last for too long (even less than 24 months). This might transpire to be even worse than the collapse of the junk bond market in the 80s.

In the worst case scenario, the liquidity would soon be drying up due to the self-perpetatuing investor confidence crisis when every hedge fund is being forced sale to meet the margin call, which results in further decline in asset value and further forced sale. Coupled with the intrisicaly linked global financial market (mainly via CDS) we have today , the result would be truly disatrous.

What I have found interesting is that nobody has highlighted the conflicting role of the rating agencies (the big 3, S&P, Moody and Fitch) play in this crisis. Being highly profitable, structured finance (both advising and evaluating) has been a bonanza for them in the past few years.

Dali: great game,

thats one of the best postings fm a reader... thanks ... you made a few great points which I wish to elaborate here ...u r right in that Bear Stearns and Lehman might be in deeper waters, that's the consequences of being in the second tier in investment banking rankings... the top ones such as Goldman, Citigroup, Merrill, JP are more well diversified, more international in their revenue base, and may not have a similar proportion of exposure to CDOs...the second tier houses, to boost revenues may have to be more aggressive in CDOs as they cannot match the top tier in IPOs and top tier advisory work in LBOs, private equity, restructurings etc...

the other point to make is that many investment banks do not have a big exposure to CDOs because these have been packaged and sold to funds and other institutions ... unlike LTCM debacle where the big houses are left holding the bag, hence the "rescue", the fat pigs do sleep with the fat cats...
where these CDOs end up is what's critical here .. a lot went to hedge funds and private institutions and/ or corporate funds vehicles... some asian banks are hit as well esp if they have US bases such as HSBC, but they have come clean fast and cleared the rubble before anyone could say "hey, what was that" (10/10 for managing a potential disaster) ... DBS was also hit a bit bad comparatively for an asian bank ... due to the "slowness to expand internationally" Malaysian banks are safe ... hence if the losses are largely in "private vehicles", the danger is not as severe, a few hedge funds folding will result in some rich people or endowment fund losing a few hundred millions here and there ... its a bitch but not exasperatingly so

there is a buy-sell betting options on the likelihood of the Fed dropping rates by at least 25 basis points tonight.... two weeks back the contract was trading at 30%-40% likelihood, as of yesterday I saw the contract in the 90% likelihood levels..

Favourite Coffee Shop In KL

I can only put that headline cause I am from Ipoh and there are better ones in Penang, Ipoh, Teluk Anson, Taiping, Kluang etc... but from KL, this place takes the prize by a proverbial mile. Since the market is so volatile and I have said what's needed to be said on the markets, ... let's look at something really important like good food. There has been a plethora of kopi tiams sprouting all over the country cause (retro is back) and the basic menu is not difficult to replicate... but as any foodie will tell you, the really good ones stand out quite easily. You just know it!

My favourite place is Kopi Time located at Wisma Atria PJ. If you need instructions, don't bother going there. A good kopi tiam will have good coffee/tea and a variety of good eats. This one is halal. Let's be honest here, the coffee here is good but not spectacular, we all can find many better places for local coffee, esp in the other places mentioned outside of KL - that's the downside, but the coffee and tea are still decent enough and better than a lot of places in KL. I go there for the food. Below are the MUST-HAVES:

1) There is roti bakar with kaya, and then there is Roti Bakar Special at Kopi Time. Everything's the same except the butter is about the thickness of three Kraft cheese slices - the way older Hainanese coffee shops used to make them. Its a bit decadent and you cannot have it this way everyday, but once a week is OK, I guess. This is really good even though I can find better kaya in Ipoh.

2) Kopi tiam food is nostalgic food. The most nostalgic is the half boiled eggs (but you can also have the Omega eggs, which is a plus). Now everyone can do them but here's the killer blow - its the bottle of soya sauce. To really get the nostalgia back, you need the soya sauce to be at a certain "wateriness" consistency, not thick at all. They have the right sauce here.

3) The nasi lemak is also very good, great sambal. But that's not what I would usually order. The piece `de resistance is the fourth item.

4) Its the Chee Cheong Fun! Being from Ipoh, nobody can claim better chee cheong fun. While Kopi Time's chee cheong fun is not as smooth, it is still very good, a more than acceptable second best for not being able to drive to Ipoh. But what sets the dish apart is the curry sauce, its thicker than normal, flavours bursting with each gulp, good enough to drink on its own - seriously! The hint of a really good cook, they will spinkle generously the fried shallots and spring onions - a very potent dish.

Their other dishes are also quite good and worth a try as well. See you there! Opens 7am-10pm daily. p/s just for the heck of it, try their barley drink (hot), its the thickest barley drink ever, close to the consistency of a good porridge (but in a good way), can almost stand a straw up on its own, and its very tasty as well

Sidetracked

I came across the following line sometime back. I have tweaked it slightly. Maybe we all can reflect on what kind of person we are & our friends/lovers too:

I've learned that you can tell a lot about a person by the way he/she handles/treats the following:

a rainy day

the elderly

lost luggage

service staff / the maid

Why Markets Will Recover Quickly

No one wil argue if you say that global liquidity is more than ample. The current jitters are not new and readers can peruse my previous postings to get further elaboration. My main argument is just to highlight 3 huge financial stocks in the US. Bank of America closed at 47.00, Citigroup at 45.80 and Wachovia at 44.94. At those prices, the dividend yield for Bank of America stands at 4.77%. Citigroup's dividend yield comes in at 4.9% while Wachovia's at the same dividend yield as well. No matter how you cut it, these are enticing dividend yields for any cash holder in US dollars. Considering the US Treasuries are yielding 5%, but you still have to ay federal levy of 35%: hence these stock dividend yields are highly attractive.

The subprime worries has weighed down financials for the past few weeks. The current weakened share prices translates to just 10x of previous year's earnings for the 3 stocks! Hence the financials will be very attractive once the jitters evaporate. Even now, they are highly attractive but no man dare bargain hunt aggressivey during such uncertainty. However, the evidence shows that the rebound will be substantial once it happens. We have to consider also that most other sectors are unaffected by the subprime worries.

This weakened state is largely contained in certain pockets in the US. The rest of the world will just have to wait it out. The longer US dawdles, the greater the likelihood of markets decoupling from the US.

Do I think this indicates that the worst is over? I shall answer this question with two rhetorical questions.

Do taxi drivers pick their noses at traffic lights?

Does Dolly Parton sleeps on her back?

What An AD By Petronas

We all love the festivity ads and commercials by Petronas - they are always hearfelt, nostalgic and meaningful ... remembering better times and sees the goodness in Malaysians ... that the more different we are, the more things we have in common. Well, when you have Yasmin Ahmad's sensitivity and creative brilliance, its a potent mix.

But have you seen the new Merdeka ad??? OMG, what a daring one! It shows a guy being asked to build a sampan to pay off his debt ... in the end the creditor friend gave the boat to him as a gift which will allow him to be independent and make a decent living. The new boat sank, and the tag lin at the end was in Malay but its resounding, loosely translated: Are what we putting in now able to carry us to the future, what our future will be depends on what we put in now.

Now, I don't know about you but its amazing that this was passed by the Ministry of Information. Yes, the ad was meant for all Malaysians, but one could not help but think of our government. Its very daring, its very timely ... just for that I will try to pump at Petronas as much as I can.

The nuances within the commercial is what makes it special and daring. The guy who owes money said he didn't have money to buy resources to build the sampan. The creditor friend said its OK, he can use the resources and wood available at his house to build the sampan. The symbolism, the symbolism.

Catch the ad if you can cause I believe it could be pulled off the air soon. Some bigwigs are bound to be sitting in their living room thnking, "Hey, its about .... ".