What do I know about blogging? Pass me a postage stamp someone and I will write it all down on the back of it and have room to spare.
Business Travel? Well that is a different matter.
At least I hope so as I have been devoted to that particular industry in one shape or form for over forty years. During that time I have worked for airlines and agencies starting in the filing unit and ending up as Managing Director for HRG UK, the country's biggest travel management company.
So did I learn anything during that time and is it still worth passing on? Do I have any stories that are funny, absurd or maybe even educational. Am I a bitter and twisted old git?! Well dear reader (if you are out there) you will shortly find out as my objectives for setting up this site are:
To comment on issues of the day.
To speak out in a way that was constrained in the past when I had shareholders to consider.
To tell some travel life stories that are in part informative, hopefully amusing and almost entirely true.
To try and answer any reasonable questions where I think I can inform and add value.
So lets see how I get on. I am my worst critic so if I fail I will disapear as quickly back into the ether as I emerged out of it.
Genting Singapore Over-owned Stock
Well I think investors should only be holding Genting Singapore right up before it opens. Now it is tumbling hard and fast to find its true fair value.
Singapore's future over the next five to 10 years is an "optimistic" one, said Minister Mentor Lee Kuan Yew, and the tourism sector will reflect that. Mr Lee said the two integrated resorts (IRs) have hired about 16,000 Singaporean workers, and tourist arrivals will shoot up. With a laugh, Mr Lee said: "They want to gamble. I don't understand why they want to lose. You surely will not win."
In reference to Resorts World Sentosa, which opened its casino on Sunday, Mr Lee said "the boss counted S$3.5 million" on the first day and S$3.7 million on the second day. Those are basically "gross gains" to the casino before taking off expenses. Those are decent figures but bear in mind these are euphoric days which will probably not be repeated. A better guide would be to take a 50% discount on that, I mean not everyday is a holiday and not everyday is the grand opening and most days people need to work at their day jobs. S$1.8 x 365 = S$657m, not bad but you also need to whack off expenses = a good figure but not enough to support the lofty share price above S$1.00. Most houses had estimated revenues of at least S$1.2bn-S$1.8bn. Even when you add in hotels and theme parks, its going to be a stretch.
Amidst concern over visitors, Genting Singapore Plc., owner of Singapore’s first casino, fell for the fourth day. At close, the stock lost 1.1% to 94 Singapore cents. It was down by 11% since Resorts World Sentosa opened its gambling facility on February 14.
The stock continued to be sold down and slid to a near six month. It is now down 28 per cent from a record high of $1.30 it hit on Dec 31. The counter has been traded heavily since its casino opened over the Chinese New Year holiday period, with 366 million shares changing hands on Friday following 369 million done on Thursday. This is more than triple the average daily volume of 105 million shares of Genting traded over the past six months. This shows that many big institutional funds are squaring off their positions. Its an over-owned stock. What that means is that those who really wanted to buy, would have owned the stock by now. Most were waiting for the euphoria hoping it would send the share price above S$1.50 and selling into the wave. Well the wave did not come, the buying dried up, its a one way trend now.
Genting Singapore has the worst performance on the benchmark Straits Times Index, as it has drooping 28%, this year, which has retreated 4.9%. Robin Goh, a Resorts World spokesman told that the casino, an S$6.6 billion venture, had 60,000 patrons in the first three days.
Resorts World said that is expecting to open the Theme Park in early March. According to the company website, four of the hotels have been released last month and two more have been scheduled to open after 2010.
According to Bloomberg consensus, Resort World Sentosa will be the world’s most profitable casino by 2011, implying Singapore will be generating twice the revenues of Malaysia.
Yes, Malaysian will visit the two casinos in Singapore maybe once every two years, but that will be it. Resorts World Malaysia still has its market day trippers (72% of visitors) to remain loyal. Resorts World Sentosa’s hotel rates are 7 times those of Genting Highlands. A trip to Singapore or Sentosa nowadays is as expensive as a trip to Australia or Japan to Malaysians. Go figure. I think Genting Singapore will find a base around S$0.85.
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.
SGX To Trade New Fuel Oil Contract - Wake Up Bursa!
With Singapore's status as the world's largest bunkering port and the world's third largest oil trading hub, SGX said the new contract will further enhance the country's attraction as an international oil pricing centre. The contract is based on the Residual Marine Grade 380 ISO 8217, primarily bunker fuel oil supplied to ships. Physical delivery will be through free-on-board or inter-tank transfer at exchange-designated Singapore oil installations. The minimum trading contract size is 100 metric tonnes per lot and the minimum deliverable size will be 2,000 metric tonnes or 20 lots. 
Market-makers and liquidity providers will be available for this contract, SGX says.
According to Lam Yi Young, chief executive of the Maritime and Port of Authority of Singapore (MPA), the new contract is expected to attract demand from local and international participants. "SGX's fuel oil futures contract will encourage greater participation in Singapore's marine fuel market both from local and international shipping and bunkering communities," he says.
The Simex contract was for fuel oil with a viscosity of 180 centistokes, widely considered the global benchmark.However, the two previous offerings failed to take off. The Simex contract was later withdrawn; CME Group still lists its fuel oil contract though volumes have failed to ignite.
So despite Singapore being home to the world’s busiest port in terms of shipping tonnage, what went wrong? Elena Sing, SGX’s head of commodities, says it is simply a matter of timing. She told Futures and Options World inthat market participants had approached the exchange asking for the contract, especially firms that could not access the over-the-counter market.
“The Simex contract was in existence nearly 20 years ago,” Sing says. “Back then there was limited storage space, whereas now Singapore has extensive storage capacity. There are also a far greater number of market participants.”
Sing concludes: “The market is ready for this new futures contract.”
SGX’s optimism is shared by others in Singapore. Chong Lit Cheong, chief executive of International Enterprise Singapore, says: “Singapore has been one of the leading physical commodities trading hubs in Asia Pacific, in particular for the oil trading sector. The launch of SGX’s FO 380 contract will undoubtedly further strengthen our value proposition to the global oil trading community.”
The regional head of commodities at a futures commission merchant in Singapore says: “We’ve had quite a lot of interest from our customers. Those clients are mostly already active in the oil market, rather than the hedge funds.”
However, success for the contract is far from guaranteed, say industry insiders. The 180 centistoke standard, rather than 380, is the global benchmark, and that although Singapore is a hub for oil trading, much of that trading is entrenched in New York, particularly the Platts-linked OTC contract.
The settlement process is extremely complicated. SGX says it will match buyers and sellers by volume, before loadings are fixed. For unmatched volumes, parties will settle their trades against the monthly closing price for the contract.
With firms like Shell, BP and Singapore Petroleum Co, as well as traders Vitol, Glencore, Chemoil, Hin Leong, PetroChina, shipper Maersk and bunker supplier Equatorial Marine all involved in forming the contract, such large players may provide the liquidity so sought after by non-physical players in the oil market.
The contract will have two daily trading sessions: 9am to 7pm and 8pm to 10.55pm. The 7pm closing price will be the price for the day’s settlement. The monthly settlement is the average settlement price for the last five days of the month.
Comments: Despite two false starts, SGX kept at it and by bringing in the major players as "consultants" in setting up the contract, it should have a better chance at success. This brings us back to Bursa, where foreign funds have been staying away for the past 16 months. The palm oil futures USD contract has not yet borne fruit. Could we be in danger of losing the palm oil futures stranglehold soon?
Sometimes, just because something is chugging along does not mean we can do nothing. We need to enlarge the pool of palm oil traders and lure more and more big companies to trade the existing RM or USD contracts. Only by being bigger will the contract stay put. If we do nothing, I am very sure SGX will try to launch a USD palm oil contract in the near future.
After selling 25% of our derivatives unit to CME Group, we have yet to see tangible benefits!!??
Yes, we can sit and say that KL is not a financial center and will face a lot of obstacles. We need to be proactive. We should nurture our niche markets, be it in Islamic finance or palm oil, or even rubber and tin. We do not seem to have a roadmap or a cohesive strategy. We do not seem to have a bigger picture appreciation of the evolving needs and demands on these so called "home advantage" products. As in many things in Malaysia, we do not have a proactive mindset, we have a poor strategic mindset about most things, we have a high propensity to churn out brilliant power points but that is usually not complemented by a similar record in proper execution, and we usually do not spend enough time on details and crossing the T's and inking the dots.
p/s photos: Sandra Dewi
Fed Raises Discount Rate
WASHINGTON (MarketWatch) -- The Federal Reserve announced late Thursday that it was raising its discount rate in order to push banks to borrow from the private market for short-term credit. In a statement, the Fed said it would raise its discount, or primary credit rate, to 0.75% from 0.50% effective on Friday. Fed chairman Ben Bernanke signaled last week that the Fed was mulling the move. Fed watchers had expected the move to come at the next Fed meeting in March. Today's action shows a sense of urgency on the part of the Fed officials. The Fed said the move is intended to "normalize" their operations as the financial crisis winds down. The change is not a tightening and does not signal any change in monetary policy, the Fed said.
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Fed Funds Rate Versus Discount Rate - the federal funds rate is the interest rate at which private depository institutions (mostly banks) lend balances (Federal funds) at the Federal Reserve to other depository institutions, usually overnight. It is the interest rate banks charge each other for loans.
Another way banks can borrow funds to keep up their required reserves is by taking a loan from the Federal Reserve itself at the discount window. These loans are subject to audit by the Fed, and the discount rate is usually higher than the federal funds rate. Confusion between these two kinds of loans often leads to confusion between the federal funds rate and the discount rate. Another difference is that while the Fed cannot set an exact federal funds rate, it can set a specific discount rate.
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That said, the discount rate will effectively move the fed funds rate in the same direction. This move by the Fed was predicted back in January, and as argued, this is a bullish sign rather than a negative one.
This is my prediction for Bernanke. He will raise fed funds rate very very soon. Just because of that, it does not mean that it will be bad for equity markets.
But lets go back to why it will happen very soon (by February I think). Most developed nations' central banks have been reluctant to move the low interest rates regime up because the Main Street has been showing nascent growth. What Bernanke wants to see are corporate spending on R&D and hiring - both not really evident yet. Despite the tons of liquidity being poured into markets, many banks are just sitting by idling.
The Fed has had to maintain a low fed funds rate for obvious reasons, but look at the chart, banks are earning very decent net interest margins by lending to the system, and not to clients. High ranking officials have been calling the banks to lend more aggressively, but that does not seem to be working.
Bernanke's hands are being tied a lot more now that many of the banks which received funds from the government are returning it - that means the government will have a lot less leverage to "move the banks" toward certain persuasions.
It looks like Bernanke will have little choice but to close the gap and raise fed funds rate. When net interest margins start to shrink, then the banks will have to put the money to work. The summary from all this deduction is that don't be worried when Bernanke raises fed funds rate, in fact it is a new bullish sign.
p/s photo: Erika Sawajiri
--------------------
Fed Funds Rate Versus Discount Rate - the federal funds rate is the interest rate at which private depository institutions (mostly banks) lend balances (Federal funds) at the Federal Reserve to other depository institutions, usually overnight. It is the interest rate banks charge each other for loans.
The interest rate that the borrowing bank pays to the lending bank to borrow the funds is negotiated between the two banks, and the weighted average of this rate across all such transactions is the federal funds effective rate.
The federal funds target rate is determined by a meeting of the members of the FOMC which normally occurs eight times a year about seven weeks apart.Another way banks can borrow funds to keep up their required reserves is by taking a loan from the Federal Reserve itself at the discount window. These loans are subject to audit by the Fed, and the discount rate is usually higher than the federal funds rate. Confusion between these two kinds of loans often leads to confusion between the federal funds rate and the discount rate. Another difference is that while the Fed cannot set an exact federal funds rate, it can set a specific discount rate.
------------------------------
That said, the discount rate will effectively move the fed funds rate in the same direction. This move by the Fed was predicted back in January, and as argued, this is a bullish sign rather than a negative one.
Wednesday, January 20, 2010
Bernanke's Likely Weapon Of Choice
This is my prediction for Bernanke. He will raise fed funds rate very very soon. Just because of that, it does not mean that it will be bad for equity markets.
But lets go back to why it will happen very soon (by February I think). Most developed nations' central banks have been reluctant to move the low interest rates regime up because the Main Street has been showing nascent growth. What Bernanke wants to see are corporate spending on R&D and hiring - both not really evident yet. Despite the tons of liquidity being poured into markets, many banks are just sitting by idling.
The Fed has had to maintain a low fed funds rate for obvious reasons, but look at the chart, banks are earning very decent net interest margins by lending to the system, and not to clients. High ranking officials have been calling the banks to lend more aggressively, but that does not seem to be working.
Bernanke's hands are being tied a lot more now that many of the banks which received funds from the government are returning it - that means the government will have a lot less leverage to "move the banks" toward certain persuasions.
It looks like Bernanke will have little choice but to close the gap and raise fed funds rate. When net interest margins start to shrink, then the banks will have to put the money to work. The summary from all this deduction is that don't be worried when Bernanke raises fed funds rate, in fact it is a new bullish sign.
p/s photo: Erika Sawajiri
Why I Like ETITECH
Usually the ones I like won't be right at the top of the volume list, so this is a first. Eti Tech Corporation is a battery management systems company that is involved in the research and development, design and marketing of battery management systems for rechargeable energy storage solutions using polymer lithium-ion based energy cells for electronic applications. Its products include nano mobile charger, green genset and portable power pack for notebook personnel computer. The company primarily operates in Malaysia, where it is headquartered in Kulim.
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ETI has mapped out its development plans to move from the lowpower storage solutions towards medium- and high-power storage applications. Recognising the growing demand for EV amid global concerns for greenhouse gas emissions, ETI is currently developing Lithium-ion Polymer (LiPo) based automotive batteries for electric scooters and EV. Even our beloved Proton is building an electric vehicle soon. ETI is actually in a strong position to provide the battery solution.
In the other segment, ETI is capitalising on the replacement market for lead acid batteries and small diesel generators in various retail, commercial and industrial applications e.g. in the telecommunications, leisure and catering industries which may depend on mobility or locations where there is no ready supply of electricity. The recent launch of “Green Genset” to replace diesel generators such as those used by the food catering industry, is only an early indicator of the company’s growth plans.
Catalyst #1: It is already more than just a R&D outfit as they have been profitable for 3 years already, and earnings will jump significantly in 2010 owing to a good market acceptance of their products, thus providing an enlarged earnings platform. FY10-11 earnings are slated to grow 75% and 48% p.a. respectively driven by: 1) contribution from higher-margin medium-power battery systems; and 2) stronger demand for its low-medium battery system due to the launch of new ‘Green Genset’.
Catalyst #2: ETI has entered into an MOU with ZAP to develop and incorporate its LiPo (lithium polymer) batteries for ZAP’s full range of electric scooters (Zappy, Zapino and ATV). ZAP plans to replace its electric scooter’s lead acid battery with LiPo batteries as Lithium powered scooters have been proven to achieve higher driving range/charge as well as higher speed (vis-à-vis lead acid battery technology). ZAP is a pioneer in electric transportation since 1994, and it manufactures and sells electric cars, scooters, bicycles and other vehicles to 75 countries.
Catalyst #3: Distribution, Design & Assembly - Under the MoU, ZAP will award ETI the rights to design and assemble its electric scooter/EV for Malaysia and the Middle East market. ETI would need to identify and appoint a local motorcycle assembler (i.e. Modenas, Naza and Honda) for the design and manufacturing of the electric scooter. ZAP aims to assemble its electric scooter/EV (powered by LiPo batteries) given the China’s quality and reliability issues. Note that
currently, ZAP’s electric scooters/EVs are assembled in US, Uruguay and China. This development would raise ETI’s profile in the EV (electric vehicle) battery market and thus enable it to penetrate into more lucrative EV markets going forward.
Catalyst #4: Strategic Shareholder, Niche Player & Patented - ETI’s venture into EV battery system has attracted investments from the Al-Yousuf group (which holds a 15% stake in ETI itself), given the potential synergistic benefits for its investment in electric car manufacturer, ZAP. A pioneer in electric transportation since 1994, ZAP manufactures and sells electric cars, scooters, bicycles and other vehicles to 75 countries.
Apart from ETI, there are only a handful of EV battery system players in the world i.e. BYD (China), Ener1 and A123 Systems (US), as well as NEC, Sanyo and LG (Japan and Korea), although auto companies like Toyota, Honda, Nissan and General Motors are aggressively trying to develop their own mass-market EV models. In mid-20008, ETI filed patent applications in Malaysia for the EV Battery including the industrial design and software-driven cell balancing system and method (i.e. the BMS).
Right Management - KK Lee is managing director and the major shareholder. ETI’s technical division is led by executive director and chief technology officer, YK Khor, who has worked for Rolls Royce plc developing military aircraft and Formula 1 racing car parts, as well as chief engineer of National Semiconductor (M), engineering group head for Sony Corporation (M) and engineering director of Flextronics Technology (M). He manages a team of 14 engineers from various multinational companies including Sony, Nortel, Motorola and Intel.
Catalyst #5: Strong financial metrics. The following are the strong metrics for 2007,2008, 2009 and 2010 (estimate) -
Gross margin (%) 31.4 / 32.7 / 38.2 / 43.7
EBITDA margin (%) 27.3 / 28.6 / 34.7 / 40.4
Net profit (RM million) 20.1 / 21.7 / 39.2 / 58.0
Major Shareholders: (%)
Lee Kah Kheng 17.2
Dennis Chuah 15.8
Al Yousuf LLC 15.0
Emirates Investment & Development Co 6.55
Chng Kong San 5.8
Following its attractive 2 for 1 bonus in October last year, the share price went on a sharp correction from 84 sen to nearly 40 sen. That could largely be due to over-exuberance buying prior to the bonus and possibly coincided with a sell down by Emirates Investment & Development which used to hold a lot more than just 6.5%. That out of the way, I see ETI regaining their lost ground in the coming weeks.
Catalyst #6: Potential New Market Leader - The New Economic Model will likely also be the over-arching theme for the Tenth Malaysia Plan (10MP) to be launched in June 2010. The New Economic Model is “aimed at shifting onto a high growth path and high income economy, driven by creativity, innovation and high value-add services”. We believe the plans include: 1) Value-added manufacturing; 2) Higher value services; 3) Renewable energy. The concepts will be more attractive to smaller listed companies as the net effect on them will be greater. Safe to say that ETI will be one of the main beneficiaries, and judging from their volume breakout, ETI could very well be the new market volume leader if a rally based on the New Economic Model comes into fruition.
The risks to ETI is that many of their ventures are still in the early stages, which can go nowhere or elevate their earnings platform positively. That is part and parcel of investing in small caps, but it looks good considering its debt free, profitable and with numerous catalysts in the pipeline.
p/s photos: Ririn Dwi Aryanti
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.
ETI has mapped out its development plans to move from the lowpower storage solutions towards medium- and high-power storage applications. Recognising the growing demand for EV amid global concerns for greenhouse gas emissions, ETI is currently developing Lithium-ion Polymer (LiPo) based automotive batteries for electric scooters and EV. Even our beloved Proton is building an electric vehicle soon. ETI is actually in a strong position to provide the battery solution.
In the other segment, ETI is capitalising on the replacement market for lead acid batteries and small diesel generators in various retail, commercial and industrial applications e.g. in the telecommunications, leisure and catering industries which may depend on mobility or locations where there is no ready supply of electricity. The recent launch of “Green Genset” to replace diesel generators such as those used by the food catering industry, is only an early indicator of the company’s growth plans.
Catalyst #1: It is already more than just a R&D outfit as they have been profitable for 3 years already, and earnings will jump significantly in 2010 owing to a good market acceptance of their products, thus providing an enlarged earnings platform. FY10-11 earnings are slated to grow 75% and 48% p.a. respectively driven by: 1) contribution from higher-margin medium-power battery systems; and 2) stronger demand for its low-medium battery system due to the launch of new ‘Green Genset’.
Catalyst #2: ETI has entered into an MOU with ZAP to develop and incorporate its LiPo (lithium polymer) batteries for ZAP’s full range of electric scooters (Zappy, Zapino and ATV). ZAP plans to replace its electric scooter’s lead acid battery with LiPo batteries as Lithium powered scooters have been proven to achieve higher driving range/charge as well as higher speed (vis-à-vis lead acid battery technology). ZAP is a pioneer in electric transportation since 1994, and it manufactures and sells electric cars, scooters, bicycles and other vehicles to 75 countries.
Catalyst #3: Distribution, Design & Assembly - Under the MoU, ZAP will award ETI the rights to design and assemble its electric scooter/EV for Malaysia and the Middle East market. ETI would need to identify and appoint a local motorcycle assembler (i.e. Modenas, Naza and Honda) for the design and manufacturing of the electric scooter. ZAP aims to assemble its electric scooter/EV (powered by LiPo batteries) given the China’s quality and reliability issues. Note that
currently, ZAP’s electric scooters/EVs are assembled in US, Uruguay and China. This development would raise ETI’s profile in the EV (electric vehicle) battery market and thus enable it to penetrate into more lucrative EV markets going forward.
Catalyst #4: Strategic Shareholder, Niche Player & Patented - ETI’s venture into EV battery system has attracted investments from the Al-Yousuf group (which holds a 15% stake in ETI itself), given the potential synergistic benefits for its investment in electric car manufacturer, ZAP. A pioneer in electric transportation since 1994, ZAP manufactures and sells electric cars, scooters, bicycles and other vehicles to 75 countries.
Apart from ETI, there are only a handful of EV battery system players in the world i.e. BYD (China), Ener1 and A123 Systems (US), as well as NEC, Sanyo and LG (Japan and Korea), although auto companies like Toyota, Honda, Nissan and General Motors are aggressively trying to develop their own mass-market EV models. In mid-20008, ETI filed patent applications in Malaysia for the EV Battery including the industrial design and software-driven cell balancing system and method (i.e. the BMS).
Right Management - KK Lee is managing director and the major shareholder. ETI’s technical division is led by executive director and chief technology officer, YK Khor, who has worked for Rolls Royce plc developing military aircraft and Formula 1 racing car parts, as well as chief engineer of National Semiconductor (M), engineering group head for Sony Corporation (M) and engineering director of Flextronics Technology (M). He manages a team of 14 engineers from various multinational companies including Sony, Nortel, Motorola and Intel.
Catalyst #5: Strong financial metrics. The following are the strong metrics for 2007,2008, 2009 and 2010 (estimate) -
Gross margin (%) 31.4 / 32.7 / 38.2 / 43.7
EBITDA margin (%) 27.3 / 28.6 / 34.7 / 40.4
Net profit (RM million) 20.1 / 21.7 / 39.2 / 58.0
Major Shareholders: (%)
Lee Kah Kheng 17.2
Dennis Chuah 15.8
Al Yousuf LLC 15.0
Emirates Investment & Development Co 6.55
Chng Kong San 5.8
Following its attractive 2 for 1 bonus in October last year, the share price went on a sharp correction from 84 sen to nearly 40 sen. That could largely be due to over-exuberance buying prior to the bonus and possibly coincided with a sell down by Emirates Investment & Development which used to hold a lot more than just 6.5%. That out of the way, I see ETI regaining their lost ground in the coming weeks.
Catalyst #6: Potential New Market Leader - The New Economic Model will likely also be the over-arching theme for the Tenth Malaysia Plan (10MP) to be launched in June 2010. The New Economic Model is “aimed at shifting onto a high growth path and high income economy, driven by creativity, innovation and high value-add services”. We believe the plans include: 1) Value-added manufacturing; 2) Higher value services; 3) Renewable energy. The concepts will be more attractive to smaller listed companies as the net effect on them will be greater. Safe to say that ETI will be one of the main beneficiaries, and judging from their volume breakout, ETI could very well be the new market volume leader if a rally based on the New Economic Model comes into fruition.
The risks to ETI is that many of their ventures are still in the early stages, which can go nowhere or elevate their earnings platform positively. That is part and parcel of investing in small caps, but it looks good considering its debt free, profitable and with numerous catalysts in the pipeline.
p/s photos: Ririn Dwi Aryanti
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.
March Rally?
Its funny how fast things turn from being very negative a few weeks back to "what was that all about". Now, its as if we are back on the launching pad. I think its pretty funny how the bears all suddenly woke up and starting blabbing the same diatribe they had for the past 12 months, when the situation suits, but will quietly go back into their slumber when the situation does not suit their arguments. I have mentioned before that the recent "correction" is more of a necessary pullback rather than a genuine correction on markets being too frothy. All bull runs need periods of relief. The thing to learn from all this is that in most cases when there are sharp swing upwards or downwards, everybody will go looking and searching for reasons to explain, and they usually are the wrong reasons. When something happens in the markets, its already in the prices, buying could have been too heated, causing a buyers exhaustion, leading to an increase in shorts... blah-blah... I would subscribe to market psychology at work rather than the usual fundamentals explanation.
Back to the markets, the Tiger got off on the right foot. Are we in for a run? Let's look at potential catalysts. The Government is expected to launch the New Economic Model end-Feb or early-Mar, which will outline plans to raise income levels and economic growth to achieve developed nation status by 2020. The New Economic Model will likely also be the over-arching theme for the Tenth Malaysia Plan (10MP) to be launched in June 2010. Parts of the information below were culled from a RHB research piece.
The New Economic Model is “aimed at shifting onto a high growth path and high income economy, driven by creativity, innovation and high value-add services”. We believe the plans include: 1) Value-added manufacturing; 2) Higher value services; 3) Renewable energy. The concepts will be more attractive to smaller listed companies as the net effect on them will be greater. Hence I see renewed sustained interest in the smaller caps - which I have been featuring a lot over the past few months. Some beneficiaries of a government push for more innovation will bring up similar names such as QL Resources (biomass-based power generation), ETI Tech (battery management systems), D&O (LED technology), myEG (innovation in government services), Adventa (downstream rubber activity) and Carotech (biodiesel).
Malaysia’s resource-based companies will be asked to raise the focus on downstream manufacturing activities, while existing manufacturers will be asked to move up the value chain. Plantations and glove makers are already involved in downstream activities. The Government will want to promote the service industry including financial, telecom and hospitality.
As for the telecom companies, the market is currently dominated by the main incumbents, TM, Maxis, Celcom and Digi. Nevertheless the industry is already moving towards new services including high-speed broadband, HSPA and 4G, while new entrants for Wimax are rushing to increase coverage and roll out services. Keep an eye on Green Packet and YTL-e Solutions.
The Government will address the long-term sustainability of power supply in the face of depleting natural gas resources in Peninsular Malaysia and rising costs of coal. Petronas has stated that it will not supply natural gas to the first generation IPPs after their PPAs expire in 2015-2016, and this will effectively remove 4,100MW of installed capacity from the system. The Renewable Energy Act will formalise the Feed-in Tariff (FiT) that renewable energy producers are paid for supplying power to TNB. This potentially could create a new source of income for households, building owners as well as businesses that generate electricity for their own use from biomass and waste material. This will have to be balanced by the Energy Ministry’s proposal to raise electricity tariffs by 2%, which will be collected in a Renewable Energy fund to be managed by professional fund managers and used to pay for the incremental generation costs arising from the FiT.
The 1Malaysia Development Bhd (1MDB) recently announced that it would jointly invest in Sarawak’s economic corridor (SCORE, or Sarawak Corridor Of Renewable Energy) with the State Grid Corporation of China. This should lead to more investments in energy-related infrastructure.
Over the last two years the world’s four largest solar cell manufacturers have been given 15-year pioneer status to invest in Malaysia. The four manufacturers are investing in plants in Kulim (First Solar), Melaka (Sunpower), Selangor (Q-Cells) and Sarawak (Tokuyama) amounting to around RM13.8bn in total.
Some of the notable jvs in recent times: Khazanah Nasional has been instrumental in bringing Denmark’s Legoland, and the UK’s Newcastle University and Pinewood Studios to Iskandar Malaysia. Dialog Vopak – World’s largest tankage operator now has a 30% stake in Kertih Terminals. Dialog Trafigura – One of the world’s largest commodities trading companies has a 20% stake in Tanjung Langsat Port tankage facilities. SapuraCrest Acergy – World’s largest oil & gas pipelay company has a 50% stake in Sapura3000 pipelay barge. SapuraCrest Seadrill – Major international offshore drilling contractor has a 49% stake in drilling rigs, and a 23.6% stake in SapuraCrest. Sunway City Singapore Government Investment Corporation (GIC) has a 48% stake in Sunway Pyramid mall and 21.3% stake in Sunway City.
Some related plays with respect to the theme above could include:
MPI - which has developed XMLP (smallest MLP package) that would be used in the smaller mobile phones and handheld devices.
Unisem - which has developed SLP packages that improve the functions per unit density for mobile phones and portable instruments.
Hai-O - Surprisingly and unknown to many, Hai-O Energy holds the patent for a high-intensity heat-transfer technology which could be applied to O&G, power and solar energy sectors, as well as to reduce electricity costs. The technology could potentially save 40-50% of electricity costs.
D&O - Often overlooked company has developed energy-saving LED products that have higher lumen per watt capacity (i.e. brightness), and used in the automotive and flat panel television industries.
ETI Tech - which has developed an efficient battery management system for Polymer Lithium ion batteries for mid- (electric scooters, mobile base stations) and high-end applications (power grid).
MyEG Services - which has a stranglehold on e-Government service, has developed and implemented the e-Government services including electronic delivery of driver and vehicle registration, licensing and summons services and utility bill payments. Could be a major player in implementing the new GST.
Hartalega - Easily the best glove maker as having the most technologically-advanced glove company, where the productivity in terms of gloves production per hour is approximately 31,500 pcs/hour, as compared to Top Glove’s rated capacity of about 25,000 pcs/hour.
Evergreen - In the process of utilising palm oil shells together with rubber wood for its MDF. Reduce dependency on rubber wood and may even reduce the cost of producing MDFs as palm oil shells are cheap and abundant.
QL Resources - Currently developing a technology which could transform EFB (empty fruit bunch) into high quality pellet form, which can be used as biomass energy to replace fossil fuel.
Carotech - The company is the first and largest integrated plant in the world to commercially extract tocotrienol complex, mixed carotene complex and phytosterols from virgin crude palm oil/palm fruits, via a patented extraction process. The patented process also produces palm methyl ester as a byproduct and sold as biodiesel.
p/s photos: Astor Fong
Back to the markets, the Tiger got off on the right foot. Are we in for a run? Let's look at potential catalysts. The Government is expected to launch the New Economic Model end-Feb or early-Mar, which will outline plans to raise income levels and economic growth to achieve developed nation status by 2020. The New Economic Model will likely also be the over-arching theme for the Tenth Malaysia Plan (10MP) to be launched in June 2010. Parts of the information below were culled from a RHB research piece.
The New Economic Model is “aimed at shifting onto a high growth path and high income economy, driven by creativity, innovation and high value-add services”. We believe the plans include: 1) Value-added manufacturing; 2) Higher value services; 3) Renewable energy. The concepts will be more attractive to smaller listed companies as the net effect on them will be greater. Hence I see renewed sustained interest in the smaller caps - which I have been featuring a lot over the past few months. Some beneficiaries of a government push for more innovation will bring up similar names such as QL Resources (biomass-based power generation), ETI Tech (battery management systems), D&O (LED technology), myEG (innovation in government services), Adventa (downstream rubber activity) and Carotech (biodiesel).
Malaysia’s resource-based companies will be asked to raise the focus on downstream manufacturing activities, while existing manufacturers will be asked to move up the value chain. Plantations and glove makers are already involved in downstream activities. The Government will want to promote the service industry including financial, telecom and hospitality.
As for the telecom companies, the market is currently dominated by the main incumbents, TM, Maxis, Celcom and Digi. Nevertheless the industry is already moving towards new services including high-speed broadband, HSPA and 4G, while new entrants for Wimax are rushing to increase coverage and roll out services. Keep an eye on Green Packet and YTL-e Solutions.
The Government will address the long-term sustainability of power supply in the face of depleting natural gas resources in Peninsular Malaysia and rising costs of coal. Petronas has stated that it will not supply natural gas to the first generation IPPs after their PPAs expire in 2015-2016, and this will effectively remove 4,100MW of installed capacity from the system. The Renewable Energy Act will formalise the Feed-in Tariff (FiT) that renewable energy producers are paid for supplying power to TNB. This potentially could create a new source of income for households, building owners as well as businesses that generate electricity for their own use from biomass and waste material. This will have to be balanced by the Energy Ministry’s proposal to raise electricity tariffs by 2%, which will be collected in a Renewable Energy fund to be managed by professional fund managers and used to pay for the incremental generation costs arising from the FiT.
The 1Malaysia Development Bhd (1MDB) recently announced that it would jointly invest in Sarawak’s economic corridor (SCORE, or Sarawak Corridor Of Renewable Energy) with the State Grid Corporation of China. This should lead to more investments in energy-related infrastructure.
Over the last two years the world’s four largest solar cell manufacturers have been given 15-year pioneer status to invest in Malaysia. The four manufacturers are investing in plants in Kulim (First Solar), Melaka (Sunpower), Selangor (Q-Cells) and Sarawak (Tokuyama) amounting to around RM13.8bn in total.
Some of the notable jvs in recent times: Khazanah Nasional has been instrumental in bringing Denmark’s Legoland, and the UK’s Newcastle University and Pinewood Studios to Iskandar Malaysia. Dialog Vopak – World’s largest tankage operator now has a 30% stake in Kertih Terminals. Dialog Trafigura – One of the world’s largest commodities trading companies has a 20% stake in Tanjung Langsat Port tankage facilities. SapuraCrest Acergy – World’s largest oil & gas pipelay company has a 50% stake in Sapura3000 pipelay barge. SapuraCrest Seadrill – Major international offshore drilling contractor has a 49% stake in drilling rigs, and a 23.6% stake in SapuraCrest. Sunway City Singapore Government Investment Corporation (GIC) has a 48% stake in Sunway Pyramid mall and 21.3% stake in Sunway City.
Some related plays with respect to the theme above could include:
MPI - which has developed XMLP (smallest MLP package) that would be used in the smaller mobile phones and handheld devices.
Unisem - which has developed SLP packages that improve the functions per unit density for mobile phones and portable instruments.
Hai-O - Surprisingly and unknown to many, Hai-O Energy holds the patent for a high-intensity heat-transfer technology which could be applied to O&G, power and solar energy sectors, as well as to reduce electricity costs. The technology could potentially save 40-50% of electricity costs.
D&O - Often overlooked company has developed energy-saving LED products that have higher lumen per watt capacity (i.e. brightness), and used in the automotive and flat panel television industries.
ETI Tech - which has developed an efficient battery management system for Polymer Lithium ion batteries for mid- (electric scooters, mobile base stations) and high-end applications (power grid).
MyEG Services - which has a stranglehold on e-Government service, has developed and implemented the e-Government services including electronic delivery of driver and vehicle registration, licensing and summons services and utility bill payments. Could be a major player in implementing the new GST.
Hartalega - Easily the best glove maker as having the most technologically-advanced glove company, where the productivity in terms of gloves production per hour is approximately 31,500 pcs/hour, as compared to Top Glove’s rated capacity of about 25,000 pcs/hour.
Evergreen - In the process of utilising palm oil shells together with rubber wood for its MDF. Reduce dependency on rubber wood and may even reduce the cost of producing MDFs as palm oil shells are cheap and abundant.
QL Resources - Currently developing a technology which could transform EFB (empty fruit bunch) into high quality pellet form, which can be used as biomass energy to replace fossil fuel.
Carotech - The company is the first and largest integrated plant in the world to commercially extract tocotrienol complex, mixed carotene complex and phytosterols from virgin crude palm oil/palm fruits, via a patented extraction process. The patented process also produces palm methyl ester as a byproduct and sold as biodiesel.
p/s photos: Astor Fong
KNM's Privatisation? Fairytale Time by The Aesop & Madoff Brothers Grimm
Readers will know that I do not have a bullish view on KNM as I have always not felt comfortable with their figures. Then, out of the blue, BlueFire Capital Group Ltd (Bidco), an entity controlled by Ir Lee Swee Eng (KNM’s Group Managing Director and major shareholder), in collaboration with GS Capital Partners VI Fund L.P. and Mettiz Capital Limited, proposed to acquire the entire business and undertakings of the company, paying an equivalent of RM0.90 per share. This represented a 20% premium over KNM’s share price at that point in time, and 1.8x estimated BVPS as at end-2009.
Here is the funny thing, if somebody is buying at 90 sen, why is the share price still struggling to breach the 80 sen level? Some may say that a number of minority shareholders will not be keen to sell at 90 sen as they see the sector recovering, and maybe they have entered at much higher prices. The next biggest shareholder is EPF with 12.2% - if EPF no like the deal, they no sell now or at 90 sen, ... if EPF likee deal, they sell at 90 sen ... so who is selling now???
My question is, since when are shareholders being asked to state their views on where the sector or company's prospects are headed? You buy, you sell, you keep your mouth shut, ... holding the shares only gives you the right to SELL at 90 sen or don't sell. No matter what your views are, 90 sen is a good price to SELL unless you can find somebody willing to buy at higher prices NOW. People who say that the company is worth a lot more in the future, well, ... so is my ass but nobody is going to write a put option on my ass 5 years down the road. Its JUST YOUR VIEW, and we can probably find similar OPPOSING VIEWS ON YOUR BULLISHNESS. That's the case for minority shareholders. Now got a bone to pick with the consortium. Who the fuck are selling at 80-82 sen when the privatisation is at 90 sen? Why don't you people just go into the marketplace and buy all share right up to 88 sen or 89 sen at least (because you cannot really be buying above 90 sen in the open market, or else you have to up your G.O. to your higher purchase price after announcing the offer).
KNM’s Board has granted Bidco a limited exclusivity of up to 22 Mar 2010 to complete a due diligence and satisfy the other conditions of the proposal. While Lee and parties have to fork out RM3.6b immediate cash for the acquisition, he should be able to recover RM738b based on his 20.5% stake in KNM, which could undertake a subsequent capital repayment exercise. Goldman Sachs has been appointed the international advisor. So, maybe the consortium is waiting to act AFTER the due diligence? But you have Mr. Lee in there, don't you?
Hence, the share price is nowhere near 90 sen may be due to any or all or none of the following:
- a lot more sellers than buyers (this useless statement can be appropriately used here to great effect); i.e. a lot more people believing the G.O. may not carry through than those who think they will. This is still an OK development provided the sellers are not "interested parties" to the deal
- they may not get the funding
- the due diligence may be troublesome
- seriously, the funds are not in yet, where got money to buy shares now
There is usually a discount to the G.O. as many may not want to wait for the exercise to be completed to get back their monies, but its usually 2%-3%, not more than 10%. There are numerous stories in the marketplace, that this privatisation is a prelude to a merger with a big private oil & gas company .. and potentially later to relist with better valuations and size. If the consortium has an end buyer after the privatisation, it will be at a price higher than 90 sen, say maybe RM1.20. Seriously folks, if I was the big private O&G owner, would I NOT BE AT LEAST BUYING KNM shares now at way below 90 sen???
Anyway, caveat emptor or to translate the Latin into my everyday English: watch out for the guy who pats you on the back, he could be a friend or he could be asking you to cough up blood
Nightmares & Fairytales Time by The Aesop & Madoff Brothers Grimm: You know what I am afraid of, I am afraid of fairytales, scary financial fairytales ... Let me tell you a story, there was once this company that did a G.O. ... but the share price never rose close to the offered price ... (because somebody has been naughty and selling shares in the open market, naughty boy) ... and true enough, following the due diligence exercise a few weeks later, the G.O. was called off. The share price collapsed further, but guess who managed to offload shares during that period... and guess who can now buy back the shares at 40% or even 50% cheaper. Thats the fabled nightmare ... can you sleep soundly at night?
p/s photos: Carrie Lee
Further announcement to the Companys reply to Bursa Malaysia Securities Berhad's queries dated 5 February 2010 on the Companys announcement dated 4 February 2010 and entitled Proposed Acquisition of the Entire Business and Undertakings of the Company. With reference to KNM Group Berhads (KNM) reply dated 8 February 2010 (reference number: KG-100208-750E6) to Bursa Securities Malaysia Berhads queries, the Company wishes to further clarify the following:-
Question 5 :
The information on GS Capital Partners VI Fund LP and Mettiz Capital Limited together with its role in the Proposed Acquisition
Reply :
Mettiz Capital Limited (Mettiz) (company no. 1412549) was incorporated on 21 June 2007 in the British Virgin Islands, with its registered address at Nerine Chambers, P.O. Box 905, Road Town, Tortola, British Virgin Islands. Mettiz is a special purpose private investment holding company that is beneficially owned by Mr Michael Tang Vee Mun, a Malaysian citizen.
Question 7 :
Whether Bidco has expressed its intention on the listing status of the Company
Reply :
Bidcos proposal is to acquire the assets and undertakings of KNM, which matter is still subject to due diligence and not proposing to acquire the shares of KNM. Therefore, neither Bidco nor the Board of KNM has expressed any intention on the listing status of KNM.
This announcement is dated 9 February 2010.
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