Now For Some Accounting Humour!

You cannot really have business and finance humour without hitting on the accountants, so here goes:

Q: When does a person decide to become an accountant?
A: When he realises he does not have the charisma to succeed as an undertaker.

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Q: Why do some accountants decide to become actuaries?
A: They find bookkeeping too exciting.

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Q. Why do audit firms only have 10 minute coffee breaks?
A. If the breaks were longer, they'd have to retrain all the staff.

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A patient was at her doctor's office after undergoing a complete physical exam. The doctor said, "I have some very grave news for you. You only have six months to live."

The patient asked, "Oh doctor, what should I do?"

The doctor replied, "Marry an accountant."

"Will that make me live longer?" asked the patient.

"No," said the doctor, "but it will SEEM longer."

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A 54-year-old accountant leaves a letter for his wife one evening which read: "Dear Wife, I am 54 years old, and by the time you get this letter I will be at the Grand Hotel with my beautiful and sexy eighteen year old secretary."

When he arrived at the hotel, there was a letter waiting for him that read as follows: "Dear Husband, I too am 54 years old, and by the time you receive this letter I will be at the Savoy Hotel with my eighteen year old toy boy. Because you are an accountant, you will surely appreciate that l8 goes into 54 many more times than 54 goes into 18."

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There once was a business owner who was interviewing people for a division manager position. He decided to select the individual that could answer the question "how much is 2+2?"

The engineer pulled out his slide rule and shuffled it back and forth, and finally announced, "It lies between 3.98 and 4.02".

The mathematician said, "In two hours I can demonstrate it equals 4 with the following short proof."

The physicist declared, "It's in the magnitude of 1x10¹."

The logician paused for a long while and then said, "This problem is solvable."

The social worker said, "I don't know the answer, but I a glad that we discussed this important question.

The attorney stated, "In the case of Svenson vs. the State, 2+2 was declared to be 4."

The trader asked, "Are you buying or selling?"

The accountant looked at the business owner, then got out of his chair, went to see if anyone was listening at the door and pulled the drapes. Then he returned to the business owner, leaned across the desk and said in a low voice, "What would you like it to be?"

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How accountants do it...
Accountants do it by the book.
Accountants do it within budget.
Accountants do it to the bottom line.
Accountants do it with double entries.
Accountants do it between spreadsheets. Accountants are Certified to do it in Public.
Accountants do it without losing their balance.

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You might be an Accountant if...

you had no idea that GAP is also a clothing store.

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during the movie Indecent Proposal you did a NPV calculation in your head.

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p/s photos: Suzanne Sae

Why I Like Kelington

Formed in 2000, Kelington is a leading provider of Ultra High Purity (UHP) gas and chemical delivery solutions in the region. The company provides a comprehensive range of services in the value chain of UHP gas and chemical delivery systems encompasses design, installation, equipment, quality assurance and maintenance. Through a listing in the ACE market, management believes it would be able to raise its profile as one of the leading UHP gas and chemical delivery solutions provider, and thus stand a higher chance of bidding for projects with established players in China and Taiwan. UHP gas and chemical delivery systems are deployed in highly specialised industries such as the flat panel display (FPD) and wafer fabrication sectors and emerging industries such as the solar energy, pharmaceutical, light-emitting diode (LED) and bioscience sectors.

From FY06 to FY08, Kelington had been registering an impressive top and bottom line growth of 40.9% and 54.1% respectively. With its strong orderbook of RM74.98m, revenue is expected to grow organically by 5.4% and 2.7% for FY09 and FY10 respectively. In strengthening its position, Kelington plans to improve its capabilities, expand its UHP gas and delivery systems, develop its overseas markets and continue to undertake various research and development activities.

Its IPO issue price was RM0.53, it has been sluggish since hitting RM0.90 on opening day and has since consolidated around RM0.60.


Commendable standing in the industry: Notable achievements

2000 Secured maiden key project in Malaysia for SilTerra Malaysia's foundary at Kulim.
2003 Implemented first project in Taiwan for HannStar Display (TFT-LCD).
2004 Implemented first major project in PRC for Taiwan Semiconductor Manufacturing Corporation (Wafer fabrication).
Manufactured first equipment (Valve Manifold Box & Vale Manifold Panel) as OEM for Taiwan.
2005 SkyWalker Group Ltd (linked to The Linde Group) became a major shareholder of the Group.
2007 Implemented first solar cell project for Suntech Power Holdings in China.
2008 Implemented first renewable energy project in Singapore for Renewable Energy Corporation.
Attained Pioneer Status (with retrospective effect from May 2007).
2009 Implemented turnkey Bulk Chemical Delivery System for Seagate Skudai, cementing its ability to undertake large-scale chemical delivery systems.

In Malaysia, Kelington has an 18% market share but less than 2% in China and Taiwan. Having said that, the China and Taiwan business accounted for 61.4% of its revenue in 2008. The fact that China and Taiwan offer tremendous growth potential is prompting management to grow its market share there. As such, the management believes it needs to secure bigger contracts to be seen as a serious player in this niche industry. This also shows that the company planned ahead and sees tremendous potential in China and Taiwan by virtue that 61.4% of its 2008 revenue came from China and Taiwan.

The company’s substantial shareholders are Palace Star (53.19%), Allied Moral (7.88%) and Sky Walker (12.88%). The current directors of Palace Star are Gan Hung Keng (27.0%), Ong Weng Leong (27.0%) and Lim Hock San (46.0%). While Lim Hock San is not directly involved in the management of the Group, Gan Hung Keng is the Chairman while Ong Weng Leong is Group Executive Director. Gan Hung Keng, with over 20 years of experience, is responsible for the Group’s strategic direction. On the other hand, Ong Weng Leong, with 17 years’ experience in the industry, is responsible for the Group’s day-to-day functions in Taiwan and China. As for Allied Moral, its shareholders are individual financial investors who are not involved in the company’s management. Sky Walker, incorporated in British Virgin Islands, is principally involved in overseas investment.

A caveat on dependence. At least 34.4% of the Group’s total revenue in FY08 came from the BOCLH group of companies (“BOCLH Group”). BOLCH is a joint venture between Lien Hwa Industrial Corporation of Taiwan and BOC Group Plc of the United Kingdom. BOLCH is also a related company of Kelington by virtue of their indirect shareholding interest in Kelington through Sky Walker, a substantial shareholder. Nevertheless, the management expects to maintain this close relationship, established since March 2003.

This being the first IPO on ACE, we note that there may be some concerns over the quality of the company as IPOs on the ACE market do not need approval from the SC but will instead be sponsor-driven. IPOs on the ACE market also do not need to meet any minimum profit track record or market capitalization to list. However, in terms of disposal of shares by vendors, the requirements of the ACE market are actually tighter than those of the Mesdaq, with a 100% moratorium on disposal of vendor shares in the first 6 months, as opposed to only a 45% moratorium in the first year for Mesdaq. The fact that Kellington has been profitable over the last 3 years and boasts a cumulative profit track record of RM13.5m and is listing to gain a higher profile among its current and potential clients, should assuage investors’ concerns. In fact, Kelington would have been a much superior candidate when compared to the majority of Mesdaq listings over the past three years. Kenanga Investment Bank Berhad was the adviser, underwriter and placement agent for Kelington's Initial Public Offering (IPO) exercise.

Comparisons with Peers (FY08)
Mkt Cap (RMm) / Revenue (RMm) / Net profit (RMm) /Gross margin (%) / ROE (%) / PER / P/B
Kelington (Malaysia) 39.6 / 60.1 / 6.6 / 20.6 / 30.6 / 6.0 / 1.8
Marketech (Taiwan) 239.9 / 1053.3 / 22.2 / 12.2 / 5.6 / 10.9 / 0.6
Hanyang Engineering (Korea) 259.4 / 603.6 / 16.7 / 6.1 / 8.4 / 16.3 / 1.3
Wholetech System Hitech (Taiwan) 115.5 / 213.4 / 0.3 / 12.6 / 0.5 / 337.1 / 1.7

Kelington compares very well in terms of gross margins, and looks very much undervalued at this point in time. Their year end is end-December, for the 3Q2009, the company made a PBT of RM3.97m, and a net profit of RM3.01m, on revenue of RM19.9m. Cumulatively for the first 9 months of 2009, the company made a net profit RM6.42m on revenue of RM44.6m.

That meant that the net EPS for 3Q2009 was an outstanding 4.63 sen, bringing the total net EPS for the 9 months this year to 9.8 sen. If you add another 4 sen for the final quarter, that would bring the net EPS for 2009 to 13.8 sen, compare that to its current share price of around RM60 sen. Highly ridiculous.


p/s photos: Nozomi Sasaki

My Views On Rubber Gloves

Many people have been asking my views on the rubber glove makers. They have all been on a torrid run for most of 2009. I did not spot the sector early enough, hence I did not highlight that sector as an entry position for the past few months. You cannot be spotting everything. Just because you did not get that sector does not mean one should deride that sector - kudos to those who went in early, ride the trend as best you can.

You look at every single report, the potential upside catalysts are always good results and improving earnings driven by ongoing capacity expansion. Not that I am bitching here, one should also learn to scan for time to take some chips off the table - name me one research report that is a "sell" or a "downgrade" on rubber glove makers ... none, there have been none for the past 11 months. So basically, everybody have been asking everybody to buy, everybody have been basically long or longer ... so who have been selling?

The sector is having a strong run, no doubt. But guess who is selling? Well, the people who anticipated this kind of run more than 12 months ago, and company owners and insiders as they have the most shares to sell. I am not suggesting that owners are selling the shares as a scammish thing, its just the natural thing to do - yes, it is acceptable to like your own stock and tout it to the papers and still sell some shares.

Why I think its time to take some chips off the table: the storyline is getting repetitive (capacity, earnings growth, product mix, and a genuine concern on potentially global pandemic diseases). There is like no "bad factor" at all, how can things be so rosy for so long? Well, they can't. I do think the catalysts are there, but I also think that the catalysts are getting very old.

Its like so many good stuff and optimism have been priced in, there is little room for bad news. When investors begin to shout "where got bad news" ... you know it has gone too far.

Just be careful out there. Oh, not all glove makers are the same, I prefer Hartalega among the whole bunch. Plus be careful on the ones with a much bigger free float, go do your own research.



p/s photos: Nancy Wu Ding Yan

Mulan & Funny People

Saw two movies by default not by choice, but they were major surprises for movie watching in 2009. The first was Mulan, I was checking out the Gold and Premier class seats at Mid Valley and all bloody seats were sold out except for Mulan. I said, damn why are they showing the bloody musical cartoon again, must be the holidays!! Was corrected that it was a big budget piece remake of Mulan starring Zhao Wei. Spent too long to park the car, too early to eat dinner, so end up buying tickets to Mulan ... gee, there goes one of my ration of 3 original films in Mandarin for the year.

At the end of the movie, the people leaving the theatre were ALL in pairs, and I bet you all the guys were dragged to see the movies by their female dates. No sensible male patron would be willing to suggest seeing Mulan starring Zhao Wei. No one would even consider Zhao Wei as anywhere believable as a expert warrior (even in disguise). Oh ... but the brilliant Jingle Ma was the director.

Take all that into account, it was a surprisingly fantastic movie. Its about Mulan (whose story we all know by now) but its a lot more than that - there were added layers to the storyline. In the end, it was a very strong anti-war movie, it questions the actual relevance of fighting and dying for a country or your king when you are really all just minor pawns in the whole greater scheme of things. Its about brotherhood and loyalty, its about the greater good, its about coming out of the bloodshed with your integrity intact. Oh, yes, there is a powerful unrequited love story as well.

The other movie was Funny People by Judd Apatow, starring Adam Sandler, Seth Rogen and Leslie Mann. I really thought it was going to be another Adam Sandler piece of low brow but enjoyable movie. Its about a successful stand up and a few other up and coming stand up comics. But man, the show is not only funny, it tries to tackle deeper issues which I never thought Apatow, Rogen or Sandler would be able to do. Reviews of this film have been all over the board. Some people have loved it and said it was the funniest movie of the year, some people have hated it and called it self-indulgent and elongated.

It puts the scars and vulnerabilities of stand up comedians, their anxieties and stress, all out in the open. It cuts right through these "funny people". It also attempts to deal with issues of mortality when that collides with mid life crisis. Trying to patch up things we didn't do too well in the past - the nuanced things about regret, redemption and forgiving yourself. The heavy subject matter of settling, for only so-so ... in many things in life.

Seth Rogen was great as Ira, the young comedian that Sandler employed as his comedy writer. Its a fantastic movie because the movie fleshes out the character of the main guys brilliantly, you identify with them all within the first half hour. You feel their pain and happiness. Ira's clumsy crush with Aubrey Plaza was too funny but very understandable.

This is certainly one of the funniest and most heart felt movie of the year - very intelligent, nuanced, not all living happily ever after but kind of ... kind of like real life.

Some Interesting Political Cartoons

China Is Really Aware That It Has a Bubble Situation

Unpaid credit card debt in China has risen by a horrifying 126.5% from a year ago. Beijing should have known this very well as it was central government which instructed the banks to lend like crazy 12 months ago. As at the end of September 2009, there was 7.43bn yuan of credit card debt that was at least 6 months overdue. Mainland Chinese banks pushed those credit cards aggressively when Beijing "encouraged" the banks to be "easier with loans and credit disbursements". Beijing had encouraged banks to expand that line of business thinking that it would boost retail sales. Well, it may have had that effect, but they now also have a credit binge problem. The overdue amount represented 3.4% of total credit card debt.

The problem can get a lot worse because as it stands, the penetration rate in China for credit cards is only 0.13 cards per person now. Compare that to the US, a place where like New Zealand for sheep, there are 1.5bn cards for its 300m population - unbelievable, 5 cards for each person, including kids.


p/s photos: Marie Ann Umali

Country Default Risk

The Dubai debacle has prompted Bespoke Research to put up the various country risk of default. There are CDS being traded that measures the cost of insuring $10,000 of country debt for 5 years. If you look at the table, Dubai's cost is $541, which is comparatively a lot better off than say, Argentina $985, Venezuela $1,170. However, $541 is a very very high figure. You can get a sense of just how global traders view Dubai's risk of default by looking at countries that are a bit cheaper to insure: even the hellish Iceland is at just $398, however that has dropped from a highly precarious $976 at the end of 2008; the problematic Russia cost only $218.

Surprisingly, Indonesia's risk to insure is very high at $231. Malaysia looks like a hero among these countries, costing only $117. The risk traders are not stupid, they do look at everything, they have China at just $87.

The USA still have its reserve status firmly intact, despite the recent rumblings over the dollar and the furiously overworked money printing press by the Fed, it only cost $32 to insure. Australia is at a highly enviable $34.

I should really start to trade these country default CDS. I think on a 12 month view, my likely preferred trades in my order of attractiveness would be:

1) Buy Japan at $81 (buy as in hoping that the cost to insure would go much higher over a 12 month period).

2) Buy US at $32.

3) Buy Australia at $34.

4) Sell Indonesia at $231.

5) Buy Egypt at $241.

6) Buy Mexico at $159.

7) Sell the Philippines at $208.

Funnily enough, I cannot really place a bet on Malaysia, don't really have a strong clue up or down ..lol. Even curiouser was that I have a better sense of countries where their risk is seeming rising, but not as strong a conviction for countries on the improve.

Oh, to explain my top 3 bets: Japan's public debt is actually quite insurmountable and is reaching a climax - they keep having to change the Prime Minister because no one has the political will to effect the changes, something's gotta give soon; the USA reserve status is overstated, and while I think the status will remain, it won't be as strong as before and a gradual realignment is necessary (i.e. weaker dollar) to get the country on a proper debt reduction diet; Australia's euphoria is largely centered on China's state funds voracious appetite for resources, I do not expect that to go unabated, a lot more downside than upside from here, I expect the OZ government to be a bit more restrictive in "selling natural resources" to China in the months ahead.

p/s photo: Olivia Ong