I don't think so if the group who wrote to the Guardian newspaper about the intransigence of Willie Walsh and British Airways management are an example. What they appear to be complaining about is that Mr Walsh is actually doing what he repeatedly warned the staff and unions he would. That does not seem such a heinous approach to me.
To my mind Willie Walsh currently has the easiest job in the World. His strategy is a no brainer in that he will not have an airline to run unless he does what he is doing plus he is getting general support from customers, other employees and importantly his shareholders. How many other bosses could claim that!
As for the cabin crew I really feel for them. Their unions have led them on a dangerous path, they are fighting the inevitable and, if they win they will probably lose both their jobs and pensions in the process. As for those worthy academics? I suggest they do their sums and realise that for this airline to survive maybe some "unilateral management" and bruising a militant union's egos is an acceptable price to pay for staying in business.
Why I Like Wasco (A Lot)
Its been difficult to locate good companies at fair prices. After much reading and going through the research, Wah Seong looks like a no brainer. There is a genuine transformation in their outlook and approach. Being a billion ringgit company will only get you so far. They have managed to secure projects overseas but its always less than RM1bn in value as the bigger jobs would want a bidding company to be better capitalised. Wah Seong has laid out two acquisitions in their pipeline and have a good chance to secure both. One has sufficient leverage in the Golden Triangle, while the other will mark their platform into Africa.
While I generally frown on name changes, this time it makes sense to be a globally integrated energy infrastructure group - under Wasco. The name change proposal is more than just rhetoric. The management knows well enough that they would not have enough jobs locally to move to the next level.
Wah Seong is likely to wrap up the deal with Socotherm, to be followed by the Orleans deal. Wah Seong has sufficient funds to finance the acquisitions and has ruled out a fundraising exercise. As at Dec 09, the group had cash reserves of RM471m. Deputy MD Giancarlo Maccagno confirmed that Wah Seong had submitted three weeks ago a proposal to acquire the entire stake in Socotherm, an Italian pipe coater currently in financial trouble. There are four other bidders whose identities are not disclosed. Wah Seong did not reveal its offer price.
The success of the proposal would give Wah Seong an immediate presence in the Golden Triangle of Brazil, the Middle East and the Gulf of Mexico. There will be about US$130bn worth of investments in deepwater exploration are expected to be made in the Golden Triangle over the next five years. Hence, management is optimistic that Socotherm’s annual revenue could return to its previous height of €250m-300m in at least two years compared with €130m currently. This could add no less than RM1bn to Wah Seong’s topline.
Wah Seong's management has done its justification for moving this way, and they are going in with somebody whom they are already well familiar. Ties with Socotherm go way back. Socotherm and Wah Seong are no strangers, having been partners in pipe coating unit PPSC for 19 years before Socotherm sold its 32.5% stake to Wah Seong for RM76m in Oct 09 to cover some of its losses. Maccagno was a project manager for Socotherm’s projects in Nigeria in 1984-1990.
Wah Seong is at an advanced stage of negotiations with Orleans, which owns pipe coating plants in Nigeria and Angola. The group is considering three options: taking up an equity stake, providing technical assistance and doing both. Originally, the plants were housed under a 40:60 JV between Orleans and Socotherm. In Dec 09, Orleans bought out Socotherm’s stake in the JV as the latter restructured its finances. Orleans’s two pipe coating plants generate annual revenue of around US$40m. The facilities are currently loss-making but Wah Seong sees potential in them and the countries in which they are located. Nigeria and Angola are OPEC members and had oil reserves of 37bn barrels and 10bn barrels, respectively, in 2008. Collectively, both countries held 4.5% of OPEC’s oil reserves of 1,023bn barrels in 2008. Wah Seong is likely to spend about US$10m-15m on the facilities. If the deal materialises, it could expand Wah Seong’s earnings and geographical base, and put the company in a monopolistic position in Angola and a duopolistic position in Nigeria.
Wah Seong is well aware of the risks with Orleans, being in Nigeria. To mitigate the huge risks in Nigeria, Wah Seong is looking at a technical arrangement to first provide pipecoating consultancy services to the Orleans Group, with an option to later buy an equity stake if the operation were to kick off successfully.
By international standards, Wah Seong’s current market capitalisation of RM1.8bn is modest and has, on occasion, hampered it in its bid for major deals. With a bigger market cap, the company would be in a better position to go for bigger prizes internationally. Backed by the Socotherm and Orleans acquisitions, management aims for a RM3bn market cap over the next few years.
When the group was listed in 2002, its market cap was RM250m. Presently, Wah Seong’s order book is worth RM1.42bn. The group is bidding for RM5.3bn worth of contracts. Wah Seong’s tenders for new jobs has grown from RM4bil from the past two months to RM5.3bil currently. This represents 3.8x the group’s existing outstanding order book of RM1.4bil. Assuming a 20% success rate for current tenders, the group’s order book could reach RM1.8bil by the end of the year.
Its pipe-coating and corrosion production services account for 60% of this tender book. The pipe-coating tenders are for jobs in South-East Asia, China and Australia. The balance 40% of the tender book value comprise gas compression equipment and packages and industrial services.
The acquisition plans, assuming they pan out, would give Wah Seong access to a string of new markets, namely Nigeria, Angola, Brazil, the Middle East and the Gulf of Mexico, thereby narrowing the gap between itself and Bredero, whose annual sales are in excess of US$1bn. Apart from the M&A efforts, the newsflow is also remain active on the order book front as Wah Seong awaits the awards of pipe coating contracts from clients in Australia and Papua New Guinea.
Even without the two acquisitions, Wah Seong should be fairly valued at RM3.00. Once news comes through that the acquisitions have been firmed up, I expect Wah Seong to trade close to its higher PER band of 20x, which would suggest RM3.50 as a target.
Its almost pointless to compare Wah Seong with other similar industry players in valuation, locally and regionally as none has the ability to boast that it is a major player globally, none can say they are not terribly dependent on local jobs. We need more companies to follow Wah Seong, manage it well, grow locally, then regionally, and when you consider that you have the management expertise and technological professionalism to be competitive globally, just leverage onto the next platform.
p/s photos: Asin
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.
While I generally frown on name changes, this time it makes sense to be a globally integrated energy infrastructure group - under Wasco. The name change proposal is more than just rhetoric. The management knows well enough that they would not have enough jobs locally to move to the next level.
Wah Seong is likely to wrap up the deal with Socotherm, to be followed by the Orleans deal. Wah Seong has sufficient funds to finance the acquisitions and has ruled out a fundraising exercise. As at Dec 09, the group had cash reserves of RM471m. Deputy MD Giancarlo Maccagno confirmed that Wah Seong had submitted three weeks ago a proposal to acquire the entire stake in Socotherm, an Italian pipe coater currently in financial trouble. There are four other bidders whose identities are not disclosed. Wah Seong did not reveal its offer price.
The success of the proposal would give Wah Seong an immediate presence in the Golden Triangle of Brazil, the Middle East and the Gulf of Mexico. There will be about US$130bn worth of investments in deepwater exploration are expected to be made in the Golden Triangle over the next five years. Hence, management is optimistic that Socotherm’s annual revenue could return to its previous height of €250m-300m in at least two years compared with €130m currently. This could add no less than RM1bn to Wah Seong’s topline.
Wah Seong's management has done its justification for moving this way, and they are going in with somebody whom they are already well familiar. Ties with Socotherm go way back. Socotherm and Wah Seong are no strangers, having been partners in pipe coating unit PPSC for 19 years before Socotherm sold its 32.5% stake to Wah Seong for RM76m in Oct 09 to cover some of its losses. Maccagno was a project manager for Socotherm’s projects in Nigeria in 1984-1990.
Wah Seong is at an advanced stage of negotiations with Orleans, which owns pipe coating plants in Nigeria and Angola. The group is considering three options: taking up an equity stake, providing technical assistance and doing both. Originally, the plants were housed under a 40:60 JV between Orleans and Socotherm. In Dec 09, Orleans bought out Socotherm’s stake in the JV as the latter restructured its finances. Orleans’s two pipe coating plants generate annual revenue of around US$40m. The facilities are currently loss-making but Wah Seong sees potential in them and the countries in which they are located. Nigeria and Angola are OPEC members and had oil reserves of 37bn barrels and 10bn barrels, respectively, in 2008. Collectively, both countries held 4.5% of OPEC’s oil reserves of 1,023bn barrels in 2008. Wah Seong is likely to spend about US$10m-15m on the facilities. If the deal materialises, it could expand Wah Seong’s earnings and geographical base, and put the company in a monopolistic position in Angola and a duopolistic position in Nigeria.
Wah Seong is well aware of the risks with Orleans, being in Nigeria. To mitigate the huge risks in Nigeria, Wah Seong is looking at a technical arrangement to first provide pipecoating consultancy services to the Orleans Group, with an option to later buy an equity stake if the operation were to kick off successfully.
By international standards, Wah Seong’s current market capitalisation of RM1.8bn is modest and has, on occasion, hampered it in its bid for major deals. With a bigger market cap, the company would be in a better position to go for bigger prizes internationally. Backed by the Socotherm and Orleans acquisitions, management aims for a RM3bn market cap over the next few years.
When the group was listed in 2002, its market cap was RM250m. Presently, Wah Seong’s order book is worth RM1.42bn. The group is bidding for RM5.3bn worth of contracts. Wah Seong’s tenders for new jobs has grown from RM4bil from the past two months to RM5.3bil currently. This represents 3.8x the group’s existing outstanding order book of RM1.4bil. Assuming a 20% success rate for current tenders, the group’s order book could reach RM1.8bil by the end of the year.
Its pipe-coating and corrosion production services account for 60% of this tender book. The pipe-coating tenders are for jobs in South-East Asia, China and Australia. The balance 40% of the tender book value comprise gas compression equipment and packages and industrial services.
The acquisition plans, assuming they pan out, would give Wah Seong access to a string of new markets, namely Nigeria, Angola, Brazil, the Middle East and the Gulf of Mexico, thereby narrowing the gap between itself and Bredero, whose annual sales are in excess of US$1bn. Apart from the M&A efforts, the newsflow is also remain active on the order book front as Wah Seong awaits the awards of pipe coating contracts from clients in Australia and Papua New Guinea.
Even without the two acquisitions, Wah Seong should be fairly valued at RM3.00. Once news comes through that the acquisitions have been firmed up, I expect Wah Seong to trade close to its higher PER band of 20x, which would suggest RM3.50 as a target.
Its almost pointless to compare Wah Seong with other similar industry players in valuation, locally and regionally as none has the ability to boast that it is a major player globally, none can say they are not terribly dependent on local jobs. We need more companies to follow Wah Seong, manage it well, grow locally, then regionally, and when you consider that you have the management expertise and technological professionalism to be competitive globally, just leverage onto the next platform.
p/s photos: Asin
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.
Movers & Shakers - Coffee Shop Talk
Despite the market still trending up, its pretty obvious that its not a full fledged bull run. Its highly selective and investors are still treading gingerly. Below are some of my comments on the movers & shakers:
Measat - Well, its still a theory to be privatised but have you had a decent look at the quantum leap for the past 3 days alone. I doubt very much that AK would have been thinking of a 50% premium to take it private from the price 3 days ago... and that's still a big IF. Measat is not Astro, yes its turning around from losses to a RM50m profit but it looks stretched to me.
IRCB - Highly dicey. Imagine the glove makers but without the gloves.
JCY - Still thinks its fair value is RM1.80-1.90.
KNM - How to draw a "puke icon".
MAS - A positive rerating, should have a bit more upside considering the low base it rallied from.
Glove makers - Cannot make any smart commentary at present prices, its like a runaway train and you are trying to predict when it will stop.
Evergreen - Steady climb back up, still looking at RM2.00.
ENG - Put that in the same category as IRCB but without the volume.
Jerneh - Second round, the first was a couple of months back. What could be happening - remember my article on Great Eastern.
Premium Nutrients - It looked good at 34 sen, climbed to 39 like an arthritic old lady up the stairs, broke out, should be good for a quick trade.
MTD Capital - Had to make some comments since I put up the posting and the company denied the sale of the Luzon tollway, but owners and company still buying back shares, cut if you don't like the story.
p/s photos: Rina Chinen
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.
Measat - Well, its still a theory to be privatised but have you had a decent look at the quantum leap for the past 3 days alone. I doubt very much that AK would have been thinking of a 50% premium to take it private from the price 3 days ago... and that's still a big IF. Measat is not Astro, yes its turning around from losses to a RM50m profit but it looks stretched to me.
IRCB - Highly dicey. Imagine the glove makers but without the gloves.
JCY - Still thinks its fair value is RM1.80-1.90.
KNM - How to draw a "puke icon".
MAS - A positive rerating, should have a bit more upside considering the low base it rallied from.
Glove makers - Cannot make any smart commentary at present prices, its like a runaway train and you are trying to predict when it will stop.
Evergreen - Steady climb back up, still looking at RM2.00.
ENG - Put that in the same category as IRCB but without the volume.
Jerneh - Second round, the first was a couple of months back. What could be happening - remember my article on Great Eastern.
Premium Nutrients - It looked good at 34 sen, climbed to 39 like an arthritic old lady up the stairs, broke out, should be good for a quick trade.
MTD Capital - Had to make some comments since I put up the posting and the company denied the sale of the Luzon tollway, but owners and company still buying back shares, cut if you don't like the story.
p/s photos: Rina Chinen
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.
PM In HK
Malaysia's prime minister reaches out to investors
Malaysia has a good story to tell, prime minister Najib Tun Razak said in meetings with investors and media in Hong Kong yesterday. The prime minister of Malaysia, Najib Tun Razak, was in Hong Kong yesterday on a mission to explain the appeal of his country to investors. "It's a good story to tell," he said.
He highlighted the new Government Transformation Programme, announced in April 2009, which aims to make the administration more effective and raise the standard and quality of life for all Malaysians. And he looked forward to the unveiling of the country's New Economic Model (NEM) ahead of the formulation of the 10th Malaysia Plan in late June.
The objective is to become "a wealthy and fully-developed country by 2020", he said.
Najib was speaking at a meeting with the media at the 13th annual Credit Suisse Asian Investment Conference in Hong Kong. The meeting followed a lunch with investors that was hosted by John Major, the former British prime minister who is now a special adviser to Credit Suisse.
Notably, Najib was keen for Malaysia to attract overseas portfolio investments into the country's equity and bond markets, in addition to foreign direct investment. This was in sharp contrast to a previous long-serving leader, Mahathir Mohamad, who berated foreign speculators and imposed capital controls in response to the Asian financial crisis more than a decade ago.
But, Najib, who is also Malaysia's finance minister, recognised that the "world has moved on and is more competitive", especially following the global recession last year, and that it is important "to reach out". He seemed to be on a marketing mission, acting as Malaysia's top ambassador to "communicate his country's story-line".
Najib understands that investors can only be attracted by high-quality companies, and that they insist on high levels of corporate governance. He emphasised the liberalisation of large parts of Malaysia's services sector in April last year, which included discarding a 30% Bumiputera (native Malays) affirmative action ownership requirement for investment in some enterprises. He believed that this move, which he described as "ground-breaking", hadn't received the attention or credit that it deserved.
Further liberalisation should be expected, but it is necessary to balance that with domestic considerations, he said. So there needs to be "a gradual review".
Foreign direct investment remains important to Malaysia's development, he said, and incentives will be offered for projects of major importance. The government is prepared to form "partnerships for innovation" with foreign firms, and lend its help at "tipping points" when necessary to finalise deals. But, promoting domestic investment is also a priority.
Proposals for the privatisation of some state-owned-enterprises (SOEs) are being examined and will be revealed in the NEM, he added, and Khazanah Nasional, the government's investment holding arm, will be encouraged to make more strategic investments abroad in order to earn higher returns and import new technologies.
Analysts have already noticed that Malaysia is busy courting investors. Bank Negara was the first central bank in the region to normalise its policy interest rates, and has allowed the currency to appreciate. By flagging possible divestments of SOEs, the government has caught investors' attention and inspired their confidence too, as revenues from sales would reduce the country's fiscal deficit.
So, Malaysia's story is a compelling one, and Najib said that he is "very pleased" with the response from fund managers. This will be a critical year for reform and for the revelation of the country's future strategy. Investors will be watching very closely.
Malaysia has a good story to tell, prime minister Najib Tun Razak said in meetings with investors and media in Hong Kong yesterday. The prime minister of Malaysia, Najib Tun Razak, was in Hong Kong yesterday on a mission to explain the appeal of his country to investors. "It's a good story to tell," he said.
He highlighted the new Government Transformation Programme, announced in April 2009, which aims to make the administration more effective and raise the standard and quality of life for all Malaysians. And he looked forward to the unveiling of the country's New Economic Model (NEM) ahead of the formulation of the 10th Malaysia Plan in late June.
The objective is to become "a wealthy and fully-developed country by 2020", he said.
Najib was speaking at a meeting with the media at the 13th annual Credit Suisse Asian Investment Conference in Hong Kong. The meeting followed a lunch with investors that was hosted by John Major, the former British prime minister who is now a special adviser to Credit Suisse.
Notably, Najib was keen for Malaysia to attract overseas portfolio investments into the country's equity and bond markets, in addition to foreign direct investment. This was in sharp contrast to a previous long-serving leader, Mahathir Mohamad, who berated foreign speculators and imposed capital controls in response to the Asian financial crisis more than a decade ago.
But, Najib, who is also Malaysia's finance minister, recognised that the "world has moved on and is more competitive", especially following the global recession last year, and that it is important "to reach out". He seemed to be on a marketing mission, acting as Malaysia's top ambassador to "communicate his country's story-line".
Najib understands that investors can only be attracted by high-quality companies, and that they insist on high levels of corporate governance. He emphasised the liberalisation of large parts of Malaysia's services sector in April last year, which included discarding a 30% Bumiputera (native Malays) affirmative action ownership requirement for investment in some enterprises. He believed that this move, which he described as "ground-breaking", hadn't received the attention or credit that it deserved.
Further liberalisation should be expected, but it is necessary to balance that with domestic considerations, he said. So there needs to be "a gradual review".
Foreign direct investment remains important to Malaysia's development, he said, and incentives will be offered for projects of major importance. The government is prepared to form "partnerships for innovation" with foreign firms, and lend its help at "tipping points" when necessary to finalise deals. But, promoting domestic investment is also a priority.
Proposals for the privatisation of some state-owned-enterprises (SOEs) are being examined and will be revealed in the NEM, he added, and Khazanah Nasional, the government's investment holding arm, will be encouraged to make more strategic investments abroad in order to earn higher returns and import new technologies.
Analysts have already noticed that Malaysia is busy courting investors. Bank Negara was the first central bank in the region to normalise its policy interest rates, and has allowed the currency to appreciate. By flagging possible divestments of SOEs, the government has caught investors' attention and inspired their confidence too, as revenues from sales would reduce the country's fiscal deficit.
So, Malaysia's story is a compelling one, and Najib said that he is "very pleased" with the response from fund managers. This will be a critical year for reform and for the revelation of the country's future strategy. Investors will be watching very closely.
Astro, Now Measat? Bigger Picture Issues
Investors holding Astro and/or Measat must be pleased and disturbed at the same time. You are pleased that Astro has finally jumped up, but displeased that the offer price, while generous considering the price traded over the past 6 months, may still be below what can be considered as fair value. Looks like the same thing is happening to Measat, but that has yet to be confirmed.
I am all for listed companies going private if the markets are not able to accord a fair price. In most developed markets, its OK for "good names" to go private every now and then, but it has to be a two way flow - i.e. some companies privatised, some new interesting companies being listed. That is not the case here, its all mostly one way.
Already we are seeing a dearth of international investing funds in Malaysian stocks - taking out more big-caps out of the bourse will only reinforce the backslide.
We cannot blame the companies, I mean, who wants their company to be constantly undervalued - it totally restricts many facets of the advantages of being listed. For example, as a means to grant options to motivate employees, or to issue shares to fund acquisitions, or to raise funds via convertibles and/or warrants - all that are thwarted because you don't want to issue shares cheaper than what you think is fair, and ESOS does nothing for your employees. Needless to say company shareholders are not getting fair returns for investing and the owners for managing the company.
Just imagine if IOI Corp and DIGI were to be privatised as well over the next 6 months. If you have two or three big names doing that every 6 months, you'd have a market with just second and third liners very very soon - what a cowboy market then.
The cause for this is undervaluation. This issue will not only rob the markets of investable names among big funds, it will also shoo away potential firms considering to list on Bursa (hint hint, Wilmar).
The lack of participation in the markets is the crux. We may try to blame it on foreign fund managers (but can we really???), as it is their prerogative to choose to invest into the country or otherwise.
Can we blame the local funds then? Unless most of the local funds are 50% cashed up, which may imply there is something sinister there, which is not the case anyway. Whether they are local or foreign, they have to maintain some sort of return for them to invest - cannot blame any of them for the undervaluation.
Cheap fix - I shudder to think of cheap fixes. Numero uno, double the allowed investment limit into local equities by EPF. Yes, it will cause some sort of buying but is that genuine??? You can unlock as much funds as you like from EPF or even get Petronas to start a Malaysian Equity Fund worth RM50bn - you will be mopping up the free float THAT nobody wants to own in the first place. In the end the prices go up not because of genuine investing goals but because you have shriveled up the free float. DO NOT EVER DO THIS!!! Don't set up another Valuecap everytime you see a period of undervaluation - address the underlying causes.
We all know why the undervaluation occurs, some of it may be cyclical in nature or thematically we are not in the picture for now. Both factors may answer some of the undervaluation but not most of it. I have an opinion on the lack of market velocity and undervaluation in Malaysian shares:
a) the surge in deficits are not effectively addressed with sufficient IMMEDIACY, there are a lot of proposed measures but being postponed and delayed, the longer it goes on, the more reason people have for not plonking their money down
b) reworking the NEP, be it 1 Malaysia or the New Economic Model or revamping the NEP, everyone knows NEP did not do its job well, we see no strong political will or sufficient intellectual strength to revamp the situation as the global economic paradigm has shifted, the regional economic paradigm has shifted, our competitiveness in many sectors have be altered, the need for a more transparent and meritocratic economic model in order to retain talent and improve effectiveness have been put aside or delayed, our education system have not been able to keep up with the demands of the new world (let's see how many sons and daughters of all Ministers actually attend public schools) - we kinda know where we should be going but we do not seem to have the political will to get there
c) "the sue me, sue you, sue me again, I dare you to repeat it outside the Parliament, defections, bribery to defect, denials left right center, power struggle in all parties, etc" ... all that have dogged the headlines for the past year and a half, I think the general public are generally disgusted beyond belief, nobody really cares anymore, it seems the ones that are supposed to move us ahead are the ones that are stopping us from moving anywhere
p/s photos: Maki Horikita
I am all for listed companies going private if the markets are not able to accord a fair price. In most developed markets, its OK for "good names" to go private every now and then, but it has to be a two way flow - i.e. some companies privatised, some new interesting companies being listed. That is not the case here, its all mostly one way.
Already we are seeing a dearth of international investing funds in Malaysian stocks - taking out more big-caps out of the bourse will only reinforce the backslide.
We cannot blame the companies, I mean, who wants their company to be constantly undervalued - it totally restricts many facets of the advantages of being listed. For example, as a means to grant options to motivate employees, or to issue shares to fund acquisitions, or to raise funds via convertibles and/or warrants - all that are thwarted because you don't want to issue shares cheaper than what you think is fair, and ESOS does nothing for your employees. Needless to say company shareholders are not getting fair returns for investing and the owners for managing the company.
Just imagine if IOI Corp and DIGI were to be privatised as well over the next 6 months. If you have two or three big names doing that every 6 months, you'd have a market with just second and third liners very very soon - what a cowboy market then.
The cause for this is undervaluation. This issue will not only rob the markets of investable names among big funds, it will also shoo away potential firms considering to list on Bursa (hint hint, Wilmar).
The lack of participation in the markets is the crux. We may try to blame it on foreign fund managers (but can we really???), as it is their prerogative to choose to invest into the country or otherwise.
Can we blame the local funds then? Unless most of the local funds are 50% cashed up, which may imply there is something sinister there, which is not the case anyway. Whether they are local or foreign, they have to maintain some sort of return for them to invest - cannot blame any of them for the undervaluation.
Cheap fix - I shudder to think of cheap fixes. Numero uno, double the allowed investment limit into local equities by EPF. Yes, it will cause some sort of buying but is that genuine??? You can unlock as much funds as you like from EPF or even get Petronas to start a Malaysian Equity Fund worth RM50bn - you will be mopping up the free float THAT nobody wants to own in the first place. In the end the prices go up not because of genuine investing goals but because you have shriveled up the free float. DO NOT EVER DO THIS!!! Don't set up another Valuecap everytime you see a period of undervaluation - address the underlying causes.
We all know why the undervaluation occurs, some of it may be cyclical in nature or thematically we are not in the picture for now. Both factors may answer some of the undervaluation but not most of it. I have an opinion on the lack of market velocity and undervaluation in Malaysian shares:
a) the surge in deficits are not effectively addressed with sufficient IMMEDIACY, there are a lot of proposed measures but being postponed and delayed, the longer it goes on, the more reason people have for not plonking their money down
b) reworking the NEP, be it 1 Malaysia or the New Economic Model or revamping the NEP, everyone knows NEP did not do its job well, we see no strong political will or sufficient intellectual strength to revamp the situation as the global economic paradigm has shifted, the regional economic paradigm has shifted, our competitiveness in many sectors have be altered, the need for a more transparent and meritocratic economic model in order to retain talent and improve effectiveness have been put aside or delayed, our education system have not been able to keep up with the demands of the new world (let's see how many sons and daughters of all Ministers actually attend public schools) - we kinda know where we should be going but we do not seem to have the political will to get there
c) "the sue me, sue you, sue me again, I dare you to repeat it outside the Parliament, defections, bribery to defect, denials left right center, power struggle in all parties, etc" ... all that have dogged the headlines for the past year and a half, I think the general public are generally disgusted beyond belief, nobody really cares anymore, it seems the ones that are supposed to move us ahead are the ones that are stopping us from moving anywhere
p/s photos: Maki Horikita
Thought for the day
If BA cabin crew continue to strike and the airline goes bust who will pay their pensions? At the last count there was an enormous black hole in their pension fund.
Pass me that self destruct button please.
Pass me that self destruct button please.
Is Government Buying Wisely?
Being part of the European ‘nanny state’ must have its advantages…..although I can’t quite think of even one at this time. Most definitely government travel buying, or for that matter any kind of state procurement is not one. The conditions, deadlines, red tape, mandatory declarations and disclosures are such that the likelihood of a smart or mutually worthwhile deal is small.
Until I got involved in the process I have always been perplexed as to why, if there are so many procedures and rules government projects always end up costing much more than the original contract. In the UK you only have to look at the Channel Tunnel, the Millennium Dome and Wembley Sport Stadium as examples of this. Why is this I thought, and then I got involved in a major UK government travel tender myself and saw what I think could be the key contributors to cost and timing failures. I will share my experience and subsequent assumptions with you but I must state at the outset that these are my own personal thoughts and not those of the company I worked for at the time.
If you are a private company you can set your own tender schedule and process. In government you cannot. There is a strict procedure in relation to timelines, disclosure, format and bidder selection you must keep to. On the surface this might seem highly laudable but in actuality it becomes restrictive, eliminates flexibility and costly in unnecessary administration and process. It also works on the basis that you know exactly what you want to buy as this has to be declared and published at the outset. Unfortunately, such is the size, mix and variety of such contracts that this essential is unknown and is probably a part of why the business is out to bid in the first place.
So what are these restrictions I am talking about? Here are some of the key ones as I perceive them:
1/ you have to publish all details of the contract and bid process in advance across European and give all equal opportunity to bid. You cannot be seen as individually selective or discriminatory in any way even if you are wasting your time or that of bidders who stand no chance of success.
2/ At this stage you must declare exactly what you are putting out to tender and you cannot easily change it even if you do not really know if it is accurate or not.
3/ the system seems to prevent any informal or individual dialogue with potential suppliers without giving everyone equal opportunity so there is no way building understanding, knowledge or relationships in order to improve/modify the brief.
4/ Everything has to be done by the book on a ‘one size fits all’ basis even though these contracts are some of the most diverse one is ever likely to come across.
5/ Government bodies seem incapable of aportioning or sharing out costs and savings amongst themselves which means that pricing is a nightmare and the potential of negotiating a fair and equitable financial package is minimized.
If you put some or all the above together you end up in a no win situation as the buyer has had to follow an entirely unhelpful process ending up with an oversimplified deal full of loopholes. The seller has to find some way of picking up the pieces while making a profit and minimising negative exposure.
At the beginning of this piece I mentioned that, in my eyes, most government contracts end up costing far more than the original contract agreement. I personally think it may be as a result of my point in the previous paragraph. What can end up happening is that the supplier goes in at a rock bottom unit price but then builds in a whole raft of necessary caveats in case the core buyer RFP is wrong ,which of course it is. The buyer is not able to hold contingency funds or apportion out costs internally so they have no way of dealing with it. The end result is that the government has an embarrassing overspend and the supplier makes their money out of charging caveats built in for ‘out of scope’ activities.
I write this for two reasons. Firstly I think it is wrong that any government should have to ignore sound commercial tactics and hog tie itself with bureaucracy when buying. Secondly, as a tax payer, it is my money they are wasting.
Until I got involved in the process I have always been perplexed as to why, if there are so many procedures and rules government projects always end up costing much more than the original contract. In the UK you only have to look at the Channel Tunnel, the Millennium Dome and Wembley Sport Stadium as examples of this. Why is this I thought, and then I got involved in a major UK government travel tender myself and saw what I think could be the key contributors to cost and timing failures. I will share my experience and subsequent assumptions with you but I must state at the outset that these are my own personal thoughts and not those of the company I worked for at the time.
If you are a private company you can set your own tender schedule and process. In government you cannot. There is a strict procedure in relation to timelines, disclosure, format and bidder selection you must keep to. On the surface this might seem highly laudable but in actuality it becomes restrictive, eliminates flexibility and costly in unnecessary administration and process. It also works on the basis that you know exactly what you want to buy as this has to be declared and published at the outset. Unfortunately, such is the size, mix and variety of such contracts that this essential is unknown and is probably a part of why the business is out to bid in the first place.
So what are these restrictions I am talking about? Here are some of the key ones as I perceive them:
1/ you have to publish all details of the contract and bid process in advance across European and give all equal opportunity to bid. You cannot be seen as individually selective or discriminatory in any way even if you are wasting your time or that of bidders who stand no chance of success.
2/ At this stage you must declare exactly what you are putting out to tender and you cannot easily change it even if you do not really know if it is accurate or not.
3/ the system seems to prevent any informal or individual dialogue with potential suppliers without giving everyone equal opportunity so there is no way building understanding, knowledge or relationships in order to improve/modify the brief.
4/ Everything has to be done by the book on a ‘one size fits all’ basis even though these contracts are some of the most diverse one is ever likely to come across.
5/ Government bodies seem incapable of aportioning or sharing out costs and savings amongst themselves which means that pricing is a nightmare and the potential of negotiating a fair and equitable financial package is minimized.
If you put some or all the above together you end up in a no win situation as the buyer has had to follow an entirely unhelpful process ending up with an oversimplified deal full of loopholes. The seller has to find some way of picking up the pieces while making a profit and minimising negative exposure.
At the beginning of this piece I mentioned that, in my eyes, most government contracts end up costing far more than the original contract agreement. I personally think it may be as a result of my point in the previous paragraph. What can end up happening is that the supplier goes in at a rock bottom unit price but then builds in a whole raft of necessary caveats in case the core buyer RFP is wrong ,which of course it is. The buyer is not able to hold contingency funds or apportion out costs internally so they have no way of dealing with it. The end result is that the government has an embarrassing overspend and the supplier makes their money out of charging caveats built in for ‘out of scope’ activities.
I write this for two reasons. Firstly I think it is wrong that any government should have to ignore sound commercial tactics and hog tie itself with bureaucracy when buying. Secondly, as a tax payer, it is my money they are wasting.
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