Dilbert@Malaysia by SDali

Obviously too much time on my hands ... my first attempt at creating a cartoon strip ...

Value Caunter, ... I Mean... Counter For The Times

Sometimes the winds need to be blowing in the right direction. Normally many investors would not bother much with Hua Yang. Its a small property player and has been in the business for over 30 years.



Its paid up following the recent 1 for 5 bonus is just 108m shares of 1.00 par value. Thus its market cap is a smallish RM108m. Hua Yang has carved out a niche and its reputation, though not stellar, is credible. Its showcase include Taman Pulai Indah in Johor, Oasis in BU, Symphony Heights @ Selayang and Bandar Universiti Seri Iskandar. The latter two projects have been quite successful.

The Group‘s better financial performance for the 1st 6 months of the financial year (revenue +48.5% YoY & net profit +66.0% YoY) was due to better sales achieved and construction progress for the current period. The bulk of the profit contribution was derived from the unbilled sales from Symphony Heights @ Selayang and Bandar Universiti Seri Iskandar.



For the year ended March 2010, it recorded revenue of RM103.54m and a net profit of RM11.6m, a jump of 32% from the previous year. Judging from the spectacular jump in profits for the 1Q 2011, Hua Yang is on track to register a revenue of RM160m for year ending March 2011 and a net profit of RM20m, which translates into an EPS of 19 sen. PER wise its very cheap.

What's gratifying is that its pipeline is on track into 2012 and 2013 which should see revenue jumping to nearly RM300m. Its NTA is at a comforting RM2.25 per share.




If you look at the chart above, the sharp jump recently and its fallback was due to over speculation for its 1 for 5 bonus. Realistically speaking, I prefer Hua Yang over the Mah Sings and IJM Lands because their exposure is towards the more affordable range of properties.

The government will introduce Skim Rumah Pertamaku through Cagamas Bhd, which will provide a guarantee on down payment of 10% for houses below RM220,000. This scheme is for first-time house buyers with household income less than RM3,000 per month. In other words, the house buyers will obtain a 100% loan without having to pay the 10% down payment. In addition, first-time house buyers will also be given stamp duty exemption of 50% oninstruments of transfer on a house price not exceeding RM350,000. The Government also proposes that stamp duty exemption of 50% be given on loan agreement instruments to finance such first-time purchase of houses. Hence, Hua Yang is a clear-cut winner under these incentives.



Major Shareholders
Heng Holdings Sdn Bhd (30.7%)
Poh Meng Cham (14.9%)

You might like to know that the Chairman of the company is none other than Ting Chew Peh. Read into it however you like. Its a very well managed small cap. Winds are blowing the right way. I see RM1.30 as easily attainable before the year is over. If you like property sector in Malaysia, this is a safe bet.

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.

How Bullish Foreign Investors View The Malaysia Story

Malaysia has not been appearing in most international investors' radar for the longest time. Lately the funds flow into emerging markets have been picking up steam, and its refreshing to read how international investors view the Malaysian story. My comments in brackets and in red.




http://seekingalpha.com/article/231003-five-reasons-to-add-malaysia-to-your-global-portfolio


by Carl Delfeld

With a surface area of just over 127,000 square miles, Malaysia is home to about 24.8 million people and is rich in natural resources. (Well, Carl, actually if you look at the working population, the figure may be around 12m ... but we have a lot of legal and illegal foreign workers, maybe to the tune of 3m collectively ... so, at least 25% of the workforce can be considered as "low cost and outsourced" in a way). It exports both natural gas and oil and has low inflation and debt. So let me show you why I see Malaysia as a “middle way” for investors and why you should add this strong emerging market to your global portfolio.

A Fistful of Benefits: Five Reasons Why You Should Invest in Malaysia

What is this “middle way?” Simply put, instead of the 8% to 9% GDP growth seen in markets like China, Indonesia and India (which is largely driven by low wage rates), Malaysia will grow at a more modest, but more consistent and well-rounded 5% to 6% clip.

Plus, it’s a solidly middle-income country (ya dude, stress the middle-income), with a per capita income north of $10,000. And more investors have begun to look beyond the headline-grabbing emerging markets towards places like Malaysia instead. Why should you join them? Five reasons:

• Strong Diversification: Although palm oil, tin, petroleum, copper, iron ore and other commodities are an important part of the Malaysian story, its economy is well diversified. A full 50% of GDP comes from the services sector, with 40% coming from industry and 10% from agriculture. (I probably won't agree with the word "strong").
  

• Attractive Demographics: With 32% of Malaysia’s population under 15 years of age, 58% of people under 30, and just 8% over 60, the country boasts attractive demographics and a very strong foundation for future growth. By contrast, just 15% of Japan’s population is under the age of 15.

• Forward-Looking Economic Plan: Malaysian economic growth rolled in at a respectable 6% last year, which has resulted in a solid upward move alongside the middle-income nations. But Malaysia needs reforms to move to the next level. In particular, it needs to end preferences for some ethnic groups in order to keep talent in the country. In this regard, the government hopes that its New Economic Model will increase per capita income to $15,000. To meet this goal, however, the country’s GDP will have to grow by an average of 6% per year over the next five years.

• Strong Currency: With U.S. interest rates at record lows and more money consequently pouring into fast growing Asian markets, currencies are gaining strength. The Malaysian ringgit is one of them, having recently climbed to a 13-year high. (One of the new ways of looking at the ringgit is that its a great proxy play on the Chinese yuan. Since its difficult to get direct exposure to yuan bonds or yuan deposits, this has certainly perked demand for ringgit bonds).
  

• Valuations in the Middle: To some degree, the markets already reflect the changing perception of Malaysian risk and potential return. According to data from Thomson Datastream and Reuters, the overall price-to-earnings ratio for the Malaysian market is 15, while Singapore’s is 16.5. Other Asian markets like Indonesia trade for 21 times earnings, while India’s Sensex index is trading at a vulnerable-looking all-time high of 24. But remember how I said earlier that Malaysia and Singapore share a deep relationship and similar traits? The increasing economic integration between the two countries essentially acts as a “dividend” to investors, as it fosters higher economic growth and political stability. (I think Carl may have a point here. I would call it "Singaporise the Malaysian economy" - the KTM thing solved paves the way for the speed train from KL-Singapore, I do think the economic benefits will outweigh the impact of building the North South Highway. The Iskandar region is still too slow in progress but its there with its inherent potential, and a lot depends on Singapore and not Middle East investors. Almost everyone was shocked at the spectacular success of Sentosa, esp in property. To me it looks like a repeat of the HK-Shenzhen / Macau transformation, Shenzhen / Macau being likened to Sentosa. Being "successful" will means the border and economic activity will be pushed further .... the next 2 years should see spillover activity into the Iskandar region, much like what has happened to Zhuhai region following Shenzhen / Macau).
  

Jump on the “Profit Causeway”

Malaysia and Singapore have agreed to set up a Joint Ministerial Committee, which will oversee economic cooperation in the Iskandar Development Region (IDR) in Johor, Malaysia and will have a causeway linking it to Singapore.

The region spans an area of 850 square miles, which is roughly three times Singapore’s size, and smart cards will facilitate the two-way traffic of Malaysians and Singaporeans to the IDR. It’s estimated that on a regular workday, more than 150,000 workers commute over the Johor-Singapore causeway to earn a better living.

So how can you earn some money from this, plus Malaysia’s other broad economic and market benefits and the expectation of continued growth?

Investing in Malaysia: Grab a Southeastern Asian Double

The most direct way to gain from this joint project would be to jump on a plane and take a grubstake in Johor real estate. (Err, Carl, yes and no, do check out the weather patterns for various regions as Johor is highly prone to flooding in many areas).

But since that’s not really practical, check out the iShares MSCI Malaysia Index (NYSE:EWM) – a basket of leading Malaysian companies. Breaking the fund down, one-third of the stocks are financials, while consumer staples and discretionary companies make up an additional 29%. Industrial firms account for a further 18% of the portfolio. The fund has an annual expense ratio of only 0.54%.

Essentially, investing in Malaysia is also a back-door strategy to investing in Singapore and capturing the dynamic economic growth within the region. So put both Malaysia and Singapore in your global portfolio and grab the twin emerging market growth of “Malaysiapore.”

p/s I hope this catches on, remember that you heard it here first: "to Singaporise the Malaysian economy" ; )

YTLe and YTL Power

The mini posting on YTLe and YTL Power elicited some savvy comments from reader Jason. RM2.5bn WiMAX rollout. For leveraged exposure to WiMAX, YTL e-Solutions’ fee arrangement with YTL Power appears quite attractive. YTL Power will roll out WiMAX nationwide on 18 Nov.

It will provide free service to 400,000 university students for usage within their campus for a limited time. YTL e-Solutions will be paid an annual fee of RM75m and a 10% share of revenue above RM500m for its WiMAX licence. Fees will flow directly to the bottomline.

YTL Communications Sdn Bhd, which is gearing to launch its WiMAX-based services on Nov 18, is expected to sign an agreement with US-based Sezmi TV for a new personalized digital television content offering on its network. The agreement will give YTL Comms exclusive rights to offer hybrid TV services, comprising traditional TV, on-demand and Internet content to Malaysia and the Asian region. It may take YTL Comms a year to roll out the services in Malaysia. The overall cost of bringing digital TV on its network to TV screens and also extending services to the region may be whopping RM1b to RM2b.

Jason:

1) YTL Communications is 60% owned by YTL Power and the remaining 40% was sold by YTLe to other party in June 2009 (never mentioned buyer of 40% in YTLe annual report and never announced to Bursa at all)

2)Y-Max Networks (holder of Wimax spectrum) is 60% owned by YTLe and remaining 40% must be owned by those "capable people up there".

3) Emailed to YTL Power Public relations over my disappointment because IF YTL power have to fork out ALL the money to the tune of RM1 billion so far, yet have to share so much with YTLe, no reply or confirmation yet from YTL on profit-sharing with YTLe.

4) I think the business model of YTL wimax will be very disruptive to exiting celcos. Imagine, for your moblie phone charges, you are charged not on per minute anymore, (I hate existing celcos charge me based on per 30-second block) but on per unit cost based on kilobyte or megabyte, just like your electricity, except the more you use, the cheaper unit cost will be. Anyware 100 hours talktime roughly equals to 1 GB, so talk is cheap then.

5) However, the risks are interconnections as existing celcos such as Celcom and Digi have yet to provide interconnection even though agreement are signed. I mean, do you want your competitor easy time? The second risk is related to wimax handset as not many out there yet, even though the wimax ecosystem is quite mature compared with LTE. In fact YTL wimax will be the world first deployment with mobile voice and data over wimax. Initially, i think Mobile VOIP will be the killer app.

6) Based on existing celco ARPU of around RM55 and P1's ARPU of RM60, If YTL can get 4 millions users say after 3 years, the annual revenue will be RM55 ARPU X 4 millions x 12 months=RM2.64bil lions. Assuming 27% nett (Digi and Maxis have around 27% to 33% nett), this will translate to around RM740 millions per annum, not bad for an investment of RM2.5 billion. Business model of P1 and YTL is different. P1 only has fixed/nomadic data + fixed voice that bring little value to consumers. How many needs fixed voice nowadays?

So, the value really lies in mobile VOIP with YTL's 018. Wimax's low latency and QoS makes it easy for voice. The question is not so much about technology with LTE or wimax. Existing carrier will go for LTE as it is compatible with 3G and greenfield operator such as YTL will go for wimax as wimax equipment is at least 4 times cheaper than LTE equipments today. Both will co-exist just like GSM and CDMA with wimax especially more popular among developing countries as it is cheaper to deploy and LTE will be more popular in devekoped world. Don't forget, both are 100% IP and OFDMA based.

Corporate entertaining 3 – Could end in divorce!

My relationship with my wife has been tested sorely twice in my years of being corporately entertained. It could have so easily gone the wrong way twice but thankfully Judith and I are still together. The occasions were even worse than the time I murmured “Oh yes Valerie” in my sleep. A terrible thing to happen, especially as I do not know anyone called Valerie.

The first occasion was when I was invited by British Airways to fly to Australia to see the rugby world cup semi final match between France and England. A fabulous opportunity which I could not turn down even though we would only be there for less than four days.

Anyway, we went to the fantastic Telstra stadium which makes our Twickenham ground look like a public toilet and sat just above the half way line in some of the best seats in the place. Marvellous, and to complete our joy England won, thanks mainly to the boot of Johnny Wilkinson. After the game we went into one of the ground’s hospitality suites and imbibed in copious quantities of the amber nectar (Australian for beer).

The need to make more room for the next pint(s) became irresistible so I went back into the main stand to find the lavatories. In the nick of time I found one and as I did what comes naturally at such times the loudest, drunkest and rudest Australian jubilantly staggered into the convenience. “Is that all you have got” he crowed as he relieved himself in the middle of the room. We are going to thrash you bstrds in the final next week. I disagreed and we had a little undignified pushing and wrestling.

The argument was settled by me during a pause in grappling. “Look” I said. Why don’t we swap phone numbers and agree that whoever loses next week phones the other to apologies”. He agreed and we parted and I frankly thought nothing further about it.

The following week I sat down back home with my wife and watched the final and, thanks to the boot of Johnny Wilkinson, we won. I went ballistic and jumped all over the room screaming “YES, YES” rather like that famous scene in the film ‘When Harry Met Sally’. I did not hear the phone ring but Judith did.

The first thing I noticed was the shocked look on her face. She asked me if there was something I needed to tell her about my sexuality. The question rather shook me so I asked why she should enquire. “Well” she said “I have just spoken to a drunken Australian. He was crying. He said he met you in a toilet in Sydney and that you had been rough with each other. He says he feels sad and ill but wants to say sorry. Hard to explain convincingly, I am sure you will agree.

The second time was far more local. It was at a supplier’s evening summer garden party near Windsor Castle. It was ‘finger buffet’ style and I was standing on his patio with a glass in one hand and a plate in another talking to other guests.

I suddenly felt something hard (and sharp) pressing into my groin. I looked down to find the host’s Doberman dog showing an enormous interest in my private parts to the point of chewing them. I tried to move him but every time he growled and snarled and continued with his fetish. By this time I was desperate and fortunately mine host arrived to drag the hound away, but not before my whole crutch area was covered in doggy drool and also a couple of trouser tears.

There were huge apologies all round and, after an extended visit to the cloakroom I came out with some of my trousers, and dignity intact. I did not want to hang around with such a wet patch so I went straight home.

Judith was in bed reading a book when I walked into the room. “Looks like you have been having a nice time” she muttered. I followed her eyes down to discover that what was initially a clean wet patch had turned dry, crusty and stained. “I know what you are thinking but you are wrong” I said. “Really” she replied with eyebrows arched. “Yes” I said. “It was a dog”. “They all are” she responded cryptically, and switched off the light as I stood there.

Moving China Up To The Next Level

By ANDY XIE

When China's GDP surpassed Japan's in the second quarter of 2010, the international media gave this milestone considerable coverage. But with natural disasters, environmental problems and the property bubble to cover, the domestic media hasn't given it as much attention.

Perhaps it is because China has over ten times as many people as Japan which puts China's per capita income at less than one tenth of Japan's - hardly something to celebrate. Nevertheless, it is useful to look back at how far China has come, study the risks it faces in the future, and, if the country can overcome the existing challenges, explore how much further it can go in the next decade.

China's economy took off in 2002 and since then nominal GDP has grown at 18.5%, and exports in dollars at 21.7% (I have extrapolated the economic performance for the remaining months of 2010). The nominal GDP has increased 2.9 times, and exports 3.8 times in USD and 2.9 times in RMB. Japan had a similar performance in the 1960's, Korea and Taiwan in the 1980's, but they are much smaller. In terms of scale, what China has done is unprecedented.
When growth is sustained over many years, with the miracle of compounding there is a huge long-term impact. Twenty years ago China and India had about the same value in GDP, yet this year China's GDP is roughly four times that of India.

Reform and opening up, China's policy center over the past three decades, has undoubtedly been the most important factor. China is now the largest exporter in the world. Having virtually no exports three decades ago and almost none even two decades ago, the country's exports have risen 5.2 times over the last decade. 'Being the workshop of the world' is the most important part of China's economy today. Without China's export success China's economy wouldn't be nearly where it is today.

Joining the WTO made a critical difference to the country's export success, giving multinational companies (MNCs) the confidence to base significant production in China. As China's domestic market grows, it gives MNCs another strong reason to keep production in China. No other country can offer economies of scale that combine selling locally and exporting abroad with low production costs.

However China no longer offers the lowest production cost. The labor cost in Bangladesh is merely one-fourth of China's. Indonesia's labor cost was twice as high as China's before 1997 and is now comparable to China's and rising at a much slower rate. Industries that do not require the supply chain to be nearby may exit China - for example the shoe and garment industries - but most others will stay since relocation is not an easy solution. Many manufacturers will simply pass their higher costs on to consumers and MNCs may just have to accept lower profit margins.

Infrastructure development has been a competitive advantage for China, and is the result of the government's ability to mobilize resources. Land and credit are usually constraints on infrastructure development in most other countries, but state ownership of land and banks has allowed China to develop large infrastructure projects while also benefiting from economies of scale.

The national expressway system is a good example of this. Only an interconnected system of such a large size can deliver economic benefits due to the so-called 'network effect'. In a dozen years China has completed over 60,000 km of expressways and another 30,000 km are under construction. The expressway system has made the national population more mobile, integrated villages and small cities into the national economy, and sharply decreased logistics costs.

The development of ports and industrial parks has encouraged OEM industries (original equipment manufacturers) to locate in China. Together with the highway system, this made it possible for China to become the largest export country in the world.

China was also early to embrace the Internet - and this laid the foundation for China to be part of and benefit from the global economy. In addition, China's large and productive labor force has contributed more than any other factor to China's growth. Until five years ago the nominal wage had been stagnant in nominal dollar terms for over a decade, even though labor productivity had been increasing at nearly 10% per annum and total factor productivity at over 4%. The increase in productivity of Chinese labor meant declining prices for western consumers, rising profits for MNCs, and rising tax revenues for the Chinese government. This saw more MNCs coming to China for production, and Chinese local governments in China continue to invest in infrastructure to attract them.

China's rapid growth has also coincided with a weak dollar. The dollar index peaked in 2002 and has declined by one third since. The dollar's weakness is due to globalization and technology, a result of driving liquidity into emerging economies, particularly China's. Though the tendency is to blame a crisis on slow growth, actually crises always seem to follow periods of high growth in emerging economies. It is the problems that are allowed to accumulate during the high growth period that cause both the crisis and subsequent slow growth. Nothing hides problems like high growth so policymakers tend to try and sustain it for as long as possible in the hopes they can outgrow the problems. But history teaches us that this is usually not possible. The longer the growth lasts, the more intractable the problems become.

China's money supply has quadrupled in the last eight years, growing at 19% per annum, and if the off-balance sheet expansion of the financial institutions and underground financial activities are included, the money supply may have grown at 11% per annum. During the same period the nominal GDP has grown at 18.5% so if one compares the official GDP data and monetary data, it does not seem cause for concern, as the two are about the same. But there are two potential problems to consider: nominal GDP has been inflated by the property bubble, thus the rapid monetary growth is also probably a bubble; and real monetary growth is much higher.

China's electricity consumption grew at about 13% per annum between 2002-10. Historically China's real GDP has grown faster than electricity consumption - the ratio of electricity consumption increase to GDP increase is called elasticity and it was around 0.8 during the 1990s. Heavy industry has been leading the current growth boom, thus the economy has become more dependent on electricity for growth, so the elasticity should have increased and I suspect it wouldn't be more than one. Hence, it is reasonable to guess that China's real GDP has grown at 13% over the past eight years, which would put the GDP deflator - the broadest inflation gauge - at 4.5%

So far, inflation has mostly occurred in land and commodities. Land prices have increased on average by more than ten times since 2003, 30 times in some hot coastal cities, and more than 100 times in the most speculative areas. It is reasonable to believe that China's land price is highest among all the major economies today, even though China's average wage is one tenth that of developed countries.

Land price inflation has shown up in the nominal GDP through rising property sales of over 14% of GDP last year. Much of the investment has been due to the collateral value of land, with local governments borrowing enormous amounts of money (probably around 17% of the total bank lending) to fund or subsidize investment to create GDP. The loans are secured with land, so without high land prices such financing would be impossible. With fixed investment being driven by the government and close to half of GDP, it is easy to see how the land bubble has accounted for a large portion of the growth during the current cycle.

Recent manufacturing investment, for example, is due partly to high land prices. Local governments have been competing fiercely for manufacturing investment and many companies have learned how to extract enough benefits from local governments that they do not need to put up any equity capital for investment. They often ask for free land and use that as collateral for a bank loan. They then lease equipment from the manufacturers who have used the leasing contracts to obtain bank loans. This explains why so many companies have been able to continue expanding with a negative cash flow: expansion is critical to their survival as new investment brings in the cash they need to sustain themselves.

Profit drives investment, which in turn powers employment, and that then grows consumption. When profit is due to asset appreciation and not sustainable, it may lead to crisis. Large bubbles often occur during prolonged prosperity, when people stop paying attention to risk and there is excessive demand for risky assets, leading to an asset bubble that prolongs prosperity beyond the normal cycle.

Possibly half of China's bank lending is going into property-related businesses or local governments that are pledging land as collateral. While the current boom has catapulted China ahead of Japan to become the world's second-largest economy, we must remember the excesses in this cycle and the need for an adjustment as soon as possible. Nothing reveals the vulnerabilities more than the banking system's exposure to unsustainable economic activities that are dependent on land appreciation. China should proactively bring about the needed economic adjustment.

Bull Back In The China Shop?

Looks that way. China's stock market came flying out of the gate after being closed from the end of September through October 7th. Since then Shanghai Composite is up by more than 7.75%. China had been one of the weakest performing countries for the past 6 months. The index has now entered a new bull market as well. A bull market is defined as any 20%+ gain that was preceded by a decline of at least 20%. From its low on July 5th, the Shanghai Composite is now up 21%.

Darryl Guppy: Increasing currency volatility, central-bank intervention, continued weakness in the US dollar and a crescendo of poorly informed opinion prior to mid-term US elections all add up to market moving events.

Meanwhile, China has been quietly offering support for beleaguered European nations battered by the ongoing debt crisis. This is very significant for a market that has been closed for almost two weeks because of the confluence of holidays.

The Shanghai market has been moving in a prolonged sideways trading band. Support is near 2,580 and resistance is near 2,680. These are the key trigger levels and they also provide a method for calculating the potential upside or downside movement. The width of the consolidation band is measured and used to set the target.

A break below support at 2,580 has a target near 2,480. A break above resistance near 2,680 has an upside target near 2,780. Moves above or below these trigger levels have a high probability of moving rapidly. This gives rapid access to good profits for an upside breakout, but it also points the way to quick losses in a downside break.

On balance, we remain bullish for two reasons. The first reason is the long term inverted head-and-shoulder trend reversal pattern. The consolidation is consistent with this type of pattern, although it has continued for longer than usual. The second reason is the powerful upsurge in the short trading period between the two holiday breaks. This surge developed despite the increase in tensions with Japan and continued attacks on the valuation of the renminbi. In this sense, the news in the last week was already accounted for in the index activity last week.

Our bullish bias is tempered by the continuation of volatility within the consolidation band. This is not a market for the nervous.