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Showing posts from February, 2006
Initial Report Card For Idris Jala (MAS)
Not Good, Man... Not Good

As reported in The Edge Daily (28/2/06): "Malaysian Airline System Bhd (MAS), went deeper into the red with a net loss of RM1.3 billion for the nine months to Dec 31, 2005, is deep in all sorts of crises and needs to turn things around fast to avoid a complete collapse. Facing a “current cash crisis”, its cash of RM1.17 billion as at Dec 31 may be depleted by April and losses will total RM1.7 billion by end-2006, if it continues on its present course.It will need RM4 billion in cash that will be raised through internal and external sources to tide it through the crisis. Its banes include high operating costs and unprofitable routes. It posted a net loss of RM616.43 million in the third quarter ended Dec 31, weighed down by higher operating costs including fuel costs and additional provision relating to receivable and engineering spares, compared with a net profit of RM57.62 million a year earlier. Revenue was RM3.17…
Government Investing Agencies - Less Is More
There Are Valid Reasons For Their Existence

Rohan888 wrote the following: "Should a country actually hold shares in companies? You mention Temasek as an example, but I think there are dozens of countries who do not own any shares in any (local or foreign) companies or only limited (for instance only the natural resources industries like oil and gas exploration). I think that the Singaporean example is both positive and negative. Most initiatives seem to come from the government holdings, not from private investors/inventors etc., not sure if that is so healthy for the future." Thank you Rohan888 for helping me to clarify my opinion.

As a rule of thumb, governments should NOT own shares in companies (local or foreign) unless the industry or sector needs to be protected or controlled (to some extent) - e.g. utilities, telecommunications, media are good examples. So, the first exception is where national interest is at stake. Some coun…

Khazanah's Report Card

Wow, what an ambitious article. Who is even qualified to make a call on Khazanah (K) with the amount of brain power on hand? Anyway, I jest, it is important to consider the "performance" of Khazanah regularly now since it has been helmed by Azman Mokhtar because of the timeline of objectives it has taken on. These objectives will have a big impact of the performance of KLSE/KLCI and how the Bursa will be viewed by the global investment community.

Key themes of Khazanah Nasional's mandate as a strategic investment house include: a) Creating sustainable value; b) Raising national competitiveness; c) cultivating a culture of high performance. These are to be achieved via four strategic pillars; namely,
- Legacy investments: streamline, restructure, nurture
- GLC transformation: Increase shareholder and strategic value
- New investments: New sectors, cross border
- Human Capital Management: Active leadership management

1) Legacy investments - Well, Azman and his team was not resp…
New Aussie Advertising Campaign
"Where The Bloody Hell Are You?" & Singapore Is Different

Many of you might already know this, the Australian tourism folks have launched a A$180 million advertising campaign to attract foreign visitors. It goes something like this:

It begins in an outback pub with a farmer saying: "We've poured you a beer". Then follows a sequence of iddyllic scenes including a boy at the beach saying "We've got the sharks out the pool", and party goers watching Sydney Harbour fireworks saying, "We've turned on the lights". A traditional Aboriginal dancer says, "And we've been rehearsing for more than 40,000 years". The ad ends at a white sandy beach with a bikini-clad young woman stepping out of the sea asking "So where the bloody hell are you?"

Though there have been detractors both in Australia and elsewhere, if you really know OZ land, that phrase is such a harmless expression. The phrase i…
DPW and P&O - Bush Finally Doing Something Right

First Singapore's PSA International thought they had the deal sealed with its US$6.4 billion bid for P&O (a UK ports & ferries group). Even P&O were happy with the bid. The deal would have made PSA the world's largest ports company. But no, petrodollars effect reared its ugly neck when DP World decided that they MUST have P&O at any cost - literally. How about US$6.9 billion! Thankfully, PSA pulled out of the bidding war, which was already at stratospheric level. The premium being paid for the acquisition is for control, for size and status. Well, we thought the deal was done, but NOOOOO... some American senators have to step in to block the deal. Finally, President Bush did something which I agree with. It is wonderful to see Bush doing something of value in addition to being good fodder for comedians.

Bush surprisingly defended DPW's deal, which would include the operation of seaports in Baltimore and fi…
UFS Buying PT Kiani Kertas
Got More Than UFS Bargained For

United Fiber System Ltd is a listed company in Singapore. It had the guts and gumption to consider a takeover of PT Kiani Kertas, a company once controlled by Suharto's ex-son-in-law Prabowo Subianto. Back in August 2005, UFS appointed Deutsche Bank as its financial advisor and financing arranger for the deal. (For a totally different case but also involving Deutsche Bank and co-starring Indonesian / Singaporean companies, please read blog on Deutsche Bank vs Beckett).

Johnathan Paul DB's Co-Head of Global Banking, Asia-Pacific said at the time, "We believe the proposed investment opportunity will further enhance the development of UFS into a key player in the international pulp market...". On 25 June 2005, UFS signed a Letter Of Intent with Kingsclere Finance Limited to buy a majority stake in PT Kiani Kertas and on 25 July 2005 UFS had entered into an Operational Management Agreement with PT Kiani Kertas to op…
Of Market Rallies, Stock Manipulation & Rubbish IPOs

A frequent visitor and commentator to my site is Rohan888, love your learned comments, man. It gets my juices flowing. He just posted the following reply: "The last half year at least 90% of the BM trading days losers outnumber winners, and 100% of the days there is last minute support by "the invisible hand". The only reason the index is holding up well is because of the top 10 counters, who have more weight than the other 990.Add to this that one of the most speculative counters (THHin) is associated to the former head of the SC, and that the current head of the BM thinks it is a good idea to swamp the market with even more rubbish IPO's.Are these good signs for the Malaysian market? I get the impression that it gets less and less relevant in Asia let alone in the world, and for the right reasons it seems. "

1) 90% days are down days - That is pretty normal actually. A normal year would see probably just …

Markets Are Always Looking For Reasons

Be Smart Buyers Of Stocks

How do you characterise the minor correction, particularly in second and third liners, over the last few days? It is a normal occurrence, especially in a bullish market. I do not trade the market anymore for short term gains (i.e. less than 10 days turnaround).

Whenever you say that you like a stock, there will always be some who will question your integrity the moment it dips. Let's be fair here, an opinion on a stock is just that, an opinion, not a fail-proof trading idea. Certainly not one that will provide for the immaculate in-and-out. Hence when you buy a stock, do not be flustered if the price drops soon after - always ask if the basis, justification and grounds of your purchase are still intact. If they are, everything should even out in the end.

Market rallies such as the one seen on KLSE for the past month needs to be understood further. The leaders of the market for the past one month were second and third liners, that should be easy to spot. Tha…
Deutsche Bank vs Beckett
Political Risk, Investment Risk, Country Risk

This legal case is being heard in Singapore, and hence will be patchily reported in Malaysia (if at all). However, the case is very interesting for all regional investors concerned as it exemplifies the 3 different risks of investing in a developing nation. The strange thing is that the "aggrieved party" is an Indonesian concern. Apparently, there is political clout and real political clout.

During the terrible days after the financial implosion, DB arranged a US$100 million loan to Beckett (controlled by Sukanto Tanoto and Hasjim Djojohadikusumo). This loan largely funded Beckett's profitable stake in Adaro Indonesia, allowing Beckett's stake to rise from 15% to 40% in one of the world's biggest coal mines. Both DB and Beckett are registered in Singapore.

Following that, Beckett had problems keeping up with payments and in 2001 DB exercised its right to sell the highly prized 40% stake in Adaro …

Bursa - Look Deeper To See The Warts

As reported in The Star Biz today (16/2/06): Bursa Malaysia Bhd reported a net profit of RM81.3mil for the year ended Dec 31, 2005, surpassing the RM60.3mil it forecast at the time of its initial public offering (IPO) in February last year. The company announced a final gross dividend of 10 sen a share following an interim gross dividend of 10 sen that was paid earlier. These are apart from the capital distribution of 83 sen a share in December. Yusli Mohamed Yusoff Chief executive officer Yusli Mohamed Yusoff pointed out that Bursa produced a total shareholder return of 88% for investors who successfully subscribed to the shares at RM3 each last year. This outstanding total shareholder return is based on the dividends paid and payable for its 2005 financial year, cash distribution and appreciation in its share price that closed at RM4.68 yesterday. Yusli said improvements in the financial results were achieved in spite of the “challenging market conditions” last year. One aspect of t…
Henderson's Pandora Box
Stock lending, voting rights & minority interests

HK's Henderson Land Development's second attempt on January 20 to take its 73.5% owned Henderson Investment private was rejected despite it winning support from the unit's largest independent shareholder, Franklin Templeton Investments. Apparently, some shareholders controlling 10.94% of the firm's minority shareholding voted against the proposal, while those owning 85.74% voted in favor. Henderson Land needed to win the backing of shareholders controlling 90 percent of the minority stake for its share swap offer, worth about HK$10 billion, to succeed. Management insisted that the lack of a cash offer wasn't the reason the buyout bid failed. In December, Henderson Land was forced to sweeten the buyout offer after minority holders, including Templeton, objected that the offer was too low. The original offer of one Henderson Land share for every 2.6 Henderson Investment shares was increas…
BCHB's Offer For Southern Bank (Updated)
Strange Why Investors Are Not Expecting Better Counter Bids

Bumiputra-Commerce Holdings Bhd (BCHB) on Feb 13 announced a takeover bid of up to RM6.35 billion for Southern Bank Bhd (SBB), with Datuk Nazir Razak saying they will leave it to SBB shareholders to decide. In conjunction with that, BCHB served a conditional notice of voluntary general offer (VGO) to acquire all the outstanding shares and warrants of SBB for cash and new BCHB redeemable convertible unsecured loan stocks (RCULS) of RM1 each. BCHB’s maximum total outlay will be RM6.35 billion. It offers to acquire SBB’s entire business and undertaking of SBB for a sum equivalent to RM4.08 comprising RM3.08 cash per share and RCULS at RM1 each. It will also acquire all oustanding SBB warrants at RM2.34 per warrant not already held by BCHB. BCHB said the effective offer price for each share was about RM4.15 based on the theoretical price of the RCULS as at Feb 10 of about RM1.07. As part…

IPO Pricing - Somebody's Taken The Easy Way Out

Merchant Bankers, Stop Stealing

Its been a long known fact that IPOs in Malaysia is an excellent way to make money, provided you can get your hands on them. Even in the bleakest of days, most IPOs will still give you 5%-10% gain on opening day. Except for that short period of time early last year where a few new Mesdaq listings even went underwater after being listed. However, that was a very small blot in the years of great gains of IPOs.

A decent listing in Malaysia would probably yield 20%-30%, anything more than that would be classified as successful. The strange thing is that, the percentage of IPOs registering more than 30% gains after a week or two is significantly higher than most other markets. You go to HK, and they would be laughing gleefully if their IPO shares got 15% gains on opening day trading. Malaysians would be quietly cursing the same thing.

What prompted me to write about this was an article in Financial Times today with the headline "String of Successful IPOs c…
Sarawak Play - Too Few
A Few Good Men (Stocks)

Avenue Securities came out with an interesting research report on potential run-up in Sarawak state stocks, particularly politically linked ones, in the coming months in the run up to the impending state elections. Avenue Research said based on the satisfactory performance of Sarawak-based stocks in the past three state elections, it expects buying interest in selected stocks to start building up in the next six to nine months as speculation on the date of the upcoming state election intensifies. “Excluding the state election in 1991, share prices of Sarawak-based stocks appreciated by, on average, 15%, six months before the election day and another 20%, six months thereafter (or 35% in total),” it said. While there was no clear trend in the 1991 state election, those in 1996 and 2001 showed a pattern whereby the average Sarawak-based stocks performed strongly before and after the election day, Avenue Research said. “We believe the stronger…
Coming To Terms With AIR ASIA
What's There Not To Like About AA

Singapore Not Really For Free Trade
For those who have been following Air Asia's dealings with Singapore to gain landing rights in Changi, knows what I am referring to. The Singapore authorities have been making Air Asia's life as difficult as it can be, mainly to safeguard the stupid monopoly of flights known better as KUL-SIN. Fernandes tried to step around the obstacle by ferrying passengers by buses from Johor to Singapore and vice-versa. Even that was blocked by Singapore’s Transport Ministry. So, Singapore should not always say they favour free trade and has no protectionist policies. Malaysia do have protectionist trade policies. Singapore should just come out and say they do want to protect certain sectors of their economy, while at the same time wanting to be a world class air travel destination and airport operator.

MAS & Air Asia
Now the LCC Terminal is scheduled for full operations on March 23, thr…
Southern Bank Update
Forced Marriage Or Arranged Marriage

The Edge Daily reported late on Friday on their website on the latest developments with Southern Bank. "Southern Bank Bhd (SBB), one of the country’s smallest banking groups, has outlined five criteria for any suitors, which it says are crucial to protect its shareholders and stakeholders’ interest. SBB chief executive director Tan Sri Tan Teong Hean said on Feb 10 the board was pursuing an alternative merger partner, after it had called off talks with CIMB Group Sdn Bhd on Wednesday. The five criteria would be to create value; allow shareholders to realise value; strategic vision; minimising disruptions and corporate governance, he said at a press conference in Kuala Lumpur.

The criteria are:
* Valuation, including potential upside value and risks;
* Transaction structure, which minimises completion risk and allows shareholders to realise value with minimal delays;
* Strategic vision and business fit, to ensure that synergies …
What's Next For Southern Bank?
Logical Conclusion - Up

As reported in the Edge Daily over the past few days, Southern Bank Bhd (SBB) has discontinued negotiations with CIMB Group Sdn Bhd (CIMBG) on a possible merger of their banking businesses, claiming that it has not received a formal offer from CIMBG after three months of talks. The latest development could lead to a hostile takeover move by CIMBG if it wants to go ahead with its plans for the merger of the banking businesses. “The Board is of the view that further prolonged discussions would not be in the best interests of SBB and its shareholders and other stakeholders, including its customers,” SBB said. SBB also said it is informing Bank Negara that it does not intend to proceed with the merger discussions with CIMBG. It said the bank remained committed “to explore other options to maximise shareholder value”.

“The board believes that a merger with another banking institution could be value creating for shareholders at this s…

The Performance Of PNB

Splendid or Fortunate or Well-Planned

Permodalan Nasional Berhad was incorporated on March 17, 1978. PNB was conceived as an important instrument of the Government's New Economic Policy to promote share ownership in the corporate sector among the Bumiputera. Prior to the establishment of PNB, shares allocated to individuals were seldom retained. When Bumiputera shareholders sold their shares, the profits generated were consumed and not reinvested. Through PNB, substantial shares acquired in major Malaysian corporations from funds provided by Yayasan Pelaburan Bumiputra or Bumiputra Investment Foundation were transferred to a trust fund and sold to the Bumiputera in the form of smaller units. By doing this, PNB ensured that these shares are retained, resulting in the cultivation of widespread savings habits. Total funds managed by PNB now surpassed RM50 billion.

However, that does not explain its ability to pay decent dividends year in year out. Even the best fund managers will find …