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Showing posts from June, 2006
WorldCup2006 Update
Quarter Finals

Germany vsArgentina
At the start of the tournament, only 20% of Germans surveyed believed that their team can win the cup. I am certain the figure is up to 80 or 90 percent by now. The trouble is, Germans are playing well and may have peaked too soon. If its the spectacular to win the match, then Argentina has more flair and firepower. Neutral on this game, slightly favouring Argentina to win as this team is the least cynical of all Argies teams for the past 20 years. When you have the skill and ability, you need not resort to cynical play.

Italy vs Ukraine
I was a neutral on Italians before. The grave injustice in their match with Australia makes me wish I was a Buddhist, then karma should prevail and have the Italians playing well this match and then losing to a very dubious penalty to Ukraine. Italy can go home for all I care.

England vs Portugal
The team that coached itself. What is the value of having Ericksson? If he plays Rooney as a lone striker aga…
Rise Of Buyout Funds & Implications
Companies Cash Hoard Targeted Soon

Kohlberg Kravis Roberts is looking to collect US$15.5 billion this year for what will be the biggest takeover fund ever formed - topping the loot raised by fellow barbarians Stephen Schwarzman, David Bonderman and Leon Black. Schwartzman's Blackstone Group, Bonderman's Texas Pacific Group and Black's Apollo Management are all raising new war chests that are likely to be filled with more than US$14 billion EACH. KKR's new fund will give it the firepower to pursue bigger takeovers of better-known corporations. The firm, founded in 1976, has already controlled some of the world's most iconic companies including Toys 'R' Us, Texaco and Gillette. The billions flowing into private-equity funds this year have many betting that KKR's record US$31 billion leveraged buyout of RJR Nabisco in 1988 will be shattered.

This week, four buyout firms including Texas Pacific agreed to shell out US$900…
Understanding Bubbles

The present day financial markets are very jittery, almost all asset classes are in some kind of frothiness, and having to come to terms with higher rates by Federal Reserve. Are prices in each of these assets over priced? Is the market shaky? Should everyone exit into cash? Let's look at a few asset classes that seems bubblish. I would also rate them on a scale of 1-10 for bubble effect (1 - very safe and a tad undervalued; 5 - fairly valued; 8 - overpriced; 10 - soap in mouth). Isn't it amazing that we have so many presumably "bubbles" in the present financial markets!!! The so called unconfirmed "bubbles" are there because underlying all these financial assets are pretty solid fundamentals - keep that in mind.

China Economy - Seems to be overheating. 1Q2006 growth was a spectacular 10.3% and industrial production rose 18% in May, the fastest rate in 2 years. Trade surplus in May topped US$13 billion. A year ago in May, it was just a s…
World Is Getting Smaller 2
M&A Deals Shaping Our World

Phelps Dodge - Inco - Xstrata - Falconbridge
Xstrata, the Swiss-based mining company who’s hopes to buy Falconbridge of Canada, began to fade when the copper miner Phelps Dodge agreed to acquire Falconbridge and its rival Canadian nickel producer Inco in a US$40 billion deal. Xstrata is not expected to abandon its pursuit of Falconbridge -– the Swiss company will emerge a winner either way, thanks to the premium it would receive on the 20 percent stake it holds in Falconbridge. By accepting Inco’s new offer, Xstrata will realize a profit of about US$2 billion on its Falconbridge investment, which it made last August. If it increases its bid for Falconbridge, then Inco and Phelps Dodge will probably counter it. BHP Billiton and Rio Tinto will have another heavyweight rival if the industry-transforming $US58 billion ($79 billion) merger between North American copper producer Phelps Dodge and nickel miners Inco and Falconbridge proc…
Global Demand For Biofuels & Malaysia
Carotech and Golden Hope

The growth in global demand for oilseeds such as palm and soy will exceed increases in production in the year to October, reducing stockpiles and sustaining prices, Oilworld trade publication said. Consumption will rise 17 million tons to 396 million tons, while production will increase 6 million tons to 392 million tons. The forecast production growth of 1.5 percent compares with an average annual growth rate of 4.2 percent in the preceding 10 years. The longer-term outlook is for a price appreciation in oilseeds and vegetable oils owing to increased demand for energy. Fundamentals have changed due to the boost in production of biodiesel and the resulting increase in vegetable oil demand. Governments worldwide want to increase biofuel use to curb reliance on fossil fuels, and curtail emissions of so-called greenhouse gases. The European Union has set a biofuel target of 5.75 percent of all gasoline and diesel sold by D…
Research Ratings
Goldman On The Right Track

Finally, the things which has caused my disillusionment with equity research are being rectified. Goldman Sachs has disallowed its equity analysts to be fence-sitters anymore by banning "outperform" and "underperform" recommendations. These two are basically to cover their asses for stocks that are likely to beat or unable to beat the index. These two categories of recommendations are generally ignored by users cause its inactionable. Goldman is now insisting on unambigious "buy" and "sell" tips for which the analysts will be held accountable. Goldman Sachs' analysts will be obliged to set price targets (that's a must) for all companis they cover. If the analyst were to change his/her recommendation, he/she will have to publish an evaluation of their tip (how well or poorly the tip has performed - fantastic move). I always believe more accountability will cause analysts to work harder and questio…
World Is Getting Smaller
M&A In The Works

This will be a regular thing looking at M&A deals in the works. Not just any potential big deal, but ones which gradually shapes our world.

EMI Buying BMG Music
EMI, the world’s third largest music company, is seeking private equity backing to mount a US$1.5 billion - US$2 billion bid for Bertelsmann’s BMG Music Publishing. Venture capital backing would allow EMI to retain the resources to bid separately for Warner Music, though its initial US$4.2 billion offer (for Warner Music) was rebuffed last month. Although EMI is only the world’s No 3 recorded music business, it is the world leader in music publishing, the part of the industry that specialises in song copyrights. BMG is the No 3 publisher. This method of M&A by EMI is loosely based on Sony Corporation’s US$4.85 billion purchase of the MGM film studio last year. Sony put together a consortium to buy MGM. Sony runs MGM, but put up only US$300 million of equity. Yet EMI faces stiff…
Banking Irregularities In China

Mainland auditors have uncovered more than 61 billion yuan (HK$59.3 billion) worth of irregularities at the Agricultural Bank of China, the country's third-largest state-owned commercial bank. The central government announced Monday that the National Audit Office, during its investigation into the bank's 2004 financial statements, found 51 cases of criminal wrongdoing involving 157 people, with fraud cases totaling 8.7 billion yuan. Auditors also found 14.3 billion yuan in improperly handled deposits and 27.6 billion yuan in illegal loans, along with other irregularities involving another 10.9 billion yuan. Bank employees were found to have embezzled from accounts and altered deposit documents. The majority of fraudulent loans were for automobile and property development financing, with some employees colluding with outsiders to defraud the bank. In one case, 460 million yuan worth of auto loans were made to a Beijing company without proper check…
Snippets, Snipes & Snides
23 - 27 June 2006

Transmile, DHL & Pos Malaysia
All 3 are better than average companies. Transmile Group Bhd signed a new agreement with DHL International to tap the fast growing overnight air express business in the Asia Pacific region and beyond. The new five-year strategic alliance agreement, with a provision for a further five years, would see Transmile's business with DHL booming with the use of more planes and routes throughout its network. With cargo volume handled by Transmile at Subang for its last financial year 100% higher than the previous year, and with the airfreight carrier seeing a big increase in capacity with the delivery of its wide-body MD11 planes, Transmile is expecting DHL to be a big customer for Transmile this year. The agreement, which allows Transmile to better manage its costs with DHL, would see both carriers cooperating to identify new and lucrative sectors in the high premium market. The agreement with DHL, which would …
Better Discernment & Interest Rate Hike Cycle

The present correction in equities, currencies and commodities have a lot to do with interest rate cycle perception. The present Fed funds rate is 5%. Most big investment houses think that the hike will top out at 5.5%, thus spelling the end of the cycle. However, recent data have prompted some of the bulge bracket houses to up their estimation of the top of interest rate hike for the Fed funds at 5.75% - 6%. Companies which have upped their forecast recently include Lehman Brothers, JP Morgan, Credit Suisse and Barclays Capital.

While the few cited companies are big, they are still not the big swinging dicks yet, unless a rerating is made by more influential houses such as Goldman Sachs, Merrill Lynch or Citigroup - there would not be much reverberations. Still, it is worthwhile to note the developments. Methinks, the "second tier" research houses have jumped the gun here. It is hard to fault them really, if you work for Credi…
The Invincibility Of IRIS

Despite being the butt of my sacarstic remarks and dark humour, Iris continued on its merry ways today after being released from being designated. Somehow for Iris, its more like being released from prison. Iris is like the woman your mother warned you about. Like smoking, drinking and womanising ... despite the warnings, many will succumb to the lures. Fast women, fast cars, fast money ...

Looking at their fundamentals, it is not exactly unattractive, at least there are some fundamentals - unlike Aokam or Fountain View. As for NTA, at least it is around RM0.20 (even though stock has shot up to RM1.15 today). As for 2006 PER valuation, though it might be close to 90x, it does not take much to halve it as the profits are miniscule to start with. If I am forced to look at the positives:
1) EBIT margin are steady at 14%
2) Potential for the company's electronic identity cards and e-passports contracts from markets such as Turkey, Somalia and Indonesia

Looking at…
Questions For Dr.M
By P. Gunasegaran, Group Exec Editor, The Edge

(It is only fair to have a balanced view, below was the timely piece in The Edge, ... people who live in glass houses...)
Datuk Seri Abdullah Ahmad Badawi is only in his third year as Prime Minister but his pre­decessor Tun Dr Mahathir Mohamad already has four questions for his administration to answer. They relate to Proton’s sale of MV Agusta; the exit of the former Proton chief executive officer; approved permits for cars; and scrapping of the bridge project. While we would like to hear a better explanation from the government than what has been given so far, Abdullah should not be the only one answeringquestions. I am sure we all have questions for Mahathir too — on how he ran the country for 22 years. Here’s a list of 22 questions or rather 22 groups of questions we would like to ask Mahathir, one for each of his 22 years in power:

1) On clean government. You came to power in 1981 and introduced the slogan “bersih, ce…
World Cup 2006 Update
21June 2006

Best Performers To Date Ranked
1 Argentina
2 Germany
3 Spain

Grand Under-Achievers Ranked
1 France
2 England
3 Brazil

Generally, teams that make the finals do not play that well in the early phases, as it stands Argentina looks unstoppable and Brazil's attacking is not fully functional and its defending is suspect. Spain as usual will let everybody down during the second round but the might of Torres may see them fight for a semis berth. Germany has the weight of expectations but a semi final berth is likely. Italy and Netherlands needs to improve and should improve in time for a late charge.
Proton, Bridge, APs, Sand In Face & Stuff Like That
By Raja Petra Kamarudin

(Generally, I would stay away from political commentary, but this is too good to pass up plus it involved some listed companies, written by Raja Petra Kamarudin, enjoy and learn).
So it is now official. Dr Mahathir and Abdullah are at war. And the Menteri Besar of Perlis, Shahidan Kassim, has offered to play the role of mediator to bring the two Umno giants back together again. Shahidan would have better luck in trying to reconcile Anwar Ibrahim and Dr Mahathir -- and this in itself is an impossible task.

Today, Dr Mahathir is experiencing what Abdullah endured almost 20 years ago. The hand kissers steer clear of Dr Mahathir like he is the plague. Speaking his name is taboo. Even whispering his name is high risk. Better one pretends that the man named Dr Mahathir Mohamad never existed if one values one's future in Malaysian politics. Today, Dr Mahathir is discovering the error of his ways. Dr Mahathir is …
The Parable Of Vonage & Iris

Once upon a time in a quaint town called Vonage & Iris, a man appeared who announced to the villagers that he would buy monkeys for $10. The villagers seeing that there were many monkeys went out in the forest and started catching them. The man bought thousands at $10 and as supply started to diminish, the man said that now he would buy the bloody monkeys at $20. This renewed the efforts of the villagers and they started catching monkeys again. Soon the supply diminished even further and people started going back to their farms. The offer rate was increased to $25 and the supply of monkeys became so tight that it was considered lucky to even see a monkey let alone catch it. The man now announced that he would buy monkeys at $50!

However, since he had to go to the city on some business matters, his assistant would now buy on behalf of the man. In the absence of the man, the assistant told the villagers: "Look at all these monkeys in the big cage…
Not Even One Pro Understands The New FTSE Bursa Indices

The Star Biz page is often the much sought after for the top business news of the day in Malaysia. The front page today reads "Funds Cool To FTSE Bursa Index". Most fund managers are not expecting significant adjustments to their investment portfolios when the first phase of the FTSE Bursa Malaysia Index series kicks in next week. Hwang-DBS Investment Management Bhd chief executive officer and executive director Teng Chee Wai said: “We do not anticipate significant adjustments in the portfolio management, especially for the local fund industry, as most domestic fund managers are active stock pickers. Unlike their foreign counterparts, most local managers are not benchmark ‘huggers’.” He said most of the company's funds were equity-based and benchmarked against the KL Composite Index (KLCI). As such, the new indices would not have much effect on the company's overall portfolio management. Sharing similar views, CI…
Malaysia - Notable Corporate Developments

Astro Passing Critical Mass
Astro All Asia Networks plc's net profit for the first quarter ended April 30, 2006 has more than doubled to RM90.48 million from RM39.81 million a year ago mainly due to better margins and lower finance cost, after offsetting share of losses from associates and overseas investment. Revenue rose 11% to RM523 million from RM473.2 million a year earlier on the back of higher subscription and advertising revenue, while earnings per share increased to 4.7 sen from 2.07 sen. In a statement on June 20, Astro said earnings before interest, tax, depreciation and amortisation (EBITDA) improved 65% to RM151 million, reflecting higher revenues and the benefit of a one-off reduction in subscriber acquisition cost of RM19.9 million. It said EBITDA margin improved to 28.9% from 19.4% a year earlier. Astro said its pay-TV roped in 98,400 new accounts during the first quarter. Net of churn, the company added 38,500 residential su…