Trading/Services: Genting Berhad

Resorts World Sentosa: Bringing Life to the Genting Group~!

Introduction

Genting Berhad is an investment holding company that encompasses interests ranging from casinos, resorts, cruise operation, plantations, property development, oil and gas exploration, and power generation business. The Genting Group is Malaysia’s leading multinational corporation and one of Asia’s best-managed companies. The Group has over 35,000 employees, 4,500 hectares of prime resort land and about 133,000 hectares of plantation land.

The Genting Group is the collective name for Genting Berhad and its subsidiaries, and comprises the following four listed entities with a combined market capitalisation of about RM115.8 billion as at 30 September 2010. It is no longer a gaming company, it is now a giant conglomerate with their core business in the leisure & hospitality segment.

Genting Berhad's Corporate Structure (Principal Subsidiaries)

Fundamental 

1. Does the company have an identifiable durable competitive advantage?

2. Do you understand how the product/service works?

3. What is the chance that it will become obsolete (KO) in the next 20 years?

4. Does the company allocate capital exclusively in the realm of its expertise?

Since ~80% of the group's operating profit is attributed to the leisure & hospitality segment you can refer back to my previous thoughts HERE for question 1 to 3 (they are more or less as relevant). Just to touch up a little, on the 1 July 2010, Genting Malaysia entered into a conditional sale and purchase agreement with Genting Singapore PLC to acquire its casino operations in the United Kingdom (“Genting UK”). Also on 13 September 2010, Genting New York LLC (an indirect wholly-owned subsidiary of Genting Malaysia) was selected as the developer and operator of a video lottery facility at the Aqueduct Racetrack in the City of New York, United States of America. The facility, set upon an area of 413,000 square feet will be known as Resorts World New York.

5. What is the company's financial history and status?

Financial Chart 1

Genting has it share of ups and downs across a 10-year period. Net profit margin (PM) has been in the range of 30% until recently toning down to 20% due to other expenses such as impairment losses on GENM, goodwill arising on acquisition of Genting UK Plc & more bills on power segment. 2 years of slight restructuring & asset adjustments. Looking forward, I see the margin to be within 25% to 30%.

You might be perplexed with the falling revenue growth rates. It is explainable as the prevailing market conditions at that time was around the US sub-prime crisis. Rest assured that year-end 31 Dec 2010 will see Genting's revenue growth rate soar to possible ~40% with help from Genting Singapore. I am fairly confident it is able to get a revenue of RM14bil for 2010 vs previous RM9bil in 2009!

 

Below is the 5-year average for the company. Sector is more broadly categorised like Trading/Services while industry is much more specific; for GENTING is it Gaming. 

• Net Profit Margin: 24.82% vs 7.55% (Industry), 3.48% (Sector)
• Gross Profit Margin: 41.17% vs 53.40% (Industry), 24.10% (Sector)
• ROE: 11.58% vs 12.04% (Industry), 8.87% (Sector)
• Revenue Growth Rate: 13.86% vs 10.95%, 9.08% (compounded annual growth rate)

ROCE is another view point of the returns to shareholder equity without accounting debt being used as leverage. GENTING has been doing well at this point of time managing to par down some short term borrowings and close the gap between real returns. With GENS making a lot of $$, it will be quick and easy for GENTING to settle all outstanding loans. As such I will project a realistic 10% revenue growth rate in my DCF calculation.

Financial Chart 2

Good value creation through growing EPS whilst DPS lags a lot (GENTING does not have a dividend policy) even though it is a cash cow. For year-end 2010, I estimate that GENTING might has some special dividend owing to the the fact that GENS is doing unexpectedly very well. Perhaps we might see something like in 2007 when they gave out special dividend in memory of the late founder Tan Sri Dr Lim Goh Tong.

6. Is the company conservatively financed?

It has RM14.4 billion in cash and cash equivalents mainly denominated in Ringgit Malaysia and Singapore Dollars. There is no question that GENTING has ample liquidity to juggle things around or even go into a hunting spree just like it did for the UK gaming business.

7. Is the company actively buying back its shares?

Yes and is still doing it every now and then considering it has surplus cash in hand.

8. Is the company free to raise prices with inflation?

No such info gathered.

9. Are large capital expenditures required to update plant and equipment?

No as GENTING spends on average RM400mil and with RWS up an estimated another RM400 million for maintenance and upgrades. The large one time capex are from construction of a new resort like Resorts World Sentosa at SGD4.0 billion.

Discounted Cash Flow Analysis

Instead of using the optimistic 15% revenue growth rate, I will either use 10%.

Operating Costs: 70%

Corporate Tax: 25%

Capital Expenditures: RM800 million +3%/year

Depreciation: RM650 million +3%/year

Working Capital Cost: +3%/year for the next 5 years (estimated)

Discounted Rate: 12%, 11% & 10%

 

Genting Berhad is fairly valued at RM9.70(12%), RM10.60(11%), RM12.25(10%). The current trading price of RM10.50 puts it  at a good trading BUY for me right now. One thing that might deter you is the high P/E ratio of GENTING which is at 24x far higher than GENM of 15.94. Industry is only at 16.99 while sector at 10.25. It is important to note that P/E ratio is not everything or a magic number when it comes to fundamental investing.

What a waste that I did not get it before GENS earnings came out (early 2010)

Conclusion

The Good
-Cash cow. With that much cash, it can do many things like acquisitions.

-The only licensed casino operator in Malaysia & also is now the biggest gaming operator in UK.

-RWS won't bite Genting Malaysia as it serves a different market (which is proven by quarterly reports HERE).

GENM revenue not affected by GENS

-Genting Singapore is doing amazingly well, capable of taking market share from Macau and rivaling casinos there.

The Bad
-Poor dividend yield of roughly 1% and there is no dividend policy. Thus returns have to come mainly from share appreciation in the long run.

-Same as GENM, competition is stiffing up as many casinos are being built throughout Asia but as Integrated Resort player, they are the best in the world.

Though you may argue that I have overlooked GENTING's other segments such as Power and Plantation, I have no problems with both of them. Consider this, Plantation operations are in East Malaysia (70% Sabah) and Indonesia. Half the acres are still unplanted with future potential, plus CPO prices are expected to increase over RM3000 per MT. Genting also has a biotechnology division working in oil palm genomics to improve yield, one of the only folks in Malaysia to do so.

 

As for power side, GENTING has seven power plants in Malaysia, China and India generating about 1,450 MW of electricity. Not a lot but able to provide steady recurring income. Revenues can be affected through big shifts in coal prices but not to a big degree to be afraid.

Like has been said, what a better time to divest GENM (share at highs) and stock up on GENTING. When the year's end 2010 financial report is out, the new record profit that GENTING is going to announce will blow many people resulting in bullish taking, all thanks to a successful venture into Resorts World Sentosa. It is not my nature to guess because it feels like speculation but I think GENTING share price will soar to RM13+ range by early months of 2011 unless there is another global problem. We will see then :)

Aboi's Golden Goose

Invest hamik? Play shares? Which one good ah? Got tips boh? Lose money or not? These are several questions being thrown to my ears every now and then. Truth to be told, I am not fond of telling others since my risk tolerance is not necessarily 100% yours. Curious as you may be, remember that my portfolio and preference reflects my personal views, current market experience together with investing strategy.

*Yet to be fully researched

Equities (by Sector + companies)

Consumer Products which is simply my favourite. "Humans are 10,000 times more common that they should be, according to the rules of the animal kingdom". These products will always have a growing demand provided that they have good reputation, premium brand & hold a niche compared to others.

E.g. DLADY, F&N, MAMEE, PADINI*, ZHULIAN*, NESTLE*

Industrial Products & Plantations. I would prefer to invest in companies that is niche in Malaysia such as rubber glove players and palm oil. We are world leaders in both these categories and thus we have world class companies.

E.g. HARTALEGA*, SUPERMAX*, TOP GLOVE, KLK

Construction & Properties. No preferences for time being. GLCs get lucrative projects from current government but with current political instability I prefer not to take my chances. Property developers are earning records profits from Malaysia's heated property market so I would avoid thinking that a bubble might burst not far in the future.

Trading/Services. Again no preference over companies that have strong ties with the government. I prefer those that have strong correlation with population base or a growing economy just like consumer products.

E.g. GENTING, FREIGHT, JOBST, KFC*, PARKSON, PETDAG*

Technology. My least favourite because the nature of tech game is as such that it evolves rather quickly leaving the old obsolete or render it nearly useless to make more profit. Technology companies have to invest heavily in the future resulting in extremely high capital expenditures. One wrong strategy could set the company back several years. YES, INTEL is not in the list of fav because I don't see how convincing at all their conglomeration strategy is.

E.g. GLOBETRONICS* (exception as I am familiar with the CEO for he is my friend's dad)

Finance. Malaysia's banking sector has proved to be very resilient after the 1999 Asian Financial crisis. With healthy ratios and good governance this is one sector I am banking to learn but but but...examining financial companies is far complex than an ordinary company. Thus unable to proceed any further for time being. I still have some preferences though.

E.g. CIMB*, PUBLIC BANK*

REITs. Stable vehicle for recurring income as proven in many other more developed countries like United States & Japan. 

E.g. BSDREIT, STARHILL*, SUNREIT*

Mutual Funds.

I hate big size funds, most of the time they don't do well particularly those of full equity funds. My strategy to expose some capital into bonds which are hard to get directly, some equity funds which are small that do well invest mainly in Malaysian banks or uses fundamental strategy like Graham.

E.g. ICAP, HwangDBS SIF, AMB Value Trust*, AMB Ethical Trust*

A fantastic book to remind you of excessive spending & borrowing

It should be pretty clear by now. The tendency on big mature players such as blue chips and very little towards small caps. Also switching focus on companies that has global presence like exports and etc. Only 20% of invested capital goes to the conservative side (funds & REITs) while the remaining 70% at equities and 10% for holding cash for liquidity. Having said so, my portfolio is an aggressive one :)

Play Safe "Joke" Budget 2011, Another Year Wasted

Source: Malaysiakini

Our dear PM Najib has just unveiled Budget 2011 which is known as a precursor in our final efforts in achieving Vision 2020. Before that, remember I once talked about Our Budget.  

In 2003, we spend RM75bil on operating expenditure vs RM40bil on net development expenditure. ~50% ratio.

In 2008, we spend RM150bil on operating expenditure vs RM42bil on net development expenditure. ~28% ratio.

In 2011, we will spend RM163bil on operating expenditure vs RM49 on net development expenditure. ~30% ratio.

We are heading to the same shithole lo. This is like a situation whereby you own a house (country), you pay more on your bills (operating expenses) than to renovate or upgrade features in your home (development allocation). It is a fail-proof plan again and again. The budget list is comprehensive as such I will only highlight the ones which I find it good and stupid. For those reasonable well and not too shabby will be ignored. For the full budget list you can get it HERE.

Source: Malaysiakini

RM5 bil new tower in KL. A new landmark, the Warisan Merdeka, to be developed by Permodalan Nasional Berhad (PNB), is expected to be completed in 2020 and will include a 100-storey tower, the tallest in Malaysia, which is to be completed by 2015.  

Extremely Stupid. WTF do we need another landmark when the twin towers has succeeded in putting Malaysia in the world map? This is not a mega-project, it is mega-corruption.

Source: Malaysiakini

The Mass Rapid Transit project is to be implemented beginning 2011 with a private investment of RM40 billion and is targeted to complete by 2020.  

Stupid. Waste of $, furthermore it is not an open tender project sigh..The current LRT system can be upgraded and the extension works is still in progress.

The Academic Medical Centre, a joint-venture between Academic Medical Centre Sdn Bhd and John Hopkins Medical International as well as Royal College of Surgeons, Ireland, that will involve private investment of RM2 billion. Development of an International Islamic University Teaching Hospital in Kuantan and a Women and Children's Hospital.  

Good. Human capital development is key in building a knowledge based society.

EPF overseas investments will be increased from seven percent to 20 percent of total assets managed.  

Good. But this should have been done during the 2009 crisis as the returns would be astronomical for EPF. Though I feel that 20% is a lil high because fundamentally it should not take on too much risk as it a retirement fund. Nevertheless 20% should be the most I would agree.

GLICs (government-linked investment companies) will divest shares in major companies listed on Bursa Malaysia to increase liquidity and trading velocity. Government to issue three new broker licenses to local, foreign or JV companies.

Good. This will inject fresh new liquidity and make our Bursa more attractive & encourage retail (people like you and me) market participation.

Import duty and sales tax exemption on broadband equipment will be extended for two years until 2012.

Good. More encouragement of broadband infrastructure building particularly on techs like Wimax and the possible Long-Term-Evolution (LTE).

The basic minimum wage for security guards is to go up to between RM500 and RM700 depending on location, compared to RM300 to RM400 previously. Monthly allowance of community leaders (JKKK, village heads, Tok Batin, etc.) is to be increased to RM800 from RM450. Meeting attendance allowance is also increased from RM30 to RM50. Imams' allowance will be increased from RM450 to RM750, KAFA (religious school) teachers' allowance also goes up to RM800 from RM500.

Good. We need minimum income level policies and ensure that every profession gets fair treatment in terms of benefits and allowances. Min income policies is a need in order to reflect that the country is able to go to the next development stage from middle income to high-income status.

Fully-paid maternity leave for civil servants is to increase to 90 days compared to the previous 60 day.

Good. Women's right. Though this might has some side effects such as less preference to female workers by companies.

And Stupid. Talk about inequality, what about female workers in companies? They do not have such privileges.

RM15.86 billion will be allocated for the Prime Minister's Department. The allocation was RM14 billion in 2009 and RM12 billion in 2010.

Extremely Stupid. Just how big does the government plan to grow the civil service? A staggering 10% of the workforce is to the civil department. Unlike the United States where Intelligent departments accounts for most of the workers, are we at war? Where is the call for being efficient and cutting red tape? 

The scheduled hike in toll charges for four highways owned by Plus Expressways Bhd will be frozen for the next five years.

Stupid. PLUS is already a cash cow company which is not surprisingly owned by rich..ahem you know la. Why is it so hard to reduce the toll rates? Instead you said no hikes, that's simply not good enough. If the government is truly for the 'rakyat' please go and buy the concessionaires instead of paying them our money to compensate for not having them to increase the price in accordance to the contract.  

Source: Malaysiakini

First-time homeowners will enjoy a 50 percent discount on stamp duties for homes below RM350,000.

Good. It will help young graduates for affordable housing but with no changes to RPGT nor any confirmation of adjustments in the LVR I am afraid that decent housing below RM350,000 is next to impossible to source especially in Penang and KL.

Import duty on approximately 300 goods preferred by tourists and locals, currently at 5% to 30%, will be abolished.

Good. Indirectly increasing disposable income but I am not sure if the retailers will reflect price reductions in their goods. Only time will tell.

Service tax will be increased from 5% to 6%. The government proposes to impose service tax on paid television broadcast services. 

Stupid. Cut down your operating expenses & civil service size you moron! Why hurt people who you encourage to spend more by increasing the service tax? You took another step further by proposing to kena tax for watching Astro? Oh I forgot we don't have any other choice except that lousy paid television.

Overall the budget was pretty disappointing. The government rolled out a 2011 budget that skipped structural reforms demanded by investors and relied on infrastructure spending and raising incomes to fuel economic growth ahead of polls expected next year. Trying to fish votes to keep the current government in Putrajaya yay. In other words, you put yourself first in line before the rakyat. Bravo, I think you just signed your own death certificate.

With such dismal budget line ups, I would think that the upcoming Government Transformation Plan will be another disappointment. Pumping money into infrastructure spending is not going to turn us into a K-economy. To add on, it does not even help locals much in boosting their income level or spending power simply because the construction workers are not even our own people. The two key problems we have been facing for years is still not resolved nor being looked at: burdening operating expenses and too much infrastructure spending.

Sad day indeed...what else is there to say?          

Can Swiftlet Ranching Investment Fly?

Hamik Ciao Lai?, The Introduction
Swiftlets are small birds that create nest for their eggs from strands of their gummy saliva which harden when exposed to air. Swiftlet farmers then collect these nests once they harden, clean them and then sell them for profit. The nests are boiled and consumed as a soup and have been highly prized for their medicinal and health properties. Currently China being the world's largest consumer is the biggest export market for us. A kilo worth from RM2,000 to RM10,000 depending on the grade. It is believed to help maintain skin tone, balance qi (life energy) and reinforce the immune system. These birds are confined to within the tropical and subtropical regions such as southern Asia, south Pacific islands & northeastern Australia.

Swiftlet -> Bird's Nest Soup

Edible Bird Nest (EBN) Swiftlet Ranching Share Farming Interest Scheme

I have did some check and believed it not to be a scam. It has a management company with a paid-up capital of RM3.1 million; has a letter of approval-in-principle by the Minister of Domestic Trade, Cooperatives and Consumerism; a trust deed established with a trustee company (Public Bank) regulated by BNM, approved by the Companies Commission of Malaysia and redemption of full amount upon maturity or expiry of the scheme.

The management company is known as Swiftlet Eco Park though a public company with limited liability is not listed on any stock exchange. It is a subsidiary of Swiftlet Eco Park Holdings Sdn Bhd, a private limited company in Malaysia. In the e-prospectus, it will be issuing 2,060 ISU (interest scheme units) for the public with RM10,000 per ISU. That is going to raise a total fund of RM20.6 million. The management will hold the other 882 ISU as reserves amouting RM8.82 million.

The salient features of the scheme offers individual investors entitlement to:

1. EBN Swiftlet Ranching Prosperity Vouchers for the first 6 years.
2. Net Yield from the sale of harvesting activities.
3. Transfer or assign the ISUs in accordance to moratorium period, deed and agreement.

You can view HERE to know the details of where these swiftlet farms will be constructed in Perak (Manjung and Segari). I know most people are anxious with what needs to be forked out and the potential returns.

Return of Investment Table (projected ya not guaranteed)

A thing to note, Net Yield calculation in which 30% of net profit after taxation is paid to the management company while 70% is distributed equally amongst all the investors of the scheme. The e-prospectus is relative thick at 69 pages. Read through it if you have the time.

My Views

With operational cost at an estimation of RM437,000 for 1st year, that's about RM150 per invested RM10,000 thus little operational running cost, fine with that. Operational cost will grow in tandem with profit. BUT a visit by the independent consultant, in his report states that the site is still an empty land and has not been developed. The company is planning to build 15 no of units (3-storey detached & 3-storey semi D) as swiftlet houses. This simply means they are taking investors' money to build these houses! Strange at such isolated place, the company can easily afford to build them with low capital roughly RM30,000 per house.

The planned Manjung, Perak area for swiftlet homes

Another thing not disclosed is that swiftlets nest only three times a year as such there is limited supply for a given time. The company has not stated nor disclosed any plans for the future. I really doubt that investors' money can grow by 10% pa if supply is limited to these 15 houses. The biggest missed item is that in reality the failure rate of swiftlet farming is high, as high as 80% (source here) occurring even after 5 years of operation. It is near impossible to replicate success in one swiftlet house to another simply because there is still no scientific reason why swiftlets will nest happily in one property and not another. In another report, Penang Economic Monthly magazine states that the success rate is only 20%-30%.

How about other risks? These include but are not limited to changes in world demand for EBN. Change in demand and supply will dictate price fluctuations of EBN. The projection table was given by the company which estimates that the price per KG of bird house a.k.a nest will continue to rise from RM4,500/kg to RM7,500/kg in the next 35 years. Let me ask you to consider this, five years ago there's roughly 1,000 swiftlet farms which to date has grown to an astronomical figure of nearly 50,000, a 118% pa growth rate in Malaysia alone. With such rate, do u think it is fair to say that supply could very well outstrip demand? Maybe not in the near future but perhaps at some point within the next 35 years and that is going to affect the projections.

The threat of bird flu and other disease outbreak, to a lesser extent changes in the regulatory, economic and business conditions. Another would be climate conditions. Remember the big forest fires in Indonesia about 4 years ago, the resultant haze has forced millions of swiftlets to seek new "homes" in Malaysia..awww sweet.

Conclusions

I have no quarrels with this industry, my only argument is that the figures have been hyped and risks not properly informed to investors. Talk about exponential growth, true at some point but what goes up fast must come back to sustainable constant growth. If you look at the chart closely, you can see that your actual monetary returns mainly come in later years after vouchers have been given out. The further the projection is, the harder it is for the estimated figures to be accountable. It's like a situation where you are questioned about guessing your income level in the next 10 years. Difficult right?

From an initial RM10,000 to an accumulated RM14,000 in year 10. That's only 3.42% returns pa and I am counting the cash vouchers value inside too. Now do you see my point that your returns mainly come in later years. At the 20th year it is 11.91% pa with RM95,000 and up to the last year it is 9.89% returns pa with ROI of RM271,000.

With almost FD-like interest rates for the first 10 years and another 25 years to catch up for it to be able to return you a projected average of ~10% compounded annual returns this is really NOT my cup of tea. If you happen to still be interested in investing it, remember to relay my doubts to the respective agent and send my regards. I will for the last time caution you to think it thoroughly and weight all opinions and options available.

Swiftlet Eco Park's tagline is "Invest in Prosperity", I think it is more suited to be "Invest in Probability". I should just continue my stock exchange pickings on fundamentally strong companies which has netted me an average of 15% returns each year. That RM10,000 will turn into RM1.4 million in 35 years :)

Gogo Chinese!!

Ringgit Ringing in Millions

Introduction

This is also one of my earlier email sharing during the month of April 2010 before I went full swing into blogging: Stronger Ringgit. The reason I am taking a re-look at it because the Ringgit has recently strengthen vs the US Dollar to less than <3.10 due to increasing inflow of USD into our country. Below is the original transcript.

----Start of transcript----

Stronger Ringgit
The strengthening of the ringgit has become a hot topic in recent weeks as most of you all know. A few highlights regarding this:
1. Best performing currency in the region this year, appreciated by 5% against USD. Now at RM3.205.

2. Strong currency is good for our NEM to become a high income nation in 20 years time.

3. Why ringgit so kuat le, makan apa?
a. Expectation of higher interest rates from our Bank Negara due to recovering economy.
b. GDP between 4.5% to 5.5% (conservative estimates), 6% (optimistic).
c. Inflow of funds from foreign sources into MGS (Malaysian government securities aka bonds, I talked about this last sharing).
d. China will sooner than later allow yuan to appreciate (yuan is undervalued). Long story I’ll save it.
 
4. History shows that ringgit follows the yuan and therefore if yuan float (meaning go back to supposed correct value), the ringgit will follow.
 
5. In line with our NEM, we need a stronger currency for sure.
 
6. Estimated to be RM3.10 to RM3.25 for this year, some say it could go as low as RM3.00. Time to rethink your Intel shares.
 
7. Another good thought that if other economies reverse their loose monetary policies (started during financial crisis to boost economy) soon, their currency may take away ringgit’s current advantage. I think RM3.10 is conservative as reported by The Edge, RM3.00 is too low to go not in this year.

----End of transcript----

Ops, I cannot resist posting this up..event babes!

Now What?

In short, the ringgit will continue to strengthen given the fact that the advanced economies are not actually recovering that well as expected. Not only our currency (11%) is strengthening, regional currencies like Japanese Yen (10%), Thai Baht (9%), Sing Dollar (6.4%) and Indonesian Rupiah (5%) have too appreciated against the Greenback (US Dollar) by the bracketed percentage.

The fiscal stimulus by the advanced economies have lost momentum. Fiscal means is the use of government expenditure and revenue collection to influence the economy such as expenditure and taxation. Also their interest rates are at almost zero % which is what they call monetary stimulus in which the monetary authority of a country controls the supply of money, often targeting a rate of interest to attain a set of objectives oriented towards the growth and stability of the economy. In the US, the rate is between 0% to 0.25% and cannot go anymore lower.

Some governments were forced to resort to austerity measures like Greece & UK which is a policy of deficit-cutting, lower spending, and a reduction in the amount of benefits and public services provided. Austerity policies are often used by governments to reduce their deficit spending while sometimes coupled with increases in taxes to pay back creditors to reduce debt.

Thus the only remaining tool to boost their economies is the exchange rate. The feds in the US are mulling over a second QE. Quantitative Easing is sometimes colloquially described as "printing money" although in reality the money is simply created by electronically adding a number to an account. As such the word printing money has dire consequences where an increase in money supply to a system has an inflationary effect by diluting the value of a unit of currency.

Having said that, if the Feds in Nov after meeting up for their next meeting announces another QE, the Greenback could collapse further. Some people are even suggesting around 2.80 or less. Not very good news hey especially if you are holding some US Dollar denominated assets like shares. I have did research before on Intel Corporation if that interests you. If you like shopping now and into 2011 is a good year :)

Bad news over the seas in western countries does not necessarily translate into good news for us in Asia. The truth is that good news is only temporary because the global economy is so intertwined, there is no such thing as total decoupling. The weaker outlook for advanced economies, the more the transmission effects through trade, and through currencies will which affect us here. Take this example:

With more outflow of carry trade currency like the USD (foreign funds holding cash buying Asian equities) into Asian economies will cause appreciation of their respective currencies and most of these countries will resist stronger currencies because it will erode competitiveness and export value. It will hurt the locals if their exports are getting less in value because their currency is strengthening if left unchecked by the government without intervening.

We also see that in some Asian countries there is a build-up of asset bubbles like strong rally on stock exchanges and in rising property prices. These kind of capital movements, excess liquidity made by the "printing of money" and imbalances in financial flow in a global scale will cause another financial crisis. This time the bubble being in Asia.

My Thoughts

That the Ringgit will be around 3.00, at most 2.90 simply because our central bank, BNM will want to control the strength of our currency as we are technically still an export-driven economy. My previous 3.10 no longer holds because recovery in advanced economies are fading. A too strong Ringgit will hurt glove makers, palm oil players and etc and BNM will try to intervene to offset it to a certain extent. It is important to find a balance.

This week's "The Edge" has very good writes up on carry trade currencies, currency wars & global economy. I will recommend this week's edition to anyone. For only RM5, get a copy and just read it. Reading this edition will definitely make you more alert in your investments decisions!

The Week of October 4 - October 10, 2010

Tech Talk Bursa Malaysia WW40

Technical indicators are lagging indicators and therefore I always look back at the previous week for recent market direction into the coming week. In this case I am using WW40 for this week's WW41. I hope this clears the air. For those who find it hard to follow I suggest reading through my previous posting on how I am using technical indicators as a trend seeker.

1. First Attempt on Tech Analysis Part 1
2. First Attempt on Tech Analysis Part 2 

Relative Strength Indicator (RSI)

Chart Setting: SMA 1, RSI (14, 20), Mar'10 to Sep'10

The mini correction did not materialised last week. Instead the index was crawling slowly back to the previous high. I read The Edge just today it seems that the foreign funds are back in Malaysia to ride the strength of the ringgit and to bet on the region's growth prospects. Foreign holdings are still at 21% so local institutional funds should be helping the index to go higher. Only now they start to buy? Funny why people sometimes place so high hopes on mutual funds. Here's my take on mutual funds.

Moving Average Convergence Divergence (MACD)

Chart Setting: EMA 12, EMA 26, MACD (26, 12, 9), Mar'10 to Sep'10

MACD losing its momentum continues on. It is still not near the centerline thus nothing interesting to take note.

Resistance and Support Level

Chart Setting: Mar'10 to Sep'10 (6 months)

New resistance now set at 1485-1505 points while support level is now at 1445-1425 points (previous lower high still unbroken).

In a Nutshell

MSCI Regional Valuation report states that Malaysia stands at the third highest valuation at 2.1 times in SEA losing to Indonesia (3.7 times) and Philippines (2.5 times). If foreign funds are buying into Malaysia it does seem correct that the index crawls slowly considering their small size of only 21%. What are the locals & retail players waiting for? I think is the ETP and Budget 2011 details in October. Again no shopping for me, only Parkson.

One Month Trend Chart *Tech indicators are lagging charts

Question on Parkson: Answered

I just like to moo..prob because I am Taurus. Wait, is a bull same family with cow?

Dear investor, I got this email from my buddy in which I will reply on this post as I also do not have your email, could only see your name on the (to:). Anyway I have included my email on my blog below in the disclaimer portion. Everyone feel free to email me privately if needed, I check my emails everyday.

Subject: NOT A SPAM, from an investor, I have read your blog and aboi's blog

Hi,

I have been an investor in KLSE for 12 years and recently have read both your
blog and aboi's blog.  Firstly, would like to thank you and aboi too for your
contribution to the community as the blogs of both of you has really benefited
me a lot.  Your analysis has indeed impressed me.

Actually I would like to send an email to aboi regarding Parkson which is in his
blog, but couldn't find his email address anywhere, so would appreciate if you
could help  :)  or forward this email to him,  hope it does not trouble you too
much.

ok, my doubt about Parkson is in the unaudited Income statement financial year
ended 30-June-2010 attached, which I found in KLSE website. The net profit for
year 2010 is $532,869 and 2009 is $775,433, which is 31% drop largely due to the lack of one time profit $279,515 of Gain on dilution of interest in
subsidiaries.  However, the diluted earnings per share drop from 51.41 to 27.41
which is almost 47% drop!!

What cause such a big difference? Did it issue new shares?  Again, I would
really appreciate if you could help, thanks  :)

Cheers,
Jay 

---End of Message---

 

12 years!! Wow, that is an amazing long run as an investor on KLSE. I want to say thank you for your compliments as you certainly have more wisdom & experience than me. Let me tackle a few things one at a time.

1. The official 2010 annual report is not out yet. God knows why after 3 months but I am thinking of asking them why so long. I am using THIS which I believed is your source as well.

2. Gain on dilution of interest of subsidiaries came from Parkson Holdings Berhad, the controlling shareholder of Parkson Retail Group (listed in HKSE) selling its stake to independent third parties. By selling the stakes, it gets gain on dilution of interest which is reported in 2009 and 2008 annual reports. Right now the stake is at 51.5% which I believe will not go down any further. To be a major shareholder for a subsidiary you need at least 51%.

3. The drop in revenue is nothing shocking to say the least because it is expected. There is no way that Parkson Holdings Berhad can sustain the revenue figures by continuously selling its stakes in Parkson Retail Group. BUT operating profits does increase year by year. This is the reason why I also didn't use 10% revenue growth rate but opt for a more conservative 7% in my DCF calculation in my previous analysis HERE. To be really safe you can use 5% which will put the discounted fair value to about RM6.10 instead of my target price at RM6.60.

4. The calculations of EPS in annual reports are on a "that point of time" basis. This means that earnings is divided by the number of outstanding shares at that time. Thus when you compare the EPS from this year to another year it is not an apple to apple comparison as long as the number of outstanding shares is not the same. Having said so it makes sense that the drop of revenue % will not be the same with the drop in EPS %. With Parkson buying backs stocks (look at KLSE website) & also converting RCULS into new ordinary shares, therefore the no.of shares is not the same. RCULS is basically a security where it acts like a bond until it turns into an equity.

5. A better way to compare EPS figures from year to year is to use a weighted approach but that takes time to do it and worst it is tedious. Well, I use a book called Stock Performance Guide by Dynaquest. It has past ten years' price range, earnings per share (EPS), dividend per share (DPS), dividend yield (DY) and price earnings ratio (PER). Both EPS and DPS are weighted.

I hope I answered your question. Happy investing and keep in touch!