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3: Malaysia REITs - Looking For My 2nd Durian Runtuh
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Head to the watch list on the above tab to see my what's on my radar and foreseeable future postings =)

Decided to make adjustments on the way I blog & share due to time constraints and other commitments. In the coming weeks you should see them. Short updates but more frequent & concise.

Saturday, December 25, 2010

Don't Be One Of Them!

I just blazed through the book "Financially Stupid People Are Everywhere: Don't Be One Of Them" in just a matter of hours and found it to be both gratifying and a timely reminder as I head into yet another year full with global economic uncertainty and the usual political mess.

A recommended book for reading nevertheless, if you haven't had RM1000 for tax rebate next year buy it now, if not do it for next year. Written in a straightforward, simple and accessible style, it reveals how modern society as we call it is rigged towards a debt-ridden economy and outlines simple ways to resist this. Below are some excerpts from the book:

First Rule of Finance: Not to spend more than 80% of your take-home pay.
Credit cards: Never carry a balance.
Cars: Pay cash for vehicles. No financing.
Castles: 20% down payment, maximum of 40% of take-home pay as financing payment.
The only rule I did not adhere is the third one. God I wished I could reverse time and bought myself a used car instead of a new one. A lesson has been learned.

Financial freedom is not about how much networth you have, it is on smart money management. If you drive up in a brand new luxury car and tell me that you borrowed a pile of money from a bank, I am not impressed. That's nothing special. Any idiot with a pen can do that.
Cars are a form of liability as I mentioned before as do other items that depreciate in value over time. Well I could not buy my car in full with cash, at least I made a cheaper choice and one more year to go in financing. 

Living within your means freeing you from the job you don't like. Having enough cash to go about presents a path to wherever you want to go, because you know how to decide what you want and put away the money needed to get it. Smart money management will make it possible, not tying you to a job that you dislike for years.
A healthy reserve of cash in savings or assets (fd, equities, bonds, property) minimizes the impact of losing or changing jobs. I can quit now and still stay jobless with my current spending for almost 2 years. There is no use waiting for the paycheck every month's end just to clear off debts and borrowing. You are going to be tied down forever. 

If you can't handle paying off your credit card each month in full, you can't handle stocks. Get the management of money part down first as the stakes are low and easy before climbing up the ladder to investing. If you can't control your finances before striking it rich on the stock exchange, what makes you think you will afterwards?
Indeed, if you can't control would mean losing patience. Investing in stock requires patience, if not you would be considered a speculator who has no clear investing strategy and might probably borrow to invest when you are actually gambling with luck.

The thing that made this book interesting for me is it touches upon the society of America where the government is of the corporations, by the corporations for the corporations. It takes you deep as to why health care is expensive, why oil dependency continues and why military spending remains high. It reveals the coordinated effort at work to suck dollars out of every taxpayers. It is not an American Dream.

Most people, your neighbours, friends, colleagues could have fell into this trap of borrowing and mindless spending. Don't be one of them and do yourself a favour by getting this book. If you ask me nicely, I might be Santa Claus and give you one for free :) Happy merry Christmas everyone, HoHoHo!!

Tuesday, December 21, 2010

Carlsberg Malaysia Reignited? Not So

Back in May 2010, I have mentioned that the only piece of good news for Carlsberg Malaysia is the acquisition of Carlsberg Singapore to turn things around before it is too late. At least things did become better for the company. Here is the consolidated earnings for nine months ended 30 September for the following years:

2009: RM745,000 (Malaysia 99% + Others)
2010: RM1,042,000 (Malaysia 80%, Singapore 19% + Others)

Profit before tax has risen 93% and revenue up by 43% by half year. Other notables are reduction in cash in hand from RM118 mil to RM28 mil while incurring an additional RM 55 mil borrowings. With such optimism and continuous stream of good news, no wonder the share price has soared to a year high of RM 6.52 while trading at RM6.40.
Some people have said that I missed the boat back in my May 2010 writeup but I have my own views and you have yours as well. I am a value investor, playing the long term waiting game, I rarely do trading buys unless I am very confident. Because I am the value invester, here are my takes on the long run.

1. If I plug in 50% revenue increase into DCF model, the fair value of Carlsberg Malaysia went up from RM3.70-RM4.50 to RM5.30-RM6.50 (15% to 13% discount). Normal price soar from better revenue generation.

2. The big upside for Carlsberg is from Singapore not Malaysia, Malaysia will only be able to achieve a single digit growth. They need to gain more market share in Singapore which they only have 20% and their marketing team will have to work hard on this.

3. Fantastic growth and revenues in 2010 can be attributed to the World Cup event and thus is by no means sustainable.

4. The last excise duty placed on brewery was in 2005-RM7.40 per liter. There is risk from unexpected increase in excise duty in the future. In fact Malaysia's excise duty is the 2nd highest in the world before Norway (but they have almost x10 our income level), thanks to our spendthrift government bleeding us dry.

5. Dividend payout will no longer be 100%, they have announced a 5-year dividend policy of only 50% payout for year 2009 to year 2013 a roughly 2.5% to 4% yield. We will no longer see the 4% to 6% range in the last 10 years, Carlsberg just left the high dividend yield camp.

6. No shares have been repurchased (buy back schemes) since September 1999. Will they restart it? Highly unlikely until they clear debts, restore reserves and improve decreasing gross profit margins.

For a trading buy, yes it would make sense for Carlsberg back in May but as a long term investment it is a no no. In fact if you want to make a profitable trading buy during recession almost any blue chips can earn you good money, why should I go with Carlsberg nia, as if there is nothing else to buy. As a value investor, I have major problems with the company's decreasing gross profit margins and potential excise duty hikes. A small shift in these digits will cause the fair value to tumble like dominoes.

Monday, December 20, 2010

Is Malaysia Going To War?

Even if we did we are probably going to get trashed because of our flimsy "state of the art" weaponry. By Colin Archer, in 2009 global military spending is at an all time high of US$1.53 trillion which translates to $224 for every human being on the planet! It could have been better used for eradicating poverty, save mother earth or better health care systems.

In our Bolehland, we also try to spend our way like the world is doing. Our Defence Ministry happily announced that we have signed a RM10 billion contract at the KL Defence Fair in April 2010 and for the 10th Malaysian Plan we are allocating RM23 billion for defence and security. At what cost? We are already in deep shit with debts of around RM400 billion. Furthermore you are trying to justify yourself to raise another RM1 billion through the GST mechanism while withdrawing subsidies to get another RM700 million from there. All done at the expense of the rakyat!
Little do most people know that Malaysia has a growing military-industrial complex. Many retired generals and top ranking military officials are in the directorship positions in our local aerospace industry. This is a sector where contracts are awarded directly without competition and more often via direct negotiations. These people have the power and privilege of easy access to the defence budget and using simple justifications such a "national security". What security? Are we going to war?

A good example would be Pekan constituency, as you know is our PM's stronghold simply because it has an extensive military automotive complex with its layers of contractors, sub-contractors, servicemen and other gainfully employed. We manufacture air-frame components, cannons, ammunitions, tyres and etc mainly through arms deal. We spend more on defence than in education and health. Why?

Yet with all the spending, we have lost 73 lives from Nuri helicopter crashes, another 17 from De Havilland Caribou helicopters, the Super Puma crash that was going to fetch then DPM DSAI (Anwar Ibrahim), 5 deaths from Pilatus PC-7 training aircraft and many others. In short, we have more deaths through accidents than from action in war combat. What else? We lost two jet engines amazingly and recently our defective submarine which failed to submerge during its exercise run. Discrepancies in deals, maintenance and poor accountability is all we have.
If we examine closely at the wars in Afghanistan, Iraq and Vietnam, we can learn a great deal about them and generate alternative defence policy which can be extremely effective at minimal cost. This policy is known as a "people's war", decentralised army in many small units armed with decent infantry weaponry, anti-tank, anti-air missiles, urban and jungle warfare tactics. In those 3 wars, tactical weaponry has shown its limitation with the aggressor's army having to fight a protracted war with the locals for many years e.g. 10 years and still with no favourable end in sight. Malaysia can make full use of the National Service linking them with our conventional army together with our Silat Association or other martial arts association to form a strong militia force that is multi racial. Promoting unity and with a sizable of our young population of 10 million strong people will make an insurmountable deterrence to any would be aggressor. You can easily spend RM2.3 billion on this rather than the RM23 billion price tag. Does our government have the political will to do this? No lo because through this they cannot earn a lot of commissions & kickbacks.

I have high respects for the men and women in the army, they are a tough breed indeed. Our army is not useless, we can do a lot of things we our current arsenal such as humanitarian causes, peacekeeping role, disaster relieve by establishing law and order. What I don't truly DON'T respect is how our government is messing things upside down inside out.

I decided to write this following the comments and articles in Arms purchases: Who are our enemies?

Sunday, December 19, 2010

All About iCap Part 1

iCap stands for Berhad is the only closed-end fund in Malaysia. It is listed on the main board of Bursa Malaysia. All mutual funds in Malaysia are open-end funds which offers their holders the right to cash in their shares at each day's valuation of the respective portfolio. A closed-end fund however does not issue new shares directly to anyone who wants to buy them. An investor has to buy the shares not from the fund itself but from another shareholder who is willing to part with them. Just like a normal equity stock, the price of the share fluctuates above and below their net asset value (NAV) depending on two things: supply and demand.

The fund is managed by Mr.Tan Teng Boo who is the CEO of Capital Dynamics. He is a true believer of value investing, a method founded by Benjamin Graham but made popular after being modified by Warren E.Buffett. I have met the awesome man during my visit to Investor Day in KLCC. Like me, I am also using value investing and that means we invest in undervalued companies in Malaysia. The fund has a RM140 million paid-up capital with a fixed number of shares at any given time.

Below is the fund's philosophy: To allow long-term shareholders to benefit from value investing. Investing in the fund allows the power of compounding work for you to offer superior returns. I will leave the fund's investment portfolio for another day as it is quite extensive to cover in one posting. Instead, we take a look at the fund's performance, track record and current valuation.
Since inception at 19 October 2005, iCap has an annualised return of 20% and cummulative return of 156% comparing to KLCI 10% and 64% respectively. Bare in mind that the fund managed to hold the ground even through the tough subprime US crisis that lead to world financial meltdown, this is value investing at its best.

The way the fund is valued is via Net Asset Value or commonly known as NAV like all other funds. Unlike them, iCap is being traded as it listed in the main board of Bursa Malaysia and thus you have two prices: market price and fund's NAV. The more people value the fund, the higher the price it commands, this is much like a supply and demand thingy which dictates the market price. The true performance of the fund comes from its net assets and we derived it using the term NAV.

At the current market price of RM2.09/share, iCap has a shareholder equity of RM292 million. As stated earlier, the paid-up capital for iCap is RM140 million. With RM292mil-RM140mil we have RM152 million of retained profits from Mr Tan's successful investments to date.
If we look at the fund's NAV (I call this true performance as it takes into account all current underlying securities) we have RM2.54 which is RM355 million. Taking RM355mil-RM292mil you get RM63 million. This figure represents the surplus of market value over carrying value of quoted investments. Say you bought Genting share at RM10.33, while current price is RM10.50, the difference is the surplus of market value. I think you understand now :)

To sum this up as the below charts. It is clear that there is a shift of fund premium to discount region. The current discount rate of -18% of the market price to fund's NAV is a big boon for investors. Never has it been so cheap to load up on iCap since its inception. Why the shift if you ask me? My guess is that people was spooked back then during the peaks of 2007 before the crash. On the back of recovery, people have not put faith as they did once leading to a very boring counter. It will be some time before people start to realise how powerful value investing is and finally bring demand in to squeeze supply leading to higher market price for iCap.

Monday, December 13, 2010

The Spirit Of Marathon

Spritzer-Kelab RoadRunners Ipoh Annual Run (12.12.2010)
Race Distance: 12km on macadamized road surfaces on undulating terrain of up to more 250 meters above sea level.
Clocking Time: 1:29:23
Average Speed: 8.09km/hr
Award: Top 600 Finisher T-Shirt & Finisher Medal (within 2.5hrs)
Good: Spectacular scenic view at Bukit Kinding, good trail for cross country run.
Bad: I find the slope very steep at some parts, steeper than stairwell!, my legs just refuse to run me up, that's just me.

Penang Bridge International Marathon (21.11.2010)
Race: 21km on tarred surfaces.
Clocking Time: 2:49:38
Average Speed: 7.45km/hr
Award: Finisher Medal (within 3.5hrs)
Good: Amazing that you are looking at island while running instead of driving on the bridge, a rare chance.
Bad: It was raining cats and dogs, wet and heavier to run. Difficult to find car park.

Kebun Bunga Charity Run (24.10.2010)
Race: 6km on tarred surfaces & pavements.
Cloking Time: 38:44
Average Speed: 9.47km/hr
Award: Top 500 Finisher Medal
Good: Easy and fun run, it's for charity anyway. Treat it as a practice run.
Bad: Have to take care of traffic e.g. cars, pavement running is not comfortable which is especially true in Malaysia due to its quality.

Next? Am looking for easy practice runs such as 6km or 10km and better prepare for a run like Malakoff 26km challenge: 2010's route. Will be a nice race as it takes you through lush greenery, seaside view, city centre and historical sites. I need to boost my running speed and stamina to 9km/hr-10km/hr pace for continuous 3 hours. If there is any event especially in Penang let me know! For now it's back to the training ground.
Marathon (Korean 2005 film) based on the true story of Bae-Hyeong-jin, a runner who happens to have autism.

Not forgetting the top 5 marathon songs I have on my playlist while running.
  1. Survivor - Eye Of The Tiger
  2. Bill Conti - Gonna Fly Now
  3. Europe - The Final Countdown
  4. Queen - We Are The Champions
  5. Delta Goodrem - Together We Are One

Friday, December 10, 2010

Flying Above The Rest AirAsia

Before I dwell deeper into AirAsia's financial performance, why not take a snip at its strategy. AirAsia is quite well known to be a "blue ocean" company as their concept is similar to Southwest Airline's model. The below strategic profile illustrates how both these low budget airline company's effective strategy in reinventing the airline industry via value innovation.

Key lesson that every great strategy must have a focus and the above value curve clearly shows it. AirAsia has untapped uncontested market space and making competition irrelevant as the average airline can't compete as they invest in all airline industry competitive factors. AirAsia like Southwest Airline focuses on three core factors: service, speed and flight frequency.

I would think CEO Dato' Tony Fernandez actually copied the model (though he established the company before the book was published) but took a step further by modifying it to stand apart. Four actions of eliminating, reducing, raising and creating, he managed to differentiate AirAsia's profile from the industry's usual profile.

Over the counter booking system, Free F&B on the flight

Seat quality & less on flight attendant

Flight frequency to popular destinations & speed of air travel

Online booking system
Point-to-point travel between cities instead of hubs

But like all blue ocean businesses it will become a bloody red one after more players copy the model (e.g. SIA's Tiger Airways & FireFly) and thus change is imperative. Right now AirAsia is looking good as recently it far exceeded market expectations when its core net profit increased 10-fold to RM270 million in 3Q'10 beating all analysts estimates by RM146 million to RM200 million. It is also the cheapest low-cost carrier (LCC) stock based solely on its PER of 7x while Tiger's PER is 17x and Ryanair (Europe's LCC) at over 15x. More about its financial next round.

How will AirAsia evolve to fend off competition? It comes in the form of free. Ryanair is already starting to draft creative ideas by actually making air travel absolutely free! Instead they derive their earnings from ancillary income (Money earned by an organisation through an activity that lies outside its normal core activity and purpose). Such as baggage check in, food & beverage on flight, advertising and have even mooted out the idea of having in-flight gambling. Free is become a trend nowadays and in 2009, "Freemium" was the word of the year and also hold the record of being the second most notorious word after "Fuck". See how big companies make money from free? Facebook, Google, Skype & Pandora (Internet based but we should see other industries follow suit one day).

Is MAS doing any better? Oh please, this is another retarded GLC. MAS is taking delivery of three Boeing 737-800 (US$80mil/each) end of this year with another 32 more in the next four years. This is in addition to another 15 more Airbus A330-300s (US$200mil/each) plus 6 units of A380-800 Super Jumbos (US$330mil/each) within the 2011-2015 timeframe. Spending model does not translate into revenue earning capabilities especially when there is no clear marketing strategy (btw MAS is an average airline on the strategy canvas). Perhaps like Syabas, MAS will be coming around to the government with a bowl in hand to ask for bailout. This is according to Sakmongkol AK47 in which I believe is credible source. 

Let me put some numbers into perspective. The cost of buying these new aircrafts will be approximately RM23bil spread over 5 years (RM4.5 bil/year), MAS has RM2bil in borrowings but only RM2.2bil of cash. For the last 5 years, MAS's profit minus loss after tax is -RM500mil. Now you tell me how to save MAS? Just die la, like Proton and most GLCs you are a national liability not an asset.

Thursday, December 9, 2010

Still Bullish Towards Genting Berhad

Genting made an announcement that it's Q3 net profit doubled following better earnings from Resorts World Sentosa in Singapore which commenced this year. For the nine months ended Sept 30, Genting's net profit swelled to RM1.74bil, or 125% compared with RM798.94mil in the previous corresponding period. Revenue rose 69% to RM11.1bil from RM6.6bil before. With 3 more months to go and with the best quarter for the year I am now positive that it will break the RM14 billion mark I have set previously.

Singapore expects a record 12 million visitors to the Republic Island for 2010 helped by the success of the city-state's two multi-billion-dollar casinos, a remark made by the Prime Minister Lee Hsien Loong last week. This translates into a 24% rise from last year's 9.68 million. It was actually Singapore's overall plan double visitor arrivals to 17 million by 2015. Economists have estimated that tourism currently accounts for about 5-7 percent of Singapore's economy but could grow to as much as 12 percent by 2015 based on government projections on visitor spending.
There was a one-off net gain of RM413.6mil from the oil and gas division. The payment was from BP Global Investment (BPGIL). Genting should be using this cash proceeds as working capital.

Genting Malaysia had poorer performance due to lower business volume, weaker luck factor in the premium business and expenses from start-up costs for its video lottery facility in New York. Revenue slipped 7.7% to RM1.2bil from RM1.3bil. Revenue and profit from the UK casino operations also decreased mainly due to poor luck factor (high payout) and the weaker sterling. Both of these are not a major concern for me as the plantation division improved on the back of higher palm product prices and increase in fresh fruit bunches production.

Surprisingly Genting Malaysia has also publicly said it expected its performance in Malaysia to be affected by regional competition and increase its marketing activities to address the growing competition. I have expected such competition to arise but with Malaysia and Singapore arguably best developed countries in ASEAN will continue to hold their appeal. Thus overall performance would not be significantly affected.
Genting continues to be a good BUY at current price for its casino exposure in Malaysia, Singapore, UK and recently US. I have loaded Genting as part of my assets at RM10.33 earlier on with the long term view that it has the most upside potential from earnings via Resorts World Sentosa. 1H'2011 will be an interesting year for Genting, let's look forward to it.

Thursday, December 2, 2010

BN = Barang Naik! Premium Fuel RON97 Goes Up

Here comes the next increase in fuel price as dictated by the Malaysian government, little do people remember that this is only the beginning as the government is planning on an increase every 6 months until end of year 2012. The problem? Malaysia’s total subsidy for 2009 is at a staggering RM74 billion which is equivalent to RM12,900 per household. Most Malaysians know that we have a fuel subsidy, but many of us don’t know that essential items such as cooking oil, flour, sugar, education, toll, healthcare and electricity are all subsidized as well.

Do I think such reduction in subsidy is warrant? As citizens of Malaysia, we too have to play a role in helping the nation but there will be another multiple choice question: To reduce subsidies, improve the financial management level or to eliminate wastage and corruption first? If they focus only on subsidy reductions without a proper planning for the savings, I am afraid that the money may be wasted due to financial mismanagement, wastage and corruption. As a result, the people's "sacrifice" will be wasted.

The government must show a greater effort in plugging the leakage and moot out corruption, until I see this really happening I do not warrant such reduction in subsidy. After all we are just lining even more money to the pockets of the corrupted. In addition to this, we are already in the world's history books for having the highest car prices in the world due to our automotive protectionism policies. If the government is looking to reduce fuel subsidy it should also look into reducing the base price of our cars. The only parties the government is protecting are only the profit makers. Also please channel the unsubsidized money into building good public transportation.

Nevertheless, I am mixed towards fuel subsidy reduction. Sometimes, it is hard to retrieve something that you have given away. It is the same case for subsidies! People will inevitable make noise including opposition parties taking advantage of such bad news, that's the brutal truth of politics. Fuel increase has a multiplier effect on inflation as prices of goods and services will go up and this will hurt the lower income group the most. As an oil producing nation, we should be enjoying very cheap fuel so please DO NOT listen to the government when they compare it with countries like Singapore!

Countries- in Ringgit Malaysia (RM) per Litre
Malaysia 1.85
UAE 1.16
Egypt 1.02
Bahrain 0.85
Qatar 0.66
Kuwait 0.64
Saudi Arabia 0.35
Iran 0.32
Nigeria 0.30
Turkemenistan 0.23
Venezuela 0.13

Sadly Malaysia's current running deficit of ~RM400 billion means that the government cannot afford to do this or will it ever do it considering our ever growing civil service, leakages, corruption and spendthrift ways. Aboi can only provide some tips to save on gas.

1. Pump your tyres. I do this almost every time I fill up my gas. According to some just 1 tyre deflated by 2 psi will result in a 1% increase in fuel consumption.

2. Drive at moderate speed. Drag and thus fuel consumption increases rapidly at speeds above 90km/h.

3. Don't let your engine go idle. Idling more than a minute consumes much more fuel than restarting the engine.

4. Use the air-con sparingly. Air conditioners can use about 10 per cent extra fuel when operating but I will use it when it is hazy.

5. Anticipate traffic ahead. A driver can reduce fuel consumption by up to 10% by anticipating traffic conditions ahead and adjusting the speed accordingly, and avoiding tailgating and thus unnecessary braking and acceleration.

6. Travel light. Avoid carrying any unnecessary weight in your car. On the average, every 50kg added load in your car will increase fuel consumption by 2%.

7. Drive in high gear (overdrive). The engine runs most efficiently between around 1,500 and 2,500 rpm. To maintain these low revs you should change up through the gears as soon as practical and before the revs reach 2500 rpm. This can be done easily with MyVi.

 8. Clean the air-filter regularly. Clogged air filters increase fuel consumption by restricting airflow to the engine, and thus should be cleaned/replaced when necessary. Clogged air filters can increase fuel consumption by up to 10%.

9.  Park far away in parking lots. It’s easier to get head-in parking here anyway but you also save on gas because you’re not idling at the front of the store waiting for everyone else that’s up there to get out of the way. No need to go round and round in search of car park, use your legs.

10. Other ways include carpooling, filling up gas at night, take routes with less traffic lights, use car less, get a hybrid car if cash flow permits, have good motor oil, reduce air drag behind heavy vehicles but not entirely safe & the use of petrol rebate credit cards.
I used to ride roughly 320km on RON97 with RM50 (RM2.15/litre) which is 13.76km/litre. With the increase of fuel price I am anticipating only 300km. If I use RON95 which is less preferred to due knocking and under performance, it will be 340km for RM50.

I am a believer of quality and I am planning to keep my car until it is at least 10 years old so I have to preserve the engine for as long as possible. This is unless I can justify my earnings vs spending (because car is a liability not an asset). I drive about 1400km each month. A 200km setback while on RON97 means an additional RM33.33 on top of RM200. RM33*7years*6months = ~RM2970. Previously it is ~RM2200 when RON97 is still RM2.05. That is still a lot cheaper than buying a new car.

See my previous post on why RON97 beats RON95 (not cost wise)

And also why I do not value car especially in Malaysia.