AA-MAS Deal: Rakyat are The Only Losers

This is a follow up on a previous post dubbed: http://aboiwealthpot.blogspot.com/2010/12/flying-above-rest-airasia.html. I once suspected (with numerical evidence) based on Dali's argument that MAS will require some form of bailout from the government like most govt initiated "national project" on the basic of debt servicing. This time they the govt really had it going with tax payers money on the run.

"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."

That was some time ago and what do we have now? An AirAsia-MAS deal in which everyone calls it shady. MAS’s lacklustre financial performance in recent quarters and if you ask me for the past decade had resulted in the share swap between MAS and AirAsia on August 9. GLC Khazanah takes on a 10% stake of AA in exchange for a 20.5% in our national airline. This essentially means Tony Fernandez (TF in short) is able to sit on the MAS board. TF is certainly happy as his local rival Firefly is now gone with the wind and will probably close shop sooner rather than later.

"Tan Sri Fernandes has admitted that one of the contributing factors for Tune Air agreeing to this deal is Firefly. Firely a low cost airline of MAS covering the domestic sector, was stealing its market share. Out of every three Firefly passengers, two were from AirAsia and one from MAS. 60% of AirAsia's revenue comes from the domestic market, so Firefly was a threat."

On Nov 3, Bursa Malaysia and the SC is probing this deal for a possible insider trading but this is a "wayang kulit" show laaa as explained by Sakmongkol (will be difficult to understand if you are attuned to Mahathir's political life): http://sakmongkol.blogspot.com/2011/11/when-rats-are-away-cats-come-out-to.html.

Anyway my story here is to tell folks that this very apparent 'shady deal' has ramifications for consumers. With budget domestic flight competition soon striped away, AA has virtual monopolisation. And as many would know by now, monopoly means no competition hence fares won't go cheaper from now on. In Malaysia you see similar monopolisation for example TMNet and Astro Binariang. The lack of competition will lead to inefficiency and eventual decline in the fortunes of a company when the competition comes, as it inevitably does. Some may argue that this deal is in response to the flight industry liberalisation in 2015 whereby Asean airlines will have unrestricted access to airports within the grouping. But how can you marry loss making MAS and profit making AA? Like a Hollywood love story in the making. Will Ananda Krishnan's daughter marry a Chow Kit drug addict? Highly unlikely. Again we just want to *SAVE FACE* by helping the ailing national carrier.

Maggie Wu Ya Xin 吴亚馨 is a model from Taiwan (born 8 Oct 1983).

I do not favour investing in companies with loads of debt and GLCs and is a reason why I totally shun away from putting any form of money into the aviation industry whether it is for short term gain or long term basis. My strategy is simply to avoid debt laden companies (D/E ratio) as part of my risk mitigation. Consider the below DE ratios (the higher ratio the more debts it has vs capital):

Malaysia Airline System: 1.477 with net profit in the red (in the RM millions range).
AirAsia Berhad: 2.039 but net profit of over RM1bil.
Thai Airways: 2.204 but also earning money over RM5bil.
Ryanair Holdings: 1.101 
Southwest Airline: 0.649 
Cathay Pacific: 0.713
Singapore Airline: 0.153 (the only one standing apart from the rest)

MAS airline is the only airline in the list that is bleeding and limping. But both airlines: *AA and MAS face a lot incoming debts*, the deal has to happen. The problem with MAS is not because of competition, nor high fuel cost (which is frequently being reported by the media). MAS is not making money because of political/govt interference in the management of the airline. E.g. SkyChef catering biz of the airline is linked to a relative of a govt personality way back in 2006. I bet the other services like maintenance, vendoring supplies to etc are now all linked to cronies some way or another. Will this deal spread the cronyism disease AA management side one day? This is MAS's benefit.

Why is this deal so important for TF?? TF is making a huge gamble to be in the business with the government. He used to be competing with MAS which was easy in the first place hence most of AA's profit is within the country only not overseas. Now he wants to take on the big guns. Read this article carefully: http://biz.thestar.com.my/news/story.asp?file=/2011/6/24/business/8966621&sec=business. As of 31 March 2011, based on data from their 1st Quarter report, AA’s capital commitments stood at RM 19 billion. With that announcement, another RM 54 billion is needed and now roughly RM 75 billion will be spread over a 15 year period ending 2026. Short to say, AA needs to earn as much as Thai Airways does right now, a whooping RM 5 billion per year to meet these dues. Now consider this, for the last 5 years, AA only managed to grow its profit 10 fold  from ~100 million to roughly 1 billion. Second, it's cash holdings has grown only x6 in the same 5 years but its debts has x7 from 1 billion to 7 billion. To me it is unsustainable, borrowing more money on top of money, a bubble in the making. Where does the money come from then? Khanazah...which is of course from us taxpayers la. Win-win for both of them and Kanneh the rakyat will most likely end up as the losers. Government should stick its hand out from the business sector. Now I will suspect that *both* will come and "Minta Nasi". Sien lorrrrr.

Maggie Wu

I Love Coffee, Do You??

I recently purchased a coffee brewer by the name of BrewStation Deluxe by Hamilton Beach. It's about $60, it's programmable and the ability to make both hot coffee and iced coffee. Pretty fantastico stuff I have. Here are the product features:
1) 12-cup coffeemaker with enclosed brewing system and no need for a carafe.
2) 1-handed dispensing; 4 brew cycles; brew-pause function; thermal-lined insulation.
3) Large digital clock/timer; programmable for "wake-up" coffee; auto shutoff.
4) Permanent Gold Tone filter and water filters included.

Hamilton Beach BrewStation Deluxe

Have used it twice, so far have not seen any problems with it apart from when it is brewing it makes some water pumping 'noise', it's not loud and you won't be able to hear it from your kitchen to your bedroom. It does not drip when you dispense the coffee which is neat!! It keeps the coffee warm for hours but not roast it which is cool!! It generates a splendid coffee aroma throughout the house after brewing which is tempting!! Overall I love it for now, let's see how difficult it will be when I wash it each month.

Now to ground coffee. I purchased the Equal Exchange Organic Coffee, Breakfast Blend type as you see below. Some history, EE was founded back in 1986 (my birth year) and is the oldest and largest Fair Trade coffee company in the United States. What the heck is Fair Trade coffee? It is coffee which is purchased directly from the growers for a higher price than standard coffee. The purpose of fair trade is to promote healthier working conditions and greater economic incentive for producers. Fair Trade certification began in the Brazil in 1988 in response to dropping coffee prices in the world market. The supply of coffee was greater than the demand, and since no price quotas had been reimplemented by the International Coffee Act,the market was flooded. Fair Trade certification aimed to artificially raise coffee prices in order to ensure growers sufficient wages to turn a profit. This is why the 12-pound bag cost me *$9.99* in the first place!!

Equal Exchange Organic Coffee: Breakfast Blend

This is *STRONG* coffee be warned. I love strong coffee, REAL coffee. All you need for coffee tasting is just your nose, your mouth and your throat.

Aroma: Toffee. 
Flavour: Not overpowering hence balanced.
Mouthfeel: Smooth, not too harsh.
Acidity: Bright which makes the coffee taste really strong. Got ommphh!
Aftertaste: Bitter, the finish is good and leaves a dense feeling.

Overall: Truly a breakfast blend. One that will get you upright pumped and ready for the day.

Dangerous Times We Live In

Zhang Li 张俪 (born 8 Jun 1984) is a model and actress from Guilin 桂林, China.

Markets have been wobbly in recent weeks no thanks to the Eurozone debt crisis by the PIGS. Read this interesting article: http://malaysiafinance.blogspot.com/2011/11/what-if-greece-defaults.html. And you have President Obama who was at the G20 summit (obviously) giving some notion that US banks who have a tiny portion of stake in some of these debt laden European countries would require some form of bailout help. Again we see America digging a bigger and bigger hole, how is that possible? Why can America (and not any other country) afford itself to keep printing money from spandex or electronically and will it ever lose its currency's value?

This is where the Feds come into picture. The most important regulators are those taking care of the financial system as they are the ones who will determine how freely (liquidity) and safely (disposition) the credit flows. The U.S. banking system is ridiculously complicated and the top dog of regulators is The Federal Reserve regulating the bank holding companies like Citigroup and state-chartered banks. The Fed's actions are independent and therefore the Chairman can easily be considered the *second most powerful man* in America!!

The Fed's creation can be traced back a long time ago during the Panic of 1907 and was finally passed as an act in 1913. What the act said was that it gave the Fed permission to create an "elastic" currency, one that essentially means the ability to expand (print) or shrink (take out from circulation) the money supply as needed. Hence their two powerful roles: Lender of Last Resort and Dictating Monetary Policy. The Feds power was clearly demonstrated when the financial crisis and recession of 2007-2009 came about; printing money to lend to all (which is for bailouts), slash interest rates and buy up tonnes of bonds.

Malaysia's Central Bank (BNM) is similar to the Fed but with *one key* difference that we are not able to print the Ringgit at will (please do not believe our pig headed dumb ass ruling party politicians) because we are not a global currency. The ringgit has little value outside our national borders as no other country uses that for their reserve currency. The U.S on the other hand, has the Fed to issue the U.S Treasury securities and conducts Treasury security auctions and there are always buyers. And who buys them? Other countries...China holds ~28% of U.S debts followed by Japan at ~20%. U.S debt is projected to be at 100% of the GDP (the total size of their economy) by end of 2011 which is ~15 trillion dollars. All I can say is that debt to GDP ratios are irrelevant (I'll talk more in another posting). E.g. Greece had 130% and collapsed. Japan is at 200% and is in safe fiscal position.

Back to the issue. Why does the USD still hold the demand. 1. It has value 2. Intl accepted payment for G&S 3. Huge liquidity in the world financial market and 4. Been in the radar and is engraved in the world's trading infrastructure. Our Ringgit fulfills not of that and is why we can't simply print money, it will devalue it tremendously and quickly. This is also the sole reason why the U.S is a consumer driven economic country. Foods and goods are cheap because they are priced in the US dollars. Consider this:


Gas prices in the US is cheaper compared to any other country because they do not suffer from converting their own currency to the dollar (only true for countries that are weaker compared to the USD). In Europe most countries pay anything between $7 to $10 per gallon (mostly due to heavy tax). In Msia we pay about $3 per gallon but that is after subsidies. This is true for all imports which are paid in dollars and only true for the United States. And for all goods that are made using oil and gas which it mostly is, everything will be cheaper in the States. Other countries have to first change their currency into dollars to settle their balance of payments on imports and exports. This is the main advantage of being a reserve currency for the world and sadly America is abusing that state by printing more money every year and then.


Yes, of course the $$ can lose its value one day but what's the cue?? Two possibilities I can think of, one that the market decides not to use USD to price commodities. E.g. imagine when the oil players OPEC decide to use something like Yen instead. Second, that the US one day might be totally unable to repay its interest of its debt/default. You saw this year's US credit rating downgrade from AAA as the politicians bicker amongst each other. The consequences from this would be catastrophic: hyperinflation, big loss of USD value, shocking rise of interest rates, unemployment; practically an end of a nation just like Greece. The best indicator IMO is to look at the *Foreign Currency Reserves* which shows the USD declining slowly but gradually.

As of Q2 2011 (most recent report), there was a record $3.28 trillion in foreign government reserves held in dollars. This represents 60% of total measurable reserves, down from Q3 2008, when dollars comprised 67% of reserves. Since the percentage of dollars is slowly declining, this means that foreign governments are slowly moving their currency reserves out of dollars. In fact, the value of euros held in reserves increased from $393 billion to $1.45 trillion during this same time period. 

Source: IMF


Because I am following the 2012 Primary Debate in the US, one particular Republican candidate by the name Ron Paul intrigues me. 

His stance that US has been overspending and he wants to end the Fed. As mentioned the Fed answers to no one, they don't face audits, nobody can question their actions, they are not accountable to the US Congress as well. Why is the Fed so dangerous? Money in the US now comes into existence via debt which is then used to create more debt. The Feds make funds (from thin air) available to the US government to overspend, instead revenue should be gotten from direct taxation. Whether he is right or wrong is itself another posting and is also a difficult question to answer. It's more or less an Austrian economics vs Keynesian economics. Folks and experts have been debating on this for decades. I'm an Austrian believer and I believe free market pricing is better than interventionism (which is exactly what the Fed is doing; distorting the market value).


What's to look at in the near future? Italy and Spain is on the verge of unable to service their debts. Because Germany and France (the biggest economies in the EU) won't have enough money to bail both of them out in addition to save Greece, only the US can step in to help. US banks have stakes in these countries though only a small fraction of it. The US can be tempted to save them because if Europe goes into recession US economy will falter just as they begin recovery. If they decide to help guess who needs to print more money: *the FEDS*. Dangerous times we live in which is why I wrote this post in the first place :) Next I will post on the AirAsia/MAS debacle.

Budget 2012 - Learning How To Simply Overspend

How is this a transformative budget when the only thing it does is turn some poor fellow into a temporary loaded individual for several weeks. He/she will then remain poor for a sustained period of time. This is my 3rd time writing about the Malaysian Budget and see how we have gone through the years so far.

In 2003, we spend RM75 billion on operating expenditure vs RM40 billion on net development expenditure. A 50% ratio.
In 2008, we spend RM150 billion on operating expenditure vs RM42 billion on net development expenditure. A 28% ratio.
In 2012, we are going to spend RM181 billion on operating expenditure vs RM50 billion on net development expenditure. A 21.6% ratio.

The numbers are increasingly disproportionate. Why are we digging our own grave year after year??? We need to keep focus on creating disposable income which I meant is sustainable not just giving handouts. In order to transform the economy we need to build capacity, cultivate skills and other productive enhancing capabilities.The 2012 Budget is yet another big letdown. Our budget is now being used as a Santa goodies bag. We have so much desire to hand out cash to almost every imaginable person in the country except to those who pay taxes.

Is the government trying to create a caste system in this country? Heading towards government employees vs private sector employees. As the govt keeps pumping money and better allocations into the civil service which is already bloated with a staggering 1.3 million people (5% ratio of the population of Malaysia), the private sector won't be bothered to compete and instead hire foreigners. This is called a caste system. 1st class citizen = govt servants, 2nd class citizen = Indons & Banglas who get citizenship and 3rd class = minorities who were born in Malaysian soil.

Selected budget highlights:

* One off cash assistance of RM500 to all households with a monthly income of RM3,000 and below, costing RM1.8 billion to benefit 3.4 million households.

Creating a form of disposable income which is not sustainable even for the medium term.  

* One off RM100 aid for each school pupil aged 6 to 16.

* One off RM200 cash voucher for all Malaysian school pupils and higher learning institution students.

Not meaningful to me when education reforms are not happening. What's the purpose of giving cash out when the books they study lack content.

 * Ceiling for house prices under a government deposit guarantee scheme for first time house buyers to be raised to RM400,000 from RM200,000.

Piling more debts on young graduates. Our household debt to GDP is already at more than 75% and is now the highest in Asia losing only to Japan but hey the Japanese earn 4 times more than us. I will talk on housing bubble in my next blog post.

*A RM443 million fund to build 15,000 units of housing for lower to middle income earners.

What? 15,000 only? One knows why they raise the ceiling to RM400,000.

* To extend import and excise duty exemption on hybrid and electric cars until end-2013.

Not meaningful to me when our automobile industry is still not liberalize. 

* To allow 100 percent foreign ownership of 17 service subsectors including healthcare

and logistics.

This is one of the few I like but without meaningful structural reforms, there is not much to attract foreigners into investing in Malaysia. Just look at Bursa, we were the 3rd largest stock exchange in Asia Pacific at the end of 1993 ahead of Australia, Singapore and Korea. After 18 years we have dropped to 10th out of 17.

* Employers' EPF contribution will increase from 12% to 13% for staff earning RM5000 and below.

This is a terrible move. Because employers will now have to fork more they can either hire 4 instead of 5 people or reduce your pay rise.

Here is the full speech: http://www.nbc.com.my/blog/prime-ministers-tax-budget-2012-full-speech/

The budget also failed to address one of the most discerning issue in Malaysia: Inflation worries. While the official figures put it as 5% everyone knows and feels that it is higher than that. I have long been advocating it at double digit percentages. There is nothing in the budget that addresses the rising cost of living. Subsidies remain the same and with monopolistic companies around, it defeats the purpose e.g. Bernas. Disappointing.

This budget was drafted with one thing in mind, to keep BN as the ruling party in the next General Election. And to do so they will need to keep their fixed deposit in the government civil service. Many do not know that UMNO's leader are drawn from the higher ranks of the civil service while those who did not make it to the top but still remained loyal are imbued with directorships in GLC or some other crony ventures/businesses. This is exactly like the model used by Japan's Amakudari: http://en.wikipedia.org/wiki/Amakudari. This could possibly explain why our police force and top civil departments are behaving so partisan and a darn good example was seen during the Bersih 2.0 rally. Najib-ai laaa!!

Malaysian Political Mental Model

Bursa Tech Checkout WW36'11 (Happy Raya & Merdeka Folks!)

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

Bursa KLCI

DOW Jones

Previously I said 'I'll give Bursa a 90% chance to pull up based on good but slow growing world economy., which was true to a certain extent. Yet you can see the heavy selling has been halved since then, moving on I will expect Bursa to test the 1480 as its first resistance and the 1510 as its second before heading up to another mild bull run. You see, when it crashes it goes down fast and hard and the recovery is quite often thrice as long as the downhill (which means the recovery will take us until end of November). Because it is Raya & Merdeka now, there won't be much activity among counters. Do expect Bursa to have a sharp rise after the festivities assuming the DOW is still at its 11,500 level or higher so it's a steel bargain to get some cheap counters right now =)

And a few attempts to answer some of the emails I am getting recently and some which I haven't replied for months (I apologise):

What kind of cut loss strategy can we take for miscalculated DCF?

Frankly I haven't given much thought on this at all. Well there is no hard rule for the level at which I should stop and cut my losses. I do have the idea that for a short term investor it will be a smaller % where else for a long term perspective I'll say 20% is a good choice. When I mean 20%, it does not apply during a recession as the stock might go down to half its value. Provided that the fundamentals of the company is strong I usually do not sell even during very harsh times e.g. SUPERMAX.

I am interested in your way of calculating the fair value of a company is using DCF modelling....Would you like to send me the sample spreadsheet as my reference for my own investment use?

Sure, just ask me. DCF is an extremely flexible valuation model and hence very susceptible to variations with small shift of input values. Though it has served me pretty well for the years, it could be daunting to pick up for a starter. Take time to adjust the settings and play with it to get the best balanced of risk-fair value-discount rate.


I'm using these criteria I found online to evaluate banking stocks. When you have the time, i appreciate if you could scan the coverage on banking stocks by Dynaquest. Thanks so much. How's your investment in US? Eagerly awaiting your analysis on US stocks.

For the rest of the people who may find this useful. Click on it to expand.

I'll try to find time to scan these banking stocks and thank you very much for getting those criteria. No doubt it will prove valuable for me when I do start research on banking stocks. Talking about US stocks, you could begin to understand Options Basic Tutorial in Investopedia as a start. This is an important new element beside Tech and Fundamental analysis. It is the same as in Malaysian stocks where I use 80% fundamentals and 20% tech while for the US based market, I'll tap onto their fancy financial instrument called Options.

I notice you are bearish on Intel and bullish on AMD and these are the only US based stocks you have covered so far.

I'm an electronics engineer in PG and that says a lot haha. Yes, your statement is true. When looking at companies I often look at its potential not more on what it is achieving at the moment. Because Atom is losing its steam and Intel's failure to enter the smartphone market investors do not see any big potential growth within Intel even though it has been hitting record profits for many quarters. While AMD is not that well off either, it has successfully groomed out an unique product called fusion APU that has proved to be a viable competitive lineup for the least 3 years ahead. Bullish on AMD until the end of the year, fingers crossed that it should hit between $8-$10.

Dr. Aya Nakata - A real dentist by profession from Nagoya!!

What other investment blogs or articles/websites do you follow most or contently used?

www.malaysiafinance.blogspot.com

www.btimes.com.my

www.fool.com

www.thefoolinvestor.blogspot.com

www.wikiinvest.com

www.tradingeconomics.com

It's longer than this but I can remember those that I frequent often. I'll update the list when I get back to civilization in 10 days =) Going travelling.

Can you share about your choice of HwangDBS SIF? Frankly there's a lot out there to choose from but how did you came about with it.

I will cover this in more detail in the future. Meanwhile you could read this previous post of mine first: http://aboiwealthpot.blogspot.com/2011/04/give-me-break-pb-fund-fanatics.html. I generally use the four rules as mentioned in that post as my filter for good funds. It has served me well so far having seen my initial investment of RM6000 (not deducting out the one time sales charge of 3%) has grown to RM6176.90 in just 6 months, a 3% return. If unassuming the sales charge it is a whopping 6%. This % of returns is what I have expected from my conservative portfolio.

Hitting Out @ My Own Kind

Yup, I am taking a snipe at the Chinese Malaysian's selfish mentality and behaviours. This was originally a study from Dr. Ee Lin Lee from the Western Washington University, USA who is a Malaysian born Chinese. Some of the information were taken from his China Media Research but has been added with a few flavour & observations of my own. We often hear the word "Kiasu" and immediately associating it with Singaporeans..but are we in fact the ones who are shouting that word in front of the wall and it echoes back.

As Dr. Lee puts it, a kiasu is an over-cautious person who behaves selfishly to the exclusion of others. There is no substitute for such a word in the English dictionary though it has been interpreted in many other ways and not limited to the list as below. If you can find others you could ask me to add in =)

• Afraid of losing
• Afraid to be worse than others
• If people has something we ought to have the same thing
• In more extreme cases we must be better than the other person.
• To risk as little as possible while maximizing whatever one can get
• Obtaining things that one does not deserve
• Self interests are prioritized even if it means jeopardizing others.

Before I drill down to the examples, give some thought about the next few sentences and think about this. Why do I say that Kiasu is more prevalent in Chinese Malaysians and Non-Chinese Malaysians as compared to the rest of the folks? We are an imperfect replica of the real 'Chinese culture' in China because we were exposed to the Brits of the Western values and we did not suffer the anti-intellectual Cultural Revolution of 1966 in China. Hence, we neither fit into Western-based collectivism-individualism or considered a mirror image of Confucianism. We are the by-product of our strength in the economy, the government's education policy and seeking to find our own identity. The stereotype of the selfish Chinese Malaysian comes in the form of the quest for and protection of self-interests.

Strength in Economy
The implementation of the NEP and various affirmative policies diffused many of us from out concentration of power in some sectors of the economy. Since the government's action do not favour us, we are forced to look out for ourselves. Being selfish in our hostile and over protective business environment has become so much critical for the Chinese Malaysian to survive.

Unfair & Competitive Education
Like the NEP, minorities are given extremely limited admission into public university or given grants. Given the intense competition for the limited space, we have no other option but to protect our individual academic interests at the expense of others at times to obtain decent tertiary education in Malaysia.

Seeking a New Identity
Many Chinese Malaysians view themselves as modernized Westernized Chinese and walk a fine line between traditional Chinese values. This effort to redefine themselves has lead to many to hold tight to their own ways of thinking or feeling. Most are focused on what they thought was right or what they wanted to do. Such attitude further solidifies the lack of consideration of others.

Singapore did not went through the first two and you need to consider that Chinese Malaysians make up nearly 20% of SG's population in year 2011. How can they even be given the title of the most "Kiasu" people on earth if you are look at the bigger pictures we outnumber then severely? Going back to Malaysia, here are some few good examples which are prevalent even among Non-Chinese Malaysians to some extend:

Fear of losing out to others: Pushed aside other passengers in our rush to claim our seats. We overtake vehicles whenever a chance presents itself so we can be one bumper ahead of the rest. We picked up this laughing at the poor or belittling them from Hong Kong's mass media. If you can show some wealth, people look up at you hence the quest for overpriced expensive cars. Go to KL and you can see folks with Camry's, Civics, BMWs but they live in nonequivalent house values. For What??

Prioritization of self and jeopardizing others: We go to great lengths to hide reference materials from other classmates. At work we try not share knowledge in order to guard the "rice bowl". Yet we simply justify this act by saying we are not spoon feeding you (I do agree with the spoon thing to a point) OR when I was your age I was in the same position as you BUT wait a minute...when you were my age it was a different decade. The world changes every god damn day. Is like saying when I was young I was given only a textbook to start with so my child has to do the same and not use laptops and etc. 

Maximizing whatever that one can get: Eat-all-you can buffet. If they paid RM30, they will eat at least RM30 worth of food even if it means bloating their stomach and not feeling very good while walking. This is also why these restaurants that charge people who waste only exists in Malaysia & Singapore!

If people has something we ought to have the same thing (in this case experience something): Often many try to go on a trip to do everything and see everything, packing the itinerary like a can of sardines as if the world is going to end in 2012. The justification: to save cost. WOW... if you are saving cost, why spend $250 on a ticket for Disneyland for a day's visit when you can use that for 2-3days. Does that sound like savings for you? Do you spend a day in Genting? No..but sorry I forgot to tell you that Disneyland is x10 bigger than Genting. 

And I could go on and on but it's getting late for me. So if you are a Malaysian, look at yourself, think of others and hear what others have to say with an open mind. We are blessed to have a fusion of both Western-based values and traditional Chinese values so please do not be selfish. You might learn something about yourself and change for the better good and most importantly for the sake of others!! And this applies to me too, just so happen I can see more compared to others hence why I am writing this.

*Unfortunately the context of the post is limited to the Chinese Malaysian in most cases. It was the main focus of this article and is not in any means to promote Chinese Malaysian inferiority to others. My sole objective is to hit out at my own kind but we are fundamentally still and will always be bangsa Malaysia.

VirtualPot Folio combo Bursa Tech Analysis

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

I never did post this but I had a discussion with some friends during office lunch that the world just suddenly panicked for no GOOD DAMN reason. S&P rating cut of the US credit is not really what I expected but the most surprising thing is that the reason given is political debate NOT economic sense. Plus the S&P isn't really that credible going back to US housing bubble time frame. Crisis in Europe is nothing new as well. Emotions run high as usual. Bursa wasn't spared and as you can see it is clearly in bearish state but not in recession mode yet. I will explain:

First, the 40-50 support line is broken, this means we will now observe whether the failure swing will PASS or FAIL. This will determine whether we head into recession or pull up. 

Second, MACD divergence approached and went down the centerline crossover further solidifies bearish nature. 

Third, to add on to it, the 12-day EMA is now below the 26-day EMA (bearish > bullish).

 

BUT BUT we should not panic yet because the most important test is the upcoming failure swing. There is no hard rule to say what the future holds as technical indicators are pretty much lagging ones. Previously I have shared the most recent failure swing which resulted in Bursa pulling back up into another new high. See below. 

IMO this small sneeze in the world economy is just a short term effect contributed by mass paranoia, nothing more than that. I'll give Bursa a 90% chance to pull up based on good but slow growing world economy. RM->USD is now at 3. This should be another read of my previous post for your information since the debt ceiling has been passed: Taking A Look At The USD

Because JOBST (last closed @ rm2.80) is not traded yet I have to compute the portfolio gains manually. The gains are now @ 10.95% down from previous month's 17.7%. Due to the mass paranoia KLCI lost about the same % as mine. Nevertheless there was no immediate concern for me to sell anything off considering all are either under or equal to my computed DCF fair values.

Instead I have placed some reserve cash more into my GENTING holdings doubling what I have right now @ a cheaper price point compared to my first buy. Cost average puts my GENTING at RM10.26 with my just revised fair value @ RM14.05 makes GENTING the most heavily discounted counter at the moment. This is the reason why I did not choose FREIGHT as my first choice.

SUPERMX continues to disappoint and I will touch upon it on my reevaluation in the coming posts this month.

Previous month: VirtualPot Folio for July 2011

Malaysians & Their Cars Again...

What is wrong with Malaysians? Are we shrouded in stupidity? For the pass six months I have heard many response towards buying a "luxury" car from proponents. I bought it because of safety features. Yay right, how many times do I actually see people comparing safety features between cars? Virtually NO. In most cases I see people comparing the additional "gizmos" within the car and how many bling bling features it has inside it. You did not ask the sales guy about how safe this car is, its safety ratings, its credentials...bla bla bla. Of course the basics e.g. air bags and ABS are now even present in local cars @ a cheaper price point. Do you know why speed crashes and test dummies are done at reduced speeds using high speed cameras? It's a high speed camera anyway; because you are most likely to die from a crash above a certain speed limit regardless how SAFE you perceived your car to be. Simply ask a car buyer who pays RM90,000 for a car how much safer is it compared to a local car at RM50,000. Close to being don't know is next to ignorance. You can ask me the same question but I do not know but why are you paying the extra RM40,000 for something you DON'T EVEN KNOW? Safety is the lamest excuse coming from Malaysians to date.

Another excuse: many Malaysians die from road accidents compared to terminal illness because we have many local branded cars on the road. If you take the statistics and weight it across brands you get roughly the same percentage regardless of make. Why is this? PLEASE, use your God given grey matter. In doesn't matter the type of car, it is because the Malaysian driver no longer respects the law. Go to NSE and you can see a car flashing you from behind every 5 minutes. Red lights are optional, motorists do not wear helmets and lorry/express bus drivers are RAJA JALAN. In fact, this laissez faire attitude towards traffic laws is equally represented in other areas of daily life in Malaysians and most notably the lack of common courtesy.

Sharon Xu

Our current public transport condition is to be blamed is another half baked excuse. Though it is not the lamest I have heard, it is certainly perplexing to put the blame solely on our transportation. Malaysians do not carpool (this is why I am a proponent of higher gasoline prices), parents fetch/drop their kids to school even when there is BAS SEKOLAH, we prefer to drive even if it is only a walk away and we usually blame the tropical weather. HELLO!! Are we the only country in the equator?? We even lose to Brazil in terms of trying public transport. Motorists in this country don’t blink an eye forking out large portions of their earnings just to pay for their car loans or upkeep. Do you own the car or does the car own you? Well it is easy to blame to government, our Proton and Perodua but not ourselves, yet we have consistently and persistently adhere to our indulgence to "Keep Up With The Joneses" and in denial of that fact.

For those scratching their heads and wondering why the government refuses to lower taxes on imported cars sold in Malaysia even for brands and models not in direct competition with national makes. I know that the import duty, excise duty and sales tax collected from imported cars range between RM 3 billion to RM 5 billion a year, which implies that there is little chance of the taxes ever going down and prices of imported cars reduced. And we are feeding this all the time by buying foreign cars with lame excuses. Out of a RM90,000 car, RM33,000 goes towards the government in terms of taxes. THINK! Sidenote:Top 10 Brand Cars In Malaysia.

Re-post: What do I find a justifiable excuse? You get what you payed for and as such the only reason people buy jacked car prices is for quality. In an industry which is plagued by x3 normal prices, the word quality is knitted closely to the word luxury. Believe it or NOT, cars have become status symbols where proud men showcase their ego and the capacity to indulge themselves while their continue to live in normal apartments. In Malaysia it has become more than a mere necessity.

Sources: MAA, AAM, PIAM and Paultan.org                   

We should start going back into:

Start a carpool group: On the way to work, fetch your neighbours kids to school etc OR hitch a ride with some pals. It's not on the way. COME ON! Since when our houses are built along one single street? Take a short detour to fetch someone and share the gasoline bill. As a proponent of higher gasoline prices, carpooling will solve the high price issues.

Buying locally made cars/used foreign cars: A reduction in AP generated profits will make the government change its stance to some extent.

Use public transportation when ever possible: Start from yourself so that your children will follow. Even if it is terrible, play a role to provide a solution rather than be part of the problem by adding more traffic in our clogged roads.

2011 Equities Reevaluation Part 1

Araya Hargate

Trading/Service: Genting Berhad
Results from annual report 2010 is impressive as expected. Previous DCF target price of RM12.25 is now revised to RM14.05 backed by encouraging outlook of the tourism-related sectors in Singapore. With the global economy in an almost stalemate climate, SG's 2Q11 economic indicator shows a yoy% increase of 3.3% for the services sector while the rest draw blanks (manufacturing @ -5.5% and construction @ 1.6%). Although the services sector has been in the downtrend since 2Q'10, tourism was not the cause of it. Wholesale and retail trade were weaken by trade flows while financial services sectors lag due to sluggish stock activities. Nothing beats the source from the ground and with many Malaysians situated in SG, many of my friends can attest that tourism is a booming industry in SG. Other source: MIDF Equity Beat.

As usual I'm ignoring other segmental info of GENTING (power, plantation, O&G and properties) because it is negligible; contributing only 18% of revenue though I do wish they exit from power generation. This is because the prices of raw materials for power generation such as coal is increasingly volatile and will be as the world struggle more with its power needs. GENTING remains my most favourite long-term (>5 years) pick and is a 5-star choice and SOLID BUY. The biggest risk I see is over expansion which leads to either too much debts OR losing focus; for now this is still in the region of being medium. And I have yet to visit Resorts World Sentosa, I plan to do so one day.

GENTING Chart 1

GENTING Chart 2

Trading/Services: Parkson Holdings Bhd
Parkson added 3 stores in China, 2 in Malaysia and 1 more in Vietnam. Because Parkson China remains the main contributor to the Group's result (71% of revenue & 91% of OP) I tend to overlook Malaysia (which does not have good long term economic outlook) and meager Vietnam due to this. Retail spending has increased 15% over the year, with GDP @ 10% and Parkson China registered store sales growth of 11%, I am optimistic and convinced that Parkson has a grip and strong presence in China's Tier 1 cities. Unlike MAMEE which made a mistake of going into China all by themselves, PARKSON went by proxy just like JOBST which is proving successful. Other healthy indicator includes another year of down trending D/E ratio; evident with rising ROCE.

This time I removed gains on partial disposal of subsidiary for Parkson China; the chart shows it all. Revenue growth rate is expected to balance itself between 5% to 10% as you remembered in my previous analysis that Parkson turned pure retail in 2007. PARKSON is another good pick for the long-term (>5 years) as China's middle class is expanding tremendously and has been for the pass decade. A 4-star choice and GOOD BUY. The risk I see would be the bubbling of China property market; if it goes boom it could spell lacklustre consumer spending like we see in the US. A medium to high risk region. Pay attention to the AR 2011 since they end their financial year in June. As such I have revised DCF target price from RM6.60 to RM6.80. Sources: Forbes & World Bank.

PARKSON Chart 1

PARKSON Chart 2

On a side note: I do not believe US will default and I also do not think the rich stage this, it is too soon for that. US will either increase the ceiling (40% chance) OR get a debt deal out (cut spending & increase taxes @ 60%). Reading: http://aboiwealthpot.blogspot.com/2011/06/taking-look-into-us-dollar.html. Next on I will examine FREIGHT, JOBST and F&N in Part 2. MAMEE and SUPERMX in Part 3. A special part on PANAMY and CARLSBG because some have said I have missed the boat =). Also I will start looking into AirAsia which I have been dragging for a very very long time.

Deborah Henry

Disclaimer: The reports, analysis and recommendations in this blog are solely my personal views. I do not link to any investment body or company. As such, I will not be responsible of any of your investment decision. Consult your investment adviser or come to your own conclusions before making any investment decision.

Will BERSIH 2.0 Hurt the Economy?

This is to be a short posting. No doubt in the minds of most people that protests are disruptive, inconvenient and damaging to the country's economy. In fact there are some folks who think that protests do nothing but just a waste of time. Ah hah, before we go that far we should go back to history. I will put forth my argument that protests are not necessarily EVIL in nature.

1. The French Revolution was essentially a people's protest for a radical social and political upheaval. The result was the development of many of today's modern world ideologies. It gave birth to new ideas of liberty, equality and fraternity. American revolution was partially inspired by this French revolution. Since then the world's quality of life has improved tremendously. Point 1.

2. The Vietnam War protests eventually handed down massive pressure on the US government to withdraw from a losing war and also to stop the piling up of national debt. This one was unique in that the protests were staged for a long time (years) and in huge crowds. There were some violence but largely peaceful. America's economic growth at that time did not suffer because of the protests, in fact it continued to grow.

3. The Greek protest because of the introduction of austerity measures and the more recent in Egypt did much damage to the economy because there were not just protests, it was strikes after strikes. This closed lots of stores and factories plus tourists are evacuated because the government finds it difficult to handle the situation properly and correctly. The short terms effects are devastating but in the long run it should bring more benefit.

By examining the facts, one can deduce two things. First, the objective of the protest is the far most important element. Second, violent or harsh intervention of such protest only do more harm than it was never intended. Again I could list many of the world's history for such prove. So now we looked upon BERSIH's rally ahead in Malaysia today and wonder what effects it will place into the economy. My sincere observations:

1/2 day of rally hardly makes a dent on the economy and it is not always true that protests will bring harm to the economy. Protests that are facilitated and kept peaceful by the police will do no harm to the country. Take a look at America and modern day France (who has like union strikes all the time). Hardly any violence and no harm to the economy. The opposite goes when violent or harsh interventions happens. Draconian laws create fear and intimidation. I believed that protest is good if the objective is sincere. I see history was made by people that protested slavery, segregation and apartheid. There are some that say there are other ways..like what??

If you feel you don't have a voice, and your supposed representatives in the ruling government ignore letters and phone calls, then protest is sort of your only option! I don't support violence AT ALL, EVER, but it happens, it is kinda inevitable and it's been known to change things for better or worse. Violent protest that involves the destruction of property and violence is a bad way to get your point across. But a lot of protests aren't violent until the cops start busting heads just like what is beginning to happen in BERSIH 2.0. If this is the case, the short term effect to the economy is not going to hurt much contrary to what officials say (KLCI is already nearly hitting 1600 points). If you look at the long run, it will scare investors plus with the economic fundamentals that Malaysia is lacking (http://aboiwealthpot.blogspot.com/2011/06/lets-talk-about-economics.html) right now there won't be such thing as an easy and simple life in the future if nothing changes. I don't need any economics degree to know that. God bless Malaysia going forward.