MAS Problems Stem From Bad Management

Malaysian Airline System Berhad is engaged in the business of air transportation and the provision of related services. It operates in two segments: airline operations, which is engaged in the operation of aircraft for passenger, and cargo services, which is engaged in the operation of aircraft for cargo and mail services. Its other business segment includes catering, engineering, computerized reservation services, trucking and warehousing services, retailing of goods, terminal charges, and tour and travel related activities.

Stock Rating: UNDERPERFORM (NEVER BUY)

Price: RM0.765

Target price: None  

based on negative EPS and average industry PE range of 16

Fundamentals: Not Meaningful
Technical: Not Meaningful

Risk Level: Very High

**Outperform: Stock expected to do better than market return; has upside or cheap vs target price. Usually a buy call.
**Market perform: Stock expected to be on neutral, can be + - 3% to 5% either way; Usually a hold call.
**Underperform: Stock expected to do worse than market return; has downside or too expensive to buy vs target price. If fundamentals change a sell call.

Malaysia Airlines Join Oneworld Alliance

Prelude
Unlike investment banks or research houses, I do not invest in highly risky endeavors nor do I want to play the trading game. IB and RH have their roles and place in the financial market, they analyze securities and do recommendations based on up to date data & make educated assumptions for estimates and forecast. I however have my own set of investing theories & one of those is to simply avoid bad companies. I can do with good and 'decent' companies given the risk involved of course. Luckily Proton has delisted if not it would receive bashing too from me here. I am pretty sure MAS will be consumed by Syed Mokhtar in the end due to political reasons, I just don't know when. Shady deals like this go unnoticed until the very last minute. 

MAS is a major player in the intercontinental and wide body airlines sector. Malaysia Airlines currently flies to 90 international destinations over six continents. Some of Malaysia Airlines prized routes include to London Heathrow , Tokyo Narita, King Abdul Aziz Jeddah, Paris Charles De Gaulle  and Dubai. If Thai airways, SIA and Cathay can make money why not MAS? It is because of BAD MANAGEMENT (poor hedging against fuel prices & terrible cost control). There's a lot of drama in MAS (see this link) and won't bother putting it all here. My goal is to show you how the stock looks like from a financial side.


Fundamental Analysis
Revenue/EPS: CAGR of ~-200%. There is no growth in profit over the last 5 years.
Dividends: 0%. It does not have a dividend payout ratio as well.
Debt-to-equity Ratio: 5.44. This is the highest ratio I have seen in my investing experience. For a high capex industry this level of debt is horrendous (bad management).
Liquid asset-to-share Ratio: 0.33. Very little cash in hand, barely to enough to service debts. Can you imagine having RM0.33 but you owe your friend RM5.44.
Return on Capital Employed: -242.22% in 2011. Keep buying planes but yet to prove it can make any money and it is still buying more.
****For more information download my worksheet from my dropbox: Aboi_Hybrid_PEGGY_method

Can you see how depressing our National Carrier is

Technical Analysis
Don't bother because the EPS is negative due to losses, regardless of the PE ratio, the computed target price is always RM0. As such I have no interest in seeing the technical side without strong or at least decent fundamentals. For the year 2013, MAS is expected to return to the black albeit with very little profit. The business turnaround plan has been in motion since 2012 and produced some decent results, however investors are not convinced yet as evident from the dismal share performance.


In The News

**The following taken from Maybank Research 01/03/2013**

In line. Malaysian Airline’s (MAS) FY12 core net loss of MYR571m (- 45% YoY) was in line with ours, but outperformed consensus estimate of >MYR700m loss. The Company has managed to stem losses since 3Q12 and has appeared to turn the corner in terms of a successful business turnaround. We maintain our BUY call, but with a lower target price of MYR0.97/share (previously MYR1.02/share) after tweaking our average fuel cost assumption to USD126/bbl from USD125/bbl, based on 2014 7.2x adjusted EV/EBITDAR – in line with regional average.

4Q12 was encouraging. 4Q12 reported net profit of MYR51.8m was significantly better than 4Q11’s loss of MYR1,276.9m. The drivers were better yields and load factors achieved. Unit cost has risen by 0.7% YoY due to higher overheads and business restructuring costs. More importantly, operating cashflow of MYR35.3m affirms that the business has turned around and is generating positive returns.

MAS will grow modestly in 2013. MAS will have a net reduction of six aircraft in 2013 (dispose 22 aircraft and receive 16 new aircraft). This fleet rejuvenation exercise will bring down its average fleet age to ~7 years – which is similar to industry leaders such as Singapore Airlines and Emirates. Capacity will likely remain flattish despite the lower fleet size, as MAS will boost utilization rates on the new aircraft.

Outlook remains challenging. Management states the competitive environment is challenging, and yields are soft. Regional sectors (ASEAN, China, India) are performing better relative to long-haul routes, and this is where MAS will focus its growth strategy.

BUY with a lower target price. We have cut our earnings forecasts for FY2013-14 by -5.5% and -3.1% respectively, after raising our average fuel cost assumption to USD126/bbl, up by USD1/bbl from USD125/bbl previously. Despite our bullish view, we think the stock will trade sideways until the rights issue is completed in Apr 2013.

**End of The following taken from Maybank Research 01/03/2013**

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.

Breaking free from the Matrix

What is TED? "TED is a nonprofit devoted to Ideas Worth Spreading. It started out (in 1984) as a conference bringing together people from three worlds: Technology, Entertainment, Design. Since then its scope has become ever broader." More info here: About TED.

I don't really believe everything he is saying but I like everything he is saying. Nevertheless very sage and practical advice. If you are one of those wretched people stuck in a career that is fundamentally incompatible with other life-goals, have the courage to change careers and pursue what it is you really want to invest your life in. For the rest of us, simply make the most of those "small things that matter to you" right now, not waiting for "someday" when you will "have enough time." because there is no such thing as having time to do something is about making time to do it. I find the small things make the biggest differences to my well being; read a chapter of a book each day, stopping to smell the smell of nature, 30mins of exercise, actually talk to a friend outside of your working circle each day, walk the dog/play with your cat.

Ignore the rolex ad after the 10th minute marker haha.

Which are my MREIT picks for Year 2013?

From humble beginnings of RM300 million market seven year ago, Malaysia REIT industry now represents a total market capitalization of RM25 billion and it growing still (KLCC is coming in...) This investment vehicle provides investors with an opportunity to own property jewels that is otherwise very difficult for an individual investor to own in the Malaysian property landscape.

Starhill & BSDREIT

Stock Rating: OUTPERFORM (BUY)

Price: RM1.07 / RM1.83

Target price: RM1.17 / RM 1.83 

expected dividend yield of ~7.0% and 6.5% respectively with some share upside

Fundamentals: Long Term Outperform (5-year period)

Sentiment: Medium Term Bearish (6-month period)

Risk Level: Medium

**Outperform: Stock expected to do better than market return; has upside or cheap vs target price. Usually a buy call.
**Market perform: Stock expected to be on neutral, can be + - 3% to 5% either way; Usually a hold call.
**Underperform: Stock expected to do worse than market return; has downside or too expensive to buy vs target price. If fundamentals change a sell call.

Ya it's been awhile since I have these kind of pics :)

What is a Real Estate Investment Trust?
REIT is a company that owns and operates income-producing real estate which covers commercial real estate sector. REIT can also lend money directly or indirectly to other companies to finance acquisition of real estate properties. REIT gives an average investor the opportunity to invest in commercial estate by purchasing a stake in a portfolio that they would not otherwise be able to purchase on their own. These companies are then able to finance their operations by raising money from your money through sales of common stocks.

There are established guidelines in Malaysia for a company to qualify itself as a REIT. This comes from SC (Securities Commission Malaysia). Some of the more useful info as below:

• Allow up to 70% foreign shareholding in REIT companies. Still need the 30% for Bumiputera quota.
• REIT not allowed to acquire non-income generating real estates like vacant land or under construction real estates more than 10% of total asset value.
• NO explicit requirement of minimum dividend payout ratio in guidelines BUT...
• Tax exemption at REIT level provided that 90% if its income is distributed as dividend to shareholders.

The fourth guideline is attractive and I say attractive because all listed REITs in the Malaysia market has been dishing out 90% or more of its income as dividends since their listing. This is proven over a 7 year history! This is the reason why REITs are seen as a stable source of recurring dividends, amounting at least 4.5% and upwards to 8%. The dividend payout for a REIT must be high, higher than bonds 3.5% or FD rate ~4% to make it as an appeal to investors.

What I find most appealing is that REIT is viewed as bond-like instrument (because dishing out dividends) that is asset-backed! This simply means it provides investors a natural hedge against inflation (because property prices/rentals go up following inflation too). This is very much different from bonds/FD which are backed by physical money (your money doesn't grow unless you get dividends). Can understand haha?

So how does one start jumping in? Wait laaaa. First you need to determine the specialization of the REIT. I made it easier as below:

• Pavilion: Pavilion KL Mall & Tower, Fah88 and USJ General (under development)
• IGB: The Gardens and Midvalley KL
• Sunway: Sunway shopping malls, Sunway buildings and SunCity Ipoh Hypermarket
• CMMT: Gurney Plaze, Sungai Wang, The Mines and East Coast Mall
• Axis: 29 over properties; >50% leased to logistics, services and financial services 
• Starhill: Sponsor YTL, primarily hotel assets around Msia and global presence Jpn/Aussie
• Boustread: 12 oil palm estates, profit sharing based on fixed rental & perf based sharing 
• Alaqar: World's first islamic healthcare REIT, KPJ-Healthcare sponsor, 25 buildings
• Amfirst: Ambank buildings, The Summit, Prima 9 and Prima 10
• Hektar: Subang Parade, Mahkota Parade (Melaka), Wetex Parade & Classic Hotel (Johor)
• UOA: UOA Centre, II, Daman and Wismas + Menara UOA Bangsar
• AmanahRaya: Govt-owned company, diverse assets e.g. industrial, segi and some commercial
• Quill Capita: Quill buildings 1-10, part of plaza mon't kiara KL and tesco Penang
• Tower: HP Towers, Menara HLA, Menara ING
• Atrium: Warehouse and storage; DHL, SAF-Holland, Century, CEVA and Unilever, 100%.

I am not going to share what to look out for in REITs as I have posted previously in back in June 2010: Investing in Real Estate: Real Estate Investment Trusts. 

What I'm going to do is simple

Share my thoughts on each REITs & talk about it's NAV + Dividend Yield. In theory, the quoted share price should not stray too far from its NAV (good read here). 

"We find that the level of premium to NAV is positively related to REIT size (market capitalization), debt to equity ratio and the level of REIT liquidity as measured by the relative effective spread.  Changes in premiums to NAV over time have a strong common element across REITs, which is related to but not entirely explained by a common element in REIT liquidity." quoted from the research article.

I will talk about those that I will avoid investing:

As you can see the 5 of the top 4 are all malls and you have to pay a premium due to the share price-to-NAV. IMO the valuations cannot be justified any further without killing the dividend yield as their DY is roughly 5% now.

Alaqar healthcare has a debt-to-equity ratio of nearly 1, futher expansion of the REIT is limited, and yet is selling at a premium now. Hektar is too small for a mall player and has a high DE ratio of 0.76 too. Furthermore its DY is already 5% and further valuations cannot be justified.

Offices REITs have nice dividend yield >6.5% to 8%. However the risk of oversupply in office space in KL is looming. This is further compounded by our Jib Goh's plan to build the Tun Razak Exchange, adding more empty space to empty space, apa ini?. 

So what's left?

Starhill: Restructuring completed. It has DE ratio of only 0.12. Due to the restructuring of its portfolio by selling all its mall assets and choosing to focus on hospitality, its profits went down. The attractive thing about this REIT is it is going global. It has acquired hotel in Japan and recently from Australia. And I actually like companies that don't just do domestic. Expected yield >7.0%! with some upside on share price. More news: Attractive yields from Starhill

Boustead: It also has a low DE ratio of 0.16. Recent bad news on low CPO prices is a very good opportunity to accumulate its shares. Forget Europe whose banning palm oil, furthermore their economy is in shambles  They are small compared to markets like China and India whose growing appetite for palm oil is not waning owing to a increasing middle class. Expected yield >6.5%! with neutral stance on share price, trading sideways most likely. More news: Revaluation boost for BSDREIT

These two command the place of 7 and 8 of the biggest REITs in Malaysia as such have decent liquidity for trading. Also as you can see I place bad news as an opportune time to accumulate more of these hidden gems!

P.S.

Some of you know I hold BSDREIT shares for some time and you may wonder how am I doing since the stock went from a high of 2.18 to 1.83 now. Let's do some math: I bought at RM1.32 and divs I have accumulated so far is 3.8sen (2010) + 10.2sen (2011) + 12.5sen (2012) + 5.5 sen (2013) = RM0.32. In short I have gained RM0.83sen or 63% profit. That's how much I've made in 2.5 years. Why should I sell lol, is palm oil going away? Key note here: In REITs look for dividend yields first, capital gain is secondary (bonus laa). When you buy make sure you buy at the right time, if you were to buy at high price you risk wiping out your dividend gains from capital loss. Then you panic and sell and you will say REITs no good. Actually they are good, just not all are good buys.

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.

DiGi.com I see Red for now not Yellow

DIGI.com Berhad. The Group's principal activities are the provision of mobile communication services to businesses, individuals and other operators through its operating unit, DiGi Telecommunications Sdn Bhd. Other activities include provision of international gateway network which offers cross border interconnection and related services, through its operating unit, DiGi Telecommunications Sdn Bhd and property holding and other related services. Operations are carried out mainly in Malaysia.

Stock Rating: UNDERPERFORM (BUY LATER)

Price: RM4.42

Target price: RM3.96  

based on average high PE range of 22

Fundamentals: Long Term Outperform (5-year period)

Technical: Short Term Bearish (3-month period)

Risk Level: Medium-High

**Outperform: Stock expected to do better than market return; has upside or cheap vs target price. Usually a buy call.
**Market perform: Stock expected to be on neutral, can be + - 3% to 5% either way; Usually a hold call.
**Underperform: Stock expected to do worse than market return; has downside or too expensive to buy vs target price. If fundamentals change a sell call.


Fundamental Analysis
Revenue/EPS: CAGR of ~3%. Slow growth. Next catalyst would be LTE/4G as a game changer as tablets/ultrabooks/smart data plan usage picks up.

Dividends: Between 6% to 8% and a good net profit-to-dividend payout ratio >80%.
Debt-to-equity Ratio: 0.52. On the neutral side. For a high capex industry this level of debt is astounding (good management).
Liquid asset-to-share Ratio: 1.41! Cash, bank balances and deposit ready for use.
Return on Capital Employed: Has always been high >70%. Very good use of assets considering the amount of capex being used.
****For more information download my worksheet from my dropbox: Aboi_Hybrid_PEGGY_method

Share price growing faster than EPS growth. Share trading within PE 16 to 22.

Technical Analysis
Timing is key when buying a stock like DIGI. I believed more shakeouts will happen as evident from the current PE of 29 which is way higher than the average 22 and high side of 22. If I can get it at around RM4.00 then it is fairly priced for a good blue chip dividend play stock. However for capital gains one might need to wait until the catalyst LTE/4G start rolling and that will only start to bear fruit at beginning of 2014, another one more round of financial year to go.

VSA Buying Climax - signs of weakness
The ultra high volume plays a key role. It means that market pros are selling to unsuspected retail investors like us because most of the individuals traders whose judgment will be clouded by all the great news floating around them. All these traders rush into the market buying it while the pros are offloading them hence the ultra high volume. Once this transfer has taken place a bear market is guaranteed.

VSA Up-Thrust - signs of weakness
Indicated by a wide spread during the day but falls to close on the low, on high volume. This is the logic, if the high volume seen was buying, then the closing price would have been on the high and not on the low. Hence the close on low suggests there is more selling than buying in the high volume within the marketplace. We get a bear run again.

VSA Shakeout - signs of strength
This is intended to remove many investors and traders from the market, obviously all those un-pros. News will be bad and this is used by the pros to panic people out of their positions. Usually after a shakeout the market will move sideways with low volume because the pros would try to buy as much of the stock as they can, without significantly putting the price up against their own buying. This stage is called the accumulation phase; some last for a few days, I have seen some for weeks.

VSA Testing - signs of strength
Prices are marked down rapidly during the day but the price would recover to close near the high of the day with low volume. This signals that the market has been marked down and has attracted no professional selling due to the low volume. Remember that the pros hold the volume, so when they do not sell, the market has little choice but to go up as it is driven by the usual supply and demand.

VSA Stopping volume - signs of strength
This results from buying orders from market professionals which are large enough to stop a down move. Seen as a high volume down day but usually closing in the middle or the highs. Stopping volume is a point where demand overcomes supply.


In The News

**The following taken from Kenanga Research**
Aiming for a better usage of its current spectrum portfolios. The group believed that the recently awarded 2x10MHz in the 2600MHz bandwidth by MCMC is sufficient to deploy its upcoming LTE services. Apart from the 2600MHz bandwidth, the group also has a number of other spectrums, which comprised of the 900MHz, 1800MHz and 2100MHz bandwidths, similar to its industry peers. In view  of the various cost advantages that could be enjoyed via deploying LTE  services through the 1800GHz bandwidth in contrast to the 2600MHz bandwidth, management intends to request the authority to re-assign the 1800MHz usage (which currently is used for its 2G deployment) to 4G services. The key difference between the 2600MHz and 1800GHz spectrums is that the latter has a wider coverage as well as a higher building penetration rate, which will translate into a significant cost saving in terms of capex spending. Meanwhile, we also understand that management is open for collaboration with other spectrum holders should the opportunities arise. 

Targeting to roll out LTE services in FY13. Management has reiterated its intention to roll out its LTE services in FY13, albeit the actual rollout time frame remained vague at this juncture. Based on our earlier understanding, Digi prefers to be the last mobile operator to rollout the service and thus allowed the group to introduce more innovation as well as competitive LTE plans to the market. We understand that Digi is likely to focus on mid/large-screen data (i.e. tablet and notebooks) in its upcoming LTE services. 

Continues to explore business trust. Digi indicated that it was still exploring setting up of a business trust to house its assets and extract more cash to further reward shareholders. Management said it is not necessary to list the business trust in the stock exchange, should the framework materialise. Digi also indicated that its net debt/EBITDA could be raised to 1.5x-2.0x. Should the company leverage to these levels, we estimated that Digi could potential unlock RM0.52-RM0.71/share. 

Network collaboration saving expected to kick in by FY15. Digi is making good progress on its site sharing and joint-fiber build with Celcom. As for the cost savings, we understand that Digi expects to have an annual combine saving of RM150-RM200m from 2015 onwards with total estimated cash saving of about RM1.1b each over 10 years. We have yet to impute in the above cost savings into our FY15 financial model.
**End of The following taken from Kenanga Research**



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.

10% Profits-Two Months-Give VSA Another Try

This goes back to the original post of MPHB: Applying Volume Spread Analysis Method (VSA). After just a mere two months results are seen, so far I have not seen any clear sign of weakness. In addition I will give VSA another try, this time applying to another counter of mine: Genting (blogspot just updated, view it here: Genting unleashes its war chest, enters Las Vegas

So did you also put your money in MPHB two months ago? VSA does not work on all stocks, if not everyone would be rich. Only take interest in companies that have a growing revenue with manageable debts, simply said it's EPS (Earnings Per Share) must grow every year! It is to minimize risk while at the same time optimizing the value of your returns. If you are unsure which companies are these, head to my Watchlist section.

Current Chart

Previous Chart

Genting unleashes its war chest, enters Las Vegas

Genting Berhad is an investment holding and management company. The principal activities of the subsidiaries include leisure and hospitality, gaming and entertainment businesses, plantation, the generation and supply of electric power, property development and management, tours and travel related services, genomics research and development, investments and oil and gas exploration, development and production activities. The principal activities of the Company's associates include the generation and supply of electric power, resort, property investment and property development. The Company has over 4,500 hectares of prime resort land and about 134,000 hectares of plantation land.

Stock Rating: OUTPERFORM (BUY NOW)

Price: RM9.46

Target price: RM12.60  

based on average PE 18 due to monopolistic position

Fundamentals: Long Term Outperform (5-year period)

Technical: Short Term Bullish (3-month period)

Risk Level: Medium-High

**Outperform: Stock expected to do better than market return; has upside or cheap vs target price. Usually a buy call.
**Market perform: Stock expected to be on neutral, can be + - 3% to 5% either way; Usually a hold call.
**Underperform: Stock expected to do worse than market return; has downside or too expensive to buy vs target price. If fundamentals change a sell call.


Fundamental Analysis

Revenue/EPS: CAGR of ~7%. Turnover growing steadily ever year as evident from growing EPS.
Dividends: Roughly 1% and no dividend policy. Genting is a capital gain investment.
Debt-to-equity Ratio: 0.80. On the high side but still less than 1.
Liquid asset-to-share Ratio: 3.84! Has a tremendous amount of cash in hand. Nullifies the debt side ratio.
Return on Capital Employed: Performing at ~15%. Anything amount above 10% is good.
****For more information download my worksheet from my dropbox: Aboi_Hybrid_PEGGY_method

EPS growth correlates increasing share price with PE range of 10-18

Technical Analysis

VSA Shakeout - signs of strength
This is intended to remove many investors and traders from the market, obviously all those un-pros. News will be bad and this is used by the pros to panic people out of their positions. Usually after a shakeout the market will move sideways with low volume because the pros would try to buy as much of the stock as they can, without significantly putting the price up against their own buying. This stage is called the accumulation phase; some last for a few days, I have seen some for weeks.

VSA Stopping volume - signs of strength
This results from buying orders from market professionals which are large enough to stop a down move. Seen as a high volume down day but usually closing in the middle or the highs. Stopping volume is a point where demand overcomes supply.


In The News
With its RM 21 billion in cash war chest and eyeing the growing influx of Chinese and other Asian tourists to Las Vegas, Genting plans to start construction on a new multibillion-dollar casino complex called Resorts World there next year. If Genting goes through with the project, it will be the first major casino initiated in the wake of the economic downturn of 2008, a potentially major milestone for Las Vegas that could usher in a new era of opulent buildings—or hasten the decline of others.

Genting intends to build a multi-billion dollar casino with 3,500 hotel rooms, a convention center and a 4,000-seat theater. The company is spending $350 million on the purchase, or $4 million an acre. The price is among the lowest in a decade for Strip property. That means the resort corridor is still far from the days in July 2007 when a developer spent nearly $34.7 million an acre for empty land. What a bargain! $4mil (now 2013) vs $34.7mil (pre-crisis). 

A person familiar with Genting's thinking said the company is finally striking in Las Vegas in part because it sees a rise in visitors and spending involving Chinese travelers. Genting may have an advantage in attracting them because it operates casinos in Singapore and elsewhere that attract Chinese gamblers. Yet unlike three of the four major Las Vegas casino companies, it doesn't have a presence in the most important gambling market in the world—China's gambling enclave of Macau.

The Genting conglomerate opened its first casino in 1971 in Malaysia and now operates sites in New York state, the Philippines, United Kingdom, Singapore, and the Bahamas. Genting is also in the top 1000 companies of Forbes Global 2000 ranking. Other recent news: Genting's 4Q within expectation

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.

Private Retirement Schemes in Malaysia Part 1

Quote: Retirement Is A Journey Not A Destination!!

This is a snippet of a full article from my dropbox area. In there, you can access tonnes of documents. I highly recommend you view them, alternatively you can download the entire folder to your own computer. Internet Explorer is known to have issues, please use Chrome or others. You can view from this link: PRS Info @ Nick's Dropbox

What the heck is PRS?
"PRS is an investment scheme that facilitates the accumulation of retirement savings through voluntary contributions. The PRS is designed to complement the Employees Provident Fund (EPF) and is regulated by the Securities Commission Malaysia (SC)." taken from Fundsupermart.

Simply said, PRS is another form of investment option for us to save up for retirement.

Why PRS for Retirement? 
Like it or not, when deciding to invest in PRS, we are actually forcing ourselves to save + invest additionally apart from depending entirely on EPF for retirement. The problem with depending entirely on EPF for your retirement is as below:
1. The average annual return of EPF for the past 5 years is only 5.62% (to slow lahhh...) because…
2. Inflation is about 3-4% and might rise higher in years to come. I assume subsidies will be cut. By extreme case cancelling all government subsidies, inflation would double to 6-8%. I will explain how I get this figure next time.

3. The amount accumulated in EPF when reaching retirement is actually insufficient to cover the expenses of a person who has retired. Again this is highly dependent on your desired lifestyle during retirement.

Case Study 1 - Investing my EPF when I retire (case of too little too late)
Now say for example I retire at 55 with RM1, 000,000 in my EPF account. I decide to withdraw all that money and invest in a fixed deposit earning about 4% a year and live on the yearly returns. That would come up to about RM40 000 per year or RM3000 per month! Not too sure if I can live comfortably with that amount. Remember that’s nearly 25 to 30 years away. Using inflation of about 4% RM3000 is equivalent to RM8000 in 25 years. So I am short of RM5k each month. Seriously, Money No Enough lerrr...

Case Study 2 - Living on EPF (case of being too old fashioned)

I decide not to invest but to withdraw all the money from EPF and keep it under my bed. Instead, I'm going to slowly use that money till I meet my Maker at about 75 years old (if I live longer then 75, then God help me!).
With RM1, 000,000 and 20 years to live, I'm allowed to spend an average of RM4166.67 per month or RM138.89 per day. By the way how much does that loaf of bread cost again or a plate of char koay teow? By that time CKY is RM12/plate. Remember that RM8000? Even in this case study 2 I am still short of nearly RM3800.

Obviously bigger income earners tend to contribute more to EPF and should have sufficient money saved up by retirement. Never the less, wouldn't you prefer to live a better and more comfortable life during retirement?  Would you not prefer to have the extra to go on an annual holiday with your loved ones? I seriously doubt the same can be said for Case Study 1 and Case Study 2!

Quote: The Question isn’t at what AGE to retire but at what income level!!

How much can I save from paying tax if I invest in PRS?

The major selling point of the PRS is non-other than the RM3, 000 tax relief given. For investors who have invested into PRS funds, they are eligible to a maximum of RM3, 000 tax relief per year.

As for me, I will be considering to allocate a small portion for PRS in order to maximize the benefit of tax relief. I will wait until General Election 2013 concludes before diving into a PRS fund. Perhaps you should do the same?

Cheers and Happy Investing!

This is a snippet of a full article from my dropbox area. In there, you can access tonnes of documents. I highly recommend you view them, alternatively you can download the entire folder to your own computer. Internet Explorer is known to have issues, please use Chrome or others. You can view from this link: PRS Info @ Nick's Dropbox

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.