Revisiting The Blue Camp

Seriously time flies in the tech world, in just a matter of months netbooks seems to decline while tablets and smartphones are picking up like hot cakes. In addition we can clearly see that Intel's Atom is not making inroads either in the Consumer Electronics (CE) market: smart TV.

Then we see that Intel's Ultra Mobility boss leaving the company after a long tenure of 24 years! With the growing interest of tablets and smartphones these days, long gone are the glory days of the Atom. Smartphone market is mostly dominated by ARM processors and the tablet market is going to be trampled by AMD's Bobcat fusion line of processors when they are finally out this summer'11 after some delay.

"AMD Brazos has been a big hit with OEMs as nearly every major manufacturer is producing machines based around it, particularly the extremely popular E-350 APU."

It is rather obvious that Chandrasekher had to go because of Intel's failure in the mobility segment of tablet/smartphone. Perhaps he was fired since the announcement made was so brief without much explanation. According to tomshardware, it wasn't even seven lines long. So much of disrespect for someone who has served Intel for so long.

So what is Intel going to do with Atom? Some of my thoughts:

• Heading towards making it more energy efficient and cheap to compete with ARM. "Moorestown" is rumoured to be offering a x10 power reduction during idle state.
• Bringing it into the low-power server space because ARM has openly said they are going up the pyramid and tackling low end/low power servers with its architecture. This has been confirmed recently. News here.
• Competing with Bobcat in which Intel responded a YES they can but with what? Lol. The current iGPU in Pineview is inadequate (fails @ HD flash and HD video encoding) and has been no word on further technical roadmap to combat AMD's upcoming and real threat.

Thus it remains extremely gloomy for Intel to penetrate yet another new market, they have to be content with their microprocessor product line which is doing very well (fast refresh), thank god they command this market strongly. Intel in this segment is a free frag until AMD's fusion Llano and Interlagos is out in Q3'2011 to provide some competition.

 

Though critics may argue that Intel in 2010 generated revenue profits, it did not translate to share performance, it is mainly due to low base effect in 2009. Low base effect in economics is the tendency of a small absolute change from a low initial amount to be translated into a large percentage change. I am certain that in 2011 it will not fair higher nor close to 2010 profit.

The last time (27 Nov 2010 posting) I placed a sell call near USD 21.50 was justified as the share is now at USD 20.37, a 5.2% depreciation while buy call for AMD has gained 20.32% from USD 7.38 to USD 8.88 (nice digits!)

I still maintain my sell call for INTC above USD 20 (and buy some other equity) and buy call for AMD as long below USD 10.

Here is my previous analysis on INTC: Blue Machine - Intel Corporation

Stop Complaning On Your Increment

It is now 2011 and once again many of us have gotten our performance review for the previous year and not forgetting our annual increment %. Yet some of us gives a big sigh on our pay raise. We worked hard, we worked late, we worked on weekends and some even worked during CNY, yet the increment level is so low, like a friend of mine puts it: just enough for 6 extra wanton mee per month.

Do you actually think that your performance and the company's earnings are the only factors that govern your wage level? From a corporation's point of view, other indicators such as country's economic power, inflation rate & competitiveness relative to other countries matters to them. I would put those highlighted as priority.

Economic power: Just look at China, recently announced their 12th five-year plan (2011-2015) in which they will move from an export-driven economy to a domestic consumption economy just like the U.S. In fact annual wages have risen so quickly over the last decade (14% from NBS) that a lot of manufacturing MNC's are not planning to go into China at all now because it is getting expensive really really fast.

Inflation rate: China's inflation rate (CPI) stands at 5% for the month of February. The country's official goal is to keep it at 4% averagely. The govt has been busy and has raised interest rates three times and banks reserve requirements five times in just less than 6 months while also using other means of direct controls to cap price rises. e.g. property tightening.

Looking at Malaysia, all I can say is that it is a cost cutting heaven for MNCs. We have weak economic power thus still bloody stucked in the middle income zone while our inflation rate is amazingly bogus at 2.4%. I have posted this before here. The only means to keep ourselves hanging on is competitiveness as such the easiest means is to work hard, really hard. While you might be working really hard for a good pay rise, the truth is you are being bottlenecked by our country's economic progress and inflation rate. Can you see how China rises up the value chain that fast?

MNCs actually kinda love this for as long as it still lasts, they have to pay little as each year passes by while gaining the same if not more earnings. Why should they pay more when the nationwide market rate did not jump averagely higher? MNCs are not going to compare your pay vs other people's pay in other countries, it doesn't work that way. As long as there is still talent left in the country and not a big exodus of migrants we can still survive, barely!  

300,000 Malaysians left Malaysia in 2008 and 2009 with the majority of them being professionals. And that's just for an 18 month period. And includes ALL races as well. 40 percent of Malaysian emigrants headed for Singapore, 30 percent go to OECD countries (Australia, New Zealand, the United States, Canada and Britain) 20 percent to Asian countries (Brunei, Philippines, Indonesia) and the rest of the world (10 percent). Malaysia is fast losing that competitiveness because of our poor education system. What's the local workforce like nowadays?

Simple la.

2/10 are good ones, dependable

7/10 are those that just have the "cari-makan" attitude

1/10 job - crony or "makan gaji"

While you may still complain on your ridiculously low pay raise but before you hamtam your boss, keep in mind that the problem might not be you nor your work, it is our country. My point is, the thought of wanting to have a simple life, work, go home to a beautiful wife and happy kids, eat and sleep is a thing of the past. If you don't believe, ask around especially those with a young family. It is sad to know that most young people do not care much of the things around them but yet they complain on the very thing that they fail to understand.

From National Youth Survey: 

"53% of young people do not wish to be involved with politics, with findings being significantly higher among ethnic Chinese and Indian respondents at 75% and 68%, respectively."

So to the 53% out there! So you mind that our wages increase like <4% each year while our inflation continues to swell at 8%. I would like to see whether you are still happy and have that simple life when house prices are increasing in double digits and cars are deadly expensive.

By someone in KL:

"our income per capita per month released by our government is RM1300 per month

a fresh university graduate earn about RM1800 to RM2400 a month

luxurious??? my family have a gross income of RM15,000 per month, feed 4 person, 1 japanese car and one old local made car, double storey semi detached house, eat out once a week, one kid go to full day care and the other in primary school, 2 handphones with one fixed line, internet, cable tv and 2 air conditioner, one large dog and a pond of fishes......hmmm it don't seems to be very luxurious and only able to safe lesser than 10% a month but do have insurance coverage for my two kids"

Once we lose that little bits of competitiveness remaining, we are going to lose our jobs to the likes of Vietnam (fast growing probably as an excellent Mfg hub), Indonesia (their economic reforms are good) or Thailand (they are like the Japanese in SEA). For god's sake go out and exercise your voting rights! Stop complaining on your increment, it will remain as such for quite some time.  If you don't know what is happening to our country ask around, I am sure you have friends or family members whom are acute to what is going on in our country.

Shitty Property Prices In Malaysia Part 1

A more appropriate title would be shitty property prices in Penang and Kuala Lumpur but anyway, there was a recent article by NST regarding affordable housing.

"In 2009, the average house price in Kuala Lumpur was RM390,000, almost six times the average household income. It was even worse on Penang island, where the average house price was RM540,000, or eight times the average household income."

Why is this in important ratio? The price-to-income ratio is perhaps the most commonly used ratio to judge whether a valuation is too high. The internationally accepted ratio is 3-4. Most of us know that the median monthly household income is RM4000 but as an urbanite say in Penang I will put it as RM6000 to RM8000. Therefore you can put a fair value on a middle-class home (2-storey terrace or a 1,500sq ft condo) at RM288,000 to RM384,000. The current prices of RM550k to RM700k pushes that ratio like as reported 8 times the average household income.

Let's look at another ratio known as debt-to-income ratio. A good rule of thumb is to use a ratio of 0.3 for housing loan. Taking back RM6000 and RM8000, a family could afford to pay RM2000 to RM 2667 in monthly installments. Just punch in this figure into the Home Loan Affordability Calculator with 5.5% interest and max loan years (30 years). Waalahh...you have an affordability range of RM350,000 to RM470,000. By combining the PI ratio and DI ratio you get a fair value of RM425,000 for a middle-class housing. Anything above that is speculative and bullshit.

Just take a look at how the US subprime crisis developed.

Like many other bubbles, one of the most important reason is easy credit and that is fueled by one factor called greed. Banks are now willing to lend up to 95% financing (oh gawd), they also offer variable rather than fixed-rate loans to reduce initial installments which is extremely good in a low interest-rate environment. Some even offer to stretch the loan tenure to 40 years! And recently heard offer for two-generation loan (70 years) and I am not lying look here, Japan did that last time and now still experiencing a recession for a decade dubbed the "lost decade".

When I speak to family & friends regarding housing price, the first thing in their mind are that house prices in Penang will always go up, at least 8/10 of them will mutter this. With some experience in the stock market, let me point this out. When everybody and I also mean the aunty in the market selling eggs says it is going to go up, it is a sign of bubble. You want to know why? The impression that money is easy to make. Take a real life example: SP Setia with their tagline your home is your "island of dreams", a reputable developer with no nonsense quality.

Say a property was bought at 700k and sold at 800k. Assumed you can secure a rock bottom loan of BLR - 2.3% during 2008. Household income at RM 8,000 (my max for an average urbanite in Penang). So the bank was offering 90% margin, downpayment was RM70,000 (pure cash). Now with 2.9% p.a. interest, served bank interest of RM 35,960 and forget about the exit penalty for early settlement. Profit at RM64,040, walao lee.

ROI: 64,040/70,000 = 91%

This is LEVERAGING at its best especially at low interest environment & superb financing margin.

If sold at RM 750,000, you can still profit RM 14,040 - BUT - ROI is 14,040/70,000 x 100 = 20%. Still not so bad laa, 20% is better than aboi's 15% p.a. stock returns.

What about when the property price jumps from original RM 700 k to RM 1 million in just months. The potential profit is even more drooling, RM 264,040 or ROI of 377% over a period of 1-2 years. Who don't want lee??? Why wait?? Join the fun la.

Can you see why people get greedy easily and why this there is great temptation to get into this boat? Just flip the prices for 3-4 times enough la and then exit. The truth is, it is hard to exit when your ego takes over and every single bit of rational evaluation goes away. Same thing happens all the time in every asset class, from stocks to commodities to even property. The trouble with property is that it is an illiquid asset class and it takes years to form a bubble (maybe 10 years or so) before bursting unlike the stock market.

Foreign people are buying. Come on la, these buyers are speculative, simply go to any high-end condo and see how many vacants are there. Like Dali said, if you can find 50% occupancy rate, call me and tell me where! Locals won't buy from foreigners so their best bet is to offload to another foreigner. But I heard that Malaysia are among the few countries in SEA that allows foreigners to buy landed property only if priced above RM500k which explains why more and more developers have this min price bracket if not higher for the new launches.

Malaysia still relatively cheap compared to rest of Asia. Property prices is kind of a reflection of the people's earning power in that country. If you compare like this you saying that my salary of say RM5000 will double or quadruple because it is lagging to Singapore which is so far ahead of us. Duh!

Penang is an island and therefore has limited land just like HK and Singapore. Have you ever examined the topography and population of these two islands and compare it to PG? HK you have 7mil and SG you have 5mil. PG is 1.5mil and yet we still have land. Land? Where? West side of the island and mainland. A big factor is population and it needs to be cramped. Look at PG, we have more landed houses vs skyscrapers unlike HK and SG. Learn to use google earth.

Certainly it takes times to see it burst or a correction but I can say for sure it is coming whether that will be a hard landing or a less painful one we will never know as it is not easy to make a prediction. House prices will hardly fall unless you see people start losing their jobs OR when you can see a young fresh graduate able to afford a RM500k property without any help from their parents, then you can shoot me back and say that prices are affordable and it will go up higher. Houses in PG are already 40% to 70% overvalued. It took the US 50% to burst. You tell me, is the end near?

Almost all other valuation matrix (besides the PI and DI ratio I showed you) in each category of house in PG will put them as overvalued and I will show you this in Part 2. Meanwhile this a a good article on Why Malaysian Real Estate Is So Cheap.

VirtualPot Folio As At 8th March 2011

I am officially back into blogging after a month of festivities, holidaying in Koh Lipe, Thailand and catching up on some work. Due to correction on Bursa the gains have been cut from 19.3% to 12.4% over a month mainly from BSDREIT, FREIGHT and SUPERMX. Been getting some nervous talk by a few folks on me. Let me address them one by one. Not at all concerned as Bursa has failed the recent swing test and tech indicators expect to have some momentum into uptrend.

FREIGHT: One heavily undervalued small cap counter. Has shown good support level at RM1 with an extremely good sales growth of 25% and ROE of at least 15% over the last 5 years. This pick is second only to Genting. I would say this gem is still not in the radar of fund managers, if not the price would be much higher. 

GENTING: Annual report 2010 is out. A whopping 71% increase in profit to RM15bil (my previous forecast was a conservative RM13bil). It will continue to have good prospects possibly Vietnam and earning potential. Remains my top pick for a long term investment e.g. retirement. My fair value of RM12.25 still stands and is an undervalued counter.

SUPERMX: I like this because they are the most flexible among all glove players though the risk remains high due to increasing oil price thanks to occurring Mid East crisis. Nevertheless I remain upbeat for a soon to happen pandemic, growing middle class in EM and healthcare necessity in advanced economies. Share is at a discount and remains undervalued as long as it is below RM5.

BSDREIT: The main purpose of holding it is for dividend yield, capital appreciation is not the focus though it is a bonus if you can buy it at a discount to its NAV. A nice yield of 8.732% for 2010 (http://mreit.reitdata.com/) and is under top 3. Btw I don't think CPO is gonna hit RM4k MT so don't be overly greedy in terms of yield.

Btw I am preparing a special writeup pertaining to house prices in Malaysia, in particular Penang and my conclusions as to why the bubble has been in the making for years. Question is, when will it burst? Remember the States? It took them nearly 10 years to inflate the bubble until it finally went into a nose dive.

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.