Tuesday, September 29, 2009

Berjaya Hotels wants to hive off some foreign assets

From the Business Times:

Hospitality group Berjaya Hotels & Resorts plans to sell off its properties in Seychelles, Sri Lanka, Singapore and London to concentrate on its more profitable markets in Asia-Pacific.

Chief executive officer Joseph Won said the group wants to sell Berjaya Colombo Hotel and Berjaya Singapore Hotel, exiting entirely from Sri Lanka and Singapore, despite the two being in Asia-Pacific, to focus on bigger markets.

Won said if prices are right, it would also dispose of Berjaya Beau Vallon Resort and Berjaya Praslin Resort in Seychelles and Berjaya Eden Park Hotel in London.

He said the group is in discussions with a few parties for its properties in Seychelles and London and hopes to sell them within the next two quarters.

Locally, the group operates Berjaya Langkawi Resort, Berjaya Tioman Resort, Berjaya Redang Resort, Berjaya Georgetown Hotel, Colmar Tropicale and Berjaya Times Square Hotel in Kuala Lumpur.

The properties, including those overseas, are worth a combined RM900 million.

"We have made a strategic decision to be Asia-Pacific focused. We are transforming ourselves in such a way to become one of the biggest hotel groups in the region," Won said in an interview with Business Times.

He added that the plan for Asia-Pacific would be to open up to 20 new hotels and resorts in Japan, South Korea, Vietnam, Maldives and Malaysia over the next six to seven years.

The list would include Berjaya branded properties, which the group would own and operate on its own, and hotels operated by third parties.

Berjaya Hotels & Resorts will use proceeds from the sale of the foreign properties, and its own reserves and existing cash flow to finance the expansion.

In addition to opening more properties, the group will also be looking for management contracts in Asia-Pacific.

"We are getting offers from China and Vietnam to operate their wholly-owned resorts and hotels, under the Berjaya brand. This is something we would be doing on a big scale," Won said.

The group, in a 70:30 joint venture with a local Vietnamese firm, is currently constructing Berjaya Resorts Phu Quoc Island in Phu Quoc Island for US$45 million (US$1 = RM3.48).

Won said the new resort is targeted for opening in the second or third quarter of next year.

"This is our first property in Vietnam and I wish to do more. I am bullish on the market. We will be expanding there aggressively," Won said.

The group is also looking to open a city hotel in Ho Chi Minh City and a beach resort in Da Nang, within the next four to five years.

Meanwhile, Won said Berjaya Hotels & Resorts may be listed in the future to expedite its expansion and unlock the value of its properties.

"Listing is a possibility that everybody is talking about. My (immediate) aim is to take the group global after we have opened the new properties," he added.
To me, the Berjaya's plans seem a bit all over the place. They want to concentrate on Asia, but yet sell off in Sri Lanka, a potentially extremely prosperous area in the near future due to reconstruction efforts. They want to get rid of the hotel in Singapore, but want to expand to Japan, South Korea. This is a joke. I could argue that Japan and South Korea are tougher places to do business than Singapore.

Berjaya doesn't seem to have a coherent strategy. They could be just selling these places because they are under performing. A hotel in London and Seychelles would likely be pulling some major losses due to the hotel recession in developed economies. In that case, well they might take a loss. If I were a shareholder, I'd be wondering what the hell are they doing over at the company.

Friday, September 25, 2009

Goldman Gears Up in China, with a margin of safety

From the WSJ:

Chinese car maker Geely Automobile wants to be taken seriously. It now has one seal of approval: Goldman Sachs Group's private-equity arm is investing $245 million through a convertible bond.

Geely will use the money to expand in China as it continues to reinvent its image. Its current reputation is of a company producing cheap, unreliable -- and sometimes eccentric -- vehicles. At the Shanghai auto show it unveiled a Rolls-Royce look-alike with only one passenger seat.

This has left it trailing a frothy Chinese market. Its sales this year were up 22% by the end of August, far behind the sector's 32%, JDPower figures show. The company is 10th in China, with a 2.9% share -- hence its multiple of 11.5 times expected earnings, even after Wednesday's 19% stock jump. Rival BYD, with Warren Buffett's backing and a hopeful future in electric cars, trades at 65.2 times.

Geely's investment in research and development and recruitment of overseas executives seem to be paying off, with better feedback on its pipeline of models. The next planned step could be bidding for Sweden's Volvo through Geely Holdings, Geely Auto's unlisted parent.

But Volvo would be a big bite, given Geely's small acquisitions to date and the challenges of cross-border auto deals. While Goldman is betting on a red-hot market, Geely still has to prove it can put the money to good use.
The Goldman Sachs investment seems like a smart bet. Convertible bonds will ensure that the investment doesn't suffer the same volatility of stocks yet will have the potential upside of a cyclical stock entering a strong earning phase. Convertible bonds seem a popular way to go about investing in this turbulent time. Buffett used it on Goldman and now Goldman is using it on others.

Of course the downside risk is that Geely hits some snags in its acquisitions or China changes the rules, but probably those things will not happen.

Anyhow, companies with a lot of convertible bonds would be wise to remember there are two sides to every coin. The cost of capital goes up as the shares get converted. Excessive use of convertible bonds may weigh on share prices and cause under performance.

Wednesday, September 23, 2009

Wynn ups size of Macau IPO to US$1.6b

From The Edge Malaysia:

HONG KONG: Las Vegas casino company Wynn Resorts has raised the size of the initial public share offer in Hong Kong for its Macau unit by around 25 percent, according to sources familiar with the matter, seeking to raise up to US$1.6 billion, according to Reuters.

U.S. casino operators, grappling with high debt levels and a recovering economy, are hoping to boost valuations through spinoffs in China's gambling hub, Macau, the former Portuguese colony located an hour away from Hong Kong by ferry which now hosts the world's biggest gambling market that raked in record bets in August.

Macau casino offers from Wynn and its rival Las Vegas Sands come amid an expanding pipeline of other Hong Kong IPOs.

Wynn Macau previously sought to raise up to $1 billion, but after positive feedback from investors it has raised the offer and the company now plans to sell 25 percent of the division, up from the 20 percent it originally expected to sell.

The price range of the offer is expected to be HK$8.52-10.08 per share, the sources said on Sunday, with at least 1.25 billion shares being sold. The sources have direct knowledge of the offering but were not authorised to speak publicly about the deal yet.

The IPO has attracted a combined US$250 million from several so-called "cornerstone investors," or investors who take a substantial stake in the company before the offering, one of the sources said.

Among them is Thomas Lau, the billionaire managing director of Lifestyle International, the retailer that operates the Sogo department stores in Hong Kong's Causeway Bay and Tsim Sha Tsui districts and the Jiuguang Department Store in Shanghai.

Another is Walter Kwok, of the Kwok family-run Sun Hung Kai PROPERTIES [], Asia's largest property group by market value. Malaysia's wealthy Guoco family is also investing in the IPO.

Wynn's second resort in Macau, called Encore at Wynn Macau, is scheduled to open in the first half of 2010, the company said in the IPO prospectus. The total budget for the CONSTRUCTION [] is about $650 million and so far construction costs have totalled about half that amount.

The company is funding the construction through existing cash balances and cash flow from operations, it said in the filing.

Wynn's archrival Las Vegas Sands which has filed an application for a possible listing on the Hong Kong stock exchange, aims to raise $1 billion to $2 billion through the sale of a minority stake in its Macau operations at the end of November or early December.

But analysts say Wynn's offering in Hong Kong could be better received than the Sands one due to its lower debt levels and its strong brand name.

Wynn, which had shelved its plans to list its Macau assets late last year amid the stock market plunge, will kick off its roadshow for the deal on September 21. The shares could be priced on October 2.

JP Morgan, UBS AG and Morgan Stanley have been designated to handle Wynn's Hong Kong listing. - Reuters
Looks like liquidity in Asia is live and well. The stock markets have given a way for companies to get cash despite tough credit markets. Liquidity eventually will overflow from the market to the company's coffers, but not in the most effective way. Money raised through ipos and rights issues are expensive in terms of cost of capital but investors haven't gotten the memo yet.

Thursday, September 17, 2009

August vehicle sales up 2.8% on-yr, down 6.5% on-month

From The Edge Malaysia:

Sales of passenger cars and commercial vehicles in August rose 2.8% on-year to 48,538 units, but compared to July this year, it was down by 3,390 units or 6.5%, according to Bernama.

Malaysian Automotive Association (MAA) said on Sept 17 the on-month decline was due to lower sales reported by Proton.

It said sales of passenger vehicles in August rose to 44,099 units from 42,864 units a year ago while that of commercial vehicles rose to 4,439 units from 4,363 units.

For Janaury-August, total industry volume fell to 351,550 units from 379,184 units in the previous corresponding period. Sales of passenger vehicles in the eight months fell to 319,424 units from 345,917 units a year ago.

Sales of commercial vehicles dropped to 32,126 units from 33,267 units previously.

MAA said production of vehicles in August fell to 44,476 units from 46,316 units a year ago.

Passenger vehicles production in August fell to 40,865 units from 42,309 units a year ago while that of commercial vehicles dropped to 3,611 units from 4,007 units.

For Janaury-August, production of passenger vehicles fell to 293,175 units from 329,557 units previous corresponding period, while that of commercial vehicles dropped to 28,216 units from 31,512 units.

MAA said sales volume for September was expected to be maintained though it will be a shorter working month due to the Hari Rara festive holidays. - Bernama
The month on month growth rate has gone negative which indicates the rebound to normal is starting to end. Proton having lower reported sales is a surprise and may indicate that people are comfortable spending more on autos than I previously thought.

Wednesday, September 16, 2009

Bank Negara throwing caution into the wind on inflation

From The Business Times:

Malaysia has room to press ahead with economic stimulus measures this year and next given sound levels of government debt and the need to counter the global crisis, the head of the country's central bank said on Monday.

Asked about the bank's recommendations to rein in the country's budget deficit, officially expected to hit 7.6 per cent of gross domestic product (GDP) this year, Bank Negara Malaysia Governor Tan Sri Dr Zeti Akhtar Aziz said: "This is a period where the fiscal stimulus is still important."

Speaking on the sidelines of an event, she added: "Any premature exit from the fiscal stimulus would affect the sustainability of the recovery that we are seeing now and Malaysia has the potential to continue with the stimulus for 2009 and 2010."

While fiscal discipline was important, Zeti said government debt was still within prudential levels, allowing stimulus steps in 2009 and continuing next year, if necessary.

"But it is always important to exercise fiscal discipline and to maximise the potential for the high impact, high multiplier expenditure," she added.

Zeti declined to comment on the central bank's projections for the size of the budget deficit in 2010 and expectations for bond issuance on a net and gross basis next year.

The budget shortfall of 7.6 per cent of GDP forecast by the government for this year would be the biggest since 1987.

Zeti said steps to exit supportive stimulus measures would tend to be conducted on an individual country basis in the Asian region although information would be shared among a number of countries.

Turning to consumer price trends, Zeti said that recent declines were no sign of damage to consumer demand.

"Consumer demand is gaining momentum and in the second quarter, we saw a recovery of small positive growth," she said, adding she expected this to persist into the second half 2009.

Price declines did not give rise to concern given that they were largely due to a lingering base effect from last year when petroleum and commodity prices spiked, she said.

"We believe, going into the subsequent months of this year, that inflation will turn positive but it will remain low."

Analysts polled by Reuters expect Malaysia's consumer price index to have fallen for a third straight month in August. - Reuters

It seems like Bank Negara will be supporting a much more lenient monetary stance and rates probably will not rise any time soon. I don't think they will be raising rates so easily despite the threat of inflation and blatantly acknowledging consumption is still going strong.

Inflation will probably creep up faster in Asia than anyone expects. Remember that change in commodity prices have an amplified effect on inflation in south east Asia than in Europe and US.

Tuesday, September 15, 2009

AirAsia share sale to raise up to RM665m

From The Business Times:

AirAsia will sell 400 million new shares, representing 16.8 per cent of its share capital, at RM1.33 to RM1.40 a share

AIRASIA (5099), Southeast Asia's largest budget carrier by fleet size, is expected to raise up to RM665 million in a new share placement as it seeks to cut its debt.

Demand for full-fare carriers has been hit by the economic downturn, which has given a boost to discount airlines.

AirAsia said last month that proceeds from the share sale would be used to reduce its debt, which has risen sharply following aggressive capacity expansion.

AirAsia will sell 400 million new shares, representing 16.8 per cent of its existing share capital, at RM1.33 to RM1.40 a share, according to the deal term sheet obtained by Reuters, to raise up to RM560 million.

However, the sale also has an upside of 75 million shares on top of the 400 million shares offered, the term sheet said, meaning that AirAsia could potentially raise a total of RM665 million.

CIMB and Credit Suisse are joint placement agents for the exercise and bookbuilding will be completed today.

AirAsia stock closed down 0.7 per cent yesterday at RM1.41. Stock exchange regulator Bursa Malaysia Bhd said that AirAsia shares would be suspended today pending an announcement.

Regional budget carriers such as AirAsia and Jetstar Asia Airways have either added capacity or increased flight frequencies to cope with higher demand.

Analysts in Malaysia said last month that AirAsia's tight cash flow and high debt level was worrying given its commitment to fund aircraft deliveries.

Last month, it deferred the delivery of eight Airbus A320 planes to 2014 from next year, which analysts said signalled potential overcapacity in the future. - Reuters
Most likely, Air Asia must be having trouble getting loans/bonds issues to refinance. It's tough being an AirAsia shareholder. I only hope this share placement is an update of the previous one. If not, we're talking about major shareholder dilution of a billion plus this year!

Air Asia is really milking Tony Fernandes' rock star status and reputation as a savvy businessman. Does he really know what he is doing? I don't think investors are so easily swayed now and the con game won't last much longer. People are realizing Tony Fernandes is starting to look very ordinary.

Monday, September 14, 2009

Government seen to cut stakes in GLCs

From The Business Times:

KUALA LUMPUR: Khazanah Nasional Bhd is expected to gradually reduce its large stakes in government-linked companies (GLCs) after disposing of 5% of Malaysia Airports Holdings Bhd (MAHB) last week.

Analysts said this long-overdue development bodes well for the Malaysian equity market as it would enhance the participation of foreign institutional investors.

They said the Malaysian government investment arm could afford to reduce its shareholdings while still retaining strategic stakes in the GLCs.

Already Permodalan Nasional Bhd and the Employees Provident Fund, which are viewed as friendly parties to Khazanah, hold huge chunks in the GLCs.

CIMB Investment Bank Bhd last Friday confirmed a report in The Edge Financial Daily that it had placed out 55 million shares, representing a 5% stake in MAHB, to institutional investors at RM3.30 apiece the day before.

The bank said the transaction price was a tight discount of 2.37% to the closing price last Wednesday. The off-market deals reduced Khazanah’s stake in MAHB from 72.7% to 67.7%.

The Edge Financial Daily report also noted that the transactions would be the start of a government paring down programme to attract foreign participation into the local market.

Following the report last Friday, POS MALAYSIA BHD [] saw a total of 25 million shares transacted in off-market deals at an average price of RM2.30 apiece. However, no buyer and seller details were known.

According to Khazanah Nasional’s investment holdings structure, it owns 32.21% of Pos Malaysia.
I'm not surprised that the government is reducing its stakes in GLCs. I mentioned that the Najib government will probably be pro-investment bank oriented. It's important to understand that this may or may not benefit the economy, but a liberalization of the financial sector is considered a general positive for the stock market.

Also the fact that the Prime Minister's brother, the head of CIMB, will probably benefit the most from these initiatives spells vested interest in Najib to pass more investment bank friendly policies and deals.

Saturday, September 12, 2009

Recovery in Property?

From The Business Times:

HwangDBS Vickers Research Sdn Bhd said there are clear signs of recovery in the property sector extending to the high-end luxury segment.

These are seen in the take-up rate for The Binjai on the Park condominium project at the Kuala Lumpur City Centre, which has picked up from 10 per cent in July 2009 to 35 per cent out of its 171 units.

"Compared with the initial launch in August last year that coincided with the onset of the global financial meltdown, the average sale price (of The Binjai) has been reduced from RM2,800 per sq ft to RM2,400 per sq ft for units measuring 3,200-3,700 sq ft, while the smaller units (2,200 sq ft) were released at RM1,700 per sq ft," HwangDBS Vickers said in a report yesterday.

However, the average sale price of The Binjai is set to rise after its take-up rate exceeds 40 per cent. The project is expected to be handed over by December this year.

"This is positive for (property) developers with ready-to-launch products to capitalise on this early recovery," said HwangDBS Vickers, naming DNP Holdings Bhd, Eastern & Oriental Bhd (E&O) and SP Setia Bhd as its top stock picks.
In a separate report dated September 4, HwangDBS Vickers also revealed that the Penang property market is heating up.

"Recent launches were well received with new price benchmarks being set - catching up closely to Kuala Lumpur's," it said.

These included E&O's Seri Tanjung Pinang link houses, SP Setia's Reflections condominiums at Setia Pearl Island and IJM Land Bhd's Light Linear condominiums.

"Developers are also looking to gradually pull-back incentives and raise selling prices. Buyers are mainly locals and Penangnites working outstation or overseas," it added.

HwangDBS Vickers said despite the current financial crisis, land prices in Penang have remained "sticky" and huge contiguous parcels are hard to come by.

"Therefore, developers with large prime landbank will hold an upper hand in riding on the strong demand for Penang properties," it said.

E&O is the largest landowner on Penang Island with a total of 1,123 acres, including reclamation rights to 740-acres Seri Tanjung Pinang Phase 2 and 365 acres at Gertak Sanggul.
I imagine there will be some people who will have to get some property early in the recovery. I see some advertisements requiring 10% down payments instead of the usual 20%. Credit seems to be quite loose given the current circumstances. But, I dont' expect the property sector to stage a massive rebound. Consumers are trading down and foreign property interest will be in the trough.

Thursday, September 10, 2009

Cigarette prices Malaysia probable to rise, Maybank IB neutral on tobacco sector

From The Edge Malaysia:

MAYBANK Investment Bank (Maybank IB) is staying neutral on the tobacco sector, ahead of the government’s announcement of the budget for the coming year.

The research house is expecting an excise duty hike of at least 11% or two sen to 20 sen per stick.

“This is partly because consumption has been resilient and mainly because government collections from excise duties grew 18.8% in 2008.

“It could be higher if the government chooses to simplify the masses of duties and taxes on cigarettes in view of the upcoming Asean Free Trade Agreement (Afta) statutes that will result in lower import duties,” stated Maybank IB.

Of the two listed tobacco players, it expects JT INTERNATIONAL BHD []’s (JTI) prospects to be largely unencumbered by the impending changes in the sector.

“On a 12-month moving average basis, JTI sales have stayed largely resilient,” said Maybank IB, adding that JTI’s resilience was due to the performance of its Winston and Mild Seven brands.

“Mild Seven recorded its eighth consecutive quarter of advance on a 12-month moving average basis up to 2QCY09. This made up for the continued decline of JTI’s leading premium brand, Salem... it appears that Mild Seven’s emergence has ensured that margins overall for JTI are no longer as pressured,” it added.

Maybank IB has a buy on JTI with a fair value of RM5.30, and a hold on BRITISH AMERICAN TOBACCO (M) [] Bhd (BAT) with a fair value RM44.75.

“BAT might fare less well but should still offer decent dividend yields, of 8% to 9% gross dividend yields over 2009 to 2011,” it said.

Maybank IB noted that sales of tobacco were on the decline according to the players and the Confederation of Malaysian Tobacco Manufacturers. Industry sales volumes for 2Q09 fell by 13.8% year-on-year, its sharpest decline since 3Q06.

However, it pointed out that while sales were on the decline, total consumption of tobacco had not.

“The difference between the Big 3 (JTI, BAT and unlisted Philip Morris) tobacco sales and total consumption is made up of two components.

“First, sub-value local manufacturers that sell their products at below the price of the ‘Big 3’ value brands are contributing an increasing proportion to total consumption. Second, illicit sales including sales of smuggled cigarettes, counterfeit cigarettes and duty-not-paid cigarettes now make up to as much as 33% of total consumption,” it added.

At yesterday’s close, both JTI and BAT were unchanged at RM4.74 and RM45.56 respectively.
Personally, I don't smoke, so a ruling wouldn't have much of an effect on me. But what Maybank is saying does make sense with consumption being relatively unaffected. The government could probably raise taxes quite a bit. In the sense that tourism might be affected, I think that alcohol prices are much more a factor than cigarettes. For instance, a tourist can buy a carton of cigarettes and it would probably last him 10 days at a pack a day compared to alcohol which is large and can't be carried around so easily.

Tuesday, September 8, 2009

What next, KLCI at 1300? FBM KLCI surges above 1,200

From The Edge:

Share prices on Bursa Malaysia, particularly blue chips, rose strongly on Tuesday, Sept 8 with the FBM KLCI closing above the psychologically important 1,200-level for the first time this year.

There were no major leads from overseas, where Wall Street was closed for the Labour day holiday on Monday. Regional markets were generally steady on Tuesday, although with more modest gains.

Investor confidence has been boosted recently by China’s strong stock market recovery over the last week after earlier sharp falls, and Wall Street’s relative resilience – and indeed ability to chart continued gains – despite having risen substantially over the past few months.

Even last week’s August US poor jobs report – where unemployment unexpectedly rose to a 26-year high of 9.7% did little to dampen sentiment as investors looked towards the broad range of US economic indicators, which point to a recovery in process, especially in the manufacturing and housing sectors.

Nonetheless, a weak labour market suggest US consumer spending, which accounts for 70% of the economy and much of Asia’s exports, will remain weak. Similarly for the strength of the economic recovery ahead – even though the recession is likely over.

On Tuesday, the FBM KLCI was in positive territory throughout the day, with much of the gains coming in after 3pm. The index closed 11.7 points higher at 1,202.1. Gainers beat losers by a roughly 3-to-2 ratio on volume of 791 million shares.

Blue chips were the centre of attention, and accounted for most of the actively traded stocks. These include Genting Malaysia, Axiata, Gamuda, YTL Power, Genting and AMMB. Genting Malaysia’s shares saw active trading on news that its integrated casino resort in Singapore will open ahead of schedule, in 1Q2010 although some expect it to open at the end of this year.

Major gainers include Sime Darby, Proton, Tanjong plc and IOI Corp. Losers include Padini and NCB.
The FBM KLCI could hit 1300. You could take the risk, but the risk/reward scenario is dwindling in favor of little reward for a lot more downside risk. A gambling man would tell you to take some money off the table.

Monday, September 7, 2009

AEON seems greedy, Cash-rich AEON scraps REIT plan

From The Business Times:

RETAILER and mall operator AEON Co (M) Bhd (6599) has scrapped its plan to set up a property trust, one of the company's options to raise funds, as it has enough cash to expand.

Managing director Nagahisa Oyama said it has enough money in its coffers to grow its business without having to raise funds.

"AEON has money to open two to three outlets each year ... so we do not need to do a REIT (real estate property trust)," Oyama told Business Times in an interview.

Companies with a lot of assets can form a REIT as a way to raise funds. Typically, they sell some of their assets to the REIT which in turn will raise funds from an initial public offering.

As at June 30 2009, AEON has RM33.3 million in cash. The group has also seen its net profit growing each year for the last five years. For the year ended December 31 2008, it made a net profit of RM120.6 million on revenue of RM3.43 billion.

AEON chairman Datuk Abdullah Mohd Yusof first announced that it was looking at a REIT as an option in April 2007.

However, in 2008 the company said that it was in no rush to set up the REIT as it thought the local property trust market was still in its infancy.

AEON continued to keep tabs on the industry and was also studying the REIT.

It identified seven properties valued at about RM700 million to be sold to the trust vehicle. Four of the properties are located in the Klang Valley namely Alpha Angle Shopping Centre in Kuala Lumpur, Jusco Metro Prima Shopping Centre in Kepong and Aeon Cheras Selatan Shopping Centre and Bukit Raja Shopping Centre in Klang.

Two outlets are in Johor - Jusco Taman University Shopping Centre and AEON Tebrau City Shopping Centre. The seventh outlet is Jusco Melaka Shopping Centre.

In 2008, its property management division made an operating profit of RM62.17 million and a revenue of RM308.86 million.

Today, it operates 25 outlets, four of which are MaxValu supermarkets. About 10 shopping centres, where the 21 Jusco department store-cum-supermarkets operate, are owned by AEON.

It will also own two of the three new confirmed store openings - the Mahkota Cheras and Bandar Permaisuri. It will lease the space in Bandaraya Melaka.
Why not realize value for these assets? It's not about having enough cash to grow the business but returning capital back to shareholders. If the assets are mature and can realize close to their full value, it is a good thing to proceed with the REIT. The market currently is on good footing to handle quality IPOs. For instance, take the recent successful listing of Handal Industries.

I believe AEON's portfolio of properties is a little bloated at 25 outlets and could use some pruning.

Saturday, September 5, 2009

YTL power making a bad move for shareholders, AmResearch downgrades YTL Power to Sell

From the Edge Malaysia:

AmResearch has downgraded YTL POWER INTERNATIONAL BHD [] (YTLP) from Hold to a Sell with a lower sum-of-parts (SOP) based fair value of RM2.05 a share on concerns over funding risks for the group's WiMax investment.

The research house also said YTLP's share price had risen 25% over the past 12 months and outperformed the 30-stock FBM KLCI by 17%.

"We have lowered our FY10F-FY12F earnings by 6%-7% to impute potential losses arising from the new start-up wireless broadband service (WiMAX - worldwide interoperability for microwave access).

AmResearch said while it was generally comfortable with the group's existing operations in power generation and water/waste management services after a meeting the YTLP management recently.

"But we were surprised by the possibility that YTLP may be used as a vehicle to fund the group's venture into WiMax," it said.

In June this year, YTLP made an inconspicuous announcement that the company was buying a 60% stake in YTL Communications Sdn Bhd (formerly known as Y-Max Infra Sdn Bhd) for a mere RM300,000 - from YTL E-SOLUTIONS BHD [].

YTL group plans to invest RM2.5 billion over a five-year period on launching its WiMax service - with RM1bil to be spent over the first year.

"While no further financial details have been revealed yet, we note that YTLP's capex plans are two times more than Green Packet's proposed outlay of RM1 billion over four years," it said.

AmResearch said it believed the higher capex is earmarked for a greater number of base stations throughout the country to ensure that its WiMax services provide faster access and wider coverage.

Hence, the group likely needs the cash from YTLP to fund the WiMax rollout given YTLE's minimal resources.

"In our view, this is a negative development as YTLP will be extending its business - which provides stable recurring income streams - to uncertain revenues of a TECHNOLOGY [], which has yet to fully kick-off even in developed countries.

"Clearwire Wireless - YTL's technology partner - and Nextwave are currently loss-making and registering negative EBITDA. Green Packet,the first to introduce WiMax in Malaysia, is also suffering losses currently.

"Even with the potential cash outlay, we note that the group's free cashflow of RM2 billion annually could comfortably service its annual dividend payout of around RM500 million. But the potential of a slower than expected take-up or any cost overruns in its WiMax services could possibly constrain the group's acquisitive growth strategy over the longer term," it said.

YTL power is sitting on a good thing in the power infrastructure business. WiMax is untested and has to compete with competitions from mobile operators. They should look to acquire what they know.

If they are looking to inject a little higher growth in its revenues, they should find a business with a little more risk reward and buy something that is tested. It is very cheap to buy companies at this point in time. There are plenty of cyclical industries right now which will benefit in a recovery and are cheap now. Best of all, they have predictable revenue streams that are tried and tested over time. YTL power shows no sensibility in regards to the WiMax venture.

Thursday, September 3, 2009

RON95 petrol, fuel subsidies

From The Star:

“The price of RM1.80 for RON95 will be capped at this level for the rest of the year,’’ Zain told StarBiz, referring to a statement earlier by Minister Datuk Seri Ismail Sabri Yaakob. “It moves within an active price range, depending on the price trend of oil gauged over a one-month period.’’

All this while, consumers have been using RON97 which is too powerful for cars today. “Take a look at car manuals and one will often find that RON95 is recommended,’’ said Zain, adding that RON97 had stronger ingredients that were more suitable for higher powered cars.

RON (research octane number) measures the octane quality of fuel. It refers to the fuel’s ability to resist premature and uncontrolled combustion that occurs when fuel pre-ignites before ignition by the spark plug.

The newly-introduced RON95 fuel is priced at RM1.80, five sen higher than that of RON92, which is leaded petrol. Concurrently, RON97 has been upgraded as a premium product and its price has gone up to RM2.05 from RM1.80.

Ismail had said at a press conference on Tuesday although the price of RON95 was higher, the Government was still subsidising 33.81 sen per litre, which comes up to about RM304mil monthly.

Currently, the Government is subsidising 42.72 sen per litre for RON97.

While consumers who were using RON92 are required to pay more when they upgrade to RON95, those using RON97 and are able to downgrade to RON95 will save 25 sen per litre.
The Ron95 petrol appears to be less powerful and therefore might result in better mileage. But under the mask of the new petrol, the government is using the confusion to raise the price of gasoline and cutting off more subsidies. I'm not too sure if it's a good idea to raise prices and pass it off as a new petrol mixture. We'll have to see if people are fooled by this. I don't think they are.

Wednesday, September 2, 2009

Quek family sells 3.6% stake in Multi Sports, The Problem with China stocks in Malaysia

From The Edge Malaysia:

The Quek family, who is a major shareholder of Multi Sports Holdings Ltd, has sold off a chunk of its equity stake in the Chinese shoe sole-maker.

According to filings to Bursa Malaysia last Friday, the Quek family, via its Cayman Islands incorporated vehicle GuoLine Group Management Co Ltd, had disposed of a 3.6% stake comprising 12.97 million shares in Multi Sports on Aug 24.

The Quek family had held about 15% of the company before selling down the shares. It now owns about 11.4% stake or 41.03 million shares in Multi Sports.

It is not known why the family decided to sell down its stake in the company.

Yesterday, Multi Sports fell to a historical low of 55 sen since its debut of 85 sen on Aug 19. At its debut, Multi Sports closed 10% down to 76.5 sen from its offer price of 85 sen.

Multi Sports, which operates in Jinjiang city in Fujian province, was the second direct listing of a Chinese company on Bursa Malaysia Securities on Aug 19, following the first by Xingquan International Sports Holdings Ltd on July 10 this year.

According to its prospectus, Multi Sports is one of the five largest shoe sole-makers in Jinjiang currently, with a 1,929-strong workforce, of whom 64% or 1,241 are skilled workers.

The group has 300 customers, including Guohui, 361 degrees and Xdlong, owners of well-known local sports shoe brands. Between 2005 and 2008, its annual production grew from about 4.9 million to 22.1 million pairs of shoe soles, with some 300 designs across four main product lines.

Both Multi Sports and Xingquan have seen their shares spiralling on a downtrend since being listed. Since listing, Xingquan’s share price has fallen 22.8% to close at RM1.38 yesterday from its offer price of RM1.78. Multi Sports has fallen 35.3% to 55 sen yesterday.

Currently, Xingquan and Multi Sports are trading at a price earnings ratio (PER) of four times, which is about half the PER of shoemakers listed on the Singapore and Hong Kong stock exchanges.

Industry observers said Chinese companies’ listings had not been as well received by investors here as initially thought they might be. One of the reasons was because investors here lacked understanding of the Chinese market, an industry observer said.
Chinese stocks are prone to the Chinese markets. The major problem now is that Chinese stocks have run quite high compared to what they should be. In fact, most stocks in China are down from their peak by some 20%. Of course Chinese stocks listed in Malaysia will trade a discount in step with Chinese markets.

I doubt that Chinese stocks will add a lot of mix to the KLSE. Also it depends what kind of mix you would like. If you'd like stability, I doubt these stocks will do that. I'd argue KLCI needs a mix of companies which have more stable earnings and revenues. The stock exchange needs more stable companies, not riskier ones. Chinese stocks are notoriously speculative.

Perhaps if the Chinese companies in the Malaysia market had more of an attractive growth story, they would be a success, but a shoe manufacturer and second tier sports brand isn't exactly what most people would call attractive.

Tuesday, September 1, 2009

Investments into Penang shrink to RM1.3b

From The Edge Malaysia:

Penang recorded inflow of investments of only RM1.3 billion in the January-June period this year, as investors turned cautious about the fallout of the global financial crisis.

This was a stark contrast to the RM10.3 billion recorded for the 12 months in 2008.

InvestinPenang Bhd chairman of the executive committee Datuk Lee Kah Choon said on Sept 1 the plunge in investments had to be viewed in a wider perspective and the flow of investments in other countries.

Lee said there were investors still adopting a wait-and-see attitude as it was unclear if the financial meltdown was finally over.
The 1.3 billion, annualized is roughly 75% decline from last year. It goes to show that the fixed investment portion of investment in Penang is huge and extremely vulnerable to the world recession. The island's economy can't survive on consumption and services alone. It still requires massive investment from individuals. Another down year like this, I imagine asset prices will start to crumble.

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