Companies that benefit from savings in energy bills

Tenaga's price cut is a boon to almost all companies.  Almost every stock has a big power bill they would like reduced, but perhaps the hottest companies will be....shopping malls.

Everyone who pays a utility bill knows the biggest component comes from Air conditioning.  If you want to reduce your electricity bill, use less air conditioning.  Not running air conditioners can reduce an electric bill by close to 40 percent.  These beasts take up to 1000 watts of electricity on run for hours on end.  Higher horse power = higher energy bills.

Now, who are the biggest users of air conditioning in KL, yeap you guessed it, shopping malls.  It's not just the sheer square feet, but also the volume.  Most shopping malls are cavernous and have huge volumes of air pockets to cool.  Not only that, they open for many hours much longer than your average business.

What else do these shopping malls have going for them?  Many of them have raised rental fees from parking to shop lot rentals to cope with the rise in electricity costs in 2015.  These rental fees don't drop and are not prone to price reductions like most government entities are.    Any reduction in costs of business will flow directly to their bottom line.

Shopping malls seem to be one of the tasty treats for 2015.

SP Setia Technical Analysis from the begining

SP Setia is probably one of Malaysia's most loved property counters.  I'm going to try and attempt to do some technical analysis on this beast.  It's also one of those counters just when you think it is down and out, it just comes back rip roaring higher.

SP Setia is a company known for innovating in the property market.  Their developments are known for quality and even creation of a lifestyle.  Perhaps their most well known developments are in Shah Alam where they have a 2,500 acre development that has won rave reviews.

The national government investment arm, PNB has wanted to take SP Setia global with a redevelopment of the Londone Battersea Power Station.  It would make sense as living in UK's neighborhoods resembles something of a mish mash of houses put together.  SP setia community development could take London property to another level.

The share price isn't for the faint of heart.  Consolidations can last 3-4 years which tends to shake out the most steely focused investor.

1.  One of the pivotal periods in SP Setia's history was in 2002.  When the high broke above the red rectangle, it signaled a change of sentiment from the usual pump and dump stock plaguing so many counters in Malaysia.  About one year later, after a pullback, the stock jumped.   Investors could have goten in around 80-90 sen a share, above the stop out point at the low in 2001.

Asking investors to wait one year while the stock drops 40 percent is tough to swallow, especially form RM 1.30 to 80 sen a share, but those shareholders would have been rewarded with a double.  But with the double could have come a quadruple with a long consolidation period frrom 2004 to 2007.  Asking investors to wait 3 years while the share goes nowhere is a tough thing to do.  That is why this stock isn't exactly for the faint of heart.

2.  The next pivotal point is in 2010.  A break above RM 3.3 a share signals more bullishness.  But where is the downside?  Likely near RM 1.5 a share.  Investors need to wait for consolidation for a longer period in time due to the huge range of movement in prices.

It's five years since the break hgiher into RM 3.30 a share, but time has been long and a three to four year pullback seems to be the norm, but the risk is of course the stock were ot trade much lower to RM 1.5 a share.

For me, the risk is too much to bear, But I'd be a long around RM 2.10 a share.  But, for most money managers, this stock is just rough as their performance metrics are on a yearly basis.

I think the stock will go higher in the next 5 years, but in between then,who knows what will happen.  I'm bullish, but not willing to initiate a long at these levels nor able to stomach the long gestation periods the pullbacks always seem to bring.

Tropicana City technical Analysis

Tropicana is known for its high end devlopments and has an excellent land bank, reported a nice 24 percent growth in earnings this morning, but when I read earnings increased from 2.12 to 2.2 sen, I wasn't that impressed.  Third quarter always seems like its weakest and overall, this year hasn't been stellar.

So lets look at the charts.

The question is, is this stock in an uptrend?  I would say it is more of a punters stock as a trend isn't clearly defined.  A punter's stock means the stock gets kicked way up and kicked way down.  I don't see many consolidation periods.  Personally I would stay away.

I can't really recommend anything but to buy below RM 0.80 send and sell at RM1.60.

2010 budget reflections, property taxes, financial industry goodies

From the WSJ:

Malaysian Prime Minister Najib Razak promised to curb a burgeoning budget deficit while still supporting economic growth with a personal income-tax cut.

Mr. Najib told Parliament in his 2010 budget speech Friday that the government will cut the individual income tax rate by 1 percentage point to 26%. But in addition to the surprise cut, he announced a 5% tax will be imposed from Jan. 1 on property gains. Mr. Najib also delivered an annual report that forecasts the trade-driven economy will contract 3.0% this year -- better than an earlier forecast of a 4.0% to 5.0% decline -- before rebounding next year to growth of between 2.0% and 3.0%, thanks to previous spending measures and low interest rates.

The government is in the final stages of studying a goods and services tax, Mr. Najib said, but offered no timetable.

The government will fund its 51.12 billion ringgit deficit entirely through domestic borrowings and a shortfall of 40.48 billion ringgit in 2010 will be met "primarily from non-inflationary domestic sources."

The report also predicts average consumer price inflation at 1.0% this year, slower than the forecast of 1.5% to 2.0% made by the country's central bank in March. Exports may shrink 19.2% this year, and may rebound to growth of 5.1% in 2010.

The budget also vows to let foreigners own 100% of Malaysian corporate finance and planning companies, up from 70% now, and relax rules on the sharing of commissions between stock brokers and commission-based dealer representatives.

The WSJ got most of the article correct, but failed to mention property gains are as much as 30% for the first year of ownership reducing gradually until 5% in the fourth year. Taxing unfortunately is quite a blunt instrument, but it will curb the rampant property speculation in Malaysia.

With the average household salary of malaysians being some RM4000 per month, I do not see how most could afford properties of RM300 per square feet. It just boggles the mind. A 300k place would cost about RM2000 in payments and that is not a reality for most Malaysians. 50% of household income is just nuts.

They say our housing markets are strong, but yet they come in with teaser rates just like options arms in the US. News flash, the housing industry encourages a lot of questionable loan practices in Malaysia as well! When the teaser rates adjust, will home buyers be able to pay? 2.5% adjusted to 7%...ouch. comes in at about 70% increase in monthly payments!

Ever since Najib won the election in April, I mentioned that given his affinity to the financial industry through personal ties as well as having a background in economics, the sector would benefit during his tenure. While the budget lacks any "big bang" policy movements for the financial industry, liberalizing regulations is always effective.

Mah Sing Q2 net falls 38 pc y-o-y, housing may be slow to recover

From The Business Times:

PROPERTY developer Mah Sing Group Bhd (8583) posted a 38 per cent drop in its fiscal second-quarter net profit from a year ago, as last year's gain was boosted by a large property sale.

Its net profit was RM23 million in the quarter to June 30 2009, which is a slight improvement compared to first-quarter net profit of RM22.6 million.

"The group believes the property market is gaining momentum for a likely up cycle in the second half of 2010," Mah Sing said in a statement to Bursa Malaysia yesterday.

The company's revenue for the second quarter was RM167.2 million, down from RM195.4 million a year ago.

Sales for the period were driven by residential property projects like Kemuning Residence, Hijauan Residence and Aman Perdana in the Klang Valley, and Sierra Perdana and Austin Perdana in Johor Baru.

For the first six months, Mah Sing made a net profit of RM45.7 million against RM59.6 million in the same period a year earlier.

Revenue was down 5.5 per cent to RM317.5 million.

However, the company has made sales of RM543 million in the first seven-and-a half months this year, which is more than its full-year target. This was mainly due to the sale of a building in its Southgate project in Kuala Lumpur for RM226 million.

It has also yet to book RM818 million of sales of residential and commercial properties as at June 30 this year.

"The strong take-up for our projects is evidence that the property market is resilient, and niche products with good branding coupled with the right concepts and designs in prime locations will continue to do well," group managing director Tan Sri Leong Hoy Kum said in a separate press release.

I'm not too sure if the last statement makes sense. but for a high volume property developer like Mah Sing, they can't make money on niches alone. I don't see property sales being a driver for real estate recovery. Growth in Property stocks will be anemic at best.

In this environment, positive loan growth alone won't see property developer's sales accelerate. Developers need a full blown bull market economy to realize their profit potential. People feel we are in a recession and will probably forgo the more discretionary and pricy items such as housing and jewelry.

REIT firms targeting Northern Investors

From The Star:

Real estate investment trust (REIT) companies are now targeting investors in the northern region, particularly the high net-worth individuals and “men on the street.”
»They hope to channel some of these funds into REIT « GAN KIM KHOON

OSK Investment Bank Bhd (equity capital markets) director Gan Kim Khoon said there were over RM354bil in fixed deposits and savings of individuals in the country waiting for REIT companies to tap.

“They hope to channel some of these funds into REITs, which are high yielding and low risk in nature,” he told StarBiz after a one-day roadshow on REITs-Investors Outreach Programme recently.

The REIT companies from Kuala Lumpur that took part in the event included Axis REIT Managers Bhd, AmFirst ARA REIT Managers and AmanahRaya-JMF Asset Management.

“Outside Kuala Lumpur, REITs have little exposure from large companies, and participation by individual investors is also small,” Gan said.

Investment in REITs presently offered the best yield, ranging from 8.5% to 12% yearly, based on current earnings, he said, adding: “In such a challenging climate, there are not that many stocks that can give you such yields. It is better than putting funds in fixed deposits.”
Stewart Labrooy ... ‘After upgrading, the valuation increased to over RM140mil’

Meanwhile, Axis REIT Managers chief executive officer Stewart Labrooy said the company regularly implemented asset-enhancement exercises to increase the value of its assets.

“Last year we injected about RM3.5mil to upgrade one of our office buildings, Wisma Kemajuan, in Petaling Jaya. After upgrading, the valuation for the property increased to RM52mil, compared with the original valuation of RM29mil in 2005,” he said.

He said Axis REIT recently spent RM8mil on two of its commercial properties which were originally valued at RM106mil.

“After upgrading, the valuation increased to over RM140mil.

“Through such asset-enhancement exercises, we create more value-added space, which in turn attracts more tenants, and increases our income from rentals,” he said.

I'm not entirely sure how a 3.5 million renovation can increase the property value of a building some 79% from 29 to 52 million. I doubt the renters would pay an additional 79% in rental increase after the renovation. The second number, spending 8 million to get an increase from 106 to 140 million, sounds more reasonable.

Currently, the US is having a property appraisal problem and a lot of countries will be looking at whether their own appraisal system works in light of the financial crisis.

Glomac cuts sales target by half

From The Star Online:

Glomac Bhd is cutting its property sales target by half for fiscal 2010 as the global economic downturn hit buyers’ confidence, said a top executive on Tuesday.

The property developer aimed to sell houses, shoplots and offices worth about RM400mil in the year to April 2010, down from its previous target of RM800mil, said managing director Datuk Fateh Iskandar Mohamed Mansor.

“At this moment in time, looking at the weak take-up rate of our properties, I have to be conservative,” he told Reuters in an interview.

The company was in “advanced talks” to sell en bloc a 25-storey corporate tower at Glomac Damansara, a mixed commercial and residential development, said Fateh.

The building had a market value of about RM170mil, he said.

“We hope to complete the sale by the end of the year. If that happens, these are bonuses,” said Fateh.

I'm not holding my breath for a recovery in property any time soon. We'll see if the unemployment rate picks up end of this month in step with the property market. Unemployment has been much lower compared to the rest of the world, but that will start to change. Nothing has quite an affect on banking and property as high unemployment rate does.

UDA considering REIT

From the Business Times:

PROPERTY and leisure group UDA Holdings Bhd said it is considering a plan to raise up to RM500 million by selling shares through a real estate investment trust (REIT) in two years, as it looks at ways of unlocking value from its property assets.

UDA, a unit of the Minister of Finance Inc, plans to list a retail REIT in Malaysia, which would include BB Plaza in Kuala Lumpur, Greentown Mall in Ipoh and Plaza Angsana in Johor Baru, managing director Datuk Jaafar Abu Hassan said.

"We are considering (to raise money through) a REIT, but the plan is subject to stakeholders' views and opinions," Jaafar told Business Times yesterday.

The group will undertake a detailed study before it embarks on the plan.

UDA is targeting RM400 million in revenue this year and to maintain its 2008 net profit.

For fiscal year 2008, UDA posted a net profit of RM28.8 million on revenue of RM313.3 million.

Jaafar attributed the higher revenue to its 14 on-going projects in the Klang Valley, Penang, Johor and Pahang, worth a combined RM900 million.

"We will launch more projects this year. The business has to move despite the turmoil," Jaafar said.

A lot of property holding companies will find that the recession will take longer than anyone expects and that it would be wise to take opportunities to monetize assets so they don't face a cash crunch a few years down the road. The prices the company may get for listing may not be so good, but at least the bond holders will find it harder to jack up the rates on bond refinancing day, especially if the company has cash.