Examining Some Rules By Experts

Ask Warren Buffett or Soros, I am sure they will be able to give out a few rules of investing of their own. These rules or as I would prefer to call them pointers have been condensed from their years of experience, from their multitude of success and more probably because of their failure ~ you tend to remember your failures a lot more than your successes.



From the respected Kirk Report, he has featured Michael Steinhardt's rules of investing which I have pasted below. Kirk himself has come up with 7 rules of his own as well. My comments in brackets.

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Kirk Report: Michael Steinhardt is considered one of the most successful hedge fund managers. One dollar invested with Steinhardt Partners LP, his flagship hedge fund, at its launch in 1967 would have been worth $481 when Steinhardt retired in 1995.

He provided six rules in order to become a successful hedge fund manager. Since I think the same apply to all investors, not just those who run hedge funds, I decided to provide them for you as well. They include the following:

1) Make all your mistakes early in life. He says the more tough lessons you learn early on, the fewer errors you make later. A common mistake of all young investors is to be too trusting with brokers, analysts, and newsletters who are trying to sell you bad stocks. (LOL, I had to laugh, not to mock but in total agreement, we all have made our share of mistakes. In my case I have lost more than my net worth and still owed some, thankfully it was when I was in my early 30s, which provided sufficient time to claw oneself back above ground. But how to make sure we make our mistakes early and not later in life? I guess its to remember our failures and not to repeat them. If we always refuse to accept responsibility for our failures, we will be doomed to repeat them. One major flaw in some people is to project their failures on "the lack of luck", or "an unfortunate twist in events" ... all of which is to diminish the ability to own up on our failures, and to attribute blame on others and other things so as to make themselves feel better. We all know so many who fall into that category, and we can almost see how that limits their ability to self-actualise).

2) Always make your living doing something you enjoy. This way, you devote your full intensity to it which is required for success over the long-term.

3) Be intellectually competitive. This involves doing constant research on subjects that make you money. The trick, he says, in plowing through such data is to be able to sense a major change coming in a situation before anyone else. (This I agree totally. Many will sit back and wait for others to tell them what is likely to happen ~ then you are just a follower, and that is only as good as the person you are listening to. The other aspect of this is that many will only react after the event. We may not be always correct but we should have a view on important things, we may even change and modify them when we have fresh information or data, but we should have a view. In terms of investing, if you were asked, is there a property bubble in Asia, will it burst, where is oil headed, are we in for a double dip, whats your view on the dollar and ringgit ... we should already have an opinion. We may not need to share all opinions we have with everyone as that would be reckless and naive. If you were to ask Soros or Buffett what do they think gold is headed for the next 12 months ~ I am willing to bet that they are very likely to say "what do you think". That is the smart way to engage in a fair intellectual discourse, its good to bring something to the table and not just a sponge to take and soak only. If the other person comes back with a satisfying view, I wouldn't mind sharing my view gladly. I get asked about stocks and market direction all the time, naturally its a tiring charade and one way, which I do not appreciate. If you meet Chua Ma Yu, would you ask him what stocks to buy straight out??? Why should he tell you? Do not behave like a sponger, its self defeating. Always bring something to the table).

4) Make good decisions even with incomplete information. In the real world, he argues, investors never have all the data they need before they put their money at risk. You will never have all the information you need. What matters is what you do with the information you have. Do your homework and focus on the facts that matter most in any investing situation. (This is critical as well. I know too many who will wait and wait to gather all information before acting on an investment decision. I am not advocating reckless behaviour but markets will never provide full information. Some will only wait till they have covered 90% of the parameters. Learn to distinguish the really important variables. Learn to make decisions with maybe 60%-70%).

5) Always trust your intuition. For him, intuition is more than just a hunch. He says intuition resembles a hidden supercomputer in the mind that you’re not even aware is there. It can help you do the right thing at the right time if you give it a chance. In fact, over time your own trading experience will help develop your intuition so that major pitfalls can be avoided.

6) Don’t make small investments. You only have so much time and energy so when you put your money in play. So, if you’re going to put money at risk, make sure the reward is high enough to justify it.

* This report was originally published by The Kirk Report on June 2, 2004.

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In celebration of my 7th anniversary, I would like to share with you 7 simple things I think you can do to improve your performance in the markets for the remainder of the year:

1. Stop believing the market is logical – The market is primarily moved by both perception and emotion far more than reality or logic. Trade what you see, not what you think you should or want to see. There’s a reason why most people stink at trading as they fail to understand that markets are often illogical and influenced by emotion rather than reality. Whenever possible, try to adopt and hold an “opportunistic” mindset rather than a dominant bullish or bearish posture.

2. Concentrate your holdings – If you have more than 5 to 10 positions in your portfolio, you are hindering your performance without even realizing it. With the availability of ETFs now, you can diversify as much as you need. Likewise, even if the best of environments, you probably should only be able to find a handful of really good opportunities that offer the most upside with the least amount of risk. Frankly, if you are able to find more than that, then you really don’t understand what it means to find a true low risk/high reward opportunity! (This I agree to a certain extent. As an individual you have to learn to narrow your potshots to less than 5. We all know our aunties who have 20 to 30 stocks, never cutting losses ~ its a meaningless unfocused strategy).
   

3. Stop chasing performance – The very best opportunities before you now are in stocks and sectors that no one is talking about or even knows to look at. Likewise, stop looking to chase the hot hand of others. The media and far too many investors are always focused on what is working well now and who is making the most money while the best opportunities are frequently elsewhere. Go where the market is quiet and which no one is interested in and you’ll find more opportunity. In addition, being patient when you don’t find anything that really fits your eye is more than half of the battle.

4. Turn off the noise – Information may be the world’s most precious commodity, but 99% of the information at your disposal is not. In today’s age of real-time information, opinions, analysis, etc. it is my strong belief that information overload and noise is hindering performance far more than it is helping. The first step is to stop watching all TV and to place severe restrictions on all media. In addition, to perform better this year you must stop wasting time on seeking out advice and opinions that only serve to confirm what you really want to hear in order to justify your positions. If anything, what time you spend in social media should be devoted to looking for ideas that challenge your positions and/or offer unique insight you can really learn something from. (Totally agree. 10 minutes of CNBC a day is more than sufficient. If you go to an hour or more, you would be listening to 10 different experts with 10 opinions, and the anchors will always say to you to stay tuned next as they have another big issue to address).
   

5. Understand your limitations and strengths – Not everyone can be a short-term trader nor do they have to be. The mistake that many make is copying another’s strategy that doesn’t fit them nor one they truly understand. This is why they also readily abandon those strategies when the pressure is on which really hurts performance. So, figure out how much time you can devote, what skills you already have, and formulate a strategy that works best for you based on that. Keep in mind also that the best strategies are often so simple that you should be able to explain how they work to those who aren’t intimately involved in the markets.

6. Accept you will make many mistakes – Those who learn how to minimize the damage when they are wrong and who readily own up to the mistakes they make will do far better over the long haul. Making mistakes is a part of this game, but knowing how to handle them is everything. Likewise, if you attach your ego to your
   

7. 

   portfolio’s performance you are destined for failure. The market absolutely loves to kill those with big giant egos and who look for the markets as a place to prove how smart they are. Markets chew and spit out these folks routinely for good reason and they will continue to do so at every available opportunity.

8. Become a specialist, not a jack of all trades – You don’t have to know everything about everything to do well. In fact, those who focus on a specific setup, chart pattern, program pattern, industry group, or even just trade only one ETF frequently perform far better than those who know a lot about a lot of things but have no real discernible edge. I run into people all of the time who know a great many things, but are not an expert of any one thing and that is to their clear disadvantage. So, find something that interests you more than anything else and concentrate all of your time and focus on that one thing. That path will lead you to developing an clear edge that will provide huge profits to you down the line.

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APPLE Going For Number ONE

Ten years ago, if you asked 1,000 investors to pick out 5 stocks that would be possibly the biggest company in the world, I doubt very much Apple would be even on any of the shortlist. Now Apple looks likely to be near enough to overtake Exxon Mobil. Its fascinating, one company has billions in real assets in the ground and millions of tons of expensive heavy machinery. The other just have Steve Jobs. Now both are jostling for the bragging rights to be the world's biggest company in market cap.



One would have thought Microsoft had a shot 20 years ago, or even Google had a shot 3 years ago. Don't worry, you will know exactly when Apple overtakes Exxon .... all the media will be blaring out that momentous occasion.

Bespoke Investment Group: A year or so ago, Apple (AAPL) eclipsing Microsoft (MSFT) in size was starting to look possible. It became reality a few months ago. Now Apple has its sights on Exxon Mobil (XOM) as the biggest company in the world. Below is a chart of the market caps for Apple and Exxon Mobil going back to 2000. As recently as 2008, the comparison between the two was laughable. Now they're nearly on par with each other and rank as the #1 and #2 biggest companies in the world. A move into the $300s for Apple and some sideways action for Exxon would make Apple #1.

Imagine the question mark that would have popped up in your head had someone said 10 years ago that Apple would be the biggest company in the world but still have less than 10% of the PC market? There isn't a "pc" in "biggest," but there surely is an "i".

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Why I Still Like EAH

I have featured EAH as an emerging company with good prospects, despite being a small ACE market company. If you are a regular reader, you will find that there are some companies that I will blog about a few times while others I will just cover once. The reason being, unless I have spoken with senior management and/or visited the company (with other bankers/analysts or groups of investors), I am not likely to write regularly about the prospects of the company. So far, those companies include Notion Vtec, QL Resources, Evergreen, CSC Steel, KPJ, Media Prima, Sealink, and EAH.

Its pointless to visit 100 companies if you haven't done your homework. Usually we would scan and select a few potential companies, run through their financials and business model, before even thinking of visiting them. There are plenty of "small" investors who do their private investing who go through this channel. Of course sometimes you have to tag along when there is an analyst briefing or when an analyst is going for a company visit alone. But you have to network well I guess.

EAH has just announced an attractive free warrants issue proposal. Its 1 free warrant for every 2 shares held. It is not a straight forward thing to get to issue free warrants. That should speaks volume for the corporate exercise. At an exercise price of 59 sen over 5 years, there's no danger of dilution, and the 59 sen exercise price would strongly indicate the upside potential for the share price.

One of the reasons for the exercise is to improve the liquidity for the stock as there is only 155m shares now. The second reason is that the company is bidding for at least RM200m worth of projects, which has a decent chance of being successful - hence the management probably does not want the "upcoming revenues stream" to overwhelm its share base.

Having visited the company prior to its listing and again two weeks back, I am comfortable with the projects they are bidding and I am of the opinion that they should get most of it. The projects are also of high value add which should bring in net margins of at least 35%-40%. The bigger of these projects are at least 2 years to 3 years in duration which will prime the recurring revenue.

EASS Sdn Bhd (formerly known as Excellent Affair Sdn Bhd) is a Malaysian Bumiputra ICT company with the Ministry of Finance as an ICT Contractor. EASS provides automated invoices processing, infrastructure integration services, business intelligence and ICT consulting services.

EA MSC designs & builds state-of -the-art Card Access Controller, Reader and Tag, and specializes in the R&D of world class innovative long range RFID technology. With the in-depth industrial professional experience our people are equipped with, EA MSC strives to be a onestop integrated solution provider of security and surveillance system.

CSS MSC Sdn Bhd formerly known as Concorde Solutions & Services Sdn Bhd, a dynamic company founded by a group of multi national experienced IT specialists, is prominent in delivering business intelligence, operational system, as well as accounting & finance management for mainly financial services Industry. CSS MSC’s strengths are built on expertise in profound e-business products, ITIL centric service management, integrating services for various technologies, total banking solutions, value business solutions, as well as Business Intelligence products.

Products and Services
1. Software solutions
• Business Intelligence and Data Warehousing
Traditionally focused on provision of Business Intelligence and Data warehousing
solutions as well as consultancy services for financial institutions, but not restricted to it. BI can be implemented in industries where business decision making is crucial. A data warehouse is a repository of an organization’s electronically stored data.
• Banking Applications
As at the LPD, ongoing R&D includes a banking system, namely Concordian System
• Automated Invoices Processing
In partnership with ReadSoft, customers are offered ReadSoft DOCUMENTS for invoices solution which is an automated invoices processing solution.

2. RFID and Access Control Systems
• Active RFID
RFID stands for Radio Frequency Identification, it involves the use of an object (RFID tag) to track or identify the tag-bearing object using radio frequency. Active RFID is a new technology due to advancement in IC, has a high margin, high barrier to entry as it is their own intellectual property. Furthermore, EA MSC owns its own IP.
• Wireless Mesh Networking
This system utilizes a key IP and a routing algorithm is also programmed. In effect, the whole system integrates into one big unit. The pros of wireless mesh networking is such that there is no complicated communication wiring involved, thus effectively reducing commissioning time and implementation cost by roughly 40-60%. The network is also programmed such that if wireless communication fails, the Lattice Wireless Access Control will continue to work without any degradation as the database is kept in the controller. This technology is applicable to most existing equipment and adheres to IEEE 802.15.4 Standards.
• Long Range Active Tag
The Lattice Wireless Raintag and Rainsys Active Tag Long Range Reader both have a reading range of up to 5m. The Rainsys reader has 200ms response time, high immunity to noise, an integrated antenna, wireless communication design for retrofitting, long battery life and good penetration through a vehicle’s window tinting. The Raintag is equipped with a unique pre-assigned code, slim, easy-to-carry and durable.
• Lattice Wireless Access Control System
This system is designed for one door (with in & out readers) or two door (with in
readers). It operates on low power wireless network with mesh networking capability and inbuilt is a large memory capacity (data retention period of 10 years). It has an integrated battery management and supports most commercial readers in the market.
• LR1000 Series
In this series are contactless proximity readers. The readers will be able to read all transponder type, EM, Milfare, and provide door access security with time and
attendance application. The LSK 1000 and LSF1000 models exhibit cutting edge touch sensitive keypad with backlight and are designed and manufactured in Malaysia.
• Real Time Location System - Quatis
Quatis is a combination of wireless mesh networking and RFID technology. The location of a tag is calculated by knowing the distance to at least 3 beacons, which is estimated by using RSSI (Receiver Signal Strength Indicator) and TDOA (Time Delay on Arrival). Quatis is produced in accordance to IEEE 802.15.4 standards, hence lower battery size and chipsets as well as no wiring costs.

3. ICT Services
• Systems and Infrastructure Integration
With experiences in Data warehousing and web services technology, EA Holdings also possess the knowledge and competency to perform System integration services based on platforms by major technological principals such as IBM, Microsoft and SAS.
• ICT Consultancy
A team of experts from 4 key areas of expertise will provide ICT systems consulting services.
1. ICT infrastructure;
2. IT systems management
3. Project management; and
4. Mainframe services.
IT service management solutions. Based on the ITIL best practices, EA Holdings engineer turnkey businesses processes together with technology automation.

EASS was granted with bumiputera contractor status from the Ministry of Finance in 2007. This is a key catalyst for EA as it enables the company to bid for tenders reserved for bumiputera companies, giving it a foothold in the government and GIC sector. Any awards won could potentially increase its revenue substantially from a low base. CSS MSC has strong success tapping into the financial sector, with roughly 8 clients in the financial industry since 2005.

Therein lies the key to EAH's prospects, its bumiputra contractor status from the MOF allows them to make the shortlist of many of the more "demanding IT projects".

For the second quarter of the financial year 2010, EAH recorded revenue of RM5.149 million compared to RM5.438 million for the preceding quarter ended 31 March 2010. Notwithstanding the decrease in revenue, EAH’s PAT had increased by 16.2% q-o-q to reach RM1.621 million. Net profit margin stood at 31.48%. The previous quarter it made a PAT of RM1.395m.

Considering that EAH made a PAT of RM3.641m for the whole of 2009, if we were to annualise the last two quarters, the company is on track to record a PAT of RM6.032m for 2010 - which is a 65% year on year jump. I have to state that this does not include any of the RM200m projects being bidded for.

EAH could very well have done a share placement to certain big investors but that would not have benefited all shareholders. This free warrants issue would be welcomed as rewarding long term shareholders.

Valuation

In terms of valuation, the free warrants would have an intrinsic time value of at least 25%-35%, translating to 16 sen to 22 sen, plus if it goes ex at 63 sen, you can add a further 4 sen to that. If it goes ex at 70 sen, you can add 11 sen to the equation. Thus you are looking at a warrant that is likely to be worth at least 20 sen to a high of 33 sen. That being the case, the shares of EAH may be fairly traded between 68 sen - 78 sen range.

Its ongoing business operations alone is sufficient to sustain valuations at 68-78 sen. If one is willing to hold for 2-6 months, I believe the upside will be better by going through the exercise, with the prospects of good upswing if/when the bidded projects are successful.

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

p/s the masthead photo above is my dog, who is 1.3 years old now, her name is Dali ... that's why I have to keep telling my friends NOT to call me by that name ; )

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The Real Business Of 1+3D and The Racing Totalisator

The Edge Weekly reported that the Cheng family is believed to be eyeing the gaming business of the soon-to-be privatised Tanjong plc. Other interested parties are said to be the Genting Group and Multi-Purpose Holdings. The key surprise is that the Chengs could be a new entrant into the NFO (Number Forecast) arena. Sure, many would be keen to claim the last NFO but they could face hurdles in the form of competition objectives and regulatory approvals.



The key is many seem to forget that the "dastardly-run-hands-tied" Racing Totalisator (RTO) will be part of the package. If its just 1+3D operations, thats fine, I am not sure if the bidders are aware of the "most 'beguiling' business unit in the whole of Malaysia". Many would think they know what they are buying, when even Ananda Krishnan cannot get the "political will" to make the necessary changes to the RTO, you think anyone else can???

While AK may be wanting to shed the gaming business to mould the business to be shariah compliant for future fund raising purposes, I doubt that is his main motivation. I mean, he can easily source for lenders, shariah or otherwise. Who does not want a mini-monopoly with the 3rd leg of NFO business in Malaysia? Its a brilliant cash cow. Its the RTO business that is making them crazy.

The Chengs are looking into the deal and have arrived at a valuation of about RM2bn for the entire business. Should the Chengs decide to bid, the proposed acquisition will be done in a private capacity, and that they will probably partner a private equity fund.



Of course the Genting Group would be a keen bidder as well. Four years ago, when Tanjong expressed interest in selling the business, Genting Bhd and Multi-Purpose Holdings had said they were interested, but pricing was a problem then. There has been speculation in the past that Tanjong and Genting could swap assets, with the former hiving off its gaming business in exchange for the latter’s power division. That would make a lot of sense.

For MPHB which owns 51% of Magnum Corp, acquisition of Tanjong’s gaming assets is, on the surface, an easy way to expand its market share. But most NFO outlets are so close to one another that the real value may not be as attractive to Magnum's operations. To relocate some of the outlets to improve yields may not be as easy as it is on paper.

The Cheng family: Headed by Datuk David Cheng, is in the gaming slot machine business, mostly in the Klang Valley. The family is also in the food and beverage industry. One of David’s two sons, Datuk Douglas Cheng, teamed up with Datuk Vincent Tan Ting Wong and Henry Yip to establish the popular Chinese restaurant chain Dragon-I in 2004.

Trust me, AK wants to get rid of the RTO and he wouldn't mind bundling the NFO with it. However all bidders would want the NFO business only and they should get that out of their business model, it will come with the RTO.



For the year ended Jan 2010, NFO under Tanjong recorded an operating profit of RM234.9m while the RTO registered a loss of RM65.8m. For the previous year the RTO business posted losses of RM26.9m. I tell you that the RTO business will be losing RM100m or more a year very soon.

The key here is, what ails RTO. I mean its a monopoly with the 3 turf clubs in Malaysia. For those of you not familiar with horse racing, Malaysian horse racing garners possibly more betting revenue than the Genting Highland casino + illegal football bets + all 4D operators all added together, and is in multiples of that collective sum. I would not be off a lot if I were to say that the number one place on earth for horse race betting is HK, followed by Australia and then Singapore and Malaysia. How on earth can the RTO business be in the red all the time???

Its the most "hands-tied-business" in the country for sure. Its also the biggest sector in the "shadow economy". The country loses billions in taxes foregone, at least we still get taxes from NFOs and the casino business.

There is a lot of inertia with the "boards" that run each turf club, there is so much vested interest. Race fixing is rampant in Malaysia, probably second in the world next to Macau. For each race, the total betting received by the local turf clubs may be around RM300,000. The actual real betting with bookies is conservatively 20x-30x that amount.

Say the government tax is 15% and the RTO gets 10%. Technically the government gets RM45,000, the RTO gets RM30,000. Now, you add the fact that there are at least 30 races a week x 52 = 1,560. The government gets RM45,000 x 1,560 = RM70.2m and the RTO getsRM46.8m. When you start to deduct funds needed to pay the prize money for each race and the usual operating expenses, its a wonder they only make RM80m losses.

If we take the low end of estimate of actual illegal betting, the government is losing 20 x RM70.2m = RM1.4 billion a year in uncollected taxes/duties. While the RTO could very well have gotten 20 x RM46.8m = RM936m in revenue.



Why would the RTO allow that to happen? Firstly, they are not paid as per revenue/profit achieved. It is better to allow for status quo because of "certain information flow". Now, it is so rampant that a substantial number of horse owners are also bookies themselves, how to win at this?

New owners of NFO and RTO would be likely to try to implement the following (which I am sure Tanjong and Ralph Marshall have tried their hardest):
- reduce government taxes by half, the lower the duties, the better the pool payout which will eat into bookies' margins
- improve access, convert at least half of 1+3D outlets to take racing bets and allow for live broadcast at these outlets
- have a truly independent steward board and disciplinary board, now 90% of all riders who "pull" horses get off scot-free, same for the trainers (btw do you know how many jockeys and trainers get bashed up a year ...more than you know)
- have a special task police unit to haul up all illegal bookies, at the tracks and elsewhere, if they can be so effective during the World Cup, this can be done
- remove all the turf club board members, replace with one professional management unit that is paid professionally and with credibility
- work with authorities to block the enterprising internet betting sites continuously

So, think again before you bid for Tanjong's NFO and RTO business. If you want just the former, I think AK will ask to to go fly wau.

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Where Are We In The Stock Market Cycle?

The following chart was taken from The Kirk Report. So where are we at the present moment? Despite the fact that we are at the year's high, the feeling does not transpire to the broader market. Safe to say, its an institutional driven rally, mainly into large caps.

If you look at the cycle below, its actually a continuous loop, i.e. the "optimism" coming out of recovery on the extreme right should connect back to the "optimism" on the extreme left.

In terms of sentiment, we are nowhere near the "excitement" and "thrill" side. We are probably on the "hope" and "relief" points currently. Does that mean that the risk element is low then?

Short answer "yes", the risk is not high despite what many bears might want to think.





Even if there is a pullback, I doubt we will go through a massive one. As in any recovery, the lack of participation by private investors is reflective of other market recoveries. Private investors will again tend to gravitate when market sentiment moves to "optimism-excitement" points.

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EPF To Buy PLUS Expressways?

Is this a scoop? THis was reported in an exciting newish blog named Taikuns & Taikors. It now looks like sensibility has won the day with EPF entering the fray to buy PLUS Expressways. I can so no better solution to that. This toll system is too ingrained to be in private hands. At least now, all profits will accrue to EPF holders.

http://www.tnt.net.my/home

Some twelve million EPF members are in for a windfall as the huge profit stream from Plus will directly boost yearly interest payout to exceed the current average of five percent, though earlier MMC Corp and Asas Serba proposals to buyout Plus are rejected.

The government has given the nod for the Employees Provided Fund to acquire Malaysia's largest tolled highway operator, Plus Expressways Bhd, putting an end to the attempts of two private companies to take over the Khazanah-owned entity.

EPF’s late-entry acquisition pips the proposals made separately by Tan Sri Syed Mokhtar Al-Bukhary’s MMC Corporation Bhd and Tan Sri Halim Saad’s Asas Serba Sdn Bhd to buyout Plus through Khazanah Nasional Bhd, which directly owns 16.74% of Plus and has an indirect stake of 38.51% via UEM Group.

Raising the roughly RM11 to RM12 billion to pay for the 55% of Plus shares now in Khazanah’s hands is considered as “loose change” as EPF has RM402 billion in total asset allocation as at March this year and would not require the pension fund to resort to the debt market.

Plus Expressways Bhd announced a traffic volume of 1,281.4 million Passenger Car Unit kilometer (PCU-km) in July, up four per cent compared with the same period last year.

PLUS manages the North-South Expressway, New Klang Valley Expressway, Federal Highway Route Two and Seremban-Port Dickson Highway.

For the seven-month period ended July 30, traffic increased nine per cent to 9,916.7 million PCU-km from the previous corresponding period.

Meanwhile, its ELITE (North-South Expressway Central Link) subsidiary recorded 137.8 million PCU-km in July, an increase of 10.1 per cent from the corresponding period.

Year to date, traffic rose 13.6 per cent to 911.4 million PCU-KM against the the same period last year.

Read more: Plus Expressways posts 4pc traffic growth http://www.btimes.com.my/Current_News/BTIMES/articles/20100830182238/Article/index_html#ixzz10Sw1D41v

The shifting of a large chunk of a government controlled asset from one institution to another, is seen as the end of strategic assets being placed in the hands of individuals and ushering a new era of compliance on public accountability.

At a stroke, some 12.7 million EPF members will enjoy a windfall, as analysts compute the added cash flow from Plus to EPF will see its members gaining an extra one or two percent in annual interest payout from the present average of 5 percent.

In recent weeks there has been an unprecedented surge in the share price of Plus, touching its all-time high recently of RM4.32 on September 1 from its 52 week low of RM3.20.

Commenting on the government’s move to shift a strategic asset from one institution to another as it matures, in this case transferring Plus from Khazanah to EPF, a senior local banker said, ”It really is a way of sharing corporate profits directly with the public so people can gain from well run business operations within the government stable.”

A stock analyst familiar with the deal adds that the government has taken a lot of brickbats in the past for awarding contracts to individuals and this move marks the end of an era of placing strategic assets in the hands of individuals.

“Almost all the past corporate debacles stemmed from individuals being trusted to manage national assets or assets of strategic importance. However, a mix of over-gearing and perhaps, over-ambition, led to their eventual failure which saw the government being forced to bail them out.

“In fact, Plus was once under the Renong Group and Khazanah was asked to take it over, rehabilitate the company and put in place a strict code of corporate governance.

Plus today is a really top-notch operation that is rated one of the world’s top five tolled highway operators.

“From Putrajaya’s viewpoint, it makes sense to transfer Plus to another state institution that pays out dividends directly to millions of Malaysians. We have to see this as a signal from the present administration that they are using a fresh approach to pass on profits generated by state-controlled companies to the man-in-the-street.

At the same time, the old practice of awarding large-scale state assets to individuals has come to an end,” he said.

The Plus purchase caps an acquisition spree by EPF which saw it take control of property developer MRCB and bank holding company RHB Capital, as a means of controlling large-scale profit generators to pay out a steady dividend pipeline to its members.

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The Economic Transformation Program

My verdict: Good to Pretty Good. Liked the fact that PEMANDU is there, supposedly to ensure proper execution of the projects.

Hwang DBS: The Government held an Open Day to present ideas for the Economic Transformation Program (ETP) on various key economic sectors for the country – including oil, gas & energy, financial services, palm oil and wholesale & trade. In our view, the program, approach and selected ideas/initiatives highlighted inspire optimism. If implemented successfully, we believe the projects will be able to generate greater economic activity.

Among the key projects, we understand that the RM36bn KL MRT, which features in the Greater Kuala Lumpur plan, has received high level of commitment – increasing the likelihood of the project’s approval. Potential beneficiaries: Gamuda (High Conviction Pick; TP: RM4.35), MMC (Buy; TP: RM3.20).

The Rubber Research Institute (RRI) project was also included. Potential beneficiaries: MRCB (High Conviction Pick; TP: RM2.25), WCT (Buy; TP: RM3.60).

Other mega projects include the previously shelved RM8bn high speed train to Singapore (potential beneficiary: YTL Corp; Not Rated) and the Klang river project (potential beneficiaries: SP Setia (Buy; TP RM4.80), YTL Power (Hold; TP: RM2.50), MRCB).

The drive to improve Kuala Lumpur’s attractiveness would also benefit large landowners in the greater KL area such as SP Setia, Bolton (Buy; TP: RM1.50) and DNP (Buy; TP: RM2.25).

Implementation is key. There will definitely be major challenges to some of the initiatives. Implementation is a key test for the ETP. In our opinion, Senator Dato Sri Idris Jala and PEMANDU’s (Performance Management and Delivery Unit) role in facilitating implementation would help enhance the likelihood of success. Successful execution of the ETP would help transform the country and attract investments.

Highlights of Economic Transformation Program
Sector Initiative Potential beneficiaries
Greater KL KL MRT - received high level of commitment Gamuda, MMC
Rubber Research Institute project MRCB, WCT
High speed train to Singapore YTL Corp
Klang river project SP Setia, YTL Power, MRCB
Initiatives to make KL more attractive SP Setia, Bolton, DNP
Oil, gas & energy LNG regasification plant KNM, Dialog, Kencana
Financial services Create regional champion Maybank
Improve capital markets Bursa Msia
Promote bond market Maybank
Business Services Increase level of skilled workforce Jobstreet
Health services Promote generic drug manufacturing and export Pharmaniaga
Education Push for health services education Masterskill
Source: PEMANDU, HwangDBS Vickers Research

ETP: Macro takeaways
NKEA projects will achieve economic growth of 6%
A high income nation with GNI per capita of USD15,000 by 2020
The NKEAs will contribute over 73% of Malaysia’s GNI (USD523 billion in 2020)
92% of funding for the projects will come from private investment and only 8% from public funding
Will generate an additional 3.3 m jobs, over 60% will be in medium-income or high-income salary brackets
NKEA Labs feature 131 EPPs and 60 Business Opportunities
Source: PEMANDU, HwangDBS Vickers Research



Construction sector

From the EPPs (Entry Point Projects) for Greater KL, there were several projects that will provide opportunities for contractors.

MRT – Gamuda and MMC are potential beneficiaries of the project. Gamuda’s orderbook could double and MMC’s triple, but we believe the sector will benefit given the sheer size of the RM36bn project. Among the key projects, we understand that this project has received high level of commitment – increasing likelihood of the project’s approval.

High Speed Rail (HSR) – This RM8bn project was initially proposed in 2008 but put on hold. The lab recommended a study by Land Public Transport Commission (SPAD) and Economic Planning Unit (EPU) to determine the feasibility of the project with results to be tabled to the Cabinet by
January 2011. Potential beneficiary: YTL Corp (Not rated).

Klang river project – In March 2010, the Selangor government appointed three companies to carry out the project that was expected to attract RM50bn worth of investments. Potential beneficiary: YTL Power (Hold; TP: RM2.50), MRCB.

In addition, the Rubber Research Institute (RRI) project was among projects included in the Greater KL National Key Economic Area (NKEA). Potential beneficiaries: MRCB (High
Conviction Pick; TP: RM2.25), WCT (Buy; TP: RM3.60).

Property sector

The “Greater KL” NKEA aims to improve KL’s ranking to one of the Top 20 most liveable cities and economic cities in the world by 2020 (currently ranked 79/130 in recent quality of life survey). Initiatives proposed include:
a) Foreign magnet: Attracting 100 of the world’s top MNCs & high-skilled immigration;
b) Improved connectivity: High-speed rail to Singapore, MRT (integrated urban rail system);
c) New attractions: Rejuvenation of rivers, greener KL, iconic places; and
d) Enhanced services: Pedestrian network, solid waste management.

PEMANDU expects KL population to balloon to 10m by 2010 from 6.5m currently, creating demand for 1m new homes. Areas identified to benefit the most from transformation of KL:
a) High-impact: RMAF base @ Sungai Besi, Dataran Perdana, MATRADE @ Hartamas, RRIM @ Sungai Buloh, Kampung Baru
b) Ripe for redevelopment: Bukit Bintang, Pusat Bandar Damansara, Dataran Sunway, 1 Utama, Subang Bestari, Balakong, Serdang

Aside from GLC/Bumi developers tipped to benefit from government land redevelopment (eg MRCB, Boustead, Bolton, SP Setia, Mah Sing), owners of large landbank and investment assets in KL should also stand to benefit.



Oil and gas

PEMANDU has identified 12 EPPs and 7 BOs (Business Opportunities) for the oil, gas and energy sector under the NKEA. A 3 pronged area of focus – sustain, grow and diversify. The EPPs and BOs are expected to bring about RM76.8bn in GNI (Gross National Income) and create 52,000 jobs by 2020.

Several of the broader initiatives presented included PETRONAS strategies such as enhancing oil recovery in existing fields, developing smaller fields, and the construction of a LNG regasification terminal to meet the nation’s gas demand. However, what we understand that is making the difference is the role that PEMANDU will be playing to ensure smooth and effective implementation of the said EPPs. This, we believe, would be the critical factor leading to the success of the program.

Based on the roadmap shown by PEMANDU, we understand that the government is looking to receive its first LNG imports into the country by 2013. This would mean that the tender for the LNG regasification plant could be out as early as the beginning of 2011, assuming 2 years of construction.

We see KNM Group (Hold; TP: RM0.55), Kencana Petroleum (Not Rated), and Dialog (Not Rated), as potential beneficiaries to the project. The initiatives highlighted include the 10m cubic metres oil storage terminal in the works spearheaded by Dialog and Vopak in Pengarang, Johor. The development of small fields and enhancement of oil recovery should benefit a handful of local oil & gas players.

Tanjung Offshore (Hold; TP: RM1.60) could stand to gain under its engineering and marine divisions while both Alam Maritim (Buy; TP: RM1.40) and Petra Perdana (Fully Valued; TP: RM1.00) could benefit under their OSV operations.

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HSBC Musical Chairs, Grow Up Old White Boys!

HSBC Holdings chairman Stephen Green (British descent) resigned from his position to become trade minister for the UK government. That's all fine and dandy. Thus the chairman's position is now vacant.

Michael Geoghegan (British descent), who replaced Green as CEO in 2006, is expecting to be promoted to the chairmanship position. However, rumours are now swirling that he might be passed over for that position and may just remain as CEO only.

The favourite to be the new chairman of HSBC is John Thornton (an American) joined HSBC as a non-executive chairman of its North American unit in December 2008, six months after division pushed the bank into the biggest writedowns in its history. The bank has since set aside more than $58 billion to cover bad loans made by its subprime lender Household International, which it purchased in 2003.


HSBC's chief executive Michael Geoghegan now has threatened to quit if he is not promoted to chairman, as the battle for the top job at the bank intensifies. What kind of crap is this? Michael, you are already CEO of HSBC .... HSBC, what other building blocks in life do you want to tick off your fucking wish list? Having sex with Japanese triplet sisters???

Michael, why are you jeopardising the entire HSBC operations by threatening to leave. Where is the company before self thing? This is all me, me, me ... Its obviously not the salary as the CEO will get paid a lot more than the chairman, so its the power. You had to kowtow to Green before as Green was the ex-CEO before being made chairman, but you are not willing to report to any other person as chairman as none were ex-CEOs before. Why the tight ass attitude after reaching the altitude?

Mr Geoghegan was angered by the suggestion that he might be passed over for the role at Europe's biggest bank during a meeting last week. He was told the board was not ready to give him the chairmanship and he was not happy. The way he reacted, the board would be absolutely right NOT to give him the chairmanship. What a petulant old boy? Probably an only child who still can throw tantrums when he is 56. What next, kick an old lady in her shins when you leave the HSBC building just because you were in a foul mood?

The role of chairman at Asia-focused HSBC opened up when the incumbent, Stephen Green, was appointed Britain's trade minister earlier this month. He will take up his new role in early 2011. The decision about the succession is due to be made at a board meeting in Shanghai next Tuesday.

HSBC has traditionally elevated its chief executive to chairman and Hong Kong-based Geoghegan, 56, would not be happy to see another chairman appointed over the top of him. He would be especially angered if the current favourite, former Goldman Sachs banker John Thornton, won the top job. What is this ... entitlement ... like some knighthood if you serve the correct ministries for the correct amount of time??? Michael probably has this sense of entitlement, which is so archaic. Be a professional, do not threaten .... if you do not like they way you are treated, just resign, be a MAN. Why fuck around pouting like a demented child missing his medication.

Michael, even if you get the chairmanship NOW, what kind of respect will you be getting from your colleagues and staff, what will they be whispering behind your back?



If Geoghegan resigns, the favorite to replace him as CEO is Stuart Gulliver, head of the company’s investment bank.

Talking about being pissed off, now this was reported in one of the UK papers:
"HSBC “will be looking to balance out the board between having a British CEO and non-British chairman or vice versa,” said Colin McLean, who manages £650 million at SVM Asset Management in Edinburgh, including HSBC shares."

What kind of crapula is this? I thought HK shooed away the colonial masters since the 90s. Yes, we still have the Jardines reaping their profits from recycling ill gotten gains from Asia 50-100 years ago, and now has "washed clean" the dirty money to own brilliant companies and buildings in Asia. "LOOKING TO BALANCE between a British CEO and a non-British chairman or vice versa".

B.S. Please turn over your share register and see who are HSBC main shareholders, they are mostly not British anymore. HSBC is an Asian bank with a small far flung operations elsewhere. Why is HSBC like Ye Smokehouse Grill or an old English pub with "members only" sign at the door.

You want to be an Asian and get into the higher echelons of HSBC management ~ first get a fucking British degree, not just any degree mind you, has to be Oxford, Cambridge or London School of Economics ... helps if you are from a top private school and plays cricket or rows well, ok then at least know cricket and rugby well enough to hold a decent conversation. Must like beer, warm beer preferably. Dresses conservatively but from Savile Row bespoke. Finally you must know at least 5 white British dudes (dudes only) who are currently holding positions as Managing Director (SVP) or higher in HSBC or other banks/ securities firms (preferably related as well).

So fuck off with the must have one British as CEO or chairman shit, or we will get Agriculture Bank of China and State Bank of India to take over HSBC. ... Other than that, how was your day?

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Warrants 'Renewal' Should Be Abolished

hng has left a new comment on your post "Islamic Finance, Malaysia's Bright Light":

Hi Dali

Can you advice on PJD and PJD-WB? i’ve bought many PJD on hope on its warrant on basis 3 for 8 as well as its upcoming dividend of 5sen (6.6% yield). PJD have slowly show some movement from 71sen to 76sen now, but its PJD-wb move much more from 4.5sen to current 7sen, a gain of >50%!?

As these PJD-wb also entitle 3 for 8 warrant, its implies market price upcoming warrant at least 20sen (7sen x 8 unit) + (2sen x 3 unit) divided by 3 unit.

What is your opinion on both PJD and PJD-WB, should i exchange in order to gain more exposure?



Hng,

You are right and the market is pricing the old warrant correctly, and yes, the new warrant should trade between 20 sen-25 sen. Yes you should exchange and get more exposure. I do not follow PJD but on surface, the company is OK. Recently announced full year's net profit rose 133% to RM52.76m, and has a cash balance of RM104m.



Now lets get to the principles of warrants and why these "clauses" to allow for warrants to be renewed, or renewed via a rights issue should be abolished. Warrants are usually issued together with a bond, which means the warrant is detached (i.e. from a convertible bond). The number of warrants multiplied by the conversion price should equal to the bond amount. Hence the basis for a normal warrant is to get it to be converted so that the premiums paid by those warrant holders who convert into new shares will be collected to pay off the bond eventually.

This works if the company performs well, or rather the share price performs and trades much higher than the exercise price. As the time value dwindles or the gearing dwindles towards 1.0x, the warrant will start moving to the no premium or even discount range. This will bring about investors buying the warrant to convert into shares.

If your exercise price was higher than your mother share price towards the end of the warrant period, nobody will convert and your warrant will find its way towards 1 sen level. If a company's warrants do not get converted, it basically means the company will have to fork out funds to pay off the bond at the end of the loan period, or renew the loan on new terms.



The important reasons why this "renewal" thing should be abolished:
- its not a "structured" or transparent decision, the decision lies with the management and/or board of directors
- some out of money warrants do not get extended, some do, its highly discretionary
- the basic rights of people who buy warrants should be protected here, by allowing "renewal" you make it impossible for warrant holders to sell or buy on full logical calculation
- it gives rise to insider trading of a massive scale if insiders were to collect at 1 sen or 2 sen for the longest time and then announce the warrants being given a new lease of life

Time value and gearing are the cornerstones of valuing a warrant, to suddenly give an out of money warrant an additional 5 or 10 years is a huge gift.

If I bought a warrant at 20 sen with 12 months to expiry and the mother share is 1.00 but the conversion price is 1.30, thats a clear investment as the gearing is stupendous at 5x even though the premium is 50% (20 sen + 1.30 / 1.00). After 6 months, the share price stays the same and the warrant moves to 10 sen. Gearing is 10x now while premium is at 40%, which is very high with just 6 months left.

Say with just 60 days to expiry, and the mother share stays at 1.00, the warrant would have dwindled down to 3 sen or 4 sen as it looks near impossible for the mother share to move more than 30% forward in 60 days. Herein lies the dilemma, when do an astute warrant holder sell??? Should he/she factor in a "maybe" the warrants will be renewed??? That is pure b.s. especially when its so "whimsical and totally at someone's discretion" which you have no privy to!!!

In PJD's case, investors might say its a good thing, especially for those who held onto the warrants. What about the really smart investors who sold at 15 sen, 14 sen, 13, sen, 12 sen, 10 sen, 9 sen, 8 sen, 7 sen, 6 sen, 5 sen, 4 sen, 3 sen, 2 sen and ta-dah 1 sen???? What about their "loss"? Were they stupid, noooo, contrary to that, they were smart and knew how to value and trade a warrant properly. Who gained? The stupid investors who bought all the way down below 5 sen (unless they knew something beforehand).



This is blatantly wrong if you weigh this in terms of basic tenets of investing. There should be no guessing and all must be transparent. I would like to haul up all buyers of PJD warrants below 3 sen, and get to the end owners of those trades, don't you?

I am not implying that there was something sinister about the renewal of PJD warrants but we should safeguard a fair level playing field for investors. Why are there guesswork and doubts about this, they should be removed in order to provide a more transparent investing environment.

To rectify that, the rules should be clear from day one of warrants issuance, that the company WILL renew the warrants if it stays out of money on expiry for another 5 years OR that they WON'T. Isn't that fairer?

c.c. SC and Bursa

-------------------------------
Thanks to a swift comment, I will provide a swift reply in brackets.

kl said...

Dali,

Some elaboration to your comments are in order;

PJD-Wb were issued together with a rights issue of shares in 2000, not a bond issue

(Doesn't matter, the principles are the same, whether they were a rights issue attached or even totally free warrants in the first place).

PJD-Wb are not being renewed, will expire in Oct '10 after its 10 year life and out of the money.

(I use the word renewed in brackets. We all know what I am trying to get at. PJB does not get out of jail card because of some twists here and there. Same principles of transparency are lacking).

The new PJD-Wc is a new issue on a basis of 3:8 to both PJD and PJD-Wb holders for another 10 years at 2 sen, the proposals being interdependent.

(Again, does not matter whether it is a 1:1 or 3:8 or even 1:50, the principles have been violated).

PJD does not need the few million Ringgit raised from a cheap new warrants issue. The exercise seems to be an attempt to rescue some value for Wb holders more than anything else. No prizes for deducing who the major holders of Wb are. They are also the major shareholders. (I am not implying PJB needed the money. I wasn't even targeting PJB. I even mentioned how well PJB did in their recent results. It is exactly the creation of value" for major shareholders of the warrant that I am disputing ~ unfair, totally unfair to those who have sold the warrants for the past few weeks or even months).

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Islamic Finance, Malaysia's Bright Light

There is a bright light in Malaysia's financial landscape, its Islamic Finance. Malaysia has been competing with the Middle East countries to wrangle the top spot. Malaysia held a good lead prior to the global financial crisis, and for the last 2 years have edged away from the competition to be a clear leader. The Middle East countries have had to grapple with debt restructuring of its own which weighs heavily on their Islamic Finance focus.



Its not just a matter of prestige to be the center for Islamic Finance, its a viable and attractive area of finance. Its potential is enormous. Lagging behind Malaysia are the usual suspects, Saudi Arabia, Bahrain, Qatar and UAE.

The most active category is sukuk or Islamic Bonds. The main difference is that sukuk does not charge interest but rather claims a portion of the issuer's profits. This year alone international borrowers have sold $9.8bn of Islamic Bonds, with 72% of that being issued in Malaysia. Similar bonds issued by the Persian Gulf nations totaled just $2.5bn collectively this year.

The gulf nations had a major real estate tumble and then had to deal with default of sukuks issued by Saad Group (Saudi Arabia) and Investment Daar (Kuwait).

Considering that there is more than $950bn in assets globally that comply with shariah law (mainly deposits), we are looking at a market with strong growth prospects. Even international big banks have been trying to muscle into that territory to get a slice of the action. The most successful to date include HSBC, Citigroup and DBS.



As an indication of things to come, Saturna Capital, the world's biggest shariah compliant equity fund manager has just set up shop in Kuala Lumpur as did Nomura Securities and India's Reliance Capital Asset Management (all shariah compliant fund managers).

Thanks to the push by Bank Negara and SC, last year Malaysia introduced an online trading platform for murabahah transactions where banks and companies can buy and sell commodities based on a price that includes an agreed upon profit margin.

Safe to say that the bulk of the sukuk issuers in Malaysia have been GLCs and government linked debt. In order for this market to see greater acceptance and adoption, we need more non-GLCs to start tapping the market with greater frequency.

Do not lose the lead and edge you have achieved.

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Gambler Jumps To Death After Losing HK$5m

Gambler jumps to death from floating casino after losing HK$5m

Dennis Chong / The Standard HK

Monday, September 20, 2010

A 51-year-old mainlander jumped off a 13-deck "floating casino" off Sai Kung after losing HK$5 million playing baccarat.

The gambler, identified by police only as Xu, made his fatal leap off the Star Cruises vessel SuperStar Aquarius as it sailed back to Hong Kong from international waters shortly before 9am yesterday.

Rescuers searched for Xu for almost an hour before fishing him out of the water. He was certified dead by the ship's doctor.

Xu apparently boarded the ship on Saturday for a two-day gambling trip. He was seen betting at the baccarat table right after dinner.

According to several passengers, he gambled until closing at 8am yesterday and lost almost HK$5 million.

He was seen wandering on the deck for about an hour before jumping. Crew were alerted immediately that a man was overboard. The captain sent a rescue team and notified the Hong Kong authorities.

Genting Hong Kong, a Hong Kong- listed company that operates the Star Cruises fleet, said there were 1,500 passengers on board at the time of the incident, which happened in Hong Kong waters.

Police said there are no suspicious circumstances in the case, which was classified as "man overboard."

A police spokesman said they received a report of a man jumping off a ship at 9.50am when the vessel was sailing south of the Kwo Chau islands, south of Sai Kung.

Marine police and the Fire Services Department dispatched rescuers to the area and the Government Flying Services sent a helicopter.

Super

Star Aquarius returned to port with the body, arriving in Hong Kong at 12.30pm.

Passengers disembarked before police investigators boarded the vessel to inspect the body. It was later transferred to Kwai Chung Mortuary.

A Genting Hong Kong spokeswoman said the company is getting in touch with the man's next-of- kin.

According to the company's website, SuperStar Aquarius departs daily from Hong Kong and, besides casino facilities, has a variety of entertainment and sports facilities.

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Clair de Lune

If ever there was a song or a piece of music that deserves its own special posting, it has to be Clair de Lune. You cannot even call it a song as that seems to be belittling the music. Yes, it has to be called that masterpiece composition by Claude Debussy.

If you ever needed to find solace, calmness and one with the world, just listen to Clair de Lune, possibly my favourite piece of music ever, and I am sure many of you feel the same.

Listening to Clair de Lune kind of makes me feel that all people of the earth are so alike. I don't think anyone on earth do not feel the same when they listen to this song ~ any race, any nationality, any political affiliation, any religious group, everyone ~ we all feel the same kind of wonderment and will be moved by it. Coincidence or the humanity of it all.

Translated, its called Moonlight, named after Paul Verlaine's poem of the same name. For such a wonderful piece of music, I tried to locate the movies which have used the piece of music. To my horror and to Debussy as well, many do not do justice by parading the music alongside so-so movies with even blander plots.

Topping the list of horrors has to be using Claire de Lune in Twilight, of course. There are many movies including Ocean's Eleven & Ocean's Thirteen, Seven Years in Tibet, Atonement, Man On Fire, The Darjeeling Limited, Ficció, El próximo oriente, The First Day of My Life, The Right Stuff, Antonieta, Casino Royale, Gran Turismo 4, The Game, Mùi du du xanh - L'odeur de la papaye verte (aka The Scent of Green Papaya), Tôkyô Sonata, Valley of Abraham, Bloodsport 3 (OMG), Castaway, Dog Soldiers, ... I must have missed some somewhere.

Movies that feature the music appropriately: Tokyo Sonata, Castaway and The Right Stuff. But the best movie has to be Frankie & Johnny, starring Al Pacino and the wonderful Michelle Pfieffer. The movie was way under-rated, the story enchanting and the acting was amazing. The song was waaayyyy appropriate. In fact, I thought the entire plot and movie was made so that they could feature the song towards the last 15 minutes of the movie.



Anthony Tobin 2007, piano solo.

The tough task here is selecting which of the four versions you like best. They are all wonderful. I think for this piece, less is more, I love David's version best.



David Oistrakh plays beautifully, recorded in Paris, 1962, with Frida Bauer on piano.


John Williams & Julian Bream


Julian Lloyd Webber with his cello and full orchestral accompaniment.

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IJM Land To Be Privatised?

This was from a local broker:

Market talk indicates IJM Land may be privatized by IJM Corp, its parent company. Further details are not available at this point. We spoke to management and they were unable to comment.

We are quite surprise by the rumor given injection of IJM Properties (previously 100% owned by IJM Corp) into RB Land and subsequent rebranding into IJM Land in mid 2008. IJM Land has suffered low liquidity as it is tightly held by its parent, IJM Corp, which has 62.5% stake. Inclusive of EPF (8.7%) and GSIC (7.3%) stake, free float is 21.5%. The stock has been a laggard with only +0.9% Ytd returns vs. KLPRP +11.3%.

Catch-22 situation. Although it is unorthodox to take private a subsidiary that has been listed not too long ago, we will not be surprised if it happens. IJM Corp is unlikely to dilute its interest as more than 50% of its pretax profit is derived from property division in the future. Given the difficulties in replenishing its large orderbook of more than RM5b, the group will be more reliant on IJML earnings.

However, the low liquidity of the stock meant that IJM Corp will never be able to fully realize the value of IJML. In fact, many foreign funds are interested in IJML given that it is an alternative proxy to SP Setia and the Malaysian property sector, but are unable to invest due to lack of liquidity.

(Privatisation is possible as none of the substantial shareholders are wanting to sell at current levels. No liquidity means no other institutions are likely to buy in as they may find it hard to buy big blocks or sell them when they want to. This will make it less attractive as a listed vehicle).

IJM Land valuations. At current price of RM2.38, IJML is trading at 1.4x FY11E PBV while FY11-12E PER is 14x-13x. Our RM2.80 fair value (SoP RNAV) implies 1.7x FY11E PBV, which is a discount to SP Setai’s current FY11E PBV of 2.2x or a premium to average property development companies’ average P/BV of 0.9x. Assuming privatization price at our TP, which is 18% premium to current price or 1.7x FY11E PBV, The value of the shares not owned by IJM now is worth RM1.16b.

FY11E BV/sh (RM)			1.64
PBV (x)			RM
2.2	0%	discount to SP PBV	3.61
2.1	-5%	discount to SP PBV	3.45
2.0	-9%	discount to SP PBV	3.29
1.9	-14%	discount to SP PBV	3.12
1.8	-18%	discount to SP PBV	2.96
1.7	-23%	discount to SP PBV	2.79
1.6	-27%	discount to SP PBV	2.63

(Yes, you can compare with SP Setia, but its a different animal. SP Setia is like a charged up counter with very important GLCs as shareholders. SP Setia is likely to be a critical beneficiary of some of the upcoming big government land spin offs).

RCULS conversion. There is RM400.0m nominal value RCULS (maturity in 2013), owned by IJM Corp, which is unconverted in IJML’s books. IJM Corp can convert these into shares at any time at a conversion rate of RM1.74, which is ‘in the money’. If IJM Corp converts all RCULS, share base will be enlarged by 21% to 1.34b whilst IJM Corp’s shareholding increases to 68.9% from current 62.5%, giving them a higher shareholding to start the privatization exercise with high chances of success. Alternatively, the other two substantial shareholders EPF and GSIC could also be persuaded to act in concert with IJM for the privatization exercise.

Privatization of listed property arm of construction and conglomerate companies is not unusual. Sime Darby privatized Sime Properties in its mega merger. WCT and IOI privatized WCT Land and IOI Properties respectively. Both WCT Land and IOI Properties were privatized at 1.5x – 1.7x P/BV and at 4%-17% premium over the market price on the date of announcement.

The incentive to privatize becomes more apparent. Listed property developers are under pressure to maintain a pipeline of launches to maintain an increasing profit track record. By privatizing the property company, it has no pressure to do so especially in light of a slowdown in the growth rate of property launches, prices and take-up rates as BNM is mulling on capping LVR and pulling the plug on interest absorption schemes.

We think the privatization is possible. At IJM Corp’s Company level, net gearing is 0.22x, which is ample room to gear up further. On IJM Land’s level and assuming all RCULS converted, its net gearing will be very low at 0.03x. Assuming if IJM undertake an LBO structure to privatize IJML and subsequently “push” the debt down to IJML operating levels, IJM Land’s net gearing will be 0.69x. Given a strong FCF of RM200m-RM240m p.a. in the next 3 years, it can easily service a 5-year RM1.16b debt in addition to the current operational debt outstanding. We continue to maintain BUY on IJM Land with fair value of RM2.80.

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

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