Follow up on AFG call as many have inundated me with "why ah... why ah...", and 99% of the time I do not entertain such emails. I have my bad picks and my good ones, you roll with it. In the case for AFG, it was a combination of a few factors
One, its the nature and characteristics of the stock, each stock has its own character, would you believe. That's because, each stock has its own set of controlling shareholders, substantial shareholder, type of institutional shareholders, the usual amount of free float, the usual amount of average traded volume, the usual daily range of price volatility ...etc. Two, its the potential catalysts available and news flow. Three, its the valuations matrix, is it cheap, why is it cheap ... is it expensive, will it get more expensive, etc.
Hence when you know the character of a person well, and they suddenly behave out of the ordinary (and they usually don't, not in the manner which it did) ... you know that person has done drugs, found religion ... or something like it.
Needless to say, AFG ticks all the boxes for me. But Buffett would probably have been buying this stock for the past 6 months because the valuations were compelling, and would probably sit on it for another 2-4 years waiting for fuller valuations. As I do not have the same fund size as Buffett, I am forced to adopt a momentum-fundamentals investing philosophy - i.e. trying to catch them just as they are about to take off. Call it timing or whatever, its a difficult thing to do.
Herein are the probable explanations cum catalysts:
1) Temasek Pares Down Stakes In Chinese Banks - State-linked Singapore investment firm Temasek Holdings said Wednesday it had sold partial stakes in two of China's biggest banks, Bank of China (BOC) and China Construction Bank (CCB).
"This sale is part of our portfolio rebalancing, which we do from time to time," Temasek spokesman Jeffrey Fang said in a statement. "Temasek continues to hold substantial positions in Chinese banks."
The firm raised $3.62 billion from share placements in the banks -- two of China's "Big Four" lenders -- through holding units, Dow Jones Newswires said, quoting a source familiar with the deal. Temasek unit Fullerton Financial Holdings Pte Ltd sold 5.188 billion shares in Bank of China through placements, raising $2.42 billion. And Cairnhill Investments (Mauritius) Pte Ltd and Crescent Investments (Mauritius) Pte Ltd, two other Temasek units, sold 1.502 billion shares in China Construction Bank to raise $1.2 billion.
Temasek had a 6.76 percent stake, or 16.91 billion shares, in CCB as at December 31, 2010, according to the lender's 2010 annual report. CCB declined to comment but Dow Jones calculations indicate Temasek's stake in China's second-biggest lender has been reduced to around 6.2 percent after the sale. For BOC, Dow Jones quoted the bank's spokeswoman Zhao Rong as saying that Temasek will be left with a 2.2 percent stake in the lender after the transaction. Temasek previously had a 4.06 percent stake in the lender, according to BOC figures.
"We have received notification from Temasek on transferring Bank of China's shares to other institutional investors," Zhao said.
By the end of trade in Hong Kong BOC shares fell 3.63 percent and CCB was down 3.24 percent. The sales come amid concerns about Chinese banks' debt exposure after China's National Audit Office said local governments owed $1.65 trillion as of the end of 2010, of which a big proportion could go sour. However, that announcement -- the first time China has given an overall figure for local government debt -- was followed by a warning Tuesday from ratings agency Moody's that the debt could have been understated by about $541.6 billion. The agency also said a lack of a plan to tackle the bad loans meant it could downgrade its outlook for Chinese banks to negative.
Song Seng Wun, a Singapore-based regional economist with CIMB Research, said the move by Temasek does not mean it has lost faith in the Chinese banking sector.
"They are not exiting the Chinese banks, they still have stakes in these entities. They could have exited completely but the fact that they still have stakes suggest they are rejigging the portfolio."
(Why is this a catalyst? First, there has a been a change in top management of Temasek. It is a portfolio shift for sure. Temasek had ventured under previous top management into various top banks, and got bitten terribly. If I was running Temasek, and I already have a substantial stake in a top banking player from Singapore and in Asia in DBS Bank, why do I think I am a better "manager of banks in picking other banking stocks"? Why don't I reinforce my resources to support and foster expansion for DBS Bank?
It also sends different signals to your CEOs of the portfolio of companies under your care. Imagine Buffett invested heavily in IOI Corp, and then later on taking on smaller stakes in Wilmar and KLK. It may make some sense but what kind of strategy is that for a long term controlling shareholder.
Hence, the move may be one of two things. Reducing China banking stakes in light of potential bad loans. Two, refocusing on core banking stocks. I think its more the latter).
2) You Help Me, I Help You - Its no secret that Bank Negara does not want a sovereign entity holding a near controlling stake in a local bank. Its no secret that Daim also wants to sell at a good price. Its no secret that DBS Bank has been dying to get a decent exposure in Malaysia, the only territory they are not in when its so close to base and so lucrative as well.
Since everybody wants to sell and there are ready buyers, probably even willing to pay a premium, why no deal? Well, its because DBS Bank is a Singaporean bank. Yes, UOB and OCBC have exposure in Malaysia but can you count the number of "allowed branches" they have. If EPU were to OK the deal, DBS Bank would not just be a bit player, it will have over 120 branches immediately - and that is an "issue" people. I am sure Maybank and CIMB would NOT want that scenario to play out.
Well, Temasek can probably say they do not want to sell to anyone except DBS Bank, thats why its been taking so long. Why now then?
Between Malaysia and Singapore, everything can be settled as long as we talk. I bring A, B, C to the table, you give me E, F, G la... This may be just postulation, eerrmmm .... we have the KTM land given back, and we have a multi billion investment into Iskandar region by Singapore inked last week. The timing of AFG's move up coincided pretty well I must say.
3) Compelling Valuations - Even if nothing happens, AFG is a huge laggard. Even with the uptick over the last 3 days, its still barely 1.4x P/B when the rest are at 2.0x or higher. Hence AFG is a no brainer, good dividend yield, potential M&A, making higher highs. Any M&A deal will have to be at the minimum 1.6x-1.7x or at least RM4.90. But I am just postulating and I have been wrong many times.
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.
0 comments:
Post a Comment