Thursday, September 28, 2006


Glomac reported its earnings yesterday.

Just came across this research report..

Here is the earning comparisons.

It wasn't pretty. On a q-q basis, net earnings dropped some 74.9%.

But despite earning just 4.2 million, this research report still insists that Glomac will earn some 49.7 million for its Fy 2007 or some 45.5 million for the remaining 3 quarters!

Isn't this being too optimistic?

So this research report admits that Glomac earnings is below their full year forecast by some 67.9% and they said it loud and clear that it was a weak quarter.

So they issue a Neutral call.

Down so much still Neutral?

And here comes this....

See their NEUTRAL call?

But do you see that their TARGET is at a whopping 1.51????

Isn't that irony?

Here's their reasoning:

By the way, don't you get confused by the misleading news articles which focus on irrelevant issues such as sale revenue of XBZ stock up by YYY%???

Here is the link to one such article: Glomac revenue up 13% to RM52.8m (Sounds good from the title, eh)


Tanjong announced its earnings yesterday.

What about its German Resort thingy?

Well.. it's net losses increased! (why can't they acknowledge that this simply is a bad project?)

And here's some comments from RHB.

  • o RM17.7m operating loss from Tropical Island vs. RM11.4m loss in the 1QFY07 due to a 45% qoq drop in visitor arrivals although this was partly mitigated by a 13% increase in revenue per arrival to €26.
Operating loss increased. A 45% qoq drop in visitors arrivals is most disturbing, isn't it?

LOL!!! Anyway RHB Research is saying that do not be alarmed because all this bad news is already reflected in the share price? (doh!)

  • Although the 2Q results represent a "perfect storm" for Tanjong with disappointing earnings from almost all business units, we believe the 6% drop in the share price since June, and 14% for the year to date, has more than compensated for the poor 2Q performance. We expect good news ahead, including progress on the revamp for Tropical Island, as well as more stable power and gaming earnings.
And here's the flashback to what was blogged earlier:


Saw this newsclip:

Tanjong's German resort gets another fund injection By Tamimi Omar, 12 Jul 2006 6:18 PMTanjong plc is taking steps to turn around its loss-making Tropical Islands resort in Germany with the injection of another 34 million euros (RM154 million) for its second phase of development over the next two years, bringing the total investment in the project to 110 million euros.

Incredible isn't it?

Let me repost an old posting on Tanjong's Tropical Island Resort Investment (best comment of course was “Compared with net asset or capitalisation, it's not significant at all,” he said.


I was looking at Tanjong latest quarterly earnings when this statement in their earnings notes caught my attention.

  • The Leisure segment recorded a RM76 million increase in revenue following the
    commencement of Tropical Islands operations in December 2004. The segment registered an operating loss of RM69 million in the current year due to delays in the completion of certain facilities in Tropical Islands which resulted in lower than expected admissions and revenue.

Hmm... commenced in Decemeber 2004, and had operating loss of rm69 million. No wonder Tanjung earnings wasn't too happening this quarter.

Let's go back a year ago, March 2005 and look at how this
Tropical Island did. Now the notes in the earnings report was pretty sketchy, so I will use a snippet from RHB research notes back in March 2005.

  • Tropical Island Resorts (TIR) losses to continue in FY01/06 but should be immaterial by FY01/07 and turn around in FY01/08. To recap, TIR reported a higher-than-expected operating loss of RM51 versus earlier expectations of RM30m start-up losses. The higher losses of TIR were due to delay in installing a “translucent” roof. The cold weather condition slowed installing work and the doom’s height of 107m did not help. As a result, TIR’s main attraction (the Rainforest) did not have the intended tropical sunlight effects. The delay has resulted in negative publicity, which in turn affected tourist arrivals.

    In addition to the start-up losses, the resort has yet to reach its optimum number of visitors and yield. To date, one of the four translucent roofs has been installed. A check with TIR’s web-site shows the significant difference in having a ranslucent and non-translucent roof (refer to the above picture). Installation of the roof is scheduled for completion in 3QFY01/06. We believe pre-completion tourist arrivals are not likely to hit optimal level, especially when it would miss out on the peak holiday season (summer months) in Europe. Thus, we expect TIR to remain in the red in FY01/06. However, we estimate that the operating losses would be trimmed from RM51m in FY01/05 to about RM33m in FY01/06.

    We were given to understand that with costs under control, TIR is expected to turn around and commence positive contribution in FY01/07. After the completion of the translucent roof, the company would adopt more focus and aggressive marketing efforts to attract visitors and hope to benefit from the spillover effect of the 2006 World Cup in Berlin. However, we have adopted more conservative assumptions on tourist arrivals and costs. We expect an immaterial operating loss of RM0.2m. For FY01/08, we are forecasting RM11.6m operating profit on account of higher visitors.

So what is this TIR? Well, TIR stands for Tropical Island Resort. A project started by Tanjung back in 2003. And this Tropical Island Resort was built in Brand, 60 kilometer south of Berlin.

Yes, a tropical island resort in Germany. LOL!

  • Tanjong and Mr Colin Au propose to enter into a joint venture agreement to develop the land into a "Tropical Island" holiday destination that provides an all year-round indoor tropical environment. The "Tropical Island" holiday destination will house a variety of tropical settings such as rainforest, sea, lagoon, beaches, water parks, exhibition centres, tropical flower world, resort hotels and spas to cater for all age group visitors.

Yup, this is probably what an investor do not want to see. Companies straying way off course in their own business objective. Totally bad.

Even the idea is lousy, isn't it? Say, you are a German and you want to go for a tropical holiday. Wouldn't you want to just fly away to a real tropical island than end up in Brand, Berlin? It wound really sound a drag of a holiday. Those Germans that I know, they really like to travel.

And needless to say, the stock was hammered when Tanjong made the announcement back in June 2003. Here is a short snippet then.

  • Business Times - 24 Jun 2003
    Tanjong shares plunge on German theme park move

    Stock falls 6% as investors deem it a poor investment

    MALAYSIAN lottery and power firm Tanjong plc's surprise plan to build a mock tropical retreat in Germany knocked 6 per cent off its shares yesterday as investors guessed it may have made a wrong bet.

    Tanjong said on Friday it had bid an undisclosed amount for the land and assets of Germany's Cargolifter AG in a joint offer with Colin Au, the ex-chief executive of cruise operator Star Cruises Ltd.

    'Trying to have a theme park in Europe is not a good idea. Just look at Euro Disney,' said Nik Azhar Abdullah of Commerce Asset Fund Managers..... 'I'm a bit surprised with the type of investment. The European economy is not exactly booming right now,' said JP Morgan's Melvyn Boey.

And of course, the company was forced to defend itself...

  • Friday, June 27, 2003
    Tanjong: German park not a significant investment

    TANJONG Plc said a bid for 500ha in Germany to build a holiday park will not require a “significant'' investment, addressing concerns its finances will be strained.

    “The project is not significant in the context of Tanjong,'' chairman Datuk Khoo Eng Choo told reporters after a shareholders' meeting in Kuala Lumpur.

    “Compared with net asset or capitalisation, it's not significant at all,” he said.

How would you feel, as an investor, when you hear the chairman declaring that such an investment to be not significant?

So how much was the total investment? It wasn't until July 7th 2003, that folks like me could read it in the papers.

  • Tanjong, Au to spend RM304.6m on German tropical resort project
    GAMING and power company Tanjong plc is teaming up with Colin Au to develop a tropical resort in Germany at a total cost of RM304.5 million.

    The company said the total cost includes the RM76.1 million or 17.5 million euros cash it is paying for the assets of CargoLifter AG Group.

    The assets include a 500ha piece of land situated 60km south of Berlin, Germany. The land currently houses a free-standing hangar measuring 360 metres long, 210 metres wide and 107 metres high.

    Tanjong said that two German companies, Tropical Island Management GmbH and Tropical Island Asset Management GmbH will develop and operate an entertainment and leisure based tourist holiday destination with tropical island setting within the hangar. Both companies are 50 per cent owned by Tanjong Entertainment Sdn Bhd, a wholly owned subsidiary of Tanjong.

    “The project cost will be funded through a combination of equity funds, shareholder’s advances and bank borrowings to be secured by two German companies,” Tanjong said.

    It added that the project is only expected to be completed in the fourth quarter of 2004. “As such, it will not have any material effect on the group’s earnings for the current financial year ending January 31 2004,” it said.

    “This project is very much an extension of Tanjong’s existing involvement in the leisure and entertainment business. Over the years, we have been continuously identifying opportunities for the expansion of our business in this sector,” says Tanjong’s chairman Datuk Khoo Eng Choo in a statement to the Kuala Lumpur Stock Exchange.

    Au said: “We are confident that this project, when completed, will draw in repeat visitors, especially from Germany and its neighbouring European countries.”

    He said the tropical resort is also expected to feature monthly exhibits of a tropical country or region.

    “As a start, we hope to work with the Malaysian Tourist Promotion Board to feature Malaysia with its rich heritage of culture, arts, food, architecture, islands, resorts and its rainforest. Also, Malaysia’s cultural groups, musicians and dancers will have the opportunity to perform at the Tropical Island,” he added.

    Tanjong also agreed to set up a joint venture company with Au Leisure Investments Pte Ltd to identify, develop and operate entertainment and leisure based holiday destinations with tropical island setting.

    The joint venture company, Central Pacific Assets Ltd will have an initial share capital of 5 million euros (1 euro = RM4.35) and an eventual enlarged paid-up share capital of up to 30 million euros. Central will be owned equally by Au Leisure and Tanjong Entertainment.

    Tanjong said Au, who has 30 years of experience and expertise in international leisure and tourism industries shall be appointed as chief executive officer of Central. “The position of chairman and chief financial officer of Central shall be nominated by Tanjong Entertainment,” it added.

According to the closed Surf 88 back in 2003...

  • The investment cost… With the details now unveiled, the expected investment in the venture is not as massive as earlier feared by investors. The jv will initially be capitalized at Euro 5M (RM21.8M) and eventually up to Euro 30M (RM130.5M). Tanjong’s 50% share hence works out to RM65.3M at the final stage (16.9 sen per Tanjong share or 1.6% of current share price). This is considered a relatively small investment for Tanjong, where funding is not a problem given more than RM300M free cash flow annually (cash flow from operations after dividend and capital expenditure).

So how?

Well, it looks like this 'not significant' investment for Tanjong cost some rm65.3 million.

And the end results?

This fiscal year 2006 earnings for Tanjong showed that the Tropical Island's reported opertaing losses of rm69 million!!

Ahh... when company embarks on a funky corporate exercise, like investing in a tropical island resort, most of the time, the company would end up producing some real funky results too for its investors.

Yeah dude... just play that funky music man!


edit 12.09 pm 29th March

found some pictures... via a google search on the phrase 'tropical island resort; brand; germany'..

err... how? look fun ar?

and here is a newsclip on it... Gone troppo in Germany

That Silver Birdie..

Silver Bird announced its earnings last night. It was hardly a pretty sight.

All they had to show for their quarterly earnings was a net profit of 675 thousand from a sale revenue of 178.826 million.

Hardly a sign of an average business.

And it was just back in 2004 when Silver Bird proudly announced it was installing state-of-the-art equipment in its Shah Alam plant. A plant which cost a total investment of rm100 mil. And was touted as the single largest stand-alone bakery in Asean. Big plans, big dreams and as the saying goes no risk, no gain.

Well it's now 2 years since that grand plan unfolded.

And if one looks at the sales figure, yes, the sales revenue has indeed increased a lot. Sales revenue now totals an impressive 447 million for the first 9 months of this current fiscal year versus 349 million a year ago.

But ...

Where's the Moola for the shareholders?

Current nine months net profits are a mere 3.188 million versus 15.7 million. Company is burning cash up fast and the loans remains some staggering 150 million.

And this is what the company has got to say in its earning notes.

  • The Group registered a revenue growth of 66% for the quarter under review, achieving RM178.7 million sales compared with the corresponding period of preceding year. Sales of consumer food registered a 26% growth to achieve RM44.8 million for this quarter compared with RM35.6 million for the corresponding period of preceding year due to the strong sales performance of the daily fresh products and multicom business. Multicom managed to achieve RM134.0 million in revenue to register 86% growth compared with RM71.9 million for the corresponding period of preceding year arising from improved sales through channel arrangement.

    The positive contribution noted was however dragged down by share of start up loss
    of the jointly controlled company amounting to loss of RM3.4 million for the quarter
    under review.

So they have a start up loss in a jv which cost them a loss of rm3.4 million.

Here's an interesting issue.

Remember the point of their state-of-art factory? An investment which cost 100 million? When one invests so much, surely there has got to be some justifiable returns. For example, if you install such machinery, the bottom-line has got to increase right?

Let's compare the reported quarter versus the quarter a year ago.

This quarter, sale revenue was 178.726 mil. Operating profit was 6.246 million. Operating profit margin equates to some 3.5% only.

Same quarter a year ago, sale revenue was much less at 107.424 million. Operating profit was 7.565 was at 7%.


Doesn't this look like some issues regarding in its operating profits? And so what about its state-of-the-art plant in Shah Alam?


Monday, September 25, 2006

The slow IPO market

Business Times today carried the following article.

The following was mentioned in the article.

  • "The exchange's main focus is quality and not quantity to generate greater velocity based on fundamentals. Public listed companies (PLCs) will be delisted if they have been loss-making and fail to turn losses into gains," Bursa chief executive officer Yusli Mohamed Yusoff said in reply to questions from Business Times.

    "The Securities Commission (SC), in its efforts to enhance the quality of the market, places a lot of importance on quality PLCs, and has taken rigorous assessments to root out PLCs without good businesses, especially those which are just seeking to cash out," he said.

For once we are hearing the right noises made.

Flashback July 2006.

  • Over 50% new PLCs fail to meet forecast
    By Tamimi Omar, 10 Jul 2006 6 PMMore than half of the companies listed on Bursa Malaysia last year failed to achieve the financial results they had forecasted in their listing prospectus, the Securities Commission said.

The above chart was taken from another Business Times article back in July 2006.

How ironic.

It was only back in December 2005 when Star Business made a huge proclaimation on the impressive performance of them Mess-daq stocks. See past blog posting:
Impressive year for MessDaq IPOS.

I would like to reproduce what was blogged then.
  • Given the issues mentioned and highlighted in the following two posts:

    Oh MessDaq
    Comments on IPO

    My fingers were itching when i found out that Star Business today had an article:
    Impressive year for Mesdaq IPOs

    From a business-perspective, it would definately make sense for Bursa Malaysia to highlight these issues. As a business-entity, Bursa is now focused on the Moola itself. This is its responsibility to its shareholders. To make Moola.

    However, making moola at all costs?

    Is it wise and feasible?

    Shouldn't due consideration be made on improving the quality of the newly listed stocks rather than the issue of churning out more business for the exchange?

    Anyway, as mentioned in the article, there were simply more new listings in the Messdaq than in the main board or the second board. And the article does shed some light on why is it so.

    “For many companies, a listing via Mesdaq was less cumbersome because there were fewer requirements to fulfil,” an analyst with a research house said.. ( EASIER!)

    In the case of Mesdaq, companies do not need to show a profit track record. (Lousy company can also list wor!)

    “The listing on Mesdaq allows young companies and less-established ones to focus on growth and improving earnings in the early years of listing without having to worry too much about meeting the exchange's stringent rules and regulations, especially on earnings,” he said.

    “The cost of entry into Mesdaq is lower (including listing exercise) while allowing companies flexibility to grow globally,” he said.

    Those were some of the reasons why the Messdaq seduced more listing...

    Now consider some of the following issues mentioned in this blog.

    Isn't there one too many companies which lost money after being listed on the Messdaq? (see
    Oh MessDaq ). For example, Litespeed announced it lost money a few days after being listed!! Or companies like EB Capital and DVM.

    Now, why is it such a big deal?

    Yeah, yeah, yeah... the Messdaq is a good hunting ground for speculators and punters. A lot of fortune has been made.

    What about the losers?

    Yeah, they deserve to pay the price for their foolishness... but take the following issue mentioned in
    Karensoft "Move over who: Part Vii"

    When Kenanga first wrote on Karensoft, Kenanga stated that Karensoft some 69.2 million shares then.

    Get this... at 0.96 sen, Karensoft then had a market capital of rm65.8 million


    Karensoft (which had a 1-for-2 bonus issue in June 2005) now has some 115.015 million shares.

    Now at 0.065 sen, Karensoft market value (market cap) is only some 7.475 million.

    Soooooooooooo ...... from 2nd Dec 2004 to 20th Dec 2005, some 58.35 million in market value has simply vanished!

    This for me is the huge issue. Huge Issue. Cos most of the messdaq stocks have been trading at a rather high price before crashing. Look at Karensoft, one of them Messdaq stocks had a market value was much as 65.8 million on Dec 2nd 2004. Now, almost a year later some 58.35 million has vanished!!

    Think about it.

    For a stock like Karensoft, this stock had the means to erase some 58.35 million in market capital from our stock exchange. And this is only one of them troubled Messdaq stock. Aren't the numbers mind boggling?

    Do such listings create or ultimately destroy value?


    If an investor bought and hold such a share, what would happen to their value of their shareholding?

    See the importance of creating value in the market and not quantity?

    Yes, yes, yes in this incident, the investor was probably wrong and silly to buy and hold a poor quality stock but let's think in regard to the market itself. Yes, Mr.Market.

    Can the market survive without these 'investors'?

    Can the market exist without any minority shareholders?

    Can the market survive if all there exists is rather poor quality stocks?

    Who would want to invest in a poor business?

    Shouldn't due consideration be made on improving the quality of the newly listed stocks rather than the issue of churning out more business for the exchange?

    Is bigger neccessary better?

    Think about it.

And of the most appalling example is Litespeed. ( see LITESPD ) The below table shows Litespeed earnings performance since listing.

And the chart below shows the drastic value destruction done by the listing of a Litespeed.

Yeah, the IPO market has been sluggish. But I would rather prefer a sluggish IPO market than the market churning out garbage listings just for the sake of the market itself.

Oh... and when was the last time Bursa offered a good quality IPO for its investors?

Saturday, September 16, 2006

The Pirates which seized the Armada

2003. That was when Bumi Armada went from a public listed company to a private company.

The following is a link to Ms.Claire Barnes (of Apollo Investment Management) notes.


    The problem lies in the Malaysian listing rules. If the controlling shareholders receive acceptances to take their stake up to 90%, they can proceed to compulsory acquisition: this is fairly standard, but I doubt they could get to that level, were they not threatening a delisting. If they reach 75%, they can vote to delist - and do so unless there is a 10% vote against. In Hong Kong, that would be 10% of the unconnected shareholders; the Malaysian rules are less clear, and it seems that the controlling shareholders may be allowed to vote, so that one would need 10% of the issued capital to block - but officials of the Securities Commission have apparently said verbally that the controlling shareholder would be debarred from voting, which comes to the same thing. However, according to the offer document, if the free float is less than 25% for six months the KLSE may do the dirty work for the controlling shareholders, and delist automatically. This is the crunch, and it is a policy which should be urgently reviewed. The particular reason for urgency is the vote at hand: many investors are not allowed to hold unlisted shares; many more are unwilling to do so, given the lesser liquidity and lesser protection of minorities in an unlisted company. If investors know that they will be forced out eventually, and have a choice between RM7 now and RM7 in 6-12 months' time, the only rational decision is to accept now. But it is not a fair choice, and the KLSE should not be assisting controlling shareholders to squeeze minorities


  • To go back to the merits of the shares: in the five years since we first bought Bumi Armada, revenue has tripled. This corresponds to growth of 25% per annum, which is perhaps slightly higher than the growth in other aspects of the business, but broadly reflective. In purely qualitative terms, before thinking about valuation, this is one of the gems of the Malaysian market. It has an excellent service record, it has good relations with its customers in the offshore oil and gas sector, and apart from 1997, when it recorded unrealized FX losses on an appropriately matched loan book, it has sustained returns on equity of comfortably over 20%. It is highly cash generative, and when the Land & General stake was overhanging the market we put forward an MBO-and-buyback proposal which would have seen the debt paid down in short order while generating phenomenal growth in earnings, net assets, and cashflows per share. This opportunity was not taken, but delisting aside, the shares would remain attractive; the offer is far from generous, and clearly includes no premium for privatisation. We didn't sell at RM8.00 two years ago, and Mayban Securities on Friday published a buy recommendation valuing the shares at RM12.20, which is arguably conservative.

    Bumi Armada reported earnings per share of RM1.01 for 2002, with an upbeat assessment of outlook for the year ahead, so is on a current-year PE of 6-7 - perhaps half that of the market, despite better-than-average business characteristics and growth prospects, although some discount is normal for illiquidity. In its recent announcement, it has however cut back on operational background, provides no details of major contracts, and omitted any final dividend despite its earnings growth. (This last has particularly incensed some minority shareholders who are surprised 'that Ananda Krishnan should be involved in such a deal'.) This reticence is unfortunate given the conflicts of interest involved.

    In the event of a forced delisting, we believe that there would be a legal case against the directors and the controlling shareholders for oppression of the minorities, but costly and time-consuming legal action is a last resort for investors in any jurisdiction.

    We were pleased to see that Mayban remains optimistic about Bumi Armada's prospects, but admit to being surprised by the timing. Maybank, its parent, was amongst those which originally jumped at the RM7. This must be proof of their Chinese walls - or of the different thought processes of bankers and investors. We are more impressed by this than by the role of RHB Sakura, which also agreed to sell its Bumi Armada shares in August, and wonder whether it was already advising the company or the buyer: as far as we know, the invitation was extended only to Malaysian banks, and not to a single foreign bondholder. Bondholders who expressed a desire to participate immediately after the deal became public were told that it was already too late - which is presumably lawful, but was certainly discriminatory, and not the sort of thing to make foreign investors think they are on a level playing field.

    If an offer is mandatory, it is not necessary to have bureaucrats review the decision. In this case, the controlling shareholders have to pay RM7, but they only have to pay it much later to minorities than to the favoured few. In other cases, it might suit a cash-strapped acquirer very well to avoid a general offer altogether; again, why should officialdom help him? (To avoid any confusion, we would like to be absolutely clear: if a shareholder acquires control, there should be a general offer at the same price, but minority shareholders should be free to refuse.)

    Information flows are important, and much more troublesome than they should be in the era of electronic communications. International investors frequently cannot obtain announcements and circulars through the global custody network in time to consider them adequately; frequently they arrive too late to meet corporate action deadlines. Listed companies should be required to copy the local stock exchange and international wire services with all announcements relevant to investors - such as announcements to Euroclear. This responsibility should not be left to companies: they respond when it suits them, and forget when it doesn't

And of course I was way too familiar with this incident. I was active in an old stock forum and the following is some postings made.

Here is an old posting from an old friend.

  • Nomore and others, any information about this company? So quiet
    lately after the acquisition by Anandan Krishnan. Some remarks:

    - There will be a General Offer at RM7 per share. I have nothing
    against that. This is the same price that was offered to the L&G
    bondholders, they agreed, and I can understand that, since
    bondholders are an other breed then equity-investors, they just
    wanted (part of) their money back. By the way, the bondholders got
    their money long time ago, the longer the GO will take, the less
    attractive this offer will be, the company is making about RM1 net a
    year. As it now stands, I am not inclined to accept this offer.

    - Most likely, after that there will be a MANDATORY acquisition at RM
    7 per share; I
    find the price simply not enough, such an acquisition,
    whereby people are FORCED to hand over their shares, should be at a
    price, which is very clearly generous, relative to a lot of
    (for instance in comparison to other listed companies).
    a PE of around 7, having had a healthy growth, with a high ROE (30%)
    and ROA (17%), and with good future prospects (even considering their rather flattish recent results on the operational level), I find the
    offer clearly to low.
    Barmada's share has been quite cheap for a long
    time, but firstly a few years ago they were highly geared (so quite
    risky, interest cover is nowdays very comfortable) and secondly there
    was the potentiel overhang from the shares issued to the bondholders
    (people don't like to buy a share, when the market could be flooded
    by millions of shares).

    - Big dividends are normally offered at the announcement of the 3Q
    result, I expected this time 30ct TE (they can easily afford it, with
    a very healthy cash flow). Strangely enough, no announcement this
    Is it possible that they want to declare the dividend AFTER the
    Mandatory Offer, so that they can keep all the money for themselves,
    instead of giving part to the minority shareholders?
    If so, that
    would be REALLY disappointing, and, I think, not fair.

    What do you think?

Yup, there were many investors who were annoyed at how Bumi Armada was delisted from the exchange.

Let's look at Ms. Claire Barnes funds performance (this is their Investment philosophy ). You can see the performance of the fund here:

Now let's refer back to her original pirates article which was written back in 2003.

Pirates attempt to seize whole Armada: pitfalls of investing in Malaysia

Read her opening statemtent again.

  • There are many attractions to living in Malaysia, but we cannot muster the same enthusiasm for investing here (a change from July 99, when we were defending our decision to hold; our major investment then as now was Bumi Armada). Our recent experience has been far from encouraging, and it seems timely to provide an update.

Her 'pitfalls of investing' in Malaysia.

Now look at this.. "The 2Q report has been posted."

In that report, her fund gives a report of their equity percentage per country. Look at the percentage of how much of her funds is invested in Malaysia.

See how privatisation of listed stocks is simply a no-no?

And in fact the story does not end just like this.

May 24, 2005 Corporate: AK's Bumi Armada to list again

Two words. How can?

Back then, Bumi Aramada came up with an extremely long list on why it wanted to be privatise. So if they do list again, isn't it an admission of contradiction of their earlier reason why it wanted to be privatised?

So far, there is no updates on this issue but I hope this company should not be granted listing at all.

Local saying: "Suka-suka list, suka-suka privatise. Macam-macam ada! Apa pun boleh!"

And if so.. what's left of the integrity of the stock market?

Wednesday, September 13, 2006

Is the Good Times over for Commodities?

Firstly, there was this CSLA report urging caution on commodities.

Here is a snippet posted on Bloomberg.

  • Sept. 12 (Bloomberg) -- Investors should be wary of commodity-related shares because a slowdown in U.S. economic growth may dent demand for crude oil and metals, according to Christopher Wood, CLSA Ltd.'s global equities strategist.

    Fund managers should instead be favoring stocks that will benefit from the end of interest-rate increases in the U.S., such as Hong Kong developers, Wood, 49, told reporters yesterday on the sidelines of a CLSA investor conference in Hong Kong.

    ``As more evidence of a U.S. slowdown materializes, commodity prices will come under pressure,'' the Jakarta-based strategist said. ``That makes me cautious on commodity stocks in the near term.'' Wood was ranked the second-best Asian strategist in Institutional Investor's 2006 survey.

    The International Monetary Fund estimates the U.S. economy, the world's largest, will grow 3.4 percent this year, slower than 2005's 3.5 percent. The slowdown comes after 17 interest-rate increases in the past two years by the U.S. Federal Reserve to curtail inflation.

    BHP Billiton and Nippon Mining Holdings Inc. led a slump in commodities stocks in Asia today. Nippon Mining, Japan's biggest copper producer, fell 4 percent to 819 yen. BHP, the world's largest mining company, tumbled 3.9 percent to A$25.10.

    A measure of energy-related stocks including PetroChina Co. is the worst performing of 10 industry groups in the past month on the Morgan Stanley Capital International Asia Pacific Index. The energy index has slumped 8 percent in that time, as oil lost 12 percent. The broader MSCI index dropped 0.7 percent in the past month.

    Good Call

    Crude oil in New York fell for a sixth day, its longest losing streak in almost three years, on signs fuel demand growth will slow with the global economy. Prices have fallen 16 percent from a record $78.40 a barrel on July 14 as evidence mounts that the U.S. economy is slowing and Middle East violence is easing. Oil was recently at $65.75 a barrel in after-hours trading.

    ``Oil's been rallying all year on geopolitical reasons, not macro economy,'' said Wood. U.S. economic growth of below 2 percent annually might drag oil prices to $50 a barrel, he said.

    The strategist was a journalist with the Far Eastern Economic Review and the Economist before joining investment banking in July 1994. He moved to CLSA in February 2002.

    Wood in May forecast Asian stocks would extend their declines from a record close on May 8. MSCI's Asia Pacific measure has fallen 1.5 percent since the end of that month and is down 12 percent from its high.

    Currency Peg

    An index of raw materials producers such as BHP Billiton on the MSCI benchmark has declined 2.2 percent in the past month, making it the region's second-worst performing industry group.

    An index of six metals including copper on the London Metal Exchange dropped 4.6 percent yesterday, as signs of weakening global economic growth prompted investors to sell commodities.

    ``Commodity stocks have pretty well had their run,'' said Donald Gimbel, who helps oversee $2 billion including BHP shares at Carret & Co. in New York. Commodity ``prices may continue to rise but at a much lower rate. I think it really is time to look at other parts of the economy'' to invest in.

    Hong Kong developers will benefit as the Fed's rate increases draws to a close, Wood said, without naming any specific companies. The Hong Kong Monetary Authority last month held its key lending rate steady, echoing a Fed decision to leave U.S. borrowing costs unchanged.

    Hong Kong's monetary policy typically follows the Fed because the local currency is tied to the U.S. dollar.

    The latest move by the Fed's policy makers may help revive Hong Kong's real-estate market, which cooled as borrowing costs climbed. The value of property sales in July tumbled 42 percent from a year earlier, the biggest percentage drop in six months, according to government figures.

    ``An environment of falling rates will support property stocks in Hong Kong,'' Wood said. ``I would be wanting to move more money from commodities to interest-rate sensitive'' shares.

Well, the guys at FSO, they have a show every weekend and here is a snippet of the transcript posted on their website.

  • The Commodity Boom Is Not Over

    JOHN: Well, Jim, people are chattering away out there, talking about the rise in oil prices, the rise in gold prices, the rise in commodities, the bubble we have going here. So if we do have a bubble. Is the bubble going to burst? Or is this simply – to coin a phrase – in the markets a midcycle adjustment?

    JIM: You know I strongly disagree that we’re in a commodity bubble because one of the things that are very characteristic of a bubble is you see excess surplus or supply come into the market as a result of prices that we’ve never seen before. I mean just take a look at what happened to stocks, technology companies and internet companies. We had just this plethora of IPOs and people going public trying to raise money in the tech bubble, and we saw a surplus of just about everything – in telecom broadband. Just surpluses of everything that you can think of. When it comes to commodities right now, we do not have an abundance of surpluses that we can say this is very bubble-like – that we have more than we need, or because the inventory levels –just like housing are at such levels that there’s such a big supply of housing on the market – or big supply of commodities on the market you know this whole thing’s going to burst. We just don’t have that. So I would disagree rather strongly with the concept that this is a commodity bubble. I’m more in the Jim Rogers camp, the Marc Faber camp, who think that this is a long term cycle, that these things tend to last around 18-20 years – a couple of decades in length and there’s a reason for that and we’re going to get to that in just a moment, but you know, I disagree with the bubble assumption. [1:08:37]

    JOHN: But Jim, there are critics of the bubble. You keep hearing this all the time. For example, why should oil prices go up? I mean there’s no increased usage here, so obviously this is something on the part of price-gouging on the part of the oil companies.

    JIM: You know, if you look at, for example, demand for commodities, especially in the Western world. You’re right, John, it’s only up about 1%, not rather strongly. And I think this was one of the arguments, for example, Bill O’Reilly was making against the oil companies. He would say, “Gosh, you know, demand for oil in the United States has been flat, it hasn’t been up, how come prices are up?” And he’s absolutely correct when he says that. If you just look at consumption of commodities from the point of view of the demand side – whether it’s copper, lead, zinc, energy – it’s up marginally in the Western part of the world. It’s up a little over 1%. And quite honestly, the greatest increase in demand for commodities is coming from Asia, especially China and India. They are really accounting for the greatest marginal increase in demand for commodity products.

    But that is only looking at one side of the equation. The problem this time is on the supply side. Ok, we’ve got the demand side, which has been moderate in Western countries, stronger in Asian countries especially China and India, but you know the demand side has been rather moderate. So you can make the argument: gosh, demand is not that high in those parts of the world, and if the economy is going to slow down as the experts are predicting, well therefore the demand will slowdown along with it, and this whole thing is going to come crashing down. But if you look and take that argument, and most of the arguments I’ve taken a look at, that’s what they’re saying, you’ve got to look on the supply side. And the real problem with any bear market as we had in commodities that lasted more than two decades, what happens in a bear market? Companies go out of business because they can’t compete because the price of what they sell goes down, they can’t make a profit, the weaker companies go out of business, the stronger companies consolidate, the industry contracts. Eventually nobody invests in new plant and equipment, nobody invests in going out and looking for oil, nobody invests in going out and looking for mines. I mean, what mining company was spending a ton of money in the late 90s trying to find new supply? In fact, it wasn’t until recently – 2004 and 2005 – that an increase in mining expenditures and exploration actually took place. So, looking at the demand side is only half the equation. [1:11:25]

    JOHN: So Jim, if we go back and look at things we’ve talked about here on the program before – go back to 1985, world demand for oil was 60 million barrels, the world supply was about 70 million barrels, so we had a surplus of 10. That no longer exists, and in oil and other areas what we could be looking at is maybe the surplus for the commodities are just simply gone. They don’t exist.

    JIM: Yes, I mean you don’t have a surplus of a lot of commodities. It takes time, for example, you’ve recently heard about the new oil discoveries in the Gulf. Just as if you go back to the oil discoveries in the North Slopes of Alaska, and the North Sea at the end of the 60s, it was a full decade before that oil could come online and supply. It’s going to take a while for any new discoveries to come online. It takes a long time today – 7 to 10 years – to bring a mine into production. You don’t just go out and poke a hole in the ground, discover new oil and it’s on the market on Monday. And it’s the same thing with mining.

    And the other thing is one of the things we’ve also been talking about on the program, there is a lot of skepticism in the mining industry and the natural resource industry. There’s a lot of guys that are running mining companies today that have spent the bulk of their careers in a bear market. And when you go through a bear market that lasts for two decades, it’s kind of like somebody that went through the Great Depression. That has an impact on you in terms of how you’re going to spend money. These guys are not cutting loose with the checkbooks in the same way that they might have done let’s say towards the tail end of the bull market in the late 70s. [1:13:21]

    JOHN: We talk a lot about mining and exploration and a lot of the companies out there are increasing their exploration budgets, but you seem to have a different take on that.

    JIM: You’ve got to remember what has happened to the mining industry and the energy industry. Yes, energy exploration has increased in dollar terms; yes, mining exploration has increased in dollar terms. But last year alone, if we take a look at a year over year period price inflation in the mining industry is up over 35%. I can’t read a quarterly report by a mining company talking about what their cost structure – you know, the cost of steel has gone up, the cost of labor has gone up, the cost of acquiring earth moving equipment has gone up, the cost of acquiring trained geologists and skilled personnel has gone up, benefit costs have gone up, energy costs have gone up. And so yes, the price of gold has gone from 250 to over $600 but margins have not gone up in the same measure, and the reason is cost structures have also gone up.

    So it’s a little misleading if you say, “well, gosh there’s an x amount of dollar increase, that means sure we should see a lot more supply.” Remember, a lot of those dollar increases are simply going to keep pace: it costs more money to get a trained geologist today, it costs more money to get a permit today; it costs more money to get a drilling rig. I mean just take a look at some of the day rates for drilling rigs even in the oil industry. You have drill ships in the Gulf of Mexico that are getting over half a million dollars a day today, versus ¼ million dollars a day two or three years ago. [1:15:07]

    JOHN: If we look overall, both the mining and the oil companies seem to be spending more money, so at least you would think on the surface that we would be seeing more supply out there.

    JIM: Yes, there’s more money spending, but you know what, John, one of the things, and this is as everybody knows I’m a big believer in peak oil, in fact at our client meeting that comes up at the end of September, I’m presenting the culmination of almost 3 years worth of research and over 70 books in my conclusion. I’m a big believer in peak oil. And one thing we’ve seen is the discovery rate of new exploration has been very disappointing by any historical standards or even past standards, let’s say in the last decades. So the correlation between increased spending for exploration and future output gains or results is considerably weaker this time. You’ve also got the same thing outside of companies like Aurelian that made a major find in Ecuador, there just haven’t been a lot of elephants. Yes, we’ve just got news this week, for example, that Chevron and Devon and Statoil have made a major discovery in the Gulf of Mexico, or that perhaps Mexico has made a discovery. But John, it may be 10 years before we get the full benefits of all of that coming online. So you’ve got to take the time factor between discovery.

    There’s always this inclination in my mind that people make, and I think this is how the media tends to distort this: “Wow, this is a big discovery” or “I can’t believe the size of the Aurelian discovery in Ecuador, so all this gold is going to come online.” It may be a major new mine, it may be a major new oil discovery but from the time of discovery, the lag period could be 7 to 10 years. In the meantime, demand continues to grow each year.

    And the other thing that you have to look at is depletion. If you have a mine, you may mine that mine and over a 10 year period you’ve gone through your high grade, you’re going to lower grades, it’s getting more costly, and the amount of ore that’s left to process may be diminishing. You also have the same thing with oil fields that you pump out at a very high rate when you first bring it online, and then eventually you start getting into a decline rate as depletion starts to set in. So that’s another thing you have to factor in. [1:17:46]

    JOHN: Yes, let’s tag in on something you and Dave talked about earlier that right now it’s actually cheaper to go out and buy somebody today than it is to do your own work.

    JIM: You know if you take a look at what happened in the last bear market, we got these big behemoths in the mining industry. You know, it’s hard to believe that for example, over half of the world’s copper is produced by a handful of companies – about 7 or 8 companies. Just take a look at the gold mining industry, the behemoths – the Newmonts, the Barricks, and the Anglos, some of these companies. You know, it is very hard to replace that, and you’ve got this mind set with a lot of these guys who have come through this bear market who say, “you know what, do I want to really sit there and expand capacity.” What they’re doing, John, and you’re seeing this over and over again, and I think you’re going to see this accelerate, is what a lot of the mining executives, even the oil guys are thinking, it’s far easier to expand their capacity via mergers and acquisitions than by developing new mines. Because let’s face it, if you’re going to go out and discover new oil, you’re going to go out and discover new copper, lead, zinc, mine a new gold mine, a new silver mine. You’re going to have to go out there, and you’re going to have to stake a claim, you’re going to have to drill it, you may get dry holes when it comes to oil or natural gas, you may get dry holes when it comes to discovering gold and silver. And even if you do find it you’re going to have to spend a couple of years drilling it out, you’re going to have to go to feasibility, you’re going to have to get environmental permits, and then who knows, you may get ready to bring it online, and then Greenpeace or some environmental group shows up and says, “nope, we’re going to stop this.” And so you’re fighting the environmentalists. And so there’s also a risk there.

    You have no assurance today that even if you find something that you can bring it online. There’s a lot of risk. So a lot of these guys are basically saying, “you know what? It is far easier to focus more on buying somebody else.” And this is also a function as you see the industry become more concentrated as it has – whether you’re looking at the oil industry or the mining industries – companies just become more focused on projects that produce relatively quick returns to their shareholders. They get more cautious about these risky adventures of going out and trying to find a new project or a new prospect. And so how can you get immediate benefit? Well, here’s a junior mining that’s selling at a discount below market value, let’s buy it. Or here is an oil company that has good natural gas reserves, let’s buy it. Or here’s a copper company, or a lead and zinc company, let’s go out and buy that. So that’s what we’re seeing in the news, and that’s what these guys are thinking because that’s really the way the industry functions.

Tuesday, September 12, 2006

That Silver Birdie: Part VIII

Saw this posted on the Edge Daily..

  • Rating Agency Malaysia Bhd said the authorities’ recent check on Silver Bird Group Bhd’s manufacturing facility in Nilai had no immediate impact on the A1/P1 ratings of the latter's debt securities.

    The check had reportedly uncovered the presence of illegal foreign workers, the usage of non-halal cooking oil and unhygienic operating conditions, according to a RAM statement on Sept 11.

Another case of illegal foreign workers???? What's wrong with these companies????

So we have a stock whose earnings were projected rather in a very optimistic manner and now we have this issue. This is not looking good if you consider that the earnings has already been looking poor (as mentioned in this blog posting: Silver Bird: Part VII )

And the chart says it all...

Past blog postings:

Silver Bird
Silver Bird: Part II
Silver Bird: Part III
Silver Bird: Part IV
Silver Bird: Part V
Silver Bird: Part VI
Silver Bird: Part VII

Thursday, September 07, 2006

MP Tech


Saw this announcement just now.

  • The Board of Directors wish to announce that it has discovered certain financial irregularities which maybe fraudulant. These discoveries were made by Special Committe set-up by the Board in March 2006 and headed by Dato' Krishna Kumar, the Company's Independant Director.

Was this all unexpected?

I remember this one hor... this bugger took over Kelanamas Industries Bhd listing under a restructuring exercise back in 2004 and then it started playing funky music by announcing it was diversifying into the cement business... AHEM... and then that was not all... back in June 2005...

Thursday June 16, 2005

Selling eases at MP Tech
PLASTICS group MP Technology Resources Bhd (MP Tech) found relief yesterday as persistent selling of its shares, particularly pronounced in the last three weeks, eased.
Over the last three months, its share price had almost halved from around 60 sen a share to 34 sen yesterday.
Its high trading volume and price weakness in recent weeks seemed to show there was forced-selling on a significant shareholder, a dealer said.
The stock stabilised with a gain of 1.5 sen to 34 sen yesterday, along with a general rally of stocks in the stock market. That seemed to show the forced-selling was completed, he added.
MP Tech's share price was battered due to forced-selling as there was nothing wrong with the company's fundamentals, the dealer said.

Ahh... the classical nothing wrong with company fundamental despite the apparent forced selling...

That report was made on June 2005.

How ironic cause MP Tech started reporting losses in its quarterly earnings reported in Oct 2005 and has since posted 4 consecutive quarterly losses (totalling some 33.7 million!!)!!!!

So now the discovery of certain financial irregularities which maybe fraudulant????

Showtime dude!!!

ps... MPTech last traded today at 8 sen!!!

ahhh... here is the NOT-SO-SMALL picture of MP Tech.

More On Privatisation Issue

Fellow blogger, Salvatore Dali, featured my post, Privatisation, a heathy trend? on the very popular blog, Malaysia Finance Blogspot, in a posting called Privatisation / M&A In Malaysia.

I have a couple of comments on it and since it's rather longish, I thought it would be best that I made a whole new blog post. Plus this posting is not a direct reply to Sal but more mumblings on this issue frome me.

This was Sal's take.

  • 4) For me, the issue is when a company is completely taken off the block. For example Worldwide, many minority shareholders buy for the long term as its NTA is anywhere from RM4.00 - RM5.00 while the market price traded usually closer to RM2.00. Naturally its a no-brainer for controlling shareholder to privatise the company especially with excellent cash flow. Merchant bankers worth their salt would be scrambling to lend money to the owners to do the buyout and get healthy advisory fees in return in an almost risk free scenario. The G.O. at RM3.50 seems rich compared to the market price for the last 12 months, does that mean minority shareholders should be appeased? The straight forward answer is NO. M.I.s invested for the long term to realise the full value of the company, even though RM3.50 is a huge premium to average market price, we do not know M.I.s entry price or investing objectives. While we cannot expect the controlling shareholder to offer RM5.00, we do expect a closer price to underlying value of the company.
  • Part of the problem of growing privatisation is that the market does not value shares properly. Worldwide has been trading way below NTA for such a long time

Ah, yes there are so many different types of investors around. Some speculated but believes that they are investing and then there are some plain old investors. Investors, who would invest in a stock based on a business perspective. In Worldwide Holdings: Value or Value Trap?: Part II , I have clearly brought out the issue of value versus common business logic. The value was there always but because of the lack of management quality, how could the investor invest in such a company believing that they would be adequatly compensated for taking the risk in this company.

This was what's said then.
  • Its total earnings for fy 2005 was 50.708 million versus fy 2004 total earnings of 52.632 million. Another sluggish performance. And what was Genting Sanyen Power earnings contribution to this group? 57.641 million.And again... don't you wonder what's happening in this listed company? Crudely put.. some might even question what the management is paid to do!
See the point? It's a known fact that Genting Sanyen (GS) is contributing so much money to the company. 57.641 million was what Worldwide said it contributed. But what about the rest of the business in the group? It contributed NOTHING. In fact, to be precise, it was a burden to Worldwide for total net earnings was only 50.708 million.

In Worldwide Holdings: Value or Value Trap? I drew up a table which clearly highlighted that showed from 1999 to 2003, if one discounts the GS conrtibution to the group, Worldwide would have lost money 3 years out of that 5 years. In short Worldwide has a historical record of making poor business ventures.

And in my opinion, this was why Worldwide was trading at such a low price for such a long time. There was value in the company no doubt but because of the management issue, I questioned the viability of an investment in the stock. Hence the title of the inital post, Value or Value Trap.

Anyway, let's wipe this out and assume that Worldwide is a CLEAN company without the poor management issue.

Now back to the issue of value.

How does one to value this GS stake? They, the market are insisting on RNAV. HLG Research values Worldwide's stake in GS to be worth 1.87 per share, which works out to a mere 330 million.

Can it be right when GS contributed 57.641 million in the last fiscal year? If you own such a stake, would you be willing to sell at a mere 330 million??

As mentioned in the other blog posting, Do you think privatisation is healthy? , to make an equivalent of 57.641 million, the comparison yardstick is the 4% money rate, in which one has to invest a whopping 1436.53 million to get an equivalent return, or the equivalent of 8.00.

Some would have used this as their investing objective.

And this is based on the GS stake itself, discounting Worldwide's landbank and waste management business and the piggy bank cash.

And this is why some would regard this GO of rm3.50 as shambolical.

So what can the investor do?

Is it fair?

Why shouldn't this GO, from the minority investor's perspective, be regarded as a business proposition?

The majority shareholder is making an offer to buy the shares from them.

Should the minority investor even sell at a discount?

Shouldn't the majority shareholder be buying it a premium instead?

Me? I hope they realised that they are short changed BIG TIME.

Amazing. The share market is the only place where business offers are so lopsided. I have seen it in the privatisation of Bumi Armada and I have also seen it in the case of Propel and Metro Jaya.

Anyway, I believe that there is something good to observe from this GO.

The argument is the minority shareholder is being offered a very raw deal. Short changed from getting their adequate compensation for risking their money in investing in their stocks.

Let's watch what will happens...

1. Will the authorities do something? Can the investor depend on someone, some party will come in and rescue them from being short changed?

2. If no... what's the best course of action in terms of an investor?

my answer? (let's see if I am right)

1. Fat hopes. Never rely on the 'market' to rescue you.
2. AVOID.. AVOID.. AVOID.. AVOID investing in stocks whose management/owners one cannot trust or whose integrity is questionable. (ps. big difference between investing and trading)

And in the issue of Worldwide, see why I hold my stance on it? Yeah, the speculators they made money and my congratulations to them but do look at the bigger picture. The market needs speculators just as it needs investor and I, from an investor point of view, to see such corporate exercise is shambolical to say the least. If the investor is never given a true chance to be adequately compensated for investing in the stock, the investor is better off avoiding these stocks or maybe shunning the share market totally if such unfair practices were to continue.

Oh... last but not least...

  • That's because in deciding for privatisation, the deal hugely favours the controlling party already - hence someone must look out for the long-suffering small tenacious investor.
Well said Sal!!!

Imagine the market without the small tenacious investor!!!!

Wednesday, September 06, 2006

Peak Debt

Saw this intereseting article.. source link

What Is Peak Debt?

I will limit the discussion to the US. If one looks at the long-term graph of Total Debt as a percent of the GDP (see graph in the above reference) one sees a Longwave Cycle type of behavior whereby the debt grows for a long period, decades, reaches a crescendo and then seems to fall down rapidly, in a crash-like fashion, and remains low for a long period. Since the process is cyclical in nature, it repeats. Thus, Peak Debt, unlike Peak Oil, is not a theory but an observed reality of our economic system.

What happens at the Peak Debt is that the Total Debt of the economy, as a percent of the GDP, or nominal debt in current dollars, or both, stop going up and start to go down. The last time that the Peak Debt occurred in the US was in early 1930s and I can confidently predict that the next Peak Debt will occur within this decade, because the forces pushing debt higher and higher are reaching a point of exhaustion. The rising Consumption Debt exerts a depressionary effect on future consumption and at some point the debt service reaches a high enough portion of the income that the current consumption must be cut down.

Debt plays an extremely important role in our economic system, especially, if one recognizes that stock market is a substitute debt market. In particular, Consumption Debt, taken on by the households for the express purposes of consumption expenditures (including mortgage debt), plays direct role in income and wealth inequality; high corporate profits, hence stock market booms; inflation rate; etc. All these – inequality, historically high corporate profits, and inflation – peak before the Peak Debt. Peak Debt occurs during the early part of the Deflationary Depression phase of the Longwave Cycle. What follows Peak Debt is a long period of depression, as the material and psychological effects of the prior consumption boom linger. All the above are based on cause and effect and not some theory and fully supported by history of earlier episodes. Since these cycles are rooted in human behavior, in this case the predictable behavior of various participants, especially, bankers and consumers, the cycle unfolds in a “clock-work” fashion.

The modern history of Consumption Debt, on a broad scale, especially, on non-essential purchases, is only a century old. Its messiah was none other than Henry Ford. Ford realized that it is not enough to offer great products at a reasonable price but the consumers must be induced to purchase in order for the producers to be able to sell more and more product and make more profits. This led to financing of the consumer goods that ultimately resulted in the 1920s boom in the US (very very similar to what has been going on in India over the past ten years). What is new in 2000s, compared with the 1920s, is not just pushing the consumer products, for which financing became a vehicle, but pushing of the debt itself, which now results in later afterthought purchases of big-ticket consumer items. I hope that you discern the difference between the two. PUSHING DEBT HAS BECOME THE EASIEST AND THE MOST PROFITABLE BUSINESS IN THE US OVER THE PAST FEW YEARS. Who wants to take the risks of a producer when financing has become so lucrative? Look at the largest “industrial” corporations in the US over the past decade, or two, and what you see is that they are lot more into financing business than in production business.

BTW, the boom-bust nature of the Longwave Cycle has most to do with debt, hence the “banker’s mischief” in creating them. Let me quote my favorite economist, Joseph Schumpeter, “One of the results of our historical sketch will, in fact, be that the failure of the banking community to function in the way required by the structure of the capitalistic machine account for most of the events which the majority of the observers would call “catastrophe.”” I am amazed by the fact that blind faithful of the American System don’t see the current “reckless mortgage lending” as an indictment of the whole econo-political system as being corrupt. These blind faithful will pay the price in not too distant a future. That is what happens with any blind faith. No system, or human institution, is immune from the control by the Crooks. We can proudly claim to be #1 when it comes to takeover of the econo-political system by Corporate Crooks, or as “the Money Bags” had done in England a hundred years ago.

The two largest bubbles of their kind in the US history – the Stock Market Bubble of late 1990s and the Housing Bubble of 2002-06 – over the past ten years are a result of the largest Debt Bubble (or Credit Bubble) in US history.

Saturday, September 02, 2006

Do you think privatisation is a healthy trend?

The privatisation of Worldwide Holdings.

As asked in earlier posting, do you think that is this a healthy trend?

Let's take a simple look at the recent proposal made to privatise Worldwide Holdings.

Let's not complicate matters and let's keep the issue is simple. Let's do this exercise from a simple reverse angle. Assume we are a potential buyer and assume that we, owns no shareholding (easier to see if viewed as a whole and when done, just count back the percentage) in this stock. And the objective of this exercise is to see if we are getting a good deal for this exercise or not. Let's see how profitable it is.

1. The crown or the moola in Worldwide is its shareholding of 20% in Genting Sanyen power plant (GS). Simple counting again. Just count how much this plant is contributing per quarter.

How much is this power planting contributing to Worldwide each year?

The above snapshot is taken for Worldwide's last fiscal year Q4 quarterly earnings. As can see from that table reported by Worldwide, GS is contributing some 57.461 million per year.

So if we buy Worldwide, we effectively buy the rights to receiving this 57.461 million per year!

This is what Worldwide gets. It's like rental money from its ownership in GS. How you want to value it?

Let's do some simple counting. Let's assume that we can get fixed deposit rates of 4% per annum. To get the equivalent of 57.461 million, how much would we need to deposit?


Are you ready? How about 1436.53 million!!!

Now get this.

Do you reckon it is a good deal to pay 3.50 per share for Worldwide?

Now, Worldwide has some 177 million shares. So assuming we buy the whole company, we would need to pay 177 * 3.50 or some 619.5 million!!

And by paying 619.5 million, we get to keep that 57.461 million per year.

Which is a better deal? You tell me.

2. Just by buying Worldwide, we are already getting such wonderful return of investment from the money received from GS.

What about Worldwide Holdings itself? Worldwide is not an empty company.

* Cough* Its piggy bank cash is worth some 120 million wor.

How? Is this free money? Take a look at Worldwide's last fiscal year Q4 assets stated in its quarterly earnings report.

Based on 177 million shares, the cash per share is already worth some 68 sen.

3) And what about it's landbank? CIMB on 4th April 2006, wrote on this stock. This is how it described Worldwide's landbank.

See that nice piece of 1.1 ac land on Jalan Bukit Bintang? See CIMB's valuations?

4) And what about it's waste management business?

So if we offer 3.50 for Worldwide, which effectively values Worldwide at 619.5 million, frankly speaking, do you think we are getting a good deal? We get the rights to receive some 57 million a year from the power plants, we get to keep the company cash, we get the land banks and also we get to have a waste disposal business too?

Don't you think we are getting an extremely out of the world deal of a lifetime?

And oh... so do you think privatisation is a healthy trend?