The Receivables Issue, MaeMode, Mems And Megan

Comments from the posting MaeMode And Its Receivables Again!

• solomon said...
  With receivables 1.5x of shareholder equities and the company's RM300 million loans, I think this company financial is very very weak.
  
  From the company cashflow statement, interest paid per quarter is RM7million x 4 quarters = RM30mil annually. The cash balance of RM31mil is only managed to pay off the one year interest.
  
  Brother Moolah, "pi po pi po" I think this company need a financial doctor ASAP.///If the bankers pull the brake, could it be the next LCL? Please advise me.

I actually feel that it's difficult to predict if any company would be the next company 'like' LCL. Nothing in life is ever truly certain and in the corporate anything that might happen could happen. And the unexpected could certainly happen too.

So would MaeMode turn into a LCL?

The issue of trade receivables is so simple for me. Company makes sales, company should collect them sales. All of it. A sale is never a sale until ALL the money is collected.

Which is why when I look at a company's balance sheet, I would not like to see high receivables increasing.

Obviously this would suggest to me that 'most likely' the management is either lousy because the company is not able to collect the money due to them. (yes, I would not complicate things here by suggesting fake sales - so for simplicity sake, let's assume all sales and receivables are legit).

And to make matters even illogical is when I see the company's debts increasing at the same time too.

It just does not make sense.

Why borrow more from the bankers when there are already so much money owed to the company?

Why can't the company collect these money instead of borrowing more?

And from a business point of view, if one is offered to be a co-owner of such a business, would such a business proposition appeal? Won't the logical answer be NO? Why would one want to be a co-owner in a business which requires more and more funding when it cannot collect the money owed to them?

And since I equate investing to owning a business, I would always, always shy away from such business opportunity. No matter what future prospect the company says it could achieve because in the long run, for me, without collection, such a business would most likely go no where.

Of course, having said that, I understand I could miss out on one or two opportunities! Such mindset is never 100% fool proof because because sometimes the wheel of fortune could really turn for such a company but this is something I would not want to bet on it because I am merely speculating that changes out of the blue could happen. I would rather forgo such an opportunity and invest in a company which has no such risks.

And sometimes, being safe, does work. Ok, I am not bringing out the goats from the farmville and let them gloat all over this posting but let me show an incident where investing using such a mindset did work out. It did prevent the investor from losing their money.

Here's my most famous example written way back on Oct 2005, Megan

• And then their trade receivables increased by some 17 million to an unbelievable 270 million! Holy moo-moo cow! What kind of business is Megan running? Selling without collection?

Yup, the classical selling without collection and debts increased soared too. Rest were history as Megan turned into one massive accounting fraud!

Or how about Mems technology. Yet another deeply troubled company too. From the posting Mems Tech Directors Charged!!

• A couple of months later, I wrote A Brief Look at Mems Latest Quarterly Earnings
  
  It was astonishing! All the warnings signs were lit. Trade receivables were insanely high when compared to its sales revenue. Cash depleted to a mere 3.191 million and loans increased by 7.441 million to 50.796 million!

Now coincidentally Mems reported its earnings last night.

It lost an incredible 21.1 million!

And the main culprit? A 20.9 million provision for doubtful debts!!!

Yup, as mentioned in yesterday's posting MaeMode And Its Receivables Again!

• And I wonder, since it's the receivables are in MaeModes books for so long, what if these receivables are scrutinised and review in depth? What if a huge portion needs to be reclassified as doubtful debts??? And when this happens, due to size of the receivables, won't MaeMode get hit by huge loss provision for these doubtful debts??

Again this is a possibility yes?

Maemode's receivables is at a totally unreal 355 million!

It's simply way too much!

And for the long term investor the risk has got to be what if these debts needs to be reclassified as doubtful debts??? Won't MaeMode get hit by huge loss provision for these debts???

MaeMode And Its Receivables Again!

It's almost an year since I wrote on Malaysian AE Mode or MaeMode.

21st Jan 2009, I wrote Update Again On MaeMode

Let me copy and past what I wrote a year ago.

---------------------------------------
Here's an update to the posting: Would You Buy MaeMode?

MaeMode announced its earnings tonight.

And as you can see, the key yardsticks simply got weaker and weaker!

The margins is still thin. Net debt post increased yet again and the trade receivables are still ballooning at an extremely alarming rate!

Past postings on MaeMode:

1. A look at MaeMode again
2. Mae, I hope I am not WRONG!
3. Reply to Mae, I hope I am not WRONG!
4. MaeMode Again
5. The Trade Receivables In MaeMode
6. Would You Buy MaeMode?

--------------------------------------

My issues on MaeMode were simple. Razor thin margins, high debts and an insanely high receivables in its books.

MaeMode announced its earnings last night. Here's a news article from the Edge Financial: MAE 2Q net profit plunges to RM26K

• MAE 2Q net profit plunges to RM26K
  Written by The Edge Financial Daily
  Thursday, 28 January 2010 23:35
  
  KUALA LUMPUR: MALAYSIAN AE MODELS HOLDINGS [] Bhd's (MAE) net profit for the second quarter (2Q) ended Nov 30, 2009 plunged to RM26,000 from RM6.38 million a year earlier mainly due to lower turnover and lower profit margin from projects.
  
  MAE said on Jan 28 customers' delay in taking delivery of the projects was also a contributing factor.
  
  Revenue dipped 10% to RM115.12 million from RM128.43 million while basic earnings per share fell to 0.02 sen from 5.96 sen previously.
  
  For the six months ended Nov 30, 2009, net profit fell to RM503,000 from RM11.55 million a year earlier while revenue fell 23% to RM196.62 million from RM256.22 million. EPS fell to 0.47 sen from 10.8 sen.
  
  MAE said its board remained cautious about the weak global economic environment which might impact its future performance but was optimistic it would remain profitable in the remaining quarters of the financial year ending May 31, 2010.

Here's how MaeMode's numbers are stacking up.

Look at the size of the receivables!!!

It's 355 million!!!

Forget about investing for a moment and just use some normal business common sense. Don't you wonder about such a company? How could they run a business where you have amount due to the company snowballing each year? The table says it all. In 2002, receivables were only at some 56 million. It's now 2010 and receivables have blown to 355 million!

And the even more incredible thing about this receivables comparison between MaeMode's fy 2002 numbers and current is that in fy 2002, MaeMode made 8 million. Now? It's less than one million but people owing MaeMode has snowballed to 355 million!

Yeah holy cow!

How could a company be run in such a manner???

And I wonder, since it's the receivables are in MaeModes books for so long, what if these receivables are scrutinised and review in depth? What if a huge portion needs to be reclassified as doubtful debts??? And when this happens, due to size of the receivables, won't MaeMode get hit by huge loss provision for these doubtful debts??

How?

Could This Be The Start Of The New Leg Down For BDI?

Had not made any update on the Baltic Dry Index for quite some time already.

My last posting was on 12 Nov 2009, The Baltic Dry Index Continues To Surge But Is it Sustainable?. BDI then closed at 3748 and the posting questions the sustainability of the surge.

Since then BDI had corrected quite significantly.

Yesterday I noted a stronger downward movement in the index. The Index closed at 3118, down some 2.7% and yes, I am wondering, would this be the start of a new downtrend movement?

The following news article was rather interesting: Shipping industry in choppy waters

• ... While large ships like Capesizes have lost sheen, the decline in the last few days was led by a 6.7 per cent drop in medium sized Supramax hiring rates.
  
  The industry expects further weakening with the approaching Chinese New Year.
  
  K S Nair, director of Shipping Corporation of India said, “There will be no trade to China now, and unless economies like the US and Europe open up to see more exports out of China, there will be a lull.”
  
  Besides, monetary tightening in China may also curb demand for more imports.
  
  Although analysts feel correction in short term may not be dramatic, any fall further from this level could be a cause of worry.
  
  Vikram Vilas Suryavanshi, an analyst at Karvy Broking said, “There will not be too much left for shippers below 3,000 levels and then again dry bulk ships could be laid up.”
  
  Meanwhile, a slew of new ship deliveries in the next two to three years also loom hard on any expected revival in the shipping market and till economies like the US and Europe open up, shippers will face the heat of volatility.

The Chinese New Year should indeed a factor but I found two interesting points being mentioned.

The monetary tightening in China is already considered to be an issue for the shipping industry. Hmmm... rather fast, eh?

And not helping.... a slew of new ship deliveries.... which would 'could' potentially equate to supply of ships more than the demand for the shipping.

How?

Offer For Hume Industries Is Way Too Low

Wrote this the other day: Taking Of Hume Industries 1,2,3!

I took a wild guess and assumed that Hume Industries could ring in some 30 million in earnings.

Well Hume Industries reported its earnings tonight and guess what, I was little short. Hume Industries earnings came in at 34 million instead!

Anyway, look at the EPS for half year, it's 32.7 sen. How much do you think Hume Industries eps for the fiscal year to be? Annualised at 65 sen per share? Or perhaps at some be a bit more optimistic and assume an eps of 80 sen? Not possible.

And based on current prices, won't Hume Industries be the perfect investing gem?

Of course no.

The owners want to take this stock private at 4.30!!!!

Sigh!

Let's cheer for the investing and the great investing prospects where companies like Hume Industries can be taken private as per owners fancy.

The offer for Hume Industries to be taken private is not only seriously under valued but it makes a total mockery of the share market too!

Dali San On BFM!!!

Congratulations to Dali San :D

If you miss out, you can catch the interview here again.




Part 2

The Delisting Of Englotechs

I had always paid attention to Trade Receivables in a company's account.

In the posting The Receivables Issue And Megan

• Point is .. when trade receivables keeps on increasing each single quarter, then it is utmost prudent that the investor be on the alert... for these trade receivables can easily be re-classified as doubtful debts!

Or how about Transmile Receivables?

Anyway on Sept 2007, I wrote on Englotechs Trade Receivables. I found it so incredible because I was looking at a company which said it had "gone on a exercise to boost sales revenue by offering easier credit terms!" The company was so financially weak, loans kept on increasing and the company wanted to offer easier credit terms??!!

May 2008, on the Edge Financial Daily.

• 02-05-2008: 12 report accounts deviations in a day
  by Sharmila Ganapathy
  
  KUALA LUMPUR: As many as 12 companies, the majority of which are listed on the Second Board, reported deviations between their unaudited and audited accounts for the financial year ended Dec 31, 2007 on Wednesday.
  
  Topping the list by variance size was Main Board-listed Englotechs Holding Bhd, which reported a 720% deviation between its unaudited and audited FY07 profit after tax figures.
  
  Englotechs reported unaudited net profits amounting to RM3.14 million versus the audited RM19.5 million audited net losses reported for the year.
  
  In a filing to Bursa Malaysia, it said the variances were due to a RM14 million provision of doubtful debts and net unrealised foreign exchange losses.

Yup, the nightmare came true as a portion of Englotechs receivables were reclassified as doubtful debts!

March 2009 MARC downgrades Englotech

• MARC said on March 27 the rating action was based on the cotton glove manufacturer’s failure to meet its profit payment of RM1.7 million due on March 26 this year as confirmed by OSK Trustees Bhd...

On today's papers.

• Englotechs to be delisted
  
  Published: 2010/01/27
  
  ENGLOTECHS Holding Bhd will be delisted from the stock exchange on February 8.
  
  Bursa Malaysia Bhd yesterday said it had dismissed Englotechs’ appeal on the delisting.
  
  “After due consideration of all facts and circumstances of the matter, (Bursa Malaysia) decided to dismiss Englotechs’ appeal and to delist the securities of the company,” the regulator said.

How?

Don't you think it's very important to pay attention to this trade receivable issue?

Companies can record sales very easily. As they say locally, 'sell cheap, cheap, sure got people buy one'. Selling cheap ( got profit?) is easy, collection is another story. And when time pass too long without collection, these receivables needs to be reclassified as bad debts.

Just take a look at Englotech today.

Does Anyone Care If It's Really A Bubble In China?

Here's a copy and paste of an interesting posting on Angry Bear website, Is China a Bubble?

• by cactus
  
  Is China a Bubble?
  
  A friend of mine who does just about all of his business providing a very specific service to selling to companies who do business with China. (And yes, that is as specific as I am willing to be, except to say that right at this moment, the service he provides is extremely tailored toward China.) My friend tells me he believes "China is a bubble" which very much resembles the dot com bubble and the housing bubble. According to him, this is the resemblance - there is no due diligence to speak of on any deal involving China, not from the Chinese and not from the Westerners dealing with them, and all the deals are being done with "other people's money" and heavily leveraged.
  
  In most instances, on the Chinese side, everyone is in some way connected - that is to say, they are connected to one of a few key organizations, or more likely, key people in the government. The more such people involved in the deal, the more people there are who are used to big payoffs and have the juice to make sure they will get paid. The Chinese government ends up providing its "blessing" to all sorts of crazy operations based on the simple principle that once enough people who have to get paid are involved,a project cannot be stopped. And its not merely that connected people have leverage; in China there is a feeling that this is China's time, so its not like something can go wrong. Throw in the unlimited pot of money trying to do business in China, and you end up with big projects - half a billion dollars and up - happening simply because they have to happen for the sake of the parties that put them together.
  
  The Westerners also have the sense that it is China's time. So if you ask them about a particular deal they're doing and why they're doing it, if you scratch hard enough, it comes to because "its China." That includes the very biggest private equity funds in the world.
  
  The end result is that a lot of things are happening that make no financial sense and wouldn't pass the laugh test if the magic word "China" wasn't there. Deep down everyone knows it, but nobody cares.
  
  So is my friend planning to get out? Heck no. He simply makes sure on every contract that he gets paid early. Everyone he's dealing with is very happy to comply since the expectation is that China is going to grow forever. Being shortsighted as far as everyone else is concerned has had some big benefits, and so far he's done very, very well. Of course, if he's wrong, he'll lose out on the gravy that comes in the back end. If he's right, he'll move on to servicing the operators of the next bubble when this one bursts, no worse for the wear.
  
  I don't know enough about doing business with China to say much other than I trust my friend's judgement, and if he tells me he's seeing no due diligence on multi-billion dollar projects, it means there are multi-billion dollar projects with no due diligence happening. I do that the demographics are going to get very interesting in China over the coming decade. With my limited knowledge, I'm leaning toward agreeing with my friend. So waddaya think? Is China a bubble?

Well waddaya think?

Doesn't stories like this sounds so ever familiar?

And that phrase " since the expectation is that China is going to grow forever" is so ironic in my flawed opinion. Usually forever simply doesn't even last forever. So what is forever?

More 'Bad News' For Vastalux

Blogged previously A Look At Vastalux Energy and Vastalux Vice Chairman Keeps Dumping His Shares!!.

On today's Star Business: Vastalux’s licence suspended by Petronas

• Tuesday January 26, 2010
  Vastalux’s licence suspended by Petronas
  By IZWAN IDRIS
  
  Firm seeks clarification, appeals for reinstatement
  
  PETALING JAYA: Oil and gas services provider Vastalux Energy Bhd said yesterday its licence to do business with Petroliam Nasional Bhd (Petronas) has been suspended by the national oil giant.
  
  “The company is seeking an immediate clarification from Petronas and put forth an appeal for the reinstatement of the licence,’’ Vastalux told the exchange yesterday in a brief statement.
  
  “However, the management wishes to reiterate that all existing projects awarded by Petronas and/or its subsidiaries are not affected and is on schedule,” it added.
  
  Information available from Vastalux’s website claimed that the company was a “full scale main contractor licensed by Petronas.”
  
  The latest development came barely two weeks after ratings for Vastalux’s RM100mil sukuk, or Islamic bonds,were downgraded a notch from A+IS from AA-IS by Malaysian Rating Corp Bhd (MARC).
  
  MARC said its future rating actions were more likely to be determined by the company’s ability to address the remaining shortfall of RM6.8mil ahead of the final RM25mil redemption of the sukuk in December.
  
  The firm assigned a stable outlook for the sukuk.
  
  The loss of the licence would add to the challenges faced by newly appointed chief executive officer Amirul Baharom, who took over the reins on Jan 1 from now redesignated executive vice-chairman and co-founder Nor Sabri Hamzah, in an internal reorganisation.
  
  The company was established in 1995 and started business operation in 1998 as a small oil and gas contractor, dealing with supplies to offshore installations, as well as minor fabrication works.
  
  In 2008, Vastalux sold shares to investors at 75 sen each and was listed on the exchange in September that year. The stock was last traded at 21 sen yesterday.
  
  For the nine months ended Sept 30, Vastalux reported a consolidated pre-tax loss of RM22.2mil. This was due to the sharp RM17.7mil loss reported in the third quarter, largely blamed on cost overrun.
  
  Apart from the weaker operating performance, MARC said the group’s “significant” unbilled completed works. Vastalux’s trade receivables rose to RM232.8mil as at end of September, compared with RM157.7mil in revenue recorded during the same period.

Last I saw, the stock is trading at 18 sen!

Here's the earlier article published few days ago: MARC downgrades Vastalux Capitals's RM100m debt notes

• MARC downgrades Vastalux Capitals's RM100m debt notes
  Written by Malaysian Rating Corp
  Friday, 15 January 2010 14:48
  
  KUALA LUMPUR: Malaysian Rating Corp (MARC) has downgraded its rating on Vastalux Capital Sdn Bhd’s RM100 million sukuk musyarakah to A+ IS from AA- IS. The outlook is stable.
  
  Vastalux Capital is a special purpose company and unit of Vastalux Sdn Bhd (Vastalux) set up to issue the sukuk musyarakah largely to fund Vastalux’s working capital in relation to oil and gas services contracts awarded by Petronas group.
  
  MARC said on Friday, Jan 15 the downgrade incorporates the deterioration in Vastalux Group’s liquidity position as a result of the significant completed works pending finalisation of claims on its balance sheet as a consequence of purported changes in scope of works on a major contract.
  
  The rating report highlighted the group's reliance on the continued performance of Vastalux’s ability to complete the financed contracts within preset specifications or within time and budget, which MARC views as susceptible to current operating challenges and cash flow pressures.
  
  Nevertheless, the current rating continues to incorporate a significant amount of uplift from Vastalux’s fundamental creditworthiness on the basis of the credit support provided by pledged revenues arising from the performance of identified contracts financed under the sukuk musyarakah.
  
  Since initial drawdown of the sukuk in December 2005, the transaction structure has captured RM530.0 million of revenue from contracts financed, of which RM93.2 million has been remitted into the sinking fund account (SFA).
  
  While scheduled redemptions to date have been timely, MARC’s future rating actions are more likely to be determined by the company’s ability to address the remaining shortfall of RM6.8 million ahead of the final RM25 million redemption of the sukuk in December 2010.
  
  Vastalux is an oil and gas services company which undertakes offshore hook up and commissioning work for domestic exploration and production (E&P) operations.
  
  Vastalux is the principal operating subsidiary of VASTALUX ENERGY BHD [] which reported a consolidated pre-tax loss of RM22.2 million for the nine-months to September 30, 2009.
  
  Apart from the weaker operating performance, the group’s significant unbilled completed works has also resulted in a stretched working capital cycle and pressure on its liquidity. Its trade receivables inclusive of amounts due from customers rose to RM232.8 million as at end-September 2009, compared to the RM157.7 million revenue recorded for the nine-month period.
  
  Vastalux has been stretching payments to its suppliers to finance its liquidity mismatch, which predisposes the group to high risk of supply and/or service disruptions.
  
  The Musyarakah facility financed seven Vastalux projects estimated to be worth RM975.35 million as at September 30, 2009, including hook-up and commissioning contract (HUC Contract) 2004/2007, HUC Contract 2007/2010 and top-side major maintenance (TMM contract) projects, which account for 84.2% of the identified contracts, were awarded by Petronas Carigali Sdn Bhd (Petronas Carigali).
  
  Pledged revenues from the identified contracts are captured in a proceeds account (PA), which are subsequently credited into a revenue account (RA) to avoid commingling of funds.
  
  Transfers from the revenue account into the SFA are subsequently made to meet obligations under the Sukuk facility. As at Dec 31, 2009, the SFA balance stood at RM18.2 million, with a shortfall of RM6.8 million in relation to the final repayment tranche of RM25 million which needs to be accumulated at least three months before the December 2010 final sukuk redemption.
  
  Vastalux Capital’s ability to meet the remaining shortfall depends on further collection of pledged revenue from resolution of pending claims on work done and timely collection of invoiced amounts on contracts financed by the facility. As provided for under the transaction structure, 20% of collection from the receivables will be transferred to the SFA.
  
  MARC understands that as of December 31, 2009, receivables under the financed contracts amounted to RM49.5 million, of which RM27.3 million include amounts approved and retention sums recoverable.
  
  The remaining RM22.2 million relates to change orders on completed works, for which billings can only be raised upon acceptance of documentation. MARC views the foregoing as susceptible to delay, not withstanding the company’s expected completion of the billing process by the second quarter of 2010.
  
  The stable outlook is premised on the expectation that Vastalux will make satisfactory progress on the collection of its receivables within the next two quarters and build up the shortfall of RM6.8 million in the SFA on time. The rating could be lowered if MARC’s expectations are not met.
  
  

Taking Of Hume Industries 1,2,3!

The other day I made the following posting Comments On Hume Industries Privatisation.

In it I had highlighted the fact that Southern Steel contributes a lot of its earnings to Hume Industries. In short, in my flawed opinion, Hume Industries, could indeed be THE HIDDEN GEM but what's the use for Hong Leong wants to take this hidden gem private.

Same thing they did to OYL Industries and same thing they did to Hume Cemboard.

And I found it rather disappointing that folks like Vincent Lim from OSK made the following remark.

• “I’m not really sure of the reason for the discount except that it may be because Hume is not a market leader in the businesses it is in,” he said, adding that the company had incurred a loss of RM100.77mil for the quarter ended Dec 31, 2008 and another loss of RM20.76mil for the quarter ended Mar 31, 2009.

Perhaps I should have given him the benefit of a doubt since he already said he's not really sure but then he's a paid analyst, yes? And for him to be a paid analyst working for one of our so-called top research house, how could he making remarks like those.

As shown in the earnings screen shot here those were the only 2 quarters earnings in which Hume Industries had recorded losses and if he would just taken the time to look inside the earnings notes, the losses were contributed by Southern Steel's losses. And to make matters worse, Southern Steel was highly regarded by OSK and recently was given a massive fair value target price increase too!

Anyway, let's look back at the losses again. Hume reported that 100 mil losses ( see Hume's earnings notes here ) on 25 Feb 2009. Here is Southern Steel's earnings reported in the same month. Quarterly rpt on consolidated results for the financial period ended 31/12/2008.

Southern Steel lost some 259 million and if we use Hume's segmentals last year ( see screen shot here ), Hume reported some 80.496 million from its steel business (ie Southern Steel contributed some 80.496 million in losses to Hume's earnings, which works to some 31% or so.

Let's have a look at Southern Steel's earnings last night.

Southern Steel made some 59.7 million and using the very same 31% or so, in my flawed calculations, I reckon that Southern Steel could be contributing some 18.5 million to Hume Industries.

Last quarter, Hume Industries said it made some 23.9 million ( Quarterly rpt on consolidated results for the financial period ended 30/9/2009 ). SSteel contributed some 14.3 million to Hume's profits.

How?

Let me take a wild guess. I reckon Hume's earnings could be around some 30 million. Or some 50 million for 2 quarters.

Could we be looking at some 100 million in earnings this year (if the current steel fortunes could sustain)?

Let me take a much lower estimate and use an earnings estimate of only 80 million.

Hume Industries have some 191 million shares and this works out to an eps of around 42 sen.

How much does Hong Leong wants to take it private? 4.3o!!!

And this works out to a miserable PE multiple of around 10.2x!!!!!!!!!!!!!!!!

So based on simple earnings per share, do you think it's even fair?

Or do you think Hume Industries are being greatly shortchanged in this privatisation offer?

Of course some might say perhaps I am flawed as usual in my estimates of 80 million in earnings for Hume Industries. Of course, I am usually flawed. :D

But take a look at Hume Industries 2008 Q4 earnings. Quarterly rpt on consolidated results for the financial period ended 30/6/2008 (Yes I understand past earnings is simply past earnings and there's a chance it might not be repeated).

Anyway from that link, could you see that Hume Industries earned some 213 million for its fiscal year 2008!!!!!!!!!!!!!!!!

And Hume Industries earned some 136 million for its fiscal year 2007!!!!!!!!!!!!!

So do you think my estimate of a mere 80 million to be overly optimistic?

And if the global economy does recover, would it be too far fetched to see Hume Industries making some 150 million per year in the next couple of years?

Yeah, we could be looking at a company who has the potential to easily make some 80 sen per share in earnings.

But no, Hong Leong group wants to take it private at 4.30!!!!!!!!!!

And what about the cash per share yardstick?

Quote from Comments On Hume Industries Privatisation

• Yup, Hume Industries have some 349 million in cash balances and its bank borrowings is a mere 15.3 million. (Hume has some 191 million shares. What is the cash per share ratio?) Hume is being offered to be taken private at 4.30!!!!!!!!!

Cash balances of 349 million. Borrowings only 15.3 million.

This works out to net cash of 333.7 million or a cash per share of around 1.76!!!!!!!!!!!!

And yeah Hong Leong wants to take it private at 4.30!!!!!!!!!

How?

First OYL, then Hume Cemboard and now Hume Industries!

How?

Sad isn't it? If there was no privatisation offer, in my flawed opinion, I truly reckon that Hume Industries would have been one of the great investing gem of this new decade.

But too bad, too sad because Hong Leong group wants us, the investors, out of this company!

Sigh!!

More On AirAsia Deferred Tax

Back on 18th November 2006, there was this article called "Accounting for AirAsia". This editorial was written by Star Bizweek deputy editor, Mr Errol Oh. (Sorry I do not have the link for it now)

Let me highlight the last few passages.

• .... For airline, there's a lot at stake. It's entitled to a tax incentive called an investment allowance. This means for certain capital expenditure (say, an aircraft purchase), the company can deduct a larger amount than the actual cost when calculating its tax liability.
  
  As a result, AirAsia does not need to pay tax on its operations. It only pays tax on other income, such as interest, which is a relatively small amount.
  
  The company says it has committed to buying more aircraft in the several years ahead and doesn’t see itself actually paying a lot of income tax. At the same time the unutilised investment and capital allowances will accumulate over the years. It says this should be treated as a deferred tax asset, thus lowering the company's deferred tax liability....

1st December 2006, on Business Times. (sorry no links either)

• AirAsia revenue rises 29pc in Q1
  By Anna Maria Samsudin
  bt@nstp.com.my
  
  December 1 2006
  
  AIRASIA Bhd reported a RM94.52 million net profit for the first quarter ended September 30 2006, based on the International Financial Reporting Standard (IFRS).
  
  However, using Malaysian Accounting Standard Board (MASB), including FRS 112 on Income Tax, the budget airline reported a 35 per cent year-on-year decline in net profit to RM5.66 million from RM8.77 million previously.
  
  Deputy chief executive officer Datuk Kamaruddin Meranun explained the drop in net profit, under the MASB, was largely due to tax issues.
  
  "Under the MASB, we are required to include taxes in our accounting. In actual fact, we don't have to pay taxes for the next 15 years following the tax allowance given by the Government. That is why you see the drop in our numbers," he said....

Yes, as publicly stated in 2006, AirAsia do not have to pay taxes for the next 15 years!

And as highlighted in the posting AirAsia 18 Billion Tax Issue, currently AirAsia has 930.591 million in deferred taxes!

How?

Now if Maybank's report is correct and that foreigners now OWN more shares in AirAsia than Malaysians, how would you feel about this deferred tax or tax allowances then? Should AirAsia continue to enjoy the luxury of not paying taxes?

AirAsia 18 Billion Tax Issue

Yesterday MIB, Maybank Investment Bank, had a research report on AirAsia.

Here's the snippet.

Now I am not (typo!) deeply concerned with this revelation.

Why?

This is an rm 18 Billion concern for me.

In the posting AirAsia's deferred taxes issue.

• Solid theoretical backing for AirAsia’s accounting policy. We believe that AirAsia has a strong case for its non-provision of deferred taxes. With capital allowances and investment allowances likely to come to RM18bn in total, the company will not have to pay cash taxes for decades. In these circumstances, a deferred tax liability provision will not be a true and fair reflection of the company’s financial position. With the MOF now seeking input from the "big four" audit firms, we think that a solution in favour of AirAsia will be found soon.

Well as per latest (see posting What AirAsia Said About Its Earnings Performance ), AirAsia has so far 930.591 million in deferred taxes!

Well as a wholly owned Malaysian company, some could argue that perhaps we, Malaysia, should attempt to develop a strong global company and in order to help achieve this goal, perhaps some sacrifice should be made. Sacrifice like granting AirAsia deferred taxes. However, some might disagree and argue that the taxes should not be deferred and the money collected from these taxes could help the whole country instead of helping just one company.

Well this could be a massive debate.

However, this new MIB research report has now put the tax issue in a whole new perspective!

Why?

Well simple. Since the ownership of AirAsia now has more foreigners than Malaysians, then why should the company continue to enjoy this deferred tax???

My friends... rm 18 Billion ... that's a whole lot of small change, yes?

How?

------------

see also More On AirAsia Deferred Tax

Comments On Hume Industries Privatisation

Why do you buy stocks?

Duh! To make money.

LOL! That's the bottom line no? Now of course, many would be extremely quick to point out the many ways to do so but I am not here to talk about how to make money. Instead I would like to focus on the investor or the minority shareholder.

The minority shareholder believes that by investing LONG TERM. And when minority shareholder talks about long term, they are talking about time frames in decades and certainly not the one or two year time frame. This is because they reckon by investing long term, one mitigate the short term fluctuations of the stock market and most important by investing in the longer time frame, they feel that the company could grow and from the company's long term earnings growth, the minority shareholder feels that they could reap the benefits and be fully compensated for taking the plunge and risking their money in the stock market investment.

And this is how the investing 'game' is being played.

Invest or buy stocks of a company whose business one reckons is good and would have a fair chance to be better in the future at a cheap price. Yes, buy them cheap and hope that in time, the company's value appreciates fully to compensate the risk in buying the listed stock.

Yes the risk in investing is that one could buy the wrong stock or at the wrong price. Or through no fault of the investor, the company's fortunes could turn for the worst and go bust or a stock market crash could happen.

Ah, the chances of the stock market crash is real, no?

People talk about investing in decades. Yes more than 10 years. Some more than 20 years. Which is fine, if the company does indeed have a real rock solid business fundamentals. But on the other hand, if one look at our Recent Stock Market Crashes, one would have noticed that stock market crashes have occurred in every single decade for our Malaysian stock market. So the issue one have to justify is if one is investing long term in our local market is whether one's stock selection is solid enough to withstand a stock market crash? And if during the stock market crash, what if a real life emergency situation requires massive cash and forces one to withdraw their investments? Yes, one could staunchly believe in holding long term but what if the unforeseen situation offers no alternative solution and forces one to sell out during a period when the market has collapsed? Not remotely possible?

These are the investment risks. There is no such thing as a risk free investment. Which means when one buy a stock at any price, there is always the risk of seeing their investment go to zero.

So my point this morning is that when we can use a long term investing strategy in buying a stock but in regardless of our strategy, there is always a chance that our investment could go to zero. (Yes, I am aware of the cut loss option).

So how is the just compensation for one's investments risks?

Don't we want to see upside unlimited? Yes, there is zero boundary in how much we can win! :D

Is that request unfair? Is that request unjust?

No?

Let's see, we invest, we can lose it all, yes? So if we can lose it all, shouldn't it be fair that we are given a chance to win it all?

No?

If there is no chance to win it all, why invest?

Yes, why risk our hard earned money just to take the plunge in investing in a stock?

Are these simple fair arguements so far?

But what if the game is tilted?

You buy a stock at 5.00 and you are willing to risk all the 5.00 because you reckon the stock is worth at least 12.00 or even more if the company continues to grow. But what if someone comes in and put a cap to your gains and cut it to 5.50? Do you think it's just?

And this is how I feel whenever I see our local listed companies taking our company private!

And yes, this is how I felt when I read Hume Industry being taken private!

Outright shame.

Minority investors had invested in the company, WILLING TO RISK ALL THEIR MONEY IN THE STOCK because they felt there was value in the stock. Now the owners come in and cut them short in their investment by taking the company private!

Do you think the minority shareholders are fully compensated for their investment risks?

Do you?

Jan 15th 2010: Hong Leong group offers RM4.30 apiece for Hume and the following article caught my attention: Offer to take Hume private due to competitive forces

• Saturday January 16, 2010
  Offer to take Hume private due to competitive forces
  By FINTAN NG
  
  PETALING JAYA: Spectrum Arrangement Sdn Bhd’s offer to take Hume Industries (M) Bhd private by acquiring all the shares it or parties acting in concert do not already own may be prompted by Hume’s increasingly tough outlook for the businesses it is involved in.
  
  According to analysts, Hume is up against major competition in the business segments it is in. The little-covered company is involved in the manufacture of building materials such as fibreboard and concrete as well as furniture.
  
  Spectrum Arrangement, a subsidiary of Hong Leong Co (M) Bhd in which Tan Sri Quek Leng Chan is chairman and chief executive officer as well as a substantial shareholder, made the cash offer through Hong Leong Investment Bank Bhd on Thursday at RM4.30 per share.
  
  Quek is also executive chairman of Hume. As at Jan 14, Spectrum Arrangement directly owned 64.94% of Hume.
  
  “Although Hume is a manufacturer of medium-density fibreboards, Evergreen Fibreboard Bhd is the market leader while in concrete products, the big boys dominate,” OSK Research Sdn Bhd analyst Vincent Lim Vi Ming told StarBiz.
  
  Local listed firms that manufacture ready-mixed concrete products include Lafarge Malayan Cement Bhd and YTL Cement Bhd.
  
  AmResearch Sdn Bhd analyst Mak Hoy Ken said companies in the building materials industry faced tough conditions if they did not have access to markets abroad.
  
  “Bricks-and-mortar companies such as Hume cannot rely on just the local market,” he said. Mak does not have Hume in his coverage universe.
  
  Lim added that there were also risks in the furniture business due to price competition from China and difficulty in obtaining contracts. “Evergreen also has a furniture-making business but it’s ancillary to the company’s other businesses,” he said.
  
  Lim, who does not cover Hume, said at RM4.30, the offer was at a discount to the company’s net book value of RM4.67 per share as at Sept 30, 2009.
  
  “I’m not really sure of the reason for the discount except that it may be because Hume is not a market leader in the businesses it is in,” he said, adding that the company had incurred a loss of RM100.77mil for the quarter ended Dec 31, 2008 and another loss of RM20.76mil for the quarter ended Mar 31, 2009.
  
  However, Lim said from the offeror’s perspective, this could be a good time to take Hume private as demand for fibreboards was steadily picking up and selling prices were also going up after a plunge in mid-2008.

Rather appalling news if you asked me.

• may be prompted by Hume’s increasingly tough outlook for the businesses it is involved in. According to analysts, Hume is up against major competition in the business segments it is in. The little-covered company is involved in the manufacture of building materials such as fibreboard and concrete as well as furniture.

Errr... I am sure that Hume Industry is not the ONLY company in the building materials in our market and if this is the justifications, then I guess all the other listed companies should also pack their bags and go private too!

Now OSK's Vincent Lim made the following remarks.

• “I’m not really sure of the reason for the discount except that it may be because Hume is not a market leader in the businesses it is in,” he said, adding that the company had incurred a loss of RM100.77mil for the quarter ended Dec 31, 2008 and another loss of RM20.76mil for the quarter ended Mar 31, 2009.

How would one interpret such a statement? Incurred losses of rm100.77 mil for quarter ended Dec 31, 2008 and another loss of rm20.76 mil for the quarter ended Mar 31, 2009.

Doesn't this not sound like a company which has no future?

However, take a look at this screen shot.

Does Hume Industries looked doomed at all?

And the so called analyst from OSK picks on the ONLY 2 quarters that Hume Industries had suffered losses!

Why on earth did he not mention that since those 2 quarters, Hume Industries had turned around very impressively?

Another lopsided view from OSK? ( See my dear solomon would surely ask why I always pick on OSK's analysts! But.. but.. but.. isn't it so clear about OSK analysts?)

And best of all, let's dig a little bit at Hume Industries losses. Its 100 million losses: Quarterly rpt on consolidated results for the financial period ended 31/12/2008


And how much was the Southern Steel losses? Under Hume Industries business segmentals.


And then... the little thingy called irony struck me.

Southern Steel is under OSK's coverage!!!!!!!!!!!!!!!!!!!!!!!

See Featured Report: OSK On Southern Steel. For example in it's 7 May 2009 report (click on this screen shot posted earlier), OSK increased the Target Pric)e for Southern Steel just because it lost less money! (ps on today's papers: OSK Research overweight on steel. Quote: ""We have BUY calls on Lion Industries,Southern Steel and Masteel, a Trading BUY on Perwaja, but a NEUTRAL call for Kinsteel and a SELL on Ann Joo," it said. )

So how could OSK be so optimistic about Southern Steel and not rank Hume Industries at all when Southern Steel contributes a lot of its earnings to Hume Industries?

Yet another big mystery about OSK, eh?

Here's Hume Industries last reported earnings in November: Quarterly rpt on consolidated results for the financial period ended 30/9/2009. It made some 20.956 million for the quarter or an eps of 13.52 sen! (just imagine if you annualised the eps and compare the annualised eps versus the offer price to take Hume private!)

Now the best of all this is Hume Industries balance sheet. Look at the piggy bank cash! ( And I just could not believe how OSK analyst could comment at this stock without even looking at Hume's latest earnings and its balance sheet.)

Yup, Hume Industries have some 349 million in cash balances and its bank borrowings is a mere 15.3 million. (Hume has some 191 million shares. What is the cash per share ratio?)
Hume is being offered to be taken private at 4.30!!!!!!!!!

Good deal for who?

Does it sound fair for the minority shareholders who took the stock market risk to invest in the stock?

Do you think the minority shareholders are fully compensated?

How?

Here's another question. Now this is NOT the first privatisation exercise from Hong Leong group. It had happened before. OYL and Hume Cemboard comes to mind (and both privatisation left sour taste for the minorities too!). So what if Hong Leong group decides to pull another stunt on another of their company? Would you want to invest in another of their company when you know that there is a chance that you might not be fully compensated if the company is taken private?

How?

So Many Cash Calls In OuR Market!

Ever wonder how many cash calls are being proposed in our local stock market?

Ever wonder if our market is really rich enough to absorb all these cash calls?

Let me highlight 'some' news clips (yeah, I know I will be missing 'some' names and if you think I have left them out, do let me know... please. :D ) and as usual they are all in random order.

The godzilla!

• Saturday January 9, 2010
  
  MISC proposes RM5.2b rights issue
  
  PETALING JAYA: MISC Bhd has proposed a renounceable rights issue of 743.96 million new shares on the basis of one rights share for every five existing shares, at an issue price of RM7 per rights share.
  
  The exercise was expected to raise about RM5.2bil, it said in a stock exchange filing.
  
  The ex-date and entitlement dates are on Jan 20 and Jan 22 respectively...

• UEM Land proposes rights issue to raise RM970m
  Written by Joseph Chin
  Monday, 11 January 2010 19:48
  
  KUALA LUMPUR: UEM LAND HOLDINGS BHD [] has proposed to undertake a rights issue to raise up to RM970 million of which the bulk would be used to repay the UEM Group term loan of RM633 million and RM266.2 million for property development.
  
  UEM Land said on Monday, Jan 11 the rights issue, while enabling it to repay the loan, would enable it to achieve a more robust capital structure.

• Pelikan to raise RM188m
  
  Published: 2009/10/22
  
  PELIKAN International Corp Bhd, a stationery maker, plans to raise up to RM188.7 million from a rights issue to fund working capital.
  
  It proposed to offer 171.58 million new shares to investors at RM1.10 apiece on the basis of one rights share for every two existing shares, it told Bursa Malaysia.

• Gamuda makes cash call; 1Q net profit up 14.5%
  Written by Chong Jin Hun
  Tuesday, 22 December 2009 23:24
  
  KUALA LUMPUR: GAMUDA BHD [] is seeking fresh capital from its shareholders via a renounceable rights issue of up to 267.7 million warrants.
  
  The exercise, on the basis of one warrant for every eight existing shares held, may raise up to RM714.8 million for the infrastructure builder and property developer.

• Kencana plans to raise RM185m from rights issue
  
  Published: 2009/11/12
  
  OIL and gas company Kencana Petroleum Bhd (5122) plans to raise up to RM185 million through a rights issue.
  
  The group plans to use the money for capital expenditure, investment opportunities, business expansion and repayment of bank borrowings and defray expenses for the rights issue. The rights issue is expected to cost about RM4.5 million.

• IOI Corp to raise RM1.22b via rights issue
  Written by Nadia S Hassan
  Friday, 24 July 2009 09:44
  
  KUALA LUMPUR: IOI Corporation Bhd is looking to raise some RM1.22 billion via a renounceable rights issue of up to 420.99 million new shares to fund future capital expenditure and investment opportunities.

• mTouche plans rights issue
  
  Published: 2009/12/05
  
  MTOUCHE Technology Bhd will undertake a renounceable 1-for-1 rights issue estimated to raise some RM18.2 million which it wants to use as working capital.

• Rights issue seen diluting MAS' earnings
  
  By Jeeva Arulampalam Published: 2009/12/24
  
  Malaysia Airlines' (MAS) (3786) plan to raise some RM2.67 billion from a rights issue will dilute earnings by as much as 29 per cent in the future, say analysts.
  
  Maybank Investment Bank Bhd (Maybank IB) said the rights offer will dilute MAS' earnings by 29 per cent in 2011 and has cut its call from "buy" to "hold"...

• REDtone International proposes rights issue of ICULS
  Written by The Edge Financial Daily
  Monday, 12 October 2009 21:38
  
  KUALA LUMPUR: REDTONE INTERNATIONAL BHD [] has proposed rights issue of irredeemable convertible unsecured loan stocks (ICULS) to raise RM41.5 million for capital expenditure.

Updated 15/1/2010

• MK Land plans RM150m rights issue
  
  Published: 2010/01/15
  
  PROPERTY developer MK Land Holdings Bhd plans to raise some RM150 million from a rights issue of equity-linked instruments.
  
  Hong Leong Investment Bank Bhd told Bursa Malaysia that the proceeds will be used to partly repay bank borrowings and for working capital.
  
  A detailed announcement is expected to be made once the terms of the rights issue have been finalised.

Updated 19/1/2010. Left out MRCB! :P

• MRCB's rights issue to go ex on Jan 28
  Written by Joseph Chin
  Monday, 18 January 2010 19:54
  
  KUALA LUMPUR: MALAYSIAN RESOURCES CORP [] Bhd's renounceable rights issue of up to 482.27 million new shares will go ex on Jan 28.
  
  Its submitting merchant bank, Maybank Investment Bank Bhd, said on Jan 18 the entitlement date for the rights shares is Feb 2.
  
  The corporate exercise involved the rights issue on the basis of one rights share for every two shares held on Feb 2 at 5pm at an issue price of Rm1.12 per rights share.
  
  The rights issue is to raise gross proceeds of up to RM566 million

Updated 21/1/2010

• Mudajaya plans up to RM184m share sale
  Written by Reuters
  Wednesday, 20 January 2010 23:36
  
  KUALA LUMPUR: CONSTRUCTION [] firm MUDAJAYA GROUP BHD [] plans to raise up to RM184 million in a share sale, according to a term sheet obtained by Reuters today.
  
  Mudajaya plans to sell 37.2 million new shares at between RM4.75 and RM4.95 a share, the term sheet showed. CIMB Investment Bank is the bookrunner. Mudajaya ended today down six sen at RM4.90. The stock rose over 300% in 2009. — Reuters

• KYM plans to raise RM6m from share sale
  
  Published: 2010/01/21
  
  KYM Holdings Bhd, a paper bag manufacturer and property developer, plans to raise RM6.1 million from a share sale to fund working capital.
  
  It plans to place out 8.11 million new shares, or about a tenth of the company, priced at 75 sen apiece in a private placement.
  
  It also plans to issue new stock options to staff and directors.
  
  Stocks under the employee share option scheme (Esos) will account for 15 per cent of KYM’s existing shares, it told Bursa Malaysia.
  
  Shareholders have approved the placement in KYM’s previous annual general meeting but they will have to vote on the Esos at another meeting.

Updated 22/1/2010

• Focus Dynamics to raise RM2m
  Written by The Edge Financial Daily
  Friday, 22 January 2010 00:41
  
  KUALA LUMPUR: FOCUS DYNAMICS TECHNOLOGIES [] Bhd will raise RM2.01 million from the second tranche of its private placement exercise which accounts for 13.5% of its share base.
  

Updated: 15/1/2010.

On the Edge Financial Daily, the news paper talks about the other fund raising by selling of placement shares: More companies propose fund raising

• More companies propose fund raising
  Written by Financial Daily
  Friday, 15 January 2010 12:15
  
  KUALA LUMPUR: With improving market and economic sentiment as well as share prices advancing since the start of the year, more companies are taking the opportunity to raise funds via placements or cash calls from shareholders.
  
  Yesterday, three companies — AE Multi Holdings Bhd (AEM), Cocoaland Holdings Bhd and KSL Holdings Bhd — proposed to raise funds for additional working capital and strengthen their balance sheets via private placement of up to 10% of their existing paid-up capital, while MK Land Holdings Bhd is undertaking a rights issue.
  
  In a statement yesterday, MK Land Holdings Bhd announced that its board had decided to undertake a rights issue of equity-linked instruments to raise gross proceeds of at least RM150 million for partial repayment of bank borrowings and for working capital.
  
  It said a detailed announcement would be made at a later date after the terms of the rights issue had been finalised. MK Land rose 0.5 sen to 43 sen yesterday, with over six million shares done. Its 52-week high of 47.5 sen was posted on June 15, 2009.
  
  KSL Holdings Bhd is proposing a placement of up to 35.54 million new shares of 50 sen each to yet-to-be identified investors by RHB Investment Bank as the placement agent.
  
  The discount too will be not more than 10% of the volume weighted average market (VWAM) price or lower than its par value. It said the indicative issue price would be RM1.09 based on a discount of about 10% to the five-day VWAM price up to Jan 11, 2010 of RM1.21. On the indicative price, it would raise about RM38.74 million.
  
  KSL expects to complete the exercise by the first quarter of the year. Although its share price has risen over the past few trading days, it is still off its 52-week high of RM1.37 on Oct 27, 2009. It closed one sen higher at RM1.25 yesterday, with 130,300 shares done.
  
  AEM said its proposed placement of up to 8.45 million shares of 50 sen each would be priced at 50.5 sen, representing a discount of about 9.8% to the five-day VWAM price from Jan 7 to 13, 2010 of about 56 sen.
  
  The exercise, which could be completed by the first quarter, will raise up to 4.27 million. MIMB Investment Bank Bhd is the adviser and placement agent. AEM said net gearing was expected to decline to 1.08 times from 1.24 times, assuming the entire proposed issue of new shares was placed out.
  
  AEM also rose to its 52-week high at the close to RM1.06, up 30 sen, with more than 24 million shares traded.
  
  Cocoaland’s proposed placement of 12 million shares of 50 sen each to yet-to-be-identified third-party investors has yet to be priced, but it would not be at more than 10% discount to the five-day VWAM price and not lower than its share par value.
  
  Assuming a discount of 10% to the VWAM price from Jan 7 to 13, 2004 of RM1.404, the issue price would be RM1.264 per share, raising gross proceeds of about RM15.2 million. Its gearing will be maintained at 0.01 times after the exercise, which is expected to be completed within the second quarter.
  
  TA Securities Holdings Bhd is the adviser and placement agent.
  
  The stock rose to its 52-week intra-day high of RM1.52 yesterday. It gained seven sen to close at RM1.51, with over two million shares done.
  
  
  This article appeared in The Edge Financial Daily, January 15, 2010.

Should I add in JCY mega IPO blockbuster in this? After all JCY is also raising money from the stock market.

• JCY hopes to raise US$350m from listing on Bursa
  
  Published: 2010/01/22
  
  Singapore: Malaysia's disk-drive component maker JCY International plans to raise US$350 million (RM1.1 8 billion) in an initial public offering, sources said, in the country's second biggest listing in six years.
  
  The share sale comes after Malaysia's top mobile phone operator Maxis Bhd's US$3.3 billion (RM11.12 billion) initial public offering in November last year was ranked as Southeast Asia's largest ever.
  
  
  
  
  
  
  

Which News Version Would You Want?

It's incredible really.

Here's the Business Times version.

• Stocks still offer good growth: Prudential
  
  Published: 2010/01/14
  
  PRUDENTIAL Fund Management Bhd, which manages RM17 billion, said global stocks still offer good growth even after a rally in world stock markets last year from multi-year lows in March.
  
  The fund manager remains bullish on China, India, the Philippines and Thailand, but Hong Kong and Malaysia are likely to offer limited growth this year.
  
  "We have been saying this for years and (will) once again (say) Malaysia is a good story, but not enough in a world of great stories. There's much better value elsewhere from a global fund perspective," said Robert Rountree, head of investment marketing at Prudential Fund Management Services, in Kuala Lumpur yesterday.
  
  "Last year, we were overweight on Indonesia because it was due for a major re-rating. We were very bullish on the Indonesian banks then. Then there was the rally. But eventhough the valuation in Indonesia has risen sharply, we can still find value there.
  
  "Comparatively, Malaysia is never cheap," Rountree told a media briefing on global market outlook.
  
  Prudential has a neutral stance on Indonesia this year, along with Australia, South Korea, Singapore and Taiwan.
  
  Meanwhile, its head of investment services Bernice Leaw said more positive policy surprises from the government could drive up Malaysian stocks this year.
  
  Foreign investors will also likely see bigger initial public offerings such as Maxis last year coming to the market, she said.
  
  "The market has reacted positively towards Prime Minister Datuk Seri Najib Razak's liberalisation measures so far, it will be good if there's continued efforts in that area.
  
  "The government has a lot of good policies, but as always, the implementation is key. Investors usually will give it six to eight months to see the results," Leaw said.
  
  It was reported that Asian stocks helped lead 2009's global rally as unprecedented government stimulus measures and economic recovery sent investors back to the region's markets en masse.
  
  With the exception of Japan, stock markets in Asia rocketed after touching lows in March with some gaining 80 per cent or more for the year.
  
  
  
  

How would you interpret that article?

Don't you think the TITLE of the article is rather misleading? Yes, stocks still offer good growth but if you are a Malaysian stock market player and you just read only the headline news that 'stocks still offer good growth', won't you be mislead? Further more, Mr. Roundtree said "Comparatively, Malaysia is never cheap"!

Yup, the danger of reading just the headline or the title of the article.

Now the Edge Financial Daily also carried the same story.

And unfortunately, it (the tone of the article) comes out different!

Prudential: Equities expensive but not in ‘bubble territory’

• Prudential: Equities expensive but not in ‘bubble territory’
  Written by Daniel Khoo
  Wednesday, 13 January 2010 22:16
  
  KUALA LUMPUR: Share prices which have enjoyed a good run-up since the first quarter of last year looks "expensive" in the short term and might be vulnerable to a correction, according to Prudential Fund Management Services' head of investment marketing Robert Rountree.
  
  However he added also that at the moment, "equities don't appear to be in bubble territory" implying that in the longer term, equity valuations are still considered cheap, compared to the years before the TECHNOLOGY [] bubble burst in the US.
  
  He said at a regional market outlook briefing titled Bonds & Equities 2010 Malaysia, that among external factors that could possibly spark a sell off in equities are if the US Federal Reserve decides to raise interest rates in the US.
  
  "The carry trade is coming back. So, a lot of the money that has been created in the central banks in the US and in Europe is coming into Asia. So if we do see a tightening of interest rates, then we could see money coming out of Asia in the short term," he said.
  
  Low interest rates in the West fuels the currency carry trade where international investors borrow in the lower yielding currency to invest into another country's higher yielding currency for higher gains — some of the borrowed money is then invested into equities for quick short term gains.
  
  Prudential had this suggestion for investors to look at purchasing corporate bonds instead in Malaysia because yields will continue to remain suppressed for the foreseeable future on the back of the expectation that interest rates will continue to remain at the same levels at least in the first half of this year.
  
  Suppressed bond yields mean that bond prices is expected to continue to stay at their present levels.
  
  However, at the same briefing, Prudential's Head of Investment Services Bernice Leaw said that "over the long term, equities will always give better returns than bonds," adding that she was bullish on Asian economic growth — led by China and India.
  
  The fund manager is overweight on China, India, Philippines and Thailand. Prudential is however underweight on Malaysia because from an international point of view, there is better value in markets elsewhere.
  
  "In other words, Malaysia's perennial problem, a good story in a world of great stories," Rountree said implying that Malaysia now has to compete with other rapidly industrialising countries like India and China.
  
  He added that this year there may be another shift towards the trend where Asian economies "delink" from the developed West — where "Asian economies start to generate its own momentum", Rountree added.
  
  Asia's actual declared profits seemed to have kept up so far with profit forecast expectations. However, actual profits declared by US companies show a different picture altogether, with profits only staying flat while historically, profit forecasts have gone up higher than that. He noted that the run up in equities so far in the US is due to high expectations of a recovery.
  
  A realisation of this stark reality could also be another contributing factor to a possible correction in world equity markets. "However, (any potential correction) would be viewed as a buying opportunity," Rountree said.

LOL! So how? Just as expected eh? So which news versions would you want to hear?

:P