Thursday, March 31, 2011

Perisai Asked To Explain In Details Its Purchase Of Garuda Energy

Getting interesting!!

On Bursa website, it has been announced that Perisai had been rquested to furnish the investing market with the additional information in respect of their purchase of Garuda Energy (L) Ltd. ( refer to postings Perisai: Life Is Too Damn Good! and RHB Clarifies Its Statement On Perisai )

THE PROPOSED ACQUISITION BY PERISAI PETROLEUM TEKNOLOGI BERHAD ("PERISAI") OF 100% EQUITY INTEREST IN GARUDA ENERGY (L) LTD ("TARGET COMPANY") FOR A TOTAL PURCHASE CONSIDERATION OF USD70 MILLION TO BE SATISFIED BY WAY OF CASH AND THE ISSUANCE OF NEW ORDINARY SHARES OF PERISAI ("PROPOSED ACQUISITION") We refer to your Company's announcement dated 29 March 2011 in respect of the above matter. In this connection, kindly furnish Bursa Malaysia Securities Berhad ("Bursa Securities") with the following additional information for public release:-

1. The number of consideration shares to be issued.
2. The source of fund for the Proposed Acquisition and its breakdown.
3. The description of business carried on by Target Company.
4. The date of incorporation of Target Company.
5. The cost incurred by Target Company in converting Rubicone into a Mobile Offshore Production Unit.
6. The particulars of all liabilities, including contingent liabilities and guarantees to be assumed by Perisai arising from the Proposed Acquisition.
7. The names of Target Company's directors and substantial shareholders and their respective shareholdings.
8. The date Gryphon Energy (M) Sdn Bhd ("GEM") was awarded a contract to lease, operate and maintain a MOPU for a period of 2+1+1 years.
9. The basis in arriving at the expected revenue to be generated by GEM of approximately of USD25 million per annum .

10. The names of GEM's directors and substantial shareholders and their respective shareholdings.
11. Further clarification on the basis of arriving at the purchase consideration.
12. The justification for the issue price of RM0.65 per consideration share which is more than 10% discount of the current market price.

13. The details of the asset owned by the Target Company. 14. The original cost of investment and date of investment by the vendor in the Target Company.
15. Further clarification on the rationale for the acquisition of the Target Company from the vendor in view of the disposal of the Target Company to the vendor in 2010. 16. The details of the prospects of the Target Company. 17. The financial effects of the Proposed Acquisition including on earnings per share, net assets per share, gearing, share capital and substantial shareholding of Perisai.

18.The operational impact of the Proposed Acquisition on Perisai.
19. In view of the interest of Dato Dr. Mohamed Ariffin bin Hj Aton in the Proposed Acqusition as disclosed in the announcement, to clarify whether the transaction is a Related Party Transaction pursuant to Paragraph 10.08 of the Main Market Listing Requirements (" LR").

20. To also state the basis of the Board Directors’ recommendation to grant approval for Perisai to enter into the Term Sheet with the vendor (which material terms contained therein, shall be a binding agreement), taking into consideration the Board of Directors’ opinion as stated in Perisai’s announcement dated 10 May 2010 that the disposal of Garuda Energy (L) Ltd to Mr Nagendran Nadarajah was in the best interest of Perisai.
21. The highest percentage ratio applicable to the Proposed Acquisition pursuant to paragraph 10.02(g) of the LR.
22. All other relevant information as stipulated under Appendices 10A and 10C of the LR.

Please furnish Bursa Securities with your reply via an announcement within one (1) market day from the date hereof.

Yours faithfully
Head, Issuers Listing Division Regulation

RHB Clarifies Its Statement On Perisai

In the earlier posting, Perisai: Life Is Too Damn Good!, I highlighted the following: In a news flash yesterday morning from the Edge (strange I can't find the url of the article but that article can be viewed here: )

  • RHB Research said on Wednesday, March 30 that this was an unusual transaction which brings the former CEO back into the company, and more so given Perisai had sold Garuda to him in mid-2010 for just US$5 million cash.

    In early-2010, Garuda had acquired a jack-up rig for US$5m cash, which Perisai now appears to be targeting in this acquisition. Other than a change in name (from Hercules 191 to Rubicone) the rig is currently being converted into a MOPU.

    The rig has also been chartered out to Gryphon on a 2+1 year bareboat charter basis for US$25 million per annum.

    “We are concerned about the transaction and the new issue of shares, which will give Nagendran a 13.5% stake at a 20% discount to the current share price of 81 sen.

    “This will dilute current major shareholder Ezra Holdings' 19% stake to 17%. Moreover, we believe there is a corporate governance issue relating to the effective purchase of the asset at 14x premium to the original disposal price of the same asset,” it said.

Apparently, RHB now said they were wrong!

♦ A good deal. After meeting with management yesterday, we realised that all our concerns as highlighted in our RHB Equity 360 report were factually inaccurate and the report has been withdrawn. In fact, the proposal appears to be a good deal for Perisai, given: 1) the availability of the asset coincides with the long-term charter contract; and 2) the bare boat charter of US$25m p.a. for a period of 2+1+1 years is expected to be net cashflow positive to Perisai.

♦ Not the same asset. We note that Perisai’s management took a prudent view in early-2010 and chose not to speculate on the market demand for jack-up rigs at that point, and decided to sell Garuda Energy. Moreover, management clarified that Garuda Energy owned the shell of a used jackup rig at the point of sale in 2010. Today, the asset has been refurbished by the vendor and is undergoing conversion into a Mobile Offshore Production Unit (MOPU).

♦ Arms length transaction. We understand the negotiations were conducted at arms length (and this is not a related party transaction as the vendor had in 2010 sold out of Perisai to Ezra Holdings). Moreover, Perisai will only pay the balance of US$66m purchase price (nett of the US$4m deposit) upon delivery of the MOPU to the charter client as per the specifications of the client and Perisai. Any cost overruns will be fully borne by the vendor. Therefore, we believe there is no corporate governance issue with the proposal, which has been negotiated to the benefit of Perisai shareholders, and is still subject to a due diligence exercise.

♦ Risks. We believe the cyclical risks are inherent in all industry players, but for Perisai, the risk is mitigated by this long-term contract as well as longer-term expectations of jobs in Malaysia’s marginal fields. A reversal in the crude oil price uptrend would however affect the vessel assets that were recently acquired from Ezra. In our view, despite net gearing of 0.7x end-2010, Perisai should have no problem raising funding for the RM150m cash portion of the purchase price given the ready long-term contract.

♦ Potential for upside. Our back-of-the-envelope calculation suggests net profit contribution from the charter to be around RM40-50m, vs. the FY10 reported net profit of RM10.3m and FY11 consensus net profit of RM30m (which excludes the Intan acquisition as well as this proposal). As this proposal is only expected to be completed in the 4Q11, the full-year impact would be in FY12, lifting the current consensus FY12 net profit estimate to around RM70-80m. Assuming 846m enlarged share capital, this suggests an FY12 EPS of 8.3-9.5 sen or a PER of 10.6x. Tentatively assuming a target PER of 15x, i.e. in line with our target for the market, this implies a fair value estimate of RM1.25-1.43/share.

Perisai: Life Is Too Damn Good!

The following is taken from Star Biz: Perisai acquisition draws interest

  • On Tuesday, Perisai said it was acquiring Garuda Energy (L) Ltd from Nagendran Nadarajah for a total of RM212mil, to be paid for in cash and shares. Nagendran will end up with 11% in Perisai, having just sold his 19% stake in Perisai to Singapore-listed Ezra Holdings Ltd a year ago at 48.5 sen a share for a total of RM64mil. It isn't clear why he is coming back into a company that he left not long ago. Nagendran declined to comment. More significantly, at the time of Nagendran's exit from Perisai last year, he had acquired Garuda from Perisai at only US$5mil. “On the face of it, the transaction does raise eyebrows over whether the valuation is fair and whether it is a related party transaction,” said an analyst....

So let me get this straight up.

Nagendran Nadarajah had sold his stake in Perisai for 64 million.

He bought Garuda from Perisai for US$5 million.

Apparently that was a year ago.

And now Perisai is buying back Garuda from Nagendran for a nice tidy price of US$70 million!!!

Ok, apparently Garuda is now slightly different.

From the edge, Nagendran returns to Perisai

  • Garuda Energy owns a jack-up rig, namely Rubicone, which is being converted into a mobile offshore production unit (MOPU) and the makeover works are expected to be completed by May.

So it's gonna be a jac-up rig but... hey... makeover works are not even completed yet!

And yet Perisai is buying back Garuda for US$70 million!!!

In a news flash yesterday morning from the Edge (strange I can't find the url of the article but that article can be viewed here: )

  • RHB Research said on Wednesday, March 30 that this was an unusual transaction which brings the former CEO back into the company, and more so given Perisai had sold Garuda to him in mid-2010 for just US$5 million cash. In early-2010, Garuda had acquired a jack-up rig for US$5m cash, which Perisai now appears to be targeting in this acquisition. Other than a change in name (from Hercules 191 to Rubicone) the rig is currently being converted into a MOPU. The rig has also been chartered out to Gryphon on a 2+1 year bareboat charter basis for US$25 million per annum. “We are concerned about the transaction and the new issue of shares, which will give Nagendran a 13.5% stake at a 20% discount to the current share price of 81 sen. “This will dilute current major shareholder Ezra Holdings' 19% stake to 17%. Moreover, we believe there is a corporate governance issue relating to the effective purchase of the asset at 14x premium to the original disposal price of the same asset,” it said.
WOW! A 20% discount!

Anyway... apparently ... the market is loving Perisai way too much! Let's fly up, up and awayyyyyyyyyyyyyy!


  • The Board of Directors of Perisai wishes to announce that Mr. Nagendran C. Nadarajah, the Managing Director/Substantial Shareholder of the Company has entered into a Share Purchase Agreement dated 9 April 2010 with HCM Logistics Limited, a wholly-owned subsidiary of Ezra Holdings Limited, Singapore, for the sale of his entire direct and indirect shareholdings in the Company representing approximately 19% of the capital of the Company ("the Disposal"). The Disposal is expected to be completed on or before 7 May 2010. Save for above, none of the other directors and persons connected to them have any interest in aforesaid disposal. This announcement is dated 9 April 2010 .
Sold 9th April 2010....

And in regarding Garuda... a few months earlier, back in Dec 2009. From the Star Biz Perisai acquires jackup drilling rigs for rm34mil

  • PETALING JAYA: Perisai Petroleum Teknologi Bhd has acquired two jackup drilling rigs for US$10mil (about RM34mil). In a filing with Bursa Malaysia, Perisai said its units Garuda Energy (L) Inc and Hummingbird Energy (L) Inc entered into a purchase and sale agreement with Cliffs Drilling Co and The Offshore Drilling Co for the acquisition. It said the acquisition would provide a platform to convert the rigs into mobile offshore production and storage units and to generate robust earnings by hiring them to oil and gas field owners. “The acquisition is synergistic to the evolved activities of Perisai to serve as a one-stop centre for its planned marginal field development and deepwater activities,” it said.

Garuda bought 2 jackup drilling rigs for US$10 million.

And that was Dec 2009.

And in 2010... how much did Perisai sold Garuda to Nagendran for? Answer? US$5 million!

ps: Life is simply too damn good and I think I am in the wrong freaking business!!!!!


Do see update on this posting: RHB Clarifies Its Statement On Perisai

You'll Know

Been listening to this song a lot and frankly I do not even know why. Just love this part...

  • ..... Thunder only happens when it's raining
    Players only love you when they're playing
    They say, women, they will come and they will go
    When the rain washes you clean you'll know
    You'll know .......

Friday, March 25, 2011

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Looking Back At Hai-O Then And Now.

Someone asked me why I do less full review of stocks lately.

Well two reasons. The main one is that I am rather lazy. ( LOL! Totally lame! :P )

Secondly I lack motivation. (Haha! What an even more lame excuse! :P )

Well in my flawed ways, when one writes a review of a stock, one should present it in the best fullest possible way giving full consideration to the possible pros and cons on the stock. One should attempt to give both side of the story highlighting the possible positives and possible negatives about the company. To insist only the positive while brushing aside all posble weakness is way too shallow. That's my flawed personal opinion. :)

And this is where it gets tricky and tacky.

And as mentioned many times before, I always believe that any stock can go up or down on any given day. That's just how complicated and complex the market.

And no, I am not even suggesting that fundamental reasoning does not matter. I certainly dare not.

And to complicated matters, time frames complicates matters. It does.

And more so share price movement ( and yeah, it's even more complicated when different time frames are used) is used to judge one's reasoning instead of the justification of one's reasoning.

One of the most interesting example is of course, Hai-O's example, a posting which I had posted yesterday. ( Update On Hai-O ).

Now this one is certainly an interesting case since I had blogged on Hai-O back in 2008.

This was my FULL Review Of Hai-O on April 2008.

I am re-posting it in full here.


Dedicated to Unker TK.

All data is compiled by myself from Bursa Malaysia website. ( I am liable to make an error and if I do make an error on any numbers, do let me know)


HaiO sells herbs, health suppliments, health tonics and tea. Here is the company website:

Hai-O yearly earnings track record.

Numbers are always extremely interesting and can always be interpretated in many, many ways.

For example, using the bigger picture perspective, one can see from the above table that, HaiO's performance from 1999-2006 was poor. FY 2006 showed HaiO earnings 10.1 million which is a fantastic improvement from its fiscal year 2005's earnings of 5.5 million. However, I would base it on the bigger picture and would consider the fact that for its fy 1999, HaiO was already earning some 11 million. Hence the huge jump in earnings in 2006 should rather be discounted and that HaiO's earnings only turned around in 2007.

So from a bigger picture perspective, one can argue that so far, HaiO has only fantastic year which is fy 2007 and also judging from its ttm (trailing twelve months) earnings, HaiO should have another grand earnings for its current fy 2008.

Now here's another way to look at it where I can make HaiO look like one incredible growth stock!

Let me take out the FY 1999 to FY 2003 earnings. And let's look at the earnings below.

This is now looking like one incredible growth stock eh?

Firstly, here's a site for you to calculate your CAGR (Compounded Annual Growth Rate):

Let us see if we calculate the CAGR from 2003, we would get the following:

Which looks simply superb! A company growing at an annual compounded growth rate of 57% for its most recent 5 years!

And it's so good that the company has this chart on their website. (see )

However, if the time frame is switch to focus on HaiO's performance from 1999 to 2003, see the results below.
And the CAGR would show a terrible result.

Point is one should understand that numbers can tell different stories depending on how and where you want to look at it from.

For me, I would merely note that HaiO had a fantastic fy 2007 and this year, it should have another fantastic fiscal year.

Would I boldly declare HaiO as a fantastic growth stock? Would you?

Some would simply argue that two great years do not make a growth stock.

Some would simply argue that in HaiO's case, one should look at the bigger picture. From 1999 to current, one has a 10 year time frame, and out of this decade, HaiO has probably performed terribly for 7 years! Although the current 2 years, HaiO is performance is fantastic.

Hey, don't stare at me. I already said that it's so subjective on how one looks at a set of numbers, didn't I?

Hai-O's Current Quarterly Earnings

If you look at the table above, basically HaiO's change of fortune happened since its FY 2007 Q3 earnings.

Balance Sheet

Balance sheet is looking great lately. However, from the quarterly earnings table do note that SI denotes Short Term Investment.

And I never do like to see stuff like this in our local stocks. For me, a listed company should just concentrate and maintain their focus on the company's core business ( Did HaiO failed in this area before?) and not dabble into short term investments. Any excess cash should be simply returned to their shareholders.

From HaiO's website, from their 2007 Annual Report (634 KB) (see page 115) it states that this short term investments is in Unit Trusts!

As of the recent quarterly earnings reported last month, short term investments stood at 22.850 million. Now isn't that an awful lot of money to put into Unit Trust?

Broker Coverage

Affin, OSK and RHB Research covers the stock. So does I-Capital.

RHB in its latest report:

  • Corresponding to the change in our FY04/08-10 earnings projection, indicative fair value is upgraded to RM4.64 from rm4.04 based on unchanged target PE of 19x CY08 EPS, which is at 40% discount to our CY08 target PE of 16x for the consumer sector, to reflect the smaller earnings base and market capitalisation. Maintain Outperform.

Note: I see CY08 earnings net profit forecasted by RHB is at 38.1 million. (ttm earnings indicates a net earnings of 37.6 million)

OSK in its latest report:

  • Maintain BUY. Having taken into account on the current stock market condition and our downgrading in the GDP projection from 6.2% to 5.8%, we are now more conservative thus assuming the lower band of the PE and P/BV of the retail sector. Notwithstanding, our target price revised higher following the earnings revision; and rolling our numbers to FY09. We peg a target price of RM5.00 (previously RM4.60) by applying the composite of 10x (previously 12x) over FY09 EPS of 50.6 sen and P/BV of 2.6x (previously 3x). We reiterate our BUY recommendation on Hai-O.

Note: I see OSK is basing HaiO value on its estimation of HaiO's FY09 earnings, which is estimated at 42 million.

The reports can be be downloaded here: Hai-O Robust earnings driven by MLM division, Hai-O 3QFY04/08 Results Boosted by MLM and Hai-O Amazing Performance


1. Earnings have been absolutely fantastic the past 2 years or so.

2. Balance Sheet is looking fantastic. Its cash flow is simply awesome!


1. Is this a flash in a pan?

What's driving this success for HaiO? Last June, the following article was published on Star Business: MLM and pu-er tea to drive Hai-O sales. The following section is worth noting:

  • The sterling performance was due to the MLM division, more intensive sales promotions by the retail division for its royalty customer programme and additional sale of pu-er tea.

    Revenue contribution from the MLM division grew 84% while the wholesale segment jumped 119% in FY07.

    In addition, the company’s profit margins had improved, thanks to the ringgit appreciation, which lessened import costs and it saved RM1.5mil from a waiver of rental costs and reimbursement on certain expenses for leasing of a shopping complex.

    Higher investment income also added to the profitability, Hai-O said.

    In keeping to its promise to pay 50% of after-tax profit to shareholders, Hai-O has declared a final dividend of 13 sen per share, bringing the total dividend for FY07 to 18 sen a share.

    “We’re proud to be able to sustain our growth since we’ve been around for 32 years now,” Tan said, adding that by carrying only premium products, it was able to fetch better margins.

    The MLM model was also seen as sustainable as Hai-O had an average of 1,000 new recruits every month, he noted.

    Hai-O has started opening retail outlets in high-traffic shopping malls, such as 1 Utama, Queensbay Mall (Penang) and Pearl Point (Old Klang Road), he said, adding that previously it was focused on shoplots.

    Next year, another outlet is targeted to open in Mid Valley Megamall.

From a PURE investing perspective, serious consideration has to be made on the sustainability of HaiO's impressive earnings. In short, is it a flash in a pan.

As stated, pu-er tea and aggressive MLM is driving in the earnings.

Is there a sustainable long term competitive advantage in these two factors?

For example, pu-er tea. How many people you know really drinks this tea? Is it a fad? Is there a substitute equivalent? How much do you really know about this tea?

And then you have the MLM issue, all which is so highly debatble of course. Some believe strongly in such marketing strategy, while some don't because they believe that MLM simply don't last! ( The following recent article is interesting too: Top Hai-O agents earn RM1mil a year - wow, so lucrative?)

How? Would you rate this as a concern at all?

2. Is there a risk to HaiO strong cash balances?

I like to look at the past. It gives an idea what the company has done before and I used it as a rough indicator. For example, in the case of HaiO's strong cash balances, the main concern is what if the company squanders the cash by spending in an extravagant manner? Would this not be a legimate concern? After all, we are talking about investing (buy-and-hold long term) in this stock?

Back in 2003, there was an interesting article on HaiO.

(The above screenshot of the article is clickable for a larger and clearer image or u can see the same article here: )

The following section of the article was very interesting for me:

  • On why Hai-O was venturing into the IT sector, he said: “We are debt free and cash rich as we have RM8mil in fixed deposits, RM4mil in our current account, and RM20mil in overdraft facilities. Therefore, we will venture into any business if it can bring us some benefit.”

I didn't like how and what's been said. Rather arrogant in my opinion.

Firstly, HaiO then was a simple Chinese herbs player. That it wanted to venture into IT was a shocker! A shocking diversification if you asked me. And the manner it talked about its cash balances to the media was rather so arrogant!

And what's more shocking is the following table below.

As one can see from the above table, for its fy 2003. HaiO had a total cash of 13 mil. And note that the above table indicated a huge jump in the number of shares in HaiO.

And when I dig deeper, I noted that HaiO had a Rights Issue in 2003.

Now how? This gives a whole meaning of being cash rich company, yes? See, their debt free and cash rich was not via the company's hard work but this net cash resulted from a rights issue!

And what happened next was interesting.

Now if one look at its 07 Q4 quarterly earnings (Quarterly rpt on consolidated results for the financial period ended 30/4/2007), one would note..

  • On 18 April 2007, the Company disposed of the entire 100% equity interest in Hai-O Informtech Sdn Bhd , comprising of 2,000,000 ordinary shares of RM 1.00 each for a total cash consideration of RM 280,000.

Invested 2 million.. sold for 280,000. What about the extras spend during this period? Remember the inital plan was to spend as much as 10 million!

And if one refer back that April 18th announcement: DISPOSAL OF SHARES IN HAI-O INFORMTECH SDN BHD (533171-D)

  • 3. EFFECTS OF THE DISPOSAL The Disposal is not expected to have any material impact on the issued and paid-up share capital and shareholding of the major shareholders of Hai-O. The Disposal is also not expected to have any material impact on the net assets and earnings of Hai-O Group for the current financial year.

No material impact?

Take 2007 numbers. It said that it earned a net earnings of 22.114 million. Take this investment of 2 million. Sold at 280k. This is a loss of 1.716million. Yes it's small. BUT do compare 1.716 million to its net earnings of 22.114mil. Well that's about 7.7%.

And strangely, I do not see where and how HaiO accounts for this loss.

Anyway would you call that as an example of past extravagent spending?

Fast forward to present day.

Hai-O buying land in Klang for new facilities (See also: New warehouse to contribute positively to Hai-O in 2009 )

  • Hai-O buying land in Klang for new facilities
    21 Dec, 2007
    Source: New Straits Times

    HAI-O Enterprise Bhd, a wholesaler and retailer of Chinese herbs and medicine, is spending RM50 million to buy a plot of land and build new facilities in Kapar, Selangor.

    The company will pay RM45 million to Bata (Malaysia) Sdn Bhd for a 11.2ha site, and spend another RM5 million to set up a new factory and a warehouse there, senior officials said.

    It has yet to finalise the building plan and manufacturing output, they added.

    Managing director and chief executive officer Tan Kai Hee said the company would use its reserves to pay for the land and build new buildings to expand its manufacturing output. It may also consider a private placement to raise the fund.

    "We are cash-rich, generating RM10 million to RM15 million annually to our reserves," Tan told reporters at the signing of a sale and purchase agreement on the Kapar land in Kuala Lumpur yesterday.

    Financial controller Hew Von Kin said Hai-O would use about 6.8ha of the land to build new facilities, while the balance of 4.4ha would be leased back to Bata for handsome fees.

Oh oh.

Where did I read this statement, "We are cash-rich, generating RM10 million to RM15 million annually to our reserves" before?

Dejavu again?

Some view an investment into a stock as being a business partner of the company. Now as a business partner of this business, how do you feel if your partner keeps telling the whole world that they are cash-rich?

And what about this 50 million land purchase again?

Tell me, am I biased or is the sum of this purchase simply way too extravagant? Isn't it simply excessive?

Isn't it like back in 2003. Company had no expertise in IT but yet it went in big time. And now spending 50 million to buy land.

Instead of trying to justify this so-called investment, let's focus on the size instead.

50 million is a lot of money!

Why can't this company spend 10 million instead?

Seriously, can the company not buy land and built a factory with 10 million? No other land in Malaysia?

Ok, if 10 million is not enough, how about 20 million?

Surely 20 million is enough, right?

So why 50 million?

( Note: Hai-O secured RM20m loan to finance property buy )

How? Does one see concern and risk to HaiO's strong cash balances?

And do note, HaiO has been actively buying back the company shares in the open market. And that HaiO's management has promised to return back 50% of its earnings back to the shareholders as dividends and not forgetting that it's rather active with their unit trusts investments. So much plans, eh?

And it all seems to hinges on this pur-tea and MLM earnings.

How would you evaluate your risk in such an investment?

Would you invest in this company?


This was followed by another posting: More On HaiO

TK said:

  • I was initially interested in Hai-O. However, I do not like the 50 Mil investment in property.

    Pu-er tea, Moo Moo, this tea, as far as I know, once being 'goreng' & some cost few thousands ringgit a kati hoo.... dun play play... There are people who buy this tea to keep (investors?), the value will goes up according to its age if it is properly kept.

    Re the herbs, Hai-O looks like improving in its marketing (outlet design, product packaging). I think its competitors will be 'Yu Yan Sang' I was shocked when I see the price of 'Tong Chong Chow' RM400-RM800 per pack.& I beiieve that chinese herbs business is a fat profit margin business.One of my classlmate drove Merz after joining their MLM while I was still in college. But thats before Hai-O listed... How?

Many thanks Unker TK for sharing what you know.

BullBear posted on FusionInvestor chat:

  • HaiO is selling at a low PE (based on ttm-eps). It earns >25% on equity and its net profit margin >10% of its revenue. The arguments centred on its management and its business franchise. IF HaiO continues to perform, those who invested into it would have a return of x% (?5%, 10%, 30%, 50%, 100%), if it unperforms, one might lose y% (?5%, 10%, 30%, 50%, 100%), . Works out the odds (x/y), and see if you like the odds.

    Peter Lynch: "The very best way to make money in a market is in a small growth company that has been profitable for a couple of years and simply goes on growing." The key objective of the investor should be to avoid a major loss, the occasional huge winner will offset a number of small losses." "When the news seem terrible, that's when you make the big money in the market."

My dearest BullBear,

A low PE stock means only one thing and that is the stock is trading on a lower valuation compared to what it is currently earning.

Some simply consider that what is happening is the stock is being ignored in the market despite its impressive earnings.


The market could be wrong and that perhaps this is a stock that's an ignored gem. Yeah, the classical hidden gem and if this is the case, investors who invests in the stock could be rewarded for their stock selection.

However, on the other hand, sometimes the market could be right and that they do sense something is not right within the stock.

And because of this reasoning, I have always realised that a low PE stock does not make a stock a QUALITY stock.

It just means the stock is trading 'cheaply'.

It could be a bargain but it could also be a trap.

In this instance, HaiO is obviously trading cheaply compared to its current earnings.

Now, yes I've raised the concerns on the management and business model.

In every investment reasoning I always evaluate my pros and cons in any investment opportunity.

Yes, HaiO is making tons of money but what's the concerns? What's yours? Well mine are the two simple issue, management and business model.

Main issue here is, are the concerns that I raised legitimate?

Are you comfortable with a MLM business model? Would you invest and buy-and-hold for the long term in such a business?

The issues I raised about the management. Well, did it not happened? Was it not legitimate?



Ah.. I never got the answers for the questions I raised in the posting More On HaiO

But that's not important.


Hai-O soared. Did you make money?

And here's the chart since 2008. Note where I had drawn the line when I made that posting. (I believe the chart had adjusted and priced in the 'bonus and stock split' exercise in 2010)

Nope, this is not ego booster posting and not certainly not a I told you so posting.

Let's look at the Pro and Cons.

The pro.

  • 1. Earnings have been absolutely fantastic the past 2 years or so.
    2. Balance Sheet is looking fantastic. Its cash flow is simply awesome!

The earnings continued to soar and I have to add that Hai-O was rather generous with their dividends too.

Needles to say, the stock soared. CHECK!

Now the cons.

  • 1. Is this a flash in a pan?
  • 2. Is there a risk to HaiO strong cash balances?

And the questions I had raised on the other posting.

  • Yes, HaiO is making tons of money but what's the concerns? What's yours? Well mine are the two simple issue, management and business model.

    Main issue here is, are the concerns that I raised legitimate?

    Are you comfortable with a MLM business model? Would you
    invest and buy-and-hold for the long term in such a business?

    The issues I raised about the management. Well, did it not happened? Was it not legitimate?

Well, as we all now today, that flash in the pan lasted much longer. The boom in Hai-O's earnings caused by the incredible growth in Hai-O's MLM's business model, lasted much longer.

And the stock went up, up and awaayyyyyyy!

Buyers and investors of the stock was well rewarded for taking the investing risk in the company.

But as stated as one of the cons of the business is the MLM business model itself. As many would know, the MLM business model simply isn't sustainable for the long term.

If had one bought the stock in 2008, would one be holding it and loving it forever and ever and watch the stock price sink lower and lower the past year?

Or should one recognise that business model had taken the turn for the worst and recognise that the earnings had been slowing down badly ( do see yesterday Update On Hai-O ) and perhaps the best option is to exit the investment?

Or should one still consider to HOLD because they simply believe in the buy and hold investment theory?

Ah... don't ask me. I have no answers for I am not the friendly investment advisor.


Yup, exactly!!!

My talk or writing is simply way too cheap. :=)

But isn't this simply too interesting?

Buyers who understood the pro of the stock would have been rewarded handsomely and if the buyer understood clearly that MLM business growth cannot last forever, certainly they would have understood that there's a time frame involved with such an investment.

ps: How about Hai-O today?

Simple question I would ask ... 'Is Hai-O today the same as Hai-O back in 2008'?

What's the difference then and now?

Thursday, March 24, 2011

Update On Hai-O

Posted last June: Hai-O Warns Of Challenging Next Year

Made the following remarks then:

Company itself said 'next financial year will be challenging because of the slowing down in sales activities in the MLM division'.

Ok, as it is, on a y-y comparison, everything is still rosy as its earnings is 70.9 million. Last year it was 52.3 million.

However, since the company is warning of a challenging next year, perhaps its best for one to look at the sales/earnings numbers on a q-q basis.

Here is the most recent 4 quarters.


Is the slowdown apparent?

On Sep 29, I made another posting Quick Update On Hai-O Earnings

Last night Hai-O reported its earnings.

Trailing earnings shows earnings of 35 million but based on recent earnings one would not be too shocked to see earnings at around 25-26 million for fy 2011.

What's the best way to put this ttm into perspective? Won't a simple comparison versus what Hai-O had done over the recent few years be useful?

Hai-O had an incredible run. Last fiscal year 2010, it recorded some 70 million in earnings, which was extremely impressive given that it's fy 2009 earnings of 52.290 million (It's fy 2009 earnings was itself impressive, yes?)

However, the current TTM (trailing twelve month) numbers looks shockingly poor at 35.393 million and as mentioned earlier, based on recent quarterly earnings one would not be too shocked to see earnings at around 25-26 million for fy 2011.

Clearly that the great growth story of its MLM business model is simply not sustainable. Yup, some high growth story cannot last forever and ever.

Wednesday, March 23, 2011

Regarding Xingquan And Taisan

Received one set of comment from the posting View From The 'Buy Side' Analyst On Xingquan

  • 廖福深 said...
    I like to point out Xingquan TDR is not even submitted to Taiwan authorities for approval so it is incorrect to state that its TDR has been approved. Recent TDR in Taiwan is more for very big cap company. Nevertheless, if Polaris is handling its TDR program then it should be fine as it is the most successful TDR "chonker". But TDR and ordinary shares are not fungible. Even if the TDR price goes up, its Malaysian price does not have to follow. I think Taiwan investors want companies not found in their market like oil & gas and maybe plantation counters. These are the type of TDR that can do well. Technic oil from Spore TDR (first TDR on OTC) went a few times limit up in its debut because it is the only oil and gas counter in Taiwan. An Ace company with Malaysian flavour will soon try its luck on Gretai (OTC) TDR. That will do better than Xingquan.

Hmm... firstly the inaccuracy of the approval status.

On the posting , View From The 'Buy Side' Analyst On Xingquan, let me repost once more, my exact words.

  • Some would argue that the cash would improve back since Xingquan's TDR program has been approved. (The TDR should bring in some 76 million to its coffers).

    But...the lack of earnings is now a worry, since the TDR will cause a dilution of EPS by 15%!


  • On behalf of Xingquan, CIMB Investment Bank Berhad wishes to announce that the Controller of Foreign Exchange (via Bank Negara Malaysia) has, vide its letter dated 29 December 2010, which was received on 3 January 2011, approved the Proposals subject to Xingquan obtaining the approval and adhering to the conditions imposed by the relevant authorities in Malaysia.

Controller of Foreign Exchange (via Bank Negara Malaysia) had approved the proposals and I used that as my reference.

On 5th March, from Star Business article, Xingquan sees higher demand on China's rise in spending

  • On the proposed Taiwan Depositary Receipts listing in Taiwan Stock Exchange, Wu said the company was still in the discussion with bankers and would announce the latest development in a few weeks.

Well my interpretation is that Xingquan WANTS this TDR. Of course, it would still need the approaval from Taiwan authorities and you are certainly more than correct to say that my statement is probably not accurate.

However, since Xingquan WANTS the TDR and has shown no indication that it will abort the TDR and if one is an investor, how does one want to gauge the impact of the TDR?

The impact as stated in last year's posting, Xingquan's TDR, is Xingquan's share will increase from 307,330,000 to 353,429,500 once the TDR is issued.

That was Xingquan's proposal. Of course, there's a chance they could still changed it but as an investor, from an investing perspective, that's a possible 15% dilution of earnings per share ( Sorry, in case you do not realise it, I really do not like to indulge in share prices moving up or down, so I certainly have no idea in regards to the corelation between share price and the TDR price - however, having said this, I will try to share something later in this posting..) and I was more than puzzled with the TDR. From the posting Xingquan's TDR again:

  • Company will rake in 76 million from this exercise.
    I am puzzled as usual. :P
    It's a fund raising exercise which will dilute current shareholder's earnings by 15%. ( To be more exact and precise, the TDR will list end fy 11, which means the dilution of earnings will only be felt in 2012. )
    In the posting, Regarding Xingquan , there's still plenty of money raised during Xingquan's IPO which had not been utlised. ( see table here ) and as highlighted in that posting, Xingquan also wants to expand and expand. So despite the huge cash left ( see posting Quick Review Of Xingquan's Earnings ), apparently the cash is not enough.
    Hence this TDR.

So with Xingquan, planning to list end fy 2011, should I not take the TDR into full consideration? Should I assume that it will happen?

Of I could be wrong but I would.

And then the issue of the TDR itself. Why the need to raise this RM 76 million?

From the posting made last month: Review Of Xingquan's Earnings

As per Xingquan latestet earnings, Xingquan still has 176 million cash and some 36 million in borrowings. Very cash rich but it still wants to do the TDR.

( In regards to the plenty of cash, blogger snowball is puzzled with the extreme low interest received from Xingquan's cash. Why is Xingquan getting so little returns from all the cash it has? Anything amiss here? )

It does make me wonder too.

Now back to TDR thingy.

Do indulge with me for a couple of minutes and let's take a look at a SGX listed stock.

Does anyone follow Taisan or CTSAN?

Ok, from the link, one can click on its financials ( use this link ) and see that Taisan had a 'bad' year in 2009 (didn't most company had a bad year too in 2009?). It recovered in 2010.

Anyway, Taisan TDR was listed on 6 Oct 2010. (refer announcement here: )

Now on 12 Jan 2011: CHINA TAISAN: On track for a strong rebound in 2010 profit

THERE ARE A few key financial points worth keeping in view following a presentation by Patrick Kan, the CFO of China Taisan, at CIMB during lunch yesterday.

1. The 4Q is typically the strongest quarter for the business.

Any investor can then surmise that if this also holds true for 4Q10, then China Taisan’s net profit would be in excess of RMB170.1 million (first 9 months’ earnings) + RMB 60.7 million (assuming 4Q is equal 3Q earnings).

In other words, in excess of RMB230.8 million.

That would be about 4 Singapore cents in earnings per share, taking into account the 125 m shares issued for its TDR in 4Q. ( Me: To put into perspective, Taisan have 984.6m shares in SGX, 125m TDR shares )

With that, it looks like Taisan (yesterday's closing price of 18.5 cents) is trading at a PE of about 4.6X last year’s estimated earnings.

Compared to its Net Asset Value, Taisan stock trades at slightly below its Net Asset Value of 99.96 RMB cents, or about 19.6 Singapore cents.

2. Taisan will propose a dividend next month along with its full-year results.

For FY08 and FY09, subsequent to its IPO in 2008, Taisan had paid out 30% of its net profit as dividend, becoming a rarity of sorts among S-chips which tend not to declare dividends. Taisan paid out 3.45 RMB cents and 8.15 RMB cents for FY 08 and FY 09, respectively.

Whether Taisan will maintain the 30% payout for FY10 is unclear since the company needs to fund its expansion plan. If the dividend is unchanged in absolute terms from last year's, that would translate into a yield of about 3.7%.

Taisan has said it would spend RMB211 m in the 1H of this year to expand the production capacity of its existing factory. It is utilizing its TDR proceeds to build a new factory which is targeted for completion in 2012 and could cost around RMB350 m.

3. The RMB200 m capacity expansion in 1H this year is in response to urgent demand.

Throughout 2010, the factory utilization rate has been above 80%, said Patrick.

“It’s not for nothing that we want to expand capacity now,” he said. “Our order book is very good. There is a need for us to quickly ramp up our capacity. The feedback from customers is very good and they want us to supply to them.”

4. Taisan has lots of cash – and the business had positive operating cashflow.

As at end-Sept 2010, it had RMB476.4 million (S$93.4 million) net cash. Its TDR listing raised another S$31.9 million in gross proceeds.

Its operating cashflow for 9M10 was RMB109.8 million


A good example perhaps?

LOTS of cash, positive operating cash flow, low PE, dividends too.....

Stock was trading at 18.5 sen on 11 Jan 2010. Yesterday it closed at 13.5 sen.

Ah... perhaps the market in SGX has got it all wrong. Perhaps SGX market players don't know a good 'value' company.... but for whatever the reason, again we have a China company listed overseas, which has LOTS of cash, positive operating cash flow, low PE, dividends too..... and a TDR program.... but look at where the share price is heading???

** Left this out: here's the link to Taisan's latest earnings report:$file/ChinaTaisan-4Q10.pdf?openelement

Ah..... so where are we now?

Oh back to Xingquan. Seriously I have NO idea how Xingquan will trade in the future. For me, any given share can and will go up on any given day or down too and since I had posted my fair share of comments on Xingquan, so I guess I should not add much to it except highlight links to my older postings.

Tuesday, March 22, 2011

Featured Posting: GMO's James Montier: Seven Immutable Laws of Investing

From John Mauldin's Outside the box article (You can subscribe to the article here: - Free lah) feature's GMO's James Montier piece this week.

  • The Seven Immutable Laws of Investing

    James Montier

    In my previous missive I concluded that investors should stay true to the principles that have always guided (and should always guide) sensible investment, but I left readers hanging as to what I believe those principles might actually be. So, now, for the moment of truth, I present a set of principles that together form what I call The Seven Immutable Laws of Investing.

    They are as follows:

    1. Always insist on a margin of safety
    2. This time is never different
    3. Be patient and wait for the fat pitch
    4. Be contrarian
    5. Risk is the permanent loss of capital, never a number
    6. Be leery of leverage
    7. Never invest in something you don’t understand

I like 3,5,6,7

LOL! I know.. how can I leave out MoS? Well I find the Margin Of Safety so badly abused nowadays but that's my flawed opinion. Don't get misunderstood. It's not that I think MoS is flawed, in fact I agree with it but like I said, it's so badly abused by investors who tweaks the MoS to their own requirement.

Anyway, here's James Montier No.3, 5, 6 and 7.

3. Be Patient and Wait for the Fat Pitch

Patience is integral to any value-based approach on many levels. As Ben Graham wrote, “Undervaluations caused by neglect or prejudice may persist for an inconveniently long time, and the same applies to inflated prices caused by over-enthusiasm or artificial stimulants.” (And there can be little doubt that Mr. Market’s love affair with equities is based on anything other than artificial stimulants!)

However, patience is in rare supply. As Keynes noted long ago, “Compared with their predecessors, modern investors concentrate too much on annual, quarterly, or even monthly valuations of what they hold, and on capital appreciation… and too little on immediate yield … and intrinsic worth.” If we replace Keynes’s “quarterly” and “monthly” with “daily” and “minute-by-minute,” then we have today’s world.

Patience is also required when investors are faced with an unappealing opportunity set. Many investors seem to suffer from an “action bias” – a desire to do something. However, when there is nothing to do, the best plan is usually to do nothing. Stand at the plate and wait for the fat pitch.

5. Risk Is the Permanent Loss of Capital, Never a Number

I have written on this subject many times. In essence, and regrettably, the obsession with the quantification of risk (beta, standard deviation, VaR) has replaced a more fundamental, intuitive, and important approach to the subject. Risk clearly isn’t a number. It is a multifaceted concept, and it is foolhardy to try to reduce it to a single figure.

To my mind, the permanent impairment of capital can arise from three sources: 1) valuation risk – you pay too much for an asset; 2) fundamental risk – there are underlying problems with the asset that you are buying (aka value traps); and 3) financing risk – leverage.

By concentrating on these aspects of risk, I suspect that investors would be considerably better served in avoiding the permanent impairment of their capital.

6. Be Leery of Leverage

Leverage is a dangerous beast. It can’t ever turn a bad investment good, but it can turn a good investment bad. Simply piling leverage onto an investment with a small return doesn’t transform it into a good idea. Leverage has a darker side from a value perspective as well: it has the potential to turn a good investment into a bad one! Leverage can limit your staying power and transform a temporary impairment (i.e., price volatility) into a permanent impairment of capital.

While on the subject of leverage, I should note the way in which so-called financial innovation is more often than not just thinly veiled leverage. As J.K. Galbraith put it, “The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version.” Anyone with familiarity of the junk bond debacle of the late 80s/early 90s couldn’t have helped but see the striking parallels with the mortgage alchemy of recent years! Whenever you see a financial product or strategy with its foundations in leverage, your first reaction should be skepticism, not delight.

7. Never Invest in Something You Don’t Understand

This seems to be just good old, plain common sense. If something seems too good to be true, it probably is. The financial industry has perfected the art of turning the simple into the complex, and in doing so managed to extract fees for itself! If you can’t see through the investment concept and get to the heart of the process, then you probably shouldn’t be investing in it.

Them Auditors Saw What Madoff Was Doing..

Them auditors suspected something was amiss but what did the bankers do?

And it was not just ONCE but 25 cases were reported!!!!

  • Bloomberg News,
    HSBC Was Told About Madoff ‘Fraud Risks’ in KPMG Reports

    March 18 (Bloomberg) -- HSBC Holdings Plc, Europe’s biggest lender, was warned twice by auditors that entrusting as much as $8 billion in client funds to Bernard Madoff opened it up to “fraud and operational risks.”

    KPMG LLP told the London-based bank about the risks in 2006 and 2008 reports. The firm was hired to review how Madoff invested and accounted for the funds, for which HSBC served as custodian. KPMG reported 25 such risks in 2006, and in 2008 found 28, according to copies of the reports obtained by Bloomberg News, which was allowed access to them on the condition they not be published.

    Twenty-five “fraud and related operational risks were identified throughout the process whereby Madoff LLC receive, check and account for client funds,” KPMG said in the 56-page report dated Feb. 16, 2006. The limited controls in place “may not prevent fraud or error occurring on client accounts if management or staff at Madoff LLC either override controls or undertake activities where appropriate controls are not in place,” according to the report.

    A 66-page KPMG report dated Sept. 8, 2008, cited 28 risks and described them in the same words as the 2006 document.

    Irving H. Picard, the trustee liquidating Bernard L. Madoff Investment Securities LLC, sued HSBC and a dozen feeder funds for $9 billion in December in U.S. Bankruptcy Court in Manhattan. The suit was partly based on the KPMG reports and alleges the bank knew of concerns Madoff’s business was a fraud and didn’t protect investors. KPMG’s reports haven’t been made public. Picard has filed more than $50 billion in so-called clawback suits to compensate victims.

    Reviews ‘Foiled’
    In the reports, KPMG didn’t present evidence the risks it identified had materialized or that it found signs of actual fraud, and said HSBC had told the firm “no allegations of fraud or misconduct have been raised.”

    HSBC confirmed hiring KPMG in 2005 and 2008 to review Madoff’s firm, adding it now believed Madoff had tricked the auditors. “It appears from U.S. government filings that Madoff and his employees foiled these reviews by, among other things, providing forged documentation to KPMG,” the bank said in an e- mailed statement.

    “KPMG did not conclude in either of its reports that a fraud was being committed by Madoff,” HSBC said. “HSBC did not know that a fraud was being committed and lost $1 billion of its own assets as a victim.”

    HSBC Spokesman Patrick Humphris, KPMG spokesman Mark Hamilton and Amanda Remus, a spokeswoman for Picard’s lawyers Baker & Hostetler LLP, all declined to confirm the authenticity of the reports obtained by Bloomberg.

    At the time of the first report, HSBC was custodian for eight funds that had invested $2 billion with Madoff, KPMG said. By 2008, the bank was custodian for 12 funds with as much as $8 billion invested.

    “We continue to believe that we have strong defenses to the claims made against us and we will defend ourselves,” the London-based bank added.

    Madoff, 72, pleaded guilty to using money from new investors to pay old ones and is serving a 150-year sentence in federal prison. Investors lost about $20 billion in principal.

    In the list of risks in KPMG’s report, number 2 was that “BLM embezzles client funds,” using the initials as shorthand for Bernard L. Madoff. To prevent it, KPMG recommended in both 2006 and 2008 that HSBC “establish a process to monitor monthly statements” and reconcile them with contributions from clients.
    KPMG didn’t perform tests to check that risk.

    ‘A Sham’
    The 2006 report listed fraud risk number 5 as “client cash is diverted for personal gain” and risk number 18 as “trade is a sham in order to divert client cash.” It went on to say there were concerns “Madoff LLC falsely reports buy/sell trades without actually executing in order to earn commissions” and “BLM falsifies accounting records which are provided to HSBC.”

    KPMG reviewed samples of trades and account statements for both its 2006 and 2008 reports to test the risks and detected no discrepancies, the reports said. Even so, the firm suggested HSBC “consider undertaking a periodic review which includes tracing a sample of client trades back to the bulk order.”

    HSBC declined to comment on individual risks cited in the reports, citing the pending lawsuit.

    In prefaces to the reports, KPMG said it wasn’t hired to audit Madoff LLC and based its reports on information Madoff and his staff provided, which wasn’t independently verified.

    HSBC units in Bermuda, Luxembourg and Dublin acted as custodian for 12 funds including: Pioneer Investment’s Primeo Select, Bank Medici’s Herald (Lux) and Thema International, as well as Herald USA, Alpha Prime, Lagoon Investment, Senator, Kingate Global, Defender and Global Investments.

    The bank was also sued in Ireland and Luxembourg by investors over Madoff investments.

    In its 2010 annual report, HSBC said that by Nov. 30, 2008, the aggregate value of those funds was $8.4 billion, including fictitious profits Madoff reported.

    HSBC said that it was impossible to estimate the range of potential liabilities that could arise from lawsuits including Picard’s, adding that “they could be significant.”

Monday, March 21, 2011

Japan's Crisis: Guess Who Was There To Help?

From the Daily Beast:

  • The worst of times sometimes brings out the best in people, even in Japan’s “losers” a.k.a. the Japanese mafia, the yakuza. Hours after the first shock waves hit, two of the largest crime groups went into action, opening their offices to those stranded in Tokyo, and shipping food, water, and blankets to the devastated areas in two-ton trucks and whatever vehicles they could get moving. The day after the earthquake the Inagawa-kai (the third largest organized crime group in Japan which was founded in 1948) sent twenty-five four-ton trucks filled with paper diapers, instant ramen, batteries, flashlights, drinks, and the essentials of daily life to the Tohoku region. An executive in Sumiyoshi-kai, the second-largest crime group, even offered refuge to members of the foreign community—something unheard of in a still slightly xenophobic nation, especially amongst the right-wing yakuza. The Yamaguchi-gumi, Japan’s largest crime group, under the leadership of Tadashi Irie, has also opened its offices across the country to the public and been sending truckloads of supplies, but very quietly and without any fanfare.

    The Inagawa-kai has been the most active because it has strong roots in the areas hit. It has several "blocks" or regional groups. Between midnight on March 12th and the early morning of March 13th, the Inagawa-kai Tokyo block carried 50 tons of supplies to Hitachinaka City Hall (Hitachinaka City, Ibaraki Prefecture) and dropped them off, careful not to mention their yakuza affiliation so that the donations weren't rejected. This was the beginning of their humanitarian efforts. Supplies included cup ramen, bean sprouts, paper diapers, tea and drinking water. The drive from Tokyo took them twelve hours. They went through back roads to get there. The Kanagawa Block of the Inagawa-kai, has sent 70 trucks to the Ibaraki and Fukushima areas to drop off supplies in areas with high radiations levels. They didn't keep track of how many tons of supplies they moved. The Inagawa-kai as a whole has moved over 100 tons of supplies to the Tohoku region. They have been going into radiated areas without any protection or potassium iodide.

    The Yamaguchi-gumi member I spoke with said simply, "Please don't say any more than we are doing our best to help. Right now, no one wants to be associated with us and we'd hate to have our donations rejected out of hand."

    To those not familiar with the yakuza, it may come as a shock to hear of their philanthropy, but this is not the first time that they have displayed a humanitarian impulse. In 1995, after the Kobe earthquake, the Yamaguchi-gumi was one of the most responsive forces on the ground, quickly getting supplies to the affected areas and distributing them to the local people. Admittedly, much of those supplies were paid with by money from years of shaking down the people in the area, and they were certainly not unaware of the public relations factor—but no one can deny that they were helpful when people needed aid—as they are this time as well.

    It may seem puzzling that the yakuza, which are organized crime groups, deriving their principal revenue streams from illegal activities, such as collecting protection money, blackmail, extortion, and fraud would have any civic nature at all. However, in Japan since the post-war period they have always played a role in keeping the peace. According to Robert Whiting’s Tokyo Underworld and Tim Weiner’s Legacy of Ashes, the US government even bought the services of one infamous yakuza fixer, Yoshio Kodama, to keep Japan from going communist and maintain order. Kodama would later put up the funding to create the Liberal Democrat Party of Japan that ruled the country for over fifty years. When President Obama visited Japan last year, the police contacted the heads of all Tokyo yakuza groups and asked them to behave themselves and make sure there were no problems.

    But let’s be clear, the yakuza are criminals, albeit with self-imposed restraints, and in their way may actually keep street crime (muggings, purse-snatching, theft) down. Many Japanese still admire or tolerate them. In fact, a Nara Police Prefectural police study found that amongst adults under 40, one in ten felt that the yakuza should be allowed to exist or were “a necessary evil.”

    There is an unwritten agreement amongst the police and the yakuza groups that is acceptable for them to perform volunteer activities during a crisis but not to seek publicity for it. Before the crisis the police were cracking down severely on the yakuza and any activity placing them in a heroic light might make the police look foolish. So they have been very quietly doing their part. It is not that the yakuza are not PR savvy, as is evidenced by their careful control and limited appearances in six fan magazines (three monthly, three weekly) that write of their exploits; it is that right now they care more about getting the job done than getting credit for it. As one members said, “There are no yakuza or katagi (ordinary citizens) or gaijin (foreigners) in Japan right now. We are all Japanese. We all need to help each other .....


Manchester United's Patrice Evra Exclusive

One of my favourite Man United player is Patrice Evra. He's got an incredible intereview on the Daily Mirror.

Patrice Evra on Sir Alex Ferguson's hair dryer, Carlos Tevez and more...
By Matt Lawton
Last updated at 1:04 PM on 20th March 2011


One day Patrice Evra will write a book. 'I already have a title in mind,' he says. 'From the street to Manchester United.'

If his first major interview with an English newspaper is anything to go by, it will be quite a read.

An extraordinary rags to riches story told by a footballer who offers a rare insight into life at Old Trafford under the guidance of Sir Alex Ferguson.

Evra is a wonderful raconteur. A deep, intelligent thinker who in the hour or so we spent together at United's Carrington training base this week articulated as well as anyone during Ferguson's 24-year tenure what it means to play for the world's most famous club, for arguably the world's greatest manager.

Fluent in five languages and now working hard to master Korean so that he can converse with his close friend Ji-Sung Park, he tackles a variety of subjects.

From his clashes with Chelsea to the long and winding road that eventually took him to the place he now considers his spiritual home; from that infamous blast at Arsenal last season, when he referred to them as 'babies', to why Carlos Tevez should still be a United player.

Not to mention his transition from striker to one of the two best left backs in the world.

'It was only after I arrived at United that I finally accepted that I would be a left back,' he says.

His take on United is fascinating. He refers to Ferguson as 'a culture' and talks of 'pulling on history' with his United shirt. He speaks of 'the fire' that not only burns inside him but also the man he believes will never walk away from the club.

'The manager will die on the bench,' he declares with a broad smile. 'It is his destiny.'

Earlier this season, Ferguson addressed the subject of retirement with his players. 'It was before a game,' Evra says.

'He just started talking about how people had been saying he was going to retire. And he asked us if we seriously thought he would just be sitting in his house watching the TV, listening to the radio and doing nothing.

'He said, "No chance. I have worked all my life and I will work until I die". For a moment he laughed. And then he said, "This is my victory. I cannot walk away from this".

'Before a game he always tells a small story. Sometimes he talks about when he was the Aberdeen manager. Another time he went round the dressing room and talked about the different players. The fact that here we were, from Korea, France, Serbia, Bulgaria, from different parts of England and the world, and how we had all come together to be in the same place. He talked about our stories. The different obstacles we had overcome to get here. It gave the players this huge lift.'

Evra recalls the first time he incurred his manager's wrath. It was his debut, a difficult encounter with Manchester City that United lost 3-1.

'He took me off after 45 minutes,' says Evra.

'I could tell he was angry. He just looked at me, deadly serious, and said, "Mr Evra, now just watch and see what is English football. And learn".'

Evra did more than that. He decided to learn about United, too. 'I got a load of DVDs,' he says.

'About the Munich disaster and the Busby Babes, about Bobby Charlton, George Best and Denis Law, about Cantona. The whole story of the club. You meet these people around the club and I wanted to know who they were. What they had done for the club. Out of respect. Because when you shake the hand of Sir Bobby Charlton you can feel the legend.

'All the young players here need to understand the history of the club. After I watched those DVDs I realised I needed to respect the shirt. I needed to respect the story. Every time I play that is in my head. What a privilege it is to play for Manchester United. When you pull on the shirt you are pulling on history, and I say thanks to God that I play for this club. To be able to come in and train here. To work with legends like Ryan Giggs and Paul Scholes.

'When I arrived here people asked me what excited me most. I said it was not training with Ronaldo and Wayne Rooney but players like Giggs and Scholes. They are the history of the club. Giggs trains like a player who has never won anything in his career. His hunger. His desire to win, even on the training pitch.'

The same desire remains in Ferguson. Even at 68, after everything he has won.

'Alex Ferguson is a culture,' he says. 'And he is a winner. Football is like a pyramid. To reach the top is easy. It is staying there that is difficult. He does not let you rest. He is always hungry for the next game.

'I remember one match when we were winning 2-0 by half-time and he still gave us the hair-dryer because we should have been four or five up. He reminded us that people had paid money to watch us. "Why don't you respect them?" he screamed.

'He demands the highest standards. If you play a good game for United, you sit on the bench. Only if you play an amazing game do you stay in the team. Those are the rules and the players accept them.'

Even in this modern era of millionaire footballers, they also accept that infamous, aforementioned hair-dryer.

'After the Christmas party we had a couple of years ago, when there were the stories, he called us to a meeting and just killed everyone,' he says.

'The experienced players. The young players. It was our fault and he told us, and reminded us of the responsibility we have. He managed that situation with his temper, but he doesn't always have to because the players here have so much respect for him. If he thinks the team is sleeping he will still use the hair-dryer, though.'

Back in January 2006, after his move from Monaco to United for a £5.5million fee in what now has to rank among Ferguson's finest buys, Evra was having a tough time.

'Playing for Manchester United was something I was not prepared for,' he says.

'At Monaco I was playing in front of 7,000. At United I was suddenly playing in front of 76,000. Not even a Champions League final and playing for France prepared me for it. When I got to Manchester I discovered a new job. It's not just football. In that first game, against City, I don't think I made too many big mistakes. But I remember standing by the post for a corner thinking, "Wow, football is so quick here". I realised if you want to play in England first you need to be strong. After that you enjoy the football.

'I was down afterwards, but not to the point where I didn't think I could succeed here. I still had confidence in my ability. But joining in the January did not make it easy. And it was not easy for my family. My son was three months old, we were living in a hotel in central Manchester for five months and the weather was not the same as Monaco! It was like a big slap in the face.'

He remembers being dropped for a game against Liverpool.

'The manager told me I would not be playing but, because my English was not so good, I didn't fully understand. I got changed and I went out for the warm-up on the pitch. Then Carlos Queiroz calls me over. "Patrice, what are you doing? You are not on the bench today." It killed me. It was so embarrassing.'

A difficult six months cost him a place in the France squad for the 2006 World Cup.

'I was so angry with myself, seeing my team there without me,' he says.

'I thought, "That's it. I need to do something about this". I needed to get stronger for English football. So over the summer, I worked hard in the gym to make myself stronger. I was so hungry that by the time I arrived back for pre-season I was ready. I didn't need a pre-season. When we went to South Africa for a tournament, I played very well. Mike Phelan pulled me to one side and said, "Now you are a United player".'

He soon became a regular, securing a place ahead of Gabriel Heinze and Mikael Silvestre. Until, that is, it came to the 2007 FA Cup final against Chelsea.

'It was the only bad memory of the season,' he says.

'A few days before the game a story appeared in the papers - an interview with someone from my quartier (Parisian neighbourhood) - and it was all about how I had escaped a life of drugs and crime by becoming a footballer. It was not true but I remember the boss and Carlos that morning. "You won't be able to play in the final now," they said, laughing. "We have to protect the reputation of the club".

'They were joking, but when it came to the morning of the final the manager told me he was playing Heinze for tactical reasons. I have no doubt it was for that but I was gutted. He told me not to worry, that I would get to go on and win the game for us. After 10 minutes he told me to warm up, and for 80 minutes I stayed on the touchline. I was on fire. But I never got on. I had played every game that season, been voted the best left back by the PFA. Suddenly I was ready to quit the club.

'But then I calmed down, and I thought, "Maybe this is a test. This is life at United. You cannot expect to always be in the team". It is something I tell the younger players. I tell them that story.'

He never had to tell Carlos Tevez, a player who remains among his closest friends and someone he believes should still be at United.

'When he was playing for us he was such a professional,' says Evra.

'He played with his heart. I know him. I still go to his house and I know he still loves United. I don't want to make a problem for him with City, but it suited his identity here.

'Even when he wasn't playing, he would come on and change the game. He would always fight. I tell him he should still be with us. If, one day, he wins the championship and the Champions League with City, I will say, "Fine, you made a good move Carlito". But until then... I just speak the truth.'

Born in Senegal but brought up in the same Parisian suburb as Thierry Henry - his father worked for the Senegalese Embassy - Evra is the product of a huge family where you clearly had to be heard to be seen.

'I am one of 25 brothers and sisters,' he says.

'I think it is fair to say that my father (married and divorced three times) did not watch a lot of TV!' For Evra it was only ever football. 'It was all I wanted to do,' he says.

'I would be out there, in the street, in the rain and snow, on my own. I never wore a shirt. Never really had a team. I liked Romario but I never had an idol. I just loved to play. I had this passion for the game.

'It was not easy for me. I had to fight to get where I am today. I never went to Clarefontaine or anything like that. Never went anywhere where they gave you everything. Your boots, your kit. I was from a tough area, Les Ulis. Not a bad area. As I said, it is not true that I had to escape a life with gangsters. I am proud of where I am from and my parents provided for all of us.

'But people thought I was crazy to pursue this dream. At school I remember completing a paper about what I wanted to do for a job. I put footballer and the teacher told me that being a footballer is not a job. She told me only one in 300 kids make it as a footballer. And she would say, "Do you think you will be the one?" And I said, "Yes, I do". And my classmates would sit there and laugh at me. I ignored them.'

Although there was a flirtation with the youth system at Paris St Germain, it not until he was 17 that he really got noticed.

'I was a striker playing in a tournament organised by my local sports centre,' he says.

'There was this Italian there and he asked me if I would go to Torino for a trial. They were in Serie B.

'I gave him my phone number and three days later he called and spoke to my mum. She said, "No way, we have no idea who this guy is". But then my brother said, "Look, Patrice is doing nothing, let him go".

'I spent 10 days there, they asked me to stay as a member of the youth team. But then I was approached by a scout from Marsala, a team from Sicily in the third division, and he offered me the chance to become a professional. He said I would get a house, and I said OK. I remember arriving at their training camp and putting on the tracksuit and the flip-flops and looking at myself in the mirror. It was like paradise.

'To this day it is the best feeling I have had in football. Not winning the championship or the Champions League but that moment, when I was 17 years old, and I had finally become a professional footballer. I had made it. I had proved people wrong. It was an amazing club. Like a big family. I was the only black guy in the club and there were people asking to have their picture taken with me because they had never seen a black guy. But I could be walking down the street and I would be invited into people's houses to join them for a meal.'

From Marsala he went briefly to Monza and then to Nice, where he was deployed at left back for the first time.

'It was my first game there and I was on the left wing when the left back got injured,' he says.

'The manager, Sandro Salvioni, asked me to play there and then told me I'd be there again for the next game, against Strasbourg. I said no way, that I was a forward. "If you want to be in the team you play there," he said, so I agreed.'

Nice were promoted that season, with Evra named the best left back in Ligue 2.

'We won the championship and then I was signed by Monaco, by Didier Deschamps,' he says.

'I still wanted to play left wing but Deschamps said, "No, you are a good left back". And I was voted best left back in that division, too. We did well, reaching the Champions League final in 2004; the same year I made it into the France team.'

At Monaco his sparky personality caught the attention of Prince Albert, Evra forming what his team-mates considered an unlikely friendship.

'They could not believe he would send me text messages,' he says.

'But we got on well, and before the Champions League final he said he hoped we could win it for his father. Sadly we lost and Prince Rainier died the next year, but I dedicated our Champions League win in 2008 to him.'

Not that Evra has ever lost touch with his roots; with his identity. In his mind he will always be the fighter from the streets. Someone in whom the fire still rages.

'I still have the fire inside,' he says.

'And I'll admit that sometimes I can't always control it. You can talk about the altercation with the groundsmen at Chelsea as an example, although that day I think I managed to control my fire a bit.

'It seems every time I play against Chelsea there is something wrong. But really, it is coincidence. I love to play against Chelsea and I love to win against them because they are a massive rival for the trophies. But I also respect Chelsea.

'I remember Eric Cantona saying that while he sometimes could not control his fire he would not have been the same player without it. I am the same. I need the fire.

'But I am not a bad boy. When I go into a challenge I go to win the ball. Never to hurt someone. It's why I was upset when Fabregas did it to me at the end of last season. It was probably why I said afterwards that Arsenal were like babies. I was upset because of the challenge. If you want to hurt someone, you invite them outside, away from the pitch, away from people and the referee. Just me and you. You don't try to hurt people on the pitch.'

For Evra it is simply a matter of respect. He respects Ashley Cole as another brilliant left back, even if he does point out that he has again been voted the best in his position in the Premier League by fellow professionals.

'From the moment I arrived here it felt like it was my destiny, because it was only when I became a United player that I found my true identity. This place suited my character. The people here were on my wavelength and I was able to be me.'

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