Stay healthy and have a blessed and happy new year!!
Here's another of my favourite.....
Saturday, December 31, 2011
Here's to 2012
Here's another of my favourite.....
Friday, December 30, 2011
And According To Dunno What Sources, Box-Pak Will.....
According to the UNKNOWN sources, a DEAL is BELIEVED to happen....
The share soars on the news.
Company denies the story. Share plunges.
Rinse... Wash... and REPEAT!
Yeah, babe.... nothing wrong here... just our local singing out these market sources songs.... and the market dances to the tune....
Very fun... and who knows.... who is making and who is losing money out of such spins.
Another day.... in our local stock market.
Check this out: Box-Pak awakened by possible takeover? (from the Edge Malaysia)
- Box-Pak awakened by possible takeover?
Thursday 29 December 2011
KUALA LUMPUR: Shares of usually sleepy paper box and carton-maker Box-Pak (M) Bhd gained over a third in two days to hit its highest in 14 years yesterday, even as industry sources speak of a potential acquirer.
Tokyo and Osaka-listed Oji Paper Co Ltd (Japan), Japan’s largest paper company by sales, is believed to be the offeror, market sources said.
Box-Pak officials were not available for comment at press time.
Adding 37 sen or 17.6% to close at its day-high of RM2.47 yesterday, Box-Pak gained 33.5% in the two days after the Christmas weekend. The 2.81 million Box-Pak shares that changed hands yesterday were roughly 10 times the 30-day average volume of 284,950 shares and 100 times its five-year daily average volume of 26,700 shares.
Market watchers see Oji Paper — which has bought three Malaysian paper-related companies since 2010 — Genting Sanyen Industrial Paper, United Kotak Bhd, and HPI Resources Bhd — as a likely suitor for Box-Pak.
An offer may come through its wholly-owned Malaysian arm, Oji Paper Asia Sdn Bhd (OPA), the investment holding vehicle that acquired both United Kotak and HPI Resources, one source said.
To recap, Oji Paper in March last year bought 100% of Genting Sanyen Industrial Paper, a paper and packaging company that was formerly part of the Genting group, from private equity firm CVC Asia Pacific for an undisclosed amount.
December last year, OPA acquired United Kotak for RM1.40 per share at 10.9 times price- earnings ratio (PER) and one times price-to-book value (P/BV). In June this year, OPA offered RM4.40 per share for HPI Resources, which translates to 1.48 times book and 8.82 times earnings.
In comparison, Box-Pak’s closing price of RM2.47 yesterday values the company at 9.98 times PER and 1.32 times P/BV. Net assets per share stood at RM1.87 as at Sept 30.
According to Box-Pak’s FY10 annual report, Kian Joo Can Factory Bhd is its largest shareholder with a 54.83% stake, followed by Amanahraya Trustees Bhd with 5.16%. Kian Joo’s shares rose five sen or 2.42% to RM2.12 yesterday, up 31.4% year-to-date.
OPA did not appear to hold any shares in Box-Pak at the time of writing.
OPA’s conditional takeover offer for United Kotak came on Oct 12 last year, but not before the latter’s share price rose 66.6% from an average price of 73 sen in June 2010 to RM1.22 by Sept 30. Similarly, HPI Resources’ share price jumped 27.18% from RM3.09 to RM3.93 in one week leading up to OPA’s offer on June 15.
Notably, though, a July 13 report by The Edge Financial Daily that paper milling and packaging firm, Muda Holdings Bhd, could be Oji Paper’s next takeover target, was denied by Muda the same day.
- Box-Pak shares soar on talk of privatisation
By Zaidi Isham Ismail Published: 2011/12/29
Kian Joo Can Factory Bhd is planning to privatise subsidiary Box-Pak (Malaysia) Bhd under a multimillion ringgit deal that will involve certain Japanese firms, sources say.
Kian Joo would pay RM3.20 a share for the remaining shares it does not own in its profitable corrugated carton boxes manufacturing unit, they said.
Meanwhile, Box-Pak shares were the second top gainer on Bursa Malaysia yesterday. The stock soared 37 sen to close at RM2.47 with 2.81 million shares traded. At RM2.47, its market capitalisation stood at RM148.26 million.
Year-to-date, Box-Pak has gained 107.56 per cent or RM1.28, with a low of RM1.09 on March 16 this year. Kian Joo Can owns 32.91 million shares, or a 54.83 per cent stake, in Box-Pak. Another single largest shareholder is Amanah Saham Bumiputera Bhdwith 3.1 million shares or a 5.16 per cent stake.
The sources said Kian Joo Can had hired Maybank Investment Bank Bhd to handle the privatisation deal. Kian Joo Can executive director Datuk Anthony See Teow Guan, when contacted yesterday, denied that it was planning such privatisation.
“No, there’s no truth in it. I don’t know who spread the rumours,” said See, who is also managing director of Box-Pak.
Besides corrugated carton boxes, Box-Pak also manufactures and sells die-cut trays, wrap-around cartons, Point of Purchase (POP) and paper palette for use in the packaging industry.
The company was incorporated in December 1974 and listed on the local bourse on July 18 1996. Box-Pak nearly doubled its net profit in the first nine months ended September 30 2011 to RM10.35 million, from RM5.79 million net profit a year ago.
The company attributed the improved profit to higher revenue and better production efficiency. Group revenue rose to RM178.39 million during the period, up from RM134.73 million previously..
- Friday December 30, 2011
Box-Pak plunges on denial
By CHOONG EN HAN
PETALING JAYA: Box-Pak (M) Bhd's shares plunged 24 sen, or 9.7%, to RM2.23 after its parent Kian Joo Can Factory Bhd refuted media reports that a potential privatisation involving its subsidiary might be on the table.
Shares of the paper box and carton maker reached an intra-day high of RM2.65 in the first trading session and pared its gains in the second session to reach a low of RM2.21 after Kian Joo's denial, with 5.35 million shares traded. Box-Pok was second on yesterday's list of top losers.
In their filings with Bursa Malaysia, both Kian Joo and Box-Pak said they were not aware of any formal discussions concerning the privatisation of Box-Pak.
Kian Joo also refuted allegations that it has hired any investment bank in relation to the said exercise.
A report citing unnamed sources said Kian Joo would pay RM3.20 a share for the remaining shares it does not own to privatise Box-Pak, with the involvement of a Japanese firm.
Kian Joo owns 54.83% of Box-Pak, followed by Amanahraya Trustees Bhd with a 5.16% stake.
Meanwhile, another report speculated that Tokyo and Osaka-listed Oji Paper Co Ltd is believed to be a potential offerer to acquire Box-Pak.
“As far as we know, nothing is happening yet. The only guidance from Japan's Oji is that they will not stop buying assets in Malaysia when the opportunity presents itself,” an industry source said.
Oji Paper was founded in Japan in 1873 as Shoshi Kaisha and was renamed Oji Paper in 1893. Its core business includes the sale of pulp, paper and paperboard such as newsprint, printing and writing papers, speciality papers, container boards and box boards.
In July, it was speculated that Oji Paper is interested in acquiring paper milling and packaging firm Muda Holdings Bhd, which was denied by the company on the same day.
Over the past two years, Oji Paper has been on a shopping spree, snapping up several Malaysian paper-related companies Genting Sanyen Industrial Paper, United Kotak Bhd and HPI Resources Bhd.
Notably, Oji Paper took over packaging product maker HPI Resources in June for RM258mil while it bought into corrugated carton maker United Kotak for RM63mil in February.
Told you so!
Told you so that the stock market game is sooooooooooooo fun!
Thursday, December 22, 2011
Making Money The Easy Way Via Envair Holdings
From the Edge. http://www.theedgemalaysia.com/business-news/198283-envair-holdings-active-down-in-afternoon-session.html
- Envair Holdings active, down in afternoon session
Written by the edgemalaysia
Thursday 22, December 2011
KUALA LUMPUR (Dec 22): ENVAIR HOLDING BHD [] shares were actively traded and fell on Thursday after Carpet Raya Sdn Bhd director Deepak Jaikishan ceased to be a substantial shareholder in the loss-making company.
At 2.50pm, Envair fell four sen to 28 sen with 13.96 million shares done.
A filing with Bursa Malaysia on Dec 21 showed that Deepak had disposed six million Envair shares in the open market on Dec 14.
Deepak had emerged as a substantial shareholder in Envair after he acquired a 5.06% equity interest or six million shares in Envair in a direct deal on Dec 2.
( refer Notice of Interest Sub. S-hldr (29A) - Deepak Jaikishan )
On the 14 December, Envair was trading between 34 sen and 38 sen!
Wanna try calculate the cool profits?
How cool is this?
Now consider this also...
On 6 December 2011: Jaikishan buys 5.06% stake in Envair for RM1.32mil
- ............ Envair told Bursa Malaysia that the 39-year old supplier of carpets recently in the news for his link to controversial statutory declarations had bought the six million shares at 22 sen apiece last Friday.
Envair last saw a Chinese national, Jiang Chuan Yi, selling off his entire stake of 6.75% in the company less than a month after acquiring it on Nov 1.
The sale was done via open market transactions at an undisclosed price.
Envair's stock had surged in early October from 11 sen to 40 sen in early November, just before the company unveiled its plans to move into the oil and gas industry by supplying two million barrels of light crude oil monthly for 60 months to a China-based company, An Hong Shenzhen.
The deal surprised analysts who questioned then how a little-known loss-making company could secure such a huge deal from a Chinese party.
Envair shares ended 2.5 sen higher to 31.5 sen yesterday.
The rapid exit of Jiang remains a concern in light of Jaikishan's recent purchase of the 5.06% block in Envair........
On the 10th December, the following was published: Envair gets support letter for financing
- ........ Jaikishan did not divulge from whom he purchased his block of shares, saying only: “I took it as an opportunity to come in on the cheap.”
In an interview with StarBizWeek, Jaikishan, whose family is in the business of carpet trading and property investment, said he bought into Envair based on the company's foray into the oil and gas industry.
“Right now, that's the only reason it is exciting,” he said.
While declining to comment on the profits his personal businesses generated, the 39-year-old businessman said he would like to contribute in terms of finance to Envair.
“But I also want to take an active role in Envair's business. I've met some of its (substantial) shareholders,” he said.
According to Jaikishan, Envair is expected to call for a shareholders' meeting soon to seek his appointment to the board.
He also said he was in discussions to further increase his stake in the company.
“I bought one million shares two to three days ago and another one million today (yesterday) off the market,” he said.
Mohd Anuar declined to elaborate when asked about the emergence of Jaikishan in Envair.
“Yes, I know him,” he said, adding that he (Anuar) himself had no stake in the firm.
For the third quarter ended Sept 30, Envair had a net loss of RM900,000 against a net loss of RM1.29mil a year earlier.
The stock ended 0.5 sen up at 27 sen yesterday.
So on 10 December Deepak tells everyone his bullish views on Star Biz, one of our national newspaper but then on the 14 December, he sold all the shares!!!!!!
And this my friends, is how to make money in our stock market the easy way!
Saturday, December 17, 2011
And The Motor Vehicle Sales Is Down And UP...
Here's the Edge Malaysia version:
- MAA: November vehicle sales at 48,702 units, dn 9% on-month
Written by Joseph Chin of theedgemalaysia.com
Friday, 16 December 2011 16:23
KUALA LUMPUR (Dec 16): The Malaysian Automotive Association expects vehicle sales to moderate further in December, extending the decline from November where sales were lower at 48,702 units.
It said in a statement on Friday the November sales were down 4,913 units or 9% from October’s 53,615 units. However, when compared to a year ago, sales climbed 9%.
MAA said the slower sales were also due to the severe floods in Thailand which had disrupted certain makes of vehicles. Of the 48,702 units, passenger vehicles accounted for 42,754 and the remaining 5,948 were commercial vehicles.
“Sales volume for December 2011 is expected to moderate further due to the preference of customers to wait and take delivery of 2012 production year stocks and also the impact of the floods in Thailand may affect supply,” it said.
The trade body said from January-November, total vehicle sales rose marginally to 552,561 units from 550,391 in the previous corresponding period. Passenger vehicles accounted for 492,884 units and the remaining 59,677 units were commercial vehicles.
MAA data also showed that total production in November declined to 35,355 units from 36,265 units a year ago. Year-to-date, it said production fell 4.6% to 501,755 units from 526,194 units in the previous corresponding period.
Here is the Star Biz version:
- Saturday December 17, 2011
Vehicle sales up 8.6% in November
By FARAH FAZANNA ZULZAHA
KUALA LUMPUR: Total vehicle sales rose 8.6% to 48,702 units in November, from the 44,845 units sold in the same month last year, said the Malaysian Automotive Association (MAA).
It also said that November sales were down 9%, or 4,913 units, from October.
However, compared with a year ago, sales in November registered an increase of 9%.
Of the 48,702 units, passenger vehicles accounted for 42,754; the remaining 5,948 were commercial vehicles.
MAA said in a statement that the slower sales were due to the floods in Thailand, which had disrupted the production of certain makes of vehicles.
From January to November, total vehicle sales rose to 552,561 units from 550,391 in the previous corresponding period.
Passenger vehicles accounted for 492,884 units and the remaining 59,677 units were commercial vehicles.
MAA data also showed that November total production declined 2.5% from 36,265 units in a year ago to 35,355 this year.
Year-to-date, it said production fell 4.6% from 526,194 units to 501,755 units in the previous corresponding period.
“Sales volume for December is expected to moderate further and customers are advised to wait and take delivery of 2012 production year stocks and the impact of floods in Thailand may affect supply,” said MAA.
Friday, December 16, 2011
My Dearest Bursa Malaysia And My Dearest Securities Commission
Dear Bursa Malaysia and Securities Commission Boys And Gals,
You invited and you have actively promoted corporate governance recently. You have invited minority shareholders to file their complains against unscrupulous corporates. Yes, if you have a complain, send all your details in and your case will be heard. Yes, I would say kudos to you boys and gals for taking such an initiative. It gives us, the minority shareholders, hope.
However, sadly this morning, I have to ask 'what's the point of hearing without even listening'?
Why am I so disappointed?
I was well aware of my good friend's recent complaint and I was rather impressed that you boys and gals granted a hearing (Mind you, this was a case that happened some three FULL years ago!). But again, what's the point of hearing without even listening?
Rather sad, in my flawed opinion. So a hearing is granted but on the hearing itself, you boys and gals came prepared in a team but instead of trying to understand and listen to the major issues pointed out in the complaint, you boys and gals were rather eagerly prepared not to listen and instead were more focus on dismissing the case. So sad. Did you really understand what the complaint is all about and why the complaint is such importance? Ironically, the complaint focused on the very topic you boys and gals were actively promoting; ie CORPORATE GOVERNANCE!
I wondered the past couple of days thinking how Bursa Malaysia can attract more investors (esp foreign investors)? You invite foreign investors to invest and when they have a legitimate complain, you boys and gals were not really interested to listen.
And the sad outcome of this lopsided hearing?
You boys and gals won!
Congratulations!
The complaint is now officially withdrawn!
Here's the letter written by M.A Wind (who is a foreign investor!!!! ): Withdrawal of complaints with SC & BM
- "Dear Sir/Madam,
In light of the extremely disappointing performance of the authorities (most notably Bursa Malaysia) on my complaints regarding Bumi Armada and Maybulk/POSH, not seeing even a sliver of justice being done after stonewalling me in both cases for a full three years, with Bursa Malaysia being an interested party having approved all the documents in the first place and now having to check their own work (and thus not surprisingly approving it), I herewith withdraw all my complaints with SC/BM.
It is better to have no justice at all and it being painfully obvious, than to get a half-baked effort after 3 full years that would not even count as an slap on the wrist and some people boasting of actually having done their job.
I also don’t have the energy or the time to be involved in a process that leads to absolute nowhere.
Regards, M.A. Wind"
- After the damage has been done (the RPT deal went through), SC/BM will look into possible complaints. My experience is that these investigations will go nowhere, I haven’t heard of a single complaint by a Minority Investor ever being approved. Normally SC/BM will drag their feet for a long time (often a few years), stonewalling the Minority Investor, changing the manager in charge many times and then answer with a one line reply that no rule has been breached. No reason will be given, no transparency at all. Investigations have to be conducted confidentially, this is of course correct, but SC/BM is abusing this rule very much. For instance there is no reason whatsoever not to reveal publicly available information why a complaint or argument is not valid. If somebody provides detailed information which rules are broken, then the SC/BM should be able to counter these arguments without breaking the confidentiality of the research. It is extremely disappointing (to say the least) to spend a huge amount of time writing a complaint with all the information gathered, doing all the work for the SC/BM, coming up with large amounts of supporting documents and then to be treated like this. Unfortunately, I have never heard of a different experience. SC/BM has a (very) bad image and most retail investors don’t even bother anymore to file a complaint with them, is my experience.
I can see the following reasons for the highly unethical and unacceptable behaviour of SC/BM:
(a) SC and BM might be pressured not to take action. For a long time there was suspicion regarding legal matters. Since the publication of the Lingam tape I think no person will have doubts anymore about what might be going on.
(b) SC and BM are not actually pressured in certain cases but think they are and act accordingly. This is an argument that is often brought forward to explain curious verdicts of judges that make no sense at all. The previous Chairman of the SC was (when he retired) asked by a journalist if he had instructions from above not to take action in certain corporate cases. The Chairmen said he wasn’t. Unfortunately, during his tenure the SC didn’t solve any major case (except of course for the usual illegal future trader and ticking off some small corporate players) although he inherited a huge amount of very large cheating cases of the 1997/98 crisis. Nobody dared to say that the Emperor was wearing no Clothes.
(c) SC and BM have already approved certain parts in the process, to agree with a complaint means admitting that they made mistakes in the past. Organisations that “police” their own actions will hardly ever take any action against their own people and the SC/BM seems to be no exception. There is really a need for an organisation totally independent from SC/BM to look into these cases.
(d) It is the "lazy" alternative, it means the manager doesn’t have to make investigations, interviews, research etc. Since the SC/BM doesn’t give any insight in on-going investigations (in itself understandable, but it is easily abused) and the SC/BM never gives any reason for its rejection, it can never be accused of making a mistake in the reason given. No transparency at all of course, but nobody seems to care.
(e) It has become the norm, for 20 years SC/BM have toed the line, why change?
(f) The personnel of SC/BM is simply not (always) up to the task and are not able to counter the army of fancy, well-paid advisors the Majority Investor has hired to defend his case. If this is the case, SC/BM should be allowed to use external advisors, but that would mean admitting that SC/BM is not up to the task and that will not be easy.
In my posting about recommendations I came with the following suggestions:
A small, fast moving, high-powered, totally independent commission to be formed, which will look at complaints (besides other issues).
The top management of SC and BM should make it very clear to all their employees that in the cases of GO’s and RPT’s Minority Investors have clearly the benefit of the doubt, not Majority Investors.
All complaints (except very rare, difficult cases) should be handled well within one year, with quarterly updates. A final answer will be provided containing information publicly available.
In general, SC and BM really should genuinely start to reach out to retail investors, bloggers etc, they can provide useful insights in corporate affairs, since they are putting their money where their mouth is. There are about 1,000 listed companies, much too much for SC and BM to keep tabs on.
I hope you boys and gals really make an effort to listen. Please.
Thanks,
Merry Christmas and A Happy New Year
----------------
Footnote:
For those interested in M.A Wind's complain against Maybulk , do read the following posting:
- SC & BM: (perceived) Conflict of Interest?
- Maybulk/POSH: What happened to the Cash? * Fully recommended reading!*
- Clarkson, the valuer who didn’t believe his own valuation * Fully recommended reading!*
- Maybulk/POSH: KPMG's "independent" advice
- Maybulk: before and after POSH
Wednesday, December 14, 2011
The KFC Takeover And The Power Of The Source
On Business Times this morning:
- JCorp to take QSR Brands private?
Francis Fernandez and Azlan Abu Bakar Published: 2011/12/14
The exercise is imminent ... it could be as early as this week, says a source
Johor Corp Bhd (JCorp) plans to take QSR Brands Bhd private, people familiar with the matter said yesterday.
The deal may also involve KFC Holdings (M) Bhd, the source said.
“The exercise is imminent ... it could be as early as this week,” said a source.
At least two independent sources told Business Times that a deal was in the offing.
JCorp owns 53 per cent of Kulim Bhd, which in turn owns some 57.5 per cent of QSR. QSR, in turn, owns 50.6 per cent of KFC, the country’s top fast food operator.
“The deal could be done at the Kulim level, but JCorp is the driver for the exercise,” the source said.
Top executives of Kulim and QSR, however, said they had no knowledge on the matter.
“We at the operations side are not involved. We know nothing about it so we can’t give any comments,” QSR managing director Jamaludin Md Ali said, when contacted yesterday.
Kulim managing director Ahamad Mohamad also said he had no knowledge of the matter and declined to comment.
An insider in Kulim, meanwhile, said the matter had never been raised at the Kulim board level.
In April this year, the Malay Chamber of Commerce offered to buy stakes in Kulim through its Johor chapter.
The offer came months after Tan Sri Halim Saad had attempted to buy QSR’s business for RM1.62 billion.
The offer, which had valued QSR shares at RM5.60 a piece, was eventually turned down by the ultimate owners of QSR.
Halim’s November 2010 offer was not the only one on the table, as a slew of foreign firms, including venture capital companies, were said to have shown interest in QSR.
The Carlyle Group had offered RM6.70 a share to gain a 100 per cent control of QSR.
Others said to be interested in QSR at that point of time were CVC Capital Partners Asia Pacific, and even, perhaps, Kohlberg Kravis Roberts & Co, foreign reports suggest.
QSR is a much sought-after asset as whoever controls the company will have control over KFC.
KFC has franchises in Malaysia, Singapore, Brunei, Cambodia and India.
It also operates the home-grown RasaMas chain of restaurants and Ayamas kiosks, while QSR operates some 260 Pizza Hut restaurants in Malaysia and Singapore.
QSR shares closed 10 sen higher to RM6, while KFC shares closed 6 sen higher to RM3.41 yesterday.
- Johor Corp, CVC Capital launch takeover of QSR, KFCH
Written by Joseph Chin of theedgemalaysia.com
Wednesday, 14 December 2011 18:49
KUALA LUMPUR (Dec 14): Johor Corporation and CVC Capital Partners Asia III Ltd have teamed up to take over QSR BRANDS BHD [] and KFC HOLDINGS (M) BHD [] (KFCH).
Johor Corp and CVC Capital had on Wednesday, made the offer via a special purpose vehicle Massive Equity Sdn Bhd (MESB) in which Johor Corp holds a 51% stake and CVC Capital 49%.
MESB offered RM6.80 for the shares in QSR Brands Bhd and RM3.79 for the warrants. At RM6.80, this is 80 sen above the closing price of RM6 on Tuesday while the offer price for the warrants was a premium of 77 sen from the closing price of RM3.02.
MESB also made an offer to KFCH of RM4 per share and RM1 per warrant. At RM4, this was 59 sen above the closing price of RM3.41 on Tuesday but five sen below the closing price of RM1.05.
The securities were suspended from trading on Wednesday and resume on Thursday.
Johor Corp owns 55.9% of KULIM (M) BHD [], which, in turn, owns 53.9% of QSR. QSR has a 50.93% stake in KFCH.
Analysts had earlier expected only Johor Corp to take over QSR and KFCH and this did not include CVC Capital’s participation.
“By taking QSR and KFC Holdings private, Johor Corp would have more control and direct ownership over the cash flows and dividends of the crown jewels, KFC and Pizza Hut. QSR and KFC Holdings generate strong operating cash flows of RM250m million to RM300 million per annum but Johor Corp only get to enjoy less than half of it given their current stakes.
“A buyout of QSR and KFCH would increase the amount of dividends and cash flows that Johor Corp enjoys from this top fast food operator,” a research house said.
In December last year, Johor Corp had stated it has no plans to sell its prized assets, QSR and KFCH, which are held through its subsidiary Kulim.
Its president and chief executive Kamaruzzaman Abu Kassim had then said JCorp entered the quick service restaurants business in 2006 (through Kulim’s investment in QSR) and since then has seen tremendous growth in revenue and profit before tax (PBT) at an average of 13.8% and 3.7% per annum respectively.
“The results from this segment had contributed significantly, making up 47.5% and 44.1% respectively to Kulim’s revenue and PBT in the financial year ended Dec 31, 2009.
“It does not make sense to sell our core business,” he had then said in a statement.
Keyword: YESTERDAY ..... !!!!!
WTH!!!!!!
Another shiny day for Corporate Malaysia!
Sigh!
Monday, December 12, 2011
Featured Article: Rights issues by REITs a tough sell?
On the Edge: http://www.theedgemalaysia.com/in-the-financial-daily/197658-rights-issues-by-reits-a-tough-sell.html
- Rights issues by REITs a tough sell?
Written by Chua Sue-Ann
Monday, 12 December 2011 11:26
KUALA LUMPUR: It remains to see whether investors will warm up to recent proposals by Malaysian real estate investment trusts (REITs) to embark on rights issues for fundraising.
This comes as Hektar REIT and AmFirst REIT separately proposed rights issues in recent months. The former is doing so to fund new asset acquisition while the latter is seeking to reduce its bank borrowings. CapitaMalls Malaysia Trust (CMT) also recently told The Edge Financial Daily that it is considering a rights issue to raise fresh capital.
Analysts and market observers said it is generally undesirable for REITs to embark on rights issues as investors expect dividends from REITs instead of having to plough in more capital.
“Effectively, they are asking investors to spend more on their stock in these uncertain market conditions,” said a property analyst.
However, judging from the price performance of both Hektar REIT and AmFirst REIT, investors have not reacted negatively to the news. This, surprisingly, is in contrast to investors’ harsh treatment of Singapore-listed REITs that embarked on rights issues.
According to analysts, the reason why Malaysian REITs are now turning to rights issues to raise funds, instead of the usual way of borrowing or unit placement, could be because their gearing is already near the 50% threshold (of total asset value) permitted for a REIT to borrow, or that the capital they seek to raise is larger than what can be achieved with a placement exercise.
In Hektar REIT’s case, its gearing ratio is 43.4%, just below the 50% limit, based on its total debt of RM347 million and total assets of RM799.47 million as at Sept 30. AmFirst’s REIT’s gearing as at Sept 30 was 39.8% based on total borrowings of RM419.6 million and total assets of RM1.053 billion.
On Dec 8, Hektar REIT proposed a renounceable rights issue to raise gross proceeds of about RM98.4 million. Proceeds from the rights issue will be used to partially fund the acquisition of two shopping malls in Kedah for RM181 million cash.
Hektar REIT added that it would also obtain bank borrowings of up to RM87.1 million to purchase the assets. Note that it held cash and cash equivalents of RM21.3 million as at Sept 30.
The REIT has yet to finalise the actual number of rights units and entitlement basis will be determined later based on the final issue price of the rights unit.
Hektar REIT added that it will procure a written irrevocable undertaking from its substantial unitholders to fully subscribe for their entitlements, failing which underwriting arrangements would be made.
AmFirst REIT’s proposed rights issue, set on a three-for-five basis, is expected to raise gross proceeds of about RM218.8 million, based on an illustrative issue price of 85 sen per unit. The proceeds are to be used to pare down borrowings.
CapitalMalls Malaysia Trust, which also manages The Mines shopping mall, recently said it is also considering a rights issue to raise fresh capital.
AmFirst said the rights unit issue price is expected to be fixed at a discount of no more than 20% to the theoretical ex-rights price of the unit. “The discount on the issue price of the rights unit is intended to reward unitholders for their continuous support of the fund,” AmFirst said.
Thus far, investors have not reacted negatively to the REITs proposal to conduct rights issues. The unit prices of both Hektar REIT and AmFirst REIT are still traded near their peaks.
“It could be because the unit prices are currently near historical highs, and more interestingly, at the current high prices they still offer rather good yields as well [Hektar REIT at 7.6% and AmFirst at 8.6% historical yield], so unitholders are happy,” said a market observer.
Other than that, he explained that there is still strong demand for REITS in times of market volatility, especially among institutional shareholders.
“Pavilion REIT has gained 13.6% since last week’s IPO to RM1, and the yield is now only 5.7%. So, the management of REITs thought maybe a rights issue is a good idea,” he said.
The scenario is different in Singapore.
K-REIT Asia, a unit of the Keppel Land group, saw its unit priced plunge 9.7% to S$0.857 sen on Oct 18 after it announced plans to raise S$976.3 million (RM2.4 billion) through a 17-for-20 rights issue. Most of the funds raised by the REIT will be used to buy a 87.5% stake in Ocean Financial Centre (OFC) from its parent Keppel Land Ltd.
It was reported that investors didn’t like the pricing for the OFC deal, and the fact that it was a related party deal. It wasn’t entirely because K-REIT Asia had proposed to acquire it via rights issue funding.
“At the end of the day, REIT managements have to justify why they have to do a rights issue to ask for more money from the unitholders. While institutional shareholders are okay with a rights issue, it could be a turn-off for minority shareholders,” said a market observer.
Saturday, December 10, 2011
Featured Articles: About Share Placements
Old articles to share... :)
http://www.oaktree-research.com/index.php?option=news&task=viewarticle&sid=24
Share Placements - Good or Bad?
Roger Tan & Don See, 21 Oct 2003
The number of share placements made by listed companies has grown in recent days. Yes, we are in a bull market and perhaps in the midst of a global economic recovery. With a recovery, there are more opportunities for businesses, deals and contracts. It makes a lot of sense for these companies to tap the equity markets to raise proceeds for further investment at this early stage. However, we believe not all that glitters are gold. We question the intention of some.
We are not planning to give names as we have no facts but a mere conjecture on our part. One of our investee company announced that it would be placing a huge amount of shares through a financial institution to raise funds. This placement will allow them to raise a few million Singapore dollars to expand their operations overseas.
This is bad news to us as it seems the management is hinting to us that their shares are overvalued. However, instead of a drop, the share price rose after the news! Ordinarily, we must be pleased but we do not accept facts as they are. We begin to hypothesis the possibilities. We swam through both conspiracy and financial theories and came to a single deduction.
We threw out conspiracy theory and instead focused on a signaling theory. For the rest of the article, we will explain why the hype over the recent issues can be attributed to signaling theory and the issues are nothing more than an "overvaluation" signal through the "Pecking Order" argument.
Revisiting Capital Structure Irrelevance
Proponents of placement share issues argue that shareholders should be happy that the management has raised new funds to expand and grow businesses. Whether these funds are raised through debts or equity is not the most important concern - the potential returns on these new investments are what matter most.
Miller and Modigliani's Proposition I (MM I) propose that the capital structure of the firm is irrelevant to the value of the firm under the perfect capital market assumptions. Financing methods will not influence firm value. It is the incremental value that these funds can achieve that is critical to the valuation issue. Investors who are buying up shares in these companies attest to this belief.
Altering the Perfect Capital Market Assumption - Information Asymmetry
Roger mentioned in his previous article "Explaining Perfect Capital Market - The Final Frontier" that the perfect capital market assumptions forms a starting point of an analysis. What happens when we change the perfect capital market assumption to that of information symmetry?
It is a reasonable assumption and expectation to say that insiders and managers hold a greater deal of information than non-insiders. They are in the best position to hold proprietary information knows exactly the number of contracts they are chasing or the amount of utility bills they have been paying. If they have such an immense amount of information on hand, we can safely assume that they know if the company shares are overvalued or undervalued. If the managers are rational, their next course of action would be to place out new shares.
What can the shareholders do then? Observe! Though shareholders do not have superior information like managers, shareholders can observe and track the actions of the managers. In the event of a share placement, it would be reasonable to infer that if managers start selling shares (new or old), that the firm must be overvalued.
What about the other side of the coin then? Say the managers do predict a significant upturn in the economy and that today is the most appropriate time to begin investing in new facilities, equipment and machineries, then raising equity is very justified indeed.
Managers do raise funds for good projects but to raise equity would be sending signals that shares are overvalued. To avoid that, managers therefore would try to fund projects with funds that attract the least "attention" - retained earnings. When such funds are insufficient they would then use debts and then finally equity. This order of source of funds is known as the "Pecking Order". Pecking order also explains why companies try to keep high level of "Financial slack".
At this point, we will like to highlight our assumption that the managers are investing in new projects and capital goods that will produce an incremental value. This is basic managerial finance. They will be committing a cardinal sin if they raise equity to invest in projects that are not incremental in value. We certainly hope they are not raising cash for the sake of investment or following the crowd like what many did during the technological hey days.
Coming back, if we base our assumption on information asymmetry and the pecking order theory, placement share issue, as a result, is nothing more than a signal from management that shares are overvalued.
Implications of Discount on Placement Share Issues
What about the discount on the placements shares? We observe that many placements are made at prices lower than the current market price. Herein, we believe management and the placement agent will argue that in order to place out a huge placement successfully, a discount to buyers is required to attract them. However, in our opinion we think shareholders could be short-changed in this instance. The discount is a cost to the company and the shareholders. The discount will effect a wealth transfer from current shareholders to new shareholders and the financial intermediaries .
Indirect wealth transfer happens when new shares are sold at a lower price than its fair value. If prices are a discount of future cash flows, this discount means that the new placement shareholders are receiving higher returns than the current shareholders. When no new investments are made, this higher return of the placement shareholders comes from the current shareholders. When new investments are made, placement shareholders enjoy higher risk premiums then the current shareholders even though both undertake the same risk.
Right Issues For Corporate Governance
Proponents argue that rights issue is less favorable then placement issue because of at least 3 reasons:
- rights are issued at a higher discount
- rights may not be fully subscribed
- rights issue entails higher float cost
These are all true but rights issue will demand stricter monitoring and governing on the corporate managers. How so?
Better managed companies keep a low financial slack because excess cash is a drag on return on asset. Don also wrote about signaling effect of dividends in his last article. He quoted Easterbook who argued that dividends force firms to maintain a regular cash payout and as a result lead them back into the capital markets to raise new cash when they need it for investment in NPV positive projects. He believed that firms that pay high dividend signals the managersEintent to maximize investorsEwealth and to subject him to capital market monitoring and reduces the potential for managerial self dealing and thus reduces agency costs.
Since good companies maintain a low level of financial slack in the company (through dividend and share buyback), they will often have to raise new funds when good investment arises. The high cost involved in issuing rights issue and the risk that shareholders may not fully subscribe to the rights (due to concerns of the investment) will discourage low quality firms from paying out high dividends or buy back their own company share as they rather invest in their own self.
As right issues are also offered at a substantial discount it will increase the cost of equity and capital. However, unlike a share placement, it does not have a wealth transfer amongst shareholders. The company will be extremely cautious on the use of the raised proceeds. They must scrutinize the projects or investments thoroughly before undertaking them.
Don't Give it if you Don't Want To
In conclusion, this article aims to dispel the myths on share placements. Indirectly, through this article, we would like to remind investors and shareholders that your managers have significant discretion powers simply because you have given them the right to do so.
A resolution to allow managers to place certain amount of shares at their discretion must be agreed by the shareholders in a general meeting before such placement can take place. I noticed that many such resolutions are passed (by the majority) but shareholders are unhappy after the placement. Don't Approve Such Resolutions If You are Not Comfortable.
Just another interesting point to note, if you realize that in the last three weeks alone, there are several companies that have placed out shares. However, not all have seen their share price rise after the placement. Some have and some have not. For reasons that are not difficult to see.
Remember all that glitters are not GOLD.
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Lost the link and date of the article below... :(
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Placements: three things to bear in mind
By R SIVANITHY
THESE days, placements are an increasingly common sight in the local stock market. This is to be expected since companies and vendors quite naturally want to capitalise on buoyant sentiment to raise cash (some observers believe a rising number of placements signals a market top, but we'll leave aside discussion of the market's outlook for now).
But the problem is that placements are often a double-edged sword for shareholders - they can work for you in some instances but against you in others. Worse, as is often the case in the stock market, things may not always be what they seem.
At the simplest level, placements can be viewed as creating an overhang of shares which would impede future progress. Thus, when it was announced last week that investment company Temasek Holdings placed out almost 800 million Singapore Telecom shares at a discount to the prevailing price, the market reacted understandably by selling down SingTel's shares to around the placement price. Several days after the announcement, the counter has still not recovered.
The reaction to the SingTel news was predictable and mirrors how the market generally receives news of more shares entering the market (for example, investors tend to take a dim view of a rights issue for the same overhang reasoning). For now, the basic lesson to be drawn is this: placements move prices.
Not all placements, however, are received negatively. For those who have tracked placements in the second line, it would be clear that sometimes the outcome is a price rise. One example of this is when a small or medium-sized company's main owner privately places out shares to a big-name player that the market perceives to be a sophisticated investor.
If the entrant commands an influential presence in the market, chances are good that the shares would rise after the exercise is completed.
Perhaps more importantly for shareholders, the price paid by the new shareholder forms a base in the market's collective psyche - a floor below which it is unlikely to fall. The reason for this should be obvious: markets always like to know what sophisticated investors have paid for their stakes so that when the price falls close to this level, investors, traders and punters invariably move in to buy, believing that the sophisticated party's entry price approximates true fair value.
Whether or not this is really the case is debatable and we'll discuss this point shortly. For now, we reach a second conclusion about placements: they serve as a signalling mechanism because when a big name moves in, the placement price signals a floor of sorts.
Things get a bit tricky from here on. If placements move prices and if they also serve as a signalling mechanism in certain circumstances, might it not be possible that sometimes, a false signal could be sent?
Put differently, might it not be in the interests of vendors, shareholders and big-name new entrants if the actual price paid for a placement is lower than that which is disclosed? It certainly bears thinking about - telling everyone that a sophisticated player has bought into a company at a higher price than that which was actually paid would clearly be beneficial all round.
Major shareholders or vendors gain because of the subtle signal of where the floor price lies; the new entrant benefits because it enjoys a large price cushion and is therefore in-the-money right from the start; and shareholders benefit because the signal ensures plenty of price support.
The only parties at a disadvantage in such situations would be the investing public at large, which leads us nicely to a third and final conclusion about placements: all of them should be viewed with scepticism.
Whether or not vendors deliberately send a false signal like the one just described is a matter of conjecture but it does bear thinking about - especially the next time a parcel crosses, the price starts to move and you're tempted to jump on board.
Thursday, December 08, 2011
Dear Old Uncle Tony
From my mailbox. Here's a joke to share....
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Arriving in a hotel in KL Sentral he went to the bar and asked for a pint of draught Guinness. The barman nodded and said, "That will be one Ringgit please, Uncle Tony."
Somewhat taken aback, Uncle Tony replied, "That's very cheap," and handed over his money.
"Well, we try to stay ahead of the competition", said the barman. "And we are serving free pints every Wednesday evening from 6 until 8. We have the cheapest draught in Asia"
"That is remarkable value" Uncle Tony comments
"I see you don't seem to have a glass, so you'll probably need one of ours. That will be 3 Ringgit please."
Uncle Tony scowled, but paid up. He took his drink and walked towards a seat.
"Ah, you want to sit down?" said the barman. "That'll be an extra 2 Ringgit. You could have pre-book the seat, and it would have only cost you a Ringgit"
"I think you may to be too big for the seat sir, can I ask you to sit in this frame please"
Uncle Tony attempts to sit down but the frame is too small and when he can't squeeze in he complains "Nobody would fit in that little frame".
"I'm afraid if you can't fit in the frame you'll have to pay an extra surcharge of RM 4 for your seat sir"
Tony swore to himself, but paid up. "I see that you have brought your laptop with you" added the barman. "And since that wasn't pre-booked either, that will be another 3 Ringgit"
Uncle Tony was so annoyed that he walked back to the bar, slammed his drink on the counter, and yelled, "This is ridiculous, I want to speak to the manager".
"Ah, I see you want to use the counter," says the barman, "that will be 2 Ringgit please."
Uncle's face was red with rage.
"Do you know who I am?"
"Of course I do Uncle Tony"
"I've had enough, What sort of Hotel is this? I come in for a quiet drink and you treat me like this. I insist on speaking to a manager!"
"I will never use this bar again"
"OK Uncle , but remember, we are the only bar in Asia selling pints for one Ringgit... so that Now everyone can drink"
Monday, December 05, 2011
And MAHB Claims That It Was AirAsia That Asked For A Bigger KLIA2
And the drama continues. On the Sunday yesterday: MAHB: AirAsia asked for bigger KLIA2
- Sunday December 4, 2011
MAHB: AirAsia asked for bigger KLIA2
By B.K. Sidhu
PETALING JAYA: Malaysia Airports Holdings Bhd (MAHB) has fought back to say that it was building a bigger KLIA2 upon the request of its biggest customer, AirAsia.
It broke its silence after being criticised by AirAsia boss Tan Sri Tony Fernandes for building KLIA2 to cater to 45 million passengers, thus inflating the cost to RM4bil.
On its website, MAHB posted a document titled Why KLIA2 has to be bigger? which showed that AirAsia had estimated that passenger traffic at the new terminal would hit 28.7 million by 2015, 45.3 million by 2020 and 60.3 million by 2025.
The figures were more aggressive than MAHB's own projections for the same period, according to a graph included on the website.
MAHB said the new airport would cost between RM3.6bil and RM3.9bil and that AirAsia had asked for a fully automated baggage handling system from a semi-automated system, which caused the six-month delay in opening the airport.
KLIA2 will only be ready in April 2013.
AirAsia chairman Datuk Aziz Bakar said yesterday “we had requested MAHB to start thinking of building a bigger KLIA2 and to expand its capacity to cater to 45 million passengers since there has been a series of delays in the completion of the airport. The initial plan was for the airport to handle 30 million passengers and be completed in 2011”.
“(Now) if they do not start preparing for more passengers then we will not have the capacity as we anticipate to achieve 30 million passenger growth by 2015/16,” he said.
On the fully automated baggage system, Aziz said: “We had asked for a semi-automated system but MAHB decided on a fully automated system and we agreed to it.”
The controversy over the bigger airport has also sparked speculation over Tan Sri Bashir Ahmad's future in MAHB.
This led the market to speculate that he was supposed to meet Khazanah Nasional Bhd boss Tan Sri Azman Mokhtar yesterday. It could not be ascertained if the meeting took place.
Khazanah is a major shareholder with 54% stake in MAHB, and when contacted, its spokesman Mohd Asuki Abas said “we do not comment on speculation”.
On Friday, MAHB chairman Tan Sri Dr Aris Othman said Bashir had the full support of the management and board, quashing rumours the latter would be replaced.
Me say?
AirAsia wants badly to market itself as a low-cost aircraft. However, to maintain its CHEAP look, it has separated a lot of charges from its ticket prices. When you use your credit card, AirAsia imposes an additional charge. Hello bankers! Aren't your merchants prohibited from making those charges? And then there's that idiotic check-in counter charges, which is the worst charge of the lot. What kind of charge is that?
Yeah, I think AirAsia should take a good look at itself first.
Saturday, December 03, 2011
Featured Article: Why AirAsia Fighting The Airport Tax
Good article posted on Business Times:
- Why AirAsia is fighting airport tax hike
By Presenna Nambiar Published: 2011/12/03
AIRASIA Bhd could be bent on challenging airport operator Malaysia Airports Holdings Bhd's (MAHB) airport tax hike as a means to combat its own fast-rising charges.
Checks done by Business Times showed that the gap between Malaysia Airlines and AirAsia's long haul arm AirAsia X fares is fast closing in on a few routes.
A check on fares for London in January showed the fare difference between the two airlines was less than RM1,000.
For example, on both MAS and AirAsia X fares (excluding fees and taxes) for a return trip to Paris in January showed that MAS' fare was RM1,841 while AirAsia X's fare was RM2,108 (excluding baggage and meal charges) for return.
The differentiating factor, however, was its fees and taxes. MAS' charges stood at RM1,359 while AirAsia X's charges were RM606.
The increase in fees in AirAsia X are from a RM80 (return) carbon offset surcharge to be implemented in 2012.
It is believed that this charge is connected to the European Union Emissions Trading scheme, which comes into force January 1 2012.
The ruling requires airlines to pay up for carbon emissions, which have not been accounted for, in its air space.
"It could be because of all these charges that are coming up now. I guess they don't want to add on any other charges that don't actually help ease their own costs," an analyst who declined to be named said.
On claims that MAHB was profiteering from passengers, another analyst pointed out that a quick calculation of profit against number of passengers handled would show which company profits more from passengers.
A check showed that according to 2010 profit before tax (PBT) figures, AirAsia makes twice more money from passengers than MAHB.
MAHB made RM445 million in PBT for 2010, while AirAsia earned some RM1.1 billion in PBT.
According to this, AirAsia made RM42 per passenger, while MAHB earned RM15 per passenger. Only half of the 57.8 million passengers handled by MAHB are taken into account as it only collects airport tax one way.
"AirAsia is not being inconsistent to itself. Before it complies it's always visibly shown how unhappy it is. I think at the end of the day however, it will follow the letter of law and pay up if they have to," Maybank Investment Bank Bhd analyst Mohshin Aziz told Business Times.
- Friday December 2, 2011
AirAsia and Malaysia Airports urged to bury the hatchet and move on
Friday Reflections - By B.K. Sidhu
IT does not look like the fight between Tan Sri Tony Fernandes and Malaysia Airports Holdings Bhd (MAHB) is going to end any time soon.
On Wednesday night, a day after MAHB explained why it would cost RM3.6bil to RM3.9bil to build KLIA2, AirAsia boss Fernandes fired yet another salvo. This time, his target was not the use of aerobridges, the high cost of KLIA2 or the MPs who questioned the AirAsia-MAS share swap. Instead, he was gunning for the rise in passenger service tax (PSC).
In his tweet, he said: “To all Malaysians. AirAsia has made flying affordable for all. Before, it was just for the rich. We won't allow Malaysia Airports to keep wasting money and increase charges for you. We will fight. Our campaign starts tomorrow.''
Yesterday morning, many AirAsia customers received an e-mail with the headline “Say NO to AIRPORT TAX INCREASE.'' This is the latest effort by Fernandes to garner support against MAHB over the airport operator's recent move to raise the PSC.
Initially, AirAsia was against collecting the PSC on behalf of MAHB. However, yesterday, the airline announced that it would continue to do so. Interestingly, it was MAS AirAsia's new partner that first wrote to MAHB to say it wouldn't collect the PSC effective Dec 1. Not long after that, it reversed the decision. Similarly, AirAsia's sister company, AirAsia X, had also send a similar letter to say it would not collect, but as soon as it was faxed over, it was withdrawn.
To recap, airport tax is imposed by the airport operator and is regulated by the Government. The world over, any traveller wanting to depart from any airport has to pay taxes for the use of airport facilities. The rates vary from country to country.
MAHB only got to raise the PSC after nine years of trying to convince the Government to give the greenlight. The new rates are RM25 to RM32 for travel via low-cost carrier terminal, which translate to a RM7 raise, and RM51 to RM65 (RM14 hike) for other airports in the country.
The next review is due in 2016, said MAHB managing director Tan Sri Bashir Ahmad at a recent briefing. He made it clear that the rate would remain even though the company is building a new airport for low-cost travel.
By turning to the passengers, Fernandes wants the travelling public to be the jury in deciding if the RM7 increase in the PSC is justified. His critics, on the other hand, have pointed out that AirAsia and AirAsia X too have introduced charges that can be a burden, such as the RM10 fee for counter check-ins.
AirAsia's very public attacks against MAHB is seen as a power struggle, and in most power struggles, there are losers. The question in this case is what will be the consequences if Bashir loses and what would it mean for MAHB; and if Fernandes loses, what would be his next move?
It is unfortunate that both parties cannot seem to work things out amicably. Perhaps they should spell out exactly why MAHB needs to raise the PSC and why Fernandes is so against the move.
MAHB and AirAsia should remember that both are Malaysian companies, and while both want to be seen to be doing their jobs MAHB needs to make money in managing airports and Fernandes needs to make sure travellers do not pay more they can avoid outburst in the public domain.
It is about time they bury the hatchet and find a solution that benefits all.
Deputy news editor B.K. Sidhu is amazed at the magnitude of work involved in building KLIA2.
Wednesday, November 30, 2011
Featured Posting: REITS: Where Is The Moolah?
Read the following posting on The Reit myth busted
It's an incredibly good posting, one that deserves to be featured.
Let me reproduce the entire posting:
Very interesting article in The Business Times (Singapore) about REIT's. The rules of the MAS (Monetary Authority Singapore) do not align the interests of REIT managers and their shareholders. Shareholders like steady, large dividends. But REIT managers are paid for the amount of assets under management. So after paying out juicy dividends, they like to recoup the lost assets with rights issues, to which the shareholders have to subscribe if they don't want to get diluted (at a cheap price). Instead of receiving money in the form of dividends shareholders are actually transferring more money out in the form of rights issues.
I hope things are better in Malaysia, haven't really followed the REIT's very much. In general, this is also a very good warning against companies who often are involved in rights issues.
- Published November 26, 2011
"Show me the money"
The Reit myth busted
Whatever Reits pay out in dividends, they will take back a few years later in the form of rights issuesBy TEH HOOI LING, SENIOR CORRESPONDENT
THE high yields of real estate investment trusts (Reits) are tempting. And indeed, they have been touted as a relatively safe and stable instrument to own if one is looking for a steady stream of income. As such, many investors see Reits as a good asset class to have in one's retirement accounts.
But you know what? That Reits are good income-yielding instruments is but a myth. The thing is, whatever they pay out in dividends, they will take back - all and more - a few years later in the form of rights issues.
Here's what I found. Of the 17 Reits which have a listing history of at least four years on the Singapore Exchange, only three have not had any cash calls or secondary equity raising. The remaining 13 have had cash calls, and many had raised cash multiple times. One had a few rounds of private placement of new units which diluted the stake of existing unitholders somewhat.
For many of these Reits, the cash called back far exceeded the cash received. So, the myth of Reits as almost comparable to a fixed income instrument is really busted.
Take CapitaMall Trust (CMT) which was listed in July 2002. Assuming that Ms Retiree bought one lot or 1,000 units at the initial public offering (IPO) for a total sum of $960. For the whole of 2003, she received $57 in dividends. However in that year, CMT also had a one-for-10 rights issue. To subscribe for her entitlement, Ms Retiree would have to cough out $107.
In 2004, she would received $89 for the total number of CMT units she owned. That year, CMT had another rights issue, also one-for-10. The exercise price was higher at $1.62. To subscribe, Ms Retiree would have to fork out $178.
In 2005, CMT again had another fund raising exercise via rights issue. Ms R would pocket $124 in dividends but in that same year, had to return $282 back to the Reit.
In the next three years - 2006 to 2008 - Ms Retiree felt rich and happy. She merrily banked in her quarterly distributions which amounted to $404 for her holdings of CMT. Her one lot, after three rights issues, had grown to 1,331 units.
In the following year, another $175 was distributed. But CMT wasn't going to let Ms R be happy for long. It launched a big one - a 9-for10 rights issue. To fully subscribe for her entitlement, Ms R had to empty her bank account of a whopping $982.
And you know what, the cash call came in March 2009, when the Straits Times Index fell below 1,600 points, and many retirees were dismayed to see their investment portfolios plunge by half or more. Many fret if they would have enough left in the pot to sustain their lifestyle. Having to cough up more money for a Reit was the last thing that they wanted to do!
Negative cash flowAnd here's the final tally. Since its IPO until today, a holder of one lot of CMT would have received $1,264 in cash distributions. However, in all, he or she had to return $1,549 back to the Reit so as to subscribe to their entitlement of new issues. That's a net outflow of $284 per lot.
It's the same story with K-Reit Asia, Capitacommercial Trust, Frasers Commercial Trust, Mapletree Logistics, First Reit, Lippo Malls Indo Retail Trust, AIMS AMP CAP and Saizen REIT in that what was taken back from investors was more than what was given out.
K-Reit has been one of the most aggressive fund raising Reits. Had you started with just one lot when it was listed in April 2006, you would have to dish out $8,399 to subscribe to your rights issue. Distributions amounted to $1,110, resulting in a net outflow of $7,289.
For Reits with at least four years of track record, only Fraser Centrepoint, Parkway Life and CapitaRetail China have not had any cash calls.
Instead of a rights issue, Suntec Reit raised funds by issuing new units to some institutional investors at a slight discount. Existing unitholders don't have to cough out additional cash, but they would have their share of earnings diluted somewhat.
Misalignment of interests
Reits are managed by managers, and managers are paid based on the size of the portfolio that they manage. So the incentive is for the managers to continue to raise money and expand the portfolio size. Sometimes this is not done in the best interest of unitholders.
The most recent controversy was over K-Reit's purchase of Ocean Financial Centre (OFC) from its sponsor Keppel Land. K-Reit has launched a 17-for-20 rights issue to pay for the purchase which was deemed by the market to be expensive at a time of uncertain outlook and when office rental is expected to ease.
BT reader Bobby Jayaraman argued that rather than be compensated based on factors such as the value of assets, net property income and acquisition fees, Reit managers should be paid based on a combination of growth in distribution per unit and market valuation of the Reit.
'If Reit managers were paid on the basis of distribution per unit and market valuation growth, would K-Reit have bulldozed its way through the OFC acquisition like they have done?
'The day K-Reit announced the OFC acquisition, its stock price fell close to 10 per cent and has continued sliding. Yet, its Reit manager will take home significantly increased management fees while shareholders would have lost a good chunk of their capital even as they bear significantly more risk in the form of higher leverage and potential property devaluations given the uncertain environment,' he wrote to BT.
Misalignment of interests aside, there are also unitholders who clamour for growth.
But while Reits may not be the perfect income yielding instrument that they are made out to be, they have proven their capacity for capital appreciation. Relative to the capital ploughed in, CapitaMall Trust has rewarded its unitholders with a return of 127 per cent. Most Reits have yielded positive total returns.
Instead of buying Reits for yields, some savvy investors only buy them when they see those with good quality assets trade at sharp discounts to their book value. For example in the first half of 2009, CMT was trading at 50 per cent its book value. Today, it is not as cheap. At $1.755, CMT is now trading at 13 per cent premium to its net asset value of $1.55.
Hence, valuation metrics which apply to a typical asset heavy stock would apply to Reits as well.
And CIMB Nicely Upgrades JCY from 58 sen to 1.14
Since I had blogged on JCY this morning in the posting A Look At JCY's 'Earnings Turnaround', I was rather 'excited' when I got hold of the JCY report from CIMB.
I wonder what they would say......
Well, CIMB UPGRADED JCY to a TRADING BUY with a target price of 1.14.
And this HOW they changed their earning estimate.
CIMB changed their previous JCY's fy 2012 earnings estimate of 138 million to 373.8 million!!.
YES!
The earnings estimate for JCY is now 373.8 million!!!!
I guess with such a nice, juicy, fantastic, lovely and sexy earnings estimate, JCY is worth 1.14.
**** JCY total earnings for its fy 2011 is only 14.553 million. ( CIMB estimate was 138 million!!! LOL! )
**** I can still remember CIMB giving an estimate of 359 million for JCY's fy 2010!! And how much did JCY actually earn for its FY 2010? 173.763 million only!!!!
**** Currently JCY last traded 73.5 sen. Down 3.3%.
A Look At JCY's 'Earnings Turnaround'
JCY reported its earnings last night. It did MUCH BETTER than I had expected.
From the edge:
- JCY records turnaround with 4Q net profit of RM26.4m
Written by Joseph Chin of theedgemalaysia.com
Tuesday, 29 November 2011 18:16
KUALA LUMPUR (Nov 29): Hard-disk drive manufacturer JCY International Bhd posted net profit of RM26.44 million in the fourth quarter ended Sept 30, 2011, boosted by higher shipments and a favourable US dollar exchange.
It said on Tuesday that the fourth quarter financial performance was a turnaround from the net loss of RM25.18 million a year ago. Rrevenue dipped 1.5% to RM439.92 million from RM474.71 million while earnings per share were 1.29 sen compared with loss per share of 1.23 sen.
JCY said when compared with the third quarter, its revenue rose 11.3% while profit before tax of RM26.4 million was also a turnaround from the pre-tax loss of RM31.8 million in the third quarter.
For the 12-month period, its earnings plunged 92% to RM14.55 million from RM173.76 million in the previous financial year. Its revenue fell 17.8% to RM1.671 billion from RM2.033 billion.
Elaborating on the fourth quarter performance, it said the increase in turnover was due to the overall increase in revenues arising mainly from increases in the shipment quantity and favourable US dollar exchange rates.
“The cost of sales decreased despite the increase in the overall sales due to efficient cost management and improvement in output through the better yield and improvements in operational efficiency,” it said.
JCY group chairman Dr Rozali Mohamed Ali said the results were satisfactory given the challenging business environment.
“We are very comfortable with our improvement in the operational efficiency, and we will continue to focus our efforts in improving our yields to maintain our sustainable profit improvement for the next financial year,” he added.
JCY is fortunate as its facilities in Thailand were not affected by the recent flooding. JCY continues to operate at full capacity in Thailand.
Rozali said JCY was taking a number of steps to increase its output from its factories in Malaysia and elsewhere, including restructuring its production output and product mix, and accelerating its expansion for its plants in China.
“We will continue to work closely with our key customers to meet their requirements for our HDD components over the next few quarters.
“However, the biggest challenge facing JCY in Malaysia continues to be shortages of its work force which constraints its output. JCY has increasingly implemented automation for its production and this has resulted in the improvement of its output yield recently,” he said.
For its FY 2010, JCY recorded profits of 173.763 million. ( I can still remember CIMB giving an estimate of 359 million for JCY's fy 2010!!)
Last night, after its 'earnings turnaround', JCY made only 14.553 million.
Yeah, the EPS is rather so meaningless (if you have to know, it's only 0.71 sen!)
So how shall I put this 14.553 million into perspective?
RHB's research report back in Feb 2011, would be an excellent example. Back then, JCY was trading at 66 sen, RHB gave an extremely bold call, saying JCY should be valued at 22 sen!
See the arrow?
RHB had estimated that JCY earnings for its fy 2011 should be around 44.9 million. Based on an earnings of 44.9 million, JCY's EPS should be 2.2 sen. With an EPS of 2.2 sen, RHB reckoned that JCY should only be worth 22 sen.
Remember, on that Feb day, JCY was trading at 66 sen.
Today. JCY made only 14.553 million for its fy 2011. (RHB estimate was 44.9 million).
JCY is now trading at 76 sen. (Back then JCY was trading at 66 sen)
How?
ps: I don't think RHB has a report out on JCY. What a bummer! I would have loved to see what RHB had to say on JCY's earnings.
ps: SpAM postings would not be published.
Thursday, November 24, 2011
Green Packet Makes Bullish Pledge Again Despite Losing Money For The 15th Consecutive Quarter
I saw the Star Biz headline on Green Packet's earnings: Green Packet makes profit pledge again
- PETALING JAYA: After reporting yet another loss-making quarter, wireless services provider Green Packet Bhd has again given a promise of profitability.
This time around, at a media briefing yesterday on the company’s third-quarter results, group managing director CC Puan said Green Packet aimed to report profits by the second half of next year.
It is a pledge familiar to shareholders. At the briefing, Puan was asked twice if he was indeed confident of delivering an earnings before interest, tax and amortisation (EBITDA) break-even by the end of this year. He did not clearly answer in the affirmative but said that looking at the current figures, he believed that the company was on its way to achieving that goal.
Green Packet has seen improvements of late and has narrowed its losses since a year ago.
Puan said the company could post a profit for 2013 on condition that it registered positive net additions in subscribers for every month in the next year.
'Makes profit pledge again ...'
Oh yeah we heard it too many times before and it's great to see the Star biz actually write 'It is a pledge familiar to shareholders'!
And more interesting was Puan was asked TWICE if he was confident of delivering EBITDA positive by end of the year, after all if one had followed past posting, Puan had declared only on Aug 2011 that he remained bullish that the company will be 'ebitda positive' by the end of this fiscal year!
To recap the never ending record....
- Feb 2008: we expect the WiMAX business to be ebitda (earnings before interest, taxes, depreciation and amortisation ) break-even this year,"
- May 2008: we are targeting EBITDA positive by end of next year.
- May 2009: P1 will be EBITDA will break-even from next year.
- Feb 2010: concurred that will be EBITDA positive in the second half of this year.
- May 10: the company remained optimistic that it will be able to achieve an Ebitda break even
- June 2010: Green Packet Bhd’s target to turn earnings before interest, tax, depreciation and amortisation (Ebitda) positive by year-end may be delayed to next year
- Sep 2010: Puan added that Green Packet is maintaining that its Ebitda (earnings before interest, tax, depreciation and amortisation) will break even by the end of this year.
- Nov 2010: "We're confident of breaking even no later than the first quarter. Ebitda (earnings before interest, tax depreciation and amortisation) turnaround is really at the corner," chief executive officer C.C. Puan said at a press conference in Petaling Jaya, Selangor, yesterday.
- Feb 2011: defers its target of being EBITDA (earnings before interest, taxation, depreciation and amortisation) positive to end-2011.
- May 2011: Green Packet Bhd is on track to achieve its EBITDA (earnings before interest, taxes, depreciation and amortisation) break-even target by this year-end, according to the group's managing director and chief executive officer Puan Chan Cheong.
- Aug 2011: ... remained bullish that it will be a "ebitda positive" company by year-end
And for the record, this is the 15th consecutive quarters of losses and total net losses amount to 547.648 million!
Wednesday, November 23, 2011
And What About AirAsia's Earnings?
My last update of AirAsia's earnings was done on May 2011 : Update On AirAsia Earnings.
Last night AirAsia reported its earnings. It's earnings wasn't impressive at all. That was expected as a stronger USD will cause huge damage to its books. ( Most of AirAsia's borrowings are denominated in US$ )
Here's some flashback. I think it's rather important to know what has happened.
Well, I had noted the positive changes in the company since Aug 2010.
In the posting , Positive Move That AirAsia Defers Their AirBus Order I had said the following...
- However, let me say this, I have to give AirAsia some credit for eating the humble pie and for successfully persuading AirBus to allow them to defer the delivery of the air crafts and more so, this move really gives them a fighting chance to survive and to overcome their insanity of building a company which was clearly over burdened by the immense corporate debts they took upon to finance the building of their business.
Yeah.. AirAsia should be ok for the next one year or so... yeah.. this is a POSITIVE CORPORATE exercise... it's certainly extremely crucial that AirAsia made this postponement of delivery.... but... deferring is only a postponement.... and in regardless, these air crafts order still needs to be delivered!
On 4 Dec 2010: A Look At AirAsia Stellar Earnings.
The positive moves from the deferment of the aircrafts was visible on the balance sheet. I made the following remarks.
- The cash/debt level, has it improved?
- The c.c or capital commitment column 'improved'. Would I pay attention to the value? Or should I pay attention to the number of aircraft to be delivered?
- Cash actually improved a lot compared to the previous quarter.
- And debt increased slightly.
- But the capital commitment... there was a huge improvement, yes?
For me, this is the MOST crucial thing. AirAsia used the debt leverage game to build its empire. Instead of just borrowing, it BORROWED. Way too hedge and in my opinion, it's like it's building a corporate which will be too huge to fail. And the massive borrowings is of course used to finance that rather insane order of aircrafts. Capital commitment contracted to purchased new aircrafts at one time stood close to 28 billion ringgit. ( do refer fy 2007 earnings ) and with AirAsia already saddled with a debt of 3.7 billion then (in fy 2007), the risk was so huge. My mind was thinking, how was AirAsia going to repay the debts, let alone finance its rather grossly optimistic aircraft purchase. That was my reasoning.
But as mentioned in Aug 2010, when AirAsia deferred its aircraft delivery, it gave itself a chance to survive. By not accepting new aircraft delivery, its loans ( which now has ballooned to some 7.8 billion - remember back in fy 2007, AirAsia loans was only 3.7 billion! - yeah it's loans doubled!!) stopped growing. The cash flow from AirAsia's operations is now used to rebuild its piggy bank and it also managed to pare down its debts. ( Ah.. that one private placement of shares did helped its balance sheet too!)
The chances could be seen.
Then came June 2011.
Another historical purchase order of aircrafts was made.
It blew my mind.
At that moment of time, out of an order of 175 new aircrafts, AirAsia only receive 89. Yeah remember in Aug 2010, it had to get a deferment in aircraft deliveries.
And less than a year later, in June 2011, after some improvement in its balance sheet, AirAsia did the unthinkable! It ordered 200 new aircrafts!
OMG!
I was thinking what grandiosity!
How will AirAsia finance its aircraft purchase???
Why the need to order so soon and so big??????
It blew my small mind. I was left speechless. So there's where we are at now.
So last night, when I saw AirAsia released its earnings, I was so interested to see its balance sheet.
Here's the updated earnings table I made. C.C stands for Capital Commitment for new aircrafts.
Cash shrunk a little and its debts were relatively unchanged but the most glaring thing is the current capital commitment of 57.450 BILLION!
Exactly!
AirAsia is committed to purchase aircrafts worth some 57.4 billion!
And what does AirAsia currently have in its balance sheet? 1.6 billion cash and loans of 7.6 billion.
And the question on my mind is how will AirAsia going to finance this order of such grandiosity???
Tuesday, November 22, 2011
KNM's Earnings Falling Way Short Of Its OWN FY2011 Profit Guidance
On the Edge: http://www.theedgemalaysia.com/business-news/196613-knm-posts-net-loss-rm11629m-in-3q-.html
- KNM posts net loss RM116.29m in 3Q Written by Surin Murugiah of theedgemalaysia.com
Tuesday, 22 November 2011 18:58
KUALA LUMPUR (Nov 22): KNM GROUP BHD [] posted net loss RM116.29 million for third quarter ended Sept 30, 2011 compared to net profit RM56.09 million a year earlier, due mainly to one off provision for foreseeable losses and credit impairments.
The company said on Tuesday that revenue for the quarter rose 6.41% to RM445.18 million from RM418.36 million in 2010.
Loss per share for the quarter was 11.88 sen compared to earnings per share of 5.69 sen a year earlier, while net assets per share was RM1.69.
There was no dividend declared or recommended during quarter under review.
However, KNM said it had adopted a dividend policy of distributing at least 50% of its consolidated net attributable after tax profit (subject to the availability of distributable reserves and compliance of financial covenants) with effect from financial year ending Dec 31, 2012.
For the nine months ended Sept 30, KNM posted net loss RM86.42 million compared to net profit RM110.57 million in 2010, while its revenue grew 19% to RM1.4 billion from RM1.17 billion.
Reviewing its performance, KNM said the higher revenue in this year was due to higher job recognition.
On its prospects, KNM said notwithstanding its strong order book, the company expects the business environment for the remaining quarter to remain challenging due to global uncertainties.
“However, the board is optimistic that going forward the prospects for the oil & gas industry remains positive,” it said.
The most interesting me was KNM guidance issue. Posted on 9th March 2011: What I Think Of KNM's Earnings Guidance
- KNM’s management had met with analysts earlier in the week and guided earnings before interest, tax, depreciation and amortisation (Ebitda) of RM363 million for its FY11 (ending Dec 31, 2011), while the Ebitda for FY12 is targeted at RM564 million.
And like mentioned before...
Let's compare KNM's guidance versus actual performance.
- fy 2008, KNM made 336.175 million. (KNM guided 450 million)
- fy 2009, KNM made 257.847 million. (KMM guided 700 million)
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