Now Barron Calls Berkshire Undervalued!

Was reading Barron's article: Finally, Berkshire Looks Undervalued

The following passages caught my attention.

• The selloff reflects concern about Berkshire's equity portfolio, valued at $76 billion on Sept. 30, plus a sizable bet involving put options on $37 billion of equity indexes, including the Standard & Poor's 500 and foreign markets. The derivatives bet, while ultimately likely to be profitable, looks like a rare mistake by Berkshire CEO Warren Buffett, who couldn't be reached for comment on this story.
• If the stock market rallies in 2009, Berkshire probably will see record profits. Its operating profits this year could be about $5,400 per Class A share, excluding losses on equity and junk-bond derivatives that may cause a fourth-quarter loss. One big investor says earnings could hit $7,000 a share by 2010, a modest 13 times the current stock price.
• The puts give their buyers the right to make Berkshire buy the indexes at a set price, based on the indexes' level on the day the options were sold, mostly from 2005 through 2007. The puts, whose current value is difficult to determine, don't jibe with Buffett's frequent criticism of derivatives as "financial weapons of mass destruction."
• BUFFETT PROBABLY FIGURED he was getting a great deal by pocketing $4.8 billion in premiums for writing at-the-money puts on some $37 billion of equity indexes with maturities from 2019 to 2027. The puts are only exercisable at maturity, and don't require Berkshire to post collateral whenever the markets fall and their value rises. Who knew that stocks would keep sinking?

$37 billion of equity indexes that matures from 2019 to 2027.

We are now only 2008!

The puts are only exercisable at maturity and don't require Berkshire to post collateral whenever the markets fall and their value rises!

From now till 2019.. I wonder if the markets will be in a loooooong doom? Is that even possible?

A Wanderer highlighted this link to me: http://www.michaelcovel.com/2008/11/20/danger-will-robinson/

See point 3!

• 3. When do stocks stop falling? When one of the big guys, preferably the bull’s poster boy Mr. Buffett, collapses. Buffett going down would be a signal for panic, which would lead to an eventual selling climax. He wasn’t predicting this, it was just his temperature gauge on what needs to happen for pain to subside. He did note Buffett’s derivative exposure.

LOL!

Bull's poster boy?!

Buffett collapses?!

ROFLMAO!

You really got to give it A1 for originality!

Melewar's Earnings

One of the earnings that caught my attention tonight was Melewar Industrial Group. Quarterly rpt on consolidated results for the financial period ended 30/9/2008

It reported sales revenue of 220 million. Losses for the quarter totalled 95.5 million!

I wrote on this stock before back in April 2008: Melewar Bids for RM2.2 Billion Monorail Project!

It had some 416.449 million in borrowings then when I wrote on it in April 2008.

Now loans is at 533.775 million!

This is the company review of its own earnings performance.

• The Group recorded a total revenue of RM220.9 million for the 1st quarter ended 30 September 2008, a significant increase of 59% over the preceding year's corresponding quarter of RM138.9 million, on the back of a higher sales volume of steel related products.
  
  Notwithstanding the increase in total revenue, the Group recorded a loss after tax of RM94.4 million for the quarter under review compared to a profit after tax of RM8.9 million in the preceding year’s corresponding quarter. The decline of RM103.3 million is attributable mainly to the fair value loss suffered on a financial asset of RM137.6 million (net of tax), partly offset by a write back of allowance for shares under litigation of RM30.5 million (net of tax).
  
  For the current quarter under review, the Company’s principal subsidiary, Mycron Steel Berhad, posted a profit after tax of RM3.2 million, which is RM1.3 million or 68% higher than the RM1.9 million achieved in the corresponding quarter of the preceding year. The better performance attained is principally due to a 70% increase in the total revenue from RM79.8 million to RM136.0 million, contributed mainly by a higher sales volume.

Warren Buffett Talks About The Auto Bailout

Here is a recent interview on Fox Business: Warren Buffett On Auto Bailout

More Horror Stories Told In The Global Shipping Industry!

Here's yet another article on how badly hit the global shipping industry, Greek shipping industry hit by global financial crisis

• GREECE, which controls nearly 20% of the world’s merchant fleet, is feeling the pinch of the global financial crisis.
  
  “The shipping industry is at the forefront of the free economy, and we’re the first ones to feel the recession as well as the boom,’’ said shipping broker Francois Savaricas of ACE Chartering.
  
  “In this case, what we’re going through is not so much a shipping crisis as a whole financial crisis.’’
  
  With the international financial crisis leading banks to sharply cut back on lending, and consumer spending contracting in many places, it is much harder to move goods, and there are fewer goods to move.
  
  The crisis means that “fewer consumer products are sold because people don’t have money to buy them, therefore this has a knock-on effect on our sector, which is particularly globalised and prone to all these fluctuations,’’ said Nikos Efthimiou, head of the Union of Greek Shipowners.
  
  Efthimiou said there had been “a violent drop from June to today’’ in the dry bulk and container sector, with oil and gas tankers weathering the storm the best so far.
  
  Shipowners, brokers and analysts said ships that earned US$50,000 to US$100,000 a day a few months ago were now struggling to take in US$5,000-US$10,000 a day.
  
  The Baltic Exchange Dry Index, an indicator of dry bulk freight rates, had plunged from a record high of 11,793 points in May to a nine-year low of just above 847 points on Thursday.
  
  Analysts and brokers said the scene outside the gritty port of Piraeus, with ships anchored and awaiting orders, was being replayed across the world, particularly outside Asian ports such as Singapore and Shanghai.
  
  Savaricas said about 25% of the world’s fleet was at anchor because it was uneconomical to trade.
  
  ”The lack of liquidity in the banks meant there’s no cargo moving, and so from one day to the other there’s been no volume, no cargos and no movement for the ships,’’ he said.
  
  It’s no small matter for Greece. Shipping makes up about 7.6% of gross domestic product and brought 16.9 billion euros into the country in foreign exchange last year, 18% more than the previous year, according to the Union of Greek Shipowners.
  
  The wider shipping industry employs 160,000 people, or roughly 4% of the Greek workforce.
  
  The Greek-controlled fleet, counting vessels of more than 1,000 tonnes under Greek and foreign flags, came to 4,173 ships and more than 154.5 million gross tonnes in February, Hellenic Union of Shipping figures show.
  
  Just a few months ago, the picture was completely different. Shipping had enjoyed four or five years of burgeoning trade that had seen companies ordering new ships while still keeping old vessels in service, reluctant to decommission and sell them for scrap.
  
  “Everyone knew that the shipping market was heading for a downturn, and they prepared for it. But when it hit, it hit so hard and so fast,’’ said David Glass, managing editor of the Greek shipping publication Naftiliaki.
  
  “One morning, everything was a few clouds on the horizon. By evening, the thunderstorm had flooded. It just happened so fast.’’
  
  Now, companies with old vessels are selling them for scrap in India, Bangladesh, China and Pakistan. Others are cancelling orders, forfeiting millions of dollars in down payments to shipyards.
  
  Harry Vafias, who heads StealthGas Inc, the Nasdaq-listed gas arm of the Vafias Group, said oil and gas tankers had not suffered the same freight rate drops. Of the Vafias Group’s 82 ships, only five are bulk carriers.
  
  With orders for 24 new vessels in shipyards in China, Japan and South Korea, the group had the fourth-largest order book in Greece, Vafias said. But with banks unable to provide financing, or giving it only on very expensive terms, companies are forced to use a lot of their own money to take delivery of the ships.
  
  “The banks are virtually shut for new business,’’ he said.
  
  Industry experts say it can’t last forever. “Trade can’t stop,’’ Efthimiou said. “People don’t stop needing goods, food, certain things. All the world’s industries haven’t stopped working, thankfully. Therefore there is demand, it’s just very much reduced.’’
  
  Greeks, with 2,000 islands and a seafaring tradition that stretches back thousands of years, feel they are better prepared than most to ride out the storm. — AP
  
  

AirAsia: On The Contrary For Being Contrary!

Published on Business Times. On the contrary ...

• By Presenna Nambiar Published: 2008/11/24
  
  For AirAsia boss Datuk Seri Tony Fernandes, a recession is the best time to build, an uncommon opinion to say the least.
  
  DATUK Seri Tony Fernandes is a man who has built his business on being contrary.
  
  When the global airline industry was recording losses in the aftermath of September 11 2001, Fernandes and compatriot Datuk Kamaruddin Meranun were busy trying to get their brainchild AirAsia (5099) off the ground ... which they succeeded in doing, recording a profit in 2002.
  
  When the media and analysts continued to prophesise doom for the airline, Fernandes and his team put in an order for 60 A320s from Airbus in March 2005.
  
  Three years later, with every industry (in particular the airline industry) bracing itself for a long and painful recession, he hasn't changed.
  
  "We (AirAsia) are very bullish and very optimistic (about the future), all the newspapers in Malaysia had wanted me to be negative in the last seven years.
  
  "You are a depressing bunch, but I'm optimistic, my load factors are good, people want to travel, they are not killing themselves every day ... you have to be innovative," Fernandes told Business Times in Kuala Lumpur last week.
  
  For him, a recession is the best time to build, an uncommon opinion to say the least.
  
  "My gut feeling says the best thing to do now is to grow ourselves out of a recession. I think we have enough people to fly with us. By opening up new markets, we are constantly getting new people on our flights," Fernandes said.
  
  His optimism is backed by the fact that AirAsia has seen record bookings for December, with seats sold out in two weeks.
  
  Fernandes said the group also expects its Thai and Indonesian subsidiaries to be "very profitable" in the fourth quarter of the year.
  
  Thai AirAsia recorded an unrecognised share of loss of RM21.7 million, while Indonesia AirAsia registered a loss of RM12.2 million for the quarter ended June 30 2008.
  
  Thai AirAsia is a jointly controlled entity of the budget carrier while Indonesia AirAsia is an associate company.
  
  Fernandes said the Sepang hub also stands to benefit from the growth in passenger movement on its Thai and Indonesian flights.
  
  Despite his optimism, one might say that this time around the odds are stacked against it, what with the International Air Transport Association expecting further losses in 2009 and Centre for Asia Pacific Aviation expecting no Asian airline to make a profit a next year.
  Fernandes would probably say, "When has it ever been different?"

Being contrary.

I always dislike that phrase. I do NOT like to buy a stock just for the sake of being contrary. Most of all, for me, the reasoning to invest has to be justifiable and sound. Same with business.

Yes, in a recession, this is probably the best time to invest but one cannot simply invest. We need to study the durability and the competitive advantage of the business that we want to invest in and most of all, we have to look at our own financial health.

Now, if one is neck deep in debts, like AirAsia, does it make sense to expand like nobody else business?

Are we, the critics, a depressing lots?

Here's a simple reason why perhaps it would be a better option to be more humble and prudent.

Recession can be long and deep. Is this not a possibility?

And if this is the case, a long and deep recession, could not hurt a company but it could also wipe a company out, if it's less than prudent.

Is this not possible?

As it is, is AirAsia expanding via its own financial capabilities or is it on a borrowing orgy?

Here's an interesting issue. Do you know much does AirAsia pays in financial interests every quarter? ( here's the link to AirAsia last reported quarterly earnings: Quarterly rpt on consolidated results for the financial period ended 30/6/2008 - see page 12. Do you see the interest costs from its bank borrowing equates to a whopping 59 million?)

Well, in my opinion, if AirAsia was a cash rich giant, I would probably agree that it would be a good idea for it to look for business opportunities. (In my opinion, this means buying good businesses at a great price). However, the problem for me is that currently AirAsia has already borrowed way to much. For it to continue to expand and borrow even more, just makes no business sense. And worse still, the earnings performance from its last reported earnings in August (see link above) was downright poor.

Think about it.

What are we seeing here?

Are we not seeing a downright poor performing company, extremely leveraged, borrowing more money to expand in times like this?

How do you even rate its chances for success?

For it to continue to expand with more borrowings is a recipe for disaster!

See also

• AirAsia X: No slowing down
  
  AirAsia X Sdn Bhd hopes to grow sales by 10 times to US$1 billion (RM3.62 billion) by the end of 2010, after it achieves its target of becoming a billion-ringgit company next year, said its chief.

HDM-Carlaw

Published a year ago on Star Biz

• Wednesday June 27, 2007
  
  HDM-Carlaw: Validation takes long time
  
  MD: This caused high trade receivables
  
  By DAVID TAN
  
  PENANG: HDM-Carlaw Corp Bhd’s high trade receivables last year was due mainly to the long process required by its Japanese customers to validate the new automated equipment from the group.
  
  For the financial year ended Dec 31, 2006, the company’s trade receivables swelled to RM9.2mil, while its revenue stood at RM6.25mil.
  
  Managing director Tong Keng Yoon said the validation process for the new automated equipment took six to nine months.
  
  “Presently, seven or eight units of our automated equipment, used in the paper and print industry, are being validated by our Japanese customers,” he told StarBiz after the company AGM on Monday.
  
  “The nine-month period is almost up, and we are confident of recovering the amount from our customers,” he said, adding that the group had no provision for the receivables.
  
  Tong said for the first quarter ended March 31, HDM-Carlaw’s trade receivables dropped slightly to RM8.6mil, as some payments had been settled. It recorded pre-tax profit of RM99,000 on revenue of RM1.4mil for the quarter.
  
  Listed on Mesdaq last year, HDM-Carlaw specialises in manufacturing automated equipment for the paper and print industry and medical examination gloves.
  
  Tong said he had firmed up orders from south Europe, Canada, Brazil, and the Middle East for the group’s automated equipment.
  
  “We are setting up a factory in Thailand next year to produce automated equipment for the paper and print industry. A company, Carlaw Paulzen Maschinenbau Ltd, has been incorporated in Thailand to run the factory.
  
  “Once the facility starts operations next year, it will help cater to the new orders from south Europe, Canada, Brazil and the Middle East,” he said, adding that the company had yet to work out the investment required for the plant.
  
  Tong said the group would be moving from its rented premises at the Prai Industrial Estate, where its production facility is currently located, to its own plant at the vicinity by year-end.
  
  He said sale of the group’s automated equipment for the paper and print industry contributed about 80% of its revenue.

The reason I brought this article up was that I wanted to get an idea on what HDM-Carlaw is doing.

Ok it has its problems with receivables.

Anyway, HDM-Carlaw announced its earnings last Friday: Quarterly rpt on consolidated results for the financial period ended 30/9/2008

Sales of ONLY 28k???? Forget that HDM had losses of 860k. The fact that it only managed a sales revenue of 28k for 3 months is shocking. Yes, HDM-Carlaw is a Messdaq stock.

This is what the company said in its notes.

• For the third quarter ended 30 September 2008, the Group recorded revenue and loss before taxation (“LBT”) of RM28,190 and RM860,097 respectively. There were no machines delivered during the quarter. The contribution in revenue for the period was from the continued sales of spare parts to customers in the paper and print industry

Not looking good! No machines delivered! Ouch!

HDM last traded at 6 sen.

Warren Buffett Losing Midas touch? Hey It's Buffett and Berkshire Bashing Time!

It just got to happen, yes?

Posted on GlobeAndMail.com

• Has Buffett lost his Midas touch?
  Berkshire not immune to recession; investors bail as stock falls 50 per cent in past year
  
  JONATHAN STEMPEL
  
  Reuters
  
  November 21, 2008
  
  NEW YORK -- Investors are wondering if Warren Buffett has lost his gift for the markets.
  
  They are bailing out of Berkshire Hathaway Inc. stock and have lost some confidence that the insurance and investment company, run by one of the world's most admired investors since 1965, can pay its debts.
  
  Berkshire stock has lost close to half its value since hitting a record high last December, as the company struggles with lower returns at its insurance businesses, the declining value of its stock holdings and paper losses on derivative contracts.
  
  Meanwhile, the cost of protecting Berkshire's triple-A-rated debt has soared to a level more befitting a triple-B or even a junk-rated company.
  
  Omaha-based Berkshire has nearly 80 businesses - from car insurance to carpeting, clothing, food, kitchen utensils and manufactured housing - and owns tens of billions of dollars of stock.
  
  Mr. Buffett's empire is diversified enough so that at any given moment many parts are unlikely to run on all cylinders.
  
  "Everything you're seeing that affects other companies is eventually going to catch up with Berkshire," said Vahan Janjigian, author of the 2008 book Even Buffett Isn't Perfect. "I'm not saying Berkshire is not well run, but that even well-run companies will be hit in a severe recession."
  
  Mr. Buffett, 78, was not available for comment.
  
  Berkshire class A shares fell as low as $74,100 a share yesterday, their lowest level since August, 2003, before rebounding slightly. That's down 51 per cent from their record $151,650 set last Dec. 11 and down 34 per cent since Berkshire said on Nov. 7 that lower insurance returns as well as investment losses led to a 77-per-cent drop in third-quarter profit, the fourth successive quarterly decline. Operating profit was down 18 per cent. Berkshire ended September with $33.37-billion in cash.
  
  "We're buying Berkshire like crazy. It was our largest position, and we have made it much larger in the last two weeks," said Whitney Tilson, managing partner at T2 Partners LLC, a hedge fund firm.
  
  "Investors are looking at the derivative exposure, seeing Berkshire marking losses, and it reminds them of AIG and other companies whose derivative exposures got them into trouble," he added. "They are coming to the insane conclusion that Berkshire faces similar risks." He referred to American International Group Inc., which got a $152-billion government bailout.
  
  The cost of protecting $10-million of Berkshire debt against default for five years rose to $490,000 annually yesterday from $294,000 a week ago and $31,000 at the start of 2008, according to financial information services company Markit.
  
  "We're in an unusual time," said Peter Schiff, editor of Schiff's Insurance Observer. "It's like comparing a person having trouble making mortgage payments with a billionaire. The financial crisis affects them, but not in the same way."
  
  Berkshire could have to pay as much as $37.04-billion between 2019 and 2027 under some derivative contracts if the Standard & Poor's 500 index and three other stock indexes are lower than when Berkshire entered the contracts. It obtained about $4.85-billion of premiums upfront.
  
  As of Sept. 30, Berkshire had written down $6.73-billion on the contracts, and losses have almost certainly mounted since then. In October alone, Berkshire shareholder equity fell $9-billion or 7.5 per cent.
  
  Mr. Buffett has said he expects the contracts to be profitable, distinguishing them from the "financial weapons of mass destruction" that he labelled other derivatives.
  
  Berkshire also ended September with $10.78-billion in potential liabilities tied to various credit events, such as junk bond defaults, up from $4.66-billion at year-end 2007.
  
  Moody's Investors Service said the global junk bond default rate could rise to 10.4 per cent by the end of 2009 from 2.8 per cent in October. With a typical junk bond yielding more than 20 per cent, new financing is essentially non-existent.
  
  "Based on his 50-year track record selling insurance, I have a great deal of confidence he is selling these at the right price," Mr. Tilson said. "The critical thing is he does not have to post cash collateral until there are actual defaults."
  
  A credit rating downgrade would likely not be material. Berkshire would have to post "nominal" additional collateral on derivatives of "far below 1 per cent of assets" if Berkshire lost its triple-A ratings, according to Jackie Wilson, Mr. Buffett's assistant. It was posting no such collateral as of Sept 30, when Berkshire assets totalled $281.7-billion.
  
  Berkshire has other exposures to falling markets.
  
  It ended September with $76-billion in stock investments, including multibillion-dollar stakes in American Express Co., Coca-Cola Co., ConocoPhillips Co., Procter & Gamble Co. and Wells Fargo & Co. Shares in all have fallen this quarter.
  
  And investors have shrugged off Berkshire's investment of $8-billion in General Electric Co. and Goldman Sachs Group Inc. preferred shares, with their 10-per-cent dividend yields. Shares of both have fallen, rendering Mr. Buffett's warrants to buy common shares worthless for the time being.
  
  Mr. Buffett has been out of step with the markets before. After missing the late 1990s tech bubble, he gave himself a "D" for capital allocation in 1999, when Berkshire's book value barely budged and the S&P 500, including dividends, rose 21 per cent. Berkshire fared better in six of the subsequent eight years.
  
  "Earnings of Berkshire's operating businesses will undoubtedly decline given the worldwide economic downturn," T2 Partners' Mr. Tilson said. "However, these businesses remain enormously profitable, and will almost certainly continue to be."
  
  Mr. Schiff, of the Insurance Observer, expects Mr. Buffett will actually find new opportunities to win business or make acquisitions, in part because many insurance rivals are scrambling for capital. Several are applying to become bank holding companies to be eligible for the government's $700-billion financial rescue.
  
  "When insurers lose capital, you're going to be more conservative with how much business you write," Mr. Schiff said. "Berkshire doesn't have this problem because its balance sheet is so strong. What they own may be worth less, but they get more opportunities to buy things at cheap prices."

Source: http://www.theglobeandmail.com/servlet/story/LAC.20081121.RBUFFETT21/TPStory/?query=Berkshire

And then there is Danger Will Robinson

Point number 3 is simply funny like hell!

• 3. When do stocks stop falling? When one of the big guys, preferably the bull’s poster boy Mr. Buffett, collapses. Buffett going down would be a signal for panic, which would lead to an eventual selling climax. He wasn’t predicting this, it was just his temperature gauge on what needs to happen for pain to subside. He did note Buffett’s derivative exposure.

Uncle Bufett is now a poster boy! ROFLMAO!

Buffett collapses???!!!!????

Ho ho ho ho!!

Btw.. just some 4 hours ago.. Berkshire stocks went up a small 16.1%

• After nine straight days of drops, Berkshire Hathaway bounced back with the rest of Wall Street today (Friday).
  
  Shares of Warren Buffett's holding company ended at $90,000 each, up $12,500 or 16.1 percent.
  
  It's the biggest one-day percentage gain for Berkshire since at least 1985, topping the stock's 14.8 percent rally on September 19.
  
  The stock surged in the last few minutes of trading, in what may have been a flurry of short-sellers covering their positions.
  
  Just two days ago, we were telling you about a 12 percent daily drop, Berkshire's worst day since 1987's Black Monday.
  
  The stock is still down just over 20 percent since November 7, when its losing streak was sparked by a disappointing (to some) third quarter earnings report.
  
  Today's gain widens Berkshire's year-to-date outperformance of the S&P, although it's still nothing to write home about. Berkshire is down 36.4% vs. the benchmark index's 45.4 percent drop.
  
  Berkshire's drop from its December, 2007 all-time closing high, which was close to 50 percent yesterday, has been cut to "only" 39.7 percent.
  
  In an interview with Fox Business Network today, Buffett said he wasn't worried about Berkshire's decline, pointing out that it's had three similar drops in the past. "I hope I live long enough so it happens a couple more times to me."

Source: http://www.cnbc.com/id/27846807

OSK Holdings On 3A-Resources

I was reading this research report from OSK Holdings.

It has a header "Above Expectation"

I was kinda interested to see how good is the Above Expectation.

First line of the report.

• 3A registered 9MFY08 net earnings of RM9.7m, which was 6.5% above our forecast, while revenue and earnings grew 63.4% and 14.2% respectively.

Hmm... ok.

Second line.

• Nevertheless, q-o-q revenue and earnings dipped 12.9% and 35.8% respectively on slower demand in the current quarter.

Huh?

Earnings dipped 35.8% on a q-q?

So much?

I lost interest right there and then...