Wednesday, 27 May 2015

AirAsia X: is the rights issue enough? (3)

I wrote before:


".... its 2014 loss is 1.3 times the amount the company wants to raise through its rights issue. The obvious question would be: how long will the rights issue last? The company still has not shown a single year of profit (corrected for one-off items and deferred tax)."

AirAsia X announced today another large quarterly loss, RM 126 Million this time.

The company will soon receive the much needed RM 391 Million cash from it's rights issue.

But how long will that last?

After taking out the deferred tax assets (which I think it never should have counted in the first place), the company lost RM 1.07 Billion over its life time.

And then, there are capital commitments running in the tens of Billions:



How is this going to end?

Icon Offshore: former CEO "to focus on personal matters"

The company announced today:




To put in "a bit more perspective" why the formed CEO might have opted not to be re-elected, please read:

"Icon Offshore: CEO and COO remanded".

Icon Offshore is listed less than one year ago, and now already the CEO is gone.

People who invested in the company when it was listed will be very disappointed.

The share is currently trading at RM 0.53, a far cry from its IPO price of RM 1.85.

Monday, 25 May 2015

The Forgotten Depression

Great presentation by James Grant, one of the good guys. I subscribed to his newsletter, but unfortunately had to discontinue it, since it was too US centric and the recommendations too often involved bonds (I always have been more of an equity guy).




If you've never heard of the Depression of 1921, it's because the federal government and the (then new) Federal Reserve did the opposite of what they did in 2008: federal spending was cut, the federal budget was balanced, and interest rates were allowed to rise. In other words, real austerity measures were implemented. The result? A short economic contraction that healed itself.


Also interesting is his remark about John James Cowperthwaite:


He was asked to find ways in which the government could boost post-war economic outlook but found the economy was recovering swiftly without any government intervention. He took the lesson to heart and positive non-interventionism became the focus of his economic policy as Financial Secretary. He refused to collect economic statistics to avoid officials meddling in the economy.


In line with this is Marc Faber's comment that close to 100% of the economic data is collected by institutions like the FED and national banks. These are institutions that are not exactly known to rock the boat, so we should have a healthy dose of scepticism regarding their numbers.

Sunday, 24 May 2015

Maybulk: large paperlosses on its investment in POSH (3)

Maybulk published its 2014 year report. Two excerpts, the first from the Chairman:


And from the CEO:


"Yielded satisfactory returns", "continues to contribute positively", that sounds all very good.

This is in rather stark contrast to what I wrote before (here and here) about the hundreds of millions of paper losses that Maybulk should book on its investments.

Was I wrong? Unfortunately, I was not.

"Hidden" deep in the report, somewhere in the notes on page 66 we find the following:


So Maybulk is indeed sitting on a huge paper loss of about RM 780 Million, according to market value!

However, while Buffett marks to market the Berkshire Hathaway accounts for 50 years, Maybulk decided not to write the investment down. Apparently they think they know things better than Buffett.

The reasoning can be found here:


Based on price-to-book ratio?

Firstly, they haven't bothered to substantiate the reasoning by numbers, what is the price-to-book, how are other companies in the same industry valued to their book value? Disappointing, since we are talking about a RM 780 Million difference, not exactly peanuts.

Secondly, POSH is indeed trading at a discount to it's book value, but only a discount of 30%. If we correct for that factor, then the valuation still doesn't even come close to the RM 1.3 Billion for which it is valued in the books.

Thirdly, POSH has USD 295 Million of intangibles on its balance sheet, due to take overs it made in the "goldilocks" period before the global financial crisis.

I think it is questionable that those intangibles should still remain on the books, branding wise (under the POSH name), asset wise (some ships have been sold, new ships have been bought) or employee wise (some will have moved on, new ones have been hired). I think the intangibles should have been written down to zero by now.

If POSH is indeed overstating its balance sheet (by not writing down its intangibles), then that will result in low ratio's of profitability (earnings compared to assets and equity), and that seems indeed to be the case:


Although 2014 was a difficult year for the industry, 2011 until 2013 were fine, and the ratio's should have been clearly higher. These are really low indicators, they might even be lower than the cost to borrow funds, which doesn't make sense. Why borrow money to buy assets that yield less than the interest rate to be paid?

In other words:

  • POSH should write down its intangibles, which will decrease its book value
  • Maybulk should impair it's investment in POSH, it should have marked to market it's investment.

Maybulk's year report is very disappointing in that is does not want to face reality, although it was expected:

"Will the 2014 year report give more information on this subject? I doubt it, but hope to stand corrected."

It is the first year report after the IPO of POSH, the first time an objective (market) value is available for it's huge investment.

Nowhere in the report is the decline in price of POSH quantified (for the benefit of the readers of this blog: it is 59% down compared to its IPO price). Nowhere in the management discussion it is mentioned that the market value of it's investment has occurred huge paper losses.

This is important, since the investment is for a large part held for 6.5 years, that is rather long.

But also, Maybulk could have sold the shares in POSH for a profit a bit more than one year ago, but it decided not to do that and even to add further to the position at the IPO price, which looks like a very expensive mistake.

What was started in 2008 through a RPT has led to a huge destruction of capital, at a moment when there was in fact a huge opportunity. Not many companies had the luxury to sit on top of RM 1 Billion cash in the middle of the global crisis. Now the company is sitting on a large paper loss while having a net debt position, and has cut it's dividend to a measly 1ct.

The AGM will be held on May 27, 2015.