Thursday, 30 March 2017

Bernas eyes relisting in 2020?

Article in The Edge Financial Daily dated March 30, 2017: "Bernas eyes relisting in 2020".

One snippet:

That appears to be in sharp contrast with an earlier announcement to Bursa:

"after due enquiry with our Directors and major shareholders, the Board of Directors of Padiberas Nasional Berhad (“Company”), wishes to inform that as at today, the Company is not aware of any written arrangement on the following:

(i) any corporate restructuring that includes an impending relisting plan"

The authorities should look into this case.

Next to this, there is the very serious issue if all minority shareholders have been treated equally.

Tuesday, 28 March 2017

Land value increased 10 times in 3 years?

Boustead Plantations announced it proposes to sell a piece of land for RM 620.1 Million:

The company specified the cost of investment:

The company gave more background over the history of the land:

Regarding the acquisition of the land, we can find more announcements here, the independent advice circular (dated November 20, 2013) of the Al-Hadharah Boustead REIT which was subsequently delisted.

The acquired land consists of 678 hectares of the 1,379 hectares from the Malakoff Estate in Penang:

In other words:

  • Boustead Plantations proposes to sell a piece of land for RM 620.1 Million based on a valuation report by Raine & Horne dated December 1, 2016.
  • The land was acquired for only RM 60.4 Million three years earlier based on a valuation report by WTW dated September 5, 2013.
  • The difference in valuation is more than ten times over only three years, which seems shocking.

While the deal appears to be good for shareholders of Boustead Plantations, the previous unit holders of Al-Hadharah Boustead REIT might feel short changed.

The authorities should look into the two valuation reports (both the valuation given and the methods used), the difference in value looks much too large.

They should also revisit the delisting exercise of Al-Hadharah Boustead REIT to review if the deal for minority shareholders was indeed "fair and reasonable", as the independent adviser (Hong Leong Investment Bank) claimed.

Saturday, 25 March 2017

DFTZ: what about the losers?

A lot of hype and euphoria regarding Alibaba, Jack Ma and the DFTZ (Digital Free Trade Zone), stories about jobs been created, opportunities for Malaysian SMEs etc.

But not much attention to who the losers will be, surely there will be some.

A good article in The Star: "DFTZ - boom or bane for our local SMEs?", one snippet (emphasis mine):

Losers from DFTZ?

Depending on the manufactured products brought in from China, our importers, wholesalers, retailers, manufacturers and e-commerce SME’s will be badly disrupted due to lower cost products and tax free, GST free imports. It definitely will be an uneven playing field for our local SME’s. Our authorities should note that we have 200,000 retail outlets in Malaysia and the retail industry hires 1.2 million workers. Even if the DFTZ model disrupts 30% of our commerce retail business, we will lose 360,000 jobs and close down 60,000 outlets. And that is not counting the disrupted manufacturing industry.

Customs Revenue. Assuming 30% of the US$65bil DFTZ sales is imported into Malaysia. Collection of GST alone will be lower by US$1.2bil or RM5bil a year. Not counting those items that still attract import duties.

Our National GDP will actually shrink as the whole market will trade on lower prices.

I agree with the above. There will be lots of winners and lots of losers, very hard to quantify at the moment how the results will be in say 5 or 10 years down the road.

I also agree with the writer of the above article: "Alibaba is a sure winner with this unparalleled tax free advantage".

What should be of some concern for Malaysians is that the big e-commerce players (Alibaba, Amazon, Lazada, Qoo10 etc.) are all foreign owned. How will the future look like, taking into consideration network effects and deep pockets, which might crowd out the smaller local players?

Wednesday, 22 March 2017

Fight between Cyrus Mistry and Tata: AirAsia and Singapore Airlines are mentioned (5)

I was rather disappointed about AirAsia's announcement on October 31, 2017 regarding irregularities at AirAsia India:

"The announcement is quite disappointing, both in size and in content. No timeline is mentioned, nor amount of money involved, no details are given (more information has been released through other channels than was announced).

Also AirAsia does not give a reason why shareholders were not informed before about this matter, the amount of money (allegedly the amount is around RM 13 Million) and the seriousness of the issues at hand seem to warrant that."

AirAsia made today a new announcement in this matter:

"..... as a result of investigations by AirAsia (India) Limited (AAIL) (which were conducted by an external agency), AAIL has been recommended to lodge a police report on the findings of the investigations. AAIL has consequently filed a police complaint before the competent authorities in Bengaluru, Karnataka, India on 9 November 2016. The police is investigating the matter. "

Why the delay of more than four months since the police complaint in making this announcement? No reason is given.

Saturday, 18 March 2017

Sydney Morning Herald blunder

Article on the website of Sydney Morning Herald:

The five faceless investors who own much of Australia's largest companies

One snippet:

It turns out that five investors – HSBC, JP Morgan, National Nominees, Citicorp and BNP Paribas – own a massive chunk of our listed companies. What's surprising about this is that many Australians probably haven't heard of some of them. What's even more surprising is that if you look at the big players in our 20 largest industries, the five faceless investors have a majority stake in most of them. They dominate industries as diverse as airlines, insurance, telecommunications and mining.

Oops, as pointed out by many commentators, these banks don't actually own those shares, they are just the trustee.

Would such a mistake have been possible in Malaysia? I don't think so, please take a look at the last annual report from Maybank:

It is clearly stated that Citigroup, HSBC etc. are the nominees, and the names of the beneficial owners are spelled out.

Kudos to Bursa Malaysia for the added transparency, which is missing in many other countries.

Tuesday, 14 March 2017

Icon Offshore: rewarding the MD but diluting the minority shareholders?

Icon Offshore announced that it offered 14,000,000 shares to its MD from the ESGP (Employee Share Grant Plan).

I have some problem with this.

Icon IPO-ed three years ago at a retail price of RM 1.85. Since then it has not paid out any dividend at all, loyal shareholders who subscribed to the IPO are currently 75% under water.

In other words, if the share would rise to the IPO price of RM 1.85, minority shareholders would only be back at square one (not taking into account the opportunity cost), while the MD would be sitting on a tidy profit of RM 19,320,000 and that in addition to his normal wages.

Besides the usual problems that have plagued the oil & gas industry the last few years (we can't really blame anyone for that), there have been several other issues with Icon Offshore, I wrote about some of them before. I think there is a case to be made that Equinas (at least partially) might bare some responsibility for those problems.

Given that, is it really fair to dilute the minority shareholders further, and at such a low share price relative to the IPO price, even though the ESGP was approved?

Could the majority shareholder, Equinas, have made a gesture and for instance forked out the shares for the MD from their holding? That would have been rather unconventional, I admit, but I do like the idea.

Monday, 13 March 2017

Poor earnings growth for Bursa listed companies (7)

All results for 2016 have been announced, time to update the score card:

Not impressive, I am afraid, except for a few good companies (like Public Bank and Westports) and a few decent ones.

The totals for the year:

A few remarks:

  • The second down year in a row
  • The results are even worse than 2012, four years ago
  • Counted in USD (an important consideration for international investors) it is much worse, in 2012-2014 the combined profit was about USD 18.5 Billion, in 2016 roughly 30% below that level

Ten companies started to report their 2017 profits, they are roughly similar to the 2016 profits. If there are no more large one-off write downs (like in the oil & gas industry), the combined profit in 2017 might be higher than 2016. But if that is enough to justify the historically high valuation of the Malaysian market, I doubt it. For that there has to be a consistent yearly growth of say on average 10% in net profits, something that seems to have been absent the last few years.

Sunday, 12 March 2017

Bursa annual report 2016

Bursa Malaysia announced its 2016 annual report. A few snippets:

I am rather sceptible about the above investor protection rankings, it does not seem to resonate with what is really going on at the ground. I think it says more about the World Economic Forum and The World Bank than about Investor Protection in Malaysia.

Funds raised from IPOs seems to be clearly lower than the previous years. If that is because of more stringent filtering resulting in higher quality companies, then that is perfectly fine with me.

The years before saw their fair share of lower quality companies and rehashed "listing-delisting-relisting" cases (here, here and here).

Retail participation in trading seems to be decreasing quite a bit. Possible this has a lot to do with that:

In Singapore there is a similar pattern, disappointing returns and less interest from retail investors.

Tuesday, 7 March 2017

United Plantations: annual report but no Q4? (2)

On i3investor's website one kind person commented on this matter and pointed at the right paragraph.

The relevant text can be found in part 3 of the annual report of United Plantations, page 176 (PDF page 37):

Hmmm, not sure what to think about this.

On one side, I am all in favour of making things relatively easy for listed companies, we don't want good quality listed companies to delist or unlisted companies not to IPO because of the huge amount of compliance and/or reporting.

On the other side, I am rather surprised about not giving the 4th quarter results separately. The company anyhow will have the relevant numbers. Analysts and interested investors who want to (and actually: should) scrutinize the quarterly numbers now have to use the Q3 numbers and the annual numbers to come up with the P&L and CF numbers for the Q4 numbers. Also, no relevant comments specific to the Q4 results will be given.

Anyhow, one condition is that the full financial report has to be announced within two months, not many companies will be able to comply with that, hence they have to announce the Q4 financials still the old fashioned way.

Monday, 6 March 2017

United Plantations: annual report but no Q4?

One observer drew my attention to United Plantations, they issued their annual 2016 report already (kudos for that), but strangely enough not their Q4 results.

In other words, we need to dissect the annual numbers, compare them to the Q3 numbers to arrive at the P&L Q4 numbers (the balance sheet for the Q4 is of course the same for the year).

The company did the same the year before, not issue the Q4 financial results, but until 2014 all seems normal:

Highly unusual, I cannot recall ever having seen this before, every company that I have checked issues four quarterly financial results per year. No action was taken in 2016 by the regulators, so I assume all is in order.

Other than that, UP has a pretty good track record, Aberdeen is an investor in the company.

Sunday, 5 March 2017

Fund awards: please use only funds of a decent size

The Edge presented The Edge -Thomson Reuters Lipper Fund Awards 2016.

The full article appeared in the "Personal Wealth" pull out of The Edge Weekly from March 6-12 2017.

What is remarkable that apparently fund size did not play a role in the selection process.

From an international point of view, a USD 500M fund or larger has a decent size, that would correspond to a fund of more than RM 2 Billion. Almost no awarded fund fits that size.

In Singapore it has been said that a hedge fund (I admit, that is a different breed from a pure equity or bond fund, but just for comparison sake) has to have a minimum of about USD 50 Million to have a sufficient size to survive (because of expenses, compliance etc.), in other words more than RM 200 Million. But many of the awarded Malaysian funds don't even have this size.

There are quite a few awarded funds with its size below RM 25 Million, way too small to consider, in my humble opinion.

And then there is even one fund with a size less than RM 1 Million.

Honestly, those micro size funds should not have been considered for the awards. At a very small size one can invest in opportunities that are not available at a larger fund size.

In plain English: if investors pour money in these awarded funds based on their previous track record (achieved at a very small size), they might be disappointed in the future.

Anyhow, I think there are much too many unit trust funds in Malaysia. I can imagine some choice between bond funds and equity funds, pure Malaysian focused and international focused, but some fund houses have more than 20 funds. I question the amount of focus given to each fund by the managers. And with so many funds under one umbrella it will be hard not to win an award.

Saturday, 4 March 2017

Better think twice about owning US shares

If you (plan to) own shares of US companies, better think twice. According to this article:

Do you own more than US$60,000 in U.S. stocks? If the answer is YES, then you are technically liable to pay U.S. estate taxes of up to 40 percent on those assets upon death.

And it adds:

" .... this tax is a MAJOR issue for foreign buyers of U.S. real estate"

The implications could be horrendous, you could have bought the shares just a short while ago, you could even be sitting on a paper loss, still, there will be a 40% tax on anything above USD 60K.

I am not aware of any other country in the world with the same laws, luckily.

The US seems to have lost its way. Pity, but that is the way all large empires eventually go, and may be that is not such a bad thing after all.

Thursday, 2 March 2017

Webb on SGX

A link and comments on the website of David Webb:

"They reportedly also propose widening the bid-offer spread, which is a sure-fire way to reduce liquidity, not increase it. This is another sign of desparation after the proposal to list second-class shares. Who is running SGX these days? What next - introducing minimum commissions? Rather than fiddle with trading hours and rules, consider allowing competing exchanges, then let the market discover which hours and spreads it wants."

A previous article by Webb on bid-offer spreads can be found here: HKEx keeps wide spreads

Wednesday, 1 March 2017

EPF: trading just to recognize returns?

Article in The Star: Can EPF maintain its good returns?

One snippet:

Analysts say that while the EPF knows it has unbooked profits to be made, it does, however, only recognise profits and payments to dividends once it sells its shareholdings.

In order for the EPF to be able to announce their yearly returns it needs to sell shares and buy them back, occurring expenses in the process?

What a strange policy, why do they not just mark to market all of their listed investments?

This does explain the rather weired behaviour (which I have observed numerous times) like in this announcement:

I am dumbfounded, what a waste of money and effort and that just for some silly accounting practice, one which I don't even agree with.

All I can say is: I wish I were EPFs broker.