Thursday, 31 August 2017

Late "strong pick-up" by Bursa

Article from The Star, one snippet (emphasis mine):


Bursa Malaysia staged a late strong pick-up before closing, led by gains in selected blue chips such as CIMB Group Bhd, Axiata Group Bhd and MISC Bhd.

The benchmark FTSE Bursa Malaysia KL Composite Index (FBM KLCI) closed 12 points higher to 1,773.16 yesterday, after a slow start to the week.

Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew said foreign investors were net sellers yesterday despite the strong pick-up in the FBM KLCI.

It was a last-minute push before the long holiday, and it was quite unusual considering the results season is still ongoing,” he told StarBiz.


It was definitely unusual, let's zoom in on a few counters.

On 16:50:01 it was CIMB's turn, a sudden 32 cent jump in price:



Two seconds later UMW's turn, a 45 cent jump:


And one second later at 16:50:04 Timecom's turn, a 53 cent jump in price:


As a consequence, a sudden spike in the KLCI:



Who was (were) the buyer(s), may be a fund that needed to show good results at the last trading day of August?

It looks all very artificial, is this actually allowed, will SC take action?

Monday, 28 August 2017

PNB reveals secret of how it makes money to pay high dividends (3)

I wrote before about this subject: here and here.

A lot of articles recently about PNB and the new group chairman Tan Sri Abdul Wahid Omar, both in The Edge and in The Star.

Unfortunately, again what I called "the most important number" is missing, this is what I wrote before:


Lots of numbers are mentioned, but the most important number (per managed fund) is missing:
"The increase/decrease in the Net Asset Value (marked to market) per unit over 2016"

This is a pretty basic number, essential to measure the long term performance in the long run.

Once we know this number we can compare it to other funds, or to the total (that is taking into account dividends received) returns on Bursa.

A simple question: was this number positive over 2016? And how does it compare to the price investors pay per unit?

Disappointing that this all important number is not given, and that the journalists present didn't ask for it.


From The Edge:


This is not a Ponzi Scheme. As I said, in good times, we create reserves and we don’t distribute all the gains in any particular year. So, we will have those reserves to buffer the payment of dividends during the tough years,” said Wahid.

The point was raised as questions over whether the high dividend at PNB-managed Amanah Saham Bumiputera are real and sustainable have been bandied for some time.


It should be noted that even when the local bellwether FBM KLCI fell 39% year on year in 2008 — and the dividend payout by the Employees Provident Fund (EPF) dropped to 4.5% — ASB’s dividend remained at an envied 7%. Yup, that is 378 basis points above the so-called risk-free-rate or 10-year Malaysian Government Securities of 3.22%.


Well aware of the scepticism, Wahid offered simple logic instead of going on the defensive. “It is a very simple model in the sense that during good times, you don’t pay all the returns. So, we keep some reserves. And during tough times like the past three years, we’ve been realising returns from the unrealised gains. No magic. It’s a very basic model,” he explained.


The yearly distributed returns are known, why not make the realized returns (marked to market, after expenses) public? We can then compare them to each other to check if they match, if there are any long term trends and to compare them to returns from similar Malaysian unit trust schemes.

Monday, 14 August 2017

Sunday, 13 August 2017

Brdigewater returns faltered

Interesting article about Ray Dalio and Bridgewater, the largest hedge fund in the world, looking forward to his new book "Principles", soon to be published.

One snippet:


The transition comes as returns at the hedge fund’s flagship product have faltered, just like at other so-called macro managers. Since the beginning of 2012, Bridgewater’s Pure Alpha II has posted an annualized return of 2.5 percent, according to a document reviewed by Bloomberg Markets, a far cry from its historic average of 12 percent. It’s down 2.8 percent this year through July. (A smaller Bridgewater hedge fund, Pure Alpha Major Markets, has fared better, as has the company’s long-only product.)





Apparently it has not been easy to make money in the last six years, may be of some comfort for investors who have missed out mostly on the bull run of the US stocks:



Saturday, 12 August 2017

Dual class shares: another really bad idea (3)

Bursa announced the following rather terse media release:


There have been some misleading reports of late which have caused confusion on Bursa Malaysia’s position on the listing of dual class shares. Bursa Malaysia’s position has been misunderstood and taken out of context. We wish to inform that presently, we have no plan to facilitate the listing of dual class shares. In Bursa Malaysia’s pursuit to remain attractive and competitive, we are committed to uphold market integrity and ensure sound investor protection in all our market development initiatives.


One could deduct (although it is not written explicitedly) that facilitating dual shares might help Bursa to remain attractive and competitive, but would weaken market integrity and investor protection.

Wednesday, 9 August 2017

Dual class shares: another really bad idea (2)

I wrote before about this subject.

It seems that Bursa is still considering to allow dual class shares in Malaysia.

Just to show one "horror" case what might happen, Alphaville wrote about the company DryShips (listed as DRYS on the NASDAQ): "Who buys DRYS?".

One snippet:


Taking into account the rapid series of share consolidations Dryships has had down the years, the stock price has fallen from $1.483bn per share to $1.40.

So what’s going on?

We first looked at this thing last month, at which point the peak-to-trough stats stood at an historical high of $206m and a low then of 99 cents. Over the past fortnight, following fresh consolidation of the shares, the price has fallen 80 per cent.


The company has a market cap of $7.26m, but (as of July 21) it held cash of $58.6m and a book value of $652m, against debt of $237m. Its fleet of tankers and drybulk vessels stands at 39.


Confused? Here’s what’s happening.


In April this year DryShips, which is registered in the Marshall Islands, struck a deal with a BVI firm, Kalani Investments, whereby Dryships would sell up to $226m worth of stock to the BVI entity over a two year period.


The deal sees Kalani getting the DryShips stock at a discount and they quickly dump the newly-issued equity on the US market. The flood of stock depresses the share price, which falls below $1 — risking suspension under Nasdaq rules. So, once a month for the past four months, DryShips has enacted share consolidations — most recently at 1-for-7 — to get the price back above a dollar.


It’s these repeated consolidations which throw up the comic historic share price high of $1.483bn when the chart is reset.


The company is controlled by a Greek shipping financier, George Economou, through super-voting stock. Many of the vessels in the DryShips fleet have been acquired from Economou’s private interests — so if you follow the money you’ll see it is flowing from US investors, by way of the Caribbean, to his family estate.



David Webb wrote again about the dual class shares "One Board, One Regulator".

Webb also mentions many other issues that are relevant to Malaysia (and Singapore), for instance:


8. Full disclosure of the identities of subscribers (including beneficial owners of 10% or more of their votes or equity) and the numbers of shares subscribed in placings, whether at initial listing or subsequently. [in the Malaysian context, a six year old blog posting Private Placements: abolish them or limit them, nothing has changed]

9. Full disclosure of the identities of beneficial owners of counterparties to notifiable transactions (acquisitions, disposals or loans) by listed companies. No more hiding behind BVI curtains. [in the Malaysian context just one example: Protasco's Puzzling Purchase, the vendor being owned by Anglo Slavic Petrogas Ltd, a BVI company]

11. INEDs: boards or shareholders can continue to nominate candidates for election as Independent Non-Executive Directors, but controlling shareholders, executive directors and their associates must abstain from voting in the elections, due to their obvious conflict of interests. This will leave independent shareholders to elect the INEDs. Otherwise, INEDs serve at the pleasure of the King, making a joke of their independence.

12. Tighten the permissible general mandate to dilute existing shareholders by issuing new shares for cash, with a maximum of 5% enlargement in any year, at a maximum discount of 5% (currently: 20% at a 20% discount). Any larger size or discount should require a rights issue, or approval by 75% of votes cast by independent shareholders on a special resolution. This would raise HK pre-emption standards to the UK's.


And regarding legislation:


1. provide investors with access to justice in the form of class action rights. The loser-pays costs system will deter vexatious or meritless cases;

Monday, 7 August 2017

Sapura Energy: excessive remuneration for Directors? (2)

I wrote about this issue before, one snippet:


"We notice three government linked funds in the list of substantial shareholders. Will they make noise about the above remuneration? At the last AGM that did not happen, all resolutions were approved by a large majority of the shareholders."




The largest vote against any of the resolutions was only 2%.

The company held its AGM on July 25, 2017, and the results are as follows:




Of interest are resolutions 8 (payments of director fees) and 10 (authorising the directors to issue new shares) which received 18% and 22% of the votes against, a very large change compared to the voting behaviour of a year before.

It is safe to assume that the controlling shareholders voted in favour of the resolutions, meaning that the percentage of votes against from the non-controlling shareholders is even higher.

Are these the signs of some shareholder activism which starts to pop up at Sapura Energy? I most certainly hope so.


The Edge Malaysia (edition August 7, 2017) brought up another issue regarding related party transactions. It wrote an article "A RM70 mil annual poser at Sapura", one snippet:

"It is not clear why the listed company has to pay this fee to its controlling shareholder, which has epresentatives on the board holding executive positions and are paid alaries and director fees."


The amount can be found in the annual report, second part, page 189 (pdf page 139):




Surely the minority shareholders of Sapura Energy deserve a proper explanation on the above transactions.

Thursday, 3 August 2017

XingQuan: boardroom getting rather empty

Two more independent directors of XingQuan resigned, "Due to time commitment issue" and somewhat more specific:


As he will not be able to discharge and perform the duties and responsibilities of an independent director due to the expiry of the employment contract of the CFO in early May 2017, the resignation of Audit Committee Chairman in end of May 2017, the recent resignation of the other independent director, and the inability of the Company to secure suitable candidates to fill the aforesaid vacancies since May 2017, he therefore tender resignation as an independent director.


That means that the audit committee is now vacant, as is the department of independent directors. Any takers? If not, who will defend the rights of the minority investors?

I have warned several times about XingQuan, the first time (XingQuan: does the company believe its own cash?) almost exactly two years ago.

So far no visible action has been taken by the authorities. Did it really have to come this far? Fast, adequate action might for instance have prevented the rights issue, pouring more good money after bad. Or may be some of the assets could have been saved and liquidated, to the advantage of the minority investors.

In a unrelated case, the Securities Commission has taken action against a father and son for submitting false or misleading information. But the punishment is a mere reprimand and permanent moratorium regarding listings in Malaysia. I guess the perpetrators will simply shrug their shoulders and move on, the world outside Malaysia is pretty large after all.

The real test will be if the Malaysian authorities will be able to fine foreigners or impose a jail sentence. So far no action of that kind has ever been taken against any of the listed Chinese companies in Malaysia. Time will tell if it ever will happen.

If it turns out to be near impossible to impose these penalties, then Bursa should never have allowed foreign companies to list in Malaysia, because of the absence of any significant deterrent.

Wednesday, 2 August 2017

Public Bank: end of an era

From The Star: Public Bank Bhd chairman Tan Sri Teh Hong Piow to retire

Some snippets:


Public Bank Bhd chairman Tan Sri Teh Hong Piow will leave his post on Jan 1, 2019 but will remain as the bank’s adviser.

“The details relating to the appointment of the new chairman of Public Bank will be announced at an appropriate time,” the bank said in a statement.


Teh will assume the title “chairman emeritus” after he relinquishes his position as chairman of Public Bank.


This, according to the bank, is in recognition of his “par excellence contributions” over the past 51 years since he founded Public Bank on Dec 30, 1965.


He would also remain as an adviser.

Teh is also retiring from his role as chairman of Public Islamic Bank Bhd and Public Investment Bank Bhd with effect from Jan 1, 2018, but would stay on as non-executive director in both wholly-owned subsidiaries of Public Bank with effect from the same day.


“The smooth transitions of the succession of the chairmanships of Public Bank, Public Islamic Bank and Public Investment Bank are in place,” the group said.



Public Bank under Teh's leadership has been one of the biggest success stories on Bursa, may be the best, but definetely in the top one percent group.

I only have data going back to 1987, over that 30-year timespan Public Bank compounded 16.4% (vs. 8.4% of the KLCI (both total return, taking dividends into account).

That means that RM 10,000 invested in Public Bank in 1987 is worth RM 1,014,000 now, while RM 10,000 invested in the KLCI is worth now RM 118,600, an outperformance of about 8.5 times.

Public Bank itself is a component of the KLCI, so relative to the other 29 counters it would have done even slightly better.

All very impressive, and one good example how much a succesful buy-and-hold strategy through an investment in a good quality company can yield. No wonder there are a lot of happy faces at the yearly AGM meetings.

Public bank has never reported a loss, not even in the horrific Asian crisis of 1997/98.

Tuesday, 1 August 2017

Idea: Tracker Fund of Hong Kong (2800.HK) (3)

I recently have sold my Tracker Fund of Hong Kong (I wrote about it before here and here).

I don't think the price is now particularly expensive, but with a lot of risk globally and a quite high portion of the fund being invested in financials (of which I am not a fan) I have decided to take profit.

Given the recent increase in share price the dividend yield (one of the reasons I bought the share, that time close to 4%) has also fallen.

Including two dividends (of HKD 0.62 and HKD 0.15) the return is about 38% for a holding period of just over one year.




Disclaimer: this is not a recommendation. Please do your own homework and make your own investment decisions or ask advice from a professional advisor.