Sunday, 25 December 2016

"For a lot of investors, the name is all they know about a company"

Article in The Sydney Morning Herald:

"A Goldman you've never heard of is selling its shares in Hong Kong"

One snippet:

Goldman is planning an initial public offering in Hong Kong - but it's not the Goldman you've heard of.

Goldman Faith Holdings, a local engineering subcontractor which adopted its current name less than a month ago, lodged an application to list on the main board of the Hong Kong stock exchange, according to a December 19 filing. The name of the company, which works on electrical systems for hospitals in the city, sports similarities to Wall Street investment bank Goldman Sachs in both English and Chinese.

The Chinese name of Goldman Sachs, which combines connotations of prestige and prosperity, is pronounced "go sing" by Cantonese speakers in Hong Kong. Goldman Faith also chose a Chinese name read as "go sing," using an identical first syllable and a second syllable with the same sound but different intonation. The subcontractor's Chinese name has the meaning of prestige and integrity.

"For a lot of investors, the name is all they know about a company," said Mike Leung, an investment manager at Hong Kong brokerage Wocom Securities. "The company is probably hoping that it gets more publicity and more people would pay attention."

It appears Jho Low is not alone in naming companies after well-known and trusted companies from the West, may be one does not need an education from Wharton Business School to do that.

Saturday, 24 December 2016

EPF exits Felda

Article in The Edge: Felda Global falls 3.70% on EPF exit as shareholder, one snippet:

"Shares in Felda Global Ventures Holdings Bhd (FGV) fell 3.70% this morning after the Employees Provident Fund (EPF) said it no longer has any stake in FGV, as it assures members that the EPF practises high standards of corporate governance in its investments, with robust policies on risk control and asset allocation.

At 9.17am, FGV fell 6 sen to RM1.56 with 2.31 million shares traded.

"In line with these best practices, we have been closely monitoring the equity performance of FGV over the years and have gradually sold down our shareholding," the retirement fund said in a statement yesterday."

Investing one's own money in shares is risky, and needs proper analysis.

Investing OPM (Other People's Money) requires more diligence and responsibility.

Investing in IPO's even more so, due to all the hype.

EPF invested OPM in FGV's shares during its IPO, even became "cornerstone investor". In February 2012 it owned 185 Million shares in FGV valued at about RM 1 Billion.

Now EPF said it sold all shares in FGV, which must have resulted in a loss of a several hundred million RM, apart from the opportunity cost.

Would this not be a good time for EPF to clarify why it invested in FGV in the first place, what changed along the years, if there were any corporate governance concerns regarding FGV, and if EPF actively tried to do something about those?

Sentences like "best practices" and "closely monitoring" don't add any information, that is simply boilerplate text.

This is a concrete case in which EPF most likely has lost a substantial amount of money. When an investment takes off, and generates a nice amount of profit EPF is entitled to boast about it, but if the opposite happens, surely its members deserve a proper explanation.

I wrote before about FGV.

Friday, 23 December 2016

PNB reveals secret of how it makes money to pay high dividends (2)

Article in The Star: "PNB optimistic about 2017"

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.

I wrote before about this subject.

Thursday, 22 December 2016

It's a small world

Two interesting articles:

Penny stock crash: John Soh accused of witness tampering

7 executives of Platinum Partners charged with US$1 bil fraud

In it the companies in the "Penny Stock Saga" (Blumont, Asiasons and LionGold) are linked to ISR and John Soh and to US-based hedge fund Platinum Partners.

It is indeed a small world in the world of finance.

Good to see that at least some enforcement is being delivered in Singapore and the US.

Remains the question: John Soh seems to be (allegedly) the mastermind in this all, what would have happened if the Malaysian authorities would have punished him more appropriately for his alleged role in the downfall of several Malaysian listed companies?

The fine of RM 6 Million seems to be woefully inadequate, at least to me.

Tuesday, 20 December 2016

Millions and Billions

Two interesting articles in The Edge.

Shell Malaysia gets MTO at RM1.92 per share

The offer was triggered after MHIL's conditional sale and purchase agreement for 51% of Shell Refining, signed in February 2016 with Shell Overseas Holdings Ltd, turned unconditional today, Shell Refining said in a filing on Bursa Malaysia today.

I wrote before about this matter. The acquirer wants to retain the listing status, which means this is a "friendly" offer, minority shareholders can simply accept or reject the offer, there is no pressure.

The second article:

Konsortium PetroHub to raise US$180 bil over next 5 yrs for refineries in Kedah

Konsortium Asia PetroHub (KPHUB) expects to raise US$180 billion in funds over the next five years for its oil refinery facility construction project in Kedah known as Sultan Abdul Halim Refinery Complex.

The consortium was formed by a group of companies, namely IMC London, a group of bankers and funders based in Britain who have a 50% share, as well as VR4U Technologies Sdn Bhd with a 30% share and another local based company with a 20% share.

The amount raised will be used to fund four additional refineries over the next five years. There are six refineries to be developed in total and the first two will be developed starting January 2017.

Both articles about refineries, but there is something rather "strange" going on if we compare the two articles:

  • Regarding Shell, at the current share price the whole company is valued around USD 150 Million (that starts with the letter "M")
  • Regarding KPHUB, it expects to raise USD 180 Billion (that starts with the letter "B")

The refinery of Shell will be quite old, and probably smaller in size, but does this explain a thousand fold valuation difference? It seems rather puzzling to me.

The article continues: "The second agreement was with QMIS World Trade International, which has close collaborations with various Chinese conglomerates and will act as a listing agent in Nasdaq US and Hong Kong Stock Exchange to raise funds for the project."

I tried to Google on "QMIS World Trade International", expected to find a company with lots of experience in this matter, having done dozens of multibillion dollar deals on many international exchanges. But I could not find anything relevant, it even looks like they have no website, a fate they seem to share with VR4U Technologies Sdn Bhd .

Lots of questions remain .......

Sunday, 18 December 2016

KFM: to RTO or not to RTO, that is the question? (2)

Two good articles about the same matter:

How KFM is dealt with is worrying

How quickly interest dies

The ball is firmly in Felcra's court.

Felcra was very fast in withdrawing its LOI (Letter Of Intent).

Now it needs to quickly come with the reason(s) for that.

And surely the authorities are watching closely. The credibility of the market is at stake.

Friday, 16 December 2016

KFM: to RTO or not to RTO, that is the question?

On December 13, 2016 Kuantan Flour Mills announced:

"KFM had on 9th December 2016 secured a Letter of Interest (‘LOI”) from Felcra on its interest to explore and possibility to participate in KFM’s equity."

On December 15, 2016 the company announced:

.... the Company had on 14th December 2016 received a letter from Felcra with details stated in the letter as below :

"After urgent deliberation of our register of interest to explore the possibility of participating in KFMB’s equity, we hereby inform that, effective immediately, we are retracting our register of interest and ceasing all exploratory pursuit to participate in Kuantan Flour Mills Berhad equity.

On a query from Bursa the company replied:

The Board of Directors of KFM wishes to inform that the Company is not aware of any particular reason on the above retraction and is in the process of seeking clarification from Felcra Berhad .

It all sounds rather strange, what has happened that changed the decision of Felcra so drastically, so quickly?

The share price of KFM went from RM 0.04 to RM 0.24, up 600%. Some people must have made a lot of money.

For KFM this is already the second time of an aborted RTO, which makes it even more curious.

Tuesday, 13 December 2016

Blast from the Past: UEM/Renong

From an "old hand" in the industry, someone who was first a bank analyst, then Head of Research and finally Sales. Lightly edited by me:

..... But then the super bull-run for Malaysia came in 1993 when the index moved from a low of 645 points to a high of 1332. Everyone was a winner then and I remember the words of my remisier friend, “money is like free!”. From thereon I was hooked. The adrenalin rush, the excitement of coming to the office every morning and feeling smug given that all your BUY recommendations are winners.

Its was am amazing ride right  to the BIG crash in 1997. Along the way I became the infrastructure analyst and was right at the epicenter of the major infrastructure projects from the North South Expressway, the Second Link, LRT and all the highways and byways and the KLCC twin towers, Gelang Patah – now known as Iskandar Malaysia and Putrajaya.

Naturally I was the analyst for the infamous UMNO related UEM/Renong group.  I still remember accompanying clients on helicopters to have an overview of  the construction works and the countless roadshows globally. I even travelled on the Concorde from London to New York for an IPO. Those were the go-go days. …. Of course I was not with [company] then!

UEM/Renong was also the tipping point for both the Malaysia market and me as an analyst for the wrong reasons.  It was the TWO stocks to own in Malaysia as there were the prime beneficiaries of the government’s infrastructure spending and took the market to dizzy heights. The music stopped 17th November 1997 when UEM bought a 33% stake in its parent Renong @ RM3.24 a piece when the market price was RM1.90 for USD685.8m. This was  just when the Asian Financial crisis was unravelling!  The market lost 20% in value in three days. Talk about governance. 

...... The Malaysian market has never seen those days since. 

Interesting that the "old hand" mentioned the UEM/Renong scandal as the tipping point, and not for instance the capital controls, or any of the other scandals of those days.

As Warren Buffett mentioned: "It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.".

Unfortunately for Malaysia, in the UEM/Renong case things were not done differently, and the country suffered a huge reputational damage.

Have we learned anything from that episode, was there ever a proper analysis done what exactly happened, why, by whom, who profited and when, by an independent committee? No.

For those people that are counting for an inkling of justice in the 1MDB case, these are not hopeful words.

Saturday, 10 December 2016

FGV: mixing politics with business

Article in The Star: "A roller coaster ride in store for FGV"

Some snippets:

The simple kampong folks who had relied on the value of these shares as their retirement income are now wondering what is in store for them now.

This applies to all shareholders of all companies, there is an issue of being properly informed about the possible risks of investing in listed companies, being warned that shares can go up but also down, about not putting all your eggs in one basket. And I don't mean hiding the risks somewhere on page 232 of a listing prospectus 500 pages thick. The media also has a role to play in this.

The reality is that FGV has been the undisputed worst plantation stock performer ever since its initial public offering (IPO) in July 2012. The share price decline was so bad that the company was removed from the Bursa Malaysia KLSE Index stocks last year.

Since its hyped-up listing at RM4.45 per share, the battered government-linked stock closed at RM1.67 yesterday representing a whopping 62.5% decline in share prices.

Many IPOs are very much hyphed these days and disappoint after being listed. The authorities might want to look into this issue. It (partially) explains the disappointing performance of the Bursa market.

It has serious political implications as the country heads towards a general election, speculated to be held next year.

The small holders are loyal supporters of the Barisan Nasional and their interests deserves [sic] to be protected.

FGV is regarded as a government “protected” stock and rightly so too.

Is the writer of this article (Wong Chun Wai) proposing a new sort of Corporate Governance, one whereby shareholders of listed companies who are loyal supporters of the ruling political party get some sort of special protection and others not?

An "interesting" proposal, but one which can not get any support whatsoever from this blog.

The Star itself is a listed company and majority owned by a political party, may be that explains the writer's thoughts though.

In my opinion, most of the problems of FGV are caused (not solved) by political connections, so the solution is rather simple: cut all ties between politics and business. Let professional managers  run companies (like FGV) without any political interference whatsoever. Cut the dead wood, base decisions on mergers and acqusitions on proper commercial terms, etc.

In the short run there might be some pain in certain quarters, in the long run there will be many gains for all.

Friday, 9 December 2016

Dual class shares: another really bad idea (2)

I wrote before about this issue.

Proponents of Dual class shares often point a some US companies that have dual class shares and are doing quite well. One of the companies mentioned is Facebook.

May be those people should read the following article from Bloomberg:

Facebook's Investors Criticize Marc Andreessen for Conflict of Interest

One snippet:

Earlier this year, Facebook Inc.'s Mark Zuckerberg came to his shareholders with a big question: would they approve him maintaining voting control of the company, even if he sells most of his stock?

The monumental shift would benefit Zuckerberg because it would let him sell shares to fund philanthropy, but it had the potential to harm investors by diluting their power over decision making. And before putting the vote to shareholders, Facebook's board had the power to influence the outcome.

But the board's process was flawed, according to investor lawsuits filed against Facebook's directors in April and recently unsealed court filings in Delaware's Chancery Court. The company went through the motions of protecting minority shareholders, but one board member seemed more interested in protecting Zuckerberg himself, investors allege.

Zuckerberg has voting control among shareholders because his stock has most of the voting rights. He wanted to sell shares, but didn't want to lose his majority voting status. So he proposed setting up a new Facebook stock class. The new shares would automatically dilute the voting power of existing shareholders, because every share with voting power will split into three shares -- one that has power, and two that don't. In the new arrangement, the non-voting shares are less attractive as currency in acquisitions and may make it harder for the largest social-network provider to get tax benefits, among other issues. 

The question was put to a vote by shareholders, but there was never any doubt about the result. Since Zuckerberg has majority voting control of the company, what he favors wins the day. Zuckerberg's proposal won the vote, and he got his way: He can sell his stock and maintain voting control. The shareholders approved the creation of a new stock class. The only entity that had any power to affect the outcome was Facebook’s board, which had already weighed the issue months earlier, in his favor. 

In August 2015, with the chief executive's blessing, Facebook's board set up a special committee, choosing the three directors who were least beholden to Zuckerberg or financially affected by the decision -- Susan Desmond-Hellmann, Marc Andreessen and Erskine Bowles -- to represent shareholders while weighing the matter, according to a regulatory filing.

But Andreessen, a venture capitalist at Andreessen Horowitz and a long-time Facebook board member, is a close Zuckerberg ally. While on the committee, Andreessen slipped Zuckerberg information about their progress and concerns, helping Zuckerberg negotiate against them, according to court documents. The documents include the transcripts of private texts between the two men, revealing the inner workings of the board of directors at a pivotal time for Facebook.

David Webb wrote about this:

Awful corporate governance at Facebook. Zuckerberg pushed through a scheme to create and distribute non-voting Class-C shares so that he can further reduce his investment without losing voting control. A so-called "independent committee" of 3 directors was established, including Andreessen, who secretly coached Zuckerberg on how to deal with them. Then he gets to vote it through at the shareholder meeting anyway.    

One could argue that at least some shareholders took action: "The plaintiffs suing Facebook's board include pension funds, like the Employee Retirement System for the city of Providence, Rhode Island, and individual investors."

But how much chance is there that the same will happen in Singapore (or Malaysia for that matter)? I think almost none.

Thursday, 8 December 2016

Xingquan: heavy losses (4)

Story in The Edge: "Rejection of shoes a ‘one-off unfortunate event"

And a video can be found here:

This alleged order (I wrote before about this issue) for 3.6 Million pair of shoes must have been by far the largest order in Xingquan's existence. According to the video, it was one of the requirements of the project that inspection and all certification had to be done after the delivery of the last batch.

That doesn't make any sense whatsoever, why this strange requirement?

And why accept the huge order (if the customer really insists on this strange requirement), because the risk must be very high?

Just to put things into context:

Let's assume that the height of this wall is 20 shoeboxes, and that the length of each shoebox is 1/3 of a meter, then in one meter one can store 60 shoeboxes each containing one pair of shoes. The alleged order was 3,600,000 pair of shoes, in other words:

60 km shoeboxes (uninterrupted), the distance from Kuala Lumpur to Seremban!

Xingquan should prove, beyond any reasonable doubt, checked by reliable, independent auditors:
  • that the order really existed
  • who the agency was that placed the order
  • that Xingquan actually made 3,600,000 pair of shoes, during which time and in which locations
  • in which place(s) they stored the finished shoes
  • that the agency formally rejected the shoes
  • to which customer Xingquan sold the discarded shoes to

As long as that has not happened, I just dont believe the story, it is simply too crazy and doesn't make any sense whatsoever.

"Wu said management will explore the possibility of declaring dividends as well. It is understood that this has been demanded by some shareholders. As at June 30, the company had cash and cash equivalents of 1.14 billion yuan."

First Xingquan executed a rights issue, because it claimed it needed extra money, it raised about RM 44 Million with that (I wrote about this strange issue here and here).

Then it blew RM 387 Million in a single quarter (for a good part because of the above alleged screw up), almost nine times the amount raised in the rights issue.

And now suddenly the company "will explore the possibility of declaring dividends"?

Saturday, 3 December 2016

Uber: does the business model make economic sense?

Three hard hitting articles published on the "naked capitalism" blog regarding Uber:

Can Uber Ever Deliver? Part One – Understanding Uber’s Bleak Operating Economics

Can Uber Ever Deliver? Part Two: Understanding Uber’s Uncompetitive Costs

Can Uber Ever Deliver? Part Three: Understanding False Claims About Uber’s Innovation and Competitive Advantages

Some snippets:

Uber’s refusal to consider an IPO may best be explained by the recognition that publishing detailed, audited financial data confirming these massive losses and the complete lack of progress towards profitability could undermine public confidence about its inevitable march to industry dominance.

Uber is currently the most highly valued private company in the world. Its primarily Silicon Valley-based investors have a achieved a venture capital valuation of $69 billion based on direct investment of over $13 billion. Uber hopes to earn billions in returns for those investors out of an urban car service industry that historically had razor-thin margins producing a commodity product. Although the industry has been competitively fragmented and structurally stable for over a century, Uber has been aggressively pursuing global industry dominance, in the belief that the industry has been radically transformed into a “winner-take-all” market.

Unlike most startups, Uber did not enter the industry in pursuit of a significant market share, but was explicitly working to drive incumbents out of business and achieve global industry dominance. Uber’s huge valuation was always predicated on the dramatic growth towards global dominance. Thus if Uber’s valuation and industry dominance were to be welfare enhancing, Uber’s efficiency and competitive advantages would need to be overwhelming, and there would need to be clear evidence of Uber’s ability to generate large profits and consumer welfare benefits out of these advantages.

Published financial data shows that Uber is losing more money than any startup in history and that its ability to capture customers and drivers from incumbent operators is entirely due to $2 billion in annual investor subsidies. The vast majority of media coverage presumes Uber is following the path of prominent digitally-based startups whose large initial losses transformed into strong profits within a few years.

This presumption is contradicted by Uber’s actual financial results, which show no meaningful margin improvement through 2015 while the limited margin improvements achieved in 2016 can be entirely explained by Uber-imposed cutbacks to driver compensation. It is also contradicted by the fact that Uber lacks the major scale and network economies that allowed digitally-based startups to achieve rapid margin improvement.

Still one article to go in this series: "The next article in this series will discuss that Uber’s strategy for earning returns on its $13 billion investment was always based on eliminating both competition, and any regulatory/legal obstacles to the exploitation of anti-competitive market power."

KWAP has invested an undisclosed amount in Uber, so for their sake we must hope that the articles picture a too bleak future of the economics of Ubers business.

“the biggest insurance scam in Sarawak”?

Article in The Star: "Shake-up at Gibraltar BSN"

Some snippets (emphasis mine):

A management shake-up has occurred at Gibraltar BSN Life Bhd following alleged multi-million insurance investment fraud cases at the life insurance company.

Dubbed collectively as “the biggest insurance scam in Sarawak” by media in Sabah and Sarawak, the cases, which came to light late last year, allegedly involved
Gibraltar BSN agents collecting insurance premiums amounting to millions from over 150 customers for policies that did not actually exist.

According to reports, the customers, mostly from Sibu, Sarawak, were enticed by “returns offered of between 8% and 14% per annum”.

In some cases, there were also allegations of misappropriation of client payments.

It is understood that the insurance agents involved are no longer with the company.

Gibraltar BSN is a joint venture (JV) between the American-based Prudential Financial, Inc (PFI) and Bank Simpanan Nasional (BSN), a statutory body under the Finance Ministry.

PFI has a 70% stake in the JV, with BSN holding the remaining 30% interest.

Gibraltar BSN did not respond to StarBizWeek queries on whether it had or is being investigated by the authorities and whether there had been any action taken against it so far but said that there has been a change in top management of the company in recent months.

This sounds pretty serious, hopefully the enforcement agencies will quickly take appropriate action.

Thursday, 1 December 2016

MyEG shares jump after juicy government contract (3)

I wrote before about this issue, here and here.

Bursa announced the following enforcement:

Bursa Malaysia Securities Berhad (635998-W) (Bursa Malaysia Securities) has publicly reprimanded My E.G. Services Berhad (“MYEG” or “the Company”) and its Managing Director, Wong Thean Soon for breaching the Main Market Listing Requirements of Bursa Malaysia Securities Berhad (Main LR).  In addition, the Managing Director has been fined RM50,000.

MYEG is publicly reprimanded for breaching paragraph 9.08(2) of the Main LR which prescribes that a listed issuer must ensure that no disclosure of material information is made on an individual or selective basis to analysts, shareholders, journalists or other persons unless such information has previously been fully disclosed and disseminated to the public (i.e. to Bursa Malaysia Securities pursuant to paragraph 9.08(5) of the Main LR).  In the event that material information is inadvertently disclosed on the occasion of any meeting with analysts, shareholders, journalists or others, it must be publicly disseminated as promptly as possible.

MYEG had at the CIMB Conference on 6 January 2015 disclosed the government’s decision for MYEG to implement the fully online renewal of foreign workers’ permit from 2015 onwards (“the New Renewal of Foreign Workers Permit Arrangement”) as well as impact of the same to the Company (e.g. market share and market potential).

However, the announcement on the New Renewal of Foreign Worker Permit Arrangement was made to Bursa Malaysia Securities only on 9 & 12 January 2015 and even so, without any disclosure of details of its impact / implication on MYEG’s financials which was disclosed in MYEG’s presentation to the fund managers at the CIMB Conference.

The New Renewal of Foreign Workers Permit Arrangement was material / significant to the Company’s business and prospects as well as financials to MYEG particularly as the arrangement would increase the Company’s market share on renewal of foreign work permits from 8% (based on MYEG’s representation at the CIMB Conference) to 100%.

There was a significant increase of up to 26% in the Company’s share price from 6 January 2015 to 9 January 2015 with high volume traded following MYEG’s presentation at the CIMB Conference on 6 January 2015, the CIMB Equities research report issued on 7 January 2015 which had, amongst others, stated that the target price for MYEG was to be RM7.80 (from RM5.28) and The Star article on 9 January 2015 which had reported on the New Renewal of Foreign Workers Permit Arrangement. 

Wong Thean Soon, the Managing Director of MYEG is publicly reprimanded and fined RM50,000 for breaching paragraph 16.13(b) of the Main LR where he had permitted the Company’s breach of paragraph 9.08(2) of the Main LR.  He had selectively disclosed information on the New Renewal of Foreign Workers Arrangement in making the presentation for MYEG at the CIMB Conference on 6 January 2016.

In addition to the public reprimand, MYEG is required to undertake or arrange for the necessary training programme(s) in relation to compliance with the disclosure obligation under the Main LR and ensure its directors and relevant personnel of the Company attend the same.
Bursa Malaysia Securities views the contravention seriously as the disclosure obligations are fundamental obligations of listed companies to preserve and sustain market integrity and investor confidence.

Bursa Malaysia Securities has reminded MYEG and its Board of Directors on their responsibility to maintain the appropriate standards of corporate responsibility and accountability to its shareholders and the investing public

The above enforcement was expected, it is reasonably fast and gives the right amount of detail in the above press release, both regarding the impact of the contract on the business of MyEG and on the share price.

However, the size of the fine (only RM 50K) looks very low, is this really an adequate deterrent? Especially since Wong Thean Soon settled only a few months before the highest regulatory amount in the history of the SC:

"On 26 September 2014, Wong Thean Soon (“TS Wong”), entered into a settlement with the Securities Commission Malaysia (“SC”) in the sum of RM7,000,000 when he agreed without admission or denial of liability, to settle a claim that the SC was proposing to institute against him and 13 others for the manipulation of MyEG Services Berhad shares between 16 January 2007 and 24 April 2007, contrary to section 84(1) of the Securities Industry Act 1983."