Sime Darby: what happened after its merger?

Sime Darby announced its long expected demerger, and analysts prepared their reports (here, here and here).

I am sure we will be overwhelmed in the next months by sleak PowerPoint presentations and the like, full with jargon like "unlocking of value", "strategic repositioning", "win-win situations", "maximizing shareholders value", "refocussing exercise" etc.

But ten years ago Sime Darby also went through a large restructuring (the merger with Guthrie and Golden Hope), also with sleak PowerPoint presentations, and the results of that exercise are definitely underwhelming.

Sime Darby's share price has performed very poorly, and is even below the level of 2007:

Most likely that can be explained by looking at the revenue and especially profit numbers over the last five year:

That exercise in 2007 must have cost a few hundred million RM, that is quite a nice and tidy amount of money that could have been spend on something else, possibly more useful.

Before Sime Darby jumps into the next restructure (which again will cost quite a bit of money, I assume), can we please get a honest, hard look at what was promised in 2007, and what actually was achieved in the next ten years? For instance, what happened to the promised synergy and economy of scale? Which party actually benefitted of that merger? Was it may be only the advisors and the bankers who came out ahead, charging juicy fees?

Blast from the Past: the Carrian case (3)

I wrote about this subject before (here and here).

The CIA has recently released files from their archive, and this document (unfortunately a "sanitized" copy) has to do with the Carrian case.

Has anything been learned from this scandal from the past? Looking at the more recent scandals like 1MDB, I strongly doubt it.

BNM takes action against which financial institution?

Article on Bank Negara's website:

Bank Negara Malaysia Takes Enforcement Action Under Financial Services Act 2013

One snippet:


Pursuant to Bank Negara Malaysia’s (the Bank) press release dated 27 December 2016, the Bank wishes to announce that a financial institution has been imposed an administrative monetary penalty of RM1,400,000 for failure to promptly notify the Bank of a significant audit finding in relation to its dealers’ misconduct involving the fixing of the USD/MYR exchange rate.


Why does BNM not simply mention the name of the financial institution? Surely a healthy dose of transparency goes a long way.

AirAsia X: late announcement from Tune Group?

I was looking at Bursa's website to check if AirAsia X had made an official statement regarding the UK corruption case of Rolls-Royce. There was no such announcement, hopefully they will release a comprehensive statement soon.

However, there was another announcement, Tune Group notifying its disposal of 147 Million shares of AirAsia X:

A major shareholder disposing a large chunk of shares, that seems like important news. Why did Tune Group wait almost one month to inform Bursa (and AirAsia X's shareholders) about this disposal?

AirAsia mentioned in Rolls-Royce bribery case (2)

The relevant documents on the website of the SFO (Serious Fraud Office from the UK) can be found in the following documents, the AirAsia case is referred to as "Count 12 - Malaysia Civil":

Deferred Prosecution Agreement – Statement of Facts – SFO v Rolls Royce PLC, paragraph 314 and further;

SFO -v- Rolls Royce judgment, paragraph 107 and further;

SFO -v- Rolls Royce Appendix A, paragraph 147 and further.

SFO -v- Rolls Royce Appendix B, detailing the financial sanction to be paid, in the AirAsia case being GBP 17 Million (RM 94 Million).

AirAsia mentioned in Rolls-Royce bribery case

Article from Malaysiakini (partially behind paywall), some snippets:


UK's Serious Fraud Office (SFO) has named AirAsia Group as one of several foreign parties involved in bribery cases with jet engine manufacturer Rolls-Royce PLC.

AirAsia Group, in an immediate response, told Malaysiakini that it had complied with procedures in its dealing with Rolls-Royce.

According to the Statement of Facts filed with the Crown Court at Southwark, Rolls-Royce failed to prevent its employees from providing an AirAsia Group executive with credits worth US$3.2 million (RM14.2 million) for the maintenance of a private jet.

This was despite Rolls-Royce employees believing that the credits would lead the AirAsia Group executive to perform his function "improperly".

"This financial advantage was given at the request of the AirAsia group executive, in return for showing favour towards Rolls-Royce in the purchase of products and services provided by Rolls-Royce and its subsidiaries, including Total Care Agreement services to be supplied to AirAsia X, a subsidiary of AirAsia Group," it said.

It also alleged that there was an attempt to conceal the fact that the credits, given to AirAsia X in 2013, would be used for the private jet, which was unrelated to the AirAsia Group.

On Oct 17, 2012, a Rolls-Royce employee reported to the Rolls-Royce senior employee that the AirAsia Group executive was seeking to "make the corporate jet deal 'invisible' with its 'value covered within additional A330 Total Care Agreement charges" for AirAsia X".

On March 15, 2013, a Rolls-Royce employee reported to his senior that the AirAsia X senior employee, who had been negotiating for the Air Asia Group executive's private jet, wanted a "cash settlement that is off the record and not visible to the AirAsia X group".

The Rolls-Royce employee raised concern that it was "unethical and likely illegal" and would rather not handle the case.

The Rolls-Royce employee complained that the AirAsia X senior employee had avoided discussing the private jet in front of other AirAsia X or Rolls-Royce employees and refused to communicate via email about the matter unless it was verbally or on Blackberry Messenger, a secured chat application.

In an interview during the SFO's investigation, the Rolls-Royce employee said the AirAsia X senior employee went as far as suggesting that the Corporate Care entry fee for the private jet be secretly spread across other AirAsia X payments to Rolls-Royce.

"Rolls-Royce employees believe the relevance of the jet to the issuing of those credits was most likely to be concealed from AirAsia X executives by the AirAsia X senior employee.


The above sounds very worrisome and requires an official, much more detailed answer from AirAsia than given.

I have written before about the huge amount of RPTs between the different companies in the AirAsia group and also the privately owned companies. This gives rise to numerous conflict of interest situations.

If the holding company was listed, with all subsidiaries (like AirAsia, AirAsia X and the subsidiary owning the private airplane) 100% owned, then many problems (like the above mentioning in the Rolls-Royce bribery case) would not have existed in the first place.

Sabana Reit: shareholder activism

Shareholder activism is still very rare in Singapore (or Malaysia for that matter), so if it happens, we have to take note.

Some disgruntled shareholders of Sabana Reit have started a blog, voicing their discontent with the high fees that the company is paying, and proposing a restructure (bringing the management inside the listed company), which deals with the current conflict of interest between the management and the shareholders of the Reit.

Two snippets:


The Total Fees paid to the External Manager/Property Manager was $8,513,000 in 2013, $9,683,000 in 2014 and $9,288,000 in 2015!!!

On the other hand, the Annual Distribution per Unit paid to us DROPPED FROM 9.38 CENT TO 6.85 CENT in the same period.  We need to do something fast!!!



The share price of Sabana, which has performed badly:

The share price fell further after recently a rights issue was announced. With the money form the proposed rights issue new properties will be acquired which will (I assume) increase the management fees even further.

Paramount acquisition: where are the financial numbers? (2)

As expected by this blog, Paramount Corp was queried by Bursa and answered accordingly.

I am still surprised that Paramount did not provide the rather basic information in the first place, listed companies should avoid being queried by Bursa, which hints at a possible lack of transparency.

The financials that Bursa asked for and Paramount provided:

In other words, based on the historic 2015 numbers:

• 3.0 times revenue
• PE of 22.7
• 5.1 times shareholders equity

For an unlisted company these appear rather rich multiples.

However, ROE is quite high (23%), there is (some) branding, and the R.E.A.L. group probably has grown quite fast in the past.

Also, may be the 2016 numbers (which unaudited are surely already available) are good compared to the 2015 numbers.

Jaycorp: late announcement? (2)

Jaycorp was queried by Bursa regarding the awarded contract and gave more details, one snippet:


1. The reason for the delay in making the announcement with regard to the award of the Project was because approvals from the relevant state authorities on the design of the Project were still pending after the letter of award was issued. The lack of these approvals would have materially affected the viability of the Project and the total contract sum resulting in the delayed announcement.


It seems the project started before the approvals were acquired, even before the contract was entered into:

4. The Project commenced on 15 June 2016 and the completion date is 14 June 2018.

Paramount acquisition: where are the financial numbers?

Paramount Corporation announced the acquisition of 66% of the existing shares of R.E.A.L. Education Group for RM 183 Million, which puts the valuation for the whole company at RM 277 Million.

That is quite an amount of money.

Both an attachment and a presentation are given, with some statistics and history of R.E.A.L. and how it would complement Paramounts educational arm.

But strangely enough not a single financial metric of R.E.A.L. is presented:

• no revenue numbers
• no profit numbers (gross or net)
• no NAV

Paramount is a company with a pretty good long term track record, the above omissions are therefore rather peculiar.

Surely the minority investors of Paramount are entitled to receive this basic information, to be able to evaluate this deal on its merits.

May be the numbers can be found in extracts to be found at SSM, but should investors really need to do so much effort?

Jaycorp: late announcement?

Jaycorp announced:



The Board of Directors of Jaycorp wishes to announce that Jaycorp Engineering & Construction Sdn Bhd (“JECSB”), a 60%-owned subsidiary, had on 17 October 2016 entered into a contract with Solid Destiny Sdn Bhd (“SDSB”) for the construction of a 7-storey shop cum office on L.15864 at Likas, Kota Kinabalu, Sabah known as the Spinnaker SOVO Suite at Likas Bay for a contract sum of Ringgit Malaysia Sixteen Million Seven Hundred Sixty-Three Thousand Five Hundred Ninety-Seven and Sen Sixteen (RM16,763,597.16) only over a period of twenty four (24) months (“the Project”). The Project has a gross floor area of approximately 82,408 square feet.


That sounds like decent news for the company.

The announcement was made January 9, 2017 while the contract was signed October 17, 2016, almost three months ago. That bags the question, why the delay in announcing this contract?

1,000,000 Pageviews

A nice milestone, a million page views!

When I started this blog in 2011 I could not have expected this, so much traffic for a not very popular subject, Corporate Governance in (mostly) Malaysia.

Probably some people came to this website for the wrong reasons (the number of visitors from Russia and Norway is for instance puzzling high), on the other hand i3investor republishes many of the blog postings, which much add to the overall readership.

From a monetization point of view it doesn't really matter: there is none on my blog, no advertisement etc.

This falls simply in the category of doing something back, though I am pretty sure that some of the companies and/or people I wrote about might not agree with that.

Thanks a lot to all the regular visitors.

And even more thanks to all regular contributors, all from within the industry: fund management, the press and also (former) directors of listed companies.

Unfortunately I don't have always time or knowledge to follow up on each tip, apologies for that.

Both the "Protasco's Puzzling Purchase" and "Oops, CIMB releases Vivocom's results premature" postings were based on information from anonymous tipsters, that kind of information is also very much appreciated.

And lastly, thanks to all poorly behaving directors of listed companies, without you there would be no material to write about.

1MDB's new audit company

According to this article from Bloomberg 1MDB has appointed Parker Randall as their new auditor.

Their UK website can be found here. Some screenshots:

I certainly hope that Parker Randall will be the right "choose" for 1MDB, that they can "delivery" that, with the help of the 3 E's: "Exceeding, Expectations, Experts".

The local firm executing the audit will most likely be AFTAAS.

The "about us" page does not reveal much information:

And is exactly the same as the Team-profile.

Similar to the Forum-page:

1MDB was worldwide one of the most talked about companies in 2016, and unfortunately often for the wrong reasons.

A lot of pressure will therefore be on the shoulders of little known outfit AFTAAS, which looks like a rather "remarkable" choice, given the size, scope and history of 1MDB.

Mexter: new major shareholder (2)

Article in The Edge:

Mexter partners with UM spin-off to commercialise e-health solution

"This is Mexter’s first venture since Dr Lim Yin Chow emerged as a major shareholder in the company via his vehicle, LYC Capital Sdn Bhd."

"Dr" Lim Yin Chow?

For more background, please read here, here and here.

Malaysia, some interesting charts

From an article in the Financial Times, four charts that show Malaysia at the extremes. If that is good or bad, I leave that to the reader.

Malaysia spends less on public healthcare than any other country surveyed (4% of GDP) but has the largest amount of people who think they spend more (37% of GDP).

Anyhow, according to the survey Malaysians are the happiest among those surveyed.

From CLSA, a table that shows that Malaysia's gross savings % of GNI (Gross National Income) was one of the highest in 1997, but in 2015 the lowest among a group of Asian countries.

And lastly, China's growing role in FDI:

Is there value in the RM?

Malaysia Market Strategy from UBS: "2017 - A glass half full or half empty?".

Lots of negative stuff regarding 2016 ("a year to forget"):

• KLCI down for 3rd year in a row
• Earnings growth down for 4th year in a row (because of this shares still do not look cheap, on average, value probably more to be found in selected small and medium cap shares)
• Slowing domestic demand, ongoing political concerns, etc

The RM is at an all-time low level against the USD, but there might be value there, according to this graph:

I am not exactly an expert on "REER" (Real Effective Exchange Rate"), but if the above picture is an objective evaluation of the current situation, then the RM looks definetely cheap. However, buyer beware, things can stay cheap for a long time.

EPF exits Felda (2)

Article in The Star: "EPF not to be blamed for leaving FGV", some snippets and some remarks by me.

Regarding the title of the article, I don't blame EPF for exiting, in the contrary, I just question why EPF invested in FGV in the first place.


The FGV was sitting on a cash pile of more than RM5bil and its business model was pretty straight forward – which is to collect the fresh fruit bunches and process them into crude palm oil.


The plan was always to expand aggressively through acquistions (even the name hinted clearly at that, "Global Ventures"), for instance this article in the Borneo Post:


The strategic initiatives to improve efficiency include extensive oil palm replanting programme to improve age profile at approximately 15,000 hectares per year utilising Felda’s award-winning planting materials to increase fresh fruit bunch production and improve oil extraction rate.

The proceeds would also be used for potential acquisitions of additional land bank in South-East Asia and Africa for planting oil palm and rubber by 2015.

Meanwhile, Felda would expand downstream capabilities to enhance value of its upstream products.
This included further acquisitions and investments in refinery assets, consumer packed plants and bulking facilities.

In general, roughly 2/3rd of acquisitions globally fail, either they are done for the wrong reasons, or because of the information bias, etc. Investors in FGV should thus have known at that point in time that things might not work out well, those acquisitions might destroy value instead of enhancing it.

The risk was minimal for the EPF. As long as FGV keeps cutting its production cost and utilises its huge cash pile for re-planting activities there is very little to fear.

First of all FGV had announced already they would not just use the money solely for internal purposes. Secondly, since when has an equity investment "minimal risk"?

However even then, there were some nagging issues especially when it came to some corporate governance practices.

Why invest when there are "nagging issues"?

For starters, FGV chairman Tan Sri Mohd Isa Samad is also the chairman of Federal Land Development Authority (Felda) which is the major shareholder of the listed company. Isa, who is also a politician closely aligned to Putrajaya, also sits on board of many subsidiaries.

Please note this article:

Umno vice-president Tan Sri Mohd Isa Abdul Samad (pix) has been suspended from the party by its disciplinary board for six years for breach of the party's code of ethics during the party elections last year, according to his political secretary, Salim Shariff, on Friday.  

The suspension means that Isa will be stripped of the post of vice-president that he had won with the highest number of votes among the three posts of vice-president at the same party polls.

Salim said Mohd Isa, who is Federal Territories minister, was found guilty on five of nine charges he had faced with regard to party discipline.


The Star continues:


"There is nothing wrong with active politicians sitting on the board of companies."

Oh my ....... where to begin?

One should try to minimize conflict of interest situations, because it is exactly those situations that often cause serious problems.

In Malaysia it looks like the policy is to maximize conflict of interest situations.

"Like all its investment companies, the EPF would have certainly voiced its concerns over FGV’s board composition."

Can the writer give concrete examples of this voicing of concerns? I have hardly ever seen the EPF actively fighting for minority investor's rights. EPF is in a very strong position, I am pretty sure that if they voice their concern many newspapers would write about those concerns. Apart from voicing their concerns, the EPF can also actively vote against resolutions. This would also serve as an example for the small minority investors, who would feel more powerfull.

I normally like Shanmugam's articles, but definetely not this time .....