Wednesday 31 December 2014

Monday 29 December 2014

Oil Palm planted area by state as at December 2013

Negri Sembilan
Peninsular Malaysia
East Malaysia

Source: Economics & Industry Development Division, MPOB

Saturday 27 December 2014

Why the delay in the issuance of CPC for KLIA2?

According to Clause 15.1 of Agreement and Conditions of PAM Contract 2006,

It is unsure whether the conditions of contract by Pertubuhan Akitek Malaysia was adopted in the construction of KLIA2 but practical completion generally carries the meaning above.

The operator of KLIA2 already has full use of the airport for its intended purposes for more than 6 months. Citing confidentiality agreements, the officer from Malaysia Airports Holdings Bhd (MAHB) could not give any specifics other than the fact that the remaining 2% of the works was contractors' failure to comply with certain criteria, including "some minor testing of the facilities and documentation",

What is so confidential?

Separately, in 1Q13, its Chairman and officer of MAHB reassured the public that KLIA2 was on-track to conclude the construction and internal works by 1 May 2013, and the airport commencement date to be on 28 June 2013. (source1, source2 ). KLIA2 eventually opened on 2 May 2014, about a year later. With just about 3 months to the targeted deadline, how could the Chairman and the officer be so ignorant, not knowing it was impossible for KLIA2 to be ready by 1H13?

Saturday 20 December 2014's return the bottom 20% in the past 5 years?

Referring to The Edge Lipper Fund Table dated 15 Dec 14, there were 67 funds under the category of Equity Malaysia (non-Islamic). There is no other closed-end fund listed in Bursa at the moment. So I guess the closest comparison I can make is versus open-ended funds under this category.

For the 5 year period of 4 Dec 09 to 5 Dec 14
Icap share price as of 4 Dec 09: RM1.79
Icap share price as of 5 Dec 14: RM2.36
Adjusted Icap share price* as of 5 Dec 14: (2.4/2.3) x 2.36 = RM2.46

*(adjusted for 9.5 sen special dividend in Sep 13. Closing price on 13 September 2013, a trading day before ex for dividend: RM2.40)'s 5-year share price return, inclusive special dividend: 37.4%. This ranked 57/68, the bottom 20% among the fund. The share price return is what the investors get when they invest in the closed-end fund.

If we look at the NAV for the 5-year period from 2 Dec 09 to 3 Dec 14, (a differencce of 2 days as Icapital publishes the NAV value once a week), the return was 53.8%, which ranked the fund 35/68, in the bottom half.

NAV as of 2 Dec 09: RM1.97
NAV as of 3 Dec 14: RM2.96
Adjusted Icap NAV:2.96/288.875 x 2.96 = RM3.03
Icap's NAV growth in 5 years: 53.8%

The performance of the fund does not excite the shareholders, despite the chances of success for closed-end funds are much higher. According to, closed-end funds do not experience inflows and outflows of funds, their fund managers have a broader range of investment choices and greater flexibility in deciding where and how to invest. Since closed-end funds have a fixed number of shares outstanding, they do not experience constant inflows and outflows of funds. Therefore, closed-end funds have less trading activities. With less buying and selling to do, closed-end fund would have less reinvestment decisions to make. The more reinvestment decisions there are, the higher the risks of making the wrong decisions and thus the higher the chances that the performance of a fund would be inferior.

Read more:

Does outperform Berkshire Hathaway Inc.?
Did outperform open-ended unit trusts?

Thursday 18 December 2014

Only World Group

This is a listed company that attracts my attention. To keep it short, I would just share the reasons why I am attracted to it. More information about the group can be found at its official website.

1. No offer for sale in IPO
The owners are not cashing out. Post IPO, the founders (husband and wife) are still very substantial shareholders, collectively holding 69.08% of the group. This is a good sign. It is likely that they will continue to work very hard for the group given their very significant stake in the group.

2. Competent and Experienced Management
The CEO and COO, husband and wife, have led the group for over 30 years. They brought in Ripley's Believe It Or Not Museum and Haunted Adventure to Genting Highland First World Hotel. Besides, the group runs 20 food outlets, 9 retail and other service outlets in Genting Highland. OWG is the largest 3rd party F&B operator in Genting Highland. Being able to be a significant partner at Genting Highland is a strong testimony of OWG's strength and competency.

And the Chairman and Group CEO Dato' Richard Koh is a veteran in the industry. He is:
i) The President of Asean Retail-Chains & Franchise Federation
ii) International Association of Amusement Park USA Board of Director & Asean Advisory
iii) Advisor of Malaysian Association of Amusement ThemePark & Family Attractions

3. Good margins
Skeptics are less impress that OWG's F&B brands are not so well-known. But when comparing with well-known brands such as Burger King Malaysia and A&W Malaysia which struggle with profitability, I would rather opt for margin. When analysing OWG, one has to understand that their business strategy is different from other F&B operators which adopt "scattered gun" approach. For these F&B players that have branches in shopping malls, brand awareness is important to attract patrons. 

OWG services a captive market at Genting Highland and its theme parks that have sufficient attractions and activities to extend the visitors' stay in the areas. Visitors rarely go all the way to Genting mainly for the food there. But when visitors look for food in Genting, there is good chance of the visitors frequenting one of OWG's F&B outlets there. 

When one visits a water theme park, the visitor has little choice but to purchase the food from the F&B outlets within the theme park. Brand is not so crucial here but how the operator retain visitors for longer stay at the theme park to increase their spending at the F&B outlets. 

4. Expansion and Upgrading at Genting Highland
Genting Group is expanding the number of rooms at Genting Highland and upgrading the outdoor theme park. This should bode well to OWG.

5. Cash business
OWG's businesses are mainly cash business. So cash collection is not a major concern.

6. Net cash position
Based on the pro forma consolidated balance sheet, the group is expected to be in net cash position post ipo and utilisation of listing proceeds

7. Low rental rate at Komtar
The rental rate for the 130,333sq ft of space at Komtar Penang for the
i) proposed multi-purpose hall and open air bazaar at 5th floor;
ii) high end international food service outlets, entertainment outlets and ballroom at 59th and 60th floor; and
iii) High end international food service outlets and lookout deck at 64th and 65th floor (rooftop)
is only RM0.69 psf.

2 exterior sky bubble lifts linking the 5th floor directly to 59th and 65th levels are intended to be installed to allow passengers riding in the sky lifts to experience distinctive bird's eye view of Georgetown and Penang.

I would say the Penang State Government has been successful in transforming Penang into a tourism hot spot. Some places of interest near Komtar includes street art and wall painting in Georgetown, Armenian Street Got Talent on every Saturday,  Project Occupy Beach Street every Sunday, Chew Jetty, and various famous hawker food nearby. After Komtar is revitalised by OWG, it could potentially becomes a tourist hot spot.

At IPO price of 88sen/share, it is pegged at a historical PE ratio of 11x. Given the reason above, and potential significant growth from the Komtar revitalisation project, I think it deserves a higher target PE ratio.

Saturday 13 December 2014

Increasing risk in the warrants of oil & gas SPAC

Oil & Gas SPACs have dropped to a very attractive level where they offer almost "risk free" investment with attractive return of 10% to 15% per annum. See here for more details.

This can be achieved by:

i) hold the shares in SPAC until liquidation.
ii) vote against if there is any qualified acquisition. Those who vote against will receive their pro rata portion of the amount held in trust account plus interest even if the acquisition goes through.

However, this is not the case for their warrants.

The warrant can only be exercised from the completion of the qualifying acquisition until the expiry of the warrants.

For an acquisition to go through, it needs at least 75% of the total value of shares held by all shareholders present and voting. However, it may become increasingly tougher to obtain shareholders' approval to proceed with acquisition, due to:

With the high uncertainty and fluctuation in the oil price, existing  SPAC shareholders who are risk averse may want to play safe and vote against any proposed acquisition to get their money back.

The current share prices of SPACs may have attracted some investors who jumped in for the "risk-free" investment and yet offers at least 3x the return of fixed deposit. This group of investors who seek "risk free" high return will vote against any proposed acquisition regardless how attractive the acquisition is.

These make investment in warrants of oil & gas SPAC very risky, with the risk of the warrants becoming "toilet paper", so to speak (we have gone scripless since the introduction of CDS).

This can be seen from the sharper drops in the warrant prices of SONA and CLIQ recently as compared to their mothers.

In these cases, the investors 要乸唔要仔

Saturday 6 December 2014

Does outperform Berkshire Hathaway Inc.?

On its facebook page, Capital Dynamics used the chart to compare the performance of vs. Berkshire Hathaway (Tan Teng Boo vs Warren Buffett) was listed on 19 Oct 2005.
IPO offer price: RM1/share
Special dividend of 9.5sen/share went ex on 17 September 2013
Closing price on 13 September 2013 (a trading day before ex for dividend): RM2.40
Closing price on 3 Oct 2014: RM2.43. 
Adjusted closing price on 3 Oct 2014: (2.40/2.305)*2.43 = 2.53

Berkshire Hathaway closing price on 18 Oct 2005: 84,600

Berkshire Hathaway closing price on 3 Oct 2014: 208,750

18 Oct 2005 - 3 Oct 2014
Icap's return: 153%
Berkshire Hathaway's return: 146.7%

For this period, Icap outperformed Berkshire Hathaway by 6.3%. However, the gap in the above chart appears to show wider gap (about 25%) between the performance of these two listed companies.

18 Oct 2005 - 5 Dec 2015
Closing price on 5 Dec 2014
Icap: RM2.36
Icap adjusted share price: 2,40/2.305*2.36 = 2.45
Berkshire Hathaway: 225,640

Icap's return: 145%
Berkshire Hathaway's return: 166.7%

Berkshire Hathaway outperformed Icapital/biz by 21.7%

When was launched, it was targeting CAGR of 15% to 20%. Icap is into its 10th year. At CAGR of 15% to 20%, the NAV should worth at least RM3.52 and RM5.16 by now.

Tuesday 2 December 2014

Another mind boggling statement from Tan Teng Boo

“The real issue is whether the 11.39% should control icapital. If they can block the reappointment of one director with only an 11.39% share ownership, what is there to prevent them from abusing their power again?” (Source)

Again... Another emotional and manipulative statement by Mr. Tan Teng Boo.

Why blame the 11.39% and not the remaining 88.61%? How the shareholders who hold 11.39% abuse their power?