Friday, 29 March 2019

Investment Appraisal

When buying stocks, you are investing cash today in expectation of future returns.

There should  be a process to evaluate opportunities to see if their benefit is greater than their cost and also which stocks should recevie priority where capital is limited.

This process is known as "investment appraisal".

The main benefits from an investment are its future net cash inflows.  

Its two main costs are

  • the amount of the actual investment (capital outflows) and 
  • the cost of financing the investment over the long term (the cost of capital).

The non-financial benefits and costs of an investment as well as its risk are also releveant considerations.

There are several ways to appraise investments:

1.  Payback period
2.  Annual yield
3.  Measures which use discounted cash flows.

Monday, 25 March 2019

Walter Schloss: Making money out of junk

Walter Schloss made 21% per year for 47 years, investing in a simple, methodical, low stress manner working 9-4:30 with no other employees or assistants other than his son Edwin.
Here are some key takeaways from the interesting Forbes piece:
  • Focus on cheap stocks. This means not worrying about earnings at the moment, only asset protection.
  • You have three things in your favor here:
    • Earnings turn around and the stock appreciates significantly
    • Someone buys control of the company (buyout)
    • The company begins buying its own stock (share-buyback)

Read the whole article here:

Saturday, 16 March 2019

Lessons from – “The Five Rules for Successful Stock Investing” by Pat Dorsey.

Lessons from – “The Five Rules for Successful Stock Investing” by Pat Dorsey.

by Adib Motiwala

Pat Dorsey is the Director of Stock Analysis at Morningstar.
· Picking individual stocks requires hard work,discipline and an investment of time (and money)
· You need patience, an understanding of accounting and competitive strategy and a healthy dose of skepticism
· Buying stock means part ownership in a business
· Courage of conviction
· Companies with most conflict of opinion are often best investments ( think contrarian)

Chapter 1 · Core principles of investing
o Doing your homework
o Finding companies with strong competitive advantages
o Having a margin of safety
o Holding for the long term
o Knowing when to sell

Chapter 2 · What mistakes to avoid
o Swinging for the fences
o Believing its different this time.
o Falling in love with products
o Panicking when the market is down
o Trying to time the market
o Ignoring valuation
o Relying on earnings for the whole story

Chapter 3 Moats
o Firms that earn high profits.
o Focus on FCF, net margins, ROE and ROA
o Source of moat
  • § Product differentiation
  • § Driving costs down
  • § High switching costs for customers
  • § High barriers to entry for competitors

o Moats have depth (how much money can be made)and width ( how long can they sustain it)

Chapter 6: Company analysis · Checklist to analyze a company
o Can growth be sustained over time? Source of growth
o Growth via acquisition is not sustainable,usually acquisitions don’t produce returns for shareholders of acquiring firm,difficult to evaluate true growth rate
o If Earnings growth outstrips sales growth, need to investigate
o ROE is a good measure of profitability but check the leverage levels that can make ROE look better.
o Be wary of companies with too much financial leverage

Chapter 7: Management evaluation · Checklist to evaluate management
o Compensation information from the proxy statement. Does pay vary with firms performance. Check pay package.
o Avoid companies that give loans to executives, have many related party transactions or give out too many stock options. Look for executives that have substantial stock ownership positions.

Chapter 8: Avoiding financial Fakery
Six red flags
1. Declining cash from operations even as net income increases or cash from operations increases slowly compared to net income
2. Firms that take frequent one-time charges and write-downs.
3. Serial acquirers
4. CFO or Auditor leaves the company.
5. If A/R increases rapidly compared to sales. If sales go up by 10% and A/R by 20%, the company is booking sales faster than its receiving cash from customers. Also, watch for “allowance for doubtful accounts”. This should move up in sync with A/R.
6. Changes in credit terms and accounts receivable.

Seven pitfalls to watch out for:
o Gains from investments recorded as revenue
o Underfunded Pension plan
o Pension padding : Subtract gains on pension plan from net income.
o Cash flow due to options exercise by employees
o Inventories rising faster than sales
o Changes in accounting assumptions such as depreciation expenses, allowance for doubtful accounts, revenue recognition,expense recognition.
o Capitalizing costs such as marketing and software development.

Chapter 9: Valuation
· Buy undervalued relative to earnings potential
· Don’t rely on a single valuation metric
· If firm is cyclical or spotty earnings history,use P/S
· P/B used for financial firms and with tangible assets. Least useful for service oriented firms.
· P/E can be compared to the market, similar firm or firm’s historical P/E ( most reliable)
· Use PEG with caution.
· Lowest P/E isn’t always the best. Prefer low risk stable firm that produces good FCF than paying less for a cyclical company that is very capital intensive.

Chapter 11: Worth the price of the book. 
Complete analysis on two companies based on everything in the book ( moat, financial statement analysis, management and company analysis, valuation and DCF)

Chapter 12: 10 Minute test
Here Dorsey proposes a list of question to ask of any company so that we can eliminate the poor investment candidates from the good ones really fast.
1. Min quality hurdle
    a. Avoid IPOs and avoid companies that trade on pink sheets and micro caps.
2. Has the company ever made an operating profit?
3. Does the company generate consistent cash flow from operations?
4. Is ROE consistently over 10% with reasonable leverage?
5. Is earnings growth consistent or erratic?
6. How clean is the balance sheet?
     a. If D/E is greater than 1,

  • i. Is the firm in a stable business?
  • ii. Has debt been going down or up as a % of total assets
  • iii. Do you understand the debt?

7. Does the firm generate FCF?
8. Are there many one-time charges?
9. Has the number of shares outstanding increased markedly over the past several years?

Beyond 10 minutes
· Look at 10 year summary financial statements.
· Read the latest 10-K filing front to back.
o Company, industry, risks, competition, legal issues, MDA, loans, guarantees, contractual obligations.
o Read two most recent proxies DEF-14A. Look for reasonable compensation and options granting policy.
o Read last 3 annual reports.
o Look at two most recent 10-Q filings.
o Start valuation of the stock.

Chapter 13 – 26 : Covers major industries and what to look for in those companies, valuation, etc.
This is excellent material and a good way to learn about the different industries, how to understand them, what makes them tick, what are ways to value them.

Thursday, 14 March 2019

Checklist for Buying Good Companies at Reasonable Prices

Here is a summary of the questions an investor should ask for investing in good companies at fair prices.

Questions 1 - 19:  Focus on the areas of the business.

Business Nature
1.  Do I understand the business?
2.  What is the economic moat that protects the company so it can sell the same or a similar product five or ten years from today?
3.  Is this a fast-changing industry?
4.  Does the company have a diversified customer base?
5.  Is this an asset-light business?
6.  Is it a cyclical business?
7.  Does the company still have room to grow?

Business Performance
8.  Has the company been consistently profitable over the past ten years, through good times and bad?
9.  Does the company have a stable double-digit operating margin?
10. Does the company have a higher margin than competitors?
11. Does the company have a return on investment capital of 15% or higher over the past decade?
12. Has the company been consistently growing its revenue and earnings at double digits?

Business Financial Strength
13. Does the company have a strong balance sheet?

Business Management
14. Do company executives own decent shares of stock of the company?
15. How are the executives paid compared with other similarly sized companies?
16. Are insiders buying?

Business Valuation
17. Is the stock valuation reasonable as measured by intrinsic value, or P/E ratio?
18. How is the current valuation relative to historical range?
19. How did the company's stock price fare during the previous recessions?

Question 20:  Confidence in Your Business Analysis or Research

20. How much confidence do I have in my research?

The final question centers on how you feel about your research.  Though it is not directly related to the company, your own analysis is a vital consideration.  It determines your action once the stock suddenly drops 50% after you buy.

That same 50% drop can trigger opposing actions depending on your level of confidence.

  • If you are assured in your research, the 50% drop in price is a great opportunity to buy more of the stock at half the price.  
  • If you don't have confidence, you will likely be scared into selling at a 50% loss.

It will happen after you buy the stock and, paradoxically, it happens only after you buy.  So, get prepared!

The checkup questions are based on the company's financial data.  None of them should replace your work of understanding the business and learning about its products, its customers, its suppliers, its competitors, and the people who work in the company.  The warning signs serve as reminders of where you are.  They are not meant to substitute for understanding.  If we paid attention only to the numbers and signs and ignore the business itself, understanding of the company business is incomplete.

If we gain a solid understanding of the business, these numbers and signs will help us to appreciate where we are and where we are probably going.  If business understanding is qualitative and the numbers are quantitative, both are needed to gain the confidence we need for our research.

The checklist is a useful tool for investors to maintain discipline in their stock picking.

Wednesday, 13 March 2019

Deep Value Investing has its Inherent Problems.

Buffett said it best:

Unless you are a liquidator, that kind of approach to buying businesses is foolish.

  • First, the original 'bargain' price probably will not turn out to be such a steal after all. In a difficult business, no sooner is one problem solved than another surfaces - never is there just one cockroach in the kitchen. 
  • Second, any initial advantage you secure will be quickly eroded by the low return that the business earns ...

There are better ways to make money (see below).

Warren Buffett, Berkshire Hathaway shareholder letter, 1989.

When the overall market valuation is high, and everything else is rising, those dropping and appearing in the deep-bargain screener probably deserved to be traded by low valuations.

  • Their stock prices were likely low for the right reasons, and buying these would likely have resulted in deep losses.
  • Therefore, when it comes to deep-value investing, investors need to be cautious and aware of this approach's inherent problems.

The inherent problems with deep value investing

"Cigar-butt investing"

This was coined by Buffett for the strategy of buying mediocre businesses at prices that are much lower than the companies' net asset values.

He said the approach is like "a cigar butt found on the street that has only one puff left in it and may not offer much of a smoke, but the "bargain purchase" will make that puff all profit."

There are several problems with this approach.

1. Erosion of value over time.

Mediocre businesses do not create value for their shareholders; instead, they destroy business value over time.

The value of the business can decline and the initial margin of safety may gradually shrink, even if the stock price doesn't go up.

Investors need to be lucky enough to have the stock prices rise in time and sell before prices drop again following the intrinsic value of the business.

"Time is the friend of the wonderful business, the enemy of the mediocre." Buffett wrote in his 1989 shareholder letter.

2. Timing and Pain

Buy these bargain portfolios when you can find plenty of them, but if the broad market is in quick decline, like in 2008, the bargain portfolio will be very likely to lose much more than the general market.

  • If the decline lasts longer, many of the companies in the portfolio may suffer steeper operating losses and may even go out of business.
  • It is much more painful to hold such a portfolio in bad times, as anyone who owns these stocks during bear markets or recessions will attest - and lose much sleep over.

Because of the quick erosion of business value, selling the deep-asset bargains quickly is key, even if stock prices do not appreciate. The biggest profits are usually achieved within the first 12 months.

"If you buy something because it is undervalued, then you have to think about selling it when it approaches your calculation of its intrinsic value. That's hard." (Charlie Munger.)

Buffett likens buying mediocre businesses at deep bargain prices for a quick profit to dating without the intent of getting married. In that situation, it is essential to end the courtship at the right time and before the relationship turns sour.

3. Not Enough Stocks Qualify

To avoid errors and disasters caused by single stocks in the deep-bargain portfolio, it is important to have a diversified group of them.

But when the market valuation is high, it is just not possible to find enough stocks to satisfy the diversification requirement. They simply dried up as the market continued to tick higher.

This situation may last a long time, as the close-to-zero interest rate has lifted the valuations of all assets.

4. Tax Inefficiency

Because of the short holding time, any gain from the portfolio is subject to the same tax rate as the investor's income tax (for U.S. investors, unless it is in a retirement account.)

This drastically reduces the overall return over the long term.

If buying mediocre businesses at deep bargain prices for a quick profit is like a date without the intent of getting married, buying them and getting involved long term is like a marriage without love. A lot of other things need to be right to work things out, and it will never be a happy marriage.

Important Notes on Deep-Asset Bargains strategy

Though buying deep-asset bargains can be very profitable, this strategy comes with its inherent problems.

- This strategy comes with a much higher mental cost to investors.

- More importantly, business deterioration and the erosion of value put investors in a riskier position.

- As a result, they need to strictly follow the rules of maintaining a diversified portfolio and selling within 12 months whether investments worked out or not.

Ask yourself:

Why would you, as an investor, want to get involved in this mess (a deep-asset-bargain) and witness things deteriorating, hoping the situation will improve?

Even if it works out eventually, which is very unlikely (in the majority), the mental and psychological drain is simply not worth it.

There are better ways to make money.

Buy Only Good Companies!

"Bargain-purchase folly."

Instead of buying companies with deteriorating values on the cheap and hoping things will improve, why not buy companies that grow value over time?

Warren Buffett summarized in a single sentence the priceless lessons he learned from his personal "bargain-purchase folly".

"It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

Monday, 11 March 2019

Marks, Howard – Mastering the Market Cycle

Marks, Howard – Mastering the Market Cycle
Houghton Mifflin Harcourt, 2018 [Finance] Grade

The holy grail of investing is market timing and its
realization is about as elusive. This is a guide on
how to master the financial market cycle, which is
something in a way related to market timing, but
still very, very, very different. The master (that
word again…) corporate bond investor and
investment writer Howard Marks at Oaktree
Capital Management is among those whom I
admire most in financial markets and his first book
The Most Important Thing ranks among my top five
all time investment books. In a way this is a slight
problem when it comes to Mastering the Market
Cycle. A classical advice to companies reporting
their financials is to “under-promise and overdeliver”
– the thing is that Marks’ first book drives
up expectations for this one to a level it cannot
fully live up to. But it’s still a really inspiring book
on an important and under-discussed area that I
will put to good use immediately.

A fundamental cornerstone for the author is that
financial markets cannot be predicted with any
practically usable precision in the short to medium
term. This doesn’t mean that all market outcomes
are equally probable at all times. By looking to
current conditions and by this forming an opinion
on where we are in the market cycle an investor,
according to Marks, can tilt his portfolio to take
advantage of what is more likely to happen in the
years ahead. It’s both about what one thinks will
happen depending on where one is and about the
probability of this happening compared to other
scenarios. If an investor is good at this game it
should pay off in the long run and he tilts the odds
for success in his favor. Prepare, don’t predict. I
think he is totally spot-on in this respect.

Another key basis in mastering the cycle is to
understand that things don’t just happen one thing
after another in – unfortunately irregular – cyclical
patterns. What happens in one stage of a market
cycle is instead causing it to move on to the next
stage. Cycles are chains of cause-and-effect
relationships. After a pair of introductory chapters
the main part of the book is devoted to describing
a large set of interrelated and parallel such cycles:
the economic cycle, the profit cycle, the risk
attitude cycle, the credit cycle and so on.

Underlying all these is the cyclical patterns in
investor psychology – a topic clearly nearest to
Marks’ heart. To a large extent Marks reads various
psychological markers and positions himself in the
cycle by these. Next comes one chapter that tries
to assemble all the above cycle inputs into the full
mosaic of the market cycle. The book finishes with
a few concluding more practical chapters and a
needlessly cut-and-paste type of summary.

It is honestly a luxury to have 50 years of hard won
experience condensed in such a graspable format.
Marks is a simply superb writer. Much like Warren
Buffet the language can be deceptively simple,
causing fairly complex issues to sound like child’s
play. Make no mistake – this is investment thinking
on the highest level. Still, compared to the high
standards set by the author’s investment letters
some passages of the book are a bit repetitive with
their long and recurring chains of cause-and-effects
and some newly written chapters that don’t build
on previous investment letters, but are required to
make an coherent story, are perhaps slightly less
inspired than the others.

There are clearly others who have made
contributions to the understanding of market
cycles such as Hyman Minsky, various Austrian
economists, the books from Marathon Asset
Managed edited by Edward Chancellor plus many
others. However, since Marks is so focused on
reading non-fundamental and non-economic
signposts I think the most complementary book
might be Big Debt Crisis by the more Borg-ish Ray
Dalio with his “economic machine”-concept, who
obviously mostly zeros in on the central bank
dominated cycle of monetary policy.
When it comes to books on market cycles this is a
must read – but it could have been even better.

Mats Larsson, December 15, 2018

Sunday, 10 March 2019

The Three Fundamental Truths of a Bear Market

The three fundamental truths of a bear market.

1.) A bear market is only bad if you plan on selling your stock or need your money immediately.
2.) Falling stock prices and depressed markets are the friends of the long-term investor.
3.) You must learn to separate the stock price from the underlying business. They have very little to do with each other over the short-term.

So what do I do with my money in a bear market?

The first thing you need to do is to look for companies and funds that are going to be fine ten or twenty years down the road. If the market crashed tomorrow and caused Gillette's stock price to fall 30%, people are still going to buy razors. The basics of the business haven't changed.

When you understand this, you will see falling stock markets like a clearance sale at your favorite furniture store... load up on it while you can, because before long, the prices will go back up to normal levels.

Saturday, 9 March 2019

Digital economy in Malaysia will be worth RM85.8 billion by 2025.

Realising the RM85 billion industry


A recent update from Google, predicts that the digital economy in Malaysia will be worth RM85.8 billion by 2025. The key sector in digital economic growth is the e-commerce industry followed by the online tourism industry and the ride-hailing industry.

However, the same study by Google states that the contribution of the internet to the country’s GDP is 2.7 per cent in 2018 and is expected to grow rapidly in the coming year. However, what needs to happen to realise it?

Replicating the success of e-commerce from foreign countries

Jim Jarmusch, an independent film director, states: “Nothing is original. Take from anywhere that echoes with inspiration or spark your imagination.” In other words, the original idea usually sparks when one combines two or more ideas and makes it something new.

It has also been proven to work in the commercial world, where local businesses have managed to profit by replicating successful brand business models.

While various e-commerce platforms can produce genuine products and solutions for the market, it may sometimes be better to localise the successes seen abroad.

This is the inspiration behind the e-commerce business such as FashionValet (FV).

Vivy Yusof, founder of FV, said he was inspired by the fashion e-commerce platform when he was exposed to consumerism in the United Kingdom. With just a few clicks, users can easily purchase products and receive the purchase at their doorstep easily.

Together with Fadzarudin Shah Anuar (her boyfriend and her husband), FV was launched in 2010 with a minimum budget of RM100,000 from their savings and personal loans. A few years later, FV became more prominent and has successfully raised funds RM310 million from investors to date.

Today, FV receives more than 438,000 visitors each month and has four major physical stores throughout Malaysia.

Although FV was born out of a western e-commerce model, Vivy localized its business model for Malaysians and is now one of the most popular fashion brands in the country starting from the online space.

With so much success from around Southeast Asia and the world, entrepreneurs and entrepreneurs can observe successful e-commerce players abroad as an inspiration for their business ventures.

Changing the way we hire

According to market research, e-commerce businesses experiences major challenges when looking for highly skilled personnel in technical fields such as
  • software engineering, 
  • digital marketing, 
  • data science, and 
  • product marketing.

Finding employees working with experience in this technical role can be challenging due to the rapid growth of e-commerce in the region, meaning that there was no previous workforce supply for the digital economy in previous years in certain technical roles.

The lack of talent for specialized e-commerce is an issue identified as the most critical challenge in Google & Temasek’s recent report as well. Therefore, regular practice for e-commerce to recruit foreign talents with relevant experience and knowledge.

Although this solves the problem in some sense, this may not be the best long-term solution as most expatriates work on short contracts and only a handful of them would stay in the job for more than five years.

The ideal solution is to invest in local talent who are more likely to commit to a career in the long run.

Resolving this problem requires the participation of both recruiters and future workforce. One way to resolve this issue is to change the traditional recruitment process to a new process for digital economy.

One of the ways to solve this problem is to rethink the hiring process and prioritize highly motivated candidates, with high skills in problem solving and creative thinking.

This may mean putting lower importance on the technical skills and industry-specific knowledge. Recruiters from the digital sector need to invest their resources in training their workforce as well to reduce the lack of technical skills and knowledge.

Jeremy Chew is the head of content marketing for iPrice group, the fastest growing product meta-search platform in Southeast Asia. For further information, please visit

Ministry proposes cap on oil palm plantations


KUALA LUMPUR: The Ministry of Primary Industries will be presenting a proposal to the Cabinet this month to cap the maximum area for oil palm plantations at about 6.5 million hectares, up from the 5.85 million hectares as at end-2018.

Minister Teresa Kok said this was expected to be achieved by 2023 based on the average annual expansion of plantations from 2013 to 2018.

“This move was made in order to dismiss accusations that oil palm plantations are the reason for deforestation.

“But, in order to achieve this, we have to work with various state governments,” she said when officiating the 30th annual Palm and Lauric Oils Conference and Exhibition, Price Outlook 2019 Conference and Exhibition (POC 2019) yesterday.

Kok said palm oil players should also improve the research and development of seedlings, as well as boosting the productivity and yields of existing oil palm tree.

Kok said the ministry would also propose to the cabinet to compel information on the areas under oil palm plantations to be made public.

“We need to be transparent. We hope the cabinet will approve the proposal,” she said.

Meanwhile, Kok said the government’s effort this year to expand the B10 and B7 bio-diesel programmes to the transport and industrial sectors was expected to raise palm oil consumption by 761,000 tonnes annually.

“This will help reduce the huge stockpile and lift the commodity prices,” she added. — Bernama

Mosva: Good times await offshore support vessel segment


KUALA LUMPUR: As the activities in the oil and gas (O&G) industry pick up pace on the back of rising benchmark Brent Crude oil price which has hit US$66 per barrel, the offshore support vessel (OSV) segment is upbeat of more tender offers, especially from Petronas.

In the dark days of oil price in 2016, when the price slumped to US$28 per barrel, barely 100 vessels were chartered.

With the stabilisation of the oil price at the current US$66 per barrel, the Malaysian OSV Owners’ Association (Mosva) foresees full utilisation of the industry’s capacity of 300 vessels, said its president, Mohamed Safwan Othman.

“Stability in oil price creates stable demand, be it from the national oil company or other oil majors in Malaysia such as ExxonMobil, Shell and Repsol,” he told Bernama.

Petronas, for instance, has kicked off maintenance work, hook-up commissioning drilling and exploration, disclosing that there would be about 20 greenfield and 30 brownfield projects between 2018 to 2020 that would have the potential for future oil projects.

Mohamed Safwan said for the past three years, since end-2014, Petronas had stopped all of its activities except for production, which resulted in a sharp decline in OSVs needed, culminating in only 170 vessels being occupied from 300 previously.

“Since July 2018, when the oil price reached US$70 per barrel, we saw the activities picking up. And imagine for 20 greenfield projects, they would require up to three OSVs, it is a simple calculation on how much vessels are needed, especially for three years until 2020,” he added.

According to Mosva, under the OSVs requirement for 2019 to 2021, Petronas has contracted out 107 vessels under the Integrated Logistic Control Tower packages.

“The most widely required OSVs for development projects are

  • anchor handling tug supply vessel, 
  • platform supply vessel, 
  • straight supply vessel and 
  • fast crew boat,” he said.

Mosva has 24 members in the country, with accumulated tonnage of 540,000 dead weight tonnage (DWT), representing 90 per cent of Malaysian-flagged OSVs.

Asked about the challenges ahead, Mohamed Safwan said the OSVs owners were facing issues with low charter rate, which could go as low as 50 per cent of its operating expenses.

“Whereas for Petronas, its profit margin is US$35 per barrel and for them to embark on the exploration activities, they require oil price to be at US$55 per barrel. But we are actively engaging with Petronas on this matter,” he said.

Meanwhile, the total Malaysian fleet as at 2018 stood at 10.23 million DWT, with oil tankers made up 31 per cent (3.2 million DWT), bulk carrier (eight per cent), general cargo (three per cent), container ships (two per cent) and other types of vessels (the remaining percentage). — Bernama

Petronas awards MCM contracts to five contractors

JANUARY 16, 2018

File photo of a Petronas offshore platform. Petronas’ subsidiary, Petronas Carigali Sdn Bhd (PCSB), has awarded its contract for the provision of maintenance, construction and modification services (MCM) at its offshore facilities in Peninsular Malaysia, Sabah and Sarawak to five local contractors.

KUALA LUMPUR: Petronas’ subsidiary, Petronas Carigali Sdn Bhd (PCSB), has awarded its contract for the provision of maintenance, construction and modification services (MCM) at its offshore facilities in Peninsular Malaysia, Sabah and Sarawak to five local contractors.

In a statement here, it said the contractors were

  • Carimin Engineering Services Sdn Bhd, 
  • Dayang Enterprise Sdn Bhd, 
  • Deleum Primera Sdn Bhd, 
  • Petra Resources Sdn Bhd, 
  • Sapura Fabrication Sdn Bhd, and its joint-venture partner, Borneo Seaoffshore Engineering Sdn Bhd.

These five local contractors were selected for the five-year contract which took effect in September last year, with an option to extend an additional year, said PCSB.

Under the terms of the contract, the engineering and maintenance services will include Topside Major Maintenance (TMM) and Facilities Improvement Projects (FIP).

Vice-President of Malaysia Assets of Petronas and Chief Executive Officer of PCSB Mohd Jukris Abdul Wahab said new requirements were introduced to encourage collaboration across the industry supply chain.

“These contracts encompass requirements such as the utilisation of marine vessels from Malaysian-owned companies only and the mandatory participation of 20 per cent local state service providers to spur value-added services that ensures growth in Malaysia’s oil and gas upstream services industry,” said Jukris.

With 200 offshore platforms in operation under PCSB in Malaysia, Petronas continues to encourage merit-based participation from local contractors to achieve value-driven production growth for the long-term progress and sustainability of the oil and gas industry. – Bernama

Petronas contracts

Petronas contracts have gone to a handful of S’wakians, not to Petros


See Chee How

KUCHING: Datuk Patinggi Abang Johari Tun Openg should be truthful to all Sarawakians and admit that Petronas work contracts awarded after his appointment as the Chief Minister of Sarawak, in as far as they involved the operations in Sarawak, have gone to a handful of Sarawakians and not to Petros, the state-owned company incorporated to partake the upstream and downstream petroleum-related development activities in Sarawak, said Batu Lintang assemblyman See Chee How.

See, who is state PKR vice chairman, was responding to Abang Johari’s denial on Saturday that most Petronas contracts worth RM2.1 billion being awarded to close relatives and Parti Pesaka Bumiputera Bersatu (PBB) members.

According to See, in Nov 2017, it was revealed that Sapura Energy Bhd has bagged five contracts worth a combined RM1.47 billion.

“The contracts included work in relation to the Pan Malaysia Transportation and Installation of Offshore Facilities for Petronas Carigali Sdn Bhd and Sarawak Shell Bhd, and a contract to undertake the provision of maintenance, construction and modification services under the Package A (Offshore) — Sarawak Gas for Petronas Carigali,” he said today.

On Jan 15, this year, he said a Memorandum of Understanding (MoU) for a logistics collaboration between Petronas Chemicals Marketing Labuan (PCML) Ltd and Hubline Berhad was signed, enabling Hubline Berhad to join PCML’s panel of transporters for petrochemical products.

“On Jan 16, 2018, Petronas Carigali Sdn Bhd (PCSB) had issued a statement announcing that it has awarded contracts for the provision of maintenance, construction and modification services (MCM) at its offshore facilities in Peninsular Malaysia, Sabah and Sarawak to five local contractors, namely, 
-  Carimin Engineering Services Sdn Bhd, 
-  Dayang Enterprise Sdn Bhd, 
-  Deleum Primera Sdn Bhd, 
-  Petra Resources Sdn Bhd, 
-  Sapura Fabrication Sdn Bhd, and its joint-venture partner, Borneo Seaoffshore Engineering Sdn Bhd.

“Tan Sri Datuk Amar Hamid Bugo, the former State Secretary of Sarawak was appointed the Chairman of Petros by the present Sarawak Chief Minister. He has remained a director in Sapura Energy Berhad, a corporation which is almost wholly West Malaysian.”

See said Abang Johari should have full knowledge that the joint venture partner for Sapura Fabrication Sdn Bhd in the contract to undertake the provision of maintenance, construction and modification services under the Package A (Offshore) — Sarawak Gas for Petronas Carigali, is Borneo Seaoffshore Engineering Sdn Bhd, a company registered in Kota Kinabalu, but one which the Sarawak Chief Minister’s one very close family member was made a director not long before the contract was awarded.

“Dayang Enterprise Sdn Bhd and Petra Resources Sdn Bhd are established corporations of which Sarawakian individuals have substantial interests, though a brother of the present Prime Minister Datuk Seri Najib Tun Razak was also made a director in Petra Resources very recently.”

Hence, See said he maintained his statement that the general Sarawakians have not benefited from the contracts that were awarded by Patronas, valued to be above RM2 billion, since the present Chief Minister has taken his office.

“And I urge the Chief Minister to be forthright and truthful in revealing who are the Sarawakians who are behind the companies and corporations who had secured the contracts with Petronas thus far.

“And I maintain my contention that, because of the personal interests and that of the parties within the Barisan Nasional (BN), the Sarawak Chief Minister has put himself in a weak position to safeguard and fight for Sarawak’s rights in the exploration, exploitation and development of our valuable petroleum resources in Sarawak.”

Petronas net profit soars 22 pct to RM55.3 bln in FY2018


KUALA LUMPUR: Petroliam Nasional Bhd’s (Petronas) net profit rose 22 per cent to RM55.3 billion in the financial year ended Dec 31, 2018 (FY18) from RM45.5 billion in 2017, on the back of higher revenue and supported by a net write-back of impairment on assets.

Revenue also increased by 12 per cent to RM251 billion from RM223.6 billion in FY17, mainly due to higher average realised prices for all key products.

President and group chief executive officer Tan Sri Wan Zulkiflee Wan Ariffin said the company recorded a strong financial performance in 2018, supported by its ongoing drive to increase operational efficiency and commercial excellence.

“We have made progress in the pursuit of our long-term strategies and will continue to invest in the future,” he said during the company’s fourth quarter and 2018 financial performance briefing yesterday.

Commenting on oil prices, he said it was expected to remain volatile this year with uncertainties expected to have a significant impact.

Wan Zulkiflee said Petronas’ plans for this year would be based on the oil price of US$66 per barrel.

“We use US$66 per barrel (as a benchmark) for our planning as anticipate a volatile year. As you can see in the past month, the oil production was also quite erratic,” he added.

He said Petronas planned to set aside slightly more than RM50 billion for its capital expenditure (capex) allocation for this year, slightly higher than the RM46.8 billion allotted in 2018..

Upstream activities would see an injection of RM30 billion, while RM15 billion has been allocated for the domestic market.

Last year, we saw most of the capex spent on the Pengerang Integrated Complex. Some of the capex would be used to venture into renewable energy.

“This is because oil is a depleting source and I think we have to allocate capex for whenever the opportunity is available, and India is one of them, and Malaysia as well,” Wan Zulkiflee said.

It was reported that Petronas had shown interest in one of India’s largest rooftop solar power producers, Amplus Energy Solutions Pvt Ltd, in a deal that could be worth RM1.56 billion.

— Bernama

Friday, 1 March 2019

Warren Buffet on Equity Bonds

@0.40  Anything can happen in the market, therefore, don't borrow money to invest.
@1.39  Look at the business to see if you have made a good investment, not the price.
@3.30  Many shareholders look at Berkshire as a savings account.
@3.50  Interest rates are gravity on the stock prices.  When interest rates are so low, the stock prices are going to rise.
@4.10  30 year government bond versus equity bond (hear Warren Buffett's explanation).
@5.10  When value of government bond offers higher coupon rates, it affects the value of your equity bonds.
@5.40  The yardstick is government bond.  The higher the yardstick goes, the less attractive are these other bonds.
@5.53  In 1982/83, when the long government bond got to 15%, a company that was earning 15% on its equity was worth no more than its book value in those circumstances.  A business that was earning 12% then, was a sub-par business.  
@6.15 to 7.00  On the other hand, a business earning 12% on equity when the government bond is 3% is a fantastic business to own.
@7.10  If you told me interest rate is going to be 15% next year, there will be a lot of equity I do not wish to own.
@7.30  Idiotic to own long term bond.
@8.05  Asset allocation to bonds and stocks.  Some people should never own stocks, especially if they are emotionally or psychologically not tuned to owning them, doing something stupid.
@8.53  The longer you hold stocks, the less risky they be, the longer you hold bond, the more risky they become.
@9.22  Investing is not easy, psychologically for most people.  Some gets the message, some don't.

QL Resources (Kenanga Research)

QL Resources Bhd - 9M19 Broadly Within Expectations

9M19 PATAMI of RM173.5m (+11%) and absence of dividends are within expectations. Better marine segment’s yield and expanding base of the integrated livestock segment as well as the eventual turn-around of the group’s convenience store chain could translate well to the group’s long-term profitability. We maintain our UP rating and TP of RM5.70.

9M19 broadly within. 9M19 PATAMI of RM173.5m is deemed broadly within our/consensus estimates, making up 81%/76% of respective fullyear expectations. No dividend announced, as expected. The group typically pays a single interim dividend annually; expected to be 4.5 sen for FY19.

YoY, 9M19 revenue of RM2.72b (+10%) was thanks to higher catch rates from the marine products manufacturing (MPM) segment and growth in output and sales from integrated livestock farming (ILF). Palm oil activities (POA) continued to be weaker from softer CPO prices and unsold inventories. Regardless, PBT grew slightly by 9% thanks to stronger results from the two divisions mentioned above. 9M19 PATAMI registered at RM173.5m (+11%) after incurring lower effective taxes of 14.5% (0.8ppt).

QoQ, 3Q19 revenue of RM978.9m grew by 6% on the back stronger sales from both MPM and ILF. PBT soared by 39% due to better margins from MPM and POA due to better conditions leading to higher catch rates and FFB yields, respectively. ILF, however, continued to churn stable margins. Due to higher effective taxes during the quarter (19%, +10.8ppt), 3Q19 PATAMI closed at RM69.1m (+14%).

On better steps. The continued growth in the MPM segment presents a welcomed change as it was previously bogged down by highly unfavourable weather conditions, which lowered catch rates. Further gains could come from its new surimi plant and fleet expansion. The POA segment may trail poorly if weak CPO prices persist. Still, contribution from this segment could remain less meaningful to the group as opposed to its other businesses (i.e. <10 120="" achieves="" against="" and="" base="" bases="" br="" buffer="" by="" chain="" commodity="" convenience="" could="" demonstrated="" detrimental="" expected="" familymart="" feed="" fluctuations="" from="" further="" fy20="" generate="" group="" growth="" had="" hand="" has="" ilf="" in="" indonesia.="" is="" it="" its="" local="" locations.="" market.="" milling="" of="" on="" optimal="" other="" pbt="" players="" potential="" production="" profits="" progressively="" proven="" provide="" s="" some="" store="" strong="" the="" to="" vietnam="" when="" which="">Post results, we leave our FY19E/FY20E assumptions unchanged.

Maintain UNDERPERFORM and TP of RM5.70. Our valuation is based on an unchanged 40.0x FY20E PER (within the stock’s +1.5SD over its 3- year mean PER). We believe the rich valuation is reflective of a higher investor appetite, attributed to the stock’s defensive quality in the consumer staples space. However, we also believe that current trading valuation could be excessive due to its: (i) low dividend prospects at c.1% (vs. best peer’s yield of 4%), and (ii) slower earnings growth expectations c.6% (vs. peers’ average of +10%).

Risks to our call include: (i) significant improvement to MPM sales, (ii) significant uptick in palm oil prices and sales volume, (iii) better-than expected demand of poultry products abroad.

Source: Kenanga Research - 1 Mar 2019