Friday 25 June 2010

UK families saving more money than borrowing for first time in 20 years

Families are banking more money than they are borrowing for the first time in more than 20 years, a Bank of England report shows.

Coins and notes - Rate alert: the best savings accounts
Charities said it was unsurprising that, at a time of high unemployment, households were being more prudent with their budgets Photo: GETTY
Households last year put £24 billion into deposit accounts and took out £20 billion in new loans. It is the first time since 1988, when the current records began, that savings exceeded new borrowing.
The statistics relating to families reflect a culture of austerity that has also dominated public finance policy. The Chancellor unveiled the biggest cuts to public spending for almost a century in this week’s Budget. Combined with £29 billion in annual tax rises, the Government’s own figures suggest that individuals earning £50,000 will be £1,600 worse off within two years, while the average citizen will be £400 worse off.
Leading economists said the recent recession – the worst for 60 years – meant households had become increasingly concerned about paying their debts.
Benjamin Williamson, a senior economist at CEBR, the consultancy, said: “Higher unemployment and increased risk aversion mean we will have higher savings as households rebalance their finances.”
Peter Spencer, the chief economic adviser to the Ernst & Young ITEM Club, said: “People are reducing their borrowings. It’s the combined effect of some families not being able to get credit and other families choosing to pay their debts off.”
Overall savings, including pensions and investments, rose last year from 2 per cent of household income to 7 per cent as families prepared for leaner times, according to the Office for National Statistics. This year, the savings ratio has risen further, to 8 per cent, a level not achieved since 1998.
At the same time borrowing has fallen dramatically.
With cheap credit readily available, borrowing hit an all-time high of £125 billion in 2004. The debt binge was driven by rising house prices as families remortgaged to release equity for holidays and other luxuries. At its peak, in 2007, net mortgage lending hit £108 billion.
Last year, by contrast, households borrowed just £20 billion, the lowest level since 1993.
David Hollingworth, of mortgage brokers London & Country, said: “There’s been a complete turnaround in the approach of borrowers. Rather than using mortgages as a cheap way of borrowing – effectively using their home as a piggy bank to fund their luxury purchases – they are now looking to pay down debt more quickly. They are tightening their belts amid concerns about higher interest rates in the future and questions over the employment market.”
The shift from loans to deposits has occurred despite the relatively low rates on offer in traditional savings accounts, which are now offering up to 3 per cent compared with 5 per cent before the crisis.
However, the Bank of England pointed out that savers were getting a good deal compared with the Bank Rate, which remains at a historic low of 0.5 per cent.
Charities said it was unsurprising that, at a time of high unemployment, households were being more prudent with their budgets.
But they warned that families still faced tough times ahead with the prospect of rising interest rates. Delroy Corinaldi, a director at the charity Consumer Credit Counselling Service, said: “Unemployment and pressures on the public purse will ensure the problem of over-indebtedness continues. The crux of the problem will not be about levels of debt but ability to repay, particularly if and when interest rates go up.”
Household finances are likely to be squeezed further because of George Osborne’s Emergency Budget. VAT will rise from 17.5 per cent to 20 per cent, while up to 700,000 more workers are to pay higher rate income tax after the threshold was lowered.
In April, ONS figures showed the average person’s wealth fell by £16,000 in the first part of the recession, a drop of 15 per cent.

UK State pension Ponzi scheme unravels with retirement at 70


By Ian Cowie  Last updated: June 24th, 2010

Mr Duncan Smith is the latest minister charged with tackling Britain's state-funded pension system.
Mr Duncan Smith is the latest minister charged with tackling Britain's state-funded pension system.
The great Ponzi scheme that lies behind our State pension is unravelling – as they all do eventually – because money being taken from new investors is insufficient to honour promises issued to earlier generations.
None of this should come as a surprise. It is many years since experts began pointing out that Britain’s State pension – like most of its public sector pensions – are unfunded promises which rely on NICs and taxes paid by workers this week to pay pensions to old people next week.
This financial model is so fundamentally unstable that it is illegal in the private sector. No private company or insurer would be allowed to carry on as a series of British governments have done. Hence my disrespectful but I hope helpful comparisons with the original wheeze of the American fraudster, Mr Ponzi.
ile none of this mess is the fault of the new Government, that does not mean we should uncritically accept its suggested solution to the problem. Least of all because so much of what Iain Duncan Smith, the Work and Pensions Secretary, is proposing looks identical to what the discredited previous Labour administration had announced.
For example, there is the plan for a new State pension into which all employees will begin to be auto-enrolled from 2012. You can see why socialists might say the answer to a reduction in voluntary savings is to make them compulsory. But why would Conservatives – who used to believe in individual freedom, responsibility and choice – arrive at the same conclusion?
More importantly, why should individual savers agree? Given the multiple disappointments for pension savers over the last 13 years, the new auto-enrolled pension looks horribly like a case of throwing good money after bad.
While it is true that employees who find their paypackets diminished by deductions they never asked to be made may subsequently ask to leave the scheme, the Government hopes it will get off the ground because of many people’s inertia. Just like the flakiest tick box marketing techniques that are now banned in the private sector by financial regulators. No insurer is now allowed to tell people: “You didn’t opt out, so we helped ourselves to your cash anyway.”
Longer lifespans mean we must save more and work longer or retire in poverty. You can opt out of saving but you cannot opt out of growing old. But that does not mean the Government should nationalise our savings, which is what its new auto-enrolled scheme amounts to.
A Conservative solution to the problem of inadequate saving would be to improve incentives for voluntary pension contributions. That need not involve extra costs in the form of tax breaks. For example, the Budgetproposals to give savers greater choice about how they spend pensions savings, by removing the compulsion to buy a guaranteed income for life in the form of annuitiies, will make pensions more flexible and attractive. Savers do not like being told what to do with their own money.
Pensions would be even more attractive if we knew we could get access to the money earlier in life when we needed it; perhaps to fund a business or buy a home. This flexibility already exists in America and there is no reason it could not be introduced here.
Instead, one of the last acts of the Labour government was to delay savers’ access to private sector pensions by five years; when it raised the minimum retirement age to 55. Now the new Coalition Government seems to be heading in the same direction with State pensions.
It is also an unfortunate reminder of the very first fraudster I met when working in the City more than 20 years ago. Peter Clowes, who was subsequently sent to jail, told me: “If only I had been given more time, I could have paid them all.” Now the Government seems to be in the same position with State pensions.

Thursday 24 June 2010

World's rich got richer despite recession

World's rich got richer despite recession
June 23, 2010

The rich grew richer last year, even as the world endured the worst recession in decades.

A stock market rebound helped the world's ranks of millionaires climb 17 percent to 10 million, while their collective wealth surged 19 percent to $US 39 trillion, nearly recouping losses from the financial crisis, according to the latest Merrill Lynch-Capgemini world wealth report.

Stock values rose by half, while hedge funds recovered most of their 2008 losses, in a year marked by government stimulus spending and central bank easing.

"We are already seeing distinct signs of recovery and, in some areas, a complete return to 2007 levels of wealth and growth," Bank of America Corp wealth management chief Sallie Krawcheck said.

The fastest growth in wealth took place in India, China and Brazil, some of the hardest hit markets in 2008. Wealth in Latin America and the Asia-Pacific soared to record highs.

Asia's millionaire ranks rose to 3 million, matching Europe for the first time, paced by a 4.5 percent economic expansion.

Asian millionaires' combined wealth surged 31 percent to $US 9.7 trillion, surpassing Europe's $US 9.5 trillion.

In North America, the ranks of the rich rose 17 percent and their wealth grew 18 percent to $US 10.7 trillion.

The United States was home to the most millionaires in 2009 - 2.87 million - followed by Japan with 1.65 million, Germany with 861,000, and China with 477,000.

Switzerland had the highest concentration of millionaires: nearly 35 for every 1000 adults.

Yet as portfolios bounced back, investors remained wary after a collapse that erased a decade of stock gains, fueled a contraction in the global economy and sent unemployment soaring.

The report, based on surveys with more than 1100 wealthy investors with 23 firms, found that the rich were well served by holding a broad range of investments, including commodities and real estate.

"The wealthy allocated, as opposed to concentrated, their investments," Merrill Lynch head of U.S. wealth management Lyle LaMothe said in an interview.

Millionaires poured more of their money into fixed-income investments seeking predictable returns and cash flow. The challenge ahead for brokers is convincing clients to move off the sidelines and pursue riskier, more fruitful investments.

"There is still a hesitancy," LaMothe said. "Liquidity is incredibly important and people need cash flow to preserve their lifestyle - but they want to replace that cash flow in a way that does not increase their risk profile."

The report found that investor confidence in advisers and regulators remains shaken. The rich are actively managing their investments, seeking customised advice and demanding full disclosure about the securities they buy.

There were signs that investors were shaking off their concerns. Families that kept money closer to home during the crisis began shifting money to foreign markets, particularly the developing nations.

North American and European investors are expected to increase their exposure to Asian markets, which are projected to lead the world in economic expansion. Europe's wealthy are seen increasing their US and Canadian holdings.

More wealthy clients also are taking a harder look at large companies that pay healthy dividends, as an alternative to bonds and their razor-thin yields.

"Investors are open to areas they hadn't thought about before as they try to preserve their ability to be philanthropic, to preserve their lifestyle," LaMothe said. "To me, the report underscored clients are involved and they're not inclined to stay in 1 percent savings accounts."

Reuters

Big rise in the number of Australia's mega-rich

Big rise in the number of Australia's mega-rich

JARED LYNCH
June 24, 2010

AUSTRALIA'S mega-rich are shunning the real estate market for equities, believing property prices are too high and no longer have much bang for buck, a study shows.

The World Wealth Report, released by Capgemini and Merrill Lynch yesterday, revealed that the number of millionaires in Australia surged by 34.4 per cent last year to 174,000, with most recouping losses sustained in the financial crisis.

And the combined wealth of high-net-worth individuals in the Asia-Pacific region climbed 30.9 per cent to $9.7 trillion, overtaking Europe for the first time, which was $9.5 trillion.

The shift in rankings came because gains in Europe, while sizeable, were far less than those in the Asia-Pacific region, which saw continued robust growth in both economic and market drivers of wealth, the report said.

Merrill Lynch senior vice-president for investments Peter Opie said high-net-worth individuals, defined in the report as people holding investable assets of more than $US1 million ($A1.14 million), were putting money back into the sharemarket rather than property.

''Real estate is forecast to be a big loser,'' Mr Opie said.

''In Australia there is a concern that property valuation is too high.

''The equity markets had a big hit in 2008 and early 2009 and then people came back … because they were cheap again. Whereas perhaps with real estate you did not see as great a degree of movement down and therefore a greater degree of interest from investors.''

The report forecast that equity markets would account for 35 per cent of millionaire assets in the Asia-Pacific region by next year - an increase of 6 percentage points on last year - while real estate would drop from 18 per cent to 14 per cent.

Mr Opie said it was difficult to gauge what impact the forecast change in asset base would have on the real estate sector, particularly large-scale commercial projects.

''It's probably going to have an impact, sure,'' he said.

''But I'm probably not able to answer the question to the extent that the millionaire investors drive residential, commercial and industrial real estate. Much of that is held at the institutional level.''

The rich-list surge catapulted Australia to No. 10 for the number of millionaires after slipping to No. 11 in 2008.

The average individual worth was $2.99 million.

The US, Japan and Germany head the list, having 2.8 million, 1.65 million and 861,000 millionaires respectively.

Worldwide, the wealthy have nearly recouped the losses of 2008 and total assets are approaching levels last seen in 2007, before a US housing crisis triggered the global recession.

With AAP

For every 10 Singaporeans you meet more than one will be a millionaire of USD.




The Boston Consulting Group, one of the leading global management consulting firm has just last week released its Annual Wealth Report and found Singapore to be amongst the top 20 countries with the most millionaires households.

Singapore, (once a part of Malaysia) is a tiny nation of 5.1 million population is ranked at no. 18 with the most numbers of millionaires and rank the highest in terms of density with 11.4 percent of the total households being a millionaire in USD (US Dollar). That is about 3.3 million Malaysian Ringgit. And this is of liquid asset which does not include the value of property owned.

(Most Millionaires Countries)

That means for every 10 Singaporeans you meet more than one will be a millionaire of USD.

Malaysia? of course is not in the list but i will try to check the most corrupt millionaire household list, maybe we are there.

As i remembered in the late 70s to early 80s before Mahathir became PM, Malaysia has one of the highest per capita income in Asia and was way ahead of countries like South Korea and Taiwan.

The Singapore dollar exchange rate was at parity with the Malaysian dollar back than at 1 for 1 and after Mahathir became PM we saw the other Asian countries race way ahead and today the Singapore exchange rate is at about RM2.33 for one Singapore Dollar.The Hong Kong dollar back than was about 3 for one Ringgit.

Singapore is today a fully developed country and an advanced nation  of which Malaysia is only still aspiring to become. Singapore enjoys a per capita income of more than USD 37 thousand whereas Malaysia is at less than USD 7 thousand which is way way off the mark being a leader in the region some 30 years ago.

Singapore is the fourth leading financial centre of the world and the fourth richest nation in terms of GDP Purchasing Power Parity per capita.

Singapore is a fine example of a sound and efficient economic management and governance with one of the highest ratings by Transparency International for being clean and the least corrupt.

On the other hand Malaysia will show you how corruption can impoverished its people and after years of progressive corruption has now become terminal and rotted to the core. Malaysia is now a sad story although blessed with rich and abundant natural resources, has 57.8% of its total household of 5.7 million earning a meager income of below 3000 Ringgit a month with an average household size of 4,5 person per household. And more than two third of the Malaysian household earns less than RM4 thousand a month at 70.7%.

(Click on Image to Enlarge)

We could have been like Singapore and we would have been a prosperous nation only if than we had selected our leaders wisely and carefully but instead we had to pick the most wicked and corrupt that has plundered our resources and divided our spirits.


My comment:

The recently announced 10th MP confirmed the demise of the NEM and the continuation of pre-existing policies.  This does not bode well for the future.  As a prudent and frugal investor, your asset allocation should be 90% foreign and 10% local.

Earnings of Golden Hope, Guthrie and Sime Darby from 1990 to 2007

Perincian keuntungan/kerugian tahunan Kumpulan Sime Darby Bhd, Golden Hope Plantation Bhd dan Kumpulan Guthrie Bhd …




From 1990 to 2006 the EBIT of:

  • Golden Hope grew 5.9 X
  • Guthrie grew 9.0 X
  • Sime Darby grew 3.4 X


The combined EBIT of Golden Hope & Sime Darby  in

  • 2007 was 3404 million

The EBIT of Sime Darby (post-merger) in
  • 2008 was 5248.3 million
  • 2009 was 3165.5 million

Pos Malaysia set for dream collaboration with global giants

Pos Malaysia set for dream collaboration with global giants
Tags: AmResearch Sdn Bhd | Brokers Call | Pos Malaysia Bhd

Written by Financial Daily
Wednesday, 23 June 2010 10:20

Pos Malaysia Bhd
(June 22, RM3.02)
Maintain buy at RM3.08 with a fair value of RM3.80: The Edge weekly in its report said that a total of 11 parties have expressed interest in picking up Khazanah Nasional Bhd’s RM563 million (at current prices) stake in Pos Malaysia, including two global express and courier players — DHL Express and TNT NV. Local players said to be eyeing the 32% equity interest include Nationwide Express Courier Services, Konsortium Logistik, the Employees Provident Fund (EPF), DRB-Hicom and Tune Group.

Our channel checks reveal that Khazanah had opened the initial stages of the bidding in May, with bidding parties teaming up — led by government-linked entities (GLEs). We believe Pos Malaysia’s existing GLE shareholders — Permodalan Nasional (8.5%), Skim Amanah Saham Bumiputera (8.2%), Valuecap (1.9%) and EPF (5.8%) — will lead a consortium, with select industry players, for Khazanah’s stake — much in line with its efforts to find “a fit and proper” Pos Malaysia.

Asia remains the growth driver even in times of crisis for international express providers. DHL’s Asia-Pacific operations saw a three-year CAGR of 8% (2005-2008), which contributed 25% (15% in FY05) of total FY09 revenue. TNT Asia-Pacific contributes 8% of total group revenue and has a 7% share of the Asia-Pacific express market.

Both companies are not fresh in expanding in Malaysia, however DHL’s 38% dominance in the Asia Pacific express market together with a leaner balance sheet will help Pos Malaysia better expand its courier and logistic segment. Last year, DHL Malaysia handled over 4.8 million global shipments while Pos Malaysia had only a meagre 1% share of overseas courier and logistic volume. Our view is that a strategic tie-up with DHL would give Pos Malaysia a boost internationally.



Furthermore, Malaysia’s inexpensive aircraft landing rights make it a potential regional hub for DHL’s Southeast Asian inbound cargo. For DHL, having a partner with enough bureaucratic leverage would be a priority, and a collaboration with Pos Malaysia would create land redistribution synergies. DHL would be able to pass its volume throughput to Pos Malaysia’s wide infrastructure network.

With current trade at six times FY11F PER and a conservative assumption of 40% payout (three-year average of 60%), Pos Malaysia represents an excellent opportunity to own a 6.3% yielding stock, backed by revenue growth potential from synergies with Khazanah’s preferred partner. This will be sweetened by the regazetting of usage on its RM200 million KL Sentral land. We maintain our buy rating with a fair value of RM3.80 per share. — AmResearch Sdn Bhd, June 22


This article appeared in The Edge Financial Daily, June 23, 2010.

Three-A Resources — Moving towards structural growth inflexion point

Three-A Resources — Moving towards structural growth inflexion point
Tags: AmResearch Sdn Bhd | Brokers Call | Three-A Resources Bhd

Written by Financial Daily
Tuesday, 22 June 2010 10:56

Three-A Resources Bhd
(June 21, RM1.87)
Upgrade to “buy” from “hold” at RM1.83 with fair value of RM2.21 (from RM2.12): We are upgrading Three-A Resources (3A) from “hold” to “buy”, and raising our fair value from RM2.12 per share to RM2.21 per share based on unchanged PER of 24 times FY11F earnings or at 15% discount to the average PERs of relative consumer stocks in China (28 times PER).

We raise our earnings estimates by 4% to 5% to reflect higher profit accretion from the recent formalisation of its China joint venture with Wilmar International. We now expect 3A to deliver earnings of RM34 million in FY11F and rising to RM40 million in FY12F from just RM22 million in FY10F.

The JV’s “blueprint” plant, which forms part of a broader plan to invest up to US$40 million (RM127.27 million) in F&B ingredients production in China, will have higher-than-expected production capacity of 50,000 tonne/month. When commissioned in mid-FY11F, the US$7 million maiden plant would boost the group’s overall production capacity by an estimated 67% to 80,000 tonne/month.

Payback period is a short 18 months. The “blueprint” plant is strategically located with close proximity to a cluster of Wilmar manufacturing hubs at Qinhuangdao seaport in China, giving rise to immense logistical synergies and distribution strength for 3A.

Beyond this maiden plant, a multiple plant expansion strategy is in the pipeline to leverage on Wilmar’s extensive presence in China where it has at least 60 plants and a wide distribution network.



In our earnings model, we have only assumed contributions from just the maiden Chinese plant and only three product lines, versus six in its Malaysian plant. Hence, there may be further upside to our earnings estimates when 3A accelerates its Chinese plant expansion or broadens its product lines. Such a move appears likely.

Locally, expansion plans are on track to alleviate supply constraints due to lack of production capacity. With glucose and maltodextrin production currently operating at maximum threshold, earnings are set to get a boost from enlarged capacity of new glucose (+62% to 13,000 tonnes/month) and maltodextrin plants (+166% to 3,200 tonnes/month) by end-2010.

Net gearing is a healthy 20% for FY10F. Assuming the group gears up for more plants in the pipeline, net gearing is still a comfortable 40%. And, we are not unduly worried because of the short payback and the infrastructure advantages from its tie up with Wilmar.

At forward PER of 20 times currently, the valuation is not expensive given 3A’s robust capacity-driven earnings growth from geographic and product line expansion, a strong franchise in maltodextrin production and a solid “hands-on” management team. — AmResearch Sdn Bhd


This article appeared in The Edge Financial Daily, June 22, 2010.

HLG Research: Buy Freight Management on weakness

HLG Research: Buy Freight Management on weakness
Tags: Freight Management | HLG Research

Written by HLG Research
Wednesday, 23 June 2010 08:36


KUALA LUMPUR: HLG Research says Freight Management’s share price, which surged to a 52-week high of 89.5 sen in November 2009, the share price tumbled to as low as 66 sen in February this year.

In its trading idea note issued on Tuesday, June 23 it said that Freight Management shares, instead of succumbing to the bears, prices bounced back after hitting the support trend line and consolidating within the 76 sen to 82 sen region.

“Currently, it is holding above the 100-day (77 sen) and 200-day (75 sen) SMAs. The next target to beat is 84 sen (76.4% FR from 89.5 sen to 66 sen), followed by 89.5 sen and our 3-month technical target of 96 sen, implying a 7x FY11 P/E (a 22% discount to its 5-year average of 9x),” it said.

MACD has swung back to the positive territory while its RSI is also above the 60 mark, accompanied by rising Money Flow Index.

“Traders may BUY on weakness. Major supports are 78 sen (40% FR) and 75 sen. Cut losses if prices fall below 75 sen as a violation of the 200-day SMA would indicate that the trend has turned negative,” it said.

Listed on the Second Board in February 2005, Freight Management was transferred to the Main Board in December 2007. It is a logistics player providing sea, rail and air freight services, tug and barge services, as well as warehouse/distribution and custom brokerage services.

It focuses on a “multimodal” concept, providing the full range of freight services, with consolidation of both LCL (less than a container load) and FCL (full container load). ??Listed logistic sector rivals include Century Logistics, ILB, Nationwide, Haisan, Tasco and Yinson.

FY09’s revenue breakdown - 58% from sea freight, followed by customs brokerage (12%), tug & barge (11%), airfreight (8%), warehouse & distribution (5%) and others (6%).

9MFY10 geographical revenue breakdown - 77.6% from Malaysia, followed by Singapore (9.6%), Australia (6.5%), Indonesia (4.5%) and others (1.8%).

“At 81 sen, it is trading at 5.9x P/E and 0.91x P/B for FY11, supported by a decent yield of 7.4% and strong EPS CAGR of 14% from FY09-11,” it said.

KNM Group: Sell, fair value RM0.42


AMRESEARCH Sdn Bhd has maintained its "sell" call on KNM Group Bhd (7164) and said that a re-rating of the stock at this point is still premature.

Its fair value of the stock at 42 sen per share remains unchanged, based on a financial year 2010 forecast (FY10F) price earnings ratio of 12 times.

"We retain our forecasts at this juncture, given that KNM's order book replenishment remains uncertain. But we highlight that our FY10F-FY12F earnings estimates are 22-36 per cent below street estimates," it said in a report yesterday.

The research house said the re-rating was premature due to depressed breakeven utilisation levels, likely continuation of margin pressure in second half of FY10F, clouded prospects of increasing its order book, and KNM's poor earnings deliverance over the past five quarters.

As the group's operating costs are likely to remain high, KNM's margin is likely to remain under pressure in 2HFY10 if there is no significant improvement in order for replenishment over the next two quarters.

The research house said it remains cautious over KNM's target of securing new orders of RM2 billion in FY10F.

Read more: KNM Group: Sell, fair value RM0.42 http://www.btimes.com.my/Current_News/BTIMES/articles/jknm17/Article/index_html#ixzz0riXmFfuQ

KNM Group book order at RM2.1b

KNM Group book order at RM2.1b
Tags: Borsig | KNM Group | Lee Swee Eng

Written by Koo Jie Ni
Wednesday, 23 June 2010 15:54


KUALA LUMPUR: KNM GROUP BHD [] has increased its order book to RM2.1 billion as for now from RM1.5 billion a year ago, says its managing director Lee Swee Eng.

Lee, who is also the acting chairman, said on Wednesday, June 23 the book order was enough to last 18 months.

He added KNM would leverage on the TECHNOLOGY [] from Borsig to move up value chain.

Borsig is a German company whose subsidiaries are in the development, manufacture, installation and maintenance of plant and processing equipment in the chemical, petrochemical, oil and gas, power and industrial service industries.

KNM had on Feb 29, 2008 signed a sale and purchase agreement to acquire 100% of Borsig for cash consideration of Euros 350 million. The cash consideration was then equivalent to about RM1.669 billion based on an exchange rate of RM4.77:Euro1.00.

Wednesday 23 June 2010

Demand of rubber gloves still ahead of supply

Demand of rubber gloves still ahead of supply
Tags: Brokers Call | Datuk Seri Stanley Thai | Kossan | Latex price | OSK Investment Research | Rubber glove manufacturers | rubber gloves | Supermax Corporation Bhd | Top Glove

Written by Financial Daily
Wednesday, 23 June 2010 10:19

Rubber gloves
Maintain overweight: Recently, we invited Supermax Corporation Bhd executive chairman and group managing director Datuk Seri Stanley Thai to give fund managers an update on the rubber glove industry. We gather that demand is still strong as most of the rubber glove manufacturers have sold forward up to September 2010 in spite of the current high selling prices of gloves reflecting a rise in latex price. Although margins will dip as glove makers only pass on the cost increase to their customers, most importantly the absolute net profit figures will be maintained and therefore EPS and fair values are intact. We remain overweight on the sector, with our top picks being Top Glove (Buy, TP: RM15.15), Supermax (Buy, TP: RM9.11) and Kossan (Buy, TP: RM11.30).

The global annual consumption of medical examination and surgical gloves is expected to reach about 155 billion pieces by 2011 from 135 billion pieces in 2009, boosted by growing healthcare awareness after the H1N1 pandemic and healthcare reforms in many countries and the recent passing of reforms in US as standards of living improve. Of the total world exports, Malaysia supplies 63% of global demand. Also, about 54% of the global market is shared among the top six rubber glove companies listed in Malaysia.

Medical grade gloves make up about 85% of Malaysia’s total glove exports. The product mix between natural rubber and nitrile gloves is in the ratio of 74:26 while that for powder-free and powdered gloves is 67:33. More than 70% of these gloves are sold to developed countries, and there is huge potential demand from developing countries like China and India in the coming years.



Latex price has remained at a high of about RM7 per kg. The US dollar is still struggling to regain lost ground against the ringgit. Although rubber glove manufacturers can pass on most of the costs associated with these negative factors to their customers, they may experience a time lag in adjusting prices, especially in supplying to non-healthcare MNCs. Nevertheless, as supply still lags demand since most of gloves are sold forward up to September 2010, we believe these two factors would not pose a major threat to the rubber glove industry.

We remain positive owing to: 1) continuously strong demand from the medical and hygiene markets; 2) increasing awareness of health and cleanliness following the H1N1 pandemic; 3) the possibility of governments in developing countries making compulsory the use of gloves for the medical sector; 4) a recovery in the global economy and living standards rise; and 5) local rubber glove manufacturers again embarking on capacity expansion to boost revenues and profits. — OSK Investment Research, June 22


This article appeared in The Edge Financial Daily, June 23, 2010.

Top Glove’s topline growth offsets lower margin

Top Glove’s topline growth offsets lower margin
Tags: Brokers Call | MIDF Research | Top Glove Corp Bhd

Written by Financial Daily
Friday, 18 June 2010 10:30

Top Glove Corporation Bhd
(June 17, RM12.84)
Maintain trading buy at RM12.86 with lower target price of RM14.20 (from RM14.68): Strong glove sales momentum sustained with volumes increasing 25% year-on-year (y-o-y) or 1% quarter-on-quarter (q-o-q) in 3QFY10, supported especially by the emerging markets.

In tandem with latex price trends, average glove selling price was 30% y-o-y or 11% q-o-q higher to US$26 (RM84.76) per thousand pieces. Due to both factors and adverse impact on US currency depreciation, Top Glove’s revenue grew 49.4% y-o-y or 9% q-o-q to RM555.9 million.

Top Glove’s earnings before interest and tax (Ebit) margin declined to 15% in 3QFY10 from average of 18.6% in the past three quarters.

We believed that higher volatility in latex price and forex market signified the lag effect in passing on the costs. Noted also, production utilisation rate was lower to 75% from 2QFY10’s 80%.

We reckon the additional production capacity growth might be faster than the glove sales order. Nonetheless, y-o-y, EBIT margin was still at par with that in 3QFY09 despite average latex price surged 71.7% y-o-y while US currency depreciated by 9.5% y-o-y, reflecting company’s cost passing power remained intact.

A total of five new factories are targeted to be completed by FY11. All in, Top Glove’s total glove production capacity will increase by 8.25 billion pieces or about 25% to 33 billion.

To be on the conservative side, we are keeping our earnings forecast unchanged, reflecting the risk of lower margin due to potential excess production capacity, and higher energy and labour costs going forward.



After all, the government has planned to scrap subsidies on energy products gradually. Beyond 2015, we expect glove makers to face a more volatile cost environment as natural gas will be priced at market rate.

In addition, a higher levy may also be charged on foreign workers. On the mitigating side, glove demand could be stronger particularly from the developing countries. In addition, glove makers’ business model of passing on costs to the consumers is expected to be intact, and this will also cushion the downside.

First interim single-tier dividend of 14 sen per share was declared with ex-date and payable date on July 2 and July 23, 2010 respectively.

We continue to like Top Glove for its market leadership which commands about 22% of the global glove market share and its net cash position with good earnings quality.

Currently, Top Glove’s net cash is about 90 sen per share, the highest in the industry. Furthermore, there is no significant sign indicating glove demand slowing down.

We are rolling over our valuation into FY11 earnings, based on lower PER of 16 times (17 times previously) in order to factor in potential risks mentioned above. Consequently, we are revising marginally our target price downwards to RM14.20 (from RM14.68). — MIDF Research, June 17


This article appeared in The Edge Financial Daily, June 18, 2010.

Investment is like a bet

Investment is like a bet
Tags: Ang Kok Heng | Berjaya Group | Elliott Wave | Forecasted profit | Hedge fund | HF Managers | Investment | Iskandar Development Region | MACD | management | risk management | Stochastic

Written by Commentary by Ang Kok Heng
Monday, 21 June 2010 11:23

There are risks in every investment which will result either in a profit or a loss. In a way, investment is like a bet — heads you win, tails you lose. If we hit it right we make a gain, but if we are wrong we will most likely end up with some losses.

Although investment is different from speculation, which depends more on luck rather than judgement, there is still uncertainty in every investment no matter how careful we are. Everyone will definitely want a good bet which has a higher potential for profit than loss. The job of an investor is to avoid a bad bet.

Before deciding on an investment, most people will consider various aspects of risk so as to avoid choosing a bad bet.


Investors bet on management
Management is one of the most crucial factor investors will look at, especially in emerging markets. Most Malaysian listed companies are run by the owners themselves who set up the business. The fate of the company will depend on the few key persons.

Before the company grows big, this is the way to go. This is unlike multi-national corporations which run on an established system — standard procedures, a clear work flow, internal control, risk management system, clear accountability, etc.

Serious investors who buy based on management is also betting on the management’s ability to continue to deliver what they have in the past. Management is the most crucial attribute of a good stock. Good management will be able to predict potential problems, overcome troubles, identify business opportunities, implement expansion plans, reduce costs, optimise efficiency, etc. Investing in such a company is like having a reliable member of staff who can handle most of the boss’s workload.

There are also other management risks, and we can hope that the strong track record of the past will continue into the future. Hopefully, there will be no change in the senior management, staff will remain highly motivated, there will be no internal squabbling and no resignations en bloc. One of the main challenges of the present management is to groom up the second echelon to take over the baton in order to maintain the growth of the company. Only with an equally capable manager can it be ensured that the growth of the company will not be disrupted.

Another danger of betting on management is the fall in vigour of the key drivers. When the owners become richer, they may not be as “hungry” as before. There are also other factors which may change the drive of the owners, such as health factors, family problems and less eagerness to take risks as age catches up.


Bet on business growth
Investing in a company is betting on the future earnings growth. Certain industries have stable growth — for example, power, telco, utilities, toll concessionaires, gaming and consumer-related businesses.



But there are also many industries which are very cyclical, such as plantation, property, construction and technology. It is the cyclical businesses that require more attention.

When a major up cycle comes, it will benefit all the companies in the sector. However, at a certain point in time, the cycle will turn downwards and earnings will also plunge. Attempting to catch the ups and downs of these cycles is similar to the endeavour of predicting the top and bottom of the market.

The earnings of companies are affected by many factors. Some may be related to raw material prices, foreign exchange rate, changes in government regulations, adoption of new technology, emergence of a major competitor, changes in consumer trend, etc. Whenever such events occur, the company’s profit will surge or plunge, depending whether it benefits or suffers from such changes. Such a swing in earnings can only last for a few quarters before profit stabilises at the so-called “economic profit” again, after the industry players adjust their production capacities.

Some analysts and fund managers are good at sensing such opportunities before they come. Hedge fund managers are also good at predicting business cycles by studying demographic and economic data. For long term investors, they may position themselves in a certain sector way ahead of time. For shorter-term investors, timing is crucial, as they do not want to squat on a stock for more than two quarters. In the case of punters, their time frame could even be shorter, perhaps over a month or two.


Bet on forecasted profit
Most fundamental investors rely on the earnings of a listed company to determine its value. A company that makes more profit will attract more investors.

The profit is derived based on orders received, expected revenue, cost of production, operating capacity, bad debts provision, margin, etc. Some profit forecasts are rather simple, but there are also many companies which have diversified into many lines of businesses, where their profit forecasts are more complex.

Investment based purely on forecasted earnings is like a bet placed on the reliability of the profit. It is not uncommon to see listed companies providing earnings guidance to analysts for the coming quarters.

But that is as far as it will go. Analysts who track the quarterly earnings may not be able to predict what will happen in two to three years time. As fundamental investment is a long-term commitment, earnings over the medium to longer term is more important than the quarterly profit. Many a time, analysts make a 180° turn in recommendation after realising that quarterly earnings are off track. By then, the stock price could have fallen substantially.

As such, there is no assurance that investment based purely on forecasted profit will definitely be a successful one.


Bet on a theme play
Some fund managers like to bet on a particular theme. The theme can be in terms of a business sector such as tech, auto, plantation, property, construction, power, water, banks, telco, oil and gas, etc.

The idea behind sectoral theme play is to ride the cyclical upturn in the earnings of these sectors. An improved outlook could be due to a change in business environment, favourable government policies, increased demand, surge in selling price, fall in cost of production, etc.

As cycles come and go, theme play has a finite life. Prices of stocks that were chased up will eventually come down. The bet on theme play relies on the ability to determine how long the cycle will last. The risk of riding a theme play is being caught in the middle of the cycle when prices suddenly fizzle off.

Theme play can also relate to other ideas. Some of which are related to location (for example, a Sarawak play or a play on the Iskandar Development Region), business group (for example, Berjaya Group), business activity (for example, export-oriented or domestic-oriented industry), size of company (for example, big-cap or small-cap stocks), etc. Other themes popular among fund managers include dividend play, defensive play, growth theme, etc.


Bet on specific economic/political event
It is also common for investors to be confronted with economic or political troubles from time to time. There is no single year in which the market does not encounter uncertainties. As uncertainty is part and parcel of the stock market, all of these events require certain forms of judgement as to what to do: sell, buy or hold.

How an economic or a political problem will eventually play out is not an easy guess. Not only are we limited by the required information we need, an understanding the mechanics of the problem is also very challenging. Every problem could be different, and the past pattern may not necessarily be relevant, though it is not uncommon to find analysts and economists using historical experience as a guide.

As the outcome of an economic or a political predicament will depend very much on the interference of the authorities and how the public will respond to those actions, it is very difficult to provide a good prediction. Investors who make a decisive call to buy or to sell are taking a bet on the outcome.

Take, for example, what the outcome of the Greece debt crisis will be. Will it lead to a domino effect causing other southern European economies to collapse? Will it result in eventual disintegration of the European Union? Will it cause further deterioration of Eurodollar? Those who believe the rescue package is sufficient to prevent the contagious debt crisis in Europe will take the recent market selldown to buy. Investors fearing further deterioration of the debt crisis will sell on panic. Only time will tell who is right and who is wrong. Optimists who load fully on stocks now and pessimists who cut all their holdings are taking extreme risks.


Bet on situational play
From time to time, there are some situational themes which will last for a short period. Year end window dressing is an annual affair keeping investors guessing which stocks will be pushed up for the sake of “dressing” so as to provide a better valuation. On the other hand, October always reminds investors of the many mishaps that had happened in the month.The listing of a large initial public offering (IPO) will also attract the attention of investors on similar stocks in the same industry. Some investors may try to bet on the spillover effects from the large IPO.

Following the government’s intention to pare down its investment in quoted GLCs and subsequent proposed privatisation of Pos Malaysia, investors are betting on which is the next to be disposed off.


Bet on chart reading
For technical chartists — using tools like MACD, Stochastic, Elliott Wave, etc — technical readings provide the timing to buy or sell, to enter or exit a position. Technical indicators provide guides as to what to do. Some of them may also indicate the potential profit from a buy signal and at what level to get out.

Even though technical pointers act like the eyes to traders, they cannot guarantee profit for every trade. As such, traders can only bet that what happens in the past will be repeated.

Choosing reliable indicators are crucial for a successful trader. If the trader sincerely believes the technical indicators he is using and the bet is right, profit will be made. If the bet is wrong, then he will have to admit it and get out with some losses. Traders know that every trade is a bet, a calculated bet at least.


Risk and return trade off
Every trade, be it based on technical readings or fundamental reasoning, has a risk. But every trade has its corresponding potential return too. Traders and investors will have to weigh each trade by looking at the risk and return trade off. They have to determine what is the upside potential from a particular purchase and what happens if they are wrong, resulting in possible losses.

In analysing the risk and return trade off, liquidity is important — especially for institutional investors whose positions could be big, as the stocks must be liquid for them to exit if necessary. Fundamental investors have more considerations than stock traders do. Fundamentalists — basically longer-term investors — incorporate risks such as management trustworthiness, corporate governance, business predictability, pricing power, business volatility, business scalability, cashflow sustainability, fluctuation in interest rate, changes in political outlook, shift in government policies, etc.

The fundamental risk of investment encompasses a wide range of uncertainties, some foreseeable but many of which are unexpected. Despite all the various hindrances, investors will still have to bet on each stock based on the best judgement at the point of purchase.


Incorporating probability
Since investment is a game of uncertainty, it is best to incorporate probability in each and every risk-and-reward bet. What we should look for are trades which provide high profit if our forecast comes true. We will never venture into an investment which only yields low return even if we are right.


HF managers
The technique of incorporating probability in every trade is widely used by hedge fund (HF) managers, who are usually misconstrued to be high risk operators. Many HF managers are cautious traders. Each and every position they take is well calculated based on the risk involved and potential profit. To HF managers, every move is a bet. Taking a position in a stock is a risk. Holding longer than the required time frame is a risk.

HF managers screen through much data, and come up with various possible scenarios. Although not all scenarios can be converted into profitable trades, they do provide various trading ideas.

Looking for trading ideas are the challenges facing HF managers. As HF managers are not emotional, they treat each investment as a trade or a bet with the intention of making money. When a trade has served its purpose, it will be closed, regardless of whether it provides a profit or a loss. A bet is initiated when it is deemed profitable, and it is liquidated when it is deemed to be unfavourable.


Risk management
As there are risks in every position taken, risk management is crucial in investment. Good traders know that risk management is very crucial in trading. The survival of traders depends on risk management to protect their capital. They can only survive and remain in the market if their capitals are not entirely wiped off.

In this way, a single-stock portfolio has higher risk than multiple stocks portfolio. A portfolio which diversifies into several stocks is deemed to be prudent. The diversification is not about getting higher returns but about managing the risk.

Position sizing
Diversification requires investors to place a weight on each stock. The weight is the percentage of the portfolio in a single bet. Obviously, higher weightings will be placed on the more attractive bets, and a smaller proportion of the investment will be placed on trades that are less promising.

Some traders initiate each trade with 2% of the portfolio money. If a trade becomes more attractive from the risk-reward perspective, more money will be placed on the bet. Controlling the size of each trade is important and also requires lots of discipline.

Placing a certain amount of portfolio money in a single trade is known as position sizing. It is a good risk management control. Regardless of investment or trading, investors and traders should use the concept of position trading to manage risk.


Ang has 20 years’ experience in research and investment. He is currently the chief investment officer of Phillip Capital Management Sdn Bhd.


This article appeared in The Edge Financial Daily, June 21, 2010.

Reviewing my investing through some old postings

Investment Policies (Based on Benjamin Graham)

KLSE Counters on my radar screen.

My recollection of the 1997 Asian Financial Crisis

PETRONAS Dagangan Berhad

Coastal

Telling an old story

Only 37 stocks in KLSE main board are suitable for long term portfolio

Short-term gain, long-term pain

 iCap Closed End Fund Track Record for last 2 years

 Should you hold iCap?

 Where is your focus in your investment returns?

An occasional rumination

 Be shrewd

 Be very shrewd

Which one stock excites you in the glove sector?

 Multiple baggers in KLSE

 Performance of Top Glove since listing

 Did you sell when the stocks were in stratosphere?

Reviewing my Sell Transactions

KPJ Healthcare sees brighter prospects ahead

KPJ Healthcare sees brighter prospects ahead
Tags: Brokers Call | KPJ Healthcare Bhd | RHB Research

Written by Financial Daily
Friday, 18 June 2010 10:36

KPJ Healthcare Bhd
(June 17, RM3.34)
Maintain outperform at RM3.29 with higher fair value of RM4.25 (from RM3.50): For FY09, KPJ recorded a revenue growth of 14.9% year-on-year (y-o-y) largely due to higher contribution from all of its business segments.

Moving forward, we believe KPJ’s revenue growth drivers include: the opening of at least two new hospitals per annum; expansion of its existing hospitals; enhancing its presence in medical tourism; and higher utilisation rate per patient.

We understand that KPJ is investing RM200 million to build three new hospitals, purchasing of new medical equipment and expanding its existing hospitals nationwide this year.

The construction works for its three new hospitals which are located in Bandar Baru Klang, Pasir Gudang and Muar have already started and are due for completion by end of 2011.

We believe this is in line with the management’s targets to open at least two new hospitals per annum either through greenfield projects or acquisition of established hospitals which would likely be in East Malaysia, the East Coast or Iskandar region.

In FY09, over 15,000 foreigners received treatment at its hospitals and in the 1QFY10, KPJ received more than 5,000 foreigners of which 2,800 were Indonesians.



Although KPJ’s focus is on positioning itself as a community healthcare provider, the company realises that there is sizeable growth potential in medical tourism.

However, management mentioned that any significant contribution from medical tourism would only come in three to five years. Currently, medical tourism accounts for less than 10% of total group revenue.

We have revised up our FY10-12 earnings forecasts by 9.7%-14.3% largely to reflect the upward change in our revenue assumptions, and lower effective tax rate and MI (minority interest) assumptions.

The risks to KPJ’s earnings include lower-than-expected patient numbers which could be due to slower-than-expected economic recovery and serious disease outbreaks (such as SARS or swine flu) in Malaysia as well as slower-than-expected turnaround in loss-making hospitals.

Besides the earnings revision above, our indicative fair value has been raised to RM4.25 (from RM3.50) based on target FY11 PER of 16 times (10% discount to regional peers’ average) as we roll forward our valuation year (from FY10).

We believe the M&A (merger and acquisition) activity in the healthcare sector recently supports our view that there is significant growth potential for the sector in the region.

We continue to like KPJ for its leading position and its expansion plans in Malaysia’s growing healthcare market. We reiterate our outperform call on the stock. — RHB Research, June 17


This article appeared in The Edge Financial Daily, June 18, 2010.

The foundation of long-term investing is the notion that the company's earnings drives the price of a share of its stock.

The foundation of long-term investing is the notion that the company's earnings drives the price of a share of its stock. The higher the earnings, the higher the price.

Stock Performance Chart for Perusahaan Sadur Timah Malaysia (Perstima) Berhad

Stock Performance Chart for Fraser & Neave Holdings Berhad

Comparing the above 2 charts, I will be excited with the bottom one.  The pattern here is that of 3 lines going up "almost parallel" to each other (monotonous "tramlines").  This company's earnings have been growing consistently over many years.  It was therefore not surprising that its share price has risen in tandem.   In addition, it has given dividends consistently over the years.  This dividend too has grown in tandem with the earnings.  However, since the share price has also risen, the DY over the years hovered probably around the same range.

Click here to see more companies with "monotonous tramlines" charts.

For long term investors, the total shareholder returns are from dividend and capital appreciation.  Look at this post here:

Selected Stock Performance Review
http://spreadsheets.google.com/pub?key=0AuRRzs61sKqRdGZuWktpR2dvQUhhSmpkNElXY0NvWmc&output=html

Most of the total shareholder returns will be from capital appreciation of the stock prices.  I will concentrate on ensuring that I invest in a company's earnings.  The dividend is at best a "surrogate" indicator of this company's good earnings.

Related readings:

The story of Ellis Traub:  Investing for Beginners