Glove makers to ride on strong demand growth
Tags: Hartalega | Kossan | Top Glove
Written by The Edge Financial Daily
Friday, 14 August 2009 12:07
KUALA LUMPUR: Maybank Investment Research remains overweight on Malaysia's glove manufacturing sector, which has the top manufacturers in the world.
The research house said on Aug 14 it had raised the target prices of Hartalega and Top Glove by 19%-23% to RM6.50 and RM8.30. It also retained the Buy calls on Hartalega, Top Glove and Kossan.
It said expectation is for demand to grow by a strong 10%-12% per annum over the next five years, above its 5%-8% forecast.
Maybank Investment Research said the drivers are improved hygiene standards and healthcare awareness in developing countries like Latin America and Asia; higher incidences of major infectious disease outbreaks, an ageing population and rising economic and social conditions, and more outsourcing by large medical companies in US.
The challenges for the sector is the government's stand on foreign labour, double levy and tax benefits; lack of R&D in the industry; volatile latex prices and currencies, and energy issues.
However, glove makers should be able to continue passing on additional costs over time to mitigate exposure.
"We shall see selling prices being adjusted upwards in 3Q09 to accommodate latex prices' current uptrend," it said.
All producers are expected to post above-par core second quarter 2009 earnings, riding on lower material costs and orders surge owing to the H1N1 outbreak. Demand growth should be stronger ahead.
"We have raised Top Glove and Hartalega's FY09-12 net profits by 7%-13% but lowered Kossan's FY09 by 10% due to losses in structured currency product. The combined net profits of the producers are still expected to record a three-year compounded annual growth rate (CAGR) of 14%. Capacity expansion should support demand growth.
"Considering their dominant global market share, the sector's 2009-10 price-to-earnings ratio (PER) of 11 times to 13 times is undemanding relative to the FBM-KLCI 30's 17 times. We raise Hartalega's and Top Glove's TP to RM6.50 (+19%) and RM8.30 (+23%) respectively. We maintain Kossan's TP at RM5.30," it said.
From the Edge
Saturday 15 August 2009
Warren Buffett Was Right
Warren Buffett Was Right
By: Zacks Investment Research
Friday, August 07, 2009 6:35 PM
Did you follow Warren Buffett's advice last year to buy American stocks? In that now famous October 17, 2008 Op-Ed piece in the New York Times, Buffet shared his simple rule for buying stocks: "Be fearful when others are greedy, and be greedy when others are fearful." Certainly at that time fear had gripped the markets and investors were fleeing equities into cash.
Well if you did buy at that time, then you are one of the few, the proud, and the bold value investors who made a prudent call that is now paying off handsomely. And if you didn’t buy then lets review the lessons that Warren was trying to share and how it will benefit you going forward.
1. The Markets Rebound Long Before the Economy
Buffett believed that equities would far outperform other asset classes, especially cash, over the next 5, 10 or 20 years as the stock market rises in anticipation of an economic recovery, even if we weren't in one yet.
A perfect example is the Dow's behavior during the Great Depression. Buffett wrote that it took several years for the Dow to hit its low of 41 on Jul 8, 1932. But you wouldn't have known that that was "the bottom" based on economic conditions. The economy continued to worsen until March 1933, when Franklin Roosevelt took office.
Meanwhile, from the market lows in July 1932 to March 1933, the Dow rebounded 30%.
We've seen a similar rebound in the last 5 months but no one knows how long the rally will last or if it's the start of a new bull market. Still, while your cash is getting virtually no interest in this zero-rate interest environment, equities are paying a dividend yield and have the possibility of more upside. In this kind of environment, cash is not king.
2. Long-Term Outlook For Equities Is Good
The stock markets have been around much longer than any of us. During that time, the world suffered through world wars, influenza outbreaks, terrorist attacks, recessions and one depression but still, businesses created new products and made profit. They will continue to do so in the future.
Consider Apple and the iPhone. Even in the midst of this recession, millions of people bought the iPhone around the world. Investors who understood that Apple was still selling its products at a fast clip were rewarded with a stock that jumped over 90% from the beginning of the year.
Apple won't be the last company to cash in on its powerful brand and host of good products. The key for investors is to find other companies that will be next to do the same.
3. Prepare for Inflation
Buffett wrote that greater inflation was a possibility as the government printing presses work overtime to alleviate the recession and liquidity enters the economic system. Cash is where you will NOT want to be. The value of your cash will actually decline under those conditions.
There are now exchange-traded funds (ETFs) and other instruments available to investors to prepare for inflation including owning TIPs, Treasury-Inflation Protected Securities, and the precious metals through the gold or silver ETFs or precious metal mining stocks.
4. Finding Great Stocks
The great thing about being an investor is that there are always hidden gems to be uncovered in any kind of market.
Despite the massive rally we've seen on the markets in the past few months, you can still hunt for undervalued stocks that will see a big upside when investors figure out that the fundamentals are great and the stock is cheap.
For example, in May, well after the rally began, the Value Trader portfolio, which buys a basket of stocks with a holding period of 3 months, bought shares of Western Digital and sold in late July for a 23.44% profit.
We try and find these kind of stocks every day.
5. It's Not Too Late to Invest
By March, it seemed that Buffett's advice to buy equities was very, very wrong. But that was his point. You can't time it. He said he had no idea what stocks would do in the short term. But it's not too late.
http://www.istockanalyst.com/article/viewarticle/articleid/3402145
By: Zacks Investment Research
Friday, August 07, 2009 6:35 PM
Did you follow Warren Buffett's advice last year to buy American stocks? In that now famous October 17, 2008 Op-Ed piece in the New York Times, Buffet shared his simple rule for buying stocks: "Be fearful when others are greedy, and be greedy when others are fearful." Certainly at that time fear had gripped the markets and investors were fleeing equities into cash.
Well if you did buy at that time, then you are one of the few, the proud, and the bold value investors who made a prudent call that is now paying off handsomely. And if you didn’t buy then lets review the lessons that Warren was trying to share and how it will benefit you going forward.
1. The Markets Rebound Long Before the Economy
Buffett believed that equities would far outperform other asset classes, especially cash, over the next 5, 10 or 20 years as the stock market rises in anticipation of an economic recovery, even if we weren't in one yet.
A perfect example is the Dow's behavior during the Great Depression. Buffett wrote that it took several years for the Dow to hit its low of 41 on Jul 8, 1932. But you wouldn't have known that that was "the bottom" based on economic conditions. The economy continued to worsen until March 1933, when Franklin Roosevelt took office.
Meanwhile, from the market lows in July 1932 to March 1933, the Dow rebounded 30%.
We've seen a similar rebound in the last 5 months but no one knows how long the rally will last or if it's the start of a new bull market. Still, while your cash is getting virtually no interest in this zero-rate interest environment, equities are paying a dividend yield and have the possibility of more upside. In this kind of environment, cash is not king.
2. Long-Term Outlook For Equities Is Good
The stock markets have been around much longer than any of us. During that time, the world suffered through world wars, influenza outbreaks, terrorist attacks, recessions and one depression but still, businesses created new products and made profit. They will continue to do so in the future.
Consider Apple and the iPhone. Even in the midst of this recession, millions of people bought the iPhone around the world. Investors who understood that Apple was still selling its products at a fast clip were rewarded with a stock that jumped over 90% from the beginning of the year.
Apple won't be the last company to cash in on its powerful brand and host of good products. The key for investors is to find other companies that will be next to do the same.
3. Prepare for Inflation
Buffett wrote that greater inflation was a possibility as the government printing presses work overtime to alleviate the recession and liquidity enters the economic system. Cash is where you will NOT want to be. The value of your cash will actually decline under those conditions.
There are now exchange-traded funds (ETFs) and other instruments available to investors to prepare for inflation including owning TIPs, Treasury-Inflation Protected Securities, and the precious metals through the gold or silver ETFs or precious metal mining stocks.
4. Finding Great Stocks
The great thing about being an investor is that there are always hidden gems to be uncovered in any kind of market.
Despite the massive rally we've seen on the markets in the past few months, you can still hunt for undervalued stocks that will see a big upside when investors figure out that the fundamentals are great and the stock is cheap.
For example, in May, well after the rally began, the Value Trader portfolio, which buys a basket of stocks with a holding period of 3 months, bought shares of Western Digital and sold in late July for a 23.44% profit.
We try and find these kind of stocks every day.
5. It's Not Too Late to Invest
By March, it seemed that Buffett's advice to buy equities was very, very wrong. But that was his point. You can't time it. He said he had no idea what stocks would do in the short term. But it's not too late.
http://www.istockanalyst.com/article/viewarticle/articleid/3402145
Friday 14 August 2009
Reviewing my Sell Transactions
http://spreadsheets.google.com/pub?key=t0sOF20dGoiu6n90X-XiAfA&output=html
Reasons for selling:
1. When cash is needed urgently for emergencies. Hopefully you will have cash kept aside for such contingencies.
2. When the fundamentals of the company has deteriorated. The stock should be sold urgently.
3. When the share is deemed overpriced, reducing its upside potential and increasing its downside risk.
4. To switch a stock to another stock with better upside potential and lower downside risk.
Reasons for selling:
1. When cash is needed urgently for emergencies. Hopefully you will have cash kept aside for such contingencies.
2. When the fundamentals of the company has deteriorated. The stock should be sold urgently.
3. When the share is deemed overpriced, reducing its upside potential and increasing its downside risk.
4. To switch a stock to another stock with better upside potential and lower downside risk.
Thursday 13 August 2009
Buffett: Principles of fundamental business analysis should guide investment practice.
Focussed investing: allocating capital by concentrating on businesses with outstanding economic characteristics and run by first-rate manager.
The central theme uniting Buffett's investing is that the principles of fundamental business analysis, first formulated by his teachers Ben Graham and David Dodd, should guide investment practice. Linked to that theme are investment pricniples that define the proper role of corporate managers as the stewards of invested capital, and the proper role of shareholders as the suppliers and owners of capital.
Buffett and Berkshire Vice Chairman Charlie Munger have built Berkshire Hathaway into a $70-plus billion enterprise by investing in business with excellent economic characteristics and run by outstanding managers. While they prefer negotiated acquisitions of 100% of such a business at a fair price, they take a "double-barreled approach" of buying on the open market less than 100% of such businesses when they can do so at a pro-rata price well below what it would take to buy 100%.
The double-barreled approach pays off handsomely. The value of marketable securities in Berkshire's portfolio, on a per share basis, increased from $4 in 1965 to nearly $50,000 in 2000, about a 25% annual increase. Per share operating earnings increased in the same period from just over $4 to around $500, an annual increase of about 18%. According to Buffett, these results follow not from any master plan but from focussed investing - allocating capital by concentrating on businesses with outstanding economic characteristics and run by first-rate manager.
Learning from Buffett
Buffett views Berkshire as a partnership among him, Munger and other shareholders, and virtually all his $20-plus billion net worth is in Berkshire stock. His economic goal is long-term - to maximize Berkshire's per share intrinsic value by owning all or part of a diversified group of businesses that generate cash and above-average returns. In achieving this goal, Buffett foregoes expansion for the sake of expansion and foregoes divestment of businesses so long as they generate some cash and have good management.
Berkshire retains and reinvests earnings when doing so delivers at least proportional increases in per share market value over time. It uses debt sparingly and sells equity only when it receives as much in value as it gives. Buffett penetrates acounting conventions, especially those that obscure real economic earnings.
It is true that investors should focus on fundamentals, be patient, and exercise good judgment based on common sense. Many people speculate on what Berkshire and Buffett are doing or plan to do. Their speculation is sometimes right and sometimes wrong, but always foolish. People would be far better off not attempting to ferret out what specific investments are being made at Berkshire, but thinking about how to make sound investment selections based on Berkshire's teaching. That means they should think about Buffett's writings and learn from them, rather than try to emulate Berkshire's porfolio.
Buffett modestly confesses that most of the ideas were taught to him by Ben Graham. He considers himself the conduit through which Graham's ideas have proven their value. Buffett recognizes the risk of popularizing his business and investment philosophy. But he notes that he benefited enormously from Graham's intellectual generosity and believes it is appropriate that he pass the wisdom on, even if that means creating investment competitors.
-----
Buffett has applied the traditional principles as CEO of Berkshire Hathaway, a company with roots in a group of textile operations begun in the early 1800s. Buffett took the helm of Berkshire in 1964, when its book value per share was $19.46 and its intrinsic value per share far lower. Today (2002), its book value per share is around $40,000 and its intrinsic vlaue far higher. The growth rate in book value per share during that period is about 24% compounded annually.
Berkshire is now a holding company engaged in a variety of businesses, not including textiles. Berkshire's most important business is insurance, carried on through various companies including its 100% owned subsidiary, GEICO Corporation, the sixth largest auto insurer in the United States, and General Re Corporation, one of the four largest reinsurers in the world. Berkshire publishes The Buffalo News and owns other businesses that manufacture or distribute products ranging from carpeting, briks, paint, encyclopedias, home furnishings, and cleaning systems, to chocolate candies, ice cream, jewelry, footwear, uniforms, and air compressors, as well as businesses that provide training to operators of aircrafts and ships worldwide, fractional ownership interests in general aviation aircraft, and electric and gas power generation. Berkshire also wons substantial equity interests in major corporations, including American Express, Coca-Cola, Gillette, The Washington Post, and Wells Fargo.
The central theme uniting Buffett's investing is that the principles of fundamental business analysis, first formulated by his teachers Ben Graham and David Dodd, should guide investment practice. Linked to that theme are investment pricniples that define the proper role of corporate managers as the stewards of invested capital, and the proper role of shareholders as the suppliers and owners of capital.
Buffett and Berkshire Vice Chairman Charlie Munger have built Berkshire Hathaway into a $70-plus billion enterprise by investing in business with excellent economic characteristics and run by outstanding managers. While they prefer negotiated acquisitions of 100% of such a business at a fair price, they take a "double-barreled approach" of buying on the open market less than 100% of such businesses when they can do so at a pro-rata price well below what it would take to buy 100%.
The double-barreled approach pays off handsomely. The value of marketable securities in Berkshire's portfolio, on a per share basis, increased from $4 in 1965 to nearly $50,000 in 2000, about a 25% annual increase. Per share operating earnings increased in the same period from just over $4 to around $500, an annual increase of about 18%. According to Buffett, these results follow not from any master plan but from focussed investing - allocating capital by concentrating on businesses with outstanding economic characteristics and run by first-rate manager.
Learning from Buffett
Buffett views Berkshire as a partnership among him, Munger and other shareholders, and virtually all his $20-plus billion net worth is in Berkshire stock. His economic goal is long-term - to maximize Berkshire's per share intrinsic value by owning all or part of a diversified group of businesses that generate cash and above-average returns. In achieving this goal, Buffett foregoes expansion for the sake of expansion and foregoes divestment of businesses so long as they generate some cash and have good management.
Berkshire retains and reinvests earnings when doing so delivers at least proportional increases in per share market value over time. It uses debt sparingly and sells equity only when it receives as much in value as it gives. Buffett penetrates acounting conventions, especially those that obscure real economic earnings.
It is true that investors should focus on fundamentals, be patient, and exercise good judgment based on common sense. Many people speculate on what Berkshire and Buffett are doing or plan to do. Their speculation is sometimes right and sometimes wrong, but always foolish. People would be far better off not attempting to ferret out what specific investments are being made at Berkshire, but thinking about how to make sound investment selections based on Berkshire's teaching. That means they should think about Buffett's writings and learn from them, rather than try to emulate Berkshire's porfolio.
Buffett modestly confesses that most of the ideas were taught to him by Ben Graham. He considers himself the conduit through which Graham's ideas have proven their value. Buffett recognizes the risk of popularizing his business and investment philosophy. But he notes that he benefited enormously from Graham's intellectual generosity and believes it is appropriate that he pass the wisdom on, even if that means creating investment competitors.
-----
Buffett has applied the traditional principles as CEO of Berkshire Hathaway, a company with roots in a group of textile operations begun in the early 1800s. Buffett took the helm of Berkshire in 1964, when its book value per share was $19.46 and its intrinsic value per share far lower. Today (2002), its book value per share is around $40,000 and its intrinsic vlaue far higher. The growth rate in book value per share during that period is about 24% compounded annually.
Berkshire is now a holding company engaged in a variety of businesses, not including textiles. Berkshire's most important business is insurance, carried on through various companies including its 100% owned subsidiary, GEICO Corporation, the sixth largest auto insurer in the United States, and General Re Corporation, one of the four largest reinsurers in the world. Berkshire publishes The Buffalo News and owns other businesses that manufacture or distribute products ranging from carpeting, briks, paint, encyclopedias, home furnishings, and cleaning systems, to chocolate candies, ice cream, jewelry, footwear, uniforms, and air compressors, as well as businesses that provide training to operators of aircrafts and ships worldwide, fractional ownership interests in general aviation aircraft, and electric and gas power generation. Berkshire also wons substantial equity interests in major corporations, including American Express, Coca-Cola, Gillette, The Washington Post, and Wells Fargo.
What guides your investing?
It is surprising to know of many remisiers who cannot give you a short account of their investment principles. In conversations, they talk about short term "hot stocks". So and so "smart" investor is buying. So and so "smart" investor is selling. This stock should go up higher soon because of this and that. This is not such a good stock. This is a good stock.
Such "guide" is of little use for a serious investor who seeks to "invest" significant amount into the market for good returns (either for dividend and/or capital gains) over a life-time.
It is surprising why so many investors do not have a "good" guide for their investing. Many understand the buy low and sell high approach (or for some, buy high and sell higher approach), but with little application of fundamental business analysis. They have little control over the controllables, therefore, their approach is very much dependent on the play of the market and chance.
However, by adopting certain investment philosophy and understanding their emotion and behaviour, their investment operations can be safer with a higher probability of a positive moderate return. And there is no need to have a superior IQ to do so.
Such "guide" is of little use for a serious investor who seeks to "invest" significant amount into the market for good returns (either for dividend and/or capital gains) over a life-time.
It is surprising why so many investors do not have a "good" guide for their investing. Many understand the buy low and sell high approach (or for some, buy high and sell higher approach), but with little application of fundamental business analysis. They have little control over the controllables, therefore, their approach is very much dependent on the play of the market and chance.
However, by adopting certain investment philosophy and understanding their emotion and behaviour, their investment operations can be safer with a higher probability of a positive moderate return. And there is no need to have a superior IQ to do so.
Wednesday 12 August 2009
How to screen overseas stocks
Wednesday August 12, 2009
How to screen overseas stocks
Personal Investing - By ooi Kok Hwa
Four criteria to look at when choosing counters that are suitable for long-term investment
LATELY, interest has grown in overseas stock investment. Given the foreign markets’ relatively high volatility of returns compared with the local market, a lot of retail investors find it more exciting to invest in overseas stocks.
However, a common problem most investors face is how to filter, from among all the listed companies in the respective markets, the right stocks that are suitable for long-term investment.
Market capitalisation
One of the most important selection criteria is buying stocks with big market capitalisation. The market cap of a listed company can be computed by multiplying the number of its outstanding shares with the current share price.
In general, we should buy stocks with big market cap because they are normally well-established blue-chip stocks with higher turnover and widely-accepted products and services.
Even though some academic research shows that buying into small market cap stocks can provide higher returns compared with big market cap companies, unless we are quite familiar with the stocks available in those overseas markets, it is safer to put our money into bigger market cap stocks.
It is not difficult to find out which companies have the largest market cap in any stock exchange.
Such information is available in most major newspapers in that particular country or the stock exchanges themselves.
For example, if we intend to buy some Singapore stocks, we should pay attention to companies that are ranked in the top 30 in terms of market cap. One can get the rankings by market cap for the Singapore Exchange in StarBiz monthly.
Price/earnings ratio
Once we have filtered out the blue-chip stocks, the next selection criteria is the price/earnings ratio (PER), which should be lower than the overall market PER. This is computed by dividing the current stock price by the earnings per share (EPS) of the company. It represents the number of years that we need to get back our money, assuming the company maintains identical earnings throughout the period.
Even though some published PER may use historical audited EPS compared with forecast EPS, given that our key objective is to do stock screening, the PER testing will provide us with a quick check on the top 30 companies – whether they are profitable and selling at reasonable PER compared with the overall market PER.
If we cannot get access to the overall market PER, we may want to consider Benjamin Graham’s suggestion of buying stocks with PER of lower than 15 times.
Dividend yield
A good company should pay dividends. We strongly believe that this is one of the most important ways for the investors to get any returns from the companies that they invest in.
Our rule of thumb is that a good company should have a dividend yield that at least equals or is higher than the risk-free return, which is usually based on the fixed deposit rates.
The dividend yield is computed by dividing the dividend per share by the current share price. In general, most blue-chip stocks do have a fixed dividend payout policy and reward investors with a consistent and growing dividend returns.
Based on our observation, most smaller companies may not be able to pay good dividends as they may need the capital for future expansion programmes.
Price-to-book ratio
Most investors would like to invest at a market price lower than the owners’ costs in the company. The book value of a company represents the owners’ costs invested in it.
In a normal business environment, unless the company has some problems that the general public may not be aware of, it is quite difficult to find stocks selling at a price lower than the book value of the company.
As a result, we may need to purchase at a market price higher than the book value. According to Graham, the maximum price one should pay for any stock is the price which gives a price-to-book ratio no greater than 1.5 times. This means that we should not pay more than 1.5 times the owners’ costs invested in the company.
Lastly, the above four selection criteria are merely a preliminary quick stock screening process. Even though investors may be able to find stocks that fit the criteria, we suggest investors check further the fundamentals of the company, such as the balance sheet strength, its gearing, future business prospects and the quality of the management before deciding to invest.
● Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.
From The Star newspaper
How to screen overseas stocks
Personal Investing - By ooi Kok Hwa
Four criteria to look at when choosing counters that are suitable for long-term investment
LATELY, interest has grown in overseas stock investment. Given the foreign markets’ relatively high volatility of returns compared with the local market, a lot of retail investors find it more exciting to invest in overseas stocks.
However, a common problem most investors face is how to filter, from among all the listed companies in the respective markets, the right stocks that are suitable for long-term investment.
Market capitalisation
One of the most important selection criteria is buying stocks with big market capitalisation. The market cap of a listed company can be computed by multiplying the number of its outstanding shares with the current share price.
In general, we should buy stocks with big market cap because they are normally well-established blue-chip stocks with higher turnover and widely-accepted products and services.
Even though some academic research shows that buying into small market cap stocks can provide higher returns compared with big market cap companies, unless we are quite familiar with the stocks available in those overseas markets, it is safer to put our money into bigger market cap stocks.
It is not difficult to find out which companies have the largest market cap in any stock exchange.
Such information is available in most major newspapers in that particular country or the stock exchanges themselves.
For example, if we intend to buy some Singapore stocks, we should pay attention to companies that are ranked in the top 30 in terms of market cap. One can get the rankings by market cap for the Singapore Exchange in StarBiz monthly.
Price/earnings ratio
Once we have filtered out the blue-chip stocks, the next selection criteria is the price/earnings ratio (PER), which should be lower than the overall market PER. This is computed by dividing the current stock price by the earnings per share (EPS) of the company. It represents the number of years that we need to get back our money, assuming the company maintains identical earnings throughout the period.
Even though some published PER may use historical audited EPS compared with forecast EPS, given that our key objective is to do stock screening, the PER testing will provide us with a quick check on the top 30 companies – whether they are profitable and selling at reasonable PER compared with the overall market PER.
If we cannot get access to the overall market PER, we may want to consider Benjamin Graham’s suggestion of buying stocks with PER of lower than 15 times.
Dividend yield
A good company should pay dividends. We strongly believe that this is one of the most important ways for the investors to get any returns from the companies that they invest in.
Our rule of thumb is that a good company should have a dividend yield that at least equals or is higher than the risk-free return, which is usually based on the fixed deposit rates.
The dividend yield is computed by dividing the dividend per share by the current share price. In general, most blue-chip stocks do have a fixed dividend payout policy and reward investors with a consistent and growing dividend returns.
Based on our observation, most smaller companies may not be able to pay good dividends as they may need the capital for future expansion programmes.
Price-to-book ratio
Most investors would like to invest at a market price lower than the owners’ costs in the company. The book value of a company represents the owners’ costs invested in it.
In a normal business environment, unless the company has some problems that the general public may not be aware of, it is quite difficult to find stocks selling at a price lower than the book value of the company.
As a result, we may need to purchase at a market price higher than the book value. According to Graham, the maximum price one should pay for any stock is the price which gives a price-to-book ratio no greater than 1.5 times. This means that we should not pay more than 1.5 times the owners’ costs invested in the company.
Lastly, the above four selection criteria are merely a preliminary quick stock screening process. Even though investors may be able to find stocks that fit the criteria, we suggest investors check further the fundamentals of the company, such as the balance sheet strength, its gearing, future business prospects and the quality of the management before deciding to invest.
● Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.
From The Star newspaper
KFC Holdings (Malaysia) Bhd
*Wright Quality Rating: DAB1
Liquidity D (Fair)
Financial Strength A (Outstanding)
Profitability B (Excellent)
Growth 1 (Lowest)
Announcement
Date/ Fin.Yr. End/ Qtr/ Period End/ Rev RM '000/ Profit RM'000 /EPS Amended
21-May-09 31-Dec-09 1 31-Mar-09 526,639 29,433 14.47 -
26-Feb-09 31-Dec-08 4 31-Dec-08 601,907 28,717 14.32 -
20-Nov-08 31-Dec-08 3 30-Sep-08 552,440 31,824 15.86 -
20-Aug-08 31-Dec-08 2 30-Jun-08 529,843 31,002 15.34 -
(Based on above: ttm-eps was 60 sen)
Higher contribution from the KFC Restaurants segment: (1) from continuing network expansion (38 new restaurants added last year), and (2) from new sales channel such as breakfast and extension of operating hours of certain outlets to 24 hours. This is negated by increased cost of raw material.
Poultry Integrated segment: Higher turnover due to (1) improved sales to the KFC restaurants and (2) better sales of its Ayamas products both locally and in export sector. This is partially negated by the increasing cost of commodities which resulted in higher cost of internally produced poultry products.
-----
Historical data:
Last 5-Yr
DY Range 3.4% - 2.4%
PE Range 9.3 - 13.2 (Mean PE 11.25)
EPSGR 28.4%
Last 10-Yr
DY Range 2.9% - 2.0%
PE Range 12.7 - 18.6
EPSGR 47.1%
-----
What the management wrote in the last quarter release:
Current Year Prospects
The global economy deteriorated further during the first quarter. In Singapore, initial estimates indicated that the Singapore economy registered a negative growth of 11.5% in the first quarter and the Ministry of Trade and Industry announced that the Gross Domestic Product would contract by 6% to 9% in 2009. (Source : Ministry of Trade and Industry, Singapore). It was widely expected that the Malaysian economy will improve in the second half of 2009 supported by the stabilization in global economic conditions. These expectations were however dampened by the outbreak of Influenza A (H1N1) in late April 2009, which may slow down the economic recovery process.
With the prevalent economic uncertainties, consumer spending is expected to be negatively affected. Thus the Group will continue to focus on value to customers by offering value for money products to align with its customers spending ability.
Based on the foregoing, the Board is optimistic of sustaining the Group’s performance in the balance of the year. The Group has laid down plans to increase revenue and profitability by increasing the restaurants network, enhancing customer experience, developing new and improved products, expanding business activities, developing better cost efficiencies and improving productivity at all the restaurants and manufacturing facilities.
-----
Using ttm-eps 60 sen and expected estimated dividend (SPG) 16.5 sen
At today's price of 7.30:
DY is estimated 2.26% (Below the mean of the DY range)
PE is 12.2 (Just above the mean of the PE range)
PEG is 12.2/28.4 = 0.43 (Cheap)
At 7.30, one would be buying at slightly higher than the fair PE for KFC. However, valuation based on PEG is cheap.
The uncertainty as usual is in judging how the business will grow in the future. However, it is alright to acquire a good company at fair price. The question you should ask is: Will KFC be able to grow its business and earnings strongly in the next few years? The last 4 quarters revenues and earnings have been flat, probably due to the weak economic environment.
Anyway, KFC has done well the last 5 years and should continues to prosper, given the increasing numbers of Malaysians entering the middle income class group.
As usual, you will have to make your own decision in investing.
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*Wright Quality Ratings are based on numerous individual measures of quality, grouped into four principal components: (1) Investment Acceptance (i.e. stock liquidity), (2) Financial Strength, (3) Profitability & Stability, and (4) Growth. The ratings are based on established principles using 5-6 years of corporate record and other investment data.
The ratings consist of three letters and a number. Each letter reflects a composite qualitative measurement of numerous individual standards which may be summarized as follows:
A = Outstanding; B = Excellent; C = Good; D = Fair; L = Limited; N = Not Rated.
The number component of the Quality Rating is also a composite measurement of the annual corporate growth, based on earnings and modified by growth rates of equity, dividends, and sales per common share. The Growth rating may vary from 0 (lowest) to 20 (highest).
Nestle eyes ‘vital’ role in halal food industry via helping SMEs
Tuesday August 11, 2009
Nestle eyes ‘vital’ role in halal food industry via helping SMEs
PETALING JAYA: Nestle (M) Bhd wants to play a vital role to boost the halal food industry by helping local small and medium enterprises (SMEs) be competent suppliers to the company.
Managing director Sullivan O’Carroll said, at the same time, Nestle wanted to promote Malaysia as the global halal hub for its products.
“We have the expertise and experience to help local SMEs produce quality products that meet the international standard.
“At the same time SME players will have the opportunity to contribute through supplying of raw/semi-processed materials to us,” he said yesterday at the memorandum of agreement signing ceremony between Nestle, Small & Medium Industries Development Corp (Smidec) and Halal Industry Development Corp (HDC).
From left: SMIDEC chief executive officer Datuk Hafsah Hashim, SMIDEC chairman Datuk Ir. Mohamed Al Amin Abdul Majid, Nestle(M) Bhd technical and production executive director Detlef Krost, International Trade and Industry Minister Datuk Mustapa Mohamed, HDC chairman Tan Sri Datuk Dr Syed Jalaludin Syed Salim, HDC chief executive officer Datuk Seri Jamil Bidin and Nestle (M) Bhd managing director Sullivan O' Caroll after the signing of MOA on Monday.
The strategic collaboration between the three parties is to enhance the capacity and capability development of potential SMEs to become suppliers to Nestle.
O’Carroll said Nestle was currently importing most of its raw/semi-processed materials from Europe and the US for its products and wanted more contribution from the local SMEs.
“Europe and the US, for example, have a very high standard for any food players to be in their market and we need to fulfil their regulatory food standard. We believe Nestle can help the local SMEs reach the standard required by these international markets through our expertise and research and development technology,” he said.
HDC chief executive officer Datuk Seri Jamil Bidin said the collaboration confirmed the common desire of the three parties to cooperate for the purpose of promoting the development of business opportunities for SMEs involved in the halal food and beverages industry in Malaysia.
“Over time, the selected local SMEs suppliers will be able to benefit from the learning curve, compliance of standards, best practices and innovation to enhance their own capabilities and competencies,” he said.
Smidec chief executive officer Datuk Hafsah Hashim said the demand for halal food was increasing globally as more countries, such as Japan, were interested to be part of this industry.
“During our visit to Japan end of last month, five or six Japanese food companies had shown interest in this industry. They were also asking for assistance from HDC regarding halal certification,” she said, adding that one Japanese food company had already set up its facility in Johor Baru while another one was in the process of doing so in Malacca.
Smidec will identify and recommend potential SMEs in the halal ingredient industry to HDC and Nestle based on its evaluation system.
The selected SMEs will then be equipped with the requisite technology and financial assistance to ensure that they fulfil the requirement and meet the specifications set by Nestle to enable them to be considered as suppliers.
Currently, Nestle has about 150 suppliers, of which 40 are local companies and, in terms of value, these 40 companies supply only 10% of its required raw materials and ingredients.
Nestle eyes ‘vital’ role in halal food industry via helping SMEs
PETALING JAYA: Nestle (M) Bhd wants to play a vital role to boost the halal food industry by helping local small and medium enterprises (SMEs) be competent suppliers to the company.
Managing director Sullivan O’Carroll said, at the same time, Nestle wanted to promote Malaysia as the global halal hub for its products.
“We have the expertise and experience to help local SMEs produce quality products that meet the international standard.
“At the same time SME players will have the opportunity to contribute through supplying of raw/semi-processed materials to us,” he said yesterday at the memorandum of agreement signing ceremony between Nestle, Small & Medium Industries Development Corp (Smidec) and Halal Industry Development Corp (HDC).
From left: SMIDEC chief executive officer Datuk Hafsah Hashim, SMIDEC chairman Datuk Ir. Mohamed Al Amin Abdul Majid, Nestle(M) Bhd technical and production executive director Detlef Krost, International Trade and Industry Minister Datuk Mustapa Mohamed, HDC chairman Tan Sri Datuk Dr Syed Jalaludin Syed Salim, HDC chief executive officer Datuk Seri Jamil Bidin and Nestle (M) Bhd managing director Sullivan O' Caroll after the signing of MOA on Monday.
The strategic collaboration between the three parties is to enhance the capacity and capability development of potential SMEs to become suppliers to Nestle.
O’Carroll said Nestle was currently importing most of its raw/semi-processed materials from Europe and the US for its products and wanted more contribution from the local SMEs.
“Europe and the US, for example, have a very high standard for any food players to be in their market and we need to fulfil their regulatory food standard. We believe Nestle can help the local SMEs reach the standard required by these international markets through our expertise and research and development technology,” he said.
HDC chief executive officer Datuk Seri Jamil Bidin said the collaboration confirmed the common desire of the three parties to cooperate for the purpose of promoting the development of business opportunities for SMEs involved in the halal food and beverages industry in Malaysia.
“Over time, the selected local SMEs suppliers will be able to benefit from the learning curve, compliance of standards, best practices and innovation to enhance their own capabilities and competencies,” he said.
Smidec chief executive officer Datuk Hafsah Hashim said the demand for halal food was increasing globally as more countries, such as Japan, were interested to be part of this industry.
“During our visit to Japan end of last month, five or six Japanese food companies had shown interest in this industry. They were also asking for assistance from HDC regarding halal certification,” she said, adding that one Japanese food company had already set up its facility in Johor Baru while another one was in the process of doing so in Malacca.
Smidec will identify and recommend potential SMEs in the halal ingredient industry to HDC and Nestle based on its evaluation system.
The selected SMEs will then be equipped with the requisite technology and financial assistance to ensure that they fulfil the requirement and meet the specifications set by Nestle to enable them to be considered as suppliers.
Currently, Nestle has about 150 suppliers, of which 40 are local companies and, in terms of value, these 40 companies supply only 10% of its required raw materials and ingredients.
Tuesday 11 August 2009
AmResearch sees exciting times ahead for Parkson
AmResearch sees exciting times ahead for Parkson
Tags: AmResearch | Brokers Call | Parkson
Written by Financial Daily
Tuesday, 28 July 2009 11:57
AMRESEARCH has initiated coverage on PARKSON HOLDINGS BHD [ PARKSON 5.400 -0.130 (-2.351%) ] (PHB) with a buy recommendation and a sum-of-parts (SOP) fair value of RM6.60 per share.
The valuation was derived by pegging the group’s core Hong Kong-listed Parkson Retail Group (PRG) at 22 times forecast earnings for CY10, Parkson Malaysia at nine times CY10 earnings and Parkson Vietnam at eight times CY10 earnings.
Being the retail gem of Lion Group, Parkson’s key driver of growth over the past few years had been its operations in Hong Kong and China, which contributed 69% to Parkson’s earnings, while Malaysia and Vietnam contributed 27% and 4%, respectively (FY08), said the research house.
It noted that Parkson was on firm ground post-restructuring and re-branding exercises, with FY09F earnings expected to grow 24% year-on-year (y-o-y) to RM250 million, on the back of a 3%-8% blended same-store sales (SSS) growth in FY09F.
“More importantly, we see better prospects going forward, with earnings growth of 30% and 34% y-o-y for FY10F-11F underpinned by increased spending on a consumer sentiment uptrend along with China’s economic recovery,” AmReserach said.
The research house added that there was tremendous scope for seven to 10 new stores per annum on average — two to three in Malaysia, four to five in China and one or two in Vietnam — potentially increasing Parkson’s total lettable area by 10%-12% to 750,000 sq m by end-2010.
Under management’s plans, the group planned to venture into other untapped markets, notably neighbouring Cambodia and Indochina at large.
“We expect a successful replication of its concessionaire model to power the group’s earnings in the future, with increased earnings from Vietnam to match that of Malaysia’s in three years.
“We see PHB as a cheaper proxy to PRG for exposure to China’s retail industry. We believe Parkson’s share price would continue to attract support given the current discount of 16%-18% to Parkson — due to the latter’s strong earnings composition in Parkson,” it noted.
AmResearch added that despite its expansion plans, the group was expected to remain on a net cash position on a growing cash pile going into FY09-11F, with cash flow per share increasing 31% to 77 sen/share for FY10F from 59 sen/share.
Parkson rose 15 sen to close at RM5.50 yesterday.
This article appeared in The Edge Financial Daily, July 28, 2009.
Unexciting earnings for Petronas Dagangan
Unexciting earnings for PDB
Tags: Brokers Call | HwangDBS | PDB | Petronas Dagangan Bhd
Written by Financial Daily
Tuesday, 28 July 2009 12:01
ANALYSTS remained subdued on PETRONAS DAGANGAN BHD [ PETDAG 8.600 0.020 (0.233%) ] (PDB) due to unexciting earnings prospects, with HwangDBS Vickers Research maintaining its fully valued call on the stock against a revised 12-month target price of RM7.20, up from RM6.40 previously.
It said PDB’s overall sales volume would further decline in FY10 (-1.7% to 12.3 billion litres based on its estimate) after dropping by 6.6% to 12.5 billion litres in FY09.
“This is likely to be due to weaker demand from the commercial segment, especially for diesel and jet fuel, which made up 70% of total commercial volume. This could more than offset an expected recovery in mogas/petrol demand, which has already surpassed its pre-June 2008 level, just before the demand plunge due to the steep pump price hike in Jan 2009,” it said.
Although PDB’s fundamentals remained resilient, HwangDBS said earnings prospects were unexciting at a two-year compound annual growth rate (CAGR) of 6.4% with competition intensifying. The company lost 1.6-percentage point market share to 42.5% in FY09, it added.
It said valuations were also unattractive with one-year forward price earnings ratio (PER) at 13.3 times at the upper end of its historical range of two times to 14 times.
“We tweaked our forecasts and bumped up our target price to RM7.20 based on 11 times CY10F earnings per share, to reflect a similar valuation discount vis-Ã -vis the broad market following the rally since mid-March,” it said.
HwangDBS also believed the introduction of RON95 petrol grade effective Sept 1 would not affect PDB’s earnings as it would continue to earn the same fixed margin under the automated pricing mechanism formula.
CIMB Research, meanwhile, maintained its underperform rating on PDB.
“We maintain our forecasts and target price of RM7.20, pegged to an unchanged 10 times PER, which is lower than the 15 times PER we attach to upstream players. Given its defensive qualities, we expect PDB to continue to underperform the benchmark KLCI and lag behind higher-beta stocks,” CIMB said.
PDB closed unchanged yesterday at RM8.45.
This article appeared in The Edge Financial Daily, July 28, 2009.
Tags: Brokers Call | HwangDBS | PDB | Petronas Dagangan Bhd
Written by Financial Daily
Tuesday, 28 July 2009 12:01
ANALYSTS remained subdued on PETRONAS DAGANGAN BHD [ PETDAG 8.600 0.020 (0.233%) ] (PDB) due to unexciting earnings prospects, with HwangDBS Vickers Research maintaining its fully valued call on the stock against a revised 12-month target price of RM7.20, up from RM6.40 previously.
It said PDB’s overall sales volume would further decline in FY10 (-1.7% to 12.3 billion litres based on its estimate) after dropping by 6.6% to 12.5 billion litres in FY09.
“This is likely to be due to weaker demand from the commercial segment, especially for diesel and jet fuel, which made up 70% of total commercial volume. This could more than offset an expected recovery in mogas/petrol demand, which has already surpassed its pre-June 2008 level, just before the demand plunge due to the steep pump price hike in Jan 2009,” it said.
Although PDB’s fundamentals remained resilient, HwangDBS said earnings prospects were unexciting at a two-year compound annual growth rate (CAGR) of 6.4% with competition intensifying. The company lost 1.6-percentage point market share to 42.5% in FY09, it added.
It said valuations were also unattractive with one-year forward price earnings ratio (PER) at 13.3 times at the upper end of its historical range of two times to 14 times.
“We tweaked our forecasts and bumped up our target price to RM7.20 based on 11 times CY10F earnings per share, to reflect a similar valuation discount vis-Ã -vis the broad market following the rally since mid-March,” it said.
HwangDBS also believed the introduction of RON95 petrol grade effective Sept 1 would not affect PDB’s earnings as it would continue to earn the same fixed margin under the automated pricing mechanism formula.
CIMB Research, meanwhile, maintained its underperform rating on PDB.
“We maintain our forecasts and target price of RM7.20, pegged to an unchanged 10 times PER, which is lower than the 15 times PER we attach to upstream players. Given its defensive qualities, we expect PDB to continue to underperform the benchmark KLCI and lag behind higher-beta stocks,” CIMB said.
PDB closed unchanged yesterday at RM8.45.
This article appeared in The Edge Financial Daily, July 28, 2009.
Boustead to raise RM1.3b from rights issue, asset sale
Boustead to raise RM1.3b from rights issue, asset sale
Tags: BH Insurance (M) Bhd | Boustead Holdings Bhd | Boustead Naval Shipyard | expansion | Plantation land | rights issue | Tan Sri Lodin Wok Kamarudin
Written by Joy Lee
Thursday, 30 July 2009 11:05
KUALA LUMPUR: BOUSTEAD HOLDINGS BHD [ BSTEAD 3.960 0.020 (0.508%) ] plans to divest its non-core businesses by year-end, which along with proceeds from its rights issue, will raise some RM1.3 billion to pare borrowings and to fund expansion.
The firm is in talks with several Indonesian parties to sell off its PLANTATION [ PLANTATION 5,793.760 27.410 (0.475%) ] land in Sumatra, Indonesia measuring 17,000ha, of which about 9,000ha are planted with mature trees.
“We want to rationalise our operations and focus on key areas. Indonesia presents some problems in terms of yield and logistics and we want to focus our plantation activities in Sarawak and Sabah. “We are also looking to sell our 80% stake in BH Insurance (M) Bhd,” managing director Tan Sri Lodin Wok Kamarudin said after the company’s EGM yesterday.
He added that the company hoped to conclude both disposals by year-end. The divestments would bring in some RM500 million to RM600 million.
Boustead yesterday received shareholders’ approval for the rights issue of 260.41 million shares at RM2.80 each to raise up to RM729 million. The issue is on the basis of two shares for every five existing shares held.
“Based on the feedback from shareholders, we are confident the exercise will do very well. This will provide us with fresh funds for new acquisitions when the opportunity comes,” he said.
The funds would be used to trim borrowings, which would result in about RM24 million in interest savings. According to its circular, RM300 million to RM400 million from the proceeds will be used to reduce borrowings, which stood at RM3.6 billion as at March 31, 2009.
Lodin said with the rights issue and the divestment, the company’s gearing would be reduced to between 0.6 and 0.7 times from 1.2 times currently.
The company would also be expanding its property development and shipbuilding businesses, he said, adding that it was going through several proposals for land acquisition, including one or two possible acquisitions in the Klang Valley.
Currently, its landbank consists of over 323.75ha in Johor, 16ha in Mutiara Damansara and about 1ha in Jalan Ampang, Kuala Lumpur.
As for its shipyard business, Lodin said it would deliver the remaining three offshore patrol vessels (OPVs) ordered by the government early next year. “We hope to get more contracts from the government as we have the capacity to take on new jobs once the current orders are completed.”
Its subsidiary, Boustead Naval Shipyard, has the rights to build a total of 27 OPVs for the government.
This article appeared in The Edge Financial Daily, July 30, 2009.
(Pg40of500)
Tags: BH Insurance (M) Bhd | Boustead Holdings Bhd | Boustead Naval Shipyard | expansion | Plantation land | rights issue | Tan Sri Lodin Wok Kamarudin
Written by Joy Lee
Thursday, 30 July 2009 11:05
KUALA LUMPUR: BOUSTEAD HOLDINGS BHD [ BSTEAD 3.960 0.020 (0.508%) ] plans to divest its non-core businesses by year-end, which along with proceeds from its rights issue, will raise some RM1.3 billion to pare borrowings and to fund expansion.
The firm is in talks with several Indonesian parties to sell off its PLANTATION [ PLANTATION 5,793.760 27.410 (0.475%) ] land in Sumatra, Indonesia measuring 17,000ha, of which about 9,000ha are planted with mature trees.
“We want to rationalise our operations and focus on key areas. Indonesia presents some problems in terms of yield and logistics and we want to focus our plantation activities in Sarawak and Sabah. “We are also looking to sell our 80% stake in BH Insurance (M) Bhd,” managing director Tan Sri Lodin Wok Kamarudin said after the company’s EGM yesterday.
He added that the company hoped to conclude both disposals by year-end. The divestments would bring in some RM500 million to RM600 million.
Boustead yesterday received shareholders’ approval for the rights issue of 260.41 million shares at RM2.80 each to raise up to RM729 million. The issue is on the basis of two shares for every five existing shares held.
“Based on the feedback from shareholders, we are confident the exercise will do very well. This will provide us with fresh funds for new acquisitions when the opportunity comes,” he said.
The funds would be used to trim borrowings, which would result in about RM24 million in interest savings. According to its circular, RM300 million to RM400 million from the proceeds will be used to reduce borrowings, which stood at RM3.6 billion as at March 31, 2009.
Lodin said with the rights issue and the divestment, the company’s gearing would be reduced to between 0.6 and 0.7 times from 1.2 times currently.
The company would also be expanding its property development and shipbuilding businesses, he said, adding that it was going through several proposals for land acquisition, including one or two possible acquisitions in the Klang Valley.
Currently, its landbank consists of over 323.75ha in Johor, 16ha in Mutiara Damansara and about 1ha in Jalan Ampang, Kuala Lumpur.
As for its shipyard business, Lodin said it would deliver the remaining three offshore patrol vessels (OPVs) ordered by the government early next year. “We hope to get more contracts from the government as we have the capacity to take on new jobs once the current orders are completed.”
Its subsidiary, Boustead Naval Shipyard, has the rights to build a total of 27 OPVs for the government.
This article appeared in The Edge Financial Daily, July 30, 2009.
(Pg40of500)
Carlsberg M’sia expects S’pore ops to contribute 30% to net profit in 2010
Carlsberg M’sia expects S’pore ops to contribute 30% to net profit in 2010
Tags: Carlsberg Malaysia | Carlsberg Singapore | CBMB
Written by Surin Murugiah
Thursday, 30 July 2009 11:16
SHAH ALAM: CARLSBERG BREWERY MALAYSIA BHD [ CARLSBG 4.410 -0.050 (-1.121%) ] (CBMB) expects Carlsberg Singapore Pte Ltd (CSPL) to contribute about 30% to its net profit in the financial year ending Dec 31, 2010 pursuant to its proposal to acquire the latter.
CBMB also expects to resume its dividend payout at previous levels after surprising the market with a lower dividend early this year.
It paid out a total of 12.5 sen in dividends last year, against 35 sen in each of its previous three financial years.
CBMB managing director Soren Holm Jensen said CSPL was already a successful and profitable entity, having posted a revenue of S$78 million and a net profit of S$10 million in 2008.
“A key binding factor is the significant sourcing and operational synergy that would create RM22 million cost savings. The total incremental net profit from the acquisition, excluding funding cost, is RM46 million,” he said.
“The main synergies are that it would shift sourcing back to Carlsberg Malaysia; advertising and promotions would enjoy double tax deduction, as well as the operational synergies,” he said at media briefing on its proposed acquisition of CSPL.
CBMB announced on Tuesday it had entered into a memorandum of understanding (MoU) with its Denmark-based parent company Carlsberg Breweries AS (Carlsberg) to acquire the latter’s Singapore operations held by CSPL for RM370 million cash.
Among the salient features of the MoU to be included in the sales and purchase agreement are 20 years of territorial rights; sourcing rights with significant synergies; profit guarantee for CSPL for the financial years 2009 and 2010; and Carlsberg to support any board proposal to declare a dividend of between 50% and 70% of CBMB’s distributable profit for a duration of five years.
Jensen said preliminary estimates showed CBMB’s net profit for 2010 to increase to RM113 million from RM76 million in 2008, on the assumption that the proposal to acquire CSPL was approved by minority shareholders.
“The estimates need further verification and is subject to a full due diligence and final evaluation by an independent adviser,” he said.
Jensen said CBMB would likely complete the acquisition without borrowing as it had RM260 million cash and would be able to accumulate sufficient cash by year-end.
“But we might require short-term borrowings for working capital. In any event, we will return to a net cash level in a short period,” he said,
On CSPL, Jensen said it held a 21% market share in Singapore and that the Carlsberg brand ranked second in the republic after the locally brewed Tiger beer.
“The brand is positioned in the upper mainstream segment and has been steadily gaining share in the segment since the 1990s. It also has a stronghold in coffee shops and hawker centres, supported by strong branding in both on- and off-trade,” he said.
He said Singapore was an attractive beer market, with a compound annual growth rate of 4% from 2000 to 2008, from 642,000 hectolitres (HL) to 858,000HL.
Jensen said CBMB also viewed its proposed acquisition of CSPL as an added advantage as it would give the brewer a better understanding of new Tiger beer products, which are generally launched in Singapore first before Malaysia.
For the three months ended March 31, CBMB posted a 19% year-on-year lower net profit of RM21.4 million on the back of a marginally higher revenue of RM289.8 million.
As at end-March, CBMB had cash and cash equivalents of RM231.7 million while its trade receivables stood at RM140.5 million. Total liabilities were RM123.6 million.
CBMB’s brands include Tuborg, SKOL Beer, Danish Royal Stout, Tetley’s English Ale, Jolly Shandy and Nutrimalt.
This article appeared in The Edge Financial Daily, July 30, 2009.
Tags: Carlsberg Malaysia | Carlsberg Singapore | CBMB
Written by Surin Murugiah
Thursday, 30 July 2009 11:16
SHAH ALAM: CARLSBERG BREWERY MALAYSIA BHD [ CARLSBG 4.410 -0.050 (-1.121%) ] (CBMB) expects Carlsberg Singapore Pte Ltd (CSPL) to contribute about 30% to its net profit in the financial year ending Dec 31, 2010 pursuant to its proposal to acquire the latter.
CBMB also expects to resume its dividend payout at previous levels after surprising the market with a lower dividend early this year.
It paid out a total of 12.5 sen in dividends last year, against 35 sen in each of its previous three financial years.
CBMB managing director Soren Holm Jensen said CSPL was already a successful and profitable entity, having posted a revenue of S$78 million and a net profit of S$10 million in 2008.
“A key binding factor is the significant sourcing and operational synergy that would create RM22 million cost savings. The total incremental net profit from the acquisition, excluding funding cost, is RM46 million,” he said.
“The main synergies are that it would shift sourcing back to Carlsberg Malaysia; advertising and promotions would enjoy double tax deduction, as well as the operational synergies,” he said at media briefing on its proposed acquisition of CSPL.
CBMB announced on Tuesday it had entered into a memorandum of understanding (MoU) with its Denmark-based parent company Carlsberg Breweries AS (Carlsberg) to acquire the latter’s Singapore operations held by CSPL for RM370 million cash.
Among the salient features of the MoU to be included in the sales and purchase agreement are 20 years of territorial rights; sourcing rights with significant synergies; profit guarantee for CSPL for the financial years 2009 and 2010; and Carlsberg to support any board proposal to declare a dividend of between 50% and 70% of CBMB’s distributable profit for a duration of five years.
Jensen said preliminary estimates showed CBMB’s net profit for 2010 to increase to RM113 million from RM76 million in 2008, on the assumption that the proposal to acquire CSPL was approved by minority shareholders.
“The estimates need further verification and is subject to a full due diligence and final evaluation by an independent adviser,” he said.
Jensen said CBMB would likely complete the acquisition without borrowing as it had RM260 million cash and would be able to accumulate sufficient cash by year-end.
“But we might require short-term borrowings for working capital. In any event, we will return to a net cash level in a short period,” he said,
On CSPL, Jensen said it held a 21% market share in Singapore and that the Carlsberg brand ranked second in the republic after the locally brewed Tiger beer.
“The brand is positioned in the upper mainstream segment and has been steadily gaining share in the segment since the 1990s. It also has a stronghold in coffee shops and hawker centres, supported by strong branding in both on- and off-trade,” he said.
He said Singapore was an attractive beer market, with a compound annual growth rate of 4% from 2000 to 2008, from 642,000 hectolitres (HL) to 858,000HL.
Jensen said CBMB also viewed its proposed acquisition of CSPL as an added advantage as it would give the brewer a better understanding of new Tiger beer products, which are generally launched in Singapore first before Malaysia.
For the three months ended March 31, CBMB posted a 19% year-on-year lower net profit of RM21.4 million on the back of a marginally higher revenue of RM289.8 million.
As at end-March, CBMB had cash and cash equivalents of RM231.7 million while its trade receivables stood at RM140.5 million. Total liabilities were RM123.6 million.
CBMB’s brands include Tuborg, SKOL Beer, Danish Royal Stout, Tetley’s English Ale, Jolly Shandy and Nutrimalt.
This article appeared in The Edge Financial Daily, July 30, 2009.
MIDF Research reiterates buy call on KPJ
MIDF Research reiterates buy call on KPJ
Tags: Brokers Call | KPJ | MIDF Research
Written by Financial Daily
Friday, 31 July 2009 11:17
MIDF Research reiterated its buy recommendation on KPJ HEALTHCARE BHD [ KPJ 3.300 0.040 (1.227%) ] at RM3.06 with a target price of RM3.90 after the healthcare provider proposed to acquire an abandoned hospital building in Kapar, Klang for RM38 million to be developed as a private specialist hospital.
The research house maintained its FY09 and FY10 forecasts for KPJ under the assumption that the hospital would only show meaningful contribution to KPJ’s topline from FY12 onwards, while earnings would be about three to four years later.
KPJ’s wholly-owned Kumpulan Perubatan (Johor) Sdn Bhd has proposed to acquire Bandar Baru Klang Medical Centre building (BBKLC) for RM38 million cash.
The property is a partially completed six-level purpose-built private specialist hospital building with two levels of basement car park. CONSTRUCTION [Not Available] had been stalled since the Asian financial crisis in 1998.
MIDF said the further development cost was estimated at RM70 million, with expected completion by 2011. The acquisition will be funded via internally generated funds and/or borrowings.
The research house estimated that the new hospital, with its gross floor development area of 355,014 sq ft, would have about 200 beds, based on the gross floor area comparison with other KPJ hospitals.
The announcement of the acquisition came as a surprise given that KPJ had just announced the construction of a new hospital in Tanjung Lumpur, Kuantan last week, which is expected to commence operations by 2011, said MIDF.
“Besides, management has guided that their expansion strategy is to add one new hospital every year into their existing network.”
It added that as BBKMC would be KPJ’s first hospital in Klang, it could penetrate a lucrative private healthcare market with a substantial 1.05 million population.
The research house, however, was neutral on the overall development due to stiff competition and disadvantages of KPJ being a latecomer.
It said there are quite a few private hospitals in Klang, for instance, Pantai Klang Specialist, Sri Kota Medical Centre and Arunamari Specialist Medical Centre.
“From the long term, potential to capture the market share still exist, capitalising on KPJ’s strong brand name,” it said.
After incorporating KPJ’s capital expenditure assumption of RM100 million per annum, MIDF believed that funding was not an issue to KPJ to undertake further expansion in the future, backed by healthy net operating cash flow (averaged at RM150 million in the past two years).
“Although net gearing is expected to increase from current 0.2 times resulting from the recent acquisition, KPJ is still able to manage it at comfortable levels,” it added.
The research house said its buy call and target price was based on nine times FY09 price-earnings ratio (PER) or equivalent to 40% discount to the regional sector average of 15 times.
“We believe that our target price has already factored in KPJ’s lower earnings before interest and tax margin, which is 40% lower as compared to average regional peer’s of about 16%.
“Dividend yield of 5.7%-6.4% for FY09-10 are relatively attractive, taking into account current low interest rate environment,” it said.
With the favourable future outlook, underpinned by network expansion and increasing demand for private healthcare services, KPJ was definitely a compelling choice for long-term investment, said the research house.
“In addition, the Employees Provident Fund (EPF) is now KPJ’s third largest shareholder with 5.2% equity stake, after acquiring 10.9 million shares from the open market on July 8, according to the filing to Bursa Malaysia.
“Emergence of a strong institutional investor like EPF is another plus point to KPJ,” it said.
Yesterday, KPJ put on eight sen to close at RM3.14.
This article appeared in The Edge Financial Daily, July 31, 2009.
Earnings, share price upgrade for Latexx
Earnings, share price upgrade for Latexx
Tags: Brokers Call CIMB Research Latexx
Written by Financial Daily
Tuesday, 04 August 2009 14:01
RUBBER glove producer LATEXX PARTNERS BHD [ LATEXX 2.230 0.060 (2.765%) ] has earned a place in analysts’ good books following a sterling second-quarter (2Q) performance against a landscape of stronger demand for disposable gloves due to the outbreak of the H1N1 pandemic.
In a note, CIMB Research said it had raised its earnings forecast for Latexx by 20% for financial year ending Dec 2009 (FY09) and some 5% for FY10 and FY11. The earnings upgrade, in turn, led CIMB to increase its fair value for Latexx shares by 5.3% or 13 sen to RM2.56.
“We maintain our outperform recommendation on Latexx, premised on the potential share price trigger of improving quarterly earnings, driven by its high utilisation rates and ongoing expansion,”CIMB said.
The revised fair value is derived from a price-earnings ratio (PER) of 10.5 times FY10 earnings. Latexx shares closed one sen down at RM1.90 yesterday.
Latexx’ net profit in 2Q ended June 2009 jumped tenfold to RM11.41 million from RM1.14 million a year earlier as the company bumped up its glove production capacity and sold more gloves. Revenue surged 73.3% to RM74.43 million from RM42.95 million.
First-half net profit was up nine times to RM20.55 million from RM2.28 million a year earlier while revenue leapt 60% to RM144.75 milion from RM90.74 million.
Latexx’s capacity expansion is on track. Since the previous quarter, the group has added four double-former glove production lines, increasing its annual capacity to 5.2 billion pieces from 4.4 billion pieces as at June.
The firm planned to add four more lines in 2H09 to increase its yearly capacity to six billion pieces by year-end.
“The prognosis for the medical glove industry is favourable in light of rising healthcare needs and greater awareness of the need for hygiene, especially with the increasing incidence of health scares.
“Latexx is in an excellent position to tap this growth as more than 90% of its production is catering to this segment,” said CIMB.
This article appeared in The Edge Financial Daily, August 4, 2009.
Genting offers cheaper exposure to Singapore IR
Genting offers cheaper exposure to Singapore IR
Tags: Genting RWS Singapore IR
Written by Financial Daily
Wednesday, 05 August 2009 12:11
CIMB Research yesterday maintained an outperform call on GENTING BHD [ GENTING 6.210 -0.070 (-1.115%) ] at RM6.30 with a 19% higher target price, calling it a cheaper alternative for indirect exposure to the “promising” Resorts World at Sentosa (RWS) project.
“We are impressed by the speed of work at RWS. We believe that the odds have increased for Genting Singapore Ltd’s RWS to open ahead of its rival. Our earlier estimates are overly conservative given the integrated resort’s (IR) potential for opening before the year is out,” CIMB said in a note.
CIMB raised its price target for Genting to RM9.40 from RM7.90. This was after updating Genting’s sum-of-parts value with its revised target price for Genting Singapore (GS) and its latest market risk premium assumptions.
“Although GS is the listed vehicle with the direct exposure to RWS, its parent Genting offers a cheaper indirect exposure to the promising project,” CIMB said.
Genting’s price-to-earnings (P/E) and price-to-book (P/BV) valuations are at 40% to 50% discounts to Genting Singapore’s ratings, the brokerage house noted.
Nonetheless, it went on to say that Genting Singapore looked more attractive from a price earnings-to-growth (PEG) perspective, trading at less than one time PEG versus the sector’s average of 2.4 times. This, CIMB said, was “not surprising” as Genting Singapore’s three-year earnings per share (EPS) growth potential is “way higher than 100%” while most of its peers are projected to notch only single-digit growth.
Among potential catalysts for Genting include potential mergers and acquisitions (M&As), more news flow on the progress of works at Sentosa IR, and higher weighting in the market benchmark.
“We believe Genting Bhd should trade close to its sum-of-parts (SOP) valuation given that the group is continuously looking to unlock value via the disposal of its non-core assets. Also, discounts usually evaporate during a bullmarket environment. Note that we also value other conglomerates like SIME DARBY BHD [ SIME 8.310 0.030 (0.362%) ] at their SOPs,” CIMB said.
It now prefers Genting Bhd over Genting Malaysia (previously Resorts) as its top pick in the Malaysian gaming sector, given its renewed enthusiasm on RWS’ prospects.
Nonetheless, Genting Malaysia is still an attractive investment proposition, given its resilient domestic operations and its sizeable RM4.86 billion cash hoard which could mean potential M&As and/or higher dividends, CIMB added.
Genting added 10 sen to close at RM6.40 yesterday while Genting Malaysia shed one sen to RM2.92.
This article appeared in The Edge Financial Daily, August 5, 2009.
Tags: Genting RWS Singapore IR
Written by Financial Daily
Wednesday, 05 August 2009 12:11
CIMB Research yesterday maintained an outperform call on GENTING BHD [ GENTING 6.210 -0.070 (-1.115%) ] at RM6.30 with a 19% higher target price, calling it a cheaper alternative for indirect exposure to the “promising” Resorts World at Sentosa (RWS) project.
“We are impressed by the speed of work at RWS. We believe that the odds have increased for Genting Singapore Ltd’s RWS to open ahead of its rival. Our earlier estimates are overly conservative given the integrated resort’s (IR) potential for opening before the year is out,” CIMB said in a note.
CIMB raised its price target for Genting to RM9.40 from RM7.90. This was after updating Genting’s sum-of-parts value with its revised target price for Genting Singapore (GS) and its latest market risk premium assumptions.
“Although GS is the listed vehicle with the direct exposure to RWS, its parent Genting offers a cheaper indirect exposure to the promising project,” CIMB said.
Genting’s price-to-earnings (P/E) and price-to-book (P/BV) valuations are at 40% to 50% discounts to Genting Singapore’s ratings, the brokerage house noted.
Nonetheless, it went on to say that Genting Singapore looked more attractive from a price earnings-to-growth (PEG) perspective, trading at less than one time PEG versus the sector’s average of 2.4 times. This, CIMB said, was “not surprising” as Genting Singapore’s three-year earnings per share (EPS) growth potential is “way higher than 100%” while most of its peers are projected to notch only single-digit growth.
Among potential catalysts for Genting include potential mergers and acquisitions (M&As), more news flow on the progress of works at Sentosa IR, and higher weighting in the market benchmark.
“We believe Genting Bhd should trade close to its sum-of-parts (SOP) valuation given that the group is continuously looking to unlock value via the disposal of its non-core assets. Also, discounts usually evaporate during a bullmarket environment. Note that we also value other conglomerates like SIME DARBY BHD [ SIME 8.310 0.030 (0.362%) ] at their SOPs,” CIMB said.
It now prefers Genting Bhd over Genting Malaysia (previously Resorts) as its top pick in the Malaysian gaming sector, given its renewed enthusiasm on RWS’ prospects.
Nonetheless, Genting Malaysia is still an attractive investment proposition, given its resilient domestic operations and its sizeable RM4.86 billion cash hoard which could mean potential M&As and/or higher dividends, CIMB added.
Genting added 10 sen to close at RM6.40 yesterday while Genting Malaysia shed one sen to RM2.92.
This article appeared in The Edge Financial Daily, August 5, 2009.
Pantech: Still in the early phases of growth
Pantech: Still in the early phases of growth
Tags: InsiderAsia Pantech Group
Written by InsiderAsia
Tuesday, 04 August 2009 18:10
THE latest earnings results for Pantech Group (90.5 sen) for the first quarter (1Q) of its financial year (FY) ending February 2010 underlined the relative resilience in the company's business operations. Sales totalled RM123.9 million, down 11% quarter-on-quarter (q-o-q) but were up 9.3% year-on-year (y-o-y).
We expect sales and earnings to contract slightly for the full year, after adjusting for "abnormally high" steel prices, demand and margins in 2008. Sales and net profit are estimated to decline 4% and 10% to roughly RM490.3 million and RM53.8 million, respectively in FY10.
However, we are sanguine on Pantech's growth prospects beyond the current adjustment period. The company is enjoying continued stream of orders from customers and demand should gradually strengthen over the coming months. Sales are forecast to resume growth, by about 15%-17%, in FY11-FY12.
Potentially handsome capital gains
Based on its growth prospects, the stock appears to be trading on very attractive valuations. Pantech's shares are priced at only 5.9 and 5.0 times our estimated earnings for FY10-FY11, respectively.
Besides compelling valuations relative to its prospective growth rates, its shares are also trading well below the average price-to-earnings (P/E) for the oil & gas industry — estimated at about 10 times — as well as the broader market, which is currently priced above 15 times forward earnings.
In addition to potentially handsome capital gains, Pantech also rewards shareholders with fairly decent yields. Dividends are estimated to total 2.5 sen per share for the current financial year, which translate into a net yield of 2.9%.
Resilient local demand from oil & gas
As mentioned above, the company's sales held up fairly well in 1QFY10 despite the global downturn.
Sales under the trading arm, which caters primarily to the domestic oil & gas market, remain robust. The manufacturing arm, mainly for exports, did register some slowdown. We believe this was due, primarily, to customers drawing down on stocks. Demand should start to recover over the course of the next few months.
In fact, Pantech has also been unwinding some of its own inventory. Stocks were lower at RM174.9 million at end-May 2009, down from RM202.7 million at end-February. As a result, the company's gearing improved to 55% compared to 64% over the same period.
Oil prices unlikely to revisit lows
Crude oil prices have rebounded from the December 2008 lows of around US$35 (RM122.85) per barrel — rallying as high as US$73 per barrel in June. Although oil has since given back some of its recent gains on the back of growing concerns over the pace of the global economic recovery, we doubt prices will fall back to previous lows.
Market consensus suggests crude oil will trade between US$50 and US$70 per barrel in the near to medium term — and likely to head higher going forward as the global economic recovery gains traction. The long-term outlook for oil remains unequivocally bullish.
Currently, crude oil is hovering around US$70 per barrel — above the breakeven levels for most projects, including deepwater projects. Hence, we should see strong support for continued exploration and production activities in the sector.
Solid order book of around RM150 million
Indeed, Pantech continues to receive good flow of orders. The company typically maintains a running order book of around RM150 million, which will keep it busy for at least the next three months.
Pantech to pursue growth
Pantech's sales grew at an average compounded rate of 57% per annum over the past five year. We are confident that it will continue to grow at a double-digit pace in the foreseeable future.
The company has a wide clientele base as the largest one-stop centre for PFF (pipes, fittings and flow control products) solutions in the country. It carries in excess of 20,000 inventory items, thus providing customers timely and comprehensive solution for the transmission of all fluids and gases. Each and every one of the company's products carries proper certification, to meet the high benchmark standards for safety and quality required of the oil & gas industry.
Repeat orders for regular maintenance undertaken by its existing customers provide a steady stream of business and account for up to 40% of Pantech's annual sales.
Expanding product range and customer base
To further boost growth, the company is pursuing new markets and expanding its product range. It is an active participant in oil & gas exhibitions — local and overseas — to raise the company's profile and tap new markets.
It recently acquired two pieces of land — adjacent to its current manufacturing facility in Selangor and office in Johor — for future expansion purposes. In particular, Pantech intends to focus on niche market segments for customised products that carry higher profit margins.
In a positive development, Pantech has just won approval from the European Union (EU) commission to sell its products in the eurozone without attracting the hefty anti-dumping duties currently levied on many countries, including Malaysia. This exemption will give the company an upper hand in further widening its export markets and customer base.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
F&N earnings up 49% to RM59m
F&N earnings up 49% to RM59m
Tags: 100PLUS Fraser & Neave soft drinks
Written by The Edge Financial Daily
Thursday, 06 August 2009 20:22
KUALA LUMPUR: FRASER & NEAVE HOLDINGS BHD [] posted net profit of RM59.12 million in the third quarter ended June 30, 2009, up 49% from RM39.65 million a year ago as it benefitted from higher soft drinks sales volume, improved sales mix and increased productivity.
It said on Aug 6 that revenue was higher at RM921.11 million compared with RM884.58 million while earnings per share were 16.6 sen versus 11.1 sen.
"Group operating profit increased 43% over the previous year as the group benefitted from higher soft drinks sales volume, improved sales mix and increased productivity," it said.
Group revenue registered a modest growth of 4.1% over the corresponding quarter last year in spite of negative GDP growt h in the core markets of Malaysia and Thailand.
Soft drinks sales benefitted from the unusually hot weather and successful marketing and promotional activities. Sales volume and revenue grew an encouraging 14% and 18% respectively. 100PLUS sales volume was up 36% against the same period last year.
The dairies division revenue declined 4%, due to lower export sales and higher trade discounting in the domestic markets. However, domestic sales volume was stable.
However, the glass division volume was affected by lower sales of the Thai plant and the reduction of capacity in Malaysia following the closure of the Petaling Jaya furnace. Revenue was however maintained due to overall higher selling prices.
For the nine months to June 30, 2009, group revenue grew 2% to RM2.75 billion against a backdrop of a regional economic recession. Soft drinks division registered a high single digit revenue growth but lower exports affected overall sales of the dairies division.
Group operating profit before unusual items, improved by 30.5% to RM262.6 million as all core business divisions registered double digit improvements. After accounting for unusual items, group operating profit grew by 21.7% to RM244.9 million.
In the first nine months of FY08/09, the Group has already matched the attributable profit for the full FY07/08 year.
"The group is confident, barring unforeseen circumstances, to perform better than last year," it said.
Tags: 100PLUS Fraser & Neave soft drinks
Written by The Edge Financial Daily
Thursday, 06 August 2009 20:22
KUALA LUMPUR: FRASER & NEAVE HOLDINGS BHD [] posted net profit of RM59.12 million in the third quarter ended June 30, 2009, up 49% from RM39.65 million a year ago as it benefitted from higher soft drinks sales volume, improved sales mix and increased productivity.
It said on Aug 6 that revenue was higher at RM921.11 million compared with RM884.58 million while earnings per share were 16.6 sen versus 11.1 sen.
"Group operating profit increased 43% over the previous year as the group benefitted from higher soft drinks sales volume, improved sales mix and increased productivity," it said.
Group revenue registered a modest growth of 4.1% over the corresponding quarter last year in spite of negative GDP growt h in the core markets of Malaysia and Thailand.
Soft drinks sales benefitted from the unusually hot weather and successful marketing and promotional activities. Sales volume and revenue grew an encouraging 14% and 18% respectively. 100PLUS sales volume was up 36% against the same period last year.
The dairies division revenue declined 4%, due to lower export sales and higher trade discounting in the domestic markets. However, domestic sales volume was stable.
However, the glass division volume was affected by lower sales of the Thai plant and the reduction of capacity in Malaysia following the closure of the Petaling Jaya furnace. Revenue was however maintained due to overall higher selling prices.
For the nine months to June 30, 2009, group revenue grew 2% to RM2.75 billion against a backdrop of a regional economic recession. Soft drinks division registered a high single digit revenue growth but lower exports affected overall sales of the dairies division.
Group operating profit before unusual items, improved by 30.5% to RM262.6 million as all core business divisions registered double digit improvements. After accounting for unusual items, group operating profit grew by 21.7% to RM244.9 million.
In the first nine months of FY08/09, the Group has already matched the attributable profit for the full FY07/08 year.
"The group is confident, barring unforeseen circumstances, to perform better than last year," it said.
Stocks to watch: Glove makers
Stocks to watch: Glove makers
Written by The Edge Financial Daily
Monday, 10 August 2009 23:20
KUALA LUMPUR: Glove manufacturers are likely to continue to be in focus on Tuesday, Aug 11 as governments, including Malaysia, step up measures to stem the spread of the A H1N1 flu virus, which has seen a marked increase in cases and fatalities.
The smaller capitalised glove manufacturers including ADVENTA BHD [ ADVENTA 2.090 -0.020 (-0.948%)], RUBBEREX CORPORATION (M) BHD [ RUBEREX 1.930 -0.070 (-3.500%) ], SUPERMAX CORPORATION BHD [ SUPERMX 2.980 -0.050 (-1.650%) ], KOSSAN RUBBER INDUSTRIES BHD [ KOSSAN 4.110 -0.040 (-0.964%) ], LATEXX PARTNERS BHD [ LATEXX 2.230 0.060 (2.765%) ] rose in active trade on Aug 10 and could continue to generate trading interest.
Larger capitalized manufacturers like TOP GLOVE CORPORATION BHD [ TOPGLOV 7.300 0.020 (0.275%) ] and Hartalega Bhd would also see trading interest.
However, after the hefty price gains in recent weeks, investors should also expect intermittent profit taking.
Written by The Edge Financial Daily
Monday, 10 August 2009 23:20
KUALA LUMPUR: Glove manufacturers are likely to continue to be in focus on Tuesday, Aug 11 as governments, including Malaysia, step up measures to stem the spread of the A H1N1 flu virus, which has seen a marked increase in cases and fatalities.
The smaller capitalised glove manufacturers including ADVENTA BHD [ ADVENTA 2.090 -0.020 (-0.948%)], RUBBEREX CORPORATION (M) BHD [ RUBEREX 1.930 -0.070 (-3.500%) ], SUPERMAX CORPORATION BHD [ SUPERMX 2.980 -0.050 (-1.650%) ], KOSSAN RUBBER INDUSTRIES BHD [ KOSSAN 4.110 -0.040 (-0.964%) ], LATEXX PARTNERS BHD [ LATEXX 2.230 0.060 (2.765%) ] rose in active trade on Aug 10 and could continue to generate trading interest.
Larger capitalized manufacturers like TOP GLOVE CORPORATION BHD [ TOPGLOV 7.300 0.020 (0.275%) ] and Hartalega Bhd would also see trading interest.
However, after the hefty price gains in recent weeks, investors should also expect intermittent profit taking.
Maybank IB upgrades F&N to buy
Maybank IB upgrades F&N to buy
Tags: Brokers Call F&N Maybank IB
Written by Financial Daily
Monday, 10 August 2009 11:37
MAYBANK Investment Bank (Maybank IB) has upgraded FRASER & NEAVE HOLDINGS BHD [] (F&N) to a buy at RM9.80, from hold previously, with a higher target price of RM11.16 (from RM9.20).
The research house said margins at the company’s dairies division had expanded back to FY03-FY06 levels while F&N’s Thailand dairy assets were set to propel the division to become F&N’s largest based on operating profit, surpassing the soft drinks division.
“We are raising our earnings forecasts by 10%-25% as skimmed milk powder prices appear set to return to long-term equilibrium levels,” it said in a report last Friday.
The research house said F&N’s third-quarter (3QFY09) results were above expectations, and net profit soared 49% year-on-year (y-o-y) to RM59 million as the two largest divisions, soft drinks and dairies, both outperformed.
“Soft drink revenues rose 18% y-o-y in spite of the absence of major festivities during the quarter. This helped the operating profit margin expand by 1.2 percentage points y-o-y to 10.2%,” it said.
Maybank IB said skimmed milk powder costs fell 44% y-o-y and dairies division operating profit rose 35% y-o-y in spite of marginally lower revenues.
“This appears to be the historical equilibrium range at which F&N was able to record operating profit margins of about 7% in four of the five years before it acquired the Thailand assets,” it said.
The research house noted that the dairies division margins appeared sustainable, and looked ready to surpass the soft drinks division as F&N’s main operating profit contributor.
“We raise our FY09-11 forecasts for this division by 42%-63% on the expectation that operating margins can be sustained at a minimum of 7% (versus 4.5% in FY08),” it said.
Maybank IB said while it awaited clearer management guidance on developments at its two smaller divisions, it acknowledged the brighter prospects for the group’s two key divisions in the forecast period.
“F&N’s stronger earnings potential and stronger cash flow generation justify a raising of our target price-earnings ratio (PER) multiple to 17 times CY10 PER, (from 16 times PER) which is at the top end of historical valuations,” it said.
F&N notched up 10 sen to close at RM9.90 last Friday.
This article appeared in The Edge Financial Daily, August 10, 2009.
Glovemakers soar on H1N1 threat
Glovemakers soar on H1N1 threat
Tags: Kossan Supermax Top Glove
Written by Surin Murugiah
Tuesday, 11 August 2009 01:05
KUALA LUMPUR: The increasingly deadly outbreak of the influenza A (H1N1) virus threat sent the stocks of rubber glove manufacturers soaring on Aug 10, with some hitting their 52-week high.
With the death toll from the H1N1-related disease in Malaysia having reached 32 yesterday, demand for rubber gloves and masks have been increasing.
Inter-Pacific Research Sdn Bhd head of research Anthony Dass said he did not see any softening in the demand for rubber gloves and surgical masks at the moment.
“The strong demand due to the virus outbreak will continue to push the stock prices. This would translate into potentially good earnings for the companies,” he said.
Last week, OSK Equity Research in a report had said it remained overweight on the rubber gloves sector, and that the demand for gloves from the medical industry was strong, especially from developing countries.
It said that since the H1N1 outbreak has been raised to pandemic level, the governments of developed countries like US and Europe have urged all healthcare MNCs to stock up on rubber gloves, which has created short-term demand.
“Over the longer term, demand is expected to come from developing countries like China, India and Russia, which are gradually increasing their use of gloves.”
“Also, with US tightening Food and Drug Administration (FDA) regulations effective December 2008, the number of glove defects per batch would need to be reduced to qualify for entry to the US market,” it said.
This would reduce the supply of rubber glove exports to US due to the retention of “unqualified” gloves at the ports and hence creating new sales opportunities for the established rubber glove manufacturers, said the research house.
On Aug 10, the shares of ADVENTA BHD [ ADVENTA 2.090 -0.020 (-0.948%) ] rose almost 22% or 38 sen to close at its 52-week high of RM2.11, while RUBBEREX CORPORATION (M) BHD [ RUBEREX 1.930 -0.070 (-3.500%) ] added 15.6% or 27 sen to RM2.
SUPERMAX CORPORATION BHD [ SUPERMX 2.980 -0.050 (-1.650%) ] gained 10.99% or 30 sen to RM3.03, KOSSAN RUBBER INDUSTRIES BHD [ KOSSAN 4.110 -0.040 (-0.964%) ] up 4.3% or 17 sen to RM4.51 while LATEXX PARTNERS BHD [ LATEXX 2.230 0.060 (2.765%)
] rose 10.1% or 20 sen to RM2.17.
Supermax was among the most actively traded stocks yesterday with 11.6 million shares done, while Latexx saw some 10.4 million of its shares traded.
Meanwhile, TOP GLOVE CORPORATION BHD [ TOPGLOV 7.300 0.020 (0.275%)] gained seven sen to RM7.28.
HARTALEGA HOLDINGS BHD [ HARTA 5.260 -0.030 (-0.567%)], however, fell six sen to RM5.29.
From The Edge
Tags: Kossan Supermax Top Glove
Written by Surin Murugiah
Tuesday, 11 August 2009 01:05
KUALA LUMPUR: The increasingly deadly outbreak of the influenza A (H1N1) virus threat sent the stocks of rubber glove manufacturers soaring on Aug 10, with some hitting their 52-week high.
With the death toll from the H1N1-related disease in Malaysia having reached 32 yesterday, demand for rubber gloves and masks have been increasing.
Inter-Pacific Research Sdn Bhd head of research Anthony Dass said he did not see any softening in the demand for rubber gloves and surgical masks at the moment.
“The strong demand due to the virus outbreak will continue to push the stock prices. This would translate into potentially good earnings for the companies,” he said.
Last week, OSK Equity Research in a report had said it remained overweight on the rubber gloves sector, and that the demand for gloves from the medical industry was strong, especially from developing countries.
It said that since the H1N1 outbreak has been raised to pandemic level, the governments of developed countries like US and Europe have urged all healthcare MNCs to stock up on rubber gloves, which has created short-term demand.
“Over the longer term, demand is expected to come from developing countries like China, India and Russia, which are gradually increasing their use of gloves.”
“Also, with US tightening Food and Drug Administration (FDA) regulations effective December 2008, the number of glove defects per batch would need to be reduced to qualify for entry to the US market,” it said.
This would reduce the supply of rubber glove exports to US due to the retention of “unqualified” gloves at the ports and hence creating new sales opportunities for the established rubber glove manufacturers, said the research house.
On Aug 10, the shares of ADVENTA BHD [ ADVENTA 2.090 -0.020 (-0.948%) ] rose almost 22% or 38 sen to close at its 52-week high of RM2.11, while RUBBEREX CORPORATION (M) BHD [ RUBEREX 1.930 -0.070 (-3.500%) ] added 15.6% or 27 sen to RM2.
SUPERMAX CORPORATION BHD [ SUPERMX 2.980 -0.050 (-1.650%) ] gained 10.99% or 30 sen to RM3.03, KOSSAN RUBBER INDUSTRIES BHD [ KOSSAN 4.110 -0.040 (-0.964%) ] up 4.3% or 17 sen to RM4.51 while LATEXX PARTNERS BHD [ LATEXX 2.230 0.060 (2.765%)
] rose 10.1% or 20 sen to RM2.17.
Supermax was among the most actively traded stocks yesterday with 11.6 million shares done, while Latexx saw some 10.4 million of its shares traded.
Meanwhile, TOP GLOVE CORPORATION BHD [ TOPGLOV 7.300 0.020 (0.275%)] gained seven sen to RM7.28.
HARTALEGA HOLDINGS BHD [ HARTA 5.260 -0.030 (-0.567%)], however, fell six sen to RM5.29.
From The Edge
Which one stock excites you in the glove sector?
Glove sector
No. Name Last Open High Low Chg Chg(%) BuyQ Buy SellQ Sell Volume
1. ADVENTA 2.14 2.15 2.02 2.05 -0.06 -2.84 43.0 2.05 13.6 2.06 3,776.9
2. HARTA 5.29 5.29 5.25 5.26 -0.03 -0.57 14.0 5.25 11.9 5.26 137.0
3. KOSSAN 4.15 4.19 4.10 4.12 -0.03 -0.72 1.0 4.12 15.0 4.13 605.8
4. LATEXX 2.20 2.24 2.13 2.23 0.06 2.76 42.0 2.22 86.0 2.23 8,078.0
5. SUPERMX 3.04 3.06 2.97 2.97 -0.06 -1.98 96.0 2.96 105.6 2.97 3,619.6
6. TOPGLOV 7.30 7.30 7.29 7.29 0.01 0.14 42.5 7.29 200.7 7.30 480.6
Which is the "best" company to choose in this sector?
Assess each of the above based on the following criterias:
No. Name Last Open High Low Chg Chg(%) BuyQ Buy SellQ Sell Volume
1. ADVENTA 2.14 2.15 2.02 2.05 -0.06 -2.84 43.0 2.05 13.6 2.06 3,776.9
2. HARTA 5.29 5.29 5.25 5.26 -0.03 -0.57 14.0 5.25 11.9 5.26 137.0
3. KOSSAN 4.15 4.19 4.10 4.12 -0.03 -0.72 1.0 4.12 15.0 4.13 605.8
4. LATEXX 2.20 2.24 2.13 2.23 0.06 2.76 42.0 2.22 86.0 2.23 8,078.0
5. SUPERMX 3.04 3.06 2.97 2.97 -0.06 -1.98 96.0 2.96 105.6 2.97 3,619.6
6. TOPGLOV 7.30 7.30 7.29 7.29 0.01 0.14 42.5 7.29 200.7 7.30 480.6
Which is the "best" company to choose in this sector?
Assess each of the above based on the following criterias:
- Sustainable future earnings and future earnings growth
- Profit Margin, ROE
- Market capitalization (small cap company can grow at faster rate)
- Debt/Equity Ratio
- Market valuation: P/E, P/B, P/S
Be very shrewd
The investor has two powerful enemies:
- market psychology and
- the uncertainties of the future.
- a low price.
General rules to follow:
Avoid secondary stock for investment if it sells at a full price. (That is, unless it is selling at a substantially less than indicated by his calculation of the value of the enterprise.)
- When a secondary stock is popular - because of some substantial improvement in its position and prospects - it is practically never a sound purchase for investment.
- On the contrary, the investor who bought it when it was unpopular and the price was low should now be strongly moved to sell it despite the promising development.
- This is his chance to cash in on his earlier shrewdness. It should not be missed.
There will be a number of individual instances in which this important principle will seem to work out poorly, because the company will continue to forge ahead and the average price of the future will be much higher than the level at which the investor sold.
- Such occurrences, while very possible, are exceptional and delusive.
- If they did not happen the market would never go to its extemes. They resemble the cases of large winnings at roulette, without which encouragement there would be no customers for the wheel.
- It would be too easy to supply examples from the past of secondary stocks that rose too far on favourable developments and then cound a much lower average level.
When a security is popular the relationship of its price to indicated value is an entirely different matter than when the same or a similar security is unpopular.
- The stock market often departs from a rational valuation of the securities it deals in, and is often prone to go to extremes in the direction of optimism and pessimism on the flimsiest of foundations.
Be shrewd
One cannot be taught how to weigh the future. No matter how rosy the prospects, the price may still be too high.
Therefore, always remember:
- keep away from buying inferior stocks during periods of enthusiasm and high prices.
- buy your good quality companies when the market level is below, rather than above, its indicated long-term normal figure.
- do not pay extremely high prices for good stocks.
Warren Buffett stocks up on foreign government bonds
Warren Buffett stocks up on foreign government bonds
Warren Buffett has increased his holdings of foreign government bonds as the billionaire investor's spending on equities fell to its lowest in more than five years.
Published: 8:23AM BST 10 Aug 2009
Mr Buffett's Berkshire Hathaway owned about $11.1bn in foreign government bonds in its insurance units at the end of June, up from $9.6bn three months months earlier, Berkshire said in a regulatory filing, according to a report on Bloomberg.
In the second quarter, Mr Buffett spent $2.6bn on bonds compared with $350m on shares. The billionaire investor, whose views on financial markets are closely followed around the world, has benefitted as equity markets rallied over the past three months.
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Warren Buffett's Berkshire Hathaway suffers worst performance in 30 years with 32pc fall
Government bonds soar as investors fly to quality
Japan's Nikkei 225 leads rout in world stock markets
“Some of the normal places he’s gotten the cash to invest are just getting killed in the recession,” Gerald Martin, a finance professor at American University’s Kogod School of Business in Washington, told Bloomberg News.
“So he’s locking in these guaranteed returns, moving from the volatility of stocks to a steady stream of income that, in some cases, is almost at the return you normally get from the stock market.”
Mr Buffett booked a $4.1bn (£2.5bn) paper profit on the $5bn he invested in Goldman Sachs at the height of the financial crisis.
Known as the "Sage of Omaha" for his money-making ability, has made the return in one of the bleakest periods for investing in decades, benefiting from the recent uptick in Goldman's share price.
http://www.telegraph.co.uk/finance/markets/6003042/Warren-Buffett-stocks-up-on-foreign-government-bonds.html
Warren Buffett has increased his holdings of foreign government bonds as the billionaire investor's spending on equities fell to its lowest in more than five years.
Published: 8:23AM BST 10 Aug 2009
Mr Buffett's Berkshire Hathaway owned about $11.1bn in foreign government bonds in its insurance units at the end of June, up from $9.6bn three months months earlier, Berkshire said in a regulatory filing, according to a report on Bloomberg.
In the second quarter, Mr Buffett spent $2.6bn on bonds compared with $350m on shares. The billionaire investor, whose views on financial markets are closely followed around the world, has benefitted as equity markets rallied over the past three months.
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Irrational fears erode Buffett premium
Pension funds join equities exodus
Warren Buffett's Berkshire Hathaway suffers worst performance in 30 years with 32pc fall
Government bonds soar as investors fly to quality
Japan's Nikkei 225 leads rout in world stock markets
“Some of the normal places he’s gotten the cash to invest are just getting killed in the recession,” Gerald Martin, a finance professor at American University’s Kogod School of Business in Washington, told Bloomberg News.
“So he’s locking in these guaranteed returns, moving from the volatility of stocks to a steady stream of income that, in some cases, is almost at the return you normally get from the stock market.”
Mr Buffett booked a $4.1bn (£2.5bn) paper profit on the $5bn he invested in Goldman Sachs at the height of the financial crisis.
Known as the "Sage of Omaha" for his money-making ability, has made the return in one of the bleakest periods for investing in decades, benefiting from the recent uptick in Goldman's share price.
http://www.telegraph.co.uk/finance/markets/6003042/Warren-Buffett-stocks-up-on-foreign-government-bonds.html
Monday 10 August 2009
** Insiders Can Alter Market Value as Their Needs Dictate
The value of the stockholdings of insiders is measured by what they can do with the business if and when they want to do it.
- If they need a higher dividend to establish this value, they can raise the dividend.
- If the value is to be established by selling the business to some other company, or by recapitalizing it, or by withdrawing unneeded cash assets, or by dissolving it as a going concern, they can do any of these things at a time appropriate to themselves.
Rarely if ever do (controlling) insiders suffer loss from an unduly low market price which it is in their power to correct.
- If by any chance they should want to sell, they can and will correct the situation first.
- In the meantime they may benefit from the opportunity to acquire more shares at a bargain level, or to pay gift (and prospective estate) taxes on a small valuation, or to save heavy surtaxes on larger dividend payments, which for them would mean only transferring money from one place where they control it into another.
To the extent that operating management and inside stockholders form a cohesive group - and this is more typical than not in corporate affairs - the insiders must be considered as opposed in a practical sense to the improvement of bad management.
- They are often opposed to the payment of an adequate dividend, because they save taxes by a low dividend and they have effective control over the undistributed earnings.
- A holding-company setup may be of great strategic advantage to them, and they can terminate its disadvantages whenever they wish.
- The same is true of the retention of excessive capital in the business.
Thus on many counts the insiders are likely to look upon corporate policies in ways diametrically opposed to the interests and desires of the typical outside stockholder.
- We believe that the public stockholder is entitled to have his legitimate interests preferred over the special interests of the insiders.
- Once the public has been asked to invest its money in the common stock of any company, the management and the controlling stockholders should recognize a continuing obligation to conduct the business in all respects as trustees for the public stockholders and to follow such policies as are conducive to satisfactory investment results by the ordinary, outside owner of their shares.
- This principle is in accord with the spirit of our laws. It has not been applied as yet to any extent in legal cases, because, we believe, the issues are somewhat subtle and they have not been presented to the courts with sufficient clarity and vigor.
Ref: Security Analysis by Graham and Dodd
Controlling Stockholders and the Outside Stockholders
There are some important differences of status and possible conflicts of interest between the controlling stockholders and the outside stockholders.
The basic point is that controlling stockholders are not dependent on either the dividend returns or the market price of the shares as the fundamental source of the value of their investment.
The outside stockholder is dependent on one or both of these factors.
This basic difference is of the greatest practical importance in corporate affairs, but so far it seems to have escaped both public notice and judicial notice.
Ref: Security Analysis by Graham and Dodd
The general concept of corporate insiders seems to view them as people who profit from their special knowledge of what is going on, and who benefit at times by being on both sides of business deals with the company.
Whatever its earlier validity, this idea has little present relevance to corporate affairs. Strict interpretation of the laws imputing a trustee's responsibility to those in control, plus constant watchfulness by the SEC, plus a great advance in ethical standards of personal conduct, have combined to eliminate the gross abuses of the past.
The basic point is that controlling stockholders are not dependent on either the dividend returns or the market price of the shares as the fundamental source of the value of their investment.
The outside stockholder is dependent on one or both of these factors.
This basic difference is of the greatest practical importance in corporate affairs, but so far it seems to have escaped both public notice and judicial notice.
Ref: Security Analysis by Graham and Dodd
The general concept of corporate insiders seems to view them as people who profit from their special knowledge of what is going on, and who benefit at times by being on both sides of business deals with the company.
Whatever its earlier validity, this idea has little present relevance to corporate affairs. Strict interpretation of the laws imputing a trustee's responsibility to those in control, plus constant watchfulness by the SEC, plus a great advance in ethical standards of personal conduct, have combined to eliminate the gross abuses of the past.
Poor Management a Double Liability in Unprofitable Business
It is a true remark that the determining factor in keeping an unprofitable business running is often the natural desire of the management to hold on to their jobs.
Unfortunately, poor-caliber management is more anxious to hang on than high-caliber management, since the latter can usually find other and perhaps better employment elsewhere.
Thus, good management can make most businesses successful, and if the obstacles to success are insurmountable it will try to work the situation out in whatever way will yield the best results to the stockholder. *
Bad management often makes an intrinsically good business unsuccessful; it bitterly opposes any move that will hurt its own position, whether the move be in the direction of
* The case history of Hamilton Woolen showed how a capable and conscientious management dealt with the problem of continuing a hitherto unsuccessful business. The question was twice put to the stockholders for a vote. In 1927, they voted to continue the business, with new policies, and the results were satisfactory for a time. In 1934, following a disastrous strike, they voted to liquidate the business and realised considerably more than its previous market value as a going concern.
Ref: Security Analysis by Graham and Dodd
Unfortunately, poor-caliber management is more anxious to hang on than high-caliber management, since the latter can usually find other and perhaps better employment elsewhere.
Thus, good management can make most businesses successful, and if the obstacles to success are insurmountable it will try to work the situation out in whatever way will yield the best results to the stockholder. *
Bad management often makes an intrinsically good business unsuccessful; it bitterly opposes any move that will hurt its own position, whether the move be in the direction of
- improving the management,
- selling the business at a price far above the past market value, or
- discontinuing it altogether.
* The case history of Hamilton Woolen showed how a capable and conscientious management dealt with the problem of continuing a hitherto unsuccessful business. The question was twice put to the stockholders for a vote. In 1927, they voted to continue the business, with new policies, and the results were satisfactory for a time. In 1934, following a disastrous strike, they voted to liquidate the business and realised considerably more than its previous market value as a going concern.
Ref: Security Analysis by Graham and Dodd
The Question of Continuing the Enterprise
If a publicly owned business is consistently unsuccessful, should the stockholders move to dispose of it?
Does the answer depend mainly
We think that what usually happens in such cases is dictated mainly by custom - by the stockholders' habit of letting things drift until something happens to change the picture.
The ethical question turns on the possible obligation of the owners toward society, the employees, or the management, which may require them to continue to operate the business even though it is unprofitable. This matter has not been thought through.
Economists say that the elimination of unprofitable enterprises is an important means by which the free-enterprise system adapts its output flexibly and efficiently to the public's wants. However, while society as a whole may lose rather than gain by the continuance of unprofitable businesses, the impact of discontinuance on local communities may be disastrous and cannot be ignored.
With respect to employees, no ethical obligation seems to interfere with drastic layoffs and discharges when demand declines. Whether a concern is successful or unsuccessful, the NUMBER of employees retained on the payroll is expected to be a matter of sound business judgement, and not of ethics.
The increasing power of labour unions has tended to impose uniform wage requirements on all companies in an industry, with the result that the less favourably situated units have no flexibility of contract and therefore little chance of working out a decent return for the owners. If ethical considerations are to dictate the continuance of such enterprises, it would seem that there should be some give-and-take between stockholders and employees.
Ref: Security Analysis by Graham and Dodd
Does the answer depend mainly
- on business judgement,
- on ethics or
- on custom?
We think that what usually happens in such cases is dictated mainly by custom - by the stockholders' habit of letting things drift until something happens to change the picture.
The ethical question turns on the possible obligation of the owners toward society, the employees, or the management, which may require them to continue to operate the business even though it is unprofitable. This matter has not been thought through.
Economists say that the elimination of unprofitable enterprises is an important means by which the free-enterprise system adapts its output flexibly and efficiently to the public's wants. However, while society as a whole may lose rather than gain by the continuance of unprofitable businesses, the impact of discontinuance on local communities may be disastrous and cannot be ignored.
With respect to employees, no ethical obligation seems to interfere with drastic layoffs and discharges when demand declines. Whether a concern is successful or unsuccessful, the NUMBER of employees retained on the payroll is expected to be a matter of sound business judgement, and not of ethics.
The increasing power of labour unions has tended to impose uniform wage requirements on all companies in an industry, with the result that the less favourably situated units have no flexibility of contract and therefore little chance of working out a decent return for the owners. If ethical considerations are to dictate the continuance of such enterprises, it would seem that there should be some give-and-take between stockholders and employees.
Ref: Security Analysis by Graham and Dodd
The Holding-company Device
Disadvantageous Corporate Structure: The Holding-company Device
In the 1920s, there were many holding companies. These were enterprises organized to acquire voting control of previously existing concerns.
In most cases, the holding company issued its own senior securities (bonds and preferred shares) to pay in whole or part of the common shares it acquired. The process was repeated, in many instances, by the formation of new holding companies, with new layers of senior securities, to acquire control of existing holding companies. In this way, there were rapidly created a number of heavily pyramided capital structures - nearly all in the public-utility, railroad and "investment-trust" fields.
After the crash of 1929, most of these structures collapsed, with tremendous losses to speculators and misguided investors therein.
The moving spirits behind these astonishing examples of "high finance" were actuated by the twin motives of making enormous profits out of such corporate manipulations and of wielding personal power over great financial and industrial empires. Their motives were extremely popular with the public, until the day of reckoning, because there provided continuous fuel for the speculative fires.
As might be expected, the subsequent debacle created a complete revulsion of feeling. Holding companies became, and are still, highly unpopular with both investors and speculators.
For many years past, the existence of a holding company, instead of adding to the value of the underlying assets, has constituted a definite drawback and detriment. The market has been emphatic on this point. Holding-company securities have consistently sold at substantial discounts from the concurrent market value of the securities they own.
Discounts Disappear in Dissolution
All the evidence points clearly to the conclusion that, since 1929, a holding-company setup has been disadvantageous to the outside shareholders, and that they benefit significantly from the dissolution of such companies and the consequent direct ownership of the underlying securities.
It has been the standard experience that the shares sold at substantial discounts from their true value as long as the holding company continued as such,k and that these discounts disappeared when the holding company disappeared.
The attitude of managements in this matter deserves to be recorded. In nearly all cases, they opposed the dissolution of the holding companies; in a number of instances they waged bitter and costly legal battles, with their stockholder's money, to prevent the step. In their communications to stockholders they insisted that continuance of the holding companies would be to the stockholders' advantage.
We believe that most of their arguments were disingenuous and that in this matter they were defending their own interest - in some cases unconsciously, no doubt - in preference to that of the public stockholders.
We make these statements with considerable reluctance; but we believe it essential that the fact be brought home to stockholders, as forcibly as possible, that in matters in which management's interests may be opposed to the stockholders', the latter cannot rely upon receiving fair treatment from management and must be prepared to recognize and do battle for their own advantage.
A number of holding companies still existed at the end of 1950. The market persisted in its considered judgment, voiced through year-after-year prices, that such arrangements are detrimental to the outside stockholder. The fact they are permitted to continue we consider to be a monument to the inertia and bad judgment displayed by the American investor in his capacity as continuing shareholder.
Ref: Security Analysis by Graham and Dodd
In the 1920s, there were many holding companies. These were enterprises organized to acquire voting control of previously existing concerns.
In most cases, the holding company issued its own senior securities (bonds and preferred shares) to pay in whole or part of the common shares it acquired. The process was repeated, in many instances, by the formation of new holding companies, with new layers of senior securities, to acquire control of existing holding companies. In this way, there were rapidly created a number of heavily pyramided capital structures - nearly all in the public-utility, railroad and "investment-trust" fields.
After the crash of 1929, most of these structures collapsed, with tremendous losses to speculators and misguided investors therein.
The moving spirits behind these astonishing examples of "high finance" were actuated by the twin motives of making enormous profits out of such corporate manipulations and of wielding personal power over great financial and industrial empires. Their motives were extremely popular with the public, until the day of reckoning, because there provided continuous fuel for the speculative fires.
As might be expected, the subsequent debacle created a complete revulsion of feeling. Holding companies became, and are still, highly unpopular with both investors and speculators.
For many years past, the existence of a holding company, instead of adding to the value of the underlying assets, has constituted a definite drawback and detriment. The market has been emphatic on this point. Holding-company securities have consistently sold at substantial discounts from the concurrent market value of the securities they own.
Discounts Disappear in Dissolution
All the evidence points clearly to the conclusion that, since 1929, a holding-company setup has been disadvantageous to the outside shareholders, and that they benefit significantly from the dissolution of such companies and the consequent direct ownership of the underlying securities.
It has been the standard experience that the shares sold at substantial discounts from their true value as long as the holding company continued as such,k and that these discounts disappeared when the holding company disappeared.
The attitude of managements in this matter deserves to be recorded. In nearly all cases, they opposed the dissolution of the holding companies; in a number of instances they waged bitter and costly legal battles, with their stockholder's money, to prevent the step. In their communications to stockholders they insisted that continuance of the holding companies would be to the stockholders' advantage.
We believe that most of their arguments were disingenuous and that in this matter they were defending their own interest - in some cases unconsciously, no doubt - in preference to that of the public stockholders.
We make these statements with considerable reluctance; but we believe it essential that the fact be brought home to stockholders, as forcibly as possible, that in matters in which management's interests may be opposed to the stockholders', the latter cannot rely upon receiving fair treatment from management and must be prepared to recognize and do battle for their own advantage.
A number of holding companies still existed at the end of 1950. The market persisted in its considered judgment, voiced through year-after-year prices, that such arrangements are detrimental to the outside stockholder. The fact they are permitted to continue we consider to be a monument to the inertia and bad judgment displayed by the American investor in his capacity as continuing shareholder.
Ref: Security Analysis by Graham and Dodd
Inactivity is also an intelligent investing behaviour
Warren Buffet wrote to the shareholders of Berkshire Hathaway:
Inactivity strikes us as intelligent behaviour. Neither we nor most business managers would dream of feverishly trading highly-profitable subsidiaries because a small move in the Federal Reserve's discount rate was predicted or because some Wall Street pundit had reversed his views on the market. Why, then, should we behave differently with our minority positions in wonderful businesses? The art of investing in public companies successfully is little different from the art of successfully acquiring subsidiaries. In each case you simply want to acquire, at a sensible price, a business with excellent economics and able, honest management. Thereafter, you need only monitor whether these qualities are being preserved.
When carried out capably, an investment strategy of that type will often result in its practitioner owning a few securities that will come to represent a very large portion of his portfolio. The investor would get a similar result if he followed a policy of purchasing an interest in, say, 20% of the future earnings of a number of outstanding college basketball stars. A handful of these would go on to achieve NBA stardom, and the investor's take from them would soon dominate his royalty stream. To suggest that this investor should sell off portions of his most successful investments simply because they have come to dominate his portfolio is akin to suggesting that the Bulls trade Michael Jordan because he has become so important to the team.
In studying the investments we have made in both subsidiary companies and common stocks, you will see that we favour businesses and industries unlikely to experience major change. The reason for that is simple: Making either type of purchase, we are searching for operations that we believe are virtually certain to possess enormous competitive strength ten or twenty years from now. A fast-changing industry environment may offer the chance for huge wins, but it precludes the certainty we seek.
I should emphasize that, as citizens, Charlie and I welcome change: Fresh ideas, new products, innovative processes and the like cause our country's standard of living to rise, and that's clearly good. As investors, however, our reaction to a fermenting indsutry is much like our attitude toward space exploration: We applaud the endeavour but prefer to skip the ride.
Inactivity strikes us as intelligent behaviour. Neither we nor most business managers would dream of feverishly trading highly-profitable subsidiaries because a small move in the Federal Reserve's discount rate was predicted or because some Wall Street pundit had reversed his views on the market. Why, then, should we behave differently with our minority positions in wonderful businesses? The art of investing in public companies successfully is little different from the art of successfully acquiring subsidiaries. In each case you simply want to acquire, at a sensible price, a business with excellent economics and able, honest management. Thereafter, you need only monitor whether these qualities are being preserved.
When carried out capably, an investment strategy of that type will often result in its practitioner owning a few securities that will come to represent a very large portion of his portfolio. The investor would get a similar result if he followed a policy of purchasing an interest in, say, 20% of the future earnings of a number of outstanding college basketball stars. A handful of these would go on to achieve NBA stardom, and the investor's take from them would soon dominate his royalty stream. To suggest that this investor should sell off portions of his most successful investments simply because they have come to dominate his portfolio is akin to suggesting that the Bulls trade Michael Jordan because he has become so important to the team.
In studying the investments we have made in both subsidiary companies and common stocks, you will see that we favour businesses and industries unlikely to experience major change. The reason for that is simple: Making either type of purchase, we are searching for operations that we believe are virtually certain to possess enormous competitive strength ten or twenty years from now. A fast-changing industry environment may offer the chance for huge wins, but it precludes the certainty we seek.
I should emphasize that, as citizens, Charlie and I welcome change: Fresh ideas, new products, innovative processes and the like cause our country's standard of living to rise, and that's clearly good. As investors, however, our reaction to a fermenting indsutry is much like our attitude toward space exploration: We applaud the endeavour but prefer to skip the ride.
The importance of buying good companies.
Warren Buffett, despite his prowess, required 20 years to recognize how important it was to buy good businesses.
Warren Buffett and Charlie Munger do not see many fundamental differences between the purchase of those companies that ended up in their control (controlled company) and the purchase of shares of other holdings in the market (marketable security).
Warren Buffett, despite his prowess, required 20 years to recognize how important it was to buy good businesses. In the interim, he searched for "bargains" (true to the teaching of his teacher, Benjamin Graham) - and had the "misfortune" to find some.
"My punishment was an education in the economics of short-line farm implement manufacturers, third-place department stores, and New England textile manufacturers."
Warren Buffett and Charlie Munger may misread the fundamental economics of a business. When that happens, they will encounter problems whether that business is a wholly-owned subsidiary or a marketable security, although it is usually far easier to exit from the latter. (Indeed, businesses can be misread. Witness the European reporter, who, after being sent to this country to profile Andrew Carnegie, cabled his editor, "My God, you'll never believe the sort of money there is in running libraries.")
In making both control purchases and stock purchases, they try to buy not only good businesses, but ones run by high-grade, talented and likeable managers. If they make a mistake about the managers they link up with, the controlled company offers a certain advantage because they have the power to effect change. In practice, however, this advantage is somewhat illusory. Management changes, like marital changes, are painful, time-consuming and chancy.
"In any event, at our three marketable-but-permanent holdings this point is moot: With Tom Murphy and and Dan Burke at Cap Cities, Bill Synder and Lou Simpson at GEICO, and Kay Graham and Dick Simmons at The Washington Post, we simply couldn't be in better hands."
Warren Buffett and Charlie Munger do not see many fundamental differences between the purchase of those companies that ended up in their control (controlled company) and the purchase of shares of other holdings in the market (marketable security).
- In each case, they try to buy into businesses with favourable long-term economics.
- Their goal is to find an outstanding business at a sensible price, not a mediocre business at a bargain price.
Warren Buffett, despite his prowess, required 20 years to recognize how important it was to buy good businesses. In the interim, he searched for "bargains" (true to the teaching of his teacher, Benjamin Graham) - and had the "misfortune" to find some.
"My punishment was an education in the economics of short-line farm implement manufacturers, third-place department stores, and New England textile manufacturers."
Warren Buffett and Charlie Munger may misread the fundamental economics of a business. When that happens, they will encounter problems whether that business is a wholly-owned subsidiary or a marketable security, although it is usually far easier to exit from the latter. (Indeed, businesses can be misread. Witness the European reporter, who, after being sent to this country to profile Andrew Carnegie, cabled his editor, "My God, you'll never believe the sort of money there is in running libraries.")
In making both control purchases and stock purchases, they try to buy not only good businesses, but ones run by high-grade, talented and likeable managers. If they make a mistake about the managers they link up with, the controlled company offers a certain advantage because they have the power to effect change. In practice, however, this advantage is somewhat illusory. Management changes, like marital changes, are painful, time-consuming and chancy.
"In any event, at our three marketable-but-permanent holdings this point is moot: With Tom Murphy and and Dan Burke at Cap Cities, Bill Synder and Lou Simpson at GEICO, and Kay Graham and Dick Simmons at The Washington Post, we simply couldn't be in better hands."
Sunday 9 August 2009
Young investors in US wary of jumping into market
Young investors in US wary of jumping into market
Written by By Erin Kutz (Reuters)
Thursday, 06 August 2009 11:54
BOSTON: Young investors may accept the argument that those who begin investing when stocks are cheap end up with more retirement money, but after the turmoil of the past year, some find it hard to put their money in the market.
Asset managers and analysts say that those who invest in rock-bottom stocks of a bear market will see share values rise for decades.
But many in their 20s and early 30s are not buying rosy projections, due to immediate financial pressures and exposure to the longest recession since the 1930s Great Depression.
“I would keep all my money in cash,” said Alex Corbacho, a senior at Boston University.
The trend has some worrisome long-term implications. Stock brokers may find themselves largely shut out of a big customer base, and demand for equities will likely be crimped as investors favour safer havens, hurting the stock market’s prospects.
It’s also unclear whether these young investors will have accumulated enough to fund their retirement when the time comes.
Corbacho is no stranger to markets. At age 13, he invested his birthday money and a matching donation from his father, US$1,000 (RM3,500) in total, in tech stocks only to feel the sting when the Internet bubble burst.
He carried the lesson with him in early 2008, after seeing signs of economic trouble as an intern at a Boston investment bank. He put the majority of his stock investments, which had reached about US$5,000, into a certificate of deposit instead.
Corbacho doesn’t plan to return to stocks for a few years after graduation and is instead focusing on saving.
The recent market collapse has made holding cash for immediate expenses far more attractive to young people than investing, said Rodger Smith, managing director of Connecticut consulting firm Greenwich Associates. “They are taken aback by how much they lost and how quickly they lost it,” Smith said.
The early exposure to such dramatic declines could restrain many from investing aggressively when they are older and have accumulated more money to put into the market, some say. Asset managers, financial advisers and investors agree that young people will emerge from the financial crisis more educated, and more cautious, about managing their money.
“I do think they are taking a more practical and slightly more conservative view of the world,” said Michael Doshier, vice-president of Fidelity’s Workplace Investing Group.
Corbacho said his generation should not expect to accumulate sudden wealth like some in the past.
“We might be a little smarter and a little wiser moving forward. We will have been more conservative and more observant and won’t have 65% of our life savings invested in equities,” he said.
Assets in US retirement plans fell 22% in 2008 or nearly US$4 trillion, with almost 75% of the drop in the second half of 2008, the Investment Company Institute found. “These folks need to be resold on the idea that a 401k is a long-term investment,” said Smith, who oversees a profit-sharing plan for his firm and advises younger investors.
Long-term concerns
Financial advisers have long suggested that those further from retirement invest more heavily in equities, then switch to less risky assets as they near their golden years.
But the portfolios of those in their early 20s don’t reflect that advice. At Fidelity Investments, those aged 20-24 invest 31% of their 401k in equities, compared to those aged 50-59 with 35% in equities.
Overall, those saving for retirement have pulled back from stocks. In June, 48% of all Fidelity 401k participants were in equities, down from 53% a year ago.
Those in the investment industry say young investors should buy stock early and often.
“The key message is that it’s not a bad time for everybody,” said Christine Fahlund, senior financial planner at T Rowe Price. Ita Mirianashvili, a 35-year-old fellow at Massachusetts Institute of Technology’s Sloan School of Management, has confidence in long-term stock market prospects.
“I know the downturn cycle we are in will continue for some time but it will come back,” she said outside a MIT class that simulates a stock trading room.
But concerns about inflation, heavy government spending and rising bankruptcies have left many young investors uncertain. “It’s still difficult to be bullish... for the long run,” said Ashan Walpita, a 2009 Boston University graduate and former president of the school’s finance club.
Other short-term obstacles may hold young investors back. Employer-sponsored retirement plans often give people their first market exposure but with many graduates not finding work, they are yet to get started on making investments. — Reuters
Written by By Erin Kutz (Reuters)
Thursday, 06 August 2009 11:54
BOSTON: Young investors may accept the argument that those who begin investing when stocks are cheap end up with more retirement money, but after the turmoil of the past year, some find it hard to put their money in the market.
Asset managers and analysts say that those who invest in rock-bottom stocks of a bear market will see share values rise for decades.
But many in their 20s and early 30s are not buying rosy projections, due to immediate financial pressures and exposure to the longest recession since the 1930s Great Depression.
“I would keep all my money in cash,” said Alex Corbacho, a senior at Boston University.
The trend has some worrisome long-term implications. Stock brokers may find themselves largely shut out of a big customer base, and demand for equities will likely be crimped as investors favour safer havens, hurting the stock market’s prospects.
It’s also unclear whether these young investors will have accumulated enough to fund their retirement when the time comes.
Corbacho is no stranger to markets. At age 13, he invested his birthday money and a matching donation from his father, US$1,000 (RM3,500) in total, in tech stocks only to feel the sting when the Internet bubble burst.
He carried the lesson with him in early 2008, after seeing signs of economic trouble as an intern at a Boston investment bank. He put the majority of his stock investments, which had reached about US$5,000, into a certificate of deposit instead.
Corbacho doesn’t plan to return to stocks for a few years after graduation and is instead focusing on saving.
The recent market collapse has made holding cash for immediate expenses far more attractive to young people than investing, said Rodger Smith, managing director of Connecticut consulting firm Greenwich Associates. “They are taken aback by how much they lost and how quickly they lost it,” Smith said.
The early exposure to such dramatic declines could restrain many from investing aggressively when they are older and have accumulated more money to put into the market, some say. Asset managers, financial advisers and investors agree that young people will emerge from the financial crisis more educated, and more cautious, about managing their money.
“I do think they are taking a more practical and slightly more conservative view of the world,” said Michael Doshier, vice-president of Fidelity’s Workplace Investing Group.
Corbacho said his generation should not expect to accumulate sudden wealth like some in the past.
“We might be a little smarter and a little wiser moving forward. We will have been more conservative and more observant and won’t have 65% of our life savings invested in equities,” he said.
Assets in US retirement plans fell 22% in 2008 or nearly US$4 trillion, with almost 75% of the drop in the second half of 2008, the Investment Company Institute found. “These folks need to be resold on the idea that a 401k is a long-term investment,” said Smith, who oversees a profit-sharing plan for his firm and advises younger investors.
Long-term concerns
Financial advisers have long suggested that those further from retirement invest more heavily in equities, then switch to less risky assets as they near their golden years.
But the portfolios of those in their early 20s don’t reflect that advice. At Fidelity Investments, those aged 20-24 invest 31% of their 401k in equities, compared to those aged 50-59 with 35% in equities.
Overall, those saving for retirement have pulled back from stocks. In June, 48% of all Fidelity 401k participants were in equities, down from 53% a year ago.
Those in the investment industry say young investors should buy stock early and often.
“The key message is that it’s not a bad time for everybody,” said Christine Fahlund, senior financial planner at T Rowe Price. Ita Mirianashvili, a 35-year-old fellow at Massachusetts Institute of Technology’s Sloan School of Management, has confidence in long-term stock market prospects.
“I know the downturn cycle we are in will continue for some time but it will come back,” she said outside a MIT class that simulates a stock trading room.
But concerns about inflation, heavy government spending and rising bankruptcies have left many young investors uncertain. “It’s still difficult to be bullish... for the long run,” said Ashan Walpita, a 2009 Boston University graduate and former president of the school’s finance club.
Other short-term obstacles may hold young investors back. Employer-sponsored retirement plans often give people their first market exposure but with many graduates not finding work, they are yet to get started on making investments. — Reuters
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