Monday, 28 February 2011

FIMM is a Self-Regulating Organization now. What does it mean?

During a speech at The Edge-Lipper Awards 2011 yesterday, Chairman of Securities Commission (SC) Malaysia highlighted that Federation of Investment Managers Malaysia (FIMM) as a Self-Regulatory Organization (SRO).

"I am pleased to note that the Minister of Finance approved the SC's recommendation to recognize FIMM as an SRO, through a notice that was gazetted on 20 January 2011. I have full confidence that FIMM will be able to discharge its role as an SRO effectively in self-regulating its members for the benefit of the industry as well as investors" said SC's chairman.
Tan Sri Zarinah Anwar, Chairman of Securities Commission Malaysia

What is the role of SRO?
Through SROs, industry players can expand beyond the confines of their own interests and align their interests with that of the public. This will result in the values of ethical behavior and integrity being ingrained into corporate and market cultures.

According to Investopedia, SRO meaning that a non-governmental organization that has the power to create enforce industry regulations and standards. The priority is to protect investors through the establishment of rules that promote ethics and equality.

What does it meant for FIMM?
As an SRO, FIMM is expected to regulate its members, including through self enforcement, and also develop rules that are designed to set standards of behavior for its members while promoting investor protection.

FIMM's immediate tasks is to enhance professionalism of sales agents and distributors and to formulate a robust sales practices regime with adequate supervision and monitoring by FIMM in order to:
  • Enhance investor confidence
  • Enhance investor protection
  • Ensure that investors are not misled into investing in products that are not suitable to them

Some of the possible changes in Unit Trust industry soon...
  1. More innovative products, such as zero-upfront funds
  2. More stringent rules to eliminate unprofessional unit trust consultants (UTC)
  3. UTC must fulfill the minimum Continuing Professional Education (CPE) training hours set
  4. More stringent licensing issues to deter unqualified UTCs
  5. Easier and faster way of sales and redemption processing, etc online transactions
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Game-Over for Construction Sector? (28 Feb 2011)

All are going very well for Malaysia construction sector last year in line with the recovery of economy until it hit the first "hard bump" last week. We all know that construction sector is very volatile, influenced by the health of global economy, government's pump-priming projects, and of course the huge overhead costs such as labor and building materials costs.

Somehow, unrest at Middle East are hogging the bright future of Malaysia's construction counters. First, surging oil prices put pressure on the bottom-line of the companies. Second, projects from that oil-rich nations will dampened the outlook with a slew of Malaysian companies venturing successfully into that region.

The Game still going on?

According to CIMB Research, the selling pressure on construction stocks is overdone as jobs in the Middle East account for 3 - 41% of the order books of WCT, IJM Corp, Gamuda and Muhibbah Engineering and the projects are mostly at the tail end with no payment issues so far. 

For instance, IJM only has 3% order book exposure while Muhibbah's balance of works at NDIA 
is backed by the Qatar government's push to complete the job by end-2011. WCT has a geographical advantage in Qatar which appears to be at the lowest risk of a political unrest. As for Gamuda, its Middle East exposure is minimal.

However, Finance Malaysia opine that the panic selling is understandable given the past experience of LCL Corp. Before the 2008 financial crisis, and also with high oil prices (just like right now), LCL has a bunch of projects in Middle East especially Dubai. All seems pretty well, until a sudden sharp drops in oil prices landed the oil-rich nation into huge budget deficit. Subsequently, LCL is facing cash flow problems which forced the company being delisted. A company with great potential go burst in few months. Of course, traders do take precautions now to avoid that same fate.

But, given the continuous ETP projects being rolled out by government this year, and also the "election factor", I think construction sector is very happening at least for another few months. Government: "The game must go on?"

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Friday, 25 February 2011

Can't Pretend Much Longer -- Inflation is Here

Noticed food prices lately? Or perhaps the price of gas at the pump has caught your attention. You probably didn't know that raw cotton is up 180 percent since a year ago. Guess where that will take clothing prices. Think deflation is our problem, think again. Inflation is here.

US monetary policy and US debt policy hinge on the assumption of deflation. So much for those policies. Be prepared for major increases in treasury rates which means a dramatic and unanticipated increased in annual federal fiscal deficits. Things are going to get a lot worse quickly.

Bernanke and Obama are going to reap the results that their policies have sowed. A return to the Carter days -- stagflation is back. The stock and bond markets will struggle from here.

Motor Insurance to cost more starting 2012?

Last year, Malaysia Automobile Association (MAA) reported a record number of cars sold. Are you one of them? If you're not in that statistic yet and planning to own a new car now, please read this post which could scare you away.

In fact, petrol prices are heading up again since 2008 with prices of RON97 reviewing monthly. Without failed, the price of RON97 is going up consecutively for the past few months. Anyway, are you driving fuel-efficiency car like me? Despite that I am pumping RON95 petrol and driving the so called "fuel-efficiency" car, I still feel the pain of pumping money.

Source: Malaysia Automobile Association
What to do?
If you don't eat, your car still have to "drink" ma. Uncertainties in Middle East is already spiking up oil prices globally. You think this is the worst for motorists like us?

By "pouring oil on fire" (to make things even worse), government plans to gradually increase motor insurance premiums from 2012 onwards under the new motor insurance framework to be prepared by Bank Negara Malaysia (BNM).

How much more?
Up by between 250% to 450%?
Bank Negara assistant governor citing it totally incorrect. He said the premiums increases would be gradual, and spread over 4 years. See chart below for illustration made. Please take note that the increase will depends on vehicle's age and motorist's history of claims.

Why we need the new framework?
  1. This is the 1st revision since 1978
  2. Government plan to do away with tariffs for motor insurance business in 2016
  3. Insurance companies are crying over high claim costs which make their business unprofitable
On the flip side, the new scheme would see improvements in the overall delivery system including addressing issues relating to affordability and accessibility to Malaysian Motor Insurance Pool cover. Hence, it could significantly reduce claims settlement period to between 6 - 18 months from more than a year currently.

According to Bank Negara, the motor insurance business incurred an estimated annual loss of RM650 million as at 2009/2010, which means the motor insurance business is unsustainable if we don't act now.

Related posts:
  1. Proton loves Perodua to avoid extinction?
  2. Fraudulent Insurance Claims and YOU

Thursday, 24 February 2011

KLCI to continue its downtrend tomorrow? (Feb 24)

Today (Feb 24), FBM KLCI down more than 20 points as it continue it's free-fall after breaking down the crucial psychological 1,500 level. Thanks Libya, thanks Qadaffi for causing uncertainties and panic selling of global markets. In between, Finance Malaysia found a very interesting statistic.

Yes. KLCI beat regional markets for "falling the most" today. Below is the performance of regional markets:
  • KLCI fell 1.41% (Champion of the day)
  • Hong Kong fell 1.34%
  • Japan fell 1.19%
  • Singapore fell 0.96%
  • South Korea fell 0.60%
KLCI to continue it's downtrend tomorrow?
How about KNM?

Scare so... Based on the chart shown, technically KLCI is heading for its 3rd wave of downtrend since hitting historical high last month. In fact,  Normally, 3rd wave is steeper or faster. Furthermore, it still not yet reach the over-sold position by looking at stochastic. Very soon, KLCI may touch near 1,450 level. Hopefully, it will stop there. Or else, bye bye bye.

Bargain hunting for KNM?
Zooming in further, KNM slumps 14% after reporting a not so promising 4th quarter earnings. Technically, this is not the right time yet to accumulate KNM. It breaks the RM2.68 support today, and the next support only seen at RM2.20. Couple with the extremely high volume recorded today, it would most probably going south tomorrow. Also, over-sold sign just not yet shown on stochastic Just wait.

Good luck

Related posts:
  1. KL Mart after 6 consecutive days of dropping
  2. Global Food Crisis: A repeat of 2008?
  3. Super BIG Xmas gift for KNM

Wednesday, 23 February 2011

What Happened to Robin Hood?

In Madison, thousands of high income folks are busy demonstrating in the hopes that lower and middle income taxpayers will pay higher taxes to keep these rich folks riding high. The average teacher in Wisconsin makes between two and three times the all-in compensation of the average Wisconsin taxpayer, so, by all means, lets raise taxes and make the gap even higher. To show their concern for their students, the Wisconsin teachers have taken to calling in sick while they are demonstrating in the state capital for even more money.

Meanwhile, the state faces an immediate $ 3.6 billion shortfall and will be forced to begin laying off teachers next week. Why don't the demonstrating teachers care about the pending layoffs? Because the ones demonstrating will not be the ones laid off. The ones laid off will be the most recently hired teachers with the least seniority and these teachers aren't paid as well or have as much seniority as the ones wreaking havoc in Madison. The rich teachers are protected by seniority rules.

Just imagine a couple both of whom have been school teachers in Wisconsin for twenty years and have a combined compensation exceeding $ 250,000 annually. These are the people demonstrating. These are the people that are not showing up in the classroom even though paid (handsomely) to do so.

Where is Robin Hood? He needs to ride in and support the taxpayer against these rich folks who are robbing the public treasury and not showing up for work.

Student demonstrators, as usual, are supporting the relatively affluent against the interests of the average citizen. No change there.

Sunday, 20 February 2011

EPF declares 5.8% dividend rate for 2010

For the financial year ended 31 December 2010, Employees Provident Fund (EPF) announced a 5.8% dividend rate. This translates into RM21.61 billion, which is the highest dividend payout amount ever to members, an increase of 11.55% over the 2009 dividend payout of RM19.37 billion.
For the year 2009, the dividend rate is 5.65%. "The remarkable investment income achieved in 2010 was especially driven by the performance of equity investments. The improved financial and economic conditions provided the market with sufficient liquidity, allowing profit taking activities throughout the year", said EPF chairman in statement issued.

Who is the main contributor?
Buoyed by a good year for the equities market, equities were the largest contributor to the EPF's gross investment income in 2010, representing 45.45% of EPF's total gross investment income. (See Table 1)
Source: EPF website
During the year under review, EPF total investment assets also continued to register healthy growth by crossing the RM400 billion mark to stand at RM440.52 billion as at 31 December 2010.

EPF's investment strategies are broadly guided by its Strategic Asset Allocation model which was designed to fit EPF's risk and return profile and to maintain consistent returns in the long run. The year 2010 saw about 2/3 of EPF's total investment assets remaining in low risks fixed income instruments with stable streams of income.

Accordingly, members may check their EPF Account Statement for the crediting of the 2010 dividend, either via EPF kiosks, counters or i-Akaun, from 21 February 2011 onwards.
Source: EPF website

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Friday, 18 February 2011

University Campus Election?

Even before the much awaited general election, our universities under-graduates are up for the upcoming campus elections. Candidates are going all out, day and night, to campaign for votes for the past few days. Election will be held from Feb 21 to Feb 24.

News excerpt from The Star newspaper (17 Feb 2011)

Successfully, every year, campus election which initially meant for universities only, got the attention of public and full coverage from major dailies. Malaysian is like watching European Cup (campus election), prior to the more important FIFA World Cup (general election). Meanwhile, politician tends to monitor the progress of the campus elections for various reasons:
  1. Read the minds of undergraduates
  2. Identify the potential future politicians
  3. Predicting the youth trends on politics
Penggerak Mahasiswa or Pro-Mahasiswa?

Not surprisingly, campus elections are heated up once again this year. As a graduate from one of Malaysia's public university, it reminded me on campus election. those days Brochures and banners seen every corner. Ceramah-ceramah by candidates are being held here and there. But, to be honest, I'm really not sure who are the candidates and what is their promises and whether those promises materialized.

At USM, Pro-Mahasiswa candidates and supporters campaigning in the campus. (SinChew Daily)

Finance Malaysia is wondering:
Why we have these campus election at the first place?
And, is it wise to have it?
Or, should we amend it?
They says that campus election can build the charisma of undergraduates who are the future leaders. But, other than campus election, there is no other ways to instill such good values to our undergraduates nowadays? You must be joking...

In campus election, one can win the election by simply campaigning for few days to fish vote, and gone missing for the whole year. If this is your purpose of having campus election, our future politicians would be worse. It is wasting time and money.

News excerpt from mStar online reporting a scuffle happens at UKM which needed the help of FRU last year.

Very often, government is blamed by undergraduates for not allowing them to involve in politics. Reasons being for the benefit of undergraduates and to encourage them to just focus on their studies. But then, why allowed them to involve in campus election? Is it totally unrelated between campus election and politics? You must be fooling yourself if you said no...

In my opinion, we should either ALLOW or NOT ALLOW. By allowing, please let them to engage in politics freely. Otherwise, please abolish such campus election totally to let them focus on their studies 100%. Do not please our undergraduates simply because you forbidding them to engage in politics, and you do not want to arouse their anger at the same time.

Thursday, 17 February 2011

Are you in the right sector?

What would be your benchmark to measure whether a sector is good or bad? Anyway, I believe most of us use "salary" as the main or only benchmark. Obviously, salary or income is one of the main factor for fresh graduates nowadays to consider whether to take the job or not.

Yesterday, I attended a forum on Economic Transformation Programme (ETP) organized by Malaysia Financial Planning Council (MFPC). Of course, no one is more suitable to answer those questions other than the CEO of PEMANDU, which is the main backbone to the success of ETP.

Excerpt from TheStar newspaper
So, are you regretted of what you are practicing now?

The statement cannot just simply applied to every Malaysians, as that was just an average benchmark. In fact, there are many engineers who earns big-bucks out there. As long as you are determine and posses the right attitude and behavior, you could be a high income individual.

The interpretation should be:
"Along with the growing Malaysia economy, financial sector poised to outperform other sector especially when we're talking about high-income nation. When people are resourceful, they will save and invest, which ultimately benefiting the financial sector which provides services like investment, stock broking, insurance, personal wealth management..."

Also, please take note that the financial sector will not prosper, if Malaysia do not have enough professional, such as engineers, doctors, lawyers and accountants. Can our nation grows without these professionals? If a country were lacking behind, can financial sector prosper, subsequently can their employees? We should not simply jump into particular sector based on such survey.

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Wednesday, 16 February 2011

Bernanke is a Political Hack

Ben Bernanke is likely the worst Fed Chairman in US history and that's saying something. We have had some really bad ones, but none like this guy. He has now purchased nearly $ 400 billion of his $ 900 billion QE2 buying spree. If he doesn't buy, who will? That's a question that is getting asked a lot lately.

Now Ben has opined on the Dodd-Frank bill, probably the second worst piece of legislation in American history (Obamacare is the winner of the gold). Ben likes the Dodd-Frank bill, otherwise known as FinReg. FinReg is one of the key contributors to our high unemployment rates. So, I guess it is having an impact. It is certainly not irrelevant. The mountain of new rules, regulations and prohibitions have done their job. They have stifled credit creation and muzzled the financial system.

Ben and Obama have a lot in common. Their policies are both significant contributors to our current stagnation and high unemployment.

The Real Tragedy of State and Local Employees

State and local government employees face signficant layoffs and dramatic reductions in their benefit packages. Why? The unions claim that the reason is the stingy taxpayer, who, in most states, makes less average compensation than the employees that the taxpayer is funding. The real problem is excessive promises by the union leadership, encoded into law by governors, state legislatures and local governments. There has never been any realistic chance that these benefits could be paid for...never. This grand plan only worked as a ponzi scheme, providing benefits to the early recipients until the cold hard facts of demographics revealed the fraudulent nature of the promises.

The great tragedy is that all of this fooled the employees. They assumed that they would be provided abundant retirement income and medical benefits. Thus, there was no need to save. They could spend with abandon and they did. Now, the day of reckoning has arrived and there is no money to pay the promises of the past and no savings to make up for it. That is the real tragedy. People believed these false promises of government and thus did not save and prepare for the future. That is the main reason that the US has the lowest savings rate in the developed world. They think they will be bailed out. Now they are learning that there are no resources available to deal with this problem.

False promises abound in the entitlement arena. President Obama's refusal to address this problem in his recent budget demonstrates the cynicism of the modern American political leadership.

The Obama Budget

Apparently the Obama Administration has forgotten the results of the November election. The new Obama budget proposal unveiled this week brings back all of the same, tired, big government plans that the President has been pushing since the day he took office. It no longer matters to the President that the recovery is producing no jobs. He has grown used to that fact, apparently. Now, the President plans new spending initiatives to expand on policies that have few supporters even in his own party. The President is becoming more and more irrelevant. Perhaps that is the plan.

Meanwhile major budget cuts are being pushed by the President's opponents in the House of Representatives and even entitlement cuts are under consideration. While there may be zero presidential leadership, there are some good signs that the House of Representatives is not asleep and may supply the leadership that the White House seems incapable of providing.

The President seems bent on using today's fiscal crisis as an opportunity to force Republicans to make unpopular budget decisions. Then, I suppose, he will defend all of this spending and coast to a second term come next year. So much for Obama's view of "winning the future." His budget proposal is a sham.

Tuesday, 15 February 2011

Insurance: Importance of Nomination (Part 2)

In Part 1, we have discussed the importance of nomination in insurance. But, what happens if it is someone else, like an uncle, niece or even a friend was named as nominee(s)?
When a nominee is not automatically a beneficiary

Under a non-Muslim's policy, the nominee in such a case is not entitled to the policy monies as a beneficiary. He or she only receives them as an executor, and must pass it on to the deceased's estate to be distributed according to the will.
  1. If there is a will, but the nominee in this case is not named as a beneficiary under the will, he or she will not get a single sen.
  2. If there is no will, then the property will be distributed according to the existing laws of distribution.
What if I named my siblings (brother or sister) as a nominee?
Well, it will form as a trust policy, and your siblings will act as an executor instead. So, please take note. Anyway, you can change your nomination, but must sought the consent from your said siblings who is a trustee in this case.

The lesson here is that if your intended beneficiary is not a spouse, child or parent, then you must write a will naming that person as a beneficiary. Once you do, your nominee will receive the policy monies subject to the laws of distribution -- once all your estate's debts have been settled.

When to nominate?
Of course, the sooner the better. I would suggest you did it when you fill-in the proposal forms. Or else, you may nominate after the application or after you get the policy.

Can I name more than one nominee?
Yes, you can. Normally, you can name up to 4 nominees in a policy. But, you should state the proportion to which each person is entitled. Otherwise, each will receives an equal share.

Can I change my nominee(s)?
You can make any changes on your nomination anytime as you like. There is no restriction on the number of changes. The latest nomination will supersede all previous nomination. A nomination will also be considered revoked upon the demise of nominee, or all of the nominees (if more than one nominee), during the lifetime of policy owner. However, in the case of a trust policy, a nomination cannot be revoked without the written consent of the trustee.

What is the nomination procedures?
  1. Fill in nomination form:
    •  It usually requires details of your nominee's name, date of birth, NRIC, and address
  2. Witness
    • It must be signed by a witness who is above 18 years old, of sound mind, and who is not named as one of your nominee
    • Alternatively, your insurance agent can be the witness
  3. Endorsement
    • Ensure that your insurance company endorses the nomination
    • For new policy, it is written in you policy document
    • For existing policy, make sure you receives a letter highlighting any changes to your nomination
Source: Life Insurance Association of Malaysia (LIAM)

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Insurance: Importance of Nomination

Well, one of the most important objective of having an insurance policy is to ensure that our loved ones are always financially well-prepared. However, that objective will failed if we did not make the necessary nomination in our policy. By naming our loved ones as nominees, you can ensure that they will receive the monies from your policy fast and easy. This is where an insurance policy will be the most useful to them. Think about our loved ones !!!

What if I did not make a nomination?
Failure to do so means that the insurance company would not be able to make payment until a court has given your loved ones a Grant of Probate (where there is a will) or Letters of Administration (where there is no will). In other words, WAIT for months if not years.

What if I did make a nomination?

Good. If you are a non-Muslim and you have nominated your spouse, child or parent (where there is no surviving spouse or child), they are entitled to the policy monies without having to wait for the time-consuming Grant.

Moreover, a trust policy would be created for them under which these monies do not form part of your estate. As such, they are not subject to your estate's debts. This means your spouse, child or parent will receive the sum due in full.

Meanwhile, a trust policy does not apply in the case of a Muslim policyholder, in which case the nominee acts as an executor and must distribute the policy monies according to Islamic law.

You wait, or Your Loved Ones wait...
In order for a swift payout to your loved ones, please do not wait anymore. Making a nomination today, call up your insurance agent now, fill-in the nomination form. It's that simple. Or else, your loved ones would have to wait for your policy monies. Think about it !!!

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Saturday, 12 February 2011

Egypt -- Politics and Economics

Now that Mubarak has left, the media is trumpeting that Egypt is now "free." That's not a likely result. The military, who has ousted Mubarek and assumed control, owns a huge share of Egyptian business and industry -- estimates range from one-third to to one-half of the entire Egyptian economy is directly owned by the group that now has power in Egypt. Will they give up that power? Not likely.

What this means is that economic freedom will remain in short supply in Egypt. New politicians will appear and there will be elections, but the things that can make a difference to the lives of ordinary Egyptians will not be on the ballot. Egyptians need economic development. They need the freedom to start new businesses, educate their children and live in an economy that produces jobs.

The fundamental need in Arab countries is economic freedom, not the right to vote themselves into an Iranian-like theocracy or a Venezuelan-like monocracy. This does not mean that Mubarak is better than democracy. Democracy is definitely better than Mubarak. Democracy, without economic freedom does not produce economic growth (even though economic freedom without democracy can produce economic growth -- check out Singapore and parts of modern day China).

The Arab lands need economic freedom for their citizenry. The curse of oil has robbed the Arab countries of a middle class and made every Arab country the land of the rich and poor. Education, economic freedom and economic opportunity are the ticket, not the right to choose between various opportunists looking to cash in on Egypt's new found freedom.

As long as the military is Egypt's savior, the Egyptian people cannot be saved.

Friday, 11 February 2011

Stock Watch: Benalec Holdings Bhd (5190)

Being one of the most successful new listing this year, Benalec is consistently closing higher than its IPO price of RM1.00. Listed on the main board of Bursa Malaysia, Benalec was categorized as a construction counter with more than RM1 billion market capitalization.
Company Info
  • Incorporated since 1978
  • Principally involved in the provision of marine construction services mainly in the area of land reclamation and dredging, rock revetment works, shore protection works, beach nourishment, marine piling, and construction of marine structures.
  • Providing vessel chartering on time and voyage charters as well as tow-age services to third parties.
  • Owning a full-service shipyard to carry out any ship repair, ship maintenance, shipbuilding or fabrication works.
  • Owning a large and diversified fleet of 91 vessels


Benalec strength lies in their ability to operate a 1-stop centre offering Total Service and Complete In-House expertise, ranging from marine construction, marine transportation and support services, shipyard and shipbuilding, and vessels maintenance, refurbishment and modification and steel fabrication.

In 2010, Benalec achieved another key milestone when it expanded to Singapore and subsequently obtained ISO 9001:2008 and OHSAS 18001:2007.
Currently, Benalec is bidding for marine construction projects worth RM 5.7bn in Melaka, Penang, Selangor and Johor, and expects contracts to be awarded within 1-2 years time. Being an integrated marine construction specialist, Benalec enjoys healthy profit margins due to its ability to maintain cost efficiency in its marine construction projects. The company achieved a high core net profit margin averaging at about 20.3% over the past 3 years, excluding gain on disposal of land and vessels. (RHB Research)

Recommended Links:

Wednesday, 9 February 2011

MPHB seeks 100% ownership in Magnum

After much speculation on the reason of suspension since yesterday 2.30pm, Multi-Purpose Holdings Bhd (MPHB) finally unveil its answer. An memorandum of understanding (MOU) was signed with two parties (as elaborate further below) seeking to take over its associate Magnum Holdings Bhd. This would cost MPHB around RM1.65 billion to complete the exercise.

MOU with CVC Capital Partners Asia Pacific group
  • To acquire the remaining 49% stake in Magnum
  • To acquire RM674.65 mil nominal value RCULS-C
  • Total costing RM1.627 billion
  • Acquisitions via 343.82 mil new MPHB shares at RM2.30 each and RM 809.20 mil cash
MOU with Management of Magnum
  • To acquire 2 mil magnum shares or 2% equity interest
  • To acquire RM4.86 mil nominal value of RCULS-C together with all accrued interest remaining unpaid
  • Total purchase costing RM37.20 mil
  • Acquisitions via 16.17 mil new MPHB shares at RM2.30 each
What is the rationale behind?
MPHB said the proposed acquisition will enable MPHB to have 100% ownership in Magnum, thus making gaming as the core business of the group. "It would further improve and strengthen the future profitability and cash flow position of the MPHB group via the higher share of Magnum's earnings and cash flows," it said. The stock was last traded at RM2.68 before suspension.

Bloomberg: Past 6 months share price of MPHB
However, Finance Malaysia reckon that the said corporate exercise was to facilitate the exit of CVC Capital, in order to path the way for the re-listing of Magnum on Bursa Malaysia, 3 years after it was privatized. At RM2.30 per new share to be issue, it was deemed fair for CVC Capital to cash out. Reportedly, MPHB believes that the re-listing of Magnum could fetch a high valuations, given the only listed number forecast operator (NFO) was BJTOTO currently. Another NFO under the umbrella of Tanjong (Da Ma Cai), was privatized last year.

Tuesday, 8 February 2011

Analyzing Latexx Partners' takeover offer

Just before CNY, Latexx surprisingly announcing that the company had accepted a non-binding takeover offer by two private equity funds. However, the deal looks unattractive with limited upside given the offer price of RM3.10 only. For your information, it is only 10.7% above the last trading price of RM2.80 only.

About the offer:
  • The offer values Latexx at 8.2x P/E only versus sector's average of 11.7x
  • The takeover offer needs to secure a 75% shareholders' approval as lay out by the new rules
  • With RM3.10 per share, the offer was valued as RM 852.03 million (inclusive of 55.03 million warrants)
Would the deal materialize?

Finance Malaysia doubt the deal will go through, given the unattractive valuations attached. Please take note that Latexx was one of the largest medical examinations gloves producers globally. By taking over at a mere 8.2x P/E, it would be a very good buy, but not a good sell at all. Another issue which sparks our interest was that the background of the two private equity funds being the acquirers.

Navis Asia VI Management Company Limited (Navis), a wholly owned unit of Navis Capital Partners, a US$ 3bn investment firm. Meanwhile, Mettiz, a holding company owned by Michael Tang Vee Mun, was the provider of equity financing for KNM Group's failed management buyout early last year. (CIMB research)

Would it be another "failed" buyout by Mettiz? A repeat of the dramatic KNM's tumbling version? Finance Malaysia really can't predict the outcome from the EGM to be convened soon on the offer. It's all depends on Latexx's shareholders to decide.

But, judging from the "not so performing" share price the day after the said announcement, most probably the outcome is already been factor-in... which was "failed". Anyway, we may heed the advise from the independent adviser appointed by Latexx's board of directors -- Hong Leong Investment Bank -- before voting.

After all, I like Supermax and Kossan for its lower P/E and larger players in the same industry.

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Monday, 7 February 2011

Obama and the Middle Class

In his speech today before the US Chamber of Commerce, Obama lectured his audience that gains must be shared with the middle class. He points to the eroding take-home income of middle class Americans.

But, there is nothing business can do about the plight of the middle class. That is pretty much determined by Congressionally imposed mandates on businesses. Imagine that you pay an employee $ 40,000 per year and that productivity improves enough to pay that employee $ 50,000 per year. Why wouldn't you do it? Because, in the meantime, Congress has passed a law permitting that employee to sue you for millions of dollars if another employee makes an off-color comment to another employee at the water fountain (or for that matter, off company premises and after doesn't matter under the law). Now the employee isn't worth $ 50,000 to you. Business has to factor in the potential cost of litigation (and, of course, they do). In fact, the litigation threat may be so costly to your business that you may simply terminate the employee, even though, absent the litigation benefits enacted by Congress, you would have been more than happy to pay the employee $ 50,000 (and hire more of them to boot).

Congress has punished the middle class with employer mandates. Congress has made much of the middle class economically toxic to American business. Obama need look no further than into the mirror to see the group that is responsible for damaging the prospects of the American middle class.

Knocking Down Barriers

President Obama, speaking before the US Chamber of Commerce today, said that he would "knock down" barriers that hamper economic growth.

Well, for starters, how about repealing all of the enacted legislation from the 2009-2010 Congress. That would be a good beginning. In the process, away would go FinReg, Credit Card Reform, and Obamacare among other things.

If the president is serious, then the road is clear. All he needs to do is a complete about face. Anything else is just politics as usual.

Saturday, 5 February 2011

Unintended Consequences

The economic recovery in the US is stillborn. All the various "initiatives" enacted by the Congress since September of 2008 have virtually guaranteed that the economy cannot have a robust recovery, the kind of recovery that, from previous recessions brought the economy back to full strength. Instead, the new credit rules, the new financial regulations, the new health care mandates, the new tax gimmicks, and the business-demonizing atmosphere of the Obama Administration all serve to slow down economic recovery and to create long term stagnation in employment and economic growth.

The Administration seems truly puzzled by all of this. The lame duck session, extending the Bush tax cuts for two years, simply avoided disaster. The tax cut extension, since it is a temporary two year extension, cannot possibly stimulate the economy in any meaningful way. Changing the rhetoric in the White House is certainly an improvement but is totally inadequate given the enactment of legislation in 2009 and 2010 that shackles businesses and makes adding employees prohibitively expensive.

Businesses can be seen as growth engines and employment generators or they can be seen as purveyors of social causes. They can't do both. More and more,American business is expected to avoid profit maximizing behavior and be good citizens, promoting various social causes. Being good social citizens and promoting social causes inevitably means growing slower, hiring fewer employees and being less dynamic. That's where we are. The "green jobs" rhetoric is nothing more than rhetoric.

It is time to set aside "feel good" rhetoric and create a business environment favorable to jobs creation. So far, the President doesn't seem to get it. He seems genuinely surprised that American business, reeling from the blows of his policies and rhetoric, isn't racing to create jobs and rescue his presidency.

If your main economic banner is "no tax cuts for the rich," then economic stagnation is probably your future. What is needed is the elimination of the numerous barriers to economic prosperity that the Obama Administration and a compliant (and long gone) Congress put in place. What is needed is no less than a complete dismantling of the legislation passed in the last two years by the Congress. Then and only then can a truly vibrant economy take over.