KM Lee takes a look at Malaysian Resources Corporation Berhad (MRCB) in the online STAR today.
For those who see potential heightened activities and price rise in this counter after the aborted IJM Land exercise, this could come true. After all, in Malaysia; politics is King!
MRCB pulled back from a 33-month peak of RM2.28 on Nov 10, 2010 to the 100-day simple moving average (SMA) of RM1.88 in early December amid correction owing to an apparent profit-taking activity following a wave of strong rally. [Possibly after it was given a poorer valuation compared to IJM Land.]
Thereafter, shares recovered slightly to trade within a moderate range on consolidation and they re-tested the ascending 100-day SMA line once again at the start of the year before bounding off in the wake of fresh buying momentum, driving them to a high of RM2.26 during intra-day session yesterday.
Based on the daily bar chart, it looks like MRCB is making a fresh attempt to resume a rally after a round of correction and consolidation process. Going forward, a convincing breakthrough of the formidable overhead hurdle of RM2.28-RM2.30 band is likely to fuel greater optimism about the trend ahead, thus giving investors the courage to move in aggressively.
Turning to the indicators, the oscillator per cent K and the oscillator per cent D of the daily slow-stochastic momentum index were steady, ending at the 90% and 80% levels respectively yesterday. It flashed a short-term buy on Monday at the neutral zone.
Also on the rise, the 14-day relative strength index improved significantly from a reading of 37 on Monday to close at 79 points yesterday.
Elsewhere, the daily moving average convergence/divergence histogram expanded sharply and positively against the daily signal line to stay bullish. It issues a buy in mid-week signal.
Technically, indicators remain constructive and with trading volumes building up, they suggest an uptrend continuation may come about soon, targeting the RM3 psychological barrier. The next objective is envisaged at the RM3.50 level, followed by the RM4 mark.
Current support is expected at RM2.17 and the next lower floor is pegged at RM2.10. - By K.M. Lee.
In my opinion,if the current uptrend continues, we may likely see RM3.00 for MRCB by CNY.
January 07, 2011
JohorCorp's Potential Fire Sale
All excess is unacceptable including corporate gluttony! Johor Corp is now paying its overdue tuition fees,so to say.
Yvonne Tan of the online STAR tells a story of an impending fire-sale at JohorCorp.
Vision: To maintain a good corporate image.
Mission: To stay out of an ensuing gargantuan debt.
Yvonne reports:
"Johor Corp (JCorp) is considering selling various assets including some landbank, properties and plantation assets to partly repay its current RM3.6bil debt which is due for repayment in July next year.
The state investment arm first plans to bring down the debt level of RM3.6bil to a “sustainable level” of between RM1bil and RM1.5bil following a debt restructuring exercise, its newly appointed president and chief executive Kamaruzzaman Abu Kassim said.
That would mean that it needs to raise at least RM2.1bil by 2012.
“About 70% (source of funding) for the RM2.1bil needed has already been identified and this includes selling some of our assets,” he said.
The group has “saleable assets” of RM2.1bil, Kamaruzzaman said, without elaborating.
JCorp's landbank and properties are largely in Johor and this includes up to RM2.5bil in commercial properties.
At at March last year, it had about 2,000ha to be developed in the Iskandar Malaysia region.
It also has major plantation and palm oil businesses in Papua New Guinea.
Kamaruzzaman said the group's remaining debt would be restructured via new loans or instruments.
JCorp has appointed CIMB Bank and Maybank Investment Bhd as advisors for the restructuring.
Both banks are also the biggest lenders to JCorp which could probably mean that both banks own the bulk of the bonds due for maturity. [Any default will make CIMB and Maybank the new owners! So tread very carefully,JohorCorp!]
According to JCorp's 2009 annual report, it has RM705mil in cash but a whopping RM6.62bil in debt and with hardly any free cash flow.
The RM3.6bil debt was due to JCorp's investment projects since 2000, “mainly in landed property and industrial areas”, it has been reported.
JCorp has been in the news in recent weeks after it rejected two bids for the takeover of its QSR Brands Bhd. One was by a company linked to tycoon Tan Sri Halim Saad and another by the Carlyle Group.
JCorp is the ultimate shareholder of the lucrative fast-food businesses of QSR and KFC Holdings (M) Bhd.
Its interests in both companies are held through its 53%-owned subsidiary Kulim (M) Bhd, which main business is in the plantation sector.
Kulim owns a 57.5% stake in QSR, which in turn, owns a 50.6% stake in KFC.
As one of the country's largest state economic development authorities, JCorp has about 250 companies under its stable from which it currently derives RM90mil in annual dividend income, Kamaruzzaman revealed.
Kamaruzzaman said yesterday there was a possibility some of these might be listed in the future. “But the proceeds will not be to repay our current debt due for maturity,” he said.
JCorp's other key assets apart from those in the recent limelight include private healthcare service provider KPJ Healthcare Bhd, property development companies Johor Land Bhd and Damansara Realty Bhd, intrapreneur venture business Sindora Bhd and the London-listed plantation company, New Britain Palm Oil Ltd (NBPO). (Kulim owns about 50% of NBPO).
NBPO is one of the world's largest producers of sustainable palm oil.
Tightrope walking is no fun. Ask any circus trapeze artiste. So, it is no easy feat, my friend.
Be wise and stop biting more than you can chew. Otherwise get ready for the corporate reflux and its consequences!
Labels:
Stocks
PLUS's Johnnny -Come-Lately
Sharidan M. Ali of the online STAR adds another article on the continuing PLUS Bidding saga.
Just when you think it is safe to cross the PLUS highway when along comes the behemoth MMC. Not to be outdone, it will possibly submit its bid for PLUS before closing time this Monday at 5pm:
According to a source, “MMC had proposed its idea to the Government long before the bid by Jelas Ulung."
At this juncture, details such as the acquisition price, source of funding and the business plan for PLUS under this new bid are still sketchy.
It is anticipated that the company would reveal the details of its “surprise” offer on Monday.
To date, there have been two offers on the table for the acquisition of the assets and liabilities of PLUS, to be put forward to shareholders at an EGM.
The first is a joint offer by UEM Group Bhd and the Employees Provident Fund at RM4.60 per share, which works out to RM23bil; the other is from Jelas Ulung Sdn Bhd at RM26bil or RM5.20 per share.
To recap, before the UEM-EPF and Jelas Ulung offers came in, MMC had made a move to acquire PLUS via the takeover of UEM Group. This was proposed last August through a consortium.
That proposal was presented to the Finance Ministry, but details of the offer were not made public.
Prior to that, in May, Asas Serba Sdn Bhd had put in a bid for PLUS that entailed a proposal to pay RM50bil for 25 toll highways.
The MMC group, with businesses in transport and logistics, energy and utilities as well as engineering and construction, has total gross debt of RM20.4bil as at the third quarter of last year.
The bulk of these borrowings resides in Malakoff Corp Bhd and its ports, and these borrowings are structured such that the obligations are ring-fenced and secured. Most of the borrowings are contained at the subsidiary level, where about 80% of the group debt involves project financing and is related to its concession for independent power producers and ports.
On a net basis, MMC's debt level actually stands at RM15.9bil, after considering its cash position of RM4.5bil.
Based on MMC's balance sheet as at the end of September last year, its gross gearing ratio stood at three times while net gearing ratio was at 2.3 times. At the holding company level, MMC has a debt of RM3.57bil that represents a gearing level of 0.7 times.
The company with market capitalisation of about RM9bil, posted a pre-tax profit of RM733mil for the first nine month of its 2010 financial year ended Dec 31 that reflected an increase of 27% from the same previous period.
It was reported that MMC would likely register close to RM1bil pre-tax profit for whole of 2010, which would demonstrate recovery in its earnings.
So, Monday is going to be full of electricty again for the PLUS Board of Directors and shareholders.
Will wonders never end?
Labels:
Stocks
Charging Bulls in 2011
Yvonne Tan of the online STAR interviews fund manages against the backdrop of a deluge of foreign funds tsunami-ing into Bursa KL beginning November 2010.
The stock market barometer continues to hit historical highs even until today. Will it have more bounce or could it hit a bump in the Year of the Rabbit?
Call it the January effect, a pre-lunar rally or a pre-election run. In fact, call it whatever you want but this is the fact the stock market has never, in its history, risen to current levels before.
Investors cheered at the beginning of this week when the 30-stock key benchmark index, the FTSE Bursa Malaysia KL Composite Index hit a fresh high of 1,533, up 14.5 points or 0.96%.
In the first week alone, it has risen more than 2.5% in ringgit terms and 2.3 % in US dollar terms.
Daily trading volumes have also been robust, crossing the average 2 billion mark against the average of some 1 billion last year.
“Granted, the index is not the perfect gauge as it is only made up of 30 component stocks but the positive sentiment is contagious and it is spilling over,” remarks a market observer. [Caution: as it is not really that representative!]
The reasons for such exuberance includes stoked expectations of a general election in the first half of this year, massive global liquidity arising from quantitative easing in the Western world, a rising ringgit and commodity prices and a firm economic outlook, or at least economic recovery stories in most parts of the world.
This begs the question is the current upswing more than just a flash in the pan?
Laggard compared to the rest
Noteworthy is that the Malaysian stock market, relative to most of its ASEAN counterparts, has not gone up as much in the past one year.
For example, last year, markets in Indonesia, Thailand and the Philippines were up 54%, 61% and 52% in US dollar terms as opposed to Malaysian equities which had risen 31%.
“That alone is more like reaching the top step of the kitchen ladder rather than the stars in the sky,” says Gerald Ambrose, the head of Malaysian operations at Aberdeen Asset Management.
Ambrose is quite confident that the current rise in the Malaysian stock market will continue. “It is real and the momentum appears to be intact,” he tells StarBizWeek. Naturally, no one quite knows how long the rise will continue.
“It could go on for the whole year to produce a huge equity bubble by the end of it. Or it could all go wrong tomorrow!,” says Ambrose.
Vincent Khoo, head of research at UOB KayHian writes in his 2011 market strategy report that macro domestic conditions in the first half of the year are favourable for a healthy market, with benign inflation and a firm economic outlook, boosted by the unfolding of the New Economic Model (NEM) which brings with it various degrees of financial liberalisation and mega infrastructure projects.
However, the second half of the year's performance, he says, would have less upside and as such, Khoo is advising clients to switch to being defensive, in anticipation of a “jerkier” market due to possible resumption of interest rate hikes here and less accommodative monetary policies in the West.
OSK Research head Chris Eng shares the same sentiment with Khoo, saying that the first half of the year is well positioned for a robust stock market while the remaining two quarters of the year could see some volatility largely due to the same reasons.
“For the time being, you can call it a pre-lunar rally, an election rally or the Capricorn effect, but the effect is the same!” says Ambrose.
Liquidity Rush
The massive amounts of liquidity totalling hundreds of billions of US dollars released from the credit and quantitative easing (QE) measures by the US and other developed countries such as Japan, European Union (EU) zone and Britain are currently flowing into high growth countries including Malaysia, in search of better returns.
“With the present low interest rate regime globally, hence low yields on fixed income and deposit instruments, it makes sense to be overweight on equities and Asia will be the focus of global investment funds given their growth potential,” says Danny Wong, CEO of fund management firm Areca Capital.
In this regard, a recent report by Credit Suisse Group AG showed that net foreign buying in Malaysian stocks surged to RM2.6bil in December from RM900mil the month before.
From the foreign exchange point of view, the weak US dollar is also a push factor for the influx of funds into Asia, encouraging investors to put their money into Asian equities, says Wong.
Last year, the ringgit appreciated more than 11% against the greenback.
“With this influx of investment money into Asia, Malaysia will gain from the spillover effect, if not directly benefit from the inflows,” says Wong.
The macro perspective
From the economic fundamental point of view, major economies such as the US and the EU zones are showing uneven recovery from their last crises, but economists are expecting some stabilisation of sorts in the near-term.
A slew of positive economic indicators from the US recently, for example, suggests that things could be getting better there.
On Tuesday, figures showed that new orders for US goods rose while the reading for the US Purchasing Managers Index a headline indicator for economic activity was also higher at 57% in December. A reading above 50% reflects growth.
Employment figures another key economic barometer were also healthier, rising 100,000 in December, the most since November 2007, according to Bloomberg.
Over in Europe, China has pledged its support for the zone, promising to help it out of its debt crisis by signing multi-billion contracts and buying up its bonds.
Domestically, growth is expected to be slower this year, coming from a high-base effect last year. Economists are predicting the economy to grow at about 5.3% this year from roughly 7% in 2010.
However, the equity market will continue to be supported by still relatively high double-digit corporate earnings buoyed by underlying domestic and global economic activities, says Areca's Wong.
The country's economic transformation programme (ETP) which includes plans to build a RM36bil mass rapid transit system, if wholly and successfully implemented, is likely to galvanise private investments.
Along with the Government's support of domestic consumption spending, the private sector will benefit from the economic growth, notes Wong.
“The implementation of the Greater KL for instance will benefit the construction, property and financial sectors with indirect spillover effect to other related sectors such as raw materials and other infrastructure industry,” he says.
Wong, as a fund manager believes that the confidence and perception towards Malaysia have somewhat improved among foreigners of late, largely due to the recent investment-friendly measures announced.
The lifting of certain controls and restrictions such as foreign holding limits in the financial sector, efforts to cut subsidies and the plan to reduce the country's budget deficit are among the contributing factors to a better perception of the country's transformation, he adds.
One fund manager says the promotion of Malaysia as a global Islamic financial hub has also put Malaysia on the radar screen of global investors.
“Once there is confidence, our “domestic champion businesses” such as the oil palm, glove, oil and gas and gaming sectors will be magnets to foreign funds,” Wong says.
Further supporting these fundamentals are that investors appear to already be overweight on neighbouring markets like Indonesia, Singapore and Thailand, says Aberdeen's Ambrose.
Data-wise, foreign institutions' holdings in Malaysian equities, although off their lows, are only about 22% now versus the peak levels of 27% in 2008.
Adds Ambrose: “Whilst valuations for Malaysian stocks are hardly at bargain basement levels by our calculations, our portfolio is on about 16 times 2011 earnings with earnings growth at a conservative 5% neither does it look anywhere near overvalued.”
In terms of FBM KLCI targets, UOB KayHian has a year-end target which is pretty similar to most research houses in town. It is targeting for the index to reach 1,654 by year-end based on a 2012 forecast price earnings of 14.5 times.
Wong notes many market trend followers believe that the market should enjoy “good times” for the next two to three years since the last financial crisis was in 2007 to 2009 and the market just started rebounding in the second quarter of 2009.
“Further, the expectations of an early election may provide a feel-good factor for a rally,” he adds.
Analysts also note the Government's efforts in reducing its stakes in major Government-linked companies including in Telekom Malaysia Bhd, Tenaga Nasional Bhd and Malaysia Airport Holdings Bhd, which will likely enhance participation from the retail market and foreign investors.
Potential Downsides
What could throw a spanner in the works in the current surge? Plenty, according to experts.
The issue of hot money and how quickly these funds could flow out as it has come into the Asian markets is one main risk.
Everyone knows that Asian economies are currently seeing strong inflow of funds as Western investors try to diversify from the horrors of holding US dollar, Euro and Sterling, Ambrose notes.
Because of this, several emerging economies have imposed various new measures to control excessive inflows of hot money.
“Malaysia has not joined in any of these measures so far (which has restored a lot of credibility in my view), but this remains a great uncertainty for Asian markets this year,” says Ambrose.
He emphasises that the various austerity measures taken up by the US Fed and the European Central Bank to tame their respective deficits in the wake of the financial mess they are in are unprecedented and could result in unforeseen consequences.
Example, Spain said last year it would reduce public investment, slash public wages by 5% and freeze them this year while suspending a raise in pensions.
“Unprecedented measures can result in unforeseen consequences. There could be more collapses in peripheral EU countries as a result of the measures, which can then derail everything,” Ambrose says.
Inflation could also derail the current rise in regional and global equities. Inflation, particularly cost push inflation caused by higher food and fuel prices hurts the man in the street in terms of higher prices.
Just earlier this week, the price of RON 97 petrol went up by 10 sen to RM2.40 a litre.
“It's possible that inflation could force Bank Negara to raise rates, hence slow money supply, thus making equities less attractive,” Ambrose says. [Not in a mad rush when equities seems better than the small interest increase of 0.25 to o.5%]
OSK Research warns of political instability including the possibility of wars specifically between North and South Korea as factors which can drag the market down.
In our view, however, the largest potential risk we see for 2011 will be if investors lose confidence in the US economy, and specifically the US dollar,” it says.
Geopolitical risks, contagion effects of sovereign indebtedness, a double-dip recession. All these are risks.
Wong from Areca probably sums it up best when he says: “As always, it is advisable for investors to diversify their investments into various assets classes.”
In terms of fixed income, investors should keep to short-duration liquid bonds as inflation, likely to be driven by cost-push factors such as energy and food price hikes and subsidy cuts, may kick-in soon.
As the say, "If wishes were horses, beggars will ride them."
So, tread softly and look out for potential exits when the stock prices reach your level.
Never be greedy or it will be your undoing!
The stock market barometer continues to hit historical highs even until today. Will it have more bounce or could it hit a bump in the Year of the Rabbit?
Call it the January effect, a pre-lunar rally or a pre-election run. In fact, call it whatever you want but this is the fact the stock market has never, in its history, risen to current levels before.
Investors cheered at the beginning of this week when the 30-stock key benchmark index, the FTSE Bursa Malaysia KL Composite Index hit a fresh high of 1,533, up 14.5 points or 0.96%.
In the first week alone, it has risen more than 2.5% in ringgit terms and 2.3 % in US dollar terms.
Daily trading volumes have also been robust, crossing the average 2 billion mark against the average of some 1 billion last year.
“Granted, the index is not the perfect gauge as it is only made up of 30 component stocks but the positive sentiment is contagious and it is spilling over,” remarks a market observer. [Caution: as it is not really that representative!]
The reasons for such exuberance includes stoked expectations of a general election in the first half of this year, massive global liquidity arising from quantitative easing in the Western world, a rising ringgit and commodity prices and a firm economic outlook, or at least economic recovery stories in most parts of the world.
This begs the question is the current upswing more than just a flash in the pan?
Laggard compared to the rest
Noteworthy is that the Malaysian stock market, relative to most of its ASEAN counterparts, has not gone up as much in the past one year.
For example, last year, markets in Indonesia, Thailand and the Philippines were up 54%, 61% and 52% in US dollar terms as opposed to Malaysian equities which had risen 31%.
“That alone is more like reaching the top step of the kitchen ladder rather than the stars in the sky,” says Gerald Ambrose, the head of Malaysian operations at Aberdeen Asset Management.
Ambrose is quite confident that the current rise in the Malaysian stock market will continue. “It is real and the momentum appears to be intact,” he tells StarBizWeek. Naturally, no one quite knows how long the rise will continue.
“It could go on for the whole year to produce a huge equity bubble by the end of it. Or it could all go wrong tomorrow!,” says Ambrose.
Vincent Khoo, head of research at UOB KayHian writes in his 2011 market strategy report that macro domestic conditions in the first half of the year are favourable for a healthy market, with benign inflation and a firm economic outlook, boosted by the unfolding of the New Economic Model (NEM) which brings with it various degrees of financial liberalisation and mega infrastructure projects.
However, the second half of the year's performance, he says, would have less upside and as such, Khoo is advising clients to switch to being defensive, in anticipation of a “jerkier” market due to possible resumption of interest rate hikes here and less accommodative monetary policies in the West.
OSK Research head Chris Eng shares the same sentiment with Khoo, saying that the first half of the year is well positioned for a robust stock market while the remaining two quarters of the year could see some volatility largely due to the same reasons.
“For the time being, you can call it a pre-lunar rally, an election rally or the Capricorn effect, but the effect is the same!” says Ambrose.
Liquidity Rush
The massive amounts of liquidity totalling hundreds of billions of US dollars released from the credit and quantitative easing (QE) measures by the US and other developed countries such as Japan, European Union (EU) zone and Britain are currently flowing into high growth countries including Malaysia, in search of better returns.
“With the present low interest rate regime globally, hence low yields on fixed income and deposit instruments, it makes sense to be overweight on equities and Asia will be the focus of global investment funds given their growth potential,” says Danny Wong, CEO of fund management firm Areca Capital.
In this regard, a recent report by Credit Suisse Group AG showed that net foreign buying in Malaysian stocks surged to RM2.6bil in December from RM900mil the month before.
From the foreign exchange point of view, the weak US dollar is also a push factor for the influx of funds into Asia, encouraging investors to put their money into Asian equities, says Wong.
Last year, the ringgit appreciated more than 11% against the greenback.
“With this influx of investment money into Asia, Malaysia will gain from the spillover effect, if not directly benefit from the inflows,” says Wong.
The macro perspective
From the economic fundamental point of view, major economies such as the US and the EU zones are showing uneven recovery from their last crises, but economists are expecting some stabilisation of sorts in the near-term.
A slew of positive economic indicators from the US recently, for example, suggests that things could be getting better there.
On Tuesday, figures showed that new orders for US goods rose while the reading for the US Purchasing Managers Index a headline indicator for economic activity was also higher at 57% in December. A reading above 50% reflects growth.
Employment figures another key economic barometer were also healthier, rising 100,000 in December, the most since November 2007, according to Bloomberg.
Over in Europe, China has pledged its support for the zone, promising to help it out of its debt crisis by signing multi-billion contracts and buying up its bonds.
Domestically, growth is expected to be slower this year, coming from a high-base effect last year. Economists are predicting the economy to grow at about 5.3% this year from roughly 7% in 2010.
However, the equity market will continue to be supported by still relatively high double-digit corporate earnings buoyed by underlying domestic and global economic activities, says Areca's Wong.
The country's economic transformation programme (ETP) which includes plans to build a RM36bil mass rapid transit system, if wholly and successfully implemented, is likely to galvanise private investments.
Along with the Government's support of domestic consumption spending, the private sector will benefit from the economic growth, notes Wong.
“The implementation of the Greater KL for instance will benefit the construction, property and financial sectors with indirect spillover effect to other related sectors such as raw materials and other infrastructure industry,” he says.
Wong, as a fund manager believes that the confidence and perception towards Malaysia have somewhat improved among foreigners of late, largely due to the recent investment-friendly measures announced.
The lifting of certain controls and restrictions such as foreign holding limits in the financial sector, efforts to cut subsidies and the plan to reduce the country's budget deficit are among the contributing factors to a better perception of the country's transformation, he adds.
One fund manager says the promotion of Malaysia as a global Islamic financial hub has also put Malaysia on the radar screen of global investors.
“Once there is confidence, our “domestic champion businesses” such as the oil palm, glove, oil and gas and gaming sectors will be magnets to foreign funds,” Wong says.
Further supporting these fundamentals are that investors appear to already be overweight on neighbouring markets like Indonesia, Singapore and Thailand, says Aberdeen's Ambrose.
Data-wise, foreign institutions' holdings in Malaysian equities, although off their lows, are only about 22% now versus the peak levels of 27% in 2008.
Adds Ambrose: “Whilst valuations for Malaysian stocks are hardly at bargain basement levels by our calculations, our portfolio is on about 16 times 2011 earnings with earnings growth at a conservative 5% neither does it look anywhere near overvalued.”
In terms of FBM KLCI targets, UOB KayHian has a year-end target which is pretty similar to most research houses in town. It is targeting for the index to reach 1,654 by year-end based on a 2012 forecast price earnings of 14.5 times.
Wong notes many market trend followers believe that the market should enjoy “good times” for the next two to three years since the last financial crisis was in 2007 to 2009 and the market just started rebounding in the second quarter of 2009.
“Further, the expectations of an early election may provide a feel-good factor for a rally,” he adds.
Analysts also note the Government's efforts in reducing its stakes in major Government-linked companies including in Telekom Malaysia Bhd, Tenaga Nasional Bhd and Malaysia Airport Holdings Bhd, which will likely enhance participation from the retail market and foreign investors.
Potential Downsides
What could throw a spanner in the works in the current surge? Plenty, according to experts.
The issue of hot money and how quickly these funds could flow out as it has come into the Asian markets is one main risk.
Everyone knows that Asian economies are currently seeing strong inflow of funds as Western investors try to diversify from the horrors of holding US dollar, Euro and Sterling, Ambrose notes.
Because of this, several emerging economies have imposed various new measures to control excessive inflows of hot money.
“Malaysia has not joined in any of these measures so far (which has restored a lot of credibility in my view), but this remains a great uncertainty for Asian markets this year,” says Ambrose.
He emphasises that the various austerity measures taken up by the US Fed and the European Central Bank to tame their respective deficits in the wake of the financial mess they are in are unprecedented and could result in unforeseen consequences.
Example, Spain said last year it would reduce public investment, slash public wages by 5% and freeze them this year while suspending a raise in pensions.
“Unprecedented measures can result in unforeseen consequences. There could be more collapses in peripheral EU countries as a result of the measures, which can then derail everything,” Ambrose says.
Inflation could also derail the current rise in regional and global equities. Inflation, particularly cost push inflation caused by higher food and fuel prices hurts the man in the street in terms of higher prices.
Just earlier this week, the price of RON 97 petrol went up by 10 sen to RM2.40 a litre.
“It's possible that inflation could force Bank Negara to raise rates, hence slow money supply, thus making equities less attractive,” Ambrose says. [Not in a mad rush when equities seems better than the small interest increase of 0.25 to o.5%]
OSK Research warns of political instability including the possibility of wars specifically between North and South Korea as factors which can drag the market down.
In our view, however, the largest potential risk we see for 2011 will be if investors lose confidence in the US economy, and specifically the US dollar,” it says.
Geopolitical risks, contagion effects of sovereign indebtedness, a double-dip recession. All these are risks.
Wong from Areca probably sums it up best when he says: “As always, it is advisable for investors to diversify their investments into various assets classes.”
In terms of fixed income, investors should keep to short-duration liquid bonds as inflation, likely to be driven by cost-push factors such as energy and food price hikes and subsidy cuts, may kick-in soon.
As the say, "If wishes were horses, beggars will ride them."
So, tread softly and look out for potential exits when the stock prices reach your level.
Never be greedy or it will be your undoing!
Labels:
Stocks
PLUS-Quo Vadis?
This is Sharidan M. Ali's article in the online STAR. It tells about the latest goings-on in the PLUS takeover.
"As the final deadline of Jan 10 looms closer for PLUS Expressways Bhd to receive takeover offers, it seems almost certain that there will be only two.
One is a joint offer by UEM Group Bhd and the Employees Provident Fund (EPF), while the other is from little-known Jelas Ulung Sdn Bhd.
The new deadline is also for all offers to comply with several conditions to acquire PLUS’ businesses, such as coming up with a refundable RM50mil cash deposit and an unconditional written confirmation that the offeror has the financial ability to undertake the transaction and disclose more information about the bid, including the
funding source.
It is believed, however, that Jelas Ulung will have no problems complying with these conditions, including forking out the deposit, as it has already secured the credit to do so.
Jelas Ulung is a vehicle of Tan Sri Ibrahim Mohd Zain, who had earlier stated that he had secured the funding for the acquisition which had been arranged by a subsidiary of the Bank of China. “He appears to have secured the funding. So the company can comply with those conditions imposed by PLUS board. If that’s truly the case, then there’s little reason for the board not to recommend a premium bid for shareholders to vote on,” said a source.
This means that the independent directors of PLUS will have to deliberate on the two offers and decide which one to recommend to shareholders to vote at a yet-to-be-scheduled shareholders meeting.
UEM and EPF have offered to acquire the assets and liabilities of PLUS for RM23bil, which works out to RM4.60 per share, while Jelas Ulung’s offer is at a premium of RM26bil or RM5.20 per share.
For the acquisition via the asset-liability route, only a simple majority (50% plus one share) from PLUS shareholders at an EGM is sufficient for the deal to pull through.
An online news portal recently reported that PLUS was currently in the process of seeking clarification from the Securities Commission on whether UEM and EPF would be allowed to vote on Jelas Ulung’s offer in the event the competing bid was tabled to shareholders.
But a source said the report was not accurate, reiterating that Khazanal Nasional Bhd-UEM and EPF, as shareholders, would have the right to vote on Jelas Ulung’s offer at a shareholders meeting. However, the parties, which hold a combined 67.48% stake in the highway operator, will abstain from voting on their own takeover offer.
This means that the decision will hinge on minority shareholders holding 32.52% of PLUS of which 10.6% are foreigners (as at September 2010).
The remaining votes also belong to two other substantial shareholders – Retirement Fund Inc (KWAP) which holds 5.05% of PLUS and Perbadanan Nasional Bhd (and its related funds) of 8.55%.
Analysts said based on the offer price, Jelas Ulung’s proposal clearly looked more appealing.
“But, then again, it would be up to the shareholders to vote. In this instance, that includes UEM and EPF which also have a competing offer for PLUS on the table,” they said.
To recap, PLUS had on Oct 15, 2010, received an offer from UEM-EPF to acquire all its businesses and undertakings, including assets and liabilities, for RM23bil where UEM-EPF would incorporate a special-purpose vehicle for the acquisition, in which UEM and EPF would hold 51% and 49% equity interest respectively.
In mid-December, three days before the PLUS EGM to vote on the proposed acquisition, Jelas Ulung swooped in with its offer."
So, how will this bidding game be panning out?. Is it strictly economics or will the political hand wins the day?
This, we will see.
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Berjaya Retail Berhad Bounces Back
Five long months! That is one long wait for a return from hibernation. Even bears come out of hibernation in a shorter time.
BJR was listed on the Bursa on 16 August 2010.It was not a fancied stock as its valuation was too rich when compared to Parkson. How the Securities Commission could have accepted such rich valuation is anybody's guess!
Prior to its listing, analysts gave it the Nero thumbs down almost immediately. Some analysts had valued BJR at only 51 sen, based on 14 times FY11 EPS, in line with their sector retail price-to-earnings ratio (PER) of 14 times.
Lo and Behold! True to their doomsday forecast, BJR managed to open just 2 sen above the 50 sen IPO level. From then on it spin into a depression and went all the way down to 'Hole-land'. If I am not wrong, it went as low as limbo rock 36 sen. That was about five months back!
BJR operates the 7-Eleven chain of convenience stores while Singer markets and sells consumer durables such as house-hold white goods via the brand name,Singer and also motorbikes on an installment basis.
In its listing prospectus, BJR has achieved revenue of RM418.9 million and pre-tax profit of RM9.99 million for its second quarter ended June 30, 2010.
As the group has only completed the business combination on June 14, 2010, there are no consolidated results available for comparison, BJR said one of its filings to Bursa Malaysia.
However, based on the proforma aggregate results of the subsidiary companies, 7-Eleven Malaysia Sdn Bhd and Singer (Malaysia) Sdn Bhd, the combined revenue and pre-tax profit for the previous year's second quarter ended June 30, 2009, were RM363.7 million and RM11.44 million respectively.
The increase in revenue was mainly due to the improved sales of motorcycles and electrical products by Singer Malaysia and opening of new convenience stores and improved average day sales per store by 7-Eleven, BJR said.
The lower pre-tax profit was mainly attributed to higher store maintenance and staff costs as well as higher operating expenditure incurred.
Similarly, based on the proforma aggregate results of its subsidiary companies for the earlier corresponding period, the group reported an increase in revenue of 14 per cent to RM834.7 million for the six months ended June 30, 2010, from RM731.7 million previously.
Pre-tax profit also increased but by a higher rate of 41 per cent from RM18.6 million to RM26.3 million this year.
So what is BJR's plans for 7-11 to expand its market shares and profitability after listing?
Among its plans are the expansion of its 7-Eleven franchise, offering new premium fresh F&B items and expanding its distribution network by opening yet another 150 new outlets in 2010. On top of that, it will open a new logistics center to maximize efficient receiving, processing and distribution of goods.
As for Singer, the current plans include the modernization and refurbishment of Singer branches,attracting and generating sales from walk-in customers; and expanding its distribution network to 1,000 branches (from 561 branches in May 10 or +78%) within the next five years.
Now that the stock market has ran amok thanks to increased foreign participation, will BJR move up with the rising tide as a 'random walk participant' and fell as fast when the funds back-washed out of the country?
Or has BJR finally come out from its 'Hole-land' and demonstrate a new character on its own accord to attract serious investors which will hold it long term for the intrinsic strength that it is building, profitability and for its openly declared 50% dividend policy?
Let us watch!
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