MAS-Looking for the Golden Key to Unlock Assets

A No Hope Situation for MAS?

This is the Malaysian Insider report of the AGM  of MAS held today.

"Stung by criticism, nine non-executive directors of Malaysia Airlines (MAS) today decided unanimously to return the fees paid to them last year, amounting to RM396,000.

MAS chairman Tan Sri Md Nor Yusof told a press conference that the non-executive board members had agreed to return the money to the airline.

It had been previously reported that many high-ranking civil servants were also sitting on the boards of government-linked companies.

The Malaysian Reserve had reported that Putrajaya was looking to ensure that active civil servants did not become board members of GLCs.

Performance and Management Delivery Unit (Pemandu) chief Datuk Seri Idris Jala had reportedly said civil servants sitting as GLC board members faced potential conflicts of interest.

MAS board member Tan Sri Irwan Serigar Abdullah is also Treasury secretary-general and chairman of Cyberview Sdn Bhd, the master developer of Cyberjaya.

Md Nor also said that there had been calls from shareholders for the immediate resignation of the board and MAS management.

"It is only natural for the shareholders to be angry considering how events have unfolded.

"However, we have tried to explain to the shareholders that MAS has been facing chronic difficulties over the past 15 years,"  he said.

Meanwhile, MAS group chief executive officer Ahmad Jauhari Yahya refused to confirm or deny that filing for bankruptcy or retrenching staff were among the possibilities they were exploring.

He refused to answer questions, saying that the airline was looking at all options.

"We are looking at all options, I am not going to answer 'yes' or 'no'," he said at a press conference when asked whether MAS was mulling bankruptcy.

The press conference, at the MAS training centre in Kelana Jaya, was held shortly after the end of the annual general meeting.

The media were not allowed to attend the annual general meeting but it was understood to be a fiery affair due to MAS's balance sheet.

Md Nor said the impact of missing Malaysia Airlines flight MH370 had been widely disseminated by the media, both local and international.

"We have reached a critical point in our efforts to return Malaysia Airlines back to a stable footing," he admitted.

"The loss of MH370 means that MAS also has to grapple with perception and a loss of confidence in the airline.

"Although unjustified, we are determined to rebuild the brand," Md Nor said, adding that 2013 was not a good year for the airline.

But he was confident that all was not lost, saying MAS, like the national flag and the hibiscus flower, was a national icon.

"We are Malaysia's embassy on wings, as we carry the nation's name every single time one of our flights is in the air," he said.

"These are factors which must be taken into consideration," he told the press conference.

Ahmad Jauhari said despite its appalling balance sheet, Malaysia Airlines still had strong assets.

"We have a world class engineering team, we have award-winning crew, a very young fleet," he said, adding these were all genuine tangible factors.

Ahmad Jauhari said they were looking at putting more seats on the existing Boeing 777 fleet, or densing up in aviation parlance.

"Studies have shown that we will be able to recoup the costs within six months," he said, adding it would boost the balance sheet.

Ahmad Jauhari had earlier told the media that MAS was looking to retire its entire fleet of Boeing 777 aircraft within a three-year period.

However, he said as MAS was able to recoup the cost of adding more seats to the Boeing 777 aircraft within three months, they would proceed with that initiative. – June 25, 2014."

A Bashing Time at the MAS AGM

MAS's CEO Ahmad Jauhari - Biting the Bullet!

Tumultuous is the word here to describe the MAS AGM held today.

The minority shareholders really showed their temper at the Board of Directors who were 100% in defensive mood; admitting inefficiency and a poor performance irrespective of the MH 370 tragedy.

While the Chairman noted the anger of the shareholders, the latter retorted they were more sad than angry at the continuing saga of the poor financial performance of the airline and its share price.

As the investment banks' negative appraisal of the stock continue to force the price down, Khazanah's untimely statement that they will be reviewing MAS's position in a time-frame of 6 to 12 months only, was badly-timed and a real bummer.

Comments like the whole board should be summarily dismissed;that they should only be paid RM 1 allowance only as well as fixing KPI's on all of them were part of the biting rantings.

Kinibiz has this to report.

The MAS annual general meeting (AGM) was extended by two hours today after a poll vote was called to decide on a resolution concerning directors’ fees.

On chairperson Md Nor Yusof’s insistence, voting was switched from a show of hands to a poll vote. Under a poll vote, shareholders’ votes are counted based on the number of shares held.

The resolution to “approve payment of directors’ fees amounting​ to RM396,000 per annum for the financial year ended December 2013” eventually passed with 79 minority shareholders voting for the resolution and 70 against. Those going against represented 0.07% of all shares held.

However, in an unexpected development, non-executive directors  chose not to accept the directors’ fees after conceding that the board’s performance during 2013 was poor.

Shareholders had earlier expressed deep dissatisfaction, going as far as to call for top management to resign.

The AGM ended at close to 3 pm.

There was certainly a leaf of experience to be learnt from this meeting for all Board members in general .

It's not all ice-cream and cherry pie helming a public listed company that cannot perform!

Foreign Fund Managers Pursue Aeon

The Ubiquitous Aeon Sign

To best the competition, Aeon Co (M) Bhd will now diversify into electronic and furniture stores.

Aeon Malaysia formed a joint venture with Thailand’s furniture retailer Index Living Mall Co in September to set up shops in Malaysia

Aeon's focus thus far is on enlarging its domestic operations through shopping centers, department stores and pharmacies in the country.

According to Aeon, this strategic move is driven by competition in the retail industry and changing consumer behaviour. According to its spokesman, there is an ample increase in retail space in 2013 and it’s going to increase further in the next two or three years. 

Aeon’s competition in Malaysia includes Tesco Plc, the UK’s largest grocer.

Retailers in the Southeast Asian nation are seeking new ways to lure customers as price increases on fuel, power and sugar slow private consumption. Aeon Malaysia plans to spend RM 1.4 billion (US$435 million) this year and next to open more stores and refurbish existing ones as it prepares for a goods and services tax that it says may hurt sales for three months after implementation in April.

Private-sector consumption expanded 7.1 per cent in the first quarter from a year earlier, after climbing 7.4 per cent in the last three months of 2013, according to BNM data. 

“Aeon Malaysia has been one of our core holdings for the past 15 years,” said Gerald Ambrose, managing director of Aberdeen Asset Management Sdn Bhd, which owns shares in the stock. “The company does seem to have the ability to grow their business.”

Shares of Kuala Lumpur-based Aeon rose 1.9 per cent at 11.52 am local time, extending gains for a seventh day. The stock is headed for its highest close since June 4, 2013. It earlier surged as much as 4.6 per cent. Stock purchases on Aeon were mainly from foreign funds.

Aeon shares went down to a low of RM 3.69 after it ex-all and found sustainable traction recently above RM 3.80. It has been advancing ever since due to new fund  interests. 

The ex-all theoretical  price was RM 3.75 . At today's price of RM 4.23, a shareholder of 4000 shares ex, would have made a clean profit of  RM  1,6,92 if he sells. 

If Aeon shares are chased upwards to RM 5 in the next few weeks, then our shareholder would have gained RM 5,000;an equivalent return of 33% within 60 days.

Powering On Through ITC As Well?

After investing more than two billion ringgit in building up the 4G infrastructure, product development and network, YTL Communications(YTLC) expects to incur only a limited capex when it rolls out its Long Term Evolution (LTE) technology soon.

According to its CEO, Wing K Lee, the current 4G WiMAX network has been  'future-proofed' as they have built a flat IP network enabling any IP-based technology to just plug in.

He said the company will not be abandoning its WiMax service which it has adopted since November 2010 to roll out its LTE technology. "No, we will not be migrating away from WiMax. Instead we will work hand-in-hand with LTE," he said.

Wing said YTLC's 4G network which covers 85% of the population with over 4,000 base stations, has proven to be robust and will continue to serve its customers well.

He added further that while the mobile WiMAX network has delivered favourable economics, adding LTE to its network would allow for an expanded array of device and service possibilities.

YTLC has completed trial runs and will be rolling out its LTE soon, without giving a definitive date.

Howevert, Wing was reluctant to reveal which LTE variant YTLC is planning to adopt except to say it is
a "newer version".

Wing had previously said that he liked the Time-division-LTE (TD-LTE) spectrum as it is more flexible and efficient compared to Frequency Division Duplex (FDD) spectrum, which is a different standard of LTE 4G technology.

He said the latest version offers faster speed, higher network capacity and at the same time present better quality of Internet multimedia experience.

Wing assured that  YTLC should be in a good position to be the first company in Malaysia to launch the newer version of LTE.

"We are looking for the right time and point of entry to launch the new version of LTE," he said.

YTLC will collaborate with Asiaspace Broadband Sdn Bhd's 30MHz allocation on the 2.3GHz band in infrastructure and spectrum sharing.

This collaboration will help avoid duplicity of infrastructure and maximise the use of bandwidth for the wireless broadband services nationwide by both companies to provide quality and uninterrupted services.

YTLC was among the eight companies awarded the LTE spectrum in late 2012. The other companies include Celcom Axiata Bhd, DiGi.Com Bhd, Maxis Bhd, Packet One Networks (Malaysia) Sdn Bhd, Puncak Semangat Sdn Bhd, REDtone International Bhd and U Mobile Sdn Bhd.

Celcom Axiata, Maxis, DiGi and U Mobile were more aggressive in their LTE rollout. Celcom said it plans to have more than 2,000 LTE sites, while DiGi expressed its plans to have more than 1,500 LTE sites by end of this year. Maxis, which has set aside RM1.1 billion of capital expenditure (capex) this year, said it will spend a significant amount of this capex to expand its LTE coverage.

On another note, Wing said YTLC will be launching the 1BestariNet project in Sarawak this year.

So far, 90% of 10,101 primary and secondary government schools in Malaysia are connected through the cloud-based virtual learning.

So, it looks like YTL Power International may get more cash in its pocket through the advent of YTLC's LTE technologies when they are implemented.

Perhaps, it is time to collect some more YTL Power shares?

AFFIN Bank-To Buy or Not To Buy its Rights

If you look at the price level of Affin Bank, you will notice that there is a huge price fall from its peak of RM 4.15 sometime in early February 2014. After moving in an erratic manner in February, it plunged to below RM 3.85 at the end of March. This represents a fall of 30 sen or  a serious 7.2%. In much of April, it found no traction and slipped yet to another low at RM 3.75 or another 10 sen fall, bringing the percentage loss to a loss of 9.6%.

Falling Price

By mid-May, the price of Affin has gone down to RM 3.65 and in early June, it just about straddled the RM 3.60 price level. At RM 3.60, Affin's percentage loss was 55 sen or a 13.3%. By the second week of June, it moved up slightly to RM 3.62 and RM 3.63.

Let us look at some of the reasons by the gravitational  pressure on this stock.

Investor confidence on the stock was dampened by the huge rights issue which will dilute market price when the new issue is listed. There are concerns that optimal values will not come on steam until 2017. TA Investment Bank (IB) has re-assessed the stock downwards putting it at RM 4.17 at its Top Price (TP) while Alliance IB stayed neutral with its TP at RM 4.25.

As these assessments were done two months ago,they may no longer hold true as even now the price of Affin has slumped down by another 20 sen to RM 3.63 since then (RM 3.85).

 Let's look at the rights issue.

It is now confirmed that for every 10 shares held on 12 June 2014, shareholders will get 3 rights issue at RM 2.76. That would mean a person with 1000 shares will only get 300 new shares. He will need to pay RM 828.

If the price is maintained at RM 3.65, then he may want to subscribe for an access amount of 700 shares. If he does so, then he would be paying RM 2,760 (RM 1,932 + 828= RM 2,760).

Given the dilution with another 30% new shares coming onto the market, there is  possibly a price shaving to be anticipated. It could cause the price to fell by another 30 sen.

This could mean a ex-price of  about RM 3.10-RM 3.20.

More than that could be a bonus.

PS: Ex-rights trading price of Affin today is RM 3.44.

If the price holds accordingly, after the OR has been traded then this could possibly be a benchmark for Affin ex-rights. It also represents a good opportunity for the OR to sell at a good price.

At the price of  RM 3.44 given the rights at RM 2.76, this could mean a ball-park gain of  0. 68 sen per share.

Malaysia: The Debt Stranglehold

Warning Bell

This article was written by a UK based economist,Sarah Fowler from Oxford Economic. It was carried in the Malaysia Insider today (9 June 2014)

In her article she sounded a warning call for Malaysia.

Let us read the premises and parameters of her economic analysis and judgment.

Sarah saw the Malaysian economy contracting and losing its global market share in key export sectors in the event it fails to tackle its high levels of public and rising external debts.

While the nation's shrinking current account surplus was not a major concern as it was expected to stay in excess in the next few years, there are worries over Malaysia's capital account due to rising external debt, which has shot up close to 40% of its gross domestic product (GDP) in recent years.

The country's public debt-to-GDP ratio has been hovering at an all-time high of more than 50% since 2010 because of large fiscal deficits incurred when an aggressive stimulus package was launched to bolster the country’s economy during the global financial crisis.

"Addressing the concerns would enable Malaysia to achieve a higher growth path, reaching a higher per capita income sooner. We expect the economy to grow by just more than 4% over the next five years but if the concerns were addressed growth could exceed 4.5%," she told The Malaysian Insider in an email.

Fowler produced a report on "Why Malaysia is now a more risky prospect than Indonesia" which was highlighted by global financial news site Bloomberg's columnist William Pasek last week. She based it on 17 indicators to develop a scorecard to assess emerging market vulnerability to external economic and financial shocks.

Among the indicators are capital inflows, external financing, the current account and budget balances, credit markets and the economy.

"Our scorecard assesses Malaysia as a more vulnerable economy than Indonesia, Thailand or India," she wrote.

Touching on external debt, Fowler had reported that non-foreign direct investment capital inflows averaged 6.6% of GDP a year between 2009 and 2012, the highest in their sample of 13 emerging markets and more than Indonesia's average of 2.2%.

"More than half of all portfolio investment in Malaysia went into debt securities between 2010 and 2012, up from close to a third between 2005 and 2009.”

She had also noted in her report that the short-term component of external debt was also increasing, which is risky as it requires repaying or rolling over earlier.

Short-term debt as a share of GDP reached 15.2% by the end of last year, up from 10% in 2007.

In contrast, India’s and Indonesia’s short-term debt accounted for less than 5% of their GDP.

On overall, external indebtedness in Malaysia is low relative to exports, which meant that funding the debt may not be a problem.

But Malaysia has an unusually open economy; exports are equivalent to more than 80% of GDP, lower only than in Singapore and Hong Kong.

On public debt, Fowler said although Putrajaya has reduced its fiscal deficit as a share of GDP from 6.5% in 2009 to 3% last year, there was a need to continue to manage the public finances carefully to trim the deficit further.

This, she said, could be done by broadening the tax revenue base in order to try and raise revenues.

"Public debt has risen in recent years and reducing this would be good because money that currently has to be spent paying the interest on the debt could be spent in more productive areas."

However, Fowler expects the public debt to GDP ratio to remain above 50% for the next five years, saying Indonesia’s, Thailand‘s and Korea's public debts amount to no more than a third of their respective GDP.

Fowler is not the first person to sound the alarm bells on Malaysia's economy.

In October last year, financial analyst Jesse Colombo warned that Malaysia's economic bubble will burst after China's economy takes a tumble and global and local interest rates continue to rise.

Writing in Forbes online magazine, Colombo said: "Malaysia’s bubble will most likely pop when China’s economic bubble pops and/or as global and local interest rates continue to rise, which are what caused the country’s credit and asset bubble in the first place.

"The resumption of the US Federal Reserve’s QE taper plans may put pressure on Malaysia’s financial markets in the near future. Malaysia’s rapidly deteriorating current account surplus due to weaker exports is another worrisome development.” – June 9, 2014.

Fine-tuning for Tune Insurance

An Ever Expanding Pie?

The CEO of Tune Insurance Berhad (TIB) Peter Miller wants to triple the company’s market value to RM 6 billion by 2018.

How?

By way of capitalising on AirAsia group’s rapid growth, as he plots expansion into neighbouring countries.

“If we can improve take-up rates as well, AirAsia’s contribution can be reasonably expected to somewhat nearly double over that timeframe,” he told reporters after its AGM yesterday (6 June 2014).

TIB provides online travel protection products for AirAsia and has established partnerships with Cebu Pacific and Air Arabia. Miller said the company was keen to expand its services to include other full service and low-cost airlines.

Low-cost carrier AirAsia  owns 16.2% of Tune Ins, while Tune Group Sdn Bhd, controlled by Tan Sri Tony Fernandes and Datuk Kamarudin Meranun, is its single largest shareholder with a 25% stake.

Miller said it would work hard to benefit from the natural growth of AirAsia and AAX, especially with new plane deliveries, as well as new AirAsia entities such as AirAsia India and AAX Thailand.

The group is also focusing on integrating the business of 49%-owned Thai insurer Osotspa Insurance into the group, with a re-branding exercise to be launched soon.

“We are very optimistic about the shareholder value we can create in Thailand over the next two to three years. And of course, the online insurance business sales will grow over time,” Miller said.

Currently, the company has a market capitalisation of RM 1.8 billion.

On its expansion into Indonesia, Miller said TIB had identified a new target to acquire by the year-end and that it was commencing the registry process.

“We are still optimistic we will own a company in Indonesia before the end of the year. Ideally, we want to get Thailand down first because a lot of what we will do in Thailand is what we can pick up and replicate in Indonesia,” Miller said.

Currently, TIB has 14 insurance partnerships in 18 markets in Asia and plans to increase its partnerships in the Middle East-North Africa region to 30 by year’s end.

So, when do you think is the right time to go into this counter?