Cigar Butt to note in Bursa

February 29, 2008

puncak.jpgUtilico Emerging Markets Limited owned 5.44% of PUNCAK on 8 Jan 2007. It increases its stake gradually to 7.94% on 27 Feb 2008. A quick check on Utilico’s website shows that Puncak is in the fund’s top 10 list.What does Utilico see in Puncak? Is it the 2009’s potential water tariff hike? Why another water tariff hike after the 2006’s hike? A 40 per cent tariff hike in 2001 was followed by a 30 per cent increase in 2003 – contrary to state regulations allowing only a 30 per cent rise every three years. There will be 30% water tariff hike every 3 years.This is truly a windfall for Puncak.It’s time to buy Puncak? Get to know Utilico by downloading utilico.pdf

Another cigar butt which drew a lot of attention today is ten.jpgTNB. A check in KLSE announcement showed that SKIM AMANAH SAHAM BUMIPUTERA have increased its shares from 345,284,200 shares on 30/5/06 to 371,403,100 shares on 22/02/2008. We all know this ASB is for bumiputera only and it is a channel to distribute wealth to bumiputera.See NEP. This increase in stake should signify tariff hike for electricity soon,maybe after the election.Should you buy TNB to ride on the wave? tenaga-report-by-sp.pdf

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WHY A.K DIVERSIFY HIS BUSINESS?

February 28, 2008

A.K has been a good friend to our previous P.M.When Pak Lah took over the position,there are no news about A.K and Pak Lah.While Vincent Tan still suck up to the new P.M,A.K look for other markets.In my opinion,A.K goes global partly because of unstable political condition which might affect his businesses.If you look at how A.K strategized his businesses,you will see the pattern in Maxis,Tanjong and Astro.Look at Maxis news here.

For Tanjong plc,it needs less explanation as its revenue base has been diversified globally.Astro is undergoing the same transformation into a global company.Astro is currently expanding its wings to India,Indonesia,China and U.K.See news about Astro here.

A.K PhotoIf you look at some businesses which are owned by Chinese and Indian tycoons,you will see a pattern. Some public listed construction companies owned by Chinese has diversified their businesses to Indonesia,India,Vietnam,China,Middle East and Australia.While some bumiputera owned construction companies still place out their empty plates to the government, such as UEM,many non-bumiputera companies have spreaded their wings to overseas markets.Some companies made it big, like WCT,some lost money, like  Ho Hup Construction. I do not generalised bumiputera companies/non-bumiputera companies as you will see the word ‘SOME’. Some non-bumiputera companies still depend heavily on the government too.

The latest hot news is on Gamuda which needs less explanation but needs more critical analysis.The MD knows what is happening in the political arena and whatever it is,he sees unfavourable future for construction businesses.Should you invest in construction companies now?Truthfully,I won’t put a cent in construction companies because of lack of transparency,high reliance on government,cyclinical,lack of good governance and unfavourable institutional framework

You should not believe analyst reports 100% either.They too,have conflict of interest in writing their reports.Nevertheless,since they are nearer to the source,you still can use it as a guide,but not decision.Read this post. 

What are the proves on Vincent Tan sucking up to BN? Read this news to understand.

Well,enough for today.I can see a lot of neurons moving in your brain now.Maybe it’s time to rearrange your portfolio?


The Prospects in Astro

February 19, 2008

astro.jpg

Some readers ask me various questions about Astro.I will answer all questions in this posting. 

Pirated movies and Internet may affect Astro in a short term but in long term,Astro will still dominate the pay tv industry.The monthly fees for pay tv is cheap compared to the number of channels offered.Just compare your family phone bills with Astro’s bills. Currently,Astro is benefiting from economies of scales.When Astro makes it so cheap to view pay tv with additional channels in the future, buying pirated or download movies from Internet will be less feasible.

IPTV won’t be able to steal Astro’s customers because of:

1. IPTV needs a least a broadband speed of 10Mbps .Please read

A good example is to look at US and European countries.Despite having fast internet connections and IPTV,pay tv still maintain their market share. 

2. You can subscribe to Astro at RM70/month and able to view so many channels.The decoder is free.Meanwhile,IPTV has to invest in fibre optics wiring,decoders and buying contents.That’s why Vincent Tan is unable to gather the capital to fight with Astro.Large start up capital hampers IPTV.

3. Almost all the licenses for famous contents have been acquired by Astro.What type of contents IPTV able to offer to three major etnics in M’sia?

4. Malaysia is changing its analog broadcasting to digital broadcasting.RTM has successfully converted its broadcasting to digital form.All free channels are given until 2015 to do so.Astro is the first pay tv in the world to invest in digital broadcasting. Consumers with analog receivers must buy a new tv,an analog decoder or subscribe to pay tv slowly.

5. HDTV platform will come to Malaysia by 2009.Please visit

6. Another satellite will be launched in 2009.New features such as dobly surround sound system and more channels will be introduced in Astro.

 7. The continuous improvements in Astro is due to its management team. Essentially,you are investing in its people.

8. Astro’s new ventures into Indonesia,India,China and UK makes sense because Malaysia’s media industry is highly political.It is wise to diversify its businesses.

9.There are rumuors that Astro may buy TVB in Hong Kong. If it happens, Astro will own almost all the Chinese contents in the world.To do this,Astro needs a strategic investors.

10.Technology advancement enables consumers to buy plasma / LCD TV at lower prices.It is reasonable to subscribe to Astro when you have a plasma TV.

11.Watching Astro has becomes a culture in Malaysia.Just look around when you go to restaurants,mamak,cafe,pubs and hotels.Astro has successfully build a ‘need’ in its customers.A home without Astro is “incomplete”.Astro has become a ‘status’ and ‘lifestyle’.That explains the strong increase in revenue.

As a value investor,Astro’s valuation is undemanding looking at its strengths in business models, financial standing and exciting prospects.


Governance Pays

February 6, 2008
 

 

If corporate collapses like Enron, Global Crossing and World Com have taught us anything, it’s that investors can’t afford to ignore the issue of corporate governance. When conducting fundamental analysis, investors need to keep a close eye on the way that companies keep management in check and ensure financial disclosure, board independence, and shareholder rights. Recent studies suggest that the benefits of scrutinizing governance extend beyond simply avoiding disasters. Good corporate governance can increase a company’s valuation and boost its bottom line.

What Is Corporate Governance?
Corporate governance is a fancy term for the way in which directors and auditors handle their responsibilities towards shareholders and other company stakeholders. Think of it as the system by which corporations are directed and controlled. Typical corporate governance measures include appointing non-executive directors, placing constraints on management power and ownership concentration, as well as ensuring proper disclosure of financial information and executive compensation.

Surprisingly, corporate governance has been considered a secondary factor impacting a company’s performance. That is, as opposed to a company’s financial position, strategy and operating capabilities, the effectiveness of governance practices was largely seen as important only in special circumstances like CEO changes and merger-and-acquisition (M&A) decisions.

But recent events prove that governance practices are not merely a secondary factor. When the company’s share price tanks because of an accounting scandal, the importance of good governance practices become obvious. Corporate disasters show that the absence of effective corporate controls puts the company and its investors at tremendous risk.

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What the Studies Prove
For years, investors ignored corporate governance because academic research found no clear causal link between governance and financial performance. But that is starting to change. A paper by Harvard and Wharton business professors entitled “Corporate Governance and Equity Prices” concludes that investors that sold U.S. companies with the weakest shareholder rights and bought those with the strongest shareholder rights earned an additional return as high as 8.5%.

The study analyzes 1,500 companies and ranks them based on 24 corporate governance provisions. Those companies with the lowest rankings were less profitable and had lower sales growth. Moreover, the returns on these companies lagged far behind those of higher ranked firms. The paper also shows that for each one-point increase in shareholder rights, a company’s value increased by a whopping 11.4%.

Meanwhile, a study produced in 2000 by global consultancy McKinsey found that 75% of the 200 institutional investors it surveyed regard board practices as important as financial metrics for assessing companies. The study showed that companies that moved from the worst to the best governance practices could expect a 10% increase in market valuation.

Investors Are Starting to Take Notice
Amid all the hand wringing about corporate governance, investors are getting help in steering clear of mis-governed companies and finding well-governed ones. Governments, stock exchanges and securities watchdogs are coming up with new rules and regulations that try to put a stop to some of the worst cases of corporate failure. Proposals at the New York Stock Exchange and the SEC that push for more boardroom independence and greater financial expertise in audit committees certainly accelerate improved practices and reassure investors.

At the same time, a veritable cottage industry has sprung up among ratings agencies and consultants issuing corporate governance ratings. Investors can turn to Standard & Poor’s Corporate Governance Score and Institutional Shareholder Services’ Corporate Governance Quotient. Both of them report and grade public companies’ governance practices. In addition, the Investor Responsibility Research Center, along with corporate governance watchdogs like the Corporate Library and Governance Metrics provide governance performance ratings.

While new regulatory proposals and rating systems are valuable to investors, they are no guarantee that companies are well run. Investors need to evaluate corporate governance for themselves. Here is a quick list of key issues for investors to consider when analyzing corporate governance:

  • Board Accountability Boards of directors (BODs) are the links between managers and shareholders. As such, the BOD is potentially the most effective instrument of good governance and constraint on the top managers. Investors should examine corporate filings to see who sits on the board. Make sure you seek out companies with plenty of independent directors who have no commercial links to the firm and who demonstrate an objective willingness to question management choices. A minority of independent directors make it difficult for the board to operate outside the sphere of management influence. Do directors own shares in the company? If not, they may have less incentive to serve shareholders’ best interests. What are directors’ attendance records at board and committee meetings? Finally, does the board adhere to a set of published governance principles?
  • Financial Disclosure and Controls – Investors should insist that corporate structure includes an audit committee composed of independent directors with significant financial experience. Ideally, the committee should have sole power to hire and fire the company’s auditors and approve non-audit services from the auditor. Persistent earnings restatements or lawsuits challenging the accuracy of financial statements provide a clear signal to investors that financial disclosure and controls are not functioning properly. Top management compensation should be determined by measurable performance goals (shareholder return, ROE, ROA, EPS growth), and, if possible, the compensation rate should be set by an independent compensation committee and fully disclosed.
  • Shareholder Rights – Be wary of companies with dual-class stock. Class A and B shares can place major constraint on shareholder rights, enabling insiders to accumulate majority power by virtue of owning vote-tilted class B shares. Voting should always be routine through mail, telephone and Internet, and shareholders should have the right to approve major transactions, including mergers, restructuring and equity-based compensation plans.
  • Market for Control – Management power can become entrenched by strong takeover defense provisions, such as poison pills or the issue of blank check preferred preferred stock. These mechanisms protect against hostile takeovers and subsequent management change, but investors should cheer poison-pill plans only when fully trusting and supporting management.Be aware also that directors – especially executive board directors – have a habit of granting generous stock options to top managers. While stock options offer management an incentive to perform well, overloaded stock-option accounts create the possibility of unwanted share value dilution. The more stock options management owns, the bigger the drop in share value will be when these options are exercised.

Because the quality of corporate governance determines how a company allocates shareholder rights and aims to maintain the value of shares, investors should vigilantly analyze and evaluate the governance of their current and potential investments.

by Ben McClure by Ben McClure, Contributor – Investopedia Advisor

 

 


Opinion on Corporate Governance

February 6, 2008

 

Corporate governance is the first test I will do when I pick a stock. Why is it so important?  

If you are investing for a long term, corporate governance matters a lot to you. For short term investing, it does not matter.  For example, you are an investor in Transmile for the past 5 years. ..continue here