MCMC vs Astro plc

April 9, 2008

MCMC released a public reprimand yesterday to barred Astro barred from increasing the number of channels until it improves its services to the satisfaction of the Malaysian Communication and Multimedia Commission (MCMC). MCMC has also given Astro a deadline to comply with the Multimedia Communications Act 1998.

Let’s analyse this news at a different point of view with facts and figures:

Astro’s license was issued in 1997 under Telecoms Act and Broadcasting Act. This Act was abolished and replaced by the newer Act namely, Multimedia Communications Act 1998. Logically saying, Astro currently was not governed by any Act and thus it is a free media until it join the new Act. MCMC tries to lure Astro to accept the new Act by extending Astro’s license from 2017 to 2022. This is only additional 5 years extension. Will it be able to lure Astro to take the rope and tight itself?

We know what agenda which constitutes the new Act. The new Act wants to control Astro, just like how it controlled Media Prima, STAR, NST, THE EDGE and other media/press. MCMC is afraid of Astro since it has grown from nothing to big giant, just like Airasia compares to MAS. Let’s think logically for one moment, after 2017, does Astro need license anymore to protect its business? Astro has able to build its brand in majority of the minds of Malaysians. Since its inception, it spent billions in branding and marketing to strengthen its position in Astro. This effort eats into the revenue of Media Prima and now the government wants to use the law to tight down Astro.

Let’s put ourselves in two situations.

Scenario 1: One morning, you and your family switch on the TV and there is no Astro anymore. Astro Malaysia has to be shut down because of intense control and pressure. So, Astro in Malaysia has to be shut down but Astro will still continue its service in our region. How do you feel?

Scenario 2: You and your family switch on the TV and there is no TV3, TV2, TV1, NTV 7, 8TV, TV9. How do you feel?

My analysis on the situation:

1. MCMC really cannot do anything to Astro because it is not controlled by any Act. The old Act has been abolished and Astro has yet to migrate to the new Act.

 2. MCMC can only bark at Astro using newspaper and free TV to tarnish Astro’s image. But this will not affect Astro severely because it has monopolised 40% of households in Malaysia considering Malaysia has 5.5 millions households. In another words, the brand Astro lives in at least 11 million Malaysians’ minds (5.5 million households x 40% x 5 person per household). It is not impossible to ask the 11 million subscribers to ban Astro.

3. Media Prima and Telekom will start IPTV. But this type of business requires huge start up capital, attractive and new contents, and cheap subscription fee. It is a very risky venture/to come in and fight with Astro. How do you convince a 5 year Astro subscriber to shift to IPTV? What type of programme does IPTV can offer to its customers when almost all content has been monopolised by Astro? IPTV need at least 10MB broadband (Please read my previous post on Astro) but our country internet penetration is only 12% currently. How many subscribers can you steal from Astro to achieve economies of scale? Unless IPTV can offer pornography (but this is against the Act), it cannot beat Astro.

4. If Astro does not want to comply with MCMC’s request, what the government can do? Of course we can charge Astro using Sedition Act and National Security Act but this would be too obvious and not so popular when Malaysia still has a low Foreign Direct Investment.

I’ve been an Astro subscriber for almost 10 years. If compare with TMNET and Streamyx, Astro’s service is relatively better. I wonder why MCMC did not reprimand TELEKOM for its bad service. I want to quote from a Minister, ”KALAU TAK SUKA, JANGAN TENGOK LAH” !   






KLSE Security Analysis:Owner Earnings

March 30, 2008

After applying criteria for analysis recommended by various books,I have created a checklist before buying any stocks in KLSE.Starting from now,I will elaborate on these criteria under KLSE Security Analysis title in the future.To understand these criteria,you should have medium level of understanding of financial statement.This part has to come from your own initiative.No pain,no gain! 

b_06toyochem.jpgOne of the most important criteria in my analysis is to calculate ‘owner earnings’ from a business.This criteria is recommended by Warren Buffet in his letters to shareholders and has been summarized under a book written by Warren Buffet himself and edited by Lawrence Cunningham entitled ‘Lessons for Corporate America’.Make sure you buy 2007 edition. Owner earnings concept is very useful analysis to gauge what the company has left for its shareholders.Rising share prices does not necessarily means the company has added value for its shareholders.When company earns X from business,it can choose to reward its shareholder by paying a dividend or retaining those earnings and reinvesting them to increase the underlying value of the company. If the company employes this earnings efficiently, over a period of time, the company’s underlying value will go up and cause the stock’s price to increase.

This differs from the view most investment professionals hold. They might have a CFA but they don’t consider earnings theirs until the earnings are paid out via dividends. One good example of owner earnings is the stock of Warren Buffett’s holding company, Berkshire Hathaway, Inc. In the 80s,it traded at US$500 a share. Today, it trades around $76,000, and it still never paid a dividend. The increase in the market price of the stock came from an increase in the underlying value of the company, caused by Buffett’s profitable and efficient reinvestment of Berkshire’s retained earnings.If a company believes it can profitably employ the earnings at a rate of return that is better than the investor could get, the management should keep the cash. But most company keeps on feeding shareholders with ‘sweet’ dividend to attract traders. This act is detrimental for long term shareholders and the business but good for traders.When company suddenly declares juicy dividend,a value investor should look further.

 If you have attended any AGM before, you will be suprised how most shareholders react when the management announces its dividend policy.For me,unapropriate amount of dividend is like a ‘bribe’ to shareholders to blind them from seeing the management incompetencies and failures.Hence,value investors must really make sure the dividend policy is suitable for the business.Rising dividend amount does not always mean good. In addition,dividend is taxed!

In KLSE, it is common for some security analysts to assign a higher target price to companies that pay a high dividend than to those that don’t. This is true even when the company that is retaining all its earnings is an infinitely better enterprise. Maybe the analysts’ brains are controlled by directive from the top. Value investors should check the quality of management by what it does with its earnings. If it retains them, does it profitably employ them, or does it squander them on dreams of grandeur? By analysing the history of the management performance, we can come to a conclusion whether the underlying businesses will create consistent earnings to allow make its shareholders rich.So, how does an investor calculate owner earnings?

1st , check the ‘cash from operations’ under the statement of cash flows. See whether cash from operations has grown steadily throughout the past 6-10 years. If it has steadily growing, then you can go further.

2nd, calculate Owner earnings = net income + amortization and depreciation – normal capital expenditures. If owner earnings over the 6-10years,then it is a good indication. Owner earnings adjusts for accounting entries like amortization and depreciation that do not affect the company’s cash balances. So, owner earnings can be a better measure than reported net income. If you want to be more conservative,you can go on to subtract from reported net income:

• any costs of granting stock options, which divert earnings away from existing shareholders into the hands of new inside owners

• any “unusual,” “nonrecurring,” or “extraordinary” charges

• any “income” from the company’s pension fund.

3rd, calculate the growth of the owner earnings. If the growth of owner earnings is around 7% or more for the past 6-10 years, the company is a stable generator of cash, and its prospects for growth are good.

But is owner earnings foolproof? It’s not a sole determinant for business of course! For example, when a growth stock is investing heavily in new venture/market, the owner earnings will certainly plunge to negative territory due to losses or charges. If the company has good management and experience, the owner earnings will recover and value investors who hold on through the painful period will be richly rewarded. Investors may also use owner earnings to compare companies in the same industries to gauge their strengths and weaknesses.The value of the business can also be estimated by forecasting future owner earnings and bring them back to present value. This value may be used to check with the calculation of value using Free Cash Flow. More criteria will be introduced under this section. So, stay tune!       

Organizational Culture

March 10, 2008


images4.jpgimages3.jpgWe have to agree that the Malaysian companies have different working culture than our Western counterparts.But if we look at giant successful companies,which most of them are from the developed countries,we should start to look at good culture which should be practised in this era of globalisation. 

images2.jpgimages21.jpgIn today’s globalised world,the competition is fierce,hence Malaysian companies must be able to change their ways of doing things.What are the good points which drive companies like Maxis,Digi,Dutch Lady,BAT,Nestle to perform extremely well for the past decade? 

images5.jpgimages6.jpgIs it the people in the company?According Philip A. Fisher,it is essentially the people who will drive growth in a company.What we can notice from the people in these companies are their diverse nationalities.As the people comes from different background and countries,they contribute more creative ideas and processes to overcome problems.If a company consists of all Malaysians only,the people tend to have groupthink-a phenomena where all the people in the companies agree to one another for the sake of avoiding confrontation.We are more conservative due to our culture and background.It’s good to form harmony but in a business settings, people needs to challenge each other positively and to come out with better ideas.In long term,the diversity in the ethnicity and nationality will benefit the company and gives value to the shareholders. 

Multi national companies (MNC) also have better ‘check and balance’ corporate structure in place. If you analyse their corporate governance by looking at the board of directors,you will notice a diverse background and nationalities of the directors.This is a positive sign because it is harder for ALL directors to act against the interest of shareholders.

MNC also has a few major shareholders.Usually the ownerships are divided into 40% to 50% by the founder,30% to 40% by institutions/funds,10% to 30% by retail investors (public).The founder and institutions will watch over the board of directors and management.Independent directors can report straight to the founder without being restricted by the board.

Let’s look at an example of a well managed company (DIGI) for better clarity of my explanation. stv002.jpg

DIGI has 3 major shareholders in early 2007 (Telenor Asia 61% , Goldman Sachs 4.79%,Smallcap World Fund 2.9%).Telenor Asia has been requested by SC to reduce their shareholdings by end of 2007 but this is beyond our scope of discussion today.Let’s look at the figure above showing the people in the board.We have a combination of foreigners and Malaysians in the board.This is a good indication because directors who have broad explosure and global experience can bring in new exciting ideas into the company.When brilliant idea is put into implementation,rapid value growth will occur in DIGI.

I’m not encouraging investors to buy DIGI but these are the few qualities which value investors should look at besides price and safety margin.If the P/E of these companies is attractive,I will put vast net worth into these companies.Although the price of these companies will be volatile in short term,the value is intact and will march upward in the future.By then,the financial community will revise their valuation upward.   

All about Satellite Television Companies

March 4, 2008

To get to know what is the prospects in Astro,let’s look at one of the satellite tv company in New York: Dish Network

DISH Network Corporation provides satellite delivered digital television services in the United States. It offers direct broadcast satellite subscription television services, as well as provides video, audio and data channels, interactive television channels, digital video recording, high definition (HD) television, international programming, and professional installation services. The company designs and develops DBS receivers, antennae, and other digital equipment. It also designs, develops, and distributes equipment for international satellite service providers, as well as offers receiver systems and HD receivers. As of December 31, 2007, the company had 11 owned or leased in-orbit satellites; and offered 2,700 video and audio channels to consumers. DISH Network Corporation offers its products and services through satellite retailers, direct marketing groups, consumer electronics stores, nationwide retailers, and telecommunications providers. The company was founded in 1980. It was formerly known as EchoStar Communications Corporation and changed its name to DISH Network Corporation in January 2008. DISH Network Corporation is headquartered in Englewood, Colorado.

P/E ratio

Broadcast technology

While for years DISH Network has used standard MPEG-2 for broadcasting, the addition of bandwidth-intensive HDTV in a limited-bandwidth world has called for a change to an H.264/MPEG4 AVC system. DISH Network announced as of 1 February 2006, that all new HDTV channels would be available in H.264 format only, while maintaining the current lineup as MPEG-2. DISH Network intends to eventually convert the entire platform to H.264 in order to provide more channels to subscribers. Both a standard receiver and a receiver with built-in DVR (Digital Video Recorder) are available to subscribers. The Dish Network ViP622 HD DVR has received good reviews[4] from CNET and others. Both a standard receiver and a DVR (Digital Video Recorder) are available to subscribers for an upgrade fee. Currently Dish Network charges $5.98 per DVR as DVR service fee, which covers cost of licensing EEPG(Extended Electronic Program Guide) from TV Guide.

From Dish Network,we can see that Astro may implement these technologies in Malaysia,Indonesia,India,Brunei and China in the future.


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?

Why corporate governance is important?

January 29, 2008
This article was taken from The Edge. The article is very important to long term investors in KLSE.

On enforcement
Last year was a successful year for our enforcement efforts. Our enforcement measures resulted in swift action against the perpetrators of offences. We also have increasingly resorted to civil action to obtain restitution for investors.


Is that partly because the other actions, such as criminal prosecution or action under the securities offences, have not got the kind of results that you expected?
We have got a range of enforcement tools available to us. We have been increasingly adopting a more strategic approach towards enforcement. In the past, we have tended to rely mainly on criminal prosecution but that takes time. The courts have a backlog of cases and we have to take our turn. So, we needed to look at more effective and efficient enforcement measures although we still resort to criminal prosecution where it is warranted. But increasingly we apply administrative action, which offers quick and effective resolution, and we take civil action in appropriate cases. But we assess each case and still prosecute the major offences.


The evidence is that a lot of crime has been committed but eventually no one gets charged or if charged, not convicted with a stiff penalty. And that seems to encourage more such crime. Your comments, please.
There is a perception that because the SC is the regulator of the capital market, every offence in the capital market, be it by public—listed companies or the directors or the management or even the auditors, falls within the jurisdiction of the SC. Where it does fall within our jurisdiction, our approach is very clear. We will take action, investigate and, if the facts and the evidence warrant it, enforcement action will be taken. And you have seen our track record on this. But sometimes offences in the capital market do not fall within the jurisdiction of the SC. The SC has jurisdiction only where there is a breach of securities laws. Many offences committed in the capital market may not be breaches of securities laws. Some may be criminal breach of trust, which is a penal code offence. Or it could be a breach of directors’ duty to act honestly in the best interest of the company, which is a Companies Act offence. Where in the course of our investigation we uncover these offences, we hand over the information to the relevant agencies as we don’t have the powers to investigate and prosecute. Where, however, the facts reveal multiple offences, then we will be able to mount a joint prosecution.


Astro: A long term play

January 17, 2008

In this post,i would like to share one of the hidden jewel overlooked by the financial community.With the boom in the commodities and Oil & Gas industries,all attention seems to be focusing on companies in these industries. This has left some jewels to be undervalued.

By valuation,Astro’s operation in Malaysia is estimated at RM 4.30 (TheEdge,31/12/07). Compared to the current price of RM 3.70, the price provided a safety margin of around 14%. This valuation is only based on financial numbers only.

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If you look at management side of the valuation, Astro has the best corporate governance. Let’s look at what happened to A.K’s companies like Tanjong plc, Measat and Maxis. We can be sure that A.K has always created value for its shareholders in long term. The companies which A.K controlled never destroyed value in long term. In short term,the share price is a bit bumpy. But that’s business.Without taking risk,a company will not grow.And growth caused money! (TheEdge)

Many financial analysts just look at short term. They reported losses in Astro as something bad. Do you want a company which keep on growing or just sit there? Being in a business myself, i saw the potential that A.K wanted to seize in India and Indonesia. In the world of globalisation,those who refuse to fight will be wipe out.That’s why A.K took all his companies out from M’sia even before the globalisation idea came into Malaysia.

The next thing you might want to ask is the level of risk that Astro is taking currently.A company can crumble because of bad management and financial factors.In term of management,there is no doubt that the management is extremely great people.Just check out their profile.Next,is the cash part.Astro has very healthy cashflow and currently has no borrowings plus Astro’s account has over RM 1 billion cash in its account.That means around RM 0. 50 per share.If you buy it at RM 3.70,you are paying RM 3.20 for Astro only and get the cash for free.It offers a 26% of safety margin over its RM4.30 valuation.

If you pay RM 3.70 today (actually you are paying only RM3.20), what do you get in return? Let’s me explain this in two parts: Venture in Indonesia and India. No point discussing about Malaysia because we know Astro has satelitte pay-tv license until 2017.

Indonesia’s Venture (Please read the following news)

News 1

News 2

Astro, the dominant satellite tv operator in Malaysia, is hoping to finalise arrangements with the Jakarta-based Lippo Group to jointly operate an Indonesian satellite pay tv service undertaken by Lippo’s unit, PT Direct Vision, in a preliminary deal that was concluded in March this year.

News 3

The Lippo Groupis a giant conglomerate based in Jakarta, Indonesia, with interests in banking, finance and other enterprises. Its flagship, Lippo Ltd., listed $3.6 billion in assets in 1995. The firm owns only one small bank in the United States but has extensive interests in Indonesia, Hong Kong and China. It was founded by Mochtar Riady, an ethnic Chinese born in Indonesia.

News 4

Khazanah Nasional Bhd and CIMB Group have decided to merge Lippo Bank and PT Bank Niaga of Indonesia to comply with Bank Indonesia’s single-presence policy.

Bank Niaga, a 64%-owned subsidiary of CIMB Group, has submitted Khazanah’s plan to merge the two banks to the Indonesian central bank.

The single-presence policy requires those who control two or more banks in Indonesia to merge them, sell their stakes or form a holding company for their banks by end-2010, and are required to submit their plans by Dec 31.

Khazanah owns a 93% stake in Bank Lippo and 64% indirect stake in Bank Niaga via CIMB.

News 5

“The operators of the Astro service, MEASAT Broadcast Network Systems, are a wholly owned subsidiary of Astro All Asia Networks plc, a consortium company comprising of government-linked and private companies. Major shareholders include the Usaha Tegas Group (42.7%) and Khazanah Nasional Berhad (21.6%). Astro was listed on Bursa Malaysia in October 2003”.