KLSE Stock Review

Can SRR and OPR Affect Your Life?

noreply@blogger.com (The Smart Investors) — Mon, 19 Sep 2011 15:12:00 +0000

Cost Of Waiting

noreply@blogger.com (The Smart Investors) — Tue, 17 Aug 2010 03:22:00 +0000

Many people are in the habit of putting off decisions they have to make today. Retirement planning is one such decision that is shoved aside until retirement age is nearing. Ever wondered what putting this decision away is costing you?

Illustration

Rachel and Tara are both 18 years old. Each used a slightly different investment strategy to accumulate an investment fund at age 65. Let's assume an investment compounding growth rate of 10% per annum.

Rachel starts investing RM1000 annually from age 18, continued this for 10 years then stopped investing.
Tara waited 10 years before investing RM1000 annually and continued this for 38 years.

In the end,

Rachel had invested RM10 000 and her investment is worth RM655 617.
Tara invested RM38 000 and her investment is worth RM441 536.

Time is an important factor in any investment. Rachel's money had a longer time to grow because she started investing at a younger age than Tara. Eventhough Tara invested more money at a later age, her money didn't have the time to utilize the magic of compounding interest.

TheInsuranceCafe

noreply@blogger.com (The Smart Investors) — Mon, 16 Aug 2010 05:20:00 +0000

Interested in knowing more about insurance, taxation and unit trust investment? The Insurance Cafe is a blog I recently started. Not many posts up yet but will keep it flowing.

http://theinsurancecafe.blogspot.com

noreply@blogger.com (The Smart Investors) — Fri, 06 Aug 2010 04:51:00 +0000

Above is an article I wrote in the NST in July. The picture isn't very clear so if you'd like to have it in a PDF format do drop me an email at klsestockreview@gmail.com.

What The Bloody Hell Are Hedge Funds?

noreply@blogger.com (The Smart Investors) — Thu, 20 Aug 2009 06:03:00 +0000

Most of us have heard the words "Hedge Funds" splashed all over the media many times during this past economic slump. If you've been wondering what this creature called Hedge Fund is, then continue reading. This is just meant to be a introduction on the topic and is in no way exhaustive.

Why is it called a Hedge Fund? This is mainly to do with the investment vehicle's very nature of trying to hedge against market volatility and downsides. A regular unit trust fund aims to out -perform a certain benchmark. In contrast, a Hedge Fund seeks positive absolute returns even if the market is down. Let me illustrate this point.

In the Prospectus of the Public Ittikal Fund it is stated that the fund intends to beat the returns of the KLCI. So when the market is down by 20% if the fund is down by anything less than 20% it would have actually met its objectives and the fund managers can happily collect their salary. Thus, even when the fund declines in value there are still investors and the service charge is still at 5.5% (let alone the trustee and management fee).

On the other hand, where Hedge Funds are concerned, it is insufficient to say that a benchmark has been beaten. There is usually a 1% or 2% management fee but fund managers only get paid from the profits earned by the fund (typically 20%). This puts the heat on managers to actively manage the portfolio to ensure positive annual returns even in a bear market. That is why Hedge Fund managers are a sort of celebrity investor that usually only takes huge sums of money from high-end investors and institutional investors. Some Hedge Funds are only by invitation even. Additionally, many Hedge Funds actually invest their own capital in their Fund and this ensures they put in their best effort to get a positive return.

How does a Hedge Fund hedge against market movement? This involves many techniques but the most basic thing to understand is that they use something called "Short Selling" (click to read). This in essence means that they buy and hold investments that are good and at the same time also "short" investments that are dubious. This is a two pronged approach which is markedly different form regular unit trust funds that simply buys and sells stocks (or other asset classes).

Hedge Funds also have to report less to investors about their investments and thus provide them with more flexibility in what and where they get to invest. Investors in Hedge Funds are presumed to be large scale investors (above $1 million in assets) who can take a higher risk to get higher returns. The fund performance is largely based on the "talent" of the fund manager because he actually invests in assets that are pretty much the same as regular investors and yet he makes considerably higher profits.

KLCI Constituents

noreply@blogger.com (The Smart Investors) — Tue, 11 Aug 2009 22:00:00 +0000

This is the list of the new constituents of the Kuala Lumpur Composite Index (FBM KLCI)

How I Lost Money Trading A Stock

noreply@blogger.com (The Smart Investors) — Mon, 10 Aug 2009 15:27:00 +0000

Knowing when to buy and sell a stock is something that even experienced traders find difficult sometimes. This is because as humans, our trades aren't just objective buy and sell exercises but are influenced by our emotions.

I had some extra money on me when TM International (now known as AXIATA) was listing and thought what the heck, let me see if I can make a quick buck.

Of course at that time, market sentiment was already weakened by the global economic situation but I told myself that TMI has good backing and well, Celcom was maintaining their market share so it stood a chance of gaining at least in the first few days.

So, I purchased it at RM7 on the third day of its listing. It went up a bit. Then things went down. Over the next few months it went lower and lower. I refused to see this and kept telling myself nevermind, it will pick up. There was ample opportunity to release the stock at a relatively good price in the region of RM6.

And then it went into the RM2 region. This was when I said this whole investment is a write-off. My only saving grace was that this was not money I needed. It was extra money. Of course losing any amount of money is painful but losing money that you need to pay your mortgage or child's education will really hurt.

If you were to examine my experience, you will see that I made all the mistakes that investors should avoid. First I was extremely optimistic about my stock. Then when things went bad, I refused to see it and maintained that I will be proven right eventually. Its a case of ego buying stocks rather than a logical mind. That's how money is lost. Also, I bought the shares to make a quick buck rather than to invest. I did not do my research on the stock. In other words, it was an impulse buy.

Setting a stop loss is as important as setting a profit taking target. If you invest in the stock market you will surely face a situation where you find your stock price heading south. You can decide to weather it out or to set a stop loss and sell. You can then pick up the stock at a cheaper price and even make a profit (which would have happened if I'd purchased TMI at say RM2.50). The problem with waiting for a stock to pick up again is that it might never go back to the highs you need it to go to make a profit. In the meantime, you could have used your capital to make wiser investment choices and thus a better profit.

A Personal Experience With Top Glove

noreply@blogger.com (The Smart Investors) — Thu, 06 Aug 2009 16:01:00 +0000

Over the past economic slump I've learnt a lot about myself and the way I invest. I'd like to share with you 2 of my buys. In the next blog post, I will write about my big mistake with TM International. Today I will write about my Top Glove Corporation purchase.

I purchased Topglov (Stock Code: 7113) in May 08 at about RM5.00. I've kept the stock all through the down time because I bought it believing in the business rather than for its stock price. Incidentally, RM5.00 was a higher price to pay for it at that time. I had planned to keep the stock for the next few years.

Then the whole market slump came and well, I recently sold Top Glove for RM6.85. As of today (Aug 6th) it is at RM7.26. Timing the market is not my strategy for the simple reason that I find it too difficult to do. I rather buy into fundamentally sound companies which have a great business model and then purchase them for the long term. Purchasing a stock for the long term to me doesn't mean one cannot sell the stock and lock in profit and wait for another opportune moment to pick it up. Especially in market conditions like these where the world economic data is still bad. Also, there is an extraordinary factor helping Top Glove and that is the current surge in demand for rubber gloves worldwide due to all the Influenza viruses.

I will pick up Top Glove stocks again once this current market exuberance has died down. I do think the market is due for some correction as it seems to have run ahead while the economy is still a wounded soldier. I find it easier to learn about a few stocks and keep updating myself on their activity rather than playing the market. No doubt there are some people out there who can make money doing exactly that but I feel we all have to pick our own strategy. It isn't right or wrong but one has to see how much capital is available and also ones risk appetite.

So, buy a stock based on fundamentals. Set a target for your profit taking. Say a 15% profit. Even if the market goes higher you may want to sell because you've achieved your target. Greediness won't pay in the long run. Also once you have a few stocks which you think have good fundamentals (e.g. Aeon, Public Bank, BJToto and Muhibbah Engineering), keep learning more about them. Treat the stock market as a place to invest rather than a place to place your bets.

For those of you who fancy a copy of Standard & Poors Equity Researh on Top Glove please drop us an email and we will gladly send it to you.

We're back!

noreply@blogger.com (The Smart Investors) — Thu, 06 Aug 2009 08:52:00 +0000

I've gotten many emails and comments asking where we've disappeared to for the past few months. There isn't a massive explanation to it other than we've become really busy with work and life. Putting up even a simple blog post requires some reading and confirmation of facts and we just couldn't put in that time. However, we've decided to re-ignite our blogging fire so to speak due to the great support and encouragement our readers have given us.

The Boards Have Been Switched

noreply@blogger.com (The Smart Investors) — Tue, 04 Aug 2009 04:32:00 +0000

There have been some changes to the structure of our local stock exchange. Where previously it consisted of the Main Board, Second Board and MESDAQ Market there will now only be two boards.

The Main and Second Board will be grouped together under what is called a Main Market. The MESDAQ market (a bunch of tech stocks and slightly more dubious companies) will now be called the ACE Market. The ACE Market is an attempt to provide a platform for new and emerging companies. Hopefully the listing requirements will also change accordingly to ensure better quality of stocks are listed compared to the previous MESDAQ Market.

Setia Alam Houses

noreply@blogger.com (The Smart Investors) — Fri, 12 Dec 2008 11:50:00 +0000

Recently I went to Setia Alam (a project by SP Setia) to check out the houses there. I'm looking for a house to buy sometime in 2009. I really like their green concept, the wide roads and underground drainage. Really nice environment. Of course all this comes with a price. Houses here are rather small (or rather houses that are in my budget are somewhat small). One can get much cheaper houses in the nearby Bukit Raja. Still for me the planning and house surroundings really matter when it comes to picking a house.

There are two main exits that I've identified for Setia Alam. First is via the Setia Alam Interchange that will link you to the New Klang Valley Expressway (NKVE). The other exit takes you to Jalan Meru. I'm wondering how traffic will be once the Klang Sentral bus station comes online.

House prices will drop a bit more in my opinion. For example houses that were going for almost RM270,000 are currently about RM20k to RM30k cheaper compared to mid/early 2008.

Please do email me some feedback about what you think of Setia Alam. Oh and by the way I intend to stay here and its not meant to be an investment. Of course if price appreciates its a bonus but its not the primary motive if you get what I'm saying. Cheers!

What's Up With KNM?

noreply@blogger.com (The Smart Investors) — Thu, 16 Oct 2008 13:43:00 +0000

Seems like KNM shares took another hit following yesterday's plunge. During intra-day trade today, it's share price sunk to RM0.39 but recovered to close at RM0.685. Brokers and investors alike are scratching their heads over this massive price movement. Looking at the volume (340 million) of shares transacted definitely shows that some big players have a hand in this.

In a filing with Bursa, I see that the KNM has purchased about 16 million of their own shares today. Their highest purchase price is RM0.69 whereas their lowest purchase price is RM0.415. Got to watch out for the company propping up their own price.

However, as I mentioned yesterday, KNM's business fundamentals remain intact. Oil price are facing downward pressure but I think this is temporary. Demand is still there. After all, with all the credit crunch and world recession, crude oil prices are still higher than they were last year. This will be good for KNM as they are service providers to the Oil & Gas industry. As long as this industry booms, KNM will be able to fill its coffers.

KNM's management has also indicated that its order book stands at a healthy RM4.7 billion. With all the recent share price movement, AmResearch has lowered their 2009 target price from RM2.66 to RM1.48. If this is anything to go by, then investors may be looking at some healthy gain if accumulation is done at current prices.

KNM Share Price Plunges

noreply@blogger.com (The Smart Investors) — Wed, 15 Oct 2008 12:23:00 +0000

KNM's stock price took a hard hit today by closing almost 24% (RM0.69) lower from yesterday's price of RM0.905. Seems like the Boston-based FMR LLC and Bermuda-incorporated FIL Ltd (Fidelity), both major shareholders of KNM, have been selling some of their stocks. I presume this has more to do with their position back in US where things are getting tight economically rather than KNM's fundamentals. As far as I can see, their fundamentals are fine. One may argue that they have been rather aggressive with their expansion plans but KNM's management team has always proven their prowess in the past.

However, a huge drop like this does seem odd. Apparently Lee Swee Eng, managing director of KNM, hasn't got a clue as to what's going on. “I do not know what is happening. I’m a bit surprised”, Lee says. Great. As usual whenever companies are queried by Bursa about unusual market activity, they just shrug their shoulders and act surprised. Lets hope some news will come out tomorrow that will shed light on this situation.

Farewell To VADS

noreply@blogger.com (The Smart Investors) — Wed, 24 Sep 2008 11:50:00 +0000

Looks like one of my favourite counters on Bursa is going private. VADS is being taken private by its major shareholder, Telekom Malaysia Bhd (TM). TM currently holds a 63% stake in VADS. I personally think the offer price of RM7.60 is rather unattractive for a great company like VADS. For the past years, rain or shine, VADS has always managed to roll out good profits. Why should I as a minority shareholder let it go for such a small premium?

Below is the Fair Value Estimates by various analysts. The average Fair Value Price for VADS is around RM7.70. TM really has a lot to gain from taking VADS private and conversely the minority shareholders have everything to lose. VADS growth has not lost steam and would have given investors something to be happy about in lackluster economic times like these.

Source: Business Times Online

VADS Rating Upgraded to Strong Buy

noreply@blogger.com (The Smart Investors) — Wed, 17 Sep 2008 16:00:00 +0000

Standard & Poor's (S&P) have upgraded their rating for VADS Bhd from a Buy to Strong BUY with a 12 month target price of RM7.50. That is up from their previous target price of RM7.00. Some factors that might affect these ratings according to S&P include a reversal of outsourcing trend and VADS Bhd's ability to control cost of operations. Well these are pretty standard risks. I personally see VADS doing well in the coming years.

Main Reasons For Rating Upgrade

Revenue for the quarter was 22% higher YoY, and 12% higher YoY for 1H08. Revenue growth was achieved at both its managed network services (MNS) and contact center (CCS) businesses. Although revenues from system integration services (SI) only reached 19.5% of our forecasts for 2008, SI revenue tends to be lumpy and bunched into 2H, as project implementation usually begins at the start of a calendar year with completion in the later part of the year.
EBIT margin for the period expanded to 14.2% from 10.2% a year ago due to reduced doubtful debt provisioning and better economies of scale. However the effective tax rate for the year to date of 25.8% was higher than expected, due to a delay in securing the renewal of pioneer status for its MNS business. Net profit for 1H08 grew 27% YoY to MYR27.7 mln.
We are raising our 2008 and 2009 net profit forecasts by 10.1% and 11.1% to MYR67.2 mln and MYR76.7 mln respectively. VADS’ contact center contract with Celcom was renewed in March 2008 for a further five years. A contract for contact center services for TM’s Streamyx and non-Streamyx applications for a three-year period was also renewed in July 2008. The outlook for VADS remains positive with corporates continuing to focus on lowering costs by outsourcing support services. Management also expects new MNS and CCS mandates to be secured in 2H08.

You may find this article I wrote a few months back interesting. Just click on the link below.

VADS Bhd: Resilient Stock?

Report On The Malaysian Market By Deutsche Bank

noreply@blogger.com (The Smart Investors) — Mon, 15 Sep 2008 09:34:00 +0000

I received a report by Deutsche Bank entitled Malaysia Strategy: A cocktail of negative trends; Underweight. Below is a short summary of this 32 page report. For those of you interested in obtaining the full report, email me at klsestockreview@gmail.com.

Malaysia Strategy: A cocktail of negative trends; Underweight

A painful adjustment period for equities, fixed income and the currency. Not the time to own Malaysia; no quick resolution to political uncertainty. The market is going through pain not felt since the Asian crisis. We anticipate further risk to earnings (commodity slowdown, higher input costs and waning consumer spending), a weaker currency, higher funding costs for companies and further deterioration in the political landscape. We now expect the economy to grow at a slower pace of 5.8% and 5% for 2008 and 2009, respectively. But much of this assumes that commodity prices do not tumble further. Also, the lack of policy direction and much needed reforms adds to what is already a fragile market.

Not at bargain valuations yet; inferior EPS growth (with more downside risk). The market is not yet at bargain valuations. In fact, valuations look expensive with the market at just a 2% PER discount to the region at 12.3x PER and 1.9x P/B. The market should be trading at a wider discount considering inferior growth of 1.7% and 6.5% for 2008 and 2009, respectively (vs. the region at 6.8% and 17.8%). Watch out for further EPS cuts as the street adjusts for falling palmoil prices, higher input costs from steel, fuel, etc., potentially higher cost of funds (spreads have widened by 100-150bps) and waning consumer spending. We think the worst is not yet over. Critical policy decisions should be made to reverse negative trends but there are just too many political distractions in the way for now.

Worrying trends: widening fiscal balance, weaker currency and wider spreads. The recent budget failed to restore confidence in the market. The overly generous handouts to soften inflationary blows and the big lifts in development expenditure (fiscal deficit to rise to 4.8% in2008 vs. 3.2% in 2007) have sent the bond market worrying about the 'wall' of issuance from the Government. This has put pressure on the currency at a time of significant negative interest rates. Beneficiaries of a weaker currency are: MISC, KNM Group, YTL Power and QL Resources. Potential 'losers' are Tenaga, Lafarge, MAS, AirAsia, Proton and UMW.

Underweight maintained; KLCI target at 975, suggesting 9% downside. Our KLCI target of 975 is based on a 10% PER discount to the region, implying 8.5% downside or valuations at 11.3x and 10.7x for 2008 and2009, respectively. We are Underweight large cap sectors like banks and plantations. For investors who have little choice but to remain invested in Malaysia, we advocate defensive names like TM, PLUS, Berjaya Sports Toto and KLCC Property. For longer term investors seeking deep value, we like IGB, Gamuda and KNM. The key risks on the upside for the market are:(a) a sharp recovery in commodities lifting the palm oil sector, (b)resolution to the political uncertainty, and (c) Government policiesto restore confidence in the currency and the domestic bond market. Underweight.

Investing In Unit Trust Funds Through The EPF

noreply@blogger.com (The Smart Investors) — Mon, 08 Sep 2008 09:47:00 +0000

Last year, I wrote a post on investing in Unit Trust Funds through the Employees Provident Fund (EPF). The current rules for investing by this mode have changed and so this is an update on these changes. It's now much easier for a younger person to take charge of his/her money by withdrawing and investing it in Unit Trust Funds as the new tiered system makes provision for this.

In the chart below you will see there are two columns.

1. Age (Years) : Obviously means the age of the EPF account holder.

2. Basic Savings : This is MINIMUM amount you need in Account 1 before you can even think of investing. Now, only a MAXIMUM of 20% of the money in excess of the Basic Savings amount may be invested. The examples below illustrate what I mean.

1st Malaysian Online Unit Trust Distribution Portal!

noreply@blogger.com (The Smart Investors) — Sat, 06 Sep 2008 11:32:00 +0000

In other parts of the world (as close as Singapore even) online portals selling unit trusts or mutual funds have been in existence for a long time. It works precisely like any online shopping portal. The only difference being that these fund supermarkets sell financial products such as unit trusts.

The good news for us Malaysians is that we now have our first online Fund Supermarket called Fundsupermart. It was launched sometime this month by iFast Capital Sdn Bhd. Fundsupermart (address below) itself isn't new and has been selling unit trusts online for a while in many different countries. Just that now it has started selling funds offered by Malaysian financial institutions.

The main benefit I see is the very much reduced service charge. Most funds in the country charge around 5.5% fees but Fund Supermarket only charges a 2% service charge. That's a mighty big discount. So for those who do your own investment and feel its silly to be paying so much just to get a unit trust agent servicing you, then this Fund Supermarket is something you'll want to look into. The website is also great because it's a one-stop information portal for data like fund performances, fund rankings and daily prices.

Fund Supermart sells funds from a number of companies including Alliance, OSK, Affin, AmBank, RHB, TA and Prudential. I guess these smaller players had to do something different to beat the big guns like Public Mutual and CIMB Wealth Advisers. Still, I feel its a progress in the sense that this puts pressure on other unit trust companies to lower their service charge as more and more people opt to buy the product online.

Fundsupermart website: http://www.fundsupermart.com.my/

Finance Asia: Public Bank Wins Best Asian Bank Award

noreply@blogger.com (The Smart Investors) — Fri, 05 Sep 2008 09:39:00 +0000

Here is an interesting read for all you Public Bank fans out there. An injection of the 'Malaysia Boleh' spirit.

Public Bank has been named the Best Asian Bank by FinanceAsia. The decision was announced at the magazine's Country Awards for Achievement Dinner, held in Hong Kong last night.

"The banks that are shortlisted for this award are whom you might expect, the cream of Asia’s banks," says Lara Wozniak, editor of FinanceAsia. "The decision on the winning bank is a highly quantitative one – with each bank scored on a number of key performance metrics. I am pleased to say that Public Bank scored the highest of the eleven shortlisted banks.”

The Best Asian Bank award is given to the bank that ranks highest among the eleven banks that have individually won our Best Bank award for each country. We ranked the banks by a series of metrics and also by their scores in Standard & Poor’s Bank Fundamental Strength Ratings. We looked at 12 metrics: return on assets, return on equity, profit per employee, total profit, total assets, percentage of net income derived from fee business, market capitalisation, NPL ratio, growth rate, number of employees, price-to-book ratio and net interest margin. The best-ranked in each metric got 11 points and the lowest-ranked got 1 point.

We then overlaid this with S&P’s Bank Fundamental Strength rating, which measures a bank’s strength, and graded them with an A rating getting the most points and an E rating the least. The S&P rating got a 25% weighting in the overall score.At the end of this point scoring system, Public Bank emerged as the Best Asian Bank. The eleven shortlisted banks were: ICBC (China), HDFC Bank (India), BRI (Indonesia), Shinhan Bank (South Korea), MCB Bank (Pakistan), DBS (Singapore), Bank of Philippine Islands (Philippines), Siam Commercial Bank (Thailand), Public Bank (Malaysia), Chinatrust (Taiwan) and Sacombank (Vietnam). HSBC (which won the Best Bank award for Hong Kong) is excluded on the basis that it is a global bank.

Source: www.financeasia.com

Tony Fernandes Starts Blogging

noreply@blogger.com (The Smart Investors) — Thu, 04 Sep 2008 06:51:00 +0000

Tony Fernandes, CEO of Air Asia has started blogging. It will be cool to see what he says there. I must admit I've been a fan although I'm sometimes critical of Air Asia. Still there is no two ways about it, Tony has massively and positively changed the landscape of our aviation industry (Now Everyone Can Fly!) and we all thank him for that. Welcome aboard Tony!

www.tonyfernandesblog.com

Previous Articles Of Interest:
AirAsia Clarifies Fuel Hedging Position (finally!)

AirAsia's Stock Price Goes The Opposite Direction Of Their Planes

REITs: An Overlooked Investment Vehicle

noreply@blogger.com (The Smart Investors) — Fri, 29 Aug 2008 05:48:00 +0000

Real Estate Investment Trusts (REITs) are one of the most overlooked class of investments in Malaysia. Somedays I notice that there is zero volume for many of the listed REITs. They are a rather unexciting investment vehicle due to their longer investment horizon. Just like property, one needs to wait a long time for price appreciation. So on KLSE, where retail investors rather "play" than "invest" in stocks, REITs are left out.

There are a number of REITs trading below their Net Asset Value (NAV). For example, if you were to look at ATRIUM REIT, the current NAV is RM0.9960 per share. However, it is trading at RM0.77 per share. As for Tower REIT, the current NAV is RM1.449 but trading is at RM1.120. Hektar REIT, current NAV is RM1.188 but trading at RM1.00.

So buying it at the current price is akin to buying a piece of property at a lower than market price. Whilst this might sound like a good deal, investor are put off by the extremely low liquidity of these stocks.

Of course REITs are not helping their case by just remaining silent without acquiring new property. Since listing ATRIUM REIT still only has their four original properties. Where is the expansion program? Still it must be admitted many of the REITs currently trading on KLSE remain profitable and also have good dividend yields of above 5%.

So far, Quill Capita Trust seems to be one of the more active REITs around in terms of property acquisition. Also they are one of the best in terms of dividend yield. Investors should look into REITs since they are very unpopular now. In a few years you will reap some good money. In the meantime, just enjoy the dividends. Most of the REITs are trading at very attractive rates. However, don't expect much liquidity for your shares. Its a buy and keep strategy. The REIT fever will catch on in future and those who saw it before hand will be greatly rewarded.

My Article In NSTP

noreply@blogger.com (The Smart Investors) — Tue, 26 Aug 2008 12:06:00 +0000

Last Friday, an article I wrote entitled Leasing - An SME Funding Option appeared in a pullout called SME FOCUS in the NSTP. For those of you who don't have the paper with you, I've copied the article below.

Leasing – An SME Funding Option
By Jonathan A. Victor

SMEs are crucial to the Malaysian economy, providing a diverse business base in addition to contributing toward job creation. SMEs are akin to incubators from which future multinationals will rise. A United Nations Development Program (UNDP) study 3 years ago found that of the 519,000 businesses in Malaysia, 99 per cent of them consisted of SMEs, accounting for over 3 million workers – highlighting the importance of SME growth to the country’s economy.

As the world market undergoes rapid change, SMEs face challenges in the bid to stay relevant and in pace with these transformations. The Small and Medium Industry Development Corporation (SMIDEC) has highlighted the need for SMEs to provide more sophisticated and specialised services, embrace ICT and have strong e-commerce capabilities in ensuring that they can compete globally in terms of cost, quality and dependability.

One of the most important ways in achieving low cost, good quality and reliability is the ability to ensure sufficient access to funding. Cash flow is vital to the very existence of the company. Run out of money to roll and the company runs into trouble.

A large number of SMEs rely on private funding, be it from owners themselves, family or friends. This poses a large cap to the progress of the business, especially if it’s at its infancy. There are different types of funding available from banks, government agencies, venture capitalists as well as leasing companies.

Lessor and lessee
Leasing refers to the contract between a leasing company (the lessor) and an SME (the lessee); the lessee pays the lessor a fee for the use of a particular equipment or building without the lessee having to eventually own the aforementioned equipment or building.

The key difference between a loan and a lease is that in a loan scenario the SME is in fact borrowing money to pay off the entire value of the equipment or building. In a lease however, the SME merely pays for the use of the equipment or building.

One common example of leasing is found in the printing and photocopying industry where many companies lease their printers and photocopiers rather than buy them. By leasing, the enterprise frees up cash to pump into other parts of the business operations instead of locking up capital into one photocopier. This highlights another benefit – instead of buying one photocopier, a company can lease a few and inevitably multiply its income.

The latest in equipment and products
Leasing also eliminates the risk of equipment becoming obsolete after a few years. If an enterprise chooses to lease, they can simply swap the equipment for newer models or versions rather than be hampered by old technology. This of course also eliminates some of the cost accrued from running outdated machinery or software.

Businesses that are highly reliant on computers and software especially benefit from a reduction in IT based capital expenditure as hardware and software become outdated every few years. How many companies can afford to buy new computers that often? The solution is leasing. This will also ensure that the annual outflow of funds remains lower than if a company were to resort to buying or taking out a loan.

No maintenance and increased flexibility
Another plus point for leasing is the absence of maintenance fees as most leasing agreements place maintenance of equipment and machinery with the lessor. This makes a lot of business sense for an SME because it helps free time and funds that can, alternatively, be channelled into the core business. In construction, a breakdown in machinery will burden the company – in repair cost and work delay – which ultimately hurts profit margins. This risk is mitigated through leasing where leasing companies provide quick replacements.

With leasing, business will also benefit from the flexibility of customising their fleet size to suit current business needs. Flexibility is crucial for SMEs in adapting to an ever changing business environment.

Tax free as well
Another great benefit of leasing is that the amount paid for the rental of equipment is fully tax deductable. This can work out to be a substantial amount especially for businesses that rent expensive medical and construction equipment.

There are a number of companies in Malaysia that provide leasing facilities from items as small as cameras to heavy machinery. Many of these companies are subsidiaries of large public listed companies giving SMEs the assurance of reliability. These include ORIX Leasing Malaysia Bhd, Hap Seng Consolidated Bhd, Sunway Credit and Leasing Sdn Bhd and UMW Toyota Capital Sdn Bhd.

The following two websites are very useful in providing comprehensive information and links for leasing and other SME related services: www.smeinfo.com.my and www. smidec.gov.my

Fuel Price Debate: Anwar vs Shabery

noreply@blogger.com (The Smart Investors) — Wed, 16 Jul 2008 02:55:00 +0000

I watched the "debate" between Information Minister Datuk Ahmad Shabery Cheek and PKR adviser Datuk Seri Anwar Ibrahim on tv just now. What really confounded me was how unclear Shabery was about the very idea of a debate and the particular topic at hand. He didn't have figures, he launched into personal attacks on Anwar and didn't answer the questions put forward to him. I was completely unimpressed with his way of beating around the bush and wasting time.

For example, Shabery was asked what happened to the approximately RM4billion Petronas paid to the government. Previously, when the government raised petrol prices by RM0.30, they claimed the extra money will be used to better the public transport. Now, according to government figures, apparently only about RM800 million was used. So the question asked was, "What happened to the rest of the damned money?" Shabery's answer was completely off-track. He said a lot of words but at end of the day, ended up foaming at the mouth and not answering the question.

Anwar on the other had was made to look good in part by the sheer inability of the Information Minister to debate in a relevant manner. Anwar talked about his strategy to bring down oil price. He did talk about how this will help the poor. Although I don't really understand how he can say by bringing down the oil the poor will benefit. End of the day, I feel it is better to have directed assistance to groups of people identified as "in need".

If you bring down the prices of petrol by RM0.50 as Anwar said, the person driving the fuel guzzling Toyota Harrier or Mercedes S-Class will also benefit. This group does not need assistance. If Anwar says he wants to help the poor nelayans (fishermen) isn't it a better thing to provide this group with business assistance or some other form of assistance instead of a blanket cheaper oil for all? To bring down petrol prices and claim its for the poor is misguided. Food subsidies or other forms of targeted assistance is a much better method or helping the poor.

As a debater its clear that Anwar was the better one. He stuck to the topic and also didn't go into a history of Petronas and subsidies. I watched the debate to know each person's stand (or rather the political party they represent) on the increase/decrease in fuel price. I didn't watch it to see the BN representative take personal hits at Anwar. There is a time for that and this debate is clearly not the avenue for that.

If its starting to look that I'm throwing my support behind Anwar let me say clearly that I'm not a supporter of PKR or Anwar. I am for proper economic policies and fair administration. Whoever can give me that, I will support. I will definitely say BN shot themselves in the foot by sending Shabery to this debate. I'm sure BN has reasons of raising the oil prices but its sad to see that they didn't take the time to explain why. Instead the time was wasted in rhetoric.

One thing I'm still confused about is this: Anwar promised to bring down petrol prices before the elections. At that time the price at the pumps was RM1.92. But in todays debate he only mentioned about bringing the price down by RM0.50. Did he mean it will come down to RM2.20? Or RM1.42? These are the questions the public would like to know. Not what Anwar did when he was finance minister or whether he supported the IMF's stand during the Asian financial crisis. While these things are also in the interest of the public to know, again as I mentioned earlier, this debate was not the avenue for it.

However, I must applaud the government for being progressive and allowing this debate. This is what true democracy is. Democracy isn't as narrow as allowing the people to vote. Democracy is also about allowing the public to make informed choices without bias, without twisting of the truth. Openly the leaders debated and based on this the rakyat can make informed choices. I think this kind of debate should be encouraged. It would become my favourite TV program if they had it regularly. Or maybe second, nothing beats watching Formula 1.

I'm still as unclear as to why the fuel price was raised. Its not a good explanation to say that it is so Petronas doesn't have to be burdened. We are not even talking about Petronas' money. We are talking about money received by the government as payment from Petronas. Even if the government takes of the subsidy, Petronas is still paying the government the same amount. So how does this offend Petronas bottom line?

What we the rakyat want to know is where is the extra money saved by the government by lessening the oil subsidy going? There must be more accountability. If the people are convinced that raising the fuel price is for their own good they wont fight it with such gusto. End of the day we all understand that fuel is a non renewable source of energy. There is no harm in making humans pay a higher price for such a precious resource.

However, BN has quoted reasons that are not clear. We are not fools. Many of us have degrees in economics and finance. We do know how inflation and oil prices work. Give us intelligent answers. I really don't care about Anwar or Shabery. All I want is clear answers. I'm sure the common man is still groping in the dark trying to understand all these changes. Debating Anwar would not have been hard if one had figures and logic as a cornerstone. BN should have sent someone who did his homework. Would have been nice to see Anwar given a run around.

Anwar should have been pressed on how he is going to work his strategy of reviewing IPPs contracts, eradicating corruption and running a government in such an efficient manner so much so that they money it saves will be able to subsidise fuel. What if oil prices go up to US$200 a barrel, will Anwar's gov still subsidise it? Will he juice more out of Petronas?

It is Anwar's dream to bring down oil prices but this means he has to stem the flow of money into individual hands. How is he going to do this? Even if he can set up government, BN will still have many of their people in power. Not all in BN are rotten. End of the day we must not forget that BN did win the election so there is support for it among the people. Policy changes is much more important to the man on the street than change in party.

Following this train of thought, Anwar is supposed to bring down fuel prices the very next day he gets into power. But I don't think it is possible to tighten the governments belt and make it a lean money saving machinery overnight. It might take years. How then does Anwar propose to plug all the so called leaks he say the BN government has? Human nature is the same all over. PKR isn't a band of saints. Money can currupt anyone. How is Anwar's government going to rewrite contracts, generate enough expendable income and bring down fuel prices at the same time.

Anwar's plan looks good on paper. How is it going to work in real life? See Anwar doesn't need to worry about explaining all this as long as BN uses debate platforms for displays of foaming comedy. I'm curious to see how the Star and NSTP do "creative reporting" about this debate.

Interesting Stock Charts

noreply@blogger.com (The Smart Investors) — Mon, 14 Jul 2008 12:04:00 +0000

The saying goes, 'A picture is worth a thousand words'. So, I've decided to post a few stock with interesting chart formation. Could be worth a watch (mind you I didn't say BUY!). All charts are for based on price movement for the past 2 years. Although these stock have been beaten down due to various factors I think the fruit is ripe for picking if you're one of those investors who can wait few years to see a return. Of course you might see a return in a short time if market sees better days.

VADS Bhd: Resilient Stock?

noreply@blogger.com (The Smart Investors) — Wed, 25 Jun 2008 10:31:00 +0000

With the shaky global economic outlook, commodity prices pushing ever greater heights as well as political shifts, it seems that investing in Malaysian equities not only requires investing prowess but also a strong heart. Investors are increasingly looking to buy into resilient stocks that will help them weather the stormy seas of the market.

A resilient stock may be defined as one with earnings that are not cyclical in nature. In other words, the company’s products or services would command a healthy demand even during a down or volatile market scenario.

VADS Bhd, one of the country’s leading managed ICT services provider, fits the bill nicely with its healthy growth, stable outlook, high dividend yield and attractive valuation. Since its listing on Bursa Malaysia in 1992, VADS has achieved a laudable 16 years of continuous revenue growth. For FY2007, the company recorded revenue of RM523.3 million – an increase of 42% compared to the last financial year. Meanwhile, profits increased 67% to RM54.1 million.

VADS was named the ICT Service Provider of the Year by Pikom (the Association of the Computer and Multimedia Industry, Malaysia) in 2006. The company also ranked 54th in the Deloitte Technology Fast 500 Asia Pacific 2007 awards. The awards recognise the 500 fastest growing technology companies in regions around the world.

Since its beginnings as a joint venture between TM and IBM to offer managed network services (MNS), VADS has grown its core business to include contact care services (CCS) and systems integration services (SIS). Its MNS business segment currently contributes 50% of its total revenue whilst CCS and SIS account for 35% and 15%, respectively.

MNS and CCS contracts serve as anchors to VADS stability because of its long contract durations and therefore generate a strong recurring revenue stream. As these two core businesses make up 85% of VADS revenue, earning visibility and stability are greatly enhanced.

Being a 64.77% subsidiary of TM is also a huge boost as its parent company ensures that VADS secures valuable contracts. This year, it bagged a RM371.43 million contract from Celcom Mobile Sdn Bhd, a unit of Celcom (Malaysia) Bhd, to provide contact centre and business process outsourcing services. The contract expires on Feb 28, 2013. Additionally, VADS was awarded a five-year contract from TM to manage its TM Retail Contact centre (TMRC), effective 6 Jan 2007.

VADS is also set to benefit from the de-merger of TM. The de-merger exercise has seen TM’s cellular and non-Malaysian businesses go to TM International (TMI), while TM retained all the group’s fixed-line voice, data and broadband services. As TMI’s business expands, VADS could see a boost especially in its CCS segment, whereby it can use TMI’s presence overseas to expand its business in those countries.

There are concerns that VADS over-reliance on business from its parent company TM could have an adverse effect if TM’s business suffers. In response to this, the management of VADS has taken steps to diversify their client base with the signing of contracts with international firms Linksys (a division of US based Cisco Systems) and Mobile One (a leading Singaporean mobile communication provider).

The company has also set up representative offices in Indonesia early this year to boost their presence overseas. According to company CEO Dennis Koh, the group is steadily increasing its presence abroad to tap on the growing Asian market.
“Because of the soft environment in the United States, businesses will look at moving some of their operations offshore to Malaysia, India or the Philippines. We will try to get a slice of that”.
“In terms of performance, we hope to beat FY07. We are still targeting double-digit growth across all three business segments this year,” he added.

This year, VADS is targeting to enhance its SIS segment so that it grows on par with their other two core businesses. This is because the management is of the opinion that the convergence of information technology and networks would drive demand for the company’s services.
From a stock price standpoint, VADS has appreciated 10% from a low of RM5.35 on March 10 to close at RM5.90 on April 24. With its 2007 earning per share standing at RM0.42, the stock is trading at an attractive PER of below 15x.

On Oct 22 last year, VADS undertook a share split exercise on the basis of 1 share of RM1.00 par value into 2 shares of RM0.50 par value to increase stock liquidity. Since its share split, the stock price has hit its highest closing price of RM6.85 on Dec 24.

VADS Bhd’s order book currently stands at RM400 million and is expected to grow to RM500 million this year. The company sits on a cash pile of RM110 million, which will enable it to continue paying out good dividend rates. In FY2007, the company paid out a total of RM0.30 per share.

Given its good growth potential and resilient business nature, it is believed VADS is in a good place to weather the challenges of the current economic landscape. A strong management has also helped VADS return each year with better revenue, something set to be repeated this year as they have already outlined efforts to expand regionally.

I wrote this article for NST a while ago. I promised to post it up and so here it is. Although it was published about a month ago it is still highly relevant as the analysis of VADS Bhd still holds true today. VADS is still one of my favourite stock. As you can see by the closing price today that after all the volatile market and shaky political situation VADS is still holding up pretty well.

VADS closing price for 25/6/08 : RM6.10