ICAP’s 5th AGM (Part 4)

Below are the 18 companies that ICAP has mentioned during the AGM:-

1) Airasia
According to TTB, he thinks Airasia is a well-managed company and it is expanding aggressively. Due to this kind of aggressive expansion, Airasia leveraged quite heavily to finance the purchase of new airplanes.

ICAP believes that Airasia could make an outstanding profit and also penetrate well into the aviation industry during good time, however it would invite high risk as well while encountering bad time.

After ICAP invested into Airasia not too long at year 2008, the world financial market faced a rapidly deteriorated economy due to the bankrupcy of Lehman Brother. So the pessimism was spread so furiously and caused a huge confidence risk as most banks wanted to withdraw their credit. As a result, ICAP concerned about Airasia could be in trouble due to liquidity risk amid the confidence risk. Thus ICAP sold Airasia decisively for security purpose. The disposal made a gain of RM540,000.


2) Axiata
It was not ICAP's intention to invest Axiata. Axiata is the product of the demerging exercise of Telekom Malaysia Berhad ("TM"). ICAP was initially investing TM before the announcement of demerging TM Internationl ("TMI") from TM (TMI was subsequently renamed as "Axiata").

The initial investment of TM was not because of Axiata. In fact, ICAP is more interested to the fix-line telephone business that still under TM now. Thus ICAP decides to keep the original TM shares after the demerging plan and was finding a good timing to dispose Axiata.

However, the reality always to its back to investors as it happened the opposite way as what ICAP has expected. Instead of finding a good timing to dispose Axiata at a higher price, Axiata's announcement of Right Issue with an issue price of RM1.12 per share and also the 'Lehman Panic' incident just sent its share price to a hell down from around RM8 to the lowest at RM1.47. Since the Right Issue was RM1.12 and thus it was very dilutive to the existing shareholder if he decided not to subsribe the Right Issue offer. So what was the reason that ICAP dispose Axiata and realised a loss of RM14 million without further subscribing the Right Issue?

TTB explained that Celcom is the gem of Axiata and so far the best performing subsidiary. Nevertheless, Malaysian cellphone market is going to be saturated and thus it will step into a mature stage. Hence TTB doubt that whether Celcom can further support other non-performing subsidiaries of Axiata? Axiata's the other 3 subsidiaries are either stuck in a mass loss or a slight marginal gain situation, thought I believe they are turning the situation these few years.

All these 3 other subsidiaries are operated at foreign markets and their accounts are recorded with foreign currency amounts, and thus they are subject to a great foreign currency exchange rate risk while consolidate into Axiata's group account. (Note: for my own opinion, i think the foreign currency exchange rate risk is a non-issue as the foreign currency exchange rate is too fluctuate that today can make a foreign currency exchange gain and tomorrow these would be a foreign currency exchange loss. As a whole, this foreign currency exchange gain and loss is just an accounting issue and thus will offset each other in long run, unless the depreciation or appreciation of the the foreign currency exchange rate is a structural change).

Though the 3 oversees subsidiaries seems to have very good potential, it is a question that when will they break even and start to contribute to Axiata's bottom line. Moreover, Axiata was in heavy debt to TM. This is the reason why Axiata wanted to engage the Right Issue in order to spin off the debt to TM. However, after paying the debt to TM, Axiata borrows a huge debt funding again for the acquistion of the shareholding of another subsidiary, i.e. "Idea". So Axiata's net gearing rises once more and TTB thinks the aggressive expansion via high debt funding seems not a wise move. In fact, the existing 3 oversees subsidiaries still have room to improve and thus post a better organic growth. Instead of improving internally, Axiata chooses an easier way to grow via acquisition and thus taking more financial leverage risk to turn around another subsidiary.

As ICAP did not want to further expose to the Axiata's high leverage risk and also there were other better investment opportunities than Axiata at Bursa Malaysia, ICAP decided to dispose off Axiata and used the remaining proceed to invest into other more promising counters.

(This was almost the same reason that I wrote in the previous thread to indicate that why ICAP realised Axiata at a loss of RM14 million).
http://kinwing.blogspot.com/2009/08/icapaxiata8-8-2009.html

东和资源股价跟镍价的联系。

由于收到草根兄有关东和资源股价(Tonger’s Price)跟镍价(Nickel’s Price)联系的问题，所以特别开了这个帖回复草根兄的疑问。其实我现在也正在以英文作草稿撰写着Tongher’s Price跟Nickel’s Price之间的正面联系(Positive Correlation)，它将被呈现在"TONG HERR RESOURCES BERHAD (PART 2) 或 （PART 3)"。

我之前向草根兄提过东和("Tongher")是以先进先出（"FIFO")的会计方式来记录其存货的成本，这也是唯一被FRS会计准则允准的存货记录方式。另一种的存货成本记载方式是后进先出("LIFO")，这种方式比较广泛用于美国的会计制度("GAAP")，其对FIFO的优势是延后缴税("Deferred Tax")。不过美国GAAP将逐渐的与IFRS融合（"Harmonise")并逐渐过渡采用IFRS的准则，所以LIFO在未来将不被接纳。

FIFO的方式会将原料成本购买价的效应延后一段时间才发酵。其原料成本价效应通常是在未来原料购买价与之前的购买价出现了相反的发展趋势才能感受得到。可能我这么说草根兄还不能明白，所以我在以下举个例子。

假设我们现在是处于2007年的高通货膨胀时期("Inflation")，所有的原料价都涨价，包括Nickel's Price。由于原料价的上升，因此这给Tongher一个理由来为它的制成品("Finished Goods")涨价,以尝试将高涨的成本转移至客户身上。所以这有助于公司提高它的销售额("Revenue")。另一方面，由于受制于FIFO的方式，Tongher的销售成本("Cost of Goods Sold"或简称"COGS")却没有大幅度增加。这是因为Tongher的2007年会计帐目不能即时反映2007年的原料高收购价，而只能以2007年之前的低收购价来记录其COGS。

即使Tongher在2007年年头所购买的原料存货并在同一年的年尾以Finished Goods来出货(Real time inventory transaction is using LIFO),但是Tongher的会计记录方式还是要用2007年之前较低的原料收购价来反映其COGS。由此可见Revenue的增加是即时反应了通膨的效应，但COGS却往往在这个时刻因为FIFO的因素而保持不变甚至有所下降，因此这种落差将会为公司的营运盈利("Operating Profit")带来正面的增长。

相反地，当原料价下跌时，公司的Revenue就会即时反应出下跌的趋势(因为那时候Finished Goods不降价都不行，因为客户极可能会给公司压力，尤其是工业产品并无任何实质的品牌效应以保持起其产品价格不变），但之前在高价买进的原料存货却需得在这个时候呈现出来。所以祸不单行的是除了公司的Revenue下降之外，其COGS也在此时大涨。所以公司往往会在原料价下跌时会面临Operating Profit的下跌甚至蒙受亏损。

所以草根兄你也可能回观察到很多工业股都有类似的情况，那就是它们的股价跟原料价的联系("Correlationship")。 SHELL REFINING COMPANY (FEDERATION OF MALAYA) BERHAD （"SHELL"）就是其中一个典型的例子，当原油价高涨是Shell的盈利将增加并带动股价的上升。而当原油价下降是Shell的盈利将降低进而导致股价下滑。

(以上是我的看法，不一定正确，所以有待各位的指点)。

ICAP’s 5th AGM (Part 3)

(My photo shooting skill still need to improve...^_^")

Before Tan Teng Boo ("TTB") commenced to share us a list of shares that compse the ICAP's portfolio like last time, he mentioned why ICAP should be traded in premium (OK, I was patient to listen to this salesman promotion...^_^!!). The reasons given by TTB to justify 'why ICAP should be traded in premium' can be found from the previous article in my blog.
http://kinwing.blogspot.com/2009/08/forward-company-analysis-icapitalbiz.html

So he was just repeating the few points such as the 3 'N' principals, how the fund manager is saving lot of costs for the fund lah, how the fund manager is picking cheap stocks lah, how integrity the fund managerlah and blablabla. For me, I view the most important point is the 3 'N' principals, i.e. 'No' Borrowing, 'No' Derivatives / Off Balance Sheet Liabilities and 'No' Short Selling that enrich the financial strength of ICAP. At least I can sleep soundly during nights without worrying wake up the next day and found out the fund is in bankruptcy.

Later, TTB shown us a list of shares that the fund has invested. The list of shares is shown below in alphabetic order:-
1) Astro All Asia Networks PLC (ASTRO, 5076)
2) Boustead Holdings Berhad (BSTEAD, 2771)
3) Fraser & Neave Holdings Berahd (F&N, 3689)
4) Haio-Enterprise Berhad (HAIO, 7668)
5) Integrax Berhad (INTEGRA, 9555)
6) Kuala Lumpur Kepong Berhad (KLK, 2445)
7) Lion Diversified Holdings Berhad (LIONDIV, 2887)
8) Mieco Chipboard Berhad (MIECO, 5001)
9) Padini Holdings Berhad (PADINI, 7052)
10) Parkson Holdings Berhad (PARKSON, 5657)
11) Petronas Dagangan Berhad (PETDAG, 5681)
12) Poh Kong Holdings Berhad (POHKONG, 5080)
13) P.I.E Industrial Berhad (PIE, 7095)
14) Suria Capital Holdings Berhad (SURIA, 6521)
15) Swee Joo Berhad (SWEEJOO, 5119)
16) Telekom Malaysia Berhad (TM, 4863)
17) Tong Herr Resoruces Berhad (TONGHER, 5010)

(to be continued)

Is YTLLAND (2577) a good buy in long run?

According to my analysis on YTLLAND, fundamentally it is totally not appeal to me. Extremely low ROE (if not mistaken by referring to the annual report, its average-5 year ROE no more than 5%), due to low profit but large base asset. The relative valuation such as P/E not attractive at all also because of low EPS.

Moreover, due to the nature of the business in property sector, the profit is highly fluctuating. In year 2005 and 2006, it had profit around RM40 mil and subsequently the profit dropped 'gaogao' till RM13 mil in year 2008. For me, a good company should have increased its profit gradually every year instead of decreasing. For your information regarding the the latest FYI 2009 (unaudited), the company only made a profit of RM1.9 mil. What a pathetic poor result.

Even in a good year, YTLLAND seems cannot make a good profit while it sit at a huge asset base and I just cant' imagine what kind of poor result it will attain during bad time. This is the reason why I don't like most of the property stocks in Bursa Malaysia.

Of course, if we look at the technical side, we might well receive different perception because the share price is at an uptrend bounce. Since it is a high-beta stock as we look at the graph above that showing it could drop at a high of RM2.38 to RM.425 (around 83% depreciation from peak), then it could be probably stand again at RM2.38 if KLCI index can bounce to the peak of 1,500 points. But who knows what is going happen to YTLLAND if it just sound too crazy to value it at RM2.38. YTLLAND just does not worth for at RM2.38 base on its earnings track record.

As a conclusion, YTLLAND is a speculating stock which can only be hold for short term and not fundamentally strong to hold for long term.

The Millionaire Next Door是一本怎么样的书?

Millionaire Next Door是其中一本对我的投资理财思想起了很大影响的书。基本上，这本书并没有很多很公式的理财投资说教，它主要是做统计，并传达了很重要的讯息，那就是量力为出('Live Under Your Mean'）。

从这本书我也领悟到＇从俭入奢易，而从奢入俭难＇。假设当一个人在赚取2000块时，却不能储蓄其中的10%，那他也将不可能在赚取 200万时将其中的10%存起来，因为他根本就没有真正谦虚去面对过生活的困境，却给自己诸多借口不去理财投资却有能力负担大笔的物质享受。

当我看完这本书时，我有个突而奇想的念头，那就是如何将投资和理财这两个点结合起来从而使我能将资产增值到100万。首先要着重的就是投资能为我们带来的 复利效用，假设每年投资组合能以26%增长，那每三年就能开个番，每10年投资组合就能增长至十倍，每20年就能增长至一百倍，就好比将1万块从20年里 增长成100万。

所以我将成为百万富翁的时间表定为20年里要达到，因为我相信至少能拨出1万块出来投资。但是我可不可将二十年的时间缩短呢？假设我的初次投资额不是1万 块，而是2万块，那可不可以将致富的时间速成一半呢？假设我除了投入初始的投资额后，我又在每年投入另2万块并保持投资回酬率，那我可不可以在少过20年 里成为百万富翁？

(以上的是转载于我在佳里论坛写的文章)

ICAP’s 5th AGM (Part 2)

The Chairman of ICAP, YM Tunku Tan Sri Dato' Seri Ahmad Bin Tunku Yahaya ("the Chairman") started the AGM by referring to the 1st agenda according to the Annual Report. The 1st agenda is to receive the audited financial statement for the financial year ended 31 May 2009. Before the shareowners voted to approve this 1st resolution, there would be a Q&A session. So one fellow shareowner came out to ask as a question.

Instead asking something that related to the audited annual report, the shareowner inquired why the management still not yet take any action to engage the fund to invest overseas (I noticed that there are always people asking question that out of the current topic question, why dont' we pass the 1st resolution first then only raise this question?).

The Chairman then replied that though the board had promised during the last AGM that they will look into this issue of investing overseas, they are still considering it seriously. However, the procedure of becoming to invest globally is not easy as it looks like. The management would need to consult from different professional parties such as authority, lawyer, accountant and the fund manager in order to take the appropriate action that match the best interest of the shareowners. In fact, the management thinks the company is not quite ready to invest globally, but the Chairman has promised (promised again!?) that once they make up their mind in not a very long period (how long is not long ya!?), an extraordinary general meeting will be hold for this matter.

I think this is another typical way that how a management to indirectly reject the call by shareowners to invest overseas. And I am neutral on this issue of investing globally. Instead, I am thinking that Bursa Malaysia is still having better potential as many counters in Bursa still trade cheaper than other markets. It is just a matter of time to do own research and find out the pearl that spread over the 'Bursa' ocean.

I am not going to mention the rest of the agendas of the AGM which is related to ordinary issues such as approving directors' fees and related party transactions, re-elect/reappoint the board and auditor. So the AGM was finished within 15 to 20 minutes.

And then it was the most expecting session of which was the main reason why most shareowners attending the AGM. The session was the presentation of investment portfolio of ICAP. The presenter was of course done by Tan Teng Boo, who are the chief fund manager of ICAP. This session sounds like those Berkshire Hathaway's shareholders attending the company's AGM to be hold at May every year just because they want to know what Warren Buffet has done for the last whole year.

(to be continued)

TONG HERR RESOURCES BERHAD (5010) (Part 1)

2 years ago I first invested into Tong Herr Resources Berhad (“Tongher”) by acquiring 600 shares at a price of RM5.30 (at 12-June-2007). Subsequently, the company had come through a corporate exercise by issuing bonus shares at basis of 1 bonus share for every 2 existing shares. So the adjusted cost price was then reduced to RM3.53 (=RM5.30 * 2/3).

After the bonus issue, the share price of Tongher (“Tongher’s Price”) was then peak at RM4.165 (at 11-Oct-2007) before crashing to the lowest price at RM1.55 (at 2-Dec-2008) during the ‘Lehman Panic’ period. Now the Tongher’s Price resume a little to RM2.15 as per today market price. In spite of the recession and ‘Lehman Panic’ sending the share price to so low, what is the other factor that greatly affected the Tongher Price?

I noticed that indeed the Tongher Price is some what correlated to the raw material of its product. The raw material of Tongher’s product is nickel. If we seriously want to find out the Tongher’s Price movement, maybe we could do some statistical calculation by using a regression model to exploit the correlationship in between the Tongher’s Price and the price of nickel.

Below is the regression model that showing the Tongher’s Price in relation to the price of nickel:-
Y = a + b(X)
Where Y = actual Tongher’s Price (Dependent Variable)
a = the least value of Tongher’s Price when the nickel price is zero (Intercept)
b = the correlationship in between Tongher’s Price and the nickel price (Slope Efficient)
X = the nickel price (Independent Variable)

Of course, the abovementioned regression model is seriously flawed because it might not be able to pass through several statistical test. Nevertheless, what I would like to emphasise by using the regression model is that the Tongher’s Price is positively correlated to the nickel price. (Positively correlationship (‘b’) means that whenever the independent variable (‘X’) is increasing, the dependent variable (‘Y’) will increase as well.)

(to be continued)

ICAP’s 5th AGM (Part 1)

I never miss any icapital.biz Berhad's ("ICAP") annual general meeting ("AGM") since its listing at Bursa Malaysia at year 2005. The AGM will be hold at August every year. So, last Saturday (8-Aug-2009), I went to attend the 5th AGM of ICAP together with one of my friends. Due to my effort of promoting ICAP, this was the 2nd friend who came together with me to attend the AGM. The first time I brought a friend to the AGM was last year the 4th ICAP AGM, but the friend had disposed off ICAP shares during the bear panic few months ago and thus he can't go with us this time.

The AGM was located at the 1st floor of Mandarin Oriental Hotel which is nearby the KLCC twin-tower. So it was so convenience for us to take LRT from Taman Jaya station to KLCC station. We arrived at Mandarin Oriental around 9.30 a.m. We first registered our shareholder status and the rebate door gift. The door gift was simple which is a recycle bag with ICAP's logo. Inside the bag there were some ICAP's brochure and a pen.

Subsequently, we took the refreshment prepared by the Company. It was simple refreshment come with only few breads, cakes and a cup of coffee. This could be probably because ICAP was trying to save cost for the fund owners and thus no fantastic food to avoid 'food abuse' by some '1-lot' shareowners who only care about food.

After finished the food, I took out my new bought digital camera and took some shot outside the meeting hall, of course taking 'hot and sexy' ICAP's staffs was my mission as well (one of the reason that I bought the new camera for the AGM...>_<").

The AGM started at 10 a.m. and we sat at the middle of the seat row. And I count the number of attendee and found out the number of seat could be around 400 to 500 seats (= 3 * 12 * 12 = 452). And one auntie, who was at her sixty and sat at my left hand side, asked me whether I am a reporter....What!?...%$^&*@...Maybe I was looked young, dressed casually and taking a digital camera, so I was misunderstood to be a reporter. So I sarcastically replied the old lady that I was a shareowner of ICAP since its listing and could be holding the shares longer than as she hold...>_^

(to be continued)

Disposal of SUPERMAX

Today I decide to dispose SUPERMAX at a market price of RM2.70 for 10,000 units of shares. The reason I disposed off Supermax is because I would like to liquidate cash for another counter.

I started to accumulate SUPERMAX’s shares since 3 years ago. After disposing Supermax, the holding period return of SUPERMAX is around 33% as calculated below:-

= [( 10,000 units * RM2.70) / RM20,402] – 1 = 0.33 (33%)

Trading Buy Pelikan

According to ICAP’s TA analysis last Friday (31-7-2009), it called a trading buy on Pelikan at the price of RM1.45 of which target price will be RM2.24. As I further researched into this company, I found Pelikan’s bottom line is gradually recovering back on track to show profit after coming through a substantial profit drop last few quarters.

As per ICAP’s advice, I acquired around 13,000 unit of Pelikan’s shares at a unit cost of RM1.45. Though today the share price has shot up to RM1.63, according to ICAP’s target price as per mentioned, it still has a potential of 37% (=2.24/1.63) upside. And I have set a 5% cut loss point at RM1.38.

为何ICAP卖了AXIATA？有关疑问将在8-8-2009揭晓

其实陈鼎武(简称"TTB")当初投资亚通("Axiata")的决定并没什么不妥，更何况Axiata是除了国油("Petronas")之后的另一间能在外国比较能打拼和竞争的政联公司("GLC")。还有就是Axiata前几个季度的亏损是因为外汇兑换亏损("Foregin Exchange Loss"或简称"FEL")，因为它的子公司用的货币都不是马币，再加上Axiata是以现行汇率法("Current Rate Method")来综合("Consolidate")它子公司的帐目，因此任何的FEL都是反映在损益表("Income Statement")，而不是资产负债表("Balance Sheet")里的全面收益("Comprehensive Income"),这就是为何Axiata的Income Statement的盈余降低了很多。而我认为在短期内假设美金转弱，那它的FEL将会被扭转过来变成外汇兑换盈余("Foregin Exchange Gain"或简称"FEG")了。总而来说Axiata的外汇兑换是没亏没赚，只不过之前的FEL让Axiata有更好的借口来延迟缴税，对股东来说这反而是好事。

不过让TTB在Axiata翻车的原因应该主要是配发附加股("Right Issue")，因为每4股能得5个附加股("Right Share")，且附加股的价钱才卖RM1.12，因此对当时不打算再买进的股东而言是不利的，因为便宜的附加股稀疏(Dilutive)了没买进股东的权 益。其实很多GLC公司就是有这样的弊病，那就是爱发便宜的附加股("Right Share")或私下配售股("Private Placement")，却毫不理会existing股东("existing shareholders")的权益。看看马银行("Maybank")几个月前跌得这么够力，其中一个原因就是Right Issue了。

可能是因为TTB一向来对Right Issue很反感，也可能他对Axiata的高债务而感到不该在投入太多资金，因此决定不买进Axiata的Right Share。但是Right Share稀疏了ICAP在Axiata拥有的权益，到时候都不知道要等到何时才能升回当初买进的成本。长痛不如短痛，现在卖掉Axiata后用剩余的钱 来投入别的公司，说不定还能赚回本。

以上是我对ICAP卖掉Axiata的一些看法，要得到更正确回复，还是有待当天ICAP股东大会时由TTB来解释吧。

(以上的是转载于我在Investalk.com回覆某位股友写的文章)

Forward a company analysis – icapital.biz Berhad (5108) [written by Capital Dynamics]

As the above analysis report can only being get through by subscribers, so I can’t provide the exact web link that related to the said analysis report. I can only direct the web link to website of Capital Dynamics as indicated below.

http://icapital.biz/english/

It is all about icapital.biz Berhad (ICAP, 5108) (Part 3)

In normal listed companies, one would look at forecasted earnings or growth and use P/E, ROCE, dividend yield or discounted cash flow to derive fair value. Below enclose with my own fundamental research upon ICAP base on its annual reports.

However, I do not think the abovementioned methods are appropriate methods to evaluate the fair valuation of ICAP. The earnings that we normally read from the annual report do not reveal the up to date information about the valuation of ICAP’s portfolio. To value ICAP, an investor should look at its net asset value (“NAV”) which is mark-to-market. If ICAP did a good job with excellent stock picks, eventually its NAV will be higher than its accounting value or the so-called net asset value. ICAP updates its NAV every Thursday at the announcement section of Bursa Malaysia.

Hence, the market price of ICAP should keep track to the NAV. If NAV was RM2, the market price should be traded at RM2 as well. As we know the market sentiment can vary from fundamental, the market price of ICAP will probably diverge from its NAV. It could be traded either above (in premium) or below (in discount) its NAV. By taking the advantage of this unique feature to trade in premium or discount to its NAV, we can outperform ICAP’s return. Effectively we can claim that our return is better than the return that TTB has achieved. How?

Assume that ICAP is able to double its fund size in 5 years since its listing. So its NAV raised from RM1 to RM2 of which indicates a return CAGR of 15% (= [RM2/RM1]^[1/5] – 1). As we know ICAP was listed at a mild bear market, so its share price could be traded in discount at RM0.90, which is 10% discount to its NAV during its 1st day of listing. After 5 years, the share market is in a bull run and instead of trading at RM2 on par to its NAV after 5 years, ICAP is traded 20% in premium at RM2.40. As an investor of ICAP, we can take the advantage to acquire ICAP shares in discount and dispose ICAP shares in premium and reward ourselves a handsome CAGR return at 22% (= [RM2.4/0.9]^[1/5] – 1), which is better than the return of 15% that achieved by TTB! This is the reason I mentioned in the previous thread that I will acquire additional ICAP shares whenever its share price is traded in discount to its NAV.

Furthermore, not to forget that ICAP is a CEF that adopts value investing. In other words, the shares that it holds are already at a discount to their long-term values. So when the market price of ICAP is traded in discount to its NAV, this means investors are getting a second level of discount.

For ICAP, there are few more added safety attractions as ICAP is not allowed to engage into derivatives and short-selling. In addition, ICAP is a conservative fund that no borrowing is allowed unless the fund is permitted by the shareholders. Just look at the number of hedge funds which are over leveraged and have recently gone bust, we should just sleep soundly by investing into ICAP.

Finally, at a NAV at RM1.86, ICAP is able to achieve a CAGR of 18% (= [RM1.86/RM1]^[1/3.75] - 1) which is greatly outperformed as compare to the benchmark KLCI index (KLCI index is performed poorly since last 3.75 years which only gained a CAGR of 6%). Below shows the rise in the NAV of ICAP versus KLCI index.

In a conclusion, we should prove to ourselves that serious long term value investing on KLCI does work and it is now a good time to invest into ICAP as it is market price is traded in discount of at RM1.79 (its NAV is RM1.86 according to last week announcement, so you are getting a discount of 3.8% if you buy ICAP now). Switch your unit trust funds to buy ICAP, attend its AGM and grow your wealth together with ICAP, this is all what I can advise to my friends and relatives.

Speculating Parkson

This is my first time to speculate a stock. Maybe more appropriate to say that it is more like a trading. As I refer to ICAP's technical analysis ("TA") announced last Friday that the share price is on the verge of moving upwards with a target price at RM5.70 (according to my observation upon ICAP's TA recommendation which could be realised within 2 weeks to 1 month period).

As a result, I decided to put a little money to test whether ICAP's TA is as accurate as its fundamental analysis. I have bought Parkson at last Monday (20-July-2009) with a cost price of RM5.1 for 1,000 units. My target price is as suggested by ICAP at RM5.70 (this indicates an internal rate of return at around 10%). And I have set a 5% cut loss point at RM4.85.

Acquire additional Supermax’s shares

Last Friday I noticed Supermax had posted its 2nd quarter result for FYI 2009. I was surprised that Supermax was able to complete filing its 2nd quarter result which was just ended 2 weeks ago at 30 June. I told myself it must be some good result from the quarterly result so the company would like to announce it as soon as possible.

When I took a glance on the annoucement, I immediately realised that the net profit of the 2nd quarter was almost double the size of the net profit on y-o-y basis. The net profit of 2nd quarter also grown at a pace of 31% as compared to the preceding quarter.

By achieving a net profit of RM25.7 million, it has far exceeded my original expectation on the net profit of the 2nd quarter should be around RM21 million to RM22 million. So I further calculate some relative ratios and comparing the forward P/E of Supermax to other glove companies that listed at Bursa Malaysia.

The following information indicates the annualised forward P/E ratios of the 4 main glove companies that listed at Bursa Malaysia:-
Top Glove -> 12.67 times
Kossan -> 11.17 times
Harta -> 8.79 times
Supermax -> 5.04 times

According to the comparison that I have done, it is concluded that Supermax was far cheaper than other 3 glove companies in terms of relative valuations. Since it has spin off APLI and trying to reduce debts and also able to achieve a better net profit margin (which stood at around 14% at the latest quarter), I believe the cost of capital to Supermax should be lower now and thus increasing its P/E ratio. Unless there is a situation to justify Supermax with lower P/E if its sales growth rate was lower to the peers, and apparently it is not the case.

If Supermax’s P/E ratio should be at least parallel to Harta’s P/E at 8.79 times, not mentioning if it should be valued as high as Top Glove at 12.67 times, its share price should be at least RM3.45 (= RM1.96 * 8.79/5.04). The closing share price of Supermax’s at last Friday was RM1.96. According to my estimation, Supermax is underestimated by 44% (=[3.45 – 1.96]/3.45), or put it another way to say that it will have a chance to appreciate up to 76% (=[3.45 – 1.96]/1.96).

In view of the above information, I decided to acquire additional Supermax’s shares yesterday. I tried to bid the shares at RM1.96 but I was informed by the broker that the share price was push up until RM2.1 since the market open at 9 a.m. It is not surprised to see that there were such a huge demand for Supermax’s shares, so I revised my bid price to RM2.1 and I was able to close the deal with 7,600 units of Supermax’s shares.

It is all about icapital.biz Berhad (ICAP, 5108) (Part 2)

After investing into ICAP, I have further involved into ICAP by subscribing its affiliate magazine “i Capital” and attending ICAP’s annual general meeting (“AGM”). There were several significant points that I learnt from ICAP after investing its shares which reinforce my understanding how the fund is functioning. The fund is encouraging its shareowners to hold the shares with a long-term basis.

In order to encourage investors to be long term shareowners for a fund, the fund can impose several restrictions to the fund such as 1-year lock in period, 2-month disposing notification period and close-end units. So ICAP decided to setup the fund with a close-end basis. The subsequent paragraphs I would like to differentiate what is a close-end fund (“CEF”) and its different to an open-end fund (“OEF”).

A CEF is set up as a company under the Companies Act and is generally listed on a stock exchange. CEF has a fixed number of shares outstanding and its capital is raised through an initial public offering (“IPO”) like any other public offerings. Investors who buy the shares of a CEF will become shareholders of the company. Like all other publicly traded securities, shares of a CEF are bought and sold in the open market. Its share price is determined by supply and demand in the marketplace.

Whereby the OEF, or more commonly in Malaysia it is so-called the Unit trust funds (or in the US it is mutual funds) which is not incorporated as a company but as a trust where monies are collected from investors to be invested and managed for investors' benefits. OEF’s units are first offered through an IPO. However, OEF units will vary even after the IPO. As the unit holders of OEF are still able to buy or sell theirs from/to the OEF, and the OEF is responsible to issue new units for buyers and cancel its existing units to liquidate cash in order to meet the unit holder’s redemption. Sometimes, some of the fund mangers of certain OEFs claimed that their fund size have increased a lot during a short period, however please take note that the increase of the fund size not necessary because of the fund manager’s ability to achieve superior return but just merely indicates that there are more units being issued.

In view of the abovementioned difference in between CEF and OEF, I would like to point out the one of the most important advantages that CEF consists is the professionalism of fund manager is retained much better than OEF.

Why we want to invest a trust fund? The most common pitch used by trust fund is that it allows the man in the street to enjoy professional fund management. However, due to the open-end structure of an OEF, the investment decision making is indirectly made by the retail investors, not the professional fund manager. Investors themselves end up being the one controlling the buying and selling of the fund's portfolio, not the fund manager.

When the stock market is bullish, investors tend to flood new monies into OEFs. When this happens, the OEF receives an inflow of cash and needs to invest the monies received based on their investment mandate. Thus, investors are 'forcing' the fund managers to invest, even when some of the shares are trading at high valuation. In a bear market, investors tend to panic and start to redeem or sell their units. Fund managers of the OEF have no choice but to liquidate their portfolio to raise cash to pay the investors who sold or redeemed their units. Thus, investors 'forced' fund managers to sell when the stocks may be trading at attractive valuation. Once the fund managers are ‘forced sell’ the stocks, it will trigger another round of market crashing and investors will be more panic and selling/redeem more units. So it is just a circle of market crashing, panic, selling and market crashing again. In short, the fund managers of OEF are dictated by the emotions of unit holders who are tend to be more in short-term tenure, and thus eliminating the benefits of professional management and long-term investing.

On the other hand, the buying or selling activities of the unit holders of CEF will not affect the investment decision of the fund manager once it is after the IPO. If any potential investors would like to buy the CEF’s units or any existing investors would like to dispose the CEF’s units after IPO, they can trade to buy/sell the CEF’s units at the secondary securities market such as Bursa Malaysia, and the CEF is not responsible to any of these trading activities. This is the reason why CEF is required to be listed at a secondary market for the ease of trading the units. Thus, the fund manager of CEF can efficiently utilise the proceeds from the investors for long term investing and buy more units during bear market with cheaper valuation and selling more units during bull market with higher valuation without disturbances from the trading activities carry by the unit holders. This is one of the reasons that CEF can outperform OEF in term of investment return.

(To be continued)

Is Destiny all the way through randomness or God made?

I have read an analogy of God playing a chess game and humans having occasional looks at the state of the board, and trying to figure out the rules. It is quoted from the late Nobel Prize-winning physicist Richard P. Feynman when he was trying to explain the fundamental laws of nature:-

“The Universe is like a huge game of chess and the scientists and mathematicians who are trying to work out the rules only get to look at a little corner of the game. We do not know what the rules of the game are; all we are allowed to do is to watch the playing. Of course, if we watch long enough, we may eventually catch on to a few of the rules. Even if we know every rule, however, what we really can explain in terms of those rules are very limited, because almost all situations are so enormously complicated that we cannot follow the plays of the game using the rules, much less tell what is going to happen next. We must, therefore, limit ourselves to the more basic question of the rules of the game. If we know the rules, we consider that we ‘understand’ the world.”

After reading this analogy, I was thinking is my destiny being part of God’s game? Is my way of life or someone who I met in my life was thought to be decided beforehand by fate? Can I predict my destiny using a particular form of formula?

Just like what Feynman described that initially, we thought there is no such rules exist because the whole universe is just a big lie, it is just repeating to randomly cause thing as it happens as God plays fast and loose, we cannot discern the pattern in the complexities of the game. If there was no rule and theorem, do we need scientists and mathematicians anymore? Maybe we will find our life of destiny is nonsensical and we should wish it to end as soon as possible. Life is just a waste of time.

Of course, if we watch long enough, we may eventually catch on to a few of the rules, or trying to assume what is the beauty of the rules. We believe the rules do exist as we see the universe the way it is because we exist, we are here because of the rules and the narrow range of possibilities for our being here are not coincidental. But once we are able to notice the conserved rule, we may look away, our attention may be deflected by the rich diversity of the universe. Nevertheless, when we look back at the game of this rules are unchanged.

Am I right to assume there are rules guiding me on the way to the destiny now? Then where are the rules now? Maybe I should think again the question: ‘Who am I’?

It is all about icapital.biz Berhad (ICAP, 5108) (Part 1)

I always encourage my family, relatives and friends start to invest as early as possible. However, I use to advise them to do their own research on the particular investment they would like to involve, and I do not like to recommend which company is good to buy. It is because a particular company could be sound good to me, it might not be suitable to others due to their different risk profile, investment objective and needs.

However, there is an exception that I strongly recommend, i.e. iCapital.biz Berhad (ICAP, 5108) which is currently listed at the main board of Bursa Malaysia. What is so special in ICAP? Let me 1st introduce some of its background and history, and most importantly its fund manager, Tan Teng Boo.

I first came through to this fund when I was working at an Investment Bank, as I was researching the recent new Initial Public Offering ("IPO") in Bursa Malaysia at the moment. So I found ICAP that was going to be listed at October 2005. It listed as a closed-end fund at the main board of Bursa Malaysia since then and its IPO issue price was RM1 per share with 140 million units. So the fund size was RM140 million at the initiation period of the fund. I first invested into ICAP was the 1st day of its listing at Bursa Malaysia at a market price of RM1 and am currently still accumulating its shares whenever its net asset value ("NAV") is higher than its market price.

There were 3 points attracting me to buy the fund at the time it was first listed and I will list the points 1 by 1 in detail. The 1st reason was the fund's aim to increase its NAV from RM140 million to RM280 million by year 2010, so it targeted that the fund manager will double the fund size within 5 years. In order to double the fund size in 5 years, it means that it would need a compounded annual growth rate ("CAGR") of 14.87% (= 2^(1/5) - 1).

Though a CAGR of roughly 15% is not the most impressive return that I have ever met, I would still consider it is a very good return to a moderate person. I believed most of the fund in Malaysia does not possess this kind of return. Indeed, ICAP was able to achieve to reach its target fund size at peak RM300 million at December 2007. However, the subsequent market crash sent the fund's NAV to a lower point at RM1.81 according to the latest weekly announcement at Bursa Malaysia yesterday (so its latest fund size would be now = RM1.81 * 140 mil units = RM253.4 mil). So it has 1 more year to go to achieve its target.

How to achieve a CAGR of 15%? This is the 2nd point I get from the fund manager of ICAP, Tan Teng Boo ("TTB"). Basically, when investing into ICAP, one is effectively employing TTB to manage fund for you. Same like Warren Buffett who runs Berkshire Hathaway, it is a one-man show. Let me share my experience of meeting with TTB. I remembered that before I first subscribe ICAP shares at Oct 2005, I was trying to 'subscribe' an analyst job from Capital Dynamics, the fund managing company of ICAP.

It was a group interview and the interviewer was the chief executive officer ("CEO") of Capital Dynamics. Of course, the CEO was TTB. TTB asked the candidates (including me) at the group interview a question that "What would be crude oil price in the next few years?". Maybe most of us cannot get a right answer (too sad that I was incapable to answer the question correctly, I failed to be shortlisted..>_<), so TTB told his view upon the crude oil price that it would be move along with the demand. Although at the moment the crude oil price was barely less than USD60 per barrel at year 2005, TTB predicted that the crude oil price can shoot up to USD100 to USD140 per barrel at next 3 to 4 years. As he mentioned that nowadays most of the developing countries are progressing fine, especially the 2 great giants China and India. So the world economy is gradually decoupling from the US economy and thus the economic growth engines are diversifying more onto other countries. Without having economic slowdown on those developing countries, there is no reason for the limited crude oil not to increase in price, it is just a matter of time.

Though looking back at what he had predicted at year 2005 on the crude oil price of which started to shot up to a peak at USD140, it seems that TTB was acting like a prophet. Actually it is his investment philosophy that making him right all the times and bringing an excellent result for the fund. TTB is a follower of the legendary father of Value Investing Benjamin Graham, just like most other successful investors such as Warren Buffet. However, TTB is not just merely a value investor that searching deep into companies, he has his own style of investing strategy, i.e. economic analysis + company analysis (Top Down Approach).

TTB called this top-down value investing philosophy as "Intelligently Eclectic". As TTB differentiate his own "Intelligently Eclectic" value investing philosophy from the conventional value investing. He first started to analyse at a bigger extend field of macroeconomics such as economies and stock markets, interest and inflation rates, bonds and commodity markets, market psychology, in addition to the local environment before arriving his advice and recommendations to a particular company or its stocks. Nonetheless, he still strictly follow the value investing approach on the stock selection by comparing divergences between market prices and the underlying intrinsic values of companies in order to build in a margin of safety and achieve superior performance in the long run.

Maybe I should talk more about TTB and his fund management company Capital Dynamics. TTB is not only managing fund, but he also built up his own investment advising magazine, the "i Capital". Inside this magazine, TTB has written many articles about his view on politics, economy and company analysis. And there are several sections inside this magazine showing portfolio simulations that managed by TTB, and these portfolio simulations were showing impressive return. Due to some subscribers were making ton of money by following his portfolio simulations, they strongly requested TTB to setup a fund that allowed magazine subscribers, who are mostly retailer investors, to invest accordingly. Thus this is the history how ICAP was setup at the first place.

The 3rd reason I invested into ICAP at listing as I thought ICAP was launched at a right timing. As there were used to be only 2 stocks listed under the closed-end fund section - ICAP and AMANMFB. Amanah Millenia Fund Berhad ("AMANMFB") was listed as a closed-end fund at wrong time at year 1997 before the KLCI index was crashed to a low during the Great Asian Financial Crisis at year 1998. It was a stupid decision to launch AMANMFB (just like many of the existing conventional open-end unit trust fund always launched at a wrong timing) at an all time high as the KLCI index was traded at a P/E of 20 times. So coming through the Great Asian Financial Crisis, the performance of AMANMFB was very lousy and decided to close shop at year 2007. At the time the fund was liquidated after lasting 10 years, it only created an accumulated growth of 20% to its shareholders. So the CAGR of AMANMFB in last 10 year period from 1997 to 2007 was only 1.84% (=1.2^(1/10)-1)! If I was the shareholder of AMANMFB, I would rather put the money into the bank that could earn me a fixed-deposit rate that higher than 1.84% every year.

Whereby ICAP was listed at a mild bear market of which the KLCI index was traded at a P/E of 12 times at year 2005. It was because the investment strategy that the fund manager of ICAP employed was value investing. By launching the fund at a right time, the fund was able to use excessive cash to shop at the "Bursa" complex and acquiring shares at a bargain price. This reminds me what Warren Buffet has mentioned that "Be fearful when others are greedy, and be greedy when others are fearful". By contrasting the poor performance of AMANMFB with the bright side of ICAP, it boosted more confident for me to invest into ICAP.

(To be continued)