The World's coming second recession

The recent weak performance of equities and lack-lustre IPOs (other than crony companies that we all know of) have made me think twice about investing in the local bourse/equities. Consequently, i have put all my extra cash into boring old fixed deposits. What the hell, I figure that money in the bank/cash at hand is safer even though i would be suffering depreciation from negative real interest in light of the prevailing real inflation rate (the official inflation rate is a joke). The world economy looks very very shaky now and i fear that the shit will hit the fan not long now. China is slowing down, USA is going nowhere, Europe looks ripe for a big old shit-hits-the-fan scenario with the Euro's very existence under threat. I mean look, we never really got out of the Great Recession of 2008, we just printed money and drove up the prices of commodities and when growth didn't come, they (meaning the USA) printed more money. China continued chugging along, but by itself China won't hold up the rest of the world. It doesn't look pretty. So all i'm doing right now is watch as a by-stander and not invest in anything.

Tolerating Failure

Excerpt taken off chapter 7 of the best-selling management book: "in Search of Excellence Lessons from America's Best-Run Companies" by Tom Peters and Robert H. Waterman Jr.

A special attribute of the success-oriented, positive, and innovating environment is a substantial tolerance for failure. James Burke, Johnson & Johnson's CEO, says one of J & J's tenets is that "you've got to be willing to fail". He adds that General Johnson, J & J's founder, said to him, "If I wasn't making mistakes, I wasn't making decisions." Emerson's Charles Knight argues: "You need the ability to fail. You cannot innovate unless you are willing to accept mistakes." Tolerance for failure is a very specific part of the excellent company culture - and that lesson comes directly from the top. Champions have to make lots of tries and consequently suffer some failures or the organization won't learn.

One vital observation about failure: it's a lot less punishing with regular dialogue. The big failures, the ones that really leave scars, are usually the ones in which a project was allowed to go on for years without serious guidance. Such eventualities rarely occur in the no-holds-barred communication environment at the excellent companies. The exchange is frank and honest. You can't hide the really bad news, and you don't want or need to.

So the champion's supports are many. The specific devices unearthed number in the hundreds; the evidence presented barely scratches the surface of our data bank. None is a panacea. Each is merely illustrative. The skein of interlocked - and everchanging - supports per se is the message.

Specifically, champions don't automatically emerge. They emerge because history and numerous supports encourage them to, nurture them through trying times, celebrate their successes, and nurse them through occasional failures. But given the supports, the would-be champion population turns out to be enormous, certainly not limited to a handful of creative marvels.

Malaysia Airlines' dip in fortunes - Revisited

Riddle me this: What makes money and who's in charge? Take Airlines for instance. Is there a discernible pattern between whoever is the boss and the profitability of an airline? National Carrier Malaysia Airlines (MAS) reported a first quarter ended March 31, 2011 net loss of RM242.33 million as compared to rival low budget carrier AirAsia Bhd's net profit of RM171.93 million over the same period. How much credit or blame should be apportioned to MAS' MD and CEO Tengku Datuk Seri Azmil Zahruddin versus AirAsia Bhd's group CEO Datuk Seri Tony Fernandes is anyone's guess. MAS' stock is currently trading at RM1.55 per share (52-week high of RM2.42 low of RM1.55) while AirAsia is trading at RM3.04 (52-week high of RM3.15 low of RM1.07). MAS actually turned a profit of RM310.04 million in the previous corresponding quarter, but this was mainly thanks to compensation from Airbus for late delivery of aircraft ordered. Granted that the airlines is a cut-throat industry struggling with ever-escalating jet fuel prices and the fall-out from the Arab Spring. And news reports cite a stronger Ringgit, higher fuel costs and lower revenue per seat for MAS' red ink run lately. But challenging times notwithstanding, AirAsia is going ahead with its expansion plans albeit with a keen eye on keeping costs down while introducing a fuel surcharge in May which should reflect positively on its balance sheets over the next quarter at least. Bottomline is, controlling costs is key to profitability in the airlines business. MAS was bleeding red ink under former corporate poster boy Tan Sri Tajuddin Ramli before it was handed over to Dato' Idris Jala in Dec 2005. Idris turned it around in 9 months. There were stories back then that before Idris took over, the National Carrier was run like a government department, paying astrononomical prices for supplies such as the story that MAS purportedly paid RM1 for each egg supplied to it by contractors. Rumours abounded of massive waste, inefficiency and all kinds of shenanigans in the National Carrier. Idris introduced low low fares, cut costs, stopped serving unprofitable routes, laid off staff and managed to turn MAS around in less than a year to proftability, defying the nay-sayers. Then in Sept 2009 Idris resigned from MAS to become Minister without Portfolio in the PM's department to head Pemandu, our national think tank for economic reform and governmental transformation. So now MAS has come to yet another crossroads, it seems. I actually bought a MAS return ticket to X city in a neighbouring country at supersaver rates in Feb this year. The flight is in August, 2011. 10 days ago, i received an SMS message that my departure flight was being postponed to 2 days later. I called and they said that MAS no longer flew from KL to X city on such and such a day anymore. OK, i accepted their explanation. Then last night i received 2 emails informing me that my direct return flight had become a TRANSIT flight! When i called MAS customer feedback i was directed to an automatic response recording which gave out incomprehensible instructions and promptly hung up on me when i couldn't do whatever it was that they wanted (ie. to dial an alphabet on  my fixed line telephone but alas, the alphabets on my ancient office fixed line telephone keys had all but faded out and disappeared, arrgh!). This was just a day after newspaper reports of MAS' first quarter results came out. My point is, if MAS had lost money recently, what it is doing now will certainly make it lose even MORE customers and bleed red ink like there is no tomorrow. You don't simply change flight schedules at will, especially not on tickets already sold, without giving your customers a choice to change flights or refund the price of their tickets, contractual fine print terms be damned. It's simply BAD BUSINESS. So whither now, Malaysia Airlines?

Post Blog Note:

MAS replied to my email within 3 days and has offered to refund to me the full ticket price within 3 weeks. Now that's more like it, Malaysia Airlines. There is hope yet for our National Carrier.

Focus Lumber Berhad

I applied for this Bursa mainboard IPO last week, at offer price of 60 sen per share, par value of 50 sen. The Sabah-based company (its bosses are mainly Taiwanese nationals residing in Sabah) exports plywood and veneer finished products to USA's recreational vehicles industry, amongst its export destinations. It was over-subscribed by close to 64 times so i don't think that i will get it unless i'm exceptionally lucky. Keep my fingers crossed. Allotment on 26th April and listing on 28th April.

Post-Blog Note: I didn't get any. On listing day, Focus Lumber Berhad (FLBHD) went up to as high as RM1.20.

Delving into the Malaysian Chinese psyche

I turned the bottle of french table rouge upside-down and shook it like the contents of a milo drink-to-go before realising what i'd done. Anyway, too late. i uncorked the vino and we finished it within the hour - me, mostly, doing the honours. I haven't had rouge vino in quite a while now, so the feeling of drunkenness felt good.

Earlier yesterday (it's past midnight now as far as i can tell) i had lunch with the boss and a client and some bankers. the client was a fellow-countryman and he spoke candidly (as was his style i have come to appreciate) about how he makes his pile. Stocks and properties, he opined, were what made a man rich. You bought property in prime locales where tenants line up for letting, and no matter how expensive it was, you'd got yourself a winner. Or dividends from stocks. Which was pretty decent and honest of the towkay to share with us, i thought. And to think that before this i had thought him rude. It appears now that i'd been too sensitive.

Malaysian Chinese businessmen/entrepreneurs have gone a notch up in my ladder of respect, offically, as of today.


And i ain't lying.

Tambun Indah Land Berhad IPO

HO Ho HO tis the season to be jolly and to apply for promising new IPOs. On cue for listing on 18th of January in the year of our Lord 2011 is Tambun Indah Land Berhad at offer price to public of 70 sen per unit (par value at 50 sen each). After some initial hand-wringing, Yours Truly checked out the figures on the prospectus and from industry sources in the pearl of the orient i hear tell that this here is a promising little company indeed. It's a Penang-based property developer pretty famous in Penang and it has a low gearing ratio of 0.17 times currently (its prospectus says that its gearing ratio will be reduced to 0.12 times after listing by utilising some of the proceeds of its listing). Their future projects will probably be more on the mainland in seberang perai where land is cheaper and more plentiful than on the isle. They are also scouting around for suitable land in the Klang valley but nothing concrete there has come up yet, for now at least. Its price earnings ratio for 2007 is 6.76, for 2008 it's 5.63, for 2009 it's 5.54 and for 2010 (estimate) it's 9.99 respectively. Which is fairly respectable, given the downturn in economy of the last couple of years. They have of course, a 3-year preceding profit track record (proft after tax for 2007 is at RM19.558 million, for 2008 RM23.476 million, for 2009 RM23.764 million respectively) for main board listing on Bursa. They're projecting proceeds of around RM22million+ from this IPO. A few things conspire in favour of Tambun Indah's listing: it's an all-Malaysian company; it's board of directors are loan-averse (they like internally-generated funds to drive their expansion such as this IPO); they're well-known and established in penang; the stock market is currently on an uptrend and hungry for promising new companies; Malaysia which falls under the emerging economies' sphere of economic influence is reaping the rewards of being in the right place at the right time as are promising new companies coming up for listing on the bursa. Soooo...fingers crossed and hope to get some of the goodies this time. The closing date for Tambun Indah's IPO application is at 5pm, 6th January. Balloting is on 10/01/2011 and allotment is on 17/01/2011.

Post Blog Note: But having said all the above, Tambun's debut price was less impressive than some others. Eventhough Tambun was oversubscribed by over 18 times, it commanded a premium of slightly over 10sen only on listing day. This as compared to Benalec Bhd, a land reclamation outfit which listed at around the same time but commanded a premium of over 35 sen over its offer price of RM1-00 (on 20/01/2011 its premium has gone up to 47 sen). Perhaps the smaller property developers aren't that attractive to the market. So far all companies coming up for a listing after the New Year have enjoyed a premium over their offer price. So for now, almost ANY tom dick or harry IPO is a winner it seems.

Post Post Blog Note: Woaaah, Tambun has fallen to 68.5 sen today, that's BELOW its IPO offer price. What's up with that?

the humbler IPO and yet ...

After the milestone Petronas Chemicals Group Bhd IPO, I next applied for the IPO of little-known Careplus Group Berhad. At 23 sen a unit, it was cheap as cheap gets. Its bosses were folks from Seremban and it was an all-Malaysian, all local company. This was an ACE company and ACE companies unlike Main Board companies on Bursa don't need to have 3-5 years' profit track record to qualify for listing on Bursa. I even felt a tinge of remorse after applying for it as this company seemed too tiny to really make any significant impact in the market. They make rubber gloves, mostly latex rubber gloves, not the nitrile ones although in its prospectus the company had said that it was venturing into nitrile gloves with new machinery purchased from the proceeds of this IPO. Surprise surpise, my application and another application i know of has both been REJECTED today. this means that the retail over-subscription rate for Careplus' IPO is probably quite impressive. More impressive than even big brother Petronas Chemicals, i'm begining to believe. I didn't even get 1 blessed unit of Careplus Group Berhad out of the 20,000 units which i applied for. The company debuts on the Bursa ACE market on 6th December so i'm really curious as to how it will perform on market opening day. Unlike the Petronas Chemicals Group Berhad IPO which raked in billions of Ringgits, Careplus is projecting IPO proceeds of around RM15 million only.

POST-BLOG NOTE: little David falls the mighty Goliath. The Careplus Group Berhad IPO was oversubscribed by 84.67 times for the public category while the Petronas Chemicals Group Berhad IPO was oversubscribed by 2.98 times for the public category.