Tenaga and IRB

Tenaga Berhad is government linked corporations. It was recently slapped with tax bill of 2 billion ringgit.

It is a big amount for any corporations, and knowing that it is a GLC, it is a very rare incident.

Could not help but think it is related to its lowest bid for the 1MDB assets.

At any instant, there are competing interest within the government, and the tax bill is probably a long time coming, but is not issued until the failed bid.

Some man in the corridor decided that it is time to teach the management who is the boss.

Two reasons I am getting out of Atrium REIT

Atrium has just sent the latest dividend cheque. Instead of the regular 2.2 sen, it went down to 1.8 sen.

Atrium is an industrial property REIT, that pays quarterly dividend. I kept it because it pays higher yield than the fixed deposit, a better option that keeping the money idle.

I started unloading the counter because of two reasons.

Income is deteriorating
One of the property is currently vacant, and management is currently working with the property agent to find a new tenant. The vacancy left the operating income lower by 20%. Now this is part and parcel of the property business and they probably will get a tenant in the upcoming months. But what really puts me off is ...

Operating income is increasing
The manager attributes this to the increase of "management fee" due to the higher NAV, which was due to the higher revaluation gain. A property could go up in value, which is all fine and dandy, but the value will not be realized unless there is a sales transaction. It is like an unreliazed gain in equity investment. Everything is on paper until a sales is done. How could the management rewards itself when the REIT has to cut dividend to its shareholders?

It is of course their right to charge 1% of the management on the asset under management, but when the asset is not performing, which means they are not doing their job well enough, where is the justification for higher remuneration?

I do not know about anyone else, but this is it for me to exit.

How I trade and invest in stocks and bonds by Richard D Wychoff - reading digest

Some experiences in mining stock

While investing in mining companies, Richard D. Wychoff employed professional mining engineer to give an expert opinion. In modern days, to invest in retailer such as Padini Berhad, perhaps it is good idea to talk to retail expert especially those in the clothing retail.

Another things that he did differently is to find out who are the interest behind he business, quoting his words "whose dollars are along side mine?". Based on this information, he went out to find out if the party has any pass successful record? Is the operation properly financed? What is the outlook for the metal ore? He asked all these question because he wants to go in early to "skim the cream".

He went on and gave an example of one of his trade with Magma Copper.He observed that the market action, seeing that the stock started at 12, go to 18 and settled at 15. At this price, he bought 200 stock and waited.  He bought at another 22, only to watch the stock traded all the way to 29 dollars. He went out to find out what happened. He found out that the ore would be worth 200 dollars, and this would produce 55,000 dollars of profit in about 3 weeks. He did not realized the profit, instead he stucked to his research. He reasoned that the mining operation was manned by capable management and there is many insider accumulation resulting in very little public free float.

This campaign reminds me of one of the green energy counter I am accumulating.

Investment strategy

I started taking investment seriously since 2009.

Before that, as with most people, I suffered capital loss during the 2008 economic crisis. Most of my investments then are in unit trust, and even though it is often touted as the safer way of retaining the capital, most of my funds suffer great losses. That was a year of great disappointment, and I contemplated not investing anymore. There were many naysayers about investment and in a economic crisis, fixed deposit seems to be the only "investment" that could be unscathed. At least from invested capital point of view.

However, lucky for me in 2008, I have some additional spare cash, and was able to pick up some shares on the cheap. I remembered picking up Jobstreet at RM 0.80, Genting at RM 3.8 and uchitech at RM0.80. Eventually all shares can be sold for a healthy profit, and I got my first taste of one-bagger experience.

But 2008 is a one off event, and opportunity such as those is not easy to come by. Therefore, I was keen to find another way to invest. Armed with several 10k of cash, I gradually adopted the dividend reinvestment strategy. The idea was capital gain is rather illusive, while dividend can be certain. Small investment from the like of myself will not move the market, and only when bigger institution investors started accumulating shares, will see some big up swing in a company share price. But there are always some company that will pay regular dividends. This is especially apparent in Malaysia, as there are many institution whose members live on the dividend from the public listed firm in Bursa Malaysia. With the regular nature of this cash flow, I decided to invest slowly but steadily by building a dividend portfolio. I will get 6% from the investment, and eventually it should be enough to pay me a monthly return. For example, if I wanted a RM5000/month, at a 6% yield, I will need to invest RM 1 million in the market.

This was the beginning of my dividend portfolio, back in 2009.

How I trade and invest in stocks and bonds by Richard D Wychoff - a reading digest

Been reading Richard D Wychoff's book. I find it rather fascinating. This book was in the 1920s, but most of it remain relevant today. Richard D. Wychoff is a sophisticated investor of his time, and most of his thoughts are documented in the book.

On unearthing profit opportunities.

He refer to each of investment exercise as campaign. In his words, "to make readers think and plan and carry out their campaign in the investment field just as they do in their own business."

In his opinion on which kind of stock is best, he gave a few examples of his time. one is Sears, Roebuck & co, which pays stocks dividends every few years. These companies  use the share capital for profitable expansion and distribute stock dividends every years. This way investor got to double their holding without any further investment of cash by him. This method reminds me of the dividend reinvestment plan available in Malaysia. One company that practices this rather successfully is Maybank Berhad. Investor in these companies will watch their dividend bringing more units to them as the dividend is reinvested into more units.

Another type of investment method is to invest in good firm that falls in bad time. In modern days, it is known as a situational play. Business being a dynamic endeavour will involve risk and at times, there will be situations that might threaten its business. This situation will the market value of these companies to fall, and shrewd investor could take advantage if they think it will pass. Some companies that are falling in bad time include the many property counters due to the rising interest rate and the ending of the easy money policy in the US. But will demand for property continue to dwindle in Malaysia or it will surely come back? And there will surely be some companies that will fall in bad times, but how to differentiate the wheat from the chaff.

The book also explains why high price stock is better than the lower price variant. Among others, the high price stock pays dividend, have hidden equities which may not benefit the stockholder right away, but which are working for them anyway. In order to profit from such investment, he advised investors to follow the corporate development and its industries.

Thoughts on TheStar, TheEdge and Focus

Some weeks back, The Star carried an article on the competition in the business weeklys. There are now The Edge, Focus and TheStar Business section. Not surprisingly it concluded that TheStar has the highest number of circulation and TheEdge's business will be cannibalized.

Seeing such a piece, Focus's Clement Hii has this to say in Facebook:

No doubt, this is a piece of news designed to make itself look good while belittling the competition.

Then, on this week's TheEdgeMalaysia weekly, its owner TongKooiOng posted a blog "il buono, il brutto, il cattivo", the good, the bad, the ugly. Mr. Tong was a financial analyst, and the post commensurated with his capability to write. The ugly portion is an insightful tacit reply on TheStar's piece on TheEdgeMalaysia.

The opinion was scathing but true about TheStar. Its circulation has been dwindling and its share price has already caught up with the new reality.


I was particularly touched about the portion that TheStar used to be the People's paper. It has now become the government's mouth piece. And then, I realized why TheEdgeMalaysia or for that matters, Mr. Tong has been blogging about the middle class's woes. here

Perhaps what TheEdge tries to do is to replace TheStar as the new People's paper. It is easy to relate that people read the paper that champion their cause and if any paper wants to have the attention of the Malaysian middle class, what better ways than to write about their concern? 

The Malaysia media scene is now getting interesting, and it will be equally as interesting to observe the many counters that are related to all these media companies.

As in all competition, some will prevail while others will fail. It will be wise to stick with company that will survive the competition.

Does AirAsia has any economic moat?

Does AirAsia has any economic moat?

AirAsia branded itself as a low cost airline. It makes money by offering no frill air travel, and has been tremendously successful in capturing the Malaysian air travellers market. Before AirAsia, air travelers  are served mainly by the Malaysian Airlines (MAS). While MAS' service is award winning, its steep ticket price deters many from flying. The company was asked to lower its fare many times, especially for East Malaysian who depended on its service, but there is no economic motivation for it to do so. That is until AirAsia comes along. It seized the opportunity to offer what MAS does not bother to entertain, the hugely under served Malaysian public who are eager to fly but cannot afford MAS' airfares.

The rest as they say is history.

And recently there was an article about AirAsia being a good business to invest in. The storyline goes like this.

If RM 200,000 is invested into AirAsia in January 2007, the investor should have roughly 130000 units of AirAsia shares. With that amount of shares, if the investor managed to stay vested in the same company until 2013, he will be rewarded with a whopping RM 23,400 dividends in the last financial year 2012. No doubt, business wise, it has been doing really well.

From the look of it, anyone who managed to earn the dividend must have a lot of faith in the company. It was not smooth sailing for the investors, and if they could stay with the company that long, they deserve to be rewarded.

But, is the dividend sustainable?

In other words, does it has an economic moat, which according to Warren Bufftet is the competitive advantage that one company has over other companies in the same industry. Perhaps we could obtain the answer by observing some of AirAsia's business practices, on how it treats its customers.

No doubt, AirAsia offers lower ticket price compared to MAS in many routes it operates in. And it also flies to more routes than MAS. For example, MAS no longer offer direct flight between Kuching and Johor Bharu. Nor does MAS offers the Penang-Kuching flight. Both cities have a big number of catchment customers because there are many migrant Sarawakian labor in Singapore and Penang.

Due to these cost and route advantages in Malaysia, it is an airline with no call center. The only mean to ask for support is by using the "new age" media such as online chat or twitter. If the customer are not familiar with these communication methods, then there is virtually no support for him.

Not only that, it limits the online chat support to 10 minutes, and if the issue is not resolved, the caller will be asked to try the chat again, which means another 30 minutes wait. So it does not matter if the issue is resolved for AirAsia  The way the service is measured is the number of request "serviced". Whether the issue is resolved or not is not AirAsia's concern.

For AirAsia's X customers who have any problem with their ticket reservations, there is a call center available. But, there is a catch. They are told upfront that there will RM 1.95/minute "charges". I wonder how many company can charge its customers for trying to resolve their problem in the first place.

AirAsia also practiced route "experiment" aggressively. It could presell the tickets of the routes by offering steep discounts. However, if there is no sufficient demand for the route, the service could be cancelled and the passenger will be left stranded. This is widely reported recently in Philippines.

So yes, it has all the upper hands now, but I could not help comparing the company with MAS of yesteryears. MAS did not lower the ticket price because it chose to ignore its potential customer. Will AirAsia suffers the same fate 10 years from now by treating its customer like pariah? It will be an interesting story to follow.

In the end, a business thrives because its customers value its service. With AirAsia  people has no other choice, but that "could" change anytime with the arrival of Malindo and the resurgent MAS.

In the mean time, any investors who value it's cash generating capability could invest in the company as any of its competition does not seem to be encroaching any time soon.