Lunch is still on for SGX!!

a building which will house many remisiers?

Mr Bocker, you have tried to buy ASX on behalf of Singapore but failed. That was certainly a bold attempt which I, with my humble knowledge of markets and financial instruments, am fully appreciative of. Everyone knew that SGX would face many hurdles and objections but it definitely worth a go.

I have a vague idea that you have spent millions on hardwares and softwares in an attempt to increase capacity and processing speed for transactions. I have yet to see the potential of that upgrades being translated to the bottomline.

You then tried to take away the 90-min lunch break of hundreds of remisiers and supporting staff but failed again. While you may have a target to boost the sagging volume of SGX by lengthening trading hours at the expense of lunch, you have perhaps misunderstand the value of lunch time in Singapore.

Firstly, many of them did not have a proper breakfast, thus lunch break is really something for them to look forward to. (yes.. a cheeky one) Secondly, lunch is perhaps when most of the business is done in this Asian society. Thirdly, is the pre- and post-lunch so overwhelming now that we need to spread the overflowing transactions into that special 90 minutes of the day? I don't think so.

Mr Bocker, you have definitely scored on trying. But let's try to lock in some success! Cheers!

Is SIA flying out of idea?

By the way its shareholders have structured the company, SIA has a single nature of business ie. to focus on transporting human and cargo. On a more subtle and yet important level, SIA (as also in all govt-linked entities) must represent Singapore as a symbol of excellence with a profitability level to match.

In today's Straits Times, it is reported that SIA is again the 2nd best airline in the world for the last 3 years. SIA even lagged behind in rating for its renowned inflight entertainment system.

SIA has been where it has been over the last 20 years based on a strategy that is deemed impossible as per Michael Porter's Theory of Competitive Advantage. SIA has been able to beat its competitors with innovations and service standards. Innovations and service standards have allowed SIA to achieve highest revenue per passenger delivered at a lowest passenger unit cost. Its passenger unit cost is said to be even lower than that of budget airlines. But the key limiting factor to SIA's growth, in my humble opinion, is the landing rights agreed between two countries. But Airbus A380s helped SIA overcome this limitation by allowing SIA to carry largest number of passengers on the more profitable routes.

Should SIA focus on mergers and acquisition to fuel its growth? SIA does not aim to be largest airline in the world but rather excel in profitability and service quality. But having said that, SIA did attempt some M&A but failed miserably. May I cite ANZ? I am still not sure about the 49% in Virgin but as per SIA's books, the investment has been written off long time ago. We also tried to buy a Chinese airline, an Indian airline.. etc but BLOCKED.

But SIA must continue to be ahead of the curve!! But how?? Under the new CEO, SIA has announced recently that it will enter the budget airline foray officially and wholeheartedly. Could it be a pre-response to AirAsia's massive order placed with Airbus recently? Did SIA hear in the grapevine that AirAsia has a plan to conquer the budget airline world? We will wait and see as the story continues to unfold.

Mapletree Log and Frasers Centrepoint Trust compared

In Business Times dated April 22, the two entities' performance were reported.

Mapletree Logistics Trust
- increase in amount distributable to $37.54 million for quarter ended March 31
- distribution per unit is 1.55cents (1.5 for same quarter last year)
- This represents a yield of 6.8% assuming the share price of 91.5cents and constant distribution per unit over 4 quarters

Frasers Centrepoint Trust
- net quarterly property income dropped 1.3% to $20.1 million
- distribution per unit is 2.07cents (2.06 for same quarter last year
- total distribution for half year to date is 4.02cents (3.97cents a year ago)
- This represents a yield of 5.4% assuming share price of 150cents and constant distribution per unit for remaining 6 months of financial year

My questions on Supplementary Retirement Scheme (SRS)

time to spend money? donate

If I have not opened an SRS account, should I?

My simple is YES (and quickly). I opened the account on the basis that I wish to lock in on the current mandatory retirement age before I can make my first withdrawal. There are signals from the government that the official retirement age could be raised. While we won't see the kind of riots and unrests in France replicated here in Singapore, personally we need to take that in consideration.

The much touted immediate benefits of tax savings from deposits into SRS would depend on your tax bracket and availability of taxable income / free cash.

The usefulness of an SRS account would also depend on the age group. During the early part of our working life, we are living in a stage of intense spendings with little of  savings ie. repaying study loans, travelling, dating, getting married, babies, home renovation, parents etc etc Thus should we need to call upon some monies for emergency reasons, your savings in SRS is an option but an expensive one (penalty of 5% and immediate taxability of amount withdrawn).

Thus you would have noticed that my recommendation to open the account is different from recommending regular amount to be deposited.

I would think twice before using the SRS account to house my investments. Please check on the service charges that the bank may levy. Given my experience with the CDP account ie. $10.70 per transaction (I think) regardless of the nature of transaction (I think), it is very expensive indeed when I am just receiving dividend.

Lorna Tan cited the example of yearly contribution of $11,475 to an SRS account for 20 years, this would translate to $2960 monthly withdrawal for 10 years ASSUMING you are able to manage your nest age to generate a return of 4% per year. Governments of the world, fund managers and insurance companies are all trying very hard to do the same, if not better.

Buyers beware, always.

Reference - Lorna Tan, "Saving a little today will go a long way", Sunday Times, Nov14, 2010.

REITable?

 it was vacant many years ago

In my Saturday's Business Times, 4 REITs' results were reported. May I summarise the results for quarter ended June 30, 2010 as follows:-

1. CapitaRetail China Trust (CRCT)
Gross revenue - $29.6m (-2.8% compared to Q2 last year)
Net property income - $19.8m
Distribution per unit (DPU) - 2.07cents
Share price - $1.26 (as of Friday's closing)

2. Ascott REIT
Gross revenue - $44.4m (+3% compared to Q2 last year)
Net property income - $11.6m ($11 in Q2 last year)
Distribution per unit (DPU) - 1.87cents (1.79cents in Q2 2009)
Share price - $1.23 (as of Friday's closing)

3. Frasers Centrepoint Trust (FCT)
Gross revenue - $30.7m (+45%)
Net property income - $16.3m (+35% compared to similar quarter last year)
Distribution per unit (DPU) - 2.07cents (1.97cents in similar quarter last year)
Share price - $1.39 (as of Friday's closing)

4. Ascendas India Trust (a-iTrust)
Gross revenue - $30.9m (+4% on year on year basis)
Net property income - $18.9m (+3% on year on year basis)
Distribution per unit (DPU) - 1.66cents (-19% compared to similar quarter last year)
Share price - $0.995 (as of July 22's closing)

P/S - Usual disclaimer apply.

An interesting remark on HK property

Andy Xie, an independent economist said on CNBC today, "HK property is actually more risky than China."

Bernard Lo of CNBC was taken aback and he queried why it is so.

Andy said property owners in Hong Kong, who are hanging on to their property, are hoping for some stupid and wealthy mainlanders to come and pay them millions of dollars for their CONCRETE BOXes.

I am wondering whether the same phenomenon is also happening in Singapore.

General Magnetics - a lesson yet to be learned?

jakarta traffic from my taxi window

General Magnetics (GM) conducted its first AGM as an unlisted firm last week. Joyce Hooi of Business Times observed that for an unlisted firm's AGM, it was really well attended but with so much outpouring of outrage by its shareholders.

GM was listed 20 years ago as a cassette tape maker, "survived the death of the Walkman age, struggled through the Discman decade as a recordable CD and DVD maker and finally succumbed to the iPod era".

It made losses by the millions since the turn of century and was put on the watchlist in 2008 before being delisted in April this year.

Why are there so much outpouring of outrage by shareholders at this stage? Some shareholders have held on to their shares years after years for the last 10 years despite the annual warning bells of losses being announced. Why lament the delisting?

In fact, they were not outraged by the delisting but rather by the fact the minority shareholders could not force the majority/management to liquidate all remaining assets and distribute the net proceeds to all shareholders. Why would a shareholder buys shares in company and hope the company goes into liquidation?

Towards the end of listed status, the shares had traded so far below net tangible asset value. For those who may have bought at those prices, they are clamouring for the company to be liquidated.

Learning point - Are you holding on to shares of companies, that in recent years, have been making significant losses year after year (eg. Creative)? If so, are you doing anything about it?

Prudential buying AIG?

Prudential's market capitalisation - about GBP12.3billion (about USD18.5billion)

Purchase price - USD35.50billion

The biggest reason for Prudential to buy - rapid increase in access to a rapidly growing Asia market.

How to pay?
USD$25billions in cash and the rest in Prudential shares

Where to find USD$25billion cash?
- rights issue of USD$21billion ie. issue more shares to existing shareholders
- borrow USD$5billion

Impacts and consequences?
Marcus Barnard said - 3 times increase in the number of shares with only 60-70% increase in contribution from AIG (for now) (thus massive dilution expected for now)
Is Prudential buying at too high a price given the current weak European currencies against USD?

Gold still glitters?

Global demand for gold dropped 11 per cent last year, but the the gold price gained 35 per cent - the biggest annual rise in three decades . Why?

• Just like oil priced in USD and its weakening outlook, the sellers of these commodities have to asked for higher prices in USD to compensate for its weakness.
• It is an alternative perennial store of value against expectations of long-term inflation as the world economy emerges from recession. (Is this still valid?)
• Just pure madness when there are millions of tonnes of gold sitting idle with central banks of the world.

What do you think?

Singapore, SGX and our neighbours

For year 2010 in Hong Kong / Shanghai / Shenzen
South China Morning Post reported a few days ago that Hong Kong may raise more than HK$300 billion (about SGD60bio) this year through initial public offerings albeit Shanghai and Shenzhen will do better, according to estimates by PWC. PWC forecasts there will be 60 listings this year in Hong Kong. HK$300 billion would represent a 23 per cent increase from last year.

For year 2009 in Hong Kong / Shanghai / Shenzen
- 73 IPOs in Hong Kong last year raised HK$243.7 billion (far exceeding PwC's predictions at the beginning of the year of HK$100 billion).
- Shanghai and Shenzhen bourses raised 185.6 billion yuan (HK$210.9 billion) combined.

For year 2009 in Singapore
- $2.84 billion were raised by the 23 IPOs (about 20 times LESS than Hong Kong)
- $8.29 billion from 17 listed firms delisted, called it a day and went private (due mainly to Chartered Semicon, SPC and CK Tang) (Source - BT Jan 4, 2010)
- Turnover in structured warrants hits 4-year low. Average daily volume last year plunged to $43m from $84m in 2008. (Source - BT Jan 8, 2010)

Countermeasures in motion:-
- new CEO for new ideas?
- Jan 7, 2010 - SGX proposes Special Purpose Acquisitions Company scheme and changing its listing criteria.

We will be watching as the new CEO of SGX gets to work.

Warren Buffet - Giving away his wealth

My last posting on Warren Buffet was on how he made his money. In this posting, I wish to share with you his well-thought way of giving away his wealth.

His Philosophy on Wealth and Distribution
Buffett has donated much of his wealth to the Gates Foundation ie. 85% of Berkshire stock, worth about $40 billion back in June 2006.

Why donates away most of his wealth?
As he states: "The idea of passing wealth from generation to generation so that hundreds of your descendants can command the resources of other people simply because they came from the right womb flies in the face of a meritocratic society."

Buffett believes that children should not inherit money just because of the lottery of their birth. He says children should be left "enough money so that they feel they could do anything, but not so much that they could do nothing."

How do he and the Gates want the Foundation to manage the money donated?
Objectives

• Together with Bill and Melinda Gates, the wealth will be used to try and fulfill shared goals of eradicating major diseases like malaria and HIV/AIDS in developing countries, and improving high school education standards in the U.S.
• The monies must all be spent over 20 years on health and education.

It is one of the few philanthropic donations where the money will run out relatively quickly, contrary to the self-interest of foundation bureaucracies to survive as long as they can. He does not want the managers of the Foundation to become big fat cats ie. to preserve their cushy jobs and thus holding back on putting the money to good use.

Buffett has not set up a foundation nor paid for buildings at hospitals or museums to try to perpetuate his name.

"Buffett's ideal was a world in which winners were free to strive, but narrowed the gap by helping the losers," writes Alice Schroeder.

Source - Alice Schroeder, Buffett: Rock Star of American Capitalism, Knowledge at Wharton

Do you still trust your bank and banker with your money?

I have just read an article on Business Times entitled "Restoring Trust in Financial Institutions" (FIs) reflecting the views of Mr Simon Newman, Managing Director, AVIVA Singapore.

To restore something means you must have lost it first and then looking to find and put it back. So have we the investing public lost trust in FIs? And the FIs are now trying to restore or regain the public's trust and confidence?

The collapse of structured products amid allegations of massive mis-selling by FIs and their commission-powered sales representatives was the main contributor to that loss of trust.

Can FIs regain that trust of the consumers by simply requiring them to print the sales brochures in all 4 languages (which of course, will be peppered with tons of disclaimers in all 4 languages) and to follow MAS-issued Guidelines on Fair Trading? Mr Newman said FIs need to go beyond merely fulfilling their legal obligations (yes, I agree), (but also) to truly engage consumers and meet their evolving needs in this challenging and volatile economic climate (blah, blah blah). Huh? Is this the panacea to people who have lost millions of dollars of life savings? Let me share with you a parallel example.

The travel industry too was generally in doldrum in the last few months due to the financial crisis. It was later compounded by the outbreak of H1N1. Many who have pre-booked their holidays wanted to cancel and seek refund. Some travel companies are ok to refund but with heavy penalty. The question here - what would you have done if you were running a travel agency?

An industry player opined the industry as a whole should have adopted the position to refund. Otherwise the consequence would be consumers would be more fearful of future early commitment (thus impairing your long term business viability) and prefer last minute self-arranged travels.

Bottomline - When self interest is the foundation of every party's action / decision, the debate will continue. Or given time, the pain will ease and trust will return.

Who is Warren Buffet?

He is the chief icon of Bershire Hathaway. About 30 years ago, Buffett spent $15.4 million to buy 46% of Berkshire (a textile entity) including 3% for his wife Susan, paying an average $32.45 per share. With Berkshire shares recently traded around $87,200, Buffett has grown his wealth nearly 3,000-fold in some 30 years.

How did he do it?
Technically, he learned this massive capital accumulation discipline from Benjamin Graham, investment GURU of Columbia University in 1951.

Buffett's approach to investment involves using seventh grade math and common sense to analyze a company's underlying economics ie.

1. “buying a business not a stock”,
2. “ignoring the fluctuations of the stock market”; and,
3. most importantly, Graham’s main principle “maintaining a margin of safety.”

In frothy bull markets, Buffett is fearful while others are greedy, taking profits on some holdings and piling up the cash generated by businesses. Example - Berkshire sold its stake in PetroChina for $4 billion in 2007 amid rapidly rising oil prices and the craze for investing in emerging markets, having bought it in 2002 and 2003 for $488 million.

Then, during severe stock market or industry declines, he is greedy when others are fearful, buying good businesses at attractive prices. Example - Berkshire secured favourable terms in deals with Goldman Sachs and General Electric during last year's stock market panic.

Buffett's three rules of portfolio management are:-
1. Don't lose money;
2. Don't forget rule one and;
3. Don't go into debt.

Buffet’s personal traits required do the job:-

• His focus,
• an intellect which is a perpetual learning machine,
• rationality,
• an ambition from childhood to become rich,
• family is secondary,
• he attracts talented people to work, partner and deal with him due to his honesty, fairness, letting them do their job without interference and crediting them for success and;
• he freely acknowledges making several errors.

Source - Alice Schroeder, Buffett: Rock Star of American Capitalism, Knowledge at Wharton

Creative Technology - Can see any light yet?

Creative Technology reported a net loss of USD$14 million for its fourth quarter ended June 2009, including a provision of US$12.8 million for potentially unrecoverable loans due from a former subsidiary, compared with a net profit of USD$116.2 million a year ago.

Total loss in FY2009 is USD$137.9 million, compared with net profit of USD$128.2 million in FY2008. The previous year's profit was mainly due to a gain of USD$147.9 million from the sale of Creative's headquarter office and restructuring charges of USD$11.2 million.

I am sure its management knows that it is in need of new ideas that are sustainable. There was a rumour that there could be some sort of a tie up with THX. Whatever it is, the lifeline has to come really soon. Otherwise, the only card left is new Zii platform.

I don't know what it is but I hope for the sake of Singapore's entrepreneurial spirit and Mr Sim's good spirit, the company would turn black soon.

SGX welcomes new CEO

Magnus Bocker is replacing Hsieh Fu Hua as chief executive officer of the Singapore Exchange (SGX), the company announced last night.

His profile highlights his fantastic track record in business development ie. putting together small bourses and finally selling the consolidated entity to a big boy. This is in addition to the fact he took his wife's name. (I cannot understand the need for that.)

Anyway back to my intention of this blog piece.. I would like to raise the question as to his competence in the area of control, maintenance, supervisory roles of a stock exchange.

We certainly need a SGX that would play an even hand to its shareholders and yet market friendly to the listed companies and big and small investors (hopefully not always in this order of preference).

Mr Goodyear, gone So soon?

I just read that Singapore's Temasek Holdings Mr Charles (Chip) Goodyear, the CEO designate, has decided not to become the chief executive of the state investment firm. Reason? Due to differences on certain strategic issues that could not be resolved.

Mr Goodyear had been appointed a member of the Temasek board on February 1, 2009 and CEO-designate, a month later. He resigned on July 21, 2009.

Too short a burn-in period for the candidate to adapt to the economic and political culture and structure of Singapore? Well isn't the candidate supposed to have been selected after an extensive and intensive search for such a high profile and important position ie. managing the wealth of a nation earned with blood and sweat over two or three generations? Or perhaps the portfolio that is supposed to be taken over way too "complex" to digest ie. handover?

Whatever it is - All the bests to you, Mr Goodyear. Perhaps it is just not meant to be.

C K Tang - The Valuation Report

ion's valuation - the minority hope to have?

A group of 10 shareholders of CK Tang signed, sealed and delivered a petition to the Singapore Exchange and the Ministry of Finance to protect the interest of the minority shareholders against 89%-majority Tang family's plans to take the company private.

Their main grievance - They are claiming that the flagship 5-storey store (I think, including the basement), which is part of a huge hotel that C K Tang (the listed company) does not own, has been undervalued because the company has not taken redevelopment potential into account.

There are many ways to value an asset. Thus I would be very interested to know how was the valuation done.

How to satisfy the minority shareholders? Based on what I read in the papers today, there are two options.
* Justify your current offer of 83 cents with a vigorously and comprehensively analysed valuation report done by completely independent and competent property professionals, free from any undue influence or opinion from C K Tang's management OR;
* make an offer that at least matches CK Tang's net tangible assets of 93 cents per share as per financial statements dated March 31, 2009 - 10 cents higher than the current offer price of 83 cents.

Will the minority get their report or their money?

P/S - I got no C K Tang shares.

C K Tang - U know how to do retail business?

ion across tang

Hi Management of C K Tang,

I saw the news today. You have reported ANOTHER $5.62 million loss for the year ended 31 Mar 2009. The loss was more than double the $2.19 million net loss a year ago.

The recent loss is due to the following:-

1. stock writeoff - $7.8 millions
2. marketing-related expenses up 8.2% to $21.9 millions
3. operating expenses up to $25.7 millions
4. depreciation expenses also up by 13% despite relaxing the useful life of some assets from 6 years to 10 years
5. Sales how? Only up a miserable 3% to $238 millions

The family - which owns 86.61 per cent of the company - has COINCIDENTALLY offered to buy the remaining shares it does not own at 83 cents per share through a delisting proposal a few weeks before the annoucement of this set of results.

Why do you want to buy over a money losing business year after year? Here are my speculative bits:-

• "Edgar, you are so stupid... it is not retail business that they are after. They are after the last piece of C K Tang building!!!!"
• "Ion, the building across C K Tang, must have aroused their interest."
• "Or is the buying back of shares, an expensive exercise to avoid listening to people like me and the public from querying their retail business management ability."

Why the need for USD$3 billions loss?

ion still in the making

It is reported in various papers today that "Temasek Holdings has cut its losses on Bank of America (BOA). The Singapore investment agency has sold its 3 per cent stake in the bank, resulting in a loss of about US$3 billion as it renews its focus back home and on the region."

Question - Why the need for Temasek to sell down and realised a loss of such a magnitude?

First thing first, you make decision on the merits of individual investment. When you are not short of funds, you don't have to sell before you buy again. You cannot justify the sale and subsequent loss of that magnitude by telling the world that you are "tweaking your portfolio and refocusing back to the region". This is pure crap.

Secondly, it is obvious that the information available to Temasek's management, ie. prior to its decision to systematicly selldown all its Bank of America's stake in Q1 2009, have painted a pessismistic picture of US economy and its banking sector in near term and thus prompted their decision to sell and not wait. They obviously do not believe that BOA's share price would not be any better to mitigate the loss. Recovery is obviously not in sight.

Didn't Temasek's management get any indication from its sources that the global equity markets would run from early May? Or is the current bull run in May an illusion? Or Temasek may be telling us something we don't know or we refuse to believe given the current bull run.

Has Temasek made another "boo boo" by selling too early? Or Temasek may have taken a wise, informed, preventive action to avoid greater future losses?

Only time will tell.

C K Tang - Deja Vu again?

Proposal
Tang brothers, now called themselves, Tang UnityThree LLP, are offering to buy all shares they do not own at 83cts. (They offered 65cts per share back in Dec 2006)

Background
This is the 3rd effort to privatise the company.
First time was Oct 2003 at the then offer price of 42cts was voted down.
Second time was in Dec 2006 when they offered 65cts.

Question
Still the same question - Is the current price a fair offer for a stake in a very very very prime real estate albeit in a competitive retail business and rapidly improving hotel business? Why the Tangs want to buy back the shares so badly? What does C K Tang actually own?

If the shareholders had accepted the offer in 2003, a shareholder would have missed on about 7.86% per annum rate of capital appreciation.

Read my previous posting on sum of parts could be worth a lot more.

P/S - I have no C K Tang shares as of today.