Welcome back, Maxtor. Oops, I mean Seagate.
Singapore's electronics industry has been losing manufacturing jobs to lower-cost countries like China.
In comes Seagate with its new factory at Woodlands and a US$819 mln investment to save the day.
Construction for the plant is scheduled to start in the first half of 2008 and expected to be completed two years later.
It will start off with 1,000 workers but will expand its staff strength to 3,000 in time.
Seagate plans to produce storage media similar to compact discs, that store data in hard drives at the new factory, supposedly the world's largest of its kind.
Together with its existing facilities in Woodlands, it will supply about 80% of Seagate's recording media needs.
This is a significant development because soon after Seagate acquired Maxtor Corp in December last year for US$1.9 bln, it announced it would eliminate about 6,400 jobs at Maxtor.
The former cut about 2,000 workers in Singapore, but said it may hire some of the former Maxtor employees at a new plant.
When the takeover happened, local investors in stocks like Brilliant Manufacturing, Jurong Technologies and Unisteel Technologies sold off their shares.
Brilliant, especially, was expected to suffer because Maxtor was a major customer and contributed about 80% of its revenue.
On the other hand, MMI, Seksun Corp and Beyonics Technology became attractive because they were Seagate’s regular suppliers.
Now that Seagate’s coming into town in such a big way, how would it affect these counters?
For starters, I was enlightened that none of these companies actually make parts needed in the media plates Seagate intends to produce at its new plant.
So there is no direct impact on these stocks whatsoever.
But the latest I’ve heard about ex-Maxtor suppliers Brilliant and Unisteel, are that they have gotten themselves on Seagate’s list of preferred suppliers.
A tech analyst friend of mine said having Seagate closer to home would have a positive impact on its suppliers here, even if they don’t provide materials for the new plant’s production. Yet.
Perhaps having their customer this close to them, Brilliant, Seksun and gang might still be able to work something out with Seagate.
After all, the factory will only be completed in 2010, so between now and then, there’s plenty of time to explore some options.
It will be interesting to see what these companies come up with in the next few years.
Especially when the global hard-disk drive industry is estimated to hit US$40 bln in 2009, and we’ve got the world’s largest hard-disk drive maker in town.
Serene Lim
In comes Seagate with its new factory at Woodlands and a US$819 mln investment to save the day.
Construction for the plant is scheduled to start in the first half of 2008 and expected to be completed two years later.
It will start off with 1,000 workers but will expand its staff strength to 3,000 in time.
Seagate plans to produce storage media similar to compact discs, that store data in hard drives at the new factory, supposedly the world's largest of its kind.
Together with its existing facilities in Woodlands, it will supply about 80% of Seagate's recording media needs.
This is a significant development because soon after Seagate acquired Maxtor Corp in December last year for US$1.9 bln, it announced it would eliminate about 6,400 jobs at Maxtor.
The former cut about 2,000 workers in Singapore, but said it may hire some of the former Maxtor employees at a new plant.
When the takeover happened, local investors in stocks like Brilliant Manufacturing, Jurong Technologies and Unisteel Technologies sold off their shares.
Brilliant, especially, was expected to suffer because Maxtor was a major customer and contributed about 80% of its revenue.
On the other hand, MMI, Seksun Corp and Beyonics Technology became attractive because they were Seagate’s regular suppliers.
Now that Seagate’s coming into town in such a big way, how would it affect these counters?
For starters, I was enlightened that none of these companies actually make parts needed in the media plates Seagate intends to produce at its new plant.
So there is no direct impact on these stocks whatsoever.
But the latest I’ve heard about ex-Maxtor suppliers Brilliant and Unisteel, are that they have gotten themselves on Seagate’s list of preferred suppliers.
A tech analyst friend of mine said having Seagate closer to home would have a positive impact on its suppliers here, even if they don’t provide materials for the new plant’s production. Yet.
Perhaps having their customer this close to them, Brilliant, Seksun and gang might still be able to work something out with Seagate.
After all, the factory will only be completed in 2010, so between now and then, there’s plenty of time to explore some options.
It will be interesting to see what these companies come up with in the next few years.
Especially when the global hard-disk drive industry is estimated to hit US$40 bln in 2009, and we’ve got the world’s largest hard-disk drive maker in town.
Serene Lim
Thaksin and Temasek: “It is not like selling Chinese rice cakes”
Temasek Holdings may have gotten away with what seemed like a good buy at that time, paying only THB 73.3 bln (S$3.1 bln) for Thailand's telecommunications conglomerate Shin Corporation.
But the implications of the deal may come back to haunt Temasek.
The Thai military disposed of Shin Corp vendor and Prime Minister, Thaksin Shinawatra, from his post as prime minister last week and they are wasting no time in investigating his dealings.
Paramount on the list would be the sale of Shin Corp to Temasek, which saw Thaksin pocket a tax free capital gain of US$2 bln.
But the only thing is that Thaksin has left the picture and living in a cosy exile in London, not daring to return, lest he too be arrested like the rest of his allies back home.
The ones who would be left to face the music would be Temasek and according to Eric Ellis who wrote for the Sydney Morning Herald "could face fines of up to US$2 bln if its proved, as many suspect, that Thai licensing laws have been breached."
Temasek might well be able to defend itself if this debacle took place in Singapore, but this deal involves the Thais, which is a different kettle of fish altogether.
For its case, Temasek has said that it firmly believes that the deal was perfectly legal.
As Temasek managing director Jimmy Phoon told the Bangkok Post two weeks ago, "From our perspective, we are in compliance with all laws. We have cooperated fully with the Commerce Ministry, and are confident of a satisfactory review."
Temasek, if anything, has always been astute in making investments. However, in this case, the share price of Shin Corp has declined more than 37% and it is already facing a US$2 bln paper loss. Granted, the freefloat is now tiny: only 4% of the company is not owned by Temasek or related shareholders.
But when you consider the problematic nature of this purchase, the business had better deliver the promised cashflow.
Desiree Pakiam
But the implications of the deal may come back to haunt Temasek.
The Thai military disposed of Shin Corp vendor and Prime Minister, Thaksin Shinawatra, from his post as prime minister last week and they are wasting no time in investigating his dealings.
Paramount on the list would be the sale of Shin Corp to Temasek, which saw Thaksin pocket a tax free capital gain of US$2 bln.
But the only thing is that Thaksin has left the picture and living in a cosy exile in London, not daring to return, lest he too be arrested like the rest of his allies back home.
The ones who would be left to face the music would be Temasek and according to Eric Ellis who wrote for the Sydney Morning Herald "could face fines of up to US$2 bln if its proved, as many suspect, that Thai licensing laws have been breached."
Temasek might well be able to defend itself if this debacle took place in Singapore, but this deal involves the Thais, which is a different kettle of fish altogether.
For its case, Temasek has said that it firmly believes that the deal was perfectly legal.
As Temasek managing director Jimmy Phoon told the Bangkok Post two weeks ago, "From our perspective, we are in compliance with all laws. We have cooperated fully with the Commerce Ministry, and are confident of a satisfactory review."
Temasek, if anything, has always been astute in making investments. However, in this case, the share price of Shin Corp has declined more than 37% and it is already facing a US$2 bln paper loss. Granted, the freefloat is now tiny: only 4% of the company is not owned by Temasek or related shareholders.
But when you consider the problematic nature of this purchase, the business had better deliver the promised cashflow.
Desiree Pakiam
Bursa Malaysia: Welcome to Singapore, have a nice day.
Imagine this headline six years ago: “Come on over, Bursa tells S'pore investors”
Singapore investors would have choked on their kopi-o! It was only two years earlier that the Malaysian authorities put a stop to the Central Limit Order Book, essentially freezing S$4 bln worth of stocks in 112 Malaysian companies owned by 172,000 Singaporean investors.
But this is exactly the headline that ran in last weekend’s Business Times. Essentially, Bursa Malaysia was staging a presentation by several Malaysian companies to Singapore retail investors. This “Malaysia Day 2006” was held last Saturday at the HDB Hub in Toa Payoh.
There is irony everywhere in this tale.
First, it is an irony that the Securities Investors Association (Singapore) was not only endorsing the event, but was even organising it. SIAS was founded in order to unlock the frozen assets and return them to their rightful owners.
In Malaysia’s The Edge Daily three days earlier, David Gerald, founder, president and CEO of SIAS was quoted as saying: "Over the past nine years, investors in Singapore have been apprehensive about looking at Malaysian stocks because of the CLOB issue. We believe that it is now time to re-look at the Malaysian market. Singapore investors will therefore have the opportunity to find out the investment scene in Malaysia.”
But look more closely and you will find that it was SIAS Research Pte Ltd – the private investment arm of SIAS – which has been actively involved in the event, including conducting the marketing.
SIAS Research is run by Terence Wong, a good friend of mine with an excellent nose for a good stock and business acumen to boot. In a way, Terence embodies the renewal that is so desperately needed on the Singapore market, which tends to be dominated by the 40-something (or older) crowd. Terence joined SIAS Research from JM Sassoon. His mentor there, Lim Eng Hai, was SIAS Research’s first CEO.
It cannot be anything but a positive that this cross-border promotion is going on.
However, here is the second irony: why is the SGX not out there marketing to Malaysian investors?
The Singapore market is arguably more attractive than Bursa Malaysia. It is significantly larger with a market capitalisation of US$305.9 bln, compared to Malaysia’s US$198.3 bln (at the end of August. Source: World Federation of Exchanges). The Singapore market has had its share of malfeasance (China Aviation Oil, Accord Customer Care Solutions, Informatics) but is arguably a better regulated, more stable market than Bursa Malaysia. Just last Tuesday, the Securities Commission announced share manipulation investigations.
And yet, it is Bursa that is trying to woo Singapore retail investors.
Here’s my question: When will the Singapore Exchange be permitted to stage a similar “Singapore Day 2006” to woo Malaysian retail investors?
Clearly it’s a positive that there is this cross-Causeway communication, not least because it indicates that the long-delayed trading link between Bursa and the SGX might finally be making some headway. But “business as usual” really means that: that even though the CLOB issue seems long resolved and forgotten, the quirks of cross-Strait relations remain.
Mark Laudi
Singapore investors would have choked on their kopi-o! It was only two years earlier that the Malaysian authorities put a stop to the Central Limit Order Book, essentially freezing S$4 bln worth of stocks in 112 Malaysian companies owned by 172,000 Singaporean investors.
But this is exactly the headline that ran in last weekend’s Business Times. Essentially, Bursa Malaysia was staging a presentation by several Malaysian companies to Singapore retail investors. This “Malaysia Day 2006” was held last Saturday at the HDB Hub in Toa Payoh.
There is irony everywhere in this tale.
First, it is an irony that the Securities Investors Association (Singapore) was not only endorsing the event, but was even organising it. SIAS was founded in order to unlock the frozen assets and return them to their rightful owners.
In Malaysia’s The Edge Daily three days earlier, David Gerald, founder, president and CEO of SIAS was quoted as saying: "Over the past nine years, investors in Singapore have been apprehensive about looking at Malaysian stocks because of the CLOB issue. We believe that it is now time to re-look at the Malaysian market. Singapore investors will therefore have the opportunity to find out the investment scene in Malaysia.”
But look more closely and you will find that it was SIAS Research Pte Ltd – the private investment arm of SIAS – which has been actively involved in the event, including conducting the marketing.
SIAS Research is run by Terence Wong, a good friend of mine with an excellent nose for a good stock and business acumen to boot. In a way, Terence embodies the renewal that is so desperately needed on the Singapore market, which tends to be dominated by the 40-something (or older) crowd. Terence joined SIAS Research from JM Sassoon. His mentor there, Lim Eng Hai, was SIAS Research’s first CEO.
It cannot be anything but a positive that this cross-border promotion is going on.
However, here is the second irony: why is the SGX not out there marketing to Malaysian investors?
The Singapore market is arguably more attractive than Bursa Malaysia. It is significantly larger with a market capitalisation of US$305.9 bln, compared to Malaysia’s US$198.3 bln (at the end of August. Source: World Federation of Exchanges). The Singapore market has had its share of malfeasance (China Aviation Oil, Accord Customer Care Solutions, Informatics) but is arguably a better regulated, more stable market than Bursa Malaysia. Just last Tuesday, the Securities Commission announced share manipulation investigations.
And yet, it is Bursa that is trying to woo Singapore retail investors.
Here’s my question: When will the Singapore Exchange be permitted to stage a similar “Singapore Day 2006” to woo Malaysian retail investors?
Clearly it’s a positive that there is this cross-Causeway communication, not least because it indicates that the long-delayed trading link between Bursa and the SGX might finally be making some headway. But “business as usual” really means that: that even though the CLOB issue seems long resolved and forgotten, the quirks of cross-Strait relations remain.
Mark Laudi
I'll miss your lion dance, Mr Lee.
SingTel has chosen outgoing Group CEO Lee Hsien Yang's successor.
She is its current CFO and CEO (International), Chua Sock Koong.
Even as SingTel announced it was embarking on a global search for a new CEO, Chua and CEO (Singapore) Allen Lew were widely speculated to be two of the those considered for the post.
So while Chua's appointment wasn't a huge surprise (to me), it was still one of the most interesting stories of yesterday.
She is obviously a choice candidate, having been with the company for 17 years since 1989, has the right credentials and carries herself extremely well.
Of course there are those who wonder if she was too conservative a choice, rising from within the SingTel family.
But she is in the thick of things as CEO (International) and should not have any problems with executing SingTel's focus on its overseas strategies.
The question now is, once Chua takes over as CEO, who's to become the next CFO?
My one lingering question prevails though: Where would Lee go to next?
I have a soft spot for Lee, having exchanged a few pleasantries with him in a crowded lift.
He came across as rather lonely and somewhat awkward to be standing in the lift with staff trickling in from various floors and looking away hurriedly after noticing their big boss was in the lift too.
So I'm as eager as any analyst or stock-watcher to see where he heads to next.
After all, Lee IS the face of SingTel.
He has publicly ruled out any interest in politics and says he is considering options too premature to mention now.
There was talk he might move over to Neptune Orient Lines, since they're still searching for their new chief to replace David Lim.
We can speculate all we want, but Lee is a very difficult person to read and unless he is ready to tell us where he is going, we are just going to be left guessing.
One thing's for sure, he probably will not be subjected to any more strange antics like being Richard Branson's tail during their lion dance segment when Virgin Mobile did a joint launch with SingTel some years back.
For now, congratulations Ms Chua, on being the first female chief of SingTel.
I'm sure you'll be able to carry on Mr Lee's legacy since you've worked so closely with him over the years.
And Mr Lee, we await your next move with bated breath.
Serene Lim
She is its current CFO and CEO (International), Chua Sock Koong.
Even as SingTel announced it was embarking on a global search for a new CEO, Chua and CEO (Singapore) Allen Lew were widely speculated to be two of the those considered for the post.
So while Chua's appointment wasn't a huge surprise (to me), it was still one of the most interesting stories of yesterday.
She is obviously a choice candidate, having been with the company for 17 years since 1989, has the right credentials and carries herself extremely well.
Of course there are those who wonder if she was too conservative a choice, rising from within the SingTel family.
But she is in the thick of things as CEO (International) and should not have any problems with executing SingTel's focus on its overseas strategies.
The question now is, once Chua takes over as CEO, who's to become the next CFO?
My one lingering question prevails though: Where would Lee go to next?
I have a soft spot for Lee, having exchanged a few pleasantries with him in a crowded lift.
He came across as rather lonely and somewhat awkward to be standing in the lift with staff trickling in from various floors and looking away hurriedly after noticing their big boss was in the lift too.
So I'm as eager as any analyst or stock-watcher to see where he heads to next.
After all, Lee IS the face of SingTel.
He has publicly ruled out any interest in politics and says he is considering options too premature to mention now.
There was talk he might move over to Neptune Orient Lines, since they're still searching for their new chief to replace David Lim.
We can speculate all we want, but Lee is a very difficult person to read and unless he is ready to tell us where he is going, we are just going to be left guessing.
One thing's for sure, he probably will not be subjected to any more strange antics like being Richard Branson's tail during their lion dance segment when Virgin Mobile did a joint launch with SingTel some years back.
For now, congratulations Ms Chua, on being the first female chief of SingTel.
I'm sure you'll be able to carry on Mr Lee's legacy since you've worked so closely with him over the years.
And Mr Lee, we await your next move with bated breath.
Serene Lim
A sad Christmas for Wisma Atria
The Wisma Atria tunnel link with Orchard MRT will be closed at the end of this month and there will be no reprieve for the retailers.
Retailers in the mall, particularly the basement, have long benefitted from large numbers of people walking by as they walk to and from Orchard MRT.
An anonymous major retailer was quoted by ChannelNewsAsia as saying it might lose 30% of sales due to the closure.
Last ditch attempts by Macquarie MEAG Prime REIT (MMP REIT) to speak to relevant government agencies and the developers of the new Orchard Turn project to delay the closure till after the peak Christmas shopping period have failed to yield results.
CapitaLand, which owns half of Orchard Turn, is unwilling to delay the start of construction any further, stating that repayment on interest of the project will cost it S$200, 000 a day.
Pua Seck Guan, CEO of CapitaRetail, told TODAY, “I think it's very unreasonable, as a neighbour there, now using the tenants to pressure the authorities.”
CapitaLand had to build a street level covered walkway, as part of the tender requirements, before it was allowed to close the tunnel for two years to develop Orchard Turn.
MMP REIT on its part, will build new street-level escalators, which will not be completed by the time the tunnel has to be closed.
Perhaps, the Urban Redevelopment Authority should not have awarded the tender for Orchard Turn so soon, or made it a condition that the tunnel would not be closed until after the busy Christmas shopping period.
After all, the biggest losers in this case will be Wisma Atria retailers and MMP REIT, which owns 74% of Wisma and 27% of Ngee Ann City, the neighbouring mall which also benefits from the human traffic coming in via the tunnel.
In the end, the biggest winners might be CK Tangs and Scotts, which might benefit from the diversion of shoppers who use the tunnels to avoid rainy and hot weather.
Or even CapitaLand, who will be garnering revenue from Orchard Turn in two years' time, and affecting its competitor's business.
Retailers in the mall, particularly the basement, have long benefitted from large numbers of people walking by as they walk to and from Orchard MRT.
An anonymous major retailer was quoted by ChannelNewsAsia as saying it might lose 30% of sales due to the closure.
Last ditch attempts by Macquarie MEAG Prime REIT (MMP REIT) to speak to relevant government agencies and the developers of the new Orchard Turn project to delay the closure till after the peak Christmas shopping period have failed to yield results.
CapitaLand, which owns half of Orchard Turn, is unwilling to delay the start of construction any further, stating that repayment on interest of the project will cost it S$200, 000 a day.
Pua Seck Guan, CEO of CapitaRetail, told TODAY, “I think it's very unreasonable, as a neighbour there, now using the tenants to pressure the authorities.”
CapitaLand had to build a street level covered walkway, as part of the tender requirements, before it was allowed to close the tunnel for two years to develop Orchard Turn.
MMP REIT on its part, will build new street-level escalators, which will not be completed by the time the tunnel has to be closed.
Perhaps, the Urban Redevelopment Authority should not have awarded the tender for Orchard Turn so soon, or made it a condition that the tunnel would not be closed until after the busy Christmas shopping period.
After all, the biggest losers in this case will be Wisma Atria retailers and MMP REIT, which owns 74% of Wisma and 27% of Ngee Ann City, the neighbouring mall which also benefits from the human traffic coming in via the tunnel.
In the end, the biggest winners might be CK Tangs and Scotts, which might benefit from the diversion of shoppers who use the tunnels to avoid rainy and hot weather.
Or even CapitaLand, who will be garnering revenue from Orchard Turn in two years' time, and affecting its competitor's business.
The SGX: Exchange those conflicts of interest!
You could be forgiven for missing this story, in a week dominated by news from the IMF and World Bank meetings in Singapore: The Singapore Exchange has used a speech acknowledging the naming of Singapore as one of the world’s top 10 countries for good corporate governance to defend its own corporate governance standards. At the heart of its message it answered its critics who say a commercial entity cannot also be its own regulator.
The Singapore Exchange doesn’t just run the stock, warrant and futures market in Singapore, it also regulates it alongside the Monetary Authority of Singapore.
Yeo Lian Sim, the Head of the Risk Management and Regulation Group at the SGX – and a former senior MAS staffer – acknowledged “the most common charge levelled at SGX is the perceived conflict between commercial and regulatory objectives; namely that SGX’s pursuit of commercial gain erodes its regulatory standards.”
But she countered “in SGX, we see no conflict at all. For us, the pursuit of regulatory quality builds confidence and grows an enduring marketplace - something in the interest of all SGX’s stakeholders.”
She justifies this position further by saying:
“regulatory staff are totally separate from commercial business units, even though both report to the CEO and thence to the Board. A Conflicts Committee of the Board ensures that our budget and staffing are adequate, and that our regulatory framework and processes can handle this self-regulatory conflict. SGX’s Board reports on conflict handling annually to the MAS. MAS inspects SGX regularly. This structure allows Regulation to have proximity to market, for its benefits; while providing safeguards for regulatory standards.”
But she acknowledges that “this is work-in-progress and will always be as we adjust to the changing marketplace.”
My personal view is this: if the MAS already has such a strong oversight of the SGX, why doesn’t the MAS just take over the SGX’s regulatory functions and let the SGX focus on its commercial objectives?
Now, it doesn’t have to be the MAS. In Australia, it’s the Australian Securities & Investments Commission (ASIC), in the United States it is the Securities & Exchange Commission. But in either case, regulation is not carried out by the Exchange (although the Australian Stock Exchange still issues “speeding tickets”, that is, queries regarding unusual trading volumes or values).
My reasoning for this opinion is as follows.
First, the MAS already has a substantial hand in what goes on at the SGX. For example, it deals with registrations of prospectuses, and as we saw a few years ago with Naga Corp– the Cambodian casino-on-a-boathouse – it had no hesitation in intervening in the IPO, even though the SGX let it go through. Naga Corp eventually cancelled plans to list.
Second, the SGX has a policy of letting investor decide whether a company is a good investment. That’s something I support. Different investors see different value propositions in different companies and the SGX shouldn’t take this away from people. By handing over its regulatory functions to the MAS it would cement this principle.
Third, think of the cost savings for the SGX, as all those staff members who deal with regulatory issues start drawing their salaries from the MAS.
The complete separation of regulatory and comercial functions at the exchange between the MAS and SGX makes so much sense to me I find it difficult to understand why this hasn’t happened already.
The Singapore Exchange doesn’t just run the stock, warrant and futures market in Singapore, it also regulates it alongside the Monetary Authority of Singapore.
Yeo Lian Sim, the Head of the Risk Management and Regulation Group at the SGX – and a former senior MAS staffer – acknowledged “the most common charge levelled at SGX is the perceived conflict between commercial and regulatory objectives; namely that SGX’s pursuit of commercial gain erodes its regulatory standards.”
But she countered “in SGX, we see no conflict at all. For us, the pursuit of regulatory quality builds confidence and grows an enduring marketplace - something in the interest of all SGX’s stakeholders.”
She justifies this position further by saying:
“regulatory staff are totally separate from commercial business units, even though both report to the CEO and thence to the Board. A Conflicts Committee of the Board ensures that our budget and staffing are adequate, and that our regulatory framework and processes can handle this self-regulatory conflict. SGX’s Board reports on conflict handling annually to the MAS. MAS inspects SGX regularly. This structure allows Regulation to have proximity to market, for its benefits; while providing safeguards for regulatory standards.”
But she acknowledges that “this is work-in-progress and will always be as we adjust to the changing marketplace.”
My personal view is this: if the MAS already has such a strong oversight of the SGX, why doesn’t the MAS just take over the SGX’s regulatory functions and let the SGX focus on its commercial objectives?
Now, it doesn’t have to be the MAS. In Australia, it’s the Australian Securities & Investments Commission (ASIC), in the United States it is the Securities & Exchange Commission. But in either case, regulation is not carried out by the Exchange (although the Australian Stock Exchange still issues “speeding tickets”, that is, queries regarding unusual trading volumes or values).
My reasoning for this opinion is as follows.
First, the MAS already has a substantial hand in what goes on at the SGX. For example, it deals with registrations of prospectuses, and as we saw a few years ago with Naga Corp– the Cambodian casino-on-a-boathouse – it had no hesitation in intervening in the IPO, even though the SGX let it go through. Naga Corp eventually cancelled plans to list.
Second, the SGX has a policy of letting investor decide whether a company is a good investment. That’s something I support. Different investors see different value propositions in different companies and the SGX shouldn’t take this away from people. By handing over its regulatory functions to the MAS it would cement this principle.
Third, think of the cost savings for the SGX, as all those staff members who deal with regulatory issues start drawing their salaries from the MAS.
The complete separation of regulatory and comercial functions at the exchange between the MAS and SGX makes so much sense to me I find it difficult to understand why this hasn’t happened already.
Public Transport Council allows fare hikes
The Public Transport Council has done what operators SMRT and SBS Transit have been waiting for: they’ve give the green light to fare hikes. However, this is no pitched battle between greedy transportation companies hammering an unsuspecting public for more money. This debate is so finely balanced because of its political implications that investors in these two stocks need to look carefully at what they’re getting themselves into.
The whole debate has its roots in traffic congestion. As you probably know, car owners pay significantly more to buy, own and run a car in Singapore than in other parts of the world, although they do see a significant refund when they sell or scrap their vehicles. The aim of these higher costs is to reduce car ownership and, by extension, traffic congestion. Let’s leave aside the debate about how effective or fair this is. My focus here is on the investment merits of the public transport operators.
As a result of the government disincentivising (ie, making it expensive) to own and run a car in Singapore, many people have little choice but to rely on public transport. Heartlanders, which form the core voting constituency, are particularly price sensitive because many of them earn low wages, if any at all. So, putting car ownership out of their reach while raising public transport fares is understandably a dicey proposition.
But from an investor’s point-of-view, it is no less dicey. SMRT operates the north-south and east-west MRT and the Bukit Panjang LRT lines. SBS Transit operates the north-east MRT line and the red-white-and-purple buses. These operators have to maintain, upgrade and replace buses and trains, not to mention the increasing running costs brought about by higher fuel prices. From an investor’s point-of-view, this latest public transport hike is not just overdue but also not enough. SBS disclosed it will earn S$8.7 mln extra revenue but that it will hand back S$4.4 mln through increased concessions to low income groups, such as needy families, the elderly and so on. Taking with one hand and giving with the other is a noble cause which, in the words of SBS Transit Executive Director Ong Boon Leong, “is our social responsibility”. In the Singapore context, this may be acceptable, but let us look at how this is done in other parts of the world.
First – and I don’t care what anyone says – Singapore’s public transport system is excellent.
In which other country:
1. do the trains arrive every 2-5 minutes during peak times, and every 5-7 minutes in off-peak times?
2. are the trains free from graffiti or smell?
3. are the seats usable because they have not been vandalised?
4. do the the buses follow a regular rhythm negating the need for bus timetables
5. are the buses free from graffiti (even though they smell sometimes, and they still haven’t been able to eradicate the cockroaches on some buses)?
6. are the seats usable because they have not been vandalised?
7. do the bus and train tickets cost – at most – the same as a loaf of bread?
Moreover, from an investor’s point-of-view, in which other country:
1. does the public transport system make a profit…
2. …without subsidies…
3. …and pays a comparatively high dividend yield?
I know there are lots of people who whinge and complain about the Singapore public transport system but face it, folks: it is fantastic. Go and ask anyone from so-called global cities such as London or Sydney about their public transport system! They really have something to complain about.
So my advice to the whingers: lay off SMRT and SBS Transit. They are doing a fantastic job.
Which begs the question: shouldn’t they be allowed to charge more for their amazing, cheap and profitable service? Frankly, if other global cities had Singapore’s public transport system commuters there would be paying five to ten times the amount per fare. It seems ridiculous that SMRT and SBS Transit should have to apologise for 1, 2 or 3 cent per ride increases in public transport fares given the service they provide and the increased costs they face.
Moreover, in my opinion as an investor it is equally ridiculous that they should have to subsidise low income families. It is noble indeed of SMRT and SBS Transit for having a social conscience but why should investors in these firms foot the bill for that?! This sort of assistance should come from other sources, such as the government. I am not in favour of the government subsidising the companies directly – that only leads to laziness and wastage. But if increasing public transport fares is a hot potato politically then it is the politicians (ie, taxpayers) who should bear the burden of subsidising low income families, not investors in these companies.
The whole debate has its roots in traffic congestion. As you probably know, car owners pay significantly more to buy, own and run a car in Singapore than in other parts of the world, although they do see a significant refund when they sell or scrap their vehicles. The aim of these higher costs is to reduce car ownership and, by extension, traffic congestion. Let’s leave aside the debate about how effective or fair this is. My focus here is on the investment merits of the public transport operators.
As a result of the government disincentivising (ie, making it expensive) to own and run a car in Singapore, many people have little choice but to rely on public transport. Heartlanders, which form the core voting constituency, are particularly price sensitive because many of them earn low wages, if any at all. So, putting car ownership out of their reach while raising public transport fares is understandably a dicey proposition.
But from an investor’s point-of-view, it is no less dicey. SMRT operates the north-south and east-west MRT and the Bukit Panjang LRT lines. SBS Transit operates the north-east MRT line and the red-white-and-purple buses. These operators have to maintain, upgrade and replace buses and trains, not to mention the increasing running costs brought about by higher fuel prices. From an investor’s point-of-view, this latest public transport hike is not just overdue but also not enough. SBS disclosed it will earn S$8.7 mln extra revenue but that it will hand back S$4.4 mln through increased concessions to low income groups, such as needy families, the elderly and so on. Taking with one hand and giving with the other is a noble cause which, in the words of SBS Transit Executive Director Ong Boon Leong, “is our social responsibility”. In the Singapore context, this may be acceptable, but let us look at how this is done in other parts of the world.
First – and I don’t care what anyone says – Singapore’s public transport system is excellent.
In which other country:
1. do the trains arrive every 2-5 minutes during peak times, and every 5-7 minutes in off-peak times?
2. are the trains free from graffiti or smell?
3. are the seats usable because they have not been vandalised?
4. do the the buses follow a regular rhythm negating the need for bus timetables
5. are the buses free from graffiti (even though they smell sometimes, and they still haven’t been able to eradicate the cockroaches on some buses)?
6. are the seats usable because they have not been vandalised?
7. do the bus and train tickets cost – at most – the same as a loaf of bread?
Moreover, from an investor’s point-of-view, in which other country:
1. does the public transport system make a profit…
2. …without subsidies…
3. …and pays a comparatively high dividend yield?
I know there are lots of people who whinge and complain about the Singapore public transport system but face it, folks: it is fantastic. Go and ask anyone from so-called global cities such as London or Sydney about their public transport system! They really have something to complain about.
So my advice to the whingers: lay off SMRT and SBS Transit. They are doing a fantastic job.
Which begs the question: shouldn’t they be allowed to charge more for their amazing, cheap and profitable service? Frankly, if other global cities had Singapore’s public transport system commuters there would be paying five to ten times the amount per fare. It seems ridiculous that SMRT and SBS Transit should have to apologise for 1, 2 or 3 cent per ride increases in public transport fares given the service they provide and the increased costs they face.
Moreover, in my opinion as an investor it is equally ridiculous that they should have to subsidise low income families. It is noble indeed of SMRT and SBS Transit for having a social conscience but why should investors in these firms foot the bill for that?! This sort of assistance should come from other sources, such as the government. I am not in favour of the government subsidising the companies directly – that only leads to laziness and wastage. But if increasing public transport fares is a hot potato politically then it is the politicians (ie, taxpayers) who should bear the burden of subsidising low income families, not investors in these companies.
What ordinary investors can learn from Temasek Holdings
Temasek Holdings’ 2006 Review published Wednesday should be a case study for every Singapore retail investor wanting to make money in the market, irrespective whether you are a trader or an investor. The document was packed with information that goes far beyond providing some accountability for how Singapore’s state investment agency is investing its cash.
The document was already an eye-opener:
• The value of its investment portfolio grew 24% to S$129 bln in the twelve months to the end of March.
• Revenues rose 18% to S$80 bln
• Net profit rose 71% to $13 bln.
• Total returns since it was formed in 1974 are 18% by market value and 17% by shareholder return.
• It has paid the government – its shareholder – an average annual yield of more than 7%.
Practically every page contains a nugget each and every market participant can apply in their own trading or investing strategy. Here is my perspective:
Invest for the long term. I’m not going to be popular with traders for saying this but it should be patently obvious that investing with a medium to long term view is more profitable than day trading, when viewed on the risk/reward scale. Sure enough, you might make tons more money trading… but not on a consistent basis. Chairman S Dhanabalan is quoted in Temasek’s statement as saying “the growing economies in Asia continue to hold much promise for the long term, though we can expect bumps along the way.” Trading will leave you in the ditch.
Don’t be scared to sell. Temasek may have bought S$21 bln worth of assets during the year, but it also sold S$13 bln. Realising profits and cutting losses should be part of every investor’s repertoire. This is not the same as trading. But clearly, loyalty to loss-makers is misplaced loyalty, and paper profits aren’t really profits until they are realised.
Be disciplined. Now there’s a real gem for retail investors: Temasek says it will maintain a cautious, disciplined investment stance in the face of global uncertainties in the medium term. Discipline is what many retail investors lack. Get with it.
Diversify away from Singapore. Temasek says investments in Singapore make up 44% of the portfolio. It is aiming to reduce this ratio to 33%. I’m a strong believer in Singapore’s future, but if it’s good enough for Temasek to increase its investments in Asia outside of Singapore and Japan to 34% from 19%, it should be good enough for the rest of us.
Invest in trends, not stocks. Temasek couldn’t have phrased it more succinctly. It is investing in:
1. rising Asian economies
2. growing middle class
3. deepening comparative advantages, and
4. and emerging champions.
Go where the big money goes. Temasek’s investments in financial services, telecommunications and media make up 61% of the portfolio, up from 54%. That’s just about as close to getting “stock picks” as you are going to get from Temasek.
Clearly, investors need to see how Temasek’s investment strategy fits in with their own personal circumstances. But if you want the value of your investment portfolio to increase 24%, your revenues 18% and your net profit 71%, there is bound to be something in their statement for everyone.
The document was already an eye-opener:
• The value of its investment portfolio grew 24% to S$129 bln in the twelve months to the end of March.
• Revenues rose 18% to S$80 bln
• Net profit rose 71% to $13 bln.
• Total returns since it was formed in 1974 are 18% by market value and 17% by shareholder return.
• It has paid the government – its shareholder – an average annual yield of more than 7%.
Practically every page contains a nugget each and every market participant can apply in their own trading or investing strategy. Here is my perspective:
Invest for the long term. I’m not going to be popular with traders for saying this but it should be patently obvious that investing with a medium to long term view is more profitable than day trading, when viewed on the risk/reward scale. Sure enough, you might make tons more money trading… but not on a consistent basis. Chairman S Dhanabalan is quoted in Temasek’s statement as saying “the growing economies in Asia continue to hold much promise for the long term, though we can expect bumps along the way.” Trading will leave you in the ditch.
Don’t be scared to sell. Temasek may have bought S$21 bln worth of assets during the year, but it also sold S$13 bln. Realising profits and cutting losses should be part of every investor’s repertoire. This is not the same as trading. But clearly, loyalty to loss-makers is misplaced loyalty, and paper profits aren’t really profits until they are realised.
Be disciplined. Now there’s a real gem for retail investors: Temasek says it will maintain a cautious, disciplined investment stance in the face of global uncertainties in the medium term. Discipline is what many retail investors lack. Get with it.
Diversify away from Singapore. Temasek says investments in Singapore make up 44% of the portfolio. It is aiming to reduce this ratio to 33%. I’m a strong believer in Singapore’s future, but if it’s good enough for Temasek to increase its investments in Asia outside of Singapore and Japan to 34% from 19%, it should be good enough for the rest of us.
Invest in trends, not stocks. Temasek couldn’t have phrased it more succinctly. It is investing in:
1. rising Asian economies
2. growing middle class
3. deepening comparative advantages, and
4. and emerging champions.
Go where the big money goes. Temasek’s investments in financial services, telecommunications and media make up 61% of the portfolio, up from 54%. That’s just about as close to getting “stock picks” as you are going to get from Temasek.
Clearly, investors need to see how Temasek’s investment strategy fits in with their own personal circumstances. But if you want the value of your investment portfolio to increase 24%, your revenues 18% and your net profit 71%, there is bound to be something in their statement for everyone.
Singapore-KL Route: Open it up already
Singapore’s efforts to get access for Singapore Airlines to fly Australia-US routes seem quite churlish in light of the reticence to open up the Singapore-Kuala Lumpur route to more competition.
But things are finally happening on that front.
It's been two years since Malaysia and Singapore started entertaining the idea of revising their 34-year-old bilateral air service agreement.
This means the countries' national carriers – Malaysia Airlines and Singapore Airlines – would lose their duopoly.
Malaysia set up a committee last month to decide on the feasibility of such an agreement ahead of ASEAN's Open Sky Agreement, which states that airlines of member countries can operate unlimited flights between their capital cities by 2008.
While air agreements do not require the consent of national carriers, they are usually consulted before deals are sealed.
But if the national airlines have a lot of clout, their interests are sometimes put before the countries'.
Channel NewsAsia quoted Malaysian Transport Minister Chan Kong Choy as saying, “We believe the further liberalisation of aviation links actually benefits the two countries in tourism, trade and investment. Whether you like it or not, according to this ASEAN aviation roadmap, we are going to open up.”
So let's get down to business. Is this going to hurt SIA or not?
Personally, I think it is going to hurt MAS more than SIA because it will be difficult to turn around RM1.3 bln of losses reported last year without this profitable route.
Given the 30minute flight time and lack of service, paying S$425 for a round trip ticket is pretty extortionate.
It's no wonder AirAsia head Tony Fernandes wants a piece of the pie, and so does Tiger Airways.
This is the most expensive sector to fly in the world and together the airlines operate more than 200 flights a week!
SIA says this doesn't mean it has to give away flights and that it's simply about increasing frequency.
Well, if they think they're going to be able to keep their regulars away from budget airlines once they enter the picture, they're dead wrong.
Regulars were only regulars because they didn't have much of a choice.
I'd rather be loyal to my pocket, and go for something cheaper, even if it means the flight attendant doesn't offer me anything to drink for 30 minutes.
Serene Lim
ArchivesBut things are finally happening on that front.
It's been two years since Malaysia and Singapore started entertaining the idea of revising their 34-year-old bilateral air service agreement.
This means the countries' national carriers – Malaysia Airlines and Singapore Airlines – would lose their duopoly.
Malaysia set up a committee last month to decide on the feasibility of such an agreement ahead of ASEAN's Open Sky Agreement, which states that airlines of member countries can operate unlimited flights between their capital cities by 2008.
While air agreements do not require the consent of national carriers, they are usually consulted before deals are sealed.
But if the national airlines have a lot of clout, their interests are sometimes put before the countries'.
Channel NewsAsia quoted Malaysian Transport Minister Chan Kong Choy as saying, “We believe the further liberalisation of aviation links actually benefits the two countries in tourism, trade and investment. Whether you like it or not, according to this ASEAN aviation roadmap, we are going to open up.”
So let's get down to business. Is this going to hurt SIA or not?
Personally, I think it is going to hurt MAS more than SIA because it will be difficult to turn around RM1.3 bln of losses reported last year without this profitable route.
Given the 30minute flight time and lack of service, paying S$425 for a round trip ticket is pretty extortionate.
It's no wonder AirAsia head Tony Fernandes wants a piece of the pie, and so does Tiger Airways.
This is the most expensive sector to fly in the world and together the airlines operate more than 200 flights a week!
SIA says this doesn't mean it has to give away flights and that it's simply about increasing frequency.
Well, if they think they're going to be able to keep their regulars away from budget airlines once they enter the picture, they're dead wrong.
Regulars were only regulars because they didn't have much of a choice.
I'd rather be loyal to my pocket, and go for something cheaper, even if it means the flight attendant doesn't offer me anything to drink for 30 minutes.
Serene Lim
January 2006 February 2006 March 2006 April 2006 May 2006 June 2006 July 2006 August 2006 September 2006 October 2006 November 2006 December 2006 January 2007 February 2007 March 2007 April 2007 May 2007 June 2007 July 2007 August 2007 September 2007 October 2007 November 2007 December 2007 January 2008 February 2008 March 2008 April 2008 May 2008 August 2008 September 2008 October 2008 November 2008 January 2009
