Eighth Wonder:
Running out of magic
The Eighth Wonder consortium is bringing out the big guns in the race to win the Sentosa IR bid and it is coming up with new facets of its proposed plan to develop Sentosa into Harry's Island practically on a daily basis. It's like watching a magician with his bag of tricks. You sit through the whole magic show, waiting for the next rabbit to be pulled out of the hat.
But one wonders if Eighth Wonder has already pulled too many rabbits out of the hat. Yesterday, they announced that they are getting Vera Wang to design a few floors and wedding pavilions, should they win the bid.
On Monday, they brought Pele to town, to sign autographs at the Singapore Sports School and to say that they have his endorsement to open a 5,000 seat Pele stadium and a Pele Sports academy.
They have also announced plans that they would develop an 'Ocean Planet' zone, which will be helmed by Philippe Cousteau, grandson of the famous oceanographer, Jacques Cousteau. This will include the world's largest artificially-created coral reef.
Last week, they have said that they have ear-marked a portion of their budget for the development of technological infrastructure on the IR site, which will be created by Siemens.
Siemens will work with Giuliani Security and Safety, run by the former New York mayor who is famous for bringing down crimes rates there, to create state-of-the-art security systems.
As much as I am impressed with what the Eighth Wonder has come up with so far, I think they have just about run out of magic tricks for this bid. It was just last week that Merrill Lynch released a report, tipping Genting's bid as having a 75% success rate, with the least likely winner to be the Eighth Wonder, stating that it faced 'regulatory challenges in combining its Singapore operations with Macau'. One of its consortium partners is Melco, which runs casinos in Macau.
With this all-out PR campaign, managed by the good people at Ogilvy and Mathers, one wonders what Eighth Wonder is trying to achieve by blanketing the media with details on their IR bid. Whose minds are they looking at changing? Afterall, the Singapore Tourism Board will announce the winner. It's not going to a popular vote. Will the STB be swayed by the mega-campaign?
But one wonders if Eighth Wonder has already pulled too many rabbits out of the hat. Yesterday, they announced that they are getting Vera Wang to design a few floors and wedding pavilions, should they win the bid.
On Monday, they brought Pele to town, to sign autographs at the Singapore Sports School and to say that they have his endorsement to open a 5,000 seat Pele stadium and a Pele Sports academy.
They have also announced plans that they would develop an 'Ocean Planet' zone, which will be helmed by Philippe Cousteau, grandson of the famous oceanographer, Jacques Cousteau. This will include the world's largest artificially-created coral reef.
Last week, they have said that they have ear-marked a portion of their budget for the development of technological infrastructure on the IR site, which will be created by Siemens.
Siemens will work with Giuliani Security and Safety, run by the former New York mayor who is famous for bringing down crimes rates there, to create state-of-the-art security systems.
As much as I am impressed with what the Eighth Wonder has come up with so far, I think they have just about run out of magic tricks for this bid. It was just last week that Merrill Lynch released a report, tipping Genting's bid as having a 75% success rate, with the least likely winner to be the Eighth Wonder, stating that it faced 'regulatory challenges in combining its Singapore operations with Macau'. One of its consortium partners is Melco, which runs casinos in Macau.
With this all-out PR campaign, managed by the good people at Ogilvy and Mathers, one wonders what Eighth Wonder is trying to achieve by blanketing the media with details on their IR bid. Whose minds are they looking at changing? Afterall, the Singapore Tourism Board will announce the winner. It's not going to a popular vote. Will the STB be swayed by the mega-campaign?
Cash calls:
Are CEOs calling the market's top?
Four share placements announced in the last few days have got me suspicious about the direction of the market as a whole. In question here is not so much the companies that announced they are raising funds, or what they are using the proceeds for. My question here is what can we deduce from the timing of their announcements about whether the market is at a top. Afterall, companies prefer to place shares when their share price is high, so they can raise more funds for the same number of shares issued, or that they can issue fewer shares to raise the same amount if the price was low. If the companies below believed their share price was going to rise further, wouldn't they wait before announcing share placements? Does the fact that they are announcing share placements now indicate their belief that their share price – and by extension, the market – aren't going to rise any further?
The companies in question are:
• China Lifestyle F&B Group. As we reported last Friday, they are raising S$25.8 mln to expand its production capacity in Tianjin. It is selling 70 mln new shares at S$0.38, a slight discount to the last traded price of S$0.41 in the Thursday session, before the stock was halted for trade. S$2.5 mln of the proceeds will be injected into its joint venture with Super Coffeemix Manufacturing. The new shares will dilute existing shareholders by 16.4%.
• China Sky Chemical Fibre is placing 18 mln shares at S$1.35, using 30%-40% of the proceeds to buy land in Fujian for future expansion. It's buying the land now because compensation payments to local farmers are going up.
• Soilbuild Group is raising S$6.5 mln through a private placement of 13.3 mln shares at S$0.49 each to fund the buying and re-developing Furama Towers, with the rest going to acquisitions and working capital.
• HG Metals isn't placing shares per se, but its special dividend will cover only half of the amount of money shareholders will have to cough up if they are to fully exercise rights to buy more shares.
I don't claim to have special insights into what these companies are thinking. I haven't asked them about what led them to go raise cash now. There is clearly some nervousness developing in the minds of management about how much further the rally will last. On the spectrum of 1 to 5, where 1 is the firm conviction that the market is going to crash, through to 5 where there is a firm conviction that the market is going to rally, we've clearly moved to a 3 or 4. In other words, through their actions they are not calling a top, but neither are they expecting the gains to continue in the same dramatic way as they have in the past few months.
Put yourself in the shoes of a CEO. You want to raise cash. You've been watching the market set one record high after another. You're wondering how much higher it's going to go. When are you going to pull the trigger? If you believe the market is going to keep rising to 3,000 and beyond, you'll wait. If you believe the market is going to level out or fall, you're going to strike sooner rather than later.
CEOs have their fingers on the pulse where the pace of the economy is concerned. Perhaps investors can learn from their thinking.
The companies in question are:
• China Lifestyle F&B Group. As we reported last Friday, they are raising S$25.8 mln to expand its production capacity in Tianjin. It is selling 70 mln new shares at S$0.38, a slight discount to the last traded price of S$0.41 in the Thursday session, before the stock was halted for trade. S$2.5 mln of the proceeds will be injected into its joint venture with Super Coffeemix Manufacturing. The new shares will dilute existing shareholders by 16.4%.
• China Sky Chemical Fibre is placing 18 mln shares at S$1.35, using 30%-40% of the proceeds to buy land in Fujian for future expansion. It's buying the land now because compensation payments to local farmers are going up.
• Soilbuild Group is raising S$6.5 mln through a private placement of 13.3 mln shares at S$0.49 each to fund the buying and re-developing Furama Towers, with the rest going to acquisitions and working capital.
• HG Metals isn't placing shares per se, but its special dividend will cover only half of the amount of money shareholders will have to cough up if they are to fully exercise rights to buy more shares.
I don't claim to have special insights into what these companies are thinking. I haven't asked them about what led them to go raise cash now. There is clearly some nervousness developing in the minds of management about how much further the rally will last. On the spectrum of 1 to 5, where 1 is the firm conviction that the market is going to crash, through to 5 where there is a firm conviction that the market is going to rally, we've clearly moved to a 3 or 4. In other words, through their actions they are not calling a top, but neither are they expecting the gains to continue in the same dramatic way as they have in the past few months.
Put yourself in the shoes of a CEO. You want to raise cash. You've been watching the market set one record high after another. You're wondering how much higher it's going to go. When are you going to pull the trigger? If you believe the market is going to keep rising to 3,000 and beyond, you'll wait. If you believe the market is going to level out or fall, you're going to strike sooner rather than later.
CEOs have their fingers on the pulse where the pace of the economy is concerned. Perhaps investors can learn from their thinking.
Sim Wong Hoo: Creative no more?
Creative Technology's chairman and CEO Sim Wong Hoo sold 2 mln of his Creative shares to co-founder Chay Kwong Soon.
This brings his shareholding in the company down to 28.75% from 31.15%.
Why?
No reasons were given in the announcement out Wednesday night and the company spokesperson couldn't comment either.
So here's why I think Sim sold down.
One, maybe he has stopped believing in his company.
Things haven't been going well for Creative.
Its focus MP3 players aren't selling that well and it's now even teaming up with 'the enemy' to sell iPod accessories.
There doesn't seem to be a win in this for Sim, so he might be feeling slightly emotional now and just wants to sell down a bit.
Two, he may be feeling paternal and wants to loan the proceeds from the sale to the company.
It's a less likely reason, because if Creative really needs the money, it'll get some from the bank.
And lastly, a less “conspiracy theory” reason: Christmas shopping.
I'm going to venture that the least likely reason would be him ditching his company.
Sim isn't going to stop believing in his baby of a company just because it's going through a rough patch.
He's been through worse in Creative's early days.
Perhaps the reason may be personal and not commercial.
But I'd still really like to know what it is.
Call me, Mr Sim?
Serene Lim
This brings his shareholding in the company down to 28.75% from 31.15%.
Why?
No reasons were given in the announcement out Wednesday night and the company spokesperson couldn't comment either.
So here's why I think Sim sold down.
One, maybe he has stopped believing in his company.
Things haven't been going well for Creative.
Its focus MP3 players aren't selling that well and it's now even teaming up with 'the enemy' to sell iPod accessories.
There doesn't seem to be a win in this for Sim, so he might be feeling slightly emotional now and just wants to sell down a bit.
Two, he may be feeling paternal and wants to loan the proceeds from the sale to the company.
It's a less likely reason, because if Creative really needs the money, it'll get some from the bank.
And lastly, a less “conspiracy theory” reason: Christmas shopping.
I'm going to venture that the least likely reason would be him ditching his company.
Sim isn't going to stop believing in his baby of a company just because it's going through a rough patch.
He's been through worse in Creative's early days.
Perhaps the reason may be personal and not commercial.
But I'd still really like to know what it is.
Call me, Mr Sim?
Serene Lim
Singapore:
It's okay to have the odd rogue trader
It's happened again. Another rogue trader in Singapore – this time with Mitsui Oil Asia. The company is still investigating, and the staff member at the centre of the latest scandal hasn’t been named, but early indications are he made wrong bets in the Naphtha market, causing losses of US$81 mln. Apparently he hasn’t been seen at work since.
Clearly, no one wants to lose money. Clearly, it's not in Singapore's interest to see its reputation as a financial centre damaged. But if there is a silver lining to this saga – and Nick Leeson's Bearings Bank breaking escapades in the 1990s, and the US$550 mln loss China Aviation Oil made in trading derivatives – it's the fact that they are happening here in Singapore. Not in Kuala Lumpur, not in Bangkok, not in Jakarta, not in Sydney (Sydney's National Australia Bank scandal a few years ago was just as ugly, but seemingly a more isolated incident).
The fact is that Singapore – the tiny 639 square kilometre red dot on the map – is making big waves. Sometimes not the sort of waves we'd like. But we're on the map, and we regularly get listed alongside other financial centres, such as Tokyo, New York, London and Sydney. We're in the thick of the action. And when bad things happen they are dealt with accordingly.
We cannot run away from the fact that rogue traders come with the territory of a financial centre. We can pass laws and enforce them to keep it to a minimum. But we shouldn't kid ourselves into believing that we can be the "Switzerland of Asia" and not have these problems. As I said, no one wants to lose money, no one wants Singapore's reputation to be damaged. But consider the alternatives.
We could not be a financial centre.
We could be a meaningless green dot on the map.
If you can't stand the heat, get out of the kitchen.
Well, to continue the analogy: I'd rather be at the stove, sweating and getting splashed with oil from time to time than to be out of harms way as a dish washer.
Mark Laudi & Desiree Pakiam
Clearly, no one wants to lose money. Clearly, it's not in Singapore's interest to see its reputation as a financial centre damaged. But if there is a silver lining to this saga – and Nick Leeson's Bearings Bank breaking escapades in the 1990s, and the US$550 mln loss China Aviation Oil made in trading derivatives – it's the fact that they are happening here in Singapore. Not in Kuala Lumpur, not in Bangkok, not in Jakarta, not in Sydney (Sydney's National Australia Bank scandal a few years ago was just as ugly, but seemingly a more isolated incident).
The fact is that Singapore – the tiny 639 square kilometre red dot on the map – is making big waves. Sometimes not the sort of waves we'd like. But we're on the map, and we regularly get listed alongside other financial centres, such as Tokyo, New York, London and Sydney. We're in the thick of the action. And when bad things happen they are dealt with accordingly.
We cannot run away from the fact that rogue traders come with the territory of a financial centre. We can pass laws and enforce them to keep it to a minimum. But we shouldn't kid ourselves into believing that we can be the "Switzerland of Asia" and not have these problems. As I said, no one wants to lose money, no one wants Singapore's reputation to be damaged. But consider the alternatives.
We could not be a financial centre.
We could be a meaningless green dot on the map.
If you can't stand the heat, get out of the kitchen.
Well, to continue the analogy: I'd rather be at the stove, sweating and getting splashed with oil from time to time than to be out of harms way as a dish washer.
Mark Laudi & Desiree Pakiam
The Singapore construction sector:
Really back?
This morning's Q3 GDP numbers in Singapore were a very interesting read indeed! Not just because they showed the economy grew 8.6% in the first three quarters of 2006, or because domestic demand is making up part of the decline in external demand growth. But because the construction sector - laggard for years - is now really moving ahead. Here's the evidence:
Construction grew 2.3% in Q3 2006, compared to 0.4% growth in Q2. Clearly, this is still small compared to the 11% growth in the manufacturing and wholesale and retail sales sectors, and 8.4% in the financial services sectors. Even hotels and restaurants, transport and communication and business services registered higher growth. But look below the headline: Contracts awarded surged 160%, after the 43% rise in Q2, thanks to large contracts awarded in the private industrial and commercial segments. Certified payments grew 6.6%.
Now, before you get blinded by the numbers, here's the anecdotal evidence. Yes, we've all heard of the S$3,000 per square foot that investors in upmarket condos and serviced apartments are now prepared to pay. But for the rest of us, prices still need to rise another 30%-40% before they are back at the levels at which we bought our properties! And while I describe myself as an optimist, there is still a structural problem (pardon the pun) that needs to be overcome:
On the weekend I spent a few hours chatting with a friend of a friend who supplies pre-cast concrete to construction companies. He pointed out that there are 40,000 empty apartments in Singapore. 40,000! I did a quick search of the URA website and only found mention of a vacancy rate of 6.6%, but no empirical numbers that would support this 40,000 figure. So let's not dwell on the number.
But the biggest concern this friend-of-a-friend expressed was that the units that were empty were unlikely to be sold soon for some rather serious reasons: they are located in Woodlands or Sengkang, far out of town. And while Singapore is a tiny place compared to most cities, in a city where drivers prefer to wait with their engine running in an underground carpark until a parking space opens up next to the lift lobby, rather than park further away and walk twenty metres, distance is an issue!
Now, one solution might be to bring new industries to these areas, to stir fresh demand for space in these "far flung" suburbs. Maybe even build an office tower in Sengkang. There's lots of land, city centre office rentals have gone through the roof, and as IBM demonstrated by moving out to Changi many companies don't need to be in the crowded Central Business District anyway.
But other reasons for the apparent residential vacancy rates are the high density, small size and few ammenities in Sengkang. I haven't verified these reasons independently, but apparently the distance between LRT stations was as much an issue as the fact that residents can see what's on the dinner menu of the neighbors just by looking out through their dining room window.
These issues are not going to go away. Amenities can be brought to Sengkang. LRT stations built. But how do you create more space between apartment blocks? Tear some down? Also, how do you enlarge relatively new units? Upgrade them already?
If we take the parallel of unemployment, there appears to be a mismatch between available labour and available jobs. Similarly, there appears to be a mismatch between available units and the demands of increasingly affluent Singaporeans.
Once again, it appears that demand for these units needs to be stimulated. If Singaporeans don't want them, perhaps they can be opened up to people from overseas. What may not be good enough for Singaporeans may be good enough for them.
Mark Laudi
Construction grew 2.3% in Q3 2006, compared to 0.4% growth in Q2. Clearly, this is still small compared to the 11% growth in the manufacturing and wholesale and retail sales sectors, and 8.4% in the financial services sectors. Even hotels and restaurants, transport and communication and business services registered higher growth. But look below the headline: Contracts awarded surged 160%, after the 43% rise in Q2, thanks to large contracts awarded in the private industrial and commercial segments. Certified payments grew 6.6%.
Now, before you get blinded by the numbers, here's the anecdotal evidence. Yes, we've all heard of the S$3,000 per square foot that investors in upmarket condos and serviced apartments are now prepared to pay. But for the rest of us, prices still need to rise another 30%-40% before they are back at the levels at which we bought our properties! And while I describe myself as an optimist, there is still a structural problem (pardon the pun) that needs to be overcome:
On the weekend I spent a few hours chatting with a friend of a friend who supplies pre-cast concrete to construction companies. He pointed out that there are 40,000 empty apartments in Singapore. 40,000! I did a quick search of the URA website and only found mention of a vacancy rate of 6.6%, but no empirical numbers that would support this 40,000 figure. So let's not dwell on the number.
But the biggest concern this friend-of-a-friend expressed was that the units that were empty were unlikely to be sold soon for some rather serious reasons: they are located in Woodlands or Sengkang, far out of town. And while Singapore is a tiny place compared to most cities, in a city where drivers prefer to wait with their engine running in an underground carpark until a parking space opens up next to the lift lobby, rather than park further away and walk twenty metres, distance is an issue!
Now, one solution might be to bring new industries to these areas, to stir fresh demand for space in these "far flung" suburbs. Maybe even build an office tower in Sengkang. There's lots of land, city centre office rentals have gone through the roof, and as IBM demonstrated by moving out to Changi many companies don't need to be in the crowded Central Business District anyway.
But other reasons for the apparent residential vacancy rates are the high density, small size and few ammenities in Sengkang. I haven't verified these reasons independently, but apparently the distance between LRT stations was as much an issue as the fact that residents can see what's on the dinner menu of the neighbors just by looking out through their dining room window.
These issues are not going to go away. Amenities can be brought to Sengkang. LRT stations built. But how do you create more space between apartment blocks? Tear some down? Also, how do you enlarge relatively new units? Upgrade them already?
If we take the parallel of unemployment, there appears to be a mismatch between available labour and available jobs. Similarly, there appears to be a mismatch between available units and the demands of increasingly affluent Singaporeans.
Once again, it appears that demand for these units needs to be stimulated. If Singaporeans don't want them, perhaps they can be opened up to people from overseas. What may not be good enough for Singaporeans may be good enough for them.
Mark Laudi
Let's go Christmas shopping instead.
It's that time of year again when retailers head into the best quarters of their financial year.
It is also the time when retail investors start sinking into holiday mode and calling travel agents up to book trips rather than calling their stock brokers up to settle trades.
And if you still don't get what I'm trying to put across by now, let me put it to you plain and simple:
Take your money out of the market and take a break for the rest of the year.
I say this for a couple of reasons.
Firstly, it's been a fast and furious few weeks and the year's been quite a roller-coaster ride for the local stock market.
If you've been investing right, you're probably patting your pocket-full of the tidy sum you've made.
So don't be greedy. Get out while you're still on top.
Especially when you know you're sinking into holiday mode.
Secondly, while we're all hoping to end the year on a high note (now that's an understatement, considering how far up we're at now), the major rally is really giving me the jitters.
In a mere two weeks, the Straits Times Index jumped 2.75%.
The earnings and economic data we've seen can't exactly substantiate such a run, so with no fundamentals to lean on, I fear the bulls might very well run off a very high cliff.
So I suggest you take out your tidy sum of profit and either take a well-deserved break or take this time to re-evaluate your portfolio.
Or you could just go Christmas shopping with me.
Serene Lim
It is also the time when retail investors start sinking into holiday mode and calling travel agents up to book trips rather than calling their stock brokers up to settle trades.
And if you still don't get what I'm trying to put across by now, let me put it to you plain and simple:
Take your money out of the market and take a break for the rest of the year.
I say this for a couple of reasons.
Firstly, it's been a fast and furious few weeks and the year's been quite a roller-coaster ride for the local stock market.
If you've been investing right, you're probably patting your pocket-full of the tidy sum you've made.
So don't be greedy. Get out while you're still on top.
Especially when you know you're sinking into holiday mode.
Secondly, while we're all hoping to end the year on a high note (now that's an understatement, considering how far up we're at now), the major rally is really giving me the jitters.
In a mere two weeks, the Straits Times Index jumped 2.75%.
The earnings and economic data we've seen can't exactly substantiate such a run, so with no fundamentals to lean on, I fear the bulls might very well run off a very high cliff.
So I suggest you take out your tidy sum of profit and either take a well-deserved break or take this time to re-evaluate your portfolio.
Or you could just go Christmas shopping with me.
Serene Lim
A world-class transport co-operative
Aljunied GRC MP Cynthia Phua said, in parliament yesterday, that public transport companies could consider delisting or become co-operatives to serve the public better.
Her remarks were founded on the basis that these companies faced the dilemma of serving the interests of the public and that of the shareholders.
Singapore's transport system is run by a duopoly, SMRT and SBS Transit, both of which are listed on the Singapore Exchange. SBS Transit's parent company Comfort DelGro is also SGX-listed.
I couldn't agree more – it would be beneficial for consumers that the money that these two companies earn does not go into lining the pockets of shareholders in the form of dividends, but put back into improving the transport system.
“The primary profit-making objective of these listed transport companies was a reason why transport fares increased even though the companies are in the black,” she is quoted as saying.
Which is true, SBS transit reported in its outlook statement for Q3 that 'The fare increase effective from 1 October 2006 is expected to improve both bus and rail revenue.'
However, ComfortDelGro, which owns 75% of SBS Transit, might not be so keen to agree.
It derives about 60% of revenue from the Singapore market, which is inclusive of not just the trains and buses deployed by SBS Transit, but also taxis, car rentals, automotive and engineering services and outdoor advertising.
The rest comes from overseas ventures.
If its subsidiary SBS Transit were to become a co-operative, it will have to look for other avenues to derive revenue.
And it might not be able to pay the 3 cents dividend it paid shareholders last year.
Yet, with the proposed hike in the GST, the notion of turning the transport companies into co-operatives might not be such a bad idea after all.
Consumers won't have to contend with them (the transport companies) applying to the Public Transport Council to increase transport fares annually.
Desiree Pakiam
Her remarks were founded on the basis that these companies faced the dilemma of serving the interests of the public and that of the shareholders.
Singapore's transport system is run by a duopoly, SMRT and SBS Transit, both of which are listed on the Singapore Exchange. SBS Transit's parent company Comfort DelGro is also SGX-listed.
I couldn't agree more – it would be beneficial for consumers that the money that these two companies earn does not go into lining the pockets of shareholders in the form of dividends, but put back into improving the transport system.
“The primary profit-making objective of these listed transport companies was a reason why transport fares increased even though the companies are in the black,” she is quoted as saying.
Which is true, SBS transit reported in its outlook statement for Q3 that 'The fare increase effective from 1 October 2006 is expected to improve both bus and rail revenue.'
However, ComfortDelGro, which owns 75% of SBS Transit, might not be so keen to agree.
It derives about 60% of revenue from the Singapore market, which is inclusive of not just the trains and buses deployed by SBS Transit, but also taxis, car rentals, automotive and engineering services and outdoor advertising.
The rest comes from overseas ventures.
If its subsidiary SBS Transit were to become a co-operative, it will have to look for other avenues to derive revenue.
And it might not be able to pay the 3 cents dividend it paid shareholders last year.
Yet, with the proposed hike in the GST, the notion of turning the transport companies into co-operatives might not be such a bad idea after all.
Consumers won't have to contend with them (the transport companies) applying to the Public Transport Council to increase transport fares annually.
Desiree Pakiam
Analyst calls:
Something has to give
The Singapore market has had such a strong run since the May declines that many analyst consensus calls on stocks have hit a paradox: they are still rated "buy" or "outperform" when the target price is lower than the last done price. One most noteworthy example is CapitaLand, which according to Reuters is still rated an "outperform" even though the last done price north of S$5.70 is substantially above the analyst consensus price target of S$4.96. This is particularly perplexing for the throngs of retail investors who sit down to read research reports but never actually read past the call and price target. What are they to do?
Well, in my view there are four possibilities to correct this situation:
1. The analyst changes the call. Assuming their initial price target was well-founded, this would be the most logical choice. If they think the stock is only worth S$4.96 then anything above that must mean that it is expensive.
Simple, isn't it?!
In theory.
The reason they are reluctant to do so is because it makes them look bad, no matter what they do. If they lower the call to "neutral", "hold", "fully-valued" or even an "underperform", "underweight" or "sell", they will look bad if the stock continues to run up. Plus, what will the sales department think if they lower the call to anything other than "you should rack up more trading commissions by continuing to sink your money into this stock".
2. The analyst changes the price target. In order to maintain an outperform call, there has to be a reason – a catalyst, in analyst jargon – to assume that the stock is worth more than they previously thought it was. Given the dilemma of lowering a call, they could invent a reason and get themselves out of this situation. While not the most logical, this would presumably be the most likely approach.
3. The stock continues to outperform – in a falling market. Outperform doesn't mean the stock will continue to rise. It just means the stock will do better than the benchmark against which it is measured. Assuming the call of "overweight" and the price target of S$4.96 still stand, the market would need to fall for the prognosis to be fulfilled. CapitaLand would fall along with all the other stocks, but still outperform the index. Given the strong run in the STI and the looming economic slowdown in the US and – I was reading on the weekend, in Japan – this may be the most likely outcome.
Whichever of these may occur, if anything occurs at all, of course, it shows how difficult it is to make calls like these. The Business Times ran a story on the weekend that probably puts in best with the comment that the analysts don't know any better how to value stocks than the rest of us. Afterall, value is in the eye of the beholder. Which is why it's so important for retail investors to learn enough about how to value stocks themselves, rather than just look for the call and price target whenever they pick up a research report, and ignore the rest.
Come to think of it, retail investors should start to learn the meaning of value in a whole lot of other things, such as the value of good information, the value stockbrokers provide, the value the Singapore Exchange provides, and so. If they understood the concept of value, rather than expecting every investment-related service to be free, perhaps their understanding of how to value companies would also improve.
Mark Laudi
Well, in my view there are four possibilities to correct this situation:
1. The analyst changes the call. Assuming their initial price target was well-founded, this would be the most logical choice. If they think the stock is only worth S$4.96 then anything above that must mean that it is expensive.
Simple, isn't it?!
In theory.
The reason they are reluctant to do so is because it makes them look bad, no matter what they do. If they lower the call to "neutral", "hold", "fully-valued" or even an "underperform", "underweight" or "sell", they will look bad if the stock continues to run up. Plus, what will the sales department think if they lower the call to anything other than "you should rack up more trading commissions by continuing to sink your money into this stock".
2. The analyst changes the price target. In order to maintain an outperform call, there has to be a reason – a catalyst, in analyst jargon – to assume that the stock is worth more than they previously thought it was. Given the dilemma of lowering a call, they could invent a reason and get themselves out of this situation. While not the most logical, this would presumably be the most likely approach.
3. The stock continues to outperform – in a falling market. Outperform doesn't mean the stock will continue to rise. It just means the stock will do better than the benchmark against which it is measured. Assuming the call of "overweight" and the price target of S$4.96 still stand, the market would need to fall for the prognosis to be fulfilled. CapitaLand would fall along with all the other stocks, but still outperform the index. Given the strong run in the STI and the looming economic slowdown in the US and – I was reading on the weekend, in Japan – this may be the most likely outcome.
Whichever of these may occur, if anything occurs at all, of course, it shows how difficult it is to make calls like these. The Business Times ran a story on the weekend that probably puts in best with the comment that the analysts don't know any better how to value stocks than the rest of us. Afterall, value is in the eye of the beholder. Which is why it's so important for retail investors to learn enough about how to value stocks themselves, rather than just look for the call and price target whenever they pick up a research report, and ignore the rest.
Come to think of it, retail investors should start to learn the meaning of value in a whole lot of other things, such as the value of good information, the value stockbrokers provide, the value the Singapore Exchange provides, and so. If they understood the concept of value, rather than expecting every investment-related service to be free, perhaps their understanding of how to value companies would also improve.
Mark Laudi
Biodiesel: The next big thing
Palm oil just became the sexiest product on the block and no, it is not used for rub-downs.
It is the main feedstock for biodiesel – something which more local investors are getting wind of, especially with Australia's Natural Fuel building the world's biggest biodiesel plant in Singapore.
Energy companies like Natural Fuel and Wilmar Holdings are bringing their goods to town because we're smacked right in the middle of feedstock abundance.
Malaysia and Indonesia are the world's largest suppliers of crude palm oil.
Some say the money pouring into biodiesel is ridiculous, especially when it comes to Singapore.
Why not Malaysia or Indonesia?
Well, I say it's a good thing, because it brings in business for a few other sectors of the local economy.
While direct local plays like Wilmar International and Advanced Holdings will definitely benefit from these biodiesel investments, plenty of other companies in extremely different business segments can't wait to jump on the biodiesel bandwagon.
And they may be onto something big, so watch them closely.
Property developer Yoma Strategic Investments said last month it wants to get in on the act too by developing a jatropha curcas plantation in Myanmar.
Jatropha curcas is a plant that can be used as feedstock for biodiesel.
Yoma's CEO Serge Pun told the Business Times they may venture downstream into the refinery business in 5 to 6 years.
Transport companies will also benefit from this, considering the amount of traffic we'll see when all systems are up and running.
Agriculture-based businesses like Zhongguo Powerplus might find a new segment to sell their soy beans to.
All in all, I say it's a good thing.
And I can't wait to see what else happens on this front.
Serene Lim
It is the main feedstock for biodiesel – something which more local investors are getting wind of, especially with Australia's Natural Fuel building the world's biggest biodiesel plant in Singapore.
Energy companies like Natural Fuel and Wilmar Holdings are bringing their goods to town because we're smacked right in the middle of feedstock abundance.
Malaysia and Indonesia are the world's largest suppliers of crude palm oil.
Some say the money pouring into biodiesel is ridiculous, especially when it comes to Singapore.
Why not Malaysia or Indonesia?
Well, I say it's a good thing, because it brings in business for a few other sectors of the local economy.
While direct local plays like Wilmar International and Advanced Holdings will definitely benefit from these biodiesel investments, plenty of other companies in extremely different business segments can't wait to jump on the biodiesel bandwagon.
And they may be onto something big, so watch them closely.
Property developer Yoma Strategic Investments said last month it wants to get in on the act too by developing a jatropha curcas plantation in Myanmar.
Jatropha curcas is a plant that can be used as feedstock for biodiesel.
Yoma's CEO Serge Pun told the Business Times they may venture downstream into the refinery business in 5 to 6 years.
Transport companies will also benefit from this, considering the amount of traffic we'll see when all systems are up and running.
Agriculture-based businesses like Zhongguo Powerplus might find a new segment to sell their soy beans to.
All in all, I say it's a good thing.
And I can't wait to see what else happens on this front.
Serene Lim
SingTel vs StarHub:
Let the bidding war begin
SingTel confirmed yesterday talk that's been around for a while: it has submitted a bid for broadcast rights to the English Premier League (EPL) matches from August 2007 to May 2010. Rival StarHub, which will also announce earnings today, currently broadcasts EPL matches on cable TV via its content provider, ESPN StarSports. The question is: should the two really compete for the same programs, or should SingTel try to differentiate itself with fresh content.
IDC analyst Claudio Checchia said that whether two pay TV operators survive in Singapore depends largely on how they differentiate themselves.
"SingTel should offer quality channels to attract subscribers, especially from the 60% of Singapore households with no cable TV subscription, but not try and replicate the offerings on StarHub," he is quoted as saying.
I couldn't agree more – and it would be for the benefit of each company and consumers. The competition is already stiff. They already vie for customers for their internet and mobile phone services, but StarHub has the added advantage of offering discounts to customers who sign up for the bundled package of mobile, broadband and cable TV.
This is where SingTel wants to compete. It already has a six-month trial license from the Media Development Authority (MDA) to test a service which offers high definition content over its telecommunication network. It will begin the trial from this month, with content from partners MediaCorp Studios and MegaMedia.
There are already fears that the outcome of this bidding war might have an adverse impact on consumers.
According to an unnamed Macquaire research analyst, quoted in the New Paper the winning bid could be about S$150 mln, twice the amount StarHub is said to have paid to broadcast the EPL for the last three seasons on cable TV.
Consumers currently pay about S$15 per month for the StarHub Sports Group to watch EPL matches, on top of their basic cable TV subscription. The price war might have a trickle down effect where the winning bidder passes the cost down to consumers, making it more expensive to watch EPL matches.
And if it really desires to offer premium sports content, maybe it should bid for the rights to broadcast the Italian Serie A.
There have been petitions going around before, asking StarHub to broadcast the Serie A, to no avail.
The marketing people at SingTel could possibly advertise the Serie A as the league which produced all the players for World-Cup winning Italian squad, which unlike England (who also boasts of most of its players coming from EPL clubs), lost to a lowly Portugal.
Everyone loves a good David and Goliath tale.
Desiree Pakiam
IDC analyst Claudio Checchia said that whether two pay TV operators survive in Singapore depends largely on how they differentiate themselves.
"SingTel should offer quality channels to attract subscribers, especially from the 60% of Singapore households with no cable TV subscription, but not try and replicate the offerings on StarHub," he is quoted as saying.
I couldn't agree more – and it would be for the benefit of each company and consumers. The competition is already stiff. They already vie for customers for their internet and mobile phone services, but StarHub has the added advantage of offering discounts to customers who sign up for the bundled package of mobile, broadband and cable TV.
This is where SingTel wants to compete. It already has a six-month trial license from the Media Development Authority (MDA) to test a service which offers high definition content over its telecommunication network. It will begin the trial from this month, with content from partners MediaCorp Studios and MegaMedia.
There are already fears that the outcome of this bidding war might have an adverse impact on consumers.
According to an unnamed Macquaire research analyst, quoted in the New Paper the winning bid could be about S$150 mln, twice the amount StarHub is said to have paid to broadcast the EPL for the last three seasons on cable TV.
Consumers currently pay about S$15 per month for the StarHub Sports Group to watch EPL matches, on top of their basic cable TV subscription. The price war might have a trickle down effect where the winning bidder passes the cost down to consumers, making it more expensive to watch EPL matches.
And if it really desires to offer premium sports content, maybe it should bid for the rights to broadcast the Italian Serie A.
There have been petitions going around before, asking StarHub to broadcast the Serie A, to no avail.
The marketing people at SingTel could possibly advertise the Serie A as the league which produced all the players for World-Cup winning Italian squad, which unlike England (who also boasts of most of its players coming from EPL clubs), lost to a lowly Portugal.
Everyone loves a good David and Goliath tale.
Desiree Pakiam
PacNet:
the Macauley Culkin of the Singapore corporate world
Pacific Internet reminds me a little of Macauley Culkin, the child star from the Home Alone movies. PacNet, like poor Macauley, has been the focus of a battle for control among its parents – in this case the major shareholders: Vantage Corp and MediaRing. That battle takes another step tomorrow with an extraordinary general meeting at 3pm at PacNet headquarters in Science Park, called by Vantage Corp: it wants PacNet's board to resign and its directors to stand for re-election, all except the directors that MediaRing nominated, namely Walter Sousa and Khoo Boon Hwee.
I have commented before on this blog how futile I think this battle is. And I would leave my commentary and arm-chair opinions at that if I could figure out the logic to Vantage Corp's reasoning.
Consider the facts:
Vantage Corp owns 28.6% of PacNet and has two directors on the board.
MediaRing owns 29.6% of PacNet, and also has two directors on the board.
Vantage wants the MediaRing directors off.
Why?
That is the simple question.
Why?!
Afterall, MediaRing owns 1% more of PacNet.
Yes, I know, Vantage argues that their strategy is better and so on, but simple mathematics determines that MediaRing should be entitled to at least as many directors as Vantage Corp.
As the Business Times reported this morning: "Observers noted that Vantage has yet to publicly provide reasons as to why it wanted directors appointed on or after Sept 8 - namely the two MediaRing representatives - removed."
Amen!
If Vantage really has a noble motivation for wanting the MediaRing directors removed, it should communicate those better to shareholders.
A check of the corporate announcements page of the SGX shows that Vantage Corp's statements – beyond the ones written by lawyers for the sake of corporate disclosure – have not matched MediaRing's in their effort to communicate their motivations.
Vantage Corp should know that as much of this battle must be fought in the minds of the investing public as in the minds of shareholders who will vote tomorrow. Particularly because this vote takes place in Singapore, not the US where PacNet is listed.
But there is the saving grace: at last, shareholders of PacNet will have the opportunity to tell Vantage and MediaRing what they think of their squabble.
In the meantime, while the battle rages, what is happening to the child? Well, in Macaulay Culkin's case, he took them to court to get his money back. PacNet reports earnings on Monday November 13 and hopefully we will get to see some sort of indication about what sort of impact – positive or negative – its two fighting parents have had.
Mark Laudi
I have commented before on this blog how futile I think this battle is. And I would leave my commentary and arm-chair opinions at that if I could figure out the logic to Vantage Corp's reasoning.
Consider the facts:
Vantage Corp owns 28.6% of PacNet and has two directors on the board.
MediaRing owns 29.6% of PacNet, and also has two directors on the board.
Vantage wants the MediaRing directors off.
Why?
That is the simple question.
Why?!
Afterall, MediaRing owns 1% more of PacNet.
Yes, I know, Vantage argues that their strategy is better and so on, but simple mathematics determines that MediaRing should be entitled to at least as many directors as Vantage Corp.
As the Business Times reported this morning: "Observers noted that Vantage has yet to publicly provide reasons as to why it wanted directors appointed on or after Sept 8 - namely the two MediaRing representatives - removed."
Amen!
If Vantage really has a noble motivation for wanting the MediaRing directors removed, it should communicate those better to shareholders.
A check of the corporate announcements page of the SGX shows that Vantage Corp's statements – beyond the ones written by lawyers for the sake of corporate disclosure – have not matched MediaRing's in their effort to communicate their motivations.
Vantage Corp should know that as much of this battle must be fought in the minds of the investing public as in the minds of shareholders who will vote tomorrow. Particularly because this vote takes place in Singapore, not the US where PacNet is listed.
But there is the saving grace: at last, shareholders of PacNet will have the opportunity to tell Vantage and MediaRing what they think of their squabble.
In the meantime, while the battle rages, what is happening to the child? Well, in Macaulay Culkin's case, he took them to court to get his money back. PacNet reports earnings on Monday November 13 and hopefully we will get to see some sort of indication about what sort of impact – positive or negative – its two fighting parents have had.
Mark Laudi
Chip stocks: Still able to deliver?
Chip companies usually look forward to the fourth quarter to boost sales.
It's seasonally the strongest quarter because people buy more consumer electronics during the holiday season as gifts or otherwise.
So while this should bode well for counters like UTAC and STATS ChipPAC, local analysts are divided on whether these companies can still deliver value to shareholders.
Both reported good Q3 numbers, projecting single digit revenue percentage growth in Q4.
But NRA Capital's Russell Tan told The Edge Singapore STATS ChipPAC's outlook was weak, considering how seasonally weak Q3 is and how much stronger Q4 should be then.
UTAC, on the other hand, is gaining ground on its diversification.
One of its new customers is a Japanese company that produces chips used in Nintendo's latest game console, the Wii.
It is also leaning on the growing memory segment.
The Semiconductor Industry Association says growth in DRAM memory chips used in PCs were especially strong in Q3, posting 40% year-on-year growth.
This segment is expected to be fueled by new PCs designed to run Microsoft's Vista operating system due out next year.
It will require 512 MB to run.
Windows XP only needs 128 MB.
An article on www.thestreet.com says chip sales are 'on pace to meet” the 9.8% revenue growth forecast in 2006.
So while this bodes well for the chip sector in general, you may just want to keep an eye out for which chip stock you want to buy into.
Don't put all your eggs in one chip basket.
Serene Lim
It's seasonally the strongest quarter because people buy more consumer electronics during the holiday season as gifts or otherwise.
So while this should bode well for counters like UTAC and STATS ChipPAC, local analysts are divided on whether these companies can still deliver value to shareholders.
Both reported good Q3 numbers, projecting single digit revenue percentage growth in Q4.
But NRA Capital's Russell Tan told The Edge Singapore STATS ChipPAC's outlook was weak, considering how seasonally weak Q3 is and how much stronger Q4 should be then.
UTAC, on the other hand, is gaining ground on its diversification.
One of its new customers is a Japanese company that produces chips used in Nintendo's latest game console, the Wii.
It is also leaning on the growing memory segment.
The Semiconductor Industry Association says growth in DRAM memory chips used in PCs were especially strong in Q3, posting 40% year-on-year growth.
This segment is expected to be fueled by new PCs designed to run Microsoft's Vista operating system due out next year.
It will require 512 MB to run.
Windows XP only needs 128 MB.
An article on www.thestreet.com says chip sales are 'on pace to meet” the 9.8% revenue growth forecast in 2006.
So while this bodes well for the chip sector in general, you may just want to keep an eye out for which chip stock you want to buy into.
Don't put all your eggs in one chip basket.
Serene Lim
Sentosa:
Losing its rustic charm
Sentosa might have been historically named the 'Island of Death from Behind', or Pulau Belakang Mati in Malay, with links to murder and piracy in the past. So in 1972, the Singapore Tourist Promotion Board had the island renamed 'Sentosa' which means peace and tranquility in Malay.
Yet, Sentosa is anything but tranquil these days.
The Sentosa Leisure Group, formerly known as the Sentosa Development Corporation (SDC), embarked on a 10-year plan in 2002, to transform Sentosa into a world class tourist destination, with a S$8 bln master plan.
The main transport network for visitors to the island, the Monorail, was dismantled last year, to make way for the Sentosa Express, a S$140 mln light rail system which is expected to operational by the end of this year.
Investment from the private sector amounted to S$560 mln last year. Of which Amara Holdings will complete a S$60 mln 121-room boutique resort by next year, Robertson Quay finished construction of its mid-tier Siloso Beach Resort at the cost of S$50mln in July and the Pontiac Land Group will build a six star super luxury resort by 2008, on an investment of S$250 mln.
It is no wonder that Sentosa is not merely counting on investment, it is reinventing itself as well.
Sentosa set a record for the prices of bungalow land sold, when the Business Times published an article today, regarding the minimum reserve prices of the land parcels.
Master developer Sentosa Cove is allowing developers to bid for the residential development of two man-made islands, Pearl and Sandy, which were reclaimed along side the Sentosa shoreline and sold on 99 year leases.
The Sentosa Leisure Group is not stopping there. Already it is planning for the next phase of development for the isolated islands of Pulau Seringat, Lazarus and St John's which 'joined together to form one new 'critical mass' island destination'. It will be spending about S$1 bln to develop these islands and Kusu island in order 'to complement the attractions and facilities on Sentosa.'
Of course, we should not forget the bids for the integrated resorts in Sentosa. If the pictures in the press are anything to go by, for those of Genting and Universal Studios, and the Eight Wonder, is that the landscape of Sentosa would change drastically.
While Sunita Sue Leng from The Edge, might be embarrassed to bring visitors from out of town to visit Sentosa's current attractions, I am even more distressed of the fact that within the next half decade or so, the pockets of natural vegetation on Sentosa will be replaced by urban structures.
Sentosa will just be another sprawling island of urban redevelopment, but oh wait, it is merely mimicking its bigger sister, mainland Singapore.
Desiree Pakiam
ArchivesYet, Sentosa is anything but tranquil these days.
The Sentosa Leisure Group, formerly known as the Sentosa Development Corporation (SDC), embarked on a 10-year plan in 2002, to transform Sentosa into a world class tourist destination, with a S$8 bln master plan.
The main transport network for visitors to the island, the Monorail, was dismantled last year, to make way for the Sentosa Express, a S$140 mln light rail system which is expected to operational by the end of this year.
Investment from the private sector amounted to S$560 mln last year. Of which Amara Holdings will complete a S$60 mln 121-room boutique resort by next year, Robertson Quay finished construction of its mid-tier Siloso Beach Resort at the cost of S$50mln in July and the Pontiac Land Group will build a six star super luxury resort by 2008, on an investment of S$250 mln.
It is no wonder that Sentosa is not merely counting on investment, it is reinventing itself as well.
Sentosa set a record for the prices of bungalow land sold, when the Business Times published an article today, regarding the minimum reserve prices of the land parcels.
Master developer Sentosa Cove is allowing developers to bid for the residential development of two man-made islands, Pearl and Sandy, which were reclaimed along side the Sentosa shoreline and sold on 99 year leases.
The Sentosa Leisure Group is not stopping there. Already it is planning for the next phase of development for the isolated islands of Pulau Seringat, Lazarus and St John's which 'joined together to form one new 'critical mass' island destination'. It will be spending about S$1 bln to develop these islands and Kusu island in order 'to complement the attractions and facilities on Sentosa.'
Of course, we should not forget the bids for the integrated resorts in Sentosa. If the pictures in the press are anything to go by, for those of Genting and Universal Studios, and the Eight Wonder, is that the landscape of Sentosa would change drastically.
While Sunita Sue Leng from The Edge, might be embarrassed to bring visitors from out of town to visit Sentosa's current attractions, I am even more distressed of the fact that within the next half decade or so, the pockets of natural vegetation on Sentosa will be replaced by urban structures.
Sentosa will just be another sprawling island of urban redevelopment, but oh wait, it is merely mimicking its bigger sister, mainland Singapore.
Desiree Pakiam
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
