Investor Central

Starhub appoints Tan Tong Hai as COO

2009-01-07T11:16:00.002+08:00

Starhub has appointed Tan Tong Hai as its COO.

Tan, was previously president and CEO of Singapore Computer Systems from 2005 till recently. Before that, he was president and CEO of Pacific Internet. He has over 20 years of experience in the regional IT, Internet and e-commerce industries.

The COO position had been vacant for over two years since StarHub's previous COO, Yong Lum Sung, quit in 2006.

Tan’s appointment comes just after M1’s CEO Neil Montefiore quit. The 55-year-old leaves M1 after 12 years. M1 is currently looking for a new CEO.

Analysts surveyed by Reuters have on average an OUTPERFORM call on Starhub with a price target of S$2.50 compared to its last traded price of S$1.92.

After the collapse comes inflation: Ray Barros

2008-11-25T01:05:00.006+08:00

Watching the US government invest US$20 bln in Citigroup shares and guarantee a further US$306 bln in loans may save the day for now. But the scenario feels rather eerie (continues below video)...

...when you consider that this money, along with the US$700 bln already pledged to help the banks, plus another US$25 bln if the car companies get their desired hand-out, will need to be soaked up again.

Meaning: this trillion dollars in money which the US government has shaken out of its sleeve will, at some point, find its way back into the pockets of consumers.

And when it does, argues Ray Barros, inflation will be the next big thing to worry about.

In other words, we'll drown tomorrow in the waters which we are using today to dowse the flames.

Not that the US government has much choice. It's a little like standing in a wobbly aluminium dingy: The boat has rocked too far the left, but overcompensating will rock it too far on the right. It'll take a while before it steadies. If we don't all fall out, first.

I recorded this interview with Ray Barros a few weeks ago, but his words still hold true today. Perhaps more so.

I welcome your comments.

PS: Ray Barros will be in town December 6 at Singapore Expo Convention & Exhibition Center.

FJ Benjamin - yet another weak quarter

2008-11-11T18:14:00.002+08:00

FJ Benjamin says the weakening macroeconomic outlook means it will have a challenging financial year. Its profitability will be affected by fluctuations in foreign exchange. In the meantime, it will try to control costs and improve its cash flow.

The retailer’s Q1 2009 revenue rose 3% to S$84 mln. The retailer said the marginal increase was due to the global economic woes and weakening consumer sentiment.

Net profit dropped 73% to S$1.1 mln. This was mainly due to unrealised non-cash foreign exchange losses of S$1.4 mln, compared with a gain of S$800,000 in Q1 2008.

It generated S$14.3 mln in cash from operations compared to the S$1.2 mln.

Analysts surveyed by Reuters have on average a HOLD call on the stock with a price target of S$0.27, compared to its last traded price of S$0.19.

~ Jin San’s take ~
FJ Benjamin has reported yet another weak quarter. At least it didn’t suffer a net loss this quarter like it did in Q4 2008. Things don’t look positive for the retailer as the weaker consuming spending in the region will negatively affect its earnings for this year. This is more than a bit worrying, as it has been in negative free cash flow position for the past two FY (even though it's positive for its latest quarter.

Like the rest of the market, FJ Benjamin's stock has taken a beating and its P/E now stands at 7.71 and its P/B is at 0.82.

As always, please see your licensed financial advisor before making any investment decisions.

SMRT - Bumps ahead

2008-10-31T19:01:00.001+08:00

SMRT says the operating environment is expected to be difficult for the next 12 months. It thinks its taxi operations will remain challenging. Also, its bus operations are expected to sustain operating losses for FY2009 because of high diesel prices, and being affected would be affected by the government implementing the more stringent quality of service standards.

But for the next quarter, the transport operator says it expects higher revenue from its train and bus operations as compared to Q2 due mainly to ridership growth.

It also expects to complete the acquisition of a 49% stake in Shenzhen Zona Transportation Group Co. Ltd by Q4 2009.

It declared an interim dividend of 1.75 cents.

Q2 revenue rose 15% to S$227 mln as more people took SMRT trains and buses, it received higher rental and advertising revenue, and it sold more diesel to taxi hirers.

Net profit rose 8% to S$42.6 mln due mainly to higher operating profits partially offset by higher income tax expenses.

It generated S$20.7 mln in cash from operations compared to the S$22.1 mln the previous year.

Analysts surveyed by Reuters have on average an OUTPERFORM call on the stock with a price target of S$2.00, compared to its last traded price of S$1.54.

~ Jin San’s take ~
SMRT says it is expected to finish acquiring 49% of Shenzhen Zona Transportation Group Co. Ltd by Q4 2009. This could be an important event in SMRT’s history. SMRT says Shenzhen Zona is profitable and has high growth potential.

Like the other SGX-listed company, Midas Holdings, which is supplying the demand from China’s infrastructure sector, SMRT can hedge against its exposure to the Singapore transportation market by doing well in China.

After all, Singapore is too small and competitive.

As always, please see your licensed financial advisor before making any investment decisions.

Qian Hu - negative free cash flow?

2008-10-20T20:39:00.002+08:00

Qian Hu released its Q3 2008 results today.

It expects its revenue and profit to continue to increase in Q4 2008. The increased revenue should come from its ornamental fish operations, improvement in its accessories export business, coupled with the positive contributions from its overseas operations in Malaysia, Thailand and China.

Q3 revenue rose 4% to S$23.6 mln as sales of its ornamental fish increased and it exported more accessories. Its plastics business also registered an increase in revenue, although the increase in the price of raw materials eroded its profit margin. Its net profit went up 21% to S$1.5 mln.

It generated S$3.2 mln in cash from operations compared to the S$2.8 mln it gained the previous year.

Analysts surveyed by Reuters have on average a HOLD call on the stock with a price target of S$0.13, compared to its last traded price of S$0.10.

~ Jin San’s take ~
Qian Hu is ranked number 1 on the Business Times Corporate Transparency Index, and with good reason - its reports are usually detailed and give explanations for its actions. But starting in FY2007, its free cash flow turned negative and this trend is apparent in its Q3 report as well.

According to its cash flow statement, it gained S$2.23 in cash from operations, but it spent S$1.1 mln on property, plant and equipment, and another S$1.8 mln on brooder stocks. Put together, the capital expenditure comes up to S$2.9 mln, more than what its cash from operations can cover.

Although this is more a sign of a company with ambition that believes in investing in itself, and the margin is not that wide, investors might want to take note of this.

As always, please see your licensed financial advisor before making any investment decisions.

BH Global Marine - to be undone by the BDI?

2008-10-16T20:29:00.001+08:00

BH Global Marine says it is cautiously optimistic of its business prospects in the current year and expects the demand for its products and services to remain stable. It also expects consolidation within the industry as credit tightening by banks will adversely affect the smaller competitors.

Q3 turnover went down 6% to S$22.7 mln as it sold less marine electrical equipment. But Q3 2007 in comparison was an exceptional quarter as BH Global Marine pushed forward some projects from Q4 2007.

Its overall gross profit margin increased from 38% in Q3 2007 to 41% in Q3 2008. This was mainly due to the weaker US dollar in Q3 2008. Net profit rose 3% to S$5.1 mln.

It generated S$6.7 mln in cash from operations compared to the S$5.3 mln it burnt the previous year. It could have been higher if not for the rise in inventory costs to S$3.2 mln from S$1.8 mln the previous year.

This stock is not covered by Reuters. It was last traded at S$0.16.

~ Jin San’s take ~
Although BH Global Marine says it expects demand for its products to continue, the global downturn is taking its toll on the shipping industry. The Baltic Dry Index plunged 10.7% cent on the day, to 1,615 pts on 15 October, its lowest level since February 2003. With the slowdown in shipping activity, we wonder if BH Global Marine will still see a constant level of demand for its products.

As always, please see your licensed financial advisor before making any investment decisions.

SGX - Signs MOU with Bahrain Stock Exchange

2008-10-14T18:58:00.000+08:00

SGX has signed an MOU with Bahrain Stock Exchange to foster a closer relationship and develop channels of information exchange between the two markets.

The Bahrain Stock Exchange officially started operating in June 1989. Its financial instruments listed include ordinary and preferred shares, bonds/Islamic Sukuk, and mutual funds. The exchange is regulated by The Central Bank of Bahrain.

There are 52 companies listed on the exchange, 42 mutual funds, and 14 bonds/Islamic Sukuk traded on the exchange. Its market cap is about US$30 bln.

The exchange’s trading session is from 9.30 a.m. to 12:30 noon, including a pre-opening period of 15 minutes starting from 9:15 a.m. Clearing and settlement of transactions is made within two working days (T+2).

Analysts surveyed by Reuters have on average a HOLD call on the stock with a price target of S$7.55, compared to its last traded price of S$5.85.

~ Jin San’s take ~
From setting up a representative office in Beijing to holding a roadshow in Europe, SGX has been very keen to attract more foreign listings in Singapore. This MOU with the Bahrain Stock Exchange can be seen as a stepping stone to SGX’s exposure to investors and companies in a region that is less affected by the global financial crisis.

According to Kuwait’s Global Investment House, the Bahrain Stock Exchange still offers the best value in the Gulf Cooperation Council (GCC). Despite the global financial crisis causing a decline in the gulf markets, Global said Bahrain’s economy has been posting healthy double digit growth rates in the past five years.

But in Singapore, where we’re currently in a recession, SGX cannot escape the extremely bearish market. And with its stock priced at S$5.85 (it was trading above S$15 this time last year), it is set to tumble further. Its current P/E of 13 is still a bit expensive for a value investor. Well, till the next bull run, then.

As always, please see your licensed financial advisor before making any investment decisions.

Nearly-bankrupt FerroChina appoints financial advisors

2008-10-10T17:50:00.003+08:00

FerroChina has appointed Ernst & Young Solutions LLP as its financial adviser to its restructuring.

The steel-maker said yesterday it was unable to pay RMB 706 mln in working capital and loans due to the economic crisis. It has also temporarily stopped its manufacturing activities and suspended its shares from trading.

Analysts surveyed by Reuters have on average a HOLD call on the stock with a price target of RMB 4.06, compared to its last traded price of S$0.55.

~ Jin San’s take ~
Analysts have predictably downgraded FerroChina’s stock. OCBC Investment Research has suspended coverage on FerroChina and DBS-Vickers has a SELL call at a price target of S$0.545.

There is little investors can do – they cannot sell their stocks as trading has been suspended. They can only hope that management’s talks with lenders and potential investors turn out well.

As always, please see your licensed financial advisor before making any investment decisions.

Thakral - Kartar Singh opposes removal as director

2008-10-07T18:43:00.001+08:00

Kartar Singh, chairman of Thakral, has written a letter to shareholders to oppose the resolution by the two Hong Leong subsidiaries to remove him as director of Thakral Corp.

Venture Delta Ltd and Grace Star, the two subsidiaries of Hong Leong Asia, claim they are concerned about the age of Kartar Singh as he is 74 years old and whether he is able to continue with his role as executive director and chairman. According to Section 153 of the Companies Act, the retirement age for company directors is 70.

Kartar Singh replied in a letter to shareholders that he is able to continue on. He points to his experience of having been through many boom and bust cycles.

Singh believes the group’s consumer electronics business can be profitable again, but the return on capital from the distribution business alone is not sufficient and may not be justifiable.

He believes there are new opportunities in Pan Asian property – the majority of the board had voted to change Thakral’s core business in May. He ended his letter by assuring the shareholders that he has the energy, drive and will to continue as director and chairman of Thakral.

Thakral’s Extraordinary General Meeting will be held on 15 October and shareholders will decide whether Kartar Singh Thakral will stay on the board.

This stock is not covered by Reuters. It was last traded at S$0.04.

~ Jin San’s take ~
Hong Leong had attempted a takeover of Thakral in 2006, but it fell through. With this attempt to remove Kartar Singh from the board, it is most likely seeking to appoint an insider, or a few insiders, in Thakral’s board to speed up the turnaround of the ailing business.

In the event Singh leaves, it is not certain whether the other two members of the Thakral family will stay on as well.

On Hong Leong’s end, its company culture is not very predisposed to revealing its intentions clearly. We are looking to 15 October to provide an ending to this rather dramatic event.

As always, please see your licensed financial advisor before making any investment decisions.

Datapulse - it’s gonna be tough

2008-09-05T21:45:00.001+08:00

Datapulse, which prints CDs for companies, warns that life will be tough due to keen competition and high raw material costs. But it says its strong balance sheet, experienced management team and close relationships with its customers will help it through.

It declared a final dividend of 2 cents.

FY2008 revenue rose 5% to S$73.3 mln, which Datapulse attributed to improved demand and new product launches by customers during Q1 2008.

But higher operating expenses caused net profit to drop 11% to S$13.3 mln.

It generated S$20.3 mln in cash from operations compared to the S$22.8 mln it generated the previous year.

This stock was last traded at S$0.16.

Datapulse has managed to keep its cash flow in the black over the past few years.

But one thing this company has to keep a keen eye on is the future of optical storage.

With thumbdrives and flash memory becoming cheaper and more popular, more companies might prefer to use them to disseminate information or as corporate gifts.

Just think about it - loading a thumbdrive with information is much faster than the stamping and duplication process for CDs and DVDs. Plus, most portable laptops nowadays come without a CD drive but with more than one USB port.

The Internet is also helping to make the CD and DVD obsolete – why bother bringing a CD or DVD around if you can plug into the Internet and retrieve the information from a website?

Ex-Microsoft chief Bill Gates even went as far as to not take any sides in the battle between HD-DVD and Blu-ray, as he believes that DVDs will be made extinct by the advent of digital distribution systems. He calls optical storage “simply the last physical format we'll ever have," and predicts the Internet to rule over all physical media formats.

Although the day when the DVD and CD become obsolete is still far away, Datapulse had better start preparing itself for it.

As always, please see your licensed financial advisor before making any investment decisions.

See Hup Seng Ltd – See No Evil?

2008-09-03T20:46:00.002+08:00

The board of See Hup Seng announced that it has unanimously decided not to fire its CEO for the insider trading he engaged in when he was a consultant at the company in 2006.

It had announced on Monday that Yap Sew, its current CEO, was fined S$50,000 by the MAS.

A bit of background here: In 2006, Yap bought 900,000 See Hup Seng shares after knowing that the company had bought Speedo Corrosion Control Pte Ltd. He was a consultant at See Hup Seng at that time and had profited from the price-sensitive information.

This matter was referred to MAS by SGX-ST and MAS carried out civil penalty investigations.

MAS then carried out a civil penalty enforcement action against Yap.

The board of See Hup Seng gave a few reasons why it won’t fire Yap:

Firstly, it said the insider trading incident took place in 2006 when Yap Sew was not a director or employee of the company.

Note: Yap engaged in insider trading on 25 July 2006; he was made CEO on 5 August 2006.

Secondly, it said Yap has been successful in implementing key business strategies which helped turn the loss-making company to being profitable.

Thirdly, Yap is working on several projects to help the company grow further.

Yap Sew should be lucky that he was let off with just a civil penalty, which carries no criminal record, got to keep his job, and enjoys such support from his board.

But credit should go to him for turning See Hup Seng from six years of losses to being profitable in 2006. Its net profit more than tripled to S$13.6 mln from FY2006 to FY2007 on the back of a huge increase in revenue.

But will the board’s decision raise shareholder confidence in the company?

It is very possible that the man on the street with a few lots of See Hup Seng shares might now feel less assured of the company’s corporate governance policies.

After all, value investors want to sleep easy at night and not worry about whether the CEO will place personal gains above ethics.

It is even worse when the board seems to see Yap as a messiah for turning round the company and voted unanimously to not fire him.

In fact, for a company that specialises in preventing corrosion, See Hup Seng has allowed the rot to settle at the top.

As always, please see your licensed financial advisor before making any investment decisions.

Koda - caught a cold

2008-08-27T19:45:00.003+08:00

Koda released its FY2008 results today. And it performed as it had warned its shareholders it would – badly.

But it did say it will be financially sound and profitable in FY2009.

The furniture company declared a final dividend of 0.5 Singapore cents. This adds to its interim dividend of 0.5 Singapore cents, making its total dividend payout for the year 1 Singapore cent per share.

Koda had said in July that its revenue, profit margin and net profit will be lower for FY2008.

It announced today its FY2008 revenue dropped 8.5% to US$54.9 mln while net profit decreased 42% to US$4.2 mln. Koda blamed weaker orders from the US and EU, and higher overall costs for its bad showing.

It managed to maintain a positive cash flow, though – it gained US$3.1 mln in cash from operations compared to the US$5.9 mln it generated the previous year. It has US$5.1 mln in free cash flow.

Analysts surveyed by Reuters have on average an OUTPERFORM call on the stock with a price target of S$0.5175, compared to its last traded price of S$0.18.

On 20 June, Koda announced that Blackhorse Asset Management sold off a small stake in Koda – it reduced its holdings from 11.95% to 11.92%. Blackhorse kept selling off more in the next few weeks. As of the last announcement on 7 August, Blackhorse owned 10.86% of Koda.

On the other end, on 16 July, the Koh siblings James Koh, Koh Jyh Eng and Koh Shwu Lee raised their stakes in Koda. MD James Koh raised his stake from 18.43% to 18.69%, Koh Jyh Eng who is executive director of sales and marketing raised his from 9.32% to 9.45%, and Koh Shwu Lee, who is director of finance and administration, raised her holding from 9.14% to 9.21%.

The move by the directors seems like an attempt to soften the impact of the lack of confidence shown by Blackhorse.

Based on its FY2008 earnings, it has a P/E of 3.83 and a P/B of 0.63. During its breakout last year, Koda’s stock price managed to hit S$1 in April. It is currently in the doldrums, trading at S$0.18.

As always, please see your licensed financial advisor before making any investment decisions.

On the Ground in the United States

2008-05-29T16:38:00.001+08:00

Today we are on the ground in the United States. The topic on deck: Is the US a nation of borrowers?

Consumer confidence is at an all time low in the U.S.
More than 2,000 people are declaring bankruptcy daily
Thousands upon thousands of jobs have been lost in recent months due to the sub-prime crises…

I am starting to wonder, what were the behaviors that got us into such a mess?

I think we can beak it down into a few root causes:
First, Greed and a “buy now as opposed to save and buy later” mentality
Second, Poor financial education and a lack of financial sophistication
And finally, consumer traps and the wide availability of credit with “sub-prime” terms

We want it all, we want it now. We want it bigger, better, flashier… and chances are, we are going to charge it. The consumer mentality in the United States has been shifting in the past few centuries.

From movies, to music, magazines, and books, popular culture is increasingly more focused on the pursuit of not life, liberty, and happiness, but diamonds, designer clothes, and the newest BMW.

They are pumping out the message that we deserve everything and anything, and the worst part is we are buying it, literally.

This point was truly driven home while I was working part-time at a US retail company, Victoria’s Secret. Like many clothing stores today, Victoria’s Secret offers store credit cards. The card comes with a hefty 24% interest rate, only disclosed in the fine print of a brochure handed out after the customer signs up.

One day a woman came in to sign up for the VS card (all it takes is a driver’s license and a debit or credit card). She had just obtained her first credit card from a questionable company. She was approved for the card (it is almost impossible to get denied) and was awarded a $500 limit. She proceeded to spend the limit almost to the dollar and then walked out. She took the bus home.

Regardless of financial stability it is incredibly easy to obtain credit in the United States. In fact, we are practically drowning in credit card offers the minute we turn 18 and it doesn’t ever seem to stop. And while many people seem to fall into the “credit trap” those who are perhaps the most vulnerable are the nation’s working poor.

According to a BusinessWeek article “Wages for the working poor have been stagnant for three decades. Meanwhile, their spending has consistently and significantly exceeded their income since the mid-1980s. They are making up the difference by borrowing more. From 1989 through 2004, the total amount owed by households earning $30,000 or less a year has grown 247%, to $691 billion, according to the most recent Federal Reserve data available.”

This has all been made possible through wide spread high interest, high fee financing, or subprime lending in other words.

Driving down the block in my hometown of Cleveland, Ohio (which has consistently been ranked as one of the poorest big cities in the US throughout the past decade) the messages along the road seem to repeat themselves.

“No Credit, No Problem”
“Financing for All”
“Rent to Own”
“Quick Cash”

Pay Day loan services, check cashing companies, rental services, used car dealerships all encourage low-income consumers to live beyond their means as they reap the benefits. In addition, the people they are targeting are frequently un-educated and easily susceptible to scams…. Something they are all too willing to take advantage of.

You might be wondering “Why on earth would these companies be targeting people low-income, low-revenue individuals who might never be able to repay?”

The truth is that it is a major, fast expanding business. In fact, these “alternative financial services” businesses generate more than US$250 billion a year.

Major US financial companies have caught wind and joined in. HSBC Finance, Sallie Mae, Wells Fargo, US Bancorp, Bank of America, and Merrill Lynch & Co all have either their own version of “alternative financing” services or are funding companies that do.

So, with all the constant “buy, buy, buy” messages, the wide availability of credit and credit with “subprime” rates, it is no surprise that the US is in the situation it is.

Only time will tell if behaviors and regulations will adapt to rid the county of this “affluenza” and spending craze.

Algorithmic trading on the SGX: less clarity, more volatility

2008-05-20T21:10:00.004+08:00

I'm never one to say things have to stay the same when new technology comes along. Resisting change is generally futile. That's particularly the case if new revenue streams can be earnt. But the Singapore Exchange's announcement of a partnership with SingTel to cut the processing time of trades to less than a millisecond from the current, oh-so-slow 4 milliseconds deserves further investigation. As always, whenever the exchange makes changes, there are winners and losers. In this case it appears the exchange is the winner, traders might be winners if they play their cards right, and investors are losers.

The point of the cut in the time it takes to consummate a trade from miniscule to even more miniscule is to allow traders to employ algorithmic programs. It's also called automated trading or program trading. It's when computers take over the job of brokers. There are some excellent articles around on this subject, such as this one from BusinessWeek a few years ago. The area of automated trading is an industry unto itself. There is even a magazine and a podcast on the subject.

Suffice to say, algorithmic trading will create:

1. Greater secrecy. It'll be harder to find out who's moving large positions because this will be done incrementally, and
2. Greater volatility. A third of all EU and US stock trades in 2006 were driven by automatic programs, according to this article on Wikipedia. That is, driven not by fundamentals but by technical trading.

It'll "enhance SGX's market liquidity and depth" alright. But I can't see how either of them will be good for investors. Recall, investors are those poor souls who buy stocks for what they're actually for: Dividend payouts and capital appreciation. There is already enough noise around to distract us from this. The last thing we need is to be tossed around by ever growing storms of volatility, and a decreased understanding of who is buying or selling what.

As I said, I am loath to critique new technology on the basis of resistance to change. It just means that investors will have to keep getting smarter. And not just investors. As Futures & Options Week points out, the increase in automated trading "presents a challenge to clearing operations" because lightning fast trades require lightning fast clearing. Let's hope the SGX is also geared up for that.

Mark Laudi, who fears the Singapore Exchange will become evermore Singapore's third casino.

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Journalists and companies – complicity exposed

2008-05-16T16:06:00.001+08:00

Now that the quarterly earnings season is drawing to a close you'll see many journalists head to the gym. Why? Because attending one or more earnings briefings a day can really start to impact your waistline, what with all that food that is served. My critique is not of the companies (for a change), but journalists. My old colleagues won't like me for saying this, but the fact is that journalists are fed so well at press conferences that I cannot see how investors can possibly expect to see unbiased, indepth coverage of the companies that are reported on.

I really wonder whether Singaporean investors realise just what a bunch of lazy freeloaders reporters are. Already much of Singapore business journalism is nothing more than an exercise in rewriting press releases (without also reading the statutory announcement). It's the only exercise they get. The news Singapore investors consume is written by people who spend hours at press briefings in hotel ballrooms, consuming wonderful food and beverages which, inevitably, are paid for by shareholders.

The problem started with the fact that companies whose headquarters are not located within a ten minute taxi ride of the Toa Payoh/MacRitchie Reservoir area struggle to get media attention (because a trip out to Jurong and Tuas, or Changi Business Park is oh, so far away). To address this issue, they resort to renting out a function room in an inner-city hotel and serve up a big meal.

What disgusts me is not just that companies do this in the hope that they get more, and more favourable editorial coverage. What disgusts me is that they succeed with this tactic. Journalists lap this sort of thing up and complain audibly when companies don't put on a spread. To think that in other markets journalists refuse the offer of a glass of water from their hosts at press conferences, lest it be seen as interference with the editorial process!

I accept that things are done differently in Asia, and that much more effort goes into welcoming visitors, making them comfortable, offering refreshments and so on. But when it comes to corporate governance and competing in a globalised world, these customs should not apply to journalists under the special circumstances of an earnings briefing.

I have raised this point with David Gerald, the President of the Securities Investors Association (Singapore), who routinely encourages shareholders not to attend Annual General Meetings just for the food. My point is: journalists should not attend press briefings just for the food, then return to the newsroom to rewrite the press release without also reading the statutory announcement.

For as long as companies put on lavish lunches and dinners for reporters, readers and viewers of the financial media cannot possibly expect to be well served.

Mark Laudi, who attended the Banyan Tree earnings briefing at the Fullerton Hotel on Thursday. Yes, he also ate a plate of food so as not to offend his hosts. But he would have been just as happy if no food was served.

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No news is bad news, and silence is not golden

2008-05-15T17:35:00.003+08:00

Sometimes, disclosing what hasn't happened is as important as disclosing what has. And in this regard the Singapore Exchange is spot on (see end of this blog) when it praises companies which have provided updates on the impact of the earthquake in China on their businesses even though little or nothing happened to them. If only all companies did this on other occasions, too.

Talk to any 5-year-old and they'll tell you that not admitting to doing something wrong is not the same as lying. Conveniently forgetting to mention what hasn't happened is not the same as denying that they did something wrong, they say.

Fortunately, most SGX-listed companies are not run by 5-year-olds. Why is it, then, that the SGX had to "contact listed companies with known Sichuan operations" to establish whether the quake affected them.

Just as people visiting China would have phoned home to tell friends and relatives they're alright, SGX-listed companies with China connections should take the initiative to "phone home" to their part owners (that is, investors who bought their stock on the SGX) - even if they have nothing to say other than everything is okay.

So, we concur entirely with the SGX when it "encourages listed companies to continue heightened vigilance on disclosure" for the rest of the year, and the next fifty years (words and emphasis added).

This clearly should apply to all companies, but particularly those whose operations are in countries that are not easily accessible, where Singapore investors can go easily and see for themselves.

So, congratulations to those companies which have made announcements sofar in the last two days:

Anwell Technologies
China Eratat Sports
China New Town Development
Wilmar International
Sapphire Corp
China Dairy
China Zaino
Asia Water Technology

(Add your company name by making a comment, if you also did the right thing but are not listed here)

And special mentions to

CapitaLand
Radiance Electronics
Sino-Environment Tech
Sihuan Pharma

for contributing funds to the relief effort.

Mark Laudi, who wonders when Singapore companies with operations in Burma – such as DBS, UOB, OCBC, Keppel Corp, CNA Group and Shangri-La – will say something about whether the cyclone in Myanmar impacted their operations there.

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SGX Encourages Listed Companies to Continue Heightened Vigilance on Disclosure 15 May

SGX would like to extend our heartfelt sympathies and condolences to the people and families affected by the earthquake in China.

We have contacted listed companies with known Sichuan operations and been informed that most of them are unaffected by the quake. We also note that several listed companies have updated investors on the impact of the China earthquake on their businesses via SGXNET.

Listed companies are aware of their responsibility to make timely and accurate disclosure of material information. We encourage them to continue their heightened vigilance with regard to disclosure of material developments. In this connection, foreign listed companies can tap on their Singapore directors in the discharge of their disclosure responsibilities.

2008-05-14T18:06:00.001+08:00

SingTel: Borrowing to pay higher dividend

Shareholders will not be complaining that they can continue to milk the cash cow SingTel for dividends. Particularly during the uncertain and directionless market, when capital gains are no longer a sure thing, good dividend payers are very welcome. But a look through the Cashflow statement indicates that despite the billion dollar revenues and cashflows, SingTel could only afford to raise its dividend because it borrowed more money.

It's not rocket science:

The business generated S$5.45 bln in cash (Net Cash inflow from operating activities).

SingTel invested S$2.75 bln in associate companies, plant and equipment.

It also paid out dividends during the year of S$3,435.4 bln, compared to S$1.92 bln last year. The difference: S$1.515 bln.

How did it pay for this increase, even as it repaid loans worth S$3.75 bln?

Well, it borrowed S$4.93 bln in fresh funds, which means on balance it took out new loans worth S$1.67 bln.

Next question: is there necessarily anything wrong with borrowing to pay dividends?

Probably not. It's not uncommon, in other countries, too.

The reason companies do it is to maintain confidence in their shares. There's little that scares people away more, particularly during the uncertain and directionless markets I already mentioned, than a cut in the dividend.

But shareholders would be wise to pay attention to the cashflow statement to ensure that dividends aren't artificially propped up by loans even as sales are falling and the business is failing. That doesn't seem to be the case with SingTel, which generated sales worth more than S$14.8 bln! But few if any other companies can boast of similar revenue profiles.

Cash is king.

Mark Laudi, who doesn't own any SingTel shares, but sometimes wishes he did.

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Press Releases <> Significant Announcements

2008-05-13T18:44:00.002+08:00

It has long been a bugbear of mine that some PR companies stretch significant announcements of their clients over three days to try to get some media coverage. But another issue that yanks our collective chain is their use of the SGX Significant Announcements website as their corporate press release dissemination channel. Creative Technology stands out as one of the main 'offenders'.

Today's announcement is a case in point. If the announcement title 'Creative Introduces the Vado Pocket Video Cam - Capture Life - See it, Shoot it, Share it - All in an Instant' doesn't already give it away, the absence of any forecast on the impact on earnings - not even the obligatory but completely useless "this announcement is not likely to impact earnings this year" - is sure to make you see this press release for what it is.

We don't have anything personal against Creative's Corporate Communications Manager Jenny Wong, nor Yap Meng Lee from August Consulting, whose names grace the documents. In a way, I sympathise with Creative because of the tough ride they've been through. Wong and agency haven't exactly had a lot of good news to announce over the last year or five. But the SGX significant announcements page just isn't the place if the announcement is not significant.

Plus it's not like these postings have their desired effect. A scan over the last three months worth of announcements show that out of the nine announcements in that time, four were product press releases (the others were meaningful announcements about the sale and leaseback of their building, financial results and a tie-up with InnoMedia). A check on Google shows none of these four were picked up by the press.

This is where the Investor Relations Professionals Association (Singapore) – set up with the blessing of the SGX – can have an influence. If it wants to do something really useful, it would ask the SGX to split the current corporate announcements page into two: one for the really meaningful stuff which serious investors need to make investment decisions, and another for all the rest. This would include glossy PowerPoint presentations, press releases and so on, which are not permitted to say anything more than the statutory announcement anyway (and usually say a whole lot less). I suspect the IRPAS would not agitate for such a change, given that the Association's Board of Directors is made up entirely of investor relations people (or in any event corporate types who stand to benefit from putting a message out there), not the audience of investors and analysts who are at the receiving end of their output.

For the sake of clarity and an informed (not clouded) market, let's get rid of the PR stuff and cut to the real game on the SGX announcements page.

Mark Laudi

Microsoft vs Yahoo - Microsoft will win

2008-05-06T19:28:00.000+08:00

What a clever game Steve Ballmer is playing with Yahoo! Walking away from his bid for Yahoo was the best move he could have made. In the process, Ballmer is revealing himself a student of Sun Tzu's Bing Fa. My personal prediction is Microsoft will win in its bid, and probably for not much more than the bid he just ended. The reason is simple: Yahoo needs Microsoft more than Microsoft needs Yahoo.

Google is the dominant player in the online search game. Maybe not in every country. Yahoo is still very strong in China, while Google is not. But clearly Yahoo has a fight on its hands for dominance of online advertising. Note how Yahoo sought a white knight in the face of Microsoft's bid. Ironically, Yahoo approached its main competitor Google. Google, which was already warning it was going to fight a Microsoft-Yahoo tie-up on the grounds it would be uncompetitive, offered to share its search technology with Yahoo.

End result:

• Google became stronger by showing its dominance in the search game. It can't make a move on Yahoo because that will never get past the competition authorities. But by sharing its search technology it already smacks of a merger by stealth.
• Yahoo revealed its weakness by scampering for a saviour. Now that Microsoft launched a bid, the company is in play. Everytime the stockprice falls, people will say Microsoft will make another bid for it. It won't end until its taken over.
• Microsoft certainly didn't want to see a Yahoo-Google tie-up, and it was a good enough pretext for Ballmer to walk away from it. But come on, is he really now no longer interested in Yahoo? Microsoft is still the one with multi-billion dollar cashflows. Having shown his hand, Ballmer is committed to winning the game, or forever be reflecting on 'the one that got away'.

But don't forget shareholders. At the end of the day, it's their call. And right now, I would rather be Steve Ballmer than Jerry Yang. Yang has to explain to Yahoo shareholders why he said no to Microsoft's offer, which valued the company at substantially more than the market did.

My call: Microsoft will wait for a while to see what happens next. Yahoo's stockprice will fall further. Yahoo only has two choices: play ball with the arch-competitor Google, or Microsoft. Ballmer will then make another bid. Shareholders, who are unhappy with Yang for not saying yes to the now-defunct first bid, will be glad to accept.

Google may argue against a merger on competitiveness grounds. It knows Microsoft is still on the nose in many countries over its dominance in software. It will want to play on the fears that Microsoft will do to online search what it did to operating systems and office software. But then again, Google is already the Microsoft of the online search game. Regulators may take the other view and think that a little competition to Google will do advertisers more good than harm. Any advertiser, who has seen search terms become more and more expensive on a per-click basis, will testify to that.

But Microsoft will win it. Ballmer reminds me of Rupert Murdoch. Back in 2000, the News Corp chief wanted to get control of the US satellite television network Direct-TV. That was then owned by Hughes Electronics, owned by General Motors. News Corp lost a hostile takeover battle to Echostar. But Echostar's deal didn't go through. In stepped Rupert Murdoch again. He had the last laugh afterall.

The same will happen for Microsoft.

It's funny how these things turn out.

Mark Laudi, who predicts another Microsoft bid will come before the end of 2008.

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Comments on the Russian front

2008-05-05T18:23:00.002+08:00

It's a sad state of affairs indeed when investors coming to Singapore are eyed with suspicion just because of their country of origin. Rather than fall back on stereotypes and generalisations, investors should consider each individual on their merits. So when Mikhail Bolotin reportedly declared his intention to bring airconditioner maker Dunham-Bush to Singapore, after taking the company private on Bursa Malaysia, the first thing everybody seemed to think of was the autocratic Russian administration, the president who replaced himself with a ventriloquist's puppet whose words he steers from the prime minister's seat, and what Newsweek magazine described as a feudal system of government. Folks, it doesn't have to be that way. We should welcome people like Bolotin, who bring their fortunes here.

Just because Bolotin is 157th on the list of Russian billionaires doesn't make him a bad guy. Afterall, even though he is worth 3.9 bln Rubles that only translates into US$140 mln. And getting less by the week.

We should also avoid any finger-pointing, just because Bolotin's Most has a virtual monopoly over the manufacture of tractors in Russia.

And when Russia's online daily newspaper Kommersant reports that "Mikhail Bolotin's successes are directly connected with Vladimir Putin's presidency", we had better consider the facts ourselves before jumping to conclusions. After all, if we were to invite only those Russian businesspeople who achieved their wealth without Mr Putin's help, we'd have a pretty empty list.

I am also certain that if Mr Bolotin wishes to list his tractor concern on the Singapore Exchange in November this year, the Monetary Authority of Singapore would have a pretty good look at it.

Mark Laudi, who has never met Mikhail Bolotin.

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Capitacommercial Trust Stays Execution Of Market Street Carpark

2008-04-29T20:40:00.001+08:00

The manager of CapitaCommercial Trust has deferred a decision on redeveloping Market Street carpark.

CapitaCommercial Trust Management said the decision will be made not earlier than mid-2009.

CapitaCommercial Trust said in January that it was granted an Outline Planning Permission (OPP) was granted by the Urban Redevelopment Authority (URA) for the redevelopment of the property into a Grade A office building.

The CEO of CapitaCommercial Trust Management said it deferred the decision due to the significant size of the project, rising construction costs and the currently volatile financial markets.

If CapitaCommercial Trust had gone ahead with redeveloping the Market Street carpark, it would have been its second time in just two years. Tearing down the place to build a spanking new office building would have meant a waste of S$14 mln.

Mark Laudi has touched on this subject of redeveloping the Market Street Car Park in January:
http://investorcentral.blogspot.com/2008/01/market-street-carpark-wasted-s14-mln.html#links

Analysts surveyed by Reuters have on average an OUTPERFORM call on the stock with a price target of S$2.655, compared to its last traded price of S$2.20.

As always, please see your licensed financial advisor before making any investment decisions.

Darco Water - Will Its Business Be Threatened By The Slingshot?

2008-04-25T16:09:00.001+08:00

Darco Water said yesterday it is confident of posting revenue of at least S$100 mln for FY2008 after securing seven environmental engineering projects valued at about S$25 mln.

The total project orders to be delivered in FY2008 now stand at S$126.00 mln.

Darco’s FY2007 revenue was S$87.6 mln.

The bulk of new orders come from the electronic and semi-conductor sectors, which make up almost 80% of the total orders.

But the two major orders of the bunch include Darco’s two wastewater treatment projects in Taiwan valued at S$12.3 mln and the repeated orders for Phase II of Seagate Malaysia’s facilities in Johor for air management and wastewater treatment systems valued at S$11.5 mln.

In another announcement, Darco said its lawsuit against insurer ECICS over an export credit insurance claim has resulted in the latter paying up. ECICS paid up “a substantial part of the claim” on 17 March for the purpose of compromise only and without any admission of liability, Darco said.

The unpaid claim had dragged down Darco’s FY2007 profit by 95% to S$120,000. It had made a one-time provision of S$4.6 mln relating to sub-contracting works arising from a Taiwan-based company, Hsin II, and was expecting the insurance claim from ECICS to come through.

~Jin San’s take~
Hear ye, hear ye – something has happened and the wastewater treatment industry will not be the same again. This momentous event happened last month, when Dean Kamen appeared on US talk show The Colbert Report and showed for the first time a water purifying machine. The machine, which Kamen (the inventor of the Segway - http://www.segway.com/) calls a Slingshot, can purify anything – ocean water, urine, sewage, you name it.

It looks about the size of a concert speaker, requires no filters, and can operate using an easily-obtained fuel: cow dung. Besides generating 1,000 litres of drinkable water a day, the Slingshot can generate electricity, too. Check out the marvelous invention here:
http://www.youtube.com/watch?v=EmTgVNFaDig

Kamen is trying to reduce the price of making the Slingshot to about US$1,000 to US$2,000. The prototype he showed on The Colbert Report was made for US$100,000, though. Price will be a major stumbling block - The One Laptop Per Child Project (http://laptop.org/), which had a similar humanitarian aim, took a long time to reach an acceptable US$175, which is much higher than its original target price of US$100.

But with more media coverage, the proper connections, critical mass, and further improvements, it will become a possibility for the Slingshot to help the 1.1 bln people in the world who don't have access to clean drinking water, and the 1.6 bln who don't have electricity.

On the other hand, this invention could potentially give wastewater treatment companies like Darco a run for their money. If this quantum leap in technology takes off, it could mean third world villages and small towns cutting out the middlemen to operate wastewater treatment plants and buying a bunch of Slingshots to produce clean water. The 1,000 litres of water a day the Slingshot can generate will hydrate a lot of human beings indeed. If each person drinks 1.5 litres of water in a village, I’m thinking a couple of Slingshots would be enough to serve the average village with a population of say, 1,000.

But we are only talking about the first generation of Slingshots. For sure, there will be variations and technological improvements in the future. Plus, the beauty of this invention is that it does not need anyone to operate it, unlike wastewater treatment plants. Which means cutting out the Operating part of BOT (Build, Operate, Transfer) or DBOT (Design, Build, Operate, Transfer) contracts.

To be fair, the wastewater treatment companies need not feel threatened for now because the plants they build and operate are much bigger and size. Plus, they are getting contracts at municipal and town levels. But I would not be as complacent as to discount the Slingshot as an idea that might not take off. Dean Kamen’s other invention, the Segway, hasn’t really revolutionized the way we travel, either. But he gave the Slingshot its name as a reference to the simple weapon that David used when he faced Goliath. In reality, the Goliath would be the billions of people without drinking water in the world. But this little Slingshot might take down more than just the water problem – it might take out a few water companies along the way.

But as with all technological innovations, we have to wait and see whether it will rise above the shadow of ‘just a prototype’.

As always, please see your licensed financial advisor before making any investment decisions.

SGX Research Incentive Scheme should not be for everybody

2008-04-10T07:51:00.000+08:00

There is no doubt the SGX Research Incentive Scheme has been a success. It's clear from the sheer statistics – which show that 64,000 registered users download broker-generated, company-sponsored research 50,000 times a month – that there is a demand for this type of research. There is also plenty of research which substantiates the long-held belief that research is critical to increase interest and turnover in stocks. My concern is centred purely around the fact that there are some companies who should not be receiving a subsidy for having such research conducted on them.

The SGX Research Incentive Scheme is an admirable and worthwhile attempt to give a helping hand to smaller and mid-sized companies, which usually escape the attention of analysts at broking houses and therefore see low liquidity in their stocks. The problem, it was argued at the time of the launch, is that financial analysts usually write about companies which are already "in play", because that's where the turnover already is, and where the cost of financial analysts can be defrayed by commissions from share trades. By launching the scheme, this cycle of encouraging more trades in stocks which are already heavily traded, while smaller companies are ignored, could be broken.

The Monetary Authority of Singapore also understands the value of the scheme because it provides more information (=a more level playing field) in the market. The MAS subsidised the scheme through the Financial Services Development Fund from the beginning.

Sofar, so good.

The problem, in my view, is that companies which are already receiving a great deal of analysts' coverage are also permitted to take part.

Our research in late 2006 showed the following:
(Unashamed opinion continues below advertisement)

There were six companies which were already covered by more than 10 analysts.

They were:

• SingTel
• UOB
• DBS Group
• ST Engineering
• SembCorp Industries, and
• Jurong Technologies

In addition, there were 22 companies which were covered by at least 4 analysts, including COSCO, SMRT, Hyflux and Noble Group.

My argument is: these companies are already receiving a significant amount of coverage – why are they receiving a state (=taxpayer) subsidy to have even more research conducted on them?

Or, more to the point, let them take part but make them pay a higher price and receive no subsidy at all?

Granted, the sums we're talking about here aren't huge. Twentyeight companies which, in my book, should be ineligible, each receiving S$4,000 in subsidies, totals only S$112,000. But what if these funds were used to pay analysts to cover companies which currently have one or two analysts covering them, or even none?

Mark Laudi, who wishes all analysts contribute all their reports to the SGX Research portal - not just the ones generated through the SGX-MAS Research Incentive Scheme.

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Agflation: new words for a new world

2008-04-09T15:24:00.000+08:00

Even as we're grappling with the spectre of a recession in the United States, prices are rising paradoxically. But not just plain-old inflation, no! The current economic circumstances have given rise to a whole new language, as if to make us feel better, by rationalising the whole barrage of price increases we're seeing.

For example, you may have come across agflation. Google has about 47,200 listings of the word, including Investopedia's matter-of-factly definition:

An increase in the price of food that occurs as a result of increased demand from human consumption and use as an alternative energy resource. While the competitive nature of retail supermarkets allows some of the effects of agflation to be absorbed, the price increases that agflation causes are largely passed on to the end consumer. The term is derived from a combination of the words "agriculture" and "inflation".

It's as though agflation is a real word! (Dictionary.com has no record of it). David Shvartsman acknowledged the word in an almost year-old article for Safe Haven, while expertly correcting the media and economists who have bastardised the word "inflation" to make it fit into their own view of the world.

In any event, we at Investor Central have come up with our own set of words to describe the current state of affairs:

Transflation - the economic rationalist explanation each time the Public Transport Council raises bus and MRT fares.

Meeflation - the "sticker shock" you get by going to People's Park and being offered Hokkien Mee, not in $2/$3/$4 portions, but $4/$5/$6 sizes.

Proflation - the phenomenon by which landlords are inexplicably bestowed the right to triple rents for long-standing tenants, or other people in the property business predict an endless rise in sale prices.

Cabflation - the mathematical relationship between the increase in taxi fares and the lengthening of queues of taxis waiting for passengers.

These inevitably lead us to the most important of all, and unlike "agflation" this one is a real word. Click on the link to read for yourself:

Afflation – the blowing of hot air by Treasury Secretary Henry Paulson and his Wall Street buddies about giving the Fed more power. Does anyone else sense another Patriot Act coming on, this time stomping on civil liberties and rights to privacy in the banking sector?

What -flations are currently weighing on your finances?

Mark Laudi, who did a double-take when he first saw the word agflation and thought the author had meant "stagflation" (rising prices in a weakening economy). Hmm… stagflation: the increasingly panicked rantings of a groom when presented with the dinner bill for his wedding?

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Jade Tech 'designated'. And here's another...

2008-04-08T07:48:00.001+08:00

Congratulations to the Singapore Exchange for designating Jade Technology - meaning, the stock can no longer be sold short. Frankly, it was starting to bore us that each morning at our editorial meeting the top traded stock was… drum-roll please… Jade Tech. But we think there are a couple of other stocks which rank highly in the "eye-rolling" stakes, and qualify for special attention from the SGX, most notably E3 Holdings.

The stock formerly known as ei-Nets has been seeing a lot of volume, with 15 mln shares changing hands last Friday. Trading at 3 cents apiece that does not translate into a lot of money. But their announcement late March that a subscription agreement with Pacific Capital Investment Management Limited has been terminated.

Is it a coincidence that the venerable Dr Anthony Soh, who's also behind Jade Tech, is E3's President, and bought 280 mln shares in E3 Holdings worth almost S$10 mln just a month ago?

I haven't spoken to Dr Soh, and so I am not sure whether there is a relationship between the Jade Tech and the E3 Holdings announcements.

But it seems even if he cashed out this investment he still would fall short of the S$67 mln he needs to pay for the now-cancelled takeover of Jade Tech.

On the face of it it looks like whoever's been shorting Jade Tech is actually shorting Dr Anthony Soh, and is drawing E3 into it in the process.

Clearly, reading the articles and announcements about all the stuff that's gone down over this counter, there is more to it than a bunch of speculators getting hold of the stock. For example, the collapse of Australian stockbroker Opes Prime, and the investigation by the Securities Industry Council into the role played by OCBC Bank.

At the least Dr Soh could take comfort that he still has some money in the kitty, after his dream of taking over Jade Tech went down with Opes Prime.

Mark Laudi, who would like to extend an invitation to Dr Soh to appear on camera on Investor Central for a chat about what's been going on.

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Henry Paulson's plan to reduce the SGX's attractiveness

2008-04-02T15:53:00.002+08:00

The US Treasury Secretary's plan to develop new laws for the financial services industry there may be long overdue. The Securities Act dates back to 1933, and while there have been many additional laws put into place sometimes it's just better to start anew. I don't want to debate the merits of Henry Paulson's plan here. But a perhaps unintended consequence may well be that smaller markets outside of the US, which have been positioning themselves as attractive bourses to list, will be under pressure.

Let's face it. We all love the Sarbanes-Oxley Act. Not because it straightens out shrewd American executives. It might do that, I'm not entirely sure. We love it because it makes the US such a damn difficult place to maintain a listing that even reputable companies are looking elsewhere to go public. According to figures produced by Harvard Law Professor and head of the Committee on Capital Markets Regulation, Hal Scott (quoted in USA Today), the US has been losing its attractiveness big time. In 1996, he says, eight of the 20 largest global initial public offerings were listed on a US exchange. In 2006, it was only one. Up till December 2007, not one of the top 20 global IPOs listed in the US. Similarly, 56 foreign companies abandoned their US listing in the first ten months of 2007, compared to 30 for all of 2006. Among them: Creative Technology and Australia's ANZ Bank.

Bad for them, good for us. Because it inevitably means markets such as the London Alternative Investment Market (AIM), as well as Hong Kong and Singapore, are more attractive listing destinations.

I'm not terribly concerned with the angst US exchanges may have over the prospect of equities and futures markets merging. This is already de rigueur in Asia. Just look at the merger between Singapore Exchange and Singapore International Monetary Exchange (SiMEX) in 2000 (!), and the merger between the Australian Stock Exchange and Sydney Futures Exchange to form the Australian Securities Exchange in December 2006. It's time those mile-driving, gallon-drinking and ounces-weighing Americans get over it and join the 21st century (maybe they'll consider switching to metric in the process).

My greater concern is that the United States already attracts a huge amount of capital, not because they're experts at handling money (for those that think they are, I have two words for you: sub-prime), but because of their sheer size. The statistics from the World Federation of Exchanges (page 33) bear this out. The US financial market has the inertia of a supertanker, even if it's a rusty one.

By contrast, the Singapore Exchange is a tugboat. If the supertanker modernises and becomes more agile, it is my hope that the SGX won't capsize in the wash.

Your thoughts?

Mark Laudi, who thinks it's quaint that the NYSE ditched fractions in favour of decimal calculations less than a decade ago.

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Commodities: the next market to collapse

2008-04-01T20:45:00.004+08:00

If you thought tumbling equities market were merely correcting from a bubble, just wait for a big collapse in the commodities market. Not all commodities will fall, but there are clearly some which are defying fundamentals in the same way stocks did prior to the big bust. Longer term, I certainly buy the argument that commodities will be supported by growing consumer demand. But in the short term, my personal view is that the big gains have more to do with 30-something day traders with laptops and a trading account than strong demand.

The three commodities I want to focus on are oil, copper and crude palm oil.

Oil. The price of Nymex light sweet crude continues to hold above US$100 a barrel - inconceivable just a few years ago. Yet the US economy is slowing. Refineries aren't at full capacity. At 300 mln barrels, stockpiles are not just very high historically, but actually very normal by recent standards for this time of the year. The US has more gasoline (=petrol in standard English) in reserve than at any time in the last 15 years. 15 years!! Whether you believe those who are looking toward the inevitable drying up of oil wells in 50 years from now, or writers like John Cassidy who predicts a 50% decline in prices, the fact is that:

"...crude's rise despite swelling inventories highlights the disconnect between supply and demand fundamentals and the current, speculator-driven price.
"It [early March inventory report] is a ridiculously bearish report," said Stephen Schork, editor of The Schork Report.
"We have major concerns regarding the economy in the United States, rising supply, falling demand. Why is crude oil trading at over $100 per barrel? It makes no fundamental sense."

'Nuff said.

Copper. The three-month contract in London recently hit a record US$8,820 per tonne. On the one hand, you hear comments that stockpiles are at their lowest since October. But then you read "inventories in Asia are rising and Chinese demand is likely to fall further, after the world's top copper consumer imported so much of the metal it is now oversupplied". Further, "experts expect that the copper price will eventually be lowered to some extent as copper output will rise by some 850,000 tonnes when new mines are put into operation in major copper-producing countries such as Chile in the second half of this year". If that's not enough, back in June last year, when London stockpiles were around 120,000 tonnes, the price was around US$7,415. Now with stockpiles up to around 200,000 tonnes, we're supposed to believe that the price at US$8,820 is justified? Come on!

Crude Palm Oil. Prices have recently come down from records around 4,000 Malaysian Ringgit per tonne. And about time. Stockpiles are near records (1.88 mln tonnes in January). There is a limit to how much all these can be explained away by long-term demand, geopolitical issues, declines in the US Dollar, and all the other reasons financial journalists usually clasp for when writing their stories. Sooner or later, the house of cards crumbles to its foundations (=fundamentals).

As I mentioned, not every commodity is in the "fundamentally overpriced" category. A report in the New York Times says global wheat stockpiles are at 30 year lows and US stockpiles at 60 year lows. Demand is growing while drought is hitting supply. There are plenty of reports from around the region that support this view. These are flowing through to the consumer in the form of higher prices.

People like my good friend Jim Rogers keep talking up commodities. And he'll probably be right in most cases, and in the long run. But you can say that about equities too. Just like equities, I won't be surprised if the rout spreads to the commodities market in the meantime.

Mark Laudi, who was recently told by an executive in the oil industry that it still costs only US$25 a barrel to produce that stuff.

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DMX Technologies - Chasing the long tail

2008-03-28T20:58:00.003+08:00

Hong Kong-based DMX Technologies said today it is planning to get a regular stream of revenue by focusing more on digital broadcasting.

The company, which provides broadband infrastructure and provides digital media content for CATV operators, telcos and satellite companies, recorded a 37% increase in FY2007 revenue growth from digital media content.

It said the business environment for its infrastructure business was difficult due to a mature infrastructure market in Korea and China being slow in rolling out its infrastructure.

Revenue for the segment slipped 6.6% to US$125.8 mln in FY2007.

In DMX’s corporate presentation filed on SGX, it will be providing digital media content for 3G mobile phones and CATVs. It cites the Long Tail theory, which describes the niche strategy of certain businesses with huge inventories that help them realize significant profit out of selling small volumes of hard-to-find items to many customers.

Examples of such companies with inventories that cater to all kinds of consumer tastes are online auctioneer eBay, search engines Yahoo! and Google, retailer Amazon and the iTunes music store.

With this change in business focus, DMX Technologies is changing from being a business-to-business service provider to a more consumer-oriented business. It intends to start with the Chinese media industry and use content as the connecting thread for all its businesses.

As part of its aim to become a media player in China, It has taken an investment stake in a Chinese company that has the rights to operate mobile TV. Once in the consumer arena, DMX is sure to face a new set of risks like fickle consumer tastes, strict censorship rules in China, and potentially keener competition, to name a few.

But rewards could be bountiful - according to CCBN (China Content Broadcasting Network), China has the world’s largest subscriber base in cable TV, currently at 130 mln. And the Chinese government has laid down industry-friendly regulations to digitise all broadcast services by 2015. This is expected to pump up the number of digital TV household subscribers to over 180 mln by 2015.

In a country like China, government regulations often play a role in helping a company flourish, and DMX is most probably hoping its business will be on the good side of government mandates.

As part of the usual routine for companies that are trying out a new business direction, DMX announced on 13 March that it had been awarded an initial contract to implement a provincial scale interactive digital TV platform for a cable TV operator in Inner Mongolia, China. It did not say how much the contract was worth.

At least Aztech proudly announced a S$250 mln contract last month after it said it would venture into supplying construction materials. Perhaps DMX will announce more contracts (one or two?) in the next few weeks.

DMX Technologies is not covered by Reuters Estimates. It was last traded at S$0.216, around the same levels it was trading when it first listed in 2002. It has fallen since and has not recovered to above the S$1-dollar mark since May 2006.

As always, please see your licensed financial advisor before making any investment decisions.

- Tan Jin San

The nonsense of the "falling knife"

2008-03-24T21:42:00.001+08:00

"When is it time to buy stocks again?" This was the question on everyone's lips at the Asia Trader & Investor Convention over the weekend. Like Singapore investors, Malaysians are just as keen to dive back into the markets. It's quite apparent that most people who showed up at the Kuala Lumpur Convention Centre were biding their time, getting ready to pounce once things turned. This is almost the smartest thing investors can do. Almost. While the Dow Jones Industrials Average gyrates in 300-point ranges, investors who've got their eye on the long term are not perturbed. They use the steady compass of valuations. They are, to borrow the oft-used phrase, walking placidly amid the noise and haste.

Which brings me to my favourite hobby horse: conventional un-wisdom. Stuff that people truck out and cling to because it sounds comforting, but which either makes no sense at all or contradicts common sense. Here are my two favourites:

"Good things come to those who wait". What nonsense! Anyone who teaches their children to take opportunities as they come along will know that this is pure and utter rubbish expounded only by those too lazy to get off their butts and make things happen. Plus it contradicts that other great adage, "don't wait for your ship to come in, swim out to it". Or as Confucius put it: "A man who stands on a hill with his mouth open will wait a long time for roast duck to drop in."

This is just as true in the markets as it is in other aspects of your life.

A worse version of the above is:

"No one wants to catch a falling knife". Here is another phrase which analysts use to explain the absence of buyers. This is more a sign of ignorance and the absence of a strategy than any real, valuable insight. The sentence means that no one knows how far the market is going to fall, and therefore anyone who buys in now will get "cut" as prices fall further.

Implicit in this sentence is the assumption that we don't know how far the proverbial knife is going to fall. I don't profess to be an analyst, nor do I know how far the market is going to fall. But then, I don't care about how far the market is going to fall. What I, and most investors, want to know is when valuations are reasonable, even when you take into consideration a decline in earnings. Only when you look at stock specifics, and forget about the market, do you start to get clarity.

The knife is not falling. In fact, there is no knife. It's more like a gold pan. Slowly we're washing out all the mud and rocks. What remain are nuggets. Those nuggets may fall in price before they shine through. But nuggets always shine through in the end.

Mark Laudi, who prefers to use the elevator metaphor. It doesn't matter which floor you're on, or even if your elevator goes down in the short term before riding up in the long-term - as long as the elevator you take is of good quality.

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Can the Olympics save Synear from snowstorms and inflation?

2008-03-20T11:18:00.007+08:00

Fancy pesticide in your frozen dumplings? Or how about a rat’s head in your prawn crackers? Made-in-China products are getting a bad rep but at least this company is pretty safe from it.

For Synear Food, which makes frozen food like dumplings and desserts, the bad reputation of Chinese products worldwide is not going to affect its business since it sells its products in China.

But inflation is. Just like other food producers, Synear has to cope with higher raw material prices, despite raising its selling prices. It is affected by the rising prices of main raw materials such as pork, flour and packaging materials. This has caused its FY2007 gross profit margin to go down 1.4 percentage points to 32.2%.

Inflation in China was at 8.7% in February and at its highest in 12 years, due to higher food prices. Even the government has made tackling inflation its first priority. But like the previous efforts to cool down the economy or the property sector, it will take time for measures to work.

In the meantime, inflation will definitely affect Synear’s profit margins for this year if its move to increase the sales of its new and premium brand products do not work.

One day after it released its earnings report on 25 February, Synear saw a spike in trading volume and its stock plunged. A report by CIMB-GK had drastically downgraded the stock from OUTPERFORM to TRADING SELL due to the company’s increasing costs overshadowing its management’s aggressive expansion plans.

As if things can’t get any worse, Synear Food announced yesterday that it joins the list of Chinese companies affected by the severe snowstorms in China. It said the recent snowstorm in January had affected the transportation and sales of its products to southern China. It also said its sales in Northern China are not enough to fully offset the impact of the snowstorm.

It is expecting sales for Q1 2008 to be lower year-on-year, although it still expects the figure to be higher than the previous quarter.

But the group does have aggressive growth plans – it is intending to buy land outside six cities in China to build cold storage warehouses and stock more raw materials. And it is building an industrial district in Henan province to increase its production capacity.

The company is using its IPO proceeds of RMB 1.14 bln and is borrowing from banks to fund its expansion plans.

In yet another aggressive move, the company signed on Jackie Chan as its brand spokesperson in July last year. I’m thinking this is just for the lead-up to the Olympics, for which Jackie Chan is also a spokesperson. But how much are they paying him? From Synear’s FY2007 report, selling and distribution costs shot up 54% to RMB 207 mln due to TV ads and billboard advertising. I’m thinking that includes Jackie Chan’s massive fees as well.

This company’s aggressive trait can cut both ways. Analysts are downgrading their calls on this stock, but Synear seems to be betting on sales during the Olympics to make its FY2008 a good year, despite thinning profit margins. And after the Olympics, who knows?

- Tan Jin San

SGX-Bursa link: do we really need it?

2008-03-05T22:58:00.004+08:00

I have been a strong advocate of the trading link between the Singapore Exchange and Bursa Malaysia because it brings the two countries closer together, it fosters economic cooperation and it will likely add liquidity to both markets. It is heartening to read that they're finally getting it together. But while I hold firm to these points, it is merely stating the obvious that the trading link has been delayed so often that retail investors could be forgiven for thinking it will never happen. And now one wonders whether it actually should.

The fact is, Singaporeans can already trade on Bursa Malaysia using established brokers and networks (watch the video to find out which ones). Trading commissions may be higher, but it is unclear whether fees would come down when there is an electronic linkage between the exchanges. Presumably, the exchanges would justifiably seek some return on the extra infrastructure needed to establish the linkage.

The real issue is not so much the technology involved, although the long delays and integration of the technology have been frustrating enough. It's an issue of marketing. Our own Investor Central research has often found that investors - particularly at the retail end - much prefer to invest in the markets in which they live. That is as true of Singaporeans, as it is of Malaysians, Thais and the Chinese. It makes perfect sense: they like to buy stocks they are most familiar with.

Incidentally, the second highest preference of investors in these markets is the US market. Which also makes sense, given the prominence of US companies in the news.

If the SGX-Bursa link is to work, it will be more about achieving a familiarity with companies in each other's markets. It was this lack of familiarity, in the absence of a decent marketing campaign, lead to the demise of the SGX-ASX WorldLink in 2006.

Another issue, which hasn't been dealt with publicly, is the political aspect (watch the video to hear Mark's views on this). So, given all the technical and political difficulties that may arise out of a formal trading link, it may be wiser to focus a marketing campaign on the services which are already available in the market.

Mark Laudi, who is a particular fan of the Malaysian equities market because of the complementary investment opportunities it offers.

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The SGX's "Watch-List": Complete duds or hidden value?

2008-03-05T02:32:00.004+08:00

The Singapore Exchange is to be applauded for trying to raise the standard of mainboard listed companies, but generating a list of those which fail to meet minimum standards. Companies which have reported consoliated pre-tax losses for the prior three years can find themselves on this list. If they don't improve, they could find their shares suspended or even delisted. But while the motivation is laudable, the criteria used to judge companies could be debated.

Right up front: this is not a recommendation to buy any shares, nor am I going into bat for these companies. Not least, because they didn't acknowledge their "spoon award" beyond the necessary disclosure, and explain how they were working to make sure they weren't on the list again in the future.

But I'm concerned the SGX is using a profit number, rather than cashflow, as the category to measure companies by (loss-making companies must also have a market capitalisation of S$40 mln or more to escape being named). As we all know, "profit is opinion, cash is fact". And because profit numbers can be affected by property revaluations and other arbitrary, non-cash measures, CFOs of the affected companies can find ways to escape being listed.

If we then look at cashflow instead of profits, five of the eight companies named on the first list could perhaps we cut some slack.

Watch the video to see what I mean.

Fact is: none of these companies are stellar performers. But if the list was compiled based on cashflow, not only would we quite likely see a very different list, we would also ensure that CFOs had no way to cook the books to get their way out of trouble.

Mark Laudi, who thinks this would have been a good opportunity to convert investors from focusing on profit to focusing on cashflow.

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Retail market alive and well

2008-03-03T16:25:00.002+08:00

Judging by attendance at the Asia Trader & Investor Convention (ATIC) over the weekend, retail investors are still enthusiastic participants in the local stock market. Despite the rain and NATAS travel fair at Singapore Expo, the crowds kept coming, perhaps swinging by after visiting the bridal fair upstairs at the Suntec Convention Centre to find ways to pay for it all.

The strong attendance should be comfort to anyone - in particular institutional investors - who might be worried about the retail investors leaving the market. A quick check with my good friends at the SGX recently confirms that the number of active investors (=traded at least once in the last three months) still hovers at around the 200,000 mark. It is retail investors who provide the liquidity needed for institutions to throw their money around. All the more reason why retail investors should be better looked-after!

While the mood was obviously not as buoyant as last year, when the bull run was still in full swing, here are other adjectives we'd use to describe the frame-of-mind of local retail investors:

Expectant. True to form, retail investors are still on the lookout for opportunity. They expressed a mixture of apprehension and opportunity. Either those who have been completely scared off by the market plunge didn't show up at ATIC at all, or they came anyway to learn new trading skills to deal with the new realities of the market.

Skeptical. The search for opportunity is coloured with an increased skepticism of the gains to be had in the market. There is a general acceptance that the good times of recent years are over, as there should be. It made overly optimistic sales pitches by anyone at the expo much less credible. No wonder most exhibitors talked about minimising losses and capital protection, than leveraging to go all out for profits.

Insecure. No surprises there. Investors came to get clarity in a market that has become murky at best. But there is also still hope that they will return in some fashion. They were willing to listen to what was being offered. The problem I see is that there were obviously fewer people who are new to investing who wanted to see how they could jump onto the bandwagon. The bandwagon has passed. If only those people realised that now is precisely the time to start thinking about investing.

What adjectives would you use to describe your frame-of-mind about the Singapore market?

Mark Laudi, who would like to say thank you to all those Investor Central customers who dropped by and said hello

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Now's not the time to bury your head in the sand

2008-02-29T21:01:00.002+08:00

What is one thing all good companies (and countries) do in times of crisis and uncertainty? It isn't to run away screeming, and it is also not to continue doing business in the same way as during the good times. It is first and foremost to survive the upheaval, as well as to reflect and regroup, while positioning for a return of the good times. And that's precisely why the Asia Trader and Investor Convention (ATIC) at the Suntec City Convention Centre this weekend is so crucial.

Now, I'm not going to quote that famous (but unfortunately, wrong and expertly debunked) line about finding crisis in opportunity. Fact is, there is opportunity emerging but it's probably unwise to rush out and think opportunity is everywhere.

But at the same time, to stop thinking about the market just because we've had a setback is to acknowledge you've fallen into the fear-and-greed trap which probably got you into a mess in the first place.

The best investment you could probably make right now is in knowledge. Acquire new perspectives and skills. It's precisely now – at a lull in the market – that you should smarten up about your trading and investing strategy. Reflect on what has worked in the past, why it may not work in the future, and what the new way forward is. Position yourself, as I've mentioned, to be able to benefit when the bull market inevitably returns.

The problem is, the next bull market will be different from the one we have just left. While I see a return to the good times, they will be good for slightly or maybe even significantly different reasons for why they were good during 2003-2007. Unless you acquire new skills, you may not be able to recognise the new opportunities when they arise.

So, whatever you do, even if you are not in the market for stocks don't leave the market for knowledge. Don't shut yourself from the market, just because you are currently not invested (or invested and suffering).

Mark Laudi, who will be at ATIC. Come and say hello.

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IPOs: We're issuing demerit points

2008-02-25T15:11:00.004+08:00

Please excuse our cynicism, but we've grown a little tired of the way issue managers push up the issue prices of companies they are bringing to market. The way they do this is entirely legal: allocate most of the issue to fund managers and others, the so-called placees, and reserve just a tiny number of stocks for the public. Invariably, the demand for the public tranche far outweighs supply, which assures the company and issue managers that there's plenty of demand left over for listing day. As a result, the share price goes up and there's good reason to sip champagne by the close of trade.

But we think this common practice distorts the market by creating the false impression there is huge demand for a stock, when actually there is just huge demand for the tiny number of shares reserved for the investing public. The rising tide lifts the price of all the shares of that company.

Some examples:

Dynamic Colours

Issue: 64.5 mln shares
Public: 3.3 mln shares

That's 5.1% of the total issue. Given that 91 mln shares were bid for by the public, there was clearly huge surplus demand.

The stock hasn't held onto its 21.5 cent issue price, instead falling to around 15 cents.

The issue manager was UOB Asia.

Yongmao Holdings

Issue: 111.55 mln shares
Public: 3.8 mln shares

That's just 3.4% of the total issue.

The issue manager was CIMB-GK Securities.

Centraland Ltd.

Issue: 245 mln shares
Public: 5 mln shares

That's a ratio of just 2%.

The stock is a good ten cents above its issue price of 35 cents.

First Resources

Issue: 225 mln shares
Public: 3 mln shares

That's just 1.3% of the total issue.

There were applications (=demand) for 244 mln shares from the public, but only 3 mln were on offer to them.

The issue manager was Citigroup Global Markets Singapore Pte Ltd.

Surprise, surprise, the stock debuted above S$1.20 and has been riding on the wave of demand eversince.

So, henceforth in our IPO Briefings, we're going to allocate demerit points to those companies where the public tranche is so amazingly tiny it has a capillary effect on the listing - where the stockprice is magically pushed up by huge demand chasing a tiny fraction of the overall issue, thereby raising "all boats".

Our rating scale will be as follows:
<2% = 5 demerit points
2%-3% = 4 demerit points
3%-4% = 3 demerit points
4%-5% = 2 demerit points
5%-6% = 1 demerit point

According to this system:

Dynamic Colours would receive 1 demerit point
Yongmao = 3 demerit points
Centraland = 4 demerit points, and
First Resources = a full 5 demerit points
The only problem, of course, is that neither companies, nor issue managers, and a fair few "early birds" who secure shares during the IPO and watch the price rise, aren't really going to care.

But that's fine.

This index is for the rest of us, who usually miss out.

Mark Laudi, who is unlikely to subscribe to shares under these circumstances.

MAS tells banks: pull your socks up!

2008-02-22T22:56:00.002+08:00

Is it a coincidence that the two financial services regulators announced reviews this week, whose endgame is for retail investors to be treated with more respect? The Singapore Exchange started the week with a review of fines for companies which don't do the right thing by investors. The Monetary Authority ended it by seeking "views on proposed Guidelines on Fair Dealing – Board and Senior Management Responsibility for Delivering Fair Dealing Outcomes to Consumers". If it is a coincidence, it is certainly a happy one.

This story may sound familiar: you go to the bank to make a transaction. The PYT (pretty young teller) offers you some sort of financial product, which her bank is currently promoting in order to collect a 5% sales charge. Like, a commodities unit trust (great timing, now that commodities prices have likely seen the best of the gains in the current cycle), or a capital-protected fund (to ride on the fears of consumers about the current economic uncertainty, just at a time when the markets have fallen so sharply that there is – in the longer term – more upside than downside). Nary a question about the three wise main points about your finances are asked: your investment objectives, your time horizon, your risk profile.

So when the MAS says that the fair dealing outcomes that Financial Institutions should strive to achieve are, among others…

Financial institutions offer products and services that are suitable for the consumer segments they target; and
Financial institutions appoint competent representatives who provide consumers with advice that meet their financial objectives and suit their personal circumstances

…it seems to me they have a lot of work ahead of them.

We probably also all know about the get-lost attitudes most banks take when you have a complaint, so when the MAS asks "Financial institutions [to] handle consumer complaints promptly and in a consistent manner", it appears they have their work cut out for them in this aspect, too.

What is really scary about the MAS' proposed guidelines is that they are not rocket science. If anything, they are common sense, and it is utterly appaling that the MAS should even have to crack the whip on financial services institutions to get these basic tenets of decency right.

Moreover, the guidelines are targeted at the "board and senior management".

My god, if this relatively small group of people can't get it right, what the hell are they doing running multi-billion dollar companies? And if the people at the top need to be told these basics, what can we expect from the PYTs?!

Imagine if similar guidelines were written about hospitals:

Hospitals should offer treatment only to patients who actually need such treatment, and
Hospitals should appoint doctors who can give advice commensurate with the patients' condition.

We would be aghast if hospitals and doctors needed such guidelines.

Granted, while money is a very serious issue indeed it is not quite a life-and-death situation like doctors.

Further, banks are not charities. This is a mistake many people make, and the MAS is right to say consumers "need to take responsibility for their financial decisions, and acquire basic financial know-how before they invest".

But only to protect themselves from the banks!

Banks have a special place in the economy because the economy cannot function without them. It is simply impossible to go through life these days without being a customer of a bank. And that's why its incumbent on the banks – more than any other industry in the economy – to play fair.

Mark Laudi, who can't remember the last time he was surprised pleasantly by a bank's service.

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SGX's review of fines: our contribution

2008-02-18T20:06:00.002+08:00

We are delighted the Singapore Exchange is inviting comment on penalties for companies which flout exchange rules. Our own list of what actions should be classified as misdemeanours is not terribly scientific, but it is based on the common gripes retail shareholders voice about the stockmarket.

1. Perceptions of insider trading. We are not making any specific allegations, nor are we saying the SGX hasn't been doing a good enough job on enforcement. But I'm fed up to the teeth with stocks which have an out-of-the-ordinary day on the market, but the market-moving announcement doesn't come until after the market closes. And no one is held accountable for it. Fortunately, this doesn't happen often. But it happens often enough for us to roll our eyes, groan, and curse the fact that we're just retail investors who are left out in the cold.

2. Barring unforeseen circumstances… According to the template companies must complete when announcing earnings, they have to give an outlook:

A commentary at the date of the announcement of the significant trends and competitive conditions of the industry in which the group operates and any known factors or events that may affect the group in the next reporting period and the next 12 months.

We wish fines upon companies which merely write:

Barring any unforeseen circumstances, the Directors of the Company expect the Group to be profitable for FY2008.

This may be a statement of fact and meet the requirements, but it is nowhere near sufficient to contribute meaningfully to an investment decision. It's like saying, "unless something happens to us, we expect to still be around next year".

Come on, if that's truly the depth of insight management has into the future of the company they're probably not worth investing in (from the crop of earnings stories tonight, kudos to Baker Tech, MAP Technology, Natural Cool and Showy International among others for being significantly more detailed in their statements, even if they had negative news to announce).

3. Press releases that only tell half the story. Listed companies probably know all too well that too many so-called business journalists just re-write press releases for a living. Hence, they often leave out the juicy bits from the press release and leave it to the statutory announcements, which fewer people read. We would promote a "truth-in press releases" goal. In the meantime, we would encourage shareholders to shun companies which don't have the courage to deal candidly and honestly with bad news in press releases, and we would encourage readers and viewers to shun journalists who don't read the statutory announcements and only re-write the press release.

What are your bug-bears?

Mark Laudi, who could rave all night about these issues.

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Singaporean spending habits revealed: Paying more but buying less

2008-02-15T17:13:00.005+08:00

The latest economic statistics say this about you and your spending: you're paying more but buying less. And if you're like most Singaporeans, you're spending more on things that make you feel good about yourself, and less on things you really need.

Now, I'm not a fan of using economic statistics as investment guides but I have to say this morning's mundane-sounding release of Monthly Retail Sales and Catering Trade Indices for Dec 2007 was full of juicy news. This pulse-check of local consumer sentiment showed two things: first, just how much prices have risen (surprise, surprise), and second just how much this has impacted on spending and therefore potentially on the sales and profits of local companies. It's also exposed what Singaporeans will continue to buy, no matter what.

Here is the evidence:

Total retail sales and catering: up 2.5%, but if prices had remained steady they would have fallen 2.6%.

Provision & sundry shops: up 5.3%, but on a same-price basis down 1.4%

Food & beverages: flat, but down 5.3% if prices had remained steady

Petrol stations: up 33.9%, but only up 1.3% if prices were steady. The oil price obviously played a big factor here

Watches & Jewellery: up 6.4% but down 3.8% if prices were steady. The rising price of gold and strengthening Singapore Dollar may have played a role

In short, inflation is crimping demand (=we're paying more but buying less as a result), and that's not good for local companies selling in the local market. In addition, these stores may well be absorbing some price increases from their suppliers. That's not good for profit margins.

If there's one silver lining it's that excluding car sales, total expenditure was up 3.9% if prices had remained steady. It seems Singaporeans are buying fewer cars (probably a good thing), but more clothes, shoes, phones, computers and fast food.

Hmm… now what does that say about the priorities of our society?!

Mark Laudi, who's watching the budget being released at time of writing, with a keen eye on how inflation will be mitigated through non-inflationary actions.

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GDP figures: the reality check

2008-02-14T17:32:00.005+08:00

There has to be a more accurate way for investors to measure the strength of the economy than by the GDP figures - the percentage increase in the value of goods and services sold last quarter. It's not that the numbers are wrong. Quite the contrary - a lot of effort goes into researching and publishing them. But most investors have no idea what to do with the GDP numbers, to the extent that they generally have very little impact on the stock market.

The Ministry of Trade & Industry published a 13-page release announcing the downgrade of the economic outlook to 4%-6% growth, from 4.5%-6.5% earlier. The document used phrases like:

If the US slips into a more severe recession … the effects on Singapore will … be stronger, particularly in the sentiment-sensitive and external oriented sectors like electronics, wholesale trade and financial services.

In theory, the worrying outlook should have sparked a fall in the Straits Times Index. Instead, the market climbed 86 points, with the value of shares traded exceeding yesterday's. Perhaps it was because investors read the rest of the document which showed strong growth in some areas like construction.

But I doubt it. First, because the only really interesting part is the forward-looking statement, not the review of what happened. That's in the past. We invest for the future. Second, because of the peculiar way the numbers are dissected. Not only do we get to see how the economy fared in Q4 2007 compared to Q4 2006. We're also presented with a baffling annualised quarter-on-quarter number, whose usefulness is perhaps the most questionable: Considering how volatile quarterly growth is, what sense is there in extrapolate a full-year number by saying "assuming every quarter in the past year was like this quarter…". Because, invariably, it never is.

But back to the stockmarket. What are you to do with these GDP figures?

In short, nothing. Your time is better spent looking at individual companies:

Cashflow. Is the companies you're investing in generating cash? Simple question, simply answered. In a sense, the GDP numbers already measure this, but not on an investible company level.

Dividends. How much of the cashflow is finding its way into your pocket? Again, simple question, simply answered.

Until the SGX launches a futures contract with GDP growth as the underlying, this micro view of the world serves you far better than macro econo-babble.

Mark Laudi, forever indebted to my good friend Bernard Lo for inventing that word, and to all the economists who make it so entertaining.

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SGX.com: a better gauge of future earnings?

2008-02-13T23:49:00.003+08:00

Here is an interesting if unorthodox way of forecasting future earnings of the Singapore Exchange Limited. While most financial analysts focus their attention on trading volumes and the market outlook, you might like to ask the SGX's customers: investors and traders. And, it seems, they are voting with their feet.

Tens of thousands of people visit the SGX website each day for price data and information about companies. It is hugely popular (and largely not monetised). But when you look at the number of people visiting the SGX website, you see some startling results. This chart illustrates that interest is much lower now than in recent years. In fact, it's falling off a cliff.

Given the volatility in the market and concerns about recession it's perhaps not surprising that investors are staying on the sidelines. My concern is, they're not just staying on the sidelines. They're not even watching the game!

Measuring web traffic is unorthodox, as I've said. It is also unscientific. The chart doesn't show absolute numbers of visitors. It just shows the percentage of visitors to their website, compared to total internet traffic. Conceivably, the reason why the SGX website garners a lower percentage of total web traffic is that there are many more people who've logged on but are visiting other websites. But even this would indicate that while interest in other areas of the internet is growing, not so the SGX website.

But just as economists count employment ads and pages of advertisements in newspapers to gain a pulse-check on that country's economy, perhaps financial analysts would do well to track website visits as well as the usual round of financial information.

Mark Laudi, who is still watching the game, very closely

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Are these stocks really cheap?

2008-02-12T16:23:00.001+08:00

The Business Times front page headline this morning was mundane enough: "Blue chips hover close to lows in jittery market". But what was written underneath in the subheading was far more interesting: "Price-earnings ratio of ST Index stocks just 11 times; some sense buying opportunities". Our contention is not that the Business Times got it wrong. By P/E ratio these stocks may be cheap - and at 11x, it is cheap! But it is not the only measurement to use. Let's investigate this further.

Price-earnings multiples measure how many years must pass for a company to earn per share what it costs per share. But while that tells us something about how much of future earnings have been priced into the stock, it tells us nothing about whether we are getting value for money. And that has to be the ultimate measurement of any purchase, including stocks. The price-book ratio does this, and according to Reuters there are lots of expensive stocks around:

DBS: 1.24x
SIA: 1.25x
Jardine Cycle & Carriage: 2.1x
Comfort Delgro: 2.2x
SingTel: 2.9x
Dairy Farm: 17.8x
StarHub: 72.3x

Even to buy S$1 worth of value in DBS, you have to pay S$1.24 for it.

If we are looking for an understanding of performance, there is another measurement better than price-earnings: Yield. It answers the question of how much we get paid to simply own the stock. According to the DBS website, you get 0.825% interest (in other words, pittance) for every S$10,000 you invest for 12 months. So, only stocks that pay more than this are of interest. And according to Reuters, the yield also leaves to be desired. High yielding stocks are often problematic ones.

There is an even better way to measure performance, and that is the price-free cash flow ratio. How much cash is the company generating per share, compared to what it costs per share. And using this measurement, there are many many stocks which come up with zero or negative numbers. In other words, they are not throwing off excess cash. But there are also some good performers:

UOB: 7.39 cents per share
Jardine Matheson: 3.9 cents
Singapore Airlines: 2.57 cents

In short, stocks may be cheap on a P/E basis, but you have to look at other measurements to gain an accurate picture.

Having now gone through this exercise, our broad sweeping statement that's not to be taken as investment advice is this: stocks are indeed historically cheap. They are not a steal, but they are at levels where one might now say, when will these stocks ever get cheaper?

Mark Laudi, who owns SIA shares.

The Year of… Rats!

2008-02-11T17:59:00.000+08:00

Indiana Jones crawled through catacombs in Venice in The Last Crusade when he suddenly shouted: "Rats!" The ambiguity of the scene, as a frequently-used figurative exclamation as well as a literal description of the teeming vermin before him, takes on extra significance in the lunar Year of the Rat. At this stage, we think it's more likely to be the year of "Rats!" than a joyous hallowing of the humble rodent.

We'll be shouting "Rats!" when the statistics show the US economy is in recession. And contrary to the assertions of the great Crusader himself, George W. Bush, the indications according to a BBC report earlier this morning seem to be that the 'R' word - that is, recession (not rat) - will be used frequently this year.

We'll be shouting "Rats!" when the US$168 bln aid package passed by Congress fails to kickstart the spluttering economy. Treasury Secretary Henry Paulson probably wished he had his old job as Chairman of Goldman Sachs back when he told a congressional committee that recession might be averted if the Democrats kindly approved the package. Which they did. Chicken feed, given the billions the Americans have wasted on finding the phantom weapons of mass destructions.

We'll also be shouting "Rats!" when rising prices become a big problem and, combined with a declining economy, brings about the unhappy confluence of inflation and stagnation (stagflation).

Go to the Singapore Zoo or Jurong Bird Park to see white rats running along string hung up above visitors' heads. Some threaten to fall off as they scurry along. Whether they'll fall on the side of recession or growth only the Year of the Rat will tell.

Mark Laudi, who has developed an unusual fondness for rats after watching Ratatouille

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Starbucks: What it shows about Singapore & Malaysia

2008-02-05T22:11:00.000+08:00

Starbucks may be a global franchise, but the difference between Starbucks in Singapore and in Malaysia is an interesting microcosm of the competitive nature of the two countries. In short, I get the sense increasingly that Singaporeans have no room for complacency. If the experience at Starbucks in Malaysia is anything to go by, we'd better pull our socks up.

Next time you're in Kuala Lumpur, go to Starbucks with your laptop and try to plug in your power cord. You'll be pleasantly surprised. Not only will your little green "power" light come on. The cafe even supplies an extension cord with a multiple adaptor to make it easier for several customers to plug in at once (if there is a café in Singapore that offers the same customer service, please let me know!)

I remarked about this phenomenon to a Malaysian friend, and offered a comparison with cafes in Singapore (not necessarily Starbucks). Here, the wall sockets are usually switched off to ensure customers who dare to plug in don't draw on the store's electricity. The staff flick the fuse on only long enough to to zip around the store with the vaccuum cleaner, before flicking it off again. Further, the staff often frown at you if you do find a wall plug that gives you power to your laptop. Or scold you outright for contributing to the electricity bill.

My Malaysian friend said: the folks in Singapore are smarter!

This brings me to the crux of the issue. Sure enough, the Singapore store owners may be smarter to save electricity. But this attitude is penny-wise, pound-foolish. The Malaysian store owners have realised that even though their electricity bills may be higher, customers will sit - and consume drink after drink - if they are able to keep their laptops powered on (laptops actually don't draw a lot of power compared to, say, the store's hotwater heater, cappuccino maker or toaster). They take a longer term view and, in my opinion, not just keep existing customers drinking more beverages, but keep them coming back.

So while Singaporeans may be smarter to keep costs down, the Malaysians are more business savy to take higher electricity costs into account in order to attract and retain customers.

I must confess: I am well and truly on the Singapore side of the argument when it comes to CIQ, railway land, access to treated water, sea boundaries and many of the other arguments the two countries have from time to time. But having traveled to Malaysia practically every month since October 2006 my view has changed somewhat. Previously I was impressed with the efficiency of the Singapore system. Having now dealt extensively with Malaysians I am finding they are hungrier, think out of the box more readily, and are quicker to make decisions. They are willing to make short-term concessions for long-term benefit.

For investors, the implications are potentially that:

1. Malaysian companies are more innovative, and could become more profitable as a result than Singaporean companies
2. Bursa Malaysia is becoming more innovative, and could become tougher competition for international capital

These points should not be news to anyone. The government has been telling us this for a long time. But it really gets you thinking when you experience it yourself.

Mark Laudi, who is among probably a small group of ang mohs who knows all the words to "Majulah Singapura".

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Addiction to unit trusts must end

2008-02-04T18:25:00.000+08:00

The Singapore Exchange's announcement last Friday, that trading in Exchange Traded Funds are at records, was heartening, but still pathetic. According to the media release, the value of SGX-listed Exchange Traded Funds set new weekly and monthly records in January: S$293.6 mln in the month, with S$128.9 mln in the week ending January 25. While records, these are tiny volumes. My critique isn't so much of the SGX, which has come a long way in introducing numerous new ETFs. My concern is more that Singapore investors are still largely ignorant suckers for the mutual trust industry and, more specifically, the banks which distribute their products.
The numbers announced by the SGX are certainly a big improvement, and is a credible counter to a rather pessimistic story in The Edge some months ago which pointed out that unsophisticated investors don't invest in ETFs, and sophisticated investors would turn to US-listed ETFs for their liquidity and the greater range available.

But look at the comparison: in the first two hours of trade today alone, more than S$600 mln worth of securities were traded on the SGX. So, the value of ETFs traded each month is less than roughly the total value of all securities traded each hour.

Clearly, not everyone who buys into unit trusts is unsophisticated. They are a valuable tool to diversify, and to have someone else look after your money if you have neither the time nor expertise.

But here's a typical scenario of the average Singaporean who buys unit trusts: they get glitzy marketing material from their bank proffering a unit trust which may or may not meet their investment needs. Not knowing any better, they go and sign up and pay 5% upfront fees and a 2% annual management fee for the priviledge.

Can you imagine how much better off they would be and how much greater the volumes of ETFs on the SGX would be if:

1. Singaporeans at large didn't hand over their cash and, in large parts, their responsibility for their investments to a bank teller who sold them a product over-the-counter

2. Singaporeans understood that the 5% sales fee goes to the bank, not the fund manager who relies on the bank to "distribute" (ie, sell) their fund

3. The SGX and ETF issuers understood how to market funds as expertly as the mutual fund industry

Unit trusts certainly have a place in the investment portfolios of most investors. But they should be purchased as part of a larger financial plan, not on spec from a bank teller.

Mark Laudi, who bought unit trusts through a financial planner for a lot less than a 5% upfront fee

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Chartered Semi: Blinding Me With Numbers

2008-02-01T14:25:00.000+08:00

I have been an armchair critic of Chartered Semiconductor for many years. But it's been a while since I looked at the stock in great detail, so when they released 2007 earnings this morning I wanted to check on how things had improved. If at all.

From the outset I want to point out that I don't have an inherent bias against the company. On the contrary. Their transparency and disclosure have improved markedly since the PR disaster of a rights issue a few years ago. Recall, the company had denied for weeks rumours it was going to have a steeply-discounted rights issue, only to then announce one. It took a visit to the offices of the Securities Investors' Association (Singapore) to straighten that one out.

Conducting an interview with CEO Chia Soon Hwee for CNBC more than two years ago, I witnessed an incredible fighting spirit in a sector where the profit margins are so thin one could measure them in microns, just like the silicon wafers it produces. When I visited their headquarters in Ang Mo Kio I got a real sense this company was going places. They ought to be congratulated for sticking it out against all odds and commercial sense.

So, should I stop being an armchair critic?

Let's look at the evidence:

1. Candid assessment of the situation. I like that Chartered calls a spade a spade. No sugar coating of difficult times. Top marks for telling it like it is.

2. Specific guidance. Most SGX-listed companies could learn a lot from the very specific guidance Chartered gives. Clearly this is because Chartered is also Nasdaq listed, and US investors expect this. But whatever the motivation, their fairly precise guidance is a huge improvement on the lame-duck "barring unforeseen circumstances, we expect to still be breathing next year"-type of guidance most SGX-listed companies provide.

3. Lots of numbers, but what do they mean? You can see the numbers for yourself – revenue down 4.2%, profit boosted substantially by a tax credit. But to what extent are they a true reflection of the company's financial health?

4. The numbers that really matter. You have to turn to the last page of the earnings document to get those: page 17.

• Cash from business operations: positive cashflow of US$521 mln compared to US$479 mln last year.
• Cash from buying and selling equipment (investing): negative cashflow of US$420 mln compared to cash outflow of US$845 mln.
• Cash from going to the bank to get and repay loans (financing): negative cashflow of US$205 mln compared to positive cashflow of US$386 mln last year.

Bottom line: they had US$100.8 mln more cash flow out of the company than they had coming in.

Their cash and equivalents (=loans, overdrafts, term deposits, etc) balance dropped to US$719 mln. In other words, the company has a pulse, but it's still bleeding.

And yet, among Average Selling Prices, Capacity Utilisation and all those other metrics, there's nary a mention of cashflow in the rest of the document. While blinding me with all sorts of details, there is not enough emphasis on the numbers that really matter.

I think I will remain an armchair critic a little longer.

Mark Laudi, who would really like to see them generate more cash than they have to spend or invest, so their profitability promises don't ring so hollow.

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SATS: You can sit by the pool, but you can't swim

2008-01-29T21:31:00.000+08:00

The contrast could not be more stark. An incredible increase in passenger numbers at Changi Airport, yet flat revenues at Singapore Airport Terminal Services (SATS).

Changi passenger numbers rose almost 5% in 2007 to 36.7 million people. There is still lots of excess capacity. All three terminals can handle 70 million people per year. But still, 36.7 million is an incredible statistic when you consider our island state has less than five million residents.

By contrast, SATS' numbers were uninspiring. Passengers handled grew 6.4% in the third quarter, yet revenue rose just 1.2% to S$244.5 mln and profit was flat at around S$50 mln.

Clearly, there are pricing and competition issues here. SATS has two competitors, CIAS and Swissport. The other competitors are not publicly listed in Singapore.

The scenario reminds me of the relationship between gold mining companies and the price of gold: to draw the parallel, the price of gold keeps rising but the profits at the gold mining company are not keeping pace because of the inherent risks in companies.

So, what's an investor to do to get in on the high growth at Changi?

Here are my two suggestions:

1. Buy shares in Changi airport. That would be ideal. Except, Changi Airport is not publicly listed. Perhaps it should be.

2. Create a Changi Airport futures contract. Just like trading gold futures for pure, unadulterated exposure to the price of gold without the execution risk of the gold mining company, being able to trade on passenger numbers would be a fabulous financial product.

Separate products for passenger and cargo numbers could be created.

Any takers?

Mark Laudi, who is slightly perturbed that Bangkok and Kuala Lumpur airports all seem to be busier than Changi these days

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GIC: Catching the falling ball

2008-01-25T18:05:00.000+08:00

The mood was one of apprehension but also opportunity at a private client event for high net worth customers of a major international private bank at a local hotel earlier today. Apprehension, because of the volatility in equities markets and uncertainty about a recession. Opportunity, because these clients are already thinking about where they can buy good quality assets cheaply.

The bank's chief economist and head of equity strategy were on hand to give their prognoses, which was for the US to slip into recession, followed by a rebound later this year. A similar forecast could have been delivered by any number of economists at any number of private banks.

The point is: the big individual investors are slightly anxious about where all this is headed, but they are not letting this cloud their perspective. They are quite happy to ride out the short to mid term volatility, and not because age is on their side. Because in many cases it isn't. They are willing to ride it out because they understand that panicking doesn't help. They know from experience that crises are never complete, there is always a silver lining.

In this context, the conversation turned to the oft-used truism that "no one wants to catch a falling knife". In other words, no one wants to buy stocks which are in freefall, lest they fall some more. The problem with this truism is that it isn't true. Most stocks, unlike knives, bounce. They don't just go down, they go up again, too. So, stocks are more like balls. Sure, you may not want to catch it as it is still falling. But if you buy quality companies, chances are they'll bounce right back, even if you make a short-term loss.

This theory could be applied to the Government of Singapore Investment Corporation (GIC), which bought large stakes in, for example, UBS, for huge sums of money. Was it worried about a falling knife? It could possibly have picked up this stake for less money. But it already saw value, and decided that a short term loss would be worth the long term gain that it stands to make.

That said, GIC possibly had other national interests at heart. I haven't asked GIC about this, but some of the members of the private bank luncheon were fairly convinced that GIC bought the stake not just for the potential financial return on its investment, but also its ability to call the shots at UBS. It has not sought a seat on the board. But it doesn’t need it. Perhaps all it wanted was to secure UBS' commitment to keep Singapore as its regional HQ. You don't need a directorship to get that. If this theory is correct, Singapore will reap a return infinitely higher than the inevitable improvement in UBS' shareprice.

Mark Laudi, who emceed the private client briefing

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Akan datang: Chinese money in the Singapore market

2008-01-24T14:40:00.000+08:00

While the plummet – and apparent Fed-induced recovery – are still dominating the headlines, there is an announcement by the Monetary Authority of Singapore which should actually get far more press: Chinese commercial banks will be able to invest their clients' money in Singapore stocks. The huge surplusses in Chinese state and individual accounts are well documented. The government in Beijing has decided on a quota of US$16 bln which can be invested in Hong Kong, the UK and now Singapore. This can only be a positive, and will likely outweigh any concerns about a US recession for the Singapore market.

Here is how the Business Times reported the news this morning:

Yesterday, the Monetary Authority of Singapore (MAS) said it had agreed on a supervisory cooperation agreement with the China Banking Regulatory Commission (CBRC) to allow Chinese commercial banks to conduct investments for their clients under the Qualified Domestic Institutional Investor (QDII) programme. These investments include those in Singapore stocks and funds authorised or recognised by the MAS.

Granted, there are a lot of unknowns. We don't know when these arragements will start to take effect. We don't know how much money will actually come our way. The Hong Kong and UK capital markets, and soon the US, German and Japanese equities markets, will compete strongly for capital from China. And there is no certainty of knowing which Singapore-listed stocks Chinese commercial banks will actually invest in, even if they decide to put some money here.

But the bottom line is: let's get real about the future. The US recession is not the only story in town. Investors ought to take a balanced view, rather than panic and sell out in the childish frenzy of recent days.

Mark Laudi

Fed: Subprime Worse Than The Attack On The World Trade Centre

2008-01-23T14:11:00.000+08:00

The Federal Reserve's knee-jerk reaction to the problems with mortgagees who aren't repaying their loans, and the fear of recession, indicates it thinks these events are worse for the economy than the attack on the World Trade Centre in New York on September 11, 2001. As the Wall Street Journal points out, the 0.75% decline in its federal funds rate to 3.5% is the single biggest cut since August 1982. This is not only ridiculous, but moves the Fed even further away from the job it's supposed to be doing: keeping a lid on inflation.

The Fed statement says it cut rates "in view of a weakening of the economic outlook and increasing downside risks to growth", and adds that "appreciable downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks."

Admirable. If only this was its job. Now, I also used to think that central banks should lower interest rates to boost flagging economies, and I was an ardent critic of the European Central Bank several years ago for doggedly targetting inflation in some EU member states while ignoring the fact that the high interest rates it used as a tool to do this were choking off the economies of other EU member states.

Looking at the Treasurys market, investors had been factoring in a fall in interest rates anyway. But not of this magnitude. Besides, the central bank's job is to keep inflation in check, not to give in to punch-drunk investors whenever the market returns to more reasonable valuations. Does Mr Bernanke give chocolates to his grandchildren each time they ask for it, lest they go hungry before the next meal?

We congratulate Fed governor and Federal Open Markets Committee member William Poole for "voting against" the rate cut because he "did not believe that current conditions justified policy action before the regularly scheduled meeting next week". That's right. The Fed's next scheduled meeting is only than a week away. Like I said: the 0.75% cut is a knee-jerk reaction.

Particularly telling was the comment from Treasury Secretary and Bush appointee Henry Paulson, who is quoted in the same WSJ article as saying "This is very constructive and I think it shows this country and the rest of the world that our central bank is nimble and can move quickly in response to market conditions". With an election in the air, he would say that. One wonders whether Fed Chairman Ben Bernanke and his committee received any phonecalls with "words of encouragement" from the Treasury Secretary.

Perhaps he is hoping a rate cut now will deliver election victory to the Republicans later this year, in the same way a rate hike during last December's election campaign in Australia robbed the Conservative Government of its re-election chances there.

Mark Laudi

Hurray! Another decline, and everything's on special

2008-01-22T22:24:00.000+08:00

Stop pretending the big falls on the markets is bad news! There is nothing that makes an investor's heart sing more than seeing his favourite stocks becoming affordable and fairly priced again. Too long we have suffered from a market that seemed to just run away for no fundamental reasons. If you missed the boat on the good stocks in March 2003, you would have to wait for a big decline to buy them. That big decline is now underway.

There'll be those who'll accuse me of cheerleading - of talking up the market at a time when everything is heading south. I'm not here to talk anything up or down, nor to give you specific investment advice. But to quote the most famous value investor of them all, Warren Buffett, "when everybody's buying, I'm scared. When everybody's scared, I'm buying". The fact of the matter is that value investors sold out of this market long ago, when valuations started to get way ahead of themselves. Goh Eng Yeow used the following words in this morning's Straits Times: "frenzied, fear-driven bail-out".

He's right, it is a frenzied, fear-driven bail-out. But that's precisely the reason to see light at the end of the tunnel.

Here's another, from my good friend Song Seng Wun from CIMB-GK: "Irrational fear is stalking regional markets. Fundamentally, things haven't changed, and the economy is humming along nicely".

THAT, my friends, should have been the headline in the press!

Instead we got "STI plunges 6% in worst one-day fall since Oct 1987". Sure it's true, and it is certainly no fun if you're fully invested. My argument is, value investing allows you to sleep well at night because you buy when things are cheap – no matter how scared everybody is – and you sell when things are expensive – no matter how jubilant everybody is.

Attention is now turning to where the bottom of these big declines are. Again, I'm not going to give you specific investment advice. But value investors will recognise the bottom when they see fundamentally sound companies trading at fair prices, no matter what the headlines say.

Mark Laudi

The bus hub: don't penalise public transport companies

2008-01-22T12:04:00.000+08:00

Any move to get people out of cars and into public transport ought to be congratulated, for all the stated reasons: less congestion, less pollution, cost savings, and so on. It is unfortunate, however, that it's the shareholders of the public transport companies, meaning SMRT, SBS Transit and, by extension, ComfortDelgro, which will ostensibly carry the can for these initiatives. This is because greater competition for routes among various transport operators, while downward pressure on fares and raised expectations for higher quality service will inevitably be borne by the transport operators themselves.

Clearly, solving transportation bottelnecks is not easy. Otherwise cities such as Bangkok and Manila would have found solutions long ago. Increasing taxi fares has already prompted commuters to switch to public transport to some extent, as can be seen by the queues of taxis (not commuters, as was the case in the past) in the CBD, and the long snarls of taxis now at the airport. Raising acquisition and operating costs of cars has undoubtedly helped Singapore, too, although you wouldn't know it heading down the AYE at 7:45 in the morning. The only way to tackle the public transport issue fully, in my view, is to take away from cars the one thing which prompts people to choose them over public transport in the first place: convenience.

Many years ago, when I hosted the morning drive-time program on 938LIVE (then called NewsRadio 93.8), we posed the talkback question: what will it take for you to take public transport? One caller rang to say he would take the bus or train to work in the morning if he could get a seat. I asked him in reply, what the likelihood of this was? He said, very slim. As a result, he said, he would unlikely ever take the bus or train.

Cars allow people to move freely (traffic jams permitting), without being beholden to specific routes, and at a time of their convenience, without being beholden to timetables. Prevent cars from travelling to certain areas or at certain times, or both, and public transport will be the natural alternative.

Clearly it'll be difficult to give everyone a seat on every bus and train, but here are a few suggestions we can take the incentive away from cars, without hitting shareholders in the three public transport companies:

1. Turn Orchard Road into a pedestrian mall. Take away the convenience of cars and people will have no choice but to go (and they will still go, once all the refurbishments under the government's regeneration program are complete) using public transport. Such as the MRT. Or a single two-directional electric bus service. Or something similar. Make it stretch from Scotts Road to Buyong Road, or even past the Meridien Hotel.

2. Make bus services free in some areas. A government subsidy to allow anyone travelling from the harbour end of Anson Road to the Fullerton Hotel to ride for free will undoubtedly remove the incentive to drive out for lunch. It worked wonders down Adelaide and St. George's Terrace in Perth. In my view it can work in Singapore.

3. More direct routes. To be frank, the whole idea of feeder buses that deliver people to the MRT is a waste of time. Meanwhile, take the 157 any time from Toa Payoh to Boon Lay and you soon realise how good a 90 minute nap on a bus can feel. Again - make the bus routes more convenient than cars.

4. Privacy booths. This is a long shot, but taking the train gives you a lot of time to do work without uninterruption. If only you could use your mobile phone without a dozen other people listening in. How about (glass) booths to allow you to get stuff done in private. They could be chargeable.

There's no shortage of ideas. But central to the theme has to be: penalise car usage, not the bus and train companies.

Mark Laudi

ATIC@Bangkok: A Real Eye-Opener

2008-01-16T20:58:00.000+08:00

Attending the Asia Trader & Investor Convention (ATIC) in Bangkok over the weekend proved remarkable for two reasons. First, you learnt retail investors in Singapore face many of the same issues as those in Thailand. And second, if you think Singaporean retail investors are always the last to know where corporate governance (=can we trust 'em?) and disclosure is concerned, spare a thought for your counterparts in Thailand who are not just facing incredible uncertainty due to the way business is done in Thailand, but due to the way politics is done as well. In my view, Singaporean investors have valid grievances about a variety of issues, but they pale by comparison to those faced by Thai retail investors.

Thailand is often referred to as the land of smiles. Meeting retail investors at NextVIEW's ATIC event showed this is certainly true. Everyone was extremely courteous. But after my talk on the 5 Keys To Profitable Investing, which you can also watch in summarised form on our website, a number of members of the audience approached me bemoaning the lack of corporate governance. They made all manner of claims about insider trading, stockprice manipulation, company owners dumping unsuccessful companies onto retail investors by glossing them up in a prospectus and listing them on the market, and so on. None offered concrete proof, of course, but their concerns sounded very similar to the claims I often hear Singapore retail investors make.

Beyond that, politics seemingly plays a much bigger but less clear role in Thailand than in Singapore. While I don't profess to be an expert on the subject, my previous visits and interviews there when I was a presenter at CNBC revealed that behind all those smiles were hidden agendas, corruption and the same manoevering as you would expect anywhere else. Except worse. The political game is played very differently in Thailand. I would warmly recommend The Nation or The Bangkok Post newspapers for further reading on how the PPP - a party formed out of the ashes of Thaksin Shinawatra's Thai Rak Thai - has seemingly won government, much to the chagrin of the metropolitan-based Thais who voted Democrat, and the military which ousted Thai Rak Thai in a coup two Septembers ago. Long story short: the political agendas of companies are not obvious to the observer, and the national interest may not always be at the top of the list of priorities when executives receive a visit or phonecall from any of the political heavies.

At least in Singapore, the role government plays in the affairs of companies - if any at all - is fairly clear: furthering the national interest, even if it is at the expense of the community at large, or individual shareholders and customers (as the slogan goes, "Nation above community, community above self"). Retail investors may complain that it is not a level playing field. But at least we know what game is being played.

Mark Laudi

FTSE Index data: Just display it!

2008-01-15T12:06:00.001+08:00

Stockbrokers have resisted displaying live FTSE ST Indices on their screens because of the charges that they are charged for the data. They argue they don't want to pay extra, even though they won't be charged for the first year (they secured the first-year-free concession after earlier protests). But FTSE says it costs money to compile the indices on a daily basis. Our view is that the whole debate is rather childish and the losers, once again, are retail investors.

Stockbrokers have gone through a rough ride in recent years. First the deregulation of commissions brought prices down to S$25 per online trade, S$40 per broker-assisted trade over the phone, or alternatively 0.275% or 0.28% for large trades. Previously, they got paid much more. We saw a significant round of consolidation in 1999 and 2000, which brought about, among others, the combination of Vickers Ballas and DBS to form DBS Vickers, KayHian and UOB to form UOB KayHian, and so on. For brokers who've already seen their commissions drop, any additional cost is borne by them, and not passed on to clients. They absorb extra costs because of the competition in the market, and because retail investors are generally unwilling to pay.

The irony is, the brokers are behaving just the same. Even as they complain that they have no pricing power, that retail investors generally are cheapskates who complain about "high" brokerage commissions and demand that "everything also must be free", they are asking FTSE and the SGX to do the same.

It would be much better for everyone - including retail investors - to comprehend the value of data and information. Without these, no one would be doing any trades. Data and information are not luxury add-ons. They are crucial to the whole trading process. It's like refusing to fuel up your car to spite the oil companies and high oil prices. But your car won't go anywhere!

My understanding is ShareInvestor.com has a separate data charge for its subscribers, much like airlines have a fuel surcharge separate to the price of airline tickets. Perhaps the brokers should consider this? After all, currently they look like the bad boys in this dispute. If they provided the service but passed on the cost - in a year from now, when the charges kick in - they pass the responsibility of the costs to the SGX. By then, retail investors will be so used to seeing the indices, they won't be able to do without them and this whole issue becomes mute.

Mark Laudi - who favours the FTSE ST All Share Index as the new benchmark

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Market Street carpark: the wasted S$14 mln

2008-01-07T10:47:00.000+08:00

It's stunning that plans by CapitaCommercial Trust to redevelop the Market Street carpark - for the second time in just two years - isn't drawing more questions from shareholders. Having spent millions just a year ago to spruce it up, they are now planning to tear it down and build an A-grade office complex on it. While the motivation itself is raising questions of analysts, the question we're asking is why no one is jumping up and down about the apparent waste of money.

On November 7, 2006, CCT announced with much fanfare the reopening of the Market Street Convenience Hub. It had spent S$14 mln over the previous 12 months to refurbish and reposition (read=tell people it's no longer a carpark) what had been an eyesore in the middle of the glass-and-steel financial district at Raffles Place. A job well-done, I thought. Now we hear CCT is planning to spend up to S$1.5 bln building a 240 metre, 850,000 square foot office tower on it.

I support the idea in principle. The Market Street Convenience Hub, or whatever fancy marketing term they have given it, looks a lot better than before the refurbishment, and the restaurant which faces Equity Plaza, Rogues, is streets ahead of the grimy hawker centres that used to be in its place. Plus, I believe carparks should be underground, not above ground. Leave the good views to people, not cars, particularly in the Central Business District. Further, the statement by CapitaCommercial Trust is in line with the well thought-out plan we've come to expect from the CapitaLand group. And I concede that S$14 mln probably isn't a lot of money in the context of the S$1.5 bln CCT is looking to spend on the redevelopment. CapitaCommercial also disclosed in its third quarter announcement that it earnt S$3.8 mln in profit from the car park, which reduces the wasted $14 mln to a wasted S$10.2 mln. But still.

But the analysts have already turned cautious, with Reuters last Friday quoting Citigroup ("hold", target price S$2.39) and JP Morgan ("underweight", target price S$2.21) as having cooled on CCT because they are cautious about office space beyond 2010. So, that alone begs the question about the merits of more office space being built now.

And here's the interesting part: the decision to refurbish the carpark was made under the stewardship of David Tan, who resigned as CEO effective September 15, 2007. His replacement, Lynette Leong took up the reigns September 21. It's hard to believe Mr Tan wasn't involved in some form of approach to the Urban Redevelopment Authority, upon whose blessing the announcement last Thursday was made. Further, neither Mr Tan nor Ms Leong are likely to act alone. Knowing CapitaLand as I do, it's always a team decision – a strength of the group.

But where's the explanation? Where's the, sorry-but-it's-now-or-never line which would at least acknowledge that S$14 mln of shareholders' funds is going down the toilet? The question is also not being asked by the mainstream media. The recent refurbishment gets no mention in Arthur Sim's Business Times report or Esther Fung and Ng Jing Yng's Today paper report on the announcement, let alone in CCT's announcement.

And finally, spare a thought for the poor motorists who are already subject to daylight robbery in terms of parking fees in the CBD. CCT says it has no plans to redevelop the Golden Shoe carpark. Thankfully, the Singapore Land Authority owns the hawker centre in the carpark there which would complicate redevelopment. But you can bet your bottom dollar that as soon as a deal is worked out there will be an announcement. In landscarce Singapore it's not great to have carparks above ground. But the drivers will pay for it in the end.

Mark Laudi, who takes the train every morning

To comment on this blog, go to the Investor Central Blog

Value Investing: Winners Of 2007

2008-01-02T14:18:00.000+08:00

For those who need reminding, 2007 was a pretty topsy turvy year for the Singapore stock market. But it underscores our belief again in the virtues of value investing. While the Straits Times Index gyrated in a rocky thousand point range (see chart), some unloved stocks came to the fore and outperformed, proving that the buy-low, sell-high strategy may take time but does come good for some stocks.

LC Development.
The stock did very little in the first six months of 2007, but rocketed 150% between mid-June and mid-July – on no news! It announced the acquisition of a shell company in Hong Kong, Richful Properties, for HK$1. But that was all. In late April it was trading on a price-to-book ratio of 0.86x and was paying a dividend of about 2%. At a price-earnings multiple of 22.6x it wasn't exactly cheap, compared to the rest of the market. But thanks to the big rush into property developers, it rose to a P/E of 43.6x, a P/B of 1.5x and a yield of just 1.4%.

Meiban.
June and July were also the months things took off for Meiban. It appointed Yvette Lim as CFO on the 18th of that month. Credit Agricole bought 3.76 mln shares on July 11, giving it a deemed stake of 5.4%. And CEO Goh Tiong Yong bought 500,000 shares in the company. In late April, it was trading on a price-book ratio of 0.92x, a price-earnings of 11.3x and a yield of 3.3%. Fast forward to today, and it is up to a price-book of 1.8x, a price-earnings multiple of 10.7x (it's actually fallen) and a yield of 1.7%.

These two examples show that some value stocks, which bump around doing nothing for months, do take off when they are re-discovered.

As you would expect with value stocks, not all of them gained so strongly during 2007 and maintained those gains.

Kian Ann Engineering is a noteable example. When we first looked at it it was trading at S$0.28, with a price-book ratio of 0.85x and a price-earnings multiple of 9.9x. It was also paying a dividend of around 3%. By the end of the year, the stock had almost doubled – but given back most of those gains by year end. It is now trading at a P/E ratio of 8x and a yield of 4.2% but at 1.12x book value it is no longer classified a value stock.

Bottom line: value investing sometimes remains a waiting game. That is, waiting for underpriced companies to perform better, and waiting for the market to uncover hidden value. But given the alternative of hit-and-miss trading, value investing is a far less nerve-wracking experience. Good value is always recognised in the end.

Mark Laudi

Our New Year's Resolutions for investors, and others

2007-12-31T17:18:00.000+08:00

Excuse my cynicism, but despite improvements over the years in corporate governance there is still a lot to be done. I am not just addressing senior executives and their investor relations and public relations hacks here, but also institutional investors who treat the market – and, by extension, retail investors, with contempt. So, here are a few New Year's resolutions for all those people to cut and paste on their notice boards, who enjoys pulling a caper in the stock market which may not transcend the letter of the rules but leave to be desired where ethics and sometimes common decency are concerned.

1. "I will no longer try to make my stock picking skills look better than they really are by window-dressing my funds". This term is used so often it is starting to sound acceptable to do so. Window-dressing refers to the practice by some fund managers and some institutional investors to make their portfolios look better than they really are. They buy up shares of their poorest-performing investments in the days leading up to the end of the new year, causing prices to rise. Early in the new year, once the inflated prices for the annual report and next year's marketing material have been captured, those shares are dumped again. Or buying shares in the companies they should have invested in twelve months earlier, the year's top performers to be able to claim that, yep, they're in our portfolio. It's a con, and every owner of a unit trust should ask the manager what their window-dressing activities were.

2. "I shall not delay the release of news so I can cluster them later for better effect". Folks, look out for the word "recent" or "recently" whenever you see a press release from a publicly listed company. Specifically, check out whether they are reporting contracts which have been won "recently". In the worst cases, this word is a red flag to poor adherence to continuous disclosure obligations. After all, if the contract was won "recently", why wasn't it announced at the time? The answer is, of course, that the PR and IR people (there is nary a difference) decided to hold off on releasing news of a small contract until they have several small contracts to bleat to the media over. It's an unfortunate strategy which has its origins in the fact that small contracts don't make the news – only those with sizeable dollar amounts. But that's not the point. Small contracts all add up and should be disclosed as and when they were signed.

3. "I will ensure my press release doesn't deviate too far from the facts of the statutory announcement". One lesson investors (and an embarrassing number of journalists) surely need to learn is not to rely on press releases, like most of the mainstream media do. Read the statutory announcement! (Or read Investor Central's reports, which are based on the statutory announcement). Don't investors realise how press releases conveniently omit unpleasant facts in the name of brevity? Press releases are there to simplify legalistic announcements. Not to cover up stuff.

4. "I will not ring up reporters after interviews and pressure them to omit stuff the CEO shouldn't have said". Most investors who watch television or read newspapers have no idea how manufactured news actually is. There is clearly a danger for CEOs to be so media trained they end up losing credibility. But often, when a CEO says stuff s/he shouldn't it's managed by the PR hack through a phone call after the interview. It's remarkable that in a country where a cement truck driver who tried to slip a traffic policeman fifty dollars to "smooth over" a traffic infringement gets six weeks jail (deservedly in my view), yet the unpaid complicity between media and public relations staff to make companies chief executives who mouth of like loose cannons look good is considered acceptable and common practice. Try ringing a journalist to massage facts after an interview in Australia. The fact you were trying to do so will become the story!

Happy New Year, everybody!

Mark Laudi

We Support The Call: Shorten Trading Hours

2007-12-28T17:33:00.000+08:00

The Malaysian Investors' Association has finally proposed for Bursa what should also be applied to the Singapore Exchange: shorter trading hours. Its president, Datuk Dr P.H.S. Lim points to the much larger markets in Hong Kong and New York (and, I might add, Australia), whose trading hours are only around six hours in duration, instead of eight. "Shorter trading hours are good for all those engaged in the stock security industry as brokers and market researchers have more time for digesting overnight financial information of Europe and the US," he said in a statement. We concur. But persuading local investors will not be easy.

Shortening trading hours to 10am to 4pm has merit for three reasons:

1. More time to digest the news. The Singapore Exchange actively encourages companies to make their market moving announcements after the market closes, so investors have more time to decide how those announcements should affect their positions. A noble motivation. The SGX should give investors an extra hour in the morning to do so.

2. Not enough time to report the news. Datuk Dr Lim says "it is also good and more healthy for investors who could spend less time in tracking the financial markets. It is also good for the media."

Amen!

The fact is, it is a struggle for journalists to plough through all the news and write something meaningful – beyond re-writing press releases – particularly during earnings season. The quality of business reporting today should, and possibly could, improve if reporters weren't hard up against a deadline to report on ten or more financial statements.

If trade stops at 4pm instead of 5pm, and therefore companies can start reporting their significant announcements one hour earlier, that's an extra hour reporters have to do a good job with their stories.

3. The lunchbreak is so 19th Century. It's quaint, but outdated, for the market to stop just because it's lunchtime. Frankly, it might be very good for the waistlines of the broking community to scrap this nonsense of stopping for lunch. In an era of global electronic trading and demutualised exchanges it's preposterous that the whole market has to stop just because a few blokes at their trading desks want to go for makan.

But, even though I think it's a great idea, I don't think it will happen. Alas, the SGX probably thinks, if it works, why fix it. There is some merit to this thinking, because there doesn't appear to be a groundswell for change.

But I'm not suggesting the SGX goes the way of the Philippine Stock Exchange, which shortened trading hours to just three to increase the "scarcity" of the trading window and therefore the market action. I have heard the view expressed, that once the SGX opens and investors buy or sell on the news, say, in the first 90 minutes of trade, the next two hours are a bit of a waste of time. The charts don't really bear this out (above).

My fear is, though, that by keeping trading hours where they are and not moving with the times the SGX may be seen to be behind the times.

Mark Laudi

Should trading hours be shortened, and lunchtimes scrapped?

Go to the Investor Central Blog to make your comment.

Manufacturing Data: Hurray For Oilrigs

2007-12-26T17:56:00.001+08:00

It's incredible to think that one of the factors behind the apparently slowing US economy is actually helping Singapore's economy at a time it really needs it: with electronics manufacturing still slowing, it's the booming oil sector which is coming to the rescue. This leads me to my favourite subject where oil prices, and petrol prices in Singapore are concerned: we are always so keen to be unique – when will we be the only country in the world that outlaws vehicles with conventional engines?

Ask any driver about petrol prices and they'll tell you they flinch all the way to the nearest MRT station every time they pay more than a hundred dollars for a tank of petrol. Not even the supposed "we added it on so we can offer a discount"-discount, or the pathetic "free gifts" offered by petrol stations are of any consolation. It's an irony that the factor that is causing so much pain at the pump is helping Singapore's economy at a time when we're dreading what's going to happen next year. According to a Reuters report, carried on the Business Times website, Keppel Corp and SembCorp Marine, two of the world's biggest oil rig makers, boosted Singapore's total manufacturing output growth to 5.8% in November, compared to October. But this was short of the 7% expected by economists, who get paid to get it right, thanks to the biggest fall in factory orders in a year, and a pharmaceutical sector that's apparently beset by the dubious problem that people all over the world are healthier (can this be right?). Here's the EDB release.

But back to petrol prices and Singapore. Can you imagine the phenomenal global reputation Singapore would achieve by doing what Australia proposed to do with incandescent light bulbs: outlawing conventional engines. According to a report by Lehman Brothers, Singaporeans consume more energy per capita than the United States, China, Australia and virtually every other country except Qatar (see page 96). To be frank, I don't quite understand how this is so, given that car ownership is proportionately low, we don't tend to drive long distances or at high speeds and while we generate a lot of electricity it's not like we all drive gas guzzling 4WDs. According to figures supplied by the Ministry of the Environment and Water Resources (which, to its credit, has a strategy to, among others, promote the use of cleaner fuels and green vehicles), 2004 figures show cars made up 19% of emissions. But I guess it doesn't help that the Airbus A380 – the first of which was delivered to Singapore Airlines a few months ago – has a carbon footprint the size of bigfoot, many people spend a lot of money on air conditioning, not to mention the high number of completely underutilised Mercedes and BMWs cars that ply our roads.

Bottom line: we should reduce energy consumption, and converting everyone to hybrid or electric cars would be a fabulous step.

But here's why I think this idea will never take off:

1. Oil companies are big investors. We owe a lot to Shell and others who've invested billions in petrochemical plants on Jurong Island. Labrador Park near HarbourFront was once a site of a Shell facility, established decades ago. Unless we can position a move to hybrid or electric vehicles as showcasing their stated efforts to harness renewable energy sources, we are going to be seen as pretty thankless hosts.

2. Petrol taxes are a big revenue earner. Every litre of petrol carries fuel excise of 44 cents per litre, plus 7% GST, according to Shell. Do the maths. Can we forego this revenue?

3. Too many decision makers drive big cars. Fact is, until and unless the guys who are in a position to decide to move everyone to hybrid or electric cars stop driving big Mercs and Beemers, they're not going to promote a wholesale shift away from gas guzzlers. After all, would you outlaw the comfortable S-Class you drive to the office each day?

The odds are stacked against it. But still, a big shift away from conventional engines to hybrids or electric cars would be amazing for the global climate change discussion. It shouldn't worry us one bit that we would still be the world's biggest producer of oil rigs.

Mark Laudi

Climate Change: Investors Play A Part Too

2007-12-21T17:56:00.000+08:00

Indonesia is getting into the alternative energy business in a big way – clearing forests and peatlands to make way for oil-palm plantations.

Palm oil is a by-product of the oil palm tree and is used for cooking and as food additives.

More recently, it has been found to be a relatively clean-burning alternative source of energy – biodiesel – a discovery which has pushed palm oil prices up to never-before-seen levels.

Indonesian residents who own oil palm plantations have become better-off, selling more than just fruits.

This discovery of palm oil as biodiesel could also be seen as beneficial to the rest of the world, given how we can become a tad bit less reliant on fossil fuels.

But would you still be jumping for joy if you found out forests are being burnt down to create space for oil palm plantations, or that Indonesia's deforestation is among the highest in the world?

A recent issue of Time Magazine wrote that “burning and clear-cutting not only eliminates one of the planet's crucial air-filtration systems, the process also releases even more carbon dioxide into the air, in smoke or as gases released during the decomposition of forest waste.”

You can imagine the irony then, when Bali hosted world leaders in a climate-change discussion over the last week.

There are a few reasons climate-change is really a long and winding road.

First, it is tough for businesses to be both economically responsible and philanthropic at the same time.

Being economically responsible means being economically efficient, and generating the most returns for shareholders. Most companies get the most out of their operations in developing countries, using cheaper labor and less energy-efficient technology. Even if some businesses want to make the shift to environmentally-friendly technologies, anticipating how much more profitable competitors will be using cheaper technologies would probably keep them from going ahead with their plans.

Second, the world's three largest emittors of greenhouse gases are playing the blame game and pushing the onus onto one another.

According the Wall Street Journal, “China wants developed nations like the US to share cutting-edge renewable-energy technology with the developing world at reduced costs,” but American companies do not want to sell these technologies at “cut-rate prices”. US officials may also be worried that “innovative technologies” deployed to China could be copied.

The latest climate change pact adopted in Bali (after rounds of negotiations) was a vague “we'll-do-our-best” agreement.

So what can be done to have all countries jump onto the climate change bandwagon?

For starters, the five permanent members of the United Nations should ratify any climate change protocols.

The United Nations should then mandate that all member nations do so as well.

Because only a global change in mindset and way of doing things can ensure that everyone plays their part in climate change, without anyone losing out because of it.

For investors, perhaps we should be a little more philanthropic in our investments and invest in businesses that make efforts to reduce carbon emissions in their operations.

We should also find out if alternative energy companies are conducting their businesses ethically before we consider investing in them.

Returns from such evironmentally- and ethically-responsible companies may not be as lucrative as those that employ cheaper means, but treat the extra amount you could have gotten as an investment in your future.

After all, the earth is your home too.

And you sure wouldn't want to be worrying about excessive exposure to UV rays every time you step out of the house because of the huge hole in the ozone layer.

Serene Lim

It's beginning to trade a lot like Christmas

2007-12-13T14:21:00.000+08:00

You can always tell Christmas is on its way when volumes on the market start to dip. In previous weeks, we saw volumes of 1-2 bln in the morning session alone, even before traders headed off for makan. In recent days, volumes have started to fall with just a few hundred million shares traded by lunchtime, and daily totals falling short of even the 1.5 bln mark. But this is precisely the time to be extra vigilant.

Wednesday's trade on the Singapore equities market totalled 1.45 bln shares worth S$1.73 bln. Previous days in December looked little different. This despite the heavy going on US markets, with gut-wrenching declines one day, followed by soaring gains the next. If there is any heart we can take from the falling market (down around 80 points over the last two days, at time of writing), it is that it is falling on low volumes. We are not seeing a huge rush for the exit.

But before you think the market is going to go slowly and quietly to sleep, be reminded that the Christmas New Year break is precisely the time companies with bad news to announce are waiting for. They can meet their continuous disclosure obligations by announcing the news to the market, comforted in the knowledge that many traders and investors are either already in party mood or on holiday, or too drunk on eggnog and mulled wine to notice.

Fact is, the Christmas New Year's break is especially exciting because of the various profit warnings, deals-gone-sour and other shareprice-destroying news that will likely be put out there. Picture investor relations executives, grimacing as they click 'submit' on the announcement to SGXNet at 2am on Christmas Day.

Investors and traders returning from the holiday break in early January would do well to read our wrap of "What you missed over Christmas", and punish those companies shrewd enough to take advantage of the special time of the year in this way by selling them down doubly hard.

Mark Laudi

Futures: A lack of market maturity

2007-12-10T23:40:00.000+08:00

OngFirst is currently running a campaign to encourage more Singapore investors to trade futures. It appears there is only a handful of people interested in this asset class at the moment. Perhaps it is perceived as risky, or too complex, and is keeping investors away. But given how the warrants market has taken off, I can't see any reason why the futures market shouldn't, either.

Disclosure: we are providing editorial and presentation services to the campaign, and so we have an economic interest to see it succeed. But for what it's worth, and at risk of sounding like an advertisement, here is our honest and objective take on what our experience has taught us about futures.

1. All investments are risky – what is important is how to manage that risk, and whether the reward is commensurate.
2. There are strategies to mitigate risk – having a broker you trust to look after your futures contracts is a good idea.
3. Futures losses don't mount up – that's because your account is debited or credited at the end of each trading day, depending on whether the value of your futures contract has gone up or down.
4. Eliminate company risk – buying shares in an oil company is one way to get exposure to the oil price, but it won't matter what the oil price does if the company is managed badly. Futures track commodities directly, minus company risk.
5. Exposure to commodities – there is an Exchange Traded Fund listed on the SGX on commodities, but it gives you exposure to about 20 commodities, not any one in particular. Futures give you exposure to many different types of commodities individually.

This is by no means intended as a recommendation to trade futures. It's up to each individual investor to decide what's right for them. But it's an interesting exercise just reading up on various asset classes beyond what you're used to.

As Christie Loh said in the Today newspaper last week, the Singapore market needs to mature, and finding out what it's all about is part of that.

Mark Laudi

SembCorp Marine battling its way back...

2007-11-29T16:25:00.000+08:00

We all remember those steep losses over unauthorized forex transactions that SembCorp Marine suffered not to long ago...almost like important events in history you may remember for some time where you were when you heard the dollar amount of those loses that took just about everyone by surprise (for me, I was in the office).

Fast forward to now, and SembCorp Marine is battling its way back in the latest development in what will probably be a long saga. They announced yesterday that they have summarily dismissed that employee responsible for making unauthorized forex transactions, Mr. Wee Sing Guan, and Sembcorps subsidiary, Jurong Shipyard has logged a complaint against him with the Commercial Affairs Department...

So, movement on the issue has now happened as Sembcorp tries to battle its way back after these steep forex losses. Watch the BlogCast to find out more and leave your comments below on what you think about the whole issue.

Trusts for everything these days, evident by...

2007-11-26T15:37:00.000+08:00

First properties, then Ships, Airplanes, now...Water trusts.

That's right, the market got word that Hyflux Water Trust will be making its debut on the Singapore Exchange in the not too distant future. Let me jog your memory to a prior blog entry from October:

http://investorcentral.blogspot.com/search?q=trust+me

Granted I did forget water in the mix there with trains and planes and other forms of trusts, but this is something I find a very interesting concept and offer, and, like I said back in October, I really think it is not going to stop here with just water. Hyflux has been on a tear recently securing a number of projects around the world so I'm not really surprised that they would list a trust. But this trend of "trusts" listing on the exchange I think is something that is going to continue and probably get even more creative just besides ships, property and water.

What do you think about a water trust? Let us know your thoughts and sound off in the comments section below.

Curtis Bergh

As the dollar keeps going down...

2007-11-23T12:54:00.001+08:00

The US dollar, it's been the mainstay of world currencies for years. Commodities are traded in the dollar, even stocks on world markets such as Singapore trade in the US dollar. Countries rich and poor stash greenbacks away in case their own local currency goes down the toilet. Bottom line: it has always been a sense of security and stability as it is the benchmark of world currencies.

But with the decline of the greenback against the Euro, Yen, and Sterling and its weakening position around the world, we have seen companies reevaluate their US dollar traded stocks, and in just the last few days a number of Singaporean listed stocks have taken the plunge and ditched the dollar in favor of trading in the local currency.

Evergro Properties was the first just a few days ago, and yesterday FSL Trust Management came out and said that they will switch to the Singapore dollar as their trading currency for their stock with effect from 30th of November.

As long as the dollar continues to weaken, I think (in my own humble opinion) that this is a trend that will continue. There are only a handful of stocks on the Singapore Exchange that trade in US dollars and two of them within a few days announced a switch to the Singapore dollar. Not surprising given how the greenback is doing.

Don't be surprised if there are more to follow...

Curtis Bergh

ASEAN single currency a bad idea

2007-11-21T16:43:00.000+08:00

The ASEAN summit in Singapore is closing down and leaders of the grouping have a number of issues to tackle at this years meeting, mainly which is Myanmar, the “problem child” in the group as it has been called.

But putting Myanmar aside, ASEAN is in the process of coming closer together economically and will resemble a European Union style trade bloc in the not to distant future I believe. That’s all fine and great, and I think that will work to the point where you will see greater integration and cohesiveness amongst the grouping, and, benefit all economies rich and poor.

But there have been discussions, rumors, whatever you want to call them, about ASEAN going even further and adopting a single currency similar to the Euro. And while this is just pure speculation at this point, I think if it were to be seriously raised in the meetings that there would be a lot of resistance to it.

But, putting all this aside for the moment, say ASEAN were to move to a single currency similar to the Euro. Some see a lot of similarities between ASEAN and Europe; I see differences – big glaring differences.

First being the economic disparity amongst the landscape of ASEAN countries. When the EU really got going, the economies and per capita levels of individuals of Germany, France, the United Kingdom and other founding countries, were much more “even.” ASEAN nations and citizens of ASEAN play on a completely different level. Having 10 nations convert to a single currency I think would be disastrous…Europe’s integration to the Euro wasn’t necessarily smooth sailing at first, but eventually the underlying strength of their economies did allow things to pick up and now look at where the currency is.

With ASEAN, if a similar event was to happen, I don’t think things would recover like they did in Europe where you’d see the ASEAN currency rebound to the strength like the Euro has vs. the U.S. dollar. Again, that’s just my pure honest opinion and nothing more. A “gut” feeling of mine (and my gut serves me pretty well).

The economies of ASEAN are strong, but not that strong to weather a weak debut. Technically it would be a nightmare as well.

So I don’t seem like I am “ASEAN bashing,” there is one strength I believe a single currency would bring and that would be easier trading for investors and individuals in regional stock markets. Regionally speaking, the markets are moving “closer” together. A single currency would open up access across the board literally for people to put money in just about every major bourse in ASEAN. That could be a plus…but unfortunately I think it is the only advantage of a single currency, and it’s not enough to beat out the disadvantages a single currency would bring.

Maybe 30 years from now, we’ll see this actually become a reality as economies of ASEAN develop, but for now, it’s every currency for itself.

Curtis Bergh

SGX: Expands Into Philippines - But What For?

2007-11-19T16:40:00.000+08:00

The deal the Singapore Exchange signed to take a 20% stake in the Philippine Dealing System Holdings Corp would be interesting, if it wasn't so small, and the derivatives market in the Philippines wasn't so poorly developed. I'm all for the SGX regionalising, but one wonders what the dividends of this deal will be.

The statement by the SGX says:

PDS operates a fixed-income exchange, depository and foreign exchange settlement platform. This proposed acquisition will provide SGX the opportunity to expand into a new geographical market and collaborate with PDS on derivatives products. SGX and PDS will also explore depository linkages to custodise securities in each other’s markets, on behalf of their account holders. The proposed collaboration will reinforce SGX’s Asian Gateway strategy and position.

Perhaps, but it is difficult to see how a 20% stake worth just S$5 mln will do this. The Philippines doesn't rate a mention in the World Federation of Exchanges' most recent tabulation of fixed-income and derivatives turnover. Perhaps PDS isn't a member of the Federation.

The wording of the news release is also interesting: "…it has agreed in-principle to accept the offer…" In other words, PDS approached the SGX. Therefore, PDS probably has more to gain from the deal, possibly in terms of the expertise shared by SGX, etc.

The SGX clearly has to keep working to stay relevant, and deals such as this, although small, are an indication that they are doing this. Small companies can grow into bigger companies, as the SGX itself has done.

SGX CEO Hsieh Fu Hua said this morning:

Our proposed stake in PDS will be more than just a financial investment. It will give both parties the opportunity to collaborate on a wider suite of products in a fast-growing geographical market. SGX and PDS will also explore a depository linkage to custodise securities in each other’s markets on behalf of account holders. This proposed depository linkage fits in with the concept of post-trade alliances being a practical way of collaboration in Asia.

He also said:

Einstein was said to have once defined insanity as doing the same thing over and over again but expecting different results each time. If we continue divided as we have been in the past, can we remain relevant in the years to come? This issue is especially pressing for the relatively smaller, disparate exchanges of ASEAN. To achieve a single and more significant marketplace, we propose that multilateral gateways in both trading and clearing be forged amongst the ASEAN exchanges.

All these points a certainly valid.

But beyond the small nature of the deal, there is also the question as to who the target market is. The equities market consists of just 240 stocks worth US$93.8 bln – the smallest market in Asia except New Zealand and Colombo. There are many derivatives listed in Singapore covering equities listed in other markets. For Philippine stocks that are worth covering, wouldn't market makers in Singapore have exhausted the possibilities already? Is the domestic Philippine retail market ready for derivatives trading?

Questions which we either have to wait for the SGX – or time – to explain.

Mark Laudi

To comment on this blog, visit the Investor Central Blog.

ASEAN Summit: Let's See Greater Integration

2007-11-16T15:53:00.000+08:00

When ASEAN Leaders meet in Singapore November 18-22, much of the focus in the media will likely be on Burma. This is clearly an important topic, given the events there in recent months. But for the purpose of this blog, I am going to stick to our regular theme: stock markets. ASEAN's markets vary greatly. Quite aside from the obvious differences in size (Singapore is the biggest, worth US$538.3 bln, The Philippines' the smallest, worth US$93.8 bln) and make-up of sectors, there are greatly varying levels of retail and foreign investor participation, not to mention regulations governing disclosure. In our view, ASEAN needs to make headway on greater standardisation, if not integration.

Looking at the growth and focus on China's equities markets, efforts to build up ASEAN as an investment destination need to be stepped up. The Chinese markets have grown tremendously. The value of the Shanghai market in September is US$2.62 trillion, up 431.1% compared to September last year. This makes it the second largest market in Asia behind Tokyo (US$4.57 trln) and even ahead of Hong Kong (US$2.58 trln). Shenzhen is worth US$755 bln, and while it's significantly smaller it is up 347.8% to surpass even Taiwan (source: World Federation of Exchanges).

Clearly, a lot of the money boosting the mainland markets are funds from domestic investors, which are growing rapidly. But the global importance of the Chinese economy is undeniable. Accessing the Chinese economy through mainland companies listed in Hong Kong, Singapore, Nasdaq and London is becoming fashionable. ASEAN needs to stand up and be counted as an investment destination of choice.

Here is our wishlist for the ASEAN Leaders Summit, in relation to the markets:

1. Greater standardisation. The markets don't have to merge – just be more like each other. Individually, the markets are like small fish. If they all "swam in the same direction" like a school of fish, they would still be small fish individually, but look large and impressive.

Areas for standardisation would certainly include corporate disclosure regulations, but also more bread-and-butter issues such as taxation, settlement arrangements, fees, and so on.

ASEAN needs to get this step right first.

2. Greater number of products tracking ASEAN markets. FTSE previously came up with a set, but you don't hear much about them. ABN AMRO launched Zero Certs recently, but these track only the less accessible markets individually.

3. Greater joint promotion. Once all the individual markets are heading towards a common goal, they need to make a concerted effort abroad to market themselves.

There is some value to the argument that ASEAN members should make progress at their own pace – meaning, faster, more nimble members should not be held back by those which make progress more slowly. But by learning from the faster markets, here is an area where the slower markets can be brought up to speed quicker, and one which should be implemented for everyone's benefit.

Mark Laudi

Fraser & Neave: Where was Mr Lee?

2007-11-14T10:58:00.000+08:00

We share Chow Penn Nee's and the Business Times' disappointment with Lee Hsien Yang's absence at the earnings briefing of Fraser & Neave Tuesday night. Given all the corporate issues at this company – such as the sudden departure of CEO Dr Han Cheng Fong, and the apparent dissing of takeover suitor Heineken – it would certainly have been a good idea for Mr Lee to be present to field questions and shed some light on these issues.

The attention F&N has received in the last month has not been positive. Lingering questions remain about why the respected Dr Han left so suddenly. The company certainly made numerous disclosures about his departure, but they added up only to explain why he did notleave, not why he did leave. The company was at pains to say it was not due to personality conflicts, after the arrival of former SingTel chief Lee as Chairman was speculated as one possible reason. We have previously commented on the absence of an explanation which fully satisfies us.

Then there was the issue of a possible takeover by Heineken, which the company successfully defended (although, as we said previously, we don't really know why averting creating shareholder value through being taken over could necessarily be deemed a positive). Perhaps Dr Han supported considering a bid from Heineken when the other Directors did not.

(Blog continues below poll.)

The company has argued it has satisfied continuous disclosure obligations. As for why Lee Hsien Yang was not present at Tuesday's press briefing, the Business Times reports:

It was a news conference many journalists were looking forward to. They expected Lee Hsien Yang to face the media for the first time as Fraser & Neave's chairman at the group's full-year financial results announcement yesterday.

But Mr Lee was a no-show, and director and group company secretary Anthony Cheong fielded the questions.

Mr Lee was not required to attend the news conference, Mr Cheong said. 'Mr Lee is a non-executive chairman, so he need not be here.'

That may be so if this was a "routine" earnings announcement. But given all that has transpired within the last month we are incredulous that Mr Lee – so open while at SingTel, winning awards for transparency – did not use the opportunity to clear things up. Being quoted about the earnings in the press release hardly consoles us, given that those quotes were probably written by the Corporate Communications department anyway. We weren't at the briefing yesterday, but it sure would have been nice to get a more comprehensive explanation as to his absence. The lack of such an explanation opens the door to speculation that perhaps Mr Lee was told not to come. While Mr Anthony Cheong is probably very well qualified to field questions at the press briefing, given that he is a director of the company, it is rather unusual for a Company Secretary to lead such a briefing. Not least, because the company is still without a CEO. It would have been natural for the Chairman to step in. He may be non-executive, but he is also a consultant to the firm.

While leads us onto the next issue. Conrad Raj should certainly have contacted F&N for comment about his piece F&N's CEO hunt halted as Hsien Yang rethinks strategy on November 12, which F&N obviously took great exception to. We don't know whether he did contact the company or not. We haven't asked him, and so we only have F&N's tersely worded rebuttal to go on. But given the company's combative stance towards the media over the last month it's perhaps no surprise that it hasn't won many friends in the media.

We maintain our view that not just following the letter of continuous disclosure obligations, but being seen to be doing everything it can, would have been much better to rebuild trust with investors.

Mark Laudi

To comment on this blog, visit the Investor Central Blog.

How bad is BAD?

2007-11-13T15:46:00.000+08:00

Amidst the earnings season and the likely increase in companies having share placements, how literally should investors take the company's word for it?

Earnings seasons comes once in three months --- for some, once in six months. Companies will then have to declare its revenue, profit numbers, cashflow, dividends and a few other pointers. It is the company's responsibility to inform shareholders about the liquidity of the company for that period.

They have a certain dateline and the information would have to be posted up on the Singapore Exchange, the one and only stock exchange moderator in Singapore. Companies who fail to meet the dateline would have to request and make a public announcement to post its earnings on another date.

But what really irks me is when companies keep postponing the date to release its earnings.

The companies of course, do have to state its reason for doing so. For example, like when new purchases took place and the numbers have not been added/audited into the earnings' statement, or that the latter date is a better reflection of the companies' performance.

Generally, investors do not really care! What they want is honesty from the companies where they put their money into, regardless if the numbers are good or bad. Be it the additional figures are added now or later, it would still be added anyway. The only difference would be the quarter in which that information is being added in.

Investors want to see the comparison between this quarter and the same time in the previous year, and some bluntness here might actually boost investors' confidence and belief in the company.

Share placement exercise is another pointer. While it does not happen all the time, I feel it is still worth pointing out and take note of such happenings.

Companies do share placement exercise to get more cash for the cash company. Essentially what it means is that the company is issuing more shares for more money. Of course, they will announce how much it expects to get and what it is going to use it for.

However there are times where companies, after it gets its proceeds from the share placement, it announces that instead of using it to invest in whatever they initially said the money is going for, it will be using the money for another thing.

An example is Alantac Technology where in August this year, after getting money from the proceeds, it says that it will 're-allocate' about S$5.0 mln to buy equipment in place of expanding its facilities. So investors who initially put in their money in hopes of facilitating the companies' expansion, are sort of 'being cheated' as it would in the end be used for another purpose.

These are just some examples. So really, how literally should investors take companies' word for it?

Comments? Bring it on!

Nurwidya Abdul

Banks: Home Market Should Be Priority

2007-11-12T17:44:00.000+08:00

Investors were generally thankful recent sub-prime loan related losses among Singapore banks weren't higher. At a time when US banks consistently announced billions and billions of dollars worth of exposure, and the CEOs of Merrill Lynch and Citigroup resigned, Singapore banks were generally unscathed. But at a time when Singapore's economy is booming and yet many legitimate local businesses still can't get loans, one has to ask why in the world Singapore banks would have any exposure to sub-prime loans at all! Our argument is: DBS, UOB and OCBC should focus on loaning money to Singapore businesses, rather than throwing money at Collateralised Debt Obligations (CDOs).

The earnings statements from the banks tell the story:

DBS reported third quarter enterprise loans of S$22.5 bln, up around 10% from the year earlier. But corporate and investment banking rose to S$45.6 bln, from S$32.7 bln. This is more than double the enterpise amount. DBS's CDOs were S$2.36 bln. None of them were in default, it says, but it took an S$85 mln charge for sub-prime concerns.

"A huge sigh of relief", is how CIMB's Kenneth Ng characterised DBS' earnings in a report dated October 29.

Similar story at OCBC, which had S$270 mln in exposures to the subprime issue, and it took a provision of S$221 mln in case these turned bad.

These exposures certainly aren't large, and the banks are sufficiently prudent to disclose their exposures (although – as we blogged previously – it took DBS two tries to get it right). But it does make you wonder why the banks even have such exposures.

As mentioned, the same earnings announcements documented how strong loan growth had been. Wouldn't it make more sense to lend money to Singaporean SMEs, which continually complain about how difficult it is to get a loan from a bank, than to be "investing" (read, gambling) on subprime Collateralised Debt Obligations. After all, what are sub-prime CDOs, than a funky financial product invented by investment bankers to make money out of Americans who should never have been granted a home loan in the first place.

Mark Laudi

To comment on this blog, visit the Investor Central Blog.

Should Singapore banks have ever invested in US subprime loans?

Tell us...
Yes, they need to diversify their risks across a broad spectrum of assets, including subprime CDOs
No, they should not have invested in subprime loans.
No, they should have put that money towards Singapore SMEs instead

When will Bonvests Divest Burger King?

2007-11-07T21:51:00.000+08:00

I don't remember the last time Bonvests didn’t say, "The Food & Beverage Division will continue to face challenging market conditions" in its quarterly earnings report. Third quarter earnings announced Wednesday are no different. It still earns considerable revenue from it, but is losing money on it. This naturally leads to the question: why is Bonvests persevering with it, and should it in fact sell it? We think it should.

Bonvests has been the authorised franchisee of Burger King stores in Singapore in 1982. It has 46 stores. It has also operated Orange Julius stores since 1999 and Dairy Queen stores since 2001. Their most prominent outlets are at the corner of Orchard Road and Scotts Road, where they sit alongside each other. Burger King is certainly a globally-known brand and no doubt a source of pride for Bonvests. But companies have to be ruthless and ask themselves whether underperforming or struggling businesses could be improved, or sold. Such is the investment philosophy of General Electric, which has shown repeatedly that falling in love with any business division doesn't work. Is Bonvests in love with the Burger King brand?

(Story continues below poll.)

Judging by the prominence of its bus ads, Burger King is doing well. It has considerable license to tell people how good its food tastes, without having to sell apples in its stores or conduct high-profile lab tests on the fat content of its menu items, like McDonald's. But the fact is, if the business is not making money, why persevere?

Here are the facts (taken from their earnings announcement Wednesday):

1. Revenue –9.1% to S$66.9 mln
2. Net profit +21% to S$11.1 mln
3. Cash generated from operations: S$17.2 mln, down slightly from S$18.1 mln

Of the S$67 mln in revenue, only S$15.6 mln came from its food and beverage division, up less than 2%. By contrast, its Hotel business had 16% growth in sales to S$25.1 mln.

The S$11 mln in net profit could have actually been higher by S$95,000 if it didn't have the food and beverage division. Its Hotel and Property Development divisions were responsible for almost all of it.

Bonvests' earnings from property development may be patchy, due to the nature of this industry. For example, in Q3 last year it booked several million dollars worth of revenue in The Trumps development, which it didn't have this year (The Trumps was fully sold in the first half of 2007). In the absence of any enlightening commentary from the company, or analyst reports, here is our view:

1. Bonvests should divest its Burger King franchise, if contractual obligations permit
2. The proceeds from the sale of the franchise could be put towards more property developments, or something entirely different altogether.
3. In the absence of new businesses to invest in, Bonvests could pay out a special dividend, like the 15 cents paid last year on top of the steady 4.5 cent a share dividend

What do you think?

Mark Laudi

To comment on this blog, visit the Investor Central Blog.

SingTel: Focus On What's Really Important

2007-11-06T18:28:00.000+08:00

When SingTel announces its earnings Wednesday morning, much of the focus will be on its regional associates. These are companies which SingTel bought into, but which it in most cases does not own fully. The subscriber numbers these associates report are certainly impressive, but they are by no means the only things SingTel shareholders ought to be interested in. There are two other major points which rarely get a hearing at the earnings briefing.

According to numbers announced today, SingTel's proportionate subscriber base stands at 56.87 million. The aggregate number, which assumes SingTel counts each and every subscriber, even though it doesn't fully own its various associates, is almost 158 mln. This certainly sounds impressive. But how much are these subscribers actually spending on their monthly phone bills? This is of particular importance, given that 19 out of 20 new subscribers added during the second quarter are pre-paid customers, who top up their SIM card when they run low on credits. It may surprise you, but the majority of phone users in Singapore are pre-paid users. These users tend to spend a lot less than if you are a post-paid subscriber (meaning, you receive a monthly bill). The Average Revenue Per User (ARPU) is critical not just to understand how many subscribers SingTel has, but how much money SingTel actually gets from them. The answer is: not very much.

The second critical point about SingTel's earnings is 3G take-up. The statement with the subscriber numbers was telling: "868,000 subscribers had been provisioned with 3G services…". A very strange way to phrase it, but a very accurate one: provisioned means, subscribers have access to 3G services. It does not mean they actually used them. This is also important, given that these services were supposed to pick up from falling voice revenue. We'll probably get to see some numbers which point to the percentage of data revenue, but little said about what will drive 3G service usage in the future other than some general statements about the fact that the marketing department is still looking for the killer app.

All this is not to say that subscriber numbers aren't important. But I'd rather SingTel have one-tenth the subscriber numbers (and therefore lower costs) who spend 10 times as much (and therefore drive profitability and cashflow). So, finding these points of information that don't make the headline is a more interesting exercise than reading the headline grabbers.

Mark Laudi

Disclosure: Investor Central content can be accessed through the mobile portals of all three telcos. SingTel users can use their WAP browsers to go to http://ideas.singtel.com.sg > News & Finance > Finance > Financial News > Investor Central

Taking the sushi war to its Apex

2007-11-05T13:56:00.000+08:00

To outsiders, the "sushi war" in Singapore may seem a little ridiculous considering most Singaporeans are ethnically Chinese. Japanese occupation from 1942 to 1945 can't exactly be described as culture changing. Yet Genki Sushi, Sakae Sushi and others who cater to the large expat Japanese community and everyone else with a penchant for sushi are fighting it out as though eating sushi was a national pastime. Apex-Pal, the Singapore Exchange listed company which owns the Sakae Sushi chain, announced it was adding forty new menu items. Will this really make a difference to its stock price, though?

I have met CEO Douglas Foo, and his commitment to innovation in sushi struck me as almost fanatical. That's intended to be a compliment, although not a stock recommendation. It's quite apparent how much thought goes into everything they do – down to the frog sitting on a gold ingot (can you spot it?) in their logo. This effort is almost always matched by the long queues on weekends, particularly at its Wheelock Place outlet.

Now if only the stockprice could catch up. It has been trading in a tight range for many years (see chart). It receives very little attention from analysts and investors, with average volumes only around 160,000 shares per day (source: Reuters). If it wasn't trading at more than 2.3x book value, one could almost call it a value stock, with a price earnings multiple of 9x and a yield approaching 3%.

I'm not sure how adding "another 40 new items to its already extensive menu, bringing the total number of irresistible delights to 230" will change this, even less that "Sakae Sushi is adjusting its two-tier pricing. Customers will be able to enjoy its premium plate or red plate items such as fresh sashimi and special maki at only $4.99, instead of the usual $6.50."

Price wars have rarely been good for anyone. No wonder the logo at rival Genki Sushi is frowning.

Mark Laudi

Make Free Cashflow Reporting Mandatory

2007-11-02T12:55:00.001+08:00

Investors following earnings season can be forgiven for being bewildered by the numbers companies throw at them. For the uninitiated, reading the Profit & Loss Accounts, the Cashflow Statement and the Balance Sheet is quite a task. The irony is that even accountants admit much of it is based on assumptions and opinions. But while all companies provide a cashflow statement, few companies actually report Free Cashflow. We think it should be mandatory.

Free cashflow (FCF) is the ultimate measure of a company's financial health because it measures how much cash the business is actually generating, after staff and all their bills have been paid and money has been reinvested into the business, in the form of new equipment, and so on. It is the money the company does not know what to do with. It shows how much money the company could potentially pay out to shareholders.

Unfortunately, not many companies report it. StarHub is one of the few. It reported earnings last night, and the number appeared on page 2 of their earnings statement. While investors can work the figure out themselves, it would be better hearing it from the companies themselves.

That's not to dismiss profit altogether. For example, it is still interesting to know that, for example, the revaluation of a property boosted profit. Presumably, this property could be borrowed against, or sold. These would bring physical cash into the company. But the problem is there are many measures of profit (Gross Profit, Profit Before/After Tax, Abnormals, and so on). Which one should investors look at? By contrast, there is only one Free Cashflow number. It cannot be massaged by property revaluations and other abnormal items.

I can understand that some companies – especially those which don't generate any free cashflow – would be reluctant. But hiding poor cash generating ability behind great paper profits doesn't really address the spirit of continuous disclosure obligations, even though it meets the letter of it. Making Free Cashflow part of the mandatory continuous disclosure obligations would ensure that investors understand straight away whether a company is worth investing in or not.

Mark Laudi

To comment on this blog, visit the Investor Central Blog.

Record High Oil Price: Keep Speculators Out!

2007-11-01T12:54:00.000+08:00

It's time something was done about the price of oil. It hit another record overnight – US$95 a barrel – and will likely reach US$100 a barrel before long. Everyone is paying more, from individuals fueling up their cars at the petrol station, to companies which need energy to operate their machines. Add taxes, and it's getting prohibitive. My gripe with this is not just that the price is high. Afterall, in a sense it is an affirmation that the economy is strong, and that demand from China will keep demand for Singapore products and services high, too. But my gripe is more targeted at the speculators, which are contributing to its rise. Imagine how much less we'd be paying if it weren't for the speculators. If it means that the speculators need to be weeded out, so be it.

It seems completely ridiculous that we're all paying more because a bunch of 20 or 30-something traders with a laptop and an interet connection are pushing up the price. The impact this has on people, particularly in developing markets not protected by subsidies, is unconscionable. Governments paying subsidies have less money to spend on essential services. All for what?! To fatten the trading account of some traders? Oh, please.

Quantifying the impact is difficult, but the Federal Reserve of St. Louis wrote the price would be US$10 to US$15 a barrel lower if it weren't for the speculators. It quoted acting OPEC Secretary General Maizar Rahman, who may very well be correct in his assessment, although we should keep in mind that he has a vested interest in blaming people other than the cartel's own members for the high prices.

(Story continues below poll).

Still, it would be better for everyone if the price was US$80 to US$85 a barrel, or less. Think of the extra resources at the disposal of governments to build schools, hospitals, etc. Think of the additional disposable income you would have for food, school fees, and so on.

One counter-argument to lower prices might be that it reduces consumption. After all, all that oil that is burnt each day leaves significant traces in our atmosphere. The result: we're breathing in more polluted air, and paying more for the priviledge! But I am yet to see conclusive proof that the high prices have actually dampened consumption.

Another counter-argument could be that the higher the price of oil rises, the greater the impetus to find renewable energy sources. But again, the link is not conclusive.

So my view is, ways need to be found to keep speculators out of the market. We will all be better off for it.

Mark Laudi

To comment on this blog, visit the Investor Central Blog.

Effects of Subprime finally beginning to show

2007-10-31T16:57:00.000+08:00

Multi-billion dollar write-downs, quarterly losses in the tens of millions of billions of dollars instead of large profits that investors around the world and Wall Street are used to seeing, and boardroom tussles and resignations. Welcome to the aftermath of subprime.

After a summer and early autumn that seemed to show that some of Wall Street's biggest firms had survived the storm (keep in mind the Dow also set a record high as well), the flood waters are receding and the real damage is now showing. To use a midwestern analogy that is all too familiar for people in my flood prone home state of Ohio "the levy held and kept the main part of town safe, but now the water is going down and the damage is worse than we thought" (for added affect, try saying that in your best southern accent).

Earnings season seemed to be the revealing and deciding factor in all this subprime drama. After months of thinking we had made it through the unprecedented saga of subprime, everyone had to do a quick reality check when banks started reporting huge, multi-billion write-downs of bad loans, and major financial behemoths like Merrill Lynch were suddenly reporting enormous quarterly losses not seen in ages at the company.

Subprime also claimed its first boardroom casualty this week as Merrill Lynch CEO Stan O'Neal will retire, apparently under pressure after Merrill's abysmal earnings. It should be noted though that he will get about US$161.5 mln in retirement benefits though.

Even Singaporean lenders, for the most part untouched by the subprime saga -or so one thought- are feeling the heat. While not as severe as what its US counterparts are experiencing, the proof was in the pudding in the earnings announcements. UOB saw a nice 8.2% rise in its net profit for Q3, but it came in short of analysts' expectations thanks to...you guessed it! Subprime issues in the U.S.

So it doesn't seem we are out of the woods yet with subprime, and to use a rather morbid analogy, "the flood waters may be receding but the casualties are gonna surface."

Let's hope the damage is minimal...

OCBC: Sulking won't win friends, or investors

2007-10-30T15:03:00.000+08:00

It's incredible to think that in this day and age, when there is so much focus on corporate transparency, companies still sideline analysts (and sometimes journalists) because they don't like what they write. Shareholders are increasingly conscious about what and how much they are being told by companies they have invested in. So when OCBC Bank decided to omit one analyst in particular from its invitations list for its forthcoming earnings announcement November 6, it is not only at odds with current trends. It actually says more about the company than anything negative the analyst could ever have written.

The story revolves around Matthew Wilson, who has apparently been less than complimentary in his research reports about OCBC. The Edge Singapore carries the full story in its "Edgewise" column titled "OCBC snubs Morgan Stanley analyst" in the October 29 issue. It reports that Wilson upset senior executives with his critical views on OCBC's regional expansion plans, and its endowment mortgages. In turn, they decided to leave him off the invitations list.

The Edge quotes OCBC's Head of Corporate Communications Koh Ching Ching as saying "We have not banned anyone in any way. Whether we invite any particular investor, analyst, fund manager or journalist to any of our various briefing events is at our discretion." (Aha. So, what would happen if Wilson was to show up anyway? Would he be admitted?) Koh goes on to say that the results and presentation slides, as well as the webcast, are free to access by anyone.

That may well be true, and I don't profess to have any indepth knowledge about the company's thinking. But they didn't accuse Wilson of being rude or obnoxious. Just that his reports contained "inaccuracies" (reported by The Edge). So let's take The Edge's headline "OCBC snubs Morgan Stanley analyst" and the contents of the story at face value. This is the sort of headline and story most companies would work hard to avoid. Assuming the story is accurate, it raises four critical points:

1. Criticism not welcome. OCBC's actions indicate the company does not tolerate alternative viewpoints. Which is an irony, given that there is already a wide variety of viewpoints, as shown by the fact that there are five Buy recommendations, seven Outperforms, six Holds and one Underperform call (source: Reuters). So, when will investors be "uninvited" from Annual General Meetings, because management doesn't like their questions or comments?

2. Analysts are critical to communications. Many companies clamour for analyst coverage because of the status is bestows, and the liquidity in its shares in generates. That's why the SGX-MAS Research Incentive Scheme was even created. Clearly, OCBC is spoilt by the fact that at least 19 analysts cover the stock, and doesn't think leaving out the Morgan Stanley analyst matters. But surely they must understand the damage this does to their reputation by snubbing one. He is still a "critical communicator", more so because he is with a global financial institution, not a Singapore-only broker. One cannot imagine Wilson will be more complimentary of OCBC and tell his clients globally how wonderful OCBC is, as a result of being left off the invite list. Is this really what OCBC hoped to achieve?

3. Getting personal achieves nothing. CEO David Conner doesn't like it when journalists get personal in their questioning. Yet senior management seems to be getting personal with one analyst. Play the ball, not the man! If anything, Wilson should be the first analyst OCBC invites, to influence his reports. Or as The Edge concluded, "you cannot reshape opinion if the messenger is not around". No wonder OCBC didn't win any awards at the recent Investors' Choice Awards.

(Story continues after the poll)

I find the growing arrogance at OCBC quite disturbing. One wonders whether other analysts attending the November 6 briefing will ask OCBC management why Wilson is not there. Then OCBC will have lost control over the issue. Remember six or seven years ago, when Business Times journalist Christopher Tan was apparently banned from ComfortDelGro briefings because he criticised the CEO's growing pay package at a time when diesel subsidies for cabbies were being cut? ComfortDelGro backed down.

It's time OCBC did, too.

Mark Laudi

To comment on this blog, visit the Investor Central Blog.

Tiger Airways: A wolf in budget clothing

2007-10-29T17:41:00.000+08:00

When Singapore Airlines CEO Chew Choon Seng told an AP reporter on the first commercial A380 flight to Sydney last week that Tiger Airways would be going public at some stage, I almost choked on a fur ball: A budget carrier going public sounds wacky. Afterall, budget carriers are low-margin operations by definition. Bring down the value provided to passengers so you can bring down the price. Just like banks which face so-called "margin compression" when interest rates are low, budget carriers have to operate in an industry which is not designed to generate huge profit. But I think there is more to it than that.

Chew's comments were as follows:

Chew also said Tiger Airways, in which the Irish founders of Ryanair hold a stake, will eventually sell shares to the public.
"The plan for Tiger is to eventually go to the market. It will go to the market when conditions are right," he said.

Clearly, budget carriers can be profitable. But cast your mind back to all the discussion about budget carriers when they first came about a few years ago. There was a lot of talk of quick attrition (which is exactly what happened to ValuAir), as they struggled to make money on small fares. They were seen as a necessary evil, as market-disrupting operators like AirAsia came onto the scene, which were going to eat away at the profits of the full-service carriers.

But what has actually happened? Singapore Airlines is more profitable than ever, and while clearly the airline industry has gone through tough times I don't hear about another Delta or United going to the wall. On the contrary! (Story continued below poll)

What this leads to is two possibilities:

1. Budget carriers are making slim margins, and the only reason the current owners would want to list them is to sell-away low-return investments, or
2. Budget carriers actually do very well, offering special fares long in advance and keeping fares which are close to the full-service carriers for near-term bookings.

Chew's further comment is telling:

"Our Irish partners in Tiger are not exactly pressing for an IPO (initial public offering)."

In other words, Tiger is actually earning a fabulous return. A wolf in budget clothing.

But Chew's final comment is perplexing:

"They want to go to the market when conditions are optimal and it's not right now."

I see.

So the STI at or near records is not optimal?

Then when?!?!

Oil prices are above US$90 a barrel, sure, but they're unlikely to fall far, even if they do come down.

So again, if not now, when?

To comment on this blog, visit the Investor Central Blog.

Mark Laudi

Singapore to KL flights: Going to be a race to the bottom now

2007-10-26T15:12:00.000+08:00

Ah, the smell of deregulation in October. The news has finally broken that Air Asia, who has long sought to break into the KL to Singapore air route, will finally get its wish soon as Malaysian officials gave the green light for 2 flights a day, as well as flights to be operated by a Singaporean budget carrier (it's almost a sure bet that that will be Tiger Airways).

Competition for consumers is good, it drives companies to perform better and offer quality products and services priced competitively. SQ and MH have long held an almost absolute monopoly on this route for years, and prices have been sky high. A recent check of a weekend roundtrip flight to Kuala Lumpur came in at S$436. Air Asia will undoubtedly bring that price down, possibly as low as $60 each way (Tony Fernandes, Air Asia CEO has alluded to the price being as low as this amount).

What you will see then is a race to the bottom. Whether or not SQ or MH price their flights as low as Air Asia remains to be seen, but if it is any indication of how an LCC moving on to a highly lucrative route works out for the major carriers, look at the United States. In the markets that Southwest Airlines operates, prices have come down, and quite often on the exact same routes, Southwest is the same price as United Airlines or American Airlines.

Lower prices will ultimately mean thinner margins for MH and SQ. But there is some good news here on the business side of things. SQ owns 49% of Tiger Airways, so at least all is not lost.

What this ultimately means for you? Well, cheaper prices and fares for starters. For the airlines, and their bottom line, thinning margins as things become tighter. This particularly holds true in the United States but not so much here in Asia. We'll wait until the flights take off to see just exactly what happens.

-Curtis Bergh

SembCorp Marine: Who's to blame?

2007-10-23T13:50:00.000+08:00

The announcement by SembCorp Marine (SCM) that its Director, Group Finance had entered into unauthorised foreign exchange transactions left more questions open than it answered. In this commentary, we infer some of the answers ourselves.

First, how did Jurong Shipyard (JSPL) pay US$83 mln to an unnamed bank for foreign exchange transactions, without anybody knowing? While it's still not entirely clear whether this payment was authorised, it seems incredible that such a payment could have been made without arousing suspicion.

Second, it follows that perhaps foreign exchange speculation was authorised, but these loss making transactions specifically were not. We need clarity on this. If, in fact, the company knew about foreign exchange transaction, but didn't specifically authorise the ones that were loss-making, the company would need to explain what it was doing speculating in the forex markets when their main job is building oil rigs. Could it be that the transactions were part of a legitimate hedging program?

Third, how is it that a special committee set up to investigate what happened consists of the people who should have been checking on this sort of thing in the first place! Namely, Chairmen and some members of the Audit and Risk Committees.

Fourth, what time frame did all of this take place in? Clearly, the longer the foreign exchange transactions had been open, the more other people should have known about them.

Fifth, the language in the press release is very interesting.
"In light of the reasonable prospect of legal proceedings and to enable SCM and JSPL to obtain legal advice with respect to possible claims, as well as any claims by JSPL in relation to the Unauthorised Transactions…"
Legal proceedings by whom, and against whom? On first glance, the company may well sue its Director, Group Finance Wee Sing Guan but on reflection, does SCM not have the intention of making good on the transactions in question, leading to claims by the banks?

While the Business Times prematurely condemmed Wee as having misled the company (I have seen neither an admission, nor a court decision to this effect), it reliably informed us of the good news that "this event is unlikely to have any impact on Jurong Shipyard's operations, saying 'it's business as usual' (oh, happy days – just like China Aviation Oil thankfully continued business while retail investors were bleeding).

Thursday, November 1 is the day when hopefully some of these pressing questions will be answered. That's the day SembCorp Marine announces Q3 earnings.

To comment on this blog, visit the Investor Central Blog.

Also watch MyStockBriefing tonight on the Investor Central website for analyst commentary on this issue.

Mark Laudi

Uni-Asia: Why was it listed so cheaply?

2007-10-22T13:48:00.000+08:00

The first thing that strikes you about Uni-Asia is not just the big fluctuations in its shareprice since listing August 17, but what now seems like an incredibly low price that it fetched during the listing process. It offered 65.4 mln shares at 55 cents, giving it a price-to-book ratio of just 1.06x, and a price-to-earnings ratio of 5.5x. When average volumes hit 36 mln, and the stock reached an intraday record of S$2.79, it was trading at a P/B ratio of around 4x, and a P/E ratio of around 22x.

Now, I'm not going to comment on the investigation by the Singapore Exchange into possible price manipulation, which was called for by 33 retail investors who had gone to see the Securities Investors Association (Singapore) about their concerns. I do not profess to have any knowledge of whether there was any price manipulation or not. The company has also said it also doesn't have any knowledge of what caused the price to fluctuate so much.

But it sure seems strange that they let the stock go so cheaply in the first place. For the answer to this question we have to go back to the original prospectus, in which they say:

Our Company presently has no intention of purchasing our own Shares after the listing. However, if we decide to do so later, we will seek our Shareholders’ approval in accordance with our Articles and the rules of the SGX-ST.

Our Company will make prompt public announcement of any such share purchase and has also given an undertaking to the SGX-ST to comply with all requirements that the SGX-ST may impose in the event of any such share purchase.

In relation to the existing major shareholders, the prospectus has this to say:

Uni-Asia was established in Hong Kong in 1997 by founders Motokuni Yamashiro, Kazuhiko Yoshida, Michio Tanamoto and Takanobu Himori who were Japanese bankers. Each of the founders has over 25 years experience in the banking industry working in corporate loan syndication and structured finance arrangement. Mr. Himori left our Company in March 2004. The other founders continue to lead the business and as at the Latest Practicable Date, they own, directly and indirectly, a significant aggregate equity interest in Uni-Asia of approximately 23.9%.

These have given their assurance (page 57) that they would not be selling any shares for six months from listing – a time period which has not yet expired. So even if they did give away the shares too cheaply during the IPO (but why would they do this?) they would still not be permitted to sell the shares at this time. At worst, it seems, the shares were just "coming off a low base".

What is your theory?

Mark Laudi

To comment on this blog, visit the Investor Central Blog.

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Who Really Reads Annual Reports?!

2007-10-19T12:51:00.000+08:00

Most investors either don't have the time, the expertise, or the inclination to plough through a hundred page annual report, particularly if they own several or many stocks and receive on average one annual report a week. Which begs the question: why do companies spend all that money and resources sending them out in hard copy?

This is an important issue, for several reasons. First, cost. Here are two images from the Portek Annual Report, which went out to shareholders this week.

Check out the colours, design and photography. It may not seem like a lot of money to spend S$50,000 or so on printing and mailing the annual report, particularly if the design, layout and photography already cost a lot of money. But that leads me to the second point, and that is, the environment. In the past, shareholders may not have cared too much about this, but as the proliferation of sustainability reports shows it is of increasing concern to shareholders. And if shareholders demand companies stop wasting a lot of paper (my copy of the Portek annual report will go into the recycling bin, with only a few pages having been read) then companies should respond.

I'm not saying companies should not bother producing annual reports. On the contrary, they are an important part of corporate disclosure and transparency. Beyond that, they are a source of pride for companies, because they sum up all their achievements over the previous financial year.

But the file is already sent to the printer in electronic format. It seems to me to make most sense to email the same file to shareholders as well. Or at least, to give shareholders the option of receiving the annual report this way.

Mark Laudi

To comment on this blog, visit the Investor Central Blog.

"Trust" me

2007-10-18T19:35:00.001+08:00

No I'm not asking you to trust me personally, I'm talking about trusts listed on the exchange. We have everything these days from ships to property, planes (soon with GE Altitude Aircraft Leasing about to list), and in my opinion in ten years just about everything imaginable will be listed. Why? Well I think the direction is already there.

Buses, Trains, Parks, Roads, you name it, soon it will have a trust and it will be available on an exchange near you to take a stake in.

Tell us what you think about trusts. Are they a good investment? Do you like them? Do you hate them? Post away below everyone and be sure to come back in ten years and tell me if I was wrong or not!

-Curtis Bergh

Cut The Vague Disclosures And Get Specific

2007-10-17T10:44:00.000+08:00

Singapore companies have improved significantly in terms of corporate disclosure and transparency. But there is one area in particular which needs a good hard look, and it’s time for companies and the authorities to draw the line and say – no more! I am referring specifically to directors’ pay, and the propensity of companies to not disclose precisely how much their directors earn. As shareholders, we have a right to know.

Directors of the boards of management play the important role of checking on what management gets up to. Their fiduciary duty is to ensure the accounts are up to scratch, and to check executive management’s direction is in the best interests of the company and shareholders. They are the “keeper of the company”, acting as checks-and-balance on the executives running the day-to-day affairs.

Therefore, the irony is all the grater that this noble role does not seem to extend to disclosure of how much they get paid. Very few companies disclose the exact dollars and cents. They merely state the range of salaries, such as “less than $250,000”, “between $250,000 and S$500,000”, and so on.

This is annoying enough when existing public companies do this in their annual reports. But it’s even worse when debuting companies do this in their prospectuses. We are expected to write cheques to subscribe for shares to people we often have never heard of, and with no track record. For them to enter salary bands, rather than precise figures, is like writing them a blank cheque! Yet CEOs are regularly put under significant scrutiny. As shareholders, we ought to know how much directors get paid, too. It’s our money.

In a sense, directors bear the burden of compliance, and if something goes wrong it’s their neck on the line. They ought to be compensated for this. In addition, some directors add significant value to management, through their own experience, their contacts, and so on. And retail investors need to keep perspective, that directors may only show up to monthly or quarterly board meetings, but their responsibility to the company and their fiduciary duty applies every day of the year.

Further, retail investors are far better off now than they were even ten years ago, thanks to continued refinements by the Singapore Exchange, and the presence of the Securities Investors Association (Singapore), which continually puts pressure on boards to improve.

But the issue of salary bands needs to improve. And in the absence of action by the authorities, it’s up to shareholders to push for it.

EI-Nets: Thinking out of the box

2007-10-16T18:00:00.000+08:00

For as long as companies abide by the letter of corporate disclosure laws – without offering their own theories why their stocks are heavily traded – there'll be a need for us at Investor Central. Case in point: EI-Nets. It's been at the top of the Top Volume charts several times over the past weeks, leading to a query from the Singapore Exchange on October 4. At the time, EI-Nets said it had nothing to announce. The company's Executive Deputy Chairman Liau Beng Chye may well be justified in not commenting on market talk. But the market would have been better informed if he had referred to two announcements in particular which could be responsible for traders' interest, even if they at least one of them is not strictly within the control of the company.

The first is spelled out in Ashley Choo's story on Investor Central on October 5, detailing the involvement in the company by Dr Anthony Soh from Asia Growth Capital, who already subscribed to a substantial stake in late September for a fraction of the current price.

The second reason came to light this afternoon, when EI-Nets posted the auditors' opinion on its recent earnings announcement. In it, Deloitte & Touche said:

We understand from the directors of the company that they have been evaluating various strategies to improve operating performance and financial position of the company and the group to enable the company and the group to continue to operate as going concerns. It is presently not possible to determine the eventual outcome of such strategies.

The matters set out in the paragraph above indicate the existence of material uncertainties which cast a significant doubt on the company’s and group’s ability to continue as going concerns.

Heavy going.

In the same disclosure, the board counters:

The Board of Directors refers to the above audit opinion on going concerns matters and are of the view that the Company and the group is able to operate and continue as going concerns.

It recounts previous announcements, including the investment of Dr Soh.

Clearly, companies have better things to do than to constantly remind investors of previous announcements. But if companies were able to see better the point-of-view of investors, rather than just going by the letter of the law, it would help shareholders join the dots.

For as long as they don't, we at Investor Central will be keeping our jobs.

Mark Laudi

To comment on this blog, visit the Investor Central Blog.

F&N: There's gotta be more to it!

2007-10-15T10:51:00.001+08:00

The story dished up by the Business Times this morning in relation to Fraser & Neave is so full of holes, I am having trouble grasping why the paper even published it.

In essence, the BT story titled "F&N Gets Extra Shield With New Chairman In Place" says:

1. The board has fought off Heineken as a potential suitor
2. Some members of the board are congratulating themselves over this
3. The arrival of Lee Hsien Yang as Chairman – effective today – will "bolster its defenses"

If this story is actually true, shareholders should be extremely angry.

First, my blood boils when I read that F&N "has been bolstering its defences against a possible takeover bid by global brewing giant Heineken".

Hullo?!

It is the board's job to ensure shareholders get value for their investments. If this means accepting a well-priced takeover, so be it!

Second, the story says F&N "has been doing all it can to ensure that it remains a Singapore-owned entity." Where was this ill-placed sentimentality when Colony Capital bought the Raffles Hotel (arguably, an institution far more deserving of rescue from foreign hands than a soft-drink, beer and publishing company)?

Third, if Temasek really did invest because board member and celebrity accountant Nicky Tan brokered a S$900 mln investment, the question has to be asked whether Temasek is deviating from its often-stated philosophy of investing for purely commercial, and never political or parochial reasons. Further, it would be in shareholders' interests to know whether Mr Tan received a fee for his services, given that the company has an apparent predisposition to paying its board members extra consultancy fees.

Fourth, it cannot be true that "Mr Lee's appointment is just one of the moves it has made to stop [a Heineken takeover] from happening", because Mr Lee himself was at the buying-end of one of the most contentious takeovers of Australian corporate history. As SingTel chief he oversaw the purchase of Optus, which brought forth all sorts of concerns about Singaporean ownership and the potential for military information carried by Optus' satellites to fall into Singapore hands (that argument, incidentally, was just as ill-founded as supposed concerns that F&N would fall into foreign hands). Are we now to believe Mr Lee will argue black and blue against a Heineken takeover? If Mr Lee is worthy of his reputation – which I believe he is – he will argue in favour of a takeover bid by anyone who offers the right price.

Further, if Lee is the "extra shield" against a takeover (as the headline states), what was previous Chairman Michael Fam? A walk-over? Hardly, because no deal with Heineken was done.

There are other issues with this story.

First, it does not explain how – if at all – this has anything to do with the sudden departure of Chief Executive Dr Han Cheng Fong. Could it be that he alone argued in favour of letting Heineken make a bid?

Second, the story has no sources, other than a few references to comments made in other contexts by Dr Han and Heineken Chief Siep Hiemstra. How the paper then managed to conjure up phrases like "the story can now be told" (who did he get permission from?) and "Apparently, there was more to it" (according to whom?) is beyond me. At best, he has been sitting on this story for ten months (who is his responsibility to? BT readers or the board of F&N?). At worst, he is a pawn in someone else's game which is feeding the public a red herring for their own agenda.

Mark Laudi

To comment on this blog, visit the Investor Central Blog.

Weather and the Markets: Balderdash

2007-10-12T16:18:00.000+08:00

It storms, the market goes down. The sun comes out, the market goes up. Sound familiar? Well, it may happen from time to time but its not an exact science. Generally speaking this seems to be the trend though (for whatever crazy reason). Bad weather rolls in and its pandemonium and chaos.

We've never really debated this on the blog but nows the time.

I think its a bunch of bologna. Garbage. Balderdash, whatever you want to call it...weather directly affecting the markets? Give me a break...it's a little rain people!

It's not like we have to deal with hurricanes, blizzards, and freak nor'easters that the eastern seaboard of the U.S. deals with from time to time. In those cases, yes, that will affect the markets only because they are extremes. Hurricanes regularly intrude into the Gulf of Mexico, often shutting down oil rigs cutting energy production thus affecting oil prices, which, have a certain influence on the market.

But here in Singapore, its just rain...big freaking deal.

For instance, today at around 12, some storm clouds rolled in and the market dipped a bit. Hmm. I can recall a few times in the past when it was the same sort of situation; storm rolls in, market dips.

Why is it that this happens from time to time? We have blizzard's left and right in the U.S. where traders are wading through knee deep snow on Wall Street just to get to the floor of the NYSE and things seem to be fine?

For me, I think its a load of garbage that there is an adverse affect on the market (or there appears to be) when it storms. The exchange is indoors people. Come to think of it, the exchange really doesn't physically exist anymore here since its all electronic anyway. It's not like we have things outdoors.

There is a big debate going on about this, so please, post away with your views and opinions. Does weather affect the market? With my tone of the above you should be able to figure out the answer to that for me is a resounding "NO!"

Just google this topic and you'll get a lot of hits.

Leave comments, take a side, and have a great weekend.

Oestrogen In the Boardroom

2007-10-11T16:41:00.001+08:00

I interviewed Banyan Tree's independent director, Mrs Elizabeth Sam recently for a story I did. While she may not be the head honcho of the group, it was thrilling to talk to a woman who have achieved so much over the years and still have time to sit down at the hairdresser's to get her hair coloured and done.

So I wonder if I'll be like her one day.

I'm sure many other girls think about it too.

But when you look through the list of board members in Singapore's listed companies, you can hardly find anybody like Mrs Elizabeth Sam.

No I don't think this is a case of sexism where gender is used as a prerequisite to get to the top of the corporate ladder.

I believe it's more a case of qualifications. See a lot of women drop off the corporate ladder to care for their families at the peak of their careers.

So women may not be as qualified as the rest ie. the men who go on to gain more experience as they work.

Obviously, there's no point putting someone in the boardroom just because she's a woman but not qualified enough to make meaningful opinions.

Or are they? The issue lies in the qualifications required to get into the boardroom. Mrs Sam has 40 over years of experience in the financial sector including being Chairman of SIMEX – what SGX was previously known as.

What if we changed the qualifications to the amount of time and effort spent on nurturing her household members? If she can care for her family, she jolly can do the same for a company

If we want more diversity of opinions in a boardroom, we want different experiences, not someone with the same set of skills with the only difference in skin or gender.

The OTC Market: "Mission Impossible"

2007-10-10T15:31:00.000+08:00

Congratulations are in order for PhillipCapital, which went through a great deal of effort to launch the Over-The-Counter (OTC) Market: a simple, cheap way for companies to raise money. When it was launched more than a year ago, it held great promise to cover the middle ground between venture capital and a full public listing on the Singapore Exchange. However, as PhillipCapital acknowledged in a newspaper report this morning, things haven't quite gone their way. Given that the Singapore Exchange is planning a second board to rival the Alternative Investment Market (AIM) in London (here is an excellent briefing on the SGX's plans, written by Wong Partnership), it would appear that Phillip's OTC Market is dead in the water. Only three companies have listed. Their share prices have barely budged. And one of the companies themselves is quoted as saying they may well have considered a Sesdaq listing, if the option had been available earlier. So, what can PhillipCapital do? And why should you care?

The OTC Market had – and still has – a lot going for it: it had no rivals in the intermediate funding area, with venture capital and bank loans at the lower end, and an SGX listing at the higher end. Further, it has the backing of one of Singapore's most popular retail stock brokerages. Given that you must sign a disclaimer during a lengthy registration process, the "quality" of shareholders is also significantly higher (there are unlikely to be as many 'come-for-the-food' AGM attendees with OTC-listed companies). And there is no shortage of companies which would like to have the experience and prestige of being publicly listed without the associated costs.

The problem is that the SGX's New Market (or whatever they end up calling it) will hit the OTC where it hurts, in four ways:

1. Cost. The cost of a New Market listing will be lower, and while perhaps not as low as the S$170,000 it costs to list a company on the OTC Market, other advantages of a New Market listing are likely to negate the difference.

2. Quality. Shareholders will be able to be sure of the quality of the companies because rigorously selected Sponsors will have to keep watch over the companies they bring to the New Market for at least three years. While Phillip probably does a good job in keeping watch over OTC-listed companies, it has the air of a private investment club, rather than a public market. Sunshine is the best disinfectant, but there's very little light shed on OTC-listed companies.

3. Disclosure. Due to the unregulated nature of the OTC Market it cannot advertise. Receiving an email from Phillip advising of a new company listing is so cloak-and-dagger, it's like being on the set of the 'Mission Impossible' film and receiving a top secret message that will "self-destruct in five seconds". Disclosures by companies about their operations are not made public. By contrast, corporate governance and transparency for SGX-listed companies has been steadily improving (although there's still room for improvement).

4. Liquidity. Resulting from the three foregoing points will be increased liquidity. That alone is already worth the extra cost and disclosures that a New Market listing will bring with it, compared to an OTC Market listing.

All this is not to say that the OTC Market cannot survive. But clearly, it needs to attain a much higher profile – both in terms of the market itself and the companies listed on it – to be able to compete with the SGX New Market.

Mark Laudi

Do you think the OTC Market can survive? Go to the Investor Central Blog to post your views.

Straits Times Index Revamp: now even less relevant

2007-10-09T14:40:00.000+08:00

The Straits Times Index will be relaunched next year with thirty stocks, but we think this will face lift will not hide its wrinkles, or lengthen its life span. Rather, it will hasten its demise. And that's a good thing. The Straits Times Index is at odds with the Singapore Exchange's tie-up with FTSE Group to develop new indices for our market which adhere to global standards (a move which is to be applauded). After all, an index is supposed to provide a benchmark. What's the point of having a benchmark which does not apply consistently across the globe? The sooner we let go of this relic, the better.

The new Straits Times Index reminds me a lot of the Dow Jones Industrial Average in the United States. It also consists of thirty stocks. But while it might be interesting to look at the so-called top stocks (we could debate the composition) it is of little use to investors. The S&P 500, which obviously takes many more stocks into account, is a far better barometer of the market.

Similarly, even when the Straits Times Index still had 48 or 50 stocks (in terms of the consistency, the STI was pretty useless to begin with) it represented only around 60% of the total market capitalisation of SGX-listed equities. We need an index that adheres to global standards, and is more inclusive of the market.

I would acknowledge a counter-example in the All Ordinaries Index in Australia. It has more shares than the S&P/ASX-200, but is no longer considered the benchmark. But again, the old index gave way to the new, in the same way I think the Straits Times Index's days are numbered. For many years until 2000 the All Ords was the benchmark everybody looked at, largely because there was nothing better around. When the Australian Stock Exchange sold its indexing business to Standard & Poor's, and the S&P/ASX index series was created, the All Ords was recognised for the dinosaur it was. Even though it was cut back to the top 500 stocks by market cap (and applying the other criteria which these large indexing companies apply, such as freefloat), the S&P/ASX-200 became the new benchmark. The extra 300 stocks the All Ordinaries Index covered made up such a small percentage of the market that the S&P/ASX-200 became considered as far more representative of the stocks that mattered. So, the index with fewer stocks became the benchmark of choice.

However, I don't think we will see the index with fewer stocks, that is, the Straits Times Index, to remain the benchmark in Singapore, in the same way that we don't consider the S&P/ASX-20 or the S&P/ASX-50 as the benchmark in Australia. Too few stocks, too unrepresentative in market cap terms of the entire market.

Therefore, I cannot see a logical reason to keep the Straits Times Index. In my view, the only reason why FTSE is persevering with the Straits Times Index is due to nostalgia, to provide a cross-over period until the new FTSE indices become more established, or because of SPH's continued involvement in the indexing business. None of them good enough reasons to keep it.

My prediction is the Straits Times Index will be relegated to a second mention on the evening news, just as the All Ordinaries now plays second fiddle to the S&P/ASX-200, and the Dow Jones Industrials Average is always only mentioned in conjunction with the S&P 500.

The new benchmark to watch is the FTSE ST All Share Index. With 98% of the market covered, it will be far more relevant to what's going on. And because "FTSE ST All Share Index" is such a mouthful, and continues with the free advertising for a newspaper, we're just going to call it the "Footsie-All Share Index" or the "All Share Index".

Mark Laudi