"X"pensive AirAsia X IPO ?

Slate for its debut trading tomorrow (10th July 2013), can AirAsia X follows the footsteps of its sister company AirAsia? What would happen tomorrow pretty much depends on the fair value given by various research houses.

AirAsia X is a leading long haul low cost carrier since operating on Nov 2007, primarily in the Asia Pacific region. Currently, it serves 14 destinations acorss Asia, Australia and the Middle East, with 11 A330-300 planes.

Investment analysis:

1. Benefits from synergies as part of AirAsia group
2. Strong brand name
3. Operate in the fast growing aviation market in the world
4. Lowest unit cost base in the region
5. Strong ancillary income at RM141/pax and expected to grow further

How about the risks?

1. High jet fuel price
2. World crisis i.e. war, terrorism, epidemic outbreak
3. Slowdown in world economy
4. Emergence of other long-haul LCCs
5. Delaying of KLIA2 which may hamper its growth prospects
6. Strengthening of USD against MYR, because 79% of its debt is denominated in USD

So, what's the fair value?

Either Rm1.40 or Rm1.20 given. Seems like this is not an exciting IPO for investors. Anyway, tomorrow debut most likely will remain in positive territory because there is a "king card" in hand. Yes. Maybank Investment Bank will be the stabilizing manager who can purchase up to 15% of the total number of shares offered under the IPO. No worry.

Why TUNE INSURANCE is Out of Tune?

Every wonder why we didn't cover the IPO for Tune Ins ? Other than CNY mood, it's because of the unexciting part of this new stock. Why? Please read on...

Tune Ins Holdings Sdn Bhd (TIH) operates 2 core businesses. First, it provides online insurance where insurance products are sold as part of the customer’s online booking process with their partners namely AirAsia, Tune Hotels and AirAsia Expedia. TIH also operates a general insurance business, through 83.26% owned subsidiary - TIMB.

Why invest in Tune Insurance Holdings?

1. Wide and cost effective distribution channels
2. Provide ease in buying coverage
3. Exclusive partnership with AirAsia
4. Ability to ride on AirAsia’s robust growth
5. Additional revenue and cost synergies from TIMB
6. Robust industry prospects

However, some of the above investing reasons had also became the disadvantages of TIH. It's reliant on AirAsia business is too important. TIH's success is very much depends on the success of AirAsia businesses, and because of its relationship with AirAsia, TIH would face difficulties in forging a partnership with other airline.

Meanwhile, for TIH domestic general insurance, stiff competition and the implementation of tighter capital requirement for insurance companies may affect its operations. It's in the industry where size does matter. I don't think TIH can cross-sell it's online clients easily on other general insurance, such as fire and car insurance.

Forecast and Valuation given by TA Securities Research

Going forward, we believe TIH’s gross earned premiums will be closely linked to increase in passengers carried on AirAsia. We estimate AirAsia’s passengers carried to increase at an encouraging pace of around 15% per annum. Tagging a 20% to industry’s targeted PER of 10x, we fairly value TIH at RM1.00.

Fair Value RM 1.00 ???

Hey dude, the IPO price is RM1.35 !!!

Outlook: SELL in May and Go Away? (May 2012)

Lackluster global markets. The Malaysian market sputtered in April after hitting a  record close of 1606.63pts early in the month. It then trended downwards together with most global markets, as political uncertainties in Europe sapped the strength of markets worldwide in the first half of the month, while political uncertainties at home dampened the KLCI in the second half of the month. This was indeed as per our expectations.

Outlook: Sell in May and Go Away?

We investigated the historical index performance over the months of May–Sept and Oct–April for the US and for Malaysia, Jakarta and Hong Kong to try and determine if there was any truth to the old adage. Analysis indicates that over the past 52 years in the US and 22 years in Asia, markets do indeed under-perform more during the months of May–Sept as compared to Oct–April, with the KLCI surprisingly emerging as a high beta market compared to the other three markets.

What goes up must come down
With the  historical trend speaking for itself and global markets performing robustly thus far in 2012, we therefore believe there is a strong risk for markets to retrace in May. Even though Malaysia has under-performed global markets year to date, a global slump may still put a dent in the Malaysian market. As such, we advise the following strategy for the month of May:

• Sell early in the month with Blue Chips likely being sold down if the global market slumps
• Buy defensive stocks early in the month, especially in the Mid and Small Cap consumer  space as some stocks here have not rallied in the 1Q
• If markets come down significantly, ie, the KLCI drops below the 1550pts, then consider accumulating stocks in the Construction, O&G and Banking space on weakness

April Top Buys did well
Considering the 1.6% drop in the KLCI for April, our top Buys did well with 4 out of our Top 5 outperforming the KLCI and also returning a positive return for the month. This was due to our strategy of selectively picking stocks with their own specific catalysts in April. The only disappointment was  MMC that continued to be dampened by rumours of a delay in the IPO for Gas Malaysia.

Start off with defensives in May
With a potential drop in the market in May, we would recommend going defensive over a 1-month time frame. Those with a longer time frame could consider picking up cyclical as the market drops, but we do not have the luxury of that for our monthly outlook. The Top 5 are, therefore, familiar defensive names including telecom companies Axiata and Telekom Malaysia, consumer-related plays AirAsia (which may benefit from lower oil prices) and Media Chinese (benefiting from increased political interest) as well as TASCO, a small logistics company with reasonable dividend yields and a strong track record.




Source: OSK Research report

OSK Strategy and Outlook (Dec 2011)

Essentially, with the uncertainties in Europe continuing amid a potential global slowdown in the economy, we will continue to see market volatility in the next few months. As such, we continue to advise investors to be patient and focus on Defensive counters, while looking out for opportunities to Trade. We continue to advocate Buying into Weakness when the KLCI falls towards the 1,300-pt level, focusing on Banks, O&G and Construction stocks while we advocate Selling into Strength on the same three sectors when the market rallies towards 1,500 pts.

Festive Cheer in December?

While we remain fairly defensive over the mid term, December may still be a bright spot amid the gloom. There is still a possibility of the traditional year-end rally and the just announced joint effort by various central banks, including the US Federal Reserve, the European Central Bank, the Bank of Japan, the Bank of England, the Swiss National Bank and the Bank of Canada to provide liquidity may just convince markets that there will indeed be a coordinated global effort to tackle the sovereign debt woes.

These central banks will be reducing interest rates on dollar liquidity swaps by 50 basis points. While we doubt that this will be the magic pill for Europe and the world, there may just be enough optimism and hope left in December to see markets rise towards the year end. As such, we see a possibility that the KLCI may still rise to end the year in positive territory, close to our 1,533-pt year-end target, although ultimately economic woes in Europe should drag it down towards our 1,466-pt 2012 Fair Value.

Asian governments also getting into the act. The efforts by central banks is also being supported by Asian countries with the Chinese government cutting reserve ratios for its banks, while Thailand announced its first interest rate cut since August 2009. As such, there could also be a regional boost to support the global effort.

OSK Stock Picks for December 2011

Throwing in some cyclical names in December

Given our view that the KLCI may possibly rise in December with the coordinated efforts by central banks worldwide to put on a united front (at least till the end of 2011), we introduce more cyclical names into our Top Buy list, such as Maybank (replacing Axiata that has done very well) and Dialog (replacing the ever defensive KPJ Healthcare).

Source: OSK Research Report

OSK Strategy and Outlook (Oct 2011)

We still feel that there is downside to the KLCI although with non-GLICs supposedly close to maximum cash levels and GLICs supposedly not aggressively supporting the market up till now, further downside maybe somewhat less than our recession market bottom of 1086 points.

OSK: Normalised performance of September’s top stock picks

With Budget 2012 (to be announced on this Friday 7th Oct) around the corner, OSK has no major expectations of the budget except that it will probably be people friendly and include:

1. No further tightening of regulations with regards to the property sector which should be positive for property stocks
2. No hike in Brewery Tax which will be positive for Carlsbergy and Guiness
3. A 4.5 - 6.8% hike in Tobacco excise duties which will be mildly negative for BAT and JTI
4. A likely hike in Civil Servants salary as the last hike was in 2008 which will be positive for MBSB

OSK: Defensive Top 10 Buys

OSK remain defensive for now with expectations of a further drop in the KLCI although they do not see it dropping to our recession bottom of 1086 points. Given the volatile market conditions, it is difficult for us to forecast when the KLCI may fall past the 1300 points level although a break below is possible in October itself. As such, our recommendation is no longer "time-based" but rather "level-based".

For now, with 1300 points still some 6% away from current levels, we remain NEUTRAL on the market with our call still focused on Defensive stocks. A fall below the 1300 level will likely prompt us to upgrade our call on the market to a BUY.

OSK: Top 5 picks for the month of October 2011

With 3 of Top 5 Buys in September outperforming the KLCI and given the significant market uncertainty remaining, OSK keep its Top 5 Buys intact for October. Axiata, Petronas Gas, TM and KPJ are undoubtedly defensive stocks while selling may yet abate on foreign darling AirAsia with profit prospects improving as oil price drops. Aggressive Bottom Fishing is only recommended once the market breaks below 1300 points with names such as Genting, Parkson and Dialog coming to mind then.

Source: OSK Research

Foreign Funds Dumping Msia Equities? (Sept 2011)

Local market, view as one of the most defensive market in the world, suffering the same fate as regional market this round. The correction which started early of August had actually hit our shores too. Who say we are in a better position when market downturn? No one raised their hands now. Ha..aaa.

Historically, our local market is very "Dull" if foreigners do not participate here. KLCI shoot up because there is an in-flow of foreign funds into Bursa Malaysia. During that time, we are very joyful and assumed that they're in for long-term (until recently). Don't be "syok-sendiri laa" bro. Investors are here because they want to make profit. After achieving their goals, what would they do? Of course, taking profit (and bring down KLCI) and left our country.

Then, when is the best time to leave?

Now or never. In other words, KLCI went up and go down mainly because of foreign funds. Retail investors definitely do not have the power to muscle the markets. Agree?

Foreign ownership in Malaysia fell to 21.6% in August 2011, as foreigners sold RM3.8bn during that month. Stocks with high foreign shareholding could be vulnerable to a further sell-down in the current negative environment. The said stocks refer to AirAsia, Genting, IJM Corp, CIMB, GenM, Gamuda, in which already seen heavy selling pressure lately.

Source: Excerpt from Credit Suisse report dated 26 Sept 2011

Answering the topic question, YES, foreign funds did sell down on Malaysian equities recently. However, those stocks that were battered down may in for a sharp rebound once foreign funds coming back again. Why? Simply because they selected the said companies for some good reasons, and these reasons would ensure them to re-look again if the pessimism of the market is gone.

OSK Stock Picks for May 2011

The KLCI lagged the region in April as it suffered from the fallout ahead of the Sarawak state elections. With that behind us, OSK see the market recovering in May as they believe the 1Q2011 will at least meet downbeat expectations after the past 4 quarters of disappointments. With the potential for reasonable results, we believe the market will shift back to fundamentals and look back at Big Caps.

KLCI was a laggard

With the KLCI recording a total return of -0.25% in April, Malaysia's standing YTD slipped significantly to being the 4th worst performing market from being the 4th best. As mentioned earlier, the key drag on the Malaysian market was the Sarawak state elections. While the market had put in some gains ahead of the Invest Malaysia conference on 12 and 13 March, by these dates concerns that the incumbent Barisan Nasional would fare below expectations in the state elections led to significant profit taking in the Malaysian market. Towards month end, with the BN retaining its two thirds majority in Sarawak, there was a modest recovery given continued strength in global markets.

OSK: Total Returns year-to-date

For April, no sector strongly outperformed or underperformed with the biggest gainers being the Gaming and Consumer sectors driven by Genting and F&N, while the biggest losers were the sectors hardest hit by the Japanese calamities namely Autos and Technology with drops seen in UMW Holdings and JCY International.

OSK: FBM100 gainers and losers in April 2011

Strategy - BUY Big Caps, Trade property

After October 2010 which saw a jump in investors sentiment on property counters spurred by the 3 M&A proposals of UEM Land-Sunrise, IJM Land-MRCB and Sunway-Suncity, news flow on property counters has generally tapered down. We believe this is set to change soon with the likelihood of more announcements on Government land developments around the Klang Valley such as Sungai Buloh land, the Sungai Besi airport and others as well as annoucements relating to developments in Iskandar Malaysia. As such, we would advise investors consider trading in property counters with good Government ties such as SP Setia, UEM Land and Glomac.

OSK: Top Picks for May 2011

Inline with the view that Big Caps could do better in May with the focus back on earnings, we shift our Top Buy calls for May all on Big Caps. We pick our Top 2 banking buys CIMB and Maybank coupled with our Top Telco Buy Axiata. We include our Top Transport buy call AirAsia which just completed an analyst corporate visit in Bangkok and Jakarta in preparation for the upcoming listing of its Thai and Indonesia associates. And round it all off with UEM Land which is an excellent proxy to the upcoming potential news flow in the property sector and also as recognition to its likely inclusion into the FBM KLCI in June. Do note that aside from AirAsia, all the other 4 stocks have been laggards or market performers over the past 3 months.

Source: OSK Research report

2010 Top 10 Malaysian Companies

Wall Street Journal (WSJ) recently announced the result of Asia 200 survey, which ranked the top 10 companies of selected countries according to financial reputation, corporate reputation, quality, vision, and innovation. Want to know the winners of Malaysia?

Wall Street Journal: "For the second year in a row, Public Bank Bhd ranked 1st overall among Malaysian companies. The bank's profit rose 20% to RM 2.2 billion on a 12% rise in revenue during the first nine months of the year.

Customer deposits grew at an annualized rate of 12.2%. Public Bank, Malaysia's 3rd largest lender by assets behind Malayan Banking Bhd (Maybank) and CIMB Group Holdings Bhd (CIMB), also ramped up its Tier 1 capital ratio while touting a dramatically lower impaired-loans ratio at 1.2%, versus 3.4% for the industry overall."

Source: Wall Street Journal

Meanwhile, CIMB Group this year makes a new showing on the Asia 200 list, with a #7 spot. The group helm under Dato' Sri Nazir Razak, spearhead CIMB as a regional universal bank, setting its foot in Malaysia, Singapore, Indonesia, Thailand, Hong Kong, China, UK, USA, Brunei, Myanmar, Vietnam, Bahrain and Cambodia.

Surprisingly, Malaysia Airlines (MAS) was being ranked as #9 on the list, while AirAsia - the stiff rival - are not included. Anyway, MAS did turnaround recently after suffering from huge losses few years back. A police report against Tan Sri Tajuddin Ramli (former executive chairman) was lodged by MAS in 2002 for allegedly causing the national carrier to suffer losses in excess of RM 8 billion.

Ananda Krishnan's Maxis and Astro earned their place at 4th and 10th respectively. After re-listing of Maxis 2009, the billionaire took Astro, Measat and Tanjong private this year.

Source: Wall Street Journal

AirAsia vs Tiger Airways

"If Tigers were meant to fly, they would be born with wings"

What do you think?

Congratulations, AirAsia won another award - "The Best Airline Advertisement" (if there is such an award)!!!

Interestingly, both airline has many similarities.

Both are budget airline

Both are headed by Tony (AirAsia's Tony Fernandes and Tiger Airways' Tony Davis)

Below is the full-story of the battle:

Fernandes : "We're Asians, not a bunch of white guys running the airline"

Davis        : "It was a racist remark"

Fernandes : "It was a tiny carrier"

Davis        : "Tiger aims to be among the top three global airlines"

< Then, the famous advertisement popped up in Singapore newspaper >

Davis        : "It's no wonder some of our competitors are getting so rattled"

Because of the interesting advertisements from AirAsia, DiGi, Maxis, Celcom... I like reading advertisements more than before. Hopefully, after the advertisement-war, price-war will erupted soon. By then, "Everyone can Benefit"...