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.

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

Rank: Guoco vs Genting

Recently, a mid-size brokerage firm in London states the possible corporate tussle in UK gaming company - Rank. What's interesting in UK in fact is the two Malaysian tycoons, Tan Sri Quek Leng Chan and Tan Sri Lim Kok Thay. Rumour is brewing on the possible corporate tussle between the two to gain bigger control of the company.

As at June 30, 2010, Quek's Guoco Group Ltd and Lim's Genting Bhd owned 29.95% and 11.59% respectively. Speculation that Guoco may raise its stake in Rank to a more significant level has been around for some time. This seems more likely now because Rank has improved its operating performance, and it fits into Quek's style of owning at least a 60% stake in each of his core listed companies.

Genting is said to be monitoring the situation very closely, as Genting has just perform its multi-billion related party transaction (Genting Singapore sold its UK gaming operations to Genting Malaysia).

In my view, any actions taken would be coming from Guoco, not Genting side. Reasons being Quek has been actively on the look out for acquisitions. Guoco's cash holding has been decreasing, after launching a few acquisitions since 2008 crisis. Yet, Guoco is cash rich now.

Meanwhile, Genting Malaysia has utilized most of its cash after taking UK's gaming operations and US racino project. Although Genting Malaysia could raise cash easily, this could potentially falling out-of-favor from investors as a cash rich dividend stock.

Genting Malaysia – Drying up

The past two months have seen a slew of activities within the Genting group. Other than the spectacular result shown by Genting Singapore (GENS), Genting seems to be treating unfairly to another son – Genting Malaysia (GENM).

1^st, GENM to buy Genting UK from GENS for £426m or RM2.1bn. (See figure 1)

2^nd, GENM has won a bid to develop and operate Aqueduct racino in New York City. (See figure 2)

Well, the Aqueduct deal appears promising, with its key appeal being its strategic location just two subway stops from the New York subway. However, the UK assets seem to be too expensive for GENM to swallow.

According to CIMB research, the acquisition price seems slightly high at 1.2x price/book value. Recall GENS originally bought these assets back in 2006 for £699m and three impairment charges taken since then have reduced the book value to the current £289m.

No wonder minority shareholders are against the deal. Surprisingly, the proposed acquisition gets the go-ahead signal after a 2-hour session. Anyway, congratulation to Genting’s another successful related party transaction. (I have to say)

And, because of the above two deals, GENM’s net cash hoard of RM5.27bn will be reduced to RM0.8bn (assuming total initial investment cost of US$730m for the Aqueduct deal).