MSM: So Far So SWEET (30th June 2011)

New Bursa Malaysia comer, MSM is the leading sugar producer in Malaysia, with a total market share of 57% in 2010 (based on production volume). It is one of two sugar refiners in the country, the other being Tradewinds (M) Bhd. Following its listing, MSM will be the only directly listed sugar refiner in Malaysia.

It has two sugar refineries in Prai, Penang and Chuping, Perlis with production capacity of 1.11m tonnes per year, as well as the only sugar cane plantation and mill in Malaysia. MSM’s sugar cane plantation is 4,454 ha in size, while its sugar mill has a capacity of 5,500 tonnes/day.

No wonder MSM had gained 26% on its debut, albeit profit taking the following day. Yet, many investors are pouring their interest in this counter maybe for the following reasons:

1. A potential beneficiary of a free market for sugar soon – in view of the Government’s moves to reduce subsidies for sugar over the last year and a half;
2. Beneficiary of the Government’s long-term contract for raw sugar – given that raw sugar comprises 80% of its production costs;
3. Beneficiary of weakening US$ - given that MSM imports 98% of its raw sugar requirements;
4. Focusing more on export markets to grow margins and profitability - given that margins in the domestic market are relatively stable due to the price ceiling in place; and
5. 36% growth in capacity within the next five years to cater for export opportunities given the widening spread between raw and refined sugar prices.

OSK Research

MSM produces various products including fine granulated white sugar, coarse granulated white sugar, coarse brown sugar, soft brown sugar, icing sugar, caster sugar, super fine white sugar and molasses. White sugar comprises the majority of its sales volume. MSM’s sugar is sold under the brands of “Gula Prai” and “Gula Perlis”. MSM breaks down its sales into four categories:

1. Domestic – which comprise sales to the domestic market and which is entitled to a subsidy from the government;
2. Local export – which comprises sales to domestic industrial customers, who use the sugar to manufacture products for export;
3. Export – which comprise sales to export markets like Singapore, Australia, New Zealand and Pakistan and are made via traders; and
4. Other – which is made up entirely of sales of molasses.

Valuations and Fair Value

OSK Research: We peg MSMM to 13.0x FY11 EPS, which gives us a fair value of RM5.16. We are basing our valuation on 3 other non-government linked sugar refining companies with similar FY10 net profit and refined sugar production capacity. However, we think that MSMM should trade at a premium to its peer average PE of 11.7x given its link to Felda Group, which confers it the benefits that come with having a GLC as a majority shareholder. MSMM plans to pay out at least 50% of its earnings as dividend. Assuming a 50% dividend payout ratio, the stock offers dividend yields of 5.9% and 6.1% for FY11 and FY12 respectively.

Regional Peers Comparison - OSK Research

RHB Research: For valuation purposes, we have compared MSM to its regional listed peers. In our view, although Tradewinds is the only other sugar refiner in the country, we believe MSM is not directly comparable to Tradewinds, given that Tradewinds’ business comprises sugar, rice and palm oil. Based on our analysis, MSM’s regional peers are trading at an average PER of 11.6x FY11 and 10.6x FY12. As such, we attribute a target PER of 11x FY12 to MSM’s earnings, in between its regional peers’ valuations for FY11 and FY12, and obtain a fair value of RM4.90. This implies a 40% upside from the IPO price of RM3.50/share. At our fair value of RM4.90, investors would also benefit from a dividend yield of 4-5% p.a.

Source: OSK Research and RHB Research

New Fund: OSK-UOB Capital Protected Dual Opportunities Fund

While inflation fears in China is a dominant factor, signs that China's growth is holding up well despite this concern will certainly fuel further growth. Traditionally in China, a higher inflation tends to exhibit a positive correlation with Chinese companies price-earnings ratios and nominal earnings growth. Having said that, the consensus view is that the government will raise borrowing costs to contain inflation and prevent the economy from overheating.

With such growth euphoria and inflationary concern, a new fund is structured to take advantage of the current inflationary economy in China. This is a 4-year close-ended capital protected* fund which aims to provide income and capital appreciation over the medium term whilst protecting investors’ capital* on the Maturity Date.

Where is the Fund's return comes from?

The Hong Kong (HK) Option is designed to provide investors with potential annual coupon payments that are based on the performance of Chinese companies’ stocks and potential returns from its exposure to a gold investment at Maturity Date. Hence, the Fund’s name “Dual Opportunities” reflects the two opportunities available under the HK Option.

The HK Option is denominated in US Dollars and thus, the Fund’s return from the HK Option is subject to US Dollars / Ringgit Malaysia exchange rate risk. The Fund has 100% participation in the HK Option payout. The HK Option will provide the Fund with exposure to the performance of a fixed basket of 5 Chinese companies’ stocks listed on the Hong Kong Stock Exchange (“Underlying”).

However, the performance of each of these stocks under the HK Option is capped at 8% per annum. The final Underlying which will always be comprised of 5 stocks will be determined on the Commencement Date of the Fund.

The HK Option will pay the Fund a potential annual coupon payment that is based on the performance of a basket of 5 Chinese companies’ stocks which are expected to perform during this inflationary period.

In addition to the performance of the Underlying, the HK Option is also structured to pay a gold return, if any, at the Maturity Date. The HK Option’s exposure to gold return would depend on the annual performance of the Underlying and also on the performance of gold prices between the Commencement Date and the Maturity Date.

Indicative Asset Allocation of the Fund

The Fund is suitable for investors who:

• have a low risk tolerance;
• seek capital protection;
• have a positive outlook on China's growth potential;
• have a positive outlook for gold prices;
• have a medium term horizon and seek regular income.

Source: OSK-UOB Investment Management

Click here to download Prospectus

Fat Chance

Greek Foreign Minister Papandreou is out selling the new austerity package to his Parliament. He wonders why Greeks are rioting in the streets. How would you like to see your taxes go up $ 4,000 per year next year? That's what a typical family of four in Greece will face under the proposed austerity plan, according to calculations by a Greek newspaper, To Vima.

That is only the beginning. This austerity plan is merely a small down payment on a massive effort to stem the huge budget deficit. There is no hope of a budget surplus. This plan is intended to slow the growth of debt, not reduce it. Reducing debt would require far, far larger sacrifices.

Papandreou assumes that citizens that have been told for generations that they are entitled to early retirement, free health care, free education...essentially free everything..will now pony up to pay for all of this free stuff. I have my doubts.

No way Greece will implement this plan. No way. The Parliament may pass the plan, but it will not be enforced or implemented in what is arguably the most corrupt government within the European Union.

How to prevent Credit Card fraud?

Nowadays, people are using "Plastic Cash" (credit card) to shop and pay for almost everything. With the ease of payment, comes with the ease of fraud. As a wise consumer, we should know how to prevent credit card fraud, thus safeguarding our "plastic money".

Credit card fraud is a serious crime which can cost you and credit card issuers huge losses. Credit card issuers have taken security measures to protect you against such possible frauds. However, you can also take the proper safety measures to avoid from being a victim of fraud.

Here’s what you can do to minimize your risk of being a victim of card fraud:

Safeguard your credit card

• Sign on your credit card immediately after you received it.
• Keep your credit card in the same place in your wallet or purse so that you will notice it immediately if it is lost or stolen.
• Do not lend your credit card to anyone.
• Do not provide your credit card details to an unknown party.
• Do not write down your PIN number on the back of your credit card or keep it in your wallet. Always memorize your PIN number instead.
• Keep the telephone number of your credit card issuer so that you can immediately report lost or stolen cards, unauthorized transaction or disclosure of PIN to a third party.
• Cut your expired credit cards into two when you get a new one.

Check your credit card transactions to avoid unauthorized transactions

• Check all details on the charge slip before signing or confirming the transaction.
• Keep all your charge slips and check it against your credit card statement as soon as you receive it.
• Notify your credit card issuer immediately of any error or possible unauthorized transactions and follow up in writing as soon as possible.
• Destroy all your charge slips before throwing them away.

Source: Banking Info

Call Biden's Bluff

There is no time like the present to bring an end to the massive US fiscal deficits. Congress should vote a resounding "no" to an increase in the debt limit. Force the issue. It is the only way any progress will ever take place. It gets no easier later. Now is the time as Senator Obama pointed out five years ago, when he voted, as a senator, not to increase the debt limit. He was right then, he is wrong now.

For example, moving the age limits on social security saves a lot more money if you do it now, than if you do it one year from now or five years from now. Why wait until all of the baby boomers have retired and the problem is a multiple of what it is today. Do it now!

This is the time. This is the place. Folks like Senator Warner of Virginia claim to be moderates, but their voting record is to the left of Barney Frank. They are preaching that if we don't raise the debt ceiling, there will be catastrophe. Thanks to senators like Warner there has been an ever escalating deficit. He knows that he won't be there when the ultimate catastrophe comes. All Warner wants is the ability to waste more taxpayer dollars and postpone dealing with the problem, so that he can get re-elected. That's why he wants a "clean" debt ceiling increase bill.

Congress should call Biden's bluff. A poll taken in the last few days shows that the public favors a "no" vote on raising the debt ceiling by a margin of 41-38. Every Congressman who votes to increase the debt ceiling should lose his seat -- Democrat or Republican.

Leave the Oil Market Alone

Obama's decision to release oil from America's strategic reserve is another bone-headed, political decision designed to rescue his collapsing state in the polls. It is bizarre that a President who claims to support alternatives to fossil fuel energy objects to the rising price of fossil fuel energy. There really is no other way to stimulate alternative energy than to let prices of fossil fuel energy rise and let the market produce alternatives. There simply is no other way.

This is truly an administration that believes government can work wonders. The only wonder is why they believe that. The sobering facts of what has happened to the economy under this administration is a compelling testament to the failure of government to create jobs and improve economic performance. Now, these folks think they can solve energy problems by lowering the price of fossil fuels. You wonder if anyone in this administration knows anything about economics.

This is Why Politics Has a Bad Name

Are they kidding? Merkel and Sarcozy. Is Greece really going to accept economic devastation for at least a generation to pay back German and French bankers? Is there anyone out there who thinks this is really going to happen?

There is no way Greek citizens will agree to this. It is not politically possible. The Greek Parliament may pass whatever legislation that it feels like passing, but enforcement will not take place. There are few governments or countries in the world where corruption and tax evasion is as rampant as Greece. This is always the outcome of of an ever burgeoning government.

European Union officials believe, as Obama believes, that raising tax rates will generate revenues. In fact, raising tax rates last year in Greece led to a substantial decline in tax revenues.

What is happening in Europe is typical of modern politics both in Europe and in the US. Pretend politics. There are few, if any, statesmen in Europe who are behaving rationally these days. Remember the Treaty of Versailles? How did that work out for you?