How to do business like Air Asia?

By the Star

AirAsia X’s latest fleet purchase has raised concerns among analysts that it is following the high debt-leverage route of AirAsia Bhd, expanding the risks to its bankers.

The long-haul, low-cost airline company’s CEO, Azran Osman-Rani, said there was a fundamental difference between the business model of AirAsia X and that of traditional airlines.

“For AirAsia X, most of its tickets are sold through the Internet and bought by customers months before their flights.
“As for traditional airlines, tickets are mainly bought through agents and paid by customers just two weeks before the flights.

“The agents may even pay the airlines after the flights,” he told StarBiz in a telephone interview yesterday. The airline has a similar business model as AirAsia as both are low-cost carriers.

“We have forward cash. In this business, what is important is cashflow. We’re holding the forward cash,” he added.

It was announced on Tuesday that AirAsia X placed a firm order for 10 Airbus A350 aircraft which carried a list price of US$2.2bil.

This follows an earlier order for 25 Airbus A330 planes for delivery between last year and 2015.

On the company’s debt leverage, he said AirAsia X’s gearing was about 200% and was not expected to increase.

The 10 planes in the latest order will only be delivered from 2016.

“It’s not like we’re buying all the planes at the same time. But it is important to place the deposits now. This is to ensure we’ll have the delivery slots. The deposit is just US$10mil, we’re not paying US$2.2bil yet,” he added.

Progressive payments will start 36 months from delivery but the bulk of payments will be made when the planes are delivered.

By the time the A350 planes are delivered from 2016, most of the borrowings taken for the A330 planes would have been repaid.

Azran said some equity analysts did not understand AirAsia X’s business model, but that was not important.

“What is important is what the banks do. If the banks are worried with our gearing, wouldn’t they be the first to run away?

“But the banks are saying they’ll fund all our deliveries this year,” he said.

AirAsia X will take delivery of three Airbus A330 planes between September and December. Financing has been obtained for these planes.

Currently, the airline flies five planes to London, Melbourne, Perth and Gold Coast (Australia), and Tianjin and Hangzhou in China.

Its most profitable routes are Gold Coast and Hangzhou because these were the first two routes flown by the airline.

“They’re more matured markets for us than London or Melbourne. It’ll take us a year to build brand awareness for the newer routes and, initially, the pricing has to be aggressive,” he said.

*Air asia set a very gd example of a business model, if any business woudl adapt/copy this model, it would surely be a thriving business. Invest in branding/advertising your promotion, cut off agents and orders are made from on9. Consumer trust is there as it is a gd brand and they would place orders in early stage with payments made, this would allow the business to collect forward cash. Its a win win stituation as consumer gets a gd discount and the company gets to secure the deal with forward cash. Think abt it, any industry can adopt this strategy! hehe..

Public Bank selling its debts?

By The Star

Public Bank Bhd (PBB) group has made the first issuance of RM1.2bil in stapled securities under its RM5bil capital raising programme.

The RM5bil non-innovative tier-1 stapled securities programme was approved by Bank Negara on March 16 and the Securities Commission on May 4.

The programme proposes the issuance of non-cumulative perpetual capital securities of up to RM5bil in nominal value to be issued by PBB which are stapled to an equivalent in nominal value of subordinated notes to be issued by a unit of PBB.

The group told Bursa Malaysia yesterday the subordinated notes would be issued by unit PBFIN Bhd.

The capital securities portion of the issuance will qualify as tier-1 capital of PBB and the PBB group under Bank Negara capital adequacy regulations.

The tenure of the capital securities is perpetual while the subordinated notes have a maturity of 50 years due on June 5, 2059 and the first optional redemption date of June 5, 2019.

The distribution rate and the interest rate payable for this issuance of capital securities and the subordinated notes are both at 7.5% per annum, payable semi-annually.

PBB said the stapled securities are issued at par. The proceeds from the subordinated notes will be used by PBFIN to on-lend to PBB.

The placement exercise, with an initial launch size of RM1bil, had been upsized to RM1.2bil due to increased investor demand, said PBB.

Investors that participated in the offering included insurance companies, asset management companies, private bankers, government agencies and financial institutions, it said.

* Is this wat we call the money market?

Australia as your 2nd home?

By The Star

Buying interest in Australian properties by Malaysian as well as other foreign investors has been on the rise the past six months and this trend is expected to continue for some time, say real estate agents and developers.

Jalin Realty International Pte Ltd, a real estate agent that specialises in properties abroad, expects a stronger demand for Australian properties this year.
Chief executive officer Ian Chen said the company was seeing encouraging response for properties Down Under this year, especially from Malaysian investors.

“We are definitely getting a lot of enquiries,” he told StarBiz in an interview before the launch of the Artists apartments promotions here recently.

The Artists apartments, located in Fitzroy, Melbourne, have a gross development value of about A$100mil and is expected to be built by late 2010.

Only 30%, or 50, of the total 173 units are now available and priced from A$600,000 at about A$700 per sq ft. The average size of the two-bedroom apartment is about 860 sq ft.

Chen said because of the good response by Malaysian investors in its previous launch of the Milano Service apartments on Franklin Street, also in Melbourne, last year, the company decided to continue with the promotion of Australian properties here.

He said there were several reasons for the higher uptake in Australian properties.

“Clearly the weaker Aussie dollar against the ringgit is the main factor, which makes Australian residential properties very attractive, especially in this current economic environment when property prices are depressed due to the downturn,” he said.

Chen said there was potentially a 25% upside to the properties in Australia over time and generally properties there had a compounded growth rate of 8% to 10% per annum, depending on the states.

An Australian real estate agent from LJ Hooker said there was stronger buying interest in Australian properties this year.

“The bulk of the foreigners buying Australian properties is from Britain. There is also an increase in interest and purchase of properties from Asian investors, including Malaysians, compared with previous years,” he said, but declined to give numbers.

A spokesman from another Australian property agent said Victoria appeared to attract more foreigners than other states, possibly because of its incentives.

He said that besides federal funding to prop up the property market in Victoria, property buyers in the state would pay a lower stamp if they could choose to buy the land first and pay the full amount when the building was constructed.

On property investors, he said there were mainly four classes – those that buy to invest for capital gain, those that migrate, those that buy for their children to live in and affluent people attracted to a lifestyle of having homes in different countries.

Australian property developer PDG Corp sales manager Charles Vraca said the company was very bullish about properties in Australia, especially Melbourne, going forward.

“Purpose-built properties in choice locations in the inner city with a strong theme should sell well,” he said, adding that developers needed to understand the buying power and needs of the community first before starting construction.

PDG was the developer for the Milano Service and Artists apartments which were 70% sold before their construction.

Vraca said another reason locals and foreigners were attracted to Australian properties was the ease of getting loans to purchase residential homes.

“Generally they can get 70% to 80% financing for their property purchase,” he said.

A local property analyst, who declined to be named, said the Australian government was very supportive of the property market by coming out with a slew of incentives to stem the loss of confidence due to the global economic meltdown.

The Australian government made several interest rates cuts to lower the cost of mortgages for property, pumped in A$10.4bil to prop up the property sector and gave first-home buyers A$21,000 initially to buy their homes and has now extended the programme to June next year.

“There is also a good chance that the amount of assistance for first-home buyers could be significantly increased further,” the analst said.

Moreover, in another positive development, Australian Prime Minister Kevin Rudd recently announced a whopping A$42bil allocation (in stages) to extend the broadband network reach across the country, which will help support the property sector’s growth.

“All these positive moves done by private sector initiatives in tandem with government funding and support help tremendously to strengthen foreign investors’ confidence in the value of Australian properties,” said the analyst.

*Wow, the rich gets richer! Jz imagine, your money is componded in Aussie dollar with 8% - 10& per annum. Do u think an avg income earner will be able to afford a unit? Quite intereting if u got the money!

EPF takes profit from banking stocks

By The Star

The Employees Provident Fund (EPF) has taken profit on almost all its banking shareholdings since the start of May with the exception of Public Bank Bhd and AMMB Holdings Bhd.

Analysts said the move was not entirely surprising given the sharp rises in most of the banks share prices over the past few weeks.

AmResearch senior banking analyst Fiona Leong said prices of banking stocks were at a good level in recent times for profit taking since EPF had been accumulating these stocks to its portfolio since December.

ECM Libra, in a latest update, said the profit-taking activity by EPF also explained the slight pause in the share price movement over the last one week, with most share prices trading within the -5% to +5% region for the week.

Despite profit taking, positive sentiment and interest surrounding banking stocks have certainly turned up a notch on the back of expectations that the worst of the recession is over and earlier concerns of widespread loan delinquencies may have been overdone.

“Share prices could continue on their uptrend on returning interest as most stocks are trading at relatively inexpensive valuations,” ECM Libra said.

On the recent results announcement, ECM Libra noted that Bumiputra-Commerce Holdings Bhd (BCHB) continued to register strong growth in its loans book though its overall asset quality had shown some deterioration after the consolidation of CIMB Thai.

“Based on the recent results, it would seem that larger financial institutions, such as Public Bank Bhd and BCHB, are continuing to see decent growth in their loans book while smaller ones, such as Hong Leong Bank Bhd and AMMB Holdings Bhd, are seeing slowdowns, possibly as a conscious decision to protect their balance sheets and capital,” the report added.

Meanwhile, AmResearch’s Leong said the recent results were within expectations except for BCHB, which registered slightly higher net interest margins.

“The general net interest margin contractions registered were due to the recent cuts in OPR (overnight policy rate),” she said.

She added that local banks did not show any significant increase in non-performing loans (NPLs) ratio up till March.

“However, there could be a substantial increase in NPLs by the second quarter of this year,” she said, adding that loans growth were also expected to moderate sharply from 12.8% registered last year.

*Does this means that banking stock has a proven strong record for good profit margin? Should we look at the perspective that banking stock can be a long term high yield stock?

Make as much mistake as you can in the stock market? Learn from it...

By The Star

OMAHA, Nebraska: Billionaire Warren Buffett remains optimistic about the U.S. economy, but he says it's difficult to predict when the recession will end because American consumers changed their behavior significantly.

Berkshire Hathaway's chairman and chief executive conducted several TV interviews Monday after entertaining 35,000 people at his company's shareholders meeting in Omaha over the weekend.

"In the short term, things are going to be tough for a while. We see no real pickup in a whole variety of businesses we have, but they'll be doing fine in a few years," Buffett said Monday in an interview with CNBC.

Among Berkshire's more than 60 subsidiaries, there are furniture, brick, manufactured home, carpet, utility, insurance and jewelry companies, so Buffett gets a good sense of the health of the economy by looking at his internal reports.

On the positive side, Buffett said he sees residential real estate prices stabilizing in important parts of the country like California, although a huge oversupply of houses remains in southern Florida.

And Buffett's long-term outlook for the United States remains rosy.

"I am enormously optimistic about the future of this country over time," Buffett said.

Economists say the recession began in December 2007.

Buffett said the shift in American consumer behavior makes it hard to predict when the economy will recover.

He said many Americans who still have the same jobs, same savings and same homes responded to the financial turmoil by changing their spending and buying habits dramatically.

"I think the American public generally is in a different mood than a year ago or two years ago or three years ago. In fact, I know they are by their buying habits," Buffett said in an interview with Fox Business News.

Also on Monday, a Taiwanese business tycoon criticized an investment Berkshire made in a Chinese battery and car maker that has been accused of stealing trade secrets.

Terry Gou, head of Taiwanese electronics giant Hon Hai Precision Industry Co. Ltd., questioned Buffett's decision to invest in China's BYD Company Ltd. in an interview with a Taiwanese newspaper.

Berkshire officials said they believe the allegations against BYD are unfounded.

Berkshire Vice Chairman Charlie Munger said the allegations made against BYD have already been litigated in a Japanese court and discredited.

Last fall, one of Berkshire's subsidiaries acquired a 9.9 percent stake in BYD, which was valued at $230 million.

At the shareholders meeting Saturday, Buffett and Munger said they believe the U.S. government has generally done the right things to help the economy recover.

Buffett and Berkshire board member Bill Gates reinforced that notion in a joint interview on Monday.

Gates, who co-founded Microsoft, said the $700 billion Troubled Asset Relief Program Congress passed last fall may have been flawed because its designers didn't predict how negative factors would work together, but it was necessary.

"It's not going to be perfect, but they've been doing the right things," Gates said to Fox Business.

"There wasn't anybody to count on except for government in late September."

Gates said he enjoys calling Buffett and talking about what's going on in the economy because of all the turmoil.

Buffett's company did have a rough year in 2008, but Berkshire still beat the S&P 500 index that Buffett measures his performance against.

Berkshire's Class A stock lost 32 percent in 2008, and Berkshire's book value - assets minus liabilities - declined 9.6 percent to $70,530 per share.

That was the biggest drop in book value under Buffett and only the second time its book value has declined.

The Standard & Poor's 500 index fell 37 percent in 2008.

Berkshire reported a 2008 profit of $4.99 billion, or $3,224 per Class A share.

That was down 62 percent from the previous year, but better than many companies. Berkshire plans to release its first-quarter results on Friday afternoon.

* Its diff to predict the buying behaviour of the consumers after a fall in the economy. I would said this is where when ppl don make mistake they wont learn, so make as much mistake as u can as long as u don repeat the mistakes. Same goes with Malaysia stock market, have a quota for yourself and give yourself the guts to buy the stock that you had analysed. If there is a mistake on yr analyst on that stock and you ended up losing money, jz make sure you wont repeat that mistake again.

Is Yeo Hiap Seng getting Coca-cola franchise or otherwise?

By Biz Times

Yeo Hiap Seng plans to ride on the opportunity in the isotonic and carbonated drinks, while defending its strong lead in the non-carbonated Asian drinks segment

BEVERAGE maker Yeo Hiap Seng (Malaysia) Bhd (4642) said the "separation" next year between Coca-Cola and Fraser & Neave Holdings Bhd (F&N), a rival, will lead to a major industry shake-up.

"It will usher in a new paradigm, it's a wake-up call to many of us. There'll be new winners and losers," said Owen Ow, managing director of the homegrown company famous for its Yeo's brand of drinks and canned food.

He declined to say if it is eyeing the Coca-Cola franchise once the soft drink giant's distribution contract with F&N ends early next year, nor will he speculate if the deal is up for bid.

"This is extremely price sensitive information, we can't comment. It's hard to say if the franchise will be opened for bidding, the business models are changing everyday now," Ow told reporters after a shareholder meeting in Subang Jaya yesterday.
"We manage our own brands, our own destiny."

The company hopes to deliver better earnings this year, after it swung back to a net profit of RM2.2 million last year, from a net loss of RM13.6 million in 2007.

F&N announced in February that its contract with The Coca-Cola Company, which allows it to distribute Coke and Sprite here, will expire next January after a 74-year union. The development was a major surprise and has caused a stir among the industry.

To help make up the loss, F&N said it has 50 new ready-to-drink products that it can launch by next year, aiming straight at the Asian soft drinks and tea segments - a stronghold of Yeo's.

Yeo's plans to ride on the opportunity in the isotonic and carbonated drinks, while defending its strong lead in the non-carbonated Asian drinks segment. Yeo's is well ahead of competitors in soya drink, tea, and "cooling" beverage segments, Ow said.

"We have an isotonic drink in Singapore under the brand 'H2O', which has a 20 per cent market there. It's an opportunity to address this market once F&N can no longer leverage on a big brand like Coca-Cola," Ow said. F&N's 100PLUS is almost synonymous with isotonic drink.

Yeo's will also revive its carbonated drinks segment under little-known brand "Freedom", which has a range of cola and fruit-flavoured drinks like orange, sarsi and pomelo.

Apart from beverage, it wants to grab a bigger share of the RM200 million market for sauces, of which it has a negligible presence. There is also a plan to enter the halal food market in Indonesia, Ow said, after it successfully ventured into that country.

*With F&N no longer have the rights to distribute Coca cola and sprite, someone has to take up the franchise. If not, we wont have Coca cola drinks in Malaysia. So let's do some analysis on which company would be able to get the franchise? Yeo Hiap Seng is hinting something? Perhaps, you guys have to do some homework and buy the share of Yeo Hiap? hehe..

Making money through undervalue stocks

By The Star

THERE is now a widely-held view that economic growth levels in Asia bottomed in the first quarter, with growth rising a faster clip from the second quarter.

That would mean economic data and company results that are being released for the first quarter would still be weak, with losses even for some of the companies. Most of their profits are now expected to improve, or be back in the black, in the current second quarter.

While the Chinese were convinced since January when their markets started to surge, there is conviction of this only now in the rest of Asia.

For this reason, it is only in the last one month that the other Asian markets, including Malaysia’s, made a swift, speculative rise.

There was a clear speculative tone in the run as many of the stocks that surged were penny stocks or those of companies that made losses.

Besides speculative trading by punters, there is some rhyme and reason for the prices of bombed out stocks to surface. While critics may say that most of the small cap companies are not worth much, prices of their stocks are now viewed as being been suppressed too far.

It can be argued a link house in Petaling Jaya may be worth RM500,000 and that a similar house in the distant suburbs is worth less but it should not be priced at just RM50,000 either, to use an analogy of property.

The announcement on Friday of a proposal to take small cap company SRII Bhd private shows its major shareholders know the stock is under-valued.

The exercise to take the company private will cost RM35mil cash but the company itself has RM40mil cash. So, it’s a straight-forward exercise that will be self-financed. SRII is a supplier of fire-fighting equipment.

All listed property stocks are similarly under-valued relative to their assets, and properties tend to regain their values over time. It’s sometimes speculated they will be taken private, but the critical question that must be answered is how will the exercise be funded.

Last week, as SRII announced the offer for its minority shareholders, Johor Corp made an offer of RM1.55 cash a share for the rest of the shares in its subsidiary Johor Land Bhd.

Johor Land is not cash-rich but it has a large land bank such that its net assets amount to RM5.40 a share. As a large state agency, Johor Corp will not have a problem financing the full takeover.

For most other owners, bank financing for takeover exercises is not available at this time. Hence, to take a company private, there are three criteria of which at least one must be fulfilled.

1. The company must have cash to self-finance the exercise;
2. Some of its properties can be pre-sold to finance to the exercise;
3. It must have a very large or cash-rich offerer.
   

Like SRII, Plenitude Bhd is an obvious case of a company that can easily be taken private. The company held cash of RM198mil at the end of last year and received RM64mil cash in February from the sale of a piece of land. Together, that amounts to RM262mil cash which coincidentally equalled its total market value.

It would cost a lot less than that since three substantial shareholders already own 72% of Plenitude. That leaves just 28% to be bought to own the entire company. They would then fully own a company with cash and about RM300mil worth of property assets.

Glomac Bhd is a company that some analysts believe might be taken private. Like many property stocks, its share price has dropped to 62 sen against net assets of RM1.85 a share.

It does not have net cash though, and would need to lock in sales of some properties to finance a full takeover.

Inch Kenneth Kajang Rubber plc is in a similar situation, with its share price at 25 sen against net assets of RM1.23 a share, and no net cash.

Its assets, other than properties, are well in excess of its bank borrowings of RM20mil. In addition, it has two large pieces of plantation land which are now close to town due to urban sprawl.

It has expressed an intention to sell 600 acres in Bangi, which it said could fetch RM350mil. If it were willing to lower that to RM200mil, it could quickly find a buyer among the listed property companies. That would still be twice the company’s total market value of RM107mil.

In addition, Inch Kenneth owns 350 acres in Kajang, which it said is planned for a township project with a gross development value of RM1.2bil.

Last week, two brokerages issued reports on the property sector, pointing out it encompasses high beta (volatile) stocks. It makes sense that as property stocks were sold down heavily ahead of a global recession, they’ve a lot of ground to regain in an economic recovery.

The window for taking property companies private, however, is closing fast as the stock market re-rates stocks towards higher price-to-book values and price/earnings ratios. The exercises to take private IOI Properties Bhd and Johor Land was just in time. For the other property companies, it’s now or never.

*Many public companies are trying to privatise as all their stock are under value. So is there any gd performing company that do not have the sufficient cash/fund to take themself private? Or are they any companies that are planning to privatise? Its time to do some research and earn some quick money!

Brand New Ikea store in Ampang or Cheras?

By Biz Times

Swedish home furnishing company Ikea has set its sights on densely populated Cheras and Ampang in Kuala Lumpur for a new store.

The 13-year old Ikea Malaysia runs an outlet in Mutiara Damansara, Selangor, and has confirmed the opening of a second in Johor.

General manager Joseph Lau told Business Times that it was scouting for suitable land that will offer ample parking space.

"We need a second store in the Klang Valley. We are looking at the Cheras and Ampang corridor," Lau said.

It is looking at land not less than 6ha - roughly the size of eight and a half football fields - next to a highway.
Since it sells bulky items and thrives on the do-it-yourself model to keep prices low, size does matter for this retailer. It has to provide ample parking for customers to take their purchases home.

"Our Ikea now is on 5.3ha, and that is too small. We will need a larger piece of land. The minimum we want is 6ha. Our bottleneck now is the carpark. There is insufficient parking," Lau said of its existing store.

Lau, who said that the company was eyeing land with room for future expansion, added that it was too premature to say how much it would invest.

One property consultant said that land in Cheras and Ampang could cost about RM150 per sq ft if located next to the main road. This means that Ikea may spend some RM100 million for a 6ha site.

On the size of the land it hopes to acquire, Lau said: "The bigger the better. We do this everywhere in the world."

Lau said that he had received numerous proposals from landowners, many of which were not appealing. While Ikea was looking at a standalone store, the proposals were for it to occupy a portion of a mall as a tenant.

"If we have the land, it should be ready in three years," Lau said of the earliest possible date to open the store.

The second outlet in the Klang Valley is expected to equal the existing store's 360,000 sq ft, or a third of the retail space in Suria KLCC.

On its outlet in Desa Tebrau, Johor, Lau said the Ikano Group is yet to obtain possession of the land it bought from Plenitude for RM64 million.

Various issues on the project have to be resolved, including the design, before a likely operational date can be given.

It is buying 14.97ha to set up an Ikea outlet slightly smaller than that in Mutiara Damasara.

Ikea first opened at the 1Utama shopping mall, but moved to its own site in Mutiara Damansara in 2003.

It was reported that it invested RM180 million in the store and land. An additional RM120 million was pumped into the adjoining building of 45,000 sq ft where the Ikano Power Centre was set up.

Lau said that Ikea's next likely location was Penang, after Johor and a second one in the Klang Valley.

* So felles, its time to predict where is Ikea goin to open the new store in Ampang/Cheras? Property should shoot well ard them! hehe..