The Essential of 3 Years Outlook of ICT in Malaysia - My perspective

I was not sure what to present when they asked for my thoughts about Three Years Outlook of ICT in Malaysia. Here is the link of my presentation in PDF 3-years Outlook of ICT in Malaysia.

3-years Outlook of ICT Sector in Malaysia from Azuan Muda

Well, Malaysia is very good in providing ICT services especially global shared services and outsourcing industry. No 3 behind China and India. There are about 130 shared services and outsourcing companies and 250 call centers in Cyberjaya. 

In 2012, the revenue was closed to RM32 billion in which translated to about RM9.6 billion contribution to the GDP. The job creation is also not bad, more than 7500 jobs were created. 

Digital Malaysia is an optimistic target set by the government. Achievable but they need to find express routes, fast.

Above all, I see the convergence of ICT and Telecommunication as a good catalyst for Digital Malaysia. Penetration rate of broadband hopefully would meet the target of 75% with the penetration rate for mobile or smart phones usage may double from 47%  last year. 

The convergence of ICT Telecommunications would spur the service innovation in:

• Content Delivery Network (CDN)
• Big Data
• Broadband Remote Access Servers (BRAS)
• Network Function Virtualisation (NFV)
• Software Defined Network (SDN)
• Cloud
• Near Field Communication (NFC)

More acronyms to come, I suppose. 

Nevertheless, telecommunication market in Malaysia or South East Asia is an emerging one. The business strategy would not be similar to what you might see in Europe. Over there, the experience of using the devices is more important. Well the good part is telecoms companies, at least, might try some strategies in the States or European region before shifting them to the east side. 

The Essential of Stock Screening: Government Linked Companies III

I think I am going to continue a series of GLC stocks in Malaysia. The previous post Government Linked Companies II gave me 6.2% gain back in April 12, 2013. How about now? How about post-election period?

I am a bit neutral about the performance though. BUT, as at June 04, 2013, my portfolio is more than double. It is 13.7%! Thanks to Maybank and Tenaga Nasional.

How is this possible? One word. Certainty. Financial institutions are very important component to fuel growth and development. +CIMB Malaysia and +Maybank portfolio are the biggest in the country.

+Tenaga Nasional Berhad is a defencive stock. The introduction of renewable energy fee somehow, in my opinion cemented, at least, the future plan for Tenaga Nasional. Again, oil and gas is a very important to Malaysia. I chose Petronas Gas and Petronas Chemical in the view that these subsector could outperform the players in the core upstream.

Well, there you go. The next question is when should I sell?

The Essential of Stock Screening : Malaysia Blue Chip

Previously in my Stock Screening : Dow Jones 30 posted in November 2012, I discussed lightly on the screening strategies on the Dow. Well, the screening strategy is applicable almost to every stock exchange in the world. Blue chips or companies that have significant weight on the exchanges are worth to consider.  

Fundamentalists like the screening the financial data very much. Specifically, many private investors and traders believe that being conservative and aiming stable big companies should be in their portfolio. However, for small traders, the cost per unit share may sound awfully daunting. They may need to have a substantial amount of capital in order to successfully execute this strategy. 

To make it more relevant, I back tested Malaysia Blue Chips on Bursa Malaysia.  It is quite a straight forward exercise. You could simply open up the newspaper and look for the top 30 of stocks based on the market capitalization. 

You can also try to screen specific industry indices. Aim for the big indices like Finance, Plantation, Properties and Trade Services. These sectors carry more weigh and more choices for investors. 

For me, I like Bumi Armada, Hong Leong Bank and Oil and Gas stocks. These stocks could offer stability in the earnings. In fact, their fundamental and business model are solid. It is quite unlikely to see a sudden turbulence in these sectors and as long as there is a quantifiable certainty, I could have a good night sleep. 

The key for this successful stock screening is the status of blue chip i.e. the size of market capitalization. Then, perhaps you want to find the cheapest of them. If your capital is limited, perhaps you should not be putting your bet on British American Tobacco or Nestle. 

Thus, screen the big companies or blue chips. Find the cheapest. Play your volume. 

The Essential of Stock Screening: Government Linked Companies II

In reference to the previous Stock Screening: Government Linked Companies, I would like to share the screen of my back tested on Malaysia GLCs. I use one of the online local newspapers market watch function in which publicly available. Just a small free registration required though.

I bought each stock 10,000 unit on Sept 10, 2012 and Jan 13, 2013. The stocks are Axiata , +CIMB Malaysia, +Maybank, PCHEM, PETGAS, Sime Darby and +Tenaga Nasional Berhad 

As you can see, until April 12, 2013 at 6.45pm, Axiata gains 10.9%, CIMB 4.2%, Maybank gains handsomely at 17.1% and Petronas Chemical and Petronas Gas sluggish around 4.4% and 2.6% respectively. 

I should cut my losses if Sime Darby continues in red while +Tenaga Nasional Berhad settled at 14.5% gain. 

Although by average, the total gain is about RM38,800 or 6.2% only, at least by conducting this exercise and back testing, you could easily establish favorable GLC stocks. These stocks could easily outperform Bursa Malaysia, if they are also top 30 of Bursa based on the market caps. 

Perhaps, just within 6 months, my portfolio matched with the usual dividend rate given out by the government or institutional funds. If the scenario remains predictable and consistent, on annual basis, don't you think you might be able to get a double digit rate? 

Nevertheless, given my testing period since September last year, you have to take into considerations the consolidation period during early and end of the year. Including the budget announcement, if it is significant.   

Just give a try!

The Essential of Stock Screening: Government Linked Companies

The series would focus more on how you could strategically pick or screen stocks based on the previous posting of The Importance of Stock Screening. It may include fundamental and technical elements as well as three main investment style; value, growth and balanced. 

Briefly, Government Linked Companies or GLC will be my first topic under stock screening series. In certain countries, GLC is equivalent to Government Owned Corporation or GOC or State-owned Enterpise (SOE) or Government Sponsored Enterprise (GSE). In the United Kingdom for instance, after a massive privatization initiative during Margaret Thatcher administration, you would notice the nature of British Broadcasting Corporation (BBC), London Underground Limited, Network Rail, Northern Rock, Lloyds Banking Group and The Royal Bank of Scotland.

Similarly, across Europe, you would find French's SNCF, Nexter, France Telecom and Air-France KLM, Netherland's ABN Amro and Belgium's Belgacom.  

In my opinion, GLC play is quite straightforward and to certain extent quite conservatively save. Why? Because we have witnessed so many GLC or government agencies were bailed out for the sake of saving the imperfection in the financial system including the United States' Fannie Mae and Freddie Mac. 

Having said that, at glance, you would notice that most GLC are operating under a natural monopoly condition. Meaning, the sector that they are in essentially controlled by the central government. Typically, you would find sector like telecommunication, power, petroleum, railways, airports, utilities, health care, postal service and last but not least banks. These sectors are critical sector that may provide growth (telecommunication, petroleum and postal service), value (banks) and balanced (utilities, health care, airports and railways) in your portfolio. 

I found that India, Indonesia and the United States have more GLC equivalent companies across country's key sectors. In India, through its Public Sector Undertaking (PSU), you would find State Bank of India, Bharat Petroleum, Coal India Limited, Hindustan Cables and Air India. Similarly in Indonesia and the United States, the GLC and GSE play important roles in the economy. 

Don't you think it would be safer to invest in them? Would India, Indonesia or the United States be bankrupt? 

The currency may be devalued and the economy may experience depression but they could not afford to see the system collapsed. Bail out will save the day. Period. 

In case of Malaysia, I prefer to go with the GLC like Axiata, +CIMB Malaysia , +Maybank , Petronas sub-companies, +SIME DARBY and +Tenaga Nasional Berhad because of the same reasons. Just have a look will ya?

The Amazing Story of Ratings agency

In a recent wake of European countries crisis plus the fallen of sub-prime mortgage, investment in bond and asset backed securities issued by countries or corporations are becoming riskier. Defaulted due to economic crisis and inability to meet the legal obligation of repayment plan, bonds issued by European countries especially are seemingly not safe anymore. Would the notion of bond is the safest investment be void?

Investment in bonds is massively relied on the rating agencies to interpret the fundamental credit worthiness of the issuers. +Standard & Poor's Ratings Services (S&P), Moody's, +Fitch Ratings, Malaysia Rating Corporation Berhad (MARC) and Rating Agency Malaysia Berhad (RAM) have been playing a vital role in verifying private, investment banks and institutional investors in choosing the favorable rated bonds in their portfolio. 

Rating agencies provide credit ratings on issuers of commercial papers, bonds, long or short term debts, preferred shares and asset-backed securities. In certain countries including Malaysia, Indonesia and Middle Eastern countries, their functions extend to the issuance of Islamic Bonds (Sukuk) as well. 

Relying on credit ratings in providing an independent verification of issuer own credit-worthiness boosts a significant value especially in marketing purposes. In most cases, bond funds have at least three ratings from the Big Three rating agencies. Without credit ratings, the market confidence would not be likely there and as the result, the issuance may be under-subscribed.  

What is more, the credit rating agencies play a vital role in structured financing including pool financing alike mortgage backed securities. Although the term is often referred as collateralized debt obligation (CDO), the mechanism is still similar. The assessment on the credit-worthiness provided by the rating agencies are based on the same criteria. They assessed usually on tranches with different ratings. The effective interest rate payment will be much lower on the A-rated bonds compared to B-rated bonds.  

Having said that, heavy reliance on credit ratings agencies is not healthy, in my opinion. Although they offer an independent credit-worthiness service, the fact that they are not independent is something everybody should be aware of. For instance, +McGraw Hill Cos, the owner of the world's largest ratings company, is publicly traded whilst Moody's is a publicly held corporation. 

Regardless of what they stated in the brochure, the conflict of interest has to be there. Do you know who are the shareholders of Rating Agency Malaysia Berhad? The biggest is +CIMB Bank Berhad with the majority of 14.425%. RHB Bank and Malayan Banking Berhad are the second and the third respectively. MARC's shareholders are divided to insurance companies, discount house, stockbrokers and investment banks including Hwang-DBS, +Maybank Investment Bank and MIDF Amanah Investment Bank Berhad. Isn't the essence of business to serve the shareholders?  By the way, Berkshire Hathaway owns about 12.75% of Moody's Corp. 

Undoubtedly, the client relationship with management of institutional investors or investment banks may possibly impose inaccurate assessment with 'fair and true' or honest ratings. Issuers do seek advice from rating agencies, as clients, on the strategies of structuring financial products with desired ratings. 

Sub-prime mortgage issue, the bankruptcy of some countries, Freddie Mac and defaulted bonds have highlighted continuous errors of judgement made by credit rating agencies. According to +Bloomberg News, the U.S. government accused Standard & Poor of deliberately misstating the risks of mortgage bonds, whose collapse helped trigger the worst financial crises since the Great Depression. S&P graded more than $2.8 trillion of residential mortgage-backed securities and about $1.2 trillion on collateralized debt obligations (CDO) from September 2004 through October 2007, according to the complaint filed in federal court in Los Angeles. The U.S Justice Department already filed a lawsuit against McGraw-Hill on Feb 4, 2013.  

The best part is the Big Three rating agencies are downgrading each other now! So much for the future of credit ratings. I like their disclaimers. The rating is just an opinion given the information available during the point of assessment as they never guarantee the rating should any change in circumstance related to risk factors analysis do take place. 

If it did, should they change the ratings instantaneously rather than wait for a couple of year to witness the reality to unfold? 

The Importance of Stock Screening

Stock screening is a very important exercise for investor to filter the market and zero in on the companies that meet their criteria. Screening tools that widely available on the net would allow you to quickly and easily search for shares showing high growth, yield or daily price movement.

Stock screening tool could be used for your technical and fundamental analysis. Personally, I prefer to use fundamental ratios before narrow down based on the technical indicators. Financial websites such as Financial Times or finviz.com provide maps or heat maps indicating the favourable and unfavourable industry of the day.  

Nonetheless, the screening tool would filter the fundamental data including:

i.   company basics information such as closing price and market capital.

ii.  share performances such as price rise or fall in a day, a week, a month or a year.

iii. growth ratios such as Earning per Share (EPS) growth and dividend growth

iv. incomes ratios such as dividend yield and dividend cover

v.  valuation ratios such as price-to-book ratio, price per earning, highest price per earning in a year

vi.  financial strength such as net gearing and net asset value per share

vii. management effectiveness such as return on assets and return on capital employed

viii.Profit & Loss account such as operating costs and revenue

ix.  balance sheet such as total current assets and net assets

x.   broker or analyst recommendations on whether sell, buy or hold

xi.  director deals

The screening tool could also be set to filter technical information such as percentage movement of price within 52 week low or high and percentage of price break above or below moving average lines.

With the comprehensive market data, the screening and analysis are more possible to be carried online. Stock exchange like NASDAQ has a comprehensive section for investors to use the stock screener.  In fact, it already has predefined stock screener that could help you to find the stocks that meet your criteria.

Financial Times also has a global equity screener that you could try out at http://markets.ft.com/screener/predefinedScreens.asp It has more than 50 customisable screening criteria. Under FT predefined screens, you could try screening criteria predefined by the world best investors including Warren Buffet and Ben Graham.

Before using the screening tool, you should have an idea on what criteria to search for. The fundamental and technical variables make the possibilities nearly endless and you might end up betting on the wrong stock. In the same time, it is crucial to ascertain that your search is using the updated databases. Otherwise, your search would be meaningless. Perhaps for a start, you could adopt some predefined stock criteria. 

The bottom line is the screening tool offer purely quantitative considerations. Some ratios are not accurately filter stock from specific industry. Technology stocks may high a slightly higher P/E because a low P/E ratio does not necessarily mean a stock is cheap. Similarly, a high P/E ratio does not mean a stock is expensive. Auto industry or retail industry for instance has a low P/E but it does not mean that those retail stocks should not been considered.