Betting On The Casino Industry?

Posted on Marketwatch: Trump Entertainment to miss interest payment

• CHICAGO (MarketWatch) -- Facing tough competition and sliding revenue amid the economic meltdown, Trump Entertainment Resorts will have to skip a $53.1 million interest payment scheduled for Monday on its 8.5% senior secured notes due 2015 in order to maintain sufficient liquidity.
  
  The Atlantic City, N.J., casino operator, with about $1.25 billion worth of the notes outstanding, said late Friday that it has a 30-day grace period to pay up and will meanwhile seek talks with its lenders to revamp its capital structure and improve its liquidity.
  
  A panel of independent directors will oversee the talks, the company said.
  If it doesn't make the payment in the 30-day grace period, Trump Entertainment said, holders of a quarter of the notes and lenders under a $490 million senior secured loan to a company subsidiary will be able to accelerate the maturities of those obligations.
  
  Donald Trump, the television personality and New York real estate investor, is non-executive chairman and the largest shareholder of Trump Entertainment, which operates three Atlantic City casinos: The Trump Taj Mahal and the Trump Plaza on the Boardwalk and the Trump Marina in the Marina district. The last is being sold to Coastal Development for $270 million in a deal that has seen the price lowered and the closing deadline delayed.
  
  Trump Entertainment "is separate and distinct from Mr. Trump's privately held real estate and other holdings, which the company understands encompasses substantially all of his net worth," the company said.
  
  After his casinos twice ran into bankruptcy, Trump was removed from having any operating role in them as part of the deal that brought the company out of Chapter 11 the last time around.
  
  And it could happen again: Earlier this month, Fitch Ratings warned that after the company drew a remaining $25 million available on its credit facility this quarter to help fund an expansion, "it will have little to no access to committed external funds."
  
  The ratings agency also said that "given Trump's heavy debt load and the expected operating pressure in Atlantic City over the next 12 months, it is crucial for Trump to close the Trump Marina sale in order to avoid a restructuring, in the absence of another transaction."
  
  On Nov. 7, Trump Entertainment reported that it swung to a third-quarter loss of $139.1 million, or $4.39 a share, from a profit of $6.6 million, or 21 cents, in the year-earlier period. Continuing operations produced a loss of $3.49 a share against profit of 7 cents. Revenue fell 8.4% to $198.3 million.
  
  The company cited slower consumer spending, competition from Pennsylvania, and a smoking ban as the primary factors in the latest results. The number of customers was relatively stable, but spending per person declined, the company said.
  
  The company said then that it was controlling its costs and that its 21 top-paid executives had agreed to a 5% salary cut.
  
  Shares of Trump closed at 31 cents Friday, giving the company a market capitalization of approximately $10 million. The stock price scraped as low as 25 cents earlier this month after trading near $6 this time last year. (read rest of article: here )

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China's Steel Industry Slows Down

Read the following feed at Metals Place: China's steel industry slows down

• Following Years of Rapid Growth, Production Retreats as Global Demand Dwindles
  
  China's steel industry, which in the boom of the past few years has become the biggest in the world, is now facing a long, cold winter.
  
  Demand is declining both in the home market and abroad. China's steel exports, which had been expanding at an extraordinary pace of 60% a year, are now falling. Weakening Chinese exports of home appliances and machinery have cut demand for steel, as has a collapse in the Chinese housing market that triggered sharp declines in construction.
  
  The current downturn is the sharpest and deepest for China's steel industry in at least a decade, with its output plunging 17% in October. Some executives don't think the boom times will ever return.
  
  "We think that the era of high profits for steel companies has already come to an end," said Yang Siming, chairman of Nanjing Iron & Steel Group, a midsize producer based in eastern China.
  
  Because China's steel industry grew so rapidly in recent years -- it is now five times bigger than it was during the last contraction, producing more than a third of the world's steel -- the downturn is being felt throughout China and across the world.
  
  Big miners like BHP Billiton and Rio Tinto have been hammered by the collapse in Chinese demand for iron ore and other minerals used in steel, as have producers of coal, which steelmakers consume rapidly. With prices and shipments for key products declining, BHP is now focusing on preserving its finances, and on Tuesday the company abandoned its bid to take over Rio Tinto.
  
  Waning demand has also pushed steelmakers in other Asian nations to cut back production as well as prices, as they welcome BHP's latest decision regarding Rio Tinto.
  
  Japan's Nippon Steel Corp., the world's second-biggest steelmaker by output after ArcelorMittal, said it will extend production cutbacks to more than two million metric tons in its fiscal second half through March from one million tons, and didn't rule out more cuts in the future.
  
  President Shoji Muneoka said the Japan Iron and Steel Federation "has strongly insisted that a takeover of Rio Tinto by BHP would hinder healthy competition in the market for steel materials. So, we welcome that BHP has practically dropped the takeover plan after the EU commission sent them a letter to oppose it."
  
  Taiwan's China Steel Corp., which sells as much as 75% of its production in the domestic market, said it will cut domestic steel prices in the first quarter of 2009. The price cuts, to be announced Wednesday, will be the first in nearly three years following 11 consecutive quarters of price increases.
  
  China Steel Chairman Chang Chia-Juch said BHP Billiton's decision to drop its takeover bid for Rio Tinto is "very good for the steel industry," as it will ensure more competitive pricing of raw materials such as iron ore.
  
  China Steel also said it expects 2008 production to be as much as 10% below last year's production of 10.19 million tons, and plans to push forward a maintenance shutdown at one of its blast furnaces to the first quarter, essentially cutting output by another 25% during the quarter.
  
  In India, steel prices have come down by about one-third since July and have halved since the beginning of the year.
  
  Indian steel companies including state-run Steel Authority of India cut prices between 15% and 20% earlier this month and analysts feel another cut is likely soon.
  
  Steel imports, meanwhile, slowed in October, down to one-third from the previous month, Indian government data showed. Analysts said imports are still cheaper than local steel by about 5% to 10% as China's steel prices have slumped in the past couple of months.
  
  The current downturn also means reduced business for the ports, railways and shipping lines that carry such commodities like coal and iron ore. The Baltic Dry Index, a global measure of costs for transporting bulk goods, is already down more than 90% from its levels in June this year, in large part because of lower expectations for Chinese demand.
  
  A retrenchment in the steel industry could help shift the profile of China's economy, which has been focused on energy-guzzling heavy industry in recent years. The expansion of steel production has underpinned China's transformation into an industrial giant, but it also has been a big contributor to the surge in the nation's use of coal and oil and its emissions of pollutants and greenhouse gases. A smaller steel industry could mean a cleaner, more efficient China that is less of a strain on the world's resources.
  
  "If steel production growth slows from recent trends to below 10% and the sector sees some healthy consolidation, by 2012 China will have saved more than one billion tons of coal and cut a France-sized hole in its annual carbon-dioxide emissions bill," said Trevor Houser, an energy analyst with Rhodium Group.
  
  When the current crunch ends largely will depend on how quickly housing and infrastructure construction recover, something the government is trying to speed up with a huge stimulus package announced earlier this month. But the crunch is already causing strain: Almost all producers are cutting production and scaling back their once-ambitious plans.
  
  Mr. Yang's company, based in the outskirts of the eastern city of Nanjing, started seeing demand for steel weaken in July, and began cutting some output in August. Although Nanjing Steel has been reducing inventory and trimming raw-material purchases, monthly profit has collapsed to about 50 million yuan ($7.3 million) in October from more than 400 million yuan in June, Mr. Yang said.
  
  China's steel industry today is highly fragmented, rife with weaker players that have survived only because of soaring growth. Mr. Yang and other steel executives think that a shakeout is coming that will weed those companies out, and ultimately strengthen the industry. "Some small companies will not survive," said Mr. Yang. "I think that this adjustment is necessary. Otherwise companies will just continue expanding without limit, and things would be even worse later on."
  
  Last month, FerroChina Ltd., a China-based steelmaker whose stock trades in Singapore, said a downturn in its business had left it unable to repay some of its loans. The company and its units now face 206 lawsuits from creditors seeking repayment of some 4.82 billion yuan, and is trying to come up with a restructuring plan.
  
  The China Iron & Steel Association says that 23 of the steel companies it tracks lost money in September, and the industry's average profit margin fell to 1.4% from 7.6% in the first half of this year.
  
  U.S. industry and government officials have long argued that China's steel industry has expanded too much, too fast, thanks to lax government policies that allowed both efficient and inefficient producers to get bigger. The current downturn might simply cause temporary closures by small mills that will come back when times are good. But Chinese officials privately agree with the need for real consolidation, and could take this opportunity to force mergers of steel companies, many of which are at least partially state-owned.
  
  "The government has wanted to consolidate the industry, but while all the companies were making profits they haven't been able to do it," says Michael Komesaroff of Urandaline Investments, an Australian commodities consultancy. He notes that in Japan, the top five companies together account for 80% of the nation's steel output, while in China, you have to add together the top 66 companies to get to 80% of the market.
  
  "Now that margins for the small players are so thin, or even negative, everyone will want to consolidate," he says. "This downturn gives China a chance of producing a genuine global champion in the metals industry."
  
  Nanjing Steel's Mr. Yang wants to make sure his company is among those left standing. Nanjing Steel is only a midsize company by China's current standards, but it ranks 53rd in the world in terms of annual output.
  
  The Chinese company prides itself on producing higher-quality product than most in the industry -- its steel has gone into the iconic "Bird's Nest" Olympic stadium in Beijing, as well as a wind farm in Wisconsin -- and thinks it could benefit from consolidation. "There is still room for some companies -- those with good products and a higher level of management -- to make an appropriate profit," he says. Nanjing Steel doesn't rule out the possibility of buying up some financially distressed competitors next year, he said.
  
  Some combinations have already started. The local government in Shandong province earlier this year arranged the merger of two firms, Jinan Iron & Steel and Laiwu Steel Group. Officially, the policy is to support consolidation in the steel industry, though in a way that avoids large-scale layoffs.
  
  Beijing is concerned about widening unemployment, one factor that could weigh against rapid consolidation. But Assistant U.S. Trade Representative Tim Stratford, who visited Beijing in October for trade talks on steel, said Chinese officials were asking about U.S. retraining programs for laid-off steelworkers. "They recognize it's cheaper to assist displaced workers than to subsidize ongoing operations of steel plants," he said.
  
  The total output of China's steel industry is likely to shrink marginally this year, perhaps by 1% to 2%, and be roughly flat in 2009, according to industry executives and analysts. But coming after seven straight years of growth more than 15%, that is a sharp correction.
  
  "A decrease would be pretty radical," says Mr. Stratford. "They haven't planned for that." – The Wall Street Journal

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33-Year Bear Market And We Are Only One Year Into It!

And the Dow Theorist, Tim Woods reckons that we are a long way from being out of the woods.

Mr. Woods wrote the following in FinancialSense market wrap on Friday.

• Now the question at hand is, did the October 2007 top mark THE top of this entire bull market advance up from the 1974 low? If so, then we are now operating within the context of a much longer-term secular bear market that should serve to correct the entire 1974 to 2007 bull market. Also, based upon the historical bull and bear market relationships of the past, the 33 year bull market period should be corrected by a 10 to 12 year bear market, which, based on the 2007 top, would take the bear market down into the 2017 to 2019 timeframe. Another point I want to make here is that back in 2000 the bull market from 1974 was only 26 years in duration and one-third of that would have been some 8 to 9 years, which means that if they would have let the bear market that tried to begin back then unfold, we would now be coming out of a natural bear market bottom in which a real advance could have occurred. Rather, they fought it tooth and nail and were ultimately able to extend the bull market into 2007. As I said all along, this only served to make matters worse. We now have a 33-year bear market to correct and we are only one year into it. Point being, if we have truly seen THE bull market top, then we still have some 9 plus years to go based on these typical bull/bear market relationships and fighting it will only extend the inevitable and make matters worse.

Source: Why Opinions Differ and Brief Update (Fully recommend you to read the full article!)

Also Double T had also highlighted me the following: http://www.ritholtz.com/blog/2008/11/shiller-crisis-may-run-for-years-and-years/

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Prem Watsa Gives An Investment Tip: Buy Now!

Published on NationPost.com: Wall Street winner: buy now

• Canada’s Prem Watsa, Chair and founder of Fairfax Financial Holdings Limited, is the only major money manager/insurance company to have forecasted and benefited from the current catastrophe. On Oct. 4, he told me in an interview that it was wise for everyone to stay on the sidelines in terms of investment. He now has a new view and last week took off the hedges from his equity holdings and is investing selectively in common stocks.
  
  (Fairfax’s investment team, led by Watsa, has made US$2 billion in profits for shareholders since 2003 and its market cap has gone up slightly despite the worst market since 1929 and the fact that its property and casualty rivals’ stock prices have cratered by 26.5% to 97.4%. Fairfax has remained at US$5 billion market cap in the past year while Warren Buffett’s Berkshire Hathaway has collapsed from US$219.2 billion market cap to $120.1 billion or the Hartford Financial fromUS$27.4 billion to US$1.7 billion. Or AIG.)
  
  The result is that Fairfax has now gone from North America’s 14th largest public property and casualty insurer to its 7th.
  
  Q&A with Prem Watsa:
  
  Q. You removed hedges last week, so do you think the bottom’s been reached?
  
  A. “With the S&P drop year-to-date of 50% -- not seen since 1931 -- and how worried the investment community is, it just seemed to us a lot of fear may already be discounted in the stock markets. You can't say this is the bottom, markets are a discounting mechanism and certainly still can go down some; however, we thought it was an appropriate time to close our equity index hedges."
  
  "Before we took the equity index hedges off we asked: Suppose we were wrong and the stock markets go down further, can we handle it? Our analysis indicated we could. Our hedges have done their job, protecting us from the 50% market decline we saw into November. However, we asked ourselves what if the stock markets decline another 50% and - in terms of ratings and capital - all the models we use indicated that we'd be fine.”
  
  “As for future stock values, trees don't grow to the sky and markets don't go to the floor, or zero. After a 50% drop, we see a ton of opportunity in terms of stock prices (in relationship to intrinsic values) we have never seen for a long, long time now."
  
  "General Electric has never been valued this cheaply in 50 years. GE at $15-16, represents seven times earnings, over 8% yield -- which takes you right back to the 50s. This is a AAA-rated company. It has a tremendous record and today you can buy it at these very low prices."
  
  Q. What’s your advice now to the average investor who you warned should avoid the market in early October?
  
  A. “We are buying many common stock positions at these prices. We are buying with the idea that the stocks we buy could go down in the short-term and that is not going to affect us. You have to be able to buy with cash and not go on margin or borrow money to buy these stocks."
  
  "We would not have taken our hedges off if we didn't think we could survive a further 50% drop in the market, because a further stock market drop in the short-term is also a possibility".
  
  "A good investment now would be a value-oriented mutual fund with a long-term track record but without leverage."
  
  Q. Is the redemption phenomenon, by hedge and mutual funds, nearly finished knocking down stock values?
  
  A. "We have seen more than a 20% decline in mutual fund assets in the last three months and this redemption run can last for some time. The recession may be long and deep and redemptions may continue for some time.”
  
  Q. How will the next President-elect Barack Obama affect Canada?
  
  A. "They are pouring money into banks, consumer credit, toxic assets. I'm not sure there is a lot of ammunition left but it looks like the new administration is going to come with a very significant stimulus program. The Chinese have too. At some point these actions will bite and a recovery will begin, but we must be careful to see what the new administration will do."
  
  "Things to watch the new administration on are trade and China, currency, autos, the environment as it affects businesses, interest rates and of course, taxes. If the new administration decides not to do anything on taxes for two years, that could have a very different impact from hiking corporate and capital gains and other taxes immediately."
  
  “We will most likely be dragged down by the events unfolding in the U.S. Fortunately, our C$ has gone down, which gives our businesses some protection. Canada may have to put money into any auto deal."

Got the tip?

• "General Electric has never been valued this cheaply in 50 years. GE at $15-16, represents seven times earnings, over 8% yield -- which takes you right back to the 50s. This is a AAA-rated company. It has a tremendous record and today you can buy it at these very low prices."

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Regarding AirAsia Forex Losses.

Last nite I wrote, AirAsia Posted Massive Losses!

In which Jasonred79 said the following:

• Moo, you got some errors in your analysis:
  
  The Finance costs of 292,570includes a forex loss of 212,510.
  I assume we can count this forex loss as a one time event. Possibly reversable in fact.
  
  So, Airasia's "real" quarterly finance cost is around RM80 million.

Jason,

Thanks for your comments as usual.

Yes I am aware of what I wrote and yes I am aware that I deliberately included the forex losses in.

If you look at the third picture loaded https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhvma6aA-sYkM2_D0-AyN8Yz6qqjWEnOeAmLqfUSrC0HLiPnncpOmwK-XpvBkGcFGqIxAeCJE2rhOKrVjRbh0e352r5nTlZyni-kqdiK4EPjmMJfrL9npAg4llrDdiNLSlNI1M9IJ9agyEX/s1600-h/aa3.JPG, you can see that I had CLEARLY noted what's INCLUDED in AirAsia financial costs.

Now I had DELIBERATELY included the forex losses in it.

Why should I or why should anyone treat it as a one-off item?

I tell you what... it was just back in May 2008, AirAsia trumpeted about its strong earnings performance. Included in the STRONG earnings was a forex gain of around 86 million. (This issue was even noted by Seng in a blog posting, http://fusioninvestor.blogspot.com/2008/05/edge-on-airasia.html and http://fusioninvestor.blogspot.com/2008/06/airasia-still-profitable-on-us200.html)

So during the good times, forex gains were part of AirAsia good times.

So during bad times, forex losses SHOULD also be part of AirAsia bad times.

Should I even assume that this forex loss as a one time event? Should I assume that there is a possibly that a reversible is likely to happen?

I do not know. Do you know for sure?

Since we do not know for sure why shouldn't we treat it as it is?

For example, if I borrow a million dollars in USD and if the exchange rate of the ringgit to the USD is at 3.25, I had effectively borrowed 3.25 million ringgit.

Now say the exchange rate of the ringgit to the USD is CURRENTLY at say 3.50. My borrowings now is now 3.5 million.

Now I can argue that the current rates is only temporary and I can argue that a reversible can and should happen but I am sure that you will understand it's all futile for what I owe the bank currently is based at current rates.

And based on the current rates, my loans had increased and based on the current rates, the interests paid on the loans had increased.

And based on current rates, this is my REAL financial cost.

This is how I would treat it.

And if you think this is an error in my interpretation, then it's an error.

By the way, did you love the way Star Biz reported AirAsia massive losses? AirAsia revenue rises on high passenger volume

• By LEONG HUNG YEE
  
  PETALING JAYA: AirAsia Bhd, which posted its first loss since its listing in 2004 due to foreign exchange translation and hedging losses through Lehman Brothers Commodity Services Inc, reported positive growth in revenue due to higher passenger volume and higher contribution from ancillary income.
  
  It said yesterday that passenger volume grew by 24% to three million in the third quarter ended Sept 30 compared with 2.44 million a year ago.
  
  Average fare was higher by 12% at RM195 against RM174 previously. It expected to carry 20 million passengers across the AirAsia group this year.
  
  “The higher average fare achieved reflects the positive contribution from ancillary income and the increase in fees.
  
  “Load factor was 3.9 percentage points lower to 75% as a consequence of significant capacity addition and the full impact of the fasting month,” it said in a filing with Bursa Malaysia.
  
  Ancillary income increased 88% to RM69.7mil from RM37mil in 2007. Ancillary income currently represents 10.6% of its total revenue.
  
  Its Indonesian operations made significant improvements with a 61% higher yields compared with last year and a 78% load factor.
  
  Group chief executive officer Datuk Seri Tony Fernandes said the carrier was confident of offsetting the RM215mil related to the provisions for unwinding its derivatives structures and likely non-recovery of collateral for trades.
  
  “Our strategy is already in place to recover the losses. We have hedged 35% fuel requirement for 2009 and we are paying spot price for it (fuel),” he said in a telephone interview.
  
  “We do not want to be paying US$60 per barrel when the spot price is US$40, so we decided to buy on spot price. We get to lock in the potential gain by paying spot price,” he said, adding that AirAsia would be monitoring the fuel price movements.
  
  However, he declined to elaborate on AirAsia’s fuel hedging strategy.
  
  Fernandes also said the group’s finance costs had increased significantly as AirAsia had more planes now and would be getting nine new ones next year.
  He added that AirAsia had provided the full amount for unwinding derivatives structures and likely non-recovery of collateral for trades held by Lehman Brothers to be written off. “It’s best to assume that it is gone and it will be a bonus if we manage to recover it,” he added.
  
  He declined comment on reports that AirAsia’s major shareholder Tune Air Sdn Bhd was close to securing financing for a possible privatisation of the airline.

Ahem...

• However, he declined to elaborate on AirAsia’s fuel hedging strategy.

Huh?

Still got fuel hedging????

Sigh... see What Lah! Didn't AirAsia Said No More Oil Bets?

----------------------

Edit: 1:53 pm.

I just realised the following.... AA hedged their USD at fixed rates!!! Looks sketchy but this is what it is saying.

As per Note 29 (i), the Company has previously entered into a number of long-term forward contracts to purchase US Dollars at fixed rates. Based on the current outstanding principal amounts in respect of the contracts, the weighted average contracted rate and the prevailing exchange rate as at 30 September 2008, the Company could potentially enjoy a gain of RM35.6 million. However, this can only be reflected in the financial statements upon realization over the duration of these contracts.

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AirAsia Posted Massive Losses!

Blogged the other day, What Lah! Didn't AirAsia Said No More Oil Bets?. In it, Business Times carried a stronger header for AirAsia, Strong bookings to fuel AirAsia's revenue.

And I remarked then, "Record revenue? Since when did revenue ever counted for anything in the investing world? Strong revenue WILL NOT seduce any investors to invest in a stock! Strong net profits, yes! "

Today AirAsia reported its earnings. Wanna guess how it did?

Me? You should know where my bet was! Yup, earnings should be rather poor!

• AirAsia posts RM465.5m net loss
  
  Published: 2008/11/28
  
  AirAsia Bhd, Southeast Asia’s biggest discount airline, posted its first loss since it went public in 2004 after it took a one-time charge for contracts tied to fuel hedging and trades held by Lehman Brothers Holdings Inc.
  
  The company reported a net loss of RM465.5 million (US$129 million) in the three months ended September, from a profit of RM180 million a year earlier, the Sepang, Malaysia-based airline said in a statement today. Sales climbed 43 per cent to RM658.5 million. Operating profit fell 37 per cent to RM91.6 million.
  
  AirAsia had a charge of RM215 million in the third quarter after the company unwound hedging contracts and the likely non-recovery of a collateral for trades held by the now bankrupt Lehman Brothers. The carrier also filled fewer seats for a fourth consecutive quarter after chief executive officer Datuk Seri Tony Fernandes increased capacity while rivals including Malaysian Airline System Bhd scaled back operations.
  
  “We see limited growth prospects for AirAsia,” said Christopher Eng, an analyst at OSK Research Sdn Bhd in Kuala Lumpur, who has a “neutral” rating for AirAsia. “This is not a time to aggressively invest in airline shares.”
  
  AirAsia lost 1.8 per cent to close at RM1.11 today in Kuala Lumpur trading. The stock has fallen 31 per cent this year.
  
  The company filled 75 per cent of seats in the last quarter compared with 79.3 per cent a year earlier, the statement said. The airline’s total passenger traffic increased to 3 million from 2.8 million, it said. - Bloomberg

Yup, sales rocketed but operating profits slumped!!!

But I was not interested in all these. I wanted to look at its balance sheet.

Back early this month, I wrote another posting on AirAsia, Tune Air Insists That It's Still In Midst Of Trying To Privatise AirAsia!

In that posting I had loaded some key balance sheet items.

Here are some shots of AirAsia balance sheet as reported in its quarterly earnings

Cash balances is now only 774 million compared to 1.084 billion in its previous quarterly earnings!

And the horror part yet again...

Holy cow!

Yes Holy Cow!!!!!!!!!!

In its previous quarter, I thought AirAsia borrowings were extremely high at 5.397 billion.

AirAsia total debts is now 6.352 billion!!!!!

"Macam mana nak cari makan macam ni?"

And needless to say.. based on current quarter, one has to ask 'why it borrow so much but yet cannot make money?!'

And the following snapshot from its earnings notes shows exactly why such borrowings is a no-no.

And what's so wrong if the above, one may ask.

For starters, have a look at the below.

It's operating profit per quarter is only 91.559 million and when you add back its depreciation and amortisation figures, of 88.037 million its free cash from its operations is around 179.596 million.

Look again at the financial cost table. It's financial cost is 292.570 million!

How to make money when your financial cost is so much more than your operating profits

*The above comments were striked out because some readers felt it was misleading since the forex losses (or gains) are non cash flow items*

6.352 billion in debts?????

I guess no one has ever mentioned back to AirAsia that debts need to be paid one day!

And based on the current balance sheet, did Tune Air Insists That It's Still In Midst Of Trying To Privatise AirAsia!????

Does it even make business sense?

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Kurnia Asia Continued Losses Is Considered A Turnaround??

Posted this recently: Shocking Losses Reported By Kurnia Asia!

On today's paper, Business Times carried the following article, Kurnia Asia achieves a turnaround

• KURNIA Asia Bhd has achieved a turnaround in underwriting performance with a surplus of RM2.67 million for its first quarter of financial year 2009, after four immediate preceding quarters of consolidated underwriting deficit.
  
  In a statement yesterday, the group attributed the turnaround to a more proactive risk selection strategy as well as to strengthened claims management practices implemented through its Transformation of Operations and Performance (TOP).
  
  “We have successfully turned around our underwriting performance for the first quarter of our new financial year,” said Kurnia Asia executive chairman Tan Sri Kua Sian Kooi.
  
  “It’s a good start to our new financial year and we are back on the right track as a result of strategic business and operational measures put in place,” he said.
  
  For the current quarter under review, the group’s claims expenses was reduced by 10 percent to RM172.87 million compared with the first quarter of the previous financial year.
  
  As such the group’s claims ratio has improved to 68 per cent compared to 75.4 per cent in the previous quarter, Kurnia Asia said.
  
  The group also registered an improvement in its top-line, whereby gross premium income improved by 5.2 per cent to RM282.55 million for the first quarter, up from RM268.52 million in the same quarter of the preceding year.
  
  “However, the group’s improved top-line and underwriting performance were weighed down by our invesment results,” Kua said.
  
  “Though a net loss of RM12.11 million was incurred mainly due to the unfavourable stock market condition, we have taken steps to review our asset allocation in our investment portfolio and have adopted a defensive stance in view of the uncertain market outlook,” he said.
  
  “While our presence in the motor sector will continue to be an important business segment for Kurnia Insurans (Malaysia) Bhd, we are also strategically refocusing our priorities on the motor sector to achieve a 15 per cent non-motor portfolio mix, up from 12 per cent last year,” he added. — Bernama

I got only one word.... HUH?

Yup!

A big HUH to such an article.

What's the bottom line?

Kurnia Asia is still reporting losses and the losses is 12 million and 12 million in losses is still losses!

So how on earth can one consider this a turnaround???

Losing less money is good???

Oh my!

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Pessimists Views On The Chinese Economy??

The following article is highlighted in the latest issue of Newsweek.

• Why Beijing Is In A Risky Place
  As the factory to the world, China may be the nation most vulnerable to collapsing global demand.
  
  By George Wehrfritz NEWSWEEK
  
  Workers are losing factory jobs at the fastest rate in decades. Automakers—having failed to anticipate today's sales slump—are lobbying politicians for bailouts. The stock market is a crash heap, home prices are down by 35 percent or more in many cities and toxic assets have begun to weigh heavily on banks. America in 2008? Try China, where the global economic downturn now looks certain to end the country's 30-year growth boom, posing the greatest leadership challenge to Beijing since pro-democracy demonstrations threatened one-party communist rule back in 1989.
  
  That's not the conventional take on China—yet. But with most industrialized countries now in recession and countries the world over hoping against hope that the planet's most buoyant major economy might somehow dampen the global downturn, it's a forecast that increasingly rings true. The reasoning goes something like this: China, despite its deep pool of savings and $2 trillion in foreign reserves, is unprotected from the fall in global demand that began in earnest in mid-2008. Notwithstanding all the hoopla about the rise of China's billion consumers, the body blow that's now landing in the industrial heartland will debunk the notion that China has already begun transitioning toward a new growth model based less on exports and investment and more on household consumption. "We would love to believe it too, but it just ain't so," wrote Standard Chartered bank's highly respected China economist, Stephen Green, last month. He says expecting Chinese spending to save the world from recession is "a pipe dream."
  
  With China at the vanguard, Asia as a whole stands dangerously exposed to external shock. Since the late 1990s, household consumption as a share of China's GDP has fallen from roughly half to 35 percent. On the flip side, the share of Asia ex-Japan's output devoted to exports is now more than 45 percent, or roughly 10 points higher than it was on the eve of the 1997–98 Asian financial crisis. When juxtaposed with America's debt-driven gluttony, Asia's puny appetite for the goods it produces reflects a global economy that's staggeringly out of whack. "We are where we are because of massive imbalances that policymakers and politicians have allowed to build up over the last decade," argues Stephen Roach, chairman of Morgan Stanley Asia. "Those imbalances were never sustainable, but the longer they went on the more they seduced people. And now we're paying the ultimate price for that seduction."
  
  The tab, in fact, has yet to be tallied, but don't be surprised if Beijing gets stuck with the biggest portion of the bill for the simple reason that China's rebalancing act is actually much tougher than America's. For U.S. households, today's crisis means saving more and consuming less (recent consumption data suggests that is happening quite rapidly). Yet in China, where total household consumption is just 5 percent of America's by value, the challenge is to sustain an economy that's largely investment- and export-driven, which means finding ways to perpetuate industrial overproduction. Michael Pettis, a professor of finance at Peking University, says America found itself in the same bind back in 1929. "The U.S. in the 1920s ran a huge trade surplus and had the largest reserves in history to that point," he says. "So was the U.S. immune to the global crisis? No. It was the country that suffered the most. In that sense it is exactly like China today."
  
  Beijing realizes the growth trap it's in. Why else would it unveil on Nov. 10 a $590 billion stimulus plan—a package nearly as large as Washington's $700 billion financial bailout—just days after it announced that China's economy expanded by 9 percent in the July–September quarter? The consensus view is that China's economy has slowed markedly since then. Year-on-year growth estimates for 2009 are mostly in the 7s, with the latest forecasts adding the scary caveat, "or less." This month the Royal Bank of Scotland said 5 percent growth in China next year couldn't be ruled out. China's economy, which grew by 11.9 percent last year, hasn't dipped below 6 percent annually since 1990.
  
  Beijing's stimulus plan has won plaudits internationally not least because it indicates that Chinese leaders won't stand idly by as the crisis deepens. But just as in Washington at the beginning of the Great Depression, policy miscues could cost China dearly—especially if they undermine the global trading regime that China's economy relies on more heavily than any other major economy in the world. In the early 1930s, America's self-defeating mistake was to cut off world trade, particularly in the Smoot-Hawley Tariff Act, at a time when it was the leading exporter in a world burdened by massive industrial overproduction. Today, China is the lead exporter, the world again faces massive overproduction, and the mistake Beijing must avoid is moving too hard to sell more manufactured exports at the risk of flooding an already weak market, and triggering a protectionist backlash. That will only push the global market toward deflation—the downward spiral of falling prices leading to falling demand, as stressed consumers wait for even better bargains.
  
  The doubts about China's stimulus plan arise in part because it's all broad strokes with no fine print. Conceptually, however, it seems intended to split the difference between promoting consumption at home, and export sales. It includes commitments to fund rural infrastructure, boost social spending on health and education, and mount an "economic housing" scheme for migrant workers in major cities—all of which, if implemented, would raise household spending over time. But it also contains perks for heavy industry, value-added tax cuts for the export sector and lending provisions that will channel bank funding to state enterprises engaged in road and rail construction and away from private companies. "The two focuses are definitely exports and infrastructure. That's what we're getting from everything we're picking up," says Green. "And that the health and education spending, although it has been listed as one of the eight priorities, is not going to be [well] supported." Economists estimate that only a quarter of the $590 billion is new money as opposed to previously announced spending, future tax cuts and unfunded mandates passed down to local governments. There's reason to expect that much of the promised social spending—and the consumer empowerment it represents—may not materialize. One warning signal is that Beijing has entrusted much of the safety net stuff to the provinces, which historically have put a low priority on building schools, unless the order to do so comes with earmarked funding from Beijing. One new concern: local tax revenues are shrinking due to the economic downturn. Roach says investment in the social safety net would "reduce the precautionary saving that is inhibiting broad-based consumption growth across the nations [of Asia]," though he adds: "China has from time to time flirted with that, but they really have dragged their feet."
  
  To understand the linkage between social services and household consumption, visit a Chinese hospital. At check-in, patients are required to deposit money up-front, and when that funding runs dry they're tossed out onto the street, healthy or not. According to the World Health Organization, China spends less than 1 percent of its GDP on health care, which ranks it 156th out of 196 nations the U.N. agency tracks. Likewise, poor kids can't attend school without paying fees, and most migrants are uninsured against job-site accidents at any price. Families cope by saving an estimated 25 percent of their disposable income, just in case.
  
  That isn't a social contract conducive to the "harmonious society" President Hu Jintao has advocated since 2006, or so concludes a new report co-produced by the United Nations Development Program and the China Institute for Reform and Development. It calls on China to overhaul its social-welfare system to provide universal basic health care, education, unemployment and retirement benefits for the country's 1.3 billion people. It stresses the need to vest forgotten segments of society including farmers, migrant workers and the poor. And it claims that such expenditures—which it estimates would cost $55 billion a year—actually offer a bigger bang for the buck than would the construction of new roads, railways and bridges.
  
  The risk today (and it's one that's already materializing in a mounting exodus from shuttered factories in Guangdong province) is that these workers could, like the boxcar-hopping hobos of America's Depression era, become the flotsam and jetsam of the economic bust. Almost since China's reforms began three decades ago, Beijing insisted that sustaining economic growth rates above 8 percent was paramount to employing the millions of workers pouring in from inland villages. The further growth drops below that level, the higher the percentage of an estimated 15 million workers entering the labor force each year lands in the ranks of the unemployed. Yet even as policymakers stoked fast growth with every means at their disposal, little was done to transform these workers into foot soldiers of a different sort: new consumers with sufficient social protections to save less and spend more.
  
  The prescription for change has been obvious since the late 1990s. It includes balanced growth between booming east and lagging west; efforts to narrow the yawning income gap between China's superrich and everyone else; and policies that channel the massive earnings logged by the state-owned conglomerates that dominate China Inc. back into government coffers to fund social spending. Yet campaigns with names like Go West meant to spur investment in the hinterland never amounted to more than propaganda exercises, and a long-mulled plan for the government to charge state companies dividend on their huge profits remains a small-scale experiment. In October, Standard Chartered noted a "gulf between aspirations and actual policies" illustrated by Beijing's long-standing bias toward investment and exports, and support for "state-protected oligopolies." Pettis argues that Beijing's persistent mercantilism has prepared it for the wrong crisis—specifically, an external debt shock akin to the one that ravaged Asia in 1997-98, against which China's huge savings and foreign reserve pools would make it "superbly protected." Yet as with America in 1929, China is the nation most exposed in the world to a collapse in global demand today.
  
  As such, Beijing finds itself in a fix as 2008 winds to an ignominious close. Export promotion offers a viable short-term means of keeping the factories of China running—yet grabbing more market share amid a global downturn is the surest way to incite protectionism. During the recent gathering of G20 leaders in Washington, much public emphasis was placed on shoring up the global financial architecture and defending free trade. Yet former New Zealand prime minister Mike Moore, who headed the World Trade Organization from 1999 to 2002, believes the backroom talks focused on the imperative that Asia not try to export its way out of today's crisis. It was "the elephant in the room; how China, and to a lesser extent India and the Southeast Asians, must become consuming countries," he says. "It's overwhelmingly in [their] interest to become a lot less reliant on exports, and it also does right by the people they represent. Not to do it could trigger something that's very, very unpleasant." Global trade slumped 70 percent in the 1930s, and any return to the virulent economic nationalism of that era "would turn crisis into catastrophe," warns Moore.
  
  That presents Beijing with a leadership challenge very different from the one it confronted with tanks and soldiers in 1989. Today, it must work to maintain enough harmony in the global trade arena so as not to lose access to vital overseas markets, while telling the Chinese people that fast growth isn't their birthright. In essence, Beijing must offer a new social contract in which consumption bolstered with a social safety net replaces the export-driven growth engine that has powered China's economy for 30 years. FDR did that in America in the 1930s, but it took a decade. Might China's leaders fare any better? In the late 1990s, then Premier Zhu Rongji refrained from devaluing China's currency when many of its neighbors did so; the decision lost China some export momentum but gained its leadership a reputation for responsible global action. Today's leaders have maintained that reputation, but given the enormity of the economic challenges at hand, the only safe bet is that their helmsmanship will be tested to the extreme in 2009. Especially if the pessimists are correct and China's economy grinds to a halt.

Source: http://www.newsweek.com/id/170305

I wonder if these comments made have their justifications or are they 'depression cheerleaders' as suggested by some arrogant local commentators. ( see So What Is iCapital Talking About Now? )

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So What Is iCapital Talking About Now?

It still makes me laugh so much when I read back what I write before on iCapital.
It was not long that OUR so-called local expert lambasted Warren Buffett for being a lousy economist! ( see past postings Tan Teng Boo Declares Warren Buffett to be a lousy Economist! and Is iCapital Views Consistent? Is Warren Buffett a Lousy Ecomist? )

And today, this same very person wrote the following: Reports slammed for anticipating a repeat of the Great Depression

Since when did Star Biz got comical investment articles?

I kid you NOT.

• IT is increasingly common nowadays to hear and read that the world economy is heading for Great Depression 2. Whether this will actually happen depends on a wide variety of factors.
  
  Right now, whether it will happen, is not even the right question to ask. iCapital talked about how the asymmetrical reporting in the mass media has contributed greatly to widespread fear and panic. With markets continuing to fall, are we depressing ourselves into a depression?
  
  An important question that has not been raised is, despite all the predictions about Great Depression 2, do we know what the 1930 Great Depression was like? Since we all seem to be talking or writing about it like Depression experts, we should first take a look at some pertinent facts.
  
  We should get a better sense and perspective of what is happening currently and realise that we should stop putting fear and panic into ourselves as the consequences will be so painful that we will regret it.
  
  The quick and widespread loss of confidence will be seen by historians of the US-led financial crisis as one of the most important factors that dragged a manageable problem into one that went entirely out of proportions. And historians will wonder why this happened.
  
  
  
  Chart 1 shows the unemployment rate in the US from 1929 to 1943. Currently, the US unemployment rate is 6.5%. If we are seeing Great Depression 2, there is certainly a long way to go for the unemployment rate to shoot up.
  
  Should that happen, there would be every reason to fear and every reason to sell every asset you own. Having gold would be the safest. Imagine the unemployment rate surging to 25% and staying at an elevated level for a long time.
  
  At 25%, the US economy will see 38 million Americans out of job, compared with 10 million currently. The whole country will be thrown into complete confusion and dismay; the world economy will come tottering down and life for millions will never be the same again.
  
  Obama will most certainly not win a re-election. Imagine seeing many of your friends and some of your family members out of jobs, and everyone begging for jobs? Do we really want to see Great Depression 2?
  
  In the 1930 Depression, due to global protectionism and a foolish retreat from globalisation, world trade collapsed, greatly aggravating the ongoing recession then and turning it into a global depression.
  
  Chart 2 shows what world merchandise trade will be like now if it collapses like in the 1930 Depression. In this Great Depression 2, world trade as we know it now will collapse and disappear.
  
  Many economies will suffer pain they have never suffered before. A collapse in world trade on the scale of the 1930 Depression will guarantee every country will be in severe contraction. It will guarantee global deflation which would then make the vicious cycle of downward spiral even more painful and longer. Crude palm oil may even sell at RM150 per tonne. Ponder on this and then ask, do we want Great Depression 2?
  
  Chart 3 shows the 90% collapse in the Dow Jones Industrial Average from 1929 to 1933. So far, the NYSE has “only” fallen 47%. If there were to be a repeat of the 1930 Depression, the NYSE would have another massive 80% to plunge. Wow! If the NYSE dives another 80%, would the markets of Kuala Lumpur, Singapore, Hong Kong, Japan, London, Frankfurt, Mumbai, Sydney, etc. not all collapse totally?
  
  In such a calamitous situation, how much would your properties be worth? Would your property prices not collapse too? No one will rent your properties.
  
  So, do you really want to experience Great Depression 2? Are we all, cheered on by the mass media, depressing ourselves into a depression? Is that what we all want?

Ha ha!

• An important question that has not been raised is, despite all the predictions about Great Depression 2, do we know what the 1930 Great Depression was like?

Wait.. how about yourself? Why treat your readers like ignorant? How about yourself? Do you really know what the 1930 Great Depression was like?

Hey, obviously I do not for I am simply ain't that old!

• We should get a better sense and perspective of what is happening currently and realise that we should stop putting fear and panic into ourselves as the consequences will be so painful that we will regret it.

I wonder why do folks like to use these two words, fear and panic, like tissue paper?

Was there not a reason to fear?

What exactly are we not seeing now?

Is this not a global crisis?

And what do we get from a global crisis? Take a look at the shipping industry. Ships have grinded to a halt. Why? What's the implications on the global economy?

Shouldn't one address these issues?

What about the banks?

How many too big to fall has fallen?

Or what Iceland?

What about Russia?

What about the plunging markets in the Arab nations?

Are we not in a global crisis?

Or should one discount it and call everyone as been in a state of panic and fearful?

I do not know but I for one think that the problem is serious enough.

• Chart 1 shows the unemployment rate in the US from 1929 to 1943. Currently, the US unemployment rate is 6.5%. If we are seeing Great Depression 2, there is certainly a long way to go for the unemployment rate to shoot up.

Comparing unemployment rate back in 1929 with now?

Them folks at FinancialSense would beg to differ greatly on your unemployment figures! Do have a read, Lies, Damned Lies, and Statistics: Unemployment Worse Than Reported

• Should that happen, there would be every reason to fear and every reason to sell every asset you own.

Huh? Huh? Huh?

I am sorry but what are they talking about?

Let's see do you know that as late as Aug 2008, they wrote the following.

• [Updated on 16/08/2008 07:57:00]
  
  If one listens to all the doom and gloom forecasts, it would seem that there is no end to the end of the world. The facts point to a welcomed slowdown, not a frightening apocalypse. What do all these mean for the NYSE ? The NYSE should be rising soon, in anticipation of stronger US economic growth rate. Last week, i Capital said that it sees the fall in the NYSE from Jul 2007 as a correction in a long bull market. i Capital retains its bullish short-term outlook of the NYSE at a range of 1,190 to 1,500. i Capital also retains its long-held bullish longer-term target of the NYSE at 1,900 - 2,000.

Tell you what.. if one had listen to what you were saying and your bullish targets, one would have been sitting on unreal losses!

This much I do know.

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Shipper Swee Joo Announces Losses

Local shipping company announced its earnings tonight.

I will borrow these old notes I received from a friend back in 2007. The notes describes what Swee Joo does.

• [Updated on 20/07/2007 15:41:00]
  
  Principal activities: Shipping & related businesses
  Major shareholder/s: Leonard Linggi Anak Jugah,Goodlink S/B, Limar Management Services S/B
  
  The principal activities of Swee Joo Bhd (SJB), an East Malaysian group that is fast catching the headlines, comprise mainly shipping services, shipping agencies and shipping-related services like haulage, distribution, warehousing, container handling and repairs.
  
  The shipping services provided by SJB are mainly domestic and some regional routes. Domestic refers to routes between East, Peninsular Malaysia and Brunei and coast to coast refers to Sarawak while the regional shipping liner covers Bangkok, Ho Chi Minh City, Jakarta, Surabaya, and Singapore. Currently, one of the strengths of SJB lies in its comprehensive coverage of the East Malaysian ports. Domestic shipping services contribute the bulk of the group's revenue and earnings. In 2001, SJB formed an alliance with a large global shipper, Evergreen Marine Corp. The tie-up with Evergreen increases its revenue with the trans-shipment of goods from international to domestic routes. SJB is allowed free use of Evergreen's containers for 30 days. Presently, the feeder freight revenue contribution from Evergreen makes up 4.3% of SJB's sales. The group's revenue is primarily denominated in Ringgit, while a substantial portion of its cost is in US$. Unfortunately, the group does not undertake currency hedging. Due to the rise in oil price, bunker costs have been rising but this event affects all shippers.
  
  The two main 100% owned subsidiaries of the group are, Johan Shipping Sdn Bhd (Johan) and Swee Joo Coastal Shipping S/B (SJ Coastal). Johan, which provides domestic container shipping services, started business in 1983. It offers scheduled shipping services between west Malaysia and Singapore to East Malaysia and Brunei. In addition, Johan also provides regional shipping services to Indonesia, Bangkok, and Ho Chi Minh City. Johan expanded its shipping services to Ho Chi Minh City and Bangkok in 2003. In 2006, Johan recorded a turnover of RM206.5 mln with a net profit of RM20.3 mln. On the other hand, SJ Coastal provides scheduled services between the various towns in Sarawak. In 2006, it recorded revenue of RM36.5 mln with net profit of RM2.33 mln.
  
  SJB also provides services such as warehousing, container depot, consolidation and deconsolidation of cargoes at Port Klang, Pasir Gudang, and in the major parts of Sarawak. Repair and maintenance of container services are done at Port Klang. The group has 54 prime movers and 189 trailers. The haulage business had sales of RM8 mln in 2006 and net profit of RM0.11 mln.
  
  Presently, SJB operates a fleet of 14 container vessels, 10 general cargo ships and backed by 7 support vessels. No single client, market segment or industry dominates in terms of revenue or profit contribution to the group. In 2007, Johan is adding one 713-TEU container vessel, 1 dual-purpose CPO/container barge and 1 general cargo vessel for transporting rice and is entering the Myanmar and East India markets. SJ Coastal would be adding one 2,400-tonne CPO barge in 2008. Asia Bulkers Sdn Bhd, which mainly transports palm oil products and logs, will be adding one 7,000-tonne product tanker, and 2 sets of tug and CPO barge in 2008.
  
  Conclusion & Advice
  
  Imagine a company that has proven management, earnings that have grown rapidly and are expected to continue growing rapidly and with some of its businesses enjoying strong market positions, how much would you be willing to pay for such a company? Although the shipping business is capital intensive and the company has high borrowings, the current market valuation of RM278 mln for SJB seems to be on the low side. Hence, i Capital rates Swee Joo a Buy for the longer-term.
  
  Disclosure of interest (required under the Securities Industry Act) : The publisher and associates have an interest in Swee Joo.

Remember that above set of comments were OUTDATED comments.

Anyway, here is the link to Swee Joo's quarterly earnings reported tonight.

Quarterly rpt on consolidated results for the financial period ended 30/9/2008

It reported losses of 2.4 million.

The below screenshot shows the CLEAR declining set of earnings. ( I wonder if the investment advisor warned its readers about the deteriorating earnings or not! Or perhaps not due to the vested interests!)

Straight away one see the weakness. Receivables are up, cash balances down.

And more weakness can be see in their liabilities.



Loans are increasing and they are HUGE! And trade payables are on the increase!

And this is what the company had to say in its notes.

• For the current quarter ended 30 September 2008, the Group recorded an increase of 26.5 % on turnover compared to same quarter of previous year (from RM 82.8 million in 4th Quarter 2007 to RM 104.7 million in 4th Quarter 2008). However the profit before taxation decreased from a profit of RM10.3 million to a loss of RM1.5 million when compared to 4th quarter of 2007. The decrease in profit before taxation during the current quarter under review compared to same quarter last year was mainly due to the combination of the following factors:
  
  (i) Increase on cost of sales resulted from escalating fuel prices;
  (ii) Higher finance expenses due to additional borrowing to finance the expansion in property, plant and equipment; and
  (iii) Strong appreciation of USD against MYR during the current quarter under review
  resulting in a substantial exchange loss.
  
  

Swee Joo last traded at 61 sen.

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Baltic Dry Index Plunges To New Low Of 763!

For a while, it appeared that the Baltic Dry Index had stopped falling. It seemed to be drifting around 830 points. However, it looks like I am wrong as the Baltic Dry Index plunged another 5.1% or 41 points to close at 763 points!

763 points!

Remember its high was some whopping 11,793 in May 2008!

Global shipping demand is really grinding to a halt.

And when ships don't move it means there is no trade.

When there is no trade, can you even imagine the consequences and the implications for the GLOBAL economy?

Yes, I have no doubt that this crisis in the shipping industry is only temporary but the less than financially strong companies would be hurting real bad. Shippers and ship builders would be hurting real bad for most in these industry are highly leveraged and the longer the situation persist, as mentioned in a lot of earlier postings by industry experts, I would not be surprised to see more less than healthy companies going under. ( Do note the collapse of Ukraine’s Industrial Carriers and UK-based, New York-listed Britannia Bulk. )

Just published on FinanceAsia.com Shipping outlook bleak

• The global slowdown and overcapacity take their toll on the shipping industry.
  
  Global shipping demand is shrinking, as evidenced by the fact that the London Baltic Dry Index is trading at its lowest levels in years. Closer to home, October throughput at the Hong Kong port was down after posting strong gains through the summer.
  
  The decline in shipping traffic has been sudden and dramatic. “Quite frankly, no one’s ever seen anything like this,” says Standard Chartered managing director and head of shipping finance Nigel Anton. “It’s been quite incredible across all the sectors, but particularly in the dry bulk and the container market. There has been some weakening on the tanker market but nothing like what we’ve seen on the dry and container markets.”
  
  The Baltic Dry Index, a measure of global dry bulk freight rates, closed at 804 points on November 25, down 93% from the high of 11,793 points in May.
  
  In Hong Kong, the Transport and Housing Bureau reported that October throughput was down 2.9% to 2 million TEU (twenty-foot equivalent units or one standard container). This comes after the bureau posted a 7.8% increase in port throughput in July.
  
  The outlook for shipping companies has weakened amid the bleak global economic outlook. Last week, Moody’s Investors Service released a report downgrading the outlook for the Asia-Pacific shipping industry across all sectors – dry bulk, container and tanker – to negative for the next 12 to 18 months. The report cited slack global growth, unstable operating costs and volatile shipping rates as reasons for the downgrade.
  
  The frozen credit markets are seen as at least partially responsible for the negative outlook. "A freezing of trade credit has exacerbated a slowdown in demand for commodities and contributed to the recent, unprecedented plunge in the sector's Baltic Dry Index," says Moody’s senior credit officer, Peter Choy.
  
  Moody’s maintains stable ratings for most of the region’s shipping companies including MISC Berhad, Nippon Yusen Kabushiki Kaisha (NYK), Mitsui O.S.K. Lines (MOL), BW Group and Humpuss Intermoda Transportasi (HIT).
  
  One impending challenge for the industry is the burgeoning order books at the shipyards. “While existing owners are laying up ships we have this massive order book and a lot of those ships will clearly not be delivered,” says Standard Chartered’s Anton. “People will begin to walk away from orders, they already have, because they have generally paid very little in deposit and just say: ‘Fair enough, I’ll leave the deposit on the table and just walk away.’”
  
  Moody’s reports that current orders for dry bulk and container lines is equal to roughly half of current capacity. For tankers, orders are equal to the current capacity.
  
  Anton predicts that a large number of regional shipyards, especially the newer players and those not yet open, will either close or never come to fruition.
  
  While shippers and shipyards are dealing with overcapacity, the value of current assets continues to decrease. “I was just chatting to a broker who is trying to circulate a ship. This is a new ship that six months ago was valued at $80 million and now they are looking at offers of about $35 million,” says Anton. “Six-months ago the chartered rate was about $45,000 a day but now you’d be lucky to get about $15,000.”
  
  The decline in ship values is in no small way influenced by the credit crunch. The value of ships is determined by the forecasted charter rate for different types of vessels, for example the Baltic Dry Index determines the market rate for dry bulk carriers. As charter rates fall, the value of ships declines and forces shippers and banks to revalue their assets.
  
  When the shipping market will turn around is anyone’s guess. “A volatile and extraordinarily challenging dry bulk market is anticipated to continue through Q4 2008 and beyond,” Hong Kong-listed Pacific Basin Shipping notes in a third quarter market update.
  
  Both Standard Chartered’s Anton and Moody’s reiterate the sentiment that a volatile and unpredictable sea freight market will continue for an indeterminate period into the future.
  
  “The current crisis started with the banks, then you could see it in the consumers and now the car makers in the States may go into bankruptcy – it is one thing knocking after the other,” says Anton. “We’ll have to see how it pans out.”

And on the UK Financial Times: Dry bulk shipping rates approach all-time low.

• Participants in such chains are now nervous they could collapse if just one participant suffers financial problems. Some have already been hit by the collapse of Ukraine’s Industrial Carriers and UK-based, New York-listed Britannia Bulk.

Other past postings on Baltic Dry that matters

1. Views On Current Weakness On Baltic Dry Index

2. The Collapse of the Baltic Dry Index

3. Goldman Downgrades Bulk Shippers!

4. Baltic Dry Index Keeps Falling!

5. Baltic Dry Index Stages Strong Rebound!

6. Baltic Dry Index Set For Strong Recovery???

7. Baltic Dry Index Plunges To Seven Month Lows!

8. The Baltic Dry Index Keeps On Plunging!

9. Baltic Dry Index Continues To Plunge

10.The Plunging Baltic Dry Index And The Dangers Of Using Forward PE!

11. Baltic Dry Plunges Below 2000!!!

12. Admist The Plunging Baltic Dry Index, Dr. Marc Faber Warns That Some Shipping Lines Could Go Bankrupt!

13. Comments Heard Admist The Plunging Baltic Dry Index ( recommended reading!)

14. Shipping Giant Neptune Orient Lines (NOL) Warns of Losses!

15. Massive Warnings From Shippers On Their Drying Baltic Dry Index

16. More Dry Bulk Update

17. More Warnings From The Baltic Dry Index

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KNM Q3 Earnings

KNM just announced its earnings.

Here is how its balance sheet is looking.



The receivables is looking rather high, yes?

So I decided to compare what it previously. Quarterly rpt on consolidated results for the financial period ended 30/6/2008

And it would appear that KNM has managed to trim its receivables from 657 mil to 586 million. ( In my opinion the receivables are still way too high!) Some decent improvement from KNM.

Let's check out its loans. Three months ago, it had the following.

Total loans was at 1.186 billion.

In its earnings notes today, it loans increased! Total loans now stands at 1.241 billion!


So despite the much improvement in earnings (for this quarter alone, KNM recorded its highest ever quarterly earnings of 103.416 million (last quarter its net earnings was at 96.291 million)), do you see the wealth creation within the company?

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Conspiracy Theory Involving Crude Oil

And here's one conspiracy theory involving crude oil.

Posted recently on Naked Capitalism: Oil Companies Storing Oil on Tankers, Waiting for Higher Prices

• I am not making this up, and this is NOT Iran, which has stored oil on tankers due to a lack of sufficient refining capacity for its heavy, nasty crude.
  
  Even though the long-term outlook for oil is for higher prices, holding oil already produced off the market is no panacea. But the intent is not to buffer declines, since the amount contracted to be stored at sea is still only a fraction of daily world demand. This is a a speculative move by the oil companies themselves rather than an effort to shift the supply/demand equation (although the oil companies may hope that the information value of their move, that they are confident enough that prices are "too low" to spend money on storage, may help put a floor under oil prices). And due to the falloff in shipping rates generally, tankers can be contracted at very low prices, making this a cheaper gamble than it would ordinarily be.
  
  We have noted before that above-ground oil storage is costly and not as tidy as one would imagine, so in cases like this, oil is not as easily stored as one might imagine.
  
  From Reuters (hat tip reader Michael)

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Transmile Again

It's been a while since I wrote on this stock. Transmile reported its earnings last night and it was not pretty. This morning, Business Times carried the following article on it.

• Transmile reports lower Q3 net loss
  
  Published: 2008/11/26
  
  LOCAL air cargo carrier Transmile Group Bhd (7000) reported a narrower third-quarter net loss, helped by cost reduction and higher charter revenue and general freight sales.
  
  Net loss for the quarter ended September 30 2008 narrowed to RM26.3 million, compared with a net loss of RM84.8 million during the same period a year ago.
  
  In a statement issued yesterday, Transmile, controlled by Hong Kong-based billionaire Tan Sri Robert Kuok, said the net loss included an unrealised foreign exchange loss of RM24.6 million on US dollar loans taken by a subsidiary company.
  
  If the unrealised foreign exchange loss were excluded, the group's net loss for the quarter would have been RM1.7 million.
  
  However, revenue slid 35 per cent to RM68.1 million from RM104.8 million, due to the lower flight hours as a result of the cessation of unprofitable routes flown by its four MD-11 planes since end-March 2008.
  
  Transmile managing director Liu Tai Shin said the group will continue to look for new business opportunities, including having discussions with prospective strategic partners on the possibility of flying new regional routes.
  
  He added that discussions were ongoing with the lenders on the proposed restructuring of its outstanding debts totalling RM554.1 million.
  
  "We are optimistic that a mutually agreed settlement will be reached and the restructuring of the outstanding debt will allow Transmile to pay all the debts that are due and payable in the next 12 months," he said.
  
  It is also pursuing the disposal of its MD-11 aircraft to raise cash for the repayment of its outstanding borrowings, which were raised to purchase the said aircraft.
  
  The net loss for the nine months through September 30 2008 also narrowed to RM94.9 million from RM149.3 million.
  
  Revenue was RM237.2 million, down 42 per cent from RM408.7 million.

So I decided to have a look at its Balance Sheet.

Ok, the receivables has corrected significantly ( but it's still a bit high in my opinion.) and the cash balances has diminished quite a bit (if one compares it to the same period, previous fiscal year)

And the borrowings remains high.


Here are past postings on the Transmile saga:

1. Transmile Receivables,
2. How about TransMile?,
3. TransMile,
4. More on TransMile,
5. 50 Million Adjustment for TransMile?
6. The Full audit Statement on Transmile!
7. Reviewing the events at TransMile
8. Cooking And More Cooking!!
   
   

Read more...