Reply To Comments On AirAsia Exceptional Losses

Posted yesterday Comments On AirAsia Exceptional Losses

Ah had a nice reply and it was nice for Ah to take the time and effort to reply me in detail.

Ah said...

• On deferred tax, I did mention that it should be excluded from core earnings :)
  
  You mentioned "No one asked AirAsia to hedge on oil and no one asked them to fiddle with complex stuff as interest rate swaps"
  
  Actually fuel hedging is VERY COMMON for airlines. Almost all airlines hedge their fuel consumption. And in fact, if you monitor airline news closely, not long ago several Airlines warned for huge unrealised hedging loss. Perhaps you might wonder, why isn't MAS and SIA reporting HUGE unrealised hedging loss (they only reported realised heding loss)? This is actually due to accounting policy. SIA charged the unrealised loss to their reserve directly, while MAS on the other hand does not account for any unrealised loss. Note that accounting of derivative is covered under FRS139, which is still not compulsary in Malaysia yet. And hence AirAsia does not need to recognised the unrealised loss too. Then the question is.. why unwind the contracts and suffer a loss? Isn't that stupid? The reason is simple. If AirAsia doesn't unwind the contracts, they will be effectively paying higher fuel cost in FY09. For example, current oil price is roughly between 35-40, but given that they have hedged a portion of their consumption, they effectively need to pay a higher price for it. But after unwinding it, they basically enjoy the spot price in FY09. That's why i said they are doing some sort of bloodbath in FY08, to make FY09 looks pretty!

On fuel hedges, you then said.

• You also quoted the news "AirAsia: No more bets on oil price" and wrote "January 2008 AirAsia siad no more bets on oil prices. November it took a rm218 million charges in losses. And yesterday it took another rm426 million hit!" If you recall, during that time AirAsia actually SHORT crude oil. I believe what the article meant was that AirAsia won't bet against the rise of oil price. And for FY08, they are actually hedging (long position)..not shorting.

Let me get this correct. I hope my understanding is correct on what you are saying here. Are you saying that AirAsia lost money SHORTING oil and they also lost money on the LONG side? That sums it up, doesn't it? Clearly the management does not know how to hedge their oil short or long. Would you agree?

Ok regarding the accounting treatment of the derivative. I am not an accountant so there is nothing much I can comment.

One thing though, MAS hedged its oil position at US$100 and on a Business Times article, MAS flies into turbulence

• The airline, which had hedged about half of its fuel requirements for 2008, succumbed to hedging losses of RM216 million and foreign exchange losses of RM54 million in its fourth quarter.However, it did not make hedging losses for the full year. MAS has hedged about 64 per cent of its fuel requirements for this year at US$100 a barrel.

See how MAS said they only hedge for half? Why was AirAsia so aggressive in their hedging?

In my flawed opinion, it's the desire to get the market share, the want to be the market leader that is root of the problem.

Isn't this what is happening?

For me, I would think so.

To get the market share, they needed to be aggressive, aggressive marketing, expand, expand and expand. Which means more planes are needed. More routes. More countries. And ultimately more borrowing.

This was their chosen strategy in my flawed opinion.

And to succeed in it, they needed to find cutting edges. This is where the fuel hedges and the IRS came into play.

Regarding IRS, one interesting point. As you already know, this was mentioned yesterday by AirAsia.

• The Group entered into interest rate swaps (some of which are capped) to hedge against fluctuations in the US-LIBOR on its existing and future aircraft financing for deliveries between Year 2005 and 2009. The effect of this transaction enables the Group to pay fixed interest rate of between 3.25% to 5.20% over a period of 12 to 14 years.

MAS on the other hand, reported the following. (see notes 10 b )

• As at 19 February 2009 the Group has entered into various interest rate hedging contract transactions for periods up to 13 December 2016 for a total notional amount of RM2,344million. The accounting policy adopted is to charge the related expenses against the underlying expenses being hedged. The fixed interest rates relating to interest rate hedging contracts as at 19 February 2008 vary from 2.15% to 5.00% per annum.

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Comments On AirAsia Exceptional Losses

Posted the following yesterday, "AirAsia Reported Massive Losses Again!!"

Received a set of interesting comments which I felt I should reply in detail. I do hope and ask that you spare your precious time with me in this rather long reply!

Ah said...

• Actually... I think revenue is relevant to stock analysis.. it shows the growth potential of a company. I personally wouldn't want to invest in a company with shrinking revenue, which could be telling that the company is losing market share? If you look at airasia's operating data or presentation, they did record some encouraging passenger growth. Of course, higher revenue should translate to higher net profit, i do agree that net profit is more important.

Ah, just for your information, when I blogged the posting What Lah! Didn't AirAsia Said No More Oil Bets?, I focused on one Business Times article titled Strong bookings to fuel AirAsia's revenue (link is removed - probably due to Business Time's own managment of its web space)

I felt the title was misleading.

Yes market share of course it's extremely important but this is where it would be subjective. In my own opinion, I would never run my business just for the sake of market share.

Market share is like a popularity contest where rewards is never fully guaranteed.

I would choose the net earnings over being popular.

And that's my flawed opinion.

And this is why I do NOT like companies goating on their record revenue.

Look at AirAsia.

It got it's dream record revenue. What about profitability? Where?

• But in AirAsia's case, the huge loss was very much due to the "exceptional item" of >rm400million. If you exclude this and the deferred tax, core net profit is still quite decent. However, on whether to treat the lumpy RM426 million as "exceptional" or "one-off" is disputable. Who knows whether there will be another RM400million exceptional items next year?

One thing first. The deferred tax 'ADDS' to AirAsia profit.

See how some 44.530 million was added back to AirAsia profits?

I am sure you understand that these deferred taxes are taxes in which AirAsia was supposed to pay the local government as taxes from their aircraft purchases.

Last blogged in December 2008, Again On AirAsia's Deferred Tax Issue and the earnings reported last night showed that AirAsia deferred tax is at 672.501 million!!

( see also AirAsia's deferred taxes issue and More on AirAsia's Deferred Tax Issue. And I would note from the first posting "We believe that AirAsia has a strong case for its non-provision of deferred taxes. With capital allowances and investment allowances likely to come to RM18bn in total, the company will not have to pay cash taxes for decades." )

Now let's look at AirAsia exceptional item mentioned in its books.

• The exceptional amount of RM426 million in the quarter relates to the cost of the unwinding our fuel derivative contracts and interest rate swaps. For the full year accounted, the Company has incurred a total of RM1,069 million which includes our collateral held by the now defunct Lehman Brothers. The allocation of the cost borne by the respective business unit is as follows; AirAsia Berhad is RM641 million, Thai AirAsia is RM222 million and Indonesia AirAsia is RM207 million.

The cause of the exceptional amount of rm426 million as stated by AirAsia was due to unwinding of fuel derivative contracts and interest rate swaps.

And how would you define such losses?

For me, in my flawed opinion as usual, these are PLAIN SIMPLE MANAGEMENT MISTAKES.

No one asked AirAsia to hedge on oil and no one asked them to fiddle with complex stuff as interest rate swaps.

Now they lost big money!!!!

rm426 million!

And I would simply declare and state this as HORRENDOUS management.

And I do believe you have hit it spot on when you said "Who knows whether there will be another RM400million exceptional items next year?"

I for one would NOT DISCOUNT THIS from happening!

And let me state why!

November 2008, I wrote the following What Lah! Didn't AirAsia Said No More Oil Bets?

I started that posting by highlighting that on 11 January 2008 AirAsia publicly stated the following on our Business Times.

• AirAsia: No more bets on oil price
  
  AIRASIA Bhd, Asia's biggest discount carrier by fleet size, will stop making bets on the price of oil, after incorrect forecasts contributed to a 16 per cent slide in shares over the last month.
  
  "It's a nightmare because the volatility is crazy," chief executive officer Datuk Tony Fernandes said in a Bloomberg Television interview on Thursday. "We took a bet that oil won't go above US$90 a barrel and it has and it's staying there."

November 2008. Business Time published Strong bookings to fuel AirAsia's revenue (link not working)

The boss pre-warns on fuel hedging losses and at the same time gloats on record revenues!

• Fernandes, however, expects the airline to remain profitable this year, despite provisions and costs which will be incurred.
  
  AirAsia will make provision for losses from the collapse of Lehman Brothers investment bank.
  
  "We had a trade (on fuel) with them (Lehman Brothers) and some money outstanding, I don't think we are going to get it back, but we would have paid for it anyway," he said.
  
  That, together with hedging losses, which even Fernandes admits will be heavy, will be quite a sum. However, he declined to reveal any figures.

Few days later, I blogged AirAsia Posted Massive Losses!

• 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. (quoted from Business Times AirAsia posts RM465.5m net loss )

How??

January 2008 AirAsia siad no more bets on oil prices. November it took a rm218 million charges in losses. And yesterday it took another rm426 million hit!

How?

The losses are rather incredible, yes?

How can the investor trust that this will not happen again?

Would you trust?

• All in, my view is that AirAsia is doing some sort of bloodbath this year.. and charging all the shit to FY08 since it's already a bad year (stock mkt collapse, record high jetfuel cost). So in FY09, they are basically unhedged and could take advantage of the lower fuel cost, as well as the lower finance cost (part of the RM426 million was due to unwinding of interest rate swap) I do believe that they can deliver some nice profit in FY09! BUT BUT BUT... i also agreed with you on the issue of high gearing.. hehe :)

Lower financial cost?

I seriously wonder how low the cost of financing their debts can get when its total debts so far is more than rm6 billion (discounting the newer 2.5 billion loan from Barclays)

This is what the company is saying in its earning notes.

• (i) Forward Foreign Exchange Contracts
  The Group has hedged 65% of its dollar liabilities pertaining to its aircraft, engine and simulator loans into Ringgit by using long dated foreign exchange.
  
  (ii) Interest Rate Swaps
  The Group entered into interest rate swaps (some of which are capped) to hedge against fluctuations in the US-LIBOR on its existing and future aircraft financing for deliveries between Year 2005 and 2009. The effect of this transaction enables the Group to pay fixed interest rate of between 3.25% to 5.20% over a period of 12 to 14 years.
  
  (iii) Fuel Hedging
  As at 31 December 2008, following the unprecedented, near collapse of the US financial system and the collapse of WTI prices from $147 to $31 per barrel during the year, had subsequently liquidated its positions to take opportunity of the lower spot prices.

Changed 65% of its dollar liabilities to Ringgit. Interest rate swap? I do hope it knows what it is doing here.

Fuel hedging.

I can't help being evil here. Yes crude oil is down for now but what if it rises to say $45 or $50 of $60? Dare we say not possible? And what would AirAsia do again? Start hedging again?

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AirAsia Reported Massive Losses Again!!

That is a snap shot of AirAsia's earnings!!!

Massive losses again!

Guess what AirAsia did DELIVER its strong REVENUE as promised but as you can see, strong revenue does not equate to strong net profit. ( see What Lah! Didn't AirAsia Said No More Oil Bets? - in it I posted an article from Business Times stating "Strong bookings to fuel AirAsia's revenue"

• I had a chuckle. 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!

Anyway I was most interested in what's inside AirAsia balance sheet and compare to what I was looking at in the previous quarter in November 2008 as blogged in AirAsia Posted Massive Losses!

Cash balances now only totals 593.871 million!!!!!

3 months ago AirAsia had 774 million.

And as stated in AirAsia Posted Massive Losses! , AirAsia had some 1.084 billion in its previous quarterly earnings reported in August 2008! ( see Quarterly rpt on consolidated results for the financial period ended 30/6/2008 )

Would you call this as burning up cash at an alarming rate?

Would you?

And the debts?


Total debts at 6.690 Billion!

Blogged on Tuesday Would You Define AirAsia Debt As A Bubble? AirAsia just got new debts of 2.5 billion! (total future debts should be at least 9.19 Billion!)

So what do we have here?

Massive capital commitment + shrinking cash balances + ballooning debts!!!!!

And not forgetting massive losses too!

Simple mind boggling thing is that with total fiscal year losses at 471 million, how and when AirAsia is ever going to pay back its 9.19 billion in borrowings????????

And what's even more mind boggling is the recent events like AirAsia Ponders Manchester United Shirt Deal or More Capital Borrowing For AirAsia to fund Labu LCCT project???? or how about the AirAsia Buyout talks?

Truly unbelievable!

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Burning Money One More Time

Couple of years ago, I made the following posting Burning Money!

Given what has happened now, I felt that this wonderful article gives tells the simple lesson on borrowing again.

Give it a read. :D

Look around.

What do you see in AirAsia?

Do you think they too are burning money?

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Sir Fred Goodwin: Give The Money Up Fred!!

Posted yesterday: More Pension Money For RBS's Sir Fred Goodwin

On the UK Sun ( Yeah, absolutely love this tabloid for its juicer footie stories. :p2 ), they are reporting that Sir Fred Goodwin is fighting for his pension: Axed RBS boss 'guards pension'

My personal feeling Sir Fred Goodwin should take a good look in the mirror and ask himself that isn't the pension money outrageously insane given the size and the magnitude of how badly RBS has screwed up under his leadership? Look at what has happened to RBS. Does he think he should be rewarded for leading RBS to where it is now?

Give the money up Fred!

Look at what the UK Government is doing just to clean up your mess. Whose money is it?

And here you are insisting that you will not voluntarily give your money up.

Don't you have any dignity left in yourself?

Come on, do the only thing that is correct.

Give the money up!!!!!

Axed RBS boss 'guards pension'

• FORMER Royal Bank of Scotland boss Sir Fred Goodwin has written to the Treasury indicating he will not voluntarily give up his pension, it was revealed tonight.
  
  Sir Fred is coming under increasing pressure to give up at least part of the pension, worth an estimated £693,000 a year.
  
  He is already receiving it at the age of 50 under an early retirement deal agreed with the RBS board when he was forced out last October.
  
  Royal Bank of Scotland's record losses in 2008 are the BIGGEST in British corporate history.
  
  Prime Minister Gordon Brown today said the Government was looking at legal action to claw back the money, insisting that there should be “no reward for failure”.
  
  But Treasury sources this evening revealed that Sir Fred has written to City minister Lord Myners to say that he is not ready to waive his entitlement.
  
  Alistair Darling said ministers only became aware of the massive payout last week.
  
  UK Financial Investments – the body which manages taxpayers’ shareholdings in the part-nationalised banks – has been asked to look into clawing back some of the pension deal.
  
  But Sir Fred could end the controversy by giving it up.
  
  "The ball is in his court," Mr Darling said.
  
  Humiliating
  
  The news comes as RBS also announced it would be putting £325billion into the Government insurance scheme against toxic assets.
  
  Derek Simpson, joint leader of Unite, said: “These historic and humiliating losses bring into sharp focus just how reckless RBS’s former management team have behaved."
  
  Mr Darling said: “You cannot justify these excesses, especially when you have got such a failure of this magnitude.”
  
  Around £20billion of RBS’s losses is linked to write-downs on the acquisition of Dutch bank ABN AMRO — led by Sir Fred two years ago.
  
  He lost his job last year when the bank was bailed out. Treasury Committee chairman John McFall said: “There should be a claw back.”
  
  The Treasury is to pump an EXTRA£13BILLION into RBS, taking its stake in the company to about 84 per cent – up from 70 per cent.
  
  RBS must make £16billion available for lending, and £9billion must be used for mortgages.
  
  Tomorrow, Mr Darling will spell out plans to insure £250BILLION of toxic debts at Lloyds.
  Underwriting the debts means ministers will have put £1.3TRILLION of our money on the line to bail-out the banks in just six months.
  
  Mr Darling said: “We want to ensure that by cleaning up the balance sheet, that by making sure RBS has enough capital, we can get through this period.”
  
  He said RBS had also announced a restructuring of the bank, identifying parts that were “core” to its future.
  
  Mr Darling went on to acknowledge that there was a cost to the taxpayer, but added that the “cost of not doing it is absolutely colossal”.
  
  “You’ll remember that when Lehmans, that was a big investment bank in America, went down, that’s what precipitated the crisis in the world’s banking system," he said.
  
  “That’s what led to every government in the world having to recapitalise those banks because they were within hours of collapse.”
  
  Treasury officials were locked in frantic talks with bosses at the banks late last night thrashing out details of the bailout.
  
  Ministers hope the move will end the uncertainty swirling round our banks.
  
  Mr Darling said yesterday he wanted the banks to “clean up their balance sheets and rebuild for the future”.
  
  Meanwhile, house prices fell by a further 1.8 per cent during February, pushing the average cost of a home back below the £150,000 threshold.
  
  Nationwide Building Society said the average property in the UK was now worth £147,746 – £31,612 less than in the same month of 2008.
  
  The annual rate at which house prices are falling also continued to accelerate to hit a new record of 17.6 per cent.

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Comments On Lion Diversified Earnings

Posted last November 2008. Lion Diversified Has Now Got Much More Earnings but.....

Tonight Lion Diversified announced its earnings. The earnings summary below shows just how horrendous it was.

However given the known shutdown in the steel sector, the losses weren't too much of a shocker to me.

Instead I was more interested in its balance sheet. Will we see the shrinking cash and exploding debts and the increasing receivables?

Mentioned in that blog posting. Lion Diversified Has Now Got Much More Earnings but.....

• 1. Cash balances is now 176.745 (compare to 215.439 million a quarter ago).
  
  2. Total debts is now 986.542 million (compare to 864.774 million a quarter ago!!)
  
  3. Trade receivables is now 511.587 million (compare to 392.027 million a quarter ago!!!)

Quarterly rpt on consolidated results for the financial period ended 31/12/2008

1. Cash balances increased to 302.428 million from 176.745 million three months ago. And if you look at the cash flow, the cash balance increased thanks to the fact that some 327 million was raised from the issuance of ICULS. Could you imagine the cash balances if this 327 million wasn't there?

2. Trade receivables exploded to 683.976 million! Three months ago it was only 511.587 million.(what on earth is happening??????)

3. Total loans is now 1.001 Billion versus 986.542 million reported in its previous quarterly earnings!

How?

I do see many around who brands Lion Diversified as a so-called fundamental stock.

I just do not understand such branding.

Lion Diversified did great as a stock a couple of years ago because of the Parkson success story.

However, do understand this Lion Diversified is now a totally different story. There is no retail business left in this stock!

Look at the basic numbers. What does one have? For me, in my flawed opinion, I see a company with massive losses and a terribly deteriorating balance sheet.

And look at the stock price. It last traded at 29 sen.

Can you see why it is trading so low?

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Latest Comments From Jim Rogers

ps: where is the bow tie? :p2

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More Pension Money For RBS's Sir Fred Goodwin

Published on UK Telegraph.

Anger over £8m pension top up for Sir Fred Goodwin

• Royal Bank of Scotland’s disgraced former chief executive has picked up an £8m pension top-up after being sacked by the lender for leading it to a £28bn loss last year, the largest in UK corporate history.
  
  The payment was made despite RBS and Sir Fred’s insistence that he received no compensation for loss of office after the taxpayer stepped in to rescue the bank. It means he is already drawing a pension for life of £650,000 a year at the age of 50.
  
  The revelation, by BBC business editor Robert Peston, comes on the day that RBS’s new management unveils the full horrors of its performance last year. New chief executive Stephen Hester has already said the bank, now 70pc owned by the state, made up to £28bn in losses in 2008. He will today detail plans to dump £300bn of bad and “non-core” assets into a ringfenced unit.
  
  Sir Fred is understood to be in discussions with the Treasury, UK Financial Investments – which manages the taxpayer’s bank stakes – and RBS about amending the pension top-up. The Treasury said in a statement: “This is another example of the culture of rewards for failure that we are determined to sweep away for the future.
  
  “We are committed to cleaning up the banking system – both the financial balance sheets and the behaviour of those that lead them.”
  
  Sir Fred’s payment, which almost doubles to £16m the £8.4m his pension had earned by 2007 after 10 years on the board, was agreed by the previous management. An RBS spokesman said: “The company is taking further legal advice in respect of certain aspects of Sir Fred Goodwin’s contractual arrangements and continues to discuss the position with UKFI.”
  
  Before the Treasury Select Committee this month he said: “My pension is the same as everyone else in the bank who is in a defined benefit pension scheme.” However, it is believed he and other board members were given special terms that boosted their pension from the age of 50.
  
  The Treasury added that it has been “vigorously pursuing with the new chairman [Sir Philip Hampton] whether there is any scope for clawing back some or all of this pension entitlement” and has “a view to testing any potential for legal redress”.
  
  The bank’s new management will today reveal plans to use taxpayer insurance for £300bn of toxic debts under the Government’s “Asset Protection Scheme”, full details of which are expected alongside the results. In return, RBS may have to meet draconian targets such as monthly lending levels. The Government will apply the same pressure to Lloyds Banking Group and any other bank which uses its insurance for toxic assets. The issue of forced lending has been the subject of intense debate with some banks claiming there actually is considerable credit available – the problem is now demand.
  
  Banks may put up to £600bn of toxic assets into the scheme. Given the enormous sums involved, politicians are determined to extract meaningful promises from banks to increase lending, in the hope it will help reverse the economic downturn.
  
  RBS will also announce that Nathan Bostock, a senior executive at high street bank Abbey, will run a new subsidiary. Mr Bostock is a former colleague of Mr Hester.

The horror stories simply continues!

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Get A Clue-do

My headline is soooo going to be the tagline on the up and coming Cluedo movie, it’s that good (cough). Film/ today reported the popular detective board game is going to be adapted in to a movie with Pirates Of The Caribbean director Gore Verbinski signed on. There are a stream of movies adapted from board games in the works right now since Universal Pictures made a series of deals with Hasbro to adapt their toys and games. Last year the announcement that Ridley Scott was making a movie based on Monopoly was huge news and shortly after that it came out Ethan Cohen was writing the screenplay for the Candyland movie. It was only natural Cluedo would follow as not only is it a kick-arse game, it makes much more sense as a movie than, say, Monopoly. Although I think Hungry, Hungry Hippos may just be the best concept for a movie ever. The problem is, Cluedo was already made in to a very-Kitsch movie back in the 80s, 1985 to be exact.

Clue was critically and commercially burnt at the stake but in recent years it has gained quite a cult following. One of the most interesting aspects of the ‘85 film is that it was released with alternative endings. Depending on which cinema you went to, moviegoers were presented with one of three different endings. The papers listed the film with A, B or C depending on the ending included with the print. I wonder if they will try and do that with the modern version? I could just imagine the hype that would create, especially now in the internet age. Cluedo is going to make a great film as it has the whole murder-mystery narrative and already has a built in audience considering the game has made $1 billion in sales over the last 61 years. The big issue would be with casting. There have been dozens upon dozens of versions of Cluedo over the years with the drawings of the central characters changing considerably. The most recent cover of the board game (top above) featured a younger, sexier version of the characters Professor Plum, Ms. White, Col. Mustard, Miss Peacock, Mr. Green and Ms. Scarlet. Personally I think a combination of sexy, young cast members with experienced, mature actors would be perfect. Here are my suggestions:

Miss Scarlet played by Scarlett Johansson

Colonel Mustard played by John Cleese

Professor Plum played by Hugh Laurie

Mrs Peacock played by Neve Campbell

Mr Green played by Jude Law

Mrs White played by Helen Mirren

Note: here's a bit of Movie Mazzupial trivia for you. Not only is Cluedo my favourite board game ever, I have only been beaten once in my lifetime.

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Would You Buy Uchi For Its Dividends?

Last night I highlighted the declining earnings in Uchi. Yet Another Update On Uchi

I clicked open my stock quotes and Uchi is UP a nice 6 sen or 8%!!!




Bad earnings? But the markets are loving the stock! Why? Are my comments WRONG?

Well do understand this. I am merely stating the facts and for Uchi, its earnings is CLEARLY DECLINING and do note that I do not here to predict the stock movement.

So what is happening with Uchi?

If I have to guess the answer is very simple.
PROPOSED FINAL DIVIDEND FOR THE YEAR ENDED DECEMBER 31, 2008

• Please be informed that the Board of Directors of Uchi Technologies Berhad has, on February 25, 2009, proposed a Final Tax Exempt Dividend of 6 sen per share of RM0.20 each for the year ended December 31, 2008 for the approval of shareholders at the forthcoming Annual General Meeting of the Company.However, the entitlement date and date of payment of the Dividend have yet to be finalised at the moment

Based on yesterday's closing price, this proposed Tax Exempt Dividend is certainly interesting.

I took a look at its balance sheet.

Its cash balances total 135.844 million and it had no loans. However, if you look at the previous year cash balances, you can see clearly that Uchi's cash balance is shrinking.

Flashback 2007. I wrote Review Of Uchi Again

In it I compiled the following table.

Back in 2006, it had cash balances of 168.170 million and when I looked at in Sept 2007, it had cash balances of 172.039 million. Cash balances now is 135.844 million. Clearly shrinking yes?

Yesterday's 4Q unaudited earnings, Uchi reported net profit of only 58.748 million.

Compare to to the above table.

The last time Uchi reported net earnings below 60 million was fy 2003.

So we have the very interesting case where one is looking at three main issues.

1. Uchi pays great dividends.

2. Earnings is clearly declining.

3. Cash balances is also clearly declining and one of the main reason is that Uchi's pays great dividends.

Now common sense would suggest that if the earnings keep on declining, one day Uchi's dividends payout would surely decline too.

Counter argument is that in the long run, Uchi's earnings should recover and given the fact that Uchi's current cash balances is still quite sizeable, why worry? Buy and enjoy the dividends for the long term.

How?

Would you buy Uchi for its dividends?

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CCM Was Reported To Have Posted Record Revenue But ...

This morning news item that caught my attention was CCM posts record revenue of RM2.2b

• Chemical Company of Malaysia Bhd (CCM) (2879) has registered a pre-tax profit of RM120.268 million for its financial year ended December 31, 2008, up from RM105.551 million the previous year.
  
  The country's largest generic pharmaceutical manufacturer set a new record of RM2.165 billion in revenue, an increase of 55 per cent from RM1.397 billion in 2007.
  
  The fertilisers division was the group’s top revenue earner last year, CCM said in a statement yesterday.
  
  The division’s revenue nearly doubled to record a 94.2 per cent increase in revenue to RM1.4 billion from RM723.8 million in the same period in 2007, it said.
  
  Pre-tax profit rose significantly by 138.4 per cent to RM83.5 million from RM35.0 million previously for the division, it added.
  
  The division’s higher performance over the previous year was achieved on the back of rising prices and improved margins in the first three quarters of 2008, which started to soften in the last quarter.
  
  The group’s chemicals division reported an 18.7 per cent growth in revenue to RM606.5 million from RM511.1 million in 2007.
  
  However, the division’s pre-tax profit at RM14.7 million was 3.1 per cent lower than the previous year due to year-end stock impairment charges incurred, reflecting market falls in product prices and underperformance of its water systems business.
  
  The pharmaceuticals division’s revenue improved seven per cent to RM232.7 million from RM217.4 million in the corresponding period the previous year.
  
  However, its pre-tax profit was 33 per cent lower at RM37.2 million from RM56.3 million previously.
  
  CCM attributed the decrease to reduced margins arising from higher raw material prices coupled with lower selling prices of products to the government sector.
  
  The CCM board has recommended a final dividend of 1.8 sen per ordinary shareless tax at 25 per cent and 4.9 sen tax exemption for the financial year ended December 31, 2008. - Bernama

Record revenue?

I am always so sceptical when I read such a headlines. More revenue does not necessary equates to more profit. This is business 101.

Here is the link to CCM's quarterly earnings Quarterly rpt on consolidated results for the financial period ended 31/12/2008

And here is the screen shot of its earnings.

Holy cow!

I am rather so disappointed on the quality of reporting from Bernama.

Despite the record revenue and what's said, the bottom line is CCM lost money for the quarter.

Why isn't this RATHER IMPORTANT FACT not stated? Who fed Bernama this set of news?

And if one takes a look inside CCM's earnings note, the company notes mentioned the following.

• Consolidated Group revenue for the fourth quarter ended 31 December 2008 increased by 34.8% over the same quarter last year driven by the fertilisers division (revenue increase of 68%) and the chemicals division (revenue increase of 20%). Consolidated Group profit before tax for the fourth quarter ended 31 December 2008 was a loss of RM 1.7 million compared to a profit of RM 33.5 million for the same quarter last year. This reversal in performance was primarily due to the impairment of year-end stocks incurred by the fertilisers and chemicals divisions arising from the sharp declines in market prices caused by the global economic crisis. The stock impairment losses were charged to cost of sales causing the gross profit margin for the quarter to drop from 14.5% last year to 7.9% in the current year.
  
  For the year ended 31 December 2008, Consolidated Group revenue crossed the two billion Ringgit mark, registering a 94.2% increase over the same period last year. The principal revenue driver was the fertilisers division, with increases in revenue also being contributed by the chemicals and pharmaceuticals divisions albeit by smaller percentage amounts. Consolidated Group profit before taxation for the year ended 31 December 2008 saw an increase of 13.9% from RM105.6 million in 2007 to RM120.3 million in 2008, despite the year-end stock impairment charges and a once-off extraordinary charge of RM15.4 million recorded in second quarter of the year representing a write-off of the residual value of the nitric acid plant which will no longer be in operation once the Shah Alam fertiliser plant is converted to a solid urea-based steam granulation process technology. Excluding the nitric acid plant write-off, the increase in the profit before taxation would have been 28.8% against the same period last year.

How?

Don't you think that the Bernama news article posted on Business Times should have at least stated the fact that CCM lost money for the quarter?

Sigh!

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Taking one for the team

The only thing better than Mark Wahlberg movie news is, well, more Mark Wahlberg movie news. The delicious, delectable and damn fine Wahlberg is set to team up with Will Ferrell in an action comedy. According to Variety, the Wahlberg-Ferrell project is being pitched to studios this week but with both stars on board, no doubt it will be green-lit in a matter of seconds. The film would be called The B-Team and the two actors play cops who, presumably, are a notch or two below A-team. This is intriguing. Why, you ask? Marky Mark has never done a comedy before. He starred as an obsessively anti-petroleum firefighter in indie flick I Heart Huckabees which was a semi-comedy (more weird absurdism than comedy) but I don’t think that counts as past experience. Usually Wahlberg is majorly in to the action, blockbuster, drama and occasionally independent roles so doing a mainstream comedy with Ferrell is a big step out for him, one which I think will pay off. Man, I can’t wait to see this. The B-Team doesn’t have a release date or director yet so it’s a fair way off.

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Massive Losses Posted by Sino Hua-An

Sino Hua-An has been an interesting stock topic. ( Started back in May 2008. I made the following comments at Sahamas. http://sahamas.net/forum5/5799-1.html (see posting #2 ). )

I had fond memories. When I first blogged Regarding Sino Hua-An I wrote what I could see.

• And do note that 08 Q2 earnings, sales revenue shot up to 434.426 million. However, earnings only increased so slightly from 35.567 million to 36.916 million. Now one can take the calculator and compute the earnings margins but one should be able to spot that there is tremendous pressure on its earnings margins. Would this be a worry?
  How?
  
  Just from the earnings alone, how would you evaluate this stock?
  
  The earnings are decent no? But there is NO Growth and now earnings margins is under massive pressure.
  
  And would this be one reason why potential 'investors' or buyers would be worried about?
  
  And what about the company's product? IMHO this is also a huge concern because the past couple of months, metallurgical coke and its by-products have had one MASSIVE bull run. Prices had been extremely favourable and logical reasoning would suggest that this favourable coke prices would have boosted Huann's bottom line. But as we can see above earnings table, this coke bull run did not translate to better earnings for Huann. Would this be a concern since we have here a company whose key product is having one hell of a bull run but yet the company produces flat earnings. What does this say about the Quality of the company and the Business? Not very good yes? Do you reckon such reasoning is flawed?

Those were my points. I just could not see the quality in Hua-An itself.

Tonight Sino Hua-An announced its earnings. It was an absolute horror show. ( However this should have been as expected given the warnings given on the steel sector)

A net loss of 83.650 million surely would have been shocking for most. I am sorry but I am not.

The drastic decline in earnings was first mentioned in Who wants Sino Hua-An? and repeated in the posting Sino Hua An Q3 Earnings.

This is what the company had to say.

• Review of Performance
  
  For the fourth quarter ended 31 December 2008, the Group recorded consolidated revenue of approximately RM232.9 million. However the Group incurred a significantly higher cost of sales of approximately RM334.4 million, thus registering a gross loss and loss before tax of approximately RM101.5 million and RM98.4 million, respectively.
  
  These unprecedented losses were attributable to the abrupt and sudden downturn in the steel and metallurgical coke industry experienced in the fourth quarter under review stemming from the worldwide financial and economic meltdown. Steel production was cut considerably in the fourth quarter thus significantly reducing industry wide demand for metallurgical coke. These circumstances had adversely changed the pricing dynamics of the steel and coke industry whereby the aggregate cost of production of steel and metallurgical coke were rendered higher than their respective selling prices. During the fourth quarter under review, the average price of metallurgical coke was about RMB1,546/tonne, representing an increase of 6% from RMB1,462/tonne in the preceding year corresponding quarter. The average price of coking coal on the other hand had escalated significantly by 47% to RMB1,201/tonne over the same period from RMB819/tonne in the preceding year corresponding quarter. As for the prices of the by-products (which have a revenue contribution of approximately 15%), except for coal slime which saw an increase of 92% in the current quarter compared to the same quarter last year, the prices of ammonium sulphate, crude benzene, tar oil, coal gas and middlings have shown a decline in average prices by 20%, 45%, 6%, 16% and 25% respectively over the same period.
  
  Notwithstanding the adverse environment besetting the industry in the fourth quarter, the industry landscape has gradually improved in December with the pricing structure readjusted favourably for the Group as well as the industry players.
  
  By virtue of the losses recorded in the fourth quarter under review, the Group wrote-back tax provision of approximately RM14.8 million as a result of earlier tax paid made on profits recorded during the preceding three quarters (9 months) of the year. Consequently, the Group recorded a net loss for the fourth quarter period of RM83.7 million.
  
  In respect of the cumulative results, the Group managed to record a revenue of approximately RM1.46 billion. In relation to the challenges faced by the industry in the fourth quarter, the Group posted a cumulative cost of sales of approximately RM1.43 billion. Assisted by the favourable results registered by the Group in the preceding three quarters of the year, the Group managed to record a cumulative consolidated gross profit and net profit for the year of approximately RM1.0 million and RM545,000 respectively.

And here is a snap shot of its balance sheet. Look at the arrow comparisons.

See the much higher trade receivables?

See the much lesser bank balances?

See the much higher trade payables? (why is Sino Hua-An not paying its trade creditors?)

And as opinioned in Who wants Sino Hua-An?

• Now that would be rather poor yes? The declining margin places a huge question mark over Huann's ability to generate better profits and if you ask me, in an environment where its main product was enjoying a bull run, Huann's performance was terribly poor. Hey, that's my blunt and flawed view on it.
  
  Now regarding PE.
  
  As it is, right now, based on current earnings, most stocks are looking cheap.
  
  That's a fact.
  
  However, for the market, most of the time, the market is only interested in what the stock can earn in the future.
  
  Which means, one has to address the sustainability of Huann's earnings.
  
  Firstly, as listed company here, Huann's earnings track record is simply too little.
  
  And the biggest issue in my opinion is Huann's products itself. It's clearly cyclical and given the fact that most commodities prices have turned south in a dramatic fashion, it's most likely that Huann's products would command a much lower pricing. Is this not possible?
  
  And last but not least, I have to repeat yet again, when Huann's products was in a bull run, Huann's earnings was flat. And if that is the case, if Huann's products turn 'soft', surely Huann's earnings would decline, yes? Is this not possible? And if that would happen, surely Huann's earnings per share would decline. So what appears cheap now in relative to PE, might not appear cheap later if the earnings decline.

And the following chart shows how poorly Hua-An has been doing.

Here are my past blog postings:

1. Regarding Sino Hua-An
2. More On Sino Hua-Ann
3. Who wants Sino Hua-An?
4. Still Who Wants Huann?
5. Sino Hua An Q3 Earnings.

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Yet Another Update On Uchi

Uchi is a stock that I have followed a lot. Last I wrote was Update On Uchi.

Tonight Uchi reported its earnings.

And as you can see CLEARLY above that Uchi's growth is CLEARLY not there anymore.

As mentioned in Update On Uchi:

Some issues worth pondering. Has it's spectacular growth finally ended? Signs of margin pressure exist. Would the issue snowball?

And last of not least, one should consider the durability of Uchi products now given the current economic environment.Two previous blog posting that should be read, Review Of Uchi Again. and Uchi and its ESOS ( the ESOS issue is still a huge concern)

---

How? Isn't this what we are seeing? We are no longer talking about slowing growth but now we are talking about DECLINING earnings!

Many did not liked it when I chatted on Uchi and some did not like it one bit when I questioned the wisdom of buying and holding forever this stock. Well here we are. Uchi last traded at 75 sen.

Here is Uchi's chart.

Do you like what you see?

And the recent plunge to current levels, doesn't this represent another leg down for this so-called fundamental stock?

How?

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Malaysian Bulk Carrier Earnings And Dry Bulk Shipping Prospects

I had been blogging a lot on Baltic Dry Index. You can view past blog postings via the following search link: http://everything27.blogspot.com/search?q=baltic+dry+index

Today Malaysian Bulk Carrier or Maybulk reported its earnings.

It was not nice and it clearly reflected the earlier massive plunge seen in the dry bulk index.

The previous quarter Maybulk reported net earnings of 143 million!!

So a net of earnings of only 3.238 million is pretty darn drastic!

I was more interested in what the company has to say about future prospect in the shipping industry. This is what the management wrote.

• The outlook for the world economy is grim and expectations are for the global economic slowdown to be protracted and severe. This is corroborated by the latest International Monetary Fund’s (“IMF”) forecast wherein global growth is now slashed to 0.5% for 2009. In its report the IMF expects the world economy to gradually recover only in 2010 and the growth rate to be around 3%. "A sustained economic recovery will not be possible until the financial sector's functionality is restored and credit makers are unclogged," the IMF said.
  
  The BDI plummeted 94% from 11,793 in May 20th to 663 on December 5 last year as global trade slowed sharply. However, recent restocking orders from China have caused the Cape-size rates to firm as China resumed iron ore shipments from Australia and Brazil. Consequently the BDI has recovered substantially from its December lows. But the fundamentals in the other industries such as steel, automobiles and shipyards are still bleak and recent freight market’s strength does not appear sustainable especially since substantial new-building deliveries and laid up tonnage continue to be an overhang in the market. The tanker market, though not as bad as the dry bulk is also weak and is expected to continue to be weak.
  
  The ongoing financial crisis is restricting credit for companies and consumers, and is aggravating the current world economic condition. With the financial sector gripped by their de-leveraging and recapitalizing concerns, credit overall remains tight. Amid all the grim background, it is encouraging to note that the governments of the major countries are taking steps to inject substantial financial stimulus into their respective economies so as to stem the economic slide. Despite the bleak economic outlook for 2009, MBC is well placed to weather the difficulties. The collapse of the dry-bulk market will provide opportunities for the Group to consider acquisitions and MBC along with its strategic partners have been active in exploring same. The shareholders have supported the Group’s diversification into offshore oil and gas services which continue to outperform other shipping sectors.
  
  The freight market faces uncertainty in FY2009. The recent recovery in the freight market does not appear sustainable and as such offer little prospect for over-aged tonnage to benefit from the next up cycle. In this respect, the Group completed the disposal of its 25 year old Alam Sempurna in January 2009 for a very modest gain of RM8.1m. Whilst the four quarters in FY2009 may present uneven results, the Board is generally satisfied that FY2009 will be profitable, albeit substantially lower compared to FY2008.

footnote.

I am indeed aware of Maybulk's investment in quoted securities. As had argued before I do not like it one bit and I am utterly disappointed at the lack of information. As it is, if you read Maybulk's earnings it is sitting on a sizable paper loss! Yeah, company might argue that paper loss is not real since they have not sold. But as you can also see, there is lacking of information and without the information how could one be convinced?

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Comments: AirAsia Ponders Manchester United Shirt Deal

On the sporting front, I see many articles stating that AirAsia ponder Man United deal.

Here's one.

• Leading airline company AirAsia are the latest organisation to have talks with Manchester United over becoming their next shirt sponsors.
  
  The Red Devils need a replacement for embattled US banking giant AIG, who have confirmed they will not be renewing their current contract, which expires next year.
  
  Despite the current global economic downturn, United are still quietly confident of agreeing an increase on the present £19million-a-year they make in total from their deal with AIG.
  
  It was confirmed last month that negotiations had taken place with giant Indian corporation Sahara, while Saudi Telecom are also believed to be in the running.
  
  Now AirAsia chief executive Tony Fernandes has confirmed he will meet United counterpart David Gill about the possibility of becoming only the club's fourth shirt sponsor, following on from Sharp, Vodafone and AIG.
  
  "There is no doubt that this would be great for AirAsia," said Fernandes on his personal blog.
  
  "I don't know what the entire package would amount to but I was just thrilled that we have reached a stage where Manchester United would actually
  
  1) Think that we are a big enough brand to afford them; and 2) That they would want our brand on them."
  
  An Asia-based deal would make sense for United given the scale of their support in the region.
  
  The Red Devils have already announced their plans for a pre-season tour in the summer that will see them visit China, South Korea, Indonesia and Malaysia.
  
  It will be their third tour to the continent in five years, while last weekend they confirmed a tie-up with the city of Seoul to promote both organisations.

Last I recall was that AIG's four year deal cost AIG a cool US$100 million.

Bottom line is can AirAsia afford such a deal?

Last I recall it was just yesterday that I asked "Would You Define AirAsia Debt As A Bubble?" after reading that AirAsia had taken another mega loan worth some USD700 million or some RM2.5 billion.

Last I recall that in AirAsia last reported earnings AirAsia stated it had cash balances of 774 million, total debts of 6.352 billion and a capital commitment of 24.1 billion. Adding that RM2.5 Billion new loans should mean that AirAsia loans would total a mind-boggling 8.872 million.

Well what's wrong with such a godzilla-sized loan? One needs to make money, yes?

And this is the link to AirAsia last reported earnings source of data: Quarterly rpt on consolidated results for the financial period ended 30/9/2008

What's the total quarterly losses? RM465.527 million! Total year-to-date losses totals RM294.834 million.

Truly amazing.

So do you reckon AirAsia should sponsor a Manchester United shirt deal?

Do you think US100million or RM365 million at present time is simply excessive for a company who is clearly not in the best of financial health as AirAsia?

Why can't AirAsia repair its poor balance sheet before pondering on such a massive project? Why can't AirAsia makes its billions of ringgit first and settle at least half of its loans first before thinking of such a massive project?

Do you think I am wrong to be asking such questions?

By the way, on the side note, let me be really frank also. Most knows that I am a Manchester United supporter too and let me say I would dearly, dearly love to have my name printed on Manchester United's shirt.

Yes, I would.

However let me be really frank also. I know I cannot play footie well enough to play for Manchester United and I know I certainly cannot afford such a deal.

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Possible To See Palm Oil At A Premium Over Soyoil?

Posted on Dow Jones.

• KUALA LUMPUR (Dow Jones)--The price of soyoil continues to fall, raising the specter of a rare market reversal in which palm olein could sell at a premium to rival soy.
  
  Soyoil's premium over palm olien - more than $200/ton only a few months ago - has slumped to around $35/ton. Analysts now forecast that for the first time in many years soyoil's price could tumble below palm.
  
  "It is possible to see palm oil at a premium over soyoil, but my guess is that this will be brief," said James Fry, Chairman, LMC International, a London-based commodities consultancy.
  
  This is because countries other than India will switch from buying palm oil to soy oil in order to take advantage of its falling price, Fry said.
  
  "It is a phenomenon (reversal of premium) which happens once every few years and is a reflection of the cash market. It is the right time to buy soybean oil and sell palm oil," said a London-based trading executive who didn't want to be named.
  
  The palm-soy price reversal, he said, could occur in the next month or so.
  
  Signs of growing demand for soybean oil include the fact that China has purchased at least 90,000 metric tons of soyoil since Friday; prices were between $685 and $690 a ton, on a cost and freight basis. China's looking for even more cargoes, a senior Jakarta-based trading executive said.
  
  The global economic recession is making buyers, including those in China, especially price-conscious, says Alvin Tai, commodities analyst with OSK Research, a Kuala Lumpur-based brokerage.
  
  Ironically, the weak world economy may also slow overall demand for all varieties of vegetable oils, he notes.
  
  India, the world's No. 2 vegetable oil consumer after China, is proving instrumental in the shifting soy-palm oil dynamic.
  
  Until about two years ago, India imposed a lower import duty on soyoil, 45%, compared with crude palm oil at 80%; this served to boost imports of soyoil. However, in early 2008, India removed import duties on all crude edible oils in order to fight inflation; later in the year, it levied a 20% import duty on soyoil to help domestic farmers during the local soybean harvest. There's still no tariff on crude palm oil.
  
  "We are now seeing the tug-of-war between India and the rest of the world in their vegetable oil imports being played out again, with palm oil being favored by Indian tariffs, rather than soyoil," said Fry.
  
  Slowdown In Palm Oil Production
  
  The narrowing of the soy-palm oil premium mainly reflects the fact that palm oil production growth has been slowing, said Siegfried Falk, co-editor, Oil World, a Hamburg-based journal on oils and fats.
  
  Falk said global production of palm oil increased by a record 4.8 million tons in the marketing year to September 2008 - but during 2008-09 it may increase by only 2.3 million tons. This is because cyclical biological stress in oil palm trees is expected to reduce yields, and in Indonesia the economic slowdown will likely discourage farmers from increasing their acreages.
  
  Malaysia's palm oil stocks fell to a nine-month low of 1.83 million tons in January; a further drawdown is expected this month because heavy rains slowed the harvesting of oil palm fruits.
  
  Analysts point out that palm oil's broad fundamentals have become tighter as South America's soybean harvest approaches. Recent rains have helped revive the fortunes of the Argentina's soybean crop, with last weekend's downpours providing a boost for growers, said Mike Tannura, a Chicago-based agricultural meteorologist.
  
  Tannura forecasts dry weather this week but doesn't expect heat stress and says maturation should begin during the next one to two weeks.
  
  Analysts said another factor which has contributed to soyoil's shrinking premium is its reduced use in making biodiesel.
  
  Until last year, Argentina was exporting large volumes of soyoil-based biodiesel, but changes in U.S. and European tax structures made this less attractive.
  
  Oil World's Falk cautions that soyoil could shortly regain its premium over palm olein. "Soya oil supplies will also be relatively tight this season," he said, adding that Oil World is likely to issue revised estimates for the demand and supply scenario on Friday.
  
  The latest rains in Argentina were helpful but won't fully offset the impact of recent drought conditions. Additionally, the shift in demand from palm oil to soyoil is expected to tighten supplies later this year.
  
  So far, palm oil prices have been generally quite strong, unlike other commodities such as soybeans and corn, because this is a lean-production season for CPO, noted OSK Research's Tai.
  
  He said palm oil prices can't hold on indefinitely on their own. Last week, CPO prices rose to a 40-day high, above MYR2,000/ton and are now hovering around MYR1,900.
  
  "The real test for prices will be in March, when palm oil production starts to rise," Tai said.
  

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I’m here with all of my people

Judd Apatow and the team are at it again, but this time there’s no virginity, childbirth or naked Jason Segel involved. The trailer for the director/writer/producers latest movie Funny People has literally just gone up on the web. You can check it out here. What do you think? Adam Sandler stars as a seasoned comedian, George Simmons, who learns he’s terminally ill and decides to form a friendship with an unknown comedian/writer (played by Seth Rogen) and adopt him as his opening act. Aussie maestro Eric Bana also has a major role and it’s great to see him doing comedy in Hollywood as that’s the genre he originally started out in here. Apatow’s wifey Leslie Mann also stars as does Jason Schwartzman, Jonah Hill, Sarah Silverman and RZA from the Wu-Tang Clan. Personally, I think it sounds tres exciting and I’m looking forward to the large number of decent comedies which are being released this year. Funny People is out in Australia on July 30.

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Hello TMI, What's Up Bro?

The following set of news caught my attention.

'TMI aiming for US$1b rights issue'

• SINGAPORE/KUALA LUMPUR: Malaysian mobile phone company TM International (TMI) (6888) is looking to raise more than US$1 billion (US$1 = RM3.67) in a rights offering in the first half of this year to cut debt, sources with direct knowledge of the deal said yesterday.
  
  Analysts said TMI is facing significant pressure to lower its RM10.45 billion debt, while its overseas businesses are also being hit by the economic slowdown.
  
  "TMI will do a rights and the issue size is over US$1 billion," one of the sources said, declining to be identified because the deal is not public.
  
  JPMorgan and Goldman Sachs, which are advising TMI on the fundraising, declined to comment.
  A TMI spokeswoman said nothing has been finalised yet, but the firm is on track to announce details of its capital raising plan in the first quarter.
  
  In a report yesterday, Citigroup said TMI may need to raise capital because of an expected US$300 million cash shortfall next year and about US$600 million to US$700 million capital spending.
  
  "A rights issue or a debt issue - both of which will prove challenging in our view," said Karen Ang, a Citi analyst.
  
  Malaysia's state investment arm Khazanah Nasional Bhd, which owns 44.51 per cent of TMI, said last month the mobile company will issue right shares or some other equity-linked instrument this quarter to raise funds to repay some of its debt. - Reuters

LOL!

I like how they said "sources with direct knowledge of the deal" and "one of the sources said, declining to be identified because the deal is not public."

Now this is called narrowing down the sources! Inside info eh? Ho ho ho!

Anyway let's not talk about sources this morning.

So TMI wants to do a rights issue worth maybe over US$1billion to lessen the size of its debts.

Now this sounds like the right thing to do but in US dollars now?

And then I saw the other news TM to return RM3.51b to shareholders, pay dividends

• Dominant fixed-line phone company Telekom Malaysia Bhd (TM),(4863) which posted a 73 per cent fall in 2008 net profit, said it will return RM3.51 billion cash to shareholders after sister company TM International Bhd (TMI) agreed to repay a debt it owes in the next quarter.
  
  TM, which will receive the full amount of RM4.03 billion by April 24, said the capital repayment exercise, pending shareholders' approval, would be completed by end of second quarter.
  
  "There's no reason for us to keep the excess cash ... By returning cash in excess of its requirement to shareholders (98 sen a share), TM is providing immediate value enhancement," said group chief executive officer Datuk Zamzamzairani Mohd Isa in Kuala Lumpur yesterday.
  
  Besides the capital repayment of RM3.5 billion, the company also agreed to pay a final dividend of RM382 million.
  
  The company said its capital repayment exercise will not change its dividend policy of returning at least RM700 million to shareholders.
  
  The move, which is expected to be positively received by investors, has also raised some concerns.
  
  An analyst who declined to be named said the company should set aside more cash (from TMI's repayment) for working capital and repay bank loans.
  "It's like giving all your salary to your parents when you have bills still to pay," said the analyst.
  
  TM, which has started rolling out the RM11.4 billion national high-speed broadband (HSBB) project, said it has no funding worries currently and enough cash internally to fund the project.
  
  The company is expected to spend RM1.7 billion on the HSBB project this year, of which half (RM850 million) will be subsidised by the government. Besides the RM1.7 billion commitment, the company will spend RM1.5 billion or less on non-HSBB related capital expenditure.
  
  Nevertheless, group chief financial officer Datuk Bazlan Osman said TM has ample room to gear up without hurting its credit ratings.
  
  "There is a potential of debt head room moving forward. If you look at our balance sheet, we do have quite a fair, if not good, debt-to-capital or debt-to-EBITDA ratio.
  
  "We believe we should be able to maintain our current rating, which is 'A-' by the foreign rating house, and 'AAA' by the local rating house," said Bazlan.
  
  Analysts expect TM shares to rise today, mainly driven by the capital repayment announcement.
  
  "It will generate interest in the stock market ... 98 sen a share capital repayment for a stock trading at around RM3.30, that's a handsome return of nearly 30 per cent already," said an analyst.
  
  The company's fourth quarter net profit grew 5.7 per cent to RM166 million, while revenue grew by 18.7 per cent to RM2.5 billion, helped by growth in the broadband and data businesses.
  
  However, for the full year ended December 31 2008, net profit fell by 73.2 per cent to RM229.3 million, mainly due to exceptional items like foreign exchange losses.
  
  Broadband revenue jumped by more than 25 per cent to RM1.48 billion, while broadband customer base expanded by 26.7 per cent to 1.6 million users in 2008.
  
  Fixed-line voice revenue declined 9.6 per cent to RM4.4 billion, due to fixed to mobile migration.

So in the second set of news we have TMI saying..

• Dominant fixed-line phone company Telekom Malaysia Bhd (TM),(4863) which posted a 73 per cent fall in 2008 net profit, said it will return RM3.51 billion cash to shareholders after sister company TM International Bhd (TMI) agreed to repay a debt it owes in the next quarter. .........
• "There's no reason for us to keep the excess cash ... By returning cash in excess of its requirement to shareholders (98 sen a share), TM is providing immediate value enhancement,"

What do we have here? First it wants to do a US$1 billion rights issue (this is about rm3.6 billion or so) because bank borrowings too much. It also wants to pay back TM rm3.51 billion because it has excess cash.

How now brown cow?

I am so baffled.

And I so fully agree with the analyst that declined to be named!

• An analyst who declined to be named said the company should set aside more cash (from TMI's repayment) for working capital and repay bank loans. "It's like giving all your salary to your parents when you have bills still to pay," said the analyst.

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