Tenaga's Forex Losses

Posted last night: Tenaga may post RM1b quarterly loss

Received the following set of comments..

Jasonred79 said...
Let's look at it "profit from BUSINESS ACTIVITIES" perspective.

In 2007, Tenaga made RM1.5b ... partially due to a 242million gain on forex. (so that's 1.25 billion profit from biz)

In 2008, Tenaga lost 944 million, due to 1.44b loss on forex. Discounting that, they only made RM 500 million profit based on their business.

At the end of August 2008, Tenaga's US dollar-denominated debt amounted to 6.29 billion ringgit, while its Japanese yen-denominated debt was 4.5 billion ringgit.

There you go... basically, Tenaga's balance sheet get's whacked pretty badly whenever the RM slides against the USD and Yen. ... actually, Tenaga must be morons for borrowing in currencies which tend to strengthen... imagine if tenaga had borrowed in Zimbabwe money! Hahaha! By now, their debt would have shrunk to peanuts!

...

Personally, I don't like to look too much into forex gains and losses, since forex gain and loss can reverse anytime. Furthermore, from the perspective of an international investor, Even though tenaga's debt in RM terms has ballooned, it's debt in USD terms is pretty constant.

However, even discounting forex, it looks like profit slid from 1250 million to 500 million. How Tenaga managed that, considering the 27% jump in revenue, I DON'T KNOW.

=>>>>
Jason,

Let me share my flawed one sen view with you.

As mentioned before to you, I believe so much that one should always remember that what one's owe the bankers currently is based at current rates and if the borrowing is made on foreign currencies, what one OWES is based on the current exchange rates.

Think about it.

That's how I always view it.

Forex losses and gains are part of the existing economics of the particular business that indulges in foreign denominated fundings. And what one OWES is based on what the current forex rates.

For Tenaga case, one could argue last time, the positives about borrowing in Yen for it was a rather 'cheap' currency for one fundings needs. No one expected Yen to soar against the ringgit but it has.

Tenaga a fundamental stock?

Perhaps a fundamentally flawed stock if you ask me.

Of course I am always flawed.

Read more...

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?

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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?

Read more...