Short position -FGV -VIVOCOM -Duterte fever
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Short position -FGV -VIVOCOM -Duterte fever
Saturday, 14 May 2016
FGV should stick to plantations
THE new person at the helm of Felda Global Ventures Holdings Bhd (FGV) is doing what the plantation group should have done in the first place – which is to focus on its existing assets to grow the business.
In his maiden press conference after taking over as group president and chief executive of FGV, Datuk Zakaria Arshad said the group wants to grow the business organically and not through acquisitions.
When FGV was listed in June 2012, it had a cash pile of more than RM4bil that was utilised for several acquisitions. So far, the acquisitions have not been effective in shoring up the bottom line of the plantation company that is seen as the bastion of 102,100 Felda settlers.
Now, going back to the drawing board is tough but not impossible. FGV will need all its cash reserves to undertake an aggressive replanting strategy.
The age profile of almost half of its plantations is more than 18 years. It is one of the few plantation companies with trees that are more than 25 years old.
Going forward, FGV needs to use all its resources and energy to boost the production of the plantations and increase efficiency. This is something that is already up Zakaria’s sleeves.
In this respect, FGV needs to diversify into any other business segment, such as the aerospace and aviation logistics industry. A report stated that FGV was exploring opportunities in the aviation and aerospace sector as a move to become a logistics player to be reckoned with.
It’s true that FGV already has a presence in ground logistics through its network of lorries and tankers that currently service the plantations and mills.
But going into the aviation sector is a different ball game altogether. It can be a costly lesson if the game is not played well.
We are already seeing a casualty in Rayani Air.
Keeping a watchful eye on cash flow
PUNTERS were certainly excited when recent flavour-of-the-week Vivocom International Holdings Bhd reported a big jump in profit.
The contractor posted a big increase in profit of RM19.9mil for its first quarter compared with RM923,000 in the previous corresponding quarter.
The stock, which was actively traded, would have been poised for a jump if it were not for a rebalancing exercise by the MSCI that knocked off 20.72 points from the FTSE Bursa Malaysia KL Composite Index.
Vivocom was the most actively traded stock but fell 1.5 sen to 34.5 sen yesterday.
The accounts of the company showed that while it booked a nice profit, the company was owed nearly RM54mil by its customers. Much of that presumably is from its construction work, as the group in recent times has bagged a number of large contracts.
As the money is still owed to Vivocom, the cash flow statement showed just that. In time, the contractors should pay Vivocom for the work done, but the company for the quarter relied on a private placement to get its cashpile up.
Interestingly, analysts have revised Vivocom’s target price higher as the market capitalisation of the company nears the billion-ringgit mark. Cash flow projections have also been bumped up over the next two years.
But with the economy posting its slowest growth rate in six years in the first quarter of this year, what investors should look at is the cash flow generation of companies. Just how strong is cash flow generation by companies and with growth outlook hitting a speed bump, how robust will contracts be forthcoming in the future?
Yes, headline profits are what grabs the attention, but cash flow is even more important. That’s why some companies can pay dividends in excess of their profits since cash flow generation is very strong and better than accounting profits. Strong cash flow also gives companies loads of leeway for stronger dividends in the future.
Duterte fever
THE Philippine stock market, already trading at a high value, jumped, the peso advanced and now US Index provider MSCI has increased the Philippines’ weightage while reducing Malaysia’s, Thailand’s and Indonesia’s.
So, unlike what some had feared, the emergence of Rodrigo Duterte (pic) as the Philippines’ outspoken President-elect is far from freaking out the markets. To be sure, these developments are not necessarily a resounding endorsement of Duterte, described by the Economist as “a loudmouth pursuing a wildly populist campaign” and someone who opines that things like “due process” are for wimps.
On Friday, though, the Philippine stock market reacted even better as the world got a clearer idea of Duterte’s economic agenda, which up till then, had not been well-articulated. Foreign funds have started jumping in on this news.
Duterte’s camp vowed to continue to maintain current macro-economic policies set by outgoing President Benigno Aquino’s administration. According to some reports, this reduced the continuity risk earlier priced in by investors.
Duterte’s camp also pledged to accelerate infrastructure spending and vowed to address the restrictive economic policies in the constitution. The jury is still out on what’s in store for the Philippines, which is now going to be in the hands of someone who has promised to shut down Congress if it ever tries to impeach him.
It will be interesting to watch Duterte’s leadership and what that will do for business and investment there. Any significant changes in the climate there will impact neighbouring countries, including Malaysia. If he gets it right, he could make the Philippines more attractive in drawing investments and that could be at the expense of Malaysia.
On the other hand, there are concerns the old Philippine elite could regroup to frustrate Duterte, inviting political chaos. In other words, watch this space.
Short position
FGV should stick to plantations
THE new person at the helm of Felda Global Ventures Holdings Bhd (FGV) is doing what the plantation group should have done in the first place – which is to focus on its existing assets to grow the business.
In his maiden press conference after taking over as group president and chief executive of FGV, Datuk Zakaria Arshad said the group wants to grow the business organically and not through acquisitions.
When FGV was listed in June 2012, it had a cash pile of more than RM4bil that was utilised for several acquisitions. So far, the acquisitions have not been effective in shoring up the bottom line of the plantation company that is seen as the bastion of 102,100 Felda settlers.
Now, going back to the drawing board is tough but not impossible. FGV will need all its cash reserves to undertake an aggressive replanting strategy.
The age profile of almost half of its plantations is more than 18 years. It is one of the few plantation companies with trees that are more than 25 years old.
Going forward, FGV needs to use all its resources and energy to boost the production of the plantations and increase efficiency. This is something that is already up Zakaria’s sleeves.
In this respect, FGV needs to diversify into any other business segment, such as the aerospace and aviation logistics industry. A report stated that FGV was exploring opportunities in the aviation and aerospace sector as a move to become a logistics player to be reckoned with.
It’s true that FGV already has a presence in ground logistics through its network of lorries and tankers that currently service the plantations and mills.
But going into the aviation sector is a different ball game altogether. It can be a costly lesson if the game is not played well.
We are already seeing a casualty in Rayani Air.
Keeping a watchful eye on cash flow
PUNTERS were certainly excited when recent flavour-of-the-week Vivocom International Holdings Bhd reported a big jump in profit.
The contractor posted a big increase in profit of RM19.9mil for its first quarter compared with RM923,000 in the previous corresponding quarter.
The stock, which was actively traded, would have been poised for a jump if it were not for a rebalancing exercise by the MSCI that knocked off 20.72 points from the FTSE Bursa Malaysia KL Composite Index.
Vivocom was the most actively traded stock but fell 1.5 sen to 34.5 sen yesterday.
The accounts of the company showed that while it booked a nice profit, the company was owed nearly RM54mil by its customers. Much of that presumably is from its construction work, as the group in recent times has bagged a number of large contracts.
As the money is still owed to Vivocom, the cash flow statement showed just that. In time, the contractors should pay Vivocom for the work done, but the company for the quarter relied on a private placement to get its cashpile up.
Interestingly, analysts have revised Vivocom’s target price higher as the market capitalisation of the company nears the billion-ringgit mark. Cash flow projections have also been bumped up over the next two years.
But with the economy posting its slowest growth rate in six years in the first quarter of this year, what investors should look at is the cash flow generation of companies. Just how strong is cash flow generation by companies and with growth outlook hitting a speed bump, how robust will contracts be forthcoming in the future?
Yes, headline profits are what grabs the attention, but cash flow is even more important. That’s why some companies can pay dividends in excess of their profits since cash flow generation is very strong and better than accounting profits. Strong cash flow also gives companies loads of leeway for stronger dividends in the future.
Duterte fever
THE Philippine stock market, already trading at a high value, jumped, the peso advanced and now US Index provider MSCI has increased the Philippines’ weightage while reducing Malaysia’s, Thailand’s and Indonesia’s.
So, unlike what some had feared, the emergence of Rodrigo Duterte (pic) as the Philippines’ outspoken President-elect is far from freaking out the markets. To be sure, these developments are not necessarily a resounding endorsement of Duterte, described by the Economist as “a loudmouth pursuing a wildly populist campaign” and someone who opines that things like “due process” are for wimps.
On Friday, though, the Philippine stock market reacted even better as the world got a clearer idea of Duterte’s economic agenda, which up till then, had not been well-articulated. Foreign funds have started jumping in on this news.
Duterte’s camp vowed to continue to maintain current macro-economic policies set by outgoing President Benigno Aquino’s administration. According to some reports, this reduced the continuity risk earlier priced in by investors.
Duterte’s camp also pledged to accelerate infrastructure spending and vowed to address the restrictive economic policies in the constitution. The jury is still out on what’s in store for the Philippines, which is now going to be in the hands of someone who has promised to shut down Congress if it ever tries to impeach him.
It will be interesting to watch Duterte’s leadership and what that will do for business and investment there. Any significant changes in the climate there will impact neighbouring countries, including Malaysia. If he gets it right, he could make the Philippines more attractive in drawing investments and that could be at the expense of Malaysia.
On the other hand, there are concerns the old Philippine elite could regroup to frustrate Duterte, inviting political chaos. In other words, watch this space.
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