DRB-Hicom Berhad – Conglomerate with operations in automotice assembly/distribution, property and infrastructure development
LPI Capital Berhad – Leading general insurance group in Malaysia and a subsidiary of Public Bank Berhad
IJM Plantations Berhad – Niche oil palm group with plantation estates in Sabah
Hap Seng Consolidated Berhad – Diversified group with operations in plantation, property, automotive trading and credit financing
Hap Seng Plantations Holdings – Palm oil business of Hap Seng Consolidated

Once again let me know if you spot any errors in any of the data.

Sincerely
Larry Lam

Lingkaran Trans Kota Holdings Berhad – Toll Road Operation and concession holder for LDP (Leburahya Damansara Puchong)
Parkson Holdings Berhad – Retailing
Fraser & Neave Holdings Berhad – Soft drinks distribution with key brands such as 100Plus, F&N, Seasons an Coca Cola
Proton Holdings Berhad – Car Manufacturer & Distributor
Top Glove Corporation Berhad – Large Rubber Glove Manufacturer

Once again let me know if you spot any errors in any of the data.

Sincerely
Larry Lam

Berjaya Corporation – Conglomerate that needs no introduction
Titan Chemicals – Manufacturer of petrochemicals products and polyolefin resins
Mulpha International Berhad – Property developer / investor in Australia and Malaysia
Guinness Anchor – Brewery & alcohol beverages

Do let me know if you see any errors in any of the data.

Sincerely
Larry Lam

Some of the new companies that have been added include:

• AEON
• Ann Joo
• Kulim
• United Plantations
• WCT Engineering

As always, let me know if you spot any errors in any of the information presented.

Sincerely
Larry Lam

It seems KLCCP has included the increase in its property value into its profit figure.

OK basically I’m not in favour of such reporting.

Traditionally if property assets go up in value, companies would treat this as an asset revaluation. The increased property value goes into the balance sheet – OK fine. But the corresponding credit should go into an Asset Revaluation Reserve and not into the company’s operating profit.

The company should not be allowed to pay dividends out of the Asset Revaluation Reserve.

We have restated the Fair Value Adjustment as an Unusual Item in our database. It is excluded from our EBIT calculation and as a result KLCCP’s Interest Cover is only 4.0x which is not fantastic. I usually like to see at least 7x Interest Cover in companies I invest in, or in the case of passive property vehicles perhaps 6x. Then again, Petronas is the major shareholder in KLCCP. They are big enough to buy up the lenders.

Back to my point…. it’s great that the property has gone up in value. But they haven’t sold it yet which means they haven’t made a cent profit. Hmmm…. am I missing something here? Why should it be treated as profit and not unrealised gain?

The Australian Property Trust Experience

This reminds me of the recent Australian experience with some of their top REITs. The industry was expanding nicely for a good 10 years since 1995. Investors had a fantastic choice of top quality properties, returns were good and earnings were real.

Sometime from around 2004, the testosterone level of property fund managers began to increase at a rapid and uncontrollable rate. Fund managers were competing to buy properties, often overpaying for them and relying on financial wizardry (eg. income support mechanisms) to justify the high prices paid. To boost their equity returns, they stuck in some debt funding. Here’s a simple illustration:

Total Return = Income Return + Capital Growth

So if your net rental return is 6% and the property goes up in value by 4% – your total return is 10%. Simple enough.

OK let’s stick in some debt funding. Say your borrowing cost is 7%. Hmmm…more than your rental income but never mind, report the profit as 10% and since the funding cost is only 7%, you’re still ahead by 3% right?

Well yes… so long as you can keep increasing your rents return to justify the higher property value. But sooner or later reality catches up and we saw some violent wake-up calls for even the largest property trusts in Australia.

Fair Value Adjustment was the name of the game. Look at GPT, at its peak market cap was more than A$10 billion. Today it is A$1.9 billion.

Here’s another one, a familiar household name synonymous with quality houses in Australia – Mirvac. From a high of A$6.30 its security price is now A$1.30.

I’m not saying KLCCP is headed towards this direction. All I’m saying is that the recognition of “Fair Value Adjustment” as “Profit” in the Income Statement is misleading and shame on the auditor for its unqualified sign off.

Our REIT industry in Malaysia will take many many years to reach the kind of bubble seen in Australia.

And when it does, please remember the “Fair Value Adjustment” bubble!

http://www.horizon.my/investor/details.php?counter=sime

Their Net Cash pile has gone down a bit, but still sitting pretty at RM1.2 billion.

As a side note, RHB Research has updated their Plantation sector report today. They are still negative over the sector and Sime’s EPS for FY09 has been pegged at 38.5 sen. It expects crude oil prices to weaken further thereby impacting CPO prices as well.

http://www.horizon.my/investor/profile.php?counter=ioicorp

We note that Net Borrowings has increased from RM903 million to RM3.1 billion. Amounts Due from Jointly-Controlled Entities has jumped up to RM1.5 billion (from RM160 million previously). IOICORP’s explanation is as per below:

Amounts due from jointly controlled entities represent outstanding amounts arising from subsidiaries’ proportionate advances for the acquisition and development of land in Singapore and were related to development expenses and working capital which are unsecured, bear interest at rates ranging from 1.81% to 3.60% (2007 – 3.12%) per annum and are not repayable within the next twelve months.

as per AMMB 2008 Annual Report