Bad US GDP number but Good Rally

Perhaps you are tired of this headline, let me cut the long story short. The number is quite bad in Q1 '09 because it sank by 6.1%(Q4 '08 6.4%). The good signs in the bad number are these:

1. Rebound in consumer spending

2. The inventory correction has been too steep. Soon businesses will have to produce something.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aHyjnZCJkYIU&refer=home

On friendship and parenting advice

I am not a huge fan of Bill Gates as I thought he is too cunning and ruthless. He even negotiated contract in his favor with his brother during his boyhood. Nevermind, that's a story of another day. However the soft side of him as a loyal friend changed my stance on him a little bit but not too much. Anyway having a friend willing to accompany you to fight for your life-long cause is great.

April 28 (Bloomberg) -- Microsoft Corp. co-founder Bill Gates, recruited by his friend Warren Buffett to join the board at Berkshire Hathaway Inc., said he’s committed to the firm for the rest of his life.

“I’ve got a commitment to stay involved with Berkshire as a lifelong thing,” Gates, 53, said in an interview scheduled to be broadcast today. “We always have to think about what might happen and make sure Berkshire is not just great now, but forever.”

http://www.bloomberg.com/apps/news?pid=20601109&sid=aRC2DR.cwZFs&refer=home

Beside good advice by Jim Rogers to invest in commodities, I thought the human side of him on parenting is also worth listening.

You have a lot of advice in your new book for your daughters, on money, education, travel, dating. Do you have any advice for boys?

Well, my first advice to my daughters was to be careful of boys, and to be leery of boys, having been a boy myself. For the most part my advice for the boys is the same — be careful of girls. Be careful of people of the other sex. Be careful of wild promises. Just like on Wall Street.

http://jimrogers-investments.blogspot.com/2009/04/interview-with-time-magazine-28-april.html

Still bullish on China

Swine flu, Swine flu, why are you coming at the wrong time ? There are quite a lot of stock indices approaching resistance or fast approaching 200-day moving average. With or without Swine flu everyone needs an excuse to pause. So, let it be, let it pause. While pausing, I have got news for you.

Goldman, CLSA, Barclays, UBS, RBS are bullish on China. GDP growth will reach 7 - 8%

(Bloomberg)“This is a dramatic rebound,” said CLSA’s research note. “China has the resources needed to keep GDP growth in volume terms high for 2009 and 2010.” It estimates growth will reach 8 percent in 2010.

Goldman Sachs’ forecasts are higher than some other economists, who have also increased their growth expectations for China. Barclays Capital last week raised its estimate for economic growth this year to 7.2 percent from 6.7 percent, while UBS AG lifted its forecast to as much as 7.5 percent from 6.5 percent.

Royal Bank of Scotland Group Plc’s estimate rose to 7 percent from 5 percent, and Merrill Lynch & Co. expects growth of 8 percent for 2009.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aUnSHaqsTGx0

I know this mean nothing to a lot of people. Perhaps this will excite you: Goldman Sachs raised stock target :

CSI 300 -- old: 1,980 New: 2,600

Hang Seng China Enterprise Index -- old: 8,900 new: 10,300

http://www.bloomberg.com/apps/news?pid=20601089&sid=atc3LTH_TQo8&refer=china

LPI : A Reliable and Steady Company

Basic information:
No of outstanding shares: 137 mln
Market Capitalization : 1.3 bln
2009 Consensus EPS: 0.8
PER(2009) : 12.4X
DY: 0.8/9.95 = 8%

LPI is in general insurance business. Fire and motor insurance take up almost 64% of their business. Underwriting surplus wise, almost half of it is coming from fire insurance.



What I like about their business model is making money from underwriting and not generating income from float. Underwriting margin has been consistent at 20%. Beside conservative underwriting, they have been working hard on customer retention and branding. Net retention for 2008 was 66% vs 60% in 2003. Business reference from Public Bank is an added advantage. Productivity has been high, no of policies issued per employee jumped by almost 30% ( 2007: 1473 vs 2008 1901). The other good sign is gross premium income per employee, it was RM 647 k in 1999 but almost doubled to RM 1.1 mln in 2008. Their management has been very hands on and many of them have been serving the company for a long time. When you have long serving employees that can deliver continuous growth, it is quite safe to conclude the management track record is quite proven.



Financial strength is important asset post-credit crunch era. Their capital adequacy ratio has been way above Bank Negara requirement of 130%, LPI CAR stood at 181% in 2008. With some of the regional giants are scaling back, this is an opportunity to expand capacity and margin. Beside organic growth, regional growth by coat-tailing Public Bank in Cambodia should generate reasonable growth over long term.

LPI assets have been growing steadily to almost 800 mln. 84% of the assets are in investment. Almost 67% in Fixed Deposit, 16% in Fixed Income ( Government Bond and Corporate bond) and remaining in equity. Most of the equity is Public Bank which generating almost 30 mln dividend (non-insurance investment income). Balance sheet is quite clean and able to meet any obligation for any claim payout.

One area needs to watch out is the share price has been very tightly correlated to Public Bank. LPI share price can slide when Public Bank is under pressure.



The other caveat is funding cost can go up when inflation begin to creep in during recovery stage. But more immediate concern is dividend income can come under pressure when Public Bank confronted by weak economy or decides to preserve capital.

The past year growth has been impressive. However, with conservative expectation, if LPI is able to grow net income around 10% per annum for the next ten years, share should worth between RM 8 - 9. Buying below these values together with steady dividend(unbroken dividend record since listed in 1993), investment return should be quite satisfactory.

Status of Malaysia Economic Stimulus

How do you pick a high quality management team? My hero Warren Buffett seems to be able to do deal with people very fast because he can more or less able to tell whether the person loves the job or loves the money. He was once asked how did he pick the right management team when making investment decision. I don't think you can start interviewing the management team and evaluate based on a series of metrics. You know it by simply looking at their track records. Watch what they said and what they do and bottomline is results. Observe when their current leader steps down, if he/she is a good leader/manager, there should be a good successor in place and business continues to deliver great results.

It's the same thing when comes to evaluating our government. Their track records are not in their favor. When Pak-lah came on board in 2003, he intiated Government Linked Companies reformation. He launced his speech on his GLC transformation in May 2004 when stock market corrected 12% (KLCI fell from 904 to around 794). The feel good factors carried the momentum for about 7 - 8 months, KLCI recovered from the low of 794 to 924, 16% gains. Where are they today ? Easy way out is to blame him and that is the reason why he stepped down. Global credit crunch pulled everyone down. Partially true if we judge them by market capitalization but how about by their KPIs?

What is really dissapointing is this. We paid McKinsey, BCG and other high profile GLCs to draw up a grand plan but where are they today ?

The Putrajaya Committee on GLC High Performance (PCG) would like to thank the following for their support
and input into the development of this Reference Document for the Programme.

Bumiputra-Commerce Holdings Berhad
(formerly Commerce-Asset Holdings Berhad)
Bumiwerks Capital Management Sdn Bhd
Employees’ Provident Fund
Commerce International Merchant Bankers Berhad
Ernst & Young
Khazanah Nasional Berhad
Lembaga Tabung Angkatan Tentera
Lembaga Tabung Haji
Malayan Banking Berhad
Malaysian Airline System Berhad
Malaysian Employers Federation
Malaysian Franchise Association
McKinsey & Company
Ministry of Entrepreneur and Co-Operative Development
Ministry of Finance
Ministry of Human Resource
Perbadanan Nasional Berhad
Petroliam Nasional Berhad
POS Malaysia and Services Holdings Berhad
PricewaterhouseCoopers
Prime Minister’s Office
Sime Darby Berhad
Telekom Malaysia Berhad
Tenaga Nasional Berhad
The Boston Consulting Group
The Chambers of R. Sivagnanam & Associates
Sure Target Consultancy Sdn Bhd

We know where we stand with the benchmarking exercise and what are the indicators to pick.



Source: http://www.pcg.gov.my/trans_manual.asp, in case you want to read more about the grand plan.

After 5 years, we are going back to square one again:

(Malaysia Insider) KUALA LUMPUR, April 21 – Khazanah Nasional Berhad has declined to draw up the key performance index (KPI) for the government, citing a conflict of interest and instead will recommend other consultants for the task.

Sources said Khazanah has already informed Datuk Seri Najib Tun Razak’s government about its decision after the Prime Minister announced last week that the state asset manager will make the index within a month with the first evaluation of performance due in November.

“Khazanah says it’s a conflict of interest as they report to the Prime Minister, who is also Finance Minister. How can one draw up targets for the bosses?” one source told The Malaysian Insider.

But the sovereign wealth fund, which has drawn up targets and transformation manuals for government-linked companies (GLCs) with the help of foreign consultants, have agreed to recommend these consultants to determine the KPI.

Click here to read the rest: http://www.themalaysianinsider.com/index.php/malaysia/23998-khazanah-declines-kpi-job-cites-conflict-of-interest-
Those commented on that article don't even know what the hell they were talking about, still talking KPI is good, let's get foreign consultant to come in and etc...... Enough is enough and my blood is boiling!

Now I am really pissed! Royally pissed you know. OK, let's get the consultant in again. Come on, I'm trying to be gracious and do not want to dirty my blog with unpleasant words. What is so difficult to set your KPI? We are paying million of Ringgit to CEO and now they tell us they don't know how to set KPI ? Do you know your job? If you don't I am more than happy to take your job for only half of your salary. What the hell the board of directors are doing? Do you know your job? If not, pay me 24,000/year director fees, I will do it for you to question your CEOs. But I doubt I will get the job because I don't know how to suck up to people.

Now let's turn to status of Malaysia Economic Stimulus. I was trying to find out the status of fund disbursement of economic stimulus. So I visited nice cool website of Rangsangan Ekonomi Malaysia at
http://www.rangsanganekonomi.treasury.gov.my/index.php?option=com_content&view=category&layout=blog&id=38&Itemid=1&lang=en

I'm dissappointed again, only 45,000 visitors care to know and guess what, nothing, absolute nothing was updated except a few speeches. Call me, label me a skeptic and cynic which I will accept it graciously but show me the RESULTS.

LPI: Worth to investigate further

One of the stocks that I like is LPI. I have always like their business model: conservative under-writing and earning money from underwriting and not through investment(big bulk of it is in bond). It has bounced back about 16% from the low. Is it safe to jump back in? Well the first question is: how much does it worth ? It's worth to investigate further over the weekend.

PETALING JAYA: Insurer LPI Capital Bhd does not expect a sharp spike in claims ratio despite the present economic crisis.

According to a representative of the management who declined to be named, claims ratio generally increased during poor economic conditions but, with proper risk management and prudent underwriting practice over the years, LPI’s claims ratio is unlikely to be adversely affected.

Nonetheless, the insurer has seen a large drop in demand from certain sectors due to the economic slowdown.

“The impact was seen in the marine insurance sector, of which import and export trade suffered a noticeable reduction,” he told StarBiz in an e-mail reply.

(click here to read the rest)

30% bumi quota for 27 subsectors scrapped

(the Edge) PUTRAJAYA: The government has removed the 30% bumiputera equity requirement for the 27 services sub-sectors with immediate effect in line with the Asean trade liberalisation and efforts to boost the services sector.

Datuk Seri Najib Razak said on April 22 the sub-sectors covered health and social services, tourism services, transport services, business services and computer and related services.

“There will be no more 30% bumiputera equity requirement for these sub-sectors,” he said at a press conference at the Prime Minister’s office.

Click here to read the rest: http://www.theedgemalaysia.com/highlilghts/4945-pm-30-bumi-quota-for-27-sub-sectors-scrapped.html

Visited a few popular sites like The Malaysian Insider, Malaysia Kini, etc....but there have been no comment or nasty comment yet. Not sure whether silence is a sign of approval? That is understable because if you applaud, you may be blasted for supporting Najib. If you make negative comment, you are biting your own tongue for being unfair since he is doing something to walk the talk - One Malaysia.

The sub-sectors are mostly for small businesses which is a non-event, either majority of them already dominated by bumi or if you have non-bumi running these busineses, most of their bumi partners are passive partner anyway? So, it is technicality that we are talking about here, non-event really. Or none of these sectors affecting powerful elites ?

I don't think foreigners are keen to compete in these sub-sectors anyway. The sectors that they want more access are labelled as politcally sensitive(what the heck is that???)

(WSJ) Mr. Najib Wednesday told reporters in Malaysia's administrative capital Putrajaya that foreigners investing in parts of the service sector would no longer be required to take ethnic-Malay partners, who currently must own 30% of any joint venture. The newly opened sectors include health, tourism, and business and technology services, but don't include areas in which there is heavy state-involvement or which are politically sensitive, such as air travel, utilities and retail, where companies such as France's Carrefour SA and Britain's Tesco PLC have pushed for more access.

This was what he said last month:

(Reuters-March 12)Deputy Prime Minister Najib Razak, who is slated to become premier on March 31, told the Financial Times that Malaysia could embrace some reforms such as liberalising the services sector but was not able to dismantle policies favouring ethnic Malays.

“We cannot have too drastic a move until people are ready for it,” Najib said in an interview published on Thursday

.

http://in.reuters.com/article/asiaCompanyAndMarkets/idINKLR48544520090312

Surprisingly, foreigners make more positive remarks:

(WSJ)Singapore-based HSBC economist Robert Prior-Wandesforde predicts Malaysia's economy – the third most open in Asia – will contract 3.5% this year, leaving the country's leaders scrambling for ways to give the country a short-term boost and prepare the ground for a sustained recovery when the global economic climate improves.

"This is an area where investors have been looking for a change for a long time. There might not be an immediate effect – there's not a lot of investment anywhere – but over time it will help," said Mr. Prior-Wandesforde, who forecasts Malaysia's economy will rebound strongly and grow 5.5% in 2010.

http://online.wsj.com/article/SB124040220273943253.html?mod=googlenews_wsj

It's a short-term steroid and don't hope for meaningful structural shift yet.