Sarawak Election stocks (Part 1)

Theme: Bumi Kenyalang

I seldom write but when I write, I will make sure it is right!

Recently there are lots of video and news about the Chief Minister of Sarawak Adenan Satem giving speeches as well as recognition for Unified Examination Certificate (UEC) of the Independent Chinese School (独中)  and he mentioned that whether the Federal government agree or not, Sarawak will still recognize the status of this Independent Chinese School. What does that mean? As I noticed, there are more and more Chinese voters started to love their CM now! Why? Its because of the election is coming again! Please be aware that Sarawak State Assembly doesn't follow the west Malaysia due date.

Please take a look at this video: https://www.facebook.com/video.php?v=429932660505431&pnref=story

Recognition of UEC news: http://borneoaseanreports.com/?p=3170

The last 10^th state election of Sarawak were held in 16^th April 2011, according to our law the state assembly have to dissolve after 5 years and have another election within 60 days after the state assembly dissolve.  As a result, Sarawak will have to held their election before June 2016. From the past election, we can see that the federal government will always distribute candies before the election which we believe it will be the same for this time. 

http://en.wikipedia.org/wiki/Sarawak_state_election,_2011 

For example, candy that had being distributed recently: 

Pestech to build RM48m electricity substation for Sarawak Energy

http://www.theedgemarkets.com/my/article/pestech-build-rm48m-electricity-substation-sarawak-energy#.VPQFO7ybVw4.facebook 

 

Taib launches Laila- Taib College in his hometown Mukah

http://www.newsarawaktribune.com/news/43170/Taib-launches-Laila-Taib-College-Mukah-Campus/

What Candy this time?

As what being mentioned in the 2015 budget, our prime minister announced that there will be a highway from Sabah to Sarawak which is the Pan Borneo highway 1633 km worth RM 27 billion. 936km is in Sarawak and we knew that the Sarawak will be having election on 2016 hence it is a must to distribute this project as candy to the construction player there hence construction companies in Sarawak will be benefited.

http://www.thestar.com.my/News/Community/2014/11/17/Work-on-Pan-Borneo-Highway-to-start-next-year/ 

When will they distribute the candy?

As we know, the election has to held before June 2016, hence they will have to distribute the candy 1 year before. This is because the distribute now and the people there will start to get job and will have better life few months before the election and this feel good effect may causes the voters to choose them! Hence they have to give candy no later than 2015!

So who will be benefited?

What’s the most important ingredients to build a high way? Tar , Stone, Cements, Steel are all essential and as this highway will have lots of bridges (cause Sarawak and Sarawak has lots of rivers) hence cement and steel are as important as Tar. As a result, the sole cement producer in Sarawak Cahya Mata Sarawak Berhand CMSB (Monopoly I would say) which is own by the Taib family will sure get benefit from the highway building even not winning the construction part. I would say this company as the biggest winner as they are the cement producer and has their quarry, where to get cement to build road and fly over if you don't get from the sole producer?

On the other hand, the others construction players that will be benefit are HSL (biggest road builder in Sarawak), Naim (construction players related to Taib as well), Weida, TRC, Zecon who has their foot step in Sarawak.  KKB a steel pipe producer in Sarawak will also benefited.

 

Do government have the funds to build the highway since oil price is low?

1^st of all, we have got confirmation from our PM in the amended budget announcement that they won’t cut any budget for constructions that they have planned .

http://www.themalaymailonline.com/malaysia/article/sabah-cm-lauds-pm-for-excluding-rm27b-pan-borneo-highway-from-budget-cuts

2^nd this project will be a government and private sector collaboration where the private sector will raise their funding and own the concession. After then, they will appoint the construction players to build the road. As government doesn't need to come out that much of money, hence there is no issue about not building the highway.

 
 http://www.themalaymailonline.com/malaysia/article/remaining-pan-borneo-highway-projects-through-private-sector-to-expedite-pr

We saw that those CMSB, HSL NAIM has got some movement recently where the volume had came in.  While Naim looks like bottom building.

CMSB 

 

Volume coming while the price is upward bias

HSL

Bottom forming by having triple bottom with higher low.

NAIM

 

Bottom building with upward bias as well as higher low.

Why is the volume so low now?
Smart money don't create volume when they are collecting, they create volume when they wanted to dispose!

Will we spoil their plan if we were to buy some and keep now?
Yes and No, Yes as they might push it later if they don't have enough ticket. No as the project will be announcing soon.

Please like my Facebook Page if you think my analysis does make sense : The Big Canon Finance

https://www.facebook.com/bigcanonfinance?ref=hl

Part 1 Summary

Theme: Sarawak Election Candies

1.  Companies that will be benefit from the candies are: Shin Yang （Not listed），HSL，Weida，TRC，NAIM，Zecon，KKB
2. Biggest Winner : CMSB as they are the sole cement producer and supply stones (Taib related), Naim and KKB is their subsidiary.
3. HSL road builder in Sarawak, had built 700km of roads in there.

Safe bet Top Pick : CMSB, HSL, NAIM

*you won't die by holding the mother shares

High Risk High Return:

CMSB – CJ ( Expiry : 30/10/2015; Conversion: 7 to 1; Exercise : 4.05)

HSL – CC    ( Expiry : 28/08/2015; Conversion: 3 to 1; Exercise : 1.88)

Why not CMSB -CK ?

Expiry on 5th May 2015, what if the project announcement is not being announce before May?

Conversion :  4 to 1 (good)

Exercise price : RM4.50 the mother price is now 4.27, what if the candies are not announce before May? The warrant is out of money at that time and you will be losing everything!

Issuer: Macquarie: the issuer is good but the condition above is just too risky!

Caution: Please be aware of the risk for call warrant as you will be losing everything for betting on it. Please call your dealer for more details. 

Disclaimer: The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions 

 

The real challenge for housing price is finally here... (Part 2)

In the previous article, I show you it is possible that the house price will come down in a short cycle and this article down here, I will tell you what is the challenge and the catalyst for the house price to come down in 2015 and 2016. Part of the catalyst were mentioned on January 19 2014, u can check this out :
http://bigcanon.blogspot.com/2014/01/my-personal-2014-outlook-part-2.html

In the past few months, we saw that the amount of house transacted has came down drastically. This can be proven by this article on The Star by 16 August 2014.

http://www.thestar.com.my/Business/Business-News/2014/08/16/A-cool-first-quarter-for-properties-Slowdown-in-properties-across-the-board-for-most-states/?style=biz

After all those cooling down then what will be next? 

Source:  http://www.thestar.com.my/Business/Business-News/2015/01/03/Year-of-consolidation-With-lower-oil-prices-economists-are-not-anticipating-rate-hikes-in-the-nearte/?style=biz

Look at the numbers and what does it tells you?

My set of understanding told me that in year 2011 and 2012, there are lots of primary residential transactions were done. Why is this so? I will take it as, in year 2009 til end of year 2013, there is a scheme we call Developer Interest Bearing Scheme ( DIBS), this is a scheme where you pay a small amount of down payment and you will only have to serve your installment after getting your house key. As a result, there is a boom for these few years and causes the house price to shoot up, this DIBS had stopped in year 2014 and that is 1 of the reason that the numbers started to come down especially in KL save for Johor.

On the other hand, these numbers also show that in year 2011 and 2012 is the peak of the primary residential transacted. As we know, In Malaysia, we won't get our house immediately but have to wait up til 2 years and above (make it 3 years) to get your house key and there is where you will have to start paying your installment.

So with the numbers above, I can say that 2014, 2015 and worst by 2016, this house buyers will start to get their house key. That is the time where the nightmare come. Why? This is because there are lots of supplies comes in to the market. How many of those house transacted are for self staying? lets talk about those in Klang Valley, assume 60% of it, then there will be 40% are for investment, and lets assume 50% of these investors are flippers then there will be 7304 residential are waiting to be sold which increased the supply of the houses in 2nd hand property.

So now we will have to look at the numbers of 2nd hand property that were transacted, in that table, we saw that the peak of transaction was in 2011 and the numbers of transaction came down drastically and this happen before BNM tighten up the monetary policy, so what will happen after the tightening of the monetary policy? Well, I still yet to have any figures with me but let's wait and see whether am I correct again. Anyway, logical thinking tell us that the number will come down even further after the tightening.

So, can this 7304 residential properties sell out easily? If they cant sell out immediately then they will have to slash their price while paying installment, they can also rent their property out in the mean time. At the mean time, they will have to pray hard that the BNM don't increase the OPR, I understand that the new regime is using Cost of Fund of the individual bank but anyhow, OPR will still affect their cost of Funds and not to forget, they are paying higher interest rate for FD just to get your deposit! This gonna raise their cost! On the other hand, you may check on KLIBOR, this rate had shot up from 3.11% on 2nd January 2014 to 3.86% in January 2015.

The flipper will really have to pray a lot as the CoF are now upward bias, they will have to pay more for the installment when it moved up. Can they afford to pay the installment will be the another issue and you may imagine yourself whether what will happen when they are unable to pay their installment. You may also look at the newspaper especially NanYangSiangPau, they always have list of people that just joined the bankruptcy club (sorry to say this but this is reality).

With lots of supplies coming in to the secondary market and the tightening of the monetary policy had already causes headache to the developers, heard of some developers had started to slash of the price of those unsold units even in Ampang (from 1200 psf to now 850psf), and some even mentioned they bought the house for 900k and now is renting 1600 only. You may do the math yourself about the yield and don't forget the quit rent as well as the maintenance fee too!

On the other hand, the drop of oil price and the stock market and GST will also causes lesser money to flow in the economy. Oh ya! Have u read about those cost cutting as well as head count cutting news in the newspaper? Retrenchment is the greatest problem of the country, government, and economy ! and  stock market too! So.. How to pay when u have no income? (touch wood) This is definitely a vicious cycle where everyone wants to avoid but too bad, it had already started in Malaysia. What will the bank do when you don't pay? I guess this is part of the reason our Banking stocks dropping recently.

Its not wise to say there will be no bear when you never see bear before, it is an economy cycle that you can't avoid. 2015, 2016 are years of volatility and there will be bad days for those who failed to cash out and its a great opportunity for those who are cash rich!

What will happen with more and more supply are coming in to the market and lesser purchasing power (demand is there but the affordability is not there) to take up the supply...

 Once again, " GOOD LUCK FLIPPERS"! May your god bless u...
 

p/s: sorry for the late post as I was really busy with my job recently.