Short Position - Good to be franck and honest


Good to be frank and honest

It is said that transparency is essential for the stock market to flourish. The more investors know about a particular sector or company, whether good or bad, the better the odds of them understanding any difficulties and knowing when value has emerged.

One such sector that needs such disclosure is the telecoms sector. Price cuts have battered the bellwether stock in the segment, TELEKOM MALAYSIA BHD (TM), after the cuts in broadband prices were announced. The uncertainty, bad results of kitchen sinking and a protracted CEO appointment did not help matters.

But after the initial shock and plunge in its stock price, the share price of TM did recover.

TM posted a profit of RM114.2mil for its second quarter compared with RM101.9mil in the previous corresponding quarter. Its efforts to contain costs have seen profits rising even though its revenue has taken a dip.

The briefing Malaysian Communications and Multimedia Commission chairman Al-Ishsal Ishak conducts with fund managers perhaps has played a part in investors understanding its problems.

The last briefing was attended by 30 fund managers and the share price - after falling closer to RM2 a share - is now almost RM4 a share. The stock closed yesterday at RM3.75.

What this shows is how engagement works and going by its share price, investors have shown faith that its troubles were merely a blip rather than a structural issue. There is a good chance that TM will return as a component stock of the FBM KLCI soon enough.

Maybe such efforts should be mimicked by other ministries, as surely, given the flat-lining stock market, there is a need for more disclosure. Plantations, construction and property are some of the sectors that often are subject to regulatory and government intervention, and hence, helping to spread information on the ongoing issues and outlook of government policies will help shore up some stability in such stocks and the broader market.

Reality sets in on Hengyuan

The sharp drop in the profit of HENGYUAN REFINING COMPANY BHD is a sharp reminder that the business of refining crude oil is tricky, and the money is not made from refining but managing the stocks.

Hengyuan’s profit fell 96% in the latest quarter to RM3mil compared to the corresponding period last year. In fact, the downtrend in the company’s profitability has been evident since the second half of last year.

The company had then said that its performance had largely been impacted by a scheduled maintenance shutdown to gear up its operations for a major turnaround. Subsequently, Hengyuan recorded losses in the third and fourth quarters of last year.

Not to mention, the company also suffered losses from its stock-holding of crude oil.

In the first quarter of this year for the period between January and March, Hengyuan bounced back to the black with a profit of RM21.57mil. If anybody had thought that the company was on track for recovery in its profit numbers, they would have been disappointed by the latest set of results.

Close scrutiny suggests that the sharp fall in profits for Hengyuan in the latest quarter and the first-half of this year is due to the sharp drop in stock-holding gains and the oversupply of refined crude oil.

Hengyuan’s stock-holding gains in the second quarter dropped to a mere US$0.65 per barrel from US$2.05 per barrel in the first quarter of this year. The drop in the stock-holding gains reflected in the bottom line of the crude oil refinery.

Early last year, Hengyuan was a hot name on the exchange with its share price skyrocketing to dizzying heights. The company, which saw a new set of shareholders after Shell exited, was thrown in a different light although the business model did not really change.

Shell exited because the refining margins were narrow due to excess capacity and profits depended on stock-holding gains or losses. The reality is now setting in on Hengyuan, even though the name has changed.



Courier companies galore

The race for last-mile delivery of courier companies is more likely turning out to be a race for survival.

At the last count, there were 112 companies with licences to deliver anything – from small packages to simple letters - in the country. Unlike previously when many of these companies remained dormant, a substantial number of these entities are in operations.

Many have put up investments to buy vans and other modes of transportation to undertake the courier business. The reason is simple – the owners of the companies are of the view that e-commerce will only pick up and business will flourish.

In a matter of time, some big entity would come into the market and acquire the smaller courier companies.

But the companies could be grossly wrong. The courier business is highly competitive and fetches a thin margin. Even before any consolidation can take place, there will be a bloodbath.

Even the big boys are already suffering. Courier companies such as Nationwide Express Holdings Bhd have been in the red for the last five years, while GD EXPRESS CARRIER BHD, which has SingPost as a shareholder, has seen a drop in its bottom line in the last two years.

This raises the question whether the country needs so many courier companies. Many will not be able to make it to the finish line.

It’s true that e-commerce is the fastest-growing space in the technology world. People are shopping online more than ever and it’s growing. Courier companies will have a role to play.

However, it’s a volume game. Only the big players will survive, and it’s only a matter of time before the foreign names come into the market.

For local companies to stand a chance against the foreign names, there has to be fewer players in the market. And one way is to reduce the number of licences issued.


   

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