Short position

CGB’s volatile share price

Central Global Bhd (CGB) may be little-known but its stock price has a tendency to come to life periodically, albeit in fits and starts. In the past 12 months, its share price has gone up from 90 sen a piece to a high of RM2.70 last June before losing almost all of that rise by the end of the year.

This week, the stock momentarily came back to life, climbing from RM1.02 on Monday to hit a high of RM1.24 on Wednesday.

On that day, CGB made an announcement that one of its units was acquiring 70% of a Sabah-based construction player for RM30mil to be paid for via the issuance of new CGB shares at RM1.04 each.

Right after the announcement though, CGB’s shares shed those gains, yet again, indicating that some investors in the stock were happy to “sell on news”.

Nevertheless, the deal seems positive in that CGB is using its equity for payment and secondly that the vendors are providing profit guarantees. However, the construction industry isn’t exactly in its brightest moment in Malaysia today.

CGB, a masking tape manufacturer, has also said it was looking to create a digital dashboard for Sabah’s Ministry of Finance website. Prior to that, the company said it had been exploring with China’s Huobi Mall to construct a data base collection centre in Malaysia.

Last February, CGB had a new shareholder who has since said he was looking to expand the masking tape business and grow the group’s construction business as well as explore new areas such as renewable energy, information technology and healthcare-related industries.

The latest deal will also see the vendors of the Sabah construction company becoming CGB’s second largest shareholder with a 22% stake.

Time will tell if these efforts will bear fruit. CGB needs to improve its earnings. For the third quarter ended Sept 30, 2021, CGB posted a net loss of RM2.38mil, bringing total losses for the nine-month period to RM3.92mil.

Smokeless Malaysia

SOON a generation of Malaysians will hopefully not know what smoking is, and that is only good for the well being of the population.

In response to that news, shares of British American Tobacco (M) Bhd dropped nearly 1% to RM12.78.

The Health Ministry has decided to ban smoking products for those born after 2005.

Legislation on that will hopefully be passed this year.

Doing so will be the same as what New Zealand intends to do, and any way you dice that news, there are only positives to come from that.

What the law aims to do is to increase the age of smoking by a year, every year.

That means that for those born in 2005, and have yet to hit the current legal smoking age of 18, they will not be allowed to buy and consume cigarettes or smoking products. That should include vaping products.

Surely, the current population of smokers do not have anything to complain about. Anyone who is old enough to legally smoke will continue to be allowed to do so.

There is no logical reason for anyone to oppose that ban.

Secondly, there are health benefits of banning tobacco consumption in the long run. As it is, there is almost universal healthcare in Malaysia, meaning the government pays for nearly all the healthcare needs of the citizenry.

The cost of healthcare is rising and given the speed of healthcare inflation, the cost to the government and health insurance will become very expensive in the future. That is why Bank Negara is exploring putting a lid on healthcare costs because the repercussions are going to be a political hot potato for policy makers in the future.

Then there is the question of how the government plans to replace the lost tax revenues from sin activities such as tobacco. In today’s environmental, social, and governance-centric world, there is less tolerance for them.

Tax collection from tobacco consumption will dwindle in the future.

Illicit cigarettes are rising and that is costing the government in terms of lost tax income and more allocation to fight non-communicable diseases caused by tobacco consumption.

But then, this is a problem only for a generation or two. Eventually, should this law be passed, there is no reason for anyone, decades from now, to be smoking anywhere in public.

And that is an overall plus for the country as a whole.

No bankruptcy jitters

NEWS that Genting Hong Kong, which is predominantly in the cruise liner business, is going to close down because of bankruptcy certainly makes for interesting chatter.

But when analysing the background of the bankruptcy, it is no different from how other companies have fallen on hard times and seen their debt being written off by the big lenders in the country.

Senior Minister and International Trade and Industry Minister Datuk Seri Mohamed Azmin Ali was reported as saying that the Genting Hong Kong bankruptcy has no impact on the country’s liquidity and economic growth.

Even the country’s largest bank, Malayan Banking Bhd, said it would not affect its financial strength.

On both counts, that is true.

The impact of the bankruptcy is microscopic at best and for the banks that have a reported exposure of RM2.5bil in unsecured loans, they will stand to lose that loan.

But given how large their capital bases are, a loan of that size going sour will not dent their finances.

People should realise that the banks of today are different creatures from those during the Asian financial crisis.

Bank Negara did a stress test on the banking industry at the start of the Covid-19 pandemic and even under adverse conditions, which is more drastic than a loss of RM2.5bil for some banks, Malaysian banks stood no chance of going under.

The public should expect bad loans and closure of companies and loans going under as companies deal with the ramifications of the pandemic.

The banks can ask why the loans were unsecured and they will have their reasons for doing so. This whole episode though can be filed in the category of the risk of doing business.

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