MEGB update no. 2

Is MEGB marching into the light with its newly approved programmes?

(credit: Dreamstime)

Since my last post on MEGB more than a month back, a lot has happened.

A Concerned Investor sends in some queries to MEGB's Investor Relations (IR) Another concerned MEGB shareholder, Zuuk has been sharing some info with me via email and these were his concerns:

1) An updated list of the shareholders - this was updated on 9.03.2011 - which shows that Fidelity and Smallcap World Fund were still shareholders to a total of 8.5%. But of course, this was 3 weeks ago and the composition may have changed and we can only wait and find out whether they have further shed their ownership of Masterskill's shares.

2) Zuuk also had concerns as MEGB's bursa announcement that it had obtained approval from the Education Ministry to run its Kuching campus which conflicted with the Kenanga report on MEGB saying that the Diploma in Nursing for Kuching was facing some delay in obtaining approval. Management's reply to this was that the two things are not the same thing as the former as to do with the campus and the latter with the programme. Hence, they were not conflicting. Nevertheless, good on Zuuk for spotting these things and being an active investor and of course, sharing this info with us

Catalysts for Higher Prices? MEGB now has hit around the average price I bought it - RM1.9 and the fact it has been in the news may have something to do with it:

March 23 - Approval for its Cheras Campus to conduct BSC (hons) Nursing programme - This is obviously good news as well, if all goes well, a recognised certificate is almost as good as printing money.

March 29 - Masterskill then announced it was to collobarate with Kinta Medical Centre to set up a physiotherapy centre - This again is a plus as it states that KMC will bear the costs and share the profits with Masterskill and this may give Masterskill the 'unique selling point' it needs to get more students into Masterskill as the healthcare education industry gets more crowded with more players entering into this space.

What about Dividends? Share Buy Back? Of course the two pieces of news I cannot wait for is the share buyback and the payout of dividends.

And guess what - they recommend a dividends payout of 7.9 cents per share payable on 15 June so if my maths is right - a 4.1% return for the shares at the price of RM1.89 (closing price today). Read about it on the Edge.

Yet, when I think about it, can MEGB afford to also do a share buyback? Can they fund both while expanding aggresively as they are opening its new campuses or do they have to settle for one option? To me, I would prefer a dividends payout as I am holding long on to MEGB. Perhaps, it's time to write into their IR to find out...

Update 31/03 : OSK research maintains MEGB as a trading buy with unchanged fair value of RM 3.44 citing the current PER at 6.4 the cheapest in its covergae. Read it on the Edge.

Full disclosure: Yes, I do have shares in MEGB.

Follow up on MEGB 3

A summary of MEGB's coverage by Research Houses after the 4Q2010 results.

There are 4 research reports on MEGB's corporate website which can be found here. Also further news reported on the Edge but reproduced here in the Msian Chronicle.

Generally, all positive:

Kenanaga - TP: RM3.73
Alliance Research - TP: RM2.60 (trading buy)
CIMB - TP: RM 4.48
DBS - TP: RM 4.50 (12 months)

Also, it can be seen that there are catalysts for it to go up:

1) Final Dividend to be paid out end of next week.
2) Buyback activites to be sometime in June 2011.
3) General growth in its number of campuses and student population.

Interestingly, the CIMB report states that the transfer of the CEO's shares to his wife was due to - asset planning. This is vague and could be down to tax reasons or could it be he really is going to personally buy more shares of MEGB?

To be honest, it's quite a relief to read all these positive reports and there's something here for me to come back to read to understand why I took the plunge into MEGB in the first place. I was pretty worried. Its much harder to buy on a stock which has been battered and there's still a general fear among people about it!

Well... at it's current prices it's trading at 6.7 time PE for 2011 (forecasted) so I think that's way too cheap.. so I'm Long MEGB!

Full Disclosure: Yes, I do own shares in MEGB.

Why Buy Stocks?

I was doing my regular reading on Fool.com and came across this : http://www.fool.com/investing/beginning/2011/01/31/back-to-the-basics-why-buy-stocks.aspx

The part I want to highlight is this since a lot of people are thinking of investing in gold/property and other investments (palm oil investment schemes come to mind) is this:

" Returns. Over the long term, stocks have delivered impressive returns. According to the 2002 edition of Jeremy Siegel's book Stocks for the Long Run, stocks returned 6.8% per year above inflation between 1871 and 2001. That compares with a loss of 0.1% per year for gold and an average gain of 2.8% per year for bonds. Cash, of course, almost always has a negative return as it earns nothing and simply absorbs the impact of inflation. But over the past 10 years, the stock market has actually fallen more than 6% as measured by the S&P 500, which is a good reminder that the returns from stocks may not always be consistent. However, the stock market's history gives us good reason to think that over longer stretches investors can do very well."

So, if this doesn't convince you, I don't know what will! Also, being Malaysian, we are in an emerging market - there will be lots of money will be flowing in the middle of the year. The only worries about investing in Malaysia for me are these:

1) The Credibility of the Financial Reports- This is a problem in general, it also happens in the US as was the case in Enron. But this problem is more prevalent in Asian countries as our financial reporting standards is not up to par and that old joke comes to mind where an accountant is looking for the job is asked - How much is 1+1? And the accountant replies : Anything you want!

2) Market Manipulation - Compared to the SGX and US markets, we trade in rather low volumes which mean stocks can be more volatile and move quickly. Anecdotal advice of syndicates in Malaysia is plenty and you do worry at times!

Best to stick to bigger, blue chip stocks which would be harder to manipulate and would have better accounting standards.

My suggestion is to look abroad to other markets as well. But start small. Start with a tracker fund which will track , an ETF which can do the same or a mutual fund - All these options takes away the stress of actually picking stocks. ETFs have much lower management fees than mutual funds and are easily trade able.

But you still need to research on how close to they track and in the case of mutual funds, whether the manager is any good. There is matter of timing the market and holding it for the long term.

Pick up some books, learn and read to make your money work harder for you! You don't have to be day trader and/or do momentum investing. The biggest downfall of stocks is one's emotions. I have said it many times but it is worth remember what Warren Buffet says - "I will tell you how to be rich : When others are greedy, be fearful, when others are fearful, be greedy!"

So be patient. Now, being the CNY and being the holidays - the KLSE is really quiet and stocks are down so now, would be an ideal time to pick up some stocks actually!

If you're interesting in looking at the US market, check out www.fool.com and they services give you the option of a one month trial period. They also occasionally will offer free reports on certain picks.

Full Disclosure: I have said this before but yes, I am a subscriber of the Fool's Stock Advisor Service.

Risky Move - Contra Trading

No, No.. Cool game but we're talking about Contra Trading larr....

Contra? You mean that uber awesome tv game we used to play as kids!

I'm afraid not! I am referring to how I made a contra sell the last few days.

Let me explain:

Contra trading is when you purchase and sell stocks by not putting the actual money down. Online brokers give you 3 days from the day you purchased it (known as T+3) to put the money down for the purchase (including brokerage fees).

If not, they will force sell it on (T+4) for you and charge you for any losses made. But the upside is if it did go up within those 4 days, you profit.

What happened for me was I have been eyeing Masterskill Education Sdn Bhd (Ticker: MESB - http://www.bloomberg.com/apps/quote?ticker=MASEG:MK). It has been a stock I already have a small holding of it and have been eyeing since it had dropped to an all-time low of RM 2.03 since its IPO debut last year or RM3.80. I was thinking of increasing my holdings believing in Education and how undervalued it is to its peers (HELP and SEGI) but also took into account the concern over PTPTN loans funding its students were in trouble.

So, I bought 6 additional lots at RM2.12 on Monday for long term holdings but for research purposes I thought I would let it force-sell to see what will happen given it rocketed up to RM2.40+ the next few days.

Eventually, Friday (T+4) came and I got a call around 9am from CIMBiTrade inquiring whether had I paid for the stocks and they would force-sell it by noon if I don't force-sell it myself.

I did do so and sold them at RM 2.44 to make a quick tidy but small profit of RM 100+ (yes, force-selling does incur brokerage charges)

Ok, the reason why I relate all this to you is to give a very real example but NOT to say yes you WILL make money contra trading. Most contra traders actually lose money!

By saying I will buy at RM2.12, I have to pay within 3 days. If I don't, up or down, I pay for brokerage fees and any losses! Noone can really tell if a stock will go up in 3-4 days. While MEGB was deeply undervalued, it could have plunged further or what is stopping a plunging stock from plunging further (think: winding up, fraud, etc)

If you're banking on some news like say a takeover, some takeovers don't happen for whatever reason, the price plunges, and you're stuck with a stock with a loss!

Let's go through all the risks involved:

1) If the stock plunges, you have to pay for all the losses not made back by the broker's force sell.

2) If the stock is suspended (it can happen) or suddenly for whatever reason de-listed, you can't sell, you still owe the bank RM X which you have promised to pay legally. This may incur high interest rates until you can pay it off on top of the losses/profits made later from the sale.

3) You may have no control on how much to sell (but in my case, I did because the bank gave me until lunch time to force sell it myself.. I am not sure how often this is the case)

4) Brokerage fees will kill you in the wrong run! Day trading or Contra trading - You will incur lots of brokerage fees! Take my example - you would think 600*(2.44-2.12) = RM 192 profit! Nope - Brokerage fees (including stamp duty) was 56.67 - So I only made RM 135.33 (30% of my profit loss because of brokerage). In the long run, you will have more misses than hits (especially learning this risky play) and you will feel the impact of brokerage fees.

The only benefit I can think of is:

1) No model required to pay down the cost of the shares but see downside no 2)! Ie: Leverage

The biggest assumption running here is everything goes well between your purchase and the trade of your stock.

To end, again I do not endorse this move and I did so with MEGB because a) it was a stock I was willing to hold for long term and b) decided to try this for this blog's research. In the long run, brokerage fees will kill you.

If there are any contra traders reading this, please share any tips or correct me if I have made a mistake somewhere.

While researching for this post, I came across this link:

http://guanyu9.blogspot.com/2010/03/brokers-fight-for-right-to-contra-trade.html - read the comments - contra trading takes up 50% of the trading volume in Singapore and your comment practice among brokers apparently.

Full Disclosure : Joe does own shares in MEGB and will not trade for the next 3 days in MEGB.

Introduction & Mission Statement

Welcome to my pet project, a Malaysian Finance Blog!

Um, so what makes it different from others? Well, it's for everyone! Yes, even you, the Auntie frying your favourite Char Kuay Teow!

I would like to make share this financial journey of mine of everyone and anyone to jump on board with me to share whatever gems they have on managing your money.

My journey thus has been far:

After returning from studying abroad, I am currently employed in a Law Firm. In the meantime, I got together with a bunch of ex-uni mates to start an investment club to share investment ideas seeing how we were young and keen to increase the returns of our savings.

Fast forward one year later, and well.. to be honest, nothing much came out from it. But then I thought: Hey, why not reach out to more people and also put into action all these things I have read? Don't we all learn better when we try to share it out? I have always been a firm believer than the more willing we are to give, the more we will get in return.

So, I set out to come out with a Blog for Joes. Joes as in Everyone. Joe the Plumber, Joe Six Pack, and of course not to be gender discriminating (art 8 of our constitution) Jane Doe!

In fact, here's my Mission Statement:

MISSION STATEMENT

1) To Increase Financial Literacy - Funny isn't it how we spend 15+ years studying about everything except how to manage our money? Shouldn't Financial Literacy be as talked as much as say Math, English, History! With the numbers of people going bankrupt rising quickly with the ease of availability of credit, we should be educating our young on how to manage their finances/debt and spending.

2) Make Investment/Financial Literacy Interesting and Fun! -

3) A Forum to Exchange Ideas on Investments in Malaysia and Abroad.

4) Exchange ideas on everything to do with Managing your Money.Got a simple tip on saving money like say using pandan leaves for your car's air freshener share it! E-mail me! I will give all credit will be given where it's due!

Or where the best promotions/offers/deals, share it!Go for it- Email me again. Please, no Scams.

5) Full and Complete Disclosure. If I own shares or have something direct to gain from the advice/"tip" given, I will disclose completely and not trade in the aforementioned share the next 3 trading days. I do not endorse hyping up a share for one's gain.

So here, I go! Hope you continue to keep an eye on this blog!

I soon hope to be on Twitter/FB and get a RSS feed up ASAP!

Stay tuned!

Joe.

DISCLAIMER: This Blog is at best merely the opinion of one long term investor (who at times may be overdosed with caffeine!) who is intent on sharing what advice he has read/received but is not to be construed as financial advice/recommendation to buy/sell. Any action taken following the analysis, commentary, information from the posts is ultimately your responsibility. Please consult professional financial advice and do your own due diligence before making any investment decisions.