Why I Like Fajarbaru Builder

As mentioned before, investors have been to keen to look at big construction firms at the expense of the small-mid cap ones. I expect the stimulus plan to continue to be emphasised in the upcoming Budget, and it is likely that the bulk of the contracts be broken up into smaller size parcels.

Fajarbaru Builder Bhd (Fajar) is a home-grown contractor that has carved a niche in landing medium-sized government contracts of less than RM500mil in value.

1) Order book stands at RM550m to be completed in FY11. In their books include the RM108mil Low Cost Carrier Terminal (LCCT) in Sepang, LCCT Extension works (RM164mil) and Seremban-Gemas Double Tracking subcivil/ earthworks package (RM316mil). Some of the ongoing projects are Electrified Double Track Railway, LCCT expansion, and Tampin Hospital and KTM staff quarters at Batu Gajah. Fajarbaru is eyeing for at least RM1b contracts from LCCT and other government related projects . Currently bidding for some of the works for the new LCCT in KLIA which the Group is eyeing for at least RM500m worth of contracts.

2) Fajar stands out as a small-mid cap construction player with a carved out expertise in interesting sub-sectors. It stands a good chance of participating in the new LCCT given its airport related experience. The other expertise in with the double tracking / earthworks electrified rail projects. Both are nuanced and make the company's resume more solid for similar jobs in the near future.

3) The company is on track for a 3-year earnings CAGR of 23. One of the better managed and cash rich construction company (that is a new thing to hear about a construction firm) with a net cash balance of RM0.62. That's 50% of the share price in cash.

4) Owing to its track record and expertise, Fajar has its noses in front to snatch upcoming airport jobs such as the new LCCT (RM2bn) and Penang Airport upgrade (RM250m). To repeat, in recent years, Fajarbaru has acquired much airport related experience, having worked on jobs at the KLIA, temporary LCCT and Penang Airport. The new LCCT contract will be broken up into 20 packages. Management expects prequalification tenders to be called within the next month and some packages could be awarded by early 2010.

5) This is the key factor for me on why I like Fajar, its the management. Fajarbaru is led by Dato Low, best known as the last Managing Director of Road Builder Holdings before it was acquired. Always bet on a proven winner and Low has the capability to steer Fajarbaru to greater heights given his 3 decades of experience.

Considering all that, it has no business hanging around at RM1.20. Again my pre-qualification is 30% within 6 month.

Shares Outstanding (million) 136.1
Market Cap (RMmil) 148.4
Book value (RM/share) 0.8
P/BV (x) 1.4

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). 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.

p/s photo: Kou Shibasaki

BlackRock Is Now The Biggest Asset Manager

Investors pulled a net $320bl from mutual funds in 2008, a record in both dollar terms and as a percentage of assets, in one of the biggest flights to safety the industry has seen. The move out of what were previously regarded as safe and stable investments followed a record year of investor inflows in 2007.

• Jun 12: Blackrock, started 21 years ago in a one-room office, agreed to buy Barclay's investment unit for $13.5bl to become the world’s largest money manager. BlackRock will pay $6.6bl in cash and the rest in stock for Barclays Global Investors. Barclays will hold a 19.9% stake in the combined company. The purchase, the biggest of a fund manager, creates a company overseeing $2.7tl in assets, more than the Federal Reserve. BlackRock will add about $1tl in investments that track market indexes, which are attracting clients at the expense of funds whose managers choose securities to buy and sell. It’s the first top-ranked firm to attempt to combine both types of businesses.
• Jun 08: BlackRock is a step closer to becoming the world’s biggest money manager after emerging as the leading bidder for Barclays’s fund unit. BlackRock has moved ahead of contenders for Barclays Global Investors including BofNYMellon. Barclays, the U.K.’s third-largest bank, is seeking more than $12bl for BGI, and may keep a 20% stake in the combined company.
• Mar 27: BlackRock, the biggest publicly traded U.S. asset manager, will participate in the U.S. Treasury’s programs to purchase troubled securities from banks. BlackRock will take part in programs outlined today by the Treasury that will purchase loans and set up funds to buy mortgage-backed securities. Bill Gross, co-chief investment officer for Pimco, said his firm also would participate in the bailout programs.
• Jan 20: SSgA reported a 27% plunge in assets under management for 2008, to $1.44tl as of Dec 31 2008, from $1.98tl a year earlier, and down 14% from $1.67tl in Q3.
• Jan 13: Fidelity Investments, Franklin Resources and Legg Mason suffered the biggest U.S. mutual-fund withdrawals in 2008, cutting their base of fee- generating assets. Investors pulled $40bl from stock and bond funds at Fidelity, the biggest outflow from a single company. Investors took $21.5bl from Franklin and $21bl from Legg Mason.
• Dec 30: Legg Mason's once-celebrated Value Trust fund is set for its worst-ever annual returns in 2008, and some investors grumble that time is running out for its manager, Bill Miller. The flagship stock mutual fund lost 57% in the year to December 29, the worst in its class and under performing the S&P 500 for the third straight year following the S&P 500's 39.4% loss.The losses are so big, the fund now trails the benchmark S&P 500 over not just one year but over three, five and 10 years. It is barely ahead over 15 years. Hemorrhaging assets, its size has shriveled to about $4.3bl at the end of November from more than $20bl in mid-2007. Miller's luster is fading. The 58-year-old made his and Legg Mason's name as the only manager to beat the S&P 500 15 years in a row until 2006 with bold portfolio picks that once characterized the Value Trust.
• Nov 11: As the financial crisis hammers fund returns, many managers are touting their stable long-term records to convince investors that their money is safe. However, that argument may soon vanish. The 10-year returns of many funds have held up in the face of recent losses in part because of huge stock market gains in the 4Q of 1998. As this year ends, those returns will reflect a new decade of 1999 to 2009, a period that could look miserable for some big funds like Bill Miller's Value Trust.
• Nov 4: In Europe, BlackRock is promoting fiduciary management — the outsourcing of the management of a portion or an entire pension fund – beyond its Dutch stronghold. In the last two weeks of Oct. 2008, BlackRock had been in discussions with four different U.K. pension funds to provide fiduciary management services.
• Oct 21: BlackRock's 3Q earnings fell 15% as investors withdrew from its money-market funds. The biggest publicly traded U.S. asset manager had withdrawals of $41.6 billion from its money-market funds in the quarter, mostly after the Reserve fund faltered. The withdrawals, which represented about 12% of BlackRock's cash-management assets as of June 30, and falling stock and bond markets pushed the company's net income down for the first time in two years.
• Oct 15: Pimco, the world's largest bond fund, was selected to manage the CP assets for the Fed as part of the government's Commercial Paper Funding Facility program. State Street will serve as custodian and administrator of the program.
  

p/s photos: Kou Shibasaki

The New Compensation For Investment Bankers?

This will be a good point of discussion during the Financial Markets Career talk. The present global financial crisis may actually result in some changes in how salaries and bonuses are to be paid. The following are the latest information from Royal Bank of Scotland. Base salaries for 1st- 3rd years bumped by $10K. Their starting pay now will be:
1st year base: $70k
2nd year base: $80k
3rd year base: $90k

3rd years promoted to Associate: Base: $100K- no signing bonus

Numbers out today for Global Banking and Markets. All bonuses are 100% deferred- over 3 years, subject to clawbacks. Terms still not defined.

Bonus Ranges:
1st year: $40k-$50k
2nd year: $50k-$60k
3rd year: $60k- $70k

What that means is that these bonuses are declared only and can be clawed back within a certain period if performance of the unit or company does not match up to predefined criteria.

Example, a second year RBS employee may be on $80,000 a year ... I think their year end is June, so the declared bonus for this employee may be $55,000. The terms are not clear yet but if there is a clawback, it will mean that the employee won't get to see the bonus for a certain period, say 2 years. Within that 2 years, the employee's performance, his/her department's performance and/or company's overall performance must match up to predefined criteria - then and only then will the employee get his/her $55,000 bonus. That amount may be lesser if any of the predetermined criteria were to be not attained.



p/s photos: Kou Shibasaki

Why People Still Listen To Cramer & Kudlow

Yes, its true unfortunately. The article by New Scientist confirms my suspicions.

Humans prefer cockiness to expertise:

Ever wondered why the pundits who failed to predict the current economic crisis are still being paid for their opinions? It's a consequence of the way human psychology works in a free market, according to a study of how people's self-confidence affects the way others respond to their advice.

The research, by Don Moore of Carnegie Mellon University in Pittsburgh, Pennsylvania, shows that we prefer advice from a confident source, even to the point that we are willing to forgive a poor track record. Moore argues that in competitive situations, this can drive those offering advice to increasingly exaggerate how sure they are. And it spells bad news for scientists who try to be honest about gaps in their knowledge.

In Moore's experiment, volunteers were given cash for correctly guessing the weight of people from their photographs. In each of the eight rounds of the study, the guessers bought advice from one of four other volunteers. The guessers could see in advance how confident each of these advisers was (see table), but not which weights they had opted for.

From the start, the more confident advisers found more buyers for their advice, and this caused the advisers to give answers that were more and more precise as the game progressed. This escalation in precision disappeared when guessers simply had to choose whether or not to buy the advice of a single adviser. In the later rounds, guessers tended to avoid advisers who had been wrong previously, but this effect was more than outweighed by the bias towards confidence.

The findings add weight to the idea that if offering expert opinion is your stock-in-trade, it pays to appear confident. Describing his work at an Association for Psychological Science meeting in San Francisco last month, Moore said that following the advice of the most confident person often makes sense, as there is evidence that precision and expertise do tend to go hand in hand. For example, people give a narrower range of answers when asked about subjects with which they are more familiar (Organizational Behavior and Human Decision Processes, vol 107, p179).

There are times, however, when this link breaks down. With complex but politicised subjects such as global warming, for example, scientific experts who stress uncertainties lose out to activists or lobbyists with a more emphatic message.

So if honest advice risks being ignored, what is a responsible scientific adviser to do? "It's an excellent question, and I'm not sure that I have a great answer," says Moore.

p/s photos: Kou Shibasaki