Need A Few More Great CEOs For GLCs

What's the difference between a good CEO and a great one? In Malaysia there are not many great CEOs for sure. Many of our top companies are still family controlled companies, and generally its very rare to get family members that are also great CEOs. Family owned enterprises are usually started by a great entrepreneur but as you mushroom into a listed company, many have problems in letting go. An entrepreneur may be able to build a business from scratch to earning RM50m profit a year, but as you expand and scale up, you need a professional person with the vision and execution ability to bring the company to the next level. Ask many CEOs, they don't even talk about what is the next level.



If you put it to a vote, Nazir Razak should probably come in as the best CEO Malaysia has seen for the past 20 years. All you have to do is to track where Bumiputra Commerce Bank was at 10 years ago. If you put that side by side with Maybank, Affin, heck even Public Bank ... the trajectory and the path taken was so different.

Its just a coincidence that CIMB is now a Khazanah owned company. Even with the recent GLC transformation programme, we still see a dire lacking in the top honchos when compared to Nazir.

Let's cut to the chase, what makes a great CEO?

1. Integrity: Always do the right thing regardless of sentiment and never compromise your core values. If you cannot build trust and engender confidence with your stakeholders you cannot succeed. No amount of talent can overcome illegal, immoral or otherwise ill-advised actions.

2. Courage / Excellent Decision Making Skills / Decisiveness: As a CEO you will live or die by the quality of the decisions you make. These decisions are like the ship's mast, every bit that you do steers the ship in a certain direction. He/she must also know when to back down and be able to accept it when he realises its a mistake.

3. Ability to Focus: If you cannot focus you cannot perform at the level necessary to remain in the C-suite for very long. The ability to do nothing more than understand, and lock-onto priorities will place you in the top 10% of all executives.

4. Leveraging Experience: Inexperience, a lack of maturity, needing to be the center of attention, not recognizing limitations, a lack of judgment, an inferior knowledge base, or any number of other common mistakes made by rookie CEOs can cause your house of cards to fall. If you don’t have the experience personally, hire it, contract it, but by all means acquire it. Great CEOs surround themselves with tier-one talent and the best advisors money can buy. They don’t make uniformed or ill-advised decisions in a vacuum.

5. Command Presence: Great CEOs possess a strong presence and bearing. They are unflappable individuals that never let you see them sweat (unless of course it serves a purpose). Everything from how they carry themselves to how they speak and dress messages that they are in charge.

6. Embracing Change: Great CEOs have a strong bias to action. They don’t rest upon past accomplishments and are always seeking to improve through change and innovation. In today’s fast paced and competitive environment those CEOs who don’t openly embrace change will often be shown the door prior to the expiration of their initial employment contract.

7. Brand Champions: Great CEOs understand branding at every level. They seek to build not only a dominant corporate brand, but also a strong personal brand. CEOs that are not well branded on a personal basis, or who let their corporate brand fall into decline will not survive.

8. Resourcefulness / Boundless Energy: Great CEOs have a boundless amount of energy. They are positive in their outlook, and their attitude is contagious. A low energy CEO is not motivating, convincing or credible.

9. Business Acumen: Great CEOs have a deep understanding of the business and a strong orientation toward profit. Great CEOs possess what often appears to be a sixth sense or an almost instinctive feel for what the company needs to do to make money and remain competitive.

10. People Acumen: Great CEOs have a nose for talent…They understand how to recruit, develop and deploy talent while focusing on applying the best talent to the best opportunities. They also know when it’s time to make changes and cut losses as needed.

11. Organizational Acumen: Great CEOs know how to engender trust, know when and how to share information, and are expert listeners. They develop strong and positive corporate cultures driven to performance by aligned motivations. They can quickly diagnose whether the organization is performing at full potential, delivering on commitments, and whether the company is changing and growing versus just operating.

12. Curiosity: Great CEOs possess a powerful motivation to increase their knowledge base and to convert their learning into actionable initiatives. They question, challenge, confront and are never accepting of the status quo.

13. Intellectual Capacity: Great CEOs are also great thinkers both at the strategic and tactical level. They are quick on their feet and know how to get to the root of an issue faster than anyone else.

14. Global Mindset: Regardless of the geographical boundaries of the current business model great CEOs think globally. Limited thinking results in limited results. Whether global thinking is applied to capital formation, supply-chain issues, business development, strategic partnering, distribution, or any number of other areas, those CEOs who don’t grasp the importance of thinking globally will not endure. Great CEOs are externally oriented, hungry for knowledge of the world and adept at connecting developments and spotting patterns.

15. Never Quit: Great CEOs refuse to lose…They have an insatiable appetite for accomplishment and results and while they may reengineer or change direction they will never lose sight of the end game.

16. Execution: The decisions and strategy of a CEO will only be as effective if they have the implementation and monitoring skills to execute ideas and follow through. The great CEOs will only recruit managers that has proven themselves time and again in seeing through a project or transmitting a vision into reality effectively.

17. Not Staying Still: Too many CEOs end up just managing their companies in the same pond. Great CEOs will always be aware of the need to move up to the next level. Always be concerned about your business model and platform of activities, building initiatives or recruiting talent to scale up the business.

18. Fair: Too many CEOs are just intent on finding ways to reward themselves. A great CEO will devise ways to reward performers in a big way. Loyalty can only go so far. To build great companies, you need a core team that is well rewarded to see through the long term vision, and be paid well in the process. You cannot build value into the company when talent keeps going out the door - there has to be continuity.

19: Empowering / A Strong BoD: You need to have a fair and strong board of directors and not staffed by cronies. You can have a great CEO but he/she will not be effective if the BoD gets in the way. The BoD is there to oversee not micro manage. Just as a great CEO will be able to empower talented employees to achieve greater heights, so too the BoD must empower the CEO to do his/her job.

20. Foresight: Great CEOs are prepared to create their own luck by cultivating an ability to see opportunities for their company and to make the deals that convert those opportunities into realities. Some things that may seem like amazing foresight are actually the result of the hard work and discipline it takes to constantly look forward to build a successful company. Great CEOs must also constantly develop new products to build and retain a customer base. Foresight is also the ability to hire and retain the right people, looking ahead toward the growth of the company.

Nazir scores brilliantly in almost every category (no, I am not putting myself up for a job at CIMB). If only we have another 4 Nazir Razaks to turn things around faster. Food for thought. If we have another 4 Nazirs, what would he be doing at these 5 GLCs??? I would exclude him from some GLCs because there might be very little he can do there, such as Tenaga or Malaysia Airports. I also would not put him at Maybank as the stegosaurus will take too long and too much work to turn around. I will select the 4 GLCs that I think will benefit the most:

1) UEM World / Iskandar - I think the Nusajaya project started way before the two Singapore IRs. The bloody casinos are up and running and where are we??? Oops, forget about the Middle East partners now, let's look to China and India. Execution, execution, timeline, goalposts, rollout scheduling, ... for every project delays there will be 1,001 excuses, and therein lies our problem, we are always ready with excuses. I think Nusajaya is a brilliant concept, but seriously, I hope its not taking another 10 years to rollout, by that time I think Indonesia may have transformed Batam into another Nusajaya already with a bridge linking up both islands.

2) Proton - It will be a short stay for Nazir at Proton. Just sell the thing to another major car maker that can carry the platform we have and leverage on it. We take a minority stake say 30% and just let the thing run by someone else that have the regional or global marketing, design, distribution and cost efficiencies to run this thing. Close shop.

3) PLUS - As it is, PLUS is already Asia's largest listed expressway owner and toll operator, easily beating out the two listed Chinese firms in HK. Its an under leveraged vehicle. Nazir will come in, start up a "financing unit" within the firm to tap bonds and capital to buy, invest, build new tollways all across Asia. Its all a matter of "funding the thing" properly. Nazir will keep enlarging the portfolio by hiving off profitable tollways into REIT like instruments to free up capital. PLUS will be 3 times the size of what it is now within 3 years. Macquarie Infra here we come.

4) Sime Darby - Nazir will do wonders here. Just break off the plantation unit and rethink the business model. Why are we just in palm oil??? Sell huge plots of land to Sime Property and hive that off as an independent unit as well - I am sure Nazir will buy IJM Land and SP Setia and roll them all into a proper behemoth with a lot of claws and market edge.



p/s photos: Ririn Dwi Aryanti

Transmile - Catching Falling Knives & Accounting Lessons

Operating expenses per quarter RM70.9m (1Q2009), finance cost RM8.087m (1Q2009).
Operating expense per quarter RM36.8m (2Q2009), finance cost RM6.998m (2Q2009).
Operating expense per quarter RM39.5m (3Q2009), finance cost RM7.3m (3Q2009).
Operating expense per quarter RM263.6m (4Q2009), finance cost RM6.9m (4Q2009).

Naturally one can see that the 4Q operating expense was irregular. It would seem that the company has brought down normal operating expense to around RM35m per quarter. The additional losses were due to impairment losses in selling their assets.

Transmile said an impairment loss of RM8.2 million on its narrow body aircraft was recognised in operating expense in the current quarter to reflect the fair value based on published aircraft value as at January 4. An impairment loss of RM178 million on its wide body aircraft was also recognised to reflect the fair value less cost to sell.

Why the hoo-hah, why the sharp sell down in the shares? Don't people read company announcements? The planes were ALREADY reclassified during the quarter ended June 30, 2009, the company said in notes accompanying its 2Q2009 results. “Following the decision of the board to dispose of the wide-body aircraft, the planes are now classified as assets held for sale in the current quarter,”



Transmile has some RM570 million in debts owed to term note holders and bondholders. Transmile’s outstanding debts comprise a US$66.9 million (RM235 million) syndicated term loan, US$65.6 million 1% guaranteed convertible bonds and RM105 million medium-term loans. In its 2008 annual report, Transmile notes that the four McDonnell Douglas planes (MD11s) were not classified as assets held for sale as it was “highly improbable” that the disposal could be completed within a year.

With the reclassification in 2Q2009, it is fair to assume that the company is optimistic of selling the planes now that the operating and credit environment is more favourable than in the previous year. The reclassification means that Transmile has convinced its auditors that it can find buyers for those planes in the near future. So, now the planes were sold and the impairment loss recognised, why jump up and down????

2009 4Q
Rev 46.6m Losses 212.9m Loss PS 78.9 sen NTA 8 sen
2009 3Q
Rev 30.5m Losses 14.8m Loss PS 5.56 sen NTA 87 sen
2009 2Q
Rev 38.5m Losses 0.227m Loss PS 0.17 sen NTA 93 sen
2009 1Q
Rev 35.5m Losses 42.5m Loss PS 16.2 sen NTA 93 sen

Impairment losses basically says that what was reflected as assets or as NTA did not really match up when the assets were finally sold. As you can see from the NTA valuation progression over the last four quarters, it stood at 93 sen. If all the net assets that made up the 93 sen were sold into the market, technically you will get back 93 sen net cash. In fact, many companies are actually worth a lot more than their NTA, maybe they did not revalue some of their assets as frequent as necessary.

However, in this case, there are a few very troubling questions in my mind, and should be in many investors' as well:

a) Obviously, the 93 sen NTA was largely made up of the assets which were sold at a huge loss. Accounting standards should start requiring companies to reflect "impairment loss" accumulated as a charge on NTA to better reflect the real underlying NTA. If you do not see the grave implications of NTA dropping from 93 sen to 87 sen and then to 8 sen all within 2 quarters of reporting, somebody needs to see a doctor.

b) This is very serious because many investors rely on the company's NTA in making a reference valuation point when deciding whether to buy a company's shares. If Pintaras Jaya has a NTA of RM3.00 and its trading at RM1.60, I know I have a lot of comfort level, .... because I can "rely" on the published and audited NTA figures. I can rely on the figures because its in the published financial statements, you cannot turn around and say "caveat emptor mate", its just financial statements - you cannot say to me, "Bro (I hate that word), you shouldn't put all your eggs in the basket based on the NTA".

OMG MF, the NTA went from 93 sen to 8 sen in the blink of an eye. We only saw a very minute move down from 93 sen to 87 sen in the 3Q figures. Not all investors know that they should incorporate provisions for impairment losses when looking at NTA - there should really be more clarity in this matter.

c) One may argue that the NTA is but one of many indicators that investors should rely on. Am I barking too much over a small matter? Eeerrr NNNOOOOOOO ... because in cases like Transmile, where there was some crisis and the company is trying its best to find its footing, e.g. work out a reasonable business model and manage their debts ... most investors will RELY EXTENSIVELY on NTA as the benchmark because the likelihood of it being SOLD or WOUND UP is very high. Hence investors would look to seek out bargains or comfort levels based on the NTA.

That's the accounting lesson. Now for bottom pickers ...

a) The air cargo player now still serves over 20 routes in the region with its fleet of B727 and B737 planes. It has also retained DHL, TNT, FeDex and UPS as clients. By selling the planes, it goes some way to addressing their debt problem.

b) If you look at their revenue stream, its pushing to break RM40m a quarter convincingly and may get to RM50m soon. Looking at the cost side, taking out most of their finance cost, their operating expenses could be capped at RM40m a quarter but now you have "leasing charges" which could bring total expenses to RM45m a quarter.

Technically, if they keep improving a little bit more, Transmile could start making RM5m a quarter tax free (based on so much losses in the books) = RM20m a year. RM20m / 270m = 7.4 sen a share ... possible. Bottom fishing potential???

c) One should not look at their NTA anymore as the company has shifted from a an asset owner to a company that leases. Its no big deal as MAS and many other airlines have done the same. Its a different business model. The question is will Transmile survive??? Look at their current clientele, they still have DHL, TNT, FeDex and UPS ... WHY??? Why would these mega companies still do business with Transmile after the internal fiasco?

d) PN17 is a given and I do not see them not coming out of it. I do think some of the selling could be because investors fearing PN17 stocks cannot be margined, but seriously, who puts Transmile stocks under margin accounts.

Firstly, Robert Kuok is still there. Secondly, Robert Kuok is still there and rectifying and revamping the business model. Thirdly, Robert Kuok is still there and the clients know that Kuok has no part in the fiasco that caused the company's downfall. Fourthly, and most importantly, Transmile has very special landing rights in certain strategic locations.

I think the markets over-reacted on the sell side. I think Transmile is fairly value around 60 sen really (now 36.5 sen). They did NOTHING to deserve the sell down. The selling of planes was part of their restructuring plan. Now the business model looks more workable and I am more confident they can turn a profit by 2H2010.

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: Ririn Dwi Ariyanti

Why I Like ETITECH

Usually the ones I like won't be right at the top of the volume list, so this is a first. Eti Tech Corporation is a battery management systems company that is involved in the research and development, design and marketing of battery management systems for rechargeable energy storage solutions using polymer lithium-ion based energy cells for electronic applications. Its products include nano mobile charger, green genset and portable power pack for notebook personnel computer. The company primarily operates in Malaysia, where it is headquartered in Kulim.



ETI has mapped out its development plans to move from the lowpower storage solutions towards medium- and high-power storage applications. Recognising the growing demand for EV amid global concerns for greenhouse gas emissions, ETI is currently developing Lithium-ion Polymer (LiPo) based automotive batteries for electric scooters and EV. Even our beloved Proton is building an electric vehicle soon. ETI is actually in a strong position to provide the battery solution.

In the other segment, ETI is capitalising on the replacement market for lead acid batteries and small diesel generators in various retail, commercial and industrial applications e.g. in the telecommunications, leisure and catering industries which may depend on mobility or locations where there is no ready supply of electricity. The recent launch of “Green Genset” to replace diesel generators such as those used by the food catering industry, is only an early indicator of the company’s growth plans.

Catalyst #1: It is already more than just a R&D outfit as they have been profitable for 3 years already, and earnings will jump significantly in 2010 owing to a good market acceptance of their products, thus providing an enlarged earnings platform. FY10-11 earnings are slated to grow 75% and 48% p.a. respectively driven by: 1) contribution from higher-margin medium-power battery systems; and 2) stronger demand for its low-medium battery system due to the launch of new ‘Green Genset’.

Catalyst #2: ETI has entered into an MOU with ZAP to develop and incorporate its LiPo (lithium polymer) batteries for ZAP’s full range of electric scooters (Zappy, Zapino and ATV). ZAP plans to replace its electric scooter’s lead acid battery with LiPo batteries as Lithium powered scooters have been proven to achieve higher driving range/charge as well as higher speed (vis-à-vis lead acid battery technology). ZAP is a pioneer in electric transportation since 1994, and it manufactures and sells electric cars, scooters, bicycles and other vehicles to 75 countries.

Catalyst #3: Distribution, Design & Assembly - Under the MoU, ZAP will award ETI the rights to design and assemble its electric scooter/EV for Malaysia and the Middle East market. ETI would need to identify and appoint a local motorcycle assembler (i.e. Modenas, Naza and Honda) for the design and manufacturing of the electric scooter. ZAP aims to assemble its electric scooter/EV (powered by LiPo batteries) given the China’s quality and reliability issues. Note that
currently, ZAP’s electric scooters/EVs are assembled in US, Uruguay and China. This development would raise ETI’s profile in the EV (electric vehicle) battery market and thus enable it to penetrate into more lucrative EV markets going forward.

Catalyst #4: Strategic Shareholder, Niche Player & Patented - ETI’s venture into EV battery system has attracted investments from the Al-Yousuf group (which holds a 15% stake in ETI itself), given the potential synergistic benefits for its investment in electric car manufacturer, ZAP. A pioneer in electric transportation since 1994, ZAP manufactures and sells electric cars, scooters, bicycles and other vehicles to 75 countries.



Apart from ETI, there are only a handful of EV battery system players in the world i.e. BYD (China), Ener1 and A123 Systems (US), as well as NEC, Sanyo and LG (Japan and Korea), although auto companies like Toyota, Honda, Nissan and General Motors are aggressively trying to develop their own mass-market EV models. In mid-20008, ETI filed patent applications in Malaysia for the EV Battery including the industrial design and software-driven cell balancing system and method (i.e. the BMS).



Right Management - KK Lee is managing director and the major shareholder. ETI’s technical division is led by executive director and chief technology officer, YK Khor, who has worked for Rolls Royce plc developing military aircraft and Formula 1 racing car parts, as well as chief engineer of National Semiconductor (M), engineering group head for Sony Corporation (M) and engineering director of Flextronics Technology (M). He manages a team of 14 engineers from various multinational companies including Sony, Nortel, Motorola and Intel.

Catalyst #5: Strong financial metrics. The following are the strong metrics for 2007,2008, 2009 and 2010 (estimate) -
Gross margin (%) 31.4 / 32.7 / 38.2 / 43.7
EBITDA margin (%) 27.3 / 28.6 / 34.7 / 40.4
Net profit (RM million) 20.1 / 21.7 / 39.2 / 58.0

Major Shareholders: (%)
Lee Kah Kheng 17.2
Dennis Chuah 15.8
Al Yousuf LLC 15.0
Emirates Investment & Development Co 6.55
Chng Kong San 5.8

Following its attractive 2 for 1 bonus in October last year, the share price went on a sharp correction from 84 sen to nearly 40 sen. That could largely be due to over-exuberance buying prior to the bonus and possibly coincided with a sell down by Emirates Investment & Development which used to hold a lot more than just 6.5%. That out of the way, I see ETI regaining their lost ground in the coming weeks.

Catalyst #6: Potential New Market Leader - The New Economic Model will likely also be the over-arching theme for the Tenth Malaysia Plan (10MP) to be launched in June 2010. The New Economic Model is “aimed at shifting onto a high growth path and high income economy, driven by creativity, innovation and high value-add services”. We believe the plans include: 1) Value-added manufacturing; 2) Higher value services; 3) Renewable energy. The concepts will be more attractive to smaller listed companies as the net effect on them will be greater. Safe to say that ETI will be one of the main beneficiaries, and judging from their volume breakout, ETI could very well be the new market volume leader if a rally based on the New Economic Model comes into fruition.

The risks to ETI is that many of their ventures are still in the early stages, which can go nowhere or elevate their earnings platform positively. That is part and parcel of investing in small caps, but it looks good considering its debt free, profitable and with numerous catalysts in the pipeline.


p/s photos: Ririn Dwi Aryanti



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.