Maybank Reviews Malaysian Automotive Sector

The outlook is still positive but we aren’t that optimistic towards this sector for 2H 2017. From the lack of new models and only the arrival of face-listed ones, we see that this segment still lacks catalyst for the time being.

Unlike Q4 of 2014 where most preferred brands such as Honda, Toyota and Perodua released multiple new models and big cuts to push out old models. It is hard for that period to come back which makes us ponder when should we buy undervalued automotive counters.


CIMB Downgrades Malaysian Banks

The argument for the downgrade refers to the implementation of Malaysian Financial Reporting Standards (MFRS) 9. Somewhat similar to CET1 ratio, the provision methodology would change under MFRS 9.

It was estimated that under MFRS 9, it would negatively impact the net profit of banks in the future.

See the full report below including sensitivity analysis of respective banks.


Investment into Macau Gaming

You might be wondering how we went from insurance into Macau gaming. A little of that was my mistake when I decide to clear out our holdings before going into May, mainly on the fear that we are likely going to see a correction with such aggressive rise in the Hang Seng index for the year. Indeed divesting from Ping An seems to be a bad mistake and there’s no point chasing the stock at the current.

But since our cash holding in HKD isn’t invested and performing and that’s a bad sign. It accounts for a large portion of our portfolio and we need to be invested in something to avoid underperformance of our overall fund. Most of the index related stocks such as financials had followed the rise of the Hang Seng Index. Finally, we are left with the non-index related stocks such as technology and gaming.

Why Gaming?

In a survey ran by Credit Suisse, over 70% of the respondents from China said that in the next 6 months or so, they would be going on tours. 70% is the highest number compared to 56% coming in 2nd saying that they would consume more dairy products.

Due to the population size of China with only a 7% holding passports, if 1% of these passport holders visit Macau is already close to 1 million people. It is expected as well that the demand for tourism would likely come in during the October Golden Week where most of China closes for a week and celebrates their national day.

Obviously we would love to invest directly onto tourism companies but valuations are high with the likes of CTrip or Tuniu both listed in the NYSE.

At the moment, Macau gaming would be the less crowded trade and it is likely that the inflow of tourist would be high due to a couple of reasons:-

  • Investigation into corrupt Chinese individuals doing money laundering activities in Macau casinos had tapered off
  • As a wakeup call Macau casinos had begun addressing mass market tourism rather than VIPs
  • Stock price had corrected and now it’s in line with expectation of zero growth from the VIPs
  • Macau should be the ‘easy’ destination due to geography, currency and language for Chinese tourist
  • China has no casino and only lotteries for gambling activities except for its Special Administrative Region of Macau but Chinese people are hard wired to gambling itself

It seems though this is the right trade with most of Macau stock still trading cheaply in terms of their long-term average. Earnings had declined compared to the past few years and we would be paying a price to earnings ratio of around 25 – 30 at the current moment which is the same premium before the VIP crackdown in Macau. The high premium paid is fair with the respect to higher levels of mass market pouring into the region. VIPs come and go but mass market continues to flow in growing year on year.

The Chinese government in cities near to Macau are complementing with the growth of visitors into Macau. The demand of road capacities leading into Macau are upgraded from new planned roads to new bridges, these infrastructure spending would bring in more people especially from the mass market segment.


HZMB stands for Hong Kong Zhuhai Macau Bridge which would also bring people directly from the Hong Kong international airport.

From the list of Galaxy Entertainment, SJM International, MGM Macau, Melco Int. and Sands China. Melco and Sands are the only two companies with casinos catered specifically for the mass market. Melco Int. built its iconic Studio City or better known as the building with a Ferris Wheel in the middle to attract more visitors. Stock price of Melco International rose 100% since its opening of Studio City.


The rise in the revenue for mass market had also been solid and rising steadily and we shall see more development ahead such as mass-market specific hotel rooms by all the operators in Macau.

There is this saying where it goes “build it and they will come”. Indeed this hypothesis had been proven for the mass market segment seeing how successful Studio City is compared to Galaxy Phase II which still focuses on luxury.

Why Sands China?


Sands had always been the name when it comes to mass market where almost 70% of its revenue are derived from mass market. The company’s stock price also went on a major correction when VIP segment gaming revenue did not pour into the city. Obviously mass market deteriorated slightly but the sell down might have been overdone for Sands China.

The infrastructure changes and internal structural change for Macau would likely contribute the most to Sands’ underperformance. With more and more headcounts coming into Macau, it is only a matter of time occupancy rate increases together with higher growth in gaming revenue.

Sands’ portfolio is very diversified where it can capture visitors of every segment since we are keeping our eyes on quantity addition. It also provides a 5-6% dividend yield which is good at such low interest rate environment now.

Sands’ trades less expensive compared to Galaxy Entertainment which is most research houses’ top pick. The reason behind being Galaxy still has plenty of land to develop (up to phase 4). It just opened its phase 2 last year but the reception was lackluster. Since we are looking at an investment horizon of 9 months we would disregard Galaxy from our stock pick. Enjoy the rise at the moment and we will revisit the Macau’s casino performance for another evaluation in the month of October when the revenue from Golden Week pours in.

CIMB Assumes Coverage on Bumi Armada

Such a long report for Bumi Armada by CIMB.

Click for Link



Our Take

Bumi Armada is really one of the best there is for the oil and gas sector. We like it more than Sapura Energy due to its balance sheet. But of course, Sapura Energy would gain the most from the spillover from Petronas and likely most sensitive to oil price movements. Nevertheless, if you believe in oil this is a cheap counter to acquire at the moment.

TUNEPRO after 1st Quarter 2017

Well the image below was the highlight yesterday for Tune Protect and the ‘big tie up’ seems to have propelled the stock upwards by almost 10%. However, after the market closes, the earnings report was out and it really disappoints and market opens today with a big fall.


What are Our Thoughts?

Indeed, no doubt downright bad earnings but we couldn’t be happier. Why?

We think that the rally from the ‘big tie up’ announcement had gone overboard. Announcing a tie up between Tune Protect and Air Asia couldn’t or shouldn’t create such a surprise since both typically have the same boss/shareholder and one’s goal isn’t going to leave the other entity dead. So, it is to no surprise that a tie up like this is bound to happen in the end.

Air Asia had been carrying Tune Protect behind its back for a while. Again to no surprise that this trend continues and a 10% sharp rise doesn’t justify this collaboration. You can argue that the tie up creates synergy and increases the likelihood to create higher revenue growth for Tune Protect but like what we said earlier, this is bound to happen. As an investor, we have known or should have knew about this the first time we put money in to this company.

The stock price drop today creates the opportunity for us to collect more which in our view the long-term goal for Tune Protect is still intact. We have collected some after ex-dividend and today’s drop at around 7% seems fine to continue adding. Business is still an infant and with the right investment into marketing and brand awareness it is set to grow.

What’s Coming?

As what we said in our previous review, this is still a very small insurer but the prospects that it brings are just tremendous. Although travel insurance still plays a huge role in squeezing profits for the company, we urge investors especially the new ones looking to put money into this company to take a longer-term view. Something like a 3 – 5 years horizon perhaps!

Think out of the box rather than just Air Asia piggy backing the whole company. Think in the modern digital terms of business where people just love everything that is just a tap or a click away. Convenience leads the way in today’s world as people are somewhat lazy.

With such a small premium that customers pay, people tend give in less thought when buying it. Recently, issues with delayed baggage on flights are getting a little severe and RM26.25 is what it takes to give me a peace of mind. Already paying RM8,000 trip to Japan, adding RM26.25 isn’t going to quite eat up my total budget which just feels awesome!


It is small fees like these that keep the buy rate high and the claim rates low. Actuarist on the backend had done their math and risk had been calculated accordingly. Historically, the claims rate had been around 5% and it is likely to stay at such levels even when business grows two or three folds.

A plus factor that we saw was the reinsurance license for takaful or known as retakaful that was approved not long ago. Reinsurance business is important for an insurance company, we should see a new stream of income from retakaful in the future. There aren’t many retakaful players in the world and this should turn out to be more promising when income doesn’t only come from everyday customers like you and me.

Talking about the world, Malaysia is only one country with 30 million people living in it. The population in the whole of South East Asia exceeds 600 million and that has huge potential to be tapped on. That is why being the front runner has its advantage and digital insurance can cater to almost anyone who are connected to the net.

What We Think Tune Protect Can Do?

A positive factor that we saw was the growing number of Tune Protect branches. Over the last couple months, we kept seeing more and more ‘Tune Protect Pejabat Wakil Insurans’ coming up and that’s a good thing.

Having that many offices creates awareness to the public on the existence of the company. Furthermore, the idea of having a physical offices remove the question of ‘where should I go when I need to claim?’ even though everything had gone digital including claims. But this was the first thing we asked ourselves before buying. Having a physical office nearby ensures that customers remove the invisible barrier and commit to buy the insurance online. It is some of those things that we human beings are hard wired to!

Adding this with the right marketing rather than just sitting as a byproduct on the online ticketing site for Air Asia, this could make the public aware that it isn’t protecting your only when your fly. There are other insurance plans offered as well by Tune Protect.

We’ve downloaded the App and shockingly it doesn’t seem that stable until we gave up even before the payment page came out. We went back to the site on a PC instead as we do not like to pay on mobile browser or on some clonky application.

How Much Time Is Spent On Social Media(1).png

The mobile application purchases should be emphasized if the company plans on going fully digital. There aren’t that many people equipped with PCs these days but smartphone penetration had achieved something like 90%. A faster way to purchase the insurance offered could be the key in attracting returning customers.

A quick tap sitting on the airport waiting lounge makes all the difference. With more simplified payment system in place, this process could be shortened further.

We always keep our sights on the prize at the end and we think that digital platforms could ruin conventional insurance underwriting. That is why we are invested in this company determined as a new economy stock in our portfolio.