Insurance Sector New Rule by BNM

Under the latest Bank Negara compliance issue, foreign insurers listing in Bursa Malaysia requires a 30% shareholding by local investors. In the report below by CIMB, they view that we would likely see IPOs coming in for large cap insurance companies such as AIA, Great Eastern and Prudential coming into the market.

They would be required to open up their holdings to local investors let it be retail or institutional.

Another alternative would be seeing more and more M&A activities happening. Nothing much to recommend here but its a good head up for now.

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Guocoland Taking the Turn Higher?

If you look at iSaham’s data (click for link) and sort if by 3 year revenue growth, one of the biggest would be GUOCO which currently sees very little movement on its stock price.

Based on the chart, a very strong support can be seen at RM 1.10 and merely the recent turn up might be a good sign to buy. The good thing about this chart is that there are plenty of support while resistance merely has one that is significant which is at RM 1.41.

We haven’t back check the facts on where iSaham get the numbers for revenue growth but the estimate should fair just right for now.

We think that this stock isn’t something that would move rapidly but more like a 2018 story. We suggest that you could start acquiring now or wait for weakness depending on your risk appetite. It would definitely take awhile before markets begin to revalue the stock.

In the meantime, keep this in your watchlist!

What Stocks have Foreigners Been Buying?

Take a look at Credit Suisse’s latest report on a summary of What Stocks have Foreigners Been Buying in Malaysia.

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Biggest increase in foreign shareholding:-

1. Malaysian Airports, +13.7pp
2. Gamuda, +8pp
3. Maybank, +5.4pp
4. CIMB, +4.8pp
5. Sime Darby, +2.7pp

Reduced Foreign Holding:-

1. Air Asia, -9.6pp
2. Karex, -3.0pp
3. Tenaga, -2.4pp
4. IOI, -0.5pp
5. Telekom, -0.5pp

Price Ceiling or Fixed Price for Petrol?

You might have already known that starting end of this week, the government would be introducing a price ceiling with a weekly revision for petrol prices at the pumps. Either its weekly or monthly, I believe that the effects are the same for petrol operators with high turnover on their inventory. Having too much inventory opens up pricing risk for an operator and this needs to be managed well.

Likely for the first months or so, petrol stations would follow the price ceiling set by government just to be safe than sorry. But as the months go by, some operators who are bigger and has a higher turnover might be more daring to tweak their margin in order to fulfill more sales. It takes one station to start adjusting prices somewhere on a congested road and you might see stations along the way adjusting their prices to compete as well.

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In the future, this might turn into a familiar sight in front of petrol stations showing current selling price.

Deriving Price at Pumps

To derive prices that we are paying for at the pumps, the mathematical formula comes out to something like this.

Price at Pumps  = MOPS + Oil Company Margin + Petrol Dealer Margin

MOPS stands for Mean of Platts which is denominated in SGD (that’s why you see petrol going higher when ringgit weakens)

Oil Company Margin is likely going to be standardized but for bigger petrol station operators, a bulk discount might be offered when a station buys up the full content of a refueling tanker. A station operator might pass this benefit down to customers.

Petrol Dealer Margin is where the magic happens. This would be fully adjustable to the operators’ preference.

So Fixed vs Ceiling?

In economics, we try to promote competition among retail to derive the best equilibrium price possible which benefits the economy as a whole. This is why we felt that having a price ceiling mechanism would benefit consumers in the long run.

Moreover, petrol companies would need to step up their game to sell more products to stay on top. Clearly the price ceiling mechanism is a way the government passes the ball on to the petrol companies to provide lower prices to the public rather than re-introducing subsidies in the short term. Obviously, we have yet to know if subsidies would be returning when oil rallies again.

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From the illustration above, if the petrol retailer is selling below the ceiling price, it definitely benefits the consumer as you can see the lower prices creates consumer surplus. Eventually the excess demand shows as well that retailers would be able to sell more and lower margins could by offset by a higher volume on sales.

Let’s see what happens to the petrol retailers and the fight that would likely rage between oil companies. Our local Petronas could finally go against the internationals like Shell and Caltex fighting it out in the open market.

But for now, we should welcome the price ceiling mechanism starting end of this week then!