Who should EPF choose - Maybank or CIMB?

Written by Chris Ng

There is no right or wrong answer to this question. Of course, the rule of thumb, the winner should technically be the highest bidder.

Let's ignore the pricing consideration for the moment, let's look at another perspective - the ultimate shareholding of the combined entity.

The facts are as follows:

- CIMB is owned by Khazanah Nasional Berhad (KNB) - 28.6% & EPF (12.4%) shareholding (market cap: USD20.6 billion)

- Maybank is owned by PNB (including its funds) - 56% & EPF (11.02%) (market cap: USD22.1 billion)

- RHB is owned by EPF - 45%, PNB - 3.6% shareholding (market cap: USD6.7 billion)

- Let's assume purchase consideration for the takeover is priced at current market value of RHB.

- Let also assume (for simplicity) - no rights issue by the acquiring bank

- Let's also also assume (for simplicity) that the transaction is satisfied purely by issuance of equity (no cash) by the acquiring bank

Source : The Star Online

Scenario A - Maybank takeovers RHB

The expected shareholding structure of the merged entity, Maybank-RHB:

a. PNB = (56.7% x 22.1 + 3.6% x 6.7) / (22.1+ 6.7) = 44%

b. EPF = (11.02% 22.1 + 45% x 6.7) / (22.1+ 6.7) = 19%

Scenario B - CIMB takeovers RHB

The expected shareholding structure of the merged entity, CIMB-RHB:

a. Khazanah - (28.6% x 20.6) / (20.6 + 6.7) = 22%

b. EPF - (12.4% x 20.6 + 45% x 6.7) / (20.6 + 6.7) = 20%

Our Final Thoughts

- If I am EPF, I will give serious thoughts for CIMB to takeover RHB, as I am controlling a strategic stake of 20%, which is just marginally lower than Khazanah's shareholding. As such, if I am EPF, I can still exert control over the merged entity through both shareholding and board representation.

- In contrast, if Maybank is to takeover RHB, as EPF, I will not be able to exert much control, as my shareholding stake in the merged entity is significantly below that of PNB.

DISCLAIMER: This article is not an invitation to buy or sell. It is only for educational purpose, this does not represent an investment advisory service. 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. Furthermore, the information presented in this article or this blog have not been independently verified and are subject to inaccuracy. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. The author may own shares in the company. Kindly consult your investment adviser before making any investment.

Project Monitoring where the Project Financing comes from a Term Loan

Written by Milan Choo

You may come across a situation where the financing of the project of your Company comes from a term loan. The term loan may exist before the commencement of project, or that it may also exist after the project has started. Once the financing of the project comes from term loan, i.e. the banker, it would be important to have proper project monitoring, as follows:

* Project progress – the progress of the project needs to be carefully monitored. Most of often the progress would be directly monitored by the Project dept. Finance department, on the other hand, would need to keep an eye on whether the progress is on schedule. The reason being typically there is a drawdown period for term loan – if the progress of the project is delayed, the Company would not be able to drawdown the full budgeted amount during the period where the term loan is available for drawdown. Further, there is always a clause in the loan agreement that spells out imposition of penalty should there be any shortfall of drawdown amount vs the budgeted amount

* Supporting doc of project – The supporting doc of project that is used to submit to the Banker needs to be properly checked. Bankers would typically specify the requirements on types of documents that they need in order to allow for drawdown. As such, this aspect needs to be complied with

* Project visit by Banker – Banker would want to pay a visit to the Project site to understand how the project has been going on. If the project is running smoothly then there is not much to be worried about. However should there be any delay of the project, the Finance team would need to engage the Engineers up front, understand the reason for the delay and come out with a strategy on matters such as how to deal with bankers, how to present to banker during the site visit.

How can Beyond Solution Malaysia assist you?

* Speak to us if you would like to know further about financing solutions.

Amendment to Financial Reporting Standard 108 Accounting Policies, Changes in Accounting Estimates and Errors

Researched by Milan Choo

An entity shall apply the Amendment to FRS 108 for annual periods beginning on or after 1 January 2010. Earlier application is permitted.

Paragraphs 7, 9 and 11 are amended (new text is underlined and deleted text is struck through).

Accounting Policies

Selection and Application of Accounting Policies

7. When an FRS specifically applies to a transaction, other event or condition, the accounting policy or policies applied to that item shall be determined by applying the FRS. and considering any relevant Implementation Guidance issued by the MASB for the FRS.

9. FRSs are accompanied by guidance to assist entities in applying their requirements. All such guidance states whether it is an integral part of FRSs. Implementation Guidance that is an integral part of FRSs is mandatory. for Standards issued by the MASB does not form part of those Standards, and therefore Guidance that is not an integral part of FRSs does not contain requirements for financial statements.

11. In making the judgement described in paragraph 10, management shall refer to, and consider the applicability of, the following sources in descending order:

(a) the requirements and guidance in FRSs dealing with similar and related issues; and

(b) the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Proposed Framework.

(Source: http://www.masb.org.my/images/stories/New_FRS/ImprovementFRS108_15Sept09.pdf)

How can Beyond Solution Malaysia assist you?

* Speak to us if your business requires outsourced accounting services.

What should you watch Out in a Letter of Offer/ Loan Agreement from Bank Before Accepting

Written by Milan Choo

The key points – when you receive a letter of offer/ Loan agreement, whether it is related to trade line/Forex line/loan/other financing products from the Bank, you should always take note of the 2 factors below:

1) Pricing & Flexibility

Pricing, in simple term, is the cost of financing charged by the Bank. You need to be aware of the market rate, and be sure that the pricing that you get is competitive for your Company. Obviously the pricing that you get will to a very large extent depend on your bargaining power, i.e. how important are you from the Bank’s point of view. Having said that you should always try to negotiate, you never know – you may get a better pricing after negotiation.

Flexibility – this would very much relate to the covenants. You need to peruse the covenants very careful and ensure that it does not impose too much of a restriction on you. You may encounter some clauses that compel you to obtain the consent from the Bank before you can proceed with certain matters – and hence you need to consider if you need this clause to be remove, or at the very least, modify it so that instead of requiring the Banker’s consent, you merely need to notify the Banker.

How can Beyond Solution Malaysia assist you?

- Speak to us if you require assistance with the preparation of business plan for the purpose of sourcing and raising debt and equity financing.

How to Prepare Trade Finance Documentation

Written by Milan Choo

Preparation of trade finance documentation for purpose of submission to banker is generally not difficult as compared to the “pre-work”. After the “pre-work”, you would already know what are the terms and conditions such as selling price of product, estimated time of departure, estimated time of arrival, quantity of product, and so on.

Very often, it is the “pre-work” that kills.

“Pre-work” is a stage where you negotiate for various terms, be it prices, quantity, or shipping terms – with your supplier or customer. If you were the supplier, you may prefer FOB shipment terms because that means lesser hassle to you, but the customer may want CIF as shipping terms. So the question arises now as to how do you come to term with that.

In some cases, if you were the customer, you may want extended warranty for the product that you decide to ship in; and as supplier, you may want a bank guarantee/ standby letter of credit from your customer before you decide to confirm the deal.

Hence, if you pay attention to the “pre-work” and settle it smoothly, the preparation of trade finance documentation should be a breeze to you.

How can Beyond Solution Malaysia assist you?

- Speak to us if you want to inquire further in relation to trade finance processes.

Q&A with Damian Glendinning, Treasurer, Lenovo

Extracted by Adelyn Thum

Source: http://www.gtnews.com/article/8334.cfm

Damian Glendinning, Lenovo - 03 May 2011

Damian Glendinning, treasurer of Lenovo, outlines the main issues he faces running a treasury centre in Asia-Pacific.

Q (gtnews): Could you outline your organisation's global cash management structure in terms of cash management techniques, treasury headquarters and banking relationships, etc?

A (Damian Glendinning, treasurer, Lenovo): We have a highly centralised structure. Outside China, all our national subsidiaries buy their goods from a central re-invoicing entity in Singapore. This means that the trade payables due to the re-invoicing centre become the main source of funding for the national subsidiaries. It also means that, as soon as any cash is collected in any country, it is paid back to Singapore as settlement for part of the outstanding goods invoices. This provides us with a highly efficient natural and physical cash pooling. We have a separate pooling process in China, which cannot participate in the re-invoicing centre, for a variety of reasons. There, all the cash is swept daily into a centre in Beijing, and a series of intercompany entrust loans are created. Outside China, we have been successful in keeping the number of legal entities in each country to one, with few exceptions. This means we have been able to limit the number of banks we use for cash management - in fact, we use a single bank as our worldwide cash management bank. This brings several efficiencies - one of the main ones being that we do not need to buy a treasury management system to manage transfers between banks, and we do not need to use SWIFT to make this process more efficient. All our information already resides in one place and is based on the same system.

Q (gtnews): What does your typical day as a treasurer involve? Could you describe some of your key responsibilities?

A (Glendinning): The great thing about treasury is that no two days are alike. Each one brings a series of fresh challenges. When I am asked what my main responsibility is, I usually respond - only half jokingly - that it is to make sure that payroll gets paid. A good and efficient operation, with adequate cash to make sure all liabilities can be met, is the essential foundation for everything else we do. So I pay a lot of attention to our daily cash report - which we send to all our senior management - and the weekly updates on where we stand in terms of our cash conversion cycle. I am responsible for setting the targets for days sales outstanding (DSO), days inventory outstanding (DIO) and days payable outstanding (DPO), and tracking how the teams are doing. After that, a key responsibility is managing our foreign exchange (FX) positions and hedging programmes. We produce a series of daily reports, which are sent out to the operating units, and I go through these every day. The other key areas of responsibility are pensions, credit, risk management and insurance, and negotiating our funding when the need arises. The amount of time spent on each one of these items varies, as they tend to see peaks of activity - I am fortunate enough to have a very capable team that handles them, with a strong preference for a minimum of interference from me. In addition, of course, we spend a lot of time with our bankers. It is always important to maintain good relationships, and treat your bankers as partners. We need to get the best conditions, of course, but it is important to know who you can count on when you need something.

Q (gtnews): What are your main challenges? For example, what's on your treasury wish list?

A (Glendinning): Every day is a different challenge. Different crises come and we find a way of dealing with them. My biggest concern at the moment is complacency. One of the paradoxes of risk management is that, if you do it too well and avoid significant problems, people tend to assume that there was no risk and get complacent. This leads to a general concern I have for treasury as a whole and for our economies: as we recover from the crisis, I am not sure we have all taken the lessons fully to heart. One of the lessons from the crisis was that you should get in place solid funding arrangements while times are good - once the crisis hits, it is too late. Now is the time we should all be putting in place rock solid funding foundations, to be ready for the next storm. But I see too many organisations that are unwilling to incur the extra expense this basic form of insurance requires - why spend money for funding when times are good and we don’t need it? The main item on my treasury wish list would be to get full straight-through processing (STP) in our transactions with banks - including the handling of payables and receivables. Some progress is being made, but this is still far too painful.

Q (gtnews): As a Singapore treasury and operating in the computer industry, are there any tax, legal or regulatory issues that you need to be particularly mindful of when it comes to the company's cash management?

A (Glendinning): Every industry has its specific areas where regulators are more inclined to look at things. But generally, the computer business is a high volume industry with many transactions. Most of what we do is classified as goods: this avoids some of the tax and currency control issues which come with cross-border services activities and all the related withholding tax issues. Generally, we have managed to keep things simple from a regulatory and tax point of view - this makes it much easier to remain in full compliance. Again, with everything being based on goods flows, we are also able to avoid a lot of the complexity that goes with intercompany loans. As a location, Singapore has an excellent infrastructure. All the banks have significant operations here. There are no exchange controls and the regulatory environment is very efficient and business friendly.

Q (gtnews): What steps are you taking in 2011 to make your treasury more efficient?

A (Glendinning): I like to think we already have a pretty efficient operation. Of course, this does not mean we cannot improve. Our main focus is going to be on getting the benefits out of a new enterprise resource planning (ERP) system we are installing. This will make it possible for us to go after a higher STP percentage on our receivables - there was no point investing in a system we knew we were going to be replacing. In addition, we will continue to work to reduce the number of spreadsheets.

How can Beyond Solution Malaysia assist you?

- Speak to us in relation to business planning and management consulting services. Visit us at www.beyondsolutionmalaysia.com

Improving Disclosures about Financial Instruments (Amendments to FRS 7)

Researched by Milan Choo

Main features of the FRS

IN5A Amendments to the FRS, issued in March 2010, require enhanced disclosures about fair value measurements and liquidity risk. These have been made to address application issues and provide useful information to users.

Paragraph 27 is amended (new text is underlined and deleted text is struck through). Paragraphs 27A and 27B are added.

Significance of financial instruments for financial position and performance

Other disclosures

Fair value

27 An entity shall disclose for each class of financial instruments:

(a) the methods and, when a valuation technique is used, the assumptions applied in determining fair values of each class of financial assets or financial liabilities. For example, if applicable, an entity discloses information about the assumptions relating to prepayment rates, rates of estimated credit losses, and interest rates or discount rates. If there has been a change in valuation technique, the entity shall disclose that change and the reasons for making it.

(b) whether fair values are determined, in whole or in part, directly by reference to published price quotations in an active market or are estimated using a valuation technique (see paragraphs AG71–AG79 of FRS 139).

(c) whether the fair values recognised or disclosed in the financial statements are determined in whole or in part using a valuation technique based on assumptions that are not supported by prices from observable current market transactions in the same instrument (ie without modification or repackaging) and not based on available observable market data. For fair values that are recognised in the financial statements, if changing one or more of those assumptions to reasonably possible alternative assumptions would change fair value significantly, the entity shall state this fact and disclose the effect of those changes. For this purpose, significance shall be judged with respect to profit or loss, and total assets or total liabilities, or, when changes in fair value are recognised in equity, total equity.

(d) if (c) applies, the total amount of the change in fair value estimated using such a valuation technique that was recognised in profit or loss during the period.

27A To make the disclosures required by paragraph 27B an entity shall classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the following levels:

(a) quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);

(b) inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (ie as prices) or indirectly (ie derived from prices) (Level 2); and

(c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety shall be determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.

27B For fair value measurements recognised in the statement of financial position an entity shall disclose for each class of financial instruments:

(a) the level in the fair value hierarchy into which the fair value measurements are categorised in their entirety, segregating fair value measurements in accordance with the levels defined in paragraph 27A.

(b) any significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for those transfers. Transfers into each level shall be disclosed and discussed separately from transfers out of each level. For this purpose, significance shall be judged with respect to profit or loss, and total assets or total liabilities.

(c) for fair value measurements in Level 3 of the fair value hierarchy, a reconciliation from the beginning balances to the ending balances, disclosing separately changes during the period attributable to the following:

(i) total gains or losses for the period recognised in profit or loss, and a description of where they are presented in the statement of comprehensive income or the separate income statement (if presented);

(ii) total gains or losses recognised in other comprehensive income;

(iii) purchases, sales, issues and settlements (each type of movement disclosed separately); and

(iv) transfers into or out of Level 3 (eg transfers attributable to changes in the observability of market data) and the reasons for those transfers. For significant transfers, transfers into Level 3 shall be disclosed and discussed separately from transfers out of Level 3.

(d) the amount of total gains or losses for the period in (c)(i) above included in profit or loss that are attributable to gains or losses relating to those assets and liabilities held at the end of the reporting period and a description of where those gains or losses are presented in the statement of comprehensive income or the separate income statement (if presented).

(e) for fair value measurements in Level 3, if changing one or more of the inputs to reasonably possible alternative assumptions would change fair value significantly, the entity shall state that fact and disclose the effect of those changes. The entity shall disclose how the effect of a change to a reasonably possible alternative assumption was calculated. For this purpose, significance shall be judged with respect to profit or loss, and total assets or total liabilities, or, when changes in fair value are recognised in other comprehensive income, total equity.

An entity shall present the quantitative disclosures required by this paragraph in tabular format unless another format is more appropriate.

Paragraph 39 is amended (new text is underlined and deleted text is struck through). Paragraph 44G is added.

Liquidity risk

39 An entity shall disclose:

(a) a maturity analysis for non-derivative financial liabilities (including issued financial guarantee contracts) that shows the remaining contractual maturities.; and

(b) a maturity analysis for derivative financial liabilities. The maturity analysis shall include the remaining contractual maturities for those derivative financial liabilities for which contractual maturities are essential for an understanding of the timing of the cash flows (see paragraph B11B).

(c) a description of how it manages the liquidity risk inherent in (a) and (b).

Effective date and transition

44G Improving Disclosures about Financial Instruments (Amendments to FRS 7), issued in March 2010, amended paragraphs 27, 39 and B11 and added paragraphs 27A, 27B, B10A and B11A–B11F. An entity shall apply those amendments for annual periods beginning on or after 1 January 2011. An entity need not provide the disclosures required by the amendments for:

(a) any annual or interim period, including any statement of financial position, presented within an annual comparative period ending before 31 December 2011, or

(b) any statement of financial position as at the beginning of the earliest comparative period as at a date before 31 December 2011.

Earlier application is permitted.

(Source: http://www.masb.org.my/images/stories/New_FRS/AmendFRS7_19Mar2010.pdf)

How can Beyond Solution Malaysia assist you?

- Speak to us if you require outsourced accounting services.

Why CFO of Sozo Global Ltd Resigned?

Written by Chris Ng

Sozo Global Ltd, an export driven one-stop gourmet food specialist from Shandong, China, aims to use Malaysia's strategic position to become a global exporter in the halal food segment.

The company commenced operations in August 2005. It is a

one-stop gourmet convenient food specialist. Among the products produced by the Group

includes ready-to-serve (RTS) food, frozen vegetables, and canned food.

The Company is also recognised as the largest manufacturer of cooked duck meat products for

export purposes in the Shandong Province and since its inception, it has continuously strived to

expand its product offering. Today, it produces more than 1,000 types of products which are

exported to developed countries such as Japan, USA, and Korea.

Sozo was listed on Bursa Malaysia on 17 December 2010 at IPO offer price of RM0.80. Currently the share is trading below its IPO price of RM0.745 (1 June 2011).

On 31 May 2011, Mr Pang Wei Pin has resigned as the Chief Financial Officer of the Company. As per the Company's prospectus, the following is the profile of Mr Pang:

Why would the CFO of a recently listed company like Sozo resign just 5+months after listing?

It certainly does NOT give the right signal to the market, when your CFO had just resigned. Some of example cases where the resignation of CFOs seem to point to potential problems with their companies:

1. Borders

http://www.dailyfinance.com/2010/08/23/borders-cfo-mark-bierley-resignation/

2. Longtop

http://news.ichinastock.com/a/1306162783041.html

3. American Tissue

http://www.cfonet.com/article.cfm/3000917?f=related

The comforting point is that the latest quarter financial results of Sozo seem to suggest everything is alright, with Sozo recording RM86 million in revenue and PAT of RM25 million (beating preceding year's quarter).

Hopefully that they can find a good replacement soon.....a delay in getting a replacement may impact on the share price.

How can Beyond Solution Malaysia assist you?

- Speak to us in relation to unit trust investment opportunities.

DISCLAIMER: This article is not an invitation to buy or sell. It is only for educational purpose, this does not represent an investment advisory service. 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. Furthermore, the information presented in this article or this blog has not been independently verified and are subject to inaccuracy. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. The author may own shares in the company. Kindly consult your investment adviser before making any investment.

Parrots Are Really Smart.....

Compiled by Chris Ng

Talking Parrot

Acrobatic Parrot

Singing Parrot

Dancing Parrot

Swearing Parrot

News Update - Malaysia falls six places in competitiveness

Extracted by Chris Ng

Source: The EDGE Daily - 19 May 2011

News Update

- Malaysia has fallen 6 places in global rank of competitiveness at 16th spot for year 2011.

- y-o-y declines in business legislation, institutional framework, international investment and finance

- challenges for Malaysia is to find new growth sources and modernise business regulations

- retainment of world class talent is priority, along with enhancement of technological infrastructure and R&D

- biggest declines were from growing inflation and lower current account balance

- Hong Kong and US shared the top ranking, whilst Singapore has dropped from 1st to 3rd place.

Our Final Thoughts

- Malaysia need to implement the economic transformation initiatives soonest possible

- Stop all "talk but no actions"!

What Factors To Consider When Setting Up A New Company - Finance Department Perspective?

Written by Milan Choo

When you start up a new Company, from the accounts department perspective, you need to consider the following:

1) Chart of Accounts – This relates to the framework, creation of accounts code, and allocation of the accounts code to the underlying transactions

2) Accounting Systems and Software – You need to have a clear mind on what accounting software to obtain, and it needs to cater to your business needs and future plan of your company.

3) Staff Resources – You need to get staffs on a progressive basis. If you already have another existing company in place, you may want to hire the staff, train the staff under existing company, and then when the new Company is ready to run, transfer the staff to the new Company

4) Mission – Mission statement needs to be in place to guide the direction of the department

5) Policy and Procedures – Standard Operating Procedures need to be set up.

6) Selection of auditors

How can Beyond Solution Malaysia assist you? Speak to us if you require outsourced accounting services. Visit us at www.beyondsolutionmalaysia.com!

How much would Maybank or CIMB pay for RHB?

Written by Chris Ng

Read this article from the Malaysian Insider:

http://www.themalaysianinsider.com/business/article/faced-with-criticism-bank-negara-chief-mum-about-rhb-sale/

"PUTRAJAYA, June 19 — Bank Negara governor Tan Sri Zeti Akhtar Aziz has declined comment on the central bank’s new and unusual conditions imposed in the sale of the RM5.9 billion sale of a 25 per cent stake in RHB Capital Bhd between two Abu Dhabi sister firms.Bankers have likened to the beginnings of a “nanny state” in the banking sector and say the bank should remain as regulators.“I’m not going to comment on individual banks,” she told The Malaysian Insider today when asked her response to mounting criticism to the move. The Malaysian Insider had earlier reported puzzling requirements by the central bank, including for Abu Dhabi Commercial Bank (ADCB) and new RHB shareholder Abu Dhabi investment fund Aabar Investments to adjust the sale price if the merger price is lower than the RM10.80 per share price agreed by both companies and the merger must not deviate too far from the market price so as to weaken the merged entity.The Malaysian Insider understands that after the deal was signed on Friday, Bank Negara sent a series of harsh emails to ADCB telling them to state the conditions imposed by the central bank in their press releases, which some bankers say is an aggressive and unusual intervention for such a matter.The country’s two biggest banks — CIMB Group Holdings Bhd and Malayan Banking Bhd (Maybank) — have won separate Bank Negara approval to begin competing merger talks with Malaysia’s fourth biggest lender RHB Capital, triggering a takeover battle that may create Southeast Asia’s biggest bank. CIMB, led by by Datuk Seri Nazir Razak, is the front-runner for the deal. “This should be a free market transaction. Why the need for the strange conditions,” a banker told The Malaysian Insider on condition of anonymity.“Bank Negara should also allow the new shareholders to decide if they want to support a merger or not. We don’t need a nanny state in banking,” he added.Analysts have said the RHB Capital takeover could be based on a price to book value of 2 to 2.5 times which will work out to between RM9.70 and RM12 per share. Based on RHB’s share base of 2.2 billion shares, any investor buying EPF’s entire stake would have to pay up to RM26.3 billion."

After reading the article, I have been wondering what is the maximum price would MBB or CIMB pay for RHB? Is RM10.80 per share a "deal breaker"? Management of MBB and CIMB have been saying that they will only do the deal if the deal is earnings accretive (i.e the earnings per share, EPS should be higher for the combined entity than the EPS of the standalone acquiring bank).

Based on this presumption, I went to set out a simple merger analysis to compute what is the maximum price that will be offered by both MBB and CIMB (under a 100% share exchange) scenario. My simple analysis is as follows:

My preliminary observation:

In Scenario 1 (MBB merging with RHB), the maximum share price that could be offered under a proposed share exchange is RM11.63 per each ordinary RHB share before the combined EPS of the merged entity fall below RM0.51 per share (i.e the EPS of MBB before it is merged).

In Scenario 2 (CIMB merging with RHB), the maximum share price that could be offered under a proposed share exchange is RM11.90 per each ordinary RHB share before the combined EPS of the merged entity fall below RM0.47 per share (i.e the EPS of MBB before it is merged).

In conclusion, it appears that CIMB has more "room" to play in terms of the purchase consideration. This is mainly due to that the fact CIMB is currently trading at a relatively higher P/E and P/B than of MBB and as such, a share exchange will be more favourable to CIMB.

Do bear in mind that we have assumed following for the simple merger analysis:

1. Mode of purchase is financed purely by share exchange

2. Analysis is based on last audited numbers (FY2010) - should be further updated with the latest numbers

DISCLAIMER: This article is not an invitation to buy or sell. It is only my observation and for educational purpose, this does not represent an investment advisory service. 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. Furthermore, the information presented in this article or this blog has not been independently verified and are subject to inaccuracies. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. The author may own shares in the company. Kindly consult your investment adviser before making any investment.

Amendments to FRS 101: Presentation of Financial Statements

Researched by Milan Choo

Structure and content

Statement of changes in equity

Information to be presented in the statement of changes in equity

106 An entity shall present a statement of changes in equity as required by paragraph 10. The statement of changes in equity includes the following information showing in the statement:

(a) total comprehensive income for the period, showing separately the total amounts

attributable to owners of the parent and to non-controlling interests;

(b) for each component of equity, the effects of retrospective application or retrospective

restatement recognised in accordance with FRS 108; and

(c) [deleted by IASB]

(d) for each component of equity, a reconciliation between the carrying amount at the beginning and the end of the period, separately disclosing changes resulting from:

(i) profit or loss;

(ii) each item of other comprehensive income; and

(iii) transactions with owners in their capacity as owners, showing separately contributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control.

Information to be presented

in the statement of changes in equity or in the notes

106A For each component of equity an entity shall present, either in the statement of changes in equity or in the notes, an analysis of other comprehensive income by item (see paragraph 106(d)(ii)).

107 An entity shall present, either in the statement of changes in equity or in the notes, the amounts of dividends recognised as distributions to owners during the period, and the related amount of dividends per share.

Transition and effective date

139F Paragraphs 106 and 107 were amended and paragraph 106A was added by Improvements to FRSs issued in November 2010. An entity shall apply those amendments for annual periods beginning on or after 1 January 2011. Earlier application is permitted.

(Source: http://www.masb.org.my/images/stories/3011/4Amend_FRS101_26Oct2010.pdf)

How can Beyond Solution Malaysia assist you?

- Speak to us if you require outsourced accounting services.

Important matters on Forex contract Cancellation

Written by Milan Choo

Very often we find Companies engaging with the Banker to hedge their currencies exposure via forex contract. For example, to hedge against their foreign currency sales, the Company would book in forex sales contract; to hedge against their foreign currency purchases, the Company would book in forex purchase contracts.

There are cases where the Company, upon learning that the foreign proceeds/payment will not be forthcoming, have resorted to cancel the forex contract.

The above practice should only be used as a last resort. The reason being that when a forex contract is cancelled, it gives the impression to the Banker, and ultimately the Central Bank, that there is no underlying transaction for the forex contrat to be hedged, and that is why probably you need to cancel the forex contract in the end. This would therefore mean that you are speculating on the forex currencies instead of hedging, and this is certainly not the type of impression that you want to give to your Banker.

As such, cancellation of forex contracts should be viewed seriously. Before any forex contract is cancelled, one should consider other options such as:

a) Extension of forex contract; or

b) Following up with the relevant parties to ensure that the proceeds/payment is forthcoming

How can Beyond Solution Malaysia assist you?

* Speak to us if you want to know more about forex hedging.

Giants Becoming Dinosaurs

Written by Chris Ng

First, we see Nokia (a leader in mobile phone industry), its market share has been gradually reduced by the power of Apple, HTC and other Android-based phone makers.

Next, we see similar fate befalling the biggest Japanese eletronic products maker, Sony which is trying hard to sustain its business growth and long term viability.

Recently, investors are wondering what is wrong with the once-monopoly of computer operating systems, Microsoft, in which its market capitalisation has fallen behind that of Apple and IBM.

Closer to home, we see Malaysia Airlines reporting losses and slowly losing out to Air Asia. Proton is scrambling to maintain its profitable run (through ad hoc strategies, e.g rebadging of Mitsubishi Lancer,etc).

All these companies are once giants but with the rapidly changing forces of the industry and intensifying competition, they are gradually becoming the dinosaurs of the past.....

Nokia

Internal Memo from the CEO of Nokia:

Hello there,
There is a pertinent story about a man who was working on an oil platform in the North Sea. He woke up one night from a loud explosion, which suddenly set his entire oil platform on fire. In mere moments, he was surrounded by flames. Through the smoke and heat, he barely made his way out of the chaos to the platform's edge. When he looked down over the edge, all he could see were the dark, cold, foreboding Atlantic waters.

As the fire approached him, the man had mere seconds to react. He could stand on the platform, and inevitably be consumed by the burning flames. Or, he could plunge 30 meters in to the freezing waters. The man was standing upon a "burning platform," and he needed to make a choice.

He decided to jump. It was unexpected. In ordinary circumstances, the man would never consider plunging into icy waters. But these were not ordinary times - his platform was on fire. The man survived the fall and the waters. After he was rescued, he noted that a "burning platform" caused a radical change in his behaviour.

We too, are standing on a "burning platform," and we must decide how we are going to change our behaviour.

Over the past few months, I've shared with you what I've heard from our shareholders, operators, developers, suppliers and from you. Today, I'm going to share what I've learned and what I have come to believe.

I have learned that we are standing on a burning platform. And, we have more than one explosion - we have multiple points of scorching heat that are fuelling a blazing fire around us.

For example, there is intense heat coming from our competitors, more rapidly than we ever expected. Apple disrupted the market by redefining the smartphone and attracting developers to a closed, but very powerful ecosystem.

In 2008, Apple's market share in the $300+ price range was 25 percent; by 2010 it escalated to 61 percent. They are enjoying a tremendous growth trajectory with a 78 percent earnings growth year over year in Q4 2010. Apple demonstrated that if designed well, consumers would buy a high-priced phone with a great experience and developers would build applications. They changed the game, and today, Apple owns the high-end range.

And then, there is Android. In about two years, Android created a platform that attracts application developers, service providers and hardware manufacturers. Android came in at the high-end, they are now winning the mid-range, and quickly they are going downstream to phones under €100. Google has become a gravitational force, drawing much of the industry's innovation to its core.

Let's not forget about the low-end price range. In 2008, MediaTek supplied complete reference designs for phone chipsets, which enabled manufacturers in the Shenzhen region of China to produce phones at an unbelievable pace. By some accounts, this ecosystem now produces more than one third of the phones sold globally - taking share from us in emerging markets.

While competitors poured flames on our market share, what happened at Nokia? We fell behind, we missed big trends, and we lost time. At that time, we thought we were making the right decisions; but, with the benefit of hindsight, we now find ourselves years behind.

The first iPhone shipped in 2007, and we still don't have a product that is close to their experience. Android came on the scene just over 2 years ago, and this week they took our leadership position in smartphone volumes. Unbelievable.

We have some brilliant sources of innovation inside Nokia, but we are not bringing it to market fast enough. We thought MeeGo would be a platform for winning high-end smartphones. However, at this rate, by the end of 2011, we might have only one MeeGo product in the market.

At the midrange, we have Symbian. It has proven to be non-competitive in leading markets like North America. Additionally, Symbian is proving to be an increasingly difficult environment in which to develop to meet the continuously expanding consumer requirements, leading to slowness in product development and also creating a disadvantage when we seek to take advantage of new hardware platforms. As a result, if we continue like before, we will get further and further behind, while our competitors advance further and further ahead.

At the lower-end price range, Chinese OEMs are cranking out a device much faster than, as one Nokia employee said only partially in jest, "the time that it takes us to polish a PowerPoint presentation." They are fast, they are cheap, and they are challenging us.

And the truly perplexing aspect is that we're not even fighting with the right weapons. We are still too often trying to approach each price range on a device-to-device basis.

The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device, but developers, applications, ecommerce, advertising, search, social applications, location-based services, unified communications and many other things. Our competitors aren't taking our market share with devices; they are taking our market share with an entire ecosystem. This means we're going to have to decide how we either build, catalyse or join an ecosystem. This is one of the decisions we need to make. In the meantime, we've lost market share, we've lost mind share and we've lost time.

On Tuesday, Standard & Poor's informed that they will put our A long term and A-1 short term ratings on negative credit watch. This is a similar rating action to the one that Moody's took last week. Basically it means that during the next few weeks they will make an analysis of Nokia, and decide on a possible credit rating downgrade. Why are these credit agencies contemplating these changes? Because they are concerned about our competitiveness.

Consumer preference for Nokia declined worldwide. In the UK, our brand preference has slipped to 20 percent, which is 8 percent lower than last year. That means only 1 out of 5 people in the UK prefer Nokia to other brands. It's also down in the other markets, which are traditionally our strongholds: Russia, Germany, Indonesia, UAE, and on and on and on.

How did we get to this point? Why did we fall behind when the world around us evolved? This is what I have been trying to understand. I believe at least some of it has been due to our attitude inside Nokia. We poured gasoline on our own burning platform. I believe we have lacked accountability and leadership to align and direct the company through these disruptive times. We had a series of misses. We haven't been delivering innovation fast enough. We're not collaborating internally.

Nokia, our platform is burning. We are working on a path forward -- a path to rebuild our market leadership. When we share the new strategy on February 11, it will be a huge effort to transform our company. But, I believe that together, we can face the challenges ahead of us. Together, we can choose to define our future.

The burning platform, upon which the man found himself, caused the man to shift his behaviour, and take a bold and brave step into an uncertain future. He was able to tell his story. Now, we have a great opportunity to do the same.

Stephen.

http://www.engadget.com/2011/02/08/nokia-ceo-stephen-elop-rallies-troops-in-brutally-honest-burnin/

Sony

From Guardian Online:

One investor said - "I have been sceptical about Sony for a long time. Sony has been overtaken by Apple and other companies," said Yuuki Sakurai, chief executive and president of Fukoku Capital Management in Tokyo. "The management is not able to show shareholders the future of the company."

http://www.guardian.co.uk/technology/2011/may/23/sony-fourth-quarter-results/print

Microsoft

From Malaysia Insider:

The software giant, which was the largest US company by market value in the late 1990s, has since been overtaken by Apple Inc and IBM in market value, and is no longer seen as a dominating force in technology after a failure to capitalise on new Internet and mobile computing markets.Microsoft to consider strategic alternatives for its money-losing online business, which has so far failed to win share from online search leader Google Inc.

http://www.themalaysianinsider.com/business/article/hedge-fund-star-calls-for-microsoft-ceo-to-go/

Malaysia Airlines

From Bloomberg:

Malaysian Airline System Bhd. (MAS), which will be removed from the MSCI Malaysia (MXMY) Index at the end of this month, slumped to a first-quarter loss due to higher fuel costs and a stronger ringgit.

It reported a net loss of 242.3 million ringgit ($79 million), or 7.25 sen per share, in the three months ended March 31, compared with a profit of 310.1 million ringgit, or 10.64 sen, a year earlier, the national carrier said in an exchange filing late yesterday. Revenue fell 3.3 percent to 3.19 billion ringgit even as it carried 10 percent more passengers over the period from a year ago, it said.

In contrast, look at its rival Air Asia (at least it is still profitable):

AirAsia Bhd. (AIRA), the Sepang, Selangor-based biggest discount airline, yesterday reported a 23 percent decline in first- quarter net income to 171.9 million ringgit, partly due to higher fuel prices.

http://www.bloomberg.com/news/2011-05-25/malaysian-air-reports-loss-on-jet-fuel-costs-stronger-ringgit.html

Proton

News on the rebadging, after 15 years in operation.. so much for the pride for our "National Car"....well, at least it is profitable for its latest quarter but the same question remains - now that foreign imported cars are getting cheaper, how will Proton withstand the growing competition?

http://carscoop.blogspot.com/2010/10/proton-rebadges-mitsubishi-lancer-and.html

Our Final Thoughts

- Evolution or revolution of a particular industry is inevitable and business dynamics are no longer constant

- Old companies will die, new companies will emerge

- Moral of story: Continue to break barriers, do not stay within your comfort zone. Innovation will save your business.