I would play devil’s advocate so that everyone could have an interesting discussion and look at other points of view. I see many frustrations and doubts arised among retail shareholders on why despite good financials recorded since diversifying into ERP and IoT solutions provider, ARBB share price is not stagnant, but declining. And this Covid-19 pandemic has shifted the conventional way of doing business. Businesses are now looking into automation, adaption of technology such as AI, IoT and ERP into their global supply chains as well as to reduce human errors, and for better overall financial control cum decision-making due to increased traceability and visibility. This should bode well with the prospects of ARBB as it is in the sweet spot to thrive. But why is it stagnant?

Another debate is why the company is not declaring any dividends despite its commendable results since Q4 FY2018. I believe many people may not understand the business model of ARBB, not to mention how it works. It is moving away from traditional ERP pricing model and market directly to the SMEs, a new adoption from how big players like SAP, Oracle and Microsoft would have done. Under their revenue-sharing model, ARBB will provide the necessary investments required to set up the ERP platform while the partners need only to impart their business know how. Nonetheless, in the initial years both parties have agreed to plough back the entire profits for reinvestment purposes and that is why no dividend payments is expected in the foreseeable future.

Another view to exchange here is on the quality of audit rendered by RSM Malaysia. The question raised is whether RSM would jeopardise their audit quality solely for that audit and non-audit fees of approximately RM68k and RM36k respectively for FY19. Does it make sense for such reputable global audit firm to jeopardise their reputation in exchange of such a small fee? An audit partner of RSM could be making as much as RM50k per month and an audit failure could result in their license with Malaysia Institute of Accountants ("MIA") to be revoked as well as immediate cessation in practice. From a risk return trade off perceptive, this risk for audit failure is too high as compared to the return they received.

Some background check on RSM:

Regardless of their fundamentals, there may be plenty of times when a company meets or even exceeds analysts' expectations, provides solid guidance, and still sees the share price keeps falling. When this happens, then supply, demand, and trading factors may come in play and be the catalyst.

It could be related to noise traders who are non-professional investors such as mom-and-pop investors. Not to forget, technical analysts come in play too. Noise traders do not analyse the fundamentals of a prospective investment, but instead trade based on news, technical analysis indicators or trends. They are often thought of as impulsive and may overreact to good or bad news. Hence, if ARBB begins to sell off after a positive earnings report, it will lead to subsequent selling by many of this classes of investors.

Another possible explanation is the present shareholding of Dato' Liew Kok Leong. As at 18 August 2020, he holds only 12.1% and 1.3% direct and interest interests in the ARBB. He has yet to reach a controlling stake of 33% that allows him to veto or overturn decisions made by existing board members. Nonetheless, as at 18 August 2020, he owns direct and indirect 146.26 mil and 161.66 mil of ICPS respectively, that could boost his collective holding to 34.1% upon full exercised to shares of ARBB.

Also, many were complaining on the conversion of the ICPS but try to understand the bright side of the story. The Company is growing and need substantial cash to accommodate its growth strategy, so it is either for it to borrow from the banks (and incur additional interest cost, subsequently increases the cost of doing business) or from the new issuance of share capital (i.e. rights issue, private placement, ESOS, ICPS etc). Please take note, issuance of new shares from the exercise of ICPS is not a bad idea after all, as the Company is still getting RM0.20 for every ICPS exercised and potentially receive RM156.39 mil, assuming full conversion of the ICPS since 18 February 2020.

All in all, my take on this is if a stock holding is part of your long-term portfolio, than this might represent a viable investment opportunity at a relatively low price rather than selling with the crowd. However, for those traders or mom-and-pop investors, it could be a long and arduous journey for them as there are still 641.87 mil ICPS that have yet to be converted into shares.

Time will tell whether the company could generate good operating cashflow over time. But one thing for sure, as long as the company could forge more collaboration with high quality SMEs, it will sustain its growth trajectory. LASTLY, IGNORE THE NOISE AND FOCUS ON YOUR ANALYSIS. RESULTS WILL SILENT THE NOISE.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions and not a buy or sells call. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

I applaud the management for taking a lot of initiatives of Tune to answer the shareholders’ queries on the low investment income, high combined ratio and management expenses, departure of the CEO, dividend policy and to lay out on the slides on the recovery plans and management’s response on the pandemic. The key takeaways are as follows:-

1. The Company has shortlisted a new candidate for the CEO post to replace Khoo Ai Ling (departed on end of July 20), but awaiting the approval of Bank Negara Malaysia.

2. Maintain dividend pay-out ratio of 40% and in the event the performance of the Company significantly improves, they may consider issuing special dividend. 

3. Gradual resumption of domestic travel for Thailand, Malaysia and Indonesia, with expectations of international borders opening up in stages in the 2H of 2020.

4. Governments, airlines and airports making health and travel insurance mandatory.

5. Going forward, the Company will focus on the “new norm” products as follows:-

• Covid products / Products bundling
• Enhanced Pay-As-You-Drive (“PAYD”) to cater to those with reduced commute due to work-from-home arrangements
• Airlines / Airports travel products coverage (to tap into the new group policy arrangement with airlines/airports for travellers)
• Takaful – Askrida Indonesia
• Launched Instant Claim Notification with Baoviet

6. Catalysts driving management expenses improvements

• Reduced employee costs – Freeze hiring and replacement except for critical roles
• Reprioritise marketing spend – from brand generic marketing to campaign-specific targeted marketing
• Reduce office rental, 3rd party professional fees and other office expenses

7. Affinity and Digital partnership as well as enhancement

• E-commerce – airasia.com
• E-Wallet – E-Wallet provider (Vietnam)
• Loyalty management – Big loyalty
• Community app – Eco World
• Logistics – Teleport
• Enhance agility through Open API
• Direct channel – new mobile app (buy and claims functions)

Happy Sunday everyone! In my previous article dated 19 July 2020, I quoted prominent Feng Shui masters saying of, What is the easiest way to look for place with good Feng Shui? Just tap into where the wealthy people stay in!

In order for us to reach and optimize our wealth potential, it has always come down to us and our daily habits. Habits are the root to everything in life. Successes and failures are outcomes from our daily actions taken. It might not work all the time despite being disciplined adhering to most of these habits, but at least we build improve to value our time over things, cultivate patience, act and never give up as well as don’t be afraid of taking risk, especially calculated risk.

Long story short, wealthy people have complete and strong control over their finances especially in spending and investing. They aren’t compulsive spenders, knowing every dollar that comes in and every cent that goes out. This is one area that I’m so keen on investing in EWINT especially since 23 shareholders alone owns about 85.3% of the issued share capital of EWINT (refer the table below). These are prominent boys in the Billionaire Boys Club as they are the largest institutions in Malaysia, founders and directors of listed companies and ultra-high net worth investors.

They have a good business acumen and envision where they want to be in 10 years, 20 years and beyond and understand the rate of returns that they want to achieve. A typical required rate of return for them is about 15% per annum. Hence, I strongly believe the IPO price of RM1.20 is the minimum target price for EWINT.

Shareholders of EWINT as at 22 January 2020

In the case of EWINT, one will notice it might not generate lots of volume. EWINT only generates daily volume of an average 2 to 3 millions shares despite having huge number of issued shares amounted to 2.4 billions. The rationale lies behind its floated shares of only about 325 millions (14.7% of the issued shares), as 2,047 billions shares or 85.3% are owned by these sophisticated investors which hold to yield much higher returns on their investments. 

Let’s take another company for illustration purpose. Ekovest Berhad with similar number of issued shares as EWINT (2.65 bil shares) generates a daily volume between 20 to 30 millions shares. That is about 10 times of EWINT daily volume turnover. Reason being is because Ekovest shareholding structure is dominated by retail investors.

In summary, the simplest way to grow wealth is by tapping into what and where these Billionaire Boys Club members are investing in. Hope this article finds you well.

1. "A leader should be visionary" - Unfortunately, Tune is the abandoned child of Tune Group. Its visionary founders were not there to see their ideas being implemented properly by their team since the IPO. Jack Ma while growing its bread and butter, Alibaba's e-commerce business managed to turn Ant Financial into the biggest fintech company in the world with a valuation of USD200 bil. That's what I called as a real visionary founder. Hope this time, the visionary founders will put more effort to grow it into a scalable insurance company. 

2. "Great companies are built on great products" - Elon Musk. Great products were created by understanding on the issues faced by consumers everyday. Great insurance products sell themselves. Does Tune even have great products and product development team? Develop products and solutions that can reach consumers especially millennials easily. Make it a no-brainer deal when it is bundled with AirAsia flights.

3. "Numbers can be misinterpreted, but they don't lie" - Numbers don't lie. Its financials were deteriorating from FY15 to FY19 in terms of ROE (from 15.3% to 9.1%), NEP (from RM304 mil to RM255 mil) but its management expenses grew exponentially from RM82 mil to RM120 mil. Its combined ratio increased from 86% to 96, meaning it has a slim underwriting profit.

4. "Never spend your money before you have earned it" - Ridiculous management expenses of 47% of Net Earned Premiums in FY19 as compared to 27% in FY15. And what is the breakdown of digitalisation spending since FY15 and its efficacy to turn it into a leading digital insurer in Malaysia.

5. "Screw it, let's do it" - Richard Branson. Intervene on the business model, distribution channels, cut fat and be leaner. Cut, slash and melt it. Always remember Tune is not performing compared to its peers, so act fast. Just do it!

6. "Do you know the only thing that gives me pleasure? It's to see my dividends coming" - John D. Rockefeller. No dividends been paid for FY19 despite there is a dividend payout ratio of 40%. It certainly gives displeasure to the shareholders especially with 80% plunged in stock prices and deterioration in financials.

7. "You need the right people with you, not the best people" - Jack Ma. Staff costs increased significantly since the IPO but businesses were not growing. The last 3 CEOs resigned within the last 5 years and it has impeded the growth of Tune.

8. "Don't put all your eggs in a basket" - Find a holistic, diversified approach. Don't just rely on travel insurance plan and AirAsia ecosystem. Face a harsh reality that global travel is facing a crisis now.

9. "Insurance float has worked in Berkshire's favor" - Warren buffet. But not in Tune case. Insurance float has increased significantly from RM665 mil in FY15 to RM862 mil in FY19 but investment income only grew from RM27 mil to RM31 mil. Revisit Tune's investment mandate as it is only earning 3.6% investment return on its float.

10. "Marketing is telling the world you're rock star" - Marketing is all about creating demand for its products. But the demand is not growing or worst off, no increased demand despite RM18.3 mil being spent on marketing and publicity expenses for FY19.

11. Lastly, a quote by Jeff Bezos "If you can't tolerate critics, don't do anything new or interesting". Do what it works. Concentrate on your core competencies. Don't do it for the sake of doing. Prepare to listen to critics and transform. Make it as a unprecedented one for the coming Tune's AGM on 8 August 2020 and don't dodge again on the questions by the shareholders.

Year 2020 is a year of reflection for Tune and hopefully by 2021 Tune can rebound strongly. But it doesn't come easy. A lot of works need to be done.

The BBC's Housing Briefing estimates that the UK has built 1.2 million fewer homes than they should have, and the need for more homes is increasing ^(i). The calculation suggests it will take at least 15 years at current building rates to close the gap, and that is not enough of what being built is affordable.

Hence, BTR concept has become a new wave for real estate in the UK in recent years. The rise of BTR has been driven by the followings:-

1. Dire issue of affordability. The UK house price affordability worsens for the past decade. Currently, the average monthly installment for a house in the UK of £231,855 (average house price as at March 2020) costs one third of the average income for a citizen there. Hence, it has a become a new norm among the UK citizens to rent instead of owning a propertiy;

2. Even with a good job and stable income source, many millennials are saddled with student loans, credit card debt and/or a lack of substantial savings. Even in a two-income household, it’s hard for this generation to save for the down payment on a decent home;

3. There is huge demand for high-quality, professionally managed properties, often offering on-site amenities (such as a concierge, communal roof terraces and gym) and convenient transport links, with focus solely on the tenants’ need compared to the conventional private rented sector; and

4. There is a lot of the pressure arise from the gap falls on those renting privately. The current private rented sector is dominated by amateur landlords, often with little or no residential management experience. It happens that many the times callous private landlords evict tenants at short notice without solid reason and imposed ridiculous conditions of failure which the tenants need to incur extra costs.

With BTR scheme, it offers the advantages of affordability (i.e. sans security deposit, quality homes without ownership), flexibility (i.e. easy access to different cities, tenure of rental), convenience (i.e. site-based management, customer service 7 days a week), customisation (design and built based upon different demographics, lifestyles and age groups) and security (worry not of being kicked-out after tenancy ends).

According to the British Property Federation, a trade body, there are nearly 100,000 build-to-rent homes either completed, under construction or in planning phase across the UK. With the number of renters only predicted to go up, it is likely we will see many more build-to-rent developments popping up. This might be a big number but currently the UK builds 1.2 million fewer homes than they should have and the shortfall is increasing.

The long term nature of this investment makes BTR particularly attractive for pension funds and sovereign wealth funds, who typically commit investments for at least a decade as it provides stability and flexibility to weather market downturns. It is factual that BTR developments yield smaller return than developments build for sale. However, a combination of rising house prices and rising rentals are attracting large investors’ appetite into BTR concept. In the case of EWINT, Tan Sri’ Liew Kee Sin highlighted that the profitability of this business is lower than that of open market trading, no more than 10%, but the required cost is relatively low, which can provide stable recurring income and cash flow for enterprises. Therefore, the management will actively expand this new business in London as the main growth driver in the medium and long term.

With recent article dated 21 July 2020 ⁽ⁱⁱ⁾, Ewint 70%-owned subsidiary EcoWorld London is set to launch a BTR company called Apo, targeting 5,000 homes under management in five years and subsequently, grow to 10,000 homes in the next 10 years.

Apo aims to partner with investors, developers and service providers. It is currently in talks with a number of developers, focusing on expansion in London initially, with the regions to follow. Its approach is unique in combining the proactive day-to-day management that they need with the ability to drive returns through a real understanding of what residents want in terms of service, amenity and community.

This launch has demonstrated appetite from institutional investors as they emerged stronger than before during the Covid-19 crisis. With low interest rates environment across economically advanced countries which reduced return expectation of real estate assets, there is no better time for these investors to tap into BTR market as they can yield higher returns for their real estate investments. This bode well with the aggressive expansion of EWINT into BTR market.

Sources:-

1. https://www.bbc.com/news/business-51605912#:~:text=places%20to%20live.-,The%20BBC's%20Housing%20Briefing%20estimates%20that%20we%20have%20built%201.2,is%20being%20built%20is%20affordable.
2. https://www.egi.co.uk/news/ecoworld-to-launch-new-btr-platform/

From the replies by Bioalpha on queries by Bursa Malaysia on 24 July 2020, both Guizhou Yuhexin Trading Ltd (“GYTL”) and Hainan Shifengfu Co. Ltd (“HSCL”) are privately owned entities with sole owner and director.  Aside from the below, not much of information that can be obtained on these 2 entities especially on their backgrounds, credentials and capabilities to supply health food and nutritional meals to public schools and hospitals in Guizhou province.

The contract value of RMB700 mil (equivalent to RM426.7 mil) per year is commendable and it affirms Bioalpha’s maiden step to strengthen its presence in China. However, the backgrounds of the China partners and their abilities to deliver the amount as per the contract might raise some questions.

Hence, additional questions for the coming AGM on 17 August 2020:-

1. What are the backgrounds of the two (2) Chinese companies? What are their experiences in delivering health food and nutritional meals to public sector?
2. Kindly provide the brief summary of their financials
3. How committed are these Chinese parties to the contract amount per year of RMB700 mil (equivalent to RM426.7 mil). What is the minimum guaranteed amount by these parties?
4. Have the Chinese parties secured a contract to deliver nutritional meals to the public schools and hospitals in Guizhou prior to the signing of this contract?
5. How the Company came into conclusion of thin gross profit margin of 3 to 5%. Kindly provide an operating profit margin as it is more relevant to understand the viability of the contract, after considering all the operating expenses.

Risk comes from not knowing what the Company does. Hope the Company can enlighten its shareholders on the matters above in the coming AGM.