Air Asia’s Big Losses, Kossan’s Doubling Profit, and Melaka’s RM100bn Economic Corridor — My Thoughts for the Day
Dear readers, I will be trying to provide my thoughts for the day on the news that has come out for Malaysia and the International scene. Hopefully, I can provide some value add to you all in understanding my thought process on the various news that hit the markets everyday.
Air Asia’s Big 2Q 2020 Losses
Air Asia’s revenue declined from RM2.3bn in 1Q 2020 to RM119m in 2Q 2020, registering a whopping 95% decline. It continued to lose money at a rate of RM993m in 2Q, continuing its 1Q loss of RM806m. — The Edge
I am not really surprised at such a decline in revenue and loss for Air Asia, as it is well established in the global economy that all airlines and tourism related companies will suffer tremendously. With the added restrictions on movement across a myriad of countries, Air Asia temporarily shut most of its flights during the lockdown periods. While most routes have gradually opened up since May 2020, the big question remains on whether demand for its flight routes will pick up. Malaysia remains its biggest revenue contributor, followed by Thailand, Philippines, Indonesia and India. The situation of Covid-19 remains entrenched in all these countries, increasing the uncertainty for travel and tourism.
Kossan Rubbers Doubling Profit
Kossan Rubber Industries Bhd has joined its glovemaker peers to post its highest ever quarterly profit of RM131.06 million for the second quarter ended June 30 (2QFY20). The glove maker’s net profit soared 134.52% from RM55.88 million a year ago. Quarterly revenue, meanwhile, rose 27.5% to RM701.68 million, from RM550.53 million a year ago. — The Edge
There really is no surprise to rubber companies growth for 2Q 2020, but however, I am a bit wary of just 27.5% revenue growth. Kossan currently trades at 81.1x price earnings ratio, which is way above normal price earnings ratio. I consider 20x price earnings ratio as the maximum a stock should trade for it being fairly valued, and this means that Kossan would need to grow its yearly earnings by 400% down the line to justify its current share price. A revenue growth of just 27.5% would not cut it as it would need to grow even more. I do think all gloves and rubber companies are overvalued at this juncture with the frenzy out of control.
Melaka’s RM100bn Economic Corridor
The Melaka state government is planning to create a new economic corridor to attract high-impact investments, to be known as the Melaka Waterfront Economic Zone or M-Wez worth about RM100 billion. M-Wez will comprise the Kuala Linggi International Port (KLIP) as the oil and gas industry services hub, the Tanjung Bruas Port as the container port and Melaka Gateway as the Melaka International Cruise Terminal (MICT). — The Edge
This is Iskandar Region Economic Corridor dejavu again for me. I am generally skeptical about the development of Iskandar as I think it’s a property play which generates lower value add, and is highly reliant on international demand and money for its properties. There really is not much information on this economic corridor, but it does seem to have a strategy to cater to international trade and the oil and gas industry. I am just worried that this will turn into another property play, where land sales are rampant to raise funds. It remains to be seen how this will develop but right off the bat, there are already stiff competitions from ports in Penang and Klang. So this project would really have to offer a very competitive edge compared to the other ports.
