Wednesday, September 24, 2014

5 things you need to know about Starburst

When I first heard about Starburst IPO, I thought this business is unique. Starburst specialises in the design and engineering of firearms-training facilities. Starburst designs, fabricates, installs and maintains anti-ricochet ballistic protection systems for firearm shooting ranges and tactical training mock-ups. Their clients include law enforcement, military and security agencies, as well as civil authorities in Southeast Asia and Middle East.

There are several positive takeaways why one should consider Starburst. The industry has high barriers of entry that many can’t imitate due to the intricate technical expertise. Starburst has the patented “Searls” trademark – anti-ricochet ballistic protection materials protect military lives during peacetime firearms training.

I shan’t talk about the advantages but focus on risks and challenges:

1) Operating cash flow is lumpy

Project fee is based on “percentage of-completion” recognition. The contracting party is able to retain 10%-20% of the contract sum upon completion of works in order to assess any shoddy work or outstanding work that yet to be completed fully. That leaves us 90% of earnings which I believe may split in 2 stages – one is design and the other is fabricate and install. Therefore, its three stages before the full payment are received. This does not sound appealing to me. This is probably why Starburst is focusing on increasing their maintenance services (after one year warranty), so that the business is able to earn recurring income. Currently, this portion amounts to 14% of group revenue as according to FY2013. Whether Starburst is able to expand tremendously (in terms of revenue splits) for the maintenance service over the years remain to be seen.

We also have to take into account that winning a contract is often a lengthy, time-consuming and complex process. As of now, the firearms training and tactical mock up service offerings is non-income recurring. So, this will create an uncertainty in revenue streams, unless there is a continuous pipeline of order book to provide the earning visibility.

2) Cost management

Starburst will estimate and buffer in any additional costs for their contracts. However, there is a possibility that the itemised costs may rise above the management estimate. For example, additional foreign workers are hired to meet the timely delivery of the project. Or there is an unforeseen increase in the cost of materials, components and equipment. Or there are under-par performances of sub-contractors and suppliers that result in project delay. (hopefully, the work is not stalled) These are issues that contribute to cost overruns which will cause a dent in the profitability of Starburst.

Another point to note is the possibility of rising raw materials cost such as steel and anti-ricochet materials under the “Searls” trademark. It’s done by third party manufacturers based on client specifications and this cost is passed on to Starburst. At the moment, I don’t see this happening as the working capital is healthy. But I can’t foresee the future in Middle East where contractual agreements (with terms and conditions) with agencies could be volatile at times. If there is a cost dispute during the project execution period due to sub-contractor/leasing of equipment problem in foreign markets, this will result in project delays and cost constraints. As a result, Starburst should have a solid cost management structure and cost contingency plan in place.

And for this reason, I also won’t expect Starburst to pay off any huge dividends in the future since the business is new in Middle East. If so, I will be hugely worried. Cash needs to be maintained for any of the unforeseen cost-based issue mentioned above. If you buy Starburst, you are aiming for capital gains. However, to attract retail investors and I think it’s attractive - Starburst agrees to pay 20% of the Group’s PAT (profit after tax) for the financial year ended 31 December 2014.

More on the costing part…. the nature of this business is working capital-intensive. Majority of the project expenses are upfront costs, meaning the past project earnings have to be received on time to pay off any short-term liabilities. The challenge is that the payment from clients is paid progressively (percentage-of-completion method). Alternatively, a cheap loan taken to pay for the overriding expenses but this means interest expenses incurred. Should interest rates rise; I am not sure how this will affect their repayment period.

According to the CIMB analyst report dated August 20, 2014, the analyst reports that there will be a Guarantor for Starburst, per project undertaken. The Guarantor is usually the Financial Institution who issues the performance bonds. This can mitigate the risks of the contracting party gone bust (in the worst-case scenario) or does not pay up over a long period of time (you are dealing with foreign agencies). I think this protect Starburst interest.

I am a little skeptical. Resolutions and legal recourse takes a great deal of time and effort.

3) Payment delay

There is a risk where the client may drag on the payment. I understand some feel the payment is prompt because the contracting parties are government bodies. Think again. Starburst is entering into new markets of Middle East that include Qatar, United Arab Emirates and Saudi Arabia. Not to forget any bureaucracy that stifles prompt payment. Starburst needs time to establish their trust, reputation and network. Especially strong business relationships.

Therefore, there is a chance of ballooning receivables when credit terms lapses. If this gets out of hand, your cash is locked up and your cash flow will encounter problems when other project costs escalate because of higher material cost.(the overall project and production cost split is found in the prospectus) Do remember to monitor the costing and accounts receivables of Starburst.

I just hope more clients of Starburst will take up their maintenance services in the near future since income is recurring.

4) Government regulation and permit changes

There is a risk of government and state-owned agencies not renewing the permit for Starburst to operate in Middle Eastern countries. I think they may be some level of regulatory approvals required. In this industry, the project bidding process is highly opaque. It’s best to check with Starburst directly. I am not in an expert on this but I do wonder why the Qatarians not choose the local Defence Contractors to work closely. There will be, of course, some level of competition amongst contractors in Middle East. Maybe the “Searls” technology is a unique selling point for Starburst, apart from their extensive experiences and track record.

5) Founder risk

I read from the recent CIMB analyst report dated August 20, 2014 that the business is highly dependable on two founders – Messers Edward Lin and Yap Tin Foo, who manage the technical and marketing aspects of the business respectively. Maybe this explains why the management owns 80% of Starburst shares, leaving limited free float to the public tranche. It can be seen as a positive sign because both will manage the business diligently. On the other hand, it can be viewed as a risk of not having a talent contingency plan and structured organization flow chart in place due to limited talent capacity. You are buying into a scalable business which has the potential for growth, but one that may operate like an SME.


I will put Starburst on my watchlist for now till valuations are compelling. If I buy, I will accept the risks and challenges highlighted and capitalize on the demand for firearms training facilities in Middle East. I also do note the competitive strengths of Starburst such as their track record and economic moat (Searls trademark). Starburst is in a high EBIT business with few competing players, an area where defence budget in Qatar, UAE are increasing.

The main challenge, in my humble opinion, is the revenue recognition process and the cost structure which may need some monitoring in place. No doubt Starburst sounds attractive from the external perspective but one need to look beyond the ringing sound of current and forecasted order book. Don’t get blown away. Stand on guard and focus beneath Starburst mode of earnings and expenses.

Wednesday, June 11, 2014

Why you should have a financial balance

I read many articles that talk about prudence and frugality. The message across is a timely reminder as an individual should not spend beyond their means, especially the high inflationary pressures in Singapore. In other words, think about saving first (paying oneself) before paying off your bills, much least spending the extra cash. Think about your emergency fund first. Think about delayed gratification, so that you can build your cash flow.

However, being superbly obsessed with every dollar and cent may bring you to the point of over practicality, such that you get upset if you spend twenty cents more over a cup of coffee. What I mean is, you hold the reign of money in such tight control that you forget the essence of life’s little pleasures - your wishlists, hobbies or self-gratification pursuits. These activities need money, no matter how less or more it is, to fulfill your desired life's journey. It can be a backpacking trip, a dance workshop, a craftsmanship apprentice program. Anything that adds value to your personal holistic life experiences. It can also be a trip with your loved ones or spending on a deserving meal that brings people together. For laughter, for bonding (you need to spend on food). Therefore, are you losing your vision completely?

Certainly, you do not want to end up a terrible miser who loses important friends or girlfriends because you are scared to spend. If you are, you may become tense and worried at the slightest mention of the word "spend". You are trapped in the soul of money that life becomes worthless to you. The hoarding of money turns you into an evil warlord that drives your buddies into oblivion. You may think I may be going to the extreme but trust me, I used to meet people who may not realize this is happening to them, though they are earning decent income with less commitments - all circumstances remain equal (not referring to any household wealth or unfortunate incidents that warrants a high level of money cautiousness). They become lonely and alone, for the sake of every growing money tree without inhabitants.

I used to have an Army friend who will walk the extra mile to McDonald’s than spending 20 cents for a washroom, simply because it’s free for the latter. The distance was 1km away. Due to his over “thrifty” habits, he started to take advantage of people during friends’ gatherings. For instance, he won’t buy a drink, citing that his throat was well. In the next minute, you would see him sharing drinks with a friend – and downing a full mug of beer without being apologetic, without politely asking. Later, we found out that he was reluctant to spend in general and like to maximize freebies whenever the chance. So that, he can save the last dollar. The last I knew about him? His friends deserted him.

For the financial experts who quote - it’s important to have a monthly spreadsheet, a tracking apps or something you do to ensure your personal finances are healthy. I agree fully. Another alternative is to develop your personal custom-made system of cash flow. But the degree of dissecting it into tiny bits and pieces could be time-draining and mind boggling. Imagine this. Let’s say you have your lunch with colleagues. You go to a coffee shop and order a cup of hot tea. This costs 90 cents. You key into your expense tracking apps. For food, you order a plate of chicken noodles that costs $3.00. You key into the same apps. You feel a bit hungry, so you hop to the nearest bakery to buy a bun. This costs you $1.20. You key into the apps. Multiply this by two (lunch and dinner, taking out breakfast). Do this constantly in 30 days and in one calendar year. Continue the same process for 5 consecutive years. This is only for food expenses only (wow! I still have other expenditure to monitor – am I using my value time to do mindless chunks and chunks of data?)

You can be proactive, getting sensitive to every number. Question is, will you get too bogged down till you are conditioned to think “Hey, I spend $200 on food and if I want to buy a box of egg tarts for my loved ones (once-in-a-while surprise), I can’t do so. My budget has exceeded and I have to wait till next month. And the next month arrives; you are too caught up with daily nuances of keeping track till you lose the sight of people who appreciates you.

Just me and my money. Me and my precious…………the one ring I conquer, the one magical DIGIT that I must, at any costs, achieve no matter the situation......

Please, don’t fall into the invisible “money entrapment”. Your life is worth more. Be sure to live what you want. You do not know what happens the next day.

On the other hand, if you’re tracking tool works perfectly fine without causing you a hindrance in daily/monthly life pleasures, I can imagine you having a good financial balance. The word pleasure differs from individual to individual. For instance, an individual can buy a Starbucks Coffee Grande size. To him, this is money well spent, for something he wants, defining it as “pleasure”. Some prefers the coffee from hawker centre. This is absolutely fine. As long as the individual manages his cash flow in his personal system well, not getting overly obsessed. Also, I will like to reiterate that, for every cup of Starbucks Coffee, the individual may save on other items. I am referring about giving something up to gain something.

It should not be an addiction to things otherwise the financial balance is gone. Ended up paying more than what you can afford. One may argue that being a millionaire is great, so you need to think about it. True, the mindset is essential. It all starts from aspirations. Fully support. But one has to self-reflect - at what opportunity cost?

For example, if you reach the millionaire status at 50 years old, for all the hard, frugal life you build up, have you seriously traded off your days of youth frolicking around, trying new things? - just because this millionaire goal is more vital than any of your priorities. Henceforth. lead you to stop spending, except for daily survival.

To me, paying for memories are crucial. It's my chapters of life. Moreover, I like travelling with a purpose. Through paying my dues beyond Singapore, I carry knowledge that is far more superior to money. I gain new skills and new exposure to finer things around me. I strengthen my cross-cultural communication abilities by interacting with local people in the host country. With my global horizon, I can source for scaled up job offers since globalization trends begun in the new age. Headhunters look for me as companies need global thinkers.

For my loved ones that I spent on travel, I earned the companionship filled with joy and laughter. You can be different. You can spend on certain products and services that generate a wonderful purpose for you. Purpose is what you need to seek, not money. Money is just the ticket to your objective.

There are also individuals who buy a Prada or Louis Vuitton bag, as part of luxury ownership. It does not mean they are high spenders who purchase regularly (unless they do and this topic is out of question). They may just get one expensive item for someone or a few for personal keepsake (maybe resale in future). Their objective is to look good, probably needed in their jobs or to serve a particular want (“once in a lifetime” item). Point is, are they over-spending on these items/become addicted?

In short, whatever we spend, whatever we save, the individual has to understand that the importance of financial balance. The purpose of spending vs. the purpose of growing your cash flow. The middle portion is the one you need to seek out. For any reasons, keep your cash tap running but not too frequent or seldom. Appreciate the opportunity to smell the roses and taste the wine in every aspect of your life.

Soon, you will realise money becomes meaningful for you. You will not be a complete slave-driver to Mr. Money, one who constantly thinks about money-making activities (e.g. investments). Just to attain the status of millionaire or in fact financial freedom at the expense of many other worthwhile things in lives. Like myself, I will still strive to create more multiple streams of income while developing the habit of meeting this balance. I know the underlying purpose of spending and I don’t have a rigid framework to keep my wallet bounded. I hope you can find your personal financial balance in life too.

Tuesday, March 25, 2014

My Parkson Store Visit in KL (Part Two)

Let's move on to Part 2 of my Store Visit in Parkson, Kuala Lumpur.

For my readers who miss part one, you can find the information here:

In-store Promotion, Marketing and Branding

There are some catalog and booklets available that showcase the latest deals. During the Chinese New Year, Parkson launches hamper sets to mark the auspicious Year of the Horse. There are also discounted offers for various merchandises.

The problem is, the promotional materials are placed at the Customer Service Centre. One whole stack. It's not distributed to potential customers or placed in prominent points of attraction in the department store. For example, the decorated entrance of Parkson where you can have a table to place them or get Promoters to give out and talk about it. This is in consideration of the festive mood. The advertising visuals are printed in attractive designs and colors. Sadly, in my humble opinion, the implementation needs further improvement. This explains why few people (based on observation) take copies and walk around. If they do, they would probably spread via word of mouth communication, take photos, upload and share with their friends via social media platforms.

Secondly, I did not see any standees or signage pointing to any strong promotion. Neither did I heard any interesting deals mentioned in the store. For instance, "Deal of the Month". Footfall is lacking and the best period to boost sales is through seasonal period. So, the short term marketing hype may facilitate traffic but I did not witness any of them. However, Parkson does have loyalty card membership which I find it interesting. You can check it out through their website or drop by any outlet to find out more details. Probably it's better if the card membership marketing is a little more aggressive, considering the highly competitive retail landscape in Malaysia.

Service Staff

I do not expect any first-grade service like what you see in 5 star hotels. At least the minimum of serving customers with a smile is important, especially the warmth, making sure customer experience and mood are co-align positively. Such gestures come naturally. One has to take a pinch of salt as there are different ways of customer interaction. Think of Robinson. In Singapore, when you buy shoes, the Robinson staff gladly serves you, of course when you treat the service staff with similar respect. In Parkson, although the crowd is thin, I notice staff are not really that enthusiastic or take the initial approach to greet customers. A few did when customers inquire more questions. Not sure but a successful brick and mortar store needs these intangible for better recognition - get customers to remember you. Most want that level of personal connection.

Merchandise Mix

The crockery and pot section appeals to me because of the wide varieties and brands. In the apparel and footwear section, there is no popular premium to middle class brands, except a few which may not be familiar with the general public. In the Pavilion mall of Jalan Bukit Bintang, there is Armani Exchange and Zara standalone outlets. Question is, how will Parkson bring in unique brands that has the pull factor? You need specialty to highly sought-after brand offerings to increase concessionaire sales, part of Parkson revenue streams.

In the Beauty & Cosmetics section, as many brands are evident in other outlets like Estee Lauder, Clarins, Laneige, therefore the outlay and display counters may make a difference. Just imagine a U-shaped layout where perfumes are placed strategically to trickle one of your five senses.....are you attracted to stop, take a look and browse around? Another alternative is to built in fancy counters for individual brands that do not represent the common design. It's to catch the attention of the shopper and indulge him/her with the latest products. Takashimaya Singapore revamps their surroundings and more shoppers turn their heads to the perfume area. I hope Parkson may look into this and capture the wild imagination of the customer.


There is no foolproof way to ensure retail sales will remain consistent. A successful store depends on factors like deeper service engagement between customers and staffs, great atmospherics, excellent in-store promotion, continuous loyalty card awareness, wide merchandise mix and appealing layout. Parkson, in my sample store visits, did not perform to what I thought it may be, thinking that the Chinese New Year period may drum up something special. Honestly, I am disappointed.

On the contrary, it does not mean I am not sticking with them. I believe in the business fundamentals of Parkson, for instance their low debt level and concessionaire sales business model. Just that, I dress up as a mystery shopper, providing a real life perspective from consumer standpoint. It may not be 100% accurate for sure but can be used as a guideline for Parkson to innovate and readily adapt to fast moving consumer trends. Hopefully, Parkson will take concise plans to strengthen long standing relationships with current customers while aggressively capture new customers (middle income groups) through their ongoing Parkson Elite Card membership program.

Monday, January 27, 2014

My Store Visit @ Parkson, Kuala Lumpur (Part One)

I was on a business trip in Kuala Lumpur about two weeks ago. Part of my agenda was to make a store visit to Parkson. I have brought my self-made store survey sheet with me and narrowed down to two Parkson outlets for sampling – The Pavilion at Jalan Bukit Bintang and Suria KLCC. It made perfect sense since one was centrally located and the other a popular shopping street. I would use Parkson, The Pavilion, Jalan Bukit Bintang, Kuala Lumpur.

Considering the festive season during this month, I was expecting a sizeable dose of crowd in the department store, buzzing in-store promotions, aggressive promotion and enthusiastic staff. My brief analysis is found below.

Part one:

External Layout and Location, Store Appeal @ Entrance, Atmospherics, Displays, Lighting, Fixtures and Fittings

Part two:

In-store Marketing and Branding, Service Staff, Merchandise Mix and Final Conclusion

Please note that I am not a store expert. I used my intuition and observation, taking the perspective of a regular mid-class shopper who liked fashion trends. Therefore, it’s purely a humble opinion. I can’t also possibly show all pictures, just published a few for explanation.

External Layout and Location

At The Pavilion, Jalan Bukit Bintang, the store was visible, location prominent and easily accessible in the shopping mall. To find Parkson was not difficult as the signage stood out clearly. On the 2nd level, Pedro, Charles & Keith were situated just beside Parkson. I pranced around Charles & Keith to observe the traffic flow. Several shoppers were trying the shoes or walking in and out to browse the latest designs. It could be imaginable that they would drop by Parkson to shop due to the direction of footfall out from both stores. Especially when there were Chinese New Year decorations, flowers and lanterns hanging at the entrance of Parkson. Unfortunately, few people took the steps to venture towards Parkson.

Store Appeal @ The Entrance

In my opinion, it was enticing to take a step forward into Parkson. Parkson arranged a set of flower combination to grab shoppers’ attention. There was calligraphy at the entrance, asking people to write their surnames, nicknames or funny names for a fee.

That said, I did not have a magical feeling upon entering Parkson. No aisle promotion, no Chinese New Year offers, no special merchandise counters, neither any fast-moving item that shoppers could buy on impulse. For example, small perfume bottles wrapped up or “buy as you go” food & drink hampers. Actually, more awareness and interest could be created if Parkson displayed their catalogue at the store entrance or get a group of Promoters, at certain timing, to distribute them out. Increase the vibe smartly, get the crowd trickling in.

Sadly, I realized about the hamper offers and in-store discounts when I dropped by at the customer service booth. Imagine if I did not….so, it seemed that I was getting into a typical department store which did not raise the marketing hype.

Isn’t it Chinese New Year mood now?

There was no unique store appeal that differentiated Parkson against the rest of the retail outlets. If I were to do a direct comparison to Isetan, it’s slightly different. Isetan had a Chinese New Year promotional standee, indicating that you would get something upon purchase. One would not miss before entering the store. This might incite any individual or family to explore Isetan further.

Store Navigation, Flooring, Fixtures, Displays and Atmospherics

Parkson has clearly-defined perimeters that helped shoppers move around at ease. It’s also easy to find your choice of apparel and cosmetics in well-arranged selection of goods. Cosmetics and perfumes were found in the first level followed by women’s apparel at the next level and men’s clothing next. The flooring were polished and shiny, clean and sparkling at the cosmetics and fragrances level (after all, who does not wish to look good!). The sales counters were brightly lit while brands were large enough to be spotted from afar (e.g. Laneige, Estee Lauder). Spotlights strategically placed to make the merchandise appeal to the eyes. Fixtures appropriately installed to showcase the perfumes and cosmetics on displays. It’s about the scene, feel and sight. This explained why cosmetics and toiletries make up the second bulk revenue contributor of Parkson concessionaire sales.

At the apparel level, lights started to dim and the tiles became dull but non-slippery. At the outlook, this section looked like a normal department store. Apparel stood out as per normal with mannequins decked out. There was a lack of attractive color combination used in lightings, tiles and fixtures - for any individual counters and in-store layout. Moreover, design of the furnishings and fittings were standardized, nothing extraordinary. Should your goods be marketed to the young, a good dose of trendiness would provide an experience and positive impression to them.

Yes, the keyword here is “Shopper’s Experience”. It’s powerful to get your wallet out. Certainly, I was not enticed from my walkabout, as you can see from the image above.

Allow me to provide an example to talk about “Experience”. In the new Robinson department store at Heeren Orchard, Singapore, the perfume counter attracted several shoppers to browse around due to the open concept, quirky furnishings and bright lights. Perfume Promoters were able to interact freely and re-enforce their product offers while shoppers took the time to move from side-to-side, admiring the packaging and new product development of each brand. Every detail of the atmospherics cumulated into a fun and engaging feel and your first thoughts might think “oh people, look at how the cabinet display is!”

Remember the five senses?

A picture of Robinson perfume section below:

In short, he overall atmospherics in Parkson did not manage to capture any particular essence that might exemplify the perception of the brand. The in-store graphics and signage were not attractive. The music backdrop played the repetitive Chinese New Year songs which could be a little irritating to the ears. Not that I dislike, I loved them completely. Just that, a mix of classical music or whatsoever and Chinese New Year pieces must blend in subtly into the store environment, giving shoppers the surreal feel – such that they would return back again for the EXPERIENCE.

I would continue my second part of my store visit commentary soon. To be continued…

Sunday, September 15, 2013

3 trends to watch out for

I just returned back to Singapore from the Scandinavian islands not long ago. It has been a wonderful trip personally, culturally and historically. As I marvelled over the great natural wonders of Iceland, I am completely intrigued by the formation of the lava fields, hot springs, hot mud, gorges, glaciers, icebergs to waterfalls over the years.

There are no words to describe the stunning landscape. Just like the rush of the waterfalls, the financial stock market is filled with quick opportunities for us to capitalize.

So, I will like to write about 3 trends to watch out for in 2014 and beyond. Do kindly note that the information is consolidated in a nutshell. It is based on my personal observation only.

(a) 3D Technology

Forget about 4D, 5D for now. Let’s look at 3D. 3D LED TV has been disappointing although it has been launched in the market for quite some time. This does not mean other 3D equipment, hardware and software will falter. In fact, a deeper look into some of them may yield positive surprises. 3D Printers, 3D Holograms are some examples. 3D Printers, after patented, may revolutionize manufacturing as goods produced on a new platform. In 2012, China’s Ministry of Industry and Information Technology launched an initiative to fund ten research houses devoted to 3D Printing. Do you happen to find regional/niched technology firms that specialize in specific areas of 3D research? If so, it may be worthwhile to take a magnifying glass and study the company further. Make sure your lenses are 3D as well!

(b) Data Storage

From portable HDD and CDs, we move to cloud computing. We transit to digital storage like Dropbox, so that files can be shared intermittently. It seems the social community and corporate environment needs to store large chunks of data and images - with ease and convenience as we get highly connected globally via virtual portals. Companies have sought to ride on the demand by building data centres or design storage software that offer security and added features. Firms sell their software licenses to business through subscription without incurring huge fixed overheads. With a need to store more information and to pull details out easily through dedicated servers, probably this is a trend to watch out for in the next future.

(c) Health & Wellness

There is an emphasis to maintain a healthy lifestyle as there is an increase in cases of cancer and cardiac arrests due to stress factors like high work expectations. To keep fit, Singapore organizes several large-scaled marathons. In some parts of Scandinavia, their lunch diets are mainly salads and fruits. Australia places focus on organic vegetables and food. Therefore, OTC (over the counter) drugs and vitamins that highlights the health benefits will become a necessity for health-conscious buyers. This also includes aliments sold in retail pharmacies. Regional pharmaceutical firms that produce prescription drugs have also diversified into tonic and herbal drinks. The challenge here is to produce an applicable, licensed healthy product that harnesses worldwide acceptance and scalability. In our local market, firms like Cerebos and Haw Par have taken their brands global. The key idea is to spot a similar company that anticipates future medical predicament in specific countries while taking control of their cost-based supply chain and distribution network.

More trends to come and I will blog about them soon.

Tuesday, January 15, 2013

Interview with FFN - my investment life

I was asked by FFN, a fellow acquaintance in the investment community, to share my thoughts on investment (thanks FFN!)

Below is the interview extract:

FFN: How did you get interested in investing and who inspired you to get started?

Ken: It started off with my former colleague in the education industry about five years back. He hinted to me that the opportunity had arrived as there was widespread negativity in the worldwide markets.

When I queried further, he strongly encouraged me to take the year-end bonus and buy into shares of companies. At that time, I have almost zero knowledge about investment and thought that the stock market was a risky game of money.

I was a salaried worker and the point of purchasing something that can’t be touched and felt was not attractive to me. Few days later, his words of wisdom struck me when I self-reflect. Something came upon me. I researched online and discovered that my perception was one-sided. Slowly, my interest and knowledge developed when I continuously studied about the dynamics over the past two years. I bought into property stocks as I figure the time to buy is at the trough of the cycle – the trend is shaped by foreclosures and debt overruns.

Ironically, I met my same colleague two years back and he did not put his words into action, thus missing out the chance of cheap valuation during the global financial crisis!

FFN: What was your life like before investing and how is it now?

Ken: My belief was to work hard like any normal employee while getting my pay cheque every month. However, I found that my life was no different than a rat on a wheel. When the motion stopped, my income drastically dried up. And how would the rat survive?

Now, I am delighted to create multiple streams of income via dividend from my shares, my full-time job and other ad-hoc tasks. I do not need to solely depend on a single source and worry strongly about the financial lid. The key is to ensure that you are managing your investment like a holding company where the firm, like yourself seeks opportunities to grow her bottom line – for example enter new markets (new source of income such as buying assets to create more assets).

FFN: Where and how do you look for companies to invest in?

Ken: The world is full of information. However not many is able to extract the essence and develop into an investment thesis. You do not need to be a qualified analyst. Look around you and notice that we live in a marketing zone. The various products and services offered would paint a trend as demand increases for specific goods. For example, luxury timepieces and jewellery are well sought after, not just the wealthy but the growing middle class segments as their wages rise across Asia.

Therefore, prior observation may help. Another possible way is to pick out top five reading sources to grasp investment ideas. These are your daily newspapers, online journals to short business articles. Pick up an interesting commentary from your top five, write it down, reflect and find out the growth drivers behind it. Do you understand about the story and where this leads to?

This would help to start off a topic of your interest (if you know what’s going on) and probably the next potential story to reap future returns while Mr. Market has not taken any notice yet.

FFN: You are well-known for your brand of qualitative analysis. What are the things you look out for when researching into companies?

Ken: To put it short on qualitative basis, I would ask the basic questions first such as how does this business operates, the origin of their revenue, how majority of the company funds are spent, the company track record and in what way does the management plan to take the company forward (forecast).

Most importantly, what’s special about the firm’s capabilities such that the drawing power to generate revenue is great? For instance, it could be cost leadership to product differentiation.

Combine with the state of the industry to future trends expected, so that you will gain a wider perspective. Lastly, if you can, don’t be an armchair researcher only.

Talk to professionals in the particular field, invite them for coffee or link up with them via social media, so that you can ask questions (give something in return like a barter trade). Cross-regulate the details with your primarily observation and secondary research.

The truth is – if I do not understand the dynamics of the above, I will not be able to comprehend their business model. I will invest through my circle of competence and key areas that I know well. At least, I will sleep comfortably and focus my energies on other worthwhile things in life!

FFN: What are the mistakes you have done pertaining to investing and what are the lessons learnt?

Ken: When I first started, I bought into shares of companies based on the recommendation of brokers. I did not realize the true nature of certain businesses such as soy-based businesses. What made it worse was I did not exit early and that the advice by analysts changed fast. When I reflected back, I realized that my knowledge in this field was minimal. Furthermore, I did not stick to my principle but was lured to the promising returns by looking at the depressed share price only. The price went lower and lower and I sold it at a loss. Eventually, the company was suspended from the stock exchange due to corporate governance lapses. I believe the fundamentals of the company to the business model remains essential in the first step towards sound investment.

FFN: What psychology do people need to succeed in investing?

Ken: Be confident of your own abilities in investment and avoid the market noise. If you have a sound plan and did prior research, stick by it as you know your strengths well.

Wealth comes at a price, not a gift.

FFN: How has the investor in you evolved over the years?

Ken: I have learnt to invest based on my strengths, not to overly diversify and to void out the unnecessary destructive market noises. You just need a few “ultimate winners” in your portfolio.

FFN: What advice would you give for beginners who want to start investing?

Ken: Set aside a small fund to buy up the common shares of the companies. The objective is not to make a profit but to put your strategy into real-time action. Through the experiences and mistakes made, you can find out the type of investor profile while polishing your investment skills. Then, you can cater the relevant asset class to your goals and expectations. You can have a wonderful reference figure to learn and replicate but your investment style is uniquely YOU.

FFN: What do you thing is the biggest misconception people have about money?

Ken: To be rich is to take shortcuts and this explains why money scams exist always!

FFN: What is the one thing, in your opinion, do people need to succeed in investing?

Ken: EDP– Effort, Patience, Discipline

FFN: A parting shot for the readers?

Ken: Have fun while investing because true interest breeds success

You can visit FFN (financially free now) investment blog at:

Tuesday, January 1, 2013

Parkson Retail Asia

Happy New Year to all my readers!

I will like to touch upon an interesting company – Parkson Retail Asia. As usual, my article focuses on the qualitative insights since there are sources on the firm’s financial health.

The roots begin when Parkson Holdings Bhd was incorporated on 26 August 1982 as a private limited liability company under the name of Amalgamated Cement Mills Sdn Bhd. In 1988, it changed its name to Amalgamated Containers Sdn Bhd.

It was publicly listed on Bursa Malaysia in 1993. It is now an investment holding company with stakes in Parkson Retail Asia and Parkson Retail Group Limited, listed on the Singapore Stock Exchange and Hong Kong Stock Exchange respectively. Lion Group owns Parkson Holdings Bhd.

As a major department store retailer, Parkson is Malaysia second largest operator with 37 stores, 20% market shares as of 2012 (source: The Edge Singapore, December 31, 2012). The number one is The Store Corporation with 26% market shares as of 2012, the only local retailer with outlets established in every state of Peninsular Malaysia. Parkson key focus is in emerging growth markets across Southeast Asia. Apart from Malaysia as their stronghold, Parkson has overseas presence in

1) Vietnam - 7 stores, number one department store retailer in retail market shares

2) Indonesia - acquisition of Centro Department stores from Indonesia Sentosa’s Group

According to Parkson company data as published in DMG report, majority is fashion and apparel (55%), 27% is cosmetics and accessories, 14% household and 3% is groceries. Parkson private label apparel products include Linea and Alexander, Dis Direction and Weekenders which are positioned to middle and high end consumer groups. This would be Parkson market segmentation. Southeast Asia middle class professionals will continue to grow as wages rises which make business sense for Parkson to target their loyalty campaigns to them. Therefore, Parkson offers them unique shopping environment and premium brands such as Gucci, Diesel, and Replay. In addition, imported cosmetics are highly sought after by this range of income class.

Parkson refreshing concept

Case in point – In early December 2012, Parkson launched the Shape Sensation Concoon by lingerie maker Triumph at the women’s undergarments section at its KLCC store in downtown Kuala Lumpur. Female shoppers are able to try on Triumph’s latest Shape Sensation range in the privacy of an enclosed cocoon and receive fitting consultations by qualified sales assistants.

To sustain the competitive advantage in the crowded store-based retailing marketplace, primarily the non-grocery sector, Parkson believes in creating new concepts and layouts just like the example above. You can’t simply just price the goods cheaply through bulk volume or import foreign brands, have year-end sales and hope for revenue to jump two to three fold. Simply put, innovation with tenacity to capture the typical shoppers’ mind is the key to gain repetitive customers and this is what Parkson has done while monitoring the markets closely. It is a double edged sword because if you do not meet the customer’s expectations and focus on the declining product/marketing mix, you can probably end up frustrating your bottom line (think of Marks & Spencer women wear – any style?).

Online shopping

One may mention about the rise of online shopping against brick and mortar shops. Yes, there is the explosion of group buying website in China and parts of Asia. Yes, there is the convenience of finding what you need or probably head down to your nearest apparel shop, get the information and purchase through the internet since the goods are cheaper.

Mr. Alfred Cheung, group CEO of Parkson Retail Asia, figures that online shopping in Asia will eventually make up 8% to 14% of the entire market (and that’s not huge). In October, Parkson has launched an e-commerce portal that enables customers in Malaysia to order merchandise online. Cheung plans to replicate similar systems over time across the overseas markets.

What this means?

As of now and probably the next few years in Asia, due to host of factors like household nucleus, consumer demographics, shopping patterns and most importantly, the sense of touch, feel and be complemented by your friends when you match with different designs of clothes - give the possibility of department store format to exist. Predominantly, department stores have the ability to capture much larger market shares. A general observation of apparel retailers is to take a walk down the cashiers’ queue, H&M in Orchard, Singapore. Overseas, families shop for clothes and footwear in malls at Indonesia.

Parkson recognizes the e-commerce threat, takes the first course of action in local market yet understands that consumers prefer to shop in groups or with loved ones, so their strategy concurs with store openings.

There is an exception with specific products like books and music. No matter how you flip the book, the contents remain unlike fashion where different personalities carry different characteristics. Looking through the fitting room mirror combined with excellent atmospherics, a piece of scarf, wrapped with a long sleeved shirt and tailored light pants weave the magic in a particular individual. You can't get that experience through online. Then, there is the unknown cyber crime

Secondly, larger Apparel Retailers are complementing their merchandises with their exclusive websites – not to shift the buying completely online but to introduce new merchandises and induce their customers to head down to the stores to buy. Social media builds up the hype.

Downsides of Parkson:

1) Foreign exchange since earnings are captured in local currencies

2) Overly dependable on concessionaries (see explanation in later paragraphs)

3) Country risk such as main revenue contributor is from Malaysia

4) Competitive pressures from major department store operator like Isetan, Takashimaya

5) Unlikely profitable in short term - department stores take 3 years to entrench their position

Expansion pipeline

1) In September 2013, Parkson will open its first full-fledged department store at the St Moritz, an upmarket shopping mall, Puri Central Business District, West Jakarta, Indonesia

2) Foreign operator - expand to the recently liberalized economies of Myanmar (slated to open in March 2013) & Sri Lanka through partnerships with Yoma Strategic Holdings and Odel respectively. Parkson forms a joint entity with Yoma with 70% stake

3) In 2013 - 2014, Parkson likely to be the first department store opened in Phnom Penh, Cambodia

4) More stores opening up in Malaysia and possibly Cambodia etc.

Why Parkson is appealing

1) Potential growth story in Asia in mid/long term plans - first mover advantage and experiences in penetrating across emerging markets of Asia as Parkson built a track record in Vietnam and China over the years

2) Methodology of how revenue is earned - The Group enters into concessionaire agreements with certain suppliers (known as concessionaires) who display and sell their products in designated areas of the stores. After collecting the payment from the customers, Parkson draws out 15-30% commission (excluding groceries and perishable products) from the total sales of the concessionaires and remit the rest to them

3) Asset light business model – the concessionaires bear the inventory costs, fit-outs, selling and shrinkage charges, repair and maintenance as ownership belongs to them. What Parkson provides is the general lightning, space, and customer service training

4) Management is optimistic yet not overly aggressive in entering new frontier markets like Sri Lanka, Indonesia and Myanmar. Their acquisitions and partnerships enable Parkson enter untapped markets in the region quickly with lesser risk, thus managing their debt and preserving effective cash reserve for attractive opportunities. For example, the first store opened in Myanmar is relatively small (one-third the size of a typical Parkson store, which spans 100,000 to 150,000 sq ft) and is a good platform to test the market, build up a talent pool, launch advertising and promotional campaign and assess local consumer trends and behaviour before developing further plans. If Parkson proceeds ahead to open a larger outlet, their CAPEX will increase alongside with new stores and refurbishments

5) Caring service to strong consumer loyalty programs – for instance, Parkson has enhanced the shoppers’ experience by including an escort service to the multi-storey car park, as well as porter, wheelchair and delivery services


In summary, the point of Parkson venturing into high growth areas like Myanmar to Sri Lanka make the investment attractive. For me, I am vested into Parkson and have taken into account the advantages and disadvantages. In future, I hope is that the proportion of revenue streams of Parkson can be increased through house brands (student Fashion Designers, linking with design schools), rental income (sublease to fast food outlets, restaurants, salons etc.) and retail consultancy fees. Thus, Parkson earnings will not be impacted largely by concessionaires as the agreements are renewable and there is always the slightest chance of the suppliers moving out to their exclusive stores.

As of now, I do not expect earnings to increase in FY2013 but await the story to ripen in the next few years- value to significantly grow and unlock over the longer term. 2013 is a year to watch for Parkson with their new store openings. I am not too overly concerned over the current sluggish price but will add more to my position should the share price drops further.

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