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Tuesday, September 17th, 2019

Where is the money?

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by April 22, 2017 General

THE case of China Ouhua Winery Holdings Ltd illustrates the risk involved in investing in China companies listed in Malaysia.

Often times, we have heard how some of these companies may indicate that they have cash in the bank in China, but accessing that money is another story altogether.

The good news is that the auditors of China Ouhua have been highlighting this concern for a while now. They have on a few occasions, one just this week, qualified their opinion of China Ouhua’s accounts over a December 2013 purchase of state-owned property – the deal hasn’t been completed although 90% of the price has been paid. The auditors say there is no evidence to show that the monies are recoverable.

There have been other cases. Early this year, the Singapore Exchange (SGX) filed complaints with the authorities in China against the head of China Fibretech Ltd, which was listed in Singapore. A newspaper article suggested that SGX had done this likely because it had some indication that the Chinese authorities may be willing to respond to the complaint.

In China Ouhua’s case, it is left to be seen how this matter will be resolved. Perhaps, the relevant Malaysian and China authorities are already in discussions at this point. Also, with its auditor having raised the matter, China Ouhua’s officers, especially its independent directors, ought to step up the investigation into this. Shareholders also ought to pressure their company to sort this matter out. China Ouhua isn’t the only listed company to have had its auditors raise concerns about its financial books. But when it concerns locally listed companies which take their money abroad, it does seem a bit more challenging to fix the matter. This is why companies listing here who want to use their proceeds abroad ought to go through more stringent checks by all stakeholders.

Liberalising insurance

THE move by Bank Negara to further liberalise the motor insurance industry is timely, as it should spur innovation in the sector, resulting in better and more consumer-friendly products. On Friday, Bank Negara introduced a flexible pricing for comprehensive motor and third-party motor fire and theft insurance products, which will be effective on July 1. This means that soon, premium rates for such policies will be determined by individual insurers and takaful operators. How is this helpful?

In the short term, it is likely to result in premium increases. This is simply due to the gap that exists between third-party insurance premium collection and the incurred claims and expenses of these classes. In the longer run, vehicle owners with lower risk profiles will be charged lower premium rates, while those with higher risk profiles will be properly incentivised to undertake measures to reduce their risk exposures.This phase of de-tariffication paves the way for user-based insurance. This is where insurance companies can have more dynamic pricing of their premiums based on driving patterns of the people they insure. This is achieved using telematics, which, in turn, is enabled by the Internet of Things, where devices (vehicles in this case) are connected to the Internet for monitoring purposes.Bundle that with data analytics and artificial intelligence, among others, and you can have a slew of new products that are more tailor-made to the consumer.

And it is not only about technology. Issuers of these products should take advantage of the liberalisation of rules to craft and design products that are simple to understand. Some new insurance products for drivers take the shape of mileage-based insurance that can grow into pay-as-you-drive insurance. Insurance start-ups in the West are offering some cool products – Guevera offers
cheaper car insurance by providing a digital platform for groups to pool their premiums together online, with savings of up to 50% to 80%, while Cuvva offers hourly insurance, for example when you want to borrow someone’s car.

Yet another positive spin-off is that the use of these innovations can also curb fraud. Experts say that with the whole connected car scenario, there will be more transparency and decisions will be based on available, reliable data. Now that the regulator is levelling the playing field, insurers ought to step up the game to provide us with better products.

What goes up must come down

IT was the curious case of two letters of intent for Anzo Holdings Bhd.

The company, formerly Harvest Court Industries Bhd, saw a spike in trading and its share price within a month almost doubled and fell back to earth after the effects of two letters of intent for property developments were digested by traders.

Anzo’s share price started its charge upwards from March 1 when it moved from 26 sen to 29 sen. Its share price kept ploughing upwards and on March 22, Anzo announced that its subsidiary had received the first letter to build a hotel in Malacca for RM109.3mil. Its shares were at 38.5 sen on that day. The shares kept chugging upwards, consolidated for a bit then spiked to 60 sen on April 13 when Anzo announced getting another letter of intent to build a RM1.21bil mixed property development in Gombak from a company in which its top executive and major shareholder, Datuk Chai Woon Chet, was a major shareholder.

But interestingly, Anzo’s share price started its descent after receiving a potential contract that was much larger than the first.

In a space of less than 30 days, the volatility of Anzo’s share price attracted the attention of the stock exchange, which twice queried the company over the sharp movements in its share price. And in that time, Anzo disclosed a significant fact that the second letter of intent was a not legally binding document.

For a company that for the three quarters to Dec 31, 2016 reported a net loss of RM5.9mil on a revenue of RM4.7mil, the potential projects from the two letters of intent could be a big deal for both its fortunes and its shareholders, but there is uncertainty whether it will seal the deal for the larger contract.

While the gyrations of Anzo’s share price attracted the quizzing eyes of the regulators, one thing that is clear from this episode is that there are a number of investors who must be wondering what happened after Anzo’s share price plunged? It might also be a lesson for many punters and traders out there: Don’t always chase hype.

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