Rightway Technologies

Sunday, July 16, 2023

The economics of the sport of golf, a game of patience as well as strategy

MST Golf's is a one-of-a-kind listing and therefore would enjoy a scarcity premium.

THERE is a joke in the golfing community, ask a man to wake up before sunrise, there will be a million excuses.

Ask a man to tee off at dawn, he will be right on time. In the years I have played the game, I have witnessed the laziest people putting the utmost effort into improving their golf swing.

The amount of money spent on equipment, coaching, practice rounds in the driving range, club membership fees, travel and flight expenses to overseas golfing trips is mind-boggling.

This sport is by no means cheap and compared to other equipment sports like ping pong, it is incomparable.

However, once you start the game, you will be hooked for life. Every single round of golf is different.

The experience of playing with different people and courses makes it even more interesting.

So, what has all this got to do with business or the stock market?

Well, we have a highly anticipated

Main Market initial public offering (IPO) coming soon, which is the MST Golf Group Bhd listing.

For those who play the game, MST is a household name for golfers. It has been around for as long as I was born.

Over the years, MST has grown from a single retail store to controlling more than 51% of the local golf equipment retail and distribution market in Malaysia.

It is also the second largest golf retailer in Singapore. Although some older establishments such as RGT Golf, Desa Golf House, Transview Golf and others still exist in the market, none of them have seen the growth rate and expansion the way MST has done through the years.

A game of passion

Golf as a sport has been growing tremendously in the past century since its founding in Scotland in the 1860s. Today, there are over 80 million golfers and 30,000 golf courses globally.

The United States, Japan and South Korea are the top three countries which dominate global golf participation.

Based on the World Golf Report 2023 data, worldwide golf equipment and apparel market hit Us$20bil (Rm93bil) in 2022 of which Us$11.1bil (Rm51bil) was in equipment sales and Us$8.9bil (Rm41bil) in apparel sales.

There was also a major surge in worldwide sales in 2021 with an annual increase of more than Us$5bil (Rm23bil).

The sport is so popular that a seismic change in the golfing landscape occurred in 2022 when a new professional golf tour funded by the Public Investment Fund (sovereign wealth fund of Saudi Arabia) known as LIV Golf started and challenged the historic PGA Tour.

The prize fund up for grabs for a single season tournament reached a staggering Us$400mil (Rm1.8bil). Top-ranked golfers were offered hundreds of millions just to join LIV.

The PGA Tour reacted by banning professional golfers who played on the LIV golf circuit and multiple legal suits were filed between the two organisations.

Ultimately, a resolution appeared to be in sight following the news that a potential merger will go ahead between the two franchises. A Netflix documentary on golf, called Full Swing, depicts the sport’s evolution.

Golf as a sport has a huge market not only in terms of the annual growth rate of the number of players, but it remains the most lucrative sport in terms of the prize money and sponsorship deals.

We can see the continuous sponsorship of Rolex and other premium brands plastered all over golfing events.

Market leadership

MST’S IPO was oversubscribed by 5.28 times. This is a good performance considering it is a Main Market listing looking to raise Rm130mil for expansion.

At the IPO price of 81 sen, the market cap upon listing is expected to be Rm665mil. This is a rather huge IPO and not comparable to smaller ACE Market listings.

The question on some retail investors’ minds is that recent Main Market listings have been disappointing such as DXN Holdings Bhd, Radium Development Bhd and more recently Skyworld Development Bhd.

Some are concerned that the sentiment may impact this IPO as well. I am of lesser concern because the true value of the company lies not only in which market it lists but also its business itself.

Apart from the clear market leadership position of MST, many from the investment fraternity have used MR DIY as a peer comparison. I have also seen some other commentary using other retailers such as Innature, Senheng, Padini and others which are in the consumer retail space.

This led to the misconception that MST is listing at a very steep valuation. MST in fact is a specialty retailer and distributor of equipment for a global sport catering to the segment of consumers with the highest disposable income.

MST is very different from the other above-mentioned consumer retail companies which target the masses.

Furthermore, due to its track record and entrenched market share, we are unlikely to come across another golf equipment retailer and distributor company listing on Bursa Malaysia in the years to come. This is a one-of-a-kind listing and therefore, would enjoy a scarcity premium.

Ideally, I would like to see MST perform as well as MR DIY on listing day and the weeks to come.

However, the distinguishing factor that I believe would see MST sustain and do better for the longer horizon is because the MR DIY listing does not include the businesses in its other foreign markets which it expanded to such as Indonesia and the Philippines, etc.

For MST, the listing of the group includes all markets and MST is only starting to venture into Indonesia and Thailand; both are huge golfing markets by the sheer number of their population, popularity of golf tourism and burgeoning middle class.

A better peer comparison in terms of the valuation for MST would be Us-listed Topgolf Callaway Brand Corp.

It is one of the most popular golf equipment brands with a long history of being golfers’ favourite. Callaway has historically traded at an average forward price earnings (PE) valuation of 31 times. The immediate forward PE valuation is 23 times.

On the premise of the same valuation metrics, the likely intrinsic fair value for MST in 2024 is not too far off from TA Research’s recent report.

I often likened investing in the stock market to playing the game of golf. It is a game of patience, prudence and strategy.

A lot of practice and dedication is required to be good at the game.

Additionally, this is one sport where the biggest competitor is yourself and not your opponents. Consistency is the key, and one swallow does not make a summer. It is a long game.

Investing in the right company within a short span of time is meaningless if you cannot maintain the performance over a long duration of time.

Ultimately, the one who is regarded as a good investor, like a good golfer, is someone who consistently beats the market and surpasses their own performance over a long duration.

Golf is one sport that has a long-life span. It is a game that one can play until a ripe old age. Unlike badminton, football or basketball, the cardio element and companion requirements limit the longevity of the sport.

If your elderly parents are still insisting on playing badminton on a regular basis at the age of 70 and above, I would recommend you asking them to slow down.

Golf, on the other hand, would be one that requires little concern. If anything, the long outdoor session followed by the after-game chit chat session bodes well for the elderly who enjoy companionship.

Now, for those who have subscribed to the MST Golf IPO or are planning to invest on “Gong” day, I hope my article is able to shed some light on the economics of golf both for the uninitiated and for those who enjoy the game as much as I do.

But I must put forth a disclaimer; as an avid golfer myself, my views may be coloured by an inherent bias and lack the objectivity required for a fund manager.

Whether my love for the game would help with my investment or otherwise, we shall find out on July 20.

My best wishes to all fellow golfing aficionados, hopefully we can all reap the rewards of the long game. In the event this IPO goes out of bounds at tee off, we can always try asking Bursa for a Mulligan.

Ng zhu hann

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Friday, July 14, 2023

Monthly budget cost of living estimates

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PETALING JAYA: Discussions on the cost of living in urban areas are getting many Malaysians all worked up this week following the publication of an official guide on how much families should pay for their monthly groceries.

On July 12, netizens debated whether an infographic publicised by the Community Communications Department was realistic as it stated a family of four would only need RM391 per month for groceries, with items on the list including rice, chicken, bread, eggs, cooking oil and cooking gas.

According to another budgeting guide for Malaysians put forth by the Employees Provident Fund (EPF), a single person in the Klang Valley would require a monthly budget of between RM1,930 and RM2,600 to survive, whereas a married couple without children would require RM4,630, those who have a child would require RM5,980, and those who have two children will require RM6,890.

The guide suggests that singles should allocate RM610 for their monthly grocery budget while married couples without children should plan to spend RM960 on food each month.

For couples with one child, the monthly allocation for food should be RM1,420 while those with two children can cap it at RM1,690.

EPF stated that these were merely guides to assist their contributors in budgeting wisely, in accordance with their locations.

Checks on the ground showed that many income earners are trying to stretch the ringgit by buying cheaper meats such as chicken instead of seafood and shopping at cheaper places.

For mother of four Norlaili Aryati, 48, who lives at the Intan Baiduri People’s Housing Project (PPR) in Kuala Lumpur, the Community Communications Department’s suggestion of RM391 would barely cover essential food items for her household.“My household would need about 10 chickens per month as the children do not like to eat fish, and chicken is also cheaper than fish. One chicken can be priced at RM20.

“Just the food – both wet and dry items – would easily come to about RM1,000. My household income is now RM5,000 as three of my children are working and only one is still schooling,” said Norlaili, who makes a living babysitting for her neighbours.

She said that her grocery bill is her largest expense, so she has decided to reduce her spending on school transport and instead rely on the free bus services offered by the Kuala Lumpur City Council.

Lower middle income earner and portal sub-editor Khayrana Pilus, 49, from Seremban, said that eggs and chicken are her mainstay for her household with four children.

Khayrana, whose household income is about RM7,000, said at least two chickens are consumed in her house every week.

“I do not cook much vegetables as the children would not eat them, and it would just be for me and my husband. I would buy milk and cereal on pay day.

“I don’t buy cheese or butter, as they are too expensive. RM1,000 is what I spend on food every month. Luckily, I work from home, and this allows me to cook and skip eating out,” said Khayrana.

Housewife and mother of three, Prema Pekasam, 52, of Petaling Jaya, said she still watches her bills even though her household income may be in the top tier.

She said that her children, aged between 17 and 23, are still studying, and much of her household income goes for their education.

“I make sure that my grocery bill does not exceed RM2,000 every month. I cook almost every day as my children, even though they are in their early 20s, still bring packed lunches to college.

“Fresh items and groceries alone would come to between RM1,300 and RM1,500. My family also consumes about 15kg of rice a month.

“I go to wholesale marts such as NSK to buy my chicken as it is cheaper there. While supermarkets elsewhere may sell chickens for RM11 or more per kg, it is only RM8 per kg at these wholesale outlets.

“Every month, I would buy four whole chickens and also chicken parts. A supermarket trip would cost me about RM300 for a full trolley,” said Prema. Subscribe now to our Premium Plan for an ad-free and unlimited reading experience!

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Janet Yellen's visit to China: the world has not changed, what has changed is China. China has become stronger

@taytakwang161

Let Yellen yell all she wants but China just humbly listen and then says it needs to clear off a big chunk of Us OLD Treasuries debt first, only then will consider to buy new ones. However buying new Treasuries now will mean supporting their incoming huge military budget which is really a big security threat to world peace

This is how Yellen negotiated with China. She proposed to cancel the additional tariffs imposed during the Trump era, but requires China to meet the 3 following conditions:

1. Buy $850 billion US treasury bonds

2. Withdrawal of China's counter-sanctions (export restrictions of the two rare metals indispensable for the making of high-end chips etc)

3. Pledge not to support Russia.

All these conditions are unilaterally advantageous to the USA. Tariff removal will to some extent advantage China. However given 90% of the cost of the tariffs are borne by US consumers, it will mainly serve to bring down the US inflation.

Secondly, Yellen wants China to forgive the BRI debts. Thus, the cash flow derived from the infrastructure projects China financed and built for developing countries will be repurposed to pay back debts of US banks and the IMF. So in the end, everything China had built for the Global South will serve as the collateral when these countries borrow from the US.

Americans must be very proud of the extremely clever way their politicians has aggressively protected US interests from the position of strength.

China answered - *NO*.

Not surprisingly the US is nostalgic of the era of the eight allies invading China in 1900. A photo of that shameful event is still hanging on the wall of the US military headquarters and another such photo is on the wall of the US embassy. The US 'sensitivities' obviously doesn't apply to China. Imagine if on the US embassy walls were hung pictures of their ancestors' slave markets, or their early settlers giving smallpox infested blankets to the American natives.

In 1900, China was as helpless as the American Indians when they were facing European invaders. The westerners had advanced weapons, forcing China into total submission within months from the start of any war with them.

China subsequently were forced to sign the unequal treaties, such as the Boxer Protocol, one of the many unequal treaties that marked China's one hundred years of humiliation, having to hand over war compensation of 18,000 tons of silver to these invaders. Lands and ports were turned over as foreign concessions.

The eight country alliance, (ie, the current G7 plus Russia) carved up China amongst themselves. The world has not changed, what has changed is China. China has become stronger. This is China's patriotic lesson from these westerners. The historical shame is deeply burnt into the psyche of every Chinese, including those overseas Chinese who still regard themselves as Chinese.

Yellen invited a group of pro-American feminist economists to dinner. While Pro-Chinese academics in USA are under CIA/FBI surveillance and are frequently thrown in prison and charged for espionage, Yellen is free in China, she can meet anyone she pleases.

As usual, Yellen told her Chinese guests that the USA government is only against the Chinese government but not against the Chinese people. She seem to suffer from an information lag. Twenty years ago, many Chinese liberals bought that. Today, Chinese people don't buy that anymore.

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