One major customer of our EMS segment changed its receiving system in March 2017. As there was a major technical glitch discovered in their new system, the customer is unable to process their payments to the Group. Based on our Group’s policy on credit control, we are required to provide impairment for doubtful debts which are overdue over a certain period, therefore a provision of RM11.243 million is made during this quarter. Management estimates that these debts will be able to collect by the fourth quarter and maintaining such provision during this quarter is necessary in accordance with our Group’s policy.
The major source of revenue and earning of the Group comes from its manufacturing segment (98%). For EMS activities (77%), orders are expected to increase steadily from existing customers and potential customers through its fully built-up vertical integrated manufacturing facilities which have been in operation for the past 5 years.
Revenue derived from the manufacturing activity of raw wire & cable (18%) will continue to grow, with consistent profit margin for the rest of the financial year. The cost of its two main raw material i.e copper and PVC are expected to increase in the near future, enhancing its selling price and securing more orders from its customers.
Prospects for the rubber glove manufacturing sector remain strong with increasing demand arising from switching trends towards nitrile glove. Nitrile glove now accounts for 61% of Malaysian rubber glove export. Hartalega NGC is on-schedule to meet this rising demand with progressive commissioning of Plant 4 and started the construction of Plant 5. The increasing contribution of NGC to Group sales revenues would help to consolidate margins and contribute further to Group earnings.
The Board expect the prospects for the rest of the financial year to remain challenging due to the weak prices of cement caused by the intense pricing competition and over capacity. Infrastructure roll-outs may be insufficient to make up for the present lull in demand for cement primarily caused by the soft property market.
In particular, Shangri-La Hotel Kuala Lumpur is expected to achieve improved operating results for 2017 as it continues to reap the benefits of its newly renovated banqueting facilities and all-day dining restaurant. In addition, Hotel Jen Penang should continue to grow well, after the completion of its major renovation programme in June 2017. The hotel’s enhanced room product and facilities should support further increases in occupancy and room rates.
In the current quarter ended 30 September 2017, the Group has disposed 100% equity interest in a subsidiary, PETRONAS Energy Philippines, Inc (“PEPI”) and 40% equity interest in an associated company, Duta Inc to P-H-O-E-N-I-X Petroleum Philippines, Inc., an external party of the Group for a fair value consideration of RM560.5 million resulting in a gain on disposal of RM424.6 million.
While the construction of the entire farm will take up to five years, it is hoped that by the second year of construction, the Indonesian operations will have the capacity to produce some four million broilers per month and three million eggs per day.
“According to an Orissa International report, global poultry consumption is predicted to grow by 27% to 28 million tonnes by 2023 – with 40% of that growth in Asia. In South-East Asia, the growth of incomes, population, urbanisation has translated into a growth of demand for animal products. The surge in demand for animal protein resulted in a significant increase of meat – mainly poultry and pork. Poultry is the largest livestock sector in Malaysia, Thailand, and Indonesia. Malaysia’s poultry meat per capita consumption is among the highest in the world, consumed 1.8 million chickens and 2.8 million chicken eggs daily.”
“Indonesian poultry production is estimated at €10bil (RM49bil) in 2015 with broiler meat accounting for three-quarters of the total. The poultry meat sector is projected to grow 70%-90% by 2020 if GDP increases by 6% per annum. The layer industry is also projected to grow at 50%-60% of the broiler sector.”
Being a Tier-1 manufacturer, with research and development (R&D) and engineering capabilities that match that of a design house’s, Lim said Salutica co-develops products with brand owners instead of just manufacturing based on specifications given by clients.
However, maintaining that Tier-1 manufacture’s standard comes with a high cost, Lim admitted. Unlike many second- or third-tier manufacturers, Salutica is Responsible Business Alliance (RBA)-compliant, a code of conduct that Lim said the top 100 technology companies in the world — including many of its customers — subscribe to and impose on their Tier 1 suppliers.
“Fobo Ultra for commercial vehicles was more complicated than we initially thought. Negotiations with fleets and logistics firms took longer than expected because most fleet owners were sceptical about a product that was made in Malaysia. But [sales] have picked up slightly at home,” said Lim. All MRT (mass rapid transit) feeder buses in Malaysia under the Volvo brand, according to him, have been equipped with Fobo Ultra since the end of last year.
“With this development, we could leverage on the collective experience of the enlarged team for best practices for vertical solutions and provide additional analytics, which include artificial intelligence. Currently, we’re collaborating with some other technology players to provide these additional solutions. We’re anticipating some form of AI solutions by next year but it’s an ongoing process for us.”
“Moving forward, once the acquisition is completed, Hong Kong will play an important role. Similarly, earnings growth should be quite evenly distributed among Singapore, India, Hong Kong and Southeast Asia (excluding Singapore).”
This is not the first time Hexza has made an impairment loss of finance lease receivable due to the Tembusu Industries Pte Ltd’s payment default. In FY17, the Ipoh-based company made an impairment loss amounting to RM6.95mil, being the amount due but not paid by the lessee.
To recap, on Jan 30, 2015, Hexza inked an agreement with Tembusu to buy part of the equipment for a 8MW heavy fuel oil power generation system located in Myanmar from Tembusu for US$6mil (RM25.3mil), after which Tembusu would lease back the equipment from Hexza at a monthly rental of US$130.205 (RM549,937) for 10 years.
“Now we want to build exports as our third pillar on top of our existing markets in Malaysia and Thailand,” said Lim. The company is looking to achieve stronger top and bottom lines — at levels seen in FY16 — next year, he added. “We have set a target for annual exports to hit RM500 million by FY20,” said Lim. The company is not looking to export excess capacity, he said, but will instead increase its output for the segment.
F&N is undergoing a three-year RM500 million capacity expansion plan which it initiated in FY17. It has completed four milestones with five more upgrades to go, which Lim said are on track to be completed separately in FY18 and FY19.
“We are also de-bottlenecking some facilities. These require much smaller capex (capital expenditure) at around RM5 million per project,” said Lim. “While the value is smaller, a simple upgrade can increase the annual output of our dairy product manufacturing plant in Pulau lndah by one million crates, for example,” he added.
F&N foresees the bulk of its exports to revolve around dairy products, said Lim, which provide higher margin — at between 10% and 12% — compared with other products such as packed beverages.
The PKFZ was initially modelled after Dubai’s Jebel Ali Free Zone, which is such a success that it contributed over 20% of Dubai’s gross domestic product. More than 30 other free zones have been set up in the United Arab Emirates, which were modelled after it.
The GST Act is deemed to have superseded the Free Zone Act 1990, taking away some advantages available under the Free Zone Act for free trade zones such as the PKFZ.
“So today, as far as free zones are concerned, the supply of goods is not an issue, but [the] supply of services is — as tax is applicable. They (customs) say it can be claimed back. But do you understand how business is done in the free [trade] zone? There are foreigners there. If you tell them that in order for them to claim back the tax, you have to employ an agent and other requirements, they will say ‘Why is it so difficult? In Singapore, there is no such issue’.”
Southeast Asian policy makers face rising pressure to start preparing for rate increases in the face of higher U.S. borrowing costs. Bank Negara Malaysia is forecast by economists as among the first to move. The economy is stronger with the government predicting growth of at least 5 percent until 2018 as it boosts infrastructure.
Inflation quickened to a five-month high of 4.3 percent in September, but is projected by the government to average between 3 percent and 4 percent this year. A general election due to be held by August 2018 is among reasons the central bank may hold off from raising borrowing costs just yet.
“Over the past three years, government agencies’ participation filled the gaps nicely as private developers went through a gestation period to move towards the smaller-margin affordable housing segment. But moving forward, when supply keeps up with demand, government agencies and private developers will begin to compete on an unlevel playing field.”
In a country where women are likely to drop out of the labor force when they have children, Najib is making a push to reverse that. He’s giving women a one-year tax exemption if they return to work after a break of two years or more, offering longer paid maternity leave for some and reducing working hours for others. In the U.S., there’s no national requirement for paid maternity leave.
Malaysia is losing out to low-cost and low-end manufacturing newcomers like Vietnam, but lacks the kind of skills and innovation that’s propelled Singapore and South Korea to more advanced status. Najib’s target is to make Malaysia a high-income country in the next three years, a feat that would require boosting per-capita income to $12,476 — which is the level the World Bank uses to define a high-income nation — from about $10,000 now.