Regional Notes 2018.05.18

Japan seeks private sector’s help with blowout health costs

Faced with an aging crisis that’s projected to push up heath-care spending by more than 50 percent in the decade through 2025, the economy ministry is leading efforts for local governments to draw on the expertise of private companies.

The focus in Japan is preventive medicine, which could in time cut trillions of yen from government spending, according to Shinichiro Okazaki, an official overseeing the effort at the economy ministry in Tokyo. The nation’s annual health-care spending is forecast to reach 54 trillion yen ($500 billion) in 2025, according to the health ministry.


Short-term transitional issues expected in shift back to SST

“GST as you know covers everyone, retailers and traders. On the other hand, sales tax only covers manufacturers while services tax covers certain prescribed services such as professional services, so there must be a thought process on the transition to SST. Also there are still GST issues hanging around such as liabilities to be settled, so having transitional rules in place is going to be a challenge, and it is not something that can be done overnight.”

Meanwhile, there is the issue of how the government would make up for the shortfall in revenue with the abolishment of GST. Last year alone, some RM44 billion was collected in GST revenue. SST, according to chairman of the board of trustees of the Malaysian Tax Research Foundation SM Thanneermalai, used to only contribute about RM17 billion to the government’s coffers before GST came into force on April 1, 2015.

“That, to some extent, resulted in discontent for many, particularly in the B40 group, who were not previously taxpayers from the outset. Despite the fact that there are a multitude of exempt and zero-rated items, GST still translates into a significant amount for the B40 through its impact on prices, so the abolishment is most certainly a boon for this group of Malaysians. But it is left to be determined if the abolishment of GST will result in retail prices being adjusted downwards and in what manner and form.”


Malaysia sees favorable growth outlook as policy risks mount

The government must still outline how it will raise enough revenue to fill the GST gap in order to keep the budget deficit under control. The Finance Ministry said on Thursday the move will be “cushioned by specific revenue and expenditures that shall be announced soon,” with plans also to re-introduce a sales-and-services tax.

A revenue squeeze may prompt the government to cut back on spending, while a review of infrastructure projects could put a halt on construction, curbing growth in the economy. “It’s encouraging to see that the new government is already taking action to try and rationalize unnecessary and unproductive government expenditure,” said Goh. “We think that would actually help in keeping the fiscal balance in check.”

The gridlocked streets of Manila have become the latest battleground for Grab, despite the fact that it controls more than 90 percent of the ride-hailing market in the Philippines. With just 35,000 vehicles on its app to service as many as 600,000 requests a day, Grab has struggled to keep up with demand in areas like Manila, where an estimated 19 percent of commuters use ride-hailing, nearly double the average in other Southeast Asian capitals, according to Boston Consulting Group Inc. The challenge has created an opening for startups like Hype Transport Systems Inc. and Ipara Technologies and Solutions Inc., both of which plan to start services this month.

A Saudi-backed Asia refinery is going to be a fuel juggernaut

“The immediate impact from RAPID will lead to more Malaysian exports of diesel and jet fuel, while also reducing the need to import as much gasoline,” said Joe Willis, a senior research analyst for refining and oil products at Wood Mackenzie Ltd. in Singapore. “For middle distillates, Johor is conveniently located next to the Singapore storage hub.”

The RAPID project, operated by Malaysia’s state-owned Petroliam Nasional Bhd, known as Petronas, is due to start operations in 2019 with 300,000 barrels a day of crude-processing capacity. That’s a massive increase for the Southeast Asian country, which has a total 660,000 barrels of daily capacity now, according to Willis.

Still, Chin is hopeful the overall impact will be limited in the long-run. When RAPID reaches full utilization in early 2020, Asian refiners will be scrambling to meet a bump in appetite for the fuel as maritime rules that start in 2020 push shippers to replace dirtier fuels with cleaner ones like diesel, Chin said.

“With new mega refineries starting up in China and Saudi Arabia by the first quarter next year, there could be a brief window of weakness in diesel cracks before IMO effects kick in,” he said, referring to the upcoming maritime regulations to be implemented by the International Maritime Organization.


Willowglen sees challenging year ahead

“This year, I am not too sure, it could be quite a testing year. We should be all right in the longer term, [but] in the immediate term, there [could be] not much improvement compared [with] last year, it could be even worse.” This is due mainly to issues in project execution and delaying of awards from clients who are still resolving technical issues, especially those that are infrastructure-related.

While more than 70% of its revenue was contributed by its primary market of Singapore, with the balance coming from Malaysia, the group said it will continue its exploration of business opportunities elsewhere, especially in Vietnam, where it commenced operations a year ago. He assured that the group will not exit the Indonesian market — where it is involved in trading as well as the provision of hardware and software consulting services — but instead work on restrategising operations there to improve efficiency.

Regional Notes 2018.05.11

Govt support is crucial in the expansionary rubber glove industry, says MARGMA

Rubber glove manufacturers said today government support is crucial in an expansionary industry like rubber gloves where the world demand is now at 268 billion pieces and Malaysia produces 63% of it.

“We look forward to working closely with the new government in sustaining the rubber glove industry and maintaining global leadership as a premier producer and exporter of medical-grade rubber gloves. The export of rubber gloves is worth an estimated RM18.8 billion in 2018,” said Low.

Kossan to spend RM1.5b on new base

Kossan Rubber Industries Bhd’s sizeable acquisition of more than 800 acres (323.75ha) of land in Bidor, Perak may have “surprised” analysts, but its founder views it as a natural progression given the robust global demand for gloves. The project is expected to take six years to eight years to complete at an estimated cost of RM1.5 billion, Lim said in an interview with The Edge Financial Daily.

Kossan bought the 56-acre plot in Batang Berjuntai and 98-acre plot in Kuala Langat in 2013 and 2017 respectively, for an aggregate sum of RM130 million.

“We can’t finish that sizeable land [in Bidor]. Technically, for us, 300 acres would be good enough. So after we put up infrastructure for our own use, we will try to subdivide and sell some pieces of [extra] land to invite some of our suppliers to come and put up their factories,” said Lim. “To go for a bigger space is all in line with our future development. While we will still do what we are doing here at our existing plants, we will most likely go for segregation to achieve specialisation,” Lim said.


Datasonic sees net profit surpass RM100m in FY19

Abu Hanifah believes the potential to expand its smart ID and e-Passport project both in Malaysia and overseas is huge. “We have been receiving a lot of inquiries from neighbouring countries, particularly about our passport products,” said Abu Hanifah, adding that countries in Africa and the Middle East have also expressed interest in its products.

“We have built the next-generation e-Gate, which cuts the time [for passengers passing through the gate] by almost half to less than seven seconds. We have patented it for nine months locally and will patent it internationally. This technology is the first in the world.” The new e-Gate system will no longer use fingerprint scanning, but will feature facial recognition technology instead. It will have two cameras; one of which will first identify the passengers before entering the auto-gate while waiting in line, and the second camera will reidentify the passengers upon passing through the auto-gate.

“Under this e-driving licence, we have proposed to the ministry of transport a one-stop solution where users can apply for a digital driving licence through the web. Users can also renew their driving licence, road tax and also pay their summons [online],” Abu Hanifah said, adding that Datasonic hopes to kick-start this project after the 14th general election.

Regional Notes 2018.05.04

Malaysia vote battle heats up with focus on jobs for young

The jobless rate “hides a lot of unpleasant things in the labor market: low pay, low productivity, low skill and a high number of foreign workers,” Zakariah Abdul Rashid, executive director of the Malaysian Institute of Economic Research, said at a conference in Kuala Lumpur in April. “Those unemployed are the youth, highly-qualified individuals who can’t get jobs.”

Foreign labor has underpinned that rebound. The central bank estimates that about 82 percent of the net jobs created in 2016 went to non-residents. Unemployment among 15 to 24 year olds stood at 10.8 percent last year, according to the World Bank, while joblessness among local graduates has increased more sharply than non-graduates since 2011, data from the central bank shows.

Documented overseas workers accounted for 12 percent of the labor force last year, after a steady decline from 16.1 percent in 2013, according to central bank data. Still, adding in the unregistered workers may boost the total amount of foreign labor to as high as 40 percent according to some estimates.

J-beauty: Japan’s sleeping giant awakens

The sleeping giant of the beauty industry, “J-beauty” has woken up. Long eclipsed by the success of K-beauty, the $13bn South Korean business built on insatiable demand for innovative sheet masks, snail extract creams and convoluted skincare routines (most recently resulting in Unilever’s purchase of skin-whitening brand Carver Korea for €2.27bn), J-beauty, its older, more sophisticated sister, is now re-entering the spotlight. The Japanese business has benefited from the growth in Chinese tourists, following limits imposed on travel to Korea by the Chinese government and a surge of enthusiasm for the Olympics in 2020. Japanese beauty exports are tipped to exceed $2.75bn this year.

As Okabe puts it: “K-beauty is driven by trends, it meets those tentative needs of the consumer which are hot or of the moment, whereas J-beauty is something far more sustainable, authentic and eternal.” While J-beauty can’t possibly compete with the entrepreneur culture of Korea, which has the manufacturing speed and efficiency to bring cutting-edge trends to market quickly, K-beauty can’t compete with Japan’s far more delicate and intricate beauty rituals, their obsession with beauty (Euromonitor reports that Japan has the highest per capita spend on skincare and cosmetics) and their long-term investment in technology.

Regional Notes 2018.04.27

Grab’s acquisition of Uber Southeast Asia drives into problems

Go-Jek won’t, of course, take all the Uber alums, but these conditions certainly put it in a good position to cherry pick critical new hires to fill out its business outside of Indonesia. Other Grab rivals, including well-funded logistics startup NinjaVan, food delivery companies Deliveroo and FoodPanda, bike-sharing startups, and even the likes of Facebook, WeWork, Google and Netflix are understood to have hastily arranged interviews with Uber’s departing Southeast Asia staff in a bid to suck up new talent. That’s precisely the scenario that Grab is trying to avoid.

Integrating the ‘unbanked’ into a cashless society

In Malaysia, the population of the unbanked stood at 8% or two million of the country’s 24 million adults, according to Bank Negara Malaysia (BNM) in its Financial Stability and Payment Systems Report 2017. While this may seem small in comparison to regional neighbours such as Indonesia and the Philippines whose unbanked make up more than half the population, there is still a need to address this segment if Malaysia aims to be a full-fledged cashless society.

Lotte Chemical Titan sees no margin pressure ahead

“Our business is a margin game. As long as there is demand coupled with a limited supply, our margin will be maintained. Currently, there is limited supply capacity, and there are no new plants coming on stream until 2019.”

The group is looking to build a naptha cracker with a capacity of one million tonnes, next to its existing plant in Merak, Cilegon, Banten province of Indonesia. The mega project, estimated to cost between US$3 billion and US$4 billion, will take about three to four years to complete. Indonesia remains a crucial market for the group, as it is a net importer of petrochemicals backed by a huge population of nearly 300 million.

“When we sell in Indonesia and Malaysia, we enjoy a slight premium over international prices. [So] we are looking at duplicating our Malaysian facilities in Indonesia, and increasing the capacity as well.”


Hap Seng to buy Mercedes’ commercial vehicle business

Hap Seng said it and MBM will jointly undertake a stock take in respect of the fixed and current assets to determine the final purchase consideration. The group opines that the proposed acquisition will enable it to participate in the wholesale distribution of Mercedes-Benz and Fuso commercial vehicles in a growing domestic market.

On completion, Hap Seng Trucks will be responsible for handling the import, assembly, wholesale distribution and after-sales services of Mercedes-Benz and Fuso commercial vehicles in Malaysia. However, the business transfer is conditional upon Hap Seng obtaining the licence to import complete knocked down components from the international trade and industry ministry, which is required to carry on the business.


Nestle Malaysia hopeful to achieve RM400m sales from new products in 2018

Last year, the food and beverage manufacturer’s new products launches contributed about RM380 million sales. Hofbauer pointed out the company’s sales target contribution from new products would derived about 10 per cent of its domestic sales. Hofbauer said Nestle will also be allocating RM180 million in capital expenditures to grow its culinary and confectionery products as well as to enhance infrastructure manufacturing.

Currently, domestic consumption contributes about 80 per cent of Nestle Malaysia’s sales, while remaining 20 per cent for export market. “We export to over 50 countries including in the Middle East and South East Asia to Nestle’s affiliates,” he said, noting that the export value constitutes about RM1 billion. Nestle Malaysia manufactures and markets more than 500 halal products and the country is the biggest Halal producer for Nestle.


PetDag upgrading petrol stations and opening 15 new stations

The company, which has a capital expenditure of RM300mil for the year, has seen its previous and ongoing promotions boost fuel and non-fuel sales, with its retail segment continuing to be its highest revenue contributor.

“We have the largest network in Malaysia today with about 1,045 stations. The key focus for us will not be to grow the network much, although we are looking at opening 10 to 15 new stations. We are focusing more on upgrading our existing stations and particularly our convenience stores to boost sales. In 2017 and moving into 2018, we already have initiatives to assist dealers face the challenging market. We are revising the licence fee, providing better royalty programmes and offering better sales incentives for our dealers.”

“The volatility (in crude oil and pump prices) impacts working capital and gains or losses on inventory. To manage this, we are pushing for ultimate efficiency in managing inventory – our inventory holding days are now between four and four-and-a-half days.”

In the commercial segment, the company holds about a 70% share of Malaysia’s aviation jet fuel market, and recently secured deals with three more international airlines.

Intraday short selling measures claims first victim – Unisem

“To a certain extent, perhaps IDSS would exaggerate the downward pressure on stocks, but it won’t be severe. Regulated short selling (RSS) has already been in the Malaysian market for a while. In the latest measure, Bursa Malaysia further allows the PDT to do IDSS, which simply means they need to close out their positions within the day.”

RSS involves borrowing shares of a company’s stock and selling it with the hope it can be bought back at a later date at a lower value. Meanwhile, naked short selling involves betting that the stock will go down in price without actually borrowing the stock or finding out if there is available stock to borrow in order to short it. This can cause further volatility or leave a stock open to manipulation. RSS was banned in Malaysia in September 1997, but was reintroduced in 2007. Investors can participate in RSS so long as they have a stock borrowing and lending agreement approved by the Securities Commission.

Regional Notes 2018.04.20

China replaces U.S. as top export market in another Asian nation

“The center of trade for Asia has clearly shifted to China from the U.S.,” said Eugenia Victorino, an economist at Australia & New Zealand Banking Group in Singapore. “Trade protectionism isn’t helping and Asian nations will realize more and more that when it comes to trade, China now punches a heavier weight.”

China has displaced the U.S. over the past decade as the top export market for many Asian economies, including Japan, South Korea, Thailand, Indonesia, and the Philippines. India is one of the few countries in the region that still counts America as a bigger market for goods than China.

Vietnam’s exports to China surged about 15 times to $50.6 billion in the decade through 2017, compared with a fourfold increase to the U.S. to $46.5 billion, according to import data compiled by the IMF. With exports accounting for almost 100 percent of gross domestic product in 2017, being overly reliant on one market can pose risks for the economy. To counter that, Vietnam is pursuing free trade deals with Japan and other countries in Europe and has also joined 10 other nations in March in signing a Trans Pacific trade pact.

India may become surprise victim of trade war, Rabobank says

A tariff war will reduce exports and lead to imported inflation, which will hurt Indian purchasing power and investments, according to the Rabobank study. That could mean as much as 2.3 percent of missed GDP growth for India by 2022. This goes against the argument that India is relatively insulated from a trade war, given its low share of total world exports of just 1.7 percent.

Besides a possible trade war, a faster-than-expected tightening of U.S. monetary policy will lead to capital outflows. Rabobank’s models estimate India losing $22 billion in capital flows by 2022, with the scenario getting complicated further, in case political instability hits India. The South Asian nation heads into a national election early next year.

Singapore releases public consultation on Airbnb-style home-sharing

Condominium owners who want to rent out their property for short-term stays can do so if owners holding on to at least 80 per cent of the development’s share value agree to allow such rentals, the Urban Redevelopment Authority (URA) has proposed. In a statement, URA said the framework will look at how short-term stays can be applied to developments with common property, such as condominiums, fire safety requirements, the role of management committees and how to regulate the platform operators, among other things.


Cost of living not the problem, low income is — MIER

“Our labour market pays very little in nominal income, it is very slow-paced and the skill level of our labour market is not improving. This aggregate number [of 3.3%], it hides a lot of unpleasant things in the labour market; low pay, low productivity, low skill, and the high number of foreign workers.”

Malaysia’s labour productivity stands at US$54,400 (RM211,616) compared with Singapore’s US$125,400, according to the MIER. According to the Department of Statistics, Malaysia achieved labour productivity value of RM85,031 in the fourth quarter of 2017.

Zakariah pointed out that the minimum wage policy represents a significantly lower proportion of the median wage, so that means there is a lot of room for an increase in minimum wage. However, he also acknowledged that many small and medium enterprises could not afford to pay the living wage of RM2,700 prescribed by Bank Negara Malaysia.

PUC to invest RM90mil in 11Street

Assuming that PUC reached its investment target, it would end up with as much as 24% stake in 11Street Malaysia, with ADS holding 37% and SKP at 39%. The investment amount translates to an implied valuation of 100% equity interest in CPSB ranging from RM333.33mil to RM375mil. Post signing of the definitive agreements, PUC will have the right to nominate and appoint the chief executive officer and chief marketing officer at 11Street Malaysia.

From 2015 to 2017, 11Street Malaysia reported an achievement of more than 300% growth in gross merchandising value (GMV), 160% growth to over 13 million product listings, and 200% increase to 40,000 sellers registered on its platform. As of Dec 31, 2017 11Street Malaysia recorded a GMV of approximately RM427mil and total monthly unique visitors (UV) of 13.5 million for the month of December 2017.


JAKS Resources puts property ambition on hold

The group has no plans to acquire more land for development amid a soft property market that is favourable for big-scale developers. “When the market picks up and if the opportunity arises, we may re-enter the property market. For now, we will stay away from property development.”

In the next two years, JAKS sees the US$1.87 billion 2x600mw coal-fired thermal power plant in Hai Duong Province, Vietnam, driving the group’s profit growth. “Construction of the power plant is currently 22% complete and is targeted to reach 50% by the end of the year. There is a strong indication that work on the project will be expedited for full completion in 2020. As such, 2018 and 2019 are crucial years for us,” Lam Poah said.

In Malaysia, JAKS is eyeing to participate in public infrastructure projects involving road works, bridges, hospitals and sewerage treatment plants. “We are focused in terms of going into areas where we are strong and the chances of us winning the projects are high. We look at smaller, pocket projects such as water pipe replacement or sewerage plant instead of going after mega projects where we can’t compete with the big boys,” said Si Eeng.


Signature MD baffled by group’s stock slump

“If it’s overreaction to the slow property market, this one is a very long-winded overreaction. They compare our business to other fast-moving consumer products, where they expect the revenue or profit to be steady and consistent. Our business depends on projects and their timing. No doubt we’re down now [with the slow property market]; that’s our challenge and we have to look at how to mitigate that and improve our retail business. Also, last time our projects order book grew because we couldn’t recognise [revenue] yet as the project sites not ready, as new ones came in. That gave the impression we’re flourishing. But when projects kick off as we recognise revenue, the order book will be reduced. But that doesn’t mean we have no prospects. We still have our retail. Should I be worried about getting new projects? I think the developers should worry first. If they don’t launch, they have nothing to sell. So if they continue to have business, so will we.”

Started in 2015, the cash vouchers scheme has secured letters of award (LoAs) for about RM50 million worth of kitchen cabinetry from some 30 projects — of which about 90% are yet to be realised. Revenue realisation is slow because it will depend on completion of project, sale, and handover of units to home buyers. “It’s the opposite of our project business — where the awards are slow but realisation [of revenue] can be fast,” Tan said.


Chin Well to make Vietnam focal point for fastener ops

“In July, the Vietnam facility will start to manufacture a new range of fasteners for South-East Asian market. These new fasteners will be used to connect reinforced concrete bars used in high-rise buildings.”

“We have plans to tap into the European market with our DIY fasteners. Currently, the Vietnam facility produces about 60,000 tonnes of fasteners per year. We foresee the operations in Vietnam to contribute about 50% to Chin Well revenue in two years, compared to 30%-40% now.”

Penang residential overhang more than doubles in 2017

The residential overhang in Penang more than doubled to 3,916 units worth RM3.82 billion in 2017 from 1,896 units worth RM1.47 billion in 2016. Similarly, the unsold [units] under construction recorded a 13.9% increase with 9,249 units (2016: 8,119 units).

The primary market recorded fewer new launches with 3,879 units in 2017, down by 31.3% against 5,646 units in 2016. Sales performance for the new launches last year – of which condominiums and apartments accounted for 65% – was promising at 39%. As at end-2017, there were 497,396 existing residential units with another 44,046 units of incoming supply and 24,597 units in planned supply.


‘Repopulating’ George Town via co-working, co-living spaces

“We want to repopulate George Town, so we want to have co-living spaces on the first floor of these shophouses, while the ground floor is used for commercial activities, preferably traditional trades and artisans,” newly appointed MBPP mayor Yew Tung Seang told the news portal.

The report also revealed that MBPP has worked with George Town World Heritage Inc (GTWHI) and Think City to restore a row of council-owned shophouses on the famous Kimberley Street, as the pilot project for co-living and commercial spaces for artisans.

“Rental will be kept affordable so that people will want to come back to live in George Town,” Yew told the news portal. It is hoped that such efforts will make the inner city of George Town “a liveable space for all”.

Regional Notes 2018.04.13

Indonesia’s newest unicorn now wants to take on the big boys

Indonesia has an e-commerce market that McKinsey & Co. says can be one of the fastest-growing in the world, part of a digital economy adding $150 billion a year to gross domestic product by 2025.

Internet businesses present an attractive alternative to consumers struggling with inflation and worsening traffic congestion. Bukalapak’s aim is to profit by bridging between buyers and sellers scattered across more than 700 islands.

Pharmaniaga’s Indonesian business ‘doing very well’

“There are currently no vaccine plants in Malaysia. We are on the right track to make sure that the facility is made available. We are currently in the process of doing feasibility studies. We expect to have our first commercial batch by 2024,” Farshila said, adding that the plant would be ready between 2020 and 2022.

Moving forward, Pharmaniaga also plans to continue reducing its dependency on its concession business, which contributes 49% to total earnings currently. It plans to do this by having a better share in the private sector.

“We are also now aggressively registering our products in the EU region. We have managed to register two products so far. EU has a different set of standards but we are in compliance with that,” she said.

Pharmaniaga currently has more than 200 products, with more than 60 of them halal-certified. According to its annual report, the group expects to receive halal certification for more than 150 pharmaceutical products by the end of 2019.

The pharmaceutical group has a 10-year concession agreement with the health ministry, which began on Dec 1, 2009. The concession enables the group to supply and distribute pharmaceutical products to medical institutions under the ministry via its logistics and distribution division until 2019.

HKMA intervenes to buy local currency, first time since ’05

With record foreign-exchange reserves, the HKMA is in a strong position to defend its city’s currency, and there’s no evidence that the trading band is under sustained speculative attack. The authority’s deputy chief executive Howard Lee said Friday morning that the banking system has ample liquidity and can cope with capital outflows, which are within expectation. He said interest rates are likely to rise incrementally and gradually.

The intervention is still significant because the HKMA’s purchases have the potential to boost borrowing costs by draining liquidity. That would signal the end of an era of ultra-cheap money that made Hong Kong the world’s least affordable market for housing and propelled equities to all-time highs.

Singapore favors ‘organic’ policy in move toward open banking

The transition towards “open banking” can be more successful if it takes place without the regulator mandating action, said David Hardoon, Chief Data Officer at the Monetary Authority of Singapore. “You can come and say ‘thou shall do it’ but then nothing happens effectively,” Hardoon said in a Wednesday interview.

The MAS’s policy differs from the approach taken in Europe and Japan, where regulators have set deadlines for banks to give access to their client data to rivals and to fintech firms. In Europe, banks have until 2019 to comply with the revised Payment Services Directive (PSD2), which obliges them to share client account data.


BNM governor urges industry players to drive RPP promotion

“One such area is through the publication of open application programming interfaces, better known as open APIs. Based on our interaction with the banking community, there is interest for this among our banks. BNM’s survey last year indicated that more than 50 per cent of banks in Malaysia view open API as a high priority. Thus the industry should leverage on open API to facilitate collaboration with financial technology firms to introduce innovations and facilitate new use cases to enhance the RPP’s value proposition to businesses and consumers.”

“Of the Malaysian adult population of 24 million, we estimate that about 10 million do not use online banking, while two million remain unbanked. We look to the industry, both banks and non-banks, to come up with new and imaginative ways to accelerate the onboarding of these underbanked and unbanked segments of our society.”

Regional Notes 2018.04.06

Singapore issues first fines to Airbnb hosts for violating rental laws

In a first for the country, two men were fined SG$60,000 (US$45,800) each for unauthorized lettings at four apartments using the U.S.-based rental platform, Reuters reports. Singapore’s law prevents public housing rentals that are under six months — or three months in the case of private housing — without the explicit permission of the Urban Redevelopment Authority (URA).

Poly Glass Fibre looks overseas to offset weak local demand

“Demand in Southeast Asia is there, just that the price may be lower. But the recent anti-pollution drive in China is something advantageous to us because supply from China dropped and we see prices coming up again.”

In Southeast Asia, Fong said there are only three manufacturers of glass mineral wool insulation and Poly Glass Fibre is the only one in Malaysia. “The other two are based in Thailand and they mainly serve their home market, which is big enough. One of them even focuses specifically on the automotive segment,” he said.

“We are currently using about 65% of our capacity. Ideally we hope to reach 90%, but it would take two to three years to build up orders for our new line. So in the next one or two years, we don’t think we will do much in terms of expansion.”


LSK eyes another 30%-40% earnings growth in FY18

Securing a US-based customer represents LSK’s entry into the North American market, even as it continues to expect growth from its key customers in Asia. In particular, the group has continued to see strong growth in sales in South Korea, a market in which it enjoys a dominant position due to the group’s reputation for offering high-quality products, said Kong Sim.

Another area the bedding manufacturer has set its sights on is the e-commerce space. According to Kong Sim, the group has seen encouraging response for its products on Chinese online marketplace Taobao and it is planning to explore e-commerce opportunities on a much bigger scale. “This is part of our plan to go direct to our customers and cut out the middle man,” he said, adding that LSK has been in talks with Alibaba and its peers, and is currently on a learning curve.

Furniture exports hit RM10.13bil last year

The United States is the largest importer of Malaysian furniture in 2017 valued at RM3.59bil, followed by Singapore (RM790.1mil), Japan (RM785.6mil), Australia (RM710.5mil) and the United Kingdom (RM476.1mil).

Regional Notes 2018.03.30

China’s push for tech self-sufficiency threatens Asia’s exporters

But at the same time, there’s been a spike in sales to China of precision metal working machines and equipment for making chips from firms like Japan’s Yaskawa Electric Corp. With a Chinese state-backed fund gearing up to pour as much as $31.5 billion into homegrown semiconductor manufacturing, there’s potential for trade flows to start to shift.

Yet the direction is clear: Beijing is aiming higher and it has the resources to reach its destination. And that will mean difficulties for many companies around the region. “China, in a very short period of time, is rapidly going up the value chain,” said Gary Hufbauer, senior fellow and trade specialist at the Peterson Institute for International Economics in Washington, speaking from Taos, New Mexico. “They will produce the things that Korea and Japan are now producing, and Korean and Japanese firms have a big challenge to try to keep ahead on the technology.”


Uber pulls out of Southeast Asia, selling operation to rival Grab

The cease-fire marks a victory for Grab as well as SoftBank Group Corp., the biggest shareholder in both companies. Masayoshi Son’s firm is pushing to reduce competition in a Southeast Asian ride-hailing market forecast to reach $20.1 billion by 2025. Uber and Grab, together with two other SoftBank-backed ride-hailing firms — India’s Ola and China’s Didi Chuxing — provide about 45 million rides a day, according to SoftBank presentation material in February.


Regulators to ensure Grab-Uber deal will not erode competition

“We will ensure that no one single market player dominates the sector to the detriment of commuters and drivers,” an LTA spokesman said. The LTA added that it was reviewing a regulatory framework to license private-hire car operators “to keep the private-hire car and taxi industries open and contestable”.

The CCS said Singapore’s competition laws prohibit mergers that may result in a “substantial lessening of competition”, and indicated that it could “require the merger to be unwound or modified” to prevent an erosion of competition. It said it could also issue “interim measures” before it made up its mind.

The taxi company agreed in December to pay some $640 million for a 51 per cent stake in Uber’s Singapore rental car fleet. ComfortDelGro spokesman Tammy Tan said: “We are reviewing all aspects of the proposed tie-up with Uber Technologies, which is currently under review by the CCS.”

Pentamaster plans dividend in two years

“Currently, 50% of our exports go to mainland China, including to US-based multinational corporations located there. We expect the exports to rise to 60% in the near future. The business opportunity is great which is why we are expanding our facilities.”

“I think KWAP is seeing the potential in the future of technology we are in — 3D sensing. It is going to be used a lot in autonomous cars and electric vehicles. We have developed a 3D sensor testing capability to test the component that can be used in telco, automotive and smartphones.”

He said five years ago, PCB only focused on automotive handlers without test solutions, which “anyone could do”, so he built the handler with tester as a complete ecosystem to reduce competition.

“We are also looking to secure more IARM business from the US. We have secured a few now. This segment has a lot of growth potential because of Industry 4.0 where factories look to becoming fully automised. Our technical sales unit in Sunnyvale, US, would be able to discuss with clients regarding requests for quotations and proposals. Proximity to our clients is key, hence we see our US business growing. More so now with the US placing 30% tariff on raw materials which would make manufacturing in US expensive.”


US tariffs may hurt Malaysian technology firms

However, a report last Friday by Nomura highlighted US trade protectionism and a sharper-than-expected slowdown in China as bigger risks to the Malaysian economy, as exports account for 71% of GDP. “We estimated Malaysia’s ultimate exposure to the US — including via intermediate goods to China for assembly into final products destined for the US — at 10% of GDP, about half of which is in electronics products,” the research house said, adding that another 8% is exposed to China’s final demand.


Minimal impact on M’sia from US tariffs

This is because Malaysia’s trade exposure to both China and the US accounted for 25% of its total trade, she said, pointing out that Malaysia was impacted by Washington’s earlier move to impose tariffs on solar panels.

Malaysia is the largest exporter of solar cells and panels to the US, accounting for 24% of total US imports of the products last year. Meanwhile, the country’s steel and aluminium exports to the US of US$300 million in 2016 accounted for only 1.8% of total exports to the US.

In 2017, China was Malaysia’s second-largest export destination, constituting 13.5% or RM126.2 billion of total exports, while the US was the third-largest export destination, accounting for 9.5% or RM88 billion of Malaysia’s total exports.

Bank Negara cautions of severe property market imbalances

“Such (the purchase of non-residential properties) financing accounted for 26.1% of banks’ exposures to the property market or 13.5% of banks’ total outstanding loans. End-financing for the purchase of shops accounted for the bulk (40%) of banks’ exposures to non-residential properties or 5.4% of banks’ total outstanding loans. Exposures (via end-financing) to the office space and shopping complex segments, where oversupply is particularly acute, accounted for 3.2% of banks’ total outstanding loans,” it said.

Based on Bank Negara’s analysis, the incoming supply of 38 million square feet of new office space in Klang Valley is expected to drive vacancy rates to an all-time high of 32% by 2021 (1997: 5.1%; historical high in 2001: 25.3%), far surpassing levels recorded during the Asian Financial Crisis (AFC).

The incoming supply of 140 new shopping complexes by 2021 across Klang Valley, Penang and Johor is expected to worsen the oversupply condition in this segment. In 2016, major states such as Penang, Klang Valley and Johor already had higher retail space per capita (10.5, 8.2 and 5.1 square feet per person, respectively) relative to regional cities such as Hong Kong and Singapore (3.6 and 1.5 square feet per person, respectively). This will continue to exert downward pressure on occupancy rates and rentals.


Malaysians’ income weighed down by low-wage foreign workers

“In Malaysia, our salaries and wages are low, as half of the working Malaysians earn less than RM1,700 per month and the average starting salary of a diploma graduate is only about RM350 above the minimum wage. The low-income segment of Malaysian households face many challenges with regard to their income level. Since 2014, the bottom 40% (B40) population’s income expanded by 5.8% on an annual basis. However, expenditure grew at a faster pace of 6%, reflecting the rising cost of living. It is high time to reform our labour market by creating high-quality, good-paying jobs for Malaysians,” he said at a media briefing after the release of the central bank’s 2017 annual report here yesterday.

From 2011 to 2017, the share of low-skilled jobs in Malaysia increased significantly to 16% compared with only 8% in the period of 2002 to 2010. Apart from that, local economic sectors that rely on foreign workers such as agriculture, construction and manufacturing also suffer from low productivity.

Company Notes 2018.03.23

AirAsia in talks to set up Myanmar airline

…in talks with a potential partner to open an airline serving Myanmar, in a move that would help the low-cost carrier cover up to 95% of the Southeast Asian travel market.

“Once you’ve covered Vietnam and Myanmar, you’ve got all the big (Southeast Asian) populations. Vietnam — we’re talking about October, we’ve had great support from the Vietnam government and we have a great partner. My team are very bullish. It’s not going to be a big airline there, because the airport infrastructure is not there. But it is 50 million people and it will develop over time.”

“The biggest asset is our data,” Fernandes said. “While southeast Asian companies like (Indonesian ride-hailing company) Grab have to go out and spend a fortune to build that brand and data, we have 89 million customers travelling with us every year and we have data going back 18 years. We’re more than an airline — that’s the message for 2018. (Like) Amazon is more than a bookseller.”


Apex Healthcare goes into e-commerce

“[At full capacity,] SPP Novo is designed to increase our solid production capacity by up to three times, but we will be fitting out with approximately double the capacity upon commissioning by [the] end of 2018,” said Kee.

He added that about RM130 million of its revenue is derived from the manufacturing segment, and about half of this is from solid products. A back-of-the-envelope calculation suggests that if Apex doubles its solid product capacity, the group may see an increase in its solid product sales to RM130 million.

“For Europe, we are working on contract manufacturing opportunities,” said Kee, noting that the group is in the midst of evaluating merger and acquisition targets, as well as joint-venture opportunities in Europe and other developed markets. “The EU GMP certification will enable the group to stay ahead of the game, ensuring the best quality of its products,” he added.

Are REITs a good buy now?

According to Bloomberg data, the average dividend yield for the 18 listed REITs on Bursa Malaysia, as of yesterday, stood at 6.14%. In comparison, the 10-year Malaysian Government Securities’ (MGS) yield has been held at 3.9% to 4% since Bank Negara Malaysia’s key rate hike in January. MGS is the typical benchmark to which investors use to compare REITs, which are seen as a comparatively riskier investment.

But analysts told The Edge Financial Daily the rising average REIT yield is more reflective of a decline in share prices, rather than being driven by growth in distribution per unit (DPU). Hence, investors seeking to buy on weakness should consider REITs on a case-by-case basis.


Airbnb collaboration with Malaysia previews taxes on Internet economy

The San Francisco-based home-sharing company is moving to finalize a deal with tax authorities, which will apply a new tourism tax of RM10 ($2.55) per night to Airbnb members who rent out five rooms or more. The tourism levy presages an agreement on goods and services taxes.

But Southeast Asia’s third-biggest economy will start collecting tax from Airbnb hosts with at least five rooms, whether in one or multiple properties. Airbnb typically signs what it calls voluntary collection agreements with governments to transfer hotel and tourism tax payments from its members to the authorities. The decade-old company said it has transmitted half a billion dollars’ worth of such taxes to more than 340 jurisdictions globally.


Divestment appetite in Southeast Asia more than doubles, says EY survey

“More than two-thirds (68%) said that their decision to divest was directly influenced by the evolving technological landscape. About half (51%) of Southeast Asian companies said that the need to fund new technology investments will make them more likely to divest — using the proceeds to improve operating efficiency (79%), and address changing customer needs (87%) in their core businesses,” said EY in a statement today.


Malaysia tells tech entrepreneurs to give it a second look

Still, Malaysia lags behind its neighbors in drawing investments. Singapore attracted $7.2 billion in tech startup capital from 2012 through September 2017, the most in Southeast Asia, according to CB Insights. Indonesia pulled in $4.6 billion, while Malaysia got $1.3 billion during the same period.

Curated Insights 2018.03.18

Remember to look up at the stars and not down at your feet. Try to make sense of what you see, and wonder about what makes the universe exist. Be curious. And however difficult life may seem, there is always something you can do, and succeed at. It matters that you don't just give up. -- Steven Hawking (1942-2018)

An Apple R&D bonanza

Much of this focus mantra is driven by the fact that Jony Ive and his Industrial Design group oversee Apple’s product vision and the user experience found with Apple products. With only 20 or so members, Jony and team can only do so much at any given moment. In a way, Apple’s organizational and leadership structure serve as safeguards preventing Apple from spreading itself too thin and doing too much. Instead of trying to expand the design team in order to work on more products, Apple’s strategy appears to be to do the opposite and place bigger bets on a few products.

These bigger bets come in the form of owning the core technologies powering Apple devices. Apple wants to reduce dependency on others. We are quickly moving to the point at which every Apple product will be powered by core technologies developed in-house. Such a reality would have been a pipe dream just a few years ago. Apple believes this strategy will give them an advantage in the marketplace. It’s a new twist to the Alan Kay line about “people who are really serious about software should make their own hardware.” We are moving to the point at which companies serious about software should design their own silicon. Having $285 billion of cash on the balance sheet gives Apple the freedom to pursue this ambitious goal. It is this motivation to control more of the user experience while pursuing new industries to enter that is driving the remarkable increase in Apple R&D expenditures.


Apple goes from villain to coveted client with this Finnish firm

Created through a merger of Sweden’s Stora AB and Finland’s Enso Oyj in 1998, the company has spent billions shifting from the declining paper business — as people increasingly switched to digital from printed newspapers — to focusing on innovative wrappings made from tree and plant fibers. More than a third of its sales now come from consumer board and packaging solutions, up from a fifth two decades ago.

Apple has undergone its own shift, away from plastic packaging. For its recent iPhone 8 launch, Apple used a fiber-alternative instead of the polypropylene wrap around the power adapter. The packaging for the iPhone 7 used 84 percent less plastic than the previous version.


Intel fights for its future

“…Broadcom is already an Apple parts supplier, and it wouldn’t want to jeopardize a good relationship with a negotiation over royalties. The exact percentage that Qualcomm charges in royalties is of the utmost importance to a standalone Qualcomm…But for a merged Broadcom-Qualcomm, the exact amount of the royalty would be less important than a good working relationship with Apple.”

If the dispute is settled, Intel loses its wireless modems deal with Apple. No mobile CPUs + no modems = nothing of substance. Broadcom would be in charge — they would hold all the cards.


Google wants to impose order on India’s street address chaos

Google is tackling the project as part of its own search for the next billion users. Non-standard addresses now increase the costs of running all types of commerce from ride-hailing to online retailing and food delivery. Plus Codes — in a ‘6-character + city’ format — can be generated and shared by anyone on Google Maps, while apps that use location services can incorporate those codes on their own platforms. And a user can enter the Plus Code into searches to call up a location. Google Maps is also adding voice navigation in six more Indian languages, after introducing Hindi three years ago.

WhatsApp could shake up digital payments in India

At stake is an Indian digital payments market that Credit Suisse Group AG estimates could be worth $1 trillion within five years and has homegrown and global players jostling for dominance. WhatsApp joins Google, Alibaba-backed Paytm, a unit of local e-commerce leader Flipkart and dozens of others already vying for customers as smartphone adoption surges. Mobile payments caught fire at the end of 2016 when the government’s demonetization temporarily took 86 percent of all paper currency out of circulation to tackle corruption.

“WhatsApp is likely to change the digital payments scenario by cannibalizing other wallets’ users and adding new converts,” said Satish Meena, an analyst at Forrester Inc. “Its base of 200 million users, a daily active usage that’s about 20 times higher than Paytm’s, and the fact that Indian users spend a lot more time on WhatsApp than even on parent Facebook has huge advantages,” said Meena.


Amazon turbocharged Audible’s domination of audiobooks

Audible accounts for about 41 percent of all audiobooks sold, including digital and physical formats, according to researcher Codex Group LLC. Amazon also sells audiobooks directly through its website and, with Audible, accounts for more than half the market. Audible doesn’t disclose financial information, but says its annual subscriber growth is in double digits. Most customers pay $15 for a monthly subscription that comes with a single audiobook. (A la carte, they often cost more than $20.) The company’s library includes 400,000 titles.


How Amazon’s bottomless appetite became corporate America’s nightmare

For many companies, perhaps what’s scariest is that Amazon has lots of room to grow, even in retail. In the U.S., more than 90 percent of all retail sales still happen in physical stores. In some big categories, including home furnishings, ­personal-care products, toys, and food, the brick-and-­mortar numbers are even higher. As the share of online shopping continues to increase, Amazon seems likely to benefit the most. It’s responsible for roughly 44¢ of every dollar Americans spend online, and it’s now mixing in retail stores.

Amazon is far from invulnerable. All the same old red flags are there—a puny 2.7 percent e-commerce profit in North America, massive outlays to establish delivery routes abroad—but few are paying attention. Anyone buying a share of Amazon stock today is agreeing to pay upfront for the next 180 years of profit. By one measure, it’s generating far less cash than investors believe. And its biggest risk may be the fear of its power in Washington, New York, and Brussels, a possible prelude to regulatory crackdown.


Netflix’s secrets to success: Six cell towers, dubbing and more

Why Netflix almost never goes down. The company’s service achieved an availability rate of 99.97% in 2017, according to Netflix engineering director Katharina Probst. Part of that is due to the fact that Netflix learned from outages early on, and now uses Amazon’s AWS data centers across three regions. When one of those regions does go down, Netflix automatically redirects all of its traffic to the two other regions.

In fact, the company even tests this fall-back regularly by just taking a region offline itself — something the company calls chaos engineering. “We intentionally introduce chaos into our systems,” explained Probst. Up until recently, it took Netflix up to an hour to successfully redirect all requests in case of such a massive failure. More recently, the company was able to bring that time down to less than 10 minutes.

Amex to woo retailers with biggest fee cut in 20 years

At a presentation for investors in New York last week, the company said the global average of the fees it charges merchants — known as its discount rate — would decline five or six basis points this year, to about 2.37 per cent. Each basis point is equivalent to about 11 cents of earnings per share, said Don Fandetti of Wells Fargo Securities.

The fee cuts for 2018, which are about double previous guidance, are the latest sign of competitive and regulatory pressures on the biggest US consumer finance company by market value. American Express is facing questions from Wall Street about competition from US banks, which use the rival payment networks Visa or MasterCard. Big-spending Americans have flocked to premium cards issued by banks.


SoftBank looks to invade Wall Street’s turf

Until recently, SoftBank’s fledgling investment arm was little more than a group of analysts in Tokyo and London sifting through possible deals. Buying Fortress provided the group with a template to use as it moved to becoming an actual institution, with a formal investment committee, compliance department, trading desk and investor relations unit. The new entity is now 1,000 people strong.


How China’s Huawei killed $117 billion Broadcom deal

Huawei uses Broadcom’s chips in networking products such as switches that direct data traffic between connected computers. Qualcomm also works with Huawei. The two said on Feb. 21 they completed testing on technology that advances faster 5G mobile services. Under one envisioned scenario, wireless carriers may be forced to turn to Huawei or other Chinese companies for cutting-edge telecoms gear. That’s unacceptable for a U.S. government that, concerned about the security of Huawei’s gear, has already blocked the sale of the Chinese company’s smartphones on American carriers’ networks.

Government officials and industry executives have long harbored suspicions that the closely held Huawei works primarily for Chinese government interests, especially as it sells increasing amounts of critical telecoms infrastructure to Europe, Africa and the Middle East.

WordPress is now 30 per cent of the web

Public data recorded that WordPress’s share of the top 10 million websites had ticked over from 29.9 per cent to 30 per cent. The firm put some context on that data by noting that 50.2 per cent of the world’s websites don’t run a content management system (CMS) at all. That means WordPress has over 60 per cent share among websites that do run a CMS. That’s a dominance few products in any category can claim. It’s also notable that WordPress has nearly ten times the market share of its nearest competitor, Joomla, which has 3.1 per cent share of all websites and 6.3 per cent of the CMS-using population.

Share buybacks work better in theory than in practice

The top 20 companies in terms of buybacks accounted for almost 50 percent of total expenditures.

The main problem with buybacks is that effects of bad decision-making don’t become clear until much later. To paraphrase Jeff Macke, stock buybacks are an allocation decision that has a hypothetical value to shareholders, but a real explicit value to option-holding executives. These people are supposed to be managing companies for the long term but get compensated over the short term. This misalignment if incentives should be a concern. It does seem like those with a vested short-term interest in stock prices put a thumb on the scale away from investments or dividends and towards buybacks.

Diving into the detail, the top culprit was Biotech companies, with 97% of biotech IPOs in the loss making camp. Second place, no prizes for guessing, was Technology companies at 83%. But interestingly enough that left 'all other companies' at 57% - which is actually a record high.

What’s the biggest trade on the New York Stock Exchange? The last one

Last year, 26% of all trading activity on the NYSE’s flagship exchange took place in the last trade of the day, up from 17% in 2012, exchange data shows. Last year, trades at the close accounted for more than 8% of trading volume in S&P 500 stocks, nearly four times what it was in 2004, according to Credit Suisse .

At least $10 billion worth of shares are traded in the NYSE’s closing auction on an average day, with a final tally of stock prices typically listed by 4:05 p.m.

A fund manager such as Vanguard, for instance, might need to buy millions of shares at a time. Making such a big purchase in the middle of the day could dry up supply, causing the price of the stock to jump—bad for Vanguard. By waiting to trade at a time when there are millions of shares being bought and sold, the risk of moving the price is reduced, saving Vanguard money.

Last year, the NYSE collected $87 million—45% of its net revenue from the exchange’s core stocks-trading business—from trading at the close, according to the research firm Equity Research Desk. The NYSE’s maximum fees for trading at the close have gone up 16% over three years, according to regulatory filings.


Is the US stock market overvalued? Depends on which model you ask

The Fed model was valid during the period from 1958 to 2010. Since after 2010 there has been no relationship between the stock’s earnings yield and the bond yield, the Fed model cannot be used to judge whether the US stock market is overvalued. In other words, the Fed model cannot support the high current CAPE ratio on the grounds of the low-rate environment.

The Shiller model is over-simplistic. It is justified only on the grounds that there is an empirical inverse relationship between the CAPE value and the subsequent stock market return over horizons ranging from 10 to 15 years. What is less known about the validity of the Shiller model is that it has forecasting power only for real returns.

The other serious problem with the Shiller model is that it cannot be successfully used to time the market. If the investor believes in the validity of the Shiller model, this investor should buy the stocks in the early 1970s. However, in this case, the investor would be highly disappointed because the stock prices had been decreasing till the early 1980s. Similarly, if the investor uses the Shiller model, this investor would sell stocks in the early 1990s, missing out on huge net gains over the full bull/bear cycle.

Pozen Priorities

“The common practice we found among the highest-ranked performers in our study wasn’t at all what we expected. It wasn’t a better ability to organize or delegate. Instead, top performers mastered selectivity. Whenever they could, they carefully selected which priorities, tasks, meetings, customers, ideas or steps to undertake and which to let go. They then applied intense, targeted effort on those few priorities in order to excel.”


Ironies of luck

If risk is what happens when you make good decisions but end up with a bad outcome, luck is what happens when you make bad or mediocre decisions but end up with a great outcome. They both happen because the world is too complex to allow 100% of your actions dictate 100% of your outcomes. They are mirrored cousins, driven by the same thing: You are one person in a 7 billion player game, and the accidental impact of other people’s actions can be more consequential than your own.

In investing, a huge amount of effort goes into identifying and managing risk. But so little effort goes into doing the same for luck. Investors hire risk managers; no one wants a luck consultant. Companies are required to disclose risks in their annual reports; they’re not required to disclose lucky breaks that may have led to previous success. There are risk-adjusted returns, never luck-adjusted returns.

Here’s why Stephen Hawking never won the Nobel prize in physics

It takes decades to build the scientific equipment to test theoretical discoveries; to put this into context, Einstein’s theory of gravitational waves in space, which he first proposed in the 1920s, was only recently proven in 2016.

One of Hawking’s most important finds was “Hawkings Radiation,” the theory that black holes are not completely black after all, but emit radiations that ultimately cause them to disappear. The issue is, the technology needed to observe this radiation will take years and cost millions before Hawking’s theory can ever be verified.