Company Notes 2017.12.15

VS Industry Q1 FY2018 Results

The lower-than-proportionate growth in profit before tax was largely owing to shift in product mix towards more box-build assembly. Furthermore, there were additional production lines commissioned during the
quarter under review, which resulted in higher operating costs (e.g. setup cost, operators’ salaries etc.) while production output of the new lines have yet to reach optimal level at the time.

Malaysia segment expects the box-build orders from key customers to sustain for the current financial year. On its operations in China, the Group expects improved performance going foward as it has since commenced mass production of new products for key customers in China and this contributes to higher plant utilisation rate.


Kein Hing International Q2 FY2018 Results

…due to the costs incurred for setting up of new production lines, recruitment and development of skilled and semi-skilled workforce at the new factory located in Hai Phong, Vietnam which is yet to achieve the optimal production and sales, higher depreciation charge resulting from new machines invested and the escalating labour costs as a consequence of constraints in labour supply encountered in Malaysia Operation and the wage inflation experienced in Vietnam Operation respectively.


Berjaya Food Q2 FY2018 Results

The results of the Group in the next quarter is expected to be adversely impacted by the one-off losses arising from the disposal of the KRR operations in Indonesia. Other than this one-off exceptional loss, the Group expects Starbucks to maintain its revenue growth momentum to continue contributing positively to the Group. In addition, the management hopes that the operational and menu rationalisation of KRR, being implemented recently, will yield better results for the brand moving forward.


LKL International Q2 FY2018 Resuults

The Group would continue developing the medical devices segment to grow into a significant contributor of group revenue and profitability. At the same time, the Group will be on the lookout to add more high-value medical products to its range to meet customer demand.


Jaycorp Q1 FY2018 Results

A major plant upgrade is due to take place in Jaycorp Green Energy Sdn Bhd (“JGE”) towards the end of 2017. Whilst this will result in the shut-down of operations for 2-3 months, the upgrade should significantly improve the operational efficiency of JGE in the long-term.


Bison Consolidated Q4 FY2017 Results

Operating expenses were higher in line with the bigger outlets network of 356 compared to last year of 294. Mynews had been more aggressive in driving its marketing campaigns and promotions and coupled with the enlarged staff force to support the Group’s expansion contributed to the increased operating expenses by RM17.67 million or 25.8% from last year of RM68.59 million to current year of RM86.21 million. Mynews had achieved its target of opening 70 outlets in the financial year 2017 and with the closing of 8 outlets, ended the year with 356 outlets. Its jointly controlled entity, WH Smith Malaysia Sdn Bhd had also added 3 new outlets during the year and it now has 12 outlets in the Malaysian airports.

The Board remains positive that Mynews is able to deliver profitable results with its on-going efforts to improve products and services offerings and aggressively expanding its foray into ready-to-eat food. Initiatives put in place such as the joint ventures with the Japanese partners to develop the food processing centre is progressing well. The Johor distribution centre is ready for operation pending the final approval by the relevant authorities.


Hiap Teck Venture Q1 FY2018 Results

The decline in steel demand in ASEAN-6 was mainly attributed by the slowing down in the consumption of two biggest steel consuming countries in the region namely Vietnam and Thailand. The decline in steel demand in Thailand and Vietnam are mainly due to destocking activities, slower economic growth and slow uptake in public investment projects.

The continuing efforts by Chinese Government and its plans to cut production capacity will help stabilise the world steel prices which will definitely benefit the local steel industry players.

OldTown gets takeover bid from global coffee maker

OldTown said its shareholders, holding a total stake of 51.45% in the group, have provided irrevocably undertakings to accept the cash offer. These shareholders are Old Town International Sdn Bhd (42.58%), OldTown’s management director Lee Siew Heng (1.34%) and Mawer Investment Management Ltd (7.52%).

“We are deeply honoured that JDE recognises the powerful brand and platform that we have tirelessly built over the past 18 years. We strongly believe JDE is the ideal partner as we continue to serve best-in-class products to our customers. We look forward to drawing on JDE’s deep global expertise and building a highly successful partnership with them. The OldTown team is focused on delivering premium, high-quality products to consumers and we see huge potential in the business. We are excited to work with the OldTown team to rapidly grow the business as part of the broader JDE platform.”


IRB slaps Aeon Credit with extra RM96.82m in tax bill

Aeon Credit said these taxes and penalties were in relation to the IRB varying the loan transaction collaterised by receivables undertaken by the company with a local financial institution to that of a sale of receivables, which the IRB did not specify which provision of the Income Tax Act 1967 in making this variation.

“This is especially so when at all material times, the company had sought professional advice from an independent and reputable audit and tax firm on its accounting and tax treatment and further, the assessments for the years of assessment of 2010 and 2011 are time barred,” it said.

S P Setia Bhd’s unit was slapped with a back tax bill of RM75.38 million last month, but the company said it has grounds to contest the notice. In October, the IRB slapped Cocoaland Holdings Bhd with RM5.89 million in additional taxes and penalties. In September, EcoFirst Consolidated Bhd said it was sued by the IRB over some RM35.47 million in additional taxes and penalties the latter is claiming for. In May, the IRB sought RM80.77 million in additional taxes and penalties from MK Land Holdings Bhd’s wholly-owned subsidiary Saujana Triangle Sdn Bhd, while Magnum Bhd and its wholly-owned subsidiary Magnum Holdings Sdn Bhd were served with notices of assessment for additional taxes and penalties totalling RM476.5 million.

In that same month, Country Heights Holdings Bhd announced that its executive chairman and major shareholder Tan Sri Lee Kim Yew had his fixed deposits of some RM126 million placed in a foreign-owned bank seized by the IRB in relation to RM22.5 million worth of tax liabilities incurred by Country Height’s wholly-owned unit Country Heights Sdn Bhd. The tax liabilities were accrued from the years of assessment of 1997 and 1998. In April this year, the IRB slapped Tenaga Nasional Bhd with an extra RM2.07 billion tax bill for the 2013-2014 tax years. In October 2016, the IRB also went after a subsidiary of Mega First Corp Bhd for RM22.8 million.


AirAsia worth more than meets the eye, group CEO says

AirAsia Bhd has been undermined by analysts as they have not taken into account the group’s growth potential from overseas joint ventures. Fernandes describes the “zero value” given to AirAsia’s Indonesia, Philippines and India businesses by analysts as “bizarre”.

“Our Indian operation could be a 200-plane operation by itself, because of the tourism potential in India and the middle class travelling out of India is massive. If you look at what we have done in China, where 18% of our revenue is coming from there, it shows you the potential. India is a function of how quick we want it to be profitable. It can be profitable now, but we are in a hurry to get to 20 aircraft which will then allow us to fly international [routes], and that is holding back the profitability.”


Loss of Starbucks Korea business ‘a temporary setback’

The loss of the Korean market in 1QFY18 was due to Starbucks Korea deciding to source its store sets — fixtures for the stores — from local manufacturers in order to stick to its timeline for store openings. Federal Furniture has been working on shortening its lead times and that it remains more cost-effective for Starbucks Korea to purchase store sets from Malaysia. As such, Choy foresees contribution from exports to Korea to bounce back within the next six years.

Starbucks Corp is Federal Furniture’s main customer in its manufacturing division — which makes modular caseworks, shop fixtures, and fitting and furniture for corporate customers — and typically accounts for about 90% of the division’s total sales.

The division currently serves Starbucks’ Asia-Pacific market, which comprises Japan, Korea, the Philippines, Malaysia, Brunei, Thailand, Singapore, Hong Kong, Cambodia, Vietnam, Australia and India, according to the group’s Annual Report 2017. The division is Starbucks’ first approved caseworks vendor outside the US, and has been the only approved caseworks vendor for its Asia-Pacific market for the past 17 years.

Choy shared that the supply of store sets to Starbucks India will be fully produced in that country by April 2018, as the 76% import duty imposed by Indian regulators has become too prohibitive to continue shipping materials from Malaysia. As such, the group is undertaking strategic outsourcing of its fixtures there while it finalises the setting-up of a legal entity in Bangalore to commence operations there. “Four out of 12 stores that have confirmed to be opened in our financial year 2018 (ending June 30, 2018) will use casework that has been manufactured there,” Choy said. The asset-light model Federal Furniture is deploying in India may be used for its planned entry as Starbucks’ fourth vendor in China.


U Mobile turns Ebitda-positive as it plans for IPO after GE14

“We are already Ebitda positive at this stage, and listing will come after election. Because if we go for listing, we got to look at the market, and the market at this stage is very uncertain. With that uncertainty, there is this overhang, so you don’t see a lot of activities in the market. Next year, the market is going to be as tough as this year, generally retail sentiment is still soft, despite what the GDP (gross domestic product) number says, the retail side is still very soft. From our case, hopefully after the election, whatever negative overhang will be lifted, and that should improve people’s sentiment. Hopefully, that will translate into higher spending.”

“Competition has always been intense, but [industry-wide] Ebitda margin is still largely the same. Next year’s capital expenditure (capex) will be at least RM1 billion. This year’s is already RM1 billion.”

Malaysia moving towards cashless society

Governor Tan Sri Muhammad Ibrahim said effective July 1, 2018 the instant transfer fee of 50 sen will be waived for up to RM5,000 per transaction by individuals and small medium enterprises (SMEs). However, the cheque fee would be increased from 50 sen to RM1.00, beginning Jan 2, 2021 to reflect the higher processing cost.

To encourage the use of the QR code payment, Bank Negara has issued an Interoperable Credit Transfer Framework (ICTF). “For the first time in our history, customers of banks and non-banks will soon be able to transfer funds across the network by just referring to the mobile phone number, identification number or QR code,” he said.

Company Notes 2017.10.06

iCapital.biz Q1 FY2018 Results

For top-down/market-timing investors, while Malaysia’s economic growth prospects for the next 12-18 months look bright, there are potential headwinds in the form of an elevated inflation rate, an uncertain political landscape and further US monetary tightening.

Bison ventures into food production

“There is increasing demand for convenient access to retail stores that offer a variety of quality products and services. Therefore, these JVs are in line with Bison’s growth and expansion strategy.”

Dang said some RM50 million worth of investment will be going into building the five-level food processing factory in Rawang, which is targeted to start operations in the first quarter of 2019. “[A selection] of products will be available on a trial and research basis, but the full scale of [offerings] will be rolled out in the first quarter of 2019, which is when the food processing facility will be fully operational.”

“This FY, we have grown our ready-to-eat food business from 8% to 11% of our revenue contribution. Upon the commencement of the first year of production, we expect it to grow to about 15% of our revenue.”


Bison ups the ante

A five-level factory with a built-up area of more than 130,000 sq ft will now be constructed. It is located 500 metres from Bison’s current distribution centre, which augurs well for management and logistics efficiencies. The 100% halal manufacturing facility is targeted to supply 150 stores in 2019, and will have a full supply capacity of up to 600 stores.

GK, a Tokyo Stock Exchange-listed company, is one of the largest in-flight meal caterers in Japan, supplying to 38 airlines, and also owns a restaurant chain operation with more than 400 stores in and out of Japan. On the other hand, Ryoyupan is one of the top-five players in the Japanese bakery industry and the biggest on Kyushu Island.


The rise and rise of JF Technology

“Demand for microchips is not only dependent on consumer spending, which drives the smartphones and computer sales. Now there is emerging demand from the automotive and IoT (internet of things) sectors.”

JF Technology is involved in the design and manufacture of test probes and test sockets for the semiconductor industry. For one, testing equipment such as test probes and sockets are wear-and-tear products that need to be changed frequently. For another, semiconductor giants such as Texas Instruments that designs chips would constantly develop new products regardless of market conditions. As a test socket design and manufacturer, JF Tech provides customised solutions for the chips developer to test their products. Once the chip prototype is acceptable, it will then goes into high volume manufacturing (HVM).

“We believe Zigma product would be a game changer for the company, as well as the testing industry. This is because Zigma product has a different approach, which it avoids wear on the board and make the testing process more efficient.” He says that the law suit has affected the company’s sales in the US and profitability. JF Tech generates about 65% of its sales from the overseas market. Foong says that the company is currently operating at 40% of its capacity, as such JF Tech is unlikely to pump any new capital expenditure for few years.


SunCon, WCT, Gabungan AQRS bag LRT3 contracts

SunCon announced to Bursa Malaysia yesterday that it had been awarded a RM2.18 billion contract, boosting its outstanding order book to RM6.5 billion — the highest ever since its inception. The contract is SunCon’s fourth elevated rail project, its largest single project in 36 years. The scope of work includes 9.2km of viaduct works, construction of six stations, and the design and building of an iconic cable-stayed bridge over the Klang River.


United Malacca confident of finalising Sulawesi land buy

“The first priority is to plant stevia and coconut, followed by cocoa and coffee, which are subject to the land topography and soil type.”

At the same time, Tan also said the development of the Central Sulawesi land is expected to incur higher capital expenditure, which could result in lower dividend payments compared with the previous years.


MAHB: Five new airlines coming to KLIA

“I just come back from the World Routes Forum 2017 in Barcelona, Spain where multiple discussion were had and I am hopeful that at least five more new airlines will join us next year. As you know, we are always actively looking for partners and new airlines to come join us, for 2017 we already saw eight new airlines joining us and since everything in aviation is seasonal, we are not expecting any more new airlines for the rest of the year.”

“Our original (growth) forecast (for passenger volume) was at six per cent this year but we have revised that to eight per cent, and I believe we may end up at some 90 million this year for Malaysia as a whole. For airports, we have the volume but we need more capacity (upgrading) for airports infrastructure and that’s something that the government has to look into.”


KLIA Aeropolis to see RM500m investment in next two years

The 60-acre (24.28ha) Aeropolis, which is part of the Digital Free Trade Zone (DFTZ) launched by the government in March this year, will also house Alibaba Group’s e-commerce hub for Southeast Asia. Malaysia Airports Holdings Bhd and Alibaba’s logistics arm, Cainiao Network, will be jointly establishing the trans-shipment hub there.

Liow said 20 of the world’s top 25 freight forwarders will have operations in the Aeropolis.

“It is estimated that a 20% increase in ICT investment will result in around 1.4% GDP growth for Malaysia,” Liow added.

Fitch expects Malaysian banks to offer higher rates on longer-term FDs

The NSFR metric focuses on a 12-month timeframe and is likely to encourage banks to compete more aggressively for even longer-tenor deposits, and shift towards long-term wholesale debt funding.

The ratings agency noted that Bank Negara Malaysia (BNM) has said that more than three-quarters of Malaysian banks have an NSFR that meets the minimum requirement, which will be set at 100%.

The banking sector’s loan/deposit ratio of 89% and liquidity coverage ratio (LCR) of 133% at end-August 2017 indicate that the system’s aggregate funding and liquidity are reasonably healthy.


KWAP mulls investment in Alibaba Group

“We have an asset allocation and, at the moment, investment in the tech space is still well below the asset allocation limit. We are trying to limit it to no more than 1% of our asset allocation in the tech space. At the moment, it’s just US$70 million (RM296.1 million). Our fund size is over RM100 billion.”

“KWAP has only ventured into the tech space recently. Two years ago, we invested in Uber. We have another two more tech funds that we have invested in. This is part of our familiarisation with the industry. So far, to date, we have put in about US$70 million: US$30 million with Uber and another US$40 million with two tech funds … we can do a bit more and we would like to have more involvement in this space. We have learnt a lot along the way and, with that, I think we can step up and make more productive investments moving forward.”


Property lending rule from 1997 is still relevant

“IBs, in demanding for this guideline to be ‘scrapped’, are taking a short-term view and should consider the long-term systemic implications of an over-exposure to the property sector and not narrowly focus on their own commercial gains. We should not be oblivious to the many lessons learnt from the Asian and global financial crises,” Bank Negara said in the statement.

The guideline, introduced on April 1, 1997, is for all commercial, Islamic and investment banks. In short, it stipulates that a bank’s credit facilities — meaning all forms of lending, including the issue of guarantees, private debt securities and commercial papers — to the BPS should not exceed 20% of its total outstanding loan base. Compliance to this requirement is calculated on a quarterly basis.


World Bank warns M’sia of pockets of risks

The World Bank in its semi-annual review of the region’s developing economies pointed out that the ongoing adjustments to the rising costs of living amid continued fiscal consolidation and elevated household indebtedness could weigh on the strength of private consumption in Malaysia. These deficits are especially worrying in cases where public debt is also high or rising. It is a combination of the two that poses risks to fiscal sustainability as the combination narrows governments’ policy space for responding to shocks.


World Bank sees currency risk in Malaysia

Monetary authorities need to be prepared to tighten their policy stance if capital outflows prompt currency weakness. In the case of depreciation pressures in China, authorities should allow greater adjustment through relative prices and closely monitor financial sector vulnerabilities as monetary policy further tightens.

Company Notes 2017.09.29

Kein Hing International Q1 FY2018 Results

…stronger customer demand for parts/metal components used in TV, fridge, printer and automotive industries.

…the impact from the overhead incurred by the new factory located in Hai Phong, Vietnam as it has yet to achieve the optimal production and sales, higher depreciation charge from new machines invested and the escalating labour costs as a consequence of constraints in labour supply in Malaysia Operation coupled with the wage inflation experienced in Vietnam Operation.


Poh Huat Resources Q3 FY2017 Results

…shipment to the US continued to gain strength following the successful launch of several ranges of panel-based bedroom sets in the previous quarters.

While orders from our North American importers remained strong, we noted a shift in the product mix to the middle and affordable segments of the market.

Our operations in Malaysia incurred higher raw material costs, particularly for boards, solid wood, hardware and finishing materials which have increased markedly over the last few months.

Competition in the market place has also turned keener as consumers demand for trendier and more competitively priced items. We have experienced downward pricing pressure on our products due to competition from other manufacturers. Furniture also has to cater for changing demographics particularly for millennials and younger families who have lower spending power and whom are more comfortable with online purchases and ready-to-assemble products. We have aligned ourselves to respond to these changes by working closely with our customers to develop trendier, market oriented products for the marketplace.


Bison Consolidated Q3 FY2017 Results

Operating expenses were higher in tandem with the increased business volume and the continuous outlets expansion by Bison which also entailed the recruitment of more talents.

Bison is on course in its new stores opening and during the nine-months period under review, there is a net increase of 44 outlets. Bison ended the third quarter with 338 outlets verses 276 as at 31 July 2016.


Comintel Q2 FY2018 Results

For SIMS segment, we will continue to re-organise and to mitigate losses through cost cutting amidst the softer demand experienced by SIMS segment over the past years.

For our renewable green energy project in Kuang, we have passed Initial Operation Date (IOD) with TNB. We expect to complete the Commencement Operation Date (COD) with SEDA in October 2017. Barring any unforseen circumstances, we are expecting the FiTCD (Fit-in-Tariff Commencement Date) to be in October or November 2017. We are hopeful with the commissioning of our advanced gasification green energy system at our Kuang plant, will open a new corridor for us to tap on quickly the vast potential of the demand for our green energy generation system in the region.


LKL International Q1 FY2018 Results

The Group’s venture into the distribution of medical devices in the current FY represents its strategic efforts to diversify its revenue stream within the healthcare sector to cater for evolving market requirements, and offer higher value products to enhance its product portfolios.


Superlon Q1 FY2018 Results

The lower profit before tax is mainly due to the decrease in total gross profit generated from lower volume of sales and higher cost of materials. The lower other income recorded and higher other operating expenses also contributed to decrease in net profit before tax.


VS Industry Q4 FY2017 Results

With the Group’s vertical integration capabilities, it has received substantially higher box-build orders from key customers, particularly during the second half of the financial year ended 31 July 2017. The trend of rising orders is expected to sustain going into the next financial year. To cope with the potential new orders from existing and new customers, the Group has added more production space by constructing a new factory cum warehouse.

On its operations in China, the Group’s Hong Kong-listed subsidiary, V.S. International Group Limited, has recently completed a Rights Issue raising proceeds of HKD105.8 million which shall be used to expand the operations in China and tap into its growing domestic sales.


A-Rank Q4 FY2017 Results

…due to a higher provision of income tax after the special export incentive brought forward had been fully utilised and there was an overprovision of deferred tax in the corresponding quarter last year.


George Kent Malaysia Q2 FY2018 Results

George Kent announced in September the securing of a tender to supply and deliver 650,000 water meters to the Water Supplies Department (“WSD”), Hong Kong. This is the second consecutive time the Group has been successful in the bid which was made under the Group’s subsidiary, George Kent International Pte. Ltd. George Kent will supply the DN15 Brass PSM-T water meter worth US$6.86 million (RM 28.72 million) to WSD within two years in 24 shipments.

To-date, George Kent is the only company that has successfully secured large water meter contracts consecutively from both Hong Kong and Singapore water authorities at the same time, which are renowned for their stringent standards in water meter evaluations


O&C Resources Q4 FY2017 Results

The Group has been facing challenges in its core business of manufacturing and marketing of condoms and baby products, in view of rising raw material prices and operational costs for the past few years. Taking cognizance of this, the Group has made efforts to improve our financial performance and position which include, among others, the Group’s acceptance of a construction contract which led to our Group’s diversification of business to include the construction business. At the same time of maintaining on the existing business undertakings, the Group has also expanded its initial foray in the construction business to include the property development business as well.


Kim Loong Resources Q2 FY2018 Results

As at 31 July 2017, the Group’s total planted area is 14,920 hectares. The age profile of mature area can be analyzed as follows: a) < 3 years (Immature) : 5%; b) 3 – 6 years (Young mature) : 13%; c) 7 – 15 year (Prime mature) : 28%; d) 16 – 20 years (Old mature) : 48%; e) > 20 years (Pre-replanting) : 6%

During the current YTD, the Group has carried out replanting of about 130 hectares.


Cypark Resources Q3 FY2017 Results

We plan to increase our investment in renewable energy projects and expect to have a bigger revenue contribution from the sales of green power. By year 2020, the Renewable Energy segment is expected to contribute more than
RM300 million of recurring revenue.

The launch of our country’s second bidding exercise for Large Scale Solar (LSS) by Suruhanjaya Tenaga in February 2017 has opened up more new opportunities for large, non-subsidised national RE scheme. Cypark currently has been given first right to undertake the turnkey EPCC, management & operation contract to develop 15MW (dc) solar plants by the winners of the first LSS tender.

We are also confident to secure more government contracts for landfill closures and new sanitary landfill projects. We believe that we have strong competitive advantage based on our solid track records of successful completion of 18
landfill closure projects covering total area of about 600 acres nationwide and our success in constructing and operating 1000 tpd sanitary landfill in Negeri Sembilan which is one of the country’s largest and most modern
facilities. We have also submitted many tenders and proposals worth more than RM2 billion and are optimistic that some of the tenders are at advance stage of negotiations which will be likely secured in 2017.

Perak Transit in transition to stronger growth path

“To develop a bus terminal is not easy as we must get approvals and land title from the state and federal authorities.” The land public transport commission often allows only one express bus terminal per council, according to Cheong. He noted that it was necessary to have one bus terminal as part of township development, for instance Kampar.

“We will concentrate on building more terminals instead of focusing on the express or stage buses and our petrol stations, as terminals are long-term assets with recurring income while the value of buses depreciates very quickly.”


Hai-O expects 1Q’s growth momentum to continue

The group plans to roll out new collections of shoes, bags, leatherwear, women’s accessories and eyewear under the “Infinence” brand name this year. The group has also allocated RM10 million for capital spending and has identified suitable shoplots and warehouses for further expansion in its East Malaysian distribution channels.

On overseas expansion, Hew said the group is exploring the Vietnamese market due to the large population there, though the decision to go in or not largely rests on whether the Vietnamese government approves direct-selling licence applications from foreign companies.

“We are discussing with our principal suppliers from China to work out trade settlements using alternative currencies such as renminbi,” he said, as some 40% of the group’s purchases are imports denominated in US dollar.


My EG’s GST monitoring launch set for end-2017

“However, it said all issues have been resolved. MyEG has so far installed 5,000 dongles in Klang Valley in F&B outlets and is targeting to install nationwide by year-end (our earlier target was June 2017).”

“We also expect the company to benefit from selling the compulsory foreign workers’ insurance to the employers. MyEG said it will ensure the welfare of foreign workers, by making sure their salaries are paid and there is no worker abuse by the employers.

“In the next one year, MyEG is targeting to place out 100,000 foreign workers. In our earnings forecast, we assume a more conservative average of 5,000 foreign workers monthly or 60,000 foreign workers annually.

“This would help MyEG generate an average annual revenue of RM60mil. We assume 50% net profit margin for the matching services (in line with the 50% net profit margin from existing foreign worker services) and an annual net profit of RM30mil.”


Asia File to spend RM30mil on foodware production

“We spent about a year to research the demand for disposable foodwares and found the domestic market to be strong. We have invested in the raw materials which we were able to purchase at a very good price. This will enable us to sell competitively and generate good profits.”

…the new products would be marketed under the ABBAWARE.

Lim said that while there was familiarity with the raw materials used in production, the sales and marketing for the products would be a new uncharted area to explore.

Hidden taxes, forex rules deter German business from Malaysia

Hidden taxes, which include non-deductible taxes on refurbishment, maintenance, legal services, and company vehicles, add to the overall corporate tax rate, said MGCC president Peter Lenhardt. “If you look at the cost of refurbishment, there is a tremendous impact on the bottom line of any business, so a lot of them don’t see any reason to spend on maintenance,” he told reporters at the launch of the AHK World Business Outlook 2017.

Lenhardt added that another economic risk which is not unique to Malaysia is the lack of qualified labour. He noted that there is a lack of industrial involvement in vocational training which creates a gap where the workforce is not fully trained to operate in high tech facilities.


Taxmen set their sights on digital economy

“Their profits are subject to corporate income tax as long as the operations are carried out [here]. In short there are no specific corporate rules for taxing the digital economy. The same treatment applies to both the digital and traditional economy. For foreign companies they would only fall within the ambit of Malaysia’s CIT if they have a taxable presence or a permanent establishment here, for example having personnel in Malaysia who are performing the services here.”

“The key determinant would be where the transfer of ownership of the goods take place. [If] it is in Malaysia and the value of the goods exceeds RM500,000 per year, then the foreign company is required to register [for GST] in Malaysia. [If] the goods are imported into Malaysia via air courier services, and [if] the value of the goods does not exceed RM500, then the goods are given relief from GST. Therefore where consignments are kept below RM500, Malaysians can buy goods from overseas which are not subject to GST, and if the goods exceed RM500, this would be collected by the courier service before or upon delivery.”


Taxing digital economy players a daunting task?

“For example, when you buy a product from a foreign e-commerce provider, you use your credit card and the money goes to an offshore bank account, and if the goods sent to Malaysia are not subject to customs duty at the point [of delivery], then the income that the foreign provider makes from providing the goods or services goes overseas, perhaps in [the] Cayman Islands or [the] Netherlands where they may have tax breaks. So that income leaves Malaysia and the foreign company providing the service is not present in Malaysia, so they are not subject to Malaysian income tax. When it comes to GST, there may be a supply of goods and services, but when you have hundreds of thousands of consumers [purchasing goods or services] through digital platforms, [it becomes difficult to track]. So how do you impose tax? [One possibility] is since most of the purchases are done through credit card, they may come up with a new mechanism where the credit card company collects tax due on the goods or services on behalf of the government.”


BNM to implement NSFR ‘no earlier than 2019’

“The NSFR, which complements the liquidity coverage ratio (LCR) that was phased in since 2015, looks for banks to have the liquidity to support their business in the longer horizon. It will help strengthen the liquidity management of the financial system.”

“In addition to that, we are aware of the level of competition in the market today which would encourage the banks to remain competitive with respect to their product offerings, as well as the pricing of their products. We don’t think it (NSFR) will be a factor that could change the pricing of the loans.”

Company Notes 2017.6.16

On earnings calls

Malaysia segment recorded higher profit before tax mainly due to higher sales orders from key customers, including the new box built orders from key customers. The new production lines that were commissioned earlier are now running at optimal capacity. – V.S. Industry in a filing with Bursa Malaysia

“Our clients are experiencing brisk sales growth with their new products, effective marketing campaigns and enhanced distribution channels. We will ride on our clients’ growth, supporting them in every step of the way with our integrated manufacturing capability to produce quality products in the quantity required by them on a timely basis.” – V.S. Industry MD SY Gan


Local competition was more intense with some distributors offering enormous cash incentives at an unprecedented level, thus putting further pressure on our strategy to sell at the full price offered with value added packages.

The contraction in profit margin was also partly caused by the Mazda CX-5 run-out programme as more sales incentives were given in anticipation of the arrival of the all-new model.

Demand for passenger cars is expected to be soft as the weak job market and uncertainty will likely cause customers to defer their purchases…will continue to focus on driving sales at full selling prices with value offerings as this will in the longer term augur well for the Mazda brand image and popularity.” – Bermaz Auto in a filing with Bursa Malaysia


Management undertook measures to curtail further losses in future such as the closure of non-performing restaurants and outlets. These measures led to impairment of fixed assets and intangible assets.

…expects Starbucks to maintain its revenue growth momentum, and the price adjustment in the previous quarter is expected to mitigate the negative impact from the fluctuating Ringgit Malaysia and poor results of KRR operations in Malaysia. – Berjaya Food in a filing with Bursa Malaysia


The decrease in licensing revenue was due to loss of content recovery for a sports channel. The decrease in subscription revenue was mainly due to lower package take-up.

…re-positioning its business with emphasis towards personalization, mobility and interactivity with customers, focusing on executing its key strategies on: (1) digitalising our legacy business; (2) rapidly scaling our digital ventures; (3) deepening strength in verticals and building a robust innovation pipeline… – Astro Malaysia in a filing with Bursa Malaysia


Shipment of furniture from our Malaysian factories increased substantially as a result of the coming on-stream of new products, including panel based bedroom models. Contribution from the panel based bedroom models for the US market increased to 20% from 5% previously.

Shipment of furniture from our Vietnamese operations was also higher in line with the improvement in the US economy and its efforts to ship higher value orders to the US. – Poh Huat Resources in a filing with Bursa Malaysia


…the increased business volume and the aggressive stance to invest more to upkeep its outlets and getting more talents to join its workforce for the expansion plan.

…is confident that Bison can maintain its competitive edge and position in the Convenience Store segment. Bison is in progress with its action plans. However, there is a delay in the commissioning of its distribution center in Johor Bahru due to the plan to enlarge and install a better-equipped facility. – Bison Consolidated in a filing with Bursa Malaysia


The strong engagement achieved brought in a fresh new wave of customers and additional referrals which were successfully converted into sales by many projects in the Klang Valley, Iskandar Malaysia and Penang. – Eco World Development in a filing with Bursa Malaysia

Interest in all three projects in the UK remain healthy bolstered by good construction progress on site and positive developments in the surrounding areas where the projects are located.

…will continue to seek out well-located development sites in London, Sydney and Melbourne where it has established a strong track-record and customer following to replenish its land bank. – Eco World International in a filing with Bursa Malaysia

“We will see profit recognition beginning in FY18 as handover commences in phases starting with London City Island and Embassy Gardens…Our plans for the second half of 2017 include the completion of the proposed acquisition of 80% of the issued capital in Eco World-Salcon Y1 Pty Ltd and the launch of the Yarra One development in Melbourne.” – Eco World International CEO Teow Leong Seng


The increase in revenue was due to higher ASP as a result of the increase in raw material costs although business volume was lower. – A-Rank in a filing with Bursa Malaysia


…has been incurring losses for the past 5 years as a result of softening demand for the fixed wing pilot training market in Malaysia mainly due to local major airlines cutting back on their training program for new pilots. Due to lack of business in the fixed wing pilot training, the mechanical engineering division which specializes in oil, gas and petrochemical has become the significant contributor in terms of revenue.” – APFT in a filing with Bursa Malaysia


By December 2018, Top Glove is projected to have 31 glove factories, 628 production lines and a production capacity of 59.7 billion gloves per annum. It will also continue to explore synergistic M&A and JV, as well as new set-ups, particularly in closely related industries such as nitrile latex factory, packaging materials (glove inner boxes) and condom factory, towards enhancing shareholder value.” – Top Glove in a filing with Bursa Malaysia


On corporate development

…is considering the pursuit of a separate listing of its automated solution business on the Main Board of the Stock Exchange of Hong Kong Limited…will undertake a reorganization of its subsidiaries involved in the automated solution business and these subsidiaries will continue to remain as subsidiaries of Pentamaster upon completion of the proposed listing. – Pentamaster in a filing with Bursa Malaysia


“It has to be [listed] eventually as we need funds and a listing will be a way to marshal funds from the market. We want to expand overseas as well, but we need a strong brand first…We won an award that puts us on par with Mount Elizabeth Hospitals in Singapore, which has helped with our branding.

“It will take a couple of years, although we could list now if we wanted to, because we have the track record. But it might not give us the value that we want so we’d rather wait for a few years.” – Sunway chairman Jeffrey Cheah during AGM


…despite management’s efforts to reorganise Anzpac’s remaining lithography printing business in its non-tobacco customers, the Board is of the view that Anzpac’s business is no longer viable or sustainable. – Tien Wah Press in a filing with Bursa Malaysia


On regional properties & construction

“We look forward to working with our partner Hongkong Land on this exciting new development, which will bring office space of the highest quality to Singapore’s premier Central Business District.” – IOI Properties CEO Lee Yeow Seng

“Our new joint venture allows Hongkong Land to expand its portfolio of prime commercial properties in Marina Bay and demonstrates our long-term confidence in the Singapore property market. We are delighted to partner with IOI Properties to deliver the exceptional levels of design, construction and management that our tenants expect.” – Hongkong Land CEO Robert Wong


“We are open to opportunities overseas. If there is a good point to go abroad, then why not? But we are not in a hurry as we have enough land bank in Malaysia to keep us busy.

“You need to have deep pockets and really understand the market well. At the moment, the outlook for foreign [property] markets may not be very bullish than it was before although I would say it is healthy.

“Seeing the current slowdown in the property market, it’s a good opportunity for us to lock in more land as there is less competition among developers, which means we have more choices in terms of location.

“We have enough [cash] to readily acquire more land so it does not make sense for us to merge with anybody. When you merge with another developer, you must have a good rationale, whether it’s to improve cash flow, increase land bank or leverage on others’ expertise.

“It is not easy to manage a construction arm. So what we do is we have qualified contractors come back [to us] with better terms and costing, while we manage our own staff. If you have your own construction division and it doesn’t perform well, you will end up with higher costs than what you would incur if you subcontract work instead.” – Mah Sing MD Leong Hoy Kum


“…venturing outside the Klang Valley because the yields are better. Also, it is a tough market to find a property that meets our criteria. The Klang Valley has become a saturated location [in terms of the retail market].

“…that the asset must have opportunities for further value creation in the future through the creation of an additional lettable area in the long term.” – Hektar REIT asset manager Hisham Othman


“For Singapore’s manufacturing segment, we don’t foresee it to be very material because the deep tunnel sewerage system — the megaproject in Singapore — the award will likely be at the beginning of next year. For this year, I think Malaysia is going to overshadow Singapore in terms of order replenishment.” – Kimlun CEO Sim Tian Liang


On staying competitive with better efficiency

“Yes, there are short-term benefits from a weak ringgit, but it also leads to a situation where customers would ask for a reduction in prices and the competition from the market [becomes more intense]. Volatile movements in the ringgit are therefore not good for business.

“I would say being more efficient in production to stay ahead of the competition is a better driver for glove makers, rather than a weak ringgit.” – Careplus CEO Lim Kwee Shyan


“We want to be more efficient with our operations. Our working culture is to be more efficient, [to be able to] understand the market and expand our business…I think it’s a better way than waiting for a problem to arise as problems are always there. We need to make sure that we run faster than our competitors.” – Luxchem CEO Tang Ying See


On Malaysia tourism tax

“Local hotel operators are dealing with an environment of low occupancy rate for the past two years [and] hotel operations would be [further] affected if Malaysians cut down traveling frequency.

“Those who are registered may represent only 15% of all the hotels, so the tax would create an uneven level playing field.” – Deloitte Malaysia partner Senthuran Elalingam


“…traveling to Sarawak was already expensive as compared to Bali, Hong Kong and Taiwan, with travelers having to fork out RM1,145 for one way or RM2,000 for a return flight ticket from KL to Sibu…But one can fly from KL to Bangkok return at only RM409, making it difficult to promote Sarawak due to such a high fare.” – Malaysian Association Hotels (Sarawak chapter) honorary secretary-general John Teo Peng Yew