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 2017.09.22

Scientex Q4 FY2017 Results

…the startup cost for its biaxially oriented polypropylene (“BOPP”) and cast polypropylene (“CPP”) plants as well as lower product margins due to penetrative pricing.

The new stretch film manufacturing facility in Phoenix, Arizona in the United States is expected to have a commercial rollout by first quarter of calendar year 2018. It forms part of the pivotal and strategic move by the Group to be close to its customers and its sources of raw materials as well as access to other new customers in the region.

With the commissioning of its BOPP and CPP plants as well as the increased capacity of its Ipoh plants, the Group’s strategy is to focus on volume based converter market within Southeast Asia and Asia Pacific regions by developing sales networks with new distributors and wholesalers. The Group is confident that by optimising the production output, the operation costs will be better managed, hence improving its operational margins.


Adventa Q3 FY2017 Results

The revenue generation is still insignificant in comparison with the other businesses but the quantum of improvement in revenue (increased by 1,023%) is encouraging. The long period of regulatory approvals in the different countries weigh down revenue growth. The number of treatments is expected to increase sharply upon completion of the required approvals.


Haio Enterprise Q1 FY2018 Results

The overwhelming response from its newly launched fashion wear –Hijabs during the quarter had added on to the revenue. Wider usage of social media and marketing digital platform efficiently have facilitated the leaders to reach out to younger group of entrepreneurs. Hence, the new members recruitment which increased by more than 40% as compared to preceding year’s corresponding quarter had also contributed higher sales for the division.

The MLM division will continue to collaborate with a well known local designer to roll out more fashion wear and related products, and other trendy lifestyle range of products.

Elsoft sees slower earnings growth for 2017

The slowdown in demand was due to lower orders from smart devices as there is no new development in terms of technical specifications in the light emitting diode (LED) flash used in 2016 versus 2017.

“However, we are in a niche market; we design the equipment specifically made for our customers. We are a niche player. Our margin is higher, so we have to work harder in the second half.”

Elsoft is also developing a solution for depth sensing or 3D sensing, an infrared sensing and emitter for the smart devices and automotive segments. It also plans to add value to its automated test equipment (ATE) products by tying up with a mechanical design company.

“We are good at electronics and software but lagging in mechanical design. The ATE segment features two areas, the tester and the machine. Even though we are doing both now, I feel our machine is not good enough. If we can sell a product that is good in every part, then it’s excellent. We want to offer better solution for our customers. We want the ‘okay’ segment to be better.”


Warisan TC’s travel arm goes online

“The good thing is that we have been in the [tourism] business for the past 55 years, and we are not a small player in Malaysia when it comes to corporate travels. So we want to [leverage on] our existing customer base. Imagine a client with 3,000 employees — we want to approach their staff to use our services when it comes to leisure travel as well.”

“We are different from other players in the sense that our bundled products have more value as compared to buying them individually. So consumers can get more value when they buy everything together and they only have to deal with Mayflower Online for peace of mind on their whole trip — that is our goal. We are not looking to just be a [pure] marketplace where we have to rely on agents to come in and contribute the products. We offer our own products and we take ownership of them to take care of the customers. We’re not just a platform where we are not sure who the suppliers are or how their services are like.”


E&O to sell five more non-core assets

The five non-core assets, E&O managing director Kok Tuck Cheong said, are the Straits Quay Mall, properties in Gertak Sanggul, Kemensah Heights, The Peak, and the retail space of its 80%-tenanted St Mary project. According to E&O’s latest annual report, the aforementioned properties’ net book values totalled approximately RM546 million as at March 31, 2017.

“Keeping a mall is not necessarily our core business,” Kok said, giving confirmation of rumours of the group’s plan to dispose of its seven-year-old, loss-making Straits Quay Mall in Penang.


Columbia Asia: Our business model can keep healthcare costs lower

“When you build big hospitals, you end up incurring a lot of structural costs, maintenance costs, utility bills, manpower costs and so on. All that is a cost that has to be transferred somewhere. The question is where does it get transferred to? The patients’ bills,” said Tan, adding that patients’ claims from insurers would then inflate costs.

Tan said another way to control costs is in cutting down the average length of stay of a patient, which he believes Columbia Asia has achieved with better and more efficient care of patients, citing increased technological use as a main driver of this efficiency. “There’s a tendency [for hospitals] to have a key performance indicator that talks about filling up its occupancy rate. So, if you don’t have enough patients walking in, you tend to keep current patients longer, when, in actual fact, they should be at home with their families. From a hospital’s perspective, when you keep them longer, you incur extra costs.”

“[Inflation] is not [necessarily] about whether your panadol is 10 sen or 20 sen, it’s about how you manage your patients effectively and efficiently. And, we like to believe that we [show a good example in providing] effective and efficient healthcare,” said Tan.

Govt incentives needed to protect margins — Rehda

“Our margins are becoming smaller and smaller. I was talking about 17% to 18% last year. Now, a lot of developers are talking below 15% or 16% [gross profit margin]. Margins are being sqeezed.”

For example, steel prices in Malaysia and Thailand are similar, at about RM1,700 per tonne. But no thanks to the levy imposed by the government, Malaysian contractors are paying up to RM2,800 per tonne.


BNM hits out at rigid interpretation of economic indicators

Citing Moody’s External Vulnerability Indicator — a measure of short-term external debt by remaining maturity over reserves — which was used in the article, BNM said: “These short-term external debts are not a material risk.

“Most of it is accounted [for] by the banking sector, reflecting banks’ operations. Correspondingly, banks have placements abroad to mitigate currency and maturity mismatches,” the bank added.

BNM said short-term debt included inter-company loans which the bank said are subject to “flexible and concessionary terms”, as well as trade credits which “are usually backed by export earnings, which do not entail a claim on international reserves”.


GST collection could exceed RM42b target, says customs director-general

“For example, one of the requirements for GST is service providers need to have a place of supply, or a permanent establishment in Malaysia, and if their place of supply is elsewhere other than Malaysia, it becomes a bit difficult to tax, so we are looking into this. To tell you the truth nobody really knows how big the monster is out there, once we amend the law and look at the details we will know, it runs into several billions. We will be in consultation with industry players on this, and we hope to be able to [table] the amendment at the next parliamentary seating,” said Subromaniam.

Subromaniam shared that at present, there are 453,000 companies that have registered for GST. Out of this number, approximately 100,000 companies were small scale companies which had annual turnover of less than RM500,000, but had registered for GST voluntarily. These companies had registered so that they can claim input taxes, and also the bigger companies tend to not want to deal with [smaller companies] that have not registered for GST,” he said.

Company Notes 2017.07.21

Pentamaster in a filing with Bursa Malaysia

The three units will be injected into PIL for a collective RM86.78 million, which will be satisfied via the issuance of 999 PIL shares to Pentamaster.

“The internal reorganisation will facilitate a more efficient group structure by way of promoting a better segregation of business responsibilities and operations for Pentamaster’s existing automated solution business and its other smart control solution system business. This will in turn enable the management of the automated solution business and smart control solution system business to efficiently allocate resources and focus on their respective businesses. In addition, the internal reorganisation will also facilitate PIL to act as the listing entity for the proposed listing.”


Icapital.biz in a filing with Bursa Malaysia

With another rate hike expected in the coming months and the Federal Reserve’s plan to unwind its US$4.5 trillion balance sheet, this is confirming what I wrote in the said commentary – “With the US economic recovery remaining intact, one can expect the normalisation of her monetary policy to proceed at a pace faster than in 2015 and 2016.” Again, we hope that investors are prepared for this in a calm manner

…in a reflection of the uncertain global economic conditions created by the US-led 2008 global financial crisis, the Bank of Italy recently advertised for 30 junior positions with an annual salary of €28,000 and it received 85,000 applications – nearly 3,000 candidates for each post. With Italy’s youth unemployment close to 40% and the overall level at 11.3%, steady jobs are in huge demand. The trouble in Italy is that, once an employee is hired, it is hard for a company to get rid of them no matter how incompetent they might be. How Italy and other European nations got into such a devastating mess deserves deep research by the government and policymakers.


Capitaland Malaysia Mall Trust in a filing with Bursa Malaysia

The decrease was mainly due to negative rental reversions from Sungei Wang Plaza as it continues to be temporarily affected by the ongoing Mass Rapid Transit works and the closure of BB Plaza. Lower gross revenue was recorded for The Mines mainly due to lower rental rates and occupancy whilst lower gross revenue in Tropicana City Property was mainly due to lower occupancy at the office tower. The decrease was mitigated by better performance from Gurney Plaza and East Coast Mall on the back of higher rental rates achieved.

As the competition in the market place heats up with the opening of new shopping malls – of which many are located in the Klang Valley – in the second half of this year (2H 2017), the Manager expects the operating environment to remain challenging. As CMMT’s malls are largely focused on day-to-day necessity shopping, they have proven resilient through economic cycles in the past and should continue to do so. The Manager also expects the recent commencement of the Sungai Buloh-Kajang Mass Rapid Transit line to benefit Sungei Wang Plaza in the long term.


Maxis in a filing with Bursa Malaysia

…added 41k new subscriptions, achieving the highest net additions following the revamp of the flagship MaxisONE plan. The Power of ONE campaign which enabled subscribers to own a wide range of devices for RM1 continued to attract high ARPU customers. As a result, the Group has grown its MOP subscription base to 1.9 million with monthly ARPU of RM120, which is higher than the blended ARPU of RM102.

Prepaid ARPU was stable at RM42 per month supported by continuous growth in mobile Internet revenue…Hotlink FAST base has now surpassed 1.8 million subscriptions with monthly ARPU of RM44.

Customer demand for data continues to grow strongly, supported by the rising consumption of social media, increasing availability of TV and video on mobile devices and better user experience on mobile network.

Blended smart-phone penetration stood at 79% against 70% in the same period last year. Blended data usage grew more than double in the last 12 months and is now at 5.0GB/month. The Group’s expanded 4G LTE network, with a nationwide population coverage of 89% on a comparable peer basis, continued to be an important differentiator for customers to enjoy high speed unmatched digital experience.


Westports in a filing with Bursa Malaysia

Due to the ongoing changes in the container shipping industry, we expect our container throughput to be lower when compared to the previous year by between seven percent and twelve percent.

The second phase of Container Terminal 8, consisting of a 300-metre wharf and supporting terminal operating equipment and facilities, have just been completed and are expected to be commissioned into service soon. The total terminal handling capacity would then be increased to 12.5 million TEUs.

Construction work continues at the first phase of Container Terminal 9, consisting of a 600-metre wharf, and is expected to be completed by December 2017.


Syarikat Takaful Malaysia in a filing with Bursa Malaysia

For the year 2017, Takaful Malaysia will continue to emphasize the four core areas of customer reach, operational agility, cost competitiveness and stakeholder confidence to increase its overall market shares and continuously improving shareholders’ value… promote its unique proposition of rewarding a 15% Cash Back to its General Takaful customers for no claims during coverage period.


British American Tobacco (Malaysia) in a filing with Bursa Malaysia

Illegal cigarettes incidence for the same period has increased by about 16% from 50.0% in the first half of 2016 to 57.9% in May 2017. This was driven by the price gap between legal and illegal cigarettes and current macroeconomic factors that are impacting consumer spending power…in line with volume decline and the cessation of contract manufacturing for exports as of 31st December 2016.


TAS Offshore in a filing with Bursa Malaysia

Indonesia is expected to export about 30 million metric tons of bauxite alone in 2017 as a consequence of the easing on export ban of unprocessed mineral ores by the Indonesian government. This may call for the demand for vessels required for such activities.


WZ Satu in a filing with Bursa Malaysia

For civil engineering and construction segment, the Group not only accumulated an order book to last for the next two to three years but also the Group is confident that its order book will grow beyond the run-off rate. The current order book of RM1.0 billion will ensure the Group is kept busy for the coming financial year and beyond.

WZS Misi Setia Sdn Bhd’s (“MISI”) investment in the Automated Pipe Spooling fabrication plant has kicked-off well and has led to successfully securing contracts in The Refinery and Petrochemical Integrated Development (“RAPID”) project. Since the previous reporting, MISI has secured additional works on top of existing contracts for RAPID projects. The above investment has come on stream and has been successfully translated into meaningful results as reflected and registered in the current quarter oil and gas segment result.


Saudee Group in a filing with Bursa Malaysia

…new products going to markets both locally and abroad. The Group has started collaboration with a few strategic partners to produce new halal food product to cater to the local and exports market. The product, manufactured under a patented technology, has a significant untapped market both locally and overseas.


Cycle & Carriage Bintang in a filing with Bursa Malaysia

The Mercedes-Benz trading operations recorded a loss primarily due to increased competitive intensity resulting in lower
unit sales, reduced margins and to a lesser extent higher operating expenses.

…with the model mix moving away from S-Class to the lower margin GLC-Class and E-Class. Margins suffered further due to strong competition in the premium car market.

Furniture exports keep growing

“The ban on rubberwood export would ensure sustainable supply to the furniture industry to achieve Natip’s RM16 billion target.”

“If we are allowed to employ five foreign workers for one local employee (5:1), we can expand faster but the home ministry wants to stick to the 3:1 ratio.”

“Malaysia wants to have a balanced policy by keeping the upstream players including the rubberwood sawn timber mills happy instead of helping the downstream value-added furniture industry. But Malaysia can export a quota of 100,000 cubic metres of rubberwood which would generate a total revenue of RM200 million to RM300 million. However, we hope the government would consider reducing the quota to 40,000 cubic metres.”

“Some manufacturers are thinking of Vietnam where there is sufficient labour and raw materials like acacia wood for use in our furniture. If the environment is not good, with unfriendly policies that impede growth, we might think of moving out of Malaysia.”


Mobile healthcare app to revive Palette’s earnings

The demand for mobile healthcare in Malaysia is not as good as in China at the moment, but we are targeting the locations that have higher tourism numbers such as Penang, Melaka, and Kuala Lumpur. We expect the whole mobile healthcare business segment to contribute about RM3 million to RM5 million in revenue…”

…it plans to diversify into traditional Chinese medicine (TCM) to expand its earnings base by acquiring a 51% stake in TCM, food and herbal supplements trader Genopharma Sdn Bhd (GSB) for RM1.53 million.


Prestariang sees strong growth from SKIN

“It is a government-led initiative, as the current system needs to be refreshed and rebranded because some of the technologies used are old and things have changed. It is considered as zero risk for the government through the build, operate, maintain and transfer method under the public-private partnership.”

Payment to Prestariang will commence upon full commissioning of SKIN, with an average annual payment of RM294.7 million for 12 years (from the fourth to the 15th year) during the maintenance and technical operations period.


Foreign insurers are said to plan US$2 bil of Malaysia deals

A sale of a 30% stake in Great Eastern Life Assurance (Malaysia) Bhd could raise about RM5 billion (US$1.2 billion), while the disposal of a similar stake in Prudential Malaysia Assurance Bhd would fetch at least RM3 billion.

Foreign insurers have until end of June 2018 to reduce their holdings in local firms to 70% at most. The country’s central bank has been weighing tougher enforcement of a cap on foreign ownership as it seeks to boost local participation in the industry.


Bank Negara: Housing loan criteria review won’t resolve affordable housing issue

“Housing affordability has not improved significantly where average national house prices remained at 4.4 times of median income (affordable range is 3.0 and below), with lower affordability recorded for some major states and urban cities. Housing developers, working together with authorities and relevant stakeholders, should therefore intensify efforts to reduce costs and accelerate supply.”


RAM: Malaysian ports throughput growth to “remain at low single digit”

“Malaysia’s throughput remained resilient in 2016, with container throughput recording a 10-year CAGR [compound annual growth rate] of 6% while that of cargo throughput came in at 5%. At the same time, Malaysia handled more than 25% of the containers passing through the Asean-5 nations, in other words Malaysia, Singapore, Thailand, Indonesia and the Philippines and accounted for 3% of world container traffic.”

“On that note, regional port expansion is under way in Singapore, Malaysia, Indonesia, Thailand and the Philippines, adding at least 100 million TEUs (20-foot equivalent units) of new container-handling capacity over the next 20 years, with most of this planned along the Straits of Malacca. Although the new capacity will provide opportunities in terms of scale, there is a possibility of running into a supply glut and an ultra-competitive situation if trade growth does not keep pace.”


Don’t get ‘punch-drunk’ over Belt and Road, Munir urges Malaysia

“We must not be overwhelmed by the sheer size of the Belt and Road and think that good things are going to happen automatically. We must look at which part of it will work for Malaysia, and inevitably for Asean.”

…China’s investments in Malaysia’s planned port and railway projects over the next two decades could be as much as RM400 billion or 32% of the country’s expected gross domestic product (GDP) in 2017.

Data from Malaysia Investment Development Authority (Mida) showed that China is currently the largest foreign investor in the country. In 2016, Mida approved a total of 33 China-led projects valued at RM4.8 billion, almost double 2015’s tally of 17 projects worth RM1.9 billion.


Nazir urges govt to scrutinise benefits of Chinese-led deals

“What are the lessons that we have learnt across the 60 countries that have experiences in negotiating with the public and private China. This year is the 20th anniversary of the Asian financial crisis. What caused it? It is the infrastructure debt. Isn’t there a risk? This (Obor) is going to create huge infrastructure debts in the 60 countries. Nobody will not dare not to repay China. Therefore, the risk will eventually end up in sovereign balance sheet and then we have a problem. If this happens in many countries, then we have an Asian problem. That is one caution that we need to bring to the table.”

Company Notes 2017.07.14

Lonpac Insurance in a filing with Bursa Malaysia

The Malaysian general insurance industry registered a reduction of 2.7% in gross written premium for the first quarter of 2017. With the implementation of Phase 2 of the Liberalisation Framework effective 1st July 2017, whereby motor insurance for comprehensive cover and third party fire and theft will be detariffed, we expect Lonpac to face stiffer competition in the second half of the year as insurers operating in the new liberalised environment scramble to build
their respective market share.

 

Malaysia Airports in a filing with Bursa Malaysia

1H17 passenger traffic registered 9.5% growth with 61.7million passengers. International traffic grew by 13.0% while domestic grew by 6.8%.

Malaysia passenger traffic grew by 13.5% in June 2017. International traffic grew by 17.2% while domestic traffic grew by 10.0%.

KLIA Main Terminal and klia2 both registered double digit growth with 11.0% and 19.1% respectively over June 2016 passenger numbers.

 

Postpaid + Prepaid
Cost Management

Digi.com in a filing with Bursa Malaysia

…our 4G LTE and LTE-A network coverage reached 86% and 45% of the population nationwide, supported by 9,000 LTE sites and 8,000 km of fiber network.

Our data traffic delivery continued to show healthy 1.4 times growth year-on-year as 4G subscribers surged to 66% of total smartphone subscribers from 43% a year ago.

We will further capitalise on Digi’s robust 4G Plus network, now enhanced with LTE 900Mhz, VoLTE and VoWiFi capabilities to strengthen our products and services offering and to drive new opportunities from enterprise business and solutions.


Zhulian in a filing with Bursa Malaysia

We also look forward to improving the contribution from the MLM segments especially from our Thailand and Myanmar markets in order to drive growth momentum for overall Indochina market once we materialise our plan to enter Cambodia and Laos market. The Group will continue to adopt rationalisation in our business operations.

Top-brass change part of revamp — Malaysia Smelting

“The process of relocation is a major decision and will take much planning and time. The Butterworth smelter has been operational for over 100 years and a technology upgrade in our overall smelting process would be beneficial for the business. The Port Klang plant which was acquired last year will be retrofitted into a world-class tin-smelting facility, before we commence the licence application process [for the plant].”

“So far, tin prices have remained strong in 2017 at an average market price of approximately US$20,000 per tonne, from average tin prices of US$17,900 per tonne in 2016 and US$16,000 per tonne in 2015. Rising tin prices will have a more direct impact [on] the profitability of our tin mining division and a lesser impact on the profitability of our tin smelting division.”

“A key initiative to achieve this would be to upgrade our furnaces to that of the latest Top Submerged Lance (TSL) type which is a much more efficient process, in terms of costs and environmental care. The new TSL furnace will enable us to have an even more comprehensive and efficient smelting process and may also be expanded to handle a larger volume of feed materials, using oxygen enrichment.”


Takeover offers for KUB and Wang-Zheng ‘not fair and not reasonable’

“Based on the sum-of-parts valuation method, we have derived the estimated fair value for the entire equity interest in KUB of RM885.11 million or a fair value per KUB share of RM1.59.”

“The offer price of RM1.14 per share is not fair, taking into account that it is lower than our estimated range of value of between RM1.16 and RM1.39 per Wang-Zheng share…also represents a discount of 25.49% to the last traded price as at the latest practicable date (LPD).”

…taking into account that both KUB and Wang-Zheng shares are relatively liquid and will remain traded on the Main Market of Bursa, shareholders will have the opportunity to realise their investments in the open market after the closing date (though there is no assurance the shares will continue to trade at current price and volume levels after the closing date).


Lotte Chemical Titan dips below IPO price

“At this moment, the spread from the conversion of polyolefin into feedstock naphtha is still at US$700 per tonne. This is a very comfortable [level] for us.

“Oil prices [have] traded between US$30 and US$60 per barrel over the last three years. We believe that there will be no sudden spike in the pricing in the next two years, and we are comfortable with anything below US$60 per barrel.”

“We believe the market can absorb [the supply] of polyolefin products, and independent market researchers share a similar view.”


Lotte’s chemical reaction

Back when Lotte took the unit private, the global economic recovery was driving strong demand for the raw materials used to make plastic and synthetic fibers used in everything from appliances to automobiles. But as the years went on, Lotte Chemical did almost nothing to expand capacity — unlike its global competitors — despite having ample cash.

In the absence of investment, revenue growth slowed. Lower prices for inputs such as oil have helped prop up profit but as the sales outlook for products like cars weakens, demand for Lotte’s offerings has waned. Meanwhile, raw material prices have declined and overcapacity in China is further pressuring the industry.


Alliance says it can go it alone

“As far as we know, nobody is courting us [or] said anything about wanting to come in [and] takeover. Nothing is in the pipeline as far as we know, but we don’t know what the shareholders are doing. They could have something at their level but we have no clue.”

“Like every other bank, [the group will make] a one-time adjustment in FY18 but we don’t anticipate this adjustment to be very large as we already have a 1.2% [of total loans] regulatory reserve that has been booked to buffer the impact.”

…the adoption of MFRS 9, which will change the provisioning methodologies from incurred loss to expected loss, is expected to lead to higher credit costs for banks as they will have to make provisions for new loans upon adoption.


Tencent’s WeChat Pay seeks licence for local payment services in Malaysia

If approved, users in Malaysia will be able to link their local bank accounts to WeChat Pay and pay for goods and services in ringgit.

At present, WeChat Pay can be used at over 130,000 shops in 13 foreign markets — including in the United States, Europe and Japan — and supports 10 currencies.

“The short-term target is still Chinese tourists. The priority is nearby countries most frequented by them, such as those in Southeast Asia.”


Najib announces four more services to be GST zero-rated

1. Pescribed services performed in connection with goods for export where the service is supplied to overseas customers.

2. Prescribed services supplied in the Free Zones, including Licenced Manufacturing Warehouses (LMW), to overseas customers.

3. Research and development services provided for overseas customers.

4. Non-recurring expenditures incurred as engineering expenses including tools and machinery used in the manufacturing process of goods.


BNM maintains OPR at 3%

“The Malaysian economy performed better than expected in the first quarter of 2017. Growth was lifted by stronger domestic demand, with additional impetus from exports.”

“Banking system liquidity remains sufficient with financial institutions continuing to operate with strong capital and liquidity buffers. The growth of financing to the private sector has improved, consistent with the pace of economic activity.”