Company Notes 2017.12.08

SCGM Q2 FY2018 Results

The Group foresees the new Kulai factory targeted to be completed in the fourth quarter of current financial year ending 30 April 2018 will contribute positively to its future revenue and net profit following the expansion of its production capacity and installation of new production lines.

Cautious response to Top Glove buy

There is so much upside to the new deal in the making, considering the surgical gloves business offers higher margins due to its product quality, technology and the research and development involved in its production. It is also a market that has high barriers to entry that confront many glove players in a rapidly growing global healthcare industry.

“Our indicative US dollar cost of funding range from 2.5% to 3%, whereas ringgit borrowings cost is at 4.5% to 4.8%, a difference of around 1.5% – which translates to around RM19mil savings per annum,” he says. Therefore, a dollar loan will give us a perfect natural hedge, in the event of currency fluctuations. Ringgit borrowings, may result in mismatch due to the inflow of sales proceeds in dollars,” he elaborates.

“New expansions that has kicked off in the last few years will start generating cash and this will improve our cash flow in FY18. This will be more than sufficient to meet our organic expansion capex of around RM200mil to RM250mil.”


Kelington set to be lifted by gases

The contract, which involves on-site supply of nitrogen gas to a photovoltaic cell manufacturer in Malaysia, will provide a long-term revenue of about RM20mil over a period of ten years.

“We started our operations seventeen years ago to provide ultra high purity (UHP) gas delivery solutions to the electronics and semiconductor industry, which is still our mainstay business. Given our long-built experience and expertise in the field, it is relevant for us to penetrate the industrial gas segment in order to provide an end-to-end service. The venture into the industrial gas segment is a step in the right direction as it is synergistic with our existing core business. In fact, our clients consist of electronic manufacturers who utilise gases in their manufacturing processes.”

Kelington plans to invest up to RM60mil to build a carbon dioxide gas purification plant, which is anticipated to contribute revenue from FY19. “The new venture complements our existing project-based business model of providing engineering services which are usually completed within six to 12 months. In the coming years, demand for liquid carbon dioxide is expected to grow further on the back of rising demand in the food and beverages industry as well as the upcoming roll-out of large infrastructure and construction projects.”


More build-to-suit projects to come — Axis REIT

With limited “Grade A” assets in the market, allowing REITs to embark on build-to-suit projects will enable Axis REIT to create their own “Grade A” assets, said Leong, adding that the promoters of the REIT were previously “builders of industrial assets”. As REITs are only allowed to develop up to 15% of their portfolio, Leong said Axis REIT cannot proceed with redeveloping Phase 2 of the Axis PDI Centre as Phase 1 already takes up about 10% of their assets under management (AUM). Currently, the Phase 2 of Axis PDI Centre is still generating income as a storage yard for cars.

Over 12 years, the REIT’s portfolio has grown from five properties to 39 properties comprising 7.6 million sq ft and 132 tenants, with a total AUM of RM2.25 billion in size. “The yields for our property are pretty good. Overall our portfolio [yield] is almost 9% [per annum],” said Leong. The REIT is targeting to reach RM3 billion in AUM next year, and is looking at yield-accretive acquisitions. With the conclusion of a private placement two weeks ago that raised RM178.75 million, Leong said the exercise will enable Axis REIT to reduce their gearing to 29% from their current 36%. “[With] that, we will be able to allow more breathing space to provide a war chest for Axis REIT for growth next year,” said Leong.


Pensonic now at a crossroads, says CEO

“We have to allocate resources for future businesses to seek transformation in the next five to 10 years. Being in the home appliances segment, we missed out on the mobile phone and personal computer wave in the 1990s till 2000s. We want to make sure we don’t miss out on this digital age, particularly the IoT and wearables segment, which is why we have a consortium with some industry players to come up with a product or concept for the future.”

Pensonic has put together a team to focus on the e-commerce platform and is spending about RM500,000 for the infrastructure, Nelson said. Moving forward, its 700 retailers nationwide will also double up as pickup centres for customers, he said. On smart products, he said some 10 categories of appliances have been identified for value adding, where the group will incorporate the aspect of IoT into the products, which will take into account the evolving needs of customers.


Ajinomoto eyes 50% sales growth in two years

“Ajinomoto Thailand, Vietnam and Indonesia are already experienced in diversification, so Malaysia can leverage from their know-how when pursuing this,” Yamamoto said at a briefing on the group’s first half results yesterday.

This year’s performance, Yamamoto said, will be driven by strong sales from its consumer to business segment, supported by product diversification efforts and pricing strategy. But she cautioned that rising production cost could limit its near-term profit growth.

Saudi Arabia is a major export market for Ajinomoto, followed by the United-Arab Emirates and Oman, among other markets in the Middle-East.


GDex expects mid-teen growth in FY18 revenue, says MD

However, stiff competition and the group’s ambition to expand “aggressively” both domestically and regionally over the next few years are likely to add further pressure to the courier service provider’s margins, he said.

This will include allocating between RM30 million and RM50 million per annum for capital expenditure (capex) over the next two years to double its handling capacity, which currently stands at 120,000 parcels a day.

Outside Malaysia, the group only has a presence in Indonesia via its subscription to PT Satria Antaran Prima’s convertible bonds, which it has until 2021 to exercise. Although Teong foresees the local courier industry consolidating in the near future, he said GDex will focus on organic growth in Malaysia instead of considering further acquisitions.


Astro to invest RM100m in JV

“The JV will extend Astro’s online presence among the Malay-language audience, propel its combined monthly unique visitors to approximately 10 million, and is in line with its goal to build Nusantara and Islamic content verticals. In pursuit of our journey of reinvention, Astro is embracing change brought about by digital and mobile while staying true to our core as a consumer-first company. Regionally, we will forge complementary win-win partnerships, as well as identify strategic and opportunistic investments for our growth portfolio, as well as giving us a seat at the table to learn from value creators and disrupters of the future.”


Gamuda says construction supply chain ‘overstretched’

Local contractors may face cost pressures from a tightening supply chain in the years to come as mega infrastructure projects begin rolling out.

Though Gamuda has been touted as one of the biggest potential beneficiaries of the East Coast Rail Link (ECRL) project, Lin observed that “foreign funding usually comes with foreign participation”. “In an ironic sense, foreign participation can actually help ease the pressure on the [local] supply chain. But [these projects] will miss out on the benefits of localisation,” he said, adding that the government will have to weigh these factors in making any decision.


Acoustech exits audio business

“The disposal of the unprofitable audio segment will allow the group to focus on and utilise its resources solely for its core segment — property development. The divestment will eliminate any further erosion of the group’s profits that may result from the audio segment’s poor performance.”

“The proposed acquisition will allow the group to consolidate its supply channel and improve efficiency, resulting in longer-term cost savings and to ensure continuous supply of speaker units. By consolidating the supply chain, our group is expected to maintain better quality management and expand the future range of products that it can market to its customers. Currently, the board does not expect additional financial commitment to maintain FPT’s business. [However,] the management expects that further investments in FPT will help generate returns in the longer run through cost savings and faster turnaround for production requests. Therefore, Formosa Prosonic’s management expects FPT’s prospects to be favourable in the longer term based on the anticipated improvement in global demand for consumer electronic products.”

Move over tech. Here come Southeast Asia’s builders

With at least $323 billion in infrastructure spending in the pipeline in Southeast Asia and potentially more expected over the next few years, 2018 could well shape up as the year of builders’ stocks from Indonesia to the Philippines that have been the laggards in a broader market rally this year.

“Infrastructure has been under invested whether it’s clear water, clean air, energy, roads, ports, railways, education, health care — so there are tons of opportunities.”

Malaysia has allocated 210 billion ringgit ($51.6 billion) for projects in the 2018 budget of which 73 percent will go rail and public transport. About 55 billion ringgit allocated to East Coast Rail Link, 50 billion-60 billion ringgit given to Kuala Lumpur-Singapore High Speed Rail and 40 billion ringgit to phase 3 of the mass rapid transit system. Rail, affordable housing, roads and water infrastructure are major segments that will benefit from government’s spending next year, Sharizan Rosely, an analyst at CIMB wrote in a report dated Oct. 30. General election due by August 2018. Biggest construction companies: Gamuda Bhd., IJM Corp. Bhd., Sunway Construction Group Bhd., Malaysian Resources Corp. Bhd.


Klang Valley retail occupancy rate at 5-year low

“As of 3Q17 (third quarter of 2017), total retail stock in [the] Klang Valley stood at 61 million sq ft and estimated pipeline supply for those under construction is currently estimated at 16 million sq ft, comprising 23 projects. This implies an overall growth of 26% to current stock. In recent years, we have witnessed a mall closure in Petaling Jaya, and increasing occupancy stress, low footfall and retailers’ turnover, in some of the newer [and older] malls, matched by slower or worse, no rental growth and [an] increasing need to provide for tenants’ incentives.”

“Some of the newer malls have been struggling to establish market share that is getting more fragmentary and diminishing. “Construction of [the] mass rapid transit network has spurred a wave of transit-oriented developments, and more retail space supply can be expected along the train ride, resulting in overlapping catchments and intensified competition. It is and will continue to be very much impacted by the ongoing structural changes in the market, and not a normal supply-demand disequilibrium, that in the past could be resolved through the passage of time, rising affluence and population.”


Gas price hike to raise steel makers’ costs by RM200m a year

The average natural gas base tariff will be revised upwards by RM3.85 per MMBtu or 14.23% from RM26.46 per MMBtu to RM30.90 MMBtu for the non-power sector, including steel producers, in Peninsular Malaysia from Jan 1 to June 30, 2018. In addition to this, under the new gas cost pass-through (GCPT) mechanism, a surcharge of RM1.62 per MMBtu will apply to all tariff categories due to the higher liquefied natural gas price against the reference price in the base tariff during this period. This translates to an average effective tariff of RM32.52 per MMBtu across all categories, at an average increase of RM6.06 per MMBtu or 22.90%.


A lift for small developers

Smaller property developers will no longer need to just rely on bank financing to ease their cash flows. They can monetise upfront from the cash flows of their billings via a bond issue which potentially takes away businesses from banks.

“This will disrupt property financing in Malaysia, especially for bankers depending on businesses from small developers. Typically, developers need to wait for the three-year construction period before they are able to collect their portion of the development cash flows. For the smaller developers, liquidity is a huge issue.”


Ensure Chinese investments offer locals high-skilled jobs too

But to Wan Saiful, while MCKIP promises high-value investments and to grow the Malaysian economy, the immediate jobs created there have been mostly low-skilled construction jobs. Further, he thinks future jobs will likely be factory-based and that it is uncertain how locals can be transitioned into higher-level jobs once investors leave.

Likewise, he said tens of thousands of jobs have been created for locals in Africa via Chinese investments. “However, these have mostly been low-skilled,” he added. Citing a 2014 academic survey, he said among the 400 companies that invested in 40 African countries 80% to 97% were low-skilled roles which were occupied by locals.

Company Notes 2017.09.15

Bermaz Auto Q1 FY2018 Results

…partly caused by the Mazda CX-5 run-out programme as more sales incentives were given for this model since the preceding quarter in anticipation of the new CX-5 model to be launched in October this year.

…continue to remain disciplined and will focus on driving sales at its standard selling prices with value offerings as this augurs well for the Mazda brand image and popularity in the longer term. The Group is optimistic that the new CX-5 to be launched in October 2017 will help to improve the unit sales as well as the profit contribution from associated companies for the second half of the financial year.

…cautious on the potential impact of the new excise duty expected to be introduced in early 2018. This impact may be mitigated to a certain extend as brought forward purchases of CX-5 and CX-9 from Mazda Japan is expected to be made prior to 1 January 2018.


Berjaya Food Q1 FY2018 Results

The Group expects Starbucks to maintain its revenue growth momentum, and the price adjustment in the previous financial year is expected to mitigate the negative impact from the fluctuating Ringgit Malaysia. In addition, the operational and menu rationalisation of KRR will also have a potential to yield positive results for the brand moving forward.

IOI Corporation divests 70% equity stake and retains 30% stake in IOI Loders Croklaan in a new business partnership with Bunge

During the fourteen years since IOI acquired Loders, Loders has grown from having three processing plants to seven plants in Europe, North America and Asia, and earnings have nearly quadrupled during this period. IOI has positioned Loders as a leading palm-based specialty fats player which supplies its products to nearly all major MNC food companies. In order to sustain its significant growth and better serve its multinational customers, Loders will need to expand its processing plant footprints to regions such as South America and South Asia, and offer more varied product offerings including seed oil–based products. In IOI’s assessment, the faster and more effective way to do so is by leveraging on Bunge’s existing plant assets in these regions and Bunge’s established integrated supply chain in seed oils.

After the transaction, IOI will still play an important role in Loders given our expertise in palm oil sourcing and our business experience in the fast-growing Asia Pacific Region. IOI will have two representatives on Loders’ five-member Board of Directors and our representatives will also be involved in key management decisions taken by Loders. IOI will continue to be a major supplier of palm oil and palm products to Loders after the transaction.


NTPM expanding tissue paper plants

The expansion would increase the group’s production capacity to 170,000 tonnes per year by end-2018 from 110,000 tonnes currently. The bulk of the expenditure will be to increase the production capacity of our plant in Ho Chi Minh to 50,000 tonnes a year from 10,000 tonnes presently.

“Due to the increase in pulp prices, we have to raise the selling price for our tissue products by 3% to 5%.” Pulp prices have increased to around US$700 per tonne this year from US$500 year ago.


Censof growing quietly and steadily

Censof’s entire stake of 17% in DNex is worth more than its entire market capitalisation. Based on DNex closing price of 47.5 sen, Censof’s stake is worth about RM141.6mil. Censof has been cutting down its stake in DNex and could be divesting more in the near future. In August 2016, Censof disposed of a 7.3% stake in DNeX and its entire 19.6% holding of warrants for RM32.3mil to pare down the groups borrowings.

Rubber glove prices may increase by 9% to 12%, says MARGMA

The (Hurricane Irma) devastation has caused the prices of Butadiene, an important material in the production of Nitrile Latex, to soar as its production has been severely affected.

“Another cost component that has a runaway effect on the industry is the shortage of paper. This shortage has pushed packing material prices up by 15% already and it looks like [it’s] moving up again. The lack of readership of newspapers and magazine is causing the lack of feedstock to cupboard and cartons processing.”


PLUS receives takeover offer from Maju Holdings

Maju’s indicative offer implies a total enterprise value in excess of RM36 billion for PLUS. Other significant details divulged by sources familiar with the offer include Maju’s plan to freeze toll rates for 20 years until the end of the concession period.

The offer’s other strengths include the acquisition reducing the government’s contingent liabilities by RM30 billion, and Maju is said wanting to forfeit the government’s compensation of about RM900 million owed to the toll road operator, a result of toll hikes not implemented.

PLUS has five concessions…All PLUS Malaysia’s concessions end in December 2038.

PLUS paid an RM815 million dividend to its parent Khazanah in FY15. As at end-Dec 31, 2015, PLUS had non-current assets amounting to RM30.22 billion, and current assets of RM3.26 billion. It had long-term debts of RM31.27 billion and current liabilities of RM1.56 billion.


Port Klang business hit as key firms shift operations to Singapore

“Only Kuantan Port has Chinese equity so far because it also aids Beijing’s South China Sea claims. Other infrastructure plans have either not taken off or are only loans, or worse, just Chinese companies winning construction deals.”

The new alliance agreements’ biggest impact on Klang was the loss of transshipment volumes – goods stored before being shipped to their final destination – from giants United Arab Shipping Company (UASC) and France’s CMA CGM. This could total up to 2 million TEU annually. UASC has now merged with Germany’s Hapag-Lloyd, making it part of THE Alliance, while CMA CGM is the biggest company in the rival Ocean Alliance.

Both groups, which handle nearly half the world’s shipping capacity, started realigning in April, resulting in more than half of Klang’s Asia-Europe calls being shifted to Singapore, said industry officials. CMA CGM and Cosco have naturally gravitated to Singapore as both have major investments there. PSA saw a 9.6 per cent jump in the second quarter to 8.5 million TEU.

Among the world’s top 20 ports, Klang was one of only two, the other being Tanjung Pelepas on the south coast of Johor, to see a drop in volume in the first half of this year.


China investments transforming Malaysia

With the entry of our corporations, Malaysia has become a new leader in certain sectors and there is significant improvement in some industries.

In the case of ECRL, PM has announced that at least 30% of the civil engineering work will be awarded to local contractors. The electrified double-tracking railway line linking Gemas with Johor Baru will see 50% of the civil construction works awarded to local players.

Company Notes 2017.08.18

Media Prima Q2 FY2017 Results

The Group incurred an LAT of RM138.4 million for 2QFY17 mainly due to the impairment of investment in an associate of RM142.4 million.

…lower advertising and newspaper sales as the shift to digital media significantly affected the Group’s traditional media business. While the Group has ventured into new digital and consumer-based business initiatives to complement its traditional media segments, these initiatives are still undergoing a gestation period.

Digital Media – The proposed acquisition of RAHSB will enable access to resources and competencies to drive growth in digital business by acquiring expertise in digital content curation and digital content marketing. The acquisition of RAHSB increases content monetisation opportunities for the key market segments by leveraging on the Group’s audience base, big data initiative and traditional media platforms to strengthen the newly acquired business further.


Eversafe Rubber Q2 FY2017 Results

The Group plans to increase its export sales and geographical footprint to various overseas markets. The new markets the Group intends to expand to will primarily be outside the ASEAN region, with a focus on the South American region. The Group is in the midst of finalising the details of a joint venture agreement with its business partner to establish a tyre retreading plant in South America and also to market and distribute the retreaded tyres.


AHB Holdings Q1 FY2018 Results

AHB has increased its R&D resources and plans to continue to introduce new dynamic furniture programs and new products to improve financial performance. AHB is also diversifying its market base, including improving the local market share of the office furniture market.


Batu Kawan Q3 FY2017 Results

Profitability of the Group’s oleochemical business will be lower in view of stocks write-down, challenging and difficult market environment. As for the Chemicals division, profit from the chlor-alkali business is projected to be higher due to better prices while the restructured sulphuric acid business should contribute a modest profit.


Kuala Lumpur Kepong Q3 FY2017 Results

Financial performance of the oleochemical business was significantly impacted by the high volatility of the price of its raw material, crude palm kernel oil (CPKO), during the current quarter which had created mismatch in the selling price of oleo products against its raw materials purchase price. Customers additionally, are exercising higher prudent buying strategy in light of market conditions. This had resulted in the write-down of RM60.3 million in stocks with most of the oleo products had lower or negative contributions.


Hup Seng Industries Q2 FY2017 Results

…the development of new market such as China over the past has also started to bear fruits contributing to the pleasant growth.

Domestic sales registered a drop of 2% mainly due to some problem in East Malaysia market. However, this decline was more than offset by a 20% growth in export sales propelled by higher demand from existing distributors due to concerted effort of promotion activities as well as contribution from a new distributor in China whom the Group nurtured since 2016.


Ornapaper Q2 FY2017 Results

The key factors affect the group’s performance include mainly raw material costs (such as kraft liner, test liner, medium paper and etc), operationg cost, demand for the packaging products and the ability to cope with the change. The recent upward trend of raw material costs has resulted in increase of production cost.

The sales volume and average selling price for corrugated cartons and boards has increased by 4.97% and 8.76% respectively compared to the preceding quarter.


Pharmaniaga Q2 FY2017 Results

Although earnings were impacted by the temporary closure of production lines, this will subsequently enable the Group to move forward with the commercialisation of new products as some of the products were approved ahead of schedule. This is certainly testament to the Group’s strong research and development initiatives.


LTKM Q1 FY2018 Results

The decrease in earnings was due mainly to the drop in egg prices and increase in cost of major raw materials namely corns and soybean.


Taliworks Q2 FY2017 Results

The high trade receivables particularly the amount owning by SPLASH continues to be a major concern as it has long been outstanding due to the uncertainties in the Selangor water restructuring exercise.


Paramount Q2 FY2017 Results

Education institutions have gone into a price war in an attempt to hold their respective market positions and compete for new students.

With the enlarged K-12 segment, comprising Sri KDU and the R.E.A.L Education Group, offering premium and more affordably priced alternative private and international schools respectively, Paramount Education is now able to reach a wider segment of the K-12 market. Sri KDU’s excellence in quality education continues to be reinforced. Following the success of PISA in 2012, Sri KDU International School achieved the International School Quality Mark (ISQM) Gold Award this year, the first in Malaysia and third in Asia to procure this award.


Press Metal Aluminium Q2 FY2017 Results

Aluminium price continues to increase as more and more production cuts are being announced in China according to the government supply reform policy. As a result, the China smelting production is expected to slow down and the world’s supply and demand will tilt towards a deficit situation which will support long term aluminium price performance.

Our smelting operations will continue to run at full capacity for the remaining of the year with demand continues to be well supported.


IFCA MSC Q2 FY2017 Results

As the trend of businesses moving online to the cloud starts to pick up momentum, the Group has started to invest in the next generation of solutions for the property industry with a strong focus on prop-tech. This initiative is expected to leverage the depth of experience of the Group in the property sector over the last 30 years, and combine it in a partnership with a leading cloud technology provider.

As at 30 June 2017, the Group has unbilled orders in hand amounting to RM28.22 million, an increase of RM 4.44 million from the previous quarter, showing an upward trend in the order book.


HSS Engineers Q2 FY2017 Results

The decline was compensated by newly secured projects in 2017 including East Coast Rail Line (“ECRL”) scheme design and Kuala Lumpur-Singapore High Speed Rail.

The Group has put in place a series of future plans as follows:- (a) Geographical expansion into ASEAN, Middle East and India regions; (b) Continuous enhancement on its three (3) existing core services (i.e. engineering services, project management and Building Information Modeling (“BIM”) services) and proposed venture into a fourth (4th) core service i.e. facility management; and (c) Venturing into the provision of support services to the water and power generation sectors which are expected to continue receiving strong government support given their strategic importance to the country.


Dialog Group Q4 FY2017 Results

As a leading integrated technical services provider to the upstream, midstream and downstream sectors in the oil, gas and petrochemical industry, DIALOG remains confident that its business model is well structured and can withstand the current oil price volatility and currency movements. The Group’s financial track record has proven that DIALOG’s business is well risk-managed and sustainable.


S P Setia Q2 FY2017 Results (Press Release)

Sapphire By The Gardens, comprising a residential tower with 345 units of apartments and GDV of AUD376 million in Melbourne’s Central Business District (“CBD”) witnessed a strong take-up rate of 70% during the launch weekend on 17 June.

Moving forward into the second half of 2017, the Group will focus more on the local market with emphasis given to the launches of mid-range landed properties in the Klang Valley…The strategy is to launch more of the landed properties in the Group’s flagship townships where the underlying demand for such properties by owner occupiers are still strong.


Three-A Resources Q2 FY2017 Results

The Group has positioned itself strategically to leverage on the expansion of production facilities especially the completed Maltodextrin product Plant no. 3 and also the acquisition of lands located in the vicinity of the existing production facilities.


Shangri-La Hotels Malaysia Q2 FY2017 Results

Shangri-La Hotel Kuala Lumpur is expected to deliver revenue and profit growth for the full year 2017, supported by stronger food and beverage business over the second half, with the continuing benefit of its recently fully upgraded banqueting facilities and all-day dining restaurant. Hotel Jen Penang successfully completed its major renovation, with the hotel’s full inventory of renovated rooms back in operation at the end of June 2017. This will allow the hotel to drive improvements in occupancy and room rates during the reminder of 2017.


Aemulus Q3 FY2017 Results

Sales growth in the Far East region has been encouraging. The double digit revenue growth target set by the Group for this region remain unchanged.

Orders for products continue to stream in from our customers in the enterprise storage segment.

The combined revenue from the enterprise storage, smartphone and tablet segments constitute close to 90% of the Group revenue


Century Logistics Q2 FY2017 Results

The Group will leverage its extensive customer base and internal strength which the Group has put in place that focuses on providing value added logistics solutions while maintaining cost efficiencies. Following the ongoing synergy process, the Group also intends to tap into the extensive network and infrastructure of its major shareholder, CJ Logistics Group. The Group is currently setting up the necessary infrastructure to roll-out its parcel delivery operation and expects to commence the operation soon.


Vitrox Q2 FY2017 Results

…the increase in revenue recorded for Machine Vision System (MVS) and Automated Board Inspection (ABI). Revenue from MVS and ABI have recorded an increase of 45% and 31% respectively against the corresponding period of preceding year. The increase was mainly due to higher demand from widen customer base and positive acceptance of our products.


Carlsberg Brewery Malaysia Q2 FY2017 Results (Press Release)

… higher sales volume and a one off trade discount adjustment in Singapore. This improvement was achieved despite trade loading last year in Malaysia during June 2016 prior to the price increase in July 2016.

“Our premium brands Somersby cider and Kronenbourg Blanc are growing double-digit, improving our brand mix and overall revenue. In Malaysia, our draught stout Connor’s is also growing double-digit as well and reaching new consumers with the ‘Connor’s Challenge’ campaign. In Singapore, our Asahi Super Dry sales are also very encouraging.”


Allianz Malaysia Q2 FY2017 Results

The increase in gross earned premiums of the life insurance operation was mainly contributed by growth in premiums from agency and bancassurance channels.

The higher expense ratio is due mainly to investment in digital assets and provision for impairment on insurance receivables.

The second phase of motor and fire detariff commenced in July 2017 where insurers have the flexibility to deviate pricing for the motor and fire portfolios within certain regulatory allowances. The pricing for both lines of business is expected to move towards a risk-based pricing approach. Competition is expected to intensify for the general insurance business.

The general insurance subsidiary has taken key initiatives to remain competitive in this environment including building a technical pricing model, active portfolio, and claims management as well as disciplined expense management.

The life insurance subsidiary will focus on strengthening its distribution channels through the professionalization and increased the productivity of its agency force. It will generate growth from its investment-linked business with rider attachments which cater for customers’ protection needs.


JcbNext Q2 FY2017 Results

Pending the acquisition of new businesses and/or investments, the Group’s future prospects will depend on the performance of its associated companies in Taiwan and Malaysia, quoted investment in Hong Kong, foreign exchange rates, and operating activities in Malaysia and Japan. The Group will derive income primarily from the provision of consultancy services, dividend income from its quoted investments and rental of office space.


Tasco Q1 FY2018 Results

Contribution from export cargoes of printed circuit boards, E&E, capacitors, semiconductors as well as aerospace customers boosted the higher revenue of AFF business. For Ocean Freight Forwarding (“OFF”) division, strong shipments contribution by a solar panel customer, especially export shipments to New York & Savannah of USA, coupled with increased export to Japan of an aerospace customer significantly uplifted OFF revenue performance. New customers of furniture manufacturers of OCM business also contributed higher revenue to OFF division…Trucking division posted a revenue increase of RM3.0 million (15.2 per cent), largely as a result of an increase in a new secured E&E account in the central region as well as increased distribution of an FMCG customer and inbound cross border business from Thailand.

On 12 July 2017, we completed our acquisition of Gold Cold Transport Sdn. Bhd. (“GCT”), thus marking our official foray into cold supply chain logistics business. Hence, the results of GCT will be consolidated into our accounts with effect from our second fiscal quarter this year. Our acquisition of MILS Cold Chain Sdn. Bhd., on the other hand, is still pending approval from the relevant authorities.


Pos Malaysia Q1 FY2018 Results

…the recent upbeat economic sentiments, globally and domestically, are supportive of the growth of e-Commerce, the key driver of the Pos Malaysia’s revenue growth. Furthermore, the Government’s continued progress in rolling-out the Digital Free Trade Zone incentives is also positive for the continued growth of e-Commerce and its ecosystem in Malaysia.

…traditional mail business to remain challenging due to the structural decline in mail volume driven by the continued shift into digital and mobile communications platforms.


Notion VTec Q3 FY2017 Results

The accounting profit is affected by losses mainly arising from Notion Thailand and Notion International, Johor due to insufficient orders covering the higher overheads but there are new orders from new customers in the coming quarters.

The camera continues to be on a decline…


Hong Leong Industries Q4 FY2017 Results

Malaysian Newsprint Industries Sdn Bhd (“MNI”), an associated company had commenced creditors’ voluntary winding-up proceedings. Arising thereto, the Group had made a one-off full impairment provision of RM172 million which is the Group’s carried amount of investment in MNI as at 30 June 2017. Going forward the Group is no longer required to equity account for the future results of MNI. In the event of any residual value from the liquidation process, the Group will recognize any recoveries in future periods.


ELK-Desa Resources Q1 FY2018 Results

The Group will continue to strategically operate in the underserved niche market and focus on growing the small value second hand car financing segment. The business strategy will also be constantly reviewed to ensure the Group continues to stay relevant in the industry and at the same time keeping the credit risk exposure within the tolerance level.

…the furniture business will continue to be affected by the sluggish consumers’ sentiments and the current soft economic environment. However, the Group will continue to grow the furniture business and focus on ensuring the operational efficiencies in the various divisions (i.e. retail, wholesale, export, and manufacturing).


Tune Protect Group Q2 FY2017 Results

“Gross Written Premiums is up by 11.3% which was driven by our motor, offshore oil, and engineering, as well as Middle East travel businesses.”

“More importantly, we are excited to announce that we’ve secured a new airline partner. Our partnership with Cambodia Angkor Air marks the 4th airline partnership with Tune Protect and is slated to commence in 3Q2017. This is definitely a silver lining for Tune Protect, as we ride out the storm. Securing another airline partner in the region is a huge milestone for us as it brings us closer to our vision of becoming a leading travel insurer in ASEAN.”

…due to increase in net claims mainly from Motor class of general insurance business, offset by a minor improvement in share of profits from overseas ventures.

“To alleviate the higher costs of motor claims that continue to impact our Malaysian general insurance business, we have redirected car repairs to non-franchise panel workshops to minimise the cost. We are also revising the way we evaluate franchise vehicles that have higher loss exposure and reviewing Beyond Economic Repair level to curb total loss exposure.”

With the intensified competition on the back of the liberalization of Motor and Fire businesses, our strategies for the coming months will concentrate on providing further online accessibility and product differentiation via risk-adjusted pricing.


Kawan Food Q2 FY2017 Results

The construction of the new plant at Pulau Indah is progressing accordingly to the revised schedule. The new factory is expected to be commissioned in the second half of the year. The research and development activities are continuing for new products which are planned to be manufactured at the new factory.

Thong Guan eyes to list unit on HK’s GEM

Ang is increasingly frustrated with the low market valuation of Thong Guan, saying it is an unjustified discount to its local rivals, which he hopes would eventually be corrected with a spin-off of its F&B arm and leaving the parent focused on the plastic packaging business.

“Last year, the F&B division contributed about RM4.5 million in profit and we expect this to grow to RM5 million this year. The PVC food wrap business recorded a profit of RM6 million in 2016. If we combine the two, we have a RM10 million profit company.”

“China has the largest market for organic noodles in the world. And the people there are growing more affluent, preferring to buy imported food products because they know regulations for imported food are very stringent. And there is a big market for baby noodles in China. So far, there is no organic noodle for babies in China and we would be among the first to go with that concept. I believe it would work. People want to start [letting] their kids [like and eat healthy food] when they are young.”

“Under China’s food regulations, products for children more than seven months old are categorised as infant food where certain vitamins and minerals are necessary. Our baby noodle products did not meet those requirements. So, we are changing the packaging of these baby noodle products in order for them to enter China.”

“We are actively looking for potential acquisition targets in the nanotechnology stretch film and max-stretch film business in Malaysia, Vietnam and other countries in Southeast Asia, [but the] market is good now. When the market is bad, then it is a good time to move in. We are also looking at companies that can provide complementary strengths like producers of plastic raw materials. We have been in talks, but we are not in a hurry [to complete any M&A transaction]. We can sit on top of the mountain and watch, and still grow our existing business.”


Sasbadi to ‘unleash’ non-academic segment’s potential

“Most of the products we sell target students. However, students have many needs, for example they want to read fiction too. We also want to target books for adults such as for self-improvement and other hobbies. There are [basically] many other segments we can look into.”

“We have mature technology that can be exported. So we are identifying partners who have good content and good branding in the local market, with good reach in terms of distribution, but lack the technological advantage. That’s where we can come in and collaborate. I believe this kind of collaboration will enable us to get access to good markets abroad.”


Gamuda’s IBS parts-making capacity to double by end-2018

Gamuda Bhd will see its annual manufacturing capacity of industrialised building system (IBS) components more than double to 8,000 units, with the completion of its second facility in Banting by end-2018.

“With the second factory coming online [by the] end of next year, we will be able to produce a total of 8,000 of 1,000-sq ft units per year. The current facility manufactures solid walls which are heavy and unsuitable for taller buildings. The new facility will be able to produce double walls, which are lighter and more suitable for taller buildings.”

“But when IBS is made mandatory, demand will rise and factories will ramp up their capacity. I am confident that there will be more IBS manufacturers coming up when demand picks up.”

Malaysia’s medical inflation at double-digit pace

Malaysia’s healthcare inflation stood at 11.5% in 2016 and is projected to rise to 12.7% this year, the survey shows. The pace is much faster than the average of 10.7% in Asia last year, and the rate is projected to ease to 10.2% this year. In fact, Malaysia is the third-highest among the 11 Asian countries surveyed, after India’s 14% and Indonesia’s 13.1%.

Among the reasons for the growing inflationary pressure on medical costs, the top three are utilisation medical services as more people are falling sick, the growing ageing population, and the costly advancement of medical technology.

“As medical care becomes more and more expensive, premiums [for medical insurance] will likewise increase.”

Company Notes 2017.06.30

On earnings calls

Magni-Tech Industries in a filing with Bursa Malaysia

The garment segment accounted for about 89.1% and 95.3% of the Group’s revenue and profit from operations respectively.

Garment revenue surged by 38.8% which was mainly due to higher sale orders received and to a moderate extent aided by favourable foreign exchange movements.

Packaging revenue increased by 1.7% mainly despite the cessation of SIPP’s business in Q4-FYR 2017.


LKL International in a filing with Bursa Malaysia

…the lower revenue generated from medical/healthcare beds segment due to economic slowdown generally. Local market continued to contribute a significant portion amounting to 67.03% of the total revenue.

The fully automated Computer Numeric Control (“CNC”) punching machine (TruPunch 2000) which was acquired and completely installed is now fully operational, whereas the CNC laser tube machine (TruLaser Tube 5000 Fiber) is expected to be operational in the Q2 FY2018. These machines will increase the operations efficiency and process accuracy with less wastage, as well as reduce the dependency on manual labour.

The joint venture with T.M.I Solutions (Pvt) Ltd to distribute selected Nihon Kohden products has commenced its business in Q1 FY2018.


Hai-O Enterprise in a filing with Bursa Malaysia

The successful strategy transformation which focused on smaller consumer products and targeted recruitment strategy have continued attract more young entrepreneurs to join in as distributors.

Despite higher sales generated from patented medicine, it was offset by the drop in sales of duty-free goods. The drop in duty-free products’ sales was mainly due to the imposition of more stringent rules by authority on duty-free trade in border town.

The success in re-branding of its key beverage product “Min kaffe” during the year had attracted many consumers and boost up the sales of this product. The intensive member retention program and member recruitment campaign carried out during the year had resulted monthly average new members increased by about 5,000.

The implementation of CRM system which provided E-commerce platform had helped to increase distributors’ productivity and efficiency.


Hiap Tech Venture in a filing with Bursa Malaysia

The outlook of the steel industry in Malaysia in 2017 remain positive if China remains committed and steadfast in cutting its steel output capacity and other proactive actions which will prevent the dumping of cheap steel exports to Malaysia.

The majority of steel products produced locally is destined for infrastructure and construction sector applications. Hence, the outlook for the steel industry in Malaysia very much depends on the growth and performance of this sector. The construction sector is expected to maintain its robust performance with a targeted double-digit growth of 10.3% through new construction works valued at RM138 billion in 2017.


KM Loong Resources in a filing with Bursa Malaysia

We foresee an increase in FFB production from young mature areas and strong FFB yield recovery in Keningau region in where about 50% of the Group’s planted mature area is located. We expect the FFB production to be potentially 20% higher comparing the quantity achieved in the FY2017.


NTPM in a filing with Bursa Malaysia

…we would have felt the full impact on the cost arising from the raise the minimum wage for employees in Peninsular Malaysia by RM100 to RM1,000 per month, and to RM920 from RM800 for employees in East Malaysia starting from 1 July 2016, the recent increased volatility in the foreign currency exchange rate, pose a challenge for the Group to contain and monitor its manufacturing cost.


Subur Tiasa in a filing with Bursa Malaysia

In view of prevailing tight supply of logs in the market as the result of the forest management and timber certification initiated by the authority, timber prices are expected to sustain. The higher tax premium on timber imposed by state authorities will impact the performance of timber division.


Cypark Resources in a filing with Bursa Malaysia

…the implementation of Net Energy Metering Programme by SEDA will provide us with new opportunity to expand our renewable energy project portfolio. 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.

Our Biogas to Energy project will start to contribute to our revenue once our Fully Anaerobic Bioreactor System (FABIOS) in Ladang Tanah Merah is commissioned in 2018. We also plan to expand our biogas activities to include Palm Oil Mill Effluent (POME).

…focus our research & development resources in developing business opportunities from energy storage, exportable Biomass Solid Fuels (BSF) and Energy Efficiency (EE) projects.

…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.

…our current successes have made Cypark as the preferred partner for many world renowned green technology providers such as Hitachi (Japan), TESCO (Japan) and Ciel Terre (France).

On logistic services

Tasco shareholders approve venture into cold chain business

“The expected RM110mil revenue contribution represents about 15%-20% of our overall top line based on our revenue last year. We consider this to be a conservative projection, as we did not include the value that could be generated via the synergy created between the new cold chain segment and our other existing business segments. We believe that the acquisitions that have been approved by our shareholders would position us as one of the best end-to-end logistics solutions providers.”


Tasco develops global distribution hub in DFTZ for Renesas

“Whatever [Renesas] produces is sent to our KLIA warehouse to be integrated. We have something like a factory where we do ‘pick and pack’, and from there we distribute [the products] globally.

“The warehouse is actually temperature-controlled. It is how we will expand our dry service menu into the cold service menu — not just for food and beverages or pharmaceuticals, but also for semiconductors.

“Malaysia still carries very good conditions to be a regional hub. [However,] we see operations getting more sophisticated and need many things to cope [with that].”

“Our focus for the Westport land is making it a regional hub. We would like to promote it to existing customers.”


On banking

Non-performing loans to rise — S&P

The household debt-to-GDP ratio was 88.4%, while corporate debt was about 110% of GDP in Malaysia.

“The rate hikes are expected to lead to a higher NPL ratio among local banks to between 1.8% and 2%, up from a near-historical low of 1.6%.”

“Malaysian banks in general [have focused on] protecting their bottom line, but we do have our doubts about how sustainable this approach can be in the future. The banks need to grow, and they have constant requirements to invest in compliance and technology.


Banking sector consolidation faces many stumbling blocks — S&P

“We have a saturated banking sector. There are a lot of cannibalisation and duplication in the sector as a whole. So, there is a clear need for consolidation, which has taken place at a very slow pace.”

The sector’s net interest margins have been trending downwards consistently for the last five or six years, adding that profitability has been declining.


On corporate development

U Mobile ends network sharing deal with Maxis

Maxis said the termination is a convenience option available to U Mobile under the NSA. The termination will take place in stages over a period of 18 months with completion on Dec 27, 2018. U Mobile is not obliged to compensate for terminating the NSA as the company has an option to review the NSA after five years from the agreement’s commencement date.

“For FY17, the impact is going to be minimal, but it can be material moving forward. Assuming the fee to be stagnant at FY16’s level, that would be almost RM1 billion from FY19 through FY21.”

U Mobile was seen as a winner in the Malaysian Communications and Multimedia Commission’s spectrum reallocation exercise last year, where it was allocated 2x5MHz of the 900MHz frequency and 2x15MHz of the 1,800MHz frequency for 15 years effective July 1 this year. The spectrum used to belong to Maxis and Celcom.


Bumi Armada climbs on Armada Kraken first oil

“Achieving first oil on the Armada Kraken FPSO is an important milestone, as we work to deliver oil to our clients, EnQuest plc and Cairn Energy plc, and work towards receiving the charter income for Bumi Armada.”

The Armada Kraken is the third of four FPO projects Bumi Armada is starting up this year. “She is our first ever heavy oil production facility and has the largest liquid handling capacity in our fleet (460,000 barrels of liquid per day) and she marks Bumi Armada’s entry into the North Sea as a production facilities owner, operator and duty holder.”


Gamuda stands to gain from booming construction sector

…to benefit from the booming construction sector in Malaysia, given its dominant roles in the MRT and other rail-based projects.

…to ride on the next infrastructure/property boom in Penang via its project delivery partner role in the Penang Transport Master Plan.

“…there would likely be a lag effect before more meaningful earnings contribution, as land acquisition and actual mobilisation of machinery could be slower than expected for a project like the ECRL.”

Gamuda’s order book is still 50% lower than management’s target of RM10bil per annum.


Alibaba ups its stake in Southeast Asia’s Lazada with $1 billion investment

“That [valuation] is quite a significant uptick and overall that reflects the great performance and traction that Lazada has seen. It also reflects that Alibaba continues to be extremely positive about this region, doubling down on Southeast Asia and seeing the potential.”

“The e-commerce markets in the region are still relatively untapped, and we see a very positive upward trajectory ahead of us. We will continue to put our resources to work in Southeast Asia through Lazada to capture these growth opportunities.”

Company Notes 2017.6.23

On earnings calls

The outlook for crude oil prices remains uncertain. The trend of prolonged low levels of capital spending is expected to continue and poses significant challenges to the industry. – Sapura Energy in a filing with Bursa Malaysia


The outlook in the O&G sector remains challenging and uncertain due to protracted oversupply. Overall global economic conditions remain challenging, with higher downside risks. – Yinson in a filing with Bursa Malaysia


On the back of encouraging demand, Superlon is looking to expand its capacity by setting up a new factory in Vietnam (“Factory 4”)…plans to invest approximately USD 4 million for the expansion plans and is targeting for Factory 4 to commence production in the FY2019. The new factory would enable Superlon to strengthen its presence and support its customers in Vietnam and neighbouring countries. – Superlon in a filing with Bursa Malaysia


With the anticipation of more states to ban the use of polystyrene as food packaging in Malaysia in response to the ongoing regulatory ban of non-environment friendly products, the demand for the plastic food trays and other degradable food packaging products is expected to increase in the near future. – SCGM in a filing with Bursa Malaysia


…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. – Comintel in a filing with Bursa Malaysia


In the rubberwood furniture segment, demand for processed materials and components are not expected to grow as furniture manufacturers do not anticipate any significant uptick in export demand. In addition, the industry is increasingly sourcing for cheaper alternative substitutes such as chipboards and also tropical timber-based materials. – SYF Resources in a filing with Bursa Malaysia


Lucenxia, the home dialysis business is still going through regulatory and trial stages in different part of the country and region. This period of regulatory registration was underestimated and took much longer than estimated. – Adventa in a filing with Bursa Malaysia


“…anticipates a good performance this year from the steady earnings of expressway concessions division and the ramping up of works for KVMRT Line 2. The property division’s performance is expected to be stronger in the next few quarters due to the launches of several new projects in Malaysia and overseas.” – Gamuda in a filing with Bursa Malaysia


On corporate development

“Capital expenditure depends largely on the type of feedstock used to generate energy from waste. Going forward, we would like to focus on solving the challenges faced with municipal solid waste.

“Our system powered by thermal decomposition is suitable because it is modular, decentralised and need not be large. It costs about US$5-7 million per megawatt to install, which is dependent on the waste composition and moisture content.” – Comintel ED Loh Hock Chiang


“Manufacturing condoms is quite similar to making rubber gloves and we already have the technology. The profit margin is much higher than glove manufacturing. Our competitive advantage is our market size. We currently have 195 countries in coverage, 3,000 customers, and [use] advanced technology.” – Top Glove chairman Lim Wee Chai


“PRG’s green initiative features three stages — the first being the installation of charging stations in various areas within Sunsuria City.

“The second stage will include installing more EV charging stations at prospective locations within the Klang Valley, and the final stage includes locations beyond the first and second stages, depending on the demand.

“Going forward, we do not discount the possibility to work with highway operators, petrol stations, mall owners, car dealers, national airports and commercial buildings for such initiative.” – PRG MD Alex Wee Cheng Kwan


Superlon targets a payout ratio of at least 30% of its audited consolidated profit after taxation attributable to shareholders for each financial year, after excluding non-operating income that is capital in nature. – Superlon in a filing with Bursa Malaysia


The new stretch film manufacturing facility in Phoenix, Arizona in the U.S. is expected to have a commercial rollout by end of 2017. 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.” – Scientex in a filing with Bursa Malaysia


Assuming that the proceeds from the sale were utilised to pare down borrowings, the annual savings in interest is expected to be approximately RM4.6 million based on an average interest rate of approximately 5.5% per annum. – E&O in a filing with Bursa Malaysia


On regional infrastructure

The outlook of the construction industry remains encouraging as it continues being driven by government-led initiatives and spending, in particular projects such as highways and other public infrastructures. – Advancecon in a prospectus filing with Bursa Malaysia


“Central government funding for infrastructure, an area that we have traditionally viewed as notably inadequate in Indonesia, jumped by over 20% in the latest 2017 budget, and it now stands at 2.5 times what was allocated just three years ago.” – Bina Puri ED Matthew Tee


“We manage to clear the hiccups related to land compensation issues, weather and site conditions, government red tape, regulation changes and so forth…Notwithstanding the increased budget owing to delayed construction, the power plant remains an attractive investment with reasonably good returns.” – Sarawak Cable CEO Aaron Toh Chee Ching


On raw material prices

“This [nearly 30%] surge in waste paper prices is caused by the producers in China. When international prices go up, it will somehow affect the local prices. This year’s pricing is quite volatile compared with the last five to eight years.” Muda deputy MD Lim Chiun Cheong


Management’s comments on future prospect

“The market is very tough as shopping malls in the Klang Valley are mushrooming. Our intention of selling the mall remains the same…if the price is right. Discussions with interested parties are still ongoing…But all of a sudden, many other property companies started coming up with the same product, leading to the excess supply which we see in the market today.” – JAKS Resources senior GM Steven Ang


“This is our bread and butter. We have experience in this [metering] industry, we have our regular customers and the business continues to grow. Last year, we expanded to Nepal, and we are going to India as well. We are exporting to 43 countries currently.” – George Kent chairman Tan Kay Hock


“Even low-cost houses have air conditioners. So, the production cost of air conditioners has come down but demand has increased, especially in markets such as India — it’s huge.” – Alcom MD Heon Chee Syong