Curated Insights 2018.06.24

Tails, you win

Correlation Ventures crunched the numbers. Out of 21,000 venture financings from 2004 to 2014, 65% lost money. Two and a half percent of investments made 10x-20x. One percent made more than 20x return. Half a percent – about 100 companies – earned 50x or more. That’s where the majority of the industry’s returns come from. It skews even more as you drill down. There’s been $482 billion of VC funding in the last ten years. The combined value of the ten largest venture-backed companies is $213 billion. So ten venture-backed companies are valued at half the industry’s deployed capital.

The S&P 500 rose 22% in 2017. But a quarter of that return came from 5 companies – Amazon, Apple, Facebook, Boeing, and Microsoft. Ten companies made up 35% of the return. Twenty-three accounted for half the return. Apple alone was responsible for more of the index’s total returns than the bottom 321 companies combined. The S&P 500 gained 108% over the last five years. Twenty-two companies are responsible for half that gain. Ninety-two companies made up three-quarters of the returns. The Nasdaq 100 skews even more. The index gained 32% last year. Five companies made up 51% of that return. Twenty-five companies were responsible for 75% of the overall return.


16 years late, $13B short, but optimistic: Where growth will take the music biz

The primary problem, however, is how the major labels monopolize royalty payments. Spotify and Apple Music take roughly 30% of total revenues (which goes to operating costs, as well as customer sales tax and platform fees), with the remaining 70% paid out in royalties. Out of this remainder, the major labels keep roughly 70%, with 15% going to performers and 15% to composers. And remember, a hot song often boasts a handful of writers and several performers, each of whom will share in the net royalty (Spotify’s most streamed track in 2017, Ed Sheeran’s “Shape of You,” counts six writers; Kanye West’s 2015 hit “All Day” had four performers and 19 credited writers).

A common rejoinder to this argument is that growth in subscriptions will solve the problem – if everyone had Spotify or Apple Music, per-stream rates would remain low, but gross payments would increase substantially. There are three limits to this argument. First, prices would likely need to drop in order to drive additional penetration. In fact, they already are as the major services embrace student pricing and family plans (which cost 50% more but allow four to six unique accounts): Over the past three years, premium user ARPU has fallen from $7.06 per month to $5.25. To this end, family plans exert significant downward pressure on per-stream rates, as the number of streams grows substantially more than revenue. For related reasons, the industry is also unlikely to return to the days where the average American over 13 spent $80-105 a year (1992-2002). Even if every single American household subscribed to Spotify or Apple Music, per capita spend would be around $65-70. This is still more than twice today’s average of $31, but such penetration is unlikely (in 2017, only 80% of American mobiles were smartphones). Put another way, much of the remaining growth in on-demand streaming will come from adding additional users to existing subscriptions. While this increases total revenue per subscription (from $120 to $180), it drops ARPU to at most $90 and its lowest, $20.

Second, growth in on-demand music subscriptions is likely to cannibalize the terrestrial and satellite radio businesses. In 2017, SiriusXM (which has the highest content costs per listener hour in the music industry) paid out $1.2B in US royalties, roughly 33% of that of the major streaming services. US terrestrial broadcast revenue generates another $3B+ in annual royalties. These formats are rarely considered when discussing the health of the music industry, even though one reflects direct consumer spend. But they provide significant income for the creative community (though notably, terrestrial radio royalties compensate only composers, not performers). As on-demand streaming proliferates and cannibalizes more terrestrial/satellite radio listening (still more than half of total audio time in the United States), streaming royalties will continue to grow – but much of this will come at the expense of radio royalties.

Streaming services have an opportunity to cut out labels by forming direct-to-artist deals or establishing their own pseudo-label services. Not only has this long been predicted, it’s been incubated for years. Since 2015, the major services have cultivated exclusive windows and radio shows with major stars, including Beyoncé, Kanye West and Drake. While this construct still went through the label system, it generates clear business cases for further disintermediation.


How Netflix sent the biggest media companies into a frenzy, and why Netflix thinks some are getting it wrong

Hastings has never really feared legacy media, said Neil Rothstein, who worked at Netflix from 2001 to 2012 and eventually ran digital global advertising for the company. That’s because Hastings bought into the fundamental principle of “The Innovator’s Dilemma,” the 1997 business strategy book by Harvard Business School professor Clayton Christensen. “Reed brought 25 or 30 of us together, and we discussed the book,” Rothstein said of an executive retreat he remembered nearly a decade ago. “We studied AOL and Blockbuster as cautionary tales. We knew we had to disrupt, including disrupting ourselves, or someone else would do it.”

BTIG’s Greenfield predicts Netflix will increase its global subscribers from 125 million to 200 million by 2020. Bank of America analyst Nat Schindler estimates Netflix will have 360 million subscribers by 2030. Netflix estimates the total addressable market of subscribers, not including China, could be about 800 million.

Netflix has another edge in the content wars. While networks make decisions on TV ratings, Netflix plays a different game. Its barometer for success is based on how much it spent on a show rather than hoping every show is a blowout hit, said Barry Enderwick, who worked in Netflix’s marketing department from 2001 to 2012 and who was director of global marketing and subscriber acquisition. Since Netflix is not beholden to advertisers, niche shows can be successful, as long as Netflix controls spending. That also gives Netflix the luxury of being able to order full seasons of shows, which appeals to talent.

“Reality is, the biggest distributor of content out there is totally vertically integrated,” said Stephenson. “This happens to be somebody called Netflix. But they create original content; they aggregate original content; and they distribute original content. This thing is moving at lightning speed.”

Hastings derived many of his strategy lessons from a Stanford instructor named Hamilton Helmer. Hastings even invited him to Netflix in 2010 to teach other executives. One of Helmer’s key concepts is called counter-positioning, which Helmer defines as: “A newcomer adopts a new, superior business model which the incumbent does not mimic due to anticipated damage to their existing business.”

Google’s half-billion bet on JD.com

With the second-largest share of China’s B2C e-commerce market after Alibaba’s Tmall, JD.com already sells most major multinational consumer brands within China. Among CPG brands, 100% of home care and 95% of personal care brands are present on the platform. Gartner L2’s recent Digital IQ Index: Beauty China finds that 97% of mass beauty brands are sold on JD.com, either through brand flagships or JD.com-operated stores. Premium beauty brand presence is slightly lower at 77%. International luxury brands have generally been more wary of mass-market e-tailers, but JD.com has scored major names like Saint Laurent and Alexander McQueen since the launch of its luxury app Toplife and white-glove delivery service.


Google places a $550 million bet on China’s second-largest e-commerce player

For its part, JD.com said it planned to make a selection of items available for sale in places like the U.S. and Europe through Google Shopping — a service that lets users search for products on e-commerce websites and compare prices between different sellers. When retailers partner with Google, it gives their products visibility and makes it convenient for consumers to purchase them online. For the tech giant, its shopping service is important in helping to win back product searches from Amazon and to stay relevant in the voice-powered future of e-commerce.


Google is training machines to predict when a patient will die

Google has long sought access to digital medical records, also with mixed results. For its recent research, the internet giant cut deals with the University of California, San Francisco, and the University of Chicago for 46 billion pieces of anonymous patient data. Google’s AI system created predictive models for each hospital, not one that parses data across the two, a harder problem. A solution for all hospitals would be even more challenging. Google is working to secure new partners for access to more records.

A deeper dive into health would only add to the vast amounts of information Google already has on us. “Companies like Google and other tech giants are going to have a unique, almost monopolistic, ability to capitalize on all the data we generate,” said Andrew Burt, chief privacy officer for data company Immuta. He and pediatric oncologist Samuel Volchenboum wrote a recent column arguing governments should prevent this data from becoming “the province of only a few companies,” like in online advertising where Google reigns.

Adobe could be the next $10 billion software company

“The acquisition of Magento will make Adobe the only company with leadership in content creation, marketing, advertising, analytics and now commerce, enabling real-time personalized experiences across the entire customer journey, whether on the web, mobile, social, in-product or in-store. We believe the addition of Magento expands our available market opportunity, builds out our product portfolio, and addresses a key underserved customer need.”

Both have a similar approach to the marketing side, while Salesforce concentrates on the customer including CRM and service components. Adobe differentiates itself with content, which shows up on the balance sheet as the majority of its revenue .


After 20 years of Salesforce, what Marc Benioff got right and wrong about the cloud

Cloud computing can now be “private”: Virtual private clouds (VPCs) in the IaaS world allow enterprises to maintain root control of the OS, while outsourcing the physical management of machines to providers like Google, DigitalOcean, Microsoft, Packet or AWS. This allows enterprises (like Capital One) to relinquish hardware management and the headache it often entails, but retain control over networks, software and data. It is also far easier for enterprises to get the necessary assurance for the security posture of Amazon, Microsoft and Google than it is to get the same level of assurance for each of the tens of thousands of possible SaaS vendors in the world.

The problem for many of today’s largest SaaS vendors is that they were founded and scaled out during the pre-cloud-native era, meaning they’re burdened by some serious technical and cultural debt. If they fail to make the necessary transition, they’ll be disrupted by a new generation of SaaS companies (and possibly traditional software vendors) that are agnostic toward where their applications are deployed and who applies the pre-built automation that simplifies management. This next generation of vendors will put more control in the hands of end customers (who crave control), while maintaining what vendors have come to love about cloud-native development and cloud-based resources.

What’s so special about 21st Century Fox?

The attraction of Fox’s movie studio is clear. 20th Century Fox owns blockbuster franchises like “X-Men” and “Avatar,” as well as a highly regarded arthouse-movie shop in Fox Searchlight. All told, Fox’s studios collected more than $1.4 billion at the box office last year, according to Box Office Mojo.

One is the company’s 39 percent stake in Sky, the European satellite and broadband internet provider, which is already the subject of a bidding war between Comcast and Fox. Here’s what DealBook wrote about the attraction of Sky last week: Based in London, the broadcaster and internet service provider has 23 million customers in five countries, and it owns valuable broadcasting rights to English Premier League games, Formula One races and other sporting events. It also produces its own entertainment programs and has a streaming service, Now TV.

The other is Star, one of India’s biggest broadcasters, which operates 60 channels and the mobile streaming service Hotstar. Neither Comcast nor Disney has a meaningful presence in the fast-growing India market. Owning one of the country’s top content creators and distributors would give either company both a wealth of locally produced content and platforms on which to provide its other movies and TV shows.


Disney tests pricing power at theme parks

Raising prices—currently around $100 on average days and more than $120 during “peak” times around holidays—could mitigate tourist appetite and increase Disney’s profits. Internal projections at Disney show that even after raising prices at roughly double the rate of inflation over the past five years, it could charge much more than it currently does without driving away too many customers, a person familiar with the company’s parks operations said. Disney parks executives are working on adopting a dynamic pricing model similar to airlines, in which prices fluctuate depending on when a ticket is purchased, this person said.

Disney doesn’t release annual attendance figures for its parks, but more than 38.8 million people visited its domestic locations in 2017, an annual increase of about 1.3%, according to the Themed Entertainment Association trade group. Rising prices and attendance at the parks have contributed to strong growth in the company’s parks and resorts division in recent years. Annual income for the segment has grown more than 70% since 2013, hitting $3.8 billion in 2017.

These are the world’s biggest disruptors (and how the disrupteds are fighting back)

According to Barclays, historically the competitive advantage of legacy consumer focused businesses depended on either: 1) creating a monopoly⁄oligopoly in supply (creating a “scarce resource” in the process), or 2) controlling distribution by integrating with suppliers. Here, the fundamental disruption of the internet has been to turn this dynamic on its head by dominating the user experience. Barclays explains further:

First, while the mega-tech internet companies have high upfront capital costs, their user base is so large that the capital costs per user are insignificant, specially relative to revenue generated per user. This means that the marginal costs of serving another customer is effectively zero, thus neutralizing the advantage of exclusive supplier relationships that were leveraged by legacy distributors. Secondly, the internet has led to the creation of infinitely scalable networks that commoditize⁄modularize supply of “scarce resources” (thus disrupting the legacy suppliers of those resources), making it viable for the disrupting internet company to position itself as the key beneficiary of the industry‘s disruption by integrating forward with end users⁄consumers at scale.

As a result of the disruption, the user experience has become the most important factor determining success in the current environment: the disruptors win by providing the best experience, which earns them the most consumers⁄users, which attracts the most suppliers, which enhances the user experience in a virtuous cycle. This is also why so many legacy businesses find themselves unable to compete with runaway disruptors, whose modest advantage quickly becomes an insurmountable lead due to the economics of scale made possible by the internet. This has resulted in a shift of value from the disrupted to the disruptors who modularize⁄commoditize suppliers, integrate the modularized suppliers on their platform, and distribute to consumers⁄users with which they have an exclusive relationship at scale.

This further means that the internet enforces strong winner-take-all effects: since the value of a disruptor to end users is continually increasing it is exceedingly difficult for competitors to take away users or win new ones. This, according to Barclays, makes it difficult to make antitrust arguments based on consumer welfare (the standard for U.S. jurisprudence), but ripe for EU antitrust regulation (which considers monopolistic behavior illegal if it restricts competition).

Japan robot makers outperform Europeans in profitability

Fanuc, Yaskawa Electric and the other two top players worldwide, ABB of Switzerland and Germany’s Kuka, together hold more than 50% of the global market for industrial robots, Nikkei estimates. Fanuc is strong in numerical control devices for machine tools, while Yaskawa boasts expertise in motor technologies. On the European side, ABB is known for dual-arm robots and supplies a wide array of manufacturing equipment, while Kuka’s strength lies in automotive production equipment such as welding robots.

Fanuc is far ahead of the other three in margin, but Yaskawa has boosted its number in recent years. Its margin rose to 9% last fiscal year, surpassing ABB’s 7% and marking the first time in 14 years that the Japanese duo each logged better margins than their two European rivals. In-house production of core component motors helps the Japanese players secure wider margins, said Yoshinao Ibara of Morgan Stanley MUFG Securities. Fanuc’s thoroughly automated production processes also contribute to high profitability.


Why aren’t we all buying houses on the internet?

“The old idea that real estate is never going to change, that we’re going to pay 6 percent, is completely untrue,” argues Glenn Kelman, the CEO of Seattle-based Redfin, a publicly traded brokerage whose calling card is lower commissions. For Kelman, the rush of cash into real estate startups feels like vindication for a corporate model that investors have regarded with skepticism. Redfin’s low-fee model relies on an army of in-house agents who trade typical commissions for the volume that’s possible with internet-generated leads. A Redfin world isn’t a world without real estate agents, but it is one where fewer agents do more. The nation’s 1.4 million working real estate agents do not particularly like Redfin.

Zillow has a different approach. The company hasn’t disrupted the traditional agent model; on the contrary, it’s dependent on it. In the first quarter of 2018, Zillow raked in $300 million in revenue (Redfin’s revenue for all of 2017 was $370 million); more than 70 percent of that came from the company’s “Premier Agents,” who pay for prime placement on the site to generate leads. In becoming an iBuyer (the industry’s term of art, short for “instant buyer”), the company won’t bite the real estate–brokering hand that feeds it. If anything, the pivot provides a lucrative opportunity for local agents to cement their relationships with a company that is trying to become an industrial-scale homebuyer.

Zillow also isn’t the first company to try acting as a middleman. San Francisco–based Opendoor has made tens of thousands of offers on homes, mostly in Sun Belt cities like Phoenix and Dallas. These places are an easier market than New York or San Francisco: The housing stock is newer, cheaper, and more suburban—which is to say, self-similar. Transactions taxes tend to be lower. The company sees itself as competing against seller uncertainty. “[Zillow] keep[s] the agents at the center of the transaction, which is in line with their business model,” says Cristin Culver, head of communications for Opendoor. “And we keep the customer at the center, which is really our North Star, and that’s the difference.” The company’s rapid appraisals make it possible for sellers to skip agents on the first transaction, and after doing some small renovations (paint, HVAC, basic repairs), Opendoor’s “All Day Open House” allows buyers to find and unlock the house themselves with a smartphone. Easy, right? And yet most of them come with an agent, and the company says it’s one of the biggest payers of commissioners in its markets today.*

Why Japan’s sharing economy is tiny

A generous estimate of the sharing’s economy value in Japan is just ¥1.2trn yen ($11bn), compared with $229bn for China. “It’s a very difficult situation,” says Yuji Ueda of Japan’s Sharing Economy Association. Almost 29m tourists visited Japan last year; the goal is to attract 40m by 2020, when Tokyo hosts the Olympics. But the number of hotel rooms is not keeping up with demand.

Indonesia ecommerce through the eyes of a veteran

50% of all ecommerce orders are still limited to JABODETABEK (The Greater Jakarta Area) while the next 30% are in the rest of Java. This leaves 20% spread unevenly throughout Indonesia. Lots of marketing dollars (and education) will have to be spent outside JABODETABEK to push more traffic and conversion online.

Social commerce is massive in Indonesia and it is believed that transactions happening via Facebook and Instagram may be equally as big as the ‘traditional’ ecommerce. As of now, there is no official way to track how big this market is but looking at the data from various last mile operators based on non-corporate customers, this market share is between 25% and 35% of their volumes and has been constantly growing.

Domestic ecommerce supply chain design is becoming more critical in ensuring lower OPEX. Decentralisation of distribution centres are happening with various major marketplaces and 3PL investing in distribution centers (DC) outside JABODETABEK with the objective of bringing products closer to market and also reducing the last mile cost. With a long term view, some too have started investing in having a presence in 3rd Tier Cities outside Java, in line with the government’s infrastructure development.


Malaysia’s economy more diversified than thought

While commodities make up about 20% of total exports, electronics constitute an even larger portion: 37% in 2017. Even when oil prices were at their peak in 2012, commodities comprised 30% of total exports versus electronics at 33%.

Higher oil prices add to the government’s fiscal revenue. We estimate that for every 10% rise in global oil prices, Malaysia’s current account increases by about 0.3 percentage points of GDP after four quarters.

Government estimates suggest that every US$1 per barrel increase in oil prices adds about RM300mil to revenue. That said, oil revenue is only budgeted at 14.8% of revenue for 2018 compared with the peak in 2009 when it constituted some 43% of total fiscal revenue.


SEC says Ether isn’t a security, but tokens based on Ether can be

For the SEC, while cryptocurrencies like bitcoin and ether are not securities, token offerings for stakes in companies that are built off of those blockchains can be, depending on the extent to which third parties are involved in the creation or exchange of value around the assets. The key for the SEC is whether the token in question is being used simply for the exchange of a good or service through a distributed ledger platform, or whether the value of the cryptocurrency is dependent on the actions of a third party for it to rise in value.

“Promoters, in order to raise money to develop networks on which digital assets will operate, often sell the tokens or coins rather than sell shares, issue notes or obtain bank financing. But, in many cases, the economic substance is the same as a conventional securities offering. Funds are raised with the expectation that the promoters will build their system and investors can earn a return on the instrument — usually by selling their tokens in the secondary market once the promoters create something of value with the proceeds and the value of the digital enterprise increases. Just as in the Howey case, tokens and coins are often touted as assets that have a use in their own right, coupled with a promise that the assets will be cultivated in a way that will cause them to grow in value, to be sold later at a profit. And, as in Howey — where interests in the groves were sold to hotel guests, not farmers — tokens and coins typically are sold to a wide audience rather than to persons who are likely to use them on the network.”


Study: Charts change hearts and minds better than words do

Through survey experiments, Nyhan and Reifler arrived at a surprising answer: charts. “We find that providing participants with graphical information significantly decreases false and unsupported factual beliefs.” Crucially, they show that data presented in graphs and illustrations does a better job of fighting misperceptions than the same information presented in text form.

Regional Notes 2018.05.25

Malaysia’s credit rating threatened by GST removal

“In 2017, GST revenue was RM44.3 billion or 3.3% of GDP. Unless the government introduces other offsetting measures at least over the next one to two years, the GST’s removal will have a net negative effect on government revenue, even accounting for some budgetary cushion from higher oil prices.”

“Beyond 2018, the reintroduction of the SST will create a revenue shortfall of 1.7% of GDP if the GST remains at zero. The ministry of finance said it will announce specific measures that will cushion the shortfall. According to the government, the rationale for eliminating the GST is that it will ultimately boost private consumption and economic growth, adding to the tax coffers through improvements in corporate and motor vehicle taxes, and excise and import duties. We do not include these effects in our assumptions because we do not expect a sizeable multiplier effect.”

“While it will uplift consumer sentiment in the short term, the actual consumer spending trend would depend on the impact of the GST removal on general prices. We foresee ‘price stickiness’ to be a major challenge for policymakers as businesses may, for example, be reluctant to reduce prices due to profiteering and a general belief that most businesses will not reduce prices.”

Malaysia’s 1 trillion Ringgit government debt explained

Federal government debt of 686.8 billion ringgit, or 50.8 percent of gross domestic product

Government guarantees of 199.1 billion ringgit, or 14.6 percent of GDP. The government is committed to paying the debt of entities which are unable to do so, including 42.2 billion ringgit for Danainfra Nasional Bhd, 26.6 billion ringgit for Prasarana Malaysia Bhd and 38 billion ringgit for 1MDB.

Lease payments for public-private projects of 201.4 billion ringgit, or 14.9 percent of GDP. The government is obligated to pay for rental, maintenance and other costs on a number of projects, such as construction of schools, hospitals and roads.

NTPM to spend RM50mil on expansion

“Our selling price has been adjusted by about 10% already, but still that is not sufficient. So, the profit has dropped. For this reason, we need to increase our market share to sell more. The growth of the tissue paper business in the domestic market is less than 3% a year, which is in line with global growth. In Vietnam and Indo-China, however, the growth is faster, which is why we are expanding the Vietnam operations.” Lee said the group was targeting to double the contribution from Vietnam by 2019 to RM80mil from RM40mil.

The tissue paper business generates about 65% of group revenue, while the personal care segment contributes 35%. Some 90% of the personal care business is generated from the local market. Despite the challenging and highly competitive local market conditions, the group succeeded in raising the revenue from the personal care segment by 9.4% to RM199.9mil in 2017.


Vitrox expects 2018 to be another growth year

“In the first three months of 2018, we have secured accumulated sales orders of about RM105mil, which will keep us busy for the next three months. The March book-to-bill ratio is 1:2, which means that for every 100 units of products we ship out, we receive 120 units of new orders in the same period. The current book-to-bill ratio is even higher.”

Regional Notes 2018.05.18

Japan seeks private sector’s help with blowout health costs

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

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


Short-term transitional issues expected in shift back to SST

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

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

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


Malaysia sees favorable growth outlook as policy risks mount

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

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

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

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

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

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

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

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


Willowglen sees challenging year ahead

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

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

Regional Notes 2018.05.11

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

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

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

Kossan to spend RM1.5b on new base

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

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

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


Datasonic sees net profit surpass RM100m in FY19

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

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

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