Company Notes 2017.12.15

VS Industry Q1 FY2018 Results

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

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

Kein Hing International Q2 FY2018 Results

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

Berjaya Food Q2 FY2018 Results

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

LKL International Q2 FY2018 Resuults

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

Jaycorp Q1 FY2018 Results

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

Bison Consolidated Q4 FY2017 Results

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

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

Hiap Teck Venture Q1 FY2018 Results

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

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

OldTown gets takeover bid from global coffee maker

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

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

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

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

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

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

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

AirAsia worth more than meets the eye, group CEO says

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

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

Loss of Starbucks Korea business ‘a temporary setback’

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

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

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

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

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

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

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

Malaysia moving towards cashless society

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

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

Company Notes 2017.08.25 (Part 2)

Amway Malaysia Q2 FY2017 Results

…driven by positive momentum among Amway Business Owners (ABOs) and higher qualifiers in response to the 40th anniversary sales and marketing programmes. Notwithstanding this, the Group revenue has shown a general decline in light of softer consumer confidence levels.

FACB Industries Q4 FY2017 Results

The bedding operation in Malaysia recorded lower profit before tax as a result of declined revenue and gross profit margin which was affected by higher raw material costs. The stainless steel fittings operation’s reduced loss before tax was attributable to better average selling price. Loss in associates in China was mainly due to impairment loss on plant and equipment in the power business.

WCE Holdings Q1 FY2018 Results

The West Coast Expressway (WCE) Project involves the development of a 233 kilometres tolled highway from Banting, Selangor to Taiping, Perak (including 40 kilometres of highway to be constructed later). The WCE Project is a build-operate-transfer project with a concession period of up to a maximum of 60 years. The total project cost is approximately RM5,900 million and revenue from toll collections from certain sections are expected to commence late 2018. The Construction Commencement Date was set on 25 August 2014. Currently, the construction is ongoing. The Company is also participating in the construction of the WCE as the IJMC-WCEHB Joint Venture has been appointed as the Turnkey/Engineering and Procurement Contractor for the WCE highway project.

Box-Pak Malaysia Q2 FY2017 Results

The main challenge faced by the Group in the current financial year is the sharp and continous increase in paper cost (since the end of 2016) and the rising competition in Malaysia and Vietnam. Since the end of the previous financial year, average cost of the main paper materials used by the Group has increased by more than 8% and is expected to increase further.

The Vietnam government has in August 2017 announced further increase in minimum wage in Vietnam of approximately 6.5%-7.0%, effective 1 January 2018.

Uchi Technologies Q2 FY2017 Results

There were no significant changes to the cost structure where material consumption made up the highest percentage of the Group’s expenditure at 55%, followed by employee benefit expense at 26%, depreciation and amortization at 8%.

Pelikan International Q2 FY2017 Results

The discontinuation of printer consumable business and the point of sale services will cut the losses contributed by these business units to the Group going forward. The Group shall continue to enjoy higher sales in the next quarter from the “back to school” peak season in Europe. This was already apparent in July sales in the key German markets whereby the sales were much higher than planned.

MBM Resources Q2 FY2017 Results

Although the Division’s alloy wheel plant continued to incur losses in current quarter, its quantum has lessened as various measures taken thus far are showing effect.

The market environment is expected to remain challenging in the coming quarters. Among the factors would be intense competition, uncertainties in the industry environment and strict hire-purchase approvals. The Group will continue to improve the production efficiency at its manufacturing plants and to secure higher volume to achieve more sustainable margin. Cost structure review and new model launches by Perodua and Volvo in the coming quarters are expected to contribute positively to the Group’s performance

Matrix Concepts Q1 FY2018 Results

Additionally, the Group‟s investment properties comprising Matrix Global Schools and d‟Tempat Country Club have attracted increasing patronage, as reflected in its revenue uptrend since the previous financial year ended 31 March 2017 (FY2017). Together with the newly commenced 34-acre X Park and d‟Sora Boutique Business Hotel, as well as potential future investments, these properties would position Bandar Sri Sendayan as a leading community-focused township that aims to provide wholesome living experience for everyone.

Chin Hin Group Q2 FY2017 Results

The Company had on 18 July 2017 entered into a conditional share sale agreement (“SSA”) with the vendors of Atlantic Blue Sdn Bhd (“Atlantic Blue”) for the proposed acquisition of 45% equity interest in Atlantic Blue from the Vendors (“Sale Shares”) for a total cash consideration of RM24.75 million (“Proposed Acquisition”). Atlantic Blue controls approximately 10% of the market share of solar projects in Malaysia, by way of mounting over 30 MW of solar panels on rooftops for residential and industrial buildings across the country. The Proposed Acquisition will enhance the group’s solar income stream. Moreover, the Proposed Acquisition were pursued on the premise of Profit Guarantees on the Target Companies’ profit after taxation of RM20 million within 24 months from the date the purchase consideration is satisfied.

WCT Holdings Q2 FY2017 Results

The Engineering & Construction Division of the Group is expected to continue to build on its strong order book, after having secured a few new contracts amounting to approximately RM2 billion in the last financial year ended, backed by the Government’s emphasis on infrastructure development and spending. With a higher proportion of infrastructure related jobs, the Group expects the overall construction margin to improve.

OldTown Q1 FY2018 Results

As at 30 June 2017, the Group has a total of 231 café outlets; 191 in Malaysia, 9 in Singapore, 26 in Indonesia, 1 in Australia, 3 in China and 1 in Hong Kong.

We market, sell and distribute our products under OLDTOWN brand name in approximately 17 countries…For FYE 2018, we expect strong growth from export market driven by China, Australia, USA, Indonesia and Philippines.

Hap Seng Consolidated Q2 FY2017 Results

Automotive Division will have 10 autohauses in the second half of 2017 with the opening of another 2 new autohauses in Iskandar, Johor Bahru and Puchong South. These 2 new autohauses together with the Bukit Tinggi, Klang autohaus that was officially opened in April 2017 would enable the division to expand further its market coverage and contribute positively to its future performance.

Bintulu Port Q2 FY2017 Results

The handling of LNG vessel calls and cargoes will still be Bintulu Port main revenue contributor. Other cargoes that would contribute to the positive growth in 2017 include palm oil, palm kernel and containerized cargoes.

Samalaju Industrial Port was ready for commencement of Phase 1 operation from 1st June 2017 and is expected to contribute positively towards the revenue growth of the Group. The cargoes include among others Alumina, Manganese Ore, Silica Quartz and Coke.

Though there will be growth in terms of revenue, the expenditure to be recognised relating to amortisation of lease concession assets, other concession infrastructures and equipment as well as the SUKUK finance charges at Samalaju will give a downward impact on the overall performance of the Group.

Kelington Group Q2 FY2017 Results

The Group continues to enjoy a healthy orderbook replenishment rate. Year-to-date, the Group has clinched new projects worth approximately RM180 million. Including the orderbook carried forward from the previous year, the Group has an orderbook on hand of RM342 million, of which RM205 million remains outstanding. The progress billing of the outstanding orderbook will contribute positively to the Group’s financial performance.

Over the longer term, the newly established Industrial Gases division will be positively impacted by the recently secured long-term 10-year contract with a major photovoltaic manufacturer. Contribution from this contract is expected to commence in the next financial year ending 31 December 2018. The Group aims to grow this business further, which will add a stable and recurring income stream to the Group.

Yee Lee Q2 FY2017 Results

Our aerosol can business segment’s profit margin was also affected by the increase in tin plate prices where the full cost of the increase was not immediately passed on to their customers.

The higher selling price of cooking oils and sales of the Ribena and Lucozade products have offset the substantial drop in sales of other beverages such as bottled water and energy drinks.

Although the sales of tea was higher in this quarter, the sales volume is still insufficient to cover its plantation costs.

On 11 August 2017, our principal, Suntory Beverage and Food Malaysia Sdn Bhd has voluntarily recalled five flavour of Ribena Concentrate products with specified expiry dates due to suspected exposure to air during bottling process that may potentially deteriorate in quality earlier than the expiry date. Others ready-to-drink Ribena products are not affected. Based on its brand reputation and quality commitment, the Board foresees that this recall is a temporary setback and sales of these affected products will normalise once the recall has been completed. All the products recall expenses will be borne by the principal.

Gabungan AQRS Q2 FY2017 Results

The revenue for the current quarter was mainly from the work progress for the Sungai Besi – Ulu Kelang (SUKE) Highway, PR1MA Homes in Kuala Kuantan, Gambang, Pahang and Pusat Pentadbiran Sultan Ahmad Shah (PPSAS).

The Group’s monetization programme through the disposal of its selected landbank, aimed to improve the Group’s working capital position and to repay bank borrowings, will significantly reduce its finance cost and lower its total borrowings by the end of 4Q17. From 1Q18 onwards, the Group expects finance cost to reduce drastically.

The Group envisions to further increase the Construction Order Book by another RM1 billion to RM1.4 billion by the end of the Financial Year 2017 which will continue to contribute to the Group’s revenue and profit sustainability.

Uzma Q2 FY2017 Results

The joint venture between Uzma Energy Venture (Sarawak) Sdn. Bhd. and EQ Petroleum Developments Malaysia Sdn. Bhd. (the “Contractors”) had achieved first oil from Tanjung Baram Fields (as disclosed in note (v) below) on 18 August 2015. Pursuant to the Small Field Risk Service Contract signed with Petroliam Nasional Berhad, the Contractors are responsible for incurring costs for development and production of petroleum from the Tanjung Baram Fields, and will be reimbursed for the costs incurred. The Contractors will also receive remuneration fee, linked to performance variables, for a contract period of nine years.

Frontken Q2 FY2017 Results

While the Group’s subsidiary in Indonesia is one out of four companies that possess an API certification to enable it to carry out repairs and rectification works or tender for projects from large oil companies for blowout preventer repairs, we are concerned that the overall operations in that country will continue to be impacted by the oil and gas downturn, coupled with lower than expected GDP growth and weakened consumer spending.

Kian Joo Can Factory Q2 FY2017

Average cost of paper rolls used by the Group has increased by more than 8% and is expected to increase further. Cost of aluminium materials has also increased in tandem with the aluminium price quoted on London Metal Exchange. Cost of tin plate has also increased.

The revision in minimum wage rate in Malaysia (since July 2016) and Vietnam (since January 2017) has increased the production cost of the Group. The Vietnam government has in August 2017 announced a further increase in minimum wage by approximately 6.0% – 7.0%, effective January 2018. The prospect of possible implementation of employment insurance in Malaysia may add further burden to the escalating production cost.

Country Heights Q2 FY2017 Results

The health division, GHHS Healthcare, which have a combined western and eastern practices continues to be the key opinion leader in the preventive healthcare industry. GHHS Healthcare will focus on raising its platform to be perceived as a centre for medical tourism with increased international health tourists especially from the Indonesian market and a new focus on the China market.

PPB Group Q2 FY2017 Results

On the back of rising world prices for wheat, the outlook for the flour business is expected to be challenging. However, we are confident that stronger flour demand in the second half of the year would mitigate the margin erosion pressure. Amidst a competitive and changing industry landscape, the animal feed business is difficult although the division is expected to maintain its performance given a bullish broiler market. In summary, the Grains and agribusiness segment performance will be affected by the aforesaid factors.

Sunway Construction Group Q2 FY2017 Results

The Group’s outstanding order book amounts to RM4.3 billion with RM1.0 billion new order book as at end June 2017. The tender book value is now more than RM14 billion with majority of jobs tendered under the civil/infrastructure division. In addition, SunCon at present is in discussion with our parent company for several potential projects.

Call for GDP to be measured in USD

“The GDP grew 5.8% in the second quarter of 2017 (2Q17) … but it grew in ringgit. If we calculated in [the] US dollar, it would be about -3.3% because the ringgit has devalued by 9%.”

“We do business in the world market, so we must bench up. [In order] to become a developed country, [the] GDP should be based on the dollar, not ringgit. As such, our per capita in dollars is not growing.”

“The statistics show good export in 2H17 because of a weaker ringgit which means we become more cost-efficient, and labour and operation costs become cheaper. However, that is not so good. We must be competitive, efficient and productive. We have [a] quality product to compete to gain market share but ringgit devaluation is not our effort, so it is not a good way to gain market share.”

Measuring GDP in USD not relevant or appropriate

“In other words, the GDP reflects only the changes in the quantity of goods and services produced in the country. This compilation of GDP is consistent with international standards as stipulated by the World Bank and International Monetary Fund. The department of statistics’ surveys and compilations are wide-ranging and inclusive of all sectors of the economy.”

“In view of this internationally-accepted standard, I wish to point out that [the] GDP measured in US dollars is not relevant for a matured and sophisticated economy like Malaysia, nor is the GDP measured in USD appropriate for an economy that is not dollarised in any sense. In any economy that is ‘dollarised’, there would be a loss of policy independence and flexibility, hence undermining a nation’s sovereignty.”

Maybank eyes RM160m spending from Amex gold card

“Our credit card billings have an average of RM3 billion monthly, driven by a total of 1.9 million customers in the credit card segment.” Maybank is the leading credit card issuer in Malaysia with more than 20 per cent market share as at July 2017.