Maybank's branches in Bahrain and London are monitoring the situation closely even though its loan exposure there is only a fifth of a per cent of its total.
MALAYSIA'S biggest lender Malayan Banking Bhd (Maybank) (1155) does not expect to be affected by the debt crisis in Dubai as its loan exposure there is only a fifth of a per cent of its total.
"Our branches in Bahrain and London are monitoring the situation closely. We are hopeful and believe the issues in Dubai will be resolved," said chief executive officer Datuk Sri Abdul Wahid Omar in Kuala Lumpur yesterday.
On November 25, Dubai sought a freeze on repayment of US$26 billion (RM89.44 billion) debt linked to Dubai World and its two main property units, Nakheel and Limitless World.
I quoted from an earlier post [1] that Malaysia should be proactive in the Dubai siutation. Finally, Maybank came out and said they are monitoring it closely. Islamic Finance as a whole is under scrutiny. It's a rather profitable niche for Malaysia, and it's ridiculous to take a lackadaisical approach. The government should send some people over there to keep track of the situation and lobby in Malaysia's interest as an Islamic Finance stronghold.
The public officials here should be mindful of the risks and take a proactive approach to the UAE handling of this situation. That means sending people over there to lobby the rulers not to screw up. We have vested interest.
I just finished reading The Poker Face of Wall St. by Aaron Brown, by a professor of finance and ex trader who graduated from Harvard and University of Chicago in Applied mathematics and Finance. For anyone who is into statistics, poker, game theory, and trading; this is an excellent book.
I've always been fascinated by the game of poker, and not for the drama where people put millions on the line for a single hand. I find the way that people interact with each other given uncertainty is a bit mesmerizing.
In most gambling games, black jack, roulette, craps, etc; people bet against the house, there is no uncertainty and only odds, and over a large number of hands, you will more than likely lose money. Poker is the only game which combines both uncertainty of people and odds to make a wonderfully unpredictable game.
The human involvement in the game brings ways to make money and make it consistently. Why do you think the house never have their dealers play poker? They aren't sure if they can win over a large number of hands. Even if they give themselves an edge, its not certain as there are so many unknowns. They only get a cut of the winning pot. This isn't the best way to make money for casinos.
First, the book talks about how almost every economic activity takes on a gambling twist. The author gives examples and dispels common notions about securities and investments that they are mainly a gamble, and not the safe instruments we are spoon fed by sales people. He even asserts that major stock market crashes were more of an unpredictable event, there were no real big news events before or after that just caused the plunge. This lends credence to the unpredictability in markets. He then talks about how gambling played a pivotal role in providing capital to those who needed it in business such as Bill Gates who used poker money to start up Microsoft.
He talks about trading, poker, bluffing, and game theory and asserts some major pitfalls of practitioners of game theory. He thinks that knowledge of game theory is more useful as a way to win over people who use game theory. I think so too. Game theory works better in one on one games but horribly in Poker games which involve groups of people. People who use game theory will generally lose over time especially when they continue to meet people who are better than them.
He also says that people need to take risks to make real money in the world. When you've got a good hand, you have to have the guts to take risks. I believe he doesn't say that people should take dumb risks. For me, a person who thinks he should run a business when he sees so many successful people running a business is a dumb risk. Most people fail. Don't believe me, believe in the statistics.
On the other hand, if they got nothing to lose, yes it may be a worthwhile risk much like a lottery ticket or a business. For those with money it's a horrible bet. Humans also have this false confidence that say "I will make it work" which is a fallacy. They read all these books which give them confidence that they too can do it, they follow the advice to the letter, and fail. In running a business, a lot of it is luck. Don't believe all the hype out there about the Warren Buffetts or Bill Gates and their stories.
Definitely, this book is food for thought. I also read Nassim Taleb's Fooled by Randomness, which is an excellent complementary read to Poker Face on Wall st. Reading both will give you a greater understanding than if you were to choose just one as both books talk about fairly difficult abstract concepts.
The KLSE needs more financial innovation within a "structured" manner. Options are an excellent way to produce arbitrage opportunities that could make the market more efficient. Fisher Black, nobel prize winner and one of the creators of the Black-Scholes theory for option pricing reasoned that options were another instrument that could aid in price discovery and arbitrage.
For the Malaysian securities market, we need more ways to derive daily prices. Options will create volume in stocks and securities. At the same time, with these extra revenues, Bursa Malaysia and the Government stand to cut some of the taxing stock transaction fees. This will also create a more liquid finance system.
So to summarize:
1. Better price discovery for stocks. 2. Extra revenue will bring in room to cut current commission rates. 3. Higher security volume resulting from lower commissions and hedging activities. 4. More liquidity and efficiency. 5. More foreign investor interest as a result
ASTRO All Asia Networks plc will launch high-definition television (HDTV) in Malaysia on Friday, said Astro TV chief executive officer Datuk Rohana Rozhan.
HDTV is a digital television broadcasting system with higher resolution than traditional television systems.
"Astro TV is now available to some 2.875 million residential subscribers who will be able to subscribe to its next generation of services, commencing with HDTV and high level interactivity and connectivity," she said.
"The roll out of these services is estimated to cost some RM200 million, including marketing and operating costs of approximately RM150 million, over the next financial year, ahead of revenue and earnings from these services," she said in a statement today.
Rohana said Astro TV will continue to focus on evolving content and technologies ahead of consumer trends, to lead by innovation in response to demanding and sophisticated customers.
Astro All Asia Networks today announced a higher pre-tax profit of RM195.69 million for the third quarter ended Oct 31, 2009 compared with a pre-tax loss of RM212.37 million in the same quarter last year.
Its revenue grew to RM863.49 million from RM744.54 million due to a strong growth reported by Astro TV.
"Astro TV delivered a strong set of results this quarter on the back of a price increase, the introduction of new packages, net subscriber growth of 94,000 and disciplined cost management," Rohana said.
The direct-to-home TV joint venture business in India, Sun Direct TV, reported strong subscriber growth with some 500,000 new customers activated for the quarter ended Oct 31, bringing the total to 4 million customers, she said.
It also announced an interim tax-exempt dividend of 2.5 sen per share for the third quarter, bringing total dividend to-date to 7.5 sen. - Bernama
From what I heard from my Astro installer, HDTV won't actually be available for some time. This launch seems to be merely a formality. In addition, not all channels will be HD, the electronic HD box will cost more, and HD channels will cost more. We're looking at a year or two away at least.
Disclaimer: This is just what I heard from my Astro installer, who knows, Astro could change its mind at any time or my installer could be lying.
MALAYSIA has given U.S. investment bank Goldman Sachs licences to set up fund management and advisory operations in the country, as the Southeast Asia nation competes for foreign investments.
The licences were given as part of the liberalisation measures announced by Prime Minister Najib Razak earlier this year, the country’s securities regulator, Securities Commission Malaysia , said in a statement today.
Goldman Sachs’ entry “demonstrates the group’s confidence in the growth opportunities available in the Malaysian capital market,” said the SC.
Other global financial companies such as JPMorgan and Credit Suisse already operate in Malaysia.
“We look forward to playing a larger role in their development,” Leissner said in the SC statement.
Malaysia in June unveiled a raft of measures to boost investment in the slumping economy and lift a laggard stock market, including waiving the condition that local companies should reserve 30 per cent of any post-IPO share sale to Malay investors.
Corporate activity in Malaysia is expected to rise next year and bolster the stock market, analysts say.
Malaysia this year saw Southeast Asia’s biggest ever IPO after the US$3.3 billion offering by Maxis Bhd the country’s biggest mobile provider.
Malaysia is the worst-performing market in Asia so far this year, up just 44 per cent, compared to Indonesia’s more than 80 per cent gain and Thailand’s 56 per cent rise. - Reuters
Wow...looks like Goldman Sachs is coming to Malaysia. I think competitors should be scared. The great vampire squid is coming to town:
The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.
That doesn't paint a pretty picture. Well, after all the bad media, they try to paint themselves in a better light in that they are doing God's work. Oops, just a little too bright. Now they are declaring themselves holy to the world.
When it comes from their CEO, the statement will almost be certainly taken out of context. Seems to me he seriously misjudged how many people still felt betrayed by the government with their tax payer dollars paid out in bonuses to Goldman Sachs.
Anyways, with so much notoriety, they feel like they can be accepted in a country such as Malaysia. Perhaps, maybe they'll be welcomed with open arms as people generally go to those who can get them the most money. Go with Goldman, their reputation to win at any cost, and you can't lose, or can you?
I've heard some interesting stories from my friend about doing business in Dubai. He sells jewelry and regularly makes trips over there. His customers over there buy jewelry in large and lucrative quantities and he has built the contacts and relationships so that it is worth it for him to hand carry his jewelry from Malaysia and sell it in Dubai.
Sometimes, when my friend would call up, they would tell my friend they were busy and then out of the blue tell him to come NOW. They treat him like a dog. That example speaks a lot about the over cocky style of business over there. So it doesn't surprise me when Abu Dhabi tells Dubai to handle their own problems.
But now, the world is placing a huge microscope over the situation and how it is handled. This also has huge implications for Islamic finance. If the bond holders pull the nuclear option and take the assets over in court, we will see how the UAE responds as they probably will not be prone to letting foreigners come up and take over nationally backed companies. Further opaquing the situation, the Islamic Sukuk bonds may not give holders the legal strengths of bonds as they are considered a form of equity and bonds. Although, I'm sure the sukuk holders would prefer bond power in re-organization. I think a lot of people buying the Sukuks believe they are a type of bond.
The law system in in the UAE is also suspect as the courts basically do what the rulers say if they so deem it. For small cases, I think re-organization is not a problem, but for something like Dubai World, international investors will scrutinize their decision.
Even if Malaysia does not have a lot of interests directly affected by Dubai's crisis, their future growth and confidence in Islamic financial instruments are under scrutiny. They are affected as an Islamic finance hub. Future slow down in growth from this area will cut valuations of players in the Islamic finance arena today. A dubious ruling will definitely see the financial arena in Malaysia drop in value to investors. The public officials here should be mindful of the risks and take a proactive approach to the UAE handling of this situation. That means sending people over there to lobby the rulers not to screw up. We have vested interest.
This is a conundrum that I've been debating. I've yet to see very many housing articles, data, and research seriously critiquing the housing market here.
When I look information such as household income to price, I see a lot of houses overpriced. Consider the average household income is RM4000. How can they afford houses that run in the RM270 to RM300 per sq. ft range. I see young people going for new properties running at RM400, RM500+ per sq ft price. Not only that, the standard down payment here is 10%. Most people can't put up the 20% equity.
In fact, I've been hearing that consumers can get around that 10% down payment with a measly 3% down payment (7% covered by the contractor)! A lot of the practices such as option arms, almost no down payment, and interest rate resets into the second and third year that doomed the US are prevalent here. People should use the low rate period to pay down the amortization on the house and instead are spending it on consumer goods as evidenced by the growth in consumer loans and consumption.
The government isn't doing much to curb the risk although they mentioned that they are concerned. We have the housing capital gains tax supposedly to cool down the market. But we all know the main purpose of the tax is for revenue. There are far more effective ways on clamping down on the housing market. For one, increase the down payment and ban all these shady teaser rates and zero down payment ideas.
Sentiment in stocks has been dented by the news that Dubai World, which is thought to have debts totaling around $60 billion, has asked creditors if it can postpone its forthcoming payments until May. That has stoked fears of a potential default and contagion around the global financial system, particularly in emerging markets.
"Certainly the Dubai debt debacle and the uncertainty that it has created has had a severe knock on effect," said David Buik, markets analyst at BGC Partners.
Kit Juckes, chief economist at ECU Group, said the developments in Dubai and in the currency markets are related as the fall in risk appetite has pushed money into government bonds and into safe haven currencies such as the Swiss franc and the yen.
This, he said, is "testing the tolerance of central banks to see their currencies cause further damage to their economies."
Even if Dubai were to get a bailout from the UAE, the Dubai CDS would be paid in full. Malaysia is majorly affected by this debacle. A big part of the Nusajaya development is with Dubai World! Whoever said islamic debt was safe, weren't affected by the crisis must be really smoking something.
In addition to direct effect, Malaysia is the top country for Islamic Finance. The financial industry will surely be affected.
One of the biggest questions that deflationists have to answer versus the inflationists is:
who will buy all the debt issued by the government to keep interest rates down?
Inflaionists say that no one will buy this government debt and thus rates will go up and we will have inflation.
Deflationists have had trouble giving a credible sounding answer to this one. But it is important to address as low government rates are a basic tenant of the deflationist camp. I've had difficulty coming up with a reasonable answer to this myself and I'm skeptical of all ideas on deflation as well as inflation. I'm concluding that the debt issued by the government will be financed by savers.
The next question is when will this happen as it hasn't happened yet? Well, we have to consider China and foreign buyers of US debt. From Barrons:
the real question isn't whether the U.S. will pay back what it's borrowed from abroad. In essence, can foreign purchases of Treasuries keep up with the widening deficit? That's the question posed by Greg Blaha and Ryan K. Malo of Bianco Research in a note to clients.
Back in September 2007, foreign purchases of Treasuries equaled 270% of new issuance, they note, as they sucked up the available supply of U.S. government securities in sight. That was before the budget deficit exploded last year owing to the economic collapse and the cost of the federal bailouts. By September 2009, foreign investors were taking down only 16% of Treasury issuance.
Obviously, foreign purchase of debt is way down and will not be enough. Next, we consider the consumers/savers. The main reason why they have not been putting their money in treasuries is that some of them have been compelled to spend on cars and houses. They've been liquidating what little they have saved. Q3 GDP showed consumers saved 3.3% of personal income as opposed to 4.9% of income in Q2. [1] (Personal savings as a percent of income on line 34)
Anyhow, now we look at the other buyer, the Federal reserve.
The 10 year treasury rates have been going higher as the fed slows their treasury purchases. The Fed ended their treasury purchase in August. The fed's balance sheet also reflects this action. An inflationist would say once the Fed stop purchases, the rates will go up and inflation will soar. This has been happening as of late, probably why gold is up and proving inflationists right so far. But this is only somewhat true for a short period while the consumer transitions to saving again. This is an inflation "head fake."
Fed Balance Sheet (notice the treasury purchase portion of assets has flattened)
Coincidentally, gold has gone a lot higher during this void where the fed ended their buying and the thrifty part of the consumer is spending. Make no mistake, though that consumers will soon return to their saving ways. Of course not all savers turned to consumers at the government's incentive. They are probably the ones to thank for keeping the rates as low as they have been. I imagine after all these stimulus measures have taken effect, the consumer will revert back to saving and de-leveraging and buying treasuries. When the consumer/saver returns to increasing their savings rate, the treasuries will once again increase increase in value.
While I'm not too sure when this will happen, I can't imagine it will take too long, maybe a couple of months. When we see people stop buying into stimulus programs, saving more in the BEA personal income and outlays reports, and the prices of treasuries start to firm up is when we will have the treasury asset class strengthen again for quite a while unless of course the government manages to whip out another carrot. Even then the US government has only so many bullets before people start to lose patience.
Recently, Zerohedge wrote and article on an Australian professor, Steve Keen. The professor did correctly predict the financial crisis and is vocal that the US and Australia is still not in the clear.
One of the key points I got from his talk is that the current model of money supply is flawed. We should think of it like reservoirs and dams, with the dam controlling the flow of money to other reservoirs.
His idea is that dumping trillions of dollars in the reservoirs of banks will just make the water level higher and the rate of flow will not increase to the debt holders. The current economic posture of all this easing of monetary policy to the banks with tarp and asset buying with the fed is basically having little effect.
So, in the end, his conclusion is to actually give the money to the debtors, who have increased their flow the the creditors. This is the most simplest method of debt reduction. Basically he is saying, no pain, no gain. At some point when banks and restrict their flow of money, conventional monetary policy of increasing banks reserves do not work.
Intuitively, this probably explains why government programs like the cash for clunkers and home buyer tax credit had a major bang for your buck effect (money went to debtors), while the TARP program (money went to banks) looks like a failure.
There are some spillover effects of the current government monetary easing in that it does put extra income into consumer's pockets but not that much as many homeowners are on fixed loans. Generally, though the effects are not enough.
This idea does confirm the deflationists' point of view in that if the money is not flowing any faster to the debtors, you will still have the debtors de-leveraging. We should give the money to the debtors and wait to see if the economy will start leveraging up again, then we will have more sustainable growth. But again, this kicks the bucket down the road until another debt crisis hits us.
Two presenters: Head of economics, Malaysia and Equity Strategist
Key items:
The RPGT will be enacted on the opening date. As long as the property sold is before end of this year, you will not get taxed.
They see a higher chance for a slow recovery than a w or v shaped one.
Foreign investing in Malaysia is basically a small portion for big fund managers. Despite the insignificant FDI, we still tend to trade in line with other asian economies.
They see the economic recovery slow but equities are in a bull market but take some profits at this time.
Malaysia will decouple from the US and world economy at sometime in the future.
Credit Card service fees will likely stick: service tax of RM50 per card.
From my view, they are somewhat inconsistent at times. For instance, they are a buyer of equities but conclude that economic recovery will still be slow. They predict a decoupling from the world economy at sometime in the future, but I imagine they don't have a time frame on that.
My view is that we are in bear market rally and will bounce between highs and lows much like Japan did after their bubble burst. The decoupling will take a long time to happen, and will not happen for years, at least not as quickly as they are predicting. In the mean time, there is still money to be made or lost for a medium term investor.
Three of the four WiMAX licensees have been slapped with fines for not rolling out their networks on time, industry sources said.
The Malaysian Communications and Multimedia Commission (MCMC) is said to have issued letters on the fines to the WiMAX operators more than a week ago.
The players fined are YTL e-Solutions (RM1.9mil), AsiaSpace (RM1.7mil) and REDtone International (RM200,000) for failure to meet the 25% population coverage by the end of March.
The quantum correlates to the level of coverage achieved as at the deadline. However, all three players are appealing against their fines.
Tan Sri Francis Yeoh, head of the YTL Group, told StarBiz that YTL e-Solutions would appeal against the decision on the basis that the company would be ahead of the next roll-out target of 40% by mid-2011.
“We believe in having an extensive network up and running as we don’t see the point in having incremental coverage.
“We take this business seriously. We will have 60% coverage (more than the needed 40%) by the next deadline,” he said.
Another industry player, who declined to be named, said his company had faced a myriad of issues in rolling out its network, especially in relation to obtaining approvals and the land needed to put up the base stations.
“It takes a long time for these government approvals. And if the land is privately owned, prices can be prohibitive for us. This makes it almost impossible to roll out.
“If we were helped with these issues, then it would be fair to impose a fine on us. But these problems are beyond our control,” he said.
Last December, then Energy, Water and Communications Minister Datuk Shaziman Abu Mansor said the Government would withdraw licences from players who could not show good reasons why they are not able to roll out according to proposed plans.
More recently, Information, Communications, Culture and Arts Minister Datuk Seri Dr Rais Yatim said the MCMC should ensure that providers had delivered on what they had promised.
YTL plans to invest up to RM2.5bil over the next five years for its WiMAX roll-out while AsiaSpace is looking at raising RM300mil, having invested close to RM100mil so far. REDtone is looking at raising RM40mil.
It has also been questioned whether the authorities had been lackadaisical in enforcing deadlines and withdrawing the spectrum rights from those who did not use them.
However, as this case indicates, rolling out a telecommunications network can be fraught with difficulties and complications.
It will be just as challenging to manage that spectrum.
I mentioned before that wimax is basically fool's gold. It's an entry into the already crowded wireless arena. The wimax providers are in fact competing with the established telcos in providing wireless internet services. Furthermore, they are handicapped as they don't have the infrastructure built. Betting people would not gamble on wimax competitors taking a substantial market share from the telcos.
The logistics problem of wimax is a pain and an experienced telecom provider would have an easier time implementing than the current batch. The MCMC is another joke of an telecommunications body. How can they have picked so many failing companies? Not only are there infrastructure problems, but the companies have no experience in telecommunications. If I am a government body, I want someone who will have the best chance to build up capacity for the nation. If that means another telco company winning wimax, then so be it.
In light of all the follies of both companies and the MCMC, the only people who will really be affected is the investors who ponied up the capital for this costly wimax infrastructure. Talk about building bridges to nowhere.
Malaysian Prime Minister Najib Razak promised to curb a burgeoning budget deficit while still supporting economic growth with a personal income-tax cut.
Mr. Najib told Parliament in his 2010 budget speech Friday thatthe government will cut the individual income tax rate by 1 percentage point to 26%. But in addition to the surprise cut, he announced a 5% tax will be imposed from Jan. 1 on property gains. Mr. Najib also delivered an annual report that forecasts the trade-driven economy will contract 3.0% this year -- better than an earlier forecast of a 4.0% to 5.0% decline -- before rebounding next year to growth of between 2.0% and 3.0%, thanks to previous spending measures and low interest rates.
The government is in the final stages of studying a goods and services tax, Mr. Najib said, but offered no timetable.
The government will fund its 51.12 billion ringgit deficit entirely through domestic borrowings and a shortfall of 40.48 billion ringgit in 2010 will be met "primarily from non-inflationary domestic sources."
The report also predicts average consumer price inflation at 1.0% this year, slower than the forecast of 1.5% to 2.0% made by the country's central bank in March. Exports may shrink 19.2% this year, and may rebound to growth of 5.1% in 2010.
The budget also vows to let foreigners own 100% of Malaysian corporate finance and planning companies, up from 70% now, and relax rules on the sharing of commissions between stock brokers and commission-based dealer representatives.
The WSJ got most of the article correct, but failed to mention property gains are as much as 30% for the first year of ownership reducing gradually until 5% in the fourth year. Taxing unfortunately is quite a blunt instrument, but it will curb the rampant property speculation in Malaysia.
With the average household salary of malaysians being some RM4000 per month, I do not see how most could afford properties of RM300 per square feet. It just boggles the mind. A 300k place would cost about RM2000 in payments and that is not a reality for most Malaysians. 50% of household income is just nuts.
They say our housing markets are strong, but yet they come in with teaser rates just like options arms in the US. News flash, the housing industry encourages a lot of questionable loan practices in Malaysia as well! When the teaser rates adjust, will home buyers be able to pay? 2.5% adjusted to 7%...ouch. comes in at about 70% increase in monthly payments!
Ever since Najib won the election in April, I mentioned that given his affinity to the financial industry through personal ties as well as having a background in economics, the sector would benefit during his tenure. While the budget lacks any "big bang" policy movements for the financial industry, liberalizing regulations is always effective.
Malaysia Airlines Cargo Sdn Bhd (MASkargo), the air cargo unit of Malaysia Airlines (MAS), has warned that revenue from its operations here could fall 20 per cent this year on lower yields and capacity.
Shanghai is the second biggest contributor to MASkargo's overall revenue, after Kuala Lumpur, accounting for some 30 per cent contribution.
The Chinese station saw revenue drop 50 per cent in the first half compared with the same period last year.
It handled some 50,000 tonnes of cargo last year. Parent MAS' capacity cuts on passenger flights in the first half of the year also affected MASkargo's bellyhold capacity.
MAS reduced its flights here to eight times a week from 14, while MASkargo trimmed its freighter service to 10 times a week from 13.
Song said that things were looking up now, based on China's trade figures which show signs of a recovery since September. This has enabled air cargo companies like MASkargo to gradually raise their freight rates again.
Quarter-on-quarter, Song expects MASkargo to post 35 per cent revenue growth in the fourth quarter.
The article had me fooled for a moment into thinking MAS will see china freight continue to decline, when in fact, it already has. Mostly, I see a recovery in growth q-o-q as pointed out by the last sentence. This is hardly newsworthy. If the Baltic Dry Index is any indicator, freight rates will not be as good going forward. China has been reported going on a massive commodity buying spree and while they mean good, it is way too early as this economic downturn has still a prolonged period to go.
It would not surprise me, next year, to see the same headline again as China retracts from its recent asset buying spree and realize that they have bought way too early in the economic cycle.
The government is likely to remove or reduce minimum brokerage fees to boost the equity market in the 2010 Budget, according to Kenanga Research.
It will be tricky for the government which has projected to cut 15 per cent of its operating expenditure to maintain a moderately high development in spending, said Kenanga in a statement today.
"Realistically, we expect the operating expenditure to be reduced by no more than five per cent, largely by way of reducing or restructuring subsidies which had ballooned to about 22 per cent of total operating expenditure from just 8.5 per cent in 2007," it added.
The government will need to allocate more than RM50 billion in development expenditure for 2010, said the research house.
The 2010 Budget is also expected to include the removal or reduction on stamp duty for properties above RM250,000 to stimulate property purchases, according to Kenanga
I've left in some other items outside of brokerage fees for those who are interested in the 2010 budget. The reduction in transaction fees are a boon to the financial sector. If they could set the fees at a flat rate instead of a percentage, then the change in plans could benefit many financial companies.
The way of commissioned brokerage should go out of fashion. For those that don't need or want personal brokers taking a share of their profits, they should get the right to lower fees. Not only is it good for the retail investor, but the stock market benefits from higher liquidity resulting from investors worrying less about making up the transaction costs in buying and selling securities.
Public Bank Bhd (1295), the country's third largest bank, reported a 3.7 per cent higher third-quarter net profit as it earned more from loans, despite a weak economy and even as it has set aside more money to cover potential bad debts.
Net profit for the three months to September 30 2009 came in at RM639 million, although revenue fell 12.7 per cent to RM2.4 billion.
The bank has put aside RM176.4 million of allowances for loan losses, 65 per cent more compared to the same time last year.
Managing director and chief executive officer Tan Sri Tay Ah Lek said Public Bank is on track to achieve a 14-15 per cent loans growth target this year, driven by demand for loans to small businesses, mortgages and car loans.
Despite a difficult economy this year, Public Bank's net profit has expanded consistently in the first nine months this year.
Net profit in the second quarter grew 3.6 per cent to RM611 million from RM589 million in the first quarter, and improved further by 4.6 per cent in the latest quarter.
Loans grew by 14.3 per cent on an annualised basis, while deposits expanded by 19.5 per cent. This compares with the industry's 6.8 per cent growth for loans and 6.3 per cent for deposits.
Public Bank is considered the best bank in Malaysia and is substantially increasing allowance for bad loans. I loathe to see what the other banks in Malaysia have to say. Loan growth profits seem to be what is holding up the bottom line. I imagine that the loan growth will taper off as demand for houses, cars, and mortgages wane from the initial rebound after the financial crisis.
If loan growth profits were to come down and bad loans were to increase, this would not bode well.
Malaysia's economy needs only a mild increase in western countries' consumption to put the country on much better footing, but if that's not helping, I don't know what will.
CORPORATE and individual taxes are likely to be reduced by one to two per cent in the 2010 Budget, according to the Malaysian Institute of Economic Research (MIER).
The reduction would not affect the government's revenue, MIER executive director Datuk Dr Mohamed Ariff Abdul Kareem said at a press conference in Kuala Lumpur today.
"Since 2010 will be a better year than this year, then shaving off the tax rates may be offset by increased income base. So I don't think it will affect government's revenue," he said when presenting a report on MIER's economic outlook for the third quarter 2009.
Corporate tax is currently at 25 per cent while individual income tax is at 12 per cent for chargeable income exceeding RM35,000 to RM50,000.
Mohamed Ariff said the tax reduction would have positive impact on the economy as well as investors.
Asked whether such a reduction was in preparation for the introduction of the Goods and Services Tax (GST), Mohamed Ariff said: "It could be."
He said GST taxed on consumption and not income, thus providing an incentive for people to work harder and earn more.
"In Malaysia, there is a need for GST because the number of people paying tax is small, so everybody will chip in. Everybody is contributing because everybody is consuming. So the tax base gets bigger," Mohamed Ariff said.
To me, I don't know if MIER has inside information into the PM's agenda, but a tax cut would be fine in tandem with an imminent GST implementation in the next few years. I'd rather not have a tax cut because the huge stimulus needs to be paid down and the only way that is going to happen is through tax revenues.
I doubt that the "future" revenues from the recovery will be enough to sustain. If the recovery is weak, cutting taxes is a fiscally irresponsible move especially considering government revenues took a nosedive this year.
But at a fund manager briefing by CIMB in Kuala Lumpur last week, investors questioned why Maxis, stripped of its prized assets in India and Indonesia, deserved to be valued at the figure of two years ago. Malaysia is a fully saturated market in terms of SIM penetration.
“People have talked about 14 to 16 times (price to earnings ratio),” said Aberdeen’s Jalil. “I think at the lower end of the range it does look OK but if it’s in a late teen or something, it might put off certain people.”
Maxis, which earned RM1.14 billion in the first half of 2009, said it plans to pay out 75 per cent of its net profit as dividend. CIMB Research said Maxis had a dividend yield of between 5.3 per cent and 5.9 per cent in 2010, compared to the 4.6 per cent yield of the FTSE Bursa Malaysia KLCI.
But investors were not impressed.
“If I want to buy for yields, I may as well buy a bond, that way I am not subjected to the ups and downs in the market,” said the CIO of a fund management firm. -- Reuters
I concur as well with the article. The yield of 5.3 to 5.9 pc is not bad, but there are other dividend stocks that may be more attractive in less competitive markets. We have a mature telecom market where revenue growth will most likely amount to GDP growth. The only area which it could grow is in data services but that market is also highly competitive.
For instance, gaming and tobacco stocks are excellent yield stocks in less than competitive markets. Their games and cigarettes have built followings. Telecoms can't distinguish their products from one another easily and usually leads to high attrition as one provider offers better deals.
My take is that Maxis will be priced similar to Digi differentiated only by the customer mix they serve. Digi serves the lower end consumer and therefore might be cheaper with lower margins while Maxis might be a little pricier with higher margins.
Malaysia Airports Holdings Bhd (MAHB) is planning a substantial investment to beef up its retail shopping and services to capture the higher revenue potential.
Its chairman, Tan Sri Dr Aris Othman, said a major renovation of its satellite building at the Kuala Lumpur International Airport (KLIA), is nearing completion.
According to Aris, MAHB will now focus on renovations to the main terminal building at the KLIA to enhance and modernise the retail facilities there.
"We realise we cannot rely on airport charges alone as it tends to remain stagnant or low, due to the competitiveness of many airports around the world," he said during the graduation ceremony of 194 airport security staff in Sepang today. Aris said with the completion of the new low cost carrier terminal (LCCT) by the fourth quarter of 2011, a more enhanced shopping experience would be available.
Works on the new LCCT, he said, will commence next month and the total construction cost is RM2 billion.
He also said there would be no compromise in terms of airport security, despite the economic slowdown.
I actually think the new LCCT terminal will be a huge earnings boost for MAHB. The current LCCT seems built as cheaply as possible wihtout much regards to profit strategy. With the volume of passengers going through the LCCT, the profit potential of the airport is brought down by lack of retail space. The new LCCT should solve this problem and be a huge profit opportunity for MAHB.
Bursa Malaysia Bhd has rejected a request from a market participant to cancel an erroneous trade that caused shares of Kuala Lumpur Kepong Bhd (KLK) to soar yesterday.
Analysts and dealers were stumped when the plantation firm's share price rose 24 per cent to RM17 in the last 10 minutes of trade, on heavy volume, for no apparent reason.
Even a company official seemed surprised by the sudden share movement.
Not long after the market closed, however, Bursa Malaysia said it received a request to cancel a trade for the stock, arising from a "participant's error".
It later told brokers that it had reviewed the request and decided not to approve it. Dealers believe the dealing error came from a foreign brokerage house.
Bursa Malaysia, in a press statement, said KLK's sudden share price jump was brought about by "matching of market orders at the pre-closing phase of the day".
This resulted in a change in the benchmark FTSE Bursa Malaysia KLCI Index which was not reflected until after the market's close, due to "verification measures" taken on the increase in KLK's share price, it said.
The exchange clarified that the index's closing yesterday was 1,216.45 points.
The huge volume indicates perhaps the dealer bought too many shares, possibly at market price. This could come from a key entry error. For example, say I want to buy 2000 shares, which is 20 x 100. In the box for the order entry, I would need to key in 20. Sometimes I would key in 2000 by accident. This is prone to occur when someone has to key in pre-calculated numbers from a spreadsheet.
It's just not intuitive. If I want to buy 2000 shares, I should put in 2000 in the box right? Bursa should move with the times. They could get rid of the lot system in favor of the US system of buying individual shares. I've always been a fan of dealing with more numbers on the left side of the decimal than right. I think a lot of people would prefer that as well.
But natural gas has suddenly emerged as both a factor in this year's energy debate and a potential game-changer on the political landscape for the long term. A few facts, dramatic new supply projections, and a geological map help explain why.
First, natural gas is up to twice as clean as coal and 30 percent cleaner than oil when it comes to carbon emissions that contribute to global warming. Second, because of new drilling technology and shale gas discoveries in the last few years, America now is estimated to have a 100-year supply of natural gas at current consumption levels (see page 7 of the linked document). And third, check out where that gas is located. It's in Rustbelt states where senators are worried about how the energy bills would affect polluting industries, and in conservative states where they are concerned about how the measures would affect the cost of electricity.
Malaysia is a very large producer of natural gas. The companies that would have problems with the currently over abundant resource are MISC and Petronas. Petronas Gas could see some problems if prices keep falling. MISC is exposed through its large LNG shipping fleet. These tankers basically are made for LNG shipments only. They can't easily be converted to anything else. If countries like the US don't need as much gas shipped to them as indicated by their 100 years supply of gas, then MISC will surely suffer.
This oversupply of natural gas has caught many countries by surprise. For instance, the US is now only incorporating natural gas as a big part of their energy plans. They are in the law-writing stages only and infrastructure will take years to come online to make use of this over supplied resource. In the mean time, exporters of natural gas will have problems on what to do with all the supply.
First, the most important point we must establish is that of inflation and deflation. We will probably see a period of deflation, the contraction of credit. Recent headlines (1 , 2) point to contracting debt in spite of the government taking on trillions in debt.
Furthermore, with capacity slack we will unlikely see the tightness in production needed for producers to raise prices. The final piece of evidence is that of rents in the United States are decreasing. This will show in the OER which is a huge weighting on the CPI. This will counteract any CPI increase due to commodities.
Most likely, the path of least resistance is that of deflation. But whether consumer prices go up or down a lot is not the main driver of the market. The main driver is the contraction of credit. We're going to see credit contract and a lot of these debts won't be paid off due to people can't pay for their homes and businesses going bankrupt. This debt destruction will suck up all the extra dollars the fed has pumped in and more. We can see this happening already despite government actions to take on more debt.
What does this mean for the markets? Simply, demand for dollars is outpacing supply due to debt destruction. The dollar will most likely increase in value, and thus risky assets will have a hard time in this environment.
In the future, I don't see the Fed able to increase liquidity without backlash. Already the public is skeptical of the Fed creating more dollars so any more money created will be met with scrutiny. Short of another systemic failure or economic recession, I don't see massive credit creation in the future. Keep in mind, the Fed in it's most recent meeting has indicated that it will be stopping purchase of treasury securities, so it seems as if they are starting to slow down the liquidity programs.
KUALA LUMPUR: MALAYSIAN AIRLINE SYSTEM BHD [] (MAS) recorded RM2 billion in savings in the past three years and is targeting to reduce costs by another RM700 million this year.
MAS managing director and chief executive officer Tengku Datuk Azmil Zahruddin said on Oct 2 the national carrier would continue to pursue structure cost reduction.
"There is a lot more room for cost savings," he said at a briefing in Kelang Jaya as he update the media on the progress of MAS's business transformation plan.
Azmil explained that a 62-year-old legacy carrier inherited a lot but the aggressive cost savings measures was to get rid of "bad costs such as those that don't add value or give poor returns".
"A significant portion of our savings is returned to customers in the form of lower fares and better services," he explained. "We will continue to invest in good costs," he added, such as inflight food, safety and regulatory requirements and to generate third party revenue.
He said MASkargo aims to return to profitability next year while MAS Aerospace Engineering aimed to achieve revenue targets of RM1 billion by 2010 and RM3 billion by 2013.
On its fleet renewal, he said it would take delivery of 35 firm B737-800 planes with delivery starting in the fourth quarter of 2010. It has another 20 plans on option.
"These planes will be deployed in Malaysia, Asean, South Asia and China," he said.
To MAS' credit, they've not been grabbing shareholder's money like AirAsia recently. Their cost cutting method seems effective and looks to be continuing under the new ceo, Zahruddin. He seems to be picking up exactly where Idris Jala left off. No doubt as a full service carrier, MAS is hurting compared to AirAsia as consumers trade down; but credit is given to MAS for working within their means.
Hospitality group Berjaya Hotels & Resorts plans to sell off its properties in Seychelles, Sri Lanka, Singapore and London to concentrate on its more profitable markets in Asia-Pacific.
Chief executive officer Joseph Won said the group wants to sell Berjaya Colombo Hotel and Berjaya Singapore Hotel, exiting entirely from Sri Lanka and Singapore, despite the two being in Asia-Pacific, to focus on bigger markets.
Won said if prices are right, it would also dispose of Berjaya Beau Vallon Resort and Berjaya Praslin Resort in Seychelles and Berjaya Eden Park Hotel in London.
He said the group is in discussions with a few parties for its properties in Seychelles and London and hopes to sell them within the next two quarters.
Locally, the group operates Berjaya Langkawi Resort, Berjaya Tioman Resort, Berjaya Redang Resort, Berjaya Georgetown Hotel, Colmar Tropicale and Berjaya Times Square Hotel in Kuala Lumpur.
The properties, including those overseas, are worth a combined RM900 million.
"We have made a strategic decision to be Asia-Pacific focused. We are transforming ourselves in such a way to become one of the biggest hotel groups in the region," Won said in an interview with Business Times.
He added that the plan for Asia-Pacific would be to open up to 20 new hotels and resorts in Japan, South Korea, Vietnam, Maldives and Malaysia over the next six to seven years.
The list would include Berjaya branded properties, which the group would own and operate on its own, and hotels operated by third parties.
Berjaya Hotels & Resorts will use proceeds from the sale of the foreign properties, and its own reserves and existing cash flow to finance the expansion.
In addition to opening more properties, the group will also be looking for management contracts in Asia-Pacific.
"We are getting offers from China and Vietnam to operate their wholly-owned resorts and hotels, under the Berjaya brand. This is something we would be doing on a big scale," Won said.
The group, in a 70:30 joint venture with a local Vietnamese firm, is currently constructing Berjaya Resorts Phu Quoc Island in Phu Quoc Island for US$45 million (US$1 = RM3.48).
Won said the new resort is targeted for opening in the second or third quarter of next year.
"This is our first property in Vietnam and I wish to do more. I am bullish on the market. We will be expanding there aggressively," Won said.
The group is also looking to open a city hotel in Ho Chi Minh City and a beach resort in Da Nang, within the next four to five years.
Meanwhile, Won said Berjaya Hotels & Resorts may be listed in the future to expedite its expansion and unlock the value of its properties.
"Listing is a possibility that everybody is talking about. My (immediate) aim is to take the group global after we have opened the new properties," he added.
To me, the Berjaya's plans seem a bit all over the place. They want to concentrate on Asia, but yet sell off in Sri Lanka, a potentially extremely prosperous area in the near future due to reconstruction efforts. They want to get rid of the hotel in Singapore, but want to expand to Japan, South Korea. This is a joke. I could argue that Japan and South Korea are tougher places to do business than Singapore.
Berjaya doesn't seem to have a coherent strategy. They could be just selling these places because they are under performing. A hotel in London and Seychelles would likely be pulling some major losses due to the hotel recession in developed economies. In that case, well they might take a loss. If I were a shareholder, I'd be wondering what the hell are they doing over at the company.
Chinese car maker Geely Automobile wants to be taken seriously. It now has one seal of approval: Goldman Sachs Group's private-equity arm is investing $245 million through a convertible bond.
Geely will use the money to expand in China as it continues to reinvent its image. Its current reputation is of a company producing cheap, unreliable -- and sometimes eccentric -- vehicles. At the Shanghai auto show it unveiled a Rolls-Royce look-alike with only one passenger seat.
This has left it trailing a frothy Chinese market. Its sales this year were up 22% by the end of August, far behind the sector's 32%, JDPower figures show. The company is 10th in China, with a 2.9% share -- hence its multiple of 11.5 times expected earnings, even after Wednesday's 19% stock jump. Rival BYD, with Warren Buffett's backing and a hopeful future in electric cars, trades at 65.2 times.
Geely's investment in research and development and recruitment of overseas executives seem to be paying off, with better feedback on its pipeline of models. The next planned step could be bidding for Sweden's Volvo through Geely Holdings, Geely Auto's unlisted parent.
But Volvo would be a big bite, given Geely's small acquisitions to date and the challenges of cross-border auto deals. While Goldman is betting on a red-hot market, Geely still has to prove it can put the money to good use.
The Goldman Sachs investment seems like a smart bet. Convertible bonds will ensure that the investment doesn't suffer the same volatility of stocks yet will have the potential upside of a cyclical stock entering a strong earning phase. Convertible bonds seem a popular way to go about investing in this turbulent time. Buffett used it on Goldman and now Goldman is using it on others.
Of course the downside risk is that Geely hits some snags in its acquisitions or China changes the rules, but probably those things will not happen.
Anyhow, companies with a lot of convertible bonds would be wise to remember there are two sides to every coin. The cost of capital goes up as the shares get converted. Excessive use of convertible bonds may weigh on share prices and cause under performance.
HONG KONG: Las Vegas casino company Wynn Resorts has raised the size of the initial public share offer in Hong Kong for its Macau unit by around 25 percent, according to sources familiar with the matter, seeking to raise up to US$1.6 billion, according to Reuters.
U.S. casino operators, grappling with high debt levels and a recovering economy, are hoping to boost valuations through spinoffs in China's gambling hub, Macau, the former Portuguese colony located an hour away from Hong Kong by ferry which now hosts the world's biggest gambling market that raked in record bets in August.
Macau casino offers from Wynn and its rival Las Vegas Sands come amid an expanding pipeline of other Hong Kong IPOs.
Wynn Macau previously sought to raise up to $1 billion, but after positive feedback from investors it has raised the offer and the company now plans to sell 25 percent of the division, up from the 20 percent it originally expected to sell.
The price range of the offer is expected to be HK$8.52-10.08 per share, the sources said on Sunday, with at least 1.25 billion shares being sold. The sources have direct knowledge of the offering but were not authorised to speak publicly about the deal yet.
The IPO has attracted a combined US$250 million from several so-called "cornerstone investors," or investors who take a substantial stake in the company before the offering, one of the sources said.
Among them is Thomas Lau, the billionaire managing director of Lifestyle International, the retailer that operates the Sogo department stores in Hong Kong's Causeway Bay and Tsim Sha Tsui districts and the Jiuguang Department Store in Shanghai.
Another is Walter Kwok, of the Kwok family-run Sun Hung Kai PROPERTIES [], Asia's largest property group by market value. Malaysia's wealthy Guoco family is also investing in the IPO.
Wynn's second resort in Macau, called Encore at Wynn Macau, is scheduled to open in the first half of 2010, the company said in the IPO prospectus. The total budget for the CONSTRUCTION [] is about $650 million and so far construction costs have totalled about half that amount.
The company is funding the construction through existing cash balances and cash flow from operations, it said in the filing.
Wynn's archrival Las Vegas Sands which has filed an application for a possible listing on the Hong Kong stock exchange, aims to raise $1 billion to $2 billion through the sale of a minority stake in its Macau operations at the end of November or early December.
But analysts say Wynn's offering in Hong Kong could be better received than the Sands one due to its lower debt levels and its strong brand name.
Wynn, which had shelved its plans to list its Macau assets late last year amid the stock market plunge, will kick off its roadshow for the deal on September 21. The shares could be priced on October 2.
JP Morgan, UBS AG and Morgan Stanley have been designated to handle Wynn's Hong Kong listing. - Reuters
Looks like liquidity in Asia is live and well. The stock markets have given a way for companies to get cash despite tough credit markets. Liquidity eventually will overflow from the market to the company's coffers, but not in the most effective way. Money raised through ipos and rights issues are expensive in terms of cost of capital but investors haven't gotten the memo yet.
Sales of passenger cars and commercial vehicles in August rose 2.8% on-year to 48,538 units, but compared to July this year, it was down by 3,390 units or 6.5%, according to Bernama.
Malaysian Automotive Association (MAA) said on Sept 17 the on-month decline was due to lower sales reported by Proton.
It said sales of passenger vehicles in August rose to 44,099 units from 42,864 units a year ago while that of commercial vehicles rose to 4,439 units from 4,363 units.
For Janaury-August, total industry volume fell to 351,550 units from 379,184 units in the previous corresponding period. Sales of passenger vehicles in the eight months fell to 319,424 units from 345,917 units a year ago.
Sales of commercial vehicles dropped to 32,126 units from 33,267 units previously.
MAA said production of vehicles in August fell to 44,476 units from 46,316 units a year ago.
Passenger vehicles production in August fell to 40,865 units from 42,309 units a year ago while that of commercial vehicles dropped to 3,611 units from 4,007 units.
For Janaury-August, production of passenger vehicles fell to 293,175 units from 329,557 units previous corresponding period, while that of commercial vehicles dropped to 28,216 units from 31,512 units.
MAA said sales volume for September was expected to be maintained though it will be a shorter working month due to the Hari Rara festive holidays. - Bernama
The month on month growth rate has gone negative which indicates the rebound to normal is starting to end. Proton having lower reported sales is a surprise and may indicate that people are comfortable spending more on autos than I previously thought.
Malaysia has room to press ahead with economic stimulus measures this year and next given sound levels of government debt and the need to counter the global crisis, the head of the country's central bank said on Monday.
Asked about the bank's recommendations to rein in the country's budget deficit, officially expected to hit 7.6 per cent of gross domestic product (GDP) this year, Bank Negara Malaysia Governor Tan Sri Dr Zeti Akhtar Aziz said: "This is a period where the fiscal stimulus is still important."
Speaking on the sidelines of an event, she added: "Any premature exit from the fiscal stimulus would affect the sustainability of the recovery that we are seeing now and Malaysia has the potential to continue with the stimulus for 2009 and 2010."
While fiscal discipline was important, Zeti said government debt was still within prudential levels, allowing stimulus steps in 2009 and continuing next year, if necessary.
"But it is always important to exercise fiscal discipline and to maximise the potential for the high impact, high multiplier expenditure," she added.
Zeti declined to comment on the central bank's projections for the size of the budget deficit in 2010 and expectations for bond issuance on a net and gross basis next year.
The budget shortfall of 7.6 per cent of GDP forecast by the government for this year would be the biggest since 1987.
Zeti said steps to exit supportive stimulus measures would tend to be conducted on an individual country basis in the Asian region although information would be shared among a number of countries.
Turning to consumer price trends, Zeti said that recent declines were no sign of damage to consumer demand.
"Consumer demand is gaining momentum and in the second quarter, we saw a recovery of small positive growth," she said, adding she expected this to persist into the second half 2009.
Price declines did not give rise to concern given that they were largely due to a lingering base effect from last year when petroleum and commodity prices spiked, she said.
"We believe, going into the subsequent months of this year, that inflation will turn positive but it will remain low."
Analysts polled by Reuters expect Malaysia's consumer price index to have fallen for a third straight month in August. - Reuters
It seems like Bank Negara will be supporting a much more lenient monetary stance and rates probably will not rise any time soon. I don't think they will be raising rates so easily despite the threat of inflation and blatantly acknowledging consumption is still going strong.
Inflation will probably creep up faster in Asia than anyone expects. Remember that change in commodity prices have an amplified effect on inflation in south east Asia than in Europe and US.
AirAsia will sell 400 million new shares, representing 16.8 per cent of its share capital, at RM1.33 to RM1.40 a share
AIRASIA (5099), Southeast Asia's largest budget carrier by fleet size, is expected to raise up to RM665 million in a new share placement as it seeks to cut its debt.
Demand for full-fare carriers has been hit by the economic downturn, which has given a boost to discount airlines.
AirAsia said last month that proceeds from the share sale would be used to reduce its debt, which has risen sharply following aggressive capacity expansion.
AirAsia will sell 400 million new shares, representing 16.8 per cent of its existing share capital, at RM1.33 to RM1.40 a share, according to the deal term sheet obtained by Reuters, to raise up to RM560 million.
However, the sale also has an upside of 75 million shares on top of the 400 million shares offered, the term sheet said, meaning that AirAsia could potentially raise a total of RM665 million.
CIMB and Credit Suisse are joint placement agents for the exercise and bookbuilding will be completed today.
AirAsia stock closed down 0.7 per cent yesterday at RM1.41. Stock exchange regulator Bursa Malaysia Bhd said that AirAsia shares would be suspended today pending an announcement.
Regional budget carriers such as AirAsia and Jetstar Asia Airways have either added capacity or increased flight frequencies to cope with higher demand.
Analysts in Malaysia said last month that AirAsia's tight cash flow and high debt level was worrying given its commitment to fund aircraft deliveries.
Last month, it deferred the delivery of eight Airbus A320 planes to 2014 from next year, which analysts said signalled potential overcapacity in the future. - Reuters
Most likely, Air Asia must be having trouble getting loans/bonds issues to refinance. It's tough being an AirAsia shareholder. I only hope this share placement is an update of the previous one. If not, we're talking about major shareholder dilution of a billion plus this year!
Air Asia is really milking Tony Fernandes' rock star status and reputation as a savvy businessman. Does he really know what he is doing? I don't think investors are so easily swayed now and the con game won't last much longer. People are realizing Tony Fernandes is starting to look very ordinary.
KUALA LUMPUR: Khazanah Nasional Bhd is expected to gradually reduce its large stakes in government-linked companies (GLCs) after disposing of 5% of Malaysia Airports Holdings Bhd (MAHB) last week.
Analysts said this long-overdue development bodes well for the Malaysian equity market as it would enhance the participation of foreign institutional investors.
They said the Malaysian government investment arm could afford to reduce its shareholdings while still retaining strategic stakes in the GLCs.
Already Permodalan Nasional Bhd and the Employees Provident Fund, which are viewed as friendly parties to Khazanah, hold huge chunks in the GLCs.
CIMB Investment Bank Bhd last Friday confirmed a report in The Edge Financial Daily that it had placed out 55 million shares, representing a 5% stake in MAHB, to institutional investors at RM3.30 apiece the day before.
The bank said the transaction price was a tight discount of 2.37% to the closing price last Wednesday. The off-market deals reduced Khazanah’s stake in MAHB from 72.7% to 67.7%.
The Edge Financial Daily report also noted that the transactions would be the start of a government paring down programme to attract foreign participation into the local market.
Following the report last Friday, POS MALAYSIA BHD [] saw a total of 25 million shares transacted in off-market deals at an average price of RM2.30 apiece. However, no buyer and seller details were known.
According to Khazanah Nasional’s investment holdings structure, it owns 32.21% of Pos Malaysia.
I'm not surprised that the government is reducing its stakes in GLCs. I mentioned that the Najib government will probably be pro-investment bank oriented. It's important to understand that this may or may not benefit the economy, but a liberalization of the financial sector is considered a general positive for the stock market.
Also the fact that the Prime Minister's brother, the head of CIMB, will probably benefit the most from these initiatives spells vested interest in Najib to pass more investment bank friendly policies and deals.
HwangDBS Vickers Research Sdn Bhd said there are clear signs of recovery in the property sector extending to the high-end luxury segment.
These are seen in the take-up rate for The Binjai on the Park condominium project at the Kuala Lumpur City Centre, which has picked up from 10 per cent in July 2009 to 35 per cent out of its 171 units.
"Compared with the initial launch in August last year that coincided with the onset of the global financial meltdown, the average sale price (of The Binjai) has been reduced from RM2,800 per sq ft to RM2,400 per sq ft for units measuring 3,200-3,700 sq ft, while the smaller units (2,200 sq ft) were released at RM1,700 per sq ft," HwangDBS Vickers said in a report yesterday.
However, the average sale price of The Binjai is set to rise after its take-up rate exceeds 40 per cent. The project is expected to be handed over by December this year.
"This is positive for (property) developers with ready-to-launch products to capitalise on this early recovery," said HwangDBS Vickers, naming DNP Holdings Bhd, Eastern & Oriental Bhd (E&O) and SP Setia Bhd as its top stock picks. In a separate report dated September 4, HwangDBS Vickers also revealed that the Penang property market is heating up.
"Recent launches were well received with new price benchmarks being set - catching up closely to Kuala Lumpur's," it said.
These included E&O's Seri Tanjung Pinang link houses, SP Setia's Reflections condominiums at Setia Pearl Island and IJM Land Bhd's Light Linear condominiums.
"Developers are also looking to gradually pull-back incentives and raise selling prices. Buyers are mainly locals and Penangnites working outstation or overseas," it added.
HwangDBS Vickers said despite the current financial crisis, land prices in Penang have remained "sticky" and huge contiguous parcels are hard to come by.
"Therefore, developers with large prime landbank will hold an upper hand in riding on the strong demand for Penang properties," it said.
E&O is the largest landowner on Penang Island with a total of 1,123 acres, including reclamation rights to 740-acres Seri Tanjung Pinang Phase 2 and 365 acres at Gertak Sanggul.
I imagine there will be some people who will have to get some property early in the recovery. I see some advertisements requiring 10% down payments instead of the usual 20%. Credit seems to be quite loose given the current circumstances. But, I dont' expect the property sector to stage a massive rebound. Consumers are trading down and foreign property interest will be in the trough.
MAYBANK Investment Bank (Maybank IB) is staying neutral on the tobacco sector, ahead of the government’s announcement of the budget for the coming year.
The research house is expecting an excise duty hike of at least 11% or two sen to 20 sen per stick.
“This is partly because consumption has been resilient and mainly because government collections from excise duties grew 18.8% in 2008.
“It could be higher if the government chooses to simplify the masses of duties and taxes on cigarettes in view of the upcoming Asean Free Trade Agreement (Afta) statutes that will result in lower import duties,” stated Maybank IB.
Of the two listed tobacco players, it expects JT INTERNATIONAL BHD []’s (JTI) prospects to be largely unencumbered by the impending changes in the sector.
“On a 12-month moving average basis, JTI sales have stayed largely resilient,” said Maybank IB, adding that JTI’s resilience was due to the performance of its Winston and Mild Seven brands.
“Mild Seven recorded its eighth consecutive quarter of advance on a 12-month moving average basis up to 2QCY09. This made up for the continued decline of JTI’s leading premium brand, Salem... it appears that Mild Seven’s emergence has ensured that margins overall for JTI are no longer as pressured,” it added.
Maybank IB has a buy on JTI with a fair value of RM5.30, and a hold on BRITISH AMERICAN TOBACCO (M) [] Bhd (BAT) with a fair value RM44.75.
“BAT might fare less well but should still offer decent dividend yields, of 8% to 9% gross dividend yields over 2009 to 2011,” it said.
Maybank IB noted that sales of tobacco were on the decline according to the players and the Confederation of Malaysian Tobacco Manufacturers. Industry sales volumes for 2Q09 fell by 13.8% year-on-year, its sharpest decline since 3Q06.
However, it pointed out that while sales were on the decline, total consumption of tobacco had not.
“The difference between the Big 3 (JTI, BAT and unlisted Philip Morris) tobacco sales and total consumption is made up of two components.
“First, sub-value local manufacturers that sell their products at below the price of the ‘Big 3’ value brands are contributing an increasing proportion to total consumption. Second, illicit sales including sales of smuggled cigarettes, counterfeit cigarettes and duty-not-paid cigarettes now make up to as much as 33% of total consumption,” it added.
At yesterday’s close, both JTI and BAT were unchanged at RM4.74 and RM45.56 respectively.
Personally, I don't smoke, so a ruling wouldn't have much of an effect on me. But what Maybank is saying does make sense with consumption being relatively unaffected. The government could probably raise taxes quite a bit. In the sense that tourism might be affected, I think that alcohol prices are much more a factor than cigarettes. For instance, a tourist can buy a carton of cigarettes and it would probably last him 10 days at a pack a day compared to alcohol which is large and can't be carried around so easily.
Share prices on Bursa Malaysia, particularly blue chips, rose strongly on Tuesday, Sept 8 with the FBM KLCI closing above the psychologically important 1,200-level for the first time this year.
There were no major leads from overseas, where Wall Street was closed for the Labour day holiday on Monday. Regional markets were generally steady on Tuesday, although with more modest gains.
Investor confidence has been boosted recently by China’s strong stock market recovery over the last week after earlier sharp falls, and Wall Street’s relative resilience – and indeed ability to chart continued gains – despite having risen substantially over the past few months.
Even last week’s August US poor jobs report – where unemployment unexpectedly rose to a 26-year high of 9.7% did little to dampen sentiment as investors looked towards the broad range of US economic indicators, which point to a recovery in process, especially in the manufacturing and housing sectors.
Nonetheless, a weak labour market suggest US consumer spending, which accounts for 70% of the economy and much of Asia’s exports, will remain weak. Similarly for the strength of the economic recovery ahead – even though the recession is likely over.
On Tuesday, the FBM KLCI was in positive territory throughout the day, with much of the gains coming in after 3pm. The index closed 11.7 points higher at 1,202.1. Gainers beat losers by a roughly 3-to-2 ratio on volume of 791 million shares.
Blue chips were the centre of attention, and accounted for most of the actively traded stocks. These include Genting Malaysia, Axiata, Gamuda, YTL Power, Genting and AMMB. Genting Malaysia’s shares saw active trading on news that its integrated casino resort in Singapore will open ahead of schedule, in 1Q2010 although some expect it to open at the end of this year.
Major gainers include Sime Darby, Proton, Tanjong plc and IOI Corp. Losers include Padini and NCB.
The FBM KLCI could hit 1300. You could take the risk, but the risk/reward scenario is dwindling in favor of little reward for a lot more downside risk. A gambling man would tell you to take some money off the table.
RETAILER and mall operator AEON Co (M) Bhd (6599) has scrapped its plan to set up a property trust, one of the company's options to raise funds, as it has enough cash to expand.
Managing director Nagahisa Oyama said it has enough money in its coffers to grow its business without having to raise funds.
"AEON has money to open two to three outlets each year ... so we do not need to do a REIT (real estate property trust)," Oyama told Business Times in an interview.
Companies with a lot of assets can form a REIT as a way to raise funds. Typically, they sell some of their assets to the REIT which in turn will raise funds from an initial public offering.
As at June 30 2009, AEON has RM33.3 million in cash. The group has also seen its net profit growing each year for the last five years. For the year ended December 31 2008, it made a net profit of RM120.6 million on revenue of RM3.43 billion.
AEON chairman Datuk Abdullah Mohd Yusof first announced that it was looking at a REIT as an option in April 2007.
However, in 2008 the company said that it was in no rush to set up the REIT as it thought the local property trust market was still in its infancy.
AEON continued to keep tabs on the industry and was also studying the REIT.
It identified seven properties valued at about RM700 million to be sold to the trust vehicle. Four of the properties are located in the Klang Valley namely Alpha Angle Shopping Centre in Kuala Lumpur, Jusco Metro Prima Shopping Centre in Kepong and Aeon Cheras Selatan Shopping Centre and Bukit Raja Shopping Centre in Klang.
Two outlets are in Johor - Jusco Taman University Shopping Centre and AEON Tebrau City Shopping Centre. The seventh outlet is Jusco Melaka Shopping Centre.
In 2008, its property management division made an operating profit of RM62.17 million and a revenue of RM308.86 million.
Today, it operates 25 outlets, four of which are MaxValu supermarkets. About 10 shopping centres, where the 21 Jusco department store-cum-supermarkets operate, are owned by AEON.
It will also own two of the three new confirmed store openings - the Mahkota Cheras and Bandar Permaisuri. It will lease the space in Bandaraya Melaka.
Why not realize value for these assets? It's not about having enough cash to grow the business but returning capital back to shareholders. If the assets are mature and can realize close to their full value, it is a good thing to proceed with the REIT. The market currently is on good footing to handle quality IPOs. For instance, take the recent successful listing of Handal Industries.
I believe AEON's portfolio of properties is a little bloated at 25 outlets and could use some pruning.
AmResearch has downgraded YTL POWER INTERNATIONAL BHD [] (YTLP) from Hold to a Sell with a lower sum-of-parts (SOP) based fair value of RM2.05 a share on concerns over funding risks for the group's WiMax investment.
The research house also said YTLP's share price had risen 25% over the past 12 months and outperformed the 30-stock FBM KLCI by 17%.
"We have lowered our FY10F-FY12F earnings by 6%-7% to impute potential losses arising from the new start-up wireless broadband service (WiMAX - worldwide interoperability for microwave access).
AmResearch said while it was generally comfortable with the group's existing operations in power generation and water/waste management services after a meeting the YTLP management recently.
"But we were surprised by the possibility that YTLP may be used as a vehicle to fund the group's venture into WiMax," it said.
In June this year, YTLP made an inconspicuous announcement that the company was buying a 60% stake in YTL Communications Sdn Bhd (formerly known as Y-Max Infra Sdn Bhd) for a mere RM300,000 - from YTL E-SOLUTIONS BHD [].
YTL group plans to invest RM2.5 billion over a five-year period on launching its WiMax service - with RM1bil to be spent over the first year.
"While no further financial details have been revealed yet, we note that YTLP's capex plans are two times more than Green Packet's proposed outlay of RM1 billion over four years," it said.
AmResearch said it believed the higher capex is earmarked for a greater number of base stations throughout the country to ensure that its WiMax services provide faster access and wider coverage.
Hence, the group likely needs the cash from YTLP to fund the WiMax rollout given YTLE's minimal resources.
"In our view, this is a negative development as YTLP will be extending its business - which provides stable recurring income streams - to uncertain revenues of a TECHNOLOGY [], which has yet to fully kick-off even in developed countries.
"Clearwire Wireless - YTL's technology partner - and Nextwave are currently loss-making and registering negative EBITDA. Green Packet,the first to introduce WiMax in Malaysia, is also suffering losses currently.
"Even with the potential cash outlay, we note that the group's free cashflow of RM2 billion annually could comfortably service its annual dividend payout of around RM500 million. But the potential of a slower than expected take-up or any cost overruns in its WiMax services could possibly constrain the group's acquisitive growth strategy over the longer term," it said.
YTL power is sitting on a good thing in the power infrastructure business. WiMax is untested and has to compete with competitions from mobile operators. They should look to acquire what they know.
If they are looking to inject a little higher growth in its revenues, they should find a business with a little more risk reward and buy something that is tested. It is very cheap to buy companies at this point in time. There are plenty of cyclical industries right now which will benefit in a recovery and are cheap now. Best of all, they have predictable revenue streams that are tried and tested over time. YTL power shows no sensibility in regards to the WiMax venture.
“The price of RM1.80 for RON95 will be capped at this level for the rest of the year,’’ Zain told StarBiz, referring to a statement earlier by Minister Datuk Seri Ismail Sabri Yaakob. “It moves within an active price range, depending on the price trend of oil gauged over a one-month period.’’
All this while, consumers have been using RON97 which is too powerful for cars today. “Take a look at car manuals and one will often find that RON95 is recommended,’’ said Zain, adding that RON97 had stronger ingredients that were more suitable for higher powered cars.
RON (research octane number) measures the octane quality of fuel. It refers to the fuel’s ability to resist premature and uncontrolled combustion that occurs when fuel pre-ignites before ignition by the spark plug.
The newly-introduced RON95 fuel is priced at RM1.80, five sen higher than that of RON92, which is leaded petrol. Concurrently, RON97 has been upgraded as a premium product and its price has gone up to RM2.05 from RM1.80.
Ismail had said at a press conference on Tuesday although the price of RON95 was higher, the Government was still subsidising 33.81 sen per litre, which comes up to about RM304mil monthly.
Currently, the Government is subsidising 42.72 sen per litre for RON97.
While consumers who were using RON92 are required to pay more when they upgrade to RON95, those using RON97 and are able to downgrade to RON95 will save 25 sen per litre.
The Ron95 petrol appears to be less powerful and therefore might result in better mileage. But under the mask of the new petrol, the government is using the confusion to raise the price of gasoline and cutting off more subsidies. I'm not too sure if it's a good idea to raise prices and pass it off as a new petrol mixture. We'll have to see if people are fooled by this. I don't think they are.
The Quek family, who is a major shareholder of Multi Sports Holdings Ltd, has sold off a chunk of its equity stake in the Chinese shoe sole-maker.
According to filings to Bursa Malaysia last Friday, the Quek family, via its Cayman Islands incorporated vehicle GuoLine Group Management Co Ltd, had disposed of a 3.6% stake comprising 12.97 million shares in Multi Sports on Aug 24.
The Quek family had held about 15% of the company before selling down the shares. It now owns about 11.4% stake or 41.03 million shares in Multi Sports.
It is not known why the family decided to sell down its stake in the company.
Yesterday, Multi Sports fell to a historical low of 55 sen since its debut of 85 sen on Aug 19. At its debut, Multi Sports closed 10% down to 76.5 sen from its offer price of 85 sen.
Multi Sports, which operates in Jinjiang city in Fujian province, was the second direct listing of a Chinese company on Bursa Malaysia Securities on Aug 19, following the first by Xingquan International Sports Holdings Ltd on July 10 this year.
According to its prospectus, Multi Sports is one of the five largest shoe sole-makers in Jinjiang currently, with a 1,929-strong workforce, of whom 64% or 1,241 are skilled workers.
The group has 300 customers, including Guohui, 361 degrees and Xdlong, owners of well-known local sports shoe brands. Between 2005 and 2008, its annual production grew from about 4.9 million to 22.1 million pairs of shoe soles, with some 300 designs across four main product lines.
Both Multi Sports and Xingquan have seen their shares spiralling on a downtrend since being listed. Since listing, Xingquan’s share price has fallen 22.8% to close at RM1.38 yesterday from its offer price of RM1.78. Multi Sports has fallen 35.3% to 55 sen yesterday.
Currently, Xingquan and Multi Sports are trading at a price earnings ratio (PER) of four times, which is about half the PER of shoemakers listed on the Singapore and Hong Kong stock exchanges.
Industry observers said Chinese companies’ listings had not been as well received by investors here as initially thought they might be. One of the reasons was because investors here lacked understanding of the Chinese market, an industry observer said.
Chinese stocks are prone to the Chinese markets. The major problem now is that Chinese stocks have run quite high compared to what they should be. In fact, most stocks in China are down from their peak by some 20%. Of course Chinese stocks listed in Malaysia will trade a discount in step with Chinese markets.
I doubt that Chinese stocks will add a lot of mix to the KLSE. Also it depends what kind of mix you would like. If you'd like stability, I doubt these stocks will do that. I'd argue KLCI needs a mix of companies which have more stable earnings and revenues. The stock exchange needs more stable companies, not riskier ones. Chinese stocks are notoriously speculative.
Perhaps if the Chinese companies in the Malaysia market had more of an attractive growth story, they would be a success, but a shoe manufacturer and second tier sports brand isn't exactly what most people would call attractive.
Penang recorded inflow of investments of only RM1.3 billion in the January-June period this year, as investors turned cautious about the fallout of the global financial crisis.
This was a stark contrast to the RM10.3 billion recorded for the 12 months in 2008.
InvestinPenang Bhd chairman of the executive committee Datuk Lee Kah Choon said on Sept 1 the plunge in investments had to be viewed in a wider perspective and the flow of investments in other countries.
Lee said there were investors still adopting a wait-and-see attitude as it was unclear if the financial meltdown was finally over.
The 1.3 billion, annualized is roughly 75% decline from last year. It goes to show that the fixed investment portion of investment in Penang is huge and extremely vulnerable to the world recession. The island's economy can't survive on consumption and services alone. It still requires massive investment from individuals. Another down year like this, I imagine asset prices will start to crumble.
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