Published August 15, 2008
Thai Beverage profit flat at 2.4b baht
By NISHA RAMCHANDANI
Email this article
Print article
Feedback
THAI Beverage Public, Thailand's largest brewer and distiller, has posted a flat profit of 2.39 billion baht (S$99.5 million) for the second quarter ended June 30.
Expanding into Europe: The company's Chang Beer was launched in the UK this year
Revenue for the quarter grew by 5 per cent from 23.15 billion baht in the previous corresponding quarter to 24.34 billion baht, mainly due to higher sales revenue from the spirits business.
Earnings per share (EPS) for 2Q08 came to 0.10 baht, up slightly from 0.09 baht previously.
An interim dividend amounting to 0.12 baht per share will be paid out on Sept 11.
For the first six months of the year, net profit dipped 5 per cent to 5.02 billion baht, while revenue increased by 4 per cent to 51.1 billion baht.
For 1H08, spirits contributed 56 per cent of sales, while beer accounted for 42 per cent and both the non-alcoholic beverage and industrial alcohol segments comprised one per cent each.
Sales revenue for beer dipped nearly 8 per cent in the first half due to weaker sales.
While sales volume for spirits fell, an increase in price to cover a 1.5 per cent excise tax helped to offset the smaller volume which resulted in a 9.8 per cent increase in sales revenue.
The company expanded its non-alcoholic beverage segment through the acquisition of assets from a Thai company for producing energy drinks and ready-to-drink coffee. The business started in 1Q08. As such, the segment registered sales of 365 million baht for 1H08.
Its industrial alcohol business saw a growth in sales to 757 million baht on the back of higher sales volume of ethanol. However, there was still a net loss due to the increase of idle costs as a result of lower production.
Thai Beverage also launched a new scotch whiskey this year in Thailand, 'specially designed with the Asian market in mind', said Richard Jones, head of investor relations.
Thai Beverage's Chang Beer was launched in the UK this year, while Mekhong beer was launched in Sweden in February. Thai Beverage has plans for further expansion into Europe.
Saturday, 16 August 2008
Published August 15, 2008
A good second quarter for rig-building giants
By VINCENT WEE
Email this article
Print article
Feedback
BASED on the numbers, the second-quarter results season ended on a high note for the three biggest locally listed players in the rig-building market. Keppel Offshore and Marine (KOM) parent Keppel Corp, Sembcorp Marine (Sembmarine) and Cosco Corp (Singapore) all reported solid revenue and earnings.
At a macro level, the riskiest undercurrent threatening the rig giants is cost inflation.
Keppel, Sembmarine and Cosco posted 16 per cent, 51 per cent and 60 per cent year-on-year earnings increases to $299.3 million, $128.3 million and $128.7 million respectively. KOM's $117 million gain was a 21 per cent increase over the previous year.
Revenue growth was also strong for two of the three offshore and marine (O&M) players. Sembmarine's turnover rose by a third to $1.39 billion and Cosco's doubled to $1.05 billion. Keppel's revenue rose just 8 per cent to $2.64 billion, although as an absolute figure this was about double that of the other two players. Stripped out, KOM's $1.8 billion revenue was almost flat versus the $1.7 billion in the previous corresponding period.
Order flow also remains good. Keppel reported a $13 billion net order book as at end-June with deliveries stretching out to 2012. Sembmarine said net orders stand at $9.6 billion with deliveries also extending till 2012. Cosco, meanwhile, said it has US$7.4 billion in orders for deliveries up to 2011.
But lurking just below the surface are several undercurrents that could drag down the high-flying rig giants. At a macro level, the riskiest of these is cost inflation. While the managements of all three groups tried to address these concerns to some degree, real guidance on margin and profit impact down the track was lacking.
Keppel simply pointed to its improved operating margins of 10 per cent, which it expected to maintain in the second half and noted that many of the jobs in its order pipeline are based on their proprietary designs which 'provide us with greater flexibility to meet customers' requirements, thereby enabling us to optimise on our yards' facility and manage tight supply chains'.
Sembmarine management said it locks in its steel requirements as soon as a contract is signed and the hedged price of the key raw material is factored into the contract price right from the outset. A key question from analysts at the results briefing that was not satisfactorily answered, however, was how they were able to hedge for orders meant to be delivered as far as four years forward.
Cosco, meanwhile, came clean with the most frank revelation of its year ahead. The China-based group acknowledged the 'unrelenting inflationary pressures and weak US dollar' it faces and revealed that it has hedged its steel needs only till the first half of next year. Cosco proposes to boost margins by 'keeping a tight grip on costs through operational efficiencies' and also factoring rising labour and steel costs in its pricing for future projects as well as diversifying its forex exposure by quoting future contracts in either yuan or euros as well.
The other question on the tip of all tongues was that of order cancellations in the light of recent cancellations at the big Korean yards. All three groups resolutely denied any problems on this account, universally citing their client base of 'reputable' companies.
Earlier reports have, however, said that the cancellation of the eight boxship order at the world's third-largest shipyard - Daewoo Shipbuilding and Marine Engineering - was from German container line company NSB.
Moving on to the individual level, each of the groups has niggling issues as well. Keppel has remained relatively the most trouble-free but a sudden eruption of client-related problems potentially worth about 200 million euros (S$419 million) at its Keppel Verolme yard in Holland has now cast a shadow over the second half.
The fate of a 140 million euro floating heavy lifter project for Norway's MPU Offshore Lift remains unknown after the company filed for bankruptcy in early July while just the week before this, Keppel announced a 65.4 million euro variation order dispute with Fred Olsen Energy unit Blackford Dolphin.
Sembmarine, meanwhile, continues to have the ongoing dispute with BNP Paribas over unauthorised transactions at its Jurong Shipyard unit hanging over its head. BNP's claim for US$50.7 million has not been recognised on the books and is disclosed as a contingent liability.
Cosco, already reeling from worries about further order cancellations after disclosing a US$202 million rig order cancellation from Red Flag, did itself no favours by announcing a sudden leadership change soon after releasing its results. Despite reassurances from management, concerns remain about both the motivation behind the change of leadership from Cosco stalwart Ji Hai Sheng to shipping line veteran Jiang Lijun and Mr Jiang's ability to hit the ground running on the shipyard operations. He was CEO of Cosco Shipping for six years before his current appointment.
Yesterday, Keppel stock closed 22 cents higher at $10.34, Sembmarine rose 14 cents to $3.84, while Cosco gained three cents to $2.35.
A good second quarter for rig-building giants
By VINCENT WEE
Email this article
Print article
Feedback
BASED on the numbers, the second-quarter results season ended on a high note for the three biggest locally listed players in the rig-building market. Keppel Offshore and Marine (KOM) parent Keppel Corp, Sembcorp Marine (Sembmarine) and Cosco Corp (Singapore) all reported solid revenue and earnings.
At a macro level, the riskiest undercurrent threatening the rig giants is cost inflation.
Keppel, Sembmarine and Cosco posted 16 per cent, 51 per cent and 60 per cent year-on-year earnings increases to $299.3 million, $128.3 million and $128.7 million respectively. KOM's $117 million gain was a 21 per cent increase over the previous year.
Revenue growth was also strong for two of the three offshore and marine (O&M) players. Sembmarine's turnover rose by a third to $1.39 billion and Cosco's doubled to $1.05 billion. Keppel's revenue rose just 8 per cent to $2.64 billion, although as an absolute figure this was about double that of the other two players. Stripped out, KOM's $1.8 billion revenue was almost flat versus the $1.7 billion in the previous corresponding period.
Order flow also remains good. Keppel reported a $13 billion net order book as at end-June with deliveries stretching out to 2012. Sembmarine said net orders stand at $9.6 billion with deliveries also extending till 2012. Cosco, meanwhile, said it has US$7.4 billion in orders for deliveries up to 2011.
But lurking just below the surface are several undercurrents that could drag down the high-flying rig giants. At a macro level, the riskiest of these is cost inflation. While the managements of all three groups tried to address these concerns to some degree, real guidance on margin and profit impact down the track was lacking.
Keppel simply pointed to its improved operating margins of 10 per cent, which it expected to maintain in the second half and noted that many of the jobs in its order pipeline are based on their proprietary designs which 'provide us with greater flexibility to meet customers' requirements, thereby enabling us to optimise on our yards' facility and manage tight supply chains'.
Sembmarine management said it locks in its steel requirements as soon as a contract is signed and the hedged price of the key raw material is factored into the contract price right from the outset. A key question from analysts at the results briefing that was not satisfactorily answered, however, was how they were able to hedge for orders meant to be delivered as far as four years forward.
Cosco, meanwhile, came clean with the most frank revelation of its year ahead. The China-based group acknowledged the 'unrelenting inflationary pressures and weak US dollar' it faces and revealed that it has hedged its steel needs only till the first half of next year. Cosco proposes to boost margins by 'keeping a tight grip on costs through operational efficiencies' and also factoring rising labour and steel costs in its pricing for future projects as well as diversifying its forex exposure by quoting future contracts in either yuan or euros as well.
The other question on the tip of all tongues was that of order cancellations in the light of recent cancellations at the big Korean yards. All three groups resolutely denied any problems on this account, universally citing their client base of 'reputable' companies.
Earlier reports have, however, said that the cancellation of the eight boxship order at the world's third-largest shipyard - Daewoo Shipbuilding and Marine Engineering - was from German container line company NSB.
Moving on to the individual level, each of the groups has niggling issues as well. Keppel has remained relatively the most trouble-free but a sudden eruption of client-related problems potentially worth about 200 million euros (S$419 million) at its Keppel Verolme yard in Holland has now cast a shadow over the second half.
The fate of a 140 million euro floating heavy lifter project for Norway's MPU Offshore Lift remains unknown after the company filed for bankruptcy in early July while just the week before this, Keppel announced a 65.4 million euro variation order dispute with Fred Olsen Energy unit Blackford Dolphin.
Sembmarine, meanwhile, continues to have the ongoing dispute with BNP Paribas over unauthorised transactions at its Jurong Shipyard unit hanging over its head. BNP's claim for US$50.7 million has not been recognised on the books and is disclosed as a contingent liability.
Cosco, already reeling from worries about further order cancellations after disclosing a US$202 million rig order cancellation from Red Flag, did itself no favours by announcing a sudden leadership change soon after releasing its results. Despite reassurances from management, concerns remain about both the motivation behind the change of leadership from Cosco stalwart Ji Hai Sheng to shipping line veteran Jiang Lijun and Mr Jiang's ability to hit the ground running on the shipyard operations. He was CEO of Cosco Shipping for six years before his current appointment.
Yesterday, Keppel stock closed 22 cents higher at $10.34, Sembmarine rose 14 cents to $3.84, while Cosco gained three cents to $2.35.
Published August 15, 2008
Weak £, absence of tax credits pull down CDL Q2 profit 15.1%
Group posts higher profit from property development, rental properties in Q2, H1
By KALPANA RASHIWALA
Email this article
Print article
Feedback
AMID a quieter property market, City Developments (CDL) yesterday posted a higher profit from property development and rental properties in second quarter and first half.
Attracting buyers: Artist's impression of South Beach, a CDL project being developed at Beach Road. About the project, Mr Kwek says: 'We already have people knocking on our door'
But the translation of earnings by its London-listed Millennium & Copthorne Hotels (M&C) at a weakening exchange rate of the pound against the Singapore dollar, plus the absence of substantial one-off tax credits enjoyed by M&C in Q2 last year, resulted in a 15.1 per cent year-on-year drop in Q2 net earnings to $165.2 million.
For the first half, CDL managed a 3 per cent year-on-year increase in net earnings to $330.1 million.
The first-half performance was 'better than the competition if you strip off their divestment gains and fair-value gains on investment properties', CDL managing director Kwek Leng Joo said at a results briefing yesterday.
Related links:
Click here for CDL's news release
Financial results
Presentation slides
CDL's bottom line is not affected by fair-value gains - or losses - on investment properties, since after adopting Financial Reporting Standard (FRS) 40, the group has continued to state these assets at cost less accumulated depreciation and impairment losses. Most other Singapore-listed property groups state investment properties at fair value, as allowed under FRS 40.
CDL also said yesterday it will enter into Singapore's first Islamic Sukuk-Ijarah unsecured financing arrangement, through a proposed $1 billion Islamic multi-currency medium-term notes programme, to tap new markets and investors. This product will provide the group with a 'diversified, alternative and non-traditional financing stream to further enhance its war chest', CDL said.
CIMB is arranging the facility.
CDL executive chairman Kwek Leng Beng told reporters: 'I have been approached by a lot of people in the Middle East to do an Islamic fund.'
On the Singapore residential front, CDL said it plans to launch 400 private homes here in H2 this year, subject to market conditions.
These homes comprise 200 units in the second phase of Livia, a 99-year leasehold condo at Pasir Ris, and 100 units each at The Arte at Thomson and The Quayside Collection at Sentosa Cove.
The group said it has achieved average prices of $1,500 to $1,600 per sq ft (psf) for Shelford Suites and $650-$670 psf for the first phase of Livia.
It also said its diversified land bank - comprising mass-market, mid-tier and high-end sites, amassed over the years at relatively low cost - allows it tailor launches to meet changes in market demands and conditions.
'Despite today's high development cost, the group has the option to price its launches competitively while maintaining healthy profit margins, or the option of waiting for the appropriate time to launch so as to maximise profits,' CDL said.
It also said it has begun construction of the hotel and residential components of The Quayside Collection at Sentosa Cove. However, it is under no pressure to launch the project, especially since its land cost was low.
'When the group decides to launch, it can book in more profits based on the stage of construction at the time of sales,' it said.
On the South Beach project being developed by a CDL-led consortium, Mr Kwek said: 'We already have people knocking on our door. Some of them are interested to buy one block, some are interested to buy one hotel, some interested to manage. We are in no hurry. Our priority is to look at the design and define it much better, and to how to value-engineer to bring the cost down.'
The group said it is confident of remaining profitable in the next 12 months.
Pre-tax profit from property development rose 10.5 per cent year on year for Q2 ended June 30 to $147.8 million. For the first half, it increased 27.4 per cent to $302.9 million.
Pre-tax earnings from rental properties - the group is a major office landlord and owns several malls - rose 76 per cent to $24.5 million in Q2 and 85 per cent to $49.6 million in H1.
However, pre-tax earnings from hotel operations dipped 15.4 per cent to $74 million in Q2 and 2.6 per cent to $126.1 million in H1, due mainly to the weakening of the pound and US dollar against the Singapore dollar.
Group revenue edged up 0.7 per cent to $780.8 million in Q2 but dipped 0.3 per cent to $1.5 billion in H1.
Weak £, absence of tax credits pull down CDL Q2 profit 15.1%
Group posts higher profit from property development, rental properties in Q2, H1
By KALPANA RASHIWALA
Email this article
Print article
Feedback
AMID a quieter property market, City Developments (CDL) yesterday posted a higher profit from property development and rental properties in second quarter and first half.
Attracting buyers: Artist's impression of South Beach, a CDL project being developed at Beach Road. About the project, Mr Kwek says: 'We already have people knocking on our door'
But the translation of earnings by its London-listed Millennium & Copthorne Hotels (M&C) at a weakening exchange rate of the pound against the Singapore dollar, plus the absence of substantial one-off tax credits enjoyed by M&C in Q2 last year, resulted in a 15.1 per cent year-on-year drop in Q2 net earnings to $165.2 million.
For the first half, CDL managed a 3 per cent year-on-year increase in net earnings to $330.1 million.
The first-half performance was 'better than the competition if you strip off their divestment gains and fair-value gains on investment properties', CDL managing director Kwek Leng Joo said at a results briefing yesterday.
Related links:
Click here for CDL's news release
Financial results
Presentation slides
CDL's bottom line is not affected by fair-value gains - or losses - on investment properties, since after adopting Financial Reporting Standard (FRS) 40, the group has continued to state these assets at cost less accumulated depreciation and impairment losses. Most other Singapore-listed property groups state investment properties at fair value, as allowed under FRS 40.
CDL also said yesterday it will enter into Singapore's first Islamic Sukuk-Ijarah unsecured financing arrangement, through a proposed $1 billion Islamic multi-currency medium-term notes programme, to tap new markets and investors. This product will provide the group with a 'diversified, alternative and non-traditional financing stream to further enhance its war chest', CDL said.
CIMB is arranging the facility.
CDL executive chairman Kwek Leng Beng told reporters: 'I have been approached by a lot of people in the Middle East to do an Islamic fund.'
On the Singapore residential front, CDL said it plans to launch 400 private homes here in H2 this year, subject to market conditions.
These homes comprise 200 units in the second phase of Livia, a 99-year leasehold condo at Pasir Ris, and 100 units each at The Arte at Thomson and The Quayside Collection at Sentosa Cove.
The group said it has achieved average prices of $1,500 to $1,600 per sq ft (psf) for Shelford Suites and $650-$670 psf for the first phase of Livia.
It also said its diversified land bank - comprising mass-market, mid-tier and high-end sites, amassed over the years at relatively low cost - allows it tailor launches to meet changes in market demands and conditions.
'Despite today's high development cost, the group has the option to price its launches competitively while maintaining healthy profit margins, or the option of waiting for the appropriate time to launch so as to maximise profits,' CDL said.
It also said it has begun construction of the hotel and residential components of The Quayside Collection at Sentosa Cove. However, it is under no pressure to launch the project, especially since its land cost was low.
'When the group decides to launch, it can book in more profits based on the stage of construction at the time of sales,' it said.
On the South Beach project being developed by a CDL-led consortium, Mr Kwek said: 'We already have people knocking on our door. Some of them are interested to buy one block, some are interested to buy one hotel, some interested to manage. We are in no hurry. Our priority is to look at the design and define it much better, and to how to value-engineer to bring the cost down.'
The group said it is confident of remaining profitable in the next 12 months.
Pre-tax profit from property development rose 10.5 per cent year on year for Q2 ended June 30 to $147.8 million. For the first half, it increased 27.4 per cent to $302.9 million.
Pre-tax earnings from rental properties - the group is a major office landlord and owns several malls - rose 76 per cent to $24.5 million in Q2 and 85 per cent to $49.6 million in H1.
However, pre-tax earnings from hotel operations dipped 15.4 per cent to $74 million in Q2 and 2.6 per cent to $126.1 million in H1, due mainly to the weakening of the pound and US dollar against the Singapore dollar.
Group revenue edged up 0.7 per cent to $780.8 million in Q2 but dipped 0.3 per cent to $1.5 billion in H1.
Published August 15, 2008
Sembcorp: potential versus delivery
By VINCENT WEE
Email this article
Print article
Feedback
FOR many years, leading local conglomerates Keppel Corp and Sembcorp Industries have been seen mainly as offshore and marine plays. While the sector still makes up the bulk of their revenue, a key difference is emerging in where the remaining portion comes from - which in turn is changing the revenue composition and the ensuing growth potential of the respective groups.
The perennial rivalry between the offshore arms of both means that they are almost neck and neck in terms of orders, although Keppel's full ownership of its Keppel Offshore and Marine subsidiary means it recognises all the revenue while Sembcorp has only a 60.9 per cent share of Sembcorp Marine. If the marine revenue is excluded from consideration, it soon becomes obvious that the next area of competition is in the infrastructure sector.
In the most recent first-half results, infrastructure made up 23 per cent of Keppel's revenue, rising more than three times to $1.1 billion, albeit from a relatively low base of $347 million previously. Sembcorp, meanwhile, attributed 47 per cent of turnover to its utilities operations and this rose 35 per cent to $2.2 billion from $1.7 billion.
There are some differences in the definitions of the respective divisions. Keppel's infrastructure division, for example, is divided into environmental engineering, power generation and logistics and network engineering, while Sembcorp's is simply broken up into energy and water.
While the list of projects each has is broadly similar, Semb- corp's greater proportion of (as well as amount of) revenue that comes from utilities suggests that if one were betting on energy and water infrastructure players, it is the purer play, especially in terms of the waste water industry. In the first half, about 40 per cent of profit and nearly half of revenue came from utilities. Keppel, in contrast, had just 5 per cent of profit and 23 per cent of revenue from its infrastructure division. While this is more than its property business, this has been relatively recent in the last half when property revenue plunged 40 per cent.
Looking ahead to future earnings, judging by the respective groups' growth plans in their second-quarter results presentations, Keppel remains firmly entrenched in its property-driven model while Sembcorp is clearly banking on the water solutions market. The latter has even set an earnings target of $40-50 million from water by 2013.
Although it seems that Keppel and Sembcorp are evolving into different animals, some of their characteristics remain. Somehow, Sembcorp just cannot seem to keep its nose clean. While first-half utilities revenue rose a healthy 35 per cent, profit dropped 20 per cent as what management called 'teething problems' at its various new projects did not produce the expected performance. Meanwhile Keppel's Merlimau cogen plant, which started up in the first half of last year, is already running at nearly full capacity and contributed significantly to a near tripling of infrastructure revenue.
With memories of the forex debacle at its Sembcorp Marine subsidiary still fresh in investors' minds, underperformance of any sort will continue to try their patience. Sembcorp's water strategy for future profits looks like a smooth-flowing one on paper. Management just needs to deliver on the potential.
Sembcorp: potential versus delivery
By VINCENT WEE
Email this article
Print article
Feedback
FOR many years, leading local conglomerates Keppel Corp and Sembcorp Industries have been seen mainly as offshore and marine plays. While the sector still makes up the bulk of their revenue, a key difference is emerging in where the remaining portion comes from - which in turn is changing the revenue composition and the ensuing growth potential of the respective groups.
The perennial rivalry between the offshore arms of both means that they are almost neck and neck in terms of orders, although Keppel's full ownership of its Keppel Offshore and Marine subsidiary means it recognises all the revenue while Sembcorp has only a 60.9 per cent share of Sembcorp Marine. If the marine revenue is excluded from consideration, it soon becomes obvious that the next area of competition is in the infrastructure sector.
In the most recent first-half results, infrastructure made up 23 per cent of Keppel's revenue, rising more than three times to $1.1 billion, albeit from a relatively low base of $347 million previously. Sembcorp, meanwhile, attributed 47 per cent of turnover to its utilities operations and this rose 35 per cent to $2.2 billion from $1.7 billion.
There are some differences in the definitions of the respective divisions. Keppel's infrastructure division, for example, is divided into environmental engineering, power generation and logistics and network engineering, while Sembcorp's is simply broken up into energy and water.
While the list of projects each has is broadly similar, Semb- corp's greater proportion of (as well as amount of) revenue that comes from utilities suggests that if one were betting on energy and water infrastructure players, it is the purer play, especially in terms of the waste water industry. In the first half, about 40 per cent of profit and nearly half of revenue came from utilities. Keppel, in contrast, had just 5 per cent of profit and 23 per cent of revenue from its infrastructure division. While this is more than its property business, this has been relatively recent in the last half when property revenue plunged 40 per cent.
Looking ahead to future earnings, judging by the respective groups' growth plans in their second-quarter results presentations, Keppel remains firmly entrenched in its property-driven model while Sembcorp is clearly banking on the water solutions market. The latter has even set an earnings target of $40-50 million from water by 2013.
Although it seems that Keppel and Sembcorp are evolving into different animals, some of their characteristics remain. Somehow, Sembcorp just cannot seem to keep its nose clean. While first-half utilities revenue rose a healthy 35 per cent, profit dropped 20 per cent as what management called 'teething problems' at its various new projects did not produce the expected performance. Meanwhile Keppel's Merlimau cogen plant, which started up in the first half of last year, is already running at nearly full capacity and contributed significantly to a near tripling of infrastructure revenue.
With memories of the forex debacle at its Sembcorp Marine subsidiary still fresh in investors' minds, underperformance of any sort will continue to try their patience. Sembcorp's water strategy for future profits looks like a smooth-flowing one on paper. Management just needs to deliver on the potential.
Published August 15, 2008
Property firms report weak set of Q2 numbers
Most developers see their business hit in 3rd and 4th quarters
By UMA SHANKARI
Email this article
Print article
Feedback
HIT by fewer home sales, lower revaluation gains from investment properties, drops in divestment gains - and even the stronger Singapore dollar - property companies largely reported weak results for the second quarter.
And the future doesn't look rosy either.
Most listed developers have warned that the global slowdown and weakening market could hit their business in the third and fourth quarters. Even the most upbeat are only 'cautiously optimistic'.
The big three developers - CapitaLand, City Developments and Keppel Land - all posted lower profits for Q2.
CapitaLand, Singapore's and South-east Asia's largest developer, said its Q2 profit fell 43.5 per cent to $515.2 million, partly due to lower revaluation gains from investment properties, lower portfolio gains and development profits, and the absence of previous write-back provisions. Analysts called the results disappointing.
City Developments saw Q2 net profit drop 15.1 per cent to $165.2 million. Among other factors, CityDev was hurt by the translation of its overseas hotels earnings at weakening exchange rates due to the strengthening Singapore dollar.
Keppel Land reported that Q2 profit fell 16.4 per cent to $52.7 million as it sold fewer homes in Singapore and abroad.
'I think the mood is generally very cautious, and this has hurt the developers,' said an analyst. 'The trend is likely to continue for the rest of the year.'
Right now, the fear is that sectors that are currently contributing strongly to top lines, such as hospitality, may soon start to weaken.
The Ministry of Trade and Industry's latest quarterly economic survey showed there are increasing signs that segments within services - including the retail trade and hotels - are showing slower growth.
Property stocks with exposure to those sectors - such as CapitaLand, CityDev and UOL Group, to name just a few - could see contributions from those divisions drop.
For UOL, for example, a 4 per cent increase in Q2 in revenue was due largely to hotel operations, with its hotels in Singapore, Australia and Vietnam performing better.
As for the residential market here, Citigroup has said prices of luxury homes could correct sharply, which could have a negative impact on some developers.
'Scrapping of the deferred payment scheme and tighter bank financing for investment properties may have also hurt property transactions, which are off some 70 per cent from recent highs,' Citi noted in a recent report. 'Some developers may have also over-committed in terms of land purchases during the boom periods.'
Citi analyst Wendy Koh expects a 20-30 per cent price correction for high-end properties from their recent peak, and reckons the mid-tier is likely to decline 10-20 per cent.
Property firms report weak set of Q2 numbers
Most developers see their business hit in 3rd and 4th quarters
By UMA SHANKARI
Email this article
Print article
Feedback
HIT by fewer home sales, lower revaluation gains from investment properties, drops in divestment gains - and even the stronger Singapore dollar - property companies largely reported weak results for the second quarter.
And the future doesn't look rosy either.
Most listed developers have warned that the global slowdown and weakening market could hit their business in the third and fourth quarters. Even the most upbeat are only 'cautiously optimistic'.
The big three developers - CapitaLand, City Developments and Keppel Land - all posted lower profits for Q2.
CapitaLand, Singapore's and South-east Asia's largest developer, said its Q2 profit fell 43.5 per cent to $515.2 million, partly due to lower revaluation gains from investment properties, lower portfolio gains and development profits, and the absence of previous write-back provisions. Analysts called the results disappointing.
City Developments saw Q2 net profit drop 15.1 per cent to $165.2 million. Among other factors, CityDev was hurt by the translation of its overseas hotels earnings at weakening exchange rates due to the strengthening Singapore dollar.
Keppel Land reported that Q2 profit fell 16.4 per cent to $52.7 million as it sold fewer homes in Singapore and abroad.
'I think the mood is generally very cautious, and this has hurt the developers,' said an analyst. 'The trend is likely to continue for the rest of the year.'
Right now, the fear is that sectors that are currently contributing strongly to top lines, such as hospitality, may soon start to weaken.
The Ministry of Trade and Industry's latest quarterly economic survey showed there are increasing signs that segments within services - including the retail trade and hotels - are showing slower growth.
Property stocks with exposure to those sectors - such as CapitaLand, CityDev and UOL Group, to name just a few - could see contributions from those divisions drop.
For UOL, for example, a 4 per cent increase in Q2 in revenue was due largely to hotel operations, with its hotels in Singapore, Australia and Vietnam performing better.
As for the residential market here, Citigroup has said prices of luxury homes could correct sharply, which could have a negative impact on some developers.
'Scrapping of the deferred payment scheme and tighter bank financing for investment properties may have also hurt property transactions, which are off some 70 per cent from recent highs,' Citi noted in a recent report. 'Some developers may have also over-committed in terms of land purchases during the boom periods.'
Citi analyst Wendy Koh expects a 20-30 per cent price correction for high-end properties from their recent peak, and reckons the mid-tier is likely to decline 10-20 per cent.
Published August 15, 2008
Bapepam indicates stricter position on Maybank-BII deal
By PAULINE NG
IN KUALA LUMPUR
Email this article
Print article
Feedback
THE impasse in Malayan Banking's proposed purchase of Bank Internasional Indonesia (BII) may take longer to resolve, judging from the recent sounds emanating from Indonesia which indicate a hardening in its stance.
Earlier this week, Indonesia's capital market regulator Bapepam confirmed it was in contact with the Malaysian central bank over the issue - which Bapepam chief Ahmad Fuad Rahmany acknowledged had become 'complex'. But he said the ball was in Bank Negara's court, and stated that Bapepam had little intention of making an exception for Maybank in applying its new rule.
In reports carried by Indonesian news portal detikfinance on Wednesday, Mr Fuad said Bapepam had made certain suggestions to Bank Negara after receiving a letter from it explaining the revocation of its earlier approval for Maybank to proceed with the BII buy, but declined to disclose the suggestions.
He stressed the new rule on takeovers would be implemented without exception, however, and any extension of the divestment period would be given only under certain circumstances as provided for under the regulation.
Because of Bapepam's introduction of a new takeover rule requiring the acquirer to sell 20 per cent of the acquired company within two years of the takeover, Bank Negara had withdrawn its approval citing possible losses by Malaysia's biggest financial group if it were forced to sell in that time frame. That plus impairment charges would have led to potential losses estimated at RM3.5 billion (S$1.5 billion).
Having already ruled out a rule waiver, Bapepam last week indicated a time extension might be possible, giving hope it was prepared to be flexible. But Mr Fuad's comments now suggest any extension would have to fall under already specified conditions, which according to reports are essentially emergency-type circumstances or if the Indonesian bourse suffers a major technical glitch.
Maybank management has met Bapepam on the matter but the bank and Bank Negara have declined to comment on the problem which could potentially further complicate the oftentimes prickly relations between the two countries.
Asked earlier this week if Bank Negara would agree to the deal if Maybank was given an extension, governor Zeti Akhtar Aziz replied: 'We don't discuss something that is in progress. When the transaction is completed successfully, we may comment.'
Although Ms Zeti was put on the spot, her choice of the word 'when' rather than 'if' appeared to suggest optimism that a solution was in sight.
Mr Fuad had said he wanted the issue resolved quickly but had maintained that the solution lies with Bank Negara. Tellingly, he had also observed that the Malaysians should have better protected themselves from possible market risks and reiterated Indonesia did not need to accede to Malaysian requests as 'it is they that need to follow our capital market rules because they are the ones that want to play here'.
If the deal is not completed by end-September, Maybank has said it could lose a RM480 million deposit to Fullerton Financial Holdings, a Temasek unit. In March, the bank had proposed to take over BII in a RM8.6 billion deal after it won a tender for Sorak Financial Holdings, which holds 55.5 per cent in BII. This would have been followed by a general offer for the rest of BII shares. Sorak is 75 per cent held by Fullerton, and the balance by Kookmin Bank of Korea.
Bapepam indicates stricter position on Maybank-BII deal
By PAULINE NG
IN KUALA LUMPUR
Email this article
Print article
Feedback
THE impasse in Malayan Banking's proposed purchase of Bank Internasional Indonesia (BII) may take longer to resolve, judging from the recent sounds emanating from Indonesia which indicate a hardening in its stance.
Earlier this week, Indonesia's capital market regulator Bapepam confirmed it was in contact with the Malaysian central bank over the issue - which Bapepam chief Ahmad Fuad Rahmany acknowledged had become 'complex'. But he said the ball was in Bank Negara's court, and stated that Bapepam had little intention of making an exception for Maybank in applying its new rule.
In reports carried by Indonesian news portal detikfinance on Wednesday, Mr Fuad said Bapepam had made certain suggestions to Bank Negara after receiving a letter from it explaining the revocation of its earlier approval for Maybank to proceed with the BII buy, but declined to disclose the suggestions.
He stressed the new rule on takeovers would be implemented without exception, however, and any extension of the divestment period would be given only under certain circumstances as provided for under the regulation.
Because of Bapepam's introduction of a new takeover rule requiring the acquirer to sell 20 per cent of the acquired company within two years of the takeover, Bank Negara had withdrawn its approval citing possible losses by Malaysia's biggest financial group if it were forced to sell in that time frame. That plus impairment charges would have led to potential losses estimated at RM3.5 billion (S$1.5 billion).
Having already ruled out a rule waiver, Bapepam last week indicated a time extension might be possible, giving hope it was prepared to be flexible. But Mr Fuad's comments now suggest any extension would have to fall under already specified conditions, which according to reports are essentially emergency-type circumstances or if the Indonesian bourse suffers a major technical glitch.
Maybank management has met Bapepam on the matter but the bank and Bank Negara have declined to comment on the problem which could potentially further complicate the oftentimes prickly relations between the two countries.
Asked earlier this week if Bank Negara would agree to the deal if Maybank was given an extension, governor Zeti Akhtar Aziz replied: 'We don't discuss something that is in progress. When the transaction is completed successfully, we may comment.'
Although Ms Zeti was put on the spot, her choice of the word 'when' rather than 'if' appeared to suggest optimism that a solution was in sight.
Mr Fuad had said he wanted the issue resolved quickly but had maintained that the solution lies with Bank Negara. Tellingly, he had also observed that the Malaysians should have better protected themselves from possible market risks and reiterated Indonesia did not need to accede to Malaysian requests as 'it is they that need to follow our capital market rules because they are the ones that want to play here'.
If the deal is not completed by end-September, Maybank has said it could lose a RM480 million deposit to Fullerton Financial Holdings, a Temasek unit. In March, the bank had proposed to take over BII in a RM8.6 billion deal after it won a tender for Sorak Financial Holdings, which holds 55.5 per cent in BII. This would have been followed by a general offer for the rest of BII shares. Sorak is 75 per cent held by Fullerton, and the balance by Kookmin Bank of Korea.
Published August 15, 2008
Independent power producers pay windfall tax
Capital markets, big bond issuers could take a hit if tax is not modified
By S JAYASANKARAN
IN KUALA LUMPUR
Email this article
Print article
Feedback
MALAYSIA'S independent power producers (IPPs) have begun paying a windfall tax after the federal government refused to modify it. Genting Sanyen, for example, made out a RM5.74 million (S$2.4 million) cheque to the government yesterday, implying a total annual bill in excess of RM60 million.
'The government never got back to us,' said Philip Tan, Genting's executive consultant, referring to reported talks between the IPPs and Kuala Lumpur over the tax. 'So we paid up rather than face penalties.'
On July 1, the government slapped a 30 per cent 'windfall' tax on any IPP whose return on assets exceeded 9 per cent in a financial year. But the tax is calculated without taking into account interest and finance costs - and the IPPs are some of Malaysia's biggest borrowers. Their outstanding bonds total RM34 billion, or 16 per cent of Malaysia's entire corporate bond market.
Unless it is modified, the tax - which is recurring and not one-off - could seriously hurt at least two IPPs, undermine the country's capital markets and damage the balance sheets of big bond issuers and investors like investment bank CIMB and the Employees Provident Fund (EPF).
CIMB chief executive Nazir Razak has warned that there will be 'unintended consequences'.
The two IPPs that will be most affected are Malakoff, the biggest, and Teknologi Tenaga Perlis Consortium (TTPC), mostly because one has been privatised and the other is in the process of being privatised.
Malakoff has been privatised by MMC, a listed company owned by tycoon Syed Mokhtar Al-Bukhary. TTPC is being taken private by Pesaka Ventures, an unlisted company with close links to the ruling United Malays National Organisation.
'Having company debt is one thing,' a senior IPP executive told BT. 'But shareholder debt is quite another because shareholders will be banking on dividend payouts from the IPPs to service their loans. With the windfall tax, that may no longer be possible.'
It isn't clear how much tax TTPC will have to pay, but analysts have estimated Malakoff's bill at RM270 million.
MMC raised more than RM11 billion to finance Malakoff's privatisation through bonds that pay as much as 8 per cent a year. Many of those bonds were bought by EPF, which is also a major shareholder in MMC. Analysts fear Malakoff could go into default if the windfall tax becomes permanent.
Pesaka Ventures announced an RM830 million plan to take over TTPC early this year. It is not clear whether this has been finalised. But bankers would certainly not be enthusiastic about funding such a massive buyout.
The bonds of the big three IPPs have been sold down, and trading in the secondary market is virtually non-existent. Big bond holders like CIMB and EPF could face huge mark-to-market losses.
Since 2004, the federal government has been trying to get IPPs to renegotiate their power purchase agreements with national utility Tenaga Nasional, many of which were seen to be lopsided against the state utility. But the private companies baulked, citing the sanctity of contracts.
The government did not push the issue - until now. With rising fuel and gas costs, IPPs were seen to be making obscene profits at state expense. So on July 1, the government gazetted the tax, causing an immediate uproar and, according to some sources, drawing protests from CIMB, EPF and even the central bank.
Independent power producers pay windfall tax
Capital markets, big bond issuers could take a hit if tax is not modified
By S JAYASANKARAN
IN KUALA LUMPUR
Email this article
Print article
Feedback
MALAYSIA'S independent power producers (IPPs) have begun paying a windfall tax after the federal government refused to modify it. Genting Sanyen, for example, made out a RM5.74 million (S$2.4 million) cheque to the government yesterday, implying a total annual bill in excess of RM60 million.
'The government never got back to us,' said Philip Tan, Genting's executive consultant, referring to reported talks between the IPPs and Kuala Lumpur over the tax. 'So we paid up rather than face penalties.'
On July 1, the government slapped a 30 per cent 'windfall' tax on any IPP whose return on assets exceeded 9 per cent in a financial year. But the tax is calculated without taking into account interest and finance costs - and the IPPs are some of Malaysia's biggest borrowers. Their outstanding bonds total RM34 billion, or 16 per cent of Malaysia's entire corporate bond market.
Unless it is modified, the tax - which is recurring and not one-off - could seriously hurt at least two IPPs, undermine the country's capital markets and damage the balance sheets of big bond issuers and investors like investment bank CIMB and the Employees Provident Fund (EPF).
CIMB chief executive Nazir Razak has warned that there will be 'unintended consequences'.
The two IPPs that will be most affected are Malakoff, the biggest, and Teknologi Tenaga Perlis Consortium (TTPC), mostly because one has been privatised and the other is in the process of being privatised.
Malakoff has been privatised by MMC, a listed company owned by tycoon Syed Mokhtar Al-Bukhary. TTPC is being taken private by Pesaka Ventures, an unlisted company with close links to the ruling United Malays National Organisation.
'Having company debt is one thing,' a senior IPP executive told BT. 'But shareholder debt is quite another because shareholders will be banking on dividend payouts from the IPPs to service their loans. With the windfall tax, that may no longer be possible.'
It isn't clear how much tax TTPC will have to pay, but analysts have estimated Malakoff's bill at RM270 million.
MMC raised more than RM11 billion to finance Malakoff's privatisation through bonds that pay as much as 8 per cent a year. Many of those bonds were bought by EPF, which is also a major shareholder in MMC. Analysts fear Malakoff could go into default if the windfall tax becomes permanent.
Pesaka Ventures announced an RM830 million plan to take over TTPC early this year. It is not clear whether this has been finalised. But bankers would certainly not be enthusiastic about funding such a massive buyout.
The bonds of the big three IPPs have been sold down, and trading in the secondary market is virtually non-existent. Big bond holders like CIMB and EPF could face huge mark-to-market losses.
Since 2004, the federal government has been trying to get IPPs to renegotiate their power purchase agreements with national utility Tenaga Nasional, many of which were seen to be lopsided against the state utility. But the private companies baulked, citing the sanctity of contracts.
The government did not push the issue - until now. With rising fuel and gas costs, IPPs were seen to be making obscene profits at state expense. So on July 1, the government gazetted the tax, causing an immediate uproar and, according to some sources, drawing protests from CIMB, EPF and even the central bank.
Published August 16, 2008
PAS holds back from endorsing Anwar outright
Email this article
Print article
Feedback
(IPOH) Malaysia's biggest Islamist party held back on declaring outright support for de facto Opposition leader Anwar Ibrahim in his bid to topple the ruling coalition, saying that he must first win a seat in Parliament.
The Parti Islam Se- Malaysia (PAS) national assembly, which started yesterday, had been expected to throw its weight behind Mr Anwar despite his looming trial on sodomy charges and concerns within the party that it was sacrificing its Islamic values.
Mr Anwar, who is due to run in a parliamentary by-election on Aug 26, has said that he will bring down Prime Minister Abdullah Ahmad Badawi's coalition by Sept 16 with the help of support from across the political spectrum.
'When he wins the by-election and there is a change (of government) in Parliament, we will discuss,' PAS president Hadi Awang told reporters when asked about his party's stand on Mr Anwar's bid for power.
Mr Anwar was charged with sodomy and granted bail by a court earlier this month, allowing him to campaign in the by-election on which he is staking his political future after an enforced 10-year absence.
Mr Anwar, 61, who has been imprisoned before on sodomy and corruption charges and who was barred from office until April this year, has denied the charge that he had sex with a 23-year-old male aide.
Yesterday, Mr Anwar downplayed the lack of a clear endorsement from the PAS, a key constituent of his rainbow coalition that also includes the ethnic Chinese-based Democratic Action Party.
'It is quite okay. It is normal for staunch supporters of PAS to want that,' he said when asked about calls from some PAS members for the party's president to lead the country instead.
The Islamist party's stand highlights the rift within the multi-ethnic opposition alliance which some analysts say could scuttle its efforts to take power from the coalition which has ruled Malaysia since independence from Britain.
Nasharudin Mat Isa, PAS deputy president, admitted that the party is split over its position in the alliance, which has 82 seats in Parliament against the government's 140, and party members felt that its Islamist agenda was being ignored.
'The sentiment is there . . . It looks as if it (PAS) has been sidelined,' Mr Nasharudin told reporters.
While PAS has the largest membership of the three opposition parties in Mr Anwar's coalition, it has the fewest MPs in Parliament with 23; and the party has struggled to establish itself outside its core areas of support due to its Islamist agenda.
'PAS is in a difficult position. They cannot really set the agenda. Structurally, they are following Anwar. The main worry is they can't control their destiny,' said Bridget Welsh, assistant professor of South-east Asian studies at Johns Hopkins University. -- Reuters
PAS holds back from endorsing Anwar outright
Email this article
Print article
Feedback
(IPOH) Malaysia's biggest Islamist party held back on declaring outright support for de facto Opposition leader Anwar Ibrahim in his bid to topple the ruling coalition, saying that he must first win a seat in Parliament.
The Parti Islam Se- Malaysia (PAS) national assembly, which started yesterday, had been expected to throw its weight behind Mr Anwar despite his looming trial on sodomy charges and concerns within the party that it was sacrificing its Islamic values.
Mr Anwar, who is due to run in a parliamentary by-election on Aug 26, has said that he will bring down Prime Minister Abdullah Ahmad Badawi's coalition by Sept 16 with the help of support from across the political spectrum.
'When he wins the by-election and there is a change (of government) in Parliament, we will discuss,' PAS president Hadi Awang told reporters when asked about his party's stand on Mr Anwar's bid for power.
Mr Anwar was charged with sodomy and granted bail by a court earlier this month, allowing him to campaign in the by-election on which he is staking his political future after an enforced 10-year absence.
Mr Anwar, 61, who has been imprisoned before on sodomy and corruption charges and who was barred from office until April this year, has denied the charge that he had sex with a 23-year-old male aide.
Yesterday, Mr Anwar downplayed the lack of a clear endorsement from the PAS, a key constituent of his rainbow coalition that also includes the ethnic Chinese-based Democratic Action Party.
'It is quite okay. It is normal for staunch supporters of PAS to want that,' he said when asked about calls from some PAS members for the party's president to lead the country instead.
The Islamist party's stand highlights the rift within the multi-ethnic opposition alliance which some analysts say could scuttle its efforts to take power from the coalition which has ruled Malaysia since independence from Britain.
Nasharudin Mat Isa, PAS deputy president, admitted that the party is split over its position in the alliance, which has 82 seats in Parliament against the government's 140, and party members felt that its Islamist agenda was being ignored.
'The sentiment is there . . . It looks as if it (PAS) has been sidelined,' Mr Nasharudin told reporters.
While PAS has the largest membership of the three opposition parties in Mr Anwar's coalition, it has the fewest MPs in Parliament with 23; and the party has struggled to establish itself outside its core areas of support due to its Islamist agenda.
'PAS is in a difficult position. They cannot really set the agenda. Structurally, they are following Anwar. The main worry is they can't control their destiny,' said Bridget Welsh, assistant professor of South-east Asian studies at Johns Hopkins University. -- Reuters
Published August 16, 2008
No respite for battered Malaysia property stocks: analysts
More pain to come from imminent interest rate hike, slowing economy
Email this article
Print article
Feedback
(KUALA LUMPUR) Malaysian property stocks have fallen more than 30 per cent this year due to domestic politics and inflation, but an imminent increase in interest rates is dashing any hopes of bargain hunting.
The country's property sector has also underperformed peers across South-east Asia, themselves hit by rising interest rates that have stemmed the flow of cheap money to finance a boom in the region's fast-growing economies.
'If the (regional) interest rate is still going up there's still some downside risk,' said Jason Chong, chief investment officer of Kuala Lumpur-based OSK-UOB Unit Trust Management, which manages the equivalent of US$1.15 billion. 'Right now we are underweight property stocks. We want to wait until we think the interest rate (cycle) is about to turn.'
Every central bank in South-east Asia, with the exception of Malaysia, has hiked rates in recent months.
Malaysia's inflation hit a 27-year high of 7.7 per cent in June and was expected to remain above 7 per cent in July and August. The country, a net exporter of petroleum, slashed fuel subsidies in June, causing a 41 per cent rise in retail petrol prices and a 63 per cent jump in diesel prices.
Malaysian politics has also been pretty turbulent in recent months, following the ruling coalition's worst ever performance in a general election in March, which hit local markets. Also, higher steel and building material costs have forced developers to put new projects on hold. Even the relaxation of foreign ownership rules and a flood of money for upscale office and residential projects in the central business district in Kuala Lumpur has failed to dispel the gloom.
Investment bank UBS said that it was far from clear that falling commodity prices would feed through to lower inflation and allow central banks to pause or even cut rates and thus stimulate the region's economies.
'It may be wrong to peg hope on the current downtrend in commodity prices sustaining and bringing inflation lower,' UBS said in a report published last week.
Malaysia's economy is officially projected to grow 5 per cent this year, slowing from 6.3 per cent last year, mirroring weakness across South-east Asia.
Malaysian property stocks have taken a beating and analysts warn of more pain for investors.
IOI Properties, Malaysia's top property firm by market value, has fallen 30 per cent this year and second-ranked SP Setia has dropped about 34 per cent, underperforming a 23 per cent loss on the benchmark index .
The two stocks could see more downside based on their valuations in previous crises such as the September 2001 attacks and the 2003 Sars crisis, Credit Suisse said in a research note.
IOI Properties trades at 10.7 times 2009 earnings, which is 22-26 per cent higher than the lows recorded in 2001 and 2003, while SP Setia's current PE of 12 times 2009 earnings is much higher than the seven times and 8.4 times in the crisis periods, Credit Suisse said. -- Reuters
No respite for battered Malaysia property stocks: analysts
More pain to come from imminent interest rate hike, slowing economy
Email this article
Print article
Feedback
(KUALA LUMPUR) Malaysian property stocks have fallen more than 30 per cent this year due to domestic politics and inflation, but an imminent increase in interest rates is dashing any hopes of bargain hunting.
The country's property sector has also underperformed peers across South-east Asia, themselves hit by rising interest rates that have stemmed the flow of cheap money to finance a boom in the region's fast-growing economies.
'If the (regional) interest rate is still going up there's still some downside risk,' said Jason Chong, chief investment officer of Kuala Lumpur-based OSK-UOB Unit Trust Management, which manages the equivalent of US$1.15 billion. 'Right now we are underweight property stocks. We want to wait until we think the interest rate (cycle) is about to turn.'
Every central bank in South-east Asia, with the exception of Malaysia, has hiked rates in recent months.
Malaysia's inflation hit a 27-year high of 7.7 per cent in June and was expected to remain above 7 per cent in July and August. The country, a net exporter of petroleum, slashed fuel subsidies in June, causing a 41 per cent rise in retail petrol prices and a 63 per cent jump in diesel prices.
Malaysian politics has also been pretty turbulent in recent months, following the ruling coalition's worst ever performance in a general election in March, which hit local markets. Also, higher steel and building material costs have forced developers to put new projects on hold. Even the relaxation of foreign ownership rules and a flood of money for upscale office and residential projects in the central business district in Kuala Lumpur has failed to dispel the gloom.
Investment bank UBS said that it was far from clear that falling commodity prices would feed through to lower inflation and allow central banks to pause or even cut rates and thus stimulate the region's economies.
'It may be wrong to peg hope on the current downtrend in commodity prices sustaining and bringing inflation lower,' UBS said in a report published last week.
Malaysia's economy is officially projected to grow 5 per cent this year, slowing from 6.3 per cent last year, mirroring weakness across South-east Asia.
Malaysian property stocks have taken a beating and analysts warn of more pain for investors.
IOI Properties, Malaysia's top property firm by market value, has fallen 30 per cent this year and second-ranked SP Setia has dropped about 34 per cent, underperforming a 23 per cent loss on the benchmark index .
The two stocks could see more downside based on their valuations in previous crises such as the September 2001 attacks and the 2003 Sars crisis, Credit Suisse said in a research note.
IOI Properties trades at 10.7 times 2009 earnings, which is 22-26 per cent higher than the lows recorded in 2001 and 2003, while SP Setia's current PE of 12 times 2009 earnings is much higher than the seven times and 8.4 times in the crisis periods, Credit Suisse said. -- Reuters
Published August 16, 2008
Wilmar shares fall despite reporting stellar Q2 results
Cautious outlook, analyst downgrades could be sell factors
By EMILYN YAP
Email this article
Print article
Feedback
PALM oil giant Wilmar International's triple-digit growth in second-quarter earnings failed to win over the market yesterday, as its shares fell 24 cents or 5.7 per cent to reach an intra-day low of $3.96.
The counter ended trading at $3.99 - 21 cents or 5 per cent down - with 10.5 million shares changing hands.
The group's cautious business outlook and downward revisions by analysts could have contributed to the sell-off.
Wilmar said in its press release on Thursday that commodity prices, including those for palm oil, have been sliding since early last month. 'Unless the price of crude oil spikes up again or the weather in the US deteriorates, palm oil prices are likely to remain subdued,' it cautioned. 'This is due to ample supply from both Malaysia and Indonesia and moderating demand for palm oil from a slowing global economy.'
The group reported a 227 per cent surge in second-quarter net profit to US$331.7 million from US$101.5 million.
The 'subdued' view on palm oil prices received a fair bit of attention at Wilmar's results briefing yesterday. Asked to elaborate, group chairman and CEO Kuok Khoon Hong said that he believed that prices would continue shifting, but to a smaller extent than in the earlier part of the year.
'I don't see a big run-up to the old levels. If it goes up, it won't go up sharply, but it might still come down a bit,' he said.
DBS Vickers yesterday downgraded its 'buy' call on the counter to 'hold', with a price target of $4.50. Credit Suisse also cut its target price for Wilmar from $5.40 to $4.80.
Wilmar said in its Thursday announcement that while the overall operating environment will be more challenging, the situation will offer new growth opportunities.
'We have the resources and financial strength to seize attractive new opportunities while continuing to pursue existing strategies,' said Mr Kuok.
Shedding more light on growth plans, Mr Kuok said yesterday that 'we're building a new refinery in Germany . . . also planning a new one in Spain. In Russia, we're going into crushing and refining . . . also planning a few more plants in some still confidential locations.'
Wilmar remains optimistic about achieving a satisfactory performance for the year. According to its release, 'while lower edible oil prices will affect plantation earnings, downstream businesses will benefit'. Also, 'the group's businesses in China are expected to perform well'.
Another commodity play, Noble Group, also saw a dive in its share price yesterday - dropping 5.3 per cent or 11 cents to close at $1.97.
Wilmar shares fall despite reporting stellar Q2 results
Cautious outlook, analyst downgrades could be sell factors
By EMILYN YAP
Email this article
Print article
Feedback
PALM oil giant Wilmar International's triple-digit growth in second-quarter earnings failed to win over the market yesterday, as its shares fell 24 cents or 5.7 per cent to reach an intra-day low of $3.96.
The counter ended trading at $3.99 - 21 cents or 5 per cent down - with 10.5 million shares changing hands.
The group's cautious business outlook and downward revisions by analysts could have contributed to the sell-off.
Wilmar said in its press release on Thursday that commodity prices, including those for palm oil, have been sliding since early last month. 'Unless the price of crude oil spikes up again or the weather in the US deteriorates, palm oil prices are likely to remain subdued,' it cautioned. 'This is due to ample supply from both Malaysia and Indonesia and moderating demand for palm oil from a slowing global economy.'
The group reported a 227 per cent surge in second-quarter net profit to US$331.7 million from US$101.5 million.
The 'subdued' view on palm oil prices received a fair bit of attention at Wilmar's results briefing yesterday. Asked to elaborate, group chairman and CEO Kuok Khoon Hong said that he believed that prices would continue shifting, but to a smaller extent than in the earlier part of the year.
'I don't see a big run-up to the old levels. If it goes up, it won't go up sharply, but it might still come down a bit,' he said.
DBS Vickers yesterday downgraded its 'buy' call on the counter to 'hold', with a price target of $4.50. Credit Suisse also cut its target price for Wilmar from $5.40 to $4.80.
Wilmar said in its Thursday announcement that while the overall operating environment will be more challenging, the situation will offer new growth opportunities.
'We have the resources and financial strength to seize attractive new opportunities while continuing to pursue existing strategies,' said Mr Kuok.
Shedding more light on growth plans, Mr Kuok said yesterday that 'we're building a new refinery in Germany . . . also planning a new one in Spain. In Russia, we're going into crushing and refining . . . also planning a few more plants in some still confidential locations.'
Wilmar remains optimistic about achieving a satisfactory performance for the year. According to its release, 'while lower edible oil prices will affect plantation earnings, downstream businesses will benefit'. Also, 'the group's businesses in China are expected to perform well'.
Another commodity play, Noble Group, also saw a dive in its share price yesterday - dropping 5.3 per cent or 11 cents to close at $1.97.
Published August 15, 2008
One man's panic is another's bargain...
CDL chief points to some good buys as panic-sellers offload, but he's not alarmed
By KALPANA RASHIWALA
Email this article
Print article
Feedback
(SINGAPORE) City Developments Ltd (CDL) executive chairman Kwek Leng Beng yesterday acknowledged that there have been some cases of high-end property buyers resorting to panic-selling in the secondary market. These are people who'd bought their units during the early stages of the property boom
Mr Kwek: The high-end homes sector will pick up when credit mess is over
'It is not as alarming as what some people think. Just bear in mind, because of a couple of transactions, these few swallows do not make a summer,' he told analysts and journalists at a briefing to announce CDL's second quarter results.
In some cases, these desperate sellers are offloading their units at prices that may be 20-30 per cent below current market values, providing attractive bargains for astute property investors, Mr Kwek said.
'There are what I call bargains because some buyers, towards Temporary Occupation Permit or even before TOP, just want to get out as long as they make $100 psf profit.
'As an example, there were some projects launched at $2,200 psf. Then (the price) went up to $3,400-3,500 psf. Today there are some people who have gotten so frightened, they will sell off at $1,700 psf. That is the time, if you are smart enough, you can pick up (a bargain)! Buying property is not short term. Buying property is medium to longer term.'
High-end home prices are in a period of consolidation after a sharp escalation. 'What has gone up in a straight line will also come down,' as Mr Kwek put it.
'My key advice to you is as long as you can service your instalment and with the (current) cost of construction so high, how can you be worse off than during the bad times in '96 and '97? If you are smart enough to pick up (a property) when some people want to commit suicide, you just pick (it) up cheap - keep it, rent it, stay - there's your chance.'
Saying he was not too worried about the current consolidation, he added: 'This is the time you should buy. This is not the time you should get out, unless of course circumstances dictate that you should get out.'
Regaling his audience with an anecdote, Mr Kwek said: 'For example, The Sail @ Marina Bay, we started selling at $900 psf, and the price went up to $3,000 psf-plus. The other day, somebody told me that his friend, a broker, said there's one unit, ninth floor, $1,800 psf. He asked me: 'Do you want to buy?' I said: 'Which unit? I want to check. I am going for a meeting. When I come back, we'll talk about it.' By the time I came back, the whole thing was gone.'
The high-end residential sector will recover 'when the sub-prime crisis is over and the integrated resorts are in operation', Mr Kwek said. 'You'll have a lot of high rollers coming in. They come in, they like Singapore - very clean, things get done. We have a lot of (positive) attributes but we're always taking them for granted.'
Mr Kwek, who is also chairman and managing director of Hong Leong Finance, said that although 'we don't have Freddie Mac and Frannie Mae' here, Asia will be hit to some extent by the sub-prime crisis. 'However, our banks are well capitalised. Monetary Authority of Singapore is monitoring closely.'
He also recalled Minister for National Development Mah Bow Tan's comments that 'they don't want to see property prices going (up) in a straight line nor do they want to see it going down in a straight line. So I am confident they are monitoring the whole situation'.
Much of CDL's land bank, even in the high-end, was acquired at relatively cheap cost. 'As an example, for the Lucky Tower site (at Grange Road), if I were to launch my project tomorrow at $2,500-$2,600 psf, I can still make very healthy profit compared to Cliveden (nearby) which we sold at $3,750 psf. It's a question of whether I want to let go at $2,500 psf or whether I should keep it.
'Don't forget if you go ahead and construct, you incur two sets of interest costs - on land and construction. By the time the market improves, the (unit) sizes and the design may be outdated, so you cannot maximise the profit from that. It's better to keep the land and wait for a better opportunity before you sell.
'I'm sure some (other) developers feel the same way. I will guarantee you many of these people will not go ahead with construction,' Mr Kwek said.
CDL, in its results statement, also cited other reasons why a feared oversupply of new private home completions may not materialise. Tight bank financing is making developers more cautious in their land purchases. The sharp hike in construction costs means developers who delay their launches may hold back their construction plans as well. Given tight construction resources, contractors may continue to find it hard to complete projects on schedule.
One man's panic is another's bargain...
CDL chief points to some good buys as panic-sellers offload, but he's not alarmed
By KALPANA RASHIWALA
Email this article
Print article
Feedback
(SINGAPORE) City Developments Ltd (CDL) executive chairman Kwek Leng Beng yesterday acknowledged that there have been some cases of high-end property buyers resorting to panic-selling in the secondary market. These are people who'd bought their units during the early stages of the property boom
Mr Kwek: The high-end homes sector will pick up when credit mess is over
'It is not as alarming as what some people think. Just bear in mind, because of a couple of transactions, these few swallows do not make a summer,' he told analysts and journalists at a briefing to announce CDL's second quarter results.
In some cases, these desperate sellers are offloading their units at prices that may be 20-30 per cent below current market values, providing attractive bargains for astute property investors, Mr Kwek said.
'There are what I call bargains because some buyers, towards Temporary Occupation Permit or even before TOP, just want to get out as long as they make $100 psf profit.
'As an example, there were some projects launched at $2,200 psf. Then (the price) went up to $3,400-3,500 psf. Today there are some people who have gotten so frightened, they will sell off at $1,700 psf. That is the time, if you are smart enough, you can pick up (a bargain)! Buying property is not short term. Buying property is medium to longer term.'
High-end home prices are in a period of consolidation after a sharp escalation. 'What has gone up in a straight line will also come down,' as Mr Kwek put it.
'My key advice to you is as long as you can service your instalment and with the (current) cost of construction so high, how can you be worse off than during the bad times in '96 and '97? If you are smart enough to pick up (a property) when some people want to commit suicide, you just pick (it) up cheap - keep it, rent it, stay - there's your chance.'
Saying he was not too worried about the current consolidation, he added: 'This is the time you should buy. This is not the time you should get out, unless of course circumstances dictate that you should get out.'
Regaling his audience with an anecdote, Mr Kwek said: 'For example, The Sail @ Marina Bay, we started selling at $900 psf, and the price went up to $3,000 psf-plus. The other day, somebody told me that his friend, a broker, said there's one unit, ninth floor, $1,800 psf. He asked me: 'Do you want to buy?' I said: 'Which unit? I want to check. I am going for a meeting. When I come back, we'll talk about it.' By the time I came back, the whole thing was gone.'
The high-end residential sector will recover 'when the sub-prime crisis is over and the integrated resorts are in operation', Mr Kwek said. 'You'll have a lot of high rollers coming in. They come in, they like Singapore - very clean, things get done. We have a lot of (positive) attributes but we're always taking them for granted.'
Mr Kwek, who is also chairman and managing director of Hong Leong Finance, said that although 'we don't have Freddie Mac and Frannie Mae' here, Asia will be hit to some extent by the sub-prime crisis. 'However, our banks are well capitalised. Monetary Authority of Singapore is monitoring closely.'
He also recalled Minister for National Development Mah Bow Tan's comments that 'they don't want to see property prices going (up) in a straight line nor do they want to see it going down in a straight line. So I am confident they are monitoring the whole situation'.
Much of CDL's land bank, even in the high-end, was acquired at relatively cheap cost. 'As an example, for the Lucky Tower site (at Grange Road), if I were to launch my project tomorrow at $2,500-$2,600 psf, I can still make very healthy profit compared to Cliveden (nearby) which we sold at $3,750 psf. It's a question of whether I want to let go at $2,500 psf or whether I should keep it.
'Don't forget if you go ahead and construct, you incur two sets of interest costs - on land and construction. By the time the market improves, the (unit) sizes and the design may be outdated, so you cannot maximise the profit from that. It's better to keep the land and wait for a better opportunity before you sell.
'I'm sure some (other) developers feel the same way. I will guarantee you many of these people will not go ahead with construction,' Mr Kwek said.
CDL, in its results statement, also cited other reasons why a feared oversupply of new private home completions may not materialise. Tight bank financing is making developers more cautious in their land purchases. The sharp hike in construction costs means developers who delay their launches may hold back their construction plans as well. Given tight construction resources, contractors may continue to find it hard to complete projects on schedule.
SATURDAY SOAPBOX
Fear of flying with Wi-Fi
It's goodbye to peace and sanity in the air if Delta's plan becomes widespread
By LEE U-WEN
CORRESPONDENT
Email this article
Print article
Feedback
WHENEVER I get the opportunity to travel - be it for work or play - one of the things I look forward to most is turning my mobile phone off and keeping it in my carry-on bag.
It's hard to describe the sheer relief at not having to deal with incoming calls or listen to the device beep because yet another wave of e-mails is streaming in - at least, until I turn the phone on again when I arrive at my destination.
So it was with some trepidation when I read earlier this week that US carrier Delta Air Lines confirmed that it would be introducing Wi-Fi access on some flights as early as October, before expanding the service to its entire domestic fleet of 330 planes by next year.
The first thing that popped into my mind was: Would the days of just reading your favourite paperback or taking a nap on board be replaced by whipping out your laptop for Web surfing and instant messaging?
Other carriers (including Qantas, American and Virgin) already have, or plan to introduce, Internet access on some of their planes, but Delta will be the first to turn its entire fleet into wireless hotspots.
While I can see things from an airline's point of view in using Wi-Fi as a much-needed source of additional revenue, I shudder to think what might happen to my sanity if I were to be seated on a flight, sandwiched between two people both typing furiously on their computers or Blackberries throughout the journey.
Now, while I'm the sort who has withdrawal symptoms if I don't get to use the Internet every day, I have always regarded aeroplanes as a sanctuary where I could enjoy a moment's peace, safe in the knowledge that I was completely uncontactable by the world below me.
Sure, some of us - especially business folk - will reason that having wireless access on a plane would be a productive use of their time, especially on long-haul trips, to clear e-mails and communicate with clients or family. Others will argue that watching clips on YouTube or 'poking' their friends on Facebook is much more appealing than the in-flight entertainment served up on some airlines.
For Wi-Fi in the sky to take off, however, prices have to be affordable - Delta is charging a one-time US$9.95 fee for flights less than three hours, and US$12.95 for longer journeys - and airlines must guarantee enough power outlets on board to charge those laptops and smartphones.
Thankfully, though, the buck stops - for now, at least - with making phone calls over the Internet using programs such as Skype, which airlines have indicated that they are not in favour of allowing.
I'm sure most would agree with me when I say that, on an already crowded plane, we would rather not put up with long, detailed discussions of Auntie Susan's latest holiday in Bintan, or how Peter in advertising has the hots for Tammy in corporate sales.
Flying is already such a drag these days, thanks to heightened security checks and numerous travel restrictions. The last thing I need is a seatmate who does nothing but yak and type.
Fear of flying with Wi-Fi
It's goodbye to peace and sanity in the air if Delta's plan becomes widespread
By LEE U-WEN
CORRESPONDENT
Email this article
Print article
Feedback
WHENEVER I get the opportunity to travel - be it for work or play - one of the things I look forward to most is turning my mobile phone off and keeping it in my carry-on bag.
It's hard to describe the sheer relief at not having to deal with incoming calls or listen to the device beep because yet another wave of e-mails is streaming in - at least, until I turn the phone on again when I arrive at my destination.
So it was with some trepidation when I read earlier this week that US carrier Delta Air Lines confirmed that it would be introducing Wi-Fi access on some flights as early as October, before expanding the service to its entire domestic fleet of 330 planes by next year.
The first thing that popped into my mind was: Would the days of just reading your favourite paperback or taking a nap on board be replaced by whipping out your laptop for Web surfing and instant messaging?
Other carriers (including Qantas, American and Virgin) already have, or plan to introduce, Internet access on some of their planes, but Delta will be the first to turn its entire fleet into wireless hotspots.
While I can see things from an airline's point of view in using Wi-Fi as a much-needed source of additional revenue, I shudder to think what might happen to my sanity if I were to be seated on a flight, sandwiched between two people both typing furiously on their computers or Blackberries throughout the journey.
Now, while I'm the sort who has withdrawal symptoms if I don't get to use the Internet every day, I have always regarded aeroplanes as a sanctuary where I could enjoy a moment's peace, safe in the knowledge that I was completely uncontactable by the world below me.
Sure, some of us - especially business folk - will reason that having wireless access on a plane would be a productive use of their time, especially on long-haul trips, to clear e-mails and communicate with clients or family. Others will argue that watching clips on YouTube or 'poking' their friends on Facebook is much more appealing than the in-flight entertainment served up on some airlines.
For Wi-Fi in the sky to take off, however, prices have to be affordable - Delta is charging a one-time US$9.95 fee for flights less than three hours, and US$12.95 for longer journeys - and airlines must guarantee enough power outlets on board to charge those laptops and smartphones.
Thankfully, though, the buck stops - for now, at least - with making phone calls over the Internet using programs such as Skype, which airlines have indicated that they are not in favour of allowing.
I'm sure most would agree with me when I say that, on an already crowded plane, we would rather not put up with long, detailed discussions of Auntie Susan's latest holiday in Bintan, or how Peter in advertising has the hots for Tammy in corporate sales.
Flying is already such a drag these days, thanks to heightened security checks and numerous travel restrictions. The last thing I need is a seatmate who does nothing but yak and type.
Published August 16, 2008
Buying an air ticket? Check the fuel surcharge
It can often exceed the actual economy airfare itself
By NISHA RAMCHANDANI
Email this article
Print article
Feedback
(SINGAPORE) When making travel plans these days, it would be prudent to check the fuel surcharges and taxes that accompany the ticket price. High oil prices have inflated fuel surcharges to the point where the add-ons for flights to cities such as Bangkok and Tokyo often exceed the actual economy airfare itself.
A check on the Malaysia Airlines website revealed that an economy flight to Bangkok would cost $310 for its super saver fare and $380 for its flex saver fare, while extras such as surcharges and taxes came to $407 each for both categories of fares.
A round-trip economy ticket to Bangkok aboard Thai Airways starts as low as $139, while the accompanying fuel surcharges and taxes total $279 - about twice the ticket price.
A travel agent from Chan Brothers has noticed a similar trend for other flights bound for Tokyo, Taiwan as well as some European countries, on Thai Airways and Malaysia Airlines.
For instance, a super saver ticket to Tokyo on Malaysia Airlines would come to about $480, but surcharges plus taxes would amount to $530.
In some cases, while extras may not exceed the airfares, the surcharges still add up to a hefty sum that is virtually comparable to the ticket price.
Airfare for a Los Angeles ticket aboard Japan Airlines would come to about $1,400 while add-ons are in the region of nearly $1,350. Roundtrip airfare to Kuala Lumpur on Singapore Airlines (SIA) is priced at $230, while taxes plus surcharges come to $171 - nearly three-quarters of the ticket price.
'We don't know what to expect,' said travel agent Ferdous Talib of Jesal Brothers Tours & Travel, pointing out that customers who book tickets today may see huge differences in prices when tickets are issued in the future.
Malaysia Airlines (MAS) executive director and chief financial officer Tengku Azmil Zahruddin said that while the airline does offer competitive fares where total surcharges may exceed airfares, the low fares make it a 'win-win situation for customers'.
Skyrocketing oil prices this year have been putting the squeeze on airlines, hitting the bottom line hard.
SIA's net profit for the April-June quarter fell 15.4 per cent year-on-year to $359 million on the back of higher fuel costs. This was in spite of a 14.1 per cent rise in revenue growth to $4.1 billion.
As such, airlines have been forced to revise fuel surcharges in an effort to manage rising costs.
SIA has raised fuel surcharges three times this year so far, with the most recent increase in June. Since last December, fuel surcharges for flights between Singapore and Asean countries have risen 54 per cent to US$40 per sector (from US$26 previously).
Thai Airways announced a marked increase in fuel surcharges from July 1, while Air Mauritius also announced last week revised fuel surcharges, with an increase of some 15 per cent for economy fares and 20 per cent for business class fares.
Unsurprisingly, the hikes haven't gone down well with customers, some of whom may be adopting a wait-and-see attitude, said Ms Talib.
And while oil prices have been sliding of late, this may not translate to lower fuel surcharges just yet.
'Decisions on fuel surcharge will be based on the movement of the fuel price over a period of time, rather than what could possibly be just a short-term decrease,' said Tengku Zahruddin, who added that fuel surcharges offer airlines only 'partial relief' from the price of jet fuel. MAS has hedged slightly more than 43 per cent of its fuel requirement for this year.
Buying an air ticket? Check the fuel surcharge
It can often exceed the actual economy airfare itself
By NISHA RAMCHANDANI
Email this article
Print article
Feedback
(SINGAPORE) When making travel plans these days, it would be prudent to check the fuel surcharges and taxes that accompany the ticket price. High oil prices have inflated fuel surcharges to the point where the add-ons for flights to cities such as Bangkok and Tokyo often exceed the actual economy airfare itself.
A check on the Malaysia Airlines website revealed that an economy flight to Bangkok would cost $310 for its super saver fare and $380 for its flex saver fare, while extras such as surcharges and taxes came to $407 each for both categories of fares.
A round-trip economy ticket to Bangkok aboard Thai Airways starts as low as $139, while the accompanying fuel surcharges and taxes total $279 - about twice the ticket price.
A travel agent from Chan Brothers has noticed a similar trend for other flights bound for Tokyo, Taiwan as well as some European countries, on Thai Airways and Malaysia Airlines.
For instance, a super saver ticket to Tokyo on Malaysia Airlines would come to about $480, but surcharges plus taxes would amount to $530.
In some cases, while extras may not exceed the airfares, the surcharges still add up to a hefty sum that is virtually comparable to the ticket price.
Airfare for a Los Angeles ticket aboard Japan Airlines would come to about $1,400 while add-ons are in the region of nearly $1,350. Roundtrip airfare to Kuala Lumpur on Singapore Airlines (SIA) is priced at $230, while taxes plus surcharges come to $171 - nearly three-quarters of the ticket price.
'We don't know what to expect,' said travel agent Ferdous Talib of Jesal Brothers Tours & Travel, pointing out that customers who book tickets today may see huge differences in prices when tickets are issued in the future.
Malaysia Airlines (MAS) executive director and chief financial officer Tengku Azmil Zahruddin said that while the airline does offer competitive fares where total surcharges may exceed airfares, the low fares make it a 'win-win situation for customers'.
Skyrocketing oil prices this year have been putting the squeeze on airlines, hitting the bottom line hard.
SIA's net profit for the April-June quarter fell 15.4 per cent year-on-year to $359 million on the back of higher fuel costs. This was in spite of a 14.1 per cent rise in revenue growth to $4.1 billion.
As such, airlines have been forced to revise fuel surcharges in an effort to manage rising costs.
SIA has raised fuel surcharges three times this year so far, with the most recent increase in June. Since last December, fuel surcharges for flights between Singapore and Asean countries have risen 54 per cent to US$40 per sector (from US$26 previously).
Thai Airways announced a marked increase in fuel surcharges from July 1, while Air Mauritius also announced last week revised fuel surcharges, with an increase of some 15 per cent for economy fares and 20 per cent for business class fares.
Unsurprisingly, the hikes haven't gone down well with customers, some of whom may be adopting a wait-and-see attitude, said Ms Talib.
And while oil prices have been sliding of late, this may not translate to lower fuel surcharges just yet.
'Decisions on fuel surcharge will be based on the movement of the fuel price over a period of time, rather than what could possibly be just a short-term decrease,' said Tengku Zahruddin, who added that fuel surcharges offer airlines only 'partial relief' from the price of jet fuel. MAS has hedged slightly more than 43 per cent of its fuel requirement for this year.
Published August 16, 2008
Ghost Month sneaks up on slow market
Home sales volume in July down 35% year-on-year, but does better month-on-month with 12% rise
By ARTHUR SIM
Email this article
Print article
Feedback
(SINGAPORE) One year after the onslaught of the US sub-prime mortgage crisis, the Singapore property market is still looking weak. And property consultants are expecting sales to slow further, exacerbated by the start of the Chinese Hungry Ghost Month.
'There are people who are willing to pay a premium for projects in very good locations and/or with strong attributes.'
- CB Richard Ellis Research executive director Li Hiaw Ho
According to developer sales figures from the Urban Redevelopment Authority (URA), new home sales fell about 35 per cent in July to 897 units on a year- on-year basis. This is also sharper than the 30 per cent year-on-year fall in June.
However, on a month- on-month basis, the July volume increased 12 per cent, largely attributed to the 1,322 new home units launched in the month - the highest since August 2007, when 1,885 units were launched.
The number of units launched in July was also 1.4 per cent higher compared to a year ago and about 20 per cent higher compared to the previous month.
But Knight Frank director of research and development Nicholas Mak notes that the ratio of new home sales to newly launched units increased to 1:1.47 compared to 1:0.9 a year ago and 1:1.33 in the previous month. He said: 'As a result, the stock of unsold homes in the developers' inventory will gradually increase.'
That the 897 new homes sold in July exceed the 10-year monthly average of about 680 units should bode well for the market. But Mr Mak says the ratio of new home sales to newly launched units suggests that take-up is not that healthy. 'It's like whether you choose to judge someone's health by his blood pressure or his temperature,' he added.
At end-December 2007, there were about 4,000 units of new homes ready for sale that had not been launched. This increased to more than 6,500 units in March and about 7,000 at end-July.
Still, Mr Mak points out that the healthy sales volume for July does suggest that 'there is underlying demand from owner-occupiers'.
This demand came for the Outside Central Region (OCR). Knight Frank notes that the 636 units launched in the OCR accounted for 48.1 per cent of launches in July.
The Core Central Region (CCR), in comparison, saw launches fall 40.7 per cent month-on-month and accounted for 9.9 per cent of all launches in the month.
Jones Lang LaSalle local director and head of research (South East Asia) Chua Yang Liang believes that looking at the islandwide take-up may not be an accurate reflection of the market.
Looking at the lowest price band of reported monthly median prices - 'because it is more reflective of the underlying market sentiment' - Dr Chua noted that in July, the CCR and OCR registered declines of 7 per cent and 23 per cent respectively (excluding projects with single transactions).
Dr Chua said the Rest of Central Region (RCR) appeared stable, registering a marginal increase of 2 per cent month-on-month in July to $560 per square foot.
The major launches in OCR include Livia, which sold at a median price of $671 psf while Kovan Residences sold at a median price of $882 psf. 'We reckon the price of $650-$850 psf is what the market is comfortable with at this point,' added Dr Chua.
CB Richard Ellis Research executive director Li Hiaw Ho reckons prices are still holding in some areas. 'In suburban areas such as Serangoon, Sengkang and Jurong, prices are observed to be holding at $800-$950 psf at The Florentine, Kovan Residences, Woodsville 28, $700-$800 psf at The Quartz, and $800-$900 psf at The Lakeshore,' he added.
Mr Li also noted that five units in The Hamilton Scotts transacted at $3,000-$3,676 psf and seven units in Nassim Park Residences were done at $2,600-$3,650 psf. Mr Li said: 'This shows that there are people who are willing to pay a premium for projects in very good locations and/or with strong attributes.'
Savills Singapore director of marketing and business development Ku Swee Yong believes that developers are also likely to continue with a 'wait and see' strategy regarding launches. 'Every month that a developer waits, there are new buyers entering the market,' he said.
Mr Ku was pleasantly surprised by the take-up in July too. He said: 'I think developers launching a total of between 1,000 and 1,500 units per month is sustainable.'
Ghost Month sneaks up on slow market
Home sales volume in July down 35% year-on-year, but does better month-on-month with 12% rise
By ARTHUR SIM
Email this article
Print article
Feedback
(SINGAPORE) One year after the onslaught of the US sub-prime mortgage crisis, the Singapore property market is still looking weak. And property consultants are expecting sales to slow further, exacerbated by the start of the Chinese Hungry Ghost Month.
'There are people who are willing to pay a premium for projects in very good locations and/or with strong attributes.'
- CB Richard Ellis Research executive director Li Hiaw Ho
According to developer sales figures from the Urban Redevelopment Authority (URA), new home sales fell about 35 per cent in July to 897 units on a year- on-year basis. This is also sharper than the 30 per cent year-on-year fall in June.
However, on a month- on-month basis, the July volume increased 12 per cent, largely attributed to the 1,322 new home units launched in the month - the highest since August 2007, when 1,885 units were launched.
The number of units launched in July was also 1.4 per cent higher compared to a year ago and about 20 per cent higher compared to the previous month.
But Knight Frank director of research and development Nicholas Mak notes that the ratio of new home sales to newly launched units increased to 1:1.47 compared to 1:0.9 a year ago and 1:1.33 in the previous month. He said: 'As a result, the stock of unsold homes in the developers' inventory will gradually increase.'
That the 897 new homes sold in July exceed the 10-year monthly average of about 680 units should bode well for the market. But Mr Mak says the ratio of new home sales to newly launched units suggests that take-up is not that healthy. 'It's like whether you choose to judge someone's health by his blood pressure or his temperature,' he added.
At end-December 2007, there were about 4,000 units of new homes ready for sale that had not been launched. This increased to more than 6,500 units in March and about 7,000 at end-July.
Still, Mr Mak points out that the healthy sales volume for July does suggest that 'there is underlying demand from owner-occupiers'.
This demand came for the Outside Central Region (OCR). Knight Frank notes that the 636 units launched in the OCR accounted for 48.1 per cent of launches in July.
The Core Central Region (CCR), in comparison, saw launches fall 40.7 per cent month-on-month and accounted for 9.9 per cent of all launches in the month.
Jones Lang LaSalle local director and head of research (South East Asia) Chua Yang Liang believes that looking at the islandwide take-up may not be an accurate reflection of the market.
Looking at the lowest price band of reported monthly median prices - 'because it is more reflective of the underlying market sentiment' - Dr Chua noted that in July, the CCR and OCR registered declines of 7 per cent and 23 per cent respectively (excluding projects with single transactions).
Dr Chua said the Rest of Central Region (RCR) appeared stable, registering a marginal increase of 2 per cent month-on-month in July to $560 per square foot.
The major launches in OCR include Livia, which sold at a median price of $671 psf while Kovan Residences sold at a median price of $882 psf. 'We reckon the price of $650-$850 psf is what the market is comfortable with at this point,' added Dr Chua.
CB Richard Ellis Research executive director Li Hiaw Ho reckons prices are still holding in some areas. 'In suburban areas such as Serangoon, Sengkang and Jurong, prices are observed to be holding at $800-$950 psf at The Florentine, Kovan Residences, Woodsville 28, $700-$800 psf at The Quartz, and $800-$900 psf at The Lakeshore,' he added.
Mr Li also noted that five units in The Hamilton Scotts transacted at $3,000-$3,676 psf and seven units in Nassim Park Residences were done at $2,600-$3,650 psf. Mr Li said: 'This shows that there are people who are willing to pay a premium for projects in very good locations and/or with strong attributes.'
Savills Singapore director of marketing and business development Ku Swee Yong believes that developers are also likely to continue with a 'wait and see' strategy regarding launches. 'Every month that a developer waits, there are new buyers entering the market,' he said.
Mr Ku was pleasantly surprised by the take-up in July too. He said: 'I think developers launching a total of between 1,000 and 1,500 units per month is sustainable.'
Thursday, 14 August 2008
Published August 14, 2008
Malaysian bond yields rise to 2-year high at auction
Email this article
Print article
Feedback
(SINGAPORE) Malaysia sold RM3.5 billion (S$1.48 billion) of five-year Islamic bonds at the highest yield in more than two years as investor demand waned.
The government issued the notes due February 2014 at an average yield of 4.273 per cent at an auction in Kuala Lumpur, Bank Negara Malaysia said on its website.
That was its highest cost to sell five-year securities since it issued them at 4.635 per cent in July 2006. The notes yielded 4.27 per cent before bidding closed at 11:30am in Kuala Lumpur.
'The sale suffered from a poor response, probably because it was limited to local banks,' said Noor Azman Mohamed, a bond trader at Affin Investment Bank Bhd in Kuala Lumpur.
'There are still issues with recent currency weakness' that are deterring foreign buyers, he said.
Malaysian government bonds handed investors a loss of 0.1 per cent this month, after gaining 0.8 per cent in July, according to an index compiled by HSBC Holdings Plc.
The ringgit on Tuesday touched the lowest since December after an eight- day slide, its longest losing streak since a peg to the dollar was scrapped in July 2005.
Investors submitted bids for 1.59 times the amount of debt on offer, according to the central bank, which conducts auctions on behalf of the treasury.
The average so-called bid-cover ratio was 1.94 times in 10 previous auctions of various maturities this year. - Bloomberg
Malaysian bond yields rise to 2-year high at auction
Email this article
Print article
Feedback
(SINGAPORE) Malaysia sold RM3.5 billion (S$1.48 billion) of five-year Islamic bonds at the highest yield in more than two years as investor demand waned.
The government issued the notes due February 2014 at an average yield of 4.273 per cent at an auction in Kuala Lumpur, Bank Negara Malaysia said on its website.
That was its highest cost to sell five-year securities since it issued them at 4.635 per cent in July 2006. The notes yielded 4.27 per cent before bidding closed at 11:30am in Kuala Lumpur.
'The sale suffered from a poor response, probably because it was limited to local banks,' said Noor Azman Mohamed, a bond trader at Affin Investment Bank Bhd in Kuala Lumpur.
'There are still issues with recent currency weakness' that are deterring foreign buyers, he said.
Malaysian government bonds handed investors a loss of 0.1 per cent this month, after gaining 0.8 per cent in July, according to an index compiled by HSBC Holdings Plc.
The ringgit on Tuesday touched the lowest since December after an eight- day slide, its longest losing streak since a peg to the dollar was scrapped in July 2005.
Investors submitted bids for 1.59 times the amount of debt on offer, according to the central bank, which conducts auctions on behalf of the treasury.
The average so-called bid-cover ratio was 1.94 times in 10 previous auctions of various maturities this year. - Bloomberg
Published August 14, 2008
Crude palm oil plunges 40% from its Q1 peak
Analysts divided on whether the price cycle has run its course
By PAULINE NG
IN KUALA LUMPUR
Email this article
Print article
Feedback
THE crude palm oil (CPO) price has plunged more than 40 per cent from its peak in the first quarter of this year, posing the question of whether the price cycle has run its course.
Further growth: The crude palm oil inventory is expected to rise, as Indonesia has increased planting
Views were mixed. Some analysts believed the current dip to be a temporary hiccup. But others were convinced that the sector will be underweight for a while.
One of the mainstays of the Malaysian market over the past few years, plantation stocks have featured prominently on the losers' list in the past month as CPO price tumbled. From a March high of RM4,486 a tonne, the prices is now about RM2,600 (S$1,105).
The initial correction was largely sentiment-driven, triggered by the correction in the crude oil price which has skidded from more than US$140 to US$113 a barrel. The continuing correction is more fundamentally driven, caused mainly by a mismatch between growing supply and falling demand.
The CPO inventory - already at record two million-plus tonnes - is expected to rise, because of the planting of 350,000 ha a year in Indonesia since 2000. The world's biggest CPO producer is expected to accelerate output next year from 18.8 to 21.3 million tonnes - an increase of 13 per cent compared with an average 8 per cent rise over the past two years, according to AmResearch.
Malaysia's CPO production is expected to rise 11 per cent to 18 million tonnes next year, compared with an average annual jump of 4 per cent over the past four years.
'People forget that CPO is a commodity and that commodities are volatile and only do well when there is strong demand,' said CIMB Research analyst Ivy Ng, who downgraded the sector a month ago to bring its valuations more in line with the market.
Factors such as lower bio-fuel targets in developed economies and higher taxes on planters' earnings are further reasons to downgrade the sector, as are slowing demand from China and higher inflation, which will lead to less demand for downstream products.
'The bullish run has gone on for three years and people were concerned prices were not sustainable,' said Aseambankers analyst Ong Chee Ting.
In a write-up on the sector, AmResearch said that it believes that the CPO price cycle is coming to an end, and plantation earnings will peak this year before declining 15 per cent in 2009.
Others disagreed. In the short term, the sector may not look exciting because of higher inventory but supply is likely to fall once peak production ends in September-October, said an analyst with a foreign stockbroking firm.
'I don't think it's the end,' said this analyst. 'Soft commodities should re-rate upwards in the longer term of 12-18 months. It's a hiccup, but the general trend is up.'
The analyst projected an average CPO price next year of RM3,300 a tonne. CIMB's Ms Ng put this year's average at RM3,350, tapering to RM3,000 in 2009.
Compared with 2001's price of RM600 to RM700 a tonne, the sector's overall prospects are obviously still good, cost increases over the years notwithstanding. The production cost of more efficient planters is estimated at RM800 to RM900 a tonne.
Crude palm oil plunges 40% from its Q1 peak
Analysts divided on whether the price cycle has run its course
By PAULINE NG
IN KUALA LUMPUR
Email this article
Print article
Feedback
THE crude palm oil (CPO) price has plunged more than 40 per cent from its peak in the first quarter of this year, posing the question of whether the price cycle has run its course.
Further growth: The crude palm oil inventory is expected to rise, as Indonesia has increased planting
Views were mixed. Some analysts believed the current dip to be a temporary hiccup. But others were convinced that the sector will be underweight for a while.
One of the mainstays of the Malaysian market over the past few years, plantation stocks have featured prominently on the losers' list in the past month as CPO price tumbled. From a March high of RM4,486 a tonne, the prices is now about RM2,600 (S$1,105).
The initial correction was largely sentiment-driven, triggered by the correction in the crude oil price which has skidded from more than US$140 to US$113 a barrel. The continuing correction is more fundamentally driven, caused mainly by a mismatch between growing supply and falling demand.
The CPO inventory - already at record two million-plus tonnes - is expected to rise, because of the planting of 350,000 ha a year in Indonesia since 2000. The world's biggest CPO producer is expected to accelerate output next year from 18.8 to 21.3 million tonnes - an increase of 13 per cent compared with an average 8 per cent rise over the past two years, according to AmResearch.
Malaysia's CPO production is expected to rise 11 per cent to 18 million tonnes next year, compared with an average annual jump of 4 per cent over the past four years.
'People forget that CPO is a commodity and that commodities are volatile and only do well when there is strong demand,' said CIMB Research analyst Ivy Ng, who downgraded the sector a month ago to bring its valuations more in line with the market.
Factors such as lower bio-fuel targets in developed economies and higher taxes on planters' earnings are further reasons to downgrade the sector, as are slowing demand from China and higher inflation, which will lead to less demand for downstream products.
'The bullish run has gone on for three years and people were concerned prices were not sustainable,' said Aseambankers analyst Ong Chee Ting.
In a write-up on the sector, AmResearch said that it believes that the CPO price cycle is coming to an end, and plantation earnings will peak this year before declining 15 per cent in 2009.
Others disagreed. In the short term, the sector may not look exciting because of higher inventory but supply is likely to fall once peak production ends in September-October, said an analyst with a foreign stockbroking firm.
'I don't think it's the end,' said this analyst. 'Soft commodities should re-rate upwards in the longer term of 12-18 months. It's a hiccup, but the general trend is up.'
The analyst projected an average CPO price next year of RM3,300 a tonne. CIMB's Ms Ng put this year's average at RM3,350, tapering to RM3,000 in 2009.
Compared with 2001's price of RM600 to RM700 a tonne, the sector's overall prospects are obviously still good, cost increases over the years notwithstanding. The production cost of more efficient planters is estimated at RM800 to RM900 a tonne.
Published August 14, 2008
ComfortDelGro Q2 earnings down 2.9%
SBS Transit posts 56% fall in Q2 profit on rise in fuel and electricity costs
By SAMUEL EE
Email this article
Print article
Feedback
A COMBINATION of higher fuel and electricity costs, as well as diesel subsidies to taxi hirers, weighed down ComfortDelGro Corp's net profit for the second quarter ended June 30, 2008, which slipped 2.9 per cent to $56.8 million.
Mr Kua: Tough operating environment is not expected to ease up soon
But Q2 revenue rose 5.8 per cent to $790.1 million on the back of strong growth in bus and rail ridership, mileages operated, and taxi corporate billings.
Overseas turnover accounted for 43.8 per cent of total group turnover, down from 46.7 per cent a year ago mainly because of the weaker pound sterling. ComfortDelGro has extensive bus and taxi businesses in the UK.
'The operating environment has proven to be difficult with the global economic slowdown, rising inflation and high oil prices,' said Kua Hong Pak, ComfortDelGro's managing director and group CEO. 'This is not expected to ease up soon.'
Related links:
Click here for Comfort's news release
Financial statements
Operating expenses rose 11.2 per cent to $739.2 million in Q2. Of the $74.2 million increase, fuel and electricity costs accounted for $31.0 million, while purchases of materials and consumables - mainly diesel - accounted for another $33.7 million.
Related link:
Click here for SBS's financial statements
The land transport giant said high energy costs were largely responsible for Q2 operating profit plunging 37.7 per cent to $50.9 million.
But the good news was that overseas operating profit accounted for a record 59.6 per cent of total group operating profit - from 41.0 per cent in Q2 last year.
In particular, the operating profit of the overseas bus businesses made up a whopping 89 per cent of the group's total bus operating profit.
Earnings per share in the second quarter were 2.72 cents, down from 2.81 cents in the previous corresponding quarter.
For the first half ended June 30, 2008, net profit was down 6.1 per cent to $107.0 million. Interim revenue was 5.8 per cent higher at $1.54 billion.
H1 earnings per share was 5.13 cents, down from 5.48 cents previously. An interim one-tier tax-exempt dividend of 2.6 cents per ordinary share has been declared.
Higher fuel and electricity costs also put the brakes on listed unit SBS Transit's net profit for the second quarter ended June 30, 2008, causing it to fall 56.0 per cent to $6.39 million.
But Q2 group revenue grew by 8.5 per cent to $180.4 million on increased bus and rail fare revenue, higher advertisement revenue and higher rental income.
Fuel and electricity costs in Q2 had surged 73.7 per cent to $52.4 million compared with the previous corresponding quarter, pushing the bus and rail operator's total operating expenses up by 16.0 per cent to $173.6 million.
Earnings per share fell to 2.07 cents in Q2 from 4.72 cents in the same quarter last year.
For the first half ended June 30, SBS Transit's net profit was 31.3 per cent lower at $21.68 million, while interim revenue was 8.5 per cent higher at $357.1 million.
Interim earnings per share slipped to 7.04 cents from 10.31 cents previously. A one-tier tax-exempt interim dividend of three cents per ordinary share has been declared.
ComfortDelGro Q2 earnings down 2.9%
SBS Transit posts 56% fall in Q2 profit on rise in fuel and electricity costs
By SAMUEL EE
Email this article
Print article
Feedback
A COMBINATION of higher fuel and electricity costs, as well as diesel subsidies to taxi hirers, weighed down ComfortDelGro Corp's net profit for the second quarter ended June 30, 2008, which slipped 2.9 per cent to $56.8 million.
Mr Kua: Tough operating environment is not expected to ease up soon
But Q2 revenue rose 5.8 per cent to $790.1 million on the back of strong growth in bus and rail ridership, mileages operated, and taxi corporate billings.
Overseas turnover accounted for 43.8 per cent of total group turnover, down from 46.7 per cent a year ago mainly because of the weaker pound sterling. ComfortDelGro has extensive bus and taxi businesses in the UK.
'The operating environment has proven to be difficult with the global economic slowdown, rising inflation and high oil prices,' said Kua Hong Pak, ComfortDelGro's managing director and group CEO. 'This is not expected to ease up soon.'
Related links:
Click here for Comfort's news release
Financial statements
Operating expenses rose 11.2 per cent to $739.2 million in Q2. Of the $74.2 million increase, fuel and electricity costs accounted for $31.0 million, while purchases of materials and consumables - mainly diesel - accounted for another $33.7 million.
Related link:
Click here for SBS's financial statements
The land transport giant said high energy costs were largely responsible for Q2 operating profit plunging 37.7 per cent to $50.9 million.
But the good news was that overseas operating profit accounted for a record 59.6 per cent of total group operating profit - from 41.0 per cent in Q2 last year.
In particular, the operating profit of the overseas bus businesses made up a whopping 89 per cent of the group's total bus operating profit.
Earnings per share in the second quarter were 2.72 cents, down from 2.81 cents in the previous corresponding quarter.
For the first half ended June 30, 2008, net profit was down 6.1 per cent to $107.0 million. Interim revenue was 5.8 per cent higher at $1.54 billion.
H1 earnings per share was 5.13 cents, down from 5.48 cents previously. An interim one-tier tax-exempt dividend of 2.6 cents per ordinary share has been declared.
Higher fuel and electricity costs also put the brakes on listed unit SBS Transit's net profit for the second quarter ended June 30, 2008, causing it to fall 56.0 per cent to $6.39 million.
But Q2 group revenue grew by 8.5 per cent to $180.4 million on increased bus and rail fare revenue, higher advertisement revenue and higher rental income.
Fuel and electricity costs in Q2 had surged 73.7 per cent to $52.4 million compared with the previous corresponding quarter, pushing the bus and rail operator's total operating expenses up by 16.0 per cent to $173.6 million.
Earnings per share fell to 2.07 cents in Q2 from 4.72 cents in the same quarter last year.
For the first half ended June 30, SBS Transit's net profit was 31.3 per cent lower at $21.68 million, while interim revenue was 8.5 per cent higher at $357.1 million.
Interim earnings per share slipped to 7.04 cents from 10.31 cents previously. A one-tier tax-exempt interim dividend of three cents per ordinary share has been declared.
Published August 14, 2008
Better disclosure needed on share payment scheme
By JAMIE LEE
Email this article
Print article
Feedback
CORPORATE finance firm PrimePartners, in receiving shares in lieu of cash as payment for acting as sponsor for the IPO of Healthway Medical Corporation, has raised some eyebrows in the market. That's chiefly because of concerns that such an arrangement could potentially compromise its role as a sponsor of listings on Catalist, the junior board of the Singapore Exchange (SGX).
There is good reason for concern. On Catalist, sponsors have to play a role previously occupied by the exchange, acting as regulators of companies that they take public. With a potential $2.72 million at stake, sceptics have raised the question of whether a conflict of interest exists and whether PrimePartners would be distracted by any volatility in the share price which might result from PrimePartners' advice on Healthway's financial decisions.
'Having a sponsor own shares in the company is like SGX owning shares in the companies they regulate and is definitely a bad idea,' said Mak Yuen Teen, co-director of the Corporate Governance and Financial Reporting Centre at the National University of Singapore business school. 'I don't buy the 'alignment of interests' argument. Are we saying that the sponsor needs shares to incentivise it to take its responsibilities seriously?'
Still, the arrangement between PrimePartners and Healthway illustrates a Catch-22 situation that fledgling companies find themselves in. Many small firms are going for a listing precisely to raise capital and thus might choose to preserve their cash by issuing shares. They can be criticised for this, but there appear to be defensible reasons for taking this route given their lean cash position in the first place.
From PrimePartners' perspective, it's a good way to get a return from listing Catalist companies and they argue that, for them as professionals, the reputational risk is greater than the temptation to do wrong. Also, SGX in implicitly giving the green light to the arrangement suggests that there is regulatory faith in the sponsors' integrity, or at the very least, that PrimePartners can discharge its fiduciary duties satisfactorily.
But even assuming that the conflict- of-interest concerns are exaggerated, then it has to be said that PrimePartners should have been clearer about the share payment scheme since any eventual sale by PrimePartners of the 7.56 million shares will create a share overhang and dilute existing shareholdings. Instead, the information was revealed only on page 49, tucked under footnote 9.
While there is no doubt that PrimePartners has adhered to current disclosure guidelines - the data was found in the prospectus - it would be reasonable to expect that few investors would have noted the information, given that it was buried deep inside the document. And prospective investors should not have to scour the fine print in an IPO prospectus for material information; the onus should be on the sponsors to disclose this upfront.
This is all the more so with sponsors having a greater role to play in today's disclosure-driven regime, as they baby- sit smaller companies and mentor them in their business decisions.
As Catalist's first-line quality-control providers, PrimePartners and all sponsors should hold themselves up to a higher standard, rather than simply make obligatory compliances with guidelines.
And because more of such deals are expected to come to the market, SGX should make clear its view on such 'shares-as-payment' arrangements.
The market knows that, in principle, SGX has chosen to take the backseat in Catalist listings. But given that Catalist is a new and constantly evolving concept, greater clarity on such share payments would help to reassure the market and investors that fears of a conflict of interest are unfounded from SGX's perspective.
Better disclosure needed on share payment scheme
By JAMIE LEE
Email this article
Print article
Feedback
CORPORATE finance firm PrimePartners, in receiving shares in lieu of cash as payment for acting as sponsor for the IPO of Healthway Medical Corporation, has raised some eyebrows in the market. That's chiefly because of concerns that such an arrangement could potentially compromise its role as a sponsor of listings on Catalist, the junior board of the Singapore Exchange (SGX).
There is good reason for concern. On Catalist, sponsors have to play a role previously occupied by the exchange, acting as regulators of companies that they take public. With a potential $2.72 million at stake, sceptics have raised the question of whether a conflict of interest exists and whether PrimePartners would be distracted by any volatility in the share price which might result from PrimePartners' advice on Healthway's financial decisions.
'Having a sponsor own shares in the company is like SGX owning shares in the companies they regulate and is definitely a bad idea,' said Mak Yuen Teen, co-director of the Corporate Governance and Financial Reporting Centre at the National University of Singapore business school. 'I don't buy the 'alignment of interests' argument. Are we saying that the sponsor needs shares to incentivise it to take its responsibilities seriously?'
Still, the arrangement between PrimePartners and Healthway illustrates a Catch-22 situation that fledgling companies find themselves in. Many small firms are going for a listing precisely to raise capital and thus might choose to preserve their cash by issuing shares. They can be criticised for this, but there appear to be defensible reasons for taking this route given their lean cash position in the first place.
From PrimePartners' perspective, it's a good way to get a return from listing Catalist companies and they argue that, for them as professionals, the reputational risk is greater than the temptation to do wrong. Also, SGX in implicitly giving the green light to the arrangement suggests that there is regulatory faith in the sponsors' integrity, or at the very least, that PrimePartners can discharge its fiduciary duties satisfactorily.
But even assuming that the conflict- of-interest concerns are exaggerated, then it has to be said that PrimePartners should have been clearer about the share payment scheme since any eventual sale by PrimePartners of the 7.56 million shares will create a share overhang and dilute existing shareholdings. Instead, the information was revealed only on page 49, tucked under footnote 9.
While there is no doubt that PrimePartners has adhered to current disclosure guidelines - the data was found in the prospectus - it would be reasonable to expect that few investors would have noted the information, given that it was buried deep inside the document. And prospective investors should not have to scour the fine print in an IPO prospectus for material information; the onus should be on the sponsors to disclose this upfront.
This is all the more so with sponsors having a greater role to play in today's disclosure-driven regime, as they baby- sit smaller companies and mentor them in their business decisions.
As Catalist's first-line quality-control providers, PrimePartners and all sponsors should hold themselves up to a higher standard, rather than simply make obligatory compliances with guidelines.
And because more of such deals are expected to come to the market, SGX should make clear its view on such 'shares-as-payment' arrangements.
The market knows that, in principle, SGX has chosen to take the backseat in Catalist listings. But given that Catalist is a new and constantly evolving concept, greater clarity on such share payments would help to reassure the market and investors that fears of a conflict of interest are unfounded from SGX's perspective.
Published August 14, 2008
SIA, pilots buckle down to head off arbitration
Industry watches as several sticking points stand in way
By VEN SREENIVASAN
Email this article
Print article
Feedback
(SINGAPORE) It is something which has become somewhat predictable at Singapore Airlines in recent years. And we are not talking about the world-class quality standards at the airline.
We are referring to another round of bickering between the company and its pilots, which could end up - again - in the arbitration courts.
The pilots' union Alpa-S (Airline Pilots Association-Singapore) and SIA have been in negotiations all year since the last Collective Agreement expired in September last year.
Both sides seemed tight- lipped when contacted by BT but SIA's spokesman Stephen Forshaw said the company was 'proceeding with negotiations towards a certified agreement' with its pilots.
'There are some complex issues involved, but we will proceed to discuss those constructively with the union,' he explained. 'Both parties are committed to using the proper industrial framework and processes governed by law to negotiate the agreement.'
Meanwhile, sources tell BT that the Ministry of Manpower stepped in to assist the two sides to find common ground earlier this year after months of face-to-face direct negotiations led nowhere.
Direct negotiations have re-started, but about half a dozen sticking points continue to stand in the way of a new agreement.
These, BT understands, include issues such as remuneration adjustments for multi-fleet flying (pilots who fly different plane-types), compensation for first officers upgraded to cruise pilots (they are licensed to take command of the planes at cruising altitude), and some productivity targets.
But both sides seem also to have reached agreement on several key issues, including the building in of some elements of the variable components of wages into the fixed remuneration packages.
These variable components were designed by the airline after the industry was hit by the severe acute respiratory syndrome (Sars) crisis in June 2003. So severe was the impact of the pandemic that it sent SIA into the red in the first quarter of FY2003/04.
SIA and its pilots have a chequered history of bickering over wages and benefits, the most recent of which was last year, when the pilots and the company could not agree on compensation packages for different fleet types ahead of the arrival of the giant Airbus A380 planes.
But the most protracted battle was in 2004, after the crisis-hit airline cut salaries and laid off staff, including pilots. After months of standoffs, and the intervention of Minister Mentor Lee Kuan Yew, both sides agreed to a variable wage component which was benchmarked to the company's profitability and productivity goals.
Under that agreement, SIA restored most of the 11.5 to 16 per cent wage cuts initiated during the Sars period, but half was classified into a monthly variable component and the other half into an annual variable component. Essentially, up to 40 per cent of pilots' wages was made variable and dependent on profit and key productivity indicators.
But BT understands that after four years of strong profitability, the company wants to build a significant portion of this variable component into wages - which the pilots' union Alpa-S seems agreeable to. But the union is said to oppose some productivity targets which it claims would effectively tighten salary band-widths.
Meanwhile, most of SIA's other in-house unions are said to be close to or have already signed up to new CAs. These include pilots of its wholly-owned regional subsidiary SilkAir.
Industry insiders, meanwhile, are watching to see if the latest negotiations will lead the pilots and the company's management back to the Industrial Arbitration Court. Again.
SIA, pilots buckle down to head off arbitration
Industry watches as several sticking points stand in way
By VEN SREENIVASAN
Email this article
Print article
Feedback
(SINGAPORE) It is something which has become somewhat predictable at Singapore Airlines in recent years. And we are not talking about the world-class quality standards at the airline.
We are referring to another round of bickering between the company and its pilots, which could end up - again - in the arbitration courts.
The pilots' union Alpa-S (Airline Pilots Association-Singapore) and SIA have been in negotiations all year since the last Collective Agreement expired in September last year.
Both sides seemed tight- lipped when contacted by BT but SIA's spokesman Stephen Forshaw said the company was 'proceeding with negotiations towards a certified agreement' with its pilots.
'There are some complex issues involved, but we will proceed to discuss those constructively with the union,' he explained. 'Both parties are committed to using the proper industrial framework and processes governed by law to negotiate the agreement.'
Meanwhile, sources tell BT that the Ministry of Manpower stepped in to assist the two sides to find common ground earlier this year after months of face-to-face direct negotiations led nowhere.
Direct negotiations have re-started, but about half a dozen sticking points continue to stand in the way of a new agreement.
These, BT understands, include issues such as remuneration adjustments for multi-fleet flying (pilots who fly different plane-types), compensation for first officers upgraded to cruise pilots (they are licensed to take command of the planes at cruising altitude), and some productivity targets.
But both sides seem also to have reached agreement on several key issues, including the building in of some elements of the variable components of wages into the fixed remuneration packages.
These variable components were designed by the airline after the industry was hit by the severe acute respiratory syndrome (Sars) crisis in June 2003. So severe was the impact of the pandemic that it sent SIA into the red in the first quarter of FY2003/04.
SIA and its pilots have a chequered history of bickering over wages and benefits, the most recent of which was last year, when the pilots and the company could not agree on compensation packages for different fleet types ahead of the arrival of the giant Airbus A380 planes.
But the most protracted battle was in 2004, after the crisis-hit airline cut salaries and laid off staff, including pilots. After months of standoffs, and the intervention of Minister Mentor Lee Kuan Yew, both sides agreed to a variable wage component which was benchmarked to the company's profitability and productivity goals.
Under that agreement, SIA restored most of the 11.5 to 16 per cent wage cuts initiated during the Sars period, but half was classified into a monthly variable component and the other half into an annual variable component. Essentially, up to 40 per cent of pilots' wages was made variable and dependent on profit and key productivity indicators.
But BT understands that after four years of strong profitability, the company wants to build a significant portion of this variable component into wages - which the pilots' union Alpa-S seems agreeable to. But the union is said to oppose some productivity targets which it claims would effectively tighten salary band-widths.
Meanwhile, most of SIA's other in-house unions are said to be close to or have already signed up to new CAs. These include pilots of its wholly-owned regional subsidiary SilkAir.
Industry insiders, meanwhile, are watching to see if the latest negotiations will lead the pilots and the company's management back to the Industrial Arbitration Court. Again.
Wednesday, 13 August 2008
Published August 13, 2008
Tenaga keen to buy stake in dam, cable project
Email this article
Print article
Feedback
(KUALA LUMPUR) Tenaga Nasional Bhd has expressed interest in buying a stake in Bakun, Malaysia's biggest hydroelectric dam, after Sime Darby Bhd dropped its bid for a share in the project.
The state-controlled utility is also keen to undertake an undersea cable project that will transmit power from Sarawak, where the dam is being built, to Peninsular Malaysia, Tenaga CEO Che Khalib Mohamad Noh said yesterday.
Sime Darby, the world's biggest publicly traded palm oil producer, said in June it will focus on its plantation business and won't buy a stake in Bakun. It also cancelled a plan to develop the submarine cable, raising concerns for the project's viability.
Peninsular Malaysia will need to tap Sarawak's hydro resources to meet its future electricity demand, he said. 'Since Sime is not interested, it is only logical for Tenaga to offer the construction of the undersea cable so as not to further delay the project.'
Tenaga's proposal is being examined by the Economic Planning Unit, a government agency in charge of development projects, Second Finance Minister Nor Mohamed Yakcop said yesterday.
He reiterated that the RM22 billion (S$9.3 billion) Bakun project will be completed as planned. The dam is slated to be ready in 2010, while the submarine cable is expected to be laid by 2013. -- Bloomberg
Tenaga keen to buy stake in dam, cable project
Email this article
Print article
Feedback
(KUALA LUMPUR) Tenaga Nasional Bhd has expressed interest in buying a stake in Bakun, Malaysia's biggest hydroelectric dam, after Sime Darby Bhd dropped its bid for a share in the project.
The state-controlled utility is also keen to undertake an undersea cable project that will transmit power from Sarawak, where the dam is being built, to Peninsular Malaysia, Tenaga CEO Che Khalib Mohamad Noh said yesterday.
Sime Darby, the world's biggest publicly traded palm oil producer, said in June it will focus on its plantation business and won't buy a stake in Bakun. It also cancelled a plan to develop the submarine cable, raising concerns for the project's viability.
Peninsular Malaysia will need to tap Sarawak's hydro resources to meet its future electricity demand, he said. 'Since Sime is not interested, it is only logical for Tenaga to offer the construction of the undersea cable so as not to further delay the project.'
Tenaga's proposal is being examined by the Economic Planning Unit, a government agency in charge of development projects, Second Finance Minister Nor Mohamed Yakcop said yesterday.
He reiterated that the RM22 billion (S$9.3 billion) Bakun project will be completed as planned. The dam is slated to be ready in 2010, while the submarine cable is expected to be laid by 2013. -- Bloomberg
Published August 13, 2008
Khazanah told to focus on overseas deals
This will give smaller firms a better chance to secure local business
By PAULINE NG
IN KUALA LUMPUR
Email this article
Print article
Feedback
KHAZANAH Nasional has been asked to focus more on international business investments so as to allow smaller companies a greater shot at clinching opportunities locally in the increasingly competitive local scene.
'We do not want Khazanah to be monopolistic and disallow other companies to do business in the country,' Public Accounts Committee chairman Azmi Khalid said at a media conference on Monday after the parliamentary select committee had been briefed on Khazanah's activities by its chief executive officer, Azman Mokhtar.
After the booming 1990s when most sectors of the local economy enjoyed double digit expansion, growth has been more tepid in many sectors as markets move towards maturity or saturation point. Diminishing opportunities in these sectors have led to smaller business groups lobbying for government linked companies (GLCs) to use their greater financial heft and resources in pursuit of international investments or contracts.
The economic pie is still growing - only not as fast, economists said. 'The excess liquidity and money piling up in the bank shows the lack of opportunities for investment,' one observed, noting that private investments accounted for 11-12 per cent of gross national product; in the 1990s, it was a third.
The better prospects elsewhere has seen more firms heading out, including Khazanah. Its latest investment is in China, in the area of developing municipal waste-to-energy projects where it plans to invest as much as US$150 million over the next three years in some eight projects. Its wholly owned subsidiary Tanjung Rhu Investments will take a majority stake in the joint venture with Beijing China Sciences General Energy & Environment Co Ltd as its technology partner.
It is the state investment agency's first investment in sustainable development - a growth sector and strategic in its eyes.
Indeed, Khazanah has made more from its overseas investments in the past four years reaping 60 per cent from these investments compared to 11 per cent for its local ones which contain legacy issues in many instances.
Some 85 per cent of Khazanah's investment portfolio is local, the balance is overseas. However, because a number of its stable of companies now own considerable international assets, its overseas assets are closer to a quarter.
Despite calls for Khazanah to maximise the returns on its investments overseas, it continues to shoulder the burden of 'national agenda' projects that have not taken off, the largest being Proton - the national car company brought under its control following a share swap with another government entity, Petronas.
CIMB-GK regional economist Song Seng Wun agreed that GLCs should venture abroad if there are opportunities but suggested that they should also look at less attractive but increasingly vital sectors, such as agriculture, which have long gestation periods. 'It's not glam, but they can take it to the next level, in terms of research and development and marketing. Turn it into something that can make money for others,' he said.
Because Khazanah's mandate to invest abroad only came about in 2004, its overseas strategies should become clearer in the longer term.
The Malaysian GLC that had a much earlier head start and since demonstrated its mettle internationally is Petronas, which continues to reap increasing returns from its global investments. In its last fiscal year to end March, revenue from international operations of RM90 billion (S$38.1 billion) accounted for a third of group revenue, making it the biggest contributor.
Khazanah told to focus on overseas deals
This will give smaller firms a better chance to secure local business
By PAULINE NG
IN KUALA LUMPUR
Email this article
Print article
Feedback
KHAZANAH Nasional has been asked to focus more on international business investments so as to allow smaller companies a greater shot at clinching opportunities locally in the increasingly competitive local scene.
'We do not want Khazanah to be monopolistic and disallow other companies to do business in the country,' Public Accounts Committee chairman Azmi Khalid said at a media conference on Monday after the parliamentary select committee had been briefed on Khazanah's activities by its chief executive officer, Azman Mokhtar.
After the booming 1990s when most sectors of the local economy enjoyed double digit expansion, growth has been more tepid in many sectors as markets move towards maturity or saturation point. Diminishing opportunities in these sectors have led to smaller business groups lobbying for government linked companies (GLCs) to use their greater financial heft and resources in pursuit of international investments or contracts.
The economic pie is still growing - only not as fast, economists said. 'The excess liquidity and money piling up in the bank shows the lack of opportunities for investment,' one observed, noting that private investments accounted for 11-12 per cent of gross national product; in the 1990s, it was a third.
The better prospects elsewhere has seen more firms heading out, including Khazanah. Its latest investment is in China, in the area of developing municipal waste-to-energy projects where it plans to invest as much as US$150 million over the next three years in some eight projects. Its wholly owned subsidiary Tanjung Rhu Investments will take a majority stake in the joint venture with Beijing China Sciences General Energy & Environment Co Ltd as its technology partner.
It is the state investment agency's first investment in sustainable development - a growth sector and strategic in its eyes.
Indeed, Khazanah has made more from its overseas investments in the past four years reaping 60 per cent from these investments compared to 11 per cent for its local ones which contain legacy issues in many instances.
Some 85 per cent of Khazanah's investment portfolio is local, the balance is overseas. However, because a number of its stable of companies now own considerable international assets, its overseas assets are closer to a quarter.
Despite calls for Khazanah to maximise the returns on its investments overseas, it continues to shoulder the burden of 'national agenda' projects that have not taken off, the largest being Proton - the national car company brought under its control following a share swap with another government entity, Petronas.
CIMB-GK regional economist Song Seng Wun agreed that GLCs should venture abroad if there are opportunities but suggested that they should also look at less attractive but increasingly vital sectors, such as agriculture, which have long gestation periods. 'It's not glam, but they can take it to the next level, in terms of research and development and marketing. Turn it into something that can make money for others,' he said.
Because Khazanah's mandate to invest abroad only came about in 2004, its overseas strategies should become clearer in the longer term.
The Malaysian GLC that had a much earlier head start and since demonstrated its mettle internationally is Petronas, which continues to reap increasing returns from its global investments. In its last fiscal year to end March, revenue from international operations of RM90 billion (S$38.1 billion) accounted for a third of group revenue, making it the biggest contributor.
Published August 13, 2008
ST Engg Q2 profit falls 2.3% to $119.9m
Aerospace business makes up 51% of group's net earnings in second quarter
By EMILYN YAP
Email this article
Print article
Feedback
WITH mixed results across its business sectors, Singapore Technologies Engineering (ST Engg) yesterday reported net earnings of $119.9 million for the second quarter ended June 30 - 2.3 per cent down from the corresponding period last year.
Tan Pheng Hock: Says diversity of customers and activities helps the group
Group revenue held its ground at $1.3 billion, a slight 0.2 per cent higher than a year ago.
Hit by a weaker US dollar, lower investment income, higher depreciation, higher passenger-to-freighter prototyping costs and lower associated companies' contributions, net earnings for the aerospace sector fell 11 per cent to $61.6 million in Q2 2008.
Land systems saw net earnings drop 6 per cent to $20.6 million. Lower contributions from associated company CityCab was one reason for the fall.
In contrast, net earnings for the marine sector rose 17 per cent to $16.2 million in Q2 2008. The electronics sector raked in net earnings of $21.1 million, 6 per cent more year on year.
ST Engg's earnings per share was 4.01 cents in Q2 2008, 0.15 cents lower than in the year-ago period.
The group declared an interim dividend of three cents per share.
'Our diversity helps us,' said ST Engg's president and CEO Tan Pheng Hock, referring to the group's customer base and activities across business sectors and geographical regions.
Order book for the group grew by another $100 million in the second quarter to $9.29 billion as at end-June, of which some $2.14 billion would be delivered in H2 2008.
But attention at yesterday's results briefing was centred on the aerospace business, which made up 51 per cent of the group's net earnings in Q2 2008.
'We have tier one customers and . . . (they) are more particular about performance and quality than about prices,' said ST Aerospace's president Tan Kok Khiang, when asked about the sector's margins in today's environment.
While the business climate may be bleaker, there are acquisition opportunities for ST Engg in areas such as the United States, Europe, China and Vietnam. 'Valuations are definitely more reasonable,' said group president and CEO Mr Tan.
But he added: 'We want to ensure that we buy companies that are not in trouble, companies that are able to add value to us strategically.'
Results for ST Engg were stronger when viewed on a half-year basis. The group turned in net earnings of $242.5 million, up 4.7 per cent from a year ago. Revenue increased by 3.9 per cent to $2.62 billion.
ST Engg expects turnover and profit before tax to be 'modestly higher' in H2 2008 compared with the first half. As for FY 2008, profit before tax could be comparable to the previous year's.
ST Engg shares closed unchanged at $2.80 yesterday.
ST Engg Q2 profit falls 2.3% to $119.9m
Aerospace business makes up 51% of group's net earnings in second quarter
By EMILYN YAP
Email this article
Print article
Feedback
WITH mixed results across its business sectors, Singapore Technologies Engineering (ST Engg) yesterday reported net earnings of $119.9 million for the second quarter ended June 30 - 2.3 per cent down from the corresponding period last year.
Tan Pheng Hock: Says diversity of customers and activities helps the group
Group revenue held its ground at $1.3 billion, a slight 0.2 per cent higher than a year ago.
Hit by a weaker US dollar, lower investment income, higher depreciation, higher passenger-to-freighter prototyping costs and lower associated companies' contributions, net earnings for the aerospace sector fell 11 per cent to $61.6 million in Q2 2008.
Land systems saw net earnings drop 6 per cent to $20.6 million. Lower contributions from associated company CityCab was one reason for the fall.
In contrast, net earnings for the marine sector rose 17 per cent to $16.2 million in Q2 2008. The electronics sector raked in net earnings of $21.1 million, 6 per cent more year on year.
ST Engg's earnings per share was 4.01 cents in Q2 2008, 0.15 cents lower than in the year-ago period.
The group declared an interim dividend of three cents per share.
'Our diversity helps us,' said ST Engg's president and CEO Tan Pheng Hock, referring to the group's customer base and activities across business sectors and geographical regions.
Order book for the group grew by another $100 million in the second quarter to $9.29 billion as at end-June, of which some $2.14 billion would be delivered in H2 2008.
But attention at yesterday's results briefing was centred on the aerospace business, which made up 51 per cent of the group's net earnings in Q2 2008.
'We have tier one customers and . . . (they) are more particular about performance and quality than about prices,' said ST Aerospace's president Tan Kok Khiang, when asked about the sector's margins in today's environment.
While the business climate may be bleaker, there are acquisition opportunities for ST Engg in areas such as the United States, Europe, China and Vietnam. 'Valuations are definitely more reasonable,' said group president and CEO Mr Tan.
But he added: 'We want to ensure that we buy companies that are not in trouble, companies that are able to add value to us strategically.'
Results for ST Engg were stronger when viewed on a half-year basis. The group turned in net earnings of $242.5 million, up 4.7 per cent from a year ago. Revenue increased by 3.9 per cent to $2.62 billion.
ST Engg expects turnover and profit before tax to be 'modestly higher' in H2 2008 compared with the first half. As for FY 2008, profit before tax could be comparable to the previous year's.
ST Engg shares closed unchanged at $2.80 yesterday.
Published August 13, 2008
The cost of research and its real value
By R SIVANITHY
Email this article
Print article
Feedback
WHAT price decent stockbroking research in the Singapore market?
As far as small listed firms are concerned, $13,000 appears to be too much - at least judging by recent news that the number of companies participating in the Singapore Exchange's research incentive scheme (RIS) is dwindling, supposedly because the subscription rate has risen to $13,000 a year.
Yet, significantly, user downloads have risen, from an average of 37,000 a month in 2004 to 50,000 this year. The number of registered users is also up, from 36,000 in 2006 to 64,000 now. True, access is free. But the steady increases suggest there is demand from the investing public for RIS output. So why the declining participation?
On one hand, $13,000 is not by any standards an exorbitant amount to pay for proper analyst coverage.
Furthermore, because the subscription previously cost $8,000, the incremental cost is only $5,000 a year, so it would be tempting to argue that withdrawing firms are being short-sighted in quibbling over such a small amount.
But it cannot be that listed firms are so financially ignorant that they begrudge paying an additional $5,000 a year while spurning the benefits that increased coverage can bring.
If firms know of the increasing public interest in RIS and the fact that a move of a few cents in their share price could add several million dollars to their market capitalisation, can the issue really be money?
The answer is probably not. Because the sums are modest, it has to be that small listed firms must be abandoning RIS not because the cost has increased but because the perceived benefits have not.
Here, of course, we enter controversial territory. Despite protestations to the contrary, companies inevitably equate benefits with glowing 'buy' reports that boost their share prices.
However, the essence of good research is independence, which necessitates 'sell' calls if analysts see fit to make them. There is, therefore, no doubt that a good number of withdrawals are motivated by unhappiness with negative recommendations.
Another significant factor is the present bear climate. In a bull market, everyone wants ideas on how to make money, so research becomes valuable and people are willing to pay for it. But in a bear market, no amount of fancy story-telling works, so research tends to become devalued and discarded.
It's similar to the problem faced by investor and public relations firms - companies are happy to pay for greater publicity or investor reach when things are going well, but if the environment sours, these functions tend to quickly get the chop.
If RIS is to succeed in its stated goal of raising the profile of smaller firms, there has to be a fundamental change in attitude towards research by all parties.
Firms have to recognise that research is not dispensable, and that although it cannot provide a short-term quick fix as far as share prices are concerned, ongoing coverage will eventually reap rewards.
Even if there is inadequate continuity, firms must understand that some coverage is better than none because it at least puts them on the radar screens of investors.
Brokers, for their part, have to ensure quality output by at least ensuring continuity of coverage. A common complaint from companies is that over time, different analysts are assigned to provide coverage, and this lack of continuity has an adverse effect on the reports produced.
There are, of course, a host of other problems that strike at the heart of the research function and therefore affect quality - for instance, the inability of many houses to retain good analysts, who tend to move to the 'buy' side once they've learned the ropes of their trade. This results in increased analyst turnover and reduced output quality.
However, retaining talent is an issue that brokers have had to grapple with since time immemorial and will continue to be an issue for a good while yet. For now, it has to be said that unless attitudes towards broking research change - or until this bear market ends - it is likely that RIS will continue to suffer declining corporate membership.
The cost of research and its real value
By R SIVANITHY
Email this article
Print article
Feedback
WHAT price decent stockbroking research in the Singapore market?
As far as small listed firms are concerned, $13,000 appears to be too much - at least judging by recent news that the number of companies participating in the Singapore Exchange's research incentive scheme (RIS) is dwindling, supposedly because the subscription rate has risen to $13,000 a year.
Yet, significantly, user downloads have risen, from an average of 37,000 a month in 2004 to 50,000 this year. The number of registered users is also up, from 36,000 in 2006 to 64,000 now. True, access is free. But the steady increases suggest there is demand from the investing public for RIS output. So why the declining participation?
On one hand, $13,000 is not by any standards an exorbitant amount to pay for proper analyst coverage.
Furthermore, because the subscription previously cost $8,000, the incremental cost is only $5,000 a year, so it would be tempting to argue that withdrawing firms are being short-sighted in quibbling over such a small amount.
But it cannot be that listed firms are so financially ignorant that they begrudge paying an additional $5,000 a year while spurning the benefits that increased coverage can bring.
If firms know of the increasing public interest in RIS and the fact that a move of a few cents in their share price could add several million dollars to their market capitalisation, can the issue really be money?
The answer is probably not. Because the sums are modest, it has to be that small listed firms must be abandoning RIS not because the cost has increased but because the perceived benefits have not.
Here, of course, we enter controversial territory. Despite protestations to the contrary, companies inevitably equate benefits with glowing 'buy' reports that boost their share prices.
However, the essence of good research is independence, which necessitates 'sell' calls if analysts see fit to make them. There is, therefore, no doubt that a good number of withdrawals are motivated by unhappiness with negative recommendations.
Another significant factor is the present bear climate. In a bull market, everyone wants ideas on how to make money, so research becomes valuable and people are willing to pay for it. But in a bear market, no amount of fancy story-telling works, so research tends to become devalued and discarded.
It's similar to the problem faced by investor and public relations firms - companies are happy to pay for greater publicity or investor reach when things are going well, but if the environment sours, these functions tend to quickly get the chop.
If RIS is to succeed in its stated goal of raising the profile of smaller firms, there has to be a fundamental change in attitude towards research by all parties.
Firms have to recognise that research is not dispensable, and that although it cannot provide a short-term quick fix as far as share prices are concerned, ongoing coverage will eventually reap rewards.
Even if there is inadequate continuity, firms must understand that some coverage is better than none because it at least puts them on the radar screens of investors.
Brokers, for their part, have to ensure quality output by at least ensuring continuity of coverage. A common complaint from companies is that over time, different analysts are assigned to provide coverage, and this lack of continuity has an adverse effect on the reports produced.
There are, of course, a host of other problems that strike at the heart of the research function and therefore affect quality - for instance, the inability of many houses to retain good analysts, who tend to move to the 'buy' side once they've learned the ropes of their trade. This results in increased analyst turnover and reduced output quality.
However, retaining talent is an issue that brokers have had to grapple with since time immemorial and will continue to be an issue for a good while yet. For now, it has to be said that unless attitudes towards broking research change - or until this bear market ends - it is likely that RIS will continue to suffer declining corporate membership.
Published August 13, 2008
M'sia GDP seen growing 6% in 2008
Trade Minister cites robust manufacturing and exports, warns of challenges ahead
Email this article
Print article
Feedback
(SINGAPORE) Malaysia's economy may expand at the higher end of the official forecast range this year, even as it faces a 'more challenging' time ahead, Trade and Industry Minister Muhyiddin Yassin said.
Trying times: Motorists crowding a petrol station before the government announced an increase in petrol prices
Gross domestic product may grow at a 'modest' pace of about 6 per cent in 2008, Mr Muhyiddin said in Singapore yesterday, citing 'robust' manufacturing and exports. The central bank had forecast in March that the economy would expand 5 per cent to 6 per cent this year.
'While the Malaysian economy has performed well in the first quarter, Malaysia expects to experience more challenging times as a result of global economic volatilities,' the minister said at a forum in Singapore.
A faltering US economy is hurting demand for Asian-made goods and threatening expansion in the region.
Governments from South Korea to Singapore have lowered their 2008 growth forecasts since the start of the year as the global slowdown spreads and soaring food and fuel prices hurt spending.
Malaysia's economy grew 5 per cent to 6 per cent in the second quarter, slowing from 7.1 per cent in the previous three months, Mr Muhyiddin said. The government will release second-quarter data on Aug 29, together with an update of its 2008 economic forecast.
The trade ministry last month cut its forecast for export growth this year to 6 per cent from an earlier estimate of 7 per cent as slowing demand from the US, its largest overseas market, damps global trade. Industrial production grew at the slowest pace in 10 months in June, a report yesterday showed.
Malaysia approved US$7.2 billion of manufacturing investments in the first six months of 2008, Mr Muhyiddin said yesterday. Some 236 projects were approved during the period.
'Despite the intense global competition, Malaysia has significantly attracted higher levels of foreign direct investments,' the minister said.
Still, Malaysia approved RM9.9 billion (S$4.19 billion) of manufacturing investments in the second quarter, a 61 per cent decline from a year earlier, Lee Heng Guie, chief economist at CIMB Investment Bank Bhd in Kuala Lumpur, said in a research note yesterday.
Commodities sales, which have been holding up Malaysian exports this year, may also ease as palm oil and crude oil prices fall from record highs. The nation is the world's second-biggest palm oil exporter and South-east Asia's No 2 oil and gas producer.
The government has tried to shore up domestic consumption as the risks to exports increased, seeking to help consumers cope with rising costs of living.
Domestic banks have agreed to a government proposal to restructure housing and hire purchase loans, giving borrowers a longer repayment period, Second Finance Minister Nor Mohamed Yakcop said in Kuala Lumpur yesterday.
Malaysia's central bank unexpectedly refrained from raising its benchmark interest rate last month, breaking with its Asian neighbours which have increased borrowing costs to cool inflation amid soaring food and oil prices. -- Bloomberg
M'sia GDP seen growing 6% in 2008
Trade Minister cites robust manufacturing and exports, warns of challenges ahead
Email this article
Print article
Feedback
(SINGAPORE) Malaysia's economy may expand at the higher end of the official forecast range this year, even as it faces a 'more challenging' time ahead, Trade and Industry Minister Muhyiddin Yassin said.
Trying times: Motorists crowding a petrol station before the government announced an increase in petrol prices
Gross domestic product may grow at a 'modest' pace of about 6 per cent in 2008, Mr Muhyiddin said in Singapore yesterday, citing 'robust' manufacturing and exports. The central bank had forecast in March that the economy would expand 5 per cent to 6 per cent this year.
'While the Malaysian economy has performed well in the first quarter, Malaysia expects to experience more challenging times as a result of global economic volatilities,' the minister said at a forum in Singapore.
A faltering US economy is hurting demand for Asian-made goods and threatening expansion in the region.
Governments from South Korea to Singapore have lowered their 2008 growth forecasts since the start of the year as the global slowdown spreads and soaring food and fuel prices hurt spending.
Malaysia's economy grew 5 per cent to 6 per cent in the second quarter, slowing from 7.1 per cent in the previous three months, Mr Muhyiddin said. The government will release second-quarter data on Aug 29, together with an update of its 2008 economic forecast.
The trade ministry last month cut its forecast for export growth this year to 6 per cent from an earlier estimate of 7 per cent as slowing demand from the US, its largest overseas market, damps global trade. Industrial production grew at the slowest pace in 10 months in June, a report yesterday showed.
Malaysia approved US$7.2 billion of manufacturing investments in the first six months of 2008, Mr Muhyiddin said yesterday. Some 236 projects were approved during the period.
'Despite the intense global competition, Malaysia has significantly attracted higher levels of foreign direct investments,' the minister said.
Still, Malaysia approved RM9.9 billion (S$4.19 billion) of manufacturing investments in the second quarter, a 61 per cent decline from a year earlier, Lee Heng Guie, chief economist at CIMB Investment Bank Bhd in Kuala Lumpur, said in a research note yesterday.
Commodities sales, which have been holding up Malaysian exports this year, may also ease as palm oil and crude oil prices fall from record highs. The nation is the world's second-biggest palm oil exporter and South-east Asia's No 2 oil and gas producer.
The government has tried to shore up domestic consumption as the risks to exports increased, seeking to help consumers cope with rising costs of living.
Domestic banks have agreed to a government proposal to restructure housing and hire purchase loans, giving borrowers a longer repayment period, Second Finance Minister Nor Mohamed Yakcop said in Kuala Lumpur yesterday.
Malaysia's central bank unexpectedly refrained from raising its benchmark interest rate last month, breaking with its Asian neighbours which have increased borrowing costs to cool inflation amid soaring food and oil prices. -- Bloomberg
Published August 13, 2008
Plunging regional currencies hit SingTel
Q1 profit down 5.3% as falling exchange rates hit associates' contributions
By WINSTON CHAI
Email this article
Print article
Feedback
(SINGAPORE) Singapore Telecommunications' sizzling bottom-line growth is starting to show signs of a slowdown, with regional currency depreciation dragging down its first-quarter profit to the lowest level in recent years.
SingTel shares recovered to close 1.7 per cent lower at $3.52 yesterday, after dropping to $3.45 earlier in the day as investor confidence was shaken after the curtains were raised on its first set of results for the year.
Net income for the three months ended June 30 fell 5.3 per cent to a two-year low of $878 million, compared with $927 million a year earlier. SingTel's Q1 net profit of $878 million missed the $902 million average forecast of nine analysts polled by Bloomberg.
'As we report in Singapore dollars, the financial results of our regional associates are exposed to fluctuations in foreign exchange rates. In this quarter, the impact was negative,' said SingTel Group CEO Chua Sock Koong.
'If not for the depreciation in regional currencies, our net profit would have grown by 6 per cent,' she told reporters at a briefing yesterday.
SingTel derives 42 per cent of its Ebitda (earnings before interest, tax, depreciation and amortisation) from associates in six emerging regional markets: India, Bangladesh, Indonesia, Pakistan, the Philippines and Thailand.
The group said profit took a hit as the Sing dollar strengthened against all these regional currencies. In particular, the Indonesian rupiah fell 13 per cent in the last year, shrinking earnings from SingTel's Indonesian associate Telkomsel. The Sing dollar also climbed more than 10 per cent against the Indian rupee and Thai baht in the last 12 months, denting contributions from Bharti in India and Thailand's AIS.
Singapore Technologies Engineering, the world's largest aircraft repair firm, also cited the rising Sing dollar as a key reason for the profit decline in its recently-ended second quarter.
Foreseeing continued currency fluctuations, SingTel has lowered its earnings forecast for its regional affiliates from 'double-digits' to a 'low double-digit' range for this financial year. 'Growth (from regional associates) will be slower than previous years,' Ms Chua warned.
'Even then, the (SingTel) management guidance of double-digit growth in pre-tax contribution from associates appears too bullish to us,' DBS analyst Sachin Mittal said in his research note. 'Current weakness in the Australian dollar is also something to worry about in Q2 FY09.'
To bolster its longer- term outlook, SingTel said it would still be on the lookout for acquisition targets. 'Our investment focus will primarily be in Asia,' Ms Chua said, adding that other regions such as the Middle East and Africa are also on the radar.
South-east Asia's largest telco said its operating revenue for the first quarter increased 5.9 per cent to $3.78 billion from last year, thanks to continued strength in its Singapore and Australia operations.
Revenue from SingTel's local subsidiary grew 8.1 per cent to $1.25 billion in Q1. The firm's mobile business posted a revenue gain of 9.7 per cent to $347 million, but margins were eroded by increased selling expenses. This is because marketing costs were upped in the lead-up to the introduction of true mobile number portability on June 13. SingTel registered the largest increase in mobile subscribers among the three local telcos in the quarter with 182,000 new customers.
SingTel said its subscriber base for mio TV - a service which allows customers to watch television programmes streamed through the Internet - has increased by 2,000 to 45,000. Content acquisition costs, however, have gone up.
Revenue from SingTel's IT and engineering unit NCS were up 20 per cent in the first quarter to $181 million.
At Optus, operational Ebitda was up 2.7 per cent year-on-year in Q1 to A$13 million (S$16.2 million), while pre-tax profit from SingTel's regional associates plunged 11 per cent to $582 million.
Plunging regional currencies hit SingTel
Q1 profit down 5.3% as falling exchange rates hit associates' contributions
By WINSTON CHAI
Email this article
Print article
Feedback
(SINGAPORE) Singapore Telecommunications' sizzling bottom-line growth is starting to show signs of a slowdown, with regional currency depreciation dragging down its first-quarter profit to the lowest level in recent years.
SingTel shares recovered to close 1.7 per cent lower at $3.52 yesterday, after dropping to $3.45 earlier in the day as investor confidence was shaken after the curtains were raised on its first set of results for the year.
Net income for the three months ended June 30 fell 5.3 per cent to a two-year low of $878 million, compared with $927 million a year earlier. SingTel's Q1 net profit of $878 million missed the $902 million average forecast of nine analysts polled by Bloomberg.
'As we report in Singapore dollars, the financial results of our regional associates are exposed to fluctuations in foreign exchange rates. In this quarter, the impact was negative,' said SingTel Group CEO Chua Sock Koong.
'If not for the depreciation in regional currencies, our net profit would have grown by 6 per cent,' she told reporters at a briefing yesterday.
SingTel derives 42 per cent of its Ebitda (earnings before interest, tax, depreciation and amortisation) from associates in six emerging regional markets: India, Bangladesh, Indonesia, Pakistan, the Philippines and Thailand.
The group said profit took a hit as the Sing dollar strengthened against all these regional currencies. In particular, the Indonesian rupiah fell 13 per cent in the last year, shrinking earnings from SingTel's Indonesian associate Telkomsel. The Sing dollar also climbed more than 10 per cent against the Indian rupee and Thai baht in the last 12 months, denting contributions from Bharti in India and Thailand's AIS.
Singapore Technologies Engineering, the world's largest aircraft repair firm, also cited the rising Sing dollar as a key reason for the profit decline in its recently-ended second quarter.
Foreseeing continued currency fluctuations, SingTel has lowered its earnings forecast for its regional affiliates from 'double-digits' to a 'low double-digit' range for this financial year. 'Growth (from regional associates) will be slower than previous years,' Ms Chua warned.
'Even then, the (SingTel) management guidance of double-digit growth in pre-tax contribution from associates appears too bullish to us,' DBS analyst Sachin Mittal said in his research note. 'Current weakness in the Australian dollar is also something to worry about in Q2 FY09.'
To bolster its longer- term outlook, SingTel said it would still be on the lookout for acquisition targets. 'Our investment focus will primarily be in Asia,' Ms Chua said, adding that other regions such as the Middle East and Africa are also on the radar.
South-east Asia's largest telco said its operating revenue for the first quarter increased 5.9 per cent to $3.78 billion from last year, thanks to continued strength in its Singapore and Australia operations.
Revenue from SingTel's local subsidiary grew 8.1 per cent to $1.25 billion in Q1. The firm's mobile business posted a revenue gain of 9.7 per cent to $347 million, but margins were eroded by increased selling expenses. This is because marketing costs were upped in the lead-up to the introduction of true mobile number portability on June 13. SingTel registered the largest increase in mobile subscribers among the three local telcos in the quarter with 182,000 new customers.
SingTel said its subscriber base for mio TV - a service which allows customers to watch television programmes streamed through the Internet - has increased by 2,000 to 45,000. Content acquisition costs, however, have gone up.
Revenue from SingTel's IT and engineering unit NCS were up 20 per cent in the first quarter to $181 million.
At Optus, operational Ebitda was up 2.7 per cent year-on-year in Q1 to A$13 million (S$16.2 million), while pre-tax profit from SingTel's regional associates plunged 11 per cent to $582 million.
August 13, 2008, 6.15 pm (Singapore time)
UOB Kay Hian's profits down 64%
By CHOW PENN NEE
Email this article
Print article
Feedback
A decline in trading volume and lower commission income dragged down UOB Kay Hian's profits.
The brokerage reported a 64 per cent fall in net profit for the three months ended June 30, to $29.2 million or 4.02 cents per share.
Revenue dropped 57 per cent to $94.1 million.
The group said last year was an exceptional year, with record turnover for the stock broking industry and the Group.
The group said hHigh energy and commodity prices are expected to have a negative impact on corporate earnings.
A slow down in global growth will continue to impinge on financial markets in the foreseeable future, it said in a statement. But the group still expects to remain profitable, barring any unforeseen market upheavals, it added.
UOB Kay Hian's profits down 64%
By CHOW PENN NEE
Email this article
Print article
Feedback
A decline in trading volume and lower commission income dragged down UOB Kay Hian's profits.
The brokerage reported a 64 per cent fall in net profit for the three months ended June 30, to $29.2 million or 4.02 cents per share.
Revenue dropped 57 per cent to $94.1 million.
The group said last year was an exceptional year, with record turnover for the stock broking industry and the Group.
The group said hHigh energy and commodity prices are expected to have a negative impact on corporate earnings.
A slow down in global growth will continue to impinge on financial markets in the foreseeable future, it said in a statement. But the group still expects to remain profitable, barring any unforeseen market upheavals, it added.
Subscribe to:
Posts (Atom)
