Published August 23, 2008
Investors look past politics & find value: Macquarie
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(KUALA LUMPUR) Digi.Com Bhd and TM International Bhd are among Malaysian stocks recommended by Macquarie Group Ltd as good valuations outweighing political concerns.
'Investors are finally beginning to look past politics and shifting their focus back to fundamentals and finding value in Malaysia,' Macquarie said in a report dated Aug 21.
Based on investor feedback, 'politics has declined as a concern', it said.
The Kuala Lumpur Composite Index has slumped 17 per cent since opposition parties won almost half the states in the March 8 election and denied the ruling coalition a two-thirds majority in parliament for the first time since 1969.
Prime Minister Abdullah Ahmad Badawi, facing a weakened government, has said that he would transfer power to his deputy, Najib Razak, after the party's annual meeting in December.
The benchmark stock index is valued at 12 times reported earnings and traded at 16 times at the start of the year, according to data compiled by Bloomberg.
Macquarie said that investors should buy Public Bank Bhd, Malaysia's third-largest bank; Genting, Asia's biggest listed casino operator; lottery rival Berjaya Sports Toto Bhd; and banking group AMMB Holdings Bhd. -- Bloomberg
Saturday, 23 August 2008
Published August 23, 2008
M'sia July inflation hits 8.5%, beating forecasts
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(KUALA LUMPUR) Malaysian annual inflation soared to 8.5 per cent last month, way above analyst forecasts for 7.8 per cent in a Reuters poll, and sharply up from 7.7 per cent in June.
The July data was the steepest rise since 8.5 per cent in December 1981 and the government also announced yesterday that the price of petrol will be cut to RM2.50 per litre from RM2.70 from Aug 23, a move which will dampen inflation.
It was unpopular petrol price hikes in June and electricity price rises last month that catapulted inflation from 3.8 per cent in May.
The cuts in fuel prices were brought forward from Sept 1 and will now take effect before a key by-election in which opposition leader Anwar Ibrahim challenges the government.
Despite the surge in inflation, Malaysia's central bank, alone in South-east Asia, has kept interest rates unchanged for over two years at 3.5 per cent.
Governor Zeti Akhtar Aziz has said that slower economic growth and weakening commodity prices would help to reduce price pressures ahead, especially next year.
Bank Negara Malaysia meets again on Monday to decide on rates after it surprised markets last month by leaving rates unchanged.
According to some economists, that decision damaged its credibility and showed that it had buckled under government pressure to refrain from a hike at a time when the ruling coalition felt threatened by an opposition alliance which has surged in polls. -- Reuters
M'sia July inflation hits 8.5%, beating forecasts
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(KUALA LUMPUR) Malaysian annual inflation soared to 8.5 per cent last month, way above analyst forecasts for 7.8 per cent in a Reuters poll, and sharply up from 7.7 per cent in June.
The July data was the steepest rise since 8.5 per cent in December 1981 and the government also announced yesterday that the price of petrol will be cut to RM2.50 per litre from RM2.70 from Aug 23, a move which will dampen inflation.
It was unpopular petrol price hikes in June and electricity price rises last month that catapulted inflation from 3.8 per cent in May.
The cuts in fuel prices were brought forward from Sept 1 and will now take effect before a key by-election in which opposition leader Anwar Ibrahim challenges the government.
Despite the surge in inflation, Malaysia's central bank, alone in South-east Asia, has kept interest rates unchanged for over two years at 3.5 per cent.
Governor Zeti Akhtar Aziz has said that slower economic growth and weakening commodity prices would help to reduce price pressures ahead, especially next year.
Bank Negara Malaysia meets again on Monday to decide on rates after it surprised markets last month by leaving rates unchanged.
According to some economists, that decision damaged its credibility and showed that it had buckled under government pressure to refrain from a hike at a time when the ruling coalition felt threatened by an opposition alliance which has surged in polls. -- Reuters
Published August 23, 2008
Financial storm is still blowing: Bernanke
Fed working on three fronts to maintain economic stability, says US central bank chief
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(WASHINGTON) US Federal Reserve chairman Ben Bernanke said yesterday the financial storm that began last year 'has not yet subsided', creating 'one of the most challenging' economic environments in memory.
Mr Bernanke: A commodity-fuelled surge in inflation is complicating the efforts to prop up the economy
In comments to the Fed's annual symposium in Jackson Hole, Wyoming, Mr Bernanke said economic conditions remain soft as unemployment is rising and inflation pressures remain hot.
The mix has created 'one of the most challenging economic and policy environments in memory', Mr Bernanke said, according to a text of his remarks released by the central bank.
Mr Bernanke said the Fed has been working on three fronts in an effort to maintain economic stability - keeping interest rates low to prevent a collapse of economic activity, offering extra liquidity to banks and brokerages facing a credit squeeze, and revamping the regulatory structure to prevent a recurrence of the housing boom-bust cycle.
'By cushioning the first- round economic impact of the financial stress, we hoped also to minimise the risks of a so-called adverse feedback loop in which economic weakness exacerbates financial stress, which, in turn, further damages economic prospects,' he said.
Yet Mr Bernanke said the efforts to prop up the economy are complicated by a commodity-fuelled surge in inflation.
But he said the Fed's strategy 'has been conditioned on our expectation that the prices of oil and other commodities would ultimately stabilise, in part as the result of slowing global growth'.
He said the Fed's extraordinary efforts to pump liquidity into the financial system were 'intended to mitigate what have been, at times, very severe strains in short-term funding markets and, by providing an additional source of financing, to allow banks and other financial institutions to deleverage in a more orderly manner'.
Mr Bernanke said the Fed and government authorities are looking at more comprehensive regulatory overhauls to help avert further crises and stabilise the financial system.
This means moving beyond the banking system that is closely regulated by the Fed and having tighter rules for investment firms and brokerages that allows regulators to potentially step in and take control in a manner similar to that of a failed bank.
He said the rescue of Bear Stearns, in which the Fed and Treasury helped the failing firm's buyout by JPMorgan Chase, 'was severely complicated by the lack of a clear statutory framework' and that Congress should consider such a framework.
'A statutory resolution regime for non-banks, besides reducing uncertainty, would also limit moral hazard by allowing the government to resolve failing firms in a way that is orderly but also wipes out equity holders and haircuts some creditors, analogous to what happens when a commercial bank fails,' the Fed chief said.
He said another point to consider is 'a more fully integrated overview of the entire financial system', which he said 'has become less bank-centred'.
Earlier yesterday, billionaire investor Warren Buffett said the US economy is unlikely to improve before 2009, and that he expects the government to take action to support troubled mortgage financiers Fannie Mae and Freddie Mac.
Speaking on CNBC television, Mr Buffett said retail businesses within his Berkshire Hathaway Inc, insurance and investment conglomerate have been struggling and that the economy is now suffering from past excesses in the availability of credit.
'You always find out who's been swimming naked when the tide goes out. We found out that Wall Street has been kind of a nudist beach,' said Mr Buffett, the world's richest person, according to Forbes magazine. -- AFP, Reuters
Financial storm is still blowing: Bernanke
Fed working on three fronts to maintain economic stability, says US central bank chief
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(WASHINGTON) US Federal Reserve chairman Ben Bernanke said yesterday the financial storm that began last year 'has not yet subsided', creating 'one of the most challenging' economic environments in memory.
Mr Bernanke: A commodity-fuelled surge in inflation is complicating the efforts to prop up the economy
In comments to the Fed's annual symposium in Jackson Hole, Wyoming, Mr Bernanke said economic conditions remain soft as unemployment is rising and inflation pressures remain hot.
The mix has created 'one of the most challenging economic and policy environments in memory', Mr Bernanke said, according to a text of his remarks released by the central bank.
Mr Bernanke said the Fed has been working on three fronts in an effort to maintain economic stability - keeping interest rates low to prevent a collapse of economic activity, offering extra liquidity to banks and brokerages facing a credit squeeze, and revamping the regulatory structure to prevent a recurrence of the housing boom-bust cycle.
'By cushioning the first- round economic impact of the financial stress, we hoped also to minimise the risks of a so-called adverse feedback loop in which economic weakness exacerbates financial stress, which, in turn, further damages economic prospects,' he said.
Yet Mr Bernanke said the efforts to prop up the economy are complicated by a commodity-fuelled surge in inflation.
But he said the Fed's strategy 'has been conditioned on our expectation that the prices of oil and other commodities would ultimately stabilise, in part as the result of slowing global growth'.
He said the Fed's extraordinary efforts to pump liquidity into the financial system were 'intended to mitigate what have been, at times, very severe strains in short-term funding markets and, by providing an additional source of financing, to allow banks and other financial institutions to deleverage in a more orderly manner'.
Mr Bernanke said the Fed and government authorities are looking at more comprehensive regulatory overhauls to help avert further crises and stabilise the financial system.
This means moving beyond the banking system that is closely regulated by the Fed and having tighter rules for investment firms and brokerages that allows regulators to potentially step in and take control in a manner similar to that of a failed bank.
He said the rescue of Bear Stearns, in which the Fed and Treasury helped the failing firm's buyout by JPMorgan Chase, 'was severely complicated by the lack of a clear statutory framework' and that Congress should consider such a framework.
'A statutory resolution regime for non-banks, besides reducing uncertainty, would also limit moral hazard by allowing the government to resolve failing firms in a way that is orderly but also wipes out equity holders and haircuts some creditors, analogous to what happens when a commercial bank fails,' the Fed chief said.
He said another point to consider is 'a more fully integrated overview of the entire financial system', which he said 'has become less bank-centred'.
Earlier yesterday, billionaire investor Warren Buffett said the US economy is unlikely to improve before 2009, and that he expects the government to take action to support troubled mortgage financiers Fannie Mae and Freddie Mac.
Speaking on CNBC television, Mr Buffett said retail businesses within his Berkshire Hathaway Inc, insurance and investment conglomerate have been struggling and that the economy is now suffering from past excesses in the availability of credit.
'You always find out who's been swimming naked when the tide goes out. We found out that Wall Street has been kind of a nudist beach,' said Mr Buffett, the world's richest person, according to Forbes magazine. -- AFP, Reuters
Published August 23, 2008
iPhone, therefore I queue
By WINSTON CHAI
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(SINGAPORE) Singapore may have missed out on its second piece of table tennis silverware in the Olympics but Singaporeans still appear to be going for the gold when it comes to demonstrating their passion for cutting-edge gizmos.
The iPhone fan club: SingTel hired nearly a hundred temporary deckhands to cope with the hundreds of eager buyers that queued up for the iPhone 3G
Matching the fervour of their overseas counterparts, over a thousand consumers braved the searing heat and the snaking queues for the unofficial honour of becoming the first lot to bite into the iPhone 3G, the fastest-selling handset in Singapore history.
The coveted touch-screen phone from Apple officially made its local debut through Singapore Telecommunications at around 12.03am yesterday, accompanied by a small fireworks display and the cheer of a human line which started forming 12 hours earlier.
At 5pm yesterday afternoon, hundreds of eager buyers were still queuing at SingTel's Comcentre headquarters, chalking up an average waiting time of nearly three hours before they got their hands on the prized device.
The operator hired nearly a hundred temporary deckhands to cope with the human traffic and sales staff that were involved in the event were made to sign non-disclosure agreements to prevent the leakage of pricing details before the launch.
'Consumers in Singapore are very fashion-conscious and there is a very strong desire to be seen with the latest gadgets or fashion accessories. To this end, Apple has to be credited with transforming a communications device into a sleek fashion statement,' noted Foong King-Yew, research director for communications at analyst firm Gartner Inc.
'Alternative touch-screen devices are available, but the Apple device brings with it an additional dimension in terms of making a public statement with it,' he added.
Singapore is part of the second wave of 20 countries that welcomed the second-generation iPhone yesterday. The souped-up handset, which supports third-generation cellular networks and additional features such as satellite positioning, made its debut in 21 countries last month.
Unlike the shortage faced by operators in the early launch markets, SingTel appears to have an ample supply of iPhones for Singaporeans who are willing to wait in line.
The telco would not disclose the number of pre-orders it has received but BT understands that as many as 50,000 registrations could have been submitted since SingTel's iPhone website went 'live' in June. The company had previously said it will be able to 'meet the demand' from local consumers.
As testament to this claim, buyers are even allowed to buy two to three iPhones at one go. However, each unit is tied to a two-year SingTel contract and its eventual price tag ranges from $0 to as much as $848, depending on the subscription plan a user opts for.
The iPhone will continue to go on sale at the Comcentre until Sunday, after which pre-registered consumers will be able to buy the phone from SingTel's Hello! outlets across the island. Singapore's largest telco will get to sell the iPhone exclusively for the next three months at least, with rivals M1 and StarHub being expected to join in by the end of this year.
'When the first iPhone was released, Apple did not flood the market with it, rather it controlled the distribution and availability. Scarcity and exclusivity together makes for a very potent combination,' Mr Foong stressed.
iPhone, therefore I queue
By WINSTON CHAI
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(SINGAPORE) Singapore may have missed out on its second piece of table tennis silverware in the Olympics but Singaporeans still appear to be going for the gold when it comes to demonstrating their passion for cutting-edge gizmos.
The iPhone fan club: SingTel hired nearly a hundred temporary deckhands to cope with the hundreds of eager buyers that queued up for the iPhone 3G
Matching the fervour of their overseas counterparts, over a thousand consumers braved the searing heat and the snaking queues for the unofficial honour of becoming the first lot to bite into the iPhone 3G, the fastest-selling handset in Singapore history.
The coveted touch-screen phone from Apple officially made its local debut through Singapore Telecommunications at around 12.03am yesterday, accompanied by a small fireworks display and the cheer of a human line which started forming 12 hours earlier.
At 5pm yesterday afternoon, hundreds of eager buyers were still queuing at SingTel's Comcentre headquarters, chalking up an average waiting time of nearly three hours before they got their hands on the prized device.
The operator hired nearly a hundred temporary deckhands to cope with the human traffic and sales staff that were involved in the event were made to sign non-disclosure agreements to prevent the leakage of pricing details before the launch.
'Consumers in Singapore are very fashion-conscious and there is a very strong desire to be seen with the latest gadgets or fashion accessories. To this end, Apple has to be credited with transforming a communications device into a sleek fashion statement,' noted Foong King-Yew, research director for communications at analyst firm Gartner Inc.
'Alternative touch-screen devices are available, but the Apple device brings with it an additional dimension in terms of making a public statement with it,' he added.
Singapore is part of the second wave of 20 countries that welcomed the second-generation iPhone yesterday. The souped-up handset, which supports third-generation cellular networks and additional features such as satellite positioning, made its debut in 21 countries last month.
Unlike the shortage faced by operators in the early launch markets, SingTel appears to have an ample supply of iPhones for Singaporeans who are willing to wait in line.
The telco would not disclose the number of pre-orders it has received but BT understands that as many as 50,000 registrations could have been submitted since SingTel's iPhone website went 'live' in June. The company had previously said it will be able to 'meet the demand' from local consumers.
As testament to this claim, buyers are even allowed to buy two to three iPhones at one go. However, each unit is tied to a two-year SingTel contract and its eventual price tag ranges from $0 to as much as $848, depending on the subscription plan a user opts for.
The iPhone will continue to go on sale at the Comcentre until Sunday, after which pre-registered consumers will be able to buy the phone from SingTel's Hello! outlets across the island. Singapore's largest telco will get to sell the iPhone exclusively for the next three months at least, with rivals M1 and StarHub being expected to join in by the end of this year.
'When the first iPhone was released, Apple did not flood the market with it, rather it controlled the distribution and availability. Scarcity and exclusivity together makes for a very potent combination,' Mr Foong stressed.
Friday, 22 August 2008
Published August 22, 2008
Going against conventional wisdom
By S JAYASANKARAN
IN KUALA LUMPUR
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WHEN Tan Teng Boo listed icapital.biz on the Kuala Lumpur Stock Exchange in October 2005, he predicted that the firm would double its assets in five years. It took him two years.
icapital.biz is Malaysia's only listed closed-end fund and, to his credit, Mr Tan also proved that the great cliche about closed-end funds - that they inevitably trade at a discount to their net asset value (NAV) - was a lie.
Since the listing, icapital.biz has consistently traded at a slight premium over its NAV. Currently, the fund trades at RM1.81 compared with a NAV of RM1.75.
More to the point, Mr Tan's fund has consistently outperformed the Kuala Lumpur Stock Exchange.
From listing to July 25, the fund's NAV has made an annual compounded gain of 23 per cent a year as opposed to 8 per cent by the benchmark composite index of the stock exchange. Meanwhile, the fund's market price has jumped 80 per cent.
Given that the fund's profits principally come from realised investment gains and dividends, it is quite remarkable that icapital.biz made a pre-tax profit of RM41.1 million (S$17.4 million) for its 2008 financial year, a figure mainly driven by RM36.7 million in investment gains.
The gangling, bespectacled Mr Tan eschews borrowings completely and believes firmly in the virtues of 'value' investing along the lines of that preached by people like Warren Buffett. He has told investors bluntly that 'if you expect dividends, forget it, but I will give you capital appreciation'.
So far, he's delivered and many investors in Kuala Lumpur buy his weekly newsletter (icapital) to follow his stock recommendations. Among the fund's major investments: Parkson, Fraser and Neave, Petronas Dagangan, VADS, PIE International and TM International.
Among the fund's newer investments: Suria Capital, Telekom Malaysia, TM International, Boustead Holdings and Hai-O Enterprise. And by the way, Mr Tan rates the fund as a 'long-term buy below RM2'.
Going against conventional wisdom
By S JAYASANKARAN
IN KUALA LUMPUR
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WHEN Tan Teng Boo listed icapital.biz on the Kuala Lumpur Stock Exchange in October 2005, he predicted that the firm would double its assets in five years. It took him two years.
icapital.biz is Malaysia's only listed closed-end fund and, to his credit, Mr Tan also proved that the great cliche about closed-end funds - that they inevitably trade at a discount to their net asset value (NAV) - was a lie.
Since the listing, icapital.biz has consistently traded at a slight premium over its NAV. Currently, the fund trades at RM1.81 compared with a NAV of RM1.75.
More to the point, Mr Tan's fund has consistently outperformed the Kuala Lumpur Stock Exchange.
From listing to July 25, the fund's NAV has made an annual compounded gain of 23 per cent a year as opposed to 8 per cent by the benchmark composite index of the stock exchange. Meanwhile, the fund's market price has jumped 80 per cent.
Given that the fund's profits principally come from realised investment gains and dividends, it is quite remarkable that icapital.biz made a pre-tax profit of RM41.1 million (S$17.4 million) for its 2008 financial year, a figure mainly driven by RM36.7 million in investment gains.
The gangling, bespectacled Mr Tan eschews borrowings completely and believes firmly in the virtues of 'value' investing along the lines of that preached by people like Warren Buffett. He has told investors bluntly that 'if you expect dividends, forget it, but I will give you capital appreciation'.
So far, he's delivered and many investors in Kuala Lumpur buy his weekly newsletter (icapital) to follow his stock recommendations. Among the fund's major investments: Parkson, Fraser and Neave, Petronas Dagangan, VADS, PIE International and TM International.
Among the fund's newer investments: Suria Capital, Telekom Malaysia, TM International, Boustead Holdings and Hai-O Enterprise. And by the way, Mr Tan rates the fund as a 'long-term buy below RM2'.
Published August 22, 2008
Wariness paying off for Sime Darby as it fends off unpromising projects
By S JAYASANKARAN
IN KUALA LUMPUR
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A NEW caution on Sime Darby's part could be the saviour of its share price going forward.
The new caution could even extend to the Northern Corridor, motivated more by politics.
Once the darling of the stock exchange, Malaysian multinational Sime Darby is a shadow of its former self, trading at almost half the market capitalisation it enjoyed when it re-listed late last year as the world's largest oil palm company.
At RM6.30 a share currently, Sime is now valued at RM37.2 billion (S$15.8 billion) compared with nearly RM66 billion when it re-listed last November.
The main reason for the share price decline is the steep drop in world crude palm oil prices, which fell from RM3,500 a tonne six months ago to around RN2,600 a tonne currently.
Plantations make up almost 70 per cent of Sime's earnings but, even so, its stock appears more bruised than other plantations like KLK and IOI Corporation.
It isn't entirely clear why this is so. For the year to end-June 2007, Sime made a RM2 billion net profit on the back of RM28 billion in revenues. And analysts expect a net profit of RM3.5 billion this year.
The former Synergy Drive came into being after it acquired eight companies, including Guthrie and Golden Hope early last year and went on to become Malaysia's largest company by way of market capitalisation when it re-listed.
Some investor worries may have surfaced four months ago when Sime reported RM120 million in futures trading losses at a Sime unit. Subsequently, two senior officials were sacked and three senior officials resigned.
But most of the worries centre on Sime's strong balance sheet and the possibility that the government could look to it as a vehicle for 'national service' projects.
Example: Sime drew up the blueprint for Prime Minister Abdullah Ahmad Badawi's grandiose scheme for the Northern Corridor Economic Region encompassing the states of Northern Perak, Kedah, Perlis and Penang. Indeed, Sime was supposed to have spearheaded large-scale rice cultivation in the region.
But a new caution seems to have descended on the company which, in itself, could be the best thing for it. In late June, for example, Sime announced that it would not take a 60 per cent interest in Sarawak Hidro, the owner of the 2,400 MW hydro-electric dam in Bakun, Sarawak.
Neither would it take part in building and owning two 700km cables that would transmit Bakun's power to Peninsular Malaysia.
Sime, which is currently building the dam, said in a terse statement that the project's economies 'did not fit its business model'.
Most analysts cheered the decision because many had felt that the RM9 billion undersea cable project, especially, was not viable.
The new caution could even extend to the Northern Corridor except that it may be motivated more by political considerations.
Except for Perlis, the other states all fell to the Opposition in the last election and Mr Abdullah may be loath to extend development to Opposition-led states of Kedah, Perak and Penang.
From those perspectives, Sime would seem to be singularly undervalued given its current levels. The company is trading at around 10 times 2008 earnings while the historical price-earnings mean over the last 10 years for plantations has been around 15 times.
Moreover, JPMorgan estimates that the continued integration of the three plantation groups could result in merger synergies that could contribute as much as 6-10 per cent towards net profit in 2009 and 2010.
Notwithstanding palm oil prices, Sime still casts a long shadow. With 525,000 hectares of oil palm estate, Sime is the world's largest listed plantation company.
It is also Malaysia's largest listed property landowner with some 3,520 ha of land available for immediate development.
Indeed, Sime's flotation added a very liquid heavyweight to a Malaysian exchange that has sorely lacked one.
It also added heft to the exchange in terms of Sime's global reach - a presence in 20 countries including Singapore - and brand-name as foreign fund managers generally would hold the world's largest plantation company in their portfolios.
Businessman Chua Ma Yu, who came up with the merger idea through a paper to then premier Mahathir Mohamad in 2002, once told BT that he expected Sime to become Malaysia's first RM100 billion company going forward. It may take longer than he thinks.
Wariness paying off for Sime Darby as it fends off unpromising projects
By S JAYASANKARAN
IN KUALA LUMPUR
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A NEW caution on Sime Darby's part could be the saviour of its share price going forward.
The new caution could even extend to the Northern Corridor, motivated more by politics.
Once the darling of the stock exchange, Malaysian multinational Sime Darby is a shadow of its former self, trading at almost half the market capitalisation it enjoyed when it re-listed late last year as the world's largest oil palm company.
At RM6.30 a share currently, Sime is now valued at RM37.2 billion (S$15.8 billion) compared with nearly RM66 billion when it re-listed last November.
The main reason for the share price decline is the steep drop in world crude palm oil prices, which fell from RM3,500 a tonne six months ago to around RN2,600 a tonne currently.
Plantations make up almost 70 per cent of Sime's earnings but, even so, its stock appears more bruised than other plantations like KLK and IOI Corporation.
It isn't entirely clear why this is so. For the year to end-June 2007, Sime made a RM2 billion net profit on the back of RM28 billion in revenues. And analysts expect a net profit of RM3.5 billion this year.
The former Synergy Drive came into being after it acquired eight companies, including Guthrie and Golden Hope early last year and went on to become Malaysia's largest company by way of market capitalisation when it re-listed.
Some investor worries may have surfaced four months ago when Sime reported RM120 million in futures trading losses at a Sime unit. Subsequently, two senior officials were sacked and three senior officials resigned.
But most of the worries centre on Sime's strong balance sheet and the possibility that the government could look to it as a vehicle for 'national service' projects.
Example: Sime drew up the blueprint for Prime Minister Abdullah Ahmad Badawi's grandiose scheme for the Northern Corridor Economic Region encompassing the states of Northern Perak, Kedah, Perlis and Penang. Indeed, Sime was supposed to have spearheaded large-scale rice cultivation in the region.
But a new caution seems to have descended on the company which, in itself, could be the best thing for it. In late June, for example, Sime announced that it would not take a 60 per cent interest in Sarawak Hidro, the owner of the 2,400 MW hydro-electric dam in Bakun, Sarawak.
Neither would it take part in building and owning two 700km cables that would transmit Bakun's power to Peninsular Malaysia.
Sime, which is currently building the dam, said in a terse statement that the project's economies 'did not fit its business model'.
Most analysts cheered the decision because many had felt that the RM9 billion undersea cable project, especially, was not viable.
The new caution could even extend to the Northern Corridor except that it may be motivated more by political considerations.
Except for Perlis, the other states all fell to the Opposition in the last election and Mr Abdullah may be loath to extend development to Opposition-led states of Kedah, Perak and Penang.
From those perspectives, Sime would seem to be singularly undervalued given its current levels. The company is trading at around 10 times 2008 earnings while the historical price-earnings mean over the last 10 years for plantations has been around 15 times.
Moreover, JPMorgan estimates that the continued integration of the three plantation groups could result in merger synergies that could contribute as much as 6-10 per cent towards net profit in 2009 and 2010.
Notwithstanding palm oil prices, Sime still casts a long shadow. With 525,000 hectares of oil palm estate, Sime is the world's largest listed plantation company.
It is also Malaysia's largest listed property landowner with some 3,520 ha of land available for immediate development.
Indeed, Sime's flotation added a very liquid heavyweight to a Malaysian exchange that has sorely lacked one.
It also added heft to the exchange in terms of Sime's global reach - a presence in 20 countries including Singapore - and brand-name as foreign fund managers generally would hold the world's largest plantation company in their portfolios.
Businessman Chua Ma Yu, who came up with the merger idea through a paper to then premier Mahathir Mohamad in 2002, once told BT that he expected Sime to become Malaysia's first RM100 billion company going forward. It may take longer than he thinks.
Published August 22, 2008
More flexible guidelines for M'sian reits
More leeway for expansion, but withholding taxes not addressed
By PAULINE NG
IN KUALA LUMPUR
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MALAYSIA has announced new real estate investment trust (Reit) guidelines that would give Reit management companies greater flexibility to manage and expand their portfolios, but left the issue of its uncompetitive withholding taxes untouched.
Revised guidelines: Reits can now buy property that is under construction or uncompleted real estate
The new measures - a follow-on to earlier ones announced in the last national budget where foreign shareholders were allowed to hold up to 70 per cent of Reit management companies, from 49 per cent previously - make it easier for Malaysian Reits in terms of acquisitions and fund-raising.
Reit managers would be given more leeway to invest in foreign real estate and a portion of their portfolio can consist of real estate that it does not wholly own or claim a majority stake in.
The Securities Commission's (SC) revised guidelines also allow Reit managers to seek a general mandate from unit-holders for issuing units up to 20 per cent of its fund size, where previously the issuance of any number of new units required the specific approval of unit holders.
Although Reits are still not permitted to acquire non-income generating real estate such as vacant land, they can now buy property that is under construction or uncompleted real estate up to 10 per cent of their total asset value.
Trustees would also have a bigger role to play in related party transactions, with new rules introduced to regulate such transactions.
But the new rules designed to give more management flexibility and to augment investor protection aside, there was disappointment in that the main drag on the industry was not addressed.
Reit managers and analysts have repeatedly stressed the country's high withholding taxes on Reit income make it an unattractive proposition for investors, particularly foreign ones, and have stymied the sector's growth with potential Reit owners preferring to look elsewhere.
While the SC has done a good job trying to relax the sector yet protecting the interest of investors, Quill Capita Trust chief executive Chan Say Yeong said the measures would not boost the industry unless the tax issue was addressed. 'What is more important right now is the withholding tax,' he observed, the lack of attention to the matter in the past three years being a sore point with investors. 'Investors tell us on our roadshows that the government is not serious in promoting the industry.'
Malaysia's withholding tax on Reit dividends received by foreign institutions is 20 per cent or twice the amount Singapore imposes. Individuals are also taxed at 15 per cent.
At 7 per cent, Malaysian Reits might offer higher yields, but after deducting the tax, it is not significantly more attractive than the 5-6 per cent yield offered by Singapore Reits - a reason why they did not perform as well even when the stock market was roaring last year.
Despite these disadvantages, CapitaLand has committed to the listing of a RM2 billion (S$844 million) asset-sized retail Reit on Bursa Malaysia, likely to be the largest Reit in the country.
However, the Finance Ministry's reluctance to lower the taxes has been a source of frustration for players who continue to clamour for a reduction ahead of every national budget - 2009's to be tabled next Friday. At the same time, a number of local owners with large property assets have said they do not discount listing their Reits overseas in more favourable markets.
Why the ministry continues to maintain the rate is unclear as analysts said the funds earned are not huge given Malaysia only has some 11 Reits at present, the average asset size less than RM500 million.
In its statement, the SC also said its prior approval on real estate valuation was now only required where the purchase of a real estate is financed, or re-financed within one year, through the issuance of new units. In all other circumstances, it would conduct a post-review of the valuations to ensure they are reasonable and well-supported.
More flexible guidelines for M'sian reits
More leeway for expansion, but withholding taxes not addressed
By PAULINE NG
IN KUALA LUMPUR
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MALAYSIA has announced new real estate investment trust (Reit) guidelines that would give Reit management companies greater flexibility to manage and expand their portfolios, but left the issue of its uncompetitive withholding taxes untouched.
Revised guidelines: Reits can now buy property that is under construction or uncompleted real estate
The new measures - a follow-on to earlier ones announced in the last national budget where foreign shareholders were allowed to hold up to 70 per cent of Reit management companies, from 49 per cent previously - make it easier for Malaysian Reits in terms of acquisitions and fund-raising.
Reit managers would be given more leeway to invest in foreign real estate and a portion of their portfolio can consist of real estate that it does not wholly own or claim a majority stake in.
The Securities Commission's (SC) revised guidelines also allow Reit managers to seek a general mandate from unit-holders for issuing units up to 20 per cent of its fund size, where previously the issuance of any number of new units required the specific approval of unit holders.
Although Reits are still not permitted to acquire non-income generating real estate such as vacant land, they can now buy property that is under construction or uncompleted real estate up to 10 per cent of their total asset value.
Trustees would also have a bigger role to play in related party transactions, with new rules introduced to regulate such transactions.
But the new rules designed to give more management flexibility and to augment investor protection aside, there was disappointment in that the main drag on the industry was not addressed.
Reit managers and analysts have repeatedly stressed the country's high withholding taxes on Reit income make it an unattractive proposition for investors, particularly foreign ones, and have stymied the sector's growth with potential Reit owners preferring to look elsewhere.
While the SC has done a good job trying to relax the sector yet protecting the interest of investors, Quill Capita Trust chief executive Chan Say Yeong said the measures would not boost the industry unless the tax issue was addressed. 'What is more important right now is the withholding tax,' he observed, the lack of attention to the matter in the past three years being a sore point with investors. 'Investors tell us on our roadshows that the government is not serious in promoting the industry.'
Malaysia's withholding tax on Reit dividends received by foreign institutions is 20 per cent or twice the amount Singapore imposes. Individuals are also taxed at 15 per cent.
At 7 per cent, Malaysian Reits might offer higher yields, but after deducting the tax, it is not significantly more attractive than the 5-6 per cent yield offered by Singapore Reits - a reason why they did not perform as well even when the stock market was roaring last year.
Despite these disadvantages, CapitaLand has committed to the listing of a RM2 billion (S$844 million) asset-sized retail Reit on Bursa Malaysia, likely to be the largest Reit in the country.
However, the Finance Ministry's reluctance to lower the taxes has been a source of frustration for players who continue to clamour for a reduction ahead of every national budget - 2009's to be tabled next Friday. At the same time, a number of local owners with large property assets have said they do not discount listing their Reits overseas in more favourable markets.
Why the ministry continues to maintain the rate is unclear as analysts said the funds earned are not huge given Malaysia only has some 11 Reits at present, the average asset size less than RM500 million.
In its statement, the SC also said its prior approval on real estate valuation was now only required where the purchase of a real estate is financed, or re-financed within one year, through the issuance of new units. In all other circumstances, it would conduct a post-review of the valuations to ensure they are reasonable and well-supported.
Published August 22, 2008
Market could do with Wing Tai plainspeak
By KALPANA RASHIWALA
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WHEN Wing Tai Holdings holds its fourth-quarter and full-year results briefing next Tuesday, it will be the last of the major Singapore-listed property groups to announce results for the period ended June 30, 2008. Net earnings are expected to be lower than the $382 million record performance for the preceding year. But the wait may still be worth it, if the Cheng brothers who helm the group once again give a candid assessment of the state of the Singapore property market.
The duo has made some of the frankest pronouncements on market prospects. Last August, during the early days of the US sub-prime mortgage crisis, Wing Tai chairman Cheng Wai Keung was probably the first major developer to say publicly that sub-prime woes had slowed property transactions across the entire market in Singapore.
He said: 'Yes, temporarily, it has affected some of the take-up rates. But it is actually not a bad thing. The market needs a bit of consolidation. High-end home prices have gone up 100 per cent within the last 6-9 months. It's just not sustainable. But if sub-prime settles within a reasonable period, I believe there is still room to grow in the property market. We're not at the end of the property cycle.
'On the other hand, if sub-prime or the credit market continues to be in turmoil and it affects confidence in general, then, of course, it will be a completely different scenario,' he had added.
That was in August last year. By February this year, when the sub-prime crisis and its bite on the local property market had worsened, some developers here were still singing a positive tune, hoping the sub-prime gloom would blow away after mid-year.
Upfront
But Wing Tai deputy chairman Edmund Cheng told BT at the time that it may not be realistic to expect sub-prime problems to fade away by mid-year. 'They are likely to linger beyond this year, as the exposure has extended to many other areas, and it may still take some time for the full extent of exposure to be discovered,' he said.
Now, with the official forecast for Singapore's GDP growth this year trimmed and all-round warnings for tougher times ahead, the market will hopefully once again be able to count on the Cheng brothers to deliver an honest verdict for the property market - and perhaps even offer some advice for property investors caught in the turbulence.
After all, Wing Tai itself has been through tough times. It was one of the worst-hit developers during the Asian financial crisis. It chalked up huge losses and was strained by a pile of debt.
It had bought some high-priced residential plots in Singapore in June 1997, on the eve of the Asian crisis. These included a 99-year leasehold residential site at Draycott Park that it purchased at $1,103.60 per square foot per plot ratio (psf ppr) and another plot in the Newton Road area for $611.91 psf ppr. The price of the Draycott plot remained a record for 99-year leasehold prime district residential land for about a decade.
Better shape
Wing Tai had high net gearing ratios (over 1) during the Asian crisis years and again during the more recent property slowdown in 2000-2004. Today, the group is in much better financial shape. As at March 31, 2008, its net gearing ratio was 0.5.
Like all developers, Wing Tai will try to hold off launches given the current weak market sentiment, especially since it has strengthened its financial position from the recent Singapore residential market boom between 2005 and 2007.
But, as Morgan Stanley Research said in a recent report: 'Should the residential market remain subdued for a prolonged period, Wing Tai may have no choice but to stomach lower selling prices to entice buying activity, particularly if the other developers have cut selling prices in their projects.'
The group's existing Singapore residential land bank was by and large acquired at more attractive prices, except for a 40 per cent stake in a 99-year leasehold plot at Alexandra Road bought for $639 psf ppr late last year.
Fortunately for Wing Tai, its other prime district freehold sites like Anderson 18, Ardmore Point, Belle Vue and Newton Meadows were acquired between 2005 and May 2007 at relatively attractive prices of $1,650 psf ppr and $1,369 psf ppr for Anderson 18 and Ardmore Point respectively and about $660 psf ppr for both Belle Vue and Newton Meadows.
If necessary, Wing Tai could take a hit on selling prices for new condos on these sites and should still be able to make a decent profit. Wing Tai seems to have learnt its lessons from the past and, hopefully, history will not repeat itself. As a bonus, the Cheng brothers may again offer probing insights into the local property market next week.
Market could do with Wing Tai plainspeak
By KALPANA RASHIWALA
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WHEN Wing Tai Holdings holds its fourth-quarter and full-year results briefing next Tuesday, it will be the last of the major Singapore-listed property groups to announce results for the period ended June 30, 2008. Net earnings are expected to be lower than the $382 million record performance for the preceding year. But the wait may still be worth it, if the Cheng brothers who helm the group once again give a candid assessment of the state of the Singapore property market.
The duo has made some of the frankest pronouncements on market prospects. Last August, during the early days of the US sub-prime mortgage crisis, Wing Tai chairman Cheng Wai Keung was probably the first major developer to say publicly that sub-prime woes had slowed property transactions across the entire market in Singapore.
He said: 'Yes, temporarily, it has affected some of the take-up rates. But it is actually not a bad thing. The market needs a bit of consolidation. High-end home prices have gone up 100 per cent within the last 6-9 months. It's just not sustainable. But if sub-prime settles within a reasonable period, I believe there is still room to grow in the property market. We're not at the end of the property cycle.
'On the other hand, if sub-prime or the credit market continues to be in turmoil and it affects confidence in general, then, of course, it will be a completely different scenario,' he had added.
That was in August last year. By February this year, when the sub-prime crisis and its bite on the local property market had worsened, some developers here were still singing a positive tune, hoping the sub-prime gloom would blow away after mid-year.
Upfront
But Wing Tai deputy chairman Edmund Cheng told BT at the time that it may not be realistic to expect sub-prime problems to fade away by mid-year. 'They are likely to linger beyond this year, as the exposure has extended to many other areas, and it may still take some time for the full extent of exposure to be discovered,' he said.
Now, with the official forecast for Singapore's GDP growth this year trimmed and all-round warnings for tougher times ahead, the market will hopefully once again be able to count on the Cheng brothers to deliver an honest verdict for the property market - and perhaps even offer some advice for property investors caught in the turbulence.
After all, Wing Tai itself has been through tough times. It was one of the worst-hit developers during the Asian financial crisis. It chalked up huge losses and was strained by a pile of debt.
It had bought some high-priced residential plots in Singapore in June 1997, on the eve of the Asian crisis. These included a 99-year leasehold residential site at Draycott Park that it purchased at $1,103.60 per square foot per plot ratio (psf ppr) and another plot in the Newton Road area for $611.91 psf ppr. The price of the Draycott plot remained a record for 99-year leasehold prime district residential land for about a decade.
Better shape
Wing Tai had high net gearing ratios (over 1) during the Asian crisis years and again during the more recent property slowdown in 2000-2004. Today, the group is in much better financial shape. As at March 31, 2008, its net gearing ratio was 0.5.
Like all developers, Wing Tai will try to hold off launches given the current weak market sentiment, especially since it has strengthened its financial position from the recent Singapore residential market boom between 2005 and 2007.
But, as Morgan Stanley Research said in a recent report: 'Should the residential market remain subdued for a prolonged period, Wing Tai may have no choice but to stomach lower selling prices to entice buying activity, particularly if the other developers have cut selling prices in their projects.'
The group's existing Singapore residential land bank was by and large acquired at more attractive prices, except for a 40 per cent stake in a 99-year leasehold plot at Alexandra Road bought for $639 psf ppr late last year.
Fortunately for Wing Tai, its other prime district freehold sites like Anderson 18, Ardmore Point, Belle Vue and Newton Meadows were acquired between 2005 and May 2007 at relatively attractive prices of $1,650 psf ppr and $1,369 psf ppr for Anderson 18 and Ardmore Point respectively and about $660 psf ppr for both Belle Vue and Newton Meadows.
If necessary, Wing Tai could take a hit on selling prices for new condos on these sites and should still be able to make a decent profit. Wing Tai seems to have learnt its lessons from the past and, hopefully, history will not repeat itself. As a bonus, the Cheng brothers may again offer probing insights into the local property market next week.
Published August 22, 2008
Cooling property market takes a seat at SLA auction
Only four of eight in-fill sites launched for residential use were eventually sold
By EMILYN YAP
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(SINGAPORE) The wait-and-see attitude that buyers have adopted in the cooling property market was evident at a Singapore Land Authority (SLA) auction yesterday.
All eyes only: 200 individuals and small developers packed a room at M Hotel, but there were only a few bidders
Some 200 individuals and small developers packed a room at M Hotel, but there were only a handful of bidders. Only four of eight in-fill sites launched for residential use were eventually sold, for a total of $13.81 million.
In-fill sites are pockets of state land in established landed housing estates that have been left untouched by nearby development or were once used for public purposes. All eight sites came with fresh 99-year leases.
'The response today was very cautious,' said auctioneer and executive director (auctions) at Knight Frank, Mary Sai. SLA conducted a similar auction for six sites last November but sold all the plots then.
Those at yesterday's auction told BT that opening prices were higher than expected. 'I think a lot of people were surprised - that's why there was not much bidding,' said retiree Anthony Tan Ho Peng.
Mr Tan won the bidding for a 4,720 sq ft three-storey bungalow plot in Glasgow Road for $710,000 or $150.40 per sq ft. Bidding started at $680,000, whereas Mr Tan had expected an opening price of $550,000.
According to SLA, the Chief Valuer decides reserve prices for sites, which cannot be awarded if bids are too low.
The timing of the auction - coinciding with the Hungry Ghost Festival or the seventh month of the lunar calendar - could have affected interest. But Ms Sai reckons this was not the main reason. 'Market sentiment is still weak,' she said. And high construction costs could be another concern.
While the auction did not generate heated competition throughout, one parcel received considerable attention. A 15,461 sq ft good class bungalow plot in Ridout Road attracted 34 bids, which drove the opening price of $7.31 million up steadily.
BreadTalk chairman George Quek eventually won the site for $8.96 million or $579.50 psf - the highest psf price of the four sites sold. Mr Quek told reporters that the land will be for his own use.
A three-storey bungalow parcel in Namly Avenue went for $2.63 million or $338.40 psf to Martha Lim. The 31-year-old CEO of Lim Seng Kok Contractor may also keep the 7,771 sq ft site for her own use.
A plot in Tanah Merah Kechil Road was sold for $1.51 million or $346.60 psf.
As for the unsold sites, SLA will work with the Chief Valuer to re-assess their prices. 'If we lower the reserve price, we could release (the site) subsequently,' said SLA's deputy director of land sales, Teo Jing Kok. Alternatively, 'if the feedback is that maybe the site is not popular and there are other in-fill sites, then we will release other sites'.
According to Mr Teo, SLA could hold one or two land auctions a year if market conditions remain steady.
Cooling property market takes a seat at SLA auction
Only four of eight in-fill sites launched for residential use were eventually sold
By EMILYN YAP
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(SINGAPORE) The wait-and-see attitude that buyers have adopted in the cooling property market was evident at a Singapore Land Authority (SLA) auction yesterday.
All eyes only: 200 individuals and small developers packed a room at M Hotel, but there were only a few bidders
Some 200 individuals and small developers packed a room at M Hotel, but there were only a handful of bidders. Only four of eight in-fill sites launched for residential use were eventually sold, for a total of $13.81 million.
In-fill sites are pockets of state land in established landed housing estates that have been left untouched by nearby development or were once used for public purposes. All eight sites came with fresh 99-year leases.
'The response today was very cautious,' said auctioneer and executive director (auctions) at Knight Frank, Mary Sai. SLA conducted a similar auction for six sites last November but sold all the plots then.
Those at yesterday's auction told BT that opening prices were higher than expected. 'I think a lot of people were surprised - that's why there was not much bidding,' said retiree Anthony Tan Ho Peng.
Mr Tan won the bidding for a 4,720 sq ft three-storey bungalow plot in Glasgow Road for $710,000 or $150.40 per sq ft. Bidding started at $680,000, whereas Mr Tan had expected an opening price of $550,000.
According to SLA, the Chief Valuer decides reserve prices for sites, which cannot be awarded if bids are too low.
The timing of the auction - coinciding with the Hungry Ghost Festival or the seventh month of the lunar calendar - could have affected interest. But Ms Sai reckons this was not the main reason. 'Market sentiment is still weak,' she said. And high construction costs could be another concern.
While the auction did not generate heated competition throughout, one parcel received considerable attention. A 15,461 sq ft good class bungalow plot in Ridout Road attracted 34 bids, which drove the opening price of $7.31 million up steadily.
BreadTalk chairman George Quek eventually won the site for $8.96 million or $579.50 psf - the highest psf price of the four sites sold. Mr Quek told reporters that the land will be for his own use.
A three-storey bungalow parcel in Namly Avenue went for $2.63 million or $338.40 psf to Martha Lim. The 31-year-old CEO of Lim Seng Kok Contractor may also keep the 7,771 sq ft site for her own use.
A plot in Tanah Merah Kechil Road was sold for $1.51 million or $346.60 psf.
As for the unsold sites, SLA will work with the Chief Valuer to re-assess their prices. 'If we lower the reserve price, we could release (the site) subsequently,' said SLA's deputy director of land sales, Teo Jing Kok. Alternatively, 'if the feedback is that maybe the site is not popular and there are other in-fill sites, then we will release other sites'.
According to Mr Teo, SLA could hold one or two land auctions a year if market conditions remain steady.
Published August 22, 2008
Two new faces in Singapore billionaire list
Wilmar's success and soaring Sing $ make list longer
By CONRAD TAN
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(SINGAPORE) Singapore now has seven US-dollar billionaires, up from five last year, according to the latest list of the 40 richest people here published by Forbes.
But the combined net worth of Singapore's 40 most affluent people stayed unchanged at US$32 billion, as some real estate tycoons here saw their fortunes dwindle with falling property stocks.
Both new entrants to the billionaire league are shareholders of Singapore-listed palm oil giant Wilmar International. As the share price of Wilmar soared 30 per cent over the past year, their fortunes skyrocketed.
A stronger Sing dollar also helped. Over the year since the previous list was compiled, the Sing dollar gained 9.1 per cent against the US dollar.
Kuok Khoon Hong, 59, Wilmar's chairman and chief executive, saw his net worth rise to US$1.3 billion from US$960 million a year ago, propelling him into fifth place on this year's Singapore rich list, up from No 6 last year.
He overtook Kwek Leng Beng, executive chairman of property group City Developments, who together with his family is estimated to be worth US$1.2 billion, up from US$1.1 billion last year.
Former remisier Peter Lim, 55, who owns just under 5 per cent of Wilmar, according to Forbes Asia magazine, stayed at No 7 on the list, but his wealth shot up to US$1.1 billion from US$830 million a year earlier.
Property magnate Ng Teng Fong, 80, and his family, who control the privately held Far East Organization, emerged as Singapore's richest family for the second year running. They have an estimated combined net worth of US$7 billion, up from US$6.7 billion last year - the result of 'a more in-depth valuation of their real estate holdings', said Forbes.
The family of late banker Khoo Teck Puat, who died in 2004, stayed in second place. Together, they control some US$6.1 billion, including an estimated US$4 billion from the sale of their stake in Standard Chartered Bank in 2006.
Veteran banker Wee Cho Yaw, 79-year-old chairman of United Overseas Bank group, and his family remained in third position, with an estimated net worth of US$3.6 billion, up from US$3.3 billion last year.
Zhong Sheng Jian - founder, chairman and chief executive of China-based property developer Yanlord Land Group - saw his net worth tumble US$700 million over the past year as the group's share price fell, but still managed to retain his spot as the fourth richest person in Singapore with US$1.8 billion to his name.
Of this year's top 40, four were new entrants, including Wong Fong Fui, chairman of Boustead Singapore, an engineering and infrastructure firm, at No 37. His wealth is valued at US$135 million.
Vivian Chandran, the widow of Robert Chandran - founder of marine fuel company Chemoil, who died in a helicopter crash in January - also entered the list for the first time at No 23, with an estimated net worth of US$240 million.
The net worth of each of the top 40 was calculated using stock prices and exchange rates as at Aug 7, for public holdings. The value of privately held assets were estimated based on what they would be worth if public. Last year's estimates were based on prices and exchange rates as at Aug 10, 2007.
Two new faces in Singapore billionaire list
Wilmar's success and soaring Sing $ make list longer
By CONRAD TAN
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(SINGAPORE) Singapore now has seven US-dollar billionaires, up from five last year, according to the latest list of the 40 richest people here published by Forbes.
But the combined net worth of Singapore's 40 most affluent people stayed unchanged at US$32 billion, as some real estate tycoons here saw their fortunes dwindle with falling property stocks.
Both new entrants to the billionaire league are shareholders of Singapore-listed palm oil giant Wilmar International. As the share price of Wilmar soared 30 per cent over the past year, their fortunes skyrocketed.
A stronger Sing dollar also helped. Over the year since the previous list was compiled, the Sing dollar gained 9.1 per cent against the US dollar.
Kuok Khoon Hong, 59, Wilmar's chairman and chief executive, saw his net worth rise to US$1.3 billion from US$960 million a year ago, propelling him into fifth place on this year's Singapore rich list, up from No 6 last year.
He overtook Kwek Leng Beng, executive chairman of property group City Developments, who together with his family is estimated to be worth US$1.2 billion, up from US$1.1 billion last year.
Former remisier Peter Lim, 55, who owns just under 5 per cent of Wilmar, according to Forbes Asia magazine, stayed at No 7 on the list, but his wealth shot up to US$1.1 billion from US$830 million a year earlier.
Property magnate Ng Teng Fong, 80, and his family, who control the privately held Far East Organization, emerged as Singapore's richest family for the second year running. They have an estimated combined net worth of US$7 billion, up from US$6.7 billion last year - the result of 'a more in-depth valuation of their real estate holdings', said Forbes.
The family of late banker Khoo Teck Puat, who died in 2004, stayed in second place. Together, they control some US$6.1 billion, including an estimated US$4 billion from the sale of their stake in Standard Chartered Bank in 2006.
Veteran banker Wee Cho Yaw, 79-year-old chairman of United Overseas Bank group, and his family remained in third position, with an estimated net worth of US$3.6 billion, up from US$3.3 billion last year.
Zhong Sheng Jian - founder, chairman and chief executive of China-based property developer Yanlord Land Group - saw his net worth tumble US$700 million over the past year as the group's share price fell, but still managed to retain his spot as the fourth richest person in Singapore with US$1.8 billion to his name.
Of this year's top 40, four were new entrants, including Wong Fong Fui, chairman of Boustead Singapore, an engineering and infrastructure firm, at No 37. His wealth is valued at US$135 million.
Vivian Chandran, the widow of Robert Chandran - founder of marine fuel company Chemoil, who died in a helicopter crash in January - also entered the list for the first time at No 23, with an estimated net worth of US$240 million.
The net worth of each of the top 40 was calculated using stock prices and exchange rates as at Aug 7, for public holdings. The value of privately held assets were estimated based on what they would be worth if public. Last year's estimates were based on prices and exchange rates as at Aug 10, 2007.
Published August 22, 2008
Key barometer signals deeper US gloom
Slide in Conference Board's widely-watched index is much more than a Wall St consensus estimate
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(NEW YORK) In a sign of further US economic unravelling, the index of leading US economic indicators plummeted 0.7 per cent in July to the lowest level in nearly four years.
The Conference Board's index, a key forecasting gauge of the US economy, fell to 101.2, the lowest since it was 100.7 in October 2004.
The influential private business group's economic indicator was pushed lower by declines in the stock market, drops in new building permits and rising unemployment.
The fall in the indicator is also much more than the consensus estimate of a 0.2 per cent decline by Wall Street economists surveyed by Thomson/IFR.
The last time the index of leading US economic indicators showed a drop this great was last August, when it fell by one per cent.
The index points to the direction of the economy over the next 3-6 months. In the last six months, the index has risen only once - by 0.1 per cent in April. It also has fallen 0.9 per cent over the same time period, the board said.
A separate report showed manufacturing in the Philadelphia region shrank in August for a ninth month.
The numbers are 'consistent with the weak economy right now, probably an economy in recession', James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, said in a Bloomberg Television interview.
The index was forecast to decline 0.2 per cent, according to the median of 63 economists in a Bloomberg News survey, after an originally reported drop of 0.1 per cent in June. Estimates ranged from a decline of 0.9 per cent to a gain of 0.1 per cent. Sagging orders and falling sales hurt factories in the Philadelphia region this month, a report from the Federal Reserve Bank of Philadelphia showed.
Its general economic index rose to minus 12.7 from minus 16.3 in July. Negative readings signal a decline. The measure averaged 5.1 last year.
The leading index decreased at a 1.8 per cent annual pace over the past six months. A decline of around 4-4.5 per cent at an annual pace is one signal that a recession is imminent, according to the Conference Board. The gauge met that requirement in January, when it dropped at a 4.7 per cent pace.
Five of the 10 indicators in yesterday's report subtracted from the index, led by declines in building permits and stock prices.
Housing subtracted 0.53 percentage point. Building permits, a sign of future construction, fell 18 per cent in July, while work began on the fewest houses in 17 years, the Commerce Department reported this week.
A 0.25 percentage point drag came from the Standard & Poor's 500 index, which averaged 1,257.3 last month, down from June's 1,341.2.
First-time claims for jobless benefits took away 0.23 percentage point from the leading index. Claims rose to an average 420,800 in July, and jumped to a six-year high earlier this month.
Earlier yesterday, a Labor Department report showed initial jobless claims fell to 432,000 - indicating that the labour market is still deteriorating.
A decline in orders for consumer goods and a drop in the money supply adjusted for inflation, which has the biggest weighting, also hurt the leading index. -- AP, Reuters, Bloomberg
Key barometer signals deeper US gloom
Slide in Conference Board's widely-watched index is much more than a Wall St consensus estimate
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(NEW YORK) In a sign of further US economic unravelling, the index of leading US economic indicators plummeted 0.7 per cent in July to the lowest level in nearly four years.
The Conference Board's index, a key forecasting gauge of the US economy, fell to 101.2, the lowest since it was 100.7 in October 2004.
The influential private business group's economic indicator was pushed lower by declines in the stock market, drops in new building permits and rising unemployment.
The fall in the indicator is also much more than the consensus estimate of a 0.2 per cent decline by Wall Street economists surveyed by Thomson/IFR.
The last time the index of leading US economic indicators showed a drop this great was last August, when it fell by one per cent.
The index points to the direction of the economy over the next 3-6 months. In the last six months, the index has risen only once - by 0.1 per cent in April. It also has fallen 0.9 per cent over the same time period, the board said.
A separate report showed manufacturing in the Philadelphia region shrank in August for a ninth month.
The numbers are 'consistent with the weak economy right now, probably an economy in recession', James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, said in a Bloomberg Television interview.
The index was forecast to decline 0.2 per cent, according to the median of 63 economists in a Bloomberg News survey, after an originally reported drop of 0.1 per cent in June. Estimates ranged from a decline of 0.9 per cent to a gain of 0.1 per cent. Sagging orders and falling sales hurt factories in the Philadelphia region this month, a report from the Federal Reserve Bank of Philadelphia showed.
Its general economic index rose to minus 12.7 from minus 16.3 in July. Negative readings signal a decline. The measure averaged 5.1 last year.
The leading index decreased at a 1.8 per cent annual pace over the past six months. A decline of around 4-4.5 per cent at an annual pace is one signal that a recession is imminent, according to the Conference Board. The gauge met that requirement in January, when it dropped at a 4.7 per cent pace.
Five of the 10 indicators in yesterday's report subtracted from the index, led by declines in building permits and stock prices.
Housing subtracted 0.53 percentage point. Building permits, a sign of future construction, fell 18 per cent in July, while work began on the fewest houses in 17 years, the Commerce Department reported this week.
A 0.25 percentage point drag came from the Standard & Poor's 500 index, which averaged 1,257.3 last month, down from June's 1,341.2.
First-time claims for jobless benefits took away 0.23 percentage point from the leading index. Claims rose to an average 420,800 in July, and jumped to a six-year high earlier this month.
Earlier yesterday, a Labor Department report showed initial jobless claims fell to 432,000 - indicating that the labour market is still deteriorating.
A decline in orders for consumer goods and a drop in the money supply adjusted for inflation, which has the biggest weighting, also hurt the leading index. -- AP, Reuters, Bloomberg
Thursday, 21 August 2008
Published August 21, 2008
KL firm, state fund in RM4.2b project
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(KUALA LUMPUR) A subsidiary of developer Malaysia Pacific Corp and an investment fund backed by the Malaysian finance ministry will develop a RM4.2 billion (S$1.8 billion) industrial and tourism zone, aimed at attracting foreign companies.
The development, in Malaysia's southern Johor state which neighbours Singapore, has been billed as the country's answer to development zones in China, which have attracted billions of dollars of foreign investment. Malaysia Pacific said in a statement to Bursa Malaysia yesterday that it would set up a special purpose vehicle to develop the project and that Amanahraya Development, a finance ministry company, would invest RM99 million.
In exchange, the finance ministry fund will get rights and a put option over 22 per cent of the special vehicle, to be called Oriental Pearl City Properties, which Malaysia Pacific said could list on the Bursa Malaysia in three to four years. The plan for the Iskander Development Region (IDR) was announced in November 2006 to harness mostly private capital to turn 2,200 square kilometres of the southern state of Johor into an industrial and tourist zone.
The plan envisages raising capital globally and hiring foreign workers, with hopes of drawing investment of US$105 billion over 20 years. -- Reuters
KL firm, state fund in RM4.2b project
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(KUALA LUMPUR) A subsidiary of developer Malaysia Pacific Corp and an investment fund backed by the Malaysian finance ministry will develop a RM4.2 billion (S$1.8 billion) industrial and tourism zone, aimed at attracting foreign companies.
The development, in Malaysia's southern Johor state which neighbours Singapore, has been billed as the country's answer to development zones in China, which have attracted billions of dollars of foreign investment. Malaysia Pacific said in a statement to Bursa Malaysia yesterday that it would set up a special purpose vehicle to develop the project and that Amanahraya Development, a finance ministry company, would invest RM99 million.
In exchange, the finance ministry fund will get rights and a put option over 22 per cent of the special vehicle, to be called Oriental Pearl City Properties, which Malaysia Pacific said could list on the Bursa Malaysia in three to four years. The plan for the Iskander Development Region (IDR) was announced in November 2006 to harness mostly private capital to turn 2,200 square kilometres of the southern state of Johor into an industrial and tourist zone.
The plan envisages raising capital globally and hiring foreign workers, with hopes of drawing investment of US$105 billion over 20 years. -- Reuters
Published August 21, 2008
Telekom's Q2 net profit slumps 61%
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(KUALA LUMPUR) Telekom Malaysia, the country's top fixed-line operator, reported on Tuesday a 61 per cent drop in quarterly profit, hit by falling voice revenues.
Talking tough: Its earnings fell on declining voice revenues but it's confident it'll stay profitable in the current fiscal year as increased data and broadband Internet services cushion falling voice services.
Telekom Malaysia, which has more than 90 per cent of the fixed-line and broadband market, earned RM273.17 million (S$115.8 million) in the second quarter ended June 30.
That compared with a net profit of RM701 million or 20.5 sen a share a year earlier.
It declared a dividend of 12 sen a share.
The state-controlled company said that it would remain profitable in the current fiscal year as increased data and broadband Internet services help to cushion the impact of declining voice services.
Telekom Malaysia was expected to post a 68 per cent drop in full-year profit to RM808.55 million or 23.5 sen a share, according to Reuters Estimates.
Telekom spun off its mobile phone and overseas operations in April while keeping the fixed-line data, voice and broadband business.
It said it would continue discussions with the government on a multi-billion ringgit project to build the country's high-speed broadband network following the demerger.
'Telekom Malaysia will continue to engage the government on the high speed broadband project as it believes it has submitted a comprehensive and detailed proposal and is confident to deliver high quality high-speed broadband services to the business and consumers,' it said in a statement.
The government had earlier postponed a signing ceremony with Telekom on the project for the second time in two months, fuelling talk that Telekom may not be the main contractor for the project. Telekom Malaysia shares fell 6.6 per cent in the three months to June 30, compared with a 4.9 per cent loss in the benchmark index. They dropped 2 sen, or 0.6 per cent, to close at RM3.48 yesterday. -- Reuters
Telekom's Q2 net profit slumps 61%
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(KUALA LUMPUR) Telekom Malaysia, the country's top fixed-line operator, reported on Tuesday a 61 per cent drop in quarterly profit, hit by falling voice revenues.
Talking tough: Its earnings fell on declining voice revenues but it's confident it'll stay profitable in the current fiscal year as increased data and broadband Internet services cushion falling voice services.
Telekom Malaysia, which has more than 90 per cent of the fixed-line and broadband market, earned RM273.17 million (S$115.8 million) in the second quarter ended June 30.
That compared with a net profit of RM701 million or 20.5 sen a share a year earlier.
It declared a dividend of 12 sen a share.
The state-controlled company said that it would remain profitable in the current fiscal year as increased data and broadband Internet services help to cushion the impact of declining voice services.
Telekom Malaysia was expected to post a 68 per cent drop in full-year profit to RM808.55 million or 23.5 sen a share, according to Reuters Estimates.
Telekom spun off its mobile phone and overseas operations in April while keeping the fixed-line data, voice and broadband business.
It said it would continue discussions with the government on a multi-billion ringgit project to build the country's high-speed broadband network following the demerger.
'Telekom Malaysia will continue to engage the government on the high speed broadband project as it believes it has submitted a comprehensive and detailed proposal and is confident to deliver high quality high-speed broadband services to the business and consumers,' it said in a statement.
The government had earlier postponed a signing ceremony with Telekom on the project for the second time in two months, fuelling talk that Telekom may not be the main contractor for the project. Telekom Malaysia shares fell 6.6 per cent in the three months to June 30, compared with a 4.9 per cent loss in the benchmark index. They dropped 2 sen, or 0.6 per cent, to close at RM3.48 yesterday. -- Reuters
Published August 21, 2008
Barisan plays down by-election chances
Mukhriz Mahathir sees bigger possibility in just paring opposition's majority
By LEE U-WEN
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(SINGAPORE) With just days left before a crucial by-election on Tuesday, Malaysia's ruling party has again played down its chances of preventing de facto opposition leader Anwar Ibrahim from making his return to Parliament after a 10-year absence.
Mr Mukhriz: Dismisses as psychological warfare Anwar's claim of being able to win over more than 40 Barisan MPs
Kedah Member of Parliament Mukhriz Mahathir, the youngest son of former prime minister Mahathir Mohamad, told reporters yesterday that Barisan Nasional (BN) was campaigning as the underdog and would 'be quite happy' if it could reduce the opposition's majority considerably when the votes are tallied.
'Whether we can win or not, that is a big question. But the response by voters towards our own candidate is very positive. He's a local man there and speaks the lingo. I think we have a chance, perhaps a small one, to win. But otherwise, the possibility of reducing Anwar's majority is quite large,' he said.
BN has fielded candidate Arif Shah Omar Shah against the former deputy prime minister, in the hope that he can win over some or all of the 13,398-vote majority secured by Anwar's wife, Wan Azizah Wan Ismail, when she won the Permatang Pauh seat in Penang in the March 8 elections.
A third candidate, Hanafi Hamat from little-known Islamic party Angkatan Insan Keadilan Malaysia, joined the fight last week.
Mr Mukhriz described Anwar's recent claim of being able to win over more than 40 Barisan MPs to the opposition coalition in order to form a new opposition government as 'typical of him'.
'He uses a lot of psychological warfare to try and put us off balance. We don't see any of our MPs moving that way. I'm one of the more critical MPs within the National Front. I'm even critical of my own leadership and yet you don't see me jumping to the other side,' he said. With BN ready to make the final push ahead of the big day, Mr Mukhriz appealed 'to the common sense' of voters in Penang to choose carefully.
'We want them to see that there's a lot more than just picking someone who claims to be the PM-in-waiting. (The opposition) has an interesting but ineffective campaign approach, which is very aggressive. They use force, and do not really appeal to the hearts of voters. I myself was a victim of that kind of action during nomination day,' he said.
The uncertainty felt on the ground at the moment is how Malay voters, who comprise the bulk of the Permatang Pauh electorate (69.4 per cent), would react to Saiful Bukhari Azlan's swearing on the Quran that he had been sodomised by Anwar.
Still, Mr Mukhriz harboured a ray of hope that BN could somehow regain the Penang hot seat. 'A victory for us would signal the end of Anwar Ibrahim as the so-called 'prodigal son' of Permatang Pauh. If we can win, there will be a major shift in the political tsunami that is being felt at the moment,' he said.
Barisan plays down by-election chances
Mukhriz Mahathir sees bigger possibility in just paring opposition's majority
By LEE U-WEN
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(SINGAPORE) With just days left before a crucial by-election on Tuesday, Malaysia's ruling party has again played down its chances of preventing de facto opposition leader Anwar Ibrahim from making his return to Parliament after a 10-year absence.
Mr Mukhriz: Dismisses as psychological warfare Anwar's claim of being able to win over more than 40 Barisan MPs
Kedah Member of Parliament Mukhriz Mahathir, the youngest son of former prime minister Mahathir Mohamad, told reporters yesterday that Barisan Nasional (BN) was campaigning as the underdog and would 'be quite happy' if it could reduce the opposition's majority considerably when the votes are tallied.
'Whether we can win or not, that is a big question. But the response by voters towards our own candidate is very positive. He's a local man there and speaks the lingo. I think we have a chance, perhaps a small one, to win. But otherwise, the possibility of reducing Anwar's majority is quite large,' he said.
BN has fielded candidate Arif Shah Omar Shah against the former deputy prime minister, in the hope that he can win over some or all of the 13,398-vote majority secured by Anwar's wife, Wan Azizah Wan Ismail, when she won the Permatang Pauh seat in Penang in the March 8 elections.
A third candidate, Hanafi Hamat from little-known Islamic party Angkatan Insan Keadilan Malaysia, joined the fight last week.
Mr Mukhriz described Anwar's recent claim of being able to win over more than 40 Barisan MPs to the opposition coalition in order to form a new opposition government as 'typical of him'.
'He uses a lot of psychological warfare to try and put us off balance. We don't see any of our MPs moving that way. I'm one of the more critical MPs within the National Front. I'm even critical of my own leadership and yet you don't see me jumping to the other side,' he said. With BN ready to make the final push ahead of the big day, Mr Mukhriz appealed 'to the common sense' of voters in Penang to choose carefully.
'We want them to see that there's a lot more than just picking someone who claims to be the PM-in-waiting. (The opposition) has an interesting but ineffective campaign approach, which is very aggressive. They use force, and do not really appeal to the hearts of voters. I myself was a victim of that kind of action during nomination day,' he said.
The uncertainty felt on the ground at the moment is how Malay voters, who comprise the bulk of the Permatang Pauh electorate (69.4 per cent), would react to Saiful Bukhari Azlan's swearing on the Quran that he had been sodomised by Anwar.
Still, Mr Mukhriz harboured a ray of hope that BN could somehow regain the Penang hot seat. 'A victory for us would signal the end of Anwar Ibrahim as the so-called 'prodigal son' of Permatang Pauh. If we can win, there will be a major shift in the political tsunami that is being felt at the moment,' he said.
Published August 21, 2008
k1 net jumps 175% to $26m
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VENTURE fund company k1 Ventures, part of the Keppel Group, yesterday reported a net profit of $72.2 million for the financial year ended June 30 - a 175.2 per cent jump from $26.2 million the year before.
Related article:
Click here for k1 Venture's financial statement
Earnings per share increased to 3.37 cents from 1.31 cents, while group revenue from continuing operations rose 56.1 per cent to $350.2 million, from $224.4 million previously.
The improvement in revenue was due mainly to the sale of shares in McMoRan Exploration Co (MMR) and the sale of an investment in DM&E by Helm Holding Corporation, the group's operating subsidiary.
The increase in revenue was partly offset by a decrease in Helm's leasing revenue and lower interest income from fixed deposits.
Compared with the previous year, group operating profit from continuing operations increased 110.2 per cent to $166.7 million in FY2008.
Helm is expected to continue to see weakness in rail traffic volumes, k1 said in its business outlook. 'Management will continue to be proactive in seeking to enhance shareholder value with its current portfolio of investments,' it added.
The group announced a one-tier final dividend of 5 cents per share (FY2007: nil). No capital distribution was proposed for FY2008, compared to a capital distribution of 6 cents per share for FY2007.
k1 recently sold about 2.38 million shares in MMR, a US oil and natural gas explorer, for US$70.1 million. k1 still owns about 2.31 million shares in it.
It was also ranked among the Fastest Growing 50 companies by DP Information Group. These are companies that have grown their sales at least 10 per cent annually in the past four years, while remaining continually profitable.
k1 net jumps 175% to $26m
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VENTURE fund company k1 Ventures, part of the Keppel Group, yesterday reported a net profit of $72.2 million for the financial year ended June 30 - a 175.2 per cent jump from $26.2 million the year before.
Related article:
Click here for k1 Venture's financial statement
Earnings per share increased to 3.37 cents from 1.31 cents, while group revenue from continuing operations rose 56.1 per cent to $350.2 million, from $224.4 million previously.
The improvement in revenue was due mainly to the sale of shares in McMoRan Exploration Co (MMR) and the sale of an investment in DM&E by Helm Holding Corporation, the group's operating subsidiary.
The increase in revenue was partly offset by a decrease in Helm's leasing revenue and lower interest income from fixed deposits.
Compared with the previous year, group operating profit from continuing operations increased 110.2 per cent to $166.7 million in FY2008.
Helm is expected to continue to see weakness in rail traffic volumes, k1 said in its business outlook. 'Management will continue to be proactive in seeking to enhance shareholder value with its current portfolio of investments,' it added.
The group announced a one-tier final dividend of 5 cents per share (FY2007: nil). No capital distribution was proposed for FY2008, compared to a capital distribution of 6 cents per share for FY2007.
k1 recently sold about 2.38 million shares in MMR, a US oil and natural gas explorer, for US$70.1 million. k1 still owns about 2.31 million shares in it.
It was also ranked among the Fastest Growing 50 companies by DP Information Group. These are companies that have grown their sales at least 10 per cent annually in the past four years, while remaining continually profitable.
Published August 21, 2008
Share payment may come back to bite SGX
By WONG WEI KONG
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IT'S uncommon to come across a situation where market players seem to hold themselves to a higher standard when it comes to conflicts of interests than even the regulator itself.
But that appears to be the case when it comes to the question of whether Catalist sponsors should take shares as payment for sponsoring listings on the junior board of the Singapore Exchange (SGX).
As BT reported last week, the decision by PrimePartners Corporate Finance to take shares in Healthway Medical Group for sponsoring its listing in June - the only Catalist sponsor so far to have done this - has spawned a debate in market circles over a potential conflict of interest.
PrimePartners has defended its move, saying the share payment model is a preferred model for many small, cash-strapped companies, and that it helps to align the interest of the sponsor with the company. It noted that it is practised elsewhere, like in London's Alternative Investment Market (AIM).
But PrimePartners looks to be a lone voice here. Many other investment bankers, Catalist sponsors and corporate lawyers have reservations about taking this path.
PrimePartners is acting within SGX rules, clearly, but it is also putting itself in a position where a potential conflict of interest could arise.
The sponsorship system is, after all, the cornerstone of Catalist, which requires all its firms to have sponsors not just to list them but also to keep watch over them after listing, playing the role of a regulator. The worry is that the objectivity required in the performance of that role may be compromised if the sponsor holds shares in the company it is supervising.
It is this that is holding back other sponsors from doing what PrimePartners did, as attractive as it is as a business proposition. The fact that other sponsors are staying clear of taking shares as payment, even when they are allowed to do so, is surely telling. But the SGX has leapt to the defence of this arrangement. Its response to the BT report was titled 'OK to have shares as payment'. It said allowing smaller companies to use share payment would help them conserve cashflow for funding purposes. It noted that only sponsors with high standards and good track records have been approved. Its 10 per cent shareholding cap also acts as a safeguard. In other words, there is no cause for worry.
This does not fully address the issue. For one, share payment for sponsors is put forward as a way to alleviate cashflow constraints for small companies. However, lawyers, auditors, and other professionals are not allowed to enter into similar arrangements so that their independence can be safeguarded.
In other words, allowing share payment for sponsors is at odds with the position taken for the other professionals, especially given that non-sponsor fees are making up an increasingly significant portion of listing expenses.
Or is the SGX now saying, 'it's OK for them too'? Would companies one day also pay their listing fees to SGX in shares?
It's a fallacy to look at the shareholding cap as a safeguard of independence. The more critical factor is the potential contribution of the share payment to the income of the sponsor. For smaller-sized sponsors, this might be a bigger proportion of their earnings than for larger firms, and this would pose a more serious threat to their objectivity and independence as sponsors.
While there are penalties against sponsors who do not act properly, it is equally important to avoid constructing situations that would put them in a compromised position in the first place.
Expensing the payment?
There are other issues. The implementation of accounting standards requiring the expensing of share-based payment in the profit-loss statement of companies was to deter them from using share payment structures (such as issuing stock options to staff) at the expense of shareholders. But share payment for sponsors also falls into this category, and will have to be expensed too. So while the model may initially align the interests of the sponsor with the company, there is a future cost to be borne by both the company and its shareholders.
To be sure, share payment for sponsors is used elsewhere, but that is not reason enough to justify their use here. Singapore does not always follow practices in other markets. For instance, companies are required by law in several leading markets to disclose the actual pay of their directors. But while many have advocated that as best practice, it was decided that Singapore was not ready to do that. So while share payment is used, for instance, in AIM in London, it may not be best for Singapore.
But the biggest point being missed is this: when it comes to corporate governance, avoiding the appearance of any suggestion of a potential conflict of interest is as important as keeping to the rules. All it takes is just a hint - that the sponsor may be conflicted - to undermine trust in the system. That is why companies are often encouraged to uphold standards of corporate governance beyond the minimal requirements.
Disallowing share payment may cause the SGX to lose a few Catalist listings and mean less business for sponsors. But it would have shielded the system from being questioned.
It has to be said that this does not come as a surprise to those who regard the SGX as a creature of contradiction itself as both a listed company and a regulator. The share payment episode has reinforced that perception. And should share payment lead to problems down the road, the SGX would find itself with plenty to answer for.
Share payment may come back to bite SGX
By WONG WEI KONG
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IT'S uncommon to come across a situation where market players seem to hold themselves to a higher standard when it comes to conflicts of interests than even the regulator itself.
But that appears to be the case when it comes to the question of whether Catalist sponsors should take shares as payment for sponsoring listings on the junior board of the Singapore Exchange (SGX).
As BT reported last week, the decision by PrimePartners Corporate Finance to take shares in Healthway Medical Group for sponsoring its listing in June - the only Catalist sponsor so far to have done this - has spawned a debate in market circles over a potential conflict of interest.
PrimePartners has defended its move, saying the share payment model is a preferred model for many small, cash-strapped companies, and that it helps to align the interest of the sponsor with the company. It noted that it is practised elsewhere, like in London's Alternative Investment Market (AIM).
But PrimePartners looks to be a lone voice here. Many other investment bankers, Catalist sponsors and corporate lawyers have reservations about taking this path.
PrimePartners is acting within SGX rules, clearly, but it is also putting itself in a position where a potential conflict of interest could arise.
The sponsorship system is, after all, the cornerstone of Catalist, which requires all its firms to have sponsors not just to list them but also to keep watch over them after listing, playing the role of a regulator. The worry is that the objectivity required in the performance of that role may be compromised if the sponsor holds shares in the company it is supervising.
It is this that is holding back other sponsors from doing what PrimePartners did, as attractive as it is as a business proposition. The fact that other sponsors are staying clear of taking shares as payment, even when they are allowed to do so, is surely telling. But the SGX has leapt to the defence of this arrangement. Its response to the BT report was titled 'OK to have shares as payment'. It said allowing smaller companies to use share payment would help them conserve cashflow for funding purposes. It noted that only sponsors with high standards and good track records have been approved. Its 10 per cent shareholding cap also acts as a safeguard. In other words, there is no cause for worry.
This does not fully address the issue. For one, share payment for sponsors is put forward as a way to alleviate cashflow constraints for small companies. However, lawyers, auditors, and other professionals are not allowed to enter into similar arrangements so that their independence can be safeguarded.
In other words, allowing share payment for sponsors is at odds with the position taken for the other professionals, especially given that non-sponsor fees are making up an increasingly significant portion of listing expenses.
Or is the SGX now saying, 'it's OK for them too'? Would companies one day also pay their listing fees to SGX in shares?
It's a fallacy to look at the shareholding cap as a safeguard of independence. The more critical factor is the potential contribution of the share payment to the income of the sponsor. For smaller-sized sponsors, this might be a bigger proportion of their earnings than for larger firms, and this would pose a more serious threat to their objectivity and independence as sponsors.
While there are penalties against sponsors who do not act properly, it is equally important to avoid constructing situations that would put them in a compromised position in the first place.
Expensing the payment?
There are other issues. The implementation of accounting standards requiring the expensing of share-based payment in the profit-loss statement of companies was to deter them from using share payment structures (such as issuing stock options to staff) at the expense of shareholders. But share payment for sponsors also falls into this category, and will have to be expensed too. So while the model may initially align the interests of the sponsor with the company, there is a future cost to be borne by both the company and its shareholders.
To be sure, share payment for sponsors is used elsewhere, but that is not reason enough to justify their use here. Singapore does not always follow practices in other markets. For instance, companies are required by law in several leading markets to disclose the actual pay of their directors. But while many have advocated that as best practice, it was decided that Singapore was not ready to do that. So while share payment is used, for instance, in AIM in London, it may not be best for Singapore.
But the biggest point being missed is this: when it comes to corporate governance, avoiding the appearance of any suggestion of a potential conflict of interest is as important as keeping to the rules. All it takes is just a hint - that the sponsor may be conflicted - to undermine trust in the system. That is why companies are often encouraged to uphold standards of corporate governance beyond the minimal requirements.
Disallowing share payment may cause the SGX to lose a few Catalist listings and mean less business for sponsors. But it would have shielded the system from being questioned.
It has to be said that this does not come as a surprise to those who regard the SGX as a creature of contradiction itself as both a listed company and a regulator. The share payment episode has reinforced that perception. And should share payment lead to problems down the road, the SGX would find itself with plenty to answer for.
Wednesday, 20 August 2008
Published August 20, 2008
UEM Land prospectus to be out by mid-Oct
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(KUALA LUMPUR) A prospectus for the planned November listing of UEM Land Bhd will be issued in about two months, says a report in Malaysia's Business Times.
Quoting officials, the report said UEM Land is being listed in place of its parent, UEM World Bhd, under a group reorganisation which will see UEM Land emerge as a more focused property player.
UEM Land's biggest project and main focus for now is Nusajaya, a 4,047-hectare commercial and residential development in Johor, but in due course, it will handle more projects, said UEM Group Bhd managing director Ahmad Pardas Senin.
'The intention is for UEM Land to expand and diversify beyond just Nusajaya. It may also include the option of acquiring new landbank in other parts of the country or even overseas,' he told reporters on Monday after shareholders approved the group's reorganisation plan.
UEM Land managing director Wan Abdullah Wan Ibrahim had said in May that any overseas investments by the company would be made in 2010 at the earliest. Mr Ahmad Pardas said the group has had exploratory discussions with many parties over potential land buys and projects.
'This is in the process of business development and evaluation, but whether or not we enter into (a deal) depends on the economics of it and whether or not it fits into UEM Land's strategy,' he said. With UEM Land's improved balanced sheet and gearing of about 1.3 times, it will be able to borrow to fund new undertakings, he added.
Details of UEM Land's projects, landbank and strategy will be included in its prospectus, to be issued 'in less than two months', he revealed.
On the second Penang bridge, Mr Ahmad Pardas said UEM Group will continue to work on the bridge 'unless told otherwise by other parties'.
'The construction continues as we speak. So far at UEM Group Bhd, there has not been any formal instruction to do otherwise,' he said, adding that the group had spent more than RM200 million (S$85 million) on the works to date.
On the government's proposal for toll operators in the Klang Valley to reduce toll rates, Mr Ahmad Pardas said PLUS Expressways Bhd, which is part of UEM Group, will work with the government to find a solution acceptable to all parties.
UEM Land prospectus to be out by mid-Oct
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(KUALA LUMPUR) A prospectus for the planned November listing of UEM Land Bhd will be issued in about two months, says a report in Malaysia's Business Times.
Quoting officials, the report said UEM Land is being listed in place of its parent, UEM World Bhd, under a group reorganisation which will see UEM Land emerge as a more focused property player.
UEM Land's biggest project and main focus for now is Nusajaya, a 4,047-hectare commercial and residential development in Johor, but in due course, it will handle more projects, said UEM Group Bhd managing director Ahmad Pardas Senin.
'The intention is for UEM Land to expand and diversify beyond just Nusajaya. It may also include the option of acquiring new landbank in other parts of the country or even overseas,' he told reporters on Monday after shareholders approved the group's reorganisation plan.
UEM Land managing director Wan Abdullah Wan Ibrahim had said in May that any overseas investments by the company would be made in 2010 at the earliest. Mr Ahmad Pardas said the group has had exploratory discussions with many parties over potential land buys and projects.
'This is in the process of business development and evaluation, but whether or not we enter into (a deal) depends on the economics of it and whether or not it fits into UEM Land's strategy,' he said. With UEM Land's improved balanced sheet and gearing of about 1.3 times, it will be able to borrow to fund new undertakings, he added.
Details of UEM Land's projects, landbank and strategy will be included in its prospectus, to be issued 'in less than two months', he revealed.
On the second Penang bridge, Mr Ahmad Pardas said UEM Group will continue to work on the bridge 'unless told otherwise by other parties'.
'The construction continues as we speak. So far at UEM Group Bhd, there has not been any formal instruction to do otherwise,' he said, adding that the group had spent more than RM200 million (S$85 million) on the works to date.
On the government's proposal for toll operators in the Klang Valley to reduce toll rates, Mr Ahmad Pardas said PLUS Expressways Bhd, which is part of UEM Group, will work with the government to find a solution acceptable to all parties.
Published August 20, 2008
Malaysia mulls nuke energy use: minister
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(KUALA LUMPUR) Malaysia's Cabinet will deliberate next month on whether to adopt nuclear energy to combat high global oil prices, a minister said yesterday. Last month, state utility Tenaga said that it could construct the country's first 1,000 MW nuclear power plant at a cost of 3.1 billion dollars after being asked by the government to look at the option.
Cheaper and cleaner? The country may consider adopting nuclear power to meet its long-term energy needs amid surging global oil prices
'After it is tabled to the Cabinet, an announcement will be made on our commitment to further preparations,' Science, Technology and Innovation minister Maximus Ongkili told state news agency Bernama.
'This nuclear energy is vital following the increase in the world fuel price and our limited oil reserve. Moreover, nuclear energy is cheap and clean,' he added. Deputy Prime Minister Najib Razak said in June that Malaysia may consider adopting nuclear power to meet its long-term energy needs amid surging global oil prices.
Currently, half of Malaysia's power plants run on gas. Other sources include coal and hydropower. Last year, the government said it would build South-east Asia's first nuclear monitoring laboratory to allow scientists to check the safety of atomic energy programmes in the region. -- Bernama
Malaysia mulls nuke energy use: minister
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(KUALA LUMPUR) Malaysia's Cabinet will deliberate next month on whether to adopt nuclear energy to combat high global oil prices, a minister said yesterday. Last month, state utility Tenaga said that it could construct the country's first 1,000 MW nuclear power plant at a cost of 3.1 billion dollars after being asked by the government to look at the option.
Cheaper and cleaner? The country may consider adopting nuclear power to meet its long-term energy needs amid surging global oil prices
'After it is tabled to the Cabinet, an announcement will be made on our commitment to further preparations,' Science, Technology and Innovation minister Maximus Ongkili told state news agency Bernama.
'This nuclear energy is vital following the increase in the world fuel price and our limited oil reserve. Moreover, nuclear energy is cheap and clean,' he added. Deputy Prime Minister Najib Razak said in June that Malaysia may consider adopting nuclear power to meet its long-term energy needs amid surging global oil prices.
Currently, half of Malaysia's power plants run on gas. Other sources include coal and hydropower. Last year, the government said it would build South-east Asia's first nuclear monitoring laboratory to allow scientists to check the safety of atomic energy programmes in the region. -- Bernama
Published August 20, 2008
Boustead H1 profit more than doubles to RM382m
Plantation, naval ship building units main drivers of earnings growth
By PAULINE NG
IN KUALA LUMPUR
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DESPITE global and local economic uncertainty, Malaysia's state-owned Boustead Holdings more than doubled its first-half profit to RM382 million (S$162 million) on turnover of RM3.9 billion.
The big improvement in the six months to end-June was due mainly to two divisions - plantation and naval ship building.
Thanks to record prices for crude palm oil, pre-tax profit from plantations more than doubled to RM178 million, from RM67 million a year earlier.
The heavy industries division was close behind, contributing RM150 million as a result of consolidation of earnings from new subsidiaries Boustead Naval Shipyard and listed unit Boustead Heavy Industries Corporation (BHIC).
The property division also performed well, posting a 21 per cent rise in pre-tax profit to RM53 million, due mainly to sales of corporate lots and better earnings by Royale Bintang hotels and The Curve shopping mall.
The trading division, led by BHPetrol, registered a four-fold increase in pre-tax profit to RM45 million, from RM14 million previously, mainly on stronger commodity prices, especially mineral oil.
Despite the diversity of Boustead's businesses, its shipbuilding division under BHIC attracts the most attention because it has a multi-billion government contract to build 27 offshore patrol boats for the navy.
Owned 64 per cent by the Malaysian Armed Forces Pension Fund, BHIC has had to fend off claims that the first two vessels were delivered late, above budget and full of defects.
Because of its shareholding, analysts do not expect the government to cancel the contract. BHIC has said that it will deliver two more boats next year and another two by 2009-10.
The Boustead group took over the contract after distressed shipbuilding and repair company PSC Industries (PSCI) was restructured last year and renamed BHIC.
PSCI, previously controlled by tycoon Amin Shah Omar Shah, an associate of former finance minister Daim Zainuddin, was the buyout vehicle for state-owned Naval Dockyard. PSCI bought the shipyard at Lumut, Perak, for RM300 million and assumed its rights to build the 27 naval boats, as well as maintain and repair all navy vessels, for a lucrative RM24 billion.
But Mr Amin's project ran aground after the Asian financial crisis of the late 1990s, when hefty loans left him and the company overstretched.
The coming parliamentary by-election in Permatang Pauh next Tuesday, which will pit the National Front's Arif Shah - Mr Amin's brother - against de facto opposition leader Anwar Ibrahim, has put PSCI in the limelight. Some politicians are playing up the fact that Mr Arif is Mr Amin's brother, though Mr Arif has said that he was not involved in PSCI.
In a statement yesterday, Boustead group managing director Lodin Wok Kamaruddin said that the company is confident of sustaining its H1 results. 'We are very pleased we have delivered above and beyond our expectations in conditions that are totally subject to increased variables and heightened uncertainty,' he said.
Earnings per share was 24 sen, down from 27 sen previously. Directors have declared a second interim dividend of five sen, bringing the total H1 dividend to 10 sen.
Boustead H1 profit more than doubles to RM382m
Plantation, naval ship building units main drivers of earnings growth
By PAULINE NG
IN KUALA LUMPUR
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DESPITE global and local economic uncertainty, Malaysia's state-owned Boustead Holdings more than doubled its first-half profit to RM382 million (S$162 million) on turnover of RM3.9 billion.
The big improvement in the six months to end-June was due mainly to two divisions - plantation and naval ship building.
Thanks to record prices for crude palm oil, pre-tax profit from plantations more than doubled to RM178 million, from RM67 million a year earlier.
The heavy industries division was close behind, contributing RM150 million as a result of consolidation of earnings from new subsidiaries Boustead Naval Shipyard and listed unit Boustead Heavy Industries Corporation (BHIC).
The property division also performed well, posting a 21 per cent rise in pre-tax profit to RM53 million, due mainly to sales of corporate lots and better earnings by Royale Bintang hotels and The Curve shopping mall.
The trading division, led by BHPetrol, registered a four-fold increase in pre-tax profit to RM45 million, from RM14 million previously, mainly on stronger commodity prices, especially mineral oil.
Despite the diversity of Boustead's businesses, its shipbuilding division under BHIC attracts the most attention because it has a multi-billion government contract to build 27 offshore patrol boats for the navy.
Owned 64 per cent by the Malaysian Armed Forces Pension Fund, BHIC has had to fend off claims that the first two vessels were delivered late, above budget and full of defects.
Because of its shareholding, analysts do not expect the government to cancel the contract. BHIC has said that it will deliver two more boats next year and another two by 2009-10.
The Boustead group took over the contract after distressed shipbuilding and repair company PSC Industries (PSCI) was restructured last year and renamed BHIC.
PSCI, previously controlled by tycoon Amin Shah Omar Shah, an associate of former finance minister Daim Zainuddin, was the buyout vehicle for state-owned Naval Dockyard. PSCI bought the shipyard at Lumut, Perak, for RM300 million and assumed its rights to build the 27 naval boats, as well as maintain and repair all navy vessels, for a lucrative RM24 billion.
But Mr Amin's project ran aground after the Asian financial crisis of the late 1990s, when hefty loans left him and the company overstretched.
The coming parliamentary by-election in Permatang Pauh next Tuesday, which will pit the National Front's Arif Shah - Mr Amin's brother - against de facto opposition leader Anwar Ibrahim, has put PSCI in the limelight. Some politicians are playing up the fact that Mr Arif is Mr Amin's brother, though Mr Arif has said that he was not involved in PSCI.
In a statement yesterday, Boustead group managing director Lodin Wok Kamaruddin said that the company is confident of sustaining its H1 results. 'We are very pleased we have delivered above and beyond our expectations in conditions that are totally subject to increased variables and heightened uncertainty,' he said.
Earnings per share was 24 sen, down from 27 sen previously. Directors have declared a second interim dividend of five sen, bringing the total H1 dividend to 10 sen.
Published August 20, 2008
Tri-M, KRL: more than meets the eye?
By OH BOON PING
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ON Monday, electronics contract manufacturer Tri-M Technologies said it would pay $203 million for Kingworld Resources Ltd (KRL), a company that is involved in petroleum production in China.
On the face of it, the investment is a strategic move that will give Tri-M access to the highly lucrative oil-and-gas (O&G) business at a time when the global technology sector is still in a slump.
Indeed, Tri-M has been on the watch-list since March 5 after three straight years of pre-tax losses. For the first half ended June 30, the firm reported a net loss of $6.18 million, after sales plunged 30 per cent to $6.38 million.
In contrast, KRL has a contract with China National Petroleum Corporation (CNPC) to jointly develop and produce hydrocarbon resources at an oilfield in Songliao Basin, Jilin Province - a venture that could reap handsome returns if successful. However, the acquisition deal also raises a number of pressing questions which need to be addressed.
First, KRL is a company that has no financial track record and its only project now is the O&G production contract with CNPC.
While the oilfield has an estimated crude oil reserve of at least 5.14 million tonnes, it is also clear that the project is not likely to be earnings accretive for a few years, as it is still in the evaluation phase. Therefore, to cough out $203 million - $23 million cash and 180 million new shares at $1 each - for such a venture is an extremely risky move especially for loss-making Tri-M.
Plus, doing business in emerging markets like China remains risky as hydrocarbon nationalism appears to be on the rise in these economies. Therefore, what makes Tri-M confident of success where other players with deeper pockets have failed?
Also, the decision comes at a time when analysts are predicting that crude oil is already in a bear market - down some 22 per cent from its peak in July. The International Energy Agency (IEA) recently said 'in terms of oil fundamentals, crude and product supply tightness has eased'.
Interestingly, both vendors are members of Malaysia's Tiong family, which holds a controlling stake in Tri-M, and they agreed to sell KRL for a mere $203 million - 14.8 per cent of the US$975 million value imputed on KRL by Norton Appraisals.
This begs the question: if the business is really worth that much, why didn't the vendors ask for a higher sale price, or do they know something about KRL which Tri-M does not? When asked about this, Tri-M's management said there are other risk factors such as possible downturns in oil prices, among others, which led to the discount.
Still, a discount of more than 80 per cent is too steep to be considered reasonable. Couldn't independent valuer Norton have also considered these factors in deriving its valuation? Or will this be another Rowsley-like deal - which looked like a good move initially, but failed to materialise in the end?
Since news of the investment first emerged on March 14, the market has reacted positively to the move, as seen from the stock price's phenomenal rise from 10.5 cents to 99.5 cents yesterday.
However, this does not diminish the importance of the questions above. Tri-M shareholders deserve the answers before taking the $203 million gamble.
Tri-M, KRL: more than meets the eye?
By OH BOON PING
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ON Monday, electronics contract manufacturer Tri-M Technologies said it would pay $203 million for Kingworld Resources Ltd (KRL), a company that is involved in petroleum production in China.
On the face of it, the investment is a strategic move that will give Tri-M access to the highly lucrative oil-and-gas (O&G) business at a time when the global technology sector is still in a slump.
Indeed, Tri-M has been on the watch-list since March 5 after three straight years of pre-tax losses. For the first half ended June 30, the firm reported a net loss of $6.18 million, after sales plunged 30 per cent to $6.38 million.
In contrast, KRL has a contract with China National Petroleum Corporation (CNPC) to jointly develop and produce hydrocarbon resources at an oilfield in Songliao Basin, Jilin Province - a venture that could reap handsome returns if successful. However, the acquisition deal also raises a number of pressing questions which need to be addressed.
First, KRL is a company that has no financial track record and its only project now is the O&G production contract with CNPC.
While the oilfield has an estimated crude oil reserve of at least 5.14 million tonnes, it is also clear that the project is not likely to be earnings accretive for a few years, as it is still in the evaluation phase. Therefore, to cough out $203 million - $23 million cash and 180 million new shares at $1 each - for such a venture is an extremely risky move especially for loss-making Tri-M.
Plus, doing business in emerging markets like China remains risky as hydrocarbon nationalism appears to be on the rise in these economies. Therefore, what makes Tri-M confident of success where other players with deeper pockets have failed?
Also, the decision comes at a time when analysts are predicting that crude oil is already in a bear market - down some 22 per cent from its peak in July. The International Energy Agency (IEA) recently said 'in terms of oil fundamentals, crude and product supply tightness has eased'.
Interestingly, both vendors are members of Malaysia's Tiong family, which holds a controlling stake in Tri-M, and they agreed to sell KRL for a mere $203 million - 14.8 per cent of the US$975 million value imputed on KRL by Norton Appraisals.
This begs the question: if the business is really worth that much, why didn't the vendors ask for a higher sale price, or do they know something about KRL which Tri-M does not? When asked about this, Tri-M's management said there are other risk factors such as possible downturns in oil prices, among others, which led to the discount.
Still, a discount of more than 80 per cent is too steep to be considered reasonable. Couldn't independent valuer Norton have also considered these factors in deriving its valuation? Or will this be another Rowsley-like deal - which looked like a good move initially, but failed to materialise in the end?
Since news of the investment first emerged on March 14, the market has reacted positively to the move, as seen from the stock price's phenomenal rise from 10.5 cents to 99.5 cents yesterday.
However, this does not diminish the importance of the questions above. Tri-M shareholders deserve the answers before taking the $203 million gamble.
Published August 20, 2008
One big US investment bank 'will go under'
US economy has not seen the worst, says former IMF chief economist
By CONRAD TAN
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(SINGAPORE) The worst is yet to come for the US economy, which is likely to see more bank failures, including the collapse of a big Wall Street investment bank, said Kenneth Rogoff, a former chief economist at the International Monetary Fund yesterday.
Banking crises 'don't happen out of the blue, they happen because the economy's slowing down'.
- Mr Rogoff
And as policymakers around the world try to prop up slowing economic growth by keeping interest rates low, inflation will become harder to control, he warned.
The US financial sector has grown 'bloated' and needs to shrink before the broader economy can make a full recovery, he said. As it contracts, more financial firms will fail.
'We're going to see one of the big investment banks go under,' he predicted.
Mr Rogoff, an economics professor at Harvard University, was speaking yesterday at a conference on market liquidity and its implications for the world economy, held here.
With falling house prices, a weakening labour market, and poor consumer confidence, 'the red lights are blinking - the US is going to experience a major financial crisis', he said.
Despite the extensive damage already suffered by the banking sector in the US, the crisis is only 'halfway' through, he said. 'I'd go further and say that the worst hasn't come.'
Banking crises 'don't happen out of the blue, they happen because the economy's slowing down', he added.
Just last month, US Treasury Secretary Henry Paulson led a government rescue of mortgage finance giants Fannie Mae and Freddie Mac, promising that the US Treasury and other government agencies would provide liquidity and capital funding to the firms, if needed, to keep them afloat.
And in March, the US Federal Reserve extended emergency funding to investment bank Bear Stearns, paving the way for its takeover by bigger rival JPMorgan.
'I was very disturbed by Hank Paulson's bailout of Fannie Mae and Freddie Mac,' said Mr Rogoff. Like several other critics, he believes that the rescue has merely delayed a necessary consolidation in the US financial sector, which will see unviable companies collapse. Both firms should be taken over by the government and eventually broken up, he added.
State-owned investment funds, which have poured billions of dollars into US and European banks since the crisis in the US housing market erupted last year, will not be able to stop all banks from failing, he said. 'You can't save them all.'
Unlike some other economists, Mr Rogoff does not believe that the economic slowdown in the US, Europe and Asia will be enough to cap surging price inflation, unless governments and central banks tighten their monetary policy significantly.
'The underlying money growth that's taken place over the last few years is going to lead to sharp inflation in the US, Asia ... many parts of the world are going to have inflation for two or three years at least, until they sharply raise interest rates.'
'I don't think recession is going to make inflation go away - interest rates are just too low.'
One big US investment bank 'will go under'
US economy has not seen the worst, says former IMF chief economist
By CONRAD TAN
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(SINGAPORE) The worst is yet to come for the US economy, which is likely to see more bank failures, including the collapse of a big Wall Street investment bank, said Kenneth Rogoff, a former chief economist at the International Monetary Fund yesterday.
Banking crises 'don't happen out of the blue, they happen because the economy's slowing down'.
- Mr Rogoff
And as policymakers around the world try to prop up slowing economic growth by keeping interest rates low, inflation will become harder to control, he warned.
The US financial sector has grown 'bloated' and needs to shrink before the broader economy can make a full recovery, he said. As it contracts, more financial firms will fail.
'We're going to see one of the big investment banks go under,' he predicted.
Mr Rogoff, an economics professor at Harvard University, was speaking yesterday at a conference on market liquidity and its implications for the world economy, held here.
With falling house prices, a weakening labour market, and poor consumer confidence, 'the red lights are blinking - the US is going to experience a major financial crisis', he said.
Despite the extensive damage already suffered by the banking sector in the US, the crisis is only 'halfway' through, he said. 'I'd go further and say that the worst hasn't come.'
Banking crises 'don't happen out of the blue, they happen because the economy's slowing down', he added.
Just last month, US Treasury Secretary Henry Paulson led a government rescue of mortgage finance giants Fannie Mae and Freddie Mac, promising that the US Treasury and other government agencies would provide liquidity and capital funding to the firms, if needed, to keep them afloat.
And in March, the US Federal Reserve extended emergency funding to investment bank Bear Stearns, paving the way for its takeover by bigger rival JPMorgan.
'I was very disturbed by Hank Paulson's bailout of Fannie Mae and Freddie Mac,' said Mr Rogoff. Like several other critics, he believes that the rescue has merely delayed a necessary consolidation in the US financial sector, which will see unviable companies collapse. Both firms should be taken over by the government and eventually broken up, he added.
State-owned investment funds, which have poured billions of dollars into US and European banks since the crisis in the US housing market erupted last year, will not be able to stop all banks from failing, he said. 'You can't save them all.'
Unlike some other economists, Mr Rogoff does not believe that the economic slowdown in the US, Europe and Asia will be enough to cap surging price inflation, unless governments and central banks tighten their monetary policy significantly.
'The underlying money growth that's taken place over the last few years is going to lead to sharp inflation in the US, Asia ... many parts of the world are going to have inflation for two or three years at least, until they sharply raise interest rates.'
'I don't think recession is going to make inflation go away - interest rates are just too low.'
Published August 20, 2008
Echoes of lost decade haunt Japan again
Fears of prolonged stagnation back in the frame as BOJ warns of sluggish growth, high prices
By ANTHONY ROWLEY
IN TOKYO
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IN an attempt to shore up crumbling confidence, Bank of Japan (BOJ) governor Masaaki Shirakawa claimed yesterday that the world's second largest economy is not in immediate danger of recession or stagflation. But the Tokyo stock market was not reassured and the Nikkei 225 average plummeted 349.02 points or 2.7 per cent to 12,816.02 after the BOJ downgraded its official view of short-term prospects for the economy.
'Although (Japan's) economy is under no pressure to adjust production capacity and labour, these downside risks to the economy demand attention.'
- Bank of Japan
Plunging stocks in Asia generally reflected growing fears that the fallout from the US sub-prime mortgage crisis is not yet over and that a global recession is possible with the US, Europe and Japan already slowing and other Asian economies under threat.
The BOJ meanwhile warned of instability in global financial markets and threats to overseas economies, particularly the US. Rising commodity prices could hurt consumer demand, it said.
Japan's economy is being watched closely in the rest of Asia because of its strong trade and investment links with the region and fears that Japan could be sliding back into a prolonged stagnation of the kind that dogged the economy throughout the 'lost decade' of the 1990s. Fears were heightened by news last week that Japanese banks are facing new problems with bad loans, especially to the property sector.
Prime Minister Yasuo Fukuda's government has been sufficiently rattled by the speed and scope of Japan's economic downturn to have ordered ministers to come up with a package of stimulus measures, despite Japan's already precarious fiscal position. The emergency measures are expected to be unveiled some time this week.
'The possibility of a serious downturn (in Japan) in the near future is likely small,' Mr Shirakawa claimed after the BOJ's Policy Board decided to keep the central bank's short- term lending rate at 0.5 per cent. At the same time, however, the BOJ downgraded its institutional view of the economy, saying that growth is 'sluggish against a backdrop of high energy and materials prices and weaker growth in exports'.
The BOJ also predicted that inflation in Japan, which has soared to its highest level in more than a decade, will accelerate in coming months as a result of high energy and food prices. Despite the inflation threat, analysts predicted yesterday that the BOJ will be unable to raise interest rates until well into next year because of the sharp economic slowdown in Japan .
'Although (Japan's) economy is under no pressure to adjust production capacity and labour, these downside risks to the economy demand attention,' the BOJ said in a statement after the latest two-day meeting of its Policy Board.
Despite the measured language of the BOJ's remarks, and those of the governor, fears of imminent recession in Japan have been growing since last week when the government reported that the nation's economy contracted at its fastest pace in seven years during the second quarter of this year, with gross domestic product (GDP) registering a 2.4 per cent annualised decline.
The Japanese Cabinet Office also offered a bleak assessment in its report for August in which it acknowledged that 'the economy is recently weakening', while warning of weak exports, disappointing corporate profits and capital investment, along with soft private consumption.
The main drivers of growth during Japan's economic recovery from 2002 until the second quarter of this year were exports (especially to China, as well as to the US) and high levels of corporate capital investment based mainly upon external demand. Until recently, these were able to keep the economy growing even while consumer demand was softening, analysts noted.
But exports fell in June for the first time in nearly five years while imports rose sharply, resulting in a near-90 per cent drop in Japan's trade surplus to 139 billion yen (S$1.78 billion) compared with June 2007. While the rise in import costs was inevitable (given surging commodity prices), the fall in exports was unexpected and showed that the global economic slowdown is impacting not only demand from North America and Europe but also that from some Asian destinations that Japan exports to.
Corporate sentiment and capital expenditure plans in Japan have declined, in line with export prospects. The Bank of Japan's quarterly 'tankan' survey of business prospects for June showed sentiment to be at its lowest level in five years across a wide spectrum of businesses, and subsequent surveys have shown conditions to be worsening.
Adding to the gloom, data published this week showed that non-financial companies listed on the Tokyo Stock Exchange's first sector suffered a near 15 per cent drop in consolidated pre-tax profit during the second quarter of this year. This was the second consecutive quarterly decline and reflects the cost squeeze on the corporate sector, analysts said.
Echoes of lost decade haunt Japan again
Fears of prolonged stagnation back in the frame as BOJ warns of sluggish growth, high prices
By ANTHONY ROWLEY
IN TOKYO
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IN an attempt to shore up crumbling confidence, Bank of Japan (BOJ) governor Masaaki Shirakawa claimed yesterday that the world's second largest economy is not in immediate danger of recession or stagflation. But the Tokyo stock market was not reassured and the Nikkei 225 average plummeted 349.02 points or 2.7 per cent to 12,816.02 after the BOJ downgraded its official view of short-term prospects for the economy.
'Although (Japan's) economy is under no pressure to adjust production capacity and labour, these downside risks to the economy demand attention.'
- Bank of Japan
Plunging stocks in Asia generally reflected growing fears that the fallout from the US sub-prime mortgage crisis is not yet over and that a global recession is possible with the US, Europe and Japan already slowing and other Asian economies under threat.
The BOJ meanwhile warned of instability in global financial markets and threats to overseas economies, particularly the US. Rising commodity prices could hurt consumer demand, it said.
Japan's economy is being watched closely in the rest of Asia because of its strong trade and investment links with the region and fears that Japan could be sliding back into a prolonged stagnation of the kind that dogged the economy throughout the 'lost decade' of the 1990s. Fears were heightened by news last week that Japanese banks are facing new problems with bad loans, especially to the property sector.
Prime Minister Yasuo Fukuda's government has been sufficiently rattled by the speed and scope of Japan's economic downturn to have ordered ministers to come up with a package of stimulus measures, despite Japan's already precarious fiscal position. The emergency measures are expected to be unveiled some time this week.
'The possibility of a serious downturn (in Japan) in the near future is likely small,' Mr Shirakawa claimed after the BOJ's Policy Board decided to keep the central bank's short- term lending rate at 0.5 per cent. At the same time, however, the BOJ downgraded its institutional view of the economy, saying that growth is 'sluggish against a backdrop of high energy and materials prices and weaker growth in exports'.
The BOJ also predicted that inflation in Japan, which has soared to its highest level in more than a decade, will accelerate in coming months as a result of high energy and food prices. Despite the inflation threat, analysts predicted yesterday that the BOJ will be unable to raise interest rates until well into next year because of the sharp economic slowdown in Japan .
'Although (Japan's) economy is under no pressure to adjust production capacity and labour, these downside risks to the economy demand attention,' the BOJ said in a statement after the latest two-day meeting of its Policy Board.
Despite the measured language of the BOJ's remarks, and those of the governor, fears of imminent recession in Japan have been growing since last week when the government reported that the nation's economy contracted at its fastest pace in seven years during the second quarter of this year, with gross domestic product (GDP) registering a 2.4 per cent annualised decline.
The Japanese Cabinet Office also offered a bleak assessment in its report for August in which it acknowledged that 'the economy is recently weakening', while warning of weak exports, disappointing corporate profits and capital investment, along with soft private consumption.
The main drivers of growth during Japan's economic recovery from 2002 until the second quarter of this year were exports (especially to China, as well as to the US) and high levels of corporate capital investment based mainly upon external demand. Until recently, these were able to keep the economy growing even while consumer demand was softening, analysts noted.
But exports fell in June for the first time in nearly five years while imports rose sharply, resulting in a near-90 per cent drop in Japan's trade surplus to 139 billion yen (S$1.78 billion) compared with June 2007. While the rise in import costs was inevitable (given surging commodity prices), the fall in exports was unexpected and showed that the global economic slowdown is impacting not only demand from North America and Europe but also that from some Asian destinations that Japan exports to.
Corporate sentiment and capital expenditure plans in Japan have declined, in line with export prospects. The Bank of Japan's quarterly 'tankan' survey of business prospects for June showed sentiment to be at its lowest level in five years across a wide spectrum of businesses, and subsequent surveys have shown conditions to be worsening.
Adding to the gloom, data published this week showed that non-financial companies listed on the Tokyo Stock Exchange's first sector suffered a near 15 per cent drop in consolidated pre-tax profit during the second quarter of this year. This was the second consecutive quarterly decline and reflects the cost squeeze on the corporate sector, analysts said.
Tuesday, 19 August 2008
Published August 19, 2008
Stanchart Malaysia set to launch Islamic unit
Standard Chartered Saddiq will be involved in all segments of banking
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(KUALA LUMPUR) Standard Chartered Bank Malaysia Bhd is making final preparations to open a full-fledged Islamic banking subsidiary, most likely within the next two months, according to a report in Malaysia's Business Times.
Bank Negara Malaysia is understood to have recently granted the global bank a licence to operate the subsidiary. Stanchart currently transacts Islamic banking and finance products through an Islamic window.
Its head of Islamic banking, Azrulnizam Abdul Aziz, declined to comment on the date of the launch, but said that the Islamic banking subsidiary already has a name.
It is called Standard Chartered Saddiq. 'Saddiq' is the Arabic word for 'truthful'.
Mr Azrulnizam said that the Islamic banking subsidiary would complement Stanchart's long and strong presence in the country.
'It's a natural progression,' he said in an interview with Business Times last week.
Stanchart, a pioneer in Malaysia's banking sector, has been studying the Islamic banking market globally for a number of years.
It was the first foreign bank to offer an Islamic banking window in 1993.
In Malaysia, its Islamic operation has charted significant expansion, recording compounded annual growth of some 180 per cent over the past three years, while revenue has grown on average 131 per cent year-on-year.
Offering just 10 Islamic banking products in 2005, Stanchart's Islamic window now transacts about 33 various instruments and leads the market in some.
Standard Chartered Saddiq will be involved in all segments of banking: from consumer and corporate finance to treasury operations.
It is also expected to tap the global banking group's wide international resources for best practices as well as contribute in transferring some of its own to the group's international network.
Stanchart Dubai's director and head of Islamic products, Ghazanfar Naqvi, said that the banking group has observed the rapid emergence of Middle Eastern investors in Malaysia.
'There is enormous potential for us to harmonise products from the different regions into one platform. Our customers can then choose to transact from anywhere,' he said.
Mr Azrulnizam said that Standard Chartered Saddiq would work closely with Malaysian regulators to enhance Islamic financial products which the country can offer.
'Our infrastructure is ready,' he said. However, he declined to indicate the number of branches it would set up.
A Syariah council has been established for the Islamic banking subsidiary. In addition, a team of managers and other supporting staff has been assembled.
Stanchart Malaysia set to launch Islamic unit
Standard Chartered Saddiq will be involved in all segments of banking
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(KUALA LUMPUR) Standard Chartered Bank Malaysia Bhd is making final preparations to open a full-fledged Islamic banking subsidiary, most likely within the next two months, according to a report in Malaysia's Business Times.
Bank Negara Malaysia is understood to have recently granted the global bank a licence to operate the subsidiary. Stanchart currently transacts Islamic banking and finance products through an Islamic window.
Its head of Islamic banking, Azrulnizam Abdul Aziz, declined to comment on the date of the launch, but said that the Islamic banking subsidiary already has a name.
It is called Standard Chartered Saddiq. 'Saddiq' is the Arabic word for 'truthful'.
Mr Azrulnizam said that the Islamic banking subsidiary would complement Stanchart's long and strong presence in the country.
'It's a natural progression,' he said in an interview with Business Times last week.
Stanchart, a pioneer in Malaysia's banking sector, has been studying the Islamic banking market globally for a number of years.
It was the first foreign bank to offer an Islamic banking window in 1993.
In Malaysia, its Islamic operation has charted significant expansion, recording compounded annual growth of some 180 per cent over the past three years, while revenue has grown on average 131 per cent year-on-year.
Offering just 10 Islamic banking products in 2005, Stanchart's Islamic window now transacts about 33 various instruments and leads the market in some.
Standard Chartered Saddiq will be involved in all segments of banking: from consumer and corporate finance to treasury operations.
It is also expected to tap the global banking group's wide international resources for best practices as well as contribute in transferring some of its own to the group's international network.
Stanchart Dubai's director and head of Islamic products, Ghazanfar Naqvi, said that the banking group has observed the rapid emergence of Middle Eastern investors in Malaysia.
'There is enormous potential for us to harmonise products from the different regions into one platform. Our customers can then choose to transact from anywhere,' he said.
Mr Azrulnizam said that Standard Chartered Saddiq would work closely with Malaysian regulators to enhance Islamic financial products which the country can offer.
'Our infrastructure is ready,' he said. However, he declined to indicate the number of branches it would set up.
A Syariah council has been established for the Islamic banking subsidiary. In addition, a team of managers and other supporting staff has been assembled.
Published August 19, 2008
Toyo Ink to invest US$1b in Vietnam power plant
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(HANOI) Malaysia's Toyo Ink Group has applied to invest more than US$1 billion in a coal-fired power plant in Vietnam, a state-run newspaper reported on yesterday.
The ink maker planned to build the 1,200-megawatt (MW) plant in Kien Luong district in the southern province of Kien Giang, the Planning and Investment Ministry-run Dau Tu (Investment) newspaper quoted the Industry and Trade Ministry as saying. The company will have 100 per cent ownership of the plant.
The plant in Kien Giang, far from Vietnam's northern coal hub, will use imported coal.
State oil monopoly Petrovietnam and industrial park operator Itaco have also planned to invest in two other coal-fired power plants in Kien Luong with capacities of 2,000 MW and 1,200 MW respectively. -- Reuters
Toyo Ink to invest US$1b in Vietnam power plant
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(HANOI) Malaysia's Toyo Ink Group has applied to invest more than US$1 billion in a coal-fired power plant in Vietnam, a state-run newspaper reported on yesterday.
The ink maker planned to build the 1,200-megawatt (MW) plant in Kien Luong district in the southern province of Kien Giang, the Planning and Investment Ministry-run Dau Tu (Investment) newspaper quoted the Industry and Trade Ministry as saying. The company will have 100 per cent ownership of the plant.
The plant in Kien Giang, far from Vietnam's northern coal hub, will use imported coal.
State oil monopoly Petrovietnam and industrial park operator Itaco have also planned to invest in two other coal-fired power plants in Kien Luong with capacities of 2,000 MW and 1,200 MW respectively. -- Reuters
Published August 19, 2008
India asks to defer 100,000t crude palm oil trade
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(KUALA LUMPUR) Indian palm oil importers have asked Malaysian and Indonesian producers to defer up to 100,000 tonnes of crude palm oil meant for August delivery to September and October, Indian traders said yesterday.
India, the second largest vegetable oil buyer in the world, has been defaulting on purchases in the last two to three weeks as a result of plummeting prices and traders warn there may be more defaults or deferments in the days to come.
'Refiners will suffer significant cash-flow problems if they take delivery of the crude palm oil shipments at higher prices agreed earlier especially when current market rates are so much lower,' a leading trader from Mumbai told Reuters by telephone. Another Mumbai trader said that deferring shipments of palm oil will give Indian refiners more breathing space as prices of the vegetable oil are widely expected to recover in the next few months.
Malaysian crude palm oil futures fell 1.8 per cent by midday yesterday to hit a one-year low, despite firmer commodity prices, on talk that Asia buyers will continue to default on cargoes.
Palm oil prices have slid 20.2 per cent this year and have nearly halved from their March peak on a knock-out combination of high stocks, news of defaults from China and India as well as weak commodity markets.
Some traders said that deferments were more likely than defaults in the South Asian nation in the coming days as palm oil cargoes could still be locked in while refiners take immediate advantage of cheaper domestic oilseed prices and better crops.
'The festival season is coming up but it will not be such a strain because of the rising domestic soybean crop and cheap prices,' said an Indian trader.
Solvent Extractors' Association of India President Ashok Sethia earlier told Reuters that soybean output will be 10 million tonnes in 2008, from 9.3 million tonnes in 2007.
India imports almost half of its annual consumption of about 11 million tonnes of vegetable oils in the form of palm oil from Malaysia and Indonesia and soyoil from Brazil and Argentina. -- Reuters
India asks to defer 100,000t crude palm oil trade
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(KUALA LUMPUR) Indian palm oil importers have asked Malaysian and Indonesian producers to defer up to 100,000 tonnes of crude palm oil meant for August delivery to September and October, Indian traders said yesterday.
India, the second largest vegetable oil buyer in the world, has been defaulting on purchases in the last two to three weeks as a result of plummeting prices and traders warn there may be more defaults or deferments in the days to come.
'Refiners will suffer significant cash-flow problems if they take delivery of the crude palm oil shipments at higher prices agreed earlier especially when current market rates are so much lower,' a leading trader from Mumbai told Reuters by telephone. Another Mumbai trader said that deferring shipments of palm oil will give Indian refiners more breathing space as prices of the vegetable oil are widely expected to recover in the next few months.
Malaysian crude palm oil futures fell 1.8 per cent by midday yesterday to hit a one-year low, despite firmer commodity prices, on talk that Asia buyers will continue to default on cargoes.
Palm oil prices have slid 20.2 per cent this year and have nearly halved from their March peak on a knock-out combination of high stocks, news of defaults from China and India as well as weak commodity markets.
Some traders said that deferments were more likely than defaults in the South Asian nation in the coming days as palm oil cargoes could still be locked in while refiners take immediate advantage of cheaper domestic oilseed prices and better crops.
'The festival season is coming up but it will not be such a strain because of the rising domestic soybean crop and cheap prices,' said an Indian trader.
Solvent Extractors' Association of India President Ashok Sethia earlier told Reuters that soybean output will be 10 million tonnes in 2008, from 9.3 million tonnes in 2007.
India imports almost half of its annual consumption of about 11 million tonnes of vegetable oils in the form of palm oil from Malaysia and Indonesia and soyoil from Brazil and Argentina. -- Reuters
Published August 19, 2008
MAS Q2 profit falls on higher fuel costs
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(KUALA LUMPUR) Malaysian Airline System Bhd, South-east Asia's third-largest carrier, reported a second consecutive quarter of decline in profit after it flew fewer passengers and fuel costs climbed.
Passing planes: MAS spent about 56per cent more on jet fuel, the company's biggest expense, as crude oil rose by more than half in the past year
Net income dropped 65 per cent to RM40 million (S$17 million), or 2.39 sen a share, for the three months ended June 30, from RM113 million, or 8.07 sen, for the same period last year, the company said yesterday.
Revenue for the second quarter rose 8.6 per cent to RM3.78 billion. Profit fell 9.5 per cent for the first quarter.
MAS, based in Subang, near the capital Kuala Lumpur, spent about 56 per cent more on jet fuel, the company's biggest expense, as crude oil rose by more than half in the past 12 months.
Airlines globally may post a combined loss of US$6.1 billion this year, the worst since 2003, because of fuel costs, the International Air Transport Association has said.
'Higher fuel costs have translated into higher prices and a weaker consumer sentiment,' said Khair Mirza, an analyst at Aseambankers Malaysia Bhd. 'It's still a very delicate situation.'
MAS flew 5.2 million passengers in the three months ended June 30, 4.6 per cent lower than a year ago, according to its website. The airline said yesterday that passenger revenue for the quarter declined to RM2.11 billion from RM2.15 billion.
Crude oil prices have fallen 11 per cent in the past month, which will benefit the airline industry, said Mr Khair, who is reviewing his share price targets for MAS and AirAsia Bhd, the country's biggest discount carrier.
MAS has said that it plans to cut capacity by 6 per cent this year by reducing flights and scrapping less-profitable routes. It also offered employees leave, or part-time work in a bid to cut costs.
In June, the airline raised fuel surcharges for international flights by as much as 80 per cent and froze most recruitment.
Still, 'all these efforts may not be enough' to boost earnings if demand remains weak, said Mr Khair.
MAS spent RM1.73 billion buying jet kerosene in the second quarter, the statement said. The carrier's share price fell 5.3 per cent to RM3.60 at the close of trading in Kuala Lumpur yesterday. -- Bloomberg
MAS Q2 profit falls on higher fuel costs
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(KUALA LUMPUR) Malaysian Airline System Bhd, South-east Asia's third-largest carrier, reported a second consecutive quarter of decline in profit after it flew fewer passengers and fuel costs climbed.
Passing planes: MAS spent about 56per cent more on jet fuel, the company's biggest expense, as crude oil rose by more than half in the past year
Net income dropped 65 per cent to RM40 million (S$17 million), or 2.39 sen a share, for the three months ended June 30, from RM113 million, or 8.07 sen, for the same period last year, the company said yesterday.
Revenue for the second quarter rose 8.6 per cent to RM3.78 billion. Profit fell 9.5 per cent for the first quarter.
MAS, based in Subang, near the capital Kuala Lumpur, spent about 56 per cent more on jet fuel, the company's biggest expense, as crude oil rose by more than half in the past 12 months.
Airlines globally may post a combined loss of US$6.1 billion this year, the worst since 2003, because of fuel costs, the International Air Transport Association has said.
'Higher fuel costs have translated into higher prices and a weaker consumer sentiment,' said Khair Mirza, an analyst at Aseambankers Malaysia Bhd. 'It's still a very delicate situation.'
MAS flew 5.2 million passengers in the three months ended June 30, 4.6 per cent lower than a year ago, according to its website. The airline said yesterday that passenger revenue for the quarter declined to RM2.11 billion from RM2.15 billion.
Crude oil prices have fallen 11 per cent in the past month, which will benefit the airline industry, said Mr Khair, who is reviewing his share price targets for MAS and AirAsia Bhd, the country's biggest discount carrier.
MAS has said that it plans to cut capacity by 6 per cent this year by reducing flights and scrapping less-profitable routes. It also offered employees leave, or part-time work in a bid to cut costs.
In June, the airline raised fuel surcharges for international flights by as much as 80 per cent and froze most recruitment.
Still, 'all these efforts may not be enough' to boost earnings if demand remains weak, said Mr Khair.
MAS spent RM1.73 billion buying jet kerosene in the second quarter, the statement said. The carrier's share price fell 5.3 per cent to RM3.60 at the close of trading in Kuala Lumpur yesterday. -- Bloomberg
Published August 19, 2008
JAHJ to list on Japan's Jasdaq via share swap
Japan Land-linked firm made deal with associate ATL
By LYNETTE KHOO
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JAPAN Asia Holdings (Japan) (JAHJ), a Japan Land-linked company, has entered into a share swap agreement with its 39.1 per cent associate ATL Systems, which is listed on Tokyo's Jasdaq board.
This finally provides a backdoor listing opportunity for JAHJ, which has mulled the idea of listing since 2003 but had a botched attempt in an initial public offering in 2005.
Singapore-listed Japan Land is expected to make an announcement today, after halting trading of its shares yesterday afternoon. ATL filed the announcement with Jasdaq yesterday.
According to the filing, ATL will issue new shares in exchange for JAHJ shares. On completion of this, the listed JAHJ will have a market value of 36 billion yen (S$461 million). ATL now has a total market value of 936 million yen (S$12 million), based on data on the Jasdaq website.
After the share swap, ATL will spin off its current business in software development & research, network maintenance and solutions consultation services into a new private entity, ATL said in the filing.
BT understands that after the transaction, JAHJ will enter into a probational trading period under which it is to fulfil the listing requirements of Jasdaq within three years.
Japan Land owns an effective stakeholding of about 14.13 per cent in JAHJ both directly and indirectly through its 15.64 per cent stake in Japan Asia Holdings (JAH), which owns 44.27 per cent of JAHJ.
Japan Land is now the target of a takeover bid by tycoon Oei Hong Leong to buy the shares that he does not already own at 60 cents a share. Mr Oei currently owns a 4.01 per cent stake in Japan Land. He also intends to make an offer for all of Japan Land's outstanding warrants.
Another company of Mr Oei, International Capital Investment Ltd (ICIL), which he has taken private in May, owns an effective stakeholding of 9.26 per cent in JAHJ via direct stakes of 4.72 per cent in JAHJ and 10.25 per cent in JAH.
JAHJ to list on Japan's Jasdaq via share swap
Japan Land-linked firm made deal with associate ATL
By LYNETTE KHOO
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JAPAN Asia Holdings (Japan) (JAHJ), a Japan Land-linked company, has entered into a share swap agreement with its 39.1 per cent associate ATL Systems, which is listed on Tokyo's Jasdaq board.
This finally provides a backdoor listing opportunity for JAHJ, which has mulled the idea of listing since 2003 but had a botched attempt in an initial public offering in 2005.
Singapore-listed Japan Land is expected to make an announcement today, after halting trading of its shares yesterday afternoon. ATL filed the announcement with Jasdaq yesterday.
According to the filing, ATL will issue new shares in exchange for JAHJ shares. On completion of this, the listed JAHJ will have a market value of 36 billion yen (S$461 million). ATL now has a total market value of 936 million yen (S$12 million), based on data on the Jasdaq website.
After the share swap, ATL will spin off its current business in software development & research, network maintenance and solutions consultation services into a new private entity, ATL said in the filing.
BT understands that after the transaction, JAHJ will enter into a probational trading period under which it is to fulfil the listing requirements of Jasdaq within three years.
Japan Land owns an effective stakeholding of about 14.13 per cent in JAHJ both directly and indirectly through its 15.64 per cent stake in Japan Asia Holdings (JAH), which owns 44.27 per cent of JAHJ.
Japan Land is now the target of a takeover bid by tycoon Oei Hong Leong to buy the shares that he does not already own at 60 cents a share. Mr Oei currently owns a 4.01 per cent stake in Japan Land. He also intends to make an offer for all of Japan Land's outstanding warrants.
Another company of Mr Oei, International Capital Investment Ltd (ICIL), which he has taken private in May, owns an effective stakeholding of 9.26 per cent in JAHJ via direct stakes of 4.72 per cent in JAHJ and 10.25 per cent in JAH.
Published August 19, 2008
Retail investors get live STI feed for free
SAS and member firms iron out issues of cost and technical requirements
By LYNETTE KHOO
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AFTER eight months from the launch of the revamped Straits Times Index (STI), retail investors are finally getting real-time data on the STI via their online trading platforms.
This follows a series of discussions by the Securities Association of Singapore (SAS) and its member firms, consisting of all 10 local securities broking firms and three foreign stockbrokers operating here.
SAS said it has resolved financial costs and addressed all technical requirements for the FTSE-computed index to be shown live on its member firms' Internet trading platforms.
Since June 13, local brokers started receiving live data feeds for the STI on their dealers' trading terminals again, after nearly six months of doing without. But that access was not made available to retail investors then.
Starting from yesterday, retail investors can access real-time index feed through the brokers' Internet trading platform for free secured by contract at least until end-2012.
This access comes with a condition - to be agreed upon individually - that the real-time index is for personal use only, and not for redistribution.
Though the waiver of end-user charges was agreed upon back in May, the SAS said it has had to work with FTSE to streamline and revise the terms and conditions of the contract to reflect this agreement.
Providing some colour on what went on in the discussions, SAS CEO Lim Eng Hai said that 'much of the time-consuming negotiations had centred on securing a waiver of end-user charges which might otherwise have cost online investors and traders some money every month'.
The major costs included a one-time system integration costs of up to S$20,000 to make the Internet trading platform receive the feed and an annual fee of US$6,000 per year to FTSE to redistribute the live index prices on their websites. Each firm also has to pay recurring carrier costs of about S$20,000 per year payable to third-parties such as Reuters to pipe the data feed from London to Singapore.
For the most affected firms, the total costs of the newly completed transition include S$25,000 in one-time integration costs and up to S$33,000 in annual recurring costs for each firm.
'As the broking houses will be absorbing all of these financial costs, there will be no cost impact on the tens of thousands of retail investors, Mr Lim said.
Retail investors get live STI feed for free
SAS and member firms iron out issues of cost and technical requirements
By LYNETTE KHOO
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AFTER eight months from the launch of the revamped Straits Times Index (STI), retail investors are finally getting real-time data on the STI via their online trading platforms.
This follows a series of discussions by the Securities Association of Singapore (SAS) and its member firms, consisting of all 10 local securities broking firms and three foreign stockbrokers operating here.
SAS said it has resolved financial costs and addressed all technical requirements for the FTSE-computed index to be shown live on its member firms' Internet trading platforms.
Since June 13, local brokers started receiving live data feeds for the STI on their dealers' trading terminals again, after nearly six months of doing without. But that access was not made available to retail investors then.
Starting from yesterday, retail investors can access real-time index feed through the brokers' Internet trading platform for free secured by contract at least until end-2012.
This access comes with a condition - to be agreed upon individually - that the real-time index is for personal use only, and not for redistribution.
Though the waiver of end-user charges was agreed upon back in May, the SAS said it has had to work with FTSE to streamline and revise the terms and conditions of the contract to reflect this agreement.
Providing some colour on what went on in the discussions, SAS CEO Lim Eng Hai said that 'much of the time-consuming negotiations had centred on securing a waiver of end-user charges which might otherwise have cost online investors and traders some money every month'.
The major costs included a one-time system integration costs of up to S$20,000 to make the Internet trading platform receive the feed and an annual fee of US$6,000 per year to FTSE to redistribute the live index prices on their websites. Each firm also has to pay recurring carrier costs of about S$20,000 per year payable to third-parties such as Reuters to pipe the data feed from London to Singapore.
For the most affected firms, the total costs of the newly completed transition include S$25,000 in one-time integration costs and up to S$33,000 in annual recurring costs for each firm.
'As the broking houses will be absorbing all of these financial costs, there will be no cost impact on the tens of thousands of retail investors, Mr Lim said.
Published August 19, 2008
Include analyst info in research reports
By R SIVANITHY
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BROKING firm analysts often find themselves lodged between a rock and a hard place - call a 'sell' on a stock when the market is hot and rising and they risk ridicule (and loss of clientele), while a 'buy' when the market is depressed and bearish is typically greeted with scorn.
Additional data on experience, track record and length of time spent covering the particular industry or stock would surely be useful.
Of course, in a market governed by the maxim of caveat emptor, it's possible to argue that the onus rests on the reader or investor to evaluate investment recommendations on their own merits and thereafter to make their own minds up whether to adhere to the 'buy' or 'sell' call.
In order to do so, though, there should be full and proper disclosure of all relevant details. There can be no argument with this; neither can there be any debate that full disclosure includes assumptions made about earnings estimates, discount rates, industry conditions, risk premia and so forth.
Equally, if the analyst holds shares in the firm, this should also be disclosed, as should data on risk factors.
But what about the qualifications, experience and track record of the recommending writer? Should this information also be included in research reports?
Experience counts
The answer has to be yes - after all, a 'buy' from an analyst who has had many years covering the same stock would carry a lot more weight than one who has, say, a few months on the job.
These were suggestions made by a reader in an email recently to BT. It was prompted by a large difference in opinion between the reader's view of a stock and a broker's positive view of that company. This extended back several months and encompassed two 'buy' calls - the second even after the stock had dropped sharply and looked doomed to continue sliding.
Obviously well-versed with the industry that the company operates in and its competitive climate, the reader believed the broker was overly optimistic in his outlook and too simplistic in his assumptions. As a result, the reader repeatedly questioned the analysis, suggesting that it was flawed.
Months later, the reader has been proven correct, the stock in question having plunged to new lows amidst earnings and various other concerns.
A few points have to be noted. First, given that a significant part of the market has collapsed - China and property stocks, for example, are already at 52-week lows - then by extension, a large number of analysts have also been repeatedly proven to be wrong this year because the majority of reports at the start of the year were of the 'buy' or 'overweight' variety.
This applies to analysts who cover blue chips as well as second- and third-line counters, and includes large, well-known foreign houses who are reputed to offer superior research, compared to the smaller, local brokers.
Second, the macro conditions have changed drastically in a short space of time, making it difficult to categorically lay blame for inaccurate research calls squarely on the shoulders of analysts.
Third, as long as the 'buy' or 'sell' calls were made objectively, in good faith and properly cleared by in-house internal controls, then analysts should not be discouraged from sticking their necks out with contrarian calls that may be subsequently proven wrong.
Having said this, there is clearly plenty of scope to improve on current disclosures contained in research reports. Currently, the only analyst-specific information which appears on reports (apart from name, email address and contact number) is whether the writer has a position in the stock concerned - and even this is always in fine print at the end of the report.
Corporate finance deals
It isn't difficult to improve on such meagre disclosures. Additional data on experience, track record and length of time spent covering the particular industry or stock would surely be useful.
Other areas would also benefit from improved disclosure. Corporate finance deals, for example, between the company and the broker are not revealed; instead, brokers are allowed to get away with the ludicrous disclaimer that they may have had a relationship with the company which could affect the objectivity of the report and that as a result, investors should not rely entirely on the report for their decision-making.
The point here is that while steps should be taken to safeguard the interests of the investing public, they should also not penalise analysts nor discourage them from discharging their duties properly. The only way to arrive at a workable middle ground is through proper disclosure and, is this regard, there's much scope for improvement.
Include analyst info in research reports
By R SIVANITHY
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BROKING firm analysts often find themselves lodged between a rock and a hard place - call a 'sell' on a stock when the market is hot and rising and they risk ridicule (and loss of clientele), while a 'buy' when the market is depressed and bearish is typically greeted with scorn.
Additional data on experience, track record and length of time spent covering the particular industry or stock would surely be useful.
Of course, in a market governed by the maxim of caveat emptor, it's possible to argue that the onus rests on the reader or investor to evaluate investment recommendations on their own merits and thereafter to make their own minds up whether to adhere to the 'buy' or 'sell' call.
In order to do so, though, there should be full and proper disclosure of all relevant details. There can be no argument with this; neither can there be any debate that full disclosure includes assumptions made about earnings estimates, discount rates, industry conditions, risk premia and so forth.
Equally, if the analyst holds shares in the firm, this should also be disclosed, as should data on risk factors.
But what about the qualifications, experience and track record of the recommending writer? Should this information also be included in research reports?
Experience counts
The answer has to be yes - after all, a 'buy' from an analyst who has had many years covering the same stock would carry a lot more weight than one who has, say, a few months on the job.
These were suggestions made by a reader in an email recently to BT. It was prompted by a large difference in opinion between the reader's view of a stock and a broker's positive view of that company. This extended back several months and encompassed two 'buy' calls - the second even after the stock had dropped sharply and looked doomed to continue sliding.
Obviously well-versed with the industry that the company operates in and its competitive climate, the reader believed the broker was overly optimistic in his outlook and too simplistic in his assumptions. As a result, the reader repeatedly questioned the analysis, suggesting that it was flawed.
Months later, the reader has been proven correct, the stock in question having plunged to new lows amidst earnings and various other concerns.
A few points have to be noted. First, given that a significant part of the market has collapsed - China and property stocks, for example, are already at 52-week lows - then by extension, a large number of analysts have also been repeatedly proven to be wrong this year because the majority of reports at the start of the year were of the 'buy' or 'overweight' variety.
This applies to analysts who cover blue chips as well as second- and third-line counters, and includes large, well-known foreign houses who are reputed to offer superior research, compared to the smaller, local brokers.
Second, the macro conditions have changed drastically in a short space of time, making it difficult to categorically lay blame for inaccurate research calls squarely on the shoulders of analysts.
Third, as long as the 'buy' or 'sell' calls were made objectively, in good faith and properly cleared by in-house internal controls, then analysts should not be discouraged from sticking their necks out with contrarian calls that may be subsequently proven wrong.
Having said this, there is clearly plenty of scope to improve on current disclosures contained in research reports. Currently, the only analyst-specific information which appears on reports (apart from name, email address and contact number) is whether the writer has a position in the stock concerned - and even this is always in fine print at the end of the report.
Corporate finance deals
It isn't difficult to improve on such meagre disclosures. Additional data on experience, track record and length of time spent covering the particular industry or stock would surely be useful.
Other areas would also benefit from improved disclosure. Corporate finance deals, for example, between the company and the broker are not revealed; instead, brokers are allowed to get away with the ludicrous disclaimer that they may have had a relationship with the company which could affect the objectivity of the report and that as a result, investors should not rely entirely on the report for their decision-making.
The point here is that while steps should be taken to safeguard the interests of the investing public, they should also not penalise analysts nor discourage them from discharging their duties properly. The only way to arrive at a workable middle ground is through proper disclosure and, is this regard, there's much scope for improvement.
Published August 19, 2008
Longer maternity leave to battle baby blues
It will be raised by another 4 weeks and govt will pay for the difference: PM Lee
By LEE U-WEN
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(SINGAPORE) Workplaces here will become more family-friendly than ever before as Singapore pulls out all the stops to encourage its citizens to have more children. Most significantly, maternity leave will been upped yet again, from the current 12 weeks to 16 weeks.
Also, the two days of childcare leave that parents now enjoy will be tripled to six days, while each parent can now claim up to a week of unpaid infant-care leave until the child turns two.
These plans were spelt out in Prime Minister Lee Hsien Loong's wide-ranging National Day Rally speech in English on Sunday. His key message to Singaporeans was: get married, preferably earlier; and have children, more than one if you can afford it.
The government will smooth the way for this.
For one, it will foot the bill for the extra four weeks of maternity leave that Singapore's workplaces will now offer. Said Mr Lee: 'Maternity leave was extended by four weeks in 2004 (paid for by government), to 12 weeks. This was welcomed by many mothers. We will extend this by another four weeks to 16 weeks, also paid for by government. Mothers can claim (these extra four weeks) any time in the year from the birth of the child.'
Related articles:
Click here for the NDR speech: Part 1
Part 2
Part 3
Part 4
The measures Mr Lee announced will cost the government $700 million a year, bringing to almost $1.6 billion it spends a year to boost Singapore's falling birth rate.
Mr Lee also promised to enhance the baby bonus scheme for first-time parents and provide greater tax incentives to encourage more mothers to work.
The current total fertility rate is just 1.29 - just a shade above the historical low of 1.26 recorded in 2004 and well below the replacement level of 2.1.
'This is a deep problem, which we will have to revisit periodically. It's about mindsets, personal choices and values. Please put emphasis on marriage and family, and make these your priorities in life,' he urged.
While he went on at length to stress the severity of the fertility rate problem, Mr Lee took time to give his outlook on the state of Singapore's economy, and the picture was not a rosy one.
Just a week after the government downgraded this year's growth forecast to between 4 and 5 per cent, Mr Lee warned that 2009 would be a year of 'slow growth and more uncertainties', although this was not expected to reach crisis levels.
He described the revised 2008 forecast as 'not bad', stressing the fact that the Republic has remained competitive and able to attract investors who still want to come here. He was also confident that Singapore would be ready to bounce straight back up when the global economy recovers.
Singapore, however, is 'starting to feel the impact' of the global economic woes faced by the US and Europe. The 'hottest topic' among Singaporeans is the rising cost of living, with inflation now a worldwide problem, he said.
He reminded Singaporeans that they have already received many handouts from the government as part of the Budget surpluses, adding that 'most people have forgotten how much they are getting'.
Still, with inflation turning out 'higher than expected', Mr Lee said that he had studied the Budget position and decided to do more to help citizens cope with the rising cost of living.
To cheers from his 1,700-strong audience at the University Cultural Centre, he announced a further $256 million in handouts and rebates to be given out this year, which means that the average household can expect to receive an additional $250 to $330 on top of the benefits they are already entitled to.
This will be done in two ways: First, when the second instalment of Growth Dividends is paid out on Oct 1 this year, the amount will be 50 per cent higher. Most Singaporeans living in HDB flats will get between $75 and $150 more, said the Finance Ministry in a statement yesterday.
Second, the total amount of Utilities-Save (U-Save) rebates this year will be increased, also by 50 per cent. A family living in a one- or two-room flat, for instance, will now get $330 worth of such rebates, instead of $220. Those living in a four-room flat would get $285 in total, up from $190 previously.
Mr Lee, however, had a word of caution for Singaporeans: 'Please don't think hongbaos will solve the problem. We can't give hongbaos all the time. The best solution is still to keep the economy competitive, become more productive and earn more for ourselves. Then, we can raise our standard of living, despite the increase in oil and food prices.'
Besides the hot potato of inflation, Mr Lee touched on the recent hike in Electronic Road Pricing (ERP), which he acknowledged has upset many people but the decision was taken regardless in order to keep traffic flowing smoothly.
Before closing his two-hour address, Mr Lee had a message for those who have criticised the government for overemphasising economic performance. 'In fact, growth is critical. It gives us the resources to solve our problems,' he said.
Longer maternity leave to battle baby blues
It will be raised by another 4 weeks and govt will pay for the difference: PM Lee
By LEE U-WEN
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(SINGAPORE) Workplaces here will become more family-friendly than ever before as Singapore pulls out all the stops to encourage its citizens to have more children. Most significantly, maternity leave will been upped yet again, from the current 12 weeks to 16 weeks.
Also, the two days of childcare leave that parents now enjoy will be tripled to six days, while each parent can now claim up to a week of unpaid infant-care leave until the child turns two.
These plans were spelt out in Prime Minister Lee Hsien Loong's wide-ranging National Day Rally speech in English on Sunday. His key message to Singaporeans was: get married, preferably earlier; and have children, more than one if you can afford it.
The government will smooth the way for this.
For one, it will foot the bill for the extra four weeks of maternity leave that Singapore's workplaces will now offer. Said Mr Lee: 'Maternity leave was extended by four weeks in 2004 (paid for by government), to 12 weeks. This was welcomed by many mothers. We will extend this by another four weeks to 16 weeks, also paid for by government. Mothers can claim (these extra four weeks) any time in the year from the birth of the child.'
Related articles:
Click here for the NDR speech: Part 1
Part 2
Part 3
Part 4
The measures Mr Lee announced will cost the government $700 million a year, bringing to almost $1.6 billion it spends a year to boost Singapore's falling birth rate.
Mr Lee also promised to enhance the baby bonus scheme for first-time parents and provide greater tax incentives to encourage more mothers to work.
The current total fertility rate is just 1.29 - just a shade above the historical low of 1.26 recorded in 2004 and well below the replacement level of 2.1.
'This is a deep problem, which we will have to revisit periodically. It's about mindsets, personal choices and values. Please put emphasis on marriage and family, and make these your priorities in life,' he urged.
While he went on at length to stress the severity of the fertility rate problem, Mr Lee took time to give his outlook on the state of Singapore's economy, and the picture was not a rosy one.
Just a week after the government downgraded this year's growth forecast to between 4 and 5 per cent, Mr Lee warned that 2009 would be a year of 'slow growth and more uncertainties', although this was not expected to reach crisis levels.
He described the revised 2008 forecast as 'not bad', stressing the fact that the Republic has remained competitive and able to attract investors who still want to come here. He was also confident that Singapore would be ready to bounce straight back up when the global economy recovers.
Singapore, however, is 'starting to feel the impact' of the global economic woes faced by the US and Europe. The 'hottest topic' among Singaporeans is the rising cost of living, with inflation now a worldwide problem, he said.
He reminded Singaporeans that they have already received many handouts from the government as part of the Budget surpluses, adding that 'most people have forgotten how much they are getting'.
Still, with inflation turning out 'higher than expected', Mr Lee said that he had studied the Budget position and decided to do more to help citizens cope with the rising cost of living.
To cheers from his 1,700-strong audience at the University Cultural Centre, he announced a further $256 million in handouts and rebates to be given out this year, which means that the average household can expect to receive an additional $250 to $330 on top of the benefits they are already entitled to.
This will be done in two ways: First, when the second instalment of Growth Dividends is paid out on Oct 1 this year, the amount will be 50 per cent higher. Most Singaporeans living in HDB flats will get between $75 and $150 more, said the Finance Ministry in a statement yesterday.
Second, the total amount of Utilities-Save (U-Save) rebates this year will be increased, also by 50 per cent. A family living in a one- or two-room flat, for instance, will now get $330 worth of such rebates, instead of $220. Those living in a four-room flat would get $285 in total, up from $190 previously.
Mr Lee, however, had a word of caution for Singaporeans: 'Please don't think hongbaos will solve the problem. We can't give hongbaos all the time. The best solution is still to keep the economy competitive, become more productive and earn more for ourselves. Then, we can raise our standard of living, despite the increase in oil and food prices.'
Besides the hot potato of inflation, Mr Lee touched on the recent hike in Electronic Road Pricing (ERP), which he acknowledged has upset many people but the decision was taken regardless in order to keep traffic flowing smoothly.
Before closing his two-hour address, Mr Lee had a message for those who have criticised the government for overemphasising economic performance. 'In fact, growth is critical. It gives us the resources to solve our problems,' he said.
Monday, 18 August 2008
Published August 18, 2008
A way out for the unhappy Hyflux investor
By CHEW XIANG
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HAPPY Investor, who put 32 cents into Hyflux at its initial public offering seven years ago, is now sitting on impressively hefty gains - around $6 in capital gain (including a number of bonus share issues), plus about 15-odd cents in dividends.
Unhappy Investor, who bought into Hyflux three years ago, at $3.20 in mid-August 2005 (it hit a year-high of $3.92 on July 26 before tumbling), has instead received just 4.6 cents in dividends and on paper is down roughly 20 per cent.
Why? Since 2005, Hyflux, a pure play water treatment firm, has come on strongly. For the whole of that year, it reported revenue of $131.5 million, and net profit of $46.3 million, or 9.21 cents a share.
That's not far off the results it recently reported for just one quarter - $22.6 million net profit on record turnover of $108.1 million. In 2007, the company earned $33 million, with $192.8 million in sales. EPS was 6.32 cents.
So despite the recent strong results, the company has been comparatively niggardly in rewarding shareholders in the past few years. That's even though Hyflux, in its latest half-yearly results, said it held $93.6 million in cash and had generated strong operating cashflow for the quarter.
But Hyflux, in any case, has never been a dividend stock. Analysts and investors have always seen it as a growth stock benefiting from global water shortages, rewarding shareholders through appreciating share prices.
The company prefers to retain earnings for capital expenditure and that's reflected in its comparatively lower dividend yield - 0.8 per cent last year, by most estimates, compared to around 2 per cent for similarly-sized water companies worldwide.
The problem with that story, at least recently, is that the company's stock performance has been lacklustre. Part of the problem is the meteoric rise in Hyflux's share price in its first few years on the exchange - not too long ago, it was priced at over a hundred times earnings.
So the market probably sees recent results as the fulfilment of early potential, rather than a reason to hike prices even higher. That's reflected in sobering valuations - about 14 times forecast earnings in 2009 and 2010, according to JPMorgan, while CIMB's Jessie Lai sees forward price-earnings ratios at between 17 and 20 times for the next two years. A far cry from just last year, when the stock was priced at 40 to 50 times earnings.
So what is Unhappy Investor to do? Analysts are setting price targets of between $3.30 and $3.80 - that means he won't gain much even if the most optimistic forecasts are met.
And even though analysts are seeing record earnings ahead on contract wins and divestment gains to Hyflux Water Trust, dividends are likely to stay relatively slim as the company gears up for more expansion. A $300 million medium-term note programme is in the works, and more debt through bank lending is likely. What cash is likely to be disbursed will be through its listed business trust.
So is Unhappy Investor forced to take the hit and switch to, say, Hyflux Water Trust? The trust recently reported above forecast half-year distribution per unit of 2.17 cents, an annualised yield of 6.7 per cent and is predicting 7.7 per cent this year - a fair return in turbulent times.
Yet there could be another way out. In 2005, Hyflux's seemingly strong earnings were boosted by one-time items. Core earnings declined 18 per cent, as analysts were quick to point out. But the most recent quarter's results showed surprisingly good margins - gross of 36 per cent, compared to 23 per cent in the year-ago period - and steady net operating cash flow of $16.7 million, compared to just $422,000 a year ago.
So at one end the company has proven itself capable of reining in costs for its water treatment projects despite record construction costs and soaring inflation; at the other end, it has by its own account been extraordinarily adept at negotiating tariff increases to relieve the pressure. These were issues that bedevilled it three years ago, when some were sceptical about its ability to deliver on its strong order book.
It's not entirely clear how the recent improvement was achieved. Chief executive officer Olivia Lum credits the massive build-up in human capital over the past few years - personnel expenses have doubled year-on-year - for helping to mitigate the increase in input prices. How exactly this is achieved is a mystery. The company, naturally, wouldn't give too much away.
But if the change is a genuine and persistent improvement in the company's ability to execute projects, then the stock should see its earnings multiple re-rate to more bullish levels. Admittedly in today's investing climate, that doesn't look too likely, as wary investors put more cautious valuations even on growth stocks. But that could be the only profitable way out for Unhappy Investor.
A way out for the unhappy Hyflux investor
By CHEW XIANG
Email this article
Print article
Feedback
HAPPY Investor, who put 32 cents into Hyflux at its initial public offering seven years ago, is now sitting on impressively hefty gains - around $6 in capital gain (including a number of bonus share issues), plus about 15-odd cents in dividends.
Unhappy Investor, who bought into Hyflux three years ago, at $3.20 in mid-August 2005 (it hit a year-high of $3.92 on July 26 before tumbling), has instead received just 4.6 cents in dividends and on paper is down roughly 20 per cent.
Why? Since 2005, Hyflux, a pure play water treatment firm, has come on strongly. For the whole of that year, it reported revenue of $131.5 million, and net profit of $46.3 million, or 9.21 cents a share.
That's not far off the results it recently reported for just one quarter - $22.6 million net profit on record turnover of $108.1 million. In 2007, the company earned $33 million, with $192.8 million in sales. EPS was 6.32 cents.
So despite the recent strong results, the company has been comparatively niggardly in rewarding shareholders in the past few years. That's even though Hyflux, in its latest half-yearly results, said it held $93.6 million in cash and had generated strong operating cashflow for the quarter.
But Hyflux, in any case, has never been a dividend stock. Analysts and investors have always seen it as a growth stock benefiting from global water shortages, rewarding shareholders through appreciating share prices.
The company prefers to retain earnings for capital expenditure and that's reflected in its comparatively lower dividend yield - 0.8 per cent last year, by most estimates, compared to around 2 per cent for similarly-sized water companies worldwide.
The problem with that story, at least recently, is that the company's stock performance has been lacklustre. Part of the problem is the meteoric rise in Hyflux's share price in its first few years on the exchange - not too long ago, it was priced at over a hundred times earnings.
So the market probably sees recent results as the fulfilment of early potential, rather than a reason to hike prices even higher. That's reflected in sobering valuations - about 14 times forecast earnings in 2009 and 2010, according to JPMorgan, while CIMB's Jessie Lai sees forward price-earnings ratios at between 17 and 20 times for the next two years. A far cry from just last year, when the stock was priced at 40 to 50 times earnings.
So what is Unhappy Investor to do? Analysts are setting price targets of between $3.30 and $3.80 - that means he won't gain much even if the most optimistic forecasts are met.
And even though analysts are seeing record earnings ahead on contract wins and divestment gains to Hyflux Water Trust, dividends are likely to stay relatively slim as the company gears up for more expansion. A $300 million medium-term note programme is in the works, and more debt through bank lending is likely. What cash is likely to be disbursed will be through its listed business trust.
So is Unhappy Investor forced to take the hit and switch to, say, Hyflux Water Trust? The trust recently reported above forecast half-year distribution per unit of 2.17 cents, an annualised yield of 6.7 per cent and is predicting 7.7 per cent this year - a fair return in turbulent times.
Yet there could be another way out. In 2005, Hyflux's seemingly strong earnings were boosted by one-time items. Core earnings declined 18 per cent, as analysts were quick to point out. But the most recent quarter's results showed surprisingly good margins - gross of 36 per cent, compared to 23 per cent in the year-ago period - and steady net operating cash flow of $16.7 million, compared to just $422,000 a year ago.
So at one end the company has proven itself capable of reining in costs for its water treatment projects despite record construction costs and soaring inflation; at the other end, it has by its own account been extraordinarily adept at negotiating tariff increases to relieve the pressure. These were issues that bedevilled it three years ago, when some were sceptical about its ability to deliver on its strong order book.
It's not entirely clear how the recent improvement was achieved. Chief executive officer Olivia Lum credits the massive build-up in human capital over the past few years - personnel expenses have doubled year-on-year - for helping to mitigate the increase in input prices. How exactly this is achieved is a mystery. The company, naturally, wouldn't give too much away.
But if the change is a genuine and persistent improvement in the company's ability to execute projects, then the stock should see its earnings multiple re-rate to more bullish levels. Admittedly in today's investing climate, that doesn't look too likely, as wary investors put more cautious valuations even on growth stocks. But that could be the only profitable way out for Unhappy Investor.
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