Published August 30, 2008

Market cap falls to 20-mth low in Aug

Value of $609.7b marks 28 per cent decline from October 2007 high

By LYNETTE KHOO

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THE Singapore market sell-off has resulted in a sharp $237.8 billion or 28 per cent drop in market capitalisation from its October 2007 peak of about $847.5 billion.

This came after the month of August saw a further 7.3 per cent fall in market cap to a 20-month low of $609.7 billion - from July's $657.5 billion - as a mixed bag of earnings results in August failed to lift market sentiment. This compares with end-January 2007's market cap of $648.6 billion and end-2006's $604.8 billion.

'Market sentiment is still very bearish, so people are selling on cyclical sectors such as the shipbuilders and property stocks while buying more defensive stocks,' said Macquarie Securities research head Soong Tuck Yin.

Property plays were hit by analysts' cautious reviews on the sector, with CapitaLand losing 23.2 per cent in market cap from a month ago to $12.37 billion, City Developments falling 9.4 per cent to $9.5 billion, and Keppel Land shedding 20.5 per cent to $2.8 billion.

Creating jitters were a recommendation by Goldman Sachs to avoid the sector for six to nine months on weakness in the residential segment, and a UBS forecast of a sharp 34-35 per cent fall in office capital value and prime office rents between 2009 and 2012.

Shipbuilders Cosco Corp and Yangzijiang saw their market values slump 24.8 per cent to $5.15 billion and 24.4 per cent to $2 billion in August, battered by concerns of rising steel prices squeezing their margins. Investors also steered clear of Cosco over a lack of details given on the surprise retirement of its president Ji Hai Sheng.

Neptune Orient Lines continued to suffer from worries that it might overpay in its bid to acquire Hamburg-based Hapag-Lloyd from Germany's TUI Group, with its market value falling 20.4 per cent to $3.3 billion.

Related link: Click here for the market cap of all SGX-listed companies

Reversing an uptrend in the first six months, resource and agriculture-related stocks slipped further in August as oil prices receded. Wilmar shed 13.8 per cent in market value to $24.3 billion, with its ranking dropping to seventh from July's fourth. Despite a slew of 'buy' calls after posting sterling Q2 results, Indofood Agri dropped 10 places to 64th position after losing 38.3 per cent in market value to $1.6 billion.

But amid the broad sell-offs, there were exceptions. Club operator St James, which was listed on Catalist through a $108 million reverse takeover (RTO) of JK Technology, saw its shares surge 376 per cent to a market cap of $65.2 million, taking a lift from the RTO and a consolidation of its shares thereafter.

The recent 60 per cent stake buy by Singapore Telecommunications in Singapore Computer Systems (SCS) at 12 per cent premium to its share price helped lift SCS' market cap by 33.8 per cent to $228 million in August.

The fall in market values in August from a month ago coincided with the second-quarter reporting season.

Some 30 per cent of the companies disappointed in their earnings, a large jump from the 14 per cent seen in the preceding quarter, according to Citi. About 51 per cent of companies met expectations and 19 per cent exceeded expectations. 'Risk is for further earnings downgrades in coming quarters,' Citi said in a report.

CIMB-GK downgraded its earnings per share estimates by 9 per cent over the past three months, after trimming its forecasts in plantation, property and transport companies.

But most analysts noted that the fall in market cap has been triggered largely by poor market sentiment rather than fundamental reasons. The second-quarter earnings reporting season has seen most company earnings coming in line with or above expectations.

Calling this sell-off an 'irrational pessimism', DMG & Partners Securities senior dealing director Gabriel Yap said he believes the market is coming close to a bottom, given that it is already trading at about 10 times PE, the lowest since the Asian financial crisis and Sept 11.

'We are near the bottom but the magnitude of the (sub-prime) problem will tell us how long more to go before we hit bottom,' Mr Yap said.

According to Citi, the current bear market is probably only two-thirds through and may drag on until early 2009. 'This bear market could potentially last as long as the 2000/01 tech slump (91 weeks) or 1997/1998 Asian financial crisis (82) weeks),' the brokerage said in a report.

In the meantime, defensive and high-yielding stocks such as telcos, media and Reits would likely outperform the broader market, analysts say.

SingTel maintained top place in market cap but dipped a slight 1.4 per cent to $56.2 billion in August, while Singapore Press Holdings put on 2.2 per cent to $6.56 billion.

Published August 30, 2008

Malaysia's ban on anti-government website sparks protest

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(KUALA LUMPUR) Malaysia has pulled the plug on a popular news portal often critical of the government, sparking protests from a resurgent opposition.

The opposition derided the ban as another example of power abuse by PM Abdullah's government.

Malaysia's telecoms watchdog ordered Internet providers to block access to Malaysia Today website because it posted comments that could incite the country's multi-racial society, a government official said yesterday.

Home (Interior) Minister Syed Hamid said Malaysia Today's editor Raja Petra Kamaruddin had ignored warnings from the watchdog to abide by the law.

'We do not intend to curtail people's freedom or right to express themselves. Everyone is subjected to the law, even websites and blogs,' the Star newspaper yesterday quoted him as saying.

It is believed to be the first time such curbs have been used against a non-pornographic website. Malaysians have been flocking to the Internet for independent news as an alternative to tightly controlled mainstream media.

The ruling came as Anwar Ibrahim was sworn in on Thursday as a member of Parliament and took his seat as the new opposition leader.

His return following an enforced 10-year absence could curtail the government's ability to form policy as well as step up confrontations between the government and the opposition.

The opposition derided the website ban as another example of power abuse by Prime Minister Abdullah Ahmad Badawi's government.

It also ran contrary to the government's pledge to keep cyberspace uncensored, said Lim Kit Siang, leader of the Democratic Action Party, part of Anwar's opposition alliance.

Raja Petra said the move came as a surprise to him.

'I didn't think that they would go ahead because their own charter guarantees no-censorship,' he said.

'This is the first time they officially blocked my website,' Mr Petra added.

Last week, police raided his house and seized a laptop, a scanner and some documents, domestic media said.

The website was not available in Malaysia yesterday. -- Reuters

Published August 30, 2008

Malaysia sees FY09 budget deficit of 3.6% FY08 forecast hiked to 4.8% on extra spending to keep GDP rise above 5% By PAULINE NG IN KUALA LUMPUR Email this article Print article Feedback MALAYSIA expects a budget deficit of 3.6 per cent for the fiscal year 2008-09, a drop from the revised forecast of 4.8 per cent for FY08 but well above 3.2 per cent for FY07. Bearer of good news: Mr Abdullah says that the government would help cushion soaring prices but warns that if there is a global slowdown, there is only so much that the government can do The revised figure follows extra spending on top of what was budgeted a year ago, to keep economic growth above 5 per cent. Growth is expected to ease to 5.4 per cent next year from an estimated 5.7 per cent this year, according to the treasury's 2008-09 economic report released yesterday with this year's Budget. Despite last year's record budget of RM176.9 billion (S$73.8 billion), the government had to spend more, mainly because of rising prices, taking the FY08 total to RM196.9 billion. In the latest budget, spending goes up a further 5.1 per cent, to RM207.9 billion. On the income side, higher commodity prices are expected to boost revenue by 9 per cent to RM176.2 billion, from a projected RM161.6 billion in the current year. The growing gap between revenue and spending is worrying economists. The latest budget estimates operating expenditure at RM154.2 billion or three-quarters of total spending. Salaries are estimated to account for a quarter of operating expenditure and supply and services, 17 per cent. Although fuel subsidies have been slashed, total subsidies are estimated at RM33.8 billion or almost 22 per cent of operating expenditure. Development expenditure will rise 12 per cent to RM53.7 billion. In all, operating expenditure will rise more than a quarter. A larger deficit cannot be avoided if growth is to be supported, but analysts take issue with 'lax' spending. The civil service headcount has continued to grow over the years despite generous spending on new technology to improve productivity, they note. The civil service has 1.1 million staff, serving a population of 27 million. Because of soaring inflation, wages have to rise, but the size of the civil service should be slashed, an analyst said. The problem is, the civil service workforce is Malay-centric and 'something the government is very defensive about'. On the development side, the choice of projects is seen by many as having little multiplier effect. And the ramifications in tougher years ahead are clear. 'They will have a lot of constraints because bullets will be in short supply, having been fired in previous years,' said the analyst. The government initially aimed to contain the budget deficit at 3.1 per cent this year. Most economists had not foreseen it exceeding 4 per cent and expected only slight spending increases. CIMB chief economist Lee Heng Guie, for example, had pegged spending at RM192.5 billion - RM15.4 billion less than has been provided. Despite initial curbs on so-called mega projects, which led to the deficit narrowing to 3.2 per cent before the latest measures, Prime Minister Abdullah Ahmad Badawi's government has not made the most of better oil revenue in the past few years, choosing instead to spend on grand projects that many contend are to appease government supporters. Besides the political pummelling he has received since faring badly in the March general election, Mr Abdullah has had to grapple with economic problems, including inflation that hit a 27-year high of 8.5 per cent last month. Mr Abdullah, who is also Finance Minister, said yesterday that the government would help cushion soaring prices but warned the public and private sectors to be prepared if there is a global slowdown, as 'there is so much the government alone can do'. A larger deficit could have implications for Malaysia's credit rating. Although the latest deficit is below the 2000 peak of 5.5 per cent, volatile oil prices could make paring the deficit difficult next year, which in turn could lead to a review of the ratings.

Published August 29, 2008

Anwar sworn in, then leads walkout

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(KUALA LUMPUR) Malaysia's opposition leader Anwar Ibrahim was sworn into Parliament yesterday, only to stage a dramatic walkout hours later in a row over controversial DNA sampling legislation.

Taking the oath: Anwar at his swearing-in yesterday. He says he's on track to carry out his plan to seize power by securing the support of at least 30 government lawmakers by Sept 16

Anwar won a seat in parliament by a landslide in a by-election this week in his home state of Penang, ending a long political exile after he was sacked as deputy premier in 1998 and jailed for sodomy and corruption. 'I'm glad to be back after a decade,' Anwar said, insisting that he was on track to topple the government within weeks with the help of defecting lawmakers.

The first order of business was a new bill which would force suspected criminals to give DNA samples - legislation Anwar says is targeted at him, as he refused to provide a sample after again being arrested on sodomy charges.

He walked out with his 81 opposition lawmakers after the ruling Barisan Nasional coalition refused to establish a special committee to review the bill. 'We have walked out because they have refused to respond. Many MPs requested a select committee to be formed but the minister (Home Minister Syed Hamid Albar) refused,' Anwar told reporters. 'There is no point staying and participating in the debate,' he said.

Syed Hamid condemned the actions of the three-party opposition alliance. 'They walked out contrary to the rules because they don't want to accept defeat. They know that they will be defeated,' he told reporters. 'They walked out because they don't want it to appear like a failure for its leader who has said that he will be able to win over Barisan Nasional MPs.'

Anwar arrived at parliament with his wife, Wan Azizah Wan Ismail, who held his seat in northern Penang during his incarceration, and his daughter Nurul Izzah Anwar, who is also a parliamentarian. Dressed in a dark blue traditional Malay outfit and black songkok, he was sworn in in a brief ceremony.

Anwar attacked Prime Minister Abdullah Ahmad Badawi, who has faced persistent calls to quit since March elections in which the Opposition gained unprecedented ground. 'The prime minister has lost the mandate of the country and the nation,' Anwar said, calling on Mr Abdullah, his deputy Najib Razak and 'all their cronies' to be removed from power.

Asked if he was on track to carry out his plan to seize power by securing the support of at least 30 government lawmakers by Sept 16, he said 'Yes'.

The March elections saw the Opposition gain control of five states and a third of parliamentary seats, in the worst ever setback for the coalition which has ruled Malaysia for half a century. Anwar faces another daunting hurdle as he fights to clear his name of the new sodomy allegations levelled by a 23-year-old former aide, which he says have been concocted by the government to sideline him.

His original sodomy conviction was overturned by the nation's highest court in 2004, allowing him to go free after six years in jail. Sodomy is a serious offence in Malaysia, a conservative and predominantly Muslim country, and carries a maximum penalty of 20 years imprisonment. No trial date has been given yet for the new sexual misconduct allegations. -- AFP

Published August 29, 2008

Expansionary M'sian Budget on the cards

Economists see PM unveiling spending package of almost RM200b, a record

By S JAYASANKARAN
IN KUALA LUMPUR

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PRIME Minister Abdullah Ahmad Badawi is expected to present an expansionary budget for 2009 today which could push the budget deficit of the federal government to above 4.5 per cent of gross domestic product - making it the highest deficit since 2003.

Mr Abdullah, who is also finance minister, will table the bill under the watchful gaze of newly sworn-in opposition leader and former finance minister Anwar Ibrahim who has criticised Mr Abdullah's administration for financial mismanagement.

But Mr Abdullah probably has no choice in the matter. Inflation hit a 27-year high in July, touching 8.5 per cent and sparking massive protests across the country. Meanwhile, the cost of construction materials has soared, which will make pump priming projects more expensive. Thus, economists believe that Mr Abdullah could present a total spending package of almost RM200 billion (S$83.6 billion), which would be a record.

Although the increased deficit is likely to annoy the international rating agencies, they are unlikely to downgrade Malaysia's sovereign rating anytime soon. That's because Malaysia's total public debt as a proportion of GDP is 42 per cent, considerably lower than the international 'stress' level of 60 per cent.

Mr Abdullah's budget is likely to be populist with pump-priming projects and tax cuts for the lower income group. Analysts also think that some of the spending is likely to be aimed at improving the public transport system now more widely used because of higher fuel prices. Indeed, last year, the government said that an extra RM10 billion would be allocated to extend the light rail transit system in Kuala Lumpur.

Chee Wei Loong of CLSA in Kuala Lumpur thinks that employee contributions to the Employees Provident Fund, the country's largest private pension plan, could be 'temporarily' eased to increase cash in hand and help boost consumption spending. The tactic had been used by former premier Mahathir Mohamad in 2002 with some success.

Meanwhile, to boost revenue, the government is widely expected to raise 'sin' taxes. Duties on cigarettes are widely expected to be raised although the tax on beer is less likely as Malaysian beer, on a relative basis, is already considered extremely expensive.

Analysts are divided on the possibility of the government raising gaming taxes. It would be a populist move where ethnic Malays, who form 64 per cent of the population, are concerned; Islam, the religion of the Malays, forbids gambling. But industry studies have consistently shown that raising gaming taxes drives more gamblers into the illegal market which would translate ultimately to lower government revenues.

For political reasons, Mr Abdullah is also likely to throw more money at the East Malaysian states of Sabah and Sarawak with development projects such as the upgrading of the Trans-Borneo highway and flood mitigation schemes.

The goods and services tax (GST) which was scheduled to be implemented in 2007 is almost definitely off the table. Mr Abdullah is unlikely to impose such a tax for two reasons. One, it could be political suicide and two, it would almost certainly crimp consumption spending which has become a key driver of the Malaysian economy in recent years.

Published August 29, 2008

Singapore is battleground again for local banks

By SIOW LI SEN

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MAYBANK'S results for its financial year 2008 on Wednesday were hardly remarkable - profit was down 8 per cent to RM2.93 billion (S$1.23 billion). But it is likely that bankers here must be reading the details with great interest as the Singapore unit has chalked up yet another record year of earnings.

Maybank Singapore made profit before tax and zakat of RM530.9 million, up a hefty 44 per cent from RM368.6 million previously. It attributed the sparkling performance to strong loans growth which outperformed the market - 36 per cent year-on-year compared to the industry's growth of 26 per cent. The main areas of loans growth were lending to the building and construction sector, trade-related loans and home loans.

With this coming on the heels of record profits posted by the Singapore operations of HSBC and Standard Chartered Plc, it is a no-brainer that the DBS chief executive, after just over 100 days on the job, would want to refocus on Singapore. Some cynics even say that for a new CEO, it is the fastest way to build his reputation.

Richard Stanley said earlier this month at DBS's second-quarter results announcement that the bank would refocus its attention on Singapore as part of a broader push to improve the group's performance by making better use of its natural advantages in its home market.

Singapore contributed 62 per cent of the group's pre-tax profit for the first six months of the year, slipping from 66.5 per cent a year ago.

DBS has a 'privileged position' in Singapore, said Mr Stanley, who took over as head of the group in May. 'It's a competitive market, a mature market, but I think we can do even better here, leveraging on our strengths in our deposit base, our client base, our branch network, and our brand recognition.'

The recent $35 million makeover of POSB, which DBS acquired in 1998, is an example of the group's efforts to renew its focus on its home market, he added.

With growing uncertainties and increased political risks and tension in the region, pulling back to concentrate on Singapore has always been the refuge for the three local banks. DBS has the biggest weapon - its huge deposit base - which the group has not defended. The DBS deposit book has shrunk 1.2 per cent quarter-on-quarter. For a long time, the bank did not bother because it was seen as expensive, given that DBS could not deploy funds fast enough. The other two local rivals, too, have lost share in deposits to the foreign banks, which have managed to earn income by offering higher-yielding deposit products.

But the global credit crunch has changed the perspective on expensive deposits.

Noted Morgan Stanley analyst Matthew Wilson: 'While bank managements are keen to maintain net interest margins and have aggressively repriced deposits, they are doing so to the detriment of their deposit franchise. The deposit is a bank's most valuable asset and never more so in this world of rapidly shrinking liquidity.'

DBS is working overtime on its POSBank relaunch, which it will unveil soon, according to spokeswoman Karen Ngui. No doubt there will be a slew of products accompanied by bells and whistles with changes to its distribution network. The bank is so far keeping mum on what exactly it will do to win customers.

The trick is getting it right without alienating its 4 million customers, especially in times of high inflation and with a possible recession looming. Mr Stanley, an ex-Citibanker, should be wary of the Citi model of pushing products. Selling the wrong product to retirees or pushing small loans to those with uncertain incomes could turn out to be worse than no action at all.

Published August 29, 2008

Sands wants to build a casino strip in India

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(HONG KONG) Las Vegas Sands Corp, operator of Asia's biggest gambling resort, would consider spending US$12 billion to build a strip of casinos in India similar to its project in Macau, chairman Sheldon Adelson said.

'We would like to build a Cotai Strip in India,' Mr Adelson told reporters at a briefing in Macau yesterday. 'We would be happy to spend US$12 billion there' if India invites the company. India is the world's second most populous nation, behind China. Mr Adelson didn't give details of the potential investment. India now has only one legal casino, in the western state of Goa, a Portuguese colony until 1961.

Las Vegas Sands is investing more than US$15 billion building casinos in Singapore and Macau, the only place in China where casinos are legal. The company and rival Wynn Resorts are vying for the casino market in Asia, where economic growth is faster than in the US and Europe.

The Cotai Strip, modelled on the Las Vegas Strip, is on reclaimed land between Macau's Coloane and Taipa Islands. Mr Adelson plans to build as many as 14 hotels there by 2013. He spoke yesterday at the opening of the Four Seasons Macao, its second property in the district. The Four Seasons will be part of a complex of hotels that will have more than one million square feet of gambling space, three million square feet of shops and almost 21,000 hotel rooms.

Mr Adelson visited India, meeting the ministers of tourism and trade, before he arrived in Macau, he said yesterday, without giving details of their discussions. -- Bloomberg

Published August 28, 2008
Q2 growth seen slowing to annual 5.9%

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(KUALA LUMPUR) Malaysia's economic growth probably slowed in the second quarter to an annual 5.9 per cent from 7.1 per cent in the first quarter as rising inflation hit domestic demand, a Reuters poll showed on Tuesday.
Weaker exports and higher inflation at the tail end of the quarter are expected to hurt the economy more in the second half with full-year growth seen at 5.3 per cent, the lowest since 2005, according to a survey of 14 economists.
'There was obviously some slowdown especially towards the end of the second quarter as witnessed by the IPI (industrial production index) and the start of a slowdown in consumer spending,' said Kit Wei Zheng, an economist at Citigroup.
Annual inflation in July leapt to 8.5 per cent, more than double the levels in April and May, after the government cut fuel subsidies in June and allowed petrol and diesel prices to rise sharply while food prices continued to rise.
'The slowdown in growth will be more pronounced in the second half due to the fuel price hike. We estimate it would have shaved as much as 0.7 to 1.0 percentage points off the year's GDP,' Mr Kit added.
As an indication of the fallout, independent think tank MIER said its consumer sentiment index for the second quarter fell to an all-time low after the fuel price rise. -- Reuters

Published August 28, 2008
Yields on Malaysian bonds seen rising

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(KUALA LUMPUR) Malaysian bond yields could spike higher as foreign investors, who have been the main buyers in the market since 2006, sell down holdings, spooked by uncertain politics, rising inflation and central bank inaction.
While the central bank's decision to hold interest rates at 3.5 per cent last Friday was a short-term positive for the fixed income market, longer-term, a flood of bond issues this year could trigger sell-offs, Merrill Lynch said in an investment report.
The Malaysian government is auctioning a total of RM15 billion (S$6.3 billion) of 5-year, 10-year and 20-year bonds till the end of the year.
Foreign investors who hold around 25 per cent of outstanding bonds have been big buyers at auctions as local institutions have shied away.
'With the performance and returns outlook now muted, both in local currency and in dollar terms, we consider it unlikely that foreign participation will continue at the old pace,' Ashish Agrawal, local markets strategist at Merrill, said in the report. 'In fact, with the BNM (Malaysian central bank) yet to hike, the bias should be to unwind any excess holdings to move to a relatively underweight position in this market.'
Malaysia's central bank has not hiked rates in response to accelerating inflation, even though consumer prices hit a 27-year high of 8.5 per cent in July.
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Given uncertain politics, due to the rise of opposition leader Anwar Ibrahim who won re-election to Parliament in a by-election on Tuesday, and the unpopularity of the government, some analysts have suggested that Bank Negara Malaysia (BNM) had come under pressure not to raise rates.
The central bank has strongly denied this, but suspicions remain amid policy uncertainty as the United Malays National Organisation (Umno), which is the main government party, comes to terms with the possibility it may lose power for the first time in 50 years.
'Political uncertainty, particularly with the upcoming Umno election in December (which might result in a leadership change), could limit the central bank's ability to move in the near term,' Mr Agrawal said.
Prolonged inaction by the central bank at a time of elevated inflation and political uncertainty could risk a sharp sell-off in the ringgit, cutting returns from holding bonds for foreign currency-based investors. -- Bloomberg

Published August 28, 2008
Populist moves in KL Budget likely to widen deficit

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(KUALA LUMPUR) The Malaysian government is likely to announce several populist measures in its 2009 Budget tomorrow as it tries to tighten its weakening grip on power in the face of economic and political challenges.

Mr Abdullah: The Budget may include some relief for the poor to shield them from high prices
The Budget will be presented just a day after Anwar Ibrahim, the de facto opposition leader, will be sworn into the parliament following his convincing victory in a by-election.
Anwar, who has vowed to overthrow the government of Prime Minister Abdullah Ahmad Badawi, has promised to reinvigorate Malaysia's economy, which has lost some of its attractiveness as an investment destination to faster-growing regional rivals.
'We expect the government to pull all stops with an expansionary, populist Budget, designed to yield maximum political mileage during this critical period for the government,' Citigroup said in a report.
'The twin overriding objective would be to placate public unhappiness over soaring inflation, as well as keep the BN (ruling coalition) component parties happy and minimise the possibility of further defections to the opposition coalition,' it said.
Prime Minister Abdullah has already said that the Budget may include some relief for the poor to shield them from high prices, and analysts said the steps could include cash handouts, incentives for small and medium entrepreneurs, and tax cuts.
Annual inflation surged to 8.5 per cent in July, the highest since December 1981 and well above expectations, and the central bank has said it is likely to stay high this year and early next year.
The government has already brought forward fuel price cuts after it slashed subsidies earlier this year in a move that was lauded by economists but shattered its popularity.
Mr Abdullah is facing renewed calls to step down from some in the United Malays National Organisation, the main party in the coalition, after Mr Anwar's better-than-expected election result.
The government is also expected to announce a significant increase in development spending, which analysts say could slightly widen the fiscal deficit.
'The fiscal deficit was brought down from 5.3 per cent of GDP in 2002 to 3.2 per cent of GDP in 2007, but it is projected to widen to 3.5-4 per cent in 2008-09, reflecting largely higher operating and development expenditure,' CIMB said in its Budget preview. -- Reuters

Published August 28, 2008
Maybank FY08 profit falls 8% to RM2.93b
Maybank Singapore operating profit up 36%, while net profit rises 44%
By PAULINE NG IN KUALA LUMPUR

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MALAYAN Banking has posted a net profit attributable to equity holders of RM2.93 billion (S$1.23 billion) for its fiscal year to end-June 2008, nearly 8 per cent lower than the previous year.
This is due partially to a RM484 million provision for a non-refundable deposit paid for its proposed acquisition of Bank International Indonesia (BII).
Excluding the non-refundable deposit and other costs mainly related to one-off staff compensation adjustments and technology investments, the bank's earnings were flat, with pre-tax profit at RM4.38 billion and net profit at RM3.22 billion. Net income for the year was nearly 9 per cent higher at RM9.63 billion.
The bank's international operations accounted for a fifth or RM880 million of group pre-tax profit, its Singapore business contributing the bulk or 64 per cent of it.
Maybank Singapore's operating profit rose 36 per cent year on year, while its net profit rose 44 per cent.
Loans growth at Malaysia's biggest financial group expanded by 16 per cent, and its overseas loans by 27 per cent or more than twice its domestic loans of 12 per cent. Loans growth at its Singapore unit was strong at nearly 32 per cent or 23 per cent in Sing-dollar terms.
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Announcing the bank's unaudited results yesterday, Abdul Wahid Omar told a media conference that much of his 100 days in office as Maybank president and chief executive had been spent on its acquisition of BII which ran into trouble after the Malaysian central bank revoked its approval for the purchase following a change in Indonesia's policy on takeovers.
He revealed the net impact of losing the non-refundable deposit paid to acquire Sorak Financial Holdings - the controlling shareholder of BII - would be reduced to RM290 million owing to foreign exchange gains of RM193 million as the bank had earlier set aside the requisite amount in a Sing-dollar fund.
He also denied speculation the central bank had intervened to rescue the bank from the RM8.6 billion acquisition of BII, which analysts have described as 'over-priced'.
'It was not engineered or pre-meditated . . . the change in rule is what prevented us from completing. So if the issue can be overcome, we would like to proceed with that transaction,' said Mr Abdul Wahid, who reiterated the importance of having an Indonesian bank given Maybank's aspirations to be a top-five player in South-east Asia by 2015.
He said discussions were proceeding on a cordial basis and Maybank was looking at various options acceptable to all parties, and which address the concerns of Bapepam, the Indonesian financial market regulator, in particular.
Bapepam had introduced a new takeover rule which requires the acquirer to sell 20 per cent of the acquired company within two years of the takeover - a change which Bank Negara objected to as calculations revealed it was possible for Maybank to incur impairment losses of up to RM3.4 billion under those circumstances.
Sorak is 75 per cent owned by Fullerton Financial Holdings - a Temasek unit - and the rest by Korea's Kookmin Bank.
Mr Abdul Wahid described Maybank's fiscal performance as 'reasonable from our perspective', but conceded the current year was likely to be flattish as well.
He said the bank would have to work to reduce its cost-to-income ratio and to attracting talent.
In that regard, the bank is acquiring investment advisory firm BinaFikir for about RM8 million, and is appointing its managing director Rashdan Mohd Yusof and director Feisal Wan Zahir as chief operating officer and head of investment banking respectively of Aseambankers Malaysia, its merchant bank.

Published August 28, 2008
Straits Times Index, how low can you go?
By R SIVANITHY

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CONDITIONS in the local stock market are the worst they've been this year, with the Straits Times Index (STI) struggling to hold on to the 2,700 level - the lowest since November 2006. Liquidity has dried up and brokers complain that even though the index is at a 21-month low, large parts of the small-cap segment are faring much worse; China stocks, for example, are at historic lows.
To contrarians, however, such conditions typically make for rich pickings. 'Buy when nobody wants to know' is a strategy that has often in the past proven to yield superior returns when the bottom is reached and prices take a turn for the better. Which of course begs the question: where might that bottom be?
One approach might be to use the duration of previous bear markets as a benchmark.
For example, a reasonable starting point for the regional crisis was July 1997, when Thailand devalued the baht and unleashed unprecedented selling pressure on all regional markets. History has demonstrated that the subsequent bottom for the STI was then reached in October 1998, when the index sank to 800, having had to suffer added selling pressure following the withdrawal of Malaysian shares from Clob International.
That bear market lasted about 16 months; however, the subsequent downturn brought on by the bursting of the dotcom bubble stretched to 24 months - from early 2000 when Nasdaq crashed to April 2003 when the invasion of Iraq ended and the Sars epidemic passed.
If we take the average of these two downturns and arrive at a figure of 20 months and if we assume 20 months to be a reasonable length of time for the economic and financial system to purge itself of the current sub-prime problems, then given that the current bear conditions only really started about 10 months ago, last November, it could be that a bottom might only be reached in mid-2009.
Similarly, Citi Investment Research in a report two weeks ago said that the current bear market could conceivably be two-thirds complete but added that a bear market as long as that seen during the Asian financial crisis is possible.
It also said that although valuations on a price-earnings and dividend yield basis look decent, they aren't that attractive on a price-book (P/B) basis. If a drop in P/B to one standard deviation below its mean occurs, it would take the STI down to 2,410, said Citi.
Another approach might be to look at the charts - which might rankle with the fundamentals-minded but in a depressed market, it's as good a method as any.
Kim Eng's online research unit Kelive favours such analysis and on Monday said that immediate support for the STI is at 2,650 but long-term support lies at the 50 per cent retracement of the March 2003-October 2007 bull run, which is at 2,550.
Possibly the simplest method might be to work out the depth of the most recent corrections to see how the present fall compares.
For example, the STI lost about 58 per cent in the regional crisis bear market and around 54 per cent in the 2000-2003 dotcom sell-off. Those are pretty severe numbers but it's likely that the current downturn will not be as drastic as either of those periods because local companies are stronger and the economy more diversified and resilient.
If so, then assume for argument's sake that a worst-case loss of 40 per cent is possible. If this occurs, it would take the STI down from its all-time high of 3,831 last October to around the 2,300 level.
Of course, all of the above is conjecture and open to plenty of debate. US observers are calling the recession there the worst slowdown since the 1930s, in which case historical analysis using the two most recent bear markets may be inappropriate.
Also, using dividend yields and earnings as benchmarks may prove futile too because of the huge uncertainty that looms over company bottom lines and cashflows in the months ahead.
The best that can be said for now is that although the worst is probably not over, a bottom is also probably not that far off, perhaps within 5-10 per cent of the STI's present reading.
At its most pessimistic, the STI could drop as low as 2,300 - although for this to happen, conditions would have to deteriorate markedly from those prevailing now.

Published August 28, 2008
Razaleigh, Mahathir call on Abdullah to step down
PAS endorses Anwar as the Opposition's leader in Parliament
By S JAYASANKARAN IN KUALA LUMPUR

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ANWAR Ibrahim's landslide victory in his hometown of Permatang Pauh in Penang on Tuesday has renewed calls for the resignation of Prime Minister Abdullah Ahmad Badawi.

Mr Abdullah: Umno's defeat in his home state Penang has added to the pressure on him to resign since the National Front's disastrous outing in March general election
Anwar defeated Arif Shah Omar Shah from Mr Abdullah's ruling United Malays National Organisation (Umno) by a majority of 15,651 votes, easily surpassing the 13,300 majority enjoyed by his wife Wan Azizah Wan Ismail in March 8 general election.
Mr Abdullah, who is also Umno president, also hails from the state of Penang, and Umno's defeat there has added to the pressure faced by him.
Anwar was also endorsed yesterday by Parti Islam Se-Malaysia as leader of the anti-government alliance despite reservations among some sections of the Islamic party about the 'rainbow alliance' of which they are a part.
However, political analysts say that Anwar may struggle to hold his coalition together, let alone find the 30 defectors from the ranks of government MPs he needs to join him to win power. But he is not the only one with problems.
Leading the charge against Mr Abdullah yesterday was former finance minister Razaleigh Hamzah who delivered a searing rebuke to both Mr Abdullah and Deputy Prime Minister Najib Razak, who led the campaign against Anwar.
Tengku Razaleigh, a prince from Kelantan state, has made no secret of his desire to challenge Mr Abdullah for Umno's presidency in party polls scheduled for December.
Calling Anwar's victory 'a landslide loss' that was shocking because it was 'despite the mobilisation of the entire leadership and resources' of Umno, Tengku Razaleigh put it starkly: 'It is time to face the music; it is we who have been buried.'
The latter was a sarcastic jibe at Khairy Jamaluddin, the deputy Umno Youth chief and Mr Abdullah's son-in-law, who had promised to 'bury' Anwar in Permatang Pauh.
'Today's report card delivered to the Prime Minister, who is accountable also as Liaison Chief of Umno Penang and chairman of the Barisan Nasional (National Front), is impossible to hide,' said Tengku Razaleigh.
'He does not have the minimal credibility needed to run the country day by day, let alone to take it in the new directions we need to go in a complex world. He may not have the credibility needed to keep the country together. This dangerous situation cannot continue and it will not.'
Mr Abdullah had come under pressure to step down after the National Front's disastrous outing in the general election. But he blunted the criticism by promising to hand over power to Mr Najib in 2010.
Former prime minister Mahathir Mohamad also called on Mr Abdullah to resign yesterday, warning that the results of Permatang Pauh merely confirmed that Umno and the Front were losing support and that this was a national trend that, if left unchecked, could spell trouble for the ruling coalition during the next general election.
It isn't clear if the calls for Mr Abdullah's blood will reach critical mass, but it could help Tengku Razaleigh get the necessary nominations to be allowed to challenge Mr Abdullah for the party presidency.
According to Umno rules, a contender for the presidency needs nominations from 58 divisions to contest. It looked unlikely before, but Anwar's victory could goad a fearful Umno into looking for a saviour.
Meanwhile, Anwar is expected to be sworn in as a Member of Parliament today in an event that will mark his return to the Lower House after a lapse of 10 years. Once made opposition leader, he will take his place in Parliament directly opposite Mr Abdullah.

Published August 28, 2008
S'pore firms top wealth-creation chart
They occupy 33 of leading 100 positions in Asean in a Wealth-Added Index; SingTel heads the pack
By GENEVIEVE CUA

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(SINGAPORE) Singapore companies have done a stellar job of creating wealth for shareholders, despite market volatility and a higher cost of capital.

The first-ever ranking of the top 100 South-east Asian companies in terms of US-based consulting firm Stern Stewart & Co's 'Wealth Added Index' (WAI) finds a total of 33 Singapore companies on the list, the largest number among Asean markets.
In pole position is Singapore Telecommunications, as at June 30. Keppel Corp is ranked seventh, and CapitaLand ninth.
Stern Stewart has also come up with the top 100 WAI ranking for Singapore alone, as well as industry specific rankings. In the regional real estate sector, for example, Singapore companies accounted for eight of the top 10, led by CapitaLand and City Developments.
WAI is a metric developed by Stern Stewart in 2000, based on the idea that companies create value for shareholders only if their total returns - share price plus dividends - exceed an imputed 'cost of equity'. The latter is the minimum return investors should earn for taking on the risk of investing in shares.
The strongest testimonial to the use of the wealth added metric is Temasek Holdings, which on Monday released its latest annual report. Temasek uses wealth added as an internal benchmark, and that extends even to its staff compensation structure.
Related links:
Click here for the WAI rankings
Footnotes
Definitions
As Temasek explains: Wealth added (also called economic profit) factors in the capital employed to produce the returns and the risks associated with each investment. 'To achieve positive wealth added, we need to deliver more than the capital charge, which is the risk-adjusted hurdle applied to the capital employed.' In the year ended in March, the group's wealth added was minus $6.3 billion. The group's five-year cumulative wealth added was a 'healthy' $60 billion above its risk adjusted cost of capital hurdle.
Erik Stern, president international of Stern Stewart & Co, said the firm set up an office here in 1997 mainly to work with the Temasek group. The firm maintained its office here for about five years. It has since closed it, but is looking to re-establish itself in the region.
'To people who want to know more about economic value added (EVA) and the value mindset, I tell them to read the Temasek annual report. There is nothing better. So many companies want to look like they care about shareholder value. Read any annual report, then read Temasek's. There is a very big difference.
'(Temasek) acts and lives it. We're thrilled to be associated with them; they make us look good. They know what this is all about.'
Stern Stewart first developed two metrics in the 1980s, one of which is economic value added (EVA), focusing attention on the cost of capital. EVA is a performance metric, to indicate whether a company has produced value for investors. Its calculation takes after tax operating profit and subtracts an annual charge - a sort of rental charge - on debt and equity.
It is unclear how widely used EVA or wealth added is among Singapore companies. SingTel uses a different metric internally. CapitaLand, however, includes an EVA calculation in its annual report, and tots up the group EVA attributable to equity shareholders.
Mr Stern said the metrics were developed in an effort to overcome the limitations of other metrics, such as total shareholder return, which simply measures the change in a company's price plus dividends between two points in time.
Accounting measures like net profits and sales also do not provide any benchmark for performance, or help in investor decision making. 'The concept of EVA is like meritocracy; there is no cutting corners. The objective is to get employees to think and act like owners, so that they act like the money they're given is their own. That concept is very similar to the Singapore mindset.
'I believe there is no accident that Singapore companies' performance is good. People here are very modest. They say, let's see what happens in the future, and there will be a lot of competition..
'It pays to remember that capital has a cost and shareholders deserve to earn a return on that. If Singapore companies forget that they may find that the paradise they created will be owned by others. As great as they've done, what matters is going forward.'
One point of contention may be the calculation for the cost of equity, which is based on a market's government bond adjusted by a company and market risk premium. Some of Stern's input data are taken from Bloomberg.
Managers, he said, should focus on EVA as an internal measure, and not the share price. 'Companies that consistently make good decisions will see strong performance. The marketplace is showing some fear of the future. The question is what can companies do about it.
'Companies that are well managed usually do well in a downturn and take market share from those that are not well managed.'
There are four drivers of wealth added, which are quantified in the rankings. These are operations; strategy or growth expectations; external financing and governance. The proxy for the latter is a company's cost of equity.
'Our view of governance is that managers must earn the required rate of return as the minimum. But if they don't earn that, they have not been a good steward of capital.'

Published August 27, 2008

Scomi-Larsen JV clinches RM2.5b job

By S JAYASANKARAN
IN KUALA LUMPUR

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MALAYSIA'S Scomi Engineering, which is in a joint venture with India's Larsen & Toubro Ltd, is believed to have bagged a RM2.5 billion (S$1.1 billion) job to build a 20-kilometre monorail in Mumbai.

'We haven't got a letter as such,' a company official told BT. 'But the government is only talking to us now and they want some clarifications on cost.'

The award is a triumph of sorts for Scomi as it has beaten off such global competitors as Bombardier, Hitachi and Siemens in an international, open tender.

It will also be something of a vindication as the company's critics in Malaysia, including former prime minister Mahathir Mohamad, had repeatedly accused the company of benefiting from its links to Prime Minister Abdullah Ahmad Badawi. Scomi Engineering and its parent - oil and gas company Scomi Berhad - are part-owned by Kamaluddin Abdullah, a Cambridge-trained lawyer who is the premier's only son. Getting the job could also strengthen Scomi's hand in positioning itself as a global player in building monorail systems.

After all the pre-qualification exercises, the bids were winnowed down to two, pitting the Scomi-Larsen consortium against a consortium comprising Anil Ambani's Reliance Energy Ltd and Japan's Hitachi Ltd, according to a news report out of India. Both submitted their final bids in late July and actual construction is slated to begin in May next year.

Scomi Engineering's partner Larsen & Toubro is the largest engineering concern in India and is capitalised at over US$8 billion. The joint venture bid, apparently, won the favour of the Mumbai authorities because the consortium had promised to complete the first phase of the project in two years whereas the others could not make those guarantees.

For all that, however, the news has done very little for Scomi Engineering's shares. It has fallen steadily from its high of RM2.60 in January this year to RM0.89 at the close of trading yesterday.