Published January 1, 2009

Cosco shares dive on FY08 profit warning

It falls 7.8% to 95cents, less than a fifth of its year-high price of $5.87 in January

By VINCENT WEE

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COSCO Corporation (Singapore)'s warning of lower 2008 profits - which it issued on the penultimate day of a year in which Chinese shipbuilders have gone from hero to zero - sent its shares diving yesterday.

The stock fell eight cents or 7.8 per cent to close at 95 cents, less than one-fifth of its year-high of $5.87 in January. Almost 30 million shares changed hands, making it the most heavily traded for the day.

Tuesday's announcement was the latest in a relentless spate of woes the counter has gone through since it first dropped the bombshell in April that it would not be proceeding with a US$202 million semisub contract for Red Flag AS. The share price tanked 15 per cent to bring Cosco shares below the $3 level for the first time in 2008 and it has been looking bad since.

At the time, analysts still kept their faith with the China-based ship and rig builder, maintaining their ratings, as the belief was that it was a one-off case and Cosco had no other contracts with the client. In addition, profits were still coming in, with first quarter net profit doubling to $84 million.

The next problem Cosco faced was on the public relations front when even with the prospect of good news from a contract potentially worth US$2.4 billion, the company faced flak ironically because of its new policy in the wake of the lashback from the Red Flag deal. Cosco had instituted a new policy of only announcing contracts after deposits have been received. But this raised investors' concern over the lack of timely disclosure and significant shareholder transactions.

These concerns were exacerbated and investors further punished Cosco for the lack of details surrounding long-time president Ji Hai Sheng's surprise retirement in August. Fears of trouble at the top sent the stock lower and entrenched it at the poorer end of the $2 range.

The counter faced more resistance in October as it became clearer that the profit momentum was slowing down - third quarter net profit rose just 17 per cent from the year before. Analyst reports had started to turn negative at the beginning of the month, with Credit Suisse slashing target price by more than half to 55 cents.

Sentiment was hit by the worsening dry bulk freight rate index (Cosco has a dry bulk carrier business) and worries that it would struggle to deliver orders this year. Cosco shares' fall to the $1 level in mid-October heralded its slide into the long dark winter of penny stock status which it has stayed in for much of the last quarter.

With the cancellation of two out of an order of five dry bulk carriers at the beginning of December, Tuesday's profit warning should come as no surprise. Noting that nine month net profit of $326.5 million 'deviates significantly from FY08 consensus estimate of $425 million and our own forecast of $465 million', Kim Eng Research analyst Rohan Suppiah added 'we are downgrading Cosco to a 'hold', and cutting our target price to $1.35'.

Mr Suppiah added that although this represents a 31 per cent upside to current price, 'we are reducing our recommendation to a 'hold', as we are unable to determine the full level of provisioning at this point, raising the risk of further earnings downgrades'.

DMG and Partners analyst Serene Lim meanwhile was even more severe. 'While we have previously factored in 20 per cent cancellation orders in our estimates, we are putting our earnings estimates under review pending further clarifications with the management. Meanwhile, we are maintaining our target price of 68 cents based on 1.0x FY09 price/book and our 'sell' rating,' she said in a morning note yesterday.

Published January 1, 2009

MP Reit changes name to Starhill Global Reit

By ONG BOON KIAT

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MACQUARIE Prime Real Estate Investment Trust (MP Reit) yesterday began a new chapter under the new name of Starhill Global Reit.

The name change was formalised following yesterday's completion of the acquisition by Malaysian conglomerate YTL Corp of interests in MP Reit and the holding company of Macquarie Pacific Star Prime Reit Management, MP Reit's manager.

There also also board changes at the Reit manager. YTL Group managing director Francis Yeoh has assumed the post of executive chairman of the manager, which will be renamed YTL Pacific Star Reit Management Limited.

Also appointed to the board as non-executive director is Yeoh Seok Kian, while Hong Hai, a director and the chairman of the audit committee of the Reit manager, was named lead independent director.

CEO Franklin Heng, and members of audit committee Michael Hwang and Keith Tay complete the board.

Departing were Stephen Mark Girdis, who has resigned as the non-executive chairman of the board, and Andrew James Emery Taylor, who has resigned as a non-executive director and as the alternate director to Mr Girdis.

There is no change in the composition of the audit committee.

In October, YTL Corp took over the Macquarie Group's entire interest in Singapore-listed MP Reit in a deal worth $285 million.

The deal saw YTL subsidiaries Starhill Global Reit Investments Limited and Starhill Global Reit Management Limited respectively acquiring a 26 per cent stake in MP Reit and 50 per cent stake in the holding company for the Reit manager.

'Our immediate focus lies in rebranding the Reit through the introduction of the 'Starhill' brand, in addition to enhancing the portfolio through yield-accretive acquisitions of prime regional assets, prudent capital management and continued proactive asset management,' Mr Yeoh said yesterday.

Published January 1, 2009

Buyer beware and seller beware too

By R SIVANITHY

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AS A dismal 2008 rolls to a close, it's customary for us to draw up a wish-list for the new year. Last year, our list focused mainly on disclosure, particularly with regard to IPO prospectuses, short-selling positions and structured warrants. Some of these calls have been met - the Singapore Exchange (SGX) recently circulated a discussion paper on short-selling disclosure, and although IPOs were virtually non-existent in 2008, disclosures with particular reference to use of IPO funds have undoubtedly improved.

As for structured warrants, we are optimistic that it can only be a matter of time before SGX turns its attention to improving information dissemination in the segment. Having said that, which other areas could do with disclosure improvements in 2009? Before going into specifics, our preference is for a regulatory framework that not only stresses 'buyer beware' but should now also give equal emphasis to 'seller beware'.

For instance, the fiasco involving various failed structured products such as Lehman Brothers' Minibonds and DBS's High Notes exposed the very real possibility that those who sold these instruments did not adequately disclose the risks involved to hapless retail investors and yet appeared to have avoided accountability. Surely, these parties have to bear some responsibility for their lapses.

In addition, if an instrument is in essence one thing, the disclosure documents should describe that thing accurately and not imply something else - for example, the Lehman Minibond was an insurance policy to protect Lehman from defaults in debt instruments issued by five other banks but the prospectuses were cleverly worded to make it appear as if it was a bond issued by those five banks while Lehman's role was downplayed. This obfuscation started with the very name 'Minibond' which diverted attention from the product's true nature.

Stronger regulatory action would have been welcome but although it wasn't forthcoming, it isn't too late for the authorities to engineer a shift towards sterner penalties for parties that hide behind the fine print or legal disclaimers. In other words, if finance professionals don't call a spade a spade and try to conceal the true nature of a product they are selling, they should be penalised.

Similarly, we'd also like to see better disclosure on 'sell' side research reports, especially of how much risk there is to target prices, the extent of any investment banking relationships between the organisations in question for the past six months or one year and of the credentials and track record of the recommending analyst.

All of the above requires a stronger regulatory stance than what the market has become accustomed to since deregulation 10 years ago, which means that change has to start at the top.

For starters, SGX should scrap its controversial policy of privately censuring listed companies whose disclosures are less than satisfactory; and going public instead with all disciplinary actions. SGX says that it wants to have a range of measures at its disposal to tailor the punishment to fit the crime. Thus, if SGX judges a company's lapse to be minor and not having a material impact on the market and investors' decision-making, then a private censure is warranted, it argues.

But corporate governance advocate Mak Yuen Teen has already described the disadvantages of such a covert, private approach in a letter to this newspaper ('SGX should publicise all its enforcement actions', Nov 11). Suffice to say that the practice of judging what can be privately penalised and what might be publicly disclosed is in effect a step backwards to a merit-based regulatory system, the very system that the exchange sought to scrap when the market deregulated, giving way to a disclosure-based regime.

Perhaps the best suggestion we can make to the SGX and its overseeing body, the Monetary Authority of Singapore, is the same given to all listed firms, namely: a disclosure-based regime relies on full and public disclosure. If there're grey areas, then the correct approach should be 'when in doubt, disclose'. 

Published January 1, 2009

M'sia current account surplus up 4.5% in Q3

But services account posts deficit for first time in years

By S JAYASANKARAN
IN KUALA LUMPUR

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MALAYSIA'S current account surplus rose a marginal 4.5 per cent to RM38.7 billion (S$16 billion) in the third quarter (July to September) of the year, according to figures released by the Statistics Department yesterday.

But for the first time in years, the services account posted a small deficit of RM200 million because of greater outflows abroad.

Even so, the current account surplus over the first nine months jumped 34.4 per cent to RM99.5 billion, on the back of a massive surplus on goods (RM131 billion), a small services surplus (RM1.1 billion) and net outflows on income and transfers.

But the figure that is likely to grab analyst attention was the enormous 400 per cent surge in financial outflows to RM61.4 billion. Foreigners sold both bonds (RM42 billion) and equities (RM12 billion). That was made worse by a net outflow on direct investment of RM18.4 billion indicating that more Malaysians were investing abroad than foreigners were investing locally.

The figures illustrate the effects of the global financial crisis on Malaysia as foreign funds exit Malaysian assets to plug financial holes back at home.

The massive deleveraging exercise taking place in the more developed nations also caused the central bank's reserves to fall by over RM31 billion in the quarter under review.

As a result of the massive outflows, Malaysia's overall balance of payments recorded a deficit of RM31 billion from a RM26.2 billion surplus in the previous corresponding quarter.

Still, the overall balance of the first nine months of the year remained in the black to the tune of RM43.6 billion. This net increase went towards total reserves (around RM97 billion) which, however, was lower than the RM45 billion the central bank amassed in the first nine months of 2007. 

Published January 1, 2009

Ringgit heads for first annual decline in four years

Credit crunch, global slump hurt Malaysia's exports

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(SINGAPORE) Malaysia's ringgit headed for its first annual loss in four years as the credit crunch worldwide and the global economic slump hurt the nation's exports and kept foreign investors wary of risk.

The ringgit has dropped 4.6 per cent against the US dollar this year, the biggest annual decline since the Asian financial crisis of 1997... Offshore forward contracts indicate that it will weaken further.

The currency has dropped 4.6 per cent against the US dollar this year, the biggest annual decline since the Asian financial crisis of 1997. Malaysia ended the ringgit's peg to the US dollar in July 2005. Exports in October unexpectedly fell for the first time in 15 months and the government estimates that the economy will expand at the weakest pace in eight years in 2009. Offshore forward contracts indicate that the ringgit will weaken further.

'In the first quarter of 2009, the ringgit will continue to decline as the fiscal deficit widens and inflows from portfolio flows and export earnings fall,' said Suresh Kumar Ramanathan, a rates and currency strategist at CIMB Investment Bank Bhd here. 'It may decline to as low as 3.62 per dollar in the first quarter.'

The ringgit traded 0.3 per cent stronger from Tuesday at 3.4685 a US dollar as at 12.35 pm in Kuala Lumpur, and versus 3.3073 at the end of last year, according to data compiled by Bloomberg.

The currency's loss this year compares with a 26 per cent slide in the South Korean won and a 19 per cent slump in the Indian rupee, the two worst performers among the 10 most-active currencies in Asia outside Japan.

Malaysian exports in October fell 2.6 per cent from a year earlier, after rising 15 per cent in September, as the global slump cut electronics and palm oil sales.

The economy expanded 4.7 per cent in the third quarter from a year earlier, the slowest pace in three years, government data showed on Nov 28. Growth may slow to 3.5 per cent next year, according to the government.

Bank Negara Malaysia last month cut its benchmark interest rate for the first time since 2003, trimming its overnight policy rate by a quarter-percentage point to 3.25 per cent. Governor Zeti Akhtar Aziz said Nov 28 that monetary policies are 'focused on sustaining domestic demand to mitigate the impact of weaker global growth'. The government announced a RM7 billion ringgit (S$2.9 billion) fiscal stimulus package on Nov 4 to support growth.

The benchmark Kuala Lumpur Composite Index of stocks has slumped 39 per cent this year, the most since 1997, compared with a 43 per cent drop in the MSCI Asia Pacific Index of regional shares, Bloomberg data show.

Three-month non-deliverable forward contracts traded at 3.4780, implying a depreciation of 0.3 per cent, according to data compiled by Bloomberg. Forwards are agreements in which assets are bought and sold at current prices for settlement at a later specified time and date. Non-deliverable forwards are settled in US dollars rather than the underlying asset.

The ringgit will fall to 3.65 against the US dollar in the first quarter of 2009, according to the median estimate in a Bloomberg News survey. The currency may decline further to 3.68 per US dollar by mid-2009 before recovering to 3.65 by year-end, the survey showed. -- Bloomberg 

Published January 1, 2009

M'sia steel industry sees recovery in 2nd half of 2009

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(PETALING JAYA) A recovery in the local steel sector is likely to happen in the second half of 2009 once the current high inventory level subsides, reports StarBiz quoting Malaysian Iron and Steel Industry Federation (Misif) president Chow Chong Long.

Builders' take: The growth of the steel industry will depend on construction projects from the government and the private sector

'The cut in worldwide steel inventory and production will help the steel sector to recover, although total demand for steel hasn't gone back to the level before August this year,' he told StarBiz.

He anticipated the government would soon announce more stimulus packages, which were expected to focus on infrastructure development, and said this was supposed to boost the construction and steel industries.

'By that time, local steel prices will improve in line with the international steel price movement, strongly supported by the stimulus packages announced by various countries worldwide,' he added.

Mr Chow said Misif members had cut down their production since October and most of the plants were currently running at less than 50 per cent of their production capacity.

'The cutting down of production will probably last until the end of February or March,' he said, adding that the slowdown in demand and high inventory had contributed to the cut in production.

Mr Chow did not see any major improvement in steel demand currently.

Master Builders Association Malaysia president Ng Kee Leen told the paper that the demand for steel was up recently due to the revival of projects by some contractors as most material prices had stabilised recently.

'The normal consumption for steel was about 200,000 tonnes per month but it was below 100,000 tonnes over the last four months,' he said, adding that demand was expected to pick up gradually once the construction projects come on stream.

He said the government would spend RM700 million (S$290 million) to build homes to spur economic activities starting January, but the impact was expected to be minimal as the amount was relatively small.

'We are still waiting for further allocation from the government as about RM4 billion is expected to be spent on the construction sector,' he said.

The RM4 billion was part of the government's RM7 billion stimulus package aimed at preventing the economy from contracting amid the global financial crisis, he said.

'The growth of the steel industry will depend on construction projects from the government and the private sector, but projects seem to be few currently,' he said, adding that there might be a construction industry crisis if the projects did not come on time next year.

Mr Ng said the prices of steel bars and rod products - the major raw materials for construction projects - were expected to drop further in the short term.

'The price for steel bars should drop further as it is RM200-RM300 per tonne higher than the regional price level,' he said, adding that the price was below RM2,000 recently and it peaked at around RM4,000 per tonne in July.

He said the price of rods was expected to drop after the liberalisation in rod supply.

The current rod price at RM2,100-RM2,200 is RM400-RM500 higher than the international price.

Ann Joo executive director Lim Hong Thye said there had been a slight rebound in steel prices.

'We can only see a clear picture on steel prices by the first quarter next year, especially in the global market,' he said, adding that domestic steel prices would follow changes in the international market.

'One thing that excites me is the implementation of the stimulus packages by China and the US next year,' Mr Lim added. 'However, I can't say what's going to happen when the stimulus packages announced by the government are implemented later. We have to wait and see.'

He added that the positive effect on steel prices would be felt after the Chinese New Year.

'Our strategy is to monitor the international market closely as we feel that the domestic market may not pick up as fast,' he said.

Mycron Steel Bhd chief executive officer Azlan Abdullah said the current market was quite weak as a result of customers keeping low inventory.

'At the moment, they prefer to adopt a wait-and-see strategy,' he said, adding that Mycron did not keep too much steel in its inventory.

He said the future steel outlook was set to soften but 'I cannot predict much as the steel market is quite volatile'.

Published December 31, 2008

Proton gets new chairman

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(KUALA LUMPUR) Proton Holdings Bhd announced yesterday the appointment of Mohd Nadzmi Mohd Salleh as its new chairman effective from Jan 1, 2009.

In a statement, the national car manufacturer said that Mr Nadzmi would replace outgoing chairman Mohd Azlan Hashim, who has been in Proton since December 2004.

Mr Azlan, 51, was appointed as Proton director in December 2004 and assumed the position of chairman on Feb 7, 2005.

Mr Nadzmi, 54, is currently the executive chairman of Nadicorp Holdings Sdn Bhd. He graduated with Master of Arts in Economics and Statistics from Miami University, Florida, as well as a Bachelor degree in Arts in Economics, and a Bachelor degree in Science in Chemistry and Mathematics from Ohio University.

Mr Nadzmi is no stranger to Proton, having served as managing director of Perusahaan Otomobil Nasional Sdn Bhd from 1993 to 1996, and having previously been deputy managing director of the company from Nov 2, 1992.

He has also held various senior positions in Edaran Otomobil Nasional Bhd, including as executive director and chief executive officer.

He is a director of several companies, including Ranhill Utilities Bhd, JT International Bhd, VS Industry Bhd, Kumpulan Kenderaan Malaysian Bhd and Syarikat Kenderaan Melayu Kelantan.

He was also appointed as director and deputy chairman of Proton Edar Sdn Bhd from Sept 22, 2005. -- Bernama 

Published December 31, 2008

Govt on 'holiday', Mahathir on attack

Citing long holiday breaks, he wonders who's manning ship

By S JAYASANKARAN
KL CORRESPONDENT

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FORMER Malaysian prime minister Mahathir Mohamad has come up with an original way to attack Prime Minister Abdullah Ahmad Badawi without even mentioning his name.

Dr Mahathir: 'It (govt) will just coast along even if no one is steering it'

Dr Mahathir continued his long running feud with the hapless Mr Abdullah by citing the long Christmas break that could be stretched to the New Year because of other public holidays in between and using that to wonder who was manning the ship.

'What about work?' asked the former premier in his blog yesterday. 'Not to worry. During that time the government...will be on automatic. We are on the ground, we will not crash. It shows that we don't really need a government. It will just coast along even if no one is steering it. That is how good we have become at governing.'

The continuing jibes illustrate Dr Mahathir's deeply held resentment against his handpicked successor although his criticism has long become academic. Mr Abdullah has already signalled his retirement by declining to stand as a candidate in elections for party posts in the United Malays National Organisation that's slated for March.

On another level, however, Dr Mahathir's comments resonate with many foreign investors who have criticised the many public holidays in Malaysia as a waste of time, productivity and money: keeping factories running would mean extra overtime payments which are required by law.

Malaysia has 13 gazetted public holidays but the 13 individual states have also powers to declare additional mandatory holidays. Standout example: the four states of Johor, Kedah, Perlis and Terengganu have a total of 17 public holidays.

Even so, Malaysia does not have the distinction of having the most public holidays. That goes to Thailand (24) followed by Hong Kong (18), Japan (15) and Indonesia (14). By way of contrast, Singapore has 11, one more than China and the United States. 

Published December 31, 2008

Ways to increase the iPhone's desirability

By LEE U-WEN

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WHEN the iPhone first came to these shores in August under an exclusive deal with SingTel, subscribers of M1 and StarHub were subsequently assured that they would be able to get their hands on the coveted device by the end of 2008.

Those plans, however, went awry last month when Apple changed its distribution schedule in Asia, choosing instead to focus its efforts on those markets where the phone has yet to be released, before coming back to Singapore again.

This has since left a big question mark hanging over exactly when SingTel's two rivals will eventually be able to offer the iPhone themselves, but both made it clear that year-end was out of the question.

But just how long are their subscribers willing to wait before they decide to take the simpler route and just get some other smartphone that's already out on the market?

It's not difficult to sense the initial thrill of owning an iPhone waning day by day. After all, it's been more than four months since the high-tech phone was launched here, and over 18 months since it made its debut in the United States - an eternity in the technology world, where the race is always on to put out new, faster and improved models of gadgets and software upgrades.

Since the iPhone's debut in Singapore, a number of rival high-tech phones have also made their mark here - most notably, the Samsung Omnia and HTC Touch HD (which, incidentally, are both offered only through StarHub), and the Samsung Z240 and Sony Ericsson K630i models, which M1 has made exclusively theirs.

The iPhone's price at SingTel still seems to be a sticking point for someone deciding whether or not to actually buy it. Ask many people today why they continue to sit on the fence and they would say it's the reluctance to fork out as much as $848 for the popular 16GB model, although it would mean paying just $25.86 a month for a subscription plan. Of course, one could get the phone for free, but that would mean taking on a pricey $192.60 per month plan for the next two years.

Perhaps SingTel could take a leaf out of the book of AT&T (the sole official wireless provider for the iPhone in the US), which recently began selling refurbished 8GB iPhones for just US$99. At that price, it's no surprise that sales are brisk since consumers know a good deal when they see one, especially during this current economic downturn.

In the US, Apple has taken the clever route by reaching out to the masses through tie-ups with major retailers. In September, Best Buy - the country's largest consumer electronics group - became the first company other than Apple's own stores and AT&T stores to sell the phone.

Last Sunday, another giant nationwide retailer - Wal-Mart - began selling the 3G model of the iPhone. This is a significant move as it provides Apple with the chance to effectively reach out to millions of people - many of whom are in the low-income bracket - who may not be familiar with the iPhone and other Mac products.

Impatient

Could a similar partnership between Apple and, say, Carrefour or NTUC Hypermart be just as successful? Such a tie-up, if ever realised, would extend Apple's reach into Singapore's heartland even more, given the size of the crowds (mostly families) thronging the outlets of those two major retailers nearly every day, with many - including yours truly - frequenting the electronics section to hunt for bargain-priced items.

The appeal to own an iPhone is definitely still there for tech-crazy Singaporeans. But we are a largely impatient bunch by nature. Making us wait too long for something would just compel us to bypass the iPhone altogether and look elsewhere for the next latest gadget to drool over.