Published February 13, 2009

M'sia Q4 exports fall 18.3%

For full year, manufactured export growth slows to only 1.8%, hit by collapse of global trade

By PAULINE NG
IN KUALA LUMPUR

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MALAYSIA'S exports shrank 18.3 per cent in the fourth quarter of 2008, with December the weakest month as the collapse in global trade continued to take a toll.

Bracing for downturn: Agriculture exports, mainly palm oil, rose 32% last year, but commodity prices have since buckled. Mining exports, mainly crude and refined petroleum and natural gas, expanded 42%

Shipments that month totalled RM46 billion (S$19.2 billion) - a drop of almost 15 per cent year on year and 11 per cent month on month - underscoring the challenges ahead.

In the first nine months, however, export growth was 16 per cent. And despite the softer Q4, all key sectors registered full-year expansion.

Manufactured exports were hit by the global slowdown most, expanding only 1.8 per cent from 2007. Because they account for about 70 per cent of total monthly exports - and because more than half of them are electrical and electronic (E&E) products - the sharp fall in world demand has led many factories and businesses to slash production or even retrench workers. E&E exports were hit hardest, shrinking 3.4 per cent to RM254 billion in 2008, from RM263 billion in 2007.

Mining exports, mainly crude and refined petroleum and natural gas, expanded 42 per cent. And agriculture exports, primarily palm oil, rose 32 per cent. But commodity prices have since buckled as economies cooled.

A continuing slide in exports appears inevitable, with those to China 17.5 per cent lower last month than a year ago. Initially optimistic that Malaysia would largely escape the effects of the global slowdown, the government has since acknowledged that a second stimulus package is needed to fend off a recession.

Some officials have privately conceded the economy could contract this year. Even so, the official growth forecast of 3.5 per cent has not been revised, despite more bearish projections from private economists, including one by CLSA of minus-5 per cent.

A mini-budget exceeding RM10 billion - expected to be tabled by Deputy Prime Minister and Finance Minister Najib Razak next month - is likely to include fiscal, monetary and structural reforms to boost the economy.

Still, with the first stimulus package of RM7 billion announced in November 2008 yet to be disbursed, businesses are concerned that such an apparent lack of urgency will do little to mitigate the deteriorating economy and rising unemployment.

Some concessions have been made in the past few months to facilitate businesses, including the automatic issue of manufacturing licences, soft loans to small and medium enterprises and a cut in power prices. But business chiefs say more drastic action is needed, especially as domestic consumption has crumbled.

Malaysia attracted a record RM63 billion in manufacturing investments last year - almost 75 per cent of it from foreigners. But a sharp fall is expected this year, as half of the developed economies are already in recession.

Significantly, domestic investors have not been re-investing as much as they were. Local investments in manufacturing totalled RM16.7 billion in 2008, down from RM26.5 billion in 2007.

The call for the government to review the New Economic Policy - particularly less investor-friendly elements such as the requirement for bumiputras to hold 30 per cent of corporate equity - has been growing louder, with many fingering it as one of the biggest obstacles to greater investment and competitiveness.

Total trade last year expanded almost 7 per cent to RM1.185 trillion. Exports grew almost 10 per cent to RM663.5 billion and imports 3.3 per cent RM521.5 billion. December's trade surplus was almost RM12 billion, as imports declined 23 per cent year on year and 14.5 per cent month on month.

Published February 13, 2009

Alexis at Alexandra pulls in the punters

By LIEW AIQING

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PREVIEW sales of the 293-unit Alexis at Alexandra Road started yesterday and developer Fission Group said that at least 50 per cent of the development has been sold at prices ranging from $850 per square foot (psf) to $1,100 psf.

Keen interest: A seasoned property consultant said that interest in Alexis is likely because most of the units are small and prices range from $450,000 to $650,000

The company was coy on the exact number of units sold but it may have been a tad too modest. Some buyers BT spoke with at the crowded show flat said that they were told by marketing agents that up to 85 per cent of the units had been sold by 7.30 pm.

'The prices are competitive compared with other condominiums, but its proximity to the MRT and CBD makes the Alexis a good investment,' said Steven Kwok, a potential buyer who had been quoted a price of $1,050-$1,100 psf.

Another buyer said that compared to the recently launched Caspian ($580 psf), Alexis is not cheap but he hopes to resell the property for a profit. He also said that compared to what was quoted in an invitation he had received earlier, prices quoted at the showflat were 10 per cent higher.

According to official data, three units at The Anchorage next door sold at $848-$929 psf in the fourth quarter while a unit at Queens on Stirling Road sold for $894 psf this month.

Fission Group has tied up with United Overseas Bank to offer an interest absorption scheme, which, like the now-scrapped deferred payment scheme, allows buyers to defer any payments beyond an initial downpayment until the project receives Temporary Occupation Permit (TOP).

Alexis is being built on the former Alexandra Centre which was put up for collective sale in 2007 for around $300 per square per plot ratio. It is not known how much Fission Group paid for the site.

A seasoned property consultant said that interest in Alexis is likely because most of the units are small. At between 400 sq ft for a one-bedroom unit and 650 sq ft for a two-bedder, prices range from $450,000 to $650,000.

He also said that there was 'still liquidity in the market' and investors with a two-year investment horizon would still find property attractive. 'There is no point putting money in a bank,' he added.

Over on the east coast, City Developments Ltd (CDL) will launch a new phase for its Livia condominium in Pasir Ris at an average price of $620 psf, or about $30 psf less than the launch price of the first phase. A total of 30 units in two stacks will be offered in the second phase.

Chia Ngiang Hong, group general manager of CDL said: 'The company senses a renewal of market interest and improvement in buyer sentiment. More people have been visiting our showrooms, and many have made offers for units that have yet to be launched.'

Published February 13, 2009

Eu Yan Sang earnings surge 13% in Q2

By JOYCE HOOI

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EU Yan Sang International's net profit climbed 13 per cent for the second quarter of its fiscal year from a year ago despite losses from discontinued operations.

Mr Eu: Decision to exit from non-core businesses and to focus on core traditional Chinese medicine business is showing encouraging results

The mainboard-listed traditional Chinese medicine (TCM) retailer and wholesaler reported an increase in net profit attributable to equity-holders of $3.51 million, up from $3.11 million for the previous corresponding period. Including minority interests, net profit rose 11 per cent to $3.49 million.

Figures for the comparative period were restated due to the disposal of Red White and Pure Pte Ltd and its subsidiary's business and the liquidation of YourHealth Group Pty Ltd and its subsidiaries.

'Our decision to exit from non-core businesses and to focus on our core TCM business is showing encouraging results. We have improved our balance sheet and cash flow, which are important performance indicators for companies during the current financial turmoil,' said Richard Eu, the group's chief executive officer.

The group took a $1.19 million hit in the form of losses from discontinued operations as a result of their closure of the two businesses.

For the first half of FY2009 ended Dec 31, 2008, the group's net profit attributable to equity-holders rose 8 per cent from $6.29 million to $6.77 million.

Revenue for the group rose 6 per cent year-on-year in the second quarter, from $50.37 million to $53.43 million.

For the last six months ended Dec 31, revenue rose 2 per cent from $102.5 million to $103.81 million, year-on-year.

Retail revenue, which accounts for the largest portion of the group's turnover, rose 11 per cent during the quarter to $42 million compared with the same period last year.

Wholesale revenue, however, declined 19 per cent to $7.3 million due to lower exports to China which had been held up over the renewal of export licences.

'With our export licence to China having been approved this month, we expect contribution from export sales to China in the fourth quarter,' said Mr Eu.

The group will have its eye on operating costs as it braces for a challenging economic year.

'The one factor out of our control is rental cost. They have not gone down very much and by the time the leases come up for renewal, the rates might still not be as low as when we'd signed them three years ago,' said Mr Eu.

One priority it will not be skimping on is research and development, in a bid to meld traditional Chinese medicine with scientific rigour, which it believes will keep it out of the red for FY2009.

'We roll out about 10 to 20 products every year, and that rate is not going to fall.

'Our investments in a modern scientific approach towards TCM will provide us the pipeline to introduce new TCM and health food products and services. Barring unforeseen circumstances, we expect FY2009 to be profitable,' he added.

Earnings per share from continuing operations stood at 1.30 cents for the quarter and 2.21 cents for the financial first half-year, up from earnings per share of 0.93 cents and 2.17 cents for the same periods a year ago, respectively.

Published February 13, 2009

ComfortDelGro's full-year profit falls 10% to $200m

The land transport firm says operating profit slipped 17% to $278m

By SAMUEL EE

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HIGHER operating expenses put the brakes on ComfortDelGro's net profit for the full year ended Dec 31, 2008, causing it to fall 10.3 per cent to $200.1 million, even as revenue grew 3.6 per cent to $3.13 billion.

Related links: Click here for ComfortDelgro's news release Financial statements

The land transport giant said operating profit slipped 17.3 per cent to $278 million due mainly to the higher cost of fuel in the first three quarters of the year. For the full year, fuel and electricity costs jumped 31.8 per cent to $285.4 million.

Together with pricier fuel, higher payment for cashless transactions on increased turnover and a rise in taxi driver benefits pushed total operating expenses up 6.2 per cent to $2.85 billion. Earnings per share fell to 9.59 cents from 10.73 cents.

A final one-tier tax-exempt dividend of 2.4 cents per share has been proposed. In addition to the normal interim one-tier tax-exempt dividend of 2.6 cents paid earlier, the total dividend for 2008 would be five cents per share if the final dividend is approved.

ComfortDelGro said the operating profit of its overseas businesses as a proportion of total group operating profit rose to 47.3 per cent in 2008 from 45.8 per cent the year before.

Turnover for its bus business slipped 0.4 per cent to $1.5 billion because of the translation effect of the weaker British pound and Australian dollar.

Still, the UK operations accounted for over 71 per cent of total overseas bus turnover, while Australia made up 23 per cent. China's share was 6 per cent.

In Singapore, listed unit SBS Transit's (SBST) net profit for the full year ended Dec 31, 2008 fell 18.9 per cent to $40.58 million, hit by higher fuel and electricity costs, as well as lower interest income on investments. But SBST's revenue grew 8.9 per cent to $729.6 million due mainly to higher bus and rail fare revenue, along with higher rental income.

ComfortDelGro's taxi business recorded a 2.5 per cent hike in turnover to $945.3 million. In Singapore, turnover from taxis rose 10.3 per cent to $614.7 million on an increase in fleet size and cashless transactions.

But turnover from its overseas taxi operations fell 9.4 per cent to $330.6 million, mainly due to a 19 per cent decline in UK turnover to $209.3 million from the weaker pound and a drop in demand from corporate accounts. This was partially offset by increases in China and Vietnam.

The rail business chalked up a 15.7 per cent increase in turnover to $101.5 million on higher ridership for the North-east MRT Line and the Punggol and Sengkang LRTs. This is the first time turnover has crossed the $100 million mark.

Listed unit Vicom saw net profit for the full year ended Dec 31, 2008 rise 17 per cent to $15.8 million, thanks to improved volumes from its core businesses of vehicle inspection, and testing and inspection services.

The vehicle inspection unit of ComfortDelGro said total revenue rose 14.1 per cent to $73.8 million on higher revenue, with the significant increase in the testing and inspection services coming from the construction sector, marine and offshore, and oil and gas.

Looking ahead, ComfortDelGro managing director and group CEO Kua Hong Pak said 2009 will be 'unprecedented and very challenging'. 'Our focus is on how business trends are developing so as to better position ourselves.'

Published February 13, 2009

Seeking a reprieve from 'death warrants'

By R SIVANITHY
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WHEN the structured warrant segment first sparked to life some four years ago, there were high hopes that it might one day rival Hong Kong's in terms of sophistication, depth and breadth. And, to be sure, the signs were encouraging - volume rose from a modest $1.5 billion in 2004 to a record $28 billion in 2007 as issuers raced to set up shop here and offer traders more instruments to capitalise on the bull market.

Industry observers would know that due to the global banking crisis, that trend has now reversed sharply.

No thanks to the resulting debilitating bear market, prominent issuers such as Deutsche Bank (which pioneered warrants trading in Singapore with its 'supermarket' approach), SG Securities (which, together with Deutsche and Macquarie Securities, dominated market share for years) and Merrill Lynch have shut down their Singapore operations over the past month and are now running their Singapore warrants business out of Hong Kong.

There can be no faulting the decision to do this; as with all aspects of broking/investing, the warrants business is a numbers game and for the past several months, the numbers simply didn't add up. Daily volume in warrants now averages only $30-50 million - down some 70-80 per cent from the heady days of 2007's $150-200 million and early 2008. This makes some prevailing arrangements commercially unviable.

Reasons for hope

The big question, of course, is: Does this signify the end of the warrants market in Singapore? Furthermore, with the recent introduction of a new derivative instrument called the Extended Settlement (ES) contracts by the Singapore Exchange (SGX), will this mean a drying up of already-thin liquidity in the warrants segment?

Although the signs are currently not positive and the warrants market is well and truly mired in the doldrums, there are plenty of reasons to hope that as long as the underlying market recovers fairly quickly, all is not lost.

First and most important, thanks to the educational efforts of issuers and SGX over the past few years, the level of sophistication within the ranks of warrant traders here can justifiably be said to be almost on par with Hong Kong's.

Anecdotal evidence from issuers is that queries from the public these days are no longer about the basics of warrant trading but, instead, about much more advanced concepts relating to hedging, bid-ask spreads and implied volatility. Traders are also known to attend specialised training courses to gain the necessary expertise and to thereafter focus entirely on trading warrants.

Widespread understanding

Since warrant knowledge and understanding is now widespread, it would be safe to assume that there will be no need to undergo the gradual learning curve that was necessary between 2002 and 2004, and interest should return rapidly once the underlying market recovers.

Second, although ES contracts are derivatives like warrants, they are more like futures contracts and possess different characteristics to warrants - deposits and margins have to be paid, the settlement counterparty is SGX, and the life span is only 30 days. It's very possible that instead of competing for the warrants dollar, ES contracts will complement the warrants segment since it affords hedging and arbitrage opportunities. As one trader said, 'you can leave it to the market to find ways to make money'.

The key, of course, lies with the underlying market; no one knows how long it will take for governments and central banks to fix the mess left in the wake of the US sub-prime mortgage crisis and, to be honest, it isn't entirely obvious to us that printing money and throwing it at the problem is the best approach.

Hopefully, though, the recovery won't take too long, and once the turn comes, there's every reason to be optimistic that the warrants segment will make a comeback as well.

Published February 13, 2009

Swiss Re ousts CEO after shares plunge on record losses

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(ZURICH) Swiss Reinsurance Co ousted chief executive officer Jacques Aigrain after record losses wiped out more than a third of its market value in a week and forced the second-biggest reinsurer to turn to Warren Buffett for capital.

Changing watch: Mr Aigrain (above) will be replaced by Mr Lippe (next). Trading of securities such as credit-default swaps led to six billion franc writedowns in 2008

The board of directors accepted Mr Aigrain's offer to resign and named deputy CEO Stefan Lippe, 53, as his successor, Swiss Re said in a statement yesterday from Zurich.

The reinsurer announced last week a 3 billion Swiss franc (S$3.9 billion) capital injection from Mr Buffett's Berkshire Hathaway after a full-year loss of about 1 billion francs. The company is abandoning Mr Aigrain's strategy to increase profit by trading securities such as credit-default swaps, which led to writedowns of 6 billion francs in 2008.

'When a bad situation turned into a dramatic one, they had to act,' said Thomas Noack, an analyst at WestLB Equity Markets in Dusseldorf who has a 'neutral' rating on the shares. 'Lippe is a real reinsurance guy, which is exactly the right and reassuring signal they need to send at this moment.' Swiss Re was seen 4.3 per cent higher at 19.75 francs in pre-market trading at 8.18 am Zurich time yesterday, according to Clariden Leu.

Swiss Re has dropped 37 per cent since announcing the loss and the capital increase, bringing declines this year to 62 per cent. The company, which became the world's biggest reinsurer after buying GE Insurance Solutions in 2005, now has less than a quarter of the market value of rival Munich Re.

Mr Lippe, a German national, has been with Swiss Re for 25 years. He joined the executive board in 1995 and led Swiss Re's property and casualty and life and health underwriting since 2005. He became chief operating officer in September 2008.

'I am clear about the challenges that Swiss Re needs to address,' Mr Lippe said in the statement. 'Our core reinsurance portfolio is sound.'

Swiss Re said last week it will disband its financial- markets unit, cut its dividend and may seek an additional 2 billion francs from investors, on top of Mr Buffett's investment, to keep its credit rating.

Swiss Re's long-term debt rating was last week lowered one step to Aa3 from Aa2 by Moody's Investors Service, which cited last year's loss and the outlook for 2009. Standard & Poor's Ratings Services said it may lower Swiss Re's long-term credit ratings from AA-.

Berkshire's investment may give it a stake of more than 20 per cent in Swiss Re. Mr Buffett bought 3 per cent of Swiss Re in January 2008, which ceded 20 per cent of its property and casualty business to Berkshire Hathaway over five years to free up capital.

Mr Buffett, 78, said last week that he was 'very impressed by Jacques Aigrain and his management team.' The Omaha, Nebraska-based billionaire isn't seeking a seat on Swiss Re's board of directors, Mr Aigrain said last week.

Mr Aigrain, 54, ramped up Swiss Re's sales and trading of securities in 2006 and 2007, when the reinsurance business was trying to cope with stagnant premiums.

While the strategy boosted profit in 2006, his first year as CEO, the credit crunch and rising bond defaults forced record writedowns in 2008. About a third of Swiss Re's markdowns last year were tied to credit default swaps, it said.

Under Mr Aigrain, 'Swiss Re successfully completed several major acquisitions, including the Insurance Solutions operations from General Electric,' chairman Peter Forstmoser said in the statement. 'The board is tremendously grateful for his significant contributions and personal commitment to Swiss Re.' - Bloomberg

Published February 13, 2009

Tata Communications to set up US$180m data centre here

The facility is being developed together with Mapletree Industrial Fund

By AMIT ROY CHOUDHURY

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(SINGAPORE) Tata Communications, the telco arm of the US$62.5-billion Tata Group, announced yesterday that it was setting up a state-of-the-art data centre in Singapore at a cost of US$180 million.

The company also announced the completion of the main segment of the US$250 million, 3.8 terabit capacity, undersea cable which directly links Singapore to Japan.

This has been laid far away from the earthquake-prone zone in Taiwan where cables were damaged some years back.

Speaking to BT, Vinod Kumar, president and chief operating officer of Tata Communications, said these investments were part of the US$2 billion expansion plan that the company would put in place over the next three years.

Mr Kumar said the data centre, a 165,000 sq ft facility being built in Paya Lebar, will be green-certified, meaning it will be environmentally friendly.

To be built and operational in 15 months, the data centre is being developed in partnership with Mapletree Industrial Fund.

It will deliver co-location, managed hosting, managed storage and value-added services, Mr Kumar said.

He noted that Tata Communications, in order to meet increasing outsourcing demands from global multinationals as well as Singaporean companies, is expanding its capacity with the construction of the flagship data centre in Singapore, to be named Tata Communications Exchange.

Mr Kumar added that one reason why Singapore was chosen for the centre was because of its key gateway location into the Asia- Pacific region.

When asked if he thought the current economic crisis could hamper business for the data centre, Mr Kumar noted that companies are quite nervous about building captive data centres.

'They are looking at the possibility of using a world class facility like ours which is connected to a world class network and managed by someone like us with experience of running data centres around the world.'

He added that there has been positive feedback from the financial sector and media companies who are interested in using shared services at the data centre.

Globally, the company has almost one million square feet of data centre space.

While 550,000 sq ft is in India, the rest is spread across the US, Europe and Asia.

Talking about the TGN-Intra Asia cable system, Mr Kumar said the network spans 6,700km and connects Singapore, Hong Kong, Japan, Vietnam and the Philippines.

The connection between Singapore and Japan is direct without any landfall, while the other countries have feeder systems which connect to the main network, he said.

Interestingly, this is the first direct Singapore-Japan cable system which does not touch any other country.

Another interesting point, Mr Kumar said, was that the cable has been laid several hundred kilometres away from the earthquake prone zone near Taiwan where an earthquake a few years ago damaged all the cables connecting Singapore and Japan.

'The cable increases data and voice reliability by providing new route diversity for traffic generated throughout and into Asia- Pacific,' Mr Kumar said.

As part of its focus on expanding communications services to and from emerging markets, Tata Communications is partnering with Globe Telecom and EVN Telecom to expand the TGN-Intra Asia Cable System into the Philippines and Vietnam respectively.

Published February 13, 2009

Weak brands may stall following COE quota cut

24% reduction may see premiums rise; this could hurt cheaper cars while popular ones cruise

By SAMUEL EE

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(SINGAPORE) The new sharply reduced COE quota could lead to a shakeout in the motor industry and drive some brands off the road, say distributors. But they add that it could also make some marques stronger.

'Distributors have to think hard whether their brand can carry on in this market.' - Koh Ching Hong, managing director of Borneo Motors Singapore

The annual quota of Certificates of Entitlement for Quota Year 2009, will be 24.1 per cent smaller than last year's, Transport Minister Raymond Lim told Parliament yesterday. QY09, which runs from May 2009 to April 2010, will offer 83,789 COEs compared with QY08's 110,354.

This means that the maximum number of passenger cars that can be registered in calendar year 2009 will be 73,830 - down 24.2 per cent from 2008's total of 97,348.

Of the five COE categories, yesterday's announcement dealt the harshest blow to Cat B - for cars above 1,600 cc. For QY09, there will only be 18,233 Cat B COEs available, or a 30.9 per cent cut.

Cat A - for cars below 1,600 cc - will also be hit hard with just 33,486 COEs, down 28 per cent. Cat E - the open category - will be 12 per cent lower at 17,186.

Mr Lim said that part of this quota is to allow the vehicle population to grow by 1.5 per cent (based on the vehicle population of 872,027 as at Dec 31, 2008). The bulk is to replace vehicles which the Land Transport Authority anticipates will be deregistered in 2009.

But Mr Lim added that there is scope to review how COEs are projected to replace vehicles that are deregistered - to see if the methodology can be improved and more closely match the COE quota to the actual number of vehicles deregistered.

'It will improve responsiveness of the system,' he said. 'But there will be trade-offs, such as more uncertainty over the quota released. Hence, LTA will consult the motor vehicle industry as part of this review.'

The president of the Motor Traders Association of Singapore described the new COE quota as 'within expectations'.

'The forecast for deregistrations is reasonable and, as expected, the allowable growth rate has been pegged at 1.5 per cent as previously announced by the minister,' said Tan Kheng Hwee.

She added that the timing of this 'substantial reduction' is good.

'It is happening during a period of relatively low demand so we expect the increase in COE prices to be gradual rather than to skyrocket,' said Ms Tan. 'As such, we expect premiums should still fluctuate between $1,000 to $10,000 for the next 12 months.'

Last week's COE tender saw Cat A settle at $1,020, while Cat B was $689. Some distributors believe any increase in premiums will hurt the weaker brands first.

'Distributors have to think hard whether their brand can carry on in this market,' said Koh Ching Hong, managing director of Borneo Motors Singapore, the authorised distributor for Toyota and Lexus. Toyota is Singapore's top brand.

He explained: 'The popular and more established brands will be able to stay on but some others may not.'

The senior executive of a popular Japanese dealership agreed.

'This downsized quota will cut across all brands. But those multi-franchise dealerships with economies of scale should be able to ride it out longer than those small, one-brand players,' he said.

One observer said that when the market shrinks, COE premiums rise, leading to more expensive cars. 'So only those more affluent customers will continue to buy cars. Marginal car owners will drop out of the market. That means cheaper makes will lose out because there are no more marginal owners to buy their models.'As a result, only those brands with a relatively wealthy customer profile will survive.

'They could even increase their market share,' he added.

In parliament yesterday, the Transport Minister also unveiled measures to encourage more existing car owners to convert to the OPC or Off Peak Car scheme. He said that the scheme has been gaining popularity, with the 42,000 OPCs accounting for 7.7 per cent of the car population.

'The OPC scheme is something we should encourage,' he explained, adding that as its name suggests, 'it helps alleviate peak hour congestion on our roads.'

'This fits into our overall objectives to better manage traffic congestion, particularly during peak periods,' said Mr Lim.

To make OPCs more attractive and encourage more car owners to opt into the scheme, he said that one possibility was to implement an electronic day licence, as opposed to the current paper licences.

Another is giving immediate cash rebates to those who convert their existing cars to OPCs - an improvement over the current system where the cash is only paid out when the car is deregistered.

The third area would be to re-look the restricted hours, especially the Saturday restrictions, with a corresponding adjustment to the OPC tax concession.

Mr Lim also revealed that $800 million would be spent on improving MRT infrastructure to allow trains to run more frequently. When completed in 2011, one year earlier than originally scheduled, the Jurong East Modification Project will increase capacity by 15 per cent.

The minister also announced the date for the opening of the Circle Line Stage 3 - May 30, 2009.

Published February 12, 2009

Spring stepping up efforts to help viable SMEs

However, businesses must realise that govt support is not an entitlement

By CHEN HUIFEN

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AS government-backed loans provided to SMEs jumped 38 per cent to $990 million last year, Spring Singapore will continue to step up efforts to support viable SMEs through the downturn.

'The trouble is that many of the companies are very small. They don't want to come together.' - Spring chairman Philip Yeo

But Spring chairman Philip Yeo says businesses must realise that government support is not an entitlement - and that they too must help themselves.

'Banks don't get money from heaven', so the usual due diligence to evaluate applications and non-performing loan risks will still apply, he says.

And SMEs should consider consolidation because 'good companies should grow and bad companies should exit'. Bigger entities also have better chances of obtaining equity finance, an alternative funding option to bank loans

'The trouble is that many of the companies are very small,' Mr Yeo said. 'They don't want to come together - they all want to be towkays. But they are not of critical size.'

Among the 162,000-plus enterprises here, about 128,000 are in the micro-enterprise category, with less than $1 million in annual revenue. About 33,000 enterprises generate revenue between $1 million and $50 million a year, and the remaining 1,000 are classified as large companies.

'It's a reality there's too much fragmentation,' said Mr Yeo. 'They should come together. If you don't have a big enough company, how do you attract talent? How do you get customers? It's all economics.'

For SMEs that continue to have a competitive advantage, Spring will help to widen their lead through the $200 million business upgrading initiatives for long term development scheme, or Build.

The programme provides 70-90 per cent of grant support in areas such as technology innovation, branding, IP management, HR and design.

Later this year, Build will launch attachment programmes at SMEs for fresh graduates, and innovation vouchers that companies can use to buy technology from approved research institutes. There will also be a pilot mentoring scheme to match experienced consultants with SMEs.

In an update on the SME financing schemes offered by the government, Spring said 3,073 loans were approved last year, down from 3,572 in 2007. This was because the number of asset-based loans fell 51 per cent to 719, as companies cut back on capital expenditure. The bulk of the $990 million loan support went to the loan insurance scheme (LIS), with 1,452 applications supporting $800 million of loans approved. Micro loans numbered 902, amounting to $34 million.

In the first five weeks of this year, 551 government-backed loans amounting to $185 million were approved. Spring expects the take-up rate for LIS, micro loans and bridging loans to go up, and that for asset-based loans to fall.

In a review of Spring's achievements last year, the agency said it supported 2,585 enterprises in 1,540 projects, up from 1,482 enterprises in 1,260 projects in 2007. The 2008 projects are expected to create 9,700 new jobs, up from 5,300 in 2007.

Upon completion of the projects, the 2,585 companies are expected to create value-add of $2.9 billion, fixed assets investments (FAI) of $465 million and total business spending of $499 million.

On targets this year, Mr Yeo said that while the number of companies receiving support is expected to increase, value add, FAI and jobs created are likely to be affected. But Spring is aiming for results 'as good as 2008'.

'The (Trade and Industry) Minister has already set a target of 2,000 companies for the Build programme over the next two years,' said Spring chief executive Png Cheong Boon. 'So I think at least we must hit 1,000 of them.'

Published February 12, 2009

Raffles Education facing biggest test yet

By OH BOON PING

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PRIVATE education provider Raffles Education Corp recently reported a sterling set of second-quarter results that saw net profit jump 66 per cent to $27 million, while revenue for the quarter rose 38 per cent to $54.2 million.

And the market appears to have responded positively to the news, with the stock ending yesterday at 50.5 cents, 4 per cent up from the closing of 48.5 cents last Thursday, the day that the financial results were released. But market optimism aside, an interesting question to ask is whether Raffles is able to sustain its rapid growth amid the increasingly gloomy economic climate.

Raffles said that the group expects to see continued growth by setting up more colleges in the region, developing its proprietary courseware, through value creation of Oriental University City (OUC), a new acquisition in China, and from strategic acquisitions. And to date, the group has been very successful, as seen from the 47.7 per cent compound annual growth rate in its turnover for the past few financial years.

However, it is also clear that a significant part of that rapid growth in revenue stemmed from acquisitions made in previous years. For example, organic topline growth for FY08 was only 26.5 per cent compared with the 53 per cent total reported, while the equivalent figures were 22.5 per cent against 37.7 per cent in the preceding year.

A look at its core profit before tax and finance costs paints a similar picture - organic growth was 37.8 per cent compared with the total core earnings growth of 65.8 per cent reported. And so the question is: for how long can the company continue to buy assets to fund its rapid growth, especially when liquidity appears to be drying up in debt and equity markets?

Plus, in view of the increasingly bleak economic environment, it is worth noting that growth in Raffles's H1 2009 organic operations came to only 9.7 per cent - a possible sign that business is slowing.

Granted, vocational education is usually seen as counter-cyclical and more students may choose to return to school for upgrading in times of economic uncertainty. However, in emerging markets such as China, private education programmes can sometimes be seen as unnecessary expenditure, especially if it involves substantial amounts of financial commitment. Therefore, if fees are not cut, it is conceivable that organic growth may slow even further should the economic situation worsen.

To Raffles's credit, it successfully deferred payment of its second OUC instalment of $100 million, as well as two subsequent payments for at least a year without interest, and this will help the company stay liquid in such uncertain economic times. This will also prove important as it needs funding to open up new schools as part of its organic business expansion.

However, attempting to maintain its solid performance is now a different ballgame given the continuing global financial turmoil. The journey ahead may well be the biggest test to date for Raffles.