Published May 14, 2009

Selangor state property arm eyes Reit buy

It is looking at listed Reit with total assets valued at more than RM600m

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(KUALA LUMPUR) The Selangor State Development Corp (PKNS) plans to take control of a local real estate investment trust (Reit) within the next six to 12 months to grow its business, according to a report in The StarBiz.

The tabloid said that its state property arm is eyeing a listed Reit with total assets valued at more than RM600 million (S$249.2 million). General manager Othman Omar said that PKNS was negotiating to buy a controlling stake. He declined to name the Reit.

'We hope to seal the deal by the end of this year. We want Reits to be one of our tools to grow,' he said in an interview in Petaling Jaya. PKNS will inject a slew of properties that it owns into the Reit to double the size to over RM1 billion, Mr Othman said.

It is targeting Wisma PKNS, Kompleks PKNS, the 500,000 square foot Shah Alam City Centre mall and the Shah Alam convention centre.

PKNS will include a few shopping malls that it is setting up in its new developments in the Klang Valley as well as the 27-storey Menara Worldwide office tower in Jalan Bukit Bintang, owned by its wholly owned unit, Worldwide Holdings Bhd (WHB).

'We plan to reap the best benefits during this crisis to position ourselves. This is the best time to get skilled workers, cheaper land and assets,' Mr Othman said.

PKNS has put in place key performance indicators for all departments as part of efforts to increase its revenue and net profit.

It aims to achieve a record RM1.06 billion revenue this year.

It also wants to double profit margins to 40 per cent by scrapping negotiated tenders and replacing them with open tenders.

'PKNS has a responsibility for making profits, which can be channelled back to the state. We will look at all avenues to grow, but cautiously,' Mr Othman said.

PKNS, which has 4,000 ha of undeveloped land in the Klang Valley, is looking at tying up with Selangor state units Kumpulan Hartanah Selangor Bhd, Perbadanan Kemajuan Pertanian Selangor and Permodalan Negeri Selangor Bhd to develop their landbank. 

Published May 14, 2009

MAS, EADS units to enter joint venture

They will set up maintenance and repair organisation for PW100 engines

By PAULINE NG
IN KUALA LUMPUR

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MALAYSIA'S MAS Aerospace Engineering (MAE) and France's EADS SECA plan to establish a joint venture maintenance and repair organisation (MRO) for PW100 series turbo-prop aircraft engines by next year.

The joint venture facility between MAE and EADS SECA will be in KL and is planned as a one-stop centre for PW100 series engines, airframe and component support.

The Kuala Lumpur-based MRO will be the third in the region after Singapore and Australia, and its biggest selling point will be a lower cost structure.

A memorandum of understanding (MOU) was signed yesterday between MAE, a fully owned subsidiary of national carrier Malaysia Airlines, and EADS SECA, a Pratt & Whitney designated aircraft engine repair and overhaul facility owned by the EADS group.

The facility is planned as a one-stop centre for PW100 engines, air-frame and component support, said MAS executive director and chief financial officer Azmil Zahruddin.

'Our immediate plan is to set up an engine maintenance and hot section inspection capability (HIS). The capability will be extended to line maintenance support and on-site HIS through a mobile repair team,' he said.

An estimated 100 aircraft in the region are equipped with PW100 engines, and the number is expected to double by 2012. The growth potential appeals to EADS SECA, which is testing the water via the proposed MRO - its first 'airline-anchored' set-up.

It plans to expand the facility if demand is strong, said chief executive Cedric Gautier.

MAS has nine ATR aircraft equipped with the PW100 engines, and the number will rise to 14 by year-end. These engines are now serviced in France. EADS SECA will take responsibility for the fleet by deploying permanent engineering staff in KL, Mr Gautier said. 'Initially there will be one person, but it could be 10 or 20 people (later) depending on market demand,' he said.

The two parties have yet to determine the equity structure of the joint venture or the planned investment. However, they are confident that the aviation industry will recover from the current downturn and want to have the facility in place to capitalise on opportunities when the global economy turns around.

MAS's aborted joint venture with Australia's Qantas illustrates the difficulty of bringing such plans to fruition. The two airlines signed an MOU in December 2007 to establish an MRO in Malaysia to serve bigger commercial aircraft. It was to have been operational last year, despite Australian union anger at the outsourcing of jobs.

In any event, the tie-up came to naught after the Australians decided this month to can it, citing slumping economic conditions. 

Published May 14, 2009

Should CK Tang shareholders throw in the towel?

By JAMIE LEE

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THE third attempt by the Tang family to take retailer CK Tang private isn't the most attractive deal - in premium terms.

But as defeatist as it sounds, minority shareholders should consider throwing in the towel.

Announced last week, the proposed offer is to buy the remaining 13.39 per cent that the Tangs do not own at 83 cents per share. This represents an 18.6 per cent premium to the last traded price of 70 cents.

PricewaterhouseCoopers Corporate Finance has been appointed as the independent financial adviser, CK Tang said yesterday.

The premium offered in the latest deal is the worst among all three bids.

In 2006, the Tangs - through brothers Tang Wee Sung and Tang Wee Kit - offered a premium of up to 25 per cent from the last traded price prior to the announcement.

They had offered 65 cents per share but said it would raise the offer to 70 cents if the acceptance level crossed 90 per cent.

In 2003, then-chairman Tang Wee Sung's first offer came at 42 cents a share, some 37.7 per cent more than the last-traded price at that point.

Looking at a comparison against net asset value (NAV), the offer of 65 cents launched three years ago was a 9.4 per cent premium to the NAV of 59.4 cents. Today's delisting offer is a 20.95 per cent discount over the company's net tangible asset of $1.05 per share as at Dec 31, 2008.

In short, minority shareholders who had ignored the two earlier offers in the hope of a better premium have been disappointed.

As long as 10 per cent of the total issued shares held by shareholders present and voting at the extraordinary general meeting (EGM) are cast against this third deal, CK Tang's desperate desire to go private will remain.

Should shareholders reject this deal though?

Some shareholders were holding on to the stock - despite it being illiquid and a non-dividend play - because they speculated that there would be re-development plans for its flagship store. This would bump up the company's NAV significantly.

Others might have expected the family to sell the business since the flagship store is, as the biblical analogy goes, on the promised land of all retailers and is likely to be eyed by competitors or suitors.

Both have not happened. The Tang family stated in 2006 that re-development would leave a huge vacuum in its retail business, while a sale was out of the picture.

'We'll sell our own homes first before we sell this place,' said Tang Wee Sung then.

Shareholders should not rule out the possibility that these could take place.

But a re-development at this point is unlikely. With the business bleeding - particularly after its expansion into VivoCity and Malaysia - CK Tang will not survive without its main store, much less stomach the additional charges involved in re-development now.

How about a sale then? Any family business faces the uphill task of getting the next generation to take over and while CK Tang is now run by professionals, it would be fair to assume that the family would want stronger involvement from its own household. Once that interest wanes within the family, the business could then be up for grabs.

But while possible, that option seems elusive at this point.

Those factors, plus the expectation that the NAV at this point is unlikely to improve under the sullen economic situation, gives little reason for shareholders to hold on to the stock. This is especially so as the stock offers little tangible value from here on. 

Published May 14, 2009

Asian rally driven by global inventory restocking

But modest end-demand may curtail investors' hunger for risk

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(HONG KONG) The factory floor of the world in Asia is feeling the benefit of a rapid restocking of global inventories, but that may give way to disappointingly modest end demand, a factor that will curb investors' hunger for risk.

Keeping eyes peeled: Cyclical stocks led the two-month rally, so now might be time to take a look at defensive sectors again, analysts say

Asia ex-Japan stocks have rallied a blistering 45 per cent plus since March as Asia's production lines started humming again.

But restocking bare shelves is quite different from meeting sustained demand and once inventories are replenished, markets could face the uncertainty of an agonisingly slow and fragile global recovery, making them vulnerable to a correction, analysts said.

'Markets are probably rallying because you are not going to see the end of the world, that the very depressed levels of production are not going to stay with us,' said Frederic Neumann, senior Asian economist with HSBC in Hong Kong. 'But at the same time that doesn't mean you are going to see sustained strong profit growth on the back of restocking.'

There are signs that replenishing global inventories could last through the middle of the year. Taiwan's Powerchip has said it sees potential DRAM chip shortages and consumer goods exporter Li & Fung Ltd has said it expects increased orders from US retailers.

As restocking winds down, government stimulus, tax cuts and consumer spending incentives in major economies will provide support, but markets will have to contend with continued uncertainty in the financial sector, US consumer and business retrenchment and growing fiscal deficits.

Markets may not have factored this in just yet so could be overvalued.

Asia ex-Japan earnings estimates reflect healthy growth of 24 per cent next year, data from profit-forecast tracker IBES showed, even though the global economy is in the worst recession since World War II.

In the Philippines, a big exporter of technology equipment, a semiconductor and electronics industry representative said demand was slowly coming back. But even so, exports would still fall at best 20 per cent this year.

As global inventory contraction slows, leading indicators and production gauges have risen, suggesting to Tim Rocks, Asia equity strategist with Macquarie Securities in Hong Kong, the largest restocking phase in living memory is underway.

South Korea has some of the most comprehensive inventory data in Asia outside Japan and it reflects a sharp rundown in inventories until recently when exports to China picked up.

The ratio of manufacturing inventories to the 12-month moving average of shipments fell precipitously from a seven-year high of 1.13 in November 2008 and only stabilised at 1.02 in March.

As an example of just how much the inventory cycle has been driving markets as opposed to a positive view on demand, commodities have lagged stocks throughout the comeback in risk-taking that has lasted so far two months.

The MSCI index of Asia Pacific stocks outside Japan bottomed on March 9 and has since surged about 45 per cent, while the Reuters Jefferies CRB index, based on the prices of 19 commodities, has risen 17 per cent.

Commodity inventories were not drawn down as sharply in the last six months as other sectors, so their upside has been limited relative to equities.

China's stimulus spending has been a boon to exporters in Singapore, South Korea and Taiwan - countries heavily leveraged to China's markets. But since Chinese consumption only makes up about 5 per cent of worldwide spending, its influence globally will be limited.

Khiem Do, chair of the Asia multi-asset group with Baring Asset Management in Hong Kong, said stimulus will likely help the US economy grow 1 to 2 per cent in 2010 from the depressed levels of this year. That should support Asia production, but again at relatively low levels.

That still leaves room for market disappointment after cyclical stocks in Asia led the two-month rally. So now might be time to take a look at defensive sectors again, Mr Do said.

'Defensive sectors that last year were the key have year-to-date done very badly, like utilities and consumer staples. So if they have good earnings growth and have been sold down, it might be time to look at them again,' he said.

Markus Rosgen, Citigroup's Asia-Pacific strategist, is sceptical about the recovery markets have priced in.

The decline in Asia ex-Japan export prices implies a return on equity of 8.4 per cent, similar to the 1975 and 1983 downturns.

But price-to-book multiples paint a different picture and suggest equity valuations have room to fall. The ratio, currently above 1.5 times, only hit a low during the crisis of 1.1 times, holding above the 0.9 plumbed during the 1975 and 1983 periods.

Even if one argues that Asian balance sheets are healthier than 30 years ago, other measures of valuation flash caution.

Price-to-earnings 12- months forward for the three sectors that have led the equity rebound - consumer discretionary, materials and technology - have this month risen above the broad market for the first time during the crisis.

The more Asian stocks rise, the risk increases of a bigger corrective move lower, particularly if economic data are not able continually to exceed expectations. One sign to look for would be flagging new orders in global purchasing manager indexes.

'If the inventory channel is full and there is no final demand, I think the second half will be quite ugly for Asia. Not only will people have to deal with the numbers, they will have self-doubt that we will have a recovery at all,' he said. -- Reuters

Published May 14, 2009

Wilmar may list 20-30% of China business

Group posts 10.8% rise in Q1 profit despite 30.6% plunge in revenue

By OH BOON PING

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PLANTATIONS giant Wilmar International said yesterday it plans to list 20 to 30 per cent of its China business in either Hong Kong or Shanghai.

Staying healthy: Revenue from the palm and lauric segment fell 42.7% due to lower prices and a 15.5% slide in sales volume but margins improved significantly

Chief executive officer Kuok Khoon Hong said that with rising affluence and rapid urbanisation, China will consume increasing quantities of high-quality processed agricultural commodities and other consumer products.

'It is the group's intention to tap this opportunity either through organic growth or mergers and acquisitions,' he said.

Wilmar's China operations recorded revenue of US$14.3 billion in FY 2008.

Yesterday, the group reported a 10.8 per cent rise in net income to US$380 million - despite a 30.6 per cent plunge in revenue - for the first quarter ended March 31.

Related articles: Click here for Wilmar's news release Financial statements

Revenue was US$4.96 billion, while earnings per share were 5.95 US cents, up from 5.37 US cents a year earlier.

Wilmar attributed the drop in turnover to lower agricultural commodity prices than in the same quarter last year.

'Average prices of major palm and lauric products were 40 to 50 per cent lower, while major oilseed and grain products were 10 to 50 per cent lower,' it said.

But lower selling prices were mitigated by a 50.6 per cent drop in distribution costs to US$208 million. As a result, pre-tax profit was 4.8 per cent higher than a year earlier.

Revenue from the palm and lauric segment fell 42.7 per cent to US$2.4 billion, due to lower selling prices and a 15.5 per cent decline in sales volume.

But margins in this segment improved significantly 'as we were able to time our purchases of raw materials and sales of products well', Wilmar said.

Oilseed and grain sales grew strongly in volume terms, but revenue from this segment eased marginally to US$1.8 billion, due to lower selling prices.

In all, the group recorded 24.7 per cent growth in sales volume to 3.6 million tonnes, owing to strong demand for oilseed products.

The consumer products segment suffered from lower selling prices and lower volume, causing revenue to dive 36.3 per cent to US$925.7 million.

Sales in this segment were 15.4 per cent lower than a year earlier, when the figure was boosted by the sale of subsidised edible oil to the Chinese government.

However, the segment enjoyed a sharp improvement in margins during the latest quarter because of lower feedstock prices.

The plantation and palm oil milling business brought in US$211 million - down 41 per cent - as crude palm oil prices fell.

Additionally, fresh fruit bunches production dropped 1.8 per cent to 682,198 tonnes, due to a 10.9 per cent drop in yield.

'The drop in yield was caused by wet weather in various regions in Sumatra and Sarawak that affected harvesting, the after-effects of droughts in Palembang from May to September 2007 and May to July 2008, as well as the dilutive effect on total yield from newly matured hectarage,' Wimar said.

Yesterday, its share price here rose 24 cents to close at $4.40.

Published May 14, 2009

EU fines Intel 1.06b euros for sales tactics

Chip giant's system of rebates shut out smaller rival AMD

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(BRUSSELS) The European Union fined Intel Corp a record 1.06 billion euros (S$2.11 billion) yesterday, saying the world's biggest computer chip maker used illegal sales tactics to shut out smaller rival AMD.

The fine exceeded an 899 million euros monopoly abuse penalty for Microsoft Corp last year. Intel called the decision 'wrong' and said it would appeal.

Intel, based in Santa Clara, California, has about 80 per cent of the world's personal computer microprocessor market - and faces just one real rival, Advanced Micro Devices Inc (AMD).

The European Commission says Intel broke EU competition law by exploiting its dominant position with a deliberate strategy to keep AMD out of the market that limited customer choice.

It said Intel gave rebates to computer manufacturers Acer, Dell, HP, Lenovo and NEC for buying all or almost all their x86 computer processing units (CPUs) from Intel and paid them to stop or delay the launch of computers based on AMD chips.

Intel president and CEO Paul Otellini said the company would appeal to the EU courts because 'the decision is wrong' and 'there has been absolutely zero harm to consumers'. The company promised to comply with the EU order but criticised it as extremely ambiguous.

AMD's Europe president Giuliano Meroni said the EU order 'will shift the power from an abusive monopolist to computer makers, retailers and, above all, PC consumers'. Regulators said the company also paid Germany's biggest electronics retailer, Media Saturn Holding - which owns the Media Markt superstores - from 2002 to 2007 to stock only Intel- based computers.

This meant workers at AMD's biggest European plant in Dresden, Germany, could not buy AMD- based personal computers at their city's main PC store.

'Intel has harmed millions of European consumers by deliberately acting to keep competitors out of the market for computer chips for many years,' said EU Competition Commissioner Neelie Kroes. 'Such a serious and sustained violation of the EU's antitrust rules cannot be tolerated.'

Ms Kroes joked that Intel would now have to change its latest global ad campaign - 'sponsors of tomorrow' - to proclaiming 'the sponsor of the European taxpayer'. 'I can give my vision of tomorrow for Intel here and now: abide by the law,' she added.

EU regulators said they calculated Intel's fine on the value of its European chip sales over the five years and three months that it broke the law. Europeans buy some 30 per cent of the 22 billion euros in computer chips sold every year.

They could have gone even higher as EU antitrust rules allow them to levy a fine of up to 10 per cent of a company's annual global turnover for each year of bad behaviour. Intel's worldwide turnover was 27.9 billion euros in 2007.

European consumers group BEUC welcomed the fine and said Intel should be held to account to consumers through civil suits in European courts. So far, these are rare but the EU is urging victims of antitrust action to seek damages.

'Intel should be liable to compensate the victims of its illegal practices,' said Monique Goyens, head of the group. 'Consumers have been paying too much for their computers and they should be compensated.'

The manufacturer rebates started in 2002, the EU said, with most ending in 2005 - apart from a 2007 deal for one unidentified company to source notebook computer chips only from Intel.

Regulators said rebates that give discounts for large orders are illegal when a monopoly company makes them conditional on buying less of a rival's products or not buying them at all.

Manufacturers depend on Intel to supply most of the chips they need and faced higher costs if they lost most or all of a rebate by choosing AMD chips for even a small order.

Hewlett-Packard buys a fifth of Intel chips with Dell taking 18 per cent, according to market research from Hoovers. -- AP 

Published May 14, 2009

Ships tread water, waiting for cargo

Concentration of so many vessels along S'pore coast raises accident fears

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(SINGAPORE) To go out in a small boat along Singapore's coast now is to feel like a mouse tiptoeing through an endless herd of slumbering elephants.

Feeling the heat: The shipping industry has been hit by a steep slump in global trade and the current level of activity does not suggest a recovery soon

One of the largest fleets of ships ever gathered idles here just outside one of the world's busiest ports, marooned by the receding tide of global trade. There may be tentative signs of economic recovery in spots around the globe, but few here.

Hundreds of cargo ships - 100,000 to 300,000 tonnes each - seem to perch on top of the water rather than in it.

So many ships have congregated here - 735, according to AIS Live tracking service of Lloyd's Register-Fairplay Research - that shipping lines are becoming concerned about near misses and collisions in one of the world's most congested waterways.

The root of the problem lies in an unusually steep slump in global trade, a problem confirmed by trade statistics announced on Tuesday.

China said that its exports nosedived 22.6 per cent in April from a year earlier, while the Philippines said that its exports in March were down 30.9 per cent from a year earlier. The United States announced on Tuesday that its exports had declined 2.4 per cent in March.

'The March 2009 trade data reiterates the current challenges in our global economy,' said Ron Kirk, the US Trade Representative.

Even more worrisome is that the current level of trade does not suggest a recovery soon.

'A lot of the orders for the retail season are being placed now, and compared to recent years, they are weak,' said Chris Woodward, vice-president for container services at Ryder System, the big logistics company.

So badly battered is the shipping industry that the daily rate to charter a large bulk freighter suitable for carrying, say, iron ore, plummeted from close to US$300,000 last summer to a low of US$10,000 early this year, according to H. Clarkson & Co, a London ship brokerage.

The rate has rebounded to nearly US$25,000 in the last several weeks, and some bulk carriers have left Singapore. But shipowners say this recovery may be shortlived because it mostly reflects a rush by Chinese steel makers to import iron ore before a possible price increase next month.

Container shipping is also showing faint signs of revival, but remains deeply depressed. And more empty tankers are showing up here.

The cost of shipping a 40-foot steel container full of merchandise from southern China to northern Europe tumbled from US$1,400 plus fuel charges a year ago to as little as US$150 early this year, before rebounding to around US$300, which is still below the cost of providing the service, said Neil Dekker, a container industry forecaster at Drewry Shipping Consultants in London.

Eight small companies in the industry have gone bankrupt in the last year and at least one of the major carriers is likely to fail this year, he said.

Vessels have flocked to Singapore because it has few storms, excellent ship repair teams, cheap fuel from its own refinery and, most important, proximity to Asian ports that might eventually have cargo to ship.

Investment trusts have poured billions of dollars over the last five years into buying ships and leasing them for a year at a time to shipping lines. As the leases expire and many of these vessels are returned, losses will be heavy at these trusts and the mainly European banks that lent to them, said Stephen Fletcher, commercial director for AXS Marine, a consulting firm based in Paris.

As idle ships flock to warmer anchorages, there are security concerns. Plants grow much faster on the undersides of vessels in warm water. 'You end up with the hanging gardens of Babylon on the bottom and that affects your speed,' said Tim Huxley, the chief executive of Wah Kwong Maritime Transport, a shipping line based in Hong Kong.

One of the company's freighters became so overgrown that it was barely able to outrun pirates off Somalia recently, Mr Huxley said. The freighter escaped with 91 bullet holes in it.

M Segar, group director for Singapore's port, said in a written reply to questions that many vessels were staying just outside the port's limits, where they do not have to pay port fees.

Singapore has complained to the countries of registry about 10 to 15 ships that have anchored in sea lanes in violation of international rules in the last two weeks, Capt Segar said.

'It is a sign of the times,' said Martin Stopford, managing director of Clarkson Research Service in London, 'that Asia is the place you want to hang around this time in case things turn around.' - NYT

Published May 13, 2009

Labuan to adopt new rules to become tighter tax haven

By S JAYASANKARAN
IN KUALA LUMPUR

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NEW legislation to be tabled by the Labuan Offshore Financial Services Authority (Lofsa) governing all facets of business done in Malaysia's tiny tax haven east of Sabah will essentially focus on tightening up business practices so that Malaysia will never again be targeted by entities such as the Organisation for Economic Cooperation and Development (OECD).

In April, the OECD singled out three countries, including Malaysia, as 'uncooperative tax havens'. All three countries were taken off the list after they promised to abide by OECD rules.

'They don't want that to ever happen again because it can hurt your business,' a banker told BT. 'But it's also housekeeping. They want everyone to do what they say they are going to do and not try everything under the sun.'

On Monday, Lofsa chairman Zeti Akhtar Aziz said the new legal framework will enhance the provision of a wider range of financial products and services. 'It will involve both conventional and Islamic financial products, without impinging on the status of Labuan as a well regulated centre, with strong corporate governance and high international standards,' she told reporters.

Ms Zeti, who is also Malaysia's central bank governor, said the objective is to create a more facilitative framework for a conducive business environment.

Already, the Labuan model is being liberalised in ways that had been sought by investors since the tax haven was set up in the early 1990s.

Beginning in June, holding companies in Labuan will be allowed to have a physical presence in Kuala Lumpur. Similarly, Ms Zeti said that Labuan banking institutions and insurance companies that meet 'pre-determined' criteria will also be allowed to have a physical presence in Kuala Lumpur from 2010 and 2011, respectively.

The move by the Labuan authority to tighten up business practices illustrates the rush for private capital by international tax havens in the wake of the global financial crisis and the resulting critical appraisal of tax havens by Western governments, fearful that it could be used by its citizens anxious to dodge taxes.

Bankers told BT that Labuan's secrecy rules could also be made more flexible in line with global practices, that are now beginning to frown on too much secrecy. Thus, it was likely that the tax haven's tax, trust and finance rules could be amended.

The bankers also said that the laws on Islamic finance could be made clearer in light of the increasing legal problems worldwide of defaults of Islamic debt going to court and the ensuing clash between the conventional law and Syariah.

It isn't clear, however, how exactly this will be addressed although the government has allowed three international legal firms specialising in Islamic finance to be set up in Kuala Lumpur beginning next year.