Published May 30, 2009

Market cap rises 23% to $535.7b in May

Climb to 9-month high brings market value gain for first five months to 36.3%; top 7 places remain unchanged

By VINCENT WEE

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BUOYED by an ongoing recovery in share prices driven by optimism that the downturn may have bottomed, market capitalisation rose 23.2 per cent this month to a nine-month high of $535.7 billion, from $434.9 billion at end-April.

The rise in May brought the year-to-date gain to 36.3 per cent - from end-December 2008's $393 billion.

The big got bigger, with the top seven places remaining unchanged in May - SingTel, Wilmar, the Jardine twins and the three banks remained entrenched at the top of the heap, as their gains more or less paced the overall market.

Singapore Airlines and CapitaLand swapped places for the next two spots as investor perceptions of the relative fortunes of the respective sectors changed. Big oil industry-related players Keppel and Sembcorp Marine also crept up the rankings on rising oil prices during the month.

Standout gainers among the top 50 were bombed-out property counters that had taken the worst of the sell-off in recent months, including Keppel Land and City Developments. The former increased its market value more than twice and the latter by almost half to $8.59 billion during May. Smaller developer Ho Bee also gained, doubling its value.

The market seems optimistic of a rebound, but investors are still wary.

Keppel Land recovered from what investors believed to be oversold levels, rising more than 2.5 times to $3.37 billion despite announcing a rights issue the month before. It was helped by a more positive outlook on the residential property sector. Some analysts have upgraded the counter, while others have warned that recovery is a long way off, and that the commercial property sector in which KepLand is a big player is also under severe pressure.

Ezion also rose by over 2.5 times to $373.5 million. The relatively quiet offshore oil and gas logistics and support services provider, in which Ezra has a substantial stake, looks set to gain from several rig charter deals coming into effect.

Related article: Click here for full list of market capitalisation

Abalone producer Oceanus also did well, more than doubling its market value to $529.5 million.

On the downside, among the bigger companies, ST Engineering and ComfortDelgro each lost just over 9 per cent to $7 billion and $2.69 billion respectively.

Investors were disappointed as ST Engineering reported a 30.4 per cent fall in first-quarter net profit to $85.2 million on decreased profitability at its key aerospace division as well as lower profits from the land systems division.

In percentage terms, however, the biggest loser was RSH, which shed 55.1 per cent to $141 million. The retail group yesterday reported a Q4 net loss of $6.6 million, sinking further into the red. Although RSH reported a $16.2 million full-year net profit, it warned of a challenging environment in the year ahead and expects gross margins to come under pressure.

The market seems cautiously optimistic of a rebound as some economic indicators suggest a bottoming out, although investors are still wary that the recovery may be a drawn-out one.

Published May 30, 2009

Temasek in talks on Chartered stake sale

No definitive offer has been put on the table so far by Abu Dhabi's ATIC, says source

By JAMIE LEE

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TALKS have started between Temasek Holdings and Advanced Technology Investment Company (ATIC) on the sale of the Singapore investment company's near-60 per cent stake in Chartered Semiconductor Manufacturing to the Abu Dhabi firm. But no definitive offer has been put on the table so far, a source familiar with the situation told BT yesterday.

A separate source told BT on Thursday that ATIC had bid to buy Chartered in a deal that values the company around $2.45 billion.

Chartered yesterday halted trading of its shares to issue a statement in which it said it has not received 'such a bid' from ATIC.

'From time to time, Chartered engages various parties in discussions to pursue business opportunities or concerning the strategic direction of the company, with a view to maximising value for all shareholders,' the chipmaker said. 'There is no assurance that any definitive or binding agreement will result from these discussions.'

But market watchers noted that any offer will directly involve Temasek, the controlling shareholder, rather than Chartered itself, since it is the target.

Temasek declined to comment on the speculation, saying it was 'inappropriate'.

Chartered shares continued to rise after the trading halt was lifted at 11.15am. The stock rose as much as 4.13 per cent before ending at $2.20, up 0.92 per cent, with 12.5 million shares changing hands. Over the past three trading days, Chartered shares have risen 8.37 per cent on speculation of a takeover, against a one per cent gain by the benchmark Straits Times Index.

Loss-making Chartered has long been seen as a takeover target, with Taiwanese firms Taiwan Semiconductor Manufacturing Company and United Microelectronics Corp previously regarded as potential suitors. Bank of America-Merrill Lynch analyst Daniel Heyler told Reuters that ATIC is 'building ownership' in the global foundry industry.

ATIC's dialogue with Temasek and Chartered is aligned with its efforts to build an 'IBM alliance' since IBM is a key client of Chartered and Advanced Micro Devices (AMD), he said.

ATIC agreed in March to pay US$2.1 billion for 55.6 per cent of a joint venture with AMD, according to the Reuters report. 

Published May 30, 2009

S'pore home prices slide down the ladder

From being among world's best performers last year, it's among the worst in Q1

By KALPANA RASHIWALA

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FROM around the top of the heap to near the bottom of the pile in just 12 months!

A year ago, Singapore was ranked as the fourth best-performing market in the world under Knight Frank's Global House Price Index based on the first-quarter's year-on-year price change. This week, it emerged as the third-worst in a table that listed a total of 46 markets.

The house price index for Singapore slipped 23.8 per cent in Q1 2009 over the same year-ago period. And with the index declining 16.2 per cent quarter-on-quarter in the first three months of this year, Singapore emerged as the second worst-performing market based on a quarter-on-quarter ranking, compared with its ninth position a year ago.

Knight Frank's index for Singapore was pegged to the official Urban Redevelopment Authority's price index of non-landed private homes in the Core Central Region.

Israel was the top performer over the 12-month period ending Q1 2009, recording price growth of 10.9 per cent, followed by the Czech Republic with a 9.9 per cent increase. The worst performers were Latvia, Dubai and Singapore with declines of 36 per cent, 32 per cent and 23.8 per cent respectively.

'If expats are not coming into Singapore, the strength of the rental housing market will be affected and that will, in turn, affect investment demand for residential properties.' - Nicholas Mak, Knight Frank's director of research and consultancy in Singapore

On a quarter-on-quarter comparison, Dubai posted the worst performance with a fall of 40 per cent, followed by Singapore.

Hong Kong, saw its Q1 ranking (based on a year-on-year comparison) slip from third spot last year to 40th position, with a price drop of 15.7 per cent. United Kingdom was ranked 42nd on an annual-change comparison (the price slide was 16.5 per cent) while the US was in 43rd position with a 16.9 per cent decrease.

India made it to the top 10 list; it was ordered fifth with a 5.1 per cent year-on-year price appreciation in Q1 2009.

The percentage changes are calculated in local currency terms and are hence not affected by fluctuations in exchange rates.

'There is sporadic evidence of buyers snapping up relative bargains. However, of those buyers in a position to move, many are still waiting for clearer signs that markets are approaching the bottom of the cycle,' Knight Frank said.

Fourteen of the 46 markets covered by the index had not reported Q1 data at the time of the writing of the report.

'The latest data suggest some easing in the plight of markets. On a quarterly basis, 48 per cent of the countries from whom we received Q1 data reported a drop in prices, compared to 88 per cent in our Q4 2008 index.

'On an annualised basis, 48 per cent of countries also showed a fall in values compared to 77 per cent in Q4. Given the high proportion of 'absentees' for Q1, however, it would be potentially misleading to jump to too many hasty conclusions, although over half had shown annual and/or quarterly price falls at the last time of reporting. Nonetheless, the shorter-term future direction of most underlying economies suggests that the world's residential markets are likely to continue to suffer for some while,' Knight Frank's report said.

The consultancy's director of research and consultancy in Singapore, Nicholas Mak, said that while there has been a pick-up in private home sales lately (with developers managing to inch up prices for better-selling projects), a sustained price recovery will hinge on an improvement in the jobs market. 'If expats are not coming into Singapore, the strength of the rental housing market will be affected and that will, in turn, affect investment demand for residential properties,' he added.

A developer said: 'While we are seeing price stability in the mass-market segment, I think the high-end sector will not stabilise until the perception of DPS-buyers defaulting clears away'.

The government scrapped the Deferred Payment Scheme (DPS) in October 2007.

The 30 to 40 per cent slide in high-end residential prices, coupled with more cautious bank lending to property investors, could mean that some DPS-buyers may not complete payments for units bought during the 2007 peak. A surfeit of such properties making their way back to the market could depress prices. While developers could take legal action against local buyers, they may have a harder time pursuing foreign buyers, especially companies registered in the world's tax havens.

Published May 29, 2009

Robert Kuok keeps top spot in M'sia rich list

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(KUALA LUMPUR) Kuok Group chairman Robert Kuok, who made his fortune trading sugar, retains his top spot among Malaysia's richest people, whose collective wealth dropped after a slump in the stock market, according to Forbes Inc.

Mr Kuok: His net worth fell to US$9 billion from US$10 billion last year, according to Forbes

Mr Kuok, 85, heads the 2009 Forbes Asia Malaysia Rich List with a net worth of US$9 billion, down from US$10 billion last year.

Ananda Krishnan, 71, owner of Malaysian wireless operator Maxis Communications Bhd, is the nation's second richest person with US$7 billion.

Coming in third with US$3.2 billion is Lee Shin Cheng, chairman of IOI Corp, Malaysia's second biggest palm oil producer by market value.

Mr Kuok and Mr Krishnan are the two richest people in South-east Asia, accounting for 44 per cent of the top 40's wealth, Forbes said in a statement.

Malaysia has nine billionaires who are collectively worth US$30 billion, or 84 per cent of the total wealth amassed by the country's top 40.

The total wealth of Malaysia's 40 richest people fell 22 per cent to US$36 billion from US$46 billion last year, in line with the 21 per cent drop in the Kuala Lumpur Composite Index.

Berjaya Corp chairman Vincent Tan was the only Malaysian to have dropped out of the billionaire's ranks after share prices in his companies declined. He takes the 10th spot on the list with a net worth of US$750 million. -- Bloomberg 

Published May 29, 2009

Malaysia is in a technical recession: Najib

PM forecasts growth in real GDP terms for 2009 of minus 4-5%

By S JAYASANKARAN
IN KUALA LUMPUR

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PRIME Minister Najib Razak said yesterday that Malaysia 'is in recession' and forecast a worse-than-expected growth in real gross domestic product (GDP) terms for 2009 of minus 4-5 per cent. This compares to Kuala Lumpur's previous estimate of flat growth.

'Yes, we are in a technical recession,' Mr Najib told reporters. 'The third quarter will be slightly negative, and we will be positive for the fourth quarter.'

Mr Najib, who is also finance minister, said that ultimate recovery would hinge on global growth. 'I'm afraid our recovery depends on the world economic recovery that is contingent upon what happens in Europe and the United States.'

But he sidestepped the question on whether the government would undertake a fresh fiscal stimulus. 'We will monitor the situation closely,' said Mr Najib.

His comments follow Wednesday's announcement of a steeper-than-expected 6.2 per cent contraction in Malaysia's first quarter. Even so, some economists think that the worst is probably over.

It was the country's steepest slide in eight years and the Wednesday announcement from the central bank shocked the market, where the consensus among private economists was around 4 per cent. Every sector on the supply side - except construction - was down and, on the demand side, private consumption spending declined for the first time since 1998.

The sharper-than-expected fall-off in Malaysia mirrors similar trends in the region where Singapore, Taiwan and Korea all experienced contractions of 10.1, 10.2 and 4.3 per cent in the first quarter respectively.

The downturn is also likely to be used as fodder for the opposition which is expected to blame the government for not acting sooner and could prove a stern test for Mr Najib. On Wednesday, Mr Najib moved to contain the damage by announcing the appointment of former banker Amirsham Aziz to head an Economic Advisory Committee.

Mr Amirsham, a former chief executive of Maybank, will have ministerial status and his six to eight man committee, comprising both local and foreign experts, will report directly to Mr Najib. Its main task, Mr Najib said, was to draw up the blueprint for a new, high value-added economic model for Malaysia.

Mr Najib's reasoning stems from the increasing agreement that the old Malaysian export-dependent model is passe. Even so, the good news about the severity of the downturn, according to private economists, is that it could precipitate a faster-than-expected rebound because of fresh government spending that is expected to kick in by the second half and greater consumer spending due to the 'wealth effect' of a bubbling equity market.

However, central bank governor Zeti Akhtar Aziz was cautious on Wednesday regarding the prospects of recovery saying only that she expected an upturn in the second half. But she also warned that a contraction of 'similar magnitude' could occur in the second quarter.

Manokaran Mottain, an economist from the Arab-Malaysian Banking Group, was considerably more upbeat than Ms Zeti and thought that growth could return more strongly than expected in the final quarter of the year.

'We expect improving demand for Malaysian-made goods from both the regional and industrial economies,' said Mr Manokaran. 'This will be translated into a reduced rate of export declines. However, given the severity in the first quarter, we expect the manufacturing sector to remain in negative territory at least until the middle of the third quarter.'

The economist predicted gradually decreasing contractions of 4 and 2 per cent in the second and third quarters and a strong 4 per cent breakout in the last quarter, establishing 2009 growth at an overall minus 2 per cent.

For 2010, the economist predicted that Malaysia would grow between 3 and 4 per cent, 'largely due to the global recovery and the accumulated impact of the various monetary and fiscal measures taken by the government'.

Published May 29, 2009

Audit on PKFZ finds poor governance

PwC report suggests restructuring RM4.6b govt loan to avoid default

By PAULINE NG
IN KUALA LUMPUR

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AN INDEPENDENT audit by PriceWaterhouseCoopers (PwC) on the scandal-tainted Port Klang Free Zone (PKFZ) has cast doubts as to whether its owner-operator Port Klang Authority (PKA) had obtained any value despite spending billions on the project, which it found to have been weakly managed with poor levels of governance.

The report, made public yesterday, suggested that immediate action be taken to restructure a government soft loan of RM4.6 billion (S$1.9 billion) to avoid a default by 2012, but noted that by deferring scheduled instalments to match PKA's projected cashflows, the project would incur an additional RM5 billion in interest costs, ballooning its total outlay to RM12.5 billion.

The massive cost overruns for a project that was initially expected to cost about RM2 billion - and even then, PwC noted that it could have been done for less if normal processes had been followed - and indications that Barisan Nasional politicians may have been involved in conflicts of interest, is certain to add to the government's political woes. The long-awaited report also appears to confirm what many dread - that the PKFZ could well turn out to be another costly white elephant, given that it is only 14 per cent occupied.

PwC observed that contracts were entered into without competitive bids, on the basis of estimated amounts and without detailed building plans. The entire project was also completed in two years ,contrary to the masterplan which recommended that it be built in phases. Other findings include the bypassing of government checks and balances, including vetting of the agreement by the attorney-general despite the significant amounts involved and PKA's lack of experience in projects of such nature; treasury guidelines were not adhered to; and letters of support (taken as guarantees) by the Transport Ministry were issued without the approval of the Ministry of Finance.

The report did not directly pinpoint the individuals responsible for the project which was to serve as a regional hub for the export and transhipment of manufactured goods, and was jointly marketed and promoted by Dubai's Jebel Ali Free Zone Authority (Jafza). Jafza pulled out half-way, citing political interference and bureaucratic red tape, according to a letter leaked to a media group.

But its findings disclose what it described as 'potential conflicts of interest' arising from the involvement of parties who had prior association with either the land sold to develop the PKFZ or Kuala Dimensi - the company to which PKFZ paid RM25 per square foot (psf) for the land after having earlier acquired the same for RM3 psf from a fisherman's cooperative.

It named Umno state assemblyman Abdul Rahman Palil - a member of the PKA board from 1997 to 2003 and president of the cooperative - who yet queried a proposal to compulsorily acquire the land for the PKFZ although it would have benefited PKA.

It also pointed out that PKA's board was not advised that the authority's previous chairman Chor Chee Heung - a Malaysian Chinese Association (MCA) politician - was at one time also deputy chairman of listed Wijaya Baru Global, a company related to Kuala Dimensi which was appointed as the main sub-contractor to develop PKFZ.

Another person named was Tiong King Sing, chairman of Parliament's Backbenchers' Club and a lawmaker from Bintulu, who is the controlling shareholder of Kuala Dimensi. The report noted that Kuala Dimensi and Wijaya Baru Global are related through a common shareholder and director - Mr Tiong, who controls 32 per cent of Wijaya Baru Global and 70 per cent of Wijaya Baru Holdings (the PKFZ turnkey developer) which in turn is the parent of Kuala Dimensi.

Incidentally, Azim Zabidi, former treasurer of the politically dominant United Malays National Organisation (Umno), is also a director of Kuala Dimensi.

The debacle has already snuffed out the political career of former transport minister Chan Kong Choy who opted not to contest in the general election last year, citing 'health reasons'. 

Published May 29, 2009

Just how robust will earnings be next year?

By R SIVANITHY

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IT appears that the pressing issue as far as stockmarket investors are concerned is either a) is this rally for real? or b) do budding 'green shoots' or a slowdown in the pace of economic deterioration signal a V-shaped recovery and if so, does this therefore justify buying heavily?

Both questions are undoubtedly important and indeed, investors have bet large amounts of money on the answer to either being 'yes'.

The crucial issue, however, one which observers - analysts and commentators alike - have not yet fully digested in their eagerness to go green is this: will corporate earnings be robust enough to justify continued rises in equity markets?

The answer depends on how strong economic growth will be in the future. Since there is no visibility for 2011 currently and because stock markets cannot be reasonably expected to discount further than six months ahead, the only estimates that can realistically be used today are for 2010. Doing this, however, presents problems for the green brigade.

Profits tend to expand in line with the underlying economy, so superior profits are logically the product of above-trend economic growth. While no one knows for sure when the US economy can lift itself out of its present mess - housing prices are still falling and unemployment still rising albeit at slowing rates - the current official forecast is for possibly one per cent growth in 2010.

Since this cannot be reasonably considered as above-trend, then by logical extension it's difficult to see Corporate America reporting solid, superior earnings next year. So if we accept that ultimately it is earnings that drive stock prices, the chances are not greatly in favour of Wall Street continuing its uptrend as we head towards the end of the year and into 2010.

Furthermore, as many observers have pointed out, the deleveraging process has only just begun and companies will have to expend lots of time and resources to repair their balance sheets. Although US banks now appear safe from collapse thanks to massive cash injections from the government, independent research firm Institutional Risk Analytics (IRA) recently reported that a staggering 1,575 US banks incurred losses in the first quarter - an abnormally high number which suggested to IRA that the US banking sector is far from as healthy as US officialdom would have the world believe. Investors should, therefore, note that a stable, propped-up US banking sector does not automatically translate to a profitable US banking sector.

As for the local market, much depends on how this region grows in the absence of a sustainable US economic recovery. In this connection, chances are high that in the weeks ahead, brokers will seek to revive the 'Asia is decoupled from the US' theme that sold well during 2004-2006, pinning their hopes on a supposedly resurgent China replacing the US as the engine of growth for this part of the world.

However, it would be wise to extrapolate from the slew of rights issues and placements flooding the market that companies here - as will surely be the case in the US and other parts of the world - are seizing the opportunity presented by the green shoots rally of the past 11 weeks to deleverage by raising large sums of capital that they might otherwise have raised through debt.

While analysts so far have focused on the balance sheet benefits of these capital-raising exercises - most have issued 'buys' for the stocks concerned - the large number of shares being issued will have the effect of depressing earnings per share. If earnings are already going to be depressed by a stagnant economy, this could then result in the rally stalling.

Investors should, therefore, be mindful that it's all very well to bank on green shoots for now, but it is earnings that hold the key to continued market performance. As things stand now, earnings will likely not be as strong as hoped, green shoots nothwithstanding. 

Published May 29, 2009

An optimist sticks by his forecast

Daiwa's Basu says GDP contraction may be just 3.3%

By ANNA TEO

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(SINGAPORE) Now that leading US economists have the end of the recession in sight - and Singapore's manufacturing output actually turned in April - the optimists can now breathe again. Or so it seems.

Not that too many optimists have stuck around of late, but P K Basu has tended to stick out with his rather more bullish than most views and forecasts of the economy - and stick with them too.

With market forecasts largely within the official projection of a 6 to 9 per cent GDP contraction for 2009, the Daiwa Institute of Research's Asia (ex-Japan) chief economist is a clear outlier with his minus-3.3 per cent call for Singapore.

'I don't think it's particularly far-fetched now, given the turnaround in manufacturing,' he told BT on Wednesday.

Data released this week show that Singapore's industrial output shrank 0.5 per cent in April - a big improvement from March's near-33 per cent plunge, and the best figure since last September. Against March, April's output rose nearly 25 per cent in adjusted terms.

While the April upturn rode on a 78 per cent jump in the volatile pharmaceutical output, it was 'not just pharma-driven', Mr Basu pointed out.

'Electronics are clearly improving, as they are elsewhere in the region, notably Taiwan and Korea. Ship and aircraft-repair (transport engineering) has returned to y-o-y growth.

'Business expectations surveyed in March were decidedly better, and I think a survey conducted now would reveal a further improvement in prospects. The impact of the fiscal stimulus (subsidies for trade finance, SMEs, Jobs Credit) should also begin to have a positive impact in subsequent months.'

But the pharma segment is notoriously difficult to forecast, he conceded. 'But I think we will have four pillars of manufacturing by next year - electronics, pharmaceuticals, transport engineering and petrochemicals, the big new emerging pillar, set to grow phenomenally in 2011 to 2014'.

He believes the April industrial output turnaround possibly marked the end of a year-long manufacturing recession, though the next two months' data bear watching. 'But we expect at least a modest quarter-on-quarter expansion in manufacturing output during Q2 2009,' he said.

Mr Basu lowered his forecasts of most Asian economies' 2009 GDP growth - including Singapore's, to minus-3.3 per cent - in February after the US outlined an initially 'disappointing' action plan to tackle the financial crisis.

On the projected 3.3 per cent contraction, he said: 'Our forecast is much higher than the market consensus because we believe that the huge fiscal stimulus will preserve jobs and renew the flow of risk capital to those segments (smaller enterprises and trade finance) that have been hurt most by the global credit crunch, and so help mitigate the impact of the global downturn on Singapore's economy.'

Overall, 'we believe the early shoots of an economic recovery should be evident in Q3 2009, and that the bottom of the current economic cycle will be in the current quarter', a recent Daiwa report said.

In its latest outlook released this week, the US' National Association for Business Economics' panel of 45 economists predict that the recession will end 'soon', within 2009.