Published November 11, 2009

Maxis valued at RM37.5b ahead of IPO

That will make telco Malaysia's fourth largest company by market cap

By S JAYASANKARAN
IN KUALA LUMPUR

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MALAYSIA'S, and the region's, largest initial public offering gathered traction yesterday after a book building exercise valued Maxis, the country's largest telco, at RM37.5 billion (S$15.4 billion) with an enterprise value of RM42.5 billion.

Leading the pack: This will be the largest listing in Malaysian, and Asean, history. It will also be the largest telecom offering in the Asia-Pacific region since 2000.

At the close of the exercise yesterday, institutional investors paid RM5 a share while retail investors will pay RM4.75, netting RM11.2 billion for Maxis.

The result will be the fourth largest company by market capitalisation on the Malaysian stock exchange.

The telco offered 2.25 billion shares to investors, representing 30 per cent of the shares sold by its parent, Maxis Communications. The latter is majority controlled by tycoon T Ananda Krishnan while Saudi Telecom owns 25 per cent.

The listing will register a number of firsts. This will be the largest listing in Malaysian, and Asean, history. It will also be the largest telecommunications offering in the Asia-Pacific region since 2000.

Mr Krishnan's timing could not have been better. His IPO comes at a time when the US and Asian stock markets are at year-highs and, indeed, Maxis leads several big Asian names going to market.

Together with China's Minsheng Banking Corp and casino firm Sands China Ltd, Malaysia's largest telco is expected to lead more than US$10 billion in share sales in Asia.

In fact, analysts expect more than 30 companies planning to list in either Hong Kong or India over the next few months to take advantage of the vastly bullish markets worldwide.

The IPO from Maxis is expected to be followed by a US$2 billion listing of CapitaLand's shopping mall trust in Singapore later this month as issuers tap into investor demand ahead of 2010 which is expected to be economically more uncertain

Maxis's listing comes just two years after the company was taken private by Mr Krishnan, who owns power, gaming, entertainment and media assets in Malaysia and elsewhere.

The billionaire is said to be Malaysia's second richest individual - after magnate Robert Kuok - with a net worth estimated by Forbes magazine at US$7 billion.

Maxis's valuation at about 16 times 2009 earnings is the highest among Malaysian telecommunication firms. DiGi.com trades at a price-to-earnings multiple of 14-15 times 2009 earnings while Axiata, which is owned by Telecom Malaysia with regional growth exposure, trades at 13-14 times.

But analysts said that Maxis's first-year dividend, at least, could hit a 10 per cent yield which was why it was snapped up the way it was.

Whether the company can sustain that initial trend is the question although its initial promise - that of a 75 per cent payout of earnings - would still result in a 5-6 per cent yield.

Still, the newly minted Maxis is a stripped down version of the original as it will house just the Malaysian business, leaving the fast-growing Indian and Indonesian operations with its unlisted parent, Maxis Communications Bhd.

Published November 11, 2009

Midas posts 17.4% rise in Q3 profit

Higher gross margins and profit share from associate drive earnings

By OH BOON PING
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MIDAS Holdings has reported a 17.4 per cent rise in its net profit to $9.4 million for the third quarter ended Sept 30, thanks to higher gross margins and profit share from an associate.

The three months saw revenue rise 3 per cent to nearly $37 million while earnings per share was 1.01 cents, up from 0.95 cent. For the first nine months of the year, its net profit rose 12.9 per cent to $27.35 million from $24.23 million a year ago, even though revenue fell 3.9 per cent to $106.2 million.

Contributing some 95 per cent of total revenue, its aluminium alloy division saw a 7.8 per cent increase in revenue from $32.6 million in Q3 2008 to $35.2 million in Q3 2009. The transport industry accounted for 63.1 per cent of the division's revenue, while the power industry and the 'others' segment made up 18.7 per cent and 18.2 per cent of the nine-month total revenue respectively.

Gross profit margin for the aluminium alloy division increased from 34.2 per cent in Q3 2008 to 41.1 per cent in Q3 2009, due to a decline in raw material costs. The group's gross profit margin rose to 40.2 per cent from 33.9 per cent.

In addition, share of profits of an associate contributed $927,000 - up from $51,000.

Since June, its aluminium alloy division has secured more than one billion yuan (S$204 million) worth of contracts, including high speed train projects, metro train projects and international projects in the Middle East.

In addition, it also secured its first downstream fabrication contracts during the same period.

Midas said that it is in the process of expanding its capacity to meet the impending demand as China's Ministry of Railway continues to invest heavily in railway projects.

By the end of next year, Midas expects to have a total of five production lines and total annual production capacity of 50,000 tonnes - up from the current two production lines and annual production capacity of 20,000 tonnes.

According to Midas, plans are afoot in many cities to roll out new metro train projects or expand their existing metro train systems.

'Our associate company Nanjing SR Puzhen, being one of the four Chinese licensed manufacturers of metro train, is expected to be a direct beneficiary of these plans.'

The group has also declared a third interim cash dividend of 0.25 cents per ordinary share.

Midas shares rose 2.5 cents to 0.85 cents yesterday.

Published November 11, 2009

SIA posts Q2 net loss of $159m

Fuel hedging losses, poor yields cited; loss lower than Q1's $307m deficit

By VEN SREENIVASAN

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A COMBINATION of fuel hedging losses and poor yields has led Singapore Airlines to post a second consecutive quarterly loss.

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

But the net loss of $159 million for the July-September second quarter - against a net profit of $323.8 million a year ago - was significantly lower than the $307 million of red ink in SIA's Q1 ended June.

Q2 group revenue of $3.08 billion was 30 per cent down from last year's $4.4 billion, but 7.3 per cent up from Q1's $2.9 billion.

For the first half, SIA posted a net loss of $465.9 million, versus a net profit of $682.4 million a year back. The latest H1 result was on a 30 per cent drop in topline revenue to $5.95 billion, from $8.55 billion in April-September 2008.

Rising jet kerosene prices pushed up expenditure in the latest Q2 by $73 million or 2.3 per cent from the previous quarter. And fuel costs ex-hedging were $202 million higher than the previous quarter at $942 million.

But the pick-up in fuel prices helped reduce SIA's fuel hedging loss by $87 million to $200 million; during its first quarter, SIA posted a hedging loss of $287 million.

On the operating front, yields continued to remain under pressure.

Q2 passenger yield was 9.8 cents/kilometre, versus 10.2 cents during Q1. On a year-on-year basis, Q2 yield was down 23.4 per cent, versus a 17.7 per cent annual fall in Q1.

The average yield for the first half was 10 cents/km, a 21 per cent drop from a year earlier.

Despite capacity cuts, the Q2 passenger load factor was 79.6 per cent, versus a breakeven level of 88.8 per cent. Still, this was a sequential improvement from the load factor of 71.6 per cent in Q1. For the first half, the passenger load factor was 75.6 per cent, versus a breakeven of 86 per cent.

The operating results of the main companies in the SIA Group for the half-year are:

Singapore Airlines - operating loss of $428 million (versus profit of $495 million in 2008)

SIA Engineering - operating profit of $47 million (versus profit of $57 million in 2008)

SIA Cargo - operating loss of $193 million (versus loss of $76 million in 2008)

SilkAir - operating loss of $5 million (versus profit of $5 million in 2008).

SATS Group ceased to be a subsidiary of SIA on Sept 1 but contributed $71 million to the group operating profit in the April-August period.

SIA's equity attributable to equity holders decreased $1.5 billion or 10.6 per cent to $12.5 billion at end-September. And total group assets fell $2.9 billion or 11.7 per cent to $21.9 billion, mainly due to the $2.05 billion divestment of SATS Group.

Still, SIA had $3.5 billion in cash at end-September.

In its forward-looking statement, SIA said advance bookings indicate demand for air travel has stopped declining and is gradually recovering.

'The capacity programmed for the remainder of the year appears well matched to the demand,' it said. 'The market conditions allow for some rollback of promotional pricing but yields are unlikely to get back to pre-crisis levels within the next six months.'

For the October-March half of the current financial year, SIA has hedged 3.5 million barrels of jet fuel - about 20 per cent of projected uplift - at an average price of US$100 a barrel.

'If the recent rise in the price of fuel does not retreat, hedging losses will be reduced, but conversely operating cost will be higher,' it said in a statement.

The latest results translate into net asset value per share of $10.51 at end-September, versus $11.78 at end-March 2009. No interim dividend has been declared.

Published November 11, 2009

Can SGX manage the conflict?

By MICHELLE QUAH

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IT HAS been reassuring to learn how the Singapore Exchange's (SGX) Regulatory Conflicts Committee (RCC) reviews perceived and actual conflicts that could arise from the exchange's status as a self-regulated organisation and its dual role as a listed company and a market regulator.

Among various things, the committee looked into how SGX handled the recent lapses at S-chips here and scrutinised deals sponsored by the Prime Partners Group, which is linked to outgoing SGX chief executive Hsieh Fu Hua, committee chairman Robert Owen told BT recently in an interview.

But, as reassuring as it has been to hear of how such conflicts are dealt with, it has (to some) served to further drive home the point that Singapore needs a separate regulator to police the market.

For one thing, a committee of just three independent directors - none of whom is full-time on the task - may not be enough to stay on top of all the regulatory issues SGX has to deal with and all the conflicts of interest it may run into.

Then there's the perception issue. In a marketplace, integrity and reputation count for everything - a point highlighted by Mr Owen: 'It is in the interest of the exchange and its shareholders that the exchange maintains its reputation for regulatory integrity and high standards.'

Such a need becomes more urgent in times of crisis - when the incidence of corporate scandals and failures increases, making for a riskier marketplace and a more challenging regulatory environment. To this end, the perception of having a truly independent and forceful market regulator is vital.

A committee of just three independent directors might be sufficient for handling issues on the scale of reviewing deals sponsored by the Prime Partners Group, for instance, but it is scarcely enough to stay on top of bigger issues.

Already, critics have pointed to the slew of S-chip debacles that have occurred here: China Aviation Oil, China Sun Bio-Chem, China Printing & Dyeing, Oriental Century, FibreChem Technologies and Sino-Environment, to name the most recent.

And, with the market continuing to grow and develop - as the exchange courts more new listings, enters into more tie-ups with other exchanges and launches innovative products to keep abreast of the competition - will the RCC be able to stay on top of it all?

According to SGX's annual report for the financial year ended June 30, 2009 (which covered the period in which the global financial crisis was in full swing), the RCC met a grand total of two times that year. One wonders if that was sufficient to look into all the regulatory issues and conflicts, and if a dedicated regulatory organisation would be better able to devote the time and resources needed to field the pressing issues that occurred during that difficult period.

There's also the perception of just how independent this conflicts committee is. Mr Owen, while he sits on several boards such as IB Daiwa Corp and Crosby Asset Management, is not connected to any SGX member or listed company and can be deemed independent.

But another member Euleen Goh, ex-CEO of Standard Chartered Bank Singapore, now sits on the boards of listed companies Singapore Airlines and DBS Group Holdings. The third member, Liew Mun Leong, is chief executive of CapitaLand (a company listed on SGX) and deputy chairman of the various CapitaLand trusts listed on SGX.

While the Monetary Authority of Singapore (MAS) deems a director independent as long as he is free from any business and management relationships involving SGX as well as being free from any relationships with SGX member firms or its related companies, these members of the committee could end up looking into issues involving or connected to their companies or even rival companies.

The Code of Corporate Governance (which is a best practices guide for listed companies) states that a director is deemed independent only if he is not linked to the company or a related company in any way. Perhaps a leaf could be taken out of the Code's book in determining the independence of SGX directors. While it doesn't specifically state that an SGX independent director cannot come from a company listed on the exchange, the spirit of the Code suggests that there's enough of a relationship to deem the director to be not independent.

Having RCC members abstain from their duties, when their companies are involved, is not the solution either, as that would leave the committee with just two people - or even one - to resolve the issue.

It would be preferable to have the entire committee made up of truly independent members, or to have a separate independent body in charge of regulating the market.

Having a separate market regulator would also mean that the exchange gets to operate purely as a commercial entity. While SGX has done well for itself, one has to realise that the competition among stock exchanges is very real. Before the current crisis hit, global exchanges were upping the ante by launching alternative markets and innovative products, and by taking stakes in each other or joining forces with other exchanges - and one can be sure that they'll continue to do so once the worst is over.

It's about time MAS, which is ultimately responsible for the regulatory framework here, considers setting up a separate, well-manned and authoritative body to regulate the market. At the very least, the perception of having a strong, independent regulator will count for much.

Published November 11, 2009

All tools to avoid property boom, bust

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FINANCE Minister Tharman Shanmugaratnam yesterday said the government will use every tool at its disposal 'in a calibrated fashion' to prevent boom and bust in the property market. One day after the Monetary Authority of Singapore served notice of further action to cool the housing market if needed, in the face of growing speculation risks, Mr Tharman spoke about the need to manage the property cycle.

It won't involve macroeconomic levers such as the interest rate or exchange rate, though, as such tools apply across the board to businesses at large, not just the asset markets.

'But we do have other tools like credit rules, land supply decisions and, in the extreme, tax policies, which we will use in a calibrated fashion depending on the circumstance, depending on the stage of the asset market.' He was speaking about managing volatility generally at an Economic Strategies Committee industry forum when he cited the property market. 'We will keep our eyes on the ball and use every tool at our disposal in a calibrated fashion to try to manage . . . as best as we can,' he said.

But it's 'very hard to anticipate four to five years in advance what's going to happen globally, regionally and hence within this global city', he said, recalling how the government did pay heed to market signals of a supply glut in the property sector a few years ago, but found instead, by 2006 and 2007, a severe shortage, especially in the office market.

Published November 10, 2009

Najib sets 6% growth target after recession

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(KUALA LUMPUR) Malaysia will target average annual economic growth of about 6 per cent when the nation recovers from its recession, less than the pace needed to achieve the country's development goal, Prime Minister Najib Razak said.

'I have to be realistic because things are getting more and more difficult for us to achieve a higher growth rate,' Mr Najib told reporters in Putrajaya, outside Kuala Lumpur yesterday.

Malaysia's economy needs to grow 9 per cent annually to reach its target of being a developed nation by the year 2020, the prime minister said in a prepared speech earlier yesterday.

He said in August gross domestic product needs to expand 8 per cent a year over the next decade to meet that goal.

Asian nations from China to Singapore are recovering from the worst global recession since the 1930s after policy makers cut interest rates to record lows and boosted public spending to revive growth. Mr Najib said last week Malaysia may emerge from its recession earlier than the government previously predicted as the outlook for growth in the third quarter 'brightened.'

How Malaysia performs will depend on the export market, Mr Najib said. The country's exports slumped 24.2 per cent in September from a year earlier.

'We are not fully recovered from the recession,' he said. 'When the global economy recovers, there will be demand from the West and certainly our manufacturing sector will do better and we can achieve higher growth.'

Malaysia will unveil a new economic model by year-end, with communications and technology playing a greater role, Mr Najib added.

The prime minister said on Oct 23 that Malaysia's US$195 billion economy may shrink 3 per cent this year, less than an earlier forecast for a contraction of 4 per cent to 5 per cent. The government expects GDP to expand as much as 3 per cent in 2010. - Bloomberg

Published November 10, 2009

End of road for GM-DRB tie-up to distribute Chevys?

GM decided on split last week amid disagreements, say car industry execs

By S JAYASANKARAN
IN KUALA LUMPUR

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A TWO-YEAR partnership between General Motors (GM) and Malaysian conglomerate DRB-Hicom to distribute the US carmaker's Chevrolet brand in Malaysia could be terminated by next month following an apparent breakdown in relations between the two parties.

Syed Mokhtar: For its part DRB-Hicom, controlled by Syed Mokhtar, seems to have done well only in areas where its foreign partner both controls and manages the JV

According to car industry executives, the disagreements between the two are widely known. Indeed, in September a local daily reported that GM had terminated the partnership, but the report was refuted by DRB-Hicom in an announcement to the stock exchange.

But the car executives said that they had heard that GM had made up its mind last week.

Whether the recently announced National Auto Policy (NAP) has anything to do with influencing GM is not clear.

The NAP allows foreign carmakers to manufacture cars - either by themselves or through contract manufacturing - without any equity restrictions, which means GM could conceivably begin assembling its cars in Malaysia - or, say, pay Proton Holdings to do it - without any bumiputra partner.

Even so, that would apply only to GM's best-selling brands and not, say, the Captiva sports utility vehicle which sells too little to justify being assembled locally.

That would still require GM to team up with a suitable bumiputra partner who would be eligible to apply for the necessary Approved Permits, the import licences that are required to bring in completely built-up vehicles.

Analysts note, however, that the latter scenario would hold true if GM only intended to sell in Malaysia. 'If it wanted to make Malaysia its regional hub, that's a completely different story,' a car industry executive told BT.

For its part DRB-Hicom, which is controlled by tycoon Syed Mokhtar Al-Bukhary, seems to have done well only in those areas where its foreign partner both controls and manages the joint venture.

In its Suzuki business, which is doing well, DRB-Hicom has moved to a minority stake from a majority interest. In Mitsubishi, DRB-Hicom has a 48 per cent stake.

Even at Isuzu, the Malaysian conglomerate has had to accept a minority interest where it used to run the show previously. The new joint venture is said to be profitable.

DRB-Hicom's most successful joint venture is with Honda where it has a 34 per cent interest. It also assembles Mercedes Benz at its plant in Pahang in operations that are largely managed by the Germans, say car executives.

Even so, analysts do not think its split with GM will harm DRB-Hicom significantly. Slightly less than a thousand Chevys were sold in Malaysia last year.

Published November 10, 2009

HLF stirs waters, cuts HDB home loan rates

DBS says it, too, is offering revised low rates; OCBC says it remains competitive

By SIOW LI SEN

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(SINGAPORE) Hong Leong Finance (HLF) has slashed its HDB home loan rates in a bid to undercut the competition amid a low interest rate environment, but it seems some banks might have been even quicker on the draw.

'The revision in rates is to ensure that our package is one of the lowest in the market.' - HLF spokeswoman

Yesterday, HLF said its latest HDB home loan rates are 0.50 per cent lower than its last promotional rates.

It now offers variable rates at 1.33 per cent, 2.13 per cent and 2.83 per cent for the first, second year and third year respectively. The variable rates are based on a board rate which currently stands at 4.25 per cent. Its new two-year fixed-rate package charges 1.63 per cent and 2.63 per cent in the first and second year respectively, totalling 4.26 per cent.

But rival DBS said it too has new lower home loan packages applicable to both HDB and private properties. A DBS spokeswoman said the bank 'just' revised its home loan rates.

DBS's variable package charges the same 1.675 per cent based on three-month Sibor plus one per cent for every year of the loan. The three-month Sibor or Singapore interbank offered rate is 0.675 per cent. Borrowers can also opt for a two-year fixed rate at 1.88 per cent for both years which amounts to 3.76 per cent.

At OCBC, the variable rate for three years is the same 1.66 per cent each year and based on its board rate of 4.5 per cent. Those who want a two-year fixed can pay 1.99 per cent per year.

'OCBC Bank's home loan packages will remain competitive to respond to market conditions,' said Phang Lah Hwa, head of consumer secured lending, OCBC Bank.

HLF, Singapore's largest finance company, said the new rates apply until the end of the year and are for up to 80 per cent financing.

'The revision in rates is to ensure that our package is one of the lowest in the market,' said an HLF spokeswoman.

'We hope that with the new rates, our customers will continue to support us and allow us to capture a bigger slice of the HDB market which is presently very active and healthy,' she said.

HLF said customers who sign on with a minimum loan of $200,000 will also get a choice of KrisFlyer air miles or dining vouchers with five hotels in Singapore.

'There has been an increasing demand for HDB flats and we pride ourselves with moving with the market and the changing needs of our customers,' said Ian Macdonald, HLF president.

'Response to Hong Leong Finance's earlier home loan promotion has been very encouraging and we are confident that the new rates will perform just as well,' he added.

Published November 10, 2009

More action may be needed if recent property measures inadequate: MAS

Risk of speculation escalating as market expects low interest rates to persist

By CONRAD TAN

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(SINGAPORE) Further action to cool the Singapore property market may be needed if recent measures to dampen speculation prove insufficient, the Monetary Authority of Singapore said yesterday.

Related link: MAS Financial Stability Review November 2009

Looking ahead, 'price levels and transaction activity bear close monitoring', MAS said in its yearly Financial Stability Review, published yesterday.

'As Singapore emerges from recession and with the market expecting low interest rates to persist for some time, the risk of a renewed escalation of speculative momentum cannot be discounted.'

Despite lingering uncertainties in the economic outlook for Singapore and the rest of the world, 'the domestic property market activity has taken on its own dynamic', MAS said in a special section in the report highlighting what it sees as the key risks to Singapore's financial system.

Other downside risks centre on the sustainability of the global economic recovery after governments start to withdraw their fiscal stimulus and tighten monetary policy, MAS said.

'Should growth turn out weaker than expected, property buyers and speculators could face capital losses as the market corrects. Conversely, if the recovery stays on course, interest rates will eventually rise and drive up financing costs with severe implications for those who have overextended themselves,' it said elsewhere in the report, commenting on the recent sharp rise in private home prices.

'While the market rebound may appear to be aligned with improved prospects for the domestic economy, the current low interest rate environment has also played a part by reducing the cost of property financing,' MAS said.

'If unchecked, this could lead to a rising spiral of demand and prices as more and more property buyers and speculators are drawn into the market, and expose the property market to the continuing risks in the global economy.'

The steep increase in property prices here in recent months has already prompted the government to act to discourage speculation.

In September, the government banned interest-only housing loans and the interest absorption scheme that allows developers to absorb interest payments for apartments that are still being built.

It also restarted the confirmed list of the Government Land Sales programme in the first half of next year to meet the strong demand for private homes.

Unlike sites listed on the reserve list, confirmed-list land sites are put up for sale at a pre-determined date, without the need for the sale to be triggered by an application from developers.

Last Friday, the National Development Ministry said that it would place eight residential sites on the confirmed list for the first six months of next year.

That definite increase in residential land for sale is expected to have a dampening effect on overall home prices.

'We would view the comments made by the MAS as more of a pre-emptive signal for now,' said Donald Chua, an equity analyst at CIMB here in a note to clients.

'A low interest rate environment coupled with strong property demand has led to fears of rising speculative activity.'

However, since the recent measures to discourage speculation were announced, 'the euphoria on property has clearly cooled down in recent months, which should lead to more normalised property demand', he added.

If the latest measures aren't effective in curbing home price increases quickly enough, the government's next step could be to reduce the limit on how much of a property's price may be financed with a bank loan, from 80-90 per cent now, Mr Chua said.

Banks' loan exposures to the property sector remain in line with historical trends, MAS said.

Its most recent aggregate bank lending data show that half of all Singapore-dollar bank loans at the end of September were to the broad property sector, with business loans to the building and construction sector making up 17.8 per cent of total bank lending, and consumer housing loans contributing another 31.6 per cent.