Sunday, July 16th, 2017
PETALING JAYA: The recent slew of retail outlet closures have raised the question of whether the retail industry in Malaysia is shrinking amid weak consumer sentiment and a challenging economic environment, but retailers are convinced that the situation is far from worrying.
Malaysia Retail Chain Association (MRCA) deputy president Valerie Choo opined that the number of closures may be slightly higher now but stressed that it is not abnormal, adding that there may be brands that do not suit the local market but are successful elsewhere.
On July 5, Bulgogi Brothers announced its closure in Malaysia. Just several days earlier, Texchem Resources Bhd’s 51%-owned subsidiary Dim Sum Delight Sdn Bhd, which operates the Tim Ho Wan restaurants in Malaysia, ceased operations. On June 9, True Fitness Malaysia announced on its website the closure of all its gym and spa facilities in Malaysia after having ceased operations in Thailand. Korean bakery chain Tous Les Jours shut down its four outlets in the Klang Valley effective May 25.
Choo said most of these brands are international franchise brands, which have a much higher raw material cost structure and operating cost.
“Firstly, their (international brands’) products are mainly from overseas. When they buy, there’s the ringgit factor. Most of the time, international brands will bring in expats, so that is where your salary cost and operating cost will be higher. Hence, the tendency of closing down may be higher for an international brand. They benchmark each other in many countries and if certain countries are non-performing, then it is tough for the principals,” she told SunBiz.
Choo said although the principals are usually a parent with strong financial muscle, the international brands in Malaysia are owned by a master franchisee, technically Malaysian companies that own the licence to operate here.
“The ones that are closing are Malaysian-owned companies. It won’t affect their brand in that sense, as they still have presence in other countries, but it is a measure that they take to maintain their brand. To the principal, it’s not much of loss, but to the master franchisee, perhaps they have to close because they can’t generate the kind of profit required,” Choo explained.
“Getting an international franchise will also be more expensive. Of course master franchisees who take up the brand are themselves financially strong as well. But if the business is not viable, somehow they have to close. But it is not too worrying because you don’t see a huge flux of brands leaving Malaysia or closing down. Certain trades or companies may be more affected than the rest here,” she added.
Choo said this phenomenon is not unique to Malaysia, but is happening due to the country’s slowing economy and consumer spending, coupled with the weak ringgit.
“If you’re buying from other foreign currencies and you pay in ringgit, it’s the conversion rate that is killing (you),” said Choo.
She said although some brands are exiting, there are also many entering Malaysia.
“A lot of overseas brand owners are confident here and find that Malaysia is a good place to start their flagship stores. Malaysia is still one of the strategic locations for new brands to enter Southeast Asia. It’s just that the current scenario has a bit of hiccups,” said Choo.
Pavilion Elite, a newly opened retail landmark project adjacent to Pavilion Kuala Lumpur, houses first-in-Malaysia stores such as ABC Cooking Studio, COS, Lukfook Jewellery, Simmer Huang, The Planet Traveller, The Wallet Shop and VLV Life. Pavilion Elite also houses brands with their flagship and biggest stores, including Coach, Huawei, Lego, Muji and JD Sports, King of Trainers. Brands that are opening soon include Lululemon, MAX, 6ixty8ight, Hotwind, HLA, Defacto and LC Waikiki.
Melawati Mall, which will open on July 26, will also see the opening of many food and beverages (F&B) brands.
Choo said the F&B market is competitive and international brands generally have good quality and branding but may not be able to compete on price. “But this situation is not peculiar to the Malaysian market. Singapore and Hong Kong market also face a similar situation.”
Malaysian Franchise Association exco Deric Yeo said the closures are normal in this economic environment.
“It’s not only these few brands that are closing, but also other brands that are not as famous as those exiting. It’s just that they are not being highlighted. It’s normal, but it is also because of the economic situation. The overall sentiment of the retail market is low at the moment. It’s a fact,” Yeo told SunBiz.
He said Malaysia is not the only country affected as it is a global situation, with the Middle East and Singapore also reportedly feeling the squeeze.
Yeo concurred that F&B is challenging, but pointed out that in the sector, foreign investors are looking to take Malaysian halal brands overseas.
KUALA LUMPUR: Malaysia and Indonesia plan to raise the prospect of European Union (EU) curbs on the imports of palm oil with the World Trade Organisation (WTO), both countries said in a joint statement yesterday.
A resolution by the European Parliament in April called for the EU to phase out by 2020 the use of vegetable oils in biodiesel that are produced in an unsustainable way, leading to deforestation.
The resolution includes palm oil, an important commodity for Indonesia and Malaysia, which produce nearly 90% of the world’s palm oil.
The statement, following a meeting between Malaysia and Indonesia’s trade ministers, said the two Southeast Asian countries would meet at end-July to “discuss and coordinate” palm oil issues, including organising a joint mission to Europe to “engage with relevant parties and stakeholders”.
The two nations will coordinate plans via the Council of Palm Oil Producing Countries, a joint initiative by Malaysia and Indonesia to work together in managing stockpiles and supporting prices.
“Malaysia and Indonesia will consider taking this issue to the World Trade Organisation if the Resolution becomes an EU Directive and discriminatory in nature,” said the joint statement, issued by the Malaysian Ministry of International Trade and Industry.
The palm oil industry has faced widespread criticism in recent years for its links to deforestation and is often accused of annual haze outbreaks in the region due to open burning being used as a cheap way to clear land.
France said earlier this month it would take steps to restrict the use of palm oil in producing biofuels.
Malaysia has called the move discriminatory and said it would review its trade with France. – Reuters
KUALA LUMPUR: Perusahaan Otomobil Kedua Sdn Bhd (Perodua), which is on track to achieve its sales target of 202,000 vehicles by year-end, is cautiously optimistic of sustaining growth in the remaining part of the year.
“Our market share is around 35.1% currently, and as far as we are concerned, we would like to defend that (amount of) market share for this year,” Perodua’s president and CEO Datuk Aminar Rashid Salleh said at a media briefing last Friday.
“Under the current situation, we are cautiously optimistic that we will be able to achieve the 202,000 units sales target, driven by our on-going sales campaigns,” he added, noting last year, Perodua sold 207,100 vehicles.
From January to June 2017, Perodua sold 99,700 vehicles, an increase of 2.4% compared to the same period last year of 97,400 units, with the Axia being the most popular model.
Aminar said the increase in sales during the first six months was due to aggressive sales campaigns initiated during the period.
Going forward, he said the group will focus on its current model line-up by offering attractive promotions for the consumers, and continue the initiatives to improve its after-sales business operations.
Aminar, meanwhile, said the group is currently studying the sports-utility vehicle (SUV) segment for its products line-up.
“SUV seems the ‘flavour of the day’, so it is something that we are looking at…whether to proceed or not, it depends on the study,” he added.
During the first half period, Aminar said the group observed that the total industry volume improved by 2.3% to 284,200 units, from 275,500 vehicles a year ago, as most auto players were clearing the carry over 2016 stocks with attractive discounts and over trade.
However, despite the improvement in sales, he said the group foresees the tighter lending guideline as still its greatest challenge, as most of its customers are first time buyers.
Meanwhile, Aminar said its export volume dropped 30%, mainly due to lower demand from Indonesia, noting Perodua shipped 1,854 units to six countries during the first half.
Moving forward, he said the group is looking to re-strategising its export plan in order to improve the volume.
Last year, Perodua exported 4,696 vehicles. Its export markets currently include Indonesia, Sri Lanka, Mauritius, Singapore, Fiji, as well as Brunei.
“The recent introduction of the Bezza in Mauritius and Sri Lanka has been well received with the model selling eight units and 79 units respectively,” Aminar said.
PETALING JAYA: AmResearch has initiated its coverage on Luxchem Corp Bhd with a ‘buy’ recommendation and a fair value of RM2.74, underpinned by its sound financial standing and cash generative business.
The fair value implies an upside of 31% while dividend yield is decent at 4%.
Luxchem is a supplier of industrial chemicals that operates in two segments: trading and distribution of petrochemicals and other products related to rubber, latex, fibreglass reinforced plastics, coating, ceramic and polyvinyl chloride (PVC) industries; and manufacturing of unsaturated polyester resins and various specialty chemicals for the latex industry.
AmResearch expects Luxchem’s net profit to grow from RM43 million in FY16 to RM58 million in FY19, representing a three-year compound annual growth rate (CAGR) of 10%, premised on rising glove demand underpinned by stricter hygiene standards; good visibility from the PVC segment given the steady growth of intermediate inputs in the construction industry; and capacity expansions in the group’s manufacturing arms.
Luxchem has a diversified clientele of close to 1,000 customers. AmResearch said its large customer base mitigates the concern of supplier switching and excessive reliance on clients’ performance. In FY16, there was no single customer that contributed more than 10% of the group's revenue.
Currently, the group is striving to grow its export markets. “Management’s effort is already coming to fruition, evinced by a CAGR of 19% in its export revenue from FY13 to FY16, outpacing the growth of its domestic sales (7% CAGR),” said AmResearch.
As at end-March 2017, Luxchem was in a net cash position of RM15 million, which represents 4% of its total assets. Luxchem has consistently generated sufficient/excess cash flow from operations to finance its cash flow from investing.
Last Friday, the stock closed 10 sen or 4.8% higher at RM2.19 on 1.82 million shares done, for a market capitalisation of RM612.29 million.
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