Thursday, August 24th, 2017
KUALA LUMPUR: Malaysian corporates have “lazy balance sheets” whereby they are not putting their equity to work, not embarking on enough mergers and acquisitions (M&As) overseas and not divesting enough of their non-core assets, said management and consulting firm Bain & Company.
Its partner and Asia Pacific head of financial investors practice Suvir Varma (pix) said Malaysian listed companies are sitting on a US$71.9 billion (RM308 billion) cash pile.
“What’s the value of holding all the cash on the balance sheet? A shareholder advocate would say you either return the cash to your shareholders or you do something with that cash. If you can’t do anything with your core business, then do deals,” he told a media roundtable titled “Deal Activity in Malaysia” here yesterday.
He said the “lazy balance sheets” phenomenon is more pronounced in Malaysia, even though it is a consistent theme across many Asian markets, except China and India.
“In Singapore, Malaysia and Indonesia, there are still companies with ‘lazy balance sheets’. Thai corporates have been going out and doing deals. Malaysia is not the only country but it’s among a few in Southeast Asia that still have a preponderance of too much cash and not enough use for that cash,” said Suvir.
Southeast Asian companies are under pressure to outperform and M&As can be a key lever for delivering growth and superior performance. Frequent and material acquirers do outperform competitors, according to Suvir.
“Data shows serial acquirers who are regularly using M&As as a growth factor over time have higher total shareholder returns than those who don’t,” he explained.
Nonetheless, he said it is not seeing enough outbound M&As from Malaysia. Malaysian corporates are active acquirers, but focused locally. Malaysia is ranked second in M&As within Southeast Asia, based on M&A deal value by acquirer.
“Malaysian corporates with much cash on their balance sheets, good capability and cost positions should be looking externally to do M&As. India and Indonesia have similar currency volatility (like Malaysia) but their corporates are going out a lot more. Ultimately, you’ve got to be out there finding growth,” said Suvir.
He said one reason why deals are not happening is that shareholders are not demanding better returns; another is that corporates have the view that they can generate more growth and profit domestically. It is also a question of corporates having the internal capability and risk tolerance to execute international expansion.
On consolidation, Bain’s view is that it is the survival of the fittest where there is value in combining forces to gain critical scale and vantage to compete against regional champions and behemonths. He questioned if asset owners can extract more value by divesting non-core assets and focusing on core businesses.
“On the flip side of consolidation, we’re not seeing enough corporate carve-outs. You’ve phenomenal conglomerates with multi-core businesses. They have non-core assets. I don’t believe Malaysian corporates have moved fast enough in divesting themselves of non-core assets.”
PETALING JAYA: Measuring Malaysia’s gross domestic product (GDP) in US dollars is not relevant nor appropriate and could undermine the country’s sovereignty, said Finance Minister II Datuk Seri Johari Abdul Ghani.
Johari, who was responding to a statement made by Federation of Malaysian Manufacturers (FMM), said FMM’s proposal to measure the GDP in US dollars could cause confusion, is misleading and reflects poor understanding of how the economy works.
On Wednesday, FMM president Tan Sri Lim Wee Chai said the country’s current GDP would have contracted if it was calculated on that basis due to the fall in the ringgit’s value and proposed that the GDP be measured in US dollars for a better reflection of the country’s economic growth.
“Economic activity in Malaysia is measured primarily through activities transacted by households, businesses and governments in ringgit. Hence, measurement in ringgit terms is more reflective of our economy,” Johari said in a statement yesterday.
He said Malaysia’s GDP is reported in constant prices, which already takes into account the effects of price changes and exchange rate movements.
The GDP reflects only the changes in the quantity of goods and services produced in the country, adding that the compilation of GDP is consistent with international standards as stipulated by the World Bank and the International Monetary Fund, and the Department of Statistics’ surveys and compilations are wide ranging and inclusive of all sectors of the economy.
“In view of this internationally accepted standard, I wish to point out that GDP measured in US dollars is not relevant for a matured and sophisticated economy like Malaysia, nor is the GDP measured in US dollars appropriate for an economy that is not dollarised in any sense. In any economy that is ‘dollarised’, there would be a loss of policy independence and flexibility, hence undermining a nation’s sovereignty,” he said.
Malaysia recorded year-on-year growth of 5.8% in the second quarter of 2017 and 5.6% in the previous quarter.
KUALA LUMPUR: The International Trade and Industry Ministry (Miti) has submitted a proposal to increase the funding for soft loans for automation in the upcoming Budget 2018.
International Trade and Industry Minister Datuk Seri Mustapa Mohamed said it has submitted the proposal to Treasury to consider increasing the funds for the Soft Loan Scheme for Automation & Modernisation parked under MIDF.
“I think the issue is the amount allocated to this programme is small; 345 companies in the last 10 years is a very small number given that there are tens of thousands of companies … there is a clear need for the government to provide more funds to MIDF to enable more companies to automate,” he told reporters after chairing a dialogue session with Federation of Malaysian Manufacturers (FMM) and Malaysian International Chamber of Commerce and Industry yesterday.
Since 2007, the fund has approved RM1.5 billion for a total of 345 companies. In July this year, the maximum loan amount was increased to RM20 million from RM10 million previously.
“This (scheme) is very relevant because the industries need funding to automate. It is important for them to have access to soft loans in order for them to increase the level of automation,” said Mustapa.
In terms of automation, he said the Malaysian Investment Development Authority will organise a showcase to highlight the capabilities of Malaysian companies producing machines and equipment for the local and international markets, especially in the electrical and electronic products sector.
“This is something that is not known and we want to be more aggressive in promoting these companies to the world, exporting these products and to make Malaysians more aware that Malaysia has companies that are doing lots of things to increase the level of automation,” he said, adding that these companies produce very sophisticated products including robotics and sensors.
Other issues discussed during the dialogue included common tax issues among the regional economic corridors and the reinstatement of the Market Development Grant (MDG).
“We decided that there are a number of tax issues that are common to all the investment promotion agencies who have proposed that we come together and submit a joint proposal to the Treasury because some issues are similar,” said Mustapa.
Miti is also in talks with the Treasury to consider reinstating the MDG, which has been instrumental in encouraging the growth and development of SMEs in the export market. The grant has been suspended until further notice.
On the issue of foreign labour, Mustapa said Miti and several government agencies will be meeting with FMM and industry players next week to further discuss the issue and to address the immediate requirements to avoid disruption in production and exports.
He said the number of foreign workers in the manufacturing sector has declined from 748,000 at end-2014 to 621,000 at end-June 2017, partly due to automation and difficulties in recruiting foreign labour.
PETALING JAYA: Berjaya Assets Bhd’s (BAssets) revenue for the fourth quarter ended June 30, 2017 fell 13% to RM85.83 million from RM98.33 million a year ago, mainly due to the gaming business segment operated by Natural Avenue Sdn Bhd (NASB), which continued to be impacted by rampant illegal gaming activities.
The group registered lower pre-tax loss in the current quarter under review mainly due to lower non-cash impairment of goodwill, higher favourable fair value changes of investment properties, gain on disposal of certain quoted shares and finance income arising from the initial recognition of a financial liability at fair value as compared to the previous year corresponding quarter. Its net loss narrowed to RM36.67 million from RM65.75 million in the previous year’s corresponding quarter.
For the full-year period, BAssets’ revenue dropped 8% to RM356.36 million from RM387.09 million a year ago. Its net loss narrowed to RM11.12 million from RM54.12 million.
Given the current economic conditions and financial outlook, the group expect the property investment and hotel and related businesses operated by Berjaya Times Square Sdn Bhd and the gaming business operated by NASB to maintain its occupancy rates and market share respectively going forward.
“The directors envisage that the operating performance of the group for the financial year ending June 30, 2018 will be challenging,” it added.
PETALING JAYA: KNM Group Bhd’s net profit slumped 92.6% to RM502,000 for the second quarter ended June 30, 2017 against RM6.79 million in the previous corresponding period, due to lower revenue and higher tax expense. Revenue fell 14.7% from RM427.98 million to RM364.87 million.
For the first half of the year, KNM’s net profit plunged 86% from RM17.58 million to RM2.46 million, on the back of a 16.2% drop in revenue from RM825.06 million to RM691.65 million, mainly due to lower project percentage of completion recognised as the projects related to the Pengerang Integrated Petroleum Complex are delivered or near completion as well as slower replenishment of new orders due to market uncertainties.
The board anticipates the outlook for financial year ending Dec 31, 2017 will remain challenging.
KNM closed 4.17% lower at 23 sen with 8.86 million shares traded.
PETALING JAYA: Mlabs Systems Bhd’s unit has bagged a US$10 million (RM42.8 million) contract for computer generated imagery production work.
The group told Bursa Malaysia that its wholly owned subsidiary Multimedia Research Lab Sdn Bhd has accepted a letter of award from Red Dragon Media Ltd for the contract. The contract will then be transferred to a joint-venture company, tentatively named Gold Dragon Media Sdn Bhd. It is valid until June 2018.
“The contract is expected to contribute positively towards Mlabs group's earnings and net assets for the financial year ending March 31, 2018,” it noted.
Mlabs shares were down two sen to close at 24 sen yesterday on some 71.21 million shares done.
PETALING JAYA: Bursa Malaysia Securities Bhd has publicly reprimanded Asdion Bhd for breaches of the Bursa Malaysia Securities ACE Market Listing Requirements (LR).
The regulator said in a statement that Asdion had failed to issue its annual report for the financial year ended March 31, 2016 by the stipulated time frame of July 31, 2016. It was only issued on Aug 18, after a delay of 14 market days.
The group also failed to ensure that its announcement dated May 31, 2016 on the fourth quarterly report for the financial year ended March 31, 2016 took into account the necessary adjustments.
Asdion is required to review and ensure the adequacy and effectiveness of its financial reporting function and carry out a limited review on its quarterly report submissions, Bursa Malaysia said.
“The limited review must be performed by the company’s external auditors for four quarterly reports commencing no later from the quarterly report for the financial period ended September 30, 2017. In addition, Asdion must ensure all its directors and relevant personnel attend a training programme in relation to compliance with the ACE LR pertaining to financial statements,” it added.
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