October, 2017


BP profits rise as oil prices recover

LONDON, Oct 31 — British energy major BP today logged a modest increase in third-quarter net profit, energised by a recovery in the global price of oil. BP said in a statement that bottom-line net profit rose by nine per cent to US$1.769…

US stocks mostly higher ahead of Fed meeting

NEW YORK, Oct 31 — Wall Street stocks were mostly higher early today, bouncing from Monday’s weakness ahead of a Federal Reserve policy meeting expected to offer signals on tighter interest rates later this year. The Fed is expected to keep…

What are the rules Airbus admits to breaking in US?

PARIS, Oct 31 — Airbus says it has discovered and reported to US authorities certain inaccuracies in past declarations to the State Department over the sale of defence goods and services under the International Traffic in Arms Regulations…

Bank of England sees up to 75,000 finance job losses after Brexit, reports BBC

LONDON, Oct 31 — The Bank of England expects Britain to lose up to 75,000 financial services jobs in the years after its departure from the European Union in 2019, the BBC reported today. London dominates global currency trading and is…

Airbus warns of potential hit from fraud probes

PARIS, Oct 31 — European aircraft maker Airbus warned today that various investigations into alleged fraud, bribery and corruption could impact its earnings. Airbus also said it was still battling delivery problems of the new fuel-efficient…

IWH-IWC proposed merger aborted

PETALING JAYA: The proposed merger between Iskandar Waterfront Holdings Sdn Bhd (IWH) and Iskandar Waterfront City Bhd (IWC), both controlled by Tan Sri Lim Kang Hoo, has been aborted as the deal is “no longer consistent with the benefits and intentions which it was originally envisaged”.

The deal which was announced in March this year, hit a major stumbling block when IWH lost its most coveted project as master developer of RM200 billion Bandar Malaysia project, in May. This left it with over 7,400 acres of land in Kuala Lumpur and Johor Baru, with an estimated open market value of RM30 billion.

At the time IWC and IWH were still adamant the deal would not be derailed.

Lim in its stead, has now proposed a new deal, involving Ekovest Bhd taking over the shares IWH does not own in IWC for RM1.50 per share. Lim is offering one Ekovest share for one IWC share. IWC last traded at RM1.40 a share, while Ekovest at RM1.16 a share. Both stocks have been suspended from trading in anticipation of the announcement.

As at last Friday, IWC and Ekovest’s market capitalisation stood at RM1.17 billion and RM2.48 billion respectively.

Lim has advised that IWH will not to sell its 38% take in IWC. Lim owns a 63% interest in IWH, while Kumpulan Prasarana Rakyat Johor owns the rest.

Ekovest said its board of directors will deliberate on the proposal letter and decide on the next course of action.

“All relevant parties will use their best endeavours and efforts to negotiate in good faith documentation and arrangements in relation to the proposed acquisition on or before Nov 30, or such other extended date as may be mutually agreed between the parties in writing.”

Ekovest did not mention if Lim plans to maintain the listing status of IWC. Astramina Advisory Sdn Bhd has been appointed the financial advisor for the proposed acquisition.

Both IWC and Ekovest are involved in construction and property development.

Recall that the proposed IWH-IWC merger was to see IWH taking up the remaining 61.7% equity in IWC for RM1.50 per share, to be satisfied via the issuance of IWH shares on the basis of one new IWH share for one existing IWC share, to create a master property developer with over RM30 billion worth of land.

However, IWC told Bursa Malaysia today that it had been informed by IWH that the respective vendors of the joint properties will not be participating in the proposed restructuring exercise, resulting in an unexpected substantial variation and reduction to the scale and scope of the proposed restructuring exercise.  

As the deal is not expected to provide the intended benefits, it said the parties are unlikely to be in a position to fulfill the conditions precedent contemplated in the merger agreement within the originally anticipated timeframe for fulfillment/obtainment.

“Accordingly, premised on the above, the company and IWH have agreed to mutually terminate the proposed merger scheme contemplated and set out under the merger agreement,” said IWC.

Fitch calls govt revenue forecast optimistic

PETALING JAYA: Fitch Ratings, which considers the Malaysian government’s revenue projections optimistic, warned of downside risk to it in anticipation of slower external demand and sensitivity to global oil prices.

The rating agency in its latest report affirmed Malaysia’s sovereign rating at ‘A-’ with a stable outlook in August, but highlighted the importance of continued fiscal consolidation given the government’s high debt ratios.

In contrary, local economists opined that the government’s projections are relatively conservative, which provide room for growth in revenue collection.

Fitch said Malaysia’s 2018 gross domestic product (GDP) growth forecast of 5.0%-5.5% assumes that strong recent momentum will be maintained, but there could be some headwind from cooling external demand.

“The government’s upbeat growth forecast and optimistic revenue collection targets are key to its expectation that direct tax collection will increase by around 7% and GST revenue will rise by 5.5%.”

It noted that any shortfall in revenue collection would most likely be offset by corresponding expenditure cuts to meet the deficit target and therefore unlikely to be big enough to knock it off its deficit reduction path next year.

Having said that, it stressed that the medium-term target of achieving a near-balanced budget by 2020 would require a step-up in consolidation efforts in 2019 and 2020, which is not unattainable.

“We expect the fiscal deficit to continue narrowing over the next few years and project federal government debt – which was 50.9% of GDP in June 2017 – to remain on a downward path and therefore stay below the authorities’ 55% self-imposed debt ceiling, but slightly above the 49% ‘A’ median.”

Meanwhile, despite a dramatic drop in the federal budget’s share of oil and gas revenue in the previous few years, Fitch said Malaysia’s government revenue remains sensitive to oil price movements.

The government forecasts a total dividend of RM16 billion from Petronas in 2017, up from an initially budgeted RM13 billion. It is expected to rise to RM19 billion in 2018.

“This assumes the crude oil price will rise to US$52/barrel in 2018, up from US$50 in 2017, which is broadly in line with our own expectation,” the rating agency said.

Nonetheless, Fitch said Budget 2018 strikes a balance between providing measures that will be popular ahead of an election, and sticking to a path of fiscal consolidation. It said the fiscal deficit of 2.8% of GDP for 2018 is in line with its expectation.

Fitch also foresees that off-budget infrastructure spending may continue to rise, with a corresponding increase in contingent liabilities. 

MISC disposes stake in yet another joint venture for RM4.2m

PETALING JAYA: MISC Bhd’s unit MISC Enterprises Holdings Sdn Bhd (MEH) is disposing its 25% stake in Trans-Ware Logistics (Private) Ltd (TWL) to John Keells Holdings PLC (JKH) for RM4.2 million.

The move follows one in late September when it announced plans to exit the tank terminal business by disposing of its 45% stake in Centralised Terminals for RM193 million.

TWL is a joint venture between MEH, Keppel Logistics Pte Ltd and JKH. Initially formed in 1994 to manage an inland container depot in Sri Lanka, TWL discontinued its container storage and transport operations in November 2006.

MISC told the stock exchange today, MEH has entered into a share sale and purchase agreement with JKH and Keppel for the stake disposal, comprising 5.5 million shares.
Keppel will also divest its entire 25% shareholding in TWL to JKH for the same consideration.

Upon the completion of the proposed disposal, TWL will cease to be an associated company of MISC.

MISC said the consideration for the sale shares arrived on a ‘willing-buyer willing-seller’ basis after taking into consideration the unaudited net assets of TWL as at July 31.

The proposed disposal is expected to be completed in two months.

MISC slipped 0.86% to RM6.95 today with two million shares traded. Year-to-date it has lost 5.4% of its share price.

F&B players affected by rising paper price

PETALING JAYA: MIDF Research sees small to mid-sized food and beverages (F&B) players as those most affected by the rising paper price due to a weaker bargaining power and their limited ability to switch suppliers.

In comparison, bigger players like Nestle (Malaysia) Bhd and Fraser & Neave (F&N) have other means in mitigating rising input costs such as focusing on operating efficiency efforts to gain extra savings.

Having said that, the research house which is maintaining a “neutral” call on the F&B sector, expects F&B players to be pressured to raise their retail prices to maintain margins.

Wood pulp prices are on the rise hitting historical high levels, affecting manufacturers that use these goods as input materials.

To date, the international hardwood pulp price has rallied from US$200 (RM847) per tonne to US$690 per tonne mainly due to supply disruption as pulp mills in Indonesia and Brazil experienced lower production due to environmental concerns as well as maintenance shutdown.

MIDF Research said as wood pulp is the major input for paper, rising wood pulp prices are expected to flow through to the price of paper. This threatens the profit margins of paper-based packaging suppliers and as a result of cost-pass through, the end consumers mainly F&B manufacturers will also be affected.

Locally, the research house said paper and paper products prices have been on an increasing trend which is in line with the global trend.

“Our channel check with industry player confirms that as of this year, there were already two rounds of price increases by packaging supplier for packaging material of about +2% to +3% increases each time. Hence, it is also expected that packaging material supplier will further increase their product selling prices going forward”.

However, MIDF Research noted that Spritzer Bhd is less affected by the rise in paper-based packaging material prices.
The research house is maintaining a “buy” call on Spritzer with a target price of RM2.83, partly due to the stabilising polyethylene terephthalate (PET) prices as it uses plastic-based packaging for its products.

“Also, Spritzer has also revised upwards the selling prices for some of its products by approximately 5%. We are positive on the price adjustment as it will enhance average selling prices as well as profit margins. We believe that sales volume should remain stable due to minimal increase in prices.”

While MIDF Research estimates that packaging cost constitutes less than 10% of cost of sales, the ever increasing input costs will put pressure on F&B players to further increase prices.

“The gross profit margin for F&B players such as Nestle and F&N are on a downward trend with the latest recorded margin in Q2’17 at 36.6% and 32.3% from the peak of 42.6% and 36.1% respectively.”

MIDF Research said F&B players under its coverage recorded a decline in gross profit margin last quarter due to the inability to pass the rising costs to end consumers as a result of weak consumer sentiment.

“Nevertheless, we expect F&B players will continue to raise product prices next year albeit selectively to protect their profit margins.”

Research house positive on automotive sector

PETALING JAYA: Maybank IB Research maintains its positive call on the automotive sector following news of the Transport Ministry’s study of vehicle lifespan being in the final stage.

“This could eventually bring forth the long-awaited End of Life Vehicle (ELV) policy which could include incentives for owners to change road-unworthy old cars (beyond a certain age) for new ones,” it said in a report today.

“While full implementation of the ELV policy is unlikely for now, we laud this proposal, for it will enhance road safety as well as sustainability of the auto sector,” it added.

It said that the full implementation of the ELV policy for both passenger and commercial cars could boost total industry volume/total industry production (TIV/TIP) in the immediate three to five years while ensuring the long-term sustainability in auto demand and road safety.

It estimates that about a quarter of the 13.3 million private passenger cars on the road as of June 2017 are more than 10 years of age (about three million cars) and these cars should be tested for their road worthiness to ensure public safety.

Recall that a small-scale auto scrapping scheme named the Proton Xchange Programme conducted by Proton back in March 2009, saw over 25,000 applications recorded in the nine-month period. However, the programme was discontinued when allocated funds were exhausted.

Maybank IB Research said full implementation of the ELV policy may only materialise in two to three years’ time, which would benefit the national marques (Proton and Perodua) due to their lion’s share of the mass market A/B-segment models.

However, full ELV implementation is beyond reach now due to insufficient inspection points. A total of 450 inspection centres is required to enable mandatory inspection for cars beyond a certain age but there are currently only 55 computerised vehicle inspection centres nationwide operated by Puspakom.

“Unless there are sufficient centres, it may make more commercial sense, in our opinion, if the ELV policy (if it comes) is first implemented on commercial vehicles (10% of total TIV), in light of recent fatal accidents involving older trucks and buses,” it said.

It noted that safe public transport was one of the issues addressed in Budget 2018 and that RM45 million has been allocated to develop a biometric control system to monitor bus drivers, indicating the government’s concern and possible further action to reduce accidents involving commercial vehicles.

“In line with this, we also believe that the ELV policy will first be implemented for commercial vehicles which should be sufficiently inspected with the currently available Puspakom inspection facilities,” it said.