Monday, January 1st, 2018

 

Revenue Valley in talks with potential new investors

KUALA LUMPUR: Revenue Valley Sdn Bhd, which operates popular casual dining restaurants such as The Manhattan Fish Market (MFM),Tony Roma’s and NY Steak Shack in Malaysia, Singapore and Thailand, is in talks with several investors in a bid to bring in like-minded organisations with the anticipated exit of its 85.76%-shareholder Ekuiti Nasional Bhd (Ekuinas) from the food & beverage (F&B) portfolio.

Ekuinas has in the last few years sold its F&B assets, including Burger King and San Francisco Coffee, abandoning plans to create a food group because significant additional investment and operational involvement were required to achieve profitability.

Revenue Valley group CEO George Ang (pix) opined that the government-linked private equity fund is unlikely to get into a long term marriage with its investee companies, as Ekuinas’ investment period usually spans some five to seven years and that the funds need to be cashed out at a certain time.

Revenue Valley was founded in 2002 byAng and Dickson Low, who remain as minority shareholders.

“In fact, this year could be the year that they (Ekuinas) would try to exit all their F&B business. I’ll get a new partner, a new shareholder to work with. If we can work with Ekuinas, we can work with most parties well,” Ang told SunBiz in an interview.
He declined to reveal any further details on its search for a new partner.

The group which operates 120 restaurants across the region, registered a net profit of RM11.9 million on revenue of RM278.5 million in 2016.

He said the new partner can take over Ekuinas’ stake, or even 100% of Revenue Valley as he is willing to explore both opportunities.

“We’ve built this company for the last 15 years, and we’ve built a team that is strong to run it. If it’s a company that wants to buy the whole group, we’re okay. If it’s a good partner that will put in more money for us to grow, we’re also okay to keep our stake there to grow together. It depends a lot on who’s the new partner,” Ang said.

He added that this is Revenue Valley’s fifth year with Ekuinas since the latter bought into the company in 2012. The divestment of Ekuinas’ stake in Revenue Valley can happen any time now until the end of 2018.

“Ekuinas has been more of a financial partner rather than a strategic partner. They put in money, they don’t get their hands dirty with you. They will have a monthly meeting on the results and they don’t get into operational details with me. It’s been a good alignment in that way. I take care of the business, the operational part, the negotiations. They will guide us based on the financial KPIs,” Ang said.

He said it is looking for same thing in the new partner, essentially a party with strong financial muscle.

“If a new partner comes in, they are buying a good ship, not a ship that is in need of repair. They should trust the management and grow the business.”

Over the last five years with Ekuinas, he said, Revenue Valley has grown from a RM80 million revenue company to over three times of that.

Today, Revenue Valley has six brands under its coffers. It has three homegrown brands MFM, NY Steak Shack and Nice Catch; as well as being the franchisee for Tony Roma’s, Popeye’s Louisiana Kitchen (in Singapore) and TR Fire Grill.

Ang said it is targeting a 10% growth in revenue this year to cross the RM300 million mark, mainly driven by MFM, which currently contributes 60% to its revenue.

About 65% of the company’s income is in foreign-denominated currency, exceeding its ringgit income. The foreign currency comes from Thailand, Singapore, as well as franchise royalties in US dollars. It runs the MFM franchise in 14 countries and is in talks to open in new markets like the Philippines, Vietnam, Kuwait and Bahrain. It will also begin franchising NY Steak Shack this year, starting with Sabah and Sarawak.

Locally, it will continue to open more MFM outlets in the next few years outside the Klang Valley. There are currently 80 MFM outlets in Malaysia.

Ang said sales have been stagnating due to external factors, poor consumer sentiment, slowdown in spending, coupled with the weak ringgit that saw the cost of imports rise. Despite these, Ang said most of its restaurants are still profitable.

“We look to expand our seafood casual dining restaurants (MFM, Nice Catch) faster as they cater to the middle to upper-middle market; compared with Tony Roma’s and TR Fire Frill that are at the higher end of the market.

“At the fast casual dining space, where MFM and NY Steak Shack are, we see the market growing faster than the upper market category as the economy slows down,” Ang said.


Mydin in better financial shape, set to post improved earnings: RAM Ratings

PETALING JAYA: RAM Ratings has reaffirmed its ‘AAA’ rating on Mydin Mohamed Holdings Bhd’s RM350 million Danajamin-guaranteed sukuk, saying the group is in better financial standing after addressing issues related to the Goods and Services Tax (GST) and disposing of loss-making ventures.

The agency said its rating is supported by the irrevocable guarantee by Danajamin and the group’s stand-alone credit profile. The rating denotes a superior capacity to meet its financial obligations.

RAM Ratings said besides Danajamin’s guarantee, Mydin’s standalone credit strength is further supported by its position as one of the largest locally owned grocery retailers.

Its credit profile was moderated by weak risk management and internal controls after having incurred substantial losses as a result of the difficulty in adopting appropriate pricing following the implementation of GST and anti-profiteering measures by the government, until the resolution of the issue in mid-FY March 2017.

Since the resolution of the pricing issues, the group’s core hypermarket and emporium segments have shown improved earnings and operating losses narrowed from RM75.94 million in FY March 2016 to RM5.85 million in FY March 17.

Despite disposing of its loss-making mini markets in April 2017 and discontinuing Kedai Rakyat 1 Malaysia (KR1M) stores in October 2017, Mydin still has an extensive domestic presence, with 75 outlets as at end-October 2017.

Mydin also has a strong following among its targeted, low to middle-income customers, and has carved a niche in the Muslim consumer segment by offering fully halal products and an array of locally manufactured goods.

“Given that loss-making mini markets and KR1M stores no longer weigh on Mydin Holdings’ performance, we envisage better earnings in FY March 2018. The sustainability of the group’s earnings will, nonetheless, depend on its ability to turn around or dispose of loss-making divisions. While the group plans to dispose of its premium outlets, this may take time due to the current weak consumer sentiment,” RAM Ratings said in a statement.

With gestation on newer stores and a lack of expertise in managing some outlets, the group’s mall, convenience store and premium outlet segments are expected to continue to demonstrate poor performances.

While operating performance improved, its financial metrics remained weak with its total adjusted debt increasing to RM2.07 billion as at end-March 2017 from RM1.86 billion in the same period of 2016, keeping its adjusted gearing ratio at a very weak 3.47 times.

Adjusted funds from operations debt coverage rose to 0.1 times for FY March 2017 from 0.06 times in 2016, mainly on account of stronger cash generation.
“Over the next three years, adjusted gearing and cashflow debt coverage are not anticipated to improve significantly as we foresee total adjusted debts to remain elevated,” RAM Ratings said.

Its liquidity stayed tight, with its cash and bank balances standing at RM63.84 million and RM135 million of unutilised banking facilities against a short-term debt of RM490 million as at end-June 2017.


Mydin in better financial shape, sukuk rating backed by Danajamin guarantee: RAM Ratings

PETALING JAYA: RAM Ratings has reaffirmed its ‘AAA’ rating on Mydin Mohamed Holdings Bhd’s RM350 million Danajamin-guaranteed sukuk, saying the group is in better financial standing after addressing issues related to the Goods and Services Tax (GST) and disposing of loss-making ventures.

The agency said its rating is supported by the irrevocable guarantee by Danajamin and the group’s stand-alone credit profile. The rating denotes a superior capacity to meet its financial obligations.

RAM Ratings said besides Danajamin’s guarantee, Mydin’s standalone credit strength is further supported by its position as one of the largest locally owned grocery retailers.

Its credit profile was moderated by weak risk management and internal controls after having incurred substantial losses as a result of the difficulty in adopting appropriate pricing following the implementation of GST and anti-profiteering measures by the government, until the resolution of the issue in mid-FY March 2017.

Since the resolution of the pricing issues, the group’s core hypermarket and emporium segments have shown improved earnings and operating losses narrowed from RM75.94 million in FY March 2016 to RM5.85 million in FY March 17.

Despite disposing of its loss-making mini markets in April 2017 and discontinuing Kedai Rakyat 1 Malaysia (KR1M) stores in October 2017, Mydin still has an extensive domestic presence, with 75 outlets as at end-October 2017.

Mydin also has a strong following among its targeted, low to middle-income customers, and has carved a niche in the Muslim consumer segment by offering fully halal products and an array of locally manufactured goods.

“Given that loss-making mini markets and KR1M stores no longer weigh on Mydin Holdings’ performance, we envisage better earnings in FY March 2018. The sustainability of the group’s earnings will, nonetheless, depend on its ability to turn around or dispose of loss-making divisions. While the group plans to dispose of its premium outlets, this may take time due to the current weak consumer sentiment,” RAM Ratings said in a statement.

With gestation on newer stores and a lack of expertise in managing some outlets, the group’s mall, convenience store and premium outlet segments are expected to continue to demonstrate poor performances.

While operating performance improved, its financial metrics remained weak with its total adjusted debt increasing to RM2.07 billion as at end-March 2017 from RM1.86 billion in the same period of 2016, keeping its adjusted gearing ratio at a very weak 3.47 times.

Adjusted funds from operations debt coverage rose to 0.1 times for FY March 2017 from 0.06 times in 2016, mainly on account of stronger cash generation.
“Over the next three years, adjusted gearing and cashflow debt coverage are not anticipated to improve significantly as we foresee total adjusted debts to remain elevated,” RAM Ratings said.

Its liquidity stayed tight, with its cash and bank balances standing at RM63.84 million and RM135 million of unutilised banking facilities against a short-term debt of RM490 million as at end-June 2017.


Saudi Arabia, UAE introduce value-added tax in first for Gulf region

DUBAI: Saudi Arabia and the United Arab Emirates (UAE) introduced value-added tax from yesterday, a first for the Gulf which has long prided itself on its tax-free, cradle-to-grave welfare system.

Saudi Arabia compounded the New Year blow for motorists with an unannounced hike of up to 127% in petrol prices with immediate effect from midnight.

They are the latest in series of measures introduced by Gulf oil producers over the past two years to boost revenues and cut spending as a persistent slump in world prices has led to ballooning budget deficits.

The 5% sales tax applies to most goods and services and analysts project that the two governments could raise as much as US$21 billion (RM85 billion) in 2018, equivalent to 2.0% of gross domestic product.

But it marks a major change for two super-rich countries where the mall is king. Dubai has long held an annual shopping festival to draw bargain hunters from around the world to its glitzy retail palaces.

Saudi Arabia has deposited billions of dollars in special accounts to help needy citizens face the resulting rise in retail prices.

The other four Gulf states – Bahrain, Kuwait, Oman and Qatar – are also committed to introducing VAT but have decided to delay the move until early in 2019.

The increase in fuel duty in Saudi Arabia was the second in two years. But it still leaves petrol prices as some of the lowest in the world.

High-grade petrol rose 127% from 24 cents a litre to 54 cents, while low-grade petrol rose 83% from 20 cents a litre to 36.5 cents. Duty on diesel and kerosene remained unchanged.

Saudi Arabia has introduced a raft of measures to raise revenue and cut spending as it bids to balance its books. – AFP


Competitive local LNG price by 2019: Association

KUALA LUMPUR: Liquefied natural gas (LNG) prices are likely to be more competitive in the local market by 2019, with the participation of more industry players following the introduction of a Third Party Access (TPA) mechanism last year, says the Malaysian Gas Association (MGA).

Secretary-general Rosman Hamzah said the TPA, introduced in January 2017, was aimed at opening the gas supply market to third parties including foreign companies, to sell gas to any consumer in Malaysia on a willing buyer-willing seller basis.

“With more market players involved, they will be able to increase competitiveness in the industry and hence, pull LNG prices lower,” he told Bernama.

However, Rosman explained that despite the anticipation of lower gas prices, its movement was very much tied to the movement of crude oil prices.

Currently, the country’s LNG is being supplied by Petronas Gas Bhd and Gas Malaysia Bhd and those interested to participate in the TPA can apply for a licence from the Energy Commission (EC).

“So far, we have seen a couple of multinational companies, which are also members of MGA, applying for the licence from the EC”, he said.

On the regulated natural gas price which is increased by RM1.50 per one million British Thermal Units (mmBtu) every six months, Rosman said the move was aimed at bringing the local price to be at par with the international level. At the same time, it will minimise dependency on government subsidy, he added.

“Looking at the current movement of gas and crude oil prices, we expect gas prices by 2019, to reach the market price level,” he said.

Meanwhile, the government is still providing a 30% gas subsidy to the power sector.


Kenanga Research starts coverage of Sime Darby Plantation with ‘market perform’

PETALING JAYA: Kenanga Research has initiated coverage on Sime Darby Plantation Bhd with a “market perform” recommendation at a target price of RM5.50, on the account of the plantation giant’s market leadership position, emphasis on sustainable palm oil production, fresh fruit bunch (FFB) production recovery, research and development efforts and integrated operations.

The research house gave a 5% premium to Sime Darby Plantation’s forward price-to-earnings ratio (PER) at 26 times against the 25 times of average valuation given to its integrated peers, namely IOI Corp and Kuala Lumpur Kepong Bhd.

However, Kenanga Research said Sime Darby Plantation's high net gearing of 0.56 times may preclude mergers and acquisitions (M&As) and previous production setbacks have pushed up unit production cost.

With it being the largest plantation company (by planted area) and among top three in the world for milling capacity, FFB production and refining capacity as well as producing 4% of global palm oil production of which 98% is certified sustainable palm oil (CSPO), the research house said this affords the group a pricing premium of an estimated US$20/metric ton (MT) or more depending on oil grade.

In FY16-17, severe droughts had resulted in production being flat, which also led to slow earnings recovery and high production cost/MT.

However, going forward, yields are expected to improve in line with the industry of 8% for higher FY18-19 FFB production of 4%-7%.

Kenanga Research also highlighted that as an integrated planter with both upstream plantations and downstream manufacturing, Sime Darby Plantation’s earnings are less affected by crude palm oil (CPO) price movements as lower CPO prices lead to lower downstream feedstock cost, despite its CPO prices are expected to soften by 6%-10% to RM2,417-RM2,569 given sector wide production recovery.

Meanwhile, the research house said the group's “Mission 25:25” aim of producing FFB at 25MT/hectare and 25% oil extraction rate target by year 2025, is within reach with long-term productivity outlook looking positive, implying a compound annual growth rate (CAGR) of 6% per year based on its CPO production estimates.

“Our projections indicate the targets should be achievable, with estimated FFB yield of 24.6MT/ha and OER (oil extraction rate) of 24.8% by 2025 through the use of high-yield planting material and technological improvements.”

On dividend policy, Kenanga Research said Sime Darby Plantation's strong cash flow of between RM1.65 billion and RM1.7 billion for FY18-19 “should easily support” the management’s minimum dividend policy of 50%.

“Based on historical payout ratio (ex-FY17 which saw a large one-off land transaction boosting net profit) of 66%, we anticipate FY18-19E payout ratio at 65% for DPS (dividend per share) of 13.0-14.0 sen/share, which translates to a decent dividend yield of 2.4-2.6% (vs sector average of 2.6%).”

Sime Darby Plantation's share price gained 52 sen or 9.5% to close at RM6 last Friday on some 18.3 million shares done.


Make reforms while sun shines on world economy, says Lagarde

PARIS, Jan 1 — International Monetary Fund chief Christine Lagarde has urged France and other countries to push through reforms “while the sun is shining” on the global economy. In an interview with France’s Le Journal du Dimanche…


Saudi Arabia hikes gasoline prices

DUBAI, Jan 1 — Saudi Arabia was set to raise local gasoline prices today, state news agency SPA reported. The initiative, aimed at more efficient energy use, coincides with an ambitious reform plan to boost sources of revenue and wean the…


Bursa Malaysia concludes 2017 on a good note

KUALA LUMPUR: Bursa Malaysia concluded 2017 on a relatively good note with positive aspects such as the stabilisation of crude oil prices, firmer ringgit, positive economic data and higher foreign fund inflow, lending support to the key index. The FBM KLCI finished at a year high of 1,796.81 on Dec 29, up 155.08 points, or […]


Shareda expects 40 pct decline in new property launches

KOTA KINABALU: New property launches for 2017 are expected to be 40 per cent lower that those recorded in 2016. According to Sabah Housing and Real Estate Developers Association (Shareda) president Chew Sang Hai, property launches worth some RM2.7 billion were recorded last year. However, for 2017 Shareda is expecting new project launches to be […]