Wednesday, June 20th, 2018


GE kicked out of Dow, the last 19th century member removed

NEW YORK, June 20 — General Electric Co suffered a crowning ignominy yesterday as overseers of the Dow Jones Industrial Average kicked the beleaguered company out of the stock gauge it has inhabited for more than a century. Once the world’s most…

Amazon, Berkshire, JPMorgan name Atul Gawande CEO of healthcare venture

NEW YORK, June 20 — Berkshire Hathaway Inc, Inc and JPMorgan Chase & Co today named Atul Gawande, a prominent medical professor who has criticised his industry’s practices, to lead their joint healthcare company. The venture will…

Wall Street advances as media stocks gain; Nasdaq hits record

NEW YORK, June 20 — Technology and media stocks pushed Wall Street higher today and helped the Nasdaq hit a record high, as markets eyed a recovery after being battered by a rapidly escalating China-US trade tensions. Twenty-First Century Fox…

IDEAS thinks govt should set new SST at standard rate of 5%

PETALING JAYA: The Institute for Democracy and Economic Affairs (IDEAS) has recommended a new reformed Sales and Services Tax (RSST) with a standard rate of 5%.

“We recommend that rather than simply bring back the original SST, the government should introduce a new Reformed SST (RSST),” IDEAS CEO Ali Salman and researcher Adli Amirullah said in a report released today.

IDEAS said a standard rate for both sales tax and service tax elements could reduce complexity and variability in prices.

“The government will need to consider carefully how to set the rate. Even if the rate for RSST is set at 6% or higher, the amount is likely to be lower than under GST (Goods and Services Tax), as the tax is only applied at the initial stage. We propose an initial rate of 5%.”

The SST will be implemented from September to replace the GST, which has been zero-rated since June 1.

With a single-stage tax, IDEAS said, businesses will not be required to file for any refunds and their payment to the treasury will be considered final liability.

“This will also increase the working capital, which is critical to healthy functioning of all firms, particularly SMEs, which are often run on private equity.”

Under the previous SST regime, businesses were required to charge sales tax if their annual sales turnover exceeded RM100,000. When GST was introduced, the threshold increased to a minimum of RM500,000 of taxable return per annum or higher.

For the RSST, IDEAS recommended to maintain the minimum threshold of taxable return of RM500,000 to ease the burden on small businesses and maximise the marginal benefit.

“The government should also maintain the current practice from the GST regime of exempting the export of goods and services from the RSST, to encourage development of Malaysia's export sectors.”

It noted that the new SST should be business friendly by having standardised and simplified administration procedures and incorporating GST best practices.

“For instance, the modes of payment for SST should remain online, and the web-page needs to be user friendly with explicit instructions. In addition, the time that businesses take to pay the tax needs to be revised. The government should ensure that businesses are encouraged to pay taxes promptly, with appropriate measures and incentives.”

IDEAS also suggested that the government could require service providers to deduct the sales tax paid from the value of the bill before calculating the service tax, to avoid paying a higher effective tax rate.

“This could occur when a consumer purchases a taxable good as part of a taxable service, such as buying a soft drink in a hotel bar.”

IDEAS said while the government established a fund to compensate for the costs associated with the introduction of GST, a similar fund should be attached to the implementation of RSST.

“We recommend an allocation of RM100 million for all SMEs, to cover the cost of installing software and imparting necessary training.”

Mi Equipment rebounds from weak start to end above IPO price in debut on Main Market

PETALING JAYA: Mi Equipment Bhd, the first Main Market listing this year, opened 3 sen or 2.1% discount to its initial public offering (IPO) price of RM1.42 per share amid weak market sentiment arising from the US-China trade spat.

However, the stock was quick to rebound as much as 21 sen or 14.8% before closing 12 sen or 8.5% higher at RM1.54 on 73.68 million shares done, giving it a market capitalisation of RM770 million.

Mi Equipment manufactures wafer level chip scale packaging (WLCSP) sorting machines, which are used in the semiconductor industry.

Over the years, it has strengthened its presence in the international arena by growing its global client base. For 2016 and 2017, more than 80% of revenue was derived from overseas.

The group raised about RM190.89 million in its IPO, of which almost 74% or RM140 million will be utilised for the construction of two new factories in Bayan Lepas and Batu Kawan, Penang, over the next two years.

The Bayan Lepas factory is expected to be completed by the first quarter of 2019 and the Batu Kawan factory by the third quarter of 2020.

Another RM36.79 million will be used for working capital, and the rest for research and development and to defray listing expenses.

Mi Equipment CEO and executive director Oh Kuang Eng said the group will focus on completing the construction of its new factories to secure orders on a larger scale from existing and new customers.

Rakuten Trade has a 'buy' call on Mi Equipment with a target price of RM2.30.

“Mi Equipment's technical expertise in WLCSP sorting machines will enable them to capitalise on the growing mobile communications industry. EPS (earnings per share) is expected to expand by around 6% and 15% for FY18 and FY19 respectively,” it said in a research note today.

Malaysia’s inflation rate in May rises at fastest pace in four months

PETALING JAYA: Malaysia's consumer price index (CPI) increased 1.8% in May 2018 – the fastest pace in four months – to 121.1 compared with 119.0 in the corresponding month of the preceding year due to a strong recovery in transport prices.

According to the Department of Statistics, among the major groups which recorded increases were transport (+3.8%); food & non-alcoholic beverages (+2.2%); housing, water, electricity, gas & other fuels (+2.1%); restaurants and hotels (+2.1%); health (+1.9%); and furnishings, household equipment & routine household maintenance (+1.5%).

MIDF Research expects inflation to moderate in the upcoming months amid zero-rated GST, tax holiday period until the implementation of the Sales and Services Tax in September and stable retail fuel prices, which will reduce business costs.

“At this juncture, we expect 2018’s fuel-related inflation to moderate amid higher base effects, re-subsidisation of domestic fuel price and high likelihood of a downward adjustment of global commodity prices in 2H18 from the current temporary factors, which pushed the prices up,” said MIDF Research.

It expects headline inflation to average at 2.6% this year compared with 3.8% in 2017 amid higher base effects, supported by inflation rate for 1Q18 which stood at 1.8% compared with 4.2% in the same period last year.

“As inflationary pressure remains steady, we anticipate Bank Negara Malaysia to maintain its current monetary policy with no more hikes in the overnight policy rate for the rest of 2018 barring any pleasant upward surprises in domestic economic growth,” it said.

The research firm said that food inflation in Malaysia continued to fall from 2.6% year on year (yoy) in April 2018 to 2.2% yoy last month. Prices for fresh food products such as meat and seafood continued expanding however at a moderate pace of 1.6% yoy and 5.9% yoy respectively.

In contrast, fruits inflation increased to 1.5% yoy while vegetables decreased further by 3.7% yoy. There is a potential for food inflation to rise in June due to higher demand for Ramadan and Hari Raya.

On a monthly basis, the May CPI was up 0.2% compared with April 2018.

Core inflation meanwhile, rose 1.5% in May 2018 compared with the same month of the previous year. Core inflation excludes most volatile items of fresh food as well as administered prices of goods and services.

For the first five months of the year, the CPI registered an increase of 1.7% against the same period last year.

In the overall CPI for May, inflation in three regions surpassed the national rate of 1.8%, namely Kuala Lumpur (+2.2%), Selangor & Putrajaya (+2.1%) and Johor (+2%).
According to MIDF Research, the inflation rate increased in May across all states except Penang.

Yoodo to step up advertising efforts

PETALING JAYA: Close to four months into its debut, Yoodo, the telco which offers customised mobile plans through an online platform, will be stepping up advertising, especially activities during the festive season as it works towards achieving 600 new subscriptions a day.

Acknowledging that the business had seen a slow period during the general elections and Ramadan season, Yoodo’s head Farid Yunus told SunBiz although the numbers were not as projected, but it was still decent enough compared to other digital-based telco competitors.

Since inception, Yoodo spent about 80% of its advertising and promotion allocation on digital avenues and 20% on offline advertising platforms such as billboards, pillar wraps and digital billboards.

“It is about awareness that prompted us to do lots of online advertising but we find the people who have brand recognition are the ones who have seen our billboards somewhere and we don’t have many billboards,” said Farid.

I think the online advertising business is way too cluttered… I mean when was the last time you clicked on a banner or link that you saw?” he asked.

In line with that, Yoodo is also looking to capitalise on the Hari Raya period by increasing its advertisements along the North-South Highway to attract hometown bound travelers.

Yoodo which offers credit and debit card payment methods, will also be offering online banking option and Paypal in the near future.

When asked if a cash payment option is on the horizon, Farid said that online banking is the closest the telco will come to it.

He explained cash payment will also require Yoodo to have a presence in retail outlets such as convenience stores or petrol stations.

“Once you go into retail outlets, there’s no difference when compared to XPax and Digi. Our philosophy is digital only.The furthest we will go towards traditional business is online banking,” he added.

Farid said Yoodo launched its product with the most minimal of features, but adds new features in an interval of every four weeks, which it terms as sprints.

With this, he believes that Yoodo is poised to achieve its target of achieving 600 new subscriptions a day.

“In this data age of WhatsApp, it doesn’t matter what number I use on my sim card, my WhatsApp number doesn’t change as long as I have a data connection. The sim card prefix has become irrelevant to customers, so 600 lines is not a big deal,” he explained.

Yoodo is also in the midst of expanding its premium delivery service, which is currently only available within the Klang Valley to Penang and Johor Baru.

On expanding outside Malaysia, Farid said Yoodo is currently focused on the domestic market but did not rule out the possibility of a technology transfer with other Axiata telcos.

“Any plans to go regional will have to go to Axiata. We may transfer the technology but not necessarily the brand.They will find a brand that is more suitable for their own market. We are now at four months.We need to test our platform at scale. A few thousand customers is not testing at scale, we need to get to 1-3 million and if everything works well, then yes, it looks like a very viable platform that can be exported within the group,’ he said while adding that Yoodo is a test case for the group.

While Yoodo is a digital startup owned and operated by Celcom Axiata Bhd, it is an independent digital mobile service, with a separate team, office and culture.

Tan Chong Motor sole distributor of King Long buses

PETALING JAYA: Tan Chong Motor Holdings Bhd has secured the exclusive rights to distribute King Long coaches and buses in Malaysia for a period of five years.

The working capital for the new business is estimated at RM6.5 million, which will be internally funded by the group.

Tan Chong said in a filing with the stock exchange, its wholly owned subsidiary TC Trucks Sales Sdn Bhd (TCTS) had on June 20 entered into an exclusive distributorship agreement with China’s Xiamen King Long United Automotive Industry Co Ltd for the partnership.

TCTS has been appointed as King Long’s sole and exclusive distributor, assembler and after-sales service provider (including the sale and distribution of spare parts) of King Long coaches and buses, in both completely assembled form and in its bare chassis form, in Malaysia.

TCTS is expected to start sales of King Long products in the fourth quarter of 2018 and to contribute positively towards the group’s earnings in the long-term.

Worth noting is that another wholly owned subsidiary of Tan Chong – TC Motor Vietnam Co Ltd was appointed as King Long’s sole and exclusive distributor, assembler and after-sales service provider of the XMQ6829Y King Long coach model in Vietnam.    

Tan Chong said King Long is familiar with the Malaysian sales and after sales regulations and market situation.

“They have gained the experience via their participation in local tender through their previous distributor in Malaysia whereby they have been able to obtain and comply with the strict tender requirements.”

Tan Chong’s share price edged up 2 sen or 1.1% to close at RM1.84 today on 12,000 shares done.

Gabungan AQRS bags RM60m project

PETALING JAYA: Gabungan AQRS Bhd has been awarded a sub-contract worth RM60.22 million for the execution and completion of sub-structure, toll plaza building and motorcycle lane works of the Elevated Sungai Besi-Ulu Kelang Highway privatisation project.

In a filing with Bursa Malaysia today, the group said its wholly owned subsidiary Gabungan Strategik Sdn Bhd (GSSB) received a letter of award from Syarikat Muhibah Perniagaan Dan Pembinaan Sdn Bhd (SMPP).

The sub-contract is a new contract between SMPP and GSSB for the provision and supply of all labour, material, fuel, plant and/or equipment and everything necessary for the execution and completion of sub-structure, toll plaza building and motorcycle lane works.

Works will commence on June 25, 2018 and is expected to be completed by Feb 24, 2020.

The group’s construction order book as at March 31, 2018 stood at RM2.7 billion.

Gabungan AQRS’ share price fell 1.65% or 2 sen to close at RM1.19 with a total of five million shares traded.

GLCs – ‘monsters’ in the house?

ABOUT a month before Malaysia’s parliamentary election in May, then-opposition leader Tun Dr Mahathir Mohamad raised concerns over the role that government-linked companies (GLCs) were playing in the economy, being “huge and rich” enough to be considered “monsters”.

Data support his description – GLCs account for about half of the benchmark Kuala Lumpur Composite Index, and they constitute seven out of the top-10 listed firms in 2018. They are present in almost every sector, sometimes in a towering way. Globally, Malaysia ranks fifth-highest in terms of GLC influence on the economy.

Calls to do something about GLCs have increased since the election following the release of more damning information, although most of it relates to the GLCs’ investment arm: government-linked investment companies (GLICs).

Some experts have proposed the formation of an independent body with operational oversight for GLICs, after institutional autonomy is established and internal managerial reforms are introduced. Unlike most GLCs, GLICs are not publicly listed and face little scrutiny. The same applies to the various funds at the constituent state level, which need to be looked at too.

For GLCs, the answer is less straightforward. PM Tun Mahathir claims that GLCs have lost track of their original function. Before the Malaysian government decides on what to do, it needs to examine the role GLCs should play – as opposed to the role they currently play – and to examine their impact on the economy.

In Malaysia, GLCs were uniquely tasked to assist in the government’s affirmative action program to improve the absolute and relative position of bumiputras. The intention was to help create a new class of bumiputra entrepreneurs – first through the GLCs themselves, and then through a process of divestment.

Given the amounts of money involved and the cost of the distortions introduced, the benefits to bumiputra were unjustifiably small and unequally distributed. The approach of using GLCs as instruments of affirmative action failed because it led to a rise in state dependence, widespread complacency and even corruption, as Tun Mahathir himself recognised in his memoirs, A Doctor in the House, and again more recently. There is also empirical evidence that GLCs have been crowding out private investment, a concern raised in the New Economic Model as early as 2011.

Additionally, the new government has correctly highlighted the need to include certain off-balance-sheet items and contingent liabilities, such as government guarantees and public-private partnership lease payments, in any complete assessment of debt outstanding. The use of offshoot companies and special purpose vehicles (SPVs) in the deliberate reconfiguration of certain obligations mean that traditional debt calculations underestimate Malaysia’s actual debt.

All these factors combine to place new impetus on reconsidering the extent of government involvement in business. Divestment will not solve Malaysia’s debt problem, but it can help if there are good reasons to pursue it. So how should the government proceed?

It is important to recognise at the outset, that there is a legitimate role for government in business – providing public goods, addressing market failures or promoting social advancement. And like in most other countries, there are good and bad GLCs in Malaysia. If a GLC is not crowding out private enterprise, operates efficiently and performs a social function effectively, then there is no reason to consider divestment. But a GLC that crowds out private investment in a sector with no public or social function, or one that is inefficiently run, should be a candidate for divestment. In this regard, one has to carefully study why GLCs should be present in retail, construction or property development, for instance.

In assessing performance, one needs to separate results that arise from true efficiency, versus preferential treatment that generates artificial rent for the GLC. The latter is a drain on public resources and a tax on consumers. Divestment in this case, will likely provide more than a one-off financial injection to government coffers – it will provide ongoing benefits through fiscal savings or better allocation of public resources. 

The divestment process should be carefully managed to ensure that public assets are disposed at fair market value, and does not concentrate market power or wealth in the hands of a few. This has allegedly happened with privatisation efforts in the past.

The new government has committed itself to addressing corruption and improving the management of public resources. As part of this process, one must re-examine just how much government is involved in business. This is one of the many tasks that the Council of Eminent Persons is undertaking in the first 100 days of the new government.

To be done correctly, would require a careful study of GLCs and their impacts. This could then rejuvenate the private sector while enabling good GLCs to thrive, and fortify Malaysia’s fiscal position in the process. This is what Malaysians should expect – and indeed demand – of the “New Malaysia”.

Jayant Menon is Lead Economist in the Economic Research and Regional Cooperation Department at the Asian Development Bank. This is an abridged version of an item that first appeared on the East Asia Forum.