Sunday, October 7th, 2018

 

MRT2 – Govt cancels contract for underground portion, to call international tender

PETALING JAYA: The federal government will be calling for an international open tender for all unfinished underground work of the Mass Rapid Transit 2 (MRT2) project, after negotiations with existing turnkey contractor MMC-Gamuda Joint Venture to bring down total construction costs saw them agreeing on the above-ground portion but not underground segment.

“As a result, the Cabinet has decided to terminate the underground contract. All unfinished underground work will be retendered out through an international open tender process. This decision was made after considering that the federal government can achieve further significant savings by retendering the underground work package compared to the offer made by the existing contractor,” Finance Minister Lim Guan Eng said in a statement today.

Costs for the underground portion stood at RM16.71 billion.

Negotiations with MMC-Gamuda JV for the above-ground works, however, were successful, with the project delivery partner (PDP) committing to completing the portion at a cost of RM17.42 billion, versus the original cost of RM22.64 billion, translating into savings of RM5.22 billion.

The savings are achieved through a reduction in cost and rationalisation in work scope without cancelling any of the above-ground stations.

The Ministry of Finance with cooperation from the Attorney-General's Chamber, the Ministry of Transport, agencies such as Mass Rapid Transit Corporation Sdn Bhd (MRTCo) and the private sector, embarked on a cost-rationalisation exercise on MRT2 in May 2018. An engineering consultancy firm was engaged to conduct the cost rationalisation.

Lim said the expected cost reduction for MRT2 will cut the fares rail passengers will have to pay, and boost public transport usage in the Klang Valley.

MRT2, also known as the Sungai Buloh-Serdang-Putrajaya Line, was approved by the Cabinet on Feb 26, 2014 with initial estimated cost of RM28 billion. This figure did not include consultant fees, PDP fees, interest cost and overhead costs for MRTCo.

However, the cost of MRT2 ballooned to RM56.93 billion due to the approval for a railway scheme that had a new line extended to Bandar Malaysia, a change in scope, depreciation of the ringgit and other factors. The overall cost comprised RM39.35 billion for construction, RM6.18 billion land acquisition, RM360 million for feeder buses and depots, RM1.2 billion others, as well as RM9.84 billion worth of interest expenses during construction.


MRT2 – Govt cancels contract for underground portion, to call new international tender

PETALING JAYA: The federal government will be calling for an international open tender for all unfinished underground work of the Mass Rapid Transit 2 (MRT2) project, after negotiations with existing turnkey contractor MMC-Gamuda Joint Venture to bring down total construction costs saw them agreeing on the above-ground portion but not underground segment.

“As a result, the Cabinet has decided to terminate the underground contract. All unfinished underground work will be retendered out through an international open tender process. This decision was made after considering that the federal government can achieve further significant savings by retendering the underground work package compared to the offer made by the existing contractor,” Finance Minister Lim Guan Eng said in a statement today.

Costs for the underground portion stood at RM16.71 billion.
Negotiations with MMC-Gamuda JV for the above-ground works, however, were successful, with the project delivery partner (PDP) committing to completing the portion at a cost of RM17.42 billion, versus the original cost of RM22.64 billion, translating into savings of RM5.22 billion.

The savings are achieved through a reduction in cost and rationalisation in work scope without cancelling any of the above-ground stations.

The Ministry of Finance with cooperation from the Attorney-General's Chamber, the Ministry of Transport, agencies such as Mass Rapid Transit Corporation Sdn Bhd (MRTCo) and the private sector, embarked on a cost-rationalisation exercise on MRT2 in May 2018. An engineering consultancy firm was engaged to conduct the cost rationalisation.

Lim said the expected cost reduction for MRT2 will cut the fares rail passengers will have to pay, and boost public transport usage in the Klang Valley.

MRT2, also known as the Sungai Buloh-Serdang-Putrajaya Line, was approved by the Cabinet on Feb 26, 2014 with initial estimated cost of RM28 billion. This figure did not include consultant fees, PDP fees, interest cost and overhead costs for MRTCo.

However, the cost of MRT2 ballooned to RM56.93 billion due to the approval for a railway scheme that had a new line extended to Bandar Malaysia, a change in scope, depreciation of the ringgit and other factors. The overall cost comprised RM39.35 billion for construction, RM6.18 billion land acquisition, RM360 million for feeder buses and depots, RM1.2 billion others, as well as RM9.84 billion worth of interest expenses during construction.


Financing, viability of new national car a drag on DRB-Hicom?

PETALING JAYA: While DRB-Hicom Bhd's participation in the new national car development is viewed to be in line with its strategic automotive plan, analysts have concerns on the financing and viability of the project that may drag DRB-Hicom in the short term.

HLIB Research is neutral on the revelation of DRB-Hicom's 96.9%-owned Composites Technology Research Malaysia Sdn Bhd (CTRM) as one of the potential partners for Malaysia's new national semi-autonomous car project, despite details remaining sketchy.

“We have concerns on the project's financing and viability (at least in the short term), as DRB is still in the midst of its restructuring exercise for a turnaround after registering losses for the past three financial years (dragged by Proton), while Proton may need equity injection in the near term to finance its growth plan,” the research house said in a report.

“The overall details of the new national car project remain sketchy and the mentioned timeline is relatively aggressive, in our view. Given the short timeline, the prototype of the new semi-autonomous car may be based on existing developed ideal/vision prototype. We have doubts on Malaysia's existing capability and capacity for the project. It was not mentioned if the project would rope-in foreign partners/supports,” HLIB Research said.

Relating to the production of the car, it said the project is likely to utilise existing manufacturing facilities in Malaysia at the initial stage, should the new car is on track to roll out before 2020.

“Furthermore, the new model is mentioned to be semi-autonomous, indicating that our existing infrastructure will need to be developed (at a fast pace) to accommodate to the features of the car.”

It maintained a “buy” call on DRB-Hicom with an unchanged target price of RM2.80, as it is positive on Geely's strong support and commitment towards Proton's turnaround.

“The new developments with Geely has further strengthened our view on its commitment in turning around Proton and establish Proton as its platform for regional Asean market expansion as well as penetration into China,” HLIB Research said, adding that apart from the Boyue (to be launched next month), Proton is confirmed to introduce two new Geely models (SX11 and VF11) in 2019-2020.


China slashes banks’ reserve requirements as trade war crimps growth

BEIJING: China's central bank today announced a steep cut in the level of cash that banks must hold as reserves, stepping up moves to lower financing costs and spur growth amid concerns over the economic drag from an escalating trade dispute with the United States.

The reserve requirement cut, the fourth by the People's Bank of China (PBoC) this year, comes as Beijing has pledged to expedite plans to invest billions of dollars in infrastructure projects as the economy shows signs of cooling further, with investment growth slowing to a record low.

Reserve requirement ratios (RRRs) – currently 15.5% for large commercial lenders and 13.5% for smaller banks – would be cut by 100 basis points effective Oct 15, the PBoC said, matching a similar-sized move in April.

Economists predicted further cuts ahead.

Beijing has stepped up liquidity support across the financial system this year as policymakers have focused on calming fears of capital outflows and sought to soothe battered markets even as anxiety grows that a heated trade war with the US could deal a damaging blow to the broader economy.

China's yuan currency has faced strong selling pressure this year, losing over 8% between March and August at the height of market worries, though it has since cut losses as authorities stepped up support.

Today's move will inject a net 750 billion yuan (RM453 billion) in cash into the banking system by releasing a total of 1.2 trillion yuan in liquidity, with 450 billion yuan of that to offset maturing medium-term lending facility loans.

The RRR cut, announced on the last day of China's week-long National Day holiday, indicates that the central bank is worried about the impact of “external shocks” to markets such as a speech last week by US Vice President Mike Pence, said Zhang Yi, chief economist at Zhonghai Shengrong Capital Management.

Pence intensified Washington's pressure campaign against Beijing on Thursday by accusing China of “malign” efforts to undermine U.S. President Donald Trump ahead of next month's congressional elections and reckless military actions in the South China Sea.

Pence's speech marked a sharpened US approach towards China, going beyond the bitter trade war between the world's two biggest economies, which has magnified concerns about the outlook for China's economy.

Weakening exports were already a drag on growth in the first half of the year after giving an added boost to the economy last year, highlighting the need for sustained strength in domestic demand if significant new US tariffs are imposed.

The “very timely” RRR cut is big enough to help boost confidence in the economy, said Xu Hongcai, deputy chief economist at the China Center for International Economic Exchanges, a Beijing think tank.

“The trade war's impact on the economy is showing. There is room for further reductions and I expect another 1 percentage point cut by the year-end,” Xu added.

The central bank said today it would continue to take necessary measures to stabilise market expectations, while maintaining a prudent and neutral monetary policy.

The PBoC would “maintain reasonably ample liquidity to drive the reasonable growth of monetary credit and social financing scale,” it said.

The RRR cut would not create depreciation pressure on the yuan, the PBoC said, adding that the central bank would keep the foreign exchange markets stable.

China's banking regulator has asked banks to significantly lower funding costs for smaller firms and raise their tolerance for non-performaning ratios for loans to small and micro firms.

China's politburo and state council have also replaced use of the term “deleveraging” with “structural deleveraging”, a change that suggests less harsh curbs on debt.

“Liquidity is flush in the banking system. The key question is how to channel cash to the real economy,” said Zhang Yiping, senior economist at Merchants Securities in Shenzhen.

“The external environment is becoming tougher and we cannot rule out further RRR cuts,” Zhang said. – Reuters


Telco sector seen facing stiff headwinds

PETALING JAYA: The telecommunications (telco) sector is expected to face difficult headwinds given the heightened regulatory pressure and competition that is unlikely to abate anytime soon, said PublicInvest Research analyst Eltricia Foong.

“We reckon that the operating landscape for both mobile and fixed-line operators will continue to be challenging. In the past, the fixed-line broadband market had been nonchalant but with the implementation of Mandatory Standard on Access Pricing (MSAP) following the change of federal government in May, this segment has since been hit by lower margin and greater competition,” she said in her report.

With the implementation of MSAP, wholesale prices for network services are expected to be reduced by 8.7% to 12.1% between 2018 and 2020 while retail broadband prices are expected to decline 25% by end-2018.

Although Telekom Malaysia (TM) currently monopolises the fixed-line fibre network, lower wholesale prices and the possible opening of its fibre network could mean greater competition in the future.

Foong said the mobile segment has gone through a price war in recent years but judging from the relatively high profit margins enjoyed by operators, she believes that there is still room for further decline in prices, noting the risk of the regulator pressing for lower prices in the future.

“We note that the mobile industry has been hit by price competition in recent years, particularly the postpaid segment where average revenue per unit (Arpu) has declined from a high of RM91 in 2013 to RM86 currently. Interestingly, prepaid Arpu has been holding up at around RM36 during the same period, though competition had temporarily brought down the rate to RM32 in 2016,” she said.

She noted that Digi was hit the most, as its prepaid pricing was reduced from about RM40 in 2013 to RM32 currently.

Operators in Malaysia continue to enjoy higher profit margin relative to regional peers, with net margins of between 10% and 24%. In Thailand, Indonesia and Singapore, operators’ net margins are between 2% and 20%.

While the price competition that started in 2015 has led to lower profit for most telco players, Foong said, overall Arpu is not likely to improve but instead, may continue its downtrend, either due to market forces or regulatory pressure.

“In an environment of falling revenues, cost optimisation will be the key for players to strive in this challenging telco industry. Digi and Maxis have proven track records in cost management while TM and Axiata are high-cost operators. This could also mean that there is limited scope for Digi and Maxis to extract greater cost efficiency going forward,” she said.

For TM, the MSAP would result in lower revenue for its wholesale business and lower Arpu for Unifi services, and it is crucial for TM to achieve better cost efficiency in order to cushion the impact of further margin erosion.

Foong said TM has the highest manpower cost as a percentage of revenue at 22% in FY17, compared to under 10% for the mobile operators. Although its high proportion of staff cost is justifiable with its extensive backhaul infrastructure, it is still lagging in terms of achieving optimal level of productivity.

“Measured against revenue per employee, TM has the lowest count of RM500,000. Generally, we feel that any staff downsizing measures by TM would be costly and perhaps sensitive given the presence of labour union,” she said.

Other costs that TM could potentially rationalise are supplies and materials, and maintenance costs.

Given the weak prospect of declining revenue while cost rationalisation may be an uphill challenge for TM, Foong does not rule the possibility of TM being privatised in the future, which may make it easier for TM to restructure its operations.

However, a merger between TM and Axiata is unlikely to materialise as the differences in corporate culture would impede a smooth integration process.

Operators with good management track records like Digi and Maxis could still leverage on cost efficiency to minimise earnings decline in the near term, though the scope to do so is limited.

Meanwhile, the less cost-efficient operators are likely to post a more significant drop in earnings in an environment of declining revenue, which would jeopardise their ability to maintain their historical dividend payout.

“Prior to the onslaught of price competition in 2015, the telco sector had been paying attractive dividend but this has since deteriorated over the years. Between 2014 and 2019, our projected DPS CAGR for the sector is -12%.

“In view of the unexciting earnings growth prospects, higher operating risk and lower dividend, we downgrade the telco sector to ‘underweight’. We cut our Arpu assumptions for FY19-20F for all the mobile operators and reduce terminal growth to 1.5%,” said Foong.


China’s Central Bank to cut reserve requirement ratio for fourth time

BEIJING, Oct 7 — China’s central bank announced today it would reduce the reserve requirement ratio (RRR) for most banks by one percentage point, the fourth time this year the country has sought to free up credit for businesses as they face down…


Minister: Malaysian experts to sit on EU panel on indirect land use change

KUALA LUMPUR, Oct 7 — Malaysia has agreed to nominate experts to sit in the European Commission’s Expert Panel on Indirect Land Use Change (ILUC) that could impact the future use of palm oil as part of the biofuel mix within the European…


IMF gathers in quake-battered Indonesia to focus on global economic tremors

BALI, Oct 7 — Rising protectionism, vulnerable emerging markets and record debt levels: The IMF holds its annual meeting this week in earthquake-stricken Indonesia, as it shines a light on tremors in the global economy. Finance ministers and…


Of Malaysia’s cleaner corporate grip

For most countries, government intervention in business activities is inevitable. After all, the government is there to govern and ensure businesses are conducted in a fair and healthy manner that could grow the economy and benefit the people. Government intervention have also lead to the rapid growth of many emerging markets especially in East and […]


Analysing consumer complaints about e-Commerce in Southeast Asia

Most businesses are aware that consumer feedback is highly vital in order to increase its brand credibility. The e-commerce sector is not spared from this as well but in fact is at the forefront in today’s internet savvy era. Consumers can easily vent out their dissatisfactions today through social media channels and other outlets where […]