Tuesday, January 8th, 2019


Barter trade can boost trade activities in Sabah, says CM

TUARAN, Jan 8 — Sabah Chief Minister Datuk Seri Mohd Shafie Apdal expects the implementation of barter trade with its neighbours to boost trade activities in the state, especially in the east coast areas like Sandakan, Tawau and Kudat. He said the…

US stocks open higher on optimism of trade deal

NEW YORK, Jan 8 — Wall Street stocks opened solidly higher today on optimism over US-China trade talks despite fresh signs of weakening global economic conditions. About 10 minutes into trading, the Dow Jones Industrial Average was up 1.2 per cent…

Drop in oil exports pushes up Canada trade deficit

OTTAWA, Jan 8 — Canada's trade deficit with the world widened to C$2.1 billion (RM6.49 billion) in November, as exports fell for a fourth consecutive month, according to government data released today. "As was the case in October, energy products…

Property market will improve this year, particularly the residential segment: Knight Frank

PETALING JAYA: The property market, which experienced a pick-up in activities in 2H2018, is expected to improve this year, particularly the residential segment, said Knight Frank Malaysia.

“Investors’ confidence showed some positive signs as the newly elected Pakatan Harapan government starts to provide more clarity and certainty on its fiscal policies following the tabling of Budget 2019,” it said in a statement today.

In its Real Estate Highlights 2nd Half 2018 report, Knight Frank said that prices are generally holding firm in Kuala Lumpur’s prime housing market.

Although the widening gap between supply and demand coupled with rising financing cost will continue to impinge on price growth, property developers are generally more optimistic thus more launches are expected this year and beyond.

The slight upward revision in the rates of real property gains tax and stamp duty as announced under Budget 2019 are unlikely to have significant impact on the high-end condominium sector although the acquisition and disposal costs in property transactions may be higher.

In contrast, the exemptions and initiatives, in particular the waiver of stamp duty on the instrument of transfer and loan agreement for residential homes valued up to RM300,000 for a two-year period and the six-month waiver of stamp duty charges for properties priced from RM300,001 to RM1 million, are expected to kick-start the housing market moving into 2019 and beyond.

Knight Frank said the introduction of alternative financing through property crowdfunding will further assist first-time home buyers but emphasised the importance of governing the platform with stringent guidelines to avoid potential sub-prime mortgage crisis.

“In 2019, we expect to see more motivated sellers and discerning buyers to be present in the residential market. Various policies announced in Budget 2019, which are designed to aid first-time home buyers, are also expected to kick-start the housing market moving into 2019 and beyond.

“Malaysia’s residential properties will continue to be attractive in the eyes of foreign buyers as a result of our liberal policies, reasonable valuations and coupled with no extra stamp duties,” said Knight Frank Malaysia associate director of residential sales and leasing Kelvin Yip.

In 2H2018, four projects were completed namely Ruma Residences, Pavilion Suites, Premium Residences @ KL Gateway and Dorsett Residences Sri Hartamas, bringing the cumulative supply of high-end residences to 53,033 units.

By 1H2019, the scheduled completions of Inwood Residences @ Pantai Sentral Park, One Kiara – Block A, Residensi Sefina and Opus KL will contribute an additional 931 units to the existing stock.

In 2H2018, there were more previews and launches compared with 1H2018 with notable launches including Agile Bukit Bintang (Block B), Yoo8 of 8 Conlay (Block B), Windsor Suites @ Pavilion Damansara Heights, Trinity Pentamont and Residensi Astrea.

In the secondary market, prices were generally flat in the selected localities under review while the rental market saw a marginal dip in selected schemes reviewed in the Damansara Heights area.

In the primary market, available units of previously launched projects are selling from about RM1,500 per sq ft to RM1,950 per sq ft for units sized below 1,000 sq ft while more recent launches have higher composition of smaller sized units, which resulted in lower quantum pricing but higher price on per sq ft basis.

Challenging landscape for new malls

PETALING JAYA: Less established and new shopping centres without high pre-committed take-up will continue to face challenges this year in the diluted retail market, as supply continues to outstrip demand.

In its Real Estate Highlights 2nd Half 2018 report, Knight Frank Malaysia said rentals will continue to be under pressure as operating costs rise although the new increase in minimum wage is not expected to have a major impact on the retail industry.

“As the retail market remains challenging, it can be observed that malls are taking proactive measures to create new experiences in order to remain relevant. For example, Fahrenheit 88 recently welcomed the country’s very first pop-up Selfie Museum to create a multi-sensorial experience that matches the contemporary ‘insta-worthy’ trend. With modern shoppers becoming increasingly tech savvy, malls are now banking on the use of social media to attract more patrons,” said Knight Frank Malaysia associate director of retail leasing and consultancy Rebecca Phan.

“Vis-à-vis the implementation of The Goods and Services Tax back in 2015, the introduction of Sales and Service Tax did not significantly dampen consumer spending, with the consumer sentiment index remaining at expansionary levels. This serves as a boon for the retail market amidst the current challenging environment,” she said.

Moving into 2019, Phan said less established and newer malls will find it challenging to compete in a diluted market and rental growth will likely be muted as retailers continue to be spoilt for choice.

Knight Frank said owners and operators of existing shopping centres need to continuously refresh and reinvent their assets and offerings by embarking on asset enhancement initiatives while retailers need to ensure that their stores remain relevant to cater to current shopping habits.

In terms of investment and revaluation, the market value holds steady with some of the prime shopping centres reporting an average increase of 1% to 4.5%.

In 1H2019, another six new shopping centres/supporting retail components within integrated developments with a combined retail space of 4.04 million sq ft are expected to come onstream.

Retailers continue to be spoilt for choice as developers of new and less prominent shopping centres offer attractive incentives, partnership and short-term tenancies to pop-up retailers to improve occupancy levels.

Moving forward, Knight Frank expects hypermarkets to downsize as their owners respond to current consumer preference for smaller stores as well as the closure of non-profitable outlets due to changes in domestic retail trends.

Tesco Stores (M) Sdn Bhd is reportedly looking to venture into property development to monetise its assets by redeveloping larger stores in selected localities while premium neighbourhood grocers such as Jaya Grocer, Village Grocer and Ben’s Independent Grocer have successfully incorporated food experiences within their selected outlets.

Retailers are also embracing technology to innovate in-store experiences such as automated restaurants and unmanned convenience stores.

Office market to remain vibrant despite influx of new supply

PETALING JAYA: The Klang Valley office market is expected to remain vibrant this year, despite the influx of new buildings which is expected to affect occupancy rates, said Knight Frank Malaysia.

“Due to the influx of new buildings, particularly in TRX, occupancy rate in Kuala Lumpur city is expected to decline marginally. However, rental rates will continue to hold steady as newer buildings tend to command higher rental rates,” it said in its Real Estate Highlights 2nd Half 2018 report.

The report highlighted the trend of co-working and shared services as a sweet spot in the challenging office market environment.

Labelled “space as a service”, the rising popularity of this market segment is demand driven by freelancers, start-ups and small and medium sized entrepreneurs. Knight Frank expects to see active take-up by co-working, shared services and IT related industries this year.

“Moving into 2019, occupancies in selected sub-office office markets are expected to be under pressure due to heightened competition from impending and existing office stock while rentals will continue to hold steady as newer buildings tend to command higher rates.

“We continue to observe active enquiries and leasing activities in the co-working and IT related segments. Also, an increasing number of older buildings are looking into repositioning and refurbishment to meet current occupier needs,” said Knight Frank Malaysia executive director of corporate services Teh Young Khean.

Dated but well located office buildings such as Menara Weld, Menara Standard Chartered, Menara Maxis and Menara Milenium will reportedly be undergoing repositioning/upgrading works to improve their market competitiveness in terms of rental and occupancy levels.

Knight Frank noted that the new government’s concerted efforts to implement numerous regulatory reforms will augur well for the business operating environment and this is expected to be positive for the country’s economic and property market performance over the longer term.

Looking back at 2H2018, the cumulative supply of purpose-built office space in Kuala Lumpur and Selangor stood at 103.17 million sq ft following the completion of six buildings with a combined space of 1.84 million sq ft.

In 1H2019, office buildings slated for completion include The Exchange 106, Menara Prudential, Menara Star 2, 1Powerhouse and Symphony Square.

Overall occupancy rate for Kuala Lumpur city was about 78.7% in 2H2018 compared with 79% in 1H2018. The overall occupancy rate for decentralised office locations in Kuala Lumpur fringe fell to 82.2% from 83.8% during the same period.

In Selangor, overall occupancy was slightly lower at 78.3% in 2H2018 compared with 79.2% in 1H2018.

The average rentals in Kuala Lumpur fringe and Selangor rose marginally in 2H2018 to RM5.75 psf and RM4.22 psf respectively compared with RM5.72 psf and RM4.20 psf respectively in 1H2018.

However, average rental in Kuala Lumpur city remained flat at RM7.15 psf as owners and landlords of newer office buildings offered competitive rental and attractive tenancy terms to improve take-up.

Potential M&A on the cards for AMMB?

PETALING JAYA: AMMB Holdings Bhd’s recent proposed disposal of its non-performing loans (NPLs) could be a prelude to merger & acquisition (M&A) activity, said HLIB Research.

“While management said this was a capital relief move, we think it could be an exercise to clean up its books to pave way for a potential M&A. Recall, there were attempts in the past by both ANZ Banking Group and Tan Sri Azman Hashim (major shareholders) looking to dispose their stakes but failed,” it said in a research note today.

To recap, AMMB’s wholly owned subsidiaries AmBank (M) Bhd and AmBank Islamic Bhd are disposing of their non-performing loans/financing along with all interest, rights, benefits and entitlement to Aiqon Capital Group’s special purpose vehicles (SPV) for an aggregate amount of about RM554 million.

The AMMB management hosted a conference call on Monday and reassured investors that the price discovery for its RM554 million non-performing loans were determined on an arm’s length basis.

“However, AMMB was unable to share further financial aspects of the deal with Aiqon Capital. While this move could bump up our FY19 earnings forecast by 30%, recoveries in the future may be lesser,” it noted.

HLIB said it is convinced that there are no corporate governance issue as everything was conducted on a proper manner, to its best knowledge.

“Besides, we believe the final disposal amount should not deviate much from the RM554m, since it is only couple of months away from the targeted completion by March 31, 2019. However, this move to monetise its future collections would mean that future recoveries may be thinner.”

“We estimate every 10bp increase in net credit cost could reduce our FY20-21 earnings forecasts by 6%. For now, we have pencilled in a net credit charge assumption of 8-9bp in our model. Note, recoveries narrowed in size by a 10% compound annual growth rate (from FY15-18),” it added.

The AMMB management claimed that it makes commercial sense to monetise its future collection after assessing against the costs and efforts needed to maintain these NPLs (via net present value test).

“That said, the downward adjustment quantum on the headline RM554m was not disclosed; we gathered this would hinge on any NPL collection from between the initial price discovery and the transaction’s cut-off date. As for further potential NPL disposals in the near term, management dismissed odds for the consumer portfolio since the Aiqon’s deal was already very comprehensive (537,068 accounts, mainly retail based) but did not rule out the business segment,” it said.

The disposal amount was within the valuation range of RM450-RM750 million as appraised by KPMG Corporate Advisory.

HLIB Research is retaining a “hold” call on AMMB with a target price of RM4.70.

“Risk-reward profile of the stock is balanced. Key positives are improving cost-to-income ratio and steady asset quality trend. However, we are still concerned of a potential upward normalisation of its net credit cost in the medium- and longer-term coupled with its high LDR of 99%,” it explained.

Malaysia’s GDP growth to ease to 4.7% this year: Moody’s

PETALING JAYA: Malaysia’s real gross domestic product (GDP) growth is expected to recede to 4.7% in 2019 after averaging at around the 5% mark between 2015 and 2018 on the back of external headwinds, according to Moody’s Investors Service.

For 2020, the economy is projected to moderate further to 4.5%.

The rating agency foresees external headwinds from trade protectionism to weigh on trade activity, while the review of infrastructure projects and slowdown in public spending will also prove to be a further drag to growth.

“Nevertheless, economic expansion will still stay stronger than the median average for A-rated sovereigns, even taking moderating growth into account,” it opined.

Moody’s said Malaysia’s credit profile, which is rated at “A3 Stable” reflects its large and diversified economy with healthy medium-term growth prospects, and relatively high government debt that is partly offset by a favourable debt structure and large domestic savings.

It pointed out that the govern-ment’s recent fiscal policy choices, particularly in abolishing the goods and services tax, will narrow its revenue base and reduce fiscal flexibility – while its debt burden which is significantly higher than the A-rated median, will remain a credit constraint.

“However, deep domestic capital markets and high savings provide a stable funding pool for the government’s debt, and partly offset these fiscal weaknesses. A solid institutional framework that includes effective monetary policy supports the country’s credit profile,” Moody’s said.

It also noted that pervasive corruption will likely to remain a challenge for the government, which will also undermine policy effectiveness.

Moody’s said that given a stable outlook of the sovereign rating, a change in the rating is unlikely in the near term, but could face upward pressure if the scope for fiscal consolidation increases.

Conversely, the rating agency said it would consider downgrading the sovereign rating in the event of weakened fiscal prospects, increased debt burden, growing political tensions and diverging views within the government, which could undermine policy effectiveness or impair the government’s ability to adhere to its fiscal consolidation objectives, potentially threatening the stability of capital flows to the country in the process.

Gagasan Nadi Cergas makes lukewarm debut

PETALING JAYA: Despite rising as much as 33.3% to an intraday high of 40 sen, Gagasan Nadi Cergas Bhd ended its first trading day on the ACE Market of Bursa Malaysia with merely a premium of 0.5 sen or 1.7%.

The stock debuted at a premium of 9 sen to 39 sen at the opening bell, but it pared gains on selling pressure and closed at 30.5 sen on 118.6 million shares changing hands, being the second most actively traded counter.

Gagasan Nadi Cergas managing director Wan Azman Wan Kamal said the group intends to continue its efforts in actively tendering for both public and private sector projects.

“Going forward, we remain positive of the Malaysian construction sector outlook and believe that there are many more projects, such as education institutions, affordable housing and medical centers to be built in the near future.”

“We believe our listing today places us in a good position to support these nation-building initiatives. Additionally, our long-term contracts provide us with a stable foundation of recurring income, as we concurrently endeavour to secure new jobs and deliver ongoing works.”

Gagasan Nadi Cergas’s construction order book includes Rumah Selangorku in Putra Heights and Bukit Raja, 1Malaysia People’s Housing in Pasir Mas, Cardiology Centre for Hospital Serdang and Maktab Rendah Sains Mara in Bagan Datuk.

It also holds long-term contracts, namely a 20-year facility management concession for hostels of International Islamic University Malaysia in Kuantan, Pahang till 2034; a 20-year facility management concession for hostels of Universiti Teknikal Malaysia Melaka in Durian Tunggal, Malacca till 2037; a 20-year operation contract for a District Cooling System (DCS) to supply chilled water to the German-Malaysian Institute, Bangi till 2028 and upcoming 30-year operation contract for a DCS and electricity distribution under the Datum Jelatek development.

Gagasan Nadi Cergas plans to raised RM60 million from its IPO with RM42 million via public issue of new shares and RM18 million from the sale of existing shares.

Some RM14 million will be allocated for funding of the Asean Football Federation mixed development; RM6.5 million for capital expenditure of DCS under the Datum Jelatek development; and RM16.5 million for working capital.

ECB rate hike now unlikely before mid-2020, money markets bet

LONDON, Jan 8 —The European Central Bank not only will fail to raise interest rates this year but won't move until mid-2020, well beyond the timing suggested by the bank's policy guidance, money market pricing implies. The ECB, which ended…