business plan


AirAsia shareholders approve US$768m deal with Castlelake

PETALING JAYA: AirAsia Group Bhd has obtained shareholders’ approval for the disposal of 25 aircraft to Castlelake LP for US$768 million (about RM3.2 billion), which will free up cash for the group’s digital business plans.

Almost 100% of its shareholders voted in favour of the deal, according to the carrier’s filing with the stock exchange.

AirAsia Group CEO Tan Sri Tony Fernandes declined to speak to the media at its EGM today.

However, he said in a tweet that the move will result in the group having more cash for its digital business, and enable it to be asset-light.

“Selling our aircraft monetises all our aircraft at high prices and avoids residual risk, and allows us to return cash to shareholders and invest in our new digital business,” he said on Twitter today.

“Between accountants and analysts, investors get a raw deal. MFRS 16 had no impact of cash. I value companies on cash generation. Even with that standard and if you use P&L (profit & loss) for analysis, the impact of the new standard MFRS 16… the impact is about RM35 million a year. Not very material,” he added.

The disposal will be done via the sale of the group’s entire equity interest in Merah Aviation Asset Holding Ltd, which is held by the group’s indirect wholly owned subsidiary Asia Aviation Capital Ltd (AACL), to AS Air Lease Holdings 5T DAC, an entity indirectly controlled by US-based investment firm Castlelake.

In addition to the sale of shares of Merah Aviation, Castlelake will also purchase from AACL a total of four new aircraft to be delivered this year, as announced by the group in December last year.

The 25 aircraft comprising A320-200ceo and A320neo under Merah Aviation, together with the four new aircraft to be delivered (A320-200ceo), will be leased back to AirAsia Bhd and/or its affiliates.

Fernandes said in a statement in December last year that the transaction is part of AirAsia’s ongoing transformation into “something more than an airline”.

“As we move towards becoming a travel technology company, the disposal of these aircraft will not only unlock significant value but also bring us closer to our goal of being a truly digital company.

“Years ago, many analysts criticised us for having high gearing and owning assets. Now many understand why we did that. In a few years, our digital strategy will be understood as well,” he said.

Meanwhile, AllianceDBS Research said AirAsia’s higher leasing expenses post disposal of assets will more than offset the factors contributing to its steady outlook this year, and has cut its FY19 and FY20 earnings projections by 15% and 19.4% respectively.

“We made adjustments to our earnings to account for leasing expenses which costs more than owning an aircraft. We have also adjusted our fleet expansion plans in line with management guidance for an additional 18 aircraft for FY19. This brings the group’s consolidated ASK (available seat kilometre) growth to 9.8%, 5.5% and 4.8% for FY19, FY20 and FY21 respectively,” it said in its report today.

It maintained its “hold” rating for the stock, with a lower target price of RM2.38 which includes a 13 sen special dividend from the Castlelake sale.

The research house said the group’s outlook remains steady as the market leader in the industry with 41.7% market share and expansion plans are underway with 18 new aircraft for FY19.

“ASK is expected to grow at 9.8% and RPK (revenue per kilometre) at 10.1% backed by load factors of 84.7%. Subdued fuel prices would help support earnings. Ancillary income would also grow as AirAsia ramps up REDCargo and,” it said, noting that ancillary business contributed 20% to group revenue in FY18.

For the longer term, it favours the stock for exposure in the e-commerce business which could potentially benefit from the upcoming growth.

SMTrack inks MoU for venture into low-cost airline industry

PETALING JAYA: Radio frequency identification (RFID) solution provider SMTrack Bhd is venturing into the low-cost airline industry in Malaysia.

It has entered into a memorandum of understanding with Dexma Express Sdn Bhd to establish a working arrangement to explore the potential investment from the upcoming PT Citilink Indonesia’s operation in Malaysia.

SMtrack will acquire a 60% stake in Dexma’s operation for RM2.8 million.

Dexma is specialised in the sale of carriage by air services for both passenger or cargo. It has established a partnership program with Citilink where Dexma is the appointed general sales agent for air carriage services of passenger and cargo.

Dexma will establish another partnership programme with Citilink for the setting up of Citilink Malaysian’s operation.

Citilink, headquartered in Jakarta, Indonesia, is principally involved in the domestic and international carriage by air services, whether through scheduled or charter flights, for passengers and/or cargo. Citilink is a low-cost brand of Garuda Indonesia, set up to operate shuttle services between Indonesia cities.

Since July 30, 2012, Citilink has officially operated as a separate subsidiary of Garuda Indonesia, operating with its own call sign, airline codes, logo and uniform. Citilink main base is Soekarno-Hatta International Airport and Juanda International Airport.

Dexma will change its name to Citilink Aviation Malaysia Sdn Bhd subject to Companies Commission of Malaysia approval. It will also obtain air operator certificate and any other licenses or permits required for the purpose of Citilink Malaysia’s operation.

“The MOU is to assist the parties to open up to each other in respect of the potential investment in Citilink Malaysia’s operation,“ SMTrack said in a stock exchange filing.

The MOU will be in effect for a year from the date of the MOU and can be renewed by written agreement of both parties. It can be terminated by either party at any time by providing notice in writing to the other party.

SMTrack and Citilink irrevocable confirm and agree to enter into the share sales agreement within three months from the date of the MOU upon which it will supersede the MOU.

The parties agreed to sign non-disclosure agreement in sharing several relevant and necessary information for the potential investment.

Dexma is to provide the term sheet and business plan together with its financial projections and valuation for the planned Malaysian operation for SMTrack’s consideration.

Genting Malaysia’s Equanimity buy a negative surprise

PETALING JAYA: Genting Malaysia Bhd’s (GENM) acquisition of the Equanimity super yacht for US$126 million (RM513.9 million) is a negative surprise for analysts, who are not convinced by the group’s explanation that the acquisition could strengthen its competitive edge.

CGS-CIMB Research said GENM does not have experience managing super yacht and cruise liners.

“We view this news negatively as GENM is not in the superyacht and cruise liner business,” it said in a research note today.

GENM’s share price retreated today to close 3 sen or 0.9% lower at RM3.25 on 5.61 million shares done.

Genting Group’s cruise liner business is managed by Genting Hong Kong. GENM claimed that the acquisition of Equanimity will allow the group to differentiate itself from its competitors and provide a unique and competitive edge for its premium customer business.

“While we agree this could help to boost the VIP business, the impact may not be material considering that the super yacht can only fit 50+ passengers, which includes 31 crew members. Meanwhile, GENM would have to incur additional costs in the form of higher depreciation charges, maintenance and upkeep cost and interest income loss,” said PublicInvest Research.

The original cost of the super yacht was US$250 million and was handed over to the Malaysian government in August 2018 pursuant to the US Department of Justice’s asset recovery operations as part of its probe into 1Malaysia Development Bhd (1MDB) funds.

Finance Minister Lim Guan Eng revealed that the government has spent over RM14.2 million to maintain the yacht over the last eight months.

Assuming the worst-case scenario whereby the Equanimity does not generate any revenue contribution over the next few years, CGS-CIMB estimates GENM FY19-21 earnings per share (EPS) could fall by 3.4-5%.

“However, we maintain our EPS forecasts for now until we have clarification of GENM’s future business plans for Equanimity.”

The research house opined that the deal will have minimal impact on GENM’s balance sheet as net debt will rise to RM2.28 billion or 0.12 times net gearing. As at end Dec-18, GENM had RM1.77 billion of net debt or 0.1 times net gearing.

CGS-CIMB is maintaining a “hold” call on GENM with an unchanged target price of RM3.25.

“Re-rating catalysts are the opening of the new outdoor theme park in 2019F and positive earnings contribution from Equanimity while de-rating catalysts are the new theme park failing to open in 2019 and losses from Equanimity.”

Given GENM’s large cash pool of about RM8 billion, PublicInvest Research believes the group could easily finance the acquisition with its internally generated cash.

“Based on our estimate, this could result in a 5-7% decline in our FY19-21 net profit forecasts if we were to factor in the impact of loss of interest income, additional depreciation cost and maintenance cost for the super yacht.”

PublicInvest Research is maintaining its “underperform” rating on GENM with an unchanged target price of RM2.70.

Bioalpha ventures into Thai market

PETALING JAYA: Bioalpha Holdings Bhd is venturing into Thailand market through its partnership with Bangkok-based Silver Plus Manufacturing (Thailand) Co Ltd.

The group in a statement said that its wholly owned subsidiary Bioalpha International Sdn Bhd has entered into a distribution agreement with Silver Plus for the distribution of its house brand health supplement products in Thailand.

Under the distribution agreement, Silver Plus will be granted exclusive rights to distribute Bioalpha’s products under the house brand “Apotec” to its client network in Thailand.

The range of offerings to be distributed include both functional foods and health supplements products that may be infused with herbs such as Tongkat Ali, Kacip Fatimah and Misai Kucing. The duration of the agreement is five years.

Silver Plus, which has been in operations for the past six years, is involved in the import and export business, as well as distribution of food-related products in Thailand.

“Through this tie-up, we shall work on strengthening our presence in Thailand with marketing activities of our house brand products. Silver Plus will undertake promotional efforts to boost sales across the country, in addition to conducting market and consumer analysis. This will aid Bioalpha in understanding the local consumers’ trend in order to develop an effective business plan. Moreover, Bioalpha has also established a performance incentive plan for Silver Plus to meet the target sales,” said Bioalpha managing director William Hon.

Financing not main constraint to SMEs’ business growth

PETALING JAYA: Financing is not the main constraint to small and medium enterprises’ (SMEs) business growth, but factors associated with operating and business conditions, namely increasing competition, fluctuating demand, rising input costs as well as labour costs.

In its Financial Stability and Payment Systems Report, Bank Negara Malaysia (BNM) said according to a survey it conducted last year, difficulty in accessing sufficient financing was ranked low, second to last out of the nine constraints identified by SMEs.

Findings from the survey revealed that financing barriers faced by SMEs are mainly related to documentation, costs as well as business viability.

SMEs that experienced rejections of their financing applications cited insufficient documentation, cash flow to meet repayments and non-viable business plans as the main reasons for rejection.

About 46% of the respondents stated that the financing products offered by financial institutions did not meet their business needs due to high financing costs, insufficient financing amount and onerous documentation requirements.

The average financing rate that respondents were willing to pay was 3.88%, well below the average lending rates to SMEs of 6.18% at the time of the survey (Q2 2018).

The challenges raised by businesses in the survey point to opportunities for improvements in the on-boarding process of financial institutions (including documentation requirements) and financial management capabilities of SMEs to enhance their creditworthiness, it added.

A total of 1,529 SME businesses participated in the survey. The survey is part of the central bank’s ongoing efforts to promote continued access to financing for SMEs.

InvestKL CEO: Some MNCs’ plans fail to take off because of external business reasons

KUALA LUMPUR: While many large global multinational companies (MNCs) have successfully thrived in Greater Kuala Lumpur, some ventures have failed to take off here due to various business reasons.

According to investment promotion agency InvestKL, MNCs that did not proceed with their investments in Greater Kuala Lumpur from 2011 to 2018 include Iffco, Darden, Red Lobster, Rhodium, KBR, Anheuser-Busch InBev (AB InBev) and S&D Sucden.

These MNCs are deals that have been removed from InvestKL’s tracking as they no longer meet the requirements of quality MNC investments.

InvestKL CEO Datuk Zainal Amanshah (pix) denied that these MNCs have exited the Greater Kuala Lumpur market, but clarified that these are MNCs that have, over a period of time, expressed that their investments or joint ventures would not proceed.

“It’s not correct to say that they pulled out. They did not proceed with their investment plans,” he told SunBiz.

“Over the years, investments do not materialise because of a change in business direction. These companies have reviewed their investments and decided not to proceed because of different business plans or economic conditions, but nothing to do with Malaysia or the change in our government,” he emphasised.

An example is soft commodities trader Sucden, which was unable to source for cocoa in the Asean region and had to transfer its trading desk back to Paris.

Sucden Malaysia Ltd general manager Jasbir Singh told SunBiz that it is still operating in Malaysia but it is now a service centre keeping track of its Paris office’s logistics.

”Our role has changed because of the nature of the business and no other reasons. We are cocoa dealers and our supply chain was Indonesia but production in Indonesia is falling rapidly so our clients are now targeting African bean sourcing. This sourcing of Africa beans comes under our Paris office,” he explained.

Zainal said some MNCs were granted incentives but subsequent follow-ups revealed that there was a change in their business direction, or they have decided not to proceed with the venture.

“There is no loss in terms of revenue or tax income. It’s not like we gave them tax incentive, they took it and ran away… that’s not the case at all. These companies did not really start their operations. There is no loss per se.”

American restaurant operator Darden Restaurants Inc first signed a partnership agreement with Secret Recipe Cakes & Café Sdn Bhd in 2013 to develop and operate Darden restaurant brands of Red Lobster, Olive Garden and LongHorn Steakhouse in Malaysia. In 2014, Darden sold Red Lobster to a private equity firm and subsequently went through an entire change in its board of directors in the US.

Olive Garden Malaysia and LongHorn Steakhouse Malaysia have since ceased operations in 2018, while Red Lobster Malaysia currently has three outlets in the Klang Valley, following the closure of Red Lobster outlets in The Intermark, Mid Valley Megamall, Sunway Putra Mall and Gamuda Walk (Kota Kemuning).

AB InBev, the world’s largest brewer, is going through a shake-up in its board now following a period of steep share price declines. It was also reported to be considering an initial public offering of its Asian operations after a string of acquisitions left it with a heavy debt load.

TM banks on new business plan to drive stronger financial performance

KUALA LUMPUR, March 18 — Telekom Malaysia Bhd (TM) is banking on its performance improvement plan (2019-2021) set under the “New TM” initiative to put its finances on a stronger footing in the medium to long term. Acting group chief executive…

TFP Solutions sells loss-making unit

PETALING JAYA: TFP Solutions Bhd is disposing of its loss-making wholly owned subsidiary Tech3 Solutions Sdn Bhd for RM7.90 million cash.

However, the proposed disposal is expected to result in a pro forma gain of RM1.63 million to the group.

In a filing with Bursa Malaysia, TFP said it has entered into a conditional share sale agreement with Cloud Dynamix Sdn Bhd for the proposed disposal.

Tech3 is principally involved in providing enterprise system solutions. Its revenue has been decreasing over the years from RM60.06 million in financial year ended Dec 31, 2016 (FY16) to RM58.84 million in FY17 and RM33.57 million in FY18, due to lower sales of servers as organisations move towards cloud technology instead of setting up their own ICT infrastructure.

It also suffered net losses of RM1.67 million, RM89,000 and RM625,000 in FY16, FY17 and FY18 respectively due to low gross profit coupled with high operating expenses.

“A substantial amount of funds is required to be invested in research and development in cloud technology for Tech3 to catch up with the existing industry players, it would also have to adopt a vastly different business model from the sale, installation and maintenance of servers to a business model that provides cloud technology services to organisations, which may not provide immediate returns to the group.

“As such, the management of the company is of the view that this is an opportune time to dispose Tech3 and to realise a gain on the disposal as compared to further investing substantial amount of funds to turnaround Tech3’s business,” said TFP.

TFP has identified the business management solutions (BMS) segment as the main revenue driver of the group. It noted that revenue from BMS has been on an increasing trend.

It also intends to venture into new businesses that will create synergy with the existing BMS business, including potential collaboration with its partners to provide financial technology to existing customers.

Of the RM7.9 million proceeds to be raised from the proposed disposal, RM3.64 million will be used as working capital for BMS business, RM4.07 million as funding for new business plans and RM200,000 for estimated expenses of the proposed disposal.

RAM forecasts 4.6% GDP growth this year

PETALING JAYA: RAM Ratings expects economic growth to moderate slightly to 4.6% in 2019 after registering a 4.7% growth in 2018, premised on slower exports and investment activities.

“That said, a worse-than-anticipated decline in external demand and volatile financial markets amid the US-China trade dispute as well as a potential no-deal Brexit remain significant downside risks to our forecast,” it said in a statement today.

Despite escalating US-China trade tensions, RAM Ratings head of research Kristina Fong noted that much of the sturdy 1.5% export growth in 2018 is attributable to front-loaded demand ahead of the several rounds of tariffs imposed by both sides. This was mainly driven by firms’ attempts to avoid higher production costs stemming from increased tariffs, coupled with the lag in recalibrating global supply chains.

“This surge in demand resulting from knee-jerk reactions to rising protectionism is not envisaged to keep propping up growth for very much longer,” he said.

The rating agency also highlighted that the overall business sentiment of export-oriented firms covered by the RAM Business Confidence Index (BCI) has been trending downwards, signalling increasing caution amid the US-China trade war.

Closer to home, the construction sector is seen to continue weighing down overall expansion in 2019, premised on the absence of new growth catalysts amid the persistent property overhang and the shelving of big-ticket infrastructure projects.

Meanwhile, capacity-building activities such as investment and hiring intentions are also noticeably weaker across the board according to the latest RAM BCI for 1Q-Q2 2019 indicating that moderating demand prospects have already begun influencing firms’ business plans.

LPI Capital declares 42 sen dividend

PETALING JAYA: LPI Capital Bhd’s net profit for the fourth quarter (Q4) ended Dec 31, 2018 grew marginally by 1.2% to RM84 million from RM83 million a year ago partly due to the increase in claim costs, especially in medical and motor insurance classes.

LPI’s revenue increased 7% to RM389.03 million from RM363.49 million in the previous corresponding quarter, mainly contributed by higher premium written by its wholly owned subsidiary Lonpac Insurance Bhd.

The board has declared a second interim dividend of 42 sen per share amounting to RM167.32 million. Together with the first interim dividend of 26 sen per share amounting to RM103.58 million paid in August 2018, the proposed total dividend payout for FY18 is RM270.9 million, representing 86.3% of the group’s net profit and a 13.3% increase from the total payout in FY17.

LPI told Bursa Malaysia that in Q4, its gross premium income was up 8% to RM304.3 million from RM281.8 million previously.

“Likewise, net earned premium income for the period under review registered a strong growth of 11.9% from RM227.1 million to RM254.1 million.”

The group’s full-year net profit was flat at RM314.05 million compared with RM313.79 million a year ago, while revenue rose 2.9% to RM1.51 billion from RM1.47 billion in the previous corresponding period.

Lonpac said the group improved its market position despite the highly competitive market conditions and slower demand for insurance last year, with gross premium income for the year increased 3.4% to RM1.47 billion from RM1.42 billion written in the previous year.

Fire insurance remains the core portfolio of business contributing 42.4% of its total written premium.

LPI founder and chairman Tan Sri Dr Teh Hong Piow (pix) said Lonpac’s strategy of focusing on product development, enhancing distribution channels and collaborating with key partners will help to continue growing its market share in the light of the challenging economic environment and further liberalisation.

“The group will execute its business plans, which prioritise risk management, organic growth and customer-centric focus,“ he said in a statement.