Saturday, June 11, 2011


Source/转贴/Extract/: youtube
Publish date:09/06/11

UMS signs MOU for stake in US clean-tech firm

Business Times - 11 Jun 2011

UMS signs MOU for stake in US clean-tech firm


SINGAPORE-LISTED UMS Holdings, which has applied for a dual listing in South Korea, is putting its bet on a hydro-power generator that an American clean-tech company is developing to provide affordable alternative energy for residential and commercial buildings in the US and international markets.

UMS, which is in the business of front-end semi-conductor equipment contract manufacturing and electromechanical assembly and final testing, said yesterday that it has signed a conditional memorandum of understanding (MOU) with Terra Verde Technologies LLC, the California-headquartered firm that is developing the hydro-power generator.

Under the MOU, UMS will invest US$1 million in four tranches to purchase a 5 per cent stake in Terra Verde. It will also secure a five-year exclusive agreement to manufacture, distribute and sell Terra Verde's proprietary hydro-power generators in several countries, when the generators become commercially viable.

UMS said that following the payment of the second tranche, Terra Verde will also issue warrants to UMS for the purchase of additional shares in the next 18 months.

Andy Luong, UMS' founder and chief executive, said: 'UMS views this investment as part of its business diversification strategy, leveraging on our core competency in equipment manufacturing.' UMS does not expect the new business investment to have an immediate and material impact on the group's performance in the near term.

In a separate announcement yesterday, UMS said shareholders have approved a resolution for the company to issue new shares relating to its proposed dual listing on the Kosdaq market of the Korea exchange.

UMS has production facilities in Singapore, Malaysia as well as an office in California, USA.

Publish date:11/06/11

Perennial China still 10.7% below IPO price

Business Times - 11 Jun 2011

Perennial China still 10.7% below IPO price

Retail trust makes feeble 1-1/2 cents gain to 62.5 cents on second day of listing


PERENNIAL China Retail Trust (PCRT) made barely a ripple on its second day of trading yesterday, recovering one-and-a-half cents to close at 62.5 cents but still 10.7 per cent lower than its IPO price of 70 cents.

The IPO - which was 1.6 times subscribed - was the company's second go at the public offering after its first offer price of $1 per unit failed to whet investors' appetite during a time of market volatility.

PCRT raised some $776 million from its listing.

The IPO price of 70 cents per unit was also at the bottom of the indicative range of 70-76 cents, with Pua Seck Guan, CEO of PCRT's trustee-manager, saying in May that the company had attracted a stronger book at the lower range and wanted to 'leave a few cents on the table' for investors to reap better returns.

Analysts' response to the stock has been lukewarm, noting that the stock's yield of about 5 per cent would pale in comparison to the other S-Reits currently available in the market.

PCRT joins the other poor IPO performers this year that had succumbed to market dreariness.

Hutchison Port Holdings Trust - which was launched in the aftermath of the devastating earthquake and tsunami events in Japan - closed yesterday down two US cents to finish at 84 US cents, or 16.8 per cent under its IPO price of US$1.01.

The IPO, which is Singapore's largest at US$5.45 billion, had failed to win over local investors, who had reservations about the weak greenback against the Singapore dollar. Distribution from the trust will be paid out in HK dollars, which is pegged to the faltering US dollar - which means forex losses if the Singapore dollar keeps strengthening.

Mapletree Commercial Trust, which delayed its IPO for about a month, closed yesterday at 87 cents, up half-a-cent, and still 1.1 per cent shy of its IPO price of 88 cents.

Harry's Holdings had its last traded price at 14.5 cents, 34 per cent below its offer price of 22 cents.

The exception among this year's IPO is still Dyna-Mac Holdings, which has Keppel Corporation as a shareholder. Its shares closed unchanged yesterday at 54 cents, or some 54.3 per cent higher than its IPO price of 35 cents.

Publish date:11/06/11

Treasury China faces Shanghai office glut risk

Business Times - 11 Jun 2011

Treasury China faces Shanghai office glut risk

But trust's acquisition of Huai Hai Mall has great potential, says PhillipCapital


PHILLIPCAPITAL said Treasury China Trust's (TCT) assets demonstrate its capability in managing property, but also warned of the key risks involved.

In its report yesterday, PhillipCapital did not give a rating for TCT, a business trust based in Singapore.

Earlier on, CIMB Research revised the stock target price of the property developer and real estate owner to $3.38.

However, SIAS Research and JP Morgan maintained their 'overweight' rating on the stock at much lower target prices of $2.21 and $2.15 respectively.

According to PhillipCapital, which paid a site visit to TCT's properties recently in Shanghai and Qingdao, the main threat to TCT is the supply glut of office space in Shanghai, which TCT relies heavily on.

It said that new office supply in 2011 alone is estimated to hit a million square metres, or about three times the average historical annual supply.

'The high level of stocks coming on stream may result in higher vacancy rate and further yield compression in Shanghai office segment,' said PhillipCapital.

It also highlighted that concentration risk is high as TCT's income source hinges on the Shanghai commercial property market.

In addition, TCT may experience higher borrowing costs to fund its development due to interest rate hike and credit tightening in China.

Currently, TCT's interest cost is partially mitigated by the higher exposure of debt in US dollars, with foreign exchange gains contributing to debt servicing.

The strength of the Singapore dollar against the renminbi and the greenback may also post a currency risk to TCT, though PhillipCapital added that this is typical to companies with exposure to operations in China.

Risks aside, PhillipCapital believes there are investment merits for TCT.

Citing TCT's ongoing acquisition of Huai Hai Mall in Shanghai, it said that there is 'great potential on this acquisition due to its prime locality'.

Moreover, the divestment of the majority stake in Central Plaza - valued at 1.72 billion renminbi as at December 2010 - bodes well for shareholders, PhillipCapital said. 'We believe part of the sale proceeds could potentially be returned to shareholders,' it said.

PhillipCapital expects TCT's gross yield to increase from 4.9 per cent in 2010 to 5.4 per cent in 2011 with the acquisition of Central Avenue Mall earlier this year and Huai Hai Mall.

This could be further enhanced to 8.4 per cent by end-December 2012, given TCT's 'strong refurbishment and development pipeline', it said.

TCT units closed trading yesterday at $2.07, down five cents.

Publish date:11/06/11

SIAS calls for curbs on S-chips' misuse of funds

Business Times - 11 Jun 2011

SIAS calls for curbs on S-chips' misuse of funds

It wants SGX to protect investments of local players


THE Securities Investors Association of Singapore (SIAS) has made representations to the Singapore Exchange (SGX) to consider putting safeguards in place to ensure money raised from the Singapore stock market is not misused.

This comes in the wake of news that special auditors of the firm China Milk have flagged several irregularities in the company? transactions and found significant payments were made without board approval and documentation.

"(The) time is right for introducing measures to protect the investments of investors in S-chips. Our representations (to the SGX) are now being considered," said SIAS president David Gerald in a statement yesterday.

"Once monies have been transferred from Singapore to a province in China, Singapore investors will not be able to track the use of funds. The prospect of suing the company in China to recover their investments is dim."

He added: "This must be stopped; the only way is to ensure that our monies are not allowed to be misused and in fact (are) used and reported for the purpose which it was asked for."

A recently released report by KPMG pointed to poor corporate governance and non-compliance with listing rules and accounting standards within China Milk.

In one of many examples, the group? main operating subsidiary, Daqing Yinluo Dairy Co Ltd, spent about US$72.8 million to secure land use rights, work the land and cultivate alfalfa, a herbal crop. But the amount spent on working the land and for cultivating alfalfa totalling US$52.2 million was not announced by the group, KPMG said.

KPMG also said that its investigations faced "numerous obstructions" along the way.

This is not the first instance where investors have been burnt either, Mr Gerald highlighted, pointing to Sino-Environment.

In 2009, special auditors PricewaterhouseCoopers released findings on Sino-Environment, showing some $85 million of questionable deals made without board approval and authorisation.

Publish date:11/06/11

Property shares dip further on new supply

Business Times - 11 Jun 2011

Property shares dip further on new supply

Analysts say that while more demand-side market cooling measures are possible, much of the policy risk has been priced in


PROPERTY stocks, which have been depressed since Polling Day, dipped further yesterday after the government rolled out another bumper supply of sites for the second half of the year.

Analysts also noted that while more demand-side measures to cool the property market are possible, much of the policy risk has already been priced into real estate stocks.

The FTSE ST Real Estate Index dipped slightly by 0.9 per cent yesterday, a day after the Ministry of National Development (MND) said that it would sell new land for at least 17,510 private homes and executive condominium (EC) units in 2011 - a sharp increase from 2010, when land for a then-record 13,945 new homes was sold to developers.

MND released 17 residential sites on the confirmed list of the H2 2011 government land sales (GLS) programme. Together, these sites can yield 8,115 new private homes and EC units.

The new supply comes on top of the land supply for 9,395 private homes and ECs that will be sold in the H1 2011 programme.

Analysts said that the bumper supply was largely expected.

'As expected, a strong pipeline of residential supply is maintained in the H2 2011 GLS programme in response to the need to provide more mass market housing and the government's intention to keep accelerating prices in check,' said DBS Group Research analyst Lock Mun Yee.

On top of the bumper supply, analysts also pointed to National Development Minister Khaw Boon Wan's most recent blog entry as cause for concern. Mr Khaw expressed his worries about a 'sharply rising property market' on Thursday.

'We believe the government would likely have to implement more cooling measures, especially if there is continued strength in mass-segment prices,' said OCBC Investment Research analyst Eli Lee.

Added Citigroup analyst Wendy Koh: 'Developers sold a total of 1,788 units (excluding ECs) in April (an increase of 29 per cent month on month), which is a five-month high. If we continue to see high volumes in May (post-election), we do not rule out the possibility of more measures.'

In particular, she pointed out that one source of uncertainty comes from the ongoing review of the income ceiling for buying new HDB flats, which could be raised in the coming months.

'We think it is important that the Urban Redevelopment Authority and the Housing and Development Board take into account the potential impact of the income ceiling before making any decisions on further measures on the private property market,' Ms Koh said.

But analysts also said that much of the policy risk has already been priced into property counters.

'At this point, we believe much of the headwinds appear to have been factored in but near-term catalysts are lacking and stocks could trade range bound,' said DBS's Ms Lock.

OCBC's Mr Lee agreed: 'We maintain our neutral rating on the residential property sector, as we believe these price dips are mostly priced in given the significant forward visibility at this juncture. Note that share prices of major property developers (such as City Developments and CapitaLand) have fallen significantly year to date, despite continued increases in property prices, as investors brace for potentially lower prices ahead.'

Citigroup said that since policy risks remain, it prefers real estate investment trusts over developer stocks. DBS said that it prefers real estate companies with a diversified business model and strong balance sheet capacity to acquire sites selectively.

Analysts also said that they expect developers to be selective in land bids and bid prices in future as there seems to be a limited upside for home prices now.

Property counters have fallen since May 6, the day before Polling Day, as punters anticipate that more policies would be rolled out to address public concerns about housing.

The FTSE ST Real Estate Index is now 1.4 per cent below its May 6 level. The broader benchmark Straits Times Index, on the other hand, fell by a smaller 0.7 per cent over the same period.

The FTSE ST Real Estate Index has also shed 6.4 per cent since the start of this year on worries about cooling measures.

Publish date:11/06/11

Mid-year strategy (CIMB)

Mid-year strategy
1,552 @07/06/11
Target Index: 1,700
Making the big leap

Investment summary
• Reform, reinvent, re-rating. Transformation remains the watchword and re-rating catalyst for Malaysia, which is reinventing itself through reforms that kicked off in 2004 with the GLC transformation and widened to the government and economic spheres in 2009. This set in motion a re-rating of the market over the past 1-2 years and will remain the key catalyst for the market in the near term. The monthly announcements of entry point projects have had a positive impact on tourism, construction, property, oil & gas and technology companies. We should continue to see newsflow on this front for the next six months. Meanwhile, another transformation is quietly taking place in the political arena, which is timely as the general elections must be held by 2Q2013. We continue to OVERWEIGHT Malaysia and maintain our end-2011 KLCI target of 1,700 points, based on 14.5x CY12 P/E.

• GLC transformation. The first transformation programme started in 2004 with the government’s attempts to turn government-linked companies (GLC) from bloated and inefficient companies into entities that not only can hold their own against the private sector but can be regional champions. The appointment of Tan Sri Azman Mokhtar as Khazanah CEO kick-started the transformation, which has been very successful to date. From 2004 to 2010, the market cap of the top 20 GLCs surged 122% to RM353bn, economic profit jumped 158% to RM4.63bn and ROE improved from 7.1% to 10.5%.

• Government transformation. The GTP started right after Datuk Seri Najib Razak took over as Prime Minister in April 2009 and is the first of a three-pronged plan that maps out the country’s path to Vision 2020. Although the GTP is a long-term initiative, it had some short-term targets that were quite ambitious at that time and were aimed at addressing the public’s myriad concerns, i.e. crime, corruption, education, low-income households, rural basic infrastructure and urban public transport. As the annual report of the first year’s performance showed in Mar, many of the ambitious short-term targets were achieved.

• Economic transformation. Officially launched in Sep 2010, the ETP was the culmination of the government’s economic agenda that built on the 10th Malaysia Plan (10MP), the New Economic Model (NEM) and the principles of 1Malaysia, People First, Performance Now. NEM’s overraching goal is to lift per capita income to US$15,000-20,000 by 2020 but via sustainable means that are all inclusive. Newsflow in the form of monthly announcements of entry point projects has had a major positive impact on the share prices of affected companies and sectors. We expect the newsflow to remain robust at least till year-end.

• Political transformation. The PM has spoken of the necessity for political transformation to ensure that the ruling party remains relevant. This is crucial for the National Front as general elections have to be held by 2Q2013. The Sarawak state elections in Apr threw off mixed signals but the bottomline is that the National Front has to work hard to win over the hearts and minds of the public to secure a comfortable general election win. Historically, success at the polls for the National Front is significantly positive for the market. We expect the general elections to be called in 4Q11 at the earliest but think that 1Q2012 is more likely. MALAY

GLC transformation programme
Reform process kicked off by previous administration

The very first transformation programme started as far back as 2003/4 when the newly formed Tun Abdullah Ahmad Badawi administration attempted to transform government-linked companies (GLC) from bloated and inefficient civil service-like companies into entities that not only can hold their own against the private sector but can be regional champions. The appointment of ex-Citigroup head of research Tan Sri Azman Mokhtar as CEO of Khazanah in June 2004 kick-started the transformation, which we believe can be considered to be very successful. Before the GLC revamp, GLCs were managed somewhat haphazardly with no clear long-term direction and burdensome social obligations.

First transformation was that of the GLCs
The 10-year GLC transformation programme has four phases and we are now in the final phase. The first phase spanning 2004-05 involved the revamp of Khazanah and setting of key performance indicators (KPI) for GLCs. Phase 2 in 2006 was the launch of the 10 transformation manuals and the setting of policy guidelines. Phase 3 which covered 2007-2010 was a period when tangible and sustained results, including benefits to all stakeholders, were expected to be visible. In the final phase, which covers 2011 to 2015, the full national benefits are expected to accrue and several regional champions are expected to emerge. This is already happening with companies such as Axiata, CIMB, Maybank, Sime Darby and PLUS Expressways.
GLC revamp has overall been very successful
Although it has not been smooth sailing for the GLC transformation as some GLCs are still troubled or are muddling along, we believe that the overall numbers speak for themselves. From 2004 to 2010, the market cap of the top 20 GLCs (G20) rose 122% to RM353bn. Their share prices notched up a CAGR of 16.4%, outperforming the KLCI by 1.9% pts. Economic profit increased 158% to RM4.63bn while ROE improved from 7.1% to 10.5%. Before the GLC transformation programme, the G20 were incurring huge economic losses. Although economic profit was only RM765m in FY10, aggregate earnings amounted to RM17.2bn, significantly better than FY04’s RM9.6bn. As for the improvement in ROE, the Putrajaya committee on GLC high performance attributed it to better capital management. Dividends paid by the G20 also increased from RM4.9bn in FY04 to RM9.7bn in FY10.

Khazanah has played a pivotal role in GLC transformation

The GLC transformation programme was driven largely by Khazanah, which has also played an active role in the formulation of the GTP and ETP. Khazanah was behind the hiring of Dato’ Sri Idris Jala as CEO of Malaysian Airlines System. He is now Minister in the Prime Minister’s Department and CEO of Pemandu, the task force in charge of executing the two transformation programmes. As part of the New Economic Model (NEM) driving the ETP, government linked investment companies (GLICs) and GLCs are directed to focus on five key roles including:
1. diligently staying the course in executing the 10-year GLC transformation programme
2. relentlessly continuing their journey to regional champion status
3. pursuing new economy investments in line with the NEM
4. collaborating and co-investing with the non-GLC private sector
5. focusing on core businesses on a level playing field and progressively divesting non-core and non-competitive assets.

PM Najib set new directives for GLCs in his first 100 days
Recall that PM Najib in his first 100 days in office issued a directive to GLCs that they should only operate in sectors in which they can be competitive and that they should divest companies that operate in sectors or scale of activities best undertaken by entrepreneurs. GLCs must compete on a level playing field with the private sector and there will be no issue of the government providing assistance to GLCs by virtue of its shareholding, to the detriment of private sector competition. Also, GLCs will play a complementary role with the private sector in enhancing the competitiveness of the country.

GLICs and GLCs are aligning objectives with national agenda
The five key roles also encompass institutionalising the 10 GLC transformation initiatives (see Figure 7), ensuring that GLCs are regionalised by 2015 and helping to grow Malaysia’s GNI, getting GLICs and GLCs to catalyse new industries, expanding the GLIC’s and GLCs’ scope of collaboration with the private sector. GLICs and GLCs recognise the need for alignment with the national agenda and the need to elevate the execution of their roles to meet the objectives of NEM and Vision 2020.

Government Transformation Programme
PM Najib’s transformation programmes started in 2010, first with GTP 2010 was the year of new transformation programmes under PM Najib, kicking off with the unveiling of the GTP in Jan 2010. GTP was the first of the three prongs of the government’s plan that maps out the country’s path to Vision 2020. Although the GTP is a long-term initiative, it had some short-term targets that were quite ambitious at that time and were aimed at addressing the public’s myriad concerns, i.e. crime, corruption, education, low-income households, rural basic infrastructure and urban public transport.

GTP is led by PM and cabinet, and broken into three phases
The GTP is led by the PM and the cabinet, supported by the Chief Secretary and the civil service. The GTP has three phases including:
Horizon 1 (2010-2012) – Establish a new engine for change and deliver substantial results for the public quickly. This includes setting and achieving targets within NKRAs and MKRAs. Pemandu was established within the Prime Minister’s

Department to oversee, support and accelerate the delivery of these outcomes.

Horizon 2 (2012-2015) – Change within the government is expected to be more pervasive. Important aspects of daily life changed by the National Key Results Areas (NKRAs) and Ministerial Key Result Areas (MKRAs) should be significant. The economic structure of the country should have changed in line with the New Economic Model.

Horizon 3 (2015-2020) – The public should be experiencing a new sense of being Malaysian, high prosperity and better public services. The government should be smaller, more agile and work increasingly in partnership with the private sector to provide efficient public services.

Very encouraging 1st year results for GTP
As the annual report for the GTP showed when it was released in Mar 2011, many of the ambitious short-term targets for the six NKRAs set by the government were indeed achieved. This is commendable as there was and still is a great deal of scepticism. To verify the 2010 performance of the GTP, PM Najib invited a panel of well-qualified individuals from around the world to form the international performance review (IPR) committee. The reviews from the IPR committee members were overall positive and encouraging.

Many NKPIs exceeded
The reduction in crime in 2010 was significant as it was not only the first decline in three years but the drop was three times the 5% target. The results for the crime NKRA were even more impressive, with street crime plunging 35%. But there were some areas of shortfalls in the urban public transport and low-income household NKRAs. However, by and large, we agree that the overall numbers are encouraging and are certainly a step in the right direction.

New NKPIs set for 2011, some quite ambitious
As a continuation of the GTP efforts, targets have been set for 2011 and in some cases, also for 2012. Some of the targets are quite ambitious, especially those for the corruption, education, rural infrastructure and urban public transport NKRAs. We are slightly less impressed by those for crime and low-income household NKRAs as their NKPIs targets do not appear as aggressive as their 2010 targets. Nonetheless, for the crime NKRA, we are very impressed with 2010’s achievements. Sustaining those gains and keeping the momentum going would in itself be positive.

GTP’s success increases odds of success for ETP
The GTP’s effectiveness and success to date under Pemandu CEO, Datuk Seri Idris Jala, bode well for the odds of similar success for the ETP. This is arguably more important for investors as the ETP has a far larger short- to medium-term direct impact on the economy and stockmarket than the GTP. We are already seeing signs that the ETP is on the right track as the monthly announcements of entry point projects have excited the market, particularly for sectors that are direct beneficiaries (including construction and O&G) as well as indirect beneficiaries such as property. In fact, during our Malaysia Corp Day conference in London in May, the Pemandu CEO was optimistic that the ETP would be even more successful than the GTP as the private sector has been an enthusiastic participant.

Economic Transformation Programme
ETP was launched nearly a year after GTP
Officially launched in Sep 2010, the ETP was the culmination of the government’s economic agenda that built on the 10MP, NEM and the main principle of 1Malaysia, i.e. People First, Performance Now. The key goal of the NEM is to lift per capita income to US$15,000-20,000 by 2020 but via sustainable means that are all inclusive. The NEM has eight strategic reform initiatives which will be translated into policy measures that will drive the transformation process. Catalysts include the 131 entry point projects (EPP) identified under 12 National Key Economic Areas (NKEA) of the ETP.

The three biggest winners from ETP would be the construction, property and O&G sectors Drilling down to the sectors and stocks affected by ETP, we see positive implications for the construction, property and oil & gas sectors. Infrastructure projects such as 1) the RM40bn-50bn Greater Kuala Lumpur MRT project, 2) the RM15bn-17bn high speed rail from KL to Singapore and 3) numerous new highways in the Klang Valley, will be a significant boost to construction activity. The MRT project is massive and represents the single largest contract in Malaysia’s history, beating the previous largest project, the RM12.5bn northern double-tracking project. There is plenty of work to go around for not just the MRT project development partner (PDP) but other major players such as MRCB (MRC MK; Trading Buy), IJM Corp (IJM MK;
Outperform), WCT (WCT MK; Outperform) and Muhibbah Engineering (MUHI MK; Trading Buy). The PDP for the MRT is a JV between Gamuda (GAM MK; Outperform) and MMC (MMC MK; Not Rated) and is likely to undertake the tunnelling works too.

Multiple infrastructure projects hugely positive for contractors and developers The MRT project will improve public transportation in the Klang Valley and help alleviate the traffic jams that plague Kuala Lumpur. It should also lift the value of properties in central Kuala Lumpur by improving underground connectivity and enhancing the shopping experience. This is part of the drive to transform Greater Kuala Lumpur into an outstanding city with a population of 10m by 2020 compared with 6m currently. Of the 4m additional people in Greater KL, around 0.5m are expected to be expatriates or Malaysians returning from abroad. All in all, it is estimated that 1m homes will have to be constructed to meet the requirements of an enlarged population base. Other projects that will enhance Kuala Lumpur’s appeal is the RM3.5bn river of life project which will beautify 10.5km of rivers passing through the capital and the high speed rail that would bring Singapore tourists and business to Kuala Lumpur.

ETP is on a roll
Seven months after its Oct 2010 launch, the ETP has moved into high gear, reflecting renewed investor confidence in Malaysia and its reform initiatives. 72 projects involving RM106.4bn investments and the generation of RM153.8bn GNI and 298,865 jobs by 2020 have been unveiled to date. 54 of the projects are EPPs, which means that 41.2% of the 131 targeted EPPs have at least got off the starting block. Pemandu’s consistent detailed updates of the progress of the ETP are encouraging and the sustained positive newsflow should enhance stockmarket sentiment. The next stage is to get the projects off and running in order to produce a tangible growth dividend over the medium term. Four projects are now operational, implementation of another 26 has started and 30 are at various stages

Biggest EPP winners are O&G, tourism and Greater KL
dividend over the medium term. Four projects are now operational, implementation of another 26 has started and 30 are at various stages. The biggest winners in Malaysia’s transformation are oil, gas and energy (11 out of the 54 projects announced YTD), followed by tourism (nine) and Greater KL (five). The EPPs will have enormous spillover impact on the growth of the construction, building materials, logistics, property and tourism-related sectors. Most significant is the MRT project, which is the largest infrastructure project in Malaysia and will lead to enormous economic value creation through a 2.5-3.5x multiplier impact.

Political transformation
Political transformation started with Umno
PM Najib has spoken of the necessity for political transformation to ensure that the ruling coalition remains relevant. The political transformation started with amendments to Umno’s constitution, followed by amendments to the National Front’s constitution. Umno’s constitutional changes in Oct 2009 include:
1. increasing the number of delegates who choose the top party leaders and at the divisional level from 2,500 to 146,500. The enlarged number took into account the 500 delegates from each of the 191 divisions, making up 95,500, and another 51,000 from the party's three wings in the 17,000 branches nationwide.

2. abolishing the nomination quota system to make Umno more democratic and to give as wide an opportunity to members to contest for party posts. The minimum requirement for contesting a post in the party's supreme council is to register oneself and to have held a post in the supreme council or divisional committee for at least one term. To contest for a divisional committee post, one has to be a party member for at least three years.

3. the appointment of an additional Wanita representative in the supreme council, divisions and branches to increase women's voice in the party. This increases the number of appointed members in the supreme council from 12 to 13, from seven to eight at the divisional level and from five to six at the branch level.

4. setting up of the Umno Elections Committee to coordinate the logistics for the party elections which will be held simultaneously.

5. abolishing the annual membership fee (RM1) and replacing with a life membership fee of RM2.

6. allowing leaders of the party wings to accept new members so as to speed up the membership approval process, especially for young people.

7. giving automatic delegate status to the division secretary to attend the Umno general assembly. This is aimed at recognising the contribution of this group, the pillar of the party's administration at the divisional level.

Direct membership of National Front
Key changes to the National Front’s constitution include allowing direct membership of individuals and associations. One condition is that anyone wishing to be an associate or affiliate member must not belong to any party and another is that only a member of a component party can be a National Front candidate in an election.

Political transformation crucial to National Front’s performance in next general elections We believe that political transformation is crucial as general elections have to be held by 2Q2013. Although the National Front has lately been on a winning streak on the by-election front, the Sarawak state elections in Apr threw off mixed signals as the Opposition made significant inroads into the urban and semi-urban seats. The bottomline is the National Front has to continue working hard to win over the hearts and minds of the public in order to secure a comfortable general election win.

Historically, a win by the National Front is significantly positive for the market.

positive for the stock market
Excluding the 2008 elections, the average return for the market 12 months after a general election is a massive 25%. The period after general elections often coincides with Umno party elections, which was often the more important of the two elections as the president of Umno is traditionally the prime minister while the Umno deputy president is traditionally the deputy prime minister of the country. However, for the stockmarket to rally this time around, we believe the National Front has to at least match its general election performance in 2008, which at that time, was considered shockingly poor. The National Front lost its two-thirds majority and captured only slightly more than 50% of the popular vote.

We expect elections to be called by early 2012
For the upcoming 13th general elections, we continue to expect parliament to be dissolved and the polls to be held in 4Q11 at the earliest though we think 1Q2012 is more likely. According to the Merdeka Centre, PM Najib’s approval ratings have remained high but the key challenge is to convert that support into votes for the National Front. Going by the voting trends in the Sarawak state elections, the Opposition is enjoying strong support from Chinese voters. This is why it is crucial that the GTP and ETP are successful as they address issues that are at the core of many urban voters’ values and interest.

Stockmarket will be volatile during general elections period
However, investors have to be cautious when general elections are imminent as the uncertainty could weigh down the market. In the 3-week campaigning period after the Sarawak state assembly was dissolved at end-Apr, the market and Sarawak-related stocks was bogged down by negative speculation on the National Front’s likely performance. We expect much of the same when parliament is dissolved and the 13th general elections are called, i.e. investors are likely to take some profits and sit it out. A convincing victory by the incumbents would be a major catalyst for the market while a poor showing would be a drag on the market and politically-linked stocks.

Economic outlook
Steering through external headwinds
The global economy got off to a good start this year though the nasty surprises in the past few months could derail the momentum in the months ahead. The ongoing crisis in MENA countries sent Brent crude oil price soaring to US$126.74/bbl on 8 Apr before it pulled back 7.9% to US$116.68/bbl currently. Rising inflation pressures have forced central banks in the region to continue raising interest rates to ward off inflation. Japan is reeling from the aftermath of the disastrous earthquake-tsunami. Europe is still mired in debt woes and the economic recovery in the US is still bogged down by housing troubles and soft job growth.

In our view, the impact of the recent events is likely to be transient and should not be significant enough to stifle the global momentum. The recovery momentum should continue but at varying paces for the advanced and emerging economies. Global growth is set to soften in the first half of the year before bouncing back in the second half. GDP growth in Asian emerging economies should stay strong as domestic demand and intra-Asian trade offsets the drag from weak conditions in the US, Europe and Japan. But inflation is a threat to a sustained Asian recovery and capital inflows are posing an additional challenge to policymakers in emerging Asia.

Growth down a smidgen to a still-solid 4.6%
The Malaysian economy lost a bit of momentum in 1Q11 as GDP increased by 4.6% yoy compared to 4.8% in 4Q10. However, we believe the underlying fundamentals are supportive of a steady pace of expansion over the medium term. Private sector demand remains well placed to sustain the overall GDP growth as the support from net trade fades.

Household spending is likely to continue to rise, albeit at a slower and more sustainable pace. Positive consumer sentiment, strong commodity prices, income growth and stable employment growth should keep the spending going though rising inflation and subsidy cuts may chip away at consumers’ spending power. The main hope for a positive surprise lies on the investment side. Total investment, including public investment, expanded 6.5% in 1Q11, a sign that the business sector has returned decisively to expansion mode. Business credit growth has picked up and machinery orders are now firmly on the upward path. Approved manufacturing investments more than doubled to RM12.2bn in 1Q11, which is impressive.

Positive initiatives announced in 2009-10 are expected to aid business confidence and outlook. Besides that, the overall improvement in global FDI and consequently, higher FDI for Malaysia will contribute to private investment growth. A bright spot is net FDI inflows which bounced back strongly to RM29.3bn in 2010 after slumping by about 80% to RM5.0bn in 2009. This reflects investor confidence and a recovery of global FDI flows. Net FDI inflows amounted to RM11.1bn in 1Q11 and were channelled mainly into the services (finance, insurance, business services and wholesale and retail trade), manufacturing (electronics as well as petroleum-related industries) and mining sectors. We estimate that total manufacturing investment approvals will be sustained at RM45.0bn-50.0bn in 2011 and forecast FDI inflows of RM25bn-30bn in 2011, which is lower than Bank Negara Malaysia’s (BNM) FDI projection of RM32.4bn.

Strong private investment prospects for medium to longer term
What is more promising is the boost from the accelerated announcement of entry point projects (EPP) under the Economic Transformation Programme (ETP). A total of 72 projects involving RM106.4bn investments and the generation of RM153.8bn GNI and 298,865 jobs by 2020 have been unveiled to date. 54 of the projects are EPPs, which means that 41.2% of the 131 targeted EPPs have at least got off the starting block. Pemandu’s consistent detailed updates of the progress of the ETP are encouraging and the sustained positive newsflow should enhance stockmarket sentiment. The next stage is to get the projects off and running in order to produce a tangible growth dividend over the medium term. Four projects are now operational, implementation of another 26 has started and 30 are at various stages.

Biggest winners are oil and gas as well as Greater KL
The biggest winners in Malaysia’s transformation are oil, gas and energy (11 out of the 54 projects announced YTD), followed by tourism (nine) and Greater KL (five). The EPPs will have enormous spillover impact on the growth of the construction, building materials, logistics, property and tourism-related sectors. Most significant is the MRT project, which is the largest infrastructure project in Malaysia and will lead to enormous economic value creation through a 2.5-3.5x multiplier impact.

Japan rattles growth outlook for 2-3Q
We expect the economy to continue expanding, albeit by a slower rate in 2Q and early 3Q, partly because of Japan’s supply snag. Firm domestic demand should drive overall economic expansion. The rebound is finally spreading to investment, underpinned by the overall positive business confidence and the stepping up of the ETP. We expect GDP to expand by 4.0-4.5% in 2Q and 6.0-6.5% in 2H, taking the full year’s average growth to 5.5%.

Liquidity, capital flows and inflation risk
Capital inflows fuel excess liquidity
Malaysia is no exception to the massive capital flows that emerging economies have drawn in, having attracted RM71.4bn net inflows of portfolio investment in 3Q09- 4Q10 and RM8.4bn in 1Q11. Foreign reserves jumped by US$18.9bn to hit a historical high of US$132.7bn (RM401.4bn) between Mar and May. The central bank is facing the challenge of managing the massive and volatile capital flows, which have repercussions for the domestic economy.

Catalysts for capital flows
The fundamental factors remain supportive of private capital inflows into Malaysia – brighter growth prospects, positive newsflow on economic transformation, renewed investor interest as well as a higher yield gap. Foreign investors were net buyers of US$29.8m equities in May (US$201.3m in Apr). Foreign holdings of Malaysian debt securities also ballooned to RM173.1bn as at end-Apr from RM146.8bn as at end- Mar, making up 23.5% of Malaysia’s total outstanding bonds. The bulk of the money is invested in Malaysian Government Securities (48.0% of total foreign holdings), followed by Bank Negara Bills (37.2%), and private debt securities and others (9.0%). The massive capital inflows also lifted the ringgit to a 13-year high of RM2.96/US$1 on 29 Apr before it came off to RM3.01/US$1 on 7 Jun, which works out to an appreciation of 1.9% YTD. We expect the ringgit to hit RM3.01/US$1 by end-Jun before easing to RM3.06/US$1 by end-Sep and RM3.08/US$1 by end Dec- 2011.

Start of the rate upcycle
The first to raise interest rates in Asia last year when the economy rebounded from the recession, Malaysia starting hiking its benchmark rate by 25bp to 3.00% on 5 May after a lull since July 2010. The trigger was an acceleration of inflation to a 25- month high of 3.2% in Apr. Although inflation pressures persist, the growth rate should moderate as the year progresses. We believe that global commodity prices will stabilise and inflation expectations will ease as the rate hikes feed through the economy. Although international food and fuel prices are expected to stabilise in 2H11, a delayed pass-through could mean that domestic prices will remain firm. As such, we expect inflation to peak between 3.4% and 3.6% in May-Jun before easing to an average 3.0-3.2% in 2H11 on the back of sustained subsidy cuts. We expect inflation to average 3.2% (1.7% in 2010). In the worst-case scenario, inflation could accelerate to 3.5-4.0% this year if fuel subsidy cuts more than expected.

As inflation risks are rising in a steadily expanding economy, BNM is likely to maintain its guard and focus on the risks of excess liquidity and simmering inflation. However, we believe that the central bank will maintain interest rate at a level that will support growth while keeping inflation in check. As such, we expect BNM to raise the policy rate by another 25bp in 3Q, taking it to 3.25% by end-2011. We also expect the SRR ratio to be increased by another 100bp to 4.0% in July to soak up excess liquidity in the banking system.

Key risks for 2011
Risk of a double dip

Still 30% risk of a double dip in Europe and US
Although our economics team believes that the risk of a double dip of the Malaysian economy is extremely low, double-dip risks are still high for the western developed economies. Double-dip risk appears highest in Europe and the US at an unchanged 30%. Although equity markets appear to be decoupling, this could unravel if Wall Street falls into a tailspin, as it did in 2008.

Political risks
Elections are times of uncertainties
Political noise may have subsided this year but could easily rachet up once general elections are called. Elections in Malaysia are typically hotly contested and the stakes have never been higher. Although general elections are not due till 2Q13, the better- than-expected performance by the National Front in the recent Sarawak state elections should be a confidence booster. We note that the Opposition won eight out of the last 15 by-elections.

Policy risks
Policy flip-flops
Although the Najib administration has promised to avoid the policy flip-flops that marred the Abdullah Badawi administration, imposition of unpopular policies would draw similar reactions. The 2010 Budget re-imposition of the real property gains tax of just 5% met with hue and cry. Likewise, the award of the sports betting licence in 2010 and its subsequent cancellation caused confusion and reinforced the perception that there is still a tendency for policy flip-flops.

Execution risks
Execution in Malaysia has been wanting
Malaysia is well known for coming out with strong proposals and positive policy measures. However, it is also well known for its poor execution and implementation skills. The question repeatedly asked in relation to the GTP and ETP is the authorities’ ability to deliver what they promise. We are comforted that the first-year results of GTP have been encouraging and progress on ETP has so far exceeded expectations.

Corporate earnings risks
Have expectations run too far ahead?
Corporate earnings expectations and actual results are very important in determining the direction of the stockmarket. But analysts’ expectations may have run ahead of fundamentals. In the last 5-6 quarters, the results performances have been mixed, which contrasts with the massive positive surprises in 2009.

Foreign funds flow
How long will foreign funds remain net buyers?
Foreign funds were net sellers of Malaysia for a long time after the Mar 2008 general elections. They only turned net buyers in 2009 when global markets rebounded and again in 2H10 as a result of renewed interest in emerging markets. A reversal of that trend would be negative though the risk is mitigated by Malaysia’s large pension funds which can cushion selldowns. Also, foreign funds’ weightings in Malaysia remain at depressed levels compared with the pre-global financial crisis levels.

Volatility here to stay?
Markets to remain volatile
Volatility is likely to remain a feature of markets in 2011. Adverse news from Europe, the US or China could send shockwaves through global markets. The blackswan events of the Arab spring, the earthquake in Japan and the subsequent tsunami were shocking. But as long as the major markets do not go into a vicious spiral that triggers deterioration in fundamentals, the selldowns should be buying opportunities.

Valuation and recommendation
Born of the desire to lift the country to a higher playing field, Malaysia’s transformation programmes are gathering momentum. We believe the successful revamp of GLCs, which was the first step, convinced the authorities that reforms on a much larger scale can be achieved. This led to the introduction of transformation programmes in the government and economic spheres. The transformation momentum does not appear to be slowing down anytime soon as there are calls to extend it to the political and social arenas over the longer term. While transformation programmes in general are laudable, the more important question is whether they are successful. So far, they appear to be on the right track and have chalked up commendable wins.

Successful execution of the reforms has very positive implications for the stockmarket. This is why our preferred sectors are the key ETP winners which include construction, oil & gas and property. Contractors will enjoy the windfall of new contracts for the construction of the RM40bn-50bn MRT, the long list of new highways and potentially the high-speed rail from Kuala Lumpur to Singapore. Oil & gas is a huge winner from Petronas’s RM50bn investment in Johor as well as Dialog’s Pengerang oil storage project. Property developers in the major markets of the Klang Valley, Johor and Penang will benefit from the Greater KL, Iskandar Malaysia and Greater Penang
transformation plans as well as the huge amount of infrastructure that is being built to improve accessibility.

Sector picks
ETP pump-priming should start in 2011
Construction – We are bullish on the construction sector in 2H11 as many civil and infrastructure projects, both private and public sector driven, will be awarded in the medium term. This suggests a recovery of construction newsflow over the next few months which will be a catalyst for the sector. Mega projects under the ETP and 10MP are progressing past the prequalification stage and tenders will be called from mid- 2011. The RM40bn-50bn Klang Valley MRT project will kick off with the groundbreaking of the RM20bn SBK Line in Jul 11 and the RM10bn-11bn elevated portion is targeted to be awarded starting in 3QCY11. Potential winners of the 6-8 main packages are likely to be the bigger players while the subcontract works should trickle down to the smaller construction and building material companies. Other likely events in 2H11 are the award of the RM2.2bn LRT extension Phase 2, toll roads (NPE and WCE), power plants and oil & gas related marine/port works and various jobs in Iskandar. We reiterate our Overweight on the construction sector, with WCT remaining as our top pick. Muhibbah Engineering replaces Gamuda as our other top pick.

A slew of new incentives from Petronas
Oil & gas – The oil & gas sector is a major beneficiary of the ETP. Sizeable projects which are already at the execution stage include the RM5bn Pengerang tank terminal project where Dialog is a contractor and operator and the US$800m Berantai marginal field development involving SapuraCrest and Kencana as developers and producers. There are 25 more marginal fields to go, with development cost ranging between US$500m and US$1bn per field. This will benefit Malaysian oil & gas companies given the requirement for local content. Two more marginal field contracts are expected to be dished out in the coming months. Another project in the pipeline is Petronas's US$20bn Refinery and Petrochemical Integrated Development (Rapid), which is undergoing a feasibility study. While Rapid is not within the ambit of the ETP, it is in line with the government's aspirations to turn Malaysia into a leading petroleum industry hub in the region. Beneficiaries of the project include contractors and petrochemical players. We continue to Overweight the oil & gas sector given the potential catalysts of ETP newsflow and more contract awards. SapuraCrest stays as our top pick.

Strong sales, M&A and landbanking to re-rate sector
Property – The construction of the RM40bn-50bn MRT project will improve accessibility and greatly enhance property values. Other ETP projects such as the RM15bn-17bn high-speed rail and numerous new highways will enhance economic activities. If the targeted increase in Greater KL’s population from 6m to 10m by 2020 materialises, property developers will be busy supplying to this big pool of buyers over the next 10 years. The 2010 Property Market Report showed encouraging volume and price trends and we expect that to persist in 2011. The recent electricity tariff hike will stoke inflation fears, which is positive for property sales as properties are considered to be inflation hedges. We continue to Overweight the sector and see share price triggers in 1) robust sales and earnings growth, 2) potential M&A activity which would unlock the hidden value of developers and 3) newsflow on landbanking exercises.

Stock picks
We have made significant changes to our top 10 picks. Recall that we replaced MAS with our top property pick Mah Sing in May as MAS is facing headwinds from rising fuel prices. In this report, we are adding Telekom Malaysia (TM) as we believe it will outperform on the back of favourable newsflow such as its wholesaling of HSBB to Celcom and P1 and the likely distribution of proceeds from its sale of Axiata shares to shareholders. Sime Darby is replaced by Petronas Chemical as we are lukewarm about plantation stocks and optimistic about the latter’s strong earnings prospects. For exposure to the banking sector, we recommend Public Bank. In the oil & gas sector, Perisai displaces Kencana, which offers less share price upside, having been a major outperformer. We are bullish about Perisai which offers significant upside potential.

In the construction space, we are keeping WCT but replacing Gamuda with Muhibbah as newsflow from new contract wins for the above-ground portion of MRT Phase 1 will lead to a re-rating of the winners. Gamuda remains an outperform but the market is well aware of its role as project development partner and its high likelihood of securing the tunnelling portion. The market can only guess which contractor will secure the above-ground jobs, the logical winners being the second-tier established contractors. Stocks that we are keeping as top picks include Axiata, MRCB, Sapura Crest and WCT.

Axiata is shaping up nicely as a good capital management story as its net debt/EBITDA is falling rapidly. We project that Axiata will be in a net cash position by FY12, even assuming a 60% dividend payout ratio this year. It has the potential to return a substantial chunk of its excess cash this year as it has excess cash of RM0.66/share and RM1/share assuming a target net debt/EBITDA of 1.0x fo FY11 and FY12. We also believe that Axiata is doing sufficiently well to cushion the erosion of its voice revenues with its data initiatives. Celcom is looking to expand its revenues from small screens which are more profitable than large screens while XL's data strategy is to focus on ease of use and user experience. Axiata is one of our preferred picks in the sector. We maintain our SOP-based target price at RM6.08. The potential re-rating catalyst is dividend surprise given its strong FCF generation.

Mah Sing is poised to record accelerating earnings growth in the coming years on the back of the record RM1.5bn sales chalked up in 2010 and the RM2bn-2.5bn targeted for 2011. Up to the second week of May, sales were brisk at RM975m. This does not include more than RM400m bookings that should be converted into sales shortly. Newsflow on landbanking will also be robust as the group is aiming to buy 2-3x the RM4bn GDV landbank it secured last year. Mah Sing remains our top pick in the property sector with an unchanged target price of RM3.30 based on our target market P/E of 14.5x. Potential re-rating catalysts include continued strong sales and landbanking exercises.

MRCB remains our key GLC construction pick and should benefit from key entry point projects, particularly the RM8bn-10bn Klang River rehabilitation project and the RM10bn Sg. Buloh development. Revelation of more details of these mega jobs should whip up investor interest in MRCB and provide more visibility on the prospects for the group’s property and construction division. MRCB’s ability to top up its order book remains intact and RM1bn worth of new contracts are targeted for 2011. The group has a fairly good chance of getting a slice of the RM1.7bn Phase 2 of the LRT extension works and the RM10bn-11bn non-tunnelling works for the MRT SBK Line. We reiterate our Trading Buy call and target price of RM3.00 which remains pegged to a 10% RNAV discount. The stock could be catalysed by (i) project awards, (ii) increased positive newsflow on ETP, and (iii) progress of the Sg. Buloh land.

Muhibbah Engineering offers exposure to the construction sector, growing global demand for cranes via Favelle Favco and the pick-up in oil and gas capex, both locally and abroad. Prospects for 2011 and beyond lie in the implementation of 10MP and the ETP and the rollout of various oil and gas infrastructure projects. Positive newsflow in 2H11 is backed by the group’s bids for RM3bn worth of contracts, the highest in two years. Potential mid-large scale oil & gas related projects include Vale’s iron ore facility in Perak, the Gorgon project in Australia and Dialog’s petroleum terminal facility in Johor. Other mega jobs such as the MRT and seven new highways offer good opportunities too. Muhibbah Engineering replaces Gamuda as one of our top picks for the sector. We maintain our Trading Buy and RM2.75 target price (20% discount to RNAV). Potential re-rating catalysts include (i) project wins, and (ii) a favourable outcome for the APH project.

Perisai – Following last year's restructuring, Perisai enjoys clearer earnings visibility. It is set to benefit from opportunities in deepwater and marginal fields. Furthermore, skilled new management is firmly in place and is backed by major shareholder Ezra’s (EZRA SP, Outperform) operational strength. Currently, Perisai’s only revenue- generating asset is a pipelay barge, Enterprise 3, which is chartered to SapuraCrest until Jun 2013. An ongoing asset injection of a vessel operator, Intan Offshore, by asset-rich Ezra will give Perisai a new revenue stream come Jun. The acquisition of Garuda, which owns a mobile offshore production unit (MOPU), will enlarge Perisai's asset base further. We maintain our target price of RM1.40, based on our target market P/E of 14.5x. Perisai remains an Outperform, with the potential re-rating catalysts being 1) a marginal field venture, and 2) fleet expansion.

PChem's earnings are set to rise as a result of wider margins driven by high oil price and 11% volume growth. Newsflow on the company's capacity expansion and upgrade of existing facilities will improve sentiment further. On top of this, industry margin for olefins, which is PChem’s key earnings driver, is likely to rebound sharply from the current bottom and head for a peak in 2013. We reiterate our Outperform call and target price of RM9.70, based on 10x CY12 EV/EBITDA to reflect its superior growth and profitability. Key potential catalysts include wider margins as a result of high oil price and volume growth.

Public Bank – We like Public Bank for its quality and strong management, which is reflected in its top-of-the class asset quality, superior operating efficiency and swift loan growth of 13-14%. This is evident from its position as the only local bank that has consistenty recorded strong quarterly net earnings growth of 18-25% yoy since the economic recovery in 1Q10. We are projecting net earnings growth of 13-17% for FY11-13, underpinned by (1) loan growth of 13-14%, (2) expansion of non-interest income, and (3) lower credit costs. We maintain our target price of RM16.00 (pegged to 10% premium over the DDM value) and our Outperform call on Public Bank, premised on the potential re-rating catalysts of (1) above-market loan growth, (2) swifter expansion in China in the longer term, (3) better-than-expected growth in non- interest income, and (4) potential increase in dividend payout.

SapCrest – We like SapuraCrest for its direct involvement in marginal field development and its growing fleet of assets. For the Berantai marginal field development, which comes under the ETP, SapuraCrest has started on the transport & installation works, helped by its in-house pipelay barges. 1HFY1/12 results should include a modest maiden contribution from the project. Once the field starts producing, the company will enjoy recurring fees until the end of the 9-year project. We maintain our forecasts and target price of RM5.12 as we value the stock at a 40% premium over our 14.5x target market P/E given the strong prospects for the sector and SapuraCrest’s superior growth relative to the market. The stock remains an Outperform, with the potential share price triggers being 1) more marginal field work, 2) success in new markets, and 3) more offshore assets.

Telekom Malaysia is an excellent play on fixed broadband and data, which is one of the fastest-growing telco segments in Malaysia. In our view, the market has not fully factored in the strong take-up of Telekom's Unifi high-speed broadband (HSBB) service and wholesale revenue from Maxis and eventually Celcom and P1. Capex is peaking this year, resulting in FCF yields of 9-12% for FY12-13 and gross dividend yield of 6-10%. Likely stock catalysts are Unifi’s strong take-up, the inking of agreements to wholesale HSBB to Celcom and P1, earnings surprise and the sale of Axiata shares. TM is our top Malaysian telco pick, followed by Axiata.

WCT still has an edge in open tenders as it remains one of the efficient contractors and boasts a strong track record. Local project flows in 2011 are likely to be as good as in 2010 for WCT. It is targeting RM2bn worth of new jobs this year, backed by the ETP and 10MP. WCT has also prequalified for the RM10bn-11bn MRT elevated works. Despite the Middle East tensions, we remain optimistic about the group’s prospects in the Gulf region, especially in Qatar and Abu Dhabi. We maintain our Outperform rating and target price of RM4.15, which is pegged to an unchanged 10% discount to its RNAV. Factors that could trigger a re-rating include (i) project wins, and (ii) ebbing Middle East concerns. The stock remains one of our top picks for the construction sector.

The KLCI’s YTD performance has been less than sterling and is relatively unchanged since end-10. Malaysia’s lethargic performance is in line with its regional peers but trails far behind Wall Street. The region’s underperformance is due partly to the flow of foreign funds back to developed markets and the double-whammy of the Arab uprisings and Japan’s crisis. Although we are still wary of the less favourable risk-to- reward ratio for the market after the V-shaped rebound in 2009/10 and we rank external risks such as a possible double-dip in developed markets as the greatest concern, we believe that the KLCI may surprise in 2H11.

Foreign funds remain very underweighted in Malaysia and the 21-22% current foreign shareholding level is still nearly 7% pts below its peak in 2007 before the global financial crisis. The PM was recently in New York, doing his bit to convince investors at the Invest Malaysia New York conference that the reform process is very much on track. The event, which we co-hosted, featured other Malaysian government officials and 10 companies. Before that, in May, we held a London Corporate Day which featured speakers from Pemandu and Khazanah. Both conferences centred on the transformation theme, which we believe is very compelling. If executed well, the impact on Malaysia as a whole and the stockmarket in particular would be very positive.

We maintain our OVERWEIGHT weighting on Malaysia and our end-11 KLCI target of 1,700 points, which we continue to base on its 3-year moving average P/E of 14.5x. The main potential re-rating catalysts remain 1) the transformation programmes which are starting to bear fruit, 2) the possible return of foreign funds given Malaysia’s low weightings and the PM’s charm offensive, and 3) a good showing by the National Front in the 13th general elections.

Source/转贴/Extract/: CIMB Research
Publish date:09/06/11

Genting Singapore Casino royale (MIB)

Genting Singapore
Share price: S$1.97
Target price: S$2.37
Casino royale

Good proxy to the growing Asian economy. We initiate coverage on Genting Singapore (GENS) with a Buy call and SGD2.37 DCF based target price. We forecast 3-year earnings CAGR of 20% driven by Resorts World Sentosa (RWS) on the growing Asian economy and additional VIP tables. Re-rating catalysts are (i) maiden dividends, (ii) M&As (casinos in Taiwan and/or Japan) and (iii) introduction of junkets.

Owns and operates RWS. RWS is one of two integrated resorts (casinos, hotels, malls, etc.) in Singapore. GENS has other subsidiaries but its revenue and earnings are overwhelmingly RWS driven at >98%. RWS in turn, is overwhelmingly casino driven. We estimate that casino operations contribute 90%-95% to GENS’ EBITDA.

RWS most profitable casino in the world. In 2010, RWS generated the highest EBITDA and EBITDA margin among casinos in the world due to low gaming tax of 12%-22% on gross gaming revenue (GGR) and high daily win per table. Despite its location on Sentosa island, away from Singapore’s central business district, RWS has dominated with more than 50% GGR market share.

At least SGD7b gaming market potential in Singapore. Ascribing 0.27% (Macau and Australia average) to the ASEAN nominal GDP, we arrive at a potential SGD7b GGR for the Singapore casinos. Like other gaming markets, we expect the Singapore casinos to grow in tandem with the Asian economy and number of tables. We estimate that RWS can add another 40 VIP tables bringing the total to 227 by year end.

Strong 20% 3-year forward earnings CAGR. We expect the fastest growth to be recorded this year at 35% YoY on RWS’ first full year of operations and additional VIP tables. Also, we forecast that GENS’ net cash position will burgeon to nearly SGD1b or SGD0.08/sh by year end enabling it to embark on M&As or pay maiden dividends. We estimate that GENS can pay a maiden SGD0.03 net DPS this year.

Initiate coverage on GENS with a Buy call and SGD2.37 DCF based target price. Our target price is reinforced by our EV/EBITDA valuation of SGD2.36 which assumes 16x (Macau average 1-year forward EV/EBITDA multiple) to RWS. Our target price implies 3-year forward PEG ratio of 1.1x which is not exuberant. Furthermore, we estimate that the introduction of junkets will add at least 16% to GENS’ earnings

Source/转贴/Extract/: Maybank Investment Bank
Publish date:09/06/11

经济数据未理想 财经市场警钟响








  这量化宽松三期也许木已成舟,要不然最近美元的汇率又陷入新一浪的跌势,黄金价格又重上升势代表了什么呢? 这其实就是在炒作量化宽松三期。









Source/转贴/Extract/: 《联合早报》
Publish date:10/06/11

证投协会吁新交所 为小投资者设保护网

证投协会吁新交所 为小投资者设保护网



陈爱薇 报道


  随着嵘燊集团(China Milk)的特别审计师KPMG发现集团的交易和付款不合规范,新加坡证券投资者协会会长大卫·杰乐(David Gerald)认为是时候推出一些措施,提供龙筹股投资者保障。










  从2008年至今已有超过10只龙筹股被令暂停交易,包括今年的中国合成革高科(Sino Techfibre)、中国鸿星体育(China Hongxing Sports)、宏维科技(Hongwei Tech);2010年有新湖滨控股(New Lakeside Holdings)、嵘燊集团(China Milk)。

  2009年则有中华环保科技(Sino-Environment Technology)、天圜营养集团(Celestial Nutrifoods)、峻煌生化科技集团(China Sun Bio-chem Technology)、东方纪元(Oriental Century)、化纤科技(FibreChem);2008年有中辉控股(ZhongHui Holdings)。



值得关注的是,中国上市公司信账目亮红灯的事件不仅发生在新加坡,美国自今年3月以来已有超过24家中国上市公司被揭发有审计或会计问题。证券商Interactive Brokers Group甚至于周二发出警告,禁止客户融资买入160家中国公司的股票。


  例如前天金英证券研究在推荐中国动物保健品(China Animal Healthcare)时就表示,看好这家公司的业务性质和潜质,认为它不应受最近一些中国公司因账目不清被调查的个案所拖累,可趁目前的低价位吸购。

Source/转贴/Extract/: 联合早报
Publish date:11/06/11

Potential in Islamic REIT

The Star Online > Business
Saturday June 11, 2011

Potential in Islamic REIT


DH Flinders Ltd, a specialist Asia-Pacific corporate advisory practice that focuses on real estate, financial services and small capital sectors, sees good investment opportunities in Islamic real estate investment trust (REIT) in Malaysia.

Executive director Stephen Hawkins says Malaysia already has a good start in terms of Islamic REIT awareness, having established the guidelines for this type of investment.

“Malaysia has syariah guidelines and syariah REIT guidelines, so there's already a formal structure that provides fund managers and operators a structured environment to work within.

“It also provides the regulators with an environment to regulate and investors will be able to see clearly how things will be structured and run in this market,” he tells StarBizWeek.

DH Flinders has offices in Australia and Singapore.

In November 2005, the Government, through the Securities Commission (SC), issued guidelines for Islamic REIT, setting a new global benchmark for the development of Islamic REIT and making Malaysia the first jurisdiction to introduce such guidelines in the industry.

According to Bursa Malaysia website, presently, Malaysia is the only government to establish such guidelines for Islamic REIT.

The guidelines facilitate the creation of a new asset class for investors and provide new opportunities for market players, including fund managers, to further diversify their investment portfolios.

“Malaysia has an advantage over the rest of the region because it has taken the time to put those guidelines in place,” says Hawkins.

On a global level, Hawkins believes that there is a large, untapped market for Islamic REITs. Malaysia, he says, is in a good position to benefit with its established guidelines in place.

“From a Malaysian context, Malaysian people and Malaysian funds are already comfortable with syariah-compliant REITs.

“From an international perspective, there are lots of syariah investors in the Middle East that look to countries like Malaysia that have established guidelines. There's an opportunity to provide more investment products to those investors to give them choice.”

Hawkins notes that by having an established conventional REIT market in Malaysia, both local and foreign investors would be confident in diversifying their investment portfolio into Islamic REIT.

“From a REIT perspective, I see some good opportunities in Malaysia. Investors are already aware of REITs in this country. They've become comfortable with this vehicle in the last five to 10 years.”

According to Bursa, there are 13 REITs being offered in Malaysia now, including two Islamic REITs.

Al-Aqar KPJ REIT is the first Islamic REIT in the world while Al-Hadharah Boustead REIT is the first Islamic plantation REIT.

Both Al-Aqar KPJ REIT and Al-Hadharah Boustead REIT rank among the top-three REITs in Malaysia in terms of dividend yield, according to information on the local bourse's website.

“There are already (Islamic REIT) vehicles out there, but I believe there's a lot more market appetite for this type of products,” Hawkins says.

According to SC guidelines on Islamic REITs, rental incomes are derived from permissible business activities conducted according to syariah principles.

In the case where a portion of the rental is from non-permissible activities, then these rentals shall not exceed 20% of the total turnover of the Islamic REIT.

An Islamic REIT is not permitted to own properties where all the tenants operate non-permissible activities.

With more stringent guidelines (as opposed to) conventional REITs, Islamic REITs usually comprise investments in industrial properties.

This is because industrial properties are the easiest of the property sub-sectors to assess and to ensure that they are syariah-compliant, says Hawkins.

“Most industrial facilities, even if they're multi-tenanted, you kind of know what they're doing and it's easy to asses or judge. But a lot of industrial properties are single tenanted anyway.

“It's harder for a hotel or shopping centre as there's going to be alcohol or gambling activities in this type of property. It's difficult to eliminate this from your tenancy mix. Even from an office point of view, it will be multi-tenanted and it won't be easy to determine what the tenants are doing inside.”

Essentially, properties that are syariah-compliant would need to operate under circumstances where it is not contrary to syariah law. These include gambling activities or the selling of alcohol, tobacco-related products and manufacture or sale of non-halal or related products.

“Fundamentally, industrial properties (tend to be more) compliant with the syariah guidelines,” says Hawkins, adding that industrial properties are capable of generating good and stable yields.

“From my perspective, for the industrial sub-sector, the buildings may not be the trophy assets. They're not going to be the largest office tower or the newest shopping centre in a city.

“But I believe that industrial properties can provide good yields because they have all of (right investment) fundamentals, such as strategic locations and long leases.”

Hawkins also says that the industrial property sector is not subject to huge upswings and downturns experienced by other property sectors.

“In good times, the rents (for industrial properties) may not increase as sharply as other sectors but in a downturn, they are more defensive from a returns and value perspective, and essentially, more resilient.”

Hawkins also believes that industrial property sector is a “proxy for the overall economy.”

“Demand for industrial space is essentially linked to economic activity. Asia is in the middle of a big growth cycle and the world is starting to recognise that Asia is where that growth is, and industrial property is a proxy for that growth.

“As the population grows or economic activity starts to increase, people need more industrial space. It's a good time to be in Asia and Malaysia and a good time for the industrial sector to provide strong returns to investors in a REIT product that is safe and provides solid yield, plus growth.”

Source/转贴/Extract/: The Star Online
Publish date:11/06/11

GAAM: Japanese interested in Iskandar property

The Star Online > Business
Saturday June 11, 2011

GAAM: Japanese interested in Iskandar property


JOHOR BARU: Global Asia Assets (M) Sdn Bhd (GAAM) sees Iskandar Malaysia as offering good prospects to Japanese looking to invest in property development projects outside their home country.

Chief executive officer Fujimura Masanori said the company planned to bring more Japanese investors to invest in the Iskandar Malaysia property market.

He said Johor Baru or Iskandar Malaysia still had ample land for future developments with the prices of properties here still cheaper compared with Kuala Lumpur and Penang.

Fujimura said since setting up its office here last September, about 300 of its Japanese clients had visited Johor Baru and many had shown strong interest to invest in the property market in Iskandar Malaysia.

“They are attracted to Johor Baru's close proximity to Singapore which is a popular destination among Japanese and also the long term prospects of Iskandar Malaysia,'' he told StarBizWeek.

Fujimura said this after signing a memorandum of understanding (MoU) with United Malaysian Land Bhd's subsidiary Seri Alam Properties Sdn Bhd at the Wealth of Iskandar Malaysia Conference recently.

Seri Alam Properties will develop 110 units of bungalows on an 8.09ha site overlooking a lake in Bandar Seri Alam township in Pasir Gudang with a gross development value between RM200mil and RM400mil.

The project is known as Japanese Holiday Homes with each bungalow having a built-up area of 2,200 sq ft and a land size of 4,500 sq ft with its own swimming pool and a club house.

GAAM is a subsidiary of Global Asset Asia Investment Ltd (GAAI), a holding company incorporated in Hong Kong whose clients are mostly high net worth Japanese investors.

“It (the group) has 10,000 cash-rich Japanese clients who are serious investors and always on the look-out to enhance their investment portfolios,'' said Fujimura.

GAAM general manager Takahiro Sakanoue said this was the company's second purchase in the Johor Baru market after the acquisition of two high end luxury condominium blocks of Molek Pine 3, in Taman Molek for RM200mil early this year.

The 28-storey tower block consisting of 212 units and a six-storey block with 36 units, are being developed by Tanjung Bintang Sdn Bhd, which comes under Berinda Group, a property development arm of Kuok Group.

On the bungalows at Seri Alam township, he said it was impossible to get a bungalow of similar size in Tokyo as the city was already densely populated.

Takahiro said a similar bungalow located in the suburbs of Tokyo, about 30 minutes by train to the city centre and minus the lake view, cost a whopping RM37mil each, and a that bungalow in an area about one hour's train ride from the city would sell about RM19mil.

“Our clients love properties in Johor Baru as they are considered bargains for them,'' he said.

Takahiro said Johor Baru was well known to the Japanese after the country's soccer team qualified for the World Cup after beating Iran at Larkin Stadium here in 1997. He said Iskandar Malaysia would also be a good location for Japanese manufacturers planning to relocate their operations elsewhere in view of the natural disasters in Japan, such as earthquakes.

Takahiro said the company would be looking at several options when investing in property projects in Iskandar Malaysia, including having joint-ventures with local partners, buying the properties en bloc or acquiring certain equities in companies. Other than Malaysia, GAAI has similar investments in Canada, China, Cambodia, Europe, Hong Kong, Japan, Macau, Thailand, USA and the Philippines.

Source/转贴/Extract/: The Star Online
Publish date:11/06/11

Mixed picture emerges as QE2 ends

The Star Online > Business
Saturday June 11, 2011

Mixed picture emerges as QE2 ends


June 30 is a date that investors will be looking to with trepidation as it's the day the US Federal Reserve's second round of quantitative easing (also known as QE2), ends.

In fact, pundits have been pondering the future beyond QE2 since end-March.

With recent macroeconomic data indicating a slowdown, the question being asked now is how will the end of the latest round of bond-buybacks by the Fed impact the markets?

What will the impact be across asset classes such as the US dollar, equities, bonds, oil, gold and other commodity futures in light of the slowdown?

Most strategists will already have told their clients to review their positions across asset classes as June 30 nears if they have not done so. They also see a potential market correction.

Some like Oversea-Chinese Banking Corp Ltd analyst Barnabas Gan believe that gold prices may be supported by inflationary pressures and political risks.

He said in an April 14 report that while the end of QE2 would see inflation easing due to there being no further increase in liquidity, higher food and energy prices would still outweigh the effects from QE2.

For Asian equity markets, the end of QE1 in March last year saw the benchmark MSCI Asia ex-Japan index fall 16% as investors fled to gold and short-term US Treasuries.

This may well happen again when QE2 ends although analysts feel that any pull-back this time will be moderate despite the worse-than-expected macroeconomic numbers because compared with a year ago, economies are in a better footing.

On the bond markets, a number of analysts agree that 10-year US Treasuries (the focus of QE2 purchases) will likely see yields rise as demand recedes.

Others see corporate bonds as still a buy despite the slowdown because profits are still being made and banks have stronger balance sheets.

Broadly speaking, quantitative easing involves the increase of the money supply which is then used to buy government bonds and other financial assets such as mortgage-backed securities and corporate bonds.

This is done in order to inject liquidity into the banking system and reflate asset classes so that confidence will be restored which then hopefully will stimulate spending and investments.

In the context of the United States, QE1 was implemented between early 2009 and early last year to provide greater support to mortgage-lending and the housing market.

QE2 was unveiled last Nov 3 following hints from Fed chairman Ben Bernanke late last August that another round of stimulus will be needed to support growth and in particular to lure investors back to riskier assets such as equities.

The Fed implemented QE2 at a time when there was a threat of deflation, that is, in economic-speak, a decrease in the prices of goods and services due to a lack of demand as consumers wait for prices to fall further.

By the time QE2 ends, the Fed will have purchased US$600bil worth of US government bonds in addition to the US$1.75 trillion acquired in the first round.

Slowing growth hurting

Investors' lack of confidence is already being reflected in the US markets, which have been falling since the beginning of the month. When Bernanke did not hint on Tuesday at whether there would be any more stimulus such as a QE3, markets again reacted by dropping.

While US markets closed in positive territory on Thursday after data showed the trade deficit narrowed (due to a weaker greenback), this will be a temporary reprieve since unemployment remains high and the housing market weak.

The slower US growth will also impede global economic growth as demand for goods and services drop. This will impact emerging Asia's export-driven economies the most.

Global indicators are showing this slowdown with the US Institute for Supply Management manufacturing gauge contracting to 53.5 last month from 60.4 in April, the third straight month of decline and the lowest in 13 months.

Similarly, Malaysia's industrial production index, which measures manufacturing activity, fell 2.2% in April from a year ago with regional peers also seeing declines.

China's official purchasing managers' index (PMI) for May showed a slight decline to 52 from 52.9 in April and the PMI reading provided by London-based Markit showed eurozone PMI for May fell to 54.6 from April's 58.

The US Conference Board Consumer Confidence Index decreased to 60.8 in May from 66 in April while the eurozone's consumer confidence index unexpectedly improved in May to minus 9.7 from April's minus 11.6.

Furthermore, the International Monetary Fund has cut Japan's gross domestic product (GDP) forecast to minus 0.7% for the year from 1.4% and the Bank of England left benchmark lending rates unchanged due to sluggish growth even though Brits face 4.5% inflation.

Is there a silver lining?

For some observers, the objectives of QE2 have been met when measured by the easing of lending conditions, the lower yields on long-term US Treasuries and a rise in inflation expectations.

The rise in inflation expectations (via the reflation of assets) is important as this will signal that QE2 is working while lower yields on long-term US Treasuries have induced investors to move into riskier assets, in particular equities.

The question is how will US equity markets fare in the face of higher unemployment and a weak housing market, which economists say may last for a few more years?

Participants at the Reuters 2011 Investment Summit said a QE3 was unlikely because the US economy was showing signs of growth despite a slew of weaker economic numbers, a Reuters report from Thursday showed.

They felt that the weaker numbers might just be temporary as US GDP grew 1.8% in the first quarter and is forecast to grow by about 2.5% in the second.

“I kind of think this is transitory. The (economic) numbers are already starting to reverse,” Richard Bernstein, chief executive of Richard Bernstein Capital Management LLC said.

Charles Schwab Corp chief investment strategist Liz Ann Sonders pointed out that stimulus measures should cease after QE2 so that the US economy could stand on its own.

“It's high time we just chill for a little bit and see if the economy can stand on its own. Stop with this excess stimulus. We are not a fan of any suggestion of QE3,” he said.

Source/转贴/Extract/: The Star Online
Publish date:11/06/11

Tough times for MAS

The Star Online > Business
Saturday June 11, 2011

Tough times for MAS


Talk of being No. 1 in Asia is premature, returning to and sustaining profit must be priority.

ALL is not well with Malaysia Airlines (MAS) (see our cover story this week). While the situation is dire, it is not impossible for the airline to recover its fortunes but it needs some nifty strategic changes and deft execution.

While key officials say they want the airline to be Asia's top one by 2015, they don't say clearly in terms of what. MAS is already among the best in the world in terms of service but that does not spell profit with the airline slipping into an operating loss of RM267mil for the first quarter of this year.

This airline has been through tough times, slipping into massive losses at several points during its history. With help it has come back from the brink of failure but it has not been able to show the kind of sustained profitability that other airlines such as Singapore Airlines have exhibited.

MAS' fortunes have deteriorated so much that low-cost carrier AirAsia overtook it in terms of market value earlier this year (see chart) and seems set to widen its lead as it made a profit in the latest quarter while MAS reported a substantial loss.

MAS has a good product going by the continuing rave reviews for its cabin services. That alone is not enough to make it profitable. As with any business, you arrive at a profit or loss after subtracting costs from revenue.

For an airline, the revenue is dependent on capacity and how much it grows or reduces its routes, the load factor which is a measure of capacity utilisation, and the crucial pricing through which you maximise revenues.

This is to be juxtaposed with costs, of which the major and most volatile one is oil prices on which the jet fuel price depends. Sometimes, your cost savings justify a cutback in routes but a prudent airline will also consider the long-term impact of such a move because you don't want to constrain future growth.

Because airlines are so dependent on oil costs, they try to hedge their positions to cap their costs but when wrongly or improperly done, this can wipe out airlines.

In fact in 2009 MAS had to provide a massive RM3.95bil in provisions for it's hedging which nearly oblitereated its shareholders' funds, requiring it to ask an exemption from de-listing procedures under Bursa Malaysia's Practice Note 17.

In that episode, MAS had hedged at an oil price of US$100 per barrel but what it failed to do was to structure the hedge so as to benefit fully from any fall in the oil price below US$100. Paradoxically, as the oil price collapsed, MAS' profits collapsed too.

For the subsequent quarters, MAS made enormous profits because the oil price rose again, reversing some of the earlier provisions but there were massive operational losses nevertheless.

For the latest quarter, MAS again blames rising oil prices for the losses but there is no explanation as to how many other airlines still manage to make profits, albeit at lower levels.

One has to suspect that this lies in revenue management. Perhaps it does not have enough business class or first class seats. Perhaps it has got its pricing wrong and is cannibalising some of its own market via cheap offerings and through its low-cost airline, Firefly. Perhaps it has given up too many routes to be able to grow rapidly.

Perhaps, MAS has become so obsessed with cutting fares and offering value comparable to low-cost airlines that it is losing its own high yielding market by people who book earlier to take advantage of lower fares.

Perhaps the airline is not very clear about where it should stand in terms of the kind of strategy it must adopt to maximise its revenue. You don't leverage great service by offering value (read low-cost) fares. In fact you do the exact opposite.

Yes, one must agree that new airplanes are more cost efficient and that could make the difference between profit and loss, but does that imply that MAS has been negligent in its fleet planning?

In terms of broad strategy, MAS should just focus on being an excellent full-service carrier, market it as such and leave low-cost operations to subsidiary Firefly. It should get the best people and systems to manage its fleet and price its fares.

It should focus on continued cost reduction in other areas without seriously undermining its service standards, its promotional efforts and its brand reputation and positioning.

And it should engage in prudent hedging policies which allow it to take advantage of falling oil prices instead of being locked into high-cost oil when the price of oil is falling.

Once it has sorted all this out and is back on the firm path of profit, then it can talk about being Asia's number one airline in every respect, not just service.

Managing editor P Gunasegaram is willing to bet that Malaysia Airlines will not meet its own target of becoming Asia's top airline by 2015. Any takers?

Source/转贴/Extract/: The Star Online
Publish date:11/06/11

MAS needs the wow? factor again

The Star Online > Business
Saturday June 11, 2011

MAS needs the wow? factor again


THE tale of Malaysia Airlines is one of many twists and turns. The national carrier has nose-dived into turbulence as well as picked itself up many times over.

Analysts tracking the airline concur that its history, both financially and operationally, is an eventful one, especially since the onslaught of fierce competition from low cost carriers (LCCs) and high oil prices.

“The carrier has faced severe financial challenges over time. Yet, it has managed to survive them. It's interesting in the sense that one day it was flying high and the next thing you know, it has hit bottom but it has, through it all, managed to turnaround,” says an analyst.

“We're not sure if the ride is over yet,” says another analyst, referring to MAS' net loss of RM242.3mil in the first quarter ended March 31 on rising fuel prices and the stronger ringgit.

However, he expects the next few years to be exciting for MAS as the carrier will expand its routes and capacity again after years of consolidation.

High fixed costs

What are the main reasons for MAS' headaches? Analysts say the aviation industry is one with high fixed costs such as aircraft and expensive fuel. The company is also vulnerable to wild swings in demand and external shocks which it has little or no control over. Therefore the company needs to be armed with a good strategy to keep itself in the game.

A decade ago, MAS suffered high losses due to poor management and fuel price increases. Even after the Government took control of the airline from Tan Sri Tajudin Ramli in 2000, it failed to turn around. The Government had renationalised MAS then by buying back Tajudin's shares at RM8 each, over two times the prevailing market price of RM3.62.

After years of mismanagement, MAS lost much of its core competencies in many areas of operations and was burdened by route and fleet expansion programme.

Eventually, MAS reported an operating loss of RM776.6mil and a net loss of RM835.6mil for the year ended March 31, 2002.


In the same year, MAS underwent the famous Widespread Asset Unbundling or WAU revamp to restructure the whole group.

The WAU exercise wowed many with the almost instant result to turnaround MAS dire state to a positive position.

Penerbangan Malaysia Bhd (PMB) was set up in 2002 as a wholly-owned subsidiary of the Minister of Finance Inc following the restructuring of MAS.

What happened under the WAU was that 73 aircraft of MAS (which were tagged with a value of RM5.1bil) as well as an associated RM7bil in debt were taken over by PMB.

The shortfall of RM1.9bil was made up by issuing additional MAS shares to PMB at then RM3.85 each.

The aircraft were then leased back to MAS to enable the carrier to focus on operational efficiency.

With no aircraft assets on its balance sheet, MAS essentially became a marketing entity and operator of leased passenger and cargo capacity on international routes.

Basically, the restructuring transformed MAS's gearing ratio of 700% as at March 21, 2002 to a net cash position thus creating an “asset-light” airline.

The restructuring was successfully executed by Nov 6, 2002 in a record duration of 8.5 months for a restructuring worth billions in size.

The success of the WAU exercise speaks for itself. In the following year, MAS posted a significant improvement after its restructuring exercise. The carrier narrowed its operating loss to RM47mil in 2003. It turned around in 2004 with an operating profit of RM195.6mil and RM317.7mil in 2005.

Not only did MAS managed to turnaround its operation, the carrier also saw its share price increased from RM3.06 on Nov 5, 2002 upon shareholder approval of the WAU restructuring and reached a high of RM5.60 on March 31, 2004.

“At every results briefing post-WAU, investors had left with the impression that the airline was finally getting its fundamentals right,” an analyst recalls.

Precarious state

But MAS continued to be in a precarious state despite having had all its debts transferred and seeing some improvements operationally and financially. High jet fuel prices was a serious concern and were a big factor in pushing it from a newly turnaround company into the red again due to high oil prices in 2005.

Analysts were also critical of MAS fuel hedging strategies then. For the period from April to December 2005, MAS losses amounted to RM1.3bil shocking the market with its worst results since the WAU exercise.

Again, the company needed a restructuring plan to turn the company around - one more time. This time around, the government appointed Datuk Seri Idris Jala as new CEO on Dec 1, 2005 to steer the company out of turbulence.

Within three months he came up with a Business Turnaround Plan 1 (BTP1) where he played a key role in helping MAS return to the black.

Several weaknesses in airline operations were identified as the causes of the RM1.3bil loss. These included escalating fuel prices, increased maintenance and repair costs, staff costs, low yield per available seat kilometre via poor yield management and an inefficient route network.

Fuel costs

Analysts say the most substantial factor for the massive losses was fuel costs. Another factor for the losses was high operating costs. MAS substantially lagged its peers on yield.

The success of the BTP1 saw the airline reporting record net profit of RM851mil for the financial year ended Dec 31, 2007 from a loss of RM1.3bil in 2005.

Jala launched BTP2, a five-year plan to transform MAS into a five-star value carrier and turn in profit of at least RM1.5bil in 2010 according to the plan. MAS posted a net profit of RM234.5mil for the financial year ended Dec 31, 2010.

The plans saw improvement on its quarterly results and the group is getting to a stage where it is ready to start on the next phase to grow again.

Fleet modernisation

MAS is currently embarking on a fleet modernisation and capacity expansion plan to stay ahead of its competitors.

In an interview with StarBiz last year, MAS senior general manager (network and revenue management) Dr Amin Khan says MAS will dispose of some old aircraft and replace them with modern planes.

The rationale is quite clear. Amin points out that leases are generally more expensive than on-balance sheet financing.

“We aim to own a third of our fleet to lower our costs. It's definitely cheaper to own the aircraft than to lease it,” he adds, elaborating that the airline could enjoy cost savings.

MAS currently leases all its aircraft from PMB and will eventually return the aircraft to the latter when the lease expires.

Under its fleet renewal exercise, MAS could potentially own an additional 56 aircraft by 2016 excluding options for 20 B737-800 and 10 A330-300. The aircraft deliveries are scheduled up to 2016.

Net loss

While things are shaping up nicely, MAS shocked the market again when it announced a net loss of RM242.3mil in the first quarter ended March 31, 2011 on rising fuel prices and stronger ringgit.

The net loss reported brought up some questions if the BTP had lost its momentum and its operational efficiency restructuring.

“MAS' poor results will shock the market and we expect significant downgrades by analysts, which may be the key de-rating catalyst,” CIMB Equities Research said.

The brokerage said MAS “significantly undershot” its expectations with a first-quarter core net loss of RM415mil.

“We have forecast RM247mil core net profit for the full year and have been too optimistic in our projections,” it said.

It expressed shock at MAS' performance in the international passenger segment, which saw a 5% year-on-year fall in yields, reversing three consecutive quarters of year-on-year improvement.

Not consistent

Analysts say MAS had not been consistent in its performance of the last decade, disappointing investors at times. “Sometimes when you are thinking things are becoming better for the carrier and then they announce a huge net loss, it disappoints,” an analyst says.

He added that the inconsistency in MAS' performance would only dampened investors confidence. “We think that if MAS is able to step up its performance, it would be an attractive growth story.”

Analysts say MAS' recent operational and financial numbers still indicate that the national carrier needs a more convincing story to tell investors.

Source/转贴/Extract/: The Star Online
Publish date:11/06/11
Warren E. Buffett(沃伦•巴菲特)
Be fearful when others are greedy, and be greedy when others are fearful
别人贪婪时我恐惧, 别人恐惧时我贪婪
投资只需学好两门课: 一,是如何给企业估值,二,是如何看待股市波动
吉姆·罗杰斯(Jim Rogers)

乔治·索罗斯(George Soros)



高估期间, 卖对, 不卖也对, 买是错的。
低估期间, 买对, 不买也是对, 卖是错的。

Tan Teng Boo

There’s no such thing as defensive stocks.Every stock can be defensive depending on what price you pay for it and what value you get,
  • Selected Indexes 52 week range

  • Margin of Safety

    Investment Clock

    World's First Interactive Investment Clock