Saturday, July 2, 2011

Raising funds to grow

Raising funds to grow
More equity and bond issues likely if M&A spree is to continue

As companies continue to announce mergers and acquisitions (M&As), investors can expect to see an increase in capital-raising activity. This month alone, nine listed companies have announced debt or equity offerings to raise a total of nearly $1.3 billion.

Investors have greeted these announcements of fund raisings negatively. Shares of commodity supply-chain manager Olam International, which is seeking $740 million through a three-tranche equity fund raising, fell as much as 10% in the weeks following the announcement of the fund raising, as investors worried about the earnings dilution that would result. Meanwhile,Osim International, which owns the chain of retail outlets selling massage chairs, saw its stock fallas much as 18% after it announced it would be raising $120 million through the issue of convertible bonds.

In the current market environment, with weak sentiment, poor economic data and a flow of upsetting news, the negative reactionis to be expected. In addition to concerns over dilution, many companies are taking a risk in raising money to grow by acquiring new businesses or assets. If the current soft patch turns out to be a lasting economic downturn, companies could be stuck with excess capacity

For investors who have confidence in the fundamentals of a company, however, fundraisings — whether through placements or rights issues — offer opportunities to buy into a company at a discounted rate.

Andreas Bokkenhe user, an analyst at UBS,says in a research report that the correction in Olam’s stock provides a good opportunity for investors. “Olam has exhibited strong profitability over the past two quarters,” he says. “Astructural derating is warranted, but that recent overhang risk is priced in. We upgrade our rating from ‘neutral’ to ‘buy’ as earnings continue to benefit from the ongoing multiplier effect from live stock consumption on agriculture demand.” As the population in emerging Asia shifts from a grain-based diet to one that includes more animal proteins, it creates additional demand for grains as animal feed

Meanwhile, Macquarie analyst Somesh Agarwal writes in a recent report that there is “deepvalue” in Osim’s stock at current valuations. He believes the selldown in its shares could have been driven by investor anxiety over a possible large acquisition, especially given Osim’s strong cash position. The company had $56.5million in cash and cash equivalents as at end-March and a net cash position of $29 million. In 2005, Osim bought a US-based speciality retailer called Brookstone, a deal which plaguedit for the next half-decade.

However, Agarwal argues that Osim’s bond issue is a good way to increase cash levels “at favourable terms in a volatile market”. He says the company now has a nice cash cushion tofund its China expansion plans and for small acquisitions of about $30 million to $60 million each. Agarwal also points out that Osim’s stock is currently at a large 30% discount to China consumer names. “We expect earnings upgrades after the 2Q2011 results, and see anopportunity for investors who are focused on Osim’s core fundamentals to accumulate the shares at current levels.

”Of course, not all companies — or their cash calls — can be rated alike. For instance, analysts are worried about Neptune Orient Lines’ decision to raise $300 million to acquire new vessels. The increase in capacity comes even as shipping rates show no signs of recovery, theysay. Clearly, investors will have to evaluate themerits of equity offerings carefully

Publish date:27/06/11

Tradewinds winds of change

Fresh concerns about slowing global growth, just as new ships are being delivered, are adding pressure to freight rates and sending shipping stocks into a tailspin. Yet, the major shippers are placing orders for more vessels. Is the industry sailing into a storm? Or, is this a buying opportunity?

For shippers of containerised cargo, the second half of the year usually means big bucks, with more consumers in the US and Europe reaching deeper into their pockets for new flat-screen televisions and designer furniture during the months before Christmas. This year, however, top executives at major container shippers say container volume bound for the trans-Pacific is unusually weak, as consumers hold back on spending ahead of the withdrawal of the US’ QE2 this month and with unemployment as well as inflation on the rise.

Underscoring the dip in demand from the US and Europe are ailing freight rates for cargo transported from factories in Asia to ports in the US and Europe, where the goods are subsequently moved onto shelves in stores belonging to companies such as Wal-Martor Harvey Norman. “The second and third quarters of the year are usually peak quarters for container shipping, especially on the trans-Pacific route, but it has become clear that volume doesn’t appear to be rising much compared with last year and rates look like they will remain weak,” says Divay Goel of Drewry Shipping Consultants

Spot rates for goods shipped from Asia to the US’ East Coast have fallen to US$1,775($2,198) per 40-foot equivalent unit (FEU)container in the week ending June 6, down19.1% y-o-y, according to Drewry Shipping Consultants. Meanwhile, rates between China and the US’ West Coast have dropped almost 40% y-o-y from their peak to US$1,719 per FEU this month, data from the Alphaliner database reveals.

Spot rates apply to about 10% of trans-Pacific container volumes, with most of the remainder locked in under longer-term contracts between shippers and their customers. The rates for these contracts are usually fixed between March and June each year, ahead of the peak shipping season in 3Q. This year, though, many shippers have continued to delay committing to fixed rates, with hopes that the demand outlook could start to improve. “Negotiations have been pushed from May to June, and now to July for some,” says Lim Sim Keat, CEO of Pacific Shipping Trust (PST). “Shippers are holding out for better rates in 3Q, which should have been locked in by now.

”Things are even worse for Europe-bound ships. Rates between China and Europe have declined 61% to just US$849 per 20-foot equivalent unit (TEU), down by more than 150%from their peak in March last year, according to Alphaliner. At those levels, most shippers are barely breaking even, since bunker fuel now costs almost US$700 per tonne, up about 30% since the start of the year. Indeed, analysts now believe that rates on the Asia-Europe trade route could fall below bunker costs within the next two months, battering margins and tipping shippers that are heavily exposed to the Asia-Europe trade into losses

Already, South Korean liner Hanjin Shipping has said it will suspend its service to Northern Europe in early July. The carrier operates the service together with Cosco Shipping, K Line and Yang Ming Marine Transport Corp, its alliance partners. Meanwhile, AP Møller-Maerskand Mediterranean Shipping Co (MSC) have put off increasing freight rates for Asia-Europe from June to July, indicating a lack of demand even during the industry’s busiest period.

The bleak outlook for the container-shipping sector has prompted a new round of analyst downgrades on the sector over the past two weeks and precipitated an aggressive sell-off in shipping stocks. Major liners such as Yang Ming,Evergreen Marine Corp, Wan Hai Lines and Orient Overseas (International)aredown between 17% and 33% since the start of the year, while Neptune Orient Lines(NOL), Southeast Asia’s largest container shipper, has fallen 32.6% during that period. In fact, NOL has been the worst-performing stock on the Straits Times Index recently.

Raymond Yap, an analyst at CIMB, had predicted in January that a relatively mild mid-cycle correction in 2011 would eventually give way to a resumption of the multi-year upturn in container-shipping rates next year. “On both counts, the market has proven us wrong and the reality is that the economic fundamentals for container shipping are not as rosy as we predicted,” Yap says in a June 20 report.

Last month, the US Purchasing Managers’ Index (PMI) dropped from 60.4 points in April to just 53.5, while Europe’s PMI fell from 58 to 54.6 during the same period. Now, Yap has changed his call on the sector to “sell” from “overweight” at the start of the year.

“As the PMI tends to lead China’s export growth by around four months, signs of moderation in the two PMI indices do not bode well for the strength of Chinese exports to the two largest global centres of consumption in 3Q and 4Q,” Yap says in his report. With fleet utilisation now at about 80% in major East-West routes, Yap predicts that average spot rates in 3Q could wind up being just 5% higher than 2Q levels.

New capacity
Yet, some shippers appear to be placing orders for new vessels despite the looming glut, casting a further pall on freight rates beyond this year. On June 23,Yangzijiang Shipbuilding, China’s largest privately owned shipbuilder, announced that it would build eight 10,000 TEU ships for German ship management company Peter Döhle. Earlier this month, Yangzijiang also bagged contracts to build seven 10,000 TEU ships, with options to build 18 similar vessels for New York-listed liner Seaspan Corp.

That’s not all. On June 18, Hanjin announced plans to order five 13,000 TEU ships, which will be placed in the Asia-Europe trade lane when delivered from 2013 onwards. Just days before, NOL announced that it had placed an order with Hyundai Samho Heavy Industries for ten 14,000 TEU ships, which, when delivered in 2013/14, will be the largest vessels in its fleet. NOL also ordered two 9,200 TEU vessels from Daewoo Shipbuilding & Marine Engineering and will be upgrading ten 8,400 TEU vessels it has already ordered from Daewoo to 9,200 TEU ones. NOL’s total bill for the 12 newbuilds and 10 upgrades is estimated at US$1.54 billion, or about 40% of its current market value.

The orders come just as the container-shipping sector has accepted at least 70 new ships of 7,000 TEU capacity on average this year. Including Maersk’s mega order for ten 18,000TEU ships — which will be the world’s largest ever — in February, the global container-ship order book now stands at about 26% of the existing fleet, according to Alphaliner. “Container capacity has increased 4% since end-2010, but the number of 10,000 TEU vessels has increased to 870 during the same period, from 810 at end-2010,” Andrew Lee and Cecilia Chan of Nomura point out.

Based on Yap’s calculations, some 1.62 million TEUs in new capacity should join the market this year, up from 1.22 million TEUs last year. “The cause of this year’s malaise is the wholesale redeployment of previously laid-upcapacity throughout 2010 and into 2011,” he writes. He estimates that total capacity supply will overtake container-trade demand of 8.4% by five percentage points this year. “This has led to carriers actively chasing volume at the expense of rates. Meanwhile, newbuild order sin the first six months of this year were much more than we had expected, potentially spoiling the party for 2013 and beyond.”

Staying flexible Indeed, absorbing the supply of all the mega ships of 10,000 TEUs and above that Maersk, Hanjin and NOL have ordered year-to-date will be especially tough, because they are most suited for the Asia-Europe route, where freight rates are already teetering and on the brink of collapse.

“The only trade lane that can handle these large vessels is the Far East-Europe one,” Lim of PST explains. That’s because port facilities in Europe are better equipped, with deeper drafts and wider berths, and productivity is higher compared with ports in the US and Asia. “In Europe, there are ports in Antwerp, Rotterdam and many other places whereas in the US, shippers have only the Long Beach or Los Angeles ports, so you could be queuing for days before unloading.”

So, why are Maersk and NOL bringing in all these larger ships when freight rates are so weak? Industry watchers say the new vessels are necessary for them to continue operating the Asia-Europe route and to protect their market share. Indeed, many shippers have reported high load factors even with freight rates falling off a cliff. In the end, competition for cargo will squeeze the smaller shippers out of the market. Still, the new vessels entering the market could keep freight rates depressed for a considerable period of time.

“Some of the smaller shipping lines have started taking out capacity on the Asia-Northern Europe routes as a consequence of overcapacity and low rates,” observes Thomas Knudsen, CEO of Maersk Line, Asia-Pacific. “But April and May have also seen a record-high volume of new ship deliveries entering primarily Northern Europe.

”Officials at NOL say the shipper won’t have any problems coping with all the new vessels it is ordering. In fact, NOL is also aiming to reduce its chartered-in vessels from 70% of its 150-strong fleet currently to 50% by 2014. “We are not necessarily adding capacity, we are ensuring flexibility,” an NOL spokesman tells The Edge Singapore. “If demand warrants, when the vessels arrive, we can grow our fleet. If it does not, we can return older and slower chartered vessels to their owners.”

Moreover, interest rates are still low and many yards are looking to fill empty slots, which makes the cost of building new ships attractive. Indeed, NOL’s latest orders were cheaper than similar orders placed in March, based on Clark-son data. In total, NOL will add about 200,000TEUs in net owned capacity to its fleet by 2014, up about 35% from current levels.

Suvro Sarkar of DBS Vickers thinks NOL does need to build larger vessels and that it will be able to effectively redeploy its existing fleet on other routes. “Maersk, MSC, CMA-CGL and Cosco have already deployed or ordered ships of this size and NOL would find it hard to compete effectively on this route [Asia-Europe] without the cost advantages obtained from running these bigger and more efficient ships,” writes Sarkar in a June 16 note. “The smaller 9,200 TEU ships will be redeployed on the trans-Pacific route, where NOL already has a premium position.”

Demand still healthy On the bright side, despite a possible capacity glut, some industry players and analysts still see solid demand over the longer term for the shipping sector. PSA — the world’s second-largest transshipment port—has moved about 11.87 million containers since January, representing a 5.5% growth over the same period last year. NOL has also been seeing a rise in demand for vessels to transport goods from factories in China to stores across Asia and the rest of the world. Indeed, shipping volume at NOL has increased by at least 9% to 995,100 FEUs between Jan 1 and May 6, driven by higher loads on the intra-Asia and Asia-Europe trade lanes, according to latest available data.

“There has been nothing pointing to a con-traction in cargo in the history of container trade, with the exception of 2009,” says Thomas Preben Hansen, CEO of Rickmers Maritime, who believes the smaller vessels can be redeployed to service other trade routes. “There is fantastic demand coming from South America, Africa and other emerging markets, where trade is booming.” Indeed, container volume between emerging Asia and the US has grown by 2.3 million TEUs, or 61%, from 2003 to 2010,according to Credit Suisse.

In addition, NOL has already secured bank-lending amounting to about 78% of the value of its last batch of vessel orders, indicating that maritime banks — which have been tightening credit terms to shippers — are still betting on a likely return from blue-chip carriers. Meanwhile, Yangzijiang, China Development Bank and Peter Döhle have agreed to cooperate on shipbuilding projects amounting to US$1 billion in the next five years. “Even though shippers are not able to get 100% financing like before, banks are still providing between 60% and 80% in ship financing for blue-chip companies,” says Hansen

Even so, neither the shippers nor the analysts tracking their stocks are expecting healthy bottom lines this year. Nomura forecasts full-year losses for the sector on the view that freight rates aren’t likely to rebound to profitable levels this year. The research house has down-graded its rating on the sector from “neutral” to “bearish”. “We believe there is more down-side, as we see consensus earnings overly high and expect losses to erode equity book value,” a June 14 report says. Nomura has “reduce” recommendations for China Shipping Container Lines, Evergreen, Hyundai Merchant Marine, Wan Hai and Yang Ming. It is “neutral” on Hanjin, NOL and Orient Overseas (International).

Meanwhile, Yap of CIMB has “sell” recommendations on NOL and China Shipping Container Lines. “We recommend a switch to SITC International Holdings, which is firmly rooted in the regional intra-Asia trades, where rate momentum has been the strongest,” he says in a recent report. Yap has slashed his price targets for NOL and China Shipping to $1.14 and HK$2, respectively. He expects the shares to hit his targets within three months, “below which we would look to accumulate slowly to position for an eventual 2012 rebound”. It looks like shippers, as well as their shareholders, might have to wait a bit longer for the upturn they were anticipating.

Publish date:27/06/11

Creating a BUZZ

Creating a BUZZ
Once seen as a low-cost unit of Malaysia Airlines, propeller-plane operator Firefly is today ferrying more businessmen than backpackers. How did Firefly MD Eddy Leong achieve that and will the business model change?

From the window of his office at Subang Airport, we see an orange and white Firefly ATR72-500 turbo propeller plane taking off into the sunset as Datuk Eddy Leong, managing director of community airline Fly Firefly Sdn Bhd, rises to greet us.

The 38-year-old chieftain of the low-cost subsidiary of Malaysia Airlines is none the worse for wear after a day trip to Melaka for a Firefly event. Looking at the list of questions his staff had requested ahead of the interview, he laughs: “I’m not prepared for these questions.”

Leong does not have prepared answers to deliver. “PR consultants hate people like us because we just want to tell the truth,” he says. “No point hiding or manufacturing some response that you can’t consistently say the next time.”

Credited with having started Firefly from scratch just over four years ago, Leong laughs again as he recalls his so-called promotion to his current job. “I didn’t see it[as an appointment to CEO],” he says. At the time, Leong was part of the turnaround team at Malaysia Airlines given the task of returning the carrier to profitability within two years from a base forecast loss of RM1.7 billion ($0.7 billion at current rates) in 2006.

“The appointment took, like, five minutes. It was four o’clock in January 2007. He [then Malaysia Airlines CEO and MD Datuk Seri Idris Jala]was busy signing some papers. He asked if I remembered the propeller bus-in-the-sky business we had discussed and he said: ‘It’s yours. Go do it [figure out how to make it work].’”

And the then 34-year-old, who graduated from the Royal Melbourne Institute of Technology in Australia with an accounting degree, did just that. Within six weeks, an airline was born — using two of the three rather aged Fokker 50s propeller planes that budget carrier AirAsia Bhd did not take in August 2006 when it took over Malaysia Airlines’ rural air services routes in Sabah and Sarawak.(Those routes were later returned by AirAsia to MASwings for commercial reasons and are operated separately from Firefly.)

“Yes, it was putting planes that were just sitting on the ground to good use. But the biggest reason we did it was because we [at MAS]were in a turnaround mode and we knew we were ahead of BTP1 [Business Turnaround Plan 1]. Directionally, setting up Firefly as an alternative vehicle for growth of MAS was the right thing to do. Competition is bound to rise with Asean open skies,” Leong says. (The Asean open-skies policy targets 2015 for the full liberalisation of air-freight services among member countries.)

‘Insect airline’
Firefly has come a long way from the time its maiden flight took off from Penang for Kota Baru in Kelantan on April 3, 2007. Ironically, one of the first things Leong did was to retire the “leftover” Fokker 50s it kicked off the service with. He had to wait more than a year, though, as Fire-fly’s first ATR 72-500 only arrived in August 2008.

With those old planes, Firefly’s launch was met with ridicule and scepticism from various quarters, with some questioning whether its aircraft were safe, or worse, whether they could fly. Even its name was not spared, as it was called “the insect airline”. That continued even after the ATRs arrived. But the propeller planes that Firefly operates are among the most sought-after assets in the aviation industry today

“There are absolutely no more units available from ATR the next two years. Zero. Even Virgin Blue just bought 18 units in Australia. They were trying to be a full-service air-line and yet they saw the benefits [of propeller planes],” says Leong.

The reason is cost. “A propeller plane, by design, sips fuel. Jet planes[Boeings and Airbus used by most regular carriers] are real guzzlers. Our planes [the ATR 72-500] use less than one-third the fuel of a jet plane and are the most environment-friendly. That’s why we chose this aircraft,” explains Leong, adding that it all ties back to the underlying principle of the need to make Firefly profitable in a sustainable manner

“When fuel prices went to US$140a barrel in 2008, we were literally crying for our aircraft to come faster. At this price, the conventional airline model gets a little bit strained. What-ever we’ve learnt about running an airline needs to change. That’s why the whole airline industry is talking about bio-fuels and the next-generation aircraft with new energy-saving-engine options,” Leong says. “We were very fortunate because we started with this brilliant [ATR]aircraft. We’ve made a lot of money from doing so."

It’s no surprise then that AirAsia CEO Datuk Seri Tony Fernandes told Reuters in a recent interview in Barcelona that the long-haul low-cost carrier was considering buying as many as 175 of Airbus’ A320neo, are vamped version of its best-selling medium-haul passenger jet that is due to enter service in 2015 and that reportedly boasts 15% fuel savings.

Ten out of 13 of Firefly’s aircraft are still propeller planes, and that is partly why the airline could say it will not impose fuel surcharge — and still make more money in the process —even as other local airlines have said they will. That could change as Fire-fly expands its fleet and adds more routes to woo more holiday-makers. “The intention is to have both [propeller and jet planes] grow in tandem,” Leong says.

By year-end, Firefly will have 12ATR 72-500s and seven Boeing 737-800 jet planes. That puts it on a par with the current fleet size of Singapore’s Tiger Airways, which is looking to expand its fleet by 40% to 35 aircraft next year.

Within five years, Firefly will have 30 B737-800s. It is currently negotiating for more ATR 72-500 planes to be delivered through 2015 to expand secondary routes as well as to raise the frequency of flights for high-demand sectors such as Langkawi, Penang, Johor Baru and Singapore from its city-airport hub at Subang that only welcomes propeller planes.

While the shorter distance from Kuala Lumpur and Petaling Jaya to Subang Skypark, compared with that to the Kuala Lumpur International Airport (KLIA) and the low-cost carrier terminal (LCCT) in Sepang, has helped propel Firefly’s growth, Leong“ would like to think” that it is the group’s dedication to first-class service from day one that has captured Firefly’s many repeat passengers

“I think people appreciate the directness, the way we execute our service and our shorter 30-minute check-in [buffer], instead of 45 minutes or one hour. Getting on and off a smaller 72-seater plane is also simpler. We serve basic refreshments. Everyone who raises their hands gets attention. All that, we believe, adds to why people like us,” he says. “Good service doesn’t have to mean high cost. Good service just means good service.”

Instead of going down the route of charging for personal comforts à la RyanAir’s infamous £1 toilet tax (which was never implemented), Firefly decided to start serving passengers a basic complimentary snack and beverage. “There’s a big difference between the flight attendant serving you and trying to sell you something,” says Leong

Attracting a different crowd As things turned out, Firefly was only a “budget bus-in-the-sky” for just two weeks. It soon noted that instead of backpack-toting holiday-makers, “easily 50%” of its passengers were businessmen in suits, says Leong, adding that a lot of credit for Firefly’s growth as a community air-line the past four years is due to its unique passenger profile.

“Our customers are great. We somehow attract the intelligent customers. A very high percentage of them are professionals, managers, high-ranking civil servants. These people give it to you straight when they don’t like something, and we like that. It’s free direct comments on how we can improve. The worst kind of complaint is when they just take their money and spend it on another airline.”

Leong believes in pleasing the customer whenever possible and in owning up to any screw-ups. “Ionce caught one of our crew serving food I hadn’t approved of to a passenger. It turned out that a VIP had texted to ask for something extra on the side. I told the flight attendant ‘very good; so long as it is legal and doesn’t cost the company an arm and a leg, go ahead’,” he says, adding that Firefly’s VIPs [very important passengers] are not people with big titles, but those who fly with it a lot.

“Some have flown with us easily more than 100 times since we started. Some 99% of the people who have flown with us say they will fly with us again.”

Firefly was not the only company that noticed the passenger profile. SP Setia Bhd Group’s president and CEO Tan Sri Liew Kee Sin is among Firefly’s frequent fliers, Leong says. Little wonder then that the real-estate developer, with projects in Penang, Johor and the Klang Valley, in March last year chose to advertise on Firefly’s propeller fleet. In a statement dated March 31 last year, Liew said SP Setia was targeting “many business travellers” making day trips using Firefly

The one-year advertising contract has just been renewed, says Leong. The plan is to also market advertising space on Firefly’s jet-plane fleet once it has five Boeing 737-800s.

Firefly makes it a point to hire extroverts as its flight attendants and this is another “secret” of its success. “I only have three criteria in hiring flight attendants. They have to look decent, speak English and Malay and are extroverts,” says Leong.

“If you’re an extrovert, there’s a 90% chance you’ll be a good customer service person, because you like being with people. I have flight attendants who want to come back to work two weeks after giving birth because they can’t stand being cooped up at home. When I tell them ‘no because it’s illegal’, they call up our call centre and chat. That’s just the kind of people-persons they are,” says Leong, adding that extroverts also have a knack of gaining public support if the need arises in cases like dealing with difficult passengers.

There’s one tiny flip-side to that in-born sociable nature, though. “Some passengers start professing their affections for the cabin crew and asking for phone numbers. Some [of the crew] go on to marry the passengers,” Leong laughs

Focusing on the customer, not the competition Now, even as more players consider using propeller planes while other low-cost carriers begin offering frills and services to passenger sat a price, Leong thinks Firefly has the advantage of having started off on the right footing. “A frequent flier just wants to cut [to] the [chase]. So, we want to make flying as easy and as painless as possible. We had that in mind right from the start. It would be very hard for others to copy that,” he explains.

Leong reckons that the principle of giving customers what they want, so long as they are willing to pay for it, will continue to stand Firefly in good stead as it moves to the next stage of growth. He says the plan to expand the jet fleet will be modelled on the niche propeller business. “We’re lucky to enter the [jet] business at a time when a lot of the hard learning process had been done by others. We learn from the mistakes of others and build on the principles that have taken us this far.”

Firefly keeps tabs on how other airlines price their tickets, but for everything else, Leong prefers to focus on the task at hand. “I always tell my team to listen to our customers. If whatever you’re doing is to address the rival [in reaction to what they are doing], you’re not addressing the customer. The competitors tell you nothing. It is the customers who tell you what they want,” he notes.

Publish date:13/06/11

CapitaLand bets on Jurong’s makeover

CapitaLand bets on Jurong’s makeover

From the 31st floor of the JTC Summit building next to the Jurong East MRT Station, the aerial view of Jurong Lake District consists of dull and dreary industrial buildings, nondescript HDB blocks and a busy construction site

But Simon Ho, CEO of CapitaMall Trust(CMT)’s manager, sees things differently. Heenvisions malls teeming with shoppers, top-class restaurants, skating rinks, hotels, waterfront condominiums and offices occupied by MNCs.

“If URA delivers [on its plan to develop Jurong Lake District into a major commercial and leisure hub], Jurong will shed its imageas the boondocks of Singapore and look more like Sentosa Cove,” says Ho. “We are very ex-cited about [our new project],” adds Lim Beng Chee, CEO of CapitaMalls Asia(CMA). Lim, along with Ho and Chong Lit Cheong, CEO of CapitaLand Commercial, were leading a large group of analysts, bankers and media around Jurong Gateway

Indeed, over the next few years, Jurong Lake District, which comprises the precincts of Lake-side and Jurong Gateway and measures 360ha,or about the size of Marina Bay, will be developed into Singapore’s largest commercial huboutside the Central Business District.

Jurong Gateway, nearly 2½ times the size of Tampines Regional Centre, is expected to attract billions of dollars in investment. URA plans to set aside some 75ha of land for offices, hotels, F&B and entertainment outlets. In addition, 1,000 new private apartments will also be built.

Meanwhile, the Lakeside area, with 220haof land and 70ha of water, will get the Jurong Lakeside Village, a venue for water-sports activities, boardwalks, private residences, water-front hotels and a brand-new science centre

And making a big bet on the transformation of Jurong is the CapitaLand group, South-east Asia’s largest property developer. Capita-Land, along with CMA and CMT, announced that it is investing $1.5 billion to develop a195,465 sq ft site in Jurong Gateway, with the three parties holding stakes of 20%, 50% and30%, respectively. This makes it the largest re-tail investment the group has made since the completion of ION Orchard.

Of the three white sites near the MRT station, Site No 1 was awarded toLend Lease,while Site No 2 was won by CMA and its partners. Site No 3, which lies between CMT-owned J Cube and the MRT station, has yet to be offered for tender.

Despite CapitaLand’s stated strategy to expand in fast-growing China, Singapore remains the group’s safest bet. Here, on home turf, the law is clear, the deals are transparent and the government delivers.

Not only has the group recently focused on high value property such as ION Orchard and D’Leedon on Farrer Road, the Jurong site is also the third time in a year that CapitaLand has joined forces with one of its units to develop a mixed-use project. Last September, Capita-Land tied up with CMA to develop the Bedok Central site at a cost of $788.9 million. In April, CapitaLand and CapitaCommercial Trust announced a joint venture to redevelop Market Street Car Park at a cost of $1.4 billion.

CMT, CMA’s local REIT unit, will play a major role in making Jurong Lake District the largest commercial district outside the city centre. CMT owns the IMM mall and provides a free shuttle bus service between IMM and the Jurong East MRT Station, which is 480m away. CMT also owns the former Jurong Entertainment Centre, which is now called JCube. Extensive asset enhancement initiatives will turn JCube into an entertainment centre with an IMAX cineplex, an Olympic-size skating rink and F&B outlets

“For us, this site [in Jurong Gateway] is ground zero, which is why we need to have it,” Ho says, adding that the latest acquisition will increase CMA-CMT’s retail net lettable area in Jurong to one million sq ft, twice the size of Plaza Singapura, an Orchard Road mall owned by CMT. It will also form the most significant part of the URA blueprint’s entire retail and entertainment target of 250,000 sqm. “All three malls [IMM, JCube and the new mall] are just a few minutes away from each other by car or the free shuttle-bus service that we provide to IMM,” he adds.

Is the price too high?
But at $968.99 million, or $1,012 psf per plot ratio (ppr), is CapitaLand paying too high a price for the Jurong Gateway site? In 2005, CapitaLand and partner Sun Hung Kai Properties paid $1.38 billion for the 193,750 sq ft Orchard Turn site, or $1,020 psf ppr. And Jurong hasn’t really caught on as a shopping destination for heartlanders. In 2010, Tampines Mall’s shopper traffic, at 27.2 million, was higher than IMM’s16.5 million in Jurong.

“If not so high, how to get?” asks Lim, lapsing into Singlish for effect. He says the group’s bid was just 5.7% above the next-highest bidder, comprising a consortium of Singapore Press Holdings and United Engineers, and a 23%premium over the third-highest bid put in by Keppel Landand Perennial Real Estate.

“We’ve been working on this bid since we lost the bid for Site No 1,” Lim reveals. A year ago, the CMA-CMT consortium lost narrowly to Australian Securities Exchange-listed Lend Lease, which paid a significantly lower price of $650 psf ppr, or a total cost of $749 million, for a larger site. “Site No 2 is a lot better than Site No 1,” Lim says. “So, after we lost the deal for Site No 1, we knew we had to fight for Site No 2.”

Ho of CMT also jumps in to defend the bid, insisting that Site No 2 is the top prime site in Jurong Gateway. “Site No 1 is in our backyard and anyone who wants to go there has to pass through our mall,” he says. “There is an existing large population that is slated to grow.” The latest acquisition also allows CMT to almost control the retail offerings in Jurong, adds Ho.

Another reason that CapitaLand invested in the site is the lack of quality office space in Jurong. According to URA guidelines, 40%of the gross floor area at Site No 2 has to be office space. CapitaLand Commercial, a subsidiary of CapitaLand, will design a five-storey mall and a 25-storey office block. Featuring floor plates of about 15,000 sq ft, the office block will be completed in 2014. “This is a prime site with excellent transport connectivity — within a 20-minute MRT ride or drive to the CBD,” says Chong

Meanwhile, Chong of CapitaLand Commercial believes CapitaLand’s new office block should be able to command rents of above$5.50 psf per month. The Ministry of Nation-al Development (MND), the anchor tenant in Lend Lease’s office block, will pay a rate of $5.50 psf per month.

“The rate at JTC Summit is in the higher range of $4 psf per month and at the Inter-national Business Park, it is in the mid-range$3 psf per month,” says Chris Archibold of Jones Lang LaSalle. “The rents should be ata substantial premium for the two new office buildings, as they are located right next to the MRT station.”

Wilson Liew, property analyst at Kim Eng, points out that the new office space is also very close to a “substantial cluster of multi-national and global businesses of more than3,000 companies around the International Business Park and the Jurong and Tuas In-dustrial Estates”. He believes there will be demand for the new office space, particularly from medical and pharmaceutical companies keen to be located near the upcoming Ng Teng Fong Hospital, as well as MNCs in the oil and gas and marine sectors that want to be close to their operations in Jurong Island and Tuas

Other developments Leong Wai Ho, senior regional economist at Barclays Capital, says Jurong Lake District is definitely a key development in land-scarce Singapore. “In terms of scale, this is probably the largest regional development initiative to date,” he says. “It is likely to attract size able investment, not counting the first-stage infrastructure that the government will put in. We estimate a development investment of $15 billion to $20 billion over the next 10 years, with much higher rates of foreign participation than in Tampines. This includes land sales but excludes infrastructure investment.”

Last year, Keppel Land was awarded a site near the Lakeside MRT Station for $303 mil-lion, which it is developing into a 629-unitcondo called Lakefront Residences. Liew of Kim Eng estimates that the total cost of de-veloping the project, including land cost, is$535 million.

Lakefront will be near top schools, including the Canadian International School, which is expected to open this year, and River Valley High, which has relocated to Jurong. Other attractions at the condo include an OIympic-size swimming pool, bubble pool and at hermal hot spa. To date, 92% of Lake fronthas been sold

In 2009, Frasers Centrepoint won a lake-side site with a bid of $205 million. It developed the site into the 700-unit Caspian. The project is fully sold (at average prices of $600psf) and will receive its temporary occupation permit in 2013.

Although there are no details yet on further sites for sale, Mah Bow Tan, the former minister at MND, had said the new residential sites are likely to be skewed towards private property development. Clearly, developers will be attracted to the Jurong Lake District once shopping malls, offices, skating rinks and hospitals start to appear.

All this should be music to the ears of sup-porting industries such as the construction sector. Seow Soon Yong, CEO of Yongnam Holdings, says: “Wherever steel works are needed, we will bid for the projects.” For now, he says only three sites have been awarded and the piling for the Lend Lease and Jurong hospital sites have started. “Tenders for the main works will be coming,” Seow says. Other beneficiaries include building-material suppliers such as cement and specialised concrete provider Pan-United Corp and road builder OKP Holdings

However, not all analysts reckon CMA-CMT’s move to Jurong is the right one. In a recent report, Ong Kian Lin, an analyst at OCBC Investment Research, says the forecast 6% net property income yield on costs looks “fairly tight and requires somewhat vigorous occupancy rates in the first year”. Furthermore, the report points out that the Jurong precinct does not have a strong financial-institution catchment base. “We there-fore remain wary of the office take-up in that area, with the nearby International Business Park, JTC Summit and iHub buildings offering cheaper alternatives and ‘retail tenant fatigue’ among the four malls within a 500m radius from the MRT station,” Ong writes.

On the other hand, Nomura Securities reckons that CMA is way undervalued right now. Analyst Sai Min Chow says in a June 7 report the Jurong Gateway site is not destructive to net asset value (NAV), although the consortium paid “near full price”. “The acquisition appears to have been thought through. We estimate a marginal accretion of 1.4 cents per share from the project to our NAV and price target, which is raised consequently to $2.23from $2.22,” Sai writes. He has a compelling“buy” recommendation on CMA. DBS Vickers reckons that there could be significant up-side in the medium term from the Jurong investment and has an outright “buy” rating on CapitaLand, CMA and CMT.

For all that has been said, the bigger picture remains the transformation of Jurong, which has been unfairly branded as an uncool industrial town while contributing to Singapore’s economy in the second half of the 20th century. In fact, URA’s plan to develop the district had received a lukewarm reception until Lend Lease’s acquisition of Site No 1. Now, roads have been widened, trees replanted and new homes built.

The aerial view from the 31st floor of JTC Summit looks set to change over the next 10years. Much, of course, will depend on how well Ho, Lim and Chong succeed in convincing Singaporeans to make the long trip to Jurong to live, work and play

Publish date:13/06/11

Weekend Comment Jul 1: Strong loan growth for banks

LOCAL BANKS SAW their loans grow at 3.5% m-o-m, 8.7% q-o-q and 24.2% y-o-y in May. DBS Vickers analyst Lim Sue Lin called the growth “stunning”, as y-o-y rates are the highest in nearly three years. The loan-to-deposit ratio (LDR) is now at its highest since October 2008. Lending was driven by both property and business loans. Business loans expanded by 4.3% m-o-m while housing loans grew at a slightly softer rate of 1.4%. Even so, analysts say the numbers inspire confidence.

“Despite attempts to talk down the local property market, it looks like there is still no shortage of buyers, backed by bankers who are more than happy to dole out property-related loans,” says CIMB economist Song Seng Wun. “Overall property-related lending accounted for almost 50% of the total loans outstanding. Elsewhere, we continue to see healthy demand from other businesses, reflecting confidence in the economy.”

The release of strong loan growth numbers are coming on the back of the announcement of new standards for Singapore banks. Earlier this week, the Monetary Authority of Singapore (MAS) said that local banks would be required to set aside capital at levels higher than the new standards under Basel III. MAS will require Singapore-incorporated banks to have a total capital adequacy ratio (CAR) of 10% from 1 Jan 2015. Including a capital conservation buffer that will be phased in, total CAR will reach 12.5% by January 2019. The three banks currently have total CARs of between 17.2% and 19.2%, well in excess of those requirements. So they have said that they are confident they will be able to meet the new standards.

With enough capital set aside, and no immediate need to raise more, the banks should be able to increase the size of their balance sheets. CIMB expects lending growth to peak at around 26%, the same growth rate peak achieved in 2008. “With the base effect, y-o-y growth rates could moderate steadily from Aug 2011 for loan growth to end the year at 20% to 22%. Slower, but strong,” says CIMB.

Meanwhile, BNP analyst Ng Wee Siang says business loans should continue to remain robust for the next three months given the strong syndicated loan pipeline. He points out that there have been a number of relatively-large syndicated loan deals in so far, among the largest for Olam International at US$1.3 billion ($1.6 billion) and Wilmar International at US$1.6 billion.

Also, given that interest rates are very low, margins should remain healthy. Lim of DBS estimates that every 1% increase in loans growth could lead to a 2% to 3% increase in earnings.

Analysts now expect the strong loan numbers to drive the share prices of the banks, with RBS analyst Trevor Kalcic going so far as to say that this may be “the catalyst that the sector has been waiting for”. Kalcic is positive on the banking sector, saying: “Strong loan growth (12.6% year-to-date and 30.1% annualised), a gradual shift to slightly higher-margin business lending and higher LDRs are all earnings positive for the Singapore banks.”

Judging from Bloomberg data, the preference now seems to be for DBS Group Holdings and Oversea-Chinese Banking Corp. BNP’s Ng says he likes OCBC for its well-executed corporate strategy and consistent delivery. Kalcic of RBS says he prefers DBS over OCBC for its valuation as DBS trades at 9.5 times his estimates for its FY2012 earnings while OCBC trades at 11 times.

Morgan Stanley cautions that if loan growth continues at this level, investors should begin to get concerned about the quality of loans being written. “However, we believe that loan growth lags nominal GDP growth and with this now slowing, we would expect the rate of loan growth to come off over the next few months,” the brokerage says.

Publish date:01/07/11

Australian Tiger Airways subsidiary grounded

By ROD McGUIRK - Associated Press | AP

CANBERRA, Australia (AP) — An air safety watchdog on Saturday grounded all Australian domestic flights of a Tiger Airways subsidiary for the next week, saying the budget airline twice flew under the minimum allowed altitude. About 35,000 passengers are affected, and more could follow if the airline fails to quickly address regulators' concerns.

The Civil Aviation Safety Authority announced that Tiger Airways Australia's entire domestic fleet of 10 airliners was grounded for five business days because continuing flights would pose a serious and imminent risk to air safety.

"We don't have confidence in the ability of Tiger to continue to manage the safety of their operations," safety authority spokesman Peter Gibson said. He said he understood that Tiger was the first national carrier in Australia to have its entire fleet grounded.

Australian Transport Minister Anthony Albanese said 35,000 passengers will be affected. "That is extremely regrettable, but I think the Australian public expects safety to always come first," he told reporters.

Rivals Virgin Australia and Jetstar, a budget subsidiary of Australian flagship carrier Qantas Airways, announced Saturday they would fly additional services to accommodate some of the stranded passengers.

The airline, which entered the Australian aviation market three years ago, alerted passengers in a statement that services will remain suspended until July 9. Fares will be refunded.

"Tiger Airways continues to cooperate fully with the industry regulator and safety underpins our operations at all times," the airline said, adding that it was committed to working with the safety authority to restore service as soon as possible.

Tiger, the fourth-largest domestic airline in Australia, operated between all state capitals and several regional cities. Tiger flights between the Australian west coast city of Perth and Singapore are unaffected.

The grounding is another blow to the bottom line of Singapore-based Tiger Airways Pty. Ltd., and to passenger confidence after weeks of intermittent flight cancellations due to clouds of volcanic ash over southern Australia since Chile's Cordon Caulle volcano began erupting June 4.

Gibson said the airline had twice breached air safety regulations in two weeks by flying under the minimum allowed altitude on approaches to its Australian airport base in Melbourne. The latest breach was on Thursday.

The authority responded to previous safety concerns in March by adding conditions to the airline's license to operate in Australian skies, including improvements to pilot training, fatigue management and maintenance.

The safety authority will await Tiger's response to its concerns before deciding whether to ask the Federal Court next week to continue the suspension. A failure to resolve the issues could lead to the airline's Australian license being permanently canceled.

Tiger is 49 percent owned by national carrier Singapore Airlines Ltd. and 11 percent owned by state-owned investment company Temasek Holdings.

(This version corrects Tiger is Australia's fourth, not third-largest domestic airline)

Publish date:02/07/11

China Gaoxian's dual listing proceeds likely to be partly used

Business Times - 02 Jul 2011

China Gaoxian's dual listing proceeds likely to be partly used


BELEAGUERED S-chip China Gaoxian appears to have used part of the 1.132 billion yuan (S$215 million) raised during its January dual listing on the Korean stock exchange, according to another update by the company yesterday on its financial position.

Special auditor PricewaterhouseCoopers (PwC), investigating the financial position, is finding out how the proceeds raised in the dual listing were used and whether any amount went towards the company's Huaxiang Project.

This project refers to a plant the company intended to build in Huzhou City, Zhejiang, that produces PET chips and differentiated polyester yarn.

On Thursday, it was announced that China Gaoxian had entered into contracts with suppliers and contractors worth a total of 1.2 billion yuan for the Huaxiang Project and that it had to date paid 391 million yuan.

China Gaoxian's troubles began in March, when then-auditor Ernst & Young said it could not verify the Dec 31, 2010 bank balances of its subsidiaries. PwC was later appointed special auditor to investigate the state of affairs for fiscal 2010 as well as the first quarter of 2011.

The update yesterday shows that as at March 31, 2011, the group had an aggregate cash and bank balance of approximately 714 million yuan and outstanding bank liabilities of about 205 million yuan, 'of which to date 699 million yuan and 205 million yuan were respectively confirmed by the special auditors . . . and they are still waiting for bank confirmations for the balance'.

'It would appear from the above that part of the approximate 1,132 million yuan proceeds raised during the Korean dual listing has been utilised,' said China Gaoxian's board.

Yesterday's update also said that the independent directors (IDs) noted that as at March 31, the group's fixed assets were about 572 million yuan and non-current assets were about 317 million yuan, and that the IDs were verifying them.

China Gaoxian's Thursday update said: 'While the special auditors are still in the process of verifying bank balances of the group, they have to date obtained evidence which suggests that the aggregate cash and bank balance of the group as at Dec 31, 2010 was approximately 93 million yuan, as compared to 1.1 billion yuan as stated in the unaudited financial statements.'

It also said that the special auditors were in the process of checking how the shortfall had been used.

Publish date:02/07/11

No S-chip upgrade despite bright outlook

Business Times - 02 Jul 2011

No S-chip upgrade despite bright outlook

Analysts point out that accounting irregularities continue to dog sector and recent China tightening is not aimed at overseas listings


NOTWITHSTANDING expectations that S-chips could outperform earnings forecasts in the second half of this year, analysts appear to still fight shy of giving these Singapore-listed Chinese companies a near-term upward rerating.

One factor is the unease over accounting irregularities in some of these companies.

CIMB head of research Kenneth Ng notes that fraud incidents involving Chinese companies suggest that 'it is not easy to invest in these companies unless you have the ability and time to be close to the realities of what is really happening with these companies'.

Industry watchers also caution that, contrary to belief by some, recent guidelines issued by China asking Chinese firms to favour local auditors are not aimed at enhancing accounting integrity in overseas Chinese listings.

Investor confidence in the S-chip cluster was dealt another blow recently as a second wave of accounting scandals came crashing on local shores.

The US Securities and Exchange Commission has also halted trading of several Chinese firms this year, accusing them of violations such as keeping two sets of books or failing to disclose that their auditors had quit.

'Until accounting issues in troubled S-chips get resolved, funds are unlikely to be buyers of S-chips in a big way,' said UOB-KayHian executive director Chan Tuck Sing.

But Terence Wong, co-head of research at DMG & Partners Securities, remains bullish on the sector. He believes that there could be serious outperformers among them in corporate earnings that could lead to a rerating of S-chips that have been heavily discounted.

Improved earnings outlook for S-chips showed up in the first quarter this year, when almost half (41) of the 89 S-chips that announced their financial results for the first quarter ended March 31, reported higher profits.

'If things don't get worse and there are no more worms in the can, they are likely to revisit early 2006 and second-half 2009 when S-chips started to outperform,' Mr Wong said. DMG favours S-chips in the food and agricultural space, with 'buy' calls on Sino Grandness and China Animal.

China's finance ministry issued guidelines last Friday, saying that overseas-listed firms involved in finance, energy, communications and defence, as well as other important state-owned enterprises should choose large local audit firms to 'ensure the safety of national economic information'.

Large and medium companies 'should hire accounting firms of sizes that suit their scale, industrial position and social influence', the ministry said. Those that do otherwise would come under greater scrutiny from the ministry.

Industry players note that these guidelines are part of China's broader strategy to develop its accountancy sector and groom local auditing firms that could eventually take on the Big Four international accounting firms.

But it has little to do with the slew of accounting scandals involving overseas Chinese listings, said Lim Lee Meng, senior partner at RSM Chio Lim. 'It is to protect information in state-owned enterprises that are in sensitive sectors.'

Henry Tan, managing director of Nexia TS Public Accounting which audits four S-chips, reckoned that there won't be an impact on S-chips and their auditors.

Most S-chips may not come under those guidelines as there are only two - Junma Tyre Cord Company and Tianjin Zhongxin Pharm Group - that are mainland-incorporated, he said. S-chips here have typically undergone restructuring into wholly owned foreign entities before listing.

China's guidelines for overseas-listed companies also do not require these companies to stick to the list of 12 approved auditors that the H-shares, which are mainland-incorporated companies listed in Hong Kong, are restricted to.

While many Chinese firms that got into trouble in the US are audited by smaller US or Hong Kong-based accountancy practices, the majority of S-chips are already audited by tier-1 and tier-2 accounting firms, industry players note.

'In fact, to have a good chance of a successful IPO, most of those Chinese IPO aspirants had chosen one from the Big Four or at least second-tier ones to be their auditors and most of these international audit firms are already in the list of 12 acceptable audit firms issued by the PRC government,' said Lin Song, partner of China practice at RHT Law LLP.

While China's newly issued guidelines would not do much to improve accounting standards or corporate governance in S-chips, one encouraging sign is that 'the PRC government knows that the accounting standard of the Chinese companies need to be improved and such directive could be one of its first steps in that direction,' he added.

Publish date:02/07/11

2011-0630-57金錢爆(吃的好 睡的飽 不還錢最好)

Source/转贴/Extract/Excerpts: youtube
Publish date:30/06/11

香港地少人多 復建居屋難令地價跌







Source/转贴/Extract/Excerpts: 東周刊専欄-曾淵滄教路(輯錄自 409期 )
Publish date:28/06/11


Created 07/02/2011 - 14:33









4大領域首選股,包括銀行領域的馬來亞銀行(MAYBANK, 1155, 主板金融組),建築股為金務大(GAMUDA, 5398, 主板建築組),產業領域首選UEM置地(UEMLAND, 5148, 主板產業組),及油氣股則為戴樂集團(DIALOG, 7277, 主板貿服組),及加入評級調升的鋼鐵領域,它的首選股為柏華嘉(PERWAJA, 5146, 主板工業產品組)。







Source/转贴/Extract/Excerpts: 星洲日報
Publish date:02/07/11

FCOT Near-term catalysts in sight (CIMB)

Frasers Commercial Trust
S$0.81 @30/06/11
Target: S$0.99
12-mth price range S$0.88/S$0.70
Near-term catalysts in sight

• Near-term catalysts from early refinancing; initiate with Outperform. FCOT is a commercial REIT investing primarily in offices in the region. We use DDM (discount rate 9.4%) to value FCOT at S$0.99. Since taking over in 2008, FCOT’s management has stabilised its capital structure and assets and divested non-core holdings. With a stabilised portfolio and capital structure and a strong sponsor in F&N, we see no reason for its depressed 40% discount to book and forward yields of 7-8%. We see catalysts from early re-financing and improvements in occupancy and rentals.

• DPU upside just from refinancing. FCOT’s entire debt will be maturing in 2012. With a high cost of debt of 4.3% vs. 3% for most REITs in their recent refinancing, we anticipate an 11% DPU uplift even with a minimal rate reduction of 50bp.

• Further kicker from expiry of master lease. The master lease for its largest local asset, China Square Central (net rents of S$4+ psf), will be expiring in 2012. With significant leases due for expiry in 2012 and F&N’s expertise in retail management, direct management of the asset could allow FCOT to ride the rental upside. Possible AEI and hotel development to unlock value could also be lowhanging fruits for FCOT.

• We do not see an overhang from CPPUs, with limited dilution of 4% on full conversion. Redemption of the CPPUs at par could even allow accretion if overall funding costs for FCOT come in below the CPPU rate of 5.5%.

Pan-Asia commercial office REIT. Sponsored by Frasers Centrepoint Ltd (FCL), a wholly-owned subsidiary of Fraser and Neave Ltd (F&N), Frasers Commercial Trust (FCOT) is a Singapore-based REIT investing primarily in office and business space (with an ancillary retail component) in the region. The REIT is managed by Frasers Centrepoint Asset Management (Commercial) Ltd, which is also a wholly-owned subsidiary of F&N. As at end-Mar 11, FCOT owned stakes in nine properties with a total value S$1.9bn in Singapore, Australia and Japan.

New sponsor entered in 2008. First listed on the Singapore Exchange as Allco Commercial REIT in Mar 06, the REIT was renamed Frasers Commercial Trust when its current sponsor, FCL, acquired the REIT manager in Aug 08. FCOT inherited a portfolio of properties which included China Square Central, 55 Market Street and KeyPoint in Singapore; 50% stakes in Central Park and Caroline Chisholm Centre in Australia, four commercial properties in Japan and a 39% stake in Australian Wholesale Property Fund (AWPF). Since then, the current property manager has injected Alexandra Technopark and divested Cosmo Plaza and its stake in AWPF.

Predominantly office exposure. Office assets continue to dominate FCOT’s portfolio both by NLA and asset value. While FCOT had widened its investment mandate to include business space prior to the injection of Alexandra Technopark, the manager is committed to investing in office properties.

Well-located assets. Compared with other locally-listed office SREITs, FCOT’s portfolio quality appears weaker with significant exposure to Grade B office assets and business space. China Square Central in Singapore, Central Park in Perth and Caroline Chisholm Centre in Canberra, Australia are its only three Grade A office assets. But we note that most of its office assets are located within the Central Business District (CBD) with good transport connectivity. In Singapore, both China Square Central and 55 Market Street are located in the financial district while KeyPoint is located just outside. In Australia, Central Park is located within the CBD of Perth while Caroline Chisholm Centre is located within the town centre of Canberra. Its local assets are also near existing and upcoming MRT stations. These include China Square Central (served by existing Raffles Place and Chinatown MRT stations and an upcoming Telok Ayer MRT station), KeyPoint (by Nicoll Highway MRT station), 55 Market Street (by Raffles Place MRT station) and Alexandra Technopark (by an upcoming Labrador Park MRT station).

Singapore remains core. Singapore remains a core market for FCOT, at 59% and 68% of net property income (NPI) and asset value respectively. Australia is its second largest market, at 34% and 25% respectively, with the remainder made up by Japanese assets. The manager intends to expand in Singapore and Australia.

Master leases and long leases for income stability. Stability in FCOT’s portfolio is afforded by its significant exposure to master leases and long leases, which anchor more than 60% of its gross rental income.

1) Master lease at Alexandra Technopark. Alexandra Technopark is a 99-year leasehold property with high-tech business space. Acquired from the sponsor in 2009, the asset is master-leased to Orrick Investments, a wholly-owned subsidiary of the sponsor. Locked in for five years until 25 Aug 14, the master lease provides a fixed flat net annual rent of S$22.0m. This assumes net rents of S$1.75 psf or gross rents of about S$2.90 psf. As the largest local asset by NPI, this master lease anchors 22% of our FY11 NPI estimate.

2) Master lease at China Square Central. China Square Central, which comprises 268,990 sf of Grade A office space and 99,248 sf of retail space, has been leased for six years to Unicorn Square Ltd. Rental payment is guaranteed by Unicorn Square Ltd’s parent, Straits Trading Company Ltd, which is an established pan-Asian conglomerate with mining, smelting and property investments. The current lease locks in a flat annual rent of S$17.55m until 29 Mar 12. This implies net passing rents of about S$4.41 psf and gross rents of about S$6+ psf, assuming 2010’s occupancy level of 90% for the underlying asset. The master lease accounts for about 18% of our FY11 NPI estimate.

3) Long leases for Australian assets. FCOT’s Australian assets enjoy long leases which provide stability. The Caroline Chisholm Centre is fully leased to the Commonwealth Government of Australia for 18 years with 3% annual rental increments. Central Park has several long leases, cumulatively accounting for more than 80% of its property income. Rentals are reviewed periodically with fixed step-up rates or pegged to the market or CPI.

Well-located assets with potential
Upside from direct management of China Square Central. The master lease for its largest local asset, China Square Central, will expire in Mar 12. An annual rent of S$17.55m (which we understand to be fairly similar to net rental income from the underlying asset) implies net passing rents of about S$4.41 psf and gross rents of about S$6+, assuming 90% occupancy, as in FY10. These appear slightly below the figures for neighbouring assets. With office rents on the rise and significant lease expiries in 2012, direct management of this asset should allow FCOT to ride the upside. Meanwhile, FCL should be able to extract better value from the asset’s retail space, given its expertise in retail management while asset enhancement initiatives to drive rentals and office NLA could be low-hanging fruits. An upcoming Telok Ayer MRT station (expected in 2013) could enhance the connectivity of this asset and thus rentals and occupancy.

Under-rented KeyPoint. Thanks to the recent economic recovery, asset enhancement initiatives to upgrade common areas and the exterior of the building as well as increased connectivity from the new Nicoll Highway MRT station (which opened in 2010), occupancy at KeyPoint had improved for eight consecutive quarters from 66% in 2Q09 to 86% in 2Q11. It could continue to climb on proactive leasing by management. Unlike other office assets which have run into negative rental reversions with rollover rents in 2011 locked in at previous peaks, passing rents at KeyPoint have been stable at S$5+ psf due to its limited exposure to such leases. With rents likely to rise on the back of tighter occupancy, its rentals could possibly narrow their gap with competing assets such as The Gateway with achieved rents of S$6+ psf.

Potential hotel development at China Square Central. Allco REIT was previously granted provisional permission in 2008 for an additional 16,000 sq m of GFA for hotel use at China Square Central, which could potentially be developed into a hotel with 350 rooms. Though plans were shelved during the financial crisis and after Allco was taken over by FCL, FCOT still owns the right to develop the hotel asset. With tight room supply, surging tourist arrivals and rising capital values for hospitality assets, we believe a hotel development could unlock value for FCOT, particularly since FCOT would not need to pay for the land and only has to incur a development charge. We believe any development could be undertaken together with its parent, F&N and the latter’s hospitality arm. Bound by its investment mandate to invest only in commercial properties (and not hospitality assets), we believe this hotel could be spun off to F&N on completion, and unlock value for FCOT.

DPU uplift through successful refinancing
100% of debt expiring in 2012. While management has pared down gearing to 37% after divesting its stake in AWPF and Cosmo Plaza, 100% of its debt (or about S$742m) will still be maturing in 2012. With a high cost of debt of 4.3% (vs. 3% for most REITs which have recently refinanced), we expect FCOT to save on interest costs following the refinancing of this lumpy debt. We anticipate a DPU uplift of 11% with a direct flow-through of interest savings even from a minimal rate reduction of 50bp. We expect management to take the opportunity to refinance soon and term out its debt maturity.

Redemption of CPPUs could provide upside
Scenario analysis for CPPUs. The acquisition of Alexandra Technopark had been funded by the issue of S$343m Convertible Perpetual Preferred Units (CPPUs) on 26 Aug 09. The CPPUs can be converted into ordinary units on certain dates after three years from issue (26 Aug 12) at a conversion price of S$1.1845 (adjusted for effects of share consolidation). We outline three scenarios after this date:

Most likely to redeem. Of the three scenarios, we understand that management is most inclined to redeem the CPPUs at par to principal value (as stipulated by the terms of the CPPUs). This would be beneficial for both FCOT and FCL/F&N (which owns 89% of the CPPUs). FCOT will be able to realise interest cost savings should costs of funding (used to finance the redemption) come in below the CPPU rate of 5.5%, which we see akin to accretion from an asset acquisition (or even better in view of the difficulty of making accretive office acquisitions at current cap rates). F&N should benefit by channelling the funds to venues with higher returns and diversifying its exposure.

Redemption could provide upside. Our analysis shows the possibility of accretion through the redemption of the CPPUs, with accretion to increase with a higher reliance on debt funding for CPPU redemption and lower costs of borrowing and equity. On the view that interest rates could remain low for some time, we do not expect major difficulties in securing lower costs of borrowing to fund the redemption. A re-rating of the stock could potentially bring down its cost of equity, enhancing the accretion on redemption. Meanwhile, though a heavier reliance on debt funding would result in higher accretion, risks would climb with a more leveraged balance sheet. Redemption should thus be funded by a mix of debt and equity.

Well-positioned now to grow
Experienced management with clear focus. Since taking over Allco REIT, the current manager has stabilised FCOT’s capital structure. Having inherited a mixed bag of assets, we view positively the manager’s intention to focus on Singapore and Australia and hive off assets which do not meet its long-term investment objectives.

The manager has since divested its stake in AWPF and an underperforming Cosmo Plaza, with proceeds channelled to debt repayment. With a clearer focus, we believe the manager is in a position to make accretive additions while seeking windows to rationalise its portfolio by divesting non-core assets. With a less-than-optimal debt maturity profile, the terming of loans is also likely to be something which management would pursue on refinancing.

Benefiting from stronger sponsor. We believe FCOT benefits from its sponsor, FCL through: 1) FCL’s experience as a developer and owner of commercial properties; 2) rights of first refusal (ROFR) to FCL’s assets; and 3) FCL/F&N’s financial strength and support. FCL/F&N’s financial backing had proven especially important during the depths of the financial crisis in Mar 09 when FCOT’s gearing spiralled to a precarious 58% and it faced difficulties in refinancing its lumpy debt. To reduce FCOT’s gearing and refinancing risks, rights were issued for partial debt repayment (with FCL undertaking to subscribe up to 37% though the issue turned out to be over-subscribed) while Alexandra Technopark was injected from the sponsor to boost its asset base. These had improved its portfolio stability and reduced its gearing, facilitating the securing of facilities to refinance debt then. With its inherited mixed bag of assets now stabilising and on a stronger footing following the divestment of non-core assets and more proactive asset and lease management, we believe FCOT could finally be ready for expansion.

Acquisition growth
Acquisition pipeline from sponsor. FCOT has rights of first refusal to FCL’s commercial (inclusive of office and business space) assets in the Asia-Pacific. The near-term pipeline locally could come from Alexandra Point and Valley Point. Nonetheless, a compression of office cap rates to below 4% (vs. FCOT’s NPI yield of about 5%) and the need for equity fund-raising could make accretive injections difficult without income support. Acquisitions would thus rely on unit-price performances and cost of equity for FCOT.

Market outlook
Leasing is moderating; inventory digestion in next 12 months. Office leasing is slowing after a strong 2010 (2.9msf net take-up). The next 12 months could be a period of inventory digestion as over 2.8msf of office space will be entering the system. Our conversations with property consultants and landlords suggest that while financial institutions are still expanding, the bulk of their expansion plans for 2011 may have been finalised. The next phase of space absorption is now expected to come from other service sectors such as legal, oil & gas, commodities and consultancy. Feedback on the ground on such demand is promising.

Peak rents could come in 2013. While average prime rents have risen 26% yoy to S$10-11psf, they are still 50-60% below the previous peak in 2008. On a global basis, Singapore remains competitively ranked at No. 25 (from 37 last year) by CBRE on office rents. Singapore prime office rents are still at a wide 37% discount to Hong Kong rents, by our estimates. The ratio of average prime rental costs to Financial Service GDP (gauge for occupancy costs) also remains low at 11% vs. a high of 17% in 2007 and a long-term average of 13%, suggesting room for rental upside, especially on the back of continued positive employment trends and job growth. We expect average prime rents to peak at S$14psf in 2013 when the completion schedule would be most tight, representing 20-25% upside from average rents achieved currently. This is also an 18% discount to the previous peak in 2008. For 2011-12, we expect rents to rise at a more moderate 11-12% per year as the system digests inventory.

Flat to positive outlook. FCOT is present in Perth and Canberra in Australia. The outlook is more positive for Perth, with demand for office space spurred by a recovery in the mining and resource sectors coupled with the absence of supply additions. We see this continuing into 2H11, especially with limited upcoming office supply.

The rental outlook is more moderate for Canberra in view of tempered demand vs. abundant office supply over 2011-13. Continued competition among assets has been pressurising rentals, leading to flights to quality by tenants. The performance of Grade A and secondary office assets has thus diverged, with stronger rentals and occupancy for the former. Further headwinds could come from measures to reduce work space ratios in the public service after the recently-announced budget, in view of the correlation between Canberra’s office market and the public sector.

Weaker office outlook. After the Mar 11 earthquake, tenants have been considering relocation plans, including moving into earthquake-resistant buildings with in-house power generation and distributing HQ operations across different localities. A weaker economic outlook coupled with uncertainties after the earthquake is expected to result in a scaling back of expansion plans by companies. Rental demand and rentals could thus decline over the next few quarters, particularly as rising vacancy with peak office supply in 2012 pressurises rentals. The impact may, however, be cushioned by a potential slower pace of construction, with a more pressing need to reconstruct Japan after the earthquake.

SWOT analysis
• Strong sponsor for acquisition pipeline, financial support and retail management expertise
• Experienced management with clearer focus
• Local assets well-located near existing / upcoming MRT stations
• Stable income anchored by master and long leases
• Quality tenant profile

• Interest savings through the refinancing of 100% of borrowings in FY12 at lower rates
• Rental income uplift through direct management of China Square Central
• Uplift in rentals and occupancy with the opening of new MRT stations
• Rights of first refusal to sponsor’s commercial assets
• Portfolio rationalisation and divestments of non-core assets
• Improving office market
• Potential of unlocking value by developing a hotel near China Square Central and asset enhancement
• Asset enhancement initiatives

• Underperforming Japanese portfolio
• Less-prime office assets
• Debt concentration risks with all debt expiring in 2012
• Low stock liquidity

• Risks of dilution and refinancing of convertible perpetual preferred units
• Sharp spike in interest rates
• Weaker office outlook for Japan
• Risks associated with overseas expansion
• Difficulty of making accretive injections of sponsor’s assets

Dilution from CPPUs. The acquisition of Alexandra Technopark had been funded by proceeds from S$343m CPPUS on 26 Aug 09. These preferred units can be converted into ordinary units on conversion dates after three years from issue (i.e. 26 Aug 12) at a conversion price of S$1.1845 (post-consolidation). Upon full dilution, the unit base will increase by 289.2m units, representing 45% of its asset base. Nonetheless, we believe risk of conversion is low with the conversion option still significantly out-of-themoney. Risks are also mitigated as 89% of the CPPUs are held by FCL, which is unlikely to act in any way which may be detrimental to FCOT.

Debt concentration and refinancing risks. All of its debt (about S$742 m) will be expiring in 2012, representing refinancing risks. Nevertheless, in view of a more stable macro-economic environment and portfolio/financial backing by its sponsor, we believe risks of refinancing are low and FCOT could even save in terms of interest if it can refinance at lower rates.

Need for equity-raising to fund acquisitions. With a gearing of about 37% after the divestment of AWPF and Cosmo Plaza and limited debt headroom to a 40-45% gearing, major acquisitions are likely to require equity fund-raising.

Weaker office outlook for Japan. With a likely weakening of its economy after its worst earthquake in March and a potential scaling back of expansion plans by companies, office rental demand and rentals could weaken in Japan. A weaker outlook could also affect capital values, stalling any plans to pare down its Japanese assets.

Risks associated with overseas expansion. Increased overseas expansion especially in countries where FCOT lacks expertise and critical mass in could expose FCOT to higher overheads, tax leakages, foreign-currency and other country-specific risks. Unfamiliarity with new markets could also render FCOT less competitive than its local peers in leasing and property management. Risks are, however, mitigated by FCOT’s intention to focus on Singapore and Australia, its existing markets.

Refinancing could lift DPU. With a high cost of debt of 4.3% vs. 3% or below for most REITs during their recent refinancing, we expect FCOT to save on interest after refinancing its lumpy debt in 2012. We factor in a 50bp reduction in costs of borrowing.

All debt expiring in 2012. While management has reduced gearing to 37%, 100% of its debt (or about S$742m) will still be maturing in 2012. With a high cost of debt of 4.3%, we expect FCOT to save in interest costs, providing an 11% uplift to DPU even with a minimal rate reduction of 50bp. Management is likely to take the opportunity to term out its debt maturity.

Debt headroom of below S$300m. FCOT’s asset leverage is 37%. With a credit rating, FCOT is technically able to gear up to 60%. Nonetheless, we believe a more realistic mid-term target could be 45%. This leaves debt headroom of below S$300m (or slightly more, with asset revaluations) for acquisitions.

Assumptions. We have assumed stable to slightly higher occupancy for its local assets and stable occupancy for its overseas assets. With more proactive leasing, traffic brought on by new or upcoming MRT stations and an improving office market, we expect occupancy growth for 55 Market Street and KeyPoint. With the expiry of its master lease on China Square Central in FY12, we expect occupancy to dip from 100% to about 95% (slightly above current occupancy on the underlying asset), though an increase in rental income (with direct management) should compensate for the lower occupancy. With rental growth and more proactive leasing, we expect 3-12% growth in renewal rates for its local assets over the next three years. We also assume 3% growth in renewal rentals for its Australian assets and flat rentals for its Japanese assets.

We have not factored in any accretion from the redemption of CPPUs, asset enhancement at KeyPoint or asset acquisitions from the sponsor.

Valuation and recommendation
DDM-derived valuation. We use DDM to value FCOT, the methodology we use to value all the REITs under our coverage. We use a discount rate of 9.4%, derived from a risk-free rate of 3.8%, an equity risk premium of 4.3% and a beta of 1.3x. We also assume a terminal growth rate of 2%.

Initiate coverage with Outperform and target price of S$0.99. We initiate coverage with a target price of S$0.99, which represents a total return of 30% from a forward yield of 7% and price upside of 23%. Since taking over the reins in 2008, FCOT’s management has stabilised FCOT’s capital structure and assets and divested noncore holdings. With a stable portfolio and capital structure and a strong sponsor in F&N, we see no reason for its depressed 40% discount to book and forward yields of 7.1% (vs. office S-REITs’ averages of 0.8x P/BV and 6.1% DPU yield). We do not see an overhang from CPPUs (with limited dilution on full conversion) and even anticipate accretion from potential redemption at par on favourable funding rates. We thus initiate with an Outperform, anticipating catalysts from early re-financing at favourable costs of borrowing and improvements in occupancy and rentals.

Source/转贴/Extract/Excerpts: CIMB Research
Publish date:01/07/11

回应韩国交易所质问 中国高纤:现金与银行结存1.4亿元

中国高纤(China Gaoxian)董事会针对韩国交易所(KRX)的质问,作出进一步回应。




Source/转贴/Extract/Excerpts: 联合早报
Publish date:02/07/11

昇菘提交初步招股书 准备在股市主板挂牌

昇菘集团(Sheng Siong Group)已向新加坡金融管理局提交初步招股书,准备在本地主板股市挂牌交易。
  根据它已向金管局提交的初步招股书资料,这项首次公开发售的公司股票将包括新普通股和股东献售股(vendor share)。集团有意利用发售新股筹集的资金来偿还定期贷款、在本地和海外发展与扩充杂货零售业务,以及充作工作资本用途。

  昇菘早在去年11月间在本地注册名为“昇菘集团”的有限责任公司(limited liability company),集团包括了昇菘公司和昇菘超市、CMM Marketing和昇菘马来西亚。


  此外,集团也开发了一些自家品牌,为顾客提供了较为省钱的优质物品。截至目前,它在10种自家品牌下提供了超过300种物品。为了支援零售业务,它也拥有广大的分销网络、食品加工设施和仓库设施。它坐落在万礼连路(Mandai Link)的新企业总部、仓库和分销中心刚在5月落成,估计成本达6500万元。


  集团去年的营收从09财年的6亿2534万元增加1%至6亿2843万元,而净利则从3358万元增长27%至4264万元。有关售股计划由华侨银行(OCBC Bank)主理和包销。

Source/转贴/Extract/Excerpts: 联合早报
Publish date:02/07/11

MAS on the path of transformation

The Star Online > Business
Saturday July 2, 2011

MAS on the path of transformation

We refer to the article, ‘Tough times for MAS’ in StarBizWeek dated, June 11 2011 and are pleased to share our response.

Malaysia Airlines (MAS) is clear and focused in terms of its direction and strategy moving forward, especially in terms of maximising revenue, sustainable profitability and sound operations. On track with the Business Transformation Plan 2 (BTP2) , we are continuing with our product enhancement plans and cost efficiency exercises, targeted at being operationally sound, with a focus on safety and customer experience at the core.

To be clear, our focus is on the full service market, and although there is encroachment from the low-cost carriers (LCCs), the very price sensitive traveller is not our target market segment.

We have begun our fleet renewal process, with the new B737-800 and A330-300 aircraft being delivered. The product we have on both the new fleets is a big improvement on our existing aircraft and demonstrate our commitment to high quality experience for our guests.

We have improved many aspects of our service elements, such as the food on board and in our lounges. We introduced a new check-in experience for our First and Business Class customers in KL International Airport. For First Class and Enrich Platinum passengers, we have Chef on Call, which provides them with a diverse menu selection that includes items such as lobster and caviar as well as local favourites such as nasi lemak and roti canai.

We have improved our service on the ground, such as at our check-in counters, incorporating elements of training from our world renowned cabin crew.

New on the table is the introduction of a concerted branding campaign aimed at being a preferred brand among the airline’s target segments. While this is being done externally, an internal customer-oriented culture is being nurtured among all our 19,500 employees to maintain our unique service delivery to our customers. A series of training and motivational programmes are being rolled out to achieve this aim.

At MAS we aspire to be the No. 1 Airline in Asia by 2015. We want to be the preferred carrier in Asia in terms of products and services, and we are not far off to achieve this – we already have the World’s Best Cabin Crew and would have one of the youngest fleets in the world by then. Being No. 1 here is not in terms of size. We do not aspire to be the biggest airline in Asia, but one of the most successful.

We have indeed come a long way. We are on track with our BTP2 initiatives and have embarked on an internal transformation exercise and an external brand building campaign.

The turnaround plan was focused on short-term measures which gave quick results but were not necessarily sustainable. Our focus in the transformation plan is to put in place initiatives that may take longer to execute but which will have a more sustained impact to the company.

Being perhaps one of the few truly international business entities in Malaysia, MAS is impacted by most global events, more so than any Malaysian carrier.

Let’s look at the numbers for the first quarter (Q1) of 2011. Capacity was planned for 11% increase at a time when the fuel costs were US$90 per barrel. When we planned the capacity increase last year, we had planned for a fuel price increase, but the Middle-East crisis raised the fuel costs unexpectedly to US$130 per barrel. Foreign currency movements, which accounts for more than 60% of MAS’ revenue, had impacted our top line. Despite all these factors, our non-fuel unit cost was down by 6%.

Our commitment to improve efficiency and eliminate wastage continues and without this, we would not have been able to reduce our unit costs to this extent.

As capacity increases, the new capacity introduced will take time to mature and fulfil its potential. In the short term, load factors and/or yield for the additional capacity will be lower than average but will improve over time.

Despite this 11% capacity increase, our unit revenues were stable with a small 1% drop. However, given the significant increase in fuel prices, we were badly impacted.

Revenue management is an important area for us, and our efforts to improve this area continue. One of our key initiatives is to introduce a new method of doing revenue management (origin and destination revenue management) which is expected to boost revenue by over 1% per annum.

Given that our annual revenue is over RM10bil per year, a 1% boost is significant. This method is being used by many carriers such as Lufthansa, Singapore Airlines and Cathay Pacific and we are implementing this in 2011.

The airline has in recent years pushed the envelope which resulted in us achieving many technological innovation “firsts” such as the MHmobile (which allows booking and checking using a 2D barcode and Enrich status enquiries among others) and MHBuddy (the first social media application that allows on-line bookings and check in on Facebook, as well as sharing travel itinerary with friends).

Similar enhancements using various channels and social media tools were also introduced for better customer experience such as augmented reality applications, MHdeals and Going Places (the monthly in-flight magazine) on the iPad.

We are proud to have been given rave reviews for more than just our cabin crew. Among the recent ones were the “World’s Leading Airline to Asia”, “Asia’s Leading Airline” and “Asia’s Leading Business Class Airline” awards by World Travel Awards 2010, United Kingdom. However, we are focused not so much on awards but on the overall experience for our customers.

We were recently invited to join the acclaimed oneworld alliance, and are now a member-elect. Oneworld does not have as many members as some of the other alliances, but is more selective and emphasises quality rather than quantity of members. We expect this alliance membership to bring significant benefits to MAS and also to the country as a whole.

From a customer standpoint, there will be more seamless connections to destinations where MAS does not fly and foreign customers can connect on MAS’ flights more easily. This will encourage more travel on MAS.

Oneworld customers will get frequent flier points on MAS as well as other member airlines. The same applies to Enrich members, who will get points while travelling on any oneworld airline.

Thai Airways and Singapore Airlines who are already part of an alliance have been using their member airlines to bring in foreign tourists into their countries. With the oneworld alliance membership of MAS, tourism into Malaysia will be enhanced and Kuala Lumpur will be considered more as a hub.

Market share increases

Firefly was more of a strategic move. While MAS is focused on the full service segment, the introduction of the jet service for Firefly is intended to give the group a foothold on the price sensitive segment of the market.

Firefly already has a good franchise in Malaysia and although it is competitively priced, it provides a good customer experience for this segment of the market. It is growing quickly and gaining a lot of momentum.

As the market develops, we will see Firefly gaining more market share at the expense of the incumbents, including MAS. What is important for us is that the group’s market share increases, and since Firefly jet operations started in January, we have seen that steadily happen.

From a group perspective, MAS concentrates on a more premium segment whereas Firefly covers the price sensitive segment.

We were clear from the beginning that the operational management of Firefly is done separately so that MAS is not trying to do both and that both brands are clear on which sectors they are targeting.

MAS has clearly stated that it is aiming to be the preferred airline of its customers by 2015. This target is aimed at being No. 1 in the hearts and minds of our customers, not in terms of market share or the largest fleet.

In its quest to become a preferred brand, MAS has embarked on studies to understand its customer segmentation and focus on their needs.

This move enables us to focus on delivering many advantages to our target segments. In this way, not only are we able to please our target segments, we become more efficient and focused, while maintaining our own unique identity.

As for sustainable profits, the airline is on track with its strategies to transform the airline to become consistently profitable. In the background, many transformations are taking place.

Enhancing IT systems, reviewing processes and introducing structural changes will slowly but surely strengthen the airline’s operations and people.

In the short term, we are reviewing our capacity and our sales and revenue management strategies in order to return to profitability.

The difference between turnaround and transformation is that turnaround is fast but does not last. A transformation takes more time to implement, but it either leaves a lasting impact or creates a lasting change. Therefore, the latter is harder to do, takes more time but creates more impact in the long run.

There are many suggestions out there on what MAS should do or is not doing. We appreciate suggestions and it demonstrates the extent to which Malaysians care about MAS. Here are the facts:

·MAS is focused on carrying out the BTP2 plan. Re-fleeting and alliance is part of the transformation plan

·MAS and Firefly jet operations target different segments. As a group, our market share in domestic travel has increased since the jet operations started in Firefly. This is at the expense of other airlines in the domestic market.

·Capacity and route planning is long-term as the airlines sell pre-loads at least 6 to 12 months earlier than travel time. We are subject to shocks such as the Middle-east crisis, which has unexpectedly driven fuel prices up. We adapt, but due to the lead times, results are not instantaneous.

·Cost reduction – MAS has already reduced its unit operating cost by 6% for Q1 2011. We are more than confident that our target of a cumulative 15% reduction by 2015 is achievable.

Thank you,

Tengku Datuk Seri Azmil Zahruddin

Managing Director/

Chief Executive Officer

Malaysia Airlines

Source/转贴/Extract/Excerpts: The Star Online
Publish date:02/07/11
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
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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

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