Challenging year ahead seen for secondary residential properties (2009)

By Star Biz

It will continue to be challenging in 2009 for the secondary residential property market as buyers continue to adopt a wait-and-see stance on property purchases due to the global economic slowdown, property experts said.

The degree of softening in property sales would depend on the severity of the economic downturn next year, they said.

Regroup Associates Sdn Bhd executive director Paul Khong acknowledged that the secondary residential property market has been quite slow as potential buyers have been holding off decisions on house purchases. “This has significantly impacted the property market especially in the current quarter,” he told StarBiz.

“The quiet period is expected to continue through to the first quarter of 2009 after all the holidays are over.” S.K. Brothers Realty (M) Sdn Bhd general manager Chan Ai Cheng said buyer sentiment had taken a beating due to the current economic uncertainties.

“It’s a waiting game for buyers. There are even ‘aborted’ cases where buyers have placed an earnest deposit to purchase a property and subsequently pulled out from the transaction, in the hope that prices will come down further or in search of fire-sales while others are uncertain of their job stability and postponing the purchase commitment,” she said.

Nevertheless, Hartamas Real Estate Sdn Bhd managing director Eric Lim is anticipating stable to moderate growth due to bargain hunting in certain segments of the secondary property market, especially landed residential property. “(However) the market for properties that are purchased for investment and speculation will be slower,” he acknowledged.
The agency experienced a 20% to 30% drop in sales in the second half of the year versus the corresponding period of 2007. “This is quite substantial for us. Sentiment is still not good,” Lim noted.

CH Williams Talhar & Wong Sdn Bhd managing director Goh Tian Sui concurred. “The last two to three months have been quite bad – enquiries and sales activities have dropped. Owners are more open to negotiations in pricing,” he said. The prices of certain secondary residential properties could also face more pressure next year due to a lack of demand and an increase in supply of completed projects.

Citing an example, Regroup’s Khong said the situation for high-end condominiums in the KLCC and Mont Kiara areas were getting critical and there would be more pressure on rental and capital values as many of the projects in the vicinity would be completed within the next one or two years.

“Supply will be mounting on a monthly basis as demand continues to be low and this will eventually translate into lower capital values and rental.

“An easy 15% to 20% shed in values are envisaged for this sector generally,” Khong said.
The asking prices for middle-class residential properties in general, for example, terrace houses in good locations such as Sri Hartamas, Bandar Utama and even Taman Tun Dr Ismail, had already been adjusted 5% to 10% lower to reflect current market conditions, Khong said.
Khong & Jaafar Sdn Bhd managing director Elvin Fernandez noted that prices of high density condominiums with a low occupancy rate in not-so-choice locations were about 10% lower now compared with a year ago.

“Although prices have softened, it is still difficult to sell such properties,” he said.

YTL Power a BUY?

By Star Biz

YTL Power International Bhd’s proposed purchase of Singapore’s PowerSeraya Ltd looks unattractive from the earnings record of the latter. It was announced on Tuesday the YTL Power group will purchase the entire equity of PowerSeraya, owner of two power stations that has 25% of Singapore’s electricity generation capacity.

The price for PowerSeraya is S$3.4bil (RM8.09bil) and the assumption of a S$200mil debt that owner Temasek Holdings Ltd owes the former. As the debt is owed to a company that will become YTL Power’s wholly-owned subsidiary, it is believed the debt can be cancelled.
The acquisition is expected to be completed in the first half next year and in its first full year of contribution in 2010, PowerSeraya is projected to produce a net profit of RM76mil, YTL Power said. That translates into an earnings per share contribution of 1 sen for YTL Power, the company added.

That sounds miniscule for an investment outlay of S$3.4bil. It should be noted, however, that PowerSeraya’s net profit was much higher at S$218.3mil for its year ended March 31 (FY08). The reason for the wide fluctuation in its profitability is not known.

It could be due to factors such as scheduled maintenance shutdown at a certain period. PowerSeraya’s earnings in FY08 would be a return of 6.4% on YTL Power’s purchase price. The free cashflow from PowerSeraya should exceed that because depreciation, a large non-cash item, would have been deducted to arrive at the profit figure.

In addition, PowerSeraya is constructing two 379MW cogeneration units that will be operational in 2010, which will expand its revenue-generating capacity. Power project investments are premised on free cashflow of the acquired assets being used to repay loans taken to finance the acquisition.

YTL Power said the PowerSeraya purchase will be funded by S$1.15bil from the former’s cash reserves and S$2.25bil from a loan.

Outlining a scenario, an investment banker told StarBiz yesterday that if YTL Power took a 10-year loan for S$2.25bil, half of that would be repaid in five years from PowerSeraya’s own cashflow. At that time, S$1.125bil of debt would have been repaid and become equity for the YTL Power group.

In 10 years, the entire loan would have been repaid and YTL Power would then own PowerSeraya with the entire debt repaid. Effectively, YTL Power would have gained an equity value of S$2.25bil by then.

That’s a huge sum in equity value, although it’s not an acquisition primed for high growth. The objective is steady, assured wealth creation. Furthermore, YTL Power is not getting PowerSeraya at a distressed sale price because Temasek is not in any form of distress. The word on the street is the internal rate of return (IRR) - the return to be earned on invested capital - for PowerSeraya is about 10% or in the low teens.

For a richer IRR in the mid-teens, YTL Power will have to trawl further afield for distressed asset sales which, no doubt, it is working on.

Petronas revenue still up!

By the edge

Despite falling oil prices, national oPeil company Petroliam Nasional Bhd (Petronas) continued to chalk up an impressive growth in net profit on the back of higher average prices of the commodity.

Petronas posted a 46% year-on-year growth in net profit to RM42.68 billion for the first half (1H) of its financial year ending March 31, 2009 from RM29.27 billion, after paying tax expense of RM20.5 billion.

Revenue was sharply higher at RM157.2 billion versus RM102.8 billion a year ago. Pre-tax profit soared nearly 49% to RM63.26 billion from RM42.57 billion previously. Higher earnings boosted Petronas’ cash pile to RM124.6 billion from RM113 billion as at March 31. The group’s other liabilities, however, shot up 47% to RM112.8 billion from RM76.9 billion in the previous corresponding period.

The surge in Petronas’ profit did not come as a surprise given the 64%, or US$49.50 (RM179.68), jump in the average price of Tapis crude to US$126.48 per barrel during the six months under review. The average price of the commodity was US$76.64 in the corresponding period last year.

Tapis crude is the benchmark for Petronas’ production.

However, the national oil company which contributes over 40% of the government’s coffers in the form of petroleum taxes and dividend, is likely to see lower profits in the second half of its financial year in tandem with the drastic drop in crude oil prices since July when the worldwide commodity boom collapsed.

The average price of Tapis fell to US$74.77 in October, down 30% from US$106.92 in September. Yesterday, Bloomberg Asia-Pacific Tapis crude oil spot price was US$50.03 per barrel. The current level is the lowest since January 2005. The price has plunged 67% from the peak of US$153 in mid-July.

The last financial year, ended March 31, 2008, was a record year of profit for Petronas. The operating environment has since turned harsh, for on top of the meltdown in crude prices, the weakening ringgit and increase in production costs will further erode the group’s profitability.
According to Petronas president Tan Sri Mohd Hassan Marican, every 10-sen fall in the ringgit against the US dollar will take away about RM2.5 billion from the group’s profit.
The US dollar has strengthened substantially in recent months due to its standard currency status. The greenback has appreciated to RM3.628 against the ringgit, up almost 13% from the US$3.21 level in July.

International operation is Petronas’ biggest revenue contributor, generating RM68.9 billion or 44% of total revenue, followed by exports with RM56.7 billion or 36%, and domestic opertation, RM31.5 billion or 20%. But domestic operation, including exports, is still the most profitable due mainly to the lucrative production-sharing contracts it has with international oil majors for exploration and production (E&P) activities.

Giving a breakdown, the oil business, including refined petroleum products and crude oil trading, is the most profitable division, accounting for 40% or RM25.7 billion of the company’s operating profit. Gas is the second biggest profit-earner, contributing RM20.8 billion or 32.5% to group operating profit. Next comes E&P with 19% or RM11.9 billion.

Malaysia's most valuable brands 2008

By the edge

For the second year running, Maybank has been ranked as Malaysia’s most valuable brand with a brand value of RM9.3 billion in a valuation study commissioned by 4As (the Association of Accredited Advertising Agents Malaysia) and The Edge.

The Malaysia’s Most Valuable Brands (MMVB) 2008 study, conducted by leading brand consultancy Interbrand, also ranked Public Bank, with a brand value of RM6.8 billion, as Malaysia’s second most valuable brand, followed by CIMB, with a brand value of RM6.3 billion.
The three banks, together with Genting (RM4.5 billion), Parkson (RM4.2 billion), and Celcom (RM3.9 billion), make up the six most valuable brands. All six had a brand value that exceeded US$1 billion (RM3.6 billion) each.

The total brand value of Malaysia’s 30 Most Valuable Brands was RM61.8 billion, up from RM56.6 billion last year. The top 30 brands were honoured at a gala event here last night. The guest of honour, Tan Sri Amirsham Abdul Aziz, Minister in the Prime Minister’s Department, handed out the awards.

“Brand valuation is a step in the right direction. Brands build trust. With the economic situation, branding has become even more important,” said Amirsham.
According to the study, despite a small drop of 3% in value, Maybank still tops the league table. Its acquisition in Indonesia has not affected the results as the study was based on year-end 2007 financials.

Datuk Seri Abdul Wahid Omar, president and CEO of Maybank who received the award last night, said he was happy with the ranking even though the brand value had decreased slightly. “So as we move forward locally, we will aim for the Maybank brand to be recognised, not only in Malaysia, but also in the Southeast Asian region.”

On the other hand, CIMB’s mergers and acquisitions in 2006 and its unifying brand strategy saw its brand value jump 83% to RM6.3 billion from RM3.4 billion last year, the highest increase among the top 30.

“This is a testament to our investment over the last year, We will continue with our long-term strategy as it has proven effective,” said Effendy Shahul Hamid, head of group corporate communications, CIMB Group.

The brand value of DiGi, which moved up one notch from No 10 last year, grew 35% despite a highly competitive and licence-restricted marketplace, said Interbrand in a press release issued yesterday.

Maxis is not in the rankings this year as it has been delisted from Bursa Malaysia. One of the criteria for MMVB is that the brands must be owned by listed companies as the study is based on publicly available information. Brands must also be consumer-facing and Malaysian-owned or originated.

National icon Proton saw the biggest fall in brand value of 37%, causing it to drop from No 23 last year to No 28 this year. The study noted that Perodua’s brand value now stands at more than 15 times that of Proton.

Interbrand’s methodology values brands in the same way that other corporate assets are valued, on the basis of how much the brands are likely to earn for their owners in the future. “Interbrand uses a combination of analysts’ projections, financial reports, and its own analysis to arrive at a net present value of those earnings,” said Interbrand group CEO Jez Frampton.
Interbrand noted that global turbulence roiling the markets had not fully impacted, except for falling margins and the increase in provisioning in general. The brand risk factor has also increased, it added.

4As president Datuk Vincent Lee said the study put Malaysia among the few Asian countries that currently recognised the value of brands as business and economic assets. “It helps the growth of business and celebrates the true heroes of economic value generation, the brand builders of a nation,” he added. Ho Kay Tat, managing director and editor-in-chief of The Edge, said the study “creates a platform for discussing the role of brand-building, ensuring business health and earnings continuity”.

“Through all this (economic turmoil) it has been very clear that brands are a powerful driver of recovery. Fundamentally, brands are there to enable consumers to choose. They mark out one offer from a company from somebody else’s. They are the reason why people will buy, and the reason why people will repurchase. They are a driver of demand,” said Frampton at a press conference earlier.

This year, three new brands made it to the top 30 — Sin Chew (No 27), Jobstreet.com (No 19) and Ogawa (No 29). Jobstreet.com is the first online brand to make it into the list.

Market slump takes RM21b toll on unit trust funds

By Biz Times

THE sharp falls in the equities market have cut the total value of unit trust funds by RM21 billion in the first nine months of the year.

The value dropped 12 per cent to RM148 billion from RM169 as at December 31 2007.
However, Federation of Malaysian Unit Trust Managers (FMUTM) president Tunku Datuk Ya'acob Tunku Abdullah said the percentage of the current net asset value (NAV) had grown to represent 19.31 per cent of Bursa Malaysia Securities' market capitalisation. At the end of last year, the percentage was 15.32 per cent. This means that the price reduction for shares held by the funds was not as great as the overall market's.

A total value of RM335.61 billion in market capitalisation had been wiped out from the local bourse between December 2007 to September 2008. "Our benchmark (for the NAV percentage) will be 20 per cent by year-end," he told reporters after his welcoming note at the annual convention of unit trust consultants in Kuala Lumpur yesterday.

Based on the Morningstar Fund table as at October 17 2008, the Malaysian equity funds posted losses of 29.36 per cent compared to global equity funds which saw losses of 40.07 per cent over a year. Tunku Ya'acob said there would not be a slowdown in fund launches but a change in the type of new funds is anticipated. "We will see more aggressive-type funds such as distress asset funds, which will pick up cheap assets. However, subscription to the funds may be affected," he said.

Conventional funds launched for the first nine months of 2008 had increased by 40 to 407 compared to funds launched in 2007. Islamic-based funds have also risen by 16 to 144.
While the redemption rate of funds has increased slightly, the level remains low due to strong saving habits practised by Malaysians, said Tunku Ya'acob.

FMUTM technical chairman Tan Keah Huat said unit trust investors should continue investing especially when prices are weak to enjoy the upside when markets recover.
He expects an increase in net inflows for existing funds since purchasing more units at a lower price will lower the average price paid for all units. On FMUTM's ongoing initiative, it has appointed Mesdaq-listed Rexit Bhd to develop an e-Unit Trust system, which will shorten investors' application process for unit trust purchases using EPF (Employees Provident Fund) savings. "The manual process takes roughly two weeks and with this automation system, it should not take longer than six days," said Tunku Ya'acob.

The system should be in place by the first quarter of 2009. FMUTM will also introduce a fund volatility factor early next year for all funds with a three-year record and above.

What's happenin with gold prices??

By The Star

Gold prices shot up in aftermarket trading Thursday after stocks plunged again, sending investors scrambling for safe places to put their money. Silver also rose.

Gold for December delivery jumped $32.30 to $918.80 in electronic trading on the New York Mercantile Exchange, after earlier closing $20 lower at $886.50.

Investors bought up gold, a traditional safe-haven asset, after fears of a deepening financial crisis sent U.S. stocks tumbling in a late-session swoon.

The Dow Jones industrial average fell 679 points.

Gold has been on the upswing in recent days as panic ripples through world markets, touching off a desperate search for safe-alternative investments.

The precious metal is an attractive investment in times of crisis because it's known for holding its value.

Silver prices also jumped, with the December contract adding 30.5 cents at $12.18 an ounce, after earlier settling 10.3 cents higher at $11.875.

December copper rose 5.1 cents to settle at $2.406 a pound.

In energy markets, crude oil closed at its lowest level in a year as falling demand for energy outweighed news that the Organization of Petroleum Exporting Countries will hold an emergency meeting to discuss oil's downward slide.

Light, sweet crude for November Delivery fell $1.81 to settle at $86.62 a barrel on the New York Mercantile Exchange, the lowest closing price since Oct. 15, 2007.

In aftermarket trading, prices edged below $85, a key technical level that traders say could signal another plunge.

In agriculture markets, grain prices traded mixed on the Chicago Board of Trade.

Wheat for December delivery fell 3.25 cents to settle at $6.0475 a bushel, while December corn rose 10.75 cents to settle at $4.3825 a bushel.

November soybeans rose 16 cents to settle at $9.80 a bushel.

Air Asia is betting high, take note share holders

By Biz Times

AIRASIA, the region's biggest budget carrier, is making a risky bet.

As soaring fuel prices have forced other airlines to cut back, shed jobs and ground planes, AirAsia is doing the opposite: increasing flights, adding routes and boosting capital investment.
Last month, it even gave away a million free seats (although passengers still had to pay taxes and fuel surcharges). The seven-year-old company is aiming to fill the vacuum as other airlines reduce capacity, betting that more travellers will opt for budget flights amid a global economic downturn.

Analysts say if it survives the industry slump, AirAsia could come out a winner with increased customer loyalty and a strong route network to catch the growth wave when good times return.
"They are reasonably well-positioned for the long run, but there's always a trade-off. It's a long-term decision, which will cause some short-term pain," said Damien Horth, Asia transport analyst at UBS AG in Hong Kong.

Of course, the strategy could also backfire badly.

Last month, AirAsia reported a 95 per cent plunge in its net profit for April-June quarter to RM9.42 million. But the company chalked that up mostly to a RM77 million foreign exchange loss from a weakened ringgit, not weakness in its underlying business.
Average load factor - the percentage of seats taken up in an airplane - dipped to a still relatively strong 76 per cent, from 80 per cent in 2007.

It has a cash reserve of about RM1 billion, but outstanding debts stand at RM5.4 billion, giving it a net debt position of RM4.4 billion. Debts are set to grow as it receives new planes.

Chris Eng, analyst with OSK Securities in Malaysia, said AirAsia's growth prospects may be curbed, while its joint ventures in Thailand and Indonesia are expected to remain in the red.
"It will be challenging but we believe AirAsia can survive," Eng said, citing its efficient regional network and good cost control.

EPF Malaysia is the eighth largest fund in the world

By Biz Star

Malaysia’s national pension fund, the Employees Provident Fund (EPF), was ranked the eight largest fund of its kind in the world with US$94.66bil.

This is according to the latest Watson Wyatt Global 300 survey conducted with Pensions & Investments, a US investment newspaper.

The list included the country’s Pension Trust Fund (KWAP), at 22nd spot with US$14.55bil.
Watson Wyatt Asia-Pacific investment consulting head Naomi Denning said in a statement that Asia-Pacific sovereign pension funds grew by about 20% to US$1.8 trillion in 2007.

“Sovereign pension funds in this region have seen tremendous growth in recent years, along with the rapid growth in assets of sovereign wealth funds,” she said.

She added that strong equity returns last year contributed to the boost in asset growth.
Denning said that among sovereign pension funds ex-Japan, funds that enjoyed growth of more than 30% from the previous year included China’s National Social Security Fund (up to 38th position from 69th), India’s Employees Provident Fund(from 88th to 68th), Singapore’s Central Provident Fund (from 32nd to 22nd) and Thailand’s Government Pension Fund (from 285th to 241st).