Is BNM Overeacting?

Quick on the heels of restricting credit card issuance and capping of credit lines, comes another Bank Negara measure to reign in bank's capacity to offer loans.

Yvonne Tan and Star online colleague, Sharidan Ali looks into the effects of such measures of bank the banking system and household debt..

Call it responsible lending or whatever, Bank Negara Malaysia (BNM)'s new measures to inculcate responsible lending by banks to retail customers is expected to impact the quantum of credit disbursement as weaker borrowers will be kept out of the lending radar.

Is BNM getting overcautious of household debt management?

From 3Q, 2011, new guidelines on lending would have to be followed. These would be used to stress-test loan applicants using a 100 to 200 basis points increase to evaluate loan repayment ability.

Malaysia's household debt rose at a rapid rate of 11.1% per annum from 2004 to 2009; and from RM516.6bil at end-2009, it climbed by 8.4% to RM560.1bil as at end-August 2010, according to data by CIMB Research.

The household debt to gross domestic product (GDP) ratio increased from 66.7% in 2004 to 76% in 2009 but is estimated to ease to 74.6% at end-2010.

Nevertheless, compared to the entire banking sector's NPL ratio of around 3.1%, the household sector's NPL ratio stood at 2.3% at end-2010.

Anecdotal evidence indicate that bankers are focusing more on the underlying collateral, especially for mortgages and auto loans.
Quick on the heels of restricting credit card issuance and capping of credit lines, comes another Bank Negara measure to reign in bank's capacity to offer loans.

Yvonne Tan and Star online colleague, Sharidan Ali looks into the effects of such curbs.

Call it responsible lending or whatever, Bank Negara Malaysia (BNM)'s new measures to inculcate responsible lending by banks to retail customers is expected to impact the quantum of credit disbursement as weaker borrowers will

be kept out of the lending radar.

Is BNM getting overcautious of household debt management?

From 3Q, 2011, new guidelines on lending would have to be followed. These would be used to stress-test loan applicants using a 100 to 200 basis points increase to evaluate loan repayment ability.

Malaysia's household debt rose at a rapid rate of 11.1% per annum from 2004 to 2009; and from RM516.6bil at end-2009, it climbed by 8.4% to RM560.1bil as at end-August 2010, according to data by CIMB Research.

The household debt to gross domestic product (GDP) ratio increased from 66.7% in 2004 to 76% in 2009 but is estimated to ease to 74.6% at end-2010.

Nevertheless, compared to the entire banking sector's NPL ratio of around 3.1%, the household sector's NPL ratio stood at 2.3% at end-2010.

Anecdotal evidence indicate that bankers are focusing more on the underlying collateral, especially for mortgages and auto loans.

Collaterals act as an eventual source of repayment during default and not an immediate source of repayment. As a result of this focus, the actual debt servicing ability of the household sector, as reflected by its disposable income,

has often not been looked at in detail during credit assessments.The proposed guidelines is proposed to fill this gap and thereby improve the quality of credit assessments done by banks.

Would this dampen property demand? The Real Estate and Housing Developers' Association Malaysia (Rehda) president Datuk Michael Yam said it was a signal for banks to be  “less exuberant” in their lending.

However, he believed banks are self-regulating and can curb defaults on its own.

He was confident that the “feel-good momentum” in the property market from last year would continue into this year.

Would the tightening of conditions for loans and cutting the groundswell of good returns from credit cards affect the bottom lines of banks?

 Apparently so.

Berjaya Food Berhad: A Wholesome Investment?

To buy or not to buy Berjaya Food Berhad (BFB)? Would that be the question?Not by any measure, a Hamlet moment.

This share which was offered at 51 sen on IPO opened at 53.3 sen on 8 March 2011,went to a low of 53 sen and ended the day at 63.5 sen on a commendable volume of 36 million shares. 

Pushed to a high of 74.5 sen on 9 March, it touched a low of 64.5 sen before ending at 67.5 sen. Volume decreased to 21.5 million shares. By 10 March, volume shrunk to only 3.7 million shares and the share price lost its upward direction to close down 4 sen at 63 sen. 

By 16 March, the price limboed down the price pole to 58.5 sen on a volume of 2.3 million shares. Volume shrunk to 1.5 million shares by 17 March when BFB share price leveled at 58.5 sen. Volume started going up again on 21 March to 3.3 million shares.  BFB’s share price then moved up strongly to close up 3.5 sen at 62.5 sen on 23 March on a buying wave of 3.5 million shares.

From a layman’s view- point, from the BJRetail fiasco, BFB is a stock that will also go nowhere soon. Contingent on only one product, Kenny Rogers Restaurants, has yet to grow its business the way KFC went.  It has only 49 restaurants and most of them are located in shopping complexes unlike KFCs that are literally every where. Moreover, the food industry has a low barrier to new entrants who can spoil the market for existing players.

To me, there is no hurry to buy this share. Every time there is a substantive price rise, sellers will come in like a mini tsunami and price will slide. 

I do not foresee it to beat the dismal share price performance of BJRetail but I also see little price upside. There will be little speculative buy and only parties close to Vincent Tan and know the going-ons in that group may be biting from time to time.

Watch for volume, if you intend to take a position on this counter. Remember- there is little likelihood of short term trading profits here. 

Postscript:

At the time of writing, volume has spiked to 60 million shares and BFB touched 71 sen before climbing down to trade at 69 sen for a 6 sen gain.

I think day traders are shoring up the price to profit take by the day's close. They could also be shorting the counter. If the price remains close to the 70 sen level, it only means that Vincent Tan and gang are playing the counter.

Let us see how the scenario pans out this evening at 5pm.

Bye-Bye Dame Elizabeth!

Elizabeth Taylor passed on today (24 March 2011) at Cedars-Sinai Hospital in Los Angeles.

A consummate actress, Taylor acted in her first film at the age of 10, three years after her American parents had returned to the United States from London, where she was born in Hampstead in 1932.

After just one film, she was hired by MGM, and became a child star with National Velvet, starring opposite Mickey Rooney.

One of the longest-surviving stars of the old studio system, she was widely acclaimed for her roles Cat on a Hot Tin Roof, Raintree Country and Cleopatra - as well as Butterfield 8, for which she won her first Oscar in 1960.

This blog says good-bye to another legend.

Axiata: Projecting a Ten Percenter for 2011

HwangDBS Vickers Research Sdn Bhd is projecting Axiata Group Bhd’s revenue for financial year 2011 to grow by 10 per cent while the earnings before interest, taxes, depreciation and amortisation (EBITDA) margin will remain stable at 49 per cent.

This is premised on Axiata’s 2011 plan to grow its revenue from Robi in Bangladesh, Dialog in Sri Lanka, XL in Indonesia and Celcom in Malaysia.

Except for Dialog,  the other subsidiaries are targeted to perform ahead of the industry.

While Celcom and XL will continue to grow mobile data services while remaining cost efficient,Robi will work to improve service quality and offerings.

Meanwhile, Dialog will focus on growing its data services revenue and managing cost efficiencies added HwangDBS.

As for dividend payout, it is projected that hte level would be 35 percent as  Axiata will be able to pay more dividends, given an expected more than sufficient free cash flows over the next two to three years.

Axiata has a dividend policy of a minimum 30 per cent payout ratio, translating to about a two per cent yield.

HwangDBS has maintained a “buy” call on Axiata with a sum-of-parts (SOP) derived target price of RM5.60. 

It's about 90 sen from that point.  I will buy now and leave at RM5.30

EPF-Backwater Payor

You would think that the EPF could do better that those people at Permodalan Nasional Berhad.

As usual, we are off the mark.

During the good years when banks were paying off fixed deposits at good rates, EPF was in the shadow-a laggard and whipping boy giving good money away at 'chicken shit' rate. Now it is forecasting low rates again, giving a thousand reasons why it cannot give better rates. So, what is new?

Right now, it has one bank, RHB, under its belt, a development banking agency, MBSB as well as a construction giant called MRCB with its nuggets of property in Brickfields. And what about the Sg.Buloh project and its profit offerings to EPF?

Coupled with that the government has been throwing handsome assets in the way of EPF. What can possibly go wrong? London property purchases? Tokyo stock market?

Let us read what Azlan of EPF has to say about your dividend potential next year.

The Employees Provident Fund (EPF) expects to declare a dividend rate of between 4.5 per cent and 5.5 per cent annually despite challenges in the global economy so says its CEO, Azlan.

He trumpeted in a good year like 2010, 5.8% was possible.

“The important thing is capital preservation. We feel that EPF now has got very good investments. Going forward, we are steady and comfortable,” he said

Azlan added EPF’s overseas investments during these challenging times were safe.

“On the positive side, we may find opportunities to buy or sell during the current market uncertainty, on a selective basis,” he said.

He said EPF was talking with the government to finalise the terms of the agreement on the development of the 1,200-hectare Rubber Research Institute land in Sungai Buloh.“We hope to finalise it before year-end,” he said.

So, do something for the members-build houses we can afford and give us first preference!

BJRetail: Return to Sender

Yes, this is so strange.

After listing BJRetail (BJR) on the Main Board last August 2010, it is really unexpected that Vincent Tan and his related parties will want to take it private once more after a mere 8 months.

In fact the stock has performed very poorly despite better results and a potential dividend in store.

It was offered at 50 sen during the IP0 and got as high as 56 sen. Subsequently, it succumbed to selling pressure because of too much loan stock conversion by related parties which to my notice, happens almost all the time. Before the price could stabilised, more were converted and off-loaded on the market as such miserable prices.

For those still holding BJR at 42.5 sen, this could be a God-send  opportunity to get out of this dog counter at 65 sen.

Another thing that I noticed is BJFood (BJF) is also experiencing loan stock conversion and today, it occurred, bringing the price down.

With the trouble in Saudi Arabia and the tsunami in Japan,next week would not be a good week for any stock and BJF may just go down to its offer price of 51 sen.

So, for those intending to get into BJF, just watch out for the price next week to make an entry.

I Am Back

So after his two gubernatorial terms in California, the Terminator is back to Hollywood. Possibly, he will play small  cameo roles in those movies that made him a household name.

No longer as nimble and fleet, he will have to work out and huff and puff just  like Harrison Ford when he did the latest Indiana Jones movie.

What else can we say except, " Welcome back, Arnold!"

NATIP: Zeroing on Thrust 3

In the 1970s, Malaysia's chief timber imports range from the export of round logs to sawn-timber,plywood and veneer. The industry has changed. Today,the nation exports boast value-added products such as high quality furniture and builder' joinery and carpentry.

Behind the advent and growth of these valued added industry is the use of machinery and skilled labour.

The current global timber industry is driven by competitiveness. On one hand, is the intense competition unleashed by the People's Republic of China(PRC) and Vietnam which specialises in low-end products.On the other hand, there is Japan and the Republic of Korea (ROK) which utilises high technology in their production of timber products. For Malaysia which is sandwiched somewhere in  between, its status as a a producer of comparative advantage based on cheap labour costs is but over.Its moment of truth is here.

Malaysia needs to reinvent itself if it is to maintain its stature as  a major exporter of timber products. The way forward will be through the adoption of technology. The industry must accept the reality that the industry now must be technology-driven. There is no longer any other option. Gone are the days of cheap labour or dependence of foreign labour.

The timber industry community must have an innovative mind. And the premise of an innovative mind is an innovative attitude.

As soon as timber industry players become  innovative and forsake quick gains for long term strategic advantage, will we then see them in  the driver's seat, spearheading technology adoption into the industry.

A corollary to an innovative attitude is the ability to take on risks. This is required if the nation is to successfully migrate  to technology intensive processes.

The timber industry is now at a crossroad. The situation is clear. Malaysia cannot compete with low cost producers like China and Vietnam. It is also no match for the technology-savvy Japanese and South Korean manufacturers. Local labour is not interested in the timber industry while foreign labour is fast disappearing.

What choice do the industry really have but to go technology?

The NATIP Wishes

Envisioning a greater role for the timber industry by 2020, the Government has commissioned a study to create a viable vision for the Timber industry from 2009 till 2020.

Known as the National Timber Industry Plan (NATIP), it proposes 7 thrusts for the achievement of its qualitative and quantitative targets.

The overriding mission of NATIP is that come 2020, Malaysian timber exports will achieve the value of RM53 billion. The qualitative vision is to achieve this target via a 40% contribution from upstream products and 60% from downstream products. Whether this is a tall order or need to be pruned to current realities will depend how the critical issues facing the industry can be effectively resolved.

The three critical challenges must be met strategically and expeditiously. Failing to do so with earnest will certainly makes such mission and vision a pipe dream.

The NATIP thrusts broadly embodies qualitative aspects. Each thrust incorporates a status report, a list of issues and challenges,the way forward and policy directions.

These are the thrusts:

Thrust 1: Industry Structure
Thrust 2: The Supply of Raw Materials
Thrust 3: Innovation and Technology
Thrust 4: Marketing and Innovation
Thrust 5: Marketing and Promotion
Thrust 6: Funding and Incentives
Thrust 7: Bumiputra Participation

Excluding the negative impact of exogenous factors, the 7 thrusts of the NATIP can be realisable and achievable  if they are passionately pursued i n an enabling environment.

The Timber Industry-The Crtiical Challenges

The challenges confronting the Malaysian Timber industry can be categorised into three. The first category is on raw materials while the second on labour resources. The third category is with regards to marketing and promotion of Malaysian timber products.

Of the three category, the most critical challenge is with regard to labour and then raw materials. The third category is a longer term challenge incorporating manifold strategies.

The shortage of raw materials current affect production as well as impede long term planning. While Peninsular Malaysia has banned the export of round logs, the export of logs is still allowed in both Sabah and Sarawak. This dichotomous situation has lead to the continuous outflow of raw materials in low value added form onto the international market from these two states while timber manufacturing companies from both Peninsular Malaysia and Sabah and Sarawak are facing acute shortages of raw materials to work on. On the long term, this demotivates investment into high value downstream processing of timber and puts a stump on the growth of the timber industry.

There have been concrete moves to promote forest plantation to resolve this raw material issue. However, the risk here are high and more need to be done to attract investment into this activity. To alleviate the risk issue, grants-in-aid from the government  as well as interest free loan should be made available to investors.

The research to identify other non-commercial species of timber is an on -going activity of the forest departments and the timber research fraternity. This is more a long term option.

Unless Sabah and Sarawak legislate to prohibit round log exports, the most ideal national plan document to move the industry forward  will only be delusional. There need to be some form of understanding between the Federal Government and the two state governments so that a planned cutback of timber log exports can be implemented for the growth of the timber industry.

The labour issue is the most contentious. An over-reliance over labour in this industry for such a long time is proving to be a bane as locals do not want to involved themselves in this industry and when  foreign labour has become a much sought commodity. Any policy measure to assist the industry from this aspect will be short term and relying on labour on the long term will be self-defeating. The way out is to go into mechanisation and automation processes.

To motivate industry players to pursue mechanisation and automation,the government must be innovative in its funding and fiscal initiatives. Suggestions like using part of the foreign worker levy to set up a trust fund to finance technology adoption, innovation and automation as well as a Commodity Bank to assist in this direction must be seriously considered by the Government.

Currently, general workers can be recruited from other source countries to work in the timber industry. Statistics from the Home Ministry has shown that lately, there are fewer foreign workers from source countries like Nepal and Vietnam. The fast growing economy of India has attracted Nepalese, Sri Lankan and Bangladesh to work in India which is closer to their countries. Similarly, the Vietnamese are staying home because of their rapid economic growth.

Even so, a good source country to consider on a longer term will still be Bangladesh. However, the government must take cognizant of the potential social problems that can be created in the recruitment of Bangladesh workers.

Marketing and Promotion is the third challenge confronting the industry. Where once industry were contented to be contract manufacturers for overseas firms, that kind of strategy will not be expedient in the long run. As skills are developed both from the shop floor and from industrial training institutes such as WISDEC, industry players must seriously think of positioning themselves as Malaysian product manufacturer in their own right. Issues like innovative designs and own brand manufacturing should be the next targets on the movement up the value chain. The time has come for more strategic marketing and promotion of  Malaysian timber products.

Apart from government support to showcase our global quality products at international timber product fairs, genuine attempts at strategic marketing and promotion alliance must be forged. Here, Malaysian timber promotion agencies and associations can play their role with their international counterparts to work out a win-win platform that is sustainable. On the part of government, FTAs would be a good place to start.

Timber Industry-Structure and Characteristics

This is the Character and Structure of the Malaysian Timber Industry

The industry can be divided into the upstream and downstream sector.  Whereas the upstream sector is chracterised by the systematic and sustainable harvesting of natural forest and forest plantation, the downstream features three levels of processing. Of the primary activities, this will include processing of raw materials (logs) into sawn timber, plywood, veneer, fibreboard and particleboard. Some 60% of these are exported.

Secondary and tertiary processing will include furniture manufacturing, mouldings, flooring, laminated timber, builders’ joinery and carpentry  Some 40% of these outputs are exported.

The industry currently continues to be labour- intensive. There is low mechanisation or use of automated systems. Of the 300,000 workers in the timber industry, about 175,000 or 58% are foreign workers.

                                     

Skewed Over-dependence on Foreign Labour in the Industry

While young local workers shun the industry because of its ‘dirty, dreadful, demeaning, dull and dangerous’ label and image, a looming issue is the current scarcity of foreign workers to be recruited from the source countries for the local timber industry. Foreign Indonesian workers are now harder to recruit. As the prices of most commodities continue to rise, the plantations in Indonesia are willing to pay higher wages to their nationals and this has stemmed the outflow of labour to Malaysia. This overdependence of the timber industry on foreign workers is critical at the moment and worrisome in the long run. It will negate the growth of this industry and its contribution to the national economy in many aspects.

English: Heed The Headhunters

Now, this is  crucial.

 If the people who are hiring says that English is important-believe them.

And so it goes that headhunters are in agreement with  Mahathir  that mastering English will not make
Malaysians less patriotic.

Recruitment consultants said Malaysians will lose out in the global commerce game if the nation’s
education system fails to emphasise English.

“We agree totally that mastering English will not make Malaysians less patriotic. In fact, it should be the
reverse.

“It gives Malaysians the opportunity to extol the many good things about the country in more than one
language,” said Malcolm Poole, director of multinational headhunter agency MRI Network Sdn Bhd.

Poole added that more multinational companies are basing their regional operations here.
“Hence, the ability to follow technical and scientific publications in English is essential,” he said.

Consulting director of Career Builders Consulting Sdn Bhd Gopa­lan Nair said even though Bahasa
Malaysia has been accepted as a unifying language that promotes nation building, English is important
for commerce in a globalised world.

“We should not shy away from it,” said Gopalan.

Kelly Services managing director Melissa Norman described limited proficiency in English as highly
detrimental and a handicap in business.

This is again another wake-up call. Unless you are really deaf in the ear, ensure your children pick up the English language.

Berjaya Retail Performs Okay

Berjaya Retail Berhad (BJR) has just released its Q4, 2010 results. Compared to Q4, 2009; revenue rose by RM39.33 million. This represents a 9% better performance.

Net Profit was RM13.661 million, RM898,000 better than the last quarter. This represents a 7% increase. Basic earning per share has also moved up to 0.91 sen from 0.85 sen.

On a year-on-year appraisal, revenue has risen from RM1, 542,183 in 2009 to 

RM1,719,841 for the year ending 2010. Similarly net profit rose by RM4.98 million to RM52.43 million from RM47.46. Basic earnings climbed from 3.17 sen to 3.5 sen.

My view is that BJR is performing fairly well given the competitve retail environment in Malaysia.

Looking at the low price of 42 sen, perhaps it is time to collect some more of this share.

The Malaysian Timber Industry

The Malaysian Timber Industry has its humble beginning as an upstream industry that export sawn logs, saw-milling and plywood. It was fragmented and characterised by small family-owned establishments mostly operating saw mills. They were labour intensive and do not use much modern mechanisation  and automation.

It was only when the furniture sub-sector became a runaway success story that the timber industry began to claim a more significant stake in growing the national economy.

In 2008, timber contributed 3.7% to total merchandise export with an export market value of RM 22.5 billion. It employed more than 300,000 workers (3.5% of total employment)and constituted 4.07% of the GDP of the nation that year.

If not for a total ban of cut log export from Peninsular Malaysia, the growth of the timber industry would not have been that momentous. This policy immediately cuts away the ground from which foreign competitors obtained raw materials from Malaysia to develop downstream products that actually competes with Malaysian wood products in the global market places. More importantly, for the first time, investors in the industry could plan to go into downstream processing because of a stable supply of raw materials.

Even so, investments in the timber industry has been on the decline. From investment statistics provided by MIDA, investments in 2009 has diminished compared to 2007 and 2008.  In terms of investment in furniture it has shrunk 43% from RM309.1 million in 2007 to RM174.7 million in 2009. Similarly investments in panel products have slid by 79%  from RM766.5 million to RM162.7 million in 2009 while investment in non-wood products had slipped 75% from RM233.8 million to RM56.7 million in 2009.

                                           Investments in Timber Industry 2007-09 (MIDA)

Apart from raw materials sourced from natural jungles, timber is also obtained from cash crop plantations such as oil palm and rubber estates. Lately, forest plantations are being developed to strategically provide  timber resources to the industrial sector that are not only sustainable but legal.

Saving and Repeal.

 These are the two last rules of the Commissioners for Oaths 1993.

Rule 24 is a savings rule. For Commissioners for Oaths appointed prior to April 1993 who are not public officers, they will continue the functions of a Commissioner until the 31^st December 1993. 

For Commisioners who are public officers, their appointment shall cease on 30^th June 1993.

Rule 25: This is a  rule  to repeal  the Commissioners for Oaths Rules,1988.