The Brain Drain Continues.....

The Straits Times has this story to tell about the topic of the continuing brain drain from Malaysia.

According to its report today (27 Sept), Harvard-trained Malek Ali,BFM's radio owner has recently lost two staff members of his radio station.He felt the reason of his loss was unnecessary.

One was an Australian radio station engineer and the other was the man's Malaysian wife. The couple returned to Australia after the husband could not renew his work permit.

“These are good people. He was among the best in his field,” Malek said. “He and his wife are now contributing to the Australian economy.”

That was a stark contrast to his own experience — in Singapore.

In 2000, he became a permanent resident there, while working for the Singapore operations of a Malaysian company. Six months later, he was asked if he wanted to apply for citizenship.

He did not. He came back to start the BFM radio station, but without his family. He felt it was better for them to continue living across the Causeway. He commutes every weekend to Singapore.

Malek's stories tell a succinct tale of the double whammy Malaysia is facing in the global grab for talent. Its citizens are being wooed by other countries, while its labyrinthine process of applying for permanent residence or even work permits drives away those who might want to stay.

This is not a new story. But it came to the forefront last week when complaints poured out on Internet forums after the Home Ministry held a high-profile exercise to award citizenships to 92 people.

The 92 were among the 33,000 “stateless” persons in the country. Most of them were born in Malaysia, but did not have legal papers as their births were never registered or the papers lost.

Among them was Leong Chwee Chun, 64. She had waited 36 years after her papers were lost during the Japanese Occupation.

But many of the best-qualified of these “stateless” residents have not stayed. Some left long ago, frustrated with inconclusive outcomes of their applications.

Plain-speaking Gerakan politician Dr Hsu Dar Ren tells of a former classmate who did not have citizenship, even though he was born in pre-independence Malaya, because his mother did not apply for it then.

The classmate was consistently top in his class and was later offered a scholarship to study in Singapore, where he became a citizen after graduating as an engineer. No one could blame him.

“The brain drain is really one of the biggest problems in Malaysia today, and this sort of thing does not help,” said Dr Hsu.

The citizenship ceremony was held with pomp last week to showcase the Home Ministry's pledge to clear the backlog of applications by the year end. It has already processed 70 per cent of the 32,927 outstanding applications for citizenship, 16,812 for permanent residency and 93,360 cases of late registration of births.

Malaysia's difficulty in retaining talent has become more acute as the government tries to lift the economy up and out of the low-cost, low-wages model. It needs to have better brains to operate in this country.

Prime Minister Najib Razak had asked the government's Economic Council for a new economic model to emphasise innovation and creativity. I wonder whether this can be done in a country that is steep in religious conservatism as generally wary of championing new ideas for early adoption. Malaysia has always been a laggard in this department.Even its academia is beginning to look suspect because of the so called fake degree uproar unleashed recently.

But as Malaysians like Malek have noted, the malaysian authorities ought to be more efficient about keeping talent. The Malaysian process is opaque and convoluted and the delays are notoriously legendary.

Many have complained that they are kept in the dark about the criteria — unlike countries such as Australia, which uses a clear points system.

There is widespread belief that much hinges on what Dr Hsu describes as “a numbers game”. In a country where race is linked to power, the racial balance is always part of the consideration. Fear is the key and as such the nation suffers.

It may not be an official policy, but there are scores of stories that hint of unspoken racial considerations.

But as it has been pointed out, even if they number in the thousands, new immigrants will hardly change Malaysia's demography.

“The demographic trend clearly shows that the major ethnic group is going to form a bigger and bigger proportion of the total population as time goes on,” said Dr Hsu.

The pledge to clear the huge backlog — which is part of the Home Ministry's Key Performance Indicators (KPIs) — is welcomed, but it will not go very far as long as the process itself is not reformed.

Management-style KPIs may focus on statistics, but not necessarily the right decisions.

“They can easily say 'no' to everyone and meet the KPI,” said Malek. “But we haven't done what is needed — provide a clear policy, transparency and speed.” —

The Hums at the Factories are Getting Louder

The Singapore Straits Times (Sept 27)did bring some indicative good news today about the state of the manufacturing sector in Malaysia.

Yes, at this time last year,it was bleak time for Malaysia’s manufacturing sector.Since last December, many factories started four-day work weeks which slashed the income of its employees by up to 20 per cent. Rumours were rife then that a three-day work week would be next. Some workers were told to go especially new ones.

Today some relief has slowly returned. Many are of the view that the worst may be over for the global economy.There has been a rebound in orders for most factories. Work schedules have been restored and many have their pay elevated to former levels.The morale in the factories is so much better these days.

The crash and subsequent rebound of the manufacturing industry, particularly in the electronics and electrical (E&E) sector, has resulted in Malaysia’s see-saw unemployment rate.E&E accounts for 40 per cent of Malaysia’s exports.After holding steady at 3.1 per cent for the third and fourth quarters of last year, unemployment shot up to 4 per cent in the first quarter of this year. Some 100,000 jobs were shed in those three months, most of them in manufacturing.

Given that sharp rise, the Malaysian government had forecast unemployment to be 4.5 per cent for this year, based on the assumption that the global downturn would last for a few more months, a government official told The Sunday Times.But then, monthly unemployment figures started falling. The jobless rate dropped steadily from 4.1 per cent in February to 3.6 per cent in May, which are the latest monthly figures available. Hence, the government may now revise the unemployment forecast for the year to below 4 per cent, the official said.

People working in the manufacturing industry, which had borne the brunt of layoffs during the downturn, are now the ones who are getting their jobs back, said Malaysian Trades Union Congress secretary-general G. Rajasekaran.“We haven’t heard much news of people being retrenched in the last two months. Instead, we hear that companies are rehiring,” he said.

Economists say that the return of orders to the E&E industry is one big reason for the rebound in employment. When the global meltdown struck, the sector was one of the worst hit. Like Singapore, Malaysia is an export-driven economy, and its E&E industry exports almost all of its products to key markets like the United States and China.With the global economy grinding to a halt at the end of last year, orders fell dramatically. But the demand for electronic products seemed to have recovered quickly.

Datuk Wong Siew Hai, chairman of the Malaysian American Electronics Industry (MAEI), feels that growth in the sector was driven by strong consumer demand for products like netbooks, mobile phones and smart phones, which continued to sell well in a sluggish economy.“Look at the new iPhone and the netbooks. They’re not too expensive, and everyone wants one,” he said.

MAEI represents 17 US companies, including giants Intel, Dell and AMD. The companies make up almost a third of the total value of Malaysia’s E&E exports, and contributed 11.3 per cent of the value of Malaysia’s total exports.MAEI members’ export sales rose more than 20 per cent in the second quarter of this year, and are expected to increase by at least another 10 per cent in the third quarter, said Wong.Besides E&E, there are other bright spots in the Malaysian economy.

Six days ago, Prime Minister Najib Razak said that the government’s two stimulus packages totalling RM67 billion were having a positive impact on the economy.He singled out the construction sector, one of the biggest beneficiaries.Construction grew by 2.8 per cent in the second quarter, while the services sector grew by 1.6 per cent.

But labour lobbyists like Factory Workers’ Coalition coordinator A.Sivarajan feel that it is too early to cheer.He noted that some retrenched factory workers have still not found jobs.Some became drivers while others ran illegal food stalls.Indeed, while Malaysia’s economy is rebounding, it is far from roaring.This year’s approved manufacturing investments are forecast to be only half of last year’s US$13.3 billion.It may be a while before the country sees quarterly growth rates of more than 7 per cent — the comfortable position it was in merely two years ago.

So, hold yuor horses! It is still too early to chill the beer glasses for a good cheer.

Building muscles in KL-Pumping Iron

As the numbers rolling do not seems to really encourage growth, the government is out to do more.

As such,construction companies are expected to continue to get a shot in the arm and shine in the current year as the government step-ups awards of infrastructure contracts to meet development and fiscal stimulus targets.

Business Times Singapore (24 September 2009)reports that analysts estimate the development spending for this year under the 9th Malaysia Plan would amount to about RM52 billion, increasing to between RM55 billion and RM58 billion next year.

In addition, an estimated RM10 billion of the total RM22 billion set aside for fiscal injection has yet to be awarded.

Because of its big multiplier effect on the economy, the sector is invariably singled out for additional funds.

Earlier this week Prime Minister Datuk Seri Najib Razak said nearly RM8 billion had been paid out to contractors who had completed some 41,000 projects or about half of the total awarded.

The stimulus packages were “on track”, he said, pointing to the construction sector’s growth of 2.8 per cent in the second quarter from 1.1 per cent in the first, as evidence the fiscal injection was beginning to have a favourable impact on the economy.

Because 2010 marks the last year of the 9th Malaysia Plan (2006-2010), the forthcoming national budget scheduled to be tabled in Parliament at the end of October is expected to focus on implementation, given that as at the middle of this year an estimated RM139 billion or only 60 per cent of the RM230 billion allocated for the five-year period had been spent.

Contractors expect the pump to remain open and believe there would be “a flurry of contracts in 2010,” HwangDBS Vickers, which is overweight the sector, said in a report this week.

Maybank IB is also positive, noting infrastructure projects worth some RM33.5 billion under the 9th Malaysia Plan were currently at various stages of being constructed with most expected to continue into the coming 10th Malaysia Plan (2011-2015).

A number of new infrastructure projects have already been earmarked for the new 5-year development plan.

These are likely to exceed RM30 billion and include the electrified double-tracking rail job for the southern portion of West Malaysia, a new light rail transit line linking Kota Damansara to Cheras, and the Pahang-Selangor interstate water transfer project.

However, the pick-up in local construction jobs isn’t the only reason to be positive. Vietnam — where a number of Malaysian builders have invested heavily — has also turned the corner.

Companies like Gamuda and WCT are looking to accelerate their planned billion-dollar mixed-developments to ride on the economic upturn and to cash in on the desire and better purchasing power of young Vietnamese to own a home.

A number of construction stocks have more than doubled year-to-date, including Sunway, Hock Seng Lee, and IJM Corporation.

Even so, the construction bulls noted because “pump-priming remains a cornerstone to drive economic growth” further upside is possible, share prices for some building companies may move upwards on sustainable positive news flow based on new book value.

Fight for it First!

Tourism Minister started the food fight in retaliation to claims of many things Malaysian by Indonesia. Now another way is being waged with the nation from across the Causeway. She may be the one that opens Pandora's Box but certainly be the one to bite the bullet;as Malaysia is often the talk and hardly the walk,

Truth be told,top businessmen and executives from around the world were gathered at the Ritz Carlton hotel ballroom in Singapore as early as during the 2005 Chinese New Year for a glittering award ceremony dinner. At the centre of each table was a colourful raw fish salad, known to Malaysians as “yee sang”.

"Welcome. I hope you enjoy this dish which is unique to Singapore," said the host to the excited guests as they reached for their chopsticks.

This incident is likely a common one in the city state with different types of food and illustrates what has become a contentious and possibly explosive issue of "food hijacking" between the two neighbouring countries that share a common heritage and was once a unified nation.

When Tourism Minister Datuk Seri Ng Yen Yen suggested that Malaysia promote its rich culinary heritage and claim certain dishes as its own however, it sparked off a storm of protest across the Causeway and was also condemned by some Malaysians.

The fact is, however, Singapore is already ahead in branding itself with food — chilli crabs being the most famous example as it has become synonymous with the island republic, with no Malaysian equivalent. However, chili crabs were famous in China even after the war years and found its way to the china-towns of the mighty US of A.

One incident vividly recalled by many Malaysians is when celebrity chef Anthony Bourdain made a visit to Singapore and was filmed eating Ampang yong tau foo, instantly creating an image in the minds of millions of foreigners who watch his popular show that Ampang yong tau foo is a Singapore dish.

Michael Tung, a product management and marketing executive at DiGi, one of Malaysia's most savvy marketing companies, says that it was an illustration of how Singapore benefits due to good marketing.

"Singapore did a good marketing job and we didn't," he tells The Malaysian Insider. "If other people start claiming a particular food, we lose an edge and an asset."

Tung agrees with the view that branding specific dishes will boost tourism.

"Just look at Sipadan, for example. If you don't market it, Malaysia will be known in general for nice beaches but nothing specific. Tourists won't know where to go. But Sipadan has been marketed as one of the top 10 dive sites world and it has paid off. Marketing something specific in that sense, you never fail to gain benefits," he says.

Beyond tourism, the concept of identifying a country with certain products also boosts pride and has long-term economic benefits.

A few years ago, a top Singapore businessman shared some insights with a gathering of his Malaysian counterparts in Kuala Lumpur about how the island republic was looking for ways to create something that would always be unique to the country.

"Everyone thinks of Swiss chocolate and English tea even though Switzerland does not grow cocoa and England does not grow tea," he said. "This is something you can think of doing for Malaysia."

Some companies in Singapore have apparently taken this concept to heart and attempted to sell Malaysian rambutans as "Singapore lychee".

It is also more likely for foreigners to know Singapore laksa and Singapore bee hoon but not Malaysian laksa or Malaysian prawn mee.

Tung warns however that Malaysia should execute the food campaign well and pick its fights carefully.

"Marketing is all about who shouts the loudest, the longest. If you want to do it, do it right or don't do it at all. If you want to market Ampang yong tau foo, for example, you must do it comprehensively and not half heartedly otherwise there will be no impact," he says.

“Make sure all the brochures carry it and tourist guides and hotel staff are knowledgeable about where to eat it. Select the right channels such as the Internet to promote it as that is where tourists go to do research."

He adds that the government should carefully research the origins of dishes which are being disputed or risk a backlash as what is already happening with the torrent of abuse towards Malaysia in Singapore cyberspace.

The dishes mentioned by Ng that are most passionately disputed by Singaporeans are chili crab, Hainanese chicken rice and to a lesser degree nasi lemak and bak kut teh.

Of these dishes, probably the one most widely accepted as Malaysian in origin is bak kut teh which is said to have come from Klang though Singapore has a peppery version of it.

A communications and public relations executive, Tan, tells The Malaysian Insider that he feels the whole exercise could come off "in bad taste".

"Food is all about caring and sharing. Trying to claim something as our own, it just goes against the spirit of our food culture," he says.

One way Malaysia can market its food and limit the risk of antagonism is by simply branding its dishes as a Malaysian version but without claiming exclusive rights to it, the way California, Chile, Australia and France have branded their wines.

In terms of dishes like Penang laksa and Ampang yong tau foo or Terengganu keropok lekor, it can consider the way Japan has marketed Kobe beef or France its Champagne sparkling wine. In intellectual property law, this is called geographical indications.

Done right, Malaysia could derive tourism dividends from its food, heighten national pride and yet keep relations with its neighbours intact.

But let us not shout too loud and too long without first doing our homework first. We might just find our shoe not on our feet but in our mouth!

False Confidence or Just Plain Gungho?

KUALA LUMPUR: Malaysia’s central bank has become more confident the South-East Asian nation is recovering from the global recession, Credit Suisse Group said, citing a meeting with deputy governor Datuk Ooi Sang Kuang.

The central bank’s “view is that the signs of an economic recovery seem evident,” Danny Goh, an analyst at Credit Suisse, said in a report yesterday.

It “is only unsure on whether the economic rebound will be modest or sharp,” he said.

Malaysia’s economic contraction eased to 3.9% last quarter from a 6.2% decline in the first three months, and policy makers expect gross domestic product (GDP) to resume growth at the end of the year.

The country’s export and manufacturing slump has abated as economies from Singapore to China emerge from the world’s deepest recession since the Great Depression.

The US$195bil economy may post “mild positive or negative GDP growth” this quarter from a year earlier and may expand in the next three months as the government’s stimulus measures take effect, Credit Suisse cited Ooi as saying.

He had said in June that the economic improvement in the second quarter may not be sustainable, according to the report.

Ooi also noted that retrenchments had slowed and there had been evidence of re-hiring in some industries, Credit Suisse said.

The central bank’s monetary policy would be “supportive of growth,” and the reductions in the benchmark interest rate in the past year had worked well in bringing about lower lending rates, Ooi was cited as saying.

Inflation was expected to remain “benign,” he said. Bank Negara, which has cut its benchmark interest rate from 3.5% in mid-November to 2% to revive growth, may lower its inflation forecast for this year, Governor Tan Sri Dr Zeti Akhtar Aziz said on Aug 27.

The central bank kept interest rates unchanged for a fourth straight meeting last month.

Malaysian banks were well capitalised and banks weren’t under pressure to further strengthen their capital, Ooi was cited as saying. The worst appeared to be over for non-performing loans in the banking system, he said. — Bloomberg

Are Foreign Investors Back Yet?

Apparently, foreign interest in Malaysian stocks been felt over the past few months. Even so, analysts believe domestic equities are still not the priority for such investors.

This is because the defensive nature of the large cap stocks on Bursa Malaysia is perceived as a handicap for investors whose interest has been to seek out growth from the broad-based economic recovery globally.

TA Investment Management chief investment officer Choo Swee Kee told StarBiz that interest is there at all times. The keenness differs.

Choo, however, said there had been a return of interest to the Asia-Pacific region and Malaysia was seeing an increase in activity.

The interest by foreigners is reflected in the trading participation by them in the purchase of stocks in Bursa Malaysia.

As a percentage of trading by value, foreign participation has increased gradually since June when it accounted for 21% of the value of stocks bought for the month.

That percentage rose to 23% in July and 24% in August but was some way off the peak in December last year when foreign institutional investors accounted for 43% of the value of trade done in the stock market.

Local institutions had the largest share of trading with 46% of the value of trades in August. Retailers was next with 30%.

While Bursa Malaysia is seeing a rekindling of some foreign interest, the benchmark FTSE Bursa Malaysia KL Composite Index (FBM KLCI), however, is still a long way off in performance compared with the rest of Asia.

The FBM KLCI is the second worst performer so far this year in Asia after Japan. The index has gone up 39%, the second lowest percentage rise after the Japan’s Nikkei, which has risen a modest 17%.

Choo said the anaemic interest from foreign investors could be due to their preference in markets that were battered by the financial crisis on Wall Street and also the global recession.

“When they invest based on a recovery theme, they would prefer countries that have recovered more,’’ he said, giving examples such as China, Singapore and South Korea. Those markets are up 59%, 52% and 52% respectively this year.

While there is no broad-based foreign investor interest in stocks on Bursa Malaysia, which had recently attracted an “underweight” rating from Bank of America Merrill Lynch’s fund manager survey of emerging markets, specific stocks are nonetheless bucking the trend.

Perennial favourites such as Genting Bhd, CIMB Group Holdings Bhd, Public Bank Bhd, Axiata Group Bhd and a host of other blue chips, especially in the plantations sector, would find favour among foreign investors.

“There are buying but volumes are not indicative of their presence,’’ said OSK Investment Research associate director Chris Eng. “They are buying selectively.’’

Will we see a mini tsunami interest from foreign funds in Bursa? The best may yet to come.

Alcom-The Old WorkHorse!

Fancy Value Investing in KLSE suggesting an old workhorse stock like Alcom.!

Aluminium Company of Malaysia Berhad, engages in the manufacture and trade of aluminum sheet and foil products in Malaysia, other Asian countries, and internationally. It offers pre-coated finstocks for use in air-conditioners.

Aluminium Company of Malaysia Berhad is a subsidiary of Novelis Inc.

A few keys point of ALCOM:

1) Alcom does not produce aluminium but uses it as a raw material for its products. Due to the rise in the commodities prices and depressed demand last year, Alcom suffers a small net loss in its previous financial years. That has been causing the lag in its share price recently.

But many didn't know,when the commodities prices were stable from 2007 to 2008, Alcom were able to consistently produced about RM 14 mil p.a. Alcom has established customers in India, Hong Kong, the Philippines and Thailand.Recently,the company was looking at new markets in India and Middle East.

Alcom has a market cap of RM 142 mil and consistently reward its investors with 10% dividend. Its currrent asset is RM 133 mil against total liabilities of RM 40 mil. Hence, by paying RM 142 mil for the business,investors are getting RM 90 mil net-net current asset plus non-current asset of RM 93 mil. In short, investors are paying RM 50 mil for ALCOM's business which produces RM 14 mil p.a (or P/E = 3.5 x) and gets non-current asset of RM 93 mil for FREE.

2) ALCOM is controlled by Novelis Inc. Novelis Inc. is the global leader in aluminum rolled products and aluminum can recycling. The company operates in 11 countries, has approximately 12,500 employees and reported revenue of $11.2 billion in fiscal year 2008. Novelis supplies premium aluminum sheet and foil products to automotive, transportation, packaging, construction, industrial and printing markets throughout North America, South America, Europe and Asia. Novelis is a subsidiary of Hindalco Industries Limited, one of Asia's largest integrated producers of aluminum and a leading copper producer. Hindalco is the flagship company of the Aditya Birla Group, a multinational conglomerate based in Mumbai, India.

3) ALCOM has RM 62 mil cash with no debt. Alcom can easily raise another 100 mil from debt market (assuming debt/equity = 0.50). In total, Alcom has access to RM 160 mil to acquire other companies with the assistance from Novelis. Or Alcom can distribute its cash to shareholders through bonus issues / special dividend.

To sum it up, Alcom gives you:

a) Stable 10% dividend due to stable business and balance sheet. Potential special dividend

b) Future appreciation due to business link with Novelis which opens up vast acquisition opportunities

c) Great margin of safety at current entry price. The share price has been almost stagnant for the past 1 month. It didn't follow the recovering market sentiment.

d) Good business at cheap valuation. Investors are paying RM 50 mil for ALCOM's business which produces RM 14 mil p.a (or P/E = 3.5 x) and gets non-current asset of RM 93 mil for FREE.