Tan Chong on the Move

AMRESEARCH has maintained its "Buy" call on Tan Chong Motor Holdings Bhd (TCM) with a target
price of RM6.20 after the company announced a tie up with Xi'an Silver Bus Corp (Xi'an) this week.

"TCM will initially utilise its Segambut plant to assemble chassis and engine components during the first year of production. In addition, TCM will utilise existing UD 3-S centres as after-sales centres for Silver Bus. This explains the small RM100,000 investment required for this foray, which is mainly for purchase of jigs and fixtures for the assembly lines.

"By 2012, however, TCM expects to set up a body manufacturing and assembly plant for commercial vehicles at APM's (a sister company of TCM) plant in Seri Kembangan (which will be vacated by next year-end) via a RM20 million investment. This plant will cater for both Silver Bus and UD commercial vehicles assembled and distributed by TCM.

"TCM expects to sell 80 Silver Bus vehicles next year (expected commencement in the second quarter) - which adds circa 4 per cent to its commercial vehicle total industry volume of 1,800 (based on financial year 2009 figures). Chassis and engine sales of luxury coaches typically fetched a price of RM270K/unit, but a coach complete with body and interiors can fetch a price of RM500,000 per unit.

As such we would expect margins and topline from sales of commercial vehicles to expand quite significantly once TCM's body manufacturing plant comes on stream in 2012," it said in a research report this week.

Tan Chong Motor (TCM) announced it had entered into an agreement with Xi'an Silver Bus Corp for a 10-year sole and exclusive right to assemble and distribute completely knocked down buses under the brand of Silver Bus in Malaysia."Notably, Malaysia will be Xi'an's first foray into the Asean market and we do not rule out further expansion in the region, especially in Vietnam where TCM expects to complete construction of an assembly plant by the third quarter of next year.

We understand that production of Silver Bus chassis and engine will eventually be shifted to TCM's Vietnam plant (from Segambut), where Vietnam will eventually become the key market of the group (versus Malaysia which is more passenger vehicle-centric)," it said.

Is the property market bubbling over?

Prices of residential property have surged by as much as 35 per cent in the past year despite a growing overhang in supply, far outpacing income growth and giving rise to concerns that the market is becoming unsustainable.

Figures provided by the National Property Information Centre (Napic) show that average prices for homes in Malaysia rose a whopping 19 per cent to RM273,000 in the first half of this year, from RM220,000 in the same period last year. For Kuala Lumpur, the increase has been even more dramatic, rising an eye-watering 35 per cent to more than RM700,000 in the first half of the year, up from RM523,000 last year.

The market, however, may be starting to lose its appetite for properties due to the high prices.

 Napic’s Property Overhang reports show that unsold properties in Malaysia rose to 22.6 per cent of new launches in the second quarter of this year, from 19.5 per cent

in the fourth quarter of last year. For Kuala Lumpur, unsold properties rose to 16.1 per cent from 15.8 per cent, while for Selangor it rose to 14.6 per cent from 12.4 per cent.

Checks on developments completed this year also show that vacancy rates remain at 50 per cent or higher.

The Edge business weekly reported recently that the government is mulling capping mortgages to 80 per cent of value in a bid to keep the market from overheating although MCA has come out strongly against the move.

This comes as Singapore introduced a series of measures to reign in investors and speculators, such as a 70 per cent mortgage cap for buyers with more than one property and launching 36,000 public housing units this year and next.

While Napic does not have a housing affordability index, a rough calculation shows that the average price of RM273,00 is about 5.6 times that of an average annual household income of RM48,000. The average price of a KL home is now a steep 13 times that of the average urban household income of RM54,000 and a possible sign that the market is headed for a bubble.

The sharp increase in prices is said to be at least partly due to speculative demand as investors snap up multiple properties in the hope that prices will keep on spiralling upward — despite low occupancy rates that could affect rental yields.

Some real estate agents and developers have privately expressed worries that the market is already too speculative and the price escalation is not sustainable.

“I am all for sustainable price growth but the current market is too speculative,” one developer told The Malaysian Insider. “Most of the units are taken up by employees of the developer hoping to sell for a profit when the development is completed.”

Many developments completed in the past year such as Ameera in SS2 Petaling Jaya, Cova Suites in Kota Damansara and Challis Damansara in Sunway Damansara are experiencing only about 30-50 per cent occupancy rates, according to real estate agents. A check on new high-end condo Zehn in Pantai where sellers are asking for RM2.2 million per unit revealed the building to be almost completely dark at night.

Rental yields are starting to slide given that supply far outstrips demand.

A typical unit at Ameera is on the market for RM750,000. Given a 90 per cent margin of financing (MOF) over a 20 year tenure, the monthly loan repayment for a unit there works out to be about RM4,855. Rental rates at Ameera, however, are only about RM3,000 for a partly furnished unit.

A stand-off could be developing where buyers are now balking even as sellers are trying to hold out for higher prices.

Red FM DJ Terry Ong who has been on the lookout for a condominium said that housing has become “unaffordable” and has taken himself out of the market.

“I am not in a hurry,” said the DJ who is currently paying RM1,100 in rent at a less than full condominium complex, where sellers are asking for between RM350,000 and RM400,000.

Engineer Edward Seah said that while he would like to upgrade from his current condominium, he will not buy another house given current valuations.

“Are such high prices warranted?” he questioned. “I refuse to feed into the current property frenzy.”

Housing and local government minister Datuk Chor Chee Heung said that the high savings rate in Malaysia meant that there appears to be no shortage of takers despite the prices.

He added that there will be a limit although he was unclear as to how far prices will continue to rise.

“We have to continuously tell developers not to push the boundaries,” he said when contacted by The Malaysian Insider. “There is bound to be a maximum.”

Chor said that the government is building some 76,000 low cost units that cost about RM42,000 each in the next three years, but it is unable to tell private developers how much to build to boost supply of middle class housing in the market.

Real Estate and Housing Developers Association (Rehda) president Datuk Michael Yam said that the issue of rising property prices was partly due to an imbalance of supply and demand as more migrants move to land scarce Kuala Lumpur as well as higher cost of raw materials.

“Even if 50,000 new housing units are needed in KL, that is still a huge number to build,” he said at a recent Rehda media briefing.

Readers shun newspapers for Internet and scandal sheets

Sadly, the readership of broadsheets and tabloids have gone down with each passing month.

Let us read what Yow Hong Chieh, Shazwan Mustafa Kamal, Melissa Zavier and Lee Wei Lian from the
Malaysian Insider has to say about this.

Malaysian newspapers are experiencing a fall in circulation as readers turn to the Internet for hard news and tabloid-style scandal sheets for their diet of entertainment and sensationalism.

Circulation at the traditional mainstays of the local media landscape — The Star, New Straits Times, Utusan Malaysia and Berita Harian — has fallen over the past five years, in some cases dramatically so. The only exception is Chinese daily Sin Chew which saw circulation jump.

Figures from the Audit Bureau of Circulations (ABC) show that during the period 2005 to 2009, The Star’s circulation dropped from 310,000 to 287,000 (-7.4 per cent), the New Straits Times from 139,000 to 111,000 (-20 per cent), Utusan Malaysia from 213,000 to 169,000 (-21 per cent) and Berita Harian from 204,000 to 155,000 (-24 per cent).

Sin Chew, however, saw circulation rise from 324,000 to 382,000 (+18 per cent).

The downward trend has continued for this year with NST’s circulation going below 100,000 copies on several days recently.

Apart from the drop in circulation, mainstream newspapers are also not selling much outside the Klang Valley, which leads to questions about whether they can shape public opinion as hoped for by the Barisan Nasional (BN) government.

The Malaysian Insider understands that senior editors at many newspapers would like to give the opposition and alternative views more airing but control from Putrajaya and UMNO remains severe.

A combination of changing tastes and competition from the Internet have contributed to the decline.

Many corporate readers have switched to going online and reduced the number of subscriptions for their offices.

The general public also appear bored with political drama and suspect that mainstream media is controlled by the government and tends to filter the news.

A recent poll by the independent Merdeka Center found that 54 per cent of Malays polled and 55 per cent of Chinese surveyed did not trust reports in the mainstream media.

College students, meanwhile, either feel distrustful of mainstream media or are ignoring it entirely, preferring to get their information and entertainment from multiple sources.

One Malaysian, who heads the local office of an MNC, said he has stopped subscriptions for The Star and New Straits Times at his office and buys one personal copy of The Star for the business coverage and the advertisements.

He also reads The Sun which distributes about 300,000 free copies around the nation daily.

“There seems to be more propaganda than anything else,” said the frustrated country manager who spoke on condition of anonymity. “A lot of people buy newspapers just to look at supermarket and job advertisements.”

One country manager of an international transportation company said he has stopped reading news in print but has switched instead to accessing the Internet via his mobile phone.

“Getting updates via the mobile phone is so fast,” he said. “People prefer to get business and political news from the Internet but buy tabloids to read gossip to pass the time.”

One media analyst with a local research house said the Internet is now the “longest running medium” in most people’s lives, given that practically all offices have computers that are hooked up to the Internet all day.

“Mainstream publications are also moving towards more lifestyle and sensationalist news because they put their hard news online the day before,” said the analyst.

Fortunately for traditional print media, despite the falling circulation, advertising expenditure continues to grow although more slowly than other channels such as free-to-air television (FTV), point of sales (POS) and the Internet.

Figures from market research firm Nielsen show that print media revenue grew 18 per cent during the first six months of this year compared with 55 per cent for the Internet, 29 per cent for FTV and 27 per cent for POS.

The Star alone — which dominates the valuable urban readership market with 178,000 copies sold in the KL/Selangor region, far ahead of No. 2 Harian Metro at 120,000 — sold RM497 million in advertisements in the first half of this year, up 28 per cent.

“The circulation trends don’t affect advertising,” said Margaret Lim, executive chairman of Carat Media Services.

Bucking the trend, however, are the so-called “light reading” newspapers such as Harian Metro, China Press and Kosmo.

A large chunk of the reading public have been drawn to the “hot” gossip stories, catchy headlines and large sensational photographs in the light reading titles as evidenced by the surge in circulation.

ABC’s figures show that from 2005 to 2009, Harian Metro’s circulation shot up from 250,000 to 350,000 and Kosmo went from 101,000 in 2006 to 172,000 in 2009.

Jamal, an insurance executive attached to a motor workshop, said he likes Harian Metro due to the “hot news”. He is also an occasional reader of Sinar Harian and Kosmo and buys The Star to scan job advertisements.

“There is too much political news and I feel the coverage isn’t very neutral,” he replied when asked why he doesn’t buy Utusan Malaysia or Berita Harian. “Malas nak beli (I don’t feel like buying).”

One Utusan reader, who works in the 3D animation industry, said one reason the paper’s circulation has dropped is that he has switched to the online version instead of buying a copy.

“I just pick and choose which stories I want and it’s easier to go online,” he said.

Sin Chew, which saw circulation rise, could be the beneficiary of the move of the majority of Chinese parents to shun national schools in favour of Chinese schools.

Rita Sim, executive director of Sin Chew media, said 85-90 per cent of Malaysian Chinese can now read Chinese.

“The Chinese language has gone mainstream,” she said. “And we’ve got the pulse of the Chinese community.”

She also said English titles had suffered as English is the language of the Internet.

“It is easier for English readers to switch to the Internet,” she said.

Competitveness: Low Down Limbo

Let us read Lee Wei Lian's news article on the global competitiveness survey results just out.

Sadly, we are doing the limbo rock once more, falling by another 2 spots in the World Economic Forum (WEF) competitiveness index. We came in  26th out of 132 countries, with security, productivity and higher education identified as areas for improvement. How obvious given what is on the news, day in and day out!

This is the second year in a row Malaysia has dropped in the rankings after falling from 21st to 24th spot last year.

The WEF noted in its report, however, that the country’s four-year decline in the quality of institutions that pushed Malaysia from 17th in to 43rd has finally come to a halt, with the country remaining stable at 42nd place in that category this year.

“The main drag within this pillar remains the security situation (80th, up five),” said WEF.

“In order to improve its competitiveness further, Malaysia will need to improve its higher education system, with particularly low enrolment rates at the secondary and tertiary levels.”

The report also pointed out that Malaysia would be well-served by encouraging greater technological adoption — particularly the use of ICT — for productivity enhancements.

Malaysia’s aggregate score also remained fairly stable, up slightly to 4.88 from 4.87 last year.

Switzerland continued its reign as the most competitive country in the world, followed by Sweden, Singapore, US and Germany. Among the Asian giants, Japan climbed from eighth to sixth position, while China improved from 29th to 27th. Korea, however, fell from 19th to 22nd.

RAM Ratings chief economist Dr Yeah Kim Leng said that this year’s ranking will be a baseline to see if Malaysia’s transformation efforts will boost its competitiveness globally.

“Given that we launched the Government Transformation Programme (GTP) and Economic Transformation Programme (ETP), we should see ranking improve over the coming year,” Yeah told The Malaysian Insider. “If there is no improvement next year, that means we are not even harvesting any low-hanging fruits and we need to relook at policies.”

Yeah pointed out that the index was useful as it allowed Malaysia to assess its global standing.

However, he expressed concern that Malaysia’s ranking slipped even though initiatives to improve governance like Pemudah have been launched. So, are they calling our bluff?

“It shows other countries are improving and there is greater urgency to implement transformation initiatives quickly and arrest the continuing decline.”

He said that a look at the top ten most competitive countries confirmed that they had become developed by being competitive.

“The bottom line is we need to redouble our efforts to address the critical challenges,” he said. “Malaysia’s issues are long term structural challenges that require policy consistency to address.”

WEF said that Switzerland retains its first place position thanks to an excellent capacity for innovation and a very sophisticated business culture, noting that it is ranked fourth for its business sophistication and second for its innovation capacity.

“Public institutions in Switzerland are among the most effective and transparent in the world (fifth), receiving an even better comparative assessment this year than in past years,” said WEF. “Governance structures ensure a level playing field, enhancing business confidence; these include an independent judiciary, strong rule of law, and a highly accountable public sector.”

WEF said that Singapore’s institutions continue to be assessed as the best in the world, ranked first for both the lack of corruption in the country and government efficiency.

“Singapore also has world-class infrastructure (ranked fifth), with excellent roads, ports, and air transport facilities,” said WEF. “In addition, the country’s competitiveness is buttressed by a strong focus on education, providing individuals with the skills needed for a rapidly changing global economy.”

Japan continues to enjoy a major competitive edge in the areas of business sophistication and innovation ranked first and fourth, respectively in the categories.

“Company spending on R&D remains high and the country benefits from the availability of many scientists and engineers buttressing a strong capacity for innovation,” said WEF.

China’s two-place jump is mostly due to its better performance in the financial market (up 24 places to 57th) category, historically its weak spot.

“This is the result of easier access to credit and financing through equity markets, banks, and venture capital, which has been accompanied by a slight improvement in the perceived soundness of the banking sector (60th, up six places),” said WEF.

The US fell two spots to fourth place this year due to its deteriorating of its institutions, lack of public trust in politicians and concern about the ability of the government to maintain arms length dealings with the private sector.

“There is also increasing concern related to the functioning of private institutions, with a measurable weakening of the assessment of auditing and reporting standards (down from 39th last year to 55th this year), as well as corporate ethics (down from 22nd to 30th),” said WEF.

It noted, however, that the US still enjoys an economic structure that makes it highly competitive — including companies that are highly sophisticated and innovative, supported by an excellent university system that collaborates strongly with the business sector in research and development.

Responding to the report, Minister of International Trade and Industry Datuk Seri Mustapa Mohamed said while the ministry acknowledged there were a number of areas for improvement, it was happy to see the report highlighted a number of positive elements about the Malaysian economy.

Mustapa said Malaysia was also assessed to have a well-developed financial market development with ease of financing through local equity, ranked 11th from 15th previously, and ease of access to loans position at 10th.

“Venture capital availability, soundness of banks, transparent regulations of security exchanges have also contributed to financial market development in Malaysia,” he said.

On the concerns which contributed to the country’s slide, he said, the government has already launched nationwide initiatives to tackle them.

“Among the proactive measures to enhance Malaysia’s competitiveness are the New Economic Model, which emphasises achieving high income, the Government Transformation Programme to enhance government efficiency, and the implementation of initiatives under the 10th Malaysia Plan.

“As these initiatives begin to take effect, we can expect to see improvements in Malaysia’s overall competitiveness soon,” he said.

Diffuse the property bubble before it is too late

Jagdev Singh of the on-line STAR advocates diffusion. Property developers says, "No!". The controversy will rage on until a decision is made by Bank Negara Malaysia (BNM).

The subject of property prices and financing has gathered momentum ever since news broke that BNM is assessing the situation to determine if new measures should be instituted to cool down fast escalating property prices.

Lobby groups for the industry have been busy making their case heard, saying that any move to impose higher downpayments for houses would hurt the property market.

Their concerns come at a time as a growing number of people have complained that prices of houses, especially in the hotspots in the country such as the Klang Valley and Penang, are spiralling beyond affordability.

The last thing everybody needs is such speculation spreading to other areas where for the moment, speculative activity appears to be contained for the moment in the hotspots as 94% of houses sold in the country are priced below half a million ringgit and 85% of houses launched in the past nine months cost below RM500,000.

Dealing with speculation is tough and the last thing anyone should do is to make genuine buyers suffer, especially first time buyers.

Suggestions that houses costing below RM500,000 should not be subject to the new higher downpayment requirement makes sense.

Also first-time house buyers or owner occupied houses should be given the most ease of financing to allow them to fulfil the dream of owning a home.

It’s also hard to clamp down on speculative activity as the wealth creation process is an allure that developers, banks and policy makers might find hard to turn away.

After all, the money generated from flipping houses adds to the bottomlines of companies and the money in the hands of people could well filter down to other consumption activity that would go a long way to help spur economic activity.

But the profit from speculating activity, this time driven largely by cheap and ready financing, is unsustainable and history is full of examples of the dire consequences of a property bubble gone burst.

It’s then not surprising that the authorities in other countries in the region, where a property bubble has formed, are working hard to manage and diffuse the situation. Rules introduced in China, Hong Kong and Singapore are far more drastic that what the authorities here are reported to be contemplating.

In fact the new rules that are talked about are tame compared with what has been done in the past. In 1995, reports said that Bank Negara imposed a maximum 60% loan for residential properties priced above RM150,000 to put the brakes on the then fast rising house prices.

Furthermore, a real property gains tax of 30% was imposed on foreigners selling their properties irrespective of the holding period of the property.

Those measures were met with a huge hue and cry from the lobby groups, and developers who claimed that such draconian measures would maim the market. A couple of years later Malaysia entered its worst-ever recession, and as they say the rest is history.

The point is, just as the saying goes, those that fail to learn from history are doomed to repeat it, and for Malaysia, failing to deal with any property speculative bubble would spell trouble for the banks that have grown to rely more and more on households to drive their lending activity.

In the interest of financial stability and common sense, the move to act should be made soon.

Tobacco Tax Concern

It is obviously worrying to the tobacco industry but there are many who would want to government to tax' sin industry' to curb the unhealthy smoking habit.

Now, let us hear the apprehension form the biggest industry player  here in Malaysia.

The country's largest cigarette maker, British American Tobacco (Malaysia) Bhd (BAT) , said it would be worried if the government imposed an excise duty increase of more than 5 per cent on the industry this year.

The industry faces a possible excise increase under Budget 2011 as the government looks to increase its revenue and continue its health agenda.

BAT is not opposed to higher excise but wants any increase to be gradual and moderate as, otherwise, it would further fuel illegal trade, managing director William Toh said.

As it stands, the level of illegal trade in Malaysia is at its highest ever. Smuggled and counterfeit cigarettes accounted for 37.5 per cent of total cigarette sales last year compared with 14.4 per cent in 2004, Toh said.

Illegal cigarette trade here is the highest in the world, according to a Goldman Sachs global study last year.

"Anything above 5 per cent (in excise duty) would exacerbate the situation," Toh told reporters at a briefing yesterday.

BAT, which sells brands like Dunhill and Pall Mall, commands two-thirds of the cigarette market in Malaysia.

BAT is also lobbying, through the Confederation of Malaysian Tobacco Manufacturers, against a possible new form of tax on the industry.

It was reported last month that cigarette makers would have to pay half-a-sen for every stick sold as cess to the National Kenaf and Tobacco Board, starting this month.

BAT, however, has not received any formal notification on it as yet, Toh said.

"If cess is imposed, it will lead to higher prices for cigarettes and this will further lead to higher price differentials between legal and illegal cigarettes," he remarked.

It is the increasingly high price gap between legal and illegal cigarettes over the years - it stood at RM3.40 last year compared with just 30 sen in 2004 - that has led to a thriving illegal trade, he claimed.

As cigarettes become more expensive, consumers are more likely to gravitate to cheaper illegal products and the government then loses out on potential revenue, he said.

BAT and its rivals here, JT International Bhd and Philip Morris Sdn Bhd, have seen shrinking volumes as a result. The industry sold 14.9 billion sticks last year, about 10.8 per cent less than the previous year.

This year, assuming a moderate 5 per cent excise duty is imposed, like last year, and no cess, volumes will likely fall at a slower rate of between 1.5 per cent and 2 per cent, Toh said.

Well, it all depends on the government now. Collect more from industry sources in tax and lose out to illegal trade. Enforcement must be strict if they want to reduce smuggling. Otherwise, the 'healthy' culture that the government intends to cultivate will come to nought again!

So, what else is new in Bolehland?

Steps to check household debt

Sharidan Ali's article in the online STAR is worth reading if you hold too many credit cards.

" There are plans in the pipeline to impose stricter credit-card and personal-loan limits to maintain household debts in Malaysia at a healthy level.

According to a banking source, Bank Negara is said to be looking into elements of household financing and may come out with preventive measures.

Chatter within the financial circles reveals that such measures are to ensure that total household debt is kept under control and may see new and tougher limits on the number of credit cards a person can hold as well as a lower cap on how much a person can borrow as personal loan.

“The central bank is still in discussion on the matter and has not reached any decision yet. But, if it decides to implement the measures, it is all purely prudent and pre-emptive as the general non-performing loan ratio is still at a sound level,” the banking source told StarBiz.

The steps being considered are to prevent a build-up of household debt to gross domestic product (GDP), which stood at 76% or around RM516.6bil last year against 63.9% in 2008. The figure averaged around 67% from 2005 to 2008.

Checks with banks showed that the credit-card limit was at the banks’ discretion but first-time applicants were usually given limits of between 2.5 times and three times their salaries. And the credit limit was likely to be gradually increased based on payment history and usage.

For personal loans, the average limit is about four to five times a person’s salary. Some banks offer a flat interest rate of 10.5% while others give between 8.5% and 17%, depending on the loan amount and repayment period.
On average, the maximum amount for a personal loan is between RM100,000 and RM150,000 but it could also be higher if a person’s monthly income is high.

On Monday, StarBiz reported that although household non-performing loan ratio had been on an improving trajectory since December 2008 to 2.5% as at June, the sector’s debt burden had also been increasing steadily, partly due to greater appetite for borrowed funds and also as a result of strategies used by banks.
Personal loans and credit cards on average made up 5% and 3% respectively of banks’ total loans.

Under Budget 2010, a RM50 service tax for principal credit-card holders was introduced with an aim to reduce the nation’s credit-card debt.

Kenanga Research, in a recent sector update, said the consumer segment was still the sole driver for banking system loan growth.

“In July, hire-purchase loans continued to register strong growth rate of 8.8% year-on-year (yoy), the strongest growth rate over the past 12 months,” it said. “Hire-purchase loans in June was 8.4% yoy.”
“Housing loan growth of 14% yoy in July was marginally higher than 13.7% in June,” it added.

The move to curb excessive household debt obligations comes about a week after the news of a possible 80% loan-to-value ratio for mortgages to avert the risk of a property bubble.

As at end-2009, home loans represented 25% of the banking system’s approved loans.

However, the 80% loan-to-value ratio may not be implemented across the board as some banks have suggested it should be more for high-end properties and investments.