Furniture Business Scenario @2009

Let us looks at some facts and the scenario of furniture manufacturing in 2009.

There are more than 1,800 furniture companies currently operating locally and 90% of the production is for export. Total investment in the industry last year came to RM174.7mil. This information was given yesterday by the International Trade Minister at the Malaysian International Furniture Fair (MIFF) Exhibition 2010, Mustapha Mohamed.

Malaysia-made furniture is exported to more than 160 countries and the country is ranked the world’s 10th largest furniture exporter, while local furniture exports were valued at RM7.6bil last year, accounting for 1.9% of total exports of manufactured goods, according to Mustapa.

MIFF 2010, which began yesterday, will run till Saturday at three venues – the Putra World Tarde Centre, Kuala Lumpur Convention Centre and the Matrade Exhibition & Convention Centre (MECC).MIFF Sdn Bhd is the organiser of the fair with The Star as the official media partner.

More than 500 exhibitors from countries like Malaysia, China, Indonesia, South Korea, Singapore, the United States, Turkey and Japan are showcasing their products.
MIFF managing director Datuk Tan Chin Huat said sales of about US$750mil were expected at this year’s fair, compared with US$710mil last year.

“More than 20,000 visitors are expected at the fair this year, compared with a total of 19,075 visitors last year,” he told a press conference.

He said economic spinoffs of over RM40mil were expected to be generated for Malaysia’s tourism, hotel, restaurant and other businesses during the fair.

In an effort to highlight ongoing trends in the furniture industry, a series of seminars with the theme, “Sustainable Materials for Green Future,” has also been arranged by the organiser.

MRCB: Rights Serendipity

After the annoucement that the rights issue was over-subscribed,this definitely came as a big bomb! A technical under-subscription? How did it occur? Are the MRCB lawyers as well as the Investment Bank that conducted the rights issue offer,'asleep at the wheel'?

Let us read how the imbroglio happened. This is the STAR on-line report on 4 March 2010.

The Employees Provident Fund (EPF) has made a conditional takeover offer to buy all the shares in Malaysian Resources Corp Bhd (MRCB) for RM1.50 each after triggering the takeover threshold.

The exercise could see EPF pay up to RM1.36bil for MRCB if there was full acceptance from other shareholders.

The conditional offer was prompted after EPF was allocated additional shares under MRCB’s RM566mil rights issue that led to the fund’s shareholding in the developer exceed 33% to 33.78%.

The increase in EPF’s shareholding past the 33% threshold obliged the fund to conduct the takeover under the Malaysian Code on Take-Overs and Mergers, 1998.

In a statement to Bursa Malaysia yesterday, MRCB said EPF, however, intended to maintain the listed status of MRCB and would not privatise the company.

OSK Research head Chris Eng said the offer of RM1.50 a share was slightly below the brokerage’s fair value and that the offer itself was not very attractive.

“There is a lot more potential in the company which we have not factored into the fair value of the stock,’’ he said.

MRCB is talked about being a bidder for major tracks of land in the Klang Valley and the money it raised from the rights issue would go towards buying land for future development projects.

Analysts said its track record in developing KL Sentral would act as a good platform for MRCB in making its case in any bids for such land.

Sources said EPF was unable to apply for a waiver from making the takeover from the Securities Commission as it did not fulfill an important criterion, which is the condition of not trading a company’s shares in the past six months.[As such the issuing house Investment Bank should take note of this condition: They should not be buying the targeted shares within the period of 6 months if they attend to apply for a Mandatory General Offer(MGO) waiver.]

Under the Code, EPF would have to offer to shareholders of MRCB the highest price it paid to buy an MRCB share over the past six months, sources said.

The offer for MRCB represents a small 2% premium over the last traded price of the stock of RM1.47. Sources said EPF wanted to make a fair offer but did not intend to give large premiums of around 20% seen in other privatisation deals as it was not the fund’s intention to delist the company from the stock exchange.
“It does not want to take the company private and would like to see future capital appreciation of MRCB,’’ the source said.

Sources also shot down suggestions that the takeover offer was a new strategic direction for the fund where it would prefer direct control of companies.
 
Although EPF controls RHB Capital Bhd and Malaysian Building Society Bhd, it does not want to take MRCB down the same path.

Sources said even if EPF, which also owns large stakes in other developers such as IJM Corp Bhd, dramatically increases its stake in MRCB, it would not make MRCB its vehicle for property ventures.

So which way will the share price go now? It is obvious that the shareholders will not take this offer price of RM1.50 when the current current  price is RM1.46

China: Rural Buying Surge!

This Reuters report shows that rural buying support in spurring the GDP of the Chinese nation.

When Dell Inc reported its fourth-quarter results last month, the announcement included a surprising figure — an 81 percent jump in the PC maker’s China sales during the quarter.

Fueling this result, said the company, were government incentives to spur domestic consumption, particularly in small cities and rural areas.

Dell, which sells its computers in China through retail chains as well as through its direct sales model, is not alone.

Competitors ranging from China’s Suning and GOME to foreign rivals like Wal-Mart Stores Inc and Best Buy are profiting from Beijing’s determination to drive economic growth by boosting spending in the country’s US$1.8 trillion (RM6 trillion)retail market.

The Chinese government announced recently that it will extend its incentives for rural and small-city consumers, setting off what is likely to be a close competition among retailers that have until now focused mainly on China’s big cities.

The opportunity is big. More than two-thirds of China’s 1.3 billion people live in rural areas — roughly three times the entire population of the United States. Retail sales in these areas grew 16 per cent to 4 trillion yuan (RM1.97 trillion) last year.

Investor optimism about China’s stimulus spending has already sent China retail shares soaring. GOME, for one, jumped 180 per cent in 2009, outstripping a 52 per cent rise in the broader  Hong Kong market.
China’s domestic electronics retailers are pursuing their new customers aggressively.

Suning, the country’s largest electronics chain by market value, said it would use the 3 billion yuan it raised from a share sale to expand sales network and to develop logistics centres. It plans to add 520 new stores in 2010 on the existing network of 941 stores across China.

Rival GOME, with over 700 stores across China, has adopted a “go rural” policy, and plans to team with small local retailers to increase the range of products on offer in a bid to tap rural spending growth.

Foreign retailers are also starting to look outside the tier-one cities. Wal-Mart, the world’s biggest retailer, electronics retailer Best Buy and France’s Carrefour are all eyeing growth in second and third-tier cities, if not yet rural areas.

Profits from these ventures won’t be immediate, however.

Suning and GOME probably won’t see their new rural stores break even in fewer than five years, said Natalie Zhu, a senior China retail analyst from JLM Pacific Epoch, a Shanghai- and Beijing-based research firm.

And as they move into China’s hinterlands, domestic and foreign retailers alike will have to confront entrenched local competitors.

“Individual operators now occupy the majority of the (rural) market,” said Zhu. “Even (national) local players have very little market share for the time being, not to mention the foreign operators.”

Independent local players, which account for more than 50 per cent of the rural market, have advantages including being able to use their familiarity with local spending behaviour to adjust their offerings and provide customised product advice to their customers.

“Even domestic players will find it quite difficult to penetrate the true rural areas, because the market, the demand and the customers have very different profiles compared with bigger cities,” said Bei Fu, a director of corporate and infrastructure ratings at Standard & Poor’s.

Consider televisions. Rural consumers tend to prefer big screen TVs, which confer greater status in their villages while urban shoppers are more focused on quality and brand, according to Zhu.

While national operators like Suning and GOME will struggle to compete with local chains, their wide selection of fast-selling electronics products may give them an edge over foreign players such as Wal-Mart and Carrefour.

When asked recently about flat-screen televisions, a salesman in the small electronics department of a newly opened Carrefour in the second-tier factory town of Dongguan suggested the reporter look elsewhere.
“You can probably get a wider choice of products in the Suning just down the street,” he said.

There is another risk in the retailers’ rural expansion plans: if China scales back its incentives, rural spending growth could stall, saddling retailers with a costly and unprofitable network of stores.

For now, though, that seems like a distant worry.

“What does China have the most of? Farmers. The rise of this spending group will drive growth of the retail sector,” said Linus Yip, strategist of First Shanghai Securities.

“Growth is definitely there.”

Axiata: Cash Flow Positive

So for the first time Axiata, Malaysia’s second-largest mobile phone company Axiata may consider paying a dividend from 2011 as improving business conditions have helped bolster its balance sheet, its chief executive said on Wednesday.

A likely payout to shareholders would be the first dividend from the company since its listing in 2008 after it was split from Telekom Malaysia.

“We have not made any decision ... However given the strength of our balance sheet, especially our cash and debt position, we are in good position to consider it from 2011 onwards,” Axiata’s CEO Jamaludin Ibrahim told Reuters in an interview.

Axiata’s 2009 net profit tripled to 1.65 billion ringgit, helped by strong performance of its overseas subsidiaries in Indonesia and Bangladesh unit AxB.

The firm, which has a market value of $9.5 billion, turned free cash flow positive for the first time in 2009 and slashed its gross debt to earnings before interest tax depreciation and amortisation (EBITDA) ratio to 2.4 times from 4.6 times.

Malaysia: Stimulus Pullback?

Bloomberg tweeted this news report today.

Let us read this tweet.

"Malaysia may be the next Asian country to pull back monetary stimulus as its recovery strengthens, moving to raise borrowing costs or reduce excess cash in the economy ahead of neighboring Indonesia.

Eighteen out of 29 economists surveyed by Bloomberg News expect Bank Negara Malaysia to raise its benchmark interest rate to 2.25 per cent from 2 per cent or ask lenders to set aside more money as reserves at its March 4 meeting. None of the 22 economists surveyed expect Bank Indonesia to increase its reference rate from a record-low 6.5 per cent tomorrow.

Asia is leading a global recovery from the worst slowdown since World War II, prompting the region’s central banks to start removing some emergency steps taken to counter the slump. Malaysia’s economy expanded 4.5 per cent last quarter, rebounding from nine months of contraction, while Indonesia, which has avoided a recession, is trying to boost lending.

“Indonesia’s economy has been doing very well but it has not surprised on the upside to the extent that it has in Malaysia,” said Kevin Grice, an economist at Capital Economics Ltd in London. “Central banks don’t want to surprise, and there have been comments by policy makers in Indonesia that rates are appropriate compared to Malaysia, where the governor has been hawkish.”

Malaysia’s one-year interest-rate swap reached a one-year high of 2.675 per cent on Feb 24 after a report showed the nation exited its recession last quarter. The three-month rate due in one year stood at 3.42 per cent, suggesting the market has priced in about 1.42 percentage points’ increase in the policy rate in a year’s time, according to Bloomberg data.

Exports Revival

Prime Minister Datuk Seri Najib Razak expects Malaysia’s US$195 billion economy to expand 6 per cent in 2010, faster than the 2 per cent- to-3 per cent pace the government forecast in October, a newspaper reported this week. His trade minister said yesterday exports may climb this year at twice the pace predicted earlier as the global recovery revives overseas sales of Sime Darby Bhd’s palm oil and Intel Corp’s computer chips.

Policy makers in Australia, China, India and Vietnam have started tightening monetary policy to stave off inflation and asset bubbles. Australia’s central bank yesterday resumed raising interest rates after a one-meeting pause amid a booming jobs market, rising home prices and a rebound in confidence.

‘Hawkish’ Comments

Malaysia’s central bank Governor Tan Sri Dr Zeti Akhtar Aziz has been making “hawkish comments” since the last interest-rate meeting in January, economists including HSBC Holdings Plc’s Robert Prior-Wandesforde said. Bank Negara has kept the benchmark overnight policy rate at a record-low 2 per cent for seven straight meetings.

The central bank lowered rates under emergency conditions and the economy is no longer in such an extraordinary situation, Market News International reported Zeti as saying in Frankfurt on March 1. Any interest-rate adjustment would be “a measured one,” she was cited as saying.

Thirteen of the 29 economists surveyed expect the central bank to raise the benchmark rate. Still, Bank Negara may prefer to raise the reserve requirement for banks rather than increase its overnight policy rate, according to at least six analysts, including economists at Capital Economics and Royal Bank of Scotland Group Plc. A 0.5 percentage-point increase may be announced tomorrow to help drain funds from the financial system, they predicted.

Indonesian Inflation

The reserve ratio, which determines the amount of funds lenders must hold as zero-interest-bearing reserves at the central bank, was cut to 1 per cent in March 2009, a quarter of the November 2008 level.

In Indonesia, where inflation has accelerated to the fastest pace in nine months, economists are unanimous that the policy makers will judge it too soon to raise interest rates. The consumer price index rose 3.81 percent in February from a year earlier.

Consumer price gains will remain within the central bank’s target range of 4 per cent to 6 per cent, and Bank Indonesia can wait until the third quarter before raising rates, said Wellian Wiranto, an economist at HSBC.

Bank Indonesia, which forecasts the nation’s 121 commercial lenders will accelerate credit growth to as much as 20 per cent this year, may wait until there are more signs of banks extending loans before raising interest rates, economists say.

“Indonesia’s central bank is now encouraging commercial banks to reduce their lending rate so if they raise rates, it’s contrary” to that goal, said Gundy Cahyadi, an economist at IDEAglobal in Singapore. He expects a rate increase at the beginning of the third quarter.

Indonesia’s decision is due after 11 am in Jakarta tomorrow. Malaysia will release its decision at 6 pm.

UK: Consumer Confidence Surge

 

These days the UK is brimming with consumer confidence.

The Nationwide Building Society’s survey on consumer confidence reports that it hits the highest in February 2010 and will be good for another 6 months.

Consumer confidence index rose 6 points to 80 in February, almost double what it was a year ago and the highest since January 2008.

Another index gauging people’s confidence about the present rose to its best since December 2008 at 27.

Confidence about the coming six months was its highest since the survey started in May 2004, with an index reading of 115.

Nationwide chief economist Martin Gahbauer said the surge in confidence may have been a reaction to news that Britain had emerged from its deepest recession since modern records began.

However, the survey was conducted before official data showed the economy grew by 0.3 per cent in the final three months of 2009, better than the 0.1 per cent growth first estimated in January.

Despite their increased optimism about the economy, jobs and income, Britons became more reluctant to splash out on household goods or major purchases, with the spending index falling 4 points on the month to 93 points.

“It would seem consumers are perhaps feeling the pinch in their spending power,” Gahbauer said. “We may now be seeing the effects of the withdrawal of government-driven incentives, such as the stamp duty holiday and lower VAT.”

The survey was conducted between Jan 18 and Feb 15 and was based on responses from 1,000 people.

Global: Potential Property Deals to Go Up 30%

 

Reuters has this glowing report on the potential of real estate globally in 2010. Let us read on........

Property consultants Cushman & Wakefield has predicted that the volume of global commercial real estate deals is forecast to will  rebound 30 per cent to total $478 billion (318 billion pounds) this year, led by surging investments in China and a revival in the United States. They said this in a report on Wednesday (3 March 2010).

After the steep downturn in 2009 when global volumes fell 23 per cent to $365 billion, the lowest since 2003, but are still well below the 2007 peak of more than $1 trillion, investment sales are now on the rise.

The United States is forecast to post the biggest per centage rise in sales in 2010 as it, being the world’s largest commercial property market, pulls out of recession, boosting volumes in North America by 48 per cent to $64 billion, Cushman said.

“With many (US) investors sitting on a lot of cash after the recapitalisations, equity raises and inward investment flows of last year, a strong turnaround in activity looks likely ... if the economy stays on track, it wouldn’t be surprising to see our forecast beaten,” Janice Stanton, Cushman’s senior managing director of capital markets in the US, said.

In China, volumes more than doubled to $156 billion in 2009, making it the world’s most active real estate investment market by far. It is expected to continue growing this year, despite government measures to cool the sector down, Cushman said.

Sales growth in China and Japan is expected to boost volumes in the Asia-Pacific region to $258.3 billion in 2010, up 20 per cent from last year, making it the most active region for real estate investments.

The EMEA region is also forecast to see a strong rise this year, with volumes rising 43 per cent to $151.9 billion, led by the continuing recovery in the UK, which is spreading westwards to other core markets such as France and Germany, Cushman said.