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| Subdued market in holiday season Posted: 23 Dec 2011 06:48 PM PST REVIEW: Over the week, the FBM KLCI gained 30 points to end Friday at 1,496.15 points as global markets were boosted by data suggesting that the world's largest economy is seeing some recovery in growth. On the external front, nascent signs of a recovery in the United States and eurozone triggered a rebound in markets on Wednesday, with the local bourse soaring nearly 20 points to breach the 1,480 level and reversing Tuesday's 13-point loss. Also, world equities traded higher after the United States beat expectations on housing starts in November, which was up 24.3% year-on-year to 685,000, and data from the Labour Department showed that unemployment rates dropped in almost all US states. A report from OSK-DMG said the United States' "less tight" financial conditions through December to date, coupled with a recent improvement in activity-related indicators, suggest a reduction in recession risk in the near term. OSK-DMG had revised its fourth-quarter real gross domestic product (GDP) growth forecast for the United States to 3.3%, from under 3% previously. The research unit expects full-year 2011 GDP growth to average 1.8% for the United States. AmBank's foreign exchange (FX) Research unit points out that while markets remain fixated on Europe, the significant improvement in United States' jobless claims data could be the most significant event in 2011, particularly given the lift in housing lead indicators. "It is reasonable to expect that the US economy is stabilising with only fiscal policy the headwind into 2012, with both corporate and household balance sheets restored." US treasuries were relatively flat, while equities traded broadly higher, with weekly jobless claims falling along with increasing consumer confidence supported by a University of Michigan survey that points to an ongoing recovery in the US. Meanwhile, problems in the eurozone bond markets and deteriorating confidence in European banks are coupled with worsening prospects for growth as banks seek to meet the core tier-1 capital ratio requirements and governments implement austerity measures. On Thursday, the European System Risk Board warned that risks for Europe's financial system had intensified. Ambank FX Research also noted that, despite the eurozone's sovereign debt woes, European equities rallied on Friday thanks to positive data in the United States and business investment results in Britain. Also, yields on two-year Italian and Spanish bonds fell to their lowest levels since October, a sign of investors' confidence. On the regional front, most benchmark indices shrugged off geopolitical concerns about the death of North Korean leader Kim Jong-il to post gains. Areca Capital Sdn Bhd chief executive officer Danny Wong tells StarBizWeek that fund managers hungry for returns have purchased select blue chips after a sell-down earlier in the year when markets receded. Outlook: Next week, the local bourse is likely be quiet and low in terms of volume, according to Jupiter Securities Sdn Bhd head of research Pong Teng Siew. "It is a shorter working week, with the Christmas holiday season. Most investors are on holiday. Nothing much will happen," said Pong. He also points out that the recent rally in penny stocks has taken a "breather" for the time being. For the coming week, overhead resistance is at 1,506 points for the local bourse's benchmark index while the support level is at 1,471. "From technical indicators, the outlook for the FBM KLCI is neutral in the medium term. It is likely to be quite flat for the next two months." Pong added that traditionally, the local bourse should see a rally after the Chinese New Year festive season. "After that, speculation regarding a general election should keep the interest up." However, he points out that the market might see another bout of volatility in another three to six months, due to the eurozone's uncertain economic outlook. Meanwhile, OSK Research noted in a 2012 Outlook report that global equity markets should continue to be very volatile due to the European crisis, with Malaysia unlikely to escape this volatility, moving into the first half of next year. "Swings of 1% in the KLCI will be common. Nonetheless, we do not see a looming recession for Malaysia nor the market returning to recession-level valuations," says OSK Research. Full content generated by Get Full RSS. |
| Posted: 23 Dec 2011 06:46 PM PST BANK Negara governor Tan Sri Dr Zeti Akhtar Aziz was in high spirits when she briefed the media ahead of the unveiling the Financial Sector Blueprint. She has grounds for feeling cheery in the holiday season. The first Financial Sector Masterplan (FSMP) had met most of its targets set for the 10-year period when it was introduced in 2001. And the new blueprint, although containing fewer proposals than its predecessor, aims to put the financial sector on a stronger footing to compete globally and withstand any financial headwinds. Themed "Strengthening Our Future", the new blueprint will be a 10-year strategic plan that charts the future direction of the financial system as Malaysia transitions towards becoming a high value-added and high income economy. Looking back, although the banking sector had its ups and downs, it has nonetheless over the years become stronger and better capitalised to ride out the financial challenges constantly taking place in the global arena. That strength, which was the priority of the central bank after the Asian Financial Crisis in the late 1990s, saw the local banking sector escape relatively unscathed during the 2008-2009 financial turmoil when its counterparts were sinking in the west. The FSMP ensured that the domestic financial system had sufficient buffers in place and a sound risk management system as well as adequate level of capital for it to undertake organic and expansion activities. Whether by devise or through the natural evolution of the local banks, the financial sector expanded by an annual growth of 7.3% during the tenure of the FSMP and transformed the financial landscape to one where the banks were more competitive and diversified, possess better financial infrastructure development, regulatory reforms, greater usage of technology and efficient delivery channels. Progressive liberalisation in the banking sector also saw more foreign participation in the domestic banking scene, and that fuelled greater competition in the sector. As all roadmaps, there were some areas that did not meet the FSMP targets, especially in the consolidation of the insurance sector and Internet banking. But this has changed and more mergers and acquisitions have taken place and some are in the pipeline. Internet banking has been growing dramatically in recent years, and will see continued take-up as broadband becomes more pervasive and more effort spent to promote its growth. Unlike its predecessor, the Financial Sector Blueprint's recommendations are based on shared outcomes applicable to various sub-sectors within the financial sector instead of being sector-based. This is due to the increasing linkages, greater connectivity and regional integration in the financial sector. Another area of difference is that the blueprint envisions greater participation of Malaysian banks beyond domestic borders in facilitating regional trade and investment, regional financial integration as well as the internationalisation of Islamic finance. Illustrating the impact banking has had on the economy, the sector grew from 1.3 times gross domestic product (GDP) in 2001 to 2.4 times GDP when the FSMP ended. The deepening of the banking sector with the real economy has multiplied its importance to the economy and under the new blueprint, Bank Negara envisages the banking sector to grow to three times GDP by 2020. Financial sector growth On the growth of the financial sector, Zeti says that by the end of 2020, it is expected to expand to six times of GDP from the current 4.3 times. Correspondingly, she says, the financial sector contribution to GDP is projected to rise to between 10% and 12% for the period from the current 8.6%. More than half of total financing in 2020 will be raised through the financial markets, while Islamic finance will continue to increase in prominence, growing at a faster pace to account for 40% of total financing by the end of this decade, she says. With growth of the financial service sector prjected to rise, so will risks inextricably. RAM Holdings Group chief economist Dr Yeah Kim Leng feels the financial sector contribution to GDP of 10% to 12% was rather high currently and there should be more balanced growth. Over imbalance expansion of the financial services sector could create credit bubbles and over-leveraging, he says, adding that the projected growth of 10% to 12% should be supported by the effective channelling of Malaysia's high savings into productive investments leading to sustained growth of the real economy. Nine areas of focus have been identified under the blueprint. They are the effective intermediation for a high value-added and high income economy; development of deep and dynamic financial markets; greater shared prosperity through financial inclusion; strengthening regional and international financial integration; internationalisation of Islamic finance; safeguarding the stability of the financial system; achieving greater economic efficiency through electronic payments; empowered consumers and talent development for the financial sector. Of the nine, Zeti says, three will be critical ones although all the others will also be given strong priority. The three she made reference to are from the intermediation aspect, strengthening the regional and international financial integration including internationalisation of Islamic finance and the stability of the financial system. Bank Negara says effective intermediation entails the mobilisation of diverse savings to productive investments to meet the needs of both businesses and households. In this regard, vibrant risk-capital ecosystem to support innovation-driven economic activities and start-up ventures will be developed. The initiatives will include enhancing the provision of large and long-term project financing for infrastructure development. As Malaysia deepens its trade and investment linkages, the financial sector is envisaged to have a larger role in supporting the internationalisation of Malaysian businesses. To cater to Malaysia's growing affluent segment and maturing population, emphasis will be placed on enhancing the provision of financial services for wealth management, retirement and long-term healthcare. The development of a vibrant private pension industry is expected to enhance the role of pension funds as a key source of funding for the longer-term and risk-based financing needs of the economy. A banking analyst says forging regional integration with Asia and other emerging markets is the right direction to take, judging from the encouraging economic growth and high savings rate in the region. The savings, he adds, can be invested in productive activities in other Asian countries rather than using the funds to invest in volatile market like in Europe and the United States. The blueprint appears to also favour stronger banks with scale and reach and there is a fear smaller banks with an introverted view on banking could see the gap with its larger peers expanding as a result of the push in the blueprint. Yeah feels that forging greater linkages will result in higher cost, especially for smaller banks. "Banking services are driven by scale and technology. Smaller banks will find it difficult to compete unless they have a niche, for example in small and medium enterprises or technology financing," he adds. Regional integration One of the big successes of Malaysian banking under the last plan has been the expansion of reach beyond the shore of the country. Large banking groups have stakes in a number of Asean countries and the focus on growing such linkages wiill benefit them. On way that will happen is through the recycling of Asian savings to invest in the region. By 2030, Zeti says, emerging economies are projected to account for 60% of total world output, from the current 40%, and greater regional integration will benefit banks. On the financial sector liberalisation aspect, which is also given prominence in the blueprint, foreign financial institutions intending to set up operations in Malaysia will be guided by two key considerations. They are the prudential criteria and the best interest of Malaysia criteria. The latter will take into account whether the foreign investment, among others, will contribute to the Malaysian economy and its impact on the financial stability. Banking licences will be issued to those with expertise and in niche areas to ensure it can value-add to the banking industry. That stance does not mean licences will be given freely as the central bank does not want the country to be over-banked despite protestations from parties wanting a slice of the Malaysian market. A banking analyst with a foreign brokerage opine that the conditions for issuing of licenses to foreign banks under the blueprint was relevant. "Its quite fair that any banks intending to operate in Malaysia should adhere to the prudential aspect in terms of having sound risk management, strong capital base and good governance. "It should be in the interest of country to ensure local banks are protected and there is no over competition in terms of products and services. We need foreign banks with specific expertise to add dept and breadth to the domestic financial sector," he explains. RAM Ratings head of financial institution ratings Wong Yin Ching says the blueprint which advocates further liberalisation is envisaged to lift the financial sector to new heights as doors are now opened to foreign institutional shareholders. "We think that Bank Negara may consider more flexibility with respect to foreign shareholdings in banks beyond the current cap of 20% on a case by case basis as long as it is within the best interests of Malaysia. Liberalisation could be viewed as beneficial if the foreign shareholder is an international banking group given the potential for transfer of knowledge and best practices. Additionally, the central bank is receptive of issuing new licences to foreign financial institutions with specialised expertise," Wong says. With liberalisation, she says local banking groups can expect stiffer competition which may exert pressure on their margins, adding that this may also spur local banks to innovate and provide better services to customers. As competition in the Malaysian banking scene intensifies, she says local banking groups will continue to seek opportunities offshore. Islamic financial centre While Malaysia has made significant inroads in becoming an international Islamic financial centre, Zeti says efforts under the blueprint will continue to be undertaken to enhance the Islamic financial ecosystem. This will entail developing a more conducive environment for the mobilisation of higher volumes of international Islamic financial flows from a diverse range of players to be channelled through innovative Islamic financial instruments. "We want to be an international Islamic financial hub. We have an edge over other Islamic financial jurisdictions as we have a comprehensive Islamic financial infrastructure and strong Islamic legislation in place," she says. But that does not mean its an open revolving door for any new players into Malaysia. They too have to adhere to stringent requirements and that explains why the conditional licences for two mega Islamic banks have yet to be fulfilled. In strengthening the legal and syariah frameworks and further advancing Malaysia's thought leadership in Islamic finance, a single legislated body to be the apex authority on shariah matters in Islamic finance will be established. Malaysian Rating Corp Bhd (MARC) CEO Mohd Razlan Mohamed says the focus on internationalisation of Islamic finance would benefit MARC as a domestic credit rating agency. "As the largest global market for sukuk issuance, we believe we will benefit from the attraction of more global issuers to raise rated sukuk in Malaysia. The domestic credit rating industry would benefit from the availability of a wider international rating universe and foreign issuers against which our local issuers may be benchmarked to build our capability and experience to rate foreign credits," he explains. Malaysia is the largest sukuk market in the world with 65% valued at US$96bil in 2010. In the global takaful sector, Malaysia was the second largest takaful market with 26% share of the global takaful assets in 2009. In fostering a sound and stable financial system, efforts will also be intensified towards ensuring a robust surveillance, regulatory and supervisory framework. Efforts will be directed towards improving the liquidity, depth and participation in the money, foreign exchange (forex) and government securities markets in Malaysia, in enabling more effective intermediation, transfer of risks and management of liquidity. The forex administration rules will be progressively liberalised to further raise efficiency in financial market transactions. On the internationalisation of the ringgit, Zeti says Malaysia is in no hurry to do so. She adds, this will only be done when there is a developed forex market in the country, which she hopes will be established over the decade, to handle manage activity on the ringgit. An important agenda under the blueprint will be to accelerate the migration from paper-based payments to electronic-payments. In the next 10 years, electronic payment transactions is targeted to increase the number of e-payments per capita from 44 transactions to 200 transactions, and reduce cheques by more than half from 207 million to 100 million per year. Consumer protection is also not disregarded. To this end, the infrastructure to support greater consumer empowerment will be strengthened through establishing a single consumer credit legislation, integrated dispute resolution system and an enhanced credit information framework. In talent development, a Financial Services Talent Council will be established to drive, oversee and coordinate talent development efforts in the financial sector. Other initiatives include developing talent for entry level, promoting continuous learning for the existing workforce, and attracting talent from abroad. Ensuring an adequate supply of skilled talent to meet the challenges in the new financial landscape will require greater collaboration and coordination among various agencies beyond the financial sector. An industry observer says talent has always been one of the pressing issues in the banking sector and local bankers need to be upskilled at a higher pace in order to meet the blue print's target of 10% to 12% contribution to GDP from the financial sector at the expiry of the blueprint. "There is need for further upgrading of skills and talent in the private banking and wealth management side as banks have to compete with countries like Singapore, Hong Kong and Dubai. Although Malaysia has an established Islamic financial infrastructure, it is still facing shortage skill as talent is being poached by other countries," he notes. Related Stories: |
| Kelington to bank on overseas ops Posted: 23 Dec 2011 06:38 PM PST Turnkey contractor sees offshore contributions increase to 70% of revenue KELINGTON Group Bhd, which is migrating to the Main Market of Bursa Malaysia from the ACE Market in January next year, will continue to do what has built the company and aims to ride on its revenue and profit growth trajectory experienced thus far since its listing in 2009. The company, which is presently a turnkey contractor to build and install "ultra high purity" pipes for use in industries, sees contribution from its overseas operations in China, Taiwan and Singapore increasing to 70% of revenue in its 2011 financial year from 50% previously. "We see an increase in contribution from our overseas units moving forward. We had just established a full-fledged office in Singapore which explains why our costs had increased in the third quarter of our 2011 financial year. The office there has its own human resource and technical support divisions to support operations in Singapore," says chief financial officer Jong Yu Huat in an interview. Kelington reported an increase in revenue in its third quarter to RM38.17mil from RM24.54mil from the same quarter a year ago while net profit dropped to RM1.97mil from RM2.1mil a year ago. Chairman Raymond Gan says net profit margins are about 9% for its projects but that depends on the nature of each project. The company, which currently has a net cash backing of 34 sen per share, says it is looking at the possibility of a horizontal integration to acquire other companies which are similar but servicing different industries. "We are in a good position to expand but we will also have to keep in mind the economic situation which is expected to deteriorate next year especially with the situation in the United States and European Union. Our strong balance sheet mean that we are well positioned to face the bleak economic scenario," says president and chief operating officer Ong Weng Leong. Acquisitions may be on its radar but Kelington will not spend frivolously on just any company. "Our intention to list back in 2009 was not due to the need for cash as we were in a net cash position since our listing. Even before our listing, we were in a net cash position. Unless a very good opportunity comes by in future which requires us to act, we want to keep it this way," Gan says. "We wanted a listing on Bursa Malaysia as this will raise our company profile and this will help us when going regional. Thus, this transfer to the Main Market will also help us even further to increase the knowledge of our presence to both our present and potential customers," he adds. Ong says the future of the business Kelington is in is still bright. It maintains a business relationship with its clients for five years before its piping infrasture needs updating or replacing to cater for changes in manufacturing design processes or newer technologies. Kelington is not capital intensive company per se but it still invests in machinery from time to time to expand its project capacity as these machines are portable and can be moved around to its customer's manufacturing sites. Kelington had also seen its total asset base grow from RM18.76mil in 2006 to RM90.84mil in Sept 30, 2011. Most of its assets are current assets, while the property, plant and equipment comprise a minor portion of only RM7.82mil of its total asset base. The company says the turnaround time of each project is relatively fast, ranging from three to six months before a new one kicks in. Its workforce of about 200 people can handle six projects at a single time, depending on the size of each one. "We bill our customers as we progress, just like your house payment progress today or when you undertake any renovation for your home. We bill progressively as the project completes while we also pay our suppliers and subcontractors progressively when they finish our jobs once we receive these payments from our customers," Gan explains. As such, the risk of default by its subcontractors are relatively low and the company has an unbilled order book of about RM35.7mil to carry forward into the financial year 2012. It expects to realise and deliver RM26mil of orders in the fourth quarter of 2011 in addition to RM94.3mil already billed for the first three quarters of this year. The company, which initially started off with a RM10,000 paid-up capital, has a market capitalisation of RM67mil today. "The company started off as a small outfit as we were former employees from a multinational firm supplying clean gases to industries in Malaysia," says Ong, who joined forces with Gan in 2004. Kelington had five original shareholders. Gan, who was a passive investor, Lim Hock San and three others back in the year 2000 formed the company. Three had cashed out early on while Ong joined the fray in 2004 to head the overseas operations. Today the three Gan, Ong and Lim, owns Kelington though a company named Palace Star Sdn Bhd, which is 46% owned by Lim, 27% by Gan and 27% by Ong. Relating his experiences in starting the company, Gan says they started off with a single customer, which was his previous employer, a multinational company. "The management had wanted to start this outfit as a division under the previous employer but the management then did not find it feasible and they decided to outsource the job of fixing these infrastructure. I then resigned and that was how this company started off," Gan recalls. Today, Gan heads the overall team and the Malaysian operations while Ong, who is well versed with the Chinese language, leads the overseas operations. "The shareholding structure of Palace Star had remained the same until today. Palace Star owns an effective interest of 46.43% in Kellington presently while the rest of our shareholders include Lembaga Tabung Angkatan Tentera (LTAT), Allied Moral Investments Ltd who are passive investors from Taiwan," Ong says. "Some semiconductor companies from Taiwan such as Vanguard and Winbond also own stakes in our company through Sky Walker Group Ltd which holds a 12.17% stake in Kelington while the rest of the shares of 26.3% belongs to the public. "Venture capitalists such as Hantech Venture Capital and Malaysia Venture Capital Management Bhd (Mavcap) are currently and have had been shareholders of our company before," Ong adds. Mavcap was a shareholder in Kelington since its initial public offering and recently sold their 12.63% stake in the company to LTAT to fulfil the bumiputra shareholding requirements of Bursa Malaysia for companies on the Main Market. The company shares are thinly traded on the local bourse due to its small market capitalisation and the company expects its move to the Main Market will lead to greater liquidity as more investors have the mandate to invest in Main Market shares as opposed to ACE market companies. The company is also expanding to serve related industries even on its own where it recently secured an order from a customer in Singapore which processes and makes food additives and Vietnam where its customer manufactures touch screen and solar glass panels which requires working labs which are pure and free of contaminants. It is also currently working on another project in Indonesia. "This is the beauty of our expertise where we can cater to a wide array of value added high technology industries," Gan says. Kelington aims to focus on geographical expansion in the region and an acquisition will be able to do fulfil that aspirations. It is evaluating these opportunities as they come by but the management maintains that it needs to study any opportunity closely before it acts. Whether or not these expansion opportunities are likely to come by either through acquisitions or organically, one thing is certain and that is Kelington is well positioned to take advantage of these opportunities to thrust itself into a regional player as a provider of pipe infrastructure for transporting clean gases. Full content generated by Get Full RSS. |
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