The Star Online: Business
The Star Online: Business |
- Strong year-end for auto sector?
- How to build a good team in an organisation
- Nasim expects the car industry to grow at a healthy rate
| Strong year-end for auto sector? Posted: 24 Sep 2012 06:30 PM PDT AUTO SECTOR Overweight (maintain) MAINTAIN overweight. DRB-Hicom is our top pick for its restructuring potential with Proton. UMW remains an outperform on its positive earnings momentum while Tan Chong is our only underperform as it looks increasingly marginalised. August vehicle sales were not surprisingly weak given that Hari Raya holidays fell smack in the middle of the month rather than towards the end which meant that most families planned their extended holidays in August rather than early September. Total industry vehicle (TIV) sales were down 11.2% year-on-year and 12.9% month-on-month. Still, TIV growth until August treaded above water at 1.6%. Our forecast of 4.7% growth for 2012 has been maintained as we believe 2012 will end strongly with significant pent-up demand following the extended August holidays, coupled with the end of budget wait-and-see in September. The Malaysian Automotive Association forecasts the same level of unit sales for September as August, primarily citing that car buyers are waiting for any material developments in the 2013 Budget which is to be released next week. High car prices are a key pre-election issue. Car-loan defaults have been one of the major causes of bankruptcies. According to our sources, previous efforts to lower excise duties had not resulted in the passing of savings to consumers. Hence, we do not expect any significant overhaul of the tax structure until a workable programme of market pricing has been put in place. However, if the budget institutes an aggressive regulation of car market pricing and a scrutinisation of industry margins, we would view this negatively and put our recommendations and earnings forecast under review. Our top pick remains DRB-Hicom. Restructuring cost-savings from its consolidation with Proton and the potential support of Volkswagen are key catalysts. It is also the cheapest in the sector at 7.2 times calendar year 2013 price-to-earnings (PE) versus the sector's 10.5 times average. DRB-Hicom's sales momentum is looking positive. In August, it appeared to have reclaimed its top spot in market share from UMW thanks to a recovery in Honda sales following disruptions to the global supply chain last year. This has reinforced its position as our top pick for the sector and lent support to our 37% three-year earnings compound annual growth rate forecast, which does not include any cost-savings from its ongoing restructuring and consolidation of Proton. By Maybank IB Research Hold (downgrade) Target price: RM3.40 AFTER an enlightening meeting with the management, we have a better understanding of the lead lag in Padiberas Nasional Bhd's (Bernas) cost recognition from the time of rice procurement. This firms up our view that Bernas should enjoy a better second half relative to the first half due to the lower cost rice procured earlier this year. Our discount dividend model-based target price of RM3.40 is unchanged as we roll forward our valuation to 2013 but we downgrade Bernas to a hold due to the stock price being close to our target price. We gather from the management that Bernas' procurement cost of rice goes through a seven to eight month lag before it hits profit and loss. This explains the deterioration of margin in the past two quarters, when rice was acquired at a higher price of US$480 per tonne last year. Bernas' procurement of rice from Vietnam and Pakistan earlier this year at attractive prices (US$440-US$450 per tonne) should be evident in the upcoming third and fourth quarter results. Rice prices continue to trend down as global rice inventory accumulates on account of bumper harvest, low import demand and high inventory levels. Rice prices have receded by 5.6% year-to-date and this provides Bernas with more opportunities to procure attractively priced rice which will enhance its profit margin in the near future. Furthermore, we understand that the Thai rice stockpile is at maximum and has to be pared down soon, thus compounding the already oversupply market. Bernas purchases its rice in bulk, usually for a few months' worth, at a price it deems attractive or when necessary. Freshly procured rice will be stored to let the existing older inventory and trading stock to be fully consumed, this process alone consumes five to six months. Thereafter, Bernas will consume the national stockpile of 292,000 tonnes which will take a further two months. Overall, this process or cycle consumes a total of seven to eight months. We observe a historical trend whereby inventory values are a good indicator to future earnings, with a forward indicator of three quarters. There is an inverse relationship, whereby an increase in inventory value will depress earnings three quarters forward. It is not a perfect relationship, given that Bernas rice procurement is sometimes choppy, but the trend is reminiscent of the actual performance. We think the second half financial performance will be better than the first, given that the older inventory level procured at higher cost has eased in the second quarter. We think the third quarter will be slightly better than quarter two, but quarter four will be substantially better with high profit margins. However, we caution that quarter one 2013 results might be hit with another profit decline judging from the cost of inventory spike in quarter one 2012. The Government has granted Bernas the concession extension up to January 2021 from January 2011 and has finalised the terms and conditions. Bernas has also allocated RM100mil into 2012 to invest in viable businesses to diversify its income stream to reduce its dependence on its concessionary income. Hold for dividend. We revised down our 2012-2014 earnings forecasts by minus 15.8%, minus 10.4% and minus 10.2% respectively after taking into account the higher price rice incurred in the first half and 1% higher rice price assumption going forward. Bernas remains attractive for its dividend yield of 8.2% (net) based on 72% net profit payout assumption (2010-2011: 63%). By PublicInvest Research Neutral (initiating coverage) Target price: RM7.26 WE are initiating coverage on Maxis with a neutral rating. Our 12-month target price of RM7.26 based on discounted cash flow valuations suggests limited upside from current levels, but downside risks will be cushioned by its consistent 5.8% dividend yield (40 sen per share). Maxis is the largest mobile operator in Malaysia with a total subscriber base of 12.6 million, accounting for 31% of the total. The Maxis brand, founded by Ananda Krishnan in 1995, has a leading position in Malaysia's prepaid and postpaid businesses, with a market share of 30.6% and 35.3% respectively. The group's ambition of having multiple delivery platforms fibre, cellular and wireless to deliver content on a variety of channels, are coming into realisation after recently teaming up with Telekom Malaysia, U Mobile, REDtone and its sister company, Astro in respective assignments. Management aims to see 50% of revenue coming from the non-voice segment, this year or next. Year-to-date, it accounts for 45.3% of mobile revenue compared to 42.4% last year. Given the huge demand for mobile data services and low level of broadband penetration rate at only 19.6%, potential room for growth in the mobile internet and wireless broadband businesses is tremendous. Nevertheless, we think its valuations have been fully realised given its unattractive overall earnings growth prospects. Although we acknowledge progressive growth from the non-voice segment, we think Maxis' strategy of offering more competitive voice packages for the sake of reclaiming its subscriber losses will eventually depress its margins. We expect that its voice segment contribution will likely remain stagnant for this year and next. Despite widespread speculation about a special dividend payout when it unveiled plans to issue Islamic medium term notes totalling RM2.45bil in February, the company has since indicated that annual dividend will likely remain at 40 sen per share for the foreseeable future. Still, this level translates into a generous 118.5% of the company's net profit of RM2.5bil in financial year 2011 (FY11). This also suggests that Maxis' gearing will continue to rise after taking into account estimated capital expenditure of roughly RM1bil per annum. Maxis has been seeing a decline in subscriber numbers in both the postpaid and wireless broadband segments, down 0.5% and 11.9% since Q4'11. To defend its eroding market share, the group has already launched a loyalty programme called Maxis One Club that offers special discounts for mobile services and rewards as well as "peace of mind" roaming plans that offer more competitive rate for IDD calls. It intends to offer more competitive bundle-based and tariff plans in Q3'12. Margins, however, will remain under pressure, at least this year and into the next. Key re-rating catalysts include: l New earnings contribution from its upcoming triple play services l better-than-expected growth in voice subscibers, and l improved cost savings via collaboration with several industry players. By MIDF Research Neutral (maintain) Target price: RM4.90 WE attended a meeting with MSM's management on Friday. The key takeaways are as follows: Innovations in the pipeline. It was reported that, in a first-of-its-kind venture, the Federal Land Development Authority (Felda) tied up with plantation giant, Sime Darby Bhd and the Malaysia Industry Government High Technology (MIGHT) to explore the production of industrial sugar from oil palm biomass. We understand that feasibility studies are currently underway in an undisclosed laboratory in Italy, and that possible sites in Pasir Gudang, Johor, have already been identified for a production plant. The non-edible sugar has applications in the production of oleochemicals, paints and chemicals. We are still waiting to see if this will open a secondary revenue generating segment for MSM which is the sugar manufacturing arm of Felda. Possible relook into the sugarcane planting business. Since the cessation of its sugarcane plantation in April 2012, MSM may be interested in taking another jab at the upstream activity outside of Malaysia, possibly in neighbouring counties such as Myanmar which has gained considerable foreign interest since the lifting of sanctions by the US and its abundance in lower cost labour. With FY11 raw sugar cost accounting for 89.6% of cost of goods sold and volatile global raw sugar prices, we view MSM's move to relook into upstream activities positively. Budget 2013 unlikely to materially impact MSM. A probable focus for Budget 2013 may be on the continued reduction of subsidies on key items such as sugar. However, recall that the Government surprisingly increased sugar subsidy to 54 sen from Jan 1, 2012 without a corresponding reduction in price ceilings, in a move to insulate domestic sugar producers against the high and volatile raw sugar prices. This goes to show that the Government remains committed to protecting the margins of domestic sugar manufacturers. Therefore, we believe that Budget 2013 will not have material impact on MSM. Reaffirm neutral. We are maintaining our target price of RM4.90 for MSM based on PE for 2013 of 12.8 times, which is the average of five regional peers pending further development on the Felda/Sime Darby/MIGHT joint venture which could be a re-rating catalyst if feasibility studies yield positive results and MSM is roped in to benefit from the new venture. |
| How to build a good team in an organisation Posted: 24 Sep 2012 06:24 PM PDT BUILDING teams in an organisation is becoming an increasingly complex and challenging task. Many organisations are employing the use of assessment tools to give another perspective of the individuals being considered for the purpose of recruitment or even succession planning, which is often an integral part of building a cohesive team. As an executive search consultant and coach, I have found such tools to be very insightful in many instances. One of the biggest lessons for me as a result of using such assessment tools is that bringing together diverse groups of competencies often result in stronger teams. Most people would choose to work with people who are like themselves. It is a common perception that people with similar personality types will likely be on the same wavelength and get along well together. However, I had the opportunity to work closely with a colleague who is very frank and direct in her communication and work style. My personal style of communication is almost a direct opposite of hers whereby I gravitate to being a lot more diplomatic. Both of us work well together because we can bridge the gaps in each other's work style and cover a lot more ground when collaborating on projects. In most cases when dealing with savvy clients, they want to know the truth but the tactful delivery of facts are also equally important. As a leader, I am not keen on finding someone exactly like me, as I know I am not perfect and having clones of myself would only magnify my faults. By understanding my own personality profile better, I am able to surround myself with people who are able to bring other competencies to the table and by working together, we would be able to support each other to produce better results and more holistic solutions and better results. I have noticed that more and more leaders are becoming aware of the need for diversity in their workspace. A decade or two ago my clients often wanted me to look for people who were almost identical to themselves or someone within their organisation. "Just find me someone like John," or "Don't you have any candidates like my deputy?" However, employers and leaders are now becoming savvier when it comes to building teams. They are realising that by building diverse teams they are able to address more of their customers' needs and reduce their blind spots. Even clients who have not been exposed to any psychometric assessment tools are able to splice together a profile by using terminology that they are familiar with. For example, I spoke with a client who wanted me to find him a chief operating officer who could think strategically like his head of corporate strategy but the individual also needed to be literate with numbers like his finance director and able to deep-dive to fix problems. Whilst this may seem like a tall order, this description was able to provide another perspective and added another dimension to the job description, which in most cases is only a two-dimensional document. Hence, it became a lot easier to understand the client's requirements from that point onwards. The results of an assessment project can sometimes be an eye-opener and a driver for change. One such organisation, a multinational company in the manufacturing sector, discovered through an assessment project that the majority of their managers were classified as innovators. Being innovative is a highly desired skill in many organizations, especially in leadership roles. On the other hand, innovators are generally out-of-the-box thinkers and are not very likely to analyse pitfalls well or they may be less detail oriented when it comes to implementation. Faced with the study results, their top management embarked on a development program to build up the other competencies their managers were lacking in. At the same time, they also made a conscious effort to hire more detail-oriented managers who could be more effective on areas of the business that called for more precision. They also created a role for a risk manager to mitigate potential risks that the innovative managers may have missed in their eagerness to try new and different approaches. I have also come across leaders who have the misconception that their subordinates cannot be better qualified than the leaders themselves. These were usually leaders who enjoyed having their own "kingdoms" and didn't want to "rock the boat." They tend to hire "yes" men who would carry out instructions without questioning or offer any kind of resistance. As a result, the organisation is likely to stagnate at some point, as there will usually be a bottleneck when it comes to making decisions. The calibre of the managers hired would be of a lower level, as the leader would not want to have subordinates that may outshine them as leaders. As such most decision-making will have to be directed to the top management, as these managers would not be empowered to make decisions. Although it is not ideal, the leader preferred this approach and this might even work well until the business grows beyond the tipping point whereby the leader will eventually need to empower some capable managers to take on more of the decision-making tasks. As an employee and team member, it is useful to know what our competencies are as this will pave the way for us to develop ourselves in areas that we may not be as proficient in. We can align ourselves to mentors who may have a profile that complements ours or who can help us develop these competencies. It is also handy to know your colleagues' profiles where possible so that we can use the right communication style to get our message across. For instance, some people prefer receiving emails as this gives them time to craft an appropriate response whilst others may want to have a face-to-face discussion so that they can obtain immediate feedback. At times, this information also tells us why we are unable to get along with certain people in our organisations. At the end of the day, it is important to remember that there are no bad competencies or bad profiles. Nobody is perfect. We all possess competencies; some are similar and some different from the people we work with. It is more important to know what our competencies are and to what degree they influence our communication with others. It is not just the truth but knowing the truth that makes the difference, as this is the starting point for building effective teams.
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| Nasim expects the car industry to grow at a healthy rate Posted: 24 Sep 2012 06:22 PM PDT PETALING JAYA: Nasim Sdn Bhd, the official distributor of Peugeot vehicles in the country, is hopeful that the local automotive industry will grow at a healthy rate this year despite tighter hire-purchase loan approvals and the production disruption caused by Thailand's flood disaster last year. "In the initial months of 2012, the market experienced a slowdown due to the shortage of supply from Thailand which was still recovering from the devastating floods that hit the country in 2011 while the market was also adjusting to Bank Negara's new guidelines on financing. "Once supply from Thailand resumed, the market began to rebound and in the first half of this year, the total industry volume has grown 1.4%. "Going forward, we believe the industry will continue to grow at a healthy rate," said Nasim chief operating officer Datuk Samson Anand George in an e-mail. Effective this year, banks have started using net income instead of gross income to calculate the debt service ratio for loans. This pre-emptive move by Bank Negara is said to contain the rise in consumer debts. The measure covers all consumer loan products, including car loans. Samson admitted that the central bank's new lending rules did have an impact on the local automotive industry initially. "There were some effects on the overall market earlier in the year due to the new regulations. But since then, the market has adjusted to the new guidelines and it is business as usual." Motor vehicle sales in August fell by 7,644 units or 12.9% to 51,823 units from the 58,382 units in the same month last year. Nasim is maintaining its sales target of 9,300 units for this year. As at end-August, the company had sold 4,200 units, up 7.5% from the same period in 2011. Samson attributed the steady sales performance to the new line-up of Peugeot models introduced this year. "In May, we introduced the 408 and in the following month, expanded the 508's line-up to include four new variants including the top of the line 508 GT. In June, we introduced the facelifted 308. The 308 is one of the most popular hatchbacks in the country and holds a 42% market share among European C-segment hatchbacks in Malaysia. "As a result of these new model launches, we now have seven models and a total of 15 variants in our line-up. This, in turn, has enabled us to reach a wider spectrum of the market than in previous years." Part of Nasim's initiatives to drive sales was to also boost its aftersales service, said Samson. "As our sales numbers increase, we have also worked hard on the after-sales front. We now have 58 service bays in the Klang Valley which gives us a service capacity of 3,500 cars a month, up 46% from 2011. "By the end of our expansion exercise this year, we will have 153 service bays nationwide which in turn will have a service capacity of over 9,000 cars a month. These efforts have encouraged customers to purchase a Peugeot." Nasim recently announced that it plans to open five new outlets next year, which will bring its total sales network in the country to 34. The company currently has 22 outlets in Malaysia and will be opening new ones in Kota Damansara, Ampang, Old Klang Road, Penang, Taiping, Batu Pahat and Kuala Terengganu by year-end. |
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