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Monday, January 28, 2008

Corporate makeover continues

News from the US and Europe was negative last week and is expected to remain depressing, but companies in Malaysia are making efforts and progress in conditions within their control.

MALAYSIAN corporates are making steady progress in transforming their business models to fit the changes of recent years in business conditions and competition. This will pay dividends for investors in the long run even though the rolling stock markets are distracting them, or are disrupting their plans.

The Teluk Ramunia yard in Johor. Ramunia is to be a Petronas stock

Investors have started to reap the financial rewards from the transformation efforts although much of those gains were erased in panic selling early last week.

Several factors calmed the markets in the later part of the week, including latest views that Asian economies, while not fully decoupled from the US, have partially decoupled. It is perceived that China, for instance, would not feel the full impact of a US recession, as its own personal consumption and construction would still spur economic growth.

While news from the west will continue to be focused on losses in the financial sector, domestic developments, at this point, remain invigorating.

Ramunia Holdings Bhd agreed to a reverse takeover offer from the MISC Bhd group for the purchase of the latter's Malaysia Marine and Heavy Engineering Sdn Bhd (MMHE) for RM3.2bil via a share swap.

This combines the sprawling fabrication facilities of both companies, and transform Ramunia into an indirect subsidiary of Petronas, the parent company of MISC. This will bring a Petronas premium to Ramunia.

Petronas' member companies are known for their good corporate governance and financial results. In addition, both Petronas and MISC could award fabrication jobs to the remade Ramunia, as they have done for MMHE. This could be similar to the relationship of VADS Bhd to Telekom Malaysia Bhd which awarded IT outsourcing contracts to the former, its associate company.

Besides having a far larger order book than Ramunia, MMHE also achieved higher net profit margins of 12.5% against Ramunia's 3.4% last year.

An alliance is also being formed between DiGi.Com Bhd and Time dotCom Bhd which will transfer its third generation (3G) spectrum to the former for shares in DiGi worth about RM640mil. This will produce a huge gain for Time dotCom as its cost of investment in the spectrum was just RM67.8mil.

Proton Holdings Bhd is said to be recovering, as bookings for its new Saga were brisk since its launch a week ago. This followed the strong sales of its Persona in the second half of last year. It is rebuilding value in the medium term as it seeks a global strategic partner for the long term.

Sime Darby Bhd is also making progress in an important division where yields at its plantations in Indonesia are understood to be improving substantially. This will bring its yield closer to those of IOI Corp Bhd and Kuala Lumpur Kepong Bhd.

In the banking sector, Public Bank Bhd has surprised so often in its results that it's no longer a surprise. It continues to display high growth in earnings, loans and deposits, coupled remarkably with reportedly the lowest level of non-performing loans in the industry.

It made a pre-tax profit of over RM430mil from overseas for the year ended Dec 31, 2007 and this is targeted for cautious expansion.

It is noted that when Public Bank announced its results last week, it was the first bank, and among the first batch of listed companies, to do so in the current reporting season. It could report well within one month of the end of its latest quarter in spite of being so large, encompassing overseas operations, and subject to tight regulatory scrutiny.

There is no reason for other listed companies to need two months to issue their results, and perhaps Bursa Malaysia should consider shortening the reporting deadline to one month, as in certain developed markets.

Construction groups Crest Builder Holdings Bhd and Hock Seng Lee Bhd disclosed sizeable new contracts last week.

It is hoped the Government will accelerate the award of contracts under its various plans, as expansion of the construction sector would help to partially offset lacklustre exports from the manufacturing sector.

An impact from the economic slowdown or recession from the US cannot be avoided but a strengthening of the domestic economy and corporations would alleviate a sombre situation.

Income for citizens

The Government said last week it sought to reduce the number of foreign workers in this country by more than 200,000 this year. This would compel employers to hire local workers at “reasonable” salaries, according to a Government official.

This is a refreshing statement because for many years, foreign workers have driven down wages, and in certain industries, displacing Malaysian workers from their jobs.

The official said the Government would be strict with the service sector such as hotels and restaurants. This should bring about higher, or at least adequate, service levels because hotels and restaurants have been deploying foreign workers as waiters, who do not speak local languages, to serve customers.

It is surprising, however, that three industries – construction, manufacturing and plantations – would be exempted from the strict measures. It has often been said that locals did not want to work in these industries.

It should be expected, in fact, that Malaysians do not want jobs where wages are priced to levels in Indonesia or Bangladesh.

Employers will argue that they can't afford to pay higher wages but in fact, they have been enjoying super profits by paying low wages to foreign workers but not lowering their prices.

In western countries and Australia, waiters are Caucasians, which means such jobs must be paid far more than that offered to locals here. Jobs there are priced to attract their own citizens.

The mines, construction and even the manufacturing sector there employ “white people” who work in such jobs because they are adequately paid.

It is sometimes said that the semiconductor sector retains little of its revenue here because of high import content, and that income in the plantation sector is almost entirely retained in the country. This is not true because foreign workers, who displaced locals in the plantation sector, repatriate their wages to their home countries.

Furthermore, plantation companies employ far fewer Malaysians than they should because they naturally prefer to hire cheap foreign labour. Taken to extremes, every job in the country can conceivably be taken over by foreigners at a lower salary.

Economic growth should filter through to benefit everyone, even the unskilled or less skilled, and not make fortunes for employers at the expense of the Malaysian worker.

By The Star (by C.S.Tan)

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