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Thursday, June 26, 2008

Credit Suisse cuts rating on Malaysia property mart

CREDIT Suisse has cut its rating on Malaysia's property market in anticipation of slower property purchases as higher fuel and power prices, as well as political uncertainty, eat into consumer confidence.

The foreign investment bank said in a research report yesterday that it cut its rating to "market weight" from "overweight" before.

"We are reducing it, primarily because we believe that consumer sentiment will be hit by rising inflation and political "noise", which will result in potential house buyers holding back," it said.

Consumer sentiment historically takes a severe beating during the quarter in which there is a petrol price hike, it noted.

Rising building material prices will also result in higher house prices, thus hurting affordability.

Affordability should, how-ever, improve in the medium term when Malaysians adapt to the rising inflation, and as wages adjust, it said.

"In the short term, we expect a stalemate; property transactions will likely dry up as developers hold back launching projects, while buyers take a wait-and-see attitude," it said.

Credit Suisse believes that developers that have diversified landbanks, hands-on management and a broad product mix will fare better during this slow period, citing SP Setia and IOI Properties as examples.

Building owners such as KLCC Property Holdings, IGB Corp or property trusts, should see their property prices appreciating, it said.

SP Setia, considered a bellwhether of Malaysia's property market, was one of the biggest losers on the stock market yesterday after it reported second quarter earnings that came in below market expectations.

This was because of margin pressure arising from higher construction, marketing and funding costs.

Credit Suisse and Merrill Lynch both downgraded their recommendation on the stock to "neutral" and "underperform" respectively.

"These margin pressures are not one-off events and will likely continue to have an impact on earnings going forward," said Merrill Lynch, in a report yesterday.

"While we are firm believers in SP Setia, we think its stock price is unlikely to outperform given the uncertain domestic outlook," it added.

The stock closed 22 sen, or 6.3 per cent, lower to RM3.28, making it the day's fourth biggest loser on the stock market yesterday.

By New Straits Times (by Adeline Paul Raj)

Dolomite sees gain from highway, housing projects

DOLOMITE Corp Bhd, a construction and property development firm, expects to gain from the execution of projects such as Kemuning-Shah Alam Expressway and Kesas Highway Extension as well as housing projects now under construction.

Its chairman, Tan Sri Mohd Jamil Johari, said the continued uptrend in the construction sector, underpinned by ongoing implementations of the Ninth Malaysia Plan, has provided opportunities for the group’s building materials division in the Klang Valley.

The quarrying and trading division showed a satisfactory improvement during the financial year under review, he said. The group is operating two granite quarries located in Hulu Langat, Selangor, and Bentong, Pahang.

“While competition in local construction industry is intensifying, Dolomite has not relaxed in its effort to improve its order book. The group will leverage on the high volume of construction activities rolled out under the Ninth Malaysia Plan,” he told reporters after the company’s annual general meeting in Kuala Lumpur yesterday.

The group’s construction division will continue to bid for civil engineering and building works called by government agencies and the private sector, Mohd Jamil said.

On the group’s property development, Mohd Jamil said its proposed mixed development project in Kuala Kuantan, Pahang, measuring 3,085,893 sq metres, is due to begin in the third quarter of 2008. Its proposed residential development scheme near Templer’s Park, Selangor, is expected to start next year.

For the financial year ended December 31, 2007, the group posted a revenue of RM160.64 million, up 12.94 per cent from RM142.23 million recorded in the previous year.

It posted a pre-tax profit of RM0.37 million from a loss of RM6.86 million previously.

By Bernama

CapitaLand buys 62pc of Sungei Wang's retail area

The Singapore-based CapitaLand Ltd has bought 62 per cent of the retail area at Sungei Wang Plaza for RM595 million.

The purchase covers 510,418 million sq ft retail area and parking bays at the mall, which enjoys close to 100 per cent occupancy and more than 24 million visitors annually.

CapitaLand, which is also the largest real estate company in Southeast Asia, had undertaken an asset securitisation structure for the purpose, which its spokesperson said was the most suitable platform at the moment.

"This asset base structure the company has decided upon is the most optimum capital structure for the purpose," the spokesperson told Business Timess yesterday.

The mall is held by a special purpose vehicle, Vast Winners Sdn Bhd, which has issued three tranches of senior medium- term notes and a tranche of subordinated Class D medium- term notes.

Under the exercise, CapitaLand subsidiary Gain 888 Investments Pte Ltd has fully subscribed to the subordinated Class D medium-term notes, worth about RM338 million, which are under equity bond.

The remaining Class A, B and C medium-term notes, which fall under debt, are undertaken by a Malaysian financial institution.

Commenting on the acquisition, chief executive officer Pua Seck Guan said the purchase puts CapitaLand's plan to create a Malaysian retail real estate investment trust (REIT) this year on track.

CapitaLand had earlier bought Gurney Plaza in Penang and Mines Shopping Fair in Seri Kembangan, near Kuala Lumpur. Collectively, the three assets amount to approximately RM2 billion.

"Through our proactive management and by leveraging on our retail real estate management expertise, there are tenancy remixing opportunities to create significant value at Sungei Wang," Pua said in a statement.

Last year, Landmarks Bhd sold Sungei Wang Plaza for RM284.8 million cash to Kencana Property Management Sdn Bhd, which is 70 per cent owned by Abdul Jaliludin Jamalludin and 30 per cent by Simon Wee Howe Yew.

Opened in 1977, the eleven-storey mall has over 824,000 sq ft retail area, more than 800 retail outlets and 1,300 parking bays.

By New Straits Times (by Zurinna Raja Adam)

CapitaLand buys 62% of Sungei Wang Plaza

PETALING JAYA: Singapore-listed CapitaLand Ltd has acquired 61.9% of Sungei Wang Plaza, a popular retail mall sited within the Bukit Bintang shopping precinct, for RM595mil.

The acquisition is the third by CapitaLand, which is planning to set up a pure-play Malaysian retail real estate investment trust (REIT) by the year-end.

StarBiz reported on May 17 that Sungei Wang was attracting the attention of investors that included CapitaLand.

In a statement yesterday, CapitaLand Retail Ltd chief executive officer Pua Seck Gun said that together with the earlier acquisitions of Gurney Plaza and Mines Shopping Fair, the three seed assets collectively amounted to an asset size of about RM2bil.

This would put CapitaLand “firmly on track to create its proposed pure-play Malaysian retail REIT by end-2008”, he said.

CapitaLand said it would pay RM595mil for 61.9% of the total retail strata area, or 510,418 sq ft, as well as car parks of Sungei Wang through an asset securitisation structure.

Under the asset securitisation structure, Sungei Wang will be held by special-purpose vehicle Vast Winners Sdn Bhd, which has issued three tranches of senior medium-term notes, namely class A, B and C, as well as a tranche of subordinated class D medium-term notes.

CapitaLand unit Gain 888 Investment Pte Ltd has fully subscribed to the subordinated class D medium-term notes in the principal amount of RM338mil.

The senior medium-term notes are fully subscribed by a Malaysian financial institution.

“Through our proactive management and by leveraging on our retail real estate management expertise, there are tenancy remixing opportunities to create significant value at Sungei Wang,” Pua said.

Sungei Wang has almost 100% occupancy and draws more than 24 million visitors a year. The 11-storey mall, built in 1977 by Tan Sri Chong Kok Lim, has over 800 retail outlets and 1,300 carparking lots.

By The Star (by Izwan Idris)

Housing in US set to recover

AMIDST all the doom and gloom so prevalent nowadays, it is very easy to lose one’s sense of perspective.

After reading all the bearish news and high-profile bearish forecasts, one can easily become convinced that the world or the economy is coming to an end.

Fortunately or unfortunately, there are independent folks out there like i Capital who look at the situation objectively, instead of with hidden agenda.

Since the subprime issue broke out in August 2007, i Capital has stuck its neck out again and again, by saying that the global and US economies are still in fine shape. It has been maintaining that the subprime problem is a containable problem. Period.

Even though Greenspan, Buffett, Soros, etc. have all said otherwise many times, data point to the fact that the US economy was not in recession in 2007 and will not be in a recession in 2008, simply because the global economy has decoupled from the US economy.

And the rest of the world, with more than six billion people, is pulling the US economy out of its housing rut.

The latest ISM manufacturing indicator for May showed a US economy that is still very resilient and an important reason for this is strong and sustained export growth.

To understand what is going on in the US economy, understand the i Capital Long Boom.

Besides the strong exports, one should not overlook the fact that the US housing starts and sales cannot go to zero.

With more than three million extra people every year, the US economy needs plenty of houses and the current US housing contraction is only a temporary and not a permanent trend.

After more than two years of steep decline and with house prices dropping as well, houses are getting more affordable.

If there is only one piece of advice that i Capital would like to give in the current turbulent environment, it would be that the US housing contraction is coming close to its end.

As advised previously, the current US economy is not like the Japanese economy of the 1990s. If the US housing contraction is really close to its end, this would have major implications for the US economy in 2008 and 2009.

It would imply that US gross domestic product growth in 2008 and 2009 would be higher than what most have forecast and in the process, surprise folks like Buffett, Greenspan, Soros, etc. who had made bold, highly publicised forecasts of a US recession or financial crisis.

The chart shows that the housing sector has been weighing down the US economy for more than two years or nine quarters in a row.

As the US economy escapes recession in 2008, courtesy of the China-led economic block, and as consumers regain some sense of composure, the US housing sector would see a bottoming in sales and then an eventual recovery.

For now, it does not matter whether the recovery is V or U-shaped. What matters is that the US economy would end 2008 with solid positive growth, in contrast to the generally pessimistic views.

By The Star / By Capital Talk (

Builders seek longer construction hours

MASTER Builders Association of Malaysia (MBAM) is appealing to the Kuala Lumpur City Hall for longer working hours at construction sites in the capital city to prevent project delays.

In a statement, MBAM secretary general Yap Yoke Keong said contractors need longer working hours at non-residential areas to facilitate smoother delivery of steel bars, concrete, sand, bricks and other building materials to construction sites in the city centre.

MBAM is the umbrella body representing some 600 contractors throughout the country.

Yap said extension of construction activities beyond the current 6pm to 10pm would indirectly help ease traffic in the city centre during the day time.

"If work is allowed after 6pm, delivery of building materials can be planned to run in the night, thus relieving congestion in the city centre during office hours," he said.

He said the current restriction on working hours is not helping contractors who are striving to finish their projects within schedule, fearing which they would be slapped with heavy penalties for late delivery.

Another significant justification for longer working hours is the time-consuming nature of concrete casting for high rises.

"Concrete casting must be executed continuously, in one sequence, to achieve the structural strength that it is designed for," Yap said.

Following MBAM's dialogue with Kuala Lumpur City Hall director general on June 9 2008, Yap is hopeful of a faster approval process.

"We're thankful to City Hall for considering to shorten approval time to within two weeks after the submission of the application," he said.

By New Straits Times

UEM to sign new 2nd Penang bridge pact

UEM Group, together with its Chinese partner, expects to sign a new agreement to build the second Penang bridge next month, its top executives said.

The new contract will cap the project's total cost at RM4.3 billion but the UEM-China Harbour Engineering Co Ltd consortium can claim extra expenses from fluctuating material costs, they said.

The new deal follows the government's decision to allow for an open tender of the bridge's toll concession, amid rising costs due to soaring energy and commodity prices worldwide. The move reversed the original plan to let UEM, via subsidiary UEM Builders Bhd, manage the concession once the bridge is completed.

"The (new) contract agreement has been finalised and we hope to sign it soon," group chairman Tan Sri Dr Ahmad Tajuddin Ali said.

Tajuddin and managing director Datuk Ahmad Pardas Senin said the group was managing the construction cost partly through forward- and pre-buying of key materials like steel and cement.

They said the group was well poised to bid for the toll concession when the time comes. UEM is bullish about its chances, given its experience and expertise in highway and toll operation and maintenance locally and abroad.

Tajuddin and Ahmad Pardas were speaking at a press conference after UEM World Bhd's annual general meeting in Kuala Lumpur yesterday.

Ahmad Pardas, who is also group chief executive officer, said the bridge's design had been tweaked with some "esthetic changes" but the alignment remains as in the original plan.

Tajuddin, meanwhile, said the listing of the group's property arm, UEM Land Bhd, is expected to take place in early November. The listing is part of the UEM group's restructuring announced in February this year.

The planned capital repayment to UEM group shareholders, another key component of the restructuring, should be made by the third quarter, he added.

On revenue growth this year, Ahmad Pardas said the target set under its KPI (key performance indicator) is achievable despite a more challenging business and economic environment.

He added that construction, engineering, healthcare and property divisions would continue to contribute significantly to the company's performance.

UEM announced recently a 13 per cent growth each in revenue and return on equity under its KPI targets for the year ending December 2008.

Last year, the group's revenue grew 46 per cent to nearly RM7 billion, although the growth is still short of its targeted 65 per cent under its KPI. Group net profit rose fourfold to RM939.2 million from RM194.9 million previously.

The performance was largely due to major land sales in Nusajaya in Johor, the benefits from the dilution of its investment in Costain plc and a gain of the listing of Opus International Consultants Ltd in New Zealand.

By New Straits Times (by Zuraimi Abdullah)