Month: November 2015

Tenaga’s Share Price Sees Red After Being Slapped With RM2.1b Additional Tax Assessment

Tenaga Nasional Bhd’s share price took a beating today after the utility giant was slapped with notices of additional tax assessment from the Inland Revenue Board amounting to RM985.6 million and RM1.1 billion for the years of assessment 2013 and 2014, respectively.

In a filing to Bursa Malaysia on Friday, Tenaga notified that its tax solicitors will be appealing against the said notices received on November 23 and the appeal process has commenced. Tenaga’s stock price hit an intra-day low of RM13.28 this morning from Friday’s close of RM13.60.

At 11.08pm, Tenaga was down 26 sen or 1.91% to RM13.34 with 3,159,800 shares exchanged hands.

Commenting on the additional tax assessment, PublicInvest Research opined that it could have originated from disputes on utilization of reinvestment allowances and non-taxable income.

“(Tenaga’s) effective tax rate for FY2013 and FY2014 were lower than the statutory corporate tax rate at 9.2% and 9.7%, respectively, mainly due to utilization of reinvestment allowances and non-taxable income,” analyst Syarifah Hidayatul Akmal pointed out. “The additional tax assessment imposed for FY2013 and FY2014 would bring the effective tax rate for the respective year to 25.8% and 24.9%, respectively.”

According to Syarifah Hidayatul, Tenaga’s cash holding which stood at RM8.9 billion as of August 31 this year is sufficient to cover for the additional tax payment should the power utility fail in its appeal. “However, the huge amount of RM2.1 billion would reduce its cash by approximately 24%,”cautioned the analyst.

Moving forward, PublicInvest Research has assumed lower effective tax rates of 12.1% to 12.6% for FY2016 to FY2018 given the expected completion of Hulu Terengganu, Ulu Jelai, TNB Prai, Tembat and Manjung 5 power plants.

“If there were adjustments to be made for whatever reason and by assuming effective tax rate of 25% for FY2016 to FY2018, our estimated net profit would decline by about 14%,” projected Syarifah Hidayatul. “The potential drop in earnings would therefore affect our DCF (discounted cash flow) valuation by about 4%.”

For now, PublicInvest Research is maintaining its estimates on Tenaga as there is no clarity on whether future taxes will be affected. “The management is unable to provide further clarification and information at this juncture as the appeal procedure is ongoing,” explained the analyst.

All-in PublicInvest Research reaffirmed its OUTPERFORM rating on Tenaga with an unchanged target price of RM14.97. “We continue to like Tenaga due to its defensive nature, resilient earnings and undemanding valuation which is trading at forward PE (price-to-earnings ratio) of around 11x,” added the research house.


Malaysian Tax Advisory Firm Axcelasia On Course To Scale Up ASEAN Presence

Axcelasia Inc, a Malaysia-based tax advisory firm which was listed on the Catalist board of the Singapore Exchange Securities Trading Ltd (SGX-ST) on Friday (November 27), aims to further expand its operations to cater to the geographical demands of its clients, most of whom have operations in Malaysia and the ASEAN region.

The group also aims to diversify its range of professional services in order to attract a wider range of clients and support its regional expansion plans, according to its executive chairman Dr Veerinderjeet Singh.

“The Catalist market encourages professional services firms to list and does not focus only on entities that have revenue generating assets like a factory or plant, etc,” Veerinderjeet told Bloomberg TV Malaysia.

He added: “So for a group that relies on intellectual capital and human talent rather that a ‘brick and mortar’ company, we found that the Catalist market met our needs and so decided to list Axcelasia there.”

Axcelasia whose shares opened at S$0.26 on Friday, raised about S$11.9 million by placing out 47.5 million shares at $S0.25 Singapore cents each. The listing of Axcelasia brings the total number of Catalist companies on SGX-ST to 171 with a combined market capitalization of S$10 billion.

Axcelasia has earmarked an estimated 67.6% of the gross proceeds from the listing exercise to expand its business operations in Malaysia and the ASEAN region as well as to enhance its range of professional services. The remaining proceeds, net of listing expenses, will be used to enhance the group’s office and support infrastructure as well as for working capital.

Incorporated in Labuan, Axcelasia together with its subsidiaries provide integrated professional services mainly in Malaysia to government-linked entities, private and public listed companies, and multinational corporations, under its four core businesses of tax advisory, business consultancy, enterprise management system (ems) application and business support.

The group’s tax advisory services have been recognized with many awards and accreditations while the group’s business consultancy and EMS application businesses are forerunners in the areas of enterprise risk management (ERM) and business continuity management.

Elaborating on the group’s future plans, Veerinderjeet noted that Axcelasia intends to expand domestic businesses, in particular its tax advisory business, from Kuala Lumpur to cover other cities in Malaysia.

“At the regional level, we will in the near future also expand into ASEAN countries such as Indonesia, Vietnam, Singapore, Laos and Thailand,” he envisaged. “We believe that we are able to leverage on our present expertise and reputation when replicating our services in other parts of Malaysia and in the ASEAN region.”

Led by an experienced and dedicated management team which has also maintained long-term working relationships with regulatory authorities and clients, Axcelasia has established a track record and strong reputation in having successfully undertaken large-scale transformation and program management projects.

The group is also able to integrate its different business segments to provide customized solutions to meet clients’ needs efficiently and cost-effectively.

Taxand Malaysia, the Group’s tax advisory business, is a member of Taxand, a global organisation of independent tax advisory firms. As such, Taxand Malaysia is able to leverage Taxand’s large client base and work with other Taxand member firms in servicing their clients.


1) S&P: Tenaga’s Failed Bid For Power Assets Reduces The Prospect Of A Weaker Capital Structure; Ratings Unaffected

Tenaga Nasional Bhd’s ratings and outlook (BBB+/Stable/–; axA+/axA-1) are not affected by the company’s failed bid to acquire the power assets of Edra Global Energy Bhd, according to Standard & Poor’s Ratings Services.

“Our base-case expectations for Tenaga did not factor in the bid,” the international rating agency pointed out in a media release.

In Standard & Poor’s view, Edra Global’s assets would have further strengthened Tenaga’s competitive position, particularly in Malaysia. But the rating agency cautioned that the bid valuation and the funding strategy for the acquisition might have led to a weaker capital structure for Tenaga.

“The details of Tenaga’s bid for Edra have not been disclosed,” rationalized Standard & Poor’s. “But the fact that Tenaga’s bid did not emerge as the winning bid suggests to us that the company seeks to balance its funding profile and leverage levels – and hence creditors’ interests – with its expansion plans.”

This, according to the rating agency, underpins its view that satisfactory governance measures are in place within then utility giant. Moreover, Tenaga’s dominant position as an integrated power provider in Malaysia underpins its business risk profile.

“At the same time, we expect the company’s financial risk profile to be mostly unchanged despite an increase in capital expenditure, with the debt-to-EBITDA (earnings before interest, tax, depreciation and amortization) ratio staying below 4.0x through 2016,” projected Standard & Poor’s. “Our expectations also assume revisions in tariffs for any under- or over-recovery of fuel costs.”

On Monday, 1Malaysia Development Bhd (1MDB) announced that it has sealed a deal with China General Nuclear Power Corporation (CGN) for the 100% sale of power assets parked under Edra Global Energy Bhd, its power generation arm.

CGN will pay an equity value of RM9.83 billion in cash and assume all the relevant gross debt and cash based on valuation as of end-March 2015 (the overall price is expected to exceed RM17 billion). The transaction is slated for completion in February 2016.

2) Downward Pressure Looms For Malaysia’s Foreign Reserves As US Interest Rates Hike Beckons

Malaysia’s foreign reserves could again come under some downward pressure in the weeks ahead amid concerns of a possible increase in outflows of short-term capital as the US Federal Reserve prepares to raise the Fed Funds rate in December, according to Affin Hwang Capital Research.

In the minutes of the October 27-28 Federal Open Market Committee (FOMC) meeting, the US Federal Reserve policy makers had highlighted that “it may well become appropriate” to raise the benchmark policy rate in December 2015 but largely agreed that the pace of increases would be gradual, the minutes of the meeting showed.

“Nevertheless, despite uncertainty on the movement of capital flows in the near term, we continue to expect reserves to hover around US$90 billion-US$95 billion by end-2015 (US$115.9 billion as of end-2014) where a possible slight improvement in reserves may be attributed to the country’s sustained current account surplus (from monthly trade surpluses), which should provide some buffers to the reserve level,” projected the research house.

On Friday, Bank Negara Malaysia announced that its international reserves fell marginally by US$100 million (RM700 million) in the first half of the month to US$93.9 billion (RM417.2 billion) as of November 13 this year compared with US$94 billion (RM417.9 billion) as of October 30.

At this level, the reserve coverage of short-term external debt deteriorated slightly to 1.1 times (1.2 times as of end-October). The current level of reserves is sufficient to finance 8.6 months of retained imports, lower than 8.7 months as of end-October but remains well above the three-month international threshold.

“The intervention by Bank Negara to support the ringgit against the US$ most likely remains small and has stabilized since mid-September 2015 as pressure on outflows of short-term capital has waned following the postponement of the widely expected US rate hike in September,” justified Affin Hwang Capital Research.

3)IJM Corp’s Prospects Remain in Abundance

Sitting pretty with a record order book of RM7 billion is putting IJM Corporation Bhd in an enviable position to be more selective in bidding for projects moving into 2016, according to AllianceDBS Research.

The research house observed that the global conglomerate is still eyeing various projects from the 11th Malaysia Plan (11MP), notably specialized works for the Damansara-Shah Alam Elevated Expressway (DASH) and Sungai Besi-Ulu Kelang Elevated Expressway (SUKE), parts of Pan Borneo Highway and the Mass Rapid Transit Line 2 (MRT2).

“Tenders for the remaining packages for West Coast Expressway (WCE) (Packages 1, 2, 6, 7, 10 and 11) will commence from early 2016 onwards,” analyst Tjen San Chong pointed out in a results review of IJM Corp. “It will also try to free capacity by accelerating progress of works in order to capitalize on more flows and the benign raw material environment.”

For its second quarter ended September 30 this year, IJM Corp posted a 40.3% year-on-year (y-o-y) surge in net profit to RM156.38 million (2Q FY3/2015: RM111.49 million; 1Q FY3/2016: RM336.87 million) while its revenue rose a marginal 3.5% y-o-y to RM1.339 billion (2Q FY3/2015: RM1.293 billion; 1Q FY3/2016: RM1.182 billion).

For the cumulative six-month period, IJM Corp’s net profit ballooned 101.43% y-o-y to RM493.25 billion (6M FY3/2015: RM244.87 million) but its revenue inched down 5.4% y-o-y to RM2.521 billion (6M FY3/2015: RM2.665 billion). For the record, there was a one-off gain from the sale of its 74% stake in the company’s Jaipur Mahua Tollway (in India) for RM168.7 million in 1Q FY3/2016. An interim dividend of 3 sen has been declared.

All-in, AllianceDBS Research maintained its HOLD rating on IJM Corp with a target price of RM3.30.

4) Analysts Expect AirAsia To Soar Again Despite Some 3Q FY2015 ‘Financial Glitches’

AirAsia Bhd is expected to bounce back in 4Q FY2015 following a dismal headline net loss of RM406 million following (i) the recognition of  associate Indonesia AirAsia’s (IAA) prior year losses, and (ii) forex losses arising from weaker regional currencies and the marked-to-market revaluation of its US dollar-denominated debt.

Moving forward, Kenanga Research expressed optimism on efforts by the management of the budget carrier to turn around both its associates, i.e. IAA and AirAsia Philippines, as the travel sentiment has recovered from the previous air mishaps.

“We expect a strong 4Q for AirAsia due to the holiday season,” wrote analyst Adrian Ng in a results review of AirAsia. “That said, (the) management is still working effortlessly in consolidating its associates which will provide investors more clarity on its accounts in coming future.”

For the record, AirAsia has introduced a detailed segmental breakdown for its associates in Bursa Malaysia, a move the research house strongly believes will help to regain investors’ confidence in the stock.

For the third quarter ended September 30 this year, AirAsia incurred a net loss of RM405.73 million (3Q FY2014: RM5.4 million; 2Q FY2015: RM243.03 million) on the back of a 15% year-on-year (y-o-y) surge in revenue to RM1.516 billion (3Q FY2014: RM1.317 billion; 2Q FY2015: RM1.325 billion).

The net loss was predominantly dragged by forex translation losses as well as the recognition of its share of losses in IAA (RM469.3 million for prior years and RM155.7 million for current year).

For the cumulative nine-month period, AirAsia posted a net loss of RM13.37 million against a gain of RM512.27 in the previous corresponding period while its revenue grew 5.3% y-o-y to RM4.137 billion (9M FY2014: RM3.929 billion).

“Y-o-y, 9M FY201515 came in with a net loss of RM13.4 million due to the write-down of accumulated losses in AirAsia Indonesia and AirAsia India arising from the recent ‘capital injection’ into these two associates,” explained Ng. “However, should we strip-off these one-offs, AirAsia’s core net profit would have been RM443.6 million (+76%).”

5) Maybank’s 3Q FY2015 Net Earnings Soars 18.1% To RM1.9bt

Boosted by higher net operating income and better cost management, Malayan Banking Bhd (Maybank), Southeast Asia’s fourth largest bank by assets, posted an 18.1% year-on-year (y-o-y) jump in its net profit for the third quarter ended September 30 this year to RM1.899 billion (3Q FY2014: RM1.608 billion; 2Q FY2015: RM1.584 billion).

This was achieved on the back of a 27.4% y-o-y surge in revenue to RM11.384 billion (3Q FY2014: RM8.934 billion; 2Q FY2015: RM8.935 billion).

For the cumulative nine-month period, Maybank’s net profit rose 8.3% y-o-y to RM5.184 billion (9M FY2014: RM4.785 billion) while its revenue spiked 13.2% y-o-y to RM29.504 billion (9M FY2014: RM26.050 billion).

“The results were lifted by higher net operating income coupled with rigorous cost management and lower net interest margin (NIM) compression of 3 basis points (bps) during the nine-month period,” Maybank pointed out in a media release. “In addition, the group benefitted from a one-off gain from the sale of its Papua New Guinea (PNG) operations which was completed in September 2015.”

After normalizing for the gain from the PNG sale, net profit for Q3FY15 was up 5.8% to RM1.70 billion while for the nine months, it was 4.2% higher at RM5.0 billion.

The group saw strong growth in income during the nine-month period with net fund based income 13.6% higher at RM10.77 billion on the back of strong loans growth while its net fee-based income rose 22.1% to RM4.85 billion. This resulted in a 16.1% overall rise in net operating income to RM15.62 billion.

For 3Q FY2015, net operating income edged up 26.7% y-o-y to RM5.75 billion aided by an 18.4% rise in net fund based income to RM3.81 billion as well as a 46.8% increase in net fee- based income to RM1.93 billion.

Group loans growth continued to be sustained, expanding at an annualized rate of 17.8% for the nine months. This was boosted by a 34.5% increase from international operations while the banking group’s Malaysian operations recorded a growth of 6.4%, attributed to a 36.4% increase in the SME (small medium enterprise) segment, consumer sector (8.1%) and global banking (2.4%).

The Rise Of Robots Shouldn’t Make Us Fear For Our Jobs

Robotics and technical innovation will not spell the end of many jobs as we know it, but will instead help make us more productive and create new types of work and jobs for the future, according to recruiting experts Hays.

Hays’s CEO Alistair Cox opined that it will be humans – not robots – who will continue to differentiate businesses in the coming decades.

“The more sensationalist headlines predict the demise of the human worker,” he referred to recent media coverage on the technological revolution of smart machines and what this could mean for the future of the labor market. “The more sensible do point to the opportunity for advanced robotics to unleash a massive wave of productivity improvements, akin to the impact of the original Industrial Revolution.”

Cox found it difficult to believe some of the more dramatic headlines, many of which appear to discount the importance of personal relationships and intuition, for which everyone in business knows there is no substitute.

“Yes, machines already carry out many roles and with technology’s rapid evolution, this is only set to increase,” explained Cox. “There’s no denying that when it comes to repetitive motion and basic data analysis, for example, robots certainly have the upper hand.”

Equally, Cox noted that the advances in data science and artificial intelligence are opening up new ways to look at businesses and generating insights that can lead to major productivity improvements.

“I’m investing in those areas in my own business, but to best equip people with the tools to do a better job, not to replace them,” he said.

According to Hays, there are four reasons why businesses will need people as much =- if not more – than they will need robots:

  • People become a premium: “It’s too easy to forget that no matter the industry or sector, those at the end of the sales funnel are human,” justified Cos. “We should therefore look at robots not as a threat, but as a means of freeing up time, increasing capacity and productivity and ultimately allowing businesses to focus on the human side of what they do.”
  • You can’t build rapport with a robot: “I’ve yet to meet a robot that can motivate a workforce, bank goodwill, return a favor or build a relationship, qualities that enable a business to run smoothly and get things done,” quipped Cox. “It’s these meaningful personal relationships and interactions that see employees go the extra mile for a client or each other. Human relationships simply cannot – and will not – be replicated by robots.”
  • Innovation can’t be programmed or plugged in: In today’s ultra-competitive corporate world, the battle for innovation has never been fiercer. To be truly innovative requires a level of collaboration, idea sharing and creativity that simply cannot be programmed or plugged in.
  • Human instinct should be trusted: While technology can execute strategy, planning is best left in the hands of people. “Natural intuition cannot be coded and we’ve all seen examples of results that fly in the face of prior data,” rationalized Cox. “Ultimately, I don’t think you can program a culture and an element of ‘gut’ instinct is often required in business, especially when it comes to delegating within a team or future proofing your organization through new hires and training.”