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ASEAN STOCK WATCH Asean Affairs  27 September 2012

ASEAN Equity Preview

By Shayne Heffernan Ph.D.

World shares fell sharply and the euro slipped to a two-week low on Wednesday as growing opposition in Europe to measures aimed at resolving the euro zone's debt crisis unnerved investors already skittish about the weak outlook for global growth.

Investors focused on Spain, where the main share index lost 3.9 percent and yields on 10-year bonds hit 6 percent on worries about Madrid's commitment to reform due to violent protests and talk of secession by the wealthy Catalonia region.

In Madrid, Prime Minister Mariano Rajoy faced violence on the streets of the capital and growing talk of secession in Catalonia as he moves cautiously closer to asking Europe for a bailout, aware that such an action has cost other European leaders their jobs.

In public, Rajoy has been resisting calls to move quickly to request assistance, but behind the scenes he is putting together the pieces to meet the stringent conditions that will accompany rescue funds.

Rajoy presents a tough 2013 budget on Thursday, aiming to send a message that Spain is doing its deficit-cutting homework despite a recession and 25 percent unemployment.

Spain appears on course to miss its public deficit target of 6.3 percent of gross domestic product this year, and the central bank said the economy continued to contract sharply in the third quarter.

Rajoy is facing intense pressure from euro zone policymakers to take tougher measures, particularly on freezing pensions.

On Friday, Moody's will publish its latest review of Spain's credit rating, possibly downgrading the country's debt to junk status.

On the same day, an independent audit of Spain's banks will reveal how much money Madrid will need from a 100 billion euro ($130 billion) aid package that Europe has already approved for the banks.

Neptune Orient Lines

US and European Union stimulus measures should see an increase in demand for containerised shipping, according to a Malaysian bank

Malaysian financial firm Maybank Kim Eng has upgraded shares in Neptune Orient Lines (NOL) from ‘sell’ to ‘buy’, and in so doing issued a vote of confidence in the beleaguered container shipping industry.

According to a Reuters report, the Malaysian bank predicts a demand-led recovery for container shipping on the back of US and European government interventions to bolster the global economy.

Maybank believes the EU’s bond-buying programme and the US’s most recent round of quantitive easing will stimulate increased global trade.

"While the current EU and US stimulus' direct benefits will take some time to materialise, what we see most important is the commitment to shoring up confidence in the respective regions' economies," Maybank wrote, according to the Singapore Business Review.

"While this news has not gotten the market immediately euphoric, we see these steps paving the way for emergence from the bottom for beta plays such as NOL, from a demand-led perspective.”


Thailand's top oil and gas explorer, PTT Exploration and Production Pcl (PTTEP), said on Friday the company and its partners including CNOOC Ltd and SONATRACH, discovered crude oil at two exploration wells in Algeria.

PTTEP and its partners have planned to drill nine exploration wells at the Hassi Bir Rekaiz project from late 2011 to early 2013.

So far, five wells have been drilled with four deemed a success. The sixth well is expected to be drilled at the end of this month, PTTEP said.

Sime Darby Bhd

Sime Darby Bhd's pre-tax profit grew by six per cent to RM5.7 billion for the financial year ended June 30, 2012 compared with RM5.4 billion in the previous financial year.

Revenue rose to RM47.602 billion from RM41.858 billion.

"This is an excellent set of results and a record for the Sime Darby Group. It suggests that we are well on track to realise the long-term targets outlined in our five-year strategy blueprint," said its President and Group Chief Executive Datuk Mohd Bakke Salleh in a statement today.

The group registered a record pre-tax profit despite lower profit contribution from the Plantation Division.

However, the marginal decline in the Plantation Division's earnings was more than offset by strong performances in the Industrial and Motors Divisions.

The group's net profit rose by 13 per cent to RM4.2 billion from RM3.7 billion in the same period last year.

The RM4.2 billion net profit surpassed its RM3.3 billion net profit Key Performance Index (KPI) by 27 per cent.

Return on average shareholders' funds rose to 16.6 per cent against the 13.3 per cent KPI target.

This is the second consecutive year that the group has exceeded its KPI target.

In the financial year under review, the Plantation Division achieved a profit before interest and tax (PBIT) of RM3.2 billion, a moderate decline of three per cent compared to RM3.3 billion in the preceding year.

The Division's PBIT was lower due to the reduction in fresh fruit bunches (FFBs) production, which had declined by three per cent to 9.8 million metric tonnes, compared to 10.1 million metric tonnes in the same period last year.

In particular, the estates in the Kalimantan region saw a decline in FFB production by 11.4 per cent due to the impact of the prolonged periods of dry spell in 2009 and 2011.

However, on a group basis, the decline in FFBs production was mitigated by higher average crude palm oil (CPO) price realised and the improvement in the oil extraction rate (OER).

The division had realised an average CPO price of RM2,925 per metric tonne for the financial year as compared to RM2,906 per metric tonne in the corresponding period last year.

The OER had also improved to 21.8 per cent from 21.4 per cent in the previous financial year.

The midstream and downstream segments reported a lower loss of RM62 million compared to a loss of RM75 million.

This segment was adversely affected by lower utilisation and tight margins as a result of Indonesia's new export tax structure.

The Industrial Division had its strongest showing yet with a PBIT of RM1.4 billion compared to RM1.1 billion in the same period last year, an increase of 27 per cent over the preceding financial year.

This was mainly attributable to the strong performance of the Australasia, Malaysia and Singapore operations on the back of higher sales of new mining equipment and higher revenue from the parts and services businesses.

This accomplishment includes a maiden contribution from the newly acquired Bucyrus business.

The Motors Division exceeded expectations by recording an 11 per cent growth in PBIT to RM702 million from RM633 million in the same period last year.

This was mainly due to the strong performances from Malaysia and Singapore, which grew by 71 per cent and 26 per cent, respectively.

The excellent results were driven by strong sales growth from all brands.

Higher sales contribution from various townships, including Bandar Bukit Raja and Denai Alam, contributed to the Property Division's improved performance.

PBIT rose by two per cent to RM467 million in FY2011/2012 from RM456 million in the same period last year.

Profit contributions from associate companies of RM36 million had also elevated the profitability of the Property Division.

The Energy and Utilities Division registered a PBIT of RM335 million in the period under review, an increase of 36 per cent compared to RM246 million in the previous financial year.

The profit improvement was mainly attributable to the recognition of the deferred revenue from the Malaysian power plant and higher contribution from the ports operations in China due to the increased cargo handling throughput at Weifang Port.

The Healthcare Division's PBIT was maintained at RM26 million as the impact from higher patient volume was moderated by the slower nursing education sector and start-up expenses for the new Ara Damansara hospital.

"These results reflect the meticulous implementation of the key strategic thrusts to ensure that the group has a strong portfolio of winning businesses,"Mohd Bakke said.

"We have also made significant strides towards achieving our strategic growth initiatives. The last financial year witnessed several milestones achieved at the various divisions.

"The Plantation Division achieved steady growth in new planting in Liberia. The Battersea Power Station project offers an exciting new opportunity for high-growth property development overseas, while Bucyrus continues its integration into the CAT framework.

"In the Motors Division, we opened four new showrooms and secured new distributorships and dealerships across the region. We also completed the disposal of the oil and gas fabrication yards, thus marking the group's exit from the oil and gas business.

"We have also strengthened our commitment towards the ports business in China. Finally, the launch of Sime Darby Medical Centre Ara Damansara adds yet another feather in our cap, he said.

Despite the group's strong performance for the year just ended, Mohd Bakke struck a more cautious note for the immediate future.

"Notwithstanding the encouraging results, we remain mindful of the uncertainties in the business environment as we move ahead amidst volatility in the global economy.

"However, given our strong balance sheet position, diverse portfolio of businesses and unrelenting focus on execution and prudent cost management, I am confident that we will be able to withstand these challenges and continue to deliver solid returns," he said.

The group proposed a final dividend of 25 sen per share for the financial year.

Together with the earlier interim dividend of 10 sen per share, total dividend for the year is 35 sen per share.

Sime Darby is a Malaysia-based diversified multinational involved in key growth sectors, namely plantations, property, motors, industrial equipment, energy, utilities and healthcare.

The Lippo Group

The Lippo Group has committed to investing in the development of education facilities in East Nusa Tenggara province.

“I am planning to invest in the education sector in East Nusa Tenggara. The total fund that will be invested is Rp 800 billion [$83 million] for a period of five to seven years,” the Lippo Group’s chief executive officer, James T. Riady, told journalists in Kupang, the province’s capital, on Tuesday.

James, who came with the leaders of nine leading US universities, said he hoped the funds would draw more investment to East Nusa Tenggara.

“I hope that what I am doing in NTT can draw the interest of, or prompt, investors to invest in other sectors in this region,” James added, referring to the province by its Indonesian acronym.

James and his retinue had previously visited Manado in North Sulawesi, where they also checked up on local schools.

He did not detail which schools or universities would receive the funding, but said the investment was aimed at improving local education as well as elevating student performance to national standards.

The entourage made a visit to the Lentera Harapan school in Bonipoi, Kupang, together with the former chairman of the NTT chapter of the Indonesian Chamber of Commerce and Industry (Kadin), Mech Saba.

They later met with Governor Frans Lebu Raya and his deputy, Esthon L. Foena, at the governor’s office in El Tari, Kupang.

“I really believe that this investment will be really significant and we do not doubt it, as there is the presence of the leaders of several US education institutes who will tell their friends about us when they return to the United States,” Frans said.

The governor thanked James for his support of the province’s development and its people.

“The [NTT] government needs to obtain the support of domestic and foreign entrepreneurs through investing in this region so that the process of development can proceed well,” Frans added.

Philex Mining Corp

Philex Mining Corp., the country’s biggest gold producer,  has been slapped with a P1-billion fine for the leaks from its tailings pond in Benguet province, the Mines and Geosciences Bureau (MGB) of the Department of Environment and Natural Resources (DENR) said on Wednesday.

In a letter to the mining firm, MGB Director Leo Jasareno asked Philex to pay some P1.034 billion in penalties for over 20 million metric tons of mine tailings that spilled from its Padcal mine straddling the towns of Itogon and Tuba following days of heavy rains spawned by typhoons “Ferdie” and “Gener”  in August.

In a phone interview, Jasareno told the Philippine Daily Inquirer this was the “final amount” and already included the P325 million the agency earlier computed. Under the Mining Act of 1995, each ton of waste spilled shall correspond to a P50 fine.

However, the amount does not cover other liabilities Philex may still be facing under the Clean Water Act, which imposes a maximum of P200,000 fine every day that a sediment spill is taking place. “That is not yet part of the computation,” he said.

Jasareno said Philex has seven days to respond to the letter imposing the fine “as part of due process.”

Asked for his reaction to Philex’s earlier statement that the company should not be fined because the incident was “force majeure,” Jasareno said this was under consideration.

As of press time yesterday, Michael Toledo, Philex vice president for corporate affairs,  said they have not received an official copy of the letter from the DENR.

But Philex on Wednesday insisted that the breach in the tailings dam at its Padcal mine site was due to natural causes, and is ready to challenge any charges that the DENR may bring as a result of the accident.

In a statement, Philex said that it is “prepared to review any decision on penalties that the DENR will release” regarding the tailings dam breach at the Padcal mine and “contest” it at a proper forum.

Diligent in their duties

It said company officials were always on top of the situation, “acting accordingly and providing timely notices to regulators.”

Philex said the MGB had confirmed there was a system in place for the maintenance and monitoring of its tailings pond and secondary facilities during the Padcal accident, and that Philex personnel were diligent in the performance of their duties.

“The findings came as no surprise because the company’s environmental management system, including the operation and maintenance of Tailings Pond No. 3, has long been ISO-compliant and -certified,” said Toledo, noting the company’s ISO-14001 certification for years 2002, 2006 and 2008, and the latest certification issued on May 10, 2011.

Toledo stressed that “historically unprecedented heavy rains” brought by Typhoon Gener reached 331.80 millimeters (mm), exceeding only by 88.30 mm Padcal’s 50-year rainfall record of 234.50 mm.

Force majeure
He said Philex was prepared to refute whatever penalties the government might impose on it in connection with the Padcal accident.

“We shouldn’t be held liable for something that was caused by force majeure. But we are willing and, in fact, we have said repeatedly that we have the resources and capabilities to deal with all the remediation activities needed to address the Padcal accident,” he said.

Tokyo tumbled 2.03 percent, or 184.84 points, to 8,906.70, Sydney shed 0.26 percent, or 11.3 points, to 4,361.6 and Seoul slipped 0.55 percent, or 10.97 points, to 1,980.44.

Hong Kong fell 0.83 percent, or 170.95 points, to 20,527.73 and Shanghai lost 1.24 percent, or 25.12 points, to end at 2,004.17, a 44-month low.

– Singapore closed 0.67 percent, or 20.45 points, lower at 3,046.68.

SingTel tumbled 3.90 percent to Sg$3.20 after state-linked investment firm Temasek Holdings said it will cut its stake in the local telecom giant to 51.9 percent from 54.4 percent. DBS Bank was off 0.83 percent to Sg$14.26.

– Taipei fell 0.83 percent, or 64.50 points, to 7,669.63.

TSMC rose 0.58 percent to Tw$86.4 while Hon Hai Precision lost 3.53 percent to Tw$90.2.

– Manila closed 0.61 percent lower, losing 32.54 points to 5,292.63.

Alliance Global Group slipped 1.45 percent to 13.60 pesos but Bloomberry Resorts rose 4.01 percent to 10.90 pesos.

– Wellington lost 0.42 percent, or 15.99 points, to 3,809.32.

Fletcher Building fell 3.0 percent to NZ$6.85, Sky City slid 3.6 percent to NZ$3.78 and Telecom was up 0.2 percent at NZ$2.40.

– Jakarta fell 1.11 percent, or 46.72 points, to 4,180.16.

Coal company Bumi Resources fell 2.9 percent to 670 rupiah, its rival Indika slid 1.9 percent to 1,590 rupiah and car maker Astra International lost 2.7 percent to 7,200 rupiah.

– Kuala Lumpur was flat, edging up 0.72 points to 1,619.30.

– Bangkok eased 1 percent, or 12.91 points, to 1,274.50.

– Mumbai slid 0.33 percent, or 62.24 points, to 18,632.17.

India’s biggest mobile phone firm Bharti Airtel fell 3.93 percent to 265.2 rupees on profit-taking after a sharp run-up in prices recently.

Cash-strapped Kingfisher Airlines rose 8.65 percent to 15.7 rupees after promoter-billionaire Vijay Mallya said talks were on with foreign carriers to sell a stake in his ailing airline.

Shayne Heffernan Ph.D.  

Linda Johnson, Business Development Director - Private Client Group, Heffernan Capital Management
3 Raffles Place #07-01
Bharat Building Singapore 048617
Tel: +65 6329 6408 Fax: +65 6329 9699
Email :
Suite 53 Athenee Tower
63 Wireless Road, Lumpini, Pathumwan, Bangkok 10330
New York 347 5th Avenue, Suite 1402-508 NY, NY 10016


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This year in Thailand-what next?

AseanAffairs   04 January 2011
By David Swartzentruber      

It is commonplace in journalism to write two types of articles at the transition point between the year that has passed and the New Year. As this writer qualifies as an “old hand” in observing Thailand with a track record dating back 14 years, it is time take a shot at what may unfold in Thailand in 2011.

The first issue that can’t be answered is the health of Thailand’s beloved King Bhumibol, who is now 83 years old. He is the world's longest reigning monarch, but elaborate birthday celebrations in December failed to mask concern over his health. More


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