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Sunday, 30 June 2019

(The Star) Melaka project now an iconic development

MELAKA: The once controversial mega project Melaka Gateway has now been accorded “iconic development” status by the Federal Govern­ment.

Entrepreneur Development Mi­­nister Datuk Seri Mohd Redzuan Yusof said this was because the project would generate rapid fiscal growth and also create many job opportunities.

“A special committee will oversee the project. The federal commitment to the project is solid,” he said after the Parti Pribumi Bersatu Malaysia (Bersatu) Hari Raya open house and the opening of a new Bersatu office in Ayer Keroh here yesterday.

Also present were Chief Minister Adly Zahari, Bersatu secretary-­general Datuk Marzuki Yahya and state Housing, Local Govern­ment and Environment Committee chairman Datuk Tey Kok Kiew.

CEO of KAJ Development Bhd, the developer of Melaka Gateway, Datuk Michelle Ong was also pre­sent.

Redzuan said Melaka Gateway, an offshore development of artificial islands in the state, was trying to attract big investments and international hotel brands.

He added that a theme park would also be built.

“These are in addition to an international cruise ferry terminal that is being developed jointly with Royal Caribbean Cruises Ltd of the United States.

“Other details will be announced by the Prime Minister,” he said.

The RM43bil Melaka Gateway project, which will encompass a 552.8ha area, was launched in 2014.

There was uncertainty following the 14th General Election (GE14).

Disputes emerged over the freehold land status given to the deve­loper and environmental impact issues affecting the residents of the historic Portuguese Settlement.

Up till now, it has been a policy of the Melaka government to only grant leasehold titles to developers of commercial and housing schemes in the state.

Last September, the state government announced that 60% of the mega project had been completed before GE14 and gave approval for the project to go on as planned.

Two months ago, KAJ Develop­ment filed for a judicial review at the Kuala Lumpur High Court to challenge Transport Minister An­­tho­ny Loke’s decision to cancel the port operating licence which was granted to the developer by the previous Barisan Nasional government.

KAJ Development named the Melaka Port Authority, Loke and the government as respondents in the application.

The company sought a certiorari order to quash the cancellation of the operating licence.

It also sought general damages to be assessed by the court and special damages of RM139bil.


Saturday, 29 June 2019

(The Star) Aye to cable car hilltop line

Tourism players in Penang have renewed hope that a cable car service connecting Teluk Bahang and the top of Penang Hill will be implemented, despite Chief Minister Chow Kon Yeow stressing that they should wait for a pre- feasibility study on the service.

They want Penang Hill Corporation (PHC) to look again into an almost 10-year-old plan for this connection.

“We can allocate land in our park to build the cable car station,” said Escape theme park founder Sim Choo Kheng.

Calling the project “long overdue”, Sim said Escape was ready to provide a 0.6ha site for the station.

“A cable car line running over the canopy of our rainforest will make Penang a tourism destination on a scale never seen before here,” he said.

PHC has announced a request for proposal from consultants to do a pre-feasibility study on a cable car service for the hilltop.

Sim said a cable car route between Teluk Bahang and Penang Hill would add a new dimension to the Penang experience.

Goh says the service will not damage the forest and that plenty of cable car lines have been built without harming the environment.



“Tourists staying in Batu Ferringhi and Teluk Bahang can take the cable car to the hill and then take the funicular train down to Ayer Itam and visit Kek Lok Si Temple.”

Sim said his team had studied the option internally and found that the proposed cable car route could be among the most impressive in the world.

“It will be about 7km long and the only one of similar length that I am aware of is in Taiwan.”

Sim said cable cars help people treasure the natural environment, allowing them to enjoy a panoramic view of forests and seas from the gondolas.

“In Bulgaria, a country of only six million, there are four big cable car services that have become global attractions.”

Sim stressed that cable car construction technology was so advanced now that a line can be built with hardly any disturbance to the ground.


Yan Lee urges the state to invite members from Penang Forum to vet the tenders for the cable car service.



“The footprints of the pylons are small. Actually, we want the cable cars to pass over an undisturbed forest because that is what sells.”

Joseph Goh, chief executive officer of Entopia by Penang Butterfly Farm in Teluk Bahang, also stressed that cable car services would not damage the forest.

“Anything done must always preserve the biosphere. Plenty of cable car lines have been built without harming the natural environment,” said Goh.

Goh also felt that Teluk Bahang, with the planned North Coastal Paired Road linking it to Tanjung Bungah, would have the infrastructure to handle the flow of visitors to Penang Hill.

Chow recently stressed at a press conference that the state would wait for the feasibility study which might end up showing that the hill would not be able to handle a large flow of visitors coming via cable cars.

He was responding to concerns by local NGOs.

PHC general manager L.L. Cheok also suggested waiting for the pre-feasibility study.

“This cable car idea has been cropping up every few years for decades.”

Meanwhile, Citizens Awareness Chant Group adviser Yan Lee said the state should invite members from Penang Forum, a loose coalition of NGOs, to vet the tenders for the cable car service.

He said some members were qualified professionals and their views should be taken seriously.


(The Star) Overhang value exceeded 600% over five years

Of late, there have been calls from different quarters appealing to the government to reduce the pricing threshold of properties that foreigners are allowed to buy.

The call is a result of a growing number of completed but unsold units in the country.

Over a five-year period between 2014 and the end of 2018, the number of unsold completed residentials grew from 11,816 units to more than 45,000 units by the end of 2018, including serviced apartments and small offices home offices (SoHos).

This translates to a rise of 281% over the period.

In ringgit value, the rise is even greater. The value of residential overhang snowballed by a massive 635%, according to the National Property Information Centre (Napic) records.

The residential overhang was valued at RM4bil at the end of 2014. It grew to RM29.7bil by the end of 2018, Napic records showed.

This double increase coincided with the escalation of property prices over a 10-year period starting from 2009/2010. Property prices remain high today.

This rise in volume and even greater rise in ringgit value underscores the need for concrete action.

On June 25, TA Global Bhd’s non-independent and non-executive director Datin Alicia Tiah repeated the call to tweak threshold prices of properties for foreign buyers.

While the country wants to promote Malaysia My Second Home (MM2H) programme, the government is at the same time stringent on China residents, Tiah said.

“I understand that we are more stringent on MM2H applications from mainland Chinese,” Tiah told a post-AGM press conference.

Tiah and her husband Tony were involved in the stockbroking and property business. A year after the 2008 Global Financial Crisis, Tiah listed TA Global and parked the property business there, to be looked after by their son, Joo Kim.

The last 10 years saw the emergence of strong and aggressive contenders in the sector, quite a few of them parked under government-linked companies. The sector is largely unregulated.

The local authorities approved development orders left and right. The result: overbuilding.

The overhang of properties of different segments is not lost on the Valuation and Property Services Division which comes under the Housing and Local Government Ministry.

At a May 2 Big Data Analytics conference organised by Rehda Institute, Napic property marketing division deputy director Norhisham Shafie said Malaysia has a property overhang worth RM35.76bil.

Numbering 51,265 units, Norhisham said these include residential, serviced apartments and SoHos, shopunits and industrial properties. The overhang volume has grown by a massive 213.2% over five years between 2014 and the end of 2018, he says.

Norhisham says the overhang needs to be thoroughly handled and holistic measures put in place.

“Both the government and property players, especially developers, need to join hands to ensure that the overhang issue will not be aggravated further,” Norhisham says.

This, however, may be a tall order. A developer who declined to be named says while the current overhang should be a concern, and it is getting a bit of attention, there is “a bigger issue” brewing.

“The attention so far has been on the completed unsold units of more than 45,000 units, residentials and commercial SoHos and serviced apartments.

“But there is a further 123,234 residential and commercial unsold units under construction as at the end of 2018,” he says.

“The under construction unsold (figure) is really very big. It is not called overhang yet, because they are still being constructed. It will swell up the overhang figure in a couple of years,” he says.

Napic defines an overhang as completed properties that have been certified for occupation but remain unsold nine months after their launch.

So work-in-progress, or those under construction, will amplify the issue further in a few years, he says.


(The Star) Property tourism in a market glut

A group of about 100 people from Hong Kong exit a tour bus that’s parked at the base of Phileo Damansara in Petaling Jaya, making their way up excitedly to Sheng Tai International Sdn Bhd, a diversified real estate, investment management and hospitality firm.

They are in Malaysia for four days and will be viewing a few developments, namely Novo in Jalan Ampang and The Sail and Regalia Beach Front, both in Melaka.

Sheng Tai will also be organising a durian party for the tourists. A couple of long tables have been set up in front of Sheng Tai sales office and across the road under a cab stand. A few rows of durians still in their thorny shells were on the tables, lined with white table cloths, red plastic chairs neatly tucked under the tables.

In the sales office, a Sheng Tai staff briefs guests about Novo. In another part of the sales gallery, Julia Chow has a tablet in front of her. Chow, in her early 30s, is seriously considering buying a unit as a holiday home.

“I like the food in Malaysia. The weather is good. Malaysia is a very welcoming place; the people are warm and language is not an issue.

“I have been to Malaysia three times over the past two years and I have enjoyed myself a lot,” Chow says. The current property market glut has resulted in some developers offering their properties via a property tourism platform, with many tourists from Hong Kong looking to countries like Malaysia as a potential holiday home or a place to retire.

“These trips are so interesting for us Hong Kong people,” says Chow, who adds that she is really keen to have a unit, but is yet to make a final decision.


Good time: Tan says it is an opportune time to woo foreign buyers.



“It is so affordable. And the space...,” she tails off.

“I am particular about space. In Hong Kong, the apartments are generally very small,” she says.

Chow says the average size is between 400 sq ft and 500 sq ft for five people in Hong Kong.

“We buy here (in Malaysia) as a second home and let the company manage it for us. There is guaranteed rental and very good returns on investments.”

Sheng Tai International (Hong Kong) Ltd general manager Chak Wan Chuen, or fondly known as Mon Jie (sister Mon), says around 400 people travel to Malaysia from Hong Kong every month.

“People from Hong Kong believe Malaysia is a good place to invest. Our focus is on returns and not so much the location or how large the unit is.

“What’s more important to them is the level of returns. For serviced suites, we offer between 6% and 8%, versus just 3% in Hong Kong.”

Chak says about a third of investors who come on these trips end up buying something.

“They are usually between 40 and 70 years old. Some are retirees. We call it property tourism, bringing them from Singapore, South Korea, Japan, Seattle (US) and Australia.

“We have our own channel. We have an office in Shanghai and Hong Kong and we plan to expand to other countries.”

Chak says Sheng Tai International is offering guaranteed returns of 7% to 8% in Malaysia, with the threshold for foreigners to buy is RM1mil.

“Although this may vary. For instance, in Melaka, it’s RM500,000.”

Property appeal

PPC International managing director Datuk Siders Sittampalam says he is “not seeing a tremendous number of buyers coming into Malaysia, but we are one of the cheapest in the region,” he tells StarBizWeek.

“The current glut in Malaysia makes it more appealing,” Siders adds.

He points out that Malaysia has a young population; there will be tremendous potential for housing going forward.

“Eventually, all these people will need homes. That means more demand for housing and commercial property. Furthermore, with the various housing policies in place, there’s potential for demand to eventually catch up with supply.

“Developers too are more cautious with the type of properties they are building. So, Malaysia is quite appealing to foreign investors. Considering our exchange rate, property prices may not be considered to be too expensive to foreigners.”

Cause factor: Foo says the uncertainty in Hong Kong has resulted in more people investing in Malaysia.



CBRE|WTW managing director Foo Gee Jen, meanwhile, feels that the glut is not the only reason foreigners, especially those from Hong Kong, are attracted to Malaysia.

“Generally, it’s not so much about the glut. The current uncertainty in Hong Kong has contributed to why many of them are looking at somewhere to put their money.

“For those looking to invest in South-East Asia, Singapore is usually at the top of the list, followed by Bangkok and then Malaysia.

“In Malaysia, we see many Hong Kong property investors looking at either Kuala Lumpur or even Kota Kinabalu, because of the reduced flight distance.”

Foo notes that the relevant local authorities have also been actively promoting Malaysia as a second home.

“This has attracted many potential buyers from Hong Kong,” he says.

In 2014, the government imposed a restriction where foreigners can only buy properties costing RM1m and above. The cap varies according to states.

The measure was introduced by the previous administration to stabilise residential prices from excessive speculation.

The guidelines issued by the Economic Planning Unit in the Prime Minister’s Department was enforced on June 30, 2009. It replaced the Foreign Investment Committee Guidelines.

Says Foo: “To many foreign investors, RM1mil is considered affordable.”

Recently, Johor Real Estate and Housing Developers Association (Rehda) urged the government to consider reviewing the current threshold of property acquisition by foreigners.

Johor Rehda chairman Datuk Steve Chong Yoon On says the minimum threshold of RM1mil per unit imposed in 2014 should be reverted to RM500,000.

“The review of the RM1mil threshold is timely in view of the slowdown in the domestic market in the recent years and developers are operating in difficult situation,’’ he was quoted as saying.

Chong says the authorities both at the Federal and Johor Government levels should not be alarmed as local buyers were unlikely to be affected should the suggestion be implemented.

“Malaysia is not going to lose anything as properties are immovable assets and they (foreign buyers) are unlikely to start tearing down their houses and transporting them back to their home country.’’

KGV Property Consultants executive director Samuel Tan says it is an opportune time to woo foreign buyers.

“I believe developers will reach out to this segment. However, I do not think the numbers will be large. Much awareness is needed, especially for lesser-known markets like Johor.

“The current glut can be marketed as opportunities for them to purchase at more attractive prices. In any case, I believe prices are not the main reason. Many will be buying as second homes.”

Tan says there are various benefits for foreigners who purchase Johor units.

“Investors get the best of both worlds. Whilst enjoying cheaper prices, both in terms of price and cost of living, they can also enjoy the sophistication offered by Singapore. Accessibility via the Changi Airport is another plus.”

Nevertheless, Tan says the number of foreign buyers into Johor remains subdued.

“We do not have any statistics. Moving forward, the bottoming of property prices will be an incentive for more buy-ins, especially from Singaporeans.”

Other than the Klang Valley or Johor, Siders says Penang also appeals to foreigners.

“When it comes to foreigners acquiring property in Johor, there is a lot of local government support, especially in terms of expediting procedures.

Mark Saw, executive director of PPC International Penang Sdn Bhd, concurs that Penang has always been a preferred choice.

“Penang is chosen for its lower living costs, first rate medical facilities, coupled with the planned infrastructure improvements.

“Of course, any savvy investor will see an opportunity whenever there is an over supply, but one must take note that the top tier of the market, namely properties above RM850,000 has not seen too much of a price variance, contrary to market perception.”

Saw adds that the mid range properties up to RM850,000 have seen the most movement in terms of pricing adjustments.

“But this is only in the secondary market. Many who purchased units a few years back have taken possession of their units, with a soft rental and sales market, they have to be realistic about their selling price.

“But having said that, generally our country is safe and politically stable. This is a major factor for any investor. Only in a stable environment can their investments perform.”


(The Star) Taking a toll on consumers

Since May 9 of last year, one of the most hotly debated issues among Malaysians is Pakatan Harapan’s unfulfilled promises of its GE14 manifesto. Never mind the fact that most people who voted the government in did not even bother to read the 60 promises that the government had intended to carry out over its five-year term.


One of the sixty promises in the manifesto was the sixth promise, that is the promise to abolish tolls.

In its manifesto, Pakatan claimed that toll concessionaires enjoy high profits.

Pakatan believes that the monopoly of the selected toll concessionaires must be stopped as they have been enjoying lopsided agreements that only seem to favour the concessionaires at the expense of consumers in the form of higher toll rates, or at the expense of the government in the form of compensation, if toll rates are not raised.

The iron-clad concession agreements were a license to make money and bankable to any funder, be it the banks or bondholders.

The Pakatan manifesto also said that it will review all toll agreements and renegotiate to derive the best value for money for consumers with the ultimate aim of abolishing tolls gradually.


In addition, the Pakatan government promises to provide fair compensation to the affected companies.

After Pakatan won GE14 in May last year, most market watchers were busy scrambling to see what the Pakatan government had promised and of course the market too was impacted, especially stocks in the construction, telco as well as toll operators like Litrak.

The construction sector saw its key index alone falling 50% in 2018. Some of the big names in the sector are also owners of toll concession companies, like Gamuda, while Litrak at one point had fallen to a low of RM3.63 per share just four days post-election or down as much as 36% from its pre-GE14 close.

The market obviously expected the Pakatan government to be ruthless in negotiating with the toll operators and hence these toll operators were assumed not to get a fair deal as the government was seen as more consumer friendly rather than business friendly.

Government takeover

Last week, the government came out with its proposal to take over the operations of four major expressways owned by Litrak’s entire toll operations as well as those owned by Gamuda for RM4.5bil in equity value or RM6.2bil in enterprise value.

Other than the negative reaction to Gamuda’s share price, mainly due to concern that Gamuda will now be just a construction cum property player and without its steady cash flow business, Litrak’s share price reacted positively as the government deal meant that the company’s toll concessions are basically valued at about RM5.20 per share, way above its last traded price of RM4.21 and more than 40% higher than what Litrak was trading at post GE-14.

The deal also meant that the government, via a Special Purpose Vehicle (SPV), will acquire these assets and upon takeover of the highways, the government will de-toll the highways with three staggered rates, inclusive of toll free travel period at between 11pm and 5am daily.

Other than a 30% discount at off-peak hours, consumers will now pay a congestion charge equivalent to the maximum of the current toll rate for travel times during a six-hour peak periods.

Let us analyse the government’s move.

Firstly, by taking over the four highways, the government will need to fund it via a bond offering in the market. This could either be the funds that the government is raising via the Samurai bonds where the effective rate is lower but if it is a fresh funding exercise, the government will need to raise it through the market at between a 3.3-3.7% yield for three-year to 10-year papers and while doing that, will also raise the government’s already stretched debt to GDP ratio by another 0.4 percentage pts.

Secondly, is the proposed takeover of the four concessions done at a fair price?

Of course, there are many ways to look at this, be it on a price to book basis, price to earnings, replacement cost of the highways or on the basis of discounted cash flow (DCF) method, which is the best way to value toll operators.

But as DCF is subject to many assumptions, especially the discount rate to be used as well as traffic assumptions, no one corporate finance person will have the same answer to the value of a project or a concession.

Hence, the market’s reception to the government’s move was indeed mixed with some saying it was fair, some attribute it to be above their respective DCF values while others said it was below.

But there is no denying that looking at the current net book value of the highways, the revenue, traffic flow as well as earnings, it can be said that overall, the government is over-paying the highway operators, especially for the LDP and SPRINT assets, which works out at about 4.3x and 4.1x book value respectively. Worse, SPRINT is a loss-making highway.

As a whole, the government is paying approximately 2.7x book value and at about 14x historical PER. The premium paid by the government to the toll concessionaires is approximately RM2.82bil. The table above summarises key information of the four highways.

Thirdly, under the new toll mechanism, the government envisaged that highway users will save approximately RM180mil per annum, which translates to about 16.3% of the current RM1.1bil revenue generated by these four highways. The change in the toll mechanism will definitely impact the overall revenue of the highways and eventually the profitability as the reduction in revenue flows straight through the bottomline.

Net earnings would be slashed from RM322mil on a combined basis to about RM189mil on a proforma basis. Hence what this means is that the RM180mil reduction in revenue translates to about a drop in earnings to RM133mil, after taking into consideration of the corporate tax rate of 24%. On a cashflow basis, assuming non-cash items comprising amortisation of highway development expenditure is about RM200mil per annum (Note: For LDP, the amount was RM96.5mil in FY 31-March-2018), free cash flow available would be approximately RM330mil, give or take a few million.

Fourthly, as the new SPV will be the sole shareholder of these assets, the RM6.2bil bonds that it will raise to fund the acquisition suggests that it would need approximately RM220mil per annum just to pay interest alone based on a simple average cost of fund of 3.5% for fixed income papers with maturity of between 3-10 years.

Based on a proforma net earnings of RM133mil, the proforma pretax profit, assuming 24% tax rate of the toll operators, is only RM175mil, leaving the SPV with a net loss of about RM45mil.

Hence, the proposed takeover of these highways, although it may be cashflow positive at about RM110mil per year, it would be loss-making, taking into consideration the lower revenue and net earnings due to the RM180mil savings enjoyed by consumers and borrowing cost at the SPV level.

The fifth point is traffic growth, or rather the decline in traffic on these four highways.

Based on the reported figures, the highways have seen declining trend in their traffic flows over the past year with a fall of between 1.6% and 4.2% or an average of 2.8% in the last full annual financial year.

This alone translated to about 30,000 vehicles or RM31.5mil reduction in annual revenue based on average toll rate of RM2.90 per vehicle. If traffic flow sustains its declining trend, the revenue and profits to be generated would be even lesser than the proforma figures.

Lastly, what is the benefit to the rakyat that had voted Pakatan? Does it make sense for the government to over-pay the toll highway operators RM2.82bil, especially those that are nearing the end of the concession period or those that are profitable, to be paid at the exorbitant price of more than 4x book value?

Effectively, for the rakyat, is savings of RM180mil based on the above calculations while they continue to pay tolls, oops, congestion charge.

The question is, has the promise to abolish tolls fulfilled?

Windfall

For the concession holders, it’s a windfall gain of RM2.82bil and effectively taking all their future profits upfront, without having to operate the assets over the remaining concession periods and the best part, tax-free, as there is no capital gains tax in Malaysia.

In essence, the rakyat’s RM180mil per annum savings will be equivalent to the concessionaires’ front-loaded extraordinary gains in about 16 years’ time!

By the way, the analysis above discusses only the cost of servicing the RM6.2bil required to take over these highways, how is the government going to repay back the principal sum of the cost of acquisition remains a mystery.

It is unlikely the government is going to flip the four highways to another operator to realise a value equivalent of the current takeover price.

Hence, this leaves the principal repayment of the RM6.2bil almost unfunded, especially with the move to terminate the concessions at the end of its current shelf life as well as lower toll rates thereafter, which is only meant to cover the cost of running them and not profits.

Indeed, what seems to be good on paper in actual fact is not so straight forward.

An easier alternative, if at all government wants to stick to its de-tolling structure, is to talk to these toll operators for a win-win proposal.

Even if the government needs to fork out the RM5.2bil in the coming years due to a freeze in toll hikes, it can always generate revenue from these toll operators by imposing a higher tax rate - a super tax - and reduce their projected net earnings. These tax rates can even go up to as much as 50% or 70%. After all, why lean towards lopsided concession agreements when the present structure is taking a toll on consumers?

The views expressed here are strictly the writer’s own


(The Star) LBS confident of hitting RM1.5bil sales target

PETALING JAYA: LBS Bina Bhd expects to achieve its RM1.5bil sales target by year-end, supported by projects to be launched this year including an affordable housing project, says group managing director Tan Sri Lim Hock San.

He said as of June 27, net sales of the company stood at RM766mil, contributed mainly by the project in Cyber South.

“We also have unbilled sales of RM1.745bil and 18 ongoing projects.

“And in the next two to three months, we are going to launch our affordable apartment project in Ijok with a gross development value of RM565mil,” he told reporters after the company’s annual general meeting here. Lim noted that there will be 1,520 units of Melodi Perdana affordable apartments, with prices starting at RM380,000.

He also noted that the other property projects unveiled in 2019 include double-storey terrace houses in LBS Alam Perdana, Residensi Bintang Bukit Jalil Condominium, double-storey terrace houses in Bandar Putera Indah, Batu Pahat, as well as more than 1,000 affordable homes in Kita @Cybersouth. — Bernama


(The Star) Consultants appointed for HSR project

PETALING JAYA: MyHSR Corp Sdn Bhd has appointed Minconsult Sdn Bhd and Ernst & Young as the technical advisory consultant (TAC) and commercial advisory consultant (CAC) respectively for the Kuala Lumpur-Singapore high speed rail (HSR) project.

In a statement yesterday, MyHSR Corp said both the TAC and CAC tender exercises were open to all qualified companies with relevant expertise and experience.

“Over the period of three months between April and June 2019, MyHSR Corp had received numerous interests and proposals from companies comprising both international and local firms.

“Upon careful evaluation and completion of the tender process, MyHSR Corp had appointed Minconsult Sdn Bhd and Ernst & Young.”

Minconsult Sdn Bhd is a Malaysian multi-disciplinary engineering and project management firm with experience in numerous local railway projects.

The company’s railway portfolio encompass feasibility studies, detailed engineering design services, preparation of specifications, tendering, project management, construction supervision, as well as testing and commissioning.

Ernst & Young meanwhile is a global firm of financial advisors and consultants. Its infrastructure team has extensive experience working with private and public sector organisations on business case and project development strategy, economic analysis, provision of commercial and procurement advice and raising finance on complex rail and HSR projects.

The HSR is a strategic project between Malaysia and Singapore that aims to facilitate shorter travel time between Kuala Lumpur and Singapore. On Sept 5, 2018, both governments agreed to suspend the construction of the HSR Project until May 31, 2020. MyHSR Corp, its TAC and CAC will now proceed to review the proposed changes to the HSR pProject and further identify cost reduction options for the Malaysian government.

“The TAC focuses on the engineering aspects of the project by reviewing and validating the proposed infrastructure design changes within Malaysia such as the alignment, stations, and train maintenance facilities. The CAC focuses on commercial aspects such as developing new business models, identifying funding and financing options, updating the ridership forecast, and updating the economic benefits the project will bring to Malaysia.”

In the same statement, MyHSR Corp chief executive officer Datuk Mohd Nur Ismal Mohamed Kamal said the appointment of TAC and CAC is a major step in the effort to develop an affordable HSR project. “The solution will be holistic one, it will respect the needs of the Singapore government, cognisant of the market expectation of the project sustainability and bankability and without compromising on service reliability, journey time and safety.”


(The Star) Penang property market seen to be challenging in medium term

The Penang property market, over the short to medium term, is expected to be challenging as a result of strong incoming supply of new units.

At the end of 2018, the incoming supply of housing rose to 49,543 units versus 44,046 units in 2017, an increase of 12.5%.

The National Information Property Centre (Napic) defines incoming supply as projects currently undergoing construction.

Rehda Penang chairman Datuk Toh Chin Leong says 40% to 50% of the incoming units have already been sold, which makes the incoming supply less alarming.

Developers would usually start construction only when they have sold 40% to 50% of the project, says Toh.

“However, we must remember that there are also those units classified under the planned supply category. These are projects with building plan approvals but have yet to commence work,” he says.

There are three main stages of development:

> Existing inventory, or completed units,

> Incoming supply which refers to those being constructed, and

> Planned supply, which have yet to commence construction.

“Developers with the financial muscle to delay construction will probably not launch the project until market conditions improve. Those who have already paid hefty infrastructure and development charges to the local government will not hesitate to launch,” he adds.

According to Napic, there are 23,422 units being planned. These units should enter the market in the near future and will add to the the incoming supply figure.

“The annual residential transactions in Penang hover around 10,000 to 12,000 units. In 2018, there were 12,551 residential property transactions with a value of RM5.47bil.

“Assuming consumption stays constant at around 10,000 to 12,000 per annum, it will take about three years to absorb the remaining 40% to 50% of the incoming supply which are currently under construction. This has not taken into consideration the 23,422 units being planned,” he says.

The good news is that Penang’s unsold housing has decreased to 3,502 units in 2018 from 3,916 units in 2017.

According to Napic, Penang ranks fifth in Malaysia with an overhang of 3,716 units worth RM3.39bil, comprising residential, commercial, and industrial properties, after Johor (16,031 units), Selangor (7,110 units), Perak (5,793 units), and the Federal Territories (4,876 units).

Toh says the overhang has put a brake on rapidly escalating prices.

“We can expect Penang property prices to remain stable in the years to come. Due to the choice for properties in the market, the pricing of the incoming supply will be very competitive.

“Property developers with a large land bank will be able to deliver a variety of creatively designed properties within integrated schemes to suit the needs of the market. Bank interest rates, however, will need to be maintained at a low level to stimulate interest,” he says.

Meanwhile, MNP Auctioneers managing director Stephen Soon says the number of properties auctioned by banks in Penang has dropped this year.

“Banks prefer to recover the default loans by negotiating with the borrowers. Banks will usually withdraw the auction notices after loan defaulters come forward to negotiate for a settlement.

“In 2017 and 2018, an established local bank will probably auction 10 to 20 Penang properties that do not have strata titles in a month, or about 100 units a year. Since January 2019, the figure has dropped by about 50%,” Soon says.

Raine & Horne Malaysia senior partner Michael Geh also concurs that the short and medium-term prospects appear challenging.

“The excess supply has prompted residential property prices to slide over the past three years. Our research shows that the contraction is about 2% per annum,” Geh says.

In the south-west district, a condominium priced at around RM620,000 in 2016, is now selling for about RM582,000 in the sub-sale market.

“Over a three-year period, the contraction is more than 6%, or around 2% annually. However, we believe the decline would have been more if not for the cash incentives developers are offering to buyers.

“Many developers advertised such schemes to promote sales. Sales packaged with cash incentives distort the market,” Geh says.

“We believe the Penang Transport Master Plan with the LRT and other expressways will enhance the connectivity on the island and boost the demand and retail space,” he adds.

According to the Penang Master Builders & Building Materials Dealers Association (PMBBMDA), the Penang South Reclamation (PSR) projects to create three man-made islands are likely to generate about RM60bil worth of construction and renovation work over a 20-year period.

PMBBMDA adviser Datuk Lim Kai Seng says this is based on the sales of the reclaimed land at about RM200 per sq ft and on the utilisation of 70% to 75% of the land for development.

“Based on these figures, the gross development value of the projects on the three islands would be around RM100bil, of which about 40% will be for construction and 20% for renovation.

“This would mean the PSR development scheme will generate about RM3bil a year over a 20-year period. This is good news for Penang’s construction industry,” he says.

On the 23,000 units with building approvals but have yet to be tendered to contractors, he says given the soft market, it is unlikely all the projects with building approvals will be launched.

“We expect a certain percentage of the projects with building approvals to be delayed. For this reason, the implementation of the PSR scheme is important to stimulate the local construction industry, which is a key driver of the local economy.

“Our association comprises not just contractors but also raw building material suppliers, who will also benefit from the healthy local construction industry. Engineers, architects and surveyors will similarly benefit,” he says.

Mah Sing Group Bhd chief operating officer Everlyn Khaw says it is impossible to draw conclusions on future demand based on incoming supply data. “There are other factors contributing to the take-up rate,” Khaw says.


(The Star) What will happen to PLUS?

In the developing highway saga, the billion-dollar question is what will happen to PLUS – also known as the North-South Expressway (NSE) – in light of the government’s attempt to abolish toll roads?

PLUS is the national highway spanning 772km, making it the longest expressway in Malaysia. It was built in the late 1980s.

Since 2014, there have been a number of bids to take over the highway, including from the man behind its construction – Tan Sri Halim Saad.

Now, in light of the government’s intention to “de-toll” all highways, proposals to the government are intensifying, industry sources say.

The proposals are offering various methods to help the government solve the PLUS toll issue.

For instance, sometime late last year, Malayan Banking Bhd had submitted a proposal that entailed creating a highway real estate investment trust (Reit) that would absorb all the highways from their owners in return for units in the Reit, which would carry a high dividend yield. Sources say that Halim was linked to that deal.

Tan Sri Abu Sahid Mohamed, who had put in a bid in 2017, is said to be submitting a fresh one that entails buying out PLUS from the government with a promise to reduce toll rates by running the highway more efficiently.

Another proposal is an extensive one by Lembaga Lebuhraya Malaysia, with what has been described as a "holistic solution for toll reduction".

What is important to note, though, is that PLUS, which is currently owned by Khazanah Nasional Bhd via UEM Group Bhd and the Employees Provident Fund (EPF), has provided good dividend yields to these agencies. Khazanah has a 51% stake in PLUS, while the EPF owns the remaining 49%.

So, removing them as owners would mean that these institutions will no longer enjoy those healthy yields.

It is worth noting that PLUS was paying a dividend of between RM700mil and RM815mil annually to its shareholders from 2015 to 2017.

What is also interesting is the financials of PLUS, which seem to be not in the best shape.

For the financial year ended Dec 31, 2017, PLUS posted a loss of RM114.8mil compared to a net profit of RM309mil a year earlier. Revenue in 2017 was lower at RM3.9bil compared to RM4.06bil previously.

As of Dec 31, 2017, PLUS had accumulated losses of RM3.98bil that could be due to its dividend payouts exceeding its profits.

To be sure, currently, PLUS’ cashflow is still strong and more than enough to service its debts.

Its free cashflow was in excess of RM1.9bil in the first nine months of 2018, according to a report by rating agency Malaysian Rating Corp Bhd, which also allowed it to declare dividends to its shareholders.

PLUS is the largest highway concessionaire in the country, operating eight expressways under five concessions.

Its highways are the 772-km NSE, which runs from Bukit Kayu Hitam in Kedah near the Malaysia-Thai border to Johor Baru; the New Klang Valley Expressway; Federal Highway Route 2; the Seremban-Port Dickson Highway; the NSE Central Link; the Malaysia Singapore Second Link; Lebuhraya Butterworth-Kulim and the Penang Bridge.

Its concession is expiring in December 2038.

A takeover of PLUS by the government would be an expensive one, considering that the company has total debts of about RM33bil.

It has been said that there is a big repayment of PLUS’ bonds starting next year, which could mean that its surplus cashflows would be reduced and the potential for dividends being paid out to its shareholders would also be lessened.

However, there is no necessity to repay the entire bond sum as there is always an option of refinancing.

As long as bondholders are made aware of a plan on how to deal with the repayment, they should be comfortable.

According to a news report, PLUS managing director Datuk Azman Ismail said the group is open to a toll concession takeover by the government.

“We are a concession company and we have signed agreements with the government. If the government wants to change (the agreements), we will look at it (proposal), in accordance with the agreement. We just have to wait and see what the government has to offer,” he said in response to a question posed on the matter.

In 2017, Abu Sahid, whose Maju Holdings Sdn Bhd is the concessionaire for Maju Expressway, had proposed to acquire PLUS for RM36bil, including taking over RM30bil of PLUS’ debts.

The question is, should PLUS go into private hands or remain in the ownership of the government, considering that there are proposals by the private sector that claim they are able to manage the highways without toll rate hikes or reductions in some cases.

These parties claim that the current cost of operating PLUS is too high and that they could do without a rate hike by simply managing down the operating expenses.

On the other hand, should the government pay huge amounts in compensation to the private sector in order to nationalise these infrastructure assets?


(The Star) Is it a fair deal?

The proposed highway buyout deal of the four highways owned by Gamuda Bhd may have its merits, but some questions remain unanswered. One question is whether the government is overpaying for the assets. Then, there is the worry that the government will end up having to fork out more money than the RM6.2bil price tag in the future to ensure the said highways remain ‘de-tolled’.

A week ago, the Finance Ministry made a RM6.2bil offer to take over Lingkaran Trans Kota Holdings Bhd and three other toll concessionaires linked to Gamuda. The highways are Kesas Holdings Bhd, Sistem Penyuraian Trafik KL Barat Holdings Sdn Bhd (Sprint), Syarikat Mengurus Air Banjir & Terowong Sdn Bhd (Smart) and the Damansara-Puchong Highway (LDP).

A special-purpose vehicle (SPV) will be created to raise bonds to finance the buyout.

In making his case, Finance Minister Lim Guan Eng provided some figures as to the benefits of the proposed buyout:

> RM5.3bil in compensation payments will be saved by the government for freezing toll hikes,

> RM18bil in savings in compensation for the highways to not collect any toll charges, and

> A significant share of intra-city highways, as the four highways make up 48% of all toll revenue collected, excluding those owned by the PLUS Group.

Lim has also addressed the question of why the highways are being bought out when their concessions do not have that long to go. He says the highways have toll concessions that expire between nine and 23 years from now. In response, Lim says that with the buyout, highway users will immediately start paying lower toll rates, according to the congestion charges that will save the RM180mil annually.

Under the congestion charge, the government will give discounts of up to 30% for hours outside of peak periods and free travel during off-peak periods. In addition, the maximum congestion charge will be capped at the current toll rate to not further burden the commuters.

Lim also reiterated that once the highways are acquired by the government, their concessions will not be extended, but that upon expiry, congestion charges will still be applicable but at a significantly reduced rate to cover only operating and maintenance costs.

RAM Ratings has given the deal a thumbs up. In a report issued this week, the rating agency said the buyout offer is encouraging news for the local debt market. “The buyout offer is the government’s next best option in fulfilling its election manifesto of abolishing tolls, while still achieving an outcome that meets several objectives. This solution, aimed at appeasing the public while easing the burden on the government’s financials, will put an end to annual compensation payments to the affected highways.”

It added: “From the standpoint of the capital markets and project financing, the financial consideration under the government’s buyout package preserves the interests of the lenders and shareholders. The latter parties are expected to be repaid based on their current outstanding liabilities and respective equity contributions to the said highways. The preservation of investor confidence and adherence to the rule of law – by safeguarding the sanctity of contracts – is critical to the continued long-term funding of future infrastructure projects by the private sector. This will also uphold the orderly operations of the domestic capital markets.”

However, other questions remain unanswered. For starters, what are the traffic flow and toll collection projections under the new congestion charge model? This point is important because it will be these toll collections that would be needed to service and eventually repay the RM6.2bil debt that the government will be taking to fund the buyout of the highways. Lim has said that the collections will be sufficient to “service the debts, including operational and maintenance costs without having to depend on allocations from the Finance Ministry”.

But Pankaj C. Kumar, a former investment and corporate strategy director, points out that toll revenue collections will dip under the new congestion charge and predicts that the SPV owning the highways will be loss-making.

He uses the annual RM180mil savings in toll collections figure provided by the Finance Ministry in his calculations.“The savings of RM180mil translate to around 16.3% of the RM1.1bil annual revenue generated by the four highways,” he says.

Pankaj reckons that the SPV’s profits will drop to RM175mil per year. He also opines that it will cost the SPV some RM220mil per annum to service its debt, basing this on an average cost of funds of 3.5% for fixed-income papers that carry a maturity of between three and 10 years. This, in turn, will leave the SPV with an annual loss of around RM45mil. However, he does add that the four highways will give the SPV free cashflows of around RM330mil.

That said, Pankaj also points out that traffic flows on the four highways are on a declining trend. He says this based on reported figures over the past year. The said highways have seen an average fall of 2.8% in the last full financial year.

“This alone translates to a drop of around 30,000 vehicles, or a RM31.5mil reduction in annual revenue based on an average toll rate of RM2.90 per vehicle. If traffic flows continue their declining trend, the revenue and profits of the SPV will be even lesser,” he points out.

For the sellers of the highway, though, the deal seems to be a good one.

Several analysts have said that the offer is fair and higher than estimates.

“We think the offer price is reasonable, as the amount does not deviate much from our previous estimate of RM2.5bil,” MIDF Research said in a recent report.

Kenanga Research says it is “mildly positive” on the offer price proposed by the Finance Ministry, as it is slightly above its expectation by RM135.4mil or four sen a share.

“We believe that the positive variance could come from the extended concession period from Kesas, which we previously did not include in our valuation,” the research house says.

Analysts also expect Gamuda to pay a handsome dividend to its shareholders should the sale of the highways go through.

“Following the likely deal completion by the year end, we expect Gamuda to dish out a ‘meaningful’ special dividend to its shareholders,” says UOB Kay Hian Malaysia Research.

It adds that Gamuda may use the proceeds to kick off the Penang Transport Masterplan (PTMP) project, as indicated by the Penang state government.

JF Apex Securities says, “Following the disposal of the four highway concessions, Gamuda will consider declaring a special dividend and reinvest the remaining sum in its new projects such as the PTMP. Assuming a payout of 50% of the cash proceeds from the disposal of the highways, this will translate to a dividend per share of 47.8 sen.”

Pankaj points out that the buyout price of RM6.2bil is at an average of 2.7 times the book value of the assets and at a 14 times historical price earnings multiple. This, he says, means that the government is paying a premium of around RM2.82bil for the assets.

“For the concession holders, it is a windfall gain of RM2.82bil and effectively taking all their future profits upfront, without having to operate the assets over the remaining concession periods. The best part is that their gains are tax-free, as there is no capital gains tax in Malaysia,” he says.

Pankaj adds, “In essence, the rakyat’s RM180mil per annum savings will be equivalent to the concessionaires’ front-loaded extraordinary gains in about 16 years’ time.”

Meanwhile, some quarters continue to voice their dissatisfaction about the proposed buyout.

Datuk A. Kadir Jasin, the media adviser to the Prime Minister, has written on his Facebook page that the Pakatan Harapan government should be more thorough in scrutinising the proposed purchase of Gamuda’s highway assets.

"Some say it's a win-win deal. Others aren't so sure. The latter says it's cheaper to compensate Gamuda for non-toll collection than to buy the four highways outright, at an amount less than the proposed purchase price.

"In any case, the highways will revert to the government in about 10 years when the concession period ends," said Kadir.

Some industry sources also point out that the Gamuda highway buyout puts pressure on other toll concessionaires, as users would gravitate away from higher toll roads to the ones under the congestion charge.

Finally, it remains unclear why the Finance Ministry proceeded to make the offer to buy out the Gamuda highways prior to securing Cabinet approval. To be fair, the offer announced by the Finance Minister clearly stated that it was subject to the Cabinet’s go ahead.

Finance Minister Lim has yet to respond to the questions sent by StarBizWeek for this article.


Friday, 28 June 2019

(The Star) Gamuda records earnings of RM176m in third quarter

PETALING JAYA: Gamuda Bhd’s net profit fell 14.6% to RM176mil in the third quarter ended April 30 from RM206.1mil in the corresponding quarter last year.

In a filing with Bursa Malaysia, the construction and property group said its lower earnings were mainly because the group had stopped recognising its share of profits from SPLASH Holdings following the sale of its 40% stake in the water treatment firm at the end of last year.

During the quarter in review, Gamuda’s revenue fell 16% to RM1.04bil from RM1.24bil in the previous corresponding quarter. Earnings per share (EPS) slid to 7.13 sen from 8.38 sen previously.

Gamuda has declared a second interim dividend of six sen per share. Its shares closed five sen higher at RM3.72 yesterday.

For the cumulative nine-month period, Gamuda’s net profit was 17.8% lower at RM521.17mil, compared with RM633.82mil, and its EPS was lower at 21.12 sen compared with 25.80 sen. The group’s revenue was marginally higher at RM3.07bil, compared with RM3bil previously.

On its prospects, Gamuda anticipates this year’s overall performance to be driven by overseas property sales, especially in Vietnam and the progress of the Mass Rapid Transit Line 2 that continues to pick up pace, as well as steady earnings contribution from the expressway division.

Meanwhile, Gamuda announced that its board had resolved to vote in favour of accepting the Government’s proposed takeover of all four toll concessionaires linked to the group for a total of RM6.2bil.

These encompassed Lingkaran Trans Kota Holdings Bhd (Litrak), Sistem Penyuraian Trafik KL Barat Holdings Sdn Bhd (Sprint), Kesas Sdn Bhd and Projek SMART Holdings Sdn Bhd.

Gamuda owns a 44% stake in Litrak, 52% in Sprint, 70% in Kesas and 50% in Smart.


(The Star) Eco World records RM1.03bil sales

KUALA LUMPUR: Like other developers in Malaysia, Eco World Development Group Bhd has found solace in the government-initiated Home Ownership Campaign (HOC) which ends on June 30.

President/CEO Datuk Chang Khim Wah said total sales achieved in the first seven months of financial year 2019 reached RM1.026bil, a substantial improvement of close to RM800mil over three months, aided by the group’s marketing strategies and the HOC.

The company’s financial year ends on Oct 31.

Chang said at a press conference to announce its second-quarter 2019 results: “Sales have been extremely strong the last three months of the HOC.”

He is uncertain if the government would be extending the campaign, but expects the “momentum going forward to be good” for the company.

“Normally, May to October are our very good months. So, we look forward to a better second-half,” he said.

On an industrial basis, he said the last six months have been challenging for the sector and expects the next six months to be likewise.

He expects the market to “recalibrate” this year and next.

“There were a number of delayed launches over the last two years and we expect demand and supply to balance, going forward,” he said.

As for the company, sales have picked up so it has to continue enhancing the amenities, which include integrated wellness and care components in its developments, he said.

On its deals with Chinese infrastructure, construction and real estate group PowerChina Group, Chang debunked the myth that it lacks experience in infrastructure and construction projects.

He said PowerChina has experience in renewable energy, solar plants and other forms of harnessing energy developments. EcoWorld Malaysia will provide the local support.

“We understand the local conditions and can do project management and they will provide the experience to do the actual construction,” Chang said.

Two weeks ago, the group signed two deals with PowerChina. One was to jointly develop 117.35 acres of industrial land known as Eco Business Park V, Phase 2 to speed up the development of its Eco Business Park V.

Chang aims to make it one of the best industrial parks in the country and a key employment centre in Selangor.

The second agreement is to partner with PowerChina’s infrastructure arm to bid for projects in Malaysia.

EcoWorld Development’s net profit rose 35% to RM71.49mil in the first-half ended April 30, 2019 versus RM52.89mil a year ago, boosted by higher revenues from its projects.

Chang said the stronger earnings were due to the strong growth in revenues achieved by Eco Grandeur, Eco Ardence, Eco Horizon and Bukit Bintang City Centre, which increased the group’s share of results from its Malaysian joint ventures from RM7.27mil in the previous year to RM37.63mil in the current year.

Its six-month revenue was RM1.034bil compared with RM1.068bil a year ago.

For the second quarter, its net profit was RM41.17mil compared with RM43.13mil a year ago. Its revenue was RM543.18mil compared with RM549.71mil. Earnings per share came in at 1.40 sen compared with 1.46 sen previously.


(The Star) MB: We have fulfilled demand for affordable housing

KUANTAN: The state government has met the demand for affordable housing with Perumahan Rakyat 1Malaysia (PR1MA) Pahang and Rumah Makmur projects, said Mentri Besar Datuk Seri Wan Rosdy Wan Ismail.

He said the latest PR1MA project would kick off soon and expected to be completed within three years.

Wan Rosdy said the project, which is a joint effort between Pahang State Secretary Corporation and Angsanapuri Development Sdn Bhd, will comprise 712 units of houses priced at RM80,000 and above.

He said the project is in Jengka Pusat in Maran district.

“The total cost for this project is RM260mil. The state government and the developer have both agreed to give priority to build Rumah Makmur and PR1MA houses on a 49ha area before other commercial buildings are built.

“In the first phase, we expect 58 units of PR1MA Pahang and 52 units of Rumah Makmur to be completed in two years, followed by phase two with 114 units of PR1MA houses,” Wan Rosdy said after witnessing the signing ceremony for the project.

He added that the final phase would constitute 54 units of Rumah Makmur and 74 units of PR1MA houses.

State secretary Datuk Seri Dr Sallehuddin Ishak represented the government while Angsanapuri Development executive director Datuk Norzan Ahmad represented the developer at the signing ceremony.

Wan Rosdy also said a floating market would be built in the area serving as a catalyst for further development there.

He said he was aware of the financial difficulties faced by potential buyers to obtain bank loans but they had to abide by the financial institution’s policies.

“The government can only provide low-cost housing such as the RM80,000 houses for those who cannot get loans for houses above that price,” he said.


(The Star) ‘Promote growth triangle as halal hub’

JOHOR BARU: Johor should work closely with Singapore and Indonesia in promoting and developing the Singapore-Johor-Riau (SIJORI) growth triangle as the leading halal hub.

Johor South SME adviser Teh Kee Sin said the Iskandar Regional Development Authority (Irda) could play a more active role in attracting more investors to Johor’s halal sector.

He said Irda has proven its ability to attract investments into Iskandar Malaysia, the country’s first economic growth corridor, since its inception on Nov 4, 2006.

Based on Irda’s statistics, Iskandar Malaysia received RM293bil in total cumulative investments from 2006 until March this year, with 56% or RM166bil investments already implemented.

“SIJORI is well positioned to emerge not only as a regional but also a global halal hub as it is located along the world’s busiest international trade route,” said Teh.

He said instead of competing with Singapore, Johor should bank on the republic’s position as an international trade and financial centre to attract companies, including those involved in halal-related activities or operations.

“Johor-based SMEs, on the other hand, could use SIJORI as a platform to penetrate the huge halal Indonesian market,” added Teh.

Johor Consumer Movement Association chairman Md Salleh Sadijo said the state government should also work closely with the Federal Government to promote its halal sector.

“Johor has the right ecosystem to attract more companies from the halal sector to set up their operations in the state,” he said.

Md Salleh said Johor was well positioned to play a pivotal role in supporting the increasing demand for halal products in the global market.

At the same time, he said Johor, Singapore and Indonesia could complement instead of competing with each other in developing and positioning SIJORI as a global halal hub,” he said.

He said a good network between the three countries would benefit all, adding that the global halal industry was estimated to be worth about RM9.56 trillion (excluding Islamic finance).

SIJORI was launched in December 1898 and is a tripartite agreement between Singapore, Johor (in Malaysia) and Riau (in Indonesia) that seeks to utilise the competitive strengths of the three areas and make the sub-region attractive to regional and international investors.

The growth triangle links logistics, transportation and financial facilities of Singapore with natural and labour resources of Johor and Riau.

The development of the growth triangle is largely led by the private sector, with the government facilitating the flow of goods, services, investment and people.