Blue chips remain bullish


  • Business
  • Thursday, 16 Dec 2004

THE large corporates in Malaysia are bullish about 2005. Tenaga Nasional Bhd (TNB) president and CEO Datuk Che Khalib Mohamad Noh expects the utility giant to continue to shine and deliver. In the midst of this positive scenario, TNB will explore new sources of earnings growth. Che Khalib also discusses the impact of rising oil prices on the company. 

World trade is expected to grow, albeit at a slower rate. Malaysia International Shipping Corp Bhd (MISC) is somewhat insulated from external market volatilities, says MD and CEO Datuk Shamsul Azhar Abbas. In the face of high oil prices and limited tonnage, freight rates are expected to stay high. 

For Genting Bhd, 2005 will be a special and exciting year. After a series of acquisitions in 2004, chairman, president and chief executive Tan Sri Lim Kok Thay has plans to further widen the scope of the group's investment. 


 

DATUK CHE KHALIB MOHAMAD NOHPresident/Chief Executive OfficerTenaga Nasional Bhd 

 

WHAT is your outlook of the economy in 2005? 

Despite the erratic changes in global economic circumstances, the Malaysian economy continues to shine and deliver. With buoyant momentum and growth rates expected to beat official forecasts, Malaysia appears to be riding the cusp of recovery. The economy remains formidable and poised for further expansion against the backdrop of sound macro fundamentals, resilient exports, political stability and buoyant foreign investments. 

Budget 2005 has introduced measures to further promote economic growth while gradually reducing the fiscal deficit. The move in recognizing and developing new sources of growth (such as agriculture, research and development and the services sub-sectors of tourism, education, health, and information and communications technology) will ensure the sustainability of domestic economic growth, thus offsetting a probable slowdown in the manufacturing sector in the years ahead due to the electrical and electronics (E&E) down-cycle and intense competition from China. 

Therefore, in the medium term, I envisage economic growth to remain strong given the sustained expansion in domestic aggregate demand, reinforced by the moderate export sector amidst the overall global economic recovery.  

Rising consumer and investor confidence and improved earnings of both households and the corporate sector suggest that the upturn in private sector demand would be maintained. 

However, the possible adverse impact of external forces on the domestic economy cannot be ignored - volatility in oil prices, planned slowdown of China’s strong economic growth and a premature tightening of monetary policy worldwide could restrict global growth. 

 

What are the prospects for your company in 2005? 

Based on the projected economic growth rates for 2005, demand should remain buoyant and provide 7% to 8% top-line growth. In addition, this positive scenario will provide room for us to explore new sources of sustainable revenue and earnings growth, for example by increasing energy sales abroad and investing in opportunities in developing economies by way of “selling” our technical expertise. 

 

Corporate earnings have been generally robust in 2004. What are your expectations for 2005? 

Apart from benefiting from continued strong demand growth and new sources of revenue as mentioned above, I believe that management’s drive to instil a performance-driven culture will in itself provide a boost to our earnings by increasing efficiency and implementing operational and competitive strategies. This is our challenge for financial year 2005, which is independent of the growth story.  

 

How will rising oil prices affect your group’s business strategies? 

We are fortunate in that for financial year 2004, oil only accounts for about 0.2% of our industry fuel mix and therefore the current scenario of rising oil prices will not materially affect the group’s financial performance and strategy moving forward. 

Our concern is more related to the impact of higher coal prices. With our multi-fuel strategy in place, we are currently hedged against fuel cost volatility for about 76% of total industry units generated (gas accounts for 69.8% and hydro for 6.0%). But the increase in coal prices will have an impact on the balance of 24% of units generated from the coal-fired plants. We are currently exploring several alternatives to manage the impact of the higher coal cost, especially for financial year 2005. 

 

What were some of the challenges faced by your group in 2004; how did your group overcome them?  

Reformation of the Government-linked companies (GLCs) has been the major corporate focus in 2004. In the Government’s drive to improve the performance of the GLCs, I have been given the challenging task of improving the financial performance of TNB, enhancing shareholder value and guiding the company to greater heights. 

My initial tasks were to reorganize the structure to instil a performance–driven culture. Stringent key performance indicators have been established aimed at improving organisational efficiencies and enhancing accountability.  

The group also immediately focused on the “low-hanging fruits” to reap the benefits from improving collections (especially from the delinquent accounts), reducing transmission and distribution losses, improving productivity and cost-control measures. 

As a service organisation, our customers have always come first. The quality of service we deliver is an integral part of our work ethics and something that we are totally committed to. 

In terms of financial performance, we have enjoyed top-line growth of about 7.6% in the financial year 2004, coupled with higher growth in operating margins of about 17.5%. However with the weakening of the US dollar against other major currencies, our debt portfolio was adversely affected by our exposure to the yen and sterling.  

Moving forward, one of our key strategies would be to re-look at the basket of currency mix of our loan portfolio and to review the debt maturity profile.  

 


 

DATUK SHAMSUL AZHAR ABBASManaging Director and Chief Executive OfficerMalaysia International Shipping Corp Ltd 

 

WHAT is your outlook for the economy in 2005? 

We expect the Malaysian economy to continue to show positive growth in 2005, although probably not as strong as in 2004. According to the Budget, Malaysia’s GDP is expected to grow by a more moderate 6% in 2005, compared with the current estimate for 2004 of 7.6%. The positive outlook for 2005 is based on strong domestic demand growth, emanating largely from private sector spending. 

Inflation and interest rates are expected to remain low. The Government is likely to continue to reduce further subsidies for petroleum products, although the impact on inflation is not expected to be significant. Domestic interest rates are expected to remain low to support continued economic growth.  

However, a series of interest rate increases in the United States may influence monetary policy relating to the ringgit peg of RM3.80 to the US dollar. We expect the exchange rate peg against the US dollar to hold (assuming that there is no significant revaluation of the Chinese renminbi), at least in the short term. 

What are the prospects for your company in 2005? 

Overall world trade in 2005 is expected to grow, albeit at a slower rate. This will have a negative impact on the shipping market overall. 

However, MISC is somewhat insulated from external market volatilities as a significant amount of our revenue is derived from long-term fixed contracts (e.g. liquefied natural gas (LNG) shipping). In addition, we expect shipping supply and demand to remain balanced for most of 2005 and freight rates to be generally stable to firm.  

We also expect our offshore business and heavy engineering arm to perform well in the near future years. More new deepwater discoveries and small oil field developments are expected in Malaysia and around the world, as oil producers attempt to increase supply to meet the increase in oil demand. 

 

Corporate earnings have been generally robust in 2004. What are your expectations for 2005? 

As mentioned above, MISC is somewhat insulated from external market volatilities by our long-term fixed contracts, particularly in LNG shipping. This will give MISC earnings stability going forward.  

On petroleum shipping, our complementary business mix of medium- to long-term COAs, long-term time charters and voyage business provide good earnings visibility and an opportunity to ride on the projected firm market.  

We also expect our liner & logistics, offshore business, heavy engineering and other businesses to contribute positively in 2005. 

Hence, we expect our earnings to remain firm in 2005. 

How will rising oil prices affect your group’s business strategies? 

High oil prices will basically trigger an increase in oil production. You can increase crude oil production but where is the tonnage to carry the additional production to the marketplace? There is still a significant tanker capacity that is single-hulled which will not be capable of servicing the crude trades, in addition to the ageing profile of most of the global shipping capacity.  

As such, there are not many tankers available to ship that increase in production. The limited tonnage will result in high freight rates, which is an advantage to MISC. 

Bunker, or fuel costs, are passed on to the charterer for long-term contracts/charters. As a substantial portion of our fleet is committed for fixed long-term contracts/charters, high oil prices will therefore not affect us adversely cost-wise.  

 

What were some of the challenges faced by your group in 2004; how did your group overcome them?  

With the passing of Datuk Mohd Ali Yasin, the group's former MD/CEO, in April 2004, and my subsequent appointment in July, my focus was to ensure continuation of the business strategies of growing the energy-based transportation, i.e. the LNG and petroleum businesses, whilst rationalising our non-core assets and businesses.  

To reduce operating costs further, particularly on vessel maintenance and dry-docking, which are major components of our expenses, MISC took the strategic step of increasing its stake in Malaysia Shipyard & Engineering Sdn Bhd (MSE) from 43% to 65% in March 2004. We intend to leverage on the capabilities of MSE by increasing the frequency of utilisation of its services for MISC’s fleet.  

To address the increasing competition, MISC is actively supporting Petroliam Nasional Bhd in the latter's forays both locally and overseas.  

Meanwhile, MISC is also continually sourcing for third-party customers through direct negotiations/bidding and strategic alliances with technical partners. MISC is also expanding its LNG and petroleum fleet with new-buildings, which will be delivered over the next four years.  

Enhancement of our operational capabilities continued in 2004 where our information technology (IT) phase of business transformation exercise is now in its final leg with completion targeted for the end of the current financial year. 

Our challenge is to get sufficient new-buildings to meet the growth targets of the group, given the constraints of the current high asset prices and shipyard berths being full until 2008.  

We have been fortunate so far in being able to secure 11 LNG new-build contracts and nine petroleum new-build contracts at reasonable prices, which are to be delivered over the next four years.  

However, going forward, the challenge would be to add the desired capacity at an opportune time. 

 


 

TAN SRI LIM KOK THAYChairman, President and Chief ExecutiveGenting Group 

 

WHAT is your outlook of the economy in 2005? 

Malaysia, under the stewardship of a sound and pragmatic Government, has prospered with steady economic growth in recent years, despite facing some external challenges such as the severe acute respiratory syndrome (SARS) outbreak and softer global growth. I am confident that under the guidance and able leadership of Prime Minister Datuk Seri Abdullah Ahmad Badawi, the nation will continue to prosper in 2005. 

The Government has introduced some sound fiscal measures and has gained local and foreign investor confidence, as evidenced by the recent rise in the KL Composite Index.  

High oil prices may dampen economic growth in 2005. However, I do not foresee the impact to be very significant. Malaysia still has sufficient oil reserves. The nation still benefits from being a key exporter of primary commodities and a tourist destination.  

What are the prospects for your company in 2005? 

I would like to see the Genting group continuing to widen its investment horizon by expanding our core businesses into new growth areas, locally and overseas. 2005 is a special and meaningful year for the group as we will be celebrating the 40th year of our existence.  

We have progressed and grown significantly since 1965, and 2005 could well be a springboard for new growth in our key ventures. So you can expect some good and exciting times ahead for the group in 2005. 

We have expanded our power-related business to India and extended our leisure expertise to the British market in 2004. And we will continue to be pro-active in our search for the right investments in Malaysia and overseas, looking at investments with earnings potential that will enhance shareholder value, whether in 2005 or in the years beyond.  

 

Corporate earnings have been generally robust in 2004. What are your expectations for 2005? 

With the improved economic outlook, I expect the Genting group to perform well in 2005, barring any unforeseen circumstances. Our key earnings contributor is the leisure and hospitality division.  

The completion of phase 2 of First World Hotel with a total of about 2,900 rooms by early 2006 will encourage more tourists to stay at Genting Highlands Resort. Malaysia will then have the world’s largest hotel with 6,200 rooms. 

Our other business divisions such as power generation, oil palm plantations, property development, paper and paper-related manufacturing as well as oil and gas are expected to perform well, too.  

 

How will rising oil prices affect your group’s business strategies? 

We do not foresee a significant impact on the group’s business as the prevailing high oil prices is likely to affect all sectors of the economy and is less company specific.  

We are cognisant that rising oil prices will make for higher cost and will be passed on to end-users. We will constantly monitor the trend of consumer spending and their spending behaviour in developing our strategies.  

Should oil prices continue to rise, we may even source for cheaper alternative fuel. For example, the Genting group is actively looking at ways to develop the waste products of oil palm trees into user-friendly bio-oil and as an alternative fuel. 

 

What were some of the challenges faced by your group in 2004; how did your group overcome them?  

We are constantly faced with numerous challenges in our pursuit of business excellence. Our main challenge for this year was to woo international visitors back to Malaysia and this was not an easy task as many other countries were also wooing them with new tourist attractions.  

But with the strong support of the Government, especially from the Malaysia Tourism Promotion Board, and proactive innovative marketing efforts, our visitor arrivals, especially from China, have improved and recovered to pre-SARS levels.  

Nevertheless, we will continue to face greater competition from other countries in the region as they continue to liberalise certain sectors to encourage tourism.  

So, to ensure we perform well in 2005, we will remain active and vigilant in developing effective strategies to meet the ever-growing competition in all of our businesses.  

 

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