Public Bank Bhd has spread its wings further to Hong Kong and greater China. Chairman Tan Sri Teh Hong Piow is optimistic of the prospects of the countries in which the group has a presence.
Tan Sri Teh Hong Piow
Public Bank Bhd
WHAT are your major overseas investments?
Our investments overseas continue to remain focused on commercial banking, particularly in consumer and retail banking in Hong Kong and China, Vietnam, Cambodia, Laos and Sri Lanka. With the completion of the acquisition of Asia Commercial Bank in Hong Kong, which was renamed Public Bank (Hong Kong) Ltd in May 2006, the scale and scope of the group’s overseas business have expanded significantly in Hong Kong and Greater China.
In terms of branch network, Public Bank (Hong Kong) has added 12 commercial bank branches to the existing 40 branches of Public Finance in Hong Kong and Public Bank’s Hong Kong branch, making a total of 53 in Hong Kong. Public Bank (Hong Kong) will open three branches this year, one of which will be in a Public Finance branch offering a full range of commercial banking products and services to customers, alongside Public Finance’s products and services. In addition to Public Bank (Hong Kong) branch in Shenzhen, Public Bank (Hong Kong) will open a new sub-branch in Shenzhen in February next year.
Has 2006 been a fruitful year for your business overseas?
2006 is expected to be another good year for the group’s operations overseas due to the robust economic performance in this region. In the first nine months of this year, the pre-tax profit from the group's overseas operations increased 9% from the corresponding period last year, while asset quality of the overseas operations also remained intact.
It is encouraging that despite some of the global economic headwinds, including high oil prices and the deceleration in the US economy, the economies in which the group has a business presence such as Hong Kong and Indochina continue to maintain a relatively strong performance with strong domestic demand, modest inflation and stable employment conditions. These economies have developed internal strength to withstand external shocks such as high oil prices and high global interest rates.
What are your plans for your overseas operations in 2007?
In 2007, we expect to see further growth and greater contribution from our overseas operations to group performance through organic growth. In Hong Kong, we have already taken steps to expand the retail and commercial banking business of Public Bank (Hong Kong) by offering competitive retail consumer financing products such as residential mortgages and hire purchase financing and more competitive deposits rates to expand the retail deposit business.
We plan to expand the commercial banking branch network in Hong Kong, including opening more commercial banking branch business in Public Finance branches. In China, we will further leverage on the Shenzhen branch and a new sub-branch there, which will be opened for business in February next year, to grow our retail banking business there. In Indochina, the group plans to expand its lending and deposit-taking businesses significantly by opening new branches, particularly in Cambodia and Laos, and also by employing more sales and marketing staff.
What are the economic prospects of the countries in which your group has a presence?
We are very optimistic on the economic prospects of the countries in which we already have business presence such as Hong Kong and China, Cambodia, Vietnam and Laos. These economies will continue to be part of Asia’s fast growth tempo in 2007.
Despite the expectation of a moderation in global growth next year, current projections show that growth in these economies will continue to remain respectable.
Hong Kong and China are expected to grow by 5.2% and 10.3%, respectively in 2007 and both economies will continue to enjoy low inflation and low unemployment. Cambodia, Vietnam and Laos are expected to continue to undergo economic structural transformation towards modern industrial sectors.
The speed of industrialisation and economic transformation in Indochina is expected to accelerate because the region has a significant competitive advantage in terms of low labour costs compared with other economies in this region.
Is the Public Bank group realising profits from its overseas ventures? How much of the profits are invested overseas and how much repatriated?
The Public Bank group’s investments overseas remain profitable. We expect this trend to continue as the long-term prospects of the economies in which we have invested will continue to remain positive. As mentioned earlier, we are gearing up our efforts to seek greater contribution to group performance from our ventures overseas. On how much profits of these ventures are reinvested or repatriated back to Malaysia, it depends on the capital and funding requirements for expansion of the business in the host countries where growth prospects are favourable.
What are some of the lessons and observations gleaned from your venture overseas?
We have learnt many lessons in the course of doing business overseas and in different economic, political and social environments than what we experience in the Malaysian banking industry. First and foremost, when we invest in the emerging market economies, we must take a long-term view of the economic and political prospects of the host country. We must differentiate between short-term fluctuations and long-term prospects of that country. We must conduct full due diligence. Very often, investing in anemerging market involves higher levels of risks.
We have also learnt that we must not expect changes in the host countries, particularly in emerging market economies, to take place at a fast pace. Very often, economic and structural reforms in emerging market economies take time. We also learnt that to be successful, investors must be highly sensitive and responsive to the needs of the host countries.
We have had to quickly adapt to the local operating environment and offer value propositions not only to customers, but also to the economy and community as a whole. We also learnt the importance of local knowledge. Because of this, the group has adopted a policy of employing as many local staff as possible. This will hasten the process of knowledge transfer to the local staff.
The feedback from fund managers is that only a few Malaysian companies that have ventured overseas are getting a premium from investors. Do you see the need for these companies to step up their profile or do something to improve their premium?
The valuation of a company’s shares by investors reflects a multitude of factors, one of which may include the company’s investments and projects overseas.
However, how much of a premium, if any, in the value of the shares of the company that investors may attribute to any overseas venture will be influenced by, inter alia, the profitability and potential profitability of the venture, its relative size to the company, the potential for success, the track record of the company in succeeding overseas, and even the political and economic conditions of the countries in which the investment is made.
The shares of Public Bank trade at premium multiples compared with its peers not only because of its overseas business, which has been profitable and remains a significant contributor to group earnings, but for many other reasons.
They include its high return on equity, high dividend yield, unbroken 40-year track record of profitability, the strongest asset quality among its peers, strong management and excellent corporate governance and the healthy growth prospects of the Public Bank group, among many other factors.
As one of the CEOs who have done very well for their companies this year, Datuk Seri Dr Lim Wee Chai of Top Glove Corp Bhd is setting a higher target for market share in the next three years.
Datuk Seri Dr Lim Wee Chai
Top Glove Corp Bhd
WHAT has been your most outstanding achievement this year?
2006 has been a very exciting and challenging year for Top Glove. This is the year during which the price of our main raw material, latex concentrate, rose to an all-time high.
The price of oil also increased substantially during this period, coupled with foreign exchange fluctuations.
However, even with these obstacles, Top Glove continued to deliver another year of impressive results, with sales and profit after tax for the financial year ended Aug 31 increasing by 55% and 47% respectively from a year earlier.
When you started your company, what was your vision? Has it changed now?
Top Glove was established in 1991 with three second-hand production lines. The industry during that time was dominated by the multinationals.
Although it was a very small set-up, I had set my vision then to build the company to be the world's largest rubber glove manufacturer.
This target was achieved three years ago and we are setting a higher target now, i.e. we want to have a market share of 25% by December 2007 and 35% by December 2010.
What do you find most challenging in current times?
There are a few challenges that come to mind:
·Fluctuations in operating costs: This will continue to be a challenge as we have to constantly keep our costs low to stay competitive.
More research and development on the products that we manufacture and production techniques will help us become more efficient and effective. We took over a latex concentrate plant this year and are in the process of setting up another plant, which will help lower latex costs.
·Weakening US$: We have minimised this risk via the various hedging tools as it also affects the currencies of the major glove producing countries such as Thailand and Indonesia. We are confident that we can pass on the costs to customers.
·Globalisation and support from the Government: As we are competing internationally, we look forward to the Government providing a more conducive business environment so that we can concentrate on what we are really good at, i.e., manufacturing gloves.
What are the obstacles, if any?
Definitely, in every business, there are obstacles. Most important of all, we must stay positive and overcome rather than avoid them.
What would be your happiest moment in steering the group to greater heights?
The happiest moment will be achieving my vision of becoming the largest and most famous glove manufacturer in the world and also sharing the company's success with our customers, shareholders, employees, bankers, suppliers, business associates and friends.
Hwang-DBS Investment Management CEO/executive director Teng Chee Wai sees room for further consolidation among companies that are undervalued and, due to various factors, are performing poorly.
Teng Chee Wai
Chief executive officer/
Hwang-DBS Investment Management Bhd
HOW do you view the investment climate in Malaysia? What are the feel-good factors that would boost further portfolio investments in Malaysia?
As we move towards the end of the year, the local market of late has been on an upward trend with the KLCI approaching the 1,100-point barrier in December.
This trend will likely continue into the first quarter of next year based on several key events which we believe will further boost the local market if they materialise.
Do you see the creation of large and high quality companies on Bursa Malaysia resulting from the active M&A scenario in Malaysia? Do you wish to see even larger M&As that could draw the attention of large and liquid funds?
At present, one of the main gripes about the local market is the lack of big, quality companies that have high liquidity. There are just too many companies listed on the exchange that are not sufficiently large enough to draw the attention of investors. This has actually directed foreign interest to neighbouring markets where the exposure to such investments is easily accessible.
Further consolidation among big companies to form companies of larger market capitalisation, restructuring of processes to achieve more efficiently-run firms and increasing trading liquidity would certainly add to the general attraction of the local market.
Is there scope for further consolidation, especially among undervalued companies and those performing poorly in terms of financial results?
There is definitely room for further consolidation among such companies. Companies that are performing badly due to various factors, such as lack of management resources or focus, or lack of capital to expand, could consider allowing themselves to be acquired or to merge with other similar companies. A new or expanded management team could be pivotal in boosting profitability.
As for undervalued companies, if they continue to perform well operationally, they will eventually attract investor interest. Such companies would also make attractive acquisition targets, or perhaps, the major shareholders can consider privatising them.
An example would be Malaysia Airlines (MAS). From a capital market standpoint, its newly-appointed managing director, Idris Jala, has done a great job in turning around the company by significantly reducing losses over a short span of time. We also saw MAS’ rating being upgraded by two foreign research houses which believed that MAS could be well on track in its turnaround plan. The re-rating was one of the catalysts that pushed its price upwards.
What are the other pull factors for investors to consider stocks on Bursa Malaysia in view of the attractiveness of stocks in many other regional bourses?
Malaysia’s strengths lie in its natural resources, especially in oil palm, and oil and gas industries. The former especially has been, and continues to be a major pull, for foreign investors as Malaysia still remains the target market for such investments. Apart from that, the 9MP beneficiaries and the delivery of tangible positive results due to the government-linked company reforms are also seen as the other drivers for the local market.
What do you consider to be a successful company? Is there a place for well-run and profitable but smallish companies to survive in the era of globalisation?
There are many decisive factors as to what constitutes a successful company but a few common aspects most would look for are sound fundamentals, healthy corporate earnings, transparency in financial reporting, an excellent management team and the practice of good corporate governance.
Realistically, in order for smaller companies to survive in the era of globalisation, they must prove their ability to compete beyond Malaysia. Companies, regardless of size, which can compete on a regional or global basis, would be attractive to certain categories of investors. These companies must also realise the importance of investor relations and devote sufficient resources to it.
How do you rate the competitiveness of Malaysian companies? Are there any sectors that, in your view, could do more to improve their competitiveness?
Malaysia as a country is becoming less and less attractive from a cost standpoint in comparison with its neighbouring countries due to the concerns addressed above. As such, local companies need to move up the value chain or improve in productivity, whether through improved processes or automation to enhance competitiveness. This is a general observation that applies across industries.
What are the issues that Malaysian companies need to address in order to become more attractive to investors?
Transparency in financial reporting, being more attuned to minority shareholders' interests, as well as improving investor relations are some of the areas that Malaysian companies could explore to build confidence and reassurance among current and potential investors.
Also, the recent introduction of the FTSE Bursa Malaysia new indices provides a better reflection of the global standards as they are structured to take into consideration the liquidity and free-float of each stock. This will eventually create more attractive stocks in the local market.