Short Position


Maggots, hygiene and relationships

“ONLY in Malaysia you get hauled up because you cared about the hygiene of a rubbish bin.’’

This is one of the many comments on the social media after AirAsia Bhd communications head Aziz Laikar posted a video on Twitter on Monday, Dec 24 showing a rubbish bin filled with maggots at KLIA2.

He went further to question if that defines cleanliness since the airport operator, Malaysia Airports Holdings Bhd (MAHB) had just “boasted of its performance in airport management for October.’’ The industry regulator, Mavcom, had even commended MAHB for exceeding service quality targets.

There were also other comments on the social media questioning if Aziz did the right thing by posting a video of a maggot-filled bin or should he had just turned a blind eye to it.

Whatever may have driven him to post the video, surely, he did not expect a call from the police.

When the tweet went viral, MAHB obviously saw this as an attempt to “hurt its image’’ and to safeguard itself resorted to bring the police in to handle the issue. Mind you, this is not a robbery or murder case, this is just someone putting up a twit to show that the bins may not be as clean as they appear to be as there are squirmers in it.

So Aziz was supposed to meet the police on Wednesday but later he posted to say that he will not have to meet the police after all.

One wonders what promoted the change in heart on the part of MAHB to not pursue the matter with the police when in the first place it just rushed to get the police involved.

A court battle seems to be looming since MAHB has sent a notice demanding RM36mil in unpaid passenger service charges (PSC) that AirAsia says it will not collect from passengers. MAHB wants RM73 collected from each passenger, but AirAsia feels the PSC should only be RM50 for KLIA2 and that is why it is only collecting RM50 instead of RM73. That is a separate matter but it shows that these two are in for a long drawn battle again.

The question some are asking is, would MAHB had acted in the same manner if it was a travelling passenger instead of an AirAsia employee that had posted the maggot-filled bin video, and would it had got the police involved?

While the maintenance schedule may be in place, it only takes 20 hours to 24 hours for maggots to breed.

Whatever happened, and in the manner it happened does not bode well as the airport is a public domain and cleanliness is key for passengers who are paying PSC to have a comfortable and clean place in between flights. The last thing they want is creepy crawlies. A proactive instead of defensive approach in reputation management would have been ideal.

 

Seeing red

ANOTHER special-purpose acquisition company (SPAC) has failed to live up to expectations. Red Sena Bhd , which has a focus on food and beverage (F&B), said it failed to find a qualifying acquisition (QA) within the permitted timeframe of Dec 10 and will start winding up.

Sadly, Red Sena was seen as the most promising among SPACs to go on and graduate as a full-fledged listed company. The other SPACs were in oil and gas and got derailed by the oil price crash which led to turmoil in the sector.

Red Sena’s SPAC listing was approved on the grounds that it would catalyse a rationalisation of the F&B manufacturing sector in the country.

However, they could not secure a deal that would have enabled it to start generating profits.

So what happened? Were the promoters of the company conservative in securing a QA in the F&B sector?

Nevertheless, the promoters would get full marks for efforts in trying to secure a QA in the F&B sector.

Towards this end, it is believed that Red Sena had vetted numerous deals and yet were unsuccessful in signing a sale and purchase agreement.

Red Sena had attributed the failure to factors such as uncertainties over deals and unrealistic valuation.

Another reason is also due to the structure of SPACs where the threshold for shareholder approval is high – at 75%. Hence the scrutiny on asset quality is stringent.

Deals in the F&B sector do not come cheap.

Just this week, DKSH Holdings Bhd announced its proposed acquisition of Auric Pacific (M) Sdn Bhd, a company involved in the distribution of chilled and frozen products and food services channel in Malaysia.

PublicInvest Research in a report noted that the acquisition cost at S$157.7mil (RM480.9mil) appeared to be expensive at about 18 times price earnings ratio based on annualised FY18 earnings, but this may be justified by Auric’s relatively high profit margins of around 7% compared to DKSH’s 1%-2%.

In the case of Red Sena, it was looking for a cheap and compelling asset that would make shareholder approval easier. But the promoters could not make it happen.

Why they were not able to secure a QA is something shareholders would want to hear at the upcoming EGM on Jan 16 where the main agenda is to seek approval to liquidate its business.

 

Electric shock

STEEL millers are crying foul over the constant changes in the country’s electricity tariff.

Come March next year, the government is expected to introduce a new tariff surcharge from current 1.35 sen per kiloWatt hour (kWh) to 2.55 sen per kWh. Steel millers, the most affected, are saying that it is not the right time to impose such tariff surcharge given the slowdown in Malaysia’s gross domestic product growth as well as the uncertainties in global demand.

In Malaysia, energy cost is the second highest cost component for energy-intensive industries such as steel, petroleum and petrochemicals, electrical and electronics and tiles products.

For the steel industry, the cost impact from the new tariff surcharge will significantly push up the players’ cost of production. Should the new tariff surcharge gets to be implemented next year, it is envisaged that the steel industry would see a rise of 17.3% in annual electricity cost to RM1bil.

Furthermore, it will be difficult for steel millers to pass on the cost to their buyers in view of the current weak domestic market environment. If one were to include other manufacturing industries,the cost effect would also have a spiralling effect that could even accelerate the inflation impact on consumers because the affected businesses would not be able to fully absorb the increase in the electricity cost.

The cost push effect could also reduced Malaysia’s export competitiveness, especially with the deterioration in demand across the world markets.

Hence, the government should take heed of the predicament faced by the domestic manufacturing sector including steel in a thorough manner. One option is to impose a two-year moratorium that there will be no further hike in energy cost while another option is to put on hold the implementation until the global and domestic markets have finally stabilised.

Red Sena , SPACs , short position