Fixing Bank Pembangunan


Bank Pembangunan Malaysia Bhd (BPMB) has been in the spotlight due to allegations of lax lending practices and giving loans to certain politically connected parties.

News articles have highlighted that in financial year 2017 (FY17), its gross impaired loans stood at 12.15%, which means the BPMB is writing off 12.15 sen for every ringgit it has lent out.

The good news is that changes have been set afoot. It is understood that the Ministry of Finance and Bank Negara who oversee BPMB have been instrumental in bringing about a change of the directors of the development financial institution. The last director to leave was Datuk Wan Azhar Wan Ahmad from BPMB and with his departure it marks the last of “the old guard”.

However curiously, the present covering president and chief executive officer Razali Hassan, seems to have fared well.

Prior to him being appointed covering president and chief executive officer, he was the chief operating officer and was previously BPMB’s chief legal and governance officer and company secretary. This means he would have been in the thick of action at all the issues taking place at BPMB.

Perhaps BPMB should not keep mum about the removals and appointments and come out in the open with the changes happening at the development financial institution and explain what is going on and why Razali is the covering chief executive officer.

BPMB faced so many problems with bad loans, and other issues in the past, let’s hope the worst is behind it.

Impairments

The earnings season has turned up a rather ominous picture. A significant number of major corporates and GLICs have made rather large provisions. The biggest example would be FGV Holdings Bhd.

It reported a net loss of RM1.08bil in FY18 against a net profit of RM130.93mil in FY17 largely due to impairments and provisions amounting to RM1.04bil.

The bulk of these impairments were recognised from three companies, namely Asian Plantations Ltd (APL), FGV Green Energy Sdn Bhd and Cambridge Nanosystems Ltd. FGV’s chief executive officer Datuk Haris Fadzilah Hassan has said that there will be no large impairments for the planter in 2019.

Another GLIC with a big impairment is, TM which recognised a provision of RM982.5mil for the impairment of fixed and wireless network assets due to the continued pressure from challenging business, industry and economic conditions.

Analysts continue to be bearish on TM’s prospects as they anticipate more stiff competition in the broadband landscape.

Tenaga Nasional Bhd (TNB) also recorded a net loss of RM134.30mil in its fourth quarter ended Dec 31, 2018, mainly due to the decrease in revenue and an increase in the impairment of financial instruments.

In its notes, it however mentioned that the impairments were one-off cost to the group’s investments.

Taking the market by surprise, Bumi Armada Bhd saw its share price sinking when it announced a massive net loss of RM1.26bil in its recent fourth quarter thanks to impairments.

The company said that excluding the impairments, the group would have reported a net profit of RM216.5mil.

TH Plantation also booked in a total of RM594.9mil in impairment charges, which saw the group record losses for its fourth quarter.

So is this something to worry, and will we likely see more impairments and poorer results in the quarters to come?

Safe for TM which continues to grapple with a difficult environment, most of the major corporates have explained in their notes that these impairments are either one-off or due to certain accounting rules. Thus if anything, these companies will likely be coming from a low base, and should be seeing improved earnings moving forward.

Brahims

Brahim’s Holdings Bhd was once a darling stock that could do no wrong thanks to its monopoly on the inflight catering business of Malaysia Airlines (MAS). In 2014, which was the calm before the storm, Brahim’s share price was close to the RM3 level. its share price was close to RM3. It is today 11.5 sen.

While Brahim’s fell into Practice Note 17 (PN17) this week, its problems had stretched as far back as 2014. All was dandy until MAS underwent a privatisation and restructuring that year.

Back then, Brahim had an exclusive 25-year RM6.25bil in-flight catering contract with MAS.

But in 2015, as part of a major cost-cutting exercise to turn around the-then MAS, Khazanah Nasional Bhd – the sole shareholder of the national carrier – had announced that Brahim’s would take a 25% cut in monthly bills. Furthermore the contract was cut to only 5 years.

Bogged with cashflow issues and debt obligations, Brahim’s had issued a detailed statement back then saying that it had no choice but to accept this deal in order to avoid default and to stay relevant as a global halal flight kitchen servicing 36 other international airlines in KLIA and Penang Interantional Airport,

Since then, Brahim’s has failed to improve its fortunes, with the company continuously recording losses

Its fortunes however has not improved since its monopoly days have been revoked.

This despite the group entering into an agreement with Keretapi Tanah Melayu Bhd (KTMB) to provide on-board food and beverages catering services on all electric train services operated by KTMB for an undisclosed amount.

Yesterday, Brahim’s fell sharply to an all-time low on Friday after company triggered the Practice Note 17 (PN17).

The catering services provider plunged 58.54%, or 12 sen to 8.5 sen, its all-time low, before settling at the 11 sen level.

Brahim’s has lapsed into Practice Note 17 (PN17) status, after its shareholder equity fell below the 25% threshold.

The company said it is now an affected listed issuer with risks of being delisted.

The company is currently looking into formulating a plan to regularise its financial conditions. Perhaps this is what happens when a company has been dependent too long on government contracts.

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