Not a pretty picture
WHETHER people like it or not, it is the foreign flow of money into the stock market that really is the fifth gear for market momentum.
The FBM KLCI has been performing poorly since the start of the year and weekly fund flows do not give any confidence that foreign funds are anytime soon going to change their direction of investment. When there is news of hundreds of millions of ringgit every week leaving the market, it is a problem for equities in general.
In the past, when the stock market roared upwards, it was a combination of foreign funds and local funds that drove the market higher.
The large local funds will always provide support and that makes Bursa Malaysia a beta market when sentiment, albeit regionally, turns sour.
But there are few catalysts in the market to drive equities higher and the first-quarter GDP numbers, although beating expectations, are in a range that a growing and young economy like Malaysia should not be bragging about.
The one indicator that people need to watch is investments. Gross fixed capital formation fell by 3.5% in the first quarter and although the headline number of RM129bil worth of approved investments for Penang alone is encouraging, these approvals have to turn into real investments before sentiment, economically at least, changes for the better.
Malaysia is being dragged down by weak palm oil prices, where word of farmers willing to let their fruit rot instead of processing it paints a bleak picture for the commodity.
Then, there is the sluggish property sector, where a different funding option given to prospective buyers paints a picture of almost desperation in getting sales going. The fact that developers are launching fewer homes will not help.
What the market needs are real catalysts. There is hope that the second half would turn out to be better, but the trade war, although able to help Malaysia in the long run, is a damper on sentiment that the market can do without in the short term.
Shareholders come first
FIRSTLY, TDM Bhd should be applauded for having a philanthropy policy, which is rare for a state government-owned entity.
In the plantation group’s philanthropy policy, the amount that can be given away for corporate social responsibility (CSR) activities in the state is clearly defined. The formal structure was put in place in 2012 to enhance governance and transparency.
Under the policy, 2% of the consolidated net profit after dividends can be channelled to approved organisations that support social causes, sports and economic developments.
However, the board wants to amend the rules because it supposedly restricts its CSR programme.
Based on the latest annual report, TDM has been making losses for the past two financial years. The company, with 43,991ha of plantations in Terengganu and Kalimantan, chalked up losses of RM48.39mil and RM77.52mil for the financial years ended December 2017 and 2018.
As a result, it has not been able to undertake CSR activities, which the company feels is important to ensure the sustainable development of the communities it engages its business with. It also says that through the CSR activities, TDM will indirectly have a better image and strengthen the relationship with the state government.
So, the reason why the company is seeking shareholder approval to amend the philanthropy policy is to allow the board to have discretion on the execution of the CSR plan based on priorities and in the best interest of TDM.
To put it in a nutshell, the board does not want to be restricted by TDM’s financial performance in deciding on CSR activities.
This obviously does not work in the interest of the shareholders or the company. If the company does not make money or is unable to pay dividends, it should not be doing any CSR activities.
It’s as simple as that.
The money lending vortex
VORTEX Consolidated Bhd is proposing to make a big change in its business. It is venturing into the money lending business, as well as asset and fund management and investment banking through offshore Labuan. It has appointed a few senior bankers to spearhead this change.
One of them, Lim Kian Boon, who has had stints with HSBC Malaysia, CIMB Investment Bank and Malayan Banking Bhd , has also acquired a substantial stake in Vortex.
Vortex recently changed its name from SKH Consortium Bhd, which, in turn, was previously called The Media Shoppe Bhd.
For its money lending business, Vortex has forked out RM2mil to acquire a firm with a money lending licence.
Vortex is currently involved in IT, construction and property development.
However, the company reported a loss of close to half-a-million ringgit in its third quarter ended Dec 31, 2018. Its nine-month profit up to then amounted to a mere RM98,000. It had RM10mil in cash with no debt.
No doubt, money lending can be a lucrative business, but it also requires capital and risk management to be put in place.
In the past, some companies with extra cash sitting in their books have tended to venture into money lending. The Hap Seng group is an example of having its own finance operations that has been a key contributor to its bottom line.
Others have not been so lucky. In the 1990s, Magnum Bhd , the number forecasting operator, used to have a money lending subsidiary in Hong Kong.
The parent company in Kuala Lumpur used to extend loans to the Hong Kong subsidiary for its money lending operations. However, the saga ended badly, as there were defaults and a large sum of money was not recoverable.
Hence, Vortex ought to tread carefully when venturing into this capital-intensive business.