Short Position - All bets are off


  • Corporate News
  • Saturday, 23 May 2020

All bets are off

IT is a well known fact that punters in Malaysia are being deprived of their trips to betting shops. All bets are off, including the country’s only physical casino in Genting Highlands.

No wonder one theory is that many of these individuals have turned to the stock market to try their luck, pushing up daily trading volumes.

One significant fact that remains: with no number forecast operators (NFOs) doing any draws and with the casino closed, the government is also losing out a lot in tax collections from this sector.

Meanwhile, the world over, industries are moving quickly from offline into the online space. What would have taken a process of a few years is now happening over months. But Malaysia’s legalised NFO operators and its casino have not gone online all these years.

The reason is because the regulation does not allow them to do so. It is the illegal operators who have gone online over the years taking advantage of the situation.

They have robbed the legitimate players of business and the government, of valuable tax receipts.

It is high time that the government facilitate NFO players to go online. In order to ensure that the platform is well managed and that there is no leakage of taxes to be paid to the government, perhaps the government ought to let an independent third party run this platform.

The party will ensure that the government’s best interest is taken care of when draws go online. There will also need to be a thorough know your customer (KYC) system in place and the party running the platform must be one who has the necessary track record for running a digital business. It ought to be one which also has been licensed by the central bank in carrying out an activity in the financial space. This ensures that governance and reporting levels are not compromised.

Telling it ‘as it is

’GLOVE manufacturers and providers of personal hygiene and healthcare products are prime beneficiaries of the Covid-19 pandemic.

Glove producers are enjoying a euphoric run on expectations that their profits would double in the current year of operations. This is due to an increase in demand, higher average selling prices and low raw material cost.

Valuations of glove companies have sky-rocketed even though the first quarter results of some companies do not seem to suggest a significant jump increase in profits.

As for companies that manufacture and distribute healthcare and its related products, the share prices have been going up on expectations of higher sales and better profit margins due to supply related issues. Normally, the companies are hardly noticed by investors as their earnings are stable and margins predictable.

However, due to the pandemic and hype surrounding Covid-19, the performance companies manufacturing and distributing healthcare and personal hygiene products warrant some scrutiny to determine if their revenues and profits will grow, as expected.

Among the beneficiaries is Apex Healthcare Bhd, a company that manufactures, distributes and markets pharmaceutical products in Malaysia and Singapore. Its operations were not affected during the restrictions of movements in Malaysia and Singapore. Operations went on as scheduled but with reduced manpower.

Apex Healthcare’s top line and profit numbers in the first quarter for the months of January to end March improved as expected, due to the higher demand.

However, the company stated in the notes accompanying the accounts, that it did not expect the demand to sustain. Among the reasons it cities for demand not being sustainable are that there are growing uncertainties on supply chain integrity, workforce restrictions, social distancing, volatility of raw material prices and collection of trade receivables.

Apex Healthcare is one of the few companies to come up with sensible assessment of the sudden spike in demand for healthcare products.

The underlying economic fundamentals are unpredictable. How many companies will survive and how many will be out of a job is uncertain.

So how will demand for healthcare products, which is not an essential item, be sustained? Moreover, the chances of a vaccine being found seems a possibility that can happen sooner than later.

Rebounding to normal

ALL the best laid out plans the government, companies and people have had in the time preceding the Covid-19 crisis have now turned awry. We hear very little about implementation of Budget 2020, companies going on its expansion plans to bring in more business or even consumers buying the new car they have been saving for.

Fire-fighting Covid-19 has been the priority of the government after unveiling a stimulus plan of RM260bil on combating the virus outbreak.

The economic revival plan they are working on will probably chart the new direction for how the Malaysian economic will grow in the direction of the government.

For companies, most are in cost cutting mode. Investment plans are shelved and a number of salary-shedding moves are being implements. Recruitment too will be only for critical needs and its holding pattern for most.

For the consumer, job security is on their minds while dealing with salary uncertainties will mean they too are in a holding pattern as much as possible. Purchasing big ticket items will be put aside now to wait for more clarity over what will happen in the immediate future.

Banks too will be ultra conservative now. They too will need more certainty over the financial health of their clients before loans are extended. Then there is the issue of post moratorium. What will be the repayment capacity of borrowers in an economic scenario most are fearful about.

But a return to normalcy is something most of us are waiting for. A world that is in the current mould is not what most would classify as a rosy future and the yearning for normalcy will be strong.

What changes we see today may not be the way the world will working post pandemic. There will be many elements we will embrace but like everything else, the Government will get back to doing its job, companies will start looking into growth and people will once again look to make purchases to satisfy their needs and wants. The only question is how long will that take.

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